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







A. H. Belo Corporation

(Exact name of registrant as specified in its charter)







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



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.:





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).

 

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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:

 



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



 

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.

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A. H. BELO CORPORATION



FORM 10-Q/A



TABLE OF CONTENTS





 

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PART I

Item 1.  Financial Information (Restated)



A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Operations





See the accompanying Notes to the Consolidated Financial Statements.

 

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A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



See the accompanying Notes to the Consolidated Financial Statements.

 

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A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







See the accompanying Notes to the Consolidated Financial Statements.

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A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity











See the accompanying Notes to the Consolidated Financial Statements.

 

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A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows







See the accompanying Notes to the Consolidated Financial Statements.

 



 

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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. 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.



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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).





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





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





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









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.



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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.