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20190630 Q2

Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





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

For the quarterly period ended: June 30, 2019 

OR

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

Commission file no. 1-33741





Picture 1



A. H. Belo Corporation

(Exact name of registrant as specified in its charter)







 

 

Texas

 

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



Securities registered pursuant to Section 12(b) of the Act:



 

 

 

 



 

 

 

 



 

 

 

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $.01 par value

 

AHC

 

New York Stock Exchange



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 every Interactive Data File required to be submitted 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 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.:





 

 

 

 

 

 

Large accelerated filer:  

 

Accelerated filer:  

 

Non-accelerated filer:  

 

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 



Shares of Common Stock outstanding at July 25, 2019: 21,463,653 shares (consisting of 18,994,145 shares of Series A Common Stock and 2,469,508 shares of Series B Common Stock).

 

 


 

Table of Contents

 



A. H. BELO CORPORATION



FORM 10-Q



TABLE OF CONTENTS





 

 

 





 

 

 

 

 

Page

PART I

Item 1.

Financial Information

 

PAGE    3

Item 2.

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

 

PAGE 18

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

PAGE 25

Item 4.

Controls and Procedures

 

PAGE 25

 

 

 

 

PART II 

 

 

Item 1.

Legal Proceedings

 

PAGE 26

Item 1A.

Risk Factors

 

PAGE 26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

PAGE 26

Item 3.

Defaults Upon Senior Securities

 

PAGE 26

Item 4.

Mine Safety Disclosures

 

PAGE 26

Item 5.

Other Information

 

PAGE 26

Item 6.

Exhibits

 

PAGE 27

Signatures

 

PAGE 30

Exhibit Index

 

PAGE 31



 

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q


 

Table of Contents

 



PART I

Item 1.  Financial Information



A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Operations





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

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

 

2019

 

2018

 

2019

 

2018

Net Operating Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

25,920 

 

$

26,397 

 

$

49,961 

 

$

52,138 

Circulation

 

 

17,013 

 

 

17,921 

 

 

34,286 

 

 

35,668 

Printing, distribution and other

 

 

4,802 

 

 

6,851 

 

 

10,077 

 

 

12,816 

Total net operating revenue

 

 

47,735 

 

 

51,169 

 

 

94,324 

 

 

100,622 

Operating Costs and Expense:

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

19,828 

 

 

21,529 

 

 

40,952 

 

 

46,201 

Other production, distribution and operating costs

 

 

24,465 

 

 

22,833 

 

 

46,649 

 

 

45,847 

Newsprint, ink and other supplies

 

 

4,022 

 

 

5,461 

 

 

8,769 

 

 

10,772 

Depreciation

 

 

2,333 

 

 

2,535 

 

 

4,719 

 

 

5,008 

Amortization

 

 

200 

 

 

200 

 

 

400 

 

 

400 

Gain on sale of assets, net

 

 

(25,908)

 

 

 —

 

 

(25,908)

 

 

 —

Asset impairments

 

 

 —

 

 

(22)

 

 

 —

 

 

(22)

Total operating costs and expense

 

 

24,940 

 

 

52,536 

 

 

75,581 

 

 

108,206 

Operating income (loss)

 

 

22,795 

 

 

(1,367)

 

 

18,743 

 

 

(7,584)

Other income, net

 

 

1,161 

 

 

891 

 

 

2,058 

 

 

1,779 

Income (Loss) Before Income Taxes

 

 

23,956 

 

 

(476)

 

 

20,801 

 

 

(5,805)

Income tax provision (benefit)

 

 

7,095 

 

 

58 

 

 

6,952 

 

 

(1,257)

Net Income (Loss)

 

$

16,861 

 

$

(534)

 

$

13,849 

 

$

(4,548)



 

 

 

 

 

 

 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.78 

 

$

(0.03)

 

$

0.64 

 

$

(0.21)

Number of common shares used in the per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

21,525,971 

 

 

21,738,545 

 

 

21,578,014 

 

 

21,756,678 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     3


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

In thousands (unaudited)

 

2019

 

2018

 

2019

 

2018

Net Income (Loss)

 

$

16,861 

 

$

(534)

 

$

13,849 

 

$

(4,548)

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial losses

 

 

62 

 

 

157 

 

 

125 

 

 

315 

Total other comprehensive income, net of tax

 

 

62 

 

 

157 

 

 

125 

 

 

315 

Total Comprehensive Income (Loss)

 

$

16,923 

 

$

(377)

 

$

13,974 

 

$

(4,233)



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     4


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 

  

 

 

 

 

 

 



 

June 30,

 

December 31,

In thousands, except share amounts (unaudited)

 

2019

 

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,017 

 

$

55,313 

Accounts receivable (net of allowance of $834 and $581 at June 30, 2019
and December 31, 2018, respectively)

 

 

20,468 

 

 

22,057 

Inventories

 

 

3,454 

 

 

3,912 

Prepaids and other current assets

 

 

5,808 

 

 

5,023 

Assets held for sale

 

 

 —

 

 

1,089 

Total current assets

 

 

81,747 

 

 

87,394 

Property, plant and equipment, at cost

 

 

423,389 

 

 

422,966 

Less accumulated depreciation

 

 

(401,393)

 

 

(396,705)

Property, plant and equipment, net

 

 

21,996 

 

 

26,261 

Operating lease right-of-use assets

 

 

22,222 

 

 

 —

Intangible assets, net

 

 

3,384 

 

 

3,274 

Goodwill

 

 

15,566 

 

 

13,973 

Deferred income taxes, net

 

 

 —

 

 

6,417 

Long-term note receivable

 

 

22,400 

 

 

 —

Other assets

 

 

3,675 

 

 

5,029 

Total assets

 

$

170,990 

 

$

142,348 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,062 

 

$

6,334 

Accrued compensation and benefits

 

 

7,484 

 

 

8,294 

Other accrued expense

 

 

4,430 

 

 

5,586 

Advance subscription payments

 

 

12,844 

 

 

11,449 

Total current liabilities

 

 

30,820 

 

 

31,663 

Long-term pension liabilities

 

 

30,105 

 

 

31,889 

Long-term operating lease liabilities

 

 

23,631 

 

 

 —

Other post-employment benefits

 

 

1,158 

 

 

1,165 

Other liabilities

 

 

4,679 

 

 

7,045 

Total liabilities

 

 

90,393 

 

 

71,762 

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 20,854,771 and 20,854,728 shares at June 30, 2019
and December 31, 2018, respectively

 

 

209 

 

 

209 

Series B: issued 2,469,512 and 2,469,555 shares at June 30, 2019
and December 31, 2018, respectively

 

 

24 

 

 

24 

Treasury stock, Series A, at cost; 1,828,983 and 1,697,370 shares held at June 30, 2019 and December 31, 2018, respectively

 

 

(13,128)

 

 

(12,601)

Additional paid-in capital

 

 

494,389 

 

 

494,389 

Accumulated other comprehensive loss

 

 

(37,516)

 

 

(37,641)

Accumulated deficit

 

 

(363,381)

 

 

(373,794)

Total shareholders’ equity

 

 

80,597 

 

 

70,586 

Total liabilities and shareholders’ equity

 

$

170,990 

 

$

142,348 



See the accompanying Notes to the Consolidated Financial Statements.

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     5


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Six Months Ended June 30, 2019 and 2018



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

Total

Balance at December 31, 2017

20,700,292 

2,469,755 

$

232 

$

494,989 

 

(1,430,961)

$

(11,302)

$

(24,932)

$

(361,288)

$

97,699 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(4,548)

 

(4,548)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

315 

 

 —

 

315 

Shares repurchased

 —

 —

 

 —

 

 —

 

(160,180)

 

(825)

 

 —

 

 —

 

(825)

Issuance of shares for restricted stock units

151,236 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

720 

 

 —

 

 —

 

 —

 

 —

 

720 

Conversion of Series B to Series A

120 

(120)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(3,564)

 

(3,564)

Balance at June 30, 2018

20,851,648 

2,469,635 

$

233 

$

495,708 

 

(1,591,141)

$

(12,127)

$

(24,617)

$

(369,400)

$

89,797 

Balance at December 31, 2018

20,854,728 

2,469,555 

$

233 

$

494,389 

 

(1,697,370)

$

(12,601)

$

(37,641)

$

(373,794)

$

70,586 

Net income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

13,849

 

13,849

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

125

 

 —

 

125

Shares repurchased

 —

 —

 

 —

 

 —

 

(131,613)

 

(527)

 

 —

 

 —

 

(527)

Conversion of Series B to Series A

43

(43)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(3,436)

 

(3,436)

Balance at June 30, 2019

20,854,771

2,469,512

$

233 

$

494,389 

 

(1,828,983)

$

(13,128)

$

(37,516)

$

(363,381)

$

80,597









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30, 2019 and 2018



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

Total

Balance at March 31, 2018

20,817,514 

2,469,635 

$

233 

$

495,605 

 

(1,539,739)

$

(11,857)

$

(24,774)

$

(367,083)

$

92,124 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(534)

 

(534)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

157 

 

 —

 

157 

Shares repurchased

 —

 —

 

 —

 

 —

 

(51,402)

 

(270)

 

 —

 

 —

 

(270)

Issuance of shares for restricted stock units

34,134 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

103 

 

 —

 

 —

 

 —

 

 —

 

103 

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,783)

 

(1,783)

Balance at June 30, 2018

20,851,648 

2,469,635 

$

233 

$

495,708 

 

(1,591,141)

$

(12,127)

$

(24,617)

$

(369,400)

$

89,797 

Balance at March 31, 2019

20,854,739 

2,469,544 

$

233 

$

494,389 

 

(1,780,899)

$

(12,941)

$

(37,578)

$

(378,526)

$

65,577 

Net income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

16,861 

 

16,861 

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

62 

 

 —

 

62 

Shares repurchased

 —

 —

 

 —

 

 —

 

(48,084)

 

(187)

 

 —

 

 —

 

(187)

Conversion of Series B to Series A

32 

(32)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,716)

 

(1,716)

Balance at June 30, 2019

20,854,771 

2,469,512 

$

233 

$

494,389 

 

(1,828,983)

$

(13,128)

$

(37,516)

$

(363,381)

$

80,597 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     6


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows







 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended June 30,

In thousands (unaudited)

 

2019

 

2018

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

13,849 

 

$

(4,548)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

5,119 

 

 

5,408 

Net periodic pension and other post-employment benefit

 

 

(1,637)

 

 

(1,861)

Share-based compensation

 

 

 —

 

 

720 

Bad debt expense

 

 

474 

 

 

348 

Deferred income taxes

 

 

6,417 

 

 

(1,696)

(Gain) loss on sale/disposal of fixed assets

 

 

(25,908)

 

 

208 

Asset impairments

 

 

 —

 

 

(22)

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

 

 

 

 

 

 

Accounts receivable

 

 

1,919 

 

 

6,461 

Inventories, prepaids and other current assets

 

 

(327)

 

 

2,289 

Other assets

 

 

1,354 

 

 

1,036 

Accounts payable

 

 

(734)

 

 

(3,049)

Compensation and benefit obligations

 

 

(1,503)

 

 

(497)

Other accrued expenses

 

 

338 

 

 

3,414 

Advance subscription payments

 

 

(369)

 

 

(145)

Other post-employment benefits

 

 

(29)

 

 

(901)

Net cash provided by (used for) operating activities

 

 

(1,037)

 

 

7,165 

Investing Activities

 

 

 

 

 

 

Purchases of assets

 

 

(457)

 

 

(3,697)

Sales of assets

 

 

4,597 

 

 

 —

Acquisitions, net of cash acquired

 

 

(2,425)

 

 

 —

Net cash provided by (used for) investing activities

 

 

1,715 

 

 

(3,697)

Financing Activities

 

 

 

 

 

 

Dividends paid

 

 

(3,447)

 

 

(3,552)

Shares repurchased

 

 

(527)

 

 

(825)

Net cash used for financing activities

 

 

(3,974)

 

 

(4,377)

Net decrease in cash and cash equivalents

 

 

(3,296)

 

 

(909)

Cash and cash equivalents, beginning of period

 

 

55,313 

 

 

57,660 

Cash and cash equivalents, end of period

 

$

52,017 

 

$

56,751 



 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Income tax paid, net (refund)

 

$

895 

 

$

(2,315)

Noncash investing and financing activities:

 

 

 

 

 

 

Investments in property, plant and equipment payable

 

 

102 

 

 

170 

Dividends payable

 

 

1,720 

 

 

1,786 

Long-term note receivable for asset sales

 

 

22,400 

 

 

 —



See the accompanying Notes to the Consolidated Financial Statements.

 



 

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     7


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

 



Note 1:  Basis of Presentation and Recently Issued Accounting Standards



Description of Business.    A. H. Belo Corporation and subsidiaries are referred to collectively herein as “A. H. Belo” or the “Company.” The Company, headquartered in Dallas, Texas, is the leading local news and information publishing company in Texas. The Company has commercial printing, distribution and direct mail capabilities, as well as a presence in emerging media and digital marketing. While focusing on extending the Company’s media platforms, A. H. Belo delivers news and information in innovative ways to a broad range 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, and various niche publications targeting specific audiences.



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 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, 2018. 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.



Recently Adopted Accounting Pronouncements.



In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Since February 2016, the FASB issued clarifying updates to the new standard that did not change the core principle of ASU 2016-02. The new guidance will supersede virtually all existing lease guidance under GAAP and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2016-02 on January 1, 2019, using the modified retrospective approach; see Note 4 – Leases.  



New Accounting Pronouncements.    The FASB issued the following accounting pronouncements and guidance, which may be applicable to the Company but have not yet become effective.



In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  Since June 2016, the FASB issued clarifying updates to the new standard. The guidance will be effective for fiscal years beginning after December 15, 2019. 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 August 2018, the FASB issued ASU 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans. This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant. The guidance will be effective for fiscal years ending after December 15, 2020. 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 financial statement disclosures.



A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     8


 

Table of Contents

 

In August 2018, the FASB issued ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This update clarifies the accounting for implementation costs incurred in a cloud computing arrangement, or hosting arrangement, that is a service contract. Costs for implementation activities incurred during the application development stage will be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages will be expensed as the activities are performed. The capitalized implementation costs will be expensed over the term of the hosting arrangement. The guidance will be effective for fiscal years beginning after December 15, 2019, and 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



The Company identified two reportable segments based on 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 and apps. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers, commercial printing and distribution services, primarily related to national and regional newspapers, and preprint advertising. Businesses within the Publishing segment leverage its 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 Digital Holdings Company (“DMV Holdings”) and digital advertising through Connect (programmatic advertising). The Company operates this integrated 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, the Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer, Robert W. Decherd. The CODM allocates resources and capital to the Publishing and Marketing Services segments at the segment level.



In the first quarter of 2019, the Company determined one of the Company’s business units, previously reported in the Publishing segment, is now providing services and products more closely aligned with the Marketing Services segment. Beginning January 1, 2019, this business unit will be reported in the Marketing Services segment. The 2018 financial information by segment was recast for comparative purposes.

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     9


 

Table of Contents

 

The tables below set forth summarized financial information for the Company’s reportable segments.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2019

 

2018

 

2019

 

2018



 

 

 

 

 

(Recast)

 

 

 

 

 

(Recast)

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

40,915 

 

$

45,085 

 

$

81,618 

 

$

88,714 

Marketing Services

 

 

6,820 

 

 

6,084 

 

 

12,706 

 

 

11,908 

Total

 

$

47,735 

 

$

51,169 

 

$

94,324 

 

$

100,622 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

22,742 

 

$

(1,799)

 

$

18,702 

 

$

(8,101)

Marketing Services

 

 

53 

 

 

432 

 

 

41 

 

 

517 

Total

 

$

22,795 

 

$

(1,367)

 

$

18,743 

 

$

(7,584)



 

 

 

 

 

 

 

 

 

 

 

 

Noncash Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

2,263 

 

$

2,498 

 

$

4,580 

 

$

4,934 

Gain on sale of assets, net

 

 

(25,908)

 

 

 —

 

 

(25,908)

 

 

 —

Asset impairments

 

 

 —

 

 

(22)

 

 

 —

 

 

(22)

Total

 

$

(23,645)

 

$

2,476 

 

$

(21,328)

 

$

4,912 



 

 

 

 

 

 

 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

70 

 

$

37 

 

$

139 

 

$

74 

Amortization

 

 

200 

 

 

200 

 

 

400 

 

 

400 

Total

 

$

270 

 

$

237 

 

$

539 

 

$

474 









 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018



 

 

 

 

 

(Recast)

Total Assets

 

 

 

 

 

 

Publishing

 

$

143,281 

 

$

120,479 

Marketing Services

 

 

27,709 

 

 

21,869 

Total

 

$

170,990 

 

$

142,348 







Note 3:  Acquisitions



On April 1, 2019, the Company completed the acquisition of certain assets of Cubic, Inc. for a cash purchase price of $2,425, net of $213 cash acquired.  Transaction costs related to the purchase were a component of other production, distribution and operating costs in the Consolidated Statements of Operations and totaled $92,  of which $63 and $86 were incurred in the three and six months ended June 30, 2019, respectively.



The new entity Cubic Creative, Inc. (“Cubic Creative”) is located in Tulsa, Oklahoma and has approximately 25 employees. This acquisition adds creative strategy services, which will be complementary to service offerings currently available to A. H. Belo clients. The expected benefit from providing these additional services was attributed to goodwill, all of which is expected to be deductible for tax purposes. The acquired operations will be included in the Marketing Services segment. The Company is in the process of finalizing the allocation of the purchase price to the underlying assets and liabilities.

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     10


 

Table of Contents

 

The table below sets forth the preliminary allocation of the purchase price, which is subject to adjustment upon finalization.





 

 

 



 

 

 



 

 

Estimated
Fair Value

Working capital, net of acquired cash

 

$

297 

Property, plant and equipment

 

 

25 

Other intangible assets

 

 

510 

Goodwill

 

 

1,593 

Total

 

$

2,425 



Operating results of the business acquired have been included in the Consolidated Statements of Operations from the acquisition date forward. Pro forma results of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported.







Note 4:  Revenue



Revenue Recognition



Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. This occurs when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales tax collected concurrent with revenue-producing activities are excluded from revenue.



Accounts receivable are reported net of a valuation reserve that represents an estimate of amounts considered uncollectible. The Company estimates the allowance for doubtful accounts based on historical write-off experience and the Company’s knowledge of the customers’ ability to pay amounts due. Accounts are written-off after all collection efforts fail; generally, after one year has expired. Expense for such uncollectible amounts is included in other production, distribution and operating costs.



Notes receivable are recorded net of an allowance for doubtful accounts. Notes receivable primarily relates to the financed portion of the sale of the Company’s former headquarters (see Note 13 – Sales of Assets). Interest income is accrued on the unpaid principal balance. The Company puts notes receivable on non-accrual status and provides an allowance against accrued interest if it is determined the likelihood of collecting substantially all of the note and accrued interest is not probable. Notes are written-off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.



The table below sets forth revenue disaggregated by revenue source. 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2019

 

2018

 

 

2019

 

2018

Advertising revenue (a)

 

$

19,100 

 

$

20,313 

 

$

37,255 

 

$

40,230 

Digital services (a)

 

 

5,625 

 

 

4,899 

 

 

9,934 

 

 

9,367 

Other services

 

 

1,195 

 

 

1,185 

 

 

2,772 

 

 

2,541 

Advertising and marketing services

 

25,920 

 

 

26,397 

 

 

49,961 

 

 

52,138 

Circulation

 

 

17,013 

 

 

17,921 

 

 

34,286 

 

 

35,668 

Printing, distribution and other

 

 

4,802 

 

 

6,851 

 

 

10,077 

 

 

12,816 

Total Revenue

 

$

47,735 

 

$

51,169 

 

$

94,324 

 

$

100,622 



(a)

Due to the first quarter 2019 change to the segments (see Note  2 – Segment Reporting), revenue previously reported as advertising revenue is now reported as digital services revenue. The 2018 amounts for these revenue sources were recast for comparative purposes.



Advertising and Marketing Services Revenue



Advertising revenue, included in the Publishing segment results, is generated by selling print and digital advertising products. Print advertising revenue represents sales of advertising space within the Company’s core and niche newspapers, as well as preprinted advertisements inserted into the Company’s core newspapers and niche publications or distributed to non-subscribers through the mail. Digital advertising is generated by selling banner and real estate classified advertising on The Dallas Morning News’ website dallasnews.com, online employment and obituary classified advertising on third-party websites sold under a print/digital bundle package and sales of online automotive classifieds on the cars.com platform. The Company’s agreement to sell on the cars.com platform was not renewed and will end September 30, 2019.

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     11


 

Table of Contents

 



Digital services and other services revenues are included in the Marketing Services segment results. Digital services revenue includes targeted and multi-channel (programmatic) advertising placed on third-party websites, content development, social media management, search optimization, creative strategy services and other consulting. Other services revenue is primarily generated from the sale of promotional merchandise.



Advertising and marketing services revenue is primarily recognized at a point in time when the ad or service is complete and delivered, based on the customers’ contract price. In addition, certain digital advertising revenue related to website access is recognized over time, based on the customers’ monthly rate.



For ads placed on certain third-party websites, the Company must evaluate whether it is acting as the principal, where revenue is reported on a gross basis, or acting as the agent, where revenue is reported on a net basis. Generally, the Company reports advertising revenue for ads placed on third-party websites on a net basis, meaning the amount recorded to revenue is the amount billed to the customer net of amounts paid to the publisher of the third-party website. The Company is acting as the agent because the publisher controls the advertising inventory.



Circulation



Circulation revenue, included in the Publishing segment results, is generated primarily by selling home delivery and digital subscriptions, as well as single copy sales to non-subscribers. Home delivery and single copy revenue is recognized at a point in time when the paper is delivered or purchased. Digital subscriptions are recognized over time, based on the customers’ monthly rate.



Printing, Distribution and Other



Printing, distribution and other revenue, included in the Publishing segment results, is primarily generated from printing and distribution of other newspapers, as well as production of preprinted advertisements for other newspapers. Printing, distribution and other revenue is recognized at a point in time when the product or service is delivered.



Remaining Performance Obligations



The Company has various Publishing advertising contracts and Marketing Services digital services contracts that range from 13 months to 36 months. The Company recognizes revenue on the advertising contracts over the term of the agreement at a point in time when the service or product is delivered. The Company recognizes revenue on the digital services contracts over time, based on the customers’ monthly rate. At June 30, 2019, the remaining performance obligation was $3,004. The Company expects to recognize $809 over the remainder of 2019, $1,196 in 2020, $886 in 2021, and $113 in 2022.



Deferred Revenue



Deferred revenue is recorded when cash payments are received in advance of the Company’s performance, including amounts which are refundable. The short-term and long-term deferred revenue balance as of June 30, 2019, was $13,280, included in advance subscription payments, other accrued expense and other liabilities in the Consolidated Balance Sheet. In the six months ended June 30, 2019, the balance increased $685,  primarily driven by cash payments received in advance of satisfying our performance obligations, offset by $9,706 of revenue recognized that was included in the deferred revenue balance as of December 31, 2018.



Practical Expedients and Exemptions



The Company generally expenses sales commissions and circulation acquisition costs when incurred because the amortization period would have been one year or less. These costs are recorded within employee compensation and benefits expense and other production, distribution and operating costs expense, respectively.



The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less and contracts for which revenue is recognized at the amount invoiced for services performed.

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     12


 

Table of Contents

 







Note 5: Leases



Adoption of ASU 2016-02 – Leases (Topic 842)



On January 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective approach applied to all leases with a remaining lease term greater than one year. Results for reporting periods beginning after January 1, 2019, are presented in accordance with the new guidance under ASU 2016-02, while prior period amounts are not restated. The adoption of the new lease guidance resulted in the Company recognizing operating lease right-of-use assets and lease liabilities based on the present value of remaining minimum lease payments. For the discount rate assumption, the implicit rate was not readily determinable in the Company’s lease agreements. Therefore, the Company used an estimated secured incremental borrowing rate, based on the Company’s credit rating, adjusted for the weighted average term of each lease in determining the present value of lease payments. There was no impact to opening retained earnings.



The Company elected the practical expedients available under ASU 2016-02 and applied them consistently to all applicable leases. The Company did not apply ASU 2016-02 to any leases with a remaining term of 12 months or less. For these leases, no asset or liability was recorded and lease expense continues to be recognized on a straight-line basis over the lease term. As allowed by the practical expedients, the Company does not reassess whether any expired or existing contracts are or contain leases, does not reassess the lease classification for any expired or existing leases and does not reassess initial direct costs for existing leases. Additionally, the Company does not separately identify lease and nonlease components, such as maintenance costs.



Lease Accounting



The Company has various operating leases primarily for office space and other distribution centers, some of which include escalating lease payments and options to extend or terminate the lease. The Company determines if a contract is a lease at the inception of the arrangement. The exercise of lease renewal options are at the Company’s sole discretion and options are recognized when it is reasonably certain the Company will exercise the option. The Company’s leases have remaining terms of less than one year to 15 years. The Company does not have lease agreements with residual value guarantees, sale leaseback terms or material restrictive covenants.



The Company has a sublease with Denton Publishing Company for a remaining term of approximately four years. Additionally, the Company has various subleases with distributors, for distribution center space, with varying remaining lease terms of less than one year to two years and are cancellable with notice by either party. As of June 30, 2019, sublease income is expected to approximate $306 for the remainder of 2019, $388 in 2020, $237 in 2021, $223 in 2022, and $129 in 2023.



Operating lease right-of-use assets and liabilities are recognized at commencement date of lease agreements greater than one year based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term and variable lease costs are expensed as incurred. In the second quarter of 2019, the Company recorded an additional right-of use asset and liability of $356 as a result of the Cubic acquisition. As of June 30, 2019, the Company entered into one additional operating lease that will commence on September 1, 2019, with a lease term of five years, resulting in an additional right-of-use asset and liability of approximately $505 that will be recorded in the third quarter of 2019.



The table below sets forth supplemental Consolidated Balance Sheet information for the Company’s leases.





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Classification

 

June 30, 2019

Assets

 

 

 

 

 

 

 

Operating

 

 

Operating lease right-of-use assets

 

$

22,222 



 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Operating

 

 

 

 

 

 

 

Current

 

 

Other accrued expense

 

$

1,745 

Noncurrent

 

 

Long-term operating lease liabilities

 

 

23,631 

Total lease liabilities

 

 

 

 

$

25,376 



 

 

 

 

 

 

 

Lease Term and Discount Rate

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

 

Weighted average remaining lease term (years)

 

 

 

 

 

12.0 

Weighted average discount rate

 

 

 

 

 

7.5 

%



A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     13


 

Table of Contents

 

The table below sets forth components of lease expense and supplemental cash flow information for the Company’s leases.





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

Lease Cost

 

 

 

 

 

 

Operating lease cost

 

$

1,062 

 

$

2,100 

Short-term lease cost

 

 

45 

 

 

91 

Variable lease cost

 

 

155 

 

 

245 

Sublease income

 

 

(182)

 

 

(343)

Total lease cost

 

$

1,080 

 

$

2,093 



 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

Cash paid for operating leases included in operating activities

 

 

 

 

$

2,023 



The table below sets forth the remaining maturities of the Company’s lease liabilities as of June 30, 2019.





 

 

 



 

 

 

Years Ending December 31,

 

Operating Leases

2019

 

$

1,726 

2020

 

 

3,577 

2021

 

 

3,547 

2022

 

 

3,496 

2023

 

 

3,018 

Thereafter

 

 

24,506 

Total lease payments

 

 

39,870 

Less: imputed interest

 

 

14,494 

Total lease liabilities

 

$

25,376 



The table below sets forth the future minimum obligations for operating leases in effect as of December 31, 2018, as determined prior to the adoption of ASU 2016-02. Total operating lease expense was $4,688 for the year ended December 31, 2018.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Total

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

Operating lease commitments

$

41,837 

 

$

4,403 

 

$

3,588 

 

$

3,575 

 

$

3,467 

 

$

3,533 

 

$

23,271 









Note 6:  Goodwill and Intangible Assets



The table below sets forth goodwill and other intangible assets by reportable segment as of June 30, 2019 and December 31, 2018. The Company’s Publishing and Marketing Services segments each operate as a single reporting unit. There are no intangible assets or goodwill remaining for the Publishing segment.





 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,



2019

 

2018

Goodwill

 

 

 

 

 

Marketing Services

$

15,566 

 

$

13,973 



 

 

 

 

 

Intangible Assets

 

 

 

 

 

Marketing Services

 

 

 

 

 

Cost

$

6,980 

 

$

6,470 

Accumulated Amortization

 

(3,596)

 

 

(3,196)

Net Carrying Value

$

3,384 

 

$

3,274 



Marketing Services’ intangible assets consist of $4,950 of customer relationships with estimated useful lives of 10 years,  $1,520 of developed technology with an estimated useful life of five years and $510 of customer relationships with estimated useful lives of two years. Aggregate amortization expense was $200 for the three months ended June 30, 2019 and 2018, and $400 for the six months ended June 30, 2019 and 2018.

A. H. Belo Corporation Second Quarter 2019 on Form 10-Q     14


 

Table of Contents

 

Note 7:  Related Party Transactions



On March 1, 2019, the Company made a loan of $200 to eSite Analytics, Inc. As of June 30, 2019 and December 31, 2018, the Company had a note receivable of $775 and $650, respectively, included in prepaids and other current assets, and other assets in the Consolidated Balance Sheets, respectively. The Company accounts for eSite Analytics, Inc. as an equity method investment.



Note 8:  Income Taxes



The Company calculates the income tax provision based on the year-to-date pretax loss adjusted for permanent differences and discrete items on a pro-rata basis. Due to the volatility of the newspaper industry, reliable forecasting is unavailable. As such, a discrete tax rate was calculated for the period.



The Company recognized income tax provision (benefit) of $7,095 and $58 for the three months ended June 30, 2019 and 2018, respectively, and $6,952 and $(1,257) for the six months ended June 30, 2019 and 2018, respectively. Effective income tax rates were 33.4 percent and 21.7 percent for the six months ended June 30, 2019 and 2018, respectively. The effective income tax rate for the six months ended June 30, 2019, was due to changes in the valuation allowance, a decrease in the net operating loss deferred tax asset and the effect of the Texas margin tax. The change to the valuation allowance was an increase of $2,101 for the six months ended June 30, 2019, primarily due to the realization of unreserved net operating losses resulting from the sale of the Company’s former headquarters (see Note 13 – Sales of Assets), partially offset by additional losses from operations.



A refund of $3,210 was received in the second quarter of 2018, for a tax benefit recognized in 2016 that was carried back against taxes paid in 2014.



Note 9Pension and Other Retirement Plans



Defined Benefit Plans.    The Company sponsors the A. H. Belo Pension Plans (the “Pension Plans”), which provide benefits to approximately 1,400 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 2019 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, which are included in other income, net in the Consolidated Statements of Operations.











 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2019

 

2018

 

2019

 

2018

Interest cost

 

$

1,975 

 

$

1,797 

 

$

3,949 

 

$

3,593 

Expected return on plans' assets

 

 

(2,866)

 

 

(2,893)

 

 

(5,733)

 

 

(5,787)

Amortization of actuarial loss

 

 

69 

 

 

167 

 

 

139 

 

 

335 

Net periodic pension benefit

 

$

(822)

 

$

(929)

 

$