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20190630 Q2_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: June 30, 2019 

OR

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

Commission file no. 1-33741





Picture 1



A. H. Belo Corporation

(Exact name of registrant as specified in its charter)







 

 

Texas

 

38-3765318

(State or other jurisdiction of incorporation or organization)

 

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

 

 

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

 

(214) 977-8222

(Address of principal executive offices, including zip code)

 

(Registrant’s telephone number, including area code)

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

None



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



 

 

 

 



 

 

 

 



 

 

 

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

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

 

 


 

Table of Contents

 



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 July 29, 2019, for the quarter ended June 30, 2019 (the “original Form 10-Q”).

 

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. In addition, on March 27, 2020, the Company filed an Amendment No. 1 on Form 10-Q/A to amend the Form 10-Q filed with the Securities and Exchange Commission on April 29, 2019, for the quarter ended March 31, 2019.



This Form 10-Q/A amends the Consolidated Balance Sheet as of June 30, 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 provision for the three and six months ended June 30, 2019. The Company determined using an estimated annual effective tax rate to calculate the income tax expense or benefit for 2019 interim periods 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 Statements of Operations for the three and six months ended June 30, 2019, were restated to reflect the re-calculated income tax provision 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 provision and a correction to the calculation of uncertain tax positions resulted in adjustments to other accrued expense, deferred income taxes, net, and other liabilities in the Consolidated Balance Sheet as of June 30, 2019.



In addition, in the third quarter of 2019, the Company determined that a new line of business associated with its acquisition of Cubic Creative, Inc. on April 1, 2019, where the Company acted as an agent was incorrectly accounted for in the original Form 10-Q. In the three and six months ended June 30, 2019, revenue and expense were immaterially overstated by the same amount, resulting in no impact to operating income (loss), net income (loss), retained earnings or earnings per share. The Company corrected this error and the restated Consolidated Statements of Operations for the three and six months ended June 30, 2019, reflect the revised amounts. 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 15 – 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:



·

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 Second 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 22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

PAGE 29

Item 4.

Controls and Procedures (Restated)

 

PAGE 29

 

 

 

 

PART II 

 

 

Item 1.

Legal Proceedings

 

PAGE 31

Item 1A.

Risk Factors

 

PAGE 31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

PAGE 31

Item 3.

Defaults Upon Senior Securities

 

PAGE 31

Item 4.

Mine Safety Disclosures

 

PAGE 31

Item 5.

Other Information

 

PAGE 31

Item 6.

Exhibits

 

PAGE 32

Signatures

 

PAGE 35

Exhibit Index

 

PAGE 36



 

A. H. Belo Corporation Second 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 June 30,

 

Six Months Ended June 30,

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

 

2019

 

2018

 

2019

 

2018



 

 

(Restated)

 

 

 

 

 

(Restated)

 

 

 

Net Operating Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

25,300 

 

$

26,397 

 

$

49,341 

 

$

52,138 

Circulation

 

 

17,013 

 

 

17,921 

 

 

34,286 

 

 

35,668 

Printing, distribution and other

 

 

4,802 

 

 

6,851 

 

 

10,077 

 

 

12,816 

Total net operating revenue

 

 

47,115 

 

 

51,169 

 

 

93,704 

 

 

100,622 

Operating Costs and Expense:

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

19,828 

 

 

21,529 

 

 

40,952 

 

 

46,201 

Other production, distribution and operating costs

 

 

23,845 

 

 

22,833 

 

 

46,029 

 

 

45,847 

Newsprint, ink and other supplies

 

 

4,022 

 

 

5,461 

 

 

8,769 

 

 

10,772 

Depreciation

 

 

2,333 

 

 

2,535 

 

 

4,719 

 

 

5,008 

Amortization

 

 

140 

 

 

200 

 

 

216 

 

 

400 

Gain on sale of assets, net

 

 

(25,908)

 

 

 —

 

 

(25,908)

 

 

 —

Asset impairments

 

 

 —

 

 

(22)

 

 

 —

 

 

(22)

Total operating costs and expense

 

 

24,260 

 

 

52,536 

 

 

74,777 

 

 

108,206 

Operating income (loss)

 

 

22,855 

 

 

(1,367)

 

 

18,927 

 

 

(7,584)

Other income, net

 

 

1,133 

 

 

891 

 

 

1,962 

 

 

1,779 

Income (Loss) Before Income Taxes

 

 

23,988 

 

 

(476)

 

 

20,889 

 

 

(5,805)

Income tax provision (benefit)

 

 

7,460 

 

 

58 

 

 

6,496 

 

 

(1,257)

Net Income (Loss)

 

$

16,528 

 

$

(534)

 

$

14,393 

 

$

(4,548)



 

 

 

 

 

 

 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.77 

 

$

(0.03)

 

$

0.67 

 

$

(0.21)

Number of common shares used in the per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

21,525,971 

 

 

21,738,545 

 

 

21,578,014 

 

 

21,756,678 



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

In thousands (unaudited)

 

2019

 

2018

 

2019

 

2018



 

 

(Restated)

 

 

 

 

 

(Restated)

 

 

 

Net Income (Loss)

 

$

16,528 

 

$

(534)

 

$

14,393 

 

$

(4,548)

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial losses

 

 

62 

 

 

157 

 

 

125 

 

 

315 

Total other comprehensive income, net of tax

 

 

62 

 

 

157 

 

 

125 

 

 

315 

Total Comprehensive Income (Loss)

 

$

16,590 

 

$

(377)

 

$

14,518 

 

$

(4,233)



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 

  

 

 

 

 

 

 



 

June 30,

 

December 31,

In thousands, except share amounts (unaudited)

 

2019

 

2018



 

 

(Restated)

 

 

(Restated)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,017 

 

$

55,313 

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

 

 

20,468 

 

 

22,057 

Inventories

 

 

3,454 

 

 

3,912 

Prepaids and other current assets

 

 

5,808 

 

 

5,023 

Assets held for sale

 

 

 —

 

 

1,089 

Total current assets

 

 

81,747 

 

 

87,394 

Property, plant and equipment, at cost

 

 

423,389 

 

 

422,966 

Less accumulated depreciation

 

 

(401,393)

 

 

(396,705)

Property, plant and equipment, net

 

 

21,996 

 

 

26,261 

Operating lease right-of-use assets

 

 

22,222 

 

 

 —

Intangible assets, net

 

 

598 

 

 

304 

Goodwill

 

 

1,593 

 

 

 —

Deferred income taxes, net

 

 

 —

 

 

3,572 

Long-term note receivable

 

 

22,400 

 

 

 —

Other assets

 

 

3,675 

 

 

5,029 

Total assets

 

$

154,231 

 

$

122,560 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,062 

 

$

6,334 

Accrued compensation and benefits

 

 

7,484 

 

 

8,294 

Other accrued expense

 

 

5,101 

 

 

5,586 

Advance subscription payments

 

 

12,844 

 

 

11,449 

Total current liabilities

 

 

31,491 

 

 

31,663 

Long-term pension liabilities

 

 

30,105 

 

 

31,889 

Long-term operating lease liabilities

 

 

23,631 

 

 

 —

Other post-employment benefits

 

 

1,158 

 

 

1,165 

Deferred income taxes, net

 

 

1,718 

 

 

 —

Other liabilities

 

 

4,775 

 

 

7,045 

Total liabilities

 

 

92,878 

 

 

71,762 

Shareholders’ equity:

 

 

 

 

 

 

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

 

 

 —

 

 

 —

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

 

 

 

 

 

 

Series A: issued 20,854,771 and 20,854,728 shares at June 30, 2019
and December 31, 2018, respectively

 

 

209 

 

 

209 

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

 

 

24 

 

 

24 

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

 

 

(13,128)

 

 

(12,601)

Additional paid-in capital

 

 

494,389 

 

 

494,389 

Accumulated other comprehensive loss

 

 

(37,516)

 

 

(37,641)

Accumulated deficit

 

 

(382,625)

 

 

(393,582)

Total shareholders’ equity

 

 

61,353 

 

 

50,798 

Total liabilities and shareholders’ equity

 

$

154,231 

 

$

122,560 



See the accompanying Notes to the Consolidated Financial Statements.

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Six Months Ended June 30, 2019 and 2018



Common Stock

 

 

 

Treasury Stock

 

 

 

 

 

 

In thousands, except share amounts  (unaudited)

Shares   
Series A

Shares
Series B

Amount

Additional
Paid-in
Capital

 

Shares
Series A

Amount

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total

Balance at December 31, 2017

20,700,292 

2,469,755 

$

232 

$

494,989 

 

(1,430,961)

$

(11,302)

$

(24,932)

$

(361,288)

$

97,699 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(4,548)

 

(4,548)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

315 

 

 —

 

315 

Shares repurchased

 —

 —

 

 —

 

 —

 

(160,180)

 

(825)

 

 —

 

 —

 

(825)

Issuance of shares for restricted stock units

151,236 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

720 

 

 —

 

 —

 

 —

 

 —

 

720 

Conversion of Series B to Series A

120 

(120)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share, per quarter)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(3,564)

 

(3,564)

Balance at June 30, 2018

20,851,648 

2,469,635 

$

233 

$

495,708 

 

(1,591,141)

$

(12,127)

$

(24,617)

$

(369,400)

$

89,797 

Balance at December 31, 2018 (Restated)

20,854,728 

2,469,555 

$

233 

$

494,389 

 

(1,697,370)

$

(12,601)

$

(37,641)

$

(393,582)

$

50,798

Net income (Restated)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

14,393

 

14,393

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

125

 

 —

 

125

Shares repurchased

 —

 —

 

 —

 

 —

 

(131,613)

 

(527)

 

 —

 

 —

 

(527)

Conversion of Series B to Series A

43

(43)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share, per quarter)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(3,436)

 

(3,436)

Balance at June 30, 2019 (Restated)

20,854,771

2,469,512

$

233 

$

494,389 

 

(1,828,983)

$

(13,128)

$

(37,516)

$

(382,625)

$

61,353









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30, 2019 and 2018



Common Stock

 

 

 

Treasury Stock

 

 

 

 

 

 

In thousands, except share amounts  (unaudited)

Shares   
Series A

Shares
Series B

Amount

Additional
Paid-in
Capital

 

Shares
Series A

Amount

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total

Balance at March 31, 2018

20,817,514 

2,469,635 

$

233 

$

495,605 

 

(1,539,739)

$

(11,857)

$

(24,774)

$

(367,083)

$

92,124 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(534)

 

(534)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

157 

 

 —

 

157 

Shares repurchased

 —

 —

 

 —

 

 —

 

(51,402)

 

(270)

 

 —

 

 —

 

(270)

Issuance of shares for restricted stock units

34,134 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

103 

 

 —

 

 —

 

 —

 

 —

 

103 

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,783)

 

(1,783)

Balance at June 30, 2018

20,851,648 

2,469,635 

$

233 

$

495,708 

 

(1,591,141)

$

(12,127)

$

(24,617)

$

(369,400)

$

89,797 

Balance at March 31, 2019 (Restated)

20,854,739 

2,469,544 

$

233 

$

494,389 

 

(1,780,899)

$

(12,941)

$

(37,578)

$

(397,437)

$

46,666 

Net income (Restated)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

16,528 

 

16,528 

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

62 

 

 —

 

62 

Shares repurchased

 —

 —

 

 —

 

 —

 

(48,084)

 

(187)

 

 —

 

 —

 

(187)

Conversion of Series B to Series A

32 

(32)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends declared ($0.08 per share)

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1,716)

 

(1,716)

Balance at June 30, 2019 (Restated)

20,854,771 

2,469,512 

$

233 

$

494,389 

 

(1,828,983)

$

(13,128)

$

(37,516)

$

(382,625)

$

61,353 



See the accompanying Notes to the Consolidated Financial Statements.

 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows







 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended June 30,

In thousands (unaudited)

 

2019

 

2018



 

 

(Restated)

 

 

 

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

14,393 

 

$

(4,548)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,935 

 

 

5,408 

Net periodic pension and other post-employment benefit

 

 

(1,637)

 

 

(1,861)

Share-based compensation

 

 

 —

 

 

720 

Bad debt expense

 

 

474 

 

 

348 

Deferred income taxes

 

 

5,290 

 

 

(1,696)

(Gain) loss on sale/disposal of fixed assets

 

 

(25,908)

 

 

208 

Asset impairments

 

 

 —

 

 

(22)

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

 

 

 

 

 

 

Accounts receivable

 

 

1,919 

 

 

6,461 

Inventories, prepaids and other current assets

 

 

(327)

 

 

2,289 

Other assets

 

 

1,354 

 

 

1,036 

Accounts payable

 

 

(734)

 

 

(3,049)

Compensation and benefit obligations

 

 

(1,503)

 

 

(497)

Other accrued expenses

 

 

1,105 

 

 

3,414 

Advance subscription payments

 

 

(369)

 

 

(145)

Other post-employment benefits

 

 

(29)

 

 

(901)

Net cash provided by (used for) operating activities

 

 

(1,037)

 

 

7,165 

Investing Activities

 

 

 

 

 

 

Purchases of assets

 

 

(457)

 

 

(3,697)

Sales of assets

 

 

4,597 

 

 

 —

Acquisitions, net of cash acquired

 

 

(2,425)

 

 

 —

Net cash provided by (used for) investing activities

 

 

1,715 

 

 

(3,697)

Financing Activities

 

 

 

 

 

 

Dividends paid

 

 

(3,447)

 

 

(3,552)

Shares repurchased

 

 

(527)

 

 

(825)

Net cash used for financing activities

 

 

(3,974)

 

 

(4,377)

Net decrease in cash and cash equivalents

 

 

(3,296)

 

 

(909)

Cash and cash equivalents, beginning of period

 

 

55,313 

 

 

57,660 

Cash and cash equivalents, end of period

 

$

52,017 

 

$

56,751 



 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Income tax paid, net (refund)

 

$

895 

 

$

(2,315)

Noncash investing and financing activities:

 

 

 

 

 

 

Investments in property, plant and equipment payable

 

 

102 

 

 

170 

Dividends payable

 

 

1,720 

 

 

1,786 

Long-term note receivable for asset sales

 

 

22,400 

 

 

 —



See the accompanying Notes to the Consolidated Financial Statements.

 



 

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


 

Table of Contents

 

A. H. Belo Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

 



Note 1:  Basis of Presentation and Recently Issued Accounting Standards



Description of Business.    A. H. Belo Corporation and subsidiaries are referred to collectively herein as “A. H. Belo” or the “Company.” The Company, headquartered in Dallas, Texas, is the leading local news and information publishing company in Texas. The Company has commercial printing, distribution and direct mail capabilities, as well as a presence in emerging media and digital marketing. While focusing on extending the Company’s media platforms, A. H. Belo delivers news and information in innovative ways to a broad range of audiences with diverse interests and lifestyles. The Company publishes The Dallas Morning News  (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes, and various niche publications targeting specific audiences.



Basis of Presentation.     The interim consolidated financial statements included herein are unaudited; however, they include adjustments of a normal recurring nature which, in the Company’s opinion, are necessary to present fairly the interim consolidated financial information as of and for the periods indicated. All intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/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 6 – Leases.  



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



In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  Since June 2016, the FASB issued clarifying updates to the new standard. The guidance will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In August 2018, the FASB issued ASU 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans. This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant. The guidance will be effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s financial statement disclosures.



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


 

Table of Contents

 

In August 2018, the FASB issued ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This update clarifies the accounting for implementation costs incurred in a cloud computing arrangement, or hosting arrangement, that is a service contract. Costs for implementation activities incurred during the application development stage will be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages will be expensed as the activities are performed. The capitalized implementation costs will be expensed over the term of the hosting arrangement. The guidance will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



Note 2:  Restatement of Financial Statements



The Company restated its financial statements to amend its Consolidated Balance Sheet as of June 30, 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 provision for the three and six months ended June 30, 2019, and the Company determined using an estimated annual effective tax rate to calculate the income tax provision 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 9 – Income Taxes.  The Consolidated Statements of Operations for the three and six months ended June 30, 2019, were restated to reflect the re-calculated income tax provision 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 7 – Goodwill and Intangible Assets.  The use of an estimated annual effective tax rate in determining the income tax provision and a correction to the calculation of uncertain tax positions resulted in adjustments to other accrued expense, deferred income taxes, net, and other liabilities in the Consolidated Balance Sheet as of June 30, 2019.



In addition, the Company determined that a new line of business associated with its acquisition of Cubic Creative, Inc. on April 1, 2019, where the Company acted as an agent was incorrectly accounted for in the original Form 10-Q. See Note 4 – Acquisitions. In the three and six months ended June 30, 2019, revenue and expense were immaterially overstated by the same amount, resulting in no impact to operating income (loss), net income (loss), retained earnings or earnings per share. The Company corrected this error and the restated Consolidated Statements of Operations for the three and six months ended June 30, 2019, reflect the associated reduction in advertising and marketing services revenue and in other production, distribution and operating costs.



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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30, 2019

 

Six Months Ended June 30, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

 

As Previously Reported

 

Adjustment

 

As Restated

Net Operating Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

25,920 

 

$

(620)

 

$

25,300 

 

$

49,961 

 

$

(620)

 

$

49,341 

Total net operating revenue

 

 

47,735 

 

 

(620)

 

 

47,115 

 

 

94,324 

 

 

(620)

 

 

93,704 

Operating Costs and Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other production, distribution and operating costs

 

$

24,465 

 

$

(620)

 

$

23,845 

 

$

46,649 

 

$

(620)

 

$

46,029 

Amortization

 

 

200 

 

 

(60)

 

 

140 

 

 

400 

 

 

(184)

 

 

216 

Total operating costs and expense

 

 

24,940 

 

 

(680)

 

 

24,260 

 

 

75,581 

 

 

(804)

 

 

74,777 

Operating income

 

 

22,795 

 

 

60 

 

 

22,855 

 

 

18,743 

 

 

184 

 

 

18,927 

Other income, net

 

 

1,161 

 

 

(28)

 

 

1,133 

 

 

2,058 

 

 

(96)

 

 

1,962 

Income Before Income Taxes

 

 

23,956 

 

 

32 

 

 

23,988 

 

 

20,801 

 

 

88 

 

 

20,889 

Income tax provision

 

 

7,095 

 

 

365 

 

 

7,460 

 

 

6,952 

 

 

(456)

 

 

6,496 

Net Income

 

 

16,861 

 

 

(333)

 

 

16,528 

 

 

13,849 

 

 

544 

 

 

14,393 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.78 

 

$

(0.01)

 

$

0.77 

 

$

0.64 

 

$

0.03 

$

 

0.67 



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


 

Table of Contents

 

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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30, 2019

 

Six Months Ended June 30, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

 

As Previously Reported

 

Adjustment

 

As Restated

Net Income

 

$

16,861 

 

$

(333)

 

$

16,528 

 

$

13,849 

 

$

544 

 

$

14,393 

Total Comprehensive Income

 

 

16,923 

 

 

(333)

 

 

16,590 

 

 

13,974 

 

 

544 

 

 

14,518 



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





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

June 30, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

Assets

 

 

 

 

 

 

 

 

 

Intangible assets, net

 

$

3,384 

 

$

(2,786)

 

$

598 

Goodwill

 

 

15,566 

 

 

(13,973)

 

 

1,593 

Total assets

 

 

170,990 

 

 

(16,759)

 

 

154,231 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Other accrued expense

 

$

4,430 

 

$

671 

 

$

5,101 

Total current liabilities

 

 

30,820 

 

 

671 

 

 

31,491 

Deferred income taxes, net

 

 

 —

 

 

1,718 

 

 

1,718 

Other liabilities

 

 

4,679 

 

 

96 

 

 

4,775 

Total liabilities

 

 

90,393 

 

 

2,485 

 

 

92,878 

Accumulated deficit

 

 

(363,381)

 

 

(19,244)

 

 

(382,625)

Total shareholders’ equity

 

 

80,597 

 

 

(19,244)

 

 

61,353 

Total liabilities and shareholders’ equity

 

 

170,990 

 

 

(16,759)

 

 

154,231 



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





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30, 2019



 

As Previously Reported

 

Adjustment

 

As Restated

Operating Activities

 

 

 

 

 

 

 

 

 

Net income

 

$

13,849 

 

$

544 

 

$

14,393 

Adjustments to reconcile net income used for operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

5,119 

 

$

(184)

 

$

4,935 

Deferred income taxes

 

 

6,417 

 

 

(1,127)

 

 

5,290 

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

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

$

338 

 

$

767 

 

$

1,105 







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 $6,361 and $4,145 of corporate expense for the three months ended June 30, 2019 and 2018, respectively, and $11,566 and $10,893 for the six months ended June 30, 2019 and 2018, respectively. The Company evaluates Publishing operations based on operating profit and cash flows from operating activities.



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


 

Table of Contents

 

The Marketing Services segment includes the operations of DMV Digital Holdings Company (“DMV Holdings”) and digital advertising through Connect (programmatic advertising). The Company operates this integrated portfolio of assets within its Marketing Services segment as separate businesses that sell digital marketing and advertising through different channels, including programmatic advertising and content marketing within the social media environment.



Based on the organization of the Company’s structure and organizational chart, the Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer, Robert W. Decherd. The CODM allocates resources and capital to the Publishing and Marketing Services segments at the segment level.



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



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







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2019

 

2018

 

2019

 

2018



 

 

(Restated)

 

 

(Recast)

 

 

(Restated)

 

 

(Recast)

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

40,915 

 

$

45,085 

 

$

81,618 

 

$

88,714 

Marketing Services

 

 

6,200 

 

 

6,084 

 

 

12,086 

 

 

11,908 

Total

 

$

47,115 

 

$

51,169 

 

$

93,704 

 

$

100,622 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

22,742 

 

$

(1,799)

 

$

18,702 

 

$

(8,101)

Marketing Services

 

 

113 

 

 

432 

 

 

225 

 

 

517 

Total

 

$

22,855 

 

$

(1,367)

 

$

18,927 

 

$

(7,584)



 

 

 

 

 

 

 

 

 

 

 

 

Noncash Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

2,263 

 

$

2,498 

 

$

4,580 

 

$

4,934 

Gain on sale of assets, net

 

 

(25,908)

 

 

 —

 

 

(25,908)

 

 

 —

Asset impairments

 

 

 —

 

 

(22)

 

 

 —

 

 

(22)

Total

 

$

(23,645)

 

$

2,476 

 

$

(21,328)

 

$

4,912 



 

 

 

 

 

 

 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

70 

 

$

37 

 

$

139 

 

$

74 

Amortization

 

 

140 

 

 

200 

 

 

216 

 

 

400 

Total

 

$

210 

 

$

237 

 

$

355 

 

$

474 









 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018



 

 

(Restated)

 

 

(Restated)

Total Assets

 

 

 

 

 

 

Publishing

 

$

141,938 

 

$

117,289 

Marketing Services

 

 

12,293 

 

 

5,271 

Total