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Belo Corp. (NYSE:BLC)

Q4 2012 Results Earnings Call

February 8, 2013 2:00 PM ET

Executives

Paul Fry - Vice President, Investor Relations

Dunia Shive - President and CEO

Carey Hendrickson - Senior Vice President and CFO

Peter Diaz - President, Media Operations

Analysts

Marci Ryvicker - Wells Fargo

Aaron Watts - Deutsche Bank

John Kornreich - JK Media

Tracy Young - Evercore

Barry Lucas - Gabelli

Davis Hebert - Wells Fargo

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Belo Corp.’s Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session, and the instructions will be given at that time. (Operator Instructions)

As a reminder, this conference is being recorded. I’d now like to turn the conference over to our host, Vice President, Investor Relations, Mr. Paul Fry. Please go ahead, sir.

Paul Fry

Thank you, Laura, and good afternoon. Welcome to Belo’s fourth quarter and full year 2012 conference call. We issued a press release today announcing the company’s earnings and that release has been posted to our website at belo.com.

Today’s call will include comments from Dunia Shive, President and Chief Executive Officer; and Carey Hendrickson, Senior Vice President and Chief Financial Officer. Also with us is Peter Diaz, President, Media Operations.

Before Dunia makes her opening remarks, let me note that our discussion will include forward-looking statements. Forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those statements. Additional information about these factors is detailed in the company’s press releases and public filings with the SEC, including the annual report on Form 10-K.

Also, reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP, including the reasons we believe that non-GAAP financial measures provide useful supplemental information for investors are posted on Belo’s website at belo.com under Investor Relations.

Now, I’ll turn the call over to Dunia.

Dunia Shive

Thank you, Paul, and good afternoon, everyone. The company’s fourth quarter performance was driven by $26.5 million in incremental political revenues and continued strength in the automotive category, leading to a total spot revenue increase of 15% compared to the fourth quarter of 2011.

Our financial performance for the full year was highlighted by record political revenue of $61.2 million, the highest in the company’s history and significant growth in our largest advertising category, automotive, which increased 16% over full year 2011.

The company’s total revenue grew 10% in 2012 compared to 2011, while the company’s combined station and corporate operating costs grew just 2% for the same period. The company’s station EBITDA margin was 46% for the fourth quarter of 2012 and 41% for the full year, our highest station EBITDA margin since 2006.

In 2012, company generated almost $140 million in free cash flow, excluding the $30 million tax refund we received early in 2012. Our strong cash generation enabled us to pay a special dividend of $0.25 in the fourth quarter, in addition to increasing our regular quarterly dividend by 60% to $0.08 per share earlier in the year.

On November 30, we completed the early redemption of our May 2013 note, which were redeemed with cash in a net present value positive transaction. The redemption further improved our financial position and flexibility to pursue acquisitions and investments, and consider additional opportunities to increase shareholder return.

In 2007, we reduced our total debt by more than $430 million from $1.168 billion to $733 million at December 31, 2012. We’ve also reduced our leverage ratio from 4.1 times at December 31, 2011 to 2.8 times at December 31, 2012.

Our interactive and retransmission revenue totaled more than $113 million in 2012 and represented 16% of our total revenue. We believe we can continue to grow these non-traditional revenues at a double-digit pace for the foreseeable future complimenting our core spot business.

Now, I’ll turn the call over to Carey to provide further details about our fourth quarter results.

Carey Hendrickson

Thank you, Dunia. As you saw our press release today Belo reported fourth quarter and full year 2012 net earnings per share of $0.34 and $0.95, respectively, compared to $0.29 and $0.55, respectively for the fourth quarter and full year of 2011.

As Dunia mentioned, the company redeemed its 6.75% May 2013 senior notes in a net present value positive transaction on November 30, 2012. The premium paid for the early redemption of the notes partially offset by the related interest savings at December resulted in a reduction to net earnings of $3.1 million or $0.03 per share in the fourth quarter of 2012 when compared to the fourth quarter of 2011.

The fourth quarter of 2011 included a non-cash gain net of taxes of $2.9 million or $0.03 per share related to the division of assets of Belo Investment, LLC which was a real estate investment company in which Belo Corp. and A. H. Belo each previously held a 50% interest.

Full year 2011 included a net non-cash charge, after taxes of $13.3 million, or $0.13 per share also related to the split of The G. B. Dealey Retirement Pension Plan with A. H. Belo.

The company generated total revenue of $205 million in the fourth quarter of 2012, which was $25 million or 14% higher than the fourth quarter of 2011. Our combined station and corporate operating costs were up 8% in the fourth quarter of 2012, compared to the fourth quarter of 2011.

Political revenue totaled $32.4 million in the fourth quarter of this year, which was $26.5 million higher than the fourth quarter of 2011. Total spot revenue including political was up 15% in the fourth-quarter of 2012 versus the fourth quarter of ‘11.

Due mostly to crowd-out from political revenue, spot revenue, excluding political, was down 3% with a 4% decrease in local and a 1% decrease in national spot revenue.

Due to the political crowd-out few major categories were up in the fourth quarter but those that were up included automotive which was up 7% and telecom which was up 39%. The retail category was essentially flat.

When you exclude October when political was the heaviest our automotive was up 16.5% and retail was up 3%, telecom was up 65% when you exclude October, and grocery and financial services were also up.

Other revenue, which is comprised primarily of Internet advertising, retransmission revenue, and barter and trade advertising was up 8% in the fourth quarter of 2012 compared to the fourth quarter of 2011 and included a 20% increases in internet revenue and a 15% increase retransmission revenue. Other revenue in the fourth quarter of 2011 included network compensation.

Station salaries, wages and employee benefits in the fourth quarter of 2012 were up 6% versus the fourth quarter of 2011 due to higher accrued performance-based bonuses, modest increases in salaries and sales commissions, and then we were also cycling against the credit workers compensation in the fourth quarter of 2011.

Station programming and other operating costs in the fourth quarter of 2012 were up 7% versus the fourth quarter of 2011, due primarily to higher national rep fees associated with higher political revenue and also higher programming expense.

Station EBITDA totaled $94 million in the fourth quarter of 2012, which is an increase of 23% over the fourth quarter of 2011.

Looking at our full year 2012 results, total revenue was $715 million, an increase of $65 million or 10% versus full year 2011. Combined station and corporate operating costs were up 2% in 2012 compared to 2011.

Political revenue totaled $61.2 million in 2012, $51.6 million higher than in 2011. Our full year 2012 spot revenue including political was up 10% versus 2011. Total spot revenue excluding political was up 0.4% for full year 2012 with a 1.5% increase in local and a 1.5% decrease in national spot revenue when compared to 2011.

Major categories that were up in the 2012 included automotive which was up 16%, travel and tourism which was up 19%, financial services which was 5%, education which was up 10% and retail furniture which was up 15%. The retial category in total was about flat for the year.

Other revenue, which gain is mostly comprised of Internet advertising, retransmission revenue, and barter and trade advertising was up 9% for full year 2012 versus 2011 and included a 15% increases in Internet revenue and a 19% increase in retransmission revenue. Other revenue in 2011 included network compensation.

For full year 2012, station salaries, wages and employee benefits increased 4% when compared to 2011, due primarily to higher accrued performance-based bonuses and modest increases in salaries and sales commissions.

Our station programming and other operating costs were 3.5% lower in 2012 compared to 2011, due primarily to lower syndicated programming expense. Station EBITDA totaled $293 million for the full year of 2012, a 27% increase over full year 2011.

Corporate operating costs were $2.4 million and $8.1 million higher in the fourth quarter of 2012 and full year 2012, respectively, compared to the fourth quarter and full year of 2011.

These increases were due primarily to higher accrued performance-based bonuses, higher share-based compensation expense associated with the increase in the company’s share price in 2012 and then also investments in new content and digital business initiatives. The fourth quarter of 2011 also included a credit related to the favorable settlement of a property tax issue.

Our depreciation expense totaled $7.6 million in the fourth quarter of 2012, which was slightly higher than the fourth quarter of 2011. Full year 2012 depreciation expense totaled $30.1 million, which was down from $30.8 million in 2011.

The company’s interest expense decreased $1.9 million and $2.7 million, respectively, for the fourth quarter and full year of 2012, compared to the fourth quarter and full year of 2011 due to lower debt levels, including the early redemption of our May 2013 bonds on November 30, 2012.

Other income, expense, net was higher in the fourth quarter of 2012 and full year 2012 by $9.8 million and $9.3 million, respectively, compared to the fourth quarter and full year of 2011.

The fourth quarter of 2012 included $5.5 million pretax charge related to the early redemption of the company’s May 2013 notes, which is one component of the net amount that I have noted previously. And in the fourth quarter of 2011 included that $4.5 million non-cash gain related to the division of Belo Investment assets that I also noted earlier.

Income tax expense increased $2.9 million and $27 million respectively for the fourth quarter and full year of 2012 due mostly to the higher pretax earnings. Our total debt at December 31, 2012 was $733 million, $154 million lower than the company’s debt balance at the end of 2011.

The company had $21 million drawn in its credit facility and $9.4 million in cash and temporary cash investments at December 31, 2012. As Dunia noted earlier, the company’s total leverage ratio as defined in our credit facility was 2.8 times at December 31, 2012 compared to 4.1 times at December 31, 2011. We invested $5.8 million in capital expenditures in the fourth quarter of 2012 and $21.3 million for the full year.

I’ll now turn the call back over to Dunia.

Dunia Shive

Thanks Carey. Before we go to Q&A, let me provide a few remarks about the first quarter. Based on recent pacings, we currently expect total revenue to be up 2% to 2.5% versus the first quarter of 2012, with increases in core spot, retransmission and internet revenue partially offset by lower political revenue.

Due to the timing of upcoming renewals with MVPDs, the growth rate in retransmission revenue is expected to be higher in the second half of the year than in the first half of the year. Between July 1, 2013 and February 28, 2014, the company has renewals to do with six MVPDs covering more than 40% of the Belo subscriber estimates.

The company expects renewals for over half of these subscribers to be affected by October 1, 2013. Our combined station and corporate operating costs are currently expected to be up 3.5% to 4% in the first quarter of 2013 compared to the first quarter of 2012 due primarily to the higher programming expense, sales-related cost and continued investments in new digital and content initiatives.

Interest expense in the first quarter of 2013 should be about $3 million lower in the first quarter of 2012, a result of the early redemption of our May 2013 notes.

This concludes our formal remark and now, we’ll be glad to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question from the line of Marci Ryvicker with Wells Fargo. Please go ahead.

Marci Ryvicker - Wells Fargo

Thanks. I have a couple of questions, the first relate to expenses. For the first quarter, how much are your new initiatives contributing to the bump in expenses in Q1?

Carey Hendrickson

Marci, about $1.5 million to $2 million.

Marci Ryvicker - Wells Fargo

Okay. And would we assume a similar run rate for that for the year or is that going to ramp up throughout the year?

Carey Hendrickson

It’d be similar to that. It may ramp up a little bit if year goes on but that’ll be somewhere around that ballpark.

Marci Ryvicker - Wells Fargo

Okay. And Dunia, you mentioned the reverse compensation, also the retransmission consent on contracts that are coming up. Is it safe to assume that for 2013, your net retrans will still be up year-over-year?

Dunia Shive

Yeah. Very safe.

Marci Ryvicker - Wells Fargo

Okay. And then the last question, is more just bigger picture, can you update us on national trends in some of your bigger markets, that may have been suffering before in Texas and maybe Seattle?

Dunia Shive

Peter, you want to start?

Peter Diaz

Sure. Marci, repeat the last part of the question, national trends, state it again?

Marci Ryvicker - Wells Fargo

Yeah, national trends, just in some of the larger markets that you guys are in. I know you had some trouble just from a market perspective?

Peter Diaz

Actually, currently, right now, national pacing is stronger than local but include an asterisk with that statement. We had some significant advertising movement between local and national, which accounts for the stronger pace. Up in the Northwest, our national pacing is not very strong. It’s a little bit better in the Texas markets.

Dunia Shive

That’s a market function, not necessarily a station function.

Marci Ryvicker - Wells Fargo

Okay. Thank you.

Dunia Shive

Thank you, Marci.

Operator

Our next question from the line of Aaron Watts with Deutsche Bank. Please go ahead.

Aaron Watts - Deutsche Bank

Hey, all.

Carey Hendrickson

Hi, Aaron.

Dunia Shive

Hi Aaron.

Aaron Watts - Deutsche Bank

I hope it’s nice down there than it is up in the Northeast right now.

Dunia Shive

It’s beautiful, sunny and above 60. Sorry.

Aaron Watts - Deutsche Bank

Jealous. Yeah. One follow-up on Marci’s question with kind of the expense outlook. Carey, you talked about those new initiatives adding a little bit to that. Should we assume that expense growth outpaces revenue growth this year or is that just kind of phenomenon in kind of the early part of the year?

Carey Hendrickson

Well, it’s too hard to tell, really, Aaron. It depends on what -- how revenues during the year but certainly in the back half of the year when we had all the political that we had something against in the third quarters particularly, it’d be difficult for that, not to be the case where they are pacing really?

Dunia Shive

An Olympic experience as we had really compelling performances as well.

Carey Hendrickson

Right.

Aaron Watts - Deutsche Bank

That’s fair point. Okay. And you guys gave a lot of great details. So I actually -- my other question is more big picture. As we look at some of the consolidation that went on in the space over the last several months and obviously the groups participating in that consolidation are storing the virtues of gaining greater scale.

And I was just curious if Belo not participating in consolidation or growing your portfolio puts you at a disadvantage relative to those groups and relative to dealing and buying program or negotiating retrans, things of that nature. I mean, does Belo need to participate in that. You had a disadvantage by not or something I was just curious with your thoughts?

Dunia Shive

Let me say a couple of things. Just because we haven’t to date, doesn’t mean that we won’t or that we’re not interested in it. So I just want to clarify that point, just some of the opportunities that have come up, probably they made more sense for those who proceeded with those than they do for us.

But we still cover 14% of United States. We have very strong television stations in the market that we’re in. We’re in the seven of the top 25 markets. I don’t think that we had a disadvantage because of the quality of the assets we have. We still have a good trans television group.

We’d like to see that group get larger and I don’t see us -- seeing at a disadvantage, those often the fact that we have not yet participated in the exhibitions.

Aaron Watts - Deutsche Bank

Hey, great. Thanks for the thought.

Dunia Shive

Thank you.

Operator

Our next question is from the line of John Kornreich with JK Media. Your line is open.

John Kornreich - JK Media

I have a few questions. I didn’t hear what exactly was the retrans number for 2012?

Dunia Shive

69.4

John Kornreich - JK Media

Okay. It sounds like most of the first three quarters of 2013 is kind of a bridge to resume high growth rate retrans which would pick up in the fourth quarter and then for all of 2014. Is that fair?

Dunia Shive

Right. John, we didn’t have any significant agreements in 2012.

John Kornreich - JK Media

Okay.

Dunia Shive

They’re going to still go off of the production.

John Kornreich - JK Media

But would the inflation escalators and as you said the fourth quarter will reflect new deals?

Dunia Shive

Correct.

John Kornreich - JK Media

Could retrans be up 10% in ‘13?

Dunia Shive

We haven’t given a specific forecast yet. And since we haven’t negotiated the deals here but is it a possibility? Yes.

John Kornreich - JK Media

Okay. In the current environment -- I may have missed this, is Seattle still your biggest problem?

Dunia Shive

Yeah. I mean, I wouldn’t call it -- I wouldn’t say a big problem. The market itself has been weak.

John Kornreich - JK Media

Okay.

Dunia Shive

It was weak in the fourth quarter and some of that weakness has continued into the first quarter. I would say that Portland market to the North west has softened a little bit but we’ve seen this happen before and then you can come the next quarter and things turn back around. I will say that offsetting that -- I will let Peter talk about that. We’ve seen some very good growth and some strong pacings. I’ll check this market. Peter.

Peter Diaz

Your stations in the Pacific Northwest collectively in the quarter pacing behind but some of it could be explained by some of the market weakness but also we have a heavy concentration of NBC affiliates in that region. And they’re running up against the NBC Super Bowl.

Dunia Shive

CBS Superbowl.

Peter Diaz

And they have the NBC Superbowl last year. And then additionally, the Seahawks in Seattle made a very strong run in January. There was a couple of playoff games at the Fox Station that Seattle picked up that we run up against. Texas, conversely, is doing pretty well. We’re pacing pretty well in the Texas market.

John Kornreich - JK Media

Getting back to retrans, again on the cost side of that, as I understand that you paid a full load of reverse CBS and ABC, right, in 2012?

Dunia Shive

Correct.

Carey Hendrickson

Yeah.

John Kornreich - JK Media

What about NBC?

Dunia Shive

No, our NBC contracts expired on 12/31/2012 and we’re operating under extension.

John Kornreich - JK Media

Okay. And whenever you reach an agreement with them, it will be retroactive to that time? Fair enough.

Dunia Shive

That’s a negotiating point but I’d say yeah.

John Kornreich - JK Media

Just a few numbers and then I’m done. Interest expense for 2012 was $70 million. If I look at the fourth quarter and your comment about being $4 million under the first quarter and the first quarter sounds like it could be $60 million-ish.

Carey Hendrickson

Yeah. It could be $10 million to $12 million -- $10 million was last year, so next year than in 2012.

John Kornreich - JK Media

What was the mandatory pension contribution for the year?

Dunia Shive

We made contributions of $19 million dollars.

Carey Hendrickson

In 2012, right?

John Kornreich - JK Media

Right. And CapEx was $21 million…

Dunia Shive

$21.3 million.

John Kornreich - JK Media

Similar in ‘13?

Dunia Shive

We had given a number for ‘13. It will be 25.

John Kornreich - JK Media

Okay. And lastly, what were cash taxes for the year?

Dunia Shive

I think it was about $40 million. Carey, do you have that number?

Carey Hendrickson

Yeah. I have that, John. Let me grab that for you.

Dunia Shive

John, I believe it was $40 million material share buyback.

Carey Hendrickson

Cash taxes were actually $33 million.

John Kornreich - JK Media

$33 million.

Carey Hendrickson

Yeah. Excuse me. With state tax -- if you want state tax in there too, it was about $39 million.

John Kornreich - JK Media

Okay. Thanks a lot.

Operator

(Operator Instructions) We will go next to Tracy Young with Evercore. Please go ahead.

Tracy Young - Evercore

Following upon the questions for taxes for 2013, tax rate is 36% or 39%.

Carey Hendrickson

Yeah. It will be somewhere around 37% probably.

Tracy Young - Evercore

37%. Okay. At what percentage was auto for 2012 and for 4Q?

Dunia Shive

It was about 26% before political.

Carey Hendrickson

Are you saying about the increase?

Tracy Young - Evercore

No just total as a percentage is clinical.

Dunia Shive

26%, we expect to see.

Carey Hendrickson

In the fourth quarter, yeah.

Tracy Young - Evercore

Okay. And can you just talk a little bit about the telecom category? I know you talked about some issues with Houston in the first part of the year. Now, fourth quarter was up quite a bit. Can you just talk a little bit more about that?

Peter Diaz

Yeah. The telecom quarter, that seemed pretty strong in fourth quarter and very strong again in first quarter. Some of that is some of the wireless business, AT&T business. Some of that is obviously the cable business, but it’s come back very nicely in the Texas markets. We’ll see -- I think, anticipating, we’ll see a good increase in second quarter also.

Tracy Young - Evercore

Okay. Great. Thank you.

Operator

And our next question is from the line of Barry Lucas with Gabelli. Please go ahead.

Barry Lucas - Gabelli

Thank you and good afternoon. Just a couple of questions to maybe dig a little bit deeper into 1Q and so the advertising outlook to the extent that you can talk about it. And maybe, Peter, if you could sort of quantify the headwind and tailwind of not having the Olympics on the ABCs -- on the NBC’s and the Super Bowl shift from NBC to CBS, what would that went out to?

Peter Diaz

Yeah. The Super Bowl shift from CBS, NBC was actually very good for us. We have CBS stations, four NBC stations and we did it a little north of $3 million in revenue on CBS stations which is about 82% more than we did last year with the NBC station.

Barry Lucas - Gabelli

And the Olympics?

Peter Diaz

The Olympics, so we are certainly going to be going against the Olympics on our NBC stations.

Dunia Shive

The number was 13.5.

Peter Diaz

But conversely now our ABC station, the CBS stations won’t be running against Olympics and we should do better there. So we are optimistic.

Barry Lucas - Gabelli

Right. So, but I guess what I’m really trying to get at, Peter, if I’m going to assume which is for argument sake that your auto category pace is more or less in line with whatever the projections are for sales, call it seven-ish kind of percent and that’s 25% of your business.

So getting sort of close to a 2% increase in core from auto that your telecom comps, at least into the fourth quarter of ‘13 are easier and it sounds like retail is maybe doing a little bit better. So, I’m just kind of wondering why either 1Q looks as soft as it does and why you wouldn’t be a little bit more optimistic if you are giving full year guidance?

Dunia Shive

Barry, let me just talk a little bit about the other categories in first quarter, that maybe helpful because seven of the top 10 categories are up in 2013 but there are a couple of significant categories that are pacing down. But auto is actually pacing up higher than that number that you mentioned there.

Retail, as we mentioned is pacing up. Home improvements, financial services, groceries, telecom, consumer services -- all those categories were pacing up. On the flip side, healthcare is pacing down and that’s pacing down in the double-digit percentage. Restaurants were down and entertainment continues to be a down category and healthcare is mostly closely tied to a decline in pharmaceutical advertising. So those numbers are coming off to some extent and I’m going to let, Peter, talk a little bit about NCAA.

Peter Diaz

So, Barry, we had a very good Olympic -- excuse me, a very good Super Bowl experience in February. But right now, the NCAA tournament is running a little behind. Now that part of that is because final four games ran in March last year. It moved to April this year, so we are running up against that. And currently the pacing for the NCAA games is a little bit behind. We are anticipating it will move up, but as we look at them right now, they are behind.

Barry Lucas - Gabelli

Okay. And just summarizing it -- I’m sorry.

Dunia Shive

I think it’s been a while since we’ve seen these many categories pacing up.

Barry Lucas - Gabelli

Right.

Dunia Shive

Seven of top ten, that’s a pretty solid number.

Barry Lucas - Gabelli

Yeah. Like I said I’m wondering why you are not feeling that much better. Cash pension contribution, how much do you think that will be this year? I know I see the liability on the balance sheet but…

Carey Hendrickson

We’ll make about a $20 million contribution this year.

Barry Lucas - Gabelli

So let’s go to the biggie and capital allocation and we didn’t hear a lot about share repurchases or you did offer dividend, you did pretty special. I don’t think you get a lot of credit for that special dividend, but what do you see or think about returning cash to shareholders or alternatively the M&A environment given all the deals that have taken place already?

Dunia Shive

We really did comment little bit early on the M&A environment, Barry and I can -- if I say, if we are interested in continuing, look at the opportunities that are out there and participating in those and expenses they make sense as they make sense, make sense for our shareholders. But same time back to the share repurchase question, the forward multiple of anything we are looking at has to be wide against the multiples own stock and so that’s how we are looking at -- how we’ll analyze acquisitions going forward and think about share repurchase going forward.

And with respect to the dividend, as you know we had the 60% increase last year. We did do the special dividend at the end of the year. We have a very strong balance sheet, a very sustainable dividend and very increasable dividend over time given our leverage and our cash position. This company has always been a company that has increased its dividend over time, prior to the suspension when...

Barry Lucas - Gabelli

Great. Thank you, Dunia.

Dunia Shive

Thanks, Barry.

Operator

Our next question is from the line of Davis Hebert with Wells Fargo. Please go ahead.

Davis Hebert - Wells Fargo

Hi. Good afternoon. Thanks for taking the questions. Just a couple for me. On the digital side you mentioned some of the investments in new digital initiatives, I was wondering if you could talk about some of those initiatives and how you would expect to see returns over the next couple of years on that front?

Dunia Shive

Peter, you want to start and I can take it. So there are couple of things that we’ve invested in and some of these we’ve announced publicly. One of them was Belo private marketplace and in these investments there is lots of business around sales and sales people and technology. But, for example, if Belo private marketplace again, we are ramping up on that and gives us the opportunity to make our inventory available to advertisers -- select advertisers and some suggest selling remnant and achieving a higher CPM. So we are making investments on the sales side there to increase our CPM inventory that would otherwise we consider remnant inventory at a lower rate.

Another investment we’ve made is in WeatherCaster approximately, which is an iPad app that allows us to monetize an app outside of our own market. We launched initially on the iPad and now we are investing in the technology to make it available on the iPhone as well. Again, it gives us an opportunity to monetize a digital app outside of their own markets.

Probably the largest one, in terms of investment has been ScreenShot Digital, another one that we announced at the end of the year and we have been ramping up expenses there. As we go throughout the year, I think those expenses will start to -- they will start to stabilize, we’ll start seeing revenue from that initiative.

And what that is, really, is an advertising solutions-based company that’s really focused on measuring and improving the performance of ad-campaigns against online and mobile platforms to give our clients better results. So we are just beginning to go to market there, so we have the expenses in our numbers and we not yet have the revenue. But we are optimistic and enthusiastic there will be opportunity because that too allows us to sell online in non-Belo market.

Davis Hebert - Wells Fargo

Okay. Good answer.

Dunia Shive

Hopefully, that helps.

Davis Hebert - Wells Fargo

Yeah, absolutely. And on the auto side you guys mentioned pacing higher going into 2013. Are you seeing any difference in performance from the local dealers as opposed to the OEMs?

Dunia Shive

So, well, in the fourth quarter, our national and imports is what drove fourth quarter performance with respective to the increase that you saw, and if you look at our fourth quarter auto, it was really driven by national, if you exclude the aftermarket, which is part of that category, our auto was up about 10% and most of that came out of imports and most was on the national side. I think it’s pacing a little bit differently, if you look at first quarter all of its strong, national is good, local is good, domestic are extending and so are imports.

Davis Hebert - Wells Fargo

Okay. Fair enough. And then finally on the balance sheet, you mentioned your leverage obviously in a very good place right now. Depending on what kind of strategic opportunities that you see, would you be interest in taking that leverage point higher?

Dunia Shive

Oh! Of course, I mean, at 2.8 times we have a lot of flexibility. We have a lot of room to take that number higher. So, certainly, we’ve always been conservative from the standpoint of how we look at debt and how we look at leverage, but with 2.8 times, like we have a lot of room to look at opportunities to continue to grow the company.

Davis Hebert - Wells Fargo

Okay. And the 8% notes become callable at the end of this year. Do you have any opinion on how you’d like to see that capital structure evolve whether it’s more bank or continue to come back to the bond market?

Dunia Shive

Yeah. I think some of that going to depend on the opportunities that may present themselves on the M&A side between now and November, they are callable at 104 in November and as you know they trade a pretty significant premium right now, I want to say, it’s about 109 or so.

So we are monitoring that but obviously if you -- if November comes along and the interest rate environment still looks like it looks today or even if it picks up a little bit, it would make a lot of sense for us to call those 104 and be able to go into the public marketplace and get a very, very attractive rate on five to seven year paper.

We also have the bank market but we might want to think, we might want to conserve that or reserve that for flexibility and go back into public market. So most forecast or for continued low rate environment, so we’re optimistic that won’t be able to do something in November.

Davis Hebert - Wells Fargo

Excellent. Thank you very much.

Dunia Shive

Thank you.

Operator

And we have a question from the line of John Kornreich with JK Media. Please go ahead.

John Kornreich - JK Media

We have net pick. On the state taxes does that appear on the line of income tax expense or somewhere else?

Carey Hendrickson

Income tax.

Dunia Shive

It’s an income tax expense, John.

John Kornreich - JK Media

Okay.

Dunia Shive

It’s part of the effective right.

Carey Hendrickson

Okay.

John Kornreich - JK Media

Okay. By the way, Dunia, are you with DB this year?

Dunia Shive

Carey and Paul we will be there, I have conflict. Cary and Paul will be there.

John Kornreich - JK Media

Okay. I’ll see you then.

Dunia Shive

Thanks, John.

Operator

Thank you. Now I’ll turn it back to over our speakers for any closing remarks.

Dunia Shive

Okay. Well, thank you everyone for joining us today. And we look forward to providing you further updates as we go long. As John just mentioned, Carey and Paul will be at an upcoming conference, and we’ll look forward to speaking with you then. Thanks for your time.

Carey Hendrickson

Thank you.

Operator

Thank you. Ladies and Gentlemen, this conference will be made available for replay starting today at 3 p.m. Central Time running for two weeks until February 22nd at mid-night Central. You can access the AT&T Teleconference Replay System by dialing 1800-475-6701, please entering the replay access code 279474. International parties dial 320-365-3844, the replay access code 279474. Those numbers again, 1800-475-6701 and international parties dial 320-365-3844, and the replay access code is 279474. That will conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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