10-Q 1 c898-20170331x10q.htm 10-Q 20170331 Q1

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





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

For the quarterly period ended: March 31, 2017 

OR

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

Commission file no. 1-33741





Design Cover



A. H. Belo Corporation

(Exact name of registrant as specified in its charter)







 

 





 

 

Delaware

 

38-3765318

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

P. O. Box 224866, Dallas, Texas 75222-4866

 

(214) 977-8222

(Address of principal executive offices, including zip code)

 

(Registrant’s telephone number, including area code)



Former name, former address and former fiscal year, if changed since last report.

None

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes      No  



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





 

 

 

 

 

 

Large accelerated filer:  

 

Accelerated filer:  

 

Non-accelerated filer:  

 

Smaller reporting company:  

 

 

 

 

(Do not check if a smaller reporting company)

Emerging growth company  

 

 

 

 



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



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



Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest possible date.





 

 



 

 



 

Outstanding at

Class

 

April 28, 2017

Common Stock, $.01 par value

 

21,731,466





Total Common Stock consists of 19,258,786 shares of Series A Common Stock and 2,472,680 shares of Series B Common Stock. 

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


 

A. H. BELO CORPORATION



FORM 10-Q



TABLE OF CONTENTS





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


 

PART I

Item 1.  Financial Information



A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Operations







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,

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

 

2017

 

2016

Net Operating Revenue:

 

 

 

 

 

 

Advertising and marketing services

 

$

35,204 

 

$

35,237 

Circulation

 

 

19,166 

 

 

20,352 

Printing, distribution and other

 

 

6,531 

 

 

6,894 

Total net operating revenue

 

 

60,901 

 

 

62,483 

Operating Costs and Expense:

 

 

 

 

 

 

Employee compensation and benefits

 

 

27,875 

 

 

27,017 

Other production, distribution and operating costs

 

 

28,326 

 

 

28,331 

Newsprint, ink and other supplies

 

 

5,901 

 

 

6,058 

Depreciation

 

 

2,506 

 

 

2,632 

Amortization

 

 

200 

 

 

226 

Goodwill impairment

 

 

228 

 

 

 —

Total operating costs and expense

 

 

65,036 

 

 

64,264 

Operating loss

 

 

(4,135)

 

 

(1,781)

Other income (expense), net

 

 

(337)

 

 

79 

Loss from Continuing Operations Before Income Taxes

 

 

(4,472)

 

 

(1,702)

Income tax benefit

 

 

(42)

 

 

(1,109)

Net Loss

 

 

(4,430)

 

 

(593)

Net income attributable to noncontrolling interests

 

 

 —

 

 

39 

Net Loss Attributable to A. H. Belo Corporation

 

$

(4,430)

 

$

(632)



 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

Net loss attributable to A. H. Belo Corporation

 

 

 

 

 

 

Basic and diluted

 

$

(0.21)

 

$

(0.03)



 

 

 

 

 

 

Number of common shares used in the per share calculation:

 

 

 

 

 

 

Basic and diluted

 

 

21,690,371 

 

 

21,514,133 



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,

In thousands (unaudited)

 

2017

 

2016

Net Loss

 

$

(4,430)

 

$

(593)

Other Comprehensive Income (Loss):

 

 

 

 

 

 

Amortization of actuarial (gains) losses, net of tax

 

 

57 

 

 

(8)

Total other comprehensive income (loss)

 

 

57 

 

 

(8)

Comprehensive Loss

 

 

(4,373)

 

 

(601)

Comprehensive income attributable to noncontrolling interests

 

 

 —

 

 

39 

Total Comprehensive Loss Attributable to A. H. Belo Corporation

 

$

(4,373)

 

$

(640)



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 

  

 

 

 

 

 

 



 

March 31,

 

December 31,

In thousands, except share amounts (unaudited)

 

2017

 

2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,205 

 

$

80,071 

Accounts receivable (net of allowance of $1,018 and $1,115 at March 31, 2017
and December 31, 2016, respectively)

 

 

25,524 

 

 

29,114 

Inventories

 

 

4,063 

 

 

3,386 

Prepaids and other current assets

 

 

10,705 

 

 

9,553 

Total current assets

 

 

109,497 

 

 

122,124 

Property, plant and equipment, at cost

 

 

446,203 

 

 

445,874 

Less accumulated depreciation

 

 

(404,621)

 

 

(402,115)

Property, plant and equipment, net

 

 

41,582 

 

 

43,759 

Intangible assets, net

 

 

4,672 

 

 

4,872 

Goodwill

 

 

13,973 

 

 

14,201 

Other assets

 

 

7,908 

 

 

7,775 

Total assets

 

$

177,632 

 

$

192,731 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

11,550 

 

$

9,036 

Accrued compensation and benefits

 

 

6,709 

 

 

8,657 

Other accrued expense

 

 

4,859 

 

 

6,318 

Advance subscription payments

 

 

13,791 

 

 

13,243 

Total current liabilities

 

 

36,909 

 

 

37,254 

Long-term pension liabilities

 

 

53,916 

 

 

54,843 

Other post-employment benefits

 

 

2,326 

 

 

2,329 

Other liabilities

 

 

7,778 

 

 

6,483 

Total liabilities

 

 

100,929 

 

 

100,909 

Noncontrolling interest - redeemable

 

 

 —

 

 

2,670 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $.01 par value; Authorized 2,000,000 shares; none issued

 

 

 —

 

 

 —

Common stock, $.01 par value; Authorized 125,000,000 shares

 

 

 

 

 

 

Series A: issued 20,675,667 and 20,620,461 shares at March 31, 2017
and December 31, 2016, respectively

 

 

208 

 

 

207 

Series B: issued 2,472,680 shares at March 31, 2017 and December 31, 2016

 

 

24 

 

 

24 

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

 

 

(11,233)

 

 

(11,233)

Additional paid-in capital

 

 

494,486 

 

 

499,552 

Accumulated other comprehensive loss

 

 

(39,251)

 

 

(39,308)

Accumulated deficit

 

 

(367,531)

 

 

(361,324)

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

 

 

76,703 

 

 

87,918 

Noncontrolling interests

 

 

 —

 

 

1,234 

Total shareholders’ equity

 

 

76,703 

 

 

89,152 

Total liabilities and shareholders’ equity

 

$

177,632 

 

$

192,731 



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

In thousands, except share amounts  (unaudited)

Shares   
Series A

Shares
Series B

Amount

Additional
Paid-in
Capital

 

Shares
Series A

Amount

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Noncontrolling
Interests

Total

Balance at
December 31, 2015

20,522,503 

2,387,509 

$

229 

$

500,449 

 

(1,416,881)

$

(11,233)

$

(38,442)

$

(333,222)

$

1,069 

$

118,850 

Net income (loss)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(632)

 

26 

 

(606)

Other comprehensive loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

(8)

 

 —

 

 —

 

(8)

Distributions to noncontrolling interests

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(165)

 

(165)

Issuance of shares for restricted stock units

58,584 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Issuance of shares for stock option exercises

 —

25,926 

 

 —

 

33 

 

 —

 

 —

 

 —

 

 —

 

 —

 

33 

Share-based compensation

 —

 —

 

 —

 

372 

 

 —

 

 —

 

 —

 

 —

 

 —

 

372 

Conversion of Series B to Series A

269 

(269)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,745)

 

 —

 

(1,745)

Balance at
March 31, 2016

20,581,356 

2,413,166 

$

230 

$

500,853 

 

(1,416,881)

$

(11,233)

$

(38,450)

$

(335,599)

$

930 

$

116,731 

Balance at
December 31, 2016

20,620,461 

2,472,680 

$

231 

$

499,552 

 

(1,416,881)

$

(11,233)

$

(39,308)

$

(361,324)

$

1,234 

$

89,152 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(4,430)

 

 —

 

(4,430)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

57 

 

 —

 

 —

 

57 

Distributions to noncontrolling interests

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 

 

 —

 

(118)

 

(118)

Issuance of shares for restricted stock units

55,206 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

441 

 

 —

 

 —

 

 —

 

 —

 

 —

 

441 

Purchases of noncontrolling interests

 —

 —

 

 —

 

(5,506)

 

 —

 

 —

 

 —

 

 —

 

(1,116)

 

(6,622)

Dividends

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,777)

 

 —

 

(1,777)

Balance at
March 31, 2017

20,675,667 

2,472,680 

$

232 

$

494,486 

 

(1,416,881)

$

(11,233)

$

(39,251)

$

(367,531)

$

 —

$

76,703 



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,

In thousands (unaudited)

 

2017

 

2016

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(4,430)

 

$

(593)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

2,706 

 

 

2,858 

Net periodic pension and other post-employment benefit

 

 

(859)

 

 

(867)

Share-based compensation

 

 

441 

 

 

372 

Deferred income taxes

 

 

 —

 

 

(4)

Goodwill impairment

 

 

228 

 

 

 —

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

 

 

 

 

 

 

Accounts receivable

 

 

3,590 

 

 

5,146 

Inventories, prepaids and other current assets

 

 

(1,829)

 

 

(3,602)

Other assets

 

 

(133)

 

 

Accounts payable

 

 

2,514 

 

 

(2,786)

Compensation and benefit obligations

 

 

(1,902)

 

 

(1,748)

Other accrued expenses

 

 

178 

 

 

429 

Advance subscription payments

 

 

548 

 

 

1,140 

Other post-employment benefits

 

 

(15)

 

 

(2)

Net cash provided by operating activities

 

 

1,037 

 

 

347 

Investing Activities

 

 

 

 

 

 

Purchases of assets

 

 

(852)

 

 

(2,095)

Net cash used for investing activities

 

 

(852)

 

 

(2,095)

Financing Activities

 

 

 

 

 

 

Purchases of noncontrolling interests

 

 

(9,231)

 

 

 —

Dividends paid

 

 

(1,763)

 

 

(1,745)

Distributions to noncontrolling interests

 

 

(57)

 

 

(264)

Proceeds from exercise of stock options

 

 

 —

 

 

33 

Net cash used for financing activities

 

 

(11,051)

 

 

(1,976)

Net decrease in cash and cash equivalents

 

 

(10,866)

 

 

(3,724)

Cash and cash equivalents, beginning of period

 

 

80,071 

 

 

78,380 

Cash and cash equivalents, end of period

 

$

69,205 

 

$

74,656 



 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Income tax paid, net (refund)

 

$

(127)

 

$

43 

Noncash investing and financing activities:

 

 

 

 

 

 

Investments in property, plant and equipment payable

 

 

680 

 

 

 —

Dividends payable

 

 

1,777 

 

 

 —

Distributions to nonconrolling interests payable

 

 

122 

 

 

 —



See the accompanying Notes to the Consolidated Financial Statements.

 



 

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 extending the Company’s media platform, A. H. Belo delivers news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles. The Company publishes The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the Denton Record-Chronicle (www.dentonrc.com), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. A. H. Belo also offers digital marketing solutions through DMV Digital Holdings Company (“DMV Holdings”) and Your Speakeasy, LLC (“Speakeasy”), and provides event activation, promotion and marketing services through DMN CrowdSource LLC (“CrowdSource”).



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



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



New Accounting Pronouncements.    The 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 2014-09 using the modified retrospective approach as of January 1, 2018. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings. The Company 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 statements.

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


 



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



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



In March 2017, the FASB issued ASU 2017-07  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, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



Note 2:  Segment Reporting



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



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



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



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

A. H. Belo Corporation 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.







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2017

 

2016



 

 

 

 

(Recast)

Revenue

 

 

 

 

 

 

Publishing

 

$

53,491 

 

$

56,505 

Marketing Services

 

 

7,410 

 

 

5,978 

Total

 

$

60,901 

 

$

62,483 



 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

Publishing

 

$

(4,725)

 

$

(2,480)

Marketing Services

 

 

590 

 

 

699 

Total

 

$

(4,135)

 

$

(1,781)



 

 

 

 

 

 

Noncash Expenses

 

 

 

 

 

 

Publishing

 

 

 

 

 

 

Depreciation

 

$

2,491 

 

$

2,611 

Amortization

 

 

 —

 

 

26 

Goodwill impairment

 

 

228 

 

 

 —

Total

 

$

2,719 

 

$

2,637 



 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

Depreciation

 

$

15 

 

$

21 

Amortization

 

 

200 

 

 

200 

Total

 

$

215 

 

$

221 







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2017

 

2016



 

 

 

 

(Recast)

Total Assets

 

 

 

 

 

 

Publishing

 

$

155,116 

 

$

170,820 

Marketing Services

 

 

22,516 

 

 

21,911 

Total

 

$

177,632 

 

$

192,731 



Note 3: Acquisitions



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



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



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



Pro-rata distributions.    In connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the shareholder agreement provided for a pro-rata distribution of 50 percent and 100 percent of DMV Holdings’ free cash flow for fiscal years 2016 and 2015, respectively. Free cash flow is defined as earnings before interest, taxes, depreciation and amortization less capital expenditures, debt amortization and interest expense, as applicable. In the 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, in connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the Company entered into a shareholder agreement which provided for a put option to a noncontrolling shareholder. The put option provided the shareholder with the right to require the Company to purchase up to 25 percent of the noncontrolling ownership interest in DMV Holdings between the second and third anniversaries of the agreement and up to 50 percent of the noncontrolling ownership interest in DMV Holdings between the fourth and fifth anniversaries of the agreement.



Redeemable noncontrolling interest was recorded at fair value on the acquisition date and the carrying value was adjusted each period for its share of the earnings related to DMV Holdings and for any distributions.  The carrying value was also adjusted for the change in fair value, which was based on the estimated redemption value as of December 31, 2016. Adjustments were recorded to retained earnings or additional paid in capital, as applicable, and have no effect to earnings of the Company. During the 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 4Goodwill and Intangible Assets



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







 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2017

 

2016



 

 

 

(Recast)

Goodwill

 

 

 

 

 

Publishing

$

 —

 

$

228 

Marketing Services

 

13,973 

 

 

13,973 

Total

$

13,973 

 

$

14,201 



 

 

 

 

 

Intangible Assets

 

 

 

 

 

Publishing

 

 

 

 

 

Cost

$

240 

 

$

240 

Accumulated Amortization

 

(240)

 

 

(240)

Net Carrying Value

$

 —

 

$

 —

Marketing Services

 

 

 

 

 

Cost

$

6,470 

 

$

6,470 

Accumulated Amortization

 

(1,798)

 

 

(1,598)

Net Carrying Value

$

4,672 

 

$

4,872 



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.



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



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



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 5Long-term Incentive Plan



A. H. Belo sponsors a long-term incentive plan (the “Plan”) under which 8,000,000 shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Awards may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted share awards,  restricted stock units (“RSUs”), performance shares, performance units or stock appreciation rights. In addition, stock options may be accompanied by full and limited stock appreciation rights. Rights and limited stock appreciation rights may also be issued without accompanying stock options. Awards under the Plan were also granted to holders of stock options issued by A. H. Belo’s former parent company in connection with the Company’s separation from its former parent in 2008.



Stock Options.    Stock options granted under the Plan are fully vested and exercisable. No options have been granted since 2009, and all compensation expense associated with stock options has been fully recognized as of 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, the 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 value of options exercised in the three months ended March 31, 2016,  was $117.



Restricted Stock Units.    The Company’s RSUs have service and/or performance conditions and, subject to retirement eligibility, vest over a period of up to three years. Vested RSUs are redeemed 60 percent in A. H. Belo Series A common stock and 40 percent in cash over a period of up to three years. As of March 31, 2017, the liability for the portion of the awards to be redeemed in cash was $815. The table below sets forth a summary of RSU activity under the Plan.







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Total
RSUs

 

Issuance of
Common
Stock

 

RSUs
Redeemed in
Cash

 

Cash
Payments at
Closing Price
of Stock

 

Weighted

Average Price

on Date of

Grant

Non-vested at December 31, 2016

121,131 

 

 

 

 

 

 

 

 

$

5.65 

Granted

213,027 

 

 

 

 

 

 

 

 

 

6.25 

Vested and outstanding

(86,000)

 

 

 

 

 

 

 

 

 

6.25 

Vested and issued

(22,734)

 

13,634 

 

9,100 

 

$

57 

 

 

6.90 

Non-vested at March 31, 2017

225,424 

 

 

 

 

 

 

 

 

 

5.86 



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, 2016. In addition, there were 253,782 and 237,074 RSUs that were vested and outstanding as of March 31, 2017 and December 31, 2016, 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 to 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 Plan over the vesting period of the award. Compensation expense related to RSUs granted under the Plan is set forth in the table below.







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Three Months Ended March 31,

RSUs

Redeemable

in Stock

 

RSUs
 Redeemable
 in Cash

 

Total
RSU Awards
 Expense

2017

$

441 

 

$

279 

 

$

720 

2016

 

372 

 

 

232 

 

 

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 7Pension and Other Retirement Plans



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



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



Net Periodic Pension Benefit



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







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2017

 

2016

Interest cost

 

$

2,386 

 

$

2,525 

Expected return on plans' assets

 

 

(3,313)

 

 

(3,396)

Amortization of actuarial loss

 

 

75 

 

 

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 Plan and the Internal Revenue Code. Employees can contribute up to 100 percent of their annual eligible compensation less required withholdings and deductions up to statutory limits. The Company provides an ongoing dollar-for-dollar match of eligible employee contributions, up to 1.5 percent of the employees’ compensation on a per-pay-period basis. During the three months ended March 31, 2017 and 2016, the Company recorded expense of $264 and $279, respectively,  for matching contributions to the Savings Plan.

 

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


 

Note 8Shareholders’ Equity



Dividends.    On March 2, 2017, the Company’s board of directors declared  an $0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on May  12, 2017, which is payable on June 2, 2017. During the three months ended March  31, 2017, the Company recorded $1,777 to accrue for dividends declared but not yet paid.



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



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









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended 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 and 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 10:  Contingencies



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



The Company 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


 

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



A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect its financial statements. The following information should be read in conjunction with the Company’s consolidated financial statements and related notes filed as part of this report. Unless otherwise noted, amounts in Management’s Discussion and Analysis reflect continuing operations of the Company, and all dollar amounts are presented in thousands, except share and per share amounts.



OVERVIEW



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



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



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



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



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



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



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

A. H. Belo Corporation 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. 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.



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, the Company’s primary revenues are generated from advertising within its core newspapers, niche publications and related websites and from subscription and single copy sales of its printed newspapers. As a result of competitive and economic conditions, the newspaper industry has faced a significant revenue decline over the past decade. Therefore, the Company has sought to diversify its revenues through development and investment in new product offerings, increased circulation rates and leveraging of its existing assets to offer cost efficient commercial printing and distribution services to its local markets. The Company continually evaluates the overall performance of its core products to ensure existing assets are deployed adequately to maximize return.



The Company’s advertising revenue from its core newspapers continues to be adversely affected by the shift of advertiser spending to other forms of media and the increased accessibility of free online news content, as well as news content from other sources, which resulted in declines in advertising and paid print circulation volumes and revenue. The most significant decline in advertising revenue has been attributable to print display and classified categories. These categories, which represented 26.6 percent of consolidated revenue in 2014, have declined to 19.6 percent of consolidated revenue thus far in 2017, and further declines are likely in future periods. Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital platforms, which are widely available from many sources. In the current environment, companies are allocating more of their advertising spending towards programmatic channels that provide digital advertising on multiple platforms with enhanced technology for targeted delivery and measurement. As a result of the continued declines the Publishing segment experienced, and expects to continue to experience, in advertising and print circulation revenues, the Publishing reporting unit’s goodwill was determined to be fully impaired as of December 31, 2016.  Certain goodwill and intangible assets previously reported in the Marketing Services segment were moved to the Publishing segment as a result of the first quarter 2017 segment reorganization. The Publishing reporting unit’s goodwill was fully impaired. Therefore, the Company recorded a  noncash goodwill impairment charge of $228 in the first quarter of 2017.



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



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


 

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



Advertising and marketing services revenue



Advertising and marketing services revenue was 57.8 percent and 56.4 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



DisplayDisplay revenue primarily represents sales of non-classified advertising space within the Company’s core and niche newspapers. As advertisers continue to diversify marketing budgets to incorporate more and varied avenues of reaching consumers, traditional display advertising continues to decline. Revenue decreased due to lower retail advertising in substantially all categories 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, 2017.



Classified – Classified primarily represents sales of classified advertising space within the Company’s core and niche newspapers. Growth in classified advertising revenue continues to be challenging as alternative digital outlets continue to emerge. Rate improvement trends in certain display advertising categories partially offset the volume decline. Overall classified revenue 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.



DigitalDigital publishing is primarily comprised of banner and real estate classified advertising on The Dallas Morning News’ website dallasnews.com,  sales of online automotive classifieds on the cars.com platform, as well as online employment and obituary classified advertising on third-party websites sold under a print/digital bundle package. Revenue 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 the sale of promotional merchandise by MarketingFX.

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


 



Circulation revenue



Circulation revenue was 31.5 percent and 32.6  percent 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, 2017 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 markets the capacity of its printing and distribution assets to other newspapers that would benefit from cost sharing arrangements. Additionally, the Company’s event activation, promotion and marketing services provider,  CrowdSource, works closely with cities and other corporate sponsors to bring large entertainment events to local communities. Revenue decreased due to a decline in volumes associated with 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 operating 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 

 

 -