Item 1.
|
Financial Statements
|
A. H. Belo
Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
Nine Months Ended
September 30,
|
|
In thousands, except per share amounts (unaudited)
|
|
2012
|
|
|
2011
|
|
|
|
|
2012
|
|
|
2011
|
|
Net Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
62,123
|
|
|
$
|
65,229
|
|
|
|
|
$
|
186,373
|
|
|
$
|
203,034
|
|
Circulation
|
|
|
34,243
|
|
|
|
34,749
|
|
|
|
|
|
102,655
|
|
|
|
104,699
|
|
Printing and distribution
|
|
|
12,515
|
|
|
|
10,012
|
|
|
|
|
|
33,830
|
|
|
|
28,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net operating revenues
|
|
|
108,881
|
|
|
|
109,990
|
|
|
|
|
|
322,858
|
|
|
|
336,651
|
|
Operating Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
43,364
|
|
|
|
44,958
|
|
|
|
|
|
131,992
|
|
|
|
143,552
|
|
Other production, distribution and operating costs
|
|
|
40,614
|
|
|
|
41,996
|
|
|
|
|
|
122,835
|
|
|
|
130,875
|
|
Newsprint, ink and other supplies
|
|
|
15,899
|
|
|
|
14,618
|
|
|
|
|
|
45,242
|
|
|
|
44,192
|
|
Depreciation
|
|
|
6,219
|
|
|
|
7,386
|
|
|
|
|
|
21,680
|
|
|
|
23,225
|
|
Amortization
|
|
|
1,309
|
|
|
|
1,310
|
|
|
|
|
|
3,929
|
|
|
|
3,930
|
|
Pension plan withdrawal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
107,405
|
|
|
|
110,268
|
|
|
|
|
|
325,678
|
|
|
|
347,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,476
|
|
|
|
(278
|
)
|
|
|
|
|
(2,820
|
)
|
|
|
(11,111
|
)
|
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
594
|
|
|
|
764
|
|
|
|
|
|
2,422
|
|
|
|
2,475
|
|
Interest expense
|
|
|
(128
|
)
|
|
|
(132
|
)
|
|
|
|
|
(506
|
)
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
466
|
|
|
|
632
|
|
|
|
|
|
1,916
|
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
1,942
|
|
|
|
354
|
|
|
|
|
|
(904
|
)
|
|
|
(9,146
|
)
|
Income tax expense
|
|
|
501
|
|
|
|
489
|
|
|
|
|
|
1,286
|
|
|
|
4,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
1,441
|
|
|
|
(135
|
)
|
|
|
|
|
(2,190
|
)
|
|
|
(13,684
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to A. H. Belo Corporation
|
|
$
|
1,483
|
|
|
$
|
(135
|
)
|
|
|
|
$
|
(2,148
|
)
|
|
$
|
(13,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
|
$
|
(0.01
|
)
|
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.64
|
)
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
(0.01
|
)
|
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.64
|
)
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,807
|
|
|
|
21,534
|
|
|
|
|
|
21,850
|
|
|
|
21,477
|
|
Diluted
|
|
|
22,928
|
|
|
|
21,534
|
|
|
|
|
|
21,850
|
|
|
|
21,477
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
3
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
In thousands (unaudited)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,441
|
|
|
$
|
(135
|
)
|
|
$
|
(2,190
|
)
|
|
$
|
(13,684
|
)
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial gains/losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans
|
|
|
175
|
|
|
|
|
|
|
|
525
|
|
|
|
|
|
Other post-retirement benefit plans
|
|
|
(165
|
)
|
|
|
(162
|
)
|
|
|
(495
|
)
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
10
|
|
|
|
(162
|
)
|
|
|
30
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
1,451
|
|
|
|
(297
|
)
|
|
|
(2,160
|
)
|
|
|
(14,153
|
)
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to A. H. Belo Corporation
|
|
$
|
1,493
|
|
|
$
|
(297
|
)
|
|
$
|
(2,118
|
)
|
|
$
|
(14,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
4
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2012
|
|
|
December 31,
|
|
In thousands, except share amounts
|
|
(unaudited)
|
|
|
2011
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,008
|
|
|
$
|
57,440
|
|
Accounts receivable (net of allowance of $2,621 and $2,921 at September 30, 2012 and December 31, 2011,
respectively)
|
|
|
40,573
|
|
|
|
50,533
|
|
Inventories
|
|
|
10,140
|
|
|
|
9,918
|
|
Deferred income taxes, net
|
|
|
1,419
|
|
|
|
1,380
|
|
Assets held for sale
|
|
|
|
|
|
|
2,396
|
|
Prepaids and other current assets
|
|
|
7,917
|
|
|
|
6,531
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
101,057
|
|
|
|
128,198
|
|
Property, plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
37,481
|
|
|
|
36,602
|
|
Buildings and improvements
|
|
|
193,868
|
|
|
|
192,810
|
|
Publishing equipment
|
|
|
270,152
|
|
|
|
276,792
|
|
Other
|
|
|
126,348
|
|
|
|
131,874
|
|
Construction in process
|
|
|
2,639
|
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
630,488
|
|
|
|
640,083
|
|
Less accumulated depreciation
|
|
|
(482,210
|
)
|
|
|
(476,665
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
148,278
|
|
|
|
163,418
|
|
Intangible assets, net
|
|
|
13,021
|
|
|
|
16,950
|
|
Goodwill
|
|
|
24,582
|
|
|
|
24,582
|
|
Investments
|
|
|
7,845
|
|
|
|
6,112
|
|
Deferred income taxes, net
|
|
|
1,199
|
|
|
|
1,452
|
|
Other assets
|
|
|
3,895
|
|
|
|
4,376
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
299,877
|
|
|
$
|
345,088
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to
Condensed Consolidated Financial Statements.
5
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2012
|
|
|
December 31,
|
|
In thousands, except share amounts
|
|
(unaudited)
|
|
|
2011
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,985
|
|
|
$
|
18,062
|
|
Accrued compensation and benefits
|
|
|
18,982
|
|
|
|
18,007
|
|
Other accrued expenses
|
|
|
9,085
|
|
|
|
12,160
|
|
Advance subscription payments
|
|
|
20,520
|
|
|
|
22,491
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
60,572
|
|
|
|
70,720
|
|
|
|
|
Long-term pension liabilities
|
|
|
117,083
|
|
|
|
145,980
|
|
Other post-employment benefits
|
|
|
2,970
|
|
|
|
3,115
|
|
Other liabilities
|
|
|
2,627
|
|
|
|
3,794
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; Authorized 2,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; Authorized 125,000,000 shares
|
|
|
|
|
|
|
|
|
Series A: issued 19,551,999 and 19,182,236 shares
at
September 30, 2012 and December 31, 2011, respectively
|
|
|
196
|
|
|
|
192
|
|
Series B: issued 2,411,616 and 2,398,017 shares
at
September 30, 2012 and December 31, 2011, respectively
|
|
|
24
|
|
|
|
24
|
|
Additional paid-in capital
|
|
|
495,043
|
|
|
|
493,773
|
|
Accumulated other comprehensive loss
|
|
|
(63,039
|
)
|
|
|
(63,069
|
)
|
Accumulated deficit
|
|
|
(315,684
|
)
|
|
|
(309,441
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity, A. H. Belo Corporation
|
|
|
116,540
|
|
|
|
121,479
|
|
Noncontrolling interests
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
116,625
|
|
|
|
121,479
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
299,877
|
|
|
$
|
345,088
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
6
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
|
In thousands, except share amounts (unaudited)
|
|
Series A
|
|
|
Series B
|
|
|
Amount
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Deficit
|
|
|
Interests
|
|
|
Total
|
|
Balance at December 31,
2010
|
|
|
18,896,876
|
|
|
|
2,392,074
|
|
|
$
|
212
|
|
|
$
|
491,542
|
|
|
$
|
2,569
|
|
|
$
|
(294,450
|
)
|
|
|
|
|
|
$
|
199,873
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,684
|
)
|
|
|
|
|
|
|
(13,684
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
(469
|
)
|
Issuance of shares for restricted stock units
|
|
|
244,803
|
|
|
|
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares from stock option exercises
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Income tax on stock option activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,014
|
|
Conversion of Series B to Series A
|
|
|
28,977
|
|
|
|
(28,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,704
|
)
|
|
|
|
|
|
|
(2,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
|
19,176,656
|
|
|
|
2,363,097
|
|
|
$
|
215
|
|
|
$
|
493,538
|
|
|
$
|
2,100
|
|
|
$
|
(310,838
|
)
|
|
$
|
|
|
|
$
|
185,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
19,182,236
|
|
|
|
2,398,017
|
|
|
$
|
216
|
|
|
$
|
493,773
|
|
|
$
|
(63,069
|
)
|
|
$
|
(309,441
|
)
|
|
$
|
|
|
|
$
|
121,479
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,148
|
)
|
|
|
(42
|
)
|
|
|
(2,190
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Capital contributions of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
127
|
|
Issuance of shares for restricted stock units
|
|
|
297,536
|
|
|
|
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares from stock option exercises
|
|
|
69,326
|
|
|
|
16,500
|
|
|
|
1
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112
|
|
Conversion of Series B to Series A
|
|
|
2,901
|
|
|
|
(2,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,095
|
)
|
|
|
|
|
|
|
(4,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2012
|
|
|
19,551,999
|
|
|
|
2,411,616
|
|
|
$
|
220
|
|
|
$
|
495,043
|
|
|
$
|
(63,039
|
)
|
|
$
|
(315,684
|
)
|
|
$
|
85
|
|
|
$
|
116,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
7
A. H. Belo Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
In thousands (unaudited)
|
|
2012
|
|
|
2011
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,190
|
)
|
|
$
|
(13,684
|
)
|
Adjustments to reconcile net loss to net cash used in operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25,609
|
|
|
|
27,155
|
|
Share-based compensation
|
|
|
1,112
|
|
|
|
2,014
|
|
Amortization of actuarial (gains) losses
|
|
|
30
|
|
|
|
(469
|
)
|
Earnings on equity method investments
|
|
|
(1,733
|
)
|
|
|
(1,746
|
)
|
(Gain) loss on disposal of fixed assets
|
|
|
(402
|
)
|
|
|
359
|
|
Deferred income taxes
|
|
|
214
|
|
|
|
377
|
|
Provision for uncertain tax positions
|
|
|
6
|
|
|
|
|
|
Gain on recovery of investment
|
|
|
|
|
|
|
(729
|
)
|
Pension plan withdrawal
|
|
|
|
|
|
|
1,988
|
|
Other non-cash items
|
|
|
|
|
|
|
381
|
|
Disposal (acquisition) of assets held for sale
|
|
|
2,396
|
|
|
|
(3,096
|
)
|
Net changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,960
|
|
|
|
16,686
|
|
Funds held by Belo Corp. for future pension contributions
|
|
|
|
|
|
|
3,410
|
|
Inventories
|
|
|
(222
|
)
|
|
|
1,576
|
|
Assets held for sale
|
|
|
|
|
|
|
744
|
|
Prepaids and other current assets
|
|
|
(1,386
|
)
|
|
|
(481
|
)
|
Other assets
|
|
|
481
|
|
|
|
266
|
|
Accounts payable
|
|
|
(6,077
|
)
|
|
|
(16,276
|
)
|
Accrued compensation and benefits
|
|
|
(192
|
)
|
|
|
(1,338
|
)
|
Pension liabilities
|
|
|
(28,897
|
)
|
|
|
(53,538
|
)
|
Other accrued expenses
|
|
|
(3,081
|
)
|
|
|
3,282
|
|
Advance subscription payments
|
|
|
(1,971
|
)
|
|
|
895
|
|
Other post-employment benefits
|
|
|
(145
|
)
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operations
|
|
|
(6,488
|
)
|
|
|
(32,433
|
)
|
Investing Activities
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
(6,766
|
)
|
|
|
(6,077
|
)
|
Proceeds from the recovery of an impaired investment
|
|
|
|
|
|
|
729
|
|
Proceeds from sale of fixed assets
|
|
|
628
|
|
|
|
38
|
|
Investments in partnerships
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(6,138
|
)
|
|
|
(5,479
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(4,095
|
)
|
|
|
(2,704
|
)
|
Proceeds from exercise of stock options
|
|
|
162
|
|
|
|
12
|
|
Capital contributions of noncontrolling interests
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,806
|
)
|
|
|
(2,692
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(16,432
|
)
|
|
|
(40,604
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
57,440
|
|
|
|
86,291
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
41,008
|
|
|
$
|
45,687
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
269
|
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
|
Income tax paid, net of refunds
|
|
$
|
4,570
|
|
|
$
|
1,019
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
8
A. H. Belo Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Description of Business.
A. H. Belo Corporation (A. H. Belo or the
Company), headquartered in Dallas, Texas, is a distinguished newspaper publishing and local news and information company that owns and operates four metropolitan daily newspapers and several associated Web sites, with publishing roots
that trace to
The Galveston Daily News
, which began publication in 1842. A. H. Belo publishes
The Dallas Morning News (
www.dallasnews.com
)
, Texas leading newspaper and winner of nine Pulitzer Prizes;
The
Providence Journal (
www.providencejournal.com
)
, the oldest continuously-published daily newspaper in the United States and winner of four Pulitzer Prizes;
The Press-Enterprise (
www.pe.com
)
(Riverside, California),
serving the Inland Southern California region and winner of one Pulitzer Prize; and
The Denton Record-Chronicle (
www.dentonrc.com
),
a daily newspaper serving Denton, Texas, approximately 40 miles north of Dallas. The Company publishes
various niche publications targeting specific audiences, and its investments and/or partnerships include Classified Ventures, LLC, owner of
cars.com
,
and the Yahoo! Inc. (Yahoo!) Newspaper Consortium
.
A. H. Belo also owns and operates commercial printing, distribution and direct mail service businesses. In February 2008, the Companys former parent, Belo Corp. (Belo), separated its publishing operations in a
spin-off transaction (the Distribution) and A. H. Belo became an independent registrant listed on the New York Stock Exchange (trading symbol: AHC). Unless the context requires otherwise, all dollar and share amounts in the Notes to the
Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q are in thousands, except per share amounts.
Basis of Presentation
.
The accompanying unaudited condensed consolidated
financial statements of A. H. Belo and its subsidiaries have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) for interim financial information and in accordance with the Securities and
Exchange Commissions (SEC) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Transactions between the consolidated companies have been eliminated and noncontrolling interests in less than wholly-owned
subsidiaries have been reflected in the condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2011. Operating results for the three and nine months ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2012. The Companys operating segments are defined as its newspapers within a given market. The Company has determined that according to the applicable accounting guidance all of its operating segments meet the criteria
to be aggregated into one reporting segment.
New Accounting Standards.
In September 2011, the Financial Accounting
Standards Board issued Accounting Standards Update (ASU) No. 2011-08
Intangibles Goodwill and Other (Topic 350); Testing Goodwill for Impairment
. The purpose of this update is to simplify how entities, both
public and nonpublic, test goodwill for impairment. ASU No. 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount
as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The update is effective for
annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company performs its annual impairment test each December 31 and the adoption of this ASU did not materially affect the
Companys financial condition, results of operations or its liquidity.
9
Note 2: Goodwill and Intangible Assets
The Company has recorded intangible assets consisting of goodwill and subscriber lists from its previous acquisitions. The carrying
value of goodwill was $24,582, net of cumulative impairment losses of $439,509, as of September 30, 2012 and December 31, 2011. The remaining goodwill is recorded at
The Dallas Morning News
reporting unit.
The table below sets forth the Companys identifiable intangible assets, consisting of subscriber lists that are amortized over an 18 year
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Subscriber
Lists
|
|
|
The Dallas
Morning News
|
|
|
The
Providence
Journal
|
|
|
The
Press-
Enterprise
|
|
Gross balance at December 31, 2011
|
|
$
|
114,824
|
|
|
$
|
22,896
|
|
|
$
|
78,698
|
|
|
$
|
13,230
|
|
Accumulated amortization
|
|
|
(97,874
|
)
|
|
|
(22,896
|
)
|
|
|
(64,853
|
)
|
|
|
(10,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at December 31, 2011
|
|
$
|
16,950
|
|
|
$
|
|
|
|
$
|
13,845
|
|
|
$
|
3,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance at September 30, 2012
|
|
$
|
114,824
|
|
|
$
|
22,896
|
|
|
$
|
78,698
|
|
|
$
|
13,230
|
|
Accumulated amortization
|
|
|
(101,803
|
)
|
|
|
(22,896
|
)
|
|
|
(68,132
|
)
|
|
|
(10,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at September 30, 2012
|
|
$
|
13,021
|
|
|
$
|
|
|
|
$
|
10,566
|
|
|
$
|
2,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3: Investments
The Company owns investment interests in various entities which are recorded under the equity method or cost method of accounting or
consolidated if the Company holds a controlling financial interest. Under the equity method, the Company records its share of the investees earnings or losses each period in other income (expense), net, in the condensed consolidated statements
of operations. Under the cost method, the Company records earnings or losses when the amounts are realized. During the three months ended September 30, 2012 and 2011, the Company recorded $607 and $709, respectively, of earnings from equity
method investments. During the nine months ended September 30, 2012 and 2011, the Company recorded $1,733 and $1,746, respectively, of earnings from equity method investments. The table below sets forth the Companys investments as of
September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Equity method investments
|
|
$
|
6,763
|
|
|
$
|
5,030
|
|
Cost method investments
|
|
|
1,082
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
7,845
|
|
|
$
|
6,112
|
|
|
|
|
|
|
|
|
|
|
Investments accounted for under the equity method include the following:
|
|
|
Classified Ventures, LLC (Classified Ventures) - The Company and Belo jointly own 6.6 percent of Classified Ventures. The other owners
include Gannett Co., Inc., The McClatchy Company, Tribune Company, and The Washington Post Company. The two principal online businesses Classified Ventures operates are
cars.com
and
apartments.com
.
|
|
|
|
ShopCo Holdings, LLC, d/b/a Wanderful Media (Wanderful) - The Company owns an 11.4 percent interest in Wanderful, which owns
FindnSave.com
, a digital shopping platform where consumers can find national and local retail goods and services for sale. This platform uses the power of local media participation with advanced search and database technology to allow
a consumer to view online sales circulars and local advertised offers or search for an item and receive a list of local advertisers and the price and terms offered for the searched item.
|
During the third quarter of 2012,
The Dallas Morning News
announced the Company entered into an operating agreement with a local advertising
agency, forming Your Speakeasy, LLC (Speakeasy), which provides turnkey social media account management and content development services.
The Company
owns a 70 percent interest in the LLC, and accordingly, has consolidated
Speakeasys assets, liabilities and results of operations within its consolidated financial statements as of September 30, 2012.
10
Note 4: Exit and Disposal Liabilities
In the second quarter of 2011, as part of cost containment measures, the Company made staffing reductions across all of its
operations. These staffing reductions were substantially completed in the fourth quarter of 2011, resulting in severance and other termination costs of $3,052 and the elimination of approximately 250 positions. In the three and nine months ended
September 30, 2011, the Company recorded severance and other termination costs of $1,149 and $2,011, respectively, to salaries, wages and employee benefits and paid $1,281 and $1,581, respectively, of severance and other termination benefits,
resulting in a recorded liability of $430 as of September 30, 2011.
Note 5: Share-Based Compensation
On February 8, 2008, A. H. Belo established a long-term incentive plan under which eight million common shares were authorized
for equity awards. In the connection with the Distribution, awards under the plan were issued to holders of Belo stock options and restricted stock units (RSUs). Subsequent awards can be granted to A. H. Belo employees and outside
directors in the form of non-qualified stock options, incentive stock options, restricted shares, RSUs, performance shares, performance units or stock appreciation rights. The Company considers these awards in the calculation of its basic and
diluted earnings per share. Anti-dilutive share-based awards excluded from the calculation of earnings per share consisted of 1,424 and 3,138 stock options and RSUs for the three months ended September 30, 2012 and 2011, respectively, and
excluded 2,392 and 3,138 stock options and RSUs for the nine months ended September 30, 2012 and 2011, respectively.
A. H. Belo
Stock Option Activity
The table below sets forth a summary of stock option activity under the A. H. Belo long-term incentive plan for
the nine months ended September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
Outstanding at December 31, 2011
|
|
|
1,697
|
|
|
$
|
16.99
|
|
Exercised
|
|
|
(86
|
)
|
|
$
|
1.90
|
|
Canceled
|
|
|
(69
|
)
|
|
$
|
15.66
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
1,542
|
|
|
$
|
17.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at September 30, 2012
|
|
|
1,542
|
|
|
$
|
17.85
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable weighted average remaining contractual terms (in years)
|
|
|
3.0
|
|
|
|
|
|
11
A. H. Belo RSU Activity
Under A. H. Belos long-term incentive plan, the Board of Directors has awarded RSUs that vest over a period of one to three years. Upon vesting, the RSUs are redeemed 60 percent in A. H. Belo Series
A common stock and 40 percent in cash. A liability of $1,327 was recorded for the portion of the RSUs to be redeemed in cash as of September 30, 2012. During the vesting period, holders of RSUs participate in A. H. Belo dividends declared by
receiving payments for dividend equivalents. The RSUs do not have voting rights. The table below sets forth a summary of RSU activity under the A. H. Belo long-term incentive plan for the nine months ended September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2011
|
|
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.01
|
|
Granted
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.82
|
|
Vested
|
|
|
(496
|
)
|
|
|
298
|
|
|
|
198
|
|
|
$
|
950
|
|
|
$
|
5.10
|
|
Canceled
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2012
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock awards is recorded on a straight-line basis over the vesting period of the award. The table below
sets forth compensation expense for the three and nine months ended September 30, 2012 and 2011, related to the vesting of stock awards and the related adjustments to record the current market value to be redeemed in cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. H. Belo
|
|
|
Belo
|
|
|
|
|
|
|
Option
Expense
|
|
|
RSU-Stock
Expense
|
|
|
Total Equity
Awards
|
|
|
RSU-Cash
Expense (Benefit)
|
|
|
Equity Awards
Expense
|
|
|
Total Expense
(Benefit)
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
|
|
|
$
|
189
|
|
|
$
|
189
|
|
|
$
|
199
|
|
|
$
|
|
|
|
$
|
388
|
|
2011
|
|
$
|
49
|
|
|
$
|
404
|
|
|
$
|
453
|
|
|
$
|
(814
|
)
|
|
$
|
|
|
|
$
|
(361
|
)
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
|
|
|
$
|
1,112
|
|
|
$
|
1,112
|
|
|
$
|
713
|
|
|
$
|
|
|
|
$
|
1,825
|
|
2011
|
|
$
|
162
|
|
|
$
|
1,852
|
|
|
$
|
2,014
|
|
|
$
|
(386
|
)
|
|
$
|
131
|
|
|
$
|
1,759
|
|
In the first quarter of 2011, all pre-Distribution options and RSUs issued by Belo to Company employees became fully vested and the
Company no longer recognizes expense for these awards.
Note 6: Pension and Other Retirement Plans
Defined Benefit Pension Plans.
The Company sponsors two defined benefit pension plans, A. H. Belo Pension Plans I and II
(collectively the A. H. Belo Pension Plans). A. H. Belo Pension Plan I provides benefits to certain employees primarily employed with
The Dallas Morning News
or the A. H. Belo corporate offices and A. H. Belo Pension Plan II
provides benefits to certain employees at
The Providence Journal.
These plans were established on January 1, 2011, as a result of the Companys withdrawal from The G. B. Dealey Retirement Pension Plan (the GBD Pension
Plan), a Belo-sponsored plan. No additional benefits are accruing under the A. H. Belo Pension Plans, as future benefits were frozen prior to the plans establishment.
12
The Company contributes to its pension plans in order to meet minimum funding requirements as required under
the Employee Retirement Income Security Act (ERISA) rules. If available cash resources exist, the Company also considers making discretionary contributions to these plans in order to reduce the unfunded pension liability. The table below
sets forth the required and voluntary contributions made to the Company's pension plans and the GBD Pension Plan during the three and nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
A. H. Belo Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required Contributions
|
|
$
|
4,600
|
|
|
$
|
10,409
|
|
|
$
|
18,072
|
|
|
$
|
16,305
|
|
Voluntary Contributions
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
30,000
|
|
GBD Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,600
|
|
|
$
|
10,409
|
|
|
$
|
28,072
|
|
|
$
|
55,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2011 contribution to the GBD Pension Plan of $8,733 represented the final amount due to this plan upon the Companys
withdrawal at January 1, 2011. Payment of this contribution was offset by $3,410 of funds held by Belo for future pension plan contributions. In October 2012, the Company made a final required contribution for fiscal year 2012 of $4,600 to the
plans.
The Company estimates net periodic pension expense based on the expected return on plan assets, the interest on projected pension
obligations and the amortization of actuarial gains and losses in accumulated other comprehensive loss. The table below sets forth components of net periodic pension expense for the three and nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Interest cost
|
|
$
|
4,325
|
|
|
$
|
4,675
|
|
|
$
|
12,975
|
|
|
$
|
14,025
|
|
Estimated return on plan assets
|
|
|
(4,600
|
)
|
|
|
(4,175
|
)
|
|
|
(13,800
|
)
|
|
|
(12,525
|
)
|
Amortization of actuarial losses
|
|
|
175
|
|
|
|
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense (benefit)
|
|
$
|
(100
|
)
|
|
$
|
500
|
|
|
$
|
(300
|
)
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2012, the Company announced it is offering, or will automatically distribute, lump sum payments to certain
pension plan participants whose benefits have a present value of $30 or less. The number of participants electing to receive these lump sum payments will not be known until later in 2012.
13
Defined Contribution Plans.
Under the A. H. Belo Savings Plan, the Company provides a 401(k) plan to
all eligible employees. Through the A. H. Belo Transition Supplement Plan (PTS plan), the Company provides transition benefits to employees affected by the curtailment of the GBD Pension Plan in 2007. The transition benefits consist of
supplemental contributions for a period of up to five years to the PTS plan. The Company anticipates contributions will be made to this plan based on eligible earnings of participants through the first quarter of 2013. The table below sets forth the
expense and the contributions applicable to each plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
401(k) Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense recognized
|
|
$
|
356
|
|
|
$
|
|
|
|
$
|
1,109
|
|
|
$
|
840
|
|
Company match
|
|
|
1.50
|
%
|
|
|
|
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
|
|
|
|
|
PTS Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense recognized
|
|
$
|
949
|
|
|
$
|
1,098
|
|
|
$
|
3,197
|
|
|
$
|
3,424
|
|
Contributions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,508
|
|
|
$
|
5,318
|
|
Note 7: Long-term Debt
The Company operates with a credit agreement (Credit Agreement) that has a total commitment of $25,000. The Credit
Agreement is subject to a borrowing base comprised of eligible accounts receivable and inventory, which determines the available borrowing capacity. If borrowing availability falls below $7,500, a fixed charge coverage ratio covenant of 1:1 will
apply.
At September 30, 2012 and December 31, 2011, the Company had eligible collateral to secure borrowings under the Credit
Agreement of $31,548 and $38,680 respectively, resulting in a borrowing base of $25,000 for both dates. When letters of credit and other required reserves are deducted from the borrowing base, the Company had $21,200 and $19,970 of borrowing
capacity available under the Credit Agreement as of September 30, 2012 and December 31, 2011, respectively. The Company had no borrowings under the revolving credit facility during 2012 or 2011.
Note 8: Contingencies
On October 24, 2006, a group of former employees of
The Dallas Morning News
filed a lawsuit against various A. H.
Belo-related parties in the United States District Court for the Northern District of Texas. The plaintiffs lawsuit mainly consists of claims of unlawful discrimination and ERISA violations. On March 28, 2011, the Court granted defendants
summary judgment and dismissed all claims. Plaintiffs moved for reconsideration, which motion was denied by the United States Magistrate. On July 15, 2011, the plaintiffs appealed the decision to the United States Court of Appeals for the Fifth
Circuit. On August 20, 2012, the United States Court of Appeal for the Fifth Circuit affirmed the summary judgment.
In addition to the
proceeding described above, a number of other legal proceedings are pending against the Company. In the opinion of management, liabilities, if any, arising from these other legal proceedings would not have a material adverse effect on the
Companys results of operations, liquidity, or financial condition.
14
Note 9: Fair Value Measurements
On March 3, 2011, the Company completed the purchase of the personal residence of a Company officer pursuant to a retention and
relocation arrangement. The residence was initially recorded at an estimated fair value of $2,696, based on a purchase price of $3,096 and net of anticipated holding and selling costs of $400. The table below sets forth the assets and liabilities by
major categories that are measured at fair value on a nonrecurring basis as required by Accounting Standards Codification No. 820,
Fair Value Measurements
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Nine
Months
Ended
September 30, 2011
|
|
|
Quoted Price in
Active Markets
for Identical
Assets
(Level I)
|
|
|
Significant
Other
Observable
Inputs
(Level II)
|
|
|
Significant
Unobservable
Inputs
(Level
III)
|
|
|
Total
Gains
(Losses)
|
|
Assets held for sale
|
|
$
|
2,396
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,396
|
|
|
$
|
(700
|
)
|
In the third quarter of 2011, the Company reassessed the holding and selling costs of the residence and recorded an additional $300 of
expense, lowering the carrying value of $2,396. During June 2012, the Company sold the residence, resulting in a gain of $14.
The three levels of inputs to valuation techniques in the hierarchy used to measure fair value
are:
Level I Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and
liabilities.
Level II Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or
similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level III Prices or valuations that require inputs which are significant to the valuation and are unobservable.
Note 10: Earnings per Share
The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted earnings per
share (EPS) for the three and nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Earnings (numerator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
1,483
|
|
|
$
|
(135
|
)
|
|
$
|
(2,148
|
)
|
|
$
|
(13,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
21,960
|
|
|
|
21,534
|
|
|
|
21,850
|
|
|
|
21,477
|
|
Dilutive effect of participating securities
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding for basic EPS
|
|
|
22,807
|
|
|
|
21,534
|
|
|
|
21,850
|
|
|
|
21,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee stock options
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares outstanding
|
|
|
22,928
|
|
|
|
21,534
|
|
|
|
21,850
|
|
|
|
21,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.64
|
)
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.64
|
)
|
15
Note 11: Dividends
During the three and nine months ended September 30, 2012, the Company recorded and paid dividends of $1,371 and $4,095,
respectively. During the three months and nine months ended September 30, 2011, the Company recorded and paid dividends of $1,351 and $2,704, respectively.
On September 13, 2012, the Company declared a special dividend of $0.24 per share and a quarterly dividend of $0.06 per share, both payable December 7, 2012, to shareholders of record and to
holders of outstanding RSU awards at the close of business on November 16, 2012.
Note 12: Changes in Accounting Estimates
In the nine months ended September 30, 2012 and 2011, the Company accelerated the depreciation of certain property, plant and
equipment that was determined to have a shorter remaining useful life than previously estimated. Accordingly, the Company recorded additional depreciation expense of $2,251 and $1,017 in the nine months ended September 30, 2012 and 2011,
respectively. Depreciation expense over the next 18 years will increase (decrease) between $210 and $(490) as a result of these changes in estimates.
In the second quarter of 2011, the Company also revised its estimate of the unfunded projected benefit obligation it assumed in connection to the withdrawal from the GBD Pension Plan. The revision
resulted in the Company recording an additional loss of $1,988.
Note 13: Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss contains actuarial gains and losses associated with the A. H. Belo Pension Plans and gains and
losses resulting from negative plan amendments and other actuarial experience related to other post-employment benefit plans. The Company records amortization of accumulated other comprehensive loss in salaries, wages and employee benefits in the
condensed consolidated statements of operations. Gains and losses associated with the A. H. Belo Pension Plans are amortized over the weighted average remaining life expectancy of the participants, currently estimated to be 24 years. Gains and
losses associated with the Companys other post-employment benefit plans are amortized over periods ranging between four to 12 years.
The table below sets forth the changes in accumulated other comprehensive loss as presented in the Company's condensed consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Total
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Other Post-
Employment
Benefit Plans
|
|
|
Total
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Other Post-
Employment
Benefit Plans
|
|
Balance, beginning of period
|
|
$
|
63,049
|
|
|
$
|
64,669
|
|
|
$
|
(1,620
|
)
|
|
$
|
(2,262
|
)
|
|
$
|
|
|
|
$
|
(2,262
|
)
|
Amortization
|
|
|
(10
|
)
|
|
|
(175
|
)
|
|
|
165
|
|
|
|
162
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
63,039
|
|
|
$
|
64,494
|
|
|
$
|
(1,455
|
)
|
|
$
|
(2,100
|
)
|
|
$
|
|
|
|
$
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Total
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Other Post-
Employment
Benefit Plans
|
|
|
Total
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Other Post-
Employment
Benefit Plans
|
|
Balance, beginning of period
|
|
$
|
63,069
|
|
|
$
|
65,019
|
|
|
$
|
(1,950
|
)
|
|
$
|
(2,569
|
)
|
|
$
|
|
|
|
$
|
(2,569
|
)
|
Amortization
|
|
|
(30
|
)
|
|
|
(525
|
)
|
|
|
495
|
|
|
|
469
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
63,039
|
|
|
$
|
64,494
|
|
|
$
|
(1,455
|
)
|
|
$
|
(2,100
|
)
|
|
$
|
|
|
|
$
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Note 14: Income Taxes
Income taxes are recorded using the liability method in accordance with applicable accounting guidance. The provision for income taxes
reflects the Companys estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events, which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on
the Companys estimated tax expense for the year.
The Company recognized income tax expense of $501 and $489 for the three months ended
September 30, 2012 and 2011, respectively, and $1,286 and $4,538 for the nine months ended September 30, 2012 and 2011, respectively. Tax expense represents effective income tax rates of 25.8 percent and 138.1 percent, for the three months
ended September 30, 2012 and 2011, respectively, and (142.3) percent and (49.6) percent, for the nine months ended September 30, 2012 and 2011, respectively. Tax expense for the nine months ended September 30, 2012 decreased due
to a one-time charge of $2,961 in 2011 related to a pre-Distribution audit adjustment by the Internal Revenue Service.
The Company evaluates
uncertain tax positions and recognizes a liability for the tax benefit associated with an uncertain position only if it is more likely than not the position will not be sustained on examination by taxing authorities, based on the technical merits of
the position. As of September 30, 2012 and December 31, 2011, the Company recorded a liability for uncertain tax positions of $411 and $333, respectively. Interest and penalties of $30 were recorded for the nine months ended
September 30, 2012, as interest expense.
The Company currently projects taxable losses for the year 2012 for federal income tax purposes
and in certain state income tax jurisdictions. Net operating losses can be carried forward to offset future taxable income. The Companys net operating loss carryforwards begin to expire in the year 2016 if not utilized.
Note 15: Property Tax Settlement
During July 2012, a Rhode Island court approved a consent judgment
related to past tax assessments of real estate by the City
of Providence. Under this judgment,
The Providence Journal
received a credit of $2,500 to be applied against future tax payments. Accordingly, other production, distribution and operating costs were reduced by $2,500 in the third quarter of
2012.
17
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
(Unless the context requires otherwise, all dollar and share amounts in the Quarterly Report on Form 10-Q are in
thousands, except per share amounts.
)
The following information should be read in conjunction with the Companys Financial
Statements filed as part of this report.
Overview
A. H. Belo, headquartered in Dallas, Texas, is a distinguished newspaper publishing and local news and information company that owns and operates four metropolitan daily newspapers and several
associated Web sites, with publishing roots that trace to
The Galveston Daily News
, which began publication in 1842. A. H. Belo publishes
The Dallas Morning News (
www.dallasnews.com
)
, Texas leading newspaper and
winner of nine Pulitzer Prizes;
The Providence Journal (
www.providencejournal.com
)
, the oldest continuously-published daily newspaper in the United States and winner of four Pulitzer Prizes;
The Press-Enterprise (
www.pe.com
)
(Riverside, California), serving the Inland Southern California region and winner of one Pulitzer Prize; and
The Denton Record-Chronicle (
www.dentonrc.com
),
a daily newspaper serving Denton, Texas, approximately 40 miles north of
Dallas. The Company publishes various niche publications targeting specific audiences, and its investments and/or partnerships include Classified Ventures, LLC, owner of
cars.com
,
and the Yahoo! Newspaper Consortium
.
A. H. Belo also owns and operates commercial printing, distribution and direct mail service businesses.
A. H. Belo
intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to
period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies, and estimates affect its financial statements. Certain prior year amounts have been reclassified to conform to current
presentation.
Overview of Significant Activity in the Third Quarter of 2012
|
|
|
During the third quarter of 2012, the Company continued to encounter strong competition for print advertising revenues from digital alternatives and
other advertising mediums, but realized improvements in printing and distribution revenues as a result of new and expanded printing and distribution contracts. Total revenues declined by 1.0 percent when compared to the third quarter of 2011, due to
advertising and circulation, partially offset by stronger printing and distribution revenues. Operating expenses decreased 2.6 percent, reflecting lower personnel and production-related expenses.
|
|
|
|
The Company continues to develop and market its portfolio of digital offerings, including 508 Digital, in which
The Dallas Morning News
provides
marketing services such as development of mobile Web sites, search engine marketing and optimization, and social media marketing for its customers Web presence. Additionally, in the third quarter,
The Dallas Morning News
announced the
Company entered into an operating agreement with a local advertising agency, forming Your Speakeasy LLC, which targets larger business customers and provides turnkey social media account management and content development services.
|
|
|
|
During July 2012, a Rhode Island court approved a consent judgment
related to past tax assessments of real estate by the City of Providence.
Under this judgment,
The Providence Journal
received a credit of $2,500 to be applied against future tax payments. Accordingly, other production, distribution and operating costs were reduced by $2,500 in the third quarter of 2012.
|
|
|
|
On September 7, 2012, the Company paid a dividend of $0.06 per share, or $1,371, to its shareholders of record and to holders of outstanding RSU
awards at the close of business on August 17, 2012. On September 13, 2012, the Company declared a special dividend of $0.24 per share and a quarterly dividend of $0.06 per share, both payable December 7, 2012, to shareholders of
record and to holders of outstanding RSU awards at the close of business on November 16, 2012.
|
|
|
|
During the third quarter of 2012 the Companys Board of Directors authorized the repurchase of up to 1,000 shares of the Companys Series A
or Series B Common Stock.
|
18
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
Total net operating revenues
|
|
$
|
108,881
|
|
|
|
(1.0
|
)%
|
|
$
|
109,990
|
|
|
$
|
322,858
|
|
|
|
(4.1
|
)%
|
|
$
|
336,651
|
|
Total operating costs and expenses
|
|
|
107,405
|
|
|
|
(2.6
|
)%
|
|
|
110,268
|
|
|
|
325,678
|
|
|
|
(6.4
|
)%
|
|
|
347,762
|
|
Total other income (expense), net
|
|
|
466
|
|
|
|
(26.3
|
)%
|
|
|
632
|
|
|
|
1,916
|
|
|
|
(2.5
|
)%
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,942
|
|
|
|
nm
|
|
|
|
354
|
|
|
|
(904
|
)
|
|
|
(90.1
|
)%
|
|
|
(9,146
|
)
|
Income tax expense
|
|
|
501
|
|
|
|
2.5
|
%
|
|
|
489
|
|
|
|
1,286
|
|
|
|
(71.7
|
)%
|
|
|
4,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,441
|
|
|
|
nm
|
|
|
|
(135
|
)
|
|
|
(2,190
|
)
|
|
|
(84.0
|
)%
|
|
|
(13,684
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(42
|
)
|
|
|
nm
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
1,483
|
|
|
|
nm
|
|
|
$
|
(135
|
)
|
|
$
|
(2,148
|
)
|
|
|
(84.3
|
)%
|
|
$
|
(13,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nm Percent change is not meaningful.
Newspaper Revenues
The Dallas Morning News
The table below sets forth the components of
The Dallas Morning News
net operating revenues for the three and nine months ended
September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
Percent
of Total
Revenues
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
Percent
of Total
Revenues
|
|
|
2012
|
|
|
Percent
of Total
Revenues
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
Percent
of Total
Revenues
|
|
Advertising and marketing services
|
|
$
|
41,621
|
|
|
|
60.0%
|
|
|
|
(2.0)%
|
|
|
$
|
42,466
|
|
|
|
59.8%
|
|
|
$
|
122,647
|
|
|
|
59.6%
|
|
|
|
(7.2)%
|
|
|
$
|
132,149
|
|
|
|
60.4%
|
|
Display
|
|
|
15,057
|
|
|
|
|
|
|
|
(6.2)%
|
|
|
|
16,048
|
|
|
|
|
|
|
|
45,147
|
|
|
|
|
|
|
|
(14.2)%
|
|
|
|
52,619
|
|
|
|
|
|
Classified
|
|
|
7,128
|
|
|
|
|
|
|
|
1.5%
|
|
|
|
7,024
|
|
|
|
|
|
|
|
20,476
|
|
|
|
|
|
|
|
(6.5)%
|
|
|
|
21,894
|
|
|
|
|
|
Preprints
|
|
|
13,619
|
|
|
|
|
|
|
|
(2.7)%
|
|
|
|
13,998
|
|
|
|
|
|
|
|
40,705
|
|
|
|
|
|
|
|
(1.1)%
|
|
|
|
41,174
|
|
|
|
|
|
Digital
|
|
|
5,817
|
|
|
|
|
|
|
|
7.8%
|
|
|
|
5,396
|
|
|
|
|
|
|
|
16,319
|
|
|
|
|
|
|
|
(0.9)%
|
|
|
|
16,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
|
22,087
|
|
|
|
31.9%
|
|
|
|
(3.8)%
|
|
|
|
22,951
|
|
|
|
32.4%
|
|
|
|
66,538
|
|
|
|
32.4%
|
|
|
|
(4.6)%
|
|
|
|
69,717
|
|
|
|
31.9%
|
|
Printing and distribution
|
|
|
5,638
|
|
|
|
8.1%
|
|
|
|
2.3%
|
|
|
|
5,510
|
|
|
|
7.8%
|
|
|
|
16,470
|
|
|
|
8.0 %
|
|
|
|
(2.5)%
|
|
|
|
16,897
|
|
|
|
7.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,346
|
|
|
|
100.0%
|
|
|
|
(2.2)%
|
|
|
$
|
70,927
|
|
|
|
100.0%
|
|
|
$
|
205,655
|
|
|
|
100.0 %
|
|
|
|
(6.0)%
|
|
|
$
|
218,763
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display Revenues decreased for the three months ended September 30, 2012, due to a decline in general
advertising, partially offset by an increase in retail advertising. Revenues decreased for the nine months ended September 30, 2012 due to declines in both general and retail advertising, of which approximately $1,076 was attributable to
non-recurring advertising associated with the Super Bowl which was held in the Dallas area in February 2011. The improvement in retail advertising for the three months ended September 30, 2012 is due to an increase in food, beverage and
electronics advertising.
Classified Revenues increased for the three months ended September 30, 2012, due to higher employment
advertising. Revenues decreased for the nine months ended September 30, 2012, primarily due to a decline in automotive and employment advertising.
19
Preprint Revenues decreased for the three and nine months ended September 30, 2012, due to a
decline in newspaper advertising inserts, partially offset by higher home delivery mail advertising.
Digital Revenues increased for
the three months ended September 30, 2012, due to higher automotive, employment and real estate classified advertising and due to growth of marketing services revenue associated with 508 Digital. Revenues decreased for the nine months ended
September 30, 2012, primarily due to $1,140 of non-recurring revenue associated with a discontinued digital advertising platform and $420 of non-recurring revenue associated with the 2011 Super Bowl. These revenue declines were partially offset
by higher automotive, employment and real estate classified advertising and marketing services revenue associated with 508 Digital.
Advertising revenues from
The Dallas Morning News
niche publications were $5,727 and $5,608, for the three months ended September 30, 2012
and 2011, respectively, and $16,447 and $16,675, for the nine months ended September 30, 2012 and 2011, respectively. Revenues
for
Briefing
and
Al Dia
increased for the three and nine months ended September 30, 2012,
and revenues associated with
Quick
decreased by $114 and $830 for the three and nine months ended September 30, 2012, respectively, due to the discontinuance of this publication on August 4, 2011. Advertising revenues from niche
publications are a component of total display, classified, preprint and digital revenues of
The Dallas Morning News
presented above.
Circulation Revenues decreased for the three and nine months ended September 30, 2012, due to a decline in print home delivery and single
copy volumes. This decline was partially offset by a price increase related to digital online delivery.
The Dallas Morning News
continues to assess and adjust its print and digital consumer pricing and content strategy and continues to focus
on building high-quality print and digital audiences by improving and expanding its digital product portfolio.
Printing and distribution
Revenues increased in the three months ended September 30, 2012, due to increased distribution of third-party newspapers, and revenues decreased in the nine months ended September 30, 2012, due to a decline in commercial printing
volumes as the Company focused on larger and more profitable customers.
The Providence Journal
The table below sets forth the components of
The Providence Journal
net operating revenues for the three and nine months ended September 30,
2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
Percent
of Total
Revenues
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
Percent
of Total
Revenues
|
|
|
2012
|
|
|
Percent
of Total
Revenues
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
Percent
of Total
Revenues
|
|
Advertising and marketing services
|
|
$
|
10,474
|
|
|
|
45.7%
|
|
|
|
(12.9)%
|
|
|
$
|
12,028
|
|
|
|
52.9 %
|
|
|
$
|
33,702
|
|
|
|
48.5%
|
|
|
|
(11.8)%
|
|
|
$
|
38,213
|
|
|
|
55.5%
|
|
Display
|
|
|
2,708
|
|
|
|
|
|
|
|
(8.3)%
|
|
|
|
2,953
|
|
|
|
|
|
|
|
8,614
|
|
|
|
|
|
|
|
(8.1)%
|
|
|
|
9,369
|
|
|
|
|
|
Classified
|
|
|
3,497
|
|
|
|
|
|
|
|
(19.1)%
|
|
|
|
4,320
|
|
|
|
|
|
|
|
11,871
|
|
|
|
|
|
|
|
(15.2)%
|
|
|
|
13,996
|
|
|
|
|
|
Preprints
|
|
|
2,907
|
|
|
|
|
|
|
|
(7.0)%
|
|
|
|
3,125
|
|
|
|
|
|
|
|
8,788
|
|
|
|
|
|
|
|
(10.3)%
|
|
|
|
9,800
|
|
|
|
|
|
Digital
|
|
|
1,362
|
|
|
|
|
|
|
|
(16.4)%
|
|
|
|
1,630
|
|
|
|
|
|
|
|
4,429
|
|
|
|
|
|
|
|
(12.3)%
|
|
|
|
5,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
|
8,856
|
|
|
|
38.7%
|
|
|
|
5.5%
|
|
|
|
8,396
|
|
|
|
36.9 %
|
|
|
|
26,107
|
|
|
|
37.5%
|
|
|
|
5.2%
|
|
|
|
24,809
|
|
|
|
36.1%
|
|
Printing and distribution
|
|
|
3,583
|
|
|
|
15.6%
|
|
|
|
54.4%
|
|
|
|
2,320
|
|
|
|
10.2 %
|
|
|
|
9,757
|
|
|
|
14.0%
|
|
|
|
68.8%
|
|
|
|
5,780
|
|
|
|
8.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 22,913
|
|
|
|
100.0%
|
|
|
|
0.7%
|
|
|
$
|
22,744
|
|
|
|
100.0 %
|
|
|
$
|
69,566
|
|
|
|
100.0 %
|
|
|
|
1.1%
|
|
|
$
|
68,802
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display Revenues decreased in the three and nine months ended September 30, 2012, due to a decline in retail
and general advertising.
Classified Revenues decreased for the three months ended September 30, 2012, due to a decline in legal,
automotive, obituaries, and employment advertising, partially offset by an increase in real estate advertising. For the nine months ended September 30, 2012, revenues decreased due to a decline in automotive and employment advertising.
20
Preprint Revenues decreased in the three and nine months ended September 30, 2012, due to a
decline in newspaper advertising inserts which was partially offset by increased home delivery mail advertising.
Digital - Revenues decreased
for three months ended September 30, 2012, due to a decline in retail display advertising. For the nine months ended September 30, 2012, revenues decreased due to a decline in retail display advertising, partially offset by higher
automotive classified advertising.
Circulation Revenues increased for the three and nine months ended September 30, 2012, due to
a change from a buy-sell arrangement with home delivery carriers to a fee for delivery arrangement. Under this new arrangement, higher revenues are recognized which are offset by higher distribution expenses.
Printing and distribution Revenues increased for the three and nine months ended September 30, 2012, due to
The Providence Journals
continued expansion of single copy distribution services for national and local newspapers.
The Providence Journal
also increased its commercial printing services to existing customers and added a regional newspaper customer, contributing
to the growth.
The Press-Enterprise
The table below sets forth the components of
The Press-Enterprise
net operating revenues for the three and nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
Percent
of Total
Revenues
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
Percent
of Total
Revenues
|
|
|
2012
|
|
|
Percent
of Total
Revenues
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
Percent
of Total
Revenues
|
|
Advertising and marketing services
|
|
$
|
10,028
|
|
|
|
60.3%
|
|
|
|
(6.6)%
|
|
|
$
|
10,735
|
|
|
|
65.8%
|
|
|
$
|
30,024
|
|
|
|
63.0%
|
|
|
|
(8.1)%
|
|
|
$
|
32,672
|
|
|
|
66.6%
|
|
Display
|
|
|
2,509
|
|
|
|
|
|
|
|
2.8%
|
|
|
|
2,440
|
|
|
|
|
|
|
|
7,384
|
|
|
|
|
|
|
|
(9.7)%
|
|
|
|
8,179
|
|
|
|
|
|
Classified
|
|
|
2,895
|
|
|
|
|
|
|
|
(13.5)%
|
|
|
|
3,345
|
|
|
|
|
|
|
|
8,706
|
|
|
|
|
|
|
|
(11.3)%
|
|
|
|
9,819
|
|
|
|
|
|
Preprints
|
|
|
3,126
|
|
|
|
|
|
|
|
(6.7)%
|
|
|
|
3,350
|
|
|
|
|
|
|
|
9,384
|
|
|
|
|
|
|
|
(6.7)%
|
|
|
|
10,056
|
|
|
|
|
|
Digital
|
|
|
1,498
|
|
|
|
|
|
|
|
(6.4)%
|
|
|
|
1,600
|
|
|
|
|
|
|
|
4,550
|
|
|
|
|
|
|
|
(1.5)%
|
|
|
|
4,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
|
3,300
|
|
|
|
19.9%
|
|
|
|
(3.0)%
|
|
|
|
3,402
|
|
|
|
20.8%
|
|
|
|
10,010
|
|
|
|
21.0%
|
|
|
|
(1.6)%
|
|
|
|
10,173
|
|
|
|
20.7%
|
|
Printing and distribution
|
|
|
3,294
|
|
|
|
19.8%
|
|
|
|
51.0%
|
|
|
|
2,182
|
|
|
|
13.4%
|
|
|
|
7,603
|
|
|
|
16.0%
|
|
|
|
21.8%
|
|
|
|
6,241
|
|
|
|
12.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$16,622
|
|
|
|
100.0%
|
|
|
|
1.9%
|
|
|
$
|
16,319
|
|
|
|
100.0%
|
|
|
$
|
47,637
|
|
|
|
100.0%
|
|
|
|
(3.0)%
|
|
|
$
|
49,086
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display Revenues increased for the three months ended September 30, 2012, due to an increase in general
advertising, partially offset by a decline in retail advertising. Display advertising revenues decreased for the nine months ended September 30, 2012, due to a decline in retail advertising.
Classified Revenues decreased in the three and nine months ended September 30, 2012, due to a decline in legal, employment, automotive, real
estate and other categories.
Preprint Revenues decreased in the three and nine months ended September 30, 2012, due to a decline
in newspaper advertising inserts and home delivery mail advertising.
Digital Revenues decreased in the three months and nine months
ended September 30, 2012, due to a decline in real estate and other digital classified advertising.
Circulation Revenues
decreased in the three and nine months ended September 30, 2012, due to volume declines in daily home delivery and daily and Sunday single copy sales, and the discontinuation of
The Business Press
publication at the end of the second
quarter of 2011.
21
Printing and distribution Revenues increased in the three and nine months ended September 30,
2012, due to new commercial print and home delivery distribution contracts.
The Press-Enterprise
was notified in October 2012 that the new owners of a significant commercial printing customer would cease printing its publication at the
Companys Riverside facility on October 15, 2012, well before the expiration of the multi-year contract. The Company is pursuing multiple remedies and has not identified any losses which are considered probable associated with this
customer.
Operating Costs and Expenses
The table below sets forth the components of the Companys operating costs and expenses for the three and nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
Salaries, wages and employee benefits
|
|
$
|
43,364
|
|
|
|
(3.6)%
|
|
|
$
|
44,958
|
|
|
$
|
131,992
|
|
|
|
(8.1)%
|
|
|
$
|
143,552
|
|
Other production, distribution and operating costs
|
|
|
40,614
|
|
|
|
(3.3)%
|
|
|
|
41,996
|
|
|
|
122,835
|
|
|
|
(6.1)%
|
|
|
|
130,875
|
|
Newsprint, ink and other supplies
|
|
|
15,899
|
|
|
|
8.8 %
|
|
|
|
14,618
|
|
|
|
45,242
|
|
|
|
2.4 %
|
|
|
|
44,192
|
|
Depreciation
|
|
|
6,219
|
|
|
|
(15.8)%
|
|
|
|
7,386
|
|
|
|
21,680
|
|
|
|
(6.7)%
|
|
|
|
23,225
|
|
Amortization
|
|
|
1,309
|
|
|
|
(0.1)%
|
|
|
|
1,310
|
|
|
|
3,929
|
|
|
|
%
|
|
|
|
3,930
|
|
Pension plan withdrawal
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
nm
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
$
|
107,405
|
|
|
|
(2.6)%
|
|
|
$
|
110,268
|
|
|
$
|
325,678
|
|
|
|
(6.4)%
|
|
|
$
|
347,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits decreased for the three and nine months ended September 30, 2012, due to lower
headcount and employee related expenses. During the third quarter of 2012,
The Providence Journal
extended voluntary separation offers to certain employee groups, resulting in the elimination of 11 positions.
Other production, distribution and operating costs decreased for the three and nine months ended September 30, 2012, primarily due to
the execution of a consent judgment related to past tax assessments of real estate by the City of Providence. Under this judgment,
The Providence Journal
received a credit of $2,500 to be applied against future tax payments. Reduced outside
service costs, including legal, consulting and temporary services, also accounted for the lower expenses for the nine months ended September 30, 2012.
Newsprint, ink and other supplies expense increased for the three months and nine months ended September 30, 2012, due to greater cost of supplements and ink. During the three months ended
September 30, 2012, the Companys publishing operations used 16,348 metric tons of newsprint at an average cost of $632 per metric ton compared to 16,164 metric tons, at average cost of $635 per metric ton for the same period in 2011. For
the nine months ended September 30, 2012, the Companys publishing operations used 47,609 metric tons of newsprint at an average cost of $629 per metric ton compared to 49,895 metric tons, at average cost of $641 per metric ton for the
same period in 2011.
Depreciation expense decreased for the three and nine months ended September 30, 2012, due to lower depreciable
fixed assets as a result of reduced capital spending in recent years. The lower expense was partially offset by additional depreciation expense of $370 and $1,881 in the first and second quarters of 2012 due to a change in the estimated life of
certain production assets.
Pension plan withdrawal loss was $1,988 for the nine months ended September 30, 2011. This loss is related to
the finalization of the allocation of the assets and liabilities from the GBD Pension Plan in the second quarter of 2011.
Interest expense
related to letters of credit and unused borrowing commitments decreased for the three and nine months ended September 30, 2012. For the nine months ended September 30, 2012, this decrease was partially offset by $114 in interest expense
incurred on a settlement made with the Internal Revenue Service for a tax matter from prior to the Distribution.
22
The Company includes in other income, net, the following items as set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
Earnings from equity method investments
|
|
$
|
607
|
|
|
|
(14.4)%
|
|
|
$
|
709
|
|
|
$
|
1,733
|
|
|
|
(0.7)%
|
|
|
$
|
1,746
|
|
Interest income
|
|
|
29
|
|
|
|
(23.7)%
|
|
|
|
38
|
|
|
|
102
|
|
|
|
(27.7)%
|
|
|
|
141
|
|
Gain (loss) on sale of fixed assets
|
|
|
(68
|
)
|
|
|
nm
|
|
|
|
48
|
|
|
|
402
|
|
|
|
nm
|
|
|
|
(359
|
)
|
Recovery of investment previously written off
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
729
|
|
Other income
|
|
|
26
|
|
|
|
183.9%
|
|
|
|
(31
|
)
|
|
|
185
|
|
|
|
(15.1)%
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
$
|
594
|
|
|
|
(22.3)%
|
|
|
$
|
764
|
|
|
$
|
2,422
|
|
|
|
(2.1)%
|
|
|
$
|
2,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from equity method investments decreased due to losses recognized on the Companys interest in Wanderful,
in which the Company invested in the fourth quarter of 2011. These losses partially offset the investment income recognized from Classified Ventures and the positive current year impact of the Company no longer owning an interest in Belo Investment,
LLC, which previously resulted in the Company recognizing investment losses. Additionally, during the first quarter of 2011, the Company recorded a gain of $729 related to the sale of an investment that had been previously written off.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization
In addition to net income, the Company also evaluates earnings after adjusting for depreciation, amortization, interest and taxes (EBITDA) and after adding back pension expense, non-cash
impairment expense and net investment-related losses, as applicable (Adjusted EBITDA). The table below sets forth the Companys EBITDA and Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
|
2012
|
|
|
Percentage
Change
|
|
|
2011
|
|
Net income (loss) attributable to A. H. Belo Corporation
|
|
$
|
1,483
|
|
|
|
nm
|
|
|
$
|
(135
|
)
|
|
$
|
(2,148
|
)
|
|
|
84.3 %
|
|
|
$
|
(13,684
|
)
|
Depreciation and amortization
|
|
|
7,528
|
|
|
|
(13.4)%
|
|
|
|
8,696
|
|
|
|
25,609
|
|
|
|
(5.7)%
|
|
|
|
27,155
|
|
Interest expense
|
|
|
128
|
|
|
|
(3.0)%
|
|
|
|
132
|
|
|
|
506
|
|
|
|
(0.8)%
|
|
|
|
510
|
|
Income tax expense
|
|
|
501
|
|
|
|
2.5 %
|
|
|
|
489
|
|
|
|
1,286
|
|
|
|
(71.7)%
|
|
|
|
4,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
9,640
|
|
|
|
5.0 %
|
|
|
|
9,182
|
|
|
|
25,253
|
|
|
|
36.4 %
|
|
|
|
18,519
|
|
|
|
|
|
|
|
|
Addback:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense
|
|
|
849
|
|
|
|
(46.9)%
|
|
|
|
1,598
|
|
|
|
2,897
|
|
|
|
(58.1)%
|
|
|
|
6,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
10,489
|
|
|
|
(2.7)%
|
|
|
$
|
10,780
|
|
|
$
|
28,150
|
|
|
|
10.7 %
|
|
|
$
|
25,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neither EBITDA nor Adjusted EBITDA is a measure of financial performance under GAAP. Management uses EBITDA, Adjusted
EBITDA and similar measures in internal analyses as supplemental measures of the Companys financial performance and to assist with performance comparisons against its peer group of companies and for operating decisions. EBITDA or similar
measures are also common alternative measures of performance used by investors, financial analysts and rating agencies to evaluate financial performance. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for
cash flows provided by operating activities or other income or cash flow data prepared in accordance with GAAP, and these non-GAAP measures may not be comparable to similarly-titled measures of other companies.
23
Liquidity and Capital Resources
The Company believes it has sufficient access to liquidity from several sources, such as operations, existing liquid assets and from unused borrowing
capacity under its Credit Agreement, to meet its foreseeable liquidity needs. The table below sets forth the Companys sources of liquidity:
|
|
|
|
|
Sources of Liquidity
|
|
September 30,
2012
|
|
Cash and cash equivalents
|
|
$
|
41,008
|
|
Accounts receivable, net
|
|
|
40,573
|
|
|
|
|
|
|
|
|
$
|
81,581
|
|
|
|
|
|
|
|
|
Unused borrowing capacity
|
|
$
|
21,200
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The Company operates with a $25,000 Credit Agreement, which expires in September 2014. The Credit Agreement serves as a
working capital facility and is subject to a borrowing base and other covenants and restrictions, including maintenance of defined financial ratios, restrictions on capital expenditures and dividends, and limitations on indebtedness, liens, and
asset sales. The borrowing base is calculated using eligible accounts receivable and inventory, as defined in the Credit Agreement. A decrease in the borrowing base could limit the Companys borrowing capacity. At September 30, 2012 and
December 31, 2011, the Company had eligible collateral to secure the Credit Agreement of $31,548 and $38,680, respectively, resulting in a borrowing base of $25,000 at both dates. When letters of credit and other required reserves are deducted
from the borrowing base, the Company had $21,200 and $19,970 of borrowing capacity available under the Credit Agreement as of September 30, 2012 and December 31, 2011, respectively. There were no borrowings outstanding under the Credit
Agreement at any time during 2012 or 2011.
During the three and nine months ended September 30, 2012, the Company paid dividends of $1,371
and $4,095, respectively, to holders of outstanding RSU awards and shareholders of record on the declared record dates. On September 13, 2012, the Company declared a quarterly dividend of $0.06 per share payable and a special dividend of $0.24
per share. The quarterly dividend and special dividend are payable to shareholders of record and to holders of outstanding RSU awards at the close of business on November 16, 2012.
Operating Cash Flows and Liquidity
Net cash flows used in operations for the nine
months ended September 30, 2012 and 2011, were $6,488 and $32,433, respectively. The increase in cash flows of $25,945 between these two periods is primarily due to lower pension contributions of $23,556, improvements in recurring operating
cash flow of $5,291 due to cost reduction efforts, and receipt of $2,410 in the second quarter of 2012 related to the sale of the residence which had been acquired for $3,096 in the first quarter of 2011 pursuant to an employment agreement with a
Company officer. These improvements were offset by $6,510 in reduced cash flow due to tax payments of $2,961 in 2012 and tax receipts of $3,549 in the first quarter of 2011 related to a prior years tax returns.
Investing Cash Flows
Net cash
flows used in investing activities for the nine months ended September 30, 2012 and 2011, were $6,138 and $5,479, respectively, reflecting capital expenditures of $6,766 and $6,077 for the nine months ended September 30, 2012 and 2011,
respectively. Proceeds were received in the first quarter of 2012 from the sale of a vacant office building and in the first quarter of 2011 from the sale of a previously impaired investment.
Financing Cash Flows
Net cash flows used in financing activities were $3,806 and
$2,692 for the nine months ended September 30, 2012 and 2011, respectively. Both periods reflect dividends paid, totaling $4,095 in 2012 and $2,704 in 2011.
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Contractual Obligations
During the three and nine months ended September 30, 2012, the Company made required contributions of $4,600 and $18,072, respectively, to the A. H. Belo Pension Plans. A voluntary contribution of
$10,000 was made in the second quarter of 2012 for the purpose of reducing the pension liability and funding costs. In October 2012, the Company made a final required contribution for fiscal year 2012 of $4,600 to the plans.
Additional information related to the Companys contractual obligations is available in Companys Annual Report on Form 10-K for the year ended
December 31, 2011, filed on March 12, 2012, with the Securities and Exchange Commission.
Critical Accounting and Policies and
Estimates
In accordance with Accounting Standards Codification ASC 810
Consolidation,
the Company consolidates the financial
statements of less than wholly-owned subsidiaries and separately presents the related noncontrolling interests on each consolidated financial statement.
Forward-Looking Statements
Statements in this communication concerning A. H. Belo
Corporations business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, impairments, business initiatives, pension plan contributions and obligations, real
estate sales, future financings, and other financial and non-financial items that are not historical facts, are forward-looking statements as the term is defined under applicable federal securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements.
Such risks,
uncertainties and factors include, but are not limited to, changes in capital market conditions and prospects, and other factors such as changes in advertising demand, interest rates and newsprint prices; newspaper circulation trends and other
circulation matters, including changes in readership patterns and demography, and audits and related actions by the Audit Bureau of Circulations; challenges in achieving expense reduction goals in a timely manner, and the resulting potential effect
on operations; technological changes; development of Internet commerce; industry cycles; changes in pricing or other actions by competitors and suppliers; consumer acceptance of new products and business initiatives; regulatory, tax and legal
changes; adoption of new accounting standards or changes in existing accounting standards by the Financial Accounting Standards Board or other accounting standard-setting bodies or authorities; the effects of Company acquisitions, dispositions and
co-owned ventures and investments; returns and discount rates on pension plan assets; general economic conditions; significant armed conflict; and other factors beyond our control, as well as other risks described elsewhere in the Companys
Annual Report on Form 10-K for the year ended December 31, 2011, and in the Companys other public disclosures, and filings with the Securities and Exchange Commission.
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