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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 29, 2002

OR

o 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
(State or other jurisdiction of
incorporation or organization)

333 E. Franklin St., Richmond, VA
(Address of principal executive offices)		 54-0850433
(I.R.S. Employer
Identification No.)

23219
(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                             No                 X                

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of November 3, 2002

Class A Common shares: 22,641,175
Class B Common shares:       555,992

Table of Contents

 

MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
September 29, 2002

  Page

Part I.    Financial Information

  Item 1. Financial Statements

    Consolidated Condensed Balance Sheets - September 29, 2002, and December 30, 2001  1

Consolidated Condensed Statements of Operations - Third quarter and nine months ended September 29, 2002, and September 30, 2001  3


Consolidated Condensed Statements of Cash Flows - Nine months ended September 29, 2002, and September 30, 2001  
 4
 
Notes to Consolidated Condensed Financial Statements  5

  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18

  Item 4. Controls and Procedures 25

Part II.    Other Information

  Item 6. Exhibits and Reports on Form 8-K 25

    (a)    Exhibits

(b)    Reports on Form 8-K

Signatures 26

Certifications 27

Table of Contents

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(000’s except shares)

  (Unaudited)    
  September 29,   December 30,
  2002   2001
 
 
ASSETS          
           
Current assets:
          
  Cash and cash equivalents
$
10,198
  
$
9,137
  Accounts receivable - net
  
97,591
    
112,431
  Inventories
  
6,103
    
4,860
  Other
  
38,202
    
36,610
 
 
     Total current assets
  
152,094
    
163,038
 
 
Investments in unconsolidated affiliates
  
98,171
    
114,588
           
Other assets
  
73,758
    
71,308
           
Property, plant and equipment - net
  
373,794
    
385,916
           
Excess of cost over fair value of net identifiable assets
          
  of acquired businesses - net
  
832,004
    
933,957
           
FCC licenses and other intangibles - net
  
823,261
    
865,252
 
 
 
$
2,353,082
  
$
2,534,059
 
 

See accompanying notes.

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MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(000’s except shares)

  (Unaudited)        
  September 29,     December 30,  
  2002     2001  
 
   
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY              
               
Current liabilities:
              
Accounts payable
$
25,249
    
$
19,909
  
Accrued expenses and other liabilities
  
92,617
      
80,588
  
Income taxes payable
  
1,331
      
 —
  
 
   
 
Total current liabilities
  
119,197
      
100,497
  
 
   
 
               
Long-term debt
  
672,934
      
777,662
  
               
Deferred income taxes
  
354,123
      
350,854
  
               
Other liabilities and deferred credits
  
138,539
      
141,378
  
               
Stockholders’ equity:
              
Preferred stock ($5 cumulative convertible),
              
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
              
22,613,360 and 22,420,065 shares
  
113,067
      
112,100
  
Class B, authorized 600,000 shares; issued
              
556,574 shares
  
2,783
      
2,783
  
Additional paid-in capital
  
17,245
      
10,006
  
Accumulated other comprehensive loss
  
(14,358
)
    
(21,013
)
Unearned compensation
  
(5,825
)
    
(6,780
)
Retained earnings
  
955,377
      
1,066,572
  
 
   
 
Total stockholders’ equity
  
1,068,289
      
1,163,668
  
 
   
 
 
$
2,353,082
    
$
2,534,059
  
 
   
 

See accompanying notes.

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MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000’s except for per share data)

 
 Third Quarter Ended     Nine Months Ended  
 
   
 
 
   Sept. 29,       Sept. 30,       Sept. 29,       Sept. 30,  
 
   2002       2001       2002       2001  
 
   
   
   
 
Revenues
 $ 201,153     $ 193,052     $ 607,444     $ 597,680  
 
   
   
   
 
Operating costs:
                              
Production
   86,518       89,197       258,823       268,271  
Selling, general and administrative
   68,138       61,252       203,003       198,565  
Depreciation and amortization
   16,649       28,470       50,180       86,369  
 
   
   
   
 
Total operating costs
   171,305       178,919       512,006       553,205  
 
   
   
   
 
Operating income
   29,848       14,133       95,438       44,475  
 
   
   
   
 
Other income (expense):
                              
Interest expense
   (11,607 )     (13,948 )     (36,961 )     (40,372 )
Investment income (loss) - unconsolidated affiliates
   (4,423 )     3,246       (10,190 )     20,451  
Other, net
   2,562       (4,247 )     4,185       (7,261 )
 
   
   
   
 
Total other expense
   (13,468 )     (14,949 )     (42,966 )     (27,182 )
 
   
   
   
 
Income (loss) from continuing operations before income taxes and cumulative effect of change in accounting principle
   16,380       (816 )     52,472       17,293  
Income taxes
   6,869       200       20,674       7,263  
 
   
   
   
 
Income (loss) from continuing operations before cumulative effect of change in accounting principle
   9,511       (1,016 )     31,798       10,030  
Gain on sale of operations (net of tax)
   —       280       —       280  
Cumulative effect of change in accounting principle (net of income tax benefit of $12,188)
   —       —       (126,336 )     —  
 
   
   
   
 
Net income (loss)
 $ 9,511     $ (736 )   $ (94,538 )   $ 10,310  
 
   
   
   
 
Earnings (loss) per common share:
                              
Income (loss) from continuing operations before cumulative effect of change in accounting principle
 $ 0.41     $ (0.04 )   $ 1.39     $ 0.44  
Income from discontinued operations
   —       0.01       —       0.01  
Cumulative effect of change in accounting principle
   —       —       (5.51 )     —  
 
   
   
   
 
Net income (loss)
 $ 0.41     $ (0.03 )   $ (4.12 )   $ 0.45  
 
   
   
   
 
Earnings (loss) per common share - assuming dilution:
                              
Income (loss) from continuing operations before cumulative effect of change in accounting principle
 $ 0.41     $ (0.04 )   $ 1.37     $ 0.44  
Income from discontinued operations
   —       0.01       —       0.01  
Cumulative effect of change in accounting principle
   —       —       (5.44 )     —  
 
   
   
   
 
Net income (loss)
 $ 0.41     $ (0.03 )   $ (4.07 )   $ 0.45  
 
   
   
   
 
Dividends paid per common share
 $ 0.18     $ 0.17   $ 0.54   $ 0.51  
 
   
   
   
 

See accompanying notes.

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MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)
(000’s)

  Nine Months Ended
 
 
  September 29,     September 30,  
  2002     2001  
 
   
 
Operating activities:
              
               
Net income (loss)
$
(94,538
)
  
$
10,310
  
               
Adjustments to reconcile net income (loss):
              
      Cumulative effect of change in accounting principle
  
126,336
      
 —
  
      Depreciation and amortization
  
50,180
      
86,369
  
      Deferred income taxes
  
9,505
      
1,781
  
      Investment (income) loss - unconsolidated affiliates
  
10,190
      
(20,451
)
      Distribution from unconsolidated affiliate
  
4,100
      
—
  
      Gain on disposition of Garden State Paper
  
—
      
(280
)
      Write-down of investments
  
1,160
      
4,149
  
      Change in assets and liabilities:
              
            Accounts receivable and inventories
  
14,097
      
17,094
  
            Accounts payable, accrued expenses, and
              
                  other liabilities
  
10,008
      
(11,475
)
            Other
  
351
      
3,352
  
 
   
 
Net cash provided by operating activities
  
131,389
      
90,849
  
 
   
 
               
Investing activities:
              
      Capital expenditures
  
(25,869
)
    
(39,656
)
      Purchases of businesses
  
(1,124
)
    
(1,752
)
      Other investments
  
(1,509
)
    
(4,764
)
      Other, net
  
5,432
      
4,147
  
 
   
 
Net cash used by investing activities
  
(23,070
)
    
(42,025
)
 
   
 
               
Financing activities:
              
      Increase in debt
  
184,000
      
1,182,882
  
      Payment of debt
  
(288,094
)
    
(1,213,261
)
      Debt issuance costs
  
—
      
(12,048
)
      Stock repurchase
  
—
      
(2,120
)
      Dividends paid
  
(12,486
)
    
(11,702
)
      Other, net
  
9,322
      
5,044
  
 
   
 
Net cash used by financing activities
  
(107,258
)
    
(51,205
)
 
   
 
               
Net increase (decrease) in cash and cash equivalents
  
1,061
      
(2,381
)
Cash and cash equivalents at beginning of year
  
9,137
      
10,404
  
 
   
 
Cash and cash equivalents at end of period
$
10,198
    
$
8,023
  
 
   
 
               
Supplemental disclosures of cash flow information:
              
Cash paid during the period for:
              
      Interest (net of amount capitalized)
$
35,250
    
$
39,164
  
      Income taxes
$
619
      
535
  

See accompanying notes.

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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 for interim financial reporting, 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 30, 2001.

         In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim financial information, as well as an adjustment related to the adoption of a new accounting standard, have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year.

     2. Inventories are principally raw materials (primarily newsprint).

     3. Effective with the beginning of the year, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. This statement establishes a new accounting standard for goodwill and certain other indefinite-lived intangible assets. It also establishes a new method of testing those assets for value impairment. It continues to require recognition of these items as assets but amortization as previously required by APB Opinion No. 17, Intangible Assets, ceased upon adoption in fiscal 2002. It also requires that these assets be separately tested for impairment annually, or more frequently if impairment indicators arise, at the reporting unit level using a fair-value-based approach. A reporting unit is defined as an operating segment or one level below an operating segment. The provisions of this statement apply not only to balances arising from acquisitions completed after June 30, 2001, but also to the unamortized balances at the date of adoption. Intangible assets that have finite lives will continue to be amortized over their useful life.

        At December 30, 2001 (prior to adoption), the Company reported net goodwill of $934 million and net intangibles of $865 million. The intangibles consisted of FCC licenses, network affiliations, assembled workforce, subscriber lists and other broadcast intangibles. Based on provisions in the standard, assembled workforce (approximating $4 million) was combined into goodwill and the useful lives of goodwill, FCC licenses and network affiliations were determined to be indefinite; therefore, their amortization ceased. Subscriber lists and other broadcast intangibles were determined to have finite lives. These lives were reevaluated and remained unchanged. The indefinite lived intangibles were evaluated for impairment by reporting unit, using estimated discounted cash flows to determine their fair value. Poor economic conditions in 2001 led to reduced expectations for cash flows in future years. This resulted in an impairment loss of $126.3 million (net of a $12.2 million tax benefit), reported as a cumulative effect of change in accounting principle in the financial statements. This impairment loss was attributable to goodwill, network affiliations and FCC licenses in the Broadcast segment reporting units of $106.2 million, $12.4 million and $7.7 million, respectively.

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          The following summary presents the Company’s unaudited consolidated net income (loss) and diluted earnings per share for the quarter and nine months ended September 29, 2002, and its unaudited pro forma consolidated net income and diluted earnings per share for the quarter and nine months ended September 30, 2001, as if SFAS No. 142’s amortization provisions had been in effect for the periods presented:

  Quarter Ended
 
(In thousands, except per share amounts) September 29, 2002
     		  September 30, 2001
(pro forma)
 
 
Reported net income (loss) $ 9,511   $ 0.41   $ (736 ) $ (0.03 )
Add back:                        
      Goodwill amortization (including                        
            assembled workforce)   —     —     5,213     0.22  
      FCC licenses and other intangibles                        
            amortization   —     —     3,305     0.14  
 
 
 
 
Adjusted net income $ 9,511   $ 0.41   $ 7,782   $ 0.33  
 
 
 
 
   
  Nine Months Ended
 
  September 29, 2002   September 30, 2001
                (pro forma)
 
 
Reported income before cumulative effect                      
      of change in accounting principle $ 31,798   $ 1.37   $ 10,310   $ 0.45
Add back:                      
      Goodwill amortization (including                      
            assembled workforce)   —     —     15,648     0.68
      FCC licenses and other intangibles                
            amortization   —     —     9,925     0.43
 
 
 
 
Adjusted income before cumulative effect                
      of change in accounting principle   31,798     1.37     35,883     1.56
Cumulative effect of change in accounting                
      principle   (126,336)     (5.44)     —     —
 
 
 
 
                       
Adjusted net income (loss) $ (94,538)   $ (4.07)   $ 35,883   $ 1.56
 
 
 
 

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        Presented below is the gross carrying amount and accumulated amortization for intangible assets as of September 29, 2002, and December 30, 2001:

  As of September 29, 2002   As of December 30, 2001
 
 
  Gross Carrying   Accumulated   Gross Carrying   Accumulated
(In thousands)

Amount

   Amortization   Amount   Amortization
 
 
Amortizing intangible assets                      
   (including advertiser,                      
   programming and subscriber                      
   relationships):                      
   Broadcast $ 103,408   $ 33,727   $ 103,408   $ 27,277
   Publishing   34,281     16,709     34,281     14,445
   Interactive Media   2,289     178     —     —
 
 
 
 
      Total $ 139,978   $ 50,614   $ 137,689   $ 41,722
 
 
 
 
Indefinite-lived intangible assets:                      
   Goodwill (including assembled
      workforce):		                      
      Broadcast $ 195,173         $ 300,692      
      Publishing   636,831           636,831      
 
       
     
        Total goodwill   832,004           937,523      
   FCC license   558,021           570,217      
   Network affiliation   175,793           195,502      
   Trademarks   83           —      
 
       
     
      Total $ 1,565,901         $ 1,703,242      
 
       
     

          The intangibles amortization expense for the quarter and year-to-date period ended September 29, 2002, was $3 million and $8.9 million, respectively; intangibles amortization expense for the quarter and year-to-date period ended September 30, 2001, was $15.1 million and $45.4 million, respectively. The estimated intangibles amortization expense for the remaining three months of this year is $3 million. Currently, estimated intangibles amortization expense is approximately $12 million each year through 2006, falling to approximately $11.5 million in 2007.

     4.   In January 2001, The Denver Post and the Denver Rocky Mountain News finalized a Joint Operating Agreement (JOA). The Company has a 20% interest in The Denver Post Corporation (Denver). In 2001, the line item “Investment income (loss) - unconsolidated affiliates” on the accompanying Consolidated Condensed Statement of Operations included a one-time gain of $6.1 million related to a cash payment received by Denver in conjunction with the formation of the JOA. That line item also includes start-up costs incurred by Denver related to the initial formation of the JOA.

     5.   During the first quarter of 2002, the Company entered into new lease agreements whereby the owner, an unrelated third-party entity founded specifically for that purpose, borrowed approximately $100 million to refinance existing leased real estate facilities; the facilities are leased to the Company for a term of up to 5 years. The Company may cancel the leases by purchasing or arranging for the sale of the facilities. The Company has guaranteed recovery of approximately 85% of the owner’s cost.

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     6.   Concurrent with the September 2000 sale of Garden State Paper Company, the Company entered into a financial newsprint swap agreement with Enron North America Corporation (Enron). In late November 2001, the Company terminated the newsprint swap agreement for reasons including misrepresentations made by Enron at the time the contract was signed. Enron filed for bankruptcy shortly thereafter. The Company believes that no further payments are due by either party under the agreement. In late July 2002, the Company received a letter from Enron disputing the Company’s position. The Company continues to believe that its position is correct.

     7.   The following table sets forth the Company’s current and prior-year financial performance by segment for 2002:

   
(In thousands)
Publishing 
      Broadcasting
Interactive
Media
        Eliminations              
Total
  
Three Months Ended September 29, 2002                                        
                                         
Consolidated revenues
$
127,313
       $
71,433
      
$
2,858
    
$
(451
)
  
$
201,153
  
 
 
                                         
Segment operating cash flow
$
34,151
     $
22,221
      
$
(1,064
)
          
$
55,308
  
Allocated amounts:
                                        
Equity in net income of unconsolidated
                                        
affiliate
  
128
                                
128
  
Write-off of investment
                    
(1,160
)
            
(1,160
)
Depreciation and amortization
  
(6,793
)
    
(5,516
)
      
(237
)
            
(12,546
)
 
 
Segment profit (loss)
$
27,486
     $
16,705
      
$
(2,461
)
            
41,730
  
 
 
Unallocated amounts:
                                        
Interest expense
                                    
(11,607
)
Investment loss -- SP Newsprint
                                    
(4,551
)
Acquisition intangibles amortization
                                    
(3,035
)
Corporate expense
                                    
(8,261
)
Other
                                    
2,104
  
                                   
 
Consolidated income before income taxes
                                  
$
16,380
  
                                   
 
 
  
                                         
Three Months Ended September 30, 2001
                                        
Consolidated revenues
$
130,092
      
61,166
      
$
2,207
    
$
(413
)
  
$
193,052
  
 
 
                                         
Segment operating cash flow
$
35,584
      
14,387
      
$
(581
)
          
$
49,390
  
Allocated amounts:
                                        
Equity in net loss of unconsolidated
                                        
affiliates
  
(575
)
              
(306
)
            
(881
)
Write-off of investment
                    
(1,826
)
            
(1,826
)
Depreciation and amortization
  
(6,949
)
    
(5,273
)
      
(137
)
            
(12,359
)
 
 
Segment profit (loss)
$
28,060
      
9,114
      
$
(2,850
)
            
34,324
  
 
 
                                         
Unallocated amounts:
                                        
Interest expense
                                    
(13,948
)
Investment income -- SP Newsprint
                                    
4,127
  
Acquisition intangibles amortization
                                    
(15,096
)
Corporate expense
                                    
(7,353
)
Other
                                    
(2,870
)
                                   
 
Consolidated loss from continuing operations before income taxes
                                  
$
(816
)
                                   
 

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(In thousands) Publishing   Broadcasting  
Interactive Media
  Eliminations
 Total
Nine Months Ended September 29, 2002
                                  
Consolidated revenues
$
388,035
  
$
212,443
  
$
8,272
     
$
(1,306
)
   
$
607,444
  
 
                                   
Segment operating cash flow
$
109,285
  
$
66,988
  
$
(2,518
)
          
$
173,755
  
Allocated amounts:
                                  
Equity in net loss of unconsolidated
                                  
affiliates
  
(644
)
        
(413
)
            
(1,057
)
Write-off of investment
              
(1,160
)
            
(1,160
)
Depreciation and amortization
  
(20,848
)
  
(16,348
)
  
(845
)
            
(38,041
)
 
Segment profit (loss)
$
87,793
  
$
50,640
  
$
(4,936
)
            
133,497
  
 
                 
                                   
Unallocated amounts:
                                  
Interest expense
                              
(36,961
)
Investment loss - SP Newsprint
                              
(9,133
)
Acquisition intangibles amortization
                              
(8,892
)
Corporate expense
                              
(25,828
)
Other
                              
(211
)
                           
Consolidated income before income taxes and
                                  
cumulative effect of change in accounting principle
                            
$
52,472
  
                           
Nine Months Ended September 30, 2001
                                  
Consolidated revenues
$
404,323
  
$
187,933
  
$
6,699
    
$
(1,275
)
  
$
597,680
  
 
Segment operating cash flow
$
108,412
  
$
48,124
  
$
(1,794
)
          
$
154,742
  
Allocated amounts:
                                  
Equity in net income (loss) of
                                  
unconsolidated affiliates
  
3,389
          
(2,164
)
            
1,225
  
Write-off of investments
              
(4,149
)
            
(4,149
)
Depreciation and amortization
  
(21,330
)
  
(15,952
)
  
(543
)
            
(37,825
)
 
Segment profit (loss)
$
90,471
  
$
32,172
  
$
(8,650
)
            
113,993
  
 
                 
Unallocated amounts:
                                  
Interest expense
                              
(40,372
)
Investment income - SP Newsprint
                              
19,226
  
Acquisition intangibles amortization
                              
(45,354
)
Corporate expense
                              
(24,980
)
Other
                              
(5,220
)
                           
Consolidated income from continuing operations before income taxes
                            
$
17,293
  
                           

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        8. The following table sets forth the computation of basic and diluted earnings per share prior to the cumulative effect of change in accounting principle:

  Quarter Ended September 29, 2002   Quarter Ended September 30, 2001
 
 
  Income Shares    Per Share
Amount		 Income Shares     Per Share
(In thousands, except per share amounts) (Numerator)  (Denominator)    (Numerator) (Denominator)     Amount
 
 
                                     
                                     
Basic EPS
                                    
Income (loss) from continuing operations
                                    
available to common stockholders
$
9,511
  
22,990
    
$
  
0.41
  
$
 (1,016
)
22,733
    
$
(0.04
)
           
             
                                     
Effect of dilutive securities
                                    
Stock options
      
113
                 —          
Restricted stock and other
  
(13
)
122
             —   —          
 
         
         
                                     
Diluted EPS
                                    
Income (loss) from continuing operations
                                    
available to common stockholders
                                    
plus assumed conversions
$
9,498
  
23,225
  
$
  
0.41
  
$
 (1,016
)
22,733
    
$
(0.04
)
 
 
       
 
Nine Months Ended September 29, 2002
   
Nine Months Ended September 30, 2001
 
   
 
Income
 
Shares 
 
Per Share
Amount
   
Income
Shares
   
Per Share
(In thousands, except per share amounts)
(Numerator) 
 
(Denominator) 
     
(Numerator)
(Denominator)
   
Amount
 
       
Basic EPS                                    
Income from continuing operations before                                    
    cumulative effect of change in accounting                                    
    principle available to common stockholders $
31,798
  
22,927
  
$
  
1.39
  
$
10,030
  
22,705
    
$ 
 0.44
  
           
   
Effect of dilutive securities                    
Stock options      
173
                
129
          
Restricted stock and other  
(40
 )
118
            
(53
 )
113
          
 
         
         
Diluted EPS                    
Income from continuing operations before                    
    cumulative effect of change in accounting                    
    principle available to common stockholders                    
    plus assumed conversions $
 31,758
  
23,218
  
$
  
1.37
  
$
9,977
  
22,947
    
$
0.44
  
 
 
 
       
       
       
       
       
       

        9. The Company’s comprehensive income consisted of the following:

  Quarter Ended Nine Months Ended
 
(In thousands) Sept. 29, Sept. 30, Sept. 29, Sept. 30,
  2002 2001 2002 2001
 
Net income (loss)
$
9,511
  
$
(736
)
$
(94,538
)
$
10,310
  
Cumulative effect of adoption of SFAS
                        
No. 133 (net of deferred taxes)
   —     —     —    
3,570
  
Unrealized gain (loss) on derivative contracts
                        
(net of deferred taxes)
  
(431
)
  
(4,715
)
  
3,372
    
(22,336
)
Unrealized gain (loss) on equity securities
                        
(net of deferred taxes)
  
185
    
(3,781
)
  
3,283
    
(199
)
 
Comprehensive income (loss)
$
9,265
  
$
(9,232
)
$
(87,883
)
$
(8,655
)
 

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     10. The Company has a one-third partnership interest in SP Newsprint Company (SPNC), a domestic newsprint manufacturer which also pays licensing fees to the Company. Summarized financial information for the Company’s investment in SPNC, accounted for by the equity method, follows:

(In thousands) September 29,   December 30,
  2002   2001
 
Current assets $ 91,224   $ 113,916
Noncurrent assets   519,005     529,756
Current liabilities   80,421     80,163
Noncurrent liabilities   264,566     255,579
 
  Quarter Ended   Nine Months Ended
 
 
(In thousands) Sept. 29, Sept. 30, Sept. 29, Sept. 30,
  2002 2001   2002 2001
 
 
Net sales $ 96,103   $ 109,486   $ 286,789   $ 362,776
Gross profit (loss)   (5,758 )   21,441     (977 )   89,300
Net income (loss)   (13,654 )   12,382     (27,326 )   58,563
Company’s equity in net income (loss)   (4,551 )   4,127     (9,133 )   19,226
 
 

     On a combined basis excluding SPNC, in the third quarter of 2002 the Company’s unconsolidated affiliates’ sales were $2 million while the gross loss was $4.4 million; net income was $.6 million for which the Company recognized equity income of $.1 million. In the year-to-date period ended September 29, 2002, the Company’s other unconsolidated affiliates’ sales were $12.1 million while the gross loss was $7.6 million; net loss was $6 million for which the Company recognized a loss of $1.1 million. Current assets, noncurrent assets, current liabilities, and noncurrent liabilities were $7.7 million, $132.8 million, $3.5 million, $88.2 million, respectively, at September 29, 2002.

     11. In August 2001, the Company filed a universal shelf registration for combined public debt or equity securities totaling up to $1.2 billion. The Company’s subsidiaries currently guarantee the debt securities issued from the shelf. 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, and the Guarantor Subsidiaries, together with certain eliminations.

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Table of Contents

Media General, Inc.
Condensed Consolidating Balance Sheets
As of September 29, 2002
(In thousands)

 
 Media General Guarantor               Media General
 
 Corporate Subsidiaries Eliminations   Consolidated
 
 
ASSETS
                          
Current Assets:
                          
Cash and cash equivalents
 $ 5,264   $ 4,934     $ —     $ 10,198  
Accounts receivable, net
   —     97,591     —       97,591  
Inventories
   3     6,100     —       6,103  
Other
   38,785     56,630     (57,213 )     38,202  
 
 
Total current assets
   44,052     165,255     (57,213 )     152,094  
 
 
 
                          
Investments in unconsolidated affiliates
   9,757     88,414     —       98,171  
Investments in and advances to subsidiaries
   1,779,157     742,473     (2,521,630 )     —  
Other assets
   38,801     34,957     —       73,758  
Property, plant and equipment, net
   19,321     354,473     —       373,794  
Excess of cost over fair value of net identifiable assets of acquired businesses, net
   —     832,004     —       832,004  
FCC licenses and other intangibles, net
   —     823,261     —       823,261  
 
 
Total assets
 $ 1,891,088   $ 3,040,837   $ (2,578,843 )   $ 2,353,082  
 
 
 
                          
LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
Current liabilities:
                          
Accounts payable
 $ 10,863   $ 14,386   $ —     $ 25,249  
Accrued expenses and other liabilities
   62,479     87,357     (57,219 )     92,617  
Taxes on income
   —     1,331     —       1,331  
 
 
Total current liabilities
   73,342     103,074     (57,219 )     119,197  
 
 
 
                          
Long-term debt
   672,934     —     —       672,934  
Deferred income taxes
   (49,952 )   404,075     —       354,123  
Other liabilities and deferred credits
   128,260     10,279     —       138,539  
 
                          
Stockholders’ equity
                          
Common stock
   115,850     4,872     (4,872 )     115,850  
Additional paid-in capital
   17,245     2,027,672     (2,027,672 )     17,245  
Accumulated other comprehensive income (loss)
   (16,143 )   1,785     —       (14,358 )
Unearned compensation
   (5,825 )   —     —       (5,825 )
Retained earnings
   955,377     489,080     (489,080 )     955,377  
 
 
Total stockholders’ equity
   1,066,504     2,523,409     (2,521,624 )     1,068,289  
 
 
 
                          
Total liabilities and stockholders’ equity
 $ 1,891,088   $ 3,040,837   $ (2,578,843 )   $ 2,353,082  
 
 

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Media General, Inc.
Condensed Consolidating Balance Sheets
As of December 30, 2001
(In thousands)

  Media General
Corporate
  Guarantor
Subsidiaries
    Eliminations
           Media General
Consolidated
ASSETS                          
Current Assets:                          
  Cash and cash equivalents $ 4,382   $ 4,755   $
 —
     $ 9,137  
  Accounts receivable, net  
 —
     112,431    
 —
       112,431  
  Inventories   1     4,859    
 —
       4,860  
  Other   38,473     58,902     (60,765 )     36,610  
 
   
 
     Total current assets   42,856     180,947     (60,765 )     163,038  
 
   
 
                           
Investments in unconsolidated affiliates   10,401     104,187    
 —
       114,588  
Investments in and advances to subsidiaries   1,985,287     609,248     (2,594,535 )    
 —
  
Other assets   36,676     34,632    
 —
       71,308  
Property, plant and equipment, net   19,896     366,020    
 —
       385,916  
Excess of cost over fair value of net identi-                          
    fiable assets of acquired businesses, net  
 —
     933,957    
 —
       933,957  
FCC licenses and other intangibles, net  
 —
     865,252    
 —
       865,252  
 
   
 
     Total assets $ 2,095,116   $ 3,094,243   $ (2,655,300 )  
$
 2,534,059  
 
   
 
                           
LIABILITIES AND STOCKHOLDERS’ EQUITY                          
Current liabilities:                          
  Accounts payable $ 8,997   $ 10,912   $
 —
     $ 19,909  
  Accrued expenses and other liabilities   61,846     79,513     (60,771 )     80,588  
 
   
 
     Total current liabilities   70,843     90,425     (60,771 )     100,497  
 
   
 
                           
Long-term debt   776,923     739    
 —
       777,662  
Deferred income taxes   (46,561 )   397,415    
 —
       350,854  
Other liabilities and deferred credits   129,365     12,013    
 —
       141,378  
                           
Stockholders’ equity                          
  Common stock   114,883     4,872     (4,872 )     114,883  
  Additional paid-in capital   10,006     2,024,639     (2,024,639 )     10,006  
  Accumulated other comprehensive loss   (20,135 )   (878 )  
 —
       (21,013 )
  Unearned compensation   (6,780 )  
 —
    
 —
       (6,780 )
  Retained earnings   1,066,572     565,018     (565,018 )     1,066,572  
 
   
 
     Total stockholders’
         equity		  
1,164,546 		    2,593,651     (2,594,529 )     1,163,668  
 
   
 
                           
                           
                              
     Total liabilities and stockholders’ equity $ 2,095,116   $ 3,094,243   $ (2,655,300 )   $ 2,534,059  
 
   
 

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Table of Contents

Media General, Inc.
Condensed Consolidating Statements of Operations
Nine Months Ended September 29, 2002
(In thousands)

 
   Media General   Guarantor       Media General
 
     Corporate       Subsidiaries       Eliminations       Consolidated
 
   
 
                              
Revenues
   $ 116,671     $ 690,501     $ (199,728 )   $ 607,444
 
                              
Operating costs:
                              
Production
     —       258,823       —       258,823
Selling, general and administrative
     110,166       292,565       (199,728 )     203,003
Depreciation and amortization
     3,247       46,933       —       50,180
 
  
   
Total operating costs
     113,413       598,321       (199,728 )     512,006
 
  
   
 
                              
Operating income
     3,258       92,180       —       95,438
 
                              
Operating income (expense):
                              
Interest expense
     (36,931 )     (30 )     —       (36,961
)
 
                              
Investment income - unconsolidated affiliates
     (644)       (9,564 )      —       (10,190
)
 
                              
Investment income (loss) - consolidated affiliates
     (75,938 )     —       75,938       —
Other, net
     5,604       (1,419 )     —       4,185
 
  
   
Total other income (expense)
     (107,909 )     (10,995 )     75,938       (42,966
)
 
  
   
 
                              
Income (loss) before income taxes and cumulative effect if change in accounting principle
     (104,651 )     81,185       75,938       52,472
Income tax expense (benefit)
     (10,113 )     30,787       —       20,674
 
  
   
 
                              
Income (loss) before cumulative effect of change in accounting principle
    (94,538 )     50,398       75,938
    31,798
Cumulative effect of change in accounting principle                              
  accounting principle
     —       (126,336 )     —       (126,336
)
 
  
   
Net income (loss)
     (94,538 )      (75,938  )     75,938       (94,538
)
 
                              
Other comprehensive income (net of tax)
     3,993       2,662       —       6,655  
 
  
   
 
Comprehensive income (loss)
   $ (90,545 )   $ (73,276 )   $ 75,938     $ (87,883
)
 
  
   

14

Table of Contents

Media General, Inc.
Condensed Consolidating Statements of Operations
Nine Months Ended September 30, 2001
(In thousands)

 
   Media General   Guarantor       Media General
 
     Corporate       Subsidiaries       Eliminations       Consolidated  
 
   
 
                                
Revenues
   $ 114,784     $ 687,389     $ (204,493 )   $ 597,680  
 
                                
Operating costs:
                                
Production
     —       268,271       —       268,271  
Selling, general and administrative
     113,969       289,089       (204,493 )     198,565  
Depreciation and amortization
     3,191       83,178       —       86,369  
 
  
   
 
Total operating costs
     117,160       640,538       (204,493 )     553,205  
 
  
   
 
                                
Operating income (loss)
     (2,376 )     46,851       —       44,475  
 
                                
Operating income (expense):
                                
Interest expense
     (40,303 )     (69 )     —       (40,372 )
 
                                
Investment income - unconsolidated affiliates
     3,389       17,062       —       20,451  
 
                                
Investment income (loss) - consolidated affiliates
     34,519       —       (34,519 )     —  
Other, net
     (1,918 )     (5,343 )     —       (7,261 )
 
  
   
 
Total other income (expense)
     (4,313 )     11,650       (34,519 )     (27,182 )
 
  
   
 
 
                                
Income (loss) from continuing operations before income taxes
     (6,689 )     58,501       (34,519 )     17,293  
Income tax expense (benefit)
     (16,719 )     23,982       —       7,263  
 
  
   
 
 
                                
Net income (loss) from continuing operations
     10,030       34,519       (34,519 )     10,030  
Gain from discontinued operations (net of tax)
     280       —       —       280  
 
  
   
 
Net income (loss)
     10,310       34,519       (34,519 )     10,310  
 
                                
Other comprehensive income (loss)
                                
(net of tax)
     (18,766 )     (199 )     —       (18,965 )
 
  
   
 
Comprehensive income (loss)
   $ (8,456 )   $ 34,320     $ (34,519 )   $ (8,655 )
 
  
   
 

15

Table of Contents

Media General, Inc.
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 29, 2002
(In thousands)

      Media General
Corporate		     Guarantor
Subsidiaries		       Media General
Consolidated		  
     
     
 
                       
Cash flows from operating activities:                      
  Net cash provided by operating activities   $ 105,041   $ 26,348     $ 131,389  
                       
Cash flows from investing activities:                      
  Capital expenditures     (1,288 )   (24,581 )     (25,869 )
  Purchase of business     (1,124 )   —       (1,124 )
  Other investments     —     (1,509 )     (1,509 )
  Other, net     5,406     26       5,432  
   
 
 
Net cash provided (used) by investing activities     2,994     (26,064 )     (23,070 )
   
   
 
                       
Cash flows from financing activities:                      
  Increase in debt     184,000     —       184,000  
  Repayment of debt     (287,989 )   (105 )     (288,094 )
  Cash dividends paid     (12,486 )   —       (12,486 )
  Other, net     9,322     —       9,322  
   
   
 
Net cash used by financing activities     (107,153 )   (105 )     (107,258 )
   
   
 
                       
Net increase in cash and cash equivalents     882     179       1,061  
  Cash and cash equivalents at beginning of year     4,382     4,755       9,137  
   
   
 
  Cash and cash equivalents at end of period   $ 5,264   $ 4,934     $ 10,198  
   
   
 

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Media General, Inc.
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2001
(In thousands)

      Media General
Corporate		     Guarantor
Subsidiaries		       Media General
Consolidated		  
 
   
 
                       
Cash flows from operating activities:                      
  Net cash provided by operating activities   $ 55,443   $ 35,406     $ 90,849  
                       
Cash flows from investing activities:                      
  Capital expenditures     (7,430 )   (32,226 )     (39,656 )
  Purchase of business     (1,752 )   —       (1,752 )
  Other, net     4,060     (4,677 )     (617 )
   
   
 
Net cash used by investing activities     (5,122 )   (36,903 )     (42,025 )
   
   
 
                       
Cash flows from financing activities:                      
  Increase in debt     1,182,882     —       1,182,882  
  Repayment of debt     (1,213,000 )   (261 )     (1,213,261 )
  Debt issuance costs     (12,048 )   —       (12,048 )
  Stock repurchase     (2,120 )   —       (2,120 )
  Cash dividends paid     (11,702 )   —       (11,702 )
  Other, net     5,044     —       5,044  
   
   
 
Net cash used by financing activities     (50,944 )   (261 )     (51,205 )
   
   
 
                       
Net decrease in cash and cash equivalents     (623 )   (1,758 )     (2,381 )
  Cash and cash equivalents at beginning of year     4,091     6,313       10,404  
   
   
 
  Cash and cash equivalents at end of period   $ 3,468   $ 4,555     $ 8,023  
   
   
 

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

        Media General is an independent, publicly owned communications company situated primarily in the Southeast with interests in newspapers, television stations, interactive media and diversified information services.

        The Company’s fiscal year ends on the last Sunday in December.

RESULTS OF OPERATIONS

        Third quarter and year-to-date results were substantially impacted by the January 2002 adoption of SFAS No. 142, Goodwill and Other Intangible Assets, which established a new accounting standard for goodwill and certain other indefinite-lived intangible assets acquired in a business combination (see Note 3 for a further discussion).  As a result of this standard, in this year’s first quarter the Company incurred a $126.3 million after-tax impairment charge ($5.51 per share, or $5.44 per share - assuming dilution) that was recorded as a cumulative effect of change in accounting principle.  Had this statement been in effect last year and excluding the one-time impairment charge resulting from adoption of the statement, year-over-year comparative results would have risen $1.7 million in the third quarter, but declined $4.1 million in the year to date as shown below:

Impact of SFAS No. 142

    Quarter Ended   Nine Months Ended
   
 
(In thousands)     Sept. 29,     Sept. 30,     Sept. 29,     Sept. 30,
      2002     2001     2002     2001
   
 
                         
Net income (loss)
  
$
9,511
  
$
(736
)
$
(94,538
)
$
10,310
Adjustments:
                        
Nonamortizing goodwill and
                        
intangibles
    
—
    
8,518
    
—
    
25,573
Cumulative effect of change in
                        
accounting principle
    
—
    
—
    
126,336
    
—
   
 
 
 
                         
Income as adjusted
  
$
9,511
  
$
7,782
  
$
31,798
  
$
35,883
   
 
 
 

        Third quarter income, as adjusted above, rose due to a combination of factors.  These included: a $7.6 million (83%) increase in Broadcast operating profits due to robust revenues across all advertising categories (led by Political), a $2.3 million decrease in interest expense due primarily to lower average debt, a $3 million pre-tax gain from the sale of the former WFLA television studio, and the absence of last year’s negative adjustment on the newsprint swap.  However, the benefit of these third quarter occurrences was substantially dampened by the Company’s share of SP Newsprint’s (SPNC) results which fell $8.7 million in the third quarter-- from income of $4.1 million in last year’s third quarter to a loss of $4.6 million in the current quarter.  SPNC struggled in the quarter due to dramatically reduced quarter-over-quarter newsprint selling prices, and to a much lesser degree, increased production costs.

        The $4.1 million year-over-year income decline, as shown in the chart above, was primarily attributable to a $28.3 million drop in the Company’s share of SPNC’s results (from income of $19.2 million in the first nine months of 2001 to a loss of $9.1 million this year) due to depressed year-over-year

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newsprint selling prices.  A $19.5 million (17%) rise in segment operating profits only partially offset the significant decline in SPNC’s results. As in the quarter, the Broadcast Division was the Company’s stellar performer, posting a 57% increase over the prior year to date due to strong revenues in all advertising categories, particularly Political.  Publishing operating profit was down 3% from the year-ago period due primarily to a prior-year $6.1 million one-time gain associated with the formation of the joint-operating agreement (JOA) that was included in the Company’s share of last year’s Denver Post (Denver) results.  Absent this prior-year gain, Publishing results rose 4.1% due to the Division’s continued cost-containment efforts.  Interactive Media performance improved 43% from last year as a loss of $8.7 million was reduced to a loss of $4.9 million due to decreased losses and write-offs asso ciated with its cost and equity investments.

        The Company’s results were significantly influenced by deflated newsprint prices in both the third quarter and first nine months of this year. While lower newsprint prices certainly benefited the Publishing Division, the Company is a net producer of newsprint by virtue of its investment in SPNC.  The Company’s share of SPNC’s annual production is approximately 330,000 tons, which is more than twice the approximate 150,000 ton annual consumption of its newspapers.  Consequently, each $1/ton change in newsprint selling price affects the Company’s net income by approximately $115 thousand.    The following graph illustrates the steady descent of newsprint prices from mid-2001 to mid-2002, with prices leveling out toward the end of this year’s second quarter and starting to rise by the end of the third quarter:

 

 

PUBLISHING

        Operating income for the Publishing Division decreased $.6 million and $2.7 in the third quarter and year to date of 2002 from the comparable 2001 periods; excluding the 2001 one-time gain related to the formation of the Denver JOA, operating income rose $3.4 million (4.1%) in the first nine months of 2002. This was accomplished through cost control measures as revenues were down $2.8 million and $16.3 million in the quarter and year to date, respectively.

        As illustrated by the following chart: Retail and Classified advertising revenues were down in both the third quarter and first nine months of this year; Preprints showed improvement in both periods; and National showed modest improvement in the quarter, but was down slightly in the year to date.  Weak economic conditions produced declines of 2% and 4% in Publishing revenues in the third quarter and first nine months, respectively, as most advertisers remain cautious. Retail was down in most major categories, while Classified struggled due primarily to lower advertising levels in the

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employment category. National revenues showed a small increase in the third quarter, principally on the strength of rebounding telecommunication spending; the year to date was down primarily as a result of weak automotive and telecommunication advertising rooted in the second quarter’s soft performance. Preprint revenues climbed due primarily to improved volumes at the metropolitan newspapers.

 

     Publishing Segment operating expenses decreased $1.5 million and $17.6 million in the third quarter and first nine months of this year from the equivalent 2001 periods. These decreases were driven by reductions of 25% in the quarter and 29% in the year to date in newsprint expense. In the quarter, a $134 per short ton average price decline produced the entire savings, as consumption was essentially level with last year’s quarter; in the year to date, a $141 per short ton average price decline resulted in a $13.6 million price variance and combined with a $1.9 million consumption variance to generate the newsprint expense reduction. Also impacting division-wide operating costs was lower bad debt expense as collection experience was favorable. Cost-containment initiatives put in place during the latter part of the first quarter of 2001, which included hiring freezes and reduced travel and entertainment expenditures, continued to be suc cessful in producing reduced year-over-year expenses.

     In the quarter, results from the Company’s share of The Denver Post improved $.7 million from a loss of $.6 million in 2001’s third quarter to income of $.1 million in this year’s third quarter. Excluding the one-time 2001 gain from the formation of the JOA, the Company’s share of Denver’s results improved $2.1 million, from a loss of $2.7 million in the first nine months of last year to a loss of $.6 million in the current year. In the quarter, a 5% decline in operating expenses (due primarily to a drop in newsprint expenses) combined with a 5% increase in revenues (due in large part to rebounding Retail advertising) to produce the favorable quarter-over-quarter comparative results. In the year to date, an 11% decline in operating expenses (due primarily to a drop in newsprint and marketing expenses) more than offset a 3% reduction in revenue (due to weak Classified and Retail advertising) to generate the improve d year-over-year comparative results.

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BROADCAST

     Broadcast operating income rose $7.6 million (83%) and $18.5 million (57%) in the third quarter and first nine months of this year compared to the equivalent periods of 2001. Revenues increased $10.3 million and $24.5 million while operating expenses rose $2.7 million and $6 million in the quarter and year to date. For comparative purposes, mention of the impact that the September 11 attacks had on the prior-year third quarter and year-to-date period is warranted. Not only were four and one-half days of advertising preempted a year ago in place of around-the-clock national network news coverage, but the situation was further exacerbated when both national and local advertisers canceled advertisements in the aftermath of this event. As a result, the Broadcast Division suffered reduced profits of approximately $3 million in the third quarter and first nine months of 2001.

     The following chart illustrates the Division’s improvement across all categories of advertising. Sizeable increases in Political advertising due to hotly contested gubernatorial, US Senate and state congressional races, also had the effect of constricting available time spots for both Local and National advertising, thereby allowing for reduced discounting as the Division found itself in a favorable supply-demand position. Local advertising increased on the strength of the automotive and services categories, while higher National advertising was driven by the automotive and corporate categories.

     The Broadcast Division’s revenue growth continued to exceed that of the industry, reflecting effective pricing and management of available advertising time, a consolidated and focused national sales representative group, the development of new local advertising initiatives, and higher advertising shares from existing clients (the result of improved ratings). According to the Television Bureau of Advertising (a not-for-profit trade association of America’s broadcast television industry), time sales across the broadcast industry have increased 5.3% year to date as of August 2002 as compared to the equivalent prior-year period; this compares to the Company’s 13.6% increase. National and Local advertising growth for the Company was 21.4% and 9%, respectively, well above the industry’s growth of 9.4% and 2.8%.

     Operating expenses increased $2.7 million and $6 million in the third quarter and first nine months of this year as compared to the equivalent 2001 periods. These increases were primarily

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attributable to an 8.2% and a 5.4% rise in the quarter and year to date in employee compensation and benefit costs due in large part to higher commissions and incentive bonuses associated with increased time sales, as well as increased health care costs. The Division continues to benefit from cost-containment initiatives, which included a hiring freeze and reduced travel and entertainment that were implemented across the Division in the latter portion of last year’s first quarter.

INTERACTIVE MEDIA

     Interactive Media results improved $.4 million from a loss of $2.9 million in the third quarter of 2001 to a loss of $2.5 million in the equivalent quarter of 2002; results in the year to date improved $3.7 million from a loss of $8.6 million in the first nine months of 2001 to a reduced loss of $4.9 million in the first nine months of 2002. This progress was primarily the result of $1 million and $4.7 million of reduced losses and write-offs from the Company’s share of its equity and cost investments in the quarter and year to date. A $.7 million (in the quarter) and $1.6 million (in the year to date) increase in revenues from wholly owned operations was more than offset by a $1.3 million and $2.6 million rise in operating expenses as this new Division incurred costs associated with the initial staffing of key positions which did not exist in the prior-year equivalent periods. Increased revenues were driven by Classified advertising growth as classified up-sell arrangements have been adopted in most markets across the Division. The up-sell model generates an incremental revenue stream for the Division associated with the online posting of Classified advertising from newspapers.

     The Interactive Media Division has continued to grow and expand its operations since the Division’s inception in January of 2001. In June of this year, the Company acquired Boxerjam, a company which provides multiplayer online interactive games. This investment, while not material, should enhance interactive content as well as establish revenue streams from subscriptions and paid content. The Division remains focused on new product development, securing and retaining high-quality personnel, invigorating revenues through sales initiatives, and enhancing content and design across all the Company’s online enterprises.

INTANGIBLES AMORTIZATION EXPENSE

     Acquisition intangibles amortization expense decreased $12.1 million and $36.5 million in the third quarter and first nine months of 2002. This decrease was solely the result of the adoption of SFAS No. 142, Goodwill and Other Intangible Assets. The new standard requires continued recognition of goodwill and other intangibles as assets, but amortization for indefinite-lived intangible assets ceased upon adoption of the standard at the beginning of 2002. See Note 3 for a more detailed discussion.

INTEREST EXPENSE

     Interest expense decreased $2.3 million and $3.4 million in the quarter and year to date from the equivalent year-ago periods due to declines of $107 million and $74 million in average debt outstanding. The favorable impact of the lower debt levels was further enhanced by a slight decrease in the effective interest rate in the quarter, but partially mitigated by a modest increase in the effective interest rate in the year to date.

     The Company uses interest rate swaps (where it pays a fixed rate and receives a floating rate) as part of an overall strategy to manage interest cost and risk associated with variable interest rates, primarily short-term changes in LIBOR, not to trade such instruments for profit or loss. During the first quarter of 2002, one of the Company’s swaps with a notional amount of $100 million matured. At the

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end of the third quarter, the Company had four interest rate swap agreements (not including four forward-starting interest rate swaps which were entered into during the third quarter) with notional amounts totaling $275 million and maturities in February and March of 2003. These interest rate swaps are cash flow hedges that effectively convert the covered portion of the Company’s variable rate debt to fixed rate debt with a weighted average interest rate approximating 7.2%. During the third quarter of this year, the Company entered into four forward-starting fixed interest rate swap agreements with notional amounts of $50 million each, which will become effective as existing swaps expire in February and March of 2003. These new swaps will continue to convert $200 million of variable rate borrowing to fixed rate and, when they become effective, will result in savings of approximately 275 basis points from current swapped rates on $200 million of debt.

LIQUIDITY

     Net cash generated from operating activities of $131.4 million in the first nine months of 2002 was the primary source of funds for $25.9 million of capital expenditures, for $12.5 million of payment of dividends to stockholders, and for nearly $105 million for debt reduction.

     During 2001, the Company replaced its $1.2 billion revolving credit facility with a similar five-year $1 billion facility together with a universal shelf registration which provides for the issuance of combined public debt or equity totaling $1.2 billion (together the “Facilities”). The Company has issued $200 million in senior notes under the shelf registration (see Note 11). The Facilities carry cross-default provisions and covenants including an interest coverage ratio and a leverage ratio. A significant drop in the Company’s EBITDA (a measure of cash earnings as defined in the agreements for the Facilities) or a large increase in the Company’s debt level could make meeting the leverage ratio challenging. The Company was in compliance with all covenants at quarter end and expects to remain in compliance with them going forward. The Company believes that internally generated funds provided by operations together with the new Facilities are more than adequate to finance projected capital expenditures, dividends to stockholders and working capital needs. Additionally, the Company believes that the financial flexibility afforded by the Facilities will allow it to react quickly to other strategic opportunities, including those that may arise if certain FCC regulations (see below) are eliminated or modified.

CURRENT DEVELOPMENTS

     In the latter half of 2001, the FCC initiated proceedings to review and consider revisions to its rule barring common ownership of a broadcast television station and daily newspaper in the same market. More recently, in February 2002, a federal appeals court struck down an FCC rule prohibiting a company from owning a cable franchise and a broadcast television station in the same market. Additionally, it ordered the agency to justify or rewrite another rule barring a television network from owning stations whose aggregate audience covers more than 35% of the nation’s homes. In April 2002, the same court ordered the FCC to justify its rule that bars companies from controlling more than one TV station in a market (the “duopoly rule”). In September 2002, the FCC initiated a comprehensive review of media ownership regulations. While no decisions have been made, the Commission has stated that it expects to rule on newspaper/broadcast cross-ownership in the spring of 2003, and it is anticipated that the rule will be modified or eliminated.

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OUTLOOK

     Advertisers have generally remained cautious throughout 2002 and our Publishing Division revenues are expected to continue to reflect this apprehension into the fourth quarter. We fully anticipate that our Broadcast Division will continue to meaningfully exceed its prior-year levels with the return of advertisers throughout the industry and the overwhelmingly positive impact of political advertising. Lower year-over-year newsprint prices are expected to benefit the Publishing Division’s results; however, the Company also anticipates that these lower newsprint prices will adversely affect the profitability of its investment in SPNC and thus will unfavorably impact the Company’s fourth quarter bottom line. Additionally, while the Interactive Media Division expects to produce strong year-over-year revenue growth as well as growth in traffic to its online enterprises, the remainder of 2002 will likely reflect the expense of building and expanding that Division.

     The Company believes it is well positioned to take advantage of new opportunities that may arise, including those that would ensue if the FCC modifies or eliminates its newspaper/broadcast cross-ownership prohibition.

* * * * * *

     Certain statements in this Form 10-Q that are not historical facts are “forward-looking” statements, as that term is defined by the federal securities laws. Forward-looking statements include statements related to the impact of the Internet, the Company’s expectations regarding newsprint prices, advertising levels and broadcast ratings. Forward-looking statements, including those which use words such as the Company “believes,” “anticipates,” “expects,” “estimates,” “intends” and similar statements, are made as of the date of this report and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements.

     Some significant factors that could affect actual results include: changes in advertising demand, the availability and pricing of newsprint, changes in interest rates, regulatory rulings and the effects of acquisitions, investments or dispositions on the Company’s results of operations and its financial condition.

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Item 4.
                             
Controls and Procedures

     Within 90 days of the filing of this Form 10-Q, the Company’s management, including the chief executive officer and chief financial officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the chief executive officer and chief financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the date of the evaluation. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.

PART II. OTHER INFORMATION

Item 6.
  
Exhibits and Reports on Form 8-K
     
(a) Exhibits
     
  99.1 Chief Executive Officer Certification
  99.2 Chief Financial Officer Certification
     
(b) Reports on Form 8-K
     
  No reports on Form 8-K were filed by the Company during the quarter ended September 29, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    MEDIA GENERAL, INC.
     
     
DATE: November 12, 2002 /s/ J. Stewart Bryan III
    J. Stewart Bryan III, Chairman and
    Chief Executive Officer
     
     
DATE: November 12, 2002 /s/ Marshall N. Morton
    Marshall N. Morton
    Vice Chairman and Chief Financial Officer

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CERTIFICATIONS

I, J. Stewart Bryan III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Media General, Inc.;
     
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
     
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
     
  a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
  b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "EVALUATION DATE"); and
     
  c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
     
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
     
  a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     
  b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
     
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date: November 12, 2002 /s/ J. Stewart Bryan III
    J. Stewart Bryan III, Chairman and
    Chief Executive Officer

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I, Marshall N. Morton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Media General, Inc.;  
     
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;  
     
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;  
     
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:  
     
  a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;  
     
  b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "EVALUATION DATE"); and  
     
  c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;  
     
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):  
     
  a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and  
     
  b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and  
   
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.  
     
Date: November 12, 2002 /s/ Marshall N. Morton
    Marshall N. Morton
    Vice Chairman & Chief Financial Officer

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