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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended: December 26, 2004

or

For the transition period from              to             

Commission file number: 1-9824

The McClatchy Company

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 916-321-1846

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

None

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.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    x  Yes    ¨  No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Based on the closing price of the Company’s Class A Common Stock on the New York Stock Exchange on June 25, 2004: approximately $1,488,467,000. For purposes of the foregoing calculation only, as required by Form 10-K, the Registrant has included in the shares owned by affiliates the beneficial ownership of Common Stock of officers and directors of the Registrant and members of their families, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Shares outstanding as of February 17, 2005:

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement for the Company’s May 18, 2005 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 (incorporated in Part II and Part III to the extent provided in Items 10, 11, 12, 13 and 14 hereof).

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INDEX TO THE McCLATCHY COMPANY

2004 FORM 10-K

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PART I

ITEM 1. BUSINESS

Available Information

The Company maintains a website which includes an investor relations page available to all interested parties at www.mcclatchy.com. All filings with the United States Securities and Exchange Commission, along with any amendments thereto, are available free of charge on our website at www.mcclatchy.com/investor/. In addition, paper copies of any such filings are available free of charge by contacting us at the address listed on the cover page of this filing. The contents of this website are not incorporated into this filing. Further, our reference to the URL for this website is intended to be an inactive textual reference only.

Overview

The McClatchy Company (the “Company”) was formed in 1998 as a Delaware corporation serving as a holding company owning McClatchy Newspapers, Inc. and Cowles Media Company. All references to the “Company” in this Report include McClatchy Newspapers, Inc., the predecessor in interest to the Company prior to the acquisition of Cowles Media Company.

The Company dates from the California Gold Rush era of 1857. Its three original California newspapers - The Sacramento Bee, The Fresno Bee and The Modesto Bee - were the core of the Company until 1979 when the Company began to diversify geographically outside of California. At that time it purchased two newspapers in the Northwest, the Anchorage Daily News and the Tri-City Herald in Southeastern Washington. In 1986, the Company purchased The (Tacoma) News Tribune. The Company expanded into the Carolinas when it purchased newspapers in South Carolina in 1990 and The News and Observer Publishing Company in North Carolina in 1995. In 1998 the Company expanded into Minnesota with the acquisition of The Star Tribune Company and expanded further in California with the purchase of the Merced Sun-Star and five related non-daily newspapers (the Merced Group) in 2004.

During 2004, the Company owned and published 30 newspapers in four regions of the country – Minnesota, California, the Carolinas and the Northwest (Alaska and Washington). These newspapers range from large dailies serving metropolitan areas to non-daily newspapers serving small communities. For the fiscal year 2004 the Company had an average paid daily circulation of 1,419,311, Sunday circulation of 1,847,242, and non-daily circulation of 69,379.

Each of the Company’s newspapers is largely autonomous in its business and editorial operations so as to meet most effectively the needs of the communities it serves. Publishers and editors of the newspapers make the day-to-day decisions and, within limits, are responsible for their own budgeting and planning. Policies on such matters as the amount and type of capital expenditures, key personnel changes, and strategic planning and operating budgets, including wage and pricing matters, are approved or established by the Company’s senior management and/or Board of Directors.

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Each of the Company’s daily newspapers has the largest circulation of any newspaper serving its particular community. The Company believes that this circulation advantage is of primary importance in attracting advertising, the principal source of revenues for the Company. Advertising revenues approximated 84% of consolidated net revenues in fiscal 2004 and 83% of consolidated net revenues in fiscal 2003. Circulation revenues approximated 14% of consolidated net revenues in fiscal 2004 and 15% of consolidated net revenues in fiscal 2003.

The Company’s newspapers supplement their newspaper publishing operations with an array of niche products and direct marketing initiatives, including direct mail. While the direct marketing programs are financially successful in their own right, they also help retain advertising in the newspapers. The newspapers also operate leading local websites in each daily newspaper market, offering users information, comprehensive news, advertising, e-commerce and other services. Online advertising, particularly classified advertising, has become one of the Company’s fastest growing revenue sources, albeit still a small part of each newspaper’s operations. Together with the mass reach of its in-paper advertising, these lines of business help each of the Company’s newspapers maintain its position as a leading media outlet in each daily newspaper market.

The Company’s newspaper business is somewhat seasonal, with peak revenues and profits generally occurring in the second and fourth quarters of each year as a result of increased advertising activity during the spring advertising season, and the Thanksgiving and Christmas holidays. The first quarter is historically the weakest quarter for revenues and profits.

The Company also owns McClatchy Interactive (formerly known as Nando Media), an interactive media operation whose primary mission is to be a technology and content partner to the Company’s newspaper internet sites. In addition, the Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general partnership that owns and operates a newsprint mill in Washington State.

Recent Acquisition and Divestiture - On January 7, 2004, the Company purchased the assets of the Merced Sun-Star, a daily newspaper in Merced, California and five non-daily newspapers (Merced Group) for $41.0 million in cash. Revenues of the Merced Group from the date of purchase through the end of fiscal 2004 were $13.8 million. The purchase included $37.2 million in intangible assets, the most significant of which was $31.0 million of goodwill. Amortization of the goodwill and other identifiable intangibles will be deductible for tax purposes. The useful lives associated with the $6.2 million of identifiable intangible assets range from eight to 17 years.

On June 10, 2003, the Company sold the assets of The Newspaper Network (TNN), a national sales and marketing company. The Associated Press purchased TNN’s ad processing operations and, separately, Vertis, Inc. purchased TNN’s sales and marketing assets. Total consideration from the sales was $14.2 million including the assumption of liabilities. The revenues and operating results of TNN are included in discontinued operations in the Consolidated Statement of Income in fiscal 2003.

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Forward-Looking Statements - When used in this Report, the words “believes,” “expects,” “anticipates,” “estimates,” and similar expressions are generally intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including those discussed under the heading “Risk Factors that Could Affect Operating Results” in Part II, Item 7 that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.

Star Tribune

The Star Tribune, a morning newspaper serving Minneapolis-St. Paul and the surrounding metropolitan area, is the Company’s largest newspaper, contributing 32.7% of fiscal 2004 revenues compared to 33.1% of fiscal 2003 revenues. In fiscal 2004 the Star Tribune’s daily average paid circulation increased 0.3% to 380,422 and Sunday average paid circulation decreased 0.5% to 671,831. As of December 26, 2004, approximately 74% of the daily and 74% of Sunday circulation was home delivered. The Star Tribune competes in the eastern portion of its market with the Pioneer Press, which operates in St. Paul, Minnesota, and whose daily circulation is approximately one half and whose Sunday circulation is approximately one third of the Star Tribune’s circulation.

The Star Tribune’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The Star Tribune’s fiscal 2004 net revenues increased 4.3% to $380,103,000 from fiscal 2003 revenues of $364,288,000.

California Newspapers

The California newspapers include the three “Bee” newspapers, the Merced Sun-Star, six weekly newspapers and two Spanish-language, non-daily newspapers. The net revenues and circulation of these newspapers are summarized below:

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The California newspapers produced approximately 36.9% of total Company net revenues in fiscal 2004, compared to 35.9% in fiscal 2003. Fiscal 2004 net revenues at the California newspapers increased 8.9% from fiscal 2003. Revenues at the California newspapers, excluding the Merced Group, increased 5.4% in fiscal 2004.

The Sacramento Bee

The Sacramento Bee is a morning newspaper serving the California state capital and the surrounding region. In fiscal year 2004, The Sacramento Bee’s average paid circulation increased 1.0% daily and decreased 1.9% Sunday. As of December 26, 2004, approximately 84% of the daily and 79% of Sunday circulation was home delivered.

The Sacramento Bee’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The Sacramento Bee’s fiscal 2004 net revenues increased 4.2% from fiscal 2003 revenues.

The Fresno Bee

The Fresno Bee is a morning newspaper serving the Fresno, California metropolitan area. In 2004, The Fresno Bee’s fiscal year 2004 average paid circulation increased 0.5% daily and decreased 0.3% Sunday. As of December 26, 2004, approximately 86% of The Fresno Bee’s daily and 85% of Sunday circulation was home delivered.

The Fresno Bee’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The Fresno Bee’s fiscal 2004 net revenues increased 7.6% from 2003.

The Modesto Bee

The Modesto Bee is a morning newspaper that serves the Modesto, California metropolitan area, located between Sacramento and Fresno. The Modesto Bee’s fiscal year 2004 average paid circulation decreased 2.0% daily and 2.1% Sunday. As of December 26, 2004, approximately 82% of the daily and 84% of Sunday circulation was home delivered.

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The Modesto Bee’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003, are set forth in the following table:

The Modesto Bee’s fiscal 2004 net revenues increased 5.9% from fiscal 2003.

Merced Sun-Star

The Merced Sun-Star is a morning newspaper that serves the Merced, California metropolitan area, which is located between Modesto and Fresno. Merced publishes a daily newspaper Monday through Friday and a weekend edition on Saturday. Average daily paid circulation is calculated using a six-day average. As of December 26, 2004, approximately 80% of the daily circulation was home delivered.

The Merced Sun-Star’s advertising volumes for the fiscal year ended December 26, 2004 are set forth in the following table:

Carolina Newspapers

The Carolina newspapers include The News & Observer, the second largest newspaper in North Carolina, and three daily newspapers in South Carolina. The Company also operates eight non-daily newspapers in North and South Carolina strategically located near its daily newspapers.

The net revenues and circulation of the Carolina newspapers are summarized below:

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The Carolina newspapers produced 16.0% of total Company net revenues in fiscal 2004, compared to 16.1% in 2003. Net revenues of the Carolina newspapers increased 5.4% from fiscal 2003.

The News & Observer

The News & Observer, the Company’s third largest newspaper, is a morning daily serving North Carolina’s state capital, Raleigh, and the Research Triangle, which includes Raleigh, Durham and Chapel Hill, North Carolina.

The News & Observer’s average paid circulation in fiscal year 2004 increased approximately 0.6% daily and 0.5% Sunday. As of December 26, 2004 approximately 80% of the daily and 76% of Sunday circulation was home delivered.

The News & Observer’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The News & Observer’s fiscal 2004 net revenues increased 6.1% from fiscal 2003.

The Herald

The Herald is a morning newspaper serving Rock Hill and surrounding communities in York County, South Carolina. Rock Hill is approximately 25 miles southwest of Charlotte, North Carolina. In 2004, The Herald’s fiscal year 2004 average paid circulation decreased 0.9% daily and decreased 1.7% on Sunday.

The Herald’s main competitor is a zoned edition of the Charlotte Observer, whose circulation in The Herald’s primary circulation area is estimated to be approximately a third of The Herald’s circulation. As of December 26, 2004, approximately 76% of the daily and 76% of Sunday circulation of the Herald was home delivered.

Advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The Herald’s fiscal 2004 net revenues increased 4.8% from fiscal 2003.

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The Island Packet and The Beaufort Gazette

The Island Packet and The Beaufort Gazette serve Beaufort County in southeastern South Carolina. The Island Packet serves Hilton Head Island and the town of Bluffton where tourism, retirement communities and services are the economic mainstays. The Beaufort Gazette serves the city of Beaufort and northern Beaufort County encompassing surrounding islands of Lady’s, St. Helena, Fripp and Parris. The management and many business functions of the two newspapers are combined to pursue regional strategies and operational synergies.

From fiscal year 2003 to fiscal year 2004, the average paid circulation increased 2.4% daily and 3.1% Sunday at The Island Packet, and increased 4.9% daily and 1.1% Sunday at The Beaufort Gazette.

As of December 26, 2004, approximately 64% of the daily and 62% of Sunday circulation of The Island Packet was home delivered. Comparable amounts for The Beaufort Gazette were 56% daily and 64% Sunday.

Advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The Island Packet’s fiscal 2004 net revenues increased 5.7% over fiscal 2003, and The Beaufort Gazette’s net revenues increased 5.9%.

Carolina Non-daily Newspapers

The North Carolina non-dailies are newspapers that serve communities generally surrounding Raleigh. They are: Chapel Hill News, Cary News, Eastern Wake News, and Smithfield Herald. Their combined paid average fiscal year 2004 non-daily circulation is 32,120.

The South Carolina non-daily newspapers include the Clover Herald, the Yorkville Enquirer, the Lake Wylie Magazine and the Fort Mill Times, and serve small communities generally surrounding Rock Hill, South Carolina. Their combined paid average fiscal year 2004 non-daily circulation is 8,114.

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Northwest Newspapers

The Company publishes five newspapers in Washington State and the largest daily newspaper in Alaska. The net revenues and circulation of these newspapers are summarized below:

The Company’s Northwest newspapers produced 14.3% of the Company’s total net revenues in fiscal 2004, compared to 14.8% in 2003. Net revenues in fiscal 2004 at the Northwest newspapers increased 2.2% versus fiscal 2003.

The News Tribune

The News Tribune, a morning newspaper, primarily serves the Tacoma, Washington, metropolitan area in Pierce and southern King counties. It is the third largest newspaper in Washington State. Tacoma is approximately 30 miles south of Seattle. The News Tribune competes in the northernmost fringes of its market with the Seattle metropolitan newspapers. In fiscal year 2004, the average paid circulation of The News Tribune increased 0.1% daily and decreased 1.6% Sunday. As of December 26, 2004, approximately 85% of the daily and 84% of Sunday circulation was home delivered.

The News Tribune’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The News Tribune’s fiscal 2004 net revenues decreased nominally from fiscal 2003.

Anchorage Daily News

The Anchorage Daily News, a morning newspaper, is Alaska’s largest newspaper. The Anchorage Daily News circulates throughout the state of Alaska but its primary circulation is concentrated in the south central region of the state comprising metropolitan Anchorage, the Kenai Peninsula and the Matanuska-Susitna Valley.

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The Anchorage Daily News’ fiscal year 2004 average paid circulation decreased 3.5% daily and 4.0% Sunday. As of December 26, 2004, approximately 67% of the daily and 64% of Sunday circulation was home delivered.

Advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003, are set forth in the following table:

Anchorage Daily News’ fiscal 2004 net revenues increased 3.3% from fiscal 2003.

Tri-City Herald

The Tri-City Herald is a morning newspaper serving the Tri-Cities of Richland, Kennewick and Pasco in southeastern Washington. For fiscal year 2004, the Tri-City Herald’s average paid circulation increased 1.2% daily and decreased 0.3% Sunday. As of December 26, 2004 approximately 88% of the daily and 87% of Sunday circulation was home delivered.

The Tri-City Herald’s advertising volumes for the fiscal years ended December 26, 2004 and December 28, 2003 are set forth in the following table:

The Tri-City Herald’s fiscal 2004 net revenues increased 6.0% from fiscal 2003.

Northwestern Non-daily Newspapers

The Company’s other non-daily newspapers include the Peninsula Gateway in southern Puget Sound and The Puyallup Herald, which circulates weekly in southern Pierce County, near Tacoma.

Other Operations

The Company’s rapidly expanding internet activities have produced robust local websites in each of its daily newspaper markets. These efforts are supported by McClatchy Interactive, the Company’s interactive media operation that provides newspapers with content, publishing tools and software development. The primary mission of McClatchy Interactive is to be a technology and content partner to the Company’s newspaper internet sites. McClatchy Interactive also provides hosting and programming services to other newspapers.

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Raw Materials

During fiscal 2004, the Company consumed approximately 241,000 metric tons of newsprint compared to 241,700 metric tons in fiscal 2003. The Company currently obtains its supply of newsprint from a number of suppliers primarily under long-term contracts.

Newsprint expense accounted for 14.5% of operating expenses in fiscal 2004 compared to 13.9% in fiscal 2003. Consequently, the Company’s earnings are sensitive to changes in newsprint prices. All other things being equal, a hypothetical $10 per metric ton change in newsprint prices affects earnings per share by three cents annually. Management believes its newsprint sources of supply under existing arrangements are adequate for its anticipated current needs. Significant increases in the price of newsprint would adversely affect the operating results of the Company to the extent that they were not offset by advertising and circulation volume and/or rate increases.

The Company, through a wholly-owned subsidiary, Newsprint Ventures, Inc., and four other publishers and a major newsprint manufacturer are partners in Ponderay Newsprint Company, a general partnership, which owns and operates a newsprint mill located sixty miles northeast of Spokane, Washington. The mill has a production capacity in excess of 260,000 metric tons annually. The publisher partners have committed to take a total of 126,000 metric tons of this anticipated production with the balance to be sold on the open market. The Company’s annual commitment is 28,400 metric tons. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations “ and the financial statements and accompanying notes for further discussion of the impact of this investment on the Company’s business.

Competition

The Company’s newspapers, direct marketing programs and internet sites compete for advertising revenues and readers’ time with television, radio, the internet, direct mail companies, free shoppers, suburban neighborhood and national newspapers and other publications, and billboard companies, among others. In some of its markets (primarily Minneapolis, Minnesota; Tacoma, Washington; and Rock Hill, South Carolina), the Company’s newspapers also compete with other newspapers published in nearby cities and towns. Competition for advertising is generally based upon circulation levels, readership demographics, price and advertiser results, while competition for circulation and readership is generally based upon the content, journalistic quality, service and the price of the newspaper. The Company’s major daily newspapers lead their direct local newspaper competitors in both advertising linage and general circulation and readership in their respective markets, and its internet sites are leading local sites in each of the Company’s major daily newspaper markets, based upon research conducted by the Company and various independent sources.

Employees – Labor

As of December 26, 2004, the Company had 9,171 full and part-time employees (equating to 7,657 full-time equivalent employees), of whom approximately 25% were represented by unions including 58% at the Star Tribune and 23% at The Sacramento Bee, the Company’s two largest

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newspapers. Most of the Company’s union-represented employees are currently working under labor agreements expiring in various years. Seven of the Company’s 12 daily papers have no unions.

While the Company’s newspapers have not had a strike since 1980 and they do not currently anticipate a strike occurring, the Company cannot preclude the possibility that a strike may occur at one or more of its newspapers when future negotiations occur. The Company believes that, in the event of a newspaper strike, it would be able to continue to publish and deliver to subscribers, a capability which is critical to retaining revenues from advertising and circulation, although there can be no assurance of this.

ITEM 2. PROPERTIES

The corporate headquarters of the Company are located at 2100 “Q” Street, Sacramento, California. At December 26, 2004 the Company had newspaper production facilities in 12 markets situated in six states. These facilities vary in size and in total occupy about 4.3 million square feet. Approximately 840,000 of the total square footage is leased from others. The Company owns substantially all of its production equipment, although certain office equipment is leased.

The Company maintains its properties in good condition and believes that its current facilities are adequate to meet the present needs of its newspapers.

ITEM 3. LEGAL PROCEEDINGS

The Company becomes involved from time to time in claims and lawsuits incidental to the ordinary course of its business, including such matters as libel, invasion of privacy, intellectual property infringement, wrongful termination actions, and complaints alleging discrimination. In addition, the Company is involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental and other claims. Historically, such claims and proceedings have not had a material adverse effect upon the Company’s consolidated results of operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Class A Common Stock is listed on the New York Stock Exchange (NYSE symbol - MNI). A small amount of Class A Stock is also traded on the Midwest Stock Exchange and the Pacific Stock Exchange. The Company’s Class B Stock is not publicly traded. The following table lists per share dividends paid on both classes of Common Stock and the prices of the Company’s Class A Common Stock as reported by these exchanges for fiscal 2004 and 2003:

The payment and amount of future dividends remain within the discretion of the Board of Directors and will depend upon the Company’s future earnings, financial condition and requirements, and other factors considered relevant by the Board.

The number of record holders of Class A and Class B Common Stock at February 17, 2005 was 1,405 and 22, respectively. The Company did not repurchase any of its common shares in fiscal 2004 and currently has no authorized stock repurchase program in place.

Equity Compensation Plan Information

Information regarding McClatchy’s equity compensation plans, including both shareholder approved plans and non-shareholder approved plans, is set forth in the section entitled “Securities Authorized for Issuance Under Equity Compensation Plans” in the definitive Proxy Statement for the Company’s 2005 Annual Meeting of Shareholders, which information is incorporated into Item 12 herein by reference.

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ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR FINANCIAL SUMMARY

(In thousands, except per share amounts)

On January 7, 2004 the Company purchased the assets of the Merced Sun-Star and five related non-daily newspapers. On June 10, 2003, the Company sold the assets of The Newspaper Network, a national sales and marketing company. Prior year data has been reclassified for this discontinued operation. In fiscal 2002 the Company adopted SFAS No. 142 and No. 144 and in accordance with these statements, eliminated the amortization of goodwill and recorded a pre-tax charge of $1.6 million to write down the value of certain land. Amortization expense that would have been excluded had SFAS No. 142 been effective for fiscal years 2001and 2000 was $34.7 million and $35.4 million, respectively. Results in 2001 include pre-tax charges totaling $12.0 million to write down certain internet investments and reserve for an environmental clean up. Results in fiscal 2000 include 53 weeks while all other years include 52 weeks. This summary should be read in conjunction with the consolidated financial statements and notes thereto.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company owns and publishes 30 newspapers in four regions of the country - Minnesota, California, the Carolinas and the Northwest (Alaska and Washington). The Company’s newspapers range from large dailies serving metropolitan areas to non-daily newspapers serving small communities. The Company supplements its newspaper publishing with an array of niche products and direct marketing initiatives, including direct mail. The Company also operates leading local websites in each of its daily newspaper markets offering users information, comprehensive news, advertising, e-commerce and other services. The Company also owns and operates McClatchy Interactive (formerly known as Nando Media), an interactive media operation that provides newspapers with content, publishing tools and software development.

The Company’s primary source of revenue is advertising. While percentages vary from year to year, and from newspaper to newspaper, local retail advertising carried as a part of newspapers (“run-of-press” or “ROP” advertising) or in advertising inserts placed in newspapers (preprint advertising), generally contributes roughly 40% of advertising revenues at the Company’s newspapers. Recent trends have been for certain national or regional retailers to use greater preprint advertising and less ROP advertising, although that trend shifts from time to time. Nonetheless, ROP advertising still makes up the majority of retail advertising. Classified advertising, primarily in automotive, employment and real estate categories, generally contributes about 40% of advertising revenue and national advertising generally contributes about 10% of total advertising. Online advertising, direct marketing and other advertising make up the remainder of the Company’s advertising revenues. Circulation revenues contribute roughly 15% of the Company’s newspaper revenues, depending upon the size and locale of the newspaper. Most newspapers are delivered by independent contractors. Circulation revenues are recorded net of direct delivery costs.

See “Results of Operations” below for a discussion of the Company’s revenue performance and contribution by categories for fiscal 2004, 2003 and 2002.

Critical Accounting Policies

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (US GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and

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the best estimates and judgments routinely require adjustment. The most significant areas involving estimates and assumptions are revenue recognition, allowance for uncollectible accounts, amortization and/or impairment of intangibles, pension and post-retirement expenses, insurance reserves, and the Company’s tax provision. We believe the following critical accounting policies, in particular, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition - Advertising revenues are recorded when advertisements are placed in the newspaper and circulation revenues are recorded as newspapers are delivered over the subscription term. Circulation revenues are recorded net of direct delivery costs. Other revenue is recognized when the related product or service has been delivered. Revenues are recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged to income in the period in which the facts that give rise to the revision become known.

Allowance for Uncollectible Accounts - The Company maintains an allowance account for estimated losses resulting from the risk its customers will not make required payments. Generally, the Company uses the aging of accounts receivable, reserving for all accounts due 90 days or longer, to establish allowances for losses on accounts receivable. However, if the financial condition of a customer deteriorates, resulting in an impairment of their ability to make payments, additional allowances are reserved. To illustrate the impact of a change to the allowance for uncollectible accounts, hypothetically, if the amount of receivables that are 90 days or longer were to increase by 10%, the Company’s allowance for estimated losses would have increased $292,000 at the end of fiscal 2004.

Goodwill and Intangible Impairment - In assessing the recoverability of the Company’s goodwill and other intangibles, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. The Company periodically analyzes its goodwill and intangible assets with indefinite lives for impairment. No material impairment loss was recorded in fiscal 2004, 2003 or 2002.

Pension and Post-retirement Benefits - The Company has significant pension and post-retirement benefit costs and credits that are developed from actuarial valuations. Inherent in these valuations are key assumptions including salary rate increases, discount rates and expected return on plan assets. The Company is required to consider current market conditions, including changes in interest rates, in establishing these assumptions. Changes in the related pension and post-retirement benefit costs or credits may occur in the future because of changes resulting from fluctuations in the Company’s employee headcount and/or changes in the various assumptions.

The Company used a discount rate of 6.25%, assumed salary rate increases of 3.5% to 5.0% and an assumed long-term return on assets of 9.0% to calculate its retirement expenses in fiscal 2004, based upon consultation with its outside actuaries. See note 5 to the consolidated financial statements for a more in-depth discussion of the Company’s policies in setting its key assumptions related to these obligations. For fiscal 2004, a change in the weighted average rates would have had the following impact on our net benefit cost:

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The Company has revised certain assumptions for its 2005 pension expense calculation. Please see “Recent Events and Trends - Operating Expenses” discussion below.

Tax Provision - The Company’s current and deferred tax provisions are calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments between the Company’s estimates and the actual results of filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions.

The amount of income taxes paid is subject to audits by federal and state authorities, which may result in proposed assessments. The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental. Management believes that the Company has adequately provided for any reasonably foreseeable outcome related to these matters based upon currently available information. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, earnings or deductions estimated to be in each jurisdiction by the Company may differ from actual amounts. As a result of these potential adjustments, the Company’s effective tax rate may fluctuate significantly on a quarterly basis.

Self-Insurance - The Company is self-insured for workers’ compensation in California and Alaska. The Company relies on claims experience and the advice of consulting actuaries and administrators in determining an adequate provision for self-insurance claims.

The Company used a discount rate of 6.0% to calculate workers’ compensation reserves as of December 26, 2004. A decrease of 25 basis points in the discount rate would have an immaterial effect on total workers’ compensation reserves. Additionally, a 10% increase in claims would have increased total workers’ compensation reserves by approximately $470,000 at the end of fiscal 2004.

Recent Events and Trends

Recent Acquisition and Divestiture:

On January 7, 2004, the Company purchased the assets of the Merced Sun-Star, a daily newspaper in Merced, California and five non-daily newspapers (Merced Group) for $41.0 million in cash.

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The purchase included $37.2 million in intangible assets, the most significant of which was $31.0 million of goodwill. The acquisition and results of the Merced Group are included in the Company’s financial statements beginning on January 7, 2004. See Note 1 to the Consolidated Financial Statements.

On June 10, 2003, the Company sold the assets of The Newspaper Network (TNN), a national sales and marketing company. The Associated Press purchased TNN’s ad processing operations and, separately, Vertis, Inc. purchased TNN’s sales and marketing assets. Total consideration from the sales was $14.2 million including the assumption of liabilities. The revenues and operating results of TNN are included in discontinued operations in the Consolidated Statement of Income in fiscal 2003.

Refinancing of Debt:

On May 10, 2004, the Company entered into a five-year, senior unsecured revolving credit facility (Credit Agreement), which provides for borrowings of up to $500 million from a syndicate of banks through May 11, 2009. The primary purpose of the Credit Agreement is to support the issuance of unsecured promissory notes under a commercial paper program (commercial paper) of up to $500 million and for general corporate purposes. Initially, however, the Company used the Credit Agreement to refinance all of its existing term debt and principal outstanding under the previous bank credit facility. This debt was subsequently retired with proceeds of commercial paper during the second quarter of fiscal 2004.

Debt under the Credit Agreement bears interest at the London Interbank Offered Rate (LIBOR) plus a spread ranging from 29.5 basis points to 77.5 basis points plus a utilization fee of 12.5 basis points if borrowings exceed $250 million. Applicable rates are based upon the Company’s ratings on its long-term debt from Moody’s and Standard & Poor’s. A facility fee for the revolving credit facility ranges from 8.0 basis points to 22.5 basis points depending on the Company’s ratings, and such fees are currently at 12.5 basis points. No debt was outstanding under the Credit Agreement at December 26, 2004.

The Company’s commercial paper outstanding at December 26, 2004 had maturities ranging from overnight to 46 days, with interest rates ranging from 2.10% to 2.48%. The weighted average interest rate on commercial paper outstanding since May 12, 2004 (inception of the program) through December 26, 2004 was 1.45%. Because the Company’s Credit Agreement provides backup for its commercial paper, and in accordance with the Company’s ability and intent, the commercial paper is classified as long-term debt.

In the second quarter of fiscal 2004, the Company recognized a charge, primarily consisting of previously capitalized loan fees, of $3.7 million related to its previous debt agreement. The write-off was $2.25 million after taxes.

Advertising Revenues:

The most significant trend in revenues for the newspaper industry and the Company in recent years has been the decline in employment advertising revenues since 2000. The Company’s employment advertising revenues, which reached $190.8 million in 2000, declined 41.6% to $111.4 million in 2002, and declined an additional 12.0% to $98.0 million in fiscal 2003. Employment advertising improved in 2004 to $107.8 million.

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In fiscal 2004, total advertising revenues grew 6.8% to $972.8 million compared to fiscal 2003. A rebound in employment revenues of 9.9% from fiscal 2003, together with growth in national revenue and continued growth of internet and direct marketing revenues, contributed to the increase in advertising revenue for fiscal 2004. In addition, the Merced Group contributed $12.3 million in advertising revenues for fiscal 2004. Please see the revenue discussions below under “Results of Operations”.

Operating Expenses:

The Company incurred three newsprint price increases in 2003 and two in 2004, resulting in an average increase of 9.5% in newsprint prices in fiscal 2004 compared to fiscal 2003. An additional price increase has been announced for the first quarter of 2005; however, the ultimate amount and/or timing of any price increase is uncertain at this time. Newsprint pricing is largely dependent on global demand and supply for newsprint. All other things being equal, a hypothetical $10 per metric ton change in newsprint prices affects earnings per share by three cents annually. The impact of newsprint price increases on the Company’s expenses is discussed under “Results of Operations” below.

The Company’s fringe benefit costs increased 10.7% over fiscal 2003 due primarily to higher retirement and medical costs. With regard to the Company’s retirement expenses, historically low long-term interest rates caused the Company to use a 6.25% discount rate to calculate its pension and post-retirement expenses in fiscal 2004 compared to a 6.75% rate used in fiscal 2003. In addition, with an economic recovery anticipated by many analysts over the next several years, the Company increased its assumed rate of salary increase from a range of 3.0% to 5.0% used in 2003 to a range of 3.5% to 5.0% in 2004 for its pension plans. These factors have increased the Company’s pension expense in fiscal 2004 compared to 2003. The Company contributed $60.0 million to its pension plans in early fiscal 2004, and expected earnings on this contribution partially offset these increases.

In 2005, for purposes of calculating retirement expenses, the Company has reduced its discount rate to 6.0% and its expected return on assets to 8.5% from 9.0% used in 2004, due to a continued decline in long-term interest rates and expected lower investment returns on plan assets. The Company did not change the assumed range of salary rate increases for 2005. These changes are expected to increase retirement expenses and obligations. As a result, the Company voluntarily contributed $40.0 million to its pension plans in early fiscal 2005, and expects earnings on this contribution to partially offset these increases. See Note 4 to the Consolidated Financial Statements.

Recent Accounting Pronouncements:

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock Issued to Employees.”

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SFAS 123R requires all share-based payments to employees, including grants of employee stock options and purchases under the employee stock purchase plan, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123, no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in our third quarter of fiscal 2005. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive options, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded at the beginning of the first quarter of adoption of SFAS 123R for all unvested stock options and restricted stock based upon the previously disclosed SFAS 123 methodology and amounts. The retroactive methods would record compensation expense beginning with the first period restated for all unvested stock options and restricted stock. We are evaluating the requirements of SFAS 123R and have not yet determined the method of adoption. If the Company were to expense the value of stock options for the full fiscal year 2005, it would reduce earnings by an estimated 10 to 12 cents per share. This estimate is based upon currently available information and actual results may differ when SFAS 123R is adopted.

RESULTS OF OPERATIONS

FISCAL 2004 COMPARED TO FISCAL 2003

The Company reported net income of $155.9 million or $3.33 per share for fiscal 2004, which included the non-cash charge of $2.25 million after-tax related to its debt refinancing ($0.05 per share). Earnings from continuing operations for fiscal 2003 were $144.2 million or $3.10 per share, and were $150.2 million or $3.23 per share including income from a discontinued operation.

Revenues:

Revenues in fiscal 2004, including $13.8 million from the Merced Group, were $1.2 billion, up 5.8% from revenues in fiscal 2003. Advertising revenues were up 6.8% to $972.8 million and circulation revenue was up 0.6% to $166.6 million.

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The following table summarizes the Company’s revenue by category for fiscal 2004 compared to fiscal 2003. In order to allow an analysis of the categories on a comparable basis to fiscal 2003 operations, advertising revenues from the Merced Group are excluded from the advertising categories, and are discussed separately below. Management believes such an analysis is helpful to enable investors to understand the underlying advertising performance of the Company’s historical business.

NM – Not Meaningful

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While the Company reviews and evaluates the operations of each individual newspaper, for purposes of organization and ease of understanding, the following table summarizes the fiscal 2004 revenues at its newspapers operations by region with year-over-year changes (in thousands):

Retail advertising, excluding the Merced Group, grew $11.0 million over fiscal 2003 due to growth in preprinted advertising inserts placed into the newspapers, which was up $8.1 million or 5.1% and in ROP advertising, which increased $2.9 million or 1.2%. Much of the revenue increase was from the Star Tribune in Minneapolis ($5.4 million) and the Company’s three daily Bee newspapers in California ($4.8 million).

National advertising, excluding the Merced Group, increased $5.0 million, reflecting strong advertising from the airline, banking, entertainment and automotive categories ($4.2 million), partially offset by a $1.5 million decline in telecommunications (primarily in the California region). The net increase in national revenues was spread among the California, Minnesota and Carolinas regions, while the Northwest newspapers reported a decline in national advertising.

Classified advertising, excluding the Merced Group, increased $16.3 million over fiscal 2003, mostly from employment and real estate advertising growth. Employment advertising was up in all regions and gained momentum as the year progressed. Real estate advertising was up in all regions reflecting the national trend in this category. Automotive advertising revenues declined $2.0 million over fiscal 2003, and generally declined throughout the industry in 2004.

Other advertising revenues, excluding the Merced Group, increased $17.6 million and primarily consisted of online advertising and direct marketing revenues. Online advertising grew $13.2 million or 48.7% with strong growth in all regions. Direct marketing revenues increased $4.5 million with gains in most regions, led by strong growth at the Company’s three Bee newspapers. Direct mail revenues declined at the Star Tribune where certain unprofitable products were discontinued in 2004.

The Merced Group contributed $12.3 million in advertising revenues for fiscal 2004, including $5.6 million in retail advertising, $4.4 million in classified advertising and $1.8 million in direct mail advertising revenues.

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Consolidated circulation revenues increased $1.1 million with much of the growth from the Merced Group. Excluding the Merced Group, circulation revenues were up $60,000.

Operating Expenses:

Operating expenses increased 5.1% and were up 3.7% excluding $11.8 million of expenses from the Merced Group. The following review of expense categories excludes the expenses of the Merced Group. Management believes such an analysis is helpful to enable investors to understand the underlying performance of the Company’s historical business.

Newsprint and supplement expense was up 8.9% with newsprint prices up 9.5% and newsprint consumption down 1.0%. Supplement costs were up $2.2 million. Compensation costs were up 4.4%, primarily reflecting salary increases and higher fringe benefit costs. Salaries increased 3.2% reflecting merit increases, which were offset somewhat by a decline in head count. However, fringe benefit costs rose 9.7%, largely due to $7.5 million in additional retirement and medical costs. Other operating expenses increased 2.3% primarily due to increased postage costs associated with the Company’s direct mail programs, while other costs were held in check through company-wide cost controls. Depreciation and amortization decreased $4.3 million, or 6.2%, largely reflecting lower capital expenditures over the last several years and the expiration of useful lives of certain intangible assets.

Non-Operating (Expenses) Income - Net:

Interest expense was $9.1 million for fiscal 2004. This is a 49.7% decline from fiscal 2003, as the Company benefited from lower interest rates, the expiration of three interest rate swap agreements in June 2003 and one in June 2004, and debt repayment from free cash flow. The Company also recorded $3.7 million as a pre-tax charge to write off costs related to its previous debt agreement. See Note 2 to the consolidated financial statements and “Refinancing of Debt” discussion under “Recent Events and Trends” above.

The Company recorded $929,000 as its share of Ponderay’s income for fiscal 2004 compared to $368,000 in fiscal 2003, reflecting the positive impact of newsprint price increases on Ponderay’s results.

Income Taxes:

The Company’s effective income tax rate was 39.5% for fiscal 2004 compared to 37.5% in fiscal 2003, when the Company realized a greater impact from the effect of the successful resolution of certain state tax positions it had taken in connection with past acquisitions.

FISCAL 2003 COMPARED TO FISCAL 2002

The Company reported net income from continuing operations of $144.2 million, or $3.10 per share, compared to the fiscal year 2002 earnings from continuing operations of $130.5 million, or $2.83 per share. Total fiscal 2003 earnings from continuing operations included a pre-tax charge of $1.0 million to write down a certain internet investment. Net income including the discontinued operation was $150.2 million in fiscal 2003, or $3.23 per share, compared to $131.2 million, or $2.84 per share, in fiscal 2002.

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Revenues:

Revenues in fiscal year 2003 increased 2.8% to $1.1 billion with advertising revenues up 3.7% to $910.6 million and circulation revenues down 0.3% to $165.6 million.

The following table summarizes the Company’s revenue by category for fiscal 2003 compared to fiscal 2002 (in thousands):

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While the Company reviews and evaluates the operations of each individual newspaper, for purposes of organization and ease of understanding, the following table summarizes fiscal 2003 revenues at its newspaper operations by region with year over year changes (in thousands):

Retail advertising grew $14.9 million over fiscal 2002 due primarily to growth in preprinted advertising inserts placed into the newspapers, which was up $13.5 million or 9.3%. Much of this growth was from the Company’s three daily Bee newspapers in California ($8.2 million) and from the Star Tribune in Minneapolis ($5.4 million).

National advertising increased $9.5 million reflecting strong advertising from telecommunication companies at most newspapers, and banking and automotive advertising at The Sacramento Bee. In fact, $3.7 million of the increase in national advertising was at The Sacramento Bee, and the California newspapers as a group contributed $6.7 million of the increase.

Classified advertising declined $4.9 million, due primarily to a $13.3 million decline in employment advertising, offset somewhat by strong advertising growth of $11.7 million in classified real estate advertising. Automotive and other classified advertising declined $3.2 million with only the California newspapers showing growth in these areas. The decline in automotive is partially due to difficult comparisons to strong growth in this category in 2002.

Employment advertising was down at all newspapers as this industry-wide trend of lower employment advertising continued, especially at larger metropolitan newspapers. The Star Tribune in Minnesota and The Sacramento Bee recorded most of these declines by virtue of being the Company’s two largest newspapers. The News & Observer in Raleigh, NC, had significant losses of employment advertising over the last few years; however, it was one of the Company’s first newspapers to show an improving trend in the second half of fiscal 2003. Employment revenue declined $5.3 million at the Star Tribune, $3.6 million at The Sacramento Bee, and $464,000 at The News & Observer.

Real estate advertising was strong at all newspapers except for those in the Carolina region, where they declined nominally due to local market conditions. The increase in real estate advertising at the Company’s other newspapers reflects the national trend in this category.

Other advertising revenues increased $13.2 million and primarily consisted of direct marketing and internet advertising revenues, two of the fastest growing revenue sources at the

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Company’s newspapers. Direct marketing revenues increased $4.4 million with much of the growth coming from the Company’s California newspapers ($3.2 million) where the three Bee newspapers have combined to offer direct mail programs to advertisers. Online advertising grew $8.7 million or 47.5% with strong growth at all newspapers, but with particularly strong growth at The Sacramento Bee (up $2.9 million) and the Star Tribune (up $2.2 million).

Circulation revenues declined nominally as increases at some newspapers were offset by declines at others. Each newspaper pursues its own mix of rate changes and promotional programs. The most significant declines in circulation revenues were at the Star Tribune, which reflected changes in the sales mix between single copy and home delivery and promotional programs, and at The Island Packet and The Beaufort Gazette, where reclassifications of certain delivery costs to a contra-revenue account decreased net circulation revenues.

Other revenues declined $2.9 million with much of the decline in the Northwest newspapers ($1.2 million) due to lower commercial printing revenues and at McClatchy Interactive ($437,000) due to the Company’s decision to discontinue the sale of news and information content to third parties.

Operating Expense:

Total operating expenses increased by 2.9% in fiscal 2003 due primarily to higher newsprint, retirement and medical costs. Compensation costs were up 3.1% reflecting salary increases and higher fringe benefit costs. Salaries increased 1.7% reflecting merit increases which were offset somewhat by a 1.2% decline in head count. However, fringe benefit costs rose by 9.5%, largely due to $7.0 million in additional retirement and medical costs. Newsprint and supplement expense was up 5.0% for fiscal 2003, with newsprint prices up 5.3% and consumption down 0.9%. Other operating expenses increased 3.9% due primarily to higher postage costs associated with the Company’s direct mail programs and to the write-off of certain software fixed assets. Depreciation and amortization costs declined $3.1 million, or 4.2%, primarily reflecting lower capital expenditures over the last several years and the expiration of useful lives of certain assets.

Non-Operating (Expenses) Income – Net:

Interest expense was $18.1 million for the fiscal year 2003. This is a 31.6% decline from the fiscal year 2002 as the Company benefited from lower interest rates, the expiration of two interest rate swaps and debt repayment from free cash flow. The Company also recorded $368,000 as its share of Ponderay’s income for the fiscal year 2003 compared to $1.3 million of loss in the fiscal year 2002. The additional income from Ponderay primarily reflects the favorable impact of higher newsprint prices. The Company recorded losses on the writedown of an internet investment of $1 million in fiscal 2003 as it determined that the carrying value of the investment was permanently impaired. Also, in fiscal 2002 the Company purchased a significant portion of the assets of an internet company in which it had previously invested, and as a result of the asset purchase, the Company was required to write down its investment, recording a loss of $1 million.

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Income Taxes:

The Company’s effective income tax rate was 37.5% for the fiscal year 2003 compared to 39.5% for fiscal year 2002. The lower effective tax rate in 2003 primarily relates to successful resolution of certain state tax positions the Company took in connection with past acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Liquidity and Capital Resources:

The Company’s cash and cash equivalents were $4.9 million at December 26, 2004, versus $3.4 million at the end of fiscal 2003. The Company generated $185.9 million of cash from operating activities in fiscal 2004 even after the voluntary contribution of $60.0 million to its pension plans (discussed below). The major non-operating uses of cash for fiscal 2004 were $41.0 million to purchase the Merced Group, purchase property, plant and equipment, and pay dividends. On May 10, 2004 the Company received net proceeds of $375.0 million for the issuance of debt under its new Credit Agreement, and repaid $347.0 million of debt under its previous debt agreements. Debt under the Credit Agreement was subsequently retired with proceeds from issuing commercial paper. See the discussion of debt refinancing below. The Company paid $23.2 million in dividends for fiscal 2004, while proceeds from issuing Class A stock under employee stock plans totaled $8.2 million. See the Company’s Statement of Cash Flows on page 40.

The Company increased its quarterly dividend twice in 2004. The second quarter dividend payable on July 1, 2004 was increased to 12 cents per share from 11 cents per share. The third quarter dividend payable on October 1, 2004 was raised to 13 cents per share.

During fiscal 2004, the Company made voluntary contributions of $60.0 million to its defined benefit pension plans to reduce the unfunded liability of its qualified pension plans and to help reduce pension expense with the earnings on the contributions. Given the anticipated increase in its pension obligations in 2004 resulting from pension expense and low interest rates, management considered the $60.0 million contribution to be prudent. The Company also made a voluntary contribution of $40.0 million to the plans in early 2005 when it became apparent that long-term interest rates were continuing to remain at historical lows, resulting in a lower discount rate, and thus, higher retirement expenses and pension obligations. The Company may be required to, or may voluntarily opt to, make additional contributions to its pension plans in future years.

The Company expended a total of $47.2 million in fiscal 2004 for capital projects and equipment to improve productivity, keep pace with new technology and maintain existing operations. Capital expenditures over the last three years have totaled $112.9 million and planned expenditures in fiscal 2005 are estimated to be $55 to $60 million at existing facilities. The Company has purchase obligations through 2010 totaling $43.1 million primarily for capital expenditures.

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Debt and Related Matters:

On May 10, 2004 the Company entered into a five-year, senior unsecured revolving credit facility (Credit Agreement), which provides borrowings of up to $500 million from a syndicate of banks through May 11, 2009. The primary purpose of the Credit Agreement is to support the issuance of unsecured promissory notes under a commercial paper program (commercial paper) of up to $500 million and for general corporate purposes. Initially, however, the Company used the Credit Agreement to refinance all of its existing term debt and principal outstanding under the previous bank credit facility. This debt was subsequently retired with commercial paper during the second quarter of fiscal 2004.

Debt under the Credit Agreement bears interest at the London Interbank Offered Rate (LIBOR) plus a spread ranging from 29.5 basis points to 77.5 basis points plus a utilization fee of 12.5 basis points if borrowings exceed $250 million. Applicable rates are based upon the Company’s ratings on its long-term debt from Moody’s and Standard & Poor’s. A facility fee for the revolving credit ranges from 8.0 basis points to 22.5 basis points depending on the Company’s ratings, and such fees are currently at 12.5 basis points. No debt was outstanding under the Credit Agreement at December 26, 2004.

The revolving credit facility contains financial covenants including a minimum interest coverage ratio (as defined) of 3:1 and a maximum leverage ratio (as defined) of 4:1.

The Company’s commercial paper outstanding at December 26, 2004 had maturities ranging from overnight to 46 days, with interest rates ranging from 2.10% to 2.48%. The weighted average interest rate on commercial paper outstanding since May 12, 2004 (inception of the program) through December 26, 2004 was 1.45%. Because the Company’s Credit Agreement provides backup for its commercial paper, and in accordance with the Company’s ability and intent, the commercial paper was classified as long-term debt.

The Company intends to use the $500 million of borrowing capacity under the commercial paper program and its back-up Credit Agreement, along with its operating cash flow, to meet its short and long-term liquidity needs. The amount of outstanding commercial paper will fluctuate at any given point in time depending on the current liquidity needs of the Company and cash generated from operations. The Company considers these fluctuations in its outstanding borrowings to be in the normal course of business and to be not material given its borrowing capacity of $500 million under the commercial paper program as supported by the Credit Agreement. The Company may use its commercial paper program and /or revolving credit facility for strategic investments or acquisitions in the future.

The Company currently has outstanding letters of credit totaling $7.9 million securing estimated obligations stemming from workers’ compensation claims and other contingent claims. The Company had $224.9 million of available credit under its current Credit Agreement at December 26, 2004.

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The Company does not have, nor does it intend to enter into, derivative contracts for trading purposes. The Company has not attempted to hedge fluctuations in the normal purchases of goods and services used to conduct its business operations. Currently there is no intent to hedge or enter into contracts with embedded derivatives for the purchase of newsprint, ink, and other inventories, leases of equipment and facilities, or business insurance contracts.

The Company previously had one interest rate swap agreement designated as a cash flow hedge specifically designed to hedge the variability in the expected cash flows that were attributable to interest rate fluctuations on $100.0 million of its variable rate bank debt which expired in June 2004. The effect of this agreement was to fix the LIBOR interest rate exposure at approximately 3.8% on that portion of the Company’s term loans.

Contractual Obligations:

The following table summarizes specific financial obligations under the Company’s contractual obligations and commercial commitments as of December 26, 2004 (in thousands):