##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: September 30, 2008
 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
 (Exact name of registrant as specified in its charter)
 Delaware
    
    38-3765318(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)P. O. Box 224866Dallas, Texas
    
    75222-4866(Address of principal executive offices)
    
    (Zip code)
 (214) 977-4866
 None
  Yes þ No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  Yes o No þ
  Class
    
    Outstanding at October 31, 2008Common Stock, $.01 par value
    
    20,478,965
 
 *
    
    Consisting of 17,774,549 shares of Series A Common Stock and 2,704,416 shares of Series B
Common Stock.




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##### 



A. H. BELO CORPORATION
 FORM 10-Q
 TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4T. Controls and Procedures
    
    
    20PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    24EX-10(2)(1)aEX-31.1EX-31.2EX-32
  2




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PART I.
 
 Item 1. Financial Statements
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months ended September 30,
    
    
    Nine months ended September 30,In thousands, except per share amounts (unaudited)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Operating RevenuesAdvertising
    
    $
    114,811
    
    
    $
    147,511
    
    
    $
    364,575
    
    
    $
    447,160Circulation
    
    
    31,563
    
    
    
    28,210
    
    
    
    90,943
    
    
    
    83,721Other
    
    
    7,459
    
    
    
    6,219
    
    
    
    21,757
    
    
    
    19,048Total net operating revenues
    
    
    153,833
    
    
    
    181,940
    
    
    
    477,275
    
    
    
    549,929Operating Costs and ExpensesSalaries, wages and employee benefits
    
    
    77,804
    
    
    
    72,840
    
    
    
    220,909
    
    
    
    220,631Other production, distribution and operating costs
    
    
    60,768
    
    
    
    66,243
    
    
    
    182,682
    
    
    
    192,312Newsprint, ink and other supplies
    
    
    23,523
    
    
    
    25,037
    
    
    
    70,230
    
    
    
    77,712Impairment on printing press
    
    
    4,535
    
    
    
    
    
    
    
    4,535
    
    
    
    Depreciation
    
    
    10,962
    
    
    
    11,142
    
    
    
    35,414
    
    
    
    33,854Amortization
    
    
    1,625
    
    
    
    1,624
    
    
    
    4,875
    
    
    
    4,874Total operating costs and expenses
    
    
    179,217
    
    
    
    176,886
    
    
    
    518,645
    
    
    
    529,383(Loss) earnings from operations
    
    
    (25,384
    )
    
    
    5,054
    
    
    
    (41,370
    )
    
    
    20,546Other Income and ExpenseInterest expense
    
    
    (52
    )
    
    
    (8,768
    )
    
    
    (3,283
    )
    
    
    (26,547
    )Other (expense) income, net
    
    
    (25
    )
    
    
    530
    
    
    
    1,237
    
    
    
    3,312Total other expense
    
    
    (77
    )
    
    
    (8,238
    )
    
    
    (2,046
    )
    
    
    (23,235
    )Loss before income taxes
    
    
    (25,461
    )
    
    
    (3,184
    )
    
    
    (43,416
    )
    
    
    (2,689
    )Income tax (benefit) expense
    
    
    (8,203
    )
    
    
    3,097
    
    
    
    (14,243
    )
    
    
    688Net loss
    
    $
    (17,258
    )
    
    $
    (6,281
    )
    
    $
    (29,173
    )
    
    $
    (3,377
    )Net loss per share:Basic and diluted
    
    $
    (0.84
    )
    
    $
    (0.31
    )
    
    $
    (1.42
    )
    
    $
    (0.17
    )Weighted average shares outstanding:Basic and diluted
    
    
    20,479
    
    
    
    20,452
    
    
    
    20,477
    
    
    
    20,452Dividends declared per share
    
    $
    0.375
    
    
    
    N/A
    
    
    $
    0.625
    
    
    
    N/A
 See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,2008
    
    
    December 31,In thousands, except share and per share amounts
    
    (unaudited)
    
    
    2007AssetsCurrent assets:Cash and temporary cash investments
    
    $
    17,712
    
    
    $
    6,874Accounts receivable, net
    
    
    66,289
    
    
    
    90,792Inventories
    
    
    20,701
    
    
    
    11,407Deferred income taxes
    
    
    6,763
    
    
    
    4,744Prepaids and other current assets
    
    
    10,944
    
    
    
    8,202Total current assets
    
    
    122,409
    
    
    
    122,019Property, plant and equipment at cost:Land
    
    
    31,158
    
    
    
    46,403Buildings and improvements
    
    
    219,616
    
    
    
    232,267Publishing equipment
    
    
    359,973
    
    
    
    351,323Other
    
    
    158,990
    
    
    
    144,503Advance payments on property, plant and equipment
    
    
    14,548
    
    
    
    23,614Total property, plant and equipment
    
    
    784,285
    
    
    
    798,110Less accumulated depreciation
    
    
    519,995
    
    
    
    490,322Property, plant and equipment, net
    
    
    264,290
    
    
    
    307,788Intangible assets, net
    
    
    35,552
    
    
    
    40,426Goodwill
    
    
    119,667
    
    
    
    119,667Long term deferred income taxes
    
    
    5,254
    
    
    
    Investments
    
    
    32,177
    
    
    
    22,899Other assets
    
    
    9,067
    
    
    
    6,911Total assets
    
    $
    588,416
    
    
    $
    619,710
 See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
  September 30,2008
    
    
    December 31,In thousands, except share and per share amounts
    
    (unaudited)
    
    
    2007Liabilities and Shareholders EquityCurrent liabilities:Current portion of long term debt
    
    $
    10,000
    
    
    $
    Accounts payable
    
    
    28,907
    
    
    
    25,384Accrued compensation and benefits
    
    
    40,663
    
    
    
    31,161Accrued interest on notes payable
    
    
    14
    
    
    
    35,148Other accrued expenses
    
    
    4,506
    
    
    
    3,822Advance subscription payments
    
    
    26,774
    
    
    
    24,495Dividends payable
    
    
    2,560
    
    
    
    Current portion of notes payable to Belo Corp.
    
    
    
    
    
    
    392Total current liabilities
    
    
    113,424
    
    
    
    120,402Notes payable to Belo Corp.
    
    
    
    
    
    
    378,916Deferred income taxes
    
    
    19,888
    
    
    
    19,189Other liabilities
    
    
    13,511
    
    
    
    14,263Shareholders equity:Preferred stock, $.01 par value. Authorized 2,000,000
shares;
none issued.
    
    
    
    
    
    
    Common stock, $.01 par value. Authorized 125,000,000 sharesSeries A: issued 17,774,149 shares at September 30,
2008
    
    
    176
    
    
    
    Series B: issued 2,704,816 shares at September 30, 2008
    
    
    28
    
    
    
    Additional paid-in capital
    
    
    483,362
    
    
    
    Retained deficit
    
    
    (41,973
    )
    
    
    Belo Corp. equity
    
    
    
    
    
    
    86,940Total shareholders equity
    
    
    441,593
    
    
    
    86,940Total liabilities and shareholders equity
    
    $
    588,416
    
    
    $
    619,710
 See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
  In thousands, except share amounts (unaudited)
    
    Nine months ended September 30, 2008Common Stock
    
    
    
    
    
    AdditionalShares
    
    Shares
    
    
    
    
    
    Paid-in
    
    Retained
    
    Belo Corp.Series A
    
    Series B
    
    Amount
    
    Capital
    
    Deficit
    
    Equity
    
    TotalBalance at December 31, 2007
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    86,940
    
    
    $
    86,940Contribution by Belo Corp.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,300
    
    
    
    
    
    
    
    (86,940
    )
    
    
    394,360Issuance of stock in the Distribution
    
    
    17,603,499
    
    
    
    2,848,496
    
    
    
    204
    
    
    
    (204
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,266
    
    
    
    
    
    
    
    
    
    
    
    2,266Conversion of Series B to Series A
    
    
    143,680
    
    
    
    (143,680
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of shares for restricted stock units
    
    
    26,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,800
    )
    
    
    
    
    
    
    (12,800
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,173
    )
    
    
    
    
    
    
    (29,173
    )Balance at September 30, 2008
    
    
    17,774,149
    
    
    
    2,704,816
    
    
    $
    204
    
    
    $
    483,362
    
    
    $
    (41,973
    )
    
    $
    
    
    
    $
    441,593
 See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine months ended September 30,In thousands (unaudited)
    
    2008
    
    
    2007OperationsNet loss
    
    $
    (29,173
    )
    
    $
    (3,377
    )Adjustments to reconcile net loss to net cash provided by operations:Depreciation and amortization
    
    
    40,289
    
    
    
    38,728Provision for bad debt
    
    
    4,689
    
    
    
    3,389Impairment on printing press
    
    
    4,535
    
    
    
    Deferred income taxes
    
    
    (11,656
    )
    
    
    (10,235
    )Employee retirement benefit expense
    
    
    (361
    )
    
    
    126Share-based compensation
    
    
    (521
    )
    
    
    748Other non-cash items
    
    
    (63
    )
    
    
    (3,445
    )Net changes in operating assets and liabilities, excluding the effects of the
Distribution:Accounts receivable
    
    
    25,276
    
    
    
    15,484Inventories
    
    
    (9,294
    )
    
    
    7,007Prepaids and other current assets
    
    
    282
    
    
    
    Other, net
    
    
    (2,265
    )
    
    
    316Accounts payable
    
    
    2,703
    
    
    
    (8,912
    )Accrued compensation and benefits
    
    
    (1,490
    )
    
    
    (2,776
    )Other accrued expenses
    
    
    1,145
    
    
    
    (4,895
    )Advance subscription payments
    
    
    1,336
    
    
    
    111Net cash provided by operations
    
    
    25,432
    
    
    
    32,269InvestmentsCapital expenditures, net
    
    
    (14,033
    )
    
    
    (22,823
    )Other, net
    
    
    (321
    )
    
    
    (1,900
    )Net cash used for investments
    
    
    (14,354
    )
    
    
    (24,723
    )FinancingDividends and distributions
    
    
    (10,240
    )
    
    
    (35,312
    )Net borrowings from Belo Corp.
    
    
    
    
    
    
    25,264Proceeds from credit facility
    
    
    10,000
    
    
    
    Net cash used for financing
    
    
    (240
    )
    
    
    (10,048
    )Net increase (decrease) in cash and temporary cash investments
    
    
    10,838
    
    
    
    (2,502
    )Cash and temporary cash investments at beginning of period
    
    
    6,874
    
    
    
    10,521Cash and temporary cash investments at end of period
    
    $
    17,712
    
    
    $
    8,019Supplemental DisclosuresInterest paid, net of amounts capitalized
    
    $
    
    
    
    $
    31,457Income taxes paid, net of refunds
    
    $
    
    
    
    $
    10,513
 See accompanying Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   (1)
    
    The accompanying unaudited condensed consolidated financial statements of A. H. Belo
Corporation and its subsidiaries (the Company or A. H. Belo) have been prepared in
accordance with generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The balance sheet at December 31, 2007 has been
derived from the audited combined financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting principles for
complete financial statements. These condensed consolidated financial statements should be
read in conjunction with the audited financial statements and footnotes thereto included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2007. Operating
results for the three and nine month periods ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2008.
 (2)
    
    The Company owns three primary daily newspapers: The Dallas Morning News, The Providence
Journal, and The Press-Enterprise(Riverside, CA). They publish and distribute local, state,
national, and international news. In addition to these three daily newspapers, the Company
publishes various niche products in the same or nearby markets where the primary daily
newspapers are located. Each of the Companys daily newspapers and niche publications operates
and maintains its own Web site. The Company also operates direct mail and commercial printing
businesses. The Companys operating segments are defined as its newspapers within a given
market. The Company has determined that all of its operating segments meet the criteria under
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information, to be aggregated into one reporting segment.On February 8, 2008, Belo Corp. (Belo) contributed all of the stock of its subsidiaries
engaged in the newspaper business and related assets to A. H. Belo (hereafter referred to as the
Distribution). On February 8, 2008 (the Distribution Date), Belo also distributed, through a
pro rata, tax-free dividend to its shareholders, 0.20 shares of 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. As a result of the Distribution, A. H. Belo issued 17,603,499 shares of Series
A common stock and 2,848,496 shares of Series B common stock. This resulted in A. H. Belo
becoming a separate public company with its own management and board of directors. The assets
and liabilities transferred to A. H. Belo were recorded at historical cost as a reorganization
of entities under common control. Following the Distribution, Belo does not have any ownership
interest in A. H. Belo but will continue to conduct business with A. H. Belo pursuant to various
agreements, as more fully described in Note 8, and co-own certain investments.Operating expenses reflect direct operating expenses of the business together with allocations
of certain Belo corporate expenses for the periods prior to the Distribution. For the three and
nine months ended September 30, 2007, corporate expenses are based on allocations of Belo
corporate expenses. The nine months ended September 30, 2008 include allocated Belo corporate
expenses up to the Distribution Date only. Corporate expenses for the remainder of the nine
month period (post-Distribution), including the three month period ended September 30, 2008,
comprise actual costs incurred by the Company. The allocations from Belo include certain costs
associated with Belos corporate facilities, information systems, legal, internal audit, finance
(including public company accounting and reporting), employee compensation and benefits
administration, risk management, treasury administration and tax functions, and are based on
actual costs incurred by Belo. Allocations of corporate facility costs are based on the actual
space used. Information technology costs and employee compensation and benefits administration
are allocated based on headcount. Other costs are allocated to A. H. Belo based on the Companys
size relative to the Belo subsidiaries. Costs allocated to the Company totaled $7,430 for the 39
days ended February 8, 2008. Corporate allocated costs for the three and nine months ended
September 30, 2007 were $12,853 and $39,299, respectively. Transactions between the companies
comprising A. H. Belo have been eliminated in the consolidated financial statements.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.
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All dollar amounts are in thousands, unless otherwise indicated. Certain prior period amounts
have been reclassified to conform to the current period presentation.(3)
    
    The following table presents stock-based awards that are excluded for purposes of
calculating diluted earnings per share for the three and nine months ended September 30,
2008:
 Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2008
    
    2008Options excluded due to exercise price in excess of average market priceNumber outstanding
    
    
    2,988,880
    
    
    
    2,464,380Weighted average exercise price
    
    $
    18.50
    
    
    $
    21.04
 (4)
    
    In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R), Business Combinations.
SFAS 141(R) 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
statements to evaluate the nature and financial effects of the business combination. SFAS
141(R) 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 141(R) will have an impact on the Companys consolidated 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, consummated after the effective date.In February 2007, the FASB issued SFAS No. 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 has elected not to implement the fair value
option with respect to any existing assets or liabilities; therefore, the adoption of SFAS 159
had no impact on the Companys financial position or results of operations.In September 2006, the FASB issued SFAS No. 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 is
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.
Effective January 1, 2008, the Company adopted SFAS 157 for its financial assets and
liabilities. The adoption of this standard on January 1, 2008 did not have a material impact on
the Companys financial position or results of operations. The Company is currently assessing
the impact of SFAS 157 for non-financial assets and liabilities.(5)
    
    Prior to the Distribution, the Company established a long-term incentive plan under which
awards may be granted to employees and outside directors in the form of non-qualified stock
options, incentive stock options, restricted shares, restricted stock
units, performance shares, performance units and stock appreciation rights. In addition, options may be
accompanied by stock appreciation rights and limited stock appreciation rights. Rights and
limited rights may also be issued without accompanying options. Cash-based bonus awards are
also available under the plan.In connection with the Distribution, holders of outstanding Belo options received an adjusted
Belo option for the same number of shares of Belo common stock as held before the Distribution
but with a reduced exercise price based on the closing price on February 8, 2008. Holders also
received one new A. H. Belo option for every five Belo options held as of the Distribution Date
(the distribution ratio) with an exercise price based on the closing share price on February 8,
2008. The Belo Restricted Stock Units (RSUs) were treated as if they were issued and
outstanding shares. Holders of Belo RSUs retained their existing RSUs and also received A. H.
Belo RSUs. The number of A. H. Belo RSUs awarded to Belos RSU holders was determined using the
distribution ratio. As a result, the Belo RSUs and the A. H. Belo RSUs, taken together, had the
same aggregate value based on the closing prices of the Belo stock and the A. H. Belo stock on
the Distribution Date, as the Belo RSUs immediately prior to the Distribution.
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Each stock option and RSU (of A. H. Belo and of Belo) otherwise has the same terms as the
original awards. The awards continue to vest as under the existing vesting schedule based on
continued employment with Belo or A. H. Belo, as applicable.Share-based compensation cost recognized for awards to A. H. Belos employees and non-employee
directors was $604 and $1,339 for the three and nine months ended September 30, 2008 and $1,171
and $5,777 for the three and nine months ended September 30, 2007, respectively. No compensation
cost is recognized related to options issued by A. H. Belo held by employees and non-employee
directors of Belo.A. H. Belo also recognizes compensation expense for any pre-Distribution awards related to its
employees that were issued under Belos long-term incentive plans. A. H. Belos share-based
compensation expense includes $263 and $691 for the three and nine months ended September 30,
2008, related to awards that were issued by Belo.A. H. Belo Option ActivityThe following table summarizes the option activity under A. H. Belos long-term incentive plan
for the period ended September 30, 2008:
 WeightedAverageNumber of
    
    ExerciseOptions
    
    PriceIssued in connection with the Distribution on February 8, 2008
    
    
    2,496,728
    
    
    $
    21.09Granted
    
    
    524,500
    
    
    
    6.60Exercised
    
    
    
    
    
    
    Canceled
    
    
    (32,348
    )
    
    
    24.99Outstanding at September 30, 2008
    
    
    2,988,880
    
    
    $
    18.50
 Of the total A. H. Belo options outstanding at September 30, 2008, 1,513,445 options with a
weighted average exercise price of $16.22 are held by A. H. Belo employees and non-employee
directors.A. H. Belo RSU ActivityThe following table summarizes the RSU activity under A. H. Belos long-term incentive plan for
the period ended September 30, 2008:
 WeightedAverageNumber of
    
    ExerciseRSUs
    
    PriceIssued in connection with the Distribution on February 8, 2008
    
    
    391,297
    
    
    $
    18.35Granted
    
    
    61,398
    
    
    
    7.65Vested
    
    
    (45,050
    )
    
    
    19.10Canceled
    
    
    (4,380
    )
    
    
    19.15Outstanding at September 30, 2008
    
    
    403,265
    
    
    $
    16.63
 10




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##### Table of Contents



Of the total A. H. Belo RSUs outstanding at September 30, 2008, 218,267 RSUs are held by A. H.
Belo employees and non-employee directors.(6)
    
    As described in Note 6 in the 2007 Annual Report on Form 10-K, Belo retained sponsorship and
funding obligations of the G. B. Dealey Pension Plan, in which some of A. H. Belo employees
participate. Under the employee matters agreement between the Company and Belo, A. H. Belo
will reimburse Belo for 60 percent of each contribution Belo makes to the Pension Plan. In
conjunction with the Distribution, the Company recorded a liability of $3,096 for these
anticipated future fundings. Both the fair value of the plan assets and the projected benefit
obligations are measured annually on December 31, and as such, the funded status (the
difference between the fair value of plan assets and the projected benefit obligation) of the
Pension Plan as of September 30, 2008, does not reflect changes in the fair value of plan
assets or changes in discount rates on benefit obligations. Changes in general market
conditions may affect the funded status of the Pension Plan at the December 31 measurement
date, which could require funding in 2009. However, we do not anticipate these changes will
impact the Companys liquidity.(7)
    
    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 Newsfrom 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, now
consolidated, 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, arising out of the circulation
overstatement at The Dallas Morning News.James M. Moroney III, an executive officer of The
Dallas Morning News,was added later as a defendant. The plaintiffs seek to represent a
purported class of shareholders who purchased Belo common stock between May 12, 2003 and August
6, 2004, and allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934. On April 2, 2008, the court denied plaintiffs motion for class certification and on April
16, 2008, plaintiffs petitioned the United States Court of Appeals for the Fifth Circuit for
permission to appeal that denial. On June 17, 2008, permission was granted and plaintiffs are
appealing denial of class certification. No amount of damages has been specified. The Company
believes the complaints are without merit and intends 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 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.On October 24, 2006, 18 former employees of The Dallas Morning Newsfiled 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 Newscirculation 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, originally set in January 2009, has
been reset to March 2010. 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.
 11




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##### Table of Contents



(8)
    
    In connection with the Distribution, the Company entered into a separation and distribution
agreement; a services agreement; a tax matters agreement; an employee matters agreement, which
allocates liabilities and responsibilities regarding employee compensation and benefit plans
and related matters; and other agreements with Belo or its subsidiaries. In the separation and
distribution agreement, effective as of the Distribution Date, A. H. Belo and Belo have agreed
to indemnify each other and certain related parties from all liabilities existing or arising
from acts and events occurring, or failing to occur (or alleged to have occurred or to have
failed to occur), regarding each others businesses, whether occurring before, at or after the
effective time of the Distribution; provided, however, that under the terms of the separation
and distribution agreement, the Company and Belo will share equally in any liabilities, net of
any applicable insurance, resulting from certain circulation-related lawsuits.Under the services agreement, for a period of up to two years after the Distribution Date, A. H.
Belo and Belo (or their respective subsidiaries) will provide each other various services and/or
support. Payments made or other consideration provided in connection with all continuing
transactions between the Company and Belo will be on an arms-length basis or on a basis
consistent with the business purpose of the parties.The tax matters agreement sets out each partys rights and obligations with respect to payment
deficiencies and refunds, if any, of federal, state, local, or foreign taxes for periods before
and after the Distribution and related matters such as the filing of tax returns and the conduct
of IRS and other audits. Under this agreement, Belo will be responsible for all income taxes
prior to the Distribution, except that A. H. Belo will be responsible for its share of income
taxes paid on a consolidated basis for the period of January 1, 2008 through February 8, 2008.
A. H. Belo will also be responsible for its income taxes subsequent to the Distribution Date.Belos Dallas/Fort Worth television station, WFAA-TV, and The Dallas Morning News,owned by A.
H. Belo, have agreed to provide media content, cross-promotion, and other services to the other.
In addition, A. H. Belo and Belo co-own certain downtown Dallas real estate through a limited
liability company formed in connection with the Distribution.(9)
    
    On September 12, 2008, the Company completed a voluntary severance offer for newspaper
employees. The voluntary severance affected approximately 410 positions. The Company recorded
charges in the third quarter of 2008 for severance costs and other expenses related to this
reduction in workforce of approximately $11,784, of which $11,053 was paid in the third
quarter. Approximately $731 is expected to be paid in the fourth quarter of 2008.(10)
    
    The Company had approximately $784,000 of property, plant and equipment as of September 30,
2008, including approximately $580,000 related to publishing equipment and other fixed
assets.  In addition to the original cost of these assets, their recorded value is determined
by a number of estimates made by the Company, including estimated useful lives. In accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
Company records impairment charges on long-lived assets used in operations when events and
circumstances indicate that the assets may be impaired, the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of those assets and the net
book value of the assets exceeds their estimated fair value. In making these determinations,
the Company uses certain assumptions, including, but not limited to: (i) the estimated fair
value of the assets; and (ii) the estimated future cash flows expected to be generated by the
assets, which estimates are based on additional assumptions such as asset utilization, length
of service and estimated salvage values.In the third quarter of 2008, the Company abandoned a printing press. Management determined not
to include this printing press in its web width reduction plan, which became the primary
indicator of impairment for this printing press. This decision was based on the age of this
printing press; that parts are no longer manufactured for this press; and the cost to retrofit
other parts to enable the Company to include this press in the web width reduction plan. The
impairment charge recognized during the third quarter of 2008 was approximately $4,535. The
timing and price of any potential sale of the printing press cannot be estimated at this time.(11)
    
    SFAS No. 142, Goodwill and Other Intangible Assets requires that goodwill be tested at least
annually for impairment or between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below its carrying
amount. The Company measures the fair value of its reporting units annually on December 31.
Changes in general market conditions may affect the fair value of a reporting unit at the
December 31 measurement date, which could lead to an impairment when the Company completes its
annual impairment test. However, any impairment would not impact the Companys liquidity.
Please refer to notes 1 and 3 in the 2007 Annual Report on Form 10-K for a full description of
the Companys goodwill impairment policies.
 12




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##### Table of Contents



(12)
    
    On October 24, 2008, the Company completed an involuntary severance program for newspaper
employees. The involuntary severance affected approximately 90 positions. The Company
recorded charges in the fourth quarter of 2008 for severance costs
and other expenses related to this reduction in workforce of approximately $1,240, all of which
is expected to be paid in the fourth quarter of 2008.As of September 30, 2008, the Company was not in compliance with the fixed charge coverage ratio
as required by its credit facility. During the fourth quarter of 2008, the Companys bank group
approved an amendment and waiver to its credit facility. The amended credit agreement, effective
October 23, 2008, reduces the total commitment amount from $100,000 to $50,000; sets pricing at
LIBOR plus a spread of 250 basis points; waives the fixed charge coverage ratio covenant through
January 31, 2009; restricts the payment of cash dividends during such period; and, provides the
bank group a security interest in the Companys accounts receivable and inventory. The amendment
does not apply to the dividend declared on September 24, 2008, which was paid on November 10,
2008. The amendment enables the Company to be in compliance with the credit facility covenants
as of September 30, 2008.
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands, except per share amounts)
 The following information should be read in conjunction with the Companys Condensed Consolidated
Financial Statements and related Notes filed as part of this report.
 Overview
 The Dallas Morning News, The Providence Journal The
Press-Enterprise
   13




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##### Table of Contents



Results of Operations
 (Dollars in thousands, except per share amounts)
 Consolidated Results of Operations
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percentage
    
    
    
    
    
    
    
    
    
    
    Percentage2008
    
    
    Change
    
    
    2007
    
    
    2008
    
    
    Change
    
    
    2007Net operating revenues
    
    $
    153,833
    
    
    
    (15.4
    )%
    
    $
    181,940
    
    
    $
    477,275
    
    
    
    (13.2
    )%
    
    $
    549,929Operating costs and expenses
    
    
    179,217
    
    
    
    1.3
    %
    
    
    176,886
    
    
    
    518,645
    
    
    
    (2.0
    )%
    
    
    529,383Other expense
    
    
    (77
    )
    
    
    (99.1
    )%
    
    
    (8,238
    )
    
    
    (2,046
    )
    
    
    (91.2
    )%
    
    
    (23,235
    )Loss before income taxes
    
    
    (25,461
    )
    
    
    699.7
    %
    
    
    (3,184
    )
    
    
    (43,416
    )
    
    
    1,514.5
    %
    
    
    (2,689
    )Income tax (benefit) expense
    
    
    (8,203
    )
    
    
    (364.9
    )%
    
    
    3,097
    
    
    
    (14,243
    )
    
    
    (2,170.2
    )%
    
    
    688Net loss
    
    $
    (17,258
    )
    
    
    174.8
    %
    
    $
    (6,281
    )
    
    $
    (29,173
    )
    
    
    763.9
    %
    
    $
    (3,377
    )
 14




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##### Table of Contents



Revenues
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percentage
    
    
    
    
    
    
    
    
    
    
    Percentage2008
    
    
    Change
    
    
    2007
    
    
    2008
    
    
    Change
    
    
    2007Advertising
    
    $
    114,811
    
    
    
    (22.2
    )%
    
    $
    147,511
    
    
    $
    364,575
    
    
    
    (18.5
    )%
    
    $
    447,160Circulation
    
    
    31,563
    
    
    
    11.9
    %
    
    
    28,210
    
    
    
    90,943
    
    
    
    8.6
    %
    
    
    83,721Other
    
    
    7,459
    
    
    
    19.9
    %
    
    
    6,219
    
    
    
    21,757
    
    
    
    14.2
    %
    
    
    19,048Net operating revenues
    
    $
    153,833
    
    
    
    (15.4
    )%
    
    $
    181,940
    
    
    $
    477,275
    
    
    
    (13.2
    )%
    
    $
    549,929
  The Dallas Morning News The Providence Journal and The
Press-Enterprise The Dallas
Morning News The
Press-Enterprises The Providence Journals
  Operating Costs and Expenses
  15




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##### Table of Contents



Interest Expense
  Other Income, Net
  Income Taxes
  Liquidity and Capital Resources
 Operating Cash Flows
   Investing Cash Flows
  Capital Expenditures
  The Dallas Morning News
 The Press-Enterprise
 16




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##### Table of Contents



Financing Cash Flows
   Dividends
   17




---



##### Table of Contents



Other
      Recent Accounting Pronouncements
 Business Combinations
 The Fair Value Option for Financial Assets and
Liabilities
 18




---



##### Table of Contents



Fair Value Measurements
 19




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##### Table of Contents



Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
   
 PART II.
 
 Item 1. Legal Proceedings
  20




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##### Table of Contents



Item 1A. Risk Factors
   The continued economic slowdown in the United States and the national and worldwide financial
crisis may adversely affect our business, financial condition and results of operations.  Among
other things, these negative economic trends could adversely affect demand for advertising, reduce
the availability and increase the cost of short-term funds for liquidity requirements, and
adversely affect our ability to meet long term commitments.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 21




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
  Exhibit
    
    
    
    Description2.1
    
    *
    
    Separation and Distribution Agreement by and between Belo Corp. and A. H. Belo Corporation dated
as of February 8, 2008 (Exhibit 2.1 to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 12, 2008 (Securities and Exchange Commission File
No. 001-33741) (the February 12, 2008 Form 8-K))3.1
    
    *
    
    Amended and Restated Certificate of Incorporation of the Company (Exhibit 3.1 to Amendment No. 3
to the Companys Form 10 dated January 18, 2008 (Securities and Exchange Commission File No.
001-33741) (the Third Amendment to Form 10))3.3
    
    *
    
    Certificate of Designations of Series A Junior Participating Preferred Stock of the Company dated
January 11, 2008 (Exhibit 3.2 to Post-Effective Amendment No. 1 to Form 10 dated January 31, 2008
(Securities and Exchange Commission File No. 001-33741))3.4
    
    *
    
    Amended and Restated Bylaws of the Company, effective January 11, 2008 (Exhibit 3.3 to the Third
Amendment to Form 10)4.1
    
    
    
    Certain rights of the holders of the Companys Common Stock are set forth in Exhibits 3.1-3.3 above4.2
    
    *
    
    Specimen Form of Certificate representing shares of the Companys Series A Common Stock (Exhibit
4.2 to the Third Amendment to Form 10)4.3
    
    *
    
    Specimen Form of Certificate representing shares of the Companys Series B Common Stock (Exhibit
4.3 to the Third Amendment to Form 10)4.4
    
    *
    
    Rights Agreement dated as of January 11, 2008 between the Company and Mellon Investor Services LLC
(Exhibit 4.4 to the Third Amendment to Form 10)
 22




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##### Table of Contents



Exhibit
    
    
    
    Description10.1
    
    
    
    Financing agreements:~

    
    (1)* Credit Agreement dated as of February 4, 2008 among the Company, as Borrower, JPMorgan Chase,
N.A., as Administrative Agent, JPMorgan Securities Inc. and Banc of America Securities LLC, as
Joint Lead Arrangers and Bookrunners, Bank of America, N.A., as Syndication Agent, SunTrust Bank
and Capital One Bank, N.A., as Co-Documentation Agents (Exhibit 99.1 to the Companys Current
Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2008
(Securities and Exchange Commission File No. 001-33741))~

    
    (2)* First Amendment and Waiver to the Credit Agreement dated as of October 23, 2008 (Exhibit
10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission
on October 24, 2008 (Securities and Exchange Commission File No.001-33741))10.2
    
    
    
    Compensatory plans:~

    
    (1)* A. H. Belo Corporation Savings Plan (Exhibit 10.4 to the Companys Current Report on Form 8-K
files with the Securities and Exchange Commission on February 12, 2008 (Securities and Exchange
Commission File No. 001-33741))(a) First Amendment to the A. H. Belo Savings Plan dated September 23, 2008~

    
    (2) * A. H. Belo Corporation 2008 Incentive Compensation Plan (Exhibit 10.5 to the Companys
Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2008
Securities and Exchange Commission File No. 001-33741))* (a) First Amendment to A.H. Belo 2008 Incentive Compensation Plan effective July 23, 2008
(Exhibit 10.2(2)(A) to the Companys Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 14, 2008 (Securities and Exchange Commission File No.001-33741))* (b) Form of A. H. Belo 2008 Incentive Compensation Plan Non-Employee Director Evidence of Award
(Exhibit 10.2(2)(A) to the Companys Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 15, 2008 (Securities and Exchange Commission File No.001-33741))* (c) Form of A. H. Belo 2008 Incentive Compensation Plan Evidence of Award (for Employee Awards)
(Exhibit 10.2(2)(B) to the Companys Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 15, 2008 (Securities and Exchange Commission File No.001-33741))~

    
    (3)* A. H. Belo Pension Transition Supplement Restoration Plan effective January 1, 2008 (Exhibit
10.6 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission
on February 12, 2008 (Securities and Exchange Commission File No. 001-33741))~

    
    (4)* A. H. Belo Corporation Change In Control Severance Plan (Exhibit 10.7 to the Companys
Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2008
(Securities and Exchange Commission File No. 001-33741))10.3
    
    
    
    Agreements relating to the distribution of A. H. Belo:(1)* Tax Matters Agreement by and between Belo Corp. and A. H. Belo Corporation dated as of
February 8, 2008 (Exhibit 10.1 to the Companys Current Report on Form 8-K files with the
Securities and Exchange Commission on February 12, 2008 (Securities and Exchange Commission File
No. 001-33741))(2)* Employee Matters Agreement by and between Belo Corp. and A. H. Belo Corporation dated as of
February 8, 2008 (Exhibit 10.2 to the Companys Current Report on Form 8-K files with the
Securities and Exchange Commission on February 12, 2008 (Securities and Exchange Commission File
No. 001-33741))(3)* Services Agreement by and between Belo Corp. and A. H. Belo Corporation dated as of February
8, 2008 (Exhibit 10.3 to the Companys Current Report on Form 8-K files with the Securities and
Exchange Commission on February 12, 2008 (Securities and Exchange Commission File No. 001-33741))(4)* Separation and Distribution Agreement (See Exhibit 2.1 to the Companys Current Report on
Form 8-K files with the Securities and Exchange Commission on February 12, 2008 (Securities and
Exchange Commission File No. 001-33741))31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 23




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SIGNATURES
  A. H. BELO CORPORATION
 November 14, 2008
    By:
    /s/ Alison K. EngelAlison K. EngelSenior Vice President/Chief Financial
Officer and Treasurer
(Principal Financial Officer) November 14, 2008
    By:
    /s/ George F. FinfrockGeorge F. FinfrockVice President/Corporate Controller
(Principal Accounting Officer) 24