10-Q 1 d87230e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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: MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-8598 BELO CORP. (Exact name of registrant as specified in its charter) DELAWARE 75-0135890 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) P.O. BOX 655237 DALLAS, TEXAS 75265-5237 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (214) 977-6606 Former name, former address and former fiscal year, if changed since last report. NONE Indicate by check mark whether 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 X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT APRIL 30, 2001 ----- ----------------------------- Common Stock, $1.67 par value *109,568,770 * Consisting of 90,700,626 shares of Series A Common Stock and 18,868,144 shares of Series B Common Stock. ================================================================================ 2 BELO CORP. FORM 10-Q TABLE OF CONTENTS
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements........................................................... 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 6 Item 3. Quantitative and Qualitative Disclosures about Market Risk..................... 11 PART II OTHER INFORMATION Item 1. Legal Proceedings.............................................................. 11 Item 2. Changes in Securities and Use of Proceeds...................................... 11 Item 3. Defaults Upon Senior Securities................................................ 11 Item 4. Submission of Matters to a Vote of Security Holders............................ 11 Item 5. Other Information.............................................................. 11 Item 6. Exhibits and Reports on Form 8-K............................................... 11
i 3 PART I. ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF EARNINGS Belo Corp. and Subsidiaries
Three months ended March 31, -------------------------------------------------------------------------------------- In thousands, except per share amounts (unaudited) 2001 2000 -------------------------------------------------------------------------------------- TOTAL NET OPERATING REVENUES $ 331,547 $ 364,498 OPERATING COSTS AND EXPENSES Salaries, wages and employee benefits 126,182 130,439 Other production, distribution and operating costs 89,478 90,886 Newsprint, ink and other supplies 38,433 38,616 Depreciation 25,222 24,399 Amortization 20,396 20,920 --------- --------- Total operating costs and expenses 299,711 305,260 --------- --------- Earnings from operations 31,836 59,238 OTHER INCOME AND EXPENSE Interest expense (30,909) (31,480) Other, net 252 648 --------- --------- Total other income and expense (30,657) (30,832) EARNINGS Earnings before income taxes 1,179 28,406 Income taxes 556 13,013 --------- --------- Net earnings $ 623 $ 15,393 NET EARNINGS PER SHARE Basic $ .01 $ .13 Diluted $ .01 $ .13 AVERAGE SHARES OUTSTANDING Basic 109,544 118,715 Diluted 110,093 119,032 DIVIDENDS PER SHARE $ .075 $ .07 --------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Condensed Financial Statements. 1 4 CONSOLIDATED CONDENSED BALANCE SHEETS Belo Corp. and Subsidiaries
----------------------------------------------------------------------------------------------------------- March 31, December 31, Dollars in thousands (Current year unaudited) 2001 2000 ----------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary cash investments $ 82,833 $ 87,680 Accounts receivable, net 226,628 274,555 Other current assets 61,685 58,790 ---------- ---------- Total current assets 371,146 421,025 Property, plant and equipment, net 625,988 637,645 Intangible assets, net 2,689,958 2,710,209 Other assets 125,048 124,381 ---------- ---------- Total assets $3,812,140 $3,893,260 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 52,616 $ 74,979 Accrued expenses 104,014 127,163 Other current liabilities 64,491 100,541 ---------- ---------- Total current liabilities 221,121 302,683 Long-term debt 1,804,900 1,789,600 Deferred income taxes 404,837 404,221 Other liabilities 46,544 47,348 Shareholders' equity: Preferred stock, $1.00 par value. Authorized 5,000,000 shares; none issued Common stock, $1.67 par value. Authorized 450,000,000 shares Series A: Issued 90,680,734 shares at March 31, 2001 and 90,993,229 shares at December 31, 2000 151,437 151,959 Series B: Issued 18,851,236 shares at March 31, 2001 and 18,860,440 shares at December 31, 2000 31,481 31,497 Additional paid-in capital 824,896 825,103 Retained earnings 326,924 340,849 ---------- ---------- Total shareholders' equity 1,334,738 1,349,408 ---------- ---------- Total liabilities and shareholders' equity $3,812,140 $3,893,260 ========== ========== -----------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Condensed Financial Statements. 2 5 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Belo Corp. and Subsidiaries
Three months ended March 31, ----------------------------------------------------------------------------------------------- In thousands (unaudited) 2001 2000 ----------------------------------------------------------------------------------------------- OPERATIONS Net earnings $ 623 $ 15,393 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 45,618 45,319 Deferred income taxes 1,127 610 Non-cash expenses 2,645 3,704 Other, net (844) (5,025) Net change in current assets and liabilities: Accounts receivable 47,779 17,010 Other current assets (3,380) 7,614 Accounts payable (22,355) (19,684) Accrued expenses (20,060) (7,234) Other current liabilities (38,484) (24,169) --------- --------- Net cash provided by operations 12,669 33,538 INVESTMENTS Capital expenditures (14,711) (30,889) Acquisitions -- (16,100) Other investments (566) (13,198) Other, net 845 (277) --------- --------- Net cash used for investments (14,432) (60,464) FINANCING Purchase of treasury shares (12,621) -- Borrowings of debt 228,150 319,000 Repayment of debt (212,858) (304,662) Payment of dividends on stock (8,211) (8,310) Net proceeds from exercise of stock options 2,456 227 --------- --------- Net cash provided by (used for) financing (3,084) 6,255 Net decrease in cash and temporary cash investments (4,847) (20,671) Cash and temporary cash investments at beginning of period 87,680 45,593 --------- --------- Cash and temporary cash investments at end of period $ 82,833 $ 24,922 ========= ========= SUPPLEMENTAL DISCLOSURES Interest paid, net of amounts capitalized $ 25,830 $ 25,570 Income taxes paid, net of refunds $ 43,576 $ 45,104 -----------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Condensed Financial Statements. 3 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Belo Corp. and Subsidiaries (1) The accompanying unaudited consolidated condensed financial statements of Belo Corp. and subsidiaries (the "Company" or "Belo") have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at December 31, 2000 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Certain amounts for the prior period have been reclassified to conform to the current year presentation including reclassification of the elimination of intersegment revenues. (2) The following table sets forth the reconciliation between weighted average shares used for calculating basic and diluted earnings per share for the three months ended March 31, 2001 and 2000:
----------------------------------------------------------------------------------------------- Three months ended March 31, (in thousands) 2001 2000 ----------------------------------------------------------------------------------------------- Weighted average shares for basic earnings per share 109,544 118,715 Effect of employee stock options 549 317 -------- -------- Weighted average shares for diluted earnings per share 110,093 119,032 -----------------------------------------------------------------------------------------------
(3) The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities." SFAS No. 133 established reporting standards for derivative instruments and hedging activities that require an entity to recognize all derivatives as assets or liabilities measured at fair value and is effective for financial statements issued for all fiscal quarters of fiscal years beginning after June 15, 2000. If certain conditions are met, a derivative may be specifically designated as a hedge of the exposure to changes in the fair value, variable cash flow, or foreign currency of a recognized asset or liability or certain other transactions and firm commitments. Belo adopted SFAS No. 133 in the first quarter of fiscal 2001. The adoption of SFAS No. 133 had no impact on the Company's consolidated financial statements. (4) In December 1999, the Securities and Exchange Commission ("SEC") issued SEC Staff Accounting Bulletin ("SAB") No. 101 - "Revenue Recognition in Financial Statements" which summarized certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Subsequent amendments to SAB No. 101 established the implementation date, in the case of the Company, as the quarter ended December 31, 2000. Belo implemented SAB No. 101 in the fourth quarter of 2000. Such implementation had no impact on the Company's consolidated financial statements. (5) On February 14, 2001, the FASB issued for public comment its tentative decisions on the accounting for goodwill in a revised limited Exposure Draft, "Business Combinations and Intangible Assets - Accounting for Goodwill." The comment deadline was March 16, 2001. In April 2001, the FASB reaffirmed, among other things, its tentative decision to use the nonamortization approach to account for purchased goodwill. Under the revised proposal, goodwill would not be amortized, but instead would be tested for impairment at the reporting unit level and written down (expensed against earnings) when the implied fair value of a reporting unit, including goodwill, is less than its carrying amount. The decisions discussed above are tentative, may be changed at future FASB meetings and would not change current accounting until adoption of such standard is permitted by the final Statement. If the above tentative decisions are included in the FASB's final Statement or Interpretation, they would have a material impact on the Company's financial results through the elimination of substantially all of the Company's amortization expense. 4 7 (6) Net operating revenues, earnings from operations, depreciation and amortization, operating cash flow by industry segment and consolidated cash flow information are shown below. Operating cash flow is defined as earnings from operations plus depreciation and amortization. Operating cash flow is used in the broadcasting and publishing industries to analyze and compare companies on the basis of operating performance and liquidity. Operating cash flow should not be considered as a measure of financial performance or liquidity under generally accepted accounting principles and should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or financial statement data presented in the condensed consolidated financial statements. Because operating cash flow is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, operating cash flow as presented may not be comparable to other similarly titled measures of other companies.
------------------------------------------------------------------------------- Three months ended March 31, (in thousands) 2001 2000 ------------------------------------------------------------------------------- NET OPERATING REVENUES Broadcasting $ 143,431 $ 152,975 Newspaper publishing 181,313 206,117 Interactive media 2,898 2,187 Other 3,905 3,219 --------- --------- Total net operating revenues $ 331,547 $ 364,498 ========= ========= EARNINGS FROM OPERATIONS Broadcasting $ 25,846 $ 31,653 Newspaper publishing 24,017 43,729 Interactive media (5,186) (3,545) Other (1,172) (1,508) Corporate expenses (11,669) (11,091) --------- --------- Total earnings from operations $ 31,836 $ 59,238 ========= ========= DEPRECIATION AND AMORTIZATION Broadcasting $ 27,815 $ 27,991 Newspaper publishing 15,259 15,255 Interactive media 739 237 Other 653 817 Corporate 1,152 1,019 --------- --------- Total depreciation and amortization $ 45,618 $ 45,319 ========= ========= OPERATING CASH FLOW (see definition above) Broadcasting $ 53,661 $ 59,644 Newspaper publishing 39,276 58,984 Interactive media (4,447) (3,308) Other (519) (691) Corporate (10,517) (10,072) --------- --------- Total operating cash flow $ 77,454 $ 104,557 ========= ========= CONSOLIDATED CASH FLOW INFORMATION(a) Net cash provided by operations $ 12,669 $ 33,538 Net cash used for investments $ (14,432) $ (60,464) Net cash provided by (used for) financing $ (3,084) $ 6,255
-------------------------------------------------------------------------------- (a) Cash flow information is provided on a consolidated basis and is as presented in the Consolidated Condensed Statements of Cash Flows included herein. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS) The Company is an owner and operator of 17 television stations and publisher of four daily newspapers. The Company also manages three television stations through local marketing agreements ("LMAs") and owns six cable channels in whole or in part. The following table sets forth the Company's major media assets by segment as of March 31, 2001:
------------------------------------------------------------------------------------------------------------------------- Television Broadcasting ------------------------------------------------------------------------------------------------------------------------- Network Market Market Rank(a) Station Affiliation(b) Status Acquired ------------------------------------------------------------------------------------------------------------------------- Dallas/Fort Worth 7 WFAA ABC Owned March 1950 Houston 11 KHOU CBS Owned February 1984 Seattle/Tacoma 12 KING NBC Owned February 1997 Seattle/Tacoma 12 KONG IND Owned March 2000 Phoenix 17 KTVK IND Owned November 1999 Phoenix 17 KASW WB Owned March 2000 St. Louis 22 KMOV CBS Owned June 1997 Portland 23 KGW NBC Owned February 1997 Charlotte 28 WCNC NBC Owned February 1997 San Antonio 37 KENS CBS Owned October 1997 San Antonio 37 KBEJ UPN LMA (c) Hampton/Norfolk 41 WVEC ABC Owned February 1984 New Orleans 42 WWL CBS Owned June 1994 Louisville 48 WHAS ABC Owned February 1997 Austin 58 KVUE ABC Owned June 1999 Tucson 71 KMSB FOX Owned February 1997 Tucson 71 KTTU(d) UPN LMA (d) Spokane 77 KREM CBS Owned February 1997 Spokane 77 KSKN UPN/WB(e) LMA (d) Boise 123 KTVB NBC Owned February 1997 -------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------- Newspaper Publishing ------------------------------------------------------------------------------------------------------------------------- Daily Sunday Newspaper Location Acquired Circulation(g) Circulation(g) ------------------------------------------------------------------------------------------------------------------------- The Dallas Morning News ("DMN") Dallas, TX (f) 522,538 782,748 The Providence Journal ("PJ") Providence, RI February 1997 160,610 229,271 The Press-Enterprise ("PE") Riverside, CA July 1997 172,007 178,631 Denton Record-Chronicle Denton, TX June 1999 16,630 20,428 ------------------------------------------------------------------------------------------------------------------------- Interactive Media ------------------------------------------------------------------------------------------------------------------------- Belo Interactive, Inc. Includes the Web site operations of Belo's operating companies, interactive alliances and Internet-based products and services(h) ------------------------------------------------------------------------------------------------------------------------- Other ------------------------------------------------------------------------------------------------------------------------- Northwest Cable News ("NWCN") Cable news channel distributed to approximately 2 million homes in the Pacific Northwest Texas Cable News ("TXCN") Cable news channel distributed to approximately 1 million homes in Texas -------------------------------------------------------------------------------------------------------------------------
(a) Market rank is based on the relative size of the television market, or Designated Market Area ("DMA"), among the 210 generally recognized DMAs in the United States, based on November 2000 Nielsen estimates. (b) Substantially all the revenue of the Company's television stations is derived from advertising. Less than 4 percent of broadcasting revenue is provided by compensation paid by networks to the television stations for broadcasting network programming. (c) Belo entered into an agreement to operate KBEJ-TV under an LMA in May 1999; the station's on-air date was August 3, 2000. (d) Belo has managed KTTU-TV and KSKN-TV under LMAs since February 1997. Belo has agreed to purchase KTTU-TV, subject to Federal Communications Commission ("FCC") approval. (e) The primary affiliation is with UPN. The WB network is currently a secondary affiliation. (f) The first issue of DMN was published by Belo on October 1, 1885. (g) Average paid circulation data for DMN, PJ and PE is for the six months ended March 31, 2001 as filed in the Audit Bureau of Circulation ("ABC") FAS-FAX report and is calculated in accordance with ABC guidelines. Circulation data for the Denton Record-Chronicle is as filed in the Certified Audit of Circulations Report for the twelve-month period ended December 31, 2000 and is calculated in accordance with the report guidelines. (h) The majority of Belo Interactive's Web sites are associated with the Company's television stations and newspapers and primarily provide news and information. 6 9 RESULTS OF OPERATIONS Consolidated Results of Operations Total net operating revenues declined $32,951 in the first quarter of 2001 as compared to 2000. First quarter 2000 revenues included $14,299 of revenue for The Gleaner in Henderson, Kentucky, The Eagle in Bryan-College Station, Texas, the Messenger-Inquirer in Owensboro, Kentucky and KOTV (CBS) in Tulsa, Oklahoma, companies that were sold in the fourth quarter of 2000. The balance of the 2001 revenue decline related primarily to lower advertising revenues as a result of the slowdown in the U.S. economy. Salaries, wages and employee benefits declined $4,257 in the first quarter of 2001 as compared to the year earlier period. Salaries, wages and benefits of the companies sold of $6,206 were offset in part by an $1,949 increase in the first quarter of 2001 in salaries, wages and benefits at Belo's other properties. Other production, distribution and operating costs declined $1,408 in the first quarter of 2001 as compared to the first quarter of 2000, with a $3,179 reduction as a result of the companies sold, partially offset by an increase of $1,771 at Belo's other properties. Newsprint, ink and other supplies decreased $183 in the first quarter of 2001 as compared to the year earlier period, with a $1,580 reduction due to the companies sold substantially offset by an increase of $1,397 at Belo's remaining properties. The average cost per metric ton of newsprint increased approximately 23 percent in the first quarter of 2001 as compared to the year earlier period due to higher prices. Newsprint consumption decreased approximately 14 percent as compared to the year earlier period. Depreciation expense increased $823 in the first quarter of 2001, of which amount $1,677 was due to depreciation on prior year capital expenditures at Belo's current companies, partially offset by a $854 decrease in depreciation expense from the companies sold. Of the $524 decrease in amortization expense in the first quarter of 2001, $909 was associated with the operating companies sold in the fourth quarter of 2000, partially offset by an increase in amortization expense related primarily to 2000 acquisitions. Interest expense for the first quarter of 2001 of $30,909 was 1.8 percent lower than first quarter 2000 expense of $31,480, reflecting lower average debt levels and lower average interest rates. The effective tax rate for the first quarter of 2001 was 47.2 percent, compared with 45.8 percent for the first quarter of 2000 due to lower estimated pretax earnings. As a result of the factors discussed above, net earnings for the first quarter of 2001 were $623 (1 cent per share) as compared to $15,393 (13 cents per share) for the first quarter of 2000. 7 10 Segment Results of Operations To enhance comparability of the Company's results of operations for the quarters ended March 31, 2001 and 2000, certain information below is presented on a proforma segmented basis, "as adjusted", to take into account the 2000 dispositions of The Gleaner, The Eagle, the Messenger-Inquirer and KOTV as though each had occurred at the beginning of the respective periods presented.
As Reported As Adjusted (in thousands) (in thousands) Three months ended March 31, Three months ended March 31, ---------------------------------------- --------------------------------------- 2001 2000 % Chg. 2001 2000 % Chg. ----------- ------------ -------- -------- -------- -------- Net operating revenues Broadcasting $ 143,431 $ 152,975 (6.2)% $ 143,431 $ 149,051 (3.8)% Newspaper publishing 181,313 206,117 (12.0)% 181,313 195,790 (7.4)% Interactive media 2,898 2,187 32.5% 2,898 2,139 35.5% Other 3,905 3,219 21.3% 3,905 3,219 21.3% --------- --------- ---------- --------- Segment revenues $ 331,547 $ 364,498 (9.0)% $ 331,547 $ 350,199 ========= ========= ========== ========= (5.3)% Operating cash flow(a) Broadcasting $ 53,661 $ 59,644 (10.0)% $ 53,661 $ 58,752 (8.7)% Newspaper publishing 39,276 58,984 (33.4)% 39,276 56,448 (30.4)% Interactive media (4,447) (3,308) (34.4)% (4,447) (3,214) (38.4)% Other (519) (691) 24.9% (519) (691) 24.9% --------- --------- ---------- --------- Segment operating cash flow 87,971 114,629 (23.3)% $ 87,971 $ 111,295 (21.0)% ========== ========= Corporate expenses (10,517) (10,072) (4.4)% Depreciation and amortization (45,618) (45,319) (0.7)% --------- --------- Earnings from operations $ 31,836 $ 59,238 (46.3)% ========= ========= --------------------------------------------------------------------------------------------------------------------------------
(a) Operating cash flow is defined as earnings from operations plus depreciation and amortization. Operating cash flow is used in the broadcasting and publishing industries to analyze and compare companies on the basis of operating performance and liquidity. Operating cash flow should not be considered as a measure of financial performance or liquidity under generally accepted accounting principles and should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or financial statement data presented in the condensed consolidated financial statements. Because operating cash flow is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, operating cash flow as presented may not be comparable to other similarly titled measures of other companies. Broadcasting On a reported basis, broadcasting revenue decreased $9,544, or 6.2 percent, due to the disposition of KOTV in the fourth quarter of 2000 and lower advertising revenues resulting from the slowdown in the U.S. economy, as well as lower political and .com advertising revenues in the first quarter of 2001 as compared to the first quarter of 2000. Broadcasting cash expenses decreased $3,561, or 3.8 percent, in the first quarter of 2001 as a result of the sale of KOTV and stringent cost controls implemented early in the first quarter of 2001. As a result, on a reported basis, broadcasting operating cash flow decreased $5,983, or 10 percent, in the first quarter of 2001 as compared to the first quarter of 2000. On an "as adjusted" basis, broadcasting revenue for the first quarter of 2001 was $143,431, a decrease of 3.8 percent compared with first quarter 2000 revenue of $149,051. Broadcast spot revenue decreased 3.6 percent in the first quarter of 2001. Excluding political revenue in both years, spot revenue was down 1.3 percent. Local advertising revenue was up 8.7 percent, while national advertising revenue was down 14.4 percent. The largest national advertising declines were in Seattle and Dallas, due partly to lower .com advertising revenues, and in Seattle, due also to lower political advertising revenues. Local advertising gains were recorded in Houston, Seattle, Phoenix, San Antonio, Austin, Spokane and Boise. Cash operating expenses were down approximately 1 percent due to continued stringent cost controls. An increase of 2.2 percent in direct compensation and benefits was more than offset by a 3.3 percent decline in all other cash expenses. 8 11 Broadcasting operating cash flow decreased 8.7 percent, from $58,752 in the first quarter of 2000 to $53,661 in the first quarter of 2001. Broadcasting operating cash flow margins declined to 37.4 percent in the first quarter of 2001 from 39.4 percent in the first quarter of 2000. Newspaper Publishing On a reported basis, newspaper publishing revenue decreased $24,804, or 12 percent, due to the sales of The Gleaner, The Eagle and the Messenger-Inquirer and lower advertising revenue as a result of the slowdown in the economy and one fewer Sunday in the first quarter of 2001 than first quarter 2000. Declines were reported in substantially all revenue categories. Publishing cash expenses were down $5,096, or 3.5 percent, as a result of the dispositions, partially offset by higher newsprint costs. As a result, on a reported basis, newspaper publishing operating cash flow declined $19,708, or 33.4 percent. On an "as adjusted" basis, first quarter 2001 revenues for newspaper publishing were $181,313, or 7.4 percent lower than first quarter 2000 revenues of $195,790, reflecting the significant downturn in classified employment advertising felt by newspapers across the country, the effect of which was greatest at large metropolitan newspapers with significant technical employment categories like DMN. Total advertising revenues were down 8.6 percent. The first quarter of 2000 included one more Sunday than the first quarter of 2001. Adjusting for the extra Sunday in 2000, advertising revenue was down 5.3 percent. First quarter 2001 revenues at DMN were 7.7 percent lower than the comparable 2000 period (down 4.9 percent adjusting for the extra Sunday in 2000). Classified advertising revenues decreased 10.7 percent in the first quarter due to a 22.5 percent decline in classified employment revenue. The decline in classified employment revenue was offset slightly by classified auto and real estate revenues which were up 10.7 percent and 2.7 percent, respectively. DMN had approximately $5,000 of .com revenues in the first quarter of 2000 with only $1,800 returning in the first quarter of 2001, resulting in a decrease in general advertising revenues of 11.4 percent in the first quarter of 2001. Retail revenue was down 4.6 percent in the first quarter. PJ and PE reported decreases in first quarter 2001 revenues of 9.5 percent and 3.1 percent, respectively, as compared to first quarter 2000 (down 5.7 percent and 1.4 percent, respectively, after adjusting for the extra Sunday in 2000). Revenues declined in nearly all advertising categories at these papers with the most significant decreases in classified and retail advertising. On an "as adjusted" basis and excluding newsprint, newspaper publishing cash expenses were flat compared to the first quarter of 2000. Tight cost controls were implemented in early 2001 in response to prevailing economic and advertising conditions. Including an 8.9 percent increase in newsprint expense, newspaper publishing cash expenses were up 1.9 percent. As a result, operating cash flow for newspaper publishing was down $17,172, or 30.4 percent in the first quarter of 2001 as compared to the first quarter of 2000. Newspaper publishing operating cash flow margins during the first quarters of 2001 and 2000 were 21.7 percent and 28.8 percent, respectively. Interactive Media On a reported basis, Interactive media revenues, which are derived primarily from advertising, increased 32.5 percent, from $2,187 in the first quarter of 2000 to $2,898 in the first quarter of 2001. Interactive media cash expenses were up 33.7 percent, reflecting increased staffing and levels of operations. As a result, the Interactive media segment reported operating cash flow deficits of $4,447 and $3,308 in the first quarters of 2001 and 2000, respectively. Other Other revenues consist of Belo's regional cable news operations, NWCN and TXCN. Other revenues increased 21.3 percent, from $3,219 in the first quarter of 2000 to $3,905 in the first quarter of 2001, reflecting increased revenue at both NWCN and TXCN. Cash expenses increased 13.1 percent as a result of higher salaries, wages and benefits costs as well as higher production, distribution and operating costs. The operating cash flow deficit decreased to $519 in the first quarter of 2001 from $691 in the first quarter of 2000 reflecting a decrease in the cash flow deficit at TXCN between the periods and an increase in cash flow at NWCN. 9 12 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations, bank borrowings and term debt are the Company's primary sources of liquidity. During the first quarter of 2001, net cash provided by operations was $12,669, compared with $33,538 for the same period in 2000 due in part to lower net earnings. Tax payments in the first quarter of 2001 included approximately $40,200 for taxes due on fourth quarter 2000 transactions, including the sales of The Gleaner, The Eagle, the Messenger-Inquirer and KOTV and a gain in 2000 from the settlement of a lawsuit brought by the Company against a third party. Total debt increased $15,292 from December 31, 2000 to March 31, 2001. At March 31, 2001, the Company had $1 billion in fixed-rate debt securities as follows: $250,000 of 6 7/8 percent Senior Notes due 2002; $300,000 of 7 1/8 percent Senior Notes due 2007; $200,000 of 7 3/4 percent Senior Debentures due 2027; and $250,000 of 7 1/4 percent Senior Debentures due 2027. The weighted average effective interest rate for the fixed-rate debt instruments is 7.3 percent. The Company also has $500,000 available for issuance under a shelf registration statement filed in April of 1997. Future issuances of fixed-rate debt may be used to refinance variable-rate debt in whole or in part or for other corporate needs as determined by management. At March 31, 2001, the Company had a $1 billion variable-rate revolving credit agreement with a syndicate of 24 banks under which borrowings were $789,000. Borrowings under the agreement mature upon expiration of the agreement on August 29, 2002, with one year extensions possible through August 29, 2004, at the request of the Company and with the consent of the participating banks. In addition, the Company had $9,500 of short-term unsecured notes outstanding at March 31, 2001. These borrowings may be converted at the Company's option to revolving debt. Accordingly, such borrowings are classified as long-term in the Company's financial statements. The Company is required to maintain certain ratios as of the end of each quarter, as defined in its revolving credit agreement. As of March 31, 2001, the Company was in compliance with all debt covenant requirements. The Company paid first quarter 2001 dividends of $8,211 or 7.5 cents per share on Series A and Series B common stock outstanding, compared with $8,310 or 7 cents per share in the first quarter of 2000. First quarter 2001 capital expenditures were $14,711. Expenditures were primarily for broadcasting equipment purchases, including those for equipment to be used in the transmission of digital television, and publishing equipment purchases. In the first quarter of 2001, the Company repurchased 683,800 shares of its stock under an existing authorization for the repurchase of 18,116,719 shares as of December 31, 2000. The remaining authorization for the repurchase of shares as of March 31, 2001 was 17,432,919 shares. In addition, the Company also has a stock repurchase program authorizing the purchase of up to $2,500 of Company stock annually. The total cost of the treasury shares purchased in the first quarter of 2001 was $12,621. All shares repurchased during the quarter have been retired. Other Matters On January 25, 2001, Belo announced that it had agreed to purchase KTTU-TV, the UPN affiliate in the Tucson, Arizona television market, for $18,000 in cash, subject to approval by the Federal Communications Commission. Belo currently operates KTTU under a local marketing agreement with Clear Channel Communications, Inc. Forward-Looking Statements Statements in this Form 10-Q concerning the Company's future financings and pending acquisitions and dispositions, as well as any other statements concerning the Company's business outlook or future economic performance, anticipated profitability, revenues, expenses, capital expenditures, investments or other financial and non-financial items that are not historical facts, are "forward-looking statements" as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Such risks, uncertainties and factors include, but are not limited to, changes in capital market conditions and prospects, and other factors such as changes in advertising demand, interest rates and newsprint prices; technological changes; development of Internet commerce; industry cycles; changes in pricing or other actions by 10 13 competitors and suppliers; regulatory changes; the effects of Company acquisitions and dispositions; and general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K and in the Company's periodic press releases. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No disclosure required. PART II. ITEM 1. LEGAL PROCEEDINGS There are a number of legal proceedings pending against the Company, including several actions for alleged libel and slander incidental to the Company's business. In the opinion of management, liabilities, if any, arising from these actions would not have a material adverse effect on the results of operations, liquidity or financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the Securities and Exchange Commission, as indicated. Exhibits marked with a tilde (~) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents are filed with this report. 3.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's Annual Report on Form 10-K dated March 15, 2000 (the "1999 Form 10-K")) 3.2 * Certificate of Correction to Certificate of Incorporation dated May 13, 1987 (Exhibit 3.2 to the 1999 Form 10-K) 3.3 * Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated April 16, 1987 (Exhibit 3.3 to the 1999 Form 10-K) 3.4 * Certificate of Amendment of Certificate of Incorporation of the Company dated May 4, 1988 (Exhibit 3.4 to the 1999 Form 10-K) 3.5 * Certificate of Amendment of Certificate of Incorporation of the Company dated May 3, 1995 (Exhibit 3.5 to the 1999 Form 10-K) 11 14 EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.6 * Certificate of Amendment of Certificate of Incorporation of the Company dated May 13, 1998 (Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (the "2nd Quarter 1998 Form 10-Q")) 3.7 * Certificate of Ownership and Merger, dated December 20, 2000, but effective as of 11:59 p.m. on December 31, 2000 (Exhibit 99.2 to Belo's Current Report on Form 8-K filed with the Commission on December 29, 2000) 3.8 * Amended Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated May 4, 1988 (Exhibit 3.7 to the 1999 Form 10-K) 3.9 * Certificate of Designation of Series B Common Stock of the Company dated May 4, 1988 (Exhibit 3.8 to the 1999 Form 10-K) 3.10 * Amended and Restated Bylaws of the Company, effective December 31, 2000 (Exhibit 3.10 to the Company's Annual Report on Form 10-K dated March 13, 2001 (the "2000 Form 10-K")) 4.1 Certain rights of the holders of the Company's Common Stock are set forth in Exhibits 3.1-3.10 above. 4.2 * Specimen Form of Certificate representing shares of the Company's Series A Common Stock (Exhibit 4.2 to the 2000 Form 10-K) 4.3 * Specimen Form of Certificate representing shares of the Company's Series B Common Stock (Exhibit 4.3 to the 2000 Form 10-K) 4.4 * Amended and Restated Form of Rights Agreement as of February 28, 1996 between the Company and Chemical Mellon Shareholder Services, L.L.C., a New York banking corporation (Exhibit 4.4 to the 1999 Form 10-K) 4.5 * Supplement No. 1 to Amended and Restated Rights Agreement between the Company and The First National Bank of Boston dated as of November 11, 1996 (Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996) 4.6 * Supplement No. 2 to Amended and Restated Rights Agreement between the Company and The First National Bank of Boston dated as of June 5, 1998 (Exhibit 4.6 to the 2000 Form 10-K) 4.7 Instruments defining rights of debt securities: (1) * Indenture dated as of June 1, 1997 between the Company and The Chase Manhattan Bank, as Trustee (Exhibit 4.6(1) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (the "2nd Quarter 1997 Form 10-Q")) (2) * (a) $200 million 6-7/8% Senior Note due 2002 (Exhibit 4.6(2)(a) to the 2nd Quarter 1997 Form 10-Q) * (b) $50 million 6-7/8% Senior Note due 2002 (Exhibit 4.6(2)(b) to the 2nd Quarter 1997 Form 10-Q) (3) * (a) $200 million 7-1/8% Senior Note due 2007 (Exhibit 4.6(3)(a) to the 2nd Quarter 1997 Form 10-Q) * (b) $100 million 7-1/8% Senior Note due 2007 (Exhibit 4.6(3)(b) to the 2nd Quarter 1997 Form 10-Q) 12 15 EXHIBIT NUMBER DESCRIPTION ------- ----------- (4) * $200 million 7-3/4% Senior Debenture due 2027 (Exhibit 4.6(4) to the 2nd Quarter 1997 Form 10-Q) (5) * Officer's Certificate dated June 13, 1997 establishing terms of debt securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6(5) to the 2nd Quarter 1997 Form 10-Q) (6) * (a) $200 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6(6)(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 (the "3rd Quarter 1997 Form 10-Q")) * (b) $50 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6(6)(b) to the 3rd Quarter 1997 Form 10-Q) (7) * Officer's Certificate dated September 26, 1997 establishing terms of debt securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6(7) to the 3rd Quarter 1997 Form 10-Q) 10.1 Financing agreements: (1) * Amended and Restated Credit Agreement (Five-year $1,000,000,000 revolving credit and competitive advance facility dated as of August 29, 1997 among the Company and The Chase Manhattan Bank, as Administrative Agent and Competitive Advance Facility Agent, Bank of America National Trust and Savings Association and Bank of Tokyo-Mitsubishi, Ltd., as Co-Syndication Agents, and NationsBank, as Documentation Agent) (Exhibit 10.2(1) to the 3rd Quarter 1997 Form 10-Q) 10.2 Compensatory plans: ~(1) Belo Savings Plan: * (a) Belo Savings Plan Amended and Restated July 1, 2000 (Exhibit 10.2(1) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (the "2nd Quarter 2000 Form 10-Q")) * (b) First Amendment to the Belo Savings Plan effective December 31, 2000 (Exhibit 10.2(1)(b) to the 2000 Form 10-K) ~(2) Belo 1986 Long-Term Incentive Plan: * (a) Belo Corp. 1986 Long-Term Incentive Plan (Effective May 3, 1989, as amended by Amendments 1, 2, 3, 4 and 5) (Exhibit 10.3(2) to the Company's Annual Report on Form 10-K dated March 10, 1997 (the "1996 Form 10-K")) * (b) Amendment No. 6 to 1986 Long-Term Incentive Plan (Exhibit 10.3(2)(b) to the 1997 Form 10-K) * (c) Amendment No. 7 to 1986 Long-Term Incentive Plan (Exhibit 10.2(2)(c) to the 1999 Form 10-K) * (d) Amendment No. 8 to 1986 Long-Term Incentive Plan (Exhibit 10.3(2)(d) to the 2nd Quarter 1998 Form 10-Q) ~(3) * Belo 1995 Executive Compensation Plan, as restated to incorporate amendments through December 4, 1997 (Exhibit 10.3(3) to the 1997 Form 10-K) * (a) Amendment to 1995 Executive Compensation Plan, dated July 21, 1998 (Exhibit 10.3 (3)(a) to the 2nd Quarter 1998 Form 10-Q) * (b) Amendment to 1995 Executive Compensation Plan, dated December 16, 1999 (Exhibit 10.3(3)(b) to the 1999 Form 10-K) ~(4) * Management Security Plan (Exhibit 10.3(1) to the 1996 Form 10-K) * (a) Amendment to Management Security Plan of Belo Corp. and Affiliated Companies (as Restated Effective January 1, 1982) (Exhibit 10.2(4)(a) to the 1999 Form 10-K) 13 16 EXHIBIT NUMBER DESCRIPTION ------- ----------- ~(5) * Belo Supplemental Executive Retirement Plan * (a) Belo Supplemental Executive Retirement Plan As Amended and Restated Effective January 1, 2000 (Exhibit 10.2(5)(a) to the 1999 Form 10-K) * (b) First Amendment to Belo Supplemental Executive Retirement Plan as Amended and Restated Effective January 1, 2000, dated July 27, 2000 (Exhibit 10.2(5) to the 2nd Quarter 2000 Form 10-Q) ~(6) * Belo 2000 Executive Compensation Plan (Exhibit 4.15 to Belo's Registration Statement on Form S-8 (No. 333-43056) filed with the Commission on August 4, 2000) ~(7) * Retirement Agreement between the Company and Ward L. Huey, Jr., dated November 3, 2000 (Exhibit 10.2(7) to the 2000 Form 10-K) 12 Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K. During the quarter covered by this report, there were no reports on Form 8-K filed. 14 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BELO CORP. May 14, 2001 By: /s/Dunia A. Shive ---------------------------------------- Dunia A. Shive Executive Vice President/ Chief Financial Officer /s/Janice E. Bryant ---------------------------------------- Janice E. Bryant Vice President/Controller 15 18 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 12 Ratio of Earnings of Fixed Charges