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Media General Reports Second-Quarter 2012 Results

Thursday 19. July 2012 - Media General, Inc. (NYSE: MEG), a local broadcast television and digital media company, today reported 2012 second-quarter operating income of $16.4 million, compared with $6.2 million in the 2011 second quarter. The increase is mostly due to strong Political advertising and higher retransmission fees at the company's 18 network-affiliated broadcast television stations, and core business displayed good strength as well.

On June 25, 2012, the first day of the third quarter, Media General became a pure-play broadcast television company following the sale of virtually all of its newspapers to a subsidiary of Berkshire Hathaway, World Media Enterprises. Media General is in discussions with prospective buyers for The Tampa Tribune and its associated print and web operations and believes a sale is probable. All Media General newspapers are now shown as discontinued operations, as are Dealtaker.com and Professional Communications Systems, a broadcast equipment business.
Marshall N. Morton, president and chief executive officer of Media General, said, “We are very pleased with our new focus as a TV broadcaster. Our year-over-year operating improvement was driven by a 17.1% increase in Broadcast revenues. Strong Political revenues were generated by the presidential campaigns, Super PACs, the Massachusetts Senate race, and congressional primaries in Virginia and South Carolina. Core time sales, excluding Political revenues, increased 3.9% overall, mostly driven by higher automotive category spending. Retransmission fees increased 80% as a result of contract renewals that reflected competitive market rates. Media General’s stations are by and large the number one or two station in their markets. Top-rated newscasts attract Political advertising and our stations have done an excellent job capitalizing on the event-driven revenue opportunities of this year,” said Mr. Morton.
Net loss in the second quarter was $146.3 million, or $6.48 per share, including an after-tax loss of $131.7 million related to the divestiture of discontinued operations, compared with a net loss of $15.4 million, or 68 cents per share, in the 2011 second quarter.
Operating Results
Total Broadcast and Digital revenues in the second quarter increased 17.3% to $84.1 million, from $71.7 million last year. Local time sales increased 4.4% to $47 million, from $45 million last year. National time sales increased 2.9% to $23.4 million, from $22.7 million last year. The largest broadcast advertising category, automotive, increased 26.5%. Other key categories delivering increases were financial, grocery, travel, home improvement, professional services and medical. Categories that declined included department stores, furniture, telecommunications and restaurants.
Political revenues were $7.5 million, compared with $600,000 last year. Cable and satellite retransmission fees increased 80% to $9.6 million, from $5.4 million last year.
Broadcast websites generated $2.5 million in advertising revenues, up 18.6% from last year. Local advertising revenues grew 26%, driven by sales initiatives and new services, including mobile advertising. Total web audience growth continued, including robust activity from mobile devices. Unique visitors to websites from mobile devices nearly quadrupled in the second quarter, while unique visitors were even with last year from desktops.
Total operating costs increased 3.4%. Corporate expense of $8.5 million was about even with last year.
Total interest expense in the second quarter was $21.7 million, of which $3.4 million was non-cash, compared with $17.2 million last year. The increase was due to higher interest rates and discount accretion from a new financing arrangement. Debt modification and extinguishment costs were $7.7 million, primarily due to the write-off of unamortized fees related to the former bank arrangement.
Noncash tax expense was $3.4 million in the second quarter, compared with $2.6 million in the prior year. Both periods reflected noncash tax expense related to the company’s “naked credit” issue, as previously discussed in the company’s 2011 Form 10-K.
EBITDA from continuing operations (income before interest, debt modification costs, taxes, and depreciation and amortization) was $22.7 million, compared with$13.7 millionin the 2011 period.
Media General provides the non-GAAP financial metrics EBITDA from continuing operations, After-tax cash flow from continuing operations, and Free cash flow. The company believes these metrics are alternative measures used 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 has been included in this news release.
New Financing Arrangement
Debt at the end of the second quarter was $652 million, compared with $658 million at the end of the first quarter of 2012. In the second quarter of 2012, Media General entered into a new financing arrangement with Berkshire Hathaway that provided the company with a $400 million term loan and a $45 million revolving credit line. The funding of the new term loan and an initial drawing of the revolving credit facility resulted in cash proceeds to the company of approximately $383 million. The proceeds were immediately used to fully repay all amounts outstanding under the then existing credit facility, pay fees and expenses related to the new financing, and fund working capital requirements. In conjunction with the new financing, the company issued Berkshire Hathaway penny warrants for approximately 4.6 million Class A shares.
Sale of Newspapers
After transaction fees, the repayment of funds drawn on the revolving credit facility and a small required paydown on the term loan, Media General is using the remaining net proceeds from the newspaper sale of approximately $112 million to further reduce debt. Media General has repaid $54 million on the Berkshire Hathaway term loan at par and $18 million on the revolver, bringing total debt currently outstanding to $580 million. On June 29, 2012, Media General commenced a cash tender offer to purchase up to $45 million of its 11?% Senior Secured Notes due 2017. The tender offer is scheduled to expire on July 30, 2012. Media General expects to offer Berkshire Hathaway repayment of any amounts the bondholders elect not to take at par with no prepayment penalty.
Guidance
Media General provided the following guidance:
Political revenues are expected to be approximately $50 million for the full year 2012.
Summer Olympics revenues are expected to exceed the $12.5 million generated from the 2008 summer games.
Broadcast pacings for the third quarter of 2012, including Political, are approximately 30% ahead of last year. Core pacings, excluding Political, are approximately 20% ahead of last year. Key categories driving core growth are auto, entertainment, financial, media, professional services, grocery and travel.
The company has a plan, underway now, to reduce corporate expense 35-40%.
For the full year 2012, the company expects that cash provided by operations will be used to make interest payments of $65 million, capital expenditures of $15 million and retirement plan contributions of $13 million.