The independent newspaper company that Belo Corp., of Texas, plans to establish early next year could have one of the most robust balance sheets in the business.

But the company — of which the Providence Journal is to be part — would continue to face problems that bedevil the traditional media industry, including a general slump in advertising revenue and a continuing shift by consumers to the Internet.

Those are among the points contained in a document that Belo (BLC:NYSE) filed late Friday with the U.S. Securities and Exchange Commission (SEC).

The document, which is subject to revision, is intended to give shareholders an idea of what the newspaper company would look like after its proposed spinoff from Belo some time in the first three months of next year.

Belo on Oct. 1 formally announced a plan to split itself in two. If the transaction is completed as planned, Belo Corp. would continue to hold the company’s TV stations. A new, separate company — to be called A.H. Belo Corp. — would hold its newspapers.

As a result, people who own shares now in Belo Corp. would instead own shares in two companies — Belo Corp. (the TV company) and A.H. Belo Corp. (the newspaper company).

Belo is preparing a document to be sent to its shareholders which would spell out precisely how the transaction would work. It was the preliminary version of that document that the company filed with the SEC on Friday.

The document, called an “information statement,” describes A.H. Belo’s business, its relationship with Belo Corp., and how the transaction would affect Belo Corp. and its shareholders.

It also provides shareholders with other information to help them evaluate the benefits and risks of holding or disposing of the common stock in A.H. Belo that they would receive as a result of the spinoff. (Shareholder approval of the deal is not required.)

Broadly speaking, the document contains estimates of A.H. Belo’s financial condition as it had been conducted while part of Belo Corp. as of June 30.

According to those estimates, A.H. Belo had about $964 million in assets, and only about $112 million or so in liabilities.

Assuming that those estimates hold up, A.H. Belo would have a net worth of more than $850 million upon its creation early next year.

That is mainly because Belo Corp. plans to assign most of its debts to the television company when the transaction is completed; A.H. Belo, which is the newspaper company, would be largely debt free at its outset.

“An initial debt-free capital structure with a strong balance sheet [will provide A.H. Belo with] financial flexibility to allocate capital toward higher-growth online initiatives, support continued innovation, and maintain a strong focus on distinguished journalism and editorial content,” the company said in the filing.

“With no initial debt, A.H. Belo can focus on investing in technology platforms which will likely become the core of its future business,” the company said. A.H. Belo will also have the “strategic and financial flexibility to form partnerships and alliances unencumbered by considerations of the potential effect on Belo’s television operations,” the company said.

Shaw K. Chen, professor and associate dean of the College of Business Administration at the University of Rhode Island, said that because A.H. Belo would have so few liabilities compared with its overall assets, “I would say the company is financially sound.”

However, he said, prospective investors would look beyond A.H. Belo’s balance sheet to other factors, such as the company’s earning capacity. “Investors look at the future potential earnings ability” of a company, Chen said in a telephone interview yesterday.

And on this score, there is no clear answer. Despite the strength of its balance sheet, A.H. Belo would nevertheless continue to face many of the same problems traditional media companies are currently grappling with — declines in advertising revenue and circulation, and questions about how to deal with consumers’ increasing reliance on the Internet.

A survey of the newspaper industry published last month by Standard & Poor’s Corp. of New York said, “Newspaper publishers face a number of pressures — including loss of readers to other media, as well as loss of advertisers and advertising — as marketers follow their target audiences to other media.”

Belo’s filing with the SEC last week echoed Standard & Poor’s findings. “The newspaper and television businesses are undergoing profound fundamental changes to their underlying business models,” the company said in its SEC filing. “After decades of relative stability in the newspaper and television business models, there is now uncertainty about what each business model will look like in the future.”

One problem has been in circulation — a term that generally refers to the number of copies a newspaper sells. “A.H. Belo’s newspaper properties, and the newspaper industry as a whole, are experiencing difficulty maintaining or increasing print circulation and related revenues,” according to the SEC filing.

“This is due to, among other factors, increased competition from new media formats and sources other than traditional newspapers (often free to users), and shifting preferences among some consumers to receive all or a portion of their news other than from a newspaper,” the company said.

Traditional media outlets have also seen a general decline in advertising revenue. This is important because, at A.H. Belo, for example, about 82 percent of all revenues for the last three fiscal years were generated by the sale of advertising appearing in its newspapers, the company said. The remainder of the revenue came from circulation and other sources.

For the six months ended June 30, the latest period for which figures are available, A.H. Belo’s net operating revenues totaled about $368 million, down about 10 percent from the year-earlier period.

When the spinoff was announced this month, James M. Walden, a securities analyst with Morningstar, of Chicago, said, “While the transaction is designed to act as a catalyst for Belo’s stock price, we don’t think it changes the economics of the company’s core broadcasting and publishing operations.”

Nevertheless, he said, “We do see potential value creation with the move. All of Belo’s current debt will be allocated to the new broadcasting company, leaving the new newspaper publisher debt free. This proposed capital structure should allow the newspaper company to obtain credit at favorable terms, which could be attractive if maintained at a reasonable level and used to buy back undervalued stock, pay a hefty dividend or acquire other newspaper publishers on the cheap.”

The SEC filing also offered a glimpse of recent revenue history of The Providence Journal. For example, for the year ended Dec. 31, 2006, net operating revenue fell 2 percent, or about $3.28 million, to about $160.67 million.

For the six months ended June 30, 2007, net operating revenue fell 7.9 percent, or about $6.4 million, to about $74.25 million.

Belo’s other two newspapers — the Dallas Morning News, in Texas, and the Press-Enterprise, in California — reported somewhat similar results. For the six months ended June 30, 2007, net operating revenues for the Dallas Morning News dropped by 8.2 percent, and for the Press-Enterprise by 15.7 percent.

The SEC filing also included the following details:

•Belo Corp. has not set the precise terms of the proposed spinoff. Therefore, for now, someone who currently owns Belo stock won’t be able to determine until later exactly how many shares in the newspaper company he or she will receive as a result of the spinoff. Such details are typically set closer to the date of the transaction. Similarly, the market value of the TV company stock, and of the newspaper company stock, will not be known until later.

•Belo confirmed that it has applied to the Internal Revenue Service for a private-letter ruling to ensure that the spinoff will be treated as a tax-free distribution to shareholders. However, in the filing, Belo also said that the newspaper company will issue only whole shares, no fractional shares. As a result, any shareholder who would otherwise be due a fractional share will instead receive cash for that portion of the distribution. The receipt of cash will, in general, represent a taxable event, subject to federal capital gains tax.

•A.H. Belo is expected to “return cash to shareholders through an attractive recurring annual dividend,” the company said. The actual amount and timing of each dividend are subject to final determination by the boards of the two companies.

•Although A.H. Belo will initially be debt-free, it expects to have a revolving credit facility with a group of banks in place for its financing needs.

•A.H. Belo will have in place a number of anti-takeover provisions which will make it difficult for someone to take control of the company without the board’s approval. Furthermore, any acquisition of the newspaper company within the first two years following the spinoff would have significant corporate tax consequences. This suggests that the newspaper company will remain independent for at least its first two years.

•By splitting itself in two, Belo is abandoning what had been a popular industry trend — combining newspaper and TV operations. “The newspaper and television businesses, once thought to be on a path towards convergence, are now moving in different directions as regulatory obstacles to cross-ownership remain and new technologies have altered the media landscape,” the company said in its filing. “Certain benefits from combinations of print and broadcast assets and their cooperative activities may be largely accomplished [instead] through various commercial partnerships and alliances.”

•One of the reasons Belo plans to split in two is to allow the TV company and the newspaper company “to focus on the unique challenges of their individual businesses,” according to the SEC filing. In addition, the split will make it easier for the investment community to measure and analyze each company’s performance separately, Belo said.

•For the year ended Dec. 31, 2006, revenues for A.H. Belo’s newspaper-affiliated Web sites represented about 7 percent of A.H. Belo’s overall revenue.

•As of Oct. 1, A.H. Belo had about 3,800 full-time and part-time employees, including about 530 employees represented by various unions. (All of the union employees are located in Providence, the company said.)

•The document spells out a number of legal proceedings in which Belo, A.H. Belo, and/or a number of its operating units are involved. In one of these proceedings, SEC staff in 2004 notified Belo that it was conducting a newspaper industry-wide inquiry into circulation practices, and specifically inquired about the Dallas Morning News. Earlier this month, SEC staff sent Belo lawyers a letter saying that the inquiry has been completed and that the SEC staff does not intend to recommend any enforcement action by the SEC.

ndowning@projo.com