Gary B. Pruitt, Chairman, President and CEO, The McClatchy Company
May 13, 2008, Sacramento, California

This is a time of painful economic contraction and unprecedented transformation in the news industry, so it is understandable that everybody involved with McClatchy -- shareholders, management and employees -- is focused on how the company is doing, and how it plans to succeed in the future. I will spend most of my time with you this morning discussing those two central issues, and why we’re confident we will work through this transition and emerge as a healthy company with a strong future.

The basic situation is this: McClatchy is a profitable, financially sound company that serves growing communities with award-winning products, both in print and online. But while that's true, we're also facing an unprecedented decline in revenue -- the fuel that keeps our business running. We had hoped to emerge from 2007 into a better operating environment, but we haven't. The double-barreled challenge of a national economic downturn coupled with basic structural changes in the industry has eroded cash flow at an accelerating pace, and nobody knows yet where the bottom of the decline will be. As a result, we're working hard to take the actions necessary to ensure McClatchy’s future success.

Let's take a look back to last year and then to what lies ahead.

2007 was a difficult year financially. Overall, revenue was down nearly eight percent, and in California and Florida, where the real estate markets were especially hard hit, advertising revenue was down 15 percent. Our stock price fell dramatically.

McClatchy responded well to the difficult financial environment in 2007. Cash expenses were reduced by 9 percent. And we paid down more than $800 million in debt, an impressive figure, which reduced total debt to just under $2.5 billion.

2007 brought many journalistic high points. Two of our newspapers won Pulitzer Prizes: Miami for local reporting and Sacramento in the feature photography category. No company won more. Iraqi women staffers in the McClatchy Baghdad bureau won the international Courage in Journalism award for their work, literally risking their lives every day simply to tell the truth. McClatchy journalists were instrumental in exposing the politicized firings of U.S. attorneys, a situation that led to the resignation of Attorney General Alberto Gonzales. Two of the 11 George Polk awards for 2007 went to McClatchy journalists, and three of the 12 National Journalism Awards. In both cases, more prizes than any other company won.

Our quality journalism, both in print and online, drove total audience growth in 2007. And as we know -- audience growth is the best predictor of future success for any media company. Print circulation declined by a few percent, but online users grew 25 percent -- far better than the industry average. Our combined products reach 70 percent of the adults in our markets and about 50 percent of the 18-34 year olds. Who says young people don’t read?

The diversity of our workforce also improved last year. Minorities comprise more than 20 percent of our newsroom employees and more than 20 percent of our managers throughout the company -- certainly one of the best, if not the best, percentage in the industry. And women represent more than 40 percent of our managers and newsroom staff on a combined basis. Make no mistake; these are important numbers because, as mass media, we need to reflect our increasingly diverse markets.

So you can see 2007 would have been a good year if the revenue environment hadn’t been so tough. As I told employees, that’s a little like saying, "Except for that Mrs. Lincoln, how did you like the play?"

But still it is important to keep in mind that McClatchy improved by many significant measures so that when the economic recovery arrives we'll be an even stronger company.

So far this year, ad revenues are declining at a disappointing double-digit clip. We posted a 15 percent decline in first quarter advertising revenue. Once again we focused on cost controls, reducing cash expenses by more than 10 percent. These efforts, along with growth in online advertising revenue partially offset the print advertising revenue declines. And we repaid $76 million in debt in the first quarter.

So what’s ahead for McClatchy?

In 2008 we will focus our efforts in four areas:

* First, improving revenue performance with a particular emphasis on internet advertising.
* Second, providing high quality public service journalism.
* Third, growing total audience based on the unduplicated reach of our print and online products.
* And fourth, restructuring and reducing our costs.

If we execute on this four-part strategy we can control our destiny and succeed.

We are working hard to improve on our revenue results and see opportunities to do so in the remainder of the year; but a lot of the problem reflects a weakening economy that is not ours to control. Much of our revenue growth is coming from our digital businesses and we are investing significantly in those operations, including adding sales staff.

To date, we’ve done well leveraging our traditional sales skills and methods. Now we are rapidly becoming online specialists and we are doing much better. We are realigning sales training incentives to focus on driving online revenues.

These efforts are paying dividends. Through the first quarter, unique visitors to our websites were up 41 percent. Online advertising increased nearly 11 percent in the first quarter of 2008. Excluding employment advertising, which has declined nationally both in print and online, our online advertising grew 52 percent in the first quarter of this year. Online advertising revenue in the first quarter of 2008 was 11.3 percent of total advertising revenue compared to 8.6 percent for all of 2007.

Our commitment to high quality journalism continues unabated. McClatchy is a public service journalism company, and providing honest, independent information is a vital role in our democratic society. In so doing, we will continue to broaden our reach in each community and expect our total audience in print and online to grow, further solidifying our position for delivering mass reach for advertisers in each market.

At this point, we simply can't tell when this revenue decline will end, and since we don’t know, we must focus on expense control and reshaping our whole cost structure. That means continuing to cut costs. It means we have to do some things differently.

The same technology that brings us new competition for audiences and ad sales also empowers us to redistribute work, centralize some functions and operate far more efficiently. We are doing a better job at sharing news content and resources within our company, which both saves money and improves quality.

We will also continue to pay down debt -- $500 million by year-end, bringing total debt down to the $2 billion range, dramatically improving our financial position. Paying down debt is simply the best way to keep our company safe in these times.

We are making good progress in this effort. In the second quarter we received $55 million from our portion of the sale of the SP Newsprint Company and received a $185 million tax refund related to the sale of the (Minneapolis) Star Tribune. And of course we used these funds to reduce debt. In addition, we made a tender offer to purchase $300 million of our outstanding bonds at attractive prices. The preliminary results of the tender offer indicate that we will be able to reduce debt by approximately $17.5 million and reduce annual interest costs by about $11.4 million.

As a guide to our future, we constantly ask ourselves, "If we started a news company today, what would it look like?" We know the answer to that question, don’t we?

We are rapidly becoming a hybrid print and online, news and advertising company, well-positioned to capture our share of business in the evolving media world.

We see the future and have responded with a strategy that is sustainable: Combine the mass reach of our newspaper readership with targeted direct mail and specialty publications and the power of each market’s leading local internet business. As a result, we operate the leading local media company in each of our markets.

And we have chosen our markets carefully. These are premium growth markets where the household growth rate is 40 percent faster than the U.S. average. So while there may be economic cycles that affect our markets, over time their growth translates into larger audiences and more advertisers.

We will continue our transformation into a 24/7 news and advertising company. In so doing, we feel confident that we will not only weather this economic downturn, but will be a leader in our industry as it adapts to the changing media landscape. Quality journalism and innovative products, delivered in whatever format is desired by our readers and advertisers, are the foundations of our future. We are dedicated to the long-term success and prosperity of The McClatchy Company.

Thank you, and now I’ll be happy to take questions from our shareholders.

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