DALLASNEWS CORPORATION OVERVIEW
With a continued focus on extending the Company's media platforms,
The Company's Publishing segment includes the operations of
All other operations are reported within the Company's Marketing Services
segment. These operations primarily include
Overview of Significant Transactions
Operating results for 2018 and 2017 reflect continued challenges in print advertising revenue trends, primarily due to volume and rate declines, partially offset by increases in the Company's paid digital subscriptions, digital advertising and Marketing Services revenues. The Company continues its efforts to diversify revenues through leveraging its brand, its personnel and its infrastructure in both organic new product development and in pursuit of acquisitions of related advertising and marketing services companies.
In
The Company conducted its annual goodwill impairment test as of
resulting in an impairment charge of
An income tax refund of
Quarterly dividends of
Additional capital was returned to shareholders through the share repurchase
program. In the fourth quarter of 2017, the Company resumed open market stock
repurchases under its prior board-authorized repurchase authority and purchased
14,080 shares of its Series A common stock at a total cost of
In the third quarter of 2017, in an effort to de-risk the Pension Plans, the
Company made a voluntary contribution of
--------------------------------------------------------------------------------
Table of Contents
In 2017, the Company sold three parcels of land in downtown
RESULTS OF OPERATIONS
Consolidated Results of Operations
This section contains discussion and analysis of net operating revenue,
operating costs and expense and other information relevant to an understanding
of results of operations for 2018 and 2017. Net periodic pension and other
post-employment expense (benefit) is now included in other income, net in the
Consolidated Statements of Operations; see Note 1 - Significant Accounting
Policies and Recently Issued Accounting Standards . As a result of adopting
this guidance retrospectively, Publishing total operating costs and expense and
operating loss decreased
This Form 10-K/A amends the Annual Report on Form 10-K filed with the
The table below sets forth the components ofA. H. Belo's operating income (loss) by segment. Years Ended December 31, Percentage 2018 Change 2017 (Restated) Publishing
Advertising and marketing services
71,919 (6.5) % 76,884
Printing, distribution and other 24,940 (12.5) % 28,495 Total Net Operating Revenue
180,327 (17.0) % 217,347
Total Operating Costs and Expense 191,473 (16.0) % 228,022
Operating Loss$ (11,146) (4.4) %$ (10,675)
Marketing Services
Advertising and marketing services
21,960 (29.8) % 31,279
Total Operating Costs and Expense 37,646 33.6 % 28,186
Operating Income (Loss)$ (15,686) (607.1) %$ 3,093
Traditionally, the Company's primary revenues have been 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 significant revenue declines for more than a 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.
In 2018, 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 print advertising and paid print circulation volumes and revenue. The most significant decline in advertising revenue has been attributable to print display and classified categories. These categories, which represented 18.9 percent of consolidated revenue in 2017, have declined to 17.9 percent of consolidated revenue in 2018, and further declines are likely in future periods. Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital platforms, which are widely available from many sources. In the current environment, companies are allocating more of their advertising spending towards
--------------------------------------------------------------------------------
Table of Contents
programmatic channels that provide digital advertising on multiple platforms with enhanced technology for targeted delivery and measurement.
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 customers 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 customers. Solutions provided by
Advertising and marketing services revenue
Advertising and marketing services revenue was 52.1 percent and 57.6 percent of total revenue for 2018 and 2017, respectively.
Years Ended December 31,
Percentage
2018 Change 2017
Publishing
Advertising revenue $ 83,468 (25.5) % $ 111,968
Marketing Services
Digital services 16,982 (35.9) % 26,489
Other services 4,978 3.9 % 4,790
Advertising and Marketing Services
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 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 advertising continues
to decline. Display revenue decreased
In 2018, classified print revenue decreased
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
--------------------------------------------------------------------------------
Table of Contents Marketing Services
Digital services - Digital services revenue includes targeted and multi-channel
advertising placed on third-party websites, content development, social media
management, search optimization and other consulting. Adoption of the new
revenue guidance resulted in a revenue decrease of
For 2017, digital services revenue increased, primarily due to
Other services - Other services revenue increased
Circulation revenue
Circulation revenue was 35.6 percent and 30.9 percent of total revenue for 2018 and 2017, respectively.
Years Ended December 31,
Percentage
2018 Change 2017
Publishing
Circulation $ 71,919 (6.5) % $ 76,884 Revenue decreased in 2018 primarily due to home delivery revenue, driven by a volume decline of 14.0 percent. Single copy revenue also decreased compared to prior year, due to a decline in single copy paid print circulation volume of 25.2 percent. The single copy volume decline was partially offset by an increase in single copy rates. Volume declines in circulation revenue have been more pronounced with single copy sales. Price increases and supplemental editions are critical to maintaining the revenue base to support this product.
Also contributing to the decline was the adoption of the new revenue guidance.
In 2018, revenue declined by
In 2017, revenue decreased due to a decline in home delivery and single copy paid print circulation volumes of 8.3 percent and 19.3 percent, respectively, partially offset by rate increases.
Printing, distribution and other revenue
Printing, distribution and other revenue was 12.3 percent and 11.5 percent of total revenue for 2018 and 2017, respectively.
Years Ended December 31,
Percentage
2018 Change 2017
Publishing
Printing, Distribution and Other
The Company aggressively markets the capacity of its printing and distribution assets to other newspapers that would benefit from cost sharing arrangements. In 2018 and 2017, revenue decreased due to declines in event-related revenue and in commercial printing volumes associated with certain national newspapers.
--------------------------------------------------------------------------------
Table of Contents
Operating Costs and Expense
The table below sets forth the components of the Company's operating costs and
expense by segment.
Years Ended December 31,
Percentage
2018 Change 2017
(Restated)
Publishing
Employee compensation and benefits
83,460 (18.0) % 101,751
Newsprint, ink and other supplies 21,108 (5.9) % 22,436
Depreciation 9,699 (5.8) % 10,300
Asset impairments (22) (100.7) % 3,344
Marketing Services
Employee compensation and benefits 12,076 (9.2) % 13,304
Other production, distribution and
operating costs 6,707 (47.8) % 12,843
Newsprint, ink and other supplies 918 (18.4) % 1,125
Depreciation 203 76.5 % 115
Amortization 799 - % 799
Asset impairments 16,943 N/A -
Total Operating Costs and Expense $ 229,119 (10.6) % $ 256,208
Publishing
Employee compensation and benefits - The Company continues to implement measures
to optimize its workforce and reduce risk associated with future obligations
towards employee benefit plans. In 2018, employee compensation and benefits
expense decreased
Note 1 - Significant Accounting Policies and Recently Issued Accounting
Standards . As a result of adopting this guidance retrospectively, Publishing
employee compensation and benefits expense decreased
Other production, distribution and operating costs - Expense decreased in 2018,
reflecting savings as the Company continues to manage discretionary spending.
Adoption of the new revenue guidance resulted in decreased expense of
Newsprint, ink and other supplies - Expense decreased in 2018 due to reduced
newsprint costs associated with lower circulation volumes. Newsprint consumption
approximated 19,255 and 23,296 metric tons in 2018 and 2017, respectively, at an
average cost per metric ton of
Depreciation - Expense decreased in 2018 and 2017 due to a lower depreciable asset base as a higher level of in-service assets were fully depreciated. Capital spending is primarily directed towards digital platforms and maintenance on production systems. The Company is committed to investing the appropriate levels of capital to sustain existing operations and develop new operations having an appropriate return on the investment.
Asset impairments - In 2017, the Company impaired
--------------------------------------------------------------------------------
Table of Contents Marketing Services
Employee compensation and benefits - Expense decreased in 2018 by
Other production, distribution and operating costs - Expenses decreased in 2018
by
Newsprint, ink and other supplies - Expense decreased in 2018 primarily due to a decrease in promotional material printing costs.
Depreciation - Marketing and event services' cost structure is primarily labor driven. Capital purchases are required to support technology investments. Capital assets are primarily depreciated over a life of three years.
Amortization - Expense is primarily related to customer lists associated with
Asset impairments - The Company conducted its annual goodwill impairment test as
of
Marketing Services, resulting in an impairment charge of
Other
The table below sets forth the other components of the Company's results of
operations.
Years Ended December 31,
Percentage
2018 Change 2017
(Restated)
Other income, net $ 3,891 (66.1) % $ 11,483 Income tax provision (benefit)
Other income, net - Other income, net includes gain (loss) on disposal of fixed assets and gain (loss) from investments.
Net periodic pension and other post-employment expense (benefit) is now included
in other income, net in the Consolidated Statements of Operations; see Note 1
- Significant Accounting Policies and Recently Issued Accounting Standards . As
a result of adopting this guidance, other income, net increased
Note 9 - Pension and Other Retirement Plans .
In 2017, the Company completed the sale of three parcels of land and received
net cash proceeds of
On
Income tax provision (benefit) - A tax provision of
A tax benefit of
--------------------------------------------------------------------------------
Table of Contents
the sale of the Company's three properties in downtown
Additionally, the Company's deferred tax assets and liabilities were remeasured
to reflect the reduction in the
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
Critical Accounting Policies and Estimates
Revenue Recognition. The Company's principal sources of revenue are the advertising space in published issues of its newspapers and on the Company's third-party websites, the sale of newspapers to distributors and individual subscribers, as well as amounts charged to customers for commercial printing, distribution and direct mail.
On
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. Barter advertising transactions are recognized at estimated fair value based on the negotiated contract price and the range of prices for similar advertising from customers unrelated to the barter transaction. The Company expenses barter costs as incurred, which is independent from the timing of revenue recognition. 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 revenue 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. Revenue is directly reduced for any non-payment for the grace period of home delivery subscriptions where the Company recorded revenue for newspapers delivered after a subscription expired. Digital subscriptions are recognized over time, based on the customers' monthly rate.
Printing, distribution and other revenue 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.
--------------------------------------------------------------------------------
Table of Contents
of the reporting unit. Significant assumptions include sales and expense growth
rates, discount rates, capital expenditures and the impact of current market
conditions. These estimates could be materially impacted by changes in market
conditions. The Company performs the goodwill impairment test as of
The Company conducted its annual goodwill impairment test as of
Pension. The Company follows accounting guidance for single-employer defined
benefit plans. Plan assets and the projected benefits obligation are measured
each
The projected benefit obligations of the A. H. Belo Pension Plans are estimated
using the Citigroup Pension Yield Curve, which is based upon a portfolio of high
quality corporate debt securities with maturities that correlate to the timing
of benefit payments to the plans' participants. Future benefit payments are
discounted to their present value at the appropriate yield curve discount rate
to determine the projected benefit obligation outstanding at each year end. The
yield curve discount rates as of
Interest expense included in net periodic pension expense (benefit) is based on
the Citigroup Pension Yield Curve established at the beginning of the fiscal
year. The beginning of year yield curve discount rate for 2018 and 2017 was
3.4 percent and 3.8 percent, respectively. Due to the 2017 de-risking action, a
settlement charge was triggered as of
The Company assumed a 6.5 percent long-term rate of return on the plans' assets in 2018 and 2017. This return is based upon historical returns of similar investment pools having asset allocations consistent with the expected allocations of the A. H. Belo Pension Plans. Investment strategies for the plans' assets are based upon factors such as the remaining life expectancy of participants and market risks. The Company currently targets the plans' assets invested in equity securities and fixed income securities to approximate 50 percent and 50 percent, respectively.
Income Taxes. The Company uses the asset and liability method of accounting for income taxes and recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company establishes a valuation allowance if it is more-likely-than-not that the deferred tax assets will not be realized. The factors used to assess the likelihood of realization of the deferred tax assets include reversal of future deferred tax liabilities, available tax planning strategies, future taxable income and taxable income in prior carryback years.
The Company evaluates any uncertain tax positions each reporting period by tax jurisdiction to determine if it is more-likely-than-not that the tax position will not be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements for such positions are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. If a net operating loss or other tax credit carry forward exists, the Company records the unrecognized tax benefits for such tax positions as a reduction to a deferred tax asset. Otherwise, the unrecognized tax benefits are recorded as a liability. The Company records a liability for uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs. Interest and penalties, if any, related to unrecognized tax benefits are recorded in interest expense.
--------------------------------------------------------------------------------
Table of Contents Recent Accounting Standards
See the Notes to the Consolidated Financial Statements, Note 1 - Significant Accounting Policies and Recently Issued Accounting Standards , regarding the impact of certain recent accounting pronouncements.
Liquidity and Capital Resources
The Company's cash balances as of
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
The future payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company resumed open market stock repurchases in the fourth quarter of 2017 under its prior board-authorized repurchase authority. Current holdings of treasury stock could be used to satisfy potential obligations related to share-based awards issued to employees and directors, or can be sold on the open market.
The following discusses the changes in cash flows by operating, investing and financing activities in 2018 and 2017.
Operating Cash Flows
Net cash provided by (used for) operating activities was
Cash flows from operating activities increased in 2018 compared to 2017,
primarily due to the 2017 voluntary contribution of
Cash flows from operating activities in 2017 primarily included the voluntary
contribution to the A. H. Belo Pension Plans, which offset taxable income that
resulted from the sale of the Company's three properties in downtown
Investing Cash Flows
Net cash provided by (used for) investing activities was
Cash flows used for investing activities in 2018 was all attributable to capital spending.
Cash flows from investing activities in 2017 primarily included net cash
proceeds of
Financing Cash Flows
Net cash used for financing activities was
Cash used for financing activities included total dividends paid of
In the fourth quarter of 2017, the Company resumed open market stock repurchases
under its prior board-authorized repurchase authority and purchased 14,080
shares of its Series A common stock at a total cost of
Financing Arrangements None.
--------------------------------------------------------------------------------
Table of Contents Contractual Obligations
In
In
Based on the applicable tax and labor laws governing pension plan funding, the Company expects to make no required contributions to the A. H. Belo Pension Plans in 2019.
On
© Edgar Online, source
