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Medianews Group Inc – ‘10-Q’ for 3/31/07

On:  Tuesday, 5/15/07, at 4:07pm ET   ·   For:  3/31/07   ·   Accession #:  950134-7-11631   ·   File #:  33-75156

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

 5/15/07  Medianews Group Inc               10-Q        3/31/07    6:413K                                   RR Donnelley

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    350K 
 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      7K 
 6: EX-32.2     Certification Pursuant to Section 906               HTML      7K 


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
"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 March 31, 2007
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
incorporation or organization)
  (I.R.S. Employer
Identification Number)
     
101 W. Colfax Avenue, Suite 1100
Denver, Colorado
(Address of principal executive offices)
  80202
(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 May 15, 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
MARCH 31, 2007
             
Item No.       Page  
           
1       3  
2       3  
3       3  
4       3  
   
 
       
           
1       4  
1A       4  
2  
Unregistered Sales of Equity Securities and Use of Proceeds
    N/A  
3  
Defaults Upon Senior Securities
    N/A  
4  
Submission of Matters to a Vote of Security Holders
    N/A  
5  
Other Information
    N/A  
6       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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Table of Contents

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 March 31, 2007, 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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Table of Contents

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

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Table of Contents

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: May 15, 2007  By:   /s/Ronald A. Mayo    
    Ronald A. Mayo   
    Vice President, Chief Financial Officer and
Duly Authorized Officer of Registrant 
 
 

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Table of Contents

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

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Table of Contents

MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    (Unaudited)    
    March 31, 2007   June 30, 2006
    (Dollars in thousands)
ASSETS
               
CURRENT ASSETS
               
Cash and cash equivalents
  $ 4,880     $ 424  
Accounts receivable, less allowance for doubtful accounts of $12,982 at March 31, 2007 and $9,282 at June 30, 2006
    154,978       106,032  
Inventories of newsprint and supplies
    27,035       21,289  
Prepaid expenses and other assets
    20,654       11,954  
 
               
TOTAL CURRENT ASSETS
    207,547       139,699  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Land
    58,753       41,871  
Buildings and improvements
    233,341       131,336  
Machinery and equipment
    511,753       397,949  
Construction in progress
    13,804       57,657  
 
               
TOTAL PROPERTY, PLANT AND EQUIPMENT
    817,651       628,813  
Less accumulated depreciation and amortization
    (274,770 )     (249,588 )
 
               
NET PROPERTY, PLANT AND EQUIPMENT
    542,881       379,225  
 
               
OTHER ASSETS
               
Investment in unconsolidated JOAs (Denver and Salt Lake City)
    255,050       228,925  
Equity investments
    51,074       54,457  
Subscriber accounts, less accumulated amortization of $170,511 at March 31, 2007 and $161,776 at June 30, 2006
    68,130       39,365  
Excess of cost over fair value of net assets acquired
    864,593       424,161  
Newspaper mastheads
    383,554       101,829  
Advertiser lists, covenants not to compete and other identifiable intangible assets, less accumulated amortization of $50,144 at March 31, 2007 and $34,506 at June 30, 2006
    178,839       15,656  
Other
    48,876       44,466  
 
               
TOTAL OTHER ASSETS
    1,850,116       908,859  
 
               
TOTAL ASSETS
  $ 2,600,544     $ 1,427,783  
 
               
See notes to condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                  
    (Unaudited)    
    March 31, 2007   June 30, 2006
    (Dollars in thousands, except share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Trade accounts payable
  $ 68,335     $ 19,526  
Accrued liabilities
    110,304       68,668  
Unearned income
    56,069       31,715  
Current portion of long-term debt and obligations under capital leases
    12,648       4,133  
 
               
TOTAL CURRENT LIABILITIES
    247,356       124,042  
 
               
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
    1,139,441       863,760  
 
               
OTHER LIABILITIES
    69,336       28,774  
 
               
DEFERRED INCOME TAXES, NET
    117,624       103,349  
 
               
MINORITY INTEREST
    602,490       207,439  
 
               
PUTABLE COMMON STOCK
    40,361       40,899  
 
               
ST. PAUL, MONTEREY AND TORRANCE PURCHASE PRICE (HEARST)
    302,002        
 
               
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
    (18,807 )     (21,520 )
Retained earnings
    102,739       83,038  
Common stock in treasury, at cost, 16,000 shares
    (2,000 )     (2,000 )
 
               
TOTAL SHAREHOLDERS’ EQUITY
    81,934       59,520  
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 2,600,544     $ 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   Nine Months Ended
    March 31,   March 31,
    2007   2006   2007   2006
    (Dollars in thousands)
REVENUES
                               
Advertising
  $ 249,623     $ 162,820     $ 788,580     $ 480,593  
Circulation
    53,793       34,551       154,906       97,182  
Other
    13,541       11,005       41,234       33,398  
 
                               
TOTAL REVENUES
    316,957       208,376       984,720       611,173  
 
                               
LOSS FROM UNCONSOLIDATED JOAS (DENVER AND SALT LAKE CITY)
    (7,132 )     (8,133 )     (8,673 )     (16,403 )
 
                               
COSTS AND EXPENSES
 
Cost of sales
    106,520       66,424       318,328       192,481  
Selling, general and administrative
    175,008       108,433       503,775       307,414  
Depreciation and amortization
    18,109       10,581       53,108       31,246  
Interest expense
    20,893       14,033       61,477       41,271  
Other (income) expense, net
    1,451       (288 )     (9,774 )     1,667  
 
                               
TOTAL COSTS AND EXPENSES
    321,981       199,183       926,914       574,079  
 
                               
EQUITY INVESTMENT INCOME (LOSS), NET
    (468 )     264       38       4,688  
 
                               
GAIN ON SALE OF ASSETS AND DANBURY TRANSACTION, NET
    26,628       804       42,892       1,127  
 
                               
MINORITY INTEREST
    (8,042 )     (8,415 )     (43,008 )     (22,991 )
 
                               
 
                               
INCOME (LOSS) BEFORE INCOME TAXES
    5,962       (6,287 )     49,055       3,515  
 
                               
INCOME TAX BENEFIT (EXPENSE)
    (1,688 )     2,642       (18,505 )     (1,429 )
 
                               
 
                               
NET INCOME (LOSS)
    4,274       (3,645 )     30,550       2,086  
 
                               
ACCRETION RELATED TO ST. PAUL, MONTEREY AND TORRANCE PURCHASE PRICE (NOTE 7)
    (4,544 )           (11,388 )      
 
                               
 
                               
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
  $ (270 )   $ (3,645 )   $ 19,162     $ 2,086  
 
                               
See notes to condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    Nine Months Ended March 31,
    2007   2006
    (Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 30,550     $ 2,086  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    56,159       45,168  
Provision for losses on accounts receivable
    8,798       6,946  
Amortization of debt discount and deferred debt issuance costs
    629       709  
Net gain on sale of assets and Danbury transaction
    (42,892 )     (1,253 )
Proportionate share of net income from unconsolidated JOAs
    (28,113 )     (32,220 )
Distributions of net income from unconsolidated JOAs (a)
    28,113       32,220  
Equity investment income, net
    (38 )     (4,688 )
Distributions of net income from equity investments (b)
    1,018       4,635  
Change in defined benefit plan assets, net of cash contributions
    (3,555 )     1,330  
Deferred income tax expense
    20,567       483  
Change in estimated option repurchase price
    (6,607 )     375  
Minority interest
    43,008       22,991  
Distributions paid to minority interest
    (42,356 )     (22,991 )
Unrealized loss on hedging activities, reclassified to earnings from accumulated other comprehensive loss
    342       342  
Change in operating assets and liabilities
    77,712       7,751  
 
               
NET CASH FLOWS FROM OPERATING ACTIVITIES
    143,335       63,884  
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Business acquisitions, net of cash acquired
    (430,057 )      
Business dispositions
    14,000        
Distributions in excess of net income from JOAs(a)
    20,442       21,766  
Distributions in excess of net income from equity investments(b)
    1,775       430  
Investment in Detroit and other investments, net of return of capital
    112       (48,482 )
Capital expenditures
    (22,037 )     (36,521 )
Proceeds from the sale of assets
    20,071       662  
 
               
NET CASH FLOWS FROM INVESTING ACTIVITIES
    (395,694 )     (62,145 )
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Issuance of long-term debt, net of fees
    443,528       51,100  
Reduction of long-term debt and other liabilities
    (165,370 )     (48,783 )
Distributions in excess of net income to minority interests
    (21,343 )     (3,682 )
 
               
NET CASH FLOWS FROM FINANCING ACTIVITIES
    256,815       (1,365 )
INCREASE IN CASH AND CASH EQUIVALENTS
    4,456       374  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    424       4,262  
 
               
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 4,880     $ 4,636  
 
               
 
               
 
               
 
               
(a) Total distributions from unconsolidated JOAs were $48.6 million and $54.0 million for the nine months ended March 31, 2007 and 2006, respectively.
 
               
(b) Total distributions from equity investments were $2.8 million and $5.1 million for the nine months ended March 31, 2007 and 2006, respectively.
 
               
 
               
Supplemental schedule of noncash investing activities:
               
Business acquisitions (St. Paul, Monterey and Torrance)
  $ (290,614 )   $  
Business partners’ share of acquisitions (San Jose, Contra
               
Costa and Santa Cruz)
  $ (358,315 )      
Investment in Salt Lake Newspaper Production Facilities, LLC
  $ (45,469 )      
Danbury transaction
  $ (81,596 )      
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 nine-month periods ended March 31, 2007 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). Through December 31, 2006, these four entities reported on a 52- or 53-week fiscal year. Beginning January 1, 2007, these four entities began reporting on a calendar basis, consistent with the Company.
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 March 31, 2007, the Company participated 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 Detroit partnership and the Company’s ownership interest therein, 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 nine-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 nine months ended March 31, 2006 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 nine months ended March 31, 2006, the revision decreased the reported net cash flows from operating activities by $18.5 million, increased the reported net cash flows from investing activities by $22.2 million and decreased the reported net cash flows from financing activities by $3.7 million.
NOTE 2: Comprehensive Income
     The Company’s comprehensive income consisted of the following:
                                 
    Three Months Ended March 31,   Nine Months Ended March 31,
    2007   2006   2007   2006
    (Dollars in thousands)
Net income (loss)
  $ 4,274     $ (3,645 )   $ 30,550     $ 2,086  
Unrealized gain (loss) on hedging activities, net of tax
    (88 )     (3 )     384       437  
Unrealized loss on newsprint hedging activities, reclassified to earnings, net of tax
    114       114       342       342  
Minimum pension liability adjustment, net of tax
                1,987       (1,460 )
 
                               
Comprehensive income (loss)
  $ 4,300     $ (3,534 )   $ 33,263     $ 1,405  
 
                               

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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 March 31, 2007
                    Associated   Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
Total revenues
  $ 36,173     $ 85,689     $ 59          
 
                               
Cost of sales
    7,795       27,517       8,011          
Selling, general and administrative
    14,508       48,837       3,020          
Depreciation and amortization
    1,573       10,736       1,183          
Other
    460       2,529       88          
 
                               
Total costs and expenses
    24,336       89,619       12,302          
 
                               
Net income (loss)
    11,837       (3,930 )     (12,243 )        
Partners’ share of (income) loss from unconsolidated JOAs
    (4,761 )     1,965                
 
                               
Income (loss) from unconsolidated JOAs
  $ 7,076     $ (1,965 )   $ (12,243 )   $ (7,132 )
 
                               
                                 
    Nine Months Ended March 31, 2007
                    Associated   Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
Total revenues
  $ 116,386     $ 293,761     $ 132          
 
                               
Cost of sales
    25,174       96,244       24,407          
Selling, general and administrative
    42,862       151,170       8,960          
Depreciation and amortization
    4,406       34,139       3,051          
Other
    1,700       6,270       500          
 
                               
Total costs and expenses
    74,142       287,823       36,918          
 
                               
Net income
    42,244       5,938       (36,786 )        
Partners’ share of income from unconsolidated JOAs
    (17,100 )     (2,969 )              
 
                               
Income (loss) from unconsolidated JOAs
  $ 25,144     $ 2,969     $ (36,786 )   $ (8,673 )
 
                               

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
                                 
    Three Months Ended March 31, 2006
                    Associated   Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
 
                               
Total revenues
  $   34,868     $   98,294     $ 146          
 
                               
Cost of sales
    8,340       32,528       8,663          
Selling, general and administrative
    13,803       52,159       3,201          
Depreciation and amortization
          11,222       4,586          
Other
    775       51       (52 )        
 
                               
Total costs and expenses
    22,918       95,960       16,398          
 
                               
Net income
    11,950       2,334       (16,252 )        
Partners’ share of income from unconsolidated JOAs
    (4,998 )     (1,167 )              
 
                               
Income (loss) from unconsolidated JOAs
  $ 6,952     $ 1,167     $ (16,252 )   $   (8,133 )
 
                               
                                 
    Nine Months Ended March 31, 2006
                    Associated   Loss from
    Salt Lake           Revenues and   Unconsolidated
    City JOA   Denver JOA   Expenses   JOAs
    (Dollars in thousands)
Income Statement Data:
                               
 
                               
Total revenues
  $ 110,658     $ 316,940     $ 388          
 
                               
Cost of sales
    25,700       100,297       25,713          
Selling, general and administrative
    40,446       155,253       9,279          
Depreciation and amortization
          45,175       13,922          
Other
    2,351       811       97          
 
                               
Total costs and expenses
    68,497       301,536       49,011          
 
                               
Net income
    42,161       15,404       (48,623 )        
Partners’ share of income from unconsolidated JOAs
    (17,643 )     (7,702 )              
 
                               
Income (loss) from unconsolidated JOAs
  $ 24,518     $ 7,702     $ (48,623 )   $ (16,403 )
 
                               
     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 nine months ended March 31, 2007 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.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 has been 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. On June 24, 2003, the third appraiser’s final report was issued and SLTPC filed a lawsuit (the “appraisal lawsuit”) in the United States District Court for the District of Utah (“District Court”) 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 District

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Court also entered a scheduling order setting the case for trial in September 2007. The parties are in the process of completing discovery in this case, and dispositive motions are due by May 23, 2007.
     At a scheduling conference held on April 18, 2007, SLTPC’s counsel stated that SLTPC no longer sought a new third appraisal and would no longer seek to acquire the Tribune Assets for the Exercise Price established under the Option Agreement. Instead, SLTPC’s counsel indicated that SLTPC would move to amend its complaint in its original lawsuit to allege that MediaNews and Kearns-Tribune breached or repudiated the Option Agreement by changing and disposing of Tribune Assets in connection with the construction of a new plant and the move of the newspaper’s operations to new facilities. SLTPC’s counsel indicated at that scheduling conference that SLTPC would be seeking monetary and equitable relief designed to place SLTPC in the position that it would have been in if the assets had not been changed.
     Also in the appraisal case, in January 2007 SLTPC filed a motion for a preliminary injunction against the sale of certain real estate and equipment formerly used to publish The Salt Lake Tribune. On April 27, 2007, the District Court denied the motion, based in part on the representations by counsel for SLTPC at the April 18 scheduling conference.
     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. 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 District Court has directed SLTPC to file its motion to amend the complaint in the main case by May 18, 2007. The District Court has ordered that the case otherwise remain stayed.
     As previously disclosed, on April 24, 2006, the District Court granted summary judgment to MediaNews and Kearns-Tribune on a separate complaint by the McCarthey siblings (who own a majority interest in SLTPC), who had alleged a separate oral agreement guaranteeing, among other things, the return of The Salt Lake Tribune to them or their company at a fair price. Oral argument on the McCartheys’ appeal of that judgment took place before the United States Court of Appeals for the Tenth Circuit on May 9, 2007.
     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 $1.5 million and $2.3 million, respectively, was recorded in other (income) expense, net for the three and nine months ended March 31, 2007, respectively, related to the cost of defending these lawsuits. The cost of defending these lawsuits may continue to be substantial.
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 parties settled the case and the case was dismissed on April 25, 2007.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     The Company and S.F. Holding Corporation (“Stephens”) have agreed to form a new partnership whereby the Company would contribute The Monterey County Herald to a newly formed partnership and Stephens would pay the Company approximately $27.4 million in exchange for a 32.64% interest in the new partnership. This transaction is expected to be completed shortly after The Monterey County Herald is acquired from Hearst (see Note 7: Acquisitions, Dispositions and Other Transactions-Hearst Stock Purchase Agreement).
     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 change 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.
     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.
NOTE 5: Amendment of Bank Credit Facility and Long-Term Debt
     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 March 31, 2007, the balances outstanding under the revolving credit portion of the bank credit facility, term loan “A,” term loan “B” and term loan “C” were $86.0 million, $100.0 million, $144.7 million and $347.4 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 March 31, 2007, the Company was in compliance with the covenant requirements of the bank credit facility, as well as those of its Senior Subordinated Notes.
     The Company paid approximately $5.1 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.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     Maturities of long-term debt, excluding $5.8 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 three months of fiscal year 2007) and thereafter are shown below (in thousands):
         
2007
  $ 1,940  
2008
    17,121  
2009
    31,848  
2010
    202,262  
2011
    100,647  
Thereafter
    792,449  
 
       
 
  $ 1,146,267  
 
       
NOTE 6: Employee Benefit Plans
Components of Net Periodic Benefit Cost (Pension and Other Benefits)
                                 
    Pension Plans
    Three Months Ended March 31,   Nine Months Ended March 31,
    2007   2006   2007   2006
    (Dollars in thousands)
Service cost
  $ 614     $ 281     $ 1,781     $ 843  
Interest cost
    4,169       1,420       11,618       4,260  
Expected return on plan assets
    (4,591 )     (1,617 )     (12,807 )     (4,851 )
Amortization of deferral
    70       104       210       312  
Amortization of net loss
    480       748       1,440       2,244  
 
                               
Net periodic benefit cost
  $ 742     $ 936     $ 2,242     $ 2,808  
 
                               
                                 
    Other Benefits
    Three Months Ended March 31,   Nine Months Ended March 31,
    2007   2006   2007   2006
    (Dollars in thousands)
Service cost
  $     154     $ 139     $ 443     $ 417  
Interest cost
    187       74       547       221  
Amortization of deferral
    (3 )     (3 )     (9 )     (9 )
Amortization of net loss
    32       8       96       23  
Other one-time adjustment
                      190  
 
                               
Net periodic benefit cost
  $ 370     $     218     $    1,077     $     842  
 
                               
     The decrease in net periodic pension plan expense for the three and nine months ended March 31, 2007 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 and consolidation 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 $1.2 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 current impact to the plan was immaterial and no curtailment gain or loss was recognized.

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Employer Contributions
     The Company expects to contribute approximately $7.2 million to its pension plans in fiscal year 2007, including contributions related to pension plan liabilities assumed in conjunction with the management and consolidation of the St. Paul Pioneer Press (see Note 7: Acquisitions, Dispositions and Other Transactions). Contributions of approximately $5.8 million have been made through March 31, 2007 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 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 which was amended on May 1, 2007 (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 or “Bay Area” assets) 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 expected to be concluded in the near future. The Antitrust Division has requested information and documents in connection with this review, and the Company has substantially completed its response to this 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 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. The Company would need to obtain additional financing to fund this purchase, if required. As of March 31, 2007, the Company has recorded $302.0 million related to Hearst’s cost of $290.6 million and the $11.4 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: $823.0 million in intangible assets ($360.2 million — goodwill; $273.4 million — mastheads; $11.6 million — subscriber lists; and $177.8 million

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
in advertiser lists and other finite lived intangibles) and $197.9 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 nine months ended March 31, 2007 and 2006, set forth below, presents the Company’s results of operations as if the August 2, 2006 transactions (acquisition of San Jose Mercury News, Contra Costa Times and management and consolidation of The Monterey County Herald and St. Paul Pioneer Press) 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 March 31,   Nine Months Ended March 31,
    2007   2006   2007   2006
    (Dollars in Thousands)
Operating Revenue
  $ 316,957     $ 343,149     $ 1,036,726     $ 1,034,435  
Net Income
  $ 4,274     $ (2,518 )   $ 33,026     $ 14,403  
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 $25.6 million, which included $1.375 million of 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 retains 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 had daily circulation of approximately 67,000 at March 31, 2007.
     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. The purchase accounting for the business combination is preliminary and subject to change.
Acquisition (Santa Cruz)
     On February 2, 2007, the California Newspapers Partnership (“CNP”) 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 (including the Company) were used to fund the acquisition. The Company’s portion of the acquisition (including working capital) 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 San Jose. The Santa Cruz Sentinel had daily circulation of approximately 25,000 at March 31, 2007. The purchase accounting for the business combination is preliminary and subject to change.
Management Agreement (Danbury)
     On March 30, 2007, the Company entered into an agreement with Hearst regarding the management of The News-Times (Danbury, CT), which was purchased by Hearst on March 30, 2007 for $80.0 million, plus an adjustment for working capital. Under the agreement, the Company controls the management of both the Connecticut Post (owned by the Company) and The News-Times and is entitled to 73% of the net income of both newspapers on a combined basis; however, the Company and Hearst retain ownership of the assets and liabilities of the Connecticut Post and The News-Times, respectively. As a result of entering into the management agreement, the Company began consolidating the results of The News-Times and recording minority interest for Hearst’s 27% interestbeginning March 30, 2007. The accounting resulting from entering into the

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
management agreement created a non-monetary exchange (pursuant to Statement of Financial Accounting Standards No. 153, Exchanges of Non-Monetary Assets). The Company accounted for this exchange as two separate, but simultaneous events: (1) a sale, whereby for accounting purposes, the Company sold to Hearst a 27% interest in the Connecticut Post, resulting in the Company recording a non-monetary gain of approximately $27.0 million and (2) the acquisition of a 73% interest in The News-Times. The 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 or in conjunction with the consolidation of certain recently acquired newspapers with the Company’s other operations. The Denver JOA also has implemented significant workforce reductions as a part of its new plant project and business reorganization. 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 March 31, 2007, approximately $3.9 million was recorded to goodwill) while those related to the newspapers already owned by the Company will be expensed (approximately $0.7 million as of March 31, 2007).
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:
    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

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 February 2007, the Financial Accounting Standards Board issued Statement of Financial Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS No. 159”). SFAS No. 159 allows entities to voluntarily choose, at specified election dates, to measure many financial assets and financial liabilities at fair value (the “fair value option”). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, SFAS No. 159 requires all subsequent changes in fair value for that instrument be reported in earnings. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or for the Company, beginning July 1, 2008. The Company is in the process of evaluating what impact, if any, SFAS No. 159 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.

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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 nine months ended March 31, 2007 and 2006, including the percentage change between periods.
                                                 
    Three Months Ended           Nine Months Ended    
    March 31,           March 31,    
    2007   2006   2007 vs. 2006   2007   2006   2007 vs. 2006
    (Dollars in thousands)
INCOME STATEMENT DATA:
                                               
Total Revenues
  $ 316,957     $ 208,376       52.1 %   $ 984,720     $ 611,173       61.1 %
 
                                               
Loss from Unconsolidated JOAs
    (7,132 )     (8,133 )     12.3       (8,673 )     (16,403 )     47.1  
 
                                               
Cost of Sales
    106,520       66,424       60.4       318,328       192,481       65.4  
Selling, General and Administrative
    175,008       108,433       61.4       503,775       307,414       63.9  
Depreciation and Amortization
    18,109       10,581       71.1       53,108       31,246       70.0  
Interest Expense
    20,893       14,033       48.9       61,477       41,271       49.0  
Other (Income) Expense, Net
    1,451       (288 )     (d )     (9,774 )     1,667       (d )
 
                                               
Total Costs and Expenses
    321,981       199,183       61.7       926,914       574,079       61.5  
 
                                               
Equity Investment Income (Loss), Net
    (468 )     264       (d )     38       4,688       (d )
 
                                               
 
                                               
Gain (Loss) on Sale of Assets, Net
    26,628       804       (d )     42,892       1,127       (d )
 
                                               
Minority Interest
    (8,042 )     (8,415 )     (4.4 )     (43,008 )     (22,991 )     87.1  
 
                                               
Net Income (Loss)
    4,274       (3,645 )     (d )     30,550       2,086       (d )
 
                                               
CASH FLOW DATA:
                                               
Cash Flows from:
                                               
Operating Activities (a)
  $ 77,608     $ 31,864             $ 143,335     $ 63,884          
Investing Activities (a)
    (25,834 )     (21,323 )             (395,694 )     (62,145 )        
Financing Activities (a)
    (54,888 )     (6,576 )             256,815       (1,365 )        
 
                                               
NON-GAAP FINANCIAL DATA(b):
                                               
Adjusted EBITDA
  $ 35,429     $ 33,519       5.7 %   $ 162,617     $ 111,278       46.1 %
Minority Interest in Adjusted EBITDA
    (13,404 )     (11,717 )     14.4       (58,663 )     (30,899 )     89.9  
Combined Adjusted EBITDA of Unconsolidated JOAs
    1,758       2,488       (29.3 )     18,049       21,973       (17.9 )
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company (c)
    139       304       (54.3 )     1,189       5,099       (76.7 )
 
                                               
Adjusted EBITDA Available to Company
  $ 23,922     $ 24,594       (2.7 )%   $ 123,192     $ 107,451       14.6 %
 
                                               
 
(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 nine months ended March 31, 2006 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 months ended March 31, 2006, the revision decreased the reported net cash flows from operating activities by $3.9 million, increased the net cash flows from investing activities by $7.6 million and decreased net cash flows from financing activities by $3.7 million. For the nine months ended March 31, 2006, the revision decreased the reported net cash flows from operating activities by $18.5 million, increased the reported net cash flows from investing activities by $22.2 million and decreased the reported net cash flows from financing activities by $3.7 million.
 
(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, as well as the Connecticut newspapers (beginning March 30, 2007) (“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 March 31,   2007 vs.   Nine Months Ended March 31,   2007 vs.
    2007   2006   2006   2007   2006   2006
    (Dollars in thousands)
PRO-RATA CONSOLIDATED INCOME STATEMENT DATA:
                                               
Total Revenues
  $ 380,860     $ 277,915       37.0 %   $ 1,199,305     $ 834,278       43.8 %
 
                                               
Cost of Sales
    132,810       96,188       38.1       405,458       283,249       43.1  
Selling, General and Administrative
    210,863       145,720       44.7       613,181       417,778       46.8  
Depreciation and Amortization
    25,572       20,778       23.1       75,784       67,756       11.8  
Interest Expense
    21,432       14,098       52.0       63,110       41,443       52.3  
Other (Income) Expense, Net
    2,354       159       (d )     (7,734 )     3,518       (d )
 
                                               
Total Costs and Expenses
    393,031       276,943       41.9       1,149,799       813,744       41.3  
 
                                               
Gain (Loss) on Sale of Assets, Net
    26,643       892       (d )     42,519       1,284       (d )
 
                                               
Minority Interest
    (8,042 )     (8,415 )     (4.4 )     (43,008 )     (22,991 )     87.1  
 
                                               
Net Income (Loss)
    4,274       (3,645 )     (d )     30,550       2,086       (d )
 
                                               
CASH FLOW DATA (GAAP BASIS):
                                               
Cash Flows from:
                                               
Operating Activities (a)
  $ 77,608     $ 31,864             $ 143,335     $ 63,884          
Investing Activities (a)
    (25,834 )     (21,323 )             (395,694 )     (62,145 )        
Financing Activities (a)
    (54,888 )     (6,576 )             256,815       (1,365 )        
 
                                               
PRO-RATA OTHER DATA(b):
                                               
Adjusted EBITDA
  $ 37,187     $ 36,007       3.3 %   $ 180,666     $ 133,251       35.6 %
Minority Interest in Adjusted EBITDA
    (13,404 )     (11,717 )     14.4       (58,663 )     (30,899 )     89.9  
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company (c)
    139       304       (54.3 )     1,189       5,099       (76.7 )
 
                                               
Adjusted EBITDA Available to Company
  $ 23,922     $ 24,594       (2.7 )%   $ 123,192     $ 107,451       14.6 %
 
                                               
 
     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 Nine Months Ended March 31, 2007 and 2006
     Our results for the three and nine months ended March 31, 2007 and 2006 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 and consolidating 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 The Monterey County Herald and St. Paul Pioneer Press 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, along with the San Jose Mercury News and Contra Costa Times, 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. The accounting treatment of the Daily Breeze is the same as the St. Paul Pioneer Press and The Monterey County Herald for the reasons previously described. As a result, we began consolidating the financial statements of the Torrance publications beginning December 15, 2006.
 
    On February 2, 2007, the California Newspapers Partnership acquired the Santa Cruz Sentinel.
 
    On March 30, 2007, we entered into a management agreement with Hearst regarding The News-Times (Danbury, CT). Under the agreement, we control and manage both the Connecticut Post (owned by the Company) and The News-Times (owned by Hearst) and are entitled to 73% of the net income of both newspapers combined. As a result, we began consolidating the results of The News-Times and recording minority interest for Hearst’s 27% interest beginning March 30, 2007. This transaction had an immaterial effect on the results discussed below.
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
     Advertising Revenues. The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing advertising revenues by $101.4 million and $328.1 million for the three- and nine-month periods ended March 31, 2007, as compared to the same periods in the prior fiscal year. Excluding the aforementioned transactions, advertising revenues decreased 8.7% and 4.5% for the three and nine months ended March 31, 2007, as compared to the same periods in the prior fiscal year. All the newspaper advertising revenue categories suffered declines, except Internet advertising revenue, which grew 9.9% and 9.6% for the three and nine months ended March 31, 2007, respectively. Within the print classified advertising category, classified real estate gains were offset by decreases in classified automotive and employment for the nine-month period ended March 31, 2007. However, for the three-month period ended March 31, 2007, all print classified advertising categories were down as compared to the same period in the prior year.
     Circulation Revenues. The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing circulation revenues by $21.9 million and $62.4 million for the three- and nine-month periods ended March 31, 2007, as compared to the same periods in the prior fiscal year. Excluding the aforementioned transactions, circulation revenues decreased 7.6% and 5.0% for the three and nine months ended March 31, 2007 as compared to the same periods in the prior fiscal year. The decrease was due to home delivery pricing pressures at most of our newspapers, which resulted in our

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
offering greater discounts to acquire new and retain existing subscribers combined with a decline in total paid circulation at most of our newspapers.
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 nine months ended March 31, 2007 and 2006 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 nine months ended March 31, 2006 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 $1.7 million for the three months ended March 31, 2007 and $6.1 million for the nine months ended March 31, 2007 as compared to the same periods in the prior year. The results of the Denver JOA continue to be negatively impacted by a soft advertising market. Also impacting the nine months ended March 31, 2007, was the cost of the Denver JOA implementing workforce reductions and buying out a lease for one of its prior locations. Our share of these costs was approximately $1.3 million. Excluding the impact of the accelerated depreciation in the prior year, the results of the Salt Lake City JOA were up $2.3 million for the nine months ended March 31, 2007 due to increased revenues and reduced costs associated with operating efficiencies from 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 $45.2 million and $133.8 million for the three- and nine-month periods ended March 31, 2007, as compared to the same periods in the prior fiscal year. Excluding the aforementioned transactions, cost of sales decreased 7.8% and 4.4% for the three and nine months ended March 31, 2007 as compared to the same periods in the prior fiscal year. The majority of the decrease was caused by a reduction in newsprint expense and related production costs. Newsprint prices increased by 4.0% and 8.0%, respectively, during fiscal year 2007 as compared to the same three- and nine-month periods in the prior fiscal year. Our average price of newsprint was $603 and $609 per metric ton for the three- and nine-month periods ended March 31, 2007 as compared to $580 and $564 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 13.9% and 13.3% for the three- and nine-month periods ended March 31, 2007 primarily as a result of lower circulation volumes and a reduction in web-width from 50 inches to 48 inches at some of our newspapers. The cost of newsprint began to decline in the quarter ended March 31, 2007, the full impact of which was not realized in the March 2007 quarter as a result of using significantly higher priced newsprint from beginning inventories.
Selling, General and Administrative
     The aforementioned fiscal year 2007 and 2006 transactions had the net impact of increasing SG&A by $70.5 million and $196.9 million for the three and nine months ended March 31, 2007 as compared to the prior year. Excluding the aforementioned transactions, SG&A decreased 3.3% and 0.1% for the three and nine months ended March 31, 2007 as compared to the same periods in the prior fiscal year. Decreases were primarily in advertising expenses related to the lower advertising revenues experienced during that same period. The current year-to-date period also includes a $1.3 million charge related to a severance obligation, 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 $0.4 million and $1.2 million for the three and nine months ended March 31, 2007 as compared to the prior year, while Internet revenue grew $1.0 million and $2.6 million for the same periods on a same newspaper basis.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 February 2, 2007 for our share of CNP’s purchase of the Santa Cruz Sentinel, 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 March 31, 2007, our average debt outstanding increased $311.2 million, or 34.5%, to $1,212.0 million and our weighted average interest rate increased 49 basis points as compared to the prior year due to increases in LIBOR (the average daily one month rate of LIBOR increased 71 basis points, for the three months ended March 31, 2007 as compared to the same period in prior year). For the nine months ended March 31, 2007, our average debt outstanding increased $282.8 million, or 31.4%, to $1,182.8 million and our weighted average interest rate increased 69 basis points as compared to the prior year primarily due to increases in LIBOR (the average daily one month rate of LIBOR increased 120 basis points for the nine months ended March 31, 2007 as compared to the same period in the prior year). 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 March 31, 2007 relate to litigation expense of $1.5 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, and $(0.2) million associated with various other items that were not related to ongoing operations.
     The charges incurred/(income recognized) for the nine months ended March 31, 2007 relate to litigation expense of $2.3 million associated with the acquisition of Kearns-Tribune, LLC (Salt Lake City), $0.6 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 the cost to repurchase an option we issued that provides the holder the opportunity to purchase one of our daily newspapers, $(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 $0.5 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 decreased by $0.4 million and increased by $20.0 million for the three and nine months ended March 31, 2007, respectively, as compared to the same periods in the prior year. Our year-to-date 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’s acquisition of the San Jose Mercury News and Contra Costa Times, effective August 2, 2006 and the Santa Cruz Sentinel, effective February 2, 2007. The quarter-to-date decrease was the result of decreased net income for the three months ended March 31, 2007 as compared to the same period in the prior year for the Texas-New Mexico Newspapers Partnership.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Gain on Sale of Assets
     In July 2006, we sold an 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. Also, in conjunction with entering into the management agreement with Hearst regarding their Danbury newspaper and our newspaper, the Connecticut Post, we recognized a $27.0 million pre-tax nonmonetary gain on the “sale” of a portion of our interest in the Connecticut Post.
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 $79.5 million for the nine-month period ended March 31, 2007 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. These increases were partially offset by increased funding of our pension obligations during fiscal year 2007.
     The net cash outflows related to investing activities increased by $333.5 million for the nine-month period ended March 31, 2007 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, as well as the February 2, 2007 purchase of the Santa Cruz Sentinel, offset in part by cash inflows of $33.9 million associated with the sale of Original Apartment Magazine and our office building in Long Beach, California. Capital expenditures for the nine-month period ended March 31, 2007 were down $14.5 million year over year, largely as a result of the funding related to the Salt Lake City production and office facility being completed.
     The net cash flows related to financing activities increased by $258.2 million for the nine-month period ended March 31, 2007 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. We also borrowed approximately $25.0 million to fund our share of the February 2, 2007 purchase of the Santa Cruz Sentinel. Activity for the nine-month period ended March 31, 2007 also included normal borrowings and paydowns on long-term debt. For the nine-month period ended March 31, 2006, 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 and the Prairie Mountain Publishing Company. 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 $106.8 million of debt for the nine-month period ended March 31, 2007.
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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
     On March 31, 2007, 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 March 31, 2007, the balances outstanding under the revolving credit portion of the bank credit facility, term loan “A,” term loan “B” and term loan “C” were $86.0 million, $100.0 million, $144.7 million and $347.4 million, respectively, and we had $251.1 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 limits imposed by the financial covenants of our various debt agreements. We are evaluating our future capital needs and may reduce the total commitment available under the revolver.
     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 March 31, 2007, our share of the debt incurred by the Denver JOA for the items mentioned was approximately $41.0 million.
     As of March 31, 2007, 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 $7.2 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 $5.8 million through March 31, 2007.
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/or management of the San Jose Mercury News, Contra Costa Times, The Monterey County Herald, St. Paul Pioneer Press, the Daily Breeze (Torrance), the Santa Cruz Sentinel and The News-Times (Danbury). Significant items include the assumption of pension obligations totaling $31.7 million, other postretirement employment benefits totaling $1.2 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
    Nine Months Ended March 31, 2007
    (Dollars in thousands)
    Wholly-Owned            
    Subsidiaries and   Non Wholly-   Our Share of    
    Consolidated   Owned   Unconsolidated    
    JOAs   Subsidiaries   JOAs   Total
Total Capital Projects
  $ 12,893     $ 9,144     $ 29,995     $ 52,032  
Less Minority Partners’ Share
          (4,082 )           (4,082 )
 
                               
Our Share of Capital Projects
  $ 12,893     $ 5,062     $ 29,995     $ 47,950  
 
                               
Near Term Outlook
Newsprint Prices
     Current North American newsprint supply versus demand, along with newsprint now being shipped from China, have put further 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 April 2007 RISI (“Resource Information Systems, Inc.”) price index for 30 pound newsprint was $600 per metric ton compared to $655 per metric ton in April 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 have 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 March 31,   Nine Months Ended March 31,
    2007   2006   2007   2006
    (Dollars in thousands)
NON-GAAP FINANCIAL DATA(a)
                               
Cash Flows from Operating Activities (GAAP measure)
  $ 77,608     $ 31,864     $ 143,335     $ 63,884  
Net Change in Operating Assets and Liabilities
    (70,783 )     (21,858 )     (77,712 )     (7,751 )
Distributions of Net Income Paid to Minority Interest
    8,021       13,368       42,356       22,991  
Distributions of Net Income from Unconsolidated JOAs
    (6,169 )     (8,396 )     (28,113 )     (32,220 )
Distributions of Net Income from Equity Investments
    (68 )     (418 )     (1,018 )     (4,635 )
Interest Expense
    20,893       14,033       61,477       41,271  
Bad Debt Expense
    (2,928 )     (2,618 )     (8,798 )     (6,946 )
Pension Expense, Net of Cash Contributions
    (686 )     (937 )     3,555       (1,330 )
Direct Costs of the Unconsolidated JOAs, Incurred Outside of the Unconsolidated JOAs(b)
    12,243       16,252       36,786       48,623  
Net Cash Related to Other (Income), Expense
    (2,702 )     (7,771 )     (9,251 )     (12,609 )
 
                               
Adjusted EBITDA
    35,429       33,519       162,617       111,278  
Minority Interest in Adjusted EBITDA
    (13,404 )     (11,717 )     (58,663 )     (30,899 )
Combined Adjusted EBITDA of Unconsolidated JOAs
    1,758       2,488       18,049       21,973  
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company(c)
    139       304       1,189       5,099  
 
                               
Adjusted EBITDA Available to Company
  $ 23,922     $ 24,594     $ 123,192     $ 107,451  
 
                               
 
    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, as well as the Connecticut newspapers (beginning March 30, 2007) (“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 March 31, 2007
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 316,957     $   63,903     $    380,860  
 
                       
Loss from Unconsolidated JOAs
    (7,132 )     7,132        
 
                       
Cost of Sales
    106,520       26,290       132,810  
Selling, General and Administrative
    175,008       35,855       210,863  
Depreciation and Amortization
    18,109       7,463       25,572  
Interest Expense
    20,893       539       21,432  
Other (Income) Expense, Net
    1,451       903       2,354  
 
                       
Total Costs and Expenses
    321,981       71,050       393,031  
 
                       
Gain on Sale of Assets and Danbury Transaction, Net
    26,628       15       26,643  
 
                       
Net Income
    4,274             4,274  
 
                       
Adjusted EBITDA(2)
  $ 35,429     $ 1,758     $ 37,187  
                         
    Nine Months Ended March 31, 2007
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 984,720     $ 214,585     $ 1,199,305  
 
                       
Loss from Unconsolidated JOAs
    (8,673 )     8,673        
 
                       
Cost of Sales
    318,328       87,130       405,458  
Selling, General and Administrative
    503,775       109,406       613,181  
Depreciation and Amortization
    53,108       22,676       75,784  
Interest Expense
    61,477       1,633       63,110  
Other (Income) Expense, Net
    (9,774 )     2,040       (7,734 )
 
                       
Total Costs and Expenses
    926,914       222,885       1,149,799  
 
                       
Gain on Sale of Assets and Danbury Transaction, Net
    42,892       (373 )     42,519  
 
                       
Net Income
    30,550             30,550  
 
                       
Adjusted EBITDA(2)
  $ 162,617     $ 18,049     $ 180,666  
                         
    Three Months Ended March 31, 2006
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 208,376     $   69,539     $    277,915  
 
                       
Loss from Unconsolidated JOAs
    (8,133 )     8,133        
 
                       
Cost of Sales
    66,424       29,764       96,188  
Selling, General and Administrative
    108,433       37,287       145,720  
Depreciation and Amortization
    10,581       10,197       20,778  
Interest Expense
    14,033       65       14,098  
Other (Income) Expense, Net
    (288 )     447       159  
 
                       
Total Costs and Expenses
    199,183       77,760       276,943  
 
                       
Gain on Sale of Assets, Net
    804       88       892  
 
                       
Net Loss
    (3,645 )           (3,645 )
 
                       
Adjusted EBITDA(2)
  $ 33,519     $ 2,488     $ 36,007  

34



Table of Contents

RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
                         
    Nine Months Ended March 31, 2006
            Unconsolidated    
    As Presented   JOAs Pro-Rata   As Presented on a
    Under GAAP   Adjustment(1)   Pro-Rata Basis
Total Revenues
  $ 611,173     $ 223,105     $ 834,278  
 
                       
Loss from Unconsolidated JOAs
    (16,403 )     16,403        
 
                       
Cost of Sales
    192,481       90,768       283,249  
Selling, General and Administrative
    307,414       110,364       417,778  
Depreciation and Amortization
    31,246       36,510       67,756  
Interest Expense
    41,271       172       41,443  
Other (Income) Expense, Net
    1,667       1,851       3,518  
 
                       
Total Costs and Expenses
    574,079       239,665       813,744  
 
                       
Gain on Sale of Assets, Net
    1,127       157       1,284  
 
                       
Net Income
    2,086             2,086  
 
                       
Adjusted EBITDA(2)
  $ 111,278     $ 21,973     $ 133,251  
 
    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 March 31,   Nine Months Ended March 31,
    2007   2006   2007   2006
    (Dollars in thousands)
NON-GAAP FINANCIAL DATA(a)
                               
Cash Flows from Operating Activities (GAAP measure)
  $ 77,608     $ 31,864     $ 143,335     $ 63,884  
Net Change in Operating Assets and Liabilities
    (70,783 )     (21,858 )     (77,712 )     (7,751 )
Distributions of Net Income Paid to Minority Interest
    8,021       13,368       42,356       22,991  
Distributions of Net Income from Unconsolidated JOAs
    (6,169 )     (8,396 )     (28,113 )     (32,220 )
Distributions of Net Income from Equity Investments
    (68 )     (418 )     (1,018 )     (4,635 )
Interest Expense
    20,893       14,033       61,477       41,271  
Bad Debt Expense
    (2,928 )     (2,618 )     (8,798 )     (6,946 )
Pension Expense, Net of Cash Contributions
    (686 )     (937 )     3,555       (1,330 )
Net Cash Related to Other (Income), Expense
    (2,702 )     (7,771 )     (9,251 )     (12,609 )
Combined Adjusted EBITDA of Unconsolidated JOAs(b)
    1,758       2,488       18,049       21,973  
Direct Costs of the Unconsolidated JOAs, Incurred Outside of the Unconsolidated JOAs(c)
    12,243       16,252       36,786       48,623  
 
                               
Adjusted EBITDA
    37,187       36,007       180,666       133,251  
Minority Interest in Adjusted EBITDA
    (13,404 )     (11,717 )     (58,663 )     (30,899 )
EBITDA of Texas-New Mexico Newspapers Partnership and Prairie Mountain Publishing Company(d)
    139       304       1,189       5,099  
 
                               
Adjusted EBITDA Available to Company
  $ 23,922     $ 24,594     $ 123,192     $ 107,451  
 
                               
 
    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, as well as the Connecticut newspapers (beginning March 30, 2007) (“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

 


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