Fourth-Quarter Conference Call Remarks
January 31, 2002 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. Welcome to Media General's Fourth Quarter Conference Call and Webcast.

News releases announcing our fourth-quarter and year-end 2001 earnings and our December revenues were issued this morning. Both press releases have been posted to our Web site. If you need copies, you may access them on the web or call now to request a faxed copy at 804-649-6059. Our Conference Call remarks will be posted to our Web site immediately following this call, and a replay also will be available.

As a reminder, today's presentation will contain forward-looking statements that 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.

Stewart Bryan, chairman and chief executive officer; Marshall Morton, vice chairman and chief financial officer; and Reid Ashe, president and chief operating officer, will participate in our call today. At this time, I would like to introduce Stewart.

Remarks from Stewart Bryan

Thank you, Lou Anne, and good afternoon ladies and gentlemen.

We are pleased that our fourth-quarter results of 34 cents per share and our year-end results of 79 cents per share exceeded our expectations. You may recall that our most recent guidance was in the mid-20-cents range for the fourth quarter and the low-70-cents range for the year.

For the fourth quarter, our Broadcast and Interactive Media businesses performed better than anticipated, and the other major favorable change from our guidance related to the termination of our newsprint swap.

We are also pleased that, despite an extremely difficult year for all media companies, we achieved a number of important successes.

Our newspapers performed better than the industry average for revenue growth, operating income and cash flow margins. Our Broadcast Division also outperformed the industry. Television Bureau of Advertising figures show that Media General stations realized markedly smaller declines in local advertising revenue than the industry in general. We believe that fact is attributable to our aggressive local sales initiatives.

We made excellent progress launching our new Interactive Media Division. We have in place an experienced, innovative leadership team supported by strong sales and content development staff. At the beginning of last year, we said we expected that new business to generate a loss of $5 million for the year. Excluding equity investments and the results of Media General Financial Services, it came in right on target.

We announced a management succession plan and implemented a new senior management structure.

We relocated our Broadcast Division from Tampa to Richmond, enabling our entire management team to work together more effectively.

We transferred to the New York Stock Exchange and have experienced increased visibility and liquidity as a result.

We implemented stringent cost-saving measures. Compared to the end of 2000, we have 393 fewer employees, equal to about 5% of our workforce. We carefully managed capital spending and reduced a number of operating expenses. Marshall will provide more details in a minute.

Most importantly, we made strong, measurable progress with our convergence and clustering strategies. Reid will provide an update in that area.

Let me now ask Marshall to discuss the details of our financial performance.

Remarks from Marshall Morton

Thank you, Stewart. My comments will focus on our results for the fourth quarter of 2001, compared with the fourth quarter of 2000. Quarter-over-quarter comparability is affected by the fact that the fourth quarter of 2001 had 13 weeks, compared with 14 weeks in the fourth quarter of 2000. Because there are so many fixed expense items in a month, regardless of the number of weeks, it is difficult to quantify the impact of the additional week. Therefore, my remarks will be based on a straight comparison, with no adjustment for the extra week.

Total Publishing revenues decreased 14.2%, to $138 million. While sound expense management offset a portion of the revenues decline, operating income was down 16.9%, to $37 million. Publishing results include a loss of $300 thousand from our interest in The Denver Post, compared with a loss of $500 thousand in the 2000 fourth quarter. Segment operating cash flow declined 15%, to $44 million.

Classified revenues declined 18.8%, mostly from weak employment advertising. Employment linage in Richmond, Tampa and Winston-Salem decreased 45.3%, 48% and 47.3%, respectively. Automotive classifieds also declined, especially in Richmond and Winston Salem. Some newspapers experienced gains in real estate and other smaller categories, but none large enough to offset losses in employment and automotive.

Retail advertising declined 14.2%, spread across all categories and newspapers. The Richmond Times-Dispatch experienced losses in most major categories, including department stores, offset by strong performances in the hospital, discount, and drug store categories. The Tampa Tribune experienced deep losses in the financial category, and most other categories were below last year, with the exception of drug and department store advertising.

National advertising declined 8.8%. The Tampa Tribune had increases in the telecommunications, hotels and attractions, airlines, automotive and cruise lines categories, but the absence of dot.com advertising this year offset the gains. The Richmond Times-Dispatch had decreases in the telecommunications and tobacco categories. The Winston-Salem Journal posted losses in automotive, offset by strong financial advertising.

Preprints decreased 8.5%. Results across newspapers were mixed, with several exceeding prior year levels for the quarter.

Circulation revenue declined $3.8 million, or about 15.5%. The conversion to independent contractors in Tampa accounted for over $1 million of the decline. The Winston-Salem Journal was essentially flat with last year. The Community Newspapers were slightly ahead of the prior year due to home delivery rate increases in some markets.

Total operating expenses for Publishing declined 13.5%. Salary expense was down 11%, mostly from our hiring freeze and reduced overtime. Benefits expense decreased a little over 1%. Other spending was down 19%, due to a variety of cost cutting measures, such as travel and entertainment expense, which was down 40%.

Newsprint expense decreased 26%. Consumption was down 15.6% from decreased advertising and reduced waste. Newsprint prices were down 12.4%, with an average price per ton of $463 in this past year's fourth quarter, compared with $529 the year before.

Now, let's turn to the Broadcast Division. Total revenues declined 15%, to $70 million. While lower expenses helped offset a portion of the revenue decline, operating income decreased 35.4%, to $16.8 million. Segment operating cash flow was down 30%, to $21.5 million.

Total time sales declined 17.7%, mostly due to a 94% decline in political advertising.

Local revenues decreased only 2.5% due to our aggressive sales efforts. Soft local categories included fast food, furniture and telecommunications, and stronger categories included services and specialty stores.

National revenues decreased 5.8%, as national advertisers have reduced their spending in most markets during the quarter.

Political revenues were about $800 thousand, compared with $12.9 million in the 2000 period.

Total Broadcast expenses were down 6.4%. Payroll and benefits declined 5.8%. This reflects the benefit of our hiring freeze, partially offset by merit increases and higher benefits costs. Other production costs were down 6.4%, primarily from reduced travel and research expenses and the absence of political coverage costs. Programming costs decreased 5.7%.

Now let's discuss the Interactive Media Division. Total revenue, of $2.1 million, including Media General Financial Services, was about even with the 2000 fourth quarter. The difference in operating loss -- $700 thousand in the 2001 period, compared with a loss of $2.3 million in the 2000 quarter -- is largely attributable to the prior year $1.3 million write-off of our investment in Zatso.

Let's now look at revenues just for the Interactive Media operations, that is, without Media General Financial Services.

Classified revenue, our largest online category, increased 34%, mostly as a result of our upsell arrangement in several markets. In addition to being implemented in Tampa, our upsell model is now in place at the Winston-Salem Journal and Bristol Herald Courier, as well as at all of our North Carolina community newspapers. Additional sites are in the process of adopting it.

Banner advertising was up 50%, but fell short of our expectations, due to overall advertising market conditions. The addition of new online sites, and an emphasis on hiring and training Internet sales staff, should enhance the potential for banner revenue in 2002.

Other online revenue increased 17% from the introduction of new products, such as 360 Tours.

Now, I will comment on changes in consolidated, below-the-line items.

A decline of nearly $2.5 million in interest expense reflects lower rates and the extra week.

Substantially lower investment income from SP Newsprint reflects lower newsprint prices.

Acquisition intangibles amortization was lower by about $1.2 million, mainly due to the shorter period this year. For the year 2001, had SFAS 142 been in effect, our amortization expense would have been lower by $43-49 million. The after-tax effect would be at least $1.35 per share. In addition to suspending a major portion of annual amortization, the adoption of SFAS 142 will require companies to reassess the value of existing goodwill and identified intangibles like FCC licenses, to ensure that their value has not been impaired. Based on what we know currently, and it is still evolving with the FASB and SEC, at adoption of the standard, which you'll see for us when we report financial results for the first quarter of fiscal 2002, we think it is possible that we will write-off some existing intangibles to reflect the lower current level of cashflows generated by some of our recently acquired broadcast properties. This would take the form of a cumulative accounting catch up and will not be part of ongoing earnings.

Depreciation and other amortization for the fourth quarter, by division, were as follows: Publishing, $6.5 million; Broadcast, $4.8 million; IMD, $(80) thousand; and Corporate, $1 million.

Corporate expense shows a small favorable change from cost containment initiatives.

The largest component of the change in the Other category was a decrease in the market value of the unhedged portion of the newsprint swap prior to its termination.

The effective tax rate for the fourth quarter of 2001 was 42%, compared with 39% for the fourth quarter of 2000.

EBITDA from continuing operations for the fourth quarter was $54.9 million, compared with $78.8 million in the 2000 period.

After-tax cash flow from continuing operations (income from continuing operations + D&A) was $35.3 million, compared with $49.6 million in the like 2000 period.

Free cash flow (ATCF - Cap Ex) was $20.5 million, compared with $40.9 million in the fourth quarter of 2000.

Total capital expenditures in the fourth quarter were $14.7 million. By division, they were: Publishing, $500 thousand; Broadcast, $11.5 million; IMD, $100 thousand; and Corporate, $2.6 million. For the full year 2001, capital spending totaled $54.4 million, compared with our adjusted plan of $55 million.

Debt at the end of the fourth quarter was $778 million and stood at 40% of total capital. Today we're down slightly from that level.

Before I conclude my prepared remarks, I would like to update our guidance for the full-year 2002, compared to the information I provided at the CSFB Media Week presentation in early December.

We continue to expect all three of our operating divisions to have stronger years in 2002. The Publishing Division is expected to benefit from increased retail revenues and decreased newsprint expense. The Broadcast Division is expected to benefit from increased political revenues and higher local revenues from the continuation of aggressive sales efforts. The Interactive Media Division's performance should improve from increased revenues and the absence of investment write-offs. This performance by our core businesses should drive total segment operating income higher for the full year 2002.

Below the line, as previously estimated, acquisition intangibles amortization will show a decrease in the range of $43-49 million due to the implementation of SFAS 142. We now expect interest expense to be about even with 2001, as lower debt levels and interest rates will be offset by higher borrowing fees. Our Other category should show a small favorable change from a decrease in expense associated with the elimination of our newsprint swap, offset by anticipated expenses for our company-wide incentive plan. We also continue to expect investment income from our share of SP Newsprint to be $16 million less than in 2001.

We have revised our estimate for corporate expenses to be about $2.4 million more than 2001. Our effective tax rate is still expected to be 36%, but taxes on income will be higher due to increased PBT.

All of this leads us to an EPS outlook for the full year of just over $2.00 per share.

I will now turn it over to Reid.

Remarks from Reid Ashe

Thank you, Marshall. I'd like to begin by discussing convergence.

We are very excited about the accomplishments of our Tampa team. On the revenue side, we went over our goal for multimedia advertising sales. In our inaugural year, we booked orders that will yield altogether $6.4 million in incremental revenue from over 40 advertising clients, exceeding our goal of $4 million. Nearly $3.5 million of this new revenue was realized in 2001, and the balance is for advertising that will run in this and the next two years.

We're still finalizing our multimedia sales goal for 2002, but we intend to extend last year's success. We expect our classified and display advertising upsells to be a significant part of our growth from convergence sales, and in the future we will include those dollars in our goals.

We are well along the way to booking the business. Key accounts are renewing, and, in many cases, are increasing their buys.

Our first big multi-media customer from last year has renewed for a half-million-dollar increase, crediting their multimedia advertising as a big driver for growth.

A major retail client told us last fall it would have to cut 2002 newspaper ad budgets by as much as 10%. That would have taken a bite out of Tampa Tribune advertising. The multi-media sales team responded with a three-media plan that increased Tribune advertising, and added television and on-line components. The client liked it and, as a result, The Tribune will enjoy a nice increase, and WFLA and TBO.com will gain entirely new revenues.

Our Tampa team also signed a sponsor agreement with a major health-care provider for a health-information initiative in three media. It is a three-year package and represents all new money to all three properties.

On the journalism side, our Tampa team recently announced a news-sharing partnership with the New York Times properties in the market. The New York Times properties can draw from our news reports and our properties from theirs. The arrangement is unique in that it spans three media - newspapers, television and on-line. It involves Media General's Tampa Tribune, WFLA, TBO.com and several small daily and weekly papers, plus The Times' Sarasota Herald Tribune, its local cable TV channel and its web site. The NYT properties are already working with one another in a converged fashion, as are our properties. Our new partnership should strengthen the ability of all properties to cover the market. It should also help to solidify WFLA's Sarasota audience and keep Sarasota in the Tampa DMA.

Our Roanoke station, WSLS, is aggressively using other media to extend its brand in a diverse and competitive market. It produces branded local news inserts for the Roanoke cable system, as well as for five Roanoke radio stations. The latest development is that the number-one country-music station, located in Lynchburg, has begun running news inserts credited to WSLS and the Lynchburg News & Advance, our newspaper. The News & Advance contributes the hometown news and WSLS produces the audio reports.

Our Mobile, Columbus and Birmingham stations cooperated in pre- and post-game shows surrounding the Alabama-Auburn football game, producing $302k revenue against $20k expense. The Opelika-Auburn News sold its special section in cooperation with WRBL in Columbus. The game itself produced a 39 rating and a 61 share for WIAT in Birmingham.

WMBB, our Panama City station, broadcast its first live segment from the Jackson County Floridan newsroom. The station also is selling beach-related advertising packages for The Dothan Eagle. All of that is new revenue.

Our Publishing Division continues to enhance its regional clustering strategy. The North Carolina regional marketing group generated $100,000 in new revenue in December as a result of the cross-selling strategy, and 80% of the group's sales force placed at least one ad in additional group products. The Group is preparing a regional healthcare guide and has cross-sold 12 advertisers into all or multiple zones with over $10,000 in booked sales. This is in addition to the local zone sales. A regional NASCAR Section generated nearly $30,000 dollars in sales in December.

Our Virginia newspapers are in the process of implementing a similar cross-selling network. In December, The Richmond Times-Dispatch began selling classified ads into our other Virginia newspapers. At present, we're manually transferring the ads from newspaper to newspaper. Later this year, we'll install a new computer system that will automatically prompt our sales staff to suggest additional newspapers, and automatically insert the ads in the appropriate publications.

Our Broadcast Division fared very well in the November sweeps. Nine stations were up, 12 stayed even, and only one went down in the ratings. Seventeen of our stations are number one or two in their market from sign-on to sign-off. For 2001, WFLA was once again Florida's #1-rated television station. We were also very pleased that our Jacksonville station was the number-one ranked WB network station in the nation, in prime time, among 18-49 viewers.

In our Interactive Media Division, the classified upsell program launched in April has been a huge success. As Marshall noted, the program has been introduced at several more newspapers, and further launches are planned for early this year. Tampa was our first program. Over 85% of all liner ads placed in The Tribune are also being sold online. The first-year revenue in Tampa was $1.3 million.

TBO.com is working with the Tampa Tribune on a cross-platform sale of display classified and retail ads that appear in the newspaper. The display advertising upsell to the Internet is modeled after the successful classified upsell. As I mentioned a moment ago, one of the market's largest retailers is on board for the launch of this service.

At this time I will turn it back to Stewart.

Remarks from Stewart Bryan

Thank you, Reid. I have just a few more comments before we move to the Q&A.

First, let me give you an update on the FCC and its review of the cross-ownership rule. Media General filed extensive comments with the Commission on December 3, advocating complete repeal of the ban. Virtually every other media company that commented on the issue advocated the same position.

An FCC staff member visited our Tampa News Center on January 19 to see a demonstration of our convergence model in action. We plan to have a second visit from FCC personnel on March 1. In the meantime, we will file our reply comments on Feb. 15. We remain optimistic that the commission will completely repeal the ban by mid-summer.

Next, let's take a look at the first quarter.

The Publishing Division expects business to be stronger than it was in the fourth quarter of '01, but estimates revenues will be below last year's first quarter by 5-6%. Classified employment revenue continues to be significantly below the prior year, and we see no signs of recovery in this area in the near term.

The Broadcast Division expects a 3-4% increase in time sales compared with the first quarter of last year. This includes Olympic revenue and other increases. We are particularly pleased that our revenue from Winter Olympics advertising at our five NBC stations will exceed our expectations. This projected increase is also despite our 16 CBS affiliates having the Super Bowl last year. While we are not certain that this reflects an industry-wide rebound, we are seeing higher increases than anticipated at our stations for the first quarter.

The Interactive Media Division expects higher revenues from its many new initiatives.

While our cost containment efforts will continue, we will also incur some higher expenses, such as our 3% salary increase and significantly higher costs for health insurance and other benefits. Currently, our forecast for the first quarter is less than 10 cents per share.

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

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