Now, Reid, Marshall and I shall provide a report on

Now, Reid, Marshall and I shall provide a report on the state of the company. I will begin with the
highlights of 2002 and an overview of our strategy to build shareholder value. Reid will follow me with
an operating report on each of our three divisions. Marshall will follow Reid with a report on our
financial position. Media General had a good year overall in 2002. While divisional operating results
varied widely, we were pleased with our performance during difficult economic times.
The Broadcast Division had truly outstanding results. A major contributor was exceptionally strong
political revenues. But that was not all. We enjoyed growth across all advertising categories and
benefited from excellent management of our time sales inventory. Total broadcast revenues grew 16
percent, and, as a result, broadcast’s profit increased 64 percent over 2001.
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The Publishing Division, on the other hand, was challenged by revenue shortfalls in almost every
category, as the result of an ongoing weak economy. Through excellent cost control, however, the
division was able to show a small profit increase over 2001.
Our new Interactive Media Division continued to progress. Total revenues increased 28%. The
division has been quite successful in developing new products and services, and creating new revenue
streams. Although the Interactive Media Division is still quite small compared to Publishing and
Broadcasting, we expect its revenue to continue growing strongly.
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Media General views itself as a content company. We specialize in providing high-quality news,
information and entertainment over a variety of platforms that our customers want to use.
Our core strength is the delivery of excellent local journalism. We are focused on keeping our
franchises strong and maintaining our sense of public service. We are striving to build shareholder
value through audience growth, revenue growth and the effective use of our resources across multiple
media and multiple markets.
Among media companies, we are unique in our Southeast focus. We also believe in convergence and
clustering. Convergence is our multimedia strategy. In our six convergence markets – shown in the
blue circles -- we provide our high-quality content over multiple media platforms. Clustering is a single
platform strategy. For example, our newspapers are organized into clusters of operations that are
located close together. Our seven newspaper clusters – shown in the yellow circles -- share many
resources, such as people, equipment and cross-selling opportunities.
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We look forward to the widely expected modification of a Federal Communications Commission rule
that bans ownership of a newspaper and television station in the same market. We believe that 28
years is a long time to ban an industry from entering a market based solely on a “hoped for” gain in
diversity and absolutely no proof of any competitive harm. The existence of the rule is actually
preventing the development of innovative local information services. In the last decade, the cost of
producing televised news has become more expensive. As a result, many small market stations have
curtailed or eliminated their local newscasts. Our experience in Tampa, where we are our industry’s
leading practitioner of convergence, demonstrates that local communities can be better served by the
common ownership of newspapers and TV stations. The combined resources of both platforms can
more effectively provide faster and higher quality local news to the community. Our experience is
supported by a recent study from the Project for Excellence in Journalism, affiliated with Columbia
University. It found that TV stations owned by newspaper companies are more than twice as likely as
the norm to produce top-quality newscasts. We are convinced that the proponents of the ban have not
made their case, and we are confident that the FCC will modify the rule significantly on June 2.
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When the FCC rule changes, we plan to swap and purchase newspapers and broadcast stations.
Our goal is to advance our convergence and clustering strategies in the Southeast. We will be
interested only in properties that provide growth in revenues, operating profit and cash flow. We’d like
to show you a short video that highlights our success with convergence. We believe we’ve proven that
convergence makes sense journalistically and, without question, improves product quality. When
quality improves, circulation and audience share increase, all of which creates revenue growth.
Let’s view the video and see how convergence works.
Before turning the presentation over to Reid, let me add a few more words about Rex Bowman and his
coverage of the 1st Battalion, 4th Marines. The work Rex did in Iraq is one of the best examples I can
think of that demonstrates who we are and what we do. Major events, such as the war, give us the
opportunity to showcase the quality of our journalism and our service to the public. They also remind
us of the critical role the media play in society. Quite often, media companies incur significantly higher
expenses to cover these major events when revenues are also down. Such was the case with Rex and
Iraq. This is a time when our values of strong journalism and public service guide us and also leave us,
at day’s end, with a sense of pride and fulfillment. We thank Rex and our news folks at the TimesDispatch for their part in making his reports possible.
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We were pleased with our operating accomplishments in 2002. We achieved overall revenue growth
during a recession, strong audience growth in all three businesses, and we made further progress with
convergence and clustering. Each of our three divisions has a sound strategic plan that will enable us
to continue to grow as we move ahead.
Major circulation growth was the Publishing Division’s most significant accomplishment of 2002.
Recent industry-sponsored research shows that newspapers have the potential to reverse the declining
circulation trends of recent years. The study identified four cornerstones of readership: Content,
Service, Brand and Culture. Last year, all of our newspapers implemented action plans incorporating
the imperatives. Our goal is to persuade readers, especially occasional readers, to read our
newspapers more frequently and more completely.
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Seven of our newspapers launched redesigns in 2002. Some of the new features include sidebars that
show content in brief, modernized logos and typefaces, and more prominent display of local writing and
photos on the front page. In 2003, we plan redesigns for two Alabama dailies.
We have also become much more innovative in circulation marketing. Over the past few years, we
have invested $8 million in new database systems that enable us to retain subscribers and add new
ones efficiently and effectively. Our circulation marketing strategy extends far beyond traditional tactics
and telemarketing. It now includes kiosks, direct marketing, web sales, sampling and single copy
promotions.
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According to the Audit Bureau of Circulation, for the six month period ending March 2003, total
circulation for Media General newspapers increased more than 4% daily and 2% Sunday.
We are extremely proud of The Tampa Tribune’s circulation increases. The Tribune implemented a
special growth plan last year to counter efforts by the neighboring St. Petersburg Times to attract
readers in the Tampa market. As a result, Tampa had the top growth rate in the country for large
newspapers. Its Sunday circulation was the highest in the category, at 5 percent, and its daily
circulation growth rate of 6 percent was third. This compares to the 25 largest newspapers in the
country, which, as a group, had flat daily circulation and a small decline on Sunday. Tampa’s
performance also compares to the St. Petersburg Times’ much smaller gains of 0.6 percent daily and
0.5 percent Sunday.
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Three of our community dailies showed the highest circulation growth rates of all the newspapers in
their state. In Virginia, The Manassas Journal Messenger grew 35 percent daily and 12 percent
Sunday. In Florida, The Jackson County Floridan grew 17 percent daily and 8.5 percent Sunday.
In North Carolina, The Hickory Daily Record grew 11 percent daily and 9 percent Sunday.
Clustering is a key strategy to improve newspaper operating performance. We combine our resources
for better journalism; we work our plants and equipment more efficiently; we share back office
operations, and we provide our sales staffs more to sell. We have recently launched initiatives in
Florida, Virginia and North Carolina to share best practices and leverage the resources of our three
metro newspapers across all of our community dailies.
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In addition to our circulation momentum, the Publishing Division has established a number of revenue
growth initiatives. We are increasing the size of sales staffs in many markets. We have revamped
sales territories and launched new shoppers and weeklies – all aimed at increasing our cross-selling
opportunities. In fact, cross-selling is now a way of life for our newspapers. We cross-sell classifieds in
all of our markets. We sell joint retail ad buys in multiple markets. And, we're seeing more and more
national advertisers add our surrounding community papers when they schedule ads in our metros.
Now, let’s turn to our Broadcast Division. Our ratings are up, so we can deliver more audience to our
advertisers. Our local news is strong. We have improved our inventory management, and our sales
effort is stronger all around, both nationally and locally.
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2002 was the second year in a row when the majority of our television stations improved their audience
ratings. Most of our stations are #1 or #2 in their market. WFLA remains the top-rated station in
Florida.
We credit our strong TV revenue performance is attributable to our ability to effectively manage and
price our inventory. We completed the consolidation of our sales processing at a new Central Traffic
Operation in 2002. We can maximize revenue by adjusting rates in line with supply and demand better
than before the new system was installed. The system also improves customer service and cuts costs.
We have improved our national sales through the work of dedicated teams in New York and Atlanta
that sell advertising time only on Media General stations. We have implemented an aggressive local
sales strategy at all stations, and we are providing state-of-the-art training to our ad reps.
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The Broadcast Division’s revenue growth far exceeded the industry for 2002. Industry time sales
increased 11%, while ours increased 20%. Industry National sales increased 17%, while ours
increased 31%. Industry Local time sales increased 7%, compared to our 13% gain.
Our main challenge in 2003 is to replace as much of the political and Olympic revenues from last year
as possible. Fortunately, we have the same positive trends going for us that we had last year in
audience share growth, inventory management and sales strategy. Each of our stations has also
implemented a number of revenue growth initiatives. Our sales training program has enhanced our
preparation, presentation and selling skills. Our account management system helps our sales force
identify accounts with the most potential. Special promotions, such as health fairs, and direct mail
campaigns are also contributing.
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High-quality local news is the key to improving ratings and share. Our news focuses on what is
important, relevant and urgent to our viewers. Market research helps our stations identify the top
issues in their communities, reveals points of differentiation, and suggests strong branding positions.
By emphasizing these themes, each station can enhance its reputation as a voice for the community,
an advocate for the viewers, and a watchdog that holds the powerful accountable for what they say and
do.
To help our station managers stay focused on the quality of their newscasts, in 2002 we implemented
an internal peer review process. Our news directors meet quarterly in small groups to analyze and
evaluate each other’s programs. Participants share best practices and new ideas for producing and
branding local news. Our products are better as a result.
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Next, let’s talk about our Interactive Media Division. We now have a Web site in every Media General
market.
In 2002, page views were up 32 percent.
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Revenue growth has been strong since the division’s startup in January 2001. Classified advertising
products represent 35% of the division’s revenues. This graph shows the momentum that online
classified advertising has gained over the past three years. Most of these revenues come from up-sell
arrangements with our newspapers. Eighty to eighty-five percent of newspaper classified ad buyers
select the online component. Other online revenues -- from banners and other non-classified
advertising – are also showing solid growth. Media General Financial Services, a provider of online
financial information, is the most established component of the division. Its revenues have weathered
the burst of the dot.com bubble remarkably well.
Our revenue goal for 2003 is about $15 million, including online products and financial services.
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We are also creating premium interactive games. Last year we acquired Boxerjam, which produces
game shows and puzzles. We have repositioned Boxerjam to generate revenues through three
streams: advertising, licensing, and subscriptions. Our games will soon bring in revenue through the
Buzztime channel, which is being prepared for commercial deployment on interactive cable television.
In summary, we believe all three of our divisions are well positioned to continue to grow audience
share, generate new revenues, and increase profitability over the long term.
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In addition to our operating successes, a number of key accomplishments in the course of the past year
have strengthened our financial position. Let me begin with comments on a few issues that are
important to all of us. Last year at the time of this meeting, the business news was full of stories of
companies whose managers had failed in their roles as stewards of the shareholders. As a result, we
devoted a portion of last year’s presentation to a review of Media General’s accounting procedures and
controls, and the quality of our financial reporting. Since that time, the Congress passed the SarbanesOxley act. That legislation alone has already generated over 3,000 pages of regulations from various
government bodies. Much of it is focused on intensified accounting and internal control standards. To
the extent that the Sarbanes-Oxley act gives investors confidence that American public corporations
are acting as they should, it performs a good service. You can take comfort in the fact that Media
General -- and surely many other corporations, as well -- lived to that standard and better even before
the legislation was passed. The same is true with respect to the composition of our Board of Directors,
another area receiving attention in Sarbanes-Oxley. Since its inception, our Audit Committee members
have always been independent directors. The same is true with the Compensation Committee.
Now, let’s spend a little time looking at the first quarter’s financial performance.
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For the Publishing Division, several items adversely affected results. These included rising geopolitical
concerns, which caused some advertisers to cancel or hold back on spending; an unusually long and
harsh winter in Virginia and North Carolina; and the shift of Easter into this year’s second quarter.
Despite the challenges, revenues increased slightly. Preprint advertising was the lead performer.
Classified advertising was up on strong automotive linage, while help wanted continued to lag. Retail
advertising was soft, mostly because of reduced department store ad schedules. National advertising
was down, mostly due to the impact of the war in Iraq and the overall weak economy. Divisional
operating expenses increased due to a combination of factors. Employee compensation and benefit
costs were up due to annual salary increases and higher retirement plan expenses. Costs in Tampa
were up as a result of growth plan initiatives. Despite a slight decline in average price, newsprint
expense rose somewhat because of an increase in consumption from expanded news coverage of the
war and from our circulation gains. As a result, operating income for the Publishing Division declined
about 17% from last year’s first quarter. To counter softer-than-anticipated market conditions, all of our
divisions have instituted cost containment measures. These include a hiring freeze, reduced overtime,
and scaled back discretionary spending.
Broadcast revenues also increased modestly in the first quarter. Local advertising was particularly
strong, while national advertising was down. Like Publishing, lower national revenues reflected
advertiser concerns about the war and the economy. Expenses were higher primarily because of two
factors. The first was higher compensation and benefit costs. The second was additional expenses for
sales initiatives. As a result, broadcast’s operating income decreased 21%.
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Now, let’s turn to the Interactive Media Division. Revenues increased 35 percent. This growth was
primarily from robust classified advertising, which nearly doubled from last year. Higher expenses were
primarily the result of filling key positions within the new division, as well as a rise in employee
compensation and benefits costs. Excluding a gain of $3.7 million after tax, associated with the sale of
our interest in Hoover’s, Interactive Media results remained essentially flat with last year’s first quarter –
a loss of approximately $1 million.
Our capital spending budget for this year originally was $62 million, most of which focused on
replacement spending. We have now reduced spending plans to $49 million. We will accomplish that
by deferring some of our spending into 2004. Most of the deferred amount comes from the Publishing
Division. Their budget is $19 million. Projects that will start later than planned are upgraded printing
press operations for our Lynchburg and Bristol newspapers. The remaining spending is for computers,
classified and news editorial systems. Broadcast’s budget of $21 million focuses on the replacement of
studio and news equipment and technical vehicles. We also will invest in the initial phase of converting
our master control operations to a central site. The Interactive Media Division will spend about $3
million, as they invest in infrastructure and product-related systems. Corporate expenditures of $6
million are mostly for computer equipment and software.
The company’s total debt is currently about $600 million and constitutes 36 percent of total capital.
This includes $400 million in bank debt and $200 million in public debt. We have ample financial
flexibility to pursue growth strategies. Our existing revolving credit facility allows us to borrow up to $1
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billion from our banks. We also have a universal shelf registration that allows us to issue debt and
equity totaling $1.2 billion.
We look to internally-generated funds to support our routine operating needs, annual capital spending
and the payment of dividends. We would probably need to rely on external debt financing for significant
projects, such as the construction of this facility in 1992, and to cover the cost of any acquisitions.
Consequently, our creditworthiness is a matter of significant importance to us. It impacts the amount of
funds our lenders are willing to make available, and it impacts the rate of interest we pay for our
borrowings. As a result, we are committed to maintaining strong public debt ratings through
maintenance of a balanced relationship between debt service and operating cash flow. Let me touch
on just a few more topics before turning it back to Stewart.
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First, pension plans. There is much in the news today about inadequate funding. Indeed, the severe
downturn in the investment markets over the last three years, coupled with lower interest rates, has
affected the surplus of Media General’s pension plan to the extent that funding is now required for the
current plan year. We have historically maintained well-funded plans. This is the only prudent
approach for this program, which is essentially a commitment to our employees. We have not had to
make cash contributions to the plan for more than 10 years. However, we are now reviewing our
contribution strategy. We are considering the possibility of making cash contributions in excess of the
required amounts in the next couple of years. Pre-funding the plan in this way may prevent spikes in
future contribution levels and might even reduce annual accounting expense, but it will certainly work,
immediately, to enhance the benefit funding relationship.
In closing, most of you know that we transferred the listing of our common stock to the New York Stock
Exchange early in the fall of 2001. We believed we would gain useful visibility and liquidity through our
presence in the larger marketplace. We continue to be pleased with that decision, and, in fact, our
visibility and liquidity have improved. It’s much easier for investors to trade our stock. Our Average
Daily Trading Volume on the NYSE is significantly higher than it was before we switched. This chart
shows that our average volume by month was less than 50,000 shares per day for our first few months
on the NYSE. It now typically ranges from 60,000 to 80,000 shares per day, and you can see three
months when the average volume exceeded 100,000. The market is absorbing the added volume with
less price volatility.
Our stock has performed well. This chart covers the period from the beginning of our 1999 stock
repurchase program. The yellow line is Media General. The red line is the S&P. The blue line is an
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aggregate of peer companies. We think this performance indicates that investors like what we’re doing
and believe in our growth potential.
Let me conclude our report by summarizing why we believe Media General is well positioned to grow
and build value for our shareholders.
We are:
a leading regional media company with high-quality assets serving the fast-growing Southeast
a diversified media company with three complementary distribution channels -- newspapers,
television and the Internet -- and a proven ability to maximize assets across multiple media and
markets
financially conservative, with strong cash flow, a strong balance sheet, and aggressive, focused
expense management
a well-managed company with a strong, experienced management team
a dynamic company with a growth plan and the financial flexibility to pursue value-creating
transactions
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well-positioned and ready to benefit from:
-- a modification of the cross-ownership rule, and
-- an economic recovery, including a rebound in advertising revenues.
We are committed to building shareholder value.
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