DallasNews Corp - Quarter Report: 2015 June (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file no. 1-33741
(Exact name of registrant as specified in its charter)
Delaware | 38-3765318 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
P. O. Box 224866, Dallas, Texas 75222-4866 | (214) 977-8200 | |
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) | |
Former name, former address and former fiscal year, if changed since last report.
None
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer: o | Accelerated filer: þ | Non-accelerated filer: o | Smaller reporting company: o | |||
(Do not check if a smaller reporting company) | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest possible date. | ||
Outstanding at | ||
Class | July 24, 2015 | |
Common Stock, $.01 par value | 21,680,077 | |
Total Common Stock consists of 19,292,128 shares of Series A Common Stock and 2,387,949 shares of Series B Common Stock.
A. H. BELO CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I
Item 1. Financial Information
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
In thousands, except share and per share amounts (unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Net Operating Revenue | |||||||||||||||
Advertising and marketing services | $ | 38,266 | $ | 40,251 | $ | 75,097 | $ | 77,977 | |||||||
Circulation | 20,816 | 21,227 | 41,854 | 42,239 | |||||||||||
Printing, distribution and other | 7,594 | 7,783 | 15,161 | 13,437 | |||||||||||
Total net operating revenue | 66,676 | 69,261 | 132,112 | 133,653 | |||||||||||
Operating Costs and Expense | |||||||||||||||
Employee compensation and benefits | 25,105 | 25,722 | 52,608 | 53,886 | |||||||||||
Other production, distribution and operating costs | 31,015 | 29,640 | 62,475 | 58,084 | |||||||||||
Newsprint, ink and other supplies | 7,843 | 8,114 | 16,009 | 16,102 | |||||||||||
Depreciation | 2,875 | 3,348 | 5,915 | 6,758 | |||||||||||
Amortization | 373 | 30 | 746 | 60 | |||||||||||
Total operating costs and expense | 67,211 | 66,854 | 137,753 | 134,890 | |||||||||||
Operating income (loss) | (535 | ) | 2,407 | (5,641 | ) | (1,237 | ) | ||||||||
Other Income (Expense), Net | |||||||||||||||
Gains on equity method investments, net | 690 | 18,567 | 276 | 18,159 | |||||||||||
Other income (loss), net | (532 | ) | 141 | (423 | ) | 258 | |||||||||
Total other income (expense), net | 158 | 18,708 | (147 | ) | 18,417 | ||||||||||
Income (Loss) from Continuing Operations Before Income Taxes | (377 | ) | 21,115 | (5,788 | ) | 17,180 | |||||||||
Income tax provision (benefit) | 317 | 1,428 | (5,413 | ) | 2,319 | ||||||||||
Income (Loss) from Continuing Operations | (694 | ) | 19,687 | (375 | ) | 14,861 | |||||||||
Income from discontinued operations | — | 2,146 | — | 3,123 | |||||||||||
Income (Loss) related to the divestiture of discontinued operations, net | 2 | 153 | (10 | ) | (25 | ) | |||||||||
Tax expense from discontinued operations | — | 30 | — | 46 | |||||||||||
Gain (Loss) from Discontinued Operations, Net | 2 | 2,269 | (10 | ) | 3,052 | ||||||||||
Net Income (Loss) | (692 | ) | 21,956 | (385 | ) | 17,913 | |||||||||
Net loss attributable to noncontrolling interests | (100 | ) | (24 | ) | (156 | ) | (30 | ) | |||||||
Net Income (Loss) Attributable to A. H. Belo Corporation | $ | (592 | ) | $ | 21,980 | $ | (229 | ) | $ | 17,943 | |||||
Per Share Basis | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | (0.03 | ) | $ | 0.86 | $ | (0.01 | ) | $ | 0.64 | |||||
Discontinued operations | — | 0.10 | — | 0.14 | |||||||||||
Net income (loss) attributable to A. H. Belo Corporation | $ | (0.03 | ) | $ | 0.96 | $ | (0.01 | ) | $ | 0.78 | |||||
Diluted | |||||||||||||||
Continuing operations | $ | (0.03 | ) | $ | 0.85 | $ | (0.01 | ) | $ | 0.64 | |||||
Discontinued operations | — | 0.10 | — | 0.14 | |||||||||||
Net income (loss) attributable to A. H. Belo Corporation | $ | (0.03 | ) | $ | 0.95 | $ | (0.01 | ) | $ | 0.78 | |||||
Weighted average shares outstanding | |||||||||||||||
Basic | 21,747,635 | 22,014,125 | 21,758,382 | 21,946,256 | |||||||||||
Diluted | 21,747,635 | 22,121,695 | 21,758,382 | 22,064,339 | |||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 3 | |
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
In thousands (unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Net Income (Loss) | $ | (692 | ) | $ | 21,956 | $ | (385 | ) | $ | 17,913 | |||||
Other Comprehensive Income (Loss), Net of Tax: | |||||||||||||||
Amortization of net actuarial gains (losses) | 313 | (174 | ) | 625 | (347 | ) | |||||||||
Total other comprehensive income (loss) | 313 | (174 | ) | 625 | (347 | ) | |||||||||
Comprehensive Income (Loss) | (379 | ) | 21,782 | 240 | 17,566 | ||||||||||
Comprehensive loss attributable to noncontrolling interests | (100 | ) | (24 | ) | (156 | ) | (30 | ) | |||||||
Total Comprehensive Income (Loss) Attributable to A. H. Belo Corporation | $ | (279 | ) | $ | 21,806 | $ | 396 | $ | 17,596 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, | December 31, | ||||||
In thousands, except share amounts (unaudited) | 2015 | 2014 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 84,061 | $ | 158,171 | |||
Accounts receivable (net of allowance of $1,435 and $1,262 at June 30, 2015 and December 31, 2014, respectively) | 32,249 | 34,396 | |||||
Inventories | 3,903 | 4,901 | |||||
Prepaids and other current assets | 11,063 | 8,422 | |||||
Deferred income taxes, net | 14 | — | |||||
Assets of discontinued operations | 253 | 565 | |||||
Total current assets | 131,543 | 206,455 | |||||
Property, plant and equipment, at cost | 443,377 | 472,186 | |||||
Less accumulated depreciation | (391,343 | ) | (410,597 | ) | |||
Property, plant and equipment, net | 52,034 | 61,589 | |||||
Intangible assets, net | 11,900 | 656 | |||||
Goodwill | 34,085 | 24,582 | |||||
Investments | 2,302 | 2,572 | |||||
Other assets | 3,236 | 2,893 | |||||
Total assets | $ | 235,100 | $ | 298,747 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 13,769 | $ | 12,904 | |||
Accrued compensation and benefits | 7,666 | 8,233 | |||||
Dividends payable | — | 50,148 | |||||
Other accrued expense | 4,703 | 13,684 | |||||
Advance subscription payments | 15,429 | 15,894 | |||||
Liabilities of discontinued operations | 85 | 543 | |||||
Total current liabilities | 41,652 | 101,406 | |||||
Long-term pension liabilities | 62,923 | 65,859 | |||||
Other post-employment benefits | 2,525 | 2,656 | |||||
Deferred income taxes, net | 976 | 530 | |||||
Other liabilities | 1,821 | 2,277 | |||||
Total liabilities | 109,897 | 172,728 | |||||
Noncontrolling interests - redeemable | 1,263 | — | |||||
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 20,514,806 and 20,341,501 shares at June 30, 2015 and December 31, 2014, respectively | 205 | 203 | |||||
Series B: issued 2,388,029 and 2,388,237 shares at June 30, 2015 and December 31, 2014, respectively | 24 | 24 | |||||
Treasury stock, Series A, at cost; 1,189,119 and 944,636 shares held at June 30, 2015 and December 31, 2014, respectively | (10,034 | ) | (8,087 | ) | |||
Additional paid-in capital | 500,386 | 499,320 | |||||
Accumulated other comprehensive loss | (56,742 | ) | (57,367 | ) | |||
Accumulated deficit | (312,103 | ) | (308,330 | ) | |||
Total shareholders’ equity attributable to A. H. Belo Corporation | 121,736 | 125,763 | |||||
Noncontrolling interests | 2,204 | 256 | |||||
Total shareholders’ equity | 123,940 | 126,019 | |||||
Total liabilities and shareholders’ equity | $ | 235,100 | $ | 298,747 | |||
See accompanying Notes to Condensed Consolidated Financial Statements.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 5 | |
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
Common Stock | Treasury Stock | ||||||||||||||||||||||||||
In thousands, except share amounts (unaudited) | Shares Series A | Shares Series B | Amount | Additional Paid-in Capital | Shares Series A | Amount | Accumulated Other Comprehensive Loss | Accumulated Deficit | Non-controlling Interests | Total | |||||||||||||||||
Balance at December 31, 2013 | 19,931,599 | 2,397,155 | $ | 223 | $ | 496,682 | (495,200 | ) | $ | (3,113 | ) | $ | (15,093 | ) | $ | (310,099 | ) | $ | 176 | $ | 168,776 | ||||||
Net income (loss) | — | — | — | — | — | — | — | 17,943 | (30 | ) | 17,913 | ||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | (347 | ) | — | — | (347 | ) | |||||||||||||||
Treasury stock purchases | — | — | — | — | (200,085 | ) | (2,118 | ) | — | — | — | (2,118 | ) | ||||||||||||||
Issuance of shares for restricted stock units | 205,352 | — | 2 | (2 | ) | — | — | — | — | — | — | ||||||||||||||||
Issuance of shares for stock option exercises | 151,312 | — | 2 | 732 | — | — | — | — | — | 734 | |||||||||||||||||
Income tax expense on options and RSUs | — | — | — | 844 | — | — | — | — | — | 844 | |||||||||||||||||
Share-based compensation | — | — | — | 634 | — | — | — | — | — | 634 | |||||||||||||||||
Conversion of Series B to Series A | 8,551 | (8,551 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||
Dividends | — | — | — | — | — | — | — | (37,429 | ) | — | (37,429 | ) | |||||||||||||||
Balance at June 30, 2014 | 20,296,814 | 2,388,604 | $ | 227 | $ | 498,890 | (695,285 | ) | $ | (5,231 | ) | $ | (15,440 | ) | $ | (329,585 | ) | $ | 328 | $ | 149,189 | ||||||
Balance at December 31, 2014 | 20,341,501 | 2,388,237 | $ | 227 | $ | 499,320 | (944,636 | ) | $ | (8,087 | ) | $ | (57,367 | ) | $ | (308,330 | ) | $ | 256 | $ | 126,019 | ||||||
Net loss | — | — | — | — | — | — | — | (229 | ) | (156 | ) | (385 | ) | ||||||||||||||
Other comprehensive income | — | — | — | — | — | — | 625 | — | — | 625 | |||||||||||||||||
Capital contributions by noncontrolling interests | — | — | — | — | — | — | — | — | 2,104 | 2,104 | |||||||||||||||||
Treasury stock purchases | — | — | — | — | (244,483 | ) | (1,947 | ) | — | — | — | (1,947 | ) | ||||||||||||||
Issuance of shares for restricted stock units | 155,097 | — | 2 | (2 | ) | — | — | — | — | — | — | ||||||||||||||||
Issuance of shares for stock option exercises | 18,000 | — | — | 71 | — | — | — | — | — | 71 | |||||||||||||||||
Income tax benefit on options and RSUs | — | — | — | 546 | — | — | — | — | — | 546 | |||||||||||||||||
Share-based compensation | — | — | — | 451 | — | — | — | — | — | 451 | |||||||||||||||||
Conversion of Series B to Series A | 208 | (208 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||
Dividends | — | — | — | — | — | — | — | (3,544 | ) | — | (3,544 | ) | |||||||||||||||
Balance at June 30, 2015 | 20,514,806 | 2,388,029 | $ | 229 | $ | 500,386 | (1,189,119 | ) | $ | (10,034 | ) | $ | (56,742 | ) | $ | (312,103 | ) | $ | 2,204 | $ | 123,940 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, | |||||||
In thousands (unaudited) | 2015 | 2014 | |||||
Operating Activities | |||||||
Net Income (Loss) | $ | (385 | ) | $ | 17,913 | ||
Adjustments to reconcile net income (loss) to net cash (used for) provided by operations: | |||||||
Net (income) loss from discontinued operations | 10 | (3,052 | ) | ||||
Depreciation and amortization | 6,661 | 6,818 | |||||
Net periodic benefit and contributions related to employee benefit plans | (2,283 | ) | (6,260 | ) | |||
Equity method investment losses | 770 | (19,065 | ) | ||||
Share-based compensation | 451 | 592 | |||||
Deferred income taxes | (3,738 | ) | 933 | ||||
Gain on investment related activity, net | (1,046 | ) | 934 | ||||
Loss on disposal of fixed assets | 665 | — | |||||
Other operating activities | — | (566 | ) | ||||
Changes in working capital and other operating assets and liabilities, net | (9,809 | ) | (4,390 | ) | |||
Net cash used for continuing operations | (8,704 | ) | (6,143 | ) | |||
Net cash (used for) provided by discontinued operations | (156 | ) | 8,260 | ||||
Net cash (used for) provided by operating activities | (8,860 | ) | 2,117 | ||||
Investing Activities | |||||||
Acquisitions | (14,111 | ) | — | ||||
Proceeds from the sale or disposal of fixed assets | 6,011 | — | |||||
Capital expenditures, net | (2,674 | ) | (2,717 | ) | |||
Other investment related proceeds | 1,046 | 18,861 | |||||
Purchase of investments | (500 | ) | (2,098 | ) | |||
Net cash (used for) provided by continuing investing activities | (10,228 | ) | 14,046 | ||||
Net cash used for discontinued investing activities | — | (633 | ) | ||||
Net cash (used for) provided by investing activities | (10,228 | ) | 13,413 | ||||
Financing Activities | |||||||
Dividends paid | (53,692 | ) | (37,429 | ) | |||
Purchase of treasury stock | (1,947 | ) | (2,118 | ) | |||
Net proceeds from exercise of stock options | 71 | 734 | |||||
Income tax benefit on options and RSUs | 546 | 844 | |||||
Net cash used for financing activities | (55,022 | ) | (37,969 | ) | |||
Net decrease in cash and cash equivalents | (74,110 | ) | (22,439 | ) | |||
Cash and cash equivalents at beginning of period | 158,171 | 82,193 | |||||
Cash and cash equivalents at end of period | $ | 84,061 | $ | 59,754 | |||
Supplemental Disclosures | |||||||
Income tax paid, net of refunds | $ | 8,918 | $ | — | |||
Noncash investing and financing activities: | |||||||
Noncash contributions by noncontrolling interests | $ | 3,367 | $ | — | |||
Impairment of equity method investment | $ | — | $ | 934 | |||
See accompanying Notes to Condensed Consolidated Financial Statements.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 7 | |
A. H. Belo Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Description of Business. A. H. Belo Corporation and subsidiaries (“A. H. Belo” or 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 marketing services. With a continued focus on extending the Company’s media platform, A. H. Belo is able to deliver news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles.
The Company publishes The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the Denton Record-Chronicle (www.dentonrc.com), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. A. H. Belo also offers digital and other business marketing solutions as well as event marketing.
Basis of Presentation. These consolidated financial statements include the accounts of A. H. Belo and its subsidiaries. The Company follows the guidance set by the Financial Accounting Standards Board (“FASB”) or other authoritative accounting standards-setting bodies. Under Accounting Standards Codification (“ASC”) 810 – Consolidation, the Company determines whether subsidiaries, joint ventures, partnerships and other arrangements should be consolidated. Transactions between the consolidated companies are eliminated and noncontrolling interests in less than wholly-owned subsidiaries are reflected in the consolidated 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 are included. All dollar amounts are presented in thousands, except per share amounts, unless the context requires otherwise.
Presentation of current and prior period amounts in the consolidated financial statements and notes thereto reflect continuing operations of the Company, unless otherwise noted. Amounts presented for 2014 are exclusive of results related to discontinued operations as well as prior year results of businesses subsequently acquired in 2015.
New Accounting Pronouncements. The FASB issued the following Accounting Standards Updates (“ASU”) which could have potential impact to the Company’s financial statements:
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance generally clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update is effective for fiscal years and interim periods beginning after December 15, 2016, and interim periods in those years. In the second quarter of 2015, the FASB deferred the effective date of the standard by one year to December 15, 2017. The Company is currently evaluating the impact this update will have on its recognition and presentation of revenues within the consolidated statements of operations.
ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). This standard provides guidance around management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate the adoption of this standard to have a material impact on the presentation of the consolidated financial statements or disclosures.
ASU 2015-02, Consolidation (Topic 810). This update modifies requirements for consolidating certain legal entities. The standard removes the previous presumption that a general partner controls a limited partnership, revises when fees paid to a decision maker or service provider are a variable interest, and places additional emphasis on risk of loss in determining a controlling financial interest. The standard is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact this update will have on its consolidation of legal entities within the consolidated financial statements.
8 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
ASU 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets (ASC 715) This update provides clarification on the accounting for contributions to a defined benefit plan and significant events requiring remeasurement, such as settlements or curtailments, that occur during the period between a month-end measurement date and the employers’ fiscal year-end. The standard is effective for fiscal years and interim periods beginning after December 15, 2015. The Company is currently evaluating the impact this update will have on the consolidated financial statements and related disclosures.
ASU 2015-05, Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update clarifies requirements for a customer’s accounting for fees paid in a cloud computing arrangement. The standard stipulates that if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The standard is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted. The Company must elect to adopt either retrospectively or prospectively. The Company is currently evaluating the impact this update will have on the consolidated financial statements and related disclosures.
Note 2: Acquisitions
On January 2, 2015, the Company acquired an 80 percent voting interest in DMV Digital Holdings Company, Inc. (“DMV”) which holds all outstanding ownership interests of three Dallas-based businesses, Distribion, Inc., Vertical Nerve, Inc. and CDFX, LLC (d/b/a MarketingFX). These businesses specialize in marketing automation, search engine marketing, direct mail and promotional products, respectively. This acquisition complements and expands the product and service offerings currently available to A. H. Belo clients, thereby strengthening the Company’s diversified product portfolio and allowing for greater penetration in a competitive advertising market.
The Company’s interest in DMV was acquired for a cash purchase price of $14,111, net of $152 cash acquired. Transaction costs related to the purchase were a component of Other production, distribution and operating costs and totaled $1,287, of which $725 were incurred in 2015. The estimated fair value of the acquired businesses totals $17,478, of which $3,495 is attributable to noncontrolling interests. Approximately $693 of goodwill acquired is expected to be deductible for tax purposes. As further discussed in Note 11 – Contingencies, the contribution agreement included provisions for two pro-rata dividends and an embedded put arrangement with certain noncontrolling shareholders of DMV. The Company is in the process of finalizing the business valuation and its allocation to underlying assets and liabilities. The preliminary allocation of the purchase price, which is subject to adjustment upon finalization, is summarized as follows:
Estimated Fair Value | |||
Working capital, net of acquired cash | $ | (79 | ) |
Property, plant and equipment | 57 | ||
Other intangible assets | 11,990 | ||
Goodwill | 9,503 | ||
Deferred income tax liabilities | (3,993 | ) | |
$ | 17,478 | ||
Operating results of the businesses acquired have been included in the Condensed Consolidated Statements of Operations from the acquisition date forward. Revenue from marketing services is recognized at the time services are delivered. For arrangements that include multiple deliverables, revenue and upfront fees are allocated to each unit of accounting based on their relative selling prices. For the three and six months ended June 30, 2015, operating results include $1,896 and $3,754 of net operating revenue and a pretax loss of $111 and $243 before adjusting for noncontrolling interests, respectively. 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.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 9 | |
Note 3: Discontinued Operations and Sales of Assets
Discontinued Operations. On September 3, 2014, The Providence Journal Company, a wholly-owned subsidiary of the Company, completed a transaction for the (i) sale of substantially all of the assets comprising the newspaper operations of The Providence Journal and related real property located in Providence, Rhode Island, and (ii) assumption of certain liabilities by LMG Rhode Island Holdings, Inc. (“LMG”), a subsidiary of New Media Investment Group Inc. On November 21, 2013, the Company completed the sale of the newspaper operations of The Press-Enterprise, including the production facility and related land, to Freedom Communications, Inc. (“Freedom Communications”) under a definitive asset purchase agreement.
Upon completion of these divestitures, the Company no longer owns newspaper operations in Providence, Rhode Island or Riverside, California. The Company continues to hold and market for sale certain land in Providence, Rhode Island. The Company also retains the obligation for the A. H. Belo Pension Plan II, which provides benefits to employees of The Providence Journal Company.
As a result of the above transactions, the activity and balances of The Providence Journal and The Press-Enterprise are presented as discontinued operations. During the three and six months ended June 30, 2014, income from discontinued operations included revenues of $22,318 and $43,512, respectively, and expenses of $20,172 and $40,389, respectively, related to The Providence Journal. The Company adjusted the gain on the sale of The Providence Journal in the three and six months ended June 30, 2015, by $2 and $(10), respectively, and The Press-Enterprise in the three and six months ended June 30, 2014, by $153 and $(25), respectively. As of June 30, 2015, the remaining assets and liabilities of discontinued operations were $253 and $85, respectively.
Other Dispositions. On June 19, 2015, the Company completed the sale of the land and building which served as the administrative headquarters of The Providence Journal. Net proceeds of $6,119 were received in the second quarter of 2015, upon closing of the transaction, generating a loss of approximately $292. Also during the second quarter of 2015, the Company demolished the existing structures on another owned property in Providence, Rhode Island generating a loss of $412.
Note 4: Goodwill and Intangible Assets
As presented in Note 2 – Acquisitions, the Company acquired $9,503 of goodwill and $11,990 of definite-lived intangible assets in connection with its acquisition of DMV. Amortization expense of $283 and $566 was recorded for the three and six months ended June 30, 2015, respectively. The identification, valuation and amortization of these assets is not complete and subject to adjustment upon finalization. The definite-lived intangible assets are presented below as Other intangible assets, gross.
The Company also records goodwill and intangible assets from its previous acquisitions. The carrying value of goodwill, exclusive of DMV, was $24,582 at June 30, 2015 and December 31, 2014. Definite-lived intangible assets recorded from previous acquisitions consist of customer relationships, amortized over an estimated useful life of three years. Amortization expense related to customer relationships from previous acquisitions was $90 and $180 for the three and six months ended June 30, 2015 and $30 and $60 for the three and six months ended June 30, 2014, respectively.
The carrying value of definite-lived intangible assets is set forth in the table below.
June 30, | December 31, | ||||||
2015 | 2014 | ||||||
Customer relationships, gross | $ | 975 | $ | 975 | |||
Other intangible assets, gross | 11,990 | — | |||||
Finite-lived intangible assets, gross | 12,965 | 975 | |||||
Accumulated amortization | (1,065 | ) | (319 | ) | |||
Finite-lived intangible assets, net | $ | 11,900 | $ | 656 | |||
10 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Note 5: Investments
The Company owns investment interests in various entities which are recorded under the equity method or cost method of accounting, or consolidated if the Company holds a controlling financial interest. Under the equity method, the Company records its share of the investee’s earnings or losses each period as a component of other income, net, in the consolidated statements of operations. Under the cost method, the Company records earnings or losses when such amounts are realized. The Company evaluates the recoverability of its investments each period and estimates the fair value of its investments if identified events or circumstances indicate a significant adverse effect on the carrying value. Net gains on equity method investments were $690 and $18,567 for the three months ended June 30, 2015 and 2014, respectively, and $276 and $18,159 for the six months ended June 30, 2015 and 2014, respectively. The table below sets forth the Company’s investments.
June 30, | December 31, | ||||||
2015 | 2014 | ||||||
Equity method investments | $ | 870 | $ | 1,640 | |||
Cost method investments | 1,432 | 932 | |||||
Total investments | $ | 2,302 | $ | 2,572 | |||
Equity method investments. Investments recorded under the equity method of accounting include the following:
Wanderful Media, LLC (“Wanderful”) – The Company owns a 13.0 percent interest in Wanderful, which operates FindnSave.com, a digital shopping platform where consumers can find national and local retail goods and services for sale. This platform combines local media participation with advanced search and database technology to allow consumers to view local advertised offers and online sales circulars or search for an item and receive a list of local advertisers and the price and terms offered for the searched item. It also utilizes location-based technology and incentives to drive consumers to retailer locations.
In the first quarter of 2014, the Company determined that an other-than-temporary decline occurred in the value of its investment in Wanderful Media after evaluating the estimated fair value of the investee as determined by an independent valuation specialist, which resulted in an impairment charge of $934 in the first quarter. The Company attributes the impairment primarily to a decline in business related to Wanderful Media’s legacy products. An additional contribution of $1,909 was made in the second quarter of 2014 to provide capital for development of new product offerings as Wanderful Media establishes its market presence.
Classified Ventures, LLC (“Classified Ventures”) – The Company owned a 3.3 percent interest in Classified Ventures through its sale date on October 1, 2014. The principal business of Classified Ventures is the operation of cars.com. On October 1, 2014, the Company completed a transaction with Gannett Co. Inc. and other unit holders of Classified Ventures whereby Gannett acquired all membership interests from the unit holders of Classified Ventures. Proceeds of $965 and $1,046 were received in the three and six months ended June 30, 2015, respectively, representing an adjustment to the sale price and increasing the gain on the transaction. As of June 30, 2015, a receivable of $3,280 was recorded for additional proceeds related to the sale of Classified Ventures which are expected to be received by the end of the third quarter of 2015.
Consolidated investments. The Company consolidates the following investments in which it has a controlling financial interest:
• | Your Speakeasy, LLC (“Speakeasy”) - 70.0 percent ownership - targets middle-market business customers and provides turnkey social media account management and content development services. |
• | Untapped Festivals, LLC (“Untapped”) - 51.0 percent ownership - hosts events providing craft beer and entertainment events across major Texas cities. |
• | DMV Digital Holdings Company, Inc. - 80.0 percent ownership - specializes in marketing automation, search engine marketing, direct mail and promotional products. |
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 11 | |
Note 6: Long-term Incentive Plans
A. H. Belo sponsors a long-term incentive plan under which 8,000,000 common shares were 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 shares, 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.
Stock Options.
The table below sets forth a summary of stock option activity under its long-term incentive plan.
Number of Options | Weighted-Average Exercise Price | |||||
Outstanding at December 31, 2014 | 432,723 | $ | 13.15 | |||
Exercised | (18,000 | ) | 3.95 | |||
Canceled | (40,572 | ) | 23.41 | |||
Outstanding at June 30, 2015 | 374,151 | $ | 12.48 | |||
In the three months ended June 30, 2015, no options were exercised. In the three months ended June 30, 2014, the intrinsic value of options exercised was $84 and the intrinsic value of options exercised in the six months ended June 30, 2015 and 2014, was $100 and $897, respectively. The intrinsic value of outstanding options at June 30, 2015 was $336. The vested and exercisable weighted average remaining contractual term of stock options outstanding as of June 30, 2015, was 2.0 years. The expense associated with all outstanding options was fully recognized in prior years.
Restricted Stock Units. Under A. H. Belo’s long-term incentive plan, the Company’s board of directors periodically awards RSUs. The RSUs have service and/or performance conditions and vest over a period of up to three years. Vested RSUs are redeemed 60 percent in A. H. Belo Series A common stock and 40 percent in cash. As of June 30, 2015, the liability for the portion of the award to be redeemed in cash was $564. The table below sets forth a summary of RSU activity under its long-term incentive 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, 2014 | 501,158 | $ | 6.81 | |||||||||||||
Granted | 134,812 | 7.66 | ||||||||||||||
Vested | (258,502 | ) | 155,097 | 103,405 | $ | 821 | 5.81 | |||||||||
Canceled | (48,239 | ) | 7.47 | |||||||||||||
Non-vested at June 30, 2015 | 329,229 | $ | 7.85 | |||||||||||||
12 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Compensation Expense. A. H. Belo recognizes compensation expense for RSUs issued to its employees and directors under its long-term incentive plan over the vesting period of the award, as set forth in the table below.
RSUs Redeemable in Stock | RSUs Redeemable in Cash | Total RSU Awards Expense | |||||||||
Three months ended June 30, | |||||||||||
2015 | $ | 80 | $ | (299 | ) | $ | (219 | ) | |||
2014 | 105 | 150 | 255 | ||||||||
Six months ended June 30, | |||||||||||
2015 | $ | 451 | $ | (367 | ) | $ | 84 | ||||
2014 | 592 | 1,333 | 1,925 | ||||||||
Note 7: Income Taxes
Income taxes are recorded using the asset and liability method. The provision for taxes reflects the Company’s estimate of the effective tax rate expected to be applied for the full fiscal year, adjusted for any discrete transactions which are reported in the period in which they occur. The estimated effective tax rate is re-evaluated each quarter based on the Company’s estimated tax expense for the year. If a reliable estimate cannot be made of the annual effective tax rate, which could be caused by the significant variability in rates when marginal earnings are expected for the year and significant permanent or temporary differences exist, a discrete tax rate is calculated for the period.
The Company recognized income tax provision (benefit) from continuing operations of $317 and $1,428 for the three months ended June 30, 2015 and 2014, respectively, and $(5,413) and $2,319 for the six months ended June 30, 2015 and 2014, respectively. Effective income tax rates from continuing operations were 93.5 percent and 13.5 percent for 2015 and 2014, respectively. The effective tax rate is affected by recurring items such as tax rates and income in jurisdictions which we expect to be fairly consistent in the near term. Tax benefit for the six months ended June 30, 2015, reflected a reduction in the valuation allowance for deferred tax assets of $3,993 as a result of DMV acquisition-date deferred tax liabilities assumed. Tax provision for the three and six months ended June 30, 2014, was primarily attributable to state income tax expense and changes in the valuation allowance on deferred tax assets.
Note 8: Pension and Other Retirement Plans
Defined Benefit Plans. The Company sponsors two defined benefit pension plans, the A. H. Belo Pension Plans I and II (collectively the “A. H. Belo Pension Plans”). 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 of The Providence Journal Company, the obligation for which was retained by the Company in the sale transaction 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 prior to the plans’ effective date.
During the three and six months ended June 30, 2014, the Company made required contributions of $2,186 and $4,126, respectively, to the A. H. Belo Pension Plans. No contributions are required to the A. H. Belo Pension Plans in 2015. Management believes the assumed rate of return on the plans’ assets of 6.5 percent continues to be appropriate.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 13 | |
Net Periodic Pension Benefit
The Company estimates net periodic pension expense or benefit based on the expected return on plan assets, the interest on projected pension obligations and the amortization of actuarial gains and losses in accumulated other comprehensive loss, if required. The table below sets forth components of net periodic pension benefit.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Interest cost | $ | 3,540 | $ | 4,330 | $ | 7,080 | $ | 8,660 | |||||||
Expected return on plans' assets | (5,008 | ) | (5,215 | ) | (10,016 | ) | (10,430 | ) | |||||||
Amortization of actuarial loss | 314 | — | 626 | — | |||||||||||
Net periodic pension expense (benefit) | $ | (1,154 | ) | $ | (885 | ) | $ | (2,310 | ) | $ | (1,770 | ) | |||
Defined Contribution Plans. The A. H. Belo Savings Plan, a defined contribution 401(k) plan, covers substantially all employees of A. H. Belo. Participants may elect to contribute a portion of their pretax compensation, as provided by the plan and the Internal Revenue Code. Employees can contribute up to 100 percent of their annual eligible compensation (less required withholdings and deductions) up to statutory limits. The Company provides an ongoing dollar-for-dollar match of eligible employee contributions, up to 1.5 percent of the employees’ compensation on a per-pay-period basis. During the three months ended June 30, 2015 and 2014, the Company recorded expense of $268 and $268, respectively, and during the six months ended June 30, 2015 and 2014, the Company recorded expense of $526 and $521, respectively, for matching contributions to this plan.
Note 9: Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss contains actuarial gains and losses associated with the A. H. Belo Pension Plans and gains and losses resulting from negative plan amendments and other actuarial experience related to other post-employment benefit plans. The Company records amortization 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 participants. Gains and losses associated with the Company’s other post-employment benefit plans are amortized over the average remaining service period of active plan participants. The net deferred tax assets associated with accumulated other comprehensive loss are fully reserved.
The table below sets forth the changes in accumulated other comprehensive loss, net of taxes.
Three Months Ended June 30, | |||||||||||||||||||||||
2015 | 2014 | ||||||||||||||||||||||
Total | Defined benefit pension plans | Other post-employment benefit plans | Total | Defined benefit pension plans | Other post-employment benefit plans | ||||||||||||||||||
Balance, beginning of period | $ | (57,055 | ) | $ | (57,342 | ) | $ | 287 | $ | (15,266 | ) | $ | (16,059 | ) | $ | 793 | |||||||
Amortization | 313 | 314 | (1 | ) | (174 | ) | — | (174 | ) | ||||||||||||||
Balance, end of period | $ | (56,742 | ) | $ | (57,028 | ) | $ | 286 | $ | (15,440 | ) | $ | (16,059 | ) | $ | 619 | |||||||
Six Months Ended June 30, | |||||||||||||||||||||||
2015 | 2014 | ||||||||||||||||||||||
Total | Defined benefit pension plans | Other post-employment benefit plans | Total | Defined benefit pension plans | Other post-employment benefit plans | ||||||||||||||||||
Balance, beginning of period | $ | (57,367 | ) | $ | (57,654 | ) | $ | 287 | $ | (15,093 | ) | $ | (16,059 | ) | $ | 966 | |||||||
Amortization | 625 | 626 | (1 | ) | (347 | ) | — | (347 | ) | ||||||||||||||
Balance, end of period | $ | (56,742 | ) | $ | (57,028 | ) | $ | 286 | $ | (15,440 | ) | $ | (16,059 | ) | $ | 619 | |||||||
14 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Note 10: 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 B common stock equally share in the distributed and undistributed earnings.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Earnings (numerator) | |||||||||||||||
Net income (loss) attributable to A. H. Belo Corporation | $ | (592 | ) | $ | 21,980 | $ | (229 | ) | $ | 17,943 | |||||
Less: Income (Loss) from discontinued operations, net | 2 | 2,269 | (10 | ) | 3,052 | ||||||||||
Less: Income (Loss) to participating securities | 26 | 811 | 62 | 869 | |||||||||||
Net income (loss) available to common shareholders from continuing operations | $ | (620 | ) | $ | 18,900 | $ | (281 | ) | $ | 14,022 | |||||
Shares (denominator) | |||||||||||||||
Weighted average common shares outstanding (basic) | 21,747,635 | 22,014,125 | 21,758,382 | 21,946,256 | |||||||||||
Effect of dilutive securities | — | 107,570 | — | 118,083 | |||||||||||
Adjusted weighted average shares outstanding (diluted) | 21,747,635 | 22,121,695 | 21,758,382 | 22,064,339 | |||||||||||
Earnings per share from continuing operations | |||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.86 | $ | (0.01 | ) | $ | 0.64 | |||||
Diluted | $ | (0.03 | ) | $ | 0.85 | $ | (0.01 | ) | $ | 0.64 | |||||
Holders of service-based RSUs participate in A. H. Belo dividends on a one-for-one share basis. Distributed and undistributed income associated with participating securities is included in the calculation of EPS under the two-class method as prescribed under ASC 260 – Earnings Per Share.
The Company considers outstanding stock options and RSUs in the calculation of its earnings per share. A total of 703,380 and 995,709 options and RSUs outstanding during the three and six months ended June 30, 2015, and 2014, respectively were excluded from the calculation because they did not affect the earnings per share for common shareholders or the effect was anti-dilutive.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 15 | |
Note 11: Contingencies
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.
Pro-rata dividends. In conjunction with the acquisition of DMV, the contribution agreement provides for a pro-rata dividend of 100 percent and 50 percent of DMV’s free-cash flow for fiscal years 2015 and 2016, respectively. Free-cash-flow is defined as earnings before interest, taxes, depreciation and amortization less capital expenditures, debt amortization and interest expense, as applicable.
Redeemable noncontrolling interest. In connection with the acquisition of DMV, the Company entered into a shareholder agreement which provided a put option to a noncontrolling shareholder. The put option provides the shareholder with the right to require the Company to purchase up to 25 percent of his ownership interest between the second and third anniversaries of the agreement and up to 50 percent of his ownership interest between the fourth and fifth anniversaries of the agreement.
The exercisability of the noncontrolling interest put arrangement is outside of the control of the Company. As such, the redeemable noncontrolling interest of $1,263 is reported in the mezzanine equity section in the condensed consolidated balance sheets as of June 30, 2015. In the event that the put options expire unexercised, the related portion of noncontrolling interest would be classified as a component of equity in the condensed consolidated balance sheets.
Redeemable noncontrolling interests are recorded at fair value on the acquisition date and the carrying value adjusted each period to the greater of the estimated redemption value or the value that would otherwise be assigned if the interests were not redeemable. Changes in redemption value are recorded to retained earnings or additional paid in capital, as applicable, and have no effect to earnings of the Company. No adjustments to the carrying value of redeemable noncontrolling interests have been recorded since the January 2, 2015 acquisition date of DMV.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 16 | |
Note 12: Segment Reporting
The Company has identified two reportable segments based on management and internal reporting structures as well as product and service offerings: Publishing and Marketing and Event Marketing Services (“MEMS”).
The Publishing segment includes the Company’s core print operations associated with its newspapers, niche publications and related websites, which generate print and digital advertising and subscription sales. Also included are the commercial printing and distribution services primarily related to national and regional newspapers and preprint advertisers as these services leverage the production and other operating assets of this segment to provide additional contribution margin. The Company evaluates Publishing operations based on operating profit and cash flows from operating activities.
The MEMS segment is comprised of the Company’s marketing services and event marketing businesses. Marketing services includes the operations related to the January 2015 acquisition of DMV as well as operations related to Speakeasy and 508 Digital. Event marketing includes the operations of Crowdsource and Untapped Festivals. The Company evaluates MEMS operations based on revenue growth and operating profit as these businesses continue to expand within their respective markets.
The following tables set forth information related to our reportable segments.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net Operating Revenue | |||||||||||||||
Publishing | $ | 61,903 | $ | 67,171 | $ | 122,853 | $ | 129,731 | |||||||
MEMS | 4,773 | 2,090 | 9,259 | 3,922 | |||||||||||
Total | $ | 66,676 | $ | 69,261 | $ | 132,112 | $ | 133,653 | |||||||
Operating Income (Loss) | |||||||||||||||
Publishing | $ | 358 | $ | 2,851 | $ | (4,178 | ) | $ | (52 | ) | |||||
MEMS | (893 | ) | (444 | ) | (1,463 | ) | (1,185 | ) | |||||||
Total | $ | (535 | ) | $ | 2,407 | $ | (5,641 | ) | $ | (1,237 | ) | ||||
June 30, | December 31, | ||||||
2015 | 2014 | ||||||
Total Assets | |||||||
Publishing | $ | 208,400 | $ | 295,788 | |||
MEMS | 26,700 | 2,959 | |||||
Total | $ | 235,100 | $ | 298,747 | |||
Note 13: Subsequent Events
In July 2015, the Company offered a voluntary severance option to certain newsroom employees and anticipates granting between 30 to 40 requests on a first-come, first-served basis. These reductions will allow the Company to realize the cost savings needed to add new positions which will support a growing digital platform. Costs associated with this offer are estimated to be between $2,500 and $3,000 and are expected to be incurred in the third quarter of 2015.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 17 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect its financial statements. The following information should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related Notes filed as part of this report. Amounts presented for 2014 are exclusive of results related to discontinued operations and businesses acquired in 2015. Unless otherwise noted, amounts in Management’s Discussion and Analysis reflect continuing operations of the Company, and all dollar amounts are presented in thousands, except per share amounts.
OVERVIEW
A. H. Belo, headquartered in Dallas, Texas, is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and marketing services. With a continued focus on extending the Company’s media platform, A. H. Belo is able to deliver news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles.
The Company publishes The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the Denton Record-Chronicle (www.dentonrc.com), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. A. H. Belo offers digital and other business marketing solutions and provides event promotion and marketing services.
On January 2, 2015, the Company acquired an 80 percent voting interest in DMV Digital Holdings Company, Inc. (“DMV”), into which the stock of three Dallas-based companies, Distribion, Inc. (“Distribion”), Vertical Nerve, Inc. (“Vertical Nerve”) and CDFX, LLC (d/b/a “MarketingFX”), were contributed. These businesses specialize in local marketing automation, search engine marketing, direct mail and promotional products, respectively. This acquisition complements and expands 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.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 18 | |
RESULTS OF CONTINUING OPERATIONS
Consolidated Results of Continuing Operations
The table below sets forth the components of A. H. Belo’s net operating revenue.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
Segment | 2015 | Percentage Change | 2014 | 2015 | Percentage Change | 2014 | ||||||||||||||||
Advertising and marketing services | $ | 38,266 | (4.9 | )% | $ | 40,251 | $ | 75,097 | (3.7 | )% | $ | 77,977 | ||||||||||
Display advertising | Publishing | 10,919 | (18.5 | )% | 13,402 | 22,059 | (11.2 | )% | 24,850 | |||||||||||||
Classified advertising | Publishing | 5,210 | (10.8 | )% | 5,841 | 10,566 | (11.3 | )% | 11,910 | |||||||||||||
Preprint advertising | Publishing | 12,141 | (7.9 | )% | 13,188 | 23,138 | (9.8 | )% | 25,653 | |||||||||||||
Digital advertising | Publishing | 6,050 | 2.1 | % | 5,926 | 11,605 | (2.7 | )% | 11,922 | |||||||||||||
Marketing services | MEMS | 3,946 | 108.3 | % | 1,894 | 7,729 | 112.2 | % | 3,642 | |||||||||||||
Circulation | Publishing | 20,816 | (1.9 | )% | 21,227 | 41,854 | (0.9 | )% | 42,239 | |||||||||||||
Printing, distribution and other | 7,594 | (2.4 | )% | 7,783 | 15,161 | 12.8 | % | 13,437 | ||||||||||||||
Commercial print and distribution | Publishing | 6,767 | (10.8 | )% | 7,587 | 13,631 | 3.6 | % | 13,157 | |||||||||||||
Event marketing and other | MEMS | 827 | 321.9 | % | 196 | 1,530 | 446.4 | % | 280 | |||||||||||||
Total net operating revenue | $ | 66,676 | (3.7 | )% | $ | 69,261 | $ | 132,112 | (1.2 | )% | $ | 133,653 | ||||||||||
Publishing | $ | 61,903 | (7.8 | )% | $ | 67,171 | $ | 122,853 | (5.3 | )% | $ | 129,731 | ||||||||||
Other | $ | 4,773 | 128.4 | % | $ | 2,090 | $ | 9,259 | 136.1 | % | $ | 3,922 | ||||||||||
Advertising and marketing services revenue
The Company’s traditional revenues are generated from advertising within its core newspapers, niche publications and related websites and from subscription and single copy sales of its printed newspapers. As a result of competitive conditions, the Company and the newspaper industry have faced a significant decline in core advertising revenue over the past decade. The Company has sought to diversify its revenues through development of product extensions and new products and investment in companies acquired to add new channels of marketing, increased home delivery rates and leveraging of its existing assets to offer cost efficient printing and distribution services to its local markets. The Company is focused on stabilizing revenue primarily through expansion of its marketing services operations, as evidenced through the acquisition of DMV in January 2015, and through growth of its event marketing services provided by Crowdsource and Untapped.
Advertising revenue from core newspapers continues to be adversely affected by decreased national advertiser spending as well as the shift of advertiser spending to other forms of media. Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital advertising, which is widely available from many sources. Companies are redistributing more of their advertising budgets towards programmatic channels to acquire digital advertising on multiple platforms which provides for targeted delivery and measurement. The Company has responded to these challenges by expanding its use of programmatic channels and developing its own programmatic trading platform to meet customer demands for digital ad placement opportunities in display, mobile, video and social categories.
Expanded digital and marketing services product offerings have allowed the Company to leverage the Company’s existing resources and relationships to offer additional value to present and new advertising clients. Through Speakeasy and 508 Digital, business customers are offered turn-key solutions for social media and online reputation management, content development for mobile website and email marketing, search engine marketing and optimization, and advertising analytics.The businesses comprising the DMV acquisition specialize in marketing automation, search engine marketing, direct mail and promotional products, respectively. This acquisition complements and expands the product and service offerings currently available to A. H. Belo clients, thereby strengthening the Company’s diversified product portfolio and allowing for greater penetration in a competitive advertising market.
The following summarizes year-over-year performance in advertising and marketing service revenue for the three and six months ended June 30, 2015, by category.
Display advertising – As advertisers continue to diversify marketing budgets to incorporate more and varied avenues of reaching consumers, traditional display advertising continues to decline. Although volumes have remained relatively flat in 2015, lower rates are being offered to customers in response to competitive pressures. Overall rates received from advertisers declined by approximately 17 percent and 12 percent, for the three and six months ended June 30, 2015,
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 19 | |
respectively. Revenue decreased for most display categories, with electronics and technology advertisements accounting for most declines in both periods.
Classified advertising – Classified advertising remains challenged as alternative digital outlets continue to emerge. Overall classified revenue decreased in both periods due to lower volumes in all categories except legal. This decline was partially offset by higher rates in the employment category.
Preprint advertising – Revenue decreased in both periods due to a decline in the volume of preprint newspaper inserts, consistent with the decline in circulation volumes and due to lower volumes in home delivery mail advertising.
Digital advertising – Digital revenue is primarily comprised of online display and classified advertising which consists of advertising placed on the Company’s websites or through programmatic advertising channels. Online classified is comprised of digital listings in auto, real estate, employment and other categories, including the Company’s resale of affiliate products such as cars.com. Online banner and other display advertising increased by 14.7 percent and 6.3 percent to $2,273 and $4,206 during the three and six months ended June 30, 2015, respectively. Online classified declined 4.3 percent and 7.1 percent to $3,776 and $7,396 during the three and six months ended June 30, 2015, respectively. In the fourth quarter of 2014, the Company divested of its membership interest in Classified Ventures, the owner of cars.com, and entered into a modified affiliate agreement allowing The Dallas Morning News to resell cars.com products and services exclusively in its local market. The modified agreement increases the wholesale rate that the Company pays to Classified Ventures for selling cars.com products. Declines in online classified advertising are driven by decreases of $189 and $494 related to cars.com in the three and six months ended June 30, 2015, respectively.
Marketing services – The Company began generating marketing services revenue in 2013 with 508 Digital and Speakeasy. The acquisition of DMV in January 2015 added three more marketing services companies. Marketing services revenue more than doubled as a result of growth at Speakeasy of approximately 52 percent and 44 percent in the three and six months ended June 30, 2015, as well as $1,896 and $3,754 of incremental revenue from the acquired entities in the three and six months ended June 30, 2015.
Circulation revenue
Circulation revenue declined slightly from the prior year as the benefit from recent rate increases substantially offset volume declines. Volumes have decreased for both home delivery and single copy sales, with more notable decline in single copy sales as newspapers compete for prime retail placement. Home delivery and single copy paid print circulation volumes declined 7.9 percent and 15.2 percent, respectively, for the three months ended June 30, 2015, and 7.9 percent and 17.2 percent, respectively, for the six months ended June 30, 2015. These declines were offset by an effective rate increase of 6.3 percent and 11.5 percent in the three months ended June 30, 2015, and 6.9 percent and 17.8 percent in the six months ended June 30, 2015, in home delivery and single copy rates, respectively.
Printing, distribution and other revenue
The Company’s newspapers aggressively market the capacity of their printing and distribution assets to other newspapers that would benefit from cost sharing arrangements. Revenue decreased for the three months ended June 30, 2015, by $451 due to lower circulation volumes and increased for the six months ended June 30, 2013, by $1,218 primarily due to the commencement of commercial printing services in March 2014 for various regional and community newspapers. Revenue declines of $359 and $721 were recognized for the three and six months ended June 30, 2015, respectively, due to the loss of a significant contract for mailed insert advertisements. This category also incorporates event marketing revenues generated by Crowdsource and Untapped as part of the MEMS segment. Event marketing revenues increased $573 and $1,166 for the three and six months ended June 30, 2015, respectively, as Crowdsource expanded its service offerings to include Savor Dallas, a local restaurant event promotion and as Untapped, a weekend craft beer and music event, expanded its events across major Texas metropolitan areas.
20 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Operating Costs and Expenses
The table below sets forth the components of the Company’s operating expenses.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2015 | Percentage Change | 2014 | 2015 | Percentage Change | 2014 | ||||||||||||||||
Operating Costs and Expense | |||||||||||||||||||||
Employee compensation and benefits | $ | 25,105 | (2.4 | )% | $ | 25,722 | $ | 52,608 | (2.4 | )% | $ | 53,886 | |||||||||
Publishing | 22,688 | (9.0 | )% | 24,937 | 47,992 | (7.7 | )% | 51,998 | |||||||||||||
MEMS | 2,417 | 207.9 | % | 785 | 4,616 | 144.5 | % | 1,888 | |||||||||||||
Other production, distribution and operating costs | 31,015 | 4.6 | % | 29,640 | 62,475 | 7.6 | % | 58,084 | |||||||||||||
Publishing | 28,302 | 1.3 | % | 27,939 | 57,490 | 4.6 | % | 54,987 | |||||||||||||
MEMS | 2,713 | 59.5 | % | 1,701 | 4,985 | 61.0 | % | 3,097 | |||||||||||||
Newsprint, ink and other supplies | 7,843 | (3.3 | )% | 8,114 | 16,009 | (0.6 | )% | 16,102 | |||||||||||||
Publishing | 7,674 | (5.2 | )% | 8,091 | 15,627 | (2.5 | )% | 16,030 | |||||||||||||
MEMS | 169 | 634.8 | % | 23 | 382 | 430.6 | % | 72 | |||||||||||||
Depreciation | 2,875 | (14.1 | )% | 3,348 | 5,915 | (12.5 | )% | 6,758 | |||||||||||||
Publishing | 2,851 | (14.2 | )% | 3,323 | 5,862 | (12.6 | )% | 6,708 | |||||||||||||
MEMS | 24 | (4.0 | )% | 25 | 53 | 6.0 | % | 50 | |||||||||||||
Amortization | 373 | n/m | 30 | 746 | n/m | 60 | |||||||||||||||
Publishing | 30 | — | % | 30 | 60 | — | % | 60 | |||||||||||||
MEMS | 343 | 100.0 | % | — | 686 | 100.0 | % | — | |||||||||||||
Total operating costs and expense | $ | 67,211 | 0.5 | % | $ | 66,854 | $ | 137,753 | 2.1 | % | $ | 134,890 | |||||||||
Publishing | $ | 61,545 | (4.3 | )% | $ | 64,320 | $ | 127,031 | (2.1 | )% | $ | 129,783 | |||||||||
MEMS | $ | 5,666 | 123.6 | % | $ | 2,534 | $ | 10,722 | 109.9 | % | $ | 5,107 | |||||||||
Operating income (loss) | $ | (535 | ) | (122.2 | )% | $ | 2,407 | $ | (5,641 | ) | 356.0 | % | $ | (1,237 | ) | ||||||
Publishing | $ | 358 | (87.4 | )% | $ | 2,851 | $ | (4,178 | ) | 7,934.6 | % | $ | (52 | ) | |||||||
MEMS | $ | (893 | ) | 101.1 | % | $ | (444 | ) | $ | (1,463 | ) | 23.5 | % | $ | (1,185 | ) | |||||
Employee compensation and benefits – The Company continues to implement measures to optimize its workforce and reduce risk associated with future obligations towards legacy employee benefit plans. Employee compensation and benefits decreased in the three and six months ended June 30, 2015, by $617 and $1,278, respectively. Expenses within the Company’s Publishing segment decreased in both periods due to lower incentive compensation due to fewer annual equity awards and a reduced market price of the Company’s stock, as well as reduced salaries and commissions in response to lower sales. Expenses within the Company’s MEMS segment grew primarily due to higher salaries related to expanded marketing services resulting from the acquisition of DMV and its approximately 45 employees. For the three and six months ended June 30, 2015, employee related costs for marketing services grew by $1,385 and $2,302, respectively, primarily due to the acquisition of DMV and employee related costs for event marketing grew by $247 and $425, respectively, as these operations continue to expand.
Other production, distribution and operating costs – Expenses increased in the Company’s Publishing segment as a result of continuing initiatives to develop new products and service offerings. Year-to-date increases were primarily due to higher costs associated with programmatic platform development to support expanded digital advertising and to accommodate greater interactive play between mobile devices; higher consulting costs to optimize the Company’s sales and operating activities; and increased legal fees. Within the MEMS segment, expenses increased due to higher costs associated with the Company’s marketing services and event marketing operations as those businesses continue to grow. For the three and six months ended June 30, 2015, marketing services expenses grew by $265 and $648, respectively, and event marketing expenses grew by $748 and $1,240, respectively.
Newsprint, ink and other supplies – Expenses decreased due to reduced newsprint rates and lower consumption, consistent with lower circulation volumes of Company and certain third-party newspapers, offset by higher costs for purchased supplements and inserts. Newsprint consumption for the three months ended June 30, 2015 and 2014 approximated 7,892 and 8,627 metric tons, respectively, and the average cost per metric ton for newsprint was $539 and $595, respectively. Newsprint consumption
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 21 | |
approximated 15,646 and 16,747 metric tons for the six months ended June 30, 2015 and 2014, respectively, at an average cost per metric ton of $560 and $598, respectively.
Depreciation – Expenses decreased due to a lower depreciable asset base as a higher level of in-service assets are fully depreciated.
Amortization – Expense increased due to the amortization of finite-lived intangible assets acquired in conjunction with the Company’s purchase of DMV.
22 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Other
The table below sets forth the other components of the Company’s results of operations.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2015 | Percentage Change | 2014 | 2015 | Percentage Change | 2014 | ||||||||||||||||
Other Income (Expense), Net | |||||||||||||||||||||
Gains on equity method investments, net | $ | 690 | (96.3 | )% | $ | 18,567 | $ | 276 | (98.5 | )% | $ | 18,159 | |||||||||
Other income (expense), net | (532 | ) | (477.3 | )% | 141 | (423 | ) | 264.0 | % | 258 | |||||||||||
Total other income (expense), net | $ | 158 | (99.2 | )% | $ | 18,708 | $ | (147 | ) | (100.8 | )% | $ | 18,708 | ||||||||
Income tax provision (benefit) | $ | 317 | (77.8 | )% | $ | 1,428 | $ | (5,413 | ) | n/m | $ | 2,319 | |||||||||
Other Income (Expense) – Other income (expense) is primarily comprised of gains (losses) from equity method investments and gains (losses) from the sale or disposition of fixed assets. In the three months ended June 30, 2015, losses from operations of equity method investments were offset by post-sale proceeds of $965 received related to the Company’s former membership interest in Classified Ventures. In the three months ended June 30, 2015, other expense included $(292) related to the sale of a building and land in Providence, Rhode Island which formerly served as the administrative headquarters of The Providence Journal, and $412 of costs for the demolition of existing structures on another Providence, Rhode Island property to achieve more favorable market value. In the three months ended June 30, 2014, gains included $18,532 related to Classified Ventures’ sale of apartments.com, partially offset by an other-than-temporary impairment of $934 related to the investment in Wanderful Media. The Company determined that an other-than-temporary decline occurred in the value of the investment after evaluating the estimated fair value of the investee as determined by an independent valuation specialist. The Company attributes the impairment primarily to a decline in business related to Wanderful Media’s legacy products. The 2014 impairment was offset by income on the Company’s investment in Classified Ventures. The Company sold its membership interest in Classified Ventures in the fourth quarter of 2014.
Tax provision – Income tax decreased for the three and six months ended June 30, 2015, due to lower required valuation allowances resulting from the Company’s ability to use acquisition-date deferred tax liabilities. See the Condensed Consolidated Financial Statements, Note 7 – Income Taxes.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 23 | |
Discontinued Operations
As a result of the sale of The Providence Journal, which was completed on September 3, 2014, and the sale of The Press-Enterprise, which was completed on November 21, 2013 (see Note 3 – Discontinued Operations and Sales of Assets), the disposition and results of operations associated with these businesses are reported as discontinued operations in the Company’s financial statements. The gain (loss) related to the discontinued operations was $2 and $2,269 for the three months ended June 30, 2015 and 2014, respectively, and $(10) and $3,052 for the six months ended June 30, 2015 and 2014, respectively, and was primarily generated by The Providence Journal.
On June 19, 2015, the Company completed the sale of the land and building which served as the administrative headquarters of The Providence Journal. Net proceeds of $6,119 were received in the second quarter of 2015, upon closing of the transaction, generating a loss of approximately $292. Also during the second quarter of 2015, the Company demolished the existing structures on another owned property in Providence, Rhode Island generating a loss of $412.
Upon completion of these transactions, the Company no longer owns newspaper operations in either Providence, Rhode Island or Riverside, California. The Company continues to own and market for sale certain land in Providence, Rhode Island. The Company also retains the obligation for the A. H Belo Pension Plan II, which provides benefits to employees of The Providence Journal Company.
24 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Liquidity and Capital Resources
The Company’s cash balance as of June 30, 2015 and December 31, 2014, was $84,061 and $158,171, respectively. Working capital as of June 30, 2015 and December 31, 2014, was $89,891 and $105,049, respectively. The decrease in cash is primarily a result of distributions to shareholders of a portion of the cash proceeds generated in 2014 from the sale of the Company’s interest in Classified Ventures and the sale of The Providence Journal, which collectively generated cash proceeds of approximately $146,000. Other significant uses of cash include acquisition of new businesses and payment of taxes related to the gains on the 2014 divestiture transactions.
In 2015, the Company returned $55,639 to shareholders through quarterly and special dividends and through its stock repurchase program, as discussed below in Financing Cash Flows. Payment of dividends and share repurchases are dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed.
In January 2015, the Company acquired DMV for $14,111 through a newly-formed holding company in which the Company has an 80 percent voting interest as described in Note 2 – Acquisitions. The Company paid cash for the acquisition, and transaction costs were $1,287, of which $725 were incurred in 2015. This acquisition is part of the Company’s revenue diversification strategy, and the Company continues to seek future acquisitions which will complement and leverage the Company’s existing products.
In June 2015, the Company completed the sale of a building and land in Providence, Rhode Island which formerly served as the administrative headquarters of The Providence Journal. Net sales proceeds of $6,119 were received and a loss of $292 was recorded related to the divestiture. Also during the second quarter of 2015, costs of $412 were incurred related to the demolition of existing structures on another Providence, Rhode Island property.
Cash used in operating activities in 2015 totaled $8,860, which included $8,918 of tax payments related to the gains on the divestiture of assets in 2014. Cash flows from operations are expected to grow throughout the year as benefits from cost cutting measures are realized and as revenues are expected to increase in subsequent quarters, consistent with historical trends. The Company is not required to make any pension contributions in 2015 and discretionary spending will be managed according to operating results.
The Company intends to deploy its cash in the long-term interests of the Company, its shareholders and employees as it seeks potential acquisition or investment opportunities complementing its advertising and marketing services products. Management works aggressively to align the current expense structure with changes in revenue and believes existing cash and cash generated from operations will be sufficient to meet foreseeable cash flow requirements for operations, capital spending and pension contributions. The following discusses the changes in cash flows by operating, investing and financing activities.
Operating Cash Flows
Net cash used for continuing operating activities for 2015 and 2014 was $8,704 and $6,143, respectively. Cash flows from continuing operations decreased in 2015 primarily due to tax payments of $8,918 related to gains on dispositions of assets in 2014. Cash flows provided by discontinued operations for 2015 and 2014, were $156 and $8,260, respectively, and primarily represented the results of operations from The Providence Journal.
Investing Cash Flows
Net cash (used for) provided by continuing investing activities was $(10,228) and $14,046 in 2015 and 2014, respectively. Cash flows used for continuing investing activities in 2015 included payments of $14,111 and $500 related to acquisitions and investments during the period, respectively. Sales proceeds, net of disposal costs for fixed assets, of $6,011 were received during 2015 related to the Providence, Rhode Island properties. Other investment related proceeds of $1,046 and $18,861 were received related to distributions from Classified Ventures, LLC in 2015 and 2014, respectively. Cash flows used for continuing investing activities also include $2,674 and $2,717 of capital spending in 2015 and 2014, respectively. Cash flows used for investing activities of discontinued operations in 2014 were $633 and represented capital spending associated with The Providence Journal.
Financing Cash Flows
Net cash used for continuing financing activities was $55,022 and $37,969 in 2015 and 2014, respectively. Cash used for continuing financing activities includes dividend payments of $53,692 and $37,429 in 2015 and 2014, respectively. Dividends paid in 2015 included a special dividend of $2.25 per share declared and recorded in 2014, returning $50,148 to shareholders and holders of RSUs. In 2015 and 2014, the Company purchased 244,483 and 200,085 shares of its Series A common stock at a cost of $1,947 and $2,118, respectively, under its share repurchase program.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 25 | |
Financing Arrangements
None.
Contractual Obligations
No contributions to the A. H. Belo Pension Plans are required in 2015.
On May 14, 2015, the Company announced a $0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on August 14, 2015, which will be paid on September 4, 2015.
Additional information related to the Company’s contractual obligations is available in Company’s Annual Report on Form 10‑K for the year ended December 31, 2014, filed on March 6, 2015, with the SEC.
Critical Accounting Policies and Estimates
No material changes were made to the Company’s critical accounting policies as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2014.
Forward-Looking Statements
Statements in this communication concerning A. H. Belo’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, dispositions, impairments, business initiatives, acquisitions, pension plan contributions and obligations, real estate sales, working capital, future financings and other financial and non-financial items that are not historical facts, are “forward-looking statements” as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements.
Such risks, uncertainties and factors include, but are not limited to the following: changes in capital market conditions and prospects, changes in advertising demand and newsprint prices; newspaper circulation trends and other circulation matters, including changes in readership methods, patterns and demography; audits and related actions by the Alliance for Audited Media; challenges implementing increased subscription pricing and new pricing structures; challenges in achieving expense reduction goals in a timely manner and the resulting potential effect on operations; challenges attracting and retaining key personnel; challenges in consummating asset acquisitions or dispositions upon acceptable terms; technological changes; development of Internet commerce; industry cycles; changes in pricing or other actions by new and existing competitors and suppliers; consumer acceptance of new products and business initiatives; labor relations; regulatory, tax and legal changes; adoption of new accounting standards or changes in existing accounting standards by the Financial Accounting Standards Board or other accounting standard-setting bodies or authorities; the effects of Company acquisitions, dispositions and co-owned ventures and investments; pension plan matters; general economic conditions and changes in interest rates; significant armed conflict; acts of terrorism; and other factors beyond the Company’s control, as well as other risks described elsewhere in this Annual Report on Form 10-K and in the Company’s other public disclosures and filings with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in A. H. Belo Corporation’s exposure to market risk from the disclosure included in the Annual Report on Form 10-K for the year ended December 31, 2014.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
(b) Changes in internal controls. There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
26 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
PART II
Item 1. Legal Proceedings
A number of legal proceedings are pending against A. H. Belo. In the opinion of management, liabilities, if any, arising from these legal proceedings would not have a material adverse effect on A. H. Belo’s results of operations, liquidity or financial condition.
Item 1A. Risk Factors
There were no material changes from the risk factors disclosed under the heading “Risk Factors” in Item 1A in the Annual Report on Form 10-K for the year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company’s equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
The Company repurchases shares of its common stock from time to time pursuant to publicly announced share repurchase programs. During 2015, the Company repurchased 244,483 Series A shares at a cost of $1,947. All purchases were made through open market transactions and were recorded as treasury stock.
The following table contains information for shares repurchased during the second quarter of 2015. None of the shares in this table were repurchased directly from any of our officers or directors.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||
April 2015 | 40,692 | $ | 7.97 | 1,106,176 | 393,824 | (a) | |||||||
May 2015 | 39,771 | 6.35 | 1,145,947 | 1,354,053 | (a) | ||||||||
June 2015 | 43,172 | 5.92 | 1,189,119 | 1,310,881 | (a) | ||||||||
(a) | Share repurchases are made pursuant to a share repurchase program authorized by the Company’s board of directors. On May 14, 2015, the Company’s board of directors authorized the repurchase of up to an additional 1,000,000 shares of the Company’s Series A Common Stock, par value $0.01 per share or Series B Common Stock, par value $0.01 per share. A total of 2,500,000 shares have been authorized for repurchase. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 27 | |
Item 6. Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the SEC, as indicated. In accordance with Regulation S-T, the XBRL-related information marked with a double asterisk (**) in Exhibit No. 101 to this Quarterly Report on Form 10-Q is deemed filed. All other documents are filed with this report. Exhibits marked with a tilde (~) are management contracts, compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
Exhibit Number | Description | ||||
3.1 | * | Amended and Restated Certificate of Incorporation of the Company (Exhibit 3.1 to Amendment No. 3 to the Company’s Form 10 dated January 18, 2008 (Securities and Exchange Commission File No. 001‑33741) (the “Third Amendment to Form 10”)) | |||
3.2 | * | Certificate of Designations of Series A Junior Participating Preferred Stock of the Company dated January 11, 2008 (Exhibit 3.2 to Post‑Effective Amendment No. 1 to Form 10 filed January 31, 2008 (Securities and Exchange Commission File No. 001‑33741)) | |||
3.3 | * | Amended and Restated Bylaws of the Company, effective December 11, 2014 (Exhibit 3.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2014 (Securities and Exchange Commission File No. 001-33741)) | |||
4.1 | * | Certain rights of the holders of the Company’s Common Stock set forth in Exhibits 3.1‑3.3 above | |||
4.2 | * | Specimen Form of Certificate representing shares of the Company’s Series A Common Stock (Exhibit 4.2 to the Third Amendment to Form 10) | |||
4.3 | * | Specimen Form of Certificate representing shares of the Company’s Series B Common Stock (Exhibit 4.3 to the Third Amendment to Form 10) | |||
4.4 | * | Rights Agreement dated as of January 11, 2008 between the Company and Mellon Investor Services LLC (Exhibit 4.4 to the Third Amendment to Form 10) | |||
10.1 | * | Material Contracts | |||
~(1) | * | Form of Limited Guaranty by and between A. H. Belo Corporation and Freedom Communications Holdings, Inc (Exhibit 10.2 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2013 (Securities and Exchange Commission File No. 001-33741)) | |||
~(2) | * | Asset Purchase Agreement among The Providence Journal Company and LMG Rhode Island Holdings, Inc. dated as of July 22, 2014 (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2014 (Securities and Exchange Commission File No. 001-33741) (the “July 25, 2014 Form 8-K”)) | |||
~(3) | * | Form of Limited Guaranty by and between A. H. Belo Corporation and LMG Rhode Island Holdings, Inc (Exhibit 10.2 to the July 25, 2014 Form 8-K) | |||
~(4) | * | Unit Purchase Agreement dated August 5, 2014 by and among Gannett Company, Inc., Classified Ventures, LLC, and Unitholders of Classified Ventures, LLC (Exhibit 2.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 6, 2014 (Securities and Exchange Commission file no. 001-33741)) | |||
28 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
Exhibit Number | Description | ||||
10.2 | * | Compensatory plans and arrangements: | |||
~(1) | * | A. H. Belo Savings Plan as Amended and Restated Effective January 1, 2015 (Exhibit 10.2 (1) to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2015 (Securities and Exchange Commission File No. 001-33741)) | |||
~(2) | * | A. H. Belo Corporation 2008 Incentive Compensation Plan (Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2008 (Securities and Exchange Commission File No. 001-33741) (the “February 12, 2008 Form 8-K”)) | |||
* | (a) | First Amendment to A. H. Belo 2008 Incentive Compensation Plan effective July 23, 2008 (Exhibit 10.2(2)(a) to the Company’s Quarterly Report on Form 10‑Q filed with the Securities and Exchange Commission on August 14, 2008 (Securities and Exchange Commission File No. 001‑33741)) | |||
* | (b) | Form of A. H. Belo 2008 Incentive Compensation Plan Non‑Employee Director Evidence of Grant (for Non‑Employee Director Awards) (Exhibit 10.2(2)(b) to the Company’s Quarterly Report on Form 10‑Q filed with the Securities and Exchange Commission on May 13, 2010 (Securities and Exchange Commission File No. 001‑33741) (the “1st Quarter 2010 Form 10‑Q”)) | |||
* | (c) | Form of A. H. Belo 2008 Incentive Compensation Plan Evidence of Grant (for Employee Awards) (Exhibit 10.2(2)(c) to the 1st Quarter 2010 Form 10‑Q) | |||
* | (d) | Form of A. H. Belo 2008 Incentive Compensation Plan Evidence of Grant (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8‑K filed with the Securities and Exchange Commission on March 12, 2012 (Securities and Exchange Commission File No. 001‑33741) (the “March 12, 2012 Form 8-K”)) | |||
* | (e) | Form of A. H. Belo Cash Long‑Term Incentive Evidence of Grant (Exhibit 10.2 to the March 12, 2012 Form 8-K) | |||
~(3) | * | A. H. Belo Pension Transition Supplement Restoration Plan effective January 1, 2008 (Exhibit 10.6 to the February 12, 2008 Form 8‑K) | |||
* | (a) | First Amendment to the A. H. Belo Pension Transition Supplement Restoration Plan dated March 31, 2009 (Exhibit 10.4 to the April 2, 2009 Form 8‑K) | |||
~(4) | * | A. H. Belo Corporation Change In Control Severance Plan (Exhibit 10.7 to the February 12, 2008 Form 8‑K) | |||
* | (a) | Amendment to the A. H. Belo Change in Control Severance Plan dated March 31, 2009 (Exhibit 10.3 to the April 2, 2009 Form 8‑K) | |||
~(5) | * | Robert W. Decherd Compensation Arrangements dated June 19, 2013 (Exhibit 10.1 to the June 19, 2013 Form 8-K) | |||
~(6) | * | Daniel J. Blizzard Letter Agreement dated December 11, 2014 (Exhibit 10.1 to the December 11, 2014 Form 8-K) | |||
10.3 | Agreements relating to the separation of A. H. Belo from its former parent company: | ||||
(1) | * | Separation and Distribution Agreement by and between Belo Corp. and A. H. Belo Corporation dated as of February 8, 2008 (Exhibit 2.1 to the February 12, 2008 Form 8‑K) | |||
(2) | * | Pension Plan Transfer Agreement by and between Belo Corp. and A. H. Belo Corporation dated as of October 6, 2010 (Exhibit 10.1 to the Company’s Current Report on Form 8‑K filed with the Securities and Exchange Commission on October 8, 2010 (Securities and Exchange Commission File No. 001-33741)) | |||
(3) | * | Agreement among the Company, Belo Corp., and The Pension Benefit Guaranty Corporation, effective March 9, 2011 (Exhibit 10.3(6) to the Company’s Annual Report on Form 10‑K filed with the Securities and Exchange Commission on March 11, 2011 (Securities and Exchange Commission File No. 001‑33741)) | |||
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 29 | |
Exhibit Number | Description | ||||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 | ||||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 | ||||
32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 | ||||
101.INS | ** | XBRL Instance Document | |||
101.SCH | ** | XBRL Taxonomy Extension Schema | |||
101.CAL | ** | XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF | ** | XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB | ** | XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE | ** | XBRL Taxonomy Extension Presentation Linkbase Document | |||
30 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
A. H. BELO CORPORATION | |||
By: | /s/ | Katy Murray | |
Katy Murray | |||
Senior Vice President/Chief Financial Officer | |||
(Principal Financial Officer) | |||
Dated: | July 28, 2015 | ||
A. H. Belo Corporation Second Quarter 2015 on Form 10-Q | 31 | |
EXHIBIT INDEX
Exhibit Number | Description | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 | |
32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 | |
101.INS | ** | XBRL Instance Document |
101.SCH | ** | XBRL Taxonomy Extension Schema |
101.CAL | ** | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | ** | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | ** | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | ** | XBRL Taxonomy Extension Presentation Linkbase Document |
In accordance with Regulation S-T, the XBRL-related information marked with a double asterisk (**) in Exhibit No. 101 to this Quarterly Report on Form 10-Q is deemed filed.
32 | A. H. Belo Corporation First Quarter 2015 on Form 10-Q |