View:
Form 10-12B

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g) OF

THE SECURITIES EXCHANGE ACT OF 1934

 


A. H. BELO CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

DELAWARE   38-3765318

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

P.O. Box 655237

Dallas, Texas

  75265-5237
(Address of Principal Executive Offices)   (Zip Code)

(214) 977-6606

(Registrant’s Telephone Number, Including Area Code)

 


Russell F. Coleman

A. H. Belo Corporation

P.O. Box 655237, Dallas, Texas 75265-5237

(214) 977-6606

(Name, Address, Including Zip Code, and Telephone Number,

Including Area Code, of Agent for Service)

 


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

 

TITLE OF EACH CLASS

TO BE SO REGISTERED

 

NAME OF EACH EXCHANGE ON WHICH
EACH CLASS IS TO BE REGISTERED

Series A Common Stock, par value $.01 per share   New York Stock Exchange
Preferred Stock Purchase Rights   New York Stock Exchange

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

 

TITLE OF EACH CLASS

TO BE SO REGISTERED

Series B Common Stock, par value $.01 per share

EXPLANATORY NOTE

THIS REGISTRATION STATEMENT HAS BEEN PREPARED ON A PROSPECTIVE BASIS ON THE ASSUMPTION THAT, AMONG OTHER THINGS, THE DISTRIBUTION (AS DEFINED IN THE INFORMATION STATEMENT WHICH IS A PART OF THIS REGISTRATION STATEMENT) AND THE RELATED TRANSACTIONS CONTEMPLATED TO OCCUR PRIOR TO OR CONTEMPORANEOUSLY WITH THE DISTRIBUTION WILL BE CONSUMMATED AS CONTEMPLATED BY THE INFORMATION STATEMENT. THERE CAN BE NO ASSURANCE, HOWEVER, THAT ANY OR ALL OF SUCH TRANSACTIONS WILL OCCUR OR WILL OCCUR AS SO CONTEMPLATED. ANY SIGNIFICANT MODIFICATIONS TO OR VARIATIONS IN THE TRANSACTIONS CONTEMPLATED WILL BE REFLECTED IN AN AMENDMENT OR SUPPLEMENT TO THIS REGISTRATION STATEMENT.

 



CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

This registration statement on Form 10 incorporates by reference information contained in the information statement filed as exhibit 99.1 hereto. The cross-reference table below identifies where the items required by Form 10 can be found in the information statement.

 

ITEM
NO.
  

ITEM CAPTION

  

LOCATION IN INFORMATION STATEMENT

1    Business    “SUMMARY;” “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS;” and “BUSINESS.”
1A    Risk Factors    “RISK FACTORS.”
2    Financial Information    “SUMMARY;” “FINANCING ARRANGEMENTS;” “UNAUDITED PRO FORMA FINANCIAL STATEMENTS;” “SELECTED FINANCIAL DATA;” and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”
3    Properties    “BUSINESS—PROPERTIES.”
4   

Security Ownership of Certain Beneficial Owners and Management

   “PRINCIPAL SHAREHOLDERS.”
5    Directors and Executive Officers    “MANAGEMENT.”
6    Executive Compensation    “MANAGEMENT;” “EXECUTIVE COMPENSATION;” and “DIRECTOR COMPENSATION.”
7   

Certain Relationships and Related Transactions, and Director Independence

   “SUMMARY;” “RELATIONSHIPS BETWEEN BELO AND A. H. BELO FOLLOWING THE DISTRIBUTION;” “MANAGEMENT;” and “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.”
8    Legal Proceedings    “BUSINESS—LEGAL PROCEEDINGS.”
9   

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

   “SUMMARY;” “THE DISTRIBUTION—LISTING AND TRADING OF SHARES OF A. H. BELO COMMON STOCK;” and “DIVIDEND POLICY.”
10    Recent Sales of Unregistered Securities    “DESCRIPTION OF CAPITAL STOCK—SALES OF UNREGISTERED SECURITIES.”
11   

Description of Registrant’s Securities to be Registered

   “DESCRIPTION OF CAPITAL STOCK;” and “CERTAIN ANTI-TAKEOVER PROVISIONS.”
12    Indemnification of Directors and Officers    “CERTAIN ANTI-TAKEOVER PROVISIONS—LIMITATION OF LIABILITY OF DIRECTORS;” and “—INDEMNIFICATION OF OFFICERS, DIRECTORS, AND EMPLOYEES.”


ITEM
NO.
  

ITEM CAPTION

  

LOCATION IN INFORMATION STATEMENT

13    Financial Statements and Supplementary Data    “SUMMARY;” “FINANCING ARRANGEMENTS;” “UNAUDITED PRO FORMA FINANCIAL STATEMENTS;” and “SELECTED FINANCIAL DATA.”
14   

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   NOT APPLICABLE.

 


ITEM 15. Financial Statements and Exhibits

 

  (a) Financial Statements.

The information required by this item is contained under the section “Index to Financial Statements” beginning on page F-1 of the information statement. That section is incorporated herein by reference.

 

  (b) Exhibits. The following documents are filed as exhibits hereto:

 

EXHIBIT

NUMBER

         
  2.1*       Form of Separation and Distribution Agreement.
  3.1*       Form of Certificate of Incorporation of A. H. Belo Corporation.
  3.2*       Bylaws of A. H. Belo Corporation.
  4.1*       Form of certificate representing Series A common stock of A. H. Belo Corporation.
  4.2*       Form of certificate representing Series B common stock of A. H. Belo Corporation.
  4.3*       Form of Shareholder Rights Agreement.
10.1*       Form of Tax Matters Agreement.
10.2*       Form of Transition Services Agreement.
10.3*       Form of Separation and Distribution Agreement (see Exhibit 2.1).
10.4*       Form of Employee Matters Agreement.
10.5*       Form of A. H. Belo Corporation 2008 Executive Compensation Plan.
10.6*       Form of A. H. Belo Corporation Supplemental Executive Retirement Plan.
10.7*       Form of A. H. Belo Corporation Savings Plan.
10.8*       Form of A. H. Belo Corporation Change in Control Severance Plan.
21.1*       List of Subsidiaries.
99.1       Information Statement.

 


* To be filed by amendment.

 


SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

        A. H. BELO CORPORATION
Date: October 12, 2007   By:   /S/    ROBERT W. DECHERD        
        Name:   Robert W. Decherd
        Title:  

Chairman of the Board, President and

Chief Executive Officer

 


EXHIBIT INDEX

 

EXHIBIT

NUMBER

         
  2.1*       Form of Separation and Distribution Agreement.
  3.1*       Form of Certificate of Incorporation of A. H. Belo Corporation.
  3.2*       Bylaws of A. H. Belo Corporation.
  4.1*       Form of certificate representing Series A common stock of A. H. Belo Corporation.
  4.2*       Form of certificate representing Series B common stock of A. H. Belo Corporation.
  4.3*       Form of Shareholder Rights Agreement.
10.1*       Form of Tax Matters Agreement.
10.2*       Form of Transition Services Agreement.
10.3*       Form of Separation and Distribution Agreement (see Exhibit 2.1).
10.4*       Form of Employee Matters Agreement.
10.5*       Form of A. H. Belo Corporation 2008 Executive Compensation Plan.
10.6*       Form of A. H. Belo Corporation Supplemental Executive Retirement Plan.
10.7*       Form of A. H. Belo Corporation Savings Plan.
10.8*       Form of A. H. Belo Corporation Change in Control Severance Plan.
21.1*       List of Subsidiaries.
99.1       Information Statement.

 


* To be filed by amendment.
Information Statement
Table of Contents
Index to Financial Statements

Exhibit 99.1

SUBJECT TO COMPLETION, DATED OCTOBER 12, 2007

INFORMATION STATEMENT RELATING TO THE

DISTRIBUTION OF A. H. BELO CORPORATION FROM BELO CORP.

Series A Common Stock, Par Value $.01 Per Share

Series B Common Stock, Par Value $.01 Per Share

We are sending this information statement to you as a shareholder of Belo Corp. (“Belo”) to describe the pro rata distribution to Belo shareholders of 100 percent of the outstanding shares of the Series A common stock and Series B common stock of A. H. Belo Corporation (“A. H. Belo”).

In this distribution, you will receive      share of A. H. Belo Series A common stock for every share of Belo Series A common stock, and      share of A. H. Belo Series B common stock for every share of Belo Series B common stock, that you own at the close of business on                     , 2007, the record date for the distribution. Each share of A. H. Belo common stock will have attached to it one A. H. Belo preferred share purchase right. Where appropriate, references in this information statement to A. H. Belo common stock include this right. No fractional shares of A. H. Belo common stock will be issued. If you would be entitled to a fractional share of A. H. Belo common stock then you will receive cash for the market value thereof. Immediately following the distribution, Belo and its subsidiaries will not own any shares of A. H. Belo common stock and A. H. Belo will be a separate public company.

A. H. Belo is currently a subsidiary of Belo and will own and operate the newspaper business and related businesses and operations of Belo following the distribution. Belo will continue to own and operate its television business following the distribution.

We expect the distribution of A. H. Belo common stock to be completed on or about                     , 2007. You do not have to vote or take any other action to receive your shares of A. H. Belo common stock or cash instead of fractional shares. You will not be required to surrender your Belo shares or pay anything. Your shares of A. H. Belo Series A common stock will be distributed by book entry, unless you request a stock certificate and provide the required information. Stock certificates will be issued for the shares of A. H. Belo Series B common stock. The number of shares of Belo common stock that you currently own will not change as a result of the distribution.

Belo has requested a private letter ruling from the Internal Revenue Service to the effect that the distribution will be tax-free to Belo and its shareholders for United States federal income tax purposes. However, any cash that you receive instead of fractional shares generally will be taxable to you.

There is no current public trading market for A. H. Belo common stock. However, we expect that a limited market for A. H. Belo Series A common stock, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution. Application will be made to list the shares of A. H. Belo Series A common stock on the New York Stock Exchange (“NYSE”). If a when-issued market for A. H. Belo common stock develops then a listing with a distinct listing symbol for A. H. Belo Series A when-issued common stock may appear on the NYSE. There will be no trading market for the shares of A. H. Belo Series B common stock. The shares of A. H. Belo Series B common stock will not be listed for trading on any exchange. Transferability of the shares of A. H. Belo Series B common stock, as such, is limited to certain family members of the holder of the Series B common stock, trusts established for the benefit of the holder and his or her family members, certain affiliated entities of the holder, and certain other permitted transferees. As more fully described in this information statement, if you sell shares of Belo common stock in the “regular-way” market between the record date and the distribution date, you will be selling your right to receive shares of A. H. Belo common stock in the distribution.

 


No vote of shareholders is required in connection with the distribution. We are not asking for a proxy and you are requested not to send a proxy or your share certificates.

Holding and disposing of shares of A. H. Belo common stock involves risks that are described in the “ Risk Factors” section of this information statement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement is not an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is                     , 2007.


Table of Contents
Index to Financial Statements

TABLE OF CONTENTS

 

     Page

SUMMARY

   1

RISK FACTORS

   10

Risks Relating to the Distribution

   10

Risks Relating to A. H. Belo’s Business

   16

FORWARD-LOOKING STATEMENTS

   19

THE DISTRIBUTION

   20

Introduction

   20

Background of the Distribution

   20

Reasons for the Distribution

   21

Manner of Effecting the Distribution

   22

When and How You Will Receive A. H. Belo Common Stock

   22

Treatment of Fractional Shares

   23

Treatment of Stock Options and Restricted Stock Units

   23

Results of the Distribution

   23

Listing and Trading of the Shares of A. H. Belo Common Stock

   24

United States Federal Income Tax Consequences of the Distribution

   26

Regulatory Approval

   28

No Appraisal Rights

   28

RELATIONSHIPS BETWEEN BELO AND A. H. BELO FOLLOWING THE DISTRIBUTION

   29

Separation and Distribution Agreement

   29

Transition Services Agreement

   31

Tax Matters Agreement

   32

Employee Matters Agreement

   32

Other Agreements

   33

FINANCING ARRANGEMENTS

   33

DIVIDEND POLICY

   33

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

   34

SELECTED FINANCIAL DATA

   39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   40

GAAP and Non-GAAP Financial Measures

   40

Overview

   40

Results of Operations

   41

Critical Accounting Policies and Estimates

   47

Recent Accounting Pronouncements

   48

Liquidity and Capital Resources

   49

Quantitative and Qualitative Disclosures about Market Risk

   50

BUSINESS

   51

A. H. Belo’s Competitive Strengths

   52

A. H. Belo’s Strategies and Opportunities

   52

Competition

   53

FCC Cross-Ownership Restrictions

   53

Employees

   53

Properties

   53

Seasonality

   54

Legal Proceedings

   54

 

i


Table of Contents
Index to Financial Statements
     Page

MANAGEMENT

   56

Directors and Officers

   56

Corporate Governance Guidelines

   58

Board Committees

   58

EXECUTIVE COMPENSATION

   59

2006 Belo Executive Compensation

   59

Equity Holdings and Value Realization

   63

Post-Employment Benefits

   65

Non-Qualified Deferred Compensation

   66

Termination of Employment and Change in Control Arrangements

   68

A. H. Belo Compensation Arrangements

   70

DIRECTOR COMPENSATION

   71

Belo Director Compensation for 2006

   71

A. H. Belo Director Compensation

   72

PRINCIPAL SHAREHOLDERS

   73

Ownership of Belo and A. H. Belo Common Stock

   73

Stock Ownership of Directors and Executive Officers of A. H. Belo

   73

Stock Ownership of Other Principal Shareholders

   75

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   76

DESCRIPTION OF CAPITAL STOCK

   77

Authorized Capital Stock

   77

Common Stock

   77

Voting Rights

   77

Transfer Restrictions

   77

Conversion of Series B Common Stock at the Election of a Holder

   78

Automatic Conversion of Series B Common Stock

   78

Dividends

   78

Preferred Stock

   78

Junior Participating Preferred Stock

   79

No Preemptive Rights

   79

Listing

   80

Sales of Unregistered Securities

   80

Transfer Agent

   80

CERTAIN ANTI-TAKEOVER PROVISIONS

   81

General

   81

Series of Common Stock

   81

Classified Board of Directors

   82

Number of Directors; Removal; Filling Vacancies

   82

No Shareholder Action by Written Consent; Special Meeting

   82

Advance Notice Requirements for Shareholder Proposals and Director Nominations

   82

Supermajority and Fair Price Provisions

   82

Amendments to Bylaws

   83

Amendment of the Certificate of Incorporation

   83

Preferred Stock

   83

Shareholder Rights Agreement

   83

Change In Control Severance Plan

   85

Inter-Company Agreements

   85

 

ii


Table of Contents
Index to Financial Statements
     Page

Delaware Law

   85

Limitation of Liability of Directors

   86

Indemnification of Officers, Directors, and Employees

   86

WHERE YOU CAN FIND MORE INFORMATION

   88

INDEX TO FINANCIAL STATEMENTS

   F-1

 

iii


Table of Contents
Index to Financial Statements

SUMMARY

This summary highlights selected information contained elsewhere in this information statement. It is not complete and may not contain all of the information that is important to you. To better understand the distribution and A. H. Belo, you should carefully read this entire information statement, including the risks described in “Risk Factors” and the combined financial statements and the notes thereto beginning on page F-1. In this information statement, we use the term combined EBITDA, which is a financial measure not calculated in accordance with United States generally accepted accounting principles, or GAAP. We include a reconciliation of these measures to the most directly comparable GAAP measure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All financial data and information in this information statement that does not relate to compensation is reported in thousands, unless otherwise indicated.

We describe in this information statement the business to be transferred to A. H. Belo in the distribution as if the transferred business were A. H. Belo’s business for all historical periods described. References in this information statement to A. H. Belo’s historical assets, liabilities, products, business, or activities of its business are generally intended to refer to the historical assets, liabilities, products, business, or activities of the transferred business as the business was conducted as part of Belo and its subsidiaries prior to the distribution.

Why Belo Sent This Document to You

Belo sent this document to you because you were a holder of Belo common stock on the record date for the distribution of shares of A. H. Belo common stock. Accordingly, you are entitled to receive          share of A. H. Belo Series A common stock for every share of Belo Series A common stock, and          share of A. H. Belo Series B common stock for every share of Belo Series B common stock, that you held on the record date. Each share of A. H. Belo common stock will have attached to it one A. H. Belo preferred share purchase right. No action is required on your part to participate in the distribution, and you do not have to surrender or exchange your shares of Belo stock or pay cash or any other consideration to receive the shares of A. H. Belo common stock. The number of shares of Belo stock that you currently own will not change as a result of the distribution.

This information statement describes A. H. Belo’s business, its relationship with Belo, how this transaction affects Belo and its shareholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of the A. H. Belo common stock that you will receive in the distribution. A. H. Belo’s equity capital and governance structure is designed to mirror Belo’s existing equity capital and governance structure to the maximum extent applicable.

A. H. Belo’s Business

A. H. Belo’s publishing roots trace to The Galveston Daily News, which began publication in 1842. Today, A. H. Belo owns three primary daily newspapers: The Dallas Morning News, The Providence Journal, and The Press-Enterprise. They provide extensive local, state, national, and international news. In addition to these three daily newspapers, A. H. Belo publishes various niche products in the same or nearby markets where our primary daily newspapers are published. Each of A. H. Belo’s daily newspapers and niche publications operates its own related Web site. A. H. Belo also operates certain direct mail and commercial printing businesses.

The Dallas Morning News was established in 1885 and is one of the leading newspaper franchises in America. Its success is founded upon the highest standards of journalistic excellence, with an emphasis on comprehensive local news and information, and community service. The Dallas Morning News is distributed primarily in Dallas County and the 11 surrounding counties. It has earned eight Pulitzer Prizes since 1986 for its news reporting and photography.

The Providence Journal, acquired by Belo in February 1997, is the leading newspaper in Rhode Island and southeastern Massachusetts. The Providence Journal is America’s oldest major daily newspaper of general circulation and continuous publication and has won four Pulitzer Prizes.

 

 

1


Table of Contents
Index to Financial Statements

The Press-Enterprise was acquired in July 1997. The Press-Enterprise is distributed throughout the Inland Empire area of southern California, which includes Riverside and San Bernardino Counties. It has a long history of journalistic excellence and has won one Pulitzer Prize.

Belo Interactive Media (“BIM”), currently a centralized function supporting all of Belo’s operating company Web sites, and Belo Technologies, also a centralized function supporting certain information technology requirements, will be owned and managed by A. H. Belo. BIM and Belo Technologies will provide services to Belo and its television Web sites pursuant to inter-company agreements whereby Belo will compensate A. H. Belo for such services.

A. H. Belo’s Competitive Strengths

A. H. Belo’s strengths are:

 

   

ownership and superior management of three quality daily newspapers that have been widely recognized over the years for their distinguished journalism.

 

   

the three daily newspapers’ locations in markets with attractive long-term demographics.

 

   

a strong, cohesive senior management team with significant sector experience focused on the highest priority strategic and operating issues.

 

   

an initial debt-free capital structure with a strong balance sheet providing financial flexibility to allocate capital toward higher-growth online initiatives, support continued innovation, and maintain a strong focus on distinguished journalism and editorial content.

 

   

resources to compete in a challenging operating environment and return cash to shareholders through an attractive recurring annual dividend yield.

 

   

strategic and financial flexibility to form partnerships and alliances unencumbered by considerations of the potential effect on Belo’s television business.

A. H. Belo’s Strategies and Opportunities

A. H. Belo is committed to publishing newspapers and online content of the highest journalistic quality and integrity, creating and developing innovative print and online products addressing the needs of its customers and advertisers, providing an attractive recurring annual dividend yield, and creating value for its shareholders over the long-term. A. H. Belo intends to achieve these objectives by executing the following strategies:

 

   

addressing the diverse and rapidly-evolving needs of our customers in the local markets we serve with targeted, high quality print products, while leveraging our resources, content, and technology to build sustainable and rapidly-growing online assets.

 

   

focusing management’s attention on operating our core newspaper businesses and related Web sites to derive maximum revenue and EBITDA in an Internet-centric media environment by building larger digital businesses.

 

   

innovating and continuing to develop print and online products that create substantial incremental revenue and EBITDA.

 

   

strengthening and improving our underlying technology platform.

 

   

entering into strategic alliances and partnerships creating virtual cross-ownership to achieve synergies across print, broadcast, and online media.

 

   

being focused and attentive to the needs of our customers and advertisers by implementing initiatives to better reach consumers that advertisers most desire.

 

 

2


Table of Contents
Index to Financial Statements
   

maintaining a conservative balance sheet.

 

   

continuing our commitment of community service to the local communities we serve.

Reasons for the Distribution

The board of directors of Belo determined that separating A. H. Belo’s newspaper and other businesses from Belo’s television business is in the best interests of Belo and Belo’s shareholders. The following potential benefits were considered by the board of directors of Belo in determining to effect the distribution:

 

   

creates a focused organization better able to respond to different industry dynamics and therefore better able to tailor strategic initiatives and priorities.

 

   

allows the investment community to evaluate A. H. Belo and Belo separately relative to the performance of their respective peers.

 

   

allows A. H. Belo greater flexibility to create a capital structure and deploy capital more closely aligned with its strategic priorities.

 

   

allows A. H. Belo to provide its management and employees incentive compensation more directly linked to its individual financial performance.

Regulatory Approval

Apart from the registration under United States federal securities laws of shares of the two series of A. H. Belo common stock that will be distributed in the distribution, and the related NYSE listing requirements, we do not believe that any other material governmental or regulatory filings or approvals will be necessary to consummate the distribution.

No Appraisal Rights

Belo shareholders will not have appraisal rights in connection with the distribution.

Risk Factors

You should carefully consider the matters discussed under the heading “Risk Factors” of this information statement.

Corporate Information

A. H. Belo was incorporated on October 1, 2007. Our principal executive offices are located at 400 South Record Street, Dallas, Texas 75202, and our telephone number is (214) 977-6606. Our corporate Web site will be located at ahbelo.com. The information that will be contained in, or that can be accessed through, our Web site is not part of this information statement.

 

 

3


Table of Contents
Index to Financial Statements

Questions and Answers about A. H. Belo and the Distribution

 

What will I receive as a result of the distribution?

For every one share of Belo Series A common stock that you own on the record date, you will receive              share of A. H. Belo Series A common stock. For every one share of Belo Series B common stock that you own on the record date, you will receive              share of A. H. Belo Series B common stock. Each share of A. H. Belo common stock will have attached to it one A. H. Belo preferred share purchase right. If you would be entitled to a fractional share of A. H. Belo common stock, you will receive a check for the market value thereof.

 

When will the distribution occur?

Belo currently anticipates completing the distribution on or about                     , 2007.

 

What is the record date for the distribution?

The record date is                     , 2007, and ownership of Belo common stock will be determined as of 5:00 p.m., Eastern Time, on that date. When we refer to the “record date,” we are referring to that date and time.

 

Is shareholder approval required for the distribution?

Shareholder approval is not required for the distribution. The distribution of A. H. Belo will be accomplished by distributing all of the shares of A. H. Belo common stock to holders of Belo common stock as a dividend. Accordingly, the dividend of the shares of A. H. Belo common stock will be approved by the Belo board of directors pursuant to its statutory authority under Delaware law to declare and pay dividends.

 

What do I have to do to receive my shares of A. H. Belo common stock?

Nothing. Your shares of A. H. Belo common stock will be either reflected in an account statement that our transfer agent, The Bank of New York Mellon, will send to you shortly after                     , 2007 or credited to your account with your broker or nominee on or about                     , 2007.

 

When will I receive my shares of A. H. Belo common stock?

If you hold your Belo Series A shares in your own name then your account statement reflecting the A. H. Belo Series A shares will be mailed to you on or about                     , 2007. You should allow several days for the mail to reach you.

 

 

If you hold your Belo Series A shares through your broker or other nominee, you are probably not a shareholder of record and your receipt of A. H. Belo Series A shares depends on your arrangements with the nominee that holds your Belo Series A shares for you. Belo anticipates that brokers and other nominees generally will credit their customers’ accounts with A. H. Belo Series A shares on or about                     , 2007, but you should check with your broker or other nominee. See “The Distribution—Manner of Effecting the Distribution.”

 

 

Stock certificates will be issued for shares of A. H. Belo Series B common stock on or about                     , 2007.

 

 

4


Table of Contents
Index to Financial Statements

How will shares of A. H. Belo common stock be distributed to me?

Belo will distribute the shares of A. H. Belo Series A common stock by book entry. If you are a record holder of Belo Series A common stock then you will receive from our transfer agent shortly after                     , 2007, a statement of your book entry account for the shares of A. H. Belo Series A common stock that are distributed to you. You will not receive physical stock certificates for your shares of A. H. Belo Series A common stock, unless you request a stock certificate and provide the required information. If you are not a record holder of Belo Series A common stock because your shares are held on your behalf by your broker or other nominee, then your shares of A. H. Belo Series A common stock should be credited to your account with your broker or nominee on or about                     , 2007. Stock certificates will be issued for shares of A. H. Belo Series B common stock.

 

Will Belo distribute fractional shares?

Fractional shares of A. H. Belo common stock will not be issued in the distribution. If you would be entitled to receive a fractional share of A. H. Belo common stock in the distribution, then you will instead receive a cash payment with respect to the fractional shares. See “The Distribution—Treatment of Fractional Shares.”

 

Will the distribution affect the market price of my Belo shares?

Following the distribution, Belo expects that its Series A common stock will continue to be listed and traded on the NYSE under the symbol “BLC.” As a result of the distribution, the trading price of Belo shares immediately following the distribution may be lower than immediately prior to the distribution. The business to be conducted by A. H. Belo represented approximately          percent of Belo’s combined revenues for the fiscal year ended December 31, 2006 and          percent of Belo’s combined revenues for the six months ended June 30, 2007, respectively. Until the market has analyzed fully the operations of Belo without A. H. Belo’s business, the price of Belo shares may fluctuate significantly. See “The Distribution—Listing and Trading of the Shares of A. H. Belo Common Stock.”

 

Where will my shares of A. H. Belo common stock be traded?

Application will be made to list the shares of A. H. Belo Series A common stock on the NYSE under the symbol      following completion of the distribution. Trading of A. H. Belo Series A common stock will likely begin on a “when-issued” basis after the record date. The A. H. Belo Series B common stock is subject to restrictions on transfer and will not be listed on any exchange. See “The Distribution—Listing and Trading of the Shares of A. H. Belo Common Stock” and “Description of Capital Stock—Transfer Restrictions.”

 

When will I be able to trade shares of A. H. Belo common stock?

There is no current public market for A. H. Belo Series A common stock. We anticipate that trading in shares of A. H. Belo Series A common stock will begin on a “when-issued” basis prior to the distribution date, and “regular-way” trading will begin on the first trading day after the distribution date. In the context of a distribution, when-issued trading refers to securities transactions made on or before the distribution date and made conditionally because the

 

 

5


Table of Contents
Index to Financial Statements
 

securities of the distributed entity have not yet been distributed. When-issued trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, all when-issued trading, if any, will end and regular-way trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the transaction. Shares of A. H. Belo Series A common stock generally will be freely tradable after the distribution date. See “The Distribution—Listing and Trading of the Shares of A. H. Belo Common Stock.”

 

 

Transferability of the shares of A. H. Belo Series B common stock, as such, is limited to certain family members of the holder of the Series B common stock, trusts established for the benefit of the holder and his or her family members, certain affiliated entities of the holder, and certain other permitted transferees. The shares of A. H. Belo Series B common stock will not be listed for trading on any exchange. See “Description of Capital Stock—Transfer Restrictions.”

 

What is A. H. Belo’s dividend policy?

It is anticipated that following the distribution, A. H. Belo will pay quarterly cash dividends that, on an annual basis, will equal $         per share. However, no formal action has been taken with respect to the declaration or payment of dividends, and the declaration and payment of dividends by A. H. Belo on an ongoing basis will be at the sole discretion of A. H. Belo’s board of directors. Any determination about the payment of dividends, as well as their amount and timing, will depend on, among other things, A. H. Belo’s results of operations and financial condition, earnings, capital requirements, debt covenants, other contractual restrictions, prospects, applicable law, general economic and business conditions, and other factors that A. H. Belo’s board of directors deems relevant. A. H. Belo cannot provide any assurance that any dividends will be declared and paid. See “Dividend Policy.”

 

What are the United States federal income tax consequences of the distribution to me as a Belo shareholder?

Belo has requested a private letter ruling from the Internal Revenue Service (the “IRS”) to the effect that the distribution will be tax-free for United States federal income tax purposes, except with respect to cash paid instead of fractional shares. With respect to certain requirements for tax-free treatment on which the IRS will not rule, Belo expects to receive an opinion of Locke Lord Bissell & Liddell LLP (“Locke Lord”) to the effect that such requirements will be satisfied. See “The Distribution—United States Federal Income Tax Consequences of the Distribution.”

 

How will A. H. Belo be managed?

A. H. Belo’s executive officers are Robert W. Decherd, chairman of the board, president and chief executive officer; James M. Moroney III, publisher and chief executive officer of The Dallas Morning News; Donald F. (Skip) Cass, Jr., executive vice president; Alison K. Engel, senior vice president/Chief Financial Officer; and Daniel J.

 

 

6


Table of Contents
Index to Financial Statements
 

Blizzard, senior vice president. A. H. Belo’s initial board of directors consists of six directors, classified into three classes. After their initial term, directors of each class will serve three-year terms. A. H. Belo’s initial directors are Robert W. Decherd, Louis E. Caldera, Douglas G. Carlston, Dealey D. Herndon, Laurence E. Hirsch, and J. McDonald Williams. See “Management.”

 

What kind of relationship will A. H. Belo have with Belo after the distribution?

Prior to the distribution, A. H. Belo and Belo will enter into agreements for Belo to transfer to A. H. Belo certain assets and liabilities of Belo related to A. H. Belo’s business, to arrange for the continued provision of certain services by each company to the other for a period of time, to make arrangements for the distribution, and to define the ongoing relationships between Belo and A. H. Belo, including with respect to tax matters and certain indemnification rights. Further, Robert W. Decherd and Dealey D. Herndon will serve as directors of both A. H. Belo and Belo and James M. Moroney III will serve as a director of Belo. See “Relationships Between Belo and A. H. Belo Following the Distribution” and “Management.”

 

What are A. H. Belo’s financing arrangements?

On the distribution date, A. H. Belo will be debt-free and expects to have a revolving credit facility with a group of banks in place for its financing needs. See “Financing Arrangements.”

 

Will any anti-takeover protections exist following the distribution?

Certain provisions of A. H. Belo’s certificate of incorporation and bylaws may have the effect of making the acquisition of control of the company in a transaction not approved by our board of directors more difficult. The shareholder rights agreement and change in control severance plan that we will enter into in connection with the distribution also would make such a transaction more difficult. These provisions have been implemented to enable A. H. Belo to develop its business without disruption caused by the threat of a possible takeover not determined by our board of directors to be in the best interests of A. H. Belo and its shareholders. Moreover, certain provisions of the inter-company agreements that will be entered into between A. H. Belo and Belo in connection with the distribution could discourage potential acquisition proposals. Further,          percent of the outstanding shares of A. H. Belo Series A and Series B common stock, representing          percent of the voting power of our outstanding voting stock, will be held by our directors and executive officers. Such concentration of voting power could discourage third parties from making proposals involving an acquisition or change in control of A. H. Belo. See “Certain Anti-Takeover Provisions.”

 

Do I have appraisal rights in connection with the distribution?

No. Holders of Belo common stock have no appraisal rights in connection with the distribution. See “The Distribution—No Appraisal Rights.”

 

 

7


Table of Contents
Index to Financial Statements

Who is the transfer agent for A. H. Belo common stock?

The transfer agent for A. H. Belo common stock is The Bank of New York Mellon. You can contact the transfer agent at the following address and telephone number:

The Bank of New York Mellon

Shareowner Services

P. O. Box 11258

Church Street Station

New York, NY 10286

(800) 524-4458

 

 

Please contact the transfer agent with any questions about the distribution or if you need any additional information.

 

 

8


Table of Contents
Index to Financial Statements

Summary Financial Data

Set forth below are selected combined financial data for A. H. Belo for each of the five years ended December 31, 2006, and for the six months ended June 30, 2006 and 2007. The combined balance sheet data as of December 31, 2005 and 2006 and the combined statement of operations data for each of the three years in the period ended December 31, 2006, have been derived from our audited combined financial statements included in this information statement. The combined balance sheet data as of December 31, 2002, 2003, and 2004 and the combined statement of operations data for the years ended December 31, 2002 and 2003 have been derived from our unaudited combined financial statements, which are not included in this information statement. The selected historical combined financial data for the six months ended June 30, 2006 and 2007, and as of June 30, 2007, is derived from and should be read in conjunction with our unaudited combined financial statements. Operating results for the 2007 interim period are not necessarily indicative of the operating results that A. H. Belo will experience for the entire year.

The selected historical financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited combined financial statements and the notes related thereto, and the unaudited combined financial statements and notes related thereto included in this information statement. The selected historical financial data reflects A. H. Belo’s results as we have historically been operated as a part of Belo, and these results may not be indicative of our future performance as a separate company following the distribution. Operating expenses in the historical income statements reflect direct expenses of our business together with allocations of certain Belo corporate expenses that have been charged to A. H. Belo based on use or other methodologies we believe appropriate for such expenses (see the Combined Financial Statements, Note 1—Summary of Significant Accounting Policies). In our opinion, these allocations have been made on a reasonable and appropriate basis under the circumstances. Per-share data has not been presented since A. H. Belo’s business was wholly-owned by Belo during the periods presented.

 

    As of and for the years ended December 31,     As of and for the six
months ended June 30,
 

In thousands

  2002     2003     2004     2005     2006     2006     2007  

Total net operating revenues

  $ 752,132     $ 763,652     $ 779,142     $ 822,344     $ 817,733     $ 407,262     $ 367,989  
                                                       

Total operating expenses

    636,383       645,378       689,460       721,251       760,376       381,713       352,497  
                                                       

Earnings from operations

  $ 115,749     $ 118,274     $ 89,682     $ 101,093     $ 57,357     $ 25,549     $ 15,492  

Other income and expense(a)

    (6,976 )     (18,065 )     (15,648 )     (22,913 )     (30,310 )     (14,187 )     (14,997 )

Income taxes

    (44,399 )     (38,458 )     (28,745 )     (30,361 )     (11,868 )     (4,165 )     2,409  
                                                       

Net earnings(b)

  $ 64,374     $ 61,751     $ 45,289     $ 47,819     $ 15,179     $ 7,197     $ 2,904  
                                                       

Total assets

  $ 966,220     $ 968,889     $ 963,215     $ 981,661     $ 994,815     $ 963,995     $ 969,359  

Long-term portion of notes payable to Belo Corp.(c)

  $ 319,406     $ 279,425     $ 306,398     $ 332,710     $ 353,893     $ 353,974     $ 389,343  

Other data:

             

Combined EBITDA(d)

  $ 171,173     $ 168,515     $ 138,913     $ 148,063     $ 105,439     $ 49,631     $ 44,236  

Depreciation and amortization

    (50,949 )     (50,297 )     (48,369 )     (46,222 )     (46,578 )     (23,190 )     (25,962 )

Interest expense

    (11,451 )     (18,009 )     (16,510 )     (23,661 )     (31,814 )     (15,079 )     (17,779 )

Income taxes

    (44,399 )     (38,458 )     (28,745 )     (30,361 )     (11,868 )     (4,165 )     2,409  
                                                       

Net earnings

  $ 64,374     $ 61,751     $ 45,289     $ 47,819     $ 15,179     $ 7,197     $ 2,904  
                                                       

(a) Other income and expense includes $11,451, $18,009, $16,510, $23,661, and $31,814 for the years ended December 31, 2002, 2003, 2004, 2005, and 2006, respectively, and $15,079 and $17,779 for the six months ended June 30, 2006 and 2007, respectively, for interest on notes payable to Belo Corp. (see the Combined Financial Statements, Note 8—Notes Payable to Belo Corp.).
(b) Net earnings in 2004 included pre-tax charges related to The Dallas Morning News circulation overstatement of $23,500 (see “Business—Legal Proceedings”).
(c) Amounts represent the long-term portion of notes payable to Belo Corp. (see the Combined Financial Statements, Note 8—Notes Payable to Belo Corp.).
(d) A. H. Belo defines combined EBITDA as net earnings before interest expense, income taxes, depreciation, and amortization. Combined EBITDA is not a measure of financial performance under GAAP. Management uses combined EBITDA in internal analyses as a supplemental measure of the financial performance of A. H. Belo to assist it with determining performance comparisons against its peer group of companies, as well as capital spending and other investing decisions. Combined EBITDA is also a common alternative measure of performance used by investors, financial analysts, and rating agencies to evaluate financial performance. Combined EBITDA should not be considered in isolation or as a substitute for net earnings, operating income, cash flows provided by operating activities, or other income or cash flow data prepared in accordance with GAAP and this non-GAAP measure may not be comparable to similarly titled measures of other companies.

 

 

9


Table of Contents
Index to Financial Statements

RISK FACTORS

You should carefully consider each of the following risks, which we believe are the principal risks that A. H. Belo faces, and all of the other information in this information statement. Some of the following risks relate to the distribution of A. H. Belo common stock, including the effect of such distribution on Belo. Other risks relate to A. H. Belo’s business, the securities markets, and ownership of A. H. Belo common stock. A. H. Belo’s business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe are immaterial. If any of the following risks and uncertainties develop into actual events, this could have a material adverse effect on A. H. Belo’s business, financial condition, or results of operations. If this occurs, the trading price of A. H. Belo common stock could decline, and you may lose all or part of your investment.

Risks Relating to the Distribution

A. H. Belo has no operating history as a separate public company and may be unable to operate profitably after becoming a stand-alone company.

A. H. Belo has no operating history as a separate public company. Historically, because the newspaper and the television businesses that comprised Belo have been under one ultimate parent, they have been able to rely, to some degree, on the earnings, assets, and cash flow of each other for capital requirements. After the distribution, A. H. Belo will be able to rely only on the newspaper business for such requirements. We cannot assure you that, as a separate public company, operating results will continue at historical levels, or that we will be profitable. Additionally, A. H. Belo has relied on Belo for various financial, administrative, and managerial services in conducting its operations. Following the distribution, A. H. Belo will maintain its own credit and banking relationships and in time will perform its own financial and investor relations functions. Although A. H. Belo may employ certain key employees of Belo following the distribution, we cannot assure you that A. H. Belo will be able to successfully put in place, or thereafter maintain, the financial functions, administration, and management necessary to operate as a separate company.

A. H. Belo’s historical financial information may not be indicative of its future results as a separate public company.

The historical financial information we have included in this information statement may not reflect what A. H. Belo’s results of operations, financial position, and cash flows would have been had it been a separate public company during the periods presented or be indicative of what its results of operations, financial position, and cash flows may be in the future when it is a separate public company. A. H. Belo’s historical financial information reflects allocations for services historically provided by Belo, and we expect these allocated costs to be different from the actual costs A. H. Belo will incur for these services in the future as a separate public company, including with respect to actual services A. H. Belo expects will be provided by Belo under a transition services agreement and other commercial service agreements. In some instances, the costs incurred for these services as a separate public company may be higher than the share of total Belo expenses allocated to A. H. Belo historically. In addition, the historical financial information does not reflect the increased costs associated with being a separate public company, including changes that we expect in our cost structure, personnel needs, financing, and operations of our business as a result of the distribution.

For additional information about the past financial performance of A. H. Belo’s business and the basis of the presentation of the historical financial statements, see “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the historical financial statements, and the accompanying notes included elsewhere in this information statement.

 

10


Table of Contents
Index to Financial Statements

A. H. Belo may incur increased costs after the distribution or as a result of the distribution that may cause its profitability to decline.

Historically, A. H. Belo’s business has been principally operated as one of Belo’s segments, and Belo has performed many corporate functions for A. H. Belo’s operations, including managing financial and human resources systems, internal auditing, investor relations, treasury services, select accounting functions, finance and tax administration, benefits administration, legal, governmental relations, and regulatory functions. Following the distribution, Belo will provide support to A. H. Belo with respect to certain of these functions for periods to be specified in various inter-company agreements described elsewhere in this information statement. A. H. Belo will need to replicate certain systems, infrastructure, and personnel to which it will no longer have access after the distribution from Belo. A. H. Belo may incur capital and other costs associated with developing and implementing its own support functions in these areas. These costs may exceed the costs A. H. Belo will pay to Belo during the transitional period.

In addition, there may be an adverse operational effect on A. H. Belo’s business as a result of the significant time A. H. Belo’s management and other employees and internal resources will need to dedicate to building these capabilities during the first few years following the distribution that otherwise would be available for other business initiatives and opportunities. When A. H. Belo begins to operate these functions independently, if it has not developed adequate systems and business functions, or obtained them from other providers, it may not be able to operate the company effectively and A. H. Belo’s profitability may decline.

A. H. Belo may incur increased expenses if the transition services agreement with Belo is terminated.

In connection with the distribution, A. H. Belo will enter into a transition services agreement with Belo. This agreement will provide that A. H. Belo and Belo will furnish each other services in such areas as employee benefits administration, risk management, claims administration and reporting, tax, legal, payroll, internal audit, and other areas where A. H. Belo and Belo may need transitional assistance and support following the distribution. The agreement will extend for up to two years after the distribution, but may be terminated earlier under certain circumstances, including a default. If the agreement is terminated, A. H. Belo may be required to obtain such services from a third party. This could be more expensive than the fees that A. H. Belo will be required to pay under the transition services agreement.

Substantial sales of A. H. Belo Series A common stock following the distribution, or the perception that such sales might occur, could depress the market price of A. H. Belo Series A common stock.

Substantially all of the shares of A. H. Belo Series A common stock distributed in the distribution will be eligible for immediate resale in the public market. Any sales of substantial amounts of A. H. Belo Series A common stock in the public market, or the perception that such sales might occur, could depress the market price of A. H. Belo Series A common stock. We anticipate that significant amounts of A. H. Belo Series A common stock will be sold in the open market following the distribution. A portion of Belo Series A common stock is held by index funds. We do not expect to qualify for inclusion in some of these indices at the time of the distribution, and we expect those index funds will be required to sell A. H. Belo Series A common stock. In addition, A. H. Belo’s smaller size and different investment characteristics may not appeal to the current investor base of Belo, which may seek to dispose of large amounts of A. H. Belo Series A common stock following the distribution. There is no assurance that there will be sufficient buying interest to offset any such sales, and, accordingly, the price of A. H. Belo Series A common stock could be depressed by those sales and have periods of volatility.

The market price for A. H. Belo Series A common stock may be volatile, and you may not be able to sell your A. H. Belo Series A common stock at a favorable price.

There has been no public market for A. H. Belo Series A common stock prior to the distribution. An active public market for A. H. Belo Series A common stock may not be sustained after the distribution. The price of A. H. Belo Series A common stock in any such market may be higher or lower than the initial trading

 

11


Table of Contents
Index to Financial Statements

price. Many factors could cause the market price of A. H. Belo Series A common stock to rise and fall, including the following:

 

   

declining newspaper circulation.

 

   

declining revenues derived from our core business.

 

   

variations in quarterly results.

 

   

announcements of technological innovations by us or by competitors.

 

   

introductions of new products or services or new pricing policies by us or by competitors.

 

   

acquisitions or strategic alliances by us or by competitors.

 

   

recruitment or departure of key personnel or key groups of personnel.

 

   

the gain or loss of significant advertisers.

 

   

changes in the estimates of A. H. Belo’s operating performance or changes in recommendations by any securities analysts that elect to follow A. H. Belo’s stock.

 

   

market conditions in the newspaper industry, the industries of our customers, and the economy as a whole.

Failure of the distribution to qualify as a tax-free transaction could result in substantial liability.

Belo has requested a private letter ruling from the IRS to the effect that, among other things, the distribution (including certain related transactions) qualifies as tax-free to Belo, A. H. Belo, and Belo shareholders for United States federal income tax purposes under section 355 and related provisions of the Internal Revenue Code. Although a private letter ruling generally is binding on the IRS, if the factual assumptions or representations made in the private letter ruling request are untrue or incomplete in any material respect, then Belo will not be able to rely on the ruling. Moreover, the IRS will not rule on whether a distribution of shares satisfies certain requirements necessary to obtain tax-free treatment under section 355 of the Internal Revenue Code. Rather, the private letter ruling is based upon representations by Belo that those requirements have been satisfied, and any inaccuracy in those representations could invalidate the ruling.

The distribution is conditioned upon Belo’s receipt of an opinion of Locke Lord, counsel to Belo, in form and substance satisfactory to Belo, to the effect that, with respect to the requirements referred to above on which the IRS will not rule, those requirements will be met. The opinion will assume the effectiveness of the private letter ruling as to matters covered by the ruling. The opinion will be based on, among other things, certain assumptions and representations as to facts made by Belo and A. H. Belo which, if untrue or incomplete in any material respect, could jeopardize the conclusions reached by counsel in its opinion. The opinion will not be binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion.

If the distribution fails to qualify for tax-free treatment, a substantial corporate tax would be payable by Belo, measured by the difference between (1) the aggregate fair market value of the shares of A. H. Belo common stock on the date of the distribution and (2) Belo’s adjusted tax basis in the shares of A. H. Belo common stock on the date of the distribution. The corporate level tax would be payable by Belo. However, A. H. Belo has agreed to indemnify Belo for certain tax liabilities under certain circumstances. This indemnification obligation, if triggered, could have a material adverse effect on A. H. Belo’s financial condition and results of operations. In addition, under the applicable Treasury regulations, each member of Belo’s consolidated group at the time of the distribution (including A. H. Belo) is severally liable for such tax liability.

Further, if the distribution is not tax-free, each Belo shareholder generally would be taxed as if he or she had received a cash distribution equal to the fair market value of the shares of A. H. Belo common stock on the date of the distribution.

 

12


Table of Contents
Index to Financial Statements

Even if the distribution otherwise qualifies as tax-free, Belo nevertheless could incur a substantial corporate tax liability under section 355(e) of the Internal Revenue Code if 50 percent or more of the voting power or value of A. H. Belo stock or the stock of Belo were to be acquired as part of a “plan (or a series of related transactions)” that includes the distribution. For this purpose, any acquisitions of the stock of Belo or of A. H. Belo’s stock that occur within two years before or after the distribution are presumed to be part of such a plan, although Belo may be able to rebut that presumption. If such an acquisition of the stock of Belo or of A. H. Belo’s stock triggers the application of section 355(e), Belo would recognize taxable gain as described above, but the distribution would generally remain tax-free to the Belo shareholders.

The combined post-distribution value of Belo and A. H. Belo shares may not equal or exceed the pre-distribution value of Belo shares.

After the distribution, Belo common stock will continue to be listed and traded on the NYSE. Application will be made to list the shares of A. H. Belo Series A common stock on the NYSE. We cannot assure you that the combined trading prices of Belo common stock and A. H. Belo common stock after the distribution, as adjusted for any changes in the combined capitalization of both companies, will be equal to or greater than the trading price of Belo common stock prior to the distribution. Until the market has fully evaluated the business of Belo without A. H. Belo’s business, the price at which Belo common stock trades may fluctuate significantly. Similarly, until the market has fully evaluated A. H. Belo’s business, the price at which A. H. Belo common stock trades may fluctuate significantly.

Certain provisions of A. H. Belo’s certificate of incorporation, bylaws, shareholder rights agreement, severance plan, tax matters agreement, separation and distribution agreement, employee matters agreement, and Delaware law may discourage takeovers.

A. H. Belo’s certificate of incorporation and bylaws contain certain anti-takeover provisions that may make more difficult or expensive a tender offer, change in control, or takeover attempt that is opposed by A. H. Belo’s board of directors or certain shareholders holding a significant percentage of the voting power of our outstanding voting stock. A. H. Belo’s equity capital and governance structure is designed to mirror Belo’s existing capital and governance structure to the maximum extent applicable. In particular, A. H. Belo’s certificate of incorporation and bylaws:

 

   

provide for a dual common equity capital structure pursuant to which each issued and outstanding share of A. H. Belo Series A common stock is entitled to one vote and each issued and outstanding share of A. H. Belo Series B common stock is entitled to ten votes.

 

   

classify the board of directors into three groups, so that shareholders elect only approximately one-third of the board each year.

 

   

permit shareholders to remove directors only for cause and only by a vote of shareholders representing not less than a majority of the voting power of our outstanding voting stock.

 

   

do not permit shareholders to take action except at an annual or special meeting of shareholders.

 

   

permit a special shareholders’ meeting to be called only by the chief executive officer, the board of directors, or the holders of not less than one-fifth of the voting power of our outstanding voting stock.

 

   

require shareholders to give A. H. Belo advance notice to nominate candidates for election to the board of directors or to make shareholder proposals at a shareholders’ meeting.

 

   

require the affirmative vote of at least two-thirds of the voting power of our outstanding voting stock to amend or repeal our bylaws.

 

   

require the affirmative vote of at least two-thirds of the voting power of our outstanding voting stock for the approval of any merger, consolidation, sale of all or substantially all of our assets, or our dissolution.

 

13


Table of Contents
Index to Financial Statements
   

require, for the approval of a business combination with shareholders owning 10 percent or more of the voting power of our outstanding voting stock, the affirmative vote of the holders of at least 80 percent of the voting power of our outstanding voting stock, unless the transaction does not involve cash or any other consideration being received by our shareholders and is approved by our continuing directors or, in the case of any other transaction, such transaction is approved by our continuing directors and certain procedural requirements set forth in our certificate of incorporation as well as certain “fair price” requirements are met.

 

   

permit the board of directors to issue, without shareholder approval, preferred stock with such terms as the board may determine.

In addition, Delaware law generally restricts mergers and other business combinations between A. H. Belo and any holder of 15 percent or more of the voting power of our outstanding voting stock for a period of three years, unless the business combination or the transaction which results in the holder holding 15 percent or more of the voting power of our outstanding voting stock is approved in advance by A. H. Belo’s board of directors or, subsequent thereto, the business combination is approved by the board of directors and by the affirmative vote of at least two-thirds of the voting power of our outstanding voting stock not owned by such holder.

Further,          percent of the outstanding shares of A. H. Belo Series A and Series B common stock, representing          percent of the voting power of our outstanding voting stock, will be held by A. H. Belo’s directors and executive officers as of the record date. Such concentration of voting power could discourage third parties from making proposals involving an acquisition of A. H. Belo.

These provisions could discourage potential acquisition proposals and could delay or prevent a change in control of A. H. Belo, even though a majority of shareholders may consider such proposal, if effected, desirable. Such provisions could also make it more difficult for third parties to remove and replace the members of the board of directors. Moreover, these provisions could diminish the opportunities for shareholders to participate in certain tender offers, including tender offers at prices above the then-current market value of A. H. Belo common stock, and may also inhibit increases in the trading price of A. H. Belo Series A common stock that could result from takeover attempts or speculation.

A. H. Belo expects to adopt a shareholder rights agreement in connection with the distribution that will provide that in the event of an acquisition of or the commencement of a tender offer for 15 percent or more of A. H. Belo outstanding common stock, A. H. Belo shareholders will be granted rights to purchase A. H. Belo common stock at a certain price. The shareholder rights agreement could make it more difficult for a third-party to acquire A. H. Belo common stock without the approval of A. H. Belo’s board of directors.

Effective on the distribution date, A. H. Belo will have in place a change in control severance plan covering specified participants that would be triggered if there is a “change in control” (as defined to include the acquisition of 30 percent or more of the combined voting power of our voting securities) and a qualifying termination (or constructive termination) of employment during the 24-month period following a change in control. In addition, a participant may voluntarily terminate employment for any reason or without reason during the 30-day period immediately following the first anniversary of a change in control and will be entitled to receive payments and benefits under the severance plan. The triggering events would result in the payment of specified severance benefits, including a lump sum multiple of participant’s compensation, outplacement services, vesting of long-term incentive awards, and “gross up” payment if necessary to satisfy certain tax payments relating to the severance payments. This severance plan mirrors the change in control severance plan adopted by Belo effective October 1, 2007 and could make it more expensive for a buyer of A. H. Belo to acquire control and therefore discourage unsolicited offers.

If the distribution is considered part of a “plan (or series of related transactions)” pursuant to which 50 percent or more of the voting power or value of A. H. Belo stock is acquired, the distribution will be taxable to Belo (but not to its shareholders) under Section 355(e) of the Internal Revenue Code. For this purpose, any

 

14


Table of Contents
Index to Financial Statements

acquisitions of A. H. Belo stock that occur within two years after the distribution (subject to certain exceptions including an exception for public trading) will be presumed to be part of such a plan, although Belo may be able to rebut that presumption. Under the tax matters agreement, we have agreed to indemnify Belo for certain tax related matters. A. H. Belo will also enter into the separation and distribution agreement and employee matters agreement covering specified indemnification and other matters that may arise after the distribution. The separation and distribution agreement, tax matters agreement, and employee matters agreement may have the effect of discouraging or preventing an acquisition of A. H. Belo or a disposition of its business.

A. H. Belo’s directors and executive officers have significant combined voting power and significant influence over our management and affairs.

Our directors and executive officers beneficially will own          percent of the outstanding shares of our Series A and Series B common stock with a combined voting power of          percent as of the record date. A. H. Belo’s Series A common stock has one vote per share and Series B common stock has ten votes per share. Consequently, the voting power of the Series B holders is greater than the number of shares beneficially owned. Generally, except for certain extraordinary corporate transactions, all matters to be voted on by A. H. Belo’s shareholders must be approved by a majority of the voting power of our outstanding voting stock, voting as a single class. Certain extraordinary corporate transactions, such as a merger, consolidation, sale of all or substantially all of our property and assets, or a dissolution, the alteration, amendment, or repeal of A. H. Belo’s bylaws, and certain amendments to A. H. Belo’s certificate of incorporation, require the affirmative vote of the holders of at least two-thirds of the voting power of our outstanding voting stock, voting as a single class. Accordingly, A. H. Belo’s directors and executive officers will have significant influence over our management and affairs and over all matters requiring shareholder approval, including the election of directors and significant corporate transactions. This ownership may limit your ability to influence corporate matters and, as a result, A. H. Belo may take actions that you, or even the majority of shareholders, do not view as beneficial.

After the distribution, certain members of management, directors, and shareholders may face actual or potential conflicts of interest.

After the distribution, the management and directors of Belo and A. H. Belo will own both Belo common stock and A. H. Belo common stock. Robert W. Decherd will serve as the non-executive chairman of the board of Belo and as the chairman of the board, president and chief executive officer of A. H. Belo. Mr. Decherd and Dealey D. Herndon, his sister, will serve as directors of Belo and A. H. Belo. James M. Moroney III, the publisher and chief executive officer of The Dallas Morning News and their second cousin, will serve as a director of Belo. This ownership overlap and these common directors could create, or appear to create, potential conflicts of interest when Belo’s and A. H. Belo’s management and directors face decisions that could have different implications for Belo and A. H. Belo. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between Belo and A. H. Belo regarding the terms of the agreements governing the distribution and the relationship between Belo and A. H. Belo thereafter. These agreements include, among others, the separation and distribution agreement, the tax matters agreement, the employee matters agreement, the transition services agreement, and any commercial agreements between the parties or their affiliates. Potential conflicts of interest could also arise out of any commercial arrangements that Belo and A. H. Belo may enter into in the future. In addition, A. H. Belo and Belo will compete with each other, particularly in markets such as Dallas/Fort Worth where each company owns significant properties.

Federal law and Federal Communications Commission (“FCC”) regulations applicable because of Belo’s and A. H. Belo’s common officers, directors, and voting shareholders may limit A. H. Belo’s activities, including the ability to own or operate media properties it does not presently own or operate.

For FCC purposes, the common officers, directors, and five percent or greater voting shareholders of Belo and A. H. Belo will be deemed to hold attributable interests in each of the companies after the distribution. As a result, the business and conduct of one company may have the effect of limiting the activities or strategic business alternatives available to the other company.

 

15


Table of Contents
Index to Financial Statements

Risks Relating to A. H. Belo’s Business

If A. H. Belo is unable to respond to evolving industry trends and changes in technology, its business may not be able to compete effectively.

Print circulation and readership of A. H. Belo’s newspapers, and the newspaper industry overall, are subject to competition and, in particular, are being affected by the preferences of some consumers to receive all or a portion of their news in new media formats and from sources other than traditional newspapers, and by the proliferation of these new media formats and sources. Information delivery and programming alternatives such as the Internet, cable, direct satellite-to-home services, pay-per-view, home video and entertainment systems have fractionalized newspaper readership. Over the past decade, the Internet, cable television programming services, and other emerging media distribution platforms have captured an increasing market share, while the aggregate circulation of major newspapers has declined.

Decreases in advertising spending, resulting from an economic downturn, business combinations, natural disasters, war, terrorism, or other factors specific to the communities we serve, could adversely affect A. H. Belo’s financial condition and results of operations. In addition, A. H. Belo’s revenues are subject to seasonal, cyclical, and other fluctuations that could adversely affect our financial condition and results of operations.

Approximately 82 percent or more of A. H. Belo’s revenues for each of the last three fiscal years were generated from the sale of advertising appearing in its newspapers. Advertisers generally reduce their advertising spending during economic downturns, so a recession or economic downturn could have an adverse effect on A. H. Belo’s financial condition and results of operations.

A. H. Belo’s advertising revenues depend upon a variety of other factors specific to the communities that we serve. Changes in those factors could affect advertising revenues. These factors include, among others, the size and demographic characteristics of the local population, the concentration of retail stores, and local economic conditions in general.

A. H. Belo’s revenues and results of operations are subject to seasonal, cyclical, and other fluctuations that we expect to continue in future periods. Seasonal and cyclical factors that affect A. H. Belo’s revenues and results of operations may be beyond A. H. Belo’s control, including changes in the pricing policies of competitors, the hiring and retention of key personnel, wage and cost pressures, changes in newsprint prices, and general economic factors. Fluctuations in revenues and results of operations may cause A. H. Belo’s stock price to be volatile.

A. H. Belo’s business operates in highly competitive markets, such as Dallas/Fort Worth, and its ability to maintain market share and generate revenues depends on how effectively it competes with existing and new competition.

Our business operates in highly competitive markets. Our newspapers compete for audiences and advertising revenue with other newspapers as well as with other media such as the Internet, magazines, broadcast, cable and satellite television, radio, direct mail, and yellow pages. A. H. Belo and Belo will compete with each other, particularly in markets such as Dallas/Fort Worth where each company owns significant properties. Some of A. H. Belo’s current and potential competitors have greater financial and other resources than we do.

A. H. Belo’s newspaper publications generate significant percentages of their advertising revenues from limited numbers of sources, including automotive, employment, and real estate classified advertising. In recent years, Web sites dedicated to automotive, employment, and real estate advertising have become significant competitors of A. H. Belo’s newspapers and Web sites. As a result, even in the absence of a recession or

 

16


Table of Contents
Index to Financial Statements

economic downturn, technological, industry, or other changes specifically affecting these advertising sources could reduce advertising revenues and adversely affect A. H. Belo’s financial condition and results of operations.

A. H. Belo’s revenues primarily consist of advertising and paid circulation. Competition for advertising expenditures and paid circulation comes from local, regional, and national newspapers, magazines, broadcast, cable and satellite television, radio, direct mail, yellow pages, the Internet, outdoor billboards, and other media. Free circulation daily newspapers have been recently introduced in several metropolitan markets, and there can be no assurance that free daily publications, or other publications, will not be introduced in any markets in which A. H. Belo publishes its newspapers. The National Do Not Call Registry has affected the way newspapers solicit home-delivery circulation, particularly for larger newspapers that historically have relied on telemarketing. Competition for newspaper advertising revenue is based largely upon advertiser results, advertising rates, readership, demographics, and circulation levels, while competition for circulation is based largely upon the content of the newspaper, its price, editorial quality, customer service, and other sources of news and information. Our local and regional competitors in community newspapers are typically unique to each market, but we have competitors for advertising revenues that are larger and have greater financial and distribution resources than we do. Circulation revenues and our ability to achieve price increases for our print products may be affected by competition from other publications and other forms of media available in our various markets, declining consumer spending on discretionary items like newspapers, decreasing amounts of free time, and declining frequency of regular newspaper buying among certain demographics. A. H. Belo may incur higher costs competing for advertising dollars and paid circulation. If A. H. Belo is not able to compete effectively for advertising dollars and paid circulation, its revenues may decline and its financial condition and results of operations may be adversely affected.

Decreases, or slow growth, in circulation adversely affect A. H. Belo’s circulation and advertising revenues.

Advertising and circulation revenues are affected by circulation and readership levels. A. H. Belo’s newspaper properties, and the newspaper industry as a whole, are experiencing difficulty maintaining or increasing print circulation and related revenues. This is due to, among other factors, increased competition from new media formats and sources other than traditional newspapers (often free to users), and shifting preferences among some consumers to receive all or a portion of their news other than from a newspaper. These factors could affect A. H. Belo’s ability to institute circulation price increases for its print products.

A prolonged decline in circulation could affect the rate and volume of advertising revenues. To maintain our circulation base, A. H. Belo may incur additional costs, and may not be able to recover these costs through circulation and advertising revenues. To address declining circulation, A. H. Belo may increase spending on marketing designed to retain its existing subscriber base and continue or create niche publications targeted at specific market groups. A. H. Belo may also increase marketing efforts to drive traffic to its proprietary Web sites.

A. H. Belo anticipates that readership analyses will become increasingly important now that the Audit Bureau of Circulations has agreed to publish readership statistics and recognize Internet use in addition to circulation information. We believe this is a positive industry development but we cannot predict its effect on advertising revenues.

A significant increase in the cost of newsprint, or a reduction in the availability of newsprint, could adversely affect A. H. Belo’s publishing business.

The basic raw material for newspapers is newsprint. The cost of newsprint consumption related to A. H. Belo’s publications totaled approximately $108,000, $113,000, and $105,000 in 2004, 2005, and 2006, respectively, which was between approximately 13 percent and 14 percent of its revenues for those years. The price of newsprint historically has been volatile. Consolidation in the North American newsprint industry has

 

17


Table of Contents
Index to Financial Statements

reduced the number of suppliers as evidenced by the January 2007 announced merger between two of our largest newsprint suppliers. The industry-wide consolidations have led to paper mill closures and conversions to other grades of paper, which in turn have decreased overall newsprint capacity and increased the likelihood of future price increases. A. H. Belo currently purchases most of its newsprint through a purchasing consortium of which it is a member. A. H. Belo’s inability to obtain an adequate supply of newsprint in the future or significant increases in newsprint costs could affect its financial condition and results of operations.

Adverse results from pending or new litigation or governmental proceedings or investigations could adversely affect A. H. Belo’s financial condition and results of operations.

From time to time A. H. Belo and its subsidiaries are subject to litigation, governmental proceedings, and investigations. Current matters include those described under “Business—Legal Proceedings.” Adverse determinations in any of these pending or future matters could require A. H. Belo to make monetary payments or result in other sanctions or findings that could affect its business, financial condition, and results of operations.

A. H. Belo depends on key personnel, and it may not be able to operate and grow its business effectively if A. H. Belo loses the services of any of its senior executive officers or is unable to attract and retain qualified personnel in the future.

A. H. Belo depends on the efforts of its senior executive officers. The success of its business depends heavily on its ability to retain current management and to attract and retain qualified personnel in the future. Competition for senior management personnel is intense and A. H. Belo may not be able to retain its key personnel. A. H. Belo has not entered into employment agreements with its key management personnel and it does not have “key person” insurance for any of its senior executive officers or other key personnel. To mitigate this risk, A. H. Belo intends to adopt, effective on the distribution date, a change in control severance plan covering key management personnel that would be triggered under certain conditions if a change in control occurs.

A. H. Belo’s business may be negatively affected by work stoppages, slowdowns, or strikes by our employees.

Currently, one of A. H. Belo’s primary newspapers is party to collective bargaining agreements with unions representing approximately 530 of its employees. The bargaining agreement relating to the majority of these employees expires at the end of 2007, and all of these agreements will expire within approximately four years, unless extended. A. H. Belo cannot assure investors about the results of negotiation of future collective bargaining agreements, whether future collective bargaining agreements will be negotiated without interruptions in our business, or the possible effect of future collective bargaining agreements on our financial condition and results of operations. A. H. Belo also cannot assure investors that strikes or work stoppages will not occur in the future in connection with labor negotiations or otherwise. Any prolonged strike or work stoppage could have an adverse effect on A. H. Belo’s financial condition and results of operations.

 

18


Table of Contents
Index to Financial Statements

FORWARD-LOOKING STATEMENTS

The statements contained in this information statement concerning A. H. Belo’s business outlook or future economic performance, reasons for the distribution, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, future financings, or other financial and non-financial items that are not historical facts, including, but not limited to, statements found in the section entitled “Risk Factors,” are forward-looking statements that represent management’s current intent, belief, or expectations and assumptions based on currently available information. Forward-looking statements include, but are not limited to, the information concerning A. H. Belo’s possible or assumed future results of operations, revenue trends, business strategies, financings, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, changes resulting from the separation from Belo, effects of competition, and effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “will,” “should,” “anticipates,” “expects,” “could,” or comparable terminology or by discussions of strategies or trends. Although A. H. Belo believes that the expectations reflected in such forward-looking statements are reasonable, it cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this information statement. Although it is not possible to identify all factors, such risks, uncertainties, and factors include, but are not limited to, changes in advertising demand, interest rates, and newsprint prices; newspaper circulation matters, including changes in readership; circulation trends; technological changes; development of Internet commerce; changes in pricing or other actions by competitors and suppliers; regulatory changes; adoption of new accounting standards or changes in existing accounting standards by the Financial Accounting Standards Board or other accounting standard-setting bodies or authorities; the effects of acquisitions and dispositions; general economic conditions; and significant armed conflict and other factors beyond our control. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. A. H. Belo and Belo disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise after the date of this information statement.

The risk factors discussed in “Risk Factors” could cause A. H. Belo’s results to differ materially from those expressed in forward-looking statements. There may be, however, other risks and uncertainties that we are unable to predict at this time or that we do not currently expect to have a material adverse effect on A. H. Belo’s business.

 

19


Table of Contents
Index to Financial Statements

THE DISTRIBUTION

Introduction

On September 28, 2007, the board of directors of Belo authorized management to pursue the distribution of its newspaper business, subject to certain conditions, into a separate public company with its own management and board of directors. The distribution is expected to be accomplished by transferring the assets and liabilities of the newspaper business of Belo to A. H. Belo and then distributing all of the shares of A. H. Belo common stock to Belo’s shareholders. Belo’s shareholders will receive          share of A. H. Belo Series A common stock for every share of Belo Series A common stock and          share of A. H. Belo Series B common stock for every share of Belo Series B common stock outstanding on the record date as described below. Each share of A. H. Belo common stock will have attached to it one A. H. Belo preferred share purchase right. The distribution is expected to be effected on or about                     , 2007. The distribution will be made to holders of outstanding Belo common stock as of 5:00 p.m., Eastern Time, on                     , 2007, the record date for the distribution.

As a result of the distribution, 100 percent of the outstanding shares of A. H. Belo common stock will be distributed to Belo shareholders. Immediately following the distribution, Belo and its subsidiaries will not own any shares of A. H. Belo common stock and A. H. Belo will be a separate public company. The shares of A. H. Belo Series A common stock will be distributed by book entry. Instead of stock certificates, unless certificates are requested with required supporting information, each Belo shareholder that is a record holder of Belo shares will receive a statement of such shareholder’s book entry account for the shares of A. H. Belo Series A common stock distributed to such shareholder. Account statements reflecting ownership of the shares of A. H. Belo common stock will be mailed shortly after the distribution date. Shares of A. H. Belo common stock should be credited to accounts with brokers or nominees of Belo shareholders that are not record holders on or about                     , 2007. Stock certificates will be issued for shares of A. H. Belo Series B common stock.

A. H. Belo was incorporated on October 1, 2007, and its principal executive offices are located at 400 South Record Street, Dallas, Texas 75202.

A. H. Belo will own and operate the newspaper business and related businesses of Belo. Net operating revenues for A. H. Belo were approximately $817,733 and $367,989 for the fiscal year ended December 31, 2006, and the six months ended June 30, 2007, respectively. Following the distribution, Belo will continue to own the television business and related businesses.

Background of the Distribution

The board of directors and management of Belo regularly review strategy for the businesses conducted by Belo so that resources are deployed and activities are pursued in the best interests of its shareholders. At meetings held on July 26-27, 2007, Belo’s board met with management and outside legal advisors to discuss several structural alternatives to enhance shareholder value for the long-term. Among the possible alternatives discussed were the distribution of Belo’s newspaper businesses, the distribution of Belo’s television businesses, and the creation of a tracking stock tied to the performance of one of Belo’s business segments. Following the July 26-27, 2007 meetings, management, with outside advisors, narrowed its focus to the possible distribution of Belo’s newspaper businesses.

In August 2007, Belo engaged Goldman, Sachs & Co. to serve as a financial advisor in connection with the potential distribution and, as part of that engagement, to provide information to assist the board of directors in evaluating the transaction.

At its meeting held on September 10, 2007, the board of directors was updated on management’s evaluation of the possible distribution of the newspaper businesses and received advice from outside advisors, including Locke Lord, Baker Botts L.L.P., Goldman Sachs, and others. Locke Lord and Baker Botts made a presentation to the board of directors relating to the proposed structure of the distribution, the agreements required to effect the distribution, the board of directors’ fiduciary duties in considering the potential distribution, and other legal

 

20


Table of Contents
Index to Financial Statements

considerations, including the potential tax treatment of the distribution and Delaware statutory requirements for declaring a dividend. Representatives of Goldman Sachs reviewed various other structural alternatives to enhance shareholder value in the long-term, as well as the merits and other considerations of the distribution, and also presented analyses relating to the dividend policy, capitalization, governance structure, and other aspects of the potential stand-alone newspaper company, and a preliminary valuation analysis.

In September 2007, Belo also engaged Houlihan Lokey, Howard & Zukin Financial Advisors, Inc., as a financial advisor to render other advice to the board of directors of Belo and the board of directors of A. H. Belo.

At meetings held on September 26-28, 2007, management presented information to the board of directors relating to the potential distribution of the newspaper business, including an analysis of opportunities and risks and the strategic purposes of the distribution and the resulting companies. Belo’s management team provided information to the board relating to the newspaper business’ financial plans and goals, proposed capital structure, and opportunities and risks following a distribution. The board of directors received a proposed schedule for the potential distribution and financial analyses assuming a distribution of the newspaper business. Goldman Sachs presented its updated review and analysis of the proposed distribution and related matters. At the September 27, 2007 meeting, Houlihan Lokey presented its analyses with respect to the proposed distribution. Legal counsel reviewed the legal aspects of the distribution and related matters.

On September 28, 2007, following completion of all discussions, the board of directors unanimously approved proceeding with the proposed distribution. The primary bases for the decision of the board of directors of Belo are described below under “The Distribution—Reasons for the Distribution.”

Reasons for the Distribution

The board of directors and management of Belo believe that the distribution is in the best interests of Belo and its shareholders. Belo believes that the distribution will enhance value for Belo shareholders and give A. H. Belo the financial and operational flexibility to take advantage of opportunities in the newspaper sector. The board of directors and management of Belo considered the following potential benefits in making its determination to effect the distribution:

 

   

the newspaper and television businesses, once thought to be on a path towards convergence, are now moving in different directions as regulatory obstacles to cross-ownership remain and new technologies have altered the media landscape. Certain benefits from combinations of print and broadcast assets and their cooperative activities may be largely accomplished through various commercial partnerships and alliances.

 

   

the distribution will enhance A. H. Belo’s ability, and that of Belo, to respond to different industry dynamics and better focus on strategic initiatives and priorities. The newspaper and television businesses are undergoing profound fundamental changes to their underlying business models. A. H. Belo and Belo will focus on different issues in the future. After decades of relative stability in the newspaper and television business models, there is now uncertainty about what each business model will look like in the future. A separation will allow Belo and A. H. Belo to focus on the unique challenges of their individual businesses.

 

   

the transition to separate companies will allow the investment community to measure A. H. Belo’s performance and Belo’s performance relative to their respective peers. The newspaper and television businesses are fundamentally different and have different natural shareholder bases. A separation into two companies will result in the creation of more focused “pure-play” companies that are easier for the investment community to analyze.

 

   

the distribution will permit A. H. Belo greater flexibility to create a capital structure and deploy capital more closely aligned with A. H. Belo’s strategic priorities. With no initial debt, A. H. Belo can focus

 

21


Table of Contents
Index to Financial Statements
 

on investing in technology platforms which will likely become the core of its future business without concerns about servicing the higher debt loads more appropriate for television businesses. As a separate entity, A. H. Belo will not compete with the television business of Belo for capital resources and will be better positioned to fund the implementation of its business strategy. Further, investors will be able to understand better the differences between A. H. Belo’s newspaper business and Belo’s television business and to make investment decisions with respect thereto. Belo will benefit as well since its investors will not need to understand and make investment decisions with respect to the newspaper business. A. H. Belo and Belo will have the option to use their respective equity as acquisition or financing currency should the appropriate strategic opportunities arise.

 

   

the distribution will enable A. H. Belo to provide its management and employees with customized incentive compensation including in some cases equity ownership in A. H. Belo, thereby more closely aligning its interests with the interests of its shareholders. Given the changes occurring in A. H. Belo’s business, focusing and rewarding management and employees appropriately is important to its success. This should also enhance A. H. Belo’s ability to attract, retain, and motivate key employees.

Manner of Effecting the Distribution

The general terms and conditions relating to the distribution will be set forth in an agreement between A. H. Belo and Belo, which we refer to as the “separation and distribution agreement.” See “Relationships Between Belo and A. H. Belo Following the Distribution—Separation and Distribution Agreement.”

The distribution will be made on the basis of          share of A. H. Belo Series A common stock for every share of Belo Series A common stock and          share of A. H. Belo Series B common stock for every share of Belo Series B common stock outstanding on the record date. The actual total number of shares of A. H. Belo common stock to be distributed will depend on the number of Belo shares outstanding on the record date. Based upon the number of Belo Series A and Series B shares outstanding on                     , 2007, approximately              shares of A. H. Belo Series A common stock and              shares of A. H. Belo Series B common stock will be distributed to Belo shareholders. The shares of A. H. Belo common stock to be distributed will constitute 100 percent of the outstanding shares of A. H. Belo common stock. Immediately following the distribution, Belo and its subsidiaries will not own any shares of A. H. Belo common stock and A. H. Belo will be a separate public company.

A delivery of a share of A. H. Belo common stock in connection with the distribution also will constitute the delivery of the A. H. Belo preferred share purchase right associated with the share. The existence of the preferred share purchase rights may deter a potential acquiror from making a hostile takeover proposal or a tender offer. For a more detailed discussion of these rights, see “Certain Anti-Takeover Provisions.”

When and How You Will Receive A. H. Belo Common Stock

Belo will use a book entry system to distribute shares of A. H. Belo Series A common stock. No stock certificates will be issued for A. H. Belo Series A shares unless the holder requests such certificates and provides the required information. Following the distribution, each record holder of Belo common stock on the record date will receive from the distribution agent a statement of the amount of shares of A. H. Belo Series A common stock credited to his or her account or, in the case of A. H. Belo Series B shares, certificates will be issued to each record holder. If you are not a record holder of Belo Series A common stock because your shares are held on your behalf by your broker or other nominee, your shares of A. H. Belo Series A common stock should be credited to your account with your broker or nominee on or about                     , 2007.

Stock certificates will be issued for shares of A. H. Belo Series B common stock on or about             , 2007.

No Belo shareholder will be required to pay any cash or other consideration for shares of A. H. Belo common stock received in the distribution, or to surrender or exchange Belo shares in order to receive shares of

 

22


Table of Contents
Index to Financial Statements

A. H. Belo common stock. No vote of Belo shareholders is required or sought in connection with the distribution, and Belo shareholders will have no appraisal rights in connection with the distribution.

In order to receive shares of A. H. Belo common stock in the distribution, Belo shareholders must be shareholders as of 5:00 p.m., Eastern Time, on the record date.

Treatment of Fractional Shares

The transfer agent will not deliver any fractional shares of A. H. Belo common stock in connection with the distribution. Instead, the transfer agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon as practicable after the distribution date. Those holders will then receive a cash payment, in the form of a check, in an amount equal to their pro rata share of the total proceeds of those sales. Any applicable expenses, including brokerage fees, will be paid by us. If you physically hold Belo stock certificates, your check for any cash that you may be entitled to receive instead of fractional shares of A. H. Belo common stock will be mailed to you separately.

It is expected that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures. You should contact your broker or other nominee for additional details.

None of Belo, A. H. Belo, or the transfer agent will guarantee any minimum sale price for the fractional shares of A. H. Belo common stock. Neither A. H. Belo nor Belo will pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient shareholders. See “The Distribution—United States Federal Income Tax Consequences of the Distribution.”

Treatment of Stock Options and Restricted Stock Units

Currently, stock options and restricted stock units (“RSUs”) are outstanding under the Belo Executive Compensation Plan. Each outstanding Belo stock option will be divided into two stock options: (1) an adjusted Belo stock option covering the same number of shares as the existing option but with an exercise price adjusted to reflect the value of A. H. Belo stock distributed to Belo shareholders; and (2) a new A. H. Belo stock option to acquire the number of shares of A. H. Belo Series B common stock equal to the product of the number of Belo stock options held by the person at the time of the distribution and the distribution ratio. The exercise price of the new A. H. Belo stock option will be established by reference to the relative trading value of the A. H. Belo and Belo common stock on the distribution date.

The RSUs will be treated for purposes of the distribution as if they were issued and outstanding shares. The Belo RSUs and the A. H. Belo RSUs, taken together, will have the same aggregate value, based on the closing prices of the Belo stock and the A. H. Belo stock on the distribution date, as the current RSUs immediately prior to the distribution. Each stock option and RSU (Belo and A. H. Belo) will otherwise have the same terms as the current award. The awards will continue to vest as under the existing vesting schedule based on continued employment with Belo or A. H. Belo, as applicable.

Results of the Distribution

After the distribution, A. H. Belo will be a separate public company operating the newspaper businesses and related businesses. Immediately after the distribution, A. H. Belo expects to have approximately              holders of record of A. H. Belo Series A and Series B shares, respectively, and approximately              and              shares of Series A and Series B common stock outstanding, respectively, based on the number of shareholders of record and outstanding Belo shares on                     , 2007 and the distribution ratio of         share of A. H. Belo Series A common stock for every share of Belo Series A common stock and         share of A. H. Belo Series B common stock for every share of Belo Series B common stock. The actual number of shares of A. H. Belo common stock to be distributed will be determined as of the record date. The distribution will not affect the number of outstanding Belo shares or any rights of Belo shareholders.

 

23


Table of Contents
Index to Financial Statements

Listing and Trading of the Shares of A. H. Belo Common Stock

You should consult and discuss with your own financial advisors, such as your broker or tax advisor, regarding the retention, sale or purchase of, or other transactions involving, shares of Belo common stock or shares of A. H. Belo common stock. Belo and A. H. Belo do not make recommendations on the retention, sale or purchase of, or other transactions involving, shares of Belo common stock or shares of A. H. Belo common stock. If you do decide to sell any shares, you should make sure your broker or other nominee understands whether you want to sell your shares of Belo common stock, your shares of A. H. Belo common stock, or both.

The following information may be helpful in discussions with your broker or other nominee.

Currently, there is no public market for the shares of A. H. Belo Series A common stock and A. H. Belo Series B common stock and these shares are not listed on any exchange. Also, the shares of A. H. Belo Series B common stock will not be listed on any exchange and such shares are subject to certain transfer restrictions. See “Description of Capital Stock—Transfer Restrictions.”

It is expected that “when-issued” trading of the shares of A. H. Belo Series A common stock would begin prior to the distribution date. In the context of a distribution, when-issued trading refers to securities transactions made on or before the distribution date and made conditionally because the securities of the distributed entity have not yet been distributed. When-issued trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, all when-issued trading, if any, will end and “regular-way” trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the transaction. If the distribution does not occur, all when-issued trading will be null and void.

Application will be made to list the shares of A. H. Belo Series A common stock on the NYSE. If a when-issued market for A. H. Belo Series A common stock develops, a listing with a distinct listing symbol for A. H. Belo Series A when-issued common stock may appear on the NYSE.

Shortly before the record date for the distribution, Belo’s Series A common stock will likely begin to trade in two markets on the NYSE: a regular way market and an “ex-distribution” market. Between the record date and consummation of the distribution, shares of Belo Series A common stock that are sold on the regular way market will include an entitlement to receive shares of A. H. Belo Series A common stock distributable in the distribution. Conversely, shares sold in the ex-distribution market will not include an entitlement to receive shares of A. H. Belo Series A common stock distributable in the distribution, as the entitlement will remain with the original holder. Therefore, if you own shares of Belo Series A common stock on the record date and thereafter sell those shares in the regular way market on or prior to the distribution date, you will also be selling the shares of A. H. Belo Series A common stock that would have been distributed to you in the distribution with respect to the shares of Belo Series A common stock you sell. If you own shares of Belo Series A common stock on the record date and thereafter sell those shares in the ex-distribution market on or prior to the distribution date, you will still receive the shares of A. H. Belo Series A common stock in the distribution. On the first trading day following the distribution date, shares of Belo Series A common stock will begin trading without any entitlement to receive shares of A. H. Belo Series A common stock.

Shares of A. H. Belo Series A common stock distributed to Belo shareholders will be freely transferable, except for such shares that are distributed to persons who are “affiliates” under the Securities Act of 1933, as amended (the “Securities Act”). Individuals or entities may be deemed to be A. H. Belo affiliates if they control, are controlled by, or are under common control with, A. H. Belo; such persons may include certain of our directors, officers, and significant shareholders. In addition, individuals who are affiliates of Belo on the distribution date may be deemed to be affiliates of A. H. Belo. Persons who are A. H. Belo affiliates will be permitted to sell their shares of A. H. Belo Series A common stock only pursuant to an effective registration statement under the Securities Act, an exemption from the registration requirements of the Securities Act, or

 

24


Table of Contents
Index to Financial Statements

pursuant to Rule 144 under the Securities Act. In general, under Rule 144, an affiliate who receives shares of A. H. Belo common stock in the distribution is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

 

   

one percent of the then-outstanding shares of common stock; and

 

   

the average weekly trading volume of the A. H. Belo Series A common stock during the four calendar weeks preceding the date on which the notice of the sale is filed with the Securities and Exchange Commission (the “SEC”).

Sales under Rule 144 are also subject to provisions relating to notice, manner of sale, volume limitations, and the availability of current public information about A. H. Belo.

Shares of A. H. Belo Series B common stock distributed to Belo shareholders are subject to transfer restrictions. Shares of A. H. Belo Series B common stock are convertible on a one-for-one basis into shares of A. H. Belo Series A common stock at any time, at the holder’s option, and automatically upon the occurrence of certain events. Shares of A. H. Belo Series A common stock received upon a conversion of shares of A. H. Belo Series B common stock may be sold only pursuant to an effective registration statement under the Securities Act, an exemption from the registration requirements of the Securities Act, or pursuant to Rule 144 after 90 days have expired since the date that the registration statement of which this information statement is a part was declared effective. This limitation on the sale of shares of A. H. Belo Series A common stock received upon conversion applies both to persons who are affiliates of A. H. Belo and to persons who are not affiliates of A. H. Belo. A. H. Belo intends to file a registration statement on Form S-3 after the first anniversary of the distribution date registering a sufficient number of shares of A. H. Belo Series A common stock to cover future conversions of shares of A. H. Belo Series B common stock. Prior to the effective date of such registration statement, affiliates and non-affiliates of A. H. Belo may sell any shares of A. H. Belo Series A common stock received upon conversion pursuant to Rule 144 as described above. After the effective date of such registration statement, non-affiliates may freely transfer their shares of A. H. Belo Series A common stock, but affiliates of A. H. Belo must still comply with Rule 144 as described above.

It is believed that persons who after the distribution will beneficially own approximately              or more shares of A. H. Belo Series A common stock, or approximately          percent or more of the outstanding shares of A. H. Belo Series A common stock, will be deemed to be our affiliates.

There can be no assurance as to whether the shares of A. H. Belo Series A common stock will be actively traded or as to the prices at which the shares of A. H. Belo Series A common stock will trade. Until the shares of A. H. Belo Series A common stock are fully distributed and an orderly regular-way market develops, the prices at which the shares of A. H. Belo Series A common stock trade may fluctuate significantly and may be lower than the price that may be expected for a fully distributed issue. Prices for shares of A. H. Belo Series A common stock in the marketplace will be influenced by many factors. For a detailed discussion of these and other risks, please refer to “Risk Factors.”

Following the distribution, Belo expects that its Series A common stock will continue to be listed and traded on the NYSE under the symbol “BLC.” As a result of the distribution, the trading price of Belo Series A common stock immediately following the distribution may be lower than the trading price of Belo Series A common stock immediately prior to the distribution. Further, the combined trading prices of Belo Series A common stock and A. H. Belo Series A common stock after the distribution may be less than the trading prices of Belo Series A common stock immediately prior to the distribution.

Even though Belo is currently a publicly-held company, there can be no assurance as to the prices at which the Belo Series A common stock will trade following the distribution. Some Belo shareholders may decide that they do not want shares in a company that participates only in the television business, and may sell their Belo Series A common stock following the distribution. This and other factors may delay or hinder the return to an orderly trading market in the Belo Series A common stock following the distribution. The nature of the trading

 

25


Table of Contents
Index to Financial Statements

market and prices for Belo Series A common stock after the distribution will be influenced by many factors. For a detailed discussion of these and other risks, please refer to “Risk Factors.”

United States Federal Income Tax Consequences of the Distribution

The following is a summary of the material United States federal income tax consequences of the distribution to A. H. Belo, Belo, and the shareholders of Belo. This summary is not a complete description of those tax consequences and, in particular, may not address United States federal income tax considerations that affect the treatment of a shareholder who acquired Belo common stock as compensation or the treatment of a shareholder subject to special treatment under the Internal Revenue Code (for example, foreign persons, insurance companies, financial institutions, dealers in securities, or tax-exempt organizations). Your individual circumstances may affect the tax consequences of the distribution to you. In addition, no information is provided herein with respect to tax consequences under potentially applicable foreign, state, local, or other laws, other than United States federal income tax laws. Further, this summary is based on provisions of the Internal Revenue Code, applicable treasury regulations thereunder, judicial decisions, and IRS rulings in effect as of the date of this information statement. Future legislative, administrative, or judicial changes or interpretations could affect the accuracy of the statements set forth herein, and could apply retroactively. You are advised to consult your own tax advisor as to the specific tax consequences of the distribution to you.

General. Belo has requested a private letter ruling from the IRS to the effect that the distribution of A. H. Belo common stock in the distribution will qualify as a tax-free transaction under section 355 of the Internal Revenue Code. The ruling is expected to provide that, for United States federal income tax purposes:

 

   

no gain or loss will be recognized by Belo on the distribution.

 

   

no gain or loss will be recognized by, and no amount otherwise will be included in the income of, a Belo shareholder on the distribution, except to the extent that cash is received instead of a fractional share of A. H. Belo common stock.

 

   

a Belo shareholder who receives shares of A. H. Belo common stock in the distribution will have an aggregate basis in the holder’s shares of A. H. Belo common stock (including any fractional share of A. H. Belo common stock to which the holder is entitled) and the holder’s shares of Belo common stock immediately after the distribution equal to the holder’s aggregate basis in the holder’s shares of Belo common stock immediately before the distribution, which basis will be allocated between the holder’s shares of Belo common stock and shares of A. H. Belo common stock in proportion to their relative fair market values on the distribution date.

 

   

the holding period for the shares of A. H. Belo common stock received by a Belo shareholder will include the holding period for the shares of Belo common stock with respect to which the shares of A. H. Belo common stock are received, provided that such shares of Belo common stock are held as capital assets on the distribution date.

 

   

a shareholder of Belo who receives cash instead of a fractional share of A. H. Belo common stock will recognize capital gain or loss on the sale of the fractional share equal to the difference between the cash received and the shareholder’s basis in the fractional share (as determined above), provided that such fractional share is considered to be held as a capital asset.

A private letter ruling, while generally binding on the IRS, may under certain circumstances be retroactively revoked or modified by the IRS. A private letter ruling is based on the facts and representations presented to the IRS in the request for the ruling. Generally, a private letter ruling will not be revoked or modified retroactively if there has been no misstatement or omission of material facts, so long as the facts at the time of the transaction are not materially different from the facts upon which the private letter ruling was based, and there has been no change in the applicable law. We are not aware of any facts or circumstances that would cause any of the representations in the ruling request to be untrue or incomplete.

 

26


Table of Contents
Index to Financial Statements

Under its current policy, the IRS will not rule on whether a distribution satisfies the following three requirements under section 355 of the Internal Revenue Code: (1) whether a distribution is being carried out for one or more corporate business purposes; (2) whether a distribution is being used principally as a device for the distribution of corporate earnings and profits; and (3) whether a distribution and an acquisition are part of a plan described in section 355(e) of the Internal Revenue Code. Instead, Belo was required to submit representations to the Internal Revenue Service that there is a valid business purpose for the distribution, the distribution is not being used as a device for the distribution of corporate earnings and profits, and the distribution is not part of a plan described in section 355(e) of the Internal Revenue Code. If these representations are incorrect or incomplete in any material respect, the distribution would be taxable to Belo and possibly its shareholders.

In addition to obtaining a private letter ruling, we and Belo expect to obtain, at or around the time of the distribution, an opinion from Locke Lord that the distribution will qualify as a transaction described in section 355 of the Code. The opinion of counsel will rely on the private letter ruling as to matters covered by the ruling. It will also be subject to certain assumptions and based on the accuracy and completeness of certain factual representations and statements made by Belo and A. H. Belo. If these assumptions and factual representations were incorrect or incomplete in any material respect, the conclusions set forth in the opinion may not be correct. Further, the opinion represents the views of Locke Lord as to the interpretation of existing tax law and, accordingly, such opinion is not binding on the IRS or the courts. No complete assurance can be given that the IRS or the courts will agree with the opinion.

If the distribution does not qualify for tax-free treatment under section 355 of the Internal Revenue Code, (1) Belo would recognize taxable gain based upon the excess of the fair market value of the shares of A. H. Belo common stock on the distribution date, over Belo’s adjusted tax basis for such shares on such date, and (2) each Belo shareholder who receives shares of A. H. Belo common stock in the distribution would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of such shares on the distribution date, taxed first as a dividend to the extent of such holder’s pro rata share of Belo’s current and accumulated earnings and profits (as increased to reflect any gain recognized by Belo on a taxable distribution as discussed above), and then as a nontaxable return of capital to the extent of such holder’s tax basis in the shares of Belo stock, with any remaining amount being taxed as capital gain (provided that the Belo shares were held by the shareholder as a capital asset on the distribution date). Corporate shareholders may be subject to additional special provisions dealing with taxable distributions, such as the dividends received deduction and the extraordinary dividend rules.

Even if the distribution otherwise qualifies for tax-free treatment under section 355 of the Internal Revenue Code, it might be taxable to Belo (but not its shareholders) under section 355(e) if 50 percent or more of the voting power or value of Belo stock, or 50 percent or more of the voting power or value of A. H. Belo stock, is acquired as part of a “plan (or series of related transactions)” that includes the distribution. For this purpose, any acquisitions of the stock of Belo, or of A. H. Belo stock, that occur within two years before or after the distribution (subject to certain exceptions including an exception for public trading) are presumed to be part of such a plan, although Belo may be able to rebut that presumption. If such an acquisition of the stock of Belo, or of A. H. Belo stock, triggers the application of section 355(e), Belo would recognize taxable gain as described above, but the distribution would generally remain tax-free to the Belo shareholders.

Indemnification. A. H. Belo will be obligated to indemnify Belo under the tax matters agreement for certain tax matters. If triggered, A. H. Belo’s indemnification obligation could have a material adverse effect on the results of its operations and financial position. For a description of the agreement pursuant to which Belo and A. H. Belo have provided for certain tax matters and other tax-related matters, see “Relationships Between Belo and A. H. Belo Following the Distribution—Tax Matters Agreement.”

Tax Return Statement. United States Treasury regulations require you to attach a detailed statement to your United States federal income tax return for the taxable year, in which the distribution occurs, setting forth certain information regarding the distribution. Within a reasonable period of time following the distribution, Belo will

 

27


Table of Contents
Index to Financial Statements

provide, or make available, appropriate information to each holder of record of Belo common stock as of the record date to assist them in meeting this requirement.

Regulatory Approval

Apart from the registration under United States federal securities laws of shares of the two series of A. H. Belo common stock to be distributed in the distribution, and the related NYSE listing requirements, we do not believe that any other material governmental or regulatory filings or approvals will be necessary to consummate the distribution. The distribution will not affect the ownership or control of Belo’s television stations or its television licensee subsidiaries; consequently, FCC approval will not be required in connection with the distribution with respect to any of the television station licenses. The FCC’s consent will be required with respect to the pro forma transfer to A. H. Belo of certain private business radio licenses associated with newspaper operations.

No Appraisal Rights

Under the Delaware General Corporation Law, Belo shareholders will not have appraisal rights in connection with the distribution.

 

28


Table of Contents
Index to Financial Statements

RELATIONSHIPS BETWEEN BELO AND A. H. BELO FOLLOWING THE DISTRIBUTION

For purposes of governing the separation of A. H. Belo from Belo as well as certain of the ongoing relationships between Belo and A. H. Belo after the distribution, A. H. Belo expects to enter into the agreements with Belo described in this section. The forms of agreements summarized in this section will be included as exhibits to the registration statement on Form 10 that relates to this information statement and filed with the SEC. The following summaries are intended as overviews only and are qualified in their entirety by reference to the agreements as filed. See “Where You Can Find More Information.”

Separation and Distribution Agreement

General. The separation and distribution agreement will contain the key provisions relating to the separation of A. H. Belo’s business from that of Belo and the distribution of all of Belo’s shares of A. H. Belo common stock to holders of Belo common stock entitled to such distribution, as described under “The Distribution.” The separation and distribution agreement will identify the assets to be transferred, liabilities to be assumed, and contracts to be assigned to A. H. Belo by Belo and by A. H. Belo to Belo in the distribution, and describe when and how these transfers, assumptions, and assignments will occur. It will also include procedures by which A. H. Belo and Belo will become separate companies. In addition, it will contain the conditions that must be satisfied, or waived by Belo, prior to the separation and the completion of the distribution. In addition, A. H. Belo will enter into certain ancillary agreements with Belo governing various interim and ongoing relationships between A. H. Belo and Belo following the distribution date. These ancillary agreements include the following:

 

   

transition services agreement.

 

   

tax matters agreement.

 

   

employee matters agreement.

 

   

other agreements.

A. H. Belo and Belo intend to execute the separation and distribution agreement and the ancillary agreements before the distribution.

Recapitalization, Contribution, and Separation. The separation and distribution agreement will provide that, subject to the terms and conditions contained in the agreement and prior to the distribution:

 

   

Belo will recapitalize A. H. Belo’s capital stock.

 

   

Belo will contribute all of the assets of its newspaper business to A. H. Belo, and A. H. Belo will assume all liabilities related to such assets.

 

   

Belo will assign, or cause to be assigned, and A. H. Belo will assume, or cause to be assumed, certain contracts relating to its business and A. H. Belo will assign, or cause to be assigned, and Belo will assume, or cause to be assumed, certain contracts relating to its business.

 

   

Belo will contribute to the capital of A. H. Belo all inter-company indebtedness owed by A. H. Belo to Belo or assign the notes to A. H. Belo on or prior to the distribution.

Conditions. The separation and distribution agreement will provide that the following conditions must be satisfied or waived before or as of the date of the distribution for the distribution to occur:

 

   

the SEC has declared A. H. Belo’s registration statement on Form 10 effective, and there has been no suspension, withdrawal, or stop-order in effect with respect thereto and no proceeding for that purpose has been instituted by the SEC.

 

   

the NYSE has approved the listing of A. H. Belo’s Series A common stock, subject to official notice of issuance.

 

29


Table of Contents
Index to Financial Statements
   

the actions and filings with regard to state securities and “blue sky” laws of the United States (and any comparable law under any foreign jurisdiction) have been taken and, where applicable, have become effective or accepted.

 

   

there has been no order, injunction, or decree issued by any court or agency of competent jurisdiction or other legal constraint or prohibition, which remains in effect, preventing the consummation of the transactions contemplated by the separation and distribution agreement.

 

   

Belo shall have received an opinion from Locke Lord, satisfactory to Belo, to the effect that the distribution of A. H. Belo’s shares by Belo to its shareholders will qualify as a distribution that is tax free under section 355 and related provisions of the IRS, and the private letter ruling issued to Belo by the IRS regarding the tax free status of the distribution shall not have been revoked or materially amended.

 

   

all material consents and governmental approvals necessary to consummate the transactions contemplated by the separation and distribution agreement have been obtained and are in full force and effect.

 

   

the Belo board of directors is satisfied that the distribution is lawful under applicable state and federal law.

 

   

the Belo board of directors has approved the separation and the distribution in its sole and absolute discretion and not abandoned or revoked the distribution at any time before the completion of the distribution.

 

   

A. H. Belo’s certificate of incorporation and bylaws, as filed as exhibits to the Form 10 and described in this information statement, are in effect.

 

   

the various ancillary agreements described in this information statement have been executed and delivered by the parties thereto, including the following:

 

   

transition services agreement.

 

   

tax matters agreement.

 

   

employee matters agreement.

 

   

other agreements.

 

   

no other events or developments have occurred subsequent to the date of the separation and distribution agreement that, in the judgment of Belo, would result in the distribution having an adverse effect on Belo or on the shareholders of Belo.

 

   

the separation and distribution agreement has not been terminated.

Mutual Releases and Indemnification. In the separation and distribution agreement, effective as of the distribution date, A. H. Belo and Belo will release and discharge each other, and certain related parties, from all liabilities existing or arising from acts and events occurring, or failing to occur (or alleged to have occurred or to have failed to occur), and all conditions existing (or alleged to have existed) on or before the distribution date, other than, among other things, liabilities provided in or resulting from continuing agreements between Belo and A. H. Belo; provided, however, that under the terms of the separation and distribution agreement, Belo and A. H. Belo will share equally in any liabilities, net of any applicable insurance, resulting from the two circulation-related lawsuits described under “Business—Legal Proceedings.”

A. H. Belo has agreed to indemnify Belo and certain persons related to Belo from and against any and all damages, losses, liabilities, and expenses relating to, arising out of, or resulting from, among other things:

 

   

A. H. Belo’s failure or the failure of certain related persons to discharge any liability (the “A. H. Belo Liabilities”) relating to, arising out of, or resulting from, A. H. Belo’s operation of the newspaper and

 

30


Table of Contents
Index to Financial Statements
 

related businesses and operations, each as conducted on the distribution date (the “A. H. Belo Businesses”).

 

   

the A. H. Belo Businesses, all assets used in connection with the A. H. Belo Businesses and the A. H. Belo Liabilities.

 

   

a material breach by A. H. Belo of the separation and distribution agreement or the various ancillary agreements described in this information statement.

Belo has agreed to indemnify A. H. Belo and certain persons related to A. H. Belo from and against any and all damages, losses, liabilities, and expenses relating to, arising out of, or resulting from, among other things:

 

   

Belo’s failure or the failure of certain related persons to discharge any liability relating to, arising out of, or resulting from the operation of Belo’s business (excluding the A. H. Belo Businesses).

 

   

Belo’s business (excluding the A. H. Belo Businesses).

 

   

a material breach by Belo of the separation and distribution agreement or the various ancillary agreements described in this information statement.

None of these indemnities apply to indemnification for income tax liabilities which are addressed in the tax matters agreement described below under “Tax Matters Agreement.” The separation and distribution agreement includes procedures for notice and payment of indemnification claims and, generally, provides that the indemnifying party may assume the defense of a claim or suit brought by a third party. Any indemnification amount paid under the indemnities will be paid net of the amount of any insurance or other amounts that would be payable by any third party to the indemnified party in the absence of the indemnity. In addition, the separation and distribution agreement provides that if indemnification is unavailable or insufficient to hold the indemnified party harmless, the indemnifying party will contribute to the amount paid or payable in a manner appropriate to reflect all relevant equitable considerations.

Access to Information; Provision of Witnesses; Confidentiality. Under the separation and distribution agreement, A. H. Belo and Belo will allow each other and their specified representatives reasonable access to all records in their possession relating to the business and affairs of the other party as reasonably required. Access will be allowed for such purposes as audit, accounting, litigation, disclosure reporting, and regulatory compliance. Each party will also use reasonable efforts to make available to the other party and its accountants, counsel, and other designated representatives, upon written request, its directors, officers, employees, and representatives as witnesses and will otherwise cooperate with the other party in connection with any proceeding arising out of its or the other party’s business and operations before the distribution. Subject to limited exceptions, A. H. Belo, Belo, and their respective directors, officers, employees, agents, consultants, and advisors will hold in strict confidence all information in its or their possession concerning the other party.

Transaction Expenses. The separation and distribution agreement will provide that each of Belo and A. H. Belo bear the transaction expenses incurred by it in connection with the distribution.

Transition Services Agreement

The separation and distribution agreement will provide that prior to completion of the distribution, A. H. Belo will enter into a transition services agreement with Belo pursuant to which A. H. Belo and Belo will provide certain services to each other on a compensated basis.

The transition services will generally be provided for a term beginning on the distribution date and expiring on the earlier to occur of the second anniversary of the distribution date and the date of termination of a particular service pursuant to the agreement. The party receiving a service can generally terminate provision of that service upon 90 days advance notice to the party providing the service.

 

31


Table of Contents
Index to Financial Statements

Payments made or other consideration provided in connection with all continuing transactions between A. H. Belo and Belo will be on a fair market value basis arrived at by the parties bargaining at arms-length or with respect to transitional services not inconsistent with the business purpose of the parties.

Generally, neither A. H. Belo nor Belo will be liable to the other for any failure to provide the services under the transition services agreement, except in the case of intentional breach, fraud, gross negligence, or willful misconduct.

Tax Matters Agreement

A. H. Belo will enter into a tax matters agreement with Belo on the distribution date that sets out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local, or foreign taxes for periods before and after the distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Under this agreement, Belo will be responsible for all income taxes prior to the distribution, except current income taxes accrued by A. H. Belo and its subsidiaries. With respect to all other taxes, A. H. Belo will be responsible for taxes attributable to the newspaper business and related businesses, and Belo will be responsible for taxes attributable to the television business and related businesses. In addition, A. H. Belo will indemnify Belo, and Belo will indemnify A. H. Belo, for all taxes and liabilities incurred as a result of post-distribution actions or omissions by the indemnifying party that affect the tax consequences of the distribution.

Employee Matters Agreement

A. H. Belo will enter into an employee matters agreement with Belo prior to the distribution that will govern our compensation and employee benefit obligations with respect to our current and former employees. The employee matters agreement will allocate liabilities and responsibilities relating to employee compensation and benefits plans and programs and other related matters in connection with the distribution, including, without limitation, the treatment of outstanding Belo equity awards, certain outstanding annual and long-term incentive awards, existing deferred compensation obligations, and certain retirement and welfare benefit obligations. In connection with the distribution, we expect to adopt, for the benefit of our employees, a variety of compensation and employee benefits plans that are comparable in the aggregate to those of Belo. Once we establish our own compensation and benefits plans, we reserve the right to amend, modify, or terminate each such plan in accordance with the terms of that plan, our policies, and the employee matters agreement. With certain exceptions, the employee matters agreement will provide that as of the close of the distribution, our employees will generally cease to be active participants in, and we will generally cease to be a participating employer in, the benefit plans and programs maintained by Belo. As of such time, our employees will generally become eligible to participate in all of our applicable plans. In general, we will credit each of our employees with his or her service with Belo prior to the distribution for all purposes under plans maintained by A. H. Belo, to the extent the corresponding Belo plans give credit for such service and such crediting does not result in a duplication of benefits.

The employee matters agreement will provide that as of the distribution date, except as specifically provided therein, A. H. Belo generally will assume, retain, and be liable for all wages, salaries, welfare, incentive compensation, and employee-related obligations and liabilities for all current and former employees of the A. H. Belo Businesses. Belo will generally retain responsibility for, and will pay and be liable for, all employment-related obligations and liabilities with respect to current employees that are not otherwise transferred to employment with us in connection with the distribution. In specific instances addressed in the employee matters agreement, Belo will retain responsibility for, and will pay and be liable for, certain employment-related obligations and liabilities for certain of our employees (including both current and former employees). The employee matters agreement will also provide for the transfer of assets and liabilities relating to the pre-distribution participation of our employees in certain Belo employee benefit plans, other than the pension plan, from such plans to the applicable plans we adopt for the benefit of our employees.

 

32


Table of Contents
Index to Financial Statements

Other Agreements

In addition to the separation and distribution agreement, tax matters agreement, and transition services agreement, Belo’s Dallas/Fort Worth television station, WFAA-TV, and The Dallas Morning News, owned by A. H. Belo, intend to enter into an agreement whereby each agrees to provide media content, cross-promotion, and other services to the other on a reasonable basis. Also, Belo Technologies and BIM, both owned by A. H. Belo, will enter into agreements with Belo relating to the provision of certain information technology and Web site maintenance services to Belo on a reasonable basis.

FINANCING ARRANGEMENTS

A. H. Belo intends to enter into a revolving credit agreement with one or more lending institutions in a dollar amount to be determined, such agreement to be effective as of the distribution date. On the distribution date, A. H. Belo is expected to have no outstanding debt.

DIVIDEND POLICY

After the distribution, A. H. Belo intends to adopt a policy of paying, subject to legally available funds, a quarterly cash dividend on outstanding shares of its common stock, which dividend initially is expected to be at an annual rate of $     per share. The declaration and payment of dividends, including the initial dividend, is subject to the discretion of A. H. Belo’s board of directors, and any determination as to the payment of such dividends, as well as the amount and timing of such dividends, will depend on, among other things, A. H. Belo’s results of operations and financial condition, earnings, capital requirements, debt covenants, other contractual restrictions, prospects, applicable law, general economic and business conditions, and other factors that A. H. Belo’s board of directors deems relevant. A. H. Belo cannot provide any assurance that any dividends will be declared and paid.

 

33


Table of Contents
Index to Financial Statements

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma financial statements presented below consist of the unaudited pro forma balance sheet as of June 30, 2007, the unaudited pro forma statement of operations for the year ended December 31, 2006, and the unaudited pro forma statement of operations for the six months ended June 30, 2007. The unaudited pro forma financial statements presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements, and the notes related thereto, included elsewhere in this information statement. The unaudited pro forma financial statements have been prepared giving effect to the elimination of the notes payable to Belo and the distribution as if these transactions occurred as of June 30, 2007, for the unaudited pro forma balance sheet, and as of January 1, 2006, for the unaudited pro forma statements of operations.

In anticipation of the distribution, Belo and A. H. Belo will enter into a separation and distribution agreement with Belo under which Belo will transfer all of the assets and liabilities associated with its newspaper business to A. H. Belo. The assets and liabilities transferred to A. H. Belo will be recorded at historical cost as a reorganization of entities under common control. Management expects that the shares of A. H. Belo will be distributed to Belo shareholders in the form of a tax-free dividend. Shareholders who own shares of Belo Series A common stock or Belo Series B common stock on the record date will receive shares of A. H. Belo Series A common stock or A. H. Belo Series B common stock, respectively, based on the distribution ratio, which will be determined prior to the record date. The distribution will result in A. H. Belo operating as a separate public company. Belo will not have any ownership interest in A. H. Belo subsequent to the distribution, but will continue to conduct business with A. H. Belo pursuant to various inter-company agreements that are discussed under the heading “Relationships Between Belo and A. H. Belo Following the Distribution” of this information statement.

Certain subsidiaries of Belo that will be transferred to A. H. Belo have entered into notes payable arrangements with Belo. The notes accrue interest at prime plus one percent and have various payment terms. In conjunction with the proposed distribution, Belo will contribute these notes to the capital of the A. H. Belo or assign the notes to A. H. Belo.

The unaudited pro forma balance sheet and unaudited pro forma statements of operations included in this information statement have been derived from our financial statements included elsewhere in this information statement and do not purport to represent what our financial position and results of operations actually would have been had the distribution and related transactions occurred on the dates indicated or to project our financial performance for any future period.

 

34


Table of Contents
Index to Financial Statements

A. H. BELO CORPORATION

UNAUDITED PRO FORMA BALANCE SHEET

As of June 30, 2007

Assets

 

(In thousands)

   A. H. Belo
Businesses
Historical
   Pro Forma
Adjustments
   

A. H. Belo
Corporation

Pro Forma

Current assets:

       

Cash and temporary cash investments

   $ 9,405    $ —       $ 9,405

Accounts receivable—net

     85,740      —         85,740

Inventories

     16,465      —         16,465

Deferred income taxes

     4,567      —         4,567

Other current assets

     10,937      —         10,937
                     

Total current assets

     127,114      —         127,114

Property, plant and equipment, net

     308,328      —         303,081

Intangible assets, net

     43,675      —         43,675

Goodwill, net

     464,091      —         464,091

Other assets

     26,151      —         26,151
                     

Total assets

   $ 969,359    $ —       $ 964,112
                     

Current liabilities:

       

Accounts payable

   $ 21,641    $ —       $ 21,641

Accrued compensation and benefits

     27,949      —         27,949

Accrued interest on notes payable to Belo Corp.

     18,153      (18,153 )(a)     —  

Other accrued expenses

     1,874      —         1,874

Advance subscription payments

     27,804      —         27,804

Current portion of notes payable to Belo Corp.

     874      (874 )(a)     —  
                     

Total current liabilities

     98,295      (19,027 )     79,268

Deferred income taxes

     23,032      —         23,032

Notes payable to Belo Corp.

     389,343      (389,343 )(a)     —  

Other liabilities

     10,162            10,162

Shareholders’ equity:

       

Belo Corp.’s equity

     448,527      408,370  (a)     —  
        (856,897 )(b)  

Common stock

     —        [            ]  (b)     [            ]

Additional paid-in capital

     —        [            ]  (b)     [            ]

Retained earnings

     —        [            ]  (b)     [            ]
                     

Total shareholders’ equity

     448,527      408,370       856,897
                     

Total liabilities and shareholders’ equity

   $ 969,359    $ —       $ 969,359
                     

 

See notes to unaudited pro forma financial statements.

 

35


Table of Contents
Index to Financial Statements

A. H. BELO CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2006

 

(In thousands)

  

A. H. Belo
Businesses
Historical

    Pro Forma
Adjustment
   

A. H. Belo
Corporation

Pro Forma

Net operating revenues:

      

Advertising

   $ 674,140     $ —       $ 674,140

Circulation

     116,265       —         116,265

Other

     27,328       —         27,328
                      

Total net operating revenues

     817,733       —         817,733

Operating costs and expenses(e)

      

Salaries, wages and employee benefits

     322,947       —         322,947

Other production, distribution and operating costs

     258,076       —         258,076

Newsprint, ink and other supplies

     132,775       —         132,775

Depreciation

     39,996       —         39,996

Amortization

     6,582       —         6,582
                      

Total operating costs and expenses

     760,376       —         760,376
                      

Earnings from operations

     57,357       —         57,357
                      

Other income and expense

      

Interest expense on notes payable to Belo Corp.

     (31,814 )     31,814  (c)     —  

Other income, net

     1,504       —         1,504
                      

Total other income and expense

     (30,310 )     31,814       1,504
                      

Earnings

      

Earnings before income taxes

     27,047       31,814       58,861

Income taxes

     11,868       10,486  (d)     22,354
                      

Net earnings

   $ 15,179     $ 21,328     $ 36,507
                      

 

See notes to unaudited pro forma financial statements.

 

36


Table of Contents
Index to Financial Statements

A. H. BELO CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2007

 

(In thousands)

  

A. H. Belo
Businesses
Historical

    Pro Forma
Adjustment
   

A. H. Belo

Corporation

Pro Forma

Net operating revenues:

      

Advertising

   $ 299,649     $ —       $ 299,649

Circulation

     55,511       —         55,511

Other

     12,829       —         12,829
                      

Total net operating revenues

     367,989       —         367,989

Operating costs and expenses(e)

      

Salaries, wages and employee benefits

     147,791       —         147,791

Other production, distribution and operating costs

     126,069       —         126,069

Newsprint, ink and other supplies

     52,675       —         52,675

Depreciation

     22,712       —         22,712

Amortization

     3,250       —         3,250
                      

Total operating costs and expenses

     352,497       —         352,497
                      

Earnings from operations

     15,492       —         15,492
                      

Other income and expense

      

Interest expense on notes payable to Belo Corp.

     (17,779 )     17,779       —  

Other income, net

     2,782       —    (e)     2,782
                      

Total other income and expense

     (14,997 )     17,779       2,782
                      

Earnings

      

Earnings before income taxes

     495       17,779       18,274

Income taxes (benefit)

     (2,409 )     7,483  (d)     5,074
                      

Net earnings

   $ 2,904     $ 10,296     $ 13,200
                      

 

See notes to unaudited pro forma financial statements.

 

37


Table of Contents
Index to Financial Statements

A. H. BELO CORPORATION

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

For further information regarding the historical financial statements of the A. H. Belo Businesses, refer to the combined financial statements and the notes related thereto included in this information statement.

The unaudited pro forma balance sheet includes the following adjustments as of June 30, 2007:

 

(a) The elimination of the notes payable to Belo and its subsidiaries and related accrued interest as a result of the contribution of such notes to the capital of A. H. Belo or assignment of the notes to A. H. Belo; and

 

(b) The issuance of              shares of common stock of A. H. Belo Series A common stock, par value $.01, and              shares of A. H. Belo Series B common stock, par value to $.01, at a distribution ratio of              share of A. H. Belo common stock for each outstanding corresponding share of Belo              common stock outstanding.

The accompanying pro forma statements of operations reflect the following pro forma adjustments:

 

(c) The elimination of historical interest expense on the notes due to Belo because of the contribution of such notes to the capital of A. H. Belo;

 

(d) The estimated income tax effect of entry (c) at the applicable statutory rate; and

 

(e) The pro forma statements of operations do not include adjustments to costs and expenses resulting from A. H. Belo operating as a separate public company or the effect of the transition services or other inter-company agreements as such amounts are not currently determinable.

 

38


Table of Contents
Index to Financial Statements

SELECTED FINANCIAL DATA

Set forth below are selected combined financial data for A. H. Belo for each of the five years ended December 31, 2006, and for the six months ended June 30, 2006 and 2007. The combined balance sheet data as of December 31, 2005 and 2006 and the combined statement of operations data for each of the three years in the period ended December 31, 2006, have been derived from our audited combined financial statements included in this information statement. The combined balance sheet data as of December 31, 2002, 2003, and 2004 and the combined statement of operations data for the years ended December 31, 2002 and 2003 have been derived from our unaudited combined financial statements, which are not included in this information statement. The selected historical combined financial data for the six months ended June 30, 2006 and 2007, and as of June 30, 2007, is derived from and should be read in conjunction with our unaudited combined financial statements. Operating results for the 2007 interim period are not necessarily indicative of the operating results that A. H. Belo will experience for the entire year.

The selected historical financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited combined financial statements and the notes related thereto, and the unaudited combined financial statements and notes related thereto included in this information statement. The selected historical financial data reflects A. H. Belo’s results as we have historically been operated as a part of Belo, and these results may not be indicative of our future performance as a separate company following the distribution. Operating expenses in the historical income statements reflect direct expenses of our business together with allocations of certain Belo corporate expenses that have been charged to A. H. Belo based on use or other methodologies we believe appropriate for such expenses (see the Combined Financial Statements, Note 1—Summary of Significant Accounting Policies). In our opinion, these allocations have been made on a reasonable and appropriate basis under the circumstances. Per share data has not been presented since A. H. Belo’s business was wholly-owned by Belo during the periods presented.

 

    As of and for the years ended December 31,     As of and for the six
months ended June 30,
 

In thousands

  2002     2003     2004     2005     2006     2006     2007  

Total net operating revenues

  $ 752,132     $ 763,652     $ 779,142     $ 822,344     $ 817,733     $ 407,262     $ 367,989  
                                                       

Total operating expenses

    636,383       645,378       689,460       721,251       760,376       381,713       352,497  
                                                       

Earnings from operations

  $ 115,749     $ 118,274     $ 89,682     $ 101,093     $ 57,357     $ 25,549     $ 15,492  

Other income and expense(a)

    (6,976 )     (18,065 )     (15,648 )     (22,913 )     (30,310 )     (14,187 )     (14,997 )

Income taxes

    (44,399 )     (38,458 )     (28,745 )     (30,361 )     (11,868 )     (4,165 )     2,409  
                                                       

Net earnings(b)

  $ 64,374     $ 61,751     $ 45,289     $ 47,819     $ 15,179     $ 7,197     $ 2,904  
                                                       

Total assets

  $ 966,220     $ 968,889     $ 963,215     $ 981,661     $ 994,815     $ 963,995     $ 969,359  

Long-term portion of notes payable to Belo Corp.(c)

  $ 319,406     $ 279,425     $ 306,398     $ 332,710     $ 353,893     $ 353,974     $ 389,343  

Other data:

             

Combined EBITDA(d)

  $ 171,173     $ 168,515     $ 138,913     $ 148,063     $ 105,439     $ 49,631     $ 44,236  

Depreciation and amortization

    (50,949 )     (50,297 )     (48,369 )     (46,222 )     (46,578 )     (23,190 )     (25,962 )

Interest expense

    (11,451 )     (18,009 )     (16,510 )     (23,661 )     (31,814 )     (15,079 )     (17,779 )

Income taxes

    (44,399 )     (38,458 )     (28,745 )     (30,361 )     (11,868 )     (4,165 )     2,409  
                                                       

Net earnings

  $ 64,374     $ 61,751     $ 45,289     $ 47,819     $ 15,179     $ 7,197     $ 2,904  
                                                       

(a) Other income and expense includes $11,451, $18,009, $16,510, $23,661, and $31,814 for the years ended December 31, 2002, 2003, 2004, 2005, and 2006, respectively, and $15,079 and $17,779 for the six months ended June 30, 2006 and 2007, respectively, for interest on notes payable to Belo Corp. (see the Combined Financial Statements, Note 8—Notes Payable to Belo Corp.).
(b) Net earnings in 2004 included pre-tax charges related to The Dallas Morning News circulation overstatement of $23,500 (see “Business—Legal Proceedings”).
(c) Amounts represent the long-term portion of notes payable to Belo Corp. (see the Combined Financial Statements, Note 8—Notes Payable to Belo Corp.).
(d) A. H. Belo defines combined EBITDA as net earnings before interest expense, income taxes, depreciation, and amortization. Combined EBITDA is not a measure of financial performance under GAAP. Management uses combined EBITDA in internal analyses as a supplemental measure of the financial performance of A. H. Belo to assist it with determining performance comparisons against its peer group of companies, as well as capital spending and other investing decisions. Combined EBITDA is also a common alternative measure of performance used by investors, financial analysts, and rating agencies to evaluate financial performance. Combined EBITDA should not be considered in isolation or as a substitute for net earnings, operating income, cash flows provided by operating activities, or other income or cash flow data prepared in accordance with GAAP and this non-GAAP measure may not be comparable to similarly titled measures of other companies.

 

39


Table of Contents
Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the other sections of this information statement, including “Business,” “Risk Factors,” “Selected Financial Data,” “—Quantitative and Qualitative Disclosures about Market Risk,” and the combined financial statements and the notes thereto. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this information statement and particularly in “Risk Factors.”

All dollar amounts are in thousands, unless otherwise indicated. Actual per share data has not been presented since A. H. Belo’s business was wholly-owned by Belo during the periods presented.

GAAP and Non-GAAP Financial Measures

In this information statement, financial measures are presented in accordance with GAAP and also on a non-GAAP basis. A. H. Belo defines combined EBITDA as net earnings before interest expense, income taxes, depreciation, and amortization. Combined EBITDA is not a measure of financial performance under GAAP. Management uses combined EBITDA in internal analyses as a supplemental measure of the financial performance of A. H. Belo to assist it with determining performance comparisons against its peer group of companies, as well as capital spending and other investment decisions. Combined EBITDA is also a common alternative measure of performance used by investors, financial analysts, and rating agencies to evaluate financial performance. Combined EBITDA should not be considered in isolation or as a substitute for net earnings, operating income, cash flows provided by operating activities, or other income or cash flow data prepared in accordance with GAAP and this non-GAAP measure may not be comparable to similarly titled measures of other companies.

Overview

A. H. Belo

On October 1, 2007, Belo Corp. (“Belo”) announced a plan to distribute its newspaper publishing business into a separate public company, A. H. Belo Corporation (“A. H. Belo” or “the Company”). In anticipation of the distribution, Belo and A. H. Belo will enter into a separation and distribution agreement under which Belo will transfer all of the assets and liabilities associated with its newspaper and related businesses to A. H. Belo. The assets and liabilities transferred to A. H. Belo will be recorded at historical cost as a reorganization of entities under common control. Management expects that the shares of A. H. Belo will be distributed to Belo shareholders in the form of a tax-free dividend. Shareholders who own shares of Belo Series A common stock or Belo Series B common stock on the record date will receive shares of A. H. Belo Series A common stock or Belo Series B common stock, respectively, based on the distribution ratio, which will be determined prior to the distribution. The distribution will result in A. H. Belo operating as a separate entity with publicly traded common stock. Belo will not have any ownership interest in A. H. Belo subsequent to the distribution, but will continue to conduct business with A. H. Belo pursuant to various inter-company agreements which are discussed under the heading “Relationships Between Belo and A. H. Belo Following the Distribution” of this information statement.

A. H. Belo’s business consists of three primary daily newspapers, various niche products in the same or nearby markets, and direct mail and commercial printing businesses. A. H. Belo operates within the United States and competes against similar and other types of media on a local, regional, and national basis. A. H. Belo also operates more than 30 Web sites, participates in several interactive alliances and offers a broad range of Internet-based products.

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.

 

40


Table of Contents
Index to Financial Statements

Basis of Presentation

The combined financial statements included in this information statement include the accounts of Belo comprising its newspaper and related businesses. Operating expenses in the historical income statements reflect all of the direct expenses of the business together with allocations of certain Belo corporate expenses that have been charged to the Company based on use or other methodologies which we believe were appropriate for such expenses. See Combined Financial Statements, Note 1—Summary of Significant Accounting Policies. In our opinion, these assumptions and allocations have been made on a reasonable and appropriate basis under the circumstances. Belo’s various operating units currently share content at no cost.

The historical financial information we have included in this information statement may not reflect what A. H. Belo’s results of operations, financial position, and cash flows would have been had it been a separate public company during the periods presented or be indicative of what its results of operations, financial position, and cash flows may be in the future when it is a separate public company. A. H. Belo’s historical financial information reflects allocations for services historically provided by Belo, and we expect these allocated costs to be different from the actual costs A. H. Belo will incur for these services in the future as a separate public company, including with respect to actual services A. H. Belo expects will be provided by Belo under a transition services agreement and other inter-company agreements. In some instances, the costs incurred for these services as a separate public company may be higher than the share of total Belo expenses allocated to A. H. Belo historically. In addition, the historical financial information does not reflect the increased costs associated with being a separate public company, including changes that we expect in our cost structure, personnel needs, financing, and operations of our business as a result of the distribution.

Results of Operations

 

 

Combined Results of Operations for the Years Ended December 31, 2004, 2005 and 2006

 

      Year ended December 31,  
      2004     Percentage
Change
    2005     Percentage
Change
    2006  

Net operating revenues

   $ 779,142     5.5 %   $ 822,344     (0.6 %)   $ 817,733  

Operating costs and expenses

     (689,460 )   4.6 %     (721,251 )   5.4 %     (760,376 )
                                    

Earnings from operations

     89,682     12.7 %     101,093     (43.3 %)     57,357  

Other income (expense)

     (15,648 )   46.4 %     (22,913 )   32.3 %     (30,310 )
                                    

Earnings before income taxes

     74,034     5.6 %     78,180     (65.4 %)     27,047  

Income taxes

     (28,745 )   5.6 %     (30,361 )   (60.9 %)     (11,868 )
                            

Net earnings

   $ 45,289     5.6 %   $ 47,819     (68.3 %)   $ 15,179  
                            

Net Operating Revenues

A. H. Belo’s revenues increased 5.5 percent in 2005 and decreased 0.6 percent in 2006. The table below presents the components of our net operating revenues for the last three years:

 

Year ended December 31,

   2004    Percentage
Change
    2005    Percentage
Change
    2006

Advertising

   $ 669,811    2.6 %   $ 687,140    (1.9 %)   $ 674,140

Circulation

     96,786    8.3 %     104,790    11.0 %     116,265

Other

     12,545    142.4 %     30,414    (10.1 %)     27,328
                        

Net operating revenues

   $ 779,142    5.5 %   $ 822,344    (0.6 %)   $ 817,733
                        

 

41


Table of Contents
Index to Financial Statements

In 2004, advertising revenues accounted for 86.0 percent of the Company’s total revenues compared to 83.6 percent in 2005 and 82.4 percent in 2006. In 2004, circulation revenue accounted for 12.4 percent of the Company’s total revenues compared to 12.7 percent in 2005 and 14.2 percent in 2006. In all three years, direct mail and commercial printing made up most of the remainder of the Company’s revenues except for the $19,629 revenue reduction at The Dallas Morning News in 2004 related to the circulation overstatement.

Net operating revenues for The Dallas Morning News increased $29,893, or 6.4 percent, in the year ended December 31, 2005, as compared to the year ended December 31, 2004. Total advertising revenues remained relatively flat for the year ended December 31, 2005, compared to the year ended December 31, 2004. Classified advertising revenues, including Internet revenue, increased $1,471, or 4.5 percent, in 2005 as compared to the prior year, primarily due to an increase in the employment category. Retail advertising revenues declined $4,091 or 4.1 percent, in 2005 as compared to the prior year, primarily due to decreases in the entertainment, department store, and grocery store categories. These decreases were partially offset by an increase in the professional services category. General advertising revenues decreased $446, or 0.7 percent, in 2005 as compared to the prior year, primarily due to decreases in the telecommunications and travel categories. These decreases were partially offset by higher volume in the automotive and financial categories. Additionally, Total Market Coverage (“TMC”) and preprints revenue decreased $1,939, or 2.2 percent, in 2005 as compared to the prior year. At The Dallas Morning News, circulation revenue increased $10,767, or 23.4 percent, in 2005 as compared with 2004. This increase is primarily the result of a change in arrangements with certain distributors of home delivery and single copy sales, from a buy-sell arrangement to a fee-for-delivery arrangement similar to the Company’s other newspapers. Subscription revenues under buy-sell arrangements with most distributors are recorded based on the net amount received from the distributor, whereas subscription revenues under fee-based delivery arrangements with distributors are recorded based on the amount received from the subscriber. The operating expenses for the delivery fees paid to the distributors are recorded as they are incurred. Under the previous arrangements, The Dallas Morning News recorded circulation revenue based on the net payment received from distributors. Advertising revenues were not affected by this change.

Net operating revenues for The Dallas Morning News increased by $1,110, or 0.2 percent, in the year ended December 31, 2006, as compared to the year ended December 31, 2005. At The Dallas Morning News, circulation revenue increased $13,570, or 23.9 percent, in the year ended December 31, 2006, as compared with the year ended December 31, 2005, primarily due to an estimated increase of $24,555 related to a change in distribution methods from a buy-sell arrangement to a fee-for-delivery arrangement, as discussed below. Circulation revenues attributable to the change in distribution methods are expected to continue at approximately the current level. The Dallas Morning News has experienced a decrease in circulation over the past few years, some of which resulted from decisions to reduce the distribution area of the newspaper to approximately a 100-mile radius from the center of Dallas. Efforts to improve the circulation include a promotional campaign involving discounts of approximately $7,795 for the year ended December 31, 2006. The decreases in circulation revenue due to the discounts partially offset the increases in circulation revenue due to the change in distribution methods. The Dallas Morning News is moving to concentrate its circulation efforts on its core readership. The Dallas Morning News expects circulation and circulation revenue to fluctuate during this process. The increases in circulation revenue were partially offset by decreases in advertising revenue. Total advertising revenues decreased $11,552, or 2.8 percent, in the year ended December 31, 2006, when compared to the year ended December 31, 2005. General advertising revenues decreased $2,273, or 3.4 percent, in the year ended December 31, 2006, as compared to the year ended December 31, 2005, primarily due to decreases in the automotive and telecommunications categories, partially offset by an increase in the general category. Retail advertising revenue decreased $6,622, or 7.0 percent, in the year ended December 31, 2006, compared to the year ended December 31, 2005, primarily due to decreases in the department stores, furniture, and general retail categories. Classified advertising revenue, including Internet revenue, decreased $7,681, or 5.5 percent, in the year ended December 31, 2006, as compared to the year ended December 31, 2005, primarily due to decreases in the automotive and real estate categories, partially offset by an increase in the employment category.

Net operating revenues for The Providence Journal increased $5,944, or 3.7 percent, in the year ended December 31, 2005, as compared to the year ended December 31, 2004. Advertising revenues increased $7,797,

 

42


Table of Contents
Index to Financial Statements

or 6.1 percent, in 2005 compared to 2004. Classified advertising revenue, including Internet revenue, increased $8,344, or 20.8 percent, in 2005 compared to 2004, primarily due to increases in the real estate and employment categories. Revenues from preprints and TMC increased $697, or 2.4 percent, year over year, primarily due to increases in the consumer electronics, sporting goods, and miscellaneous categories. These increases were partially offset by a decrease in retail advertising revenues of $1,951, or 4.0 percent, for 2005 when compared to 2004. Additionally, general advertising revenues decreased $1,138, or 20.7 percent, in 2005 when compared to the prior year due to decreases in the automotive and food categories. Circulation revenues declined $1,931, or 6.4 percent, in 2005 primarily due to lower Sunday circulation volumes, partially offset by a slight increase in daily circulation volumes.

Net operating revenues for The Providence Journal decreased $3,279, or 2.0 percent, in the year ended December 31, 2006, as compared to the year ended December 31, 2005. Advertising revenues were relatively flat for the year ended December 31, 2006, compared to the year ended December 31, 2005. Retail advertising revenues decreased $2,821, or 6.0 percent, due to decreases in the automotive, furniture and home accessories, and telecommunications categories for the year ended December 31, 2006, compared to the year ended December 31, 2005. General advertising revenues decreased $1,422, or 32.6 percent, for the year ended December 31, 2006, compared to the year ended December 31, 2005, primarily due to decreases in the automotive, travel, and pharmaceutical categories. These decreases in retail and general advertising revenues were partially offset by an increase in classified advertising revenue. Classified advertising revenue increased $1,170, or 2.4 percent, in the year ended December 31, 2006, compared to the year ended December 31, 2005, primarily due to increases in the real estate and other categories partially offset by decreases in the employment and automotive categories. Circulation revenue declined $1,891, or 6.6 percent, in the year ended December 31, 2006, compared to the year ended December 31, 2005, primarily due to lower overall circulation and an increase in discounts related to a promotional campaign to improve circulation.

Net operating revenues for The Press-Enterprise increased $7,299, or 4.8 percent, in the year ended December 31, 2005, as compared to the year ended December 31, 2004. Total advertising revenues increased $10,341, or 8.5 percent, in 2005 compared with 2004. Classified advertising revenues, including Internet revenues, increased $10,030, or 19.7 percent, primarily due to gains in the real estate and employment categories offset slightly by a decrease in the automotive category. Preprints and TMC revenues increased $1,563, or 8.5 percent, primarily due to increases in the consumer electronics, home improvement, and office supply categories. Offsetting these increases was a slight decrease in retail advertising revenues of $394, or 1.8 percent, in 2005 when compared with 2004. General advertising revenues were flat in 2005 as compared with 2004. Circulation revenue at The Press-Enterprise declined $831, or 4.1 percent, when comparing 2005 to 2004. This decline was due to a decrease in both home delivery and single copy sales.

Net operating revenues for The Press-Enterprise decreased $2,443, or 1.5 percent, in the year ended December 31, 2006, as compared to the year ended December 31, 2005. Total advertising revenues were relatively flat in the year ended December 31, 2006, compared with the year ended December 31, 2005. Classified advertising revenues, including Internet revenues, increased $1,902, or 3.1 percent, primarily due to increases in the real estate category, partially offset by decreases in the automotive and employment categories. Preprints and TMC revenues increased $1,064, or 5.3 percent, primarily due to increases in the drug store and home furnishings categories. Offsetting these increases were decreases in retail and general advertising revenues and commercial printing revenue. Retail advertising revenues decreased $1,225, or 5.8 percent, primarily due to decreases in the department store and grocery categories partially offset by an increase in the furniture category. General advertising revenues decreased $2,129, or 16.0 percent, in the year ended December 31, 2006, when compared with the year ended December 31, 2005, primarily due to decreases in the telecommunications and automotive categories. Circulation revenue at The Press-Enterprise decreased $205, or 1.0 percent. Commercial printing and other revenue at The Press-Enterprise declined $2,105, or 27.6 percent, for the year ended December 31, 2006, compared to the year ended December 31, 2005.

 

43


Table of Contents
Index to Financial Statements

Operating Costs and Expenses

The Company’s operating costs and expenses increased $31,791, or 4.6 percent, in 2005 when compared to the prior year primarily due to increases in distribution costs, newsprint expenses, tax expenses, and incremental expenses related to advertising and promotion initiatives. These increases were partially offset by a decrease in direct compensation, and benefits. Distribution costs increased 21.9 percent primarily due to the expenses related to the change in distribution methods at The Dallas Morning News mentioned above. Newsprint expenses were 5 percent higher in 2005 due to a 10.2 percent increase in the average cost per metric ton of newsprint partially offset by a 5 percent decrease in volume. Property tax expense increased primarily due to the favorable settlement of prior year taxes between The Providence Journal and the City of Providence, Rhode Island, which was recorded in 2004. Salaries and other direct compensation decreased primarily due to a charge recorded by the Company’s in 2004 of $3,788 for severance costs and other expenses related to the reduction in force in 2004.

The Company’s operating costs and expenses increased $39,125, or 5.4 percent, in the year ended December 31, 2006, as compared to the prior year period primarily due to increases in salaries, wages, and employee benefits and other production, distribution, and operating costs partially offset by a decrease in newsprint, ink, and other supplies. Salaries, wages, and employee benefits increased primarily due to severance costs, incremental share-based compensation expenses, and increased pension expense due to an announced pension curtailment. These increases were partially offset by decreases in sales commissions, estimated self-insured medical, and workers’ compensation insurance costs. Other production, distribution, and operating costs increased primarily due to increased distribution and outside services costs. The increase in distribution costs is due to approximately $19,550 in costs related to the change in distribution methods at The Dallas Morning News. A. H. Belo expects this increased level of distribution costs at The Dallas Morning News to continue. Outside services increased primarily due to increased consulting expenses primarily related to readership and sales and technology initiatives. Newsprint, ink, and other supplies decreased $9,126, or 6.4 percent, for the year ended December 31, 2006, as compared to the year ended December 31, 2005, due to the Company’s strategic decisions to limit third-party circulation and to reduce the distribution area of The Dallas Morning News and lower advertising volumes. The 17.4 percent decrease in consumption was partially offset by an increase in the average cost per metric ton of newsprint of 12.4 percent.

The following table presents a reconciliation of combined EBITDA to net earnings for 2004, 2005, and 2006:

 

Year ended December 31

   2004     Percentage
Change
    2005     Percentage
Change
    2006  

Combined EBITDA

   $ 138,913     6.6 %   $ 148,063     (28.8 %)   $ 105,439  

Depreciation and amortization

     (48,369 )   (4.4 %)     (46,222 )   0.8 %     (46,578 )

Interest expense

     (16,510 )   43.3 %     (23,661 )   34.5 %     (31,814 )

Income taxes

     (28,745 )   5.6 %     (30,361 )   (60.9 %)     (11,868 )
                            

Net earnings

   $ 45,289     5.6 %   $ 47,819     (68.3 %)   $ 15,179  
                            

Combined EBITDA increased $9,150, or 6.6 percent, in 2005 compared to 2004, primarily due to increases in revenues offset by increases in operating costs and expenses.

Combined EBITDA decreased $42,624, or 28.8 percent, in 2006 compared to 2005, primarily due to decreases in revenues and increases in operating costs and expenses.

Interest expense increased $7,151, or 43.3 percent, in 2005, compared to $8,153, or 34.5 percent, in 2006, compared to the year ended December 31, 2005, primarily due to increased balances on notes payable to Belo. Certain subsidiaries have entered into notes payable arrangements with Belo, primarily to facilitate tax planning and cash management strategies. The notes accrue interest at prime plus one percent and have various payments terms. In conjunction with the planned transaction, Belo will contribute to the capital of A. H. Belo all inter-company indebtedness owed by A. H. Belo or assign the notes to A. H. Belo to Belo on or prior to the distribution.

 

44


Table of Contents
Index to Financial Statements

Other income (expense) was flat from December 31, 2004 to December 31, 2005. Other income (expense) increased $756, or 101.0 percent, in 2006, compared to 2005 primarily due to the forgiveness of a note payable from a subsidiary to Belo Corp. The forgiveness was related to the final wind down of the Company’s trade show business.

Income taxes increased $1,616, or 5.6 percent, for the year ended December 31, 2005, compared with the year ended December 31, 2004, primarily due to increased taxable income. Income taxes decreased $18,493, or 60.9 percent, for the year ended December 31, 2006, compared with the year ended December 31, 2005, primarily due to lower taxable income and adjustments related to the implementation of the State of Texas margin tax. In May 2006, the State of Texas enacted legislation replacing its franchise tax with a new margin tax. Despite an effective date of January 1, 2008, the enactment of the Tax Reform Bill represents a change in tax law and SFAS 109, “Accounting for Income Taxes” requires that effects of the change must be reflected in the financial statements in the quarter in which the new tax is enacted. The effective tax rate for 2004, 2005, and 2006 was 38.8 percent, 38.8 percent, and 43.9 percent, respectively. The effective tax rate is higher than the statutory tax rate primarily due to state income taxes.

As a result of the factors discussed above, the Company recorded net earnings of $45,289 for 2004, compared with net earnings of $47,819 for 2005, and net earnings of $15,179 for 2006.

 

Combined Results of Operations for the Six Months Ended June 30,
2006 and 2007
  

Six months ended June 30,

 
     2006    

Percentage

Change

   2007  

Net operating revenues

   $ 407,262     (9.6%)    $ 367,989  

Operating costs and expenses

     (381,713 )   (7.7%)      (352,497 )
                     

Earnings from operations

     25,549     (39.4%)      15,492  

Other income (expense)

     (14,187 )   5.7%      (14,997 )
                     

Earnings before income taxes

     11,362     (95.6%)      495  

Income taxes

     (4,165 )   (157.8%)      2,409  
                   

Net earnings

   $ 7,197     (59.6%)    $ 2,904  
                   

Net Operating Revenues

The Company’s revenues decreased 9.6 percent in the six months ended June 30, 2007, respectively, as compared with the six months ended June 30, 2006. The table below presents the components of the Company’s net operating revenues for those periods:

 

    

Six months ended June 30,

     2006    Percentage
Change
    2007

Advertising

   $ 335,176    (10.6 %)   $ 299,649

Circulation

     57,921    (4.2 %)     55,511

Other

     14,165    (9.4 %)     12,829
               

Net operating revenues

   $ 407,262    (9.6 %)   $ 367,989
               

Advertising revenues accounted for approximately 82.3 percent of total the Company’s revenues for the six months ended June 30, 2006, respectively, compared to approximately 81.4 percent for the six months ended June 30, 2007. Circulation revenue accounted for approximately 14.2 percent of the Company’s total revenues for the six months ended June 30, 2006, compared to approximately 15.1 percent for the six months ended June 30, 2007. For both of the periods, direct mail and commercial printing made up most of the remainder of the Company’s revenues.

 

45


Table of Contents
Index to Financial Statements

Net operating revenues for The Dallas Morning News decreased by $20,336, or 8.2 percent, in the six months ended June 30, 2007, as compared to the six months ended June 30, 2006. Advertising revenues decreased by $19,100, or 9.5 percent, in the six months ended June 30, 2007, when compared to the six months ended June 30, 2006. General advertising revenues decreased $8,814, or 27.5 percent, in the six months ended June 30, 2007, as compared to the six months ended June 30, 2006, primarily due to decreases in the financial, telecommunications, and automotive categories. Retail advertising revenue decreased $2,275, or 5.5 percent, in the six months ended June 30, 2007, compared to the six months ended June 30, 2006, primarily due to a decrease in the furniture category. Classified advertising revenues decreased $6,764, or 9.8 percent, primarily due to decreases in the real estate, automotive, and employment categories. Circulation revenue decreased $866, or 2.5 percent, in the six months ended June 30, 2007 compared to the six months ended June 30, 2006.

Net operating revenues for The Providence Journal decreased by $6,369, or 7.9 percent, in the six months ended June 30, 2007, as compared to the six months ended June 30, 2006. Advertising revenues decreased $5,098, or 7.7 percent, for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. Classified advertising revenue decreased $2,013, or 8.0 percent, in the six months ended June 30, 2007, compared to the six months ended June 30, 2006, primarily due to decreases in the employment and real estate categories. Retail advertising revenues decreased $1,689, or 7.9 percent, due to decreases in the department store, gaming, furniture and home accessories, and amusements categories for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. General advertising revenues decreased $680, or 42.2 percent, for the six months ended June 30, 2007, compared to the six months ended June 30, 2006, primarily due to decreases in the automotive category. Circulation revenue declined $1,192, or 8.9 percent, in the six months ended June 30, 2007, compared to the six months ended June 30, 2006, primarily due to lower overall circulation.

Net operating revenues for The Press-Enterprise decreased $12,568, or 15.7 percent, in the six months ended June 30, 2007, as compared to the six months ended June 30, 2006. Total advertising revenues decreased $11,330, or 16.8 percent, in the six months ended June 30, 2007, compared with the six months ended June 30, 2006. Classified advertising revenues decreased $6,971, or 21.3 percent, primarily due to decreases in the employment, real estate, and automotive categories. Retail advertising revenues decreased $1,996, or 19.9 percent, primarily due to decreases in the department store, home improvement, home furnishings, and grocery categories. General advertising revenues decreased $774, or 13.2 percent, in the six months ended June 30, 2007, when compared with the six months ended June 30, 2006, primarily due to decreases in the financial and automotive categories. Circulation revenue at The Press-Enterprise decreased $352, or 3.7 percent, when comparing the six months ended June 30, 2007, to the six months ended June 30, 2006. Commercial printing and other revenue at The Press-Enterprise declined $886, or 29.3 percent, for the six months ended June 30, 2007, compared to the six months ended June 30, 2006.

Operating Costs and Expenses

The Company’s operating costs and expenses decreased $29,216, or 7.7 percent, in the six months ended June 30, 2007, as compared to the prior year period primarily due to decreases in newsprint, ink, and other supplies, salaries, wages, and employee benefits, and other production, distribution, and operating costs. Newsprint, ink, and other supplies decreased $17,721, or 25.2 percent, primarily due to lower newsprint costs which is a combination of lower prices and lower volume due in part to the Company’s strategic decisions to reduce third party circulation and to reduce the geographic distribution area for The Dallas Morning News. Salaries, wages, and employee benefits decreased $13,710, or 8.5 percent, primarily due to the voluntary severance program for newsroom employees at The Dallas Morning News initiated in the third quarter 2006. In addition to the voluntary severance program, the Company recognized a reduction in estimated pension expense of approximately $3,083 primarily due to the Company’s curtailment of its defined benefit pension plan effective March 31, 2007, and an increase in the discount rate applied to future pension obligations. Other production, distribution, and operating costs decreased $557, or .4 percent, primarily due to decreases in distribution, advertising, and promotion partially offset by an increase in outside services. The decrease in distribution expense is primarily due to the Company’s decision to reduce third party circulation at The Dallas Morning

 

46


Table of Contents
Index to Financial Statements

News. The decrease in advertising and promotion is primarily due to decreases at The Dallas Morning News. These decreases were partially offset by an increase in outside services due to incremental costs associated with the technology outsourcing announced in the second quarter 2006.

The following table presents a reconciliation of combined EBITDA to net earnings for the six months ended June 30, 2006 and 2007:

 

     Six months ended June 30,  
     2006     Percentage
Change
    2007  

Combined EBITDA

   $ 49,631     (10.9 %)   $ 44,236  

Depreciation and amortization

     (23,190 )   12.0 %     (25,962 )

Interest expense

     (15,079 )   17.9 %     (17,779 )

Income taxes

     (4,165 )   (157.8 %)     2,409  
                  

Net earnings

   $ 7,197     (59.6 %)   $ 2,904  
                  

Combined EBITDA decreased $5,394, or 10.9 percent, in the six months ended June 30, 2007, compared to the six months ended June 30, 2006, primarily due to decreases in revenue offset by decreases in operating costs and expenses.

Interest expense increased $2,700, or 17.9 percent, for the six months ended June 30, 2007, compared to the six months ended June 30, 2006, primarily due to increased balances on notes payable to Belo.

Other income (expense) increased $1,890 in the six months ended June 30, 2007, compared to the six months ended June 30, 2006 primarily due to the disposal of fixed assets.

Income taxes decreased $6,574, or 157.8 percent, for the six months ended June 30, 2007, compared with the six months ended June 30, 2006, primarily due to lower taxable income and adjustments related to the implementation of the State of Texas margin tax. In future periods, estimated state taxes related to the State of Texas margin tax are expected to increase.

As a result of the factors discussed above, net earnings for the six months ended June 30, 2007 decreased to $2,904 from $7,197 for the six months ended June 30, 2006.

Critical Accounting Policies and Estimates

A. H. Belo’s financial statements are based on the selection and application of accounting policies that require management to make significant estimates and assumptions. The Company believes that the following are some of the more critical accounting policies currently affecting A. H. Belo’s financial position and results of operations. See the Combined Financial Statements, Note 1—Summary of Significant Accounting Policies, for additional information concerning significant accounting policies.

Revenue Recognition. Newspaper advertising revenue is recorded, net of agency commissions, when the advertisements are published in the newspaper. Advertising revenues for Web sites are recorded, net of agency fees, ratably over the period of time the advertisement is placed on Web sites. Proceeds from subscriptions are deferred and are included in revenue on a pro-rata basis over the term of the subscriptions. Subscription revenues under buy-sell arrangements with distributors are recorded based on the net amount received from the distributor, whereas subscription revenues under fee-based delivery arrangements with distributors are recorded based on the amount received from the subscriber. Commercial printing revenue is recorded when the product is shipped.

Impairment of Property, Plant and Equipment, Goodwill and Intangible Assets. In assessing the recoverability of the Company’s property, plant and equipment, goodwill and intangible assets, the Company

 

47


Table of Contents
Index to Financial Statements

must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges not previously recorded for these assets.

The Company’s intangible assets and goodwill result from its significant business acquisitions, which occurred prior to 1998. In connection with these acquisitions, the Company obtained appraisals of the significant assets purchased. The excess of the purchase price over the fair value of the assets acquired was recorded as goodwill. At December 31, 2006, A. H. Belo had net investments of $312,487 in property, plant and equipment, $464,091 in goodwill, and $46,925 in intangible assets, which consist of subscriber lists.

Prior to January 1, 2002, all of the acquired intangible assets were classified together as “goodwill and intangible assets” in the Company’s combined financial statements and were amortized over a composite life of 40 years. On January 1, 2002, upon adoption of Statement of Financial Accounting Standard (SFAS), 142 “Goodwill and Other Intangible Assets,” the Company ceased amortization of its goodwill.

The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of property and equipment is measured by comparison of the carrying amount to the future net cash flows the property and equipment is expected to generate. Based on assessments performed during the years ended December 31, 2004, 2005, and 2006, the Company did not record any impairment losses related to property, plant, and equipment.

Goodwill is tested at least annually by reporting unit for impairment. For the Company, a reporting unit consists of the newspaper operations in each individual market. Based on assessments performed during the years ended December 31, 2004, 2005, and 2006, the Company did not record any impairment losses related to goodwill or intangible assets.

Contingencies. A. H. Belo is involved in certain claims and litigation related to its operations. In the opinion of management, liabilities, if any, arising from these claims and litigation would not have a material adverse effect on A. H. Belo’s combined financial position, liquidity, or results of operations. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

Share-Based Compensation. The Company records the compensation expense related to its stock options according to SFAS 123R, as adopted on January 1, 2006. The Company records the compensation expense related to its options using the fair value as of the date of grant as calculated using the Black-Scholes-Merton method. The Company records the compensation expense related to its restricted stock units using the fair value as of the date of grant.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 establishes, among other items, a framework for fair value measurements in the financial statements by providing a single definition of fair value, provides guidance on the methods used to estimate fair value, and increases disclosures about estimates of fair value. The effective date of SFAS 157 for the Company is January 1, 2008. The Company is evaluating the effect of the adoption of this standard.

 

48


Table of Contents
Index to Financial Statements

Liquidity and Capital Resources

Operating Cash Flows

Net cash provided by (used for) operations and from Belo through borrowings under notes payable or contributions are the Company’s primary sources of liquidity. Net cash provided by operations was $88,669, $91,206, and $49,497 in the years ended December 31, 2004, 2005, and 2006, respectively, and $3,097 and $17,577 in the six months ended June 30, 2006 and 2007, respectively. The changes in cash flows from operations are caused primarily by changes in net earnings and normal changes in working capital requirements. The Company used net cash provided by operations to fund capital expenditures and to invest in a joint venture.

Investing Cash Flows

Net cash flows used in investing activities were $34,382, $61,395, and $65,315 in the years ended December 31, 2004, 2005, and 2006, respectively, and $19,864 and $18,481 in the six months ended June 30, 2006 and 2007, respectively. These cash flows are primarily attributable to capital expenditures and an investment in a joint venture.

Capital Expenditures

Total capital expenditures were $36,378, $52,860, and $68,356 in 2004, 2005, and 2006, respectively, and $20,191 and $18,553 in the six months ended June 30, 2006, and 2007, respectively. These were primarily for the Company’s facilities and equipment and corporate-driven technology initiatives. As of June 30, 2007, projected future payments for capital projects in 2007 were approximately $17,248. The Company expects to finance future capital expenditures using cash generated from operations and, when necessary, borrowings under the bank credit agreement.

In the first quarter 2007, the Company took possession of the new South Plant distribution and collating facility for The Dallas Morning News in southern Dallas. The total cost of the South Plant land, improvements, buildings and equipment is projected to be approximately $50,000. Of the total estimated costs, approximately $47,959 has been incurred since the beginning of the project and approximately $4,411 has been incurred in the six months ended June 30, 2007.

In the first quarter 2007, The Press-Enterprise moved into its new 150,000 square foot, five-story office building to centralize all news, editorial, advertising, sales and marketing, technology, production support, and administrative functions. The total cost of the project is projected to be approximately $40,000. Of the total estimated costs, approximately $34,831 has been incurred since the beginning of the project and approximately $7,748 has been incurred in the six months ended June 30, 2007.

Financing Cash Flows

Net cash flows provided by (used in) financing activities were $(55,949), $(27,343), and $14,899 in the years ended December 31, 2004, 2005, and 2006, respectively, and $13,077 and $(212) in the six months ended June 30, 2006 and 2007, respectively. These cash flows are primarily attributable to dividends and distributions paid to Belo Corp. offset by borrowings from Belo Corp. pursuant to notes payable. The notes accrue interest at prime plus one percent and have various payments terms. In conjunction with the planned transaction, Belo will contribute to the capital of A. H. Belo all inter-company indebtedness owed by A. H. Belo to Belo or assign the notes to A. H. Belo.

 

49


Table of Contents
Index to Financial Statements

In connection with the distribution from Belo, A. H. Belo expects to enter into a revolving credit agreement in order to provide for future working capital needs and other general corporate purposes. Under this credit facility, A. H. Belo expects to become subject to various restrictions and covenants.

Contractual Obligations

The table below summarizes the following specified commitments of the Company as of December 31, 2006. See the Combined Financial Statements, Note 10—Commitments, for more information on contractual obligations:

 

Nature of Commitment

   Total    2007    2008    2009    2010    2011    Thereafter

Capital expenditures and licenses

   $ 15,349    $ 15,229    $ 40    $ 40    $ 40    $    $

Non-cancelable operating leases

     14,922      5,362      4,309      2,799      1,797      546      109
                                                

Total

   $ 30,271    $ 20,591    $ 4,349    $ 2,839    $ 1,837    $ 546    $ 109
                                                

Other

The Company has various options available to meet its 2007 and 2008 capital and operating commitments, including cash on hand, short term investments, and internally generated funds. The Company believes its current financial condition and credit relationships are adequate to fund both its current obligations as well as near-term growth.

Quantitative and Qualitative Disclosures about Market Risk

A. H. Belo has exposure to changes in the price of newsprint. The average price of newsprint in 2008 is expected to be approximately the same as in 2007, although pricing and the timing of any price variations cannot be predicted. A. H. Belo believes the newsprint environment for 2008, giving consideration to both cost and supply, to be manageable through existing relationships and sources.

 

50


Table of Contents
Index to Financial Statements

BUSINESS

A. H. Belo’s publishing roots trace to The Galveston Daily News, which began publication in 1842. Today, A. H. Belo owns three primary daily newspapers: The Dallas Morning News, The Providence Journal, and The Press-Enterprise. They provide extensive local, state, national, and international news. In addition to these three daily newspapers, A. H. Belo publishes various niche products in the same or nearby markets where our primary daily newspapers are published. Each of A. H. Belo’s daily newspapers and niche publications operates its own Web site. A. H. Belo also operates direct mail and commercial printing businesses.

The Dallas Morning News’ first edition was published on October 1, 1885; the newspaper is one of the leading newspaper franchises in America. Its success is founded upon the highest standards of journalistic excellence, with an emphasis on comprehensive local news and information, and community service. The Dallas Morning News is distributed primarily in Dallas County and the 11 surrounding counties. It has earned eight Pulitzer Prizes since 1986 for its news reporting and photography.

The Providence Journal, acquired by Belo in February 1997, is the leading newspaper in Rhode Island and southeastern Massachusetts. The Providence Journal is America’s oldest major daily newspaper of general circulation and continuous publication and has won four Pulitzer Prizes.

The Press-Enterprise was acquired in July 1997. The Press-Enterprise is distributed throughout the Inland Empire area of southern California, which includes Riverside and San Bernardino counties. It has a long history of journalistic excellence and has won one Pulitzer Prize.

BIM, currently a centralized function supporting all of Belo’s operating company Web sites, and Belo Technologies, also a centralized function supporting certain information technology requirements, will be owned and managed by A. H. Belo. BIM and Belo Technologies will provide services to Belo and its television Web sites pursuant inter-company agreements whereby Belo will compensate A. H. Belo for such services.

A. H. Belo derives revenues primarily from the sale of advertising and newspapers and from direct mail and commercial printing. Prices for A. H. Belo’s newspapers are established individually for each newspaper. Commercial printing and direct mail accounted for most of the remainder of the revenues. Effective April 1, 2006, The Dallas Morning News discontinued distribution to areas approximately 200 miles or more outside of the Dallas/Fort Worth metropolitan area. Effective February 1, 2007, The Dallas Morning News discontinued distribution to areas approximately 100 miles or more outside of the Dallas/Fort Worth metropolitan area, with the exception of Austin, the capital city of Texas.

Advertising revenues accounted for approximately 82 percent and 81 percent of total revenues for the year ended December 31, 2006 and the six months ended June 30, 2007, respectively. Circulation revenue accounted for approximately 14 percent and 15 percent of total revenues for the year ended December 31, 2006 and six months ended June 30, 2007, respectively. For each of the periods, direct mail and commercial printing made up most of the remainder of revenues.

Web sites operated by A. H. Belo’s newspapers provide consumers with accurate and timely news and information. The newspaper-affiliated Web sites for The Dallas Morning News, The Providence Journal, and The Press-Enterprise are leading local media sites in their respective markets. Revenues for interactive media for the year ended December 31, 2006 and the six months ended June 30, 2007 represented approximately 5 and 7 percent, respectively, of the total revenues and were derived principally from advertising on the various Web sites.

 

51


Table of Contents
Index to Financial Statements

The basic material used in publishing our newspapers is newsprint. Currently, most of A. H. Belo’s newsprint is obtained through a purchasing consortium of which it is a member. The Providence Journal purchases approximately 50 percent of its newsprint from other suppliers under long-term contracts; these contracts provide for certain minimum purchases per year based on use. During 2006, A. H. Belo’s publishing operations consumed approximately 167,000 metric tons of newsprint. Management believes A. H. Belo’s sources of newsprint, along with available alternate sources, are adequate for its current needs.

A. H. Belo’s Competitive Strengths

A. H. Belo’s strengths are:

 

   

ownership and superior management of three quality daily newspapers that have been widely recognized over the years for their distinguished journalism.

 

   

the three daily newspapers’ locations in markets with attractive long-term demographics.

 

   

a strong, cohesive senior management team with significant sector experience focused on the highest priority strategic and operating issues.

 

   

an initial debt-free capital structure with a strong balance sheet providing financial flexibility to allocate capital toward higher-growth online initiatives, support continued innovation, and maintain a strong focus on distinguished journalism and editorial content.

 

   

resources to compete in a challenging operating environment and return cash to shareholders through an attractive recurring annual dividend yield.

 

   

strategic and financial flexibility to form partnerships and alliances unencumbered by considerations of the potential effect on Belo’s television business.

A. H. Belo’s Strategies and Opportunities

A. H. Belo is committed to publishing newspapers and online content of the highest journalistic quality and integrity, creating and developing innovative print and online products addressing the needs of its customers and advertisers, providing an attractive recurring annual dividend yield, and creating value for its shareholders over the long-term. A. H. Belo intends to achieve these objectives by executing the following strategies:

 

   

addressing the diverse and rapidly-evolving needs of our customers in the local markets we serve with targeted, high quality print products, while leveraging our resources, content, and technology to build sustainable and rapidly-growing online assets.

 

   

focusing management’s attention on operating our core newspaper businesses and related Web sites to derive maximum revenue and EBITDA in an Internet-centric media environment by building larger digital businesses.

 

   

innovating and continuing to develop print and online products that create substantial incremental revenue and EBITDA.

 

   

strengthening and improving our underlying technology platform.

 

   

entering into strategic alliances and partnerships creating virtual cross-ownership to achieve synergies across print, broadcast, and online media.

 

   

being focused and attentive to the needs of our customers and advertisers by implementing initiatives to better reach consumers that advertisers most desire.

 

   

maintaining a conservative balance sheet.

 

   

continuing our commitment of community service to the local communities we serve.

 

52


Table of Contents
Index to Financial Statements

Competition

We face competition for advertising dollars and circulation. The competition for advertising dollars comes from local, regional, and national newspapers, the Internet, magazines, broadcast, cable and satellite television, radio, direct mail, yellow pages, and other media. A. H. Belo also competes for advertising dollars with certain television stations and related Web sites owned by Belo. Increased competition has come from the Internet and other new media formats and services other than traditional newspapers, many of which are often free to users. Free circulation daily newspapers have been recently introduced in several metropolitan markets, and there can be no assurance that free daily publications, or other publications, will not be introduced in any markets in which A. H. Belo publishes its newspapers. The Dallas Morning News has one major metropolitan daily newspaper competitor in certain areas of the Dallas/Fort Worth market. The Providence Journal competes with five daily newspapers in the Rhode Island and southeastern Massachusetts markets. The Press-Enterprise competes with seven daily newspapers in the Inland Empire area of southern California.

FCC Cross-Ownership Restrictions

Current FCC regulations generally preclude the common ownership of television stations and daily newspapers in the same market. Belo’s pre-distribution ownership of The Dallas Morning News and WFAA-TV in the Dallas/Fort Worth, Texas market predates the adoption of that restriction and was “grandfathered” by the FCC. We do not believe that the distribution will affect the grandfathered status of those properties. In view of the continuing common ownership of Belo and A. H. Belo and the participation of several common officers, directors, and attributable shareholders, however, neither Belo nor A. H. Belo will be eligible to acquire any other television station in the Dallas/Fort Worth market, absent a change in the FCC’s rules.

Employees

As of October 1, 2007, A. H. Belo had approximately 3,800 full-time and part-time employees, including approximately 530 employees represented by various employee unions. All of these union employees are located in Providence, Rhode Island. We believe our relations with our employees are satisfactory.

Properties

A. H. Belo owns and operates a newspaper printing facility and distribution center in Plano, Texas (the “North Plant”), to print The Dallas Morning News and other publications. Additional operations of The Dallas Morning News are housed in a four-story building and in parts of a separate 17-story office building in downtown Dallas, Texas, owned by A. H. Belo. A. H. Belo owns other downtown Dallas real estate used for parking and other purposes. A. H. Belo also owns a distribution and collating facility for The Dallas Morning News in the southern part of Dallas (the “South Plant”). Additionally, A. H. Belo owns a two-story printing facility in Arlington, Texas, used for commercial printing. A. H. Belo also leases space in Irving, Texas, for a secondary data center.

A. H. Belo owns and operates a newspaper printing facility in Providence, Rhode Island, for The Providence Journal. The remainder of The Providence Journal’s operations is housed in an owned, five-story building in downtown Providence.

A. H. Belo owns and operates a newspaper publishing facility and a commercial printing facility in downtown Riverside, California, for The Press-Enterprise and other company and third party publications. We have a state-of-the-art media center for The Press-Enterprise in Riverside, California, which houses the non-production operations of The Press-Enterprise.

We have additional leasehold and other interests that are used in our activities, which interests are not material. We believe our properties are in satisfactory condition and are well maintained and that such properties are adequate for present operations.

 

53


Table of Contents
Index to Financial Statements

Seasonality

A. H. Belo’s advertising revenues are subject to moderate seasonality, with advertising revenues typically higher in the fourth calendar quarter of each year because of the holiday shopping season. The level of advertising sales in any period may also be affected by advertisers’ decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand and general economic conditions.

Legal Proceedings

On August 23, 2004, August 26, 2004, and October 5, 2004, three related lawsuits were filed by purported shareholders of Belo in the United States District Court for the Northern District of Texas against Belo, Robert W. Decherd, and Barry T. Peckham, a former executive officer of The Dallas Morning News. The complaints arise out of the circulation overstatement at The Dallas Morning News announced by Belo in 2004 and further described below, alleging that the overstatement artificially inflated Belo’s financial results and thereby injured investors. The plaintiffs seek to represent a purported class of shareholders who purchased Belo common stock between May 12, 2003 and August 6, 2004. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On October 18, 2004, the court ordered the consolidation of all cases arising out of the same facts and presenting the same claims, and on February 7, 2005, plaintiffs filed an amended, consolidated complaint adding as defendants John L. Sander, Dunia A. Shive, and Dennis A. Williamson, all of whom are current or retired executive officers of Belo, and James M. Moroney III, an executive officer of The Dallas Morning News. On May 18, 2007, the court partially granted defendants’ motions to dismiss plaintiffs’ second amended complaint to the extent it dismissed plaintiffs’ complaint as to defendants John L. Sander, Dunia A. Shive, and Dennis A. Williamson. The motions to dismiss were denied as to the other defendants. On September 19, 2007, plaintiffs filed their motion for class certification. No class or classes have been certified and no amount of damages has been specified. We believe the complaints are without merit and intend to defend vigorously against them.

On June 3, 2005, a shareholder derivative lawsuit was filed by a purported individual shareholder of Belo in the 191st Judicial District Court of Dallas County, Texas, against Robert W. Decherd, John L. Sander, Dunia A. Shive, Dennis A. Williamson, and James M. Moroney III; Barry T. Peckham; and Louis E. Caldera, Judith L. Craven, Stephen Hamblett, Dealey D. Herndon, Wayne R. Sanders, France A. Córdova, Laurence E. Hirsch, J. McDonald Williams, Henry P. Becton, Jr., Roger A. Enrico, William T. Solomon, Lloyd D. Ward, M. Anne Szostak, and Arturo Madrid, current or former directors of Belo. The lawsuit makes various claims asserting mismanagement and breach of fiduciary duty related to the circulation overstatement at The Dallas Morning News. On May 30, 2007, after a prior discovery stay ended, the court issued an order administratively closing the case. Under the court’s order, the case is stayed and, as a result, no further action can be taken unless the case is reinstated. The court retained jurisdiction and the case is subject to being reinstated by the court or upon motion by any party. The court’s order was not a dismissal with prejudice.

Under the terms of the separation and distribution agreement between A. H. Belo and Belo, they will share equally in any liabilities, net of any applicable insurance, resulting from the two circulation lawsuits described above.

On October 24, 2006, eighteen former employees of The Dallas Morning News filed a lawsuit against various A. H. Belo-related parties in the United States District Court for the Northern District of Texas. The plaintiffs’ lawsuit alleges unlawful discrimination and ERISA violations and includes allegations relating to The Dallas Morning News circulation overstatement (similar to the circulation-related lawsuits described above). In June 2007, the court issued a memorandum order granting in part and denying in part defendants’ motion to dismiss. In August 2007, the court dismissed certain additional claims. A trial date in January 2009 has been set.

In addition to the proceedings disclosed above, a number of other legal proceedings are pending against A. H. Belo, including several actions for alleged libel and/or defamation. In the opinion of management, liabilities, if any, arising from these other legal proceedings would not have a material adverse effect on A. H. Belo’s results of operations, liquidity, or financial position.

 

54


Table of Contents
Index to Financial Statements

In 2004, Belo announced that an internal investigation, then ongoing, disclosed practices and procedures that led to an overstatement of previously reported circulation figures at The Dallas Morning News, primarily in single copy sales. In response to the overstatement, Belo implemented a voluntary advertiser plan developed by Belo management. The plan included cash payments to advertisers and future advertising credits. Payments under the plan were made without any condition that such advertisers release The Dallas Morning News from liability for the circulation overstatement. To use the credits, advertisers generally placed advertising in addition to the terms of the advertiser’s current contract. There are no unused credits.

In 2004, the staff of the SEC notified Belo that it was conducting a newspaper industry-wide inquiry into circulation practices, and inquired specifically about The Dallas Morning News’ circulation overstatement. Belo briefed the SEC on The Dallas Morning News circulation situation and related matters. The information voluntarily provided to the SEC related to The Dallas Morning News, as well as The Providence Journal and The Press-Enterprise. On October 1, 2007, the staff sent counsel for Belo a letter stating that the inquiry has been completed and that the staff does not intend to recommend any enforcement action by the SEC.

 

55


Table of Contents
Index to Financial Statements

MANAGEMENT

Directors and Officers

The following persons are our executive officers and directors as of the distribution date. Our bylaws provide that the board of directors be divided into three classes, approximately equal in number, with staggered terms of three years so that the term of one class expires at each annual meeting. The bylaws further provide that a director will retire on the date of the next annual meeting of shareholders following his or her 68th birthday. Each of the directors below will serve until the annual meeting set forth below. All A. H. Belo directors, other than Mr. Decherd and Mrs. Herndon, meet the NYSE listing standards for independence. The executive officers who are identified in the following table presently are employees of Belo. After the distribution, none of the executive officers will continue to be employees of Belo.

 

Name

  

Age

  

Principal Positions and Directorships

Robert W. Decherd

   56   

Chairman of the Board, President and

Chief Executive Officer(1)(2)(3)

James M. Moroney III

   51    Publisher and Chief Executive Officer, The Dallas Morning News(2)

Donald F. (Skip) Cass, Jr.

   41    Executive Vice President

Alison K. Engel

   36    Senior Vice President/Chief Financial Officer

Daniel J. Blizzard

   49    Senior Vice President

Louis E. Caldera

   51    Director(1)(4)

Douglas G. Carlston

   60    Director(1)(5)

Dealey D. Herndon

   60    Director(1)(2)(5)

Laurence E. Hirsch

   61    Director(1)(4)

J. McDonald Williams

   65    Director(1)(3)

(1) Currently a director of Belo.
(2) A director of Belo after the distribution.
(3) Class III director, current term expires at the 2011 annual meeting.
(4) Class II director, current terms expires at the 2010 annual meeting.
(5) Class I director, current term expires at the 2009 annual meeting.

Robert Decherd has been Belo’s chairman and chief executive officer since January 1987. Robert served as president of Belo from January 1985 through December 1986 and again from January 1994 through February 2007. From January 1984 through December 1986, he served as chief operating officer. Robert is a member of the board of directors, lead director, and chairman of the Executive Committee of Kimberly-Clark Corporation. He serves on the Advisory Council for Harvard University’s Center for Ethics, and the Board of Visitors of the Columbia Graduate School of Journalism. From 2002 to March 2006, Robert served as a member of the FCC’s Media Security and Reliability Council, which is part of President Bush’s Homeland Security initiative.

Jim Moroney has been publisher and chief executive officer of The Dallas Morning News since June 2001. He served as president of Belo Interactive, Inc. from its formation in May 1999 until June 2001 and as executive vice president of Belo from July 1998 through December 1999, with responsibilities for finance, treasury, and investor relations. Prior to 1998, he was president of Belo’s Television Group and held other positions prior to that in Belo’s broadcasting and corporate organizations. Jim joined Belo in November 1978. Jim presently serves on the boards of the Dallas Chamber of Commerce, Cistercian Preparatory School in Dallas, the State Fair of Texas, and the Newspaper Association of America.

Skip Cass currently serves as executive vice president of Belo, overseeing Belo Interactive Media and Belo’s business development activities. Prior to the distribution, he will take on responsibility for Belo Technologies as well. Skip was executive vice president/Media Operations from February 2006 through February 2007, and served as senior vice president from February 2000 through January 2006, including with

 

56


Table of Contents
Index to Financial Statements

responsibility for corporate communications from February 2000 through January 2002. Additionally, Skip had operating responsibility for The Press-Enterprise from January 2000 to January 2006 and for Belo’s Arizona broadcast operations from January 2002 to January 2006.

Ali Engel has been vice president/Corporate Controller for Belo since January 1, 2006. Ali joined Belo in 2003 as director/accounting operations and served as corporate controller from February 2005 to December 2005. From 2000 to 2003, Ali was the assistant controller for EXE Technology, Inc.. Ali is a certified public accountant and has more than 13 years of financial management experience at diversified multi-unit business organizations and PricewaterhouseCoopers.

Dan Blizzard has been vice president/Operations for Belo since January 1, 2001. He has also served as executive vice president/Real Estate for Belo Investment Corporation, a wholly-owned subsidiary of Belo, since January 2007. Dan joined Belo in May 1999 as director/procurement for The Dallas Morning News and served in that position until 2001. He is chairman of the board of DowntownDallas and is a board member of the City Center TIF District, Downtown Connection TIF District, and the Downtown Dallas Development Authority.

Louis Caldera served as president of the University of New Mexico from August 2003 to February 2006, and is currently a tenured member of the University of New Mexico Law School faculty. He served as vice chancellor for university advancement at The California State University from June 2001 to June 2003. Louis was Secretary of the Army in the Clinton Administration from July 1998 until January 2001. He previously served as managing director and chief operating officer for the Corporation for National and Community Service, a federal grant-making agency, from September 1997 to June 1998. Louis serves on the boards of directors of IndyMac Bancorp, Inc. and Southwest Airlines Co..

Doug Carlston has served as chairman of the board of Public Radio International since June 2003, having been a member of that board since March 1997. He also serves as chief executive officer of Tawala Systems, an Internet technology company he co-founded in 2005. Previously, in 1980, Doug co-founded Brøderbund Software, one of the world’s leading publishers of productivity and educational software, and served as chief executive officer from 1991 until 1996 and as chairman of the board from 1981 until 1998. Doug currently serves on the boards of the Albanian American Enterprise Fund, and the Long Now Foundation. He is a member of the Committee on University Resources of Harvard University and the Board of Advisors of John Hopkins School of Advanced International Studies.

Dealey Herndon was president of Herndon, Stauch & Associates, a project and construction management firm, from September 1995 until the business was sold in April 2006. Dealey remains active in the new firm as executive project manager. From January 2001 to October 2001, she also served as director of appointments for Texas Governor Rick Perry. From 1991 to September 1995, she was executive director of the State Preservation Board of the State of Texas and managed the Texas Capitol Restoration in that capacity. Dealey is trustee emeritus of the National Trust for Historic Preservation in Washington, D.C. and is a past chair of the board of trustees of St. Edward’s University in Austin, Texas.

Larry Hirsch is the chairman of Eagle Materials Inc., a construction products company, a position he has held since July 1999. He is also the chairman of Highlander Partners, L.P., a private equity firm. Larry is the former chairman and chief executive officer of Centex Corporation, one of the nation’s largest homebuilders. He was chief executive officer of Centex from July 1988 through March 2004 and chairman of the board from July 1991 through March 2004. Larry serves as chairman of the Center for European Policy Analysis in Washington, D.C.

Don Williams is the former chief executive officer and chairman of Trammell Crow Company, a real estate services firm. He served as chief executive officer from 1977 through July 1994, as chairman of the board from August 1994 to May 2002, and as chairman emeritus from May 2002 until December 2006 when Trammell Crow Company merged with CB Richard Ellis. Don serves on the boards of directors of Tenet Healthcare Corporation,

 

57


Table of Contents
Index to Financial Statements

Abilene Christian University, the Hoblitzelle Foundation, Southern Methodist University’s Perkins School of Theology, and the Foundation for Community Empowerment. He also serves on the Dean’s Council of Harvard University’s John F. Kennedy School of Government.

Robert Decherd and Dealey Herndon are brother and sister. Jim Moroney is their second cousin.

Corporate Governance Guidelines

A. H. Belo’s board of directors expects to adopt Corporate Governance Guidelines, board committee charters, and a Code of Business Conduct and Ethics for directors, officers, and employees based on the same documents and framework as in effect for Belo.

Board Committees

A. H. Belo’s board of directors will establish several standing committees to assist in the discharge of its responsibilities. These committees will include an audit committee, a compensation committee, and a nominating and corporate governance committee. Due to the size of the board, each independent director is expected to serve on each of the three standing committees. Mrs. Herndon and Mr. Decherd will not serve on any of these standing committees. The board of directors may also establish other committees as it deems appropriate, in accordance with applicable Delaware law, NYSE regulation, the Corporate Governance Guidelines, and the bylaws.

Audit Committee

The composition of A. H. Belo’s audit committee is expected to meet the independence requirements of the Exchange Act, the NYSE, and the Corporate Governance Guidelines. A. H. Belo’s board will determine that at least one independent director meets the requirements for being an “audit committee financial expert,” as defined by regulations of the SEC.                          will serve as chairman of the audit committee.

Compensation Committee

A. H. Belo’s compensation committee will have oversight responsibility for the compensation and benefits programs for its directors, executive officers, and other employees. The composition of A. H. Belo’s compensation committee is expected to meet the independence requirements of (1) relevant federal securities laws and regulations, (2) Section 162(m) of the Internal Revenue Code, (3) the NYSE, and (4) the Corporate Governance Guidelines.                      will serve as chairman of the compensation committee.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee will consider and recommend candidates for election to A. H. Belo’s board of directors and advise the board on corporate governance matters. The composition of A. H. Belo’s nominating and corporate governance committee is expected to meet the independence requirements of the NYSE and the Corporate Governance Guidelines.                          will serve as chairman of the nominating and corporate governance committee.

 

58


Table of Contents
Index to Financial Statements

EXECUTIVE COMPENSATION

2006 Belo Executive Compensation

The following information summarizes annual and long-term compensation awarded to, earned by, or paid to A. H. Belo’s principal executive officer, principal financial officer, and its three other most highly-paid executive officers (the “named executive officers”) for services in all capacities to Belo and its subsidiaries for the fiscal year ended December 31, 2006. All references in the following tables to stock and stock options relate to awards of stock and stock options granted by Belo. These amounts do not necessarily reflect the compensation those persons will receive following the distribution which could be higher or lower, because historical compensation was determined by Belo and future compensation levels will be determined based on the compensation policies, programs, and procedures to be established by A. H. Belo’s compensation committee.

 

 

Summary Compensation Table

 

Name and

Principal Position

 

Year

  Salary   Bonus
($)(1)
  Stock
Awards
($)(2)
  Option
Awards
($)(2)
  Non-Equity
Incentive Plan
Compensation
($)(3)
 

Change in
Pension

Value and
Non-qualified
Deferred
Compensation
Earnings
($)(4)

  All Other
Compensation
($)(5)
 

Total

($)

(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)

Robert W. Decherd

Chairman of the Board, President and Chief Executive Officer

  2006   $ 925,000   $ 11,300   $ 1,499,519   $ 1,873,307   $ 1,088,700   $ 52,722   $ 288,945   $ 5,739,493

James M. Moroney III

Publisher and Chief Executive

Officer, The Dallas Morning

News

  2006   $ 510,000   $ 5,900   $ 86,971   $ 394,824   $ 144,100   $ 26,378   $ 77,832   $ 1,246,005

Donald F. (Skip) Cass, Jr.

Executive Vice President

  2006   $ 420,000   $ 71,200   $ 109,866   $ 190,415   $ 253,300   $ 9,160   $ 34,656   $ 1,088,597

Alison K. Engel

Senior Vice President/ Chief Financial Officer

  2006   $ 175,000   $ 21,100   $ 15,121   $ 8,475   $ 68,700     —     $ 13,049   $ 301,445

Daniel J. Blizzard

Senior Vice President

  2006   $ 201,500     —     $ 14,448   $ 47,001   $ 79,100     —     $ 8,937   $ 350,986

(1) The amounts in column (d) for Robert Decherd and Jim Moroney represent the portion of the cash incentive award that was in excess of the formula under Belo’s 2004 Executive Compensation Plan (“ECP”) due to a rounding upward of the named executive officer’s award. The amounts for Ali Engel and Skip Cass represent the cash portion of a special one-time award in recognition of their contributions to the success of Belo’s strategic initiatives during the year.
(2) The amounts in columns (e) and (f) reflect accounting expense recognized in 2006 for all outstanding share-based compensation issued in the form of time-based restricted stock units (“TBRSUs”), performance-based restricted stock units (“PBRSUs”), and stock options. The amounts reported in columns (e) and (f) above were recognized according to the rules of Statement of Financial Accounting Standard Number 123 as Revised (“FAS 123R”), which requires recognition of the fair value of stock-based compensation over the appropriate vesting period for the award. Expense amounts include dividend equivalents, but exclude risk of forfeiture assumptions for purposes of this disclosure. Plan provisions provide for accelerated vesting of equity awards for terminating employees that meet the criteria for early retirement (age 55 or more with three years of service). Therefore, under FAS 123R, expense for equity awards for employees that meet the early retirement criteria must be fully recognized in the year of the award. Robert Decherd meets these criteria. The amounts in column (e) for both Skip Cass and Ali Engel include the compensation expense associated with special TBRSU awards of 1,570 and 460, respectively, which instead of a three-year vesting period, have a one-year vesting period. These RSUs were awarded along with the cash component in column (d), as described in footnote 1, in recognition of their contributions toward the success of Belo’s strategic initiatives during the year.

The grant date fair value of stock and option awards in 2006 is presented in the “Grants of Plan-Based Awards in 2006” table. For additional discussion on assumptions made in determining the grant date fair value of share-based awards, see the Combined Financial Statements, Note 4—Long-Term Incentive Plan to the combined financial statements.

 

59


Table of Contents
Index to Financial Statements
(3) Amounts in column (g) above were paid during the first quarter of 2007 in respect of 2006 performance relative to financial performance targets and goals. Belo does not allow for the deferral of any amounts earned by its executives outside of the Belo Savings Plan, a qualified 401(k) plan available to substantially all employees.
(4) The amounts indicated in column (h) are comprised of the increase in pension value for each named executive officer from the year ended December 31, 2005 to the year ended December 31, 2006. Ali Engel and Dan Blizzard do not participate in the pension plan; therefore, no amounts are reported in column (h) for either.
(5) For 2006, Belo contributed the following amounts to the Belo Savings Plan and the Belo Supplemental Executive Retirement Plan (“SERP”), which amounts are included in column (i):

 

Name

   Belo Savings
Plan
Contribution($)
   SERP
Contribution($)
      (a)    (b)

Robert W. Decherd

   $ 7,260    $ 271,055

James M. Moroney III

   $ 7,260    $ 70,572

Donald F. (Skip) Cass, Jr.

   $ 7,260    $ 27,396

Alison K. Engel

   $ 13,049      —  

Daniel J. Blizzard

   $ 8,937      —  

The SERP contribution for Robert Decherd indicated above includes a $90,233 make-up contribution attributable to his previous participation in Belo’s Management Security Plan (“MSP”), which was terminated December 31, 1999. Because Ali Engel and Dan Blizzard do not participate in the Pension Plan, each is eligible for a larger company contribution to their Belo Savings Plan account. Neither Ms. Engel nor Mr. Blizzard was a participant in the SERP during 2006.

Additionally, amounts in the All Other Compensation column (i) for 2006 include $7,420 for life insurance purchased for Robert Decherd and $3,210 for tax gross up. Of this amount, $1,882 is related to the life insurance mentioned previously and $1,328 relates to Belo’s MSP make-up contribution to the SERP.

The total value of executive perquisites and personal benefits did not exceed $10,000 for any named executive officer.

 

60

 


Table of Contents
Index to Financial Statements

The following table summarizes cash-based and equity awards that were granted under the Belo ECP during 2006.

 

 

Grants of Plan-Based Awards in 2006

 

                         Performance-Related RSUs   Time-
Based
RSUs
  Stock Options     
    

Grant
Date

  Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
  Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)
 

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(3)

 

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#) (4)

 

Exercise or
Base price
of Option
Awards

($/Sh)

 

Grant
Date Fair
Value of
Stock and
Option
Awards
($)(5)

Name

    Threshold
($)
  Target
($)
  Maximum
($)
  Threshold
(#)
  Target
(#)
  Maximum
(#)
       
(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)   (k)   (l)

Robert W. Decherd

  2/28/2006     —       —       —     —     —     —     59,500   —       —     $ 1,263,780
   

12/13/2006

12/13/2006

  $

 

88,650

—  

  $

 

886,500

—  

  $

 

1,773,000

—  

  5,244

—  

  52,440

—  

  104,880

—  

  —  

—  

  —  

157,320

   

$

—  

18.09

  $

$

948,640

774,014

James M. Moroney III

  2/28/2006     —       —       —     —     —     —     13,900   —       —     $ 295,236
    12/13/2006   $ 34,320   $ 343,200   $ 686,400   2,414   24,140   48,280   —     —       —     $ 436,693

Donald F. (Skip) Cass, Jr.

  12/1/2006   $ 22,500   $ 225,000   $ 450,000   1,907   19,070   38,140   19,070   —       —     $ 692,622
    12/1/2006               1,570   —       —     $ 28,511

Alison K. Engel

  12/1/2006   $ 5,511   $ 55,110   $ 110,220   318   3,180   6,360   3,180   —       —     $ 115,498
    12/1/2006     —       —       —     —     —     —     460   —       —     $ 8,354

Daniel J. Blizzard

  12/1/2006   $ 6,225   $ 62,250   $ 124,500   238   2,380   4,760   2,380   —       —     $ 86,442

(1) The estimated future payouts under non-equity incentive plan awards are subject to a performance period that begins on January 1, 2007 and ends on December 31, 2007. The target amounts indicated in the table represent an established percent of the executive’s stated annual base salary, with the actual range of award starting at 10 percent of the target for threshold level performance up to 200 percent of the target award for performance that is at or above the maximum level of performance. Performance criteria for Robert Decherd, Ali Engel, and Dan Blizzard are based upon reported earnings per share for Belo. Other named executive officer’s non-equity incentive award is based upon attainment of certain financial goals set for the specific Belo operating companies or areas of responsibility reporting to the named executive. Final attainment percentages may be adjusted for significant or unusual events or circumstances that are deemed to be excludable based upon the determination of Belo’s compensation committee. Non-equity incentive awards in the form of cash bonuses are generally paid in the first quarter of the year following the performance period, subject to approval or certification of performance achievement by Belo’s compensation committee.
(2) The PBRSUs awarded in December 2006 are subject to a performance period that begins January 1, 2007 and ends December 31, 2007. One-third of the earned PBRSU award will vest on the later of the earnings release date for the fiscal year ending December 31, 2007 or the date on which the 2007 performance criteria is certified by Belo’s compensation committee. PBRSUs are paid 60 percent in shares of Belo Series A common stock and 40 percent in cash. The remaining two-thirds of the earned award are subject to additional employment-based vesting criteria and receive dividend equivalents. One-half of the remaining earned award will vest on the earnings release date for Belo for the year ending December 31, 2008 and the final portion will vest on the earnings release date for Belo for the year ending December 31, 2009.
(3) The TBRSUs awarded February 28, 2006 are in recognition of 2005 performance. Following the conclusion of the fiscal year ending December 31, 2005, financial performance was evaluated and an incentive pool was established for providing incentive compensation to named executive officers, Robert Decherd and Jim Moroney, including TBRSUs. The TBRSUs approved by Belo’s compensation committee for each executive receiving such an award on this date are subject to a vesting period that ends on the date of the annual earnings release for Belo for the year ending December 31, 2008, and receive dividend equivalents in such amounts and such frequency as those declared on Belo Series A common stock.

The 19,070, 3,180, and 2,380 TBRSUs awarded December 1, 2006 to Skip Cass, Ali Engel, and Dan Blizzard, respectively, are in recognition of 2006 performance. The TBRSUs approved by Belo’s compensation committee for each executive receiving such an award on this date are subject to a vesting period that ends on the date of the annual earnings release for Belo for the year ending December 31, 2009, and receive dividend equivalents in such amounts and such frequency as those declared on Belo Series A common stock. As set forth in footnote 2 to the Summary Compensation Table, Skip Cass and Ali Engel also received a special one-time award of 1,570 TBRSUs and 460 TBRSUs, respectively, in recognition of their contributions toward the success of Belo’s strategic initiatives for 2006. These TBRSUs have a one-year vesting period and will be paid out as of the date of the annual earnings release for the year ending December 31, 2007.

(4)

The stock options awarded December 13, 2006 are in recognition of 2006 performance. The options vest over a three-year period, measured from the date of grant with 40 percent vesting on the one-year anniversary of the grant, 30 percent vesting on the two-year anniversary of the grant and

 

61


Table of Contents
Index to Financial Statements
 

30 percent on the three-year anniversary of the grant. Options are granted with an exercise price equivalent to the closing market price for a share of Belo Series A common stock on the grant date. Unexercised options expire on the tenth anniversary of the date of the grant. Belo has never repriced options or made similar modifications to outstanding awards, except as necessary to prevent dilution of options holdings due to stock dividends and stock splits.

(5) The grant date fair value for Robert Decherd’s stock option award in column (j) is based upon a Black-Scholes-Merton value of $4.92 per option, which was determined based on the following assumptions: volatility (measured as the annualized standard deviation of the sample, generally determined over the estimated life of the option)—.28; risk free rate of return—4.54 percent; dividend yield—2.76 percent; estimated life—7 years. The fair value estimates indicated above do not include any adjustments for risk of forfeiture. The fair value for the TBRSUs awarded February 28, 2006 is based on the closing market price of Series A Belo common stock on that date, which was $21.24. The fair value of the TBRSUs and PBRSUs awarded December 1 and December 13, 2006 assumes a payout at the target level of performance and uses the closing market price for a share of Belo Series A common stock on the grant date of $18.16 for the December 1 awards and $18.09 for the December 13 awards.

For 2006, the proportion of equity-based compensation in relation to total compensation, excluding changes in pension value and above-market interest from non-qualified deferred compensation plans, for each of the named executive officers was as follows: Robert Decherd-59 percent; Jim Moroney-40 percent; Skip Cass-28 percent; Ali Engel-8 percent; and Dan Blizzard-18 percent.

 

62


Table of Contents
Index to Financial Statements

Equity Holdings and Value Realization

The following table contains information on all equity awards that were outstanding as of December 31, 2006.

 

 

Outstanding Equity Awards at Fiscal Year-End 2006

 

     Option Awards   Stock Awards

Name

  Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
(1)
  Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
(1)
 

Option
Exercise
Price

($)

  Option
Expiration
Date
 

Number of
Shares or
Units of
Stock That

Have Not
Vested

#(2)

 

Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested

($)(3)

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That

Have Not
Vested

(#)(4)

 

Equity
Incentive
Plan
Awards-
Market
Value of
Unearned
Units

($)

   (a)   (b)   (c)   (e)   (f)   (g)   (h)   (i)   (j)

Robert W. Decherd

  —     157,320   $ 18.0900   12/13/2016   59,500   $ 1,093,015   104,880   $ 1,926,646
    44,800   67,200   $ 21.6200   12/09/2015   32,692   $ 600,552      
    140,000   60,000   $ 25.2000   12/03/2014          
    200,000     $ 27.9400   12/05/2013          
    200,000     $ 21.5900   12/06/2012          
    410,000     $ 17.8800   11/30/2011          
    410,000     $ 17.3125   12/01/2010          
    340,000     $ 19.1250   12/16/2009          
    200,000     $ 17.7500   12/16/2008          
    200,000     $ 26.3750   12/19/2007          
    20,000     $ 22.1600   7/24/2007          

James M. Moroney III

  11,000   16,500   $ 21.6200   12/09/2015   13,900   $ 255,343   48,280   $ 886,904
    59,500   25,500   $ 25.2000   12/03/2014   871   $ 16,000      
    75,000     $ 27.9400   12/05/2013          
    76,000     $ 21.5900   12/06/2012          
    104,000     $ 17.8800   11/30/2011          
    100,000     $ 17.3125   12/01/2010          
    90,500     $ 19.1250   12/16/2009          
    50,000     $ 17.7500   12/16/2008          
    49,400     $ 26.3750   12/19/2007          

Donald F. (Skip) Cass, Jr.

  8,200   12,300   $ 21.6200   12/09/2015   8,000   $ 146,960      
    23,800   10,200   $ 25.2000   12/03/2014   19,070   $ 350,316   38,140   $ 700,632
    34,000     $ 27.9400   12/05/2013   1,570   $ 28,841      
    34,000     $ 21.5900   12/06/2012   5,166   $ 94,899      
    43,000     $ 17.8800   11/30/2011          
    24,000     $ 19.1250   12/16/2009          
    3,600     $ 26.3750   12/19/2007          

Alison K. Engel

  1,400   2,100   $ 21.6200   12/09/2015   2,000   $ 36,740      
              3,180   $ 58,417   6,360   $ 116,833
              460   $ 8,450      

Daniel J. Blizzard

  2,000   3,000   $ 21.6200   12/09/2015   2,000   $ 36,740      
    6,300   2,700   $ 25.2000   12/03/2014   2,380   $ 43,721   4,760   $ 87,441
    8,000     $ 27.9400   12/05/2013          
    8,500       $ 21.5900   12/06/2012                    

 

63


Table of Contents
Index to Financial Statements

(1) Vesting dates for each outstanding option award for the named executive officers are:

 

Vesting Date

  Exercise
Price
  Robert W.
Decherd
 

James M.

Moroney III

  Donald F. (Skip)
Cass, Jr.
 

Alison K. 

Engel

 

Daniel J.

Blizzard

December 3, 2007

  $ 25.20   60,000   25,500   10,200   —     2,700

December 9, 2007

  $ 21.62   33,600   8,250   6,150   1,050   1,500

December 13, 2007

  $ 18.09   62,928   —     —     —     —  

December 9, 2008

  $ 21.62   33,600   8,250   6,150   1,050   1,500

December 13, 2008

  $ 18.09   47,196   —     —     —     —  

December 13, 2009

  $ 18.09   47,196   —     —     —     —  

All stock options become exercisable in increments of 40 percent after one year and 30 percent after each of years two and three. Upon the occurrence of a change in control (as defined in the plan), all of the options become immediately exercisable, unless Belo’s Board of Directors has adopted resolutions making the acceleration provisions inoperative (or does so promptly following such occurrence). See also footnote 2 to the Summary Compensation Table of this information statement regarding vesting upon early retirement.

 

(2) The amounts in column (g) reflect unvested TBRSUs and PBRSUs, respectively, that have been earned as of December 31, 2006, but which remain subject to additional vesting requirements that depend upon the executive’s continued employment.

Scheduled vesting of all outstanding RSU awards for each of the named executive officers is as follows:

 

Projected Vesting Date*

 

Award
Type

  Robert W.
Decherd**
 

James M.

Moroney III**

  Donald F. (Skip)
Cass, Jr.
 

Alison K.

Engel

 

Daniel J.

Blizzard

February 1, 2008

  PBRSU   16,346   435   2,582   —     —  

February 1, 2008

  TBRSU   —     —     1,570   460   —  

February 1, 2009

  PBRSU   16,346   436   2,584   —     —  

February 1, 2009

  TBRSU   59,500   13,900   8,000   2,000   2,000

February 1, 2010

  TBRSU   50,920   23,440   19,070   3,180   2,380
 
  * February 1 is used as a projected earnings release date for purposes of this disclosure. Actual vesting date is the later of the earnings release date for Belo for the previous completed fiscal year ending December 31 or the date on which the related performance criteria are certified by Belo’s compensation committee. See also footnote 2 to the Summary Compensation Table of this information statement regarding vesting upon early retirement.
  ** The TBRSUs with a February 1, 2010 vesting date for Robert Decherd and Jim Moroney were awarded February 28, 2007 in respect of 2006 performance. These awards are not included in the table of outstanding equity awards at fiscal year-end 2006 of this information statement because they had not been awarded as of December 31, 2006.

 

(3) The market value at year-end for outstanding awards still subject to vesting is based on the closing market price of a share of Belo Series A common stock for the year ended December 31, 2006 of $18.37.
(4) Awards indicated in column (i) represent the maximum level of PBRSUs that could be earned by the named executives based on 200 percent of the target level awards made in December 2006. These PBRSUs are subject to the satisfaction of certain financial performance criteria that have been established by Belo’s compensation committee for fiscal year 2007. The financial performance criteria used to determine the number of PBRSUs earned by the named executive are generally the same as those used to calculate the non-equity incentive awards made under the ECP. One-third of the earned PBRSU award will vest on the later of the earnings release date for Belo for the year ending December 31, 2007 or the date on which the 2007 performance criteria are certified by Belo’s compensation committee. One-half of the remaining earned award will vest on the earnings release date for Belo for the year ending December 31, 2008 and the final portion will vest on the earnings release date for Belo for the year ending December 31, 2009. All earned PBRSUs not yet paid are subject to additional vesting requirements that are dependent upon the executive’s continued employment.

 

64


Table of Contents
Index to Financial Statements

The following table presents information on amounts realized from options that were exercised during the 2006 fiscal year.

 

 

Option Exercises and Stock Vested in 2006(1)

 

      Option Awards

Name

   Number of Shares
Acquired on
Exercise(#)
   Value Realized on
Exercise($)
   (a)    (b)    (c)(2)

Robert W. Decherd

   336,000    $ 332,640

James M. Moroney III

   46,000    $ 41,280

Donald F. (Skip) Cass, Jr.  

   —        —  

Alison K. Engel

   —        —  

Daniel J. Blizzard

   —        —  

(1) No RSUs vested during 2006.
(2) The value realized upon the exercise of stock option awards is equal to the difference between the market value of Belo Series A common stock at the time of exercise and the stock option exercise price, multiplied by the number of shares acquired upon exercise of the stock option.

Post-Employment Benefits

Pension Plan. Belo offers pension benefits to certain employees through its tax-qualified pension plan, The G. B. Dealey Retirement Pension Plan (the “Pension Plan”). Until July 1, 2000, this non-contributory pension plan was available to substantially all Belo employees who had completed one year of service and had reached 21 years of age. The Pension Plan was amended effective July 1, 2000, with respect to employees other than members of the Providence Newspaper Guild (“Guild Employees”), and effective August 1, 2004 with respect to Guild Employees, to exclude employees hired or rehired after the applicable effective date from eligibility to participate in the Pension Plan. As a result, individuals who were participants or eligible to become participants prior to July 1, 2000 for non-Guild Employees and prior to August 1, 2004 for Guild Employees, were offered an election to either (1) remain eligible to participate in and accrue benefits under the Pension Plan, or (2) cease accruing benefits under the Pension Plan as of the applicable effective date. Those employees who elected to cease accruing benefits under the Pension Plan became eligible for enhanced benefits under the Belo Savings Plan, a tax-qualified defined contribution plan. Persons who are participants in the Pension Plan as a Belo employee will remain a participant in the Pension Plan if they become an employee of A. H. Belo.

The Pension Plan provides for the payment of a monthly retirement benefit based on credited years of service and average monthly compensation during the five consecutive years of highest annual compensation out of the ten most recent calendar years of employment referred to as “final monthly compensation.” The formula for determining an individual participant’s benefit is as follows: 1.1 percent times final monthly compensation times years of credited service plus .35 percent times final monthly compensation in excess of covered compensation times years of credited service (up to 35 years). Compensation under the Pension Plan includes regular pay plus overtime, bonuses, commissions, and any contribution made by Belo on behalf of an employee pursuant to a deferral election under any benefit plan containing a cash or deferred arrangement. Covered compensation is the average of the Social Security taxable wage bases over the 35-year period ending with the calendar year in which a participant will attain Social Security retirement age. A participant’s interest in the Pension Plan ordinarily becomes fully vested upon completion of five years of credited service, or upon attainment of age 62, whichever first occurs. However, as a result of the plan amendment described above, any participant employed by Belo on July 1, 2000 for non-Guild Employees and on August 1, 2004 for Guild Employees is fully vested without regard to years of service or the age of the participant. Retirement benefits

 

65


Table of Contents
Index to Financial Statements

under the Pension Plan are paid to participants upon normal retirement at the age of 65 or later, or upon early retirement, which may occur as early as age 55. An early retirement reduction factor, which is applied to the participant’s normal age 65 monthly benefit, is based on the participant’s Social Security normal retirement age. The percentage reduction factor is the sum of 3.33 percent times the number of years of payment between ages 55 and 60 increased for each year the Social Security normal retirement age exceeds age 65, plus 6.67 percent times the number of years between ages 60 and 65 decreased for each year the Social Security normal retirement age exceeds age 65. For example, a participant with a Social Security normal retirement age of 67 who elects to begin receiving pension benefits at age 57 would have a reduction factor of 36.7 percent. The Pension Plan also provides for the payment of death benefits. The covered compensation of the named executive officers who are participants in the Pension Plan comprises base salary and cash incentive compensation received, up to a limit of $220,000 for all participants in 2006.

The table below presents the present value of each named executive officer’s benefit under the Pension Plan at age 65, based upon credited years of service and covered compensation as of December 31, 2006.

 

Pension Benefits at December 31, 2006

 

Name

  

Plan Name

   Number
of Years
of
Credited
Service
(#)(1)
   Present Value of
Accumulated
Benefit ($)(2)
   (a)    (b)    (c)    (d)

Robert W. Decherd

   The G. B. Dealey Retirement Pension Plan    33    $ 546,236

James M. Moroney III

   The G. B. Dealey Retirement Pension Plan    26    $ 293,354

Donald F. (Skip) Cass, Jr.  

   The G. B. Dealey Retirement Pension Plan    13    $ 87,083

Alison K. Engel(3)

   The G. B. Dealey Retirement Pension Plan         —  

Daniel J. Blizzard(3)

  

The G. B. Dealey Retirement Pension Plan

        —  

(1) As announced in the fourth quarter 2006, Belo froze benefits under the Pension Plan effective March 31, 2007, and is providing transition benefits to affected employees, including the granting of five years of additional credited service. The number of years of credited service reflected in column (c) and the present value of accumulated benefit reflected in column (d) do not include the 5-year credit. As of October 1, 2007, the present value of the accumulated benefit for each of the named executive officers, including the additional 5 years of credited service as well as service for the period from December 31, 2006 through March 31 2007, the date of the freeze, was: Robert Decherd, $772,130; Jim Moroney, $374,175; and Skip Cass, $125,317.
(2) Belo’s pension costs and obligations are calculated using various actuarial assumptions and methodologies as prescribed under SFAS 87—Employers’ Accounting for Pensions, as amended by SFAS 158—Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. To assist in developing these assumptions and methodologies, Belo uses the services of an independent consulting firm. To determine the benefit obligations, the assumptions Belo uses include, but are not limited to, the selection of the discount rate and projected salary increases. For additional information regarding the valuation methodology and material assumptions used in quantifying the pension benefits, see the Combined Financial Statements, Note 6—Defined Benefit Pension and Other Post Retirement Plans. At December 31, 2006, Robert Decherd is eligible to receive benefits under the early retirement provisions of the Pension Plan.
(3) Ali Engel and Dan Blizzard do not participate in the Pension Plan.

Non-Qualified Deferred Compensation

Supplemental Executive Retirement Plan. The Belo SERP provides a supplemental retirement benefit to key executives beyond the qualified retirement benefits allowed by the IRS. Federal tax law limits the amount of

 

66


Table of Contents
Index to Financial Statements

annual pay ($220,000 in 2006) that can be used in calculating benefits under qualified plans such as the Pension Plan and the Belo Savings Plan.

The SERP is a non-qualified defined contribution plan to which Belo makes annual contributions on behalf of its participants. To determine the amount of the annual Belo contribution, the value of a participant’s age 65 retirement benefit using the same benefit formula as that used in the Pension Plan, is projected with and without regard to IRS limits. The value of the difference between the two projected amounts is the projected SERP benefit. Every three years, the projected SERP benefit and the annual contribution amount necessary to fund the projected SERP benefit is calculated using certain assumptions about future eligible earnings and the investment rate of return. This amount is contributed annually to a rabbi trust and becomes subject to market gains and losses. The trust remains a general asset of Belo and is subject to the claims of Belo’s creditors.

The balance in each named executive officer’s SERP account is made up of the total of Belo’s contributions plus an allocation of the investment gains and losses of the trust that holds account balances. Executives with three years of continuous service with Belo are fully vested in their SERP account balance. Executives are not permitted to make contributions to the SERP.

An executive’s vested SERP balance is paid in a single lump sum following termination of his or her employment with Belo. Payment is made no sooner than six months after his or her last day of employment. An executive may be allowed to defer the distribution of a portion of his or her SERP balance, provided that portion qualified for “grandfather” status as of January 1, 2005, under section 409A of the Code. “Grandfather” status was granted as of January 1, 2005, to executives in the SERP aged 60 or more or with account balances of $450,000 or more. The payout of account balances subject to “grandfather” status is eligible for deferral under certain conditions and alternative forms of distribution may also be elected. Robert Decherd and Jim Moroney each have a SERP balance that qualifies for “grandfather” status. However, at this time, none of the named executive officers have initiated the required procedures necessary to exercise their right to defer distribution of their SERP benefit in the future.

The table below presents the allocation in the SERP for each named executive officer:

 

Non-Qualified Deferred Compensation for 2006

 

Name

  

Registrant
Contributions
in Last FY

($)(1)

  

Aggregate
Earnings
in Last FY

($)

  

Aggregate
Balance at
Last FYE

($)(1)(2)

   (a)    (c)    (d)    (f)

Robert W. Decherd

   $ 271,055    $ 510,638    $ 3,783,921

James M. Moroney III

   $ 70,572    $ 97,645    $ 742,307

Donald F. (Skip) Cass, Jr.  

   $ 27,396    $ 18,596    $ 155,327

Alison K. Engel

     —        —        —  

Daniel J. Blizzard

     —        —        —  

(1) The contribution amounts presented in column (c) are also included in column (f), above, and included in column (i) “All Other Compensation” of the Summary Compensation Table of this information statement. Ali Engel and Dan Blizzard were not participants in the SERP in 2006.
(2) Amounts indicated in column (f) represent each named executive officer’s allocated balance from the Belo SERP. The SERP is an account balance plan; therefore, the accumulated balance in each participant’s account is available as a lump sum distribution in the event of termination for any reason, other than “cause” as determined by Belo’s compensation committee.

 

67


Table of Contents
Index to Financial Statements

Termination of Employment and Change in Control Arrangements

The following descriptions reflect the amount of compensation that would have become payable to each of the named executive officers under existing arrangements if the named executive’s employment had terminated and/or there had been a change in control on December 31, 2006, given the named executive’s compensation and service levels as of such date and, if applicable, based on Belo’s closing stock price on that date. These amounts are in addition to benefits that were available without regard to the occurrence of any termination of employment or change in control, including then-exercisable stock options, and benefits available generally to salaried employees.

Except as described below, at December 31, 2006 Belo did not have written agreements with any of the named executive officers that would provide guaranteed payments or benefits in the event of a termination of employment or a change in control. Effective October 1, 2007, Belo adopted a change in control severance plan. A. H. Belo is expected to adopt a similar plan effective on the distribution date.

 

68


Table of Contents
Index to Financial Statements

The approximate value of the severance benefits available to each of the named executive officers under the ECP if he or she had been terminated, or had there been a change in control, on December 31, 2006, would have been as follows, based on a closing market price of $18.37 for Belo’s Series A common stock for the year ended December 31, 2006:

 

Potential Payments on Termination or Change in Control at December 31, 2006

 

Name and Description of Benefit

   Change-in-Control    Death, Disability or
Retirement After
Age 55 with Three
Years Service
                          (a)                               (b)    (c)

Robert W. Decherd

       

Non-equity incentives(1)

   $ 1,088,700      —  

Stock Options(2)

   $ 44,050    $ 44,050

Time-based RSUs(3)

   $ 1,093,015    $ 1,093,015

Performance-related RSUs(4)

   $ 1,864,165    $ 900,842
               

Total

   $ 4,089,930    $ 2,037,907
   

James M. Moroney III

       

Non-equity incentives(1)

   $ 306,000      —  

Stock Options(2)

     —        —  

Time-based RSUs(3)

   $ 255,343    $ 255,343

Performance-related RSUs(4)

   $ 627,152    $ 23,991
               

Total

   $ 1,188,495    $ 279,334
   

Donald F. (Skip) Cass, Jr.

       

Non-equity incentives(1)

   $ 253,300      —  

Stock Options(2)

     —        —  

Time-based RSUs(3)

   $ 526,117    $ 526,117

Performance-related RSUs(4)

   $ 497,276    $ 142,331
               

Total

   $ 1,276,693    $ 668,448
   

Alison K. Engel

       

Non-equity incentives(1)

   $ 68,700      —  

Stock Options(2)

     —        —  

Time-based RSUs(3)

   $ 103,607    $ 103,607

Performance-related RSUs(4)

   $ 58,417      —  
               

Total

   $ 230,724    $ 103,607
   

Daniel J. Blizzard

       

Non-equity incentives(1)

   $ 79,100      —  

Stock Options(2)

     —        —  

Time-based RSUs(3)

   $ 80,461    $ 80,461

Performance-related RSUs(4)

   $ 43,721      —  
               

Total

   $ 203,282    $ 80,461

(1) In the event of a change in control, short-term, non-equity incentives (cash bonuses) are paid in a lump sum to each executive at the higher of target or actual financial performance based on current full-year forecasted results (taking into consideration actual financial performance to date). Cash bonuses are not automatically paid for executives terminating under other circumstances.
(2)

All stock options, vested or unvested, are forfeited immediately in the event an executive is terminated for cause or voluntarily resigns. In the event of a change in control or an executive’s retirement after age 55 with at least three years of service, qualification for long-term disability, or death, vesting of all option holdings is accelerated and all vested options will remain exercisable until the original expiration date of

 

69


Table of Contents
Index to Financial Statements
 

that option (10 years from the date of grant). If any named executive officer is terminated without cause, vested options will remain exercisable for a period of one year from the date of the executive’s termination of employment. Unvested options are forfeited immediately.

(3) All unvested TBRSUs are forfeited immediately in the event an executive is terminated with or without cause or voluntarily resigns. In the event of a change in control or an executive’s retirement after age 55 with at least three years of service, qualification for long-term disability, or death, vesting of all TBRSUs is accelerated and payment is made as soon as practicable.
(4) All unvested PBRSUs are forfeited immediately in the event an executive is terminated with or without cause or voluntarily resigns. In the event of an executive’s retirement after age 55 with at least three years of service, qualification for long-term disability, or death, vesting of all earned but unvested PBRSUs is accelerated and payment is made as soon as practicable. In the event of a change in control, unearned PBRSUs are earned and paid at the higher of target or actual financial performance based on current full-year forecasted results (taking into consideration actual financial performance to date).

A. H. Belo Compensation Arrangements

A. H. Belo expects to adopt, effective as of the distribution date, benefit plans substantially similar to Belo’s benefit plans, including the Belo ECP, the Belo Savings Plan, the Belo SERP, and the Belo change in control severance plan, as well as employee health and welfare plans.

 

70


Table of Contents
Index to Financial Statements

DIRECTOR COMPENSATION

Belo Director Compensation for 2006

During 2006, non-employee directors of Belo received an annual retainer package with a nominal value of $140,000. One-half of the Belo board’s annual retainer was divided between options to purchase Belo Series B common stock and TBRSUs for Belo Series A common stock. The number of options awarded was determined using an option valuation model that approximates a Black-Scholes-Merton value as of the date of the award. The number of TBRSUs awarded was derived from the number of options on a formula of three-for-one. Belo directors may elect to receive all or a portion of the remaining amount of their annual retainer in additional stock options for Belo Series B common stock or in cash. Awards are made effective with the date of the Belo annual shareholders meeting, which is generally in early May of each year.

Belo directors who served as committee chairs in 2006 received an additional $10,000 in cash compensation. Belo reimburses all directors for travel expenses incurred in attending meetings. No additional fee is paid to directors for attendance at Belo board and committee meetings. Robert Decherd, chairman of the board and chief executive officer of Belo, does not receive separate compensation for Belo board service.

 

Name

 

Fees Earned or
Paid in Cash

($)

  

Stock

Awards
($)(1)

   Option
Awards
($)(2)
  

Total

($)

  (a)   (b)    (c)    (d)    (h)

Louis E. Caldera

  $ 70,000    $ 26,391    $ 33,479    $ 129,870

Douglas G. Carlston(3)

    —        —        —        —  

Dealey D. Herndon

  $ 70,000    $ 26,391    $ 33,479    $ 129,870

Laurence E. Hirsch

    —      $ 26,391    $ 84,238    $ 110,629

J. McDonald Williams

  $ 80,000    $ 26,391    $ 33,479    $ 139,870

(1) TBRSUs were awarded to non-employee directors for the first time in 2006 and, as of December 31, 2006, each non-employee director held 2,205 TBRSUs. The amounts indicated in column (c) for stock awards are based on the accounting expense recognized by Belo under the requirements of FAS 123R, which includes dividend equivalents. Expense is recorded over the one-year vesting period for each award beginning at the time of grant, which was the date of the Belo annual meeting of shareholders on May 9, 2006. The actual grant date fair value of these awards was $39,602 for each director. Once vested, the TBRSUs are paid two years later, on the date of the Belo annual meeting of shareholders three years from the date of the original award. Payment of vested RSUs is made 60 percent in shares of Belo Series A common stock and 40 percent in cash.

Belo directors who voluntarily resign or retire from board service prior to the vesting of TBRSUs will receive a proportionate amount of the award based on actual service. Payment will be made on the normal payment date, which is three years from the date of the award. Vesting is accelerated and payment is made immediately for TBRSUs held by a director who becomes disabled or dies.

 

(2)

Amounts indicated in column (d) for option awards represent the accounting expense recognized by Belo in 2006 under the requirements of FAS 123R for stock options held by non-employee directors. Belo uses the Black-Scholes-Merton option pricing model to determine the fair value of options. The grant date fair value for the option awards made to each Belo non-employee director, with the exception of Larry Hirsch, was $26,725. The grant date fair value of Larry’s award was $80,174. For additional information with respect to the assumptions and valuation methodology for share-based compensation, see the Combined Financial Statements, Note 4—Long-Term Incentive Plan. The option exercise price is equal to the closing market price of Belo Series A common stock on the date of grant. Options vest one year from the date of grant and expire 10 years from the date of grant. Belo directors who voluntarily resign from board service prior to the

 

71


Table of Contents
Index to Financial Statements
 

vesting of options forfeit unvested options. Vesting is accelerated for options held by a director who retires, becomes disabled, or dies. In any event, vested options remain exercisable for the original term of the award for all former directors. Following are the stock option holdings of each of Belo’s non-employee directors as of December 31, 2006:

 

Name

   Outstanding
Stock Options
   Exercisable
Stock Options

Louis E. Caldera

   44,440    37,825

Douglas G. Carlston(3)

   —      —  

Dealey D. Herndon

   76,637    70,022

Laurence E. Hirsch

   130,555    110,710

J. McDonald Williams

   99,116    92,501

 

(3) Doug Carlston was elected to Belo’s board on July 26, 2007. At that time, Doug Carlston received a pro rated portion of his 2007 director compensation consisting of $55,243 in cash, 1,482 TBRSUs, and 5,134 options to purchase Belo Series B common stock at an exercise price of $18.64 per share.

A. H. Belo Director Compensation

Non-employee directors of A. H. Belo will receive an annual retainer package with a nominal value of $140,000. One-half of the board’s annual retainer will be divided between options to purchase A. H. Belo Series B common stock and TBRSUs for A. H. Belo Series A common stock. The number of options awarded will be determined using a Black-Scholes-Merton value as of the date of the award. The number of TBRSUs awarded will be determined by the closing market price of A. H. Belo Series A common stock on the date of the award. Directors may elect to receive all or a portion of the remaining amount of their annual retainer in additional stock options for A. H. Belo Series B common stock or in cash. Awards will be made effective with the date of the annual shareholders meeting, which is generally expected to be held in early May of each year.

Directors who serve as committee chairs will receive an additional $10,000 in cash compensation. A. H. Belo will reimburse all directors for travel expenses incurred in attending meetings. No additional fee will be paid to directors for attendance at board and committee meetings. Robert W. Decherd, the chairman of the board, president and chief executive officer of A. H. Belo, will not receive separate compensation for board service.

 

72


Table of Contents
Index to Financial Statements

PRINCIPAL SHAREHOLDERS

Ownership of Belo and A. H. Belo Common Stock

All of A. H. Belo’s outstanding shares are, and immediately prior to the distribution will be, held beneficially and of record by Belo, and none of A. H. Belo’s directors or executives own any A. H. Belo shares. The following tables set forth information as of September 30, 2007 regarding (1) the beneficial ownership of Belo common stock by each of A. H. Belo directors and named executive officers, all of A. H. Belo directors and executive officers as a group, and each other person known to us who beneficially owns 5 percent or more of the outstanding shares of Belo Series A or Series B common stock and (2) the approximate beneficial ownership of A. H. Belo common stock that will be held by such persons immediately upon completion of the distribution, assuming there are no changes in such person’s holdings since September 30, 2007 and based on our estimates as of September 30, 2007 using an expected distribution number of              share of A. H. Belo Series A common stock for every Belo Series A common stock and              share of A. H. Belo Series B common stock for every Belo Series B common stock. At the close of business on September 30, 2007, 87,994,087 shares of Belo Series A common stock and 14,243,274 shares of Belo Series B common stock were issued and outstanding. A. H. Belo expects to have an estimated              shares of Series A common stock and              shares of Series B common stock issued and outstanding immediately after the completion of the distribution. As of                     , 2007,              shares of A. H. Belo Series A common stock are subject to outstanding options and              shares of A. H. Belo Series B common stock are subject to outstanding options.

Under the rules of the SEC, the beneficial ownership of a person or group includes not only shares held directly or indirectly by the person or group but also shares the person or group has the right to acquire within 60 days of the record date (to and including          2007) pursuant to exercisable options and convertible securities. The information below, including the percentage calculations, is based on beneficial ownership of shares rather than direct ownership of issued and outstanding shares.

Unless otherwise indicated, each person listed below has sole voting power and sole dispositive power with respect to the shares of common stock indicated in the table as beneficially owned by such person. Series A common stock has one vote per share and Series B common stock has ten votes per share. Consequently, the voting power of Series B holders is greater than the number of shares beneficially owned. For example, the shares of Belo common stock beneficially owned by all A. H. Belo directors and executive officers as a group, representing 15.3 percent of the outstanding shares of Belo Series A and Series B common stock, have combined voting power of 58.3 percent. There are no known voting arrangements relating to Belo or A. H. Belo common stock among any of the persons listed below.

Stock Ownership of Directors and Executive Officers of A. H. Belo

 

    

Shares of Belo Common Stock

Beneficially Owned

And Percentage of Outstanding Shares as of

September 30, 2007(1)(2)(3)(4)

   

Shares of A. H. Belo Common Stock

Beneficially Owned

And Percentage of Outstanding Shares as of

                    , 2007(1)(3)(4)

     Series A     Series B    

Combined Series A

and Series B

    Series A   Series B  

Combined Series A

and Series B

Name

  Number   Percent     Number   Percent     Number   Percent     Number   Percent   Number   Percent   Number   Percent

Robert W. Decherd*+

  29,253   * *   8,317,836   51.0 %   8,347,089   8.0 %                  

James M. Moroney III+

  208,617   * *   3,706,050   24.9 %   3,914,667   3.8 %                  

Donald F. (Skip) Cass, Jr.+

  4,504   * *   172,600   1.2 %   177,104   * *                  

Alison K. Engel+

  66   * *   1,400   * *   1,466   * *                  

Daniel J. Blizzard+

  —     * *   24,900   * *   24,900   * *                  

Louis E. Caldera*

  —     * *   44,440   * *   44,440   * *                  

Douglas G. Carlston*

  —     * *   —     * *   —     * *                  

Dealey D. Herndon*

  704,279   * *   2,737,885   19.1 %   3,442,164   3.4 %                  

Laurence E. Hirsch*

  10,000   * *   130,555   * *   140,555   * *                  

J. McDonald Williams*

  6,000   * *   81,859   * *   87,859   * *                  

All directors and executive officers as a group (10 persons)

  962,719   1.1 %   15,217,525   87.2 %   16,180,244   15.3 %                        

 

73


Table of Contents
Index to Financial Statements

* Director
+ Executive Officer
** Less than one percent
(1) Series B shares are convertible at any time on a share-for-share basis into Series A shares but not vice versa. For purposes of determining the number of Series A shares beneficially owned by the persons listed, the person may be deemed to be the beneficial owner of the Series A shares into which the Series B shares owned are convertible. The numbers listed in the Series A column, however, do not reflect the Series A shares that may be deemed to be beneficially owned by the person listed because of this convertibility feature. If the Series A total included shares into which Series B shares held are convertible, the persons listed would be deemed to be the beneficial owners of the following percentages of the Series A shares: Robert Decherd, 8.7 percent; Dealey Herndon, 3.8 percent; Jim Moroney, 4.3 percent; and all directors and executive officers as a group, 15.7 percent. All other persons listed would be deemed to beneficially own less than 1 percent of the Series A shares. These percentages are calculated by taking the person’s number of combined Series A and Series B shares as reflected in the table above and dividing that number by the sum of (a) the Series A shares issued and outstanding, plus (b) the total of Series B shares owned by the person as reflected in the table above, plus (c) the person’s exercisable Series A stock options listed in footnote (3) to the table.

The family relationships among the directors and named executive officers are as follows: Robert Decherd and Dealey Herndon are brother and sister and are second cousins of Jim Moroney.

The following shares are included in the individual’s holdings because the individual has either sole or shared voting and dispositive power with respect to such shares.

Robert Decherd—13,980 Belo Series A shares held in trust for which Robert serves as trustee; Robert disclaims beneficial ownership of these shares. Robert’s holdings also include 23,159 Belo Series B shares owned by him and his wife as to which he shares voting and dispositive power.

Dealey Herndon—20,000 Belo Series A shares held by a charitable foundation she established and for which she serves as a director. Dealey disclaims beneficial ownership of these shares.

Jim Moroney—51,995 Series A shares and 2,350,277 Series B shares held by Moroney Management, Limited, a family limited partnership of which he is the managing general partner, and 52,100 Series B shares held in a family trust as to which he has sole voting authority, as well as 480 Series B shares owned by Jim and his wife as to which he shares voting and dispositive power. Jim’s holdings also include 29,800 Series A shares held by a family charitable foundation for which Jim serves as trustee; 35,777 Series A and 264,700 Series B shares and options to acquire 18,349 Series B shares held by the Estate of James M. Moroney, Jr., of which Jim is the executor; and 42,306 Series A shares and 376,596 Series B shares owned by Jim’s mother as to which he has voting and dispositive power.

(2) Robert Decherd’s holdings include 1,125,281 Belo Series B shares owned by him and which are subject to a pledge.
(3) The number of shares shown in the table above includes (a) shares held in the Belo Savings Plan at September 30, 2007, and (b) shares that could be purchased by exercise of options exercisable on September 30, 2007 or within 60 days thereafter (to and including                 , 2007) under Belo’s equity compensation plans, as follows:

 

      Shares of Belo Common
Stock Held in
Belo Savings Plan
   Exercisable
Belo Stock Options

Name

   Series A    Series B    Series A    Series B

Robert W. Decherd

   5,466    —      —      2,066,936

James M. Moroney III

   4,908    —      —      633,749

Donald F. (Skip) Cass, Jr.

   2,955    —      —      170,600

Alison K. Engel

   66    —      —      1,400

Daniel J. Blizzard

   —      —      —      24,900

Louis E. Caldera

   —      —      —      44,440

Douglas G. Carlston

   —      —      —      —  

Dealey D. Herndon

   —      —      —      66,637

Laurence E. Hirsch

   —      —      —      130,555

J. McDonald Williams

   —      —      —      75,859

All directors and executive officers as a group (10 persons)

   13,395    —      —      3,215,076

 

(4) Pursuant to SEC rules, the percentages in the table are calculated by taking the number of shares indicated as beneficially owned by the listed person or group and dividing that number by the sum of (a) the number of issued and outstanding shares in each series or the combined series, as applicable, plus (b) the number of shares of each series or the combined series, as applicable, that the person or group may purchase through the exercise of stock options as indicated in footnote (3) to the table.

 

74


Table of Contents
Index to Financial Statements

Stock Ownership of Other Principal Shareholders (greater than 5 percent)

 

    

Shares of Belo Common Stock

Beneficially Owned And

Percentage of Outstanding Shares as of

September 30, 2007(1)(2)(5)

   

Shares of A. H. Belo Common Stock

Beneficially Owned
And Percentage of Outstanding Shares as of

                    , 2007 (1)(2)(5)

     Series A     Series B     Combined
Series A and
Series B
    Series A   Series B   Combined
Series A and
Series B

Name

  Number   Percent     Number   Percent     Number   Percent     Number   Percent   Number   Percent   Number   Percent

LSV Asset Management(3)

One North Wacker Drive

Chicago, IL 60606

  5,197,711   5.9 %   —     * *   5,197,711   5.1 %                        
Lazard Asset Management, L.L.C.(4)   4,944,310   5.6 %   —     * *   4,944,310   4.8 %                  

30 Rockefeller Plaza

New York, NY 10112

                                                     
Barclays Global Investors, N.A.                                    
Barclays Global Fund Advisors(5)   4,533,418   5.2 %   —     * *   4,533,418   4.4 %                  

45 Fremont Street

San Francisco, CA 94105