Fourth-Quarter Conference Call Remarks
January 29, 2003 at 2:30 PM 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 afternoon everyone. Welcome to Media General's Fourth-Quarter Conference Call and Webcast.

We issued three news releases today - one announced fourth-quarter earnings, the second December revenues, and the third a dividend increase. All have been posted to our Web site.

Our speakers today are Stewart Bryan, chairman and chief executive officer; Marshall Morton, vice chairman and chief financial officer; and Reid Ashe, president and chief operating officer. Their comments will be posted to our Web site immediately following this call, and a replay will be available.

Today's presentation contains forward-looking statements. These are subject to various risks and uncertainties and 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.

At this time, I will introduce Stewart Bryan.

Remarks from Stewart Bryan

Thank you, Lou Anne, and good afternoon ladies and gentlemen. Thank you for your interest in Media General and our fourth-quarter and year-end results.

I'm sorry I missed seeing you at Media Week in early December. My back problem is much improved, and I thank many of you for the kind words. Marshall and Reid thought the conference was very good, and they enjoyed meeting with so many of you individually.

We are pleased today to report fourth-quarter earnings per share of 93 cents, compared to FAS 142-adjusted earnings per share of 72 cents for the fourth quarter of 2001.

The most significant influences on the quarter were a 16% increase in divisional operating profits, principally from Broadcast, and a 21% decrease in several below-the-line expenses that more than offset a decline in SP Newsprint's results.

Broadcast profits were 76% ahead of the '01 fourth quarter, driven by a 24% increase in revenues. Political advertising, and the ability to accommodate the strong demand for airtime, resulted in a $17.6 million increase in this category. We also enjoyed strength in other categories, primarily automotive.

Publishing revenues increased 2% for the quarter, our first quarterly increase of 2002. Classified advertising overcame continued employment weakness on the strength of automotive and real estate. New growth initiatives in Tampa are paying early and strong dividends.

Our fourth-quarter results reflect stronger revenues in December than we had anticipated in both our Publishing and Broadcast businesses - and that is the main reason our actual results were better than our most recent guidance.

In Publishing, we had the largest monthly revenue increase of the year – 5% – over December '01. Retail revenue increased 5%, and preprints were up 11%. Classified revenue rose by nearly 4%, due almost entirely to automotive advertising, as employment linage still fell below last year. National revenues increased 2%.

In Broadcast, spot billings exceeded December '01 by about 14%. We benefited especially from runoff political races in Louisiana, but we also realized growth in the automotive category, as well as the department, specialty and grocery store categories.

For the quarter, Interactive Media Division revenues increased 43%, but its overall results were hurt by investment write-offs. We do not anticipate any further significant write-offs of .com investments.

Let me now ask Reid to discuss more details of our divisional operating performance for the quarter.

Remarks from Reid Ash

Thank you, Stewart. I will begin with an overview of Publishing's performance. Segment profit was about even with the fourth quarter of 2001. Included in this amount was net income from our 20% interest in The Denver Post of $472,000, compared with a loss of $295,000 in the '01 fourth quarter.

Publishing revenues increased by $2.7 million, or 2%. This growth is a significant improvement over the declines we experienced in all three previous quarters this year (5.9% for the first quarter, 3.9% for the second quarter and 2.1% for the third quarter). The strong December performance Stewart described was a significant contributing factor.

Classified revenue for the quarter increased $1.3 million, or 3.4%, and overcame continued employment weakness on the strength of good automotive and real estate linage. In Tampa, employment advertising was below last year, but this was more than offset by higher automotive and real estate classified advertising. Winston-Salem experienced similar trends. The Richmond market saw robust automotive and real estate classified advertising, but it was not enough to offset an employment linage decline. All three metro papers increased their classified rates in October 2002.

Retail advertising declined $1.8 million, or 4.4%. This was mostly offset by an increase in preprint advertising of $1.5 million, or 7.5%. The Richmond Times-Dispatch represented the largest portion of the retail decline due to lower discount, department and furniture store ads. Kmart ran a significant ROP campaign in 2001 that did not repeat in 2002.

The Tampa Tribune had an increase in retail revenues. The largest gains were in the financial category, mostly from a branding campaign by Wachovia, but also from strength in other categories such as home furnishings and sporting goods. All three metro papers increased their retail rates in October. Retail advertising at the community newspapers was generally down, with softness in a wide array of categories.

National advertising was just about even with the '01 quarter. Richmond and Winston-Salem were above the previous results, mostly from strong telecommunications advertising. Tampa was below, due to losses in the travel and telecommunications categories.

Circulation revenue for the quarter showed an increase of over $1 million, most of which was due to unusually low circulation revenues in the fourth quarter of 2001.

The majority of our daily newspapers are enjoying excellent circulation growth. In December, daily and Sunday circulation was up at 18, or 72%, of our daily papers.

Our total circulation increased 2.3% daily and 2.6% Sunday. The Tampa Tribune was up 5.8% daily and 5.9% Sunday. In November, we passed the 1 million mark for total Sunday circulation, and we sustained that level in December. The next growth opportunity we'll attack is at our weekly newspapers.

We are delighted with the increases we are seeing in circulation in Tampa. They're coming much faster than expected. We are focused on building quality circulation in the areas where our advertisers want it.

The circulation growth is driving significant increases in preprint revenue, and we expect this growth to continue as our circulation grows. At the same time, our share of advertising revenue in Tampa Bay continues to grow. Our plans for 2003 include initiatives that will drive additional share and generate above-average revenue gains.

On the expense side of our Publishing business, we are now comparing to the favorable results of cost savings initiatives that were implemented at the beginning of the downturn. Thus, our ability to reap additional savings has subsided. Efforts to eliminate and closely monitor expenses continue; however, the results are less apparent than in previous quarters.

As a result, expenses for the fourth quarter of 2002 were 3.5% higher than the fourth quarter of 2001. This was the first quarter in 2002 we saw expenses rise over the prior year.

Newsprint expense continued to fall below the prior year due to favorable pricing, but the savings are diminishing as prices start to rise and we begin to compare to the lower prices experienced in the fourth quarter of last year. For the quarter, newsprint expense was $1.5 million, or 9.4% below last year, which was substantially less that the 25.3% decline experienced in the third quarter.

The average price per ton consumed was $404, compared to $463 last year. Increased consumption, primarily in Tampa, partially offset the price savings. Tampa's increased consumption was the result of higher ROP linage and increased net paid circulation.

Salary expense increased 3.4%, mainly due to annual salary increases, but also due to additional personnel to implement growth plans, particularly in Tampa.

Now, let's turn to the Broadcast Division. Profits for the quarter increased by 76%. This significant increase was driven by a 28% increase in gross time sales, which were up $19 million. Of this amount, political advertising generated $17.6 million during the elections and runoffs.

Local ad revenues rose 3.7%, reflecting particularly strong automotive advertising, as well as gains in specialty stores, medical and grocery.

National revenues for the quarter were about even with the prior-year period. Heavy political activity forced a number of national advertisers to pull their ad schedules during the election season. We did see a nice increase in department store advertising and smaller gains in telecommunications and entertainment.

Media General continues to outperform the industry on advertising growth rates. The TV Bureau's monthly group survey, through November, reported an increase in industry time sales of 11.6%. Our increase was 20.3%. Industry national time sales increased by 17.9%, compared to our increase of 32.3%. Industry local time sales increased 7.6%; our gain was 13%.

These favorable increases reflect strong political races and issue spending, audience ratings gains in key dayparts at a number of stations, our ability to effectively manage and price our spot inventory, a strong national rep effort attributed to our sales offices in New York and Atlanta that handle only Media General accounts, and stronger advertiser spending in the Southeast region compared to other sections of the country.

The November sweeps were positive for almost all Media General television stations. Our November ratings books showed improvement at seven stations, no significant change at 12, and declines at only three.

WFLA, our NBC affiliate in Tampa, was very strong. On a household basis, we again won every news period and expect to remain the top-rated station in Florida. In other convergence markets, Florence, Roanoke, and Johnson City had good ratings books.

Broadcast expenses rose about 7%, primarily because of higher payroll and benefit costs. Payroll cost increases included higher sales commissions and sales incentive bonuses associated with increased time sales, as well as merit pay increases.

Now let's turn to the Interactive Media Division. An operating loss of $4.8 million included $3.6 million of investment write-offs. Our core web sites and online enterprises associated with our Publishing and Broadcast properties posted a loss of $1.3 million, compared to a loss of about $900,000 in the '01 fourth quarter.

Interactive revenue for the fourth quarter exceeded the prior year by 43%. The largest source of increase was classified advertising, which increased to $1.1 million from $477,000.

The largest component of the classified revenues increase was our upsell arrangement with our newspapers. To date, all newspapers except our Northern Virginia community group have adopted the program; whereas, during the fourth quarter of 2001 upsell programs were in place in only three markets (Tampa, Winston-Salem and Bristol). Additional upsell products, such as Top Jobs and Top Properties had a favorable impact on revenue growth.

For the full year 2002, classified upsell revenue exceeded $4 million, compared to $1.8 million in 2001.

We continue our focus on Boxerjam as a way to expand interactive content and establish a dual revenue stream of subscriptions and paid content. We launched our pay-to-play strategy the week before Christmas. During that first week, 15,000 people signed on to play, significantly exceeding our expectations. We plan to use Boxerjam to provide newspaper puzzles and to develop a game strategy for interactive television. We think Boxerjam will generate about $750,000 in user revenue this year.

All in all, our three operating divisions are performing very well, given the challenging economic climate, and we are pleased with their results.

Let me now turn our presentation over to Marshall for additional details on our financial performance.

Remarks from Marshall Morton

Thank you, Reid.

Let's start out with net income in the quarter. Looking at both periods adjusted for the new intangibles amortization standard, fourth-quarter net income of $21.6 million was up 32% from the 2001 fourth quarter, on revenues of $229 million, up 9.5%. Measured on this basis, the most significant influences on fourth-quarter results were an $8.4 million, or 16% rise in divisional operating profits (principally from Broadcast) and a $5.8 million, or 21% decrease in below-the-line expenses. Together, these decreases more than offset a $4.5 million decline in SP Newsprint's quarterly results.

Corporate expense was down $2.9 million, or 31%, due to lower occupancy and various departmental costs.

Interest expense was also down $2.9 million, due primarily to lower debt levels.

The Other line on the Income Statement shows an expense of $2.2 million for the fourth quarter of '02 compared to an expense of $209 thousand for the '01 period. The '02 amount mostly reflects Interactive Media investment write-offs.

Our share of SP Newsprint's results for the quarter was a loss of $4.4 million, compared to a profit of $43 thousand in the '01 quarter, reflecting continued weak prices. On the positive side, production and shipment volumes remained strong at both the Dublin and Newberg mills.

The adoption of SFAS 142 had a favorable impact on amortization expense of $12 million in the quarter.

The effective tax rate for 2002 is 39.4%, down from 42% in 2001.

Let's next discuss debt. At the end of the fourth quarter, total debt was $643 million and represented 38% of total capital. We stand at about $630 million today. For the year 2002, we paid down a total of $135 million in debt.

Capital expenditures in the fourth quarter were $7.4 million. Of that amount, the Broadcast Division accounted for $4.8 million, as we continue the build-out of our digital capabilities. The Publishing Division spent $1.4 million; the Interactive Media Division $330 thousand, and Corporate had almost $1 million.

For the full year 2002, capital spending was $33 million, down from our original budget for the year of $58 million, and down from $54 million in 2001. The slow economic recovery, which prompted the cancellation and deferral of capital projects to later years, was the major factor of this decrease.

EBITDA for the fourth quarter was approximately $62 million, compared to about $55 million for last year's fourth quarter.

After-tax cash flow (income before the cumulative effect of adopting SFAS #142, plus depreciation & amortization) was $37 million in the fourth quarter, compared with $35 million in the same 2001 period.

Free cash flow (After-tax cash flow minus capital expenditures) was $29.5 million, compared with $20.5 million in the fourth quarter of 2001.

For the full year 2002, consolidated operating cash flow increased nearly 15% to $214 million from $186 million in 2001. Virtually all of the increase was attributable to the strong Broadcast Division results, which were boosted by significant growth in all major revenue categories, together with continued cost-containment efforts. Broadcast's operating margin rose to 27% from 19% in 2001. Publishing finished essentially even with 2001. The impact of continued ad weakness was offset by lower newsprint prices and other cost control measures. We are pleased with the performance of all three operating units in this difficult economic environment.

Now I'll turn it back to Stewart.

Remarks from Stewart Bryan

Thank you, Marshall.

I have just a few more comments before we move to the Q&A, starting with our current view of the FCC's review of the newspaper-television cross-ownership ban.

We submitted extensive comments to the FCC early this month. We now have reviewed the filings submitted by others. The industry remains united that this 28-year-old ban must go -- and go completely.

Our experience in Tampa and five other markets across the Southeast proves that local communities can be better served by the common ownership of broadcast television stations and newspapers because the combined resources of both platforms then can be harnessed most effectively to bring faster and higher quality local news to the public.

Of course, there are some who still want to stop any change to the Commission's ownership rules. But the proponents of the cross-ownership ban remain unable to demonstrate that there is any merit at all in their position, much less probative evidence to support it.

So, we remain confident that, when the Commission issues its decision, it will eliminate its cross-ownership prohibition altogether.

We also remain hopeful that the Commission will reach that conclusion during the first half of this year.

Next, let me discuss our expectations for the first quarter. The Publishing Division is expecting moderate revenue growth, 3-4% in comparison to last year, with improvements in all categories. Employment linage will continue to fall short, but we expect this to be offset by gains in automotive and other classified categories. Higher costs, especially for newsprint, personnel, and Tampa's growth plan, will offset the benefit of increased revenues, and Publishing segment profit will be down from last year.

In the Broadcast business, we entered the first quarter with good ratings, good pacings and plenty of inventory. While it is still early in the process, first-quarter pacing activity is very strong, and we are currently projecting a 5% increase over last year's first quarter. The projected increases are mostly due to a stronger automotive advertising market at a number of stations. On the other hand, the cost of generating revenues this year will be higher than it was in last year's first quarter. As a result, Broadcast profits are also expected to be lower than last year.

Partially offsetting some of the operating shortfall will be continued lower interest expense. We believe the impact of SP Newsprint in the first quarter will be within the same order of magnitude that it was last year, or slightly better.

Even though the publishing revenue picture has brightened, demand has not yet picked up enough for the August 1, 2002 newsprint price increase to be fully implemented - and certainly not enough to sustain the March 1, 2003 increase of $50 a ton announced this week by Abitibi and Bowater. For that reason, it now appears to us that effectively there will be only one $50 price increase in 2003. We think the timing for full implementation of that increase will be around the end of the second quarter or the beginning of the third quarter.

In addition, Hoover's, a major customer of Media General Financial Services, has agreed to be acquired by Dun & Bradstreet. We expect to retain their business after the sale and to record a gain of approximately $3.7 million after-tax on our equity in Hoover's. We expect the sale could be completed as early as the first quarter.

For the first quarter of 2003, we anticipate earnings per share to be in the range of 32-35 cents, compared to 26 cents in last year's first quarter.

Our full-year expectations, including the Hoover's gain, lower interest rates, and our updated newsprint outlook, are now in the area of $2.50 or better for 2003.

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

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