Second-Quarter Conference Call Remarks
July 13 , 2006 at 11:00 AM Eastern

by Marshall N. Morton, President and Chief Executive Officer, Reid Ashe, Executive Vice President and Chief Operating Officer, John Schauss, Vice President - Finance and Chief Financial 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 Second-Quarter Conference Call and Webcast.

Earlier today, Media General issued two press releases. We announced earnings for the second-quarter of 2006 and revenues for the month of June. 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 speakers today are Marshall Morton, president and chief executive officer; Reid Ashe, executive vice president and chief operating officer; and John Schauss, vice president-finance and chief financial officer. We will begin with Marshall.

Remarks from Marshall Morton

Second-quarter net income of $20.2 million, or 85 cents per diluted share, increased 6.2% over last year’s second quarter, excluding a gain from last year’s sale of our investment in The Denver Post. In the second quarter of 2005, before Denver, we reported income of $19 million, or 80 cents per share. Just for reference, the after-tax gain on the Denver sale was $19.4 million, or 81 cents per share.

Total revenues in the second quarter of 2006 increased 3.3% to $230.1 million.

As we’ve previously announced, we are in the process of divesting our television stations in Birmingham, Wichita (plus its 3 satellites), Chattanooga and Mason City, Iowa. Accounting rules require that these assets be treated as Discontinued Operations starting in the second quarter. This allows us to isolate what will no longer be part of Media General going forward. Therefore, the results of the Discontinued Operations are not included in our operating income or Broadcast segment results. Their net-of-tax income and earnings-per-share impact are shown on the Income Statement in our press release as Income from Discontinued Operations. Please note that depreciation expense for these assets ceased in the second quarter.

Our year-over-year profit improvement for the second quarter of 2006, excluding Denver, was primarily attributable to below-the-line items, especially the excellent performance of SP Newsprint. Equity income from our one-third share of SP Newsprint increased by $3.9 million, to a total of $4.6 million. Newsprint price improvement more than offset higher production costs at SP.

Favorable below-the-line items more than offset a $1.6 million non-cash stock option expense and higher interest expense. Corporate and acquisition intangible expenses increased nominally in the quarter.

I will provide some highlights of our divisional performance for the quarter, and Reid will provide more details in his report.

Publishing segment profit, excluding the Denver gain and a small amount of Denver equity income from last year’s results, showed a nominal decline of 0.5%. Solid growth in Classified and Retail advertising revenues, up 7.4% and 3.1%, respectively, was offset by soft National advertising and a decline in Circulation revenues. As we’ve reported, a substantial portion of our Circulation revenue results this year has been driven by a change in the wholesale rates for carriers, which is offset entirely by expense reductions. As of the end of June, all of our newspapers have been converted to the wholesale rate program; however, it will be a year before we fully cycle through the comparison impact.

Total Publishing expenses increased 3.9%. The most significant increases were for salaries, due to normal merit increases, and newsprint. Newsprint price increases were partially offset by lower consumption, resulting from the use of lighter basis weight paper and the ongoing success of our waste reduction program. In addition, Depreciation and Amortization increased $662 thousand, or 11.3%, reflecting our capital investments in new printing presses and other equipment.

Broadcast segment profit in the second quarter declined 4.1% compared with last year.

Total revenues increased 2.4%, and gross time sales increased 2.9%. Political revenues were ahead of last year by $3.6 million, which more than offset declines in Local and National time sales.

Broadcast expenses increased 5%. The most significant increase was for salaries and commissions, up 2.8%. Other production costs were up 3.3%. Depreciation increased $702 thousand, or nearly 18%, as a result of our capital investments in digital TV and newsroom automation.

The Interactive Media Division realized a 12% improvement in its operating results for the second quarter. A loss of $843 thousand this year compared with a loss of $957 thousand last year. The improvement was driven by growth in all advertising categories, especially online Classifieds. Page views increased 14% and visitor sessions were up 18%.

We completed the purchase of four NBC owned-and-operated television stations on June 26. That date was the first day of our third quarter, so no impact from the acquisition is reflected in today’s announced results. John will discuss the change in our debt as a result of the purchase.

Our new stations are located in Raleigh, N.C., Birmingham, Alabama, Columbus, Ohio, and Providence, R.I. All of the stations are located in large, growing markets, and all are ranked among the top three in their respective markets. They all produce attractive operating and cash flow margins.

We were especially pleased to add Raleigh-Durham, the 29th largest DMA in the country, to our Southeast footprint. In Birmingham, our newly acquired station has a broader signal than the station we are divesting there, so we will reach more households. The Columbus and Providence stations are located in political battleground states, so they benefit greatly from campaign spending, especially in Presidential election years.

As we’ve said, this acquisition is compelling from both an operational and a financial perspective. We’ve conservatively estimated operating synergies of $3 million annually by 2008.

The synergies will come from enhanced revenues, which are expected to result from the implementation of Media General’s sales training and systems, as well as our inventory management and pricing processes. Cost reductions will result from bringing the new stations into Media General’s Central Traffic Operation and from centralizing Master Control for all of our NBC stations.

The acquisition will immediately improve the Broadcast Division’s operating margin and drive meaningful growth in revenues and segment cash flow. Accretion to Media General’s free cash flow also will be immediate and significant.

The divestiture process for the stations we are selling is proceeding well, and there is significant interest in them.

We’re making good progress integrating our new stations, and we plan to build upon our track record of success with past acquisitions. Previously, we achieved or exceeded our projected operating synergies, and we repaid debt as quickly as, or faster than, we planned to.

Before I turn our remarks over to Reid, I’d also like to note that in May we announced changes to our retirement plans that will reduce the volatility of pension expense going forward. We are closing our defined benefit plan to new participants as of January 1, 2007. We’re also freezing years of service, the primary escalator for current employees, as of the end of 2006. To maintain a competitive benefits package for our employees, starting next year we will enhance our 401(k) match and add a profit sharing component.

Now, let me now ask Reid to discuss our operating performance for the second quarter. John will follow Reid with additional details about the quarter.

Remarks from Reid Ashe

Total Publishing Division revenues in the second quarter increased 3%, and newspaper advertising revenues grew 4.2%. The increases were driven by continued strong Classified advertising revenue growth and also growth in the Retail category.

Classified advertising revenues increased $3.9 million, or 7.4% for the quarter. This growth was driven by excellent real estate linage, which more than offset some softness in employment advertising, and continued weakness in automotive linage.

By property, The Tampa Tribune’s Classified advertising revenues for the quarter increased 16.3%, the Richmond Times-Dispatch had growth of 3.3%, and the Community newspaper group generated a 3.7% increase, while the Winston-Salem Journal saw a decline of 5.1% in classified advertising for the quarter.

Aggregate growth in real estate linage for our three metro newspapers was 43.4%, with a significant contribution in our Tampa market.

Employment linage for the three metros decreased 5.4% and the corresponding revenue declined 1.1%. Help-wanted linage was up in the low single digits in Richmond and Winston-Salem. In Tampa, linage was down approximately 18%, due mostly to a decline in employment display advertising. Despite the linage decline, revenues were down by a much smaller margin because of the change in mix of advertisers.

Automotive linage, continuing the trend of the past several quarters, was down 21% for the three metros, due to reduced dealer spending.

Retail revenues for the quarter increased $1.7 million, or 3.1%. Our overall trends this year in Retail advertising reflect healthy year-over-year growth for both ROP and preprints.

For the second quarter, in our Tampa market Retail revenues increased 2.1%, attributable to advances in the grocery store and home improvement categories, as well as the addition of the new Centro Hispanic publication, other new revenue initiatives, and several special sections.

The Richmond Times-Dispatch saw an increase in Retail revenues in the quarter of 1.4%, resulting from growth in the department, drug and grocery store and home improvement categories. The Winston-Salem Journal generated a 7.5% increase in Retail revenues, from increased spending by department and home improvement stores.

In the aggregate, the Community newspaper group generated a 3.6% increase in Retail advertising, also from higher department store and home improvement spending. We’re also benefiting from many of our new revenue initiatives, which have helped drive new retail advertisers into many of our existing publications as well as new product offerings.

National advertising revenues were down approximately $700 thousand, or 6.7% from last year. Our National advertising trends so far this year show preprints holding steady year-over-year, while the decline has been in ROP.

For the second quarter, in Tampa, National revenues were down, reflecting lower telecommunications, automotive and utility advertising. In Richmond, while telecommunications advertising also declined, National revenues were up 10.4% mostly because of a campaign from a major oil company and an increase in the insurance category.

As we’ve previously reported, we are installing a new integrated advertising system that will eventually connect all of our newspapers and Web sites. It will streamline operations, help us improve our sales management, and better facilitate cross selling within and between markets. Our first installation, which was a major undertaking, was just completed in Tampa. We expect the completion of this project in Tampa to drive additional revenue growth in that market in the second half of this year. The Richmond Times-Dispatch has now begun installing the system.

Circulation revenues declined $990,000, or 4.7%, for the quarter, resulting from the continuation of a change in wholesale rates to carriers, which reached its conclusion as of the end of June, and an overall decrease in volume. At the same time, 9 Media General daily newspapers generated circulation volume increases for the quarter, including the Richmond Times-Dispatch, where early results from our concerted efforts to strengthen the traditional product are encouraging and, we believe, having the desired impact.

Publishing Division expenses for the second quarter increased 3.9% compared with last year. The most significant increases were newsprint expense and salaries.

Salaries were 2.8% above last year. While annual merit increases averaged 3-3.5%, FTEs were below last year, despite some additions for our new products initiatives. Employee benefits expense was up only nominally from last year.

Newsprint expense increased 7.4% over the same quarter last year, the result of higher newsprint prices partially offset by reduced consumption. The price per short ton increased $92 in the quarter, compared to last year. Consumption declined about 3,000 tons, or 9%, from newsprint conservation efforts, the change to lighter basis weight newsprint, and circulation volume declines.

Let’s now turn to the Broadcast Division. Total revenues in the quarter grew 2.4%, primarily the result of a $3.6 million increase in Political revenues. Gross time sales increased 2.9%, reflecting the significantly higher Political revenues, partially offset by lower Local and National time sales.

Local time sales, excluding Political, decreased approximately $352,000, or 0.7%. Categories showing increases included telecommunications, services, furniture and medical. However, these advances were offset by small declines in many other categories, with automotive and fast food being the most significant.

National time sales, excluding Political, declined $1.1 million, or 4.3%. Categories showing increases included telecommunications, automotive and services, while many other categories declined, with entertainment, fast food and home improvement among the most significant.

Broadcast Division expenses for the second quarter rose 5%. Major contributors included higher payroll costs, attributable largely to annual merit increases, electricity for full-power digital television, depreciation of new digital equipment, and cost-of-goods sold for our production equipment subsidiary.

The May ratings books were good for us overall. Looking at all of the stations we owned before the NBC acquisition, 21 of 26 stations were rated number one or two from sign-on to sign-off. WFLA, our largest station, continues to be Tampa Bay’s #1 television station as well as number one overall in Florida. Individually, 9 stations gained ground in the ratings, 9 maintained position, and 8 were down to some degree.

Now, let’s turn to the Interactive Media Division. Its operating loss of $843 thousand was an 11.9% improvement over a year-ago. Revenues of $6.5 million were up 33.4%, driven by growth in all advertising categories, especially Classifieds.

Online Classified advertising revenues in the second quarter increased 20%, Local revenues grew 21%, and National/regional advertising revenues were up 54%.

Page views increased 14% and visitor sessions were up 18%.

The Interactive Media Division’s total results include the web site operations that are associated with our newspapers and television stations as well as our Blockdot online game business.

For the second quarter, our web site operations that are affiliated with our newspapers and TV stations came very close to reaching our goal of being cash-flow positive in the aggregate.

As you would expect, our newspaper web sites are the most fully developed at this time, mostly because they have enjoyed the benefit of classified upsells from our newspapers for several years, and they have been at it longer.

TBO.com in Tampa, which is affiliated with both the Tampa Tribune and WFLA-TV, is our most developed web site, followed by timesdispatch.com in Richmond. Year-to-date, these two web sites, plus some other newspaper web sites in Virginia, generated profits of $1.7 million, and their combined profit margin was about 18% on a fully costed basis.

With the advent of significant advances in streaming video technology, our Broadcast web sites now have the opportunity to pursue their potential for meaningful growth, and they are moving ahead aggressively.

We acquired our relatively new Blockdot operation at the beginning of the third quarter of 2005, so there are no comparable Blockdot results in the 2005 second quarter.

Blockdot has two major product lines. One is the production of customized online games that consumer-products companies use primarily for branding. This year, Blockdot has produced such games for Mars Candies, Baskin-Robins, Nokia, Anheuser-Busch, GlaxoSmithKline and others. The other product line is game sites; one site is called Kewlbox and another is called Boxerjam.

Blockdot is in an expansion mode and most of its growth is coming from the custom-produced games. As a point of comparison, in the second quarter of 2006, Blockdot’s revenues were 21% higher than its revenues in the second quarter of 2005, which was, of course, prior to our ownership. They have a strong order stream and are bidding on a significant amount of new work. Operationally, they have expanded resources to serve a rapidly growing market, so, at this time, expenses exceed revenues. We expect this situation to be reversed in the fourth quarter of this year.

We believe that all of our divisions are properly focused on driving revenue growth. We look forward to the introduction of additional new products and services across all platforms and to the continued evolution of our Internet operations. We are very excited to integrate the 4 new NBC stations into our Broadcast portfolio.

And, now, I will now turn our presentation over to John.

Remarks from John Schauss

Of that amount, Publishing Division capital expenditures of $14 million were invested mainly in three new production facilities and an integrated advertising system. Our press projects have long-term benefits and solid returns on investment. In April, we completed the Bristol Herald-Courier’s new facility. This fall, we will complete one for the Opelika-Auburn News in Alabama. Late in 2007, we will complete the press facility for The (Lynchburg) News & Advance.

The Broadcast Division spent $10.7 million, mostly for the continued conversion to high-definition digital television and for automated news production systems. We’re also building a new facility for our Myrtle Beach station, which will enable us to expand our viewership in this growing market.

Interactive Media Division expenditures were approximately $300 thousand, primarily for infrastructure and new product development. Corporate capital spending totaled $700 thousand, principally for information technology.

Total debt at the end of the second quarter was $472 million and represented 33% of total capital. Our debt outstanding included $177 million in bank debt, $200 million in public debt, and $95 million in consolidated variable interest entity debt.

The acquisition of the NBC stations was financed initially through existing capacity under our $1 billion revolving credit facility. During the third quarter, we expect to issue $300 million of either new public debt under our existing shelf registration or issue new bank term debt. $100 million will be used to reduce credit facility borrowing and $200 million will be used to refinance the existing public debt coming due on September 1, 2006.

Substantial free cash flow generated by our four new stations will enable us to quickly reduce debt. At the end of 2006, we expect our leverage multiple to be 4.0 times. We expect that multiple to be reduced to 2.5 times by the end of 2008.

The effective tax rate for the second quarter was 37.1%, compared with 39.25% in the prior year when the effective rate was influenced by taxes associated with the Denver sale.

Let me now review EBITDA, After-tax Cash Flow and Free Cash Flow for the quarter. The results shown in the table in our press release include in the 2005 amounts the proceeds from the sale of Denver. In addition, both years are based on continuing operations and, therefore, do not include income from Discontinued Operations.

EBITDA for the second quarter of 2006 was $54.3 million, compared with $52.1 million in 2005, after adjusting for the Denver gain.

After-tax cash flow was $35.5 million, compared with $34.2 million in the year-ago period, again, after adjusting for Denver.

Free cash flow in the second quarter was $9.8 million, compared with $17.6 million, after Denver. The decline is due to the higher level of investment in capital projects we have made in 2006.

And now I will turn our remarks back to Marshall.

Remarks from Marshall Morton

Before turning to Q&A, let me update everyone on the status of the FCC’s review of its newspaper/broadcast cross-ownership rule. As you know, changes in this rule would be a strong plus for our company. We were pleased in 2004 when the Third Circuit agreed that the cross-ownership ban is anachronistic and could not be justified. We believe the Commission will start the court-mandated review of its ownership rules as early as next week, and we’re urging the agency to move quickly on the matter.

Let me also comment on our outlook for the third quarter of 2006.

For the Publishing Division, we expect revenue growth of 5% compared to last year. We expect continued strength in real estate classified advertising, and we also expect gains in Retail advertising, which will be favorably impacted by our new revenue initiatives.

For the Broadcast Division, gross time sales are expected to increase 60%, including the 4 new NBC stations, and 14% for our previously owned continuing broadcast operations. Political revenues are projected to be approximately $8.3 million in the third quarter, including the 4 new stations.

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

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