First-Quarter Conference Call Remarks
April 17, 2009 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 Conference Call and Webcast.

Earlier today, we announced first-quarter 2009 results.  The press release has been posted on our Web site.  The comments from today’s conference call will be posted 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.  Let me now turn the presentation over to Marshall.

Remarks from Marshall Morton

Thank you, Lou Anne, and good morning. 

In the first quarter of 2009, we reported a loss from continuing operations of $16.9 million, or 76 cents per share, excluding $4.5 million of severance expense.  The lower results compared to last year’s first quarter are primarily due to an 18% decrease in total company revenues.

Total operating expenses in the quarter decreased 14% from last year.  Excluding severance and other special charges, expenses decreased 16.4% year over year.

In the Publishing Division, revenues were down 20% from last year, and the division reported a loss of $2.1 million.  If you exclude $3.9 million of severance and certain other expenses, such as the closing of our Washington D.C. bureau, the Publishing Division had a profit of $1.8 million in the first quarter.   

Broadcast Division revenues declined 19% compared to last year, which reflected, in part, $4.4 million of Political revenues in the 2008 first quarter.  The Division’s profit this year was $2.2 million.  Excluding severance expense, Broadcast Division profits were $3.3 million in the first quarter.  

Interactive Media Division revenues increased 24.5% in the first quarter.  Its loss of $1.1 million was a 60% improvement compared to last year.  The main driver of the division’s year-over-year improvement was the contribution of DealTaker.com, which generated a profit of $1.5 million.  We acquired DealTaker on March 31, 2008.

We’ve now entered our third year of an economic downturn, which has continued to increase in severity.  In the face of these conditions, we undertook several new actions in the first quarter to further reduce expenses. 

In our last report to you, on January 29, we discussed that we had begun scaling back our expenses in early 2007 when our Florida operations began to feel the impact of the housing downturn in the state. 

From the beginning of 2007 to the end of 2008, our number of FTEs decreased from 6,900 to 5,750.   These reductions generated more than $55 million of annualized savings, approximately 20% of which benefited us in 2008, and the full amount would be realized in 2009.

The additional actions we’ve taken this year 2009 will further reduce our expenses.  For example, we have suspended our 401(k) match starting April 1, 2009 through the end of this year, which will save approximately $7.5 million this year.  All employees are taking 10 unpaid furlough days, spread across the first three quarters of this year, which will save approximately $9 million.  Two weeks ago, during the week of March 31, we further reduced our workforce by nearly 300 positions, which will reduce expenses in 2009 by approximately $10 million.  In addition, the Florida Communications Group has added three more furlough days for all of its employees in the second quarter, making their total for the year 13 days.

Today we announced that we are freezing our pension plan.  We froze service accruals at the beginning of 2007 and closed the plan to new participants at that time, but allowed benefits to grow based on future compensation.  That will now cease, and we will base retirement benefits on final average earnings as of May 31, 2009.  This action will reduce the cash we will need to contribute to the plan over the long term.    

We have responded swiftly to the revenue declines we have experienced over the past three years, and we have dramatically reduced our cost structure.  All of the cost saving actions implemented during 2008 and this year are expected to reduce our total operating costs for 2009 by 15 percent from the prior year, excluding severance and special charges.

In addition, we are focused on new products and services and on driving new revenues on our web sites, through focused and online only selling, from our partnerships with Yahoo! and Zillow, and from our interactive advertising services businesses, such as DealTaker.com.  This focus is enabling us to transform our business model in the world of digital and mobile communications.

Remarks from Reid Ashe

Thank you, Marshall.

Starting with the Publishing Division, in the first quarter, revenues were down at all of our newspapers.  Advertising revenues decreased 25% from the prior year, and all major categories retreated.  Classified fell 39%, retail 18% and national 12%. 

Circulation revenues, on the other hand, increased more than 6%.  We raised single copy and home delivery prices in several markets and lowered subscriber discounts. 

Printing and distribution revenues grew as well - by more than 5%.  In February, we pulled printing and distribution operations out of our newspapers and created a separate entity charged with maximizing the return on these assets. Each of our plants was already printing multiple titles for Media General. Now we’re steadily adding outside clients, both for printing and for local delivery.

Expense cuts partially offset the Division’s revenue decline. Excluding severance and other special charges, expenses were down 15.6% compared with last year.

Salaries decreased by 20%, excluding severance and including the benefit of four furlough days in the quarter.  Benefits were down 24.2% because of the reduced workforce and the absence of profit sharing expense this year.  Departmental expenses declined 13%, excluding special charges, as cost cuts put into place last year took full effect. 

Newsprint expense decreased 7.1%.  While consumption was down by 25.8%, in part due to conservation efforts, average newsprint prices were up $135 a ton over last year. 

We’re cutting newsprint usage as deeply as we can. We’re managing waste and returns, we’re scrutinizing every content element and we’re redesigning our newspapers with fewer sections to minimize filler space. Many of our newspapers have trimmed to an 11-inch-wide page, and all of them will do so by the end of the third quarter.

Beyond our daily newspapers, we publish some 250 weekly newspapers, targeted products and specialty sections inserted into the paper.  It’s a dynamic and growing list, in which we constantly test new concepts and replace old ones. New products in the Publishing Division produced $7 million revenue in the first quarter of 2009, or 8% of the division’s total.  While all advertising is difficult in this environment, revenue and margins are holding up nicely in many of our new products. 

Turning to the Broadcast Division, total time sales in the quarter were down 25%, in part reflecting $4.4 million of Political revenues in last year’s results.   

Local time sales fell 20%, excluding Political.  National time sales were down 21%, also excluding Political. 

Automotive advertising accounted for 16% of our total time sales.  In the first quarter of 2008 it was 22%.  In previous years, it had been greater still. 

This was NBC’s year to air the Super Bowl, and our 8 NBC stations billed a total of $3.2 million of advertising in the game.  Because the game was in Tampa, all our local properties enjoyed the benefit.  Our web portal, TBO.com, saw one million page views the Thursday before the game.  The TBO Sports section had nearly two million page views in January – a 50 percent increase over last year. Over 1.7 million people tuned to WFLA for the game.  Coverage included special sections in The Tampa Tribune and a commemorative edition published on Monday, February 2.

Media General’s television advertising sales continue to beat industry averages.  According to the Television Bureau’s monthly Group Survey, through February – the latest reporting period – industry time sales decreased 28%, compared to Media General’s 23% decline.  Those numbers include Political advertising, both for the industry and for us.

Offsetting Broadcast’s revenue decline in the quarter were lower expenses, which, excluding severance, were down 14.5% from last year.  Salary expense, excluding severance but including four furlough days, decreased 16%.  Benefits declined by 28%.  Other expenses were down 12% because of savings in promotion, production, news and administration. 

In the Interactive Media Division, revenue increased nearly $2 million from last year, thanks largely to DealTaker.com.  Though roughly half our local websites gained revenue from last year, their total fell 11%, mainly because of classified declines at the big properties. All categories of advertising fell with the exception of Local online, which increased 31%.

Local advertisers have become increasingly receptive to online advertising.  We’ve armed our sellers with better tools, better knowledge and stronger incentives, and we’re emphasizing online-only sales.  We’re in the field constantly with sales “blitzes” that rotate from market to market. They not only boost revenue, but also train the local staff, inspire confidence and educate advertisers on the value of online advertising.

Our online audience continues to grow.  In the first quarter, page views increased 4.1% and unique visitors grew 15.2%.

Our Web First/Continuous News Initiative gives readers a reason to come back often.  Their page views create valuable local inventory, which appeals to local advertisers.  We’re getting better at monetizing traffic, at the same time we’re creating more traffic to monetize.

Local entertainment is a hot topic for our Internet audience, and an area of high demand for several advertiser categories. Company-wide, we’ve enhanced our local entertainment sections and driven double-digit increases in page views and unique visitors and thus in salable ad inventory. 

Last week we unveiled a major redesign of our city web portal, Richmond.com, which we acquired last fall. We’ve designed the site as the go-to source for what’s happening, what to do, and what people are talking about in the community. It’s built on aggregation and social interaction. It not only invites listings from users, but also actively scours the web to compile the most comprehensive listings of events, Things to Do, and things to buy and sell in the market. It presents news from eclectic sources and captures the most popular local blogs. It’s a place for users to create profiles, comment, upload photos and interact with other social networking sites. It’s a distinctly different concept from a traditional newspaper website, targeting different needs and, to some degree, a different audience. Meanwhile TimesDispatch.com remains the home for proprietary content, breaking news and newspaper customer service.

And, now, I’ll turn the presentation over to John.

Remarks from John Schauss

Thank you, Reid.

Let me begin with below-the-line items in the first quarter.

Interest expense was $2.3 million, or 19% below last year’s first quarter, due primarily to lower average debt levels and also aided by lower interest rates.

The significant decrease in acquisition intangibles amortization - $1.8 million in the first quarter compared with $3.8 million last year - was the result of intangible assets written down in 2008.

Corporate expense declined by nearly $2 million, or 18%, as a result of workforce reductions, four furlough days, and lower departmental expenses from ongoing cost containment initiatives.

Other expense was down by more than $2 million this year, due mainly to the fact that last year we were accruing for bonuses.  This year we are not.

The effective tax rate for the quarter was zero, due to our net deferred tax asset position and required valuation allowance.

EBITDA from continuing operations was $3.8 million in the first quarter, compared with $14.2 million in last year’s first quarter.

Capital spending in the first quarter of 2009 was approximately $4 million, compared with approximately $8 million in the first quarter of 2008.

In the first quarter, the Publishing Division invested $2.1 million, mainly for converting printing equipment in Florida and Winston-Salem to run the narrower width newspapers.  Broadcast Division capital spending in the first quarter was $1.9 million, mainly for stations completing their final phase of the DTV conversion.  Interactive Media Division and corporate expenditures were $120 thousand, primarily for information technology.

Free cash flow in the first quarter was a $10.3 million deficit, compared to approximately $560 thousand in last year’s first quarter.

Despite this, we were able to collect receivables and hold debt even with the year-end 2008 level of $730 million.  We do anticipate reducing debt during the remainder of 2009.

We are proceeding with our announced sale of our CW station in Jacksonville, Fla., to Nexstar and expect to complete the transaction during this quarter.  When the sale is completed, we will use the proceeds to reduce debt.

In the first quarter, the maximum leverage ratio allowed by our debt covenants was 6.25x.  We were under that amount at 5.98x.  In the second quarter, the leverage ratio steps down to 6.0x, and the additional cost reductions we implemented in the first quarter were taken with that in mind.  We remain confident that we will remain compliant with all debt covenants.

And, now I’ll turn it back to Marshall.

Remarks from Marshall Morton

Thank you, John.

Despite continued economic challenges, we are finding good reasons to take heart.  We are innovating, pushing into new digital platforms, and creating new ways to serve consumers and advertisers.  

We are driving audience growth through new products and our highly successful Web-First/Continuous News initiative; capitalizing on mobile delivery with new advertising and marketing services, such as text messaging, mobile coupons and classified vertical applications; cultivating and executing on our partnerships with Yahoo! and Zillow; and accelerating growth in new revenue segments tapped by Blockdot and DealTaker.com.

We remain vigilant in our efforts to align expenses with the business climate. 

On July 1, we are shifting from the divisional structure under which we have operated during our whole corporate life to a market-focused structure.  All properties in a given market will report to one of five geographic Market Leaders regardless of platform. The new structure will greatly accelerate our Web First strategy, by strengthening our ability to leverage all available resources on behalf of our web sites, from both a content and sales perspective. 

It will allow us to better serve our customers’ needs, by allowing us to be – actually forcing us to be - more customer focused and less product focused.  Our market structure will also speed decision making across the enterprise by reducing layers of management. 

Our five Market Leaders were selected on the basis of their track records of success over many years, for their breadth and depth of experience operating in competitive markets, for understanding of the value of research and marketing for media operations, and for their commitment to innovation. 

There is a short video on our web site that provides further details on our reorganization.

That concludes our report.  We will now be pleased to take your questions. 

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