This summary is based on the fiscal 2007 second quarter earnings call conducted by The McCarthy Company (MNI: chart) on July 19, 2007.

Chairman, President and Chief Executive Officer: Gary B. Pruitt
Vice President and Chief Financial Officer: Patrick J. Talamantes
Vice President, Operations: Frank Whittaker
Vice President Operations: G. Lynn Dickerson
Vice President, Operations: Robert J. Weil
Vice President, Interactive Media:Christioan A. Hendricks
Treasurer: Elaine Lintecum

Key Investor Issues

- Earnings from continuing operations were $39.2 million, or 48 cents per share.
- EPS were 49 cents per share compared to 94 cents per share a year earlier.
- Total net income was $40 million, down from $44.1 million a year ago.

Second Quarter Highlights

The company reported $39.2 million in earnings from continuing operations, or 48 cents per shares compared to $32.2 million, or 69 cents per share a year earlier.

– Through strong cost controls, the company managed to reduce cast operating expenses by 12.2% on a pro forma basis.
- The operating cash flow grew by 4.4% on a pro forma basis, despite the decline in revenue and operating cash flow margin was 26.9%.

The revenues from continuing operations were $580 million, compared to $632.4 million a year earlier on a pro forma basis, including all the newspapers.

- Advertising revenues were down 9.8% and circulation revenues down by 4.6% on a pro forma basis from the year ago period.
- The advertising revenues were affected by the downturn of the real estate market, particularly in California and Florida which represent 35% of the company’s advertising revenues but account for 72% of the ad revenue decline.
- Real estate being a significant factor in the two economies, the downturn had a spillover effect into other sectors, with large declines in auto and employment advertising too.

Retail advertising was down 6.2% on a pro forma basis with declines in print products partially offset by strong growth in online retail advertising, which was up 59.8% driven by banner advertising.

- Classified advertising revenues declined 14.9% compared to growth of 4.5% a year earlier on a pro forma basis.
- Employment advertising declined 15.5% of the company’s newspapers compared to growth of 7.3% a year ago. The declines were recorded in both print and online.
- The employment advertising was affected by the current affiliate agreement with CareerBuilder for online employment advertising, which is helping to grow online employment revenues at the legacy McClatchy papers, up 15.7% in this category, and is an attractive agreement for these papers.
- Automotive advertising declined 15.4% compared to a 9.6% decline in the year ago period pro forma advertising. However, the company’s online automotive advertising was up 12.9%, reflecting the success of its cars.com products.
- Real estate advertising was down 19% or $12.8 million, with $11.1 million being from California and Florida, compared to a 17.2% increase a year earlier.
- National advertising declined by 9.4% on a pro forma basis due to losses in telecommunications, national automotive and financial advertising industry-wide.

While online advertising was included in the results discussed above, on a pro forma basis, it decreased by 2.2% from the previous year, stunted by the revised CareerBuilder affiliate agreements.

- Excluding online employment advertising, online advertising revenue grew by 13%, representing 8.8% of the total advertising revenues in the quarter and the first fiscal half.
– The average monthly unique online visitors grew by 22% and page views were up 23.4%.

- The company’s direct marketing advertising revenues declined by 3.9%, reflecting the overall slow advertising environment, and through this June these revenues represent 8% of total advertising revenues.

The company’s daily circulation declined 3.7% with Sunday’s circulation was down 4.4% despite the efforts to rid third-party and outlying circulation that is not valued by the advertisers.

- The company is working on growing and maintaining circulation for its newspapers while reaching out to more of online audience.

The total cash expenses were down $59 million, or 12.2% on a pro forma basis, due to tough revenue environment but the company is starting to realize synergies from its acquisitions, which accounted for about half of the expense decline.

- Compensation costs on a pro forma basis were down 12.5%; salaries declined 12.4% and FTEs were down 6.9%.
- Newsprint and supplement costs were down 17% on a pro forma basis, reflecting both lower newsprint prices and usage.
- All other expenses decreased 8.6% on a pro forma basis.
- Depreciation and amortization expense increased $28.4 million, due primarily to the additional assets and purchase price accounting related to the acquisition.
- Net interest costs from continuing operations were $49.6 million with the company’s net debt balance at the end of the quarter at $2.68 billion, down $79 million from the end of the first quarter. The effective interest rate in the quarter was about 6.4%.

Year-to-Date Financial Highlights

- Earnings from continuing operations were $53.8 million or 66 cents per share compared to earnings from continuing operations of $54 million, or $1.15 per share, in the first half of 2006.
- The company''s total net income, including the results of discontinued operations, was $49 million, or 60 cents per share, compared to total net income of $71.9 million, or $1.53 per share, in 2006.
- Revenues from continuing operations were $1.15 billion, up $740.1 million from 2006 revenues of $406.5 million, due primarily to the addition of the 20 former Knight Ridder newspapers acquired in the third quarter of 2006.
- Advertising revenues totaled $965.3 million and circulation revenues were $141.6 million.
- On a pro forma basis, including the 20 former Knight Ridder newspapers in the first half 2006, total revenues in 2007 would have been down 6.7%, with advertising revenues down 7.6%, and circulation revenues down 4.1%.