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Executives

Marshall N. Morton – Chief Executive Officer, President

John A. Schauss – Chief Financial Officer

O. Reid Ashe Jr. – Chief Operating Officer

Lou Anne Nabhan

Analysts

Edward Atorino – The Benchmark Company

Barry Lucas - Gabellie & Company

[Jay Greer] – Miramar Capital

Ken Silver – Royal Bank of Scotland

[Jeff Begen] – [Milwaukie Private Wealth]

Michael Cash - Three Sigma Value

[Carlos Riason] – LCG

Dan [Bicarri] – O’Connor.

Media General, Inc. (MEG) Q3 2008 Earnings Call October 16, 2008 11:00 AM ET

Operator

Welcome to the Q3 2008 Media General earnings conference call. (Operator instructions). I would now like to turn the call over the Lou Anne Nabhan, Vice President.

Lou Anne Nabhan

Good morning everyone. Welcome to our conference, which is also being webcast. Earlier today as I hope you’ve seen, we announced our third quarter 2008 results and out September revenues. Both press releases have been posted on our website and the comments from today 's call will also be posted after we finish.

Today’s presentation does contain forward-looking statements which are subject to various risks and uncertainties. It should be understood in the context of the company's publically available reports filed with SEC. Our future performance could differ materially from current expectations.

Our speakers today are Marshall N. Morton, President and Chief Executive Officer, Reid Ashe, Executive Vice President and Chief Operating Office, and John Schauss, Vice President Finance and Chief Financial Officer. Let me now turn the presentation over to Marshall.

Marshall N. Morton

Thank you, Lou Ann. Good morning everyone. For the third quarter, we reported earnings from continuing operations of $5.8 million or $0.26 per diluted share a $4.1 million increase from the prior year. The increase came mainly from improved broadcast and interactive media profitability, lower interest expense and the absence this year of SP Newsprint related operating losses. Broadcast division results reflected the benefit of strong Olympics and political advertising.

Interactive media division results reflected an excellent performance by our new online coupon and shopping business, DealTaker.com as well as the absence of last year’s investment write down. Significantly lower publishing process constrained the overall increase.

Included in our third quarter results was the reversal of profit sharing expense that had been accrued earlier in the course of 2008. The reversal totaled approximately $5 million prêt-ax and was spread across all three operating segments and corporate expense. Based on forecasted results, we do not anticipate paying performance-related incentive compensation for 2008 either.

Total operating costs for the third quarter decreased 9.5% compared with the prior year, reflecting the benefit of the aggressive actions we have taken to reduce our work force and cut other costs. We also had $2 million more of fixed asset gains this year than we did last year.

Since the beginning of 2007, we have reduced FTEs by approximately 750, removing approximately $40 million of annualized costs. We saw some savings in 2007 and expect to net about 40% of that of that amount for the full year 2008. We’ll benefit fully from these actions in 2009.

Total company revenues for the third quarter of $194 million were down 11% from the same period last year, mostly the result of decreased revenues in our publishing segment. In our broadcast segment, strong summer Olympics and political advertising revenues in the third quarter mostly offset the impact of weak transactional business especially on the national side.

Total broadcast revenues were down 1.5%. Summer Olympics advertising on our eight NBC stations generated revenues of just under $13 million. Some anticipated advertising packages were not played and our stations aggressively sold Olympics packages to local advertisers.

Political advertising revenues in the third quarter totaled $7.5 million. These revenues mostly came from robust Presidential campaign and issue spending in Florida, Ohio, North Carolina, Virginia, and Mississippi. On the state level, our markets have eight active Senate races. The most intense battle should be for Elizabeth Dole's seat in North Carolina, Trent Lott’s recently opened seat in Mississippi, and the seat being vacated by John Warner in Virginia. I will now ask Reid to provide more details on the performance of our three operating divisions in the quarter.

O. Reid Ashe Jr.

Thanks, Marshall. For the third quarter, publishing division profit was $10.3 million compared with $22 million a year ago. The decrease was chiefly due to an 18% decline in total revenues partially offset by an 11% decline in expenses. Essentially all newspapers experienced revenue declines in the quarter. The largest shortfall as expected was in our Florida markets where revenues were down 28% from last year. Revenue declines in other markets included Richmond down 18%, Winston Salem down 10% and the community newspaper group as a whole down 12%. Classified advertising revenue decreased 33% in the quarter.

The largest shortfall occurred in Florida followed by Richmond. Of the three Metro markets combined, employment revenues were down 47%, real estate revenues declined 46% and automotive revenues decreased 43%. Retail revenue decreased 13% reflecting weakness in several categories especially department stores and home furnishings. National revenue declined 20% mainly reflecting lower spending by telecommunications advertisers.

Circulation revenue in the quarter reversed the downward trend and was even with last year owing to increases in home delivery and single copy prices and a decrease in discount programs.

Publishing expenses in the quarter excluding severance in both years decreased 10%. Salaries expense was down 11% from last year excluding severance. FTEs for the quarter relative to last year decreased by more than 500 were 12.5%. Other large expense savings were in benefits including profit sharing and other departmental expenses.

Newsprint expense declined 4% as a result of reduced consumption partially offset by higher average prices. Consumption decreased by 5,270 tons or 21% due to the impact of lower business volume plus the benefit of an existent conservation effort. The price per short ton increased by $117 or 22% in the quarter, resulting in an unfavorable price variance of $2.3 million.

Our newspapers continue to significantly reduce newsprint consumption. Many have redesigned or combined sections and have illuminated less essential content. Four of our community print sites representing four community dailies and a number of weeklies, have trimmed their page width to 11 inches. All of our other newspapers have scheduled to follow with reduction in 2009.

For 2008, we expect to cut newsprint expense 9% despite a 15% increase in price.

Turning now to the broadcast division, profits of nearly $18 million were 25% ahead of last year’s third quarter. Local advertising revenues were close to the prior year level while national revenues were down 20% due in large part to lower spending by automotive and telecommunications advertising.

Media General’s time sales performance has exceeded that of the television industry year-to-date. According to the television bureau of advertising’s monthly group survey through August, that is the latest reporting period, industry time sales decreased 4.3% compared with Media General’s 2.8% decline.

Broadcast expenses in the third quarter decreased by 7%. Reduced salaries and benefits combined with lower cost of goods sold at our studio design and equipment subsidiary and other cost containment efforts were combined to produce the savings.

Interactive media division while cash flow positive in the quarter reported a small loss of $336,000. This compared with a $1 million loss in the same period last year not counting a $2.3 million write down of an Internet investment last year.

DealTaker.com, our new coupon and shopping site was the largest component of the improvement. Total interactive revenues increased 9% compared with last year. Local or online advertising was 29% ahead of last year while national declined 11%. Our Yahoo partnership helped to mitigate a decline in online-classified advertising, which was down only 12%.

Operating expenses were virtually unchanged from the same period a year ago. We continue to move aggressively to grow our online audience and revenues. Continuous news initiative that we launched a year ago has paid large dividends and attracting new audience. Page views in our local news sections are up nearly 32%. The growth is even higher in our two largest markets. Richmond is up 38% and Tampa is up more than 50%. Unique visitors to our websites are up 18%.

We are also boosting traffic to our new and improved entertainment and things to do section. Ad inventory in these sections is in especially high demand. We are getting better at monetizing traffic at the same time we are creating more traffic to monetize. We are persuading more of our online [inaudible] advertisers to buy 30-day listings instead of 7-day runs. Whereas 15% of our online job listings ran for 30 days in March, more than 70% are taking the longer run now.

We continue to take full advantage of our Yahoo partnership, not just with Hot Jobs, but also with Yahoo display and we are exploiting the strength of other national internet partners including the real estate site Zillow.

We continue to focus on new product development aimed at serving new customers. We will be unrelenting in our pursuit of new audience and advertisers. Now I will turn the presentation over to John.

John A. Schauss

Thank you Reid. Let me comment first below the line items in the quarter. Interest expense was 33% below last year’s third quarter due to both a reduction in average debt outstanding and a reduction in average interest rates. We expect interest expense for the full year will be approximately $44 million compared with $60 million for full year 2007 as a result of our delevering plan and lower interest rates.

The sale of our interests in SP Newsprint on March 31 eliminated the equities earnings volatility we experienced in the past from that investment.

In the third quarter of 2007, we recorded nearly $5 million of operating losses related to our former ownership in SP. This year we had income of $1 million from favorable adjustments to certain post closing liability.

Next, I would like to briefly discuss capital expenditure. As we stated previously, we paired that to almost most essentially spending for the time being. In the third quarter, capital spending was approximately $6.8 million compared with $17.3 million in the third quarter of 2007.

The publishing division invested $4.3 million mainly on upgrades that created higher efficiency for printing operations in Richmond and Winston Salem. The investments we have made in printing operations in the past few years have enabled us to consolidate the number of newspaper printing sites. We have gone from 25 sites to 12 in the last 10 years.

The broadcast division spent $1.2 million mainly for the final phases of construction for our new Myrtle Beach studio facility, an upgrade to our central traffic operation and the centralized graphics hub here in Richmond.

Interactive media division and corporate expenditures were approximately $1.3 million primarily for information technology. That [inaudible] into the third quarter with $750 million down from $830 million at the end of the second quarter and from $898 million at the beginning of the year. This reduction in debt reflects additional asset sales.

Yesterday, we were pleased to complete the sale of the fourth of five stations we are divesting. The sale of our last station, a CW affiliate in Jacksonville, Florida, continues to progress. We continue to expect to realize proceeds from sales of all five stations of $100 to $105 million. The proceeds have been and will be used to reduce debt. The total reduction is expected to be $60 to $65 million after tax.

As we announced in late September, the board reduced our quarterly dividend to $0.12 per share, which will allow for approximately $2.5 million of additional debt reduction this year compared to the previous dividend level.

The long-term relationship we have with our banking consortium is strong and we keep our lender banks well informed about strategic initiatives. In light of recent economic events, we have considered in prudent to engage in a dialogue with them to ensure that the borrowing agreements we have in place provide us adequate flexibility in the foreseeable future. We fully expect that our discussions will result on debt agreement modifications that will provide us with the flexibility that we desire at a cost that will be manageable.

And now I will turn it back to Marshall.

Marshall N. Morton

Thanks John. As the fourth quarter unfolds, we are closely watching the placement of political advertising on our television stations. Because our stations are top rated, we hold the market advantage in garnering significant proportion of the dollars placed in our market. We expect to generate more than $20 million from political revenues in the fourth quarter.

One cautionary note is that political billings for our broadcasters this year are less robust than in some prior election years, because soft national and local transactional sales have kept inventory more open, thus, removing upward pressure on rates. This year’s weak economy and unfavorable business climate have created far more challenges than anyone anticipated, as you all well know.

As a company, we recognize the need to continue adapting to the changing marketplace. We have the significant advantage of an early understanding of the strength of the Internet, the importance of customer focus, and the power of multi-media across three major platforms. We’ve accomplished much with new products and smarter expense reduction.

Nonetheless, we recognize the need to do more and we’re accelerating our response to the change we’re seeing in our business. I’m confident we can do that based on the many successes we’ve already achieved.

Three years ago, we were working to have 5% of our revenues in new products. Today, we’re very close to 10%. We got there by being quick to acknowledge that the customer’s in charge; and that we’re an information company, not simply a publisher or a broadcaster. We must continue to push away from the past and maintain a customer centric bias to our thinking and our execution.

Audience and market are our source of revenue, profit, and growth. In some cases, the customer’s going to pull us into the future, but we’re also going to anticipate customer needs and provide solutions they haven’t yet thought possible. We’re research driven, we know our local market, and our people are innovative, that’s the winning combination for the long term.

That concludes our report, now we’ll be pleased to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Edward Atorino – The Benchmark Company.

Edward Atorino – The Benchmark Company

Unless I missed something, you restated some numbers in the third quarter of ’08 versus the original third quarter of ’07 results.

Marshall N. Morton

No, we didn’t, I wonder if you’re tracking on continuing versus –

Edward Atorino – The Benchmark Company

No, looking – going back to the the third quarter ’07 press release had publishing revenues at $131.5 and showing up as $128.3, unless there was some adjustment in the middle.

Marshall N. Morton

We’ll have to go back there on that Ed, I’m not familiar with it and the people in the room with me who have the numbers in front of them are not.

Edward Atorino – The Benchmark Company

All right, and again, I could be wrong on that. Anyway, given the TV business, I understand the impact of political, etc., you managed to be about flat year-over-year, given the environment last year – well, the broadcast revenues have been restated as well, right?

The fourth quarter last year, I have $99 million, is that right?

Marshall N. Morton

[Inaudible] revenue, of course, we’re selling five stations, so I think you may be looking at the before and after back there, because we shifted [inaudible] –

Edward Atorino – The Benchmark Company

Would you have a new – you don’t know what the base is for ’07, then, right?

Marshall N. Morton

I’m sorry, what?

Edward Atorino – The Benchmark Company

You have what the new base would be for the fourth quarter ’07?

Marshall N. Morton

Well, the way we presented it was continuing, so if it’s the fall down into the stations sell for sale lying down below in both cases. It sounds to me like that’s something you need to work over Lou Anne.

Edward Atorino – The Benchmark Company

I will do that. Anyway, given the weakness in the core business and $20 million in political, might you still have an up fourth quarter, I guess is what I was getting at, whatever the number is, or is it too early to tell?

Marshall N. Morton

Well, obviously we’ve run three – we’ve run some forecasts; and so we look at it on a most likely and optimistic and hang on light, much lower political in the fourth quarter; and so we’re not ready to talk about a forecast yet. But the $20 million number that we gave you, we think is a reasonable expectation.

Edward Atorino – The Benchmark Company

That’s quite a bit lower than the previous number, I think.

Marshall N. Morton

Yes, the placements haven’t changed so much, it’s been the point I made towards the end of the presentation that we don’t have the upward pressure on rates that we’ve send in past election cycles.

Edward Atorino – The Benchmark Company

And broadcast costs were down, well, I guess if the – yes, looks as if they were down a little bit, would they – I guess they’d be down again in the fourth quarter, or whatever the previous base is?

Marshall N. Morton

Right.

Edward Atorino – The Benchmark Company

And interest expense stay about the same number, or does it go down the fourth quarter with debt reduction?

Marshall N. Morton

John?

John Schauss

I’m sorry I didn’t hear that.

Marshall N. Morton

Does interest expense stay the same or go down in the fourth quarter based on that reduction?

John Schauss

Well, interest expense would go down, but we’re anticipating as we talk about our bank to obtain perhaps some covenant relief that interest expense will go up, so we’re anticipating interest to go up slightly.

Edward Atorino – The Benchmark Company

I understand that. You announced the sale of a station to the University of Georgia, whatever.

Marshall N. Morton

Right, W-93.

Edward Atorino – The Benchmark Company

What, $100 million bucks is a pretty good size station, what would be the revenues and cash flow of that station?

Marshall N. Morton

Well that – the $100 million that we’re talking about related to all the stations that are being sold and the W-93 is a small station.

Edward Atorino – The Benchmark Company

I was wondering. That’s a pretty good price for a station.

Marshall N. Morton

Anyway, it was bought by the University of Georgia, so it’s not a network-affiliation, for us it was a satellite of our [inaudible].

Edward Atorino – The Benchmark Company

So the $100 million covers all the stations?

Marshall N. Morton

Yes.

Edward Atorino – The Benchmark Company

And what will the multiple of cash flow be on those?

John Schauss

We really haven’t said that, we’re going to let you know at the conclusion of the fifth TV station that we do sell, we’ll –

Marshall N. Morton

We’re hitting our targets. We told you upfront that we thought that we would arrive in this territory, so we’re hitting our targets on the stations now.

Edward Atorino – The Benchmark Company

Any idea how long the tunnel is? I’m sorry, September looked pretty bad.

Marshall N. Morton

No, we are pushing hard in a lot of areas. Most of our markets still need advertising and we’re finding the targeted advertising is an area that’s ripe for growth and we’re pushing very hard in that area.

John Schauss

Ed, the one question you asked about the revenue of 2007, there was a reclassification of the subscriber discounts that was basically a wash, but we’ll get back some complete detail to you.

Operator

Your next question comes from Barry Lucas – Gabellie & Company.

Barry Lucas - Gabellie & Company

Couple of quick items, could we update cap spending guidance for the full year ’08, and try to get a sense of where that might be next year?

Marshall N. Morton

John, you want to take that?

John Schauss

Capital spending, Barry, will be right about $30 million, $31 million this year; and we’re anticipating about $30 to $35 million in 2009, at this point.

Barry Lucas – Gabellie & Company

And John, as long as you’re on the line, are you drawing down any cash unto the bank lines as some other companies, including Gannett have done?

John Schauss

We are not.

Barry Lucas – Gabellie & Company

And then, just finally, in terms of not necessarily guidance, but just pacings, as I look at the September television numbers and I strip out political local national down 20%, is that what you’re seeing in October?

Marshall N. Morton

Well, October is not a representative month, because it’s the heaviest political month; and when you have political you tend to crowd out some of your other advertising and those who aren’t crowded out decide they’d rather just wait until after Election Day anyway.

Barry Lucas – Gabellie & Company

So where would you think the core business is regionally?

Marshall N. Morton

The core business is down, but it’s hard to tell exactly how far down.

Operator

The next call comes from [Jay Greer] – Miramar Capital.

[Jay Greer] – Miramar Capital

I had a couple of questions on the debt first I guess, so just wanted to get any color if possible with respect to covenant discussions with the banks. First off, where’s the leverage at the end of the third quarter, and how does that fit with upcoming covenants and where things stand with the bank.

John Schauss

Well, Jay, the leverage of the end of the third quarter is 5.17 times. We are just now beginning our discussion with our banking group. When you look at our optimistic, multiyear financial forecast, it presents actually no definite covenant issue at all. When you look at our most likely multi year forecast scenario, it has us good relative to covenants, but too close for comfort, and that's why we are talking to our banks actively right now.

[Jay Greer] – Miramar Capital

And is there any color you can provide with respect to the spread? I recall you guys were LIBOR plus 70 I think and, just wondering what sort of guidance that might shift to if you do need to work things out with the bank.

John Schauss

You know Jay, we haven't concluded that with our banks, but you're right, our spread is 70 basis points over live roll. We know it's going to go up, it won't go up to current market by any means. We're asking for just slight relief, so it will be south of where current markets might place us if we were going into the marketplace.

There might be a borrowing capacity level decrease, then there will be of course probably an up front amendment fee.

[Jay Greer] – Miramar Capital

And I guess just along those lines, what would the LIBOR rate that you were paying in the recent quarter, because I know LIBOR's moved and obviously there may have been some hedges in place or caps and so on.

John Schauss

You know I don't have that specific, Jay.

[Jay Greer] – Miramar Capital

So, then the last question was just, with respect to online classifieds with seeing some tool count from the Southside reports about Monster cutting rates and so on, just wondering if you are seeing any pressure there in terms of having to cut rates on the online classifieds side just to compete with some of the incumbent players there?

Marshall N. Morton

No, in fact we think in more places we're underpriced than overpriced in our online rates.

[Jay Greer] – Miramar Capital

So, it could be that online rates may actually go up, in '09 you're saying or?

Marshall N. Morton

That's a possibility.

Operator

And your next question will come from Ken Silver – Royal Bank of Scotland

Ken Silver – Royal Bank of Scotland

The three television stations that you sold previously before the one you sold to the University of Georgia, did you already get the proceeds from those sales?

Unidentified Corporate Participant

Yes.

Ken Silver – Royal Bank of Scotland

And were they used to repay debt in the third quarter?

Unidentified Corporate Participant

That's right.

Ken Silver – Royal Bank of Scotland

And then, I've got a question about your leverage calculation. I went back and looked at the team in fourth quarter EBITDA, at least under your press release, was about $47 million?

Marshall N. Morton

Third quarter, are you talking about the third quarter?

Ken Silver – Royal Bank of Scotland

Third quarter of '07.

Marshall N. Morton

Of '07, okay.

Ken Silver – Royal Bank of Scotland

And then, if you add in, there was $74 million for the first nine months of this year, which comes out to EBITDA of like 120, 121, but based on these leverage issues you just gave, it seems like per the bank calculation it was more like 140, does the bank say you add back certain things and these are just not showing up in your press releases?

Marshall N. Morton

That is correct, that is correct.

Ken Silver – Royal Bank of Scotland

And on what are they letting you add back?

John Schauss

Well, I…

Marshall N. Morton

Well that debt definition is different from the balance sheet debt to begin with.

John Schauss

That's right.

Marshall N. Morton

I think you need to get under the applied terms of the data agreement to get that line in depth.

We'll be glad about it, if you want some kind of detail on that later, but I think it is too specific to going into on a conference call.

Ken Silver – Royal Bank of Scotland

That's fine, and then one last question. You mentioned that you, I just don't have the details of the debt agreement in front of me, you mentioned at some point you may be close to violating covenants, can you just tell us what the covenants are, that you might be close to violating?

Marshall N. Morton

Well, we're talking about the leverage covenant.

Ken Silver – Royal Bank of Scotland

And what is it?

John Schauss

The leverage covenant is, as we go forward is 5.25 time.

Ken Silver – Royal Bank of Scotland

That's the closest one?

John Schauss

Yes.

Operator

And your next question will come from the line of [Jeff Begen] – [Milwaukie Private Wealth]

[Jeff Begen] – [Milwaukie Private Wealth]

A couple of questions, as it relates to your publishing division you cite that your revenue from classified employment down 47, real estate down 46, and other down 43%, those are pretty sharp declines, what is your outlook going forward, and how many more quarters can you report to us those kind of numbers before the number is zero?

Marshall N. Morton

We don't have a forecast like that, in fact, as I said a bit earlier, we, in each of our market places, they've got different stories to tell, and we found the targeted advertising is the best way to garner advertising. But as economic activity picks up in the marketplace, the employment advertising picks up, and retail advertising picks up, and so forth. So, it's very economy dependent.

[Jeff Begen] – [Milwaukie Private Wealth]

And given all the uncertainties in the economy as we speak, what's your near term outlook?

Marshall N. Morton

It's a little hard to calibrate at a near term outlook in the frame that you're giving me right now. We are focusing hard on getting our expenses down, tailoring our products to the market demand. That's why I talked about research a moment ago, and recognizing that continuing to publish a paper as we did five years ago just doesn't work. We're trying to tear ourselves to a changing customer base, but as advertising drops, you have to adjust your product and that's what we're doing.

[Jeff Begen] – [Milwaukie Private Wealth]

Fair enough, but I'm looking at your income statement, 55% of your revenue comes from broadcasting, it's the relatively most important piece of the business. Your margin, year-over-year, went from 17 to under 10. At some point this segment of the business is going to lose money, I would guess.

Marshall N. Morton

What are you doing, just extrapolating current conditions? I think you're taking the position there that we're not reacting to [trade] circumstances, but if that's your position, you're going to look at very negative future. Our point of view is that we've got vibrant marketplaces that have a lot of potential for us as long as we address them correctly, and that's what we're doing.

[Jeff Begen] – [Milwaukie Private Wealth]

Okay, so you have further plans to reduce debt, and if so, how?

Marshall N. Morton

We do it through cash flow, through reduced spending, capital spending.

[Jeff Begen] – [Milwaukie Private Wealth]

In other words, no substantial asset sell?

Marshall N. Morton

At this point we don't have any in mind.

[Jeff Begen] – [Milwaukie Private Wealth]

And I know some other media companies, and I'm a little bit intrigued when you talked about no longer really being the traditional newspaper company but rather an information company, I've not really heard a good solution for that. Obviously your interactive media would be an area that you'd think would be the long-term answer, but at 5% of your revenues you are a long way away from being an interactive media company.

Could you please describe for everybody, what the future is going to look like for companies like yours, so that there's some new paradigm where you do really make profits, you do have expanding margins. It really becomes a better business, short of shrinking the size of your newspapers as the solution.

Marshall N. Morton

Shrinking the size of the newspaper isn't necessarily bad as long as we're shrinking it in a way that responds to the customer's needs. And we're finding for example, that the customers who can sit around and read a big newspaper are few and far between, yet they still need information.

The idea is, how would we should package it for them, and so each market is going to have something of it's own answer, but we think it's the right answer. It's one that takes a blend of our legacy businesses and recognizes that they all produce content and they're getting the contents to the customer the way he wants it.

If we do that we aggregate an audience that the average sponsor needs to address, and the advertiser comes to us as the spot on the marketplace to get some mass audience. Newspapers have a long life ahead of them. I don't know that it's going to be in a printed product on the front door necessarily, although they're still being that kind of product around, but from a growth standpoint it's going to be providing information to the consumer and providing a channel for the advertiser to get to the consumer.

As to the size of online relative to the customer business approach, of course it's brand new, and we're pushing it very hard and several markets went on television as well. And it gives us the means of putting video, print and online in front the customer every day and giving the advertiser the opportunity to use all of those methods.

Mobile is growing and we're pushing hard in mobile as well.

[Jeff Begen] – [Milwaukie Private Wealth]

I appreciate that and lastly, when we last listened to your call, crude oil prices were round numbers were $145, $147, today they're about half that. I don't think you commented at all about that and how that might impact your profitability going forward.

Marshall N. Morton

It helps in a variety of categories, and Reid I’d love for you to chime in here too. I’ll give you a warning that I’m going to turn to you in just a minute. But obviously getting the product distributed, the print product made and distributed is that eases up substantially for us.

It also gives the customer interest in new kinds of automobiles and gives the car advertiser a reason to have new communications with the customer, so we see reason to hope there. Although I got to tell you, we got to go out and sell this advertising. We don’t just wait for it to come in over the transom. Reid, do you have any thoughts?

O. Reid Ashe Jr.

The two places you’ll see it most are in circulation expense and what you mentioned, and it will help to have some bearing I think on newsprint pricing because energy is a component of manufacturing newsprint. Yeah.

[Jeff Begen] – [Milwaukie Private Wealth]

Would you venture to guess as to, let’s say, a cents per share, period over period to the bottom line as a result of that lower fuel expense?

Marshall N. Morton

I don’t think we better adjust that out. I’m flattered that you think we could bring it down like. The prices have dropped so fast. I will tell you that we don’t hedge our energy costs the way other industries do, so we plan to benefit as promptly as any would.

Operator

You next question comes from Michael Cash – Three Sigma Value.

Michael Cash - Three Sigma Value

I was just hoping to get a little bit more clarity on what acquisition proceeds you expect to get in Q4, and also the cash cap statements for both the SP Newsprint and the recent acquisition. When do you expect those to fall out?

Marshall N. Morton

The cash in Quarter 4—we’ve said right along that we want to talk about the whole group because we marketed them as a group, and so we’re not going to get into that, but there will be—we expect to peak in ’04, do we not John? Excuse me, Quarter 4.

John Schauss

The proceeds from the last TV station will actually be in the first quarter of next year.

Marshall N. Morton

Okay, first quarter of ’05, of next year. As the cash piece, we’ve said that a – I mean, the tax piece is about $40 to $45 million, right?

Michael Cash - Three Sigma Value

And you expect that to hit when, in terms of the tax payments?

John A. Schauss

This year the cash cap this year for 2008 will be about $10 million in total.

Operator

And your next question will come as a follow-up question from Edward Atorino – Benchmark.

Edward Atorino – Benchmark

Will the debt covenant renegotiations be finished before the end of the year, or is that in ’09 a bit?

John Schauss

It will be this quarter, Ed.

Edward Atorino – Benchmark

So there’s never additional fees, etcetera would be charged in the 4th quarter?

John Schauss

There will be a little increase to interest expense and some of the upfront fees will be also impacting the 4th quarter and some of those fees might be available to be amortized as well.

Edward Atorino – Benchmark

Okay, so the 4th quarter interest would be up from this 3rd quarter?

John A. Schauss

That’s correct.

Edward Atorino – Benchmark

Okay, great. Second, regarding sort of the core business, there was an article somewhere that some small market papers, I think they were really small markets, are doing sort of four days a week plus the weekend instead of a seven-day paper. As you look out, is there any benefit or would there be any reason to sort of change the basics of the publishing circulation model?

Marshall N. Morton

We read those articles too.

Edward Atorino – Benchmark

I’m sure you did.

Marshall N. Morton

It’s got to be looked at on a market-by-market basis. We have some markets that work three days a week that we’ve gone to two, as an example, because the market was happy with that. At the moment I can’t think of any six to seven-day markets that would be happy with a five or six-day product. If that happened we would look at all those options as possibilities.

The world needs information, but it doesn’t necessarily need it the way we used to give it to them and we’re trying to understand exactly what the advertiser, and the reader, and the viewer are looking for. At this point, our preferred model would be, particularly in our metro and our larger community dailies would be a seven-day or six-day product depending on what we’re doing now, based on community needs.

Operator

Your next question comes from [Carlos Riason] – LCG.

[Carlos Riason] – LCG

Just one follow-up question on the taxes. Have you guys paid the taxes yet for the SP Newsprint sale?

John A. Schauss

Yes.

[Carlos Riason] – LCG

Okay, so the third quarter assumes that purchase has come and the taxes have been paid and—

John A. Schauss

Right.

[Carlos Riason] – LCG

Okay, great, and then just on the September and—I guess—into October trends. Can you just talk to me a little bit about whether I guess the financial crisis became over the month of September and into October, if you saw corresponding weakening in trends, and then secondly if you have seen retail, especially start to accelerate their decline as well?

Marshall N. Morton

September was already a bad month and I haven’t seen any palpable change.

[Carlos Riason] – LCG

Is there any way to – can you comment at all on the October trend so far, or we’ll just wait for the next revenue?

Marshall N. Morton

I think we need to wait.

Operator

Your next question comes from Dan [Bicarri] with O’Connor. Please proceed.

Dan [Bicarri] – O’Connor.

Hi, I have a couple of questions on the dividend and the restricted payments section of the credit agreement. The first one is do you see as you renegotiate with the banks, any changes in the restricted payments language of the credit agreement, first question.

John A. Schauss

We don’t at this time.

Dan [Bicarri] – O’Connor.

Okay. Secondly, you just recently changed the dividend to $0.12. How should be think of the dividend going forward or maybe the priorities between debt pay down and dividend payments going forward into 2009?

Marshall N. Morton

Clearly that’s an element of our shareholder base that looks it up as a dividend provider and so we take it pretty seriously, and so I think you should look at it that way. The dividend has never been a huge expense item for us. Now, we’ve pared it down so it’s even less. It would be my preference, all I’m talking about is preference, would be my preference to maintain the dividend.

That said, we also look at long-term needs and the best way to deploy the capital that right now goes into the dividend. It’s a question we ask ourselves each quarter, but it’s one that’s accessed with acknowledgment or an understanding that we have a dividend expectation in our base.

Dan [Bicarri]

Okay, the last question about the dividend. Is there any metric of either free cash flow or EBITDA that you think you don’t want the dividend payout ratio to be above?

Marshall N. Morton

I gave you the elements that are important to us there, Dan, and I think that’s just the best way to look at it.

Operator

At this time there are no more questions in queue.

Marshall N. Morton

Well, thank you very much, everybody. I appreciate your interest in our company and we look forward to talking to you individually, and again after the 4th quarter. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation.

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Source: Media General, Inc. Q3 2008 Earnings Call Transcript
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