Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Media General Earnings Conference Call. My name is Anne, and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Lou Anne Nabhan, please proceed.

Thank you, Anne, and good morning, everyone. Welcome to Media General's conference call and webcast. Earlier today, we announced second quarter 2012 results. The press release has been posted on our website. A transcript of today's comments will be posted immediately following the call and a replay will also be available. Our presentation today does contain forward-looking statements which are subject to various risks and uncertainties. They should be understood in the context of the company's publicly available reports filed with the SEC, including the section on risk factors. Media General's future performance could differ materially from its current expectations. Our speakers today are Marshall Morton, President and Chief Executive Officer; and Jim Woodward, Vice President, Finance and Chief Financial Officer. Let me now turn the presentation over to Marshall.

Thank you, Lou Anne, and good morning, everyone. The second quarter 2012 was a monumental change for Media General as we transformed the company into a pure-play television broadcaster. We also refinanced our bank debt, which have been due in March of 2013 and extended its maturity to 2020. On May 17, we announced the new financing arrangement with Berkshire Hathaway, which provided Media General with a $400 million term loan and a $45 million revolving credit line. On May 24, we closed on the new financing. The funding on the new term loan and an initial drawing of the revolving credit facility resulted in cash proceeds to the company of approximately $393 million. These proceeds were immediately used to fully repay all amounts outstanding under the existing credit facility, pay fees and expenses related to the financing and fund working capital requirements. It probably goes without saying that we're extremely pleased to enter into a new financing partnership with Berkshire Hathaway, a highly respected organization in everyone's book. Our new term loan addresses our long-term capital needs and provides significant financial and operating flexibility. In conjunction with the financing, Berkshire Hathaway received penny warrants for approximately 4.6 million Class A shares. We're pleased that they will also be a major equity shareholder. Also on May 17, we announced the sale of virtually all of our newspapers to a subsidiary of Berkshire Hathaway, World Media Enterprises, for $142 million in cash, subject to normal adjustments. We completed this sale on June 25. When we began exploring the sale of our newspapers, we initially expected multiple transactions. To have achieved the single significant transaction so soon accelerated our transformation to a pure-play TV broadcaster and freed up significant management time that would otherwise have been devoted to the completion of several…

Thank you, Marshall. Corporate expense was about even with last year and did not reflect any of the 35% to 40% reduction we will be implementing in the third and fourth quarters. Total interest expense in the second quarter was $21.7 million, of which $3.4 million was noncash. The noncash interest expense reflected discounts related to the original issue, warrants and certain fees that are amortized over the life of the loan. Debt modification and extinguishment costs were $7.7 million, primarily due to the write-off of unamortized fees related to the former bank arrangement. We recorded an after-tax loss related to the divestiture of discontinued operations of $132 million in the second quarter. Noncash tax expense related to continuing operations was $3.4 million compared with $2.6 million last year, and was related to the company's naked tax credit issue. Due to the sale of our discontinued operations, we expect our noncash tax expense to be approximately $6.8 million for the last 6 months of the year, which is down from $11.6 million as originally projected. After completing the sale of the newspapers, debt refinancing and restructuring charges, we expect our net operating loss carryforward for tax purposes to be approximately $225 million to $250 million at the end of 2012. This NOL will be available to offset future taxable income for up to 20 years. Therefore, we do not anticipate paying any significant cash taxes for the foreseeable future and we'll have a 0 effective tax rate for cash flow purposes. Capital spending in the second quarter was $2.7 million compared with $6 million last year and both periods include amounts for continuing and discontinued operations. For our Broadcast operations only, we expect capital spending for the full year will be $15 million. Debt at the end of the second…

Thanks, Jim. Let me provide our outlook on key revenue opportunities in the third quarter. The Summer Olympics in London will benefit our 8 NBC stations. We expect to be ahead of the $12.5 million we generated from the 2008 summer games. This performance is particularly strong when you consider that the 4 stations that we purchased in 2006 from NBC Universal have the benefit of advertiser commitments that were tied to former network-negotiated packages, which reached at a normal conclusion after the 2008 games. These packages were worth about $1.5 million, and we've made up that amount with other business. In addition to revenue opportunity, we'll capitalize on ways to retain the new audiences the Olympics attract to our stations, including the use of mobile and social media strategies. Broadcast pacings for the third quarter, including Political, are approximately 30% ahead of last year. Core pacings, excluding Political, are approximately 20% ahead of last year. The key categories driving the core growth are auto, entertainment, financial, media, professional services, grocery and travel. The Republican convention in Tampa will provide us with unique opportunities for news coverage. We're providing event apps for mobile devices that help visitors find their way around town and that assist people with convention matters and logistics. We'll generate revenues on these apps through advertising sponsorships. Additional revenues will be generated by providing facilities and services to national and international organizations also covering the event. The campaigns are placing greater focus on targeting voters through digital advertising. We're generating digital revenues on our news apps and on our websites. These sales showcase the value of our markets and brands. We'll continue to be positioned to garner a strong share of political campaign digital advertising revenues. Longer term, we'll be pushing hard on growing digital audience and…

[Operator Instructions] And our first question comes from the line of Barry Lucas with Gabelli & Company.

Just a couple of housekeeping questions and then maybe something more strategic. Jim, you went through the debt post the refinancing. What is the cash balance or is that $580 million net?

That $580 million does not include the cash balance. And the cash at the end of the quarter was -- let me flip to my balance sheet.

Of course that's going to be pre-paydown.

Yes, that's going to be as a pre-paydowns. The cash is -- it was $16 million -- $17 million.

We can give you a more recent cash number, Barry, when we have it.

Okay. Then maybe while Jim is looking, the pension contribution is reduced and I expect that that's probably a result of the legislation that was enacted, or maybe you could just touch base on how that worked for you and what the ongoing cost is going to be for the unfunded. Any color you could give there would be helpful, Marshall.

Jim can give some added color. I'll say that $13 million does not reflect what we think will be a reduction in required funding. That law has just passed but the rates aren't completely promulgated yet, and we're talking with Mercer about what the number will be. So it will be something lower than the $13 million we mentioned. But at the moment, it's the most current number we've got. Jim, you have...

No, that's accurate. And Barry, the cash balance, we monitor that daily, the current cash balance is about $30 million.

Great, okay. And then more broadly, Marshall, you gave a great description of the company and the markets and position as a television broadcaster. I think there's some speculation that Newport or whatever the old clear channel stations are up for sale. Where do you fit in that orbit, buyer, seller? Where can Media General be in 3, 4, 5 years?

I don't see us a seller right now. Maybe as an exchanger if we find a way to step up markets or tighten up our focus in some way that's particularly progressive to us. We are managing a station for another company in one market and like that a lot. It's a good way to extend our reach in the marketplace particularly with respect to news and sales power without added capital. And I also see us pushing hard on the digital front where it doesn't take bricks and mortar to gain new market share. On buying stations, that's probably not going to happen very near term without something special accompanying it just because we'd rather get our debt profile back in shape as fast as we can.

And our next question comes from the line of Edward Atorino with Benchmark.

I get a lot of calls about television and what's strong and what's not strong. And so if you mind sort of talking about what are the -- beside auto, any other categories stand out as being strong or weak?

Of course, political right now is dominating the landscape in such a huge way. And the Super PACs and PACs too are being particularly assertive on a punch back kind of basis. And as I've said in my written remarks, it's a bit difficult to forecast some of these things because frankly you don't know what one candidate is going to say from one day to the next and what that's going to generate in terms of the punch-back.

Are you seeing any crowding out? As that -- between -- you're exactly, right between -- yes, but that -- there's a quick debate among analysts whether there is crowding out or not. I'm of the theory that there is, having been around forever. And other analysts just think business sucks. It's a little bit of a different point of view.

I don't -- well, we're not -- there's some crowding out, but our core business is up too. And so you got the 2 going in the right direction. We have added new shows in most of our markets within the last year, year-plus. We've added new shows in anticipation of the need for more inventory that's relevant to a political advertiser. That's benefited us, and it's not always the place where the grocery advertiser or the auto advertiser wants to be. So maybe we've helped that a little bit. Nonetheless, there's some crowding out in some of our markets.

It's hard to put a number on it. Anyway, back to the categories. Auto, we know, is strong. Anything weak or strong that you figure as noteworthy?

I guess the noteworthy thing for me is that it's pretty evenly spread. There's not a -- auto is strong and it's improvement finishing over prior year and home improvement is up...

Telecommunications is soft.

Telecommunications soft. Medical is up.

Furniture is down.

And furniture is down.

I know there are some ups and some sounds. I mean we're pretty happy with pacings obviously. But what we really like, I mean, the things we're really seeing that are growing, home improvement's helpful in areas which talk to housing. I mean, there's others, some core stuff that's generating some decent strength.

Are the Olympics -- presold the Olympics yet?

Yes.

And so you're going to get -- that's a big number, what was it?

Well, it's $12.5 million at the last Summer Olympics, $12.5 million. And we're doing -- we expect to report numbers better than that.

Yes, I would think so. I would think so. Regarding the digital. You kept some and the rest went with the newspapers, I guess.

The digital side was supported by the newspaper, the digital side went with the newspaper, because content is really the main draw that brings people there. One of the interesting things that we found as we've got more and more into the broadcast realm though, is that the mobile user, the mobile searcher for info, has a bias toward the broadcast website in his community to get his information. And I don't know that I can give you all the psychology of that. Some of it has to do with the video, some of it has to do with the very frequent updating mentality that resides in a broadcast operation newsroom. But as I mentioned in some of our numbers there, we're seeing big strength from the mobile user, and it's sort of year-to-year the same from the desktop user.

Really? So mobile is happening?

Oh, yes. And we're not talking about mobile broadcast so much as mobile info searching.

Oh, okay. Not much in the mobile broadcast side.

We've got 4 markets where we're doing mobile DTV. And that's a market that will continue to grow. And we're going to continue to devote ourselves to it as most major broadcasters are.

Ed, one more thing. When we were describing the categories a bit ago, it was targeted in the half of the second quarter. But the pacings for the third quarter, which are against prior year, we're pacing ahead of prior year in all categories.

Really?

E Yes.

Ex-Political?

Ex-Political, yes, we are. Because we were just -- the other was how we've kind of finished the quarter or how we did finish the quarter. But our pacings are ahead of prior year in all categories.

The core pacings, they're up 20%. That core pacings would be ex-Political, up 20% from last year.

20%?

Yes.

Wow, that's amazing.

Yes. Well, we got the right stations and we've got audiences that advertiser wants.

Add I would add to that, too. The sales training and the sale pressure that we have uniformly put into our business will pay dividends, especially as demand rises.

And our next question comes from the line of Kevin Cohen with Imperial Capital.

I guess first on the corporate expense front, the reductions there, should that be fully reflected by the end of the year? Did I hear that correctly, the sort of implicit $12.5 million of cost savings?

You did hear that right. And that's -- we're saying the annual run rate before by the end of the year will be -- will reflect all of that.

That's great. And then I guess in terms of the Tampa Tribune, while I know the company doesn't necessarily have any color to share in terms of the timing of the proceeds amount, are you able to share the run rate EBITDA of that entity in the second quarter?

We never put that out to my knowledge, Kevin. No, we never put that out.

Suffice it to say that it's still EBITDA-negative or is it becoming less EBITDA-negative, but still EBITDA-negative, or anything you could share just even in that regard?

Well, we could say that the Tampa market is improving. And you'll hear that from everybody from Chamber of Commerce to the governor down there, and that's true. And we are seeing it in all sorts of elements we're participating completely in that kind of improvement.

Great. And then I guess in terms of the debt, sort of a housekeeping item, I was just trying to bridge to the $580 million number, which I guess the press release said was a current number. Was that subsequent to quarter end? And I was just trying to bridge to that given there's $300 million of bonds and then implicitly about $346 million on the term loan, and there's nothing drawn on the revolver, if I heard that correctly. So I thought there might have been a delta of about $66 million in terms of the total debt of $580 million versus the $646 million that I add those 2 up to be, can you just help me clarify that?

Well, the $54 million was after close, after period close, so the balance sheet doesn't reflect that to $54 million paydown. And that the reconciliation of our debt would take us into a long and lengthy accounting lesson, which we're happy to follow up with you on. But the $300 million of bonds, for example, is not something that's on the balance sheet because you amortize that discount over time. But I think we can help you with the recon with a follow-up phone call.

So you're incorporating the original issue discount taken on the term loan, is that...

Yes. And that's the accounting rules. That's what's posted on the balance sheet, yes.

Right. But in terms of the pacing on the debt outstanding, just to be perfectly clear, it's $346 million face amount, i.e. the original $400 million less the $54 million paid down at par and then $300 million of bonds, and there's nothing on the revolver?

That's correct.

Okay, perfect. That's what I was looking for. And then lastly, in terms of the political guidance, any further potential upside to that, or do you feel you've got enough visibility to say that that's probably kind of where it shakes out at this point?

We don't have enough visibility to say that's where it shakes out. We feel good about the $50 million number I gave you. And remember, we started out, what, thinking $38 million to $40 million before the year started. And it is a way of -- we demonstrated in the first quarter an ability to pull in more than we've anticipated, and then the campaign is heated up since then, campaigns have heated up since then. And in our case, we've got a good senate race going on in Virginia as an example. North Carolina had not expected a thing with the governor not deciding to succeed herself or try to succeed herself. The Massachusetts senate race obviously speaks for itself when Barney Frank retired. So the things that have happened that if all played our way, down in Florida, Bill Nelson, Senator Nelson, has got a fight on his hands for his senate seat that wasn't really anticipated early on. All of these things are adding pluses to our political landscape. That accounts for some of the difference between our original $40 million and our current $50 million. And based on the money that they're raising, my guess is that $50 million is pretty solid.

And then last, I guess, I know the company in the past has spoken about potential duopoly opportunities, being of interest in the broadcasting arena, I guess. Where do you see the company's sort of positioned in terms of if there is likely industry consolidation to occur? Does a company have a role in that directly or perhaps indirectly watching from the sidelines? And are all the stations that you guys have at this point core in your view?

We're always open to the idea of consolidation. I think that makes sense. And so duopoly is a great way to get started there. Another thing is third-party services, which we did a lot of as publishers. And in the broadcast area, we do it internally, but we haven't done it so much outside other than the example I gave you in Augusta, Georgia. But we like the idea of centralized broadcast operations. For example, centralized traffic, both of which we do very effectively. Cost savings and quality increases are included there. Graphics, we do graphics for all of our stations centrally, again better quality, lower costs. And so we're looking at ways to spread that into third-party work and also to do more in the duopoly area.

And your next question comes from the line of Andrew Finkelstein with Barclays.

It's clearly a huge achievement on all the transactions you've completed to date, but just looking at now the fixed-charge base of the company in terms of interest, pensions, which could come down a bit and CapEx, and I was wondering how you were thinking of about the fixed-charge base particularly in an odd year when the political and the Olympics go away. It looks like it will be a little tighter to cash flow in the odd years.

It is tighter to cash flow in the odd years. We've done a good job over the years, not during the recession, but, say, prior to 2008, of filling a lot of the political and Olympics dollars with added products and new revenue streams. We're already working on that. That's a piece of offset. But I mean, we're not going to quarrel with you that in the TV business piece, particularly with 8 NBC stations which have such as an Olympic impact -- Olympics impact, that there is the odd even year deal. And we -- you work -- we worked through those years to make sure that we've got adequate ramp to go from one to the next.

Right. And so with the new interest rate on the credit agreement in particular, you're comfortable with the company's position as you look into '13.

Yes.

And our next question comes from the line of Bishop Cheen with Wells Fargo.

So I've got some housekeeping, so we can all understand the story going forward, because it's a whole different story, and be on the same page with you. So let me just make this quick. The media cash flow versus the EBITDA, you mentioned $30 million of Broadcast cash flow. The math, which is not obvious, is you've just added back the corporate expense shown in your regional summary.

To get to the Broadcast cash flow?

Yes. I'm just trying to get to the math.

You add back the -- yes, the corporate D&A to get to that, and subtract our ad services revenues.

Okay. So look, let me just take Q2. There's $8.5 million of corporate expense. If I add that back to the stated EBITDA, I can get rounded to $30 million of -- to Broadcast cash flow. Is that basically what you're talking about?

Yes.

Okay. All right, that would be helpful. I noticed in the 8-K that you filed June 25, for the pro forma for the full year, we don't have that. And if you have restated a definite pro forma of EBITDA or Broadcast cash flow for fiscal year 2011, I haven't seen it. I've got all the details of the revenue except -- not the important segments that we track, like local, national, political, retrans. I just have a lot of regional stuff. So if you have that, I can go over that with you offline or if you can direct me to where I might find that, it would be helpful.

We'll do that offline.

Okay. All right, moving along. To the $30 million of Broadcast cash flow, that is just the TV segment or does that also include your digital line item, the non-TV segment digital, digital media?

We took out ad services out of that. So that does not include digital revenues that are not related to the Broadcast [indiscernible].

Right. I guess what I'm looking at is in the cash flow stuff, the total cash flow and the total EBITDA, we really can't -- we don't have the numbers to figure out what the digital media's contribution is to that, do we? We just have digital media's revenue.

No you don't.

Okay, all right. The Political, is that when you talk about $50 million, is that a net or a gross number you're talking about?

You mean that of agency fees?

Well, there's dollars and then there's kind of the net dollars to match the net ad revenue. And I'm wondering, when you talk about $50 million, if you were thinking in terms of the gross dollars before commissions, et cetera.

Yes. It is gross.

Yes.

Okay, all right. And then in your pacings, on the core, 20%, is that just the national and local advertising or do you have retrans included in those pacings as well?

It's just national and local.

Okay. Moving over to dilution, the 4.6 million Berkshire penny warrants, that is not shown currently in the average, weighted average outstanding shares in the press release. Is that correct?

That is correct.

All right. And then I think you went over what your expectations are for your cash items of the interest $65 million, $15 million CapEx, roughly $13 million on pension for 2012. If we're trying to do 2013, is that a good number for us to plug in for 2013? Or might things change a whole lot in 2013 in terms of your pension payments?

I think if you're just doing the modeling, that's as good as any number you're going to have now. I do expect there's numbers to change with the legislation that was recently passed. And that's -- the mechanics of that are analyzed and firmed up by Mercer. But we do expect a debt legislation to have a positive, meaning less cash contributions going into the pension plan, impact on us.

Okay, this is great. Only 2 more questions. One on the balance sheet. I heard a lot of moving parts. Tell me if I have this right. The $54 million payment post June 30 would bring the secured bank debt down to $292 million before discount. Roughly $300 million of bonds would make it $592 million. And if I put a $12 million roughly discount in here, for the OID, I could get back to your $580 million balance sheet debt. Am I in the right ballpark when I do it that way?

I think verifying your math over a conference call is a little powerless for us, Bishop. If you just either fax that to us or give us a call afterwards, we'll walk through that.

Okay, that will be helpful because I knowing there are moving parts. And then the last piece going forward is Tampa. I know that you're doing everything you can to land Tampa safely and advantageously to Media General. In the meantime, you need to do the cash support for Tampa. So as we go through the quarters to come, would that support then be reflected more in the cash balance that you show? I mean, do you need to support Tampa and the money has got to come from some place?

Right. Yes, it would. If Tampa is -- theoretically, if Tampa's cash flow-negative, then that's going to come out of the operating cash flow from other places.

Okay. And that won't be reflected anywhere except maybe in the details. I don't know how you're going to show discontinued operations.

Well, it's held as a discontinued operation or an operation held for sale, so it's in a category of its own.

Right. All I'm trying to do is just -- as we model forward, just any guesstimates about how it would impact your cash balance at any particular quarter. That's all. I would go over that with you offline as well.

Okay, that would be fine.

[Operator Instructions] Ladies and gentlemen, with no further questions, this concludes today's question-and-answer session. I would now like to turn the call back to Mr. Marshall Morton for closing remarks.

Thanks, Anne, and thank you, all for joining us for the call. The caliber of questions today was great and gave us a chance to expand on what we're talking about. Never hesitate to call us of course if you've got questions going forward. We feel good, obviously, about the platform we're standing on today as broadcasters. I think the marketplace is in the mode and mood of wanting information on its own timetable. We can provide that effectively as a broadcaster. We've done it for years and now we can focus on that in its entirety. The landscape is changing. And as we mentioned in the course of the conversation, we learned a pretty deep lesson as publishers and that we have to stay in tune with the very changing consumer and changing marketplace. I think technology and our understanding of the markets give us the ability to do that. And so we look forward to talking with you in future sessions about what we're doing in that area. Thanks again, have a good day.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.