-----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, C+kmYgnLctrPUEyV5ff2h6uTksf5BxZ/btNbA8i+JVjxL+IYryK3uT5HdGXNggwe AkfWyvvptxN5hop0es5IkQ== 0000916641-99-000839.txt : 19991110 0000916641-99-000839.hdr.sgml : 19991110 ACCESSION NUMBER: 0000916641-99-000839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990926 FILED AS OF DATE: 19991109 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: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06383 FILM NUMBER: 99743919 BUSINESS ADDRESS: STREET 1: 333 E GRACE ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8046496000 10-Q 1 MEDIA GENERAL, INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 1-6383 MEDIA GENERAL, INC. (Exact name of registrant as specified in its charter) Commonwealth of Virginia 54-0850433 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 E. Franklin St., Richmond, VA 23219 (Address of principal executive offices) (Zip Code) (804) 649-6000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 31, 1999. Class A Common shares: 26,042,411 Class B Common shares: 556,574 MEDIA GENERAL, INC. TABLE OF CONTENTS FORM 10-Q REPORT SEPTEMBER 26, 1999
Page Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - September 26, 1999, and December 27, 1998 1 Consolidated Condensed Statements of Operations - Third quarter and nine months ended September 26, 1999, and September 27, 1998 3 Consolidated Condensed Statements of Cash Flows - Nine months ended September 26, 1999, and September 27, 1998 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 16 (a) Exhibits (b) Reports on Form 8-K Signatures 17
PART I - FINANCIAL INFORMATION Item 1. Financial Statements MEDIA GENERAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (000's except shares)
(Unaudited) September 26, December 27, 1999 1998 ---------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 9,788 $ 7,637 Accounts receivable - net 103,364 110,067 Inventories 18,883 20,341 Other 40,796 38,181 ----------------- ------------------ Total current assets 172,831 176,226 ----------------- ------------------ Investments in unconsolidated affiliates 88,574 146,702 Other assets 67,233 45,818 Property, plant and equipment - net 491,838 496,797 Excess of cost over fair value of net identifiable assets of acquired businesses - net 639,385 651,391 FCC licenses and other intangibles - net 386,866 400,412 ----------------- ------------------ $ 1,846,727 $ 1,917,346 ================= ==================
See accompanying notes. 1 MEDIA GENERAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (000's except shares)
(Unaudited) September 26, December 27, 1999 1998 ------------------ ------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,679 $ 41,050 Accrued expenses and other liabilities 115,818 106,047 Income taxes payable 15,065 --- ----------------- ------------------ Total current liabilities 165,562 147,097 ----------------- ------------------ Long-term debt 797,916 928,101 Deferred income taxes 243,390 244,968 Other liabilities and deferred credits 117,962 119,831 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 26,036,143 and 26,214,721 shares 130,181 131,074 Class B, authorized 600,000 shares; issued 556,574 shares 2,783 2,783 Additional paid-in capital 12,167 18,694 Accumulated other comprehensive income - unrealized gains on equity securities 12,104 --- Unearned compensation (3,351) (1,050) Retained earnings 368,013 325,848 ----------------- ------------------ Total stockholders' equity 521,897 477,349 ----------------- ------------------ $ 1,846,727 $ 1,917,346 ================= ==================
See accompanying notes. 2 MEDIA GENERAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (000's except for per share data)
Third Quarter Ended Nine Months Ended ------------------------------- ------------------------------- Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Revenues $ 191,879 $ 197,172 $ 583,244 $ 604,725 ------------- ------------- ------------ ------------- Operating costs: Production 93,275 100,334 286,007 300,020 Selling, distribution and administrative 52,494 51,568 158,748 159,008 Depreciation and amortization 20,533 19,027 60,832 57,562 ------------- ------------- ------------- ------------- Total operating costs 166,302 170,929 505,587 516,590 ------------- ------------- ------------- ------------- Operating income 25,577 26,243 77,657 88,135 ------------- ------------- ------------- ------------- Other income (expense): Interest expense (13,606) (15,288) (43,774) (47,223) Investment income (loss) - unconsolidated affiliates (140) 3,858 9,000 15,868 Gain on sale of Denver Newspapers, Inc. common stock 30,958 --- 30,958 --- Other, net 422 1,057 1,490 107 ------------- ------------- ------------- ------------- Total other income (expense) 17,634 (10,373) (2,326) (31,248) ------------- ------------- ------------- ------------- Income from continuing operations before income taxes 43,211 15,870 75,331 56,887 Income taxes 17,583 5,767 30,831 20,596 ------------- ------------- ------------- ------------- Income from continuing operations 25,628 10,103 44,500 36,291 Income from discontinued Cable opera- tions, net of income taxes - Note 3 4,818 4,352 13,708 12,450 ------------- ------------- ------------- ------------- Net income $ 30,446 $ 14,455 $ 58,208 $ 48,741 ============= ============= ============= ============= Earnings per common share: Income from continuing operations $ 0.97 $ 0.38 $ 1.68 $ 1.37 Income from discontinued Cable operations 0.18 0.16 0.51 0.46 ------------- ------------- ------------- ------------- Net income $ 1.15 $ 0.54 $ 2.19 $ 1.83 ============= ============= ============= ============= Earnings per common share - assuming dilution: Income from continuing operations $ 0.96 $ 0.37 $ 1.65 $ 1.35 Income from discontinued Cable operations 0.18 0.17 0.51 0.46 ------------- ------------- ------------- ------------- Net income $ 1.14 $ 0.54 $ 2.16 $ 1.81 ============= ============= ============= ============= Dividends paid per common share $ 0.15 $ 0.14 $ 0.45 $ 0.42 ============= ============= ============= =============
See accompanying notes. 3 MEDIA GENERAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (000's)
Nine Months Ended -------------------------------------------- September 26, September 27, 1999 1998 -------------------------------------------- Operating activities: Net income $ 58,208 $ 48,741 Adjustments to reconcile net income: Depreciation and amortization 78,614 76,588 Deferred income taxes (6,365) (7,135) Investment income -- unconsolidated affiliates (10,243) (15,868) Distributions from unconsolidated affiliates 30,008 7,700 Gain on sale of Denver Newspapers, Inc. common stock (30,958) --- Change in assets and liabilities: Accounts receivable and inventories 7,066 10,478 Accounts payable (6,440) (4,137) Other 8,170 (13,329) ----------------- ------------------ Net cash provided by operating activities 128,060 103,038 ----------------- ------------------ Investing activities: Capital expenditures (48,094) (35,069) Purchase of businesses --- (132,680) Sale of businesses 8,058 23,645 Denver Newspapers, Inc.: Proceeds from sale of common stock 39,000 --- Redemption of preferred stock 34,000 --- Other, net (4,673) 2,016 ----------------- ------------------ Net cash provided (used) by investing activities 28,291 (142,088) ----------------- ------------------ Financing activities: Increase in debt 238,000 382,000 Payment of debt (368,432) (333,179) Stock redemption (13,609) --- Dividends paid (12,054) (11,225) Other, net 1,895 3,203 ----------------- ------------------ Net cash (used) provided by financing activities (154,200) 40,799 ----------------- ------------------ Net increase in cash and cash equivalents 2,151 1,749 Cash and cash equivalents at beginning of year 7,637 3,504 ----------------- ------------------ Cash and cash equivalents at end of period $ 9,788 $ 5,253 ================= ================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 44,355 $ 49,229 Income taxes $ 25,680 $ 49,506
See accompanying notes. 4 MEDIA GENERAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting, and with applicable quarterly reporting regulations of the Securities and Exchange Commission. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and, accordingly, should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended December 27, 1998. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim financial information have been included. Certain items in 1998 have been reclassified to conform with the current year's presentation. The reclassifications have no effect on net income as previously reported. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. 2. On June 30, 1999, the Company completed the sale of 20% of the outstanding common stock of Denver Newspapers, Inc. (DNI) to MediaNews Group, Inc., for $39 million resulting in a $19 million after-tax gain. Additionally, the Company's investment in DNI's preferred stock was redeemed for $34 million plus receipt of $19.2 million of accrued but unpaid dividends. During the second quarter, the Company also completed the sale of WHOA-TV in Montgomery, Alabama, for approximately $8 million. The proceeds from these transactions, approximating $100 million, were used to reduce debt outstanding under the Company's revolving credit agreement. On July 1, 1998, the Company acquired, for approximately $40 million, the assets of the Hickory Daily Record, a daily newspaper in northwestern North Carolina. The transaction was accounted for as a purchase and the Company's results of operations include the results of Hickory since the date of acquisition. Purchase price was allocated to the assets acquired based on an appraisal of fair values. On June 2, 1998, the Company completed the sale of its Kentucky newspaper properties for approximately $24 million. Additionally, the Company sold certain commercial printing assets in October 1998. 3. On October 1, 1999, subsequent to end of the third quarter, the Company consummated the sale of its cable operations to Cox Communications, Inc. for approximately $1.4 billion in cash. Proceeds from the transaction were used to pay-off all amounts outstanding under the Company's revolving credit agreements and to terminate the associated interest rate swaps; the Company has invested the remaining proceeds (in excess of $650 million), temporarily, in United States Government securities and highly-rated commercial paper. In the first quarter of 2000, the Company expects to pay approximately $500 million in taxes related to the sale, although it is exploring alternatives to defer or minimize the income tax resulting from the transaction. The Company will recognize a gain of approximately $800 million in the fourth quarter. 5 The results of the Cable Segment have been presented as discontinued operations in the accompanying consolidated condensed statements of operations as follows:
Quarter Ended Nine Months Ended -------------------------- -------------------------- Sept. 26, Sept. 27, Sept. 26, Sept. 27, (in thousands) 1999 1998 1999 1998 -------- --------- --------- --------- Revenues $ 41,331 $ 39,640 $121,748 $117,930 Costs and Expenses 33,587 32,721 99,660 98,060 -------- --------- --------- --------- Income before income taxes 7,744 6,919 22,088 19,870 Income taxes 2,926 2,567 8,380 7,420 -------- --------- --------- --------- Income from discontinued Cable operations $ 4,818 $ 4,352 $13,708 $12,450 ======== ========= ========= =========
At September 26, 1999, the accompanying consolidated condensed balance sheet included the following approximate amounts related to the Cable operations: current assets of $20 million, noncurrent assets of $110 million, current liabilities of $25 million, and noncurrent liabilities of $25 million. 4. Inventories are principally raw materials. 5. On June 1, 1999, the estate of D. Tennant Bryan, the former Chairman Emeritus of the Company, exercised its option under the 1994 stock redemption agreement to sell to the Company 15% of the Company's Class A stock owned by Mr. Bryan at his death. This exercise resulted in the Company purchasing 326,897 shares from the estate for $13.6 million. 6. The following tables set forth the Company's financial performance by segment. Cable Segment results have not been presented as they are reflected as income from discontinued operations in the consolidated condensed statements of operations.
Broadcast (In thousands) Publishing Television Newsprint Total - --------------------------------------------------------------------------------------------------------- Three Months Ended September 26, 1999 Consolidated revenues * $ 127,105 $ 39,516 $ 25,258 $ 191,879 ========================================================== Segment operating cash flow $ 43,117 $ 10,149 $ (2,042) $ 51,224 Allocated amounts: Equity in net income (loss) of unconsolidated affiliates (377) 237 (140) License fees from unconsolidated affiliate 30 30 Depreciation and amortization (6,552) (2,793) (1,919) (11,264) ---------------------------------------------------------- Segment profit $ 36,188 $ 7,356 $ (3,694) 39,850 =========================================== Unallocated amounts: Interest expense (13,606) Acquisition intangible amortization (8,483) Corporate expenses (6,639) Gain on sale of Denver Newspapers, Inc. common stock 30,958 Other 1,131 ------------ Consolidated income from continuing operations before income taxes $ 43,211 ============ - ---------------------------------------------------------------------------------------------------------
* Intercompany revenues are less than 1% of consolidated revenues and have been eliminated. 6
Broadcast (In thousands) Publishing Television Newsprint Total - --------------------------------------------------------------------------------------------------------- Three Months Ended September 27, 1998 Consolidated revenues * $ 125,298 $ 39,096 $ 32,778 $ 197,172 =========================================================== Segment operating cash flow $ 37,307 $ 9,883 $ 4,737 $ 51,927 Allocated amounts: Equity in net income of unconsolidated affiliates 259 2,065 2,324 License fees from unconsolidated affiliate 167 167 Depreciation and amortization (6,275) (2,375) (1,661) (10,311) ---------------------------------------------------------- Segment profit $ 31,291 $ 7,508 $ 5,308 44,107 ========================================== Unallocated amounts: Interest expense (15,288) Acquisition intangible amortization (8,521) Corporate expenses (5,718) Other 1,290 ------------ Consolidated income from continuing operations before income taxes $ 15,870 ============ - ---------------------------------------------------------------------------------------------------------
Nine Months Ended September 26, 1999 Consolidated revenues * $ 385,809 $ 120,687 $ 76,748 $ 583,244 ========================================================== Segment operating cash flow $ 126,573 $ 32,794 $ (3,742) $ 155,625 Allocated amounts: Equity in net income (loss) of unconsolidated affiliates (763) 6,590 5,827 License fees from unconsolidated affiliate 448 448 Depreciation and amortization (19,266) (8,216) (5,671) (33,153) ---------------------------------------------------------- Segment profit $ 106,544 $ 24,578 $ (2,375) 128,747 =========================================== Unallocated amounts: Interest expense (43,774) Acquisition intangible amortization (25,450) Corporate expenses (20,473) Gain on sale of Denver Newspapers, Inc. common stock 30,958 Other 5,323 ------------ Consolidated income from continuing operations before income taxes $ 75,331 ============ - ---------------------------------------------------------------------------------------------------------
Nine Months Ended September 27, 1998 Consolidated revenues * $ 383,514 $ 123,856 $ 97,355 $ 604,725 =========================================================== Segment operating cash flow $ 114,049 $ 34,942 $ 15,899 $ 164,890 Allocated amounts: Equity in net income of unconsolidated affiliates 1,742 9,524 11,266 License fees from unconsolidated affiliate 703 703 Depreciation and amortization (18,450) (7,462) (5,068) (30,980) ---------------------------------------------------------- Segment profit $ 97,341 $ 27,480 $ 21,058 145,879 ========================================== Unallocated amounts: Interest expense (47,223) Acquisition intangible amortization (25,622) Corporate expenses (16,535) Other 388 ------------ Consolidated income from continuing operations before income taxes $ 56,887 =========================================================================================================
* Intercompany revenues are less than 1% of consolidated revenues and have been eliminated. 7 7. The following tables set forth the computation of basic and diluted earnings per share from continuing operations:
Quarter Ended September 26, 1999 Quarter Ended September 27, 1998 ---------------------------------------- --------------------------------------- Income Shares Per Share Income Shares Per Share (In thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount --------- ------------- ----------- ----------- ------------- ---------- Basic EPS Income from continuing operations available to common stockholders $25,628 26,372 $ 0.97 $10,103 26,613 $ 0.38 ========= ========= Effect of dilutive securities Stock options 260 251 Restricted stock and other (8) 130 (5) 85 ---------------------- ---------------------- Diluted EPS Income from continuing operations available to common stockholders and assumed conversions $25,620 26,762 $ 0.96 $10,098 26,949 $ 0.37 ==================================== =====================================
Nine Months Ended September 26, 1999 Nine Months Ended September 27, 1998 ------------------------------------- ------------------------------------ Income Shares Per Share Income Shares Per Share (In thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ---------- ----------- --------- --------- ----------- ---------- Basic EPS Income from continuing operations available to common stockholders $44,500 26,534 $ 1.68 $36,291 26,565 $ 1.37 ========= ========= Effect of dilutive securities Stock options 262 252 Restricted stock and other (27) 121 (16) 78 ---------------------- ---------------------- Diluted EPS Income from continuing operations available to common stockholders and assumed conversions $44,473 26,917 $ 1.65 $36,275 26,895 $ 1.35 ==================================== =====================================
8. The Company invested in the common stock of Hoover's, Inc. (Hoover's) beginning in 1997. During July 1999, Hoover's sold stock to the public and began trading on the NASDAQ stock exchange resulting in a readily determinable market value for Hoover's. The Company has reflected its investment in Hoover's (included in the accompanying balance sheet in Other Assets) at fair value and recognized an increase in comprehensive income aggregating $12.1 million, net of tax, for the unrealized gain on the investment during the third quarter. Comprehensive income for the three and nine month periods ended September 26, 1999, was $42.6 million and $70.3 million, respectively. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Media General is an independent, publicly owned communications company situated primarily in the Southeast with interests in newspapers, broadcast television, recycled newsprint production, and diversified information services. The Company's fiscal year ends on the last Sunday in December. ACQUISITIONS AND DISPOSITIONS On October 1, 1999, the Company completed the sale of its Cable operations, located primarily in Fairfax County and Fredericksburg, Virginia, to Cox Communications, Inc., for approximately $1.4 billion in cash. See Note 3 of this Form 10-Q for further details about the Cable disposition. See Note 2 of this Form 10-Q for information about 1999 and 1998 acquisitions and dispositions which affect Segment comparability. CONSOLIDATED OPERATING RESULTS (In thousands, except per share data)
Third Quarter Ended Nine Months Ended ----------------------------------------- ---------------------------------------- Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1999 1998 Change 1999 1998 Change ----------- ----------- ----------- ---------- ----------- ----------- Revenues $ 191,879 $ 197,172 (3) % $ 583,244 $ 604,725 (4) % Operating Income 25,577 26,243 (3) 77,657 88,135 (12) Income from Continuing Operations 25,628 10,103 154 44,500 36,291 23 Income from Discontinued Cable Operations 4,818 4,352 11 13,708 12,450 10 Net income 30,446 14,455 111 58,208 48,741 19 Earnings Per Share 1.15 0.54 113 2.19 1.83 20 Earnings Per Share - Assuming Dilution 1.14 0.54 111 2.16 1.81 19
The results of the Cable Segment have been presented as discontinued operations in the accompanying consolidated condensed statements of operations. However, these statements do not include any proforma adjustments or other allocations to reflect the potential use of the proceeds for acquisitions, to repay debt, or repurchase shares and, as such, are not fully indicative of the ongoing operations of the Company. SEGMENT OPERATING RESULTS Each segment's operating results include segment operating cash flow information in addition to revenues, operating expense and operating income. The segment operating cash flow amounts represent operating income plus depreciation and amortization. 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 presents 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. 9 Operating income, in the tables that follow, differs from segment profit, as presented in Note 5 of this Form 10-Q, because segment profit includes equity income from unconsolidated affiliates. PUBLISHING (In thousands)
Third Quarter Ended Nine Months Ended ----------------------------------------- ---------------------------------------- Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1999 1998 Change 1999 1998 Change ----------- ----------- ----------- ---------- ----------- ----------- Revenues $ 127,105 $ 125,298 1 % $ 385,809 $ 383,514 1 % Operating Expenses 90,540 94,266 (4) 278,502 287,915 (3) Operating Income 36,565 31,032 18 107,307 95,599 12 Depreciation & Amortization 6,552 6,275 4 19,266 18,450 4 Operating Cash Flow 43,117 37,307 16 126,573 114,049 11
The preceding table contains the operating results of the Publishing Segment, including acquisitions and dispositions. As a direct result of net acquisitions and dispositions, Publishing Segment revenues decreased $1.2 million and $4.5 million, while operating income increased $.1 million and $1.5 million in the third quarter and first nine months of 1999 over the comparable prior-year periods. Excluding acquisitions and dispositions, Publishing revenues rose $3 million in the quarter and $6.8 million in the year-to-date period of 1999 from the comparable 1998 periods. At the Company's three largest metropolitan newspapers, revenues increased $1.9 million and $4.4 million in the third quarter and year to date due to increased average advertising rates (up 3.5% in both periods) which were partially offset by a decline in linage (down 1.1% and 1.8%, respectively). These quarterly and year-to-date increases were principally the result of strong performances in general advertising (led by the automotive and telecommunications categories) and classified advertising (driven by the employment category), partially offset by weak retail advertising primarily in the department store and electronics categories. Additionally, the Company's daily and weekly community newspapers posted revenue increases of $.9 million and $2 million over last year's third quarter and nine months, primarily on the strength of classified revenues (generated by the automotive and employment categories). Publishing operating expense, excluding acquisitions and dispositions, dropped $2.4 million and $3.4 million in the third quarter and first nine months of 1999. These decreases were more than fully accounted for by a $3.6 million and $7.2 million decrease in newsprint expense in the current quarter and year to date as a result of lower cost per ton (down 20% and 12%), partially offset by increases of 10% and 6% in depreciation and amortization expense. Additionally, employee compensation and benefit expense rose $1.6 million in the year to date due to enhanced employee benefit offerings. Excluding acquisitions and dispositions, operating income for the Publishing Segment rose $5.4 million and $10.2 million in the third quarter and first nine months of 1999 from the prior-year periods. The improved operating results were due to strong general and classified advertising revenues, coupled with a meaningful drop in newsprint expense from both the third quarter and first nine months of last year. Together, these were more than sufficient to offset increased depreciation and amortization expense and higher year-to-date employee compensation and benefit expense. 10 On June 30, 1999, the Company completed the sale of 20% of the outstanding common stock of Denver Newspapers, Inc. (DNI) to MediaNews Group, Inc. (see Note 2 of this Form 10-Q); the Company retained a 20% ownership in the common stock of DNI. Investment income earned from that affiliate decreased $.6 million (from income of $.3 million in 1998 to a loss of $.3 million in 1999) in the third quarter and $2.4 million (from income of $1.7 million in 1998 to a loss of $.7 million in 1999) in the year to date from the equivalent prior-year periods. These comparisons reflect the Company's 40% ownership in 1998, versus its 20% ownership beginning June 30, 1999. The reduced income was primarily attributable to increased circulation, production and newsprint expenses, which were only partially mitigated by a rise in both circulation and advertising revenues, all the result of circulation gains in the intensely competitive Colorado market. BROADCAST TELEVISION (In thousands)
Third Quarter Ended Nine Months Ended ---------------------------------------- ---------------------------------------- Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1999 1998 Change 1999 1998 Change ----------- ----------- ----------- ---------- ----------- ----------- Revenues $ 39,516 $ 39,096 1 % $ 120,687 $ 123,856 (3)% Operating Expenses 32,160 31,588 2 96,109 96,376 --- Operating Income 7,356 7,508 (2) 24,578 27,480 (11) Depreciation & Amortization 2,793 2,375 18 8,216 7,462 10 Operating Cash Flow 10,149 9,883 3 32,794 34,942 (6)
Broadcast revenues were up slightly in the third quarter, but fell $3.2 million in the first nine months of the year. The quarterly increase resulted from a 13% rise in local advertising revenues, largely offset by weak national time sales (down 25%) at the Company's largest station, WFLA-TV (NBC) in Tampa, Florida, combined with reduced political ad revenues (down 54%) throughout the Segment. The year-to-date decrease was influenced by similar factors, but to differing degrees. Increased local revenues, up $4.9 million on the strength of good automotive and department store revenues, were more than offset by a $4.7 million drop in national revenues at WFLA spawned by a generally soft national market, combined with a $3.6 million decrease in political revenues due to the absence of congressional and presidential elections this year. Additionally, revenues at Professional Communications, Inc. (PCS), the Company's provider of equipment and studio design services, were weak in both the quarter and year to date as customers displayed uncertainty regarding which digital equipment to purchase as the FCC-mandated timetable to switch from analog to digital approaches. The Segment's lower national and political advertising revenues reflect the decreased time sales which have resonated throughout the broadcast industry; however, the Segment's percentage decrease in overall time sales was smaller than that posted by the industry as a whole. Operating expense in the Broadcast Segment increased modestly in the current quarter, while remaining essentially flat for the year-to-date period. These relatively consistent expense levels were produced by the offsetting combination of decreased cost of sales at PCS, associated with lower equipment sales, together with increased programming costs (up 11% and 12%, respectively) in the third quarter and first nine months of 1999 and higher employee compensation and benefit expense (up 3.5% in both periods). These cost increases reflected enhanced employee benefits provided by the Company and improved program offerings. Higher quality syndicated programming and locally produced newscasts have resulted in increased audience share at eight of the Company's thirteen stations as shown in the May ratings books. 11 Broadcast operating income remained essentially even with last year's third quarter results, but decreased $2.9 million in the first nine months of 1999 compared to the equivalent year-ago period. The year-to-date drop was attributable to a decline in political advertising revenues and a weak performance at WFLA-TV, combined with higher programming costs and compensation expense. NEWSPRINT (In thousands)
Third Quarter Ended Nine Months Ended ----------------------------------------- ---------------------------------------- Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1999 1998 Change 1999 1998 Change ----------- ----------- ----------- ---------- ----------- ----------- Revenues $ 25,258 $ 32,778 (23)% $ 76,748 $ 97,355 (21)% Operating Expenses 29,219 29,702 (2) 86,161 86,524 --- Operating Income (Loss) (3,961) 3,076 --- (9,413) 10,831 --- Depreciation & Amortization 1,919 1,661 16 5,671 5,068 12 Operating Cash Flow (2,042) 4,737 --- (3,742) 15,899 ---
Newsprint Segment revenues decreased $7.5 million and $20.6 million in the current quarter and first nine months of 1999, reflecting the results of the Company's Garden State Paper (Garden State) newsprint mill, located in Garfield, New Jersey. This decline resulted from decreases of 21% and 15% in the average realized selling price per ton for the quarterly and year-to-date periods ended September 26, 1999, combined with declines of 3% and 8% in tons sold. Although newsprint selling prices have recently stabilized, they had decreased steadily over the first seven months of 1999. Average realized newsprint selling prices fell from $528 per ton in December of 1998 to $417 per ton in September of 1999, due primarily to an excess supply from overseas. However, a price increase was announced in October. Newsprint Segment operating expense decreased only moderately in both the third quarter and first nine months of 1999 from the similar 1998 periods. The quarterly decrease resulted from an 11% reduction in energy costs due to deregulation of electricity rates combined with a 7% decrease in the cost of Garden State's principal raw material, recovered newspapers (ONP), partially offset by a rise in other production costs. Year-over-year expense levels decreased minimally as the result of lower production costs coupled with a 3% decrease in energy costs, partially offset by a 3% rise in ONP expense. Newsprint operating income declined $7 million and $20.2 million in the third quarter and year-to-date period of 1999, retreating from profits of $3.1 million and $10.8 million, to losses of $4 million and $9.4 million in the comparable 1999 periods. The decrease resulted primarily from erosions of $106 and $76 in average realized selling price per ton for the current quarter and year-to-date periods compared to the equivalent prior-year periods. The Company's investment income from its Southeast Paper Manufacturing Company (SEPCO) newsprint affiliate decreased $1.8 million and $2.9 million in the current quarter and first nine months of 1999 from the comparable year-ago periods. SEPCO's revenues fell 13.1% and 6.7% in the third quarter and year to date of 1999 despite a 1.8% and 4.4% rise in tons sold. Average realized selling price declined 14.3% and 9.9% in the third quarter and year-to-date periods of 1999, reflecting the adverse pricing environment which continues to reverberate throughout the newsprint industry. 12 INTEREST EXPENSE Interest expense of $13.6 million and $43.8 million represented a $1.7 million and $3.4 million decrease in the third quarter and first nine months of 1999 from the comparable year-earlier periods. The decreases were due to a $135 million and $74 million decline in average debt outstanding, as the Company used funds generated from operations combined with the proceeds generated from the DNI transactions and the sale of WHOA-TV in Montgomery (see Note 2 of this Form 10-Q for further details on these transactions) to reduce its outstanding debt. The Company's average effective borrowing rate approximated 7% in the third quarter and first nine months of both 1999 and 1998. Throughout the third quarter, the Company had interest rate swaps totaling $725 million with maturities ranging from less than one year to five years. These swap agreements effectively converted most of the Company's variable rate debt to fixed rate debt at interest rates approximating 6.8%. INCOME TAXES The Company's effective tax rate on income from continuing operations was approximately 41% in the third quarter and first nine months of 1999, up from approximately 36% in the previous year's comparable periods due to a reduction in tax benefits related to the Company's investment in unconsolidated affiliates and an adverse change in tax law limiting the deductibility of company-owned life insurance. Income tax expense rose $11.8 million and $10.2 million from the third quarter and first nine months of 1999 due to pretax earnings increases of $27.3 million and $18.4 million. INCOME FROM CONTINUING OPERATIONS Income from continuing operations for 1999's third quarter was $25.6 million ($0.97 per share, or $0.96 per share - assuming dilution) compared to $10.1 million ($0.38 per share, or $0.37 per share - assuming dilution) in the equivalent prior-year quarter. This $15.5 million increase was more than fully accounted for by the $19 million gain related to the sale of 20% of the outstanding common stock of Denver Newspapers, Inc., combined with a 16% rise in Publishing Segment profits. However, these positive profit impacts were significantly offset by the Company's Newsprint Segment which produced a $9 million negative quarter-over-quarter swing from a $5.3 million profit in 1998 to a $3.7 million loss in 1999, as newsprint prices continued to be subject to disadvantageous supply and demand factors. Income from continuing operations in the first nine months of 1999 was $44.5 million ($1.68 per share, or $1.65 per share - assuming dilution) compared to $36.3 million ($1.37 per share, or $1.35 per share - assuming dilution) in the comparable year-ago period. This $8.2 million increase was more than fully attributable to the same factors which influenced the third quarter: the gain from the sale of DNI common stock together with a 9.5% increase in Publishing Segment profits, partially offset by a 111% drop in the Newsprint Segment's profitability from the equivalent prior-year period. INCOME FROM DISCONTINUED CABLE OPERATIONS As previously mentioned, on October 1, 1999, the Company consummated the sale of its Cable operations to Cox Communications, Inc. Income from discontinued Cable Television operations increased $.5 million and $1.3 million in the third quarter and first nine months of 1999. Although revenues at the Company's Fairfax County, Virginia, cable system rose as a result of a 1.3% growth in the number of subscribers combined with a rate increase implemented in the third quarter of this year, the impact of the increase was essentially offset by a rise in franchise fees precipitated by higher revenues. 13 Cable Segment results in 1999 also included income from the Company's Greater Washington Interconnect (GWI) affiliate. GWI is a cable advertising interconnect formed with several other cable providers in the metropolitan Washington, D.C., area for the purpose of collectively selling national and regional spot advertising throughout the region. GWI provided $.4 million and $1.3 million of income in the third quarter and first nine months of this year. LIQUIDITY AND CAPITAL RESOURCES Funds generated by operating activities during the first nine months of 1999 totaled $128.1 million, up $25 million from the comparable period of 1998. The increase was due to a combination of factors, including: cash distributions from unconsolidated affiliates in excess of $22 million over the prior year, an increase in working capital accounts (most notably income taxes payable), partially offset by a $9.5 million reduction in net income (excluding the $19 million gain related to the sale of DNI common stock). Funds generated from operating and financing activities, coupled with the proceeds from the sale of DNI common stock, the redemption of DNI preferred stock, and the sale of WHOA-TV, supplied $130 million to reduce long-term debt, $48.1 million for capital expenditures, $13.6 million for redemption of stock (see Note 5 of this Form 10-Q), and $12.1 million for the payment of dividends to stockholders. Total debt outstanding at September 26, 1999, was $797.9 million, down $130.2 million from the year-end level of $928.1 million. The Company's unused credit lines available from its committed revolving credit facility were $465 million at September 26, 1999. Subsequent to the end of the quarter, the Company received approximately $1.4 billion from the sale of its Cable Segment. Proceeds from the transaction were used to pay-off all outstanding debt under the Company's revolving credit agreements and to unwind the associated interest rate swaps. The Company has invested the remaining proceeds and anticipates paying taxes in excess of $500 million related to this transaction in the first quarter of 2000. The Company foresees that the remaining proceeds, coupled with internally generated funds from operations, as well as from existing credit facilities, will be more than adequate to finance possible acquisitions, projected capital expenditures, dividends to stockholders, a possible stock repurchase program, and other cash needs of the Company. YEAR 2000 The Company has addressed issues regarding the transition to the Year 2000 through a specially created task force comprised of corporate, divisional and operating unit personnel. The project was divided into five phases: 1) identification/analysis, 2) plan development/scheduling, 3) remediation, 4) testing/integration, and 5) monitoring/continuous improvement. Based on the successful completion of substantially all of the aforementioned phases, the Company believes its significant systems are ready for the Year 2000 and that the project will be complete well before the end of the fourth quarter. Inherent in all phases of the above was the assessment of the Year 2000 compliance by key suppliers and customers. The Company has made formal communications with essentially all of these parties and most have indicated that there should be no disruption in their relationships with us. However, the Company cannot assure timely compliance of third parties and therefore could be adversely affected by failure of a significant third party to become Year 2000 compliant. Amounts expended exclusively to ensure Year 2000 compliance continue to be funded by cash flow from operations and have not had, nor are they expected to have, a material impact on the Company's financial position, results of operations or cash flows. While the Company believes its significant systems are 14 ready for the Year 2000, its financial condition still could be adversely impacted by disruptions related to the Year 2000. The Company does not consider the possibility of such an occurrence to be reasonably likely. If Year 2000 disruptions occur, the Company believes its existing business recovery plans are adequate to address reasonably likely Year 2000 issues. However, the Company has a separate initiative underway to revise its business recovery plans; the initiative is much broader than the Year 2000 project but will certainly consider Year 2000 issues. OUTLOOK The sale of the Company's Cable operations has provided unprecedented resources and significant financial flexibility, both of which will facilitate the Company's ability to capitalize on attractive growth opportunities. The Company continues to review and evaluate its options as to the most advantageous long-term use of the proceeds to further enhance shareholder value. The Company has used a portion of the proceeds to eliminate bank debt and expects to use some of the remaining funds to initiate a stock repurchase program and to make strategic acquisitions in the Southeast if attractive opportunities arise. In any event, the sale of the Cable operations allows for increased directional focus toward newspapers and broadcast television in the Company's chosen southeastern markets. 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule for the period ended September 26, 1999. 27.2 Restated Financial Data Schedule for the period ended September 27, 1998. (b) Reports on Form 8-K On October 15, 1999, the Company filed a Form 8-K to report the October 1, 1999, sale of its Cable operations to Cox Communications, Inc. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MEDIA GENERAL, INC. DATE: November 9, 1999 /s/ J. Stewart Bryan III ------------------------------------------ J. Stewart Bryan III, Chairman, President and Chief Executive Officer DATE: November 9, 1999 /s/ Marshall N. Morton ------------------------------------------- Marshall N. Morton Senior Vice President and Chief Financial Officer 17 EX-27 2 EXHIBIT 27.1
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. 9-MOS DEC-26-1999 SEP-26-1999 9,788 0 110,686 7,322 18,883 172,831 1,141,918 650,080 1,846,727 165,562 797,916 0 0 132,964 388,933 1,846,727 583,244 583,244 286,007 286,007 60,832 0 43,774 75,331 30,831 44,500 13,708 0 0 58,208 2.19 2.16
EX-27 3 EXHIBIT 27.2
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. 9-MOS DEC-27-1998 SEP-27-1998 5,253 0 107,815 7,355 21,989 171,860 1,117,627 620,563 1,916,648 147,353 949,408 0 0 133,839 320,968 1,916,648 604,725 604,725 300,020 300,020 57,562 0 47,223 56,887 20,596 36,291 12,450 0 0 48,741 1.83 1.81
-----END PRIVACY-ENHANCED MESSAGE-----