Third-Quarter Conference Call Remarks
October 18, 2002 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 Third Quarter Conference Call and Webcast.

We issued two news releases this morning - one announced third-quarter earnings and the other September revenues. Both have been posted to our Web site.

Our speakers today will be 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 morning ladies and gentlemen. Thank you for your interest in Media General and our third-quarter results.

We hope you have a copy of our earnings press release and that you noticed we are now providing a Balance Sheet, along with our Income Statement and Segment data. We hope you will find this helpful.

We are pleased to report net income for the third quarter of 41 cents per share compared to FAS-adjusted earnings per share of 33 cents for last year's third quarter - a 22% increase in net income.

Our improvement is primarily attributable to substantially increased profits in our Broadcast Division, a healthy decrease in interest expense, and a gain on the sale of our former WFLA-TV studio in Tampa. Our year-to-year comparison also benefited from the absence in this year's third quarter of the unfavorable effect of a newsprint swap in last year's third quarter.

Partially offsetting our increases were a sizeable loss from our investment in SP Newsprint and slightly lower Publishing profits.

The results we reported today were somewhat better than our most recent guidance, mostly because newsprint costs were somewhat lower than anticipated and broadcast revenues were somewhat higher.

Let me now ask Reid to discuss the details of how our three divisions performed during the quarter.

Remarks from Reid Ashe

Thank you, Stewart.

Let's start with Publishing. Segment profit was down 2% compared to last year. Included in this amount was net income from our 20% interest in The Denver Post of $128,000, which compared with a loss of $575,000 in last year's third quarter.

Total publishing revenues were down 2.1% from last year. The good news is that, directionally, this is an improvement compared to the declines we experienced in the earlier quarters of this year -- 5.9% in the first quarter and 3.9% in the second quarter. In September, revenue growth of 1.1% marked the first monthly increase over the prior year since December 2000, excluding acquisitions.

For the third quarter, the retail category was the hardest hit. Overall, it declined 8.3% compared to last year's third quarter.

However, if we exclude two items - the proper classification of certain automotive advertising into the classified category that was formerly in retail, and $1.2 million in advertising in last year's third quarter related to the Wachovia proxy battle that did not repeat this year, our retail category was down only 4.1%. Virtually all of our newspapers and all segments of the retail category were affected by soft overall spending. Some retail advertisers have moved dollars from ROP to preprints, but in general, advertisers remain cautious about the economy and the timing of a return to economic prosperity.

Classified revenue for the quarter declined 2.2%, but the magnitude of the decline has stabilized somewhat. Results across all newspapers were generally down, although some community newspapers were above last year. In the aggregate, our three metro papers were 4.6% below last year, primarily from losses in the Tampa and Richmond markets. Help wanted linage at the three metros was down 21.2%, which was partially offset by strong automotive, real estate and other classified advertising.

Our Florida Publishing Group and TBO.com have implemented a multifaceted strategy aimed at improving the position of The Tampa Tribune and TBO.com in the recruitment category, which we already dominate. We call this our "Dragon Slayer" project. It involves a common brand, "Tampa Bay Career Seeker," in print, on-line and television.

It involves value-added services, such as resume screening, and it involves special pricing for multi-media packages that target both active and passive job seekers. We are also working on a recruitment advertising strategy for all of Media General that we will be able to tell you more about in the near future.

National advertising increased 3.2% from last year, with gains mostly in Richmond in the telecommunications, airline and smokeless tobacco segments. Richmond's increase was partially offset by weakness in Tampa, especially in the automotive segment. Tampa saw some strength in telecommunications and electronics.

Preprints were 7% above last year. Circulation revenue for the quarter was down 2.2%, largely due to strong single copy sales in 2001 resulting from interest in our coverage of the terrorist attacks.

Publishing operating expenses were 1.1% below last year's third quarter. Comparisons are coming up against the significant reductions taken in 2001, and, therefore, year-over-year changes have lessened.

Newsprint expense declined $4.2 million, or 25.3%, due to lower pricing. The average price per ton consumed was $394, compared to $528 last year. This savings was partially offset by higher costs for salaries, benefits, and other expenses.

As far as the August 1 announced price increase for newsprint is concerned, it is taking hold only slowly. Some suppliers seem to be holding firm on the increase, while others have not implemented any portion of the increase, and still others continue to defer it.

Broadcast Division profits for the quarter increased by more than 83%. This performance was driven by a 27% increase in gross time sales, which were up $15 million. Of this increase, just over $8 million was accounted for by political dollars. We also realized substantial increases in our local and national spot business, with the automotive, services and entertainment segments showing double-digit growth. Our increase in time sales also reflects revenues of about $3 million that were lost during 4-1/2 days of preempted advertising following 9/11 last year.

Local revenues for the third quarter were up 9%, reflecting gains in the automotive, services, specialty stores and grocery segments. Our stations benefited from our improved ability to effectively manage and price our spot inventory through our new centralized traffic operation, as well as from expanded sales efforts and aggressive new business development strategies.

National revenues for the quarter were up 18%, with notable increases in the automotive, corporate and entertainment segments. This favorable increase reflects gains in audience ratings, our effective inventory and pricing management, a stronger national rep effort, and our continued success in developing new business initiatives and garnering higher shares from existing accounts.

Political billings surged to $8.5 million. This spending is the result of hotly contested races in Florida, South Carolina, Alabama and Georgia, for gubernatorial, U.S. Senate and Congressional contests, and for issues spending by the Republican and Democratic National committees. Year-to-date political revenues are nearly $14 million, and our expectations for total political billings this year are now $25 million.

Media General continues to outperform the industry on advertising growth rates. The TV Bureau's monthly group survey, through August, reported an increase in industry time sales of 5.3%. Our increase was 13.6%. Industry national time sales increased by 9.4%; ours increased 21.4%. Industry local time sales increased 2.8%; our gain was 9%.

In addition to the advantages mentioned a moment ago when I discussed local and national sales, we are also benefiting from stronger advertiser spending in the Southeast region as compared to other sections of the country.

Broadcast expenses rose about 5%, primarily due to higher payroll and benefits costs. Payroll cost increases included higher sales commissions and sales incentive bonuses associated with increased time sales, as well as merit pay increases.

Also of note in our Broadcast business is that Nielsen has adjusted its broadcast market rankings. Ten of our markets stepped up, seven dropped back and the rest stayed even. Tampa went from 14 to 13 and grew by more households than any other market in the country (50K).

Now let's turn to the Interactive Media Division. While it posted a loss of $2.5 million, that was a 14% improvement over last year's third quarter.

Interactive revenues were up 30%. Classified revenue continues to emerge as the most substantial revenue category. The largest source of the revenue increase is from classified advertising resulting from upsell arrangements for liner ads between our newspapers and our online operations. In last year's third quarter, only two upsell programs were in place. Now they are in place at virtually all newspapers. Additional upsell products, including Top Jobs, Top Properties and classified display upsells are also having a positive impact. Other revenue increases of note in the third quarter were for local banner and sponsorship advertising.

We also recorded a $1.2 million write-down on an investment in a company that is working to develop new uses of the digital spectrum.

The Interactive Media Division continues to be focused on building new revenue streams and launching new products.

We are re-launching our Boxerjam acquisition into a mass audience, premium service entertainment web site. We expect to introduce premium subscription services later this year.

Across all three divisions, Media General continues to maximize all of our assets. In the Publishing Division, for example, we have talked with you before about our newspaper clustering strategy, particularly our new cross-selling initiatives in our five North Carolina community newspapers. September was their best month by far when all five papers had double-digit advertising growth. All of our Central Virginia clusters are now cross selling, with growing success.

A new classified vertical called "CarSeeker" was launched in Tampa in August. CarSeeker offers auto dealers a stand-alone print product, television commercials and an online database. Some of the larger dealerships in Tampa are participating. We plan to introduce CarSeeker in other Media General markets, as well.

One of our first company-wide convergence projects was conducted this summer. Reporters and editors throughout Media General collaborated to develop a series on Hurricanes that examined the weather phenomenon from every possible angle. The package was carried by almost all of our newspapers, televisions stations, and web sites. Reader, viewer and user response was very positive.

In many markets where we don't have a Media General partner, our newspapers and television stations partnered with other market leaders on the program.

The Interactive Media Division has also built regional web sites on two major issues - the drought and the spread of West Nile virus.

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

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

Remarks from Marshall Morton

Thank you, Reid.

Led by the very strong results of the Broadcast Division, total segment operating income for the third quarter increased nearly 22%. Total segment operating cash flow, aggregated for all three divisions, was up nearly 12%.

Broadcast's operating margin improved to 23% from 15% last year, and its cash flow margin improved to 31% from 24%. Publishing's margins were essentially even with last year.

Now, let's discuss below-the-line, consolidated items as shown in our business segment information.

Interest expense was down $2.3 million, or nearly 17%, from last year, due to lower interest rates and declining debt levels. Debt has declined by $105 million since the beginning of the year, due to increased operating earnings and deferred capital spending.

We incurred a loss of $4.6 million from our share of SP Newsprint. Its results reflect lower newsprint prices and higher raw material costs, partially offset by increased sales volume and reduced conversion costs.

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

Corporate expense was $900 thousand higher than last year, mainly because of increased benefits expenses and higher legal costs.

Other income increased by about $5 million, from an expense last year to income of $2.1 million this year, due to the absence of prior-year losses associated with the newsprint swap agreement and a gain this year on the sale of the former WFLA studio and certain other properties.

The effective tax rate for the year to date is 39.4%, down from 42% in the equivalent year-ago period.

As Stewart mentioned, we are pleased to add a Balance Sheet to our quarterly earnings releases. Many of you ask for that information every quarter. While we have provided selected balance sheet information in our conference calls, in the past, you have had to wait until we file our 10-Q to obtain the full Balance Sheet. We hope this more timely presentation will be helpful to you.

Let's next discuss Debt, which at the end of the third quarter, was $673 million and represented 39% of total capital. We stand at about $670 million today.

Capital expenditures in the third quarter were $10 million. Of that amount, the Broadcast Division accounted for $6.2 million, as we continue the build-out of our digital capabilities. The Publishing division spent $3.1 million; the Interactive Division $700 thousand, and Corporate had a nominal amount. For the full year 2002, we now expect capital spending of approximately $44 million. This is down from our earlier expectations due to deferrals in the Publishing Division, principally for a building renovation project at our Northern Virginia properties, and due to the cancellation of several technical expenditures by the Interactive Media Division.

EBITDA for the third quarter was approximately $45 million, compared to about $42 million for last year's third quarter.

After-tax cash flow (income before the cumulative effect of adopting SFAS #142, plus depreciation & amortization) was $26.2 million in the third quarter, compared with $27.5 million in the same 2001 period.

Free cash flow (After-tax cash flow minus capital expenditures) was $16.1 million, compared with $9 million in the third quarter of 2001.

I'll now 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.

As expected, the FCC issued a notice last month initiating a new, omnibus proceeding that includes a review of six of the Commission's ownership rules, including the 27-year-old newspaper/broadcast cross-ownership ban. Comments are due on December 2, and reply comments are due on January 2.

The Commission also has released 12 studies to be considered in this omnibus proceeding. We see nothing in any of them that alters our view that the cross-ownership ban must be repealed in its entirety.

We will be active participants in this new proceeding. The FCC has signaled that it will have a decision on cross-ownership, at least, by the end of the first quarter of 2003. We continue to look forward to that decision -- and, finally, to complete repeal.

Next, let me discuss our expectations for the fourth quarter. We expect continued strong performance from our Broadcast business. Revenue pacings are running about 20% higher than last year.

In our Publishing business, we anticipate a modest increase in revenues - about 2% -- mostly from improvement in classified and preprints. In the classified category, the improvement is expected to come from the automotive sector, and help wanted will continue to fall short. Publishing is also expected to incur higher expenses for salaries and benefits, and the benefit of low newsprint pricing will not be as great as it has been in previous quarters. We are also investing in programs in Tampa to expand convergence, increase overall market growth, and meet renewed competitive pressure from the St. Petersburg Times.

Based on this outlook, we expect earnings per share for the fourth quarter to be in the area of 80 cents, which would put full-year results in the area of $2.17.

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

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