Consolidated financial figures include the results of operation of the Company’s two separately reported segments – Broadcasting and Corporate and Other. The Company provides information about segment revenue and segment EBITDA and operating income because these financial measures are used by its key decision makers in making operating decisions and evaluating performance. For additional information about the Company’s segmented information, see note 17 of the Company’s annual audited consolidated financial statements.
BROADCASTING SEGMENT The broadcasting segment derives its revenue from the sale of broadcast advertising from its licences across the country. Advertising revenue can vary based on market and economic conditions, the audience share of a radio station, the quality of programming and the effectiveness of a company’s team of sales professionals.
Reporting units within the broadcasting segment are managed and evaluated based on their revenue and EBITDA. Here are the key operating results of the broadcasting segment.
Revenue
Fourth quarter revenue was $31.4 million, 6% or $1.7 million higher than the same quarter last year. For the year ended December 31, 2010, revenue of $113.8 million improved by 12% or $12.0 million compared to 2009. The entire growth in the quarter and year-to-date was driven by organic (same-station) revenue.
The Western Canada radio properties had strong revenue growth for the Company achieving an increase of 8% in the quarter and 13% year-to-date. Atlantic Canada radio stations and those in the Central region also enjoyed growth that exceeded the industry average with Central Canada’s revenue growing year-over-year by 25% and Atlantic Canada’s growth was 7%. The overall industry growth was 6%.
During 2010 national advertising for the Company was 12% higher than 2009 as the economy strengthened and continued to be strong throughout the year. For the Company, local advertising increased by 12% or $8.4 million, another sign that the economic recovery was widespread throughout the country.
Overall, the industry’s average growth rate in 2010 was 6%; the Company posted positive growth of 12% year-over-year. Management anticipates that it will be able to continue generating positive revenue growth in 2011.
Operating Expenses
Broadcasting operating expenses for the quarter were $20.3 million, 14% or $2.5 million higher than 2009 while year-to-date operating expenses of $80.8 million were also higher than last year by 9% or $6.8 million.
Over the past number of years the Canadian Association of Broadcasters (the “CAB”), on behalf of all radio broadcasters, has been disputing the amount of Part II fees charged by the CRTC. During these years there were court filings, appeals and in 2009, a final settlement was reached. The Company adjusted its operating expenses related to these fees based on court decisions at each stage of the dispute. In 2007 there was a reduction in fees while in 2008 there was an increase in fees. In the final ruling in the fourth quarter of 2009, operating expenses were reduced by $2.0 million. The net effect of this ruling was that the Company had no Part II fees expense for September 1, 2006 to August 31, 2009. Beginning September 2009, the approximate annual fee cost is $0.6 million.
The Copyright Board issued a ruling in July 2010 on certain tariffs which resulted in a $3.0 million increase in copyright fees year-to-date, of which $1.8 million related to previous years. As a result of this ruling, copyright fees as a whole have increased from 7.3% to 8.9% of revenue, subject to certain exemptions for low use and low revenue stations.
Excluding the impact of CRTC Part II fees and increased copyright fees, operating expenses would have been less than 2% higher than the fourth quarter last year and year-to-date expenses would have been 3% higher than 2009. The small increases in the 2010 operating expenses were primarily because of higher variable costs due to higher revenue.
EBITDA
Fourth quarter broadcasting EBITDA of $11.1 million was 7% or $0.8 million lower than 2009. Year-to-date EBITDA of $33.0 million was 19% or $5.2 million better than last year. Eliminating the impact of CRTC Part II fees and copyright fees explained above, EBITDA in the quarter would have been $11.1 million and $34.8 million year-to-date. This represents a $1.4 million or 14% increase over the fourth quarter last year and a $9.9 million or 40% increase on a year-to-date basis. The improved EBITDA is attributable to revenue growth in the quarter and in the year.
CORPORATE AND OTHER SEGMENT
The Corporate and Other segment derives its revenue from hotel operations. Corporate and Other also includes other income and expenses attributed to head office functions and investment income from the Company’s portfolio of marketable securities; the results of which are impacted by the economic and related market conditions.
Revenue
Corporate and Other revenue increased by less than $0.1 million or 5% in the fourth quarter and by less than $0.1 million or 2% year-to-date; this was due to a slight increase in hotel revenue.
Operating Expenses
Operating expenses of $3.3 million were higher than the fourth quarter last year. Year-to-date operating expenses of $11.0 million were 7% or $0.7 million higher than 2009.
EBITDA
Fourth quarter and year-to-date EBITDA were lower than the same periods last year primarily due to the increase in operating expenses.
SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited except totals)
The Company’s revenue and operating results vary, depending on the quarter. The first quarter is generally a period of lower retail spending and as a result, advertising revenue is lower. The fourth quarter tends to be a period of higher retail spending. In 2010 the Company recognized the increased copyright fees and the broadcast licence impairment charge in the second quarter. In 2009, a gain on the disposal of a broadcasting licence positively impacted net income by $5.6 million in the third quarter.
