A. H. Belo Corporation First Quarter 2016 on Form 10-Q
7
A. H. Belo Corporation and Subsidiaries
Notes to
the
Consolidated Financial Statements
Note 1:
Significant Accounting Policies
and Recently Issued Accounting Standards
Description of Business.
A. H. Belo Corporation and subsidiaries (“A. H. Belo” or the “Company”), headquartered in Dallas, Texas, is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and
digital
marketing. With a continued focus on extendin
g the Company’s media platform,
A.
H.
Belo is able to deliver news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles.
The Company publishes
The Dallas Morning News
(
www.dallasnews.com
), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the
Denton Record-Chronicle
(
www.dentonrc.com
), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. A. H. Belo also offers digital marketing solutions
through Your Speakeasy, LLC (“Speakeasy”) and DMV Digital Holdings Company, Inc. (“DMV
Holdings”)
and provides event promotion and marketing services through
DMN CrowdSource, LLC (“CrowdSource
”).
Basis of Presentation.
These consolidated financial statements include the accounts of A. H. Belo and its subsidiaries. The Company follows the guidance set by the Financial Accounting Standards Board (“FASB”) or other authoritative accounting standards-setting bodies.
The Company consolidates investments in which it has a controlling financial interest. Transactions between the consolidated companies are eliminated and noncontrolling interests in less than wholly-owned subsidiaries are reflected in the consolidated financial statements. Less than wholly-owned subsidiaries consolidated in the Company’s financial statements include Your Speakeasy, LLC,
Untapped Festivals, LLC
(“
Untapped
”)
and DMV Digital Holdings Company, Inc., which the Company has
70
percent,
51
percent and
80
percent ownership, respectively.
The preparation of consolidated financial statements in conformity with
Generally Accepted Accounting Principles (“
GAAP
”)
requires management to make estimates and assumptions that affect the amounts reported in
the
consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments considered necessary for a fair presentation are included. All dollar amounts are presented in thousands, except per share amounts, unless the context requires otherwise.
New Accounting Pronouncements.
On January 1, 2016,
ASU 2015-05,
Goodwill and Other – Internal-Use-Software
became effective
.
I
f fees charged under a cloud computing arrangement include an element for software licenses, then such costs
are subject to capitalization, c
onsistent with the acquisition of other software licenses. Otherwise,
these costs are
accounted for as a service contract
and expensed
. The Company adopted this standard on a prospective basis
and adoption did not materially
impact
the Company’s financial statements.
In September 2015, the FASB issued ASU 2015-16,
Business Combinations
.
Under
this update, an entity recognizes adjustments to provisional amounts
that are
identified during the measurement period in the current reporting period in which they are determined. Changes to the current period’s financial statements are calculated as if the accounting had been completed at the acquisition date. The entity is no longer required to retrospectively account for those adjustments.
In the three months ended December 31, 2016, t
he Company adopted this standard
. Accordingly, the Company has not retroactively accounted for the changes in the purchase price allocation for DMV Holdings, which was finalized in the fourth quarter of 2015.
The FASB recently issued the following Accounting Standards Updates (“ASU”) which could have potential impact to the Company’s financial
statements and were not previously disclosed in the Company’s 2015
Annual Report on
Form 10-K
.
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures
. Under this update, when an investment converts to the equity method of accounting, the investor should adopt the equity method prospectively and a retroactive adjustment is not required for prior periods. The update is effective for fiscal years beginning after December
15
, 2016. The Company does not anticipate the update to have a material impact on the Company's financial statements.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers
, which provides clarification to revenue recognition standards for principal and agent relationships. An entity is considered
the
principal if it controls the goods or services delivered to the customer before delivery occurs. In such instances, revenue is recognized gross. When an entity as agent satisfies a performance obligation, revenue is recognized net at the amount to which the entity is entitled. The update is effective fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact of this update to its financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock Compensation
.
Under this update, an entity recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and eliminates the concept of the
8
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
APIC pool related to the exercise or cancellation of share-based payments. In addition, excess tax benefits and tax deficiencies are considered discrete items in the reporting period they occur and are not included in the estimate of an entity’s annual effective tax rate. Further, this update eliminates the requirement to defer recognition of an excess tax benefit until the benefit is realized through a reduction to taxes payable.
The
update
is effective fiscal years and interim periods beginning after December 15, 201
6 and early adoption is permitted. In the three months ended March 31, 2016, t
he Company
early adopted this
standard
and adoption
d
id
not materia
l
l
y
impact
the Company's financial statements.
Note
2
: Segment Reporting
The Company has identified
two
reportable segments based on management and internal reporting structures as well as product and service offerings: Publishing (“Publishing”) and Marketing, Event Marketing and Other Services (“MEMO”).
The Publishing segment includes the Company’s core print operations associated with its newspapers, niche publications and related websites. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers and commercial printing and distribution services primarily related to national and regional newspapers and preprint advertisers. Businesses within the Publishing segment leverage the production facilities, its subscriber base or its digital news platforms to provide additional contribution margin. The Company evaluates Publishing operations based on operating profit and cash flows from operating activities.
The MEMO segment is comprised of the Company’s marketing, event marketing and other businesses. Marketing services and product offerings include multi-channel marketing services and software, targeted-channel marketing services, marketing analytics, content development, social media management and other consulting services. Marketing services also include non-digital marketing products, including sales of business promotional and sales of pay-for-performance services directed primarily to other newspaper companies. Marketing services include the operations of its subsidiaries, DMV Holdings, Speakeasy and Proven Performance Media, as well as its operating division doing business as Connect and its
cars.com
sales division.
Event marketing includes the operations of CrowdSource, which promotes community events, such as
One Day University
, an educational speaker event;
Untapped
,
which hosts
live music
festivals
featuring
craft beer
, food
and entertainment across five major Texas cities; and other community-related events.
The Company evaluates MEMO operations based on revenue growth and operating profit as these businesses continue to expand within their respective markets.
The following table summarizes key financial results and position related to the reportable segments.
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|
Three Months Ended March 31,
|
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|
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|
|
|
|
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
|
Publishing
|
|
$
|
53,055
|
|
$
|
57,802
|
MEMO
|
|
|
9,428
|
|
|
7,634
|
Total
|
|
$
|
62,483
|
|
$
|
65,436
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
Publishing
|
|
$
|
(2,435)
|
|
$
|
(4,932)
|
MEMO
|
|
|
654
|
|
|
(174)
|
Total
|
|
$
|
(1,781)
|
|
$
|
(5,106)
|
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
9
The following table summarizes noncash expenses recorded by the Company’s reportable segments.
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Three Months Ended March 31,
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|
2016
|
|
2015
|
Noncash Expenses
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
Depreciation
|
|
$
|
2,611
|
|
$
|
3,011
|
Amortization
|
|
|
—
|
|
|
30
|
Total
|
|
$
|
2,611
|
|
$
|
3,041
|
|
|
|
|
|
|
|
MEMO
|
|
|
|
|
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|
Depreciation
|
|
$
|
21
|
|
$
|
29
|
Amortization
|
|
|
226
|
|
|
343
|
Total
|
|
$
|
247
|
|
$
|
372
|
The following table summarizes total assets related to the reportable segments.
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March 31,
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December 31,
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2016
|
|
2015
|
Total Assets
|
|
|
|
|
|
|
Publishing
|
|
$
|
191,246
|
|
$
|
196,912
|
MEMO
|
|
|
24,220
|
|
|
24,589
|
Total
|
|
$
|
215,466
|
|
$
|
221,501
|
Note
3
:
Goodwill and Intangible Assets
The Company records goodwill and intangible assets from its previous acquisitions. In 2015, the Company reorganized its reporting units, aligning resources consistent with management’s operating strategies. The Company’s
P
ublishing segment operates as a single reporting unit and the MEMO segment includes reporting units for marketing services operations and event marketing operations.
The table below sets forth the goodwill and other intangible assets within the Company’s reportable segments as of
March 31, 2016
and
December 31, 2015
.
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March 31,
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December 31,
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2016
|
|
2015
|
Goodwill
|
|
|
|
|
|
Publishing
|
$
|
22,682
|
|
$
|
22,682
|
MEMO
|
|
14,201
|
|
|
14,201
|
Total
|
$
|
36,883
|
|
$
|
36,883
|
Other Definite-Lived Intangibles
|
|
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|
MEMO
|
|
|
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|
Cost
|
$
|
6,710
|
|
$
|
6,710
|
Accumulated Amortization
|
|
(1,158)
|
|
|
(932)
|
Net Carrying Value
|
$
|
5,552
|
|
$
|
5,778
|
Other definite-lived intangibles include
$5,190
of customer relationships with useful lives
of
10
years and of
$1,520
developed
technology with a life of
five
years. Amortization expense for intangible assets for the
three months ended
March 31, 2016
and 2015
,
was
$226
and
$373
, respectively
.
10
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
Note
4
: Investments
The Company owns investment interests in various entities which are recorded under the equity method or cost method of accounting, or consolidated if controlling financial interest is held. Under the equity method, the Company records its share of the investee’s earnings or losses each period as a component of other income (loss), net, in the Consolidated Statements of Operations. Under the cost method, the earnings or losses are recorded when such amounts are realized. The Company accounted for its investment in Wanderful Media (“Wanderful”) as an equity method investment during the three months ended March 31, 2015. In the three months ended December 31, 2015, the Company discontinued the equity method of accounting for Wanderful as a result of the decreased ownership interest and inability to exert significant influence on the investee. The Company recorded net losses on equity method investments of
$414
for the three months ended March 31, 2015.
Note
5
:
Long-term Incentive Plans
A. H. Belo sponsors a long-term incentive plan under which
8,000,000
common shares were authorized for equity based awards. Awards may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted shares, RSUs, performance shares, performance units or stock appreciation rights. In addition, stock options may be accompanied by full and limited stock appreciation rights. Rights and limited stock appreciation rights may also be issued without accompanying stock options.
Awards under the plan were also granted to holders of stock options issued by the former parent company in connection with the Company’s separation from the former parent. The Company recognizes compensation expense for any awards related to its respective employees, under the plan.
Stock Options.
The non-qualified stock options granted under the Company’s long-term incentive plans are fully vested and exercisable.
No
options have been granted by the Company since 2009 and the costs associated with outstanding awards were fully vested and recognized to expense prior to 2011.
The table below sets forth a summary of stock option activity under
the A. H. Belo
long-term incentive plan.
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Number of
Options
|
|
WeightedAverage
Exercise Price
|
Outstanding at December 31, 2015
|
259,311
|
|
$
|
8.37
|
Exercised
|
(25,926)
|
|
|
1.26
|
Canceled
|
(7,420)
|
|
|
20.15
|
Outstanding at March 31, 2016
|
225,965
|
|
$
|
8.80
|
The
intrinsic value of options exercised in the
three months ended
March 31, 2016
and
2015
, was
$117
and
$100
, respectively
, and the intrinsic value of outstanding options at
March 31, 2016
, was
$174
.
Restricted Stock Units.
Under A. H. Belo’s long-term incentive plan, the Company’s board of directors periodically awards RSUs. The RSUs have service
and/or performance
conditions and vest over a period of up to
three
years. Vested RSUs are redeemed
60
percent in A. H. Belo Series A common stock and
40
percent in cash
over a period of three years
. As of
March 31, 2016
, the liability for the portion of the award to be redeemed in cash
was
$550
. The
table below sets forth a summary of RSU activity under
the A. H. Belo
long-term incentive plan.
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Total
RSUs
|
|
Issuance of
Common
Stock
|
|
RSUs
Redeemed in
Cash
|
|
Cash
Payments at
Closing Price
of Stock
|
|
Weighted-
Average Price
on Date of
Grant
|
Non-vested at December 31, 2015
|
317,266
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$
|
7.83
|
Granted
|
131,115
|
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|
5.72
|
Vested
|
(97,651)
|
|
58,584
|
|
39,067
|
|
$
|
230
|
|
|
7.53
|
Non-vested at March 31, 2016
|
350,730
|
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|
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$
|
7.12
|
The fair value of the RSUs granted is determined using the closing trading price of the Company’s shares on the grant date. As of
March 31, 2016
, unrecognized compensation related to the non-vested RSUs
totaled
$421
, which is expected to be recognized over a weighted-average period of
1.
20
years.
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
11
Compensation Expense.
A. H. Belo recognizes compensation expense for
any awards
issued to its employees and directors
under its
long-term incentive
plan over the vesting period of the award
. Compensation
expense related to Company issued stock awards is
set forth in the table below.
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RSUs
Redeemable
in Stock
|
|
RSUs
Redeemable
in Cash
|
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Total
RSU Awards
Expense
|
Three months ended March 31,
|
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|
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|
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|
|
2016
|
$
|
372
|
|
$
|
232
|
|
$
|
604
|
2015
|
$
|
371
|
|
$
|
(68)
|
|
$
|
303
|
Note
6
: Income Taxes
Income taxes are recorded using the asset and liability method. The provision for taxes reflects the Company’s estimate of the effective tax rate expected to be applied for the full fiscal year, adjusted for any discrete transactions which are reported in the period in which they occur. The estimated effective tax rate is re-evaluated each quarter based on the Company’s estimated tax expense for the year. If a reliable estimate cannot be made of the annual effective tax rate, which could be caused by the significant variability in rates when marginal earnings are expected for the year and significant permanent or temporary differences exist, a discrete tax rate is calculated for the period.
The Company recognized income tax benefit from continuing operations
of
$1,109
and
$5,730
for the three months ended
March 31, 2016
and
2015
, respectively
. Effective income tax rates from continuing
operations were
65.2
percent and
105.9
percent for
2016
and
2015
, respectively. The effective tax rate is affected by recurring items such as tax rates and income in jurisdictions which we expect to be fairly consistent in the near term.
The tax benefit recorded for the three months ended
March 31, 2016
, primarily reflects taxable losses from operations.
The tax benefit recorded for the
three months ended
March 31, 2015
, reflected a reduction in the valuation allowance for deferred tax assets of
$3,993
primarily as a result of deferred tax liabilities assumed in connection with the acquisition of DMV Holdings. This benefit was subsequently adjusted to
$2,090
in the three months ended December 31, 2015
,
upon finalization of accounting for the acquisition.
The
Company expects to recover current year tax benefits through a carryback against taxes paid in 2014.
Note
7
:
Pension and Other Retirement Plans
Defined Benefit Plans.
The Company sponsors
the A. H. Belo Pension Plans, which provide benefits to approximately
2,300
current and former employees of the Company. A. H. Belo Pension Plan I
provides benefits to certain
current and former
employees primarily employed with
The Dallas Morning News
or the A. H. Belo corporate offices. A. H. Belo Pension Plan II provides benefits to certain
former
employees of The Providence Journal Company
.
This
obligation was retained by the Company
upon the
sale transaction of the newspaper operations of
The Providence Journal
.
No
additional benefits are accruing under the A. H. Belo Pension Plans, as future benefits were frozen prior to the plans’ effective date.
No contributions are required to the A. H. Belo Pension Plans in 2016. Management believes the assumed rate of return on the plans’ assets of
6.5
percent continues to be appropriate.
Net Periodic Pension Benefit
The Company estimates net periodic pension expense or benefit based on the expected return on plan assets, the interest on projected pension obligations and the amortization of actuarial gains and losses in accumulated other comprehensive loss, if required.
The table below sets forth components of net periodic pension benefit.
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Three Months Ended March 31,
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|
2016
|
|
2015
|
Interest cost
|
|
$
|
2,525
|
|
$
|
3,540
|
Expected return on plans' assets
|
|
|
(3,396)
|
|
|
(5,008)
|
Amortization of actuarial loss
|
|
|
11
|
|
|
312
|
Net periodic pension benefit
|
|
$
|
(860)
|
|
$
|
(1,156)
|
Defined Contribution Plans.
The A. H. Belo Savings Plan, a defined contribution 401(k) plan, covers substantially all employees of A. H. Belo. Participants may elect to contribute a portion of their pretax compensation, as provided by the plan and the Internal
12
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
Revenue Code. Employees can contribute up to
100
percent of their annual eligible compensation less required withholdings and deductions up to statutory limits. The Company provides an ongoing dollar-for-dollar match of eligible employee contributions, up to
1.5
percent of the employees’ compensation on a per-pay-period basis. During the three months ended
March 31, 2016
and
2015
, the Company recorded expense of
$279
and
$258
, respectively
, for matching contributions to the plan.
Note
8
: Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss contains actuarial gains and losses associated with the A. H. Belo Pension Plans and gains and losses resulting from negative plan amendments and other actuarial experience related to other post-employment benefit plans. The Company records amortization of accumulated other
comprehensive loss in employee compensation and benefits in its Consolidated Statements of Operations. Gains and losses associated with the A. H. Belo Pension Plans are amortized over the weighted average remaining life expectancy of the participants. Gains and losses associated with the Company’s other post-employment benefit plans are amortized over the average remaining service period of active plan participants. The net deferred tax assets associated with accumulated other comprehensive loss are fully reserved.
The table below sets forth the changes in accumulated other comprehensive loss, net of tax
, as presented in the Company’s consolidated financial statements.
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|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
Total
|
|
Defined
benefit
pension
plans
|
|
Other post-
employment
benefit plans
|
|
Total
|
|
Defined
benefit
pension
plans
|
|
Other post-
employment
benefit plans
|
Balance, beginning of period
|
|
$
|
(38,442)
|
|
$
|
(38,898)
|
|
$
|
456
|
|
$
|
(57,367)
|
|
$
|
(57,654)
|
|
$
|
287
|
Amortization
|
|
|
(8)
|
|
|
11
|
|
|
(19)
|
|
|
312
|
|
|
312
|
|
|
—
|
Balance, end of period
|
|
$
|
(38,450)
|
|
$
|
(38,887)
|
|
$
|
437
|
|
$
|
(57,055)
|
|
$
|
(57,342)
|
|
$
|
287
|
Note
9
: Earnings Per Share
The table below sets forth the reconciliations for net income (loss) and weighted average shares used for calculating basic and diluted earnings per share (“EPS”). The Company’s Series A an
d B common stock equally share
in the distributed and undistributed earnings.
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|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Earnings (numerator)
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
(632)
|
|
$
|
363
|
Less: Loss from discontinued operations, net
|
|
|
—
|
|
|
(12)
|
Less: Income to participating securities
|
|
|
26
|
|
|
36
|
Net income (loss) available to common shareholders from continuing operations
|
|
$
|
(658)
|
|
$
|
339
|
Shares (denominator)
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
21,514,133
|
|
|
21,770,698
|
Effect of dilutive securities
|
|
|
—
|
|
|
74,499
|
Adjusted weighted average shares outstanding (diluted)
|
|
|
21,514,133
|
|
|
21,845,197
|
Earnings per share from continuing operations
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.03)
|
|
$
|
0.02
|
Holders of service-based RSUs participate in
A. H. Belo dividends on a
one-for-one share
basis. Distributed and undistributed income associated with participating securities is included in the calculation of EPS under the two-class method as prescribed under ASC 260 –
Earnings Per Share
.
The Company considers outstanding stock options and RSUs in the calculation of its earnings per share.
A
total of
576,695
and
565,733
options and RSUs outstanding during the
three months ended
March 31, 2016
, and
2015
, respectively
,
were excluded from the calculation because they did not affect the earnings per share for common shareholders or the effect was anti-dilutive.
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
13
Note 1
0
: Contingencies
Legal proceedings.
A number of legal proceedings are pending against A.
H.
Belo.
Management routinely assesses the likelihood of adverse judgments or outcomes to those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. Accruals for such contingencies are recorded to the extent that management concludes their occurrence is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at least reasonably possible and the exposure is considered material to the consolidated financial statements. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, past experience and other evidence, interpretation of relevant laws or regulations and the specifics and status of each matter. Predicting the outcome of claims and litigation and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates and accruals.
The Company is currently in dispute with a customer regarding performance and pricing terms with respect to a change order to its printing services contract with the Company. Although the Company believes its position related to the contract can be sustained on its legal merits, it is reasonably possible that losses from
zero
up to the total amount of disputed invoices could be incurred related to the dispute. The last notice received from the customer claimed disputed invoices totaling approximately
$1,500
as of
March
31,
201
6
.
In the
opinion of management, liabilities, if any, arising from
other claims against the Company
would not have a material adverse effect on A. H. Belo’s results of operations, liquidity or financial condition.
Pro-rata dis
tributions
.
In con
nection
with the acquisition of DMV Holdings, the
shareholder
agreement provides for a pro-rata
di
stribution
of
100
percent and
50
percent of DMV Holdings
’
free
cash flow for fiscal years 2015 and 2016, respectively. Free
cash
flow is defined as earnings before interest, taxes, depreciation and amortization less capital expenditures, debt amortization and interest expense, as applicable. In the
three months ended March 31, 2016, the Company made pro-rata distributions to noncontrolling interests
of
$264
in
connection
with this agreement based on 2015 free cash flow as defined.
Note 1
1
:
Redeemable
Noncontrolling Interest
In connection with the acquisition of DMV
Holdings
, the Company entered into a shareholder agreement which provides for a put option to a noncontrolling shareholder. The put option provides the shareholder with the right to require the Company to purchase up to
25
percent of his ownership interest between the second and third anniversaries of the agreement and up to
50
percent of his ownership interest between the fourth and fifth anniversaries of the agreement.
The exercisability of the noncontrolling interest put arrangement is outside of the control of the Company. As such, the redeem
able noncontrolling interest of
$1,335
and
$1,421
is reported
in the mezzanine equity section in the
C
onsolidated
B
alance
S
heets as of
March 31, 2016
and December 31, 2015, respectively.
In the event that the put options expire unexercised, the related portion of noncontrolling interest would be classified as a component of equity in the consolidated balance sheets.
Redeemable noncontrolling interest is recorded at fair value on the acquisition date and the carrying value adjusted each period for its share of the earnings related to DMV Holdings. After the carrying value is adjusted for its share of the earning
s
related to DMV Holdings, the carrying value is adjusted for the change in fair value, which is the greater of the estimated redemption value or the value that would otherwise be assigned if the interest was not redeemable. Adjustments are recorded to retained earnings or additional paid in capital, as applicable, and have no effect to earnings of the Company. During the three months ended March 31, 2016, redeemable noncontrolling interest was
increased by
$13
for its share of the DMV Holdings’ earnings and decreased by
$99
for
distributions related to 2015 free cash flow as required under the shareholder agreement.
14
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
It
em 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect its financial statements. The following information should be read in conjunction with the Company’s
c
onsolidated
f
inancial
s
tatements and related
n
otes
filed as part of this report. Unless otherwise noted, amounts in Management’s Discussion and Analysis reflect continuing operations of the Company, and all dollar amounts are presented in thousands, except per share amounts.
OVERVIEW
A. H. Belo, headquartered in Dallas, Texas, is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and digital marketing. With a continued focus on extending the Company’s media platform, A. H. Belo is able to deliver news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles.
The Company’s Publishing segment includes the operations of
The Dallas Morning News
(
www.dallasnews.com
), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the
Denton Record-Chronicle
(
www.dentonrc.com
), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. Its newspaper operations also provide commercial printing and distribution services to large national and regional newspapers and other businesses in the North Texas region.
All other operations are reported within the
Company’s
M
arketing,
E
vent
M
arketing and
O
ther
S
ervices
segment.
These operations primarily include sales of online automotive classifieds on the
cars.com
platform; marketing services generated
by the Company’s branded marketing division Connect; Your Speakeasy; Proven Performance Media; and DMV Holdings and its
subsidiaries
Distribion, Vertical Nerve and MarketingFX. The
segment also includes event promotion and marketing services provided by CrowdSource and its subsidiary,
Untapped
.
In January 2015, the Company acquired an 80 percent voting interest in DMV Digital Holdings Company, Inc., into which the stock of three Dallas-based companies,
Distribion, Inc., Vertical Nerve, Inc. and CDFX, LLC
, were contributed. These businesses specialize in local marketing automation, search engine marketing, direct mail and promotional products, respectively. This acquisition complements the product and service offerings currently available to A. H. Belo clients, thereby strengthening the Company’s diversified
product portfolio and allowing for greater penetration in a competitive advertising market. DMV Holdings was acquired for a cash purchase price of $14,110, net of $152 cash acquired and the transaction costs totaled $1,288
.
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
15
RESULTS OF CONTINUING OPERATIONS
Consolidated Results of Continuing Operations
This section contains a discussion and analysis of net operating revenue, expense and other information relevant to an understanding of results of operations for the three months ended March 31, 2016 and 2015.
The table below sets forth the components of A. H. Belo’s
operating income (loss) by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Publishing
|
|
MEMO
|
|
Total
|
|
Publishing
|
|
MEMO
|
|
Total
|
Advertising and marketing services
|
$
|
26,093
|
|
$
|
9,144
|
|
$
|
35,237
|
|
$
|
29,901
|
|
$
|
6,930
|
|
$
|
36,831
|
Circulation
|
|
|
20,352
|
|
|
—
|
|
|
20,352
|
|
|
21,038
|
|
|
—
|
|
|
21,038
|
Printing, distribution and other
|
|
|
6,610
|
|
|
284
|
|
|
6,894
|
|
|
6,863
|
|
|
704
|
|
|
7,567
|
Total net operating revenue
|
|
|
53,055
|
|
|
9,428
|
|
|
62,483
|
|
|
57,802
|
|
|
7,634
|
|
|
65,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expense
|
|
|
55,490
|
|
|
8,774
|
|
|
64,264
|
|
|
62,734
|
|
|
7,808
|
|
|
70,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(2,435)
|
|
$
|
654
|
|
$
|
(1,781)
|
|
$
|
(4,932)
|
|
$
|
(174)
|
|
$
|
(5,106)
|
Traditionally, t
he Company’s
primary
revenue
s
are
generated from advertising within its core newspapers, niche publications and related websites and from subscription and single copy sales of its printed newspapers. As a result of competitive
and economic
conditions, the newspaper industry ha
s
faced a significant revenue
decline
over the past decade.
Therefore, t
he Company has sought to diversify its revenue
s
through development and investment in
new product offerings, increased circulation rates and leveraging of its existing assets to offer cost efficient commercial printing and distribution services to its local markets. As margins continue to decrease, the Company continually evaluates the overall performance of its core products to ensure existing assets are deployed adequately to maximize return. In January 2016, certain print-related product lines ceased operations due to underperformance against management’s expectations. The Company anticipates improved financial performance going forward as a result of the cessation of these underperforming products.
The Company’s a
dvertising revenue from
its
core newspapers continues to be adversely affected by
the shift of advertiser
spending to other forms of media
and the increased accessibility of free online news content, as well as news content from other sources, which resulted in a loss of advertising and paid print circulation volumes and revenue.
The most significant loss of advertising revenue was realized in its print display and classified categories
. These categories, which represented 29.9 percent of consolidated revenue in 2013, have declined to
20.2
percent in 2016, and further declines are anticipated in future periods.
Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital advertising, which is widely available from many sources.
Both large and small c
ompanies are redistributing more of their advertising budgets towards programmatic channels to acquire digital advertising on multiple platforms which
frequently has better technology for targeted delivery and measurement.
The Company has responded to these challenges by expanding
the
programmatic channels
through which it works to meet customer demands for digital ad placement opportunities in display, mobile, video and social categories. By utilizing advertising exchanges to apply marketing insight, the Company is able to offer greater value for clients by better targeting advertising to reach their potential customers.
The Company’s e
xpanded digital and marke
ting services product offerings
leverage the Company’s existing resources and relationships to offer additional value to
existing
and new advertising clients.
Solutions provided by DMV Holdings include development of mobile websites, search engine marketing and optimization, video, mobile advertising, email marketing, advertising analytics and online reputation management services. Through Speakeasy, the Company is able to target middle-market business customers and provide turnkey social media account management and content development services.
16
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
Advertising and marketing services revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
Percent
of Total
Revenue
|
|
Percentage
Change
|
|
2015
|
|
Percent
of Total
Revenue
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display advertising
|
|
$
|
8,077
|
|
|
|
|
(27.5)
|
%
|
|
$
|
11,140
|
|
|
|
Classified advertising
|
|
|
4,555
|
|
|
|
|
(15.0)
|
%
|
|
|
5,356
|
|
|
|
Preprint advertising
|
|
|
11,068
|
|
|
|
|
0.6
|
%
|
|
|
10,997
|
|
|
|
Digital advertising
|
|
|
2,393
|
|
|
|
|
(0.6)
|
%
|
|
|
2,408
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital services
|
|
|
8,287
|
|
|
|
|
28.6
|
%
|
|
|
6,443
|
|
|
|
Other services
|
|
|
857
|
|
|
|
|
76.0
|
%
|
|
|
487
|
|
|
|
Advertising and marketing services
|
$
|
35,237
|
|
56.4
|
%
|
|
(4.3)
|
%
|
|
$
|
36,831
|
|
56.3
|
%
|
Publishing
Display
–
Display revenue primarily represents sales of non-classified advertising space within the Company’s core and niche newspapers.
As advertisers continue to diversify marketing budgets to incorporate more and varied avenues of reaching consumers, traditional display advertising continues to decline.
Revenue decreased due to lower retail advertising in substantially all categories except sporting goods. The entertainment and furniture categories experienced the greatest declines with a combined revenue decrease of approximately $404 driven heavily by a volume decline of 12.7 percent.
Classified
–
Classified primarily represents sales of classified advertising space within the Company’s core and niche newspapers.
Classified advertising remains challenged as alternative digital outlets continue to emerge.
Consistent with rate improvement trends in certain display advertising categories, key classified categories continue to provide value to advertisers at increased rate points.
Overall classified revenue decreased due to lower volumes in all categories. This decline was partially offset by a higher rate in employment.
Preprint
– Preprint primarily reflects preprinted advertisements inserted into the Company’s core newspapers and niche publications, or distributed to non-subscribers through the
mail. Revenue increased due to higher volumes of home delivery mail advertising partially offset by a decline in the volume of preprint newspaper inserts, consistent with the decline in circulation volumes.
Digital
–
Digital publishing is primarily comprised of banner and real estate classified advertising on
The Dallas Morning News’
website
dallasnews.com
as well as online employment and obituary classified advertising on third-party websites sold under a print/digital bundle package.
Revenue has remained relatively flat.
Marketing, Event Marketing and Other Services
Digital services –
Digital marketing includes targeted and multi-channel advertising placed on third-party websites, content development, social media management, search optimization and other consulting, and sales of online automotive classifieds on the
cars.com
platform
. The 2015 acquisition of DMV Holdings provided a significant portion of the growth in digital marketing revenue. DMV Holdings increased $850 and organic growth from Speakeasy resulted in increased revenue of $804. These increases in marketing services revenue offset approximately
43
percent of the core print advertising revenue decline.
Other
services
–
Other services revenue
increased $370 due to t
he
sale
of promotional merchandise
by
MarketingFX
.
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
17
Circulation revenue
|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
Percent
of Total
Revenue
|
|
Percentage
Change
|
|
2015
|
|
Percent
of Total
Revenue
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
$
|
20,352
|
|
32.6
|
%
|
|
(3.3)
|
%
|
|
$
|
21,038
|
|
32.1
|
%
|
Revenue decreased due to a decline in home delivery and single copy paid print circulation volumes of 7.0 percent and 14.8
percent, respectively. These declines were partially offset by an effective rate increase of 7.1 percent in home delivery.
Volume declines in circulation revenue have been more pronounced with single copy sales as it competes for retail space. Price increases and supplemental editions are critical to maintaining the revenue base to support this
product. In the three months ended March 31, 2016, the Company generated $
44
of incremental revenue through the distribution of specialty magazines to its core subscribers. The Company is currently evaluating the addition of a meter to its websites for consumption of its premium news content.
Printing, distribution and other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
Percent
of Total
Revenue
|
|
Percentage
Change
|
|
2015
|
|
Percent
of Total
Revenue
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial print and distribution
|
|
$
|
6,610
|
|
|
|
|
(3.7)
|
%
|
|
$
|
6,863
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event marketing and other
|
|
|
284
|
|
|
|
|
(59.7)
|
%
|
|
|
704
|
|
|
|
Printing, distribution and other
|
|
$
|
6,894
|
|
11.0
|
%
|
|
(8.9)
|
%
|
|
$
|
7,567
|
|
11.6
|
%
|
Publishing
–
The Company’s newspapers aggressively market the capacity of their printing and distribution assets to other newspapers that would benefit from cost sharing arrangements.
The Company commence
d
printing operations related to a regional newspaper in
January 2016
. This revenue was partially offset by
lower
print revenue associated with national publications.
Marketing, Event Marketing and Other Services
–
CrowdSource,
t
he Company’s event marketing provider, works closely with cities and other corporate sponsors to bring large entertainment events to local communities; such as
Untapped
, a
live music festival and
craft beer event that expanded across five major Texas cities. Revenue decreased $
420
for the three months ended March 31, 2016, primarily due to the timing of
Savor
, Dallas’ four-day celebration of food, wine and spirits. In 2015, the
Savor
festival
occurred in the first quarter.
In
2016, the festival occur
red
in
April.
18
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
Operating Costs and Expense
The table below sets forth the components of the Company’s
o
perating
costs and
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
23,642
|
|
(4.4)
|
%
|
|
$
|
24,733
|
Other production, distribution and operating costs
|
|
|
23,363
|
|
(13.6)
|
%
|
|
|
27,050
|
Newsprint, ink and other supplies
|
|
|
5,874
|
|
(25.7)
|
%
|
|
|
7,910
|
Depreciation
|
|
|
2,611
|
|
(13.3)
|
%
|
|
|
3,011
|
Amortization
|
|
|
—
|
|
(100.0)
|
%
|
|
|
30
|
MEMO
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
3,375
|
|
21.8
|
%
|
|
|
2,770
|
Other production, distribution and operating costs
|
|
|
4,968
|
|
12.7
|
%
|
|
|
4,410
|
Newsprint, ink and other supplies
|
|
|
184
|
|
(28.1)
|
%
|
|
|
256
|
Depreciation
|
|
|
21
|
|
(27.6)
|
%
|
|
|
29
|
Amortization
|
|
|
226
|
|
(34.1)
|
%
|
|
|
343
|
Operating costs and expense
|
|
$
|
64,264
|
|
(8.9)
|
%
|
|
$
|
70,542
|
Publishing
Employee compensation and benefits
– The Company continues to implement measures to optimize its workforce and reduce risk associated with future obligations
towards employee benefit plans
. Employee compensation and benefits decreased $
1,091
in the three months ended March 31, 2016, due to headcount reductions
within
the Company
.
Other production, distribution and operating costs
–
Expense decreased in the Company’s
P
ublishing segment reflecting savings in most categories. Temporary and consulting expenses had significant decreases as a result of cost reduction efforts and oversight of discretionary spending. Additional savings were generated by
a reduction in bad debt expense
and personnel recruiting expenses. These costs were offset by higher postage related to mailed advertisements.
Beginning in April 2016, the Company will benefit from a mandated postal rate reduction on all mailed advertisements.
Newsprint, ink and other supplies
–
Expense decreased due to reduced newsprint costs associated with lower circulation volumes from the Company and certain third-party newspapers and the discontinuation of unprofitable product lines. Newsprint consumption for the three months ended March 31, 2016 and 2015, approximated
6,589
and
7,754
metric tons, respectively, at an average cost per metric ton of $
503
and $
582
, respectively. The average purchase price for newsprint was $
511
and $
570
for the three months ended March 31, 201
6
and 201
5
, respectively.
Based on guidance from its largest newsprint vendors, the Company anticipates that newsprint prices will increase in 2016.
Depreciation
–
Expense decreased due to a lower depreciable asset base as a higher level of in-service assets are now fully depreciated.
Amortization
–
All definite-lived intangible assets are fully amortized.
Marketing, Event Marketing and Other Services
Employee compensation and benefits
–
Expense increased in the three months ended March 31, 2016,
primarily related to the growth associated with DMV Holdings of
$682
.
A
s of March 31, 2016 and 2015,
DMV Holdings employed 69 and 48 personnel,
respectively.
Other production, distribution and operating costs
–
Other expense increased in the three months ended March 31, 2016, by $636 and $368 to support the continued growth in Speakeasy and DMV Holdings
, respectively
.
Newsprint, ink and other supplies
–
Other supplies expense
decreased
primarily due to promotional material printing costs associated with Marketing FX of $56.
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
19
Depreciation
–
Marketing and event services cost structure is primarily labor driven. Capital purchases are required to support technology investments, the Company’s websites and customer engaging applications. Capital assets are primarily depreciated over a life of three years.
Amortization
–
Expense decreased in the three months ended March 31, 2016, primarily related to subscriber lists associated with DMV Holdings of $84.
Other
The table below sets forth the other components of the Company’s results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
Loss on equity method investments, net
|
|
$
|
—
|
|
(100.0)
|
%
|
|
$
|
(414)
|
Other income, net
|
|
|
79
|
|
(27.5)
|
%
|
|
|
109
|
Total other income (expense), net
|
|
$
|
79
|
|
(125.9)
|
%
|
|
$
|
(305)
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(1,109)
|
|
(80.6)
|
%
|
|
$
|
(5,730)
|
Other Income (Expense)
–
Other income (expense) is primarily comprised of gains (losses) from equity method investments, gains (losses) from the sale or disposition of fixed assets. In 2015, the Company discontinued the equity method of accounting for Wanderful as a result of the decreased ownership interest and inability to exert significant influence on the investee.
Tax provision
–
Income tax benefit from continuing operations decreased as a result of lower taxable earnings and due to a $3,993 tax benefit being recorded in 2015 related to the acquisition of DMV Holdings. This benefit was subsequently adjusted to $2,090 in the three months ended December 31, 2015 upon finalization of accounting for the acquisition. The difference between the Company’s tax benefit
of $
1,109
and the
tax benefit computed by applying the federal statutory rate is primarily attributable to changes in the valuation allowance and due to state income taxes.
See
the Notes to the Consolidated Financial
Statements,
Note 6
–
Income Taxes.
Legal proceedings
-
A number of legal proceedings are pending against A.
H.
Belo.
Management routinely assesses the likelihood of adverse judgments or outcomes to those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. Accruals for such contingencies are recorded to the extent that management concludes their occurrence is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at least reasonably possible and the exposure is considered material to the consolidated financial statements. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, past experience and other evidence, interpretation of relevant laws or regulations and the specifics and status of each matter. Predicting the outcome of claims and litigation and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates and accruals.
The Company is currently in dispute with a customer regarding performance and pricing terms with respect to a change order to its printing services contract with the Company. Although the Company believes its position related to the contract can be sustained on its legal merits, it is reasonably possible that losses from zero up to the total amount of disputed invoices could be incurred related to the dispute. The last notice received from the customer claimed disputed invoices totaling approximately
$1,500
as of March 31, 2016.
Liquidity and Capital Resources
The Company’s cash balance
s
as of
March 31, 2016
and
December 31, 2015
,
were $
74,656
and
$
78,380
,
respectively. The decrease in the cash balance is primarily due to capital expenditures
and
return of capital to shareholders.
Cash flows provided by operations in 2016 totaled $347. Cash flows from operations are expected to continue to grow throughout the year as benefits from cost cutting measures are realized and as revenue is expected to increase in subsequent quarters, consistent with historical trends. The Company is not required to make any pension contributions in 2016 and discretionary spending will be managed according to operating results.
20
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
The Company intends to hold existing cash for purposes of future investment opportunities, potential return of capital to shareholders and for contingency purposes. Although the revenue from publishing operations is expected to continue to decline in future periods, operating contributions expected from the Company’s marketing services businesses as well as planned adjustments for tax, pension and other cost cutting measures, are expected to be sufficient to fund operating activities and capital spending of
approximately $
7,000
over the
remainder of the year
.
The continued payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company discontinued repurchase of its stock in December 2015, and current holdings of treasury stock can be used to satisfy its obligations related to share-based awards issued to employees and directors, or can be sold on the open market.
The following discusses the changes in cash flows by operating, investing and financing activities.
Operating Cash Flows
Net cash
(used for) provided by
continuing
operations
for 201
6
and 201
5
was $
347
and
$
(8,475), respectively.
Cash flows from continuing operating activities improved by $8,822 in 2016, due to reduced tax payments of $8,
875,
primarily
related to gains on dispositions of assets in 2014
.
The Company anticipates to recover approximately $3,400 for the carryback of 2015 taxable losses against taxes paid for 2014.
Investing Cash Flows
Net
cash used for continuing investing activities was $
2,095
and $15,700 in 2016 and 2015, respectively. Cash flows used for continuing investing activities
include $2,095 and
$1,170 of capital spending in 2016 and 2015, respectively.
Cash flows for 2015, also include the payment of $14,110 related to the DMV Holdings acquisition.
Financing Cash Flows
Net
cash used for continuing financing activities was $1,976 and $52,461 in 2016 and 2015, respectively. Cash used for continuing financing activities included dividend payments of $
1,745
and $51,923 in 2016 and 2015, respectively. Dividends paid in 2015 included a special dividend of $2.25 per share declared and recorded in 2014, returning $50,148 to shareholders and holders of RSUs. In 2015, the Company purchased 120,848 shares of its Series A common
stock at a cost of $
1,115
under its share repurchase program
.
The Company’s agreement to repurchase its stock was terminated in December 2015
.
Financing Arrangements
None.
Contractual Obligations
No contributions to the A. H. Belo Pension Plans are required in 201
6
.
On March 4, 2016, the Company announced a $0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on May 13, 2016, which will be paid on June 3, 2016.
Additional information related to the Company’s contractual obligations is available in Company’s Annual Report
on Form 10
‑K for the year ended
December 31, 2015
, filed
on March 8, 2016,
with the SEC.
Critical Accounting Policies and Estimates
No material changes were made to the Company’s critical accounting policies as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 201
5
.
Forward-Looking Statements
Statements in this communication concerning A. H. Belo’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, dispositions, impairments, business initiatives, acquisitions, pension
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
21
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, trends and uncertainties are, in most instances, beyond our control, and include changes in advertising demand and other economic conditions; consumers’ tastes; newsprint prices; program costs; labor relations; technology obsolescence
;
as
well
as
other
risks
described
in
the
Company
’
s Annual
Report
on
Form
10-K
and
in
the
Company
’
s
other
public
disclosu
r
es
and
filings
with
the
Securities
and Exchange
Commission.
Forward-looking statements, which are as of the date of this filing, are not updated to reflect events or circumstances after the date of the statement.
Ite
m 3.
Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in A. H. Belo Corporation’s exposure to market risk from the disclosure included in the Annual Report on Form 10-K for the year ended
December 31, 2015
.
Ite
m 4.
Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Based on the evaluation of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
(b) Changes in internal controls.
There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PA
RT II
Ite
m 1.
Legal Proceedings
A number of legal proceedings are pending against A. H. Belo. In the opinion of management, liabilities, if any, arising from these legal proceedings would not have a material adverse effect on A. H. Belo’s results of operations, liquidity or financial condition.
Ite
m 1A.
Risk Factors
There were no material changes from the risk factors disclosed under the heading “Risk Factors” in Item 1A in the Annual Report on Form 10-K for the year ended
December 31, 2015
.
I
tem 2.
Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company’s equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
None.
Ite
m 3.
Defaults Upon Senior Securities
None.
Ite
m 4.
Mine Safety Disclosures
None.
Ite
m 5.
Other Information
None.
22
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
Ite
m 6.
Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the SEC, as indicated. In accordance with Regulation S-T, the XBRL-related information marked with a double asterisk (**) in Exhibit No. 101 to this Quarterly Report on Form 10-Q is deemed filed. All other documents are filed with this report. Exhibits marked with a tilde (~) are management contracts, compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit Number
|
Description
|
3.1
|
*
|
Amended and Restated Certificate of Incorporation of the Company (Exhibit 3.1 to Amendment No. 3 to the Company’s Form 10 dated January 18, 2008 (Securities and Exchange Commission File No. 001
‑33741) (the “Third Amendment to Form 10”))
|
3.2
|
*
|
Certificate of Designations of Series A Junior Participating Preferred Stock of the Company dated January 11, 2008 (Exhibit 3.2 to Post
‑Effective Amendment No. 1 to Form 10 filed January 31, 2008 (Securities and Exchange Commission File No. 001
‑33741))
|
3.3
|
*
|
Amended and Restated Bylaws of the Company, effective December 11, 2014 (Exhibit 3.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2014 (Securities and Exchange Commission File No. 001-33741))
|
4.1
|
*
|
Certain rights of the holders of the Company’s Common Stock set forth in Exhibits 3.1
‑3.3 above
|
4.2
|
*
|
Specimen Form of Certificate representing shares of the Company’s Series A Common Stock (Exhibit 4.2 to the Third Amendment to Form 10)
|
4.3
|
*
|
Specimen Form of Certificate representing shares of the Company’s Series B Common Stock (Exhibit 4.3 to the Third Amendment to Form 10)
|
4.4
|
*
|
Rights Agreement dated as of January 11, 2008 between the Company and Mellon Investor Services LLC (Exhibit 4.4 to the Third Amendment to Form 10)
|
10.
1
|
*
|
Material contracts:
|
|
|
~(
1
)
|
*
|
Asset Purchase Agreement by and between the Press-Enterprise Company, AHC California Properties LLC, A. H. Belo Management Services, Inc. and Freedom Communications Holdings, Inc. dated October 9, 2013 (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2013 (Securities and Exchange Commission file no. 001-33741) (the “October 11, 2013 Form 8-K”))
|
|
|
~(
2
)
|
*
|
Form of Limited Guaranty by and between A. H. Belo Corporation and Freedom Communications Holdings, Inc
.
(Exhibit 10.2 to
the
October 11, 2013
Form 8-K)
|
|
|
~(
3
)
|
*
|
Amendment No. 1 to Asset Purchase Agreement dated October 31, 2013, between the Press-Enterprise Company, AHC California Properties LLC, A. H. Belo Management Services, Inc. and Freedom Communications Holdings Inc. (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 4, 2013 (Securities and Exchange Commission file no. 001-33741))
|
|
|
~(
4
)
|
*
|
Amendment No. 2 to Asset Purchase Agreement dated November 21, 2013, between the Press-Enterprise Company, AHC California Properties LLC, A. H. Belo Management Services, Inc. and Freedom Communications Holdings Inc. (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 25, 2013 (Securities and Exchange Commission file no. 001-33741))
|
|
|
~(
5
)
|
*
|
Asset Purchase Agreement among The Providence Journal Company and LMG Rhode Island Holdings, Inc. dated as of July 22, 2014 (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2014 (Securities and Exchange Commission File No. 001-3374
1
))
|
|
|
~(
6
)
|
*
|
Unit Purchase Agreement dated August 5, 2014 by and among Gannett Company, Inc., Classified Ventures, LLC, and Unitholders of Classified Ventures, LLC (Exhibit 2.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 6, 2014 (Securities and Exchange Commission file no. 001-33741))
|
|
|
|
|
|
|
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
23
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit Number
|
Description
|
10.2
|
*
|
Compensatory
p
lans and
a
rrangements
:
|
|
|
~(1)
|
|
A. H. Belo Savings Plan as Amended and Restated Effective January 1,
2015
|
|
|
~(2)
|
*
|
A. H. Belo Corporation 2008 Incentive Compensation Plan (Exhibit 10.5 to the February 12, 2008
Form 8-K)
|
|
|
|
*
|
(a)
|
First Amendment to
A. H. Belo
2008 Incentive Compensation Plan effective July 23, 2008 (Exhibit 10.2(2)(a) to the Company’s Quarterly Report on Form 10
‑Q filed with the Securities and Exchange Commission on August 14, 2008 (Securities and Exchange Commission File No. 001
‑33741))
|
|
|
|
*
|
(b)
|
Form of A. H. Belo 2008 Incentive Compensation Plan Non
‑Employee Director Evidence of Grant (for Non
‑Employee Director Awards) (Exhibit 10.2(2)(b) to the Company’s Quarterly Report on Form 10
‑Q filed with the Securities and Exchange Commission on May 13, 2010 (Securities and Exchange Commission File No. 001
‑33741) (the “1st Quarter 2010 Form 10
‑Q”))
|
|
|
|
*
|
(c)
|
Form of A. H. Belo 2008 Incentive Compensation Plan Evidence of Grant (for Employee Awards) (Exhibit 10.2(2)(c) to the 1st Quarter 2010 Form 10
‑Q)
|
|
|
|
*
|
(d)
|
Form of A. H. Belo 2008 Incentive Compensation Plan Evidence of Grant (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8
‑K filed with the Securities and Exchange Commission on March 12, 2012 (Securities and Exchange Commission File No. 001
‑33741) (the “March 12, 2012 Form 8-K”))
|
|
|
|
*
|
(e)
|
Form of A. H. Belo Cash Long
‑Term Incentive Evidence of Grant (Exhibit 10.2 to the March 12, 2012 Form 8-K)
|
|
|
~(3)
|
*
|
A. H. Belo Pension Transition Supplement Restoration Plan effective January 1, 2008 (Exhibit 10.6 to the February 12, 2008 Form 8
‑K)
|
|
|
|
*
|
(a)
|
First Amendment to the A. H. Belo Pension Transition Supplement Restoration Plan dated March 31, 2009 (Exhibit 10.4 to the April 2, 2009 Form 8
‑K)
|
|
|
~(4)
|
*
|
A. H. Belo Corporation Change In Control Severance Plan (Exhibit 10.7 to the February 12, 2008 Form 8
‑K)
|
|
|
|
*
|
(a)
|
Amendment to the A. H. Belo Change in Control Severance Plan dated March 31, 2009 (Exhibit 10.3 to the April 2, 2009 Form 8
‑K)
|
|
|
~(5)
|
*
|
Robert W. Decherd Compensation Arrangements dated June 19, 2013 (Exhibit 10.1 to the June 19, 2013 Form 8-K)
|
10.3
|
|
Agreements relating to the separation of A. H. Belo
Corporation
from its former parent company:
|
|
|
(
1
)
|
*
|
Pension Plan Transfer Agreement by and between Belo Corp. and A. H. Belo Corporation dated as of October 6, 2010 (Exhibit 10.1 to the Company’s Current Report on Form 8
‑K filed with the Securities and Exchange Commission
(
October 8, 2010
Form 8-K))
|
|
|
(
2
)
|
*
|
Agreement among the Company, Belo Corp., and The Pension Benefit Guaranty Corporation, effective March 9, 2011 (Exhibit 10.3(6) to the Company’s Annual Report on Form 10
‑K filed with the Securities and Exchange Commission on March 11, 2011 (Securities and Exchange Commission File No. 001
‑33741))
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
|
32
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
‑Oxley Act of 2002
|
101.INS
|
|
**
|
XBRL Instance Document
|
101.SCH
|
|
**
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
|
**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
**
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
24
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
SIG
NATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
5/2/2016
|
|
|
|
|
|
|
|
|
|
A. H. BELO
CORPORATION
|
|
|
|
|
By:
|
/s/
|
Katy
Murray
|
|
|
|
Katy
Murray
|
|
|
|
Senior
Vice
President/Chief
Financial
Officer
|
|
|
|
(Principal
Financial
Officer)
|
|
|
|
Dated:
|
May
2
, 201
6
|
|
|
|
A. H. Belo Corporation First Quarter 2016 on Form 10-Q
25
EX
HIBIT INDEX
|
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
|
32
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
‑Oxley Act of 2002
|
101.INS
|
**
|
XBRL Instance Document
|
101.SCH
|
**
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
**
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
In accordance with Regulation S-T, the XBRL-related information marked with a double asterisk (**) in Exhibit No. 101 to this Quarterly Report on Form 10-Q is deemed filed.
26
A. H. Belo Corporation First Quarter 2016 on Form 10-Q