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
,
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.
I
n December 2017, the Company completed the sale of the
Denton Record-Chronicle
and the Company no longer owns newspaper operations in Denton, Texas.
The Company also
provides
digital marketing solutions
to businesses. The predominance of
these
services
were
developed or acquired within the last five years and are provided
through the Company’s marketing
services
division and through
its subsidiaries
DMV Digital Holdings Company (“DMV Holdings”)
and
Yo
ur Speakeasy, LLC (“Speakeasy”).
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A. H. Belo Corporation 201
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Annual Report on Form 10-K
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3
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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
relevant and original
local journalism
published at scale
in North Texas so citizens can make informed choices about their lives and the life of the communities in which they live.
This commitment to excellence in journalism published at scale attracts and retains subscribers to both the print edition and digital site and applications.
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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.
On March 2, 2017, the Company acquired the remaining 20 percent voting interest in
DMV Holdings
.
The initial purchase of 80
percent voting interest in DMV Holdings occurred in January 2015. DMV Holdings holds all outstanding ownership interests of
three Dallas-based companies, Distribion, Inc. (“Distribion”), Vertical Nerve, Inc. (“Vertical Nerve”) and CDFX, LLC (
“MarketingFX”)
.
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
businesses
previously out-sourced to third-party vendors and
therefore
can provide businesses a more comprehensive suite of marketing solutions. This complements the organic growth realized by Speakeasy and Connect
(programmatic advertising)
, which
together
offer content development, social media management, and multi-channel marketing solutions through targeted and programmatic exchanges.
All of these marketing services have been combined into a single
division
titled Belo + Company.
The Company has redesigned and
expanded its
website platforms and mobile apps to provide
a better customer experience with its
digital
news and information
reporting
.
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 with the goal of transforming the Company into a more effective digital news organization. With these
investments
, 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.
In
2017, the Company
invested in
a
nd moved to a
new corporate office
in downtown Dallas
that
provid
es
for
a
more flexible office space and a contemporary digital newsroom.
In the first quarter of 2017, in conjunction with the promotion of Grant Moise from Senior Vice President Business Development / Niche Products to General Manager of
The Dallas Morning News
and Executive Vice President of A. H. Belo, the Company reorganized its two reportable segments based on changes in reporting structure and the go-to-market for the Company’s service and product offerings. The two reportable segments are Publishing and Marketing Services
.
Prior to 2015
,
t
hese operations
were
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
.
The Company’s Publishing segment includes the operations of
The Dallas Morning News
(
www.dallasnews.com
), Texas’ leading newspaper and
winner of nine Pulitzer Prizes
and various niche publications targeting specific audiences. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers, sponsorship advertising for events
and
commercial printing and distribution services, primarily related to national and regional newspapers. Businesses within the Publishing segment leverage the production facilities, subscriber and advertiser base, and digital news platforms to provide additional contribution margin.
The Marketing Services segment includes marketing services generated by DMV Holdings and its subsidiaries Distribion
, Vertical Nerve and
MarketingFX. The Marketing Services segment also includes Speakeasy and digital advertising through Connect. The Company operates the portfolio of assets within its Marketing Services segment as separate businesses that sell digital marketing and advertising through different channels, including programmatic advertising and content marketing within the social media environment.
Through the Company’s technological, capital and organizational investments,
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
es
.
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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
two
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
primarily in
adve
rtising within the newspapers.
The following chart presents the
revenue trend
of
the Publishing segment’s
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
5
2
percent
of
total
revenue within the
P
ublishing segment
for
201
7
. The Company has a comprehensive portfolio of print and digital advertising
products, which
include
d
isplay
, classified, preprint and digital 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.
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.
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.
Digital publishing revenue includes the sales of banner, classified and native advertisements on the Company’s news and entertainment-related websites and mobile apps.
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.
In addition to daily newspapers, the Company publishes niche publications
that
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
and
incorporate the news content from the core newspaper while leveraging the Company’s printing, distribution and technology infrastructure
to print and distribute their publications at lower costs.
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
journalism
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
journalism
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
and
aldiadallas.com
, are the leading
English and Spanish
news and entertainment
digital
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.
In 2017, the Company continued to
invest in
its website as it further expanded data collection capabilities for traffic to its websites, allowing support of native application strategies, and greater interface with visitors and advertisers.
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
.
In 2017, the Company furthered its investment in the meter in order to offer greater localized digital
journalism in order to increase conversion of audiences to paid digital subscribers.
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A. H. Belo Corporation 201
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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,
121
,000 for
The
Dallas Morning News,
as reported in the
fourth quarter 201
7
Alliance for Audited Media
(“AAM”)
report
, which is still subject to audit.
This readership volume represents a reach of approximately
2
1.8
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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2017
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2016
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2015
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Daily
|
|
Sunday
|
|
Daily
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|
Sunday
|
|
Daily
|
|
Sunday
|
Newspaper
|
|
Circulation
(a)
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Circulation
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|
Circulation
(a)
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|
Circulation
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|
Circulation
(a)
|
|
Circulation
|
The Dallas Morning News
Group
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The Dallas Morning News
(b)
(c)
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214,423
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288,059
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235,402
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317,457
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271,546
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358,861
|
Niche publications
(c)
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68,899
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399,079
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118,732
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399,366
|
|
118,126
|
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351,008
|
Total
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283,322
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687,138
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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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(a)
|
|
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 was
obtained from the
AAM
Quarterly Data Reports
. Data for 2017
is
still subject to audit.
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Printing, Distribution and Other Revenue
-
P
rinting, distribution and other revenue accounted
for
approximately 1
3
percent
of total revenue
within the Publishing segment
for
2017
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.
CrowdSource was formed in 2013 to provide event marketing services including event activation and promotion 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.
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Marketing Services Segment
The following describes the various revenue streams within the M
arketing Services
segment.
Digital marketing services are offered by the Company’s sales and marketing divisions
.
T
he Company
’s strategy, with regard to the M
arketing Services
segment,
is
to be
able to offer 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
through the following service offerings:
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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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·
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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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·
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Speakeasy, formed in 2012, provides turnkey social media account management and content marketing services principally for businesses in the North Texas region.
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·
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Connect
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.
|
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.
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
,
though
the Company experienced
a
tightening
of supply in the North American newsprint market beginning in the fourth quarter of 2017.
During
2017
, Company operations
consumed
23,296
metric tons of newsprint at an average
cost
of $
564
per
metric t
on. Consumption
of newsprint in 2016 was 26,752
metric tons at an average cost
of $5
32
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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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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·
|
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the opportunity to build valuable first-party data
s
ets
about consumers in North Texas
due to the millions of unique visitors who come to the Company’s websites and mobile applications
monthly
|
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·
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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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·
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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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·
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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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·
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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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·
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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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·
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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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·
|
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timely growth of
revenue and
profit margins related to the Company’s marketing services businesses
and digital subscriptions
that would provide for an offset
to
declines in revenue
and profit margins
of the Company’s print operations
|
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·
|
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maintaining and growing advertising and circulation revenues in a competitive environment with increased competition from other media, particularly internet
-based media
|
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·
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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 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
leverages
its
news content to
improve engagement
on the Company’s digital platforms that results in increased digital subscriptions an
d
associated revenue.
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 201
7
, the Company completed
the
disposition of
nonessential
real estate assets, all at opportunistic prices. Sales proceeds were used to return money to shareholders
and
provide additional contributions to the Company’s pension plans
.
The
Company continuously
seeks to
implement measures to control operating expenses as it develop
s
and grow
s
new businesses
. These measures
include
divesting
of unprofitable products and services, adjusting the Company’s workforce and benefits to align with revenues and market conditions, and
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A. H. Belo Corporation 201
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9
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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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produce quality local
journalism at scale
distributed through
digital platforms
that
improv
es
user
engagement that results in increased digital subscriptions and customer retention
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·
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develop new ways to
optimize advertising dollars on the Company’s digital
platforms
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·
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grow recurring Marketing Services revenue through a client-first approach and enhanced product offering
s
|
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·
|
|
acquire
businesses and products
that will enhance the Company’s local marketing solution portfolio and assist in achieving a competitive market place advantage
|
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·
|
|
improve print revenues
and
increase utilization of operating assets through selling commercial printing and distribution services to third
-
parties
|
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·
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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
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, 2017
, the Company
had 1,
090
employees
.
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A. H. Belo Corporation 201
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Available Information
A.
H. Belo
maintains its corporate
website at
www.ahbelo.com
,
which makes available, free of charge, this Annual Report on For
m
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
and making available
national
and local
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
digital
media increases the challenge to the Company to provide competitive offerings to
retain its
print
and 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
. I
f 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.
In line with the
Company’s overall
print
advertising revenue trend, national
a
dvertisers’
marketing
budgets have been significantly reduced. In addition, m
any
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
becoming a significant component to business customers advertising strategies.
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.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
11
|
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.
Newsprint prices are volatile and may increase in the future, and newsprint supply may become increasingly scarce as paper mills exit the market.
The basic raw material for newspapers is newsprint, the cost of which for the last three years has represented between approximately 5.0 percent and 6.0 percent of A. H. Belo’s revenues.
The Company’s publishing operations depend significantly upon the continuing availability of newsprint and the Publishing segment’s results of operations may be impacted significantly by changes in newsprint prices
.
The price of newsprint historically has been volatile. Consolidation in the North American newsprint industry has reduced the number of suppliers and has led to paper mill closures and conversions to other grades of paper, which in turn has decreased overall newsprint capacity and increased the likelihood of higher prices.
Other factors that may increase
price
s
the Company pays for newsprint includ
es
:
|
·
|
|
The imposition of tariffs or other restrictions on non-U.S. suppliers of paper
|
|
·
|
|
Increases in supplier operating expenses due to rising raw material or energy costs or other factors
|
|
·
|
|
Decreases in the Company’s current consumption levels
|
|
·
|
|
The Company’s inability to maintain existing relationships with its newsprint suppliers
|
In addition, the Company’s ability to supply its publishing operation with newsprint has been and may continue to be disrupted by such factors as:
|
·
|
|
The Company’s suppliers may be unable to deliver newsprint due to labor unrest
|
|
·
|
|
Trucks or other means of transporting newsprint may become unavailable
|
|
·
|
|
Paper mills may close at a faster rate than declines in the demand for paper
|
A. H. Belo currently purchases most of its newsprint through a purchasing consortium. Significant increases in newsprint costs or the Company’s inability to obtain an adequate supply of newsprint in the future could adversely affect its financial condition and results of operations.
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
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
12
|
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 sufficient to meet foreseeable operating needs, the Company must achieve expected financial goals. Unplanned events such as significant
required
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
.
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”
or the “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 Corporation 201
7
Annual Report on Form 10-K
|
PAGE
13
|
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
7
. 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.
Ite
m 1B. Unresolved Staff Comments
None.
It
em 2. Properties
|
|
|
|
|
|
|
|
|
|
Operations
|
|
Ownership
|
|
Location
|
Corporate and
The Dallas Morning News
|
|
Leased
|
|
Dallas, Texas
|
Printing facilities
|
|
Owned
|
|
Plano, Texas
|
AHC Dallas Properties, LLC
|
|
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
news reporting and
the distribution of the Company’s publications
and it
holds real estate assets in
Dallas,
Texas
that were previously used as the corporate headquarters
.
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.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
14
|
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
,
and various niche publications targeting specific audiences.
In December 2017, the Company completed the sale of the
Denton Record-Chronicle
and the Company no longer owns newspaper operations in Denton, Texas.
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.
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
2017
and
2016
was $
2,109
and $
1
,
712
, respectively. Write-offs, net of recoveries and other adjustments for
2017
and
2016
were $2
,169
and
$
2
,
039
,
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.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
46
|
The table below sets forth property, plant and equipment by type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Estimated
|
|
|
2017
|
|
2016
|
|
Useful Lives
|
Land
|
|
$
|
2,220
|
|
$
|
11,384
|
|
|
Buildings and improvements
|
|
|
110,409
|
|
|
133,441
|
|
5 - 30 years
|
Publishing equipment
|
|
|
216,199
|
|
|
217,221
|
|
3 - 20 years
|
Other
|
|
|
88,177
|
|
|
81,724
|
|
3 - 10 years
|
Construction in process
|
|
|
1,725
|
|
|
2,104
|
|
|
Total
|
|
|
418,730
|
|
|
445,874
|
|
|
Less accumulated depreciation
|
|
|
(387,024)
|
|
|
(402,115)
|
|
|
Property, plant and equipment, net
|
|
$
|
31,706
|
|
$
|
43,759
|
|
|
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, 2017.
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 value of the business. Upon completion of the annual test, it was determined the Marketing Services reporting unit
’s
fair value exceeded
its
carrying value
by approximately 93 percent
. Accordingly,
no
impairment
was
warranted.
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 l
oss as a component of earnings.
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 exerted 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, accordingly, on-going
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
47
|
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, 201
7
.
Due to the expiration of the Plan on February 8, 2018, A. H. Belo implemented, and shareholders approved, a new long-term incentive plan (the “2017 Plan”) under which an additional
8,000,000
shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Like its predecessor plan, awards under the 2017 Plan 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.
No
grants were made under the 2017 Plan as of December 31, 2017.
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.
In December 2015, the Company discontinued share repurchases. I
n the fourth quarter of 2017, t
he Company resumed open market stock repurchases under its prior board-authorized repurchase authority.
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 (
the
“Pension Plans”) and other post-employment benefit (
the
“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
(loss)
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
S
ervices 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.
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
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
48
|
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 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 segment includes the operating activities associated with the Company’s
core print and digital operations associated with its newspapers, niche publications and related websites
and apps
.
The Marketing Services segment includes the operations of DMV Holdings, Speakeasy and digital advertising through Connect (programmatic advertising).
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.
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 January 2017, the Financial Accounting Standards Board (“FASB”) issued A
ccounting Standards Update (“ASU”)
2017-04 –
Intangibles – Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment.
This update simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted.
The Company early adopted this standard in the third quarter of 2017.
The adoption of this standard did not materially impact the Company’s consolidated financial statements.
New Accounting Pronouncements.
The FASB 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 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. There are two transition options available to entities, the full retrospective approach, in which the Company would restate prior periods, or the modified retrospective approach. The Company currently anticipates adopting ASU 2014-09 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 coordinated a team of key stakeholders to develop a bottom-up approach to analyze the impact of the new standard on its portfolio of contracts.
The Company completed its assessment and the expected impact
is a
reduction in
revenue of
approximately
$15,600 to $18,500 annually
,
primarily
related to digital advertising revenue placed on third-party websites where the Company is acting as an agent under the new standard. Currently, such revenue is generally recorded gross, but under the new standard will be recorded net.
There is no impact to
opening retained earnings
.
All other lines of revenue were not materially impacted as a majority of revenue transactions are recognized when the product is delivered.
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
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
49
|
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 using the modified
retrospective
approach
. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.
In February 2017, the FASB issued ASU 2017-06 –
Plan Accounting – Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962) and Health and Welfare Benefit Plans (Topic 965)
:
Employee Benefit Plan Master Trust Reporting
. This update clarifies the presentation requirements for a plan’s interest in a master trust and requires more detailed disclosures of the plan’s interest in the master trust. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07 –
Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
This update clarifies the presentation and classification of the components of net periodic benefit cost in the Consolidated Statement of Operations. Specifically, this standard requires the service cost component of net periodic benefit cost to be recorded in the same income statement line as other employee compensation costs and all other components of net periodic benefit cost must be presented as non-operating items. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company currently anticipates adopting this standard retrospectively as of January 1, 2018. The Company’s defined benefit plans have been frozen, so the Company is no longer incurring service costs related to the plans. Therefore, after adoption, the entire net periodic benefit cost will be presented in the Consolidated Statements of Operations in non-operating income (expense).
Note
2
: Segment Reporting
In the first quarter of 2017, in conjunction with the promotion of Grant Moise from Senior Vice President Business Development / Niche Products to General Manager of
The Dallas Morning News
and Executive Vice President of A. H. Belo, the Company reorganized its two reportable segments based on changes in reporting structure and the go-to-market for the Company’s service and product offerings. The
two
reportable segments are Publishing and Marketing Services.
The Publishing segment includes the Company’s core print and digital operations associated with its newspapers, niche publications and related websites
and apps
. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers, sponsorship advertising for events, commercial printing and distribution services, primarily related to national and regional newspapers, and preprint advertisers. Businesses within the Publishing segment leverage the production facilities, subscriber and advertiser base, and digital news platforms to provide additional contribution margin. The Company evaluates Publishing operations based on operating profit and cash flows from operating activities.
The Marketing Services segment includes the operations of DMV Holdings, Speakeasy and digital advertising through Connect (programmatic advertising). The Company operates the portfolio of assets within its Marketing Services segment as separate businesses that sell digital marketing and advertising through different channels, including programmatic advertising and content marketing within the social media environment.
Based on the organization of the Company’s structure and organizational chart, we believe the Company’s chief operating decision makers (the “CODMs”) are its Chief Executive Officer, Jim Moroney, and Grant Moise, the General Manager of
The Dallas Morning News
and Executive Vice President of A. H. Belo Corporation. The CODMs allocate resources and capital to the Publishing and Marketing Services segments at the segment level.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
50
|
The
table
s
below set forth
summarized financial information for the Company’s reportable segments. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year periods financial information by segment were recast for comparative purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
(Recast)
|
|
|
(Recast)
|
Revenue
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
217,347
|
|
$
|
231,372
|
|
$
|
254,047
|
Marketing Services
|
|
|
31,279
|
|
|
28,612
|
|
|
18,061
|
Total
|
|
$
|
248,626
|
|
$
|
259,984
|
|
$
|
272,108
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
(13,146)
|
|
$
|
(26,592)
|
|
$
|
(19,890)
|
Marketing Services
|
|
|
3,093
|
|
|
2,846
|
|
|
1,595
|
Total
|
|
$
|
(10,053)
|
|
$
|
(23,746)
|
|
$
|
(18,295)
|
|
|
|
|
|
|
|
|
|
|
Noncash Expenses
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
10,300
|
|
$
|
10,637
|
|
$
|
11,401
|
Amortization
|
|
|
—
|
|
|
104
|
|
|
552
|
Asset impairments
|
|
|
3,344
|
|
|
22,682
|
|
|
—
|
Pension settlement
|
|
|
5,911
|
|
|
—
|
|
|
14,964
|
Total
|
|
$
|
19,555
|
|
$
|
33,423
|
|
$
|
26,917
|
|
|
|
|
|
|
|
|
|
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
115
|
|
$
|
76
|
|
$
|
114
|
Amortization
|
|
|
799
|
|
|
802
|
|
|
797
|
Total
|
|
$
|
914
|
|
$
|
878
|
|
$
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
(Recast)
|
Total Assets
|
|
|
|
|
|
|
Publishing
|
|
$
|
137,409
|
|
$
|
170,820
|
Marketing Services
|
|
|
25,439
|
|
|
21,911
|
Total
|
|
$
|
162,848
|
|
$
|
192,731
|
Note
3
: Acquisitions
On February 16, 2017, the Company acquired the remaining 30 percent voting interest in Speakeasy for a cash purchase price of $2,111, and on March 2, 2017, the Company acquired the remaining 20 percent voting interest in DMV Holdings for a cash purchase price of $7,120.
The initial purchase of 80 percent voting interest in DMV Holdings occurred in
January 2015
for a cash purchase price of $14
,
110.
DMV
Digital Holdings Company 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
.
Transaction costs related to the
initial
purchase are a component of other production, distribution and operating costs and totaled
$1,288
. The
estimated fair value of the acquired
DMV Holdings
businesses
totaled
$17,829
, of which
$2,548
was attribut
ed to noncontrolling interests.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
51
|
The allocation of the
purchase price for the initial purchase of 80 percent voting interest
in DMV Holdings
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
|
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
DMV Holdings
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.
These acquisitions complement 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.
Pro-rata distributions.
In connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the shareholder agreement provided for a pro-rata distribution of 50 percent and 100 percent of DMV Holdings’ free cash flow for fiscal years 2016 and 2015, 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 2017 and 2016, the Company recorded pro-rata distributions to noncontrolling interests of $163 and $264, respectively, in connection with this agreement based on 2016 and 2015 free cash flow as defined, respectively.
Redeemable noncontrolling interest.
Also, in connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the Company entered into a shareholder agreement
,
which provided for a put option to a noncontrolling shareholder. The put option provided 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.
Redeemable noncontrolling interest was recorded at fair value on the acquisition date and the carrying value was adjusted each period for its share of the earnings related to DMV Holdings and for any distributions
. The carrying value was also adjusted for the change in fair value, which was based on the estimated redemption value as of December 31, 2016. Adjustments were recorded to retained earnings or additional paid in capital, as applicable, and have no effect to earnings of the Company.
In
2017 and 2016, redeemable noncontrolling interest was decreased by $61 and $99, respectively, for distributions related to the 2016 and 2015 free cash flow, respectively, as required under the shareholder agreement.
Additionally, in 2016, redeemable noncontrolling interest was increased by $53 for its share of the DMV Holdings’ earnings and increased by $1,295 for the 2016 change in fair value.
The exercisability of the noncontrolling interest put option was outside the control of the Company. As such, the redeemable noncontrolling interest of $2,670 was reported in the mezzanine equity section of the Consolidated Balance Sheet as of December 31, 2016. As a result of the purchase of the remaining 20 percent voting interest in DMV Holdings, the shareholder agreement was terminated and the redeemable noncontrolling interest was eliminated as of March 31, 2017.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
52
|
Note 4: Goodwill and Intangible Assets
The
table below sets forth
goodwill and other intangible assets by reportable segment as of December 31, 2017 and 2016. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year period financial information by segment was recast for comparative purposes
; see
Note 2 – Segment Reporting
.
The Company’s Publishing and Marketing Services segments
each
operate as a single reporting unit
.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
|
|
|
(Recast)
|
Goodwill
|
|
|
|
|
|
Publishing
|
$
|
—
|
|
$
|
228
|
Marketing Services
|
|
13,973
|
|
|
13,973
|
Total
|
$
|
13,973
|
|
$
|
14,201
|
|
|
|
|
|
|
Intangible Assets
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
Cost
|
$
|
—
|
|
$
|
240
|
Accumulated Amortization
|
|
—
|
|
|
(240)
|
Net Carrying Value
|
$
|
—
|
|
$
|
—
|
Marketing Services
|
|
|
|
|
|
Cost
|
$
|
6,470
|
|
$
|
6,470
|
Accumulated Amortization
|
|
(2,397)
|
|
|
(1,598)
|
Net Carrying Value
|
$
|
4,073
|
|
$
|
4,872
|
In 2017, the Publishing segment’s fully amortized intangible assets of $240 of customer relationships were written-off and had no remaining useful life. I
ntangible
assets consist
of
$4,950
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
$799 and
$906
for
2017
and
2016
, respectively. Annual amortization expense
for the next five years
is expected to
approximate
$799
in
2018 and 2019
, and
$495
thereafter.
As a
result of the first quarter 2017 segment reorganization
,
c
ertain goodwill and intangible assets previously reported in the Marketing Services segment were moved to the Publishing segment
, which was fully impaired as of December 31, 2016.
Therefore, t
he Company recorded a noncash goodwill impairment charge of
$228
in the first quarter of 2017
.
In
2016
,
the Company recorded a
noncash
goodwill impairment charge of
$22,682
, fully impairing the Publishing reporting unit’s goodwill
.
The Company
tested the Marketing Services
segment’
s
goodwill for impairment as of December 31, 2017
,
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 value of the business. Upon completion of the annual test, it was determined the M
arketing Services
reporting unit
’s
fair value exceeded
its
carrying value
by approximately
93
percent
. Accordingly,
no
impairment
was
warranted.
Note
5
: Long-term Incentive Plan
A. H. Belo sponsors a long-term incentive
plan (the “Plan”) under which 8,000,000 shares of the Company’s Series A 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, restricted stock units (“RSUs”), performance shares, performance units or stock appreciation rights. In addition, stock options may be accompanied by full and limited stock appreciation rights. Rights and limited stock appreciation rights may also be issued without accompanying stock options. Awards under the Plan were also granted to holders of stock options issued by A. H. Belo’s former parent company in connection with the Company’s separation from its former parent in 2008. Due to the expiration of the Plan on February 8, 2018, A. H. Belo implemented, and shareholders approved, a new long-term incentive plan (the “2017 Plan”) under which an additional
8,000,000
shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Like its predecessor plan, awards under the 2017 Plan 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.
No
grants
were
made under the 2017 Plan
as of December 31, 2017
.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
53
|
Stock Options.
Stock options granted under the Plan are fully vested and exercisable. No options have been granted since 2009, and all compensation expense associated with stock options has been fully recognized as of December 31, 2017.
The table below sets forth a summary of stock option activity under the Plan.
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted Average
Exercise Price
|
Outstanding at December 31, 2016
|
114,979
|
|
$
|
8.21
|
Canceled
|
(14,635)
|
|
|
20.16
|
Outstanding at December 31, 2017
|
100,344
|
|
|
6.46
|
As of December 31, 2017, the aggregate intrinsic value of outstanding options was
$8
and the weighted average remaining contractual life of the Company’s stock options was
less than
one
year.
The
aggregate
intrinsic value of options exercised in
2016
and
2015
was
$300
and
$100
, respectively
.
Restricted Stock Units.
The
Company’s
RSUs have service
and/or performance
condition
s
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, 2017
, the liability for the portion of the award
s
to be redeemed in
cash was
$1,028
.
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, 2016
|
121,131
|
|
|
|
|
|
|
|
|
$
|
5.65
|
Granted
|
284,868
|
|
|
|
|
|
|
|
|
|
6.11
|
Vested and outstanding
|
(159,212)
|
|
|
|
|
|
|
|
|
|
5.71
|
Vested and issued
|
(22,734)
|
|
13,634
|
|
9,100
|
|
$
|
57
|
|
|
6.90
|
Non-vested at December 31, 2017
|
224,053
|
|
|
|
|
|
|
|
|
|
6.07
|
In 201
7
, the
C
ompany
issued
63,272
shares
of Series A common stock and
42,189
shares were redeemed in cash for RSUs
that were previously vested as of December 31, 201
6
. In addition, there
were
290,825
and
237,074
RSU
s
that were vested and outstanding as of
December 31, 201
7
and 201
6
, 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, 2017
,
unrecognized compensation
expense
related to the non-vested RSUs
totaled $
831
,
which
is expected t
o be recognized over a weighted
average
period
of
1.
4
y
ears
.
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
|
2017
|
$
|
944
|
|
$
|
654
|
|
$
|
1,598
|
2016
|
|
640
|
|
|
580
|
|
|
1,220
|
2015
|
|
605
|
|
|
(349)
|
|
|
256
|
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
54
|
Note 6: Income Taxes
The table below sets forth the income
tax benefit related
to continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,018)
|
|
$
|
(2,431)
|
|
$
|
(1,726)
|
State
|
|
|
1,113
|
|
|
1,205
|
|
|
1,729
|
Total current
|
|
|
(905)
|
|
|
(1,226)
|
|
|
3
|
Deferred
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,723
|
|
|
1,514
|
|
|
(3,988)
|
State
|
|
|
(7)
|
|
|
(26)
|
|
|
(389)
|
Total deferred
|
|
|
8,716
|
|
|
1,488
|
|
|
(4,377)
|
Valuation Allowance
|
|
|
(14,071)
|
|
|
(2,534)
|
|
|
2,804
|
Income Tax Benefit
|
|
$
|
(6,260)
|
|
$
|
(2,272)
|
|
$
|
(1,570)
|
The table below reconciles the income
tax benefit for
continuing operations computed by applying the applicable United States federal income tax rate to the
tax benefit computed
at the effective income tax rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Computed expected income tax provision (benefit)
|
|
$
|
1,362
|
|
$
|
(7,312)
|
|
$
|
(6,917)
|
State income tax (net of federal benefit)
|
|
|
698
|
|
|
757
|
|
|
780
|
Valuation allowance
|
|
|
(14,071)
|
|
|
(2,534)
|
|
|
2,804
|
Federal tax reform - deferred rate change
|
|
|
3,570
|
|
|
—
|
|
|
—
|
Goodwill impairment
|
|
|
63
|
|
|
6,266
|
|
|
—
|
Nondeductible expenses
|
|
|
(3,454)
|
|
|
249
|
|
|
493
|
Uncertain tax position reserve
|
|
|
2,555
|
|
|
(7)
|
|
|
244
|
Noncontrolling interests
|
|
|
(5)
|
|
|
(40)
|
|
|
133
|
Other
|
|
|
3,022
|
|
|
349
|
|
|
893
|
Income tax benefit
|
|
$
|
(6,260)
|
|
$
|
(2,272)
|
|
$
|
(1,570)
|
Effective income tax rate
|
|
|
(160.5)%
|
|
|
10.6%
|
|
|
7.9%
|
A tax benefit of
$
6,260
was recorded in 201
7
.
The benefit was primarily due to
deductions associated with
the voluntary pension contribution of
$20,000
, partial release of the valuation allowance
and
a capital loss
on
the sale of the
Denton Record-Chronicle
, of which a portion will be carried back to 2014 for federal income tax purposes
.
These
deductions
offset taxable income that resulted from the sale of
the Company’s
three properties in downtown Dallas, Texas
.
In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the
C
ompany, most notably a reduction of the U.S. corporate income tax rate from
35
percent to
21
percent for tax years beginning after December 31, 2017.
The 2017 Tax Act also provides for the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018
,
including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.
As of December 31, 2017,
the Company has
completed
its
accounting for the tax effects of enactment of the
2017 Tax Act, which is reflected in the Company’s 2017 consolidated financial statements.
The
C
ompany measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the
C
ompany’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. co
rporate income tax rate from 35
percent to 21 percent, resulting in a
$
3,570
decrease in
income tax
benefit
for the
year ended December 31, 2017.
A tax benefit of
$2,272
was recorded in 201
6
. The benefit
was
primarily due to deductions associated with capital losses on the sale of certain investments, which
w
ere
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
7
Annual Report on Form 10-K
|
PAGE
55
|
The Company made income tax payments, net of refunds,
of
$
583
and
$(906)
in
2017
and
2016
, respectively
.
Federal tax benefit recognized in 2017 of
$4,07
3
was
recorded within current assets on the Company's Consolidated Balance Sheet as of December 31, 2017. Th
is
tax benefit
is
the result of the sale of
the
Denton Record-Chronicle
in the fourth quarter of
2017.
Tax benefits recognized in 2016 were carried back against taxes paid in 2014 for a refund of
$3,210
to be received in 2018
, which is the
result of a tax benefit from 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.
Tax benefits recognized in 2015 were carried back against taxes paid in 2014 for a refund of
$2,930
received in 2016.
In accordance with realization requirements of ASC
Topic
718
,
Stock Compensation, the tax liability and additional paid in capital were reduced in 2015 by
$557
, 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,
|
|
|
2017
|
|
2016
|
Deferred Tax Assets (Liabilities)
|
|
|
|
|
|
|
Defined benefit plans
|
|
$
|
4,838
|
|
$
|
19,195
|
Investments
|
|
|
210
|
|
|
659
|
Tax depreciation less than book depreciation
|
|
|
1,576
|
|
|
4,171
|
Expenses deductible for tax purposes in a year different from the year accrued
|
|
|
644
|
|
|
805
|
Deferred compensation and benefits
|
|
|
553
|
|
|
756
|
Tax amortization in excess of book amortization
|
|
|
(368)
|
|
|
(848)
|
State taxes
|
|
|
68
|
|
|
106
|
Federal net operating loss carryforward
|
|
|
4,260
|
|
|
—
|
Other
|
|
|
482
|
|
|
739
|
Total
|
|
|
12,263
|
|
|
25,583
|
Valuation allowance for deferred tax assets
|
|
|
(6,908)
|
|
|
(25,583)
|
Net Deferred Tax Assets
|
|
$
|
5,355
|
|
$
|
—
|
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.
In 2017, it was determined the
net operating loss carryforward
of $
4,260
, generated in 2017,
was realizable and the Company recorded a deferred tax asset.
Additionally in 2017, a
reduction of
$1,095 was recorded to
the valuation allowance to account for other deferred tax assets
that
were determined to be realizable.
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, 201
4
, 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, 201
3
.
Additionally, the December 2014 return was amended in 2016, extending the statute of limitations associated with the 2014 filing. The Company has recorded a
reserve for
the tax benefit related to uncertain state tax positions existing as of
December 31, 2017
.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
56
|
The table below sets forth a reconciliation of the beginning and ending amount of unrecognized
tax benefit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
Balance at January 1
|
|
|
|
|
$
|
237
|
Decrease related to zero change audit
|
|
|
|
|
|
(24)
|
Increase related to prior year tax positions
|
|
|
|
|
|
4
|
Decrease related to settlement
|
|
|
|
|
|
(35)
|
Increase related to current year tax positions
|
|
|
|
|
|
2,575
|
Balance at December 31
|
|
|
|
|
$
|
2,757
|
Note
7
: Pension and Other Retirement Plans
Defined Benefit Plans.
The Company sponsors the A. H. Belo Pension
Plans (the “Pension Plans”), which
provide benefits to approximately
1,500
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 2017, 2016 and 2015 under the applicable tax and labor laws governing pension plan funding. In 2017, the Company made a voluntary contribution of
$20,000
to the Pension Plans and using the contribution, in addition to
liquidating
$23
,391
of plan assets, transferred
$43,
391
of pension
liabilities to an insurance company. As a result of this de-risking action, the Company reduced the number of participants in the Pension Plans by
796
, or
36
percent. A charge to pension expense of
$5,911
in 2017, was recorded to reflect the amortization of losses in accumulated other comprehensive loss associated with this transaction. In addition, the projected benefit obligation was remeasured as of September 30, 2017, which resulted in an actuarial gain of
$3,648
that was recorded to other comprehensive income (loss) in 2017; see
Note 8 – Shareholders’ Equity
. This transaction occurred on September 20, 2017, but the Company elected to use the measurement date practical expedient, allowing the Company to use September 30, 2017, as the alternative measurement date. No material transactions or changes in market conditions occurred between the transaction date and the alternative measurement date.
In 2015,
the
Company
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. The lump-sum payments resulted in a favorable settlement of the projected benefit obligations of approximately
$5,000
in 2015. A charge to pension expense for
$14,964
in 2015 was recorded to reflect the amortization of losses in accumulated other comprehensive loss associated with these settlements.
The obligations were funded through the Pension Plans’ master trust account and are a component of benefit payments
.
The Company will continue to evaluate the feasibility of additional de-risking strategies based on the economic benefits to the Company.
Actuarial gains (losses) of
$8,005
,
$(884)
and
$2,540
were recorded to other comprehensive income
(loss)
in
2017
,
2016
and
2015
, respectively; see
Note 8 - Shareholders' Equity
for information
on amounts recorded to accumulate
d
other comprehensive
loss
.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
57
|
The table below sets forth summarized financial information about the A. H. Belo Pension Plans
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
259,025
|
|
$
|
262,027
|
Interest cost
|
|
|
9,051
|
|
|
10,098
|
Actuarial (gain) loss
|
|
|
9,214
|
|
|
1,368
|
Benefit payments
|
|
|
(14,264)
|
|
|
(14,468)
|
Annuity purchase
|
|
|
(43,391)
|
|
|
—
|
Projected benefit obligation at end of year
|
|
|
219,635
|
|
|
259,025
|
Change in Plan Assets
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
204,182
|
|
|
204,581
|
Return on plan assets
|
|
|
30,070
|
|
|
14,069
|
Employer contributions
|
|
|
20,000
|
|
|
—
|
Benefit payments
|
|
|
(14,264)
|
|
|
(14,468)
|
Annuity purchase
|
|
|
(43,391)
|
|
|
—
|
Fair value of plan assets at end of year
|
|
|
196,597
|
|
|
204,182
|
Funded Status
|
|
$
|
(23,038)
|
|
$
|
(54,843)
|
Amounts Recorded on the Balance Sheet
|
|
|
|
|
|
|
Noncurrent liability - accrued benefit cost
|
|
$
|
23,038
|
|
$
|
54,843
|
Accumulated Benefit Obligation
|
|
$
|
219,635
|
|
$
|
259,025
|
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
discount
rate to determine the projected benefit obligation outstanding at each year end.
The y
ield curve
discount rate
s
as
of
December 31, 2017
and
2016
,
w
ere
3.4
percent
and
3.8
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.
The
beginning of year yield curve
discount
rate
for 2017 was
3.8
percent. Due to the 2017 de-risking action, a settlement charge was triggered as of September 30, 2017. Net periodic benefit cost for the fourth quarter of 2017 and the settlement charge were determined using a yield curve discount rate of
3.5
percent.
Interest expense for
2016
and
2015
was determined using beginning of year yield curve
discount
rate of
4.0
percent.
The Company
assumed
a
6.5
percent
long-term return on the
Pension P
lans’ assets in
2017
,
2016
and
2015
. 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
2017
,
2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Interest cost
|
|
$
|
9,051
|
|
$
|
10,098
|
|
$
|
14,161
|
Expected return on plans' assets
|
|
|
(12,851)
|
|
|
(13,585)
|
|
|
(20,033)
|
Amortization of actuarial loss
|
|
|
387
|
|
|
45
|
|
|
1,252
|
Recognized settlement loss
|
|
|
5,911
|
|
|
—
|
|
|
14,964
|
Net periodic pension expense (benefit)
|
|
$
|
2,498
|
|
$
|
(3,442)
|
|
$
|
10,344
|
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
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
58
|
P
lans’ liquidity needs. At
December 31, 2017
, the
Pension P
lans’ investments in equity securities and fixed income securities
accounted
for
47.7
percent and
52.3
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, 2017
and
2016
, 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
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cash and Money Market Funds
|
|
$
|
2,215
|
|
$
|
1,865
|
|
$
|
2,215
|
|
$
|
1,865
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Equity Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
|
57,819
|
|
|
58,645
|
|
|
—
|
|
|
—
|
|
|
57,819
|
|
|
58,645
|
|
|
—
|
|
|
—
|
International equity securities
|
|
|
34,988
|
|
|
32,079
|
|
|
10,559
|
|
|
10,824
|
|
|
24,429
|
|
|
21,255
|
|
|
—
|
|
|
—
|
Fixed Income Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic corporate and government debt securities
|
|
|
49,480
|
|
|
52,136
|
|
|
—
|
|
|
—
|
|
|
49,480
|
|
|
52,136
|
|
|
—
|
|
|
—
|
Domestic corporate debt securities
|
|
|
44,305
|
|
|
51,768
|
|
|
—
|
|
|
—
|
|
|
44,305
|
|
|
51,768
|
|
|
—
|
|
|
—
|
International corporate and government debt securities
|
|
|
7,790
|
|
|
7,689
|
|
|
—
|
|
|
—
|
|
|
7,790
|
|
|
7,689
|
|
|
—
|
|
|
—
|
Total
|
|
$
|
196,597
|
|
$
|
204,182
|
|
$
|
12,774
|
|
$
|
12,689
|
|
$
|
183,823
|
|
$
|
191,493
|
|
$
|
—
|
|
$
|
—
|
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, 2017
, there were no significant concentrations of equity or debt securities in any single issuer or industry.
Other
The table below sets forth the Company’s expected future benefit payments as of
December 31, 2017
.
|
|
|
|
|
|
|
|
Payment year
|
|
Expected
Benefit
Payments
|
2018
|
|
$
|
12,985
|
2019
|
|
|
13,121
|
2020
|
|
|
13,142
|
2021
|
|
|
13,178
|
2022
|
|
|
13,281
|
2023-2027
|
|
|
65,533
|
The Company expects to make
no
required contributions to the A. H. Belo Pension Plans in 201
8
.
Other defined benefit plans
A. H. Belo also sponsors other post-
employment
benefit (the “OPEB”) 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
$1,185
and
$1,342
related to the OPEB plans as of
December 31, 2017
and
2016
, respectively. A net periodic
cost (
benefit
)
of
$(37)
,
$(43)
and
$13
in
2017
,
2016
and
2015
, 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
$146
,
$74
and
$202
were
recorded to other comprehensive
income (
loss
)
in
2017
,
2016
and
2015
, respectively
; see
Note 8 - Shareholders' Equity
.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
59
|
Defined Contribution Plans.
The A. H. Belo Savings Plan
(the “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
$871
,
$977
and
$1,013
in
2017
,
2016
and
2015
, respectively, for matching contributions to the
Savings P
lan.
Note 8
:
Shareholders’ Equity
Dividends.
On October 27, 2017, the Company’s board of directors declared a special, one-time cash dividend of $0.14 per share to shareholders of record and holders of RSUs as of the close of business on November 9, 2017, which was paid on December 1, 2017, returning $3,106 to shareholders and holders of RSUs.
On
December 7, 2017
, the Company
’s board of directors
declared
a
n
$0.08
per share dividend to shareholders of record and holders of RSUs as of the close of business on
February 9, 2018
,
payable
on
March 2, 2018
.
As of
December 31, 2017
, the Company
recorded
$1,774
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 1, 2018, the Company’s board of directors declared a quarterly cash dividend of $0.08 per share
,
payable on June 1, 2018, to shareholders of record and holders of RSUs at the close of business on May 11, 2018.
Treasury Stock.
The Company repurchase
d
shares of its common stock pursuant to a publicly announced share repurchase program
authorized
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
.
In the fourth quarter of 2017, t
he Company resumed open market stock repurchases under its prior board-authorized repurchase authority and purchased 14,080 shares of its Series A common stock at a total cost
of $
69.
In
2015, the Company purchased
472,245
shares of its Series A common stock at a total cost of
$3,146
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 201
8
, the Company anticipates
amortizing
$631
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 201
7
and 20
16
are fully reserved
; see
Note 6 - Income Taxes
.
The table below sets forth the changes in accumulated other comprehensive loss, net of tax, as presented in the Company’s consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
Total
|
|
Defined
benefit pension
plans
|
|
Other post-
employment
benefit plans
|
|
Total
|
|
Defined
benefit pension
plans
|
|
Other post-
employment
benefit plans
|
Balance, beginning of period
|
|
$
|
(39,308)
|
|
$
|
(39,737)
|
|
$
|
429
|
|
$
|
(38,442)
|
|
$
|
(38,898)
|
|
$
|
456
|
Actuarial gains (losses)
|
|
|
8,151
|
|
|
8,005
|
|
|
146
|
|
|
(810)
|
|
|
(884)
|
|
|
74
|
Amortization
|
|
|
6,225
|
|
|
6,298
|
|
|
(73)
|
|
|
(56)
|
|
|
45
|
|
|
(101)
|
Balance, end of period
|
|
$
|
(24,932)
|
|
$
|
(25,434)
|
|
$
|
502
|
|
$
|
(39,308)
|
|
$
|
(39,737)
|
|
$
|
429
|
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
60
|
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,
|
|
|
2017
|
|
2016
|
|
2015
|
Earnings (Numerator)
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
10,161
|
|
$
|
(19,310)
|
|
$
|
(17,842)
|
Less: Loss from divestiture of discontinued operations
|
|
|
—
|
|
|
—
|
|
|
(63)
|
Less: Dividends to participating securities
|
|
|
120
|
|
|
140
|
|
|
115
|
Net income (loss) available to common shareholders from continuing operations
|
|
$
|
10,041
|
|
$
|
(19,450)
|
|
$
|
(17,894)
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
21,721,497
|
|
|
21,620,539
|
|
|
21,408,940
|
Effect of dilutive securities
|
|
|
1,505
|
|
|
—
|
|
|
—
|
Adjusted weighted average shares outstanding (diluted)
|
|
|
21,723,002
|
|
|
21,620,539
|
|
|
21,408,940
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share from Continuing Operations
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.46
|
|
$
|
(0.90)
|
|
$
|
(0.84)
|
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
612,222
,
473,184
and
576,577
options and RSUs outstanding as of
December 31, 2017
,
2016
and
2015
, respectively, were excluded from the calculation because the effect was anti-dilutive.
Note 10
: Commitments and Contingencies
As of
December 31, 2017
, the Company had contractual obligations for
capital expenditures
and operating leases, primarily for office space and other distribution centers.
The table below sets forth the summarized commitments of the Company as of December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Thereafter
|
Operating lease commitments
|
$
|
42,995
|
|
$
|
3,190
|
|
$
|
4,421
|
|
$
|
3,589
|
|
$
|
3,436
|
|
$
|
3,342
|
|
$
|
25,017
|
Capital commitments
|
|
155
|
|
|
155
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Total commitments
|
$
|
43,150
|
|
$
|
3,345
|
|
$
|
4,421
|
|
$
|
3,589
|
|
$
|
3,436
|
|
$
|
3,342
|
|
$
|
25,017
|
In December 2017, AHC Dallas Properties, LLC, a wholly-owned subsidiary of the Company, assumed a
12
-year lease agreement for office space that serves as the headquarters of the
Denton Record-Chronicle.
In connection with the sale
of Denton Publishing Company
,
owner of
the
Denton Record-Chronicle
, to
Denton Media Company, Inc.,
the Company entered into a sublease with Denton Publishing Company for a term e
nding on
July 30, 2023
; see
Note 12 – Sales of Assets and Other Dispositions
.
In December 2016, the Dallas Morning News, Inc., a wholly-owned subsidiary of the Company, entered into a
16
-year lease agreement for office space for the Company’s new corporate headquarters. T
he Company
recognizes
rent expense on a straight-line basis. Per the
amended
lease agreement, rent payments will begin in
November
2018.
Total lease expense for property and equipment
was
$3,085
,
$1,988
and
$1,856
in
2017
,
2016
and
2015
, 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
8; s
ee
Note 7 - Pension and Other Retirement Plans
.
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
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
61
|
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. 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.
Note 1
1
:
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,
|
|
|
2017
|
|
2016
|
|
2015
|
Income tax paid, net (refund)
|
|
$
|
583
|
|
$
|
(906)
|
|
$
|
11,613
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Investments in property, plant and equipment payable
|
|
|
1,140
|
|
|
1,203
|
|
|
—
|
Dividends payable
|
|
|
1,774
|
|
|
1,763
|
|
|
—
|
Receivable for asset sales proceeds
|
|
|
—
|
|
|
1,000
|
|
|
—
|
Noncash contributions from noncontrolling interests
|
|
|
—
|
|
|
—
|
|
|
1,210
|
Note 1
2
: Sales of
Assets and Other Dispositions
Sales of Assets
.
Assets held for sale include long-lived assets being actively marketed for which a sale is considered probable within the next 12 months. These assets are recorded at the lower of their fair value less costs to sell or their carrying value at the time they are classified as assets held for sale.
In the fourth quarter of 2017, the Company determined
real estate assets in downtown Dallas, Texas, previously used as the corporate headquarters
,
will be made available for sale.
In addition, it was determined some of the assets on the property will not remain and will not be included in the sale. These assets, with a total carrying value of
$3,116
, were impaired as of December 31, 2017, as they are no longer in use. Assets on the property that will remain and be part of the sale, with a
total carrying value of
$1,089
,
are
reported as assets held for sale as of December 31, 2017.
In the second quarter of 2017, the Company announced
that
three
parcels of land located in downtown Dallas, Texas were available for sale. On September 22, 2017, the Company completed the sale of
one
parcel of land and received net cash proceeds of
$8,252
, generating a gain of approximately
$5,000
, includ
ed in other
income (expense), net
in the Consolidated Statements of Operations.
On October
19,
2017, the Company completed the sale of the remaining
two
parcels of land and received net cash proceeds of
$13,048
, generating a gain of approximately
$7,
500
,
includ
ed in
other income (expense), net
.
In December 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
. Additionally
, 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
.
Other Dispositions.
On December
31
, 2017, the Company completed the sale of
the outstanding capital stock of
the
Denton Publishing Company, owner of the
Denton
Record-Chronicle
,
to Denton Media Company, Inc
.
(the “
p
urchaser”)
. The business did not meet the requirements of a discontinued operation; therefore, all financial results are included in continuing operations.
Prior
to the disposition, the
Denton
Record-Chronicle
was included in the Publishing segment results. T
he Company recorded a loss of
$2
60
, included
in other income (expense), net.
The Company entered into multi-year
agreements
with
the
purchaser
, effective January 1, 2018, including
an
advertising s
ervices reseller agreement,
printing
,
distribution
and
content services agreements. The Company
also entered into an
agreement
to provide transition services
to the purchaser
through June 30, 2018
.
In connection with the sale
,
the Company entered into a sublease with Denton Publishing Company for a term ending on
July 30, 2023
.
Since the Company is no longer the tenant, t
he Company recorded a loss of
$
589
, included
in other income (expense), net, for the Company’s
remaining
obligation after
the
term of the
sublease ends
.
|
|
A. H. Belo Corporation 201
7
Annual Report on Form 10-K
|
PAGE
62
|
Note 1
3
:
Quarterly Results of Operations (Unaudited)
The table below sets forth a summary of the unaudited consolidated quarterly results of operations for
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net operating revenue
|
|
$
|
60,901
|
|
$
|
62,483
|
|
$
|
63,089
|
|
$
|
66,626
|
|
$
|
60,559
|
|
$
|
64,780
|
|
$
|
64,077
|
|
$
|
66,095
|
Operating income (loss)
|
|
|
(4,135)
|
|
|
(1,781)
|
|
|
(419)
|
|
|
2,659
|
|
|
(5,049)
|
|
|
(489)
|
|
|
(450)
|
|
|
(24,135)
|
Income (loss) from continuing operations
|
|
|
(4,430)
|
|
|
(593)
|
|
|
(805)
|
|
|
674
|
|
|
2,580
|
|
|
(452)
|
|
|
12,816
|
|
|
(18,809)
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
|
(4,430)
|
|
|
(632)
|
|
|
(805)
|
|
|
693
|
|
|
2,580
|
|
|
(497)
|
|
|
12,816
|
|
|
(18,874)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.21)
|
|
$
|
(0.03)
|
|
$
|
(0.04)
|
|
$
|
0.03
|
|
$
|
0.12
|
|
$
|
(0.02)
|
|
$
|
0.58
|
|
$
|
(0.87)
|
The following are significant activities in 2017:
The following are significant activities in 2016:
|
·
|
|
During the f
ourth quarter
of 2016, the Company recorded
a noncash goodwill impairment charge of
$22,682
related to the Company’s Publishing reporting unit; see
Note 4 – Goodwill and Intangible Assets
.
|
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
7
Annual Report on Form 10-K
|
PAGE
63
|