Edgar Filing: MCCLATCHY CO

mni3q07earnings.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report: October 16, 2007

(Exact name of registrant as specified in its charter)

	DELAWARE		1-9824		52-2080478
	(state or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S. Employer Identification No.)

2100 Q Street

Sacramento CA 95816

(Address of principal executive offices, zip code)

Registrant's telephone number, including area code (916) 321-1846

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

	Written communications pursuant to Rule 425 under the Securities Act (l7 CFR 230.425)

	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (l7 CFR 240-14d-2(b))

	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (l7 CFR 240.13e-4(c))

Item 9.01	Financial Statements and Exhibits
	(c) Exhibits
	99.1	Text of press release issued by The McClatchy Company dated October 16, 2007, “McClatchy Reports Third Quarter 2007 Earnings.”

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 hereunto duly authorized.

October 16, 2007	The McClatchy Company
	By:	/s/:Patrick J. Talamantes
		Patrick J. Talamantes Vice President and Chief Financial Officer

Exhibit 99.1

McCLATCHY REPORTS PRELIMINARY THIRD QUARTER 2007 EARNINGS

Expects to Record Non-Cash Impairment Charge to GAAP Earnings

SACRAMENTO, Calif., October 16, 2007 – The McClatchy Company (NYSE-MNI) today reported preliminary earnings from continuing operations in the third quarter of 2007 of $23.5 million, or 29 cents per share. Preliminary earnings do not include an anticipated non-cash charge to GAAP earnings for impairment of goodwill and long-lived assets discussed below, but do include a three cent per share charge related to certain tax positions taken by the company for which it has established reserves.

Income from continuing operations in the third quarter of 2006 was $52.6 million or 65 cents per share, and included an after-tax gain of seven cents per share related to the sale of land. Total net income in the 2006 third quarter was $51.8 million, or 64 cents per share.

Management noted that it is in the process of performing impairment testing of goodwill and other long-lived assets as of September 30, 2007, due to the continuing challenging business conditions and the resulting weakness in the company’s stock price as of the end of its third quarter. Upon completion of that testing, the company expects to record a non-cash impairment charge to GAAP earnings in its third quarter financial statements when it files its Form 10-Q with the Securities and Exchange Commission (SEC) on or before November 9, 2007 and the company will issue a press release announcing the final third quarter results when it files its Form 10-Q with the SEC.

Revenues from continuing operations in the third quarter of 2007 were $540.3 million, down 9.2% from revenues from continuing operations of $595.1 million in 2006. Advertising revenues were $457.0 million, down 9.8% from advertising in 2006, and circulation revenues were $68.0 million, down 3.7%. The company benefited from continued strong cost reduction efforts in the 2007 quarter. Cash expenses were down 8.6% as the result of reduction in staffing levels, lower newsprint expense and continued vigilance in all other expenses.

Total losses recorded from unconsolidated investments were $7.7 million compared to losses from unconsolidated investments in the third quarter of 2006 of $0.8 million. The 2007 losses were due primarily to the operating results of the company’s newsprint investments and were partially offset by income from its internet investments.

First Nine Months Results:

Income from continuing operations for the first nine months of 2007 was $72.5 million or 88 cents per share, before the expected non-cash write down of intangible assets discussed above. The company’s total net income, including the results of discontinued operations, for the first nine months of 2007 was $67.7 million, or 83 cents per share. Discontinued operations reflect the results of the (Minneapolis) Star Tribune newspaper which was sold on March 5, 2007.

Earnings from continuing operations in the first nine months of 2006 were $106.6 million, or $1.82 per share including the gain on the sale of land. Earnings from discontinued operations in the first nine months of 2006 were $17.1 million. Total net income for the first nine months of 2006 was $123.7 million, or $2.12 per share. Discontinued operations reflect the results of the (Minneapolis) Star Tribune newspaper which was sold on March 5, 2007 and the results of eight former Knight Ridder newspapers which were sold in the third quarter of 2006.

Revenues from continuing operations in the first nine months of 2007 were $1.7 billion compared to $1.0 billion in 2006. The greater revenues primarily reflect the addition of the 20 former Knight Ridder newspapers acquired in the third quarter of 2006. Advertising revenues in 2007 totaled $1.4 billion and circulation revenues were $209.6 million.

On a pro forma basis, including the 20 former Knight Ridder newspapers acquired in June 2006 and excluding the Star Tribune newspaper in the first nine months 2006, total revenues in 2007 would have been down 7.5%, with advertising revenues down 8.4%, and circulation revenues down 4.0%.

Interest expense from continuing operations for the first nine months of 2007 includes $5.7 million related to $530 million in debt repaid from the proceeds of the sale of the Star Tribune on March 5, 2007. However, the operations of the Star Tribune were included in discontinued operations during the first two months of 2007. In addition, earnings from continuing operations in the 2007 period included the effect of an after-tax non-cash loss of $4.7 million, or six cents per share, related to a second quarter payment by the Seattle Times Company (in which the company is a 49.5% owner) relating to the settlement of litigation and amendment to a joint operating agreement with The Hearst Company. Total losses recorded from unconsolidated investments were $28.6 million compared to income from unconsolidated investments in the first nine months of 2006 of $81,000.

Management’s Comments:

Commenting on McClatchy’s results, Gary Pruitt, chairman and chief executive officer, said, “The economic downturn led by real estate continued to impact our advertising revenues in the third quarter. Once again our Florida and California newspapers were disproportionately hurt—these two regions accounted for 68% of the decline in advertising revenues in the third quarter while accounting for only 33% of total company revenues.

“Our advertising results were in line with management expectations, and we were able to mitigate the impact of the advertising decline on our income with strong cost controls in the quarter. Total cash expenses were down 8.6% in the third quarter and were down 9.1% through the first nine months. Through September 2007, operating cash flow was down just 2.3% from the first nine months of 2006 on a proforma basis.

“Our outlook for the fourth quarter has been tempered by the continuing adverse effect of the real estate downturn and its impact on the economies in our local markets, particularly in California and Florida. It’s clear the economies of these two markets and perhaps the country as a whole are experiencing a greater slowdown than many had anticipated just a few months ago—and McClatchy is feeling the effects more than most other newspaper companies given our significant operations in California and Florida. Accordingly, we expect the advertising revenue decline in the fourth quarter to be similar to that in the second and third quarters. We do not know when this downturn will end, and do not have visibility beyond the fourth quarter. Nonetheless, we believe that cyclical factors represent a significant portion of the current advertising downturn as evidenced by our operations in the California and Florida regions. Looking longer term, we like the prospects for these two regions. We will continue to focus on cost controls and will weather the downturn by remaining efficient and protecting cash flows as best we can.

“The challenging business environment in the second half of 2007, coupled with the drag on our stock price, has resulted in our moving up our annual testing of goodwill and intangible assets for impairment. We are now testing for impairment at the end of the third quarter rather than waiting until the normal time for our testing at year-end. While we are early in our analysis, we expect the real estate downturn and its attendant effects on the local economies in which we operate, together with the additional amount of goodwill recorded under the accounting rules in the Knight Ridder acquisition, will result in an impairment charge.

“We recognize that newspaper revenues have declined and that values have dropped. But McClatchy is a solidly profitable company that is rapidly paying down debt and re-engineering its operations to navigate through a changing environment for all media companies. The impairment at issue involves only non-cash accounting charges, and the simplest way to put that in perspective is to remember that nothing about it changes our operations or our ability to reduce debt.”

McClatchy announced the acquisition of Knight-Ridder, Inc. on March 10, 2006 and closed the transaction on June 27, 2006 (the “Acquisition”). Management has disclosed in the company’s financial statements since the third quarter of 2006 (when the Acquisition was completed), that it was required to record the value of the 35.0 million shares of McClatchy common stock issued in the Acquisition at $1.821 billion, or $52.06 per share, which was included in the total Acquisition purchase price. The fair value of these shares was actually $1.398 billion as of the Acquisition closing date ($39.03 per share at June 27, 2006), however under the accounting rules the decline of approximately $423.0 million in valuation had no effect on the total Acquisition purchase price recorded. That additional $423.0 million was included in goodwill.

Pat Talamantes, McClatchy’s chief financial officer, said, “Our operations continue to produce significant cash which we are using to pay down debt. In addition we completed the sale of land in San Jose, California and several smaller assets during the quarter and used the proceeds to reduce debt. Debt at the end of the third quarter was $2.58 billion, down approximately $98 million in the quarter and down $697.4 million since the end of 2006. We expect debt to be approximately $2.5 billion at the end of 2007, and we expect our debt balance at the end of 2008 to be approximately $2.0 billion.”

The company’s pro forma statistical report, which summarizes revenue performance for September, the third fiscal quarter and first nine months of 2007, follows. This report includes advertising revenues for the 20 Knight Ridder newspapers the company acquired, but did not own in the first nine months of its fiscal 2006, and excludes the revenues of the Star Tribune newspaper. The pro forma information is meant to provide investors a sense of what the advertising results of the continuing operations would have been in the nine-month interim period of 2006. Reconciliations of non-GAAP terms used in this release are included in attached summary schedules and are posted on our website at www.mcclatchy.com.

At noon Eastern Time today, McClatchy will review its results in a conference call (877-278-1205 pass code 18225165) and webcast (www.mcclatchy.com). The webcast will be archived at McClatchy’s website.

About McClatchy:

The McClatchy Company is the third largest newspaper company in the United States, with 31 daily newspapers, approximately 50 non-dailies and direct marketing and direct mail operations. McClatchy also operates leading local websites in each of its markets which complement its newspapers and extend its audience reach in each market. Together with its newspapers and direct marketing products, these operations make McClatchy the leading local media company in each of its premium high growth markets. McClatchy-owned newspapers include The Miami Herald, The Sacramento Bee, The Fort Worth Star-Telegram, The Kansas City Star, The Charlotte Observer, and The (Raleigh) News & Observer.

McClatchy also has a portfolio of premium digital assets. Its leading local websites offer users information, comprehensive news, advertising, e-commerce and other services. The company owns and operates McClatchy Interactive, an interactive operation that provides websites with content, publishing tools and software development. McClatchy operates Real Cities (www.RealCities.com), the largest national advertising network of local news websites and owns 14.4% of CareerBuilder, the nation’s largest online job site. McClatchy also owns 25.6% of Classified Ventures, a newspaper industry partnership that offers classified websites such as the nation’s number two online auto website, cars.com, and the number one rental site, apartments.com. McClatchy is listed on the New York Stock Exchange under the symbol MNI.

Additional Information:

Statements in this press release regarding future financial and operating results, including revenues, operating expenses, cash flows, debt levels and the expected impairment charge related to goodwill and/or long-lived assets, as well as future opportunities for the company and any other statements about management’s future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” estimates and similar expressions) should also be considered to be forward-looking statements. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: McClatchy may not consummate contemplated transactions which may enable debt reduction on anticipated terms or at all; McClatchy may not achieve its expense reduction targets or may do harm to its operations in attempting to achieve such targets; McClatchy’s operations have been, and will likely continue to be, adversely affected by competition, including competition from internet publishing and advertising platforms; McClatchy’s expense and income levels could be adversely affected by changes in the cost of newsprint and McClatchy’s operations could be negatively affected by any deterioration in its labor relations, as well as the other risks detailed from time to time in the Company’s publicly filed documents, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the U.S. Securities and Exchange Commission. McClatchy disclaims any intention and assumes no obligation to update the forward-looking information contained in this release.

*THE McCLATCHY COMPANY*
PRELIMINARY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In thousands, except per share amounts)

	Three Months Ended						Nine Months Ended

	September 30,			September 24,			September 30,			September 24,
	2007			2006			2007			2006
REVENUES - NET:
Advertising	$	457,017		$	506,774		$	1,422,317		$	856,791
Circulation		67,995			70,637			209,582			117,905
Other		15,332			17,717			55,030			26,895
		540,344			595,128			1,686,929			1,001,591
OPERATING EXPENSES:
Compensation		224,309			232,611			689,592			402,453
Newsprint and supplements		63,600			83,171			211,203			136,702
Depreciation and amortization		36,250			36,662			112,440			56,522
Other operating expenses		118,440			129,001			371,180			204,691
		442,599			481,445			1,384,415			800,368

OPERATING INCOME		97,745			113,683			302,514			201,223

NON-OPERATING (EXPENSES) INCOME:
Interest expense		(48,264	)		(46,689	)		(151,605	)		(46,679	)
Interest income		23			2,007			129			2,035
Equity income (losses) in unconsolidated companies, net		(7,652	)		(811	)		(28,599	)		81
Other - net		700			8,445			1,443			8,390
		(55,193	)		(37,048	)		(178,632	)		(36,173	)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION		42,552			76,635			123,882			165,050

INCOME TAX PROVISION		19,062			24,025			51,348			58,470

INCOME FROM CONTINUING OPERATIONS		23,490			52,610			72,534			106,580

INCOME (LOSS) FROM DISCONTINUED OPERATIONS -
NET OF INCOME TAXES		(11	)		(779	)		(4,789	)		17,114

NET INCOME	$	23,479		$	51,831		$	67,745		$	123,694

NET INCOME PER COMMON SHARE:
Basic:
Income from continuing operations	$	0.29		$	0.65		$	0.88		$	1.83
Income (loss) from discontinued operation		(0.00	)		(0.01	)		(0.05	)		0.30
Net income per share	$	0.29		$	0.64		$	0.83		$	2.13

Diluted:
Income from continuing operations	$	0.29		$	0.65		$	0.88		$	1.82
Income (loss) from discontinued operation		(0.00	)		(0.01	)		(0.05	)		0.30
Net income per share	$	0.29		$	0.64		$	0.83		$	2.12

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic		82,040			81,013			81,967			58,173
Diluted		82,098			81,191			82,030			58,416

*The McClatchy Company*
Consolidated Statistical Report
(In thousands, except for preprints)

	September
	Combined							Print Only

Revenues - Net:	2007		2006		% Change			2007		2006		% Change

Advertising
Retail	$	64,663	$	69,210		-6.6	%	$	62,698	$	67,668		-7.3	%
National		14,253		14,982		-4.9	%		13,135		13,347		-1.6	%
Classified Total		53,771		63,657		-15.5	%		43,579		53,444		-18.5	%
Automotive		12,985		15,019		-13.5	%		10,766		13,215		-18.5	%
Real Estate		14,934		20,250		-26.3	%		13,670		18,928		-27.8	%
Employment		17,930		21,382		-16.1	%		11,782		14,748		-20.1	%
Other Class		7,922		7,006		13.1	%		7,361		6,553		12.3	%
Direct Marketing		11,155		13,747		-18.9	%		11,155		13,747		-18.9	%
Other Adv Rev		129		60		115.0	%		129		60		115.0	%
Total Advertising	$	143,971	$	161,656		-10.9	%	$	130,696	$	148,266		-11.9	%

Circulation		21,532		22,992		-6.4	%
Other		4,723		5,987		-21.1	%
Total Revenues	$	170,226	$	190,635		-10.7	%

Memo: Online Only Advertising Revenue	$	13,275	$	13,390		-0.9	%

Advertising Revenues by Market:
California	$	26,112	$	33,116		-21.1	%	$	24,131	$	31,172		-22.6	%
Florida		21,190		26,187		-19.1	%		19,572		24,046		-18.6	%
Texas		15,242		16,000		-4.7	%		14,011		14,753		-5.0	%
Southeast		38,882		40,500		-4.0	%		34,777		36,586		-4.9	%
Midwest		20,170		21,822		-7.6	%		18,156		19,627		-7.5	%
Northwest		16,342		18,425		-11.3	%		14,596		16,874		-13.5	%
Other		6,033		5,606		7.6	%		5,453		5,208		4.7	%
Total Advertising	$	143,971	$	161,656		-10.9	%	$	130,696	$	148,266		-11.9	%

Advertising Statistics for Dailies:
Full Run ROP Linage									2,481.4		2,820.8		-12.0	%

Millions of Preprints Distributed									486.3		548.8		-11.4	%

Average Paid Circulation:*
Daily									2,745.1		2,841.6		-3.4	%
Sunday									3,353.5		3,494.9		-4.0	%

* Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

*The McClatchy Company*
Consolidated Statistical Report
(In thousands, except for preprints)

	Quarter 3
	Combined							Print Only

Revenues - Net:	2007		2006		% Change			2007		2006		% Change

Advertising
Retail	$	204,349	$	210,934		-3.1	%	$	198,243	$	206,602		-4.0	%
National		41,718		47,578		-12.3	%		39,511		42,632		-7.3	%
Classified Total		173,794		206,971		-16.0	%		140,539		175,240		-19.8	%
Automotive		42,331		49,727		-14.9	%		35,778		44,266		-19.2	%
Real Estate		48,322		65,349		-26.1	%		44,485		61,273		-27.4	%
Employment		59,155		69,804		-15.3	%		38,046		49,052		-22.4	%
Other Class		23,987		22,091		8.6	%		22,230		20,649		7.7	%
Direct Marketing		36,639		41,011		-10.7	%		36,639		41,011		-10.7	%
Other Adv Rev		517		280		84.3	%		516		280		84.3	%
Total Advertising	$	457,017	$	506,774		-9.8	%	$	415,448	$	465,765		-10.8	%

Circulation		67,995		70,637		-3.7	%
Other		15,332		17,717		-13.5	%
Total Revenues	$	540,344	$	595,128		-9.2	%

Memo: Online Only Advertising Revenue	$	41,568	$	41,009		1.4	%

Advertising Revenues by Market:
California	$	86,405	$	106,163		-18.6	%	$	79,982	$	99,927		-20.0	%
Florida		66,530		80,572		-17.4	%		61,649		74,978		-17.8	%
Texas		47,891		50,804		-5.7	%		44,231		47,430		-6.7	%
Southeast		119,461		123,127		-3.0	%		106,900		112,022		-4.6	%
Midwest		64,089		67,902		-5.6	%		57,682		61,842		-6.7	%
Northwest		53,248		57,319		-7.1	%		47,683		52,651		-9.4	%
Other		19,393		20,887		-7.2	%		17,321		16,915		2.4	%
Total Advertising	$	457,017	$	506,774		-9.8	%	$	415,448	$	465,765		-10.8	%

Advertising Statistics for Dailies:
Full Run ROP Linage									8,019.8		9,037.3		-11.3	%

Millions of Preprints Distributed									1,603.9		1,716.7		-6.6	%

Average Paid Circulation:*
Daily									2,645.8		2,730.8		-3.1	%
Sunday									3,311.6		3,434.8		-3.6	%

*Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

*The McClatchy Company*
Consolidated Statistical Report
(In thousands, except for preprints)

	September Year-to-Date
	Combined									Print Only
Revenues - Net:	2007		*Pro Forma 2006		% Change			As Reported 2006		2007		*Pro Forma 2006		% Change

Advertising
Retail	$	623,878	$	642,716		-2.9	%	$	350,132	$	605,338	$	631,109		-4.1	%
National		132,934		148,816		-10.7	%		76,759		127,548		139,262		-8.4	%
Classified Total		550,406		639,775		-14.0	%		363,310		448,777		537,090		-16.4	%
Automotive		128,264		151,773		-15.5	%		86,570		110,028		136,140		-19.2	%
Real Estate		158,233		197,224		-19.8	%		120,897		146,912		185,274		-20.7	%
Employment		195,182		224,069		-12.9	%		121,075		128,009		153,489		-16.6	%
Other Class		68,728		66,709		3.0	%		34,768		63,829		62,187		2.6	%
Direct Marketing		113,531		119,336		-4.9	%		65,330		113,531		119,336		-4.9	%
Other Adv Rev		1,568		1,272		23.3	%		1,260		1,568		1,272		23.3	%
Total Advertising	$	1,422,317	$	1,551,915		-8.4	%	$	856,791	$	1,296,762	$	1,428,069		-9.2	%

Circulation		209,582		218,308		-4.0	%		117,905
Other		55,030		53,631		2.6	%		26,895
Total Revenues	$	1,686,929	$	1,823,854		-7.5	%	$	1,001,591

Memo: Online Only Advertising Revenue	$	125,555	$	123,846		1.4	%	$	63,098

Advertising Revenues by Market:
California	$	274,117	$	320,795		-14.6	%	$	307,347	$	254,514	$	302,246		-15.8	%
Florida		221,328		265,983		-16.8	%		80,572		205,116		247,367		-17.1	%
Texas		147,076		157,954		-6.9	%		50,804		136,534		147,224		-7.3	%
Southeast		362,508		372,460		-2.7	%		203,431		324,783		338,146		-4.0	%
Midwest		195,865		208,741		-6.2	%		67,902		176,967		189,385		-6.6	%
Northwest		163,721		167,516		-2.3	%		125,848		146,985		153,933		-4.5	%
Other		57,702		58,466		-1.3	%		20,887		51,864		49,768		4.2	%
Total Advertising	$	1,422,317	$	1,551,915		-8.4	%	$	856,791	$	1,296,763	$	1,428,069		-9.2	%

Advertising Statistics for Dailies:
Full Run ROP Linage									14,957.0		24,487.2		27,245.4		-10.1	%

Millions of Preprints Distributed									2,843.9		4,929.2		5,191.9		-5.1	%

Average Paid Circulation:**
Daily											2,732.2		2,830.1		-3.5	%
Sunday											3,384.3		3,524.0		-4.0	%

* Pro Forma includes Knight Ridder acquisitions and excludes (Minneapolis) Star Tribune newspaper.
** Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

*THE McCLATCHY COMPANY*
RECONCILIATION OF GAAP AMOUNTS
(In thousands)

	Three Months Ended						Nine Months Ended

	September 30,			September 24,			September 30,			September 24,
	2007			2006			2007			2006
										Pro Forma
REVENUES - NET:
Advertising	$	457,017		$	506,774		$	1,422,317		$	1,551,915
Circulation		67,995			70,637			209,582			218,308
Other		15,332			17,717			55,030			53,631
		540,344			595,128			1,686,929			1,823,854
OPERATING EXPENSES:
Cash expenses		406,349			444,783			1,271,975			1,399,228
Depreciation and amortization		36,250			36,662			112,440			117,058
		442,599			481,445			1,384,415			1,516,286

OPERATING INCOME		97,745			113,683			302,514			307,568
Add back depreciation and amortization		36,250			36,662			112,440			117,058
OPERATING CASH FLOW	$	133,995		$	150,345		$	414,954		$	424,626

OPERATING CASH FLOW MARGIN		24.8	%		25.3	%		24.6	%		23.3	%

Operating cash flow margins are derived by dividing operating cash flow by total net revenues for each period. The company believes operating cash flow is commonly used as a measure of performance for newspaper companies, however, it does not purport to represent cash provided by operating activities as shown in the company's statement of cash flows, nor is it meant as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.

Management is in the process of performing impairment testing of goodwill and other long-lived assets as of September 30, 2007, due to the continuing challenging business conditions and the resulting weakness in the company’s stock price as of the end of its third quarter. Upon completion of that testing, the company expects to record a non-cash impairment charge to GAAP earnings in its third quarter financial statements when it files its Form 10-Q with the Securities and Exchange Commission (SEC) on or before November 9, 2007.

*The McClatchy Company*
RECONCILIATION OF GAAP AMOUNTS
Pro Forma Operating Income and Cash Flow
Nine Months ended September 24, 2006
(in thousands)

	Historical		Acquisitions/		Pro Forma
	Amounts		Divestitures		Amounts
REVENUES -NET
Advertising	$	856,791	$	695,124	$	1,551,915
Circulation		117,905		100,403		218,308
Other		26,895		26,736		53,631
		1,001,591		822,263		1,823,854
OPERATING EXPENSES
Cash expenses		743,846		655,382		1,399,228
Depreciation and amortization		56,522		60,536		117,058
		800,368		715,918		1,516,286

OPERATING INCOME		201,223		106,345		307,568
Add back depreciation and amortization		56,522		60,536		117,058
OPERATING CASH FLOW	$	257,745	$	166,881	$	424,626


Note: Excludes synergies that have been or may be realized from the Knight Ridder Acquisition.