First-Quarter Conference Call Remarks
April 12, 2005 at 11:00 AM Eastern

by J. Stewart Bryan III, Chairman and CEO, Marshall N. Morton, Vice Chairman and Chief Financial Officer, Reid Ashe, President and Chief Operating Officer, and Lou Anne J. Nabhan, Vice President, Corporate Communications

Welcome from Lou Anne Nabhan

Thank you and good morning everyone. Welcome to Media General’s First-Quarter Conference Call and Webcast.

Earlier today, Media General issued two press releases. We announced earnings for the first-quarter of 2005 and revenues for the month of March. Both press releases have been posted on our Web site. The comments from today’s conference call also will be posted on our Web site immediately following the call.

Today’s presentation contains forward-looking statements, which are subject to various risks and uncertainties. They should be understood in the context of the company’s publicly available reports filed with the SEC. Media General’s future performance could differ materially from its current expectations.

Our first speaker today is Stewart Bryan, chairman and chief executive officer.

Remarks from Stewart Bryan

Thank you, Lou Anne, and good morning ladies and gentlemen. We appreciate your interest in Media General’s performance and outlook.

For the first-quarter of 2005, Media General reported income of $9.3 million, or 39 cents per share, before an accounting change, an increase of 2.2% compared to the first quarter of 2004.

Our earnings per share for the quarter were slightly higher than our most recent guidance, mostly reflecting better-than-anticipated results in the Publishing Division. Publishing's March results were difficult to project due to Easter falling on the last Sunday of the month. Retail preprints tend to be weaker on Easter Sunday, and there is also some decline in employment linage on most holidays.

Indeed, employment linage was lower on Easter Sunday, and Retail preprints were weaker. However, in the weeks leading up to the holiday, retail ROP advertising and national advertising were stronger than expected, as was employment advertising -- particularly in Tampa.

Consolidated revenues for the quarter were up 4.7%, including a 5.7% increase in the Publishing Division and a 1% increase in the Broadcast Division.

Our Publishing Division’s revenue growth this year has been at the top of its peer group. January and February were particularly strong months. In fact, February was the division’s best month for revenue growth since December 2000. March wasn’t as strong as the first two months, though it was still a good performance. We're also comparing against a March 2004 that was exceptionally strong; whereas, January and February last year were weak, the reverse of this year's pattern.

The Broadcast Division did an excellent job increasing local advertising revenues by 6.3%. National revenues were down somewhat, and it was not possible, of course, to beat last year’s $3 million in political advertising revenues.

Interactive Media Division revenues increased 51%. This increase accounted for 15% of our overall revenue growth for the quarter. The division’s bottom line also improved by 51% compared to last year’s first quarter.

Equity earnings from our interest in SP Newsprint improved by more than $700,000, to income of $450,000, and contributed to our profit improvement. This improvement reflected higher newsprint prices. Lower interest expense contributed to our profit performance as well.

Let me now ask Reid to discuss divisional operating performance for the first quarter.

Remarks from Reid Ashe

Thank you, Stewart. I will start with the Publishing Division. Operating profit of $29.3 million was up 12.5% compared with the first quarter of 2004. Total revenues of $143 million were up 5.7%, and newspaper advertising revenues increased 7.4%. All our major advertising categories were up, led by Classified. Segment operating cash flow increased nearly 10%.

Let’s look at individual newspaper categories. As a reminder, we’ve now classified Preprint revenues into the applicable Retail, National or Classified category, both for the current and prior-year periods. We’ve also moved Color and comics revenues from Other advertising into the applicable category.

Classified advertising was strong at almost every newspaper, growing $4.5 million, or 9.7%. The main reason was employment linage, and several markets experienced higher automotive classified as well. The Tampa Tribune was particularly strong in employment and automotive, and several community newspapers also posted large increases.

Employment linage for the quarter at our three metropolitan newspapers increased 12.9% in the aggregate. The gains were 9.5% at The Tampa Tribune, 19.9% at the Richmond Times-Dispatch, and 2.1% at the Winston-Salem Journal.

Retail advertising revenues for the quarter increased $1.6 million, or 3.2%, mostly reflecting an increase in Tampa and many Community newspaper markets. Retail advertising gains at The Tampa Tribune exceeded 5%. Their gain was driven by a 9% increase in department store advertising and also reflected increased spending by medical and automotive parts advertisers. Our Community newspapers as a group experienced strong increases in retail preprints, and selected markets saw growth in various retail advertising categories. At the Richmond Times-Dispatch, retail revenues rose about 1%, with all of the increase coming from preprint volume. At the Winston-Salem Journal, retail revenues were down, reflecting lower department store advertising.

National advertising revenues increased $2.1 million, or 21% over last year. Half the increase came from The Tampa Tribune, which benefited from gains in telecommunications, national automotive and national preprints advertising. The Winston-Salem Journal saw similar percentage gains to those in Tampa, with the majority of the growth coming from telecommunications. In Richmond, national revenues increased 15.3%, with the growth occurring in several categories, while telecommunications was down there.

Circulation revenue was down 2.3% compared to last year. Volume declines at some newspapers are a part of the reason, but we’re also making changes in the way we compensate some of our independent carriers.

While our overall circulation volume declined slightly in the first quarter, several Media General newspapers are showing increases. Through March, nine of our newspapers were above last year in daily circulation and seven were up Sunday.

Publishing Division expenses for the first quarter increased 4.6% over last year’s first quarter. The most significant increases were newsprint, employee benefits and salaries expense.

Salaries were 2.3% above last year, mostly due to annual increases and higher commissions, partially offset by lower FTEs.

Employee benefit expense increased 10.6% due to higher retirement expenses as well as increases in state unemployment tax rates.

Newsprint expense was up 11.1% over the same quarter last year. The average price per ton this year of $496 compared to $452 last year. Consumption was about 1.2% higher than last year and resulted from increased advertising linage. The announced $35 per ton price increase on March 1 did not take effect during the month of March. We do not expect to bear the full amount of increase for a couple of months.

Also in the first quarter, bad debt expense was higher than normal for the Publishing Division, due to the Winn-Dixie and Friedman's Jewelers bankruptcies.

Let’s now turn to the Broadcast Division. Segment operating profits for the first quarter were 22% lower than results for the 2004 first quarter. Total revenues increased 1%.

Gross time sales fell 0.6% as declines in Political spot sales and National transactional sales more than offset gains in Local transactional sales. Most of our stations are hitting their business development targets for Local advertising, but the National spot market remains weak throughout the industry. Through February, we continued to exceed the industry’s ad growth rate as reported by TVB’s monthly Group Time Sales survey.

As expected, network compensation declined by nearly $1 million, reflecting new terms under the network affiliation contract renewals. This decrease was more than offset by increased revenues from our production equipment subsidiary and other sources.

Political spot billings fell $2.7 million, although in March we had unanticipated revenues from issue spending on social security and educational reforms.

Local time sales, excluding political, increased 6.3%. Our stations continued to focus on developing new business and effectively managing and pricing our spot inventory. Local advertising increases in the services, furniture, specialty stores, entertainment and home improvement categories more than offset reductions for fast food and automotive.

National time sales, excluding political, declined 1.9%. Reductions in national advertiser spending for telecommunications and department stores offset greater spending for corporate, fast food, home improvement and automotive.

Broadcast Division expenses for the first quarter rose 7.3%. Major contributors include payroll, driven by merit increases and commissions on our revenue development initiatives; cost of goods sold resulting from higher third-party equipment sales; increased retirement costs, and increased sales incentives designed to expand Local ad revenues.

The February ratings books were good for us overall. 10 of our stations gained ground in the ratings, 5 were even, and 11 declined somewhat. Most importantly, 22 of our 26 stations were rated number one or two from sign-on to sign-off. WFLA, our largest station, had an exceptional book and remained Florida’s #1 television station.

Now, let’s turn to the Interactive Media Division. Its operating loss of $826 thousand was nearly 51% better than the year-ago loss. Revenues of $4.5 million were up 51% and investment income grew as well. Improving economic conditions, aggressive sales execution and increased online usage contributed to the revenues growth.

Classified advertising, up 52% from the prior year, continues to drive the division’s performance. The smaller category of Local advertising is coming on strong, though. It nearly doubled, thanks to targeted training for the Publishing and Broadcast sales staffs, resulting in more package sales that include online components. Strong revenue growth outpaced the anticipated growth in operating expenses.

I will now turn our presentation over to Marshall.

Remarks from Marshall Morton

Thank you, Reid.

First, let me give you a brief run-through on the accounting change that produced the one-time charge we reported for the quarter. Media General was required to conform to SEC Topic D-108, which resulted in a cumulative effect of change in accounting principle charge of $325.5 million. D-108 requires the use of a direct method for valuing all assets other than goodwill. The company had used a residual value method, a commonly used method at the time, to value its FCC licenses in conjunction with acquisitions made in 1997 and 2000. However, with the adoption of D-108, the company was required to value its FCC licenses using a direct method. The direct method requires the company to value its FCC licenses using an average market participant concept and prohibits including other value components that would typically be associated with station value in the calculation. In contrast, the residual method, formerly used by the company, did include components of station value. As a result, because most Media General stations are ranked first or second in their markets, the change in accounting for FCC licenses from a residual value to a direct value method is likely to have a more unfavorable impact on the company than it will have on many other broadcasters. Ongoing intangibles amortization levels will be unaffected by this change.

EBITDA for the first quarter of 2005 of $39.3 million was about even with the prior-year period’s $39.7 million.

After-tax cash flow of $26.5 million also was about even with $26.4 million in the year-ago period.

Free cash flow of $10.5 million in the first quarter was down from $19.4 million in last year’s first quarter, and reflected, as expected, higher capital spending.

Interest expense decreased $476 thousand, or 6%, compared to last year due to lower average debt levels, partially offset by higher average interest rates.

Equity income from our share of SP Newsprint improved to a profit of $447 thousand, compared to a loss of $269 thousand a year ago, due mainly to higher newsprint prices. The profit increase for SP Newsprint was not as high as we had hoped, despite good production efficiencies and sales volume, because newsprint prices have not risen as quickly as anticipated and SP Newsprint also experienced higher production expense resulting from increased ONP and energy costs.

Acquisition intangibles amortization was up 15% due to the shortened life of network affiliation agreements.

Corporate expense was up slightly over last year.

The effective tax rate for the quarter was 36.5%, compared with 37% in the prior year.

On March 14, 2005, we amended our $1 billion revolving credit agreement with a syndicate of banks. The new agreement, which has a term of 5-1/2 years, provides more favorable pricing and covenants. Our interest payments will continue to be based on LIBOR.

Total debt at the end of the first quarter was $539 million and represented 38% of total capital. Our debt outstanding included $244 million in bank debt, $200 million in public debt, and $95 million in consolidated variable interest entity debt.

Capital expenditures for the first quarter were $16 million. Publishing Division capital expenditures of $5.6 million were invested in new press control equipment at the Richmond Times-Dispatch, new production/press equipment at the Bristol Herald Courier, a new advertising system for our metro newspapers, editorial software, and other new production equipment. The Broadcast Division spent $9.4 million, mostly for HDTV conversion and new digital camera and production equipment. Expenditures by the Interactive Media Division and Corporate were $1 million. The majority related to corporate IT and new product enhancements in IMD.

Also during the first quarter, on February 2, we announced that Media News Group had exercised its Call Option to purchase our 20% share of the Denver Post. The price will be based on independent appraisals of Denver Newspaper Inc.’s fair market value. We expect the transaction to close sometime in the second quarter.

One last item to report before turning it back to Stewart is that Media General will adopt FASB Statement No. 123(R), “Share-Based Payment”, in the third quarter of 2005, and will utilize the prospective method of accounting for employee compensation costs associated with stock options.

And, now, back to Stewart.

Remarks from Stewart Bryan

Thank you, Marshall.

Before turning to the Q&A part of our call, I would like to comment on the status of the FCC’s cross-ownership rules, as well as our outlook for the second quarter of 2005.

On the FCC, as you know, we've filed a petition asking that the United States Supreme Court review the important constitutional issues arising out of the Third Circuit's split decision remanding the new newspaper/broadcast cross-ownership rules crafted by the FCC. The Supreme Court has granted a series of extensions for some parties to file their papers, but we still expect to hear before the end of this quarter whether the Court will take this important case. And, we're hopeful on that front. The lower courts -- and the FCC, for that matter -- need the type of direction that only the Supreme Court can provide.

In the meantime, as you also know, we are filing for our television license renewals. Where it's necessary, we're asking for waivers that will allow us to retain our cross-owned stations until the courts, and the Commission if necessary, are finished considering the ownership issues. We’re optimistic. We think these waivers are the only right choice for the Commission, and we think they're also in the best interests of all of the communities we serve; communities that are benefiting every day from the higher quality local news we're able to provide because of convergence.

I should add that we're delighted Kevin Martin has been named by the White House to be the FCC's Chairman. We know Mr. Martin, and we look forward to working with him.

Now, let me turn to our expectations for the second quarter.

For the Publishing Division, we expect revenues to show increases similar to the first quarter, with continued strength in Classified advertising, especially help wanted.

For the Broadcast Division, while we expect revenues to be slightly above last year’s second quarter, driven mostly by Local transactional sales, segment profit will be down from last year. The major contributing factor will be expense associated with driving new revenue growth to offset the absence of Political revenues.

We will provide more definitive earnings guidance as the second quarter unfolds.

That concludes our formal remarks, and, now, we will be pleased to take your questions.

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