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

OR

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

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.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

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.

 

     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.

     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.

     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.

     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.

     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.

     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.

     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.

     See Exhibit Index for list of exhibits filed with this report.

     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.

     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.

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.

     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 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.

     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.

     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.

     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.

     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.

     The Company’s comprehensive income consisted of the following:

     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.”

     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.

     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

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.

     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.

     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):

Components of Net Periodic Benefit Cost (Pension and Other Benefits)

     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.

     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.

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

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.

     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.

     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.

     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.

     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.

     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).

     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:

     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.

     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.

     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.

     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.