Second-Quarter Conference Call Remarks
July 22, 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 second-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. 

For the second quarter of 2009, net income of $21 million, or 90 cents per share, compared to an impairment-laden loss of $532 million a year ago. 

The current period included an income tax benefit of $11 million on continuing operations, including $3.6 million from a favorable determination concerning a state tax issue and $7.5 million of tax benefit attributable to our first-half results.  Also in the 2009 second quarter we had a $7.1 million gain, after tax, on the sale of our CW station in Jacksonville.

Excluding severance expense from both quarters, and last year’s impairment charge, income from continuing operations before taxes in 2009’s second quarter was $3.8 million compared with $2.6 million in the prior year.   

A 23% decrease in total operating expenses year over year, excluding impairment, was the major contributor to the improved operating results. 

Significantly lower expenses reflected actions we have taken on multiple fronts to align our cost structure with current revenue opportunities.  These include reductions in force across the company, a furlough program in 2009, suspension of the match on our 401(k) plan, and the final step in freezing our pension plan as of May 31, 2009. 

Total revenues in the second quarter decreased 20% from last year. 

Looking at sequential comparisons to this year’s first quarter, the revenue decline in Publishing was about the same.  The decline in Broadcast was a little higher, which mostly reflected the fact that we did not have the benefit of Superbowl advertising that we had in the first quarter.  Interactive Media revenues declined 5.7%, compared to a 24.5% increase in the first quarter, mostly attributable to the acquisition of DealTaker.com on the first day of the second quarter last year.    

Our Classified advertising revenue declines abated somewhat in the second quarter compared to the first, and the improvement was most noted in the automotive category.  The Retail category declined somewhat less in the second quarter than the first.  Broadcast time sales were quite weak in April, but improved in May and June.  Overall, from a revenues perspective, I’m pleased to report that we ended the quarter a little stronger than we began it.

Looking at our expense performance in more detail, at the beginning of 2007, just before we began the staff reductions related to this recession, we had 6,900 employees.  Today we have 5,000, a 28% reduction.   This has been a painful but necessary step to stay strong as we continue to weather the recession, and, when the economy improves, we will be well positioned for the rebound.

We continue to expect that cost saving actions implemented during 2008 and 2009 will reduce our total operating costs for 2009 by 15 percent compared with 2008, excluding severance and special charges. 

The benefit of our expense reductions is most evident in our Publishing segment results in the second quarter.  Publishing profits increased from $6.8 million in last year’s second quarter to $12 million this year, owing to a 27% decrease in operating expenses.  Moderating the segment profit increase was a 26% drop in advertising revenues.

Broadcast segment profit decreased 24%.  Political revenues in 2009 were $2 million lower this year, and National and Local transactional sales decreased as well, driven primarily by reduced spending in the automotive and telecommunications categories.  Broadcast operating expenses decreased 21% from last year.

The Interactive Media segment had a loss of $1.1 million, compared with the prior-year loss of $656 thousand.  This deterioration mainly came from lower online Classified revenues.  Partially mitigating the revenue decline was lower expenses across all web sites and increased profits at DealTaker.com. 

I’ll now ask Reid to provide more details on the performance of our three business segments in the second quarter.  

Remarks from Reid Ashe

Thank you, Marshall.

Starting with the Publishing segment, Classified advertising was down 35%, retail 21%, and National 19%. Circulation revenue increased 12%, driven by higher single copy and home delivery prices in most markets and lower subscriber discounts.

Total Publishing expenses, excluding severance, decreased 25% from last year. The expense savings came in all departments, but were most notable in salaries, benefits and newsprint.

Newsprint expense decreased $3.7 million, or 29%.  We cut consumption by 34% through reduced web widths, page counts, circulation volumes, and advertising linage.  The average price per ton for the quarter was $633 compared to $594 last year.  Newsprint prices have dropped dramatically in the last two months, though, and we’ll see a favorable impact in the third quarter.

In the Broadcast segment, Local and National transactional advertising were each down 25%.  The worst decline was in Automotive.  Political revenues in the 2009 quarter were $800 thousand, mostly from the Virginia gubernatorial primary.

Our television advertising sales continue to beat industry averages.  According to the Television Bureau’s monthly Group Survey, through May – the latest reporting period – industry time sales decreased 28%, compared with a 26% decline for our stations.  Those numbers include Political advertising, both for the industry and for us.

We reduced Broadcast expenses in salary and benefits, media advertising, newscast production and administration.

In the Interactive Media segment, Local advertising revenue increased 18%, mitigating the drop in classified. We’ve given our sales force better training and incentives to sell new media. The market is more receptive now and our Yahoo and Zillow partnerships help, too.

June was our first million dollar month in Local online sales. So far this year, we’ve booked more than $2 million in Y! Display ads alone. That compares to $500k at this time last year and only $900,000 in all of 2008.

While our Advertising Services businesses were not immune to the weak economy, DealTaker’s profits increased 18% and its revenues were up 24%.  Blockdot managed its cost structure to remain profitable through the undulations of its market. NetInformer added resources and clients and beat its profit target. 

Our online audience continues to grow nicely. Compared to last year,  page views increased 9%, visitor sessions increased 17%, and unique visitors grew 23%.  Our mobile audience is growing even faster – over 40% from one month to the next, reaching 1.4 million page views in June.

Frequent updates keep people coming back to big local stories. Weather, entertainment and things to do, interactive databases and links to aggregated content also drive traffic.

With Hurricane season upon us, we’re prepared for the biggest of all traffic drivers with new online Hurricane Centers in all our coastal markets.

We updated the design of most of our media sites in the second quarter, streamlining their look and feel and highlighting continuous news coverage. Stories now show prominently the number of user comments attached, and we’re integrating more social networking through Twitter and Facebook.  In June, we launched an enhanced video player, which facilitates new revenue opportunities through clickable pre-roll ads. It’s sharable, allows our reporting and pre-roll ads to follow the “share” and scales to accommodate HD video.

Our relationships with Yahoo!, with certain television network news organizations, and with other national sites, contributed to traffic spikes on local stories with national appeal.  We just launched new widget templates for News, Most Commented, Sports, BLOGS and Weather. These widgets drive traffic back to MG websites from partner sites and other sites where the viral widgets are self-selected and placed.

We are very excited about our growing opportunities online and especially on mobile devices.  We believe we are ahead of the game in capitalizing on our opportunities, and, where possible, we are creating the new opportunities.

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 second quarter.

Interest expense of $11.3 million was approximately $700,000 higher than last year’s second quarter, due primarily to higher interest rates offset in large part by lower average debt levels.

The significant decrease in acquisition intangibles amortization was the result of intangible assets written down in 2008.

Corporate expense declined by nearly $3.6 million, or 35%.  We benefited from savings from our furlough program, from reductions in retirement-related expenses, and stock-based items were down. 

Due to our net deferred tax asset position and required valuation allowance, together with a favorable determination concerning a state tax issue, income tax benefit of $7.5 million for both the quarter and the six-month period had an unusual relationship to pretax loss.  In the year to date period, a 39% income tax benefit was recorded on the pretax loss from continuing operations.  The remainder of the tax benefit -- $3.6 million -- relates to the favorable determination in the second quarter.  Accordingly, the income tax benefit recognized in both the current quarter and first-half was the same.

EBITDA from continuing operations was $28.6 million in this year’s second quarter.  Last year’s amount was negative due to the impairment charge.

Free cash flow in the second quarter of this year was $25 million, compared with $18 million last year.

Capital spending in the current quarter was $3.8 million, compared with $4.5 million last year.  Publishing segment expenditures were $2.6 million, mainly for web-width reductions in our three metro markets.  Broadcast segment expenditures were $1.1 million, mainly for completing DTV conversion projects and for transitioning to a new sales/order/traffic system.  Interactive Media Division and corporate expenditures were nominal. 

Debt at the end of the second quarter was $711 million, compared with $730 million at the end of the first quarter of 2009.  This reduction mainly reflected the use of proceeds from the sale of our CW television station.

The maximum leverage ratio allowed by our debt covenants stepped down to 6.0x, compared to 6.25x in the first quarter of this year.  We came in at 5.73x.  We were pleased come in under 5.75x because our interest expense in the third quarter will be $1.5 million lower than it would have been had the ratio been 5.75x or above. We remain confident that we will stay in compliance 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 many good reasons for optimism.  We are pushing into new digital and mobile platforms and creating new ways to serve consumers and advertisers.

We are driving audience growth through new products and our Web-First/Continuous News initiative.  Our mobile delivery includes new advertising and marketing services, such as text messaging, mobile coupons and classified vertical applications.  We are aggressively executing on our partnerships with Yahoo! and Zillow, and we’re accelerating the growth of new revenue streams tapped by DealTaker.com and Blockdot.

On July 1, 2009, Media General changed its operating structure to one that is organized by geographic markets versus individual media platforms.  Under the new structure, our leaders are responsible for the success of all of our media properties within a defined market area, not just a particular media platform.  This change puts into action our long held recognition that the customer is in charge, making decisions as to how he wants his information packaged.

For years now, as new technologies have driven rapid change in our business, we have followed a strategy of providing multiple media platforms to deliver our news, information and entertainment when, where and how the customer wants it.

Our structural realignment opens new opportunities to put customer needs first and then provide the best solution to meet those needs, without allegiance to a particular media platform.  We’ve made our operating structure flatter and leaner at the top, which will increase our speed to market for new products and services.  In the digital world, it is possible to develop and test ideas with limited capital investment, another way our speed to market will be improved.

I’ve begun a series of visits to our various properties to help employees understand our focus on serving our marketplaces as the customer requires.  During these visits, I’m also meeting with customers and community leaders.

My first visit was last week, to Tampa.  Our audience in Tampa is larger than ever.  Our three main products -- The Tampa Tribune, WFLA-TV, TBO.com -- have a total net reach of 82% of the market.  No other local media company can provide this combined coverage in the Tampa DMA.

I was pleased to hear from a prominent owner of many auto dealerships that sales are improving and a major banker believes that a floor may have been found in the housing market.  Our overall advertising performance in Tampa is showing slight improvements in the rate of decline.  The expense reductions that we’ve made in Tampa have strengthened our operations there.  I feel good about the Tampa market, recognizing that we still have to weather through the recession.  Longer term, even small improvements in revenues there will be significant to the bottom line.

Beginning with the third quarter, our external reporting will be based on our five geographic market segments and a sixth segment that will include our interactive advertising services and certain other businesses.  Our web site, mediageneral.com, has been updated to show the five market segments in detail, including all the properties that are part of a given market.

When we report third-quarter results, we will provide prior-year comparisons for all four quarters of 2008 plus full-year 2007 and 2008 and the first two quarters of 2009.  In our third-quarter press release we will provide the prior-year comparisons for the third quarter and year to date.  The other prior-year periods will be filed in a Form 8-K and posted to our web site.

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

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