First-Quarter Conference Call Remarks
April 15, 2004 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 First-Quarter Conference Call and Webcast.

We issued two news releases today – one announced first-quarter earnings, the other March revenues. Both have been posted to our Web site.

Our speakers today are Stewart Bryan, chairman and chief executive officer; Reid Ashe, president and chief operating officer; and Marshall Morton, vice chairman and chief financial 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, 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.

And now, I will introduce Stewart Bryan.

Remarks from Stewart Bryan

Thank you, Lou Anne, and good morning ladies and gentlemen. We appreciate your interest in Media General.

We were pleased with our first-quarter results. They exceeded our expectations, thanks to a very strong March, and they demonstrate that the advertising climate is continuing to brighten in both our Publishing and Broadcast divisions.

Our quarterly results reflected a 4.4% increase in newspaper advertising revenues and a 13% increase in Broadcast time sales. In the Publishing Division, revenue growth was driven mostly by stronger classified advertising, including improved help wanted. Broadcast revenue growth resulted from higher political spending, robust increases in automotive advertising, and strong Super Bowl advertising at our 16 CBS stations.

Our results for the quarter also reflected the benefits of improved results from our share of SP Newsprint, and decreased interest expense.

March was an unexpectedly strong month for both the Publishing and Broadcast divisions. Advertising revenues were higher than anticipated, and operating expenses were less than expected, due to lower-than-budgeted newsprint prices, open positions, and favorable bad debt experience.

In Publishing, classified revenue for March came in much stronger than anticipated, particularly in the last two weeks of the month, and the strength occurred across all markets. We were pleased that the increase was underpinned by solid employment advertising. The Publishing Division also saw increased retail and preprint activity tied to this year’s earlier Easter. While our community newspapers participated in the higher retail and preprint advertising in March, most of the increase occurred at The Tampa Tribune and the Richmond Times-Dispatch.

The Broadcast Division enjoyed a late surge of unexpected political advertising from presidential campaign spending and issue advertising in Florida, Alabama and Iowa. Advertising in Florida, especially at WFLA, was particularly strong for the month.

Let me now ask Reid Ashe to discuss the details of our divisional operating performance for the first quarter of 2004.

Remarks from Reid Ashe

Thank you, Stewart. I’ll begin with an overview of the Publishing Division’s performance for the first quarter.

Segment profits of $26 million in the first quarter were up 11% from last year’s first quarter. Our reported results for the Publishing segment include our 20% interest in The Denver Post. For the first quarter of this year, our share of Denver provided income of $100,000, which compared to a loss of $103,000 last year. Operating cash flow improved by $1.5 million, or 5%, over last year.

Publishing revenues for the quarter of $136 million were 4% better than last year. All categories except retail and all markets except Winston-Salem showed improvement. Newspaper advertising revenues increased 4.4%.

Robust classified revenue growth drove Publishing’s overall revenue performance for the quarter. Classified was up $3.2 million, or 7.6% over last year. This growth reflected good employment linage increases as well as some strength in the automotive and real estate categories.

The Richmond Times-Dispatch posted the strongest increase in classified revenue for the quarter, 11% above last year. Employment revenue grew sharply and automotive advertising added further increases. Real estate in Richmond was soft due to a lack of inventory in the market.

The Tampa Tribune’s classified revenues increased 4.2% over last year. Higher employment advertising was partially offset by softer automotive. Real estate classified advertising was strong in Tampa for the quarter.

Employment linage for our three metro newspapers, in the aggregate, has exceeded the prior year for eight months in a row. For the first quarter, it was 13.6% higher than last year. The Richmond Times-Dispatch and The Tampa Tribune experienced employment linage gains for the quarter of 22.6% and 13%, respectively. We are especially encouraged that in both February and March of this year, employment linage exceeded not only 2003 but also the comparable 2002 monthly levels.

The Retail category was down a little more than 1% for the quarter, on continued softness in the department store category. The Tampa Tribune, our Florida community newspapers and our Alabama market provided some bright spots for the quarter, as these groups were each above last year. The Tampa Tribune’s retail revenues were 2.1% above last year, with robust advertising in the entertainment, healthcare, home improvement and home furnishing categories, partially offset by continued soft department store advertising. The Richmond Times-Dispatch was below last year in the retail category by about 2%. Revenue from stores at the two new malls helped offset lower advertising by other retail customers.

Preprint revenue increased $710,000 or 3.8% for the quarter. Volumes were above last year by about 1% and the rate per thousand increased 2.6%.

Total retail revenue, including retail preprints and ROP, was up 0.5% for the quarter.

National advertising increased $180,000 or 2.4% for the quarter. The Richmond Times-Dispatch was 18.4% above last year due to strength in the telecommunications category, while the Tampa Tribune experienced a decline of 6% compared to last year for the quarter. The Tribune experienced solid results in the financial category, but had no growth in telecommunications advertising and saw declines in other categories. The Winston-Salem Journal was above last year as a result of increased automotive and telecommunications advertising.

Several markets enjoyed robust circulation revenue growth during the quarter, and revenue increased $650,000, or 2.9% over last year. The Richmond Times-Dispatch had the strongest increase, primarily the result of a 5% home delivery rate increase in October 2003. The Tampa Tribune also had solid growth, reflecting higher net paid circulation, which increased by 0.5% daily and 1.6% Sunday.

On the expense side, the Publishing Division has continued to closely monitor controllable expenses in light of newsprint price and employee benefit increases. As a result, expenses have grown at a pace that is much slower than our revenue gains. Expenses for the quarter increased only 2.3%, despite a 9.1% increase in newsprint expense.

The increase in newsprint expense for the quarter was the result of newsprint price increases partially offset by lower consumption. The average price per ton of newsprint consumed was $452 for the quarter, up almost 11% compared to $408 last year. The newsprint price increase of $50 has not held fully at this point, and we expect we will see the increase settle somewhere below that level during the second quarter.

Now, let’s turn to the Broadcast Division. Segment profits of $14.5 million were 60% higher than last year. The major contributors to this higher profit were Super Bowl advertising on our 16 CBS stations and the return of presidential primary and campaign political spending. The Broadcast Division posted exceptionally strong operating cash flow, up $5.1 million, or 34%, from the year ago.

Total time sales for the first quarter were up 13%. Local time sales, excluding political, increased $3.4 million, or 8.7%. Our stations continued to focus on new business development and improving spot inventory management and pricing. Local categories showing the strongest gains for the quarter were automotive, telecommunications, furniture and services.

National time sales for the quarter, excluding political, increased $2 million, or 9.3%. National categories showing the strongest gains were automotive and telecommunications.

Political revenues for the quarter were $2.6 million higher than last year. This growth was the result of strong presidential primary and campaign spending in Florida, the Carolinas, Alabama and Iowa, as well as a congressional race in Kentucky and issue spending in several states.

The Television Bureau of Advertising’s monthly Group Survey for February reported that overall for the year, industry time sales increased 7.3% compared to our 13.9% improvement. Industry national times sales rose by 6.8% compared to our increase of 18.5%. The industry’s local time sales improved 7.6% compared to our 11.2% gain. All of these numbers include political revenues.

Broadcast Division expenses for the first quarter rose a modest 1.1%. The increase reflects higher costs for commissions, salaries, health insurance, Nielsen rating fees, and promotion, partially offset primarily by lower cost of goods sold by our equipment subsidiary.

Now let’s discuss the Interactive Media Division. The division reported an operating loss of $1.7 million. Recurring operations, excluding last year’s Hoover’s gain, improved by 4.4%. Revenues of $3 million increased 41% over last year, mainly from classified upsells and, on a smaller scale, National advertising. Expenses for salaries, benefits and commissions, as well as hosting and content fees, largely offset the higher revenues.

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

Remarks from Marshall Morton

Thank you, Reid.

Net income for the quarter was $9.1 million, or 38 cents per share, compared with $7 million, or 30 cents per share a year ago. Last year’s results included a gain of 16 cents per share from the sale of our investment in Hoover’s. If the Hoover’s gain were excluded from last year’s earnings per share, our current quarter net income was more than 2.5 times last year’s.

In addition to the good growth in divisional profits for the quarter, we had the benefit of lower interest expense and a significant improvement in SP Newsprint’s results.

Interest expense declined by $1.9 million from the prior year, due mostly to lower interest rates.

Our share of SP Newsprint’s results improved by $1.8 million from a year ago, primarily due to improved newsprint prices.

Partially offsetting these two favorable items were higher intangibles amortization and corporate expense.

Intangibles amortization was about $1 million higher than last year due to the addition of network affiliation amortization.

Corporate expense increased $524 thousand over last year, spread over a number of items, none of which had a particularly significant impact by itself.

The “Other, net” line on the GAAP Statement of Operations shows income of $59 thousand for the first quarter of this year compared to income of $6.9 million for the first quarter of last year. This is where the pre-tax gain from the sale of Hoover’s in last year’s first quarter was recorded.

The effective tax rate for the quarter was 37%, compared with 36.5% in the prior year.

Total debt at the end of the first quarter was $643 million and represented 37% of total capital. Our debt outstanding at the end of the quarter included $348 million in bank debt, $200 million in public debt, and $95 million in consolidated variable interest entities. Debt has dropped slightly since the end of the quarter and we stand at about $639 million today.

An increase in debt since the beginning of the year of about $11.5 million (through today) largely reflects the impact of the $35 million contribution to the pension plan made in late January (as discussed in our last conference call), offset by repayments from operating cash flow.

Capital expenditures for the first quarter were $6.9 million. The Publishing Division spent nearly $2.2 million, mostly for production equipment and computers. The Broadcast Division spent $4.4 million, mostly for the new Centralized Master Control operations for our CBS stations and for editing and other news production equipment. Expenditures by the Interactive Media Division and Corporate were only nominal.

EBITDA for the first quarter was $39.7 million, compared with $37.4 million for the prior year.

After-tax cash flow was $26.4 million in the first quarter, compared with $23.7 million in the prior year.

Free cash flow was $19.4 million in the first quarter, compared with $16.5 million in the prior year.

And, now, I will turn it back to Stewart.

Remarks from Stewart Bryan

Thank you, Marshall.

I would like to comment on the status of the FCC cross-ownership rules and our outlook for the second quarter before turning to the Q&A part of our call.

On the FCC front, the new ownership rules remain on review before the Third Circuit in Philadelphia. We’re monitoring that, and we also continue to watch for any related legislation in Washington. We continue to believe that communities of all sizes deserve the better local news that can be produced by commonly owned platforms. We still expect a decision from the Third Circuit by mid-summer. Even if the court remands this matter to the FCC, we’re hopeful that the Commission quickly will agree with us and allow common ownership of television stations and newspapers across all markets.

Next, let me discuss our expectations for the second quarter.

In the Publishing Division, revenues are expected to grow approximately 5%. We expect classified revenue to show similar gains in the second quarter as the first, with employment linage continuing strong growth. We also look for improvement in the retail and national categories compared to the prior year.

For the Broadcast Division, the time sales outlook for the second quarter is better than last year, reflecting a strengthening economy and anticipated strong political spending as the presidential campaigns heat up. For the second quarter, we expect time sales to be about 9% ahead of last year.

Current analyst estimates for the second quarter range from 85 cents to 90 cents. Currently, we expect to perform at the low end of the range.

We look forward to seeing you at the Mid-Year Media Review in June when we will update you on current business conditions and our outlook for the year. Media General’s presentation is scheduled for Tuesday, June 22 at 11 a.m.
In the meantime, we look forward to welcoming anyone who plans to attend our Annual Meeting of Stockholders on April 29 here in Richmond.

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

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