Media General (MEG) Q2 2012 Earnings Call July 18, 2012 11:00 am ET Executives Lou Anne J. Nabhan - Vice President of Corporate Communications Marshall N. Morton - Chief Executive Officer, President, Director and Member of Executive Committee James F. Woodward - Chief Financial Officer and Vice President of Finance Analysts Barry L. Lucas - Gabelli & Company, Inc. Edward J. Atorino - The Benchmark Company, LLC, Research Division Kevin J. Cohen - Imperial Capital, LLC, Research Division Andrew Finkelstein - Barclays Capital, Research Division Bishop Cheen - Wells Fargo Securities, LLC, Research Division Presentation Operator
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Our speakers today are Marshall Morton, President and Chief Executive Officer; and Jim Woodward, Vice President, Finance and Chief Financial Officer. Let me now turn the presentation over to Marshall.Marshall N. Morton Thank you, Lou Anne, and good morning, everyone. The second quarter 2012 was a monumental change for Media General as we transformed the company into a pure-play television broadcaster. We also refinanced our bank debt, which have been due in March of 2013 and extended its maturity to 2020. On May 17, we announced the new financing arrangement with Berkshire Hathaway, which provided Media General with a $400 million term loan and a $45 million revolving credit line. On May 24, we closed on the new financing. The funding on the new term loan and an initial drawing of the revolving credit facility resulted in cash proceeds to the company of approximately $393 million. These proceeds were immediately used to fully repay all amounts outstanding under the existing credit facility, pay fees and expenses related to the financing and fund working capital requirements. It probably goes without saying that we're extremely pleased to enter into a new financing partnership with Berkshire Hathaway, a highly respected organization in everyone's book. Our new term loan addresses our long-term capital needs and provides significant financial and operating flexibility. In conjunction with the financing, Berkshire Hathaway received penny warrants for approximately 4.6 million Class A shares. We're pleased that they will also be a major equity shareholder. Also on May 17, we announced the sale of virtually all of our newspapers to a subsidiary of Berkshire Hathaway, World Media Enterprises, for $142 million in cash, subject to normal adjustments. We completed this sale on June 25. When we began exploring the sale of our newspapers, we initially expected multiple transactions. To have achieved the single significant transaction so soon accelerated our transformation to a pure-play TV broadcaster and freed up significant management time that would otherwise have been devoted to the completion of several transactions.
Tampa Tribune and its associated print properties were our only newspapers not included in the sale. We're in discussions with prospective buyers for our Tampa print properties and associated websites, and we believe the sale of these properties is probable, although we can't provide a definitive timetable today.All Media General newspapers are shown in our financial presentation as discontinued operations as our Professional Communications Systems, a broadcast equipment company that ceased operations in the second quarter, and DealTaker.com, whose assets were sold to a private buyer for a nominal amount. Let me now review our operating results for the second quarter of 2012, which reflect our performance as a pure-play television broadcaster with associated digital products and services. We're pleased to be focused on our higher-margin Broadcast television business with its attractive economic model fueled by revenue growth, including Political, retransmission and digital revenues. Our stations have done an excellent job capitalizing on the event-driven revenue opportunities of this year. Operating income of $16.4 million compared with $6.2 million last year. Primary driver of the increase was 17% growth in total revenues, which were $84 million in the quarter. Core time sales, excluding Political, grew 4%. Spending by automotive advertisers, our largest category, increased 26.5% from last year. Other top 10 advertising categories that grew in the quarter were professional services, home improvement, medical and grocery. Top categories showing declines included restaurants, department stores, furniture, entertainment and telecommunications. Local time sales accounted for 2/3 of our core business and increased 4.4% in the second quarter. National time sales grew 3%. Political revenues totaled $7.5 million compared with just under $600,000 last year. This quarter's Political revenues reflect the spending by both presidential campaigns, PACs, Super PACs, the Massachusetts senate race and congressional primaries in Virginia and South Carolina. We have 6 stations in 4 key presidential ballot round states: Florida, Ohio, Virginia and North Carolina. We also anticipate highly contested level -- state-level races, including a gubernatorial race in North Carolina and senate races in Virginia, Florida, Ohio and Massachusetts. PAC and issue spending are difficult to be -- or expected to be significant as well, although these categories are difficult to forecast, but typically garner above market share of Political revenues as a result of advertisers seeking out our highly rated newscasts and other programming. Read the rest of this transcript for free on seekingalpha.com