Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MEG > SEC Filings for MEG > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for MEDIA GENERAL INC



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


The Company is a leading provider of news, information and entertainment across broadcast television, digital media and mobile platforms located primarily in the southeastern United States. It is focused on providing high-quality local content in growth markets.

As of the beginning of the third quarter, the Company streamlined its management structure and operations to align with its new focus as a pure-play television broadcaster. Accordingly, the Company now has two operating segments each consisting of nine network affiliated television stations divided on the basis of geographic region. The Company has determined that these operating segments meet the criteria to be aggregated into one reporting segment.

The Company's fiscal year ends on the last Sunday in December.


The third quarter of 2012 was a period of significant transition for the Company as it completed the sale of all of its newspapers, with the exception of its Tampa print properties, to World Media Enterprises, a subsidiary of Berkshire Hathaway. Subsequent to the end of the third quarter, the Company also completed the sale of its Tampa print properties and associated web sites to the Tampa Media Group, Inc., a new company formed by Revolution Capital Group. With these transactions completed, the Company has sold all of its newspapers and transformed itself into a pure-play television broadcaster. The results from newspapers,, Blockdot, NetInformer, and the Production Services company are reflected as discontinued operations in all periods presented. The Company has recorded a cumulative $143 million after-tax loss related to the divestiture of discontinued operations in 2012. The loss includes $68 million of allocated goodwill related to the discontinued properties. In previous impairment tests, the Company tested goodwill at the reporting unit level. Several of the Company's reporting units consisted of both print and broadcast properties meaning these units were valued using a combination of print and broadcast cash flows, discount rates, and market multiples. The Company also previously valued its depreciable long-lived assets by applying the held for use principle, in which assets are tested for recoverability on an undiscounted basis when indicators of impairment are present, rather than the held for sale principle, which requires a comparison of current carrying value to current fair value less costs to sell. Current market prices for newspapers assets were also a significant factor in the size of the loss related to the divestiture of discontinued operations.

A non-cash impairment charge of $6.5 million, net of a tax benefit of $3.6 million, was recorded in the first quarter to write-off the remaining goodwill and other intangible assets related to and is reflected in the results of discontinued operations for the nine months ended September 23, 2012. In the third quarter of 2011, the Company also performed an interim impairment test that resulted in a non-cash goodwill impairment charge of $16.2 million net of a tax benefit of $10.4 million related to certain print properties in its former Virginia/Tennessee market. This impairment charge is included in the loss from discontinued operations for the three and nine months ended September 25, 2011. See Note 2 of this Form 10-Q for further discussion of the Company's discontinued operations. The remainder of this discussion focuses only on results from continuing operations.

The Company used the net proceeds from the sale of newspapers to World Media to reduce outstanding debt during the third quarter including a repayment of $98 million of principal on its term loan and the entire $18.5 million balance of the revolver. The Company recorded $17 million of debt modification and extinguishment costs during the third quarter due to the accelerated recognition of a pro rata portion of discounts and deferred issuance costs. The Company's recent refinancing activities have resulted in significant debt modification and extinguishments costs, including certain advisory, arrangement, legal and extinguishment fees as well as the write-off of previously deferred costs. See the Liquidity section of this MD&A for a complete discussion regarding the Company's financing arrangements.

The Company recorded a loss from continuing operations of $18 million and $58 million in the third quarter and first nine months of 2012, respectively, compared to $12 million and $45 million in the equivalent 2011 periods. Operating income increased by $18 million and $34 million in the third quarter and first nine months of 2012 compared to the equivalent prior-year periods. This improvement was largely driven by a 42% and 24% rise in revenues in the third quarter and first nine months of 2012 due primarily to robust Political advertising, the presence of the Olympic games which aired on the Company's NBC stations in the third quarter, and increased satellite and cable retransmission fees attributable to higher rates upon contract renewals in late 2011. The increases in revenue and operating income were not enough to overcome the previously mentioned debt modification and extinguishment costs ($17 million in the third quarter and $35 million in the first nine months of the year) and increases in interest expense of 26% and 15% in the same respective periods. Tax expense also rose in 2012 due to the absence of tax benefits related to intraperiod tax allocation and the termination of interest rate swaps in the third quarter of 2011.


Revenues are grouped primarily into five major categories: Local, National,
Political, Cable/Satellite Retransmission, and Digital. The following chart
summarizes the total consolidated period-over-period changes in these select
revenue categories:

                      Change in Revenue by Major Category
                                2012 versus 2011

                                     Third Quarter Change             Year-to-date Change
(In thousands)                      Amount           Percent         Amount          Percent
Local (gross)                    $      6,378            15.6     $      8,150            6.3
National (gross)                        4,014            19.2            5,523            8.7
Political                              18,240              NM           31,117             NM
Cable/Satellite Retransmission          4,087            77.6           11,747           73.6
Digital                                   454            20.7            1,107           18.2

"NM" is not meaningful.

As illustrated in the chart above, all categories realized revenue improvement. Political advertising has exceeded expectations and reflected higher spending by both presidential campaigns, PACs, and certain Congressional primaries and Senate races. The Company operates six television stations in the presidential battleground states of Florida, North Carolina, Ohio, and Virginia. The Company generated $15.5 million of revenue at its eight NBC stations from the Summer Olympics in the third quarter, a significant driver of the robust growth in the Local and National categories. Additionally, the Super Bowl aired on the Company's NBC stations in the first quarter and contributed $2.8 million in related advertising revenues in the 2012 year-to-date period. Beyond event driven revenues, the Company also saw healthy growth in the third quarter and first nine months of 2012 in the automotive, financial, grocery, medical, telecommunications, and travel categories.

Retransmission fees were higher as a result of renegotiated rates, as agreements expired, for 25% of the households in the Company's markets late in 2011. The increases in digital advertising are largely due to Local online advertising which increased 28% in the third quarter and 26% in the first nine months of 2012.


Total operating costs increased 16% and 7.3% in the third quarter and first nine months of 2012. Employee compensation related costs played a large part in the increases. Specifically, $3.3 million of severance expense was incurred at corporate due to the announced elimination of 75 positions in July 2012. Additionally, the Company instituted a furlough program in the second half of 2011 which mandated most employees take 15 unpaid days. The absence of the furlough program in 2012 increased operating costs by approximately $1.9 million in the third quarter. Higher incentive-based compensation as a result of the Company's improved operating performance in this Olympic and Political year has also contributed to the increases.

Station production expenses increased 13% in the third quarter due in part to the previously mentioned furlough program. Higher network affiliate fees, partially offset by lower broadcast programming costs (due in large part to the absence of the Oprah show and a shift towards more local programming) contributed to both the third quarter increase and a 7.3% increase in year-to-date station production expenses.

The absence of the furlough program in 2012 compared to 2011 was the primary driver of a 10% increase in station selling, general, and administrative expenses in the third quarter. Higher incentive compensation costs were also a factor in both the third quarter and year-to-date 4.3% increase in station selling, general, and administrative expenses.

Corporate and other expenses, as shown on the Consolidated Condensed Statements of Operations, increased by 71% in the third quarter and 31% in the first nine months. As mentioned above, the third quarter of 2012 included $3.3 million of severance expense. In both the three and nine months ended September 23, 2012, the Company also recorded accruals for incentive compensation attributable to both corporate and station management that were not present last year. Corporate expense (excluding depreciation and amortization) decreased by 8.5% and 3.5% during the three and nine months ended September 23, 2012 due to a corporate staffing reduction that was implemented progressively throughout the third quarter, offset by the absence of furlough savings that occurred in 2011.

Depreciation and software amortization expense was down due to reduced capital spending in recent years. Amortization of intangible assets decreased as a number of assets reached the end of their useful lives in the first quarter of 2012.


Interest expense increased $4.2 million and $7.2 million in the third quarter and first nine months of 2012, respectively. The increased interest expense was due to higher interest rates as the result of the Company's new financing arrangement partially offset by a reduction in average debt outstanding. Interest expense in 2012 included non-cash charges of $2.4 million and $6.8 million in the third quarter and first nine months, respectively. This non-cash interest expense represents accretion of discounts related to original issuance, warrants and certain fees that are amortized over the life of a loan.


The Company recorded non-cash income tax expense from continuing operations of $3.4 million and $10 million in the third quarter and first nine months of 2012, compared to $847 thousand and $6 million in the equivalent periods of 2011. The Company's tax provision for each period had an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation allowance at the beginning of each period. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change to the valuation allowance. However, tax expense recorded in the third quarters of 2012 and 2011 included the accrual of non-cash tax expense of approximately $3.4 million and $3.6 million, respectively, of additional valuation allowance in connection with the tax amortization of the Company's indefinite-lived intangible assets that was not available to offset existing deferred tax assets (termed a "naked credit"). Both periods reflected approximately $4 million and $6 million respectively of non-cash tax expense that was allocated between continuing and discontinued operations. The "naked credit" expense was offset in the third quarter of 2011 by $732 thousand of tax benefit related to the intraperiod allocation items in Other Comprehensive Income and $2 million of tax benefit related to the interest rate swap termination. After the sale of discontinued operations, the Company expects the naked credit to generate approximately $14 million of non-cash income tax expense from continuing operations for the full-year 2012; other discrete tax adjustments and intraperiod tax allocations that are difficult to forecast may impact the remainder of 2012. A full discussion of the naked credit issue is contained in Note 3 of Item 8 of the Company's Form 10-K for the year ended December 25, 2011.


The Company generated net cash of $18 million from operating activities in the first nine months of 2012 compared to a $7.7 million use of cash in the year-ago period. During the third quarter, the Company received net proceeds from the sale of newspapers to World Media of $140 million and paid down principal on long-term debt of $117 million. During the year, the Company also paid debt issuance related costs of $29 million, set aside $10 million as cash collateral for its letters of credit, contributed $9.1 million to its retirement plan and made cash capital expenditures of $7.3 million. A discussion of the Company's financing arrangements follows.

In May of 2012, the Company consummated a financing arrangement with BH Finance LLC, an affiliate of Berkshire Hathaway, that provides the Company with a $400 million term loan and a $45 million revolving credit line. The funding of the new financing arrangement's term loan and an initial draw of the revolving credit facility resulted in cash proceeds to the Company of $383 million, which were immediately used to fully repay all amounts outstanding under the Company's existing credit facility, pay fees and expenses related to the financing and to fund working capital requirements. The new loan was issued at a discount of 11.5% and was secured pari passu with the Company's existing 11.75% senior secured notes due 2017. The new term loan has an interest rate of 10.5%, which could step down to 9% if total leverage were to reach 3.50x. While the new financing arrangement does not contain financial covenants, there are restrictions, in whole or in part, on certain activities including the incurrence of additional debt, repurchase of shares, and the payment of dividends. The term loan may be voluntarily repaid prior to maturity, in whole or in part, at a price equal to 100% of the principal amount repaid plus accrued and unpaid interest, plus a premium, which starts at 14.5% and steps down over time, as set forth in the agreement. Other factors, such as the sale of assets may result in a mandatory prepayment of a portion of the term loan without premium or penalty. The new term loan and revolving credit facility will mature in May of 2020 and are guaranteed by the Company's subsidiaries. The revolving credit line bears interest at a rate of 10% and is subject to a 2% commitment fee.

Concurrent with the funding of the financing arrangement and pursuant to a Warrant Agreement entered into in May of 2012, the Company issued warrants to Berkshire Hathaway to purchase 4.6 million shares of Class A common stock, which represented approximately 19.9% of the number of then outstanding shares of the Company's common stock. On September 24, 2012, Berkshire Hathaway exercised all of the warrants to purchase 4,646,220 shares of Class A common stock, par value $5.00 per share, for an aggregate purchase price of $46,462.20, or $0.01 per share. Additionally, on September 20, 2012, the Board of Directors elected Wyndham Robertson as a new Class B director. Ms. Robertson was nominated by Berkshire Hathaway pursuant to a Shareholders Agreement dated May 24, 2012.

On June 25, 2012, the Company completed the sale of its newspapers to World Media Enterprises (a subsidiary of Berkshire Hathaway) for $142 million in cash, subject to normal adjustments. The Company immediately used the net proceeds from the newspaper sale to repay $53 million on the term loan at par and the $18.5 million balance on its then existing revolver. The Company offered to purchase up to $45 million of its 11.75% senior notes due 2017 in a tender offer with only $200,000 of acceptances received. The Company then offered and Berkshire Hathaway accepted repayment of $45 million on the term loan at par representing the amount the noteholders elected not to take.

The early repayment of debt resulted in debt modification and extinguishment costs of $17.3 million in the third quarter due to accelerated recognition of a pro rata portion of discounts and deferred issuance costs. In the second quarter of 2012, in conjunction with the secured financing with Berkshire Hathaway and the repayment of the previous credit facility the Company recorded debt modification and extinguishment costs of $7.7 million, primarily due to the write-off of unamortized fees related to the former credit agreement. In addition, the Company capitalized $11.5 million of advisory and legal fees related to the new financing; these fees will be amortized as interest expense over the term of the financing arrangement. In March of 2012, the Company amended its previous bank credit agreement which resulted in a $10.4 million of expense for debt modification and extinguishment costs including certain advisory, arrangement, and legal fees related to that refinancing.

The previous bank credit facility had an interest rate of LIBOR (with a 1.5% floor) plus a margin of 7% and commitment fees of 2.5%. In addition to this cash interest, the Company accrued payment-in-kind (PIK) interest of 1.5%. PIK interest increased the bank term loan by nearly $1 million between March and May 2012 and was paid in cash upon repayment of the entire facility.

Following these transactions, as of September 23, 2012, the Company had in place a term loan with a face value of $302 million bearing interest of 10.5% (and reflected on the balance sheet at a discounted carrying value of $256 million) and a revolving credit facility with maximum availability of $45 million and no outstanding balance (subject to a 2% commitment fee). Also outstanding were 11.75% Senior Notes with a par value of $300 million that were sold at a discount and carried on the balance sheet at $295 million. The Company was in compliance with all provisions of both agreements at September 23, 2012, and expects to adhere to these provisions going forward.

As of September 23, 2012, the Company had outstanding letters of credit of approximately $5 million. The Company has posted cash of $10 million in aggregate with its current and former letter of credit agents to support these letters of credit during 2012. The Company received a $5 million refund of the cash collateral from its previous letter of credit agent in October 2012.

The Company's network affiliation agreements with NBC were originally scheduled to expire on December 31, 2011 but have been extended through November 10, 2012 as negotiations for a long-term agreement continue.

The Company believes that its cash on hand, cash provided by operations, and its revolving credit facility are sufficient to cover its working capital, capital expenditures, interest, pension and other cash needs.


With the sales of its print properties now complete, the Company has transformed its business model to one focused entirely on broadcast television and digital media. The Company's television stations have successfully capitalized on the event-driven and Political revenue opportunities that have presented themselves so far in 2012 and expect to continue to reap the benefits of robust Political advertising in the fourth quarter. The Company has nearly completed its plan to reduce corporate expense by 35-40% and will now focus on progressively improving cash flow margins at its television stations by driving ratings and share increases as well as through expense management. While interest costs reflect higher rates as a result of the new agreement, the Berkshire Hathaway financing arrangement has addressed the Company's long-term capital needs and will provide the Company with significant financial and operating flexibility.

* * * * * * * *

Certain statements in this quarterly report that are not historical facts are "forward-looking" statements, as that term is defined by the federal securities laws. Forward-looking statements include statements related to accounting estimates and assumptions, expectations regarding interest expense, corporate expense, cash flow margins, income taxes, debt arrangements, general advertising and Political advertising levels. Forward-looking statements, including those which use words such as the Company "believes," "anticipates," "expects," "estimates," "intends," "projects," "hopes," "plans," "may" and similar words, are made as of the date of this filing and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements.

Some significant factors that could affect actual results include, without limitation: the effect of the economy on advertising demand, changes in relationships with broadcast networks and lenders, health care cost trends and regulations, changes in return on pension plan assets, a natural disaster, the levels of Political advertising, regulatory rulings and laws (including income tax laws), and the effects of dispositions and debt arrangements on the Company's results of operations and its financial condition.

  Add MEG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MEG - All Recent SEC Filings
Copyright © 2016 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.