DallasNews Corp - Quarter Report: 2011 June (Form 10-Q)

A. H. BELO CORPORATION

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION
Item 1.    Financial Statements			3
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3.    Quantitative and Qualitative Disclosures About Market Risk			22
Item 4.    Controls and Procedures			22
PART II OTHER INFORMATION
Item 1.    Legal Proceedings			23
Item 1A. Risk Factors			23
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3.    Defaults Upon Senior Securities			23
Item 4.    Removed and Reserved			23
Item 5.    Other Information			23
Item 6.    Exhibits			24
Signatures			27
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

A. H. Belo Corporation and Subsidiaries

		Three Months Ended June 30,								Six Months Ended June 30,
In thousands, except per share amounts (unaudited)		2011				2010				2011				2010
Net Operating Revenues
Advertising		$	69,869			$	77,004			$	137,805			$	149,190
Circulation			34,899				35,456				69,950				71,042
Printing and distribution			9,718				9,110				18,906				17,097
Total net operating revenues			114,486				121,570				226,661				237,329
Operating Costs and Expenses
Salaries, wages and employee benefits			48,099				56,817				98,594				113,071
Other production, distribution and operating costs			43,228				47,034				88,879				93,066
Newsprint, ink and other supplies			15,071				12,492				29,573				23,713
Depreciation			8,256				8,441				15,839				17,605
Amortization			1,310				1,310				2,620				2,620
Pension plan withdrawal			1,988				—				1,988				—
Total operating costs and expenses			117,952				126,094				237,493				250,075
Loss from operations			(3,466	)			(4,524	)			(10,832	)			(12,746	)
Other Income (Expense), Net
Interest expense			(172	)			(203	)			(378	)			(406	)
Other income, net			446				5,967				1,711				5,992
Total other income (expense), net			274				5,764				1,333				5,586
Income/(loss) before income taxes			(3,192	)			1,240				(9,499	)			(7,160	)
Income tax expense			3,630				1,411				4,049				2,139
Net loss		$	(6,822	)		$	(171	)		$	(13,548	)		$	(9,299	)
Net loss per share:
Basic and diluted		$	(0.32	)		$	(0.01	)		$	(0.63	)		$	(0.45	)
Weighted average shares outstanding:
Basic and diluted			21,512				20,950				21,448				20,860

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

A. H. Belo Corporation and Subsidiaries

In thousands, except share amounts (unaudited)		June 30, 2011				December 31, 2010
Assets
Current assets:
Cash and cash equivalents		$	50,057			$	86,291
Accounts receivable (net of allowance of $3,335 and $3,853 at June 30, 2011 and December 31, 2010, respectively)			40,796				56,793
Funds held by Belo Corp. for future pension payments			—				3,410
Inventories			12,349				12,646
Deferred income taxes, net			1,393				1,394
Assets held for sale			7,964				5,268
Prepaids and other current assets			8,870				7,157
Total current assets			121,429				172,959
Property, plant and equipment at cost:
Land			26,789				26,789
Buildings and improvements			206,969				207,486
Publishing equipment			277,815				281,254
Other			139,602				139,580
Construction in process			6,294				5,520
Total property, plant and equipment			657,469				660,629
Less accumulated depreciation			494,009				483,953
Property, plant and equipment, net			163,460				176,676
Intangible assets, net			19,569				22,189
Goodwill			24,582				24,582
Investments			17,716				16,661
Deferred income taxes, net			1,816				2,127
Other assets			4,278				4,855
Total assets		$	352,850			$	420,049

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

A. H. Belo Corporation and Subsidiaries

In thousands, except share amounts (unaudited)		June 30, 2011				December 31, 2010
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	13,815			$	29,159
Accrued compensation and benefits			18,893				17,139
Pension liabilities			—				54,833
Other accrued expenses			13,032				10,309
Advance subscription payments			22,805				23,057
Total current liabilities			68,545				134,497
Long-term pension liabilities			90,704				77,513
Other post-employment benefits			3,340				3,492
Other liabilities			4,045				4,674
Commitments and contingent liabilities
Shareholders’ equity:
Preferred stock, $.01 par value. Authorized 2,000,000 shares; none issued.			—				—
Common stock, $.01 par value. Authorized 125,000,000 shares
Series A: issued 19,124,108 and 18,896,876 shares at June 30, 2011 and December 31, 2010, respectively			191				188
Series B: issued 2,391,503 and 2,392,074 shares at June 30, 2011 and December 31, 2010, respectively			24				24
Additional paid-in capital			493,088				491,542
Accumulated other comprehensive income			2,262				2,569
Accumulated deficit			(309,349	)			(294,450	)
Total shareholders’ equity			186,216				199,873
Total liabilities and shareholders’ equity		$	352,850			$	420,049

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

A. H. Belo Corporation and Subsidiaries

																		Accumulated
		Common Stock												Additional				Other
		Series A				Series B								Paid-in				Comprehensive				Accumulated
In thousands, except share amounts (unaudited)		Shares				Shares				Amount				Capital				Income/(Loss)				Deficit				Total
Balance at December 31, 2009			18,248,970				2,507,590			$	207			$	488,241			$	3,364			$	(170,215	)		$	321,597
Net loss			—				—				—				—				—				(9,299	)			(9,299	)
Other comprehensive loss:
Other post-employment benefits, net of tax			—				—				—				—				(365	)			—				(365	)
Total comprehensive loss			—				—				—				—				—				—				(9,664	)
Issuance of shares for restricted stock units			62,119				—				1				18				—				—				19
Issuance of shares from stock option exercises			208,773				44,290				2				879				—				—				881
Income tax on options			—				—				—				(32	)			—				—				(32	)
Conversion of Series B to Series A			2,164				(2,164	)			—				—				—				—				—
Share-based compensation			—				—				—				1,288				—				—				1,288
Balance at June 30, 2010			18,522,026				2,549,716			$	210			$	490,394			$	2,999			$	(179,514	)		$	314,089
Balance at December 31, 2010			18,896,876				2,392,074			$	212			$	491,542			$	2,569			$	(294,450	)		$	199,873
Net loss			—				—				—				—				—				(13,548	)			(13,548	)
Other comprehensive loss:
Other post-employment benefits, net of tax			—				—				—				—				(307	)			—				(307	)
Total comprehensive loss			—				—				—				—				—				—				(13,855	)
Issuance of shares for restricted stock units			220,661				—				3				(3	)			—				—				—
Issuance of shares from stock option exercises			6,000				—				—				12				—				—				12
Income tax on options			—				—				—				(24	)			—				—				(24	)
Conversion of Series B to Series A			571				(571	)			—				—				—				—				—
Share-based compensation			—				—				—				1,561				—				—				1,561
Dividends			—				—				—				—				—				(1,351	)			(1,351	)
Balance at June 30, 2011			19,124,108				2,391,503			$	215			$	493,088			$	2,262			$	(309,349	)		$	186,216

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

A. H. Belo Corporation and Subsidiaries

		Six Months Ended June 30,
In thousands (unaudited)		2011				2010
Operations
Net loss		$	(13,548	)		$	(9,299	)
Adjustments to reconcile net loss to net cash (used in) provided by operations:
Depreciation and amortization			18,459				20,225
(Gain)/loss on disposal of fixed assets			406				(5,373	)
Gain on recovery of investment			(729	)			—
Earnings on equity method investments			(1,037	)			—
Deferred income taxes			279				1,143
Pension plan withdrawal			1,988				—
Employee retirement benefit amortization			(307	)			26
Share-based compensation			1,561				1,631
Other non-cash items			322				(948	)
Net changes in operating assets and liabilities:
Accounts receivable, net			15,997				17,289
Funds held by Belo for future pension contributions			3,410				8,272
Inventories			(16	)			1,428
Assets held for sale			(2,696	)			—
Prepaids and other current assets			(1,713	)			(619	)
Other, net			577				616
Accounts payable			(15,344	)			(2,796	)
Accrued compensation, benefits and other			1,125				8,757
Pension liabilities			(43,630	)			—
Other accrued expenses			2,723				(777	)
Advance subscription payments			(252	)			(2,502	)
Other post employment benefits			(152	)			—
Net cash (used in) provided by operations			(32,577	)			37,073
Investments
Capital expenditures			(3,083	)			(1,946	)
Proceeds on the recovery of an impaired investment			729				—
Other, net			36				376
Net cash used for investments			(2,318	)			(1,570	)
Financing
Dividends and distributions			(1,351	)			—
Proceeds from exercise of stock options			12				3
Cash provided by (used in) financing activities			(1,339	)			3
Net (decrease) increase in cash and cash equivalents			(36,234	)			35,506
Cash and cash equivalents at beginning of period			86,291				24,503
Cash and cash equivalents at end of period		$	50,057			$	60,009
Supplemental Disclosures
Interest paid		$	137			$	—
Income taxes paid, net of refunds		$	1,019			$	2,319

See accompanying Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A. H. Belo Corporation and Subsidiaries

(Unless otherwise stated, dollars in thousands, except share and per share amounts)

Note 1: Summary of Significant Accounting Policies

     Description of Business. A. H. Belo Corporation (“A. H. Belo” or the “Company”), headquartered in Dallas, Texas, is a distinguished newspaper publishing and local news and information company that owns and operates four daily newspapers and several associated Web sites. A. H. Belo publishes The Dallas Morning News (www. dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; The Providence Journal (www. projo.com), the oldest continuously-published daily newspaper in the U.S. and winner of four Pulitzer Prizes; The Press-Enterprise (www.pe.com) (Riverside, CA), serving the Inland Southern California region and winner of one Pulitzer Prize; and the Denton Record-Chronicle (www.dentonrc.com). The Company publishes various specialty publications targeting niche audiences, and its partnerships and/or investments include the Yahoo! Newspaper Consortium and Classified Ventures, LLC, owner of www.cars.com.
A. H. Belo also owns and operates commercial printing, distribution and direct mail businesses.

     A. H. Belo Corporation was incorporated under Delaware law on October 1, 2007, as a wholly-owned subsidiary of Belo Corp. (“Belo”), to serve as a holding company in connection with Belo’s spin-off of its newspaper business and related assets and liabilities. The Company spun off from Belo effective February 8, 2008 through a pro-rata stock dividend to Belo shareholders (the “Distribution”). As a result, A. H. Belo became a separate public company on that date. Following the Distribution, Belo does not have any ownership interest in A. H. Belo, but continues to conduct limited business with A. H. Belo pursuant to various agreements. A. H. Belo and Belo also co-own certain downtown Dallas real estate and several investments associated with their respective businesses.

     Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of A. H. Belo and its subsidiaries have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with the Securities and Exchange Commission’s instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Transactions between the companies comprising A. H. Belo have been eliminated in the condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The Company’s operating segments are defined as its newspapers within a given market. The Company has determined that according to the applicable accounting guidance all of its operating segments meet the criteria to be aggregated into one reporting segment.

     In the second quarter of 2011, balances previously referred to as Advanced Payments on Property Plant and Equipment are now referred to as Construction in Process.

     Pension Plans. Through December 31, 2010, certain employees and retirees of the Company participated in The G. B. Dealey Retirement Pension Plan (“GBD Pension Plan”), sponsored by Belo. The Company accounted for its pension obligations pursuant to accounting guidance for multiemployer pension plans. Accordingly, the Company recognized as net pension cost the required contribution for each period and recognized as a liability any reimbursement obligation due and unpaid. On October 6, 2010, the Company and Belo entered into a Pension Plan Transfer Agreement (the “Transfer Agreement”), agreeing to split the GBD Pension Plan. Under the Transfer Agreement, the GBD Pension Plan assets and liabilities related to current and former Company employees were transferred into two newly established pension plans, sponsored solely by the Company, effective January 1, 2011, having similar terms to the GBD Pension Plan. Accordingly, in the fourth quarter of 2010, the Company recognized a loss for the unfunded projected benefit obligation transferred to the new pension plans, as the liability was probable and could be estimated. In 2011, the Company follows accounting guidance for single employer defined benefit plans. Plan assets and the projected benefit 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 other comprehensive income and recognized into earnings over future periods. Net periodic pension expense is recognized each period by accruing interest expense and the return on assets associated with the projected benefit obligation and the plan assets, respectively. As of the effective date of the new pension plans, benefits to participants remained frozen and accordingly, the Company does not recognize on-going service costs as a component of its net periodic pension expense, Additionally, the unfunded projected benefit obligation was recognized in the fourth quarter of 2010 and other comprehensive loss does not include any prior service costs.

     New Accounting Standards. In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04—Fair Value Measurement (Topic 820); Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States Generally Accepted Accounting Principles (“U.S. GAAP”) and International Financial Reporting Standards (“IFRS”). ASU No. 2011-04 provides clarity to the fair value definition in order to achieve greater consistency in fair value measurements and disclosures between U.S. GAAP and IFRS. Additional disclosures are required regarding transfers of assets between Level 1 and 2 of the fair value hierarchy and regarding sensitivity of fair values for Level 3 assets. The effective date of this amendment is for fiscal periods beginning after December 15, 2011. The adoption of this amendment is not anticipated to have a material impact on the Company’s financial condition, results of operations or its liquidity.

     In June 2011, the FASB issued ASU No. 2011-05—Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to increase the prominence of other comprehensive income in financial statements. ASU No. 2011-05 gives businesses two options for presenting other comprehensive income. A statement of other comprehensive income can be included with the statement of operations, which together will make a statement of total comprehensive income. Alternatively, businesses can present a statement of comprehensive income separate from a statement of operations, but the two statements will be required to appear consecutively within a financial report. The effective date of this amendment is for fiscal periods beginning after December 15, 2011.The Company is currently evaluating its presentation options. The adoption of this amendment will not impact on the Company’s financial condition, results of operations or its liquidity.

Note 2: Changes in Accounting Estimates

     In the second quarter of 2011, the Company fully depreciated certain property, plant and equipment that was determined to no longer have a remaining useful life. Accordingly, the Company recorded additional depreciation expense of $1,017 in the three months ended June 30, 2011. The Company also revised its estimate of the unfunded projected benefit obligation it has assumed in connection to the withdrawal from the GBD Pension Plan. See Note 5 — Pension and Other Retirement Plans for the changes in this estimate.

Note 3: Exit and Disposal Liabilities

     In the second quarter of 2011, as part of cost containment measures, the Company began staffing reductions at its operations in Providence, Rhode Island and Riverside, California and at The Dallas Morning News North Plant, which are scheduled to occur through the fourth quarter of 2011, resulting in the elimination of approximately 120 positions. The Company estimates severance and employee-related costs associated with these staffing reductions will be approximately $1,221, of which $862 was recorded as a charge to salaries, wages and employee benefits in the second quarter of 2011. Additional severance will be recorded to salaries, wages and employee benefits in future periods, as the liability is incurred. Second quarter payments against this liability totaled $300, resulting in recorded liability of $562 as of June 30, 2011.

Note 4: Long-term Incentive Plans

     On February 8, 2008, A. H. Belo established a long-term incentive plan under which awards were issued to holders of Belo stock options and restricted stock units (“RSUs”) in connection with the Distribution. Subsequent awards may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted shares, RSUs, performance shares, performance units or stock appreciation rights. As of June 30, 2011, shares of Series A and B common stock authorized under A. H. Belo’s equity compensation plans were 6,936,384, of which 3,764,357 shares remain available for future awards. The Company considers these awards in the calculation of its basic and diluted earnings per share. Anti-dilutive stock-based awards excluded from the calculation of earnings per share included 3,172,027 options and RSUs for the three and six months ended June 30, 2011 and 3,727,794 options and RSUs for the three and six months ended June 30, 2010.

A. H. Belo Stock Option Activity

     The following table summarizes the stock option activity under A. H. Belo’s long-term incentive plan for the six months ended June 30, 2011:

		Number				Weighted-
		of				Average
		Options				Exercise Price
Outstanding at December 31, 2010			2,191,736			$	16.77
Granted			—				—
Exercised			(6,000	)		$	2.05
Canceled			(66,008	)		$	19.32
Outstanding at June 30, 2011			2,119,728			$	16.74
Vested and exercisable at June 30, 2011			1,847,976			$	18.72

A. H. Belo RSU Activity

     Under A. H. Belo’s long-term incentive plan, the Board of Directors has awarded RSUs that vest over a period of one to three years. Upon vesting, the RSUs will be redeemed 60 percent in A. H. Belo Series A common stock and 40 percent in cash. A liability is recorded for the portion of the RSUs to be redeemed in cash and as of June 30, 2011, the liability for the cash portion of the redemption was $2,187. During the vesting period, holders of service-based RSUs participate in A. H. Belo dividends declared by receiving payments for dividend equivalents. The RSUs do not have voting rights. The following table summarizes the RSU activity under A. H. Belo’s long-term incentive plan for the six months ended June 30, 2011:

														Cash
						Issuance								Payments at				Weighted-
						of				RSUs				Closing Price				Average
		Total				Common				Redeemed				of Stock				Price on Date
		RSUs				Stock				in Cash				($000)				of Grant
Non-vested at December 31, 2010			1,018,452															$	6.36
Granted			409,726															$	7.69
Vested			(367,801	)			220,661				147,140			$	1,129			$	8.68
Canceled			(8,078	)														$	6.19
Non-vested at June 30, 2011			1,052,299															$	6.07

Long-term incentive plan expense (benefit) for the three and six months ended June 30, 2011 and 2010 consists of the following:

		A. H. Belo
		Equity Awards
																		Belo
														Cash				Corp.				Total
														Awards for				Equity				Incentive
		Options				RSUs				Total				RSUs				Awards				Awards
Three months ended June 30,
2011		$	55			$	450			$	504			$	34			$	—			$	538
2010		$	77			$	(95	)		$	(18	)		$	(128	)		$	(425	)		$	(571	)
Six months ended June 30,
2011		$	113			$	1,448			$	1,561			$	670			$	131			$	2,362
2010		$	—			$	1,288			$	1,288			$	1,242			$	(69	)		$	2,461

     In the first quarter of 2011, all pre-Distribution options and RSUs issued by Belo Corp. to Company employees were fully vested and the Company no longer recognizes expense for these awards.

Note 5: Pension and Other Retirement Plans

     On October 6, 2010, the Company and Belo Corp. entered into the Transfer Agreement whereby the Company and Belo agreed to split the assets and liabilities of the GBD Pension Plan, allowing the Company to establish separate pension plans and serve as sponsor of these plans. On January 1, 2011, the Company established the A. H. Belo Pension Plans I and II (collectively the “A. H. Belo Pension Plans”) which account for the transferred assets and obligations associated with current and former employees of the Company that participated in the GBD Pension Plan. A. H. Belo Pension Plan I provides benefits to certain 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 employees at The Providence Journal. In the second quarter of 2011, the Company and Belo completed the allocation of the GBD Pension Plan assets and liabilities outstanding as of December 31, 2010. The A. H. Belo Pension Plans were allocated $238,327 of plan assets and $363,928 of projected benefit obligations. The net unfunded obligation, in addition to $8,733 of contributions the Company was required to make to the GBD Pension Plan as a result of the Transfer Agreement, resulted in a loss on withdrawal from the GBD Pension Plan of $134,334. The Company recognized $132,346 of this loss in the fourth quarter of 2010 based on preliminary actuarial estimates, and the remaining $1,988 loss was recognized in the second quarter of 2011. No additional benefits are accruing under the A. H. Belo Pension Plans, as future benefits were frozen prior to the plans’ effective date. In January 2011, the A. H. Belo Pension Plans received $215,235 of the estimated assets to be transferred from the GBD Pension Plan and the remaining $23,092 was received in the second quarter of 2011.

     During January 2011, the Company contributed $8,733 to the GBD Pension Plan to settle required contributions associated with the Transfer Agreement, of which $3,410 of this payment came from A. H. Belo funds held by Belo for future pension contributions. In the first quarter of 2011, the Company made a discretionary contribution of $30,000 to the A. H. Belo Pension Plans, directly reducing the unfunded projected pension obligation of the A. H. Belo Pension Plans. A required contribution of $5,896 was made in the second quarter of 2011. The minimum required contributions for the remainder of 2011 are estimated to be $10,409, which were made on July 15, 2011.

     The Company has estimated net periodic pension expense for 2011 based on the plan assets and estimated projected pension obligations assumed by the A. H. Belo Pension Plans. The Company assumes a 6.5 percent long-term return on the plans’ assets. Investment strategies for plans’ assets are based upon factors such as the remaining useful life expectancy of participants and market risks. In 2011, the Company expects between 60 to 70 percent of the plans’ assets to be invested in equity securities and the remaining 30 to 40 percent to be invested in fixed income securities. Projected benefit obligations for the plans are estimated based on the Citigroup Pension Yield Curve, which produced a composite discount rate of 5.3 percent. Components of net periodic pension expense for the three and six months ended June 30, 2011 were as follows:

		Three Months				Six Months
		Ended				Ended
		June 30, 2011				June 30, 2011
Interest costs		$	4,675			$	9,350
Return on plan assets (estimated)			(4,175	)			(8,350	)
Net expense		$	500			$	1,000

     In 2010, Company employees participated in the GBD Pension Plan, and the Company accounted for its pension obligations under the accounting guidance established for multiemployer plans. Pension expense recorded for the three and six months ended June 30, 2010 was $4,200 and $8,272, respectively.

     Other Defined Contribution Plans. In the second quarter of 2011, the Company announced that it would provide a match of employee
401(k) contributions up to 1.5 percent of base salary occurring in the first two quarters of 2011. No match was provided in 2010. For the three and six months ended June 30, 2011, the Company recorded $435 and $856, respectively, of expense associated with its 401(k) plan.

     Expense associated with the A. H. Belo Pension Transition Supplement Plan and the A. H. Belo Pension Transition Supplement Restoration Plan (collectively the “Pension Transition Plans”), was $1,141 and $1,278 for the three months ended June 30, 2011 and 2010, respectively and $2,327 and $2,557 for the six months ended June 30, 2011 and 2010, respectively.

Note 6: Investments

     The Company owns various non-controlling interests in third party entities and records these interests under the equity or cost method of accounting. Under the equity method, the Company records its share of the investee’s earnings/(losses) each period. Under the cost method, the Company records earnings or losses when the amounts are realized. The following represents the non-controlling interests held by the Company:

		June 30, 2011				December 31, 2010
Equity method investments		$	16,936			$	15,899
Cost method investments			780				762
Total investments		$	17,716			$	16,661

     Investments accounted for under the equity method include the following:

	•		Belo Investment, LLC (“Belo Investment”) — A. H. Belo and Belo each own a 50 percent interest in Belo Investment. In connection with the February 2008 Distribution, Belo Investment was formed to hold certain real properties including The Belo Building, related parking sites, and other downtown Dallas real estate. A third party real estate services firm, engaged by Belo Investment, manages The Belo Building and its other real estate holdings, and the Company and Belo equally share the operating costs associated with these properties.
	•		Classified Ventures, LLC (“Classified Ventures”) — A. H. Belo and Belo, through subsidiaries, jointly own 6.6 percent of Classified Ventures, a joint venture in which the other owners are Gannett Co., Inc., The McClatchy Company, Tribune Company, and The Washington Post Company. The two principal online businesses Classified Ventures operates are www.cars.com and www.apartments.com.

Note 7: Goodwill and Intangible Assets

     The Company has recorded intangible assets consisting of goodwill and subscriber lists from its previous acquisitions. The carrying value of goodwill was $24,582, net of cumulative impairment losses of $439,509, as of June 30, 2011 and December 31, 2010. The remaining goodwill is recorded at The Dallas Morning News reporting unit. The recorded value of subscriber lists, which are amortized over an 18 year period, are as follows:

		Total				The Dallas				The Providence				The Press-
		Subscriber Lists				Morning News				Journal				Enterprise
Gross balance at December 31, 2010		$	114,824			$	22,896			$	78,698			$	13,230
Accumulated amortization			(92,635	)			(22,896	)			(60,480	)			(9,259	)
Net balance at December 31, 2010		$	22,189			$	—			$	18,218			$	3,971
Gross balance at June 30, 2011		$	114,824			$	22,896			$	78,698			$	13,230
Accumulated amortization			(95,255	)			(22,896	)			(62,667	)			(9,692	)
Net balance at June 30, 2011		$	19,569			$	—			$	16,031			$	3,538

Note 8: Long-term Debt

     The Company operates with a Credit Agreement (“Credit Agreement”) that has a total commitment of $25,000. The Credit Agreement is subject to a borrowing base comprised of eligible accounts receivable and inventory, which determines the available borrowing capacity. On May 2, 2011, the Company entered into the Fifth Amendment to its Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. and Capital One, N.A. (“Fifth Amendment”). Among other matters, the Fifth Amendment to the Credit Agreement extends the maturity date of the credit facility from September 30, 2012 to September 30, 2014, allows the Company to pay annual cash dividends (subject to the fixed charge coverage ratio and $12,500 of borrowing availability if borrowings are outstanding), and removes the restrictions on capital expenditures. In addition, under this Fifth Amendment, if borrowing availability falls below $7,500, a fixed charge coverage ratio covenant of 1:1 will apply. As long as no borrowings are outstanding under the revolving credit facility, the Fifth Amendment permits the Company to make voluntary pension contributions, declare dividends, and repurchase shares of the Company’s common stock. The Fifth Amendment also makes other amendments to the Amended and Restated Pledge and Security Agreement dated as of January 30, 2009 relating to cash management procedures for the Company’s deposit accounts.

     At June 30, 2011 and December 31, 2010, the Company had eligible collateral to secure borrowings under the Credit Agreement of $30,593 and $40,471, respectively, resulting in a borrowing base of $25,000 for both periods. When letters of credit and other required reserves are deducted from the borrowing base, the Company had $20,021 and $19,976 of borrowing capacity available under the Credit Agreement as of June 30, 2011 and December 31, 2010, respectively. The Company had no borrowings under the revolving credit facility during 2010 or 2011.

Note 9: Contingencies

     On October 24, 2006, 18 former employees of The Dallas Morning News filed a lawsuit against various A. H. Belo-related parties in the United States District Court for the Northern District of Texas. The plaintiffs’ lawsuit mainly consists of claims of unlawful discrimination and ERISA violations. On March 28, 2011, the Court granted defendants summary judgment and dismissed all claims. Plaintiffs moved for reconsideration, which motion was denied by the United States Magistrate. On July 15, 2011, the plaintiffs appealed the decision to the United States Court of Appeals for the Fifth Circuit. The Company believes the lawsuit is without merit and is vigorously defending against it.

     In addition to the proceeding described above, a number of other legal proceedings are pending against A. H. Belo, including several actions for alleged libel and/or defamation. In the opinion of management, liabilities, if any, arising from these other legal proceedings would not have a material adverse effect on A. H. Belo’s results of operations, liquidity, or financial condition.

Note 10: Dividends

     On June 3, 2011, the Company paid a dividend of $0.06 per share on outstanding Series A and Series B common stock and to holders of outstanding RSU awards, which are considered participating securities, as of May 16, 2011.

     On July 26, 2011, the Company declared a dividend of $0.06 per share on outstanding Series A and Series B common stock and to holders of outstanding RSU awards, to be paid on September 2, 2011 to shareholders of record on August 12, 2011.

Note 11: Fair Value Measurements

     On March 3, 2011, the Company completed the purchase of the personal residence of a Company officer pursuant to a retention and relocation arrangement. The residence was recorded at an estimated fair value of $2,696, based on a purchase price of $3,096 and net of anticipated holding and selling costs of $400. The estimated holding and selling costs were included in earnings for the six months ended June 30, 2011.

     The following presents the assets and liabilities by major category that are measured at fair value on a nonrecurring basis during the period, as required by Accounting Standards Codification No. 820, Fair Value Measurements.

Fair Value Measurements Using

Quoted Price

in Active

Significant

Six Months

Markets for

Other

Significant

Ended

Indentical

Observable

Unobservable

June 30,

Assets

Inputs

Inputs

Total Gains

(in thousands)

2011

(Level I)

(Level II)

(Level III)

(Losses)

Assets held for sale

$

2,696

$

—

$

—

$

2,696

$

(400

)

     Fair value measurements are based on a fair value hierarchy that prioritizes the inputs to valuation techniques for recurring and nonrecurring fair value measurements. The three levels of the fair value hierarchy are:

		Level 1 — Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities
		Level 2 — Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly
		Level 3 — Prices or valuations that require inputs that are significant to the valuation and are unobservable

Note 12: Income Taxes

     Income taxes are recorded using the liability method in accordance with applicable accounting guidance. The provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events, which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on the Company’s estimated tax expense for the year.

     The Company recognized income tax expense of approximately $3,630 and $4,049 for the three months and six ended June 30, 2011, respectively, and $1,411 and $2,139 for the three and six months ended June 30, 2010, respectively, representing effective income tax rates of (42.6) percent and (29.9) percent, for the six months ended June 30, 2011 and 2010, respectively. The tax expense for the three and six months ended June 30, 2011 is primarily attributable to the Texas margin tax, changes in the valuation allowance, and a one-time charge of $2,961 related to a pre-Distribution Internal Revenue Service (“IRS”) audit adjustment. This one time charge was incurred pursuant to the Tax Matters Agreement with Belo. The Company anticipates making this payment to Belo in the third quarter of 2011 upon closing of all pre-Distribution federal income tax years.

     The Company currently projects taxable losses for the year 2011 for federal income tax purposes and in certain state income tax jurisdictions. Net operating losses can be carried forward to offset future taxable income. The Company’s net operating loss carryforwards begin to expire in the year 2029 if not utilized.

     The applicable accounting guidance places a threshold for recognition of deferred tax assets including net operating loss carryforwards. Based on such criteria, the Company established a valuation allowance against the deferred tax assets in certain jurisdictions, as it was more likely than not the benefit resulting from these deferred tax assets would not be realized. The factors used to assess the likelihood of realization of the deferred tax assets include reversal of future deferred tax liabilities, available tax planning strategies, and future taxable income. Any reversal relating to the valuation allowance will be recorded as a reduction of income tax expense. The change in deferred tax assets for the six months ended June 30, 2011, is partially offset by a corresponding increase in the valuation allowance of approximately $2,209.

     The Company records a tax benefit from uncertain tax positions when it is more likely than not the positions will be sustained by taxing authorities based on the technical merits of those positions. As of June 30, 2011, the Company recorded $360 in reserves for uncertain tax positions. The Company recognizes interest and penalties related to these reserves in interest expense.

     On December 31, 2010, the Company recorded a receivable from Belo of $3,549 related to a carryback of the Company’s taxable net operating losses on Belo’s federal income tax return filed in the fourth quarter of 2010. During March 2011, Belo received the refund and the receivable from Belo has been collected.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Unless the context requires otherwise, all dollar amounts in the Quarterly Report on Form 10-Q are in thousands, except per share amounts.)

The following information should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related Notes filed as part of this report.

Overview

     A. H. Belo Corporation, headquartered in Dallas, Texas, is a distinguished newspaper publishing and local news and information company that owns and operates four daily newspapers and several associated Web sites. A. H. Belo publishes The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; The Providence Journal (www.projo.com), the oldest continuously-published daily newspaper in the U.S. and winner of four Pulitzer Prizes; The Press-Enterprise (www.pe.com) (Riverside, CA), serving the Inland Southern California region and winner of one Pulitzer Prize; and the Denton Record-Chronicle (www.dentonrc.com). The Company publishes various specialty publications targeting niche audiences, and its partnerships and/or investments include the Yahoo! Newspaper Consortium and Classified Ventures, LLC, owner of www.cars.com. A. H. Belo also owns and operates commercial printing, distribution and direct mail businesses.

     The Company was spun off from Belo Corp. effective February 8, 2008 through a pro-rata stock dividend to Belo shareholders. As a consequence, A. H. Belo became a separate public company on that date. Following the Distribution, Belo has no further ownership interest in A. H. Belo or in any newspaper or related businesses, and A. H. Belo has no ownership interest in Belo or in any television station or related businesses, but continues to conduct limited business with Belo. A. H. Belo’s relationship with Belo is now governed by a separation and distribution agreement and several ancillary agreements. A. H. Belo and Belo also co-own certain downtown Dallas real estate and several investments associated with their respective businesses.

     A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies, and estimates affect its financial statements.

Overview of Significant Activity in the Second Quarter of 2011

	•		The Company’s advertising revenues related to its core newspapers continue to decline due to the prolonged weak economy, resulting in a 9.3 percent decrease for the three months ended June 30, 2011 when compared to the three months ended June 30, 2010. In response, the Company has continued its focus on expanding its advertising in niche publications and digital platforms and increasing commercial printing revenues. Additionally, the Company continues to lower its costs by reducing staff and implementing general cost-control measures.
	•		Average newsprint purchase prices increased 11.3 percent for the three months ended June 30, 2011 when compared to the three months ended June 30, 2010, but have increased only 2.6 percent when compared to the three months ended December 31, 2010. These price changes were expected by the Company and are subject to market conditions. The Company participates in a purchasing consortium to obtain favorable pricing on its newsprint purchases.
	•		During June 2011, The Dallas Morning News released applications that run on the Android operating system. This is a continuation of the subscriber content initiatives introduced in the first quarter of 2011 to strengthen The Dallas Morning News ability to engage readers on digital platforms.
	•		Pursuant to the Tax Matters Agreement with Belo, the Company recorded a charge to tax expense of $2,961 as a result of a pre-Distribution IRS audit adjustment.
	•		The Company and Belo finalized the distribution of the assets and liabilities of the GBD Pension Plan, resulting in an adjustment increasing the loss on the withdrawal from the plan by $1,988.
	•		On June 3, 2011, the Company paid a dividend of $0.06 per share, or $1,351, to its shareholders of record on May 16, 2011.

Results of Operations

Condensed Consolidated Results of Operations

     The table below presents the Company’s components of consolidated loss for the three and six months ended June 30, 2011 and 2010:

		Three Months Ended June 30,												Six Months Ended June 30,
						Percentage												Percentage
		2011				Change				2010				2011				Change				2010
Revenues
Advertising		$	69,869				(9.3)	%		$	77,004			$	137,805				(7.6)	%		$	149,190
Circulation			34,899				(1.6)	%			35,456				69,950				(1.5)	%			71,042
Printing and distribution			9,718				6.7	%			9,110				18,906				10.6	%			17,097
Total revenue			114,486				(5.8)	%			121,570				226,661				(4.5)	%			237,329
Operating costs and expenses			117,952				(6.5)	%			126,094				237,493				(5.0)	%			250,075
Other income (expense), net			274				(95.2)	%			5,764				1,333				(76.1)	%			5,586
Income/(loss) before income taxes			(3,192	)			(357.4)	%			1,240				(9,499	)			32.7	%			(7,160	)
Income tax expense			3,630				157.3	%			1,411				4,049				89.3	%			2,139
Net loss		$	(6,822	)			3,889.5	%		$	(171	)		$	(13,548	)			45.7	%		$	(9,299	)

Newspaper Revenues

     The Dallas Morning News

     The table below presents the components of The Dallas Morning News net operating revenues for the three and six months ended June 30, 2011 and 2010:

		Three Months Ended June 30,																				Six Months Ended June 30,
						Percent												Percent								Percent												Percent
						of Total				Percentage								of Total								of Total				Percentage								of Total
		2011				Revenues				Change				2010				Revenues				2011				Revenues				Change				2010				Revenues
Advertising		$	45,010				60.8	%			-8.4	%		$	49,141				62.9	%		$	89,683				60.7	%			-5.0	%		$	94,452				62.1	%
Display			18,709								-11.0	%			21,012								36,571								-10.2	%			40,707
Classified			7,451								-8.8	%			8,173								14,870								-3.3	%			15,384
Preprints			13,458								-6.5	%			14,391								27,176								-2.5	%			27,860
Digital			5,392								-3.1	%			5,565								11,066								5.4	%			10,501
Circulation			23,265				31.4	%			0.4	%			23,172				29.7	%			46,766				31.6	%			0.3	%			46,608				30.6	%
Printing and distribution			5,745				7.8	%			-0.4	%			5,767				7.4	%			11,387				7.7	%			2.2	%			11,147				7.3	%
		$	74,020				100.0	%			-5.2	%		$	78,080				100.0	%		$	147,836				100.0	%			-2.9	%		$	152,207				100.0	%

     Advertising revenues decreased $4,131, or 8.4 percent, and $4,769, or 5.0 percent in the three and six months ended June 30, 2011, respectively, due to declines in display, classified, and preprint advertising revenues. Display advertising decreased by $2,303 or 11.0 percent and $4,136 or 10.2 percent, in the three and six months ended June 30, 2011, respectively as a result of declines in retail and general advertising.

     Classified advertising revenues decreased $722, or 8.8 percent and $514, or 3.3 percent, in the three and six months ended June 30, 2011, respectively. This decrease is due to declines in auto and real estate categories, partially offset by an increase in employment.

     Preprint advertising revenues decreased by $933, or 6.5 percent and $684, or 2.5 percent, in the three and six months ended June 30, 2011, respectively. Preprint advertising revenues are comprised of preprinted newspaper inserts and preprinted mail advertisements.

     Digital advertising revenues are primarily comprised of Internet advertising, employment advertising and automotive classified advertising on The Dallas Morning News’ Web sites, including its affiliation with www.cars.com. Revenues decreased $173 or 3.1 percent, in the three months ended June 30, 2011 due to declines in local and national Internet non-classified revenue. Revenues increased $565, or 5.4 percent, in the six months ended June 30, 2011, due to growth in local Internet and Internet auto classified revenue.

     Advertising revenue from The Dallas Morning News niche publications Briefing, Al-Dia and Quick, was $5,749 and $11,070, for the three and six months ended June 30, 2011 and $5,580 and $10,103 for the three and six month periods ended June 30, 2010, respectively. Advertising revenue for niche publications increased $169, or 3.0 percent and $967 or 9.6 percent, in the three and six months ended June 30, 2011, respectively. These revenues are a component of total display, classified, preprint and digital revenues of The Dallas Morning News discussed above.

     Circulation revenues and Printing and distribution revenues were relatively flat for the periods presented.

     The Providence Journal

     The table below presents the components of The Providence Journal net operating revenues for the three and six months ended June 30, 2011 and 2010:

		Three Months Ended June 30,																				Six Months Ended June 30,
						Percent												Percent								Percent												Percent
						of Total				Percentage								of Total								of Total				Percentage								of Total
		2011				Revenues				Change				2010				Revenues				2011				Revenues				Change				2010				Revenues
Advertising		$	13,772				57.3	%			-7.6	%		$	14,906				59.7	%		$	26,185				56.9	%			-11.2	%		$	29,501				60.1	%
Display			4,768								-7.2	%			5,137								9,056								-11.1	%			10,186
Classified			3,613								-5.0	%			3,804								7,036								-12.8	%			8,071
Preprints			3,599								-10.8	%			4,037								6,676								-9.8	%			7,401
Digital			1,792								-7.1	%			1,928								3,417								-11.1	%			3,843
Circulation			8,277				34.4	%			-6.2	%			8,827				35.4	%			16,413				35.6	%			-5.6	%			17,391				35.5	%
Printing and distribution			1,985				8.3	%			62.3	%			1,223				4.9	%			3,460				7.5	%			60.6	%			2,154				4.4	%
		$	24,034				100.0	%			-3.7	%		$	24,956				100.0	%		$	46,058				100.0	%			-6.1	%		$	49,046				100.0	%

     Advertising revenues decreased by $1,134, or 7.6 percent and $3,316, or 11.2 percent, in the three and six months ended June 30, 2011, respectively due to declines in substantially all categories. Display advertising decreased by $369, or 7.2 percent and $1,130 or 11.1 percent, in the three and six months ended June 30, 2011, respectively, as a result of a decline in retail advertising, partially offset by an increase in general advertising.

     Classified advertising revenues decreased $191, or 5.0 percent and $1,035, or 12.8 percent, in the three and six months ended June 30, 2011, respectively, due to declines in the other, real estate and employment categories, partially offset by increases in automotive.

     Preprint advertising revenues decreased by $438, or 10.8 percent and $725, or 9.8 percent, in the three and six months ended June 30, 2011, respectively. The decline in revenue in for both periods is attributable to a decline in preprinted insert volumes, partially offset by an increase in preprinted home delivery revenue.

     Digital advertising revenue decreased $136, or 7.1 percent and $426, or 11.1 percent, in the three and six months ended June 30, 2011, respectively, and primarily consists of retail display advertising and online classified advertising, including auto, real estate, employment, legal and obituaries as major categories.

     Circulation revenues decreased $550, or 6.2 percent and $978, or 5.6 percent, in the three and six months ended June 30, 2011, respectively. The decrease reflects lower home delivery and lower single-copy revenue.

     Printing and distribution revenue increased by $762, or 62.3 percent and $1,306, or 60.6 percent, in the three and six months ended June 30, 2011, respectively, due to The Providence Journal’s continued expansion of single copy distribution services for large national and local newspapers. The Providence Journal has also increased its commercial printing services to include two major metro newspapers, which also contributed to the growth.

The Press-Enterprise

     The table below presents the components of The Press-Enterprise net operating revenues for the three months ended June 30, 2011 and 2010:

		Three Months Ended June 30,																				Six Months Ended June 30,
						Percent												Percent								Percent												Percent
						of Total				Percentage								of Total								of Total				Percentage								of Total
		2011				Revenues				Change				2010				Revenues				2011				Revenues				Change				2010				Revenues
Advertising		$	11,087				67.5	%			-14.4	%		$	12,957				69.9	%		$	21,937				66.9	%			-13.1	%		$	25,237				70.0	%
Display			2,957								-16.5	%			3,541								5,740								-16.0	%			6,837
Classified			3,199								-27.1	%			4,389								6,473								-25.5	%			8,683
Preprints			3,413								2.2	%			3,339								6,706								2.6	%			6,534
Digital			1,518								-10.1	%			1,688								3,018								-5.2	%			3,183
Circulation			3,357				20.4	%			-2.9	%			3,457				18.7	%			6,771				20.7	%			-3.9	%			7,043				19.5	%
Printing and distribution			1,988				12.1	%			-6.2	%			2,120				11.4	%			4,059				12.4	%			6.9	%			3,796				10.5	%
		$	16,432				100.0	%			-11.3	%		$	18,534				100.0	%		$	32,767				100.0	%			-9.2	%		$	36,076				100.0	%

     Advertising revenues decreased by $1,870, or 14.4 percent and $3,300, or 13.1 percent, in the three and six months ended June 30, 2011, respectively, due to declines in display and classified advertising. Display advertising decreased $584, or 16.5 percent and $1,097, or 16.0 percent, in the three and six months ended June 30, 2011, respectively, as a result of declines in retail and general advertising, due to reduced volumes in national accounts.

     Classified advertising revenues decreased $1,190, or 27.1 percent and $2,210 or 25.5 percent, in the three and six months ended June 30, 2011, respectively, due to declining volumes, primarily in legal advertisements.

     Preprint advertising revenues increased $74, or 2.2 percent and $172, or 2.6 percent, respectively, due to new initiatives and new and expanded products.

      Digital advertising revenue decreased $170, or 10.1 percent and $165, or 5.2 percent, in the three and six months ended June 30, 2011, respectively, and primarily consists of retail display advertising and online classified advertising, including auto, real estate, employment and legal as major categories.

     Circulation revenues and Printing and distribution revenues were relatively flat for the periods presented.

Operating Costs and Expenses

		Three Months Ended June 30,												Six Months Ended June 30,
						Percentage												Percentage
		2011				Change				2010				2011				Change				2010
Salaries, wages and employee benefits		$	48,099				(15.3)	%		$	56,817			$	98,594				(12.8)	%		$	113,071
Other production, distribution and operating costs			43,228				(8.1)	%			47,034				88,879				(4.5)	%			93,066
Newsprint, ink and other supplies			15,071				20.6	%			12,492				29,573				24.7	%			23,713
Depreciation			8,256				(2.2)	%			8,441				15,839				(10.0)	%			17,605
Amortization			1,310				—	%			1,310				2,620				—	%			2,620
Pension plan withdrawal			1,988				—	%			—				1,988				—	%			—
Total operating costs and expenses		$	117,952				(6.5)	%		$	126,094			$	237,493				(5.0)	%		$	250,075