Third-Quarter Conference Call Remarks
October 16, 2008 at 11:00 PM 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 third-quarter 2008 results and September revenues.  Both press releases have 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 will be 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 our presentation over to Marshall.

Remarks from Marshall Morton

Thank you, Lou Anne, and good morning. 

For the third quarter, we reported earnings from continuing operations of $5.8 million, or 26 cents per diluted share, a $4.1 million increase from the prior year.  The increase came mainly from improved Broadcast and Interactive Media profitability, lower interest expense, and the absence this year of SP Newsprint related operating losses.  Broadcast Division results reflected the benefit of strong Olympics and Political advertising.  Interactive Media Division results reflected an excellent performance by our new online coupon and shopping business DealTaker.com, as well as the absence of last year’s investment write-down.  Significantly lower Publishing profits constrained the overall increase.

Included in our third-quarter results was the reversal of profit sharing expense that had been accrued earlier in 2008.  The reversal totaled approximately $5 million pretax, and was spread across all three operating segments and corporate expense.  Based on forecasted results, we do not anticipate paying performance-related incentive compensation for 2008 either.

Total operating costs in the third quarter decreased 9.5% compared with the prior year, reflecting the benefit of the aggressive actions we have taken to reduce our workforce and cut other costs.  We also had $2 million more of fixed asset gains this year than we did last year (included in SG&A expense).  Since the beginning of 2007, we have reduced FTEs by approximately 750, removing approximately $40 million of annualized cost.  We saw some savings in 2007 and expect to net about 40% of that amount for the full-year 2008.  We will benefit fully from these actions in 2009.  

Total company revenues in the third quarter of $194 million were down 11% from the same period last year, mostly the result of decreased revenues in our Publishing segment.

In our Broadcast segment, strong Summer Olympics and Political advertising revenues in the third quarter mostly offset the impact of weak transactional business, especially on the National side.  Total Broadcast revenues were down 1.5%.

Summer Olympics advertising on our 8 NBC stations generated revenues of just under $13 million.  Some anticipated National advertising packages were not placed, but our stations aggressively sold Olympics packages to Local advertisers.

Political advertising revenues in the third quarter totaled $7.5 million.  These revenues mostly came from robust presidential campaign and issues spending in Florida, Ohio, North Carolina, Virginia and Mississippi. 

On the state level, our markets have eight active Senate races.  The most intense battles are in North Carolina (Elizabeth Dole’s seat), Mississippi (Trent Lott’s seat), and Virginia (the seat being vacated by John Warner).

Remarks from Reid Ashe

Thank you, Marshall.  For the third quarter, Publishing Division profits of $10.3 million compared with $22 million a year ago.  The decrease was chiefly due to an 18% decline in total revenues, partially offset by an 11% decline in expenses. 

Essentially all newspapers experienced revenue declines in the quarter.  The largest shortfall, as expected, was in our Florida market, where revenues were down 28% from last year.  Revenue declines in other markets included Richmond, down 18%; Winston-Salem, down 10%; and the Community Newspaper Group as a whole, down 12%.

Classified advertising revenue decreased 33% in the quarter.  The largest shortfall occurred in Florida, followed by Richmond.  For the three metro markets combined, employment revenues were down 47%, real estate revenues declined 46%, and automotive revenues decreased 43%.

Retail revenue decreased 13%, reflecting weakness in several categories, especially department stores and home furnishings.   National revenue declined 20%, mainly reflecting lower spending by telecommunications advertisers.

Circulation revenue in the quarter reversed a downward trend and was even with last year, owing to increases in home delivery and single copy prices and a decrease in discount programs. 

Publishing expenses in the quarter, excluding severance in both years, decreased 10%.  Salaries expense was down 11% from last year, excluding severance.  FTE’s for the quarter, relative to last year, decreased by more than 500, or 12.5%.  Other large expense savings were in benefits, including profit sharing, and other departmental expenses.

Newsprint expense declined 4%, as a result of reduced consumption partially offset by higher average prices.  Consumption decreased 5,270 tons, or 21%, due to the impact of lower business volumes plus the benefit of significant conservation efforts.  The price per short ton increased by $117, or 22%, in the quarter, resulting in an unfavorable price variance of $2.3 million. 

Our newspapers continue to significantly reduce newsprint consumption.  Many have re-designed or combined sections and eliminated less-essential content.  Four of our community print sites, representing four community dailies and a number of weeklies, have trimmed their page width to 11 inches.  All of our other newspapers are scheduled to follow with this web-width reduction in 2009.  For 2008, we expect to cut newsprint expense 9%, despite a 15% increase in price.

Turning now to the Broadcast Division, profits of nearly $18 million were 25% ahead of last year’s third quarter. 

Local advertising revenues were close to the prior-year level, while National revenues were down 20%, due in large part to lower spending by automotive and telecommunications advertisers.

Media General’s time sales performance has exceeded that of the television industry year-to-date.  According to the Television Bureau of Advertising’s monthly Group Survey, through August – the latest reporting period – industry time sales decreased 4.3%, compared to Media General’s 2.8% decline.  

Broadcast expenses in the third quarter decreased 7%.  Reduced salaries and benefits combined with lower cost of goods sold at our studio design and equipment subsidiary and other cost containment efforts combined to produce the savings.

The Interactive Media Division, while cash-flow positive in the quarter, reported a small loss of $336 thousand.  This compared with a $1 million loss in the same period last year, not including a $2.3 million write-down of an Internet investment.  DealTaker.com, our new coupon and shopping site, was the largest component of the improvement. 

Total interactive revenues increased 9% compared to last year.  Local online advertising was 29% ahead of last year, while National declined 11%.  Our Yahoo! Partnership helped mitigate a decline in online Classified advertising, which was down 12%.  Operating expenses were virtually unchanged from the same period a year ago.

We continue to move aggressively to grow our online audience and revenues.

The Continuous News Initiative that we launched a year ago has paid large dividends in attracting new audience.  Local page views are up nearly 32 percent.  The growth is even higher in our two largest markets:  Richmond is up 38 percent, and Tampa is up more than 50 percent.  Unique visitors to our Web sites are up 18 percent. 

We’re also expanding our online inventory in other areas that are most in demand, such as entertainment/things to do.  We’re getting better at monetizing traffic, at the same time we’re creating more traffic to monetize.

We are successfully transitioning our online recruitment listings from 7 to 30 days.  We’ve gone from 15% of our listings at 30 days in March to more than 70% through mid-October.  We continue to take full advantage of our Yahoo! partnership, not just with Hot Jobs, but also with Yahoo! Display, and we are exploiting the strength of other internet partnerships to boost online revenues, such as the one we have for real estate classifieds with Zillow.

We also continue to focus on new product development, aimed at serving new customers.  We will be unrelenting in our pursuit of new audience and advertisers.

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

Remarks from John Schauss

Thank you, Reid.

Let me comment first on below-the-line items in the quarter.

Interest expense was 33% below last year’s third quarter, due to both a reduction in average debt outstanding and a reduction in average interest rates.  We expect interest expense for the full year will be approximately $44 million, compared with $60 million for the full-year 2007, as a result of our delevering plan and lower interest rates.

The sale of our interest in SP Newsprint on March 31 eliminated the equity earnings volatility we experienced in the past from that investment.  In the third quarter of 2007, we recorded nearly $5 million of losses related to our former ownership in SP.  This year we had income of $1 million from favorable adjustments to certain post-closing liabilities. 

Next, I’d like to briefly discuss capital expenditures.  As we’ve stated previously, we’ve pared back to only the most essential spending for the time being.  In the third quarter, capital spending was approximately $6.8 million, compared with $17.3 million in the third quarter of 2007. 

The Publishing Division invested $4.3 million, mainly on upgrades that created higher efficiencies for printing operations in Richmond and Winston-Salem.  The investments we have made in printing operations have enabled us to  consolidate the number of newspaper printing sites.  We have gone from 25 sites to 12 in the last 10 years.    

The Broadcast Division spent $1.2 million, mainly for the final phases of construction for our new Myrtle Beach studio facility, an upgrade to our Central Traffic operation, and the centralized graphics hub here in Richmond. 

Interactive Media Division and corporate expenditures were approximately $1.3 million, primarily for information technology.

Debt at the end of the third quarter was $750 million, down from $830 million at the end of the second quarter, and from $898 million at the beginning of the year.     

This reduction in debt reflects additional asset sales.  Yesterday, we were pleased to complete the sale of the fourth of five stations we are divesting.  The sale of our last station, a CW affiliate in Jacksonville, Florida, continues to progress.  We continue to expect to realize total proceeds from the sales of all five stations of $100 million to $105 million.  The proceeds have been and will be used to reduce debt; the total reduction is expected to be $60 million to $65 million after tax.  

As we announced in late September, the Board reduced our quarterly dividend to 12 cents per share, which will allow for approximately $2.5 million of additional debt reduction this year compared to the previous dividend level.

The long-term relationship we have with our banking consortium is strong, and we keep our lender banks well-informed about strategic initiatives.  In light of recent economic events, we have considered it prudent to engage in a dialogue with them to ensure that the borrowing agreements we have in place provide us adequate flexibility in the foreseeable future.  We fully expect that our discussions will result in debt agreement modifications that will provide us with the flexibility we desire at a cost that will be manageable.

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

Remarks from Marshall Morton

Thank you, John.

As the fourth quarter unfolds, we are closely watching the placement of political advertising on our television stations.  Because our stations are top rated, we hold a market advantage in garnering a significant proportion of the dollars placed in our markets.  We expect to generate more than $20 million in Political revenues in the fourth quarter.  One cautionary note is that political billings for broadcasters this year are less robust than in some prior election years because soft national and local transactional sales have kept inventory more open, thus removing upward pressure on rates.

This year’s weak economy and unfavorable business climate have created far more challenges than anyone anticipated, as you all well know.  As a company, we recognize the need to continue adapting to the changing marketplace. We have the significant advantage of an early understanding of the strength of the Internet, the importance of customer focus and the power of multimedia across three major platforms. We’ve accomplished much with new products and smart expense reductions.

Nonetheless, we recognize the need to do more, and we are accelerating our response to the change we are seeing in our business.  I’m confident we can do that based on the many successes we have already achieved. Three years ago we were working to have 5% of our revenues in new products; today we’re very close to 10%.  We got there by being quick to acknowledge that the customer is in charge and that we are an information company—not simply a publisher or a broadcaster. We must continue to push away from the past and maintain a customer-centric bias to our thinking and our execution.  Audience and market are our source of revenue, profit and growth.

In some cases, the customer is going to pull us into the future.  But we’re also going to anticipate customer needs and provide solutions they haven’t yet thought possible.  We’re research driven, we know our local markets, and our people are innovative.  That is a winning combination for the long term.

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