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| AHC > SEC Filings for AHC > Form 10-Q on 31-Oct-2012 | All Recent SEC Filings |
31-Oct-2012
Quarterly Report
(Unless the context requires otherwise, all dollar and share amounts in the Quarterly Report on Form 10-Q are in thousands, except per share amounts.)
The following information should be read in conjunction with the Company's Financial Statements filed as part of this report.
A. H. Belo, headquartered in Dallas, Texas, is a distinguished newspaper
publishing and local news and information company that owns and operates four
metropolitan daily newspapers and several associated Web sites, with publishing
roots that trace to The Galveston Daily News, which began publication in 1842.
A. H. Belo publishes The Dallas Morning News (www.dallasnews.com), Texas'
leading newspaper and winner of nine Pulitzer Prizes; The Providence Journal
(www.providencejournal.com), the oldest continuously-published daily newspaper
in the United States and winner of four Pulitzer Prizes; The Press-Enterprise
(www.pe.com) (Riverside, California), serving the Inland Southern California
region and winner of one Pulitzer Prize; and The Denton Record-Chronicle
(www.dentonrc.com), a daily newspaper serving Denton, Texas, approximately 40
miles north of Dallas. The Company publishes various niche publications
targeting specific audiences, and its investments and/or partnerships include
Classified Ventures, LLC, owner of cars.com, and the Yahoo! Newspaper
Consortium. A. H. Belo also owns and operates commercial printing, distribution
and direct mail service businesses.
A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies, and estimates affect its financial statements. Certain prior year amounts have been reclassified to conform to current presentation.
• During the third quarter of 2012, the Company continued to encounter strong competition for print advertising revenues from digital alternatives and other advertising mediums, but realized improvements in printing and distribution revenues as a result of new and expanded printing and distribution contracts. Total revenues declined by 1.0 percent when compared to the third quarter of 2011, due to advertising and circulation, partially offset by stronger printing and distribution revenues. Operating expenses decreased 2.6 percent, reflecting lower personnel and production-related expenses.
• The Company continues to develop and market its portfolio of digital offerings, including 508 Digital, in which The Dallas Morning News provides marketing services such as development of mobile Web sites, search engine marketing and optimization, and social media marketing for its customers' Web presence. Additionally, in the third quarter, The Dallas Morning News announced the Company entered into an operating agreement with a local advertising agency, forming Your Speakeasy LLC, which targets larger business customers and provides turnkey social media account management and content development services.
• During July 2012, a Rhode Island court approved a consent judgment related to past tax assessments of real estate by the City of Providence. Under this judgment, The Providence Journal received a credit of $2,500 to be applied against future tax payments. Accordingly, other production, distribution and operating costs were reduced by $2,500 in the third quarter of 2012.
• On September 7, 2012, the Company paid a dividend of $0.06 per share, or $1,371, to its shareholders of record and to holders of outstanding RSU awards at the close of business on August 17, 2012. On September 13, 2012, the Company declared a special dividend of $0.24 per share and a quarterly dividend of $0.06 per share, both payable December 7, 2012, to shareholders of record and to holders of outstanding RSU awards at the close of business on November 16, 2012.
• During the third quarter of 2012 the Company's Board of Directors authorized the repurchase of up to 1,000 shares of the Company's Series A or Series B Common Stock.
Results of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
Percentage Percentage
2012 Change 2011 2012 Change 2011
Total net operating revenues $ 108,881 (1.0 )% $ 109,990 $ 322,858 (4.1 )% $ 336,651
Total operating costs and expenses 107,405 (2.6 )% 110,268 325,678 (6.4 )% 347,762
Total other income (expense), net 466 (26.3 )% 632 1,916 (2.5 )% 1,965
Income (loss) before income taxes 1,942 nm 354 (904 ) (90.1 )% (9,146 )
Income tax expense 501 2.5 % 489 1,286 (71.7 )% 4,538
Net income (loss) 1,441 nm (135 ) (2,190 ) (84.0 )% (13,684 )
Net loss attributable to
noncontrolling interests (42 ) nm - (42 ) nm -
Net income (loss) attributable to
A. H. Belo Corporation $ 1,483 nm $ (135 ) $ (2,148 ) (84.3 )% $ (13,684 )
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"nm" - Percent change is not meaningful.
Newspaper Revenues
The Dallas Morning News
The table below sets forth the components of The Dallas Morning News' net operating revenues for the three and nine months ended September 30, 2012 and 2011:
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent Percent Percent
of Total Percentage of Total of Total Percentage of Total
2012 Revenues Change 2011 Revenues 2012 Revenues Change 2011 Revenues
Advertising and marketing services $ 41,621 60.0% (2.0)% $ 42,466 59.8% $ 122,647 59.6% (7.2)% $ 132,149 60.4%
Display 15,057 (6.2)% 16,048 45,147 (14.2)% 52,619
Classified 7,128 1.5% 7,024 20,476 (6.5)% 21,894
Preprints 13,619 (2.7)% 13,998 40,705 (1.1)% 41,174
Digital 5,817 7.8% 5,396 16,319 (0.9)% 16,462
Circulation 22,087 31.9% (3.8)% 22,951 32.4% 66,538 32.4% (4.6)% 69,717 31.9%
Printing and distribution 5,638 8.1% 2.3% 5,510 7.8% 16,470 8.0 % (2.5)% 16,897 7.7%
$ 69,346 100.0% (2.2)% $ 70,927 100.0% $ 205,655 100.0 % (6.0)% $ 218,763 100.0%
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Display - Revenues decreased for the three months ended September 30, 2012, due to a decline in general advertising, partially offset by an increase in retail advertising. Revenues decreased for the nine months ended September 30, 2012 due to declines in both general and retail advertising, of which approximately $1,076 was attributable to non-recurring advertising associated with the Super Bowl which was held in the Dallas area in February 2011. The improvement in retail advertising for the three months ended September 30, 2012 is due to an increase in food, beverage and electronics advertising.
Classified - Revenues increased for the three months ended September 30, 2012, due to higher employment advertising. Revenues decreased for the nine months ended September 30, 2012, primarily due to a decline in automotive and employment advertising.
Preprint - Revenues decreased for the three and nine months ended September 30, 2012, due to a decline in newspaper advertising inserts, partially offset by higher home delivery mail advertising.
Digital - Revenues increased for the three months ended September 30, 2012, due to higher automotive, employment and real estate classified advertising and due to growth of marketing services revenue associated with 508 Digital. Revenues decreased for the nine months ended September 30, 2012, primarily due to $1,140 of non-recurring revenue associated with a discontinued digital advertising platform and $420 of non-recurring revenue associated with the 2011 Super Bowl. These revenue declines were partially offset by higher automotive, employment and real estate classified advertising and marketing services revenue associated with 508 Digital.
Advertising revenues from The Dallas Morning News niche publications were $5,727 and $5,608, for the three months ended September 30, 2012 and 2011, respectively, and $16,447 and $16,675, for the nine months ended September 30, 2012 and 2011, respectively. Revenues for Briefing and Al Dia increased for the three and nine months ended September 30, 2012, and revenues associated with Quick decreased by $114 and $830 for the three and nine months ended September 30, 2012, respectively, due to the discontinuance of this publication on August 4, 2011. Advertising revenues from niche publications are a component of total display, classified, preprint and digital revenues of The Dallas Morning News presented above.
Circulation - Revenues decreased for the three and nine months ended September 30, 2012, due to a decline in print home delivery and single copy volumes. This decline was partially offset by a price increase related to digital online delivery. The Dallas Morning News continues to assess and adjust its print and digital consumer pricing and content strategy and continues to focus on building high-quality print and digital audiences by improving and expanding its digital product portfolio.
Printing and distribution - Revenues increased in the three months ended September 30, 2012, due to increased distribution of third-party newspapers, and revenues decreased in the nine months ended September 30, 2012, due to a decline in commercial printing volumes as the Company focused on larger and more profitable customers.
The Providence Journal
The table below sets forth the components of The Providence Journal net
operating revenues for the three and nine months ended September 30, 2012 and
2011:
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent Percent Percent
of Total Percentage of Total of Total Percentage of Total
2012 Revenues Change 2011 Revenues 2012 Revenues Change 2011 Revenues
Advertising and marketing services $ 10,474 45.7% (12.9)% $ 12,028 52.9 % $ 33,702 48.5% (11.8)% $ 38,213 55.5%
Display 2,708 (8.3)% 2,953 8,614 (8.1)% 9,369
Classified 3,497 (19.1)% 4,320 11,871 (15.2)% 13,996
Preprints 2,907 (7.0)% 3,125 8,788 (10.3)% 9,800
Digital 1,362 (16.4)% 1,630 4,429 (12.3)% 5,048
Circulation 8,856 38.7% 5.5% 8,396 36.9 % 26,107 37.5% 5.2% 24,809 36.1%
Printing and distribution 3,583 15.6% 54.4% 2,320 10.2 % 9,757 14.0% 68.8% 5,780 8.4%
$ 22,913 100.0% 0.7% $ 22,744 100.0 % $ 69,566 100.0 % 1.1% $ 68,802 100.0%
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Display - Revenues decreased in the three and nine months ended September 30, 2012, due to a decline in retail and general advertising.
Classified - Revenues decreased for the three months ended September 30, 2012, due to a decline in legal, automotive, obituaries, and employment advertising, partially offset by an increase in real estate advertising. For the nine months ended September 30, 2012, revenues decreased due to a decline in automotive and employment advertising.
Preprint - Revenues decreased in the three and nine months ended September 30, 2012, due to a decline in newspaper advertising inserts which was partially offset by increased home delivery mail advertising.
Digital - Revenues decreased for three months ended September 30, 2012, due to a decline in retail display advertising. For the nine months ended September 30, 2012, revenues decreased due to a decline in retail display advertising, partially offset by higher automotive classified advertising.
Circulation - Revenues increased for the three and nine months ended September 30, 2012, due to a change from a buy-sell arrangement with home delivery carriers to a fee for delivery arrangement. Under this new arrangement, higher revenues are recognized which are offset by higher distribution expenses.
Printing and distribution - Revenues increased for the three and nine months ended September 30, 2012, due to The Providence Journal's continued expansion of single copy distribution services for national and local newspapers. The Providence Journal also increased its commercial printing services to existing customers and added a regional newspaper customer, contributing to the growth.
The Press-Enterprise
The table below sets forth the components of The Press-Enterprise net operating
revenues for the three and nine months ended September 30, 2012 and 2011:
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent Percent Percent
of Total Percentage of Total of Total Percentage of Total
2012 Revenues Change 2011 Revenues 2012 Revenues Change 2011 Revenues
Advertising and marketing services $ 10,028 60.3% (6.6)% $ 10,735 65.8% $ 30,024 63.0% (8.1)% $ 32,672 66.6%
Display 2,509 2.8% 2,440 7,384 (9.7)% 8,179
Classified 2,895 (13.5)% 3,345 8,706 (11.3)% 9,819
Preprints 3,126 (6.7)% 3,350 9,384 (6.7)% 10,056
Digital 1,498 (6.4)% 1,600 4,550 (1.5)% 4,618
Circulation 3,300 19.9% (3.0)% 3,402 20.8% 10,010 21.0% (1.6)% 10,173 20.7%
Printing and distribution 3,294 19.8% 51.0% 2,182 13.4% 7,603 16.0% 21.8% 6,241 12.7%
$16,622 100.0% 1.9% $ 16,319 100.0% $ 47,637 100.0% (3.0)% $ 49,086 100.0%
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Display - Revenues increased for the three months ended September 30, 2012, due to an increase in general advertising, partially offset by a decline in retail advertising. Display advertising revenues decreased for the nine months ended September 30, 2012, due to a decline in retail advertising.
Classified - Revenues decreased in the three and nine months ended September 30, 2012, due to a decline in legal, employment, automotive, real estate and other categories.
Preprint - Revenues decreased in the three and nine months ended September 30, 2012, due to a decline in newspaper advertising inserts and home delivery mail advertising.
Digital - Revenues decreased in the three months and nine months ended September 30, 2012, due to a decline in real estate and other digital classified advertising.
Circulation - Revenues decreased in the three and nine months ended September 30, 2012, due to volume declines in daily home delivery and daily and Sunday single copy sales, and the discontinuation of The Business Press publication at the end of the second quarter of 2011.
Printing and distribution - Revenues increased in the three and nine months ended September 30, 2012, due to new commercial print and home delivery distribution contracts. The Press-Enterprise was notified in October 2012 that the new owners of a significant commercial printing customer would cease printing its publication at the Company's Riverside facility on October 15, 2012, well before the expiration of the multi-year contract. The Company is pursuing multiple remedies and has not identified any losses which are considered probable associated with this customer.
Operating Costs and Expenses
The table below sets forth the components of the Company's operating costs and
expenses for the three and nine months ended September 30, 2012 and 2011:
Three Months Ended Nine Months Ended
September 30, September 30,
Percentage Percentage
2012 Change 2011 2012 Change 2011
Salaries, wages and employee
benefits $ 43,364 (3.6)% $ 44,958 $ 131,992 (8.1)% $ 143,552
Other production, distribution
and operating costs 40,614 (3.3)% 41,996 122,835 (6.1)% 130,875
Newsprint, ink and other
supplies 15,899 8.8 % 14,618 45,242 2.4 % 44,192
Depreciation 6,219 (15.8)% 7,386 21,680 (6.7)% 23,225
Amortization 1,309 (0.1)% 1,310 3,929 - % 3,930
Pension plan withdrawal - - % - - nm 1,988
Total operating costs and
expenses $ 107,405 (2.6)% $ 110,268 $ 325,678 (6.4)% $ 347,762
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Salaries, wages and employee benefits decreased for the three and nine months ended September 30, 2012, due to lower headcount and employee related expenses. During the third quarter of 2012, The Providence Journal extended voluntary separation offers to certain employee groups, resulting in the elimination of 11 positions.
Other production, distribution and operating costs decreased for the three and nine months ended September 30, 2012, primarily due to the execution of a consent judgment related to past tax assessments of real estate by the City of Providence. Under this judgment, The Providence Journal received a credit of $2,500 to be applied against future tax payments. Reduced outside service costs, including legal, consulting and temporary services, also accounted for the lower expenses for the nine months ended September 30, 2012.
Newsprint, ink and other supplies expense increased for the three months and nine months ended September 30, 2012, due to greater cost of supplements and ink. During the three months ended September 30, 2012, the Company's publishing operations used 16,348 metric tons of newsprint at an average cost of $632 per metric ton compared to 16,164 metric tons, at average cost of $635 per metric ton for the same period in 2011. For the nine months ended September 30, 2012, the Company's publishing operations used 47,609 metric tons of newsprint at an average cost of $629 per metric ton compared to 49,895 metric tons, at average cost of $641 per metric ton for the same period in 2011.
Depreciation expense decreased for the three and nine months ended September 30, 2012, due to lower depreciable fixed assets as a result of reduced capital spending in recent years. The lower expense was partially offset by additional depreciation expense of $370 and $1,881 in the first and second quarters of 2012 due to a change in the estimated life of certain production assets.
Pension plan withdrawal loss was $1,988 for the nine months ended September 30, 2011. This loss is related to the finalization of the allocation of the assets and liabilities from the GBD Pension Plan in the second quarter of 2011.
Interest expense related to letters of credit and unused borrowing commitments decreased for the three and nine months ended September 30, 2012. For the nine months ended September 30, 2012, this decrease was partially offset by $114 in interest expense incurred on a settlement made with the Internal Revenue Service for a tax matter from prior to the Distribution.
The Company includes in other income, net, the following items as set forth in the table below:
Three Months Ended September 30, Nine Months Ended September 30,
Percentage Percentage
2012 Change 2011 2012 Change 2011
Earnings from equity method
investments $ 607 (14.4)% $ 709 $ 1,733 (0.7)% $ 1,746
Interest income 29 (23.7)% 38 102 (27.7)% 141
Gain (loss) on sale of fixed assets (68 ) nm 48 402 nm (359 )
Recovery of investment previously
written off - - % - - - % 729
Other income 26 183.9% (31 ) 185 (15.1)% 218
Total other income, net $ 594 (22.3)% $ 764 $ 2,422 (2.1)% $ 2,475
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Earnings from equity method investments decreased due to losses recognized on the Company's interest in Wanderful, in which the Company invested in the fourth quarter of 2011. These losses partially offset the investment income recognized from Classified Ventures and the positive current year impact of the Company no longer owning an interest in Belo Investment, LLC, which previously resulted in the Company recognizing investment losses. Additionally, during the first quarter of 2011, the Company recorded a gain of $729 related to the sale of an investment that had been previously written off.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization
In addition to net income, the Company also evaluates earnings after adjusting for depreciation, amortization, interest and taxes ("EBITDA") and after adding back pension expense, non-cash impairment expense and net investment-related losses, as applicable ("Adjusted EBITDA"). The table below sets forth the Company's EBITDA and Adjusted EBITDA:
Three Months Ended Nine Months Ended
September 30, September 30,
Percentage Percentage
2012 Change 2011 2012 Change 2011
Net income (loss) attributable
to A. H. Belo Corporation $ 1,483 nm $ (135 ) $ (2,148 ) 84.3 % $ (13,684 )
Depreciation and amortization 7,528 (13.4)% 8,696 25,609 (5.7)% 27,155
Interest expense 128 (3.0)% 132 506 (0.8)% 510
Income tax expense 501 2.5 % 489 1,286 (71.7)% 4,538
EBITDA 9,640 5.0 % 9,182 25,253 36.4 % 18,519
Addback:
Pension expense 849 (46.9)% 1,598 2,897 (58.1)% 6,912
Adjusted EBITDA $ 10,489 (2.7)% $ 10,780 $ 28,150 10.7 % $ 25,431
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Neither EBITDA nor Adjusted EBITDA is a measure of financial performance under . . .
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