FOR IMMEDIATE RELEASE
Tuesday, August 5, 2014
Media General Reports Second-Quarter 2014 Results
RICHMOND, VA – Media General, Inc. (NYSE: MEG), a local broadcast television and digital media company, today reported second-quarter 2014 results.
"We're pleased to report our second full quarter of results for the combined Media General and Young Broadcasting, which merged on November 12, 2013. It was another outstanding quarter. As we promised when the Young transaction was announced, we're generating meaningful incremental free cash flow and reducing debt," said George L. Mahoney, president and chief executive officer of Media General.
"Comparing combined results for the second quarter of this year and last year, we generated very strong increases for net operating revenue, operating income, net income, Broadcast Cash Flow, EBITDA and Free Cash Flow," said Mr. Mahoney. "Net operating revenue increased nearly 12%, driven by higher Political, Retransmission, Digital and Local revenues and despite lower National revenues. Our revenue growth and expense management were the key drivers of our 20% increase in Broadcast Cash Flow and our 39% increase in adjusted EBITDA. Free Cash Flow was nearly $23 million this year compared to a $5 million deficit in last year's second quarter. Additionally of note in the quarter was significantly lower interest expense, which was $9.6 million this year compared to $21.6 million on a combined basis in the second quarter of last year," said Mr. Mahoney.
"Today we're announcing an additional $5 million of expected operating savings as part of our ongoing efforts to manage costs for 2015," added Mr. Mahoney. "When we originally announced the Young transaction, we said we'd deliver $15 million of operating synergies within 12-15 months. In April, we added $10 million of synergies. We continue to benefit from our increased scale. Our total operating synergies related to the Young merger for 2015 now exceed $30 million, more than double our original estimate. Today's announced savings are mainly for reduced health care costs, relative to what we'd anticipated for 2015, and are principally from more favorable negotiated rates with providers based on our increased scale. This $5 million figure also includes additional synergies at the corporate and station levels, mostly from newly renegotiated contracts and reengineering," said Mr. Mahoney.
"In May, we also completed the sale of a building in San Francisco that houses our KRON station for $24.5 million of net cash proceeds, most of which was applied to pay down debt. Total debt outstanding was $852 million at the end of the second quarter compared to nearly $917 million at the end of 2013. Our net leverage at the end of the second quarter was 4.21x," said Mr. Mahoney.
GAAP Results for Second-Quarter 2014
On November 12, 2013, Media General, Inc. and New Young Broadcasting Holding Co., Inc. were combined in an all-stock merger transaction. The merger was accounted for as a reverse acquisition. For financial reporting purposes only, Young is the acquirer and the continuing reporting entity. Consequently, the consolidated financial statements of Media General, Inc., the legal acquirer and the continuing public corporation in the transaction, include the operating results for only Young for the three months ended June 30, 2013. This news release first discusses these GAAP results for the second quarter of 2014 compared to 2013. The company has appended Supplemental Combined Company Information to this press release. A discussion of these "As Adjusted" second-quarter results follows the GAAP discussion.
Per GAAP, in the second quarter of 2014, net income attributable to Media General was $6.8 million, or 8 cents per diluted share, based on weighted-average diluted common shares outstanding of 89 million. Net income attributable to Media General in the second quarter of 2013 was $3.7 million, or 6 cents per diluted share, based on weighted-average diluted common shares outstanding of 60.2 million. In accordance with GAAP, the presentation of "net income attributable to Media General" does not include the results of WXXA-TV or WLAJ-TV.
Also per GAAP, net operating revenue in the second quarter of 2014 was $154.1 million compared to $55.8 million in the prior year. Total operating costs in the second quarter of 2014 were $132 million compared to $47.6 million in the prior year. Operating income in the second quarter of 2014 was $22 million compared to $8.2 million in the prior year.
Non-GAAP Results for the Second-Quarter of 2013 (As Adjusted Combined Company)
The appended Supplemental Combined Company Information includes an "As Adjusted" column, which provides financial information for the combined company for the second-quarter of 2013. The purpose of the "Adjustments" column is to include Legacy Media General revenues and expenses. No other adjustments have been made to the supplemental financial information, which is purely informational and does not purport to be indicative of what would have happened had the merger occurred as of the beginning of the period presented, nor is it indicative of results that may occur in the future, nor does it include any of the synergies of the combined company.
All 2013 results in the discussion below are adjusted for the combined company.
Net operating revenue increased 11.8% to $154.1 million compared to $137.8 million in the second quarter of 2013.
Local gross time sales increased 1.8% to $81.1 million compared to $79.7 million in the second quarter of 2013. National gross time sales decreased 12.9% to $35 million compared to $40.2 million in the second quarter of 2013 and reflected declines in virtually all national advertising categories. Core advertising (Local and National gross time sales combined) declined 3.1% year over year.
Political gross time sales of $9.3 million increased substantially compared to $1.5 million in the second quarter of 2013.
Retransmission revenues grew 49.1% to $35 million compared to $23.5 million in the second quarter of 2013.
Digital gross time sales rose 32.8% to $6.5 million compared to $4.9 million in the second quarter of 2013.
Total operating costs of $132.1 million compared to $124.7 million in the second quarter of 2013. Depreciation and amortization was $5.7 million higher this year due to the effects of purchase accounting resulting from the Young merger. Merger-related expenses in the current year were $4.8 million compared to $11.6 million last year. Corporate severance expense this year was $4.5 million, related to a major restructuring announced in April and compared to a nominal amount last year.
Total operating costs, excluding the impact of merger-related expense, corporate severance expense and losses related to property and equipment-net in both years and the higher depreciation and amortization this year noted above, increased 2.9%. This 2.9% increase mostly reflected higher reverse compensation paid to networks.
Corporate and other expense of $7.6 million decreased from $11.3 million last year, due to lower pension and postretirement costs and lower incentive compensation expense. The Directors' Deferred Compensation Plan was amended in April 2014, which eliminated mark-to-market accounting for these awards as of that date. In the second quarter of 2013, an approximate $5 increase in Media General's stock price caused a $3.1 million increase in incentive compensation expense. Conversely, the stock price decreased by approximately $3 in April 2014 (prior to the plan amendment), which caused a $1.4 million decrease in incentive compensation expense. Future changes in the company's stock price will not impact this plan's expense.
Operating income of $22 million compared to $13.1 million in the second quarter of 2013.
Broadcast Cash Flow increased 20% to $56.3 million compared to $46.9 million in the second quarter of 2013, primarily a reflection of higher net operating revenue.
EBITDA as adjusted increased 39% to $48.9 million compared to $35.3 million in the second quarter of 2013, primarily a reflection of higher net operating revenue and lower corporate expense.
Media General provides the non-GAAP financial metrics of broadcast cash flow, EBITDA as adjusted, after-tax cash flow, free cash flow and the Supplemental Combined Company Information. The company believes these metrics are alternative measures used in peer comparison and by lenders, investors, financial analysts and rating agencies to evaluate a company's ability to service its debt requirements and to estimate the value of the company. A reconciliation of these metrics to amounts on the GAAP statements is included in this news release.
On March 21, 2014, Media General announced plans to merge with LIN Media in a transaction that will more than double the size of Media General and create the second-largest pure-play local television company in the United States. The merger with LIN Media is expected to be immediately accretive on a free cash flow per share basis and should be completed in early 2015, subject to regulatory approvals, the approval of Media General and LIN Media shareholders and other customary closing conditions. Additionally, on June 23, 2014, Media General announced a definitive agreement with Sinclair Broadcast Group to purchase WHTM, an ABC affiliate in Harrisonburg, PA, a transaction that is subject to regulatory approval and other customary closing conditions.
Conference Call and Webcast
The company will host a conference call for investors to discuss the results this morning at 10:00 a.m. ET. The conference call dial-in number is 1-800-708-4540. The pass code is 37710759. A live webcast will be accessible through Media General's website, www.mediageneral.com. To access the live webcast, click on the link to the webcast on the home page. Allow at least 10 minutes to access Media General's home page and complete the links before the webcast begins. A telephone replay of the call will be available through August 21, 2014 by dialing 1-888-843-7419 and using the pass code 37710759.
About Media General
Media General, Inc. is a leading local television broadcasting and digital media company, providing top-rated news, information and entertainment in strong markets across the U.S. The company owns or operates 31 network-affiliated broadcast television stations and their associated digital media and mobile platforms in 28 markets. These stations reach 16.5 million or 14% of U.S. TV households. Sixteen of the 31 stations are located in the top 75 designated market areas. Media General first entered the local television business in 1955 when it launched WFLA in Tampa, Florida as an NBC affiliate. The company subsequently expanded its station portfolio through acquisition. In November 2013, Media General and Young Broadcasting merged, combining Media General's 18 stations and Young's 13 stations.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication is not a solicitation of a proxy from any shareholder of Media General, Inc. ("Media General") or LIN Media LLC ("LIN Media"). In connection with the Agreement and Plan of Merger by and among Media General, Mercury New Holdco, Inc., ("Mercury New Holdco"), LIN Media and the other parties thereto (the "Merger"), Media General, Mercury New Holdco and LIN Media have filed relevant materials with the SEC, including a Registration Statement on Form S-4 filed by Mercury New Holdco with the SEC on July 21, 2014 and a joint proxy statement/prospectus filed by Mercury New Holdco with the SEC on July 24, 2014. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THESE MATERIALS BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT MEDIA GENERAL, LIN MEDIA, MERCURY NEW HOLDCO AND THE MERGER. The Form S-4, including the joint proxy statement/prospectus, and other relevant materials , and any other documents filed by Media General, Media General Holdings and LIN Media with the SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. The documents filed by Media General and Mercury New Holdco may also be obtained for free from Media General's Investor Relations web site (http://www.mediageneral.com/investor/index.htm) or by directing a request to Media General's Investor Relations contact, Lou Anne J. Nabhan, Vice President, Corporate Communications, at (804) 887-5120.
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
PARTICIPANTS IN THE SOLICITATION
Media General and LIN Media and their respective executive officers and directors may be deemed to be participants in the solicitation of proxies from the security holders of either Media General or LIN Media in connection with the Merger. Information about Media General and LIN's directors and executive officers is available in the joint proxy statement/prospectus filed by Mercury New Holdco with the SEC on July 24, 2014.
Lou Anne J. Nabhan
Vice President-Corporate Communications