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 collecti
b
ility 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
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
The tables below set forth summarized financial information for the Company’s reportable segments.
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Three Months Ended June 30,
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Six Months Ended June 30,
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2019
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2018
|
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2019
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2018
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(Recast)
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(Recast)
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Revenue
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Publishing
|
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$
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40,915
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|
$
|
45,085
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|
$
|
81,618
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|
$
|
88,714
|
Marketing Services
|
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6,820
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|
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6,084
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|
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12,706
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|
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11,908
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Total
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$
|
47,735
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|
$
|
51,169
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$
|
94,324
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$
|
100,622
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Operating Income (Loss)
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Publishing
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$
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22,742
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$
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(1,799)
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$
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18,702
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$
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(8,101)
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Marketing Services
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53
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432
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41
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517
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Total
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$
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22,795
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$
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(1,367)
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$
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18,743
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$
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(7,584)
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Noncash Expenses
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Publishing
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Depreciation
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$
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2,263
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$
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2,498
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$
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4,580
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$
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4,934
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Gain on sale of assets, net
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(25,908)
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—
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(25,908)
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—
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Asset impairments
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—
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(22)
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—
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(22)
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Total
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$
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(23,645)
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$
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2,476
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$
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(21,328)
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$
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4,912
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Marketing Services
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Depreciation
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$
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70
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$
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37
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$
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139
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$
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74
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Amortization
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200
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200
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|
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400
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400
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Total
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$
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270
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$
|
237
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$
|
539
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$
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474
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June 30,
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December 31,
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2019
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2018
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(Recast)
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Total Assets
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Publishing
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$
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143,281
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$
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120,479
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Marketing Services
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27,709
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|
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21,869
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Total
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$
|
170,990
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$
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142,348
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Note 3: Acquisitions
On April 1, 2019, the Company completed the acquisition of
certain assets of
Cubic, Inc. for a cash purchase price of
$2,4
25
, net of
$2
13
cash
ac
quired
.
Transaction costs related to the purchase were a component of other production, distribution and operating costs in the Consolidated Statement
s
of Operations and totaled
$
92
,
of
which
$
6
3
and
$8
6
were incurred
in the three and six months ended June 30, 2019, respectively
.
The new entity Cubic Creative, Inc.
(“Cubic Creative”)
is located in Tulsa, Oklahoma and has
approximately
25
employees. This acquisition adds creative strategy services, which will be complementary to service offerings currently available to A.
H. Belo clients
.
T
he expected benefit from providing these
additional services
was attributed to goodwill
, all of which is expected to be deductible for tax purposes.
The acquired operations will be included in the Marketing Services segment.
The Company is in the process of finalizing the allocation
of the purchase price
to
the
underlying assets and liabilities.
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
10
The table below sets forth the preliminary allocation of the purchase price, which is subject to adjustment upon finalization.
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Estimated
Fair Value
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Working capital, net of acquired cash
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$
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297
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Property, plant and equipment
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25
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Other intangible assets
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510
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Goodwill
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1,593
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Total
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$
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2,425
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Operating resul
ts of the business acquired have
been included in the Consolidated Statement
s
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.
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Three Months Ended June 30,
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Six Months Ended June 30,
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2019
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2018
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2019
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2018
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Advertising revenue
(a)
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$
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19,100
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$
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20,313
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$
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37,255
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$
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40,230
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Digital services
(a)
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5,625
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4,899
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9,934
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9,367
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Other services
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1,195
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1,185
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2,772
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2,541
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Advertising and marketing services
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25,920
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26,397
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49,961
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52,138
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Circulation
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17,013
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17,921
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34,286
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35,668
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Printing, distribution and other
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4,802
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6,851
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10,077
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12,816
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Total Revenue
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$
|
47,735
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$
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51,169
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$
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94,324
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$
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100,622
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(a)
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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.
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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
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 manag
ement, 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 $1
13
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
3
0
, 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
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 $505 that will be recorded in the third quarter of 2019.
The table below sets forth supplemental Consolidated Balance Sheet information for the Company’s leases.
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Classification
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June 30, 2019
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Assets
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Operating
|
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Operating lease right-of-use assets
|
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$
|
22,222
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Liabilities
|
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Operating
|
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Current
|
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Other accrued expense
|
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$
|
1,745
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Noncurrent
|
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Long-term operating lease liabilities
|
|
|
23,631
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Total lease liabilities
|
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|
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$
|
25,376
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Lease Term and Discount Rate
|
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Operating leases
|
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Weighted average remaining lease term (years)
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12.0
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Weighted average discount rate
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7.5
|
%
|
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
13
The table below sets forth components of lease expense and supplemental cash flow information for the Company’s leases.
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Three Months Ended June 30, 2019
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Six Months Ended June 30, 2019
|
Lease Cost
|
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Operating lease cost
|
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$
|
1,062
|
|
$
|
2,100
|
Short-term lease cost
|
|
|
45
|
|
|
91
|
Variable lease cost
|
|
|
155
|
|
|
245
|
Sublease income
|
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|
(182)
|
|
|
(343)
|
Total lease cost
|
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$
|
1,080
|
|
$
|
2,093
|
|
|
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Supplemental Cash Flow Information
|
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Cash paid for operating leases included in operating activities
|
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|
|
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$
|
2,023
|
The table below sets forth the remaining maturities of the Company’s lease liabilities as of June 30, 2019.
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Years Ending December 31,
|
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Operating Leases
|
2019
|
|
$
|
1,726
|
2020
|
|
|
3,577
|
2021
|
|
|
3,547
|
2022
|
|
|
3,496
|
2023
|
|
|
3,018
|
Thereafter
|
|
|
24,506
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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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
3
0
, 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
3
0
, 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
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
3
0
, 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 2
1
.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 $
2,1
01
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 9
:
Pension and Other Retirement Plans
Defined Benefit Plans.
The Company sponsors the A. H. Belo Pension Plans (the “Pension Plans”), which provide benefits to approximately 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)
|
|
$
|
(1,645)
|
|
$
|
(1,859)
|
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. During the three months ended
June
3
0
, 2019 and 2018, the Company recorded expense of $
112
and $2
11
, respectively,
and during the six months ended June 30, 2019 and 2018, the Company recorded expense of $
325
and $454, respectively,
for matching contributions to the Savings Plan.
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
15
Note 10: Shareholders’ Equity
Dividends.
On
May 9, 2019
, the Company’s board of directors declared an
$0.08
per share dividend to shareholders of record as of the close of business on
August 16, 2019
, which is payable on
September 6, 2019
.
Treasury Stock.
The Company repurchased shares of its common stock pursuant to a publicly announced share repurchase program authorized by the Company’s board of directors. In the first quarter of 2019, the Company’s board of directors authorized an additional
1,500,000
shares for repurchase.
Outstanding Shares.
The Company had Series A and Series B common stock outstanding of
19,025,788
and
2,469,512
, respectively, net of treasury shares at June 30, 2019. At December 31, 2018, the Company had Series A and Series B common stock outstanding of
19,157,358
and
2,469,555
, respectively, net of treasury shares.
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 related to amounts recorded in accumulated other comprehensive loss are fully reserved.
The tables below set forth the changes in accumulated other comprehensive loss, net of tax, as presented in the Company’s consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
Total
|
|
Defined
benefit pension
plans
|
|
Other post-
employment
benefit plans
|
|
Total
|
|
Defined
benefit pension
plans
|
|
Other post-
employment
benefit plans
|
Balance, beginning of period
|
|
$
|
(37,578)
|
|
$
|
(37,933)
|
|
$
|
355
|
|
$
|
(24,774)
|
|
$
|
(25,266)
|
|
$
|
492
|
Amortization
|
|
|
62
|
|
|
69
|
|
|
(7)
|
|
|
157
|
|
|
167
|
|
|
(10)
|
Balance, end of period
|
|
$
|
(37,516)
|
|
$
|
(37,864)
|
|
$
|
348
|
|
$
|
(24,617)
|
|
$
|
(25,099)
|
|
$
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
Total
|
|
Defined
benefit pension
plans
|
|
Other post-
employment
benefit plans
|
|
Total
|
|
Defined
benefit pension
plans
|
|
Other post-
employment
benefit plans
|
Balance, beginning of period
|
|
$
|
(37,641)
|
|
$
|
(38,003)
|
|
$
|
362
|
|
$
|
(24,932)
|
|
$
|
(25,434)
|
|
$
|
502
|
Amortization
|
|
|
125
|
|
|
139
|
|
|
(14)
|
|
|
315
|
|
|
335
|
|
|
(20)
|
Balance, end of period
|
|
$
|
(37,516)
|
|
$
|
(37,864)
|
|
$
|
348
|
|
$
|
(24,617)
|
|
$
|
(25,099)
|
|
$
|
482
|
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
16
Note 1
1
: Earnings Per Share
The table below sets forth the reconciliation for net
income (
loss
)
and weighted average shares used for calculating basic and diluted earnings per share (“EPS”). The Company’s Series A and Series B common stock equally share in the distributed and undistributed earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Earnings (Numerator)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,861
|
|
$
|
(534)
|
|
$
|
13,849
|
|
$
|
(4,548)
|
Less: dividends to participating securities
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
94
|
Net income (loss) available to common shareholders
|
|
$
|
16,861
|
|
$
|
(583)
|
|
$
|
13,849
|
|
$
|
(4,642)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
21,525,971
|
|
|
21,738,545
|
|
|
21,578,014
|
|
|
21,756,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.78
|
|
$
|
(0.03)
|
|
$
|
0.64
|
|
$
|
(0.21)
|
There were no options or RSUs outstanding as of June 30, 2019, that would result in dilution of shares.
In 2018, ho
lders of service-based restricted stock units (“RSUs”) participate
d
in A. H. Belo dividends on a one-for-one share basis. Distributed and undistributed income associated
with participating securities was
included in the calculation of EPS under the two-class method as prescribed under ASC 260 –
Earnings Per Share
.
The Company consider
ed
outstanding stock options and RSUs in the calculation of earnings per share. A total of
697,652
options and RSUs outstanding as of
June 30, 2018
, were excluded from the calculation becaus
e the effect was anti-dilutive.
Note 1
2
: 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. In the opinion of management, liabilities, if any, arising from other currently existing claims against the Company would not have a material adverse effect on A. H. Belo’s results of operations, liquidity or financial condition.
Note 1
3
: Sales of Assets
On May 17, 2019, the Company completed the sale of the real estate assets in downtown Dallas, Texas, previously used as the
Company’s
headquarters
for a
sale
price of
$28,000
.
The
sale
price consisted of
$4,
597
cash
received
, after selling costs of
approximately
$1,00
0
, and a
two
-year seller-financed promissory note of
$22,400
, included in
long-term note receivable
in the Consolidated Balance Sheet
.
The sale provides the Company an additional
$1,000
contingency payment if certain conditions are met, however at this time the Company does not believe
th
ese
conditions are
probable.
The promissory note
is secured by a first lien deed of trust covering the property and
bears interest payable in quarterly installments beginning July 1, 2019, continuing through its maturity on June 30, 2021, and includes a pre-payment feature.
Interest will be accrued at
3.5
percent during the first year and at
4.5
percent during the second year.
In the second quarter of 2019, the Company recorded a pretax gain of
$25,908
,
included in gain on sale of assets, net in the Consolidated Statement of Operations. For tax purposes, the gain
i
s fully offset by net operating loss carryforwards.
These assets had a carrying value of
$1,089
, and were reported as assets held for sale in the Consolidated Balance Sheet as of December 31, 2018.
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
17
It
em 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect its financial statements. The following information should be read in conjunction with the Company’s 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 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’s Publishing segment includes the operations of
The Dallas Morning News
(
www.dallasnews.com
), Texas’ leading newspaper and winner of nine Pulitzer Prizes, and various niche publications targeting specific audiences.
Its newspaper operations also provide commercial printing and distribution services to large national and regional newspapers and other businesses in Texas. In addition, the segment includes sales of online automotive classifieds on the
cars.com
platform.
All other operations are reported within the Company’s Marketing Services segment. These
operations primarily include DMV
Digital Holdings Company (“DMV Holdings”) and its subsidiaries Distribion, Inc. (“Distribion”), Vertical Nerve, Inc. (“Vertical Nerve”) and CDFX, LLC (“MarketingFX”). The segment also includes targeted display advertising generated by Connect (programmatic
advertising).
In addition, o
n April 1, 2019, the Company completed an asset acquisition. 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 a
vailable to A. H. Belo clients.
On May 17, 2019, the Company completed the sale of the real estate assets in downtown Dallas, Texas, previously used as the
Company’s
headquarters for a
sale
price of
$28,000
, and
recorded a pretax gain of
$25,
908
, which for tax purposes is fully offset by net operating loss carryforwards
.
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
18
RESULTS OF OPERATIONS
Consolidated Results of Operations
This section contains discussion and analysis of net operating revenue, expense and other information relevant to an understanding of results of operations for the three
and six
months ended
June 30
, 2019 and 2018.
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.
The table below sets forth the components of A. H. Belo’s operating income (loss) by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
|
|
|
|
|
|
|
(Recast)
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
19,100
|
|
(6.0)
|
%
|
|
$
|
20,313
|
|
$
|
37,255
|
|
(7.4)
|
%
|
|
$
|
40,230
|
Circulation
|
|
|
17,013
|
|
(5.1)
|
%
|
|
|
17,921
|
|
|
34,286
|
|
(3.9)
|
%
|
|
|
35,668
|
Printing, distribution and other
|
|
|
4,802
|
|
(29.9)
|
%
|
|
|
6,851
|
|
|
10,077
|
|
(21.4)
|
%
|
|
|
12,816
|
Total Net Operating Revenue
|
|
|
40,915
|
|
(9.2)
|
%
|
|
|
45,085
|
|
|
81,618
|
|
(8.0)
|
%
|
|
|
88,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
18,173
|
|
(61.2)
|
%
|
|
|
46,884
|
|
|
62,916
|
|
(35.0)
|
%
|
|
|
96,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
$
|
22,742
|
|
N/M
|
|
|
$
|
(1,799)
|
|
$
|
18,702
|
|
330.9
|
%
|
|
$
|
(8,101)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
|
$
|
6,820
|
|
12.1
|
%
|
|
$
|
6,084
|
|
$
|
12,706
|
|
6.7
|
%
|
|
$
|
11,908
|
Total Net Operating Revenue
|
|
|
6,820
|
|
12.1
|
%
|
|
|
6,084
|
|
|
12,706
|
|
6.7
|
%
|
|
|
11,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expense
|
|
|
6,767
|
|
19.7
|
%
|
|
|
5,652
|
|
|
12,665
|
|
11.2
|
%
|
|
|
11,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
53
|
|
(87.7)
|
%
|
|
$
|
432
|
|
$
|
41
|
|
(92.1)
|
%
|
|
$
|
517
|
“N/M” – not meaningful
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. 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.
The display and classified categories have
declined to
18.0
percent
of consolidated revenue thus far in 2019, and further declines are likely in future periods.
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. The Company has a meter on its website and continues to build a base of paid digital subscribers.
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
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
19
websites, search engine marketing and optimization, video, mobile advertising, email m
arketing, advertising analytics,
creative strategy services
and online reputation management services.
Advertising and marketing services revenue
Advertising and marketing services revenue
was 5
4.3
percent and 5
3
.0 percent
of total revenue for the three
and six
months ended
June 30
, 2019, respectively
, and 51.6 percent and 51.8 percent for the three and six months ended June 30, 2018, respectively
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
|
|
|
|
|
|
|
(Recast)
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising revenue
|
|
$
|
19,100
|
|
(6.0)
|
%
|
|
$
|
20,313
|
|
$
|
37,255
|
|
(7.4)
|
%
|
|
$
|
40,230
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital services
|
|
|
5,625
|
|
14.8
|
%
|
|
|
4,899
|
|
|
9,934
|
|
6.1
|
%
|
|
|
9,367
|
Other services
|
|
|
1,195
|
|
0.8
|
%
|
|
|
1,185
|
|
|
2,772
|
|
9.1
|
%
|
|
|
2,541
|
Advertising and Marketing Services
|
$
|
25,920
|
|
(1.8)
|
%
|
|
$
|
26,397
|
|
$
|
49,961
|
|
(4.2)
|
%
|
|
$
|
52,138
|
Publishing
Advertising Revenue
–
The Company has a comprehensive portfolio of print and digital advertising products, which include display, classified, preprint and digital advertising. Display and classified print revenue primarily represents sales of 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 and classified advertising continues to decline. Display and classified print revenue decreased
$
420 and
$
931
in the
three
and
six
months ended
June
3
0
, 2019,
respectively,
primarily
due to lower classified advertising in all categories.
Preprint revenue primarily reflects preprinted advertisements inserted into the Company’s core newspapers and niche publications, or distributed to non-subscribers through the mail.
Revenue decreased
$652 and
$1,
675
for the three and six months ended June 30, 2019,
respectively,
due to a volume decline in preprint newspaper inserts, consistent with the decline in circulation volumes discussed below.
Digital Publishing revenue is primarily comprised of 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.
Revenue decreased
$141 and
$
369 for
the three and six months ended June 30, 2019,
respectively,
primarily due to a lower volume of online
automotive classifieds on
cars.com
.
The Company’s agreement to sell on the
cars.com
platform was not renewed and will end September 30, 2019.
Marketing Services
Digital services –
Digital marketing revenue includes targeted and multi-channel advertising placed on third-party websites, content development, social media management, search optimization, and other consulting.
Revenue
increase
d
$
726 and
$567
for the
three and
six
months ended
June
3
0
, 2019,
respectively,
due
to additional revenue generated from t
he new business, Cubic Creative
, acquired in the second quarter of 2019.
Other services
– Other services
revenue increased $1
0 and $231 for
the three and
six
months ended
June
3
0
, 2019,
respectively,
due to
an increase in the sale of promotional merchandise by MarketingFX.
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
20
Circulation revenue
Circulation revenue
was 3
5
.
6
percent and 3
6
.
3
percent
of total revenue for the three
and six
months ended
June
3
0
, 2019, respectively
, and
35.0 percent and 35.5 percent for the three and six months ended June 30, 2018, respectively
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circulation
|
|
$
|
17,013
|
|
(5.1)
|
%
|
|
$
|
17,921
|
|
$
|
34,286
|
|
(3.9)
|
%
|
|
$
|
35,668
|
Revenue decreased
primarily
due to home delivery
revenue, driven by a volume decline of
35.7
percent
and 23.9 percent, for the three and six months ended June 30, 2019, respectively. Single copy revenue also decreased compared to prior year, due to single
copy paid print circulation volume
declines of
22.4
percent and
21.3
percent
for the
three
and six months
ended
June 30
,
2019
, respectively
. The volume declines were partially offset by rate increases.
Printing, distribution and other revenue
Printing, distribution and other revenue
was 1
0
.
1
percent and 1
0
.
7
percent
of total revenue for the three
and six
months ended
June
3
0, 2019
, respectively
, and 13.4 percent and 12.7 percent for the three and six months ended June 30, 2018, respectively
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing, Distribution and Other
|
|
$
|
4,802
|
|
(29.9)
|
%
|
|
$
|
6,851
|
|
$
|
10,077
|
|
(21.4)
|
%
|
|
$
|
12,816
|
Revenue decreased in the
three and
six
months ended
June
3
0
, 2019,
primarily
due to the Company eliminating its brokered printing business in which it provided services direct to small business clients. Additionally, the Company reduced the number of local and national commercial print customers it serves from more than 30 to five.
This strategic decision to streamline operations was implemented to improve the segment’s operating income.
A. H. Belo Corporation Second Quarter 2019 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 June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
|
|
|
|
|
|
|
|
(Recast)
|
|
|
|
|
|
|
|
|
(Recast)
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
16,379
|
|
(10.9)
|
%
|
|
$
|
18,376
|
|
$
|
34,441
|
|
(13.2)
|
%
|
|
$
|
39,691
|
Other production, distribution and operating costs
|
|
|
21,718
|
|
4.1
|
%
|
|
|
20,862
|
|
|
41,764
|
|
(0.3)
|
%
|
|
|
41,901
|
Newsprint, ink and other supplies
|
|
|
3,721
|
|
(28.0)
|
%
|
|
|
5,170
|
|
|
8,039
|
|
(22.0)
|
%
|
|
|
10,311
|
Depreciation
|
|
|
2,263
|
|
(9.4)
|
%
|
|
|
2,498
|
|
|
4,580
|
|
(7.2)
|
%
|
|
|
4,934
|
Gain on sale of assets, net
|
|
|
(25,908)
|
|
N/A
|
|
|
|
—
|
|
|
(25,908)
|
|
N/A
|
|
|
|
—
|
Asset impairments
|
|
|
—
|
|
100.0
|
%
|
|
|
(22)
|
|
|
—
|
|
100.0
|
%
|
|
|
(22)
|
Marketing Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
3,449
|
|
9.4
|
%
|
|
|
3,153
|
|
|
6,511
|
|
0.0
|
%
|
|
|
6,510
|
Other production, distribution and operating costs
|
|
|
2,747
|
|
39.4
|
%
|
|
|
1,971
|
|
|
4,885
|
|
23.8
|
%
|
|
|
3,946
|
Newsprint, ink and other supplies
|
|
|
301
|
|
3.4
|
%
|
|
|
291
|
|
|
730
|
|
58.4
|
%
|
|
|
461
|
Depreciation
|
|
|
70
|
|
89.2
|
%
|
|
|
37
|
|
|
139
|
|
87.8
|
%
|
|
|
74
|
Amortization
|
|
|
200
|
|
—
|
%
|
|
|
200
|
|
|
400
|
|
—
|
%
|
|
|
400
|
Total Operating Costs and Expense
|
|
$
|
24,940
|
|
(52.5)
|
%
|
|
$
|
52,536
|
|
$
|
75,581
|
|
(30.2)
|
%
|
|
$
|
108,206
|
Publishing
Employee compensation and benefits
– The Company continues to implement measures to optimize its workforce and reduce risk associated with future obligations for employee benefit plans. Employee compensation and
benefits
decreased $1,997 and
$5,250
in the
three and
six
months ended
June
3
0
, 2019,
respectively,
primarily due to headcount reductions
of 1
51
since June 30, 2018.
Other production, distribution and operating costs
– Expense
increase
d
$856
and
decreased $
137
in the
three
and
six
months ended
June 30
, 2019,
respectively
, due to
$1,920 of
expense related to a
strategy review with a
n outside
consulting firm
in the second quarter of 2019
.
Newsprint, ink and other supplies
–
Expense decreased due to
reduced newsprint costs associated with lower circulation volumes and the elimination of brokered printing for small business clients. Newsprint consumption for the
three and
six
months ended
June
3
0
, 2019, approximated
3
,
043
and
6,849
metric tons, respectively
, and for the three and six months ended June 30, 2018, approximated
5,014
and
10,013
metric tons, respectively
.
Depreciation
–
Expense decreased in
the
three and
six
months ended
June
3
0
, 2019, due to a lower depreciable asset base as a higher level of in-service assets are now fully depreciated.
Gain on sale of assets
–
In the second quarter of 2019, the Company completed the sale of real
es
tate previously used as the Company’s headquarters for $28,000, resulting in a pretax gain of $25,908
.
Marketing Services
Employee compensation and benefits
–
Expense
increased
$29
6
in
the
three months ended June 30, 2019, and remained flat in the
six
months ended
June
3
0
, 2019,
due to
additional expense generated from
the 25 new employees of
Cubic Creative,
which was
acquired in the second quarter of 2019.
Other production, distribution and operating costs
–
Expense increased $
776 and
$939
in the
three and
six
months ended
June
3
0
, 2019,
respectively,
primarily
due to additional
expenses
related to Cubic Creative
.
Newsprint, ink and other supplies
–
Expense increased $
10 and
$269
in the
three and
six
months ended
June
3
0
, 2019,
respectively,
primarily due to an increase in promotional material printing costs associated with MarketingFX.
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
22
Depreciation
–
Expense increased
$33 and $65
in the
three and
six
months ended
June
3
0
, 2019,
respectively,
due to a higher depreciable asset base as additional assets were purchased to support technology investments.
Amortization
– Expense is primarily related to customer lists associated with DMV Holdings.
Other
The table below sets forth the other components of the Company’s results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
Percentage
Change
|
|
2018
|
|
2019
|
|
Percentage
Change
|
|
2018
|
Other income, net
|
|
$
|
1,161
|
|
30.3
|
%
|
|
$
|
891
|
|
$
|
2,058
|
|
15.7
|
%
|
|
$
|
1,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
7,095
|
|
N/M
|
|
|
$
|
58
|
|
$
|
6,952
|
|
653.1
|
%
|
|
$
|
(1,257)
|
“N/M” – not meaningful
Other income, net
– Other income, net is primarily comprised of n
et periodic pension and other post-employment
benefit of $818 and $
1,636
for the three
and six
months ended
June 30
, 2019, respectively
, and $931 and $1,861 for the three and six months ended June 30, 2018,
respectively
.
G
ain (loss) from investments are also included in other income, net.
Income tax
provision
(
benefit
)
–
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
$2,1
01
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.
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. 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 Second Quarter 2019 on Form 10-Q
23
Liquidity and Capital Resources
The Company’s cash balances as of
June 30, 2019
and
December 31, 2018
,
were
$52,017
and
$55,313
, respectively.
The Company intends to hold existing cash for purposes of future investment opportunities, potential return of capital to shareholders and for contingency purposes. Although revenue from Publishing operations is expected to continue to decline in future periods, operating contributions expected from the Company’s Marketing Services businesses and other cost cutting measures, are expected to be sufficient to fund operating activities and capital spending of
approximately
$1,5
00 over the
remainder of the year.
The future payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company continued stock repurchases under its prior board-authorized repurchase authority and in the first quarter of 2019, the board authorized an additional 1,500,000 shares for repurchase. Current holdings of treasury stock can be sold on the open market.
The following discusses the changes in cash flows by operating, investing and financing activities.
Operating Cash Flows
Net cash provided by (used for) operating activities for the
six months ended
June 30, 2019
and 2018, was
$(1,037)
and
$7,165
, respectively. Cash flows from operating activities decreased by
$8,202
during the
six
months ended
June
3
0
, 2019, when compared to the prior year
period, primarily due to changes in working capital and other operating assets and liabilities.
Investing Cash Flows
Net cash
provided by (
used for
)
investing activities
was
$1,715
and
$(3,697)
for
the
six months ended
June 30, 2019
and 2018, respectively
. Cash flows from investing activities i
mproved
due to
c
ash proceeds of $
4,597
received during
the second quarter of
2019 related to the sale of real estate
previously used as the Company’s headquarters
in downtown Dallas, T
e
xas, partially offset
by
the acquisition of Cubic, Inc. for $2,425
. Cash
flows from investing activities also include
d
$
457
and $
3,697
of capital spending in 2019 and 2018, respectively.
Financing Cash Flows
Net cash used for financing activities
was
$3,974
and
$4,377
for the
six months ended
June 30, 2019
and 2018, respectively. Cash used for financing activities included dividend
payments of
$
3,447
and
$
3
,
552
in 2019 and 2018, respectively. Additionally, in 2019, the Company purchased
131,613
shares of its Series A common stock at a cost
of $
527
under
its share repurchase program.
Financing Arrangements
None.
Contractual Obligations
Under the applicable tax and labor laws governing pension plan funding, no contributions to the A. H. Belo Pension Plans are required in 2019.
On Ma
y
9
, 2019, the Company’s board of directors declared an $0.08 per share dividend to shareholders of record as of the close of business on
August
1
6
, 2019, which is payable on
September 6
, 2019.
Additional information related to the Company’s contractual obligations is available in Company’s Annual Report on Form 10
‑K for the year ended
December 31, 2018
, filed on March 14, 2019, with the Securities and Exchange Commission (“SEC”).
A. H. Belo Corporation Second Quarter 2019 on Form 10-Q
24
Critical Accounting Policies and Estimates
Beginning January 1, 2019, the Company adopted
Accounting Standards Update (“ASU”) 2016-02 – Leases (Topic 842)
.
As a result, the Company implemented changes to the Company’s polices related to processes around evaluating and accounting for leases or arrangements that contain a lease. Under the new standard, for substantially all leases an operating lease right-of-use asset and liability is recognized at commencement date based on the present value of lease payments over the lease term.
Except for adoption of the new lease guidance (Topic 842), no material changes were made to the Company’s critical accounting policies as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018.
Forward-Looking Statements
Statements in this communication concerning A. H. Belo Corporation’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, dispositions, impairments, business initiatives, acquisitions, pension plan contributions and obligations, real estate sales, working capital, future financings and other financial and non-financial items that are not historical facts, are “forward-looking statements” as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Such risks, trends and uncertainties are, in most instances, beyond the Company’s control, and include changes in advertising demand and other economic conditions; consumers’ tastes; newsprint prices; program costs; labor relations; technology obsolescence;
as well as other risks described in the Company’s Annual Report on Form 10-K and in the Company’s other public disclosures and filings with the Securities and Exchange Commission.
Forward-looking statements, which are as of the date of this filing, are not updated to reflect events or circumstances after the date of the statement.