DallasNews Corp - Annual Report: 2007 (Form 10-K)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 31, 2007

OR

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

Commission file no. 1-33741

A. H. Belo Corporation

Delaware		38-3765318
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
P. O. Box 224866
Dallas, Texas (Address of principal executive offices)		75222-4866 (Zip Code)

Registrant’s telephone number, including area code: (214) 977-8200

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

Title of each class		Name of each exchange on which registered
Series A Common Stock, $.01 par value Preferred Share Purchase Rights		New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Series B Common Stock, $.01 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act) Yes o No þ.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act
Yes o No þ.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer: o		Accelerated filer: o		Non-accelerated filer: þ		Smaller reporting company: o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ.

There was no aggregate market value of the registrant’s voting stock held by nonaffiliates on June 30, 2007 due to the fact that the registrant was not incorporated until October 1, 2007.

Shares of Common Stock outstanding at March 15, 2008: 20,478,022 shares. (Consisting of 17,629,526 shares of Series A Common Stock and 2,848,496 shares of Series B Common Stock.)

Documents incorporated by reference: None

 

 

A. H. BELO CORPORATION
FORM 10-K
TABLE OF CONTENTS

		PAGE
PART I			1
Item 1. Business			1
Item 1A. Risk Factors			5
Item 1B. Unresolved Staff Comments			9
Item 2. Properties			9
Item 3. Legal Proceedings			10
Item 4. Submission of Matters to a Vote of Security Holders			11
PART II			11
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			11
Item 6. Selected Financial Data			12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			26
Item 8. Financial Statements and Supplementary Data			26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			26
Item 9A. Controls and Procedures			26
Item 9B. Other Information			26
PART III			27
Item 10. Directors, Executive Officers and Corporate Governance			27
Item 11. Executive Compensation			32
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			55
Item 13. Certain Relationships and Related Transactions, and Director Independence			58
Item 14. Principal Accountant Fees and Services			59
PART IV			60
Item 15. Exhibits and Financial Statement Schedules			60
Signatures			62
Statements re: Computation of Ratios
Subsidiaries of the Company
Consent of Ernst & Young LLP
Certification of Chief Executive Officer Pursuant to Section 302
Certification of Chief Financial Officer Pursuant to Section 302
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
Independence Standards

INDEX TO FINANCIAL STATEMENTS

Balance Sheet of A.H. Belo Corporation
Report of Independent Registered Public Accounting Firm		63
Balance Sheet as of December 31, 2007		64
Note to Balance Sheet		65
Combined Financial Statements of the A.H. Belo Businesses
Report of Independent Registered Public Accounting Firm		66
Combined Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005		67
Combined Balance Sheets as of December 31, 2007 and 2006		68
Combined Statements of Belo Corp’s Equity for the Three Years Ended December 31, 2007		70
Combined Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005		71
Notes to Combined Financial Statements		72

          Statements in this communication concerning A. H. Belo Corporation’s (“A. H. Belo” or “the Company”) business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends, capital expenditures, investments, future financings, and other financial and non-financial items that are not historical facts, are “forward-looking statements” as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements.

          Such risks, uncertainties and factors include, but are not limited to, changes in capital market conditions and prospects, and other factors such as changes in advertising demand, interest rates and newsprint prices; newspaper circulation matters, including changes in readership patterns and demography, and audits and related actions by the Audit Bureau of Circulations; circulation trends; technological changes; development of Internet commerce; industry cycles; changes in pricing or other actions by competitors and suppliers; regulatory, tax and legal 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 Company acquisitions, dispositions and co-owned ventures; general economic conditions; significant armed conflict; and other factors beyond our control, as well as other risks detailed elsewhere in this Annual Report on Form 10-K and in A. H. Belo’s other public disclosures, and filings with the Securities and Exchange Commission (“SEC”), including A. H. Belo’s information statement on Form 10 dated January 31, 2008.

PART I

Item 1. Business

Recent Developments

          A. H. Belo Corporation was incorporated under Delaware law on October 1, 2007, as a wholly-owned subsidiary of Belo. Corp. (“Belo”), to serve as a holding company in anticipation of the pro-rata distribution to Belo shareholders of 100 percent of the outstanding shares of A. H. Belo’s common stock. For purposes of this Annual Report, references to the “Company,” “we,” “us,” “our” and “A. H. Belo” mean A. H. Belo Corporation collectively with all of our subsidiaries unless the context otherwise requires.

          On the Distribution Date (the “Distribution Date”), Belo contributed to A. H. Belo all of Belo’s subsidiaries engaged in Belo’s newspaper business and related assets and liabilities. The assets and liabilities transferred to A. H. Belo were recorded at historical cost as a reorganization of entities under common control in the first quarter of 2008.

          On the Distribution Date, the distribution was completed in the form of a pro-rata dividend to Belo’s shareholders of 0.20 shares of A. H. Belo common stock for each share of Belo’s common stock owned at the close of business on January 25, 2008. Belo received a private letter ruling from the Internal Revenue Service (the “IRS”) to the effect that the distribution is tax-free to Belo shareholders for United States federal income tax purposes, except with respect to cash paid instead of fractional shares.

          On the Distribution Date, Belo settled or assigned intercompany indebtedness between and among Belo and its subsidiaries, including Belo’s subsidiaries engaged in the newspaper business and related assets. Belo settled accounts through contributions of such indebtedness to the capital of the debtor subsidiaries, distributions by creditor subsidiaries, and other non-cash transfers, or assigned indebtedness to A. H. Belo. As of the effective time of the distribution, Belo had contributed to the capital of A. H. Belo and its subsidiaries the net intercompany indebtedness owed to Belo by A. H. Belo and its subsidiaries and A. H. Belo assumed the indebtedness owed by Belo to the A. H. Belo subsidiaries.

          On the Distribution Date, as a consequence of the distribution, A. H. Belo became a separate public company. Belo has no further ownership interest in A. H. Belo or in any newspaper or related businesses, and A. H. Belo has no ownership interest in Belo or in any television station or related businesses. A. H. Belo’s relationship with Belo is now governed by a separation and distribution agreement and several ancillary agreements with Belo governing various relationships between A. H. Belo and Belo. A. H. Belo also co-owns certain downtown Dallas, Texas real estate used in their respective businesses.

          On February 4, 2008, in anticipation of the distribution the Company entered into a $100 million senior revolving credit facility effective as of the Distribution Date. The terms of the new credit facility are more fully described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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 produce 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 these 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 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 newspapers 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 Southern California’s Inland Empire area, which includes Riverside and San Bernardino Counties. It has a long history of journalistic excellence and has won one Pulitzer Prize.

          The following table sets forth circulation information concerning A. H. Belo’s primary daily newspaper operations:

		2005								2006								2007
		Daily				Sunday				Daily				Sunday				Daily				Sunday
Newspaper		Circulation(1)				Circulation				Circulation(1)				Circulation				Circulation(1)				Circulation
The Dallas Morning News			462,075	(2)			640,742	(2)			405,048	(2)			566,608	(2)			372,810	(3)			523,313	(3)
The Providence Journal			163,909	(4)			231,593	(4)			159,788	(5)			212,971	(5)			149,966	(6)			198,973	(6)
The Press-Enterprise			176,577	(7)			179,390	(7)			169,362	(7)			178,788	(7)			162,464	(8)			171,114	(8)

          The Company derives its revenues primarily from the sale of advertising and newspapers and from commercial printing. For the year ended December 31, 2007, advertising revenues accounted for approximately 81 percent of total revenues. Circulation revenues accounted for approximately 15 percent of total revenues for 2007. Prices for the Company’s newspapers are established individually for each newspaper. Commercial printing accounted for most of the remainder of the Company’s revenues.

          Belo Interactive Media (“BIM”) supports A. H. Belo’s and Belo’s Web sites, and Belo Technologies supports information technology requirements. BIM and Belo Technologies, which are owned by A. H. Belo, provide services to Belo and its television Web sites pursuant to inter-company agreements whereby Belo compensates A. H. Belo for such services.

          Web sites operated by A. H. Belo’s newspapers provide consumers with 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 years ended December 31, 2007 and 2006 represented approximately 7.0 and 5.0 percent, respectively, of the total revenues and were derived principally from advertising on the various Web sites. In addition, A. H. Belo owns 6.6 percent of Classified Ventures, LLC, a joint venture of which the other owners are Gannett Co., Inc., The McClatchy Company, Tribune Company, and The Washington Post Company. The three principal online businesses Classified Ventures, LLC operates are: cars.com, apartments.com, and homegain.com. A. H. Belo has agreed to share certain ownership attributes of Classified Ventures, LLC with Belo.

          The basic material used in publishing newspapers is newsprint. Currently, most of the Company’s newsprint is obtained through a purchasing consortium of which the Company is a member. Management believes the Company’s sources of newsprint, along with available alternate sources, are adequate for the Company’s current needs.

          During 2007, the Company’s operations consumed approximately 136,546 metric tons of newsprint at an average cost of $586 per metric ton. Consumption of newsprint in the previous year was approximately 166,756 metric tons at an average cost per metric ton of $631. Newsprint prices decreased approximately 7.1 percent in 2007. Consolidation in the North American newsprint industry has reduced the number of suppliers and has led to paper mill closures and conversions to other grades of paper, which in turn has decreased overall newsprint capacity and increased the likelihood of future price increases.

          Since 2005, A. H. Belo has experienced a decline in net operating revenues and net earnings primarily due to decreased advertising revenues. The decrease in advertising revenues, particularly in the classified category, resulted from increased competition for advertising dollars from other media, particularly the Internet. In response to these decreases, A. H. Belo has launched innovative print and online products and has established strategic partnerships with major Internet companies. Since 2002, revenues from our newspaper Web sites have experienced double-digit annual growth. A. H. Belo has also in recent years focused on neighborhood and other local community news, both in print and online. In addition, A. H. Belo has implemented measures to control or decrease operating expenses. These measures include modifying distribution and marketing strategies to allow our newspapers to concentrate on circulation most valued by advertisers and restructuring our newspapers through organizational realignments.

Our Competitive Strengths and Challenges

          Our strengths are:

	•		ownership and proven 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 projected population growth rates above the national average.
	•		a strong, cohesive senior management team with significant sector experience focused on strategic and operating issues.
	•		an initial debt-free capital structure with the financial flexibility to allocate capital toward higher-growth online initiatives, support continued innovation, and maintain a sharp focus on distinguished journalism and editorial content.
	•		resources to compete in a challenging operating environment and return cash to shareholders through an attractive dividend.
	•		strategic and financial flexibility to form partnerships and alliances unencumbered by considerations of the potential effect on Belo’s television business.

          Our newspapers, and the newspaper industry as a whole, are experiencing challenges to maintain and grow print revenues and circulation. This results from, among other factors, increased competition from other media, particularly the Internet. A prolonged decline in circulation could further affect advertising revenues; however, A. H. Belo’s newspapers have grown in total readership over the past five years. Readership, as defined by the Company, includes circulation (including ancillary niche products) and traffic on their online Web sites.

Our Strategies and Opportunities

          The Company is committed to publishing newspapers and online content of the highest quality and integrity, creating and developing innovative print and online products addressing the needs of customers and advertisers, providing an attractive dividend, and creating value for shareholders over the long-term. The Company intends to achieve these objectives through the following strategies:

	•		focusing management’s attention on operating A. H. Belo’s core newspaper businesses and related Web sites to derive maximum revenue and earnings in an Internet-centric media environment by building larger digital businesses.
	•		being attentive to the needs of our customers and advertisers by implementing initiatives to better reach consumers that advertisers most desire.
	•		innovating and continuing to develop print and online products that create sustainable incremental revenue and earnings.
	•		strengthening and improving our underlying technology platform.
	•		maintaining a conservative balance sheet.
	•		continuing our commitment of service to the local communities we serve.

Competition

          The Company faces competition for advertising, and on-line 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.

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.

Employees

          As of December 31, 2007, the Company had approximately 3,400 full-time and 280 part-time employees, including approximately 530 employees represented by various employee unions. All of these union-represented employees are located in Providence, Rhode Island. The Company believes its relations with its employees are satisfactory.

Available Information

          A. H. Belo maintains its corporate Web site at www.ahbelo.com. The Company makes available, free of charge, on its Web site, this Annual Report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments to those reports, as filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.

Item 1A. Risk Factors

          Sections of this Annual Report on Form 10-K and management’s public comments from time to time may contain forward-looking statements that are subject to risks and uncertainties. These statements are based on management’s current knowledge and estimates of factors affecting our operations, both known and unknown. Readers are cautioned not to place undue reliance on such forward-looking information as actual results may differ materially from those currently anticipated. The following discussion identifies some of the factors that may cause actual results to differ materially from expectations. In addition, a number of other factors (those identified elsewhere in this document and others, both known and unknown) may cause actual results to differ materially from expectations.

Risks Resulting from the Recently Completed Distribution

          A. H. Belo has no operating history as a separate public company and may be unable to operate profitably as 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. As a result of the distribution, A. H. Belo now relies only on the newspaper business and related businesses for such requirements. A. H. Belo cannot assure you that, as a separate public company, operating results will continue at historical levels, or that the Company 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 maintains its own credit and banking relationships and performs its own financial and investor relations functions. Although A. H. Belo employs certain key former employees of Belo following the distribution, there can be no assurance 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 or that A. H. Belo will not incur additional costs operating as a separate public company. For example, prior to the distribution, A. H. Belo, as part of Belo’s business, was able to use Belo’s size to procure products and services on favorable terms. A. H. Belo could experience some increased costs as a result of the absence of such economies of scale. Any such additional or increased costs could have a material adverse effect on our business, financial condition, or results of operations.

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

          The historical financial information included in this Annual Report on Form 10-K 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 as a separate public company. A. H. Belo’s historical financial information reflects allocations for services historically provided by Belo, and these allocated costs may 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 provided to A. H. Belo by Belo under a services agreement and other 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.

          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 “Item 6. Selected Financial Data,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Combined Financial Statements and the accompanying Notes included elsewhere in this Annual Report on Form 10-K.

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

          A. H. Belo needs to replicate certain systems, infrastructure, and personnel to which it no longer has access after the distribution from Belo. 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. 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 transition period.

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

          In connection with the distribution, A. H. Belo entered into a services agreement with Belo. This agreement provides 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, payroll, internal audit, and other areas where A. H. Belo and Belo may need assistance and support following the distribution. Depending on the particular service being provided, the agreement extends 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 is required to pay under the services agreement.

          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, hold 58.5 percent of the voting power of our outstanding voting stock as of March 15, 2008. A. H. Belo’s Series A common stock has one vote per share and Series B common stock has ten votes per share. 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 by shareholders, 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.

          Certain members of management, directors, and shareholders may face actual or potential conflicts of interest.

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

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, and 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 increasing market share, while the aggregate print circulation of the 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 served by the Company, 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 81 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 served by the Company. 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 are expected to continue. 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 businesses operate in highly competitive markets, such as Dallas/Fort Worth, and our ability to maintain market share and generate revenues depends on how effectively the Company competes with existing and new competition.

          Our businesses operate in highly competitive markets. Our newspapers compete for audiences and advertising revenue with other newspapers as well as with the Internet, magazines, broadcast, cable and satellite television, radio, direct mail, and yellow pages. A. H. Belo and Belo will compete with each other in 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 available to them.

          A. H. Belo’s newspaper publications generate significant percentages of their advertising revenues from limited numbers of sources. In recent years, Web sites dedicated to automotive, employment, real estate advertising, and general classified 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 economic downturn, technological, industry, and 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 (including free daily newspapers), magazines, broadcast, cable and satellite television, radio, direct mail, yellow pages, the Internet, outdoor billboards, and other media. 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. 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 are community newspapers that are typically unique to each market, but the Company has competitors for advertising revenues that are larger and have greater financial and distribution resources. 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, and if the Company is not able to compete effectively for advertising dollars and paid circulation, revenues may continue to decline and our financial condition and results of operations may be adversely affected.

          Decreases in circulation may adversely affect A. H. Belo’s circulation and advertising revenues.

          The table below presents the components of our net operating revenues for the last three years:

						Percentage								Percentage
Year ended December 31, (dollars in thousands)		2007				Change				2006				Change				2005
Advertising		$	600,335				(10.9	%)		$	674,140				(1.9	%)		$	687,140
Circulation			112,635				(3.1	%)			116,265				11.0	%			104,790
Other			25,698				(6.0	%)			27,328				(10.1	%)			30,414
Net operating revenues		$	738,668				(9.7	%)		$	817,733				(0.6	%)		$	822,344

          As a result of the change in distribution methods at The Dallas Morning News, circulation revenue increased approximately $24,555 in 2006. However, when measured on a comparable basis, circulation revenue actually decreased 1.8 percent in 2006 from 2005.

          A. H. Belo’s newspapers, and the newspaper industry as a whole, are experiencing challenges to maintain and grow print circulation and circulation revenues. 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, the Company may increase spending on marketing designed to retain our existing subscriber base and continue or create niche publications targeted at specific market groups. The Company may also increase marketing efforts to drive traffic to our proprietary Web sites. There are no current plans to materially increase such spending or marketing.

          A. H. Belo anticipates that readership will become increasingly important now that the Audit Bureau of Circulations has agreed to publish readership statistics and recognize Internet use in addition to print circulation information. The Company believes this is a positive industry development but 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, which has historically been between approximately 11 percent and 14 percent of revenues. The price of newsprint historically has been volatile. Consolidation in the North American newsprint industry has reduced the number of suppliers and has led to paper mill closures and conversions to other grades of paper, which in turn has 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. Our inability to obtain an adequate supply of newsprint in the future or significant increases in newsprint costs could affect our 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 “Item 3. 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 our business, financial condition, and results of operations.

          A. H. Belo depends on key personnel and may not be able to operate and grow our business effectively if A. H. Belo loses the services of any of our senior executive officers or are 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 our business depends heavily on our 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. The Company has not entered into employment agreements with key management personnel and does not have “key person” insurance for any of our senior executive officers or other key personnel. To mitigate this risk, A. H. Belo has adopted a change in control severance plan covering key management personnel that is 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. 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 business, financial condition, and results of operations. The Company 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 adversely effect our business, financial condition, and results of operations.

Item 1B. Unresolved Staff Comments

          None.

Item 2. Properties

          A. H. Belo owns and operates a newspaper printing facility and distribution center in Plano, Texas, to print The Dallas Morning News and other publications. A. H. Belo also owns a distribution and collating facility for The Dallas Morning News in southern Dallas and owns a printing facility in Arlington, Texas, used for commercial printing. Additional operations of The Dallas Morning News are housed in a four-story building and in parts of a separate 17-story office building (The Belo Building) in downtown Dallas, Texas. A. H. Belo also leases space in downtown Dallas, for BIM operations, and in Irving, Texas, for a secondary data center.

          After an assessment of their respective downtown Dallas real estate needs, A. H. Belo and Belo agreed to co-own, through the creation of a limited liability company (LLC), The Belo Building, related parking sites, and specified other downtown real estate. A. H. Belo and Belo each own 50 percent of the LLC and lease from the LLC 50 percent of the available rental space in The Belo Building and related parking sites under long-term leases that are terminable under various conditions. A third party real estate services firm, engaged by the LLC, manages The Belo Building and other real estate owned by the LLC.

          In addition, A. H. Belo and Belo have agreed to exchange certain real estate interests they or their subsidiaries own in an approximately 10-acre downtown Dallas campus jointly used today by The Dallas Morning News and Belo’s WFAA-TV and Texas Cable News (TXCN). As a result of the exchange, The Dallas Morning News will own a single parcel (or contiguous parcels) containing the land and improvements that it uses in its operations, and WFAA-TV, TXCN, and Belo will likewise own a single parcel (or contiguous parcels) containing the land and improvements used by WFAA-TV and TXCN. Depending on their needs, A. H. Belo (or a related entity) and Belo (or a related entity) may also enter into lease or use agreements for specified parts of the campus real estate properties. The terms of such agreements, including the compensation to be paid, will be determined by arms-length negotiations between A. H. Belo and Belo.

          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. The Company owns a

state-of-the-art media center for The Press-Enterprise, which also houses the non-production operations of The Press-Enterprise.

          The Company has additional leasehold and other interests that are used in our activities, which are not material. The Company believes our properties are in satisfactory condition and are well maintained and that such properties are adequate for present operations.

Item 3. Legal Proceedings

          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.

          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, 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; defendants filed their response to this motion on October 26, 2007. Plaintiffs filed their reply to the response on November 16, 2007. On November 26, 2007, the court denied defendants’ motion for reconsideration of the court’s denial of defendants’ motion to dismiss as to the remaining defendants. No class or classes have been certified and no amount of damages has been specified. The Company believes 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, A. H. Belo and Belo will share equally in any liabilities, net of any applicable insurance, resulting from the circulation-related lawsuits described above.

          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 SEC staff sent counsel for Belo a letter stating that the inquiry has been completed and that the SEC staff does not intend to recommend any enforcement action by the SEC.

          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. The Company believes the lawsuit is without merit and intends to defend vigorously against it.

          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.

Item 4. Submission of Matters to a Vote of Security Holders

          None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

          The Company’s authorized common equity consists of 125,000,000 shares of common stock, par value $.01 per share. The Company has two series of common stock outstanding, Series A and Series B. Shares of the two series are identical in all respects except as noted herein. Series B shares are entitled to 10 votes per share on all matters submitted to a vote of shareholders; Series A shares are entitled to one vote per share. Transferability of the Series B shares is limited to family members and affiliated entities of the holder and Series B shares are convertible at any time on a one-for-one basis into Series A shares, and upon a transfer other than as described above, Series B shares automatically convert into Series A shares. Shares of the Company’s Series A common stock are traded on the New York Stock Exchange (NYSE symbol: AHC). There is no established public trading market for shares of Series B common stock. Our Series A common stock began trading on February 11, 2008, and as such, no information exists regarding high and low stock prices for the last two years. The closing price of our Series A common stock on March 15, 2008 was $11.44.

          The approximate number of shareholders of record of our Series A and Series B common stock at the close of business on March 15, 2008 was 577 and 289, respectively.

          A. H. Belo’s dividend is expected to be $1.00 per share, annually. The declaration and payment of dividends 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 future 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, due to factors previously stated in “Item 1A. Risk Factors”. In addition, the Company entered into a bank credit facility agreement that contains a negative covenant requiring the Company to be in pro forma compliance with the Fixed Charge Coverage ratio (the ratio of interest and other fixed charges to the Company’s consolidated EBITDA less capital expenditures), before any dividends can be paid.

Issuer Purchases of Equity Securities

          The Company did not repurchase any Series A or Series B common stock during the quarter ended December 31, 2007.

Sales of Unregistered Securities

          In connection with its incorporation, on October 1, 2007, A. H. Belo issued 1,000 shares of A. H. Belo common stock, par value $.01 per share, to Belo Holdings, Inc., a subsidiary of Belo, in consideration of an aggregate capital contribution of $1,000 by Belo Holdings. A. H. Belo did not register this issuance of securities under the Securities Act because it did not involve any public offering of securities.

          In connection with the distribution, Belo and Belo Holdings contributed to A.H. Belo the stock of all subsidiaries engaged in the newspaper and related businesses along with certain real estate and other assets and liabilities

associated with the 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 in the first quarter of 2008. In consideration for these capital contributions, A. H. Belo issued to Belo and Belo Holdings a total of 17,603,448 shares of A. H. Belo Series A common stock and 2,848,547 shares of A. H. Belo Series B common stock. A. H. Belo did not register these issuances of securities under the Securities Act because they did not involve any public offering of securities.

Item 6. Selected Financial Data

          The following table presents selected financial data of the Company for each of the five years in the period ended December 31, 2007. Certain amounts for the prior years have been reclassified to conform to the current year presentation. For a more complete understanding of this selected financial data, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Combined Financial Statements and the Notes thereto.

		As of and for the years ended December 31,
In thousands		2007				2006				2005				2004				2003
Total net operating revenues		$	738,668			$	817,733			$	822,344			$	779,142			$	763,652
Total operating expenses(a)			1,056,100				760,376				721,251				689,460				645,378
Earnings (loss) from operations		$	(317,432	)		$	57,357			$	101,093			$	89,682			$	118,274
Other income and expense(b)			(31,067	)			(30,310	)			(22,913	)			(15,648	)			(18,065	)
Income tax (expense) benefit			1,487				(11,868	)			(30,361	)			(28,745	)			(38,458	)
Net earnings (loss)(a)(c)		$	(347,012	)		$	15,179			$	47,819			$	45,289			$	61,751
Total assets		$	619,710			$	994,815			$	981,661			$	963,215			$	968,889
Long-term portion of notes payable to Belo Corp.(d)		$	378,916			$	353,893			$	332,710			$	306,398			$	279,425

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following information should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1. Business,” “Item 1A. Risk Factors,” “Item 6. Selected Financial Data,” “Item 7A. Quantitative and Qualitative Disclosures about Market Risks,” “Item 9A. Controls and Procedures” 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 filing and particularly in “Item 1A.. Risk Factors.”

          All references to earnings per share represent diluted earnings per share.

          All dollar amounts are in thousands, except per share amounts.

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”).

          The Board of Directors of Belo determined that separating Belo’s newspaper and other businesses from Belo’s television business was in the best interests of Belo and Belo’s shareholders. A.H. Belo believes that the company’s structure with no initial debt and other features, will give A. H. Belo the financial and operational flexibility to take advantage of opportunities in the newspaper sector and meet the changing needs of the media marketplace today and in the future. In arriving at its decision, the Board considered many factors including the effect of the Internet and other transformational technologies on consumers, advertisers, and traditional media such as newspapers and television, the consolidation of media ownership and the rapid ascent of new media businesses, the prospects for positive changes in media ownership regulation, and the competitive positions and strengths of Belo’s newspapers and television stations and the local markets they serve. Net operating revenues for A. H. Belo were approximately $738,668, $817,733, and $822,344 for the fiscal years ended December 31, 2007, 2006 and 2005, respectively. Net (loss) earnings were $(347,012), $15,179 and $47,819 for the fiscal years ended December 31, 2007, 2006 and 2005, respectively.

          On February 8, 2008, the distribution was completed and A. H. Belo and Belo entered into a separation and distribution agreement under which Belo transferred substantially 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 in the first quarter of 2008. The distribution was in the form of a pro-rata, tax-free dividend to Belo’s shareholders of 0.20 shares of A. H. Belo common stock for each share of Belo common stock owned at the close of business on January 25, 2008.

          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 news and information Web sites, participates in several interactive alliances, and offers a broad range of Internet-based products.

          The following table summarizes the net operating revenues for each of A. H. Belo’s three daily newspapers for the years ended December 31, 2007, 2006, and 2005:

		Year ended December 31,
		2007				2006				2005
The Dallas Morning News		$	457,418			$	497,887			$	496,776
The Press-Enterprise			129,675				157,185				159,628
The Providence Journal			151,575				162,661				165,940
Net operating revenues		$	738,668			$	817,733			$	822,344

          Total revenues decreased approximately 9.7 percent in 2007 when compared to 2006. Total newspaper advertising revenues were down approximately 10.9 percent in 2007 when compared to 2006. Advertising revenues associated with the Company’s Web sites increased approximately 19.5 percent in 2007 when compared to 2006. Subject to economic conditions and related advertiser responses to consumer spending patterns, the Company expects newspaper advertising revenues to decrease in 2008 but not at the levels experienced in 2007. Decreases at The Providence Journal and The Press-Enterprise are expected to be more substantial than at The Dallas Morning News.

          The Company is required to assess goodwill impairment annually at the reporting unit level using the methodology prescribed by Statement of Financial Accounting Standards (SFAS), 142 “Goodwill and Other Intangible Assets.” The goodwill impairment test initially consists of the comparison of the implied fair value of a reporting unit with its carrying value. For the Company, a reporting unit consists of the newspaper operations in each individual market. The Company performed its annual goodwill impairment testing as of December 31, 2007 and based on the results, recognized impairment charges to reduce goodwill attributable to The Providence Journal by $242,794 and The Press-Enterprise by $101,630. The impairment charges resulted primarily from a decline in the estimated fair value of the individual businesses due to lower than estimated market growth rates versus prior year estimates and projected

increases in newsprint costs. The $344,424 impairment is a non-cash charge to earnings and, as such, will not affect the Company’s liquidity, cash flows from operating activities or debt covenants, or have any impact on future operations.

          A. H. Belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies, and estimates affect its financial statements.

Basis of Presentation

          The combined financial statements in this Annual Report on Form 10-K include the accounts of Belo comprising its newspaper businesses and related assets. 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 the Company believes 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. A. H. Belo’s and Belo’s various operating units currently share news and information content at no cost.

          The historical financial information included in this Annual Report 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 the Company expects 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 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 expected changes in our cost structure, personnel needs, financing, and operations of our business as a result of the distribution.

RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)

Combined Results of Operations for the Years Ended December 31, 2007, 2006 and 2005

						Percentage								Percentage
Year ended December 31,		2007				Change				2006				Change				2005
Net operating revenues		$	738,668				(9.7	%)		$	817,733				(0.6	%)		$	822,344
Operating costs and expenses			(1,056,100	)			38.9	%			(760,376	)			5.4	%			(721,251	)
Earnings from operations			(317,432	)			(653.4	%)			57,357				(43.3	%)			101,093
Other income (expense)			(31,067	)			2.5	%			(30,310	)			32.3	%			(22,913	)
Earnings before income taxes			(348,499	)			(1388.5	%)			27,047				(65.4	%)			78,180
Income tax (expense) benefit			1,487				(112.5	%)			(11,868	)			(60.9	%)			(30,361	)
Net earnings		$	(347,012	)			(2386.1	%)		$	15,179				(68.3	%)		$	47,819

Net Operating Revenues

          The table below presents the components of A. H. Belo’s net operating revenues for the last three years:

						Percentage								Percentage
Year ended December 31,		2007				Change				2006				Change				2005
Advertising		$	600,335				(10.9	%)		$	674,140				(1.9	%)		$	687,140
Circulation			112,635				(3.1	%)			116,265				11.0	%			104,790
Other			25,698				(6.0	%)			27,328				(10.1	%)			30,414
Net operating revenues		$	738,668				(9.7	%)		$	817,733				(0.6	%)		$	822,344

          In 2007, advertising revenues accounted for 81.3 percent of the Company’s revenues compared to 82.4 percent in 2006 and 83.6 percent in 2005. In 2007, circulation revenue accounted for 15.2 percent of total of the Company’s

revenues compared to 14.2 percent in 2006 and 12.7 percent in 2005. In all three years, commercial printing made up most of the remainder of the Company’s revenues.

The table below presents the components of The Dallas Morning News net operating revenues for the last three years:

		Percentage								Percentage
Year ended December 31,		2007				Change				2006				Change				2005
Advertising		$	366,516				(9.8	%)		$	406,514				(2.8	%)		$	418,066
Circulation			70,244				(0.3	%)			70,445				23.9	%			56,875
Other			20,658				(1.3	%)			20,927				(4.2	%)			21,835
Net operating revenues		$	457,418				(8.1	%)		$	497,886				0.2	%		$	496,776

          Net operating revenues for The Dallas Morning News decreased by $40,468, or 8.1 percent, in the year ended December 31, 2007, as compared to the year ended December 31, 2006. Advertising revenues decreased by $39,998, or 9.8 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006. General advertising revenues decreased $17,196, or 27.0 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to decreases in the financial, telecommunications and travel categories. Classified advertising revenues decreased $14,739, or 11.2 percent, primarily due to decreases in the real estate, automotive and employment categories. Retail advertising revenue decreased $6,852, or 7.8 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to a decrease in the furniture category. Circulation revenue remained flat for the year ended December 31, 2007, compared to the year ended December 31, 2006.

          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. In 2005, the Company implemented 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, who then resells newspapers to contractors and subscribers, 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 in distribution costs as they are incurred. Under the previous arrangements, The Dallas Morning News recorded circulation revenue based on the net payment received from distributors. Accordingly, this change increased both circulation revenues and distribution costs related to these distributors. Advertising revenues were not affected by this change. 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 involved a promotional campaign that included 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. 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.

          The following table presents the components of The Providence Journal net operating revenues for the last three years:

						Percentage								Percentage
Year ended December 31,		2007				Change				2006				Change				2005
Advertising		$	125,874				(6.9	%)		$	135,189				(1.0	%)		$	136,503
Circulation			25,072				(5.7	%)			26,601				(6.6	%)			28,492
Other			629				(27.8	%)			871				(7.8	%)			945
Net operating revenues		$	151,575				(6.8	%)		$	162,661				(2.0	%)		$	165,940

          Net operating revenues for The Providence Journal decreased by $11,086, or 6.8 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006. Advertising revenues decreased $9,315, or 6.9 percent, for the year ended December 31, 2007, compared to the year ended December 31, 2006. Classified advertising revenue decreased $4,027, or 8.1 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to decreases in the automotive, employment and real estate categories. Retail advertising revenues decreased $3,769, or 8.6 percent, due to decreases in the automotive, building and home improvement, furniture and home accessories, and gaming categories for the year ended December 31, 2007, compared to the year ended December 31, 2006. General advertising revenues decreased $1,299, or 44.2 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to decreases in the automotive and travel and transportation categories. Circulation revenue declined $1,529, or 5.7 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to lower overall circulation.

          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 promotional campaigns.

          The table below presents the components of The Press-Enterprise net operating revenues for the last three years:

						Percentage								Percentage
Year ended December 31,		2007				Change				2006				Change				2005
Advertising		$	107,945				(18.5	%)		$	132,438				(0.1	%)		$	132,571
Circulation			17,319				(9.9	%)			19,218				(1.1	%)			19,423
Other			4,411				(20.2	%)			5,529				(27.6	%)			7,634
Net operating revenues		$	129,675				(17.5	%)		$	157,185				(1.5	%)		$	159,628

          Net operating revenues for The Press-Enterprise decreased $27,510, or 17.5 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006. Total advertising revenues decreased $24,493, or 18.5 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006. Classified advertising revenues decreased $18,122, or 28.8 percent, primarily due to decreases in the employment, real estate and automotive categories. Retail advertising revenues decreased $2,638, or 13.3 percent, primarily due to decreases in the department store, home improvement, home furnishings, grocery, and discount categories. Part-run advertising decreased $1,589, or 12.8 percent, primarily due to decreases in the furniture and home improvement categories. General advertising revenues decreased $1,289, or 11.5 percent, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to decreases in the financial and automotive categories. Circulation revenue at The Press-Enterprise decreased $1,899, or 9.9 percent, when comparing the year ended December 31, 2007 to

the year ended December 31, 2006. Commercial printing and other revenue at The Press-Enterprise declined $1,118, or 20.2 percent, for the year ended December 31, 2007, compared to the year ended December 31, 2006.

          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 an increase in the real estate category. Preprints 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. 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 1.1 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.

Operating Costs and Expenses

          The Company’s operating costs and expenses increased $295,724, or 38.9 percent, in the year ended December 31, 2007, as compared to the prior year period primarily due to a non-cash charge for goodwill impairment, decreases in salaries, wages and employee benefits and a decrease in newsprint, ink and other supplies. Salaries, wages and employee benefits decreased $25,317, or 7.8 percent, for the year ended December 31, 2007 compared to the year ended December 31, 2006, primarily due to the voluntary severance program for newsroom employees at The Dallas Morning News initiated in the third quarter 2006 which reduced headcount. In addition to the voluntary severance program, the Company recognized a reduction in estimated pension expense of approximately $8,488 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. These decreases were partially offset by an increase in workers’ compensation expense. In the fourth quarter 2007, the Company recorded a non-cash charge for goodwill impairment of $344,424, of which $242,794 related to The Providence Journal and $101,630 related to The Press-Enterprise based on assessments performed for the year ended December 31, 2007. The Company is required to test goodwill at least annually for impairment. See Combined Financial Statements, Note 3 — Goodwill and Intangible Assets for more information.

          Newsprint, ink and other supplies decreased $30,274, or 22.8 percent, for the year ended December 31, 2007 compared to the year ended December 31, 2006, with decreases in newsprint consumption and average cost per metric ton. During 2007, The Company’s publishing operations consumed approximately 136,546 metric tons of newsprint at an average cost of $586 per metric ton. Consumption of newsprint in the previous year was approximately 166,756 metric tons at an average cost per metric ton of $631.

          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 $16,257, or 5.3 percent, 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 totaling $7,123 in sales commissions, estimated self-insured medical expenses, and workers’ compensation insurance costs. Other production, distribution, and operating costs increased primarily due to increased distribution costs of $16,756 and outside services costs of $21,186. 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, 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.

          Interest expense increased $3,020, or 9.5 percent, in 2007, compared to an increase of $8,153, or 34.5 percent, in 2006. This is primarily due to year-over-year increases in the balances on notes payable to Belo. Certain subsidiaries had entered into notes payable arrangements with Belo. The notes accrued interest at prime plus one percent and had various

payments terms. In conjunction with the distribution, Belo contributed to the capital of A. H. Belo all inter-company indebtedness owed by A. H. Belo to Belo or assigned the notes to A. H. Belo on or prior to the Distribution Date. The contribution or assignment effectively extinguished all liabilities of A. H. Belo to Belo under such notes.

          Other income, net increased $2,263, or 150.5 percent in 2007, when compared to 2006. This is primarily due to a gain recognized on the disposal of fixed assets of $2,250. Other income, net increased $756, or 101.1 percent, in 2006, compared to 2005 primarily due to the forgiveness of a note payable from a subsidiary to Belo. The forgiveness was related to the final wind down of the Company’s trade show business.

          Income taxes decreased $13,355 or 112.5 percent, for the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to lower 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 2007, 2006, and 2005 was (0.4) percent, 43.9 percent, and 38.8 percent, respectively. The effective tax rate is higher than the statutory tax rate primarily due to state income taxes.

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 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 additional impairment charges 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, 2007, A. H. Belo had net investments of $307,788 in property, plant and equipment, $119,667 in goodwill, and $40,426 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.

          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. As a result of the assessment as of December 31, 2007, the Company incurred a non-cash charge to goodwill of approximately $344,424 in the fourth quarter of 2007 related to goodwill impairment at two of the Company’s reporting units: The Providence Journal and The Press-Enterprise. There is no tax effect related to the impairment charge, and this non-cash charge will not affect the Company’s liquidity, cash flows from operating activities, debt covenants, or have any effect on future operations. Based on the assessments performed as of December 31, 2006 and 2005, the Company did not record any impairment charges related to goodwill or intangible assets.

          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, 2007, 2006 and 2005, the Company did not record any impairment losses related to property, plant, and equipment.

          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 December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Accordingly, any business combinations the Company engages in will be recorded and disclosed following existing accounting principles until January 1, 2009. The Company expects SFAS No. 141R will have an impact on our combined financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions, if any, that are consummated after the effective date.

          In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Liabilities.” This statement permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is evaluating the effects of this new standard, but currently believes that adoption will not have a material impact on our financial position or results of operations.

          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. SFAS 157 will be effective for financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2007, and will be effective for non-financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2008. The Company is evaluating the effect of the adoption of this standard.

Liquidity and Capital Resources

Operating Cash Flows

          Net cash provided by operations was $62,147, $49,497 and $91,206 in the years ended December 31, 2007, 2006, and 2005, respectively. The changes in cash flows from operations are caused primarily by changes in net earnings (loss) 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 for investing activities were $43,002, $65,315 and $61,395 in the years ended December 31, 2007, 2006, and 2005, respectively. These cash flows are primarily attributable to capital expenditures and an investment in a joint venture.

Capital Expenditures

          Total capital expenditures were $41,117, $68,356 and $52,860 in 2007, 2006, and 2005, respectively. These were primarily for the Company’s facilities and equipment and corporate-driven technology initiatives. The Company expects to finance future capital expenditures, which are expected to total approximately $25,000 in 2008, using cash generated from operations and, when necessary, borrowings under the bank credit agreement.

          In the first quarter 2007, the Company took possession of a new distribution and collating facility for The Dallas Morning News in southern Dallas (the “South Plant”). 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 $48,173 has been incurred as of December 31, 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 $35,522 has been incurred as of December 31, 2007.

Financing Cash Flows

          Net cash flows provided by (used for) financing activities were $(22,792), $14,899 and $(27,343) in the years ended December 31, 2007, 2006, and 2005, respectively. These cash flows are primarily attributable to dividends and distributions paid to Belo offset by borrowings from Belo pursuant to notes payable. The notes accrue interest at prime plus one percent and have various payment terms. In conjunction with the distribution transaction, Belo contributed to the capital of A. H. Belo all inter-company indebtedness owed by A. H. Belo to Belo or assigned the notes to A. H. Belo.

          The Company entered into a Credit Agreement dated as of February 4, 2008 with JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc., Banc of America Securities LLC, Bank of America, N.A. and certain other lenders party thereto (the “Credit Agreement”) effective as of the Distribution Date. The Credit Agreement has a five-year term that expires in February 2013. The facility provided for under the Credit Agreement may be used for working capital and other general corporate purposes, including letters of credit.

          The Credit Agreement consists of a $100 million senior unsecured five-year revolving credit facility. Revolving credit borrowings under the Credit Agreement will bear interest at a variable interest rate based on either LIBOR or a base rate, in either case plus an applicable margin that varies depending upon the Company’s leverage ratio.

          The Credit Agreement contains a number of restrictions on the Company’s business, including, but not limited to, restrictions on the Company’s (and certain of its subsidiaries’) ability to incur indebtedness; grant liens on assets; make certain restricted payments; merge, consolidate, or sell assets; engage in transactions with affiliates; enter into restrictive agreements; enter into sale-leaseback transactions; and to make certain investments. In addition, the Company is subject to a leverage ratio covenant and a fixed charge coverage ratio covenant. The Credit Agreement also contains affirmative covenants and events of default, including a cross-default to certain other debt. Failure to comply with these covenants, or the occurrence of an event of default, could result in acceleration of the Company’s debt and other financial obligations under the Credit Agreement.

          The Credit Agreement requires the Company’s material subsidiaries to guarantee the obligations of the Company under the Credit Agreement.

Contractual Obligations

          The table below summarizes the following commitments of the Company as of December 31, 2007. See also Combined Financial Statements, Note 9 — Commitments.

Nature of
Commitment		Total				2008				2009				2010				2011				2012				Thereafter
Capital expenditures and licenses		$	6,568			$	5,936			$	632			$	—			$	—			$	—			$	—
Non-cancelable operating leases			11,895				5,081				3,459				1,957				876				514				8
Total		$	18,463			$	11,017			$	4,091			$	1,957			$	876			$	514			$	8

Other

          A. H. Belo has various options available to meet its 2008 capital and operating commitments, including cash on hand, short term investments, a five year revolving credit facility and internally generated funds. A. H. Belo believes its current financial condition and credit relationships are adequate to fund both its current obligations as well as near-term growth.

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

          The unaudited pro forma financial statements of the Company presented below consist of the unaudited pro forma balance sheet as of December 31, 2007 and the unaudited pro forma statement of operations for the year ended December 31, 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 Annual Report on Form 10-K. 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 December 31, 2007, for the unaudited pro forma balance sheet, and as of January 1, 2007, for the unaudited pro forma statement of operations.

          On October 1, 2007, Belo announced a plan to distribute its newspaper publishing business to its shareholders to create a separate public company. On October 1, 2007, Belo also formed a new, wholly-owned subsidiary, A. H. Belo, to serve as the holding company for its newspaper business and related businesses.

          On the Distribution Date, Belo contributed all of its subsidiaries engaged in newspaper business and related assets and liabilities to A. H. Belo. The assets and liabilities transferred to A. H. Belo were recorded at historical cost as a reorganization of entities under common control in the first quarter of 2008.

          On the Distribution Date, Belo settled or assigned intercompany indebtedness between and among Belo and its subsidiaries, including Belo’s subsidiaries engaged in the newspaper business and related assets. Belo settled accounts through contributions of such indebtedness to the capital of the debtor subsidiaries, distributions by creditor subsidiaries, and other non-cash transfers, or assigned such notes to A. H. Belo. As of the effective time of the distribution, Belo had contributed to the capital of A. H. Belo and its subsidiaries the net intercompany indebtedness owed to Belo by A. H. Belo and its subsidiaries and A. H. Belo assumed the indebtedness owed by Belo to the A. H. Belo subsidiaries.

          On the Distribution Date, the distribution was completed in the form of a pro-rata dividend to Belo’s shareholders shares of 0.20 A. H. Belo Series A common stock for every share of Belo Series A common stock, and 0.20 shares of A. H. Belo Series B common stock for every share of Belo Series B common stock owned as of the close of business on January 25, 2008.

          On the Distribution Date, as a consequence of the distribution, A. H. Belo became a separate public company. Belo has no further ownership interest in A. H. Belo or in any newspaper or related businesses, and A. H. Belo has no ownership interest in Belo or in any television station or related businesses. A. H. Belo’s relationship with Belo is now governed by a separation and distribution agreement and several ancillary agreements with Belo governing various relationships between A. H. Belo and Belo. A. H. Belo and Belo also co-own certain downtown Dallas, Texas, real-estate used in their respective businesses.

          Belo’s contributions to A. H. Belo’s equity will also be adjusted for transfers of certain additional assets and liabilities as of the distribution date. However, the effect of such adjustments is not expected to be material to the pro forma financial position of A. H. Belo as of December 31, 2007

          The unaudited pro forma balance sheet and unaudited pro forma statements of operations included in this Annual Report on Form 10-K have been derived from our financial statements included elsewhere in this Annual Report on Form 10-K 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.

A. H. BELO CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
As of December 31, 2007

          

		A. H. Belo								A. H. Belo
(In thousands, except share and per share		Businesses				Pro Forma				Corporation
amounts)		Historical				Adjustments				Pro Forma
Current assets:
Cash and temporary cash investments		$	6,874			$	—			$	6,874
Accounts receivable—net			90,792				—				90,792
Inventories			11,407				—				11,407
Deferred income taxes			4,744				—				4,744
Prepaids and other current assets			8,202				—				8,202
Total current assets			122,019				—				122,019
Property, plant and equipment, net			307,788				—				307,788
Intangible assets, net			40,426				—				40,426
Goodwill, net			119,667				—				119,667
Other assets			29,810				—				29,810
Total assets		$	619,710			$	—			$	619,710
Current liabilities:
Accounts payable		$	25,384			$	—			$	25,384
Accrued compensation and benefits			31,161				—				31,161
Accrued interest on notes payable to Belo Corp.			35,148				(35,148	)(a)			—
Other accrued expenses			3,822				—				3,822
Advance subscription payments			24,495				—				24,495
Current portion of notes payable to Belo Corp.			392				(392	)(a)			—
Total current liabilities			120,402				(35,540	)			84,862
Deferred income taxes			19,189				—				19,189
Notes payable to Belo Corp.			378,916				(378,916	)(a)			—
Other liabilities			14,263				—				14,263
Shareholders’ equity:
Belo Corp.’s equity			86,940				414,456	(a)			—
							(501,584	)(b)
Preferred stock, $0.01 par value. Authorized 2,000,000 shares; none issued			—				—				—
Common stock, $0.01 par value. Authorized 125,000,000 shares:
Series A: Issued 17,603,244 shares at December 31, 2007			—				176	(b)			176
Series B: Issued 2,848,628 shares at December 31, 2007			—				28	(b)			28
Additional paid-in capital			—				501,380	(b)			501,380
Total shareholders’ equity			86,940				414,456				501,396
Total liabilities and shareholders’ equity		$	619,710			$	—			$	619,710

          See notes to unaudited pro forma financial statements

A. H. BELO CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2007

		A. H. Belo								A. H. Belo
(In thousands, except share and per		Businesses				Pro Forma				Corporation
share amounts)		Historical				Adjustment				Pro Forma
Net operating revenues:
Advertising		$	600,335			$	—			$	600,335
Circulation			112,635				—				112,635
Other			25,698				—				25,698
Total net operating revenues			738,668				—				738,668
Operating costs and expenses(e)
Salaries, wages and employee benefits			297,630				—				297,630
Other production, distribution and operating costs			259,231				—				259,231
Newsprint, ink and other supplies			102,501				—				102,501
Goodwill impairment			344,424								344,424
Depreciation			45,815				—				45,815
Amortization			6,499				—				6,499
Total operating costs and expenses			1,056,100				—				1,056,100
Loss from operations			(317,432	)			—				(317,432	)
Other income and expense
Interest expense on notes payable to Belo Corp.			(34,834	)			34,834	(c)			—
Other income, net			3,767				—				3,767
Total other income and expense			(31,067	)			34,834				3,767
Earnings (loss)
Earnings (loss) before income taxes			(348,499	)			34,834				(313,665	)
Income tax expense (benefit)			(1,487	)			12,711	(d)			11,224
Net earnings (loss)		$	(347,012	)		$	22,123			$	(324,889	)
Pro forma basic and diluted loss per share(f)										$	(15.89	)
Pro forma weighted average shares outstanding(f)											20,449

          See notes to unaudited pro forma financial statements.

A. H. BELO CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

          For further information regarding the historical financial statements of A. H. Belo, refer to the combined financial statements and the notes related thereto included in this Annual Report on Form 10-K.

          The unaudited pro forma balance sheet includes the following adjustments as of December 31, 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 17,603,244 shares of common stock of A. H. Belo Series A common stock, par value $.01, and 2,848,628 shares of A. H. Belo Series B common stock, par value $.01, at a distribution ratio of 0.20 shares of A. H. Belo common stock for each 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 as a result of the contribution of such notes to the capital of A. H. Belo or assignment to A. H. Belo of such notes;
	(d)		The estimated income tax effect of entry (d) above is at the applicable statutory rates. The effective income tax rate of 36.5 percent for the year ended December 31, 2007 differs from the federal statutory rate of 35 percent due primarily to the effect of state income taxes. The year ended December 31, 2007 includes a reduction of income tax expense of $1,896 for the effect of the enactment of the Texas margin tax. See the Combined Financial Statements, Note 8—Income Taxes.
	(e)		The pro forma statements of operations do not include adjustments to costs and expenses resulting from the inter-company agreements. A. H. Belo expects that the effect of these agreements on A. H. Belo’s future results would not be material.
	(f)		Earnings per share information has been computed as if the shares of our common stock were issued and outstanding based on the weighted average shares of Belo common stock outstanding and the distribution ratio.

Item 7A. 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 increase, although specific pricing increases and the timing of 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.

          A. H. Belo entered into the Credit Agreement in February 2008. Revolving credit borrowings under the Credit Agreement bear interest at a variable interest rate. A change in future interest rates could affect the rate and amount of interest paid by A. H. Belo on any future borrowings under the Credit Agreement and could result in a change in A. H. Belo’s pretax earnings and cash flows.

Item 8. Financial Statements and Supplementary Data

          The Combined Financial Statements, together with the Report of Independent Registered Public Accounting Firm, are included elsewhere in this Annual Report on Form 10-K. Financial statement schedules have been omitted because the required information is contained in the Combined Financial Statements or related Notes, or because such information is not applicable.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None.

Item 9A. Controls and Procedures

          The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and Senior Vice President/Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the President and Chief Executive Officer and Senior Vice President/Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective such that information relating to the Company (including its combined subsidiaries) required to be disclosed in the Company’s SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and Senior Vice President/Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.