PART I
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K concerning A. H. Belo Corporation’s business
outlook o
r
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; technological obsolescence. 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.
All dollar amounts
presented
herein
the Annual Report on Form 10-K
, except share and per share amounts,
are presented in thousands, unless the context
indicates
otherwise.
Item 1. 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 extending 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.
A. H. Belo Corporation was formed in February 2008 through a spin-off
from its former
parent company and is registered on the New York Stock Exchange (NYSE trading symbol: AHC). 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. Its newspaper
operations also provide commercial printing and distribution services to large national and regional newspapers and other busines
ses in the North Texas region.
The Company also provides marketing, event marketing and other services to businesses. The predominance of services in this segment has been developed or acquired within the last five years and are provided through the Company’s digital marketing divisions and through its subsidiaries
DMV Digital Holdings Company (“DMV Holdings”)
;
Your Speakeasy, LLC (“Speakeasy”) and AHC Proven Performance Media, LLC
(“Proven Performance Media”).
DMN
CrowdSource
LLC (“
CrowdSource
”) provides
event marketing services including event
activation
and sponsorship for large scale community events, seminars and festivals. CrowdSource serves the customers in the North
Texas region
.
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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Business Overview
The Company’s goal is to create profitability for investors through the following:
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Be the premier provider of local journalism excellence in North Texas so citizens can make informed choices about their lives and the life of the communities in which they live.
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Provide customers with the most comprehensive suite of
innovative
marketing solutions.
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Since the Company’s spin-off in 2008, the print media industry has encountered continuous declines
in
revenue primarily due to the secular shift of readers and advertisers to digital platforms. The Company has sought to
limit its exposure
to the
se
industry risks through greater development and enhancement of digital platforms for delivery of news and advertising, and through diversification of sources of revenue, from both organic growth and acquisitions of marketing services and new products.
In January 2015, the Company acquired an 80 percent voting interest in DMV Digital Holdings Company, into which the stock of three Dallas-based companies, Distribion, Inc. (“Distribion”), Vertical Nerve, Inc. (“Vertical Nerve”) and CDFX, LLC (
“MarketingFX”),
were contributed. These businesses specialize in local marketing automation, search engine marketing, and direct mail and promotional products, respectively. The Company believes this acquisition complements the product and service offerings currently available to A. H. Belo c
ustomers
,
thereby strengthening the Company’s diversified product portfolio and allowing for greater penetration in a competitive advertising market. Additionally, the Company has realized efficiencies through internal fulfillment of work that was previously out-sourced to third-party vendors and can provide businesses a more comprehensive suite of marketing solutions. This complements the organic growth realized by Speakeasy and the Company’s Connect division, which offer content development, social media management, and multi-channel marketing solutions through targeted and programmatic exchanges.
The Company has redesigned and
expanded its
website platforms and mobile apps to provide greater digital reporting of local news and information, and to expand the delivery of advertising and marketing services across a host of continuously changing media devices and platforms
.
In 2016, the Company completed a multi-phase expansion of
dallasnews.com
to provide enhanced capabilities on its flagship website and further development of its entertainment brands.
In 2015, the Company completed the expansion of its e-commerce functions and extended its interface with social media platforms and mobile devices.
Complementing this digital expansion, in 2015, the Company recruited a new editor and managing editor with the goal of transforming the Company into a more effective digital news organization. With these additions, and utilizing innovative journalists in other key roles,
the Company strengthened the depth of experience to support the broader delivery of news on digital platforms
with focus on
becoming a digital
-
first newsroom.
As a result of the
s
trategic alignment within the Company’s newspaper and
within its
marketing services operations, in 2015 the Company established separate segments
for its
publishing operations (“Publishing”) and
for its marketing
, event marketing, and other services (“MEMO”). These operations had previously been reported as a single segment. The results of operations related to the Company’s segments are presented in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
.
To support the efforts to
become a more digitally driven advertising and marketing services company
,
and to support the necessary technological and organizational changes, a new lead over human resources was recruited. The Company’s new
C
hief
P
eople
O
fficer was hired to lead the cultural and transformational change needed to ensure that th
e
Company’s
people and business strategies
are aligned
and driving growth
.
Additionally, in 2016, the Company signed an operating lease to move the corporate headquarters to a location providing for
more flexible
office
space
and allowing the Company
to build a contemporary digital
newsroom.
Through the Company’s technological, capital and organizational investments, for 2017 and beyond,
management will
continue to
focus its attention and initiatives on maximizing the return on its print assets
and
enhancing its digital publishing capabilities
,
there
by offering marketers performance
-
based media and marketing solutions through which they can grow their business.
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A. H. Belo Corporation 201
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Publishing Segment
The Dallas Morning News’
first edition was published on October 1, 1885 and is one of the leading metropolitan newspapers in the United States. The newspaper is distributed primarily in Dallas County and 10 surrounding counties. This coverage area represents one of the most populous and fastest growing metropolitan areas in the country.
The Dallas Morning News
has been awarded nine Pulitzer Prizes for news reporting, editorial writing and photography.
The Dallas Morning Ne
ws also publishes
Briefing
, a newspaper distributed four days per week at no charge to over 200,000 nonsubscribers in select coverage areas;
and
Al Dia
, an
award-winning Spanish-language newspaper published on Wednesdays and Sundays and distributed at no charge to over 100,000 households in select coverage areas. Unless otherwise noted, the financial and operating results of all publications are reported as
The Dallas Morning News
.
Businesses
producing
and providing services within the
print and paper
industry
have encountered significant decline
s
in
revenue
as a result of increasing use of the internet for delivery of information.
These businesses have been challenged to find alternative solutions to
offset the loss of revenue.
The
majority of revenues
within the newspaper industry
were historically generated from display
and classified
advertisements within the newspapers followed by revenues from subs
cription and retail sales of newspapers.
Revenues from subscription and retail sales of newspapers ha
ve
experienced
greater res
i
lience as readers have been willing to pa
y higher prices for the product, which has substantially offset
lower circulation volumes
.
Since the
spin-off
from its
former
parent
company in 2008, the Company has faced
ongoing revenue
decline
s
in
all
its
print products, particularly adve
rtising within the newspapers.
The following chart presents the
revenue trend
of core print products since the Company's spin-off in 2008.
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A. H. Belo Corporation 201
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The following describes the various revenue streams within the
P
ublishing segment.
Advertising Revenue
- Advertising revenue accounted for
approximately
51
percent of
total
revenue within the
P
ublishing segment
for
2016
. The Company has a comprehensive portfolio of print and digital advertising products which include:
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Display Advertising
– Display revenue results from sales of advertising space within the Company’s core newspapers and niche publications to local, regional or national businesses with local operations, affiliates or resellers.
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Classified Advertising
– Classified revenue, which includes automotive, real estate, employment, obituaries and other, results from sales of advertising space in the classified and other sections of the Company’s newspapers.
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Preprint Advertising
– Preprint revenue results from sales of preprinted advertisements or circulars inserted into the Company’s core newspapers and niche publications, or distributed by mail or third-party distributors to households in targeted areas in order to provide total market coverage for advertisers. The Company’s capabilities allow its advertisers to selectively target preprint distribution at the sub-zip code level in order to optimize coverage for the advertisers’ locations.
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Digital Advertising
– Digital publishing revenue includes the sales of banner, classified and native advertisements on the Company’s news and entertainment-related websites and mobile apps.
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In addition to daily newspapers, the Company publishes niche publications which provide a vehicle for delivery of display, classified, and preprint advertising, typically to nonsubscribers of the Company’s core newspapers and at no charge. These publications target specific demographic groups, geographies and nonsubscriber households. Most niche publications have related websites and mobile applications, allowing digital access by consumers. The niche publications provide unique content, but usually incorporate the news content from the core newspapers while leveraging the Company’s printing, distribution and technology infrastructure to drive additional advertising revenue at a low incremental cost. From time to time, the Company produces magazines or special newspaper editions to promote business, sporting or other events in the North Texas region, such as the
Top 100 Places to Work
edition. These publications allow the Company to generate revenue through advertising sales in the publications and through increased circulation or fees for the publications.
Circulation Revenue
- Circulation revenue includes subscription and single copy sales related to the Company’s core newspapers in print and digital formats. A. H. Belo’s steadfast commitment to producing superior, unduplicated local content enables the Company’s newspapers to charge premium subscription rates
. The Dallas Morning News’
goal is to maximize the amount of recurring revenue from consumers of the Company’s print and digital products. The Company continuously assesses the content provided to subscribers and their willingness and ability to pay higher rates by geographic area. Each year since 2008, the Company has implemented effective rate increases to select subscribers or retailers. Periodically throughout each year, various special interest magazines, such as
Healthy Living
or
Your Money
, are included with Sunday editions as a part of subscribers’ home delivery news package. Subscriber and retail rates for these editions reflect a charge for this content.
A digital replica version of
The Dallas Morning News
is offered on
dallasnews.com
for subscribers to
purchase
if they prefer to consume news through a digital device in a more traditional format.
The Company’s news websites, including
dallasnews.com
,
dentonrc.com
and
aldiadallas.com
, are the leading news and entertainment platforms in the North Texas region. The news websites offer users late-breaking and other up-to-date news coverage, user-generated content, advertising, e-commerce and other services. Readers can access news content across multiple digital platforms and obtain relevant local customized content and advertising. The Company’s journalists have expanded their reach and deepened their engagement with audiences by delivering news and content through social media platforms, such as blogs, Facebook and Twitter, which direct traffic
to its core
websites. With the reorganization
of its
editorial and newsroom personnel in 2015, the Company has
strengthened its focus
to provide greater journalistic content
on its
digital platforms with increased emphasis towards video media.
In 2016, t
he Company
completed
a multi-phase expansion of
dallasnews.com
to provide enhanced capabilities on its flagship website and further development of its entertainment brands
.
In 2015, the Company completed the expansion of its e-commerce functions and extended its interface with social media platforms and mobile devices. A standalone website was created for
guidelive.com,
the premier website for entertainment news and events in North Texas. Unique landing pages solely dedicated to the Company’s
s
portsdayDFW.com
and
s
portsdayHS.com
branded platforms were developed, and separate websites for these platforms
were
launched in 2016. These enhancements allow the websites to leverage the identity of their brands to gain greater audience and to quickly respond as technology evolves and new media are introduced, such as wearable devices or hybrid phone or tablet
devices
.
In
May 2016, the Company launched a meter on
dallasnews.com
and
sportsdayDFW.com
.
The Company anticipates it will continue
to
improve its websites in
201
7
as it further expands data collection capabilities for traffic to its websites, allowing support of native application strategies, and greater interface with visitors and advertisers.
Readership of the Company’s newspapers is tracked by Scarborough Research, which estimated the
number of individuals reading a newspaper print edition to be approximately 1,2
4
0,000 for
The Dallas Morning News,
as reported in the
fourth quarter 2016
Alliance for Audited Media
(“AAM”)
report
, which is still subject to audit.
This readership volume represents a reach of approximately
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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4
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2
4
.
9
percent of the designated market for this newspaper in the Company’s circulation area. The average print and digital volumes
associated with A. H. Belo’s primary daily newspaper and niche publications are reported and verified by a circulation audit agency, as
set forth in the table below
.
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2016
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2015
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2014
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Daily
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Sunday
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Daily
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Sunday
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Daily
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Sunday
|
Newspaper
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Circulation
(a)
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Circulation
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Circulation
(a)
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Circulation
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Circulation
(a)
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Circulation
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The Dallas Morning News
Group
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The Dallas Morning News
(b)
(c)
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235,402
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317,457
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271,546
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358,861
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272,245
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382,300
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Niche publications
(c)
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118,732
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399,366
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118,126
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351,008
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118,760
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325,492
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Total
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354,134
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716,823
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389,672
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709,869
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391,005
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707,792
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(a)
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Daily circulation is defined as a Monday through Saturday six-day average.
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(b)
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Average circulation data for
The Dallas Morning News
includes the
Denton Record-Chronicl
e.
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(c)
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D
ata for
201
6
and
2015
was
obtained from the
AAM
Quarterly Data Reports
, which are still subject to audit. D
ata for
201
4
was obtained from the Publisher’s Statement for the six-month periods ended September 30, 201
4
, as filed with the
AAM.
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Printing, Distribution and Other Revenue
-
P
rinting, distribution and other revenue accounted for
approximately 12 percent of total revenue
within the Publishing segment
for
2016
and includes commercial printing, distribution, direct mail and event-based services. The Company provides commercial printing and distribution services, leveraging the capacity of its production and distribution
assets
.
The Company believes t
he incremental revenue from these services allows a greater return on the Company’s operating assets.
Commercial printing services are provided for certain national newspapers that require regional printing and for various local and regional newspapers. Newsprint used in the production of large national newspapers is generally provided by the customer. Home delivery and retail outlet distribution services are also provided for other national and regional newspapers delivered into the Company’s coverage areas. A direct mail business is operated in Phoenix, Arizona, providing mailed advertisements
for its business
customers.
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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Marketing, Event Marketing and Other Services Segment
The following describes the various revenue streams within the MEMO segment.
Marketing Services
Digital marketing services are offered by the Company’s sales and marketing divisions and
by its
subsidiaries,
DMV Holdings and
Speakeasy.
T
he Company
’s strategy, with regard to the MEMO segment,
is
to be
able to offer small to mid-sized businesses a comprehensive marketing solutions package while providing a greater percentage of the marketing fulfillment costs internally that was previously outsourced to third-party providers.
T
he Company has aligned management and the Company’s sales teams to provide a cross-functional integrated approach to maximize the development of these businesses. Digital marketing services are provided as follows:
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Distribion, a DMV Holdings business, offers multi-channel marketing solutions through subscription sales
of its cloud
-based software, allowing customers to manage and individual
ize their marketing campaigns.
Distribion also provides multi-channel marketing services to customers not having
access to its proprietary
software.
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Vertical Nerve, a DMV Holdings business, provides marketing analytics, search engine marketing and other marketing related services to busin
esses across the United States.
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Speakeasy, formed in 2012, targets middle-market business customers and provides turnkey social media account management and content marketing services principally for businesses in the North Texas region.
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The Company’s auto sales division offers targeted advertising to auto dealerships primarily in the North Texas region desiring to advertise their inventory on the
cars.com
platform.
The Company is under contract to sell this advertising
through
September
2019.
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Connect, a division of the Company formed in 2013, manages multi-channel advertising campaigns
for its customers
, allowing customers to target demographic audiences using data analytics and allowing customers to determine the delivery media such as email campaign, banner impressions or video
views on third-party websites.
Connect is able to design and fulfill customer campaign requirements through acquisition of advertising invent
ory on programmatic exchanges.
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The Company has also expanded its services through Proven Performance Media, an organically developed company which provides pay-for-performance advertising services primarily for newspaper companies across the United States.
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Other marketing services include business marketing products offered through MarketingFX, a DMV Holdings business. These products include promotional products for businesses to sup
ply to employees and customers.
Event Marketing Services
CrowdSource was formed in 2013 to provide
event
marketing
services including event activation and sponsorship for large scale community events, seminars and festivals.
CrowdSource
promotes community events, such as
One
Day University
, an educational speaker event
;
Savor
, a premium
food, wine and spirits festival in Dallas; and other community-related events. CrowdSource seeks to
focus
its efforts
on
those
events
which are expected
to
maximize
profitable returns.
Raw Materials and Distribution
The basic material used in publishing newspapers is newsprint. Currently, most of the Company’s newsprint is obtained through a purchasing consortium. Management believes the Company’s sources of newsprint, along with available alternate sources, are adequate for the Company’s current needs.
During
2016
, Company operations
consumed
26,752
metric
tons of newsprint at an average
cost
of $5
32
per
metric ton. Consumption of newsprint in
2015
was
31,141
metric tons at an average
cost of $5
50
per
metric ton.
The Company’s newspapers and other commercial print products are produced
at its facility
in Plano, Texas. Distribution of printed products to subscribers, retailers and newsstands is made under terms of agreements with third-party distributors. The Company believes a sufficient number of third-party distributors exist to allow uninterrupted distribution of the Company’s products.
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A. H. Belo Corporation 201
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Competitive Strengths and Challenges
The Company’s strengths are:
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the largest news gathering operation in North Texas
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due to the millions of unique visitors who come to the Company’s websites and
mobile applications
daily, the Company has the opportunity to build valuable first-party data about consumers in North Texas
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the ability to develop innovative new product and service offerings which leverage the Company’s brand equity, existing content, distribution platforms, technologies and relationships
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product or service offerings that allow the Company to offer advertisers a customized and integrated advertising and marketing solution through desired media channels
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sufficient liquidity to allow the Company to opportunistically invest in
,
or acquire
,
businesses that complement the Company’s advertising or marketing services business
es
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an affluent and educated demographic base
in its
market
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the ability to market print or digital products and services to large and targeted audiences at low marginal costs
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a large sales force
with knowledge of the marketplaces in which the Company
conducts its business
and relationships with current and potential advertising clients
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the
ability
to effectively manage operating costs according to market pressures
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The Company’s challenges are:
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timely growth of
revenue and
profit margins related to the Company’s marketing services businesses that would provide for an offset
to
declines in revenue
and profit margins
of the Company’s print operations
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maintaining and growing advertising and circulation revenues in a competitive environment with increased competition from other media, particularly the internet
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effective monetization of locally created online content on the Company’s websites while balancing the impact of potential lower traffic volumes with an established paywall or metered-based model
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In response
to the decline in print revenue,
the Company has developed or acquired capabilities to offer customers advertising and marketing solutions through multiple media channels. The Company also continues to
diversify its revenue
base by leveraging the available capacity
of its existing
assets to provide print and distribution services for newspapers and other customers requiring these services by introducing new advertising and marketing services products, by increasing circulation prices and through growth of the
Company’s event
-
based business.
As a result of declining print circulation, the Company has developed broad digital strategies designed to provide readers with multiple platforms for obtaining online access to local news. The Company continues to obtain additional key demographic data from readers, which allows the Company to provide content desired by readers and to modify marketing and distribution strategies to target and reach audiences valued by advertisers. The Company has implemented a programmatic digital advertising platform which provides digital ad placement and targeting efficiencies and increases utilization of digital inventor
y within the Company’s and
external websites.
In addition, the Company’s sales teams are implementing initiatives that b
etter utilize pay for performance data and other metrics
to
generat
e
and return lost advertising dollars
to its print
business.
Strategy
A.
H. Belo is committed to producing positive net income and cash flow and creating value for shareholders over the long-term through stock price appreciation and dividends. The Company continuously
evaluates its operations
and investments against various economic factors to determine the appropriate holding strategies.
In 2014, the Company
completed
the
disposition
of investments, newspaper asset
s and operations in Rhode Island
, and
nonessential
real estate assets, all at opportunistic prices. Sales proceeds
were
used to return money to shareholders, provide additional contributions to the Company’s pension plans, and invest in new businesses that complement and leverage existing core operations.
T
he Company continues to
seek
investments that will provide near and long
-
term returns to replace
declining print revenue and
continuously
seeks to
implement measures to control operating expenses as it develop
s
and grow
s
new businesses
. These measures
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A. H. Belo Corporation 201
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include
divesting
of unprofitable products and services, adjusting the Company’s workforce and benefits to align with revenues and market conditions, and restructuring
operations
. Returns on operating and investing assets are evaluated to ensure the appropriate return on investment is achieved and capital is deployed to the
benefit of shareholders
.
The Company is committed to providing the leading digital and print platforms for delivering news of the highest quality and integrity in the North Texas area, as well as creating and developing innovative print and digital products
that
address the needs of consumers and advertisers. The Company
seeks
to achieve these objectives through the following strategies:
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expand the marketing services sales teams to grow revenue in these emerging businesses
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optimize and leverage marketing and sales capabilitie
s
in an integrated manner for existing print and digital products that create sustainable revenue and earnings
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produce quality local content distributed through
digital and print platforms
,
improving the
user interface
and developing stronger retention methods among print readers
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develop new ways to monetize news content delivered on the Company’s news and entertainment websites
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increase utilization of operating assets through
selling commercial
printing and distribution services to third parties
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continue to align costs with revenue, maintain strong liquidity to support future business and product initiatives and provide flexibility to meet strategic investment opportunities and other cash flow requirements
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Competition
The Company’s newspapers, niche publications and related websites primarily serve audiences in the North Texas area. The Company compete
s
for advertising revenue
for its
newspapers and websites with other print and digital media companies. Advertising revenues
for
the Company’s newspapers and
websites
are responsive to circulation and traffic volumes, demographics
of its subscriber
base, advertising results, rates and customer service. Advertising on digital platforms is highly competitive
and largely dominated by large i
nternet companies. As advertisers reallocate marketing expenditures from print to digital channels, the Company
believes its strong
local brand
, its suite
of print and digital advertising and marketing service
s
products, a
ffiliate agreements with large i
nternet advertisers,
and its programmatic
digital advertising platform
will
allow it to offer unique advertising and marketing solutions to local businesses on a competitive scale.
The Dallas Morning News
has
the highest paid print circulation volumes in the North Texas area
while competing with one other metropolitan newspaper in
parts of its geographic
market.
Print c
irculation revenues are primarily challenged due to free and readily
-
accessible news, entertainment, advertising and other content available through the
i
nternet. This secular shift from print to digital media continues as consumer lifestyles embrace technological advancements, particularly with mobile devices, which provide access to a wide variety of digital news and advertising alternatives, including news and social media websites, online advertising networks and exchanges, online classified services, and direct email advertising. Competition for readers is primarily based on the mode of delivery, quality of the Company’s journalism, price, timeliness
of its interaction
with audiences and customer service. News and other digital content produced by the Company’s new
spapers and niche publications are
available
via its websites
,
mobile
app
lications
and through email. The Company offers
competitive
technology for accessing digital content on mobile devices and
via
personal computers. Journalists engage online readers through blogs, Twitter and other social media posts. The Company has
modified its websites
to provide greater video content and advertising, links to other sites sought by readers, improved layouts, and a better interface with mobile applications.
Seasonality
A. H. Belo’s advertising revenues are subject to moderate seasonality, with advertising revenue typically higher in the fourth calendar quarter of each year because of the holiday shopping season. The level of advertising sales in any period may also be affected by advertisers’ decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand and general economic conditions.
Employees
As of
December 31, 2016
, the Company
had 1,221 employees
.
Available Information
A.
H. Belo
maintains its corporate
website at
www.ahbelo.com
,
which makes available, free of charge, this Annual Report on Form
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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10-K
, its
Quarterly Reports on Form 10-Q,
its
Current Reports on Form 8-K and amendments to those reports, as filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, as soon as reasonably practicable after the reports are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).
I
tem 1A. Risk Factors
The following risk factors
are based on management’s current knowledge and estimates of factors affecting the Company’s operations, both known and unknown. Readers are cautioned not to place undue reliance on such forward-looking information as actual results may differ materially from
the possible risks and outcomes discussed herein
. In addition, a number of other factors (those identified elsewhere in this document and others, both known and unknown) may cause actual results to differ materially from expectations.
A. H. Belo’s
newspapers
operate in highly competitive media markets, and the Company’s ability to generate revenue depends
on the effectiveness of
the Company
’s strategy to promote new and existing products
.
The Company’s businesses operate in highly competitive media markets. A. H. Belo’s newspapers compete for advertising and circulation revenue with other newspapers, websites, digital applications, magazines, television, radio, direct mail and other media. The continued expansion of digital media and communications, particularly social media, mobile applications and the proliferation of tablet and mobile devices has increased some consumers’ preferences to receive all or part of their news and information digitally. Websites such as
craigslist.org
,
monster.com
and
cars.com
provide a cost efficient platform for reaching wide but targeted audiences for classified advertising. Websites such as Facebook, Twitter, Google and Yahoo! are successful in gathering national, local and entertainment news and information from multiple sources and attracting a broad readership base.
Historically, newspaper publishing was viewed as a cost-effective method of delivery for various forms of advertising to a large audience. The continued development and deployment of new technologies and greater competition from other media increases the challenge to the Company to provide competitive offerings to
retain its
print, as well as digital, advertisers and subscribers.
A. H. Belo’s ability to stabilize advertising and circulation revenue through price and volume increases may be affected by competition from other forms of media and other publications available in the Company’s various markets, declining consumer spending on discretionary items
such as
newspapers, decreasing amounts of free time and declining frequency of regular newspaper buying among certain demographic groups. The Company may also incur higher costs competing for paid circulation, and if the Company is not able to compete effectively, revenue may decline and the Company’s financial condition and results of operations may be adversely affected.
Purchasing practices of national advertisers could negatively impact the Company’s pricing and ability to up-sell other products, which could result in lower revenues.
Many national advertisers which place advertising in the Company’s newspapers are centralizing purchasing functions
and
streamlining the b
uying and negotiating process.
This
could
result in the commoditization of certain advertising products, which limits the Company’s ability to
promote its position
in the market, the customer service value
of its relationship
with the advertiser,
and
the benefits
of its suite
of products, including the Company’s ability to up-sell other products.
This
also may put the Company in competition with other advertising companies that are able to offer lower prices for a larger geographical
area than the Company covers.
Accordingly, the Company could experience
a decline
in pricing which could result in
lower
revenue
s
and profitability
.
Decreases in circulation may adversely affect A. H. Belo’s advertising and circulation revenue.
A. H. Belo’s newspapers, and the newspaper industry as a whole, are challenged to maintain and grow print circulation volume. To the extent circulation volume declines cannot be offset by rate increases
,
the Company will realize lower circulation revenue. Further, circulation volume declines could also result in lower rates and volumes for advertising revenue.
The
expansion of programmatic advertising could result in lower realization of advertising revenue sold by the Company’s news and entertainment websites.
Digital marketing services are relatively new to business customers. Barriers to entering this industry are low and many competitors offering advertising services on traditional advertising platforms are seeking to gain market share, particularly t
hrough programmatic exchanges.
As this industry expands, purchasing and selling of advertisement on exchanges is expected to result in lower costs of advertising which in-turn could be passed on to
businesses customers.
Such events could result in lower profit realization for digital advertising revenue within the Company’s news and entertainment websites as it competes with exchange platforms for advertising dollars.
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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9
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The growth and profitability of the Company’s marketing services businesses
are
largely dependent on acceptance by local businesses
and the recruitment and retention of key employees.
Marketing services offerings are rapidly evolving as business customers seek quantifiable results to measure the effectiveness of their advertising spending.
The Company’s marketing services customers primarily represent mid-sized businesses
with
varying degrees of knowledge and familiarity with online marketing and advertising campaigns.
The success of the Company’s marketing service
s
offerings is dependent on
the
education of these customers on the benefits of these services to their businesses.
Challenges may include the accuracy or perceived accuracy of metrics provided and the ability of the customer to properly interpret the effectiveness of their advertising campaigns against benchmarks that may not be reliable.
Increasing
the Company’s
client base and achieving broader market acceptance
of its suite
of cross-channel, interactive marketing solutions will depend on
the
ability
of
sales and marketing teams and their capabilities to obtain new clients
as well as
sell additional products and services to existing clients.
Competition is fierce
for direct sales professionals with the skills and technical knowledge
that is
require
d
, and
the Company
may be unable to hire or retain sufficient numbers of qualified individuals in the future.
The
ability to achieve significant future revenue growth will depend on
the
success in recruiting, training and retaining sufficient numbers of direct sales professionals. New and planned hires require significa
nt training and time before sales teams
become fully productive, and may not become as productive as quickly as anticipate
d
.
The
Company’s
growth prospects
could
be harmed if efforts to expand, train and retain
the
direct sales team do not generate a corresponding significant increase in revenue.
The Company’s potential inability to successfully execute cost control measures could result in total operating costs that are greater than expected.
The primary costs of the Company’s operations include emp
loyee compensation and benefits,
followed by distribution costs, newsprint and other production materials and technology costs. The Company has taken steps to lower costs through selling or discontinuing production of unprofitable operations and products, reducing personnel and
restructuring
employee benefits and implementing general cost control measures. Although the Company
continues its cost control
efforts, the Company may be unable to match revenue declines with offsetting cost reductions.
Certain operating costs may not fluctuate directly with changes in revenue, which could result in lower margins if advertising and circulation volumes decline. The Company could also experience inflationary pressures from newsprint and other suppliers and be unable to generate additional revenue or additional cost reductions to offset these inflationary pressures. The Company utilizes outside service providers to
distribute its newspapers
, and certain preprint advertising is distributed through the mail. Higher fuel costs or higher postage rates could result in higher direct costs incurred by the Company to
distribute its products
.
Increasing cost of healthcare benefits offered to employees
requires
the Company to evaluate the scope of benefits offered and the method in which health care benefits are delivered. Competition for qualified personnel may require the Company to spend more on compensation costs, including employee benefits, to attract and
retain its workforce
.
The Company may not be able to pass on to customers these potential cost increases given the significant competition for advertising dollars and the ability of customers to obtain their news from other media at a low cost. If the Company does not achieve expected savings or if operating costs increase due to the creation and development of new products or otherwise, total operating costs may be greater than anticipated.
The Company believes appropriate steps are being taken to control costs. However, if the Company is not successful in matching revenue declines with corresponding cost reductions, the Company’s ability to generate future profits could be affected.
The sufficiency of the Company’s liquidity is dependent upon meeting future financial goals.
Although the Company’s cash holdings are more than sufficient to meet foreseeable operating needs, the Company must achieve expected financial goals. Unplanned events such as significant pension plan contributions, tax obligations, significant loss of revenue, unprofitable operations or deterioration of collections of receivables, could accelerate the use of the Company’s cash balances.
The Company’s ability to raise financial capital in the future may be hindered due to uncertainty regarding
the
newspaper industry’s prospective performance. If adequate funds are not available or are not available on acceptable terms, if and when needed, the Company may be forced to sell assets at below-market prices to
sustain its operations
.
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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10
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There can be no assurance that the Company’s product and service initiatives will be successful
.
The Company has introduced new product and service initiatives designed to grow advertising and market services revenue and to respond to
the
challenges of maintaining revenue in existing markets. These initiatives may not be successful, may not be marketable or profitable and could result in
declines in
financial performance.
Significant turnover of key employees could expose the Company to loss.
A. H. Belo relies on the efforts
of its senior
executive officers and other
members of
management. The Company is located in a strong economic region of the United States with low unemployment and strong competition fo
r senior management personnel.
The success of the Company’s businesses depends heavily
on its ability
to successfully execute the required responsibilities of these roles as well as the Company’s ability to retain current management and to attract and retain qualified personnel in the future. The loss of key personnel results in additional recruiting and training costs to the C
ompany.
Further, the exposure for loss to the Company and the potential delay of operations is elevated until the employee has sufficient knowledge commensura
te with their assigned duties.
Market conditions could increase the funding requirements associated with the Company’s pension plans.
The Company is the sole sponsor of A. H. Belo Pension Plans I and II (collectively, the “A. H. Belo Pension Plans”) and is required to meet certain pension funding requirements as established under the Employment Retirement Income Security Act (“ERISA”). Instability in global and domestic capital markets may result in low returns on the assets contributed to the A. H. Belo Pension Plans. Additionally, low yields on corporate bonds may decrease the discount rate, resulting in a higher funding obligation. Although legislation was enacted into law in 2012 which provided limited funding relief,
market
conditions could materially increase the funding requirements associated with the A. H. Belo Pension Plans, which could have an adverse impact on the Company’s liquidity and financial condition.
Adverse results from new litigation or governmental proceedings or investigations could adversely affect A. H. Belo’s business, financial condition and results of operations.
From time to time, A. H. Belo
and its subsidiaries
are subject to litigation, governmental proceedings and investigations. Adverse determinations in any such matters could require A. H. Belo to make monetary payments or result in other sanctions or findings that could affect adversely the Company’s business, financial condition and results of operations.
A. H. Belo’s directors and executive officers have significant combined voting power and significant influence over
its m
anagement and affairs.
A. H. Belo directors and executive officers hold approximately
50
percent of the voting power of the Company’s outstanding voting stock as of December 31, 201
6
. A. H. Belo’s Series A common stock has one vote per share and Series B common stock has 10 votes per share. Except for certain
significant
corporate transactions, generally all matters to be voted on by A. H. Belo’s shareholders must be approved by a majority of the voting power of the Company’s outstanding voting stock, voting as a single class. Certain corporate transactions, such as a merger, consolidation, sale of all or substantially all of the Company’s assets, dissolution of the Company, the alteration, amendment, or repeal of A. H. Belo’s bylaws by shareholders and certain amendments to A. H. Belo’s certificate of incorporation, require the affirmative vote of the holders of at least two-thirds of the voting power of the outstanding voting stock, voting as a single class. Accordingly, A. H. Belo’s directors and executive officers will have significant influence over the Company’s management and affairs and over all matters requiring shareholder approval, including the election of directors and significant corporate transactions. This ownership may limit other shareholders’ ability to influence corporate matters and, as a result, A. H. Belo may take actions that some shareholders do not view as beneficial.
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A. H. Belo Corporation 201
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Ite
m 1B. Unresolved Staff Comments
None.
It
em 2. Properties
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|
|
|
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Operations
|
|
Ownership
|
|
Location
|
Corporate,
The Dallas Morning News
, and marketing and event marketing service operations
|
|
Owned
|
|
Dallas, Texas
|
Printing facilities
|
|
Owned
|
|
Plano, Texas
|
Denton Record-Chronicle
|
|
Leased
|
|
Denton, Texas
|
DMV Digital Holdings Company
|
|
Leased
|
|
Dallas, Texas
|
Your Speakeasy, LLC
|
|
Leased
|
|
Dallas, Texas
|
Direct mail office and warehouse
|
|
Leased
|
|
Phoenix, Arizona
|
In addition to the properties above, the Company
has various leased locations it uses for the distribution of the Company’s publications and it
holds
three
real estate assets in
Dallas,
Texas that are nonessential t
o operations including various
parking lots and land.
On December 30, 2016, the Dallas Morning News, Inc., a wholly-owned subsidiary of the Company, entered into a lease for office space for the Company’s new corporate headquarters. The 16-year lease agreement is subject to the landlord’s completion of its construction obligations.
The new office space will be occupied by the Company after construction and tenant improvements are complete around mid-year 2017
.
Ite
m 3. 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.
Item 4. Mine Safety Disclosures
None.
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A. H. Belo Corporation 201
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12
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Notes to
the
Consolidated Financial Statements
Note 1: Significant Accounting Policies and Recently Issued Accounting Standards
Description of Business.
A. H. Belo Corporation and subsidiaries
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 extending the Company’s media platform, A. H. Belo deliver
s
news and information in inno
vative 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
DMV Digital Holdings Company
(“DMV Holdings”)
and Your Speakeasy, LLC (“Speakeasy”),
and
provides event
activation, promotion
and marketing services through
DMN CrowdSource LLC (“CrowdSource”)
.
Basis of Presentation.
The consolidated financial statements included herein include adjustments of a normal recurring nature which, in the Company’s opinion, are necessary to present fairly the 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 interests, including
DMV Holdings and Speakeasy
, in which the Company holds ownership percentages of
80
percent and
70
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.
All dollar amounts presented herein, except share and per share amounts, are in thousands, unless the context
indicates
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.
Cash and Cash Equivalents.
The Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable.
Accounts receivable are reported net of a valuation reserve that represents an estimate of amounts considered uncollectible. The Company estimates the allowance for doubtful
accounts based on historical write-off experience and t
he Company’s knowledge of the customers’ ability to pay amounts due. Accounts are written-off after all collection efforts fail; generally, after one year has expired. Expense for such uncollectible amounts is included in other production, distribution and operating costs. Bad debt expense for
2016
and
2015
was $
1,712
and $
2,168
, respectively. Write-offs, net of recoveries and other adjustments for
2016
and
2015
were
$2,039
and
$1,989
,
respectively.
Risk Concentration.
A significant portion of the Company’s customer base is concentrated within the North Texas geographical area. The Company generally extends credit to customers, and the ultimate collection of accounts receivable could be affected by the national and local economy. Management continually performs credit evaluations of its customers and may require cash in advance or other special arrangements from certain customers. The Company maintains an allowance for losses based upon the collectability of accounts receivable. Management does not believe significant credit risk exists that could have a material adverse effect on the Company’s consolidated financial condition, liquidity or results of operations.
Inventories.
Inventories, consisting primarily of newsprint, ink and other supplies used in printing newspapers, are recorded at the lower of cost or market value. Cost is determined by the weighted average purchase p
rice of the inventory acquired.
Property, Plant and Equipment.
The Company records property, plant and equipment at cost or its fair value if acquired through a business acquisition or non-monetary exchange. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets and depreciable assets are reviewed to ensure the remaining useful life of the assets continues to be appropriate. An adjustment resulting from a change in the estimated useful life of an asset is recorded to depreciation expense on a prospective basis.
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A. H. Belo Corporation 201
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The table below sets forth property, plant and equipment by type.
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|
|
|
|
|
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December 31,
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|
Estimated
|
|
|
2016
|
|
2015
|
|
Useful Lives
|
Land
|
|
$
|
11,384
|
|
$
|
16,066
|
|
|
Buildings and improvements
|
|
|
133,441
|
|
|
133,355
|
|
5 - 30 years
|
Publishing equipment
|
|
|
217,221
|
|
|
214,608
|
|
3 - 20 years
|
Other
|
|
|
81,724
|
|
|
82,530
|
|
3 - 10 years
|
Construction in process
|
|
|
2,104
|
|
|
1,664
|
|
|
Total
|
|
|
445,874
|
|
|
448,223
|
|
|
Less accumulated depreciation
|
|
|
(402,115)
|
|
|
(396,865)
|
|
|
Property, plant and equipment, net
|
|
$
|
43,759
|
|
$
|
51,358
|
|
|
Goodwill.
Goodwill is recorded at the reporting unit level based on the excess fair value of prior business acquisitions over the fair value of the assets and liabilities acquired. Reporting units of the Company are based on its internal reporting structure and represent a reporting level below an operating segment. Unless qualitative factors allow the Company to conclude it is more
-
likely
-
than
-
not that the fair value of the reporting unit exceeds its carrying value, goodwill is tested for impairment by estimating the fair value of the reporting unit. If the fair value of the reporting unit is less than its carrying value, the fair value for the reporting unit
’
s underlying assets and liabilities is determined and goodwill is adjusted accordingly. In determining the fair value for a reporting unit
,
the Company considers recent stock and sales transaction prices of peer group companies as well as the present value of expected future cash flows of the reporting unit. Significant assumptions include sales and expense growth rates, discount rates, capital expenditures and the impact of current market conditions. These estimates could be materially impacted by changes in market conditions. The Company performs the goodwill impairment test as of December 31 each fiscal year or when changes in circumstances indicate an impairment event may have occurred. Impairment charges represent noncash charges and do not affect the Company’s liquidity, cash flows from operating activities or have any effect on future operations.
The Company conducted
the
annual goodwill impairment test as of December 31, 2016, for all reporting units. This test, which was based on
the Company’s
most recent cash flow forecast, indicated that the
P
ublishing
reporting unit
’s carrying value exceeded its estimated fair value.
Accordingly, the Company recorded a non
cash
goodwill
impairment charge of $22,682 in the fourth quarter of 2016, fully
impairing
the Publishing
reporting unit
’s goodwill.
Long-Lived Assets.
The Company evaluates its ability to recover the carrying value of property, plant and equipment and finite-lived intangible assets, using the lowest level of cash flows associated with the assets, which are grouped based on the Company’s intended use of these assets. This evaluation is performed whenever a change in circumstances indicates that the carrying value of
an
asset group may not be recoverable
.
If the analysis of
undiscounted
future cash flows indicates the carrying value of the long-lived assets cannot be recovered, the assets are adjusted to the lower of its carrying value or
fair
value.
Investments.
The Company owns certain equity securities in companies in which it does not exercise control. These investments are recorded under the cost method and the Company recognizes income or loss upon the receipt of dividends or distributions, or upon liquidation of the investment. The Company evaluates its ability to recover the carrying value of cost method investments based upon the financial strength of the investee. If the Company determines the carrying value is not recoverable, an impairment charge is recorded for the difference between the
fair
value of the investment and the carrying value. For those investments where the Company is able to exercise significant influence over the investee as defined under ASC 323 –
Equity Method and Joint Ventures
, the Company accounts for the investment under the equity method of accounting, recognizing its share of the investee’s income or loss as a component of earnings. As of December 31, 2016, the Company did not have any equity method investments.
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
and the Company no longer exert
ed
significant influence over 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. In the fourth quarter of 2016, the Company abandoned its remaining ownership interest in Wanderful.
Pension.
The Company follows accounting guidance for single
-
employer defined benefit plans. Plan assets and the projected benefits obligation are measured each December 31, and the Company records as an asset or liability the net funded position of the plans. Certain changes in actuarial valuations related to returns on plan assets and projected benefit obligations are recorded to accumulated other comprehensive income (loss) and are amortized to net periodic pension expense over the weighted average remaining life of plan participants, to the extent the cumulative balance in accumulated other comprehensive income (loss) exceeds 10
percent of the greater of the respective plan’s (a) projected benefit obligation or (b) the market-related value of the plan’s assets. Net periodic pension expense is recognized each period by accruing interest expense on the projected benefit obligation and accruing a return on assets associated with the plan assets. Participation in and accrual of new benefits to participants has been frozen since 2007 and,
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A. H. Belo Corporation 201
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accordingly, on-going service costs are not a component of net periodic pension expense. From time to time, the Company-sponsored plans may settle pension obligations with certain plan participants through the plans’ master trust as part of its de-risking strategies. The gains or losses associated with settlements of plan obligations to participants are recognized to earnings if such settlements exceed the interest component of net periodic pension cost for the year. Otherwise, such amounts are included in actuarial gains (losses) in accumulated other comprehensive income (loss).
R
e-measurement of plan assets and liabilities upon a significant settlement or curtailment event is performed based on the values of the month-end closest to the event.
Long-Term Incentive Plan.
The Company sponsors a long-term incentive plan (the “Plan”) under which it issues restricted stock units (“RSUs”) and cash awards to directors and certain employees of the Company. The fair value of awards issued under the Plan is recognized to expense over the requisite service period. The fair value of RSUs is established at the closing price of the Company’s common stock on the date of grant. Vested RSUs are redeemed
60
percent
in A. H. Belo Series A common stock and
40
percent
in cash over a period
of up to
three
years. The Company records a liability for the portion of the outstanding RSUs to be redeemed in cash, which is adjusted to its fair value each period, based on the closing price of the Company’s common stock.
Under the long-term incentive plan, options can be issued to directors and employees of the Company. All outstanding options issued against the Company’s
stock were fully vested and recognized to earnings a
s of December 31, 2016.
Shareholders’ Equity.
The Company authorized the issuance of shares of Series A and Series B common stock. Series A common stock has
one
vote per share and Series B common stock has
10
votes per share. Shares of Series B common stock are convertible at any time on a share-for-share basis into shares of Series A common stock, but not vice versa.
The Company is authorized to grant stock option and RSU awards to employees and directors of the Company. Upon vesting of RSUs, shares of Series A common stock are issued. Upon the exercise of stock options, Series A common stock is issued if the holder of the stock options executes a simultaneous exercise and sale. If the holder of the stock option chooses not to sell the shares, Series B common stock is issued.
In 2012, the Company’s board of directors authorized the purchase of the A.
H. Belo Series A or Series B common stock, for use other than retirement, through open market purchases, privately negotiated transactions or otherwise. The Company’s agreement to repurchase its shares was terminated
in
December 2015. Treasury stock acquired under the repurchase program is recorded at cost, reducing shareholders’ equity. The acquired shares are available for sale on the open market or for settlement of obligations related to its share-based awards.
Accumulated other comprehensive loss consists of actuarial gains and losses associated with the A. H. Belo Pension Plans (“Pension Plans”) and other post-employment benefit (“OPEB”) plans. The cumulative balances are amortized to earnings over the weighted average remaining life expectancy of the participants to the extent such balances exceed 10 percent of the greater of the respective plan’s (a) projected benefit obligation or (b) the market-related value of the plan’s assets. The Company discloses amounts reclassified from accumulated other comprehensive loss to net income in
Note 8 - Shareholders' Equity
.
Revenue Recognition.
The Company’s principal sources of revenue are the advertising space in published issues of its newspapers and on the
Company’s and third-party
websites, the sale of newspapers to distributors and individual subscribers, as well as amounts charged to customers for commercial printing, distribution and direct mail. Advertising revenue is recorded net of agency commission at the time the advertisements are published in the newspaper and ratably over the period of time the advertisement is placed
on the
websites. Marketing services revenue is recognized at the time the services are rendered. Proceeds from subscriptions are deferred and included in revenue ratably over the term of the subscriptions. Subscription revenue under buy-sell arrangements with distributors is recorded based on the net amount received from the distributor, whereas subscription revenue under fee-based delivery arrangements with distributors is recorded based on the amount received from the subscriber. Commercial printing and direct mail revenue is recorded when the product is distributed or shipped.
Income Taxes.
The Company uses the asset and liability method of accounting for income taxes and recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company establishes a valuation allowance if it is more
-
likely
-
than
-
not that the deferred tax assets will not be realized. The factors used to assess the likelihood of realization of the deferred tax asset
s
include reversal of future deferred tax liabilities, available tax planning strategies
,
future taxable income
and taxable income in prior carryback years.
In 2015, the FASB issued ASU 2015-17 allowing companies to present deferred tax assets and liabilities as noncurrent in a classified balance sheet. The Company elected to early-adopt this presentation in its Consolidated Balance Sheet as of December 31, 2015.
The Company evaluates any uncertain tax positions each reporting period by tax jurisdiction to determine if it is more
-
likely
-
than
-
not that the tax position will not be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements for such positions are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. If a net operating loss or other tax credit carry forward exists, the Company records the unrecognized tax benefits for such tax positions as a reduction to a deferred tax asset. Otherwise, the unrecognized tax benefits are recorded as a liability. The Company records a liability for uncertain tax positions taken or expected to
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be taken in a tax return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs. Interest and penalties, if any, related to unrecognized tax benefits are recorded in interest expense.
Use of Estimates.
Company management makes estimates and assumptions that affect the amounts and disclosures reported in its financial statements and include valuation allowances for doubtful accounts, uncertain tax positions and deferred tax assets, fair value measurements related to assets held for sale, pension plan assets and equity based compensation, actuarial liabilities related to self-insured risks, pension plan obligations and assumptions related to impairment and recovery of goodwill and long
-
lived assets. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.
Segments.
The Company operates under
two
reportable
segments. The Publishing (“Publishing”) segment includes the operating activities associated with the Company’s print operations and its related websites. All other activities are included in the marketing, event marketing and other services segment (“MEMO”). This segment primarily includes sales of advertising delivered outside the Company’s news platforms, social media management services, and other marketing services
designed to provide integrated solutions for optimizing businesses marketing challenges and opportunities.
The segment also includes the operations related to the Company’s
event marketing services.
Fair Value Measurements.
The Company’s financial instruments, including cash, cash equivalents, accounts receivable, interest receivable, accounts payable and amounts due to customers are carried at cost, which approximates its fair value because of the short-term nature of these instruments.
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 beginning 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 fourth quarter of 2015. 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 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
prospectively
in the first quarter of 2016. Adoption of this standard did not materially impact the Company's
consolidated
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
prescribes a single comprehensive model for entities to use in the accounting of
revenue
arising
from contracts with customers
.
The core principle contemplated by this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration the entity expects to be entitled in exchange for those goods or services. New
disclosures
about
the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers
are also required
. Since
May 2014
, the FASB issued clarifying
updates to the new standard specifically to address certain core principles
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
43
|
including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition. The new guidance will supersede virtually all existing revenue guidance under GAAP and is effective for fiscal years beginning after December 31, 2017.
The Company currently
anticipates adopting
ASU 2
014-09 using
the modified retrospective
approach
as of January 1, 2018. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings.
The Company is
currently evaluating the impact that the updated guidance will have on the Company’s financial statements and related disclosures. The Company will utilize a bottoms-up approach to analyze the impact of the standard on the Company’s portfolio of contracts by reviewing its current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to the Company’s existing revenue contracts. The Company expects to complete this evaluation prior to the fourth quarter of 2017.
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
and will be applied retrospectively
. 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 statement
s.
Note 2: Acquisitions
In
January 2015
, the Company acquired an
80
percent voting interest
in DMV Digital Holdings Company
,
which holds all outstanding ownership interests of three Dallas-based businesses, Distribion, Inc., Vertical Nerve, Inc. and CDFX, LLC
.
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.
The Company’s interest in DMV Holdings was acquired for a cash purchase price of
$14,110
. Transaction costs related to the purchase are a component of other production, distribution and operating costs and totaled
$1,288
. The estimated fair value of the acquired businesses totaled
$17,829
, of which
$2,548
was attributed to noncontrolling interests.
Approximately
$807
of goodwill acquired is expected to be deductible for tax purposes
.
On
March
2
, 2017, the Company acquired the remaining 20 percent voting interest
in DMV Holdings
for $
7,120
.
As further discussed in
Note 10 - Commitments and Contingencies
and
Note 11 - Redeemable Noncontrolling Interest
the
contribution agreement included provisions for two pro-rata di
stributions
and an embedded put
option
arrangement with certain noncontrolling shareholders of DMV Holdings.
The allocation of the purchase price
was completed in the fourth quarter of 2015 and i
s summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Estimated
Fair Value
|
Working capital, net of acquired cash
|
|
$
|
(80)
|
Property, plant and equipment
|
|
|
57
|
Other intangible assets
|
|
|
6,470
|
Goodwill
|
|
|
12,301
|
Deferred tax liability
|
|
|
(2,090)
|
|
|
$
|
16,658
|
Through this acquisition,
the Company has been able to fulfill key marketing service functions that were previously outsourced to third-party vendors and also expand the portfolio of marketing services offe
red to its existing customers.
These synergies have allowed the Company
to
establish a more robust service offering that will allow it to establish greater market presence in this industry.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
44
|
Operating results of the businesses acquired have been included in the Consolidated Statements of Operations from the acquisition date forward. Revenue from marketing services is recognized at the time services are delivered and upfront fees, if any, are recognized over
the life of the contractual arrangement. Operating results
for 2015,
related to the acquired businesses
,
included
$10,138
of operating revenue, which included
$1,137
of intercompany sales and a pretax income of
$95
before adjusting for noncontrolling interests. Pro forma results of the Company, assuming the acquisition
had occurred at the beginning of each period presented, would not be materially different from the results reported.
Additionally, on February 16, 2017, the Company acquired the remaining 30 percent voting interest in Speakeasy for $2
,111.
Note 3: Segment Reporting
The Company has identified
two
reportable segments based on management and internal reporting structures as well as product and service offerings: Publishing
(“Publishing”)
and Marketing, Event Marketing and Other Services (“MEMO
”).
The Publishing segment includes the Company’s core print operations associated with its newspapers, niche publications and related websites. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of newspapers and commercial printing and distribution services primarily related to national and regional newspapers and preprint advertisers. Businesses within the
P
ublishing segment leverage production facilities, subscriber base
and
digital news platforms to provide additional contribution margin. The Company
assesses the performance
of
the
Publishing
segment
on the basis of operating
profit and cash f
lows from operating activities.
In 2015, the Company initiated cost reductions through a voluntary severance option offered to certain newsroom employees and other headcount reductions. Through these initiatives, the Company eliminated 70 positions resulting in severance and other related costs of approximately $2,891 in employee compensation and benef
its during 2015.
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, 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.
Event marketing includes the operations of CrowdSource, which
provides event activation, promotion and marketing services.
The Company
assesses the performance of
the
MEMO
segment
on the basis of
revenue growth and operating profit
in conjunction with the
expan
sion of these businesses
within their respective markets.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
45
|
The following table
s show
summarize
d
financial
information for the
Company’s
reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Revenue
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
215,559
|
|
$
|
236,166
|
|
$
|
250,112
|
MEMO
|
|
|
44,425
|
|
|
35,942
|
|
|
22,676
|
Total
|
|
$
|
259,984
|
|
$
|
272,108
|
|
$
|
272,788
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
(26,925)
|
|
$
|
(18,350)
|
|
$
|
(9,881)
|
MEMO
|
|
|
3,179
|
|
|
55
|
|
|
2,195
|
Total
|
|
$
|
(23,746)
|
|
$
|
(18,295)
|
|
$
|
(7,686)
|
|
|
|
|
|
|
|
|
|
|
Noncash Expenses
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
10,633
|
|
$
|
11,401
|
|
$
|
13,672
|
Amortization
|
|
|
—
|
|
|
120
|
|
|
121
|
Goodwill impairment
|
|
|
22,682
|
|
|
—
|
|
|
—
|
Pension settlement
|
|
|
—
|
|
|
14,964
|
|
|
7,648
|
Total
|
|
$
|
33,315
|
|
$
|
26,485
|
|
$
|
21,441
|
|
|
|
|
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
80
|
|
$
|
114
|
|
$
|
148
|
Amortization
|
|
|
906
|
|
|
1,229
|
|
|
77
|
Total
|
|
$
|
986
|
|
$
|
1,343
|
|
$
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Total Assets
|
|
|
|
|
|
|
Publishing
|
|
$
|
168,641
|
|
$
|
196,912
|
MEMO
|
|
|
24,090
|
|
|
24,589
|
Total
|
|
$
|
192,731
|
|
$
|
221,501
|
Note 4: Goodwill and Intangible Assets
The Company records goodwill and intangible assets from previous
acquisitions. In 2015, the Company reorganized reporting units, aligning resources consistent with management’s operating strategies. The Company’s
P
ublishing segment operates as a single reporting unit and the MEMO segment includes reporting units for marketing services operations and event marketing operations. The table below sets forth the goodwill and other intangible assets
by
reportable segment
as
of
December 31, 201
6
and 201
5
.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Goodwill
|
|
|
|
|
|
Publishing
|
$
|
—
|
|
$
|
22,682
|
MEMO
|
|
14,201
|
|
|
14,201
|
Total
|
$
|
14,201
|
|
$
|
36,883
|
|
|
|
|
|
|
Intangible Assets
|
|
|
|
|
|
MEMO
|
|
|
|
|
|
Cost
|
$
|
6,710
|
|
$
|
6,710
|
Accumulated Amortization
|
|
(1,838)
|
|
|
(932)
|
Net Carrying Value
|
$
|
4,872
|
|
$
|
5,778
|
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
46
|
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
$906
and
$1,349
for 2016 and 2015
, respectively. Annual amortization expense is expected to
approximate
$799
in
201
7
through
20
19
, and approximately
$495
thereafter until the carrying value is fully amortized.
The Company tested goodwill for impairment as of December 31, 2016 at the reporting unit level using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital
, combined with a market approach using peer-based earnings multiples
. The Company believes the use of a discounted cash flow approach
,
combined with the market approach,
is the most reliable indicator of the estimated fair values of the businesses.
Because the Company’s annual test indicated that the
P
ublishing
reporting unit
’s carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test (“Step 2”) was performed specific to the
P
ublishing
reporting unit
. Under Step 2, the fair value of the
P
ublishing
reporting unit
’s
assets and liabilities were estimated, including intangible assets, for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine
the amount of the impairment.
Upon completion of the annual test, the
P
ublishing
reporting unit’s
goodwi
ll was determined to be impaired
, and
the Company recorded a noncash
goodwill impairment charge
of
$
22,682
in the
fourth quarter of
2016,
fully
impairing
t
he
P
ublishing
reporting unit
’s goodwill
.
Note
5
: Long-term Incentive Plan
A. H. Belo sponsors a long-term incentive plan under which
8,000,000
shares
of the
Company’s Series A
and Series B
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
, 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
P
lan 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 by the Company since 2009
,
and
all compensation expense associated with stock options has
been fully recognized as of December 31, 2016.
The table below sets forth a summary of stock option activity under the
P
lan.
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
WeightedAverage
Exercise Price
|
Outstanding at December 31, 2015
|
259,311
|
|
$
|
8.37
|
Exercised
|
(85,926)
|
|
|
1.81
|
Canceled
|
(58,406)
|
|
|
18.33
|
Outstanding at December 31, 2016
|
114,979
|
|
|
8.21
|
The
aggregate
intrinsic value of options exercised in
2016
,
2015
and
2014
was
$300
,
$100
and
$1,099
, respectively
. The aggregate
intrinsic value of outstanding options at
December 31, 2016
was
$13
.
The
weighted
-
average remaining
contractual life of the Company’s stock options
was 1.4 years
as of December 31, 2016.
Restricted Stock Units.
The
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
up to
three years. A
s of
December 31, 2016
, the liability for the portion of the award
s
to be redeemed in
cash was
$769
.
The table below sets forth a summary of RSU activity under the
Plan
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
(155,511)
|
|
|
|
|
|
|
|
|
|
6.00
|
Vested and issued
|
(18,668)
|
|
11,196
|
|
7,472
|
|
$
|
44
|
|
|
8.10
|
Non-vested at December 31, 2016
|
121,131
|
|
|
|
|
|
|
|
|
|
5.65
|
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
47
|
In 2016, the
C
ompany
issued 86,007 shares
of Series A common stock and 57,341 shares were redeemed in cash for RSUs
that were previously vested as of December 31, 2015. In addition, there
were 2
37
,
074
and
224,911 RSU
s
that were vested and outstanding as of
December 31, 2016 and 2015, respectively.
The fair value of RSU grant
s
is determined using the closing trading price of the Company’s
Series A common stock
on the grant date. As of
December 31, 2016
,
unrecognized compensation
expense
related to the non-vested RSUs
totaled $
320
, which
is expected to be recognized over a weighted-average
period
of
1.
0
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
RSUs
Redeemable
in Stock
|
|
RSUs
Redeemable
in Cash
|
|
Total
RSU Awards
Expense
|
2016
|
$
|
640
|
|
$
|
580
|
|
$
|
1,220
|
2015
|
|
605
|
|
|
(349)
|
|
|
256
|
2014
|
|
702
|
|
|
1,117
|
|
|
1,819
|
Note 6: Income Taxes
The table below sets forth the income
tax provision (benefit) related
to continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,431)
|
|
$
|
(1,726)
|
|
$
|
3,865
|
State
|
|
|
1,205
|
|
|
1,729
|
|
|
1,333
|
Total current
|
|
|
(1,226)
|
|
|
3
|
|
|
5,198
|
Deferred
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,514
|
|
|
(3,988)
|
|
|
28,577
|
State
|
|
|
(26)
|
|
|
(389)
|
|
|
646
|
Total deferred
|
|
|
1,488
|
|
|
(4,377)
|
|
|
29,223
|
Valuation Allowance
|
|
|
(2,534)
|
|
|
2,804
|
|
|
(28,443)
|
Income Tax Provision (Benefit)
|
|
$
|
(2,272)
|
|
$
|
(1,570)
|
|
$
|
5,978
|
The table below reconciles the income
tax provision (benefit
)
for continuing operations computed by applying the applicable United States federal income tax rate to the
tax provision
(benefit)
computed
at the effective income tax rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Computed expected income tax provision (benefit)
|
|
$
|
(7,312)
|
|
$
|
(6,917)
|
|
$
|
32,195
|
State income tax (net of federal benefit)
|
|
|
757
|
|
|
780
|
|
|
1,314
|
Valuation allowance
|
|
|
(2,534)
|
|
|
2,804
|
|
|
(28,443)
|
Goodwill impairment
|
|
|
6,266
|
|
|
—
|
|
|
—
|
Nondeductible expenses
|
|
|
249
|
|
|
493
|
|
|
81
|
Uncertain tax position reserve
|
|
|
(7)
|
|
|
244
|
|
|
—
|
Noncontrolling interests
|
|
|
(40)
|
|
|
133
|
|
|
53
|
Other
|
|
|
349
|
|
|
893
|
|
|
778
|
Income tax provision (benefit)
|
|
$
|
(2,272)
|
|
$
|
(1,570)
|
|
$
|
5,978
|
Effective income tax rate
|
|
|
10.6%
|
|
|
7.9%
|
|
|
6.5%
|
A tax benefit of $
2,272
was recorded in 2016. The benefit is primarily due to deductions associated with capital losses on the sale of certain investments
,
which w
ill be
carried back to 2014 for federal income tax purposes.
A tax benefit of
$1,570
was recorded in 2015. The benefit was primarily derived from
$2,090
of deferred tax liabilities assumed in the acquisition of DMV Holdings, which reduced the amount of valuation allowance that would have otherwise been required.
A receivable was recorded in prepaid and other assets as of December 31, 2015, for f
ederal net operating losses
of
$3,066
generated
in
2015.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
48
|
The Company generated taxable income in 2014 as a result of the sale of its investment in Classified Ventures
, LLC (“Classified Ventures”)
and the
sale of
The Providence Journal
. Accordingly, the
2014
tax provision was reduced for changes in
the valuation allowance, primarily
resulting from the use
of
the Company’s net operating loss carry forwards which totaled
$19,567
.
The Company made income tax payments, net of refunds,
of
$(906)
and
$11,613
in 2016 and 2015, respectively
. Tax benefits recognized in 2015 were carried back against taxes paid in 2014 for a
refund of $2,930 received
in 2016. Federal tax benefits recognized in 2016 in the amount
of $2,976 are
recorded within current assets on the Company’s Consolidated Balance Sheet as of December 31,
2016. These tax benefits are the result of the abandonment of the Company’s ownership interest in Wanderful and the sale of the Company’s equity investment in Homesnap, Inc. in the fourth quarter of 2016. Taxes paid in 2015 relate to gains on the sale of the Classified Ventures investment and the newspaper operation discussed above.
In accordance with realization requirements of ASC 718 – Stock Compensation, the tax liability and additional paid in capital were reduced in 2015 and 2014 by
$557
and
$933
, respectively, for the value of equity compensation in excess of the compensation expense recognized. These deductions were not available to the Company prior to 2014 due to the net operating loss assets.
The table below sets forth the significant components of the Company’s deferred tax liabilities and assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Deferred Tax Assets (Liabilities)
|
|
|
|
|
|
|
Defined benefit plans
|
|
$
|
19,195
|
|
$
|
20,106
|
Investments
|
|
|
659
|
|
|
4,270
|
Tax depreciation less than book depreciation
|
|
|
4,171
|
|
|
2,284
|
Expenses deductible for tax purposes in a year different from the year accrued
|
|
|
805
|
|
|
1,366
|
Deferred compensation and benefits
|
|
|
756
|
|
|
951
|
Tax amortization in excess of book amortization
|
|
|
(848)
|
|
|
(2,814)
|
State taxes
|
|
|
106
|
|
|
80
|
Other
|
|
|
739
|
|
|
502
|
Total
|
|
|
25,583
|
|
|
26,745
|
Valuation allowance for deferred tax assets
|
|
|
(25,583)
|
|
|
(27,791)
|
Net Deferred Tax Liabilities
|
|
$
|
—
|
|
$
|
(1,046)
|
The presentation of net deferred tax assets and liabilities for each jurisdiction are presented as noncurrent within
the Company’s
C
onsolidated
B
alance
S
heets.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered.
The Company recogni
zes a valuation allowance for
deferred tax assets
when
it is more
-
likely
-
than
-
not that these assets will
not
be realized. In making this determination, all positive and negative evidence is considered, including future reversals of existing taxable temporary differences, tax planning strategies, future taxable income and taxable income in prior carryback years.
Uncertain tax positions are evaluated and a liability is recognized for the tax benefit associated with uncertain positions only if it is more-likely-than-not that the positions will not be sustained upon examination by taxing authorities, based on the technical merits of the positions. The Company assesses its filing positions in all significant jurisdictions where it is required to file income tax returns for all open tax years. The Company’s federal income tax returns for the years subsequent
to December 31, 2013, remain
subject to examination, and income tax returns in major state income tax jurisdictions where the Company operates remain subject to examination for various periods subsequent to
December 31, 2012.
Additionally, the December 2014 return was amended in 2016, extending the statute of limitations associated with the 2014 filing. The Company is currently under examination by state tax jurisdictions for California and New Jersey for income taxes paid during the
years ended December
31, 2012, 2013 and 2014. The Company has recorded a
reserve for
the tax benefit related to uncertain state tax positions existing as of December 31, 2016.
The table below sets forth a reconciliation of the beginning and ending amount of unrecognized
tax benefit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
Balance at January 1
|
|
|
|
|
$
|
244
|
Reductions for tax positions of prior years
|
|
|
|
|
|
(7)
|
Balance at December 31
|
|
|
|
|
$
|
237
|
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
49
|
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
. T
h
is
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.
The Company
was not required to make contributions to the A. H. Belo Pension Plans in 2016 and 2015 under the applicable tax and labor laws governing pension plan funding. Required and voluntary contributions of
$9,927
and
$20,000, respectively,
were made
in
2014
, to the A. H. Belo Pension Plans, directly reducing the unfunded projected pension obligation of the
Pension P
lans
. Actuarial gains (losses) of
$(884)
,
$2,540
and
$(49,243)
were recorded to other comprehensive income in
2016
,
2015
and
2014
, respectively; see
Note 8 - Shareholders' Equity
for information
on amounts recorded to accumulate
d
other comprehensive
loss
.
In 2015,
the Company-sponsored
Pension
Plans
implemented a de-risking strategy whereby voluntary and mandatory lump
-
sum payments to participants may be made to decrease future benefit obligations. As part of this strategy, payments of
$100,877
were made in 2015 to approximately
1,000
participants and
$52,919
of payments were made in 2014 to approximately
700
participants. The lump-sum payments resulted in a favorable settlement of the projected benefit obligations of approximately
$5,000
and
$15,000
in 2015 and 2014, respectively. A charge to pension expense for
$14,964
and
$7,648
in 2015 and 2014, respectively, was recorded to reflect the amortization of losses in accumulated other comprehensive loss associated with these settlements. The obligations were funded through
the
Pension Plan
s’ master
trust account and are a component of benefit payments as shown in the table below. The Company will continue to evaluate the feasibility of additional de-risking strategies based on the economic benefits to the Company.
The table below sets forth summarized financial information about the A. H. Belo Pension Plans
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
262,027
|
|
$
|
396,656
|
Interest cost
|
|
|
10,098
|
|
|
14,161
|
Actuarial (gain) loss
|
|
|
1,368
|
|
|
(27,307)
|
Benefit payments
|
|
|
(14,468)
|
|
|
(121,483)
|
Projected benefit obligation at end of year
|
|
|
259,025
|
|
|
262,027
|
Change in Plan Assets
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
204,581
|
|
|
330,797
|
Return on plan assets
|
|
|
14,069
|
|
|
(4,733)
|
Benefit payments
|
|
|
(14,468)
|
|
|
(121,483)
|
Fair value of plan assets at end of year
|
|
|
204,182
|
|
|
204,581
|
Funded Status
|
|
$
|
(54,843)
|
|
$
|
(57,446)
|
Amounts Recorded on the Balance Sheet
|
|
|
|
|
|
|
Noncurrent liability - accrued benefit cost
|
|
$
|
54,843
|
|
$
|
57,446
|
Accumulated Benefit Obligation
|
|
$
|
259,025
|
|
$
|
262,027
|
Net Periodic Pension Expense
(Benefit)
The projected benefit obligations of the A. H. Belo Pension Plans are estimated using the Citigroup Pension Yield Curve, which is based upon a portfolio of high quality corporate debt securities with maturities that correlate to the timing of benefit payments to the
Pension
Plans’ participants
. Future benefit payments are discounted to their present value at the appropriate yield curve rate to determine the projected benefit obligation outstanding at each year end.
The y
ield curve
discount rate
s
as
of
December 31, 2016
and
2015
,
w
ere
3.8
percent
and 4.0 percent, respectively
.
Interest expense included
in net periodic
pension expense
(benefit)
is
based on the Citigroup Pension Yield Curve established at the beginning of the fiscal year. Interest expense for
2016
,
2015
and
2014
was determined using beginning of year yield curve rate of
4.0
percent
.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
50
|
The Company
assumed a
6.5
percent
long-term return on the
Pension P
lans’ assets in
2016
,
2015
and
2014
. This return is based upon historical returns of similar investment pools having asset allocations consistent with the expected allocations of the A. H. Belo Pension Plans. Investment strategies
for the
Pension
Plans’ assets
are based upon factors such as the remaining life expectancy of participants and market risks. The table below sets forth components of net periodic pension expense
(benefit)
for
2016
,
2015
and
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Interest cost
|
|
$
|
10,098
|
|
$
|
14,161
|
|
$
|
17,320
|
Expected return on plans' assets
|
|
|
(13,585)
|
|
|
(20,033)
|
|
|
(20,859)
|
Amortization of actuarial loss
|
|
|
45
|
|
|
1,252
|
|
|
—
|
Recognized settlement loss
|
|
|
—
|
|
|
14,964
|
|
|
7,648
|
Net periodic pension expense (benefit)
|
|
$
|
(3,442)
|
|
$
|
10,344
|
|
$
|
4,109
|
Plan Assets
The Company is responsible for directing the investment strategies of the A. H. Belo Pension Plans’ assets. The investment strategies fo
cus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risks. The long-term targeted allocation of the
Pension P
lans’ assets invested in equity securities and fixed-income securities is
50.0
percent and
50.0
percent, respectively
. These targets are determined by matching the actuarial projections of the
Pension P
lans’ future liabilities and benefit payments with the expected long-term rates of return on assets and expected market risks. Investment risk is continuously
monitored and Pension Plans
’
assets
are rebalanced to target allocations to meet the Company’s strategy and the
Pension P
lans’ liquidity needs. At
December 31, 2016
, the
Pension P
lans’ investments in equity securities and fixed income securities
accounted for
44.8
percent and
55.2
percent
of the total non
cash holdings, respectively.
The table below sets forth the A. H. Belo Pension Plans’ assets at fair value as of
December 31, 2016
and
2015
, with inputs used to develop fair value measurements
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Total
|
|
Quoted Price in
Active Markets
for Identical Assets
(Level I)
|
|
Significant Other
Observable Inputs
(Level II)
|
|
Significant
Unobservable
Inputs
(Level III)
|
Description
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cash and Money Market Funds
|
|
$
|
1,865
|
|
$
|
4,178
|
|
$
|
1,865
|
|
$
|
4,178
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Equity Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
|
58,645
|
|
|
62,314
|
|
|
—
|
|
|
—
|
|
|
58,645
|
|
|
62,314
|
|
|
—
|
|
|
—
|
International equity securities
|
|
|
32,079
|
|
|
28,669
|
|
|
10,824
|
|
|
4,334
|
|
|
21,255
|
|
|
24,335
|
|
|
—
|
|
|
—
|
Fixed Income Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic corporate and government debt securities
|
|
|
52,136
|
|
|
54,427
|
|
|
—
|
|
|
—
|
|
|
52,136
|
|
|
54,427
|
|
|
—
|
|
|
—
|
Domestic corporate debt securities
|
|
|
51,768
|
|
|
49,074
|
|
|
—
|
|
|
—
|
|
|
51,768
|
|
|
49,074
|
|
|
—
|
|
|
—
|
International corporate and government debt securities
|
|
|
7,689
|
|
|
5,919
|
|
|
—
|
|
|
—
|
|
|
7,689
|
|
|
5,919
|
|
|
—
|
|
|
—
|
Total
|
|
$
|
204,182
|
|
$
|
204,581
|
|
$
|
12,689
|
|
$
|
8,512
|
|
$
|
191,493
|
|
$
|
196,069
|
|
$
|
—
|
|
$
|
—
|
Inputs and valuation techniques used to measure the fair value of
Pension P
lan
s’
assets vary according to the type of asset being valued. Cash and money market funds, as well as exchange traded funds, are designated as Level I. Remaining equity securities and fixed income securities represent units of commingled pooled funds and fair values are based on net asset value (“NAV”) of the units of the fund determined by the fund manager. Commingled pooled funds are similar in nature to retail mutual funds, but are typically more efficient for institutional investors than retail mutual funds. As commingled pooled funds are typically only accessible by institutional investors, the NAV is not readily observable by non-institutional investors. Equity securities held through units in these funds are monitored as to issuer and industry. As of
December 31, 2016
, there were no significant concentrations of equity or debt securities in any single issuer or industry.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
51
|
Other
The table below sets forth the Company’s expected future benefit payments as of
December 31, 2016
.
|
|
|
|
|
|
|
|
Payment year
|
|
Expected
Benefit
Payments
|
2017
|
|
$
|
15,859
|
2018
|
|
|
16,030
|
2019
|
|
|
16,100
|
2020
|
|
|
16,043
|
2021
|
|
|
16,039
|
2022 - 2026
|
|
|
79,266
|
The Company expects to make
no
required contributions to the A. H. Belo Pension Plans in 2017.
Other defined benefit plans
A. H. Belo also sponsors other post-
employment benefit plans which provide health and life insurance benefits for certain retired employees. These plans were frozen subsequent to the separation from
the Company’s former parent company and no future benefits accrue. The Company recorded a liability
of
$1,342
and
$1,429
related to the
OPEB
plans as of
December 31, 2016
and
2015
, respectively. A net
periodic
benefit (cost) of
$(43)
,
$13
an
d
$630
in
2016
,
2015
and
2014
, respectively, was recorded to employee compensation and benefits. The net benefit primarily represents amortization of actuarial gains (losses) and prior service costs, offset by interest expense associated with the actuarial liability. Actuarial gains
of
$74
,
$202
and
$15
were recorded to other comprehensive loss in
2016
,
2015
and
2014
, respectively.
See
Note 8 - Shareholders' Equity
.
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
Savings P
lan and the Internal Revenue Code. Employees can contribute up to
100
percent
of thei
r annual eligible compensation
less requi
red 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’
compensat
ion on a per-pay-period basis.
The Company recorded expense of
$977
,
$1,013
and
$987
in
2016
,
2015
and
2014
, respectively, for matching contributions to the
Savings P
lan.
Note 8
:
Shareholders’ Equity
Dividends.
On
December 9, 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
February 10, 2017
,
payable
on
March 3, 2017
.
As of
December 31, 2016
, the Company
recorded
$1,763
to accrue
for dividends declared but not yet paid. 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.
On
March 2, 2017
, the Company’s board of directors declared
a quarterly cash dividend of
$0.08
per share payable on
June 2, 2017
, to shareholders of record and holders of RSUs at the close of business on
May 12, 2017
.
Treasury Stock.
The Company repurchased shares of its common stock pursuant to a publicly announced share repurchase program by the Company’s board of directors. A total of
2,500,000
shares were authorized under the program. In December 2015,
t
he Company discontinued share repurchases
.
For the years 2015 and 2014, the Company purchased
472,245
and
449,436
shares of its Series A common stock at a total cost of
$3,146
and
$4,974
, respectively, under its share repurchase program.
Accumulated Other
Comprehensive Loss
.
Accumulated other
comprehensive loss consists
of actuarial gains and losses attributable to the A. H. Belo Pension Plans, gains and losses resulting from Pension Plans’ amendments and other actuarial experience attributable
to OPEB 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 the Pension Plan
s’
participants. Gains and losses associated with the
Company’s OPEB plans
are amortized over the average remaining service period of
active OPEB pl
ans’
participants. In 2017, the Company anticipates amortizin
g
$371
of net losses in accumulated other comprehensive loss related to its defined benefit Pension Plans and OPEB plans. Deferred
tax assets related to amounts recorded in accumulated other comprehensive loss in 2016 and 2015 are fully reserved. See
Note 6 - Income Taxes
.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
52
|
The table below sets forth the changes in accumulated other comprehensive loss, net of tax, as presented in the Company’s consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(56)
|
|
|
45
|
|
|
(101)
|
|
|
16,183
|
|
|
16,216
|
|
|
(33)
|
Actuarial gains (losses)
|
|
|
(810)
|
|
|
(884)
|
|
|
74
|
|
|
2,742
|
|
|
2,540
|
|
|
202
|
Balance, end of period
|
|
$
|
(39,308)
|
|
$
|
(39,737)
|
|
$
|
429
|
|
$
|
(38,442)
|
|
$
|
(38,898)
|
|
$
|
456
|
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 and
Series
B common stock equally share in the distributed and undistributed earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Earnings (Numerator)
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
(19,310)
|
|
$
|
(17,842)
|
|
$
|
92,929
|
Less: Income (loss) from discontinued operations
|
|
|
—
|
|
|
(63)
|
|
|
6,770
|
Less: Dividends to participating securities
|
|
|
140
|
|
|
115
|
|
|
2,118
|
Net income (loss) available to common shareholders from continuing operations
|
|
$
|
(19,450)
|
|
$
|
(17,894)
|
|
$
|
84,041
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
21,620,539
|
|
|
21,408,940
|
|
|
21,899,602
|
Effect of dilutive securities
|
|
|
—
|
|
|
—
|
|
|
106,420
|
Adjusted weighted average shares outstanding (diluted)
|
|
|
21,620,539
|
|
|
21,408,940
|
|
|
22,006,022
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share from Continuing Operations
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.90)
|
|
$
|
(0.84)
|
|
$
|
3.84
|
Diluted
|
|
$
|
(0.90)
|
|
$
|
(0.84)
|
|
$
|
3.82
|
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 met
hod 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
473,184
,
576
,577
and
729,611
options and RSUs outstanding as of
December 31, 2016
,
2015
and
2014
, respectively, were excluded from the calculation because the effect was anti-dilutive.
Note 1
0
: Commitments and Contingencies
As of
December 31, 2016
, the Company had contractual obligations for leases and capital
expenditures that primarily related to
software
upgrades
. The table below sets forth the summarized commitments of the Company as of
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
Operating lease commitments
|
$
|
36,795
|
|
$
|
2,180
|
|
$
|
2,586
|
|
$
|
3,038
|
|
$
|
2,403
|
|
$
|
1,904
|
|
$
|
24,684
|
Capital commitments
|
|
319
|
|
|
319
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Total commitments
|
$
|
37,114
|
|
$
|
2,499
|
|
$
|
2,586
|
|
$
|
3,038
|
|
$
|
2,403
|
|
$
|
1,904
|
|
$
|
24,684
|
On December 30, 2016, the Dallas Morning News, Inc., a wholly-owned subsidiary of
the Company
, entered into a lease
for office space for the Company’s new corporate headquarters. The 16-year lease agreement is subject to the
l
andlord’s completion of its construction obligations.
The new office space will be occupied by the Company after construction and tenant improvements are
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
53
|
complete around mid-year 2017,
and
the Company will
recognize
rent expense on a straight-line basis. Per the lease agreement, rent payments will begin in June 2018.
Total lease expense for property and equipment
was
$1,988
,
$1,856
and
$1,724
in
201
6
,
2015
and
2014
, respectively.
The Company funds the A. H. Belo Pension Plans to meet or exceed statutory requirements
and currently expects to make no required contributions to these plans in 201
7
. See
Note 7 - Pension and Other Retirement Plans
for discussion of pension funding relief.
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
th
ese
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
outcome
s
are probable and the financial impact, should an adverse outcome occur, is reasonably estimable. The
determinations
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 distributions.
In connection with the acquisition of DMV Holdings, the shareholder agreement provides for a pro-rata distribution of 100 percent and 50 percent of DMV Holdings’ free cash flow for fiscal years 2015 and 2016, respectively. Free cash flow is defined as earnings before interest, taxes, depreciation and amortization less capital expenditures, debt amortization and interest expense, as applicable. In
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 11: 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
$
2,670
and
$1,421
is reported in the mezzanine equity section of the Consolidated Balance Sheets as of
December 31, 2016
and
2015
, respectively. In the event that the put option expires unexercised, the related portion of noncontrolling interest would be classified as a component of equity in the Consolidated Balance Sheets.
Redeemable noncontrolling interest is recorded at fair value on the acquisition date and the carrying value 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 earnings of the Company.
In
2016
, redeemable noncontrolling interest was
increased by
$53
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.
The carrying value adjustment for the 2016 change in fair value
was
an increase of
$1,295
.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
54
|
Note 12:
Supplemental Cash Flow Data
The table below sets forth supplemental disclosures related to the Company’s Consolidated Statements of Cash Flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Income tax paid, net of refunds
|
|
$
|
(906)
|
|
$
|
11,613
|
|
$
|
8,759
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Investments in property and equipment not paid
|
|
|
1,203
|
|
|
—
|
|
|
—
|
Receivable for asset sales proceeds
|
|
|
1,000
|
|
|
—
|
|
|
—
|
Dividends payable at year end
|
|
|
1,763
|
|
|
—
|
|
|
50,148
|
Receivable for investment sales proceeds
|
|
|
—
|
|
|
—
|
|
|
3,280
|
Impairment of equity method investment
|
|
|
—
|
|
|
—
|
|
|
1,871
|
Noncash contributions from noncontrolling interests
|
|
|
—
|
|
|
1,210
|
|
|
183
|
Note 13: Discontinued Operations and Sales of Assets
Discontinued Operations.
In September 2014, The Providence Journal Company, a wholly-owned subsidiary of the Company, completed a transaction for the (i) sale of substantially all of the assets comprising the newspaper operations of
The Providence Journal
and related real property located in Providence, Rhode Island, and (ii) assumption of certain liabilities by
LMG Rhode Island Holdings, Inc. (“LMG”), a subsidiary of New Media Investment Group Inc. The purchase price consisted of
$46,000
plus a working capital adjustment of
$2,654
. Closing costs of
$110
and estimated selling and exit costs of
$3,237
were recognized, and a pretax gain on the sale of
$17,104
was recorded in 2014.
Upon completion of th
is
divestiture, the Company no longer owns newspaper operations in Providence, Rhode Island
and the activity and
balances of
The Providence Journal
are presented as discontinued operations. The Company re
tains the obligation for the A.
H. Belo Pension Plan II, which provides benefits to employees of The Providence Journal Company.
Other Dispositions.
O
n
December
22, 2016, the Company completed the sale of land, in Providence, Rhode Island and received net
cash
proceeds of
$921
and a
$1,000
three
-year note receivable upon closing of the transaction, generating a loss of
$216
.
On
December 27
, 2016, the
Company completed the sale of a parking lot located
in downtown Dallas, Texas. The Company received net
cash
proceeds of
$4,458
, generating a
gain of
$
1,842
.
In 2015, the Company completed the sale of land and a building which served as the headquarters of
The Providence Journal
. The Company received net proceeds of
$6,119
upon closing of the transaction, generating a loss of
$265
, which was offset by
$328
of returned escrow received in 2016. The Company demolished existing structures on an additional property in Providence, Rhode Island, at a
cost of
$251
.
In 2014, the Company sold
the
land and building formerly used as a commercial packaging operation in southern Dallas
, generating sales
proceeds of
$6,677
and a gain of
$1,827
.
T
he Company
also
received sales proceeds of
$3,408
for the sale
s
of land and buildings in Riverside, California, and
97
acres in undeveloped land in southern Dallas, Texas, resulting in gains totaling
$862
.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
55
|
Note 14 - Quarterly Results of Operations (Unaudited)
The table below sets forth a summary of the unaudited consolidated quarterly results of operations for
201
6
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net operating revenue
|
|
$
|
62,483
|
|
$
|
65,436
|
|
$
|
66,626
|
|
$
|
66,676
|
|
$
|
64,780
|
|
$
|
66,908
|
|
$
|
66,095
|
|
$
|
73,088
|
Operating income (loss)
|
|
|
(1,781)
|
|
|
(5,106)
|
|
|
2,659
|
|
|
(535)
|
|
|
(489)
|
|
|
(3,102)
|
|
|
(24,135)
|
|
|
(9,552)
|
Income (loss) from continuing operations
|
|
|
(593)
|
|
|
319
|
|
|
674
|
|
|
(694)
|
|
|
(452)
|
|
|
(3,967)
|
|
|
(18,809)
|
|
|
(13,852)
|
Income (loss) from discontinued operations
|
|
|
—
|
|
|
(12)
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(52)
|
|
|
—
|
|
|
(1)
|
Net income (loss)
|
|
|
(593)
|
|
|
307
|
|
|
674
|
|
|
(692)
|
|
|
(452)
|
|
|
(4,019)
|
|
|
(18,809)
|
|
|
(13,853)
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
|
(632)
|
|
|
363
|
|
|
693
|
|
|
(592)
|
|
|
(497)
|
|
|
(3,956)
|
|
|
(18,874)
|
|
|
(13,657)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03)
|
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
(0.03)
|
|
$
|
(0.02)
|
|
$
|
(0.18)
|
|
$
|
(0.87)
|
|
$
|
(0.64)
|
Diluted
|
|
|
(0.03)
|
|
|
0.02
|
|
|
0.03
|
|
|
(0.03)
|
|
|
(0.02)
|
|
|
(0.18)
|
|
|
(0.87)
|
|
|
(0.64)
|
Fourth quarter 2016 i
ncludes a
goodwill
impairment
charge
of
$
22,682
related to
the Company’s
P
ublishing
reporting unit and fourth quarter 2015 includes a pension settlement charge of
$14,964
.
Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding.
|
|
A. H. Belo Corporation 201
6
Annual Report on Form 10-K
|
PAGE
56
|