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20190331 Q1_A

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q/A





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

For the quarterly period ended: March 31, 2019 

OR

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

Commission file no. 1-33741





Picture 1



A. H. Belo Corporation

(Exact name of registrant as specified in its charter)







 

 





 

 

Texas

 

38-3765318

(State or other jurisdiction of incorporation or organization)

 

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

 

 

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

 

(214) 977-8222

(Address of principal executive offices, including zip code)

 

(Registrant’s telephone number, including area code)



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

None

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



 

 

 

 



 

 

 

 



 

 

 

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Series A Common Stock, $.01 par value

 

AHC

 

New York Stock Exchange



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



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



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





 

 

 

 

 

 

Large accelerated filer:  

 

Accelerated filer:  

 

Non-accelerated filer:  

 

Smaller reporting company:  

 

 

 

 

 

Emerging growth company  

 

 

 

 



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



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





Shares of Common Stock outstanding at April 25, 2019: 21,513,493 shares (consisting of 19,043,949 shares of Series A Common Stock and 2,469,544 shares of Series B Common Stock). 

 

 


 

Table of Contents

 



Explanatory Note



This Amendment No. 1 on Form 10-Q/A (the “Form 10-Q/A”) is being filed to amend A. H. Belo Corporation’s (the “Company”) Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 29, 2019, for the quarter ended March 31, 2019 (the “original Form 10-Q”). As previously disclosed on Form 8-K filed on November 20, 2019, the Company will also be filing an amended quarterly report on Form 10-Q/A for the quarterly period ended June 30, 2019.

 

On March 18, 2020, the Company filed an Amendment No. 1 on Form 10-K/A (the “Form 10-K/A”) to amend the Form 10-K filed with the Securities and Exchange Commission on March 14, 2019, for the fiscal year ended December 31, 2018. The Form 10-K/A was filed in order to reflect the appropriate timing of the noncash impairment charge for goodwill and long-lived assets associated with the Company’s Marketing Services reporting unit and the appropriate methodology for calculation of the valuation allowance within the tax provision for 2018.



As a result, this Form 10-Q/A amends the Consolidated Balance Sheet as of March 31, 2019. In connection with the restatement, the Company re-calculated the income tax benefit for the three months ended March 31, 2019. The Company determined using an estimated annual effective tax rate to calculate the income tax benefit for the three months ended March 31, 2019 was appropriate, compared to the discrete year-to-date calculation of income tax expense or benefit used in prior interim periods and in the original Form 10-Q. The Consolidated Statement of Operations was restated to reflect additional income tax benefit primarily resulting from using an estimated annual effective tax rate, a reduction in other income, net for additional interest expense related to uncertain tax positions, and the reversal of amortization expense related to the Marketing Services long-lived assets impairment disclosed in the Form 10-K/A. The use of an estimated annual effective tax rate in determining the income tax benefit and a correction to the calculation of uncertain tax positions resulted in adjustments to deferred income taxes, net, other accrued expense, and other liabilities in the Consolidated Balance Sheet as of March 31, 2019. See the Notes to the Consolidated Financial Statements,  Note 2 – Restatement of Financial Statements, for additional information.

In connection with the identification of these issues that led to the restatements described in this Form 10-Q/A, management of the Company re-evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. As a result, management concluded that as of the end of the period covered by this report, due to material weaknesses in internal control over financial reporting described in Management’s Report on Internal Control Over Financial Reporting in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2018, the Company’s disclosure controls and procedures were not effective. See Part I, Item 4.



Except for the items noted herein, no other changes have been made to the original Form 10-Q.  This Form 10-Q/A has not been updated for events occurring after the filing of the original Form 10-Q and no attempt has been made in this Form 10-Q/A to modify or update other disclosures as presented in the original filing of the Form 10-Q, except as disclosed in Note 14 – Subsequent Events and Part II, Item 1A. Risk Factors. The following sections have been amended as a result of the restatement:

 

·

Part I, Item 1. Financial Information

·

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

·

Part I, Item 4. Controls and Procedures



No other significant changes have been made to the original Form 10-Q except:



·

Conforming the cover page to the Securities and Exchange Commission Form 10-Q, updated May 2019

·

The updating throughout this report of references to Form 10-Q to Form 10-Q/A

·

The re-numbering throughout this report of references to the Notes to the Consolidated Financial Statements to reflect the addition of Note 2

 

In accordance with applicable SEC rules, this Form 10-Q/A includes certifications from our Chief Executive Officer and Principal Financial Officer dated as of the date of this filing.



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


 

Table of Contents

 

A. H. BELO CORPORATION



FORM 10-Q/A



TABLE OF CONTENTS





 

 

 





 

 

 

 

 

Page

PART I

Item 1.

Financial Information (Restated)

 

PAGE    4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated)

 

PAGE 20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

PAGE 27

Item 4.

Controls and Procedures (Restated)

 

PAGE 27

 

 

 

 

PART II 

 

 

Item 1.

Legal Proceedings

 

PAGE 29

Item 1A.

Risk Factors

 

PAGE 29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

PAGE 29

Item 3.

Defaults Upon Senior Securities

 

PAGE 29

Item 4.

Mine Safety Disclosures

 

PAGE 29

Item 5.

Other Information

 

PAGE 29

Item 6.

Exhibits

 

PAGE 30

Signatures

 

PAGE 33

Exhibit Index

 

PAGE 34



 

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


 

Table of Contents

 



PART I

Item 1.  Financial Information (Restated)



A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Operations





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,

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

 

2019

 

2018



 

 

(Restated)

 

 

 

Net Operating Revenue:

 

 

 

 

 

 

Advertising and marketing services

 

$

24,041 

 

$

25,741 

Circulation

 

 

17,273 

 

 

17,747 

Printing, distribution and other

 

 

5,275 

 

 

5,965 

Total net operating revenue

 

 

46,589 

 

 

49,453 

Operating Costs and Expense:

 

 

 

 

 

 

Employee compensation and benefits

 

 

21,124 

 

 

24,672 

Other production, distribution and operating costs

 

 

22,184 

 

 

23,014 

Newsprint, ink and other supplies

 

 

4,747 

 

 

5,311 

Depreciation

 

 

2,386 

 

 

2,473 

Amortization

 

 

76 

 

 

200 

Total operating costs and expense

 

 

50,517 

 

 

55,670 

Operating loss

 

 

(3,928)

 

 

(6,217)

Other income, net

 

 

829 

 

 

888 

Loss Before Income Taxes

 

 

(3,099)

 

 

(5,329)

Income tax benefit

 

 

(964)

 

 

(1,315)

Net Loss

 

$

(2,135)

 

$

(4,014)



 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

Basic and diluted

 

$

(0.10)

 

$

(0.19)

Number of common shares used in the per share calculation:

 

 

 

 

 

 

Basic and diluted

 

 

21,594,262 

 

 

21,716,419 



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,

In thousands (unaudited)

 

2019

 

2018



 

 

(Restated)

 

 

 

Net Loss

 

$

(2,135)

 

$

(4,014)

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

Amortization of actuarial losses

 

 

63 

 

 

158 

Total other comprehensive income, net of tax

 

 

63 

 

 

158 

Total Comprehensive Loss

 

$

(2,072)

 

$

(3,856)



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 

  

 

 

 

 

 

 



 

March 31,

 

December 31,

In thousands, except share amounts (unaudited)

 

2019

 

2018



 

 

(Restated)

 

 

(Restated)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,301 

 

$

55,313 

Accounts receivable (net of allowance of $844 and $581 at March 31, 2019
and December 31, 2018, respectively)

 

 

19,552 

 

 

22,057 

Inventories

 

 

3,877 

 

 

3,912 

Prepaids and other current assets

 

 

6,367 

 

 

5,023 

Assets held for sale

 

 

1,089 

 

 

1,089 

Total current assets

 

 

81,186 

 

 

87,394 

Property, plant and equipment, at cost

 

 

423,015 

 

 

422,966 

Less accumulated depreciation

 

 

(399,091)

 

 

(396,705)

Property, plant and equipment, net

 

 

23,924 

 

 

26,261 

Operating lease right-of-use assets

 

 

22,527 

 

 

 —

Intangible assets, net

 

 

228 

 

 

304 

Goodwill

 

 

 —

 

 

 —

Deferred income taxes, net

 

 

4,358 

 

 

3,572 

Other assets

 

 

4,028 

 

 

5,029 

Total assets

 

$

136,251 

 

$

122,560 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,725 

 

$

6,334 

Accrued compensation and benefits

 

 

5,625 

 

 

8,294 

Other accrued expense

 

 

6,297 

 

 

5,586 

Advance subscription payments

 

 

12,153 

 

 

11,449 

Total current liabilities

 

 

28,800 

 

 

31,663 

Long-term pension liabilities

 

 

30,997 

 

 

31,889 

Long-term operating lease liabilities

 

 

23,862 

 

 

 —

Other post-employment benefits

 

 

1,162 

 

 

1,165 

Other liabilities

 

 

4,764 

 

 

7,045 

Total liabilities

 

 

89,585 

 

 

71,762 

Shareholders’ equity:

 

 

 

 

 

 

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

 

 

 —

 

 

 —

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

 

 

 

 

 

 

Series A: issued 20,854,739 and 20,854,728 shares at March 31, 2019
and December 31, 2018, respectively

 

 

209 

 

 

209 

Series B: issued 2,469,544 and 2,469,555 shares at March 31, 2019
and December 31, 2018, respectively

 

 

24 

 

 

24 

Treasury stock, Series A, at cost; 1,780,899 and 1,697,370 shares held at March 31, 2019 and December 31, 2018, respectively

 

 

(12,941)

 

 

(12,601)

Additional paid-in capital

 

 

494,389 

 

 

494,389 

Accumulated other comprehensive loss

 

 

(37,578)

 

 

(37,641)

Accumulated deficit

 

 

(397,437)

 

 

(393,582)

Total shareholders’ equity

 

 

46,666 

 

 

50,798 

Total liabilities and shareholders’ equity

 

$

136,251 

 

$

122,560 



See the accompanying Notes to the Consolidated Financial Statements.

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

 

 

Treasury Stock

 

 

 

 

 

 

In thousands, except share amounts  (unaudited)

Shares   
Series A

Shares
Series B

Amount

Additional
Paid-in
Capital

 

Shares
Series A

Amount

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total

Balance at December 31, 2017

20,700,292 

2,469,755 

$

232 

$

494,989 

 

(1,430,961)

$

(11,302)

$

(24,932)

$

(361,288)

$

97,699 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(4,014)

 

(4,014)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

158 

 

 —

 

158 

Shares repurchased

 —

 —

 

 —

 

 —

 

(108,778)

 

(555)

 

 —

 

 —

 

(555)

Issuance of shares for restricted stock units

117,102 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

617 

 

 —

 

 —

 

 —

 

 —

 

617 

Conversion of Series B to Series A

120 

(120)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,781)

 

(1,781)

Balance at March 31, 2018

20,817,514 

2,469,635 

$

233 

$

495,605 

 

(1,539,739)

$

(11,857)

$

(24,774)

$

(367,083)

$

92,124 

Balance at December 31, 2018 (Restated)

20,854,728 

2,469,555 

$

233 

$

494,389 

 

(1,697,370)

$

(12,601)

$

(37,641)

$

(393,582)

$

50,798

Net loss (Restated)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(2,135)

 

(2,135)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

63 

 

 —

 

63 

Shares repurchased

 —

 —

 

 —

 

 —

 

(83,529)

 

(340)

 

 —

 

 —

 

(340)

Conversion of Series B to Series A

11 

(11)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,720)

 

(1,720)

Balance at March 31, 2019 (Restated)

20,854,739 

2,469,544 

$

233 

$

494,389 

 

(1,780,899)

$

(12,941)

$

(37,578)

$

(397,437)

$

46,666



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,

In thousands (unaudited)

 

2019

 

2018



 

 

(Restated)

 

 

 

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(2,135)

 

$

(4,014)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

2,462 

 

 

2,673 

Net periodic pension and other post-employment benefit

 

 

(818)

 

 

(930)

Share-based compensation

 

 

 —

 

 

617 

Bad debt expense

 

 

400 

 

 

241 

Deferred income taxes

 

 

(786)

 

 

(1,619)

Loss on disposal of fixed assets

 

 

 —

 

 

186 

Changes in working capital and other operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,105 

 

 

6,049 

Inventories, prepaids and other current assets

 

 

(1,309)

 

 

(1,478)

Other assets

 

 

1,001 

 

 

772 

Accounts payable

 

 

(1,609)

 

 

(2,566)

Compensation and benefit obligations

 

 

(3,362)

 

 

(2,089)

Other accrued expenses

 

 

595 

 

 

3,428 

Advance subscription payments

 

 

704 

 

 

563 

Other post-employment benefits

 

 

(14)

 

 

(886)

Net cash provided by (used for) operating activities

 

 

(2,766)

 

 

947 

Investing Activities

 

 

 

 

 

 

Purchases of assets

 

 

(180)

 

 

(2,307)

Net cash used for investing activities

 

 

(180)

 

 

(2,307)

Financing Activities

 

 

 

 

 

 

Dividends paid

 

 

(1,726)

 

 

(1,770)

Shares repurchased

 

 

(340)

 

 

(555)

Net cash used for financing activities

 

 

(2,066)

 

 

(2,325)

Net decrease in cash and cash equivalents

 

 

(5,012)

 

 

(3,685)

Cash and cash equivalents, beginning of period

 

 

55,313 

 

 

57,660 

Cash and cash equivalents, end of period

 

$

50,301 

 

$

53,975 



 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Income tax paid, net (refund)

 

$

 

$

(300)

Noncash investing and financing activities:

 

 

 

 

 

 

Investments in property, plant and equipment payable

 

 

 —

 

 

327 

Dividends payable

 

 

1,723 

 

 

1,785 



See the accompanying Notes to the Consolidated Financial Statements.

 



 

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


 

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A. H. Belo Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

 

Note 1:  Basis of Presentation and Recently Issued Accounting Standards



Description of Business.    A. H. Belo Corporation and subsidiaries are referred to collectively herein as “A. H. Belo” or the “Company.” The Company, headquartered in Dallas, Texas, is the leading local news and information publishing company in Texas with 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/A 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 5 – 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 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.



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.



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


 

Table of Contents

 

Note 2:  Restatement of Financial Statements



The Company restated its financial statements to amend its Consolidated Balance Sheet as of March 31, 2019,  related to the corrections disclosed in the December 31, 2018 Form 10-K/A.  In connection with the restatement, the Company re-calculated the income tax benefit for the three months ended March 31, 2019. The Company determined using an estimated annual effective tax rate to calculate the income tax benefit for the three months ended March 31, 2019 was appropriate, compared to the discrete year-to-date calculation of income tax expense or benefit used in prior interim periods and in the original Form 10-Q. See Note 8 – Income Taxes.  The Consolidated Statement of Operations was restated to reflect additional income tax benefit primarily resulting from using an estimated annual effective tax rate, a reduction in other income, net for additional interest expense related to uncertain tax positions, and the reversal of amortization expense related to the Marketing Services long-lived assets impairment disclosed in the Form 10-K/A. See Note 6 – Goodwill and Intangible Assets. The use of an estimated annual effective tax rate in determining the income tax benefit and a correction to the calculation of uncertain tax positions resulted in adjustments to deferred income taxes, net, other accrued expense, and other liabilities in the Consolidated Balance Sheet as of March 31, 2019.



The table below sets forth the impact of the restatement on the Consolidated Statement of Operations (unaudited).





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

Operating Costs and Expense:

 

 

 

 

 

 

 

 

 

Amortization

 

$

200 

 

$

(124)

 

$

76 

Total operating costs and expense

 

 

50,641 

 

 

(124)

 

 

50,517 

Operating loss

 

 

(4,052)

 

 

124 

 

 

(3,928)

Other income, net

 

 

897 

 

 

(68)

 

 

829 

Loss Before Income Taxes

 

 

(3,155)

 

 

56 

 

 

(3,099)

Income tax benefit

 

 

(143)

 

 

(821)

 

 

(964)

Net Loss

 

 

(3,012)

 

 

877 

 

 

(2,135)



 

 

 

 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.14)

 

$

0.04 

 

$

(0.10)



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



The table below sets forth the impact of the restatement on the Consolidated Statement of Comprehensive Income (Loss) (unaudited).





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

Net Loss

 

$

(3,012)

 

$

877 

 

$

(2,135)

Total Comprehensive Loss

 

 

(2,949)

 

 

877 

 

 

(2,072)



The table below sets forth the impact of the restatement on the Consolidated Balance Sheet (unaudited).





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

March 31, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

Assets

 

 

 

 

 

 

 

 

 

Intangible assets, net

 

$

3,074 

 

$

(2,846)

 

$

228 

Goodwill

 

 

13,973 

 

 

(13,973)

 

 

 —

Deferred income taxes, net

 

 

6,720 

 

 

(2,362)

 

 

4,358 

Total assets

 

 

155,432 

 

 

(19,181)

 

 

136,251 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

Other accrued expense

 

$

6,635 

 

$

(338)

 

$

6,297 

Total current liabilities

 

 

29,138 

 

 

(338)

 

 

28,800 

Other liabilities

 

 

4,696 

 

 

68 

 

 

4,764 

Total liabilities

 

 

89,855 

 

 

(270)

 

 

89,585 

Accumulated deficit

 

 

(378,526)

 

 

(18,911)

 

 

(397,437)

Total shareholders’ equity

 

 

65,577 

 

 

(18,911)

 

 

46,666 

Total liabilities and shareholders’ equity

 

 

155,432 

 

 

(19,181)

 

 

136,251 



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


 

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The table below sets forth the impact of the restatement on the Consolidated Statement of Cash Flows (unaudited).





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

Operating Activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,012)

 

$

877 

 

$

(2,135)

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

2,586 

 

$

(124)

 

$

2,462 

Deferred income taxes

 

 

(303)

 

 

(483)

 

 

(786)

Changes in working capital and other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

$

865 

 

$

(270)

 

$

595 









Note 3:  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 Publishing segment’s operating results includes $5,205 and $6,748 of corporate expense at March 31, 2019 and 2018, respectively. 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.



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


 

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







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018



 

 

(Restated)

 

 

(Recast)

Revenue

 

 

 

 

 

 

Publishing

 

$

40,703 

 

$

43,629 

Marketing Services

 

 

5,886 

 

 

5,824 

Total

 

$

46,589 

 

$

49,453 



 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

Publishing

 

$

(4,040)

 

$

(6,302)

Marketing Services

 

 

112 

 

 

85 

Total

 

$

(3,928)

 

$

(6,217)



 

 

 

 

 

 

Noncash Expenses

 

 

 

 

 

 

Publishing

 

 

 

 

 

 

Depreciation

 

$

2,317 

 

$

2,436 

Total

 

$

2,317 

 

$

2,436 



 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

Depreciation

 

$

69 

 

$

37 

Amortization

 

 

76 

 

 

200 

Total

 

$

145 

 

$

237 







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018



 

 

(Restated)

 

 

(Restated)

Total Assets

 

 

 

 

 

 

Publishing

 

$

126,434 

 

$

117,289 

Marketing Services

 

 

9,817 

 

 

5,271 

Total

 

$

136,251 

 

$

122,560 





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.



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


 

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The table below sets forth revenue disaggregated by revenue source.





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018

Advertising revenue

 

$

18,155 

 

$

19,917 

Digital services

 

 

4,309 

 

 

4,468 

Other services

 

 

1,577 

 

 

1,356 

Advertising and marketing services

 

24,041 

 

 

25,741 

Circulation

 

 

17,273 

 

 

17,747 

Printing, distribution and other

 

 

5,275 

 

 

5,965 

Total Revenue

 

$

46,589 

 

$

49,453 



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.



Digital services and other services revenues are included in the Marketing Services segment results. Digital services revenue includes targeted and multi-channel (programmatic) advertising placed on third-party websites, content development, social media management, search optimization, 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 March 31, 2019, the remaining performance obligation was $3,495. The Company expects to recognize $1,293 over the remainder of 2019, $1,196 in 2020, $886 in 2021, and $120 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 March 31, 2019, was $14,525, included in advance 

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


 

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subscription payments, other accrued expense and other liabilities in the Consolidated Balance Sheet. In the three months ended March 31, 2019, the balance increased $1,930,  primarily driven by cash payments received in advance of satisfying our performance obligations, offset by $7,241 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.









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 March 31, 2019, sublease income is expected to approximate $390 for the remainder of 2019, $341 in 2020, $232 in 2021, $221 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. As of March 31, 2019, the Company does not have any significant additional operating leases that have not yet commenced.



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


 

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





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Classification

 

March 31, 2019

Assets

 

 

 

 

 

 

 

Operating

 

 

Operating lease right-of-use assets

 

$

22,527 



 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Operating

 

 

 

 

 

 

 

Current

 

 

Other accrued expense

 

$

1,802 

Noncurrent

 

 

Long-term operating lease liabilities

 

 

23,862 

Total lease liabilities

 

 

 

 

$

25,664 



 

 

 

 

 

 

 

Lease Term and Discount Rate

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

 

Weighted average remaining lease term (years)

 

 

 

 

 

12.2 

Weighted average discount rate

 

 

 

 

 

7.4 

%



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





 

 

 



 

 

 



 

Three Months Ended March 31, 2019

Lease Cost

 

 

 

Operating lease cost

 

$

1,038 

Short-term lease cost

 

 

46 

Variable lease cost

 

 

90 

Sublease income

 

 

(161)

Total lease cost

 

$

1,013 



 

 

 

Supplemental Cash Flow Information

 

 

 

Cash paid for operating leases included in operating activities

 

$

998 



The table below sets forth the remaining maturities of the Company’s lease liabilities as of March 31, 2019.





 

 

 



 

 

 

Years Ending December 31,

 

Operating Leases

2019

 

$

2,700 

2020

 

 

3,480 

2021

 

 

3,450 

2022

 

 

3,398 

2023

 

 

2,986 

Thereafter

 

 

24,506 

Total lease payments

 

 

40,520 

Less: imputed interest

 

 

14,856 

Total lease liabilities

 

$

25,664 





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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Total

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

Operating lease commitments

$

41,837 

 

$

4,403 

 

$

3,588 

 

$

3,575 

 

$

3,467 

 

$

3,533 

 

$

23,271 





A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A     15


 

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Note 6:  Goodwill and Intangible Assets



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





 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2019

 

2018



 

(Restated)

 

 

(Restated)

Goodwill

 

 

 

 

 

Marketing Services

$

 —

 

$

 —



 

 

 

 

 

Intangible Assets

 

 

 

 

 

Marketing Services

 

 

 

 

 

Cost

$

1,520 

 

$

6,470 

Accumulated Amortization

 

(1,292)

 

 

(3,196)

Asset Impairments

 

 —

 

 

(2,970)

Net Carrying Value

$

228 

 

$

304 



The intangible assets consist of $1,520 of developed technology with an estimated useful life of five years and the net carrying value of $228 will be fully expensed by the end of 2019. Aggregate amortization expense was $76 and $200 for the three months ended March 31, 2019 and 2018, respectively.



Note 7:  Related Party Transactions



On March 1, 2019, the Company made a loan of $200 to eSite Analytics, Inc. As of March 31, 2019 and December 31, 2018, the Company had a note receivable of $850 and $650, respectively, included in prepaids and other current assets, and other assets in the Consolidated Balance Sheets. The Company accounts for eSite Analytics, Inc. as an equity method investment.



Note 8:  Income Taxes



The Company historically determined the quarterly income tax provision using a discrete year-to-date calculation due to volatility in the newspaper industry and the resulting inability to reliably forecast income or loss before income taxes. In connection with the restatement, the Company re-calculated the income tax benefit for the three months ended March 31, 2019 using an estimated annual effective tax rate based on its annual income before income taxes, adjusted for permanent differences, which it applied to the year-to-date loss before income taxes. Although volatility still exists in the newspaper industry, the Company is appropriately using an estimated annual effective tax rate to calculate its quarterly income tax provision, given the Company’s ability to reliably forecast for the current annual period.



The Company recognized income tax benefit of $964 and $1,315 for the three months ended March 31, 2019 and 2018, respectively. Effective income tax rates were 31.1 percent and 24.7 percent for the three months ended March 31, 2019 and 2018, respectively. The effective income tax rate for the three months ended March 31, 2019, was due to additional losses generated from operations and an increase in the deferred tax asset, offset by the effect of the Texas margin tax.



Note 9Pension and Other Retirement Plans



Defined Benefit Plans.    The Company sponsors the A. H. Belo Pension Plans (the “Pension Plans”), which provide benefits to approximately 1,400 current and former employees of the Company. A. H. Belo Pension Plan I provides benefits to certain current and former employees primarily employed with The Dallas Morning News or the A. H. Belo corporate offices. A. H. Belo Pension Plan II provides benefits to certain former employees of The Providence Journal Company. This obligation was retained by the Company upon the sale of the newspaper operations of The Providence Journal. No additional benefits are accruing under the A. H. Belo Pension Plans, as future benefits were frozen.



No contributions are required to the A. H. Belo Pension Plans in 2019 under the applicable tax and labor laws governing pension plan funding.

A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A     16


 

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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 March 31,



 

2019

 

2018

Interest cost

 

$

1,974 

 

$

1,796 

Expected return on plans' assets

 

 

(2,867)

 

 

(2,894)

Amortization of actuarial loss

 

 

70 

 

 

168 

Net periodic pension benefit

 

$

(823)

 

$

(930)



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 March 31, 2019 and 2018, the Company recorded expense of $213 and $243, respectively, for matching contributions to the Savings Plan.

 

Note 10:  Shareholders’ Equity



Dividends.    On March 7, 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 May 17, 2019, which is payable on June 7, 2019. During the three months ended March 31, 2019, the Company recorded $1,723 to accrue for dividends declared but not yet paid, included in other accrued expense in the Consolidated Balance Sheet.



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. During the first quarter of 2019, the Company repurchased 83,529 shares of its Series A common stock at a total cost of $340.



Outstanding Shares.    The Company had Series A and Series B common stock outstanding of 19,073,840 and 2,469,544, respectively, net of treasury shares at March 31, 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.



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 March 31,



 

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

 

 

63 

 

 

70 

 

 

(7)

 

 

158 

 

 

168 

 

 

(10)

Balance, end of period

 

$

(37,578)

 

$

(37,933)

 

$

355 

 

$

(24,774)

 

$

(25,266)

 

$

492 

















A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A     17


 

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Note 11:  Earnings Per Share



The table below sets forth the reconciliation for net loss and weighted average shares used for calculating basic and diluted earnings per share (“EPS”). The Company’s Series A and Series B common stock equally share in the distributed and undistributed earnings.







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018



 

 

(Restated)

 

 

 

Earnings (Numerator)

 

 

 

 

 

 

Net loss

 

$

(2,135)

 

$

(4,014)

Less: dividends to participating securities

 

 

 —

 

 

45 

Net loss available to common shareholders

 

$

(2,135)

 

$

(4,059)



 

 

 

 

 

 

Shares (Denominator)

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

 

21,594,262 

 

 

21,716,419 



 

 

 

 

 

 

Loss Per Share

 

 

 

 

 

 

Basic and diluted

 

$

(0.10)

 

$

(0.19)



Holders of service-based restricted stock units (“RSUs”) participate in A. H. Belo dividends on a one-for-one share basis. Distributed and undistributed income associated with participating securities is included in the calculation of EPS under the two-class method as prescribed under ASC 260 – Earnings Per Share.



The Company considers outstanding stock options and RSUs in the calculation of earnings per share. A total of 670,111 options and RSUs outstanding as of March 31, 2018, were excluded from the calculation because the effect was anti-dilutive. There were no options or RSUs outstanding as of March 31, 2019.



Note 12:  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 13:  Sales of Assets



Sales of Assets.    Assets held for sale include long-lived assets being actively marketed for which a sale is considered probable within the next 12 months. These assets are recorded at the lower of their fair value less costs to sell or their carrying value at the time they are classified as assets held for sale. Real estate assets in downtown Dallas, Texas, previously used as the corporate headquarters, are available for sale. These assets, with a total carrying value of $1,089, are reported as assets held for sale as of March 31, 2019 and December 31, 2018.



Note 14:  Subsequent Events



The Company evaluates subsequent events at the date of the consolidated balance sheet as well as conditions that arise after the balance sheet date but before the consolidated financial statements are issued. To the extent any events and conditions exist, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions. The Company re-evaluated subsequent events in connection with the restatement and reissuance of these financial statements for events which arose since the previously issued consolidated financial statements were issued through the date these consolidated financial statements were reissued. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements other than those listed below.



A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A     18


 

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On April 1, 2019, the Company completed the acquisition of certain assets of Cubic, Inc. for a cash purchase price of $2,356, net of $213 cash acquired. The new entity Cubic Creative, Inc. is located in Tulsa, Oklahoma and has 25 employees. This acquisition adds creative strategy services, which will be complementary to service offerings currently available to A. H. Belo clients. The acquired operations will be included in the Marketing Services segment. Operating results of the business acquired will be included in the Consolidated Statements of Operations from the acquisition date forward. The Company does not expect the acquisition to be material to its financial position or results of operations.



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 $1,000, and a two-year seller-financed promissory note of $22,400. 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 these conditions are probable. These assets had a carrying value of $1,089, and were reported as assets held for sale in the Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.



Beginning in January 2020, there has been an outbreak of the Coronavirus Disease 2019 (“COVID-19” or “virus”), which has been declared a “pandemic” by the World Health Organization. The full impact of COVID-19 is unknown and rapidly evolving. The outbreak and any preventative or protective actions that the Company or its customers may take in respect of this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its operations generally and could potentially impact the Company’s customers, distribution partners, advertisers, production facilities, and third parties. Any resulting financial impact cannot be reasonably estimated at this time, but may materially affect the business and the Company’s financial condition and results of operations. The extent to which the COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others.



A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A     19


 

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



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 with 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. The segment includes sales of online automotive classifieds on the cars.com platform. In addition, the Publishing segment includes all corporate expenses.



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).



A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A     20


 

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RESULTS OF OPERATIONS



Consolidated Results of Operations (unaudited)



This section contains discussion and analysis of net operating revenue, expense and other information relevant to an understanding of results of operations for the three months ended March 31, 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.



This Form 10-Q/A amends the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 29, 2019, (the “original Form 10-Q”) to reflect the restatement of the Company’s financial statements for the quarter ended March 31, 2019. In connection with the restatement, the Company re-calculated the income tax benefit for the three months ended March 31, 2019. The Company determined using an estimated annual effective tax rate to calculate the income tax benefit for the three months ended March 31, 2019 was appropriate, compared to the discrete year-to-date calculation of income tax expense or benefit used in prior interim periods and in the original Form 10-Q. The Consolidated Statement of Operations was restated to reflect additional tax benefit primarily resulting from using an estimated annual effective tax rate, a reduction in other income, net for additional interest expense related to uncertain tax positions, and the reversal of amortization expense related to the Marketing Services long-lived assets impairment disclosed in the December 31, 2018 Form 10-K/A. See the Notes to the Consolidated Financial Statements,  Note 2 – Restatement of Financial Statements,  for additional information.

 

The table below sets forth the components of A. H. Belo’s operating income (loss) by segment.





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

Percentage
Change

 

2018



 

 

(Restated)

 

 

 

 

 

(Recast)

Publishing