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DallasNews Corp - Quarter Report: 2017 June (Form 10-Q)

Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2017 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file no. 1-33741





Design Cover



A. H. Belo Corporation

(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) 977-8222

(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      No  



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      No  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”  and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 

 

 

 

 

Large accelerated filer:  

 

Accelerated filer:  

 

Non-accelerated filer:  

 

Smaller reporting company:  

 

 

 

 

(Do not check if a smaller reporting company)

Emerging growth company  

 

 

 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).      Yes      No 



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 27, 2017

Common Stock, $.01 par value

 

21,753,166





Total Common Stock consists of 19,280,601 shares of Series A Common Stock and 2,472,565 shares of Series B Common Stock. 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     3


 

Table of Contents

 

A. H. BELO CORPORATION



FORM 10-Q



TABLE OF CONTENTS





 

 

 





 

 

 

 

 

Page

PART I

Item 1.

Financial Information

 

PAGE   5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

PAGE 18

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

PAGE 25

Item 4.

Controls and Procedures

 

PAGE 25

 

 

 

 

PART II 

 

 

Item 1.

Legal Proceedings

 

PAGE 25

Item 1A.

Risk Factors

 

PAGE 25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

PAGE 25

Item 3.

Defaults Upon Senior Securities

 

PAGE 26

Item 4.

Mine Safety Disclosures

 

PAGE 26

Item 5.

Other Information

 

PAGE 26

Item 6.

Exhibits

 

PAGE 27

Signatures

 

PAGE 30

Exhibit Index

 

PAGE 31



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     4


 

Table of Contents

 

PART I

Item 1.  Financial Information



A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Operations







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

In thousands, except share and per share amounts (unaudited)

 

2017

 

2016

 

2017

 

2016

Net Operating Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

36,022 

 

$

38,040 

 

$

71,226 

 

$

73,277 

Circulation

 

 

19,088 

 

 

19,821 

 

 

38,254 

 

 

40,173 

Printing, distribution and other

 

 

7,979 

 

 

8,765 

 

 

14,510 

 

 

15,659 

Total net operating revenue

 

 

63,089 

 

 

66,626 

 

 

123,990 

 

 

129,109 

Operating Costs and Expense:

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

24,853 

 

 

24,774 

 

 

52,728 

 

 

51,791 

Other production, distribution and operating costs

 

 

29,736 

 

 

29,898 

 

 

58,062 

 

 

58,229 

Newsprint, ink and other supplies

 

 

5,993 

 

 

6,461 

 

 

11,894 

 

 

12,519 

Depreciation

 

 

2,727 

 

 

2,605 

 

 

5,233 

 

 

5,237 

Amortization

 

 

199 

 

 

229 

 

 

399 

 

 

455 

Goodwill impairment

 

 

 —

 

 

 —

 

 

228 

 

 

 —

Total operating costs and expense

 

 

63,508 

 

 

63,967 

 

 

128,544 

 

 

128,231 

Operating income (loss)

 

 

(419)

 

 

2,659 

 

 

(4,554)

 

 

878 

Other income (expense), net

 

 

(93)

 

 

408 

 

 

(430)

 

 

487 

Income (Loss) from Continuing Operations Before Income Taxes

 

 

(512)

 

 

3,067 

 

 

(4,984)

 

 

1,365 

Income tax provision

 

 

293 

 

 

2,393 

 

 

251 

 

 

1,284 

Net Income (Loss)

 

 

(805)

 

 

674 

 

 

(5,235)

 

 

81 

Net income (loss) attributable to noncontrolling interests

 

 

 —

 

 

(19)

 

 

 —

 

 

20 

Net Income (Loss) Attributable to A. H. Belo Corporation

 

$

(805)

 

$

693 

 

$

(5,235)

 

$

61 



 

 

 

 

 

 

 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to A. H. Belo Corporation

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.04)

 

$

0.03 

 

$

(0.24)

 

$

0.00 

Number of common shares used in the per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

21,743,390 

 

 

21,614,260 

 

 

21,717,032 

 

 

21,564,200 

Diluted

 

 

21,743,390 

 

 

21,762,559 

 

 

21,717,032 

 

 

21,724,876 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     5


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

In thousands (unaudited)

 

2017

 

2016

 

2017

 

2016

Net Income (Loss)

 

$

(805)

 

$

674 

 

$

(5,235)

 

$

81 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial (gains) losses, net of tax

 

 

56 

 

 

(24)

 

 

113 

 

 

(32)

Total other comprehensive income (loss)

 

 

56 

 

 

(24)

 

 

113 

 

 

(32)

Comprehensive Income (Loss)

 

 

(749)

 

 

650 

 

 

(5,122)

 

 

49 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

 —

 

 

(19)

 

 

 —

 

 

20 

Total Comprehensive Income (Loss) Attributable to A. H. Belo Corporation

 

$

(749)

 

$

669 

 

$

(5,122)

 

$

29 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     6


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 

  

 

 

 

 

 

 



 

June 30,

 

December 31,

In thousands, except share amounts (unaudited)

 

2017

 

2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,856 

 

$

80,071 

Accounts receivable (net of allowance of $942 and $1,115 at June 30, 2017
and December 31, 2016, respectively)

 

 

23,960 

 

 

29,114 

Inventories

 

 

3,071 

 

 

3,386 

Prepaids and other current assets

 

 

10,789 

 

 

9,553 

Assets held for sale

 

 

8,740 

 

 

 —

Total current assets

 

 

111,416 

 

 

122,124 

Property, plant and equipment, at cost

 

 

441,024 

 

 

445,874 

Less accumulated depreciation

 

 

(407,493)

 

 

(402,115)

Property, plant and equipment, net

 

 

33,531 

 

 

43,759 

Intangible assets, net

 

 

4,473 

 

 

4,872 

Goodwill

 

 

13,973 

 

 

14,201 

Other assets

 

 

6,888 

 

 

7,775 

Total assets

 

$

170,281 

 

$

192,731 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,411 

 

$

9,036 

Accrued compensation and benefits

 

 

8,479 

 

 

8,657 

Other accrued expense

 

 

4,440 

 

 

6,318 

Advance subscription payments

 

 

12,832 

 

 

13,243 

Total current liabilities

 

 

34,162 

 

 

37,254 

Long-term pension liabilities

 

 

52,989 

 

 

54,843 

Other post-employment benefits

 

 

2,321 

 

 

2,329 

Other liabilities

 

 

6,456 

 

 

6,483 

Total liabilities

 

 

95,928 

 

 

100,909 

Noncontrolling interest - redeemable

 

 

 —

 

 

2,670 

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 20,697,482 and 20,620,461 shares at June 30, 2017
and December 31, 2016, respectively

 

 

208 

 

 

207 

Series B: issued 2,472,565 and 2,472,680 shares at June 30, 2017
and December 31, 2016, respectively

 

 

24 

 

 

24 

Treasury stock, Series A, at cost; 1,416,881 shares held at June 30, 2017
and December 31, 2016

 

 

(11,233)

 

 

(11,233)

Additional paid-in capital

 

 

494,671 

 

 

499,552 

Accumulated other comprehensive loss

 

 

(39,195)

 

 

(39,308)

Accumulated deficit

 

 

(370,122)

 

 

(361,324)

Total shareholders’ equity attributable to A. H. Belo Corporation

 

 

74,353 

 

 

87,918 

Noncontrolling interests

 

 

 —

 

 

1,234 

Total shareholders’ equity

 

 

74,353 

 

 

89,152 

Total liabilities and shareholders’ equity

 

$

170,281 

 

$

192,731 



See the accompanying Notes to the Consolidated Financial Statements.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     7


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

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

Noncontrolling
Interests

Total

Balance at December 31, 2015

20,522,503 

2,387,509 

$

229 

$

500,449 

 

(1,416,881)

$

(11,233)

$

(38,442)

$

(333,222)

$

1,069 

$

118,850 

Net income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

61 

 

 

68 

Other comprehensive loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

(32)

 

 —

 

 —

 

(32)

Distributions to noncontrolling interests

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(165)

 

(165)

Capital contributions of noncontrolling interests

 —

 —

 

 —

 

(396)

 

 —

 

 —

 

 —

 

 —

 

396 

 

 —

Issuance of shares for restricted stock units

97,203 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Issuance of shares for stock option exercises

 —

85,926 

 

 

155 

 

 —

 

 —

 

 —

 

 —

 

 —

 

156 

Share-based compensation

 —

 —

 

 —

 

448 

 

 —

 

 —

 

 —

 

 —

 

 —

 

448 

Conversion of Series B to Series A

649 

(649)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(5,265)

 

 —

 

(5,265)

Balance at June 30, 2016

20,620,355 

2,472,786 

$

231 

$

500,655 

 

(1,416,881)

$

(11,233)

$

(38,474)

$

(338,426)

$

1,307 

$

114,060 

Balance at December 31, 2016

20,620,461 

2,472,680 

$

231 

$

499,552 

 

(1,416,881)

$

(11,233)

$

(39,308)

$

(361,324)

$

1,234 

$

89,152 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(5,235)

 

 —

 

(5,235)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

113 

 

 —

 

 —

 

113 

Distributions to noncontrolling interests

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 

 

 —

 

(118)

 

(118)

Issuance of shares for restricted stock units

76,906 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

626 

 

 —

 

 —

 

 —

 

 —

 

 —

 

626 

Purchases of noncontrolling interests

 —

 —

 

 —

 

(5,506)

 

 —

 

 —

 

 —

 

 —

 

(1,116)

 

(6,622)

Conversion of Series B to Series A

115 

(115)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(3,563)

 

 —

 

(3,563)

Balance at June 30, 2017

20,697,482 

2,472,565 

$

232 

$

494,671 

 

(1,416,881)

$

(11,233)

$

(39,195)

$

(370,122)

$

 —

$

74,353 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     8


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows









 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended June 30,

In thousands (unaudited)

 

2017

 

2016

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

(5,235)

 

$

81 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,632 

 

 

5,692 

Net periodic pension and other post-employment benefit

 

 

(1,717)

 

 

(1,749)

Share-based compensation

 

 

626 

 

 

448 

Deferred income taxes

 

 

 —

 

 

Loss on investment related activity

 

 

250 

 

 

 —

Gain on disposal of fixed assets

 

 

 —

 

 

(325)

Goodwill impairment

 

 

228 

 

 

 —

Changes in working capital and other operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

5,154 

 

 

6,041 

Inventories, prepaids and other current assets

 

 

(921)

 

 

(2,006)

Other assets

 

 

637 

 

 

443 

Accounts payable

 

 

(625)

 

 

(748)

Compensation and benefit obligations

 

 

(175)

 

 

847 

Other accrued expenses

 

 

(890)

 

 

(518)

Advance subscription payments

 

 

(411)

 

 

101 

Other post-employment benefits

 

 

(31)

 

 

(93)

Net cash provided by operating activities

 

 

2,522 

 

 

8,223 

Investing Activities

 

 

 

 

 

 

Purchases of assets

 

 

(4,789)

 

 

(3,174)

Net cash used for investing activities

 

 

(4,789)

 

 

(3,174)

Financing Activities

 

 

 

 

 

 

Purchases of noncontrolling interests

 

 

(9,231)

 

 

 —

Dividends paid

 

 

(3,538)

 

 

(3,503)

Proceeds from other financing activities

 

 

 —

 

 

2,566 

Distributions to noncontrolling interests

 

 

(179)

 

 

(264)

Proceeds from exercise of stock options

 

 

 —

 

 

156 

Net cash used for financing activities

 

 

(12,948)

 

 

(1,045)

Net increase (decrease) in cash and cash equivalents

 

 

(15,215)

 

 

4,004 

Cash and cash equivalents, beginning of period

 

 

80,071 

 

 

78,380 

Cash and cash equivalents, end of period

 

$

64,856 

 

$

82,384 



 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Income tax paid, net (refund)

 

$

1,163 

 

$

1,289 

Noncash investing and financing activities:

 

 

 

 

 

 

Investments in property, plant and equipment payable

 

 

160 

 

 

 —

Dividends payable

 

 

1,788 

 

 

 —



See the accompanying Notes to the Consolidated Financial Statements.

 



 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     9


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

 

Note 1:  Basis of Presentation and Recently Issued Accounting Standards



Description of Business.    A. H. Belo Corporation and subsidiaries are referred to collectively herein as “A. H. Belo” or the “Company.” The Company, headquartered in Dallas, Texas, is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and digital marketing. With a continued focus on extending the Company’s media platform, A. H. Belo delivers news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles. The Company publishes The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the Denton Record-Chronicle (www.dentonrc.com), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. A. H. Belo also offers digital marketing solutions through DMV Digital Holdings Company (“DMV Holdings”) and Your Speakeasy, LLC (“Speakeasy”), and provides event activation, promotion and marketing services through DMN CrowdSource LLC (“CrowdSource”).



Basis of Presentation.     The interim consolidated financial statements included herein are unaudited; however, they include adjustments of a normal recurring nature which, in the Company’s opinion, are necessary to present fairly the interim consolidated financial information as of and for the periods indicated. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. All dollar amounts presented herein, except share and per share amounts, are in thousands, unless the context indicates otherwise.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net operating revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.



New Accounting Pronouncements.    The Financial Accounting Standards Board (“FASB”) issued the following accounting pronouncements and guidance which may be applicable to the Company but have not yet become effective.



In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers (Topic 606). This guidance prescribes a single comprehensive model for entities to use in the accounting of revenue arising from contracts with customers. The core principle contemplated by this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. Since May 2014, the FASB issued clarifying updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition. The new guidance will supersede virtually all existing revenue guidance under GAAP and is effective for fiscal years beginning after December 31, 2017. There are two transition options available to entities, the full retrospective approach, in which the Company would restate prior periods, or the modified retrospective approach. The Company currently anticipates adopting ASU 2014-09 using the modified retrospective approach as of January 1, 2018. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings.



The Company coordinated a team of key stakeholders to develop a bottom-up approach to analyze the impact of the new standard on its portfolio of contracts. Based upon the Company’s initial evaluation, some of the issues currently being reviewed include the impact of gross versus net, level of disaggregation of revenue disclosed in the Company’s financial statements and evaluating the standalone selling price related to certain performance obligations. The Company is currently quantifying the impact that the updated guidance will have on the Company’s financial statements and related disclosures.



In February 2016, the FASB issued ASU 2016-02 – Leases (Topic 842). This update requires an entity to recognize a right-of-use asset and a lease liability for virtually all of its leases. The liability will be equal to the present value of lease payments. The asset will generally be based on the liability. For income statement purposes operating leases will result in straight-line expense and finance leases will result in expenses similar to current capital leases. The guidance also requires additional disclosures to enable users of financial statements to understand the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and will be applied retrospectively. Early adoption is

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     10


 

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permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In January 2017, the FASB issued ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In February 2017, the FASB issued ASU 2017-06 – Plan Accounting – Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962) and Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. This update clarifies the presentation requirements for a plan’s interest in a master trust and requires more detailed disclosures of the plan’s interest in the master trust. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In March 2017, the FASB issued ASU 2017-07 – CompensationRetirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update clarifies the presentation and classification of the components of net periodic benefit costs in the Consolidated Statement of Operations. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



Note 2:  Segment Reporting



In the first quarter of 2017, in conjunction with the promotion of Grant Moise from Senior Vice President Business Development / Niche Products to General Manager of The Dallas Morning News and Executive Vice President of A. H. Belo, the Company reorganized its two reportable segments based on changes in reporting structure and the go-to-market for the Company’s service and product offerings. The two reportable segments are Publishing and Marketing Services.



The Publishing segment includes the Company’s core print and digital operations associated with its newspapers, niche publications and related websites. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers, sponsorship advertising for events, commercial printing and distribution services, primarily related to national and regional newspapers, and preprint advertisers. Businesses within the  Publishing segment leverage the production facilities, subscriber and advertiser base, and digital news platforms to provide additional contribution margin. The Company evaluates Publishing operations based on operating profit and cash flows from operating activities.



The Marketing Services segment includes the operations of DMV Holdings, Speakeasy and digital advertising through Connect (programmatic advertising). The Company operates the portfolio of assets within its Marketing Services segment as separate businesses that sell digital marketing and advertising through different channels, including programmatic advertising and content marketing within the social media environment.



Based on the organization of the Company’s structure and organizational chart, we believe the Company’s chief operating decision makers (the “CODMs”) are its Chief Executive Officer, Jim Moroney, and Grant Moise, the General Manager of The Dallas Morning News and Executive Vice President of A. H Belo Corporation. The CODMs allocate resources and capital to the Publishing and Marketing Services segments at the segment level.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     11


 

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The following tables show summarized financial information for the Company’s reportable segments. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year periods financial information by segment were recast for comparative purposes.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016



 

 

 

 

(Recast)

 

 

 

 

(Recast)

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

54,822 

 

$

60,575 

 

$

108,313 

 

$

117,080 

Marketing Services

 

 

8,267 

 

 

6,051 

 

 

15,677 

 

 

12,029 

Total

 

$

63,089 

 

$

66,626 

 

$

123,990 

 

$

129,109 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

(1,208)

 

$

1,678 

 

$

(5,933)

 

$

(802)

Marketing Services

 

 

789 

 

 

981 

 

 

1,379 

 

 

1,680 

Total

 

$

(419)

 

$

2,659 

 

$

(4,554)

 

$

878 



 

 

 

 

 

 

 

 

 

 

 

 

Noncash Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

2,706 

 

$

2,587 

 

$

5,197 

 

$

5,198 

Amortization

 

 

 —

 

 

26 

 

 

 —

 

 

52 

Goodwill impairment

 

 

 —

 

 

 —

 

 

228 

 

 

 —

Total

 

$

2,706 

 

$

2,613 

 

$

5,425 

 

$

5,250 



 

 

 

 

 

 

 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

21 

 

$

18 

 

$

36 

 

$

39 

Amortization

 

 

199 

 

 

203 

 

 

399 

 

 

403 

Total

 

$

220 

 

$

221 

 

$

435 

 

$

442 







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2017

 

2016



 

 

 

 

(Recast)

Total Assets

 

 

 

 

 

 

Publishing

 

$

147,495 

 

$

170,820 

Marketing Services

 

 

22,786 

 

 

21,911 

Total

 

$

170,281 

 

$

192,731 







Note 3: Acquisitions



On February 16, 2017, the Company acquired the remaining 30 percent voting interest in Speakeasy for a cash purchase price of $2,111, and on March 2, 2017, the Company acquired the remaining 20 percent voting interest in DMV Holdings for a cash purchase price of $7,120.



The initial purchase of 80 percent voting interest in DMV Holdings occurred in January 2015 for a cash purchase price of $14,110. DMV Digital Holdings Company holds all outstanding ownership interests of three Dallas-based businesses, Distribion, Inc., Vertical Nerve, Inc. and CDFX, LLC. These businesses specialize in local marketing automation, search engine marketing, and direct mail and promotional products, respectively.



These acquisitions complement the product and service offerings currently available to A. H. Belo clients, thereby strengthening the Company’s diversified product portfolio and allowing for greater penetration in a competitive advertising market.



Pro-rata distributions.    In connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the shareholder agreement provided for a pro-rata distribution of 50 percent and 100 percent of DMV Holdings’ free cash flow for fiscal years 2016 and 2015, respectively. Free cash flow is defined as earnings before interest, taxes, depreciation and amortization less capital expenditures, debt amortization and interest expense, as applicable. In the six months ended June 30, 2017 and 2016, the Company recorded pro-rata distributions to noncontrolling interests of $163 and $264, respectively, in connection with this agreement based on 2016 and 2015 free cash flow as defined, respectively.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     12


 

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Redeemable noncontrolling interest.    Also, in connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the Company entered into a shareholder agreement which provided for a put option to a noncontrolling shareholder. The put option provided the shareholder with the right to require the Company to purchase up to 25 percent of the noncontrolling ownership interest in DMV Holdings between the second and third anniversaries of the agreement and up to 50 percent of the noncontrolling ownership interest in DMV Holdings between the fourth and fifth anniversaries of the agreement.



Redeemable noncontrolling interest was recorded at fair value on the acquisition date and the carrying value was adjusted each period for its share of the earnings related to DMV Holdings and for any distributions.  The carrying value was also adjusted for the change in fair value, which was based on the estimated redemption value as of December 31, 2016. Adjustments were recorded to retained earnings or additional paid in capital, as applicable, and have no effect to earnings of the Company. During the six months ended June 30, 2017 and 2016, redeemable noncontrolling interest was decreased by $61 and $99, respectively, for distributions related to the 2016 and 2015 free cash flow, respectively, as required under the shareholder agreement.



The exercisability of the noncontrolling interest put option was outside the control of the Company. As such, the redeemable noncontrolling interest of $2,670 was reported in the mezzanine equity section of the Consolidated Balance Sheet as of December 31, 2016. As a result of the purchase of the remaining 20 percent voting interest in DMV Holdings, the shareholder agreement was terminated and the redeemable noncontrolling interest was eliminated as of March 31, 2017.



Note 4Goodwill and Intangible Assets



The following table shows goodwill and other intangible assets by reportable segment as of June 30, 2017 and December 31, 2016. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year period financial information by segment was recast for comparative purposes.







 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,



2017

 

2016



 

 

 

(Recast)

Goodwill

 

 

 

 

 

Publishing

$

 —

 

$

228 

Marketing Services

 

13,973 

 

 

13,973 

Total

$

13,973 

 

$

14,201 



 

 

 

 

 

Intangible Assets

 

 

 

 

 

Publishing

 

 

 

 

 

Cost

$

 —

 

$

240 

Accumulated Amortization

 

 —

 

 

(240)

Net Carrying Value

$

 —

 

$

 —

Marketing Services

 

 

 

 

 

Cost

$

6,470 

 

$

6,470 

Accumulated Amortization

 

(1,997)

 

 

(1,598)

Net Carrying Value

$

4,473 

 

$

4,872 



In the six months ended June 30, 2017, the Publishing segment’s fully amortized intangible assets of $240 of customer relationships were written-off and had no remaining useful life.  Intangible assets consist of $4,950 of customer relationships with estimated useful lives of 10 years and $1,520 of developed technology with an estimated useful life of five years. Aggregate amortization expense was $199 and $399 for the three and six months ended June 30, 2017,  respectively, and $229 and $455 for the three and six months ended June 30, 2016, respectively.



Certain goodwill and intangible assets previously reported in the Marketing Services segment were moved to the Publishing segment as a result of the first quarter 2017 segment reorganization.  The Publishing reporting unit’s goodwill was determined to be fully impaired as of December 31, 2016. Therefore, the Company recorded a  noncash goodwill impairment charge of $228 in the first quarter of 2017.



The Company tested goodwill for impairment as of December 31, 2016 at the reporting unit level using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital, combined with a market approach using peer-based earnings multiples. The Company believes the use of a discounted cash flow approach, combined with the market approach, is the most reliable indicator of the estimated fair values of the businesses.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     13


 

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Because the Company’s annual test indicated that the Publishing reporting unit’s carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test (“Step 2”) was performed specific to the Publishing reporting unit. Under Step 2, the fair value of the Publishing reporting unit’s assets and liabilities were estimated, including intangible assets, for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of the impairment.



Upon completion of the annual test, the Publishing reporting unit’s goodwill was determined to be impaired, and the Company recorded a noncash goodwill impairment charge of $22,682 in the fourth quarter of 2016, fully impairing the Publishing reporting unit’s goodwill.



Note 5Long-term Incentive Plan



A. H. Belo sponsors a long-term incentive plan (the “Plan”) under which 8,000,000 shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Awards may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted share awards,  restricted stock units (“RSUs”), performance shares, performance units or stock appreciation rights. In addition, stock options may be accompanied by full and limited stock appreciation rights. Rights and limited stock appreciation rights may also be issued without accompanying stock options. Awards under the Plan were also granted to holders of stock options issued by A. H. Belo’s former parent company in connection with the Company’s separation from its former parent in 2008. Due to the expiration of the Plan on February 8, 2018, A. H. Belo implemented, and shareholders approved, a new long-term incentive plan (the “2017 Plan”) under which 8,000,000 shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Like its predecessor plan, awards under the 2017 Plan may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted share awards, RSUs, performance shares, performance units or stock appreciation rights. No grants have yet been made under the 2017 Plan.



Stock Options.    Stock options granted under the Plan are fully vested and exercisable. No options have been granted since 2009, and all compensation expense associated with stock options has been fully recognized as of June 30, 2017.







 

 

 

 



 

 

 

 



Number of
Options

 

Weighted Average
Exercise Price

Outstanding at December 31, 2016

114,979 

 

$

8.21 

Canceled

(14,635)

 

 

20.16 

Outstanding at June 30, 2017

100,344 

 

 

6.46 



As of June 30, 2017, the aggregate intrinsic value of outstanding options was $10 and the weighted average remaining contractual life of the Company’s stock options was 1.1 years.  The aggregate intrinsic value of options exercised in the three and six months ended June 30,  2016,  was $183 and $300, respectively.



Restricted Stock Units.    The Company’s RSUs have service and/or performance conditions and, subject to retirement eligibility, vest over a period of up to three years. Vested RSUs are redeemed 60 percent in A. H. Belo Series A common stock and 40 percent in cash over a period of up to three years. As of June 30, 2017, the liability for the portion of the awards to be redeemed in cash was $771. The table below sets forth a summary of RSU activity under the Plan.







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Total
RSUs

 

Issuance of
Common
Stock

 

RSUs
Redeemed in
Cash

 

Cash
Payments at
Closing Price
of Stock

 

Weighted
Average Price
on Date of
Grant

Non-vested at December 31, 2016

121,131 

 

 

 

 

 

 

 

 

$

5.65 

Granted

284,868 

 

 

 

 

 

 

 

 

 

6.11 

Vested and outstanding

(159,212)

 

 

 

 

 

 

 

 

 

5.71 

Vested and issued

(22,734)

 

13,634 

 

9,100 

 

$

57 

 

 

6.90 

Non-vested at June 30, 2017

224,053 

 

 

 

 

 

 

 

 

 

6.07 



For the six months ended June 30, 2017, the Company issued 63,272 shares of Series A common stock and 42,189 shares were redeemed in cash for RSUs that were previously vested as of December 31, 2016. In addition, there were 290,825 and 237,074 RSUs that were vested and outstanding as of June 30, 2017 and December 31, 2016, respectively.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     14


 

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The fair value of RSU grants is determined using the closing trading price of the Company’s Series A common stock on the grant date. As of June 30, 2017, unrecognized compensation expense related to non-vested RSUs totaled $1,018, which is expected to be recognized over a weighted average period of approximately 1.0 year.



Compensation Expense.     A. H. Belo recognizes compensation expense for awards granted under the Plan over the vesting period of the award. Compensation expense related to RSUs granted under the Plan is set forth in the table below.





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



RSUs

Redeemable

in Stock

 

RSUs
 Redeemable
 in Cash

 

Total
RSU Awards
 Expense

Three Months Ended June 30,

 

 

 

 

 

 

 

 

2017

$

185 

 

$

38 

 

$

223 

2016

 

76 

 

 

69 

 

 

145 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

2017

$

626 

 

$

317 

 

$

943 

2016

 

448 

 

 

301 

 

 

749 









Note 6:  Income Taxes



The interim provision for income taxes reflects the Company’s estimate of the effective tax rate expected to be applied for the full fiscal year, adjusted for any discrete transactions which are reported in the period in which they occur. The estimated annual effective tax rate is reviewed each quarter based on the Company’s estimated income tax expense for the year. Under certain circumstances, the Company may be precluded from estimating an annual effective tax rate. Such circumstances may include periods in which tax rates vary significantly due to earnings trends, in addition to the existence of significant permanent or temporary differences. Under such circumstances, a discrete tax rate is calculated for the period.



The Company recognized income tax provision from continuing operations of $293 and $2,393 for the three months ended June 30, 2017 and 2016, respectively, and $251 and $1,284 for the six months ended June 30, 2017 and 2016, respectively. Effective income tax rates from continuing operations were (5.0) percent and 94.1 percent for the six months ended June 30, 2017 and 2016, respectively. The effective income tax rate for the six months ended June 30, 2017, was due to the federal tax benefit fully reserved with a valuation allowance and the effect of the Texas margin tax. The 2017 effective income tax rate was lower when compared to the prior year period due to taxable income generated from operations and the disposition of certain fixed assets in 2016.



Note 7Pension and Other Retirement Plans



Defined Benefit Plans.   The Company sponsors the A. H. Belo Pension Plans (the “Pension Plans”), which provide benefits to approximately 2,300 current and former employees of the Company. A. H. Belo Pension Plan I provides benefits to certain current and former employees primarily employed with The Dallas Morning News or the A. H. Belo corporate offices. A. H. Belo Pension Plan II provides benefits to certain former employees of The Providence Journal Company. This obligation was retained by the Company upon the sale of the newspaper operations of The Providence Journal.  No additional benefits are accruing under the A. H. Belo Pension Plans, as future benefits were frozen.



No contributions are required to the A. H. Belo Pension Plans in 2017 under the applicable tax and labor laws governing pension plan funding.



Net Periodic Pension Benefit



The Company’s estimates of net periodic pension expense or benefit are based on the expected return on plan assets, interest on the projected benefit obligations and the amortization of actuarial gains and losses that are deferred in accumulated other comprehensive loss. The table below sets forth components of net periodic pension benefit.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016

Interest cost

 

$

2,386 

 

$

2,524 

 

$

4,772 

 

$

5,049 

Expected return on plans' assets

 

 

(3,314)

 

 

(3,397)

 

 

(6,627)

 

 

(6,793)

Amortization of actuarial loss

 

 

74 

 

 

20 

 

 

149 

 

 

31 

Net periodic pension benefit

 

$

(854)

 

$

(853)

 

$

(1,706)

 

$

(1,713)



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     15


 

Table of Contents

 

Defined Contribution Plans.   The A. H. Belo Savings Plan (the “Savings Plan”), a defined contribution 401(k) plan, covers substantially all employees of A. H. Belo. Participants may elect to contribute a portion of their pretax compensation as provided by the Savings 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, 2017 and 2016, the Company recorded expense of $231 and $222, respectively,  and during the six months ended June 30, 2017 and 2016, the Company recorded expense of $495 and $501, respectively,  for matching contributions to the Savings Plan.

 

Note 8Shareholders’ Equity



Dividends.    On May 10, 2017, the Company’s board of directors declared  an $0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on August 11, 2017, which is payable on September 1, 2017. During the three months ended June 30, 2017, the Company recorded $1,788 to accrue for dividends declared but not yet paid.



Accumulated other comprehensive loss.    Accumulated other comprehensive loss consists of actuarial gains and losses attributable to the A. H. Belo Pension Plans,  gains and losses resulting from Pension Plans’ amendments and other actuarial experience attributable to other post-employment benefit (“OPEB”) plans. The Company records amortization of the components of accumulated other comprehensive loss in employee compensation and benefits in its Consolidated Statements of Operations. Gains and losses associated with the A. H. Belo Pension Plans are amortized over the weighted average remaining life expectancy of the Pension Plans’ participants. Gains and losses associated with the Company’s OPEB plans are amortized over the average remaining service period of active OPEB plans’ participants. Net deferred tax assets associated with the accumulated other comprehensive loss are fully reserved.



The table below sets forth the changes in accumulated other comprehensive loss, net of tax, as presented in the Company’s consolidated financial statements.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,



 

2017

 

2016



 

Total

 

Defined
benefit pension
plans

 

Other post-

employment

benefit plans

 

Total

 

Defined
benefit pension
plans

 

Other post-

employment

benefit plans

Balance, beginning of period

 

$

(39,251)

 

$

(39,662)

 

$

411 

 

$

(38,450)

 

$

(38,887)

 

$

437 

Amortization

 

 

56 

 

 

74 

 

 

(18)

 

 

(24)

 

 

20 

 

 

(44)

Balance, end of period

 

$

(39,195)

 

$

(39,588)

 

$

393 

 

$

(38,474)

 

$

(38,867)

 

$

393 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30,



 

2017

 

2016



 

Total

 

Defined
benefit pension
plans

 

Other post-
employment
benefit plans

 

Total

 

Defined
benefit pension
plans

 

Other post-
employment
benefit plans

Balance, beginning of period

 

$

(39,308)

 

$

(39,737)

 

$

429 

 

$

(38,442)

 

$

(38,898)

 

$

456 

Amortization

 

 

113 

 

 

149 

 

 

(36)

 

 

(32)

 

 

31 

 

 

(63)

Balance, end of period

 

$

(39,195)

 

$

(39,588)

 

$

393 

 

$

(38,474)

 

$

(38,867)

 

$

393 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     16


 

Table of Contents

 





Note 9:  Earnings Per Share



The table below sets forth the reconciliations for net income (loss) and weighted average shares used for calculating basic and diluted earnings per share (“EPS”). The Company’s Series A and B common stock equally share in the distributed and undistributed earnings.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016

Earnings (Numerator)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to A. H. Belo Corporation

 

$

(805)

 

$

693 

 

$

(5,235)

 

$

61 

Less: Dividends to participating securities

 

 

43 

 

 

28 

 

 

82 

 

 

54 

Net income (loss) available to common shareholders from continuing operations

 

$

(848)

 

$

665 

 

$

(5,317)

 

$



 

 

 

 

 

 

 

 

 

 

 

 

Shares (Denominator)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

 

21,743,390 

 

 

21,614,260 

 

 

21,717,032 

 

 

21,564,200 

Effect of dilutive securities

 

 

 —

 

 

148,299 

 

 

 —

 

 

160,676 

Adjusted weighted average shares outstanding (diluted)

 

 

21,743,390 

 

 

21,762,559 

 

 

21,717,032 

 

 

21,724,876 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share from Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.04)

 

$

0.03 

 

$

(0.24)

 

$

0.00 



Holders of service-based RSUs participate in A. H. Belo dividends on a one-for-one share basis. Distributed and undistributed income associated with participating securities is included in the calculation of EPS under the two-class method as prescribed under ASC 260 – Earnings Per Share.



The Company considers outstanding stock options and RSUs in the calculation of earnings per share. A  total of 615,222 and 499,726 options and RSUs outstanding as of June 30, 2017 and 2016, respectively, were excluded from the calculation because the effect was anti-dilutive. 



Note 10:  Contingencies



Legal proceedings.    From time to time, the Company is involved in a variety of claims, lawsuits and other disputes arising in the ordinary course of business. Management routinely assesses the likelihood of adverse judgments or outcomes in these matters, as well as the ranges of probable losses to the extent losses are reasonably estimable. Accruals for contingencies are recorded when, in the judgment of management, adverse judgments or outcomes are probable and the financial impact, should an adverse outcome occur, is reasonably estimable. The determination of likely outcomes of litigation matters relates to factors that include, but are not limited to, past experience and other evidence, interpretation of relevant laws or regulations and the specifics and status of each matter. Predicting the outcome of claims and litigation and estimating related costs and financial exposure involves substantial uncertainties that could cause actual results to vary materially from estimates and accruals.



The Company was previously involved in a dispute with a customer regarding performance and pricing terms with respect to a change order to its printing services contract with the Company. In the second quarter of 2017, the Company and the customer entered into an amended printing services agreement extending the term of the agreement for an additional seven years, established pricing terms for the extended term and resolved the disputed invoices with no losses incurred by the Company.



In the opinion of management, liabilities, if any, arising from other currently existing claims against the Company would not have a material adverse effect on A. H. Belo’s results of operations, liquidity or financial condition.



Note 11Sales of Assets



Assets held for sale include long-lived assets being actively marketed for which a sale is considered probable within the next 12 months. These assets are recorded at the lower of their fair value less costs to sell or their carrying value at the time they are classified as assets held for sale. In the second quarter of 2017, the Company announced that three parcels of land located in downtown Dallas, Texas are available for sale. These assets, with a total carrying value of $8,740, are reported as assets held for sale as of June 30, 2017.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     17


 

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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 consolidated financial statements and related notes filed as part of this report. Unless otherwise noted, amounts in Management’s Discussion and Analysis reflect continuing operations of the Company, and all dollar amounts are presented in thousands, except share and per share amounts.



OVERVIEW



A. H. Belo, headquartered in Dallas, Texas, is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and digital marketing. With a continued focus on extending the Company’s media platform, A. H. Belo delivers news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles.



In the first quarter of 2017, in conjunction with the promotion of Grant Moise from Senior Vice President Business Development / Niche Products to General Manager of The Dallas Morning News and Executive Vice President of A. H. Belo, the Company reorganized its two reportable segments based on changes in reporting structure and the go-to-market for the Company’s service and product offerings. The two reportable segments are Publishing and Marketing Services.



The Company’s Publishing segment includes the operations of The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the Denton Record-Chronicle (www.dentonrc.com), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers, sponsorship advertising for events, commercial printing and distribution services, primarily related to national and regional newspapers, and preprint advertisers. Businesses within the Publishing segment leverage the production facilities, subscriber and advertiser base, and digital news platforms to provide additional contribution margin.



The Marketing Services segment includes marketing services generated by DMV Digital Holdings Company (“DMV Holdings”) and its subsidiaries Distribion, Inc., Vertical Nerve, Inc. and CDFX, LLC (“MarketingFX”). The Marketing Services segment also includes Your Speakeasy, LLC (“Speakeasy”) and digital advertising through Connect (programmatic advertising). The Company operates the portfolio of assets within its Marketing Services segment as separate businesses that sell digital marketing and advertising through different channels, including programmatic advertising and content marketing within the social media environment.



On February 16, 2017, the Company acquired the remaining 30 percent voting interest in Speakeasy for a cash purchase price of $2,111, and on March 2, 2017, the Company acquired the remaining 20 percent voting interest in DMV Holdings for a cash purchase price of $7,120.



The initial purchase of 80 percent voting interest in DMV Holdings occurred in January 2015 for a cash purchase price of $14,110. DMV Holdings holds all outstanding ownership interests of three Dallas-based companies, Distribion, Inc., Vertical Nerve, Inc. and MarketingFX. These businesses specialize in local marketing automation, search engine marketing, and direct mail and promotional products, respectively.



These acquisitions complement the product and service offerings currently available to A. H. Belo clients, thereby strengthening the Company’s diversified product portfolio and allowing for greater penetration in a competitive advertising market.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     18


 

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RESULTS OF CONTINUING OPERATIONS



Consolidated Results of Continuing Operations



This section contains discussion and analysis of net operating revenue, expense and other information relevant to an understanding of results of operations for the three and six months ended June 30, 2017 and 2016. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year periods financial information by segment were recast for comparative purposes.



The table below sets forth the components of A. H. Belo’s operating income (loss) by segment.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

Percentage
Change

 

2016

 

 

2017

 

Percentage
Change

 

2016



 

 

 

 

 

 

 

(Recast)

 

 

 

 

 

 

 

(Recast)

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

27,755 

 

(13.2)

%

 

$

31,989 

 

$

55,549 

 

(9.3)

%

 

$

61,248 

Circulation

 

 

19,088 

 

(3.7)

%

 

 

19,821 

 

 

38,254 

 

(4.8)

%

 

 

40,173 

Printing, distribution and other

 

 

7,979 

 

(9.0)

%

 

 

8,765 

 

 

14,510 

 

(7.3)

%

 

 

15,659 

Total Net Operating Revenue

 

 

54,822 

 

(9.5)

%

 

 

60,575 

 

 

108,313 

 

(7.5)

%

 

 

117,080 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Costs and Expense

 

 

56,030 

 

(4.9)

%

 

 

58,897 

 

 

114,246 

 

(3.1)

%

 

 

117,882 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

$

(1,208)

 

(172.0)

%

 

$

1,678 

 

$

(5,933)

 

(639.8)

%

 

$

(802)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

8,267 

 

36.6 

%

 

$

6,051 

 

$

15,677 

 

30.3 

%

 

$

12,029 

Total Net Operating Revenue

 

 

8,267 

 

36.6 

%

 

 

6,051 

 

 

15,677 

 

30.3 

%

 

 

12,029 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Costs and Expense

 

 

7,478 

 

47.5 

%

 

 

5,070 

 

 

14,298 

 

38.2 

%

 

 

10,349 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

$

789 

 

(19.6)

%

 

$

981 

 

$

1,379 

 

(17.9)

%

 

$

1,680 



Traditionally, the Company’s primary 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 and economic conditions, the newspaper industry has faced a significant revenue decline over the past decade. Therefore, the Company has sought to diversify its revenues through development and investment in new product offerings, increased circulation rates and leveraging of its existing assets to offer cost efficient commercial printing and distribution services to its local markets. The Company continually evaluates the overall performance of its core products to ensure existing assets are deployed adequately to maximize return.



The Company’s advertising revenue from its core newspapers continues to be adversely affected by the shift of advertiser spending to other forms of media and the increased accessibility of free online news content, as well as news content from other sources, which resulted in declines in advertising and paid print circulation volumes and revenue. The most significant decline in advertising revenue has been attributable to print display and classified categories. These categories, which represented 26.6 percent of consolidated revenue in 2014, have declined to 19.2 percent of consolidated revenue thus far in 2017, and further declines are likely in future periods. Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital platforms, which are widely available from many sources. In the current environment, companies are allocating more of their advertising spending towards programmatic channels that provide digital advertising on multiple platforms with enhanced technology for targeted delivery and measurement. As a result of the continued declines the Publishing segment experienced, and expects to continue to experience, in advertising and print circulation revenues, the Publishing reporting unit’s goodwill was determined to be fully impaired as of December 31, 2016.  Certain goodwill and intangible assets previously reported in the Marketing Services segment were moved to the Publishing segment as a result of the first quarter 2017 segment reorganization. The Publishing reporting unit’s goodwill was fully impaired. Therefore, the Company recorded a  noncash goodwill impairment charge of $228 in the first quarter of 2017.



The Company has responded to these challenges by expanding programmatic channels through which it works to meet customer demand for digital advertisement opportunities in display, mobile, video and social media categories. By utilizing advertising exchanges to apply marketing insight, the Company believes it offers greater value to clients through focused targeting of advertising to potential customers.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     19


 

Table of Contents

 

The Company’s expanded digital and marketing services product offerings leverage the Company’s existing resources and relationships to offer additional value to existing and new advertising clients. Solutions provided by DMV Holdings include development of mobile websites, search engine marketing and optimization, video, mobile advertising, email marketing, advertising analytics and online reputation management services. Through Speakeasy, the Company is able to target middle-market business customers and provide turnkey social media account management and content development services.



Advertising and marketing services revenue



Advertising and marketing services revenue was 57.1 percent and 57.4 percent of total revenue for the three and six months ended June 30, 2017,  respectively, and 57.1 percent and 56.8 percent for the three and six months ended June 30, 2016, respectively.











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

Percentage
Change

 

2016

 

 

2017

 

Percentage
Change

 

2016



 

 

 

 

 

 

 

(Recast)

 

 

 

 

 

 

 

 

(Recast)

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Display advertising

 

$

7,347 

 

(17.4)

%

 

$

8,900 

 

$

14,737 

 

 

(13.2)

%

 

$

16,977 

Classified advertising

 

 

4,557 

 

(14.7)

%

 

 

5,343 

 

 

9,102 

 

 

(8.0)

%

 

 

9,898 

Preprint advertising

 

 

10,235 

 

(12.6)

%

 

 

11,707 

 

 

20,532 

 

 

(9.8)

%

 

 

22,775 

Digital advertising

 

 

5,616 

 

(7.0)

%

 

 

6,039 

 

 

11,178 

 

 

(3.6)

%

 

 

11,598 

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital services

 

 

7,426 

 

40.1 

%

 

 

5,300 

 

 

13,708 

 

 

31.5 

%

 

 

10,421 

Other services

 

 

841 

 

12.0 

%

 

 

751 

 

 

1,969 

 

 

22.5 

%

 

 

1,608 

Advertising and Marketing Services

$

36,022 

 

(5.3)

%

 

$

38,040 

 

$

71,226 

 

 

(2.8)

%

 

$

73,277 



Publishing



DisplayDisplay revenue primarily represents sales of non-classified advertising space within the Company’s core and niche newspapers. As advertisers continue to diversify marketing budgets to incorporate more and varied avenues of reaching consumers, traditional display advertising continues to decline. Revenue decreased due to lower retail advertising in substantially all categories in both periods, except entertainment in the six months ended June 30, 2017. The department store, food and beverage, medical and furniture categories experienced the greatest declines with a combined revenue decrease of approximately $873 and $1,720,  for the three and six months ended June 30, 2017, respectively. The revenue decrease was driven heavily by a retail volume decline of 8.4 percent and 10.0 percent, for the three and six months ended June 30, 2017, respectively.



Classified – Classified primarily represents sales of classified advertising space within the Company’s core and niche newspapers. Growth in classified advertising revenue continues to be challenging as alternative digital outlets continue to emerge. Rate improvement trends in certain display advertising categories partially offset the volume decline. Overall classified revenue declined for the three and six months ended June 30,  2017, due to lower volumes in substantially all categories except employment.



Preprint – Preprint primarily reflects preprinted advertisements inserted into the Company’s core newspapers and niche publications, or distributed to non-subscribers through the mail. Revenue decreased due to a rate decline in preprint newspaper inserts and home delivery mail advertising.



DigitalDigital publishing is primarily comprised of banner and real estate classified advertising on The Dallas Morning News’ website dallasnews.com,  sales of online automotive classifieds on the cars.com platform, as well as online employment and obituary classified advertising on third-party websites sold under a print/digital bundle package. Revenue decreased in the three and six months ended June 30, 2017, due to a lower volume of online automotive classifieds on the cars.com platform.



Marketing Services



Digital services – Digital marketing includes targeted and multi-channel advertising placed on third-party websites, content development, social media management, search optimization, and other consulting. DMV Holdings provided a significant portion of the growth in digital marketing revenue. DMV Holdings revenue increased $1,820 and $3,876 in the three and six months ended June 30, 2017, respectively. The digital services revenue increase offset approximately 49 percent and 65 percent of the core print advertising revenue decline in the three and six months ended June  30, 2017, respectively.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     20


 

Table of Contents

 

Other services – Other services revenue increased $90 and $361 in the three and six months ended June 30,  2017,  respectively, due to the sale of promotional merchandise by MarketingFX.



Circulation revenue



Circulation revenue was 30.3 percent and 30.9  percent of total revenue for the three and six months ended June 30, 2017, respectively, and 29.7 percent and 31.1 percent for the three and six months ended June 30, 2016, respectively.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

Percentage
Change

 

2016

 

 

2017

 

Percentage
Change

 

2016

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Circulation

 

$

19,088 

 

(3.7)

%

 

$

19,821 

 

$

38,254 

 

 

(4.8)

%

 

$

40,173 





Revenue decreased primarily due to a decline in home delivery volume of 8.4 percent and 8.8 percent, for the three and six months ended June 30, 2017, respectively. Single copy revenue increased slightly compared to prior year, driven by an increase in the daily single copy rate, partially offset by a decrease in single copy paid print circulation volume of 19.2 percent and 18.2 percent, for the three and six months ended June 30,  2017,  respectively.



Volume declines in circulation revenue have been more pronounced with single copy sales as it competes for retail space. Price increases and supplemental editions are critical to maintaining the revenue base to support this product. During the three and six months ended June 30,  2017, the Company generated $122 and $291, respectively, of incremental circulation revenue through the distribution of specialty magazines to its core subscribers.



Printing, distribution and other revenue



Printing, distribution and other revenue was 12.6 percent and 11.7 percent of total revenue for the three and six months ended June 30, 2017, respectively, and 13.2 percent and 12.1 percent for the three and six months ended June 30, 2016,  respectively.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

Percentage
Change

 

2016

 

 

2017

 

Percentage
Change

 

2016



 

 

 

 

 

 

 

(Recast)

 

 

 

 

 

 

 

 

(Recast)

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Printing, Distribution and Other

 

$

7,979 

 

(9.0)

%

 

$

8,765 

 

$

14,510 

 

 

(7.3)

%

 

$

15,659 





The Company aggressively markets the capacity of its printing and distribution assets to other newspapers that would benefit from cost sharing arrangements. Additionally, the Company’s event activation, promotion and marketing services provider,  CrowdSource, works closely with cities and other corporate sponsors to bring large entertainment events to local communities. Revenue decreased in the three and six months ended June 30, 2017, due to a decline in revenue related to events the Company did not host in 2017.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     21


 

Table of Contents

 

Operating Costs and Expense



The table below sets forth the components of the Company’s operating costs and expense.









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

Percentage
Change

 

2016

 

2017

 

Percentage
Change

 

2016



 

 

 

 

 

 

 

(Recast)

 

 

 

 

 

 

 

(Recast)

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

21,500 

 

(2.4)

%

 

$

22,035 

 

$

46,042 

 

(1.0)

%

 

$

46,527 

Other production, distribution and operating costs

 

 

26,119 

 

(6.6)

%

 

 

27,976 

 

 

51,445 

 

(4.6)

%

 

 

53,913 

Newsprint, ink and other supplies

 

 

5,705 

 

(9.1)

%

 

 

6,273 

 

 

11,334 

 

(7.0)

%

 

 

12,192 

Depreciation

 

 

2,706 

 

4.6 

%

 

 

2,587 

 

 

5,197 

 

(0.0)

%

 

 

5,198 

Amortization

 

 

 —

 

(100.0)

%

 

 

26 

 

 

 —

 

(100.0)

%

 

 

52 

Goodwill impairment

 

 

 —

 

         N/A

 

 

 

 —

 

 

228 

 

         N/A

 

 

 

 —

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

3,353 

 

22.4 

%

 

 

2,739 

 

 

6,686 

 

27.0 

%

 

 

5,264 

Other production, distribution and operating costs

 

 

3,617 

 

88.2 

%

 

 

1,922 

 

 

6,617 

 

53.3 

%

 

 

4,316 

Newsprint, ink and other supplies

 

 

288 

 

53.2 

%

 

 

188 

 

 

560 

 

71.3 

%

 

 

327 

Depreciation

 

 

21 

 

16.7 

%

 

 

18 

 

 

36 

 

(7.7)

%

 

 

39 

Amortization

 

 

199 

 

(2.0)

%

 

 

203 

 

 

399 

 

(1.0)

%

 

 

403 

Total Operating Costs and Expense

 

$

63,508 

 

(0.7)

%

 

$

63,967 

 

$

128,544 

 

0.2 

%

 

$

128,231 



Publishing



Employee compensation and benefits – The Company continues to implement measures to optimize its workforce and reduce risk associated with future obligations towards employee benefit plans. Employee compensation and benefits declined $535 and $485 in the three and six months ended June 30, 2017,  respectively, primarily due to a reduction in personnel.



Other production, distribution and operating costsExpense decreased in the Company’s Publishing segment reflecting savings as the Company continues to manage discretionary spending. Savings were generated by reductions in outside services and distribution expense related to delivery of the Company’s various publications and products.



Newsprint, ink and other supplies –  Expense decreased due to reduced newsprint costs associated with lower circulation volumes from the Company and certain third-party newspapers and the discontinuation of unprofitable product lines. Newsprint consumption for the three months ended June 30, 2017 and 2016, approximated 5,919 and 6,806 metric tons, respectively, at an average cost per metric ton of $561 and  $524, respectively.  Newsprint consumption for the six months ended June 30, 2017 and 2016, approximated 11,754 and 13,395 metric tons, respectively, at an average cost per metric ton of $562 and  $514, respectively.  The average purchase price for newsprint was $559 and $530 for the three months ended June 30, 2017 and 2016, respectively,  and $562 and $521 for the six months ended June 30, 2017 and 2016, respectively.



DepreciationExpense increased in the three months ended June 30, 2017, due to capital purchases to support the Company’s financial and human resource software application.



Amortization  All definite-lived intangible assets are fully amortized.



Goodwill impairment  In the six months ended June 30, 2017, operating costs and expense for the Publishing segment reflect a noncash goodwill impairment charge of $228.



Marketing Services



Employee compensation and benefits – Expense increased in the three and six months ended June 30,  2017, primarily related to the growth associated with DMV Holdings of $525 and $1,347, respectively. As of June 30, 2017 and 2016, DMV Holdings employed 82 and 71 personnel, respectively.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     22


 

Table of Contents

 

Other production, distribution and operating costs   Expense increased $1,695 and $2,301 in the three and six months ended June 30, 2017,  respectively, in connection with growth in DMV Holdings.



Newsprint, ink and other supplies  Expense increased $100 and $233 in the three and six months ended June 30,  2017,  respectively, primarily due to an increase in promotional material printing costs associated with MarketingFX.



DepreciationMarketing and event services’ cost structure is primarily labor driven. Capital purchases are required to support technology investments, the Company’s websites and customer engaging applications. Capital assets are primarily depreciated over a life of three years.



Amortization –  Expense is primarily related to customer lists associated with DMV Holdings.



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,



 

2017

 

Percentage
Change

 

2016

 

2017

 

Percentage

Change

 

2016

Other income (expense), net

 

$

(93)

 

(122.8)

%

 

$

408 

 

$

(430)

 

(188.3)

%

 

$

487 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

$

293 

 

(87.8)

%

 

$

2,393 

 

$

251 

 

(80.5)

%

 

$

1,284 



Other income (expense)Other income (expense) is primarily comprised of investment activity and gain (loss) on disposal of fixed assets. As of June 30, 2017, the Company did not have any equity method investments.



Tax provision –  The Company recognized income tax provision from continuing operations of $293 and $2,393 for the three months ended June 30, 2017 and 2016, respectively, and $251 and $1,284 for the six months ended June 30, 2017 and 2016, respectively. Effective income tax rates from continuing operations were (5.0) percent and 94.1 percent for the six months ended June 30, 2017 and 2016, respectively. The effective income tax rate for the six months ended June 30, 2017, was due to the federal tax benefit fully reserved with a valuation allowance and the effect of the Texas margin tax. The 2017 effective income tax rate was lower when compared to the prior year period due to taxable income generated from operations and the disposition of certain fixed assets in 2016.



Sales of assets  Assets held for sale include long-lived assets being actively marketed for which a sale is considered probable within the next 12 months. These assets are recorded at the lower of their fair value less costs to sell or their carrying value at the time they are classified as assets held for sale. In the second quarter of 2017, the Company announced that three parcels of land located in downtown Dallas, Texas are available for sale. These assets, with a total carrying value of $8,740, are reported as assets held for sale as of June 30, 2017.



Legal proceedings  From time to time, the Company is involved in a variety of claims, lawsuits and other disputes arising in the ordinary course of business. Management routinely assesses the likelihood of adverse judgments or outcomes in these matters, as well as the ranges of probable losses to the extent losses are reasonably estimable. Accruals for contingencies are recorded when, in the judgment of management, adverse judgments or outcomes are probable and the financial impact, should an adverse outcome occur, is reasonably estimable. The determination of likely outcomes of litigation matters relates to factors that include, but are not limited to, past experience and other evidence, interpretation of relevant laws or regulations and the specifics and status of each matter. Predicting the outcome of claims and litigation and estimating related costs and financial exposure involves substantial uncertainties that could cause actual results to vary materially from estimates and accruals.



The Company was previously involved in a dispute with a customer regarding performance and pricing terms with respect to a change order to its printing services contract with the Company. In the second quarter of 2017, the Company and the customer entered into an amended printing services agreement extending the term of the agreement for an additional seven years, established pricing terms for the extended term and resolved the disputed invoices with no losses incurred by the Company.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     23


 

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Liquidity and Capital Resources



The Company’s cash balances as of June 30, 2017 and December 31, 2016,  were $64,856 and $80,071, respectively.



The Company intends to hold existing cash for purposes of future investment opportunities, potential return of capital to shareholders and for contingency purposes. Although revenue from Publishing operations is expected to continue to decline in future periods, operating contributions expected from the Company’s Marketing Services businesses and other cost cutting measures, are expected to be sufficient to fund operating activities and capital spending of approximately $8,000 over the remainder of the year.



The future payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company discontinued stock repurchases in December 2015, and current holdings of treasury stock could be used to satisfy its obligations related to share-based awards issued to employees and directors, or can be sold on the open market.



The following discusses the changes in cash flows by operating, investing and financing activities.



Operating Cash Flows



Net cash provided by operating activities for the six months ended months ended June 30, 2017 and 2016, was $2,522 and $8,223, respectively. Cash flows from operating activities decreased by $5,701 during the six months ended June 30, 2017, when compared to the prior year period, primarily due to an increase in net loss of $5,316.



Investing Cash Flows



Net cash used for investing activities was $4,789 and $3,174 for the six months ended June 30, 2017 and 2016, respectively, all of which is attributable to capital spending.



Financing Cash Flows



Net cash used for financing activities was $12,948 and $1,045 for the six months ended June 30, 2017 and 2016, respectively. Cash flows used for financing activities increased in 2017 compared to 2016, due to the first quarter 2017 acquisitions of the remaining interests in DMV Holdings and Speakeasy for a purchase price of $7,120 and $2,111, respectively. Cash used for financing activities also included dividend payments of $3,538 and $3,503 in 2017 and 2016, respectively. 



Financing Arrangements



None.



Contractual Obligations



Under the applicable tax and labor laws governing pension plan funding, no contributions to the A. H. Belo Pension Plans are required in 2017.



On May 10, 2017, the Company’s board of directors declared  an $0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on August 11, 2017, which is payable on September 1, 2017.



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, 2016, filed on March 10, 2017, with the Securities and Exchange Commission (“SEC”).

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     24


 

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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, 2016.



Forward-Looking Statements



Statements in this communication concerning A. H. Belo Corporation’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, dispositions, impairments, business initiatives, acquisitions, pension plan contributions and obligations, real estate sales, working capital, future financings and other financial and non-financial items that are not historical facts, are “forward-looking statements” as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Such risks, trends and uncertainties are, in most instances, beyond the Company’s control, and include changes in advertising demand and other economic conditions; consumers’ tastes; newsprint prices; program costs; labor relations; technology obsolescence; as well as other risks described in the Company’s Annual Report on Form 10-K and in the Company’s other public disclosures and filings with the Securities and Exchange Commission. Forward-looking statements, which are as of the date of this filing, are not updated to reflect events or circumstances after the date of the statement.



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, 2016.



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. As required by Exchange Act Rule 13a-15(d), the Company’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the last fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



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, 2016.



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



None.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     25


 

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Item 3.  Defaults Upon Senior Securities



None.



Item 4.  Mine Safety Disclosures



None.



Item 5.  Other Information



None.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     26


 

Table of Contents

 

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 the Company’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)

*

Asset Purchase Agreement by and between the Press-Enterprise Company, AHC California Properties LLC, A. H. Belo Management Services, Inc. and Freedom Communications Holdings, Inc. dated October 9, 2013 (Exhibit 10.1 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) (the “October 11, 2013 Form 8-K”))

 

 

(2)

*

Form of Limited Guaranty by and between A. H. Belo Corporation and Freedom Communications Holdings, Inc (Exhibit 10.2 to the October 11, 2013 Form 8-K)

 

 

(3)

*

Amendment No. 1 to Asset Purchase Agreement dated October 31, 2013, between the Press-Enterprise Company, AHC California Properties LLC, A. H. Belo Management Services, Inc. and Freedom Communications Holdings Inc. (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 4, 2013 (Securities and Exchange Commission file no. 001-33741))

 

 

(4)

*

Amendment No. 2 to Asset Purchase Agreement dated November 21, 2013, between the Press-Enterprise Company, AHC California Properties LLC, A. H. Belo Management Services, Inc. and Freedom Communications Holdings Inc. (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 25, 2013 (Securities and Exchange Commission file no. 001-33741))



 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     27


 

Table of Contents

 



 

 

 

 

 

 

 

 

 

Exhibit Number

Description

 

 

 (5)

*

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))

 

 

 (6)

*

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))



 

 (7)

*

Sublease Agreement for Old Dallas Library Building dated December 30, 2016 (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2017 (Securities and Exchange Commission File No. 001‑33741) (the “January 3, 2017 Form 8-K”))



 

 (8)

*

Guaranty of Lease dated December 30, 2016 (Exhibit 10.2 to the January 3, 2017 Form 8-K)

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))



 

 

*

(a)

First Amendment to the A. H. Belo Savings Plan effective January 1, 2016 (Exhibit 10.2(1)(a) to the Company’s Quarterly Report on Form 10‑Q filed with the Securities and Exchange Commission on November 1, 2016 (Securities and Exchange Commission File No. 001-33741))



 

 

*

(b)

Second Amendment to the A. H. Belo Savings Plan effective September 8, 2016 (Exhibit 10.2(1)(b) to the Company’s Quarterly Report on Form 10‑Q filed with the Securities and Exchange Commission on November 1, 2016 (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) (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 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 (for Employee Awards) (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 (for Employee Awards) (Exhibit 10.2 to the March 12, 2012 Form 8-K)



 

~(3)

*

A. H. Belo 2017 Incentive Compensation Plan (Exhibit I to A. H. Belo Corporation’s Schedule 14A Proxy Statement filed with the Securities and Exchange Commission on March 28, 2017)



 

 

*

(a)

Form of A. H. Belo 2017 Incentive Compensation Plan Evidence of Grant (for Non-Employee Directors) (Exhibit 10.1 to A. H. Belo Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2017 (Securities and Exchange Commission File No. 001-33741) (the “May 12, 2017 Form 8-K”))



 

 

*

(b)

Form of A. H. Belo 2017 Incentive Compensation Plan Evidence of Grant (for Employee Awards) (Exhibit 10.2 to the May 12, 2017 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 Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 19, 2013)



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     28


 

Table of Contents

 



 

 

 

 

 

 

 

 

 

Exhibit Number

Description

 

 



~(6)

*

 

Timothy M. Storer Employment Agreement dated March 2, 2017 (Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2017 (Securities and Exchange Commission File No. 001-33741) (the “March 6, 2017 Form 8-K”))

 

 



 

*

 

(a)

Timothy M. Storer PBRSU Award Notice dated March 2, 2017 (Exhibit 10.2 to the March 6, 2017 Form 8-K)

 

 

 

10.3

*

 

Agreements relating to the separation of A. H. Belo from its former parent company:

 

 

 

 



 

 (1)

*

 

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))



 

 (2)

*

 

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))

31.1

 

 

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002

31.2

 

 

 

Certification of principal financial officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002

32

 

 

 

Certifications of Chief Executive Officer and principal 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 Scheme

 

 

 

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

 

 



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     29


 

Table of Contents

 

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:

August 1, 2017

 

 

 



 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     30


 

Table of Contents

 

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.

 



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     31