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 27, 2011

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

incorporation or organization)

 

(I.R.S. Employer

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).

 

Larger accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    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 1, 2011.

 

Class A Common shares:

     22,486,117   

Class B Common shares:

     548,564   

 

 

 


Table of Contents

MEDIA GENERAL, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

March 27, 2011

 

                 Page  

Part I.

 

Financial Information

  
 

Item 1.

    Financial Statements   
     

Consolidated Condensed Balance Sheets – March 27, 2011 and December 26, 2010

     1   
     

Consolidated Condensed Statements of Operations - Three months ended March 27, 2011 and March  28, 2010

     3   
     

Consolidated Condensed Statements of Cash Flows - Three months ended March 27, 2011 and March  28, 2010

     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 2.

    Issuer Purchases of Equity Securities      24   
 

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 27,
2011
     December 26,
2010
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 18,641       $ 31,860   

Accounts receivable - net

     82,981         102,314   

Inventories

     6,798         7,053   

Other

     25,060         29,745   
                 

Total current assets

     133,480         170,972   
                 

Other assets

     40,482         40,629   

Property, plant and equipment - net

     392,937         398,939   

FCC licenses and other intangibles - net

     212,902         214,416   

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

     355,017         355,017   
                 
   $ 1,134,818       $ 1,179,973   
                 

See accompanying notes.

 

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Table of Contents

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(000’s except shares and per share data)

 

     March 27,
2011
    December 26,
2010
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 23,060      $ 30,030   

Accrued expenses and other liabilities

     74,005        89,784   
                

Total current liabilities

     97,065        119,814   
                

Long-term debt

     658,728        663,341   

Retirement, post-retirement and post-employment plans

     170,265        170,670   

Deferred income taxes

     39,838        34,729   

Other liabilities and deferred credits

     28,767        27,497   

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 22,482,877 and 22,493,878 shares

     112,414        112,469   

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

     2,743        2,743   

Additional paid-in capital

     26,975        26,381   

Accumulated other comprehensive loss

     (125,301     (126,799

Retained earnings

     123,324        149,128   
                

Total stockholders’ equity

     140,155        163,922   
                
   $ 1,134,818      $ 1,179,973   
                

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 27,
2011
    March 28,
2010
 

Revenues

    

Publishing

   $ 73,344      $ 81,298   

Broadcasting

     65,326        67,085   

Digital media and other

     10,273        10,481   
                

Total revenues

     148,943        158,864   
                

Operating costs:

    

Employee compensation

     78,219        75,592   

Production

     35,756        35,533   

Selling, general and administrative

     26,196        25,329   

Depreciation and amortization

     13,019        13,701   
                

Total operating costs

     153,190        150,155   
                

Operating income (loss)

     (4,247     8,709   
                

Other income (expense):

    

Interest expense

     (16,564     (19,823

Other, net

     265        375   
                

Total other expense

     (16,299     (19,448
                

Loss before income taxes

     (20,546     (10,739

Income tax expense

     5,258        6,007   
                

Net loss

   $ (25,804   $ (16,746
                

Net loss per common share - basic and assuming dilution

   $ (1.15   $ (0.75
                

See accompanying notes.

 

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Table of Contents

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(000’s)

 

     Three Months Ended  
     March 27,
2011
    March 28,
2010
 

Operating activities:

    

Net loss

   $ (25,804   $ (16,746

Adjustments to reconcile net loss:

    

Depreciation and amortization

     13,019        13,701   

Deferred income taxes

     6,215        7,506   

Intraperiod tax allocation

     (957     (413

Write-off of previously deferred debt issuance costs

     —          1,772   

Change in assets and liabilities:

    

Accounts receivable and inventories

     19,588        15,842   

Accounts payable, accrued expenses, and other liabilities

     (16,319     6,094   

Company owned life insurance (cash surrender value less policy loans including repayments)

     (789     (2,799

Other, net

     1,115        (4,103
                

Net cash (used) provided by operating activities

     (3,932     20,854   
                

Investing activities:

    

Capital expenditures

     (4,612     (2,128

Other, net

     151        486   
                

Net cash used by investing activities

     (4,461     (1,642
                

Financing activities:

    

Increase in bank debt

     20,248        134,156   

Repayment of bank debt

     (25,108     (446,524

Proceeds from issuance of senior notes

     —          293,070   

Debt issuance costs

     —          (11,863

Other, net

     34        81   
                

Net cash used by financing activities

     (4,826     (31,080
                

Net decrease in cash and cash equivalents

     (13,219     (11,868

Cash and cash equivalents at beginning of period

     31,860        33,232   
                

Cash and cash equivalents at end of period

   $ 18,641      $ 21,364   
                

Cash paid for interest

   $ 24,867      $ 11,989   
                

See accompanying notes.

 

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Table of Contents

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 26, 2010.

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 recorded non-cash income tax expense of $5.3 million in the first quarter of 2011 compared to $6 million in the equivalent quarter of 2010. The Company’s tax provision for both periods had an unusual relationship to its pretax loss 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. The tax expense recorded in the first quarter of 2011 reflects the accrual of approximately $6.2 million ($7.5 million for the first quarter of 2010) of 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 (termed a “naked credit”), partially offset by $900 thousand of tax benefit related to the intraperiod allocation items in Other Comprehensive Income. The Company expects the naked credit to result in approximately $25 million of non-cash income tax expense for the full-year 2011; other tax adjustments and intraperiod tax allocations that are difficult to forecast may also affect the remainder of 2011. A full discussion of the naked credit issue is contained in Note 2 of Item 8 of the Company’s Form 10-K for the year ended December 26, 2010.

4. In the first quarter of 2010, the Company established a new financing structure; the Company simultaneously amended and extended its bank term loan facility and issued senior notes. As a result, the Company immediately expensed previously deferred debt issuance costs of $1.8 million. 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 bank term loan facility matures in March 2013 and bears an interest rate of LIBOR plus a margin ranging from 3.75% to 4.75% (4.25% at December 26, 2010), determined by 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 a rolling four-quarter calculation of EBITDA, all as defined in the agreements. 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 of the parent company. Additionally, there are restrictions on the Company’s ability to pay dividends (none are allowed in 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 bank term loan facility contains an annual requirement to use excess cash flow (as defined within the agreement) to repay debt. Other factors, such as the sale of assets, may also result in a mandatory prepayment of a portion of the bank term loan. The Company was in compliance with all covenants and expects that the covenants will continue to be met. The following table includes information about the carrying values and estimated fair values of the Company’s financial instruments at March 27, 2011 and December 26, 2010:

 

     March 27, 2011      December 26, 2010  

(In thousands)

   Carrying
Amounts
     Fair Value      Carrying
Amounts
     Fair Value  

Assets

           

Investments

           

Trading

   $ 287       $ 287       $ 249       $ 249   

Liabilities

           

Interest rate swaps

     4,435         4,435         6,891         6,891   

Long-term debt:

           

Bank term loan

     364,412         362,278         369,412         365,980   

11.75% senior notes

     294,177         331,969         293,929         320,608   

Revolving credit facility ($65 million available at 3/27/11)

     —           —           —           —     

 

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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 bank term loan debt in the chart above was estimated using discounted cash flow analyses and an estimate of the Company’s bank borrowing rate (by reference to publicly traded debt rates as of March 27, 2011) for similar types of borrowings. As of March 27, 2011, the fair value of the 11.75% Senior Notes was valued at the most recent trade prior to the end of the quarter which approximates fair value. 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).

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 2009, and the remaining swaps with nominal amounts of $200 million will mature in the third quarter of 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 9.9% at March 27, 2011.

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 2011 and 2010, $2.7 and $2.8 million, respectively, were reclassified from Other Comprehensive Income (OCI) into interest expense on the Consolidated Condensed Statement of Operations as the effective portion of the interest rate swap. The pretax change deferred in OCI for the first quarter of 2011 and 2010 was $2.5 million and $1.1 million, respectively. All amounts paid for these swaps are recorded in the Consolidated Condensed 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 27, 2011, the Company estimates that $4.4 million will be reclassified from OCI to interest expense in the next twelve months. Interest rate swaps are recorded on the Consolidated Condensed Balance Sheets in the line item “Accrued expenses and other liabilities.” 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 27, 2011:

 

(In thousands)

   Fair Value as of March 27,
2011
     Fair Value as of December 26,
2010
 

Fair value of interest rate swaps

   $ 4,435       $ 6,891   
                 

 

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5. 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 websites. Additionally, more than 200 specialty publications that include weekly newspapers and niche publications and the websites 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.

 

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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 media platform. In certain instances, operations have been aggregated based on similar economic characteristics. The following table sets forth the Company’s current and prior-year financial performance by segment:

 

(In thousands)

   Revenues     Depreciation and
Amortization
    Operating Profit
(Loss)
 

Three Months Ended March 27, 2011

      

Virginia/Tennessee

   $ 42,580      $ (3,177   $ 3,837   

Florida

     33,945        (1,600     (3,135

Mid-South

     38,292        (2,957     5,412   

North Carolina

     17,629        (1,410     127   

Ohio/Rhode Island

     12,357        (773     2,344   

Advertising Services & Other

     5,149        (240     (13

Eliminations

     (1,009     —          —     
            
         8,572   

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (1,514     (1,514

Corporate expense

     —          (1,348     (8,272
                  
   $ 148,943      $ (13,019  
                  

Corporate interest expense

         (16,553

Other

         (2,779
            

Loss before income taxes

       $ (20,546
            

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
            

Loss before income taxes

       $ (10,739
            

 

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6. The Consolidated Condensed Statements of Operations include amortization expense from amortizing intangible assets of $1.5 million for the first quarter of 2011 and $1.6 million for the first quarter of 2010. Currently, intangibles amortization expense is projected to be approximately $6 million in total for 2011, decreasing to $3 million in 2012, and to $2 million from 2013 to 2015.

The Company has recorded pretax cumulative impairment losses related to goodwill approximating $685 million through March 27, 2011, with no impairment losses recorded in the first quarter of 2011. The following table shows the gross carrying amount and accumulated amortization for intangible assets as of March 27, 2011 and December 26, 2010:

 

     December 26, 2010      Change      March 27, 2011  

(In thousands)

   Gross
Carrying
Amount
     Accumulated
Amortization
     Amortization
Expense
     Gross
Carrying
Amount
     Accumulated
Amortization
 

Amortizing intangible assets

              

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

              

Virginia/Tennessee

   $ 55,326       $ 43,088       $ 178       $ 55,326       $ 43,266   

Florida

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

Mid-South

     84,048         66,057         1,072         84,048         67,129   

North Carolina

     11,931         10,316         37         11,931         10,353   

Ohio/Rhode Island

     9,157         5,222         89         9,157         5,311   

Advert. Serv. & Other

     6,614         3,847         138         6,614         3,985   
                                            

Total

   $ 168,131         129,585       $ 1,514       $ 168,131       $ 131,099   
                                            

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      
                                      

7. The following table sets forth the computation of basic and diluted earnings per share from continuing operations. There were approximately 36,000 shares and 57,000 shares that were not included in the computation of diluted EPS for the quarter ended March 27, 2011 and March 28, 2010, respectively, because to do so would have been anti-dilutive for the period presented.

 

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(In thousands, except per share amounts)

   Quarter Ended
March 27, 2011
    Quarter Ended
March 28, 2010
 

Numerator for basic and diluted earnings per share:

    

Loss available to common stockholders

   $ (25,804   $ (16,746
                

Denominator for basic and diluted earnings per share:

    

Weighted average shares outstanding

     22,400        22,290   
                

Loss per common share (basic and diluted)

    

(basic and diluted)

   $ (1.15   $ (0.75
                

8. The following table provides the components of net periodic employee benefits expense for the Company’s benefit plans for the first quarter of 2011 and 2010:

 

     Pension Benefits     Other Benefits  

(In thousands)

   March 27,
2011
    March 28,
2010
    March 27,
2011
    March 28,
2010
 

Service cost

   $ —        $ —        $ 50      $ 50   

Interest cost

     5,600        5,825        550        600   

Expected return on plan assets

     (6,175     (5,950     —          —     

Amortization of prior-service (credit)/cost

     —          —          450        450   

Amortization of net loss/(gain)

     950        700        (125     (200
                                

Net periodic benefit cost

   $ 375      $ 575      $ 925      $ 900   
                                

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

 

     Quarter Ended  

(In thousands)

   March 27,
2011
    March 28,
2010
 

Net loss

   $ (25,804   $ (16,746

Unrealized gain on derivative contracts (net of deferred taxes)

     1,498        647   
                

Comprehensive loss

   $ (24,306   $ (16,099
                

 

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10. The following table shows the Company’s Statement of Stockholders’ Equity as of March 27, 2011:

 

           Common Stock                           

(In thousands, except shares)

   Class A
Shares
    Class A     Class B      Paid-in
Capital
    Comprehensive
Income (Loss)
    Retained
Earnings
    Total  

Balance at December 26, 2010

     22,493,878      $ 112,469      $ 2,743       $ 26,381      $ (126,799   $ 149,128      $ 163,922   

Net loss

       —          —           —          —          (25,804     (25,804

Unrealized gain on derivative contracts (net of deferred taxes of $958)

       —          —           —          1,498        —          1,498   
                     

Comprehensive loss

                  (24,306

Exercise of stock options

     11,232        56        —           (32     —          —          24   

Performance accelerated restricted stock

     (22,374 )      (112     —           (6     —          —          (118

Stock-based compensation

       —          —           622        —          —          622   

Other

     141        1        —           10        —          —          11   
                                                         

Balance at March 27, 2011

     22,482,877      $ 112,414      $ 2,743       $ 26,975      $ (125,301   $ 123,324      $ 140,155   
                                                         

11. The Company’s subsidiaries guarantee the debt securities of the parent company. The Company’s subsidiaries are 100% owned except for the Company’s Supplemental 401(k) Plan; all subsidiaries except those in the non-guarantor column (which includes the Supplemental 401(k) Plan) currently guarantee the debt securities. These guarantees are full and unconditional and on a joint and several basis. 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, together with certain eliminations.

 

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Media General, Inc.

Condensed Consolidating Balance Sheet

As of March 27, 2011

(In thousands, unaudited)

 

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

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 16,711      $ 1,930      $ —        $ —        $ 18,641   

Accounts receivable - net

     —          82,981        —          —          82,981   

Inventories

     3        6,795        —          —          6,798   

Other

     3,450        21,610        —          —          25,060   
                                        

Total current assets

     20,164        113,316        —          —          133,480   
                                        

Investment in and advances to subsidiaries

     284,217        1,985,660        —          (2,269,877     —     

Intercompany note receivable

     678,512        —          —          (678,512     —     

Other assets

     24,001        16,194        287        —          40,482   

Property, plant & equipment - net

     27,661        365,276        —          —          392,937   

FCC licenses and other intangibles - net

     —          212,902        —          —          212,902   

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

     —          355,017        —          —          355,017   
                                        

TOTAL ASSETS

   $ 1,034,555      $ 3,048,365      $ 287      $ (2,948,389   $ 1,134,818   
                                        

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 7,462      $ 15,604      $ —        $ (6   $ 23,060   

Accrued expenses and other liabilities

     31,935        42,070        —          —          74,005   
                                        

Total current liabilities

     39,397        57,674        —          (6     97,065   
                                        

Long-term debt

     658,728        —          —          —          658,728   

Intercompany loan

     —          678,512        —          (678,512     —     

Retirement, post-retirement and post-employment plans

     170,265        —          —          —          170,265   

Deferred income taxes

     —          39,838        —          —          39,838   

Other liabilities and deferred credits

     23,662        4,103        1,002        —          28,767   

Stockholders’ equity

          

Common stock

     115,157        4,872        —          (4,872     115,157   

Additional paid-in capital

     29,323        2,435,790        (1,896     (2,436,242     26,975   

Accumulated other comprehensive loss

     (125,301     —          —          —          (125,301

Retained earnings

     123,324        (172,424     1,181        171,243        123,324   
                                        

Total stockholders’ equity

     142,503        2,268,238        (715     (2,269,871     140,155   
                                        

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

   $ 1,034,555      $ 3,048,365      $ 287      $ (2,948,389   $ 1,134,818   
                                        

 

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Media General, Inc.

Condensed Consolidating Balance Sheet

As of December 26, 2010

(In thousands)

 

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

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 30,893      $ 967      $ —        $ —        $ 31,860   

Accounts receivable - net

     —          102,314        —          —          102,314   

Inventories

     2        7,051        —          —          7,053   

Other

     3,112        57,001        —          (30,368     29,745   
                                        

Total current assets

     34,007        167,333        —          (30,368     170,972   
                                        

Investment in and advances to subsidiaries

     316,619        1,979,076        —          (2,295,695     —     

Intercompany note receivable

     673,265        —          —          (673,265     —     

Other assets

     23,266        17,114        249        —          40,629   

Property, plant and equipment - net

     27,518        371,421        —          —          398,939   

FCC licenses and other intangibles - net

     —          214,416        —          —          214,416   

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

     —          355,017        —          —          355,017   
                                        

Total assets

   $ 1,074,675      $ 3,104,377      $ 249      $ (2,999,328   $ 1,179,973   
                                        

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 9,289      $ 20,747      $ —        $ (6   $ 30,030   

Accrued expenses and other liabilities

     42,434        77,718        —          (30,368     89,784   
                                        

Total current liabilities

     51,723        98,465        —          (30,374     119,814   
                                        

Long-term debt

     663,341        —          —          —          663,341   

Intercompany loan

     —          673,265        —          (673,265     —     

Retirement, post-retirement and post-employment plans

     170,670        —          —          —          170,670   

Deferred income taxes

     —          34,729        —          —          34,729   

Other liabilities and deferred credits

     22,594        4,039        864        —          27,497   

Stockholders’ equity

          

Common stock

     115,212        4,872        —          (4,872     115,212   

Additional paid-in capital

     28,806        2,435,790        (1,906     (2,436,309     26,381   

Accumulated other comprehensive loss

     (126,799     —          —          —          (126,799

Retained earnings

     149,128        (146,783     1,291        145,492        149,128   
                                        

Total stockholders’ equity

     166,347        2,293,879        (615     (2,295,689     163,922   
                                        

Total liabilities and stockholders’ equity

   $ 1,074,675      $ 3,104,377      $ 249      $ (2,999,328   $ 1,179,973   
                                        

 

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Media General, Inc.

Condensed Consolidating Statements of Operations

Three Months Ended March 27, 2011

(In thousands, unaudited)

 

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

Revenues

   $ 9,328      $ 149,892      $ —        $ (10,277   $ 148,943   

Operating costs:

          

Employee compensation

     10,172        67,937        110        —          78,219   

Production

     —          36,670        —          (914     35,756   

Selling, general and administrative

     388        35,171        —          (9,363     26,196   

Depreciation and amortization

     620        12,399        —          —          13,019   
                                        

Total operating costs

     11,180        152,177        110        (10,277     153,190   
                                        

Operating loss

     (1,852     (2,285     (110     —          (4,247

Other income (expense):

          

Interest expense

     (16,553     (11     —          —          (16,564

Intercompany interest income (expense)

     17,154        (17,154     —          —          —     

Investment income (loss) - consolidated affiliates

     (25,751     —          —          25,751        —     

Other, net

     241        24        —          —          265   
                                        

Total other income (expense)

     (24,909     (17,141     —          25,751        (16,299
                                        

Income (loss) before income taxes

     (26,761     (19,426     (110     25,751        (20,546

Income tax expense (benefit)

     (957     6,215        —          —          5,258   
                                        

Net income (loss)

     (25,804     (25,641     (110     25,751        (25,804

Other comprehensive income (net of tax)

     1,498        —          —          —          1,498   
                                        

Comprehensive income (loss)

   $ (24,306   $ (25,641   $ (110   $ 25,751      $ (24,306
                                        

 

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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 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 Cash Flows

Three Months Ended March 27, 2011

(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

   $ (3,383   $ (539   $ (10   $ —        $ (3,932

Cash flows from investing activities:

          

Capital expenditures

     (748     (3,864     —          —          (4,612

Net change in intercompany note receivable

     (5,247     —          —          5,247        —     

Other, net

     32        119        —          —          151   
                                        

Net cash (used) provided by investing activities

     (5,963     (3,745     —          5,247        (4,461

Cash flows from financing activities:

          

Increase in bank debt

     20,248        —          —          —          20,248   

Repayment of bank debt

     (25,108     —          —          —          (25,108

Net change in intercompany loan

     —          5,247        —          (5,247     —     

Other, net

     24        —          10        —          34   
                                        

Net cash (used) provided by financing activities

     (4,836     5,247        10        (5,247     (4,826
                                        

Net (decrease) increase in cash and cash equivalents

     (14,182     963        —          —          (13,219

Cash and cash equivalents at beginning of year

     30,893        967        —          —          31,860   
                                        

Cash and cash equivalents at end of period

   $ 16,711      $ 1,930      $ —        $ —        $ 18,641   
                                        

 

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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 bank debt

     134,156        —          —          —          134,156   

Repayment of bank debt

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

Proceeds from issuance of senior 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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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. It is committed to providing high-quality local content in growth markets over multiple platforms, to continually developing new products and services tailored to customer preferences, and to sustaining traditional media audience viewership while simultaneously seeking an increased share of digital audiences. 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. Regardless of the delivery platform, content/information is the product that the Company provides and the individual markets take their cues about customers’ distinct needs and preferences. The Company’s strategic objective is to drive profitable growth across multiple platforms by engaging with communities on their own terms and by developing effective marketing opportunities that connect advertisers to the prospective customers they want to reach.

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

RESULTS OF OPERATIONS

The Company recorded a net loss of $26 million ($1.15 per share) in the first quarter of 2011, as compared to a net loss of $17 million ($0.75 per share) in the equivalent prior-year quarter. The driving force behind the reduced quarter-over-quarter performance was a 6.2% decline in revenues which brought about a 54% decrease in operating results. In this odd-numbered year, the absence of the Olympics and significantly reduced Political advertising both contributed to the revenue shortfall. In an effort to mitigate some of the revenue weakness, year-over-year operating expenses were held to a 2% increase. Additionally, lower interest and income tax expense helped to soften the year-over-year decrease in results. The 16% drop in interest expense was more than fully attributable to the current-year absence of $5.5 million of 2010 expense (due to debt issuance costs that were expensed immediately upon entering into the new financing structure in February 2010). Income taxes in 2011 decreased $.7 million as compared to the first quarter of 2010, chiefly the result of a decrease in the non-cash “naked credit” that is described in the Income Taxes section of this Form 10-Q.

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

2011 versus 2010

 

      First Quarter Change  

(In thousands)

   Amount     Percent  

Local

   $ (1,286     (1.6

National

     (4,612     (15.6

Political

     (792     (80.8

Classified

     (3,220     (15.2

Subs/Content/Circulation

     (486     (2.2

 

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As illustrated in the chart above, revenues were down across all major categories. Several factors contributed, including the current-year absence of more than $7.5 million in 2010 Olympic revenues and nearly $1 million in prior-year Super Bowl revenues (which aired on FOX this year), the Easter holiday falling in the second quarter of this year as opposed to being a first-quarter event last year, and a general weakness in advertising at the Company’s Publishing operations. As anticipated in this off-election year, Political advertising was down significantly. Classified continued to struggle in most, but not all, locations and generally had a greater impact in those markets with a heavier mix of newspapers. While not yet a major revenue category, the Company’s Printing and Distribution operations have continued to expand and are becoming an increasingly important contributor to overall revenues as evidenced by a 24% revenue increase in the first quarter over the equivalent prior-year period.

Revenues in the Virginia/Tennessee Market fell 7.1% in the first quarter of 2011 compared to 2010. Advertising dollars were down across all categories. Classified advertising fell by 17% and was the largest contributor to the year-over-year decline as legal advertising rates and real estate advertising dropped significantly. National and Local advertising fell a combined 4.5% in 2011 from the equivalent quarter last year. Revenues from third-party Printing and Distribution grew 5.4%.

Revenues in the Florida Market decreased 11%, in the first quarter of the year compared to the first three months of 2010. The continued soft housing market and high unemployment in the Tampa Bay area remained a factor in the Market’s overall revenue performance. National advertising fell farthest, with Local and Classified advertising equally contributing the remainder of the shortfall. National advertising (down 31%) and Local advertising (down 4.2%) were impacted by non-recurring revenues from the 2010 Olympics, while Classified advertising (down 17%) dropped most significantly in the real estate and employment categories.

Running counter to trend, revenues in the Mid-South Market increased 4.7% in the first quarter of 2011 compared to 2010. Despite the virtual absence of Political advertising and a small decrease in Classified advertising, total advertising revenues rose more than 5% due to solid growth in Local and National advertising (both up approximately 5%). Also contributing to this Market’s revenue success was a 54% increase in Printing and Distribution revenues and growth of nearly 7% in Subscription/Content/Circulation revenues.

Revenues in the North Carolina Market declined 6.3% in the first quarter of 2011 from the first three months of 2010. Advertising revenues were down across all categories, with Local, National and Classified contributing almost equally to the overall decline. The lack of Olympic spending and general weakness across many advertising categories (such as financial, medical, and telecommunications) led to reduced current-year revenues in the Market. Printing and Distribution revenues in the North Carolina Market more than doubled with the addition of USA TODAY as a local third-party customer.

Revenues in the Ohio/Rhode Island Market decreased 9.2% in the first quarter of 2011 compared to the first quarter of 2010. This is the Company’s only geographic market which does not include any newspapers and is therefore less influenced by Classified advertising, but 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 stations are NBC affiliates and, consequently, reaped the full benefit of 2010 Winter Olympics advertising. Without that revenue source in 2011, National and Local advertising revenues were down 18% and 8.4%, respectively, from last year’s first quarter. Local advertising suffered decreases in most key categories, while the decline in National advertising stemmed primarily from lower automotive and furniture advertising.

Operating Expenses

The Company manages its expenses consistent with the revenue opportunities in each market. Over the past few years in particular, the Company has reacted to the challenging advertising environment by aggressively reducing costs across all markets and modifying its operations to achieve greater efficiencies. While the Company continues to keep a sharp eye on costs, its current structure is much more in line with existing economic conditions. Total operating costs rose just 2% in the first quarter of 2011 due to higher employee compensation

 

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costs and newsprint expense. After several years of virtually freezing all merit increases as well as suspending the Company’s 401(k) match, effective with 2011’s first quarter, the Company reinstated modest merit increases, incentive-based compensation, and a 401(k) match of up to 2% of the employee’s salary. As a result, employee compensation was up 3.5%, but was held somewhat in check due to lower employee counts and open positions at many locations. Higher newsprint expense, which was partially offset by additional savings derived through efforts to manage discretionary spending and by lower depreciation costs (due primarily to lower capital expenditures), was responsible for the remainder of the overall operating cost increase. Newsprint costs rose 31% in 2011 from the prior year due almost fully to a 30% increase in average cost per ton.

Operating expenses in the Virginia/Tennessee Market increased 1.3% in the first quarter of 2011 from the first quarter of 2010. Higher newsprint costs were primarily responsible for the increase, partially offset by a decrease in depreciation and amortization (due to lower capital expenditures).

Operating expenses in the Florida Market were up less than 1% in the first quarter of 2011 from the equivalent year-ago period of 2010. Similar to the Virginia/Tennessee Market, higher newsprint costs were the driving factor behind the Market’s modest quarter-over-quarter rise in operating costs.

Operating expenses in the Mid-South Market rose 3% in the first quarter of 2011 from the same period in 2010. Higher employee compensation expense was responsible for the Market’s increased costs due not only to merit increases, but also to the Market’s strong performance which resulted in higher sales incentives and commissions. This market has a heavier mix of broadcast stations than newspapers and therefore, while newsprint costs were up, they were less significant to the overall cost increase than in other markets.

Operating expenses in the North Carolina Market decreased 1.1% in the first quarter compared to 2010’s first quarter. As was the case with other Markets, a drop in depreciation and amortization expense (down 9.4% due to lower capital expenditures in recent years) aided the Market’s overall results. Despite merit increases, employee compensation costs were also down moderately due to lower employee counts in the first quarter of 2011 compared to the first three months of 2010.

Operating expenses in the Ohio/Rhode Island Market were down 3.1% in the quarter relative to the first three months of 2010 due to small savings in depreciation and amortization expense (due to lower capital expenditures) as well as reduced bad debt expense.

Advertising Services & Other

Advertising Services & Other (ASO) primarily includes:

 

   

Blockdot - an advergaming business that also produces other forms of branded entertainment;

 

   

DealTaker.com - an online social shopping portal;

 

   

NetInformer - a provider of mobile advertising and marketing services;

 

   

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

Revenues in ASO decreased 19% in the first quarter of 2011 from the first quarter of 2010. The Market’s revenue decline was fully attributable to a $1.5 million (52%) reduction in revenues at DealTaker.com that was driven by a significant change in the way Internet search results are delivered by Google that affected many e-commerce businesses. As a result of this change, the Company performed an interim impairment test on this reporting unit in the first quarter of 2011 by comparing the carrying value of the reporting unit to its estimated fair value, with no impairment indicated. The quarter-over-quarter decrease in Market revenue was partially offset by a $.2 million (12%) increase in revenues in the Production Services operations due to higher sales and installation of broadcast equipment and, to a lesser degree, to revenue improvement at NetInformer.

 

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Operating expenses were up 5.5% in the first quarter of 2011 primarily due to higher project costs associated with Company’s mobile business. In addition, higher cost of goods sold was in line with the previously mentioned increased volume of work at Production Services.

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

2011 versus 2010

 

     Q1 Change  

(In thousands)

   Amount     Percent  

Virginia/Tennessee

   $ (3,772     (49.6

Florida

     (4,380     NM   

Mid-South

     736        15.7   

North Carolina

     (984     (88.6

Ohio/Rhode Island

     (937     (28.6

Adv. Services & Other

     (1,454     NM   

Eliminations

     2        (100.0
          

Total

   $ (10,789     (55.7
          

“NM” is not meaningful

Excluding the Mid-South, all Markets fell short of achieving their 2010 first quarter operating profit performance, with the Florida and Virginia/Tennessee Markets falling furthest from the prior-year mark. Lower revenues (due to 2011 being an odd-numbered year and to a general weakness in advertising at the Company’s Publishing operations) drove the year-over-year deficits for all markets that were down. The Mid-South Market was the exception to this rule as it produced revenue growth of 4.7% which allowed for a 16% improvement in its operating profit.

INTEREST EXPENSE

Interest expense decreased from $20 million in the first quarter of 2010 to $17 million in the first three months of 2011. The prior-year quarter included $5.5 million in debt issuance costs that were immediately expensed when the Company entered into its new financing structure in February of 2010. Absent this write-off, interest expense would have increased in 2011 due to an increase in the average rate from 8.1% in the first quarter of 2010 to 9.9% in the first quarter of 2011, slightly offset by the effect of a $40 million reduction in average debt outstanding.

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 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 the remaining $200 million will mature in the third quarter of 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 9.9% at March 27, 2011.

 

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INCOME TAXES

The Company recorded non-cash income tax expense of $5.3 million in the first quarter of 2011 compared to $6 million in the equivalent quarter of 2010. The Company’s tax provision for both periods had an unusual relationship to its pretax loss 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. The tax expense recorded in the first quarter of 2011 reflects the accrual of approximately $6.2 million of 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 (termed a “naked credit”), partially offset by $900 thousand of tax benefit related to the intraperiod allocation items in Other Comprehensive Income. The Company expects the naked credit to result in approximately $25 million of non-cash income tax expense for the full-year 2011 (as previously discussed in the Company’s Form 10-K for the year ended December 26, 2010). Other tax adjustments and intraperiod tax allocations that are difficult to forecast may also affect the remainder of 2011.

LIQUIDITY

Net cash used by operating activities in the first quarter of 2011 was $3.9 million compared to $21 million provided by operations in the year-ago period. Cash collected from year-end accounts receivable and the drawdown of cash investments allowed the Company to make interest payments of $18 million on its senior notes, make capital expenditures of $4.6 million and to reduce debt by almost $5 million.

As of March 27, 2011, the Company had in place with its syndicate of banks a $364 million term loan that was fully drawn and a revolving credit facility with availability of $65 million and no outstanding balance. Also outstanding were 11.75% Senior Notes with a par value of $300 million that were sold at a discount and carried on the balance sheet at quarter end at $294 million. The bank credit facilities mature in March 2013 and bear an interest rate of LIBOR plus a margin (4.25% at the close of the first quarter) based on the Company’s leverage ratio, as defined in the agreement. The agreements have two main financial covenants; a leverage ratio and a fixed charge coverage ratio. The leverage ratio is calculated as the ratio of total indebtedness (including long-term debt, short-term capitalized leases, guarantees and letters of credit) to earnings before interest, depreciation and amortization (“EBITDA”) (rolling four quarters of EBITDA adjusted for severance and other shutdown charges, non-operating non-cash charges less gains and broadcast film rights’ amortization charges less cash payments). The fixed charge coverage ratio is calculated as the ratio of EBITDA (as defined for the leverage ratio) less capital expenditures to fixed charge expense (cash interest paid plus cash taxes paid).

The Company pledged its cash and assets as well as the stock of its subsidiaries as collateral; the Company’s subsidiaries also guarantee the debt of the parent company. Additionally, there are restrictions on the Company’s ability to pay dividends (none are allowed in 2011), make capital expenditures above certain levels, repurchase its stock, make pension plan contributions above the amount required to maintain 80% plan funding, and engage in certain other transactions such as making investments or entering into capital leases above certain preset levels. The Company was in compliance with all covenants as of March 27, 2011 and fully expects that the covenants in both the near and long-term will continue to be met.

OUTLOOK

Despite the challenges that an off-election year presents, the Company’s Broadcast stations are expected to benefit from issue advertising and early presidential campaign spending in the latter part of 2011. However, the Company’s Publishing properties are expected to experience the effects of lower revenues and higher newsprint costs during the remainder of 2011. While the Company remains optimistic about its Broadcast properties and digital offerings in the second half of the year, profits in all of the Company’s Markets are expected to be down in the second quarter of 2011 compared to the equivalent prior-year quarter. The Company will remain vigilant in managing expenses in light of the current revenue opportunity in each particular

 

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market. The Company recognizes the ongoing changes surrounding the packaging and delivery of news and information and continues to create new revenue streams, cultivate burgeoning projects and pursue new business and new customer prospects. The Company’s execution of this strategy is illustrated by its success growing Local online revenues and in its relationships with both emerging and established online brands (such as Yahoo!, Zillow and Monster). Additionally, the Company routinely evaluates the potential of its existing properties and makes changes such as at Blockdot, which is in the process of transforming itself from essentially a job shop that produces games and other forms of branded entertainment to a full-service digital media agency.

* * * * * * * *

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 economy on advertising demand, interest rates, the availability and pricing of newsprint, changes to accounting standards, changes in consumer preferences for programming, health care cost trends and regulations, a natural disaster, the level of political advertising, 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 26, 2010, details our disclosures about market risk. As of March 27, 2011, there have been no material changes in the Company’s market risk from December 26, 2010.

 

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.

 

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PART II. OTHER INFORMATION

 

Item 2. Issuer Purchases of Equity Securities

The following table provides information with respect to shares withheld to satisfy tax withholding obligations upon the vesting of Performance Accelerated Restricted Stock awarded under the Company’s Long-Term Incentive Plan during the three months ended March 27, 2011:

 

Date

   Total Number of
Shares Purchased
     Average Price Per
Share
 

December 31

     9,496       $ 5.78   

January 30

     12,878       $ 4.88   

 

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 6, 2011  

/s/ Marshall N. Morton

  Marshall N. Morton
  President and Chief Executive Officer
DATE: May 6, 2011  

/s/ John A. Schauss

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

 

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