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Medianews Group Inc · 10-Q · For 12/31/06

Filed On 2/14/07, 3:29pm ET   ·   Accession Number 950134-7-3284   ·   SEC File 33-75156

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 2/14/07  Medianews Group Inc               10-Q       12/31/06    6:413K                                   Bowne of Dallas I..01/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    347K 
 2: EX-31.1     Certification Pursuant to Section 302               HTML     10K 
 3: EX-31.2     Certification Pursuant to Section 302               HTML     10K 
 4: EX-31.3     Certification Pursuant to Section 302               HTML     10K 
 5: EX-32.1     Certification Pursuant to Section 906               HTML      8K 
 6: EX-32.2     Certification Pursuant to Section 906               HTML      8K 


10-Q   —   Quarterly Report
Document Table of Contents

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11st Page   -   Filing Submission
"Table of Contents
"Part I -- Financial Information
"Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosure of Market Risk
"Controls and Procedures
"Part Ii -- Other Information
"Legal Proceedings
"Risk Factors
"Submission of Matters to a Vote of Security Holders
"Exhibits
"Signatures
"Condensed Consolidated Balance Sheets
"Condensed Consolidated Statements of Operations
"Condensed Consolidated Statements of Cash Flows
"Notes to Condensed Consolidated Financial Statements

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Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2006
OR
(     ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 033-75156
MEDIANEWS GROUP, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   76-0425553
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
     
101 W. Colfax Avenue, Suite 1100    
Denver, Colorado   80202
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (303) 954-6360
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. Item (1) Yes [X] No [   ];     Item (2) Yes [   ] No [X]*
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [   ]            Accelerated filer [   ]            Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [   ]            No [X]
The total number of shares of the registrant’s Common Stock outstanding as of February 14, 2007 was 2,298,346.
*The registrant’s duty to file reports with the Securities and Exchange Commission has been suspended in respect of its fiscal year commencing July 1, 2006 pursuant to Section 15(d) of the Securities Exchange Act of 1934. It is filing this Quarterly Report on Form 10-Q on a voluntary basis.
 
 

 



 

INDEX TO MEDIANEWS GROUP, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
DECEMBER 31, 2006

             
Item No.       Page  
PART I — FINANCIAL INFORMATION
  Financial Statements     3  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     3  
  Quantitative and Qualitative Disclosure of Market Risk     3  
  Controls and Procedures     3  
 
           
PART II — OTHER INFORMATION
  Legal Proceedings     4  
  Risk Factors     4  
2
  Unregistered Sales of Equity Securities and Use of Proceeds     N/A  
3
  Defaults Upon Senior Securities     N/A  
  Submission of Matters to a Vote of Security Holders     4  
5
  Other Information     N/A  
  Exhibits     4  
 
           
Signatures
 Certification Pursuant to Section 302
 Certification Pursuant to Section 302
 Certification Pursuant to Section 302
 Certification Pursuant to Section 906
 Certification Pursuant to Section 906

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PART I — FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS
     The information required by this item is filed as part of this report on Form 10-Q. See Index to Financial Information on page 6 of this report on Form 10-Q.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The information required by this item is filed as part of this report on Form 10-Q. See Index to Financial Information on page 6 of this report on Form 10-Q.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
     The information required by this item is filed as part of this report on Form 10-Q. See Index to Financial Information on page 6 of this report on Form 10-Q.

ITEM 4: CONTROLS AND PROCEDURES
     As of December 31, 2006, we had carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, President, and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer, President, and Chief Financial Officer concluded that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that material information regarding us and/or our subsidiaries required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, as required, within the time periods specified in the Securities and Exchange Commission rules and forms.
     During the period covered by this quarterly report, there have been no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
     The Company’s management, including the CEO, President, and CFO, does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II — OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS
     The information required by this item is filed as part of this report on Form 10-Q as Note 4 of the Notes to Condensed Consolidated Financial Statements. See Index to Financial Information on page 6 of this report on Form 10-Q.

ITEM 1A: RISK FACTORS
     In addition to the other information set forth in this report, see factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     As of October 1, 2006, the holders of 93.1% of all outstanding shares of our Class A Common Stock acted by written consent in lieu of an annual meeting to re-elect Richard B. Scudder, William Dean Singleton, Jean L. Scudder and Howell E. Begle to our board of directors. Following the effectiveness of that action, our board of directors consisted of Richard B. Scudder, William Dean Singleton, Jean L. Scudder and Howell E. Begle.

ITEM 6: EXHIBITS
     See Exhibit Index for list of exhibits filed with this report.

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FORWARD-LOOKING STATEMENTS
     This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements contained herein and elsewhere in this report are based on current expectations. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The terms “expect,” “anticipate,” “intend,” “believe,” and “project” and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated and should be viewed with caution. Potential risks and uncertainties that could adversely affect our ability to obtain these results, and in most instances are beyond our control, include, without limitation, those listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2006 and the following additional factors: (a) acquisitions of new businesses or dispositions of existing businesses, (b) costs or difficulties related to the integration of businesses acquired by us may be greater than expected, (c) increases in interest or financing costs, and (d) other unanticipated events and conditions. It is not possible to foresee or identify all such factors. We make no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statements.

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  MEDIANEWS GROUP, INC.
 
 
Dated: February 14, 2007  By:   /s/Ronald A. Mayo    
    Ronald A. Mayo   
    Vice President,
Chief Financial Officer and
Duly Authorized Officer of Registrant 
 
 

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MEDIANEWS GROUP, INC.
Index to Financial Information
         
    Page  
Item 1: Financial Statements
       
 
       
    7  
    9  
    10  
    11  
 
       
    23  
 
       
    32  

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    (Unaudited)    
    December 31, 2006   June 30, 2006
    (Dollars in thousands)
ASSETS
               
CURRENT ASSETS
               
Cash and cash equivalents
  $ 7,994     $ 424  
Accounts receivable, less allowance for doubtful accounts of $14,322 at December 31, 2006 and $9,282 at June 30, 2006
    184,536       106,032  
Inventories of newsprint and supplies
    29,448       21,289  
Prepaid expenses and other assets
    18,727       11,954  
 
               
TOTAL CURRENT ASSETS
    240,705       139,699  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Land
    56,933       41,871  
Buildings and improvements
    226,773       131,336  
Machinery and equipment
    495,559       397,949  
Construction in progress
    13,253       57,657  
 
               
TOTAL PROPERTY, PLANT AND EQUIPMENT
    792,518       628,813  
Less accumulated depreciation and amortization
    (265,923 )     (249,588 )
 
               
NET PROPERTY, PLANT AND EQUIPMENT
    526,595       379,225  
 
               
OTHER ASSETS
               
Investment in unconsolidated JOAs (Denver and Salt Lake City)
    267,956       228,925  
Equity investments
    51,965       54,457  
Subscriber accounts, less accumulated amortization of $167,368 at December 31, 2006 and $161,776 at June 30, 2006
    43,163       39,365  
Excess of cost over fair value of net assets acquired
    788,328       424,161  
Newspaper mastheads
    374,229       101,829  
Advertiser lists, covenants not to compete and other identifiable intangible assets, less accumulated amortization of $44,385 at December 31, 2006 and $34,506 at June 30, 2006
    184,598       15,656  
Other
    50,256       44,466  
 
               
TOTAL OTHER ASSETS
    1,760,495       908,859  
 
               
TOTAL ASSETS
  $ 2,527,795     $ 1,427,783  
 
               
See notes to condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    (Unaudited)    
    December 31, 2006   June 30, 2006
    (Dollars in thousands, except share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Trade accounts payable
  $ 48,590     $ 19,526  
Accrued liabilities
    93,315       68,668  
Unearned income
    49,664       31,715  
Current portion of long-term debt and obligations under capital leases
    7,619       4,133  
 
               
TOTAL CURRENT LIABILITIES
    199,188       124,042  
 
               
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
    1,193,588       863,760  
 
               
OTHER LIABILITIES
    69,610       28,774  
 
               
DEFERRED INCOME TAXES, NET
    113,149       103,349  
 
               
MINORITY INTEREST
    532,264       207,439  
 
               
PUTABLE COMMON STOCK
    38,832       40,899  
 
               
ST. PAUL, MONTEREY AND TORRANCE PURCHASE PRICE (HEARST)
    297,458        
 
               
SHAREHOLDERS’ EQUITY
               
Common stock, par value $0.001; 3,150,000 shares authorized: 2,314,346 shares issued and 2,298,346 shares outstanding
    2       2  
Accumulated other comprehensive loss, net of taxes
    (18,833 )     (21,520 )
Retained earnings
    104,537       83,038  
Common stock in treasury, at cost, 16,000 shares
    (2,000 )     (2,000 )
 
               
TOTAL SHAREHOLDERS’ EQUITY
    83,706       59,520  
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 2,527,795     $ 1,427,783  
 
               
See notes to condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
                                 
    Three Months Ended   Six Months Ended
    December 31,   December 31,
    2006   2005   2006   2005
    (Dollars in thousands)
REVENUES
                               
Advertising
  $ 302,153     $ 163,817     $ 538,957     $ 317,773  
Circulation
    55,505       31,365       101,113       62,631  
Other
    14,803       11,043       27,693       22,393  
 
                               
TOTAL REVENUES
    372,461       206,225       667,763       402,797  
 
                               
INCOME (LOSS) FROM UNCONSOLIDATED JOAS (DENVER AND SALT LAKE CITY)
    804       (4,551 )     (1,541 )     (8,270 )
 
                               
COSTS AND EXPENSES
                               
Cost of sales
    116,784       63,841       211,808       126,057  
Selling, general and administrative
    176,578       100,327       328,767       198,981  
Depreciation and amortization
    18,608       10,393       34,999       20,665  
Interest expense
    21,335       13,708       40,584       27,238  
Other (income) expense, net
    (5,712 )     271       (11,225 )     1,954  
 
                               
TOTAL COSTS AND EXPENSES
    327,593       188,540       604,933       374,895  
 
                               
EQUITY INVESTMENT INCOME (LOSS), NET
    (211 )     2,565       506       4,424  
 
                               
GAIN (LOSS) ON SALE OF ASSETS, NET
    (66 )     291       16,264       322  
 
                               
MINORITY INTEREST
    (21,615 )     (7,807 )     (34,966 )     (14,576 )
 
                               
INCOME BEFORE INCOME TAXES
    23,780       8,183       43,093       9,802  
 
                               
INCOME TAX EXPENSE
    (10,822 )     (3,434 )     (16,817 )     (4,071 )
 
                               
NET INCOME
    12,958       4,749       26,276       5,731  
 
                               
ACCRETION RELATED TO ST. PAUL, MONTEREY AND TORRANCE PURCHASE PRICE
    (4,234 )           (6,844 )      
 
                               
 
                               
NET INCOME APPLICABLE TO COMMON STOCK SHAREHOLDERS
  $ 8,724     $ 4,749     $ 19,432     $ 5,731  
 
                               
See notes to condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    Six Months Ended December 31,
    2006   2005
    (Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 26,276     $ 5,731  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    36,867       30,001  
Provision for losses on accounts receivable
    5,870       4,328  
Amortization of debt discount and deferred debt issuance costs
    425       479  
Net gain on sale of assets
    (16,264 )     (322 )
Proportionate share of net income from unconsolidated JOAs
    (23,002 )     (24,101 )
Distributions of net income from unconsolidated JOAs (a)
    21,944       23,824  
Equity investment income, net
    (506 )     (4,424 )
Distributions of net income from equity investments (b)
    950       4,217  
Change in defined benefit plan assets, net of cash contributions
    (4,241 )     393  
Deferred income tax expense
    16,227       570  
Change in estimated option repurchase price
    (6,607 )     250  
Minority interest
    34,966       14,576  
Distributions paid to minority interest
    (34,335 )     (9,623 )
Unrealized loss on hedging activities, reclassified to earnings from accumulated other comprehensive loss
    228       228  
Change in operating assets and liabilities
    6,929       (14,107 )
 
               
NET CASH FLOWS FROM OPERATING ACTIVITIES
    65,727       32,020  
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Business acquisitions, net of cash acquired
    (401,581 )      
Business dispositions
    14,000        
Distributions in excess of net income from JOAs(a)
    10,151       13,141  
Distributions in excess of net income from equity investments(b)
    1,068       1,423  
Investment in Detroit and other investments
    (171 )     (27,674 )
Capital expenditures
    (13,240 )     (28,285 )
Proceeds from the sale of assets
    19,913       573  
 
               
NET CASH FLOWS FROM INVESTING ACTIVITIES
    (369,860 )     (40,822 )
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Issuance of long-term debt, net of fees
    416,328       31,100  
Reduction of long-term debt and other liabilities
    (88,760 )     (25,889 )
Distributions in excess of net income to minority interests
    (15,865 )      
 
               
NET CASH FLOWS FROM FINANCING ACTIVITIES
    311,703       5,211  
 
               
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    7,570       (3,591 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    424       4,262  
 
               
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 7,994     $ 671  
 
               
 
               
 
               
 
(a) Total distributions from unconsolidated JOAs were $32.1 million and $37.0 million for the six months ended December 31, 2006 and 2005, respectively.
 
(b) Total distributions from equity investments were $2.0 million and $5.6 million for the six months ended December 31, 2006 and 2005, respectively.
 
               
 
               
Supplemental schedule of noncash investing activities:
               
Business acquisitions (St. Paul, Monterey and Torrance)
  $ (290,614 )   $  
Business acquisitions (San Jose and Contra Costa)
    (337,230 )      
Investment in Salt Lake Newspaper Production Facilities, LLC
    (45,469 )      
 
               
 
  $ (673,313 )   $  
 
               
See notes to condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Significant Accounting Policies and Other Matters
Basis of Quarterly Financial Statements
     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in MediaNews Group, Inc.’s (“MediaNews” or the “Company”) Annual Report on Form 10-K for the year ended June 30, 2006. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three- and six-month periods ended December 31, 2006 are not necessarily indicative of the results that may be expected for future interim periods or for the year ended June 30, 2007.
     In addition, the unaudited condensed consolidated financial statements include the operating results of the San Jose Mercury News, Contra Costa Times, The Monterey County Herald and the St. Paul Pioneer Press beginning August 2, 2006 (see Note 7: Acquisitions, Dispositions and Other Transactions). These four entities report on a 52- or 53-week fiscal year; therefore, their results included in these unaudited condensed financial statements for the Company’s three-month period ending December 31, 2006 are from September 25, 2006 through December 31, 2006 and for the Company’s six-month period ending December 31, 2006 are from August 2, 2006 (transaction date) through December 31, 2006.
Joint Operating Agencies
     A joint operating agency (“JOA”) performs the production, sales, distribution and administrative functions for two or more newspapers in the same market under the terms of a joint operating agreement. Editorial control and news at each newspaper party to a joint operating agreement continue to be separate and outside of a JOA. As of December 31, 2006, the Company participates in JOAs in Denver, Colorado, Salt Lake City, Utah, York, Pennsylvania, Detroit, Michigan and Charleston, West Virginia. See Note 3: Joint Operating Agencies of the Company’s consolidated financial statements included in its June 30, 2006 Annual Report on Form 10-K for a description of the Company’s accounting for the Denver and Salt Lake City JOAs.
     The Company’s unconsolidated JOAs (Denver and Salt Lake City) are reported as a single net amount in the accompanying financial statements in the line item “Income from Unconsolidated JOAs.” This line item includes:
    The Company’s proportionate share of net income from JOAs,
 
    The amortization of subscriber lists created by the original purchase, as the subscriber lists are attributable to the Company’s earnings in the JOAs, and
 
    Editorial costs, miscellaneous revenue received outside of the JOA, and other charges incurred by the Company’s consolidated subsidiaries directly attributable to the JOAs in providing editorial content and news for the Company’s newspapers party to the JOAs.
     The Company’s investments in the Denver and Salt Lake City JOAs are included in the consolidated balance sheets under the line item “Investment in Unconsolidated JOAs.” See Note 3: Denver and Salt Lake City Joint Operating Agencies for further discussion of our accounting for these two JOAs.
     Because of the structure of the partnership and the Company’s ownership interest, the Company’s accounting for its investment in the Detroit JOA only includes the preferred distributions the Company receives from the Detroit JOA. The Company’s investment in The Detroit News, Inc. is included in other long-term assets. Under the Charleston JOA, the Company is reimbursed for the cost of providing the news and editorial content of the Charleston Daily Mail and is paid a management fee. The Company’s limited partnership interest in the Charleston JOA does not entitle the Company to any share of the profits or losses of the limited partnership.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     The Company owns all of the York JOA and accordingly, consolidates its results. The York Dispatch (one of the newspapers in the JOA) is edited by a third party, and the Company reimburses the third party for all related expenses and pays them a management fee. These expenses are included in the Company’s consolidated results.
Income Taxes
     At the end of each interim period, the Company makes its best estimate regarding the effective tax rate expected to be applicable for the full fiscal year. The rate so determined is used in providing for income taxes on a current year to date basis. Accordingly, the effective tax rate for the three-month and six-month periods presented in this interim report on Form 10-Q may vary significantly in future periods. The effective income tax rate varies from the federal statutory rate because of state income taxes and the non-deductibility of certain expenses.
Seasonality
     Newspaper companies tend to follow a distinct and recurring seasonal pattern, with higher advertising revenues in months containing significant events or holidays. Accordingly, the fourth calendar quarter, or the Company’s second fiscal quarter, is the Company’s strongest revenue quarter of the year. Due to generally poor weather and lack of holidays, the first calendar quarter, or the Company’s third fiscal quarter, is the Company’s weakest revenue quarter of the year.
Revisions/Reclassifications
     For comparability, certain prior year balances have been reclassified to conform to current reporting classifications. In particular, the statement of cash flows has been revised for the six months ended December 31, 2005 to reflect distributions in excess of net income from unconsolidated JOAs and equity investments as cash flows from investing activities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 95, Statement of Cash Flows. For the six months ended December 31, 2005, the revision decreased the reported net cash flows from operating activities and increased the reported net cash flows from investing activities by $14.6 million.
NOTE 2: Comprehensive Income
     The Company’s comprehensive income consisted of the following:
                                 
    Three Months Ended December 31,   Six Months Ended December 31,
    2006   2005   2006   2005
    (Dollars in thousands)
Net income
  $ 12,958     $ 4,749     $ 26,276     $ 5,731  
Unrealized gain on hedging activities, net of tax
    131       140       472       440  
Unrealized loss on newsprint hedging activities, reclassified to earnings, net of tax
    114       114       228       228  
Minimum pension liability adjustment, net of tax
    1,987       618       1,987       (1,460 )
 
                               
Comprehensive income
  $ 15,190     $ 5,621     $ 28,963     $ 4,939  
 
                               

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3: Denver and Salt Lake City Joint Operating Agencies
     The following tables present the summarized results of the Denver and Salt Lake City JOAs on a combined basis. The financial information presented under the captions Salt Lake City JOA and Denver JOA is presented at 100%, with the other partners’ share of income from the related JOAs subsequently eliminated. The editorial costs, miscellaneous revenue received outside of the JOA, depreciation, amortization, and other direct costs incurred outside of the JOAs by our consolidated subsidiaries associated with The Salt Lake Tribune and The Denver Post, are combined in the column “Associated Revenues and Expenses.”
                                 
    Three Months Ended December 31, 2006
                    Associated   Total Income from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
Total revenues
  $ 41,530     $ 105,819     $ 28          
 
                               
Cost of sales
    8,688       34,578       8,255          
Selling, general and administrative
    14,485       51,002       3,020          
Depreciation and amortization
    1,416       11,243       923          
Other
    679       2,250       242          
 
                               
Total costs and expenses
    25,268       99,073       12,440          
 
                               
Net income
    16,262       6,746       (12,412 )        
Partners’ share of income from unconsolidated JOAs
    (6,419 )     (3,373 )              
 
                               
Income from unconsolidated JOAs
  $ 9,843     $ 3,373     $ (12,412 )   $ 804  
 
                               
                                 
    Six Months Ended December 31, 2006
                    Associated   Total Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
Total revenues
  $ 80,213     $ 208,072     $ 73          
 
                               
Cost of sales
    17,379       68,727       16,396          
Selling, general and administrative
    28,354       102,333       5,940          
Depreciation and amortization
    2,833       23,403       1,868          
Other
    1,240       3,741       412          
 
                               
Total costs and expenses
    49,806       198,204       24,616          
 
                               
Net income
    30,407       9,868       (24,543 )        
Partners’ share of income from unconsolidated JOAs
    (12,339 )     (4,934 )              
 
                               
Income (loss) from unconsolidated JOAs
  $ 18,068     $ 4,934     $ (24,543 )   $ (1,541 )
 
                               

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
                                 
    Three Months Ended December 31, 2005
                    Associated   Total Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
Total revenues
  $ 38,417     $ 111,631     $ 113          
 
                               
Cost of sales
    8,957       33,771       8,678          
Selling, general and administrative
    13,069       51,561       2,903          
Depreciation and amortization
          19,248       4,609          
Other
    1,589       713       248          
 
                               
Total costs and expenses
    23,615       105,293       16,438          
 
                               
Net income
    14,802       6,338       (16,325 )        
Partners’ share of income from unconsolidated JOAs
    (6,197 )     (3,169 )              
 
                               
Income (loss) from unconsolidated JOAs
  $ 8,605     $ 3,169     $ (16,325 )   $ (4,551 )
 
                               
                                 
    Six Months Ended December 31, 2005
                    Associated   Total Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
Total revenues
  $ 75,790     $ 218,646     $ 242          
 
                               
Cost of sales
    17,360       67,769       17,050          
Selling, general and administrative
    26,643       103,094       6,078          
Depreciation and amortization
          33,953       9,336          
Other
    1,576       760       149          
 
                               
Total costs and expenses
    45,579       205,576       32,613          
 
                               
Net income
    30,211       13,070       (32,371 )        
Partners’ share of income from unconsolidated JOAs
    (12,645 )     (6,535 )              
 
                               
Income (loss) from unconsolidated JOAs
  $ 17,566     $ 6,535     $ (32,371 )   $ (8,270 )
 
                               

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     Depreciation and amortization expense was greater in the prior year due to accelerated depreciation on certain fixed assets at the production facilities in Denver and Salt Lake City which will be or were retired earlier than originally expected due to the construction of new production facilities at the respective locations. The accelerated depreciation for the three and six months ended December 31, 2006 is only related to the Denver JOA.
     In addition, the fiscal year 2007 depreciation and amortization for the Salt Lake City JOA includes depreciation and amortization on assets previously owned outside of the JOA. Prior to July 1, 2006, each partner owned the fixed assets used in the operations of the Salt Lake City JOA as tenants in common. Effective July 1, 2006, most of the operating assets utilized by the Salt Lake City JOA are owned by Salt Lake Newspapers Production Facilities, LLC (“SLNPF”), which leases those assets to the Salt Lake City JOA. SLNPF is owned 58% by the Company, and 42% by our partner in the Salt Lake City JOA, Deseret News Publishing Company. Accordingly, for fiscal year 2007 the related depreciation is included in “Salt Lake City JOA” income statement data instead of the “Associated Revenues and Expenses” column. Management of SLNPF is shared equally between the Company and Deseret News Publishing Company in the same manner as the Salt Lake JOA. The Company’s $45.5 million investment in the fixed assets contributed to SLNPF as of July 1, 2006 was reclassified from Property, Plant and Equipment to Investment in Unconsolidated JOAs.
NOTE 4: Contingent Matters and Commitments
     In January 2001, the Company acquired Kearns-Tribune, LLC (“Kearns-Tribune”) and The Salt Lake Tribune. Prior to and since the acquisitions, MediaNews and Salt Lake Tribune Publishing Company (“SLTPC”) have been involved in litigation over SLTPC’s option (“the Option Agreement”) to acquire the assets used, held for use or usable in connection with the operation and publication of The Salt Lake Tribune (the “Tribune Assets”). For additional discussion on the litigation, please refer to Note 11: Commitments and Contingencies of the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2006. The following is a summary of updates with regard to this litigation.
     One issue in dispute is the option exercise price. The terms of the Option Agreement specify an appraisal process for determination of the fair market value of the Tribune Assets. In this appraisal process, each party engaged an appraisal firm to value the Tribune Assets at their fair market value. Kearns-Tribune’s appraisal valued the Tribune Assets at $380.0 million, whereas SLTPC’s appraisal valued the Tribune Assets at $218.0 million. Because Kearns-Tribune’s and SLTPC’s appraisals were more than 10% apart, the appraisers appointed by Kearns-Tribune and SLTPC were required to jointly select a third appraiser. Under the terms of the Option Agreement, the final option purchase price is based on the average of the two closest of the three appraisals. On June 11, 2003, the third appraiser issued its final report valuing the Tribune Assets at $331.0 million. Accordingly, the option exercise price was set at $355.5 million for the Tribune Assets. After the third appraiser’s final report was issued, SLTPC filed a lawsuit in the United States District Court for the District of Utah (“District Court”) on June 24, 2003 (the “appraisal lawsuit”), challenging the valuation performed by the third appraiser and seeking to set aside the third appraisal and the $355.5 million exercise price. The District Court ruled that the appraisal process constituted an arbitration under the Federal Arbitration Act (“FAA”) and that any challenge must therefore be made under the procedures set forth in the FAA. The District Court subsequently denied SLTPC’s motion under the FAA procedures seeking to set aside the appraisal, and, as a consequence of its arbitration rulings, also dismissed the appraisal lawsuit. SLTPC appealed the District Court’s rulings to the United States Court of Appeals for the Tenth Circuit (“Tenth Circuit”), and on November 30, 2004, the Tenth Circuit reversed the District Court’s rulings. While taking no position on the merits of the dispute as to the finality of the third appraisal and the validity of the $355.5 million exercise price, the Tenth Circuit held that the Option Agreement’s appraisal procedure did not constitute arbitration within the meaning of the FAA. The Tenth Circuit accordingly reinstated SLTPC’s appraisal lawsuit.
     In the reinstated appraisal lawsuit, SLTPC filed an amended complaint against MediaNews, Kearns-Tribune and the third appraiser, Management Planning Inc. (“MPI”), seeking relief that includes, among other things, (a) the setting aside of the third appraisal; (b) monetary damages from the third appraiser for alleged breaches of contractual and fiduciary duties; and (c) what SLTPC refers to as an “abatement” of the purchase price pursuant to allegations that the value of the Tribune Assets has decreased since SLTPC sought to exercise the option. MediaNews and Kearns-Tribune and MPI filed separate motions to dismiss SLTPC’s amended complaint in the appraisal lawsuit. On October 24, 2005, the District Court granted those motions and dismissed the appraisal lawsuit, ruling that SLTPC’s allegations in its amended complaint did not set forth grounds for the invalidation of the third appraisal. SLTPC subsequently filed a motion for reconsideration or, in the

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
alternative, for leave to file a second amended complaint, which the District Court denied on December 7, 2005. SLTPC appealed to the Tenth Circuit. On July 19, 2006, the Tenth Circuit reversed the District Court, holding that SLTPC had alleged grounds for invalidation of the third appraisal by alleging that MPI had (a) used the wrong definition of Fair Market Value; (b) failed to consider relevant evidence; and (c) failed to comply with professional appraisal standards. The Tenth Circuit remanded the case to the District Court for further proceedings to determine if those allegations could be sustained. On October 26, 2006, the Tenth Circuit denied Kearns-Tribune’s petition for rehearing.
     When the appraisal lawsuit again returned to the District Court in November 2006, SLTPC sought leave to file a second amended complaint that would include allegations of fraud and evident partiality on the part of MPI. Over MediaNews and Kearns-Tribune’s objection, the District Court granted the motion. On December 13, 2006, SLTPC filed a Second Amended Complaint, which MediaNews and Kearns-Tribune answered on December 22, 2006.
     Also in November 2006, MediaNews and Kearns-Tribune filed a motion to dismiss or stay SLTPC’s claims that were unrelated to the validity of MPI’s appraisal on the ground that those claims were either (a) already at issue in the main action or (b) premature and speculative. On December 12, 2006, the District Court granted the motion in part, staying SLTPC’s claim for an abatement of the option exercise price and staying the damages issues on all of SLTPC’s claims. The Court also entered a scheduling order setting the case for trial in September 2007. The parties have now exchanged written discovery and are in the process of scheduling depositions.
     If the $355.5 million option exercise price is upheld, there remains a dispute as to whether SLTPC has now waived its rights under the Option Agreement to acquire the Tribune Assets at that price. The District Court had set a date of October 10, 2003 (the “Closing Date”) for the closing to occur. On October 9, 2003, counsel for SLTPC sent a letter to counsel for MediaNews and Kearns-Tribune notifying Kearns-Tribune that SLTPC would not pay the $355.5 million option exercise price, and raised additional objections to the proposed closing documentation; accordingly, no closing occurred on October 10, 2003. MediaNews and Kearns-Tribune contend that this was SLTPC’s sole opportunity to close at the $355.5 million price, while SLTPC contends that in light of its objections, it would be entitled to another opportunity to close at that price. It is expected that any dispute over SLTPC’s opportunity for a second closing will be litigated in the main action between the parties (see discussion in the paragraph below).
     During the time in which the appraisal and exercise price issues were on appeal before the Tenth Circuit, SLTPC’s main action was stayed. In the main action, SLTPC’s pending claims against MediaNews and Kearns-Tribune include claims for specific performance, damages for breach of contract (in the event some or all of the Tribune Assets are not transferred to SLTPC) and for interference with contract (arising out of the amendment of the JOA in 2001). MediaNews and Kearns-Tribune have pending counterclaims against SLTPC, which include claims for damages for breaches of contract, breach of fiduciary duty, interference with contract, negligence and conversion. Additionally, MediaNews and Kearns-Tribune have pending counterclaims for declaratory judgment, but no damage claims against Deseret News Publishing Company (“Deseret Publishing”). Deseret Publishing has pending claims against SLTPC for damages, and claims that do not seek damages against Kearns-Tribune as to the meaning and enforceability of the Option Agreement and related Management Agreement. Additionally, it is anticipated, depending upon the outcome of the appraisal lawsuit, that the main action may also encompass litigation by the parties concerning whether the Option Agreement expired when SLTPC did not exercise it on October 10, 2003 (as the Company and Kearns-Tribune have contended), or whether SLTPC still has the opportunity to exercise the Option Agreement (as SLTPC contends). No schedule has yet been set for the litigation of these issues. On October 20, 2006, however, the District Court granted SLTPC’s motion to lift the stay in the main case. SLTPC had also moved for leave to file an amended complaint in the case, and that motion was denied without prejudice because the proposed amended complaint was not presented to the District Court.
     The Company is not in a position at this time to predict the likely outcome of this litigation. However, the Company does not believe that the litigation will have a material adverse impact on its financial condition, results of operations, or liquidity. Approximately $0.5 million and $0.7 million, respectively, was recorded in other (income) expense, net for the three and six months ended December 31, 2006, respectively, related to the cost of defending these lawsuits. The cost of defending these lawsuits may continue to be substantial.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other
     The Company owns certain life insurance policies received in conjunction with an acquisition. In fiscal year 2006, the Company determined one of the policies, with a face value of $5.0 million, related to an individual who passed away in 2002. In October 2006, the Company received the policy proceeds of $5.0 million, plus interest and reimbursement of the policy’s cash surrender value for premiums since the individual’s death, for a total payment of $6.6 million. The total proceeds from the policy were recorded in other (income) expense, net during the three months ended September 30, 2006.
     On July 14, 2006, an individual filed suit against the Company in California alleging antitrust violations based on the Company’s purchase of certain California newspapers from The McClatchy Company and The Hearst Corporation’s proposed investment in the Company’s non-Bay area assets (see Note 7: Acquisitions, Dispositions and Other Transactions). The individual sought a temporary restraining order enjoining the Company from acquiring these newspapers and enjoining Hearst’s proposed investment in the Company’s non-Bay area assets, which the court denied on July 28, 2006. On November 16, 2006, the individual filed a second motion for a temporary restraining order, seeking to enjoin the Company from (1) consolidating the operations of The San Jose Mercury News, The Contra Costa Times, and The San Francisco Chronicle, and (2) implementing or performing any agreements with The Hearst Corporation pursuant to a letter dated April 26, 2006, in which the Company and the Hearst Corporation agreed to “negotiate in good faith agreements to offer national advertising and internet advertising sales for their San Francisco Bay area newspapers on a joint basis, and to consolidate the San Francisco area distribution networks of such newspapers, all on mutually satisfactory terms and conditions, and in each case subject to any limitations required to ensure compliance with applicable law.” On November 22, 2006, the Court denied relief on the consolidation request, but granted a temporary restraining order enjoining the Company and The Hearst Corporation from entering into any agreements of the nature described in the April 26 letter. On December 19, 2006, the Court entered a preliminary injunction continuing the prohibition on entering into any agreements of the nature described in the April 26 letter pending trial of the action. The Company is contesting all of the individual’s substantive claims vigorously. Trial is scheduled to begin April 30, 2007. If the Company loses on one or more counts, it could be required to divest one or more newspapers, and/or the Hearst investment in the Company’s non-Bay area assets could be enjoined. In addition, if the Company loses on any count, it may have to pay the complainant’s reasonable legal costs as provided by statute. The parties are currently engaged in discovery.
     On April 26, 2006, the Company entered into an agreement with Gannett and S.F. Holding Corporation (the “Stephens/Gannett Contribution Agreement”) pursuant to which Gannett and S.F. Holding Corporation (“Stephens”) agreed to contribute their pro rata share of the purchase price (plus estimated transaction fees and expenses) of The Monterey County Herald, for a total ranging between approximately $27.4 million and $38.4 million, depending on whether a portion of The Monterey County Herald is purchased from the Company by the California Newspapers Partnership or a partnership between the Company and Stephens, which would be owned 67.36% by the Company and 32.64% by Stephens.
     In January 1998, the Company entered into an option agreement in association with the acquisition financing related to one of its newspapers. The option entitles the holder to purchase the assets used in the publication of one of the Company’s newspaper properties, which the option holder can currently exercise or put to the Company based on a predetermined formula. At June 30, 2006, the option repurchase price was recorded in the Company’s balance sheet (as a component of other long-term liabilities) at approximately $6.6 million. During the quarter ended December 31, 2006, the Company wrote the option repurchase price down to $0 with a credit to other (income) expense as a result of the performance of the publication and a clarification in the interpretation of how to calculate the option repurchase price. The purchase price of the option can increase or decrease each quarter based on the performance of the publication because a significant component of the option repurchase formula is the twenty-four month trailing cash flows of the publication. The option expires in January 2010 at which time, if the option remains outstanding, the Company would be required to repurchase it at the then option repurchase price as determined by the option agreement (which calculation currently would not require the Company to make payment).
     There have been no other material changes in the other contingent matters discussed in Note 11: Commitments and Contingencies of the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2006.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: Amendment of Bank Credit Facility
     On August 2, 2006, the Company entered into an amendment to its December 30, 2003 bank credit facility (the “amended facility”). The amended facility was entered into in order to authorize a new $350.0 million term loan “C” facility and to approve the purchase of the Contra Costa Times, San Jose Mercury News, The Monterey County Herald and the St. Paul Pioneer Press by the Company (see Note 7: Acquisitions, Dispositions and Other Transactions).
     The amended facility maintains the $350.0 million revolving credit facility, the $100.0 million term loan “A,” the $147.3 million term loan “B,” and provides for the $350.0 million term loan “C” facility, which was borrowed on August 2, 2006 and used, along with borrowings under the Company’s bank revolver of $56.3 million, to fund the remainder of its portion of the purchase price for the Contra Costa Times and the San Jose Mercury News and to pay the related fees to amend the facility. At December 31, 2006, the balances outstanding under the revolving credit portion of the bank credit facility, term loan “A,” term loan “B” and term loan “C” were $133.8 million, $100.0 million, $145.1 million and $348.3 million, respectively.
     Term loan “C” bears interest based upon, at the Company’s option, either Eurodollar, plus a borrowing margin of 1.75%, or base rate, plus a borrowing margin of 0.75%. Term loan “C” requires quarterly principal payments as follows: $0.875 million through June 2012; and $82.25 million from June 2012 through March 2013, with the remaining balance due at maturity on August 2, 2013. Amounts repaid under the term loan “C” facility will not be available for re-borrowing. The terms for the existing borrowings remain unchanged.
     The amended facility also contained certain definitional changes used in calculating the consolidated debt to consolidated operating cash flow ratio as well as increasing the maximum coverage ratio for certain future periods. As of December 31, 2006, the Company is in compliance with the covenant requirements of the bank credit facility, as well as those of its Senior Subordinated Notes.
     The Company paid approximately $5.2 million in fees to amend its credit facility and syndicate its term loan “C.” Such payment was capitalized as a deferred financing cost and is included in other assets in the consolidated balance sheet and is being amortized to expense over a period of seven years.
     The nature of the Company’s other long-term debt and related maturities has not materially changed since June 30, 2006.
     Maturities of long-term debt, excluding $5.9 million of capital lease obligations, for the five fiscal years ending June 30, 2011 (except for June 30, 2007 which is only for the remaining six months ending) and thereafter are shown below (in thousands):
         
2007
  $ 3,416  
2008
    17,044  
2009
    31,848  
2010
    250,012  
2011
    100,647  
Thereafter
    792,364  
 
       
 
  $ 1,195,331  
 
       

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6: Employee Benefit Plans
Components of Net Periodic Benefit Cost (Pension and Other Benefits)
                                 
    Pension Plans
    Three Months Ended December 31,   Six Months Ended December 31,
    2006   2005   2006   2005
    (Dollars in thousands)
Service cost
  $ 652     $ 281     $ 1,167     $ 562  
Interest cost
    4,159       1,420       7,449       2,840  
Expected return on plan assets
    (4,591 )     (1,617 )     (8,216 )     (3,234 )
Amortization of deferral
    70       104       140       208  
Amortization of net loss
    480       748       960       1,496  
 
                               
Net periodic benefit cost
  $ 770     $ 936     $ 1,500     $ 1,872  
 
                               
                                 
    Other Benefits
    Three Months Ended December 31,   Six Months Ended December 31,
    2006   2005   2006   2005
    (Dollars in thousands)
Service cost
  $ 154     $ 157     $ 289     $ 278  
Interest cost
    187       87       360       147  
Amortization of deferral
    (3 )     (3 )     (6 )     (6 )
Amortization of net loss
    32       11       64       15  
Other one-time adjustment
          190             190  
 
                               
Net periodic benefit cost
  $ 370     $ 442     $ 707     $ 624  
 
                               
     The decrease in pension plan expense for the three and six months ended December 31, 2006 as compared to the same period for the prior year is mostly the result of an increase in the discount rate assumption from 5.25% in fiscal year 2006 to 6.25% in fiscal year 2007. Also impacting the change is the employee benefit plan expense related to the purchase of the San Jose Mercury News and management of the St. Paul Pioneer Press (See Note 7: Acquisitions, Dispositions and Other Transactions). The preliminary purchase accounting related to the assumption of the employee benefit plans for the San Jose Mercury News and the St. Paul Pioneer Press resulted in the Company recording liabilities of $31.7 million related to pension obligations and $2.8 million related to other postretirement employment benefits. The discount rate used to account for the assumption of these plans was 6.0%. In December 2006, the Company decided to freeze the defined benefit plan at the San Jose Mercury News to be effective at the end of February 2007. The impact to the plan was immaterial and no curtailment gain or loss will be recognized.
Employer Contributions
     The Company expects to contribute approximately $9.0 million to its pension plans in fiscal year 2007, including contributions related to pension plan liabilities assumed in conjunction with the management of the St. Paul Pioneer Press (see Note 7: Acquisitions, Dispositions and Other Transactions). Contributions of approximately $3.7 million have been made through December 31, 2006 by the Company.
NOTE 7: Acquisitions, Dispositions and Other Transactions
Acquisition (San Jose Mercury News, Contra Costa Times, The Monterey County Herald and St. Paul Pioneer Press)
     On August 2, 2006, MediaNews and The McClatchy Company (“McClatchy”) consummated the closing under the Stock and Asset Purchase Agreement dated as of April 26, 2006, between the Company and McClatchy, pursuant to which the California Newspapers Partnership (“CNP”), a 54.23% subsidiary of the Company, purchased the Contra Costa Times and the San Jose Mercury News and related publications and Web sites for $736.8 million. The acquisition, including estimated

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
fees, was funded in part with contributions of $340.1 million from the Company’s partners in CNP ($337.2 million was paid by the partners directly to McClatchy). The Company’s share of the acquisition, including estimated investment banking fees, was approximately $403.0 million and was funded with borrowings under a new term loan “C” and its existing bank revolver (see Note 5: Amendment of Bank Credit Facility). The $403.0 million acquisition cost excludes cash acquired and other deal costs (principally legal and accounting consultations).
     On August 2, 2006, Hearst and McClatchy consummated the closing under the Stock and Asset Purchase Agreement dated as of April 26, 2006, between Hearst and McClatchy, pursuant to which Hearst purchased The Monterey County Herald and the St. Paul Pioneer Press and related publications and Web sites for $263.2 million.
Hearst Stock Purchase Agreement
     On August 2, 2006, MediaNews and The Hearst Corporation (“Hearst”) entered into a Stock Purchase Agreement (the “MediaNews/Hearst Agreement”) pursuant to which (i) Hearst agreed to make an equity investment of up to $299.4 million (subject to adjustment under certain circumstances) in the Company (such investment will not include any governance or economic rights or interest in the Company’s publications in the San Francisco Bay area) and (ii) the Company has agreed to purchase from Hearst The Monterey County Herald and the St. Paul Pioneer Press with a portion of the Hearst equity investment in the Company. The equity investment will afford Hearst an equity interest of approximately 30% (subject to adjustment in certain circumstances) in the Company excluding the Company’s economic interest in the San Francisco Bay area newspapers. The equity investment by Hearst in the Company is subject to antitrust review by the Antitrust Division of the Department of Justice and by the Office of the Attorney General of the State of California, which is currently underway. The Antitrust Division has requested information and documents in connection with this review, and the Company is in the process of responding to the request. The Company has agreed to manage The Monterey County Herald and the St. Paul Pioneer Press during the period of their ownership by Hearst. Under the MediaNews/Hearst Agreement, the Company has all the economic risks and rewards associated with ownership of these two newspapers and is entitled contractually to retain all of the cash flows generated by them as a management fee. As a result, the Company began consolidating the financial statements of The Monterey County Herald and St. Paul Pioneer Press beginning August 2, 2006. The Company also agreed that, at the election of MediaNews or Hearst, the Company will purchase The Monterey County Herald and the St. Paul Pioneer Press, if requested, from Hearst for $263.2 million (plus reimbursement of Hearst’s costs and cost of funds in respect of its purchase of such newspapers) if for any reason Hearst’s equity investment in the Company is not consummated within six months (after November 2, 2006, MediaNews or Hearst can elect to cancel the agreement, in which case, MediaNews would have 90 days to purchase The Monterey County Herald and St. Paul Pioneer Press). The Company would need to obtain additional financing to fund this purchase, if required. As of December 31, 2006, the Company has recorded $297.4 million related to Hearst’s cost of $290.6 million and the $6.8 million accretion of Hearst’s cost of funds for this purchase. Hearst’s cost and cost of funds includes the December 15, 2006 purchase of the Daily Breeze in Torrance (see further discussion later in this note).
     As a result of the above transactions (acquisition of San Jose Mercury News and Contra Costa Times and management of The Monterey County Herald and St. Paul Pioneer Press), the Company has recorded the following: $815.1 million in intangible assets ($352.3 million — goodwill; $273.4 million — mastheads; $11.6 million — subscriber lists; and $177.8 million in advertiser lists and other finite lived intangibles) and $198.3 million in net tangible assets (the majority of which is related to fixed assets). The purchase accounting for these transactions is preliminary and subject to change.
     The unaudited pro forma consolidated statement of income information for the three and six months ended December 31, 2006 and 2005, set forth below, presents the Company’s results of operations as if the acquisitions described above had occurred at the beginning of the periods presented and is not necessarily indicative of future results or actual results that would have been achieved had the acquisition occurred as of the beginning of such periods.
                                 
    Three Months Ended December 31,   Six Months Ended December 31,
    2006   2005   2006   2005
    (Dollars in Thousands)
Operating Revenue
  $ 372,461     $ 356,629     $ 719,769     $ 691,286  
Net Income
  $ 12,958     $ 13,623     $ 28,752     $ 16,921  

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Original Apartment Magazine Sale
     On September 29, 2006, the California Newspapers Partnership sold the Original Apartment Magazine for $14.0 million plus a potential earnout of $1.0 million based on increases in the Original Apartment Magazine’s revenue over a twelve-month period ending August 2007. The sale resulted in an immaterial loss, excluding any impact of the earnout.
Acquisition (Torrance)
     On December 15, 2006, Hearst acquired the Daily Breeze and three weekly newspapers, published in Torrance, California (the “Publications”) for approximately $25.0 million, less an adjustment for working capital. The Publications are owned by Hearst, but pursuant to the MediaNews/Hearst Agreement, the Publications will be managed by the Company. Under the agreement, the Company has all the economic risks and rewards associated with ownership of the Publications and is entitled contractually to retain all of the cash flows generated by them as a management fee. As a result, the Company began consolidating the financial statements of the Publications in Torrance beginning December 15, 2006. The Publications are in close proximity to the Company’s operations in Long Beach, California. The Daily Breeze has daily circulation of approximately 66,000.
     Also pursuant to the MediaNews/Hearst Agreement, the Company has agreed that, at the election of MediaNews or Hearst, the Company will purchase the Publications, if requested, from Hearst for $25.0 million (plus reimbursement of Hearst’s costs and cost of funds in respect of its purchase of the Publications) if for any reason Hearst’s equity is not consummated within six months from August 2, 2006 (MediaNews or Hearst can currently elect to cancel the MediaNews/Hearst Agreement, in which case, MediaNews would have 90 days to purchase the Publications).
     The purchase accounting for the business combination is preliminary and subject to change.
Sale of Building
     In July 2006, the Company sold its office building in Long Beach, California for approximately $20.0 million. The Company recognized a gain of approximately $16.7 million on the sale of the building which was recorded in gain on sale of assets in the statement of operations. In conjunction with the sale of the building, the Company relocated its Long Beach operations to a leased facility. Accordingly, the Company entered into a 15-year lease agreement, with a party unrelated to the purchaser of the building, which commenced in the second quarter of the Company’s fiscal year 2007. The future minimum lease payments are included in the disclosure of future minimum payments for operating leases in Note 7: Leases of the consolidated financial statements included in the Company’s June 30, 2006 Annual Report on Form 10-K.
NOTE 8: Workforce Reductions
     The Company is implementing workforce reductions at certain of its newspaper properties. The majority of the workforce reductions are related to the recently acquired newspapers. The Company has not finalized all of its consolidation and workforce reduction programs or made all the announcements regarding such planned workforce reductions. All costs associated with workforce reduction programs, the majority of which are severance related, will be recorded in accordance with the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities or EITF Issue 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, as applicable. Under these pronouncements, certain of the costs of the workforce reductions at the acquired newspapers will be treated as additional acquisition costs (as of December 31, 2006, approximately $2.4 million was recorded to goodwill) while those related to the newspapers already owned by the Company will be expensed (approximately $0.5 million as of December 31, 2006).
NOTE 9: Recently-Issued Accounting Standards
     In October 2006, the Financial Accounting Standards Board issued Statement of Financial Standards No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS No. 158”). SFAS No. 158 applies to all plan sponsors who offer defined benefit postretirement benefit plans and requires an entity to:

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    recognize in its statement of financial position an asset for a defined benefit postretirement plan’s overfunded status or a liability for a plan’s underfunded status;
 
    measure a defined benefit postretirement plan’s assets and obligations that determine its funded status as of the end of the employer’s fiscal year;
 
    recognize changes in the funded status of a defined postretirement plan in comprehensive income in the year in which the changes occur.
     SFAS No. 158 does not change the amount of net periodic cost included in net income. The requirement to recognize the funded status of a defined benefit postretirement plan and the disclosure requirements are effective for fiscal years ending after December 15, 2006, or for the Company, for the fiscal year ending June 30, 2007. The Company already measures its plan assets and benefit obligations as of the date of the Company’s fiscal year-end statement of financial position.
     In September 2006, the Financial Accounting Standards Board issued Statement of Financial Standards No. 157, Fair Value Measurements, (“SFAS No. 157”). SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities and applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is in the process of evaluating what impact, if any, SFAS No. 157 is expected to have on the Company’s financial position or results of operations.
     In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB 108 permits registrants to record the cumulative effect of initial adoption by recording the necessary “correcting” adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. SAB 108 is effective for fiscal years ending on or after November 15, 2006. The Company has assessed the effect of adopting this guidance and has determined that there will be no impact on the Company’s consolidated financial statements.
     In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, effective for fiscal years beginning after December 15, 2006. FIN 48 creates a single model to address uncertainty in tax positions, prescribes the minimum recognition threshold, and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 also has expanded disclosure requirements, which include a tabular rollforward of the beginning and ending aggregate unrecognized tax benefits, as well as specific detail related to tax uncertainties for which it is reasonably possible the amount of unrecognized tax benefit will significantly increase or decrease within twelve months. The adoption of FIN 48 is not expected to have a material impact on the Company’s financial statements.
NOTE 10: Subsequent Events
     On February 2, 2007, the California Newspapers Partnership acquired the Santa Cruz Sentinel, published in Santa Cruz, California, for approximately $45.0 million, plus an adjustment for working capital. Contributions from the partners in CNP were used to fund the acquisition. The Company’s portion of the acquisition was approximately $25.0 million and was funded with borrowings under the Company’s bank credit facility. Santa Cruz is in close proximity to the Company’s operations in northern California and has daily circulation of approximately 24,000.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Results
     We have provided below certain summary historical financial data for the three and six months ended December 31, 2006 and 2005, including the percentage change between periods.
                                                 
    Three Months Ended           Six Months Ended    
    December 31,           December 31,    
    2006   2005   2006 vs. 2005   2006   2005   2006 vs. 2005
    (Dollars in thousands)
INCOME STATEMENT DATA:
                                               
Total Revenues
  $ 372,461     $ 206,225       80.6 %   $ 667,763     $ 402,797       65.8 %
 
                                               
Income (Loss) from Unconsolidated JOAs
    804       (4,551 )     (d )     (1,541 )     (8,270 )     (81.4 )
 
                                               
Cost of Sales
    116,784       63,841       82.9       211,808       126,057       68.0  
Selling, General and Administrative
    176,578       100,327       76.0       328,767       198,981       65.2  
Depreciation and Amortization
    18,608       10,393       79.0       34,999       20,665       69.4  
Interest Expense
    21,335       13,708       55.6       40,584       27,238       49.0  
Other (Income) Expense, Net
    (5,712 )     271       (d )     (11,225 )     1,954       (d )
 
                                               
Total Costs and Expenses
    327,593       188,540       73.8       604,933       374,895       61.4  
 
                                               
Equity Investment Income (Loss), Net
    (211 )     2,565       (d )     506       4,424       (88.6 )
 
                                               
 
                                               
Gain (Loss) on Sale of Assets
    (66 )     291       (d )     16,264       322       (d )
 
                                               
Minority Interest
    (21,615 )     (7,807 )     (d )     (34,966 )     (14,576 )     (d )
 
                                               
Net Income
    12,958       4,749       (d )     26,276       5,731       (d )
 
                                               
CASH FLOW DATA:
                                               
Cash Flows from:
                                               
Operating Activities (a)
  $ 12,542     $ 19,198             $ 65,727     $ 32,020          
Investing Activities(a)
    (3,682 )     (5,849 )             (369,860 )     (40,822 )        
Financing Activities
    (8,384 )     (14,904 )             311,703       5,211          
 
                                               
NON-GAAP FINANCIAL DATA(b):
                                               
Adjusted EBITDA
  $ 79,099     $ 42,057       88.1     $ 127,188     $ 77,759       63.6  
Minority Interest in Adjusted EBITDA
    (27,066 )     (10,156 )     (d )     (45,259 )     (19,182 )     (d )
Combined Adjusted EBITDA of Unconsolidated JOAs
    9,548       11,208       (14.8 )     16,291       19,485       (16.4 )
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company (c)
    438       2,466       (82.2 )     1,050       4,795       (78.1 )
 
                                               
Adjusted EBITDA Available to Company
  $ 62,019     $ 45,575       36.1 %   $ 99,270     $ 82,857       19.8 %
 
                                               
 
(a)   Prior Year Revision/Reclassification. For comparability, certain prior year balances have been reclassified to conform to current reporting classifications. In particular, the statement of cash flows has been revised for the three and six months ended December 31, 2005 to reclassify the distribution in excess of net income from unconsolidated JOAs and equity investments as cash flows from investing activities in accordance with Statement of Financial Accounting Standards No. 95. Statement of Cash Flows. For the three and six months ended December 31, 2005, the revision decreased the reported net cash flows from operating activities and increased the net cash flows from investing activities by $7.7 million and $14.6 million, respectively.
 
(b)   Non-GAAP Financial Data. Adjusted EBITDA and Adjusted EBITDA Available to Company are not measures of performance recognized under GAAP. However, we believe that they are indicators and measurements of our leverage capacity and debt service ability. Adjusted EBITDA and Adjusted EBITDA Available to Company should not be considered as an alternative to measure profitability, liquidity, or performance, nor should they be considered an alternative to net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in our condensed consolidated financial statements. Adjusted EBITDA is calculated by deducting cost of sales and SG&A expense from total revenues. Adjusted EBITDA Available to Company is calculated by: (i) reducing Adjusted EBITDA by the minority interest in the Adjusted EBITDA generated from the California Newspapers Partnership and the Texas-New Mexico Newspapers Partnership (beginning December 26, 2005), our less than 100% owned consolidated subsidiaries (“Minority Interest in Adjusted EBITDA”); (ii) increasing Adjusted EBITDA by our combined proportionate share of the Adjusted EBITDA generated by our unconsolidated JOAs in Denver and Salt Lake City (“Combined Adjusted EBITDA of Unconsolidated JOAs”); and (iii) increasing Adjusted EBITDA by our proportionate share of EBITDA of the Texas-New Mexico Newspapers Partnership (through December 25, 2005) and our proportionate share of EBITDA of the Prairie Mountain Publishing Company (beginning February 1, 2006) (see footnote (c)). See “Reconciliation of GAAP and Non-GAAP Financial Information — Reconciliation of Cash Flows from Operating Activities (GAAP measure) to Adjusted EBITDA (Non-GAAP measure)” for a reconciliation of Non-GAAP financial information.
 
(c)   EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company. The Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company agreements require the partnerships to make distributions equal to the earnings of the partnership before depreciation and amortization (EBITDA). Through December 25, 2005, our 33.8% share of the EBITDA of Texas-New Mexico Newspapers Partnership and beginning February 1, 2006, our 50% share of the EBITDA of Prairie Mountain Publishing Company have been included in Adjusted EBITDA Available to Company, as they are an integral part of our cash flows from operations as defined by our debt covenants. Beginning December 26, 2005, we became the controlling partner of the Texas-New Mexico Newspapers Partnership, at which time we began consolidating its results. See Note 4: Investments in California Newspapers Partnership and Texas-New Mexico Newspapers Partnership and Note 5: Acquisitions, Dispositions and Other Transactions of the notes to the consolidated financial statements included in our June 30, 2006 Annual Report on Form 10-K for further discussion of the Texas-New Mexico Newspapers Partnership restructuring and the Prairie Mountain Publishing Company formation.
 
(d)   Not meaningful.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary Supplemental Non-GAAP Financial Data
     Joint operating agencies, or JOAs, represent an operating structure that is unique to the newspaper industry. Prior to EITF 00-1, which eliminated the use of pro-rata consolidation except in the extractive and construction industries, we reported the results of our JOA interests on a pro-rata consolidated basis. Under this method, we consolidated, on a line-item basis, our proportionate share of the JOAs’ operations. Although pro-rata consolidation is no longer considered an acceptable method for our financial reporting under GAAP, we believe it provides a meaningful presentation of the results of our operations and the amount of operating cash flow available to meet debt service and capital expenditure requirements. Our JOA agreements in Denver and Salt Lake City do not restrict cash distributions to the owners and in general the Denver and Salt Lake City JOAs make monthly distributions. We use pro-rata consolidation to internally evaluate our performance and present it here because our bank credit agreement and the indentures governing our senior subordinated notes define cash flows from operations for covenant purposes using pro-rata consolidation. We also believe financial analysts and investors use pro-rata consolidation and the resulting Adjusted EBITDA, combined with capital spending requirements, and leverage analysis to evaluate our performance. This information should be used in conjunction with GAAP performance measures in order to evaluate our overall prospects and performance. Net income determined using pro-rata consolidation is identical to net income determined under GAAP.
     In the table below, we have presented the results of operations of our JOAs in Denver and Salt Lake City using pro-rata consolidation for all periods presented (the operations of the Detroit and Charleston JOA have not been included on a pro-rata consolidated basis). See Notes 1 and 3 to the condensed consolidated financial statements for additional discussion and analysis of the GAAP accounting for our JOAs.
THE INFORMATION IN THE FOLLOWING TABLE IS NOT PRESENTED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND DOES NOT COMPLY WITH ARTICLE 11 OF REGULATION S-X FOR PRO FORMA FINANCIAL DATA
                                                 
    Summary Selected Non-GAAP Financial Data
    Three Months Ended December 31,   2006 vs.   Six Months Ended December 31,   2006 vs.
    2006   2005   2005   2006   2005   2005
    (Dollars in thousands)
PRO-RATA CONSOLIDATED INCOME STATEMENT DATA:
                                               
Total Revenues
  $ 449,515     $ 284,455       58.0 %   $ 818,445     $ 556,363       47.1 %
 
                                               
Cost of Sales
    147,368       94,600       55.8       272,648       187,061       45.8  
Selling, General and Administrative
    213,500       136,590       56.3       402,318       272,058       47.9  
Depreciation and Amortization
    25,975       24,626       5.5       50,212       46,978       6.9  
Interest Expense
    21,824       13,762       58.6       41,678       27,345       52.4  
Other (Income) Expense, Net
    (5,020 )     1,834       (d )     (10,088 )     3,359       (d )
 
                                               
Total Costs and Expenses
    403,647       271,412       48.7       756,768       536,801       41.0  
 
                                               
Gain (Loss) on Sale of Assets
    (262 )     382       (d )     15,876       392       (d )
 
                                               
Minority Interest
    (21,615 )     (7,807 )     (d )     (34,966 )     (14,576 )     (d )
 
                                               
Net Income
    12,958       4,749       (d )     26,276       5,731       (d )
 
                                               
CASH FLOW DATA (GAAP BASIS):
                                               
Cash Flows from:
                                               
 
                                               
Operating Activities(a)
  $ 12,542     $ 19,198             $ 65,727     $ 32,020          
Investing Activities(a)
    (3,682 )     (5,849 )             (369,860 )     (40,822 )        
Financing Activities
    (8,384 )     14,904               311,703       5,211          
 
                                               
PRO-RATA OTHER DATA(b):
                                               
Adjusted EBITDA
  $ 88,647     $ 53,265       66.4 %   $ 143,479     $ 97,244       47.5 %
Minority Interest in Adjusted EBITDA
    (27,066 )     (10,156 )     (d )     (45,259 )     (19,182 )     (d )
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company (c)
    438       2,466       (82.2 )     1,050       4,795       (78.1 )
 
                                               
Adjusted EBITDA Available to Company
  $ 62,019     $ 45,575       36.1 %   $ 99,270     $ 82,857       19.8 %
 
                                               
 
     See “Reconciliation of GAAP and Non-GAAP Financial Information — Reconciliation of Income Statement Data presented on a historical GAAP basis to Non-GAAP Income Statement Data presented on a pro-rata consolidation basis” and “Reconciliation of Cash Flows from Operating Activities (GAAP measure) to Adjusted EBITDA presented on a pro-rata consolidation basis (Non-GAAP measure)” for a reconciliation of Non-GAAP financial information.
(a)   See footnote (a) under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results” for discussion of Prior Year Revision/Reclassification for the statement of cash flows.
 
(b)   See footnote (b) under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results” for discussion of Adjusted EBITDA, EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company and Adjusted EBITDA Available to Company. The Minority Interest in Adjusted EBITDA shown above is calculated in the same manner as described in footnote (a) under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results.”
 
(c)   See footnote (c) under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results” for discussion of EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company.
 
(d)   Not meaningful.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Critical Accounting Policies
     The preparation of financial statements in accordance with generally accepted accounting principles at times requires the use of estimates and assumptions. We make our estimates based on historical experience, actuarial studies and other assumptions, as appropriate, to assess the carrying values of assets and liabilities and disclosure of contingent matters. We re-evaluate our estimates on an ongoing basis. Actual results could differ from these estimates. Critical accounting policies for us include revenue recognition; accounts receivable allowances; recoverability of our long-lived assets, including goodwill and other intangible assets, which are based on such factors as estimated future cash flows and current fair value estimates; pension and retiree medical benefits, which require the use of various estimates concerning the work force, interest rates, plan investment return, and involve the use of advice from consulting actuaries; and reserves for the self-insured portion of our workers’ compensation programs, which are based on such factors as claims growth and also involve advice from consulting actuaries. Our accounting for federal and state income taxes is sensitive to interpretation of various laws and regulations and the valuation of deferred tax assets. The notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2006 contain a more complete discussion of our significant accounting policies.
     Advertising revenue is earned and recognized when advertisements are published, inserted, aired or displayed and are net of provisions for estimated rebates, rate adjustments and discounts. Circulation revenue includes home delivery subscription revenue, single copy and third party sales. Single copy revenue is earned and recognized based on the date the publication is delivered to the single copy outlet, net of provisions for returns. Home delivery subscription revenue is earned and recognized when the newspaper is sold and delivered to the customer or sold to a home delivery independent contractor. Amounts received in advance of an advertising run date or newspaper delivery are deferred and recorded on the balance sheet as a current liability (“Unearned Income”) and recognized as revenue when earned.
     The operating results of our unconsolidated JOAs (Denver and Salt Lake City) are reported as a single net amount, in the accompanying financial statements in the line item “Income (Loss) from Unconsolidated JOAs.” This line item includes:
    Our proportionate share of net income from JOAs,
 
    The amortization of subscriber lists created by the original purchase as the subscriber lists are attributable to our earnings in the JOAs, and
 
    Editorial costs, miscellaneous revenue received outside of the JOA, and other charges incurred by our consolidated subsidiaries directly attributable to providing editorial content and news for our newspapers party to a JOA.
Seasonality
     Newspaper companies tend to follow a distinct and recurring seasonal pattern, with higher advertising revenues in months containing significant events or holidays. Accordingly, the fourth calendar quarter, or our second fiscal quarter, is our strongest revenue quarter of the year. Due to generally poor weather and lack of holidays, the first calendar quarter, or our third fiscal quarter, is our weakest revenue quarter of the year.
Comparison of the Three and Six Months Ended December 31, 2006 and 2005
     Our results for the three and six months ended December 31, 2006 and 2005 were impacted by the following transactions completed during fiscal years 2007 and 2006:
Fiscal Year 2007
    On August 2, 2006, we acquired the San Jose Mercury News and Contra Costa Times and began managing The Monterey County Herald and St. Paul Pioneer Press for the Hearst Corporation (“Hearst”). Under the agreement with Hearst, we have all of the economic risks and rewards associated with ownership of these two newspapers and are entitled contractually to retain all of the cash flows generated by them as a management fee. As a result, we began consolidating the financial statements of The Monterey County Herald and St. Paul Pioneer Press beginning August 2, 2006.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    On August 2, 2006, we amended our bank credit facility to authorize a new $350.0 million term loan “C” facility which was used, along with borrowings under the revolver portion of our bank credit facility, to finance our share of the California Newspapers Partnership’s purchase of the San Jose Mercury News and Contra Costa Times.
 
    On September 29, 2006, we sold the Original Apartment Magazine.
 
    On December 15, 2006, we began managing for Hearst the Daily Breeze and three weekly newspapers, published in Torrance, California. Under the agreement with Hearst, we have all the economic risks and rewards associated with ownership of the Torrance publications and are entitled contractually to retain all of the cash flows generated by them as a management fee. As a result, we began consolidating the financial statements of the Torrance publications beginning December 15, 2006.
Fiscal Year 2006
    In August 2005, we purchased The Detroit News, Inc. which included a limited partnership interest in the Detroit JOA. Because of the partnership structure and our ownership interest, we account for the preferred distributions using the cost method of accounting, with a portion of the distributions accounted for in other operating revenues for amounts paid to us for managing and providing the news and editorial content for The Detroit News.
 
    In September 2005, we amended our bank credit facility to refinance a portion of our long-term debt and reduce certain interest rate margins charged under the bank credit facility.
 
    Effective December 26, 2005, we restructured the Texas-New Mexico Newspapers Partnership whereby we contributed to the partnership our Pennsylvania newspapers: The Evening Sun (Hanover), the Lebanon Daily News and our interest in the partnership that publishes the York Daily Record and York Sunday News, which continues to operate under the terms of a joint operating agreement with The York Dispatch. Gannett, our partner in the Texas-New Mexico Newspapers Partnership, contributed the Public Opinion in Chambersburg, Pennsylvania. As a result of the contributions and amendment and restatement of the partnership agreement, the Texas-New Mexico Newspapers Partnership became a 59.4%-owned consolidated subsidiary of ours. Prior to the partnership restructuring, this investment was accounted for under the equity method of accounting.
 
    In February 2006, Prairie Mountain Publishing Company was formed after which time we no longer consolidate the results of Eastern Colorado Publishing Company and account for our investment in Prairie Mountain Publishing Company under the equity method of accounting. We own 50% of Prairie Mountain Publishing Company.
Revenues
     On a same newspaper basis (after adjusting for the aforementioned transactions), the following changes occurred in our significant revenue categories for the three- and six-month periods ended December 31, 2006 as compared to the same periods in prior year.
     Advertising Revenues. The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing advertising revenues by $140.5 million and $226.8 million for the three- and six-month periods ended December 31, 2006, as compared to the same periods in the prior fiscal year. Excluding the aforementioned transactions, advertising revenues decreased 1.3% and 1.8% for the three and six months ended December 31, 2006, as compared to the same periods in the prior fiscal year. The decrease in advertising revenues was due principally to decreases in retail and national advertising, offset in part by an increase in revenues from our Internet operations. The preprint and classified advertising categories remained relatively flat. Within the print classified advertising category, classified real estate increases were offset by decreases in classified automotive and employment.
     Circulation Revenues. The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing circulation revenues by $25.4 million and $40.9 million for the three- and six-month periods ended December 31, 2006, as compared to the same periods in the prior fiscal year. Excluding the aforementioned transactions, circulation revenues decreased 4.1% and 4.0% for the three and six months ended December 31, 2006 as compared to the same periods in the prior fiscal year. The decrease was primarily due to home delivery pricing pressures at most of our newspapers, which resulted in our offering greater discounts to acquire new and retain existing subscribers in order to help achieve our home delivery volume goals. Also, paid home delivery and single copy circulation volumes have decreased on a same newspaper basis.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income from Unconsolidated JOAs
     As noted in our discussion of critical accounting policies, income from unconsolidated JOAs (Denver and Salt Lake City) includes our proportionate share of net income from those JOAs, the amortization of subscriber lists created by the original purchase, editorial costs, miscellaneous revenue and other charges directly attributable to providing editorial content and news for newspapers party to a JOA. The following discussion takes into consideration all of the associated revenues and expenses just described. The results for the three and six months ended December 31, 2006 and 2005 were negatively impacted by the accelerated depreciation taken on certain fixed assets at the production facilities in Denver that will be retired earlier than originally expected due to the construction of a new production facility. The results for the three and six months ended December 31, 2005 were negatively impacted by the accelerated deprecation taken on certain fixed assets at the old production facility in Salt Lake that were retired in the fourth quarter of our fiscal year 2006 when the new production facility in Salt Lake became operational. Excluding depreciation and amortization, which were significantly impacted by the effect of accelerated depreciation, our income from unconsolidated JOAs in Denver and Salt Lake City was down approximately $1.5 million or 15.6% for the three months ended December 31, 2006 and $4.4 million or 24.2% for the six months ended December 31, 2006 as compared to the same periods in the prior year. The results of the Denver JOA were negatively impacted by a soft advertising market combined with increased employee costs. Also during the three months ended December 31, 2006, the Denver JOA implemented workforce reductions and paid a lease buyout for one of its prior locations, of which our share was approximately $0.9 million. Excluding the impact of the accelerated depreciation in the prior year, the results of the Salt Lake City JOA were up $1.5 million year over year due to increased revenues and operating efficiencies related to the new production facility.
Cost of Sales
     The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing cost of sales by $55.4 million and $88.6 million for the three- and six-month periods ended December 31, 2006, as compared to the same periods in the prior fiscal year. Excluding the aforementioned transactions, cost of sales decreased 4.0% and 2.4% for the three and six months ended December 31, 2006 as compared to the same periods in the prior fiscal year. Small increases in editorial expenses were offset by decreases in newsprint expense and related production costs. There was a 10.0% and 9.9% increase in newsprint prices as compared to the same three- and six-month periods ended in the prior fiscal year. Our average price of newsprint was $618 and $612 per metric ton for the three- and six-month periods ended December 31, 2006 as compared to $562 and $557 per metric ton for the same periods in fiscal year 2006. However, the increases in newsprint prices were more than offset by decreases in newsprint consumption of approximately 14.2% and 12.5% for the three- and six-month periods ended December 31, 2006.
Selling, General and Administrative
     The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing SG&A by $77.3 million and $126.9 million for the three and six months ended December 31, 2006 as compared to the prior year. Excluding the aforementioned transactions, SG&A decreased 1.1% and increased 1.6% for the three and six months ended December 31, 2006 as compared to the same periods in the prior fiscal year. The current year increases were primarily the result of $1.3 million severance, payable over three years, to the Company’s former chief operating officer, $1.9 million of bonuses awarded to certain officers and employees in connection with the August 2, 2006 acquisitions and related transactions and increased costs related to the growth in our Internet operations. Expenses related to our Internet operations increased $0.8 million and $1.7 million for the three and six months ended December 31, 2006 as compared to the prior year, while Internet revenue grew 10.0% and 10.4% for the same periods on a same newspaper basis. These increases were offset for the quarter by decreases in advertising expenses related to the decrease in advertising revenues experienced during that same period.
Interest Expense
     The increase in interest expense was the result of an increase in the average debt outstanding, as well as an increase in the weighted average cost of debt. Significant borrowings impacting the year over year comparison related to the borrowings on August 2, 2006 for our share of CNP’s purchase of the San Jose Mercury News and Contra Costa Times, the funding for our share of the cost of the new production and office facility built in Salt Lake City, and the cash investment associated with the formation of the Prairie Mountain Publishing Company. For the three months ended December 31, 2006, our average debt outstanding increased $321.4 million, or 35.6%, to $1,223.9 million and our weighted average interest rate increased 78 basis points as compared to the prior year due to increases in LIBOR over the prior year (the average daily one month rate of

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIBOR increased 116 basis points, for the three months ended December 31, 2006 as compared to the same period in prior year). For the six months ended December 31, 2006, our average debt outstanding increased $268.6 million, or 29.9%, to $1,168.2 million and our weighted average interest rate increased 80 basis points as compared to the prior year due to increases in LIBOR over the prior year (the average daily one month rate of LIBOR increased 145 basis points for the six months ended December 31, 2006). The interest rates under our bank credit facility are based on LIBOR, plus a borrowing margin based on our leverage ratio.
Other (Income) Expense, Net
     We include expenses and income items that are not related to current operations in other (income) expense, net.
     The charges incurred/(income recognized) for the three months ended December 31, 2006 relate to litigation expense of $0.5 million associated with the acquisition of Kearns-Tribune, LLC (Salt Lake City), $0.2 million related to hedging and investing activities that did not qualify for hedge accounting under SFAS No. 133, $(6.6) million related to the change in value of an option agreement to purchase one of our daily newspapers (due to the performance of the publication, as well as a clarification in the interpretation of how to calculate the option repurchase price), and $0.2 million associated with various other items that were not related to ongoing operations.
     The charges incurred/(income recognized) for the six months ended December 31, 2006 relate to litigation expense of $0.7 million associated with the acquisition of Kearns-Tribune, LLC (Salt Lake City), $0.4 million related to hedging and investing activities that did not qualify for hedge accounting under SFAS No. 133, $(6.6) million related to the change in value of an option agreement to purchase one of our daily newspapers (due to the performance of the publication, as well as a clarification in the interpretation of how to calculate the option repurchase price), $(6.6) million related to the receipt of life insurance proceeds, including interest, related to a policy redemption which was collected in October 2006 and $0.9 million associated with various other items that were not related to ongoing operations.
Equity Investment Income, Net
     Included in equity investment income, net is our share of the net income (or loss) of our non-JOA equity investees as further described in Note 2: Significant Accounting Policies and Other Matters of the notes to consolidated financial statements included in our June 30, 2006 Annual Report on Form 10-K. The decrease in equity investment income, net is largely due to the December 25, 2005 restructuring of the Texas-New Mexico Newspapers Partnership whereby as a result of the restructuring, we no longer account for our interest in the Texas-New Mexico Newspapers Partnership under the equity method of accounting and instead consolidate the partnership’s results. Offsetting some of this decline was the equity investment income from Prairie Mountain Publishing Company, which was formed on February 1, 2006.
Minority Interest
     Minority interest expense increased by $13.8 million and $20.4 million for the three and six months ended December 31, 2006, respectively, as compared to the same periods in the prior year. The increases are partly due to the aforementioned Texas-New Mexico Newspapers Partnership December 25, 2005 restructuring, which resulted in our consolidating the partnership and recording a minority interest related to our partner’s interest in the partnership. Prior to the partnership restructuring, our investment in the partnership was accounted for under the equity method of accounting. In addition, a portion of the increase relates to the CNP partners’ investment in the San Jose Mercury News and Contra Costa Times, effective August 2, 2006.
Gain on Sale of Assets
     In July 2006, we sold our office building in Long Beach, California for approximately $20.0 million. We recognized a gain of approximately $16.7 million on the sale of the building.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash Flow Activity
     Our sources of liquidity are existing cash and other working capital, cash flows provided from operating activities, distributions from JOAs and partnerships and the borrowing capacity under our bank credit facility. Our operations, consistent with the newspaper industry, require little investment in inventory, as less than 30 days of newsprint is generally maintained on hand. From time to time, we increase our newsprint inventories in anticipation of price increases. In general, our receivables have been collected on a timely basis.
     The net cash flows related to operating activities increased $33.7 million for the six-month period ended December 31, 2006 compared to the comparable prior year period. The majority of the increase is attributable to changes in operating assets and liabilities associated with the timing of payments of accounts payable and accrued liabilities and the timing of cash receipts. In addition, the increase in Adjusted EBITDA also impacted this change.
     The net cash outflows related to investing activities increased by $329.0 million for the six-month period ended December 31, 2006 compared to the comparable prior year period primarily due to the August 2, 2006 purchase of the San Jose Mercury News and Contra Costa Times, offset in part by cash inflows of $33.9 million associated with the sale of Original Apartment Magazine and our building in Long Beach, California. Capital expenditures for the six-month period ended December 31, 2006 were down $15.0 million year over year as the funding related to the Salt Lake City production and office facility was completed.
     The net cash flows related to financing activities increased by $306.5 million for the six-month period ended December 31, 2006 compared to the comparable prior year period. In the current period, borrowings of approximately $406.3 million were used to fund our share of the August 2, 2006 transactions. Activity for the six-month period ended December 31, 2006 also included normal borrowings and paydowns on long-term debt. For the six-month period ended December 31, 2005, activity included normal borrowings and paydowns on long-term debt, as well as borrowings to finance the purchase of our interest in the Detroit JOA. Excluding the August 2, 2006 transactions, refinancing costs of the new credit facility, as well as the cash proceeds from the sale of the Long Beach building, the Original Apartment Magazine and redemption of a life insurance policy, we repaid approximately $32.4 million of debt for the six-month period ended December 31, 2006.
Liquidity
     On August 2, 2006, we amended our existing bank credit facility. The amendment was entered into in order to create a new $350.0 million term loan “C” facility and to authorize us to purchase the Contra Costa Times, San Jose Mercury News, The Monterey County Herald and the St. Paul Pioneer Press. The amended facility maintains the $350.0 million revolving credit facility, the $100.0 million term loan “A,” the $147.3 million term loan “B” and provides for the $350.0 million term loan “C” facility which was borrowed on August 2, 2006 and used to pay our portion of the purchase price for the Contra Costa Times and the San Jose Mercury News along with the additional borrowings under our revolving credit facility. The term loan “C” bears interest based upon, at the Company’s option, Eurodollar, plus a borrowing margin of 1.75%, or base rate, plus a borrowing margin of 0.75%. The term loan “C” requires quarterly principal payments as follows: $0.875 million through June 2012; and $82.25 million from June 2012 through March 2013, with the remaining balance due at maturity on August 2, 2013. Amounts repaid under term loan “C” are not available for re-borrowing.
     On December 31, 2006, our debt structure included our amended and restated bank credit facility which provides for borrowings of up to $947.3 million, consisting of a $350.0 million revolving credit facility, a $100.0 million term loan “A,” a $147.3 million term loan “B” and a $350.0 million term loan “C.” Any payments on the term loans cannot be reborrowed, regardless of whether such payments are scheduled or voluntary. On December 31, 2006, the balances outstanding under the revolving credit portion of the bank credit facility, term loan “A,” term loan “B” and term loan “C” were $133.8 million, $100.0 million, $145.1 million and $348.3 million, respectively, and we had $203.3 million available for future borrowings, net of $12.9 million in outstanding letters of credit. However, the total amount we can borrow at any point in time may be reduced by incurrence limits imposed by our various debt agreements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
     On February 2, 2007, the California Newspapers Partnership (“CNP”) acquired the Santa Cruz Sentinel, published in Santa Cruz, California, for approximately $45.0 million, of which our share was approximately $25.0 million and was funded with borrowings under our bank credit facility.
     S.F. Holding Corporation (“Stephens”), a 26.28% partner in CNP, has a right to require CNP to redeem its interest in CNP at its fair market value (plus interest through closing), any time after January 1, 2005. If such right is exercised, Stephens’ interest must be redeemed within two years of the determination of its fair market value. We are not currently aware of any intentions on the part of Stephens to exercise its put. No amounts are recorded in our financial statements related to Stephens’ put right.
     In September 2005, the management committee of the Denver JOA authorized the incurrence of up to $150.0 million of non-recourse debt by the Denver JOA to finance furniture, fixtures and computers for its new office building and new presses and related equipment and building costs related to consolidation of two existing production facilities into one for the Denver JOA. We own a 50% interest in the Denver JOA. As of December 31, 2006, our share of the debt incurred by the Denver JOA for the items mentioned was approximately $37.8 million.
     As of December 31, 2006, the Company was in compliance with all its financial covenants under the Company’s bank credit facility and subordinated note agreements. In order to remain in compliance with these covenants in the future, the Company needs to increase or maintain its existing “Consolidated Operating Cash Flow” as defined in its credit agreements, and/or reduce its total debt outstanding.
     Our ability to service our debt and fund planned capital expenditures depends on our ability to continue to generate operating cash flows in the future.
     We estimate minimum contributions to our defined benefit pension plans in fiscal year 2007 will be approximately $9.0 million, including contributions related to pension plan liabilities assumed in conjunction with the management of the St. Paul Pioneer Press. We have made contributions of approximately $3.7 million through December 31, 2006. We also expect federal and state income tax payments to increase during fiscal year 2007 as compared to fiscal year 2006.
Off-Balance Sheet Arrangements and Contractual Obligations
     Our various contractual obligations and funding commitments related to our long-term debt have changed since our Annual Report on Form 10-K for the year ended June 30, 2006 as more fully described above and in Note 5: Amendment of Bank Credit Facility.
     Significant changes in our contractual obligations since year-end 2006 include the liabilities assumed in the acquisition and management of the San Jose Mercury News, Contra Costa Times, The Monterey County Herald, St. Paul Pioneer Press and the Daily Breeze (Torrance). Significant items include the assumption of pension obligations totaling $31.7 million, other postretirement employment benefits totaling $2.8 million and other long-term operating lease obligations.
     The Denver JOA terminated its construction lease in the second quarter of fiscal year 2007 and signed a long-term operating lease for its office building facility. Our other contractual obligations have not materially changed from the disclosure made in our Annual Report on Form 10-K for the year ended June 30, 2006.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Capital Expenditures
                                 
    Capital Expenditures
    Six Months Ended December 31, 2006
    (Dollars in thousands)
    Wholly-Owned            
    Subsidiaries and   Non Wholly-   Our Share of    
    Consolidated   Owned   Unconsolidated    
    JOAs   Subsidiaries   JOAs   Total
Total Capital Projects
  $ 8,220     $ 5,020     $ 26,711     $ 39,951  
 
                               
Less Minority Partners’ Share
          (2,245 )           (2,245 )
 
                               
Our Share of Capital Projects
  $ 8,220     $ 2,775     $ 26,711     $ 37,706  
 
                               
Near Term Outlook
Newsprint Prices
     Current North American newsprint supply and demand, along with newsprint now being shipped from China, have put downward pressure on prices and the cost of newsprint has declined an average $30 to $35 per metric ton so far during our third quarter of fiscal year 2007 as compared to the second quarter of fiscal year 2007 (quarter ended December 31, 2006). The January 2007 RISI (“Resource Information Systems, Inc.”) price index for 30 pound newsprint was $623 per metric ton compared to $640 per metric ton in January 2006. As a large buyer of newsprint, our cost of newsprint continues to be well below the RISI price index.

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QUANTITATIVE AND QUALITATIVE
DISCLOSURE OF MARKET RISK
Debt
     We are exposed to market risk arising from changes in interest rates associated with our bank debt, which includes the bank term loans and the revolving credit portion of our bank credit facility. Our bank debt bears interest at rates based upon, at our option, Eurodollar or prime rates, plus a spread based on our leverage ratio. The nature and position of our bank debt has not materially changed from the disclosure made in our Annual Report on Form 10-K for the year ended June 30, 2006 as the disclosure included the August 2, 2006 borrowings made in conjunction with our August 2, 2006 acquisition of the San Jose Mercury News and Contra Costa Times.
Newsprint
     See Near Term Outlook for further discussion regarding newsprint prices.

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RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
Reconciliation of GAAP and Non-GAAP Financial Information
     The following tables have been provided to reconcile the Non-GAAP financial information (Adjusted EBITDA and Pro-Rata Consolidation Income Statement Data) presented under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary Supplemental Non-GAAP Financial Data” of this report on Form 10-Q to their most directly comparable GAAP measures (Cash Flows from Operating Activities and GAAP Income Statement Data).
Reconciliation of Cash Flows from Operating Activities (GAAP measure) to Adjusted EBITDA (Non-GAAP measure).
                                 
    Three Months Ended December 31,   Six Months Ended December 31,
    2006   2005   2006   2005
    (Dollars in thousands)   (Dollars in thousands)
NON-GAAP FINANCIAL DATA(a)
                               
Cash Flows from Operating Activities (GAAP measure)
  $ 12,542     $ 19,198     $ 65,727     $ 32,020  
Net Change in Operating Assets and Liabilities
    25,130       7,266       (6,929 )     14,107  
Distributions of Net Income Paid to Minority Interest
    20,984       4,137       34,335       9,623  
Distributions of Net Income from Unconsolidated JOAs
    (12,488 )     (11,497 )     (21,944 )     (23,824 )
Distributions of Net Income from Equity Investments
    (325 )     (2,358 )     (950 )     (4,217 )
Interest Expense
    21,335       13,708       40,584       27,238  
Bad Debt Expense
    (3,105 )     (2,358 )     (5,870 )     (4,328 )
Pension Expense, Net of Cash Contributions
    3,244       (955 )     4,241       (393 )
Direct Costs of the Unconsolidated JOAs, Incurred Outside of the Unconsolidated JOAs(b)
    12,412       16,325       24,543       32,371  
Net Cash Related to Other (Income), Expense
    (630 )     (1,409 )     (6,549 )     (4,838 )
 
                               
Adjusted EBITDA
    79,099       42,057       127,188       77,759  
Minority Interest in Adjusted EBITDA
    (27,066 )     (10,156 )     (45,259 )     (19,182 )
Combined Adjusted EBITDA of Unconsolidated JOAs
    9,548       11,208       16,291       19,485  
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company(c)
    438       2,466       1,050       4,795  
 
                               
Adjusted EBITDA Available to Company
  $ 62,019     $ 45,575     $ 99,270     $ 82,857  
 
                               
 
    Footnotes for table above.
(a)   Non-GAAP Financial Data. Adjusted EBITDA and Adjusted EBITDA Available to Company are not measures of performance recognized under GAAP. However, we believe that they are indicators and measurements of our leverage capacity and debt service ability. Adjusted EBITDA and Adjusted EBITDA Available to Company should not be considered as an alternative to measure profitability, liquidity, or performance, nor should they be considered an alternative to net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in our condensed consolidated financial statements. Adjusted EBITDA is calculated by deducting cost of sales and SG&A expense from total revenues. Adjusted EBITDA Available to Company is calculated by: (i) reducing Adjusted EBITDA by the minority interest in the Adjusted EBITDA generated from the California Newspapers Partnership and the Texas-New Mexico Newspapers Partnership (beginning December 26, 2005), our less than 100% owned consolidated subsidiaries (“Minority Interest in Adjusted EBITDA”); (ii) increasing Adjusted EBITDA by our combined proportionate share of the Adjusted EBITDA generated by our unconsolidated JOAs in Denver and Salt Lake City (“Combined Adjusted EBITDA of Unconsolidated JOAs”); and (iii) increasing Adjusted EBITDA by our proportionate share of EBITDA of the Texas-New Mexico Newspapers Partnership (through December 25, 2005) and our proportionate share of EBITDA of the Prairie Mountain Publishing Company (beginning February 1, 2006) (see footnote (c)).
 
(b)   Direct Costs of the Unconsolidated JOAs Incurred Outside of the Unconsolidated JOA. Includes the editorial costs, revenues received outside of the JOAs, depreciation, amortization, and other direct costs incurred outside of the JOAs by our consolidated subsidiaries associated with The Salt Lake Tribune and The Denver Post. See Note 1: Significant Accounting Policies and Other Matters — Joint Operating Agencies and Note 3: Denver and Salt Lake City Joint Operating Agencies in the notes to our condensed consolidated financial statements for further description and analysis of this adjustment.
 
(c)   EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company. The Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company agreements require the partnerships to make distributions equal to the earnings of the partnership before depreciation and amortization (EBITDA). Through December 25, 2005, our 33.8% share of the EBITDA of Texas-New Mexico Newspapers Partnership and beginning February 1, 2006, our 50% share of the EBITDA of the Prairie Mountain Publishing Company, have been included in Adjusted EBITDA Available to Company, as they are an integral part of our cash flows from operations as defined by our debt covenants.

33



Table of Contents

RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
Reconciliation of Income Statement Data presented on a historical GAAP basis to Non-GAAP Income Statement Data presented on a pro-rata consolidation basis. Dollar amounts shown are in thousands.
                         
    Three Months Ended December 31, 2006
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 372,461     $ 77,054     $ 449,515  
 
                       
Income from Unconsolidated JOAs
    804       (804 )      
 
                       
Cost of Sales
    116,784       30,584       147,368  
Selling, General and Administrative
    176,578       36,922       213,500  
Depreciation and Amortization
    18,608       7,367       25,975  
Interest Expense
    21,335       489       21,824  
Other (Income) Expense, Net
    (5,712 )     692       (5,020 )
 
                       
Total Costs and Expenses
    327,593       76,054       403,647  
 
                       
Gain (Loss) on Sale of Assets
    (66 )     (196 )     (262 )
 
                       
Net Income
    12,958             12,958  
 
                       
Adjusted EBITDA(2)
  $ 79,099     $ 9,548     $ 88,647  
                         
    Six Months Ended December 31, 2006
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 667,763     $ 150,682     $ 818,445  
 
                       
Loss from Unconsolidated JOAs
    (1,541 )     1,541        
 
                       
Cost of Sales
    211,808       60,840       272,648  
Selling, General and Administrative
    328,767       73,551       402,318  
Depreciation and Amortization
    34,999       15,213       50,212  
Interest Expense
    40,584       1,094       41,678  
Other (Income) Expense, Net
    (11,225 )     1,137       (10,088 )
 
                       
Total Costs and Expenses
    604,933       151,835       756,768  
 
                       
Gain (Loss) on Sale of Assets
    16,264       (388 )     15,876  
 
                       
Net Income
    26,276             26,276  
 
                       
Adjusted EBITDA(2)
  $ 127,188     $ 16,291     $ 143,479  
                         
    Three Months Ended December 31, 2005
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 206,225     $ 78,230     $ 284,455  
 
                       
Income from Unconsolidated JOAs
    (4,551 )     4,551        
 
                       
Cost of Sales
    63,841       30,759       94,600  
Selling, General and Administrative
    100,327       36,263       136,590  
Depreciation and Amortization
    10,393       14,233       24,626  
Interest Expense
    13,708       54       13,762  
Other (Income) Expense, Net
    271       1,563       1,834  
 
                       
Total Costs and Expenses
    188,540       82,872       271,412  
 
                       
Gain (Loss) on Sale of Assets
    291       91       382  
 
                       
Net Income
    4,749             4,749  
 
                       
Adjusted EBITDA(2)
  $ 42,057     $ 11,208     $ 53,265  

34



Table of Contents

RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
                         
    Six Months Ended December 31, 2005
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 402,797     $ 153,566     $ 556,363  
 
                       
Loss from Unconsolidated JOAs
    (8,270 )     8,270        
 
                       
Cost of Sales
    126,057       61,004       187,061  
Selling, General and Administrative
    198,981       73,077       272,058  
Depreciation and Amortization
    20,665       26,313       46,978  
Interest Expense
    27,238       107       27,345  
Other (Income) Expense, Net
    1,954       1,405       3,359  
 
                       
Total Costs and Expenses
    374,895       161,906       536,801  
 
                       
Gain (Loss) on Sale of Assets
    322       70       392  
 
                       
Net Income
    5,731             5,731  
 
                       
Adjusted EBITDA(2)
  $ 77,759     $ 19,485     $ 97,244  
 
    Footnotes for tables above.
(1)   Unconsolidated JOAs Pro-Rata Adjustment. The adjustment to pro-rata consolidate our unconsolidated JOAs includes our proportionate share, on a line item basis, of the income statements of our unconsolidated JOAs (Denver and Salt Lake City). Our interest in the earnings of the Salt Lake City JOA is 58%, while our interest in the Denver Newspaper Agency is 50%. This adjustment also includes the editorial costs, revenues received outside of these JOAs, depreciation, amortization, and other direct costs incurred outside of the JOAs by our consolidated subsidiaries associated with The Salt Lake Tribune and The Denver Post. See Note 1: Significant Accounting Policies and Other Matters — Joint Operating Agencies and Note 3: Denver and Salt Lake City Joint Operating Agencies in the notes to our condensed consolidated financial statements for further description and analysis of the components of this adjustment.
 
(2)   Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure.

35



Table of Contents

RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
Reconciliation of Cash Flows from Operating Activities (GAAP measure) to Adjusted EBITDA presented on a pro-rata consolidation basis (Non-GAAP measure).
                                 
    Three Months Ended December 31,   Six Months Ended December 31,
    2006   2005   2006   2005
    (Dollars in thousands)   (Dollars in thousands)
NON-GAAP FINANCIAL DATA(a)
                               
Cash Flows from Operating Activities (GAAP measure)
  $ 12,542     $ 19,198     $ 65,727     $ 32,020  
Net Change in Operating Assets and Liabilities
    25,130       7,266       (6,929 )     14,107  
Distributions of Net Income Paid to Minority Interest
    20,984       4,137       34,335       9,623  
Distributions of Net Income from Unconsolidated JOAs
    (12,488 )     (11,497 )     (21,944 )     (23,824 )
Distributions of Net Income from Equity Investments
    (325 )     (2,358 )     (950 )     (4,217 )
Interest Expense
    21,335       13,708       40,584       27,238  
Bad Debt Expense
    (3,105 )     (2,358 )     (5,870 )     (4,328 )
Pension Expense, Net of Cash Contributions
    3,244       (955 )     4,241       (393 )
Net Cash Related to Other (Income), Expense
    (630 )     (1,409 )     (6,549 )     (4,838 )
Combined Adjusted EBITDA of Unconsolidated JOAs(b)
    9,548       11,208       16,291       19,485  
Direct Costs of the Unconsolidated JOAs, Incurred Outside of the Unconsolidated JOAs(c)
    12,412       16,325       24,543       32,371  
 
                               
Adjusted EBITDA
    88,647       53,265       143,479       97,244  
Minority Interest in Adjusted EBITDA
    (27,066 )     (10,156 )     (45,259 )     (19,182 )
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company (d)
    438       2,466       1,050       4,795  
 
                               
Adjusted EBITDA Available to Company
  $ 62,019     $ 45,575     $ 99,270     $ 82,857  
 
                               
 
    Footnotes for table above.
(a)   Non-GAAP Financial Data. Adjusted EBITDA and Adjusted EBITDA Available to Company are not measures of performance recognized under GAAP. However, we believe that they are indicators and measurements of our leverage capacity and debt service ability. Adjusted EBITDA and Adjusted EBITDA Available to Company should not be considered as an alternative to measure profitability, liquidity, or performance, nor should they be considered an alternative to net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in our condensed consolidated financial statements. Adjusted EBITDA is calculated by deducting cost of sales and SG&A expense from total revenues. Adjusted EBITDA Available to Company is calculated by: (i) reducing Adjusted EBITDA by the minority interest in the Adjusted EBITDA generated from the California Newspapers Partnership and the Texas-New Mexico Newspapers Partnership (beginning December 26, 2005), our less than 100% owned consolidated subsidiaries (“Minority Interest in Adjusted EBITDA”); (ii) increasing Adjusted EBITDA by our proportionate share of EBITDA of the Texas-New Mexico Newspapers Partnership (through December 25, 2005) and our proportionate share of the EBITDA of the Prairie Mountain Publishing Company (beginning February 1, 2006) (see footnote (d)). Note that pro-rata consolidation already takes into account our proportionate share of the results from our unconsolidated JOAs (Denver and Salt Lake City).
 
(b)   Combined Adjusted EBITDA of Unconsolidated JOAs. Calculated by deducting cost of sales and SG&A expense from total revenues from the Unconsolidated JOAs Pro-Rata Adjustment column presented under “— Reconciliation of Income Statement Data presented on a historical GAAP basis to Non-GAAP Income Statement Data presented on a pro-rata consolidation basis.”
 
(c)   Direct Costs of the Unconsolidated JOAs Incurred Outside of the Unconsolidated JOA. Includes the editorial costs, revenues received outside of the JOA, depreciation, amortization, and other direct costs incurred outside of the JOAs by our consolidated subsidiaries associated with The Salt Lake Tribune and The Denver Post. See Note 1: Significant Accounting Policies and Other Matters — Joint Operating Agencies and Note 3: Denver and Salt Lake City Joint Operating Agencies in the notes to our condensed consolidated financial statements for further description and analysis of this adjustment.
 
(d)   EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company. The Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company agreements require the partnerships to make distributions equal to the earnings of the partnership before depreciation and amortization (EBITDA). Through December 25, 2005, our 33.8% share of the EBITDA of Texas-New Mexico Newspapers Partnership and beginning February 1, 2006, our 50% share of Prairie Mountain Publishing Company, have been included in Adjusted EBITDA Available to Company, as they are an integral part of our cash flows from operations as defined by our debt covenants.

36



Table of Contents

EXHIBIT INDEX
     
Exhibits    
3.1
  Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s June 30, 2005 Form 10-K)
 
   
3.2
  Amended and Restated Bylaws of MediaNews Group, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s June 30, 2005 Form 10-K)
 
   
4.1
  Registration Rights Agreement dated May 20, 1994, between Affiliated Newspapers Investments, Inc. (the predecessor to the registrant) and BT Securities Corporation (incorporated by reference to Exhibit 4.3 to Form S-1/A of Affiliated Newspapers Investments, Inc., filed May 6, 1994 (File No. 33-75158))
 
   
4.2
  Indenture dated as of November 25, 2003 between MediaNews Group, Inc., as Issuer, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.4 to the registrant’s Form 8-K filed January 14, 2004)
 
   
4.3
  Form of MediaNews Group, Inc.’s 6 7/8% Senior Subordinated Notes due 2013 (contained in the Indenture filed as Exhibit 4.4 to the registrant’s Form 8-K filed January 14, 2004)
 
   
4.4
  Indenture dated as of January 26, 2004 between MediaNews Group, Inc., as Issuer, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.4 to the registrant’s Form 10-Q for the period ended December 31, 2003)
 
   
4.5
  Form of MediaNews Group, Inc.’s 6 3/8% Senior Subordinated Notes due 2014 (contained in the Indenture filed as Exhibit 4.4 to the registrant’s Form 10-Q for the period ended December 31, 2003)
 
   
31.1
  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.2
  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.3
  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
32.1
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

37


Dates Referenced Herein   and   Documents Incorporated By Reference

This 10-Q Filing   Date   Other Filings
5/6/94
5/20/94
6/11/03
6/24/03
10/9/03
10/10/03
11/25/03
12/30/03
12/31/0310-Q
1/14/048-K
1/26/04
11/30/04
1/1/05
6/30/0510-K, 10-K/A
10/24/05
12/7/05
12/25/05
12/26/05
12/31/0510-Q
2/1/06
4/26/068-K
6/30/0610-K, 10-K/A
7/1/06
7/14/06
7/19/06
7/28/06
8/2/068-K, 8-K/A
9/25/06
9/29/06
9/30/0610-Q
10/1/06
10/20/06
10/26/06
11/2/06
11/15/06
11/16/06
11/22/06
12/12/06
12/13/06
12/15/068-K
12/19/068-K
12/22/06
For The Period Ended12/31/06
2/2/07
Filed On / Filed As Of2/14/07
4/30/07
6/30/0710-K, 10-K/A
11/15/07
6/30/11
8/2/13
 
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