AHC A H Belo Corporation

A. H. Belo Corporation (NYSE: AHC) today reported third quarter 2014 net income from continuing operations of $2.3 million, or $0.10 per share, compared to net income from continuing operations of $0.5 million, or $0.02 per share, in the third quarter of 2013. Third quarter 2014 net income from continuing and discontinued operations of $18.4 million includes a $17.1 million gain related to the sale of The Providence Journal newspaper operations and $3.5 million of income for an economic parity payment in conjunction with the dissolution of the partnership which held the Company’s membership interest in Classified Ventures.

Jim Moroney, chairman, president and Chief Executive Officer, said, “We are pleased with progress made towards our Dallas-based strategy in the third quarter of 2014. The completion of the sales of The Providence Journal in the third quarter and Classified Ventures in the fourth quarter are key components in the successful execution of this strategy.

“The Board and management continue to focus on capital allocation, including potential investments and acquisitions in the advertising and marketing services arena, as we consider deployment of the cash proceeds from these and other transactions. We are optimistic about opportunities to diversify and grow revenues and EBITDA and reduce our reliance on core print advertising revenue which remain challenged.”

In conjunction with the completed sale of the newspaper operations in Providence, Rhode Island, The Providence Journal newspaper operations are reported as discontinued operations in the Company’s financial statements (see further discussion below). Accordingly, the results from continuing operations consist primarily of The Dallas Morning News and corporate activities.

Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization ("EBITDA") from continuing operations, excluding investment-related gains, was $4.2 million in the third quarter of 2014, compared to $4.4 million in the prior period.

As of September 30, 2014, cash and cash equivalents were $108.1 million, and the Company had no debt.

Third Quarter Results from Continuing Operations

Total revenue was $65.9 million in the third quarter of 2014, a decrease of 2.3 percent compared to the prior year period. Declines in print advertising and circulation revenue were offset by increases in commercial printing and digital revenue.

Revenue from advertising and marketing services, including print and digital revenues, decreased 8.6 percent. Digital revenue, which comprised 22.0 percent of advertising and marketing services revenue, increased 9.6 percent over the prior year quarter primarily due to continued growth in marketing services revenue associated with Speakeasy. Increases in digital revenue were offset by declines in print display, preprint and classified advertising revenues which decreased 19.2 percent, 8.1 percent and 8.1 percent, respectively.

Advertising revenue from niche publications, which is a component of the display, preprint, classified and digital revenues reported above, decreased slightly in the third quarter of 2014.

Circulation revenue decreased 2.6 percent to $21.2 million in the third quarter of 2014. Single copy revenue increased during this period due to higher rates, offset by lower home delivery revenue resulting from reduced volumes.

Commercial printing and distribution revenue increased 46.9 percent to $7.8 million in the third quarter of 2014 due primarily to the impact of printing the Fort Worth Star-Telegram and additional printing of two local community newspapers.

Total operating expense in the third quarter was $65.4 million, a 3.3 percent decrease compared to the prior year period as employee compensation and benefits, technology, newsprint and depreciation expenses all decreased.

The Company’s newsprint expense in the third quarter was $4.7 million, a decrease of 8.7 percent compared to the prior year period. Newsprint consumption dropped 9.2 percent to approximately 7,970 metric tons. Compared to the prior year period, newsprint cost per metric ton remained flat while the average purchase price per metric ton for newsprint increased 2 percent.

Corporate and non-operating expense in the third quarter was $3.6 million, an increase of 11 percent compared to the prior year period due to higher technology expenses.

As of September 30, 2014, A. H. Belo had approximately 1,300 full-time equivalent employees, a decrease of approximately 33 percent compared to the prior year period, primarily due to the sale of The Providence Journal during the quarter and the sale of The Press-Enterprise in the fourth quarter of 2013.

Discontinued Operations

In the third quarter of 2014, the Company completed the sale of substantially all of the assets comprising the newspaper operations of The Providence Journal and related real property located in Providence, Rhode Island. The purchase price consisted of $46.0 million plus a preliminary working capital adjustment of $2.7 million. Closing costs of $0.1 million and estimated selling and exit costs of $3.7 million were recognized in the third quarter of 2014. Proceeds of $48.0 million were received in September 2014 and settlement of the working capital adjustment is anticipated in the fourth quarter of 2014. The Company recorded a pretax gain on the sale of $17.1 million in the third quarter of 2014.

A. H. Belo continues to own and market for sale the 75 Fountain Street headquarters building, the downtown parking lots and the former Rhode Island Monthly / Sunday inserting building. The Company also retains the obligation for the A. H. Belo Pension Plan II, which provides defined pension benefits to former employees of The Providence Journal Company.

Total third quarter gain from discontinued operations, including the 2014 gain on the sale of The Providence Journal and the 2013 gain on the sales of the headquarters building and printing press of The Press-Enterprise, was $16.1 million and $4.8 million, net of tax, in 2014 and 2013, respectively.

Pension Plans

In the third quarter of 2014, the Company made required contributions of $5.8 million to its pension plans, which included the acceleration of the scheduled fourth quarter pension payment. No further pension contributions are required in 2014.

Real Estate Holdings

During the third quarter of 2014, the Company sold its remaining real estate in Riverside, California, comprised of land and a building that formerly served as a commercial printing operation. The Company received net sales proceeds of $1.6 million, generating a gain of $0.3 million.

The Company also sold 97 acres of undeveloped land in southern Dallas, Texas during the third quarter of 2014. Net sales proceeds of $1.8 million were received upon closing of the transaction, generating a gain of $0.6 million.

Other

As previously announced, on October 1, 2014, the Company completed the sale of its interest in Classified Ventures to Gannett Co. Inc. and received pre-tax cash proceeds, net of selling costs and funds held in escrow, of $77.8 million.

In September of 2014, the Company concluded the transition services provided to Freedom Communications Holdings, Inc. in relation to the sale of The Press-Enterprise completed in 2013. Accordingly, there are no further amounts due from Freedom Communications Holdings, Inc. associated with this transaction.

Non-GAAP Financial Measures

Reconciliations of net income to EBITDA and Adjusted EBITDA from continuing operations are included as exhibits to this release.

Financial Results Conference Call

A. H. Belo will conduct a conference call on Wednesday, October 29 at 10:00 a.m. CDT to discuss financial results. The conference call will be available via webcast by accessing the Company’s website (www.ahbelo.com/invest) or by dialing 1-800-230-1766 (USA) or 612-332-0107 (International). A replay line will be available at 1-800-475-6701 (USA) or 320-365-3844 (International) from 12:00 p.m. CDT on October 29 until 11:59 p.m. CST on November 5, 2014. The access code for the replay is 338424.

About A. H. Belo Corporation

A. H. Belo Corporation (NYSE: AHC) is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as businesses with expertise in emerging media and digital marketing. With a continued focus on extending our media platform, we are able to deliver news and information in innovative ways to new audiences with diverse interests and lifestyles. For additional information, visit ahbelo.com, email invest@ahbelo.com.

Statements in this communication concerning A. H. Belo Corporation’s (the “Company’s”) business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, dispositions, impairments, business initiatives, acquisitions, pension plan contributions and obligations, real estate sales, working capital, future financings and 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 and newsprint prices; newspaper circulation trends and other circulation matters, including changes in readership methods, patterns and demography; and audits and related actions by the Alliance for Audited Media; challenges implementing increased subscription pricing and new pricing structures; challenges in achieving expense reduction goals in a timely manner and the resulting potential effects on operations; challenges in consummating asset acquisitions or dispositions upon acceptable terms; technological changes; development of Internet commerce; industry cycles; changes in pricing or other actions by existing and new competitors and suppliers; consumer acceptance of new products and business initiatives; labor relations; regulatory, tax and legal changes; adoption of new accounting standards or changes in existing accounting standards by the Financial Accounting Standards Board or other accounting standard-setting bodies or authorities; the effects of Company acquisitions, dispositions, co-owned ventures and investments; pension plan matters; general economic conditions and changes in interest rates; significant armed conflict; acts of terrorism; and other factors beyond our control, as well as other risks described in the Company’s Annual Report on Form 10-K, and in the Company’s other public disclosures and filings with the Securities and Exchange Commission.

          A. H. Belo Corporation Condensed Consolidated Statements of Operations        

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

In thousands, except share and per share amounts (unaudited)     2014     2013 2014     2013 Net Operating Revenue Advertising and marketing services $ 36,941 $ 40,402 $ 114,918 $ 122,288 Circulation 21,219 21,787 63,458 64,024 Printing and distribution   7,763     5,284     21,200     16,390   Total net operating revenue 65,923 67,473 199,576 202,702 Operating Costs and Expense Employee compensation and benefits 24,265 27,070 78,151 83,608 Other production, distribution and operating costs 29,846 28,511 87,930 85,640 Newsprint, ink and other supplies 7,910 8,370 24,012 25,484 Depreciation 3,341 3,661 10,099 11,504 Amortization   61     29       121       89   Total operating costs and expense   65,423     67,641     200,313     206,325   Income (loss) from operations 500 (168 ) (737 ) (3,623 ) Other Income (Expense), Net Gains (losses) on equity method investments, net (953 ) 723 17,206 1,818 Interest income (expense) — 108 — (311 ) Other income, net   3,878     152     4,136     116   Total other income, net   2,925     983     21,342     1,623   Income (Loss) from Continuing Operations Before Income Taxes 3,425 815 20,605 (2,000 ) Income tax provision   1,156     384     3,475     1,373   Income (Loss) from Continuing Operations   2,269     431     17,130     (3,373 ) Income (loss) from discontinued operations 643 87 3,766 (3,202 ) Gain related to the divestiture of discontinued operations, net 17,134 4,746 17,109 4,746 Tax expense (benefit) from discontinued operations   1,652     (5 )   1,698     (138 ) Gain from Discontinued Operations, Net   16,125     4,838     19,177     1,682   Net Income (Loss) 18,394 5,269 36,307 (1,691 ) Net loss attributable to noncontrolling interests   (50 )   (52 )   (80 )   (171 ) Net Income (Loss) Attributable to A. H. Belo Corporation $ 18,444   $ 5,321   $ 36,387   $ (1,520 )   Per Share Basis Basic and Diluted Continuing operations $ 0.10 $ 0.02 $ 0.74 $ (0.15 ) Discontinued operations   0.74     0.22     0.87     0.07   Net income (loss) attributable to A. H. Belo Corporation $ 0.84   $ 0.24   $ 1.61   $ (0.08 )   Weighted average shares outstanding Basic 21,890,754 21,943,876 21,927,920 22,005,705 Diluted 21,991,716 22,069,511 22,039,248 22,005,705           A. H. Belo Corporation Condensed Consolidated Balance Sheets         September 30, December 31, In thousands (unaudited)     2014 2013 Assets Current assets: Cash and cash equivalents $ 108,063 $ 82,193 Accounts receivable, net 25,095 32,270 Other current assets 15,204 11,246 Assets of discontinued operations   875   42,716 Total current assets 149,237 168,425 Property, plant and equipment, net 66,825 74,863 Intangible assets, net 25,315 24,823 Other assets   11,506   11,107 Total assets $ 252,883 $ 279,218 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 11,929 $ 13,717 Accrued expenses and other current liabilities 16,972 14,275 Advance subscription payments 14,416 14,842 Liabilities of discontinued operations   995   11,538 Total current liabilities 44,312 54,372 Long-term pension liabilities 37,500 50,082 Other liabilities 6,553 5,988 Total shareholders’ equity   164,518   168,776 Total liabilities and shareholders’ equity $ 252,883 $ 279,218           A. H. Belo Corporation

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA from Continuing Operations

       

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

In thousands (unaudited)     2014     2013 2014     2013 Net Income (Loss) Attributable to A. H. Belo Corporation $ 18,444 $ 5,321 $ 36,387 $ (1,520 ) Less: Gain from discontinued operations, net 16,125 4,838 19,177 1,682 Plus: Net loss attributable to noncontrolling interests   (50 )   (52 )   (80 )   (171 ) Income (Loss) from Continuing Operations 2,269 431 17,130 (3,373 ) Depreciation and amortization 3,402 3,690 10,220 11,593 Interest expense (income) —

(108

)

— 311 Income tax provision   1,156     384     3,475     1,373   EBITDA from Continuing Operations   6,827     4,397     30,825     9,904   Addback: Net investment-related gains   (2,603 )   —     (20,148 )   —   Adjusted EBITDA from Continuing Operations $ 4,224   $ 4,397   $ 10,677   $ 9,904    

The Company evaluates earnings before interest, taxes, depreciation and amortization ( “EBITDA”) which is presented for continuing operations by adjusting for discontinued operations and losses attributable to noncontrolling interests. Adjusted EBITDA is calculated, as applicable, by adding back to EBITDA non-cash impairment expense and net investment-related gains and losses. The Company adjusted EBITDA for an $18,479 gain on the sale of apartments.com by Classified Ventures in the second quarter of 2014 and for $3,540 of income associated with an economic parity payment related to its ownership of Classified Ventures in the third quarter of 2014, offset by other-than-temporary impairments of $934 and $937 in the first and third quarters of 2014, respectively, for the Company’s investment in Wanderful Media.

Neither EBITDA nor Adjusted EBITDA is a measure of financial performance under generally accepted accounting principles (“GAAP”). Management uses EBITDA, Adjusted EBITDA and similar measures in internal analyses as supplemental measures of the Company’s financial performance, and for performance comparisons against its peer group of companies. Adjusted EBITDA is also used by management to evaluate the cash flows available for capital spending, investing, pension contributions (required and voluntary), dividends and other equity-related transactions. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for cash flows provided by operating activities or other income or cash flow data prepared in accordance with GAAP, and these non-GAAP measures may not be comparable to similarly-titled measures of other companies.

In previous periods, the Company added back pension expense in the determination of Adjusted EBITDA. Management reassessed this measurement and no longer excludes pension expense from Adjusted EBITDA.

A. H. Belo CorporationAlison K. Engel, 214-977-2248Senior Vice President/Chief Financial Officerwww.ahbelo.com