A. H. Belo Corporation First Quarter 2017 on Form 10-Q
9
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 extendin
g the Company’s media platform,
A.
H.
Belo deliver
s
news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles.
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, 201
6
. 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 FASB has issued the following accounting pronouncements and guidance which may be applicable to the Company but have not yet become effective.
In May 2014, the FASB issued
ASU 2014-09
–
Revenue from Contracts with Customers (Topic 606).
This guidance
prescribes a single comprehensive model for entities to use in the accounting of
revenue
arising
from contracts with customers
.
The core principle contemplated by this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration the entity expects to be entitled in exchange for those goods or services. New
disclosures
about
the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers
are also required
. Since
May 2014
, the FASB issued clarifying
updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition. The new guidance will supersede virtually all existing revenue guidance under GAAP and is effective for fiscal years beginning after December 31, 2017.
The Company currently
anticipates adopting
ASU 2
014-09 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 is
currently evaluating the impact that the updated guidance will have on the Company’s financial statements and related disclosures. The Company will utilize a bottoms-up approach to analyze the impact of the standard on the Company’s portfolio of contracts by reviewing its current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to the Company’s existing revenue contracts. The Company expects to complete this evaluation prior to the fourth quarter of 2017.
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 permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statement
s.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
10
In January 2017, the FASB issued ASU 2017-04
–
Intang
ibles
–
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, 201
9
, 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, 201
8
, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07
–
Compensation
–
Retirement Benefits
(Topic
715
)
:
Improving the Presentation of Net Periodic
Pension
Cost and Net Periodic Postretirement Benefit Cost.
This update
clarifies the presentation and classification of the components of net periodic benefit costs in the Consolidated Statement of Operations.
The guidance will be effective for fiscal years beginning after December 15, 201
7
, 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
P
ublishing 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 First Quarter 2017 on Form 10-Q
11
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 period financial information by segment was recast for comparative purposes.
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Three Months Ended March 31,
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2017
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2016
|
|
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|
(Recast)
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Revenue
|
|
|
|
|
|
|
Publishing
|
|
$
|
53,491
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|
$
|
56,505
|
Marketing Services
|
|
|
7,410
|
|
|
5,978
|
Total
|
|
$
|
60,901
|
|
$
|
62,483
|
|
|
|
|
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|
Operating Income (Loss)
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|
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|
Publishing
|
|
$
|
(4,725)
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|
$
|
(2,480)
|
Marketing Services
|
|
|
590
|
|
|
699
|
Total
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$
|
(4,135)
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|
$
|
(1,781)
|
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Noncash Expenses
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Publishing
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Depreciation
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$
|
2,491
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$
|
2,611
|
Amortization
|
|
|
—
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26
|
Goodwill impairment
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|
228
|
|
|
—
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Total
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$
|
2,719
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$
|
2,637
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Marketing Services
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Depreciation
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$
|
15
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$
|
21
|
Amortization
|
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|
200
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|
|
200
|
Total
|
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$
|
215
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$
|
221
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March 31,
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December 31,
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2017
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2016
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|
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(Recast)
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Total Assets
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Publishing
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$
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155,116
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$
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170,820
|
Marketing Services
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22,516
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21,911
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Total
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$
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177,632
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$
|
192,731
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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 provide
d
for
a pro-rata distribution of
50
percent and
100
percent of DMV Holdings’ free cash flow for fiscal years 201
6
and 201
5
, 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 three months ended March 31, 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 First Quarter 2017 on Form 10-Q
12
Redeemable noncontrolling interest
.
Also, i
n connection with the 2015 acquisition
of
80 percent voting interest in
DMV Holdings, the Company entered into a shareholder agreement which provide
d
for a put option to a noncontrolling shareholder. The put option provide
d
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
.
T
he 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 three months ended March 31, 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
4
:
Goodwill and Intangible Assets
The following table shows g
oodwill
and other
intangible assets by reportable segment as of
March 31, 2017
and
December 31, 2016
. D
ue 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.
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March 31,
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December 31,
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2017
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2016
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(Recast)
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Goodwill
|
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|
|
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Publishing
|
$
|
—
|
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$
|
228
|
Marketing Services
|
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13,973
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|
|
13,973
|
Total
|
$
|
13,973
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$
|
14,201
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Intangible Assets
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Publishing
|
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Cost
|
$
|
240
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|
$
|
240
|
Accumulated Amortization
|
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(240)
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|
(240)
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Net Carrying Value
|
$
|
—
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$
|
—
|
Marketing Services
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Cost
|
$
|
6,470
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$
|
6,470
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Accumulated Amortization
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(1,798)
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|
(1,598)
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Net Carrying Value
|
$
|
4,672
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$
|
4,872
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Intangible assets consist of
$5,190
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
$200
and
$226
for the
three months ended
March 31, 2017
and 2016,
respectively
.
C
ertain
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
.
T
herefore
,
the
Company recorded a
n
oncash 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.
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
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
13
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
5
:
Long-term Incentive Plan
A. H. Belo sponsors a long-term incentive plan
(the “Plan”)
under which
8,000,000
shares
of the Company’s Series A
and Series B
common stock are
authorized for equity
-
based awards. Awards may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted share
awards
,
restricted stock units (“
RSUs
”)
, performance shares, performance units or stock appreciation rights. In addition, stock options may be accompanied by full and limited stock appreciation rights. Rights and limited stock appreciation rights may also be issued without accompanying stock options.
Awards under the Plan were also granted to holders of stock options issued by A.
H. Belo’s former parent company in connection with the Company’s separation from its former parent in 2008.
Stock Options.
S
tock 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
March 31, 2017
.
There were 114,979 options outstanding at a weighted average exercise price of $8.21 as of March 31, 2017 and December 31, 2016. There was no activity in the first quarter of 2017.
As of March 31, 2017, t
he aggregate intrinsic value of outstanding options
was
$12
and the weighted average remaining contractual life of the Company’s stock options was 1.2 years
.
The aggregate intrinsic valu
e of options exercised
in the three months ended March 31,
2016
,
was
$117
.
Restricted Stock Units.
T
he
Company’s
RSUs
have service
and/or performance
condition
s
and, subject to retirement eligibility,
vest over a period of up to
three
years. Vested RSUs are redeemed
60
percent in A. H. Belo Series A common stock and
40
percent in
cash over a period of
up to
three years. As of
March 31, 2017
, the liability for the portion of the award
s
to be redeemed in cash was
$815
. The table below sets forth a summary of RSU activity under the Plan.
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Total
RSUs
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Issuance of
Common
Stock
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RSUs
Redeemed in
Cash
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Cash
Payments at
Closing Price
of Stock
|
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Weighted
Average Price
on Date of
Grant
|
Non-vested at December 31, 2016
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121,131
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$
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5.65
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Granted
|
213,027
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6.25
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Vested and outstanding
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(86,000)
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6.25
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Vested and issued
|
(22,734)
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13,634
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9,100
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$
|
57
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6.90
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Non-vested at March 31, 2017
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225,424
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5.86
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For the
three months ended
March 31, 2017
, the Company
issued
41
,
572
shares
of Series A common stock and
27,720
shares were redeemed in cash for RSUs
that were previously vested as of December 31, 201
6
. In addition, there
were
2
53,782
and
2
37,074
RSUs
that were vested and outstanding as of
March 31, 2017
and December 31, 201
6
, respectively.
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
March 31, 2017
, unrecognized compensation
expense
related to non-vested RSUs
totaled
$916
, which
is expected t
o be recognized over a weighted
average period
of
1.
1
years.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
14
Compensation Expense.
A. H. Belo recognizes compensation expense for
awards
granted
under the P
lan over the vesting period of the award. Compensation
expense related to RSUs granted under the Plan is
set forth in the table below.
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Three Months Ended March 31,
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RSUs
Redeemable
in Stock
|
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RSUs
Redeemable
in Cash
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Total
RSU Awards
Expense
|
2017
|
$
|
441
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|
$
|
279
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$
|
720
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2016
|
|
372
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|
|
232
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|
|
604
|
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
benefit from continuing
operations of
$42
and
$1,109
for the three
months ended
March 31, 2017
and
2016
, respectively
.
Effective income tax rates from continuing operations were
0.9
percent and
65.2
percent for the
three months ended
March 31, 2017
and
2016
, respectively.
The
effective
income
tax
rate for the three months ended March 31, 2017, was lower when compared to the prior year period due to
a
tax benefit in 2016 resulting from a
carryback of
net operating
loss applied against 2014 taxable
income
.
Note
7
:
Pension and Other Retirement Plans
Defined Benefit Plans.
The Company sponsors
the A. H. Belo Pension Plans
(the “Pension Plans”)
, which provide benefits to approximately
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 201
7
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.
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Three Months Ended March 31,
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2017
|
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2016
|
Interest cost
|
|
$
|
2,386
|
|
$
|
2,525
|
Expected return on plans' assets
|
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|
(3,313)
|
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|
(3,396)
|
Amortization of actuarial loss
|
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|
75
|
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|
11
|
Net periodic pension benefit
|
|
$
|
(852)
|
|
$
|
(860)
|
Defined Contribution Plans.
The A. H. Belo Savings Plan
(the “Savings Plan”)
, a defined contribution 401(k) plan, covers substantially all employees of A. H. Belo. Participants may elect to contribute a portion of their pretax compensation as provided by the
Savings P
lan and the Internal Revenue Code. Employees can contribute up to
100
percent of 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’ compensa
tion on a per-pay-period basis.
During the three months ended
March 31, 2017
and
2016
, the Company recorded
expense
of
$264
and
$279
, respectively
,
for matching contributions
to the
Savings P
lan
.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
15
Note
8
:
Shareholders’ Equity
Dividends.
On
March
2
, 201
7
, the Company
’s board of directors declared
a
n
$0.08
per share dividend to shareholders of record and holders of RSUs as of the close of business on
May
1
2
, 201
7
, which is payable on
June
2, 201
7
.
During the three months ended
March
31
, 201
7
, the Company
recorded
$1,7
77
to
accrue
for dividends declared but not
yet
paid.
Accumulated other comprehensive loss.
Accumulated other comprehensive loss c
onsists of
actuarial gains and losses a
ttributable to
the A. H. Belo Pension Plans
,
gains and losses resulting from
Pension P
lan
s’
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 P
lan
s’
participants. Gains and losses associated with the Company’s
OPEB
plans are amortized over the average remaining service period of active
OPEB
plan
s’
participants.
N
et 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 March 31,
|
|
|
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
|
|
|
57
|
|
|
75
|
|
|
(18)
|
|
|
(8)
|
|
|
11
|
|
|
(19)
|
Balance, end of period
|
|
$
|
(39,251)
|
|
$
|
(39,662)
|
|
$
|
411
|
|
$
|
(38,450)
|
|
$
|
(38,887)
|
|
$
|
437
|
Note
9
: Earnings Per Share
The table below sets forth
the reconciliation for net loss and
weighted average shares used for calculating basic and diluted earnings per share (“EPS”). The Company’s Series A an
d B common stock equally share
in the distributed and undistributed earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
Earnings (Numerator)
|
|
|
|
|
|
|
Net loss attributable to A. H. Belo Corporation
|
|
$
|
(4,430)
|
|
$
|
(632)
|
Less: Dividends to participating securities
|
|
|
39
|
|
|
26
|
Net loss available to common shareholders from continuing operations
|
|
$
|
(4,469)
|
|
$
|
(658)
|
|
|
|
|
|
|
|
Shares (Denominator)
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
21,690,371
|
|
|
21,514,133
|
|
|
|
|
|
|
|
Loss Per Share from Continuing Operations
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.21)
|
|
$
|
(0.03)
|
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
594,185
and
576,695
options and RSUs outstanding during the
three months ended
March 31, 2017
and
2016
, respectively
,
were excluded from the calculation because the effect was anti-dilutive.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
16
Note 1
0
: 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 is currently 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. Although the Company believes its position related to the contract can be sustained on its legal merits, it is reasonably possible that losses from zero up to the total amount of disputed invoices, totaling approximately $1,500, could be incurred in connection with the dispute.
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.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
17
It
em 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
c
onsolidated
f
inancial
s
tatements and related
n
otes
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 deliver
s
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
P
ublishing 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.
T
h
e
s
e
acquisition
s
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 First Quarter 2017 on Form 10-Q
18
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 months ended March 31, 2017 and 2016. D
ue 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.
The table below sets forth the components of A. H. Belo’s
operating income (loss) by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
Percentage
Change
|
|
2016
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
27,794
|
|
(5.0)
|
%
|
|
$
|
29,259
|
Circulation
|
|
|
19,166
|
|
(5.8)
|
%
|
|
|
20,352
|
Printing, distribution and other
|
|
|
6,531
|
|
(5.3)
|
%
|
|
|
6,894
|
Total Net Operating Revenue
|
|
|
53,491
|
|
(5.3)
|
%
|
|
|
56,505
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
58,216
|
|
(1.3)
|
%
|
|
|
58,985
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
$
|
(4,725)
|
|
(90.5)
|
%
|
|
$
|
(2,480)
|
|
|
|
|
|
|
|
|
|
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
7,410
|
|
24.0
|
%
|
|
$
|
5,978
|
Total Net Operating Revenue
|
|
|
7,410
|
|
24.0
|
%
|
|
|
5,978
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
6,820
|
|
29.2
|
%
|
|
|
5,279
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
590
|
|
(15.6)
|
%
|
|
$
|
699
|
Traditionally, t
he Company’s
primary
revenue
s
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 ha
s
faced a significant revenue
decline
over the past decade.
Therefore, t
he Company has sought to diversify its revenue
s
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 a
dvertising 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 201
4
, have declined to
19.6
percent of consolidated revenue thus far in 201
7
, 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
.
T
herefore
,
the
Company recorded a
n
oncash 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 First Quarter 2017 on Form 10-Q
19
The Company’s e
xpanded digital and marke
ting 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
5
7.8
percent and
5
6.4
percent of total revenue for the
three months ended
March 31, 2017
and 2016, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
Percentage
Change
|
|
2016
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
Display advertising
|
|
$
|
7,390
|
|
(8.5)
|
%
|
|
$
|
8,077
|
Classified advertising
|
|
|
4,545
|
|
(0.2)
|
%
|
|
|
4,555
|
Preprint advertising
|
|
|
10,297
|
|
(7.0)
|
%
|
|
|
11,068
|
Digital advertising
|
|
|
5,562
|
|
0.1
|
%
|
|
|
5,559
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
Digital services
|
|
|
6,282
|
|
22.7
|
%
|
|
|
5,121
|
Other services
|
|
|
1,128
|
|
31.6
|
%
|
|
|
857
|
Advertising and Marketing Services
|
$
|
35,204
|
|
(0.1)
|
%
|
|
$
|
35,237
|
Publishing
Display
–
Display 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 except
entertainment
in the three months ended
March 31, 2017.
The department store, food and beverage and furniture categories experienced the greatest declines with a combined revenue decrease of
approximately $
788
,
driven
heavily by a
retail
volume decline of
12.7
percent for the three months ended
March 31
, 201
7.
Classified
– Classified primarily represents sales of classified advertising space within the Company’s
core and niche newspapers.
Growth in c
lassified advertising
revenue continues to be
challeng
ing
as alternative digital outlets continue to emerge.
R
ate improvement trends in certain display advertising categories
partially offset the volume
decline. Overall classified revenue
remained flat
for
the three months ended
March 31
,
2017.
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.
Digital
–
Digital 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
remained flat in the three months ended March 31, 2017.
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 $2,
056
in the
three months ended
March 31, 2017.
The
digital services
revenue increase offset
approximately
98
percent
of the core print advertising revenue decline in the three months ended
March 31
,
2017.
Other
services
– Other services revenue
increased $
271
in the three months ended
March 31
,
2017
, due to t
he
sale
of promotional merchandise
by
MarketingFX
.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
20
Circulation revenue
Circulation revenue
was
3
1.5
percent and
32.6
p
ercent of total revenue for the
three months ended
March 31, 2017
and 2016,
respectively
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
Percentage
Change
|
|
2016
|
Publishing
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
$
|
19,166
|
|
(5.8)
|
%
|
|
$
|
20,352
|
Revenue decreased
primarily
due to a decline in home delivery
volume of 9.
9
percent for the three months ended March 31, 2017. Single copy revenue remained relatively flat to prior year, driven by a decrease in
single copy paid print circulation volume of
17.3
percent
,
for the three months ended
March 31
,
2017
, offset by an increase in
the daily
single copy
rate
.
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 months ended
March 31
,
2017,
the Company generated $
169
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
10.
7
percent and
11.
0
percent of total revenue for the three months ended
March 31
, 201
7 and 2016
,
respectively
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
Percentage
Change
|
|
2016
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
Printing, Distribution and Other
|
|
$
|
6,531
|
|
(5.3)
|
%
|
|
$
|
6,894
|
The Company aggressively market
s
the capacity of
its
printing and distribution assets to other newspapers that would benefit from cost sharing arrangements.
Additionally, t
he 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 due to a decline in volumes associated wi
th certain national newspapers.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
21
Operating Costs and Expense
The table below sets forth the components of the Company’s
o
perating
costs and
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
Percentage
Change
|
|
2016
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
24,542
|
|
0.2
|
%
|
|
$
|
24,492
|
Other production, distribution and operating costs
|
|
|
25,326
|
|
(2.4)
|
%
|
|
|
25,937
|
Newsprint, ink and other supplies
|
|
|
5,629
|
|
(4.9)
|
%
|
|
|
5,919
|
Depreciation
|
|
|
2,491
|
|
(4.6)
|
%
|
|
|
2,611
|
Amortization
|
|
|
—
|
|
(100.0)
|
%
|
|
|
26
|
Goodwill impairment
|
|
|
228
|
|
N/A
|
|
|
|
—
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
3,333
|
|
32.0
|
%
|
|
|
2,525
|
Other production, distribution and operating costs
|
|
|
3,000
|
|
25.3
|
%
|
|
|
2,394
|
Newsprint, ink and other supplies
|
|
|
272
|
|
95.7
|
%
|
|
|
139
|
Depreciation
|
|
|
15
|
|
(28.6)
|
%
|
|
|
21
|
Amortization
|
|
|
200
|
|
-
|
%
|
|
|
200
|
Total Operating Costs and Expense
|
|
$
|
65,036
|
|
1.2
|
%
|
|
$
|
64,264
|
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
remained flat
in the three months ended
March 31
, 201
7
.
Other
production, distribution and operating costs
–
Expense decreased in
the Company’s Publishing segment reflecting savings as the Company continues to manage discretionary
spending. Savings were generated by reductions in temporary services, promotional spending and
distribution expense related to
mail delivered preprints
.
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
March 31
, 201
7
and 201
6
,
approximated
5,835
and
6,589
metric tons, respectively, at an average cost per metric ton
of
$563
and $
503
, respectively
. The average purchase price for newsprint
was
$565
and $
511
for
the three
months ended
March 31
, 201
7
and 201
6
, respectively
.
Depreciation
–
Expense decreased due to a lower depreciable asset base as a higher level of in-service assets are now fully depreciated.
Amortization
–
All definite-lived intangible assets are fully amortized.
Goodwill impairment
–
In
the three months ended March 31, 2017
, operating costs and expense for the Publishing segment
reflect a noncash goodwill impairment charge of $2
2
8.
Marketing Services
Employee compensation and benefits
– Expense increased
in
the three
months ended
March 31
,
2017,
primarily related to the growth associated with DMV Holdings
of $
8
22
.
As of
March 31
, 201
7
and 201
6
, DMV Holdings
employed
8
6 and
69
personnel
, respectively.
Other production, distribution and operating costs
–
E
xpense increased
$606
in the three months ended
March 31
, 201
7
,
in connection with
growth in
DMV Holdings
, partially offset by a reduction in Speakeasy expenses.
Newsprint, ink and other supplies
–
Expense
increased $1
33
in the three
months ended
March 31
,
2017
, primarily due to a
n
increase
in promotional material printing costs associated with MarketingFX
.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
22
Depreciation
–
Marketing 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 March 31,
|
|
|
2017
|
|
Percentage
Change
|
|
2016
|
Other income (expense), net
|
|
$
|
(337)
|
|
(526.6)
|
%
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(42)
|
|
96.2
|
%
|
|
$
|
(1,109)
|
Other Income (Expense)
–
Other income (expense) is primarily comprised
of investment
activity
and gain (loss) on disposal of fixed assets.
As of March 31, 2017, the Company did not have any equity method investments.
Tax provision
–
Effective income tax rates from continuing operations were
0.9
percent and
65.2
percent for the
three months ended
March 31, 2017
and
2016
, respectively.
The effective
income
tax rate for the three months ended March 31, 2017, was lower when compared to the prior year period due to a tax benefit in 2016 resulting from a carryback of net operating loss applied against 2014 taxable income.
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 is currently 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. Although the Company believes its position related to the contract can be sustained on its legal merits, it is reasonably possible that losses from zero up to the total amount of disputed invoices, totaling approximately $1,500, could be incurred in connection with the dispute.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
23
Liquidity and Capital Resources
The Company’s cash balances as of
March 31, 2017
and
December 31, 2016
, were
$69,205
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
P
ublishing operations is expected to continue to decline in future periods, operating contributions expected from the Company’s
M
arketing
S
ervices businesses, as well as planned adjustments for tax, pension and other cost cutting measures, are expected to be sufficient to fund operating activities and capital spending of approximately
$
12,000
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 c
ould
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 cas
h provided by operating activities
for the
three months ended
months ended
March 31, 2017
and 201
6
, was
$
1,
037
and
$
347
, respectively.
Cash flows from
operating activities
improved by
$
690
during the
three months
ended
March 31
, 201
7
, when compared to the prior year period
, primarily due to changes in working capital and other operating assets and liabilities of
$4,370
, partially offset by an increase in net loss of $3,837.
Investing Cash Flows
Net cash used for investing activities was
$
852
and
$2,095
for the
three months ended
March 31, 2017
and 201
6
, respectively
, all of which is attributable to
capital spending
.
Financing Cash Flows
Net cash used for financing activities was
$
1
1,051
and
$
1,976
for the
three months ended
March 31, 2017
and 201
6
, 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
$1,763
and
$1,745
in 201
7
and 201
6
, 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 201
7
.
On March 2, 2017, the
Company
’s board of directors declared
a
n
$0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on May 12, 2017, which is payable on June 2, 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
, 201
7
, with the Securities and Exchange Commission (“SEC”).
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
24
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, 201
6
.
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.
Ite
m 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
.
Ite
m 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 ha
ve
been no changes in the Company’s internal control over financial reporting
that occurred during the period covered by this report
other than SOX control changes related to the
implementation of a new enterprise resource planning system
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PA
RT II
Ite
m 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.
Ite
m 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
.
I
tem 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 First Quarter 2017 on Form 10-Q
25
Ite
m 3.
Defaults Upon Senior Securities
None.
Ite
m 4.
Mine Safety Disclosures
None.
Ite
m 5.
Other Information
None.
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
26
Ite
m 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 First Quarter 2017 on Form 10-Q
27
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
~(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 First Quarter 2017 on Form 10-Q
28
|
|
|
|
|
|
|
|
|
|
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 First Quarter 2017 on Form 10-Q
29
SIG
NATURES
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:
|
May 3
, 201
7
|
|
|
|
A. H. Belo Corporation First Quarter 2017 on Form 10-Q
30
EX
HIBIT 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 First Quarter 2017 on Form 10-Q
31