meg_10q-092312.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
Form 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 23, 2012
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                          to                          
 
Commission file number:             1-6383

MEDIA GENERAL, INC.
(Exact name of registrant as specified in its charter)

 
 
Commonwealth of Virginia
54-0850433
  
  (State or other jurisdiction of (I.R.S. Employer  
  incorporation or organization) Identification No.)  
       
 
333 E. Franklin St., Richmond, VA
23219
  
 
(Address of principal executive offices)
(Zip Code)
  
 
(804) 649-6000
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
   Yes                X                 No                                     
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
   Yes                X                 No                                     
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
 
   Larger accelerated filer                               Accelerated filer                                                         X          
   Non-accelerated filer                                                                                               Smaller reporting company                                                        
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
   Yes                                   No                 X                    
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 28, 2012.
 
 Class A Common shares:
 27,382,718  
Class B Common shares: 548,564  
 
 
 
 
 
MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
September 23, 2012
      Page
Part I.
Financial Information
  
       
 
Item 1.
Financial Statements
  
       
    Consolidated Condensed Balance Sheets – September 23, 2012 and December 25, 2011 1
       
   
Consolidated Condensed Statements of Operations and Comprehensive Loss – Three and nine months ended September 23, 2012 and September 25, 2011
    3
       
   
Consolidated Condensed Statements of Cash Flows – Nine months ended September 23, 2012 and September 25, 2011
   4
       
   
Notes to Consolidated Condensed Financial Statements
5
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
21
       
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
26
       
 
Item 4.
Controls and Procedures
26
       
Part II.
Other Information
  
       
 
Item 1A.
Unregistered Sales of Equity Securities and Use of Proceeds
27
       
 
Item 6.
Exhibits
27
       
    (a)    Exhibits  
       
Signatures
  
28
 
 
 
 
 
PART I - FINANCIAL INFORMATION

Item 1.                                Financial Statements

MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
 
   
September 23,
2012
    
December 25,
2011
  
             
ASSETS
            
             
Current assets:
            
Cash and cash equivalents
   $ 28,450     $ 23,108  
Accounts receivable - net
     61,595       58,587  
Other
     26,125       17,424  
Assets of discontinued operations
     10,552       333,329  
Total current assets
     126,722       432,448  
                 
Other assets
     37,955       28,277  
                 
Property, plant and equipment - net
     161,445       175,276  
                 
FCC licenses and other intangibles - net
     200,695       202,891  
                 
Excess of cost over fair value of net identifiable assets of acquired businesses
     247,149       247,149  
    $ 773,966     $ 1,086,041  
 
See accompanying notes.
 
 
1
 
 
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares and per share data)
 
   
September 23,
2012
    
December 25,
2011
  
             
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
            
             
Current liabilities:
            
Accounts payable
   $ 14,753     $ 16,527  
Accrued expenses and other liabilities
     66,965       46,472  
Liabilities of discontinued operations
     9,535       38,716  
Total current liabilities
     91,253       101,715  
                 
Long-term debt
     551,337       658,199  
                 
Retirement, post-retirement and post-employment plans
     213,675       223,132  
                 
Deferred income taxes
     56,241       45,954  
                 
Other liabilities and deferred credits
     21,371       23,088  
                 
Stockholders' equity (deficit):
                
Preferred stock, par value $5 per share, authorized 5,000,000 shares; none outstanding
                
Common stock, par value $5 per share:
                
Class A, authorized 75,000,000 shares; issued 22,723,555 and 22,548,741 shares
     113,618       112,744  
Class B, authorized 600,000 shares; issued 548,564 shares
     2,743       2,743  
Additional paid-in capital
     44,890       28,711  
Accumulated other comprehensive loss
     (185,116 )     (185,116 )
Retained earnings (accumulated deficit)
     (136,046 )     74,871  
Total stockholders' equity (deficit)
     (159,911 )     33,953  
    $ 773,966     $ 1,086,041  

See accompanying notes.
 
 
2
 
 
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
(000's except for per share data)

   
Three Months Ended
    
Nine Months Ended
  
   
Sept. 23,
2012
    
Sept. 25,
2011
    
Sept. 23,
2012
    
Sept. 25,
2011
  
                         
Station revenue (less agency commissions)
   $ 93,752     $ 66,076     $ 251,064     $ 202,730  
Operating costs:
                                
Station production expenses
     31,458       27,726       92,359       86,103  
Station selling, general and administrative expenses
     21,505       19,497       63,473       60,854  
Corporate and other expenses
     12,093       7,082       31,604       24,070  
Depreciation and software amortization
     5,533       5,811       17,124       17,399  
Amortization of intangible assets
     442       1,314       2,196       3,940  
(Gain) loss on disposal of assets, net
     218       (137 )     (32 )     236  
Total operating costs
     71,249       61,293       206,724       192,602  
Operating income
     22,503       4,783       44,340       10,128  
Other income (expense):
                                
Interest expense
     (20,220 )     (16,034 )     (57,028 )     (49,787 )
Debt modification and extinguishment costs
     (17,318 )     -       (35,415 )     -  
Other, net
     40       219       452       688  
Total other expense
     (37,498 )     (15,815 )     (91,991 )     (49,099 )
                                 
Loss from continuing operations before income taxes
     (14,995 )     (11,032 )     (47,651 )     (38,971 )
Income tax expense
     3,406       847       10,223       6,001  
Loss from continuing operations
     (18,401 )     (11,879 )     (57,874 )     (44,972 )
Discontinued operations:
                                
Loss from discontinued operations (net of taxes)
     (1,038 )     (17,953 )     (10,588 )     (26,046 )
Loss related to divestiture of discontinued operations (net of taxes)
     (10,894 )     -       (142,591 )     -  
Net loss     (30,333 )     (29,832 )     (211,053 )     (71,018 )
                                 
Unrealized (loss) gain on derivative contracts (net of deferred taxes of $2,708 and $4,663, respectively)
     -       (830 )     -       2,228  
Comprehensive loss
   $ (30,333 )   $ (30,662 )   $ (211,053 )   $ (68,790 )
Net loss per common share:
                                
Loss from continuing operations
   $ (0.81 )   $ (0.53 )   $ (2.56 )   $ (2.00 )
Discontinued operations
     (0.53 )     (0.79 )     (6.79 )     (1.16 )
Net loss per common share – basic and assuming dilution
   $ (1.34 )   $ (1.32 )   $ (9.35 )   $ (3.16 )

See accompanying notes.
 
 
3
 
 
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (Unaudited, 000’s)
 
   
Nine Months Ended
  
   
Sept. 23,
2012
    
Sept. 25,
2011
  
Operating activities:
            
Net loss   $ (211,053 )   $ (71,018 )
Adjustments to reconcile net loss:
                
Depreciation and software amortization
     24,759       34,493  
Amortization of intangible assets
     2,332       4,502  
Deferred income taxes
     15,021       18,648  
Intraperiod tax allocation
     -       (4,663 )
Loss related to divestiture of discontinued operations (net of taxes)
     142,591       -  
Goodwill and other asset impairment (net of taxes)
     6,472       16,236  
Non-cash interest expense
     6,773       2,618  
Debt modification and extinguishment costs
     35,415       -  
Change in assets and liabilities:
                
Accounts receivable and inventories
     5,936       18,757  
Accounts payable, accrued expenses, and other liabilities     2,507       (17,875 )
Retirement plan contributions
     (9,097 )     (8,675 )
Other, net
     (3,221 )     (676 )
Net cash provided (used) by operating activities
     18,435       (7,653 )
Investing activities:
                
Capital expenditures
     (7,263 )     (15,681 )
Collateral deposit related to letters of credit
     (10,271 )     -  
Proceeds from dispositions
     139,902       -  
Other, net
     1,986       408  
Net cash provided (used) by investing activities
     124,354       (15,273 )
Financing activities:
                
Increase in borrowings
     395,500       88,500  
Repayment of borrowings
     (504,261 )     (87,286 )
Debt issuance costs
     (28,772 )     -  
Other, net
     86       (49 )
Net cash (used) provided by financing activities
     (137,447 )     1,165  
Net increase (decrease) in cash and cash equivalents
     5,342       (21,761 )
Cash and cash equivalents at beginning of period
     23,108       31,860  
Cash and cash equivalents at end of period
   $ 28,450     $ 10,099  
Cash paid for interest
   $ 52,599     $ 57,389  
Non-cash financing activities:
                
Issuance of common stock warrants
   $ (16,912 )   $ -  
 
See accompanying notes.
 
 
4
 

MEDIA GENERAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

 
1.         The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and with applicable quarterly reporting regulations of the Securities and Exchange Commission.  They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and, accordingly, should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended December 25, 2011.
 
As explained further below, the Company has adjusted its historical financial statements to present certain components of the Company as discontinued operations for all periods presented.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim financial information have been included.
 
As of the beginning of the third quarter, the Company streamlined its management structure such that it 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.
 
2.             On the first day of the third quarter of 2012, the Company sold all of its newspapers with the exception of the Tampa group to World Media Enterprises, Inc. (World Media), a subsidiary of Berkshire Hathaway, for $142 million in cash subject to working capital adjustments and other specified items.  On October 7, 2012, the Company completed the sale of its Tampa print properties and associated web sites to Tampa Media Group, Inc., a new company formed by Revolution Capital Group, for $9.5 million subject to working capital adjustments and other specified items that resulted in net proceeds of approximately $2 million in cash.  The Company is also in discussions with prospective buyers for Blockdot, its advergaming business, and has discontinued its NetInformer operations. Additionally, in the second quarter of 2012, the Company sold DealTaker.com for a nominal amount and shut down its Production Services company which provided broadcast equipment and design services.  As illustrated in the following chart, the results of these newspapers (as well as their associated web sites), DealTaker.com, Blockdot, NetInformer, and the Company’s Production Services unit have been presented as discontinued operations in the accompanying consolidated condensed statements of operations for the third quarters and nine months ended September 23, 2012, and September 25, 2011.  Depreciation and amortization on assets related to these properties ceased as of the date each disposal group qualified for held-for-sale treatment.  The accompanying consolidated condensed balance sheets have been adjusted to present assets and liabilities of discontinued operations separately from those of continuing operations.  The Company also recorded a $142.6 million after-tax loss related to the divestitures of discontinued operations, in the nine months ended September 23, 2012.  The total after-tax loss includes a loss on the sale of newspapers to World Media of $112 million, an estimated loss on the sale of the Tampa print properties of $24.3 million, a loss on the sale of DealTaker.com of $3.9 million, and an estimated loss related to Blockdot of $2.4 million. The Company will continue to provide transition services, on a diminishing basis over the next nine months, to World Media and Tampa Media Group in the areas of human resources, information technology and digital support.
 
 
5
 
 
   
Three Months
 Ended
    
Three Months
 Ended
    
Nine Months
 Ended
    
Nine Months
 Ended
  
(In thousands)
  
Sept. 23,
2012
    
Sept. 25,
2011
    
Sept. 23,
2012
    
Sept. 25,
2011
  
Revenues
   $ 18,491     $ 78,668     $ 169,805     $ 245,743  
Costs and expense
     19,527       104,342       179,205       274,186  
Loss before income taxes
     (1,036 )     (25,674 )     (9,400 )     (28,443 )
Income taxes
     2       (7,721 )     1,188       (2,397 )
Loss from discontinued operations
   $ (1,038 )   $ (17,953 )   $ (10,588 )   $ (26,046 )
 
The Company performed an interim impairment test on DealTaker.com as of the end of the first quarter 2012, which resulted in a non-cash goodwill and other intangible asset impairment charge of $6.5 million net of a tax benefit of $3.6 million.  This impairment charge is included in the loss from 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.
 
After recording a $27 million loss related to the expected divestiture of discontinued operations, assets of discontinued operations as of September 23, 2012 were $10.6 million.
 
At December 25, 2011, the assets of discontinued operations consisted of approximately $48 million of current assets and $285 million of long-lived assets.  Long-lived assets at December 25, 2011, included $199 million of fixed assets, $78 million of allocated goodwill, $3 million of other intangible assets, and $5.1 million of other assets (primarily software).
 
Liabilities of discontinued operations of approximately $9.5 million and $39 million at September 23, 2012 and December 25, 2011, respectively, represent primarily accounts payable and accrued expenses.
 
3.             The Consolidated Condensed Statements of Operations include amortization expense from amortizing intangible assets, other than software, of $.4 million and $1.3 million for the third quarters of 2012 and 2011, respectively, and $2.2 million and $3.9 million for the respective first nine months of 2012 and 2011.  Currently, intangibles amortization expense is projected to be approximately $2.6 million in total for 2012, decreasing to $1.8 million in 2013 and for each year through 2017.
 
The Company has recorded pretax cumulative impairment losses related to goodwill approximating $724 million through September 23, 2012.  For impairment tests, the Company compares the carrying value of the reporting unit or asset tested to its estimated fair value. The estimated fair value is determined using a combination of the income approach and the market approach. The income approach utilizes the estimated discounted cash flows expected to be generated by the assets. The market approach employs comparable company information, and where available, recent transaction information for similar assets. The determination of fair value requires the use of significant judgment and estimates about assumptions that management believes are appropriate in the circumstances although it is reasonably possible that actual performance will differ from these assumptions. These assumptions include those relating to revenue growth, compensation levels, capital expenditures, discount rates and market trading multiples for comparable assets.  The fair value measurements determined for purposes of performing the Company’s impairment tests are considered to be Level 3 under the fair value hierarchy because they required significant unobservable inputs to be developed using estimates and assumptions determined by the Company and reflecting those that a market participant would use.
 
 
6
 
 
The following table shows the gross carrying amount and accumulated amortization for intangible assets, other than software, as of September 23, 2012 and December 25, 2011:
 
   
December 25, 2011
    
Change
    
September 23, 2012
  
(In thousands)
  
Gross Carry-
ing Amount
    
Accumulated
Amortization
      
Amortization
 Expense
    
Gross Carry-
ing Amount
    
Accumulated
Amortization
  
Amortizing intangible assets (including network affiliation, advertiser and programming relationships)
   $ 125,088     $ 95,895     $ 2,196     $ 125,088     $ 98,091  
                                         
Indefinite-lived intangible assets:
                                        
Goodwill
     247,149                       247,149          
FCC licenses
     173,698                       173,698          
Total
   $ 420,847                     $ 420,847          
 
In July 2012, the FASB issued an Accounting Standards Update (“ASU”) which allows companies the option to first assess qualitative factors to determine if it is necessary to perform a quantitative impairment test on indefinite-lived intangible assets other than goodwill. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, however, early adoption is permitted. The Company early adopted the ASU subsequent to the end of the third quarter, and will apply the guidance when it conducts its annual impairment testing of FCC licenses in the fourth quarter.

4.            The Company recorded non-cash income tax expense from continuing operations of $3.4 million and $10.2 million in the third quarter and first nine months of 2012, compared to $847 thousand and $6 million in the equivalent quarter and nine months 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 and $6 million respectively of non-cash tax expense in total 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 cause 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.
 
 
7
 
 
5.             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 $382.5 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 or an offer to prepay a portion of the term loan without premium or penalty.  The Company considers the prepayment feature to be an embedded derivative which it has bifurcated from the term loan.  The new term loan and revolving credit facility will mature in May 2020 and is 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.  
 
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 the 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.
 
 
8
 
 
Following these transactions, as of September 23, 2012, the Company had in place a term loan with a face value of $302 million and a revolving credit facility with no outstanding balance and maximum availability of $45 million. Also outstanding were 11.75% senior notes with a face value of $300 million.  The term loan with Berkshire Hathaway matures in May 2020 and bears an interest rate of 10.5%, but could decrease to 9% based on the Company’s leverage ratio, as defined in the agreement.  The Company was in compliance with all provisions of both agreements at September 23, 2012. The chart below summarizes the carrying value of long-term debt at September 23, 2012:
 
   
Sept. 23, 2012
  
(In thousands)
  
Carrying
Amount
  
Term loan:
      
Face value
   $ 301,537  
Remaining original issue discount
     (33,219 )
Remaining warrant discount
     (12,448 )
Embedded derivative liability
     115  
Remaining embedded derivative discount
     (110 )
Carrying value
     255,875  
         
         
Revolving credit facility ($45 million remaining availability)
     -  
         
Senior notes:
        
Face value
     299,800  
Remaining original issue discount
     (4,352 )
Carrying value
     295,448  
         
Capital lease liability
     14  
         
Total carrying value
   $ 551,337  
 
In the third quarter of 2011, the Company’s last remaining interest rate swaps matured.  Interest rate swaps were carried at fair value based on the present value of the estimated cash flows the Company would have received or paid to terminate the swaps; the Company applied a discount rate that was predicated on quoted LIBOR prices and current market spreads for unsecured borrowings.  In the first nine months of 2011, $7.3 million was reclassified from Other Comprehensive Income (OCI) into interest expense on the Consolidated Condensed Statement of Operations as the effective portion of the interest rate swap.  The pretax change deferred in OCI in the first nine months of 2011 was $6.9 million.
 
The following table includes information about the carrying values and estimated fair values of the Company’s financial instruments at September 23, 2012 and December 25, 2011:
 
   
Sept. 23, 2012
    
December 25, 2011
  
(In thousands)
  
Carrying
Amount
    
Fair
Value
    
Carrying
Amount
    
Fair
Value
  
Assets:
                        
Investments
                        
Trading
   $ 193     $ 193     $ 205     $ 205  
Liabilities:
                                
Long-term debt:
                                
Revolving credit facility ($45 million available at 9/23/2012)
     -       -       -       -  
Term loan (including embedded derivative)
     255,875       327,135       363,126       340,639  
11.75% senior notes
     295,448       346,269       294,919       285,000  
Stockholders' Equity (Deficit):
                                
Common stock warrants
     16,912       23,649       -       -  
                                 
 
 
9
 
 
Trading securities held by the Supplemental 401(k) Plan are carried at fair value and are determined by reference to quoted market prices.  At September 23, 2012, the fair value of the term loan was determined using a discounted cash flow analysis and an estimate of the current borrowing rate.  At December 25, 2011, the fair value of the bank term loan debt was estimated using discounted cash flow analyses and a current borrowing rate.  The fair value of the 11.75% senior notes was valued by reference to the most recent trade prior to the end of the applicable period.  The fair value of the common stock warrants at September 23, 2012, was determined by reference to a Black-Scholes model.  Under the fair value hierarchy, the Company’s trading securities fall under Level 1 (quoted prices in active markets), its senior notes, its common stock warrants, and it term loan that existed at December 25,  2011, fall under Level 2 (other observable inputs).  Its term loan at September 23, 2012, falls under Level 3 (unobservable inputs).
 
6.            The following table sets forth the computation of basic and diluted earnings per share.  There were approximately 4.6 million shares and 2.1 million shares (representing the weighted-average of common stock warrants issued to Berkshire Hathaway) that were not included in the computation of diluted EPS for the third quarter and first nine months of 2012, respectively, because to do so would have been anti-dilutive for the periods presented.  As disclosed previously, Berkshire Hathaway exercised warrants to purchase 4.6 million shares of common stock on September 24, 2012.  Additionally, there were approximately 0 shares and 12,000 shares (representing the weighted-average of outstanding stock options) that were not included in the computation of diluted EPS for the third quarter and first nine months of 2011, respectively, because to do so would have been anti-dilutive for the periods presented.
 
 (In thousands, except per share amounts)
  
Three Months
 Ended Sept. 23,
2012
  
Three Months
 Ended Sept. 25,
2011
  
             
Numerator for basic and diluted earnings per share:
            
Loss from continuing operations available to common stockholders
   $ (18,401 )   $ (11,879 )
                 
Denominator for basic and diluted earnings per share:
                
Weighted average shares outstanding
     22,593       22,517  
                 
Loss from continuing operations per common share (basic and diluted)
   $ (0.81 )   $ (0.53 )
 
 (In thousands, except per share amounts)
  
Nine Months
 Ended Sept. 23,
2012
  
Nine Months
 Ended Sept. 25,
2011
  
                 
Numerator for basic and diluted earnings per share:
                
Loss from continuing operations available to common stockholders
   $ (57,874 )   $ (44,972 )
                 
Denominator for basic and diluted earnings per share:
                
Weighted average shares outstanding
     22,570       22,469  
                 
Loss from continuing operations per common share (basic and diluted)
   $ (2.56 )   $ (2.00 )
 
 
10
 
 
7.             The following table provides the components of net periodic employee benefits expense for the Company’s benefit plans for the third quarters and first nine months of 2012 and 2011:
 
   
Three Months Ended
  
   
Pension Benefits
    
Other Benefits
  
(In thousands)
  
Sept. 23,
2012
    
Sept. 25,
2011
    
Sept. 23,
2012
    
Sept. 25,
2011
  
Service cost
   $ -     $ -     $ 50     $ 57  
Interest cost
     5,290       5,606       445       477  
Expected return on plan assets
     (5,926 )     (5,999 )     -       -  
Amortization of prior-service cost
     -       -       315       430  
Amortization of net loss/(gain)
     1,412       949       (205 )     (256 )
Net periodic benefit cost
   $ 776     $ 556     $ 605     $ 708  
 
   
Nine Months Ended
  
   
Pension Benefits
    
Other Benefits
  
                         
(In thousands)
    
Sept. 23,
2012
      
Sept. 25,
2011		      
Sept. 23,
2012		      
Sept. 25,
2011		  
Service cost
   $ -     $ -     $ 150     $ 170  
Interest cost
     15,871       16,819       1,335       1,432  
Expected return on plan assets
     (17,778 )     (17,997 )     -       -  
Amortization of prior-service cost
     -       -       944       1,291  
Amortization of net loss/(gain)
     4,236       2,846       (615 )     (769 )
Net periodic benefit cost
   $ 2,329     $ 1,668     $ 1,814     $ 2,124  
 
The Company currently anticipates making total contributions of $9 million to its retirement plan in 2012, which is based on funding relief provided by Congress.  The Company previously estimated making contributions of $13 million.
 
8.             The following table shows the Company’s Statement of Stockholders’ Equity (Deficit) as of September 23, 2012:
 
   
Class A
    
Common Stock
    
Additional
Paid-in
    
Accumulated
Other
Comprehensive
    
Retained
Earnings
(Accumulated
        
(In thousands, except shares and per share amounts)
  
Shares
    
Class A
    
Class B
    
Capital
    
Income (Loss)
    
Deficit)
    
Total
  
Balance at December 25, 2011
     22,548,741     $ 112,744     $ 2,743     $ 28,711     $ (185,116 )   $ 74,871     $ 33,953  
Net loss
             -       -       -       -       (211,053 )     (211,053 )
Exercise of stock options
     39,664       198       -       (113 )     -       -       85  
Performance accelerated restricted stock
     134,740       674       -       (767 )     -       136       43  
Stock-based compensation
             -       -       106       -       -       106  
Issuance of common stock warrants
             -       -       16,912       -       -       16,912  
Other
     410       2       -       41       -       -       43  
Balance at September 23, 2012
     22,723,555     $ 113,618     $ 2,743     $ 44,890     $ (185,116 )   $ (136,046 )   $ (159,911 )
 
9.       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.
 
 
11
 
 
10.           The Company accrues severance expense when payment of benefits is both probable and the amount is reasonably estimable.  The Company recorded severance expense from continuing operations of $3.4 million and $3.5 million in the third quarter and first nine months of 2012, as compared to $0.1 million and $0.5 million in the third quarter and first nine months of 2011.  The majority of the severance expense incurred in 2012 is due to a corporate reduction-in-force of 75 positions that occurred in July and is recorded in the “Corporate expense and other” line on the Consolidated Condensed Statements of Operations.  Severance costs related to television stations are reflected in either the “Station production expense” or the “Station selling, general and administrative expense” line items depending on the position eliminated. Accrued severance costs are included in the “Accrued expenses and other liabilities” line item on the Consolidated Condensed Balance Sheet.  The following table represents a summary of severance activity (in thousands) for the nine months ended September 23, 2012:
 
 
 
 
(In thousands)
  
Consolidated
  
Accrued severance Dec. 25, 2011
   $ 178  
Severance expense
     3,524  
Severance payments
     (2,687 )
Accrued severance Sept. 23, 2012
   $ 1,015  
 
 
 
 
11.           The Company’s subsidiaries guarantee the debt securities of the parent company. The Company’s subsidiaries are 100% owned except for the Supplemental 401(k) Plan; all subsidiaries except those in the non-guarantor column (the Supplemental 401(k) Plan) currently guarantee the debt securities. These guarantees are full and unconditional and on a joint and several basis. The following financial information presents condensed consolidating balance sheets, statements of operations, and statements of cash flows for the parent company, the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries, together with certain eliminations.
 
 
12
 
 
 Media General, Inc.
 Condensed Consolidating Balance Sheet
 As of September 23, 2012
 (In thousands, unaudited)
 
   
Media General
Corporate
    
Guarantor
Subsidiaries
    
Non-Guarantor
Subsidiaries
    
Eliminations
    
Media General
Consolidated
  
ASSETS
                              
Current assets:
                              
Cash and cash equivalents
   $ 27,765     $ 685     $ -     $ -     $ 28,450  
Accounts receivable - net
     -       61,595       -       -       61,595  
Other
     9,674       16,451       -       -       26,125  
Assets of discontinued operations
     -       10,552       -       -       10,552  
Total current assets
     37,439       89,283       -       -       126,722  
                                         
Investment in and advances to subsidiaries
     19,266       1,345,179       -       (1,364,445 )     -  
Intercompany note receivable
     563,359       -       -       (563,359 )     -  
Other assets
     30,908       6,854       193       -       37,955  
Property, plant and equipment - net
     21,750       139,695       -       -       161,445  
FCC licenses and other intangibles - net
     -       200,695       -       -       200,695  
Excess cost over fair value of net identifiable assets of acquired businesses
     -       247,149       -       -       247,149  
TOTAL ASSETS
   $ 672,722     $ 2,028,855     $ 193     $ (1,927,804 )   $ 773,966  
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                  
Current liabilities:
                                        
Accounts payable
   $ 9,263     $ 5,490     $ -     $ -     $ 14,753  
Accrued expenses and other liabilities
     38,698       28,267       -       -       66,965  
Liabilities of discontinued operations
     -       9,535       -       -       9,535  
Total current liabilities
     47,961       43,292       -       -       91,253  
                                         
Long-term debt
     551,331       6       -       -       551,337  
Intercompany loan
     -       563,359       -       (563,359 )     -  
Retirement, post-retirement and post-employment plans
     213,675       -       -       -       213,675  
Deferred income taxes
     -       56,241       -       -       56,241  
Other liabilities and deferred credits
     17,883       2,634       854       -       21,371  
                                         
Stockholders' equity (deficit):
                                        
Common stock
     116,361       3,802       -       (3,802 )     116,361  
Additional paid-in capital
     46,673       1,751,635       (1,954 )     (1,751,464 )     44,890  
Accumulated other comprehensive loss
     (185,116 )     -       -       -       (185,116 )
Retained earnings (accumulated deficit)
     (136,046 )     (392,114 )     1,293       390,821       (136,046 )
Total stockholders' equity (deficit)
     (158,128 )     1,363,323       (661 )     (1,364,445 )     (159,911 )
                                         
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
   $ 672,722     $ 2,028,855     $ 193     $ (1,927,804 )   $ 773,966  
 
 
13
 
 
 Media General, Inc.
 Condensed Consolidating Balance Sheet
 As of December 25, 2011
 (In thousands)

   
Media General
Corporate
    
Guarantor
Subsidiaries
    
Non-Guarantor
Subsidiaries
    
Eliminations
    
Media General
Consolidated
  
ASSETS
                              
Current assets:
                              
Cash and cash equivalents
   $ 21,674     $ 1,434     $ -     $ -     $ 23,108  
Accounts receivable - net
     -       58,587       -       -       58,587  
Other
     3,698       13,726       -       -       17,424  
Assets of discontinued operations
     -       333,329       -       -       333,329  
Total current assets
     25,372       407,076       -       -       432,448  
                                         
Investment in and advances to subsidiaries
     233,450       1,985,266       -       (2,218,716 )     -  
Intercompany note receivable
     677,469       -       -       (677,469 )     -  
Other assets
     19,694       8,378       205       -       28,277  
Property, plant and equipment - net
     25,813       149,463       -       -       175,276  
FCC licenses and other intangibles - net
     -       202,891       -       -       202,891  
Excess of cost over fair value of net identifiable assets of acquired businesses
     -       247,149       -       -       247,149  
TOTAL ASSETS
   $ 981,798     $ 3,000,223     $ 205     $ (2,896,185 )   $ 1,086,041  
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                  
Current liabilities:
                                        
Accounts payable
   $ 11,390     $ 5,143     $ -     $ (6 )   $ 16,527  
Accrued expenses and other liabilities
     33,430       13,042       -       -       46,472  
Liabilities of discontinued operations
     -       38,716       -       -       38,716  
Total current liabilities
     44,820       56,901       -       (6 )     101,715  
                                         
Long-term debt
     658,199       -       -       -       658,199  
Intercompany loan
     -       677,469       -       (677,469 )     -  
Retirement, post-retirement and post-employment plans
     223,132       -       -       -       223,132  
Deferred income taxes
     -       45,954       -       -       45,954  
Other liabilities and deferred credits
     19,403       2,890       795       -       23,088  
                                         
Stockholders' equity (deficit):
                                        
Common stock
     115,487       4,872       -       (4,872 )     115,487  
Additional paid-in capital
     31,002       2,435,790       (1,994 )     (2,436,087 )     28,711  
Accumulated other comprehensive loss
     (185,116 )     -       -       -       (185,116 )
Retained earnings (accumulated deficit)
     74,871       (223,653 )     1,404       222,249       74,871  
Total stockholders' equity (deficit)
     36,244       2,217,009       (590 )     (2,218,710 )     33,953  
                                         
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
   $ 981,798     $ 3,000,223     $ 205     $ (2,896,185 )   $ 1,086,041  
 
 
14
 
 
 Media General, Inc.
 Condensed Consolidating Statements of Operations
 and Comprehensive Loss
 Three Months Ended September 23, 2012
 (In thousands, unaudited)

   
Media General
Corporate
    
Guarantor
Subsidiaries
    
Non-Guarantor
Subsidiaries
    
Eliminations
    
Media General
Consolidated
  
                               
                               
Station revenue (less agency commissions)
   $ 7,622     $ 93,789     $ -     $ (7,659 )   $ 93,752  
                                         
Operating costs:
                                        
Station production expenses
     -       31,459       -       (1 )     31,458  
Station selling, general, and administrative expenses
     -       29,126       -       (7,621 )     21,505  
Corporate and other expenses
     11,662       285       146       -       12,093  
Depreciation and software amortization
     564       4,969       -       -       5,533  
Amortization of intangible assets
     -       442       -       -       442  
(Gain) loss on disposal of assets, net
     (120 )     338       -       -       218  
Total operating costs
     12,106       66,619       146       (7,622 )     71,249  
                                         
Operating income (loss)
     (4,484 )     27,170       (146 )     (37 )     22,503  
                                         
Other income (expense):
                                        
Interest expense
     (20,203 )     (17 )     -       -       (20,220 )
Debt modification and extinguishment costs
     (17,318 )     -       -       -       (17,318 )
Intercompany interest income (expense)
     21,699       (21,699 )     -       -       -  
Investment income (loss) - consolidated affiliates
     (10,057 )     -       -       10,057       -  
Other, net
     30       10       -       -       40  
Total other income (expense)
     (25,849 )     (21,706 )     -       10,057       (37,498 )
                                         
Income (loss) from continuing operations before income taxes
     (30,333 )     5,464       (146 )     10,020       (14,995 )
                                         
Income tax expense
     -       3,406       -       -       3,406  
                                         
Income (loss) from continuing operations
     (30,333 )     2,058       (146 )     10,020       (18,401 )
Discontinued operations (net of tax):
                                        
Income (loss) from discontinued operations
     -       (1,075 )     -       37       (1,038 )
Loss related to divestiture of discontinued operations
     -       (10,894 )     -       -       (10,894 )
                                         
Net income (loss)
   $ (30,333 )   $ (9,911 )   $ (146 )   $ 10,057     $ (30,333 )
                                         
Comprehensive income (loss)
   $ (30,333 )   $ (9,911 )   $ (146 )   $ 10,057     $ (30,333 )
 
 
15
 
 
 Media General, Inc.
 Condensed Consolidating Statements of Operations
 and Comprehensive Loss
 Three Months Ended September 25, 2011
 (In thousands, unaudited)

   
Media General
Corporate
    
Guarantor Subsidiaries
    
Non-Guarantor
Subsidiaries
    
Eliminations
    
Media General
Consolidated
  
                               
                               
Station revenue (less agency commissions)
   $ 5,879     $ 66,324     $ -     $ (6,127 )   $ 66,076  
                                         
Operating costs:
                                        
Station production expenses
     -       27,879       -       (153 )     27,726  
Station selling, general, and administrative expenses
     -       25,435       -       (5,938 )     19,497  
Corporate and other expenses
     6,802       536       (256 )     -       7,082  
Depreciation and software amortization
     711       5,100       -       -       5,811  
Amortization of intangible assets
     -       1,314       -       -       1,314  
(Gain) loss on disposal of assets, net
     (115 )     (22 )     -       -       (137 )
Total operating costs
     7,398       60,242       (256 )     (6,091 )     61,293  
                                         
Operating income (loss)
     (1,519 )     6,082       256       (36 )     4,783  
                                         
Other income (expense):
                                        
Interest expense
     (16,022 )     (12 )     -       -       (16,034 )
Intercompany interest income (expense)
     17,405       (17,405 )     -       -       -  
Investment income (loss) - consolidated affiliates
     (32,691 )     -       -       32,691       -  
Other, net
     287       (68 )     -       -       219  
Total other income (expense)
     (31,021 )     (17,485 )     -       32,691       (15,815 )
                                         
                                         
Income (loss) from continuing operations before income taxes
     (32,540 )     (11,403 )     256       32,655       (11,032 )
                                         
Income tax expense (benefit)
     (2,708 )     3,555       -       -       847  
                                         
Income (loss) from continuing operations
     (29,832 )     (14,958 )     256       32,655       (11,879 )
Discontinued operations (net of tax):
                                        
Income (loss) from discontinued operations
     -       (17,989 )     -       36       (17,953 )
                                         
Net income (loss)
   $ (29,832 )   $ (32,947 )   $ 256     $ 32,691     $ (29,832 )
                                         
Comprehensive income (loss)
   $ (30,662 )   $ (32,947 )   $ 256     $ 32,691     $ (30,662 )
 
 
16
 
 
 Media General, Inc.
 Condensed Consolidating Statements of Operations
 and Comprehensive Loss
 Nine Months Ended September 23, 2012
 (In thousands, unaudited)

   
Media General
Corporate
    
Guarantor
Subsidiaries
    
Non-Guarantor
Subsidiaries
    
Eliminations
    
Media General
Consolidated
  
                               
                               
Station revenue (less agency commissions)
   $ 23,443     $ 251,559     $ -     $ (23,938 )   $ 251,064