DallasNews Corp - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





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

For the quarterly period ended: September 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 April 6, 2020: 21,410,423 shares (consisting of 18,941,340 shares of Series A Common Stock and 2,469,083 shares of Series B Common Stock).

 

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Explanatory Note



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 (the “SEC”) 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.



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 SEC on April 29, 2019, for the quarter ended March 31, 2019. On April 6, 2020, the Company filed an Amendment No. 1 on Form 10-Q/A to amend the Form 10-Q filed with the SEC on July 29, 2019, for the quarter ended June 30, 2019.

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A. H. BELO CORPORATION



FORM 10-Q



TABLE OF CONTENTS





 

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PART I

Item 1.  Financial Information



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 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 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 including changing the effective date for smaller reporting companies. The guidance will be effective for fiscal years beginning after December 15, 2022, 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.



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 annual 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, but does not expect a material impact on the Company’s consolidated financial statements and related 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 currently anticipates adopting this standard prospectively as of January 1, 2020, and does not expect a material impact on the Company’s consolidated financial statements.



Note 2:  Segment Reporting



Based on the Company’s structure and organizational chart, the Company’s chief operating decision-maker (the “CODM”) is its Chief Executive Officer, Robert W. Decherd.



In the third quarter of 2019, in conjunction with a strategic change to a single decision-making reporting structure and based on how the Company’s CODM makes decisions about allocating resources and assessing performance, the Company determined it has one reportable segment. Prior to the third quarter, the Company had two reportable segments, Publishing and Marketing Services, that each operated as a single reporting unit with all corporate expenses included in Publishing. Historical financial information by segment has been recast and reported as one segment. See Note 4 – Revenue for disaggregated revenue by source.  







Note 3:  Acquisitions



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. Transaction costs related to the purchase were a component of other production, distribution and operating costs in the Consolidated Statements of Operations and totaled $92, of which $0 and $86 were incurred in the three and nine months ended September 30, 2019, respectively.



The new entity Cubic Creative, Inc. (“Cubic Creative”) is located in Tulsa, Oklahoma and has approximately 25 employees. This acquisition adds creative strategy services, which complement service offerings currently available to A. H. Belo clients. The expected benefit from providing these additional services was attributed to goodwill, all of which is expected to be deductible for tax purposes. In the third quarter of 2019, the goodwill recorded as a result of this acquisition was fully impaired; see Note 6 – Goodwill and Intangible Assets.



The table below sets forth the finalized allocation of the purchase price.





Operating results of the business acquired have been included in the Consolidated Statements of Operations from the acquisition date forward. Pro forma results of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported.

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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.



Notes receivable are recorded net of an allowance for doubtful accounts. Notes receivable primarily relates to the financed portion of the sale of the Company’s former headquarters (see Note 13 – Disposal of Assets). Interest income is accrued on the unpaid principal balance. The Company puts notes receivable on non-accrual status and provides an allowance against accrued interest if it is determined the likelihood of collecting substantially all of the note and accrued interest is not probable. Notes are written-off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.



The table below sets forth revenue disaggregated by revenue source. Due to the third quarter 2019 change to a single decision-making reporting structure (see Note 2 – Segment Reporting), the Company determined that disaggregating revenue by print and digital products best aligned with the new Company structure. The 2018 amounts were recast for comparative purposes.





Advertising and Marketing Services



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 and marketing services revenue 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. In addition, it includes targeted and multi-channel (programmatic) advertising placed on third-party websites, content development, social media management, search optimization, creative strategy services, sale of promotional merchandise, and other consulting. The Company’s agreement to sell on the cars.com platform was not renewed and ended September 30, 2019.



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.

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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



Print circulation revenue is generated primarily by selling home delivery subscriptions and from 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 circulation revenue is generated by digital-only subscriptions and is recognized over time, based on the customers’ monthly rate.



Printing, Distribution and Other



Printing, distribution and other revenue is primarily generated from printing and distribution of other newspapers, as well as production of preprinted advertisements for other newspapers. Printing, distribution and other revenue is recognized at a point in time when the product or service is delivered.



Remaining Performance Obligations



The Company has various advertising and 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 September 30, 2019, the remaining performance obligation was $4,016. The Company expects to recognize $473 over the remainder of 2019, $1,617 in 2020, $1,353 in 2021, and $573 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 September 30, 2019, was $12,377, included in advance subscription payments, other accrued expense and other liabilities in the Consolidated Balance Sheet. In the nine months ended September 30, 2019, the balance decreased $218,  primarily driven by $11,178 of revenue recognized that was included in the deferred revenue balance as of December 31, 2018, offset by cash payments received in advance of satisfying our performance obligations.



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.

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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 1 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 September 30, 2019, sublease income is expected to approximate $208 for the remainder of 2019, $388 in 2020, $237 in 2021, $223 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. In the third quarter of 2019, the Company recorded an additional right-of-use asset and liability of $505 for a lease that commenced on September 1, 2019, with a lease term of five years. As of September 30, 2019, the Company entered into two additional operating leases with lease terms of three years, which will result in an additional right-of-use asset and liability of approximately $1,200 upon commencement.



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





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





The table below sets forth the remaining maturities of the Company’s lease liabilities as of September 30, 2019.





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.













Note 6:  Goodwill and Intangible Assets



In the third quarter of 2019, the Company reorganized all of its operations into a single decision-making reporting structure resulting in one reportable segment. Prior to the third quarter, the Company had two reportable segments, Publishing and Marketing Services, that each operated as a single reporting unit (see Note 2 – Segment Reporting). The table below sets forth intangible assets as of September 30, 2019 and December 31, 2018.





The intangible assets include $1,520 of developed technology with an estimated useful life of five years and net carrying value of $76 that will be fully amortized by the end of 2019, and $510 of customer relationships with estimated useful lives of two years and net carrying value of $382. Aggregate amortization expense was $140 and $199 for the three months ended September 30, 2019 and 2018, respectively, and $356 and $599 for the nine months ended September 30, 2019 and 2018, respectively.

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In the second quarter of 2019, in connection with the Cubic Creative acquisition, the Company recorded $1,593 of goodwill. In the third quarter of 2019, the Company made a strategic change to move to a single-decision making reporting structure. With this restructuring, the Company revised its financial forecast for the remainder of the year, which resulted in a significant decrease in operating income for the Marketing Services reporting unit. The reorganization to one operating segment coupled with the significant decrease in the Marketing Services forecast was determined to be a triggering event that required an impairment review of goodwill and long-lived assets. Prior to the organizational changes that resulted in one reportable segment, Cubic Creative was determined to be a component within the Marketing Services segment.



In the third quarter of 2019, the Company tested the Marketing Services segment’s goodwill for impairment using a discounted cash flow methodology with a peer-based risk-adjusted weighted average cost of capital. The Company believes the use of a discounted cash flow approach is the most reliable indicator of the estimated fair value of the business. Upon completion of the test, it was determined the Marketing Services reporting unit’s carrying value exceeded its estimated fair value. Accordingly, the Company recorded a noncash goodwill impairment charge of $1,593 in the third quarter of 2019, fully impairing goodwill.



In connection with the goodwill impairment, the Company conducted a long-lived assets impairment test for Marketing Services. Upon completion of the test, it was determined the Marketing Services reporting unit’s long-lived assets’ estimated fair values were equal to or exceeded the carrying value and accordingly, no impairment was warranted.



Note 7:  Related Party Transactions



On March 1, 2019, the Company made a loan of $200 to eSite Analytics, Inc. As of September 30, 2019 and December 31, 2018, the Company had a note receivable of $625 and $650, respectively, included in prepaids and other current assets, and other assets in the Consolidated Balance Sheets, respectively. The Company accounts for eSite Analytics, Inc. as an equity method investment.



On February 13, 2020, eSite Analytics, Inc. paid off their loan, including interest.



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. The Company calculated the income tax expense or benefit for 2019 interim periods 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 income (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 provision (benefit) of $(1,808) and $596 for the three months ended September 30, 2019 and 2018, respectively, and $4,688 and $(661) for the nine months ended September 30, 2019 and 2018, respectively. Effective income tax rates were 31.1 percent and 10.6 percent for the nine months ended September 30, 2019 and 2018, respectively. The income tax benefit for the three months ended September 30, 2019, was due to the Texas margin tax, offset by losses generated from operations in the third quarter. The income tax provision for the nine months ended September 30, 2019, was due to the Texas margin tax and year-to-date income, primarily a result of income generated from the sale of the Company’s former headquarters in the second quarter of 2019 (see Note 13 – Disposal of Assets).



In the second and third quarter of 2018, the Company received a refund of $3,210 and $4,095, respectively, for 2016 and 2017 tax benefits recognized that were carried back against taxes paid in 2014.



Note 9:  Pension 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.

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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.











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 September 30, 2019 and 2018, the Company recorded expense of $178 and $199, respectively, and during the nine months ended September 30, 2019 and 2018, the Company recorded expense of $503 and $653, respectively, for matching contributions to the Savings Plan.



Note 10:  Shareholders’ Equity



Dividends.    On September 11, 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 November 15, 2019, paid on December 6, 2019.



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. The agreement to repurchase the Company’s stock expired in the fourth quarter of 2019 and was not renewed.



Outstanding Shares.    The Company had Series A and Series B common stock outstanding of 18,974,107 and 2,469,348, respectively, net of treasury shares at September 30, 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.



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The tables below set forth the changes in accumulated other comprehensive loss, net of tax, as presented in the Company’s consolidated financial statements.















Note 11:  Earnings Per Share



The table below sets forth the reconciliation for net income (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.







There were no options or RSUs outstanding as of September 30, 2019, that would result in dilution of shares.



In 2018, holders of service-based restricted stock units (“RSUs”) participated in A. H. Belo dividends on a one-for-one share basis. Distributed and undistributed income associated with participating securities was included in the calculation of EPS under the two-class method as prescribed under ASC 260 – Earnings Per Share. The Company considered outstanding stock options and RSUs in the calculation of earnings per share. A total of 610,553 options and RSUs outstanding as of September 30, 2018, were excluded from the calculation because the effect was anti-dilutive.

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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:  Disposal of Assets



In the third quarter of 2019, the Company recorded a loss of $1,362 on the disposal of newspaper production assets and publishing software that was replaced by a new digital content platform. The newspaper production assets were disposed as a result of the strategic decision to eliminate its brokered printing business and reduce the number of local and national commercial print customers it serves from more than 30 to 5.



On May 17, 2019, the Company finalized a Purchase and Sale Agreement with Charter DMN Holdings, LP (the “Purchaser”) for 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 (the “Promissory Note”) of $22,400, included in long-term note receivable in the Consolidated Balance Sheet. 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.



The Promissory Note is secured by a first lien deed of trust covering the property and bears interest payable in quarterly installments that began on July 1, 2019, continuing through its maturity on June 30, 2021, and includes a pre-payment feature. Interest will be accrued at 3.5 percent during the first year and at 4.5 percent during the second year.



In the second quarter of 2019, the Company recorded a pretax gain of $25,908, included in (gain) loss on sale/disposal of assets, net in the Consolidated Statements of Operations. For tax purposes, the gain is fully offset by net operating loss carryforwards. These assets had a carrying value of $1,089, and were reported as assets held for sale in the Consolidated Balance Sheet as of 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.



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. Media has been designated an essential business, therefore the Company’s operations are continuing. The Company is experiencing an increase in digital subscriptions, which may not completely offset the loss of advertising revenue. On April 6, 2020, the Company announced that it is taking several actions in response to the financial impact of COVID-19. The Company will reduce operating and capital expenditures, lower the quarterly dividend rate for future dividends declared, if any, as well as reduce employees’ base compensation, across the Company, and the annual bonus tied to financial metrics for eligible employees may be reduced. Beginning with the 2020 annual meeting of shareholders, the board of directors’ compensation will be reduced and the board will be reduced in size by two. The Company is currently evaluating the impact on its consolidated financial statements and has not yet quantified what material impacts to the financial statements may result from the actions taken by the Company and its customers in respect of this virus.



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In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. This legislation was enacted before the date of filing this Form 10-Q and the effective date is subsequent to September 30, 2019. The Company is currently evaluating the impact on its consolidated financial statements and has not yet quantified what material impacts to the financial statements (if any) may result from the CARES Act. The Company anticipates it may benefit from the temporary five-year net operating loss carryback provisions, the technical correction for qualified leasehold improvements, which changes 39-year property to 15-year property, eligible for 100% tax bonus depreciation, and potentially other provisions within the CARES Act. Where certain tax provisions of the CARES Act are determined to be applicable following the completion of the Company’s assessment, these may result in cash refunds and an income tax benefit recorded in the Consolidated Statements of Operations in the period in which the legislation was enacted.



On March 6, 2020, the Company paid $1,713 to shareholders of record as of the close of business on February 14, 2020, for an $0.08 per share dividend declared by the Company’s board of directors on December 5, 2019. On March 5, 2020, 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 15, 2020, which is payable on June 5, 2020. On April 6, 2020, in response to the financial impact of COVID-19, the Company announced its intent to reduce its cash dividend rate indefinitely following the second quarter 2020 dividend of $0.08 per share declared on March 5, 2020. Future dividends, if declared, are expected to be at the rate of $0.04 per share.



The Purchaser of the Company’s former headquarters requested, and on April 3, 2020, the board of directors approved, an amendment to the Promissory Note deferring the Purchaser’s interest payment of $195 that was due April 1, 2020, and adding it to a second promissory note (the “Second Promissory Note”). In addition, the Second Promissory Note includes a 2019 real property tax reconciliation payment due from the Purchaser under the Purchase and Sale Agreement in the amount of $180. The Second Promissory Note, in the principal amount of $375, is secured by a second lien deed of trust covering the property and is due June 30, 2021.



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



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. 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.



On April 1, 2019, the Company completed an asset acquisition. The new entity Cubic Creative, Inc. (“Cubic Creative”) is located in Tulsa, Oklahoma and has approximately 25 employees. This acquisition adds creative strategy services, which complement service offerings currently available to A. H. Belo clients.



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. In the second quarter of 2019, the Company recorded a pretax gain of $25,908, which for tax purposes is fully offset by net operating loss carryforwards. On April 3, 2020, the board of directors approved an amendment to the two-year seller-financed promissory note, resulting in a second promissory note in the principal amount of $375, which includes a deferred interest payment and a 2019 real property tax reconciliation payment due from the Purchaser.



In the third quarter of 2019, in conjunction with a strategic change to a single decision-making reporting structure that resulted in one reportable segment and a significant decrease in the Marketing Services forecast, the Company completed a goodwill impairment test for the Marketing Services segment. Upon completion of the test, it was determined the Marketing Services reporting unit’s carrying value exceeded its estimated fair value. Accordingly, the Company recorded a noncash goodwill impairment charge of $1,593 in the third quarter of 2019, fully impairing goodwill.



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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 and nine months ended September 30, 2019 and 2018. In the third quarter of 2019, in conjunction with the Companies organizational changes, the Company determined it has one reportable segment (see Note 2 – Segment Reporting). The Company determined that disaggregating revenue by print and digital products best aligned with the new Company structure. The 2018 amounts were recast for comparative purposes.



Traditionally, the Company’s primary revenues are generated from advertising within its core newspapers, niche publications and related websites and from subscription and single copy sales of its printed newspapers. As a result of competitive and economic conditions, the newspaper industry has faced a significant revenue decline over the past decade. Therefore, the Company has sought to diversify its revenues through development and investment in new product offerings, increased circulation rates and leveraging of its existing assets to offer cost efficient commercial printing and distribution services to its local markets. The Company continually evaluates the overall performance of its core products to ensure existing assets are deployed adequately to maximize return.



The Company’s advertising revenue from its core newspapers continues to be adversely affected by the shift of advertiser spending to other forms of media and the increased accessibility of free online news content, as well as news content from other sources, which resulted in declines in advertising and paid print circulation volumes and revenue. Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital platforms, which are widely available from many sources. In the current environment, companies are allocating more of their advertising spending towards programmatic channels that provide digital advertising on multiple platforms with enhanced technology for targeted delivery and measurement.



The Company has responded to these challenges by expanding programmatic channels through which it works to meet customer demand for digital advertisement opportunities in display, mobile, video and social media categories. By utilizing advertising exchanges to apply marketing insight, the Company believes it offers greater value to clients through focused targeting of advertising to potential customers. The Company has a meter on its website and continues to build a base of paid digital subscribers.



The Company’s expanded digital and marketing services product offerings leverage the Company’s existing resources and relationships to offer additional value to existing and new advertising clients. Solutions include development of mobile websites, search engine marketing and optimization, video, mobile advertising, email marketing, advertising analytics, creative strategy services and online reputation management services.



Advertising and marketing services revenue



Advertising and marketing services revenue was 50.2 percent and 51.9 percent of total revenue for the three and nine months ended September 30, 2019, respectively, and 51.5 percent and 51.7 percent for the three and nine months ended September 30, 2018, respectively.





Print advertising



Print advertising is comprised of display, classified and preprint advertising revenue. 



Display and classified print revenue primarily represents sales of advertising space within the Company’s core and niche newspapers. As advertisers continue to diversify marketing budgets to incorporate more and varied avenues of reaching consumers, traditional display and classified advertising continues to decline. Display and classified print revenue decreased $1,736 and $2,667 in the three and nine months ended September 30, 2019, respectively, primarily due to lower classified advertising in all categories, with the largest declines in the automotive and real estate categories.

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Preprint revenue primarily reflects preprinted advertisements inserted into the Company’s core newspapers and niche publications, or distributed to non-subscribers through the mail. Revenue decreased $888 and $2,563 for the three and nine months ended September 30, 2019, respectively, due to a volume decline in preprint newspaper inserts, consistent with the decline in circulation volumes discussed below.



Digital advertising and marketing services



Digital advertising and marketing services revenue is primarily comprised of 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. In addition, it includes targeted and multi-channel (programmatic) advertising placed on third-party websites, content development, social media management, search optimization, creative strategy services, sale of promotional merchandise and other consulting. The Company’s agreement to sell on the cars.com platform was not renewed and ended September 30, 2019. Revenue decreased $1,020 and $1,211 for the three and nine months ended September 30, 2019, respectively, primarily due to a lower volume of programmatic sales placed on third-party websites.



Circulation revenue



Circulation revenue was 39.0 percent and 37.4 percent of total revenue for the three and nine months ended September 30, 2019, respectively, and 36.5 percent and 35.8 percent for the three and nine months ended September 30, 2018, respectively.





Print circulation



Revenue decreased primarily due to a decline in home delivery revenue, driven by a volume decline of 33.9 percent and 27.2 percent, for the three and nine months ended September 30, 2019, respectively. The volume declines were partially offset by rate increases. Single copy revenue also decreased compared to prior year, due to single copy paid print circulation volume declines of 24.6 percent and 22.4 percent for the three and nine months ended September 30, 2019, respectively.



Digital circulation



Revenue increased in the three and nine months ended September 30, 2019, due to an increase in digital-only subscriptions of 22.7 percent when compared to September 30, 2018.



Printing, distribution and other revenue



Printing, distribution and other revenue was 10.8 percent and 10.7 percent of total revenue for the three and nine months ended September 30, 2019, respectively, and 12.0 percent and 12.5 percent for the three and nine months ended September 30, 2018, respectively.







Revenue decreased in the three and nine months ended September 30, 2019, primarily due to the Company eliminating its brokered printing business, in the first quarter of 2019, in which it provided services direct to small business clients. Additionally, the Company reduced the number of local and national commercial print customers it serves from more than 30 to 5. This strategic decision to streamline operations was implemented to improve operating income.

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Operating Costs and Expense



The table below sets forth the components of the Company’s operating costs and expense.





“N/M” – not meaningful



Employee compensation and benefits – The Company continues to implement measures to optimize its workforce and reduce risk associated with future obligations for employee benefit plans. Employee compensation and benefits decreased $1,670 and $6,919 in the three and nine months ended September 30, 2019, respectively, primarily due to headcount reductions of 108 since September 30, 2018.



Other production, distribution and operating costs – Expense remained flat in the three and nine months ended September 30, 2019, due to management of discretionary spending, offset by $1,920 of expense related to a strategy review with an outside consulting firm in the second quarter of 2019.



Newsprint, ink and other supplies – Expense decreased due to reduced newsprint costs associated with lower circulation volumes and the elimination of brokered printing for small business clients. Newsprint consumption for the three and nine months ended September 30, 2019, approximated 2,921 and 9,770 metric tons, respectively, and for the three and nine months ended September 30, 2018, approximated 4,541 and 14,554 metric tons, respectively.



Depreciation – Expense decreased in the three and nine months ended September 30, 2019, due to a lower depreciable asset base as a higher level of in-service assets are now fully depreciated.



Amortization – Expense is related to intangible assets, comprised of developed technology and customer relationships.



(Gain) loss on sale/disposal of assets, net – In the third quarter of 2019, the Company recorded a loss of $1,362 on the disposal of newspaper production assets and publishing software that was replaced by a new digital content platform. In the second quarter of 2019, the Company completed the sale of real estate previously used as the Company’s headquarters for $28,000, resulting in a pretax gain of $25,908.



Asset impairments – In the third quarter of 2019, in conjunction with a strategic change to a single decision-making reporting structure that resulted in one reportable segment and a significant decrease in the Marketing Services forecast, the Company completed a goodwill impairment test for the Marketing Services segment. Upon completion of the test, it was determined the Marketing Services reporting unit’s carrying value exceeded its estimated fair value. Accordingly, the Company recorded a noncash goodwill impairment charge of $1,593 in the third quarter of 2019, fully impairing goodwill.



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Other



The table below sets forth the other components of the Company’s results of operations.







Other income, net – Other income, net is primarily comprised of net periodic pension and other post-employment benefit of $818 and $2,454 for the three and nine months ended September 30, 2019, respectively, and $930 and $2,791 for the three and nine months ended September 30, 2018, respectively. Gain (loss) from investments and interest income (expense) are also included in other income, net.



Income tax provision (benefit) – The Company recognized income tax provision (benefit) of $(1,808) and $596 for the three months ended September 30, 2019 and 2018, respectively, and $4,688 and $(661) for the nine months ended September 30, 2019 and 2018, respectively. Effective income tax rates were 31.1 percent and 10.6 percent for the nine months ended September 30, 2019 and 2018, respectively. The income tax benefit for the three months ended September 30, 2019, was due to the Texas margin tax, offset by losses generated from operations in the third quarter. The income tax provision for the nine months ended September 30, 2019, was due to the Texas margin tax and year-to-date income, primarily a result of income generated from the sale of the Company’s former headquarters in the second quarter of 2019 (see Note 13 – Disposal of Assets).



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.

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Liquidity and Capital Resources



The Company’s cash balances as of September 30, 2019 and December 31, 2018, were $53,249 and $55,313, respectively.



The Company intends to hold existing cash for purposes of future investment opportunities, potential return of capital to shareholders and for contingency purposes. Although revenue is expected to continue to decline in future periods, cash flows are expected to be sufficient to fund operating activities and capital spending of approximately $800 over the remainder of the year.



The future payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company continued stock repurchases under its prior board-authorized repurchase authority. The agreement to repurchase the Company’s stock expired in the fourth quarter of 2019 and was not renewed. Current holdings of treasury stock can be sold on the open market.



As a result of the recent COVID-19 outbreak that began in January 2020, the Company is experiencing an increase in digital subscriptions, which may not completely offset the loss of advertising revenue. On April 6, 2020, the Company announced that it is taking several actions to reduce cash outflow in response to the financial impact of COVID-19. The Company will reduce operating and capital expenditures, lower the quarterly dividend rate for future dividends declared, if any, as well as reduce employees’ base compensation, across the Company, and the annual bonus tied to financial metrics for eligible employees may be reduced. Beginning with the 2020 annual meeting of shareholders, the board of directors’ compensation will be reduced and the board will be reduced in size by two.



The following discusses the changes in cash flows by operating, investing and financing activities.



Operating Cash Flows



Net cash provided by operating activities for the nine months ended September 30, 2019 and 2018, was $2,785 and $11,547, respectively. Cash flows from operating activities decreased by $8,762 during the nine months ended September 30, 2019, when compared to the prior year period, primarily due to changes in working capital and other operating assets and liabilities.



Investing Cash Flows



Net cash provided by (used for) investing activities was $1,034 and $(4,344) for the nine months ended September 30, 2019 and 2018, respectively. Cash flows from investing activities improved due to a decrease in capital spending of $3,137 and cash proceeds of $4,597 received during the second quarter of 2019, related to the sale of real estate previously used as the Company’s headquarters, partially offset by the acquisition of Cubic Creative for $2,356.



Financing Cash Flows



Net cash used for financing activities was $5,883 and $6,392 for the nine months ended September 30, 2019 and 2018, respectively. Cash used for financing activities included dividend payments of $5,164 and $5,336 in 2019 and 2018, respectively. Additionally, in 2019, the Company purchased 183,458 shares of its Series A common stock at a cost of $719 under its share repurchase program.



Financing Arrangements



None.



Contractual Obligations



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



On September 11, 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 November 15, 2019, paid on December 6, 2019.



Additional information related to the Company’s contractual obligations is available in Company’s Annual Report on Form 10‑K/A for the year ended December 31, 2018, filed on March 18, 2020, with the Securities and Exchange Commission.

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Critical Accounting Policies and Estimates



Beginning January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02 – Leases (Topic 842).  As a result, the Company implemented changes to the Company’s polices related to processes around evaluating and accounting for leases or arrangements that contain a lease. Under the new standard, for substantially all leases an operating lease right-of-use asset and liability is recognized at commencement date based on the present value of lease payments over the lease term.



Except for adoption of the new lease guidance (Topic 842), no material changes were made to the Company’s critical accounting policies as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in the Company’s Annual Report on Form 10-K/A filed with the SEC for the year ended December 31, 2018.



Forward-Looking Statements



Statements in this communication concerning A. H. Belo Corporation’s business outlook or future economic performance, revenues, expenses, and other financial and non-financial items that are not historical facts, including statements of the Company’s expectations relating to the timing of its 2019 Form 10-K with the Securities and Exchange Commission and filing future reports, are “forward-looking statements” as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Such risks, trends and uncertainties are, in most instances, beyond the Company’s control, and include unanticipated challenges in completing the 2019 audit process or filing the Company’s late reports, the impact of the COVID-19 virus outbreak on the Company’s financial reporting  capabilities and its operations generally and the potential impact of such virus on the Company’s customers, distribution partners, advertisers and production facilities and third parties, as well as changes in advertising demand and other economic conditions; consumers’ tastes; newsprint prices; program costs; labor relations; technology obsolescence; as well as other risks described in the Company’s Annual Report on Form 10-K and in the Company’s other public disclosures and filings with the Securities and Exchange Commission. Among other risks, there can be no guarantee that the board of directors will approve a quarterly dividend in future quarters. Forward-looking statements, which are as of the date of this filing, are not updated to reflect events or circumstances after the date of the statement.



Item 3.  Quantitative and Qualitative Disclosures about Market Risk



There were no material changes in A. H. Belo Corporation’s exposure to market risk from the disclosure included in the Annual Report on Form 10-K/A for the year ended December 31, 2018.



Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls that are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, management is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The Company’s management, with the participation of its Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s 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 “Management’s Report on Internal Controls”), the Company’s disclosure controls and procedures were not effective.

Notwithstanding the material weaknesses, management believes the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. generally accepted accounting principles.

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Management’s Report on Internal Control Over Financial Reporting

The Company’s management, with oversight from the Audit Committee of the Board of Directors of the Company, is actively engaged in remediation efforts to address the material weaknesses identified in the Management’s Report on Internal Controls. Management has taken a number of actions to remediate the 2018 material weaknesses including the following:

These improvements are targeted at strengthening the Company’s internal control over financial reporting and remediating the 2018 material weaknesses. The Company remains committed to an effective internal control environment and management believes that these actions and the improvements management expects to achieve as a result, will effectively remediate the 2018 material weaknesses. However, the material weaknesses in the Company’s internal control over financial reporting will not be considered remediated until the controls operate for a sufficient period of time and management has concluded, through testing that these controls operate effectively. As of the date of filing this Form 10-Q, management is in the process of testing and evaluating these additional controls to determine whether they are operating effectively.

Changes in Internal Control Over Financial Reporting

Beginning January 1, 2019, the Company adopted ASU 2016-02 – Leases (Topic 842). The Company implemented new lease management software and changes to processes related to lease accounting and the control activities within them. The changes are primarily related to processes around evaluating and accounting for leases or arrangements that contain a lease. Under the new standard, for substantially all leases an operating lease right-of-use asset and liability is recognized at commencement date based on the present value of lease payments over the lease term.



Except as related to the adoption of the new lease guidance (Topic 842) and the mitigation activities associated with the material weaknesses described above, there have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the third fiscal quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II



Item 1.  Legal Proceedings



A number of legal proceedings are pending against A. H. Belo. In the opinion of management, liabilities, if any, arising from these legal proceedings would not have a material adverse effect on A. H. Belo’s results of operations, liquidity or financial condition.



Item 1A.  Risk Factors



Except as updated below, there were no material changes from the risk factors disclosed under the heading “Risk Factors” in Item 1A in the Annual Report on Form 10-K/A for the year ended December 31, 2018.



Recent COVID-19 and other pandemic outbreaks could negatively impact A. H. Belo’s businesses and results of operations.



The Company may face risks related to the recent 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.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds



There were no unregistered sales of the Company’s equity securities during the period covered by this report.



Issuer Purchases of Equity Securities



The Company repurchased shares of its common stock pursuant to a publicly announced share repurchase program authorized by the Company’s board of directors. During 2019, the Company repurchased 183,458 shares of its Series A common stock at a total cost of $719. All purchases were made through open market transactions and were recorded as treasury stock. The agreement to repurchase the Company’s stock expired in the fourth quarter of 2019 and was not renewed.



The following table contains information for shares repurchased during the third quarter of 2019. None of the shares in this table were repurchased directly from any of the Company’s officers or directors.







Item 3.  Defaults Upon Senior Securities



None.



Item 4.  Mine Safety Disclosures



None.



Item 5.  Other Information



None.

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Item 6.  Exhibits



Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the SEC, as indicated. In accordance with Regulation S-T, the XBRL-related information marked with a double asterisk (**) in Exhibit No. 101 to this Quarterly Report on Form 10-Q is deemed filed. All other documents are filed with this report. Exhibits marked with a tilde (~) are management contracts, compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.





 

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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





 

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EXHIBIT INDEX





In accordance with Regulation S-T, the XBRL-related information marked with a double asterisk (**) in Exhibit No. 101 to this Quarterly Report on Form 10-Q is deemed filed.

 

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