Form 10-Q
Table of Contents

 

 

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 March 28, 2010

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 2, 2010.

 

Class A Common shares:   22,506,452
Class B Common shares:        548,564

 

 

 


Table of Contents

MEDIA GENERAL, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

March 28, 2010

 

               Page

Part I.      Financial Information

  

Item 1.    Financial Statements

  
     

Consolidated Condensed Balance Sheets - March 28, 2010 and December 27, 2009

   1
     

Consolidated Condensed Statements of Operations - Three months ended March 28, 2010 and March  29, 2009

   3
     

Consolidated Condensed Statements of Cash Flows - Three months ended March 28, 2010 and March  29, 2009

   4
     

Notes to Consolidated Condensed Financial Statements

   5

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

   18

Item 3.    Quantitative and Qualitative Disclosure About Market Risk

   23

Item 4.    Controls and Procedures

   23

Part II.    Other Information

  

Item 6.    Exhibits

   24
     

(a)    Exhibits

  

Signatures

      25


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(000’s except shares)

 

     March 28,    December 27,
     2010    2009

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 21,364    $ 33,232

Accounts receivable - net

     88,797      104,405

Inventories

     6,398      6,632

Other

     58,770      60,786
             

Total current assets

     175,329      205,055
             

Other assets

     46,668      34,177

Property, plant and equipment - net

     410,676      421,208

FCC licenses and other intangibles - net

     219,020      220,591

Excess of cost over fair value of net identifiable assets of acquired businesses

     355,017      355,017
             
   $ 1,206,710    $ 1,236,048
             

See accompanying notes.

 

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MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(000’s except shares and per share data)

 

     March 28,     December 27,  
     2010     2009  

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 25,739      $ 26,398   

Accrued expenses and other liabilities

     83,028        72,174   
                

Total current liabilities

     108,767        98,572   
                

Long-term debt

     692,728        711,909   

Retirement, post-retirement and post-employment plans

     173,791        173,017   

Deferred income taxes

     14,405        7,233   

Other liabilities and deferred credits

     39,947        53,066   

Stockholders’ equity:

    

Preferred stock ($5 cumulative convertible), par value $5 per share, authorized 5,000,000 shares; none outstanding

    

Common stock, par value $5 per share:

    

Class A, authorized 75,000,000 shares; issued 22,467,006 and 22,241,959 shares

     112,335        111,210   

Class B, authorized 600,000 shares; issued 548,564 and 551,881 shares

     2,743        2,759   

Additional paid-in capital

     24,064        24,253   

Accumulated other comprehensive loss

     (117,056     (117,703

Retained earnings

     154,986        171,732   
                

Total stockholders’ equity

     177,072        192,251   
                
   $ 1,206,710      $ 1,236,048   
                

See accompanying notes.

 

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Table of Contents

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(000’s except for per share data)

 

     Three Months Ended  
     March 28,     March 29,  
     2010     2009  

Revenues

    

Publishing

   $ 81,298      $ 89,732   

Broadcasting

     67,085        59,853   

Digital media and other

     10,481        9,548   
                

Total revenues

     158,864        159,133   
                

Operating costs:

    

Employee compensation

     75,592        86,564   

Production

     35,533        43,602   

Selling, general and administrative

     25,329        25,211   

Depreciation and amortization

     13,701        15,318   
                

Total operating costs

     150,155        170,695   
                

Operating income (loss)

     8,709        (11,562
                

Other income (expense):

    

Interest expense

     (19,823     (9,972

Other, net

     375        243   
                

Total other expense

     (19,448     (9,729
                

Loss from continuing operations before income taxes

     (10,739     (21,291

Income tax expense

     6,007        —     
                

Loss from continuing operations

     (16,746     (21,291

Income from discontinued operations (net of taxes)

     —          38   
                

Net loss

   $ (16,746   $ (21,253
                

Net loss per common share

   $ (0.75   $ (0.96
                

Net loss per common share assuming dilution

   $ (0.75   $ (0.96
                

See accompanying notes.

 

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MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(000’s)

 

     Three Months Ended  
     March 28,     March 29,  
     2010     2009  

Operating activities:

    

Net loss

   $ (16,746   $ (21,253

Adjustments to reconcile net loss:

    

Depreciation and amortization

     13,701        15,322   

Deferred income taxes

     7,506        —     

Write-off of previously deferred debt issuance costs

     1,772        —     

Change in assets and liabilities:

    

Accounts receivable and inventories

     15,842        20,384   

Accounts payable, accrued expenses, and other liabilities

     6,094        (11,481

Other, net

     (7,315     (2,523
                

Net cash provided by operating activities

     20,854        449   
                

Investing activities:

    

Capital expenditures

     (2,128     (4,133

Collection of note receivable

     —          5,000   

Other, net

     486        21   
                

Net cash (used) provided by investing activities

     (1,642     888   
                

Financing activities:

    

Increase in bank debt

     134,156        79,500   

Payment of bank debt

     (446,524     (79,457

Proceeds from notes

     293,070        —     

Debt issuance costs

     (11,863     —     

Other, net

     81        (16
                

Net cash (used) provided by financing activities

     (31,080     27   
                

Net (decrease) increase in cash and cash equivalents

     (11,868     1,364   

Cash and cash equivalents at beginning of period

     33,232        7,142   
                

Cash and cash equivalents at end of period

   $ 21,364      $ 8,506   
                

See accompanying notes.

 

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MEDIA GENERAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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, 2009.

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.

2. Inventories are principally raw materials (primarily newsprint).

3. The Company’s tax provision for both periods had an unusual relationship to the pre-tax loss from continuing operations due primarily to the existence of a full deferred tax asset valuation allowance at the beginning of both periods. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change to the valuation allowance, as it did in the first quarter of 2009. The tax expense recorded in the first quarter of 2010 reflects the accrual of an additional $7.5 million valuation allowance in connection with the tax amortization of the Company’s indefinite-lived intangible assets that is not available to offset existing deferred tax assets, partially offset by an increase (from the amount estimated at the end of 2009) in the Company’s expected net operating loss (NOL) carryback benefit. The Company expects the naked credit to result in approximately $30 million of income tax expense for the full-year 2010 (as previously discussed in Note 3 of Item 8 of the Company’s Form 10-K for the year ended December 27, 2009).

The Company reported income tax expense for the first quarter using the “discrete-period” approach (discrete) as opposed to the “projected annual effective tax rate” approach (ETR) which is the generally prescribed method for interim reporting periods. The Company employed the discrete method in lieu of the ETR method because relatively small movements in projected income for the year could result in extreme variability in the ETR. Therefore, the Company does not believe it can reliably estimate its ETR for the full year.

Health Care Reform legislation passed and signed into law during the first quarter of 2010 repealed employer tax deductions for the cost of providing post-retirement prescription drug coverage to the extent that it is reimbursed by the Medicare Part D (“Part D”) drug subsidy. As a result of this law change, the Company wrote-off approximately $1.7 million in deferred tax assets related to the future deductibility of the Part D subsidy in the first quarter of 2010. However, due to the Company’s full valuation allowance recorded against its deferred tax asset balance, there was a corresponding reduction in the valuation allowance, and, therefore, the net result of these two adjustments had no impact on net income.

4. In the third quarter of 2009, the Company sold a small magazine and its related web site located in the Virginia/Tennessee Market and has reported it as a discontinued operation for all prior periods. During the second quarter of 2009, the Company completed the sale of WCWJ in Jacksonville, Florida. Results of discontinued operations are presented below for the first quarter of 2009:

 

     Quarter Ended
     March 29,

(In thousands )

   2009

Revenues

   $ 2,276

Costs and expense

     2,238
      

Income before income taxes

     38

Income taxes

     —  
      

Income from discontinued operations

   $ 38
      

 

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5. In the first quarter of 2010, the Company established a new financing structure; the Company simultaneously amended and extended its bank debt and issued Senior Notes in a private placement. The Senior Notes mature in 2017 and have a face value of $300 million, an interest rate of 11.75%, and were issued at a price equal to 97.69% of face value. The proceeds from the Senior Notes were used to pay down existing bank credit facilities. The amended bank debt matures in March 2013 and bears an interest rate of LIBOR plus a margin based on the Company’s leverage ratio, as defined in the agreement. The new agreements have two main financial covenants: a leverage ratio and a fixed charge coverage ratio which involve debt levels, interest expense as well as other fixed charges, and rolling four-quarter calculations of EBITDA – all as defined in the agreements. These ratios provide the Company with enhanced financial flexibility. The Company pledged its cash and assets as well as the stock of its subsidiaries as collateral; the Company’s subsidiaries also guaranteed the debt securities of the parent company. Additionally, there are restrictions on the Company’s ability to pay dividends (none are allowed in 2010 and 2011), make capital expenditures above certain levels, repurchase its stock, and engage in certain other transactions such as making investments or entering into capital leases above certain levels.

The following table includes information about the carrying values and estimated fair values of the Company’s financial instruments at March 28, 2010 and December 27, 2009:

 

     March 28, 2010    December 27, 2009

(In thousands )

   Carrying Amounts    Fair Value    Carrying Amounts    Fair Value

Assets

           

Investments

           

Trading

   $ 178    $ 178    $ 303    $ 303

Liabilities

           

Interest rate swaps

     13,294      13,294      14,353      14,353

Long-term debt:

           

Bank term loan

     399,516      399,516      285,844      277,614

11.75% senior notes

     293,187      293,947      —        —  

Revolving credit facility

     —        —        426,037      413,771

Trading securities held by the Supplemental 401(k) plan are carried at fair value and are determined by reference to quoted market prices. The fair value of the long-term debt as of December 27, 2009, was estimated using discounted cash flow analyses and an estimate of the Company’s bank borrowing rate for similar types of borrowings. For the first quarter of 2010, the carrying amount for the bank term loan approximates fair value as the Company just entered into its new financing structure on February 12, 2010. As of March 28, 2010, the fair value of the 11.75% Senior Notes was valued at the most recent trade prior to the end of the quarter. Under the fair value hierarchy, the Company’s trading securities fall under Level 1 (quoted prices in active markets), and its long term debt falls under Level 2 (other observable inputs).

 

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In the third quarter of 2006, the Company entered into several interest rate swaps as part of an overall strategy to manage interest cost and risk associated with variable interest rates, primarily short-term changes in LIBOR. These interest rate swaps are cash flow hedges with original notional amounts totaling $300 million; swaps with notional amounts of $100 million matured in August of 2009 and swaps with nominal amounts of $200 million will mature in 2011. Changes in cash flows of the interest rate swaps offset changes in the interest payments on the Company’s Facilities. These swaps effectively convert a portion of the Company’s variable rate bank debt to fixed rate debt with a weighted average interest rate approximating 10.1% at March 28, 2010.

The interest rate swaps are carried at fair value based on the present value of the estimated cash flows the Company would have received or paid to terminate the swaps; the Company applied a discount rate that is predicated on quoted LIBOR prices and current market spreads for unsecured borrowings. In the first quarter of 2010 and 2009, $2.8 million and $2.8 million, respectively, were reclassified from OCI into interest expense on the Statement of Operations as the effective portion of the interest rate swap. The pre-tax change deferred in other comprehensive income (“OCI”) for the first quarter of 2010 and 2009 was $1.1 million and $1.6 million, respectively. All amounts paid for these swaps are recorded in the Statement of Operations during the accounting period in the “Interest expense” line. Based on the estimated current and future fair values of the swaps as of March 28, 2010, the Company estimates that $9.2 million will be reclassified from OCI to interest expense in the next twelve months. Under the fair value hierarchy, the Company’s interest rate swaps fall under Level 2 (other observable inputs). The following table includes information about the Company’s derivative instruments as of March 28, 2010:

 

(In thousands)

         

Derivatives designated as hedging instruments

  

Balance sheet location

   Fair Value as of March 28, 2010

Interest rate swaps

   Accrued expenses and other liabilities    $ 9,224

Interest rate swaps

   Other liabilities and deferred credits      4,070

As of December 27, 2009, the fair value of the interest rate swaps was $14.4 million.

6. The Company is a diversified communications company located primarily in the southeastern United States. The Company is comprised of five geographic segments (Virginia/Tennessee, Florida, Mid-South, North Carolina and Ohio/Rhode Island) along with a sixth segment that includes interactive advertising services and certain other operations.

Revenues for the geographic markets include revenues from 18 network-affiliated television stations, three metropolitan newspapers, and 20 community newspapers, all of which have associated Web sites. Additionally, more than 200 specialty publications that include weekly newspapers and niche publications and the Web sites that are associated with many of these specialty publications are included in revenues for the geographic markets. Revenues for the sixth segment, Advertising Services & Other, are generated by three interactive advertising services companies and certain other operations including a broadcast equipment and studio design company.

Management measures segment performance based on profit or loss from operations before interest, income taxes, and acquisition related amortization. Amortization of acquired intangibles is not allocated to individual segments although the intangible assets themselves are included in identifiable assets for each segment. Intercompany sales are primarily accounted for as if the sales were at current market prices and are eliminated in the consolidated financial statements. Certain promotion in the Company’s newspapers and television stations on behalf of its online shopping portal are recognized based on incremental cost. The Company’s reportable segments are managed separately, largely based on geographic market considerations and a desire to provide services to customers regardless of the media platform or any difference in the method of delivery. In certain instances, operations have been aggregated based on similar economic characteristics.

 

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The following table sets forth the Company’s current and prior-year financial performance by segment:

 

           Depreciation and     Operating Profit  

(In thousands)

   Revenues     Amortization     (Loss)  

Three Months ended March 28, 2010

      

Virginia/Tennessee

   $ 45,851      $ (3,289   $ 7,609   

Florida

     38,073        (1,762     1,245   

Mid-South

     36,585        (3,010     4,676   

North Carolina

     18,809        (1,557     1,111   

Ohio/Rhode Island

     13,615        (835     3,281   

Advertising Services & Other

     6,336        (231     1,441   

Eliminations

     (405     —          (2
            
         19,361   

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (1,571     (1,571

Corporate expense

     —          (1,446     (7,956
                  
   $ 158,864      $ (13,701  
                  

Corporate interest expense

         (19,814

Other

         (759
            

Consolidated loss from continuing operations before income taxes

       $ (10,739
            

Three Months ended March 29, 2009

      

Virginia/Tennessee

   $ 46,840      $ (3,658   $ 2,036   

Florida

     42,240        (2,096     (3,030

Mid-South

     33,798        (3,391     1,066   

North Carolina

     18,981        (1,696     (1,559

Ohio/Rhode Island

     11,086        (845     160   

Advertising Services & Other

     6,562        (225     591   

Eliminations

     (374     1        (44
            
         (780

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (1,799     (1,799

Corporate expense

     —          (1,609     (8,634
                  
   $ 159,133      $ (15,318  
                  

Interest expense

         (9,972

Other

         (106
            

Consolidated loss from continuing operations before income taxes

       $ (21,291
            

 

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7. The Consolidated Condensed Statements of Operations include amortization expense from amortizing intangible assets of $1.6 million for the first quarter of 2010 and $1.8 million for the first quarter of 2009. Currently, intangibles amortization expense is projected to be approximately $6 million in total for 2010 and 2011, decreasing to $3 million in 2012, and to $2 million in 2013 and 2014.

In the past ten years, the Company has recorded pretax cumulative impairment losses related to goodwill approximating $685 million. The following table shows the gross carrying amount and accumulated amortization for intangible assets as of March 28, 2010 and December 27, 2009:

 

     December 27, 2009    Change    March 28, 2010
     Gross Carrying    Accumulated    Amortization    Gross Carrying    Accumulated

(In thousands)

   Amount    Amortization    Expense    Amount    Amortization

Amortizing intangible assets (including network affiliation, advertiser, programming and subscriber relationships):

              

Virginia/Tennessee

   $ 55,326    $ 42,377    $ 178    $ 55,326    $ 42,555

Florida

     1,055      1,055      —        1,055      1,055

Mid-South

     84,048      61,770      1,072      84,048      62,842

North Carolina

     11,931      10,095      74      11,931      10,169

Ohio/Rhode Island

     9,157      4,864      89      9,157      4,953

Advert. Serv. & Other

     6,614      3,249      158      6,614      3,407
                                  

Total

   $ 168,131    $ 123,410    $ 1,571    $ 168,131    $ 124,981
                                  

Indefinite-lived intangible assets:

              

Goodwill:

              

Virginia/Tennessee

   $ 96,725          $ 96,725   

Florida

     43,123            43,123   

Mid-South

     118,153            118,153   

North Carolina

     20,896            20,896   

Ohio/Rhode Island

     61,408            61,408   

Advert. Serv. & Other

     14,712            14,712   
                      

Total goodwill

     355,017            355,017   

FCC licenses

              

Virginia/Tennessee

     20,000            20,000   

Mid-South

     93,694            93,694   

North Carolina

     24,000            24,000   

Ohio/Rhode Island

     36,004            36,004   
                      

Total FCC licenses

     173,698            173,698   

Other

     2,172            2,172   
                      

Total

   $ 530,887          $ 530,887   
                      

8. The following table sets forth the computation of basic and diluted earnings per share from continuing operations. There were approximately 57,000 shares that were not included in the computation of diluted EPS for the quarter ended March 28, 2010, because to do so would have been anti-dilutive for the period presented.

 

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     Quarter Ended March 28, 2010     Quarter Ended March 29, 2009  
     Loss     Shares    Per Share     Loss     Shares    Per Share  

(In thousands, except per share amounts)

   (Numerator)     (Denominator)    Amount     (Numerator)     (Denominator)    Amount  

Basic and Diluted EPS:

              

Loss from continuing operations attributable to common stockholders

   $ (16,746   22,290    $ (0.75   $ (21,291   22,181    $ (0.96
                                          

9. The following table provides the components of net periodic employee benefits expense for the Company’s benefit plans for the first quarter of 2010 and 2009:

 

     Pension Benefits     Other Benefits  
     March 28,     March 29,     March 28,     March 29,  

(In thousands )

   2010     2009     2010     2009  

Service cost

   $ —        $ 190      $ 50      $ 75   

Interest cost

     5,825        6,502        600        650   

Expected return on plan assets

     (5,950     (6,240     —          —     

Amortization of prior-service (credit)/cost

     —          (13     450        450   

Amortization of net loss/(gain)

     700        1,777        (200     (225
                                

Net periodic benefit cost

   $ 575      $ 2,216      $ 900      $ 950   
                                

The reduction in amortization of net loss above was a result of better-than-anticipated investment performance during 2009 along with a lower discount rate, both of which reduced the actuarial loss to be amortized in 2010.

10. The Company’s comprehensive loss consisted of the following:

 

     Quarter Ended  
     March 28,     March 29,  

(In thousands)

   2010     2009  

Net loss

   $ (16,746   $ (21,253

Unrealized gain on derivative contracts

    

(net of deferred taxes)

     647        1,624   
                

Comprehensive loss

   $ (16,099   $ (19,629
                

11. The Company accrues severance expense when payment of benefits is both probable and the amount is reasonably estimable. The Company records severance expense in the “Employee compensation” line item on the Consolidated Condensed Statements of Operations related to involuntary employee terminations. Workforce reductions have been utilized in response to the deep economic recession and the Company’s continuing efforts to align its costs with available revenues. The Company recorded severance expense of $0.3 million in the first quarter of 2010, as compared to $4.5 million in the first three months of 2009. As of March 28, 2010, accrued severance was less than $100,000; as of March 29, 2009, accrued severance was $5.6 million included in “Accrued expenses and other liabilities” on the Consolidated Condensed Balance Sheet.

 

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12. The following table shows the Company’s Statement of Stockholders’ Equity as of March 28, 2010:

 

                      Accumulated              
                Additional     Other              
     Common Stock     Paid-in     Comprehensive     Retained        
     Class A    Class B     Capital     Income (Loss)     Earnings     Total  

Balance at December 27, 2009

   $ 111,210    $ 2,759      $ 24,253      $ (117,703   $ 171,732      $ 192,251   

Net loss

     —        —          —          —          (16,746     (16,746

Unrealized gain on derivative contracts (net of deferred taxes of $413)

     —        —          —          647        —          647   
                   

Comprehensive loss

                (16,099

Exercise of stock options

     173      —          (98     —          —          75   

Performance accelerated restricted stock

     935      —          (935     —          —          —     

Stock-based compensation

     —        —          839        —          —          839   

Other

     17      (16     5        —          —          6   
                                               

Balance at March 28, 2010

   $ 112,335    $ 2,743      $ 24,064      $ (117,056   $ 154,986      $ 177,072   
                                               

13. From time to time, the Company’s subsidiaries may guarantee the debt securities of the parent company. The following financial information presents condensed consolidating balance sheets, statements of operations, and statements of cash flows for the parent company, the Guarantor Subsidiaries, and the non-Guarantor Subsidiaries, which are comprised of the Company’s Supplemental 401(k) Plan, together with certain eliminations.

 

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Media General, Inc.

Condensed Consolidating Balance Sheet

As of March 28, 2010

(In thousands, unaudited)

 

     Media General     Guarantor     Non-Guarantor           Media General  
     Corporate     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

ASSETS

          

Current assets:

          

Cash & cash equivalents

   $ 19,974      $ 1,390      $ —        $ —        $ 21,364   

Accounts receivable, net

     —          88,797        —          —          88,797   

Inventories

     2        6,396        —          —          6,398   

Other current assets

     4,170        78,243        —          (23,643     58,770   
                                        

Total current assets

     24,146        174,826        —          (23,643     175,329   
                                        

Investment in and advances to subsidiaries

     326,220        1,967,980        —          (2,294,200     —     

Intercompany note receivable

     719,238        —          —          (719,238     —     

Other assets

     29,313        17,177        178        —          46,668   

Property, plant & equipment, net

     28,200        382,476        —          —          410,676   

FCC licenses and other intangibles

     —          219,020        —          —          219,020   

Excess cost over fair value

     —          355,017        —          —          355,017   
                                        

TOTAL ASSETS

   $ 1,127,117      $ 3,116,496      $ 178      $ (3,037,081   $ 1,206,710   
                                        

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 9,625      $ 16,120      $ —        $ (6   $ 25,739   

Accrued expenses and other liabilities

     37,990        68,681        —          (23,643     83,028   
                                        

Total current liabilities

     47,615        84,801        —          (23,649     108,767   
                                        

Long-term debt

     692,703        25        —          —          692,728   

Intercompany loan

     —          719,238        —          (719,238     —     

Retirement, post-retirement and post-employment plans

     173,791        —          —          —          173,791   

Deferred income taxes

     —          14,405        —          —          14,405   

Other deferred credits

     34,192        4,694        1,061        —          39,947   

Stockholders’ equity

          

Common stock

     115,078        4,872        —          (4,872     115,078   

Additional paid-in capital

     25,808        2,435,791        (1,914     (2,435,621     24,064   

Accumulated other comprehensive loss

     (117,056     —          —          —          (117,056

Retained earnings

     154,986        (147,330     1,031        146,299        154,986   
                                        

Total stockholders’ equity

     178,816        2,293,333        (883     (2,294,194     177,072   
                                        

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

   $ 1,127,117      $ 3,116,496      $ 178      $ (3,037,081   $ 1,206,710   
                                        

 

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Media General, Inc.

Condensed Consolidating Balance Sheet

As of December 27, 2009

(In thousands, unaudited)

 

     Media General     Guarantor     Non-Guarantor           Media General  
     Corporate     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

ASSETS

          

Current assets:

          

Cash & cash equivalents

   $ 31,691      $ 1,541      $ —        $ —        $ 33,232   

Accounts receivable, net

     —          104,405        —          —          104,405   

Inventories

     2        6,630        —          —          6,632   

Other current assets

     3,141        83,375        —          (25,730     60,786   
                                        

Total current assets

     34,834        195,951        —          (25,730     205,055   
                                        

Investment in and advances to subsidiaries

     336,575        1,965,508        —          (2,302,083     —     

Intercompany note receivable

     742,219        —          —          (742,219     —     

Other assets

     16,928        16,946        303        —          34,177   

Property, plant & equipment, net

     28,702        392,506        —          —          421,208   

FCC licenses and other intangibles

     —          220,591        —          —          220,591   

Excess cost over fair value

     —          355,017        —          —          355,017   
                                        

TOTAL ASSETS

   $ 1,159,258      $ 3,146,519      $ 303      $ (3,070,032   $ 1,236,048   
                                        

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 9,074      $ 17,330      $ —        $ (6   $ 26,398   

Accrued expenses and other liabilities

     24,537        73,367        —          (25,730     72,174   
                                        

Total current liabilities

     33,611        90,697        —          (25,736     98,572   
                                        

Long-term debt

     711,881        28        —          —          711,909   

Intercompany loan

     —          742,219        —          (742,219     —     

Retirement, post-retirement and post-employment plans

     173,017        —          —          —          173,017   

Deferred income taxes

     —          7,233        —          —          7,233   

Other deferred credits

     46,740        5,162        1,164        —          53,066   

Stockholders’ equity

          

Common stock

     113,969        4,872        —          (4,872     113,969   

Additional paid-in capital

     26,011        2,435,790        (1,919     (2,435,629     24,253   

Accumulated other comprehensive loss

     (117,703     —          —          —          (117,703

Retained earnings

     171,732        (139,482     1,058        138,424        171,732   
                                        

Total stockholders’ equity

     194,009        2,301,180        (861     (2,302,077     192,251   
                                        

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

   $ 1,159,258      $ 3,146,519      $ 303      $ (3,070,032   $ 1,236,048   
                                        

 

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Media General, Inc.

Condensed Consolidating Statements of Operations

Three Months Ended March 28, 2010

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Revenues

   $ 8,414      $ 183,128      $ —        $ (32,678   $ 158,864   

Operating costs:

          

Employee compensation

     8,584        66,981        27        —          75,592   

Production

     —          35,841        —          (308     35,533   

Selling, general and administrative

     (135     57,832        —          (32,368     25,329   

Depreciation and amortization

     613        13,089        —          (1     13,701   
                                        

Total operating costs

     9,062        173,743        27        (32,677     150,155   
                                        

Operating income (loss)

     (648     9,385        (27     (1     8,709   

Other income (expense):

          

Interest expense

     (19,814     (9     —          —          (19,823

Intercompany interest income (expense)

     11,104        (11,104     —          —          —     

Investment income (loss) - consolidated affiliates

     (7,876     —          —          7,876        —     

Other, net

     375        —          —          —          375   
                                        

Total other income (expense)

     (16,211     (11,113     —          7,876        (19,448
                                        

Loss from continuing operations before income taxes

     (16,859     (1,728     (27     7,875        (10,739

Income tax expense (benefit)

     (113     6,120        —          —          6,007   
                                        

Net loss

     (16,746     (7,848     (27     7,875        (16,746

Other comprehensive income (net of tax)

     647        —          —          —          647   
                                        

Comprehensive loss

   $ (16,099   $ (7,848   $ (27   $ 7,875      $ (16,099
                                        

 

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Media General, Inc.

Condensed Consolidating Statements of Operations

Three Months Ended March 29, 2009

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Revenues

   $ 6,166      $ 182,477      $ —        $ (29,510   $ 159,133   

Operating costs:

          

Employee compensation

     7,341        79,168        55        —          86,564   

Production

     —          44,434        —          (832     43,602   

Selling, general and administrative

     978        52,908        —          (28,675     25,211   

Depreciation and amortization

     661        14,658        —          (1     15,318   
                                        

Total operating costs

     8,980        191,168        55        (29,508     170,695   
                                        

Operating loss

     (2,814     (8,691     (55     (2     (11,562

Other income (expense):

          

Interest expense

     (9,972     —          —          —          (9,972

Intercompany interest income (expense)

     10,851        (10,851     —          —          —     

Investment income (loss) - consolidated affiliates

     (20,247     —          —          20,247        —     

Other, net

     292        (49     —          —          243   
                                        

Total other income (expense)

     (19,076     (10,900     —          20,247        (9,729
                                        

Loss from continuing operations before income taxes

     (21,890     (19,591     (55     20,245        (21,291

Income tax expense (benefit)

     (637     637        —          —          —     
                                        

Loss from continuing operations

     (21,253     (20,228     (55     20,245        (21,291

Income from discontinued operations (net of taxes)

     —          38        —          —          38   
                                        

Net loss

     (21,253     (20,190     (55     20,245        (21,253

Other comprehensive income (net of tax)

     1,624        —          —          —          1,624   
                                        

Comprehensive loss

   $ (19,629   $ (20,190   $ (55   $ 20,245      $ (19,629
                                        

 

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Media General, Inc.

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 28, 2010

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Cash flows from operating activities:

          

Net cash (used) provided by operating activities

   $ (3,241   $ 24,099      $ (4   $ —        $ 20,854   

Cash flows from investing activities:

          

Capital expenditures

     (401     (1,727     —          —          (2,128

Net change in intercompany note receivable

     22,981        —          —          (22,981     —     

Other, net

     25        461        —          —          486   
                                        

Net cash provided (used) by investing activities

     22,605        (1,266     —          (22,981     (1,642

Cash flows from financing activities:

          

Increase in debt

     134,156        —          —          —          134,156   

Payment of debt

     (446,521     (3     —          —          (446,524

Proceeds from notes

     293,070        —          —          —          293,070   

Debt issuance costs

     (11,863     —          —          —          (11,863

Net change in intercompany loan

     —          (22,981     —          22,981        —     

Other, net

     77        —          4        —          81   
                                        

Net cash (used) provided by financing activities

     (31,081     (22,984     4        22,981        (31,080
                                        

Net decrease in cash and cash equivalents

     (11,717     (151     —          —          (11,868

Cash and cash equivalents at beginning of year

     31,691        1,541        —          —          33,232   
                                        

Cash and cash equivalents at end of period

   $ 19,974      $ 1,390      $ —        $ —        $ 21,364   
                                        

 

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Media General, Inc.

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 29, 2009

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Cash flows from operating activities:

          

Net cash provided (used) by operating activities

   $ 26,642      $ (26,214   $ 21      $ —        $ 449   

Cash flows from investing activities:

          

Capital expenditures

     (289     (3,844     —          —          (4,133

Net change in intercompany note receivable

     (25,000     —          —          25,000        —     

Collection of receivable note

     —          5,000        —          —          5,000   

Other, net

     —          21        —          —          21   
                                        

Net cash (used) provided by investing activities

     (25,289     1,177        —          25,000        888   

Cash flows from financing activities:

          

Increase in debt

     79,500        —          —          —          79,500   

Payment of debt

     (79,451     (6     —          —          (79,457

Net change in intercompany loan

     —          25,000        —          (25,000     —     

Other, net

     4        1        (21     —          (16
                                        

Net cash (used) provided by financing activities

     53        24,995        (21     (25,000     27   
                                        

Net increase (decrease) in cash and cash equivalents

     1,406        (42     —          —          1,364   

Cash and cash equivalents at beginning of year

     5,593        1,549        —          —          7,142   
                                        

Cash and cash equivalents at end of period

   $ 6,999      $ 1,507      $ —        $ —        $ 8,506   
                                        

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The Company is a diversified communications company located primarily in the southeastern United States and is committed to providing excellent local content in growth markets over multiple platforms, to continually developing new products and services that will stimulate audience and revenue growth, and to nurturing traditional audience viewership while embracing the expanding opportunities arising in the digital media arena. The Company is comprised of five geographic segments (Virginia/Tennessee, Florida, Mid-South (which includes South Carolina, Georgia, Alabama, and Mississippi), North Carolina, and Ohio/Rhode Island) along with a sixth segment that includes interactive advertising services and certain other operations. The Company’s mission of being the leading provider of high-quality news, information and entertainment in the Southeast by continually building its position of strength in strategically located markets is strengthened by its evolution to geographic-based markets. By combining its resources in a designated geographic market under one leader, a leaner more cohesive structure thrives and more closely connects the Company to its customers and non-customers, accelerates the Company’s digital strategy, and facilitates streamlined decision-making.

The Company’s fiscal year ends on the last Sunday in December.

RESULTS OF OPERATIONS

The Company recorded a net loss of $17 million ($0.75 per share) in the first quarter of 2010, as compared to a net loss of $21 million ($0.96) in the equivalent prior-year quarter. The driving force behind the quarter-over-quarter improvement was a 12% reduction in operating expenses which created a turnaround in operating results from an $11.6 million operating loss in the first quarter of 2009 to operating income of $8.7 million in 2010. Considerable expense savings were achieved in the areas of compensation and newsprint costs as revenues remained essentially even with the prior-year level. However, increased interest and income tax expense partially offset the operating improvement. As a direct result of a new financing structure put into place in February 2010, interest expense nearly doubled (including $5.5 million of non-recurring expense); see the Liquidity section of this Form 10-Q for further discussion. Income taxes of $6 million in 2010, as compared to none in 2009, were the result of a non-cash “naked credit” issue that is described in the Income Taxes section of this Form 10-Q. The Company’s loss from continuing operations before income taxes was only half of 2009’s first quarter loss due to substantially improved operating profits as all segments contributed to the encouraging performance. In 2009, the Company completed the sale of its final held-for-sale station, WCJW in Jacksonville, Florida, and a small business magazine located in the Virginia/Tennessee Market. These results were reported as discontinued operations and had limited impact on the Company’s results in the first quarter of 2009.

SEGMENT RESULTS

Revenues

Revenues are grouped primarily into five major categories: Local, National, Political, Classified, and Subscription/Content/Circulation (which includes newspaper circulation, broadcast retransmission revenues, and interactive subscription and content revenues). The following chart summarizes the total consolidated period-over-period changes in these select revenue categories:

Change in Market Revenue by Major Category

2010 versus 2009

 

     Q1 Change  

(In thousands)

   Amount     Percent  

Local

   $ 490      0.6   

National

     1,219      4.3   

Political

     813      NM   

Classified

     (2,887   (12.0

Subs/Content/Circulation

     1,286      6.2   

“NM” is not meaningful

 

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Despite solid Winter Olympics advertising, market revenues were essentially unchanged in the first quarter of 2010 compared with the prior year’s first quarter. Classified advertising declined in all markets as the print industry continues to feel the effects of intense outside competition. All other advertising categories showed year-over-year improvement, particularly National which was aided by the Olympics. Subscription/Content/Circulation revenues continued to progress meaningfully in 2010 as a rise in cable and satellite retransmission revenues contributed more than three-quarters of the growth in that category, and an increase in newspaper circulation revenues (the result of higher rates) was responsible for the remainder.

Revenues in the Virginia/Tennessee Market fell 2.1% in the first quarter of 2010 as compared to 2009. Advertising dollars were down almost equally across all categories with the exception of Political which benefited from health care reform spending. Partially offsetting weak advertising revenues were strong Subscription/Content/Circulation revenues which showed steady growth due to rate increases across all newspapers as well as to a small rise in broadcast retransmission revenues.

Revenues in the Florida Market decreased 9.9%, in the first quarter of the year compared to the first three months of 2009. Florida’s economy, which is still under significant pressure from unemployment and a very soft housing market, continued to curb advertising demand. Classified advertising fell farthest, with Local and National advertising contributing the remainder of the shortfall. Classified advertising (down 26%) suffered across all categories, while Local and National advertising felt the most significant drop in the telecommunications category.

Revenues in the Mid-South Market increased 8.2% due to improvement in all advertising categories with the exception of Classified. Local advertising (up 7.3%) benefited from Super Bowl advertising, due to special programming produced locally given the close proximity of several of the Market’s CBS-affiliated television stations to New Orleans, and from Winter Olympics advertising at NBC-affiliated properties. Political and National made solid contributions to the year-over-year growth, which was partially offset by a small decline in Classified advertising due to lower automotive and real estate spending.

Revenues in the North Carolina Market declined less than 1% in the first quarter of 2010 from the first three months of 2009. Increases in National and Political advertising were just short of offsetting decreases in Local and Classified advertising. Olympic advertising and issue spending fueled the increases in National and Political; several winter storms resulted in cancelled advertising which contributed to the decreases in Local and Classified.

Revenues in the Ohio/Rhode Island Market increased 23% in the first quarter of 2010 compared to the first quarter of 2009. This is the Company’s only geographic market which does not include any newspapers and is therefore less influenced by Classified advertising; rather it is more affected by the ebb and flow of Political and Olympic revenues in corresponding odd and even-numbered years. Both of this Market’s television

 

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stations are NBC affiliates and, consequently, reaped the full benefit of 2010 Winter Olympics advertising; National and Local advertising revenues were up 40% and 17%, respectively, from last year’s first quarter. Political advertising also contributed to the revenue improvement as the intense campaign to fill the open Massachusetts Senate seat generated additional advertising at the Providence station.

Operating Expenses

Over the past few years, the Company has reacted to the challenging advertising environment by reducing costs across all markets while achieving greater efficiencies and implementing aggressive actions to better align expenses with current economic opportunities. In the first quarter of 2010, cost-containment efforts resulted in a 12% reduction in operating expense as compared to the first quarter of 2009. Workforce reductions across the entire Company were instrumental in aligning expenses with the prevailing economic environment, resulting in an approximate 11% decrease in full-time equivalent employees as of the end of the first quarter of 2010 compared to the end of the first quarter of 2009. The Company’s results included pretax severance costs of $0.3 million and $4.5 million in the first quarters of 2010 and 2009, respectively. However, the first quarter of 2009 also included lower salary costs as a result of four mandatory furlough days for employees. Company-wide employee compensation expense decreased 13% in 2010 from the prior year due primarily to lower employee counts and the absence of certain employee benefits such as the Company’s 401(k) match. Newsprint expense fell 53% in 2010 from the prior year due to a 30% reduction in consumption because of lower advertising linage, decreased circulation volumes, web-width reductions and concerted conservation efforts, as well as a 33% decrease in average cost per ton. Additional savings were derived through resolute efforts to control discretionary spending and lower depreciation costs (due primarily to lower capital expenditures).

Operating expenses in the Virginia/Tennessee Market decreased 15% in the first quarter of 2010 from the first quarter of 2009. Approximately two-thirds of this decrease was attributable to lower compensation expense; a 51% reduction in newsprint costs was responsible for a substantial portion of the remaining decrease.

Operating expenses in the Florida Market were down 19% the first quarter of 2010 from the first quarter of 2009. Compensation expense reductions were responsible for 35% of the decline in operating expenses, with the remainder primarily due to reduced newsprint costs and departmental savings.

Operating expenses in the Mid-South Market fell 2.5% in the first quarter of 2010 from the same period in 2009. As in most other Markets, savings were achieved in the areas of compensation, newsprint, and depreciation, albeit on a proportionately smaller scale.

Operating expenses in the North Carolina Market declined 14% in the first quarter as compared to 2009’s first quarter. Over half of the savings in the quarter were realized from lower compensation cost. Following trend, lower newsprint and departmental spending contributed the majority of the remaining savings.

Operating expenses in the Ohio/Rhode Island Market were down 5.4% in the quarter relative to the first three months of 2009 due primarily to an 18% reduction in compensation cost. The remaining savings were achieved primarily through concerted efforts to manage departmental spending.

ADVERTISING SERVICES & OTHER

Advertising Services & Other (ASO) primarily includes:

 

   

Blockdot - a leading advergaming business;

 

   

Dealtaker.com - an online social shopping portal;

 

   

NetInformer - a leading provider of mobile advertising and marketing services;

 

   

Production Services – comprised primarily of a provider of broadcast equipment and studio design services.

 

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Revenues in ASO decreased 3.4% in the first quarter of 2010 from the first quarter of 2009. The revenue decrease in the first quarter was comprised of a 21% reduction in revenue in the Production Services operations due to lower equipment sales combined with the absence of certain print products which are now either being managed in their respective geographic market or have been discontinued. Dealtaker.com grew its revenues by 26%, reflecting increased traffic and visitors buying from merchant sites.

Operating expenses were reduced 18% in the first quarter of 2010 primarily due to lower compensation costs. Additionally, lower cost of goods sold was in line with the previously mentioned reduced volume of work at Production Services. Reduced expenses at Blockdot led to improved quarter-over-quarter operating results for the advergaming business.

Operating Profit (Loss)

The following chart shows the change in operating profit by market; the period-over-period movement in market operating profit was driven by the underlying fluctuations in revenue and expense as detailed in the previous discussion.

Change in Market Operating Profits

2010 versus 2009

 

     Q1 Change  

(In thousands)

   Amount    Percent  

Virginia/Tennessee

   $ 5,573    273.7   

Florida

     4,275    —     

Mid-South

     3,610    NM   

North Carolina

     2,670    —     

Ohio/Rhode Island

     3,121    NM   

Adv. Services & Other

     850    143.8   

Eliminations

     42    (95.5
         

Total

   $ 20,141    —     
         

Higher revenues from strong Olympic advertising in the Mid-South and Ohio/Rhode Island Markets combined with the Company’s lower costs across all segments to produce an operating profit of $19 million in the first quarter of 2010, an increase of $20 million from an operating loss of $0.8 million in the first quarter of 2009. All segments made meaningful contributions to the improved quarter-over-quarter operating results, with the Florida and North Carolina Markets converting 2009 first quarter operating losses into operating profits in 2010.

INTEREST EXPENSE

Interest expense increased $9.9 million in the first quarter of 2010 from the prior-year equivalent quarter as a direct result of the Company’s new financing structure that was completed in February 2010. Over half of the quarter-over-quarter increase in interest expense was attributable to debt issuance costs totaling $5.5 million that were immediately expensed upon entering into the financing structure. A $55 million decline in average debt levels in the first quarter of 2010 as compared to 2009, only partially mitigated a 280 basis point increase in the average rate from 5.2% in 2009 to approximately 8% in the current quarter (excluding the impact of debt issuance costs immediately expensed). See the Liquidity section of this Form 10-Q for a more detailed discussion of the new financing structure.

In the third quarter of 2006, the Company entered into three interest rate swaps (where it pays a fixed rate and receives a floating rate) to manage interest cost and cash flows associated with variable interest rates, primarily short-term changes in LIBOR, not to trade such instruments for profit or loss. The interest rate swaps are carried at fair value based on a discounted cash flow analysis (predicated on quoted LIBOR prices) of the

 

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estimated amounts the Company would have received or paid to terminate the swaps. These interest rate swaps were cash flow hedges with notional amounts originally totaling $300 million; swaps with notional amounts of $100 million matured in 2009, and $200 million will mature in 2011. Changes in cash flows of the interest rate swaps offset changes in the interest payments on the Company’s bank debt. These swaps effectively convert the Company’s variable rate bank debt to fixed rate debt with a weighted average interest rate approximating 10.1% at March 28, 2010.

INCOME TAXES

The Company recorded income tax expense of $6 million in the first quarter of 2010 compared to none in the prior year. The Company’s tax provision for both periods had an unusual relationship to the pre-tax loss from continuing operations due primarily to the existence of a full deferred tax asset valuation allowance at the beginning of both periods. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change to the valuation allowance, as it did in the first quarter of 2009. The tax expense recorded in the first quarter of 2010 reflects the accrual of an additional $7.5 million valuation allowance in connection with the tax amortization of the Company’s indefinite-lived intangible assets that is not available to offset existing deferred tax assets, partially offset by an increase (from the amount estimated at the end of 2009) in the Company’s expected net operating loss (NOL) carryback benefit. The Company expects the naked credit to result in approximately $30 million of income tax expense for the full-year 2010 (as previously discussed in the Company’s Form 10-K for the year ended December 27, 2009).

LIQUIDITY

Net cash generated from operating activities in the first quarter of 2010 was $21 million compared to $0.4 million in the year-ago period. During the quarter, the Company paid debt issuance costs of $12 million, made capital expenditures of $2.1 million and reduced debt by $19 million.

Over the past several years the overall economy has been faced with a recession and a credit crisis, both of which have had a direct impact on the Company. In February 2010, the Company established a new financing structure that is expected to serve its needs for the next several years. The Company simultaneously amended and extended its bank debt and issued Senior Notes in a private placement. The proceeds from the Senior Notes, which mature in 2017, were used to pay down existing bank credit facilities. At the same time, the maturity of the bank facility was extended to March 2013; the revised operating covenants under the agreements provide additional financial flexibility for the Company. The steps that the Company has taken to lower its debt levels in recent years and the implementation of the new financing structure should allow the Company the flexibility necessary to operate within the debt covenants at a cost the Company believes to be manageable. The Company fully expects to be in compliance with the debt covenants in both the near and long term due to the lower debt levels and decreased operating expenses.

As of March 28, 2010, the Company has in place with its syndicate of banks a $400 million term loan, fully drawn, and a $70 million revolving credit line with nothing outstanding. Additionally, the Company has 11.75% Senior Notes with a par value of $300 million that were sold at a discount. The amended bank credit facilities mature in March 2013 and bear an interest rate of LIBOR plus a margin (5.0% at the close of the first quarter) based on the Company’s leverage ratio, as defined in the agreement. Total debt outstanding was $693 million on March 28, 2010. The new agreements have two main financial covenants: a leverage ratio and a fixed charge coverage ratio which involve debt levels, interest expense as well as other fixed charges, and rolling four-quarter calculations of EBITDA – all as defined in the agreements. These ratios have been amended and they position the Company to emerge solidly from the current economic downturn. The Company has pledged its cash and assets as well as the stock of its subsidiaries as collateral; the Company’s subsidiaries also guaranteed the debt securities of the parent company. Additionally, there are restrictions on the Company’s ability to pay dividends (none are allowed in 2010 or 2011), make capital expenditures above certain levels, repurchase its stock, and engage in certain other transactions such as making investments or entering into capital leases above certain preset levels.

 

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OUTLOOK

The Company believes that as 2010 progresses, gradual improvement in the economy will continue. Advertising spending patterns show signs of firming, and the Company will garner additional advertising revenues from Political spending in this even-numbered year. In the second quarter of 2010, higher revenues are expected to lead to increased market operating profits, particularly in the Mid-South Market; however, increased interest expense will essentially offset the operating improvement. Furthermore, adverse changes to expected income tax expense and the absence of a gain related to discontinued operations recorded in the second quarter of 2009 will be significant. However, the Company’s lower cost structure and enhanced financial flexibility should position it to capitalize on an improving economy over the remainder the year and to build shareholder value over the long term.

* * * * * * * *

Certain statements in this quarterly report that are not historical facts are “forward-looking” statements, as that term is defined by the federal securities laws. Forward-looking statements include statements related to accounting estimates and assumptions, expectations regarding interest expense, the economic recovery, the impact of cost-containment measures, staff reductions, income taxes, the Internet, debt compliance, general advertising levels and political advertising levels. Forward-looking statements, including those which use words such as the Company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “projects,” “plans,” “may” and similar words, are made as of the date of this filing and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements.

Some significant factors that could affect actual results include: the effect of the economic recovery on advertising demand, interest rates, the availability of newsprint, changes to pending accounting standards, health care cost trends, a natural disaster, the level of political advertising, the performance of acquisitions, and regulatory rulings and laws.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

The Company’s Annual Report on Form 10-K for the year ended December 27, 2009, details our disclosures about market risk. As of March 28, 2010, there have been no material changes in the Company’s market risk from December 27, 2009.

 

Item 4. Controls and Procedures

The Company’s management, including the chief executive officer and chief financial officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the chief executive officer and chief financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no significant changes in the Company’s internal controls or in other factors that are reasonably likely to adversely affect internal control subsequent to the date of this evaluation.

During the first three months of 2010, the Company completed the installation and integration of a traffic and billing system at five broadcast stations which tracks commercial time slot inventory, and should improve business processes and expand customer service opportunities. This new system was installed at the three largest broadcast stations in 2009 and it is expected to be rolled out to the Company’s remaining broadcast stations by the end of 2010.

 

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PART II. OTHER INFORMATION

 

Item 6. Exhibits

 

(a) Exhibits

 

31.1   Section 302 Chief Executive Officer Certification
31.2   Section 302 Chief Financial Officer Certification
32   Section 906 Chief Executive Officer and Chief Financial Officer Certification

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  MEDIA GENERAL, INC.
DATE: May 5, 2010  

/s/ Marshall N. Morton

  Marshall N. Morton
  President and Chief Executive Officer
DATE: May 5, 2010  

/s/ John A. Schauss

  John A. Schauss
  Vice President - Finance and Chief Financial Officer

 

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