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
and DMV Holdings, in which the Company holds ownership percentages of
70
percent and
80
percent, respectively
.
As a consequence, the assets and liabilities of 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 (Topic 805):
Simplifying the Accounting
for
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 Third 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
from Contracts with Customers (Topic 606).
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 Contr
acts 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
(Topic 606):
Identifying Performance Obligations and
Licensing
. In May 2016, the FASB issued ASU 2016-12 –
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. 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 842).
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 Third Quarter 2016 on Form 10-Q
9
Event marketing includes the operations of CrowdSource, which promotes community 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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|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
52,606
|
|
$
|
57,060
|
|
$
|
160,821
|
|
$
|
173,271
|
MEMO
|
|
|
12,174
|
|
|
9,848
|
|
|
33,068
|
|
|
25,749
|
Total
|
|
$
|
64,780
|
|
$
|
66,908
|
|
$
|
193,889
|
|
$
|
199,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
(1,975)
|
|
$
|
(3,939)
|
|
$
|
(3,018)
|
|
$
|
(9,083)
|
MEMO
|
|
|
1,486
|
|
|
837
|
|
|
3,407
|
|
|
340
|
Total
|
|
$
|
(489)
|
|
$
|
(3,102)
|
|
$
|
389
|
|
$
|
(8,743)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
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|
|
|
|
|
|
Publishing
|
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|
|
|
|
|
|
|
|
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|
|
Depreciation
|
|
$
|
2,467
|
|
$
|
2,752
|
|
$
|
7,665
|
|
$
|
8,607
|
Amortization
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
90
|
Total
|
|
$
|
2,467
|
|
$
|
2,782
|
|
$
|
7,665
|
|
$
|
8,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
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Depreciation
|
|
$
|
21
|
|
$
|
28
|
|
$
|
60
|
|
$
|
88
|
Amortization
|
|
|
225
|
|
|
331
|
|
|
680
|
|
|
1,017
|
Total
|
|
$
|
246
|
|
$
|
359
|
|
$
|
740
|
|
$
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Total Assets
|
|
|
|
|
|
|
Publishing
|
|
$
|
189,446
|
|
$
|
196,912
|
MEMO
|
|
|
23,936
|
|
|
24,589
|
Total
|
|
$
|
213,382
|
|
$
|
221,501
|
Note 3: Sales of Assets
Assets held for sale include long-lived assets being actively marketed for which a sale is considered probable within the next 12 months. These assets are recorded at the lower of their fair value less costs to sell or their carrying value at the time they are classified as
a
ssets held for sale.
In the third quarter
of 2016
, the Company
commenced due diligence related to the sale of a parking lot located in downtown Dallas, Texas
. Th
is
asset, with a total carrying value of $2,600
,
is reported as
a
ssets held for sale as of
September 30
,
2016
.
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 $2
65
, which was offset by $328 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.
10
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
Note
4
:
Goodwill and Intangible Assets
Goodwill
and other
intangible assets by reportable segment as of
September 30, 2016
and
December 31, 2015
are as follows:
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|
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
Goodwill
|
|
|
|
|
|
Publishing
|
$
|
22,682
|
|
$
|
22,682
|
MEMO
|
|
14,201
|
|
|
14,201
|
Total
|
$
|
36,883
|
|
$
|
36,883
|
|
|
|
|
|
|
Intangible Assets
|
|
|
|
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MEMO
|
|
|
|
|
|
Cost
|
$
|
6,710
|
|
$
|
6,710
|
Accumulated Amortization
|
|
(1,612)
|
|
|
(932)
|
Net Carrying Value
|
$
|
5,098
|
|
$
|
5,778
|
Intangible assets consist of
$5,190
of customer relationships with estimated useful lives of
10
years and $
1,520
of developed technology with an estimated useful life of
five
years. Aggregate amortization expense was
$225
and
$680
for the
three and nine months ended
September 30, 2016
, respectively, and
$361
and
$1,107
for the
three and nine months ended
September 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
September 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 September 30, 2016
|
146,443
|
|
$
|
10.34
|
No
options were exercised in the three months
ended September 30, 2016 and 2015. T
he aggregate intrinsic value of options exercised in the
nine months ended
September 30, 2016
and
2015
, was
$300
and
$100
, respectively
. The aggregate intrinsic value of outstanding options at
September 30, 2016
,
was
$89
.
The weighted average remaining contractual life of the Company’s stock options
was
1.
4
years
as of
September 30, 2016
.
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
11
Restricted Stock Units.
T
he
Company’s
RSUs have
a
service condition
and, subject to retirement eligibility,
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
September 30, 2016
, the liability for the portion of the award to be redeemed in cash was
$793
. 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
|
92,355
|
|
|
|
|
|
|
|
|
$
|
7.13
|
Granted
|
202,955
|
|
|
|
|
|
|
|
|
|
5.47
|
Vested and outstanding
|
(142,113)
|
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|
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|
|
|
|
|
|
5.90
|
Vested and issued
|
(18,668)
|
|
11,196
|
|
7,472
|
|
$
|
44
|
|
|
8.10
|
Non-vested at September 30, 2016
|
134,529
|
|
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|
|
|
|
|
|
$
|
5.79
|
For
the
nine months ended
September 30, 2016
, the Company
issued
86,
00
7
shares that were previously vested as of December 31, 2015. In addition, there were
223,67
6
and
224,91
1
RSUs that were vested and outstanding
as of
September 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
September 30, 2016
, unrecognized compensation
expense
related to non-vested RSUs
totaled
$496
, which is expected to be recognized over a weighted-average period
of
1.
1
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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RSUs
Redeemable
in Stock
|
|
RSUs
Redeemable
in Cash
|
|
Total
RSU Awards
Expense
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
2016
|
$
|
86
|
|
$
|
303
|
|
$
|
389
|
2015
|
|
77
|
|
|
(32)
|
|
|
45
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
2016
|
$
|
534
|
|
$
|
604
|
|
$
|
1,138
|
2015
|
|
528
|
|
|
(399)
|
|
|
129
|
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 pr
ovision (benefit) from continuing operations of
$77
and
$(188)
for the three months ended
September 30, 2016
and 2015, respectively, and
$1,361
and
$(5,601)
for the
nine months ended
September 30, 2016
and 2015, respectively. Effective income tax rates from continuing operations were
137.5
percent and
56.3
percent for the
nine months ended
September 30, 2016
and 2015, respectively.
The effective income tax rate for the nine months ended September 30, 2016, was higher
when compared to the prior year period
due to taxable income
, changes in valuation allowance
and the disposit
ion of 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 to certain
former
employees of The Providence Journal Company
.
This
obligation was retained by the Company
upon the
sale of the
12
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
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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|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest cost
|
|
$
|
2,525
|
|
$
|
3,540
|
|
$
|
7,574
|
|
$
|
10,620
|
Expected return on plans' assets
|
|
|
(3,396)
|
|
|
(5,008)
|
|
|
(10,189)
|
|
|
(15,024)
|
Amortization of actuarial loss
|
|
|
11
|
|
|
313
|
|
|
42
|
|
|
938
|
Net periodic pension benefit
|
|
$
|
(860)
|
|
$
|
(1,155)
|
|
$
|
(2,573)
|
|
$
|
(3,466)
|
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
September 30, 2016
and
2015
, the Company recorded
expense of
$248
and
$239
, respectively, and during the
nine months ended
September 30, 2016
and 2015, the Company recorded expense of
$749
and
$765
, respectively, for matching contributions
to the plan
.
Note
8
:
Shareholders’ Equity
Dividends
.
On September 8, 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
November 10
, 2016, which is payable on
December
2, 2016
.
During the three months ended September 30, 2016, the Company
recorded
$1,763
to
accrue
for dividends declared but not
yet
paid.
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
p
lan
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
the
accumulated other comprehensive loss are fully reserved.
A. H. Belo Corporation Third 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 September 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
|
|
$
|
(38,474)
|
|
$
|
(38,867)
|
|
$
|
393
|
|
$
|
(56,742)
|
|
$
|
(57,028)
|
|
$
|
286
|
Amortization
|
|
|
(17)
|
|
|
11
|
|
|
(28)
|
|
|
313
|
|
|
314
|
|
|
(1)
|
Balance, end of period
|
|
$
|
(38,491)
|
|
$
|
(38,856)
|
|
$
|
365
|
|
$
|
(56,429)
|
|
$
|
(56,714)
|
|
$
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 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
|
|
|
(49)
|
|
|
42
|
|
|
(91)
|
|
|
938
|
|
|
940
|
|
|
(2)
|
Balance, end of period
|
|
$
|
(38,491)
|
|
$
|
(38,856)
|
|
$
|
365
|
|
$
|
(56,429)
|
|
$
|
(56,714)
|
|
$
|
285
|
Note
9
: Earnings Per Share
The table below sets forth the reconciliation for net 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Earnings (Numerator)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to A. H. Belo Corporation
|
|
$
|
(497)
|
|
$
|
(3,956)
|
|
$
|
(436)
|
|
$
|
(4,185)
|
Less: Loss from discontinued operations
|
|
|
—
|
|
|
(52)
|
|
|
—
|
|
|
(62)
|
Less: Dividends to participating securities
|
|
|
29
|
|
|
26
|
|
|
83
|
|
|
88
|
Net loss available to common shareholders from continuing operations
|
|
$
|
(526)
|
|
$
|
(3,930)
|
|
$
|
(519)
|
|
$
|
(4,211)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
21,676,260
|
|
|
21,651,670
|
|
|
21,601,828
|
|
|
21,721,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.02)
|
|
$
|
(0.18)
|
|
$
|
(0.02)
|
|
$
|
(0.19)
|
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 earnings per share.
A
total of
504,648
and
699,780
options and RSUs outstanding during the
three and nine months ended
September 30, 2016
and
2015
, respectively
,
were excluded from the calculation because the effect was anti-dilutive.
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 these matters, as well as the ranges of probable losses to the extent losses are reasonably estimable. Accruals for contingencies are recorded when, in the
14
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
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, totaling
approximately $1,500
, could be incurred in connection with the dispute.
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 nine months ended September 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
the noncontrolling
ownership interest
in DMV Holdings
between the second and third anniversaries of the agreement and up to 50
percent of
the noncontrolling
ownership interest
in DMV Holdings
between the fourth and fifth anniversaries of the agreement.
The exercisability of the noncontrolling interest put
option
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
of
the Consolidated Balance Sheets as of
September 30, 2016
and December 31, 2015, respectively. In the event that the put option expire
s
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
nine months ended
September 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 Third 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,
and
direct mail and promotional products, respectively.
The Company believes t
his 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
.
16
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
RESULTS OF CONTINUING OPERATIONS
Consolidated Results of Continuing Operations
The table below sets forth the components of A. H. Belo’s
operating income (loss) by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
26,487
|
|
(11.4)
|
%
|
|
$
|
29,909
|
|
$
|
81,219
|
|
(10.4)
|
%
|
|
$
|
90,635
|
Circulation
|
|
|
19,633
|
|
(3.2)
|
%
|
|
|
20,279
|
|
|
59,806
|
|
(3.7)
|
%
|
|
|
62,133
|
Printing, distribution and other
|
|
|
6,486
|
|
(5.6)
|
%
|
|
|
6,872
|
|
|
19,796
|
|
(3.4)
|
%
|
|
|
20,503
|
Total Net Operating Revenue
|
|
|
52,606
|
|
(7.8)
|
%
|
|
|
57,060
|
|
|
160,821
|
|
(7.2)
|
%
|
|
|
173,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
54,581
|
|
(10.5)
|
%
|
|
|
60,999
|
|
|
163,839
|
|
(10.2)
|
%
|
|
|
182,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
$
|
(1,975)
|
|
49.9
|
%
|
|
$
|
(3,939)
|
|
$
|
(3,018)
|
|
66.8
|
%
|
|
$
|
(9,083)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
11,817
|
|
27.4
|
%
|
|
$
|
9,275
|
|
$
|
30,362
|
|
28.4
|
%
|
|
$
|
23,646
|
Printing, distribution and other
|
|
|
357
|
|
(37.7)
|
%
|
|
|
573
|
|
|
2,706
|
|
28.7
|
%
|
|
|
2,103
|
Total Net Operating Revenue
|
|
|
12,174
|
|
23.6
|
%
|
|
|
9,848
|
|
|
33,068
|
|
28.4
|
%
|
|
|
25,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
10,688
|
|
18.6
|
%
|
|
|
9,011
|
|
|
29,661
|
|
16.7
|
%
|
|
|
25,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
1,486
|
|
77.5
|
%
|
|
$
|
837
|
|
$
|
3,407
|
|
902.1
|
%
|
|
$
|
340
|
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
20.5
percent of consolidated revenue 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 media 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 Third Quarter 2016 on Form 10-Q
17
Advertising and marketing services revenue
Advertising and marketing services revenue
was
5
9
.
1
percent and
57.
5
percent of total revenue for the three and
nine months ended
September 30, 2016
,
respectively,
and
58.6
percent and
57.4
percent for the three and
nine months ended
September 30, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display advertising
|
|
$
|
7,933
|
|
(21.5)
|
%
|
|
$
|
10,108
|
|
$
|
24,910
|
|
(22.6)
|
%
|
|
$
|
32,167
|
Classified advertising
|
|
|
4,984
|
|
2.3
|
%
|
|
|
4,871
|
|
|
14,882
|
|
(3.6)
|
%
|
|
|
15,437
|
Preprint advertising
|
|
|
11,365
|
|
(8.3)
|
%
|
|
|
12,392
|
|
|
34,140
|
|
(3.9)
|
%
|
|
|
35,530
|
Digital advertising
|
|
|
2,205
|
|
(13.1)
|
%
|
|
|
2,538
|
|
|
7,287
|
|
(2.9)
|
%
|
|
|
7,501
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital services
|
|
|
10,742
|
|
24.7
|
%
|
|
|
8,616
|
|
|
27,679
|
|
25.3
|
%
|
|
|
22,099
|
Other services
|
|
|
1,075
|
|
63.1
|
%
|
|
|
659
|
|
|
2,683
|
|
73.4
|
%
|
|
|
1,547
|
Advertising and Marketing Services
|
$
|
38,304
|
|
(2.2)
|
%
|
|
$
|
39,184
|
|
$
|
111,581
|
|
(2.4)
|
%
|
|
$
|
114,281
|
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 other retail in the three months ended September 30, 2016 and 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 $1,557 and $2,303, for the three and
nine months ended
September 30, 2016
, respectively. The revenue decrease was driven heavily by a volume decline of 16.0 percent and 14.5 percent for the three and nine months ended September 30, 2016, respectively.
Classified
– Classified primarily represents sales of classified advertising space within the Company’s core and niche newspapers.
Growth in c
lassified advertising
revenue continues to be
challeng
ing
as alternative digital outlets continue to emerge.
R
ate improvement trends in certain display advertising categories
partially offset the volume decline.
Overall classified revenue increased slightly during the three months ended September 30, 2016, and decreased in the nine months ended September 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, discussed below, 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 decreased due to a lower 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, 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 $2,109 and $4,332 in the
three and
nine
months ended
September
30, 2016, respectively. The DMV Holdings revenue increase offset
approximately 61.6 percent and 46.0 percent
of the core print advertising revenue decline in the three and
nine
months ended
September
30, 2016, respectively.
Other
services
– Other services revenue
increased $41
6
and $1,136
in the three and nine months ended September 30, 2016, respectively, due to t
he
sale
of promotional merchandise
by
MarketingFX
.
18
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
Circulation revenue
Circulation revenue
was
30.
3
percent and
30.
8
percent of total revenue for the three and
nine months ended
September 30, 2016
,
respectively,
and
30.3
percent and
31.2
percent for the three and
nine months ended
September 30, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
$
|
19,633
|
|
(3.2)
|
%
|
|
$
|
20,279
|
|
$
|
59,806
|
|
(3.7)
|
%
|
|
$
|
62,133
|
Revenue decreased due to a decline in home delivery and single copy paid print circulation volumes of 9.2 percent and 12.5 percent, respectively, for the three months ended September 30, 2016, and 8.5 percent and 14.1 percent, respectively, for the nine months ended September 30, 2016. These volume declines were partially offset by a rate increase of 6.9 percent in both periods 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 nine months ended September 30, 2016, the Company generated $315 and $402, respectively, of incremental circulation revenue through the distribution of specialty magazines to its core subscribers.
Printing, distribution and other revenue
Printing, distribution and other revenue
was
10.
6
percent and
11.7
percent of total revenue for the three and
nine
months ended
September
30, 2016,
respectively,
and
11.1
percent and
11.4
percent for the three and
nine months ended
September 30, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial print and distribution
|
|
$
|
6,486
|
|
(5.6)
|
%
|
|
$
|
6,872
|
|
$
|
19,796
|
|
(3.4)
|
%
|
|
$
|
20,503
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event marketing and other
|
|
|
357
|
|
(37.7)
|
%
|
|
|
573
|
|
|
2,706
|
|
28.7
|
%
|
|
|
2,103
|
Printing, Distribution and Other
|
|
$
|
6,843
|
|
(8.1)
|
%
|
|
$
|
7,445
|
|
$
|
22,502
|
|
(0.5)
|
%
|
|
$
|
22,606
|
Publishing
–
The Company aggressively market
s
the capacity of their printing and distribution assets to other newspapers that would benefit from cost sharing arrangements.
Revenue decreased due to a decline in volumes associated with certain national newspapers. This decrease was partially offset by commencement of 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
.
Revenue
decreased $216 for the three months ended September 30, 2016, and increased $603 for the nine months ended September
30, 2016. The decrease
for the three months ended September 30, 2016, is primarily related to an event hosted by CrowdSource in the third quarter of 2015, which the Company will not host in 2016.
A. H. Belo Corporation Third 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage
Change
|
|
2015
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
22,047
|
|
(14.9)
|
%
|
|
$
|
25,910
|
|
$
|
66,840
|
|
(8.1)
|
%
|
|
$
|
72,693
|
Other production, distribution and operating costs
|
|
|
24,109
|
|
(4.4)
|
%
|
|
|
25,207
|
|
|
71,274
|
|
(9.0)
|
%
|
|
|
78,324
|
Newsprint, ink and other supplies
|
|
|
5,958
|
|
(16.1)
|
%
|
|
|
7,100
|
|
|
18,060
|
|
(20.2)
|
%
|
|
|
22,640
|
Depreciation
|
|
|
2,467
|
|
(10.4)
|
%
|
|
|
2,752
|
|
|
7,665
|
|
(10.9)
|
%
|
|
|
8,607
|
Amortization
|
|
|
—
|
|
(100.0)
|
%
|
|
|
30
|
|
|
—
|
|
(100.0)
|
%
|
|
|
90
|
MEMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
3,579
|
|
14.3
|
%
|
|
|
3,131
|
|
|
10,577
|
|
18.1
|
%
|
|
|
8,956
|
Other production, distribution and operating costs
|
|
|
6,506
|
|
21.5
|
%
|
|
|
5,355
|
|
|
17,570
|
|
19.4
|
%
|
|
|
14,713
|
Newsprint, ink and other supplies
|
|
|
357
|
|
115.1
|
%
|
|
|
166
|
|
|
774
|
|
21.9
|
%
|
|
|
635
|
Depreciation
|
|
|
21
|
|
(25.0)
|
%
|
|
|
28
|
|
|
60
|
|
(31.8)
|
%
|
|
|
88
|
Amortization
|
|
|
225
|
|
(32.0)
|
%
|
|
|
331
|
|
|
680
|
|
(33.1)
|
%
|
|
|
1,017
|
Total Operating Costs and Expense
|
|
$
|
65,269
|
|
(6.8)
|
%
|
|
$
|
70,010
|
|
$
|
193,500
|
|
(6.9)
|
%
|
|
$
|
207,763
|
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 $3,
863
and $5,
853
in the three and
nine
months ended
September
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 as the Company continues to manage discretionary spending. Savings were generated by reductions in temporary and personnel recruiting services, promotional spending and travel.
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
September
30, 2016 and 2015
,
approximated
6,627
and
7,516
metric tons, respectively, at an average cost per metric ton
of
$542
and
$
550
, respectively.
Newsprint consumption for the nine
months ended
September
30, 2016 and 2015
,
approximated
20,022
and
23,162
metric tons, respectively, at an average cost per metric
ton
of
$523
and
$543
, respectively.
The average purchase price for newsprint was
$561
and $
529
for
the three
months ended September
30, 2016 and 2015, respectively
,
and
$532
and
$551
for
the nine months ended September 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 nine months ended September 30
, 2016,
primarily related to the growth associated with DMV Holdings of $731 and $2,208, respectively. As of September
30, 2016 and 2015, DMV Holdings
employed 76 and 54 personnel
, respectively.
Other production, distribution and operating costs
–
E
xpense increased in the three and nine months ended September 30, 2016, in connection with growth in DMV Holdings
of
$
1,412
and $2,
490
, respectively.
Newsprint, ink and other supplies
–
Expense increased $191 and $139 in the three and nine months ended September 30, 2016, respectively, primarily due to a
n
increase
in promotional material printing costs associated with MarketingFX
.
20
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
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 nine months ended September 30, 2016, primarily related to
customer
lists associated with DMV Holdings of $80 and $241, respectively.
Other
The table below sets forth the other components of the Company’s results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
Percentage
Change
|
|
2015
|
|
2016
|
|
Percentage Change
|
|
2015
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from equity method investments, net
|
|
$
|
—
|
|
100.0
|
%
|
|
$
|
(564)
|
|
$
|
—
|
|
100.0
|
%
|
|
$
|
(288)
|
Other income (expense), net
|
|
|
114
|
|
123.3
|
%
|
|
|
(489)
|
|
|
601
|
|
165.9
|
%
|
|
|
(912)
|
Total other income (expense), net
|
|
$
|
114
|
|
110.8
|
%
|
|
$
|
(1,053)
|
|
$
|
601
|
|
150.1
|
%
|
|
$
|
(1,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision (Benefit)
|
|
$
|
77
|
|
141.0
|
%
|
|
$
|
(188)
|
|
$
|
1,361
|
|
124.3
|
%
|
|
$
|
(5,601)
|
Other Income (Expense)
–
Other income (expense) is primarily comprised
of losses from 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 method.
Tax provision
–
The effective income tax rate for the nine months ended September 30, 2016, was higher when compared to the prior year period
due to taxable income
,
changes in valuation allowance
and the disposit
ion of fixed assets
.
Sales of Assets
–
Assets held for sale include long-lived assets being actively marketed for which a sale is considered probable within the next 12 months. These assets are recorded at the lower of their fair value less costs to sell or their carrying value at the time they are classified as
a
ssets held for sale.
In the third quarter of 2016
, the Company
commenced due diligence related to the sale of a parking lot located in downtown Dallas, Texas
. Th
is
asset, with a total carrying value of $2,600
,
is reported as
a
ssets held for sale as of
September 30
,
2016
.
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 $2
65
, which was offset by $328 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 these 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, totaling
approximately $1,500
, could be incurred in connection with the dispute.
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
21
Liquidity and Capital Resources
The Company’s cash balance
s
as of
September 30, 2016
and
December 31, 2015
,
were
$78,341
and
$78,380
,
respectively
.
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 $
2
,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 c
ould
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
nine months ended
months ended
September 30, 2016
and 2015
,
was
$6,679
and
$(8,845)
, respectively
.
Cash flows from continuing operating activities
improved
by
$15,524
during the
nine
months ended
September
30, 2016, when compared to the prior year period
,
primarily due to changes in working capital and other operating assets and liabilities
of
$10,055
. In
addition, the Company had improved net
loss
of
$4,033
, when
compared to the prior year period.
Investing Cash Flows
Net
cash used for investing activities
was
$3,840
and
$12,200
for the
nine months ended
September 30, 2016
and 2015, respectively. Cash flows used for investing activities
include
$4,168
and
$4,546
of capital spending in 2016
and 2015,
respectively. Sales proceeds
of $5,911
,
net
of disposal costs for fixed assets,
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
$2,878
and
$57,422
for the
nine months ended
September 30, 2016
and 2015, respectively. Cash used for continuing financing activities included dividend
payments of
$5,265
and
$55,450
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
369,952
shares of its Series A common stock at a total cost of
$2,589
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
September 8
, 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
November 10
, 2016, which is payable on
December
2, 2016.
During the three months ended September 30, 2016, the Company recorded $1,763 to
accrue
for dividends declared but not yet paid.
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 Third 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 disclosures 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.
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
23
Ite
m 4.
Mine Safety Disclosures
None.
Ite
m 5.
Other Information
None.
24
A. H. Belo Corporation Third 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.
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Exhibit Number
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Description
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3.1
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*
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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”))
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3.2
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*
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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))
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3.3
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*
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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))
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4.1
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*
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Certain rights of the holders of the Company’s Common Stock set forth in Exhibits 3.1
‑3.3 above
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4.2
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*
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Specimen Form of Certificate representing shares of the Company’s Series A Common Stock (Exhibit 4.2 to the Third Amendment to Form 10)
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4.3
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*
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Specimen Form of Certificate representing shares of the Company’s Series B Common Stock (Exhibit 4.3 to the Third Amendment to Form 10)
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4.4
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*
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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)
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10.2
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*
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Compensatory plans and arrangements:
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~(1)
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*
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A. H. Belo Savings Plan as Amended and Restated Effective January 1,
2015
(Exhibit 10.
2(1)
to
the Company’s Annual Report on Form 10
‑K filed with the Securities and Exchange Commission on March
6
, 201
5
(Securities and Exchange Commission File No. 001
‑33741))
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(a)
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First Amendment to the A. H. Belo Savings Plan effective January 1, 2016
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(b)
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Second Amendment to the A. H. Belo Savings Plan effective September 8, 2016
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~(2)
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*
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A. H. Belo Corporation 2008 Incentive Compensation Plan (Exhibit 10.5 to the February 12, 2008
Form 8-K)
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*
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(a)
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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))
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*
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(b)
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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”))
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*
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(c)
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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)
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*
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(d)
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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
M
arch 12, 2012 (Securities and Exchange Commission File No. 001
‑33741) (the “March 12, 2012 Form 8-K”))
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*
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(e)
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Form of A. H. Belo Cash Long
‑Term Incentive Evidence of Grant (Exhibit 10.2 to the March 12, 2012 Form 8-K)
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A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
25
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Exhibit Number
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Description
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~(3)
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*
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A. H. Belo Pension Transition Supplement Restoration Plan effective January 1, 2008 (Exhibit 10.6 to the February 12, 2008 Form 8
‑K)
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*
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(a)
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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)
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*
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(b
)
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Second Amendment to the A. H. Belo Pension Transition Supplement Restoration Plan dated July 29, 2016 (Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 2, 2016 (Securities and Exchange Commission File No.
001
‑33741
))
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~(4)
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*
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A. H. Belo Corporation Change In Control Severance Plan (Exhibit 10.7 to the February 12, 2008 Form 8
‑K)
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*
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(a)
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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)
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~(5)
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*
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Robert W. Decherd Compensation Arrangements dated June 19, 2013 (Exhibit 10.1 to the June 19, 2013 Form 8-K)
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10.3
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Agreements relating to the separation of A. H. Belo
Corporation
from its former parent company:
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(
1
)
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*
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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))
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(
2
)
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*
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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))
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
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32
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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
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101.INS
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**
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XBRL Instance Document
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101.SCH
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**
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XBRL Taxonomy Extension Schema
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101.CAL
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**
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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**
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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**
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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**
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XBRL Taxonomy Extension Presentation Linkbase Document
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26
A. H. Belo Corporation Third 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.
11/1/2016
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A. H. BELO
CORPORATION
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By:
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/s/
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Katy
Murray
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Katy
Murray
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Senior
Vice
President/Chief
Financial
Officer
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(Principal
Financial
Officer)
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Dated:
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November
1
, 2016
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A. H. Belo Corporation Third Quarter 2016 on Form 10-Q
27
EX
HIBIT INDEX
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Exhibit Number
|
|
Description
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31.1
|
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes
‑Oxley Act of 2002
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32
|
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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
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101.INS
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**
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XBRL Instance Document
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101.SCH
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**
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XBRL Taxonomy Extension Schema
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101.CAL
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**
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
|
**
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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**
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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**
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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.
28
A. H. Belo Corporation Third Quarter 2016 on Form 10-Q