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| BLC > SEC Filings for BLC > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
The following information should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and related Notes filed as part of
this report.
Television Group
Number of Station
Station/ Year Belo Commercial Station Audience
Market News Acquired/ Network Stations in Rank in Share in
Market Rank(1) Channel Started Affiliation Channel Market(2) Market(3) Market(4)
Dallas/Fort Worth 5 WFAA 1950 ABC 8 16 1 9
Dallas/Fort Worth 5 TXCN 1999 N/A N/A N/A N/A N/A
Houston 10 KHOU 1984 CBS 11 15 2 8
Phoenix 12 KTVK 1999 IND 3 13 5 * 4
Phoenix 12 KASW 2000 CW 61 13 7 3
Seattle/Tacoma 13 KING 1997 NBC 5 13 1 11
Seattle/Tacoma 13 KONG 2000 IND 16 13 5 2
Seattle/Tacoma 13 NWCN 1997 N/A N/A N/A N/A N/A
St. Louis 21 KMOV 1997 CBS 4 8 2 * 10
Portland 22 KGW 1997 NBC 8 8 1 11
Charlotte 24 WCNC 1997 NBC 36 8 3 7
San Antonio 37 KENS 1997 CBS 5 10 2 9
San Antonio(5) 37 KCWX - CW 2 10 8 * 1
Hampton/Norfolk 43 WVEC 1984 ABC 13 8 2 10
Austin 48 KVUE 1999 ABC 24 7 1 * 8
Louisville 49 WHAS 1997 ABC 11 7 1 10
New Orleans(6) 51 WWL 1994 CBS 4 8 1 15
New Orleans(7) 51 WUPL 2007 MNTV 54 8 6 1
Tucson 66 KMSB 1997 FOX 11 9 4 6
Tucson 66 KTTU 2002 MNTV 18 9 6 * 1
Spokane 75 KREM 1997 CBS 2 7 1 * 14
Spokane 75 KSKN 2001 CW 22 7 5 2
Boise(8)(9) 112 KTVB 1997 NBC 7 5 1 22
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(1) Market rank is based on the relative size of the television market Designated Market Area (DMA), among the 210 generally recognized DMAs in the United States, based on the September 2009 Nielsen Media Research's Designated Market Area report.
(2) Represents the number of television stations (both VHF and UHF) broadcasting in the market, excluding public stations, low power broadcast stations and cable channels.
(3) Station rank is
derived from the
station's rating,
which is based on
the May 2009
Nielsen Media
Research report of
the number of
television
households tuned
to the Company's
station for the
Sunday-Saturday
5:00 a.m. to 2:00
a.m. period
(sign-on/sign-off)
as a percentage of
the number of
television
households in the
market.
(4) Station audience share is based on the May 2009 Nielsen Media Research report of the number of television households tuned to the station as a percentage of the number of television households with sets in use in the market for the sign-on/sign-off period.
(5) Belo operates KCWX-TV through a local marketing agreement.
(6) WWL also produces "NewsWatch on Channel 15," an around-the-clock local news and weather cable channel.
(7) The Company also owns WBXN-CA, a Class A television station in New Orleans, Louisiana.
(8) The Company also owns KTFT-LP (NBC), a low power television station in Twin Falls, Idaho.
(9) Using its digital multicast capabilities, KTVB operates "24/7 Local News Channel," a 24-hour daily local news and weather channel.
* Tied with one or more stations in the market.
The Company intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding the Company's financial statements, the changes in certain key items in those statements from period to period and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect the Company's financial statements.
Results of Operations
(Dollars in thousands, except per share amounts)
Three months ended September 30, Nine months ended September 30,
Percentage Percentage
2009 Change 2008 2009 Change 2008
Net operating revenues $ 140,617 (17.7 %) $ 170,823 $ 418,923 (21.6 %) $ 534,619
Operating costs and
expenses 116,237 (7.8 %) 126,069 346,937 (11.3 %) 391,064
Impairment charge 242,144 N/A - 242,144 N/A -
Earnings (loss) from
operations (217,764 ) N/A 44,754 (170,158 ) N/A 143,555
Other expense (16,311 ) (21.0 %) (20,645 ) (32,659 ) (48.8 %) (63,811 )
Earnings (loss) from
continuing operations
before income taxes (234,075 ) N/A 24,109 (202,817 ) N/A 79,744
Income tax expense
(benefit) (83,554 ) N/A 9,672 (71,502 ) N/A 49,808
Net earnings (loss) from
continuing operations (150,521 ) N/A 14,437 (131,315 ) N/A 29,936
Discontinued operations,
net of tax - N/A - - N/A (4,499 )
Net earnings (loss) $ (150,521 ) N/A $ 14,437 $ (131,315 ) N/A $ 25,437
Net Operating Revenues
Three months ended September 30, Nine months ended September 30,
Percentage Percentage
2009 Change 2008 2009 Change 2008
Non-political advertising $ 122,630 (15.5 %) $ 145,059 $ 366,352 (22.3 %) $ 471,769
Political advertising 2,077 (82.2 %) 11,659 4,597 (77.4 %) 20,369
Other 15,910 12.8 % 14,105 47,974 12.9 % 42,481
Net operating revenues $ 140,617 (17.7 %) $ 170,823 $ 418,923 (21.6 %) $ 534,619
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Non-political advertising revenues decreased $22,429, or 15.5 percent, in the three months ended September 30, 2009, compared to the three months ended September 30, 2008. This decrease is primarily due to a $21,905, or 16.3 percent, decrease in local and national spot revenue. Spot revenue decreased in most categories but primarily in the automotive, entertainment, retail, financial services and real estate categories partially offset by increases in the grocery and healthcare categories. Internet advertising revenues decreased $569, or 7.2 percent. Political advertising revenues decreased $9,582 in the third quarter 2009 as compared with the third quarter 2008. Political revenues are generally higher in even-numbered years than in odd-numbered years due to elections for various state and national offices. Other revenues increased primarily due to increases in retransmission revenues. Non-political advertising revenues decreased $105,417, or 22.3 percent, in the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. This decrease is primarily due to a $103,793, or 23.5 percent, decrease in local and national spot revenue. Spot revenue decreased in most categories but primarily in the automotive, retail, entertainment, financial services, restaurants, home construction and improvement, and healthcare categories partially offset by increases in grocery and professional categories. Internet advertising revenues decreased $1,323, or 5.9 percent. Political advertising revenues decreased $15,772 in the nine months ended September 30, 2009, compared with the nine months ended September 30, 2008. Political revenues are generally higher in even-numbered years than in odd-numbered years due to elections for various state and national offices. Other revenues increased primarily due to increases in retransmission revenues.
Operating Costs and Expenses
For the three months ended September 30, 2009, station salaries, wages and
employee benefits decreased $9,521, or 16.8 percent, primarily due to decreases
in salary expense of $5,358, 401(k) Plan expense of $2,262, and vacation expense
of $1,481 (due to an announced change to the Company's vacation policy). Station
programming and other operating costs decreased $2,595, or 4.9 percent, with
decreases in most expense categories, including a $1,072 decrease in advertising
expense. In 2005, the Federal Communications Commission (FCC) allowed a major
wireless provider to finance the replacement of analog newsgathering equipment
with digital equipment. The Company recognized credits for this replacement of
$1,964 in the third quarter 2008, as two Belo markets converted to this digital
equipment in the third quarter 2008 versus no Belo markets in the third quarter
2009. Corporate operating costs increased $1,789, or 30 percent, in the third
quarter 2009, primarily due to a $1,129 decrease in the credit to pension
expense and a $1,084 increase in share-based compensation associated with the
increase in the Company's share price.
For the nine months ended September 30, 2009, station salaries, wages and
employee benefits decreased $30,640, or 17.4 percent, primarily due to decreases
in salary expense of $13,816, 401(k) Plan expense of $5,322, vacation expense of
$4,554 (due to the policy change noted above), pension transition supplement
expense of $2,696, sales commissions of $1,972, bonus expense of $1,509 and
self-insured medical insurance costs of $1,409. Station programming and other
operating costs decreased $9,103, or 5.8 percent, with decreases in most expense
categories, including a $5,683 decrease in advertising expense and a $2,450
decrease in national representation fees. For the nine month period, the credits
recognized for the replacement of analog equipment pursuant to the FCC decision
discussed above were $2,634 and $6,857 for 2009 and 2008, respectively, as two
Belo markets converted to this digital equipment in the first nine months of
2009 versus seven Belo markets in the first nine months of 2008. Corporate
operating costs remained consistent with the same period in 2008, with a
decrease in the credit to pension expense of $3,158 and an increase in
technology costs of $2,692 being partially offset by a decrease in compensation
and bonus expense of $1,777 and a decrease in various other expenses of $4,302.
During the nine months ended September 30, 2008, the Company incurred $4,659 in
charges related to the spin-off of its newspaper businesses and related assets
mentioned above. There were no spin-off related charges in the three months
ended September 30, 2008.
In the third quarter 2009, the Company recorded a non-cash impairment charge for
intangible assets related to FCC licenses of $242,144. See Goodwill and
Intangible Assets below for further discussion of the intangible asset
assessment process and related impairment charges recorded by the Company.
Other income (expense)
Interest expense decreased in the three and nine months ended September 30,
2009, primarily due to the repayment of $350,000 of outstanding 8% Senior Notes
in the fourth quarter of 2008 with funds from the Company's revolving credit
facility, which has a lower interest rate. Additionally, in the fourth quarter
2008 and the first quarter 2009, the Company purchased a total of $74,075 of the
Company's outstanding 6 3/4% Senior Notes due in 2013 and $10,000 of the
Company's outstanding 7 1/4% Senior Debentures due in 2027 for a total cost of
$52,048. The purchases were also funded with lower rate borrowings under the
credit facility.
Other income, net decreased $1,200 in the third quarter 2009 compared to the
third quarter 2008 due primarily to a $1,273 loss on the sale of a non-operating
asset. Other income, net increased $11,291 in the first nine months of 2009
compared to the first nine months of 2008 primarily due to a $14,905 gain
related to the Company's first quarter 2009 purchase of debt securities
discussed above and a gain of $1,616 on the sale of the Company's interest in a
Web-site joint venture in the first half of 2009. These increases were partially
offset by the loss on the asset sale mentioned above.
Income taxes decreased $93,226 for the three months ended September 30, 2009,
compared with the three months ended September 30, 2008, due to the tax benefit
related to the impairment charge booked in the third quarter 2009. Income taxes
decreased $121,310 for the nine months ended September 30, 2009, compared with
the nine months ended September 30, 2008, due to the tax benefit related to the
impairment charge recorded in the third quarter 2009, lower earnings before
taxes and a one-time tax charge in the first nine months of 2008 related to the
spin-off of the Company's newspaper businesses and related assets. Although the
spin-off otherwise qualifies for tax-free treatment to shareholders, the Company
(but not its shareholders) recognized for tax purposes approximately $51,900 of
previously deferred intercompany gains related to the transfer of certain
intangibles to A. H. Belo, resulting in a federal income tax obligation
estimated at $18,235 as of September 30, 2008.
Goodwill and Intangible Assets
Goodwill and indefinite lived intangible assets (FCC licenses) are required to
be tested at least annually for impairment or between annual tests if an event
occurs or circumstances change that would, more likely than not, reduce the fair
value of a reporting unit below its carrying amount. The Company's indefinite
lived intangible assets represent FCC licenses in markets (as defined by Nielsen
Media Research's Designated Market Area report) where the Company's stations
operate. Goodwill is evaluated by reporting unit, with each reporting unit
consisting of the television station(s) and cable news operations within a
market. The Company measures the fair value of goodwill and indefinite lived
intangible assets annually as of December 31. Please refer to Notes 1 and 4 in
the notes to the consolidated financial statements included in the Company's
2008 Form 10-K/A for a full description of the Company's goodwill and intangible
asset impairment policies. Due to the continuing softness in the current
advertising environment and after further considering near-term industry revenue
expectations and prevailing average costs of capital, management reviewed
goodwill and indefinite lived intangible assets for potential impairment at the
end of the third quarter of 2009 and concluded that a full interim impairment
test of FCC licenses and goodwill was warranted as of September 30.
Based on assessments performed as of September 30, 2009, the Company recorded a
non-cash impairment charge of $242,144 reflecting the reduction in the fair
value of the Company's FCC licenses in 10 of its markets. Of this amount,
$84,584 related to the Phoenix, Arizona market, $52,727 related to the Seattle,
Washington market, $27,807 related to the Portland, Oregon market, $13,133
related to the St. Louis, Missouri market, $14,383 related to the Louisville,
Kentucky market, $10,518 related to the Austin, Texas market, $10,212 related to
the San Antonio, Texas market, $10,128 related to the Tucson, Arizona market,
$9,597 related to the Spokane, Washington market, and $9,055 related to the
Boise, Idaho market. The impairment charges related to FCC licenses resulted
primarily from a decline in the fair value of the individual businesses due to
lower projected cash flows versus historical estimates, particularly in the
first few years of projection, and an increase in prevailing average costs of
capital from prior year. These lower projected cash flows reflect generally
slower expected growth due to the current recessionary environment and related
advertising downturn. On a comparative basis, there were no FCC license
impairments recorded in either the three months or nine months ended
September 30, 2008.
Goodwill impairment is determined using a two-step process. The first step is to
identify if a potential impairment exists by comparing the fair value of a
reporting unit with its carrying amount, including goodwill. If the fair value
of a reporting unit exceeds its carrying amount, goodwill of the reporting unit
is not considered to be impaired and the second step of the impairment test is
not necessary. Based upon the assessments performed as of September 30, 2009,
after applying the first step of the goodwill impairment tests, the estimated
fair value of all of the Company's 15 reporting units exceeded their carrying
amounts and the second step tests to measure goodwill impairment were not
necessary.
In assessing the fair value of the Company's goodwill and indefinite lived
intangible assets, the Company must make assumptions regarding future cash flow
projections and other factors to estimate the fair value of the reporting units
and intangible assets. Necessarily, estimates of fair value are subjective in
nature, involve uncertainties and matters of significant judgment, and are made
at a specific point in time. Thus, changes in key assumptions from period to
period could significantly affect the estimates of fair value. The Company's
estimates of the fair value of its reporting units and indefinite lived
intangible assets are primarily determined using discounted projected cash
flows. Significant assumptions used in these estimates include projected
revenues and related growth rates over time and in perpetuity (for 2009,
perpetuity growth rates used ranged from 1.5% to 3.1%), forecasted operating
margins, estimated tax rates, capital expenditures, and required working capital
needs, and an appropriate risk-adjusted weighted-average cost of capital (for
2009, the weighted-average cost of capital used was 10.25%). Additionally, for
the Company's FCC licenses, significant assumptions include costs and time
associated with start-up, initial capital investments, and forecasts related to
overall market performance over time.
Fair value estimates are inherently sensitive, particularly with respect to FCC
licenses. In 10 of the Company's 15 markets, the carrying value of its FCC
licenses is equal to their fair market value. A further reduction in the fair
value of the FCC licenses in any of these 10 markets will result in an
impairment charge. After giving consideration to the impairment charge recorded
in the third quarter, the carrying value of the FCC licenses in those 10 markets
represents approximately $649,441 of the Company's total $725,399 of FCC
licenses. Goodwill at the Company's reporting units is somewhat less sensitive
as, collectively, reporting units with estimated fair values exceeding their
carrying values by more than 20% represent over 75% of the total investments in
goodwill as of September 30, 2009, and impairment charges related to FCC
licenses that are recorded in any period will reduce the carrying values of
those applicable reporting units prior to the goodwill impairment evaluation. If
some or all of the aforementioned key estimates or assumptions change in the
future, the Company may be required to record additional impairment charges
related to its goodwill and indefinite lived intangible assets.
Discontinued Operations
The historical results of the Company's newspaper businesses and related assets
are presented as discontinued operations due to the spin-off of these assets
into a separate public company on February 8, 2008.
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