Notes to
the
Consolidated Financial Statements
Note 1:
Basis of Presentation and Recently Issued Accounting Standards
Description of Business.
A. H. Belo Corporation and subsidiaries
are referred to collectively herein as
“A. H. Belo” or the “Company”
. 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 deliver
s
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 (“DMV
Holdings”)
, and provides event promotion and marketing services through
DMN CrowdSource LLC (“CrowdSource
”).
Basis of Presentation.
The interim consolidated financial statements included herein are unaudited; however, they include adjustments of a normal recurring nature which, in the Company’s opinion, are necessary to present fairly the interim consolidated financial information as of and for the periods indicated.
All significant intercompany balances and transactions have been eliminated in consolidation. A. H. Belo consolidates the financial results of the entities in which
it has controlling financial interest
s, including
Speakeasy, Untapped Festivals, LLC and DMV Holdings, in which the Company holds ownership percentages of 70 percent, 51 percent and 80 percent, respectively
.
As a consequence, the assets and liabilities of all such entities are presented on a consolidated basis in A. H. Belo’s financial statements.
These
financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. All dollar amounts presented herein, except share and per share amounts, are in thousands, unless the context requires otherwise.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net operating revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
Recently Adopted Accounting Pronouncements.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05
––
Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.
This update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The standard became effective for annual and interim reporting periods beg
inning after December 15, 2015.
The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In
September
2015, the FASB issued ASU 2015-16
–– Business Combinations – Imputation of Interest (Topic 805) – Simplifying the Accounting Measurement-Period Adjustments.
This update requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is required to record, in the same period’s financial statements, the effect on earnings, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued. The Company adopted this standard in the f
ourth
quarter of 201
5
.
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
.
In
March
2016, the FASB issued ASU 2016-09
– Compensation – Stock Compensation (Topic 718)
–
Improvements to Employee Share-Based Payment Accounting
.
The amendments in this update affect all entities that issue share-based payment awards to their employees. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of
8
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
cash flows. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. T
he Company early adopted this standard in the first quarter of 2016. Adoption of this standard did not materially impact the Company's financial statements.
New Accounting Pronouncements.
The FASB has issued the following accounting pronouncements and guidance which may be applicable to the Company but have not yet become effective.
In May 2014, the FASB issued
ASU 2014-09
–
Revenue Recognition (Topic 606): Revenue from Contracts with Customers
. This guidance is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach. It also requires disclosures designed to enable readers of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Further, in March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net),
and in April 2016, the FASB issued ASU 2016-10
Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing (Topic 606)
. These updates clarify implementation guidance on the related topic. The accounting guidance updates will replace most existing revenue recognition guidance in GAAP. The standard was to be effective for annual and interim reporting periods begi
nning after December 15, 2016.
ASU 2015-14 deferred the effective date of this update for all entities by one year. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the requirements of these updates and has not yet determined its impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02
– Leases (Topic 845).
This update requires an entity to recognize a right-of-use asset and a lease liability for virtually all of its leases. The liability will be equal to the present value of lease payments. The asset will generally be based on the liability. For income statement purposes operating leases will result in straight-line expense and finance leases will result in expenses similar to current capital leases. The guidance also requires additional disclosures to enable users of financial statements to understand the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07
– Investments – Equity Method and Joint Ventures (Topic 323) – Simplifying the Transition to the Equity Method of Accounting.
This update addresses the use of the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this update eliminate the requirement to retroactively adopt the equity method of accounting. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.
Note
2
: Segment Reporting
The Company
’s operating segments are based on internal management reporting
as well as product and service offerings
, and are defined as
: 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 newspaper and digital platforms, subscription and retail sales of newspapers and commercial printing and distribution services primarily related to national and regional newspapers and preprint advertisers. Businesses within the Publishing segment lever
age production facilities,
subscriber base
and
digital news platforms to provide additional contribution margin. The Company
assesses the performance of
Publishing operations
on the basis of
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
items
and sales of pay-for-performance services directed primarily to other newspaper companies. Marketing services include the operations of DMV Holdings, Speakeasy and Proven Performance Media, as well as its operating division doing business as Connect and its
cars.com
sales division.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
9
Event marketing includes the operations of CrowdSource, which promotes community events
,
hosts
live music
festivals
featuring
craft beer
, food
and entertainment across
Texas,
and other community
related events.
The Company
assesses the performance of
MEMO operations
on the basis of
revenue growth and operating profit
in conjunction with the expansion of these businesses within their
respective markets.
The following tables show summarized financial information for the Company’s reportable segments.
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
55,160
|
|
$
|
58,409
|
|
$
|
108,215
|
|
$
|
116,211
|
MEMO
|
|
|
11,466
|
|
|
8,267
|
|
|
20,894
|
|
|
15,901
|
Total
|
|
$
|
66,626
|
|
$
|
66,676
|
|
$
|
129,109
|
|
$
|
132,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
1,392
|
|
$
|
(212)
|
|
$
|
(1,043)
|
|
$
|
(5,144)
|
MEMO
|
|
|
1,267
|
|
|
(323)
|
|
|
1,921
|
|
|
(497)
|
Total
|
|
$
|
2,659
|
|
$
|
(535)
|
|
$
|
878
|
|
$
|
(5,641)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
2,587
|
|
$
|
2,844
|
|
$
|
5,198
|
|
$
|
5,855
|
Amortization
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
60
|
Total
|
|
$
|
2,587
|
|
$
|
2,874
|
|
$
|
5,198
|
|
$
|
5,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
18
|
|
$
|
31
|
|
$
|
39
|
|
$
|
60
|
Amortization
|
|
|
229
|
|
|
343
|
|
|
455
|
|
|
686
|
Total
|
|
$
|
247
|
|
$
|
374
|
|
$
|
494
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Total Assets
|
|
|
|
|
|
|
Publishing
|
|
$
|
193,515
|
|
$
|
196,912
|
MEMO
|
|
|
25,319
|
|
|
24,589
|
Total
|
|
$
|
218,834
|
|
$
|
221,501
|
Note 3: Sales of Assets
In June 2015, the Company completed the sale of land and a building which served as the headquarters of
The Providence Journal
, a publication formerly owned by the Company
.
The Company received net proceeds of
$6,119
in the second quarter of 2015 upon closing of the transaction
,
generating a loss of approximately
$292
, which was offset by
$32
8
of returned escrow received i
n the second quarter of 2016
.
Also during the second quarter of 2015
, the Company demolished existing structures on an additional property in Providence, Rhode Island, at a cost of
$412
.
10
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
Note
4
:
Goodwill and Intangible Assets
Goodwill
and other
intangible assets by reportable segment as of
June 30, 2016
and
December 31, 2015
are as follows:
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|
|
June 30,
|
|
December 31,
|
|
2016
|
|
2015
|
Goodwill
|
|
|
|
|
|
Publishing
|
$
|
22,682
|
|
$
|
22,682
|
MEMO
|
|
14,201
|
|
|
14,201
|
Total
|
$
|
36,883
|
|
$
|
36,883
|
|
|
|
|
|
|
Intangible Assets
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
Cost
|
$
|
6,710
|
|
$
|
6,710
|
Accumulated Amortization
|
|
(1,387)
|
|
|
(932)
|
Net Carrying Value
|
$
|
5,323
|
|
$
|
5,778
|
I
ntangible
assets consist of
$5,190
of customer relationships with
estimated
useful lives of
10
years and
$1,520
of developed
technology with a
n estimated useful
life of
five
years.
Aggregate a
mortization expense
was
$229
and
$455
for
the
three and six months ended
June 30, 2016
,
respectively,
and
$373
and
$746
for the
three and six months ended
June 30, 2015
, respectively.
Note
5
:
Long-term Incentive Plan
A. H. Belo sponsors a long-term incentive plan
(the “Plan”)
under which
8,000,000
shares
of the Company’s Series A common stock are
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 share
awards
,
restricted stock units (“
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 A.H. Belo’s former parent company in connection with the Company’s separation from its former parent in 2008.
Stock Options.
S
tock options granted under the Plan are fully vested and exercisable.
No
options have been granted since 2009, and all compensation expense associated with stock options has been fully recognized as of June 30, 2016.
The table below sets forth a summary of stock option activity under
the P
lan.
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Number of
Options
|
|
WeightedAverage
Exercise Price
|
Outstanding at December 31, 2015
|
259,311
|
|
$
|
8.37
|
Exercised
|
(85,926)
|
|
|
1.81
|
Canceled
|
(26,942)
|
|
|
18.57
|
Outstanding at June 30, 2016
|
146,443
|
|
$
|
10.34
|
During the three months ended June 30, 2016, t
he
aggregate
intrinsic value of options exercised
was
$183
.
No
options were exercised in the three months ended June 30, 2015. The aggregate intrinsic value of options exercised in the
six months ended
June 30, 2016
and
2015
, was
$300
and
$100
, respectively
. The aggregate intrinsic value of outstanding options at
June 30, 2016
,
was
$9
.
The weighted average remaining contractual life of the Company’s stock options was
1.6
years as of June 30, 2016.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
11
Restricted Stock Units.
T
he
Company’s
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
June 30, 2016
, the liability for the portion of the award to be redeemed in cash
was
$490
. The
table below sets forth a summary of RSU activity under
the P
lan.
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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
|
216,732
|
|
|
|
|
|
|
|
|
$
|
7.76
|
Granted
|
201,033
|
|
|
|
|
|
|
|
|
|
5.48
|
Vested and unpaid
|
(56,886)
|
|
|
|
|
|
|
|
|
|
6.17
|
Vested and paid
|
(97,651)
|
|
58,584
|
|
39,067
|
|
$
|
230
|
|
|
7.53
|
Non-vested at June 30, 2016
|
263,228
|
|
|
|
|
|
|
|
|
$
|
6.45
|
For the three and six months ended June 30, 2016, the Company issued 38,619 shares that were previously vested as of December 31, 2015.
In addition, there were
93,055
and
100,534
RSUs that were vested and outstanding as of June 30, 2016 and December 31, 2015, respectively.
The fair value of RSU
grants
is determined using the closing trading price of the Company’s
Series A common stock
on the grant date. As of
June 30, 2016
, unrecognized compensation
expense
related to non-vested RSUs
totaled
$630
, which is expected to be recognized over a weighted-average period of
1.3
years.
Compensation Expense.
A. H. Belo recognizes compensation expense for
awards
granted
under the P
lan over the vesting period of the award. Compensation
expense related to RSUs granted under the Plan is
set forth in the table below.
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|
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|
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|
|
RSUs
Redeemable
in Stock
|
|
RSUs
Redeemable
in Cash
|
|
Total
RSU Awards
Expense
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
2016
|
$
|
76
|
|
$
|
69
|
|
$
|
145
|
2015
|
|
80
|
|
|
(299)
|
|
|
(219)
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
2016
|
$
|
448
|
|
$
|
301
|
|
$
|
749
|
2015
|
|
451
|
|
|
(367)
|
|
|
84
|
Note
6
: Income Taxes
The interim provision for income 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 annual effective tax rate is reviewed each quarter based on the Company’s estimated income tax expense for the year. Under certain circumstances, the Company may be precluded from estimating an annual effective tax rate. Such circumstances may include periods in which tax rates vary significantly due to earnings trends, in addition to the existence of significant permanent or temporary differences. Under such circumstances, a discrete tax rate is calculated for the period.
The Company recognized income tax provision (benefit) from continuing operations of
$2,393
and
$317
for the three months ended
June 30, 2016
and
2015
, respectively, and
$1,284
and
$(5,413)
for the
six months ended
June 30, 2016
and
2015
, respectively. Effective income tax rates from continuing operations were
94.1
percent and
93.5
percent for the six months ended June 30, 2016
and
2015
, respectively. The effective tax rate is affected by recurring items such as tax rates and income in jurisdictions which the Company expects to be fairly consistent in the near term. The tax provision recorded for the three
and six
months ended June 30, 2016,
was
primarily related to
taxable income generated from operations and the disposition of certain fixed assets.
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
12
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
to certain
former
employees of The Providence Journal Company
.
This
obligation was retained by the Company
upon the
sale 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
.
No contributions are required to the A. H. Belo Pension Plans in 2016
under the applicable tax and labor laws governing pension plan funding.
Net Periodic Pension Benefit
The Company
’s
estimates
of
net periodic pension expense or benefit
are
based on the e
xpected return on plan assets,
interest on
the
projected
benefit
obligations and the amortization of actuarial gains and losses
that are deferred
in accumulated other comprehensive loss
.
The table below sets forth components of net periodic pension benefit.
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|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest cost
|
|
$
|
2,524
|
|
$
|
3,540
|
|
$
|
5,049
|
|
$
|
7,080
|
Expected return on plans' assets
|
|
|
(3,397)
|
|
|
(5,008)
|
|
|
(6,793)
|
|
|
(10,016)
|
Amortization of actuarial loss
|
|
|
20
|
|
|
314
|
|
|
31
|
|
|
626
|
Net periodic pension benefit
|
|
$
|
(853)
|
|
$
|
(1,154)
|
|
$
|
(1,713)
|
|
$
|
(2,310)
|
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 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’ compensa
tion on a per-pay-period basis.
During the three months ended
June 30, 2016
and
2015
, the Company recorded expense of
$222
and
$268
, respectively
, and during the
six months ended
June 30, 2016
and
2015
, the Company recorded expense of
$501
and
$526
, respectively, for matching contributions
to the plan
.
Note
8
: Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss c
onsists of
actuarial gains and losses a
ttributable to
the A. H. Belo Pension Plans
,
gains and losses resulting from plan amendments and other actuarial experience
attributable
to other post-employment benefit plans. The Company records amortization of
the components 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
Plan
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.
N
et deferred tax assets associated with accumulated other comprehensive loss are fully reserved.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
13
The table
s
below sets forth the changes in accumulated other comprehensive loss, net of tax
, as presented in the Company’s consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
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
|
|
$
|
(38,450)
|
|
$
|
(38,887)
|
|
$
|
437
|
|
$
|
(57,055)
|
|
$
|
(57,342)
|
|
$
|
287
|
Amortization
|
|
|
(24)
|
|
|
20
|
|
|
(44)
|
|
|
313
|
|
|
314
|
|
|
(1)
|
Balance, end of period
|
|
$
|
(38,474)
|
|
$
|
(38,867)
|
|
$
|
393
|
|
$
|
(56,742)
|
|
$
|
(57,028)
|
|
$
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
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
|
|
|
(32)
|
|
|
31
|
|
|
(63)
|
|
|
625
|
|
|
626
|
|
|
(1)
|
Balance, end of period
|
|
$
|
(38,474)
|
|
$
|
(38,867)
|
|
$
|
393
|
|
$
|
(56,742)
|
|
$
|
(57,028)
|
|
$
|
286
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Earnings (Numerator)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
693
|
|
$
|
(592)
|
|
$
|
61
|
|
$
|
(229)
|
Less: Gain (loss) from discontinued operations
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(10)
|
Less: Income to participating securities
|
|
|
28
|
|
|
26
|
|
|
54
|
|
|
62
|
Net income (loss) available to common shareholders from continuing operations
|
|
$
|
665
|
|
$
|
(620)
|
|
$
|
7
|
|
$
|
(281)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
21,614,260
|
|
|
21,747,635
|
|
|
21,564,200
|
|
|
21,758,382
|
Effect of dilutive securities
|
|
|
148,299
|
|
|
—
|
|
|
160,676
|
|
|
—
|
Adjusted weighted average shares outstanding (diluted)
|
|
|
21,762,559
|
|
|
21,747,635
|
|
|
21,724,876
|
|
|
21,758,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.03
|
|
$
|
(0.03)
|
|
$
|
0.00
|
|
$
|
(0.01)
|
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
499,726
and
703,380
options and RSUs outstanding during the
three and six months ended
June 30, 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.
14
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
Note 1
0
: Contingencies
Legal proceedings.
From time to time, the Company is involved in a variety of claims, lawsuits and other disputes arising in the ordinary course of business. Management routinely assesses the likelihood of adverse judgments or outcomes in those matters, as well as the ranges of probable losses to the extent losses are reasonably estimable. Accruals for contingencies are recorded when, in the judgment of management, adverse judgments or outcomes are probable and the financial impact, should an adverse outcome occur, is reasonably estimable. The determination of likely outcomes of litigation matters relates to factors that 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 financial exposure involves substantial uncertainties that could cause actual results to vary materially from estimates and accruals.
The Company is currently involved in a 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 in connection with the dispute. The most recent disputed invoice notice dated April 28, 2016, claimed disputed invoices totaling approximately
$1,500
.
In the
opinion of management, liabilities, if any, arising from
other currently existing 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 interes
t expense, as applicable. In the
six months ended
June 30, 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
in DMV Holdings
between the second and third anniversaries of the agreement and up to 50
percent of his ownership interest
in DMV Holdings
between the fourth and fifth anniversaries of the agreement.
The exercisability of the noncontrolling interest put arrangement is outside the control of the Company. As such, the redeemable noncontrolling interest of
$1,335
and $1,421 is reported in the mezzanine equity section in the Consolidated Balance Sheets as of
June 30, 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
C
onsolidated
B
alance
S
heets.
Redeemable noncontrolling interest is recorded at fair value on the acquisition date and the carrying value
is
adjusted each period for its share of the earnings related to DMV Holdings. After the carrying value is adjusted for its share of the earnings 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 earn
ings of the Company. During the six months ended June 30, 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
.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
15
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;
Speakeasy; Proven Performance Media; and
DMV Holdings and its
subsidiaries
Distribion
, Inc.
, Vertical Nerve
, Inc.
and
CDFX, LLC (“MarketingFX”)
. The
segment also includes event promotion and marketing services provided by CrowdSource
.
In January 2015, the Company acquired an 80 percent voting interest in DMV
Holdings
, into which the stock of three Dallas-based companies,
Distribion, Inc., Vertical Nerve, Inc. and
MarketingFX
, 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
.
16
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
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 and six months ended
June 30, 2016
and
2015
.
The table below sets forth the components of A. H. Belo’s
operating income (loss) by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
28,639
|
|
(7.1)
|
%
|
|
$
|
30,825
|
|
$
|
54,732
|
|
(9.9)
|
%
|
|
$
|
60,726
|
Circulation
|
|
|
19,821
|
|
(4.8)
|
%
|
|
|
20,816
|
|
|
40,173
|
|
(4.0)
|
%
|
|
|
41,854
|
Printing, distribution and other
|
|
|
6,700
|
|
(1.0)
|
%
|
|
|
6,768
|
|
|
13,310
|
|
(2.4)
|
%
|
|
|
13,631
|
Total Net Operating Revenue
|
|
|
55,160
|
|
(5.6)
|
%
|
|
|
58,409
|
|
|
108,215
|
|
(6.9)
|
%
|
|
|
116,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
53,768
|
|
(8.3)
|
%
|
|
|
58,621
|
|
|
109,258
|
|
(10.0)
|
%
|
|
|
121,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
$
|
1,392
|
|
756.6
|
%
|
|
$
|
(212)
|
|
$
|
(1,043)
|
|
79.7
|
%
|
|
$
|
(5,144)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
9,401
|
|
26.3
|
%
|
|
$
|
7,441
|
|
$
|
18,545
|
|
29.0
|
%
|
|
$
|
14,371
|
Printing, distribution and other
|
|
|
2,065
|
|
150.0
|
%
|
|
|
826
|
|
|
2,349
|
|
53.5
|
%
|
|
|
1,530
|
Total Net Operating Revenue
|
|
|
11,466
|
|
38.7
|
%
|
|
|
8,267
|
|
|
20,894
|
|
31.4
|
%
|
|
|
15,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
10,199
|
|
18.7
|
%
|
|
|
8,590
|
|
|
18,973
|
|
15.7
|
%
|
|
|
16,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
$
|
1,267
|
|
492.3
|
%
|
|
$
|
(323)
|
|
$
|
1,921
|
|
486.5
|
%
|
|
$
|
(497)
|
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. The Company continually evaluates the overall performance of its core products to ensure existing assets are deployed adequately to maximize return.
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 declines in advertising and paid print circulation volumes and revenue.
The most significant decline in advertising revenue has been attributable to print display and classified categories
. These categories, which represented 29.9 percent of consolidated revenue in 2013, have declined to
20.8
percent
thus far in
2016, and further declines are
likely
in future periods.
Decreases in print display and classified categories are indicative of continuing trend
s by advertisers towards digital platforms
, which
are
widely available from many sources.
In the current environment, c
ompanies are
allocating
more of their advertising
spending
towards programmatic channels
that provide
digital advertising on multiple platforms
with enhanced 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 demand for digital advertisement opportunities in display, mobile, video and social categories. By utilizing advertising exchanges to apply marketing insight, the Company believes it offers greater value to clients through focused targeting of advertising to 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.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
17
Advertising and marketing services revenue
Advertising and marketing services revenue is 57.1 percent and 56.8 percent of total revenue for the three and six months ended June 30, 2016,
respectively,
and 57.4 percent and 56.8 percent for the three and six months ended June 30, 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display advertising
|
|
$
|
8,900
|
|
(18.5)
|
%
|
|
$
|
10,919
|
|
$
|
16,977
|
|
(23.0)
|
%
|
|
$
|
22,059
|
Classified advertising
|
|
|
5,343
|
|
2.6
|
%
|
|
|
5,210
|
|
|
9,898
|
|
(6.3)
|
%
|
|
|
10,566
|
Preprint advertising
|
|
|
11,707
|
|
(3.6)
|
%
|
|
|
12,141
|
|
|
22,775
|
|
(1.6)
|
%
|
|
|
23,138
|
Digital advertising
|
|
|
2,689
|
|
5.2
|
%
|
|
|
2,555
|
|
|
5,082
|
|
2.4
|
%
|
|
|
4,963
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital services
|
|
|
8,650
|
|
22.9
|
%
|
|
|
7,040
|
|
|
16,937
|
|
25.6
|
%
|
|
|
13,483
|
Other services
|
|
|
751
|
|
87.3
|
%
|
|
|
401
|
|
|
1,608
|
|
81.1
|
%
|
|
|
888
|
Advertising and Marketing Services
|
$
|
38,040
|
|
(0.6)
|
%
|
|
$
|
38,266
|
|
$
|
73,277
|
|
(2.4)
|
%
|
|
$
|
75,097
|
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 in both periods. The department store, food and beverage, entertainment and furniture categories experienced the greatest declines with a combined revenue decrease of approximately $1,018 and $1,765, for the three and six months ended June 30, 2016, respectively. The revenue decrease was driven heavily by a volume decline of 20.2 percent and 19.3 percent, for the three and six months ended June 30, 2016, respectively.
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 remained relatively flat during the three months ended June 30, 2016, and decreased in the six months ended June 30, 2016, due to lower
volumes
in all categories except
real estate and legal
. This decline was partially offset by higher
rates
in
automotive and 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 decreased due to a decline in the volume of preprint newspaper inserts, consistent with the decline in circulation volumes
,
partially offset by higher
volumes in home delivery mail advertising.
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 increased due to a higher volume of online banner advertisements on
dallasnews.com
.
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 revenue increased $
1,373
and $
2,223
in
the three and six months ended June 30, 2016, respectively. The DMV Holdings revenue increase offset approximately
62.8
percent and
37.1
percent of the core print advertising revenue decline in the three and six months ended June 30, 2016, respectively.
Other
services
– Other services revenue increased $350 and
$720 in the three and six months ended June 30, 2016, respectively, due to t
he
sale
of promotional merchandise
by
MarketingFX
.
18
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
Circulation revenue
Circulation revenue is
29.7
percent and
31.1
percent of total revenue for the three and six months ended June 30, 2016,
respectively,
and
31.2
percent and
31.7
percent for the three and six months ended June 30, 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
$
|
19,821
|
|
(4.8)
|
%
|
|
$
|
20,816
|
|
$
|
40,173
|
|
(4.0)
|
%
|
|
$
|
41,854
|
Revenue decreased due to a decline in home delivery and single copy paid print circulation volumes of 9.6 percent and 14.1 percent, respectively, for the three months ended June 30, 2016, and 8.3 percent and 14.7 percent, respectively, for the six months ended June 30, 2016. These declines were partially offset by an effective rate increase of 8.1 percent and 7.6 percent
in
the three and six months ended June 30, 2016, respectively
, for 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.
During
the three
and six
months ended
June 30
, 2016,
the Company generated $43 and $87, respectively, of incremental revenue through the distribution of specialty magazines to its core subscribers.
Printing, distribution and other revenue
Printing, distribution and other revenue is 13.2 percent and 12.1 percent of total revenue for the three and six months ended June 30, 2016,
respectively,
and 11.4 percent and 11.5 percent for the three and six months ended June 30, 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial print and distribution
|
|
$
|
6,700
|
|
(1.0)
|
%
|
|
$
|
6,768
|
|
$
|
13,310
|
|
(2.4)
|
%
|
|
$
|
13,631
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event marketing and other
|
|
|
2,065
|
|
150.0
|
%
|
|
|
826
|
|
|
2,349
|
|
53.5
|
%
|
|
|
1,530
|
Printing, Distribution and Other
|
|
$
|
8,765
|
|
15.4
|
%
|
|
$
|
7,594
|
|
$
|
15,659
|
|
3.3
|
%
|
|
$
|
15,161
|
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.
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 live music festivals and craft beer events that expand across Texas.
Revenue increased $1,23
9
and $81
9
for the three and six months ended June 30, 2016, respectively,
primarily due to an increase related to
Savor
, Dallas’ four-day celebration of food, wine and spirits. In 2015, the
Savor
festival occurred in the first quarter. In 2016, the festival occurred in April.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
19
Operating Costs and Expense
The table below sets forth the components of the Company’s
o
perating
costs and
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
21,151
|
|
(4.1)
|
%
|
|
$
|
22,050
|
|
$
|
44,793
|
|
(4.3)
|
%
|
|
$
|
46,783
|
Other production, distribution and operating costs
|
|
|
23,802
|
|
(8.7)
|
%
|
|
|
26,067
|
|
|
47,165
|
|
(11.2)
|
%
|
|
|
53,117
|
Newsprint, ink and other supplies
|
|
|
6,228
|
|
(18.4)
|
%
|
|
|
7,630
|
|
|
12,102
|
|
(22.1)
|
%
|
|
|
15,540
|
Depreciation
|
|
|
2,587
|
|
(9.0)
|
%
|
|
|
2,844
|
|
|
5,198
|
|
(11.2)
|
%
|
|
|
5,855
|
Amortization
|
|
|
—
|
|
(100.0)
|
%
|
|
|
30
|
|
|
—
|
|
(100.0)
|
%
|
|
|
60
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
3,623
|
|
18.6
|
%
|
|
|
3,055
|
|
|
6,998
|
|
20.1
|
%
|
|
|
5,825
|
Other production, distribution and operating costs
|
|
|
6,096
|
|
23.2
|
%
|
|
|
4,948
|
|
|
11,064
|
|
18.2
|
%
|
|
|
9,358
|
Newsprint, ink and other supplies
|
|
|
233
|
|
9.4
|
%
|
|
|
213
|
|
|
417
|
|
(11.1)
|
%
|
|
|
469
|
Depreciation
|
|
|
18
|
|
(41.9)
|
%
|
|
|
31
|
|
|
39
|
|
(35.0)
|
%
|
|
|
60
|
Amortization
|
|
|
229
|
|
(33.2)
|
%
|
|
|
343
|
|
|
455
|
|
(33.7)
|
%
|
|
|
686
|
Total Operating Costs and Expense
|
|
$
|
63,967
|
|
(4.8)
|
%
|
|
$
|
67,211
|
|
$
|
128,231
|
|
(6.9)
|
%
|
|
$
|
137,753
|
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 $89
9
and $1,9
90
in the three and six months ended June 30, 2016,
respectively,
due to headcount reductions within the Company
that were effected in the second half of 2015
.
Other
production, distribution and operating costs
– Expense decreased in the Company’s Publishing 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
telecommunications expense and personnel recruiting expenses.
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 June 30, 2016 and 2015
,
approximated
6,806
and
7,892
metric tons, respectively, at an average cost per metric ton of
$524
and $
539
, respectively.
Newsprint consumption for the six
months ended June 30, 2016 and 2015
,
approximated
13,395 and 15,646 metric tons, respectively, at an average cost per metric
ton of $514 and
$560
, respectively.
The average purchase price for newsprint was
$530
and $
541
for the three
month
s ended June 30, 2016 and 2015, respectively
,
and $5
21
and $5
60 for the six months ended June 30, 2016 and 2015, respectively.
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
and six months ended June 30
, 2016,
primarily related to the growth associated with DMV Holdings
of $794 and $1,477,
respectively. As of June 30, 2016 and 2015, DMV Holdings employed 71
and 47 personnel, respectively.
Other production, distribution and operating costs
– Other expense increased in the three and six months ended June 30, 2016, by $711 and $1,079, respectively, to support the continued growth in DMV Holdings.
20
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
Newsprint, ink and other supplies
–
E
xpense remained relatively flat during the three months ended June 30, 2016, and decreased during the six months ended June 30, 2016, primarily due to
a decrease in
promotional material printing costs associated with MarketingFX
of $34
.
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 and six months ended June 30, 2016, primarily related to subscriber lists associated with DMV Holdings
of $76 and $161, respectively
.
Other
The table below sets forth the other components of the Company’s results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage Change
|
|
2015
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity method investments, net
|
|
$
|
—
|
|
(100.0)
|
%
|
|
$
|
690
|
|
$
|
—
|
|
(100.0)
|
%
|
|
$
|
276
|
Other income (expense), net
|
|
|
408
|
|
176.7
|
%
|
|
|
(532)
|
|
|
487
|
|
215.1
|
%
|
|
|
(423)
|
Total other income (expense), net
|
|
$
|
408
|
|
158.2
|
%
|
|
$
|
158
|
|
$
|
487
|
|
431.3
|
%
|
|
$
|
(147)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision (Benefit)
|
|
$
|
2,393
|
|
654.9
|
%
|
|
$
|
317
|
|
$
|
1,284
|
|
123.7
|
|
|
$
|
(5,413)
|
Other Income (Expense)
–
Other income (expense) is primarily comprised of
income
from equity method investments
and gain (loss)
on disposal
of fixed assets.
In the fourth quarter of 2015, the Company’s ownership interest in Wanderful Media, LLC (“Wanderful”) decreased to less than 20 percent of the outstanding membership interests of Wanderful. Accordingly, the Company discontinued the use of the equity method of accounting for the investment in Wanderful, and began accounting for the investment under the cost adjusted for fair value method, under which the carrying amount is adjusted at financial statement dates for changes in fair value.
Tax provision
–
The tax provision recorded for the three
and six
months ended June 30, 2016,
was
primarily related to
taxable income generated from operations
and the disposition of certain fixed assets.
Sales of Assets
–
In June 2015, the Company completed the sale of land and a building which served as the headquarters of
The Providence Journal
, a publication formerly owned by the Company
.
The Company received net proceeds of $6,119 in the second quarter of 2015 upon closing of the
transaction, generating a loss of approximately $292, which was offset by $32
8
of returned escrow received in the second quarter of 2016
.
Also during the second quarter of 2015
, the Company demolished existing structures on an additional property in Providence, Rhode Island, at a cost of
$412
.
Legal proceedings
–
From time to time, the Company is involved in a variety of claims, lawsuits and other disputes arising in the ordinary course of business. Management routinely assesses the likelihood of adverse judgments or outcomes in those matters, as well as the ranges of probable losses to the extent losses are reasonably estimable. Accruals for contingencies are recorded when, in the judgment of management, adverse judgments or outcomes are probable and the financial impact, should an adverse outcome occur, is reasonably estimable. The determination of likely outcomes of litigation matters relates to factors that 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 financial exposure involves substantial uncertainties that could cause actual results to vary materially from estimates and accruals.
The Company is currently involved in a 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 in connection with the dispute. The most recent disputed invoice notice dated April 28, 2016, claimed disputed invoices totaling approximately $1,500.
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
21
Liquidity and Capital Resources
The Company’s cash balance
s
as of
June 30, 2016
and
December 31, 2015
,
were
$82,384
and
$78,380
,
respectively
.
Cash
flows provided by
operations
for the six months ended June 30,
2016
,
totaled
$8,223
. 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.
The Company intends to hold existing cash for purposes of future investment opportunities, potential return of capital to shareholders and for contingency purposes. Although 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
$6,000
over the
remainder of the year
.
The future payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company discontinued stock repurchases 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 provided
by (used for)
continuing
operations for
the six months ended June 30,
2016 and 2015
,
was
$8,223
and
$(8,704)
, respectively.
Cash flows from continuing operating activities
improved by
$16,927
during the
six months ended June 30, 2016, when compared to the prior year period
,
primarily due to changes in working capital and other operating assets and liabilities of $13,876.
In addition, the Company had improved net income of $466, when compared to the prior year period.
Investing Cash Flows
Net
cash used for investing activities
was
$3,174
and
$10,228
for the six months ended June 30,
2016 and 2015, respectively. Cash flows used for investing activities
include
$3,174
and
$2,674
of capital spending in 2016
and 2015, respectively.
Sales proceeds, net of disposal costs for fixed assets, of $6,011 were received during 2015 related to the Providence, Rhode Island properties. Cash outflows during 2015, also include the payment of $14,110 related to the DMV Holdings acquisition.
Financing Cash Flows
Net
cash used for financing activities
was
$1,045
and
$55,022
for the six months ended June 30,
2016 and 2015, respectively. Cash used for continuing financing activities included dividend
payments of
$3,503
and
$53,692
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
244,483
shares of its Series A common
stock at a
total
cost of
$1,947
under its share repurchase program
. The Company’s agreement to repurchase its stock was terminated in December 2015
.
Financing Arrangements
None.
Contractual Obligations
Under the applicable tax and labor laws governing pension plan funding, n
o contributions to the A. H. Belo Pension Plans are required in 201
6
.
On
May 12
, 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
August 12
, 2016, which
is payable
on
September 2
, 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 S
ecurities and Exchange Commission (“SEC”)
.
22
A. H. Belo Corporation Second Quarter 2016 on Form 10-Q
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
Corporation
’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, trends and uncertainties are, in most instances, beyond
the Company’s
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.