News dropped today that makes the accounting team at Belo, the Morning News’ parent company, look a bit, well, um — how do I say this without sounding mean? They look like they’re out over their skis. I’ll first give you their jargon-filled press release, then I’ll try to explain it.
A. H. Belo Corporation Announces Restatement;
Receives NYSE Notice Regarding Late Form 10-Q FilingDALLAS – A. H. Belo Corporation (NYSE: AHC) announced today in a Form 8-K filed with the Securities and Exchange Commission that it will not timely file its quarterly report on Form 10-Q for the quarter ended September 30, 2019, and has determined to restate its 2018 audited financial statements. The restatement will impact three areas of the 2018 audited financial statements: impairment of goodwill and long-lived assets, the income tax valuation allowance, and management’s report on internal control over financial reporting and evaluation of disclosure control procedures included in Item 9A of the 2018 Form 10-K. The asset impairment and valuation allowance are due to a re-evaluation of the timing of the Company’s impairment of assets related to its marketing services segment and consequent calculation of its tax valuation allowance, both of which are non-cash items.
The Company’s independent public accounting firm, Grant Thornton LLP, selected the Company’s 2018 audit for internal review by its risk and quality control group in August. The Public Company Accounting Oversight Board (PCAOB) subsequently selected Grant Thornton’s audit of the Company’s 2018 audited financial statements for review.
Due to the Company’s delay in filing its quarterly report on Form 10-Q for the third quarter, it received a notice today from the New York Stock Exchange (the “NYSE”) stating that the Company is not in compliance with the NYSE’s continued listing requirements under the timely filing criteria established in Section 802.01E of the NYSE Listed Company Manual. In accordance with NYSE rules, the Company contacted the NYSE to discuss the status of the late filing. The noncompliance with the timely filing criteria under the NYSE Listed Company Manual has no immediate effect on the listing or trading of the Company’s common stock on the NYSE. The NYSE has informed the Company that, under NYSE rules, the Company will have six months from the Form 10-Q due date to file the Form 10-Q with the SEC. The Company regains compliance with the NYSE listing standards at any time prior to that date by filing its Form 10-Q with the SEC.
Katy Murray, senior vice president and Chief Financial Officer, said, “We are working expeditiously and are optimistic that we will be able to complete this process and file our amended 2018 Form 10-K, amended first and second quarter 2019 Forms 10-Q to the extent required, and our third quarter 2019 Form 10-Q by the end of the year. There are three areas under review: impairment of goodwill and long-lived assets associated with the Company’s marketing services segment in 2018; the methodology used to calculate the income tax valuation allowance in 2018; and, conclusions related to the effectiveness of the Company’s internal control over financial reporting for 2018 and subsequent periods. It is important to note that any adjustments in these areas will be non-cash adjustments and are not expected to have an effect on our revenues or cash flow statements reported for the year-ended December 31, 2018 or for the quarters ending March 31, 2019 and June 30, 2019. The Company reported cash and cash equivalents of $52.0 million as of June 30, 2019 and as of November 15, 2019, the Company has $52.0 million in cash and cash equivalents and no debt. The impact of any financial statement adjustments to A. H. Belo’s fiscal year ending 2018 is timing related and will be reflected in our September 30, 2019 financial statements.”
Robert W. Decherd, chairman, president and Chief Executive Officer, said, “A. H. Belo made important progress during the third quarter in assimilating all of its marketing services activities into the single decision-making structure announced in July. A considerable amount of work remains in this regard, but we expect to complete the initiative by early next year. The result will be a more focused, coordinated go-to-market capability for this aspect of the Company’s digital business.
“We are encouraged by trends in print advertising as The Dallas Morning News moves through the fourth quarter, and our operating teams continue to concentrate on digital subscription growth in concert with The News’ branding campaign introduced to the market in late September. The re-launch of The News’ digital sites on the Arc platform in August has been very well-received.”
The Decherd quote is my favorite part. Translation: “We shut down a money pit, but we kept some of the people. They’ll work in-house now, and I hope they make money instead of lose it. Hey, we redesigned our website!”
OK, now the important stuff. When you buy a company — say, for instance, a Tulsa-based ad agency founded by a guy who used to work for Belo Interactive — you assign the cost to various line items. Then you subtract your liabilities. The excess is goodwill. With me so far?
Belo is writing off the goodwill generated by the acquisition of the marketing services unit because the current value of the unit is too low to support that goodwill. In other words, they way overpaid. Accounting guidelines require that goodwill be given a hard look (an impairment test) on a regular basis. So the auditor must have come along and said, “Whoah! You were expecting a write-off in the neighborhood of $15 million to $19 million? It’s gonna be way north of that. Who made these financial projections? This right here is what we call an internal control problem, people.”
This is stuff is way above my pay grade. I asked people who understand accounting to explain it to me. They agreed: this is embarrassing. It’s not that difficult.
