Our Digital Future Is Here
2013 Annual Report
2100 Q Street • Sacramento, CA 95816 • (916) 321-1844
www.mcclatchy.com
The McClatchy Company is a leading news and information provider, offering a wide array
of print and digital products in each of the markets it serves. McClatchy’s operations include
30 daily newspapers, community newspapers, websites, mobile news and advertising, niche
publications, direct marketing and direct mail services. The company’s largest newspapers
include the (Fort Worth) Star-Telegram, The Sacramento Bee, The Kansas City Star, the
Miami Herald, The Charlotte Observer and The (Raleigh) News & Observer.
McClatchy is listed on the New York Stock Exchange under the symbol MNI.
Financial Highlights
(in thousands except per share amounts)
2013
2012
% change
For the Year
Net revenues
Operating expenses
Income (loss)
Income (loss) per diluted share
Operating cash flow (1)
At Year End
Total assets
Long-term debt
Stockholders’ equity
Shares outstanding:
Class A shares
Class B shares
* Not meaningful
$1,242,237
1,117,337
18,803
0.22
276,649
$1,309,639
1,123,503
(144)
–
320,902
-5.1%
-0.5%
NM*
NM*
-13.8%
$2,617,635
1,493,323
240,386
$3,005,131
1,587,330
42,501
-12.9%
- 5.9%
465.6%
61,533
24,801
61,093
24,801
0.7%
0.0%
(1) Operating cash flow represents operating income ($124,900 in 2013 and $186,136 in 2012) plus severance charges ($4,847 in 2013 and
$4,651 in 2012) plus depreciation and amortization ($122,408 in 2013 and $125,275 in 2012) plus other charges ($24,494 in 2013 and
$4,840 in 2012). 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.
Non-GAAP financial measures are reconciled to GAAP measures in the schedule below.
Reconciliation of Net Income (Loss) to Adjusted Net Income
Net Income (Loss):
Add back certain items, net of tax:
Loss (gain) on extinguishment of debt
Gain on sale of Miami property
Severance charges
Other charges
Real estate related charges
Accelerated depreciation on equipment
Equity investment related impairment charges
Intangible asset impairment charge
Reversal of interest on tax items
Certain discrete tax items
$ 18,803
$ (144)
8,641
(8,194)
2,977
6,521
5,558
7,022
1,878
3,390
(97)
753
56,108
–
2,896
3,070
–
5,299
4,297
–
(5,069)
(10,014)
Adjusted net income
$ 47,252
$ 56,443
Management believes these non-GAAP measures, when read in conjunction with the company’s GAAP financials,
provide useful information to investors by offering the ability to make more meaningful period-to-period
comparisons of the company’s on-going operating results and to better identify trends. These non-GAAP
financial measures should not be considered a substitute or an alternative to the computations calculated in
accordance with and required by GAAP.
THE MCCLATCHY COMPANY 2013 ANNUAL REPORT
PAGE 1
Letter to Shareholders
If you paid close attention to McClatchy in 2013, you heard us speak often
of McClatchy’s “digital transformation” – of our progress in shepherding
this 157-year-old, historically print-based enterprise into one fully engaged
in the digital opportunities of the 21st century.
Our Digital Future Is Here
As we look back on 2013 – and ahead to 2014 – what
For 2013, we reported net income of $18.8 million, or
stands out is how much digital progress we’ve made. In
22 cents per share. Net income excluding the net
so many ways, we’re becoming that digital company we
impact of certain items was $47.3 million. We continue
only once imagined. Our digital future no longer beckons
to generate ample operating cash flow. We generated
from beyond the horizon. It’s here. It’s where we go to
operating cash flow of $276.6 million in 2013 allowing
work every day, influencing every facet of our operations.
us to service our debt, invest in our company and
In the fast-moving digital world, of course, the
strengthen our financial position.
transformation is ongoing. We know there is so much
In fact, we reduced debt by $155.9 million in 2013 and
more for us to do. We continue to work hard to position
ended the year with $80.8 million of cash on our balance
our company for success in the near and long term
sheet. We received cash distributions from our valuable
guided by five strategic goals that have served us well:
equity investments of $42.4 million, most of which was
produce high-quality, public-service journalism; continue
received in the fourth quarter, and earnings from our
our digital transformation; diversify our revenue base;
equity investments grew 34% in 2013 from 2012.
invest in digital initiatives while maintaining our focus
on costs; and pay down debt.
Financial Results
Strong financial performance is important to our
ability to meet our strategic goals, including our most
fundamental goal of producing impactful, public-
We’re pleased at how our strategy paid off in 2013 as we
service journalism.
saw improvement in our total revenue trend compared
to the same 52-week year in 2012 and continued to
diversify our revenue sources.
Public-Service Journalism
Our digital future starts with public-service journalism.
It’s our mission. It’s what keeps us relevant. High-quality
Our fiscal 2013 reporting period was a 52-week year
journalism is a hallmark of McClatchy, and we’re
compared to a 53-week year in 2012, and as a result,
pleased to report that we were able to continue that
we look at a 52-week comparable time period in 2012
tradition of excellence in 2013.
to evaluate our results. For 2013, total revenues were
down an estimated 3.4% compared to an estimated
decline of 4.9% on a comparable basis in 2012.
A few highlights include some flattering recognition by
our colleagues in the news business. Our Washington, D.C.,
bureau and our foreign correspondents were honored
with a prestigious George Polk Award for War Reporting
for McClatchy’s coverage of the conflict in Syria.
THE MCCLATCHY COMPANY 2013 ANNUAL REPORT
PAGE 2
Three McClatchy papers – The Sacramento Bee, The
Charlotte Observer and The (Raleigh) News & Observer
– finished as finalists for 2013 Pulitzer Prizes. The
Sacramento Bee’s Renée Byer was named a finalist in
the Feature Photography category for photos depicting
a grandfather’s journey to win guardianship of his
three young grandchildren. A joint investigative series
by McClatchy’s two North Carolina papers into the
large financial gains at the state’s nonprofit hospitals
was named a Pulitzer Prize finalist in the Local
Reporting category.
That joint effort by The Charlotte Observer and The
(Raleigh) News & Observer, titled “Prognosis: Profits,”
would go on to win many national awards in 2013,
including a Robert F. Kennedy Journalism Award in the
Domestic Print category along with the competition’s
coveted grand prize – the top award chosen from among
all the RFK winners.
deliver content that meets our readers’ needs in each
one of these different environments. The complexity of
that distribution requires a subscription program that
is as flexible as the reading options available.
Enter our Plus Program, which we launched at the
end of 2012 at all of our papers and which allows us to
offer and manage a variety of digital, print and bundled
subscription alternatives. We charge a premium for
the bundled print and digital option, which has been
well-received by renewing subscribers and has generated
$31.4 million of additional revenue in 2013. Frequent
users of our digital products are now required to
subscribe, and we finished 2013 with digital-only
subscriptions of approximately 60,300.
Despite fears that the metered paywalls we installed
on our websites in conjunction with the Plus Program
might hurt traffic, we just haven’t seen it. The number
of unique visitors to our digital products grew by 4.6%
Digital Transformation Continues
in 2013.
Extending McClatchy’s journalism tradition means
publishing digitally to a wide variety of outlets. That
important process really starts behind the scenes with
our technology – not just for a digital publishing system
that can seamlessly distribute news content to any
number of platforms but also new systems to support
circulation and advertising in the digital environment.
And the number of mobile users has continued to grow.
In 2013, our mobile traffic was up 70.4% and accounted
for 35.4% of all digital traffic we received on a monthly
basis. We are working hard to keep up with that mobile
audience. In 2013, we redesigned, improved and
relaunched all of our apps for smartphones and tablets
and introduced new apps publishing to Android devices
We are in the middle of a multiyear process to launch
for the first time. More upgrades to our mobile apps
new systems in these areas across all of our markets
and websites are planned in 2014.
through the use of cloud-based computing. In the near
future, every McClatchy paper will be using the same
systems, which will speed product launches across all
of our markets and maximize cost efficiencies among
many other advantages.
Increasingly, readers want to read and interact with our
news and information in a number of different ways,
at a number of different locations, at different times
of the day and on the mobile devices of their choosing.
This is both a challenge and opportunity for us to
Video is another area that is exploding, particularly
with local media. In 2014, we’ll be expanding the use of
video in all of our digital products to both enhance the
content that we bring to readers and viewers and also
to compete for a growing advertising stream.
Diversifying Revenue Base
All of these digital developments improve the
advertising opportunities.
McClatchy has been an industry leader in digital
advertising as a percentage of total advertising for a
number of years and that didn’t change in 2013. Digital
advertising now accounts for almost a quarter of our
THE MCCLATCHY COMPANY 2013 ANNUAL REPORT
PAGE 3
total advertising revenue. And digital-only advertising
Direct marketing was another area of growth and
revenue – that sold on a standalone basis and not in
diversification in 2013. Direct marketing includes direct
combination with a print buy – was up 10.2% in 2013.
mail, niche products and our Sunday Select preprint
We only see more growth for digital advertising revenue
in 2014. Not only do we have our own products to
sell, but a number of third party options as well – what
we call “audience extension networks.”
For years, we’ve been able to offer our local advertisers
inventory on Yahoo!, for example, and we’re now forging
additional audience and advertising relationships
with other media companies and digital players such
as Centro and Simpli.fi for additional growth. We plan
to expand our use of these and other ad exchanges to
extend the audience reach for our advertisers.
In September, we joined with dozens of other local media
companies in announcing the formation of the Local
Media Consortium, a reboot of the 2006 newspaper
consortium that first joined forces with Yahoo! This
new strategic alliance is bigger and more diverse,
representing more than 800 daily newspapers, 200
local broadcast stations and all of our affiliated digital
properties to leverage our impressive size and scale
to forge new relationships with top digital companies,
including Google.
impressLOCALTM remains another important digital
initiative aimed at helping small and medium-sized
businesses figure out an approach to the internet and
social media. We launched it in two markets in 2012,
program distributed to non-newspaper subscribers who
request the package of ads. Collectively, these products
allow us both to target more precisely for advertisers
and also to canvass those areas of our markets we
don’t otherwise reach with our print and digital products.
We’ve seen four consecutive years of growth in direct
marketing revenues – up 2.2% last year. When you
combine growing subscription revenues with digital
and direct marketing advertising, these sources now
account for nearly 60% of McClatchy’s total revenues.
Still, more than 40% of our overall revenues are coming
from traditional daily newspaper advertising, and that’s
a very profitable piece of our business. We have no plans
to abandon print advertising or cut back daily publishing
at any of our newspapers even as we embrace the
digital opportunities before us. The relationship between
our daily newspapers and so many of our readers is too
valuable to disrupt.
Investing in Digital, Managing Costs
Maintaining our digital momentum is crucial and
requires ongoing investment.
In 2013, our spending centered primarily on next-
generation technology platforms and the cost associated
with new digital products like impressLOCALTM.
Investment spending in 2013 accounted for $9.2 million.
but expanded to every McClatchy market in 2013.
At the same time we remain disciplined on costs.
These smaller local businesses historically have been
Cash costs for 2013 excluding severance and certain
underserved by the newspaper industry and we’re now
other charges were down 0.8% or $7.4 million compared
able to share our digital tools and expertise to help
to our 52-week year in 2012. We’re keeping our focus
them boost their businesses and track their return on
on our core business – news, advertising and digital –
investment. Our acquisition of Tru Measure last year
and looking to be more efficient in other areas. We’re
was a key part of the impressLOCALTM initiative. Tru
continuing to reduce costs through technology,
Measure provides the media measurement and tracking
regionalization and centralization wherever we can.
technology for our customers.
Production is a noteworthy example. Today, 14 McClatchy
papers are printed at outside facilities, either by other
companies or sister McClatchy publications. Where it
THE MCCLATCHY COMPANY 2013 ANNUAL REPORT
PAGE 4
doesn’t make sense to outsource, our printing presses
He also helped McClatchy navigate a historically
are taking on more work and maximizing efficiency.
difficult economy and remain on sound financial footing.
Nine McClatchy markets are printing daily newspapers
We thank him and wish him all the best in retirement.
for other companies.
We were delighted to welcome two new directors.
Financial Strength, Sound Leadership
Clyde Ostler spent 40 years as a senior executive with
We’re always looking to pay down debt and strengthen
Wells Fargo and brings extensive financial and operating
our financial position. In 2013, our debt declined to
experience to McClatchy. Craig Forman, a former
$1.556 billion and we had $80.8 million of cash on hand
at the end of the year. At the beginning of 2013, we
completed a debt refinancing that provided us with a
technology and communications executive, Wall Street
Journal bureau chief and foreign correspondent, brings
a terrific blend of digital experience and journalism
very manageable schedule of debt maturities in the
background to our board.
future. For the first time in a long time, we’re looking out
almost a decade in terms of operating runway without
significant debt to pay – a great position to be in.
We look back on 2013 and ahead to 2014 impressed with
the digital progress we’ve made yet fully aware there
is much more work to do. We appreciate the support of
Last year also saw some leadership changes on our
our shareholders and our customers as we create our
board of directors. Don Ritchey, a director since 1985
digital future. And we are most grateful for the talented
and chair of the board’s audit committee, retired. Don
and hardworking employees of McClatchy who work
was a steadying influence as the company expanded
tirelessly to produce the stories, sell the advertising
across the United States and diversified with our
and distribute the products that ensure our success.
growing digital and direct marketing businesses.
KEVIN S. MCCLATCHY
PATRICK J. TALAMANTES
Chairman of the Board
President and Chief Executive Officer
March 1, 2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 29, 2013
or
For the transition period from
to
Commission file number: 1-9824
The McClatchy Company
(Exact name of registrant as specified in its charter)
1MAR201402312375
Delaware
(State or other jurisdiction of incorporation or organization)
52-2080478
(I.R.S. Employer Identification No.)
2100 Q Street, Sacramento, CA
(Address of principal executive offices)
95816
(Zip Code)
916-321-1844
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, par value $.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
(cid:2) Yes (cid:1) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:2) Yes (cid:1) No
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.
(cid:1) Yes (cid:2) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
(cid:1) Yes (cid:2) 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. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer (cid:2)
Accelerated filer (cid:1)
Non-accelerated filer (cid:2)
(Do not check if a smaller
reporting company)
Smaller reporting company (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:2) Yes (cid:1) No
Based on the closing price of the registrant’s Class A Common Stock on the New York Stock Exchange on June 30, 2013 the last business day
of the registrant’s second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates was
approximately $142.7 million. 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.
Shares outstanding as of February 21, 2014:
Class A Common Stock
Class B Common Stock
61,836,672
24,585,962
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of
Shareholders to be held on May 15, 2014, are incorporated by reference in Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . 42
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
PART III
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . 82
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . 82
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Note About Forward-Looking Statements:
PART I
This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A
of the Securities Exchange Act of 1934, as amended, including statements relating to future financial
performance and operations. These statements are based upon our current expectations and knowledge of
factors impacting our business and are generally preceded by, followed by or are a part of sentences that
include the words ‘‘believes,’’ ‘‘expects,’’ ‘‘anticipates,’’ ‘‘estimates’’ or similar expressions. All statements,
other than statements of historical fact, are statements that could be deemed forward-looking statements.
For all of those statements, we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks,
trends and uncertainties. A detailed discussion of these and other risks and uncertainties that could cause
actual results and events to differ materially from such forward-looking statements is included in the
section entitled ‘‘Risk Factors’’ (refer to Part I, Item 1A). We undertake no obligation to revise or update
any forward-looking statements except as required under applicable law.
ITEM 1.
Overview
BUSINESS
The McClatchy Company (the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’) is a leading local media company that
provides both print and digital news and advertising services in the markets we serve. We have more than a
century and a half of experience in mass and targeted media with our origins in the California Gold Rush
era of 1857. Originally incorporated in California as McClatchy Newspapers, Inc., our three original
California newspapers — The Sacramento Bee, The Fresno Bee and The Modesto Bee — were the core of
our business until 1979, when we began to diversify geographically outside of California. At that time, we
purchased two newspapers in the Northwest, the Anchorage Daily News and the Tri-City Herald in
southeastern Washington. In 1986, we purchased The (Tacoma) News Tribune and in 1987, we
reincorporated in Delaware. We expanded into the Carolinas when we purchased newspapers in South
Carolina in 1990 and The News and Observer Publishing Company in North Carolina in 1995. In 2006, we
acquired Knight-Ridder, Inc., retaining 20 daily papers and significant digital assets.
As one of the largest newspaper companies in the United States, based upon daily circulation, our
operations include 30 daily newspapers, community newspapers, websites, mobile news and advertising,
niche publications, direct marketing and direct mail services. Our newspapers range from large dailies
serving metropolitan areas to non-daily newspapers serving small communities. For the year ended
December 29, 2013 (‘‘fiscal year 2013’’), we had an average paid daily circulation of 1.9 million and Sunday
circulation of 2.7 million. We also operate local websites in each of our markets that complement our
newspapers and extend our audience reach. Our owned newspapers include, among others, the (Fort
Worth) Star-Telegram, The Sacramento Bee, The Kansas City Star, the Miami Herald, The Charlotte Observer,
and The (Raleigh) News & Observer.
Our newspapers are located in 29 growth markets across the United States. The business is operated across
six operating regions: California, Florida, Texas, Southeast, Midwest and Northwest. For the year ended
December 29, 2013, no region represented more than 29% of total advertising revenue and no single
newspaper represented more than 12.4% of total newspaper revenues. Overall, our markets are expected
to achieve household growth faster than the national average from 2013-2018.
We also own a portfolio of premium digital assets, including 15.0% of CareerBuilder, LLC, which operates
the nation’s largest online job website, CareerBuilder.com; 25.6% of Classified Ventures, LLC, a company
that offers classified websites such as the auto website Cars.com and the rental website Apartments.com;
33.3% of HomeFinder, LLC, which operates the online real estate website HomeFinder.com; and 12.2%
of Wanderful Media, owner of Find n Save(cid:4), a digital shopping portal that provides advertisers with a
common platform to reach online audiences with digital circulars, coupons and display advertising. See the
1
Recent Developments discussion below in Item 7, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations.’’
McClatchy is listed on the New York Stock Exchange under the symbol MNI.
Strategy
We are committed to a three-pronged strategy to grow our digital business and total revenues as a leading
local media company:
(cid:127) First, to operate high-quality newspapers in growth markets;
(cid:127)
Second, to operate the leading local digital business in each of our daily newspaper markets,
including websites, e-mail products, mobile services and other electronic media; and
(cid:127) Third, to extend these franchises by supplementing the mass reach of the newspaper with
direct marketing and direct mail products so that advertisers can capture both mass and
targeted audiences with one-stop shopping.
Business Initiatives
Our local media businesses have undergone a period of tremendous structural and cyclical change. In
order to maintain our position as a leading local media company and implement our strategies, we are
focused on the following five major business initiatives:
Increasing and Diversifying Total Revenues
Advertising revenues comprise a large majority of our revenues, making the quality of our sales force of
utmost importance. Advertising revenues were approximately 67.5% of consolidated net revenues in fiscal
year 2013 and 69.9% in the year ended December 30, 2012 (‘‘fiscal year 2012’’). We have a local sales force
in each of our markets and believe that these sales forces are generally larger than those of other local
media outlets and websites in those markets. Our sales forces are responsible for delivering to advertisers
the broad array of our advertising products, including print, digital and direct marketing products. Our
advertisers range from large national retail chains to local automobile dealerships to small businesses and
classified advertisers. To reach national advertisers, our newspapers work with national advertising
representation firms and our corporate advertising department to develop relationships and make it easier
for those large advertisers to place orders.
Increasingly, our emphasis has been on growing the breadth of products offered to advertisers, particularly
our digital products and our direct marketing products, while expanding our relationships with smaller
advertisers. For example, over the last several years we have expanded our ‘‘Sunday Select’’ program,
which delivers a package of preprinted advertisements on Sunday to non-newspaper subscribers upon their
request. Also we continue to offer our popular ‘‘Print and Deliver’’ program, which helps small advertisers
create preprinted advertising inserts to reach customers near their stores. Our digital products and
business are discussed in more detail below.
For fiscal year 2013, total digital and direct marketing advertising revenues represented 39.6% of total
advertising revenues on a combined basis compared to 36.3% and 33.4% in fiscal year 2012 and the year
ended December 25, 2011 (‘‘fiscal year 2011’’), respectively.
Circulation revenues approximated 28.5% of consolidated net revenues in fiscal year 2013 and 26.1% in
fiscal year 2012. Our introduction of the Plus Program (discussed below) to drive digital circulation
revenues has also helped diversify our revenues. Digital and direct marketing advertising, coupled with
circulation and other revenues generated outside of traditional print and preprinted insert advertising,
represented 59.2% of total revenue in fiscal 2013 compared to 55.5% and 52.9% in fiscal years 2012 and
2011, respectively.
2
Expanding McClatchy’s Digital Business
We continue to be a newspaper industry leader in digital advertising revenues from newspaper websites as
a percent of total advertising with 23.8% and 21.8% of advertising revenues coming from digital products
in fiscal years 2013 and 2012, respectively. For fiscal year 2013, 59.3% of our digital advertising revenues
came from advertisements placed only online; that is, they were not tied to a joint print buy, compared to
54.3% in fiscal year 2012. We believe this independent advertising revenue stream bodes well for the future
of our digital business and is evidence of its importance as a delivery channel for advertisers.
In addition, our advertising revenues from digital advertising have increased every year for the past
12 years, excluding the 53rd week in fiscal year 2012 and despite weak economic conditions and structural
changes in the delivery of advertising products to digital media. Our newspaper websites, e-mail projects,
podcasts, mobile services and other electronic media enable us to engage our readers with real-time news
and information that matters to them. During fiscal year 2013, our newspaper websites attracted an
average of approximately 39.6 million unique visitors per month.
Our websites offer classified digital advertising products provided by companies in which we hold minority
investment (as discussed above), including CareerBuilder.com for employment, Cars.com for autos and
Apartments.com in the rental category.
We continue to pursue additional new digital products and offerings. Starting in mid 2012 and continuing
through 2013, we launched impressLOCAL(cid:4), our proprietary comprehensive digital marketing solution for
local small- and medium-size businesses, to all of our markets. By offering advertisers integrated packages
including website customization, search engine marketing and optimization, social media presence and
marketing services, and other multi-platform advertising opportunities, impressLOCAL(cid:4) helps businesses
improve the effectiveness of their marketing and advertising efforts.
We continue to offer dealsaver(cid:4), our proprietary daily deals service, across all of our markets. Unlike
competitors, dealsaver(cid:4) benefits from the promotional power of our local papers, their related websites
and local sales forces. We have also partnered with several other leading media and publishing companies
to form Wanderful Media, which provides Find n Save(cid:4) with significant scale across all of our markets.
Find n Save(cid:4) is a digital shopping portal that provides advertisers with a common platform to reach online
audiences with digital circulars, coupons and display advertising.
In fiscal year 2013, our mobile traffic was up 70.4% and accounted for 35.4% of all digital traffic we
received on a monthly basis. We work hard to appeal to our mobile audience. In fiscal year 2013, we
redesigned, improved and relaunched all of our apps for smartphones and tablets and introduced new apps
publishing to Android devices for the first time. We are planning more upgrades to our mobile apps and
websites in fiscal year 2014.
Video is another area that is increasing significantly, particularly with local media. In fiscal year 2014, we
plan to expand the use of video in all of our digital products to both enhance the content that we bring to
readers and viewers and also to compete for a growing advertising stream.
Increasingly, readers want to read and interact with our news and information in a number of different
ways, at a number of different locations, at different times of the day and on the mobile devices of their
choosing. This is both a challenge and opportunity for us to deliver content that meets our readers’ needs
in each one of these different environments. The complexity of that distribution requires a subscription
program that is as flexible as the reading options.
In late 2012, our newspapers successfully introduced new subscription packages (‘‘Plus Program’’) for
digital content that ended free, unlimited access to the newspapers’ websites and certain mobile content.
The Plus Program offers both a combined digital and print subscription and a digital-only subscription.
The Plus Program provided $31.4 million in additional circulation revenues during fiscal year 2013,
3
compared to $1.2 million in fiscal year 2012. The Plus Program digital-only subscriptions totaled 32,400 as
of the end of fiscal year 2013.
Maintaining Our Commitment to Public Service Journalism
We believe that high-quality news content is the foundation of the mass reach necessary for the press to
play its role in a democratic society. It is also the underpinning of our success in the marketplace.
We are committed to developing best-in-class journalism and local content. Our newspapers have received
many national and regional awards from their peers for outstanding journalism, including 52 Pulitzer
Prizes and the Robert F. Kennedy Journalism Award for coverage of human rights and social justice in
each of the last five years and seven of the last nine years. In fiscal year 2013, our Washington D.C., bureau
and our foreign correspondents were awarded a prestigious 2012 George Polk Award for our coverage of
the conflict in Syria. Also, during fiscal year 2013, journalists at three of our newspapers, The Sacramento
Bee, The Charlotte Observer and The (Raleigh) News & Observer, were finalists for 2013 Pulitzer Prizes. In
February 2014, The Sacramento Bee was awarded the esteemed 2013 George Polk Award for its coverage
of a Las Vegas psychiatric hospital’s practice of shipping patients to cities across the country via one-way
bus tickets.
Broadening Newspapers’ Audiences in Their Local Markets
Each of our daily newspapers has the largest circulation of any newspaper serving its particular community,
and coupled with a local website and other digital platforms, reaches a broad audience in each market. We
believe that our broad reach in each market is of primary importance in attracting advertising, which is our
principal source of revenues.
Daily newspaper paid circulation volumes were down 5.5% compared to fiscal year 2012 reflecting, in part,
subscription price changes due to the Plus Program at all of our newspapers during fiscal year 2013, which
negatively affected circulation volumes. Circulation volumes are also impacted by fragmentation of
audiences faced by all media, including our own Plus Program digital-only subscriptions, as available media
outlets proliferate and readership trends change. However, our Sunday circulation was up 0.1% in fiscal
year 2013 compared with fiscal year 2012.
Our digital audience continues to show growth, with average monthly unique visitors at our newspapers’
websites in fiscal year 2013 up 2.2% from fiscal year 2012. In addition, all our websites offer mobile-
friendly versions for smartphones, and our newspapers’ content is available on e-readers, tablets and other
mobile devices.
We also reach audiences through our direct marketing products. We distributed 679,800 Sunday Select
packages, which are a package of preprinted advertisements generally delivered on Sunday to
non-newspaper subscribers upon their request. We also distribute thousands of email alerts, including
editorial and advertising content, dealsaver(cid:4) alerts and other alerts to subscribers and non-subscribers in
our markets which supplement the reach of our print and digital subscriptions.
To remain the leading local media company for the communities we serve and a must-buy for advertisers,
we are focused on maintaining a broad reach of print and digital audiences in each of our markets. We will
continue to refine and strengthen our print platform, but our growth increasingly comes from our digital
products and the beneficial impact those products have on the total audience we deliver for our
advertisers.
Focusing on Cost Efficiencies While Investing for the Future
While continuing to maintain our core business in news, advertising sales and digital business, we also need
to focus on cost efficiencies. The ongoing structural and cyclical changes in our markets demands that we
respond by reengineering and structuring our operations to achieve an efficient and sustainable cost
structure. Over the past six years, we have substantially lowered our cost structure through workforce
4
reductions, optimizing technology and maximizing printing, distribution and content efficiencies, all while
maintaining profitability at each of our newspapers.
Compensation expense is the largest component of our cash operating expenses. Technology increasingly is
giving us the opportunity to operate more efficiently and reduce staff and related compensation expense.
We actively look for opportunities to realize efficiencies by outsourcing and centralizing certain functions
such as production, circulation, finance, information systems, customer call centers and advertising
operations.
For example, 14 of our newspapers are printed through outsourcing arrangements with nearby newspapers
owned by us or other companies. In other cases, we are the ‘‘printing hub’’ in a given region and we
in-source printing from nearby newspapers to maximize the use of our existing press capacity and generate
additional revenues. During the fourth quarter of fiscal year 2013, we announced that we had reached an
agreement with The Dallas Morning News to begin printing the (Fort Worth) Star-Telegram in February
2014. Separately, in January 2014 we bought the Dow Jones production facility and related equipment in
Charlotte, N.C. where we will move the production of The Charlotte Observer newspaper while also printing
Dow Jones publications.
We also believe using technology is an important component of our ability to continue to operate
cost-effectively and to invest in our business for the future. Much of that technology is employed behind
the scenes — with a digital publishing system that can distribute news content to any number of platforms
and new systems to support circulation and advertising in the digital environment. We are in the second
year of a several year process of rolling out these new systems at our newspapers and investing in new
products such as impressLOCAL(cid:4), which provides online marketing to small and medium size businesses.
As a result, expenses in fiscal year 2013 included approximately $9.2 million related to implementing new
enterprise-wide systems and new digital products, even while we held other operating costs below the fiscal
year 2012 operating costs (adjusted for the extra week in fiscal year 2012).
Our newspaper operations have emphasized other changes in our business that are generally preferred or
acceptable to our audiences and advertisers, such as reducing the width of newspapers or reducing
unprofitable circulation that reaches areas outside of a newspaper’s core market. However, our efforts are
focused on quality content production, effective sales efforts and growing our digital operations.
Other Operational Information
Each of our newspapers is largely autonomous in our local advertising and editorial operations in order to
meet most effectively the needs of the particular community it serves.
We have two operating segments. Each segment consists primarily of a group of newspapers and related
businesses reporting to segment managers that are aggregated into a single reportable segment. One
operating segment consists primarily of our newspaper operations in California, the Northwest and Texas
while the other operating segment consists primarily of newspaper operations in the Southeast, Florida and
the Midwest. Publishers of each of the newspapers make the day-to-day decisions and report to vice
presidents (segment managers). The segment managers are responsible for implementing the operating
and financial plans at each of the newspapers within their respective operating segment. The corporate
managers, including executive officers, set the basic business, accounting, financial and reporting policies.
Our newspapers also work together to consolidate functions and share resources regionally and across
operational segments that lend themselves to such efficiencies, such as certain regional or national sales
efforts, accounting functions, digital publishing systems and products, information technology functions
and others. Our corporate advertising department is headed by a vice president of advertising who works
with our largest advertisers in placing advertising across our operating segments’ newspapers and online
products. These efforts are often coordinated through the segment managers and corporate personnel.
Our newspaper business is somewhat seasonal, with peak revenues and profits generally occurring in the
second and fourth quarters of each year, reflecting the spring holidays and the Thanksgiving and Christmas
holidays, respectively. The first and third quarters, when holidays are not prevalent, are historically the
slowest quarters for revenues and profits.
5
The following table summarizes the circulation of each of our daily newspapers. These circulation figures
are reported on our fiscal year basis and are not meant to reflect Alliance for Audited Media (‘‘AAM’’)
(formerly Audit Bureau of Circulations) reported figures. However, some of our fiscal year 2012
circulation volumes have been updated to reflect additional publications, which are now allowed under
AAM reporting rules and which we now track for management purposes.
Circulation by Newspaper
Daily
Sunday
Daily
Sunday
2013
2012
The Sacramento Bee
(Fort Worth) Star-Telegram
The Kansas City (Missouri) Star
The Charlotte Observer
Miami Herald
The (Raleigh) News & Observer
The Fresno Bee
Lexington Herald-Leader
The (Tacoma) News Tribune
The Wichita Eagle
The (Columbia, SC) State
The Modesto Bee
Anchorage Daily News
El Nuevo Herald (Miami, FL)
Idaho Statesman (Boise)
Belleville (Illinois) News-Democrat
The (Macon, GA) Telegraph
The (Myrtle Beach, SC) Sun News
The (San Luis Obispo, CA) Tribune
(Biloxi, MS) Sun Herald
The Bradenton (Florida) Herald
(Columbus, GA) Ledger-Enquirer
Tri-City (Washington) Herald
The Island Packet (Hilton Head, SC)
The Olympian (Washington)
The (Rock Hill, SC) Herald
(State College, PA) Centre Daily Times
The Bellingham (Washington) Herald
Merced (California) Sun-Star
The Beaufort (South Carolina) Gazette
193,570
188,342
177,073
133,651
131,665
119,923
100,945
75,833
67,517
61,029
59,500
58,084
52,028
51,627
44,875
38,168
36,681
32,402
30,745
28,942
28,616
28,093
26,244
20,022
19,921
18,117
17,372
16,333
14,132
8,475
311,329
295,269
265,320
184,224
193,596
171,678
154,530
97,458
117,318
84,183
121,690
64,878
45,753
67,145
63,292
65,231
54,081
43,774
40,806
37,795
39,900
36,601
31,649
22,649
34,903
21,853
23,198
19,695
196,519
201,584
192,304
142,871
138,148
124,981
107,815
84,715
74,968
66,072
65,883
58,040
44,902
53,237
47,328
43,901
40,342
34,219
32,948
31,939
30,707
30,091
28,272
18,992
22,271
19,420
18,043
16,328
— 12,401
9,224
8,750
259,957
271,876
286,200
200,241
194,548
184,982
165,137
108,430
98,155
91,621
120,687
69,933
46,354
68,492
70,335
55,769
60,554
46,860
36,783
36,860
41,768
38,614
34,194
21,881
27,201
23,477
24,467
20,246
—
9,477
Our print newspapers are delivered by independent contractors and large distributors.
Other Operations
We also have ownership interests and investments in unconsolidated companies and joint ventures. This
includes ownership in premium digital assets, including 15.0% of CareerBuilder, LLC, which operates the
nation’s largest online job website, CareerBuilder.com; 25.6% of Classified Ventures, LLC, a company that
offers classified websites such as the auto website Cars.com and the rental website Apartments.com; 33.3%
of HomeFinder, LLC, which operates the online real estate website HomeFinder.com; and 12.2% owner
of Wanderful Media, owner of Find n Save(cid:4), a digital shopping portal that provides advertisers with a
common platform to reach online audiences with digital circulars, coupons and display advertising. See the
Recent Developments discussion below in Item 7, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations.’’
6
including Classified Ventures and
We capture significant value from our digital
CareerBuilder, which along with other important investments provided us with $42.4 million of cash
distributions in fiscal year 2013.
investments,
We and the Tribune Company have a joint venture in the McClatchy-Tribune Information Service
(‘‘MCT’’), which offers stories, graphics, illustrations, photos and paginated pages for print publishers and
web-ready content for online publishers. All our newspapers, Washington, D.C. staff and foreign bureaus
produce MCT editorial material. Content is also supplied by Tribune Company newspapers and a number
of other member newspapers.
We own 49.5% of the voting stock and 70.6% of the nonvoting stock of The Seattle Times Company. The
Seattle Times Company owns The Seattle Times newspaper, weekly newspapers in the Puget Sound area
and daily newspapers located in Walla Walla and Yakima, Washington, and all of their related websites and
mobile applications.
In addition, we own a 27.0% interest in Ponderay Newsprint Company (‘‘Ponderay’’), a general
partnership, which owns and operates a newsprint mill in the state of Washington.
Raw Materials
During fiscal year 2013, we consumed approximately 139,000 metric tons of newsprint compared to
159,000 metric tons in fiscal year 2012 for our operations. The decrease in tons consumed was primarily
due to lower print advertising sales and print circulation volumes. We currently obtain a majority of our
supply of newsprint from Ponderay and SP Fiber Technologies (successor to SP Newsprint Co.), as well as
a number of other suppliers, primarily under long-term contracts. We have a purchase commitment for
2014 of 81,648 metric tons of newsprint from SP Fiber Technologies.
Our earnings are sensitive to changes in newsprint prices. Newsprint expense accounted for 7.8% of total
operating expenses in fiscal year 2013 and 9.2% in fiscal year 2012. However, because we have an
ownership interest in Ponderay, an increase in newsprint prices, while negatively affecting our operating
expenses, would increase the earnings from our share of this investment, therefore partially offsetting the
increase in our newsprint expense. A decline in newsprint prices would have the opposite effect. Ponderay
is also impacted by fluctuations in the cost of energy and fiber used in the paper-making process.
We estimate that we will use approximately 124,000 metric tons of newsprint in fiscal year 2014, depending
on the level of print advertising, circulation volumes and other business considerations. We purchased
approximately 109,000 metric tons of newsprint from Ponderay and SP Fiber Technologies in fiscal year
2013. See the discussion below; Item 7, ‘‘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 these investments on our business.
We fully support recycling efforts. In fiscal year 2013, 97.6% of the newsprint used by our newspapers was
made up of some recycled fiber; the average content was 61.6% recycled fiber. This translates into an
overall recycled newsprint average of 60.2%. During fiscal year 2013, all of our newspapers collected and
recycled press waste, newspaper returns and printing plates.
Competition
Our newspapers, direct marketing programs, websites and mobile content compete for advertising
revenues and readers’ time with television, radio, other websites, direct mail companies, free shoppers,
suburban neighborhood and national newspapers and other publications, and billboard companies, among
others. In some of our markets, our newspapers also compete with other newspapers published in nearby
cities and towns. Competition for advertising is generally based upon print readership levels and
demographics, advertising rates, internet usage and advertiser results, while competition for circulation
and readership is generally based upon the content, journalistic quality, service and the price of the
newspaper.
7
Our major daily newspapers are the primary general circulation newspaper in each of their respective
markets. However, in recent years, newspapers have experienced difficulty maintaining or increasing print
circulation levels because of a number of factors, including increased competition from other publications
and other forms of media technologies available in various markets, including the internet and other new
media formats that are often free for users and the proliferation of news outlets that fragments audiences.
In addition, while our newspaper internet sites are generally the leading local sites in each of our major
daily newspaper markets, based upon research conducted by us and various independent sources, we have
noted changes in readership trends, including a shift of readers to the internet and mobile devices, and
have experienced a continued shift of advertising to digital advertising. We face greater competition,
particularly in the areas of employment, automotive and real estate advertising, from online competitors.
To address the structural shift to digital media, our daily newspapers provide editorial content on a wide
variety of platforms and formats — from our daily newspaper to leading local websites; on social network
sites such as Facebook and Twitter; on smartphones and on e-readers; on websites and blogs; in niche
online publications and in e-mail newsletters; through RSS (rich site summary) feeds and mobile
applications. In fiscal year 2013, we redesigned, improved and relaunched all of our apps for smartphones
and tablets and introduced new apps publishing to Android devices for the first time. More upgrades to
our mobile apps and websites are planned in fiscal year 2014. In addition, our websites offer leading digital
classified products such as CareerBuilder.com, Cars.com and Apartments.com and retail and national
advertising on Find n Save(cid:4) portals. We also operate dealsaver(cid:4), our proprietary daily deals service, in all
of our markets.
Employees — Labor
As of December 29, 2013, we had approximately 7,080 full and part-time employees (equating to
approximately 6,630 full-time equivalent employees), of whom approximately 6.3% were represented by
unions. Most of our union-represented employees are currently working under labor agreements with
expiration dates through 2015. We have no unions at 22 of our 30 daily papers.
While our newspapers have not had a strike for decades, and we do not currently anticipate a strike
occurring, we cannot preclude the possibility that a strike may occur at one or more of our newspapers
when future negotiations occur. We believe that in the event of a newspaper strike we 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 that we will be able to continue to publish
in the event of a strike.
Compliance with Environmental Laws
We use appropriate waste disposal techniques for items such as ink and other hazardous materials. As of
December 29, 2013, we have $1.0 million in a letter of credit shared among various state environmental
agencies and the U.S. Environmental Protection Agency to provide collateral related to existing or
previously removed storage tanks. However, we do not currently have any significant environmental issues,
and in fiscal years 2013, 2012 and 2011 had no significant expenses or capital expenditures related to
environmental control facilities.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended (the ‘‘Exchange Act’’), are filed with the U.S. Securities and Exchange Commission (the
‘‘SEC’’). We are subject to the informational requirements of the Exchange Act and file or furnish reports,
proxy statements and other information with the SEC. Other information includes, among other things,
our Corporate Governance Guidelines, charters for each committee of the Board of Directors, Code of
Business Conduct and Ethics, and Senior Officers Code of Ethics. Such reports and other information we
file with the SEC are available free of charge on our website at www.mcclatchy.com/investor_relations/ and
8
such reports are available on the SEC’s website. The public may read and copy any materials we file with
the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
Paper copies of any such filings and corporate governance documents are available free of charge upon
request to The McClatchy Company, 2100 Q Street, Sacramento, CA 95816, Attn: Investor Relations. The
contents of these websites are not incorporated into this filing. Further, our references to the URLs for
these websites are intended to be an inactive textual reference only.
ITEM 1A.
RISK FACTORS
We have significant competition in the market for news and advertising, which may reduce our advertising and
circulation revenues in the future.
Our primary source of revenues is advertising, followed by circulation. In recent years, the advertising
industry generally has experienced a secular shift toward digital advertising and away from traditional print
media. Circulation volumes have also declined, reflecting general trends in the newspaper industry,
including consumer migration toward digital media for news and information. The increasing number of
digital media options available on the internet, through social networking tools and through mobile and
other devices distributing news and other content, is expanding advertiser and consumer choices
significantly. Faced with a multitude of media choices and a dramatic increase in accessible information,
consumers may place greater value on when, where, how and at what price they consume digital content
than they do on the source or reliability of such content. News aggregation websites and customized news
feeds (often free to users) may reduce our traffic levels by minimizing the need for the audience to visit our
websites or use our digital applications directly. Online traffic is also driven by internet search results;
therefore, such results are critical to our ability to compete successfully. Search engines frequently update
and change the methods for directing search queries to web pages or change methodologies and metrics
for valuing the quality and performance of internet traffic on delivering cost-per-click advertisements. The
failure to successfully manage search engine optimization efforts across our businesses could result in
significant decreases in traffic to our various websites, which could result in substantial decreases in
conversion rates and repeat business, as well as increased costs if we were to replace free traffic with paid
traffic, any or all of which could adversely affect our business, financial condition and results of operations.
If traffic levels stagnate or decline, we may not be able to create sufficient advertiser interest in our digital
businesses or to maintain or increase the advertising rates of the inventory on our digital platforms. This
increased competition for our advertisers and consumers has had and is expected to continue to have an
adverse effect on our business and financial results, including negatively impacting revenues and operating
income.
Our advertising revenues may decline due to weak general economic and business conditions.
The U.S. economy continues to be in a period of uncertainty. Certain aspects of the economy, including
employment and consumer confidence, remain challenging. These challenging economic conditions have
had and are expected to continue to have an adverse effect on our advertising revenues. To the extent these
economic conditions continue or worsen our business and advertising revenues will be further adversely
affected, which could negatively impact our operations and cash flows and our ability to meet the
covenants in our debt agreements. Our advertising revenues will be particularly adversely affected if
advertisers respond to weak and uneven economic conditions by reducing their budgets or shifting
spending patterns or priorities, or if they are forced to consolidate or cease operations. Consolidation
across various industries, particularly large department stores and telecommunications companies, may
also reduce our overall advertising revenues. In addition, seasonal variations in consumer spending cause
our quarterly advertising revenues to fluctuate. Advertising revenues in the second and fourth quarters,
which contain more holidays, are typically higher than in the first and third quarters, in which economic
9
activity is generally slower. If general economic conditions and other factors cause a decline in revenues,
particularly during the second or fourth quarters, we may not be able to increase or maintain our revenues
for the year, which would have an adverse effect on our business and financial results.
To remain competitive, we must be able to respond to and exploit changes in technology, services and standards and
changes in consumer behavior, and significant capital investments may be required.
Technology in the media industry continues to evolve rapidly. Advances in technology have led to an
increasing number of methods for delivery of news and other content and have resulted in a wide variety of
consumer demands and expectations, which are also rapidly evolving. For example, the number of people
who access online services through devices other than personal computers, including smartphones,
handheld tablets and mobile devices has increased dramatically in the past few years and is projected to
continue to increase. If we are unable to exploit new and existing technologies to distinguish our products
and services from those of our competitors or adapt to new distribution methods that provide optimal user
experiences, our business and financial results may be adversely affected.
Technological developments also pose other challenges that could adversely affect our revenues and
competitive position. New delivery platforms may lead to pricing restrictions, the loss of distribution
control and the loss of a direct relationship with consumers. We may also be adversely affected if the use of
technology developed to block the display of advertising on websites proliferates. We have noted changes
in readership trends, including a shift of readers to mobile devices. A continued shift of readership to
mobile devices without a corresponding increase in mobile advertising revenues could adversely affect our
results in the future
Technological developments and any changes we make to our business model may require significant
capital investments. We may be limited in our ability to invest funds and resources in digital products,
services or opportunities and we may incur costs of research and development in building and maintaining
the necessary and continually evolving technology infrastructure. Some of our existing competitors and
new entrants may have greater operational, financial and other resources or may otherwise be better
positioned to compete for opportunities and as a result, our digital businesses may be less successful, which
could adversely affect our business and financial results.
If we are not successful in growing and managing our digital businesses, our business, financial condition and
prospects will be adversely affected.
Our future growth depends to a significant degree upon the development and management of our digital
businesses. The growth of our digital businesses over the long term depends on various factors, including,
among other things, the ability to:
(cid:127)
(cid:127)
(cid:127)
continue to increase digital audiences;
attract advertisers to our websites;
tailoring our product for mobile devices;
(cid:127) maintain or increase the advertising rates on our websites;
(cid:127)
(cid:127)
exploit new and existing technologies to distinguish our products and services from those of
competitors and develop new content, products and services; and
invest funds and resources in digital opportunities.
In addition, we expect that our digital business will continue to increase as a percentage of our total
revenues in future periods. For the years ended December 29, 2013 and December 30, 2012, digital
advertising revenues comprised 23.8% and 21.8%, respectively, of total advertising revenues. Digital-only
advertising revenues increased 9.1% in fiscal year 2013, compared to fiscal year 2012. Total digital-only,
which includes digital-only revenues from advertising and circulation, were up 11.6% in fiscal year 2013,
10
compared to fiscal year 2012. As our digital business becomes a greater portion of our overall business, we
will face a number of increased risks from managing our digital operations, including, but not limited, to
the following:
(cid:127)
(cid:127)
structuring our sales force to effectively sell advertising in the digital advertising arena versus
our historical print advertising business;
attracting and retaining employees with skill sets and knowledge base needed to successfully
operate in digital business; and
(cid:127) managing the transition to a digital business from a historical print focused business and the
need to concurrently reduce the physical infrastructure, distribution infrastructure and related
fixed costs associated with the historical print business.
If we are unable to execute cost-control measures successfully, our total operating costs may be greater than
expected, which may adversely affect our profitability.
As a result of adverse general economic and business conditions and our operating results, we have taken
steps to lower operating costs by reducing workforce and implementing general cost-control measures. If
we do not achieve expected savings from these initiatives, or if our operating costs increase as a result of
these initiatives, our total operating costs may be greater than anticipated. These cost-control measures
may also affect our business and our ability to generate future revenue. Because portions of our expenses
are fixed costs that neither increase nor decrease proportionately with revenues, we are limited in our
ability to reduce costs in the short-term to offset any declines in revenues. If these cost-control efforts do
not reduce costs sufficiently or otherwise adversely affect our business, income from continuing operations
may decline.
Continued economic uncertainty and the impact on our business or changes to our business and operations may
result in goodwill and masthead impairment charges.
Due to business conditions, including lower revenues and operating cash flow and the economic
uncertainty, we recorded masthead impairment charges of $5.3 million in fiscal year 2013. We also
recorded masthead impairment charges of $2.8 million in fiscal year 2011 and $59.6 million in fiscal year
2008, and $3.0 billion of goodwill and masthead impairment charges in fiscal year 2007. We currently have
goodwill of $1.0 billion. Further erosion of general economic, market or business conditions could have a
negative impact on our business and stock price, which may require that we record additional impairment
charges in the future.
Our business, reputation and results of operations could be negatively impacted by data security breaches and other
security threats and disruptions.
Certain network and information systems are critical to our business activities. Network and information
systems may be affected by cyber security incidents that can result from deliberate attacks or system
failures. Threats include, but are not limited to, computer hackings, computer viruses, worms or other
destructive or disruptive software, or other malicious activities. Our security measures may also be
breached due to employee error, malfeasance, or otherwise. As a result of these breaches, an unauthorized
party may obtain access to our data or our users’ data or our systems may be compromised. These events
evolve quickly and often are not recognized until after an attack is launched, so we may be unable to
anticipate these techniques or to implement adequate preventative measures. Our network and
information systems may also be compromised by power outages, fire, natural disasters, terrorist attacks,
war or other similar events. There can be no assurance that the actions, measures and controls we have
implemented will be sufficient to prevent disruptions to mission critical systems, the unauthorized release
of confidential information or corruption of data. Although we have experienced cyber security incidents,
to date none had a material impact on our financial condition, results of operations or liquidity.
Nonetheless, these types of events are likely to occur in the future and such events could disrupt our
11
operations or other third party information technology systems in which we are involved. A significant
breakdown, invasion, corruption, destruction or interruption of critical information technology systems, or
infrastructure by employees, others with authorized access to our systems, or unauthorized persons could
result in legal or financial liability or otherwise negatively impact our operations. They also could require
significant management attention and resources, and could negatively impact our reputation among our
customers, advertisers and the public, which could have a negative impact on our financial condition,
results of operations or liquidity.
We are subject to significant financial risk as a result of our $1.56 billion in total consolidated debt.
As of December 29, 2013, we had approximately $1.56 billion in total principal indebtedness outstanding,
including current portion of long-term debt of $28.9 million in 4.625% notes due in November 2014. This
level of debt increases our vulnerability to general adverse economic and industry conditions and we will
likely need to refinance our debt prior to its scheduled maturity. Higher leverage ratios, our credit ratings,
adverse financial markets or other factors outside of our control could adversely affect our future ability to
refinance maturing debt on commercially acceptable terms, or at all, or the ultimate structure of such
refinancing.
Covenants in the indenture governing the notes and our other existing debt agreements will restrict our business.
The indenture governing our 9.00% Senior Secured Notes due in 2022 (the ‘‘9.00% Notes’’) and our
secured credit agreement contain various covenants that limit, subject to certain exceptions, our ability
and/or our restricted subsidiaries’ ability to, among other things:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
incur or assume liens;
incur additional debt or provide guarantees in respect of obligations of other persons;
issue redeemable stock and preferred stock;
pay dividends or make distributions on capital stock, repurchase, redeem or make payments
on capital stock or prepay, repurchase, redeem, retire, defease, acquire or cancel certain of
our existing notes or debentures prior to the stated maturity thereof;
(cid:127) make loans, investments or acquisitions;
(cid:127)
(cid:127)
(cid:127)
(cid:127)
create or permit restrictions on the ability of our subsidiaries to pay dividends or make other
distributions to us or to guarantee our debt, limit our or any of our subsidiaries’ ability to
create liens, or make or pay intercompany loans or advances;
enter into certain transactions with affiliates;
sell, transfer, license, lease or dispose of our or our subsidiaries’ assets, including the capital
stock of our subsidiaries; and
dissolve, liquidate, consolidate or merge with or into, or sell substantially all the assets of us
and our subsidiaries, taken as a whole, to, another person
The restrictions contained in the indenture governing the 9.00% Notes and the secured credit agreement
could adversely affect our ability to:
(cid:127)
finance our operations;
(cid:127) make needed capital expenditures;
(cid:127) make strategic acquisitions or investments or enter into alliances;
(cid:127) withstand a future downturn in our business or the economy in general;
(cid:127)
refinance our outstanding indebtedness prior to maturity;
12
(cid:127)
(cid:127)
engage in business activities, including future opportunities, that may be in our interest; and
plan for or react to market conditions or otherwise execute our business strategies.
Our ability to comply with covenants contained in the indenture for the 9.00% Notes and our secured
credit agreement may be affected by events beyond our control, including prevailing economic, financial
and industry conditions. Even if we are able to comply with all of the applicable covenants, the restrictions
on our ability to manage our business in our sole discretion could adversely affect our business by, among
other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate
opportunities that we believe would be beneficial to us. In addition, our obligations under the 9.00% Notes
and the secured credit agreement are secured, subject to permitted liens, on a first-priority basis, and such
security interests could be enforced in the event of default by the collateral agent for the secured credit
agreement. In the event of such an enforcement, we cannot assure you that the proceeds from an
enforcement would be sufficient to pay our obligations under the 9.00% Notes or secured credit agreement
or at all.
We have significant financial obligations and in the future, we will need cash to repay our existing indebtedness and
meet our other obligations. Our inability to generate sufficient cash to pay our obligations would adversely affect our
business.
We may not be able to generate sufficient cash internally to repay all of our indebtedness at maturity or to
meet our other obligations. As of December 29, 2013, we had approximately $1.56 billion of total
indebtedness outstanding and approximately $41.1 million in face amount of letters of credit outstanding
under the secured credit agreement. Of the $1.56 billion aggregate principal amount outstanding as of
December 29, 2013; we have approximately $28.9 million of notes with an interest rate of 4.625% due in
November 2014; approximately $261.3 million of notes with an interest rate of 5.750% due in 2017;
$900 million of 9.00% Notes due in 2022; approximately $89.2 million of debentures with an interest rate
of 7.150% due in 2027 and approximately $276.2 million of debentures with an interest rate of 6.875% due
in 2029.
As of the end of fiscal year 2013, the projected benefit obligations of our qualified defined benefit pension
plan (‘‘Pension Plan’’) exceeded Pension Plan assets by $303.2 million. In January 2014, we contributed
$25 million of cash to the Pension Plan. We expect this contribution will satisfy all of our required
contributions in fiscal year 2014. While amounts of future contributions are subject to numerous
assumptions, including, among others, changes in interest rates, returns on assets in the Pension Plan and
future government regulations, we estimate that a total of approximately $23 million will be required to be
contributed to the Pension Plan in fiscal year 2015. In addition, we have a limited number of supplemental
retirement plans, which provide certain key employees with additional retirement benefits. These plans
have no assets; however as of December 29, 2013, our projected benefit obligations of these plans was
$113.4 million. These plans are on a pay-as-you-go basis.
Our ability to make payments on and to refinance our indebtedness, including the 9.00% Notes and our
other series of outstanding notes, to make required contributions to the Pension Plan, to fund the
supplemental retirement plans and to fund working capital needs and planned capital expenditures will
depend on our ability to generate cash in the future. Our ability to generate cash, to a certain extent, is
subject to general economic, financial, competitive, business, legislative, regulatory and other factors that
are beyond our control.
If our business does not generate sufficient cash flow from operations or if future borrowings are not
available to us in an amount sufficient to enable us to pay our indebtedness, including the 9.00% Notes and
our other series of outstanding notes or to fund our other liquidity needs, we may need to refinance all or a
portion of our indebtedness, on or before the maturity thereof, reduce or delay capital investments or seek
to raise additional capital, any of which could have a material adverse effect on our operations. In addition,
we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all.
13
Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets
and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and
may require us to comply with more onerous covenants, which could further restrict our business
operations or our ability to refinance our existing debt. The terms of existing or future debt instruments,
including the indenture governing the 9.00% Notes, may limit or prevent us from taking any of these
actions. In addition, any failure to make scheduled payments of interest and principal on our outstanding
indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur
additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient
cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on
commercially reasonable terms or at all, would have an adverse effect, which could be material, on our
business, financial condition and results of operations, as well as on our ability to satisfy our obligations in
respect of our outstanding debt.
We require newsprint for operations and, therefore, our operating results may be adversely affected if the price of
newsprint increases or if we experience disruptions in our newsprint supply chain.
Newsprint is the major component of our cost of raw materials. Newsprint accounted for 7.8% of our
operating expenses in the year ended December 29, 2013. Accordingly, our earnings are sensitive to
changes in newsprint prices. The price of newsprint has historically been volatile and may increase as a
result of various factors, including:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
declining newsprint supply from mill closures;
reduction in newsprint suppliers because of consolidation in the newsprint industry;
paper mills reducing their newsprint supply because of switching their production to other
paper grades; and
a decline in the financial situation of newsprint suppliers.
We have not attempted to hedge price fluctuations in the normal purchases of newsprint or enter into
contracts with embedded derivatives for the purchase of newsprint other than the natural hedge created by
our ownership interest in Ponderay. If the price of newsprint increases materially, operating results could
be adversely affected. In addition, we rely on a limited number of suppliers for deliveries of newsprint. If
newsprint suppliers experience labor unrest, transportation difficulties or other supply disruptions, our
ability to produce and deliver newspapers could be impaired and/or the cost of the newsprint could
increase, both of which would negatively affect our operating results.
A portion of our employees are members of unions, and if we experience labor unrest, our ability to produce and
deliver newspapers could be impaired.
If we experience labor unrest, our ability to produce and deliver newspapers could be impaired in some
locations. In addition, the results of future labor negotiations could harm our operating results. Our
newspapers have not experienced a labor strike for decades. However, we cannot ensure that a strike will
not occur at one or more of our newspapers in the future. As of December 29, 2013, approximately 6.3% of
full-time and part-time employees were represented by unions. Most of our union-represented employees
are currently working under labor agreements, with expiration dates through 2015. We face collective
bargaining upon the expirations of these labor agreements. Even if our newspapers do not suffer a labor
strike, our operating results could be harmed if the results of labor negotiations restrict our ability to
maximize the efficiency of our newspaper operations. In addition, our ability to make short-term
adjustments to control compensation and benefits costs, rebalance our portfolio of businesses or otherwise
adapt to changing business needs may be limited by the terms and duration of our collective bargaining
agreements.
14
We may be required to make greater contributions to our qualified defined benefit pension plans in the next several
years than previously required, placing greater liquidity needs upon our operations.
The projected benefit obligations of the qualified defined benefit pension plan (‘‘Pension Plan’’) exceeded
Pension Plan assets by $303.2 million as of December 29, 2013, a decrease of $284.7 million from
December 30, 2012, primarily due to a favorable change in the discount rate. The value of the Pension Plan
assets fluctuates based on many factors, including changes in interest rates and market returns. In January
2014, we contributed $25 million to the Pension Plan, reducing the underfunded obligation to
$278.2 million.
The excess of benefit obligations over pension assets is expected to give rise to required pension
contributions over the next several years. Legislation enacted in the second quarter of 2012 mandated a
change in the discount rates used to calculate the projected benefit obligations for purposes of funding
pension plans. The new legislation and calculation uses historical averages of long-term highly-rated
corporate bonds (within ranges as defined in the legislation) which have an impact of applying a higher
discount rate to determine the projected benefit obligations for funding and current long-term interest
rates. Also, the Pension Relief Act of 2010 (‘‘PRA’’) provided relief in the funding requirements of the
Pension Plan, and we elected an option that allows the funding related to our 2009 and 2011 plan years
required contributions to be paid over 15 years. However, even with the relief provided by these legislative
rules, we expect future contributions to be required. In addition, adverse conditions in the capital markets
and/or lower long-term interest rates may result in greater annual contribution requirements, placing
greater liquidity needs upon our operations.
We have invested in certain digital ventures, but such ventures may not be as successful as expected, which could
adversely affect our results of operations.
We continue to evaluate our business and make strategic investments in digital ventures, either alone or
with partners, to further our digital growth. We have, among others, investments with other partners in
CareerBuilder LLC, which operates the nation’s largest online job website, CareerBuilder.com; Classified
Ventures, LLC, which operates Cars.com, Apartments.com and other classified websites;
HomeFinder LLC, which operates the real estate website HomeFinder.com; and Wanderful Media, owner
of Find n Save(cid:4), a digital shopping portal that provides advertisers with a common platform to reach
online audiences with digital circulars, coupons and display advertising. The success of these ventures may
be dependent to an extent on the efforts of our partners. Further, our ability to monetize the investments
and/or the value we may receive upon any disposition may depend on the actions of our partners. As a
result, our ability to control the timing or process relating to a disposition may be limited, which could
adversely affect the liquidity of these investments or the value we may ultimately attain upon disposition. If
the value of the companies in which we invest declines, we may be required to record a charge to earnings.
There can be no assurances that we will receive a return on these investments or that they will result in
advertising growth or will produce equity income or capital gains in future years. See the Recent
Developments discussion below in Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition
and Results of Operations.’’
Circulation volume declines could adversely affect our circulation and advertising revenues and circulation price
increases could exacerbate declines in circulation volumes.
Advertising and circulation revenues are affected by circulation volumes and readership levels of our
newspapers. In recent years, newspapers have experienced difficulty maintaining or increasing print
circulation levels because of a number of factors, including:
(cid:127)
increased competition from other publications and other forms of media technologies
available in various markets, including the internet and other new media formats that are
often free for users;
(cid:127)
continued fragmentation of media audiences;
15
(cid:127)
(cid:127)
(cid:127)
a growing preference among some consumers to receive all or a portion of their news other
than from a newspaper;
increases in subscription and newsstand rates; and
declining discretionary spending by consumers affected by negative economic conditions.
These factors could also affect our newspapers’ ability to institute circulation price increases for print
products. Also, print price increases have historically had an initial negative impact on circulation volumes
that may not be mitigated with additional marketing and promotion. A prolonged reduction in circulation
would have a material adverse effect on advertising revenues. To maintain our circulation base, we may be
required to incur additional costs that we may not be able to recover through circulation and advertising
revenues.
We rely on third party vendors for various services and failure of any of those third parties to fulfill their obligations
to us with quality and timeliness we expect, or if our relationship with such vendors is damaged, our business may be
harmed.
We rely on third party vendors to provide various services such as printing and production, as well as
information technology systems. We do not control the operation of these vendors. If any of these third
party vendors terminates their relationship with us, or does not provide an adequate level of service, it
would be disruptive to our business as we seek to replace the vendor or remedy the inadequate level of
service. This disruption may adversely affect our operating results.
Developments in the laws and regulations to which we are subject, may result in increased costs and lower
advertising revenues from our digital businesses.
We are generally subject to government regulation in the jurisdictions in which we operate. In addition, our
websites are available worldwide and are subject to laws regulating the internet both within and outside the
United States. We may incur increased costs necessary to comply with existing and newly adopted laws and
regulations or penalties for any failure to comply. Advertising revenues from our digital businesses could
be adversely affected, directly or indirectly, by existing or future laws and regulations relating to the use of
consumer data in digital media.
Adverse results from litigation or governmental investigations can impact our business practices and operating
results.
From time to time, we and our subsidiaries are parties to litigation and regulatory, environmental and
other proceedings with governmental authorities and administrative agencies. Adverse outcomes in
lawsuits or investigations could result in significant monetary damages or injunctive relief that could
adversely affect our operating results or financial condition as well as our ability to conduct our business as
it is presently being conducted.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None
ITEM 2.
PROPERTIES
Our corporate headquarters are located at 2100 Q Street, Sacramento, California. At December 29, 2013,
we had newspaper production facilities in 17 markets in 13 states. Subsequent to December 29, 2013, we
outsourced our printing production of one of our newspapers in one state, leaving us with 16 markets in 12
states. Our facilities vary in size and in total occupy about 6.7 million square feet. Approximately
2.1 million of the total square footage is leased from others, while we own the properties for the remaining
square footage. We own substantially all of our production equipment, although certain office equipment is
leased.
16
We maintain our properties in good condition and believe that our current facilities are adequate to meet
the present needs of our newspapers.
ITEM 3.
LEGAL PROCEEDINGS
We are subject to a variety of legal proceedings (including libel, employment, wage and hour, independent
contractor and other legal actions) and government proceedings (including environmental matters) that
arise from time to time in the ordinary course of our business. Litigation is inherently unpredictable, and
outcomes are typically uncertain, and our past experience does not provide any additional visibility or
predictability to estimate the range of loss that may occur because the costs, outcome and status of these
types of claims and proceedings have varied significantly in the past. Accordingly, we are unable to
estimate the amount or range of reasonably possible losses. Historically, such claims and proceedings have
not had a material adverse effect upon our consolidated results of operations or financial condition.
ITEM 4.
MINE SAFETY DISCLOSURES
None
17
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The McClatchy Company’s (the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’) Class A Common Stock is listed on the
New York Stock Exchange (‘‘NYSE’’) under the symbol ‘‘MNI’’. A small amount of Class A Common
Stock is also traded on other exchanges. Our Class B Common Stock is not publicly traded. As of
February 21, 2014, there were approximately 5,267 and 19 record holders of our Class A and Class B
Common Stock, respectively. We believe that the total number of holders of our Class A Common Stock is
much higher since many shares are held in street names. The following table lists the high and low prices of
our Class A Common Stock as reported by the NYSE for each fiscal quarter of 2013 and 2012:
Fiscal Year 2013 Quarters Ended:
March 31, 2013
June 30, 2013
September 29, 2013
December 29, 2013
Fiscal Year 2012 Quarters Ended:
March 25, 2012
June 24, 2012
September 23, 2012
December 30, 2012
High
$3.46
$2.90
$3.38
$3.43
High
$3.04
$2.96
$2.42
$3.45
Low
$2.17
$2.13
$2.29
$2.75
Low
$2.22
$1.98
$1.50
$2.18
Dividends:
During fiscal year 2009, we suspended our quarterly dividend and therefore we have not paid any cash
dividends since the first quarter of fiscal year 2009. The payment and amount of future dividends remain
within the discretion of the Board of Directors and will depend upon our future earnings, financial
condition, and other factors considered relevant by the Board of Directors. Also, the amount of future
dividends is governed by reaching certain leverage levels of earnings before interest, taxes, depreciation
and amortization under our debt agreements.
Equity Securities:
During the year ended December 29, 2013, we did not sell any equity securities of the Company, which
were not registered under the Securities Act of 1933, as amended. During the year ended December 29,
2013, we did not repurchase any equity securities.
Performance Graph:
The following graph compares the cumulative five-year total return attained by shareholders on The
McClatchy Company’s common stock versus the cumulative total returns of the S&P Midcap 400 index, a
customized peer group composed of five companies (‘‘New Peer Group’’) and a customized peer group
composed of six companies used during the fiscal year ended December 30, 2012 (‘‘Old Peer Group’’).
Our New Peer Group is customized to include five companies that are publicly traded with at least 40% of
their revenues from newspaper publishing. This peer group includes: A.H. Belo Corp., E.W. Scripps
Company, Gannett Co., Lee Enterprises Inc. and New York Times Company. In customizing the New Peer
Group we removed Journal Communications Inc. that was included in Old Peer Group. This company was
removed because it no longer has at least 40% of their revenues from newspaper publishing.
18
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The McClatchy Company, the S&P Midcap 400 Index,
Old Peer Group, and New Peer Group
$800
$700
$600
$500
$400
$300
$200
$100
$0
12/28/08
12/27/09
12/26/10
12/25/11
12/30/12
12/29/13
The McClatchy Company
S&P Midcap 400
Old Peer Group
New Peer Group
1MAR201402420387
*$100 invested on 12/28/08 in stock or 12/31/08 in index, including reinvestment of dividends.
Index calculated on month-end basis.
Copyright(cid:5) 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
12/28/08
12/27/09
12/26/10
12/25/11
12/30/12
12/29/13
Fiscal Years Ended:
The McClatchy Company
S&P Midcap 400
Old Peer Group
New Peer Group
$
$
$
$
100
100
100
100
$
$
$
$
533
137
207
209
$
$
$
$
721
174
203
203
$
$
$
$
357
171
171
170
$
$
$
$
450
202
218
219
$
$
$
$
501
269
391
391
19
ITEM 6.
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction with Item 7 — ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations,’’ our consolidated financial
statements and the related notes, and other financial data included elsewhere in this annual report.
Historical results are not necessarily indicative of the results to be expected in future periods.
(in thousands, except per share amounts)
REVENUES — NET:
Advertising
Circulation
Other
OPERATING EXPENSES:
Other operating expenses
Depreciation and amortization
Asset impairments
December 29, December 30, December 25, December 26, December 27,
2011
2012 (1)
2013
2009
2010
$ 838,419
353,963
49,855
$ 914,738
342,201
52,700
$ 956,305
344,549
51,000
$1,049,964
358,492
52,492
$1,143,129
363,922
50,199
1,242,237
1,309,639
1,351,854
1,460,948
1,557,250
977,748
122,408
17,181
998,228
125,275
—
1,026,211
121,528
2,800
1,088,661
133,404
—
1,215,849
142,889
—
1,117,337
1,123,503
1,150,539
1,222,065
1,358,738
OPERATING INCOME
124,900
186,136
201,315
238,883
198,512
NON-OPERATING (EXPENSE) INCOME:
Interest expense
Interest income
Equity income in unconsolidated companies, net
Gain (loss) on extinguishment of debt
Other — primarily Miami property gain and write-
downs
Other — net
(135,381)
53
42,651
(13,643)
12,938
541
(151,334)
88
31,935
(88,430)
—
79
(165,434)
97
27,762
(1,203)
—
248
(177,641)
550
11,752
(10,661)
(24,447)
265
(127,276)
47
2,130
44,117
(34,172)
203
(92,841)
(207,662)
(138,530)
(200,182)
(114,951)
Income from continuing operations before income
tax provision (benefit)
Income tax provision (benefit)
NET INCOME FROM CONTINUING
OPERATIONS
Income from discontinued operations, net of tax
32,059
13,256
18,803
—
NET INCOME (LOSS)
$
18,803
Basic earnings per common share:
Income from continuing operations
Discontinued operations, net of tax
Net income per basic common share
Diluted earnings per common share:
Income from continuing operations
Discontinued operations, net of tax
Net income per diluted common share
Dividends per common share:
CONSOLIDATED BALANCE SHEET DATA:
Total assets
Long-term debt
Financing obligations
Stockholders’ equity
(21,526)
(21,382)
(144)
—
(144)
62,785
8,396
54,389
—
38,701
5,601
33,100
3,083
83,561
26,800
56,761
(6,174)
$
54,389
$
36,183
$
50,587
—
—
—
—
—
—
—
$
$
$
$
$
0.64
—
0.64
0.63
—
0.63
—
$
$
$
$
$
0.39
0.04
0.43
0.39
0.04
0.43
—
$
$
$
$
$
0.68
(0.07)
0.61
0.68
(0.07)
0.61
0.09
$
$
$
$
$
$
$
$
$
$
$
0.22
—
0.22
0.22
—
0.22
—
$2,617,635
1,493,323
40,264
240,386
$3,005,131
1,587,330
279,325
42,501
$3,040,059
1,577,476
272,795
175,187
$3,146,859
1,703,339
—
215,752
$3,299,899
1,896,436
—
166,686
(1)
Due to our fiscal calendar, the year ended on December 30, 2012 encompassed a 53-week period as compared to the
other fiscal year ends identified in this table, which only have 52-week periods.
20
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to Part I, Item 1 ‘‘Note About Forward-Looking Statements’’ and Item 1A ‘‘Risk
Factors,’’ which describes important factors that could cause actual results to differ from expectations and
non-historical information contained herein. In addition, the following Management’s Discussion and
Analysis of Financial Condition and Results of Operations (‘‘MD&A’’) is intended to help the reader
understand the results of operations and financial condition of The McClatchy Company (the ‘‘Company,’’
‘‘we,’’ ‘‘us’’ or ‘‘our’’). MD&A should be read in conjunction with our audited consolidated financial
statements and accompanying notes to the consolidated financial statements (‘‘Notes’’) as of and for each
of the three years ended December 29, 2013, December 30, 2012 and December 25, 2011 included
elsewhere in this Annual Report on Form 10-K.
Overview
We are a leading news, advertising and information provider, offering a wide array of print and digital
products in each of the markets we serve. As one of the largest newspaper companies in the country, based
on daily circulation, our operations include 30 daily newspapers, community newspapers, websites, mobile
news and advertising, niche publications, direct marketing and direct mail services. Our largest newspapers
include the (Fort Worth) Star-Telegram, The Sacramento Bee, The Kansas City Star, the Miami Herald, The
Charlotte Observer and The (Raleigh) News & Observer.
We also own a portfolio of premium digital assets, including 15.0% of CareerBuilder, LLC, which operates
the nation’s largest online job website, CareerBuilder.com, 25.6% of Classified Ventures, LLC, a company
that offers classified websites such as the auto website Cars.com and the rental website Apartments.com,
33.3% of HomeFinder, LLC, which operates the online real estate website HomeFinder.com; and 12.2%
of Wanderful Media, owner of Find n Save(cid:4), a digital shopping portal that provides advertisers with a
common platform to reach online audiences with digital circulars, coupons and display advertising.
Our fiscal year ends on the last Sunday in December. The year ended December 29, 2013 (‘‘fiscal year
2013’’) and the year ended December 25, 2011 (‘‘fiscal year 2011’’) both consisted of 52-week periods. The
year ended on December 30, 2012 (‘‘fiscal year 2012’’) consisted of a 53-week period.
The following table reflects our sources of revenues as a percentage of total revenues for the periods
presented:
Revenues:
Advertising
Circulation
Other
Years Ended
December 29, December 30,
2013
2012
67.5%
28.5%
4.0%
69.9%
26.1%
4.0%
Total advertising
100.0%
100.0%
Our primary sources of revenues are print and digital advertising. All categories (retail, national and
classified) of advertising discussed below include both print and digital advertising. Retail advertising
revenues include advertising carried as a part of newspapers (run of press (‘‘ROP’’) advertising),
advertising inserts placed in newspapers (‘‘preprint advertising’’) and/or advertising delivered digitally.
Circulation revenues include both print and digital subscriptions or a combination of both. Our print
newspapers are delivered by independent contractors and large distributors. Other revenues, includes
among others, commercial printing and distribution revenues.
See ‘‘Results of Operations’’ section below for a discussion of our revenue performance and contribution
by category for the fiscal years 2013, 2012 and 2011.
21
Non-Cash Impairment Charges
Recent Developments
The financial results for fiscal year 2013 include $17.2 million of non-cash impairment charges to earnings
to reduce the carrying value of mastheads, real property, land, production equipment and certain equity
investments. The non-cash impairment charges include $5.3 million for masthead impairments resulting
from our annual impairment testing. In addition, as previously announced, we entered into an outsourcing
agreement to print one of our newspapers beginning in mid-March 2014 and to sell certain other property.
As a result, we incurred non-cash impairment charges related to our existing production facilities and
equipment for $11.9 million.
Accelerated Depreciation on Production Equipment
During the year ended December 29, 2013, we incurred $11.4 million of accelerated depreciation,
primarily related to a reduction in the remaining useful lives of production equipment associated with
outsourcing or moving our printing process at three of our newspapers.
Completion of Sale of Real Property in Miami and Relocation
On May 27, 2011, we sold 14.0 acres of land in Miami, including the building which held the operations of
one of our subsidiaries, The Miami Herald Media Company, and adjacent parking lots, for a purchase
price of $236.0 million (‘‘Miami property’’). We received cash proceeds of $230.0 million as a result of the
sale. The additional $6.0 million was held in an escrow account for our expenses incurred in connection
with the relocation of our Miami operations. In April 2012, we received these funds, which were released
for payment of costs associated with the relocation of the Miami operations.
In connection with the sale transaction, The Miami Herald Media Company entered into a lease
agreement with the buyer pursuant to which we continued to operate our Miami newspaper operations
rent free from the existing location, at the Miami property, through May 2013, while our new facilities were
being constructed. As result of our continuing involvement in the Miami property and because we would
not pay rent during this period, the sale was treated as a financing transaction. Accordingly, we continued
to depreciate the carrying value of the building until our operations were moved. In addition, we have
recorded a $236.0 million liability (in financing obligations) equal to the sales proceeds received of
$230.0 million plus the $6.0 million received from the escrow account for reimbursement of moving
expenses. We were imputing rent based on comparable market rates, which was reflected as interest
expense until the operations were moved.
As of the end of May 2013, we moved all of our Miami business operations to a leased facility and our
production to our new production plant built next to the business operations in Doral, Florida, and we no
longer have a continuing involvement with the Miami property. As a result, in fiscal year 2013, we
recognized a gain of $12.9 million on the Miami transaction, which was recorded in non-operating
(expense) income in our consolidated statements of operations. We also released our financing obligation
and property, plant and equipment (‘‘PP&E’’) from our consolidated balance sheet during the quarter
ended June 30, 2013, as described in Note 8, Cash Flow Information.
Classified Ventures, LLC Entered into a Definitive Agreement to Sell Apartments.com
On February 28, 2014, Classified Ventures, LLC entered into a definitive agreement to sell its
apartments.com business for approximately $585 million. The transaction is expected to close in the second
quarter of fiscal year 2014 and accordingly we will record our share of the gain on the sale, which is
expected to be between $140 million to $145 million, before taxes, during the same period. We also expect
to receive a distribution of approximately $147 million from Classified Ventures, LLC, which is equal to
our share of the net proceeds from the sale shortly after the transaction closes.
22
Results of Operations
Fiscal Year 2013 Compared to Fiscal Year 2012
We had net income in fiscal year 2013 of $18.8 million, or $0.22 per diluted share, compared to a net loss of
$0.1 million, or $0.00 per diluted share, in fiscal year 2012. The net loss in fiscal year 2012 primarily
resulted from the recognition of a non-operating loss on extinguishment of debt related to the refinancing
of $762.4 million of our 11.50% Notes pursuant to our cash tender offer in December 2012. See Debt and
Related Matters section in the ‘‘Liquidity and Capital Resources’’ section below for additional information
related to these tender offer repurchases. In addition, revenues and expenses were higher in 2012 as a
result of the extra week in fiscal year 2012.
The following table summarizes our revenues by category, which compares fiscal year 2013 to fiscal year
2012:
Revenues
(in thousands)
Advertising:
Retail
National
Classified:
Auto
Real estate
Employment
Other
Total classified
Direct marketing and other
Total advertising
Circulation
Other
Total revenues
Years Ended
December 29,
2013
(52 weeks)
December 30,
2012
(53 weeks)
$
Change
%
Change
$
422,462
63,724
$
474,031
70,477
$
(51,569)
(6,753)
78,078
34,535
40,584
66,400
219,597
132,636
838,419
353,963
49,855
83,396
36,386
46,954
71,544
238,280
131,950
914,738
342,201
52,700
(5,318)
(1,851)
(6,370)
(5,144)
(18,683)
686
(76,319)
11,762
(2,845)
$ 1,242,237
$ 1,309,639
$
(67,402)
(10.9)
(9.6)
(6.4)
(5.1)
(13.6)
(7.2)
(7.8)
0.5
(8.3)
3.4
(5.4)
(5.1)
During fiscal year 2013, total revenues decreased 5.1% compared to fiscal year 2012 primarily due to the
continued decline in demand for advertising, and to a lesser degree to the inclusion of an additional week
in fiscal year 2012, compared to fiscal year 2013. Industry-wide declines in total advertising revenues
persisted during fiscal year 2013. The continued weak economy and a secular shift in advertising demand
from print to digital products, which are generally sold at lower prices than print products, are the principal
causes of the decline in total advertising revenues. The decline in advertising revenues was partially offset
by increases in our circulation revenues due primarily to the Plus Program. Also, the 5.1% decrease in total
revenues in fiscal year 2013 as compared to fiscal year 2012, was affected by the 53rd week in fiscal year
2012. We estimate that the extra week in fiscal year 2012 provided for an additional $16.5 million in
advertising revenues, $6.4 million in circulation revenues and $24.2 million in total revenues.
Advertising Revenues
Total advertising revenues decreased 8.3% in fiscal year 2013 compared to fiscal year 2012. While we
experienced declines in all of our revenue categories, the decrease in advertising revenues related primarily
to declines in retail advertising and employment classified advertising, and declines in all categories due to
the extra week in 2012. These decreases in advertising revenues in fiscal year 2013 compared to fiscal year
23
2012 were partially offset by increases in our digital automotive classified advertising, digital real estate
classified advertising and direct marketing revenues.
Newspaper advertising is typically display advertising, or in the case of classified, display and/or liner
advertising, while digital advertising can be in the form of display, coupon or banner ads, video, search
advertising and/or liner ads. Advertising printed directly in the newspaper is considered ROP advertising
while preprint advertising consists of preprinted advertising inserts delivered with the newspaper.
The following table reflects the category of advertising revenues as a percentage of total advertising
revenues for the periods presented:
Years Ended
December 29, December 30,
2013
2012
Advertising:
Retail
National
Classified
Direct marketing and other
50.4%
7.6%
26.2%
15.8%
51.8%
7.7%
26.1%
14.4%
Total advertising
100.0%
100.0%
We categorize advertising revenues as follows:
(cid:127) Retail – local retailers, local stores of national retailers, department and furniture stores,
restaurants and other consumer-related businesses. Retail advertising also includes revenues
from preprinted advertising inserts distributed in the newspaper.
(cid:127) National – national and major accounts such as telecommunications companies, financial
institutions, movie studios, airlines and other national companies.
(cid:127) Classified – local auto dealers, employment, real estate including display advertising and other
legal advertisements and other
includes remembrances,
classified advertising, which
miscellaneous advertising.
(cid:127) Direct Marketing and Other – advertisements in direct mail, shared mail and niche
publications, total market coverage publications and other miscellaneous advertising not
included in the daily newspaper.
Retail:
Retail advertising revenues decreased 10.9% in fiscal year 2013 compared to fiscal year 2012. The decrease
reflects the extra week in fiscal year 2012, lower print ROP revenues in general merchandise and furniture
and home furnishing, and lower preprint revenues, which were partially offset by an increase in digital-only
retail advertising revenues, such as, banner and display. In fiscal year 2013, compared to fiscal year 2012,
we reported decreases in print ROP advertising revenues of 17.0%, digital ROP advertising revenues of
2.0% and preprint advertising revenues of 8.8%.
National:
National advertising revenues decreased 9.6% in fiscal year 2013 compared to fiscal year 2012. For fiscal
year 2013, compared to fiscal year 2012, print national advertising decreased 13.6% but was partially offset
by an increase of 1.0% in digital national advertising revenues. The decreases in total national advertising
revenues were affected by the 53rd week in fiscal year 2012 and they were also broad-based among the
categories but were partially offset by increases in the airline segment.
24
Classified:
Classified advertising revenues decreased 7.8% in fiscal year 2013 compared to fiscal year 2012. The
decrease in classified advertising revenues in fiscal year 2013 was partially a result of the weak economy,
the extra week in fiscal year 2012, as well as advertisers increasingly using digital advertising, which is
widely available from many competitors, instead of print advertising in the classified category. For fiscal
year 2013, compared to fiscal year 2012, print classified advertising decreased 14.1%, reflecting in part, the
impact of the extra week in fiscal year 2012, which was partially offset by a 1.0% increase in digital
classified advertising revenues. The increases in digital classified advertising primarily reflect stronger
digital automotive advertising sales, as well as digital real estate advertising revenues, as discussed below.
The following is a discussion of the major classified advertising categories for fiscal year 2013, as compared
to fiscal year 2012:
(cid:127) Automotive advertising revenues decreased in fiscal year 2013 by 6.4%. Print automotive
advertising revenues declined 24.3% in fiscal year 2013, while digital automotive advertising
revenues were up 9.7% in fiscal year 2013. These results reflect the continued migration of
automotive advertising to digital platforms as well as an increase in automobile sales in the
United States during the period, and the popularity of our Cars.com products with local auto
dealerships.
(cid:127) Real estate advertising revenues decreased in fiscal year 2013 by 5.1%. Recently, real estate
revenue trends reflect single-digit declines in year-over-year comparisons after years of
double-digit declines, reflecting a limited recovery in the housing market. Print real estate
advertising revenues declined 8.4% in fiscal year 2013; and digital real estate advertising
revenues grew 0.7% in fiscal year 2013.
(cid:127) Employment advertising revenues decreased in fiscal year 2013 by 13.6%, reflecting an
employment environment that is not growing quickly and due to the continued shift from
traditional media to digital media, which includes a wider array of options. Print employment
advertising revenues declined 16.5% in fiscal year 2013 and digital employment advertising
revenues were down 11.1% in fiscal year 2013.
(cid:127) Other classified advertising revenues, which include legal, remembrance and celebration
notices and miscellaneous advertising decreased in fiscal year 2013 by 7.2%. Print other
classified advertising revenues declined 8.3% in fiscal year 2013 and digital other classified
advertising revenues were down 3.5% in fiscal year 2013.
Digital:
Digital advertising revenues, which are included in each of the advertising categories discussed above,
constituted 23.8% and 21.8% of total advertising revenues in fiscal years 2013 and 2012, respectively. Total
digital advertising includes digital advertising both bundled with print and sold on a stand-alone basis.
Digital advertising revenues totaled $199.3 million in fiscal year 2013 and were flat when compared to
fiscal year 2012, which included a 53rd week of revenues. Digital-only advertising revenues totaled
$118.2 million in fiscal year 2013, representing an increase of 9.1% in fiscal year 2013 compared to fiscal
year 2012. Digital advertising revenues sold in conjunction with print products declined 11.2% in fiscal year
2013 compared to fiscal year 2012 as a result of fewer print advertising sales.
Direct Marketing and Other:
Direct marketing and other advertising revenues increased 0.5% during fiscal year 2013 compared to fiscal
year 2012, which included a 53rd week of revenues. The increase largely came as a result of growth in our
‘‘Sunday Select’’ product, a package of preprinted advertisements delivered to non-subscribers upon
request, which grew 10.3% in fiscal year 2013 compared to fiscal year 2012.
25
Circulation Revenues
Circulation revenues increased 3.4% during fiscal year 2013 compared to fiscal year 2012. In late 2012, our
newspapers successfully introduced new subscription packages (‘‘Plus Program’’) for digital content that
ended free, unlimited access to the newspapers’ websites and certain mobile content. The Plus Program
offers both a combined digital and print subscription and a digital-only subscription. The Plus Program
provided $31.4 million in additional circulation revenues during fiscal year 2013, compared to $1.2 million
in fiscal year 2012. The increase in circulation revenues in fiscal year 2013, compared to fiscal year 2012
also reflected approximately $11.3 million in revenues related to newspapers that changed to
fee-for-service circulation delivery contracts during fiscal year 2013. The overall circulation revenues
increase was partially offset by lower circulation volumes, as well as the impact of the extra week in fiscal
2012. Daily circulation volumes declined 5.5% in fiscal year 2013 compared to fiscal year 2012. In fiscal
year 2012, daily circulation volumes had declined 5.6%. As expected, circulation volumes continue to
decline as a result of fragmentation of audiences faced by all media as available media outlets proliferate
and readership trends change. We continue to look for new opportunities to reduce our declines in
circulation volumes and increase our circulation revenues.
Our digital traffic continues to grow with average monthly total unique visitors to our newspaper websites
up 2.2% in fiscal year 2013 compared to fiscal year 2012.
Operating Expenses
During fiscal year 2013, total operating expenses decreased 0.5% compared to fiscal year 2012. Our total
operating expenses also reflect our continued effort to reduce costs through streamlining processes to gain
efficiencies, as well as headcount reductions. As described more fully in Recent Developments above, during
fiscal year 2013, we incurred non-cash impairment charges and accelerated depreciation of $17.2 million
and $11.4 million, respectively. Operating expenses decreased in fiscal year 2013, in part, due to the extra
week in fiscal year 2012. Operating expenses in all periods presented include employee severance related
to permanent headcount reductions as we continue to optimize our operations as a more digitally focused
company. Fiscal year 2013 also includes moving expenses primarily related to the relocation of our Miami
newspaper operations and other production facility moves and outsourcing.
The following table summarizes our operating expenses, which compares fiscal year 2013 to fiscal year 2012:
(in thousands)
Compensation expenses
Newsprint, supplements and printing
expenses
Depreciation and amortization expenses
Other operating expenses
Asset impairments
Miami relocation costs
Severance costs
Years Ended
December 29,
2013
(52 weeks)
December 30,
2012
(53 weeks)
$
Change
%
Change
$
432,255
$
443,401
$
(11,146)
(2.5)
123,133
122,408
422,360
17,181
140,932
125,275
413,895
—
$ 1,117,337
$ 1,123,503
$
$
11,399
4,847
$
$
13,636
4,651
$
$
$
(17,799)
(2,867)
8,465
17,181
(6,166)
(2,237)
196
(12.6)
(2.3)
2.0
100.0
(0.5)
(16.4)
4.2
Compensation expenses, which includes the severance costs discussed above, decreased 2.5% during fiscal
year 2013 compared to fiscal year 2012. Payroll expenses in fiscal year 2013 decreased 5.2% compared to
fiscal year 2012, reflecting a 4.7% decline in average full-time equivalent headcount. Fringe benefits costs
in fiscal year 2013 increased 11.7% compared to fiscal year 2012, primarily as a result of retirement costs
26
related to our qualified defined benefit pension plan (‘‘Pension Plan’’). These were partially offset by lower
medical costs and other fringe benefits.
Newsprint, supplements and printing expenses decreased 12.6% in fiscal year 2013 compared to fiscal year
2012. Newsprint expense decreased by 16.2% in fiscal year 2013 compared to fiscal year 2012, reflecting
lower newsprint usage and to a lesser extent, lower newsprint prices. Supplement and printing expense
decreased 2.8% in fiscal year 2013 compared to fiscal year 2012.
Depreciation and amortization expenses decreased 2.3% in fiscal year 2013 compared to fiscal year 2012.
The decrease in depreciation and amortization expense is partially a result of assets that became fully
depreciated at the end of fiscal year 2012 or during fiscal year 2013 and as a result of an expected
$1.0 million decrease in amortization expense in fiscal year 2013 compared to fiscal year 2012. The decline
in depreciation expense was partially offset by the impact of accelerated depreciation in fiscal year 2013
compared to fiscal year 2012. During fiscal year 2013, we incurred $11.4 million in accelerated depreciation
(i) resulting from equipment formerly used in our Miami operations prior to the relocation of these
operations, (ii) related to the production equipment associated with outsourcing our printing process at
one of our newspapers and (iii) moving the printing operations for another newspaper. During fiscal year
2012, we incurred $8.3 million in accelerated depreciation on retired or decommissioned Miami property
assets.
Other operating costs increased 2.0% in fiscal year 2013 compared to fiscal year 2012 primarily reflecting
approximately $11.3 million in expenses related to newspapers that changed to fee-for-service circulation
delivery contracts during fiscal year 2013 and offset by a decrease of approximately $2.2 million in moving
costs related to the relocation of our Miami operations. While we did experience increases in other
operating expenses in some categories such as cost related to service providers for digital and direct
marketing products, expenses also declined in other categories due to company-wide efforts to reduce
costs, including property taxes, insurance, marketing and professional services.
Interest Expense:
Non-Operating Items
Total interest expense decreased 10.5% during fiscal year 2013 compared to fiscal year 2012. Interest
expense related to debt decreased 15.2% during fiscal year 2013 compared to fiscal year 2012, largely
reflecting lower overall interest rates as a result of the refinancing of our 11.50% senior secured notes due
in 2017 (‘‘11.50% Notes’’) (see Debt and Related Matters discussion below). This decline was partially offset
by the impact of the reversal of $12.3 million in interest on taxes in fiscal year 2012, due to certain state tax
settlements and benefits from the expiration of statutes of limitation.
Equity Income:
Total income from unconsolidated investments increased 33.6% during fiscal year 2013 compared to fiscal
year 2012. The increase is primarily related to our investment in CareerBuilder and Classified Ventures,
which reported greater income in fiscal year 2013. The increase was partially offset by a $3.0 million
write-down of certain unconsolidated investments, as well as a reduction in income from the other
unconsolidated investments during fiscal year 2013.
27
Loss on Extinguishment of Debt:
Loss on extinguishment of debt decreased by 84.6% during fiscal year 2013 compared to fiscal year 2012.
During fiscal year 2013, we redeemed or repurchased $155.9 million aggregate principal amount of various
series of our outstanding notes. We redeemed or repurchased these notes at a price higher than par value,
wrote off historical discounts and unamortized issuance costs related to these notes, which resulted in a
loss on extinguishment of debt of $13.6 million in fiscal year 2013. During fiscal year 2012, we repurchased
$70.5 million aggregate principal of outstanding notes in privately negotiated repurchases and
$762.4 million in conjunction with the refinancing of our 11.50% Notes. We repurchased most of the
$70.5 million notes at a price lower than par value and wrote off historical discounts related to the notes we
repurchased, which resulted in a gain on extinguishment of debt. This gain was offset by the write-off of
fees related to the refinancing of our revolving credit facility in the second quarter of fiscal year 2012 and
the refinancing of our 11.50% Notes in the fourth quarter of fiscal year 2012.
Income Taxes:
We recorded an income tax expense of $13.3 million for fiscal year 2013 compared to an income tax benefit
of $21.4 million for fiscal year 2012. The income tax expense in fiscal year 2013 was affected by the
inclusion in pre-tax income of certain discrete tax items, such as (i) the loss on the repurchase of debt,
(ii) certain asset disposals and impairments, and (iii) severance for fiscal year 2013. Excluding these items
the effective tax rate expense was 38.2% in fiscal year 2013 and is higher than the federal statutory rate of
35% due primarily to the inclusion of state income taxes.
The benefit during fiscal year 2012 was partially due to the reversal of tax reserves for favorable
settlements of state tax issues and the expiration of statute of limitations. Further, the benefit was affected
by the inclusion in pre-tax loss of discrete tax items, such as (i) reduction to interest expense from the
closure of statutes of limitations and audit settlements, (ii) loss on the refinancing of our 11.50% Notes,
(iii) certain asset disposals and impairments, and (iv) severance for fiscal year 2012. Excluding these items
the effective tax rate expense was 42.2% in fiscal year 2012 and is higher than the federal statutory rate of
35% due primarily to the inclusion of state income taxes.
Fiscal Year 2012 Compared to Fiscal Year 2011
We had a net loss in fiscal year 2012 of $0.1 million, or $0.00 per diluted share, compared to net income of
$54.4 million, or $0.63 per diluted share, in fiscal year 2011. The net loss primarily resulted from the
recognition of a non-operating loss on extinguishment of debt related to the refinancing of $762.4 million
of our 11.50% Notes pursuant to our cash tender offer in December 2012. See Debt and Related Matters
section in the ‘‘Liquidity and Capital Resources’’ section below for additional information related to these
tender offer repurchases. In addition, revenues and expenses were higher in fiscal year 2012 as a result of
the extra week in fiscal year 2012.
28
The following table summarizes our revenues by category, which compares fiscal year 2012 to fiscal year
2011:
Revenues
(in thousands)
Advertising:
Retail
National
Classified:
Auto
Real estate
Employment
Other
Total classified
Direct marketing and other
Total advertising
Circulation
Other
Total revenues
Years Ended
December 29, December 25,
2012
2011
$
Change
%
Change
$
474,031
70,477
$
499,250
76,296
$
(25,219)
(5,819)
83,396
36,386
46,954
71,544
238,280
131,950
914,738
342,201
52,700
80,823
44,703
51,933
73,950
251,409
129,350
956,305
344,549
51,000
2,573
(8,317)
(4,979)
(2,406)
(13,129)
2,600
(41,567)
(2,348)
1,700
$ 1,309,639
$ 1,351,854
$
(42,215)
(5.1)
(7.6)
3.2
(18.6)
(9.6)
(3.3)
(5.2)
2.0
(4.3)
(0.7)
3.3
(3.1)
During fiscal year 2012, total revenues decreased 3.1% compared to fiscal year 2011 as we continued to be
impacted by the industry-wide declines in advertising revenues. The continued weak economy and a
secular shift in advertising demand from print to digital products are the principal causes of the decline in
total revenues. However, this was partially offset by our efforts to grow revenues from our digital products
to offset the expected declines in revenues from our print products, as well as the 53rd week in fiscal year
2012. We estimate that the extra week provided for an additional $16.5 million in advertising revenues,
$6.4 million in circulation revenues and $24.2 million in total revenues.
Advertising Revenues
Total advertising revenues decreased 4.3% in fiscal year 2012 compared to fiscal year 2011. While declines
during such periods were widespread among our revenue categories, the primary decrease in advertising
revenues related to retail advertising and real estate classified advertising. These decreases were partially
offset by increases in our digital revenues, automotive classified advertising, direct marketing and other
revenues and the extra week in 2012.
29
The following table reflects the category of advertising revenues as a percentage of total advertising
revenues for the periods presented:
Advertising:
Retail
National
Classified
Direct marketing and other
Total advertising
Years Ended
December 30,
2012
December 25,
2011
51.8%
7.7%
26.1%
14.4%
52.2%
8.0%
26.3%
13.5%
100.0%
100.0%
Retail:
Retail advertising revenues decreased 5.1% in fiscal year 2012 compared to fiscal year 2011. The decrease
reflects lower print ROP revenues in health, building and home centers, furniture and home furnishing,
and lower preprint revenues, which were partially offset by an increase in digital retail advertising revenues
reflecting increases in banner and display advertisements and increased revenues from our dealsaver(cid:4) daily
deal product. In fiscal year 2012, compared to fiscal year 2011, we reported a decrease in print ROP
advertising revenues of 8.2% and a decrease in preprint advertising revenues of 6.1%. These print ROP
and preprint advertising revenue decreases were partially offset by an increase in digital retail advertising
revenues of 6.4% for fiscal year 2012, compared to fiscal year 2011.
National:
National advertising revenues decreased 7.6% in fiscal year 2012 compared to fiscal year 2011. For fiscal
year 2012, compared to fiscal year 2011, print national advertising decreased 11.1% but was partially offset
by an increase of 3.0% in digital national advertising revenues. The decreases in total national advertising
revenues were broad-based but were partially offset by increases in the banking and political categories.
Classified:
Classified advertising revenues decreased 5.2% in fiscal year 2012 compared to fiscal year 2011. The real
estate category represented our largest decline in classified advertising in fiscal year 2012. The decrease in
classified advertising revenues in fiscal year 2012 was partially a result of the weak economy and advertisers
are increasingly using digital advertising, which is widely available from many competitors, instead of print
advertising. For fiscal year 2012, compared to fiscal year 2011, print classified advertising decreased 10.8%,
but was partially offset by an increase in digital classified advertising revenues of 4.1%. The increases in
digital classified advertising primarily reflect stronger automotive advertising sales, as well as other
classified advertising revenues, as discussed below. The following is a discussion of the major classified
advertising categories for fiscal year 2012, as compared to fiscal year 2011:
(cid:127) Automotive advertising revenues increased in fiscal year 2012 by 3.2%. Print automotive
advertising revenues declined 7.6% in fiscal year 2012, while digital automotive advertising
revenues were up 15.2% in fiscal year 2012. These results reflect the continued migration of
automotive advertising to digital platforms as well as the growing sales of automobiles in the
United States during the period, in addition to the popularity of our Cars.com products with
local auto dealerships.
(cid:127) Real estate advertising revenues decreased in fiscal year 2012 by 18.6%. As discussed above,
real estate was slow to recover from the recession and real estate advertising had been moving
from print to digital media. As a result, print real estate advertising revenues declined 23.5%
30
in fiscal year 2012, while digital real estate advertising revenues were down 8.4% in fiscal year
2012 as compared to fiscal year 2011.
(cid:127) Employment advertising revenues decreased in fiscal year 2012 by 9.6%, reflecting a
continued slow recovery in employment across all of our geographical markets. Print
employment advertising revenues declined 12.6% in fiscal year 2012, while digital employment
advertising revenues were down 6.8% in fiscal year 2012.
(cid:127) Other classified advertising revenues, which include legal, remembrance and celebration
notices and miscellaneous advertising decreased in fiscal year 2012 by 3.3%. Print other
classified advertising revenues declined 6.0% in fiscal year 2012; while digital other classified
advertising revenues were up 7.5% in fiscal year 2012. These increases result from the
migration of consumers from the print to digital media for publishing these types of events.
Digital:
Digital advertising revenues, which are included in each of the advertising categories discussed above,
constituted 21.8% of total advertising revenues in fiscal year 2012 compared to 19.9% in fiscal year 2011.
Total digital advertising includes digital advertising both bundled with print and sold on a stand-alone
basis. Digital advertising revenues totaled $199.7 million in fiscal year 2012, representing an increase of
4.9% compared to fiscal year 2011. Digital-only advertising revenues totaled $108.3 million in fiscal year
2012. This represented an increase of 15.7% in fiscal year 2012 compared to fiscal year 2011. Digital
advertising revenues sold in conjunction with print products declined 5.6% in fiscal year 2012 compared to
fiscal year 2011 as a result of fewer print advertising sales.
Direct Marketing and Other:
Direct marketing and other advertising revenues increased 2.0% during fiscal year 2012 compared to fiscal
year 2011. The increase largely came as a result of growth in our ‘‘Sunday Select’’ product, a package of
preprinted advertisements delivered to non-subscribers upon request, which grew 34.9% in fiscal year 2012
compared to fiscal year 2011.
Circulation Revenues
Circulation revenues decreased 0.7% during fiscal year 2012 compared to fiscal year 2011. Overall, our
circulation revenues were negatively affected by lower circulation volumes. Daily circulation declined 5.6%
in fiscal year 2012 compared to fiscal year 2011. In fiscal year 2011, daily circulation volumes had declined
4.3%. However, the decrease in circulation revenues from lower volumes was partially offset by selective
price increases, the digital revenues from the Plus Program and the revenues received in the extra week in
fiscal year 2012. As expected, circulation volumes continue to remain lower as a result of fragmentation of
audiences faced by all media as available media outlets proliferate and readership trends change. While we
expect circulation volumes to continue to decline slightly in fiscal year 2013, we expect our Plus Program to
increase circulation revenues in fiscal year 2013. We continue to look for new opportunities to reduce our
declines in circulation volumes and increase our circulation revenues.
Our digital traffic continues to grow with daily average local unique visitors to our newspaper websites up
2.6% in fiscal year 2012 compared to fiscal year 2011.
Operating Expenses
During fiscal year 2012, total operating expenses decreased 2.3% compared to fiscal year 2011, reflecting
our continued effort to reduce costs through streamlining processes to gain efficiencies, as well as
headcount reductions. As discussed above, our operating expenses for fiscal year 2012 also include a
53rd week, which results in higher expenses during the period than the comparable period in fiscal year
2011. Operating expenses in all periods presented include employee severance as we continue to optimize
our operations. Fiscal year 2012 also includes accelerated depreciation on equipment and moving expenses
31
primarily related to the relocation of our Miami newspaper operations. During fiscal year 2011, we
incurred charges related to real property in California and Texas that were sold for less than the carrying
value as we continued to optimize our operations, which increased our operating expenses in that period.
The following table summarizes our operating expenses, which compares fiscal year 2012 to fiscal year
2011:
(in thousands)
Compensation expenses
Newsprint, supplements and printing
expenses
Depreciation and amortization
expenses
Other operating expenses
Miami relocation costs
Severance costs
Years Ended
December 29, December 25,
2012
2011
$
Change
%
Change
$
443,401
$
457,707
$
(14,306)
(3.1)
140,932
145,874
(4,942)
(3.4)
125,275
413,895
121,528
425,430
$ 1,123,503
$ 1,150,539
$
$
13,636
4,651
$
$
16,591
13,853
$
$
$
3,747
(11,535)
(27,036)
3.1
(2.7)
(2.3)
(2,955)
(9,202)
(17.8)
(66.4)
Compensation expenses, which includes the severance costs discussed above, decreased 3.1% during fiscal
year 2012 compared to fiscal year 2011. Payroll expenses in fiscal year 2012 decreased 4.5% compared to
fiscal year 2011, reflecting a 6.0% decline in average full-time equivalent headcount. Fringe benefits costs
in fiscal year 2012 increased 4.7% compared to fiscal year 2011, primarily reflecting increases in medical
costs of 9.7%. These were partially offset by lower workers compensation costs.
Newsprint, supplements and printing expenses decreased 3.4% in fiscal year 2012 compared to fiscal year
2011. Newsprint expense decreased by 5.5% in fiscal year 2012 compared to fiscal year 2011, reflecting
lower newsprint usage and to a lesser extent, lower newsprint prices. Supplement and printing expense
increased 3.0% in fiscal year 2012 compared to fiscal year 2011. The increase in supplement and printing
expense is also partially due to the printing of the extra paper in the 53rd week.
Depreciation and amortization expenses increased 3.1% in fiscal year 2012 compared to fiscal year 2011.
Amounts affecting the depreciation and amortization in fiscal year 2012 include $8.8 million in accelerated
depreciation on equipment primarily related to the relocation of the Miami operations and a reduction in
capital expenditures in fiscal years 2012 and 2011 due to adequate production capacity at our facilities.
Other operating costs decreased 2.7% in fiscal year 2012 compared to fiscal year 2011. The decrease in
other operating costs during fiscal year 2012, compared to fiscal year 2011, was due to company-wide
efforts to reduce costs, including property taxes, insurance, marketing and professional services. However,
the decrease was partially offset by increased costs in fiscal year 2012 related to the extra week. During
fiscal year 2011, we also incurred charges of $10.6 million primarily resulting from real property in
California and Texas that was sold.
Interest Expense:
Non-Operating Items
Total interest expense decreased 8.5% during fiscal year 2012 compared to fiscal year 2011. This decrease
was due to lower outstanding principal amounts of debt and the reversal of $12.3 million in interest on
taxes, because of certain state tax settlements and benefits from the expiration of certain statutes of
limitation.
32
Equity Income:
Total income from unconsolidated investments increased 15.0% during fiscal year 2012 compared to fiscal
year 2011. The increase is primarily related to our investment in Classified Ventures, which reported
greater income in fiscal year 2012.
Loss on Extinguishment of Debt:
During fiscal year 2012, we recorded a net loss on the extinguishment of debt of $88.4 million compared to
$1.2 million in fiscal year 2011. During fiscal year 2012, we repurchased $70.5 million aggregate principal
of outstanding notes in privately negotiated repurchases and $762.4 million in conjunction with the
refinancing of our 11.50% Notes. We repurchased most of the $70.5 million notes at a price lower than par
value and wrote off historical discounts related to the notes we purchased, which resulted in a gain on
extinguishment of debt. This gain was offset by the write-off of fees related to the refinancing of our
revolving credit facility in the second quarter of fiscal year 2012 and the refinancing of our 11.50% senior
secured notes in the fourth quarter of fiscal year 2012.
Income Taxes:
We recorded an income tax benefit of $21.4 million for fiscal year 2012 compared to income tax expense of
$8.4 million in fiscal year 2011. The benefit during fiscal year 2012 was partially due to the reversal of tax
reserves for favorable settlements of state tax issues and the expiration of statute of limitations. Further,
the benefit was affected by the inclusion in pre-tax loss of discrete tax items, such as (1) reduction to
interest expense from the closure of statutes of limitations and audit settlements, (2) loss on the
refinancing of our 11.50% Notes, (3) certain asset disposals and impairments, and (4) severance for fiscal
year 2012. Excluding these items the effective tax rate expense was 42.2% in fiscal year 2012 and is higher
than the federal statutory rate of 35% due primarily to the inclusion of state income taxes.
In fiscal year 2011, our tax provision of $8.4 million compared to $5.6 million in fiscal year 2010 included a
benefit from a favorable settlement of certain state tax issues in the first quarter of fiscal year 2011 and
expiration of statutes later in that year. Further, the effective tax rate percentage was affected by the
inclusion in pre-tax income of discrete items such as reduction to interest expense from the closure of
statutes of limitations and audit settlements, the extinguishment of debt, certain asset disposals, the
masthead impairment, and severance for fiscal year 2011. Excluding the impact of these items, the net tax
provision resulted in a tax rate of 44.0%, and exceeded the federal statutory rate of 35.0% due primarily to
the inclusion of state income taxes.
Sources and Uses of Liquidity and Capital Resources:
Liquidity and Capital Resources
Our cash and cash equivalents were $80.8 million as of December 29, 2013, compared to $113.1 million as
of December 30, 2012. The cash balance at December 30, 2012 reflects cash proceeds of approximately
$21 million from the issuance of the 9.00% Senior Secured Notes due in 2022 (‘‘9.00% Notes’’), which was
subsequently used to complete the debt refinancing as discussed below.
We expect that most of our cash generated from operations in the foreseeable future will be used to repay
debt, fund our capital expenditures, invest in new revenue initiatives and enterprise-wide operating
systems, and make required contributions to our Pension Plan. In January 2014, we contributed $25 million
to our Pension Plan, which we expect will satisfy all of our required contributions in fiscal year 2014. We
estimate that purchases of property, plant and equipment (‘‘PP&E’’) in fiscal year 2014 will be
approximately $29 million. As of December 29, 2013, we had $1.6 billion remaining in outstanding
indebtedness, consisting of $900 million aggregate principal amount of the 9.00% Notes and $655.7 million
aggregate principal amount of unsecured publicly-traded notes maturing in 2014, 2017, 2027, and 2029. We
expect that we will need to refinance a significant portion of this debt prior to its scheduled maturity. In
addition, we expect to use our cash from operations from time to time to opportunistically repurchase our
33
outstanding debt prior to its scheduled maturity and/or reduce our debt through debt exchanges or similar
transactions. We believe that our cash from operations is sufficient to satisfy our liquidity needs over the
next 12 months, while maintaining adequate cash and cash equivalents.
On February 28, 2014, Classified Ventures, LLC entered into a definitive agreement to sell its
apartments.com business for approximately $585 million. The transaction is expected to close in the second
quarter of fiscal year 2014 and accordingly we will record our share of the gain on the sale, which is
expected to be between $140 million to $145 million, before taxes, during the same period. We also expect
to receive a distribution of approximately $147 million from Classified Ventures, LLC, which is equal to
our share of the net proceeds from the sale shortly after the transaction closes.
The following table summarizes our cash flows:
Years Ended
(in thousands)
Cash flows provided by (used in)
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash and cash
December 29, December 30, December 25,
2012
2013
2011
$
156,040
(20,047)
(168,270)
$
52,925
(18,641)
(7,216)
$
(30,773)
6,374
92,911
equivalents
$
(32,277)
$
27,068
$
68,512
Operating Activities:
We generated $156.0 million of cash provided by operating activities in fiscal year 2013, compared to
providing $52.9 million in fiscal year 2012 and using $30.8 million in fiscal year 2011. The increase in cash
generated from operating activities in fiscal year 2013 compared to fiscal year 2012 is primarily due to the
difference in contributions to our Pension Plan (as discussed below), equity investment distributions and
the timing of accrued interest and net income tax payments and receipts. We received $42.4 million in
distributions from our equity investments; $2.9 million exceeded the cumulative earnings from an investee
and was considered a return of investment and therefore treated as an investing activity, while the
remaining return on investment of $39.5 million is shown as an operating activity. During fiscal year 2013,
we had net payments of $21.0 million in income taxes compared to payments of $37.1 million in fiscal year
2012. Finally, in fiscal year 2013, we had net payments of $127.3 million in accrued interest compared the
payments of $173.7 million in fiscal year 2012.
The increase in cash provided by operating activities in fiscal year 2012 compared to fiscal year 2011 is
primarily due to the difference in contributions to our Pension Plan, and a decrease of accrued interest of
approximately $31.0 million related to the retirement of notes.
Pension Plan Matters
We made the following contributions to the Pension Plan during the last three fiscal years:
(cid:127)
(cid:127)
(cid:127)
In fiscal year 2013, we made $7.6 million of cash contributions to our Pension Plan to meet
our required contributions for 2013;
in fiscal year 2012 we made a $40.0 million cash contribution to our Pension Plan to meet our
required contributions for fiscal year 2012; and
in fiscal year 2011 we made a voluntary cash contribution of $163.0 million using a portion of
the $236.0 million in proceeds from our sale of real property in Miami. In fiscal year 2011, in
addition to the cash contribution, we made a non-cash contribution of certain of our real
34
property to meet our required funding obligation. The property contributed in fiscal year 2011
was appraised at $49.7 million.
In January 2014, we contributed $25 million of cash to the Pension Plan. We expect this contribution will
satisfy all of our required contributions in fiscal year 2014. See Note 7 for further discussion of our
contributions.
As of the end of fiscal year 2013, the projected benefit obligations of our Pension Plan exceeded plan assets
by $303.2 million compared to $587.9 million at the end of fiscal year 2012. Legislation enacted in the
second quarter of 2012 mandated a change in the discount rates used to calculate the projected benefit
obligations for purposes of funding pension plans under Internal Revenue Service (‘‘IRS’’) regulations.
The new legislation and calculation use historical averages of long-term highly-rated corporate bonds
(within ranges as defined in the legislation), which has resulted in the application of a higher discount rate
to determine the projected benefit obligations for funding and current long-term interest rates.
In addition, the Pension Relief Act of 2010 (‘‘PRA’’) provided relief with respect to the funding
requirements of the Pension Plan. Under the PRA, we elected an option that allows the required
contributions related to our 2009 and 2011 plan years to be paid over 15 years. As a result of these two
legislative actions, we estimate that under IRS funding rules, the projected benefit obligations of our
Pension Plan exceed plan assets by approximately $203 million at the end of calendar 2013. However, even
with the relief provided by the two legislative rules discussed above, based on the current funding position
of the Pension Plan, we expect future contributions will be required.
While amounts of future contributions are subject to numerous assumptions, including, among others,
changes in interest rates, returns on assets in the Pension Plan and future government regulations, we
estimate that a total of approximately $23 million will be required to be contributed to the Pension Plan in
fiscal year 2015. The timing and amount of payments to the Pension Plan reflect actuarial estimates we
believe to be reasonable but are subject to changes in estimates. We believe cash flows from operations will
be sufficient to satisfy our contribution requirements.
Investing Activities:
We used $20.0 million of cash in investing activities in fiscal year 2013, which was primarily due to the
purchase of PP&E for $33.5 million, partially offset by the return of an insurance-related deposit of
$6.4 million and distributions from our equity investments, as discussed above.
We used $18.6 million of cash in investing activities in fiscal year 2012. We used $34.8 million for the
purchase of PP&E, including $17.5 million on the new production facility in Miami. We also received
$38.6 million in distributions from our equity investments; $19.1 million exceeded the cumulative earnings
from an investee and was considered a return of investment and therefore treated as an investing activity,
while the remaining return on investment of $19.5 million is shown as an operating activity.
We generated $6.4 million of cash from investing activities in fiscal year 2011, which primarily consisted of
receipts of $14.3 million in distributions from our interest in equity investments and $9.2 million from the
sales of PP&E. These inflows were partially offset by $17.0 million in purchases of PP&E.
Financing Activities:
We used $168.3 million in financing activities in fiscal year 2013. During the year we redeemed or
repurchased $155.9 million of aggregate principal amount of notes for $165.5 million in cash, including the
redemption of the remaining 11.50% Notes not redeemed in late 2012 and privately negotiated
repurchases of other series of notes (see Debt and Related Matters below).
We used $7.2 million in financing activities in fiscal year 2012. During fiscal year 2012, we received
$910 million for the issuance of the 9.00% Notes, we repurchased $70.5 million aggregate principal of
outstanding notes for $59.2 million in cash in privately negotiated transactions and in conjunction with the
35
tender offer of our 11.50% Notes, we repurchased $762.4 million aggregate principal amount of the
11.50% Notes for $862.3 million in cash. In addition, we received the final payment of $6.0 million from
the sale of the Miami land and building.
We generated $92.9 million from financing activities in fiscal year 2011. We received $230.0 million in
proceeds from the sale of our building and land in Miami and incurred $2.6 million in costs related to the
transaction. The amount is recorded as a financing obligation as discussed in Note 3. We repurchased
$121.9 million of aggregate principal amount of notes for $116.9 million in cash in privately negotiated
transactions in fiscal year 2011 and retired at maturity $18.1 million of 2011 notes on June 1, 2011.
Debt and Related Matters
As of December 29, 2013, we had approximately $1.6 billion in total principal indebtedness outstanding,
including a current portion of long-term debt of $28.9 million in 4.625% notes due in 2014, resulting from
the maturity date in November 2014. In addition, we had the following aggregate principal amounts of debt
outstanding: $900.0 million of 9.00% Notes, $261.3 million of 5.750% notes due in 2017, $89.2 million of
7.150% debentures due in 2027 and $276.2 million of 6.875% debentures due in 2029.
Debt Repurchases and Extinguishment of Debt
During fiscal year 2013, we redeemed or repurchased a total of $155.9 million of notes through the
completion of our debt refinance described below and through privately negotiated transactions, as
follows:
(in thousands)
11.50% senior secured notes due in 2017
9.00% senior secured notes due in 2022
4.625% notes due in 2014
5.750% notes due in 2017
Face Value
$
83,595
10,000
37,473
24,840
Total notes redeemed or repurchased
$
155,908
We redeemed or repurchased these notes at a price higher than par value and wrote off historical discounts
related to these notes, which resulted in a loss on extinguishment of debt of $13.6 million in fiscal year
2013. During fiscal year 2012, we repurchased $70.5 million aggregate principal of outstanding notes in
privately negotiated repurchases and $762.4 million in conjunction with the refinancing of our 11.50%
Notes. We repurchased most of the $70.5 million notes at a price lower than par value and wrote off
historical discounts related to the notes we repurchased, which resulted in a gain on extinguishment of
debt. This gain was offset by the write-off of fees related to the refinancing of our revolving credit facility in
the second quarter of fiscal year 2012 and the refinancing of our 11.50% senior secured notes in the fourth
quarter of fiscal year 2012. During fiscal year 2012, we recorded a net loss on the extinguishment of debt of
$88.4 million.
Credit Agreement
In connection with the issuance of the 9.00% Notes, discussed below, we entered into the Third Amended
and Restated Credit Agreement (‘‘Credit Agreement’’), dated as of December 18, 2012. The Credit
Agreement amended and restated in its entirety the Second Amended and Restated Credit Agreement
dated June 22, 2012. The Credit Agreement provides for $75.0 million in revolving credit commitments,
with a $50.0 million letter of credit subfacility, and a maturity date of December 18, 2017. As of
December 29, 2013, there were $41.1 million face amount of letters of credit outstanding and no other
amounts drawn under the Credit Agreement. As of December 29, 2013, $33.9 million, net of the letters of
credit, was available under our revolving facility under the Credit Agreement.
36
Under the Credit Agreement, we may borrow at either the London Interbank Offered Rate plus a spread
ranging from 275 basis points to 425 basis points, or at a base rate plus a spread ranging from 175 basis
points to 325 basis points, in each case based upon our consolidated total leverage ratio. The Credit
Agreement provides for a commitment fee payable on the unused revolving credit ranging from 50 basis
points to 62.5 basis points, based upon our consolidated total leverage ratio.
Senior Secured Notes and Indenture
On December 18, 2012, we issued $910 million aggregate principal amount of 9.00% Notes. We received
approximately $889 million net of financing costs in the offering and used the net proceeds, as well as cash
on hand, to repurchase all of our outstanding $846 million in aggregate principal amount of the 11.50%
Notes, in two separate transactions. On December 18, 2012, we repurchased $762.4 million of the 11.50%
Notes pursuant to a cash tender offer done in connection with the issuance of the 9.00% Notes. In
connection with the tender offer of the 11.50% Notes, we recorded a loss on the extinguishment of debt of
approximately $94.5 million. During fiscal year 2013, we redeemed the remaining $83.6 million aggregate
principal amount of 11.50% Notes not tendered in the tender offer and we recorded a loss on the
extinguishment of this debt of approximately $9.6 million.
Our 9.00% notes were issued in a private placement. In July 2013, the original 9.00% Notes (and
associated guarantees) were exchanged for new 9.00% Notes (and associated guarantees) that have terms
substantially identical to the original notes except that the 9.00% Notes issued in the exchange are not
subject to transfer restrictions.
Substantially all of our subsidiaries guarantee the obligations under the 9.00% Notes and the Credit
Agreement. The guarantees provided by the guarantor subsidiaries are full and unconditional and joint
and several, and the assets of any of our subsidiaries, other than the subsidiary guarantors, are immaterial.
In addition, we have granted a security interest to the banks that are a party to the Credit Agreement and
the trustee under the indenture governing the 9.00% Notes that include, but are not limited to, intangible
assets, inventory, receivables and certain minority investments as collateral for the debt. The security
interest does not include any PP&E; leasehold interests and improvements with respect to such PP&E,
which would be reflected on our consolidated balance sheet or shares of stock and indebtedness of our
subsidiaries.
Covenants under the Senior Debt Agreements
The financial covenants under the Credit Agreement require us to comply with a maximum consolidated
total leverage ratio and a minimum consolidated interest coverage ratio, each measured quarterly. As of
December 29, 2013, we are required to maintain a consolidated total leverage ratio of not more than 6.00
to 1.00 for the remainder of the term of the Credit Agreement. We are also required to maintain a
consolidated interest coverage ratio of at least 1.50 to 1.00.
As of December 29, 2013, our consolidated total leverage ratio (as defined in the Credit Agreement) was
4.83 to 1.00, consolidated interest coverage ratio (as defined in the Credit Agreement) was 2.52 to 1.00 and
we were in compliance with all financial debt covenants. Due to the significance of our outstanding debt,
remaining in compliance with debt covenants is critical to our operations. We will continue to optimize
operations and/or reduce debt to maintain compliance with our covenants.
The Credit Agreement also prohibits the payment of a dividend if a payment would not be permitted
under the indenture for the 9.00% Notes (discussed below). Dividends under the indenture for the 9.00%
Notes are allowed if the consolidated leverage ratio (as defined in the indenture) is less than 5.25 to 1.00
and we have sufficient amounts under our restricted payments basket (as defined in the indenture). As of
December 29, 2013, we estimated that we had approximately $442.9 million available under our restricted
payments basket which could be used for a variety of payments, including dividends. However, the payment
and amount of future dividends remain within the discretion of the Board of Directors and will depend
37
upon our future earnings, financial condition, and other factors considered relevant by the Board of
Directors.
The indenture for the 9.00% Notes includes a number of restrictive covenants that are applicable to us and
our restricted subsidiaries. The covenants are subject to a number of important exceptions and
qualifications set forth in the indenture for the 9.00% Notes. These covenants include, among other things,
restrictions on our ability to incur additional debt; make investments and other restricted payments; pay
dividends on capital stock or redeem or repurchase capital stock or certain of our outstanding notes or
debentures prior to stated maturity; sell assets or enter into sale/leaseback transactions; create specified
liens; create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make
other distributions; engage in certain transactions with affiliates; and consolidate or merge with or into
other companies or sell all or substantially all of the Company’s and our subsidiaries’ assets, taken as a
whole.
Off-Balance-Sheet Arrangements
As of December 29, 2013, we did not have any significant off-balance-sheet arrangements as defined in
Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations:
As of the end of fiscal year 2013, our contractual obligations were as follows:
(in thousands)
Long-term debt principal (a)
Interest on long-term debt
Pension obligations (b)
Post-retirement obligations (b)
Workers’ compensation obligations (c)
Other long-term obligations (d)
Financing obligations (e)
Other obligations:
Purchase obligations (f)
Operating leases (g)
Total (h)
Payments Due By Period
Total
$ 1,555,681
1,174,073
416,626
12,586
18,783
51,514
44,477
113,361
76,468
Less than
1 Year
1-3
Years
$
28,965
122,732
33,418
1,584
4,621
8,060
4,213
23,864
11,489
$
— $
242,785
73,786
2,575
5,712
14,257
8,426
29,537
18,554
3-5
Years
261,298
227,760
50,603
2,345
3,272
11,069
8,426
28,243
15,683
More than
5 Years
$ 1,265,418
580,796
258,819
6,082
5,178
18,128
23,412
31,717
30,742
$ 3,463,569
$
238,946
$
395,632
$
608,699
$ 2,220,292
(a)
Includes $28.9 million of our 4.625% Notes with a maturity date due in 2014.
(b) Retirement obligations do not take into account the tax-deductibility of the payments. The timing of the
payments of these obligations reflects actuarial estimates we believe to be reasonable.
(c)
(d)
(e)
(f)
(g)
Future expected workers’ compensation payments are based on undiscounted ultimate losses and are shown
net of estimated recoveries.
Primarily deferred compensation, future lease obligations and indemnification obligation reserves related to
disposed newspapers.
Financing obligations include the obligation related to the contributed property. See further discussion in
Note 7.
Primarily printing outsource agreements and capital expenditures for property, plant and equipment.
Excludes payments on leases included in financing obligation above.
38
(h)
The table excludes unrecognized tax benefits, and related penalties and interest, totaling $15.6 million
because a reasonably reliable estimate of the timing of future payments, if any, cannot be determined. The
table also excludes purchase commitments associated with the purchase of 81,648 metric tons of newsprint,
as the price is not determinable because it is based on the market price at the time of purchase.
Critical Accounting Policies
The accompanying MD&A is based upon our consolidated financial statements, which have been prepared
in accordance with generally accepted accounting principles in the United States. The preparation of these
financial statements requires us 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 the best estimates and judgments routinely require adjustment. The most
significant areas involving estimates and assumptions are amortization and/or impairment of goodwill and
other intangibles, pension and post-retirement expenses, insurance reserves, and our accounting for
income taxes. 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.
Goodwill
Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to
identifiable assets acquired less liabilities assumed. We assess goodwill for impairment on an annual basis
at a reporting unit level and we have identified two reporting units. One reporting unit primarily consists of
operations in our California, Northwest and Texas operating regions and the other reporting unit primarily
consists of operations in our Southeast, Florida and Midwest operating regions. Goodwill is assessed
between annual tests if an event occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying value. These events or circumstances could include a
significant change in the business climate, a change in strategic direction, legal factors, operating
performance indicators, a change in the competitive environment, the sale or disposition of a significant
portion of a reporting unit, or future economic factors such as unfavorable changes in our stock price and
market capitalization or unfavorable changes in the estimated future discounted cash flows of our
reporting units. Our annual test is performed at our fiscal year end.
Application of the goodwill impairment test requires judgment, including the identification of reporting
units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and
determination of the fair value of each reporting unit. We considered both a market approach and an
income approach in order to develop an estimate of the fair value of each reporting unit for purposes of
our annual impairment test. When available, and as appropriate, we use market multiples derived from a
set of competitors or companies with comparable market characteristics to establish fair values for a
particular reporting unit (market approach). We also estimate fair value using discounted projected cash
flow analysis (income approach.) Potential impairment is indicated when the carrying value of a reporting
unit, including goodwill, exceeds its estimated fair value. This analysis requires significant judgments,
including estimation of future cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and
determination of our weighted average cost of capital. Changes in these estimates and assumptions could
materially affect the determination of fair value and goodwill impairment for each reporting unit. In
addition, financial and credit market volatility directly impacts our fair value measurement through our
weighted average cost of capital, used to determine our discount rate, and through our stock price, used to
determine our market capitalization. We may be required to recognize impairment of goodwill based on
future economic factors such as unfavorable changes in our stock price and market capitalization or
unfavorable changes in the estimated future discounted cash flows of our reporting units.
39
If we determine that the estimated fair value of any reporting unit is less than the reporting unit’s carrying
value, then we proceed to the second step of the goodwill impairment analysis to measure the potential
impairment charge. An impairment loss is recognized for any excess of the carrying value of the reporting
unit’s goodwill over the implied fair value. If goodwill on our Consolidated Balance Sheet becomes
impaired during a future period, the resulting impairment charge could have a material impact on our
results of operations and financial condition.
Due to the current economic environment and the uncertainties regarding potential future economic
impacts on our reporting units, there can be no assurances that estimates and assumptions made for
purposes of our annual goodwill impairment test will prove to be accurate predictions of the future. If
assumptions regarding forecasted revenues or margins of certain of our reporting units are not achieved,
we may be required to record goodwill impairment losses in future periods. It is not possible at this time to
determine if any such future impairment loss would occur, and if it did occur, whether such charge would
be material.
Based on our analysis, at December 29, 2013, the fair value of our reporting unit that primarily consists of
operations in California, the Northwest and Texas, exceeded the carrying value by approximately 24.6%,
and the fair value of the reporting unit that primarily consists of operations in the Southeast, Florida and
the Midwest exceeded the carrying value by approximately 7.3%. Assumptions are highly subjective and
sensitive to industry and our performance. A one percent increase or decrease in our assumptions used
may cause us to perform a step two analysis.
Masthead Considerations:
Newspaper mastheads (newspaper titles and website domain names) are not subject to amortization and
are tested for impairment annually (at year-end), or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of
each newspaper masthead with its carrying amount. We use a relief from royalty approach that utilizes a
DCF to determine the fair value of each newspaper masthead. Our judgments and estimates of future
operating results in determining the reporting unit fair values are consistently applied to each newspaper in
determining the fair value of each newspaper masthead.
We performed our annual impairment tests on newspaper mastheads as of December 29, 2013,
December 30, 2012, and December 25, 2011. As a result of our testing, we recorded a charge of
$5.3 million and $2.8 million for masthead impairments in fiscal years 2013 and 2011, respectively, and no
impairment charges were recorded in fiscal year 2012.
Other Intangible Assets Considerations:
Long-lived assets such as other intangible assets are subject to amortization (primarily advertiser and
subscriber lists) and are tested for recoverability whenever events or change in circumstances indicate that
their carrying amounts may not be recoverable. The carrying amount of each asset group is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result from the use of such asset group. No
impairment loss was recognized on intangible assets subject to amortization in fiscal years 2013, 2012 or
2011.
Pension and Post-Retirement Benefits:
We have significant pension and post-retirement benefit costs and credits that are developed from
actuarial valuations. Inherent in these valuations are key assumptions including discount rates and
expected returns on plan assets. We are 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 our
employee headcount and/or changes in the various assumptions.
40
Current standards of accounting for defined benefit pension plans and post-retirement benefit plans
requires recognition of (1) the funded status of a pension plan (difference between the plan assets at fair
value and the projected benefit obligation) and (2) the funded status of a post-retirement plan (difference
between the plan assets at fair value and the accumulated benefit obligation), as an asset or liability on the
balance sheet. At December 29, 2013, net retirement obligations in excess of the retirement plans’ assets
were $416.6 million. This amount included $113.4 million for non-qualified plans that do not have assets
and $303.2 for our qualified plan. At December 30, 2012, net retirement obligations in excess of the
retirement plans’ assets were $714.3 million. This amount included $126.4 million for non-qualified plans
that do not have assets and $587.9 for our qualified plan.
We used discount rates of 3.39% to 4.17% and an assumed long-term return on assets of 8.00% to
calculate our retirement plan expenses in 2013.
For fiscal year 2013, a change in the weighted average rates would have had the following impact on our
net benefit cost:
(cid:127) A decrease of 50 basis points in the long-term rate of return would have increased our net
benefit cost by approximately $6.3 million;
(cid:127) A decrease of 25 basis points in the discount rate would have an immaterial affect on our net
benefit cost.
Income Taxes:
Our current and deferred income 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. These
estimates are reviewed and adjusted, if needed, throughout the year. Adjustments between our estimates
and the actual results of filed returns are recorded when identified.
The amount of income taxes paid is subject to periodic audits by federal and state taxing authorities, which
may result in proposed assessments. These audits may challenge certain aspects of our tax positions such as
the timing and amount of deductions and allocation of taxable income to the various tax jurisdictions.
Income tax contingencies require significant judgment in estimating final outcomes. Actual results could
materially differ from these estimates and could significantly affect the effective tax rate and cash flows in
future periods.
Insurance:
We are insured for workers’ compensation using both self-insurance and large deductible programs. We
rely on claims experience in determining an adequate provision for insurance claims.
We used a discount rate of 1.9% to calculate workers’ compensation reserves as of December 29, 2013. A
decrease of 25 basis points in the discount rate would have had an immaterial effect on total workers’
compensation reserves. A 10% increase in the claims would have increased the total workers’
compensation reserves, net of estimated recoveries, by approximately $1.9 million.
For information regarding the impact of certain recent accounting pronouncements, see Note 1 ‘‘Summary
of Significant Accounting Policies’’.
Recent Accounting Pronouncements
41
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the following information is to provide forward-looking quantitative and
qualitative information about our potential exposure to market risks. The term ‘‘market risk’’ refers to the
risk of loss arising from adverse changes in interest rates and credit risk. The disclosure is not meant to be
a precise indicator of expected future losses, but rather an indicator of reasonably possible losses. Our
exposure to market risk primarily relates to discount rates used in our pension liabilities.
Interest Rate Risks in our Debt Obligations
Substantially all of our outstanding debt is composed of fixed-rate bonds and, therefore, is not subject to
interest rate fluctuations.
Discount Rate Risks in our Pension and Post-Retirement Obligations
The discount rate used to measure our obligations under our qualified defined benefit pension plan is
generally based upon long-term interest rates on highly-rated corporate bonds. Hence, changes in
long-term interest rates may have a significant impact on the funding position of our qualified defined
pension plan. We estimate that a 1.0% increase in our discount rate could decrease our pension obligations
by approximately $214.0 million. Based on current interest rates, the amount of contributions due to the
plan and the timing of the payments of these obligations are included in the table of contractual obligations
above and reflect actuarial estimates we believe to be reasonable.
42
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Consolidated Statements of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The McClatchy Company:
We have audited the accompanying consolidated balance sheets of The McClatchy Company and subsidiaries (the
‘‘Company’’) as of December 29, 2013 and December 30, 2012 and the related consolidated statements of
operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the
period ended December 29, 2013. We also have audited the Company’s internal control over financial reporting
as of December 29, 2013 based on criteria established in Internal Control — Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is
responsible for these financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
‘‘Management Report on Internal Control Over Financial Reporting.’’ Our responsibility is to express an opinion
on these financial statements and an opinion on the Company’s internal control over financial reporting based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company and subsidiaries as of December 29, 2013 and December 30, 2012 and the
results of their operations and their cash flows for each of the three years in the period ended December 29, 2013,
in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
December 29, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
/S/ DELOITTE & TOUCHE LLP
Sacramento, California
March 6, 2014
44
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Years Ended
December 29, December 30, December 25,
2012
(53 weeks)
2013
(52 weeks)
2011
(52 weeks)
REVENUES — NET:
Advertising
Circulation
Other
OPERATING EXPENSES:
Compensation
Newsprint, supplements and printing expenses
Depreciation and amortization
Other operating expenses
Asset impairments (see Note 1)
OPERATING INCOME
NON-OPERATING (EXPENSE) INCOME:
Interest expense
Interest income
Equity income in unconsolidated companies, net
Loss on extinguishment of debt, net
Gain on sale of Miami property
Other — net
Income (loss) before income taxes
Income tax provision (benefit)
NET INCOME (LOSS)
Net income (loss) per common share:
Basic
Diluted
Weighted average number of common shares used to
calculate basic and diluted earnings per share:
Basic
Diluted
$
838,419
353,963
49,855
$
914,738
342,201
52,700
$
956,305
344,549
51,000
1,242,237
1,309,639
1,351,854
432,255
123,133
122,408
422,360
17,181
443,401
140,932
125,275
413,895
—
457,707
145,874
121,528
422,630
2,800
1,117,337
1,123,503
1,150,539
124,900
186,136
201,315
(135,381)
53
42,651
(13,643)
12,938
541
(92,841)
32,059
13,256
18,803
0.22
0.22
$
$
$
(151,334)
88
31,935
(88,430)
—
79
(207,662)
(21,526)
(21,382)
(165,434)
97
27,762
(1,203)
—
248
(138,530)
62,785
8,396
$
$
$
(144)
$
54,389
— $
— $
0.64
0.63
86,201
87,136
85,744
85,744
85,211
86,044
See notes to consolidated financial statements.
45
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
Years Ended
December 29, December 30, December 25,
2012
(53 weeks)
2013
(52 weeks)
2011
(52 weeks)
NET INCOME (LOSS)
$
18,803
$
(144)
$
54,389
OTHER COMPREHENSIVE INCOME (LOSS):
Pension and post retirement plans:
Unrealized net gain (loss) and other components of
benefit plans, net of taxes of $(117,853), $88,622
and $66,725
Investment in unconsolidated companies:
Other comprehensive income (loss), net of taxes of
$243, $528 and $336
Other comprehensive income (loss)
Comprehensive income (loss)
176,779
(132,871)
(100,087)
(364)
(791)
(506)
176,415
(133,662)
(100,593)
$
195,218
$ (133,806)
$
(46,204)
See notes to consolidated financial statements.
46
THE MCCLATCHY COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables (net of allowances of $6,040 in 2013 and $5,920 in 2012)
Other receivables
Newsprint, ink and other inventories
Deferred income taxes
Assets held for sale
Other current assets
Property, plant and equipment, net
Intangible assets:
Identifiable intangibles — net
Goodwill
Investments and other assets:
Investments in unconsolidated companies
Other assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued pension liabilities
Accrued compensation
Income taxes payable
Unearned revenue
Accrued interest
Other accrued liabilities
Non-current liabilities:
Long-term debt
Deferred income taxes
Pension and postretirement obligations
Financing obligations
Other long-term obligations
Commitments and contingencies
Stockholders’ equity:
Common stock $.01 par value:
Class A (authorized 200,000,000 shares, issued 61,544,524 in 2013 and 61,098,820
in 2012)
Class B (authorized 60,000,000 shares, issued 24,800,962 in 2013 and 2012)
Additional paid-in capital
Accumulated deficit
Treasury stock at cost, 11,207 shares in 2013 and 6,034 shares in 2012
Accumulated other comprehensive loss
See notes to consolidated financial statements.
47
December 29,
2013
December 30,
2012
$
80,811
167,490
10,757
26,539
20,033
3,504
27,386
336,520
458,705
465,966
1,013,002
1,478,968
300,569
42,873
343,442
$
113,088
177,225
9,555
30,145
14,406
—
31,558
375,977
733,729
528,002
1,012,011
1,540,013
299,603
55,809
355,412
$
2,617,635
$
3,005,131
$
$
28,548
49,565
33,418
38,636
1,362
67,377
15,044
14,386
83,016
48,588
15,830
39,124
2,327
69,492
18,675
14,273
248,336
291,325
1,493,323
153,339
394,209
40,264
47,778
2,128,913
1,587,330
39,719
712,584
279,325
52,347
2,671,305
615
248
2,221,834
(1,677,373)
(37)
(304,901)
240,386
611
248
2,219,163
(1,696,176)
(29)
(481,316)
42,501
$
2,617,635
$
3,005,131
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
December 29,
2013
Years Ended
December 30,
2012
December 25,
2011
$
18,803
$
(144)
$
54,389
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Reconciliation to net cash from operations:
Depreciation and amortization
(Gain) loss on disposal of equipment (including impairments)
Contribution to qualified defined benefit pension plan
Retirement benefit expense
Stock-based compensation expense
Deferred income taxes
Equity income in unconsolidated companies
Distributions of income from equity investments
Loss on extinguishment of debt
Gain on disposal of Miami property
Asset impairments
Other
Changes in certain assets and liabilities:
Trade receivables
Inventories
Other assets
Accounts payable
Accrued compensation
Income taxes
Accrued interest
Other liabilities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment and other
Proceeds from sale of investments
Proceeds from redemption of certificates of deposit
Purchase of certificates of deposit
Proceeds from return of insurance-related deposit
Distributions from equity investments
Equity investments and other-net
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
Repurchase of public notes and related expenses
Purchase of privately held 15.75% notes due 2014
Payment of financing costs
Proceeds from financing obligation related to Miami transaction
Other
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
122,408
(1,914)
(7,600)
12,162
3,523
(9,774)
(42,651)
39,504
13,643
(12,938)
17,181
(3,865)
9,687
3,606
(895)
977
(213)
3,745
(3,631)
(5,718)
156,040
(33,473)
4,703
—
2,210
—
6,400
2,932
(2,819)
(20,047)
—
(165,549)
—
—
—
(2,721)
(168,270)
(32,277)
113,088
125,275
(988)
(40,000)
1,384
3,523
(9,548)
(31,935)
19,550
88,430
—
—
(133)
1,821
(1,303)
(4,406)
(1,799)
4,564
(58,229)
(31,011)
(12,126)
52,925
(34,788)
1,925
—
—
(2,222)
—
19,050
(2,606)
(18,641)
910,000
(900,481)
—
(20,990)
6,000
(1,745)
(7,216)
27,068
86,020
121,528
9,397
(163,000)
816
5,174
(18,964)
(27,762)
17,375
1,203
—
2,800
2,917
4,695
4,480
2,694
(4,256)
(24,583)
(16,443)
(2,178)
(1,055)
(30,773)
(16,984)
9,201
2,893
—
—
—
14,250
(2,986)
6,374
—
(134,555)
(447)
(2,552)
230,000
465
92,911
68,512
17,508
86,020
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
80,811
$
113,088
$
See notes to consolidated financial statements.
48
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share and per share amounts)
Common Stock
Class A
$.01 par
value
$ 603
—
—
Class B
$.01 par
value
$ 248
—
—
6
—
—
—
609
—
—
9
—
—
(7)
—
611
—
—
10
—
—
(6)
—
—
—
—
248
—
—
—
—
—
—
—
248
—
—
—
—
—
—
Balance at December 26, 2010
Net income
Other comprehensive loss
Issuance of 587,118 Class A
shares under stock plans
Stock compensation expense
Purchase of 144,125 shares
of treasury stock
Tax impact from stock plans
Balance at December 25, 2011
Net loss
Other comprehensive loss
Issuance of 942,250 Class A
shares under stock plans
Stock compensation expense
Purchase of 454,860 shares
of treasury stock
Retirement of 708,996
shares of treasury stock
Tax impact from stock plans
Balance at December 30, 2012
Net loss
Other comprehensive
income
Issuance of 1,030,750
Class A shares under
stock plans
Stock compensation expense
Purchase of 580,219 shares
of treasury stock
Retirement of 575,046
shares of treasury stock
Additional
Paid-In
Capital
$2,212,915
—
—
973
5,174
—
99
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
$
$ (1,750,421)
54,389
—
$
(247,061)
—
(100,593)
(532)
—
—
$ 215,752
54,389
(100,593)
—
—
—
—
—
—
—
—
2,219,161
—
—
(1,696,032)
(144)
—
(347,654)
—
(133,662)
38
3,523
—
(2,280)
(1,279)
—
—
—
—
—
—
—
—
—
—
2,219,163
—
(1,696,176)
18,803
(481,316)
—
—
—
(613)
—
(1,145)
—
—
979
5,174
(613)
99
175,187
(144)
(133,662)
—
—
47
3,523
(1,171)
(1,171)
2,287
—
(29)
—
—
(1,279)
42,501
18,803
—
927
3,523
—
(1,779)
—
—
—
—
—
176,415
—
176,415
—
—
—
—
—
—
937
3,523
(1,793)
(1,793)
1,785
—
Balance at December 29, 2013
$ 615
$ 248
$2,221,834
$ (1,677,373)
$
(304,901)
$
(37)
$ 240,386
See notes to consolidated financial statements.
49
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES
The McClatchy Company (the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’) is a leading news, advertising and
information provider, offering a wide array of print and digital products in each of the markets it serves. As
one of the largest newspaper companies in the country, based on daily circulation, our operations include
30 daily newspapers, community newspapers, websites, mobile news and advertising, niche publications,
direct marketing and direct mail services. Our largest newspapers include the (Fort Worth) Star-Telegram,
The Sacramento Bee, The Kansas City Star, the Miami Herald, The Charlotte Observer, and The (Raleigh)
News & Observer. We are listed on the New York Stock Exchange under the symbol MNI.
We also own a portfolio of premium digital assets, including 15.0% of CareerBuilder, LLC, which operates
the nation’s largest online job website, CareerBuilder.com; 25.6% of Classified Ventures, LLC, a company
that offers classified websites such as the auto website Cars.com and the rental website Apartments.com;
33.3% of HomeFinder, LLC, which operates the online real estate website HomeFinder.com; and 12.2%
of Wanderful Media, owner of Find n Save(cid:4), a digital shopping portal that provides advertisers with a
common platform to reach online audiences with digital circulars, coupons and display advertising. See
Note 2 for additional discussion.
Our fiscal year ends on the last Sunday in December. The year ended December 29, 2013 (‘‘fiscal year
2013’’) and the year ended December 25, 2011 (‘‘fiscal year 2011’’) both consist of 52-week periods. The
year ended on December 30, 2012 (‘‘fiscal year 2012’’) consisted of a 53-week period.
Preparation of the financial statements in conformity with accounting principles generally accepted in the
United States and pursuant to the rules and regulation of the Securities and Exchange Commission
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from those estimates. The consolidated
financial statements include the Company and our subsidiaries. Intercompany items and transactions are
eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year presentation in our
consolidated statements of operations and consolidated statements of cash flows, related to asset
impairments.
Revenue recognition
We recognize revenues from advertising placed in a newspaper, a website and/or a mobile service over the
advertising contract period or as services are delivered, as appropriate, and recognize circulation revenues
as newspapers are delivered over the applicable subscription term. Circulation revenues are recorded net
of direct delivery costs for contracts that are not on a ‘‘fee for service’’ arrangement. Circulation revenues
on our ‘‘fee for service’’ contracts are recorded on a gross basis and associated delivery costs are recorded
as other operating expenses.
We enter into certain revenue transactions, primarily related to advertising contracts and circulation
subscriptions that are considered multiple element arrangements (arrangements with more than one
deliverable). As such we must: (1) determine whether and when each element has been delivered;
(2) determine fair value of each element using the selling price hierarchy of vendor-specific objective
evidence of fair value, third party evidence or best estimated selling price, as applicable and (3) allocate the
total price among the various elements based on the relative selling price method.
Other revenues are recognized when the related product or service has been delivered. Revenues are
recorded net of estimated incentives, including special pricing agreements, promotions and other volume-
50
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
based incentives and net of sales tax collected from the customer. Revisions to these estimates are charged
to revenues in the period in which the facts that give rise to the revision become known.
Concentrations of credit risks
Financial instruments, which potentially subject us to concentrations of credit risks, are principally cash
and cash equivalents and trade accounts receivables. Cash and cash equivalents are placed with major
financial institutions, which at times exceed federal insurance limits. We routinely assess the financial
strength of significant customers and this assessment, combined with the large number and geographic
diversity of our customers, limits our concentration of risk with respect to trade accounts receivable.
Allowance for doubtful accounts
We maintain an allowance account for estimated losses resulting from the risk that our customers will not
make required payments. Generally, we use the aging of accounts receivable, reserving for all accounts due
90 days or longer, to establish allowances for losses on accounts receivable, however, if we become aware
that the financial condition of specific customers has deteriorated, additional allowances are provided. At
certain of our newspapers we establish our allowances based on collection experience, aging of our
receivables and significant individual account credit risk.
We provide an allowance for doubtful accounts as follows:
Years Ended
(in thousands)
Balance at beginning of year
Charged to costs and expenses
Amounts written off
Balance at end of year
Newsprint, ink and other inventories
December 29, December 30, December 25,
2012
2013
2011
$
$
5,920
8,481
(8,361)
6,040
$
$
7,341
6,089
(7,510)
5,920
$
$
7,836
8,309
(8,804)
7,341
Newsprint, ink and other inventories are stated at the lower of cost (based principally on the first-in,
first-out method) or current market value.
Property, plant and equipment
Property, plant and equipment (‘‘PP&E’’) are recorded at cost. Additions and substantial improvements, as
well as interest expense incurred during construction, are capitalized. Capitalized interest was not material
in fiscal year 2013, 2012 or 2011. Expenditures for maintenance and repairs are charged to expense as
incurred. When PP&E is sold or retired, the asset and related accumulated depreciation are removed from
the accounts and the associated gain or loss is recognized.
51
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment consisted of the following:
(in thousands)
Land
Building and improvements
Equipment
Construction in process
Less accumulated depreciation
December 29, December 30,
$
2013
97,631
356,320
741,648
10,529
$
2012
311,959
364,951
775,397
24,014
1,206,128
(747,423)
1,476,321
(742,592)
Estimated
Useful Lives
5-60 years
2-25 years (1)
Property, plant and equipment, net
$
458,705
$
733,729
(1) Presses are 9-25 years and other equipment is 2-15 years
We record depreciation using the straight-line method over estimated useful lives. The useful lives are
estimated at the time the assets are acquired and are based on historical experience with similar assets and
anticipated technological changes. Our depreciation expense was $65.2 million, $67.1 million and
$63.2 million in fiscal years 2013, 2012 and 2011, respectively.
During fiscal year 2013, we incurred $11.4 million in accelerated depreciation (i) resulting from equipment
formerly used in our Miami operations prior to the relocation of these operations, (ii) related to the
production equipment associated with outsourcing our printing process at one of our newspapers and
(iii) moving the printing operations for another newspaper. During fiscal year 2012, we incurred
$8.3 million in accelerated depreciation on retired or decommissioned Miami property assets.
We review the carrying amount of long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Events that result in
an impairment review include the decision to close a location or a significant decrease in the operating
performance of the long-lived asset. Long-lived assets are considered impaired if the estimated
undiscounted future cash flows of the asset or asset group are less than the carrying amount. For impaired
assets, we recognize a loss equal to the difference between the carrying amount of the asset or asset group
and its estimated fair value, which is recorded in operating expenses in the consolidated statements of
operations. The estimated fair value of the asset or asset group is based on the undiscounted discounted
future cash flows of the asset or asset group. The asset group is defined as the lowest level for which
identifiable cash flows are available.
During fiscal year 2013, as previously announced, we entered into an outsourcing agreement to print one
of our newspapers beginning in mid-March 2014 and to sell certain other property. As a result, we incurred
non-cash impairment charges related to our existing production facilities and equipment for $11.9 million.
Assets held for sale
In connection with our efforts to evaluate cost efficiencies, during fiscal year 2013, we identified and began
to actively market for sale certain of our real estate assets. These assets consisted primarily of undeveloped
land and an office building. During fiscal year 2013, we entered into agreements to sell the land and office
building and expect the transactions to close during fiscal year 2014. In connection with the classification to
assets held for sale, the carrying value of the land and office building was reduced to their estimated fair
value less selling costs, as determined based on the current market conditions and the selling prices. As a
52
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
result, an impairment charge of $1.9 million was recorded in fiscal year 2013 and is included in asset
impairments on the consolidated statements of operations.
Investments in unconsolidated companies
We use the equity method of accounting for our investments in, and earnings or losses of, companies that
we do not control but over which we do exert significant influence. We consider whether the fair values of
any of our equity method investments have declined below their carrying value whenever adverse events or
changes in circumstances indicate that recorded values may not be recoverable. If we consider any decline
to be other than temporary (based on various factors, including historical financial results and the overall
health of the investee), then a write-down would be recorded to estimated fair value. See Note 2 for
discussion of investments in unconsolidated companies.
Segment reporting
Our primary business is the publication of newspapers and related digital and direct marketing products.
We have two operating segments that we aggregate into a single reportable segment because each has
similar economic characteristics, products, customers and distribution methods. Each operating segment
consists primarily of a group of newspapers reporting to segment managers. One operating segment
consists primarily of our newspaper operations in California, the Northwest and Texas, while the other
operating segment consists primarily of newspaper operations in the Southeast, Florida and the Midwest.
Goodwill and intangible impairment
We test for impairment of goodwill annually, at year-end, or whenever events occur or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The required two-step approach uses accounting judgments and estimates of future operating results.
Changes in estimates or the application of alternative assumptions could produce significantly different
results. Impairment testing is done at a reporting unit level. We perform this testing on operating
segments, which are also considered reporting units. An impairment loss generally is recognized when the
carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.
The fair value of our reporting units is determined using a combination of a discounted cash flow model
and market based approaches. The estimates and judgments that most significantly affect the fair value
calculation are assumptions related to revenue growth, newsprint prices, compensation levels, discount
rate and private and public market trading multiples for newspaper assets for the market based approach.
We consider current market capitalization, based upon the recent stock market prices, plus an estimated
control premium in determining the reasonableness of the aggregate fair value of the reporting units. We
determined that no impairment charge was required in fiscal years 2013, 2012 or 2011. Also see Note 4.
Newspaper mastheads (newspaper titles and website domain names) are not subject to amortization and
are tested for impairment annually, at year-end, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of
each newspaper masthead with its carrying amount. We use a relief from royalty approach which utilizes a
discounted cash flow model, as discussed above, to determine the fair value of each newspaper masthead.
We determined that an impairment charge of approximately $5.3 million and $2.8 million in fiscal years
2013 and 2011, respectively, was required. We determined that no impairment charge was required in fiscal
year 2012. Also see Note 4 for greater detail of our intangible assets.
Long-lived assets such as intangible assets (primarily advertiser and subscriber lists) are amortized and
tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts
53
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
may not be recoverable. The carrying amount of each asset group is not recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from the use of such asset group. We had no impairment of
long-lived assets subject to amortization during fiscal years 2013, 2012 or 2011. See Note 4 for additional
discussion.
Stock-based compensation
All stock-based payments, including grants of stock appreciation rights, restricted stock units and common
stock under equity incentive plans, are recognized in the financial statements based on their fair values. At
December 29, 2013, we had five stock-based compensation plans. See an expanded discussion of our stock
plans in Note 10.
Income taxes
We account for income taxes using the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.
Current accounting standards in the United States prescribe a recognition threshold and measurement of a
tax position taken or expected to be taken in an enterprise’s tax returns. We recognize accrued interest
related to unrecognized tax benefits in interest expense. Accrued penalties are recognized as a component
of income tax expense.
Fair value of financial instruments
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value
based on the extent to which inputs used in measuring fair value are observable in the market. We
categorize each of our fair value measurements in one of these three levels based on the lowest level input
that is significant to the fair value measurement in its entirety. These levels are:
Level 1 — Unadjusted quoted prices available in active markets for identical investments as of the
reporting date.
Level 2 — Observable inputs to the valuation methodology are other than Level 1 inputs and are either
directly or indirectly observable as of the reporting date and fair value can be determined
through the use of models or other valuation methodologies.
Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is
little or no market activity for the asset or liability, and the reporting entity makes estimates
and assumptions related to the pricing of the asset or liability including assumptions
regarding risk.
Our policy is to recognize significant transfers between levels at the actual date of the event or
circumstance that caused the transfer. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, and accounts payable. The carrying amount of
these items approximates fair value.
Long-term debt. The fair value of long-term debt is determined using quoted market prices
and other inputs that were derived from available market information including the current
54
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
market activity of our publicly-traded notes and bank debt, trends in investor demand and
market values of comparable publicly-traded debt. These are considered to be Level 2 inputs
under the fair value measurements and disclosure guidance, and may not be representative of
actual. At December 29, 2013, the estimated fair value and carrying value of long-term debt
was $1.6 billion and $1.5 billion, respectively.
Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value
adjustments only in certain circumstances (for example, when there is evidence of impairment). Our
non-financial assets measured at fair value on a nonrecurring basis in the accompanying consolidated
balance sheet as of December 29, 2013, were assets held for sale, goodwill, intangible assets not subject to
amortization and equity method investments. All of these were measured using Level 3 inputs. We utilize
valuation techniques that seek to maximize the use of observable inputs and minimize the use of
unobservable inputs.
Accumulated other comprehensive loss
We record changes in our net assets from non-owner sources in our consolidated statements of
stockholders’ equity. Such changes relate primarily to valuing our pension liabilities, net of tax effects.
Our accumulated other comprehensive loss (‘‘AOCL’’) and reclassifications from AOCL, net of tax,
consisted of the following:
(in thousands)
Beginning balance — December 30, 2012
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from AOCL
Other comprehensive income (loss)
Minimum
Pension and
Post-
Retirement
Liability
Other
Comprehensive
Loss
Related to
Equity
Investments
Total
$ (473,448)
$
(7,868)
$ (481,316)
—
176,779
176,779
(364)
—
(364)
(364)
176,779
176,415
Ending balance — December 29, 2013
$ (296,669)
$
(8,232)
$ (304,901)
AOCL Component
Minimum pension and post-retirement
liability
Amount
Reclassified
from AOCL
(in thousands)
Year Ended
December 29,
2013
Affected Line in the Condensed
Consolidated Statements of Operations
$
$
294,632
(117,853)
Compensation
Provision for income taxes
176,779
Net of tax
55
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings per share (EPS)
Basic EPS excludes dilution from common stock equivalents and reflects income divided by the weighted
average number of common shares outstanding for the period. Diluted EPS is based upon the weighted
average number of outstanding shares of common stock and dilutive common stock equivalents in the
period. Common stock equivalents arise from dilutive stock options, restricted stock units and restricted
stock and are computed using the treasury stock method. The weighted average anti-dilutive stock options
that could potentially dilute basic EPS in the future, but were not included in the weighted average share
calculation consisted of the following:
Years Ended
(shares in thousands)
Anti-dilutive stock options
Recently Adopted Accounting Pronouncements
December 29, December 30, December 25,
2012
2013
2011
4,941
6,814
5,772
During the first quarter of 2013, we adopted the Financial Accounting Standards Board (‘‘FASB’’)
accounting standards update (‘‘ASU’’) issued in February 2013. The ASU requires new disclosures about
reclassifications from accumulated other comprehensive loss to net income. These disclosures may be
presented on the face of the statements or in the notes to the consolidated financial statements.
Accordingly, we have presented reclassifications from accumulated other comprehensive loss to the
consolidated statements of operations in the notes to our consolidated financial statements.
During the first quarter of 2013, we adopted the FASB ASU issued in July 2012. The ASU provides new
guidance on annual impairment testing of indefinite-lived intangible assets. The ASU allows an entity to
first assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-
lived intangible asset is less than its carrying amount. If based on its qualitative assessment an entity
concludes it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its
carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise,
quantitative impairment testing is not required. The adoption of this standard did not impact our
consolidated financial statements.
2.
INVESTMENTS IN UNCONSOLIDATED COMPANIES
Our ownership interest and investment in unconsolidated companies consisted of the following:
(in thousands)
Company
% Ownership December 29, December 30,
2013
Interest
2012
CareerBuilder, LLC
Classified Ventures, LLC
HomeFinder, LLC
Wanderful Media
Seattle Times Company (C-Corporation)
Ponderay (general partnership)
Other
15.0
25.6
33.3
12.2
49.5
27.0
Various
$
$
214,579
73,692
1,064
1,384
—
8,443
1,407
210,365
69,907
2,573
2,551
—
11,375
2,832
$
300,569
$
299,603
56
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
2.
INVESTMENTS IN UNCONSOLIDATED COMPANIES (continued)
On February 28, 2014, Classified Ventures, LLC entered into a definitive agreement to sell its
apartments.com business for approximately $585 million. The transaction is expected to close in the second
quarter of fiscal year 2014 and accordingly we will record our share of the gain on the sale, which is
expected to be between $140 million to $145 million, before taxes, during the same period. We also expect
to receive a distribution of approximately $147 million from Classified Ventures, LLC, which is equal to
our share of the net proceeds from the sale shortly after the transaction closes.
During fiscal year 2013, we wrote-down $3.0 million of certain unconsolidated investments.
We received dividends and other equity distributions from our investments in unconsolidated companies as
follows:
(in thousands)
CareerBuilder, LLC
Classified Ventures, LLC
Other
Years Ended
December 29, December 30,
2013
2012
$
$
13,500
22,996
5,940
42,436
$
$
15,000
18,908
4,692
38,600
The distributions from our equity investments for $42.4 million included $2.9 million, which exceeded the
cumulative earnings from an investee and was considered a return of investment and therefore treated as
an investing activity, and the remaining $39.5 million, which represented a return on investment, was
shown as an operating activity.
We purchased some of our newsprint supply from Ponderay Newsprint Company (‘‘Ponderay’’) during
fiscal years 2013, 2012 and 2011.
Our investment in The Seattle Times Company (‘‘STC’’) is zero as a result of accumulative losses in
previous years exceeding our carrying value. No future income or losses from STC will be recorded until
our carrying value on our balance sheet is restored through future earnings by STC.
We also incurred expenses related to the purchase of products and services provided by these companies,
for the uploading and hosting of online advertising on behalf of our newspapers’ advertisers. The following
table summarizes expenses incurred for products provided by unconsolidated companies, which are
recorded in operating expenses as follows:
Years Ended
(in thousands)
CareerBuilder, LLC
Classified Ventures, LLC
Ponderay (general partnership)
December 29, December 30, December 25,
2012
2013
2011
$
1,166
16,915
17,575
$
1,197
14,390
23,813
$
1,230
12,552
20,414
As of both December 29, 2013, and December 30, 2012, we had approximately $1.5 million payable
collectively to CareerBuilder, LLC and Ponderay.
57
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
2.
INVESTMENTS IN UNCONSOLIDATED COMPANIES (continued)
The tables below present the summarized financial information, as provided to us by these investees, for
our investments in unconsolidated companies on a combined basis:
(in thousands)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity
December 29, December 30,
$
2013
479,684
608,267
320,440
277,518
489,993
$
2012
412,959
584,773
304,317
246,543
446,872
Years Ended
(in thousands)
Net revenues
Gross profit
Operating income
Net income
3. MIAMI LAND AND BUILDING
December 29, December 30, December 25,
2012
2013
2011
$ 1,512,534
1,262,104
231,952
247,441
$ 1,427,657
1,179,819
169,236
141,387
$ 1,332,394
1,086,667
154,257
171,305
On January 31, 2011, our contract to sell certain land in Miami (‘‘Miami Contract’’) terminated pursuant
to its terms because the buyer (‘‘developer’’) did not consummate the transaction by the closing deadline in
the contract. Under the terms of the Miami Contract, we were entitled to receive a $7.0 million
termination fee and we filed a claim against the developer to obtain the payment. We settled the claim for
an undisclosed amount during the quarter ended September 29, 2013.
On May 27, 2011, we sold 14.0 acres of land in Miami, including a building, which held the operations of
one of our subsidiaries, The Miami Herald Media Company, and adjacent parking lots, for a purchase
price of $236.0 million (‘‘Miami property’’). Approximately 9.4 acres of this Miami property was previously
subject to the terminated Miami Contract discussed above. We received cash proceeds of $230.0 million as
a result of the sale. The additional $6.0 million was held in an escrow account for our expenses incurred in
connection with the relocation of our Miami operations. In April 2012, we received these funds, which
were released for payment of costs associated with the relocation of the Miami operations.
In connection with the sale transaction, The Miami Herald Media Company continued to operate from its
existing location, at the Miami property, through May 2013 rent-free. As a result of our continuing
involvement in the Miami property and because we did not pay rent during this period, the sale was treated
as a financing transaction. Accordingly, we continued to depreciate the carrying value of the building until
our operations were moved. In addition, we recorded a $236.0 million liability (in financing obligations)
equal to the sales proceeds received of $230.0 million plus the $6.0 million received from the escrow
account for reimbursement of moving expenses. We were imputing rent based on comparable market rates,
which was reflected as interest expense until the operations were moved.
As of the end of May 2013, we moved all of our Miami business operations to a leased facility and our
production to our new production plant built next to the business operations in Doral, Florida and we no
longer have a continuing involvement with the Miami property. As a result, in fiscal year 2013, we
recognized a gain of $12.9 million on the Miami transaction, which was recorded in non-operating
58
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
3. MIAMI LAND AND BUILDING (continued)
(expense) income in our consolidated statements of operations. We also released our financing obligation
and PP&E from our consolidated balance sheet during fiscal year 2013, as described in Note 8, Cash Flow
Information.
4.
INTANGIBLE ASSETS AND GOODWILL
Changes in identifiable intangible assets and goodwill consisted of the following:
(in thousands)
Intangible assets subject to
amortization
Accumulated amortization
Mastheads
Goodwill
Total
(in thousands)
Intangible assets subject to
amortization
Accumulated amortization
Mastheads
Goodwill
Total
December 30,
2012
Acquired
Assets
Impairment
Charges
Amortization
Expense
December 29,
2013
$
834,961
(510,546)
$
324,415
203,587
1,012,011
500
—
500
—
991
$
— $
—
—
(5,345)
—
— $
(57,191)
(57,191)
—
—
835,461
(567,737)
267,724
198,242
1,013,002
$ 1,540,013
$
1,491
$
(5,345)
$
(57,191)
$ 1,478,968
December 25,
2011
Acquired
Assets
Impairment
Charges
Amortization
Expense
December 30,
2012
$
834,961
(452,388)
$
— $
—
— $
—
382,573
203,587
1,012,011
—
—
—
—
—
—
— $
(58,158)
(58,158)
—
—
834,961
(510,546)
324,415
203,587
1,012,011
$ 1,598,171
$
— $
— $
(58,158)
$ 1,540,013
During fiscal year 2013, we completed a small acquisition, which is reflected in goodwill and intangible
assets subject to amortization.
Accumulated changes in indefinite lived intangible assets and goodwill as of December 29, 2013, consisted
of the following:
(in thousands)
Mastheads
Goodwill
Total
Original Gross Accumulated
Impairment
Amount
Carrying
Amount
$
683,000
3,587,998
$ (484,758)
(2,574,996)
$
198,242
1,013,002
$ 4,270,998
$(3,059,754)
$ 1,211,244
59
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
4.
INTANGIBLE ASSETS AND GOODWILL (continued)
Amortization expense was $57.2 million, $58.2 million and $58.3 million in fiscal year 2013, 2012 and 2011,
respectively. The estimated amortization expense for the five succeeding fiscal years is as follows:
Amortization
Expense
(in thousands)
$
52,757
48,086
47,721
48,552
46,977
Year
2014
2015
2016
2017
2018
5. LONG-TERM DEBT
All of our long-term debt is in fixed rate obligations. As of December 29, 2013 and December 30, 2012, our
outstanding long-term debt consisted of senior secured notes and unsecured notes. If applicable, they are
stated net of unamortized discounts totaling $33.8 million and $41.2 million as of December 29, 2013 and
December 30, 2012, respectfully. The unamortized discounts resulted from recording assumed liabilities at
fair value during a 2006 acquisition or from the issuance of the 11.50% Senior Secured Notes due in 2017
(‘‘11.50% Notes’’) at an original issue discount.
The face values of the notes, as well as the carrying values are as follows:
(in thousands)
Notes:
9.00% senior secured notes due in 2022
11.50% senior secured notes due in 2017
4.625% notes due in 2014
5.750% notes due in 2017
7.150% debentures due in 2027
6.875% debentures due in 2029
Long-term debt
Less current portion
Total long-term debt, net of current
Face Value at
December 29, December 29, December 30,
2013
2013
2012
Carrying Value
$
900,000
—
28,965
261,298
89,188
276,230
$
900,000
—
28,548
252,259
83,684
257,380
$
910,000
83,016
64,326
273,559
83,291
256,154
$ 1,555,681
$ 1,521,871
$ 1,670,346
28,548
83,016
$ 1,493,323
$ 1,587,330
60
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
5. LONG-TERM DEBT (continued)
During the year ended December 29, 2013, we redeemed or repurchased a total of $155.9 million of notes
through the completion of our debt refinancing described below and through privately negotiated
transactions, as follows:
(in thousands)
11.50% senior secured notes due in 2017
9.00% senior secured notes due in 2022
4.625% notes due in 2014
5.750% notes due in 2017
Face Value
$
83,595
10,000
37,473
24,840
Total notes redeemed or repurchased
$
155,908
Loss on Extinguishment of Debt
During fiscal year 2013, we recorded a net loss on the extinguishment of debt of $13.6 million compared to
$88.4 million in fiscal year 2012, when a majority of the 11.50% Notes were refinanced. During fiscal year
2013, we redeemed or repurchased all of these notes at a price greater than par value and wrote off
historical discounts related to these notes.
Credit Agreement
In connection with the issuance of the 9.00% Senior Secured Notes due in 2022 (‘‘9.00% Notes’’) discussed
below, we entered into the Third Amended and Restated Credit Agreement (‘‘Credit Agreement’’), dated
as of December 18, 2012. The Credit Agreement provides for $75.0 million in revolving credit
commitments, with a $50.0 million letter of credit subfacility, and has a maturity date of December 18,
2017. Our obligations under the Credit Agreement are secured by a first-priority security interest in certain
of our assets as described below. As of December 29, 2013, there were $41.1 million face amount of letters
of credit outstanding and no other amounts drawn under the Credit Agreement.
Under the Credit Agreement, we may borrow at either the London Interbank Offered Rate plus a spread
ranging from 275 basis points to 425 basis points, or at a base rate plus a spread ranging from 175 basis
points to 325 basis points, in each case based upon our consolidated total leverage ratio. The Credit
Agreement provides for a commitment fee payable on the unused revolving credit ranging from 50 basis
points to 62.5 basis points, based upon our consolidated total leverage ratio.
On June 22, 2012, we entered into a Second Amended and Restated Credit Agreement (‘‘Previous
Agreement’’) to amend and replace our Amended and Restated Credit Agreement from January 26, 2010.
The Previous Agreement terms, among other things, (i) reduced the size of the revolving loan facility from
$125.0 million to $36.1 million to cover our issuances of standby letters of credit and (ii) extended the
maturity of the Previous Agreement to January 31, 2015. The new committed amount was only available
for the issuance of standby letters of credit.
Senior Secured Notes and Indenture
On December 18, 2012, we issued $910 million aggregate principal amount of 9.00% Notes. We received
approximately $889 million net of financing costs in the offering and used the net proceeds, as well as cash
on hand, to repurchase all of our outstanding $846 million in aggregate principal amount of the 11.50%
Senior Secured Notes due in 2017 (‘‘11.50% Notes’’) in two separate transactions. On December 18, 2012,
we repurchased $762.4 million of the 11.50% Notes pursuant to a cash tender offer done in connection
with the issuance of the 9.00% Notes. In connection with this cash tender offer for our 11.50% Notes, we
61
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
5. LONG-TERM DEBT (continued)
recorded a loss on the extinguishment of debt of approximately $94.5 million. In fiscal year 2013, we
redeemed the remaining $83.6 million aggregate principal amount of 11.50% Notes not tendered in the
tender offer and we recorded a loss on the extinguishment of debt of approximately $9.6 million related to
the redemption.
Our 9.00% Notes were issued in a private placement. In July 2013, the original 9.00% Notes (and
associated guarantees) were exchanged for new 9.00% Notes (and associated guarantees) that have terms
substantially identical to the original notes except that the 9.00% Notes issued in the exchange are not
subject to transfer restrictions.
Substantially all of our subsidiaries guarantee the obligations under the 9.00% Notes and the Credit
Agreement. We own 100% of each of the guarantor subsidiaries and we have no significant independent
assets or operations separate from the subsidiaries that guarantee our 9.00% Notes and the Credit
Agreement. The guarantees provided by the guarantor subsidiaries are full and unconditional and joint
and several, and the assets of any of our subsidiaries, other than the subsidiary guarantors, are minor.
In addition, we have granted a security interest to the banks that are a party to the Credit Agreement and
the trustee under the indenture governing the 9.00% Notes that include, but are not limited to, intangible
assets, inventory, receivables and certain minority investments as collateral for the debt. The security
interest does not include any PP&E, leasehold interests and improvements with respect to such PP&E
which would be reflected on our consolidated balance sheet or shares of stock and indebtedness of our
subsidiaries.
Covenants under the Senior Debt Agreements
The financial covenants under the Credit Agreement require us to comply with a maximum consolidated
total leverage ratio and a minimum consolidated interest coverage ratio, each measured quarterly. As of
December 29, 2013, and for the remainder of the term of the Credit Agreement, we are required to
maintain a consolidated total leverage ratio of not more than 6.00 to 1.00 and a consolidated interest
coverage ratio of at least 1.50 to 1.00. As of December 29, 2013, we were in compliance with all financial
debt covenants.
The Credit Agreement also prohibits the payment of a dividend if a payment would not be permitted
under the indenture for the 9.00% Notes (discussed below). Dividends under the indenture for the 9.00%
Notes are allowed if the consolidated leverage ratio (as defined in the indenture) is less than 5.25 to 1.00
and we have sufficient amounts under our restricted payments basket (as defined in the indenture).
The indenture for the 9.00% Notes includes a number of restrictive covenants that are applicable to us and
our restricted subsidiaries. The covenants are subject to a number of important exceptions and
qualifications set forth in the indenture for the 9.00% Notes. These covenants include, among other things,
restrictions on our ability to incur additional debt; make investments and other restricted payments; pay
dividends on capital stock or redeem or repurchase capital stock or certain of our outstanding notes or
debentures prior to stated maturity; sell assets or enter into sale/leaseback transactions; create specified
liens; create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make
other distributions; engage in certain transactions with affiliates; and consolidate or merge with or into
other companies or sell all or substantially all of the Company’s and our subsidiaries’ assets, taken as a
whole.
62
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
5. LONG-TERM DEBT (continued)
Maturities
The following table presents the approximate annual maturities of outstanding long-term debt as of
December 29, 2013, based upon our required payments, for the next five years and thereafter:
Year
2014
2015
2016
2017
2018
Thereafter
Payments
(in thousands)
$
28,965
—
—
261,298
—
1,265,418
Debt principal
$ 1,555,681
6.
INCOME TAXES
Income tax provision (benefit) consisted of:
Years Ended
(in thousands)
Current:
Federal
State
Deferred:
Federal
State
December 29, December 30, December 25,
2012
2011
2013
$
17,728
5,302
$
4,701
(16,535)
$
28,913
(1,553)
(7,612)
(2,162)
(4,701)
(4,847)
(3,316)
(15,648)
Income tax provision (benefit)
$
13,256
$
(21,382)
$
8,396
The effective tax rate expense (benefit) and the statutory federal income tax rate are reconciled as follows:
Years Ended
(in thousands)
Statutory rate
State taxes, net of federal benefit
Changes in estimates
Changes in unrecognized tax benefits
Settlements
Other
Stock compensation
Effective tax rate
December 29, December 30, December 25,
2012
2011
2013
35.0%
11.4
(0.0)
(5.2)
(1.3)
2.7
(1.2)
41.4%
(35.0)%
7.7
0.2
(56.3)
(32.6)
4.0
12.7
(99.3)%
35.0%
0.3
0.6
(13.6)
(10.4)
1.5
—
13.4%
63
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
6.
INCOME TAXES (continued)
The components of deferred tax assets and liabilities consisted of the following:
(in thousands)
Deferred tax assets:
Compensation benefits
State taxes
State loss carryovers
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Investments in unconsolidated subsidiaries
Debt discount
Deferred gain on debt
Total deferred tax liabilities
Net deferred tax liabilities
December 29, December 30,
2013
2012
$
187,516
3,625
5,007
4,727
200,875
(3,741)
197,134
213,159
71,840
12,434
33,007
330,440
$
308,392
4,984
5,815
5,280
324,471
(4,110)
320,361
233,214
64,317
15,059
33,084
345,674
$
133,306
$
25,313
The valuation allowance relates to state net operating loss and capital loss carryovers. It decreased by
$0.4 million in fiscal year 2013 and decreased by $5.4 million during fiscal year 2012.
As of December 29, 2013, we have varying amounts of net operating loss totaling approximately
$181.6 million and capital loss carryovers totaling approximately $13.5 million in several states. The net
operating losses expire in various years between fiscal years 2020 and 2033 if not used. The capital loss
carryovers will expire in fiscal years 2015 and 2018, if not used prior to that time. We have approximately
$1.6 million of state tax credit carryovers which do not expire.
As of December 29, 2013, we had approximately $15.6 million of long-term liabilities relating to uncertain
tax positions consisting of approximately $12.9 million in gross unrecognized tax benefits (primarily state
tax positions before the offsetting effect of federal income tax) and $2.7 million in gross accrued interest
and penalties. If recognized, substantially all of the net unrecognized tax benefits would impact the
effective tax rate. It is reasonably possible that a reduction of up to $1.8 million of unrecognized tax
benefits and related interest may occur within the next 12 months as a result of the closure of certain audits
and the expiration of statutes of limitations. Net accrued interest and penalties at December 29, 2013,
December 30, 2012, and December 25, 2011, were approximately $2.0 million, $2.5 million and
$15.5 million, respectively.
64
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
6.
INCOME TAXES (continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits consists of the following:
Years Ended
(in thousands)
Balance at beginning of fiscal year
Increases based on tax positions in prior year
Decreases based on tax positions in prior year
Increases based on tax positions in current
year
Settlements
Lapse of statute of limitations
December 29, December 30, December 25,
2012
2013
2011
$
8,649
7,631
(935)
1,386
(259)
(3,583)
$
$
30,463
—
(9,933)
745
(643)
(11,983)
51,992
1,409
(13,475)
2,213
—
(11,676)
Balance at end of fiscal year
$
12,889
$
8,649
$
30,463
As of December 29, 2013, the following tax years and related taxing jurisdictions were open:
Taxing Jurisdiction
Federal
Washington, D.C.
Illinois
California
Other States
Open
Tax Year
Years Under
Exam
2010-2013
2006, 2010-2013
2008-2013
2009-2013
2006-2013
2006
2008-2009
2009-2010
7. EMPLOYEE BENEFITS
We have a qualified defined benefit pension plan (‘‘Pension Plan’’) covering substantially all of our
employees who began their employment prior to March 31, 2009. Effective March 31, 2009, the Pension
Plan was frozen such that no new participants may enter the Pension Plan and no further benefits will
accrue. However, years of service continue to count toward early retirement calculations and vesting of
benefits previously earned.
We also have a limited number of supplemental retirement plans to provide key employees hired prior to
March 31, 2009, with additional retirement benefits. These plans are funded on a pay-as-you-go basis and
the accrued pension obligation is largely included in other long-term obligations. We paid $8.3 million in
fiscal year 2013, $8.2 million in fiscal year 2012 and $7.4 million in fiscal year 2011 for these plans. We also
provide or subsidize certain life insurance benefits for employees.
65
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
The following tables provide reconciliations of the pension and post-retirement benefit plans’ benefit
obligations, fair value of assets and funded status as of December 29, 2013, and December 30, 2012:
(in thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gain)/loss
Gross benefits paid
Plan amendment
Administrative expenses
Pension Benefits
Post-retirement Benefits
2013
2012
2013
2012
$
$ 2,073,218
5,545
84,596
—
(214,353)
(94,253)
—
(5,432)
$ 1,763,859
5,540
91,898
—
305,952
(89,213)
—
(4,818)
$
15,932
—
497
586
(754)
(3,289)
(386)
—
27,474
—
946
817
(2,400)
(3,285)
(7,620)
—
Benefit obligation, end of year
$ 1,849,321
$ 2,073,218
$
12,586
$
15,932
(in thousands)
Change in Plan Assets
Fair value of plan assets, beginning of
year
Actual return on plan assets
Employer contribution
Plan participants’ contributions
Gross benefits paid
Administrative expenses
Pension Benefits
Post-retirement Benefits
2013
2012
2013
2012
$
$ 1,358,877
157,614
15,889
—
(94,253)
(5,432)
$ 1,233,305
171,481
48,122
—
(89,213)
(4,818)
— $
—
2,703
586
(3,289)
—
—
—
2,468
817
(3,285)
—
Fair value of plan assets, end of year
$ 1,432,695
$ 1,358,877
$
— $
—
(in thousands)
Funded Status
Fair value of plan assets
Benefit obligations
Pension Benefits
Post-retirement Benefits
2013
2012
2013
2012
$ 1,432,695
(1,849,321)
$ 1,358,877
(2,073,218)
$
— $
(12,586)
—
(15,932)
Funded status and amount recognized,
end of year
$ (416,626)
$ (714,341)
$
(12,586)
$
(15,932)
66
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
Amounts recognized in the consolidated balance sheets at December 29, 2013, and December 30, 2012,
consists of:
(in thousands)
Current liability
Noncurrent liability
Pension Benefits
Post-retirement Benefits
2013
2012
2013
2012
$
(33,418)
(383,208)
$
(15,830)
(698,511)
$ (416,626)
$ (714,341)
$
$
(1,585)
(11,001)
(12,586)
$
$
(1,859)
(14,073)
(15,932)
Amounts recognized in accumulated other comprehensive income for the years ended December 29, 2013,
and December 30, 2012, consist of:
(in thousands)
Net actuarial loss/(gain)
Prior service cost/(credit)
Pension Benefits
Post-retirement Benefits
2013
518,914
12
518,926
$
$
2012
815,385
26
815,411
$
$
2013
2012
$
$
(11,041)
(13,436)
(24,477)
$
$
(11,380)
(14,952)
(26,332)
The elements of retirement and post-retirement costs are as follows:
Years Ended
(in thousands)
Pension plans:
Service Cost
Interest Cost
Expected return on plan assets
Prior service cost amortization
Actuarial loss
Net pension expense
Net post-retirement benefit credit
Deferred compensation plan credit
December 29, December 30, December 25,
2012
2013
2011
$
5,545
84,596
(101,053)
14
25,557
14,659
(2,497)
—
$
5,540
91,898
(107,760)
14
12,687
$
5,600
92,961
(104,251)
14
6,726
2,379
(995)
—
1,050
(234)
(71)
745
Net retirement expenses
$
12,162
$
1,384
$
Our discount rate was determined by matching a portfolio of long-term, non-callable, high quality bonds to
the plans’ projected cash flows.
Weighted average assumptions used for valuing benefit obligations were:
Discount rate
Pension Benefit
Obligations
Post-retirement
Obligations
2013
5.01%
2012
4.17%
2013
4.36%
2012
3.39%
67
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
Weighted average assumptions used in calculating expense:
Expected long-term return on plan assets
Discount rate
Pension Benefit Expense
Post-retirement Expense
December 29, December 30, December 25, December 29,
2013
8.00%
4.17%
2012
8.25%
5.31%
2011
8.25%
5.90%
2013
N/A
3.39%
December 30,
2012
December 25,
2011
N/A
4.26%/3.31% (1)
N/A
4.84%
(1)
4.26% for January 2012 to September 2012; 3.31% for October 2012 to December 2012 due to plan change.
For the post-retirement plans, the medical cost trend rates are expected to decline from 7.0% in 2013 to
5.0% by the year 2018. As of December 29, 2013, a 1% increase in the assumed health care cost trend rate
would increase the benefit obligation by $0.5 million and a 1% decrease in the assumed health care cost
trend rate would decrease the benefit obligation by $0.5 million. As of December 30, 2012, a 1% increase
in the assumed health care cost trend rate would increase the benefit obligation by $0.6 million and a 1%
decrease in the assumed health care cost trend rate would decrease the benefit obligation by $0.6 million.
Contributions and Cash Flows
In January 2014, we contributed $25 million of cash to the Pension Plan, which we expect will satisfy all of
our required contributions in fiscal year 2014. We do not expect to make any additional contributions to
the Pension Plan during fiscal year 2014.
In fiscal year 2013, we contributed $7.6 million of cash to the Pension Plan. In fiscal year 2012, we
contributed $40.0 million of cash to the Pension Plan.
In January 2011, we contributed owned real property from seven locations to our Pension Plan. The
Pension Plan obtained independent appraisals of the property and, based on these appraisals, recorded the
contribution at the fair value of $49.7 million. We entered into leases for the seven contributed properties
for 10 years. The properties are managed on behalf of the Pension Plan by an independent fiduciary. In
May 2011, we used proceeds from the sale of our property in Miami (see Note 3) to contribute
$163.0 million to the Pension Plan.
The contribution and leaseback of the properties was treated as a financing transaction and, accordingly,
we continue to depreciate the carrying value of the properties in our financial statements. No gain or loss
has been recognized on the contribution. Our pension obligation was reduced by $49.7 million and a
long-term and short-term financing obligation was recorded on the date of the contribution. The financing
obligation is reduced by a portion of the lease payments made to the Pension Plan each month. The
balance of this obligation at December 29, 2013, was $44.5 million.
68
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
Expected benefit payments to retirees under our retirement and post-retirement plans over the next
10 years are summarized below:
(in thousands)
2014
2015
2016
2017
2018
2019-2023
Retirement
Plans (1)
Post-retirement
Plans
$
$
94,367
97,659
100,459
104,887
107,832
592,450
1,584
1,316
1,259
1,203
1,143
4,681
Total
$ 1,097,654
$
11,186
(1)
Largely to be paid from the qualified defined benefit pension plan
Pension Plan Assets
Our investment policies are designed to maximize Pension Plan returns within reasonable and prudent
levels of risk, with an investment horizon of greater than 10 years so that interim investment returns and
fluctuations are viewed with appropriate perspective. The policy also aims to maintain sufficient liquid
assets to provide for the payment of retirement benefits and plan expenses, hence, small portions of the
equity and debt investments are held in marketable mutual funds.
Our policy seeks to provide an appropriate level of diversification of assets, as reflected in its target
allocations, as well as limits placed on concentrations of equities in specific sectors or industries. It uses a
mix of active managers and passive index funds and a mix of separate accounts, mutual funds, common
collective trusts and other investment vehicles.
Our assumed long-term return on assets was developed using a weighted average return based upon the
Pension Plan’s portfolio of assets and expected returns for each asset class, taking into account projected
inflation, interest rates and market returns. The assumed return was also reviewed in light of historical and
recent returns in total and by asset class.
As of December 29, 2013 and December 30, 2012, the target allocations for the Pension Plan assets were
60% equity securities, 28% debt securities, 7% real estate securities and 5% commodities.
69
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
The table below summarizes the Pension Plan’s financial instruments that are carried at fair value on a
recurring basis by the fair value hierarchy levels discussed above, as of the year ended December 29, 2013:
(in thousands)
Cash and cash equivalents
Mutual fund
Corporate debt instruments
U.S. Government securities
Common collective trusts
Real estate
Other
Total
Pending trades
2013
Plan Assets
Level 1
Level 2
Level 3
Total
$
$
844
273,450
—
—
—
—
—
— $
—
105
112,530
980,317
—
—
— $
—
—
—
—
52,265
7,167
844
273,450
105
112,530
980,317
52,265
7,167
$
274,294
$ 1,092,952
$
59,432
1,426,678
6,017
$ 1,432,695
The table below summarizes changes in the fair value of the Pension Plan’s Level 3 investment assets held
for the year ended December 29, 2013:
(in thousands)
Beginning Balance, December 30, 2012
Real Estate
Private Equity
Total
$
51,579
$
6,408
$
57,987
Purchases, issuances, sales,
settlements
Realized gains
Transfer in or out of level 3
Unrealized gains
—
4,817
(4,817)
686
—
(167)
926
—
4,817
(4,984)
1,612
Ending Balance, December 29, 2013
$
52,265
$
7,167
$
59,432
The table below summarizes the Pension Plan’s financial instruments that are carried at fair value on a
recurring basis by the fair value hierarchy levels discussed above, as of the year ended December 30, 2012:
(in thousands)
Cash and cash equivalents
Mutual fund
Corporate debt instruments
U.S. Government securities
Common collective trusts
Real estate
Other
Total
Pending trades
2012
Plan Assets
Level 1
Level 2
Level 3
Total
$
1,161
257,398
—
—
—
—
—
$
— $
—
98
107,337
928,730
—
—
— $
—
—
—
—
51,579
6,408
1,161
257,398
98
107,337
928,730
51,579
6,408
$
258,559
$ 1,036,165
$
57,987
1,352,711
6,166
$ 1,358,877
70
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
The table below summarizes changes in the fair value of the Pension Plan’s Level 3 investment assets held
for the year ended December 30, 2012:
(in thousands)
Beginning Balance, December 25, 2011
Real Estate
Private Equity
Total
$
50,530
$
8,899
$
59,429
Purchases, issuances, sales,
settlements
Realized gains
Transfer in or out of level 3
Unrealized gains
—
3,747
(3,747)
1,049
—
27
(3,820)
1,302
—
3,774
(7,567)
2,351
Ending Balance, December 30, 2012
$
51,579
$
6,408
$
57,987
Cash and cash equivalents. The carrying value of these items approximates fair value.
Mutual funds. These investments are publicly traded investments, which are valued using the Net Asset
Value (NAV). The NAV of the mutual funds is a quoted price in an active market. The NAV is determined
once a day after the closing of the exchange based upon the underlying assets in the fund, less the fund’s
liabilities, expressed on a per-share basis.
Corporate debt instruments. The fair value of corporate debt instruments is based on yields currently
available on comparable securities of issuers with similar credit ratings. When quoted prices are not
available for identical or similar debt instruments, the fair value is based upon an industry valuation model,
which maximizes observable inputs.
U.S. Government securities. U.S. government securities primarily consist of investments in U.S. Treasury
Bonds, Indexed Linked Bonds and Treasury Inflation Protected Securities. The fair value of U.S.
government securities is based on quoted market prices when available or is based on yields currently
available on comparable securities or on an industry valuation model, which maximizes observable inputs.
Common collective trusts. These investments are valued based on the NAV of the underlying investments
and are provided by the fund issuers. NAV for these funds represent the quoted price in a non-market
environment. There are no restrictions on participants’ ability to withdraw funds from the common
collective trusts.
Real estate. On January 14, 2011, we contributed Company-owned real property from seven locations to
our Pension Plan. The Pension Plan obtained independent appraisals of the property, and based on these
appraisals, the Pension Plan recorded the contribution at fair value on January 14, 2011. The properties are
leased by us for our newspaper operations. The properties are managed on behalf of the Pension Plan by
an independent fiduciary, and the terms of the leases between us and the Pension Plan were negotiated
with the fiduciary. The property is valued by independent appraisals conducted under the direction of the
independent fiduciary.
Other. Other includes:
Private equity fund. Private equity funds represent investments in limited partnerships, which
invest in start-up or other private companies. Fair value is estimated based on valuations of
comparable public companies, recent sales of comparable private and public companies, and
discounted cash flow analysis of portfolio companies and is included as a Level 3 investment in the
table above.
71
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
7. EMPLOYEE BENEFITS (continued)
401(k) Plan
We have separate deferred compensation plans (‘‘401(k) plan’’) for employees, which enable qualified
employees to voluntarily defer compensation. On March 31, 2009, we temporarily suspended our matching
contribution to the 401(k) plan. The 401(k) plan, as amended, includes a Company match (once
reinstated) and a supplemental contribution that is tied to our performance (as defined in the plan).
8. CASH FLOW INFORMATION
Cash paid during the fiscal years 2013, 2012 and 2011 for interest and income taxes were:
Years Ended
(in thousands)
Interest paid (net of amount capitalized) (1)
Income taxes paid (net of refunds)
December 29, December 30, December 25,
2012
2011
2013
$
127,257
21,019
$
173,742
37,137
$
152,543
32,613
(1)
The fiscal year 2012 interest paid includes $30.0 million of interest accelerated as a result of the refinance of
the 11.50% Notes as discussed in Note 5.
In January 2011, we contributed real property valued at $49.7 million to our defined benefit pension plan
and have recorded a financing obligation equal to the same amount for leases entered into with the
defined benefit pension plan for our operations. In addition, in 2011 we sold property in Miami but
retained use of the property rent-free through May 2013. As a result the transaction was treated as a
financing transaction (see Note 3 for a description of this transaction and the related accounting
treatment) and land was transferred to PP&E. These non-cash transactions are summarized below:
(in thousands)
Financing obligation for contribution of real property to pension
plan
Reduction of pension obligation
Non-refundable deposits offset against carrying value of land
Increase in PP&E for land transferred from other assets
Year Ended
December 25,
2011
$
49,710
(49,710)
(16,500)
116,000
As of December 29, 2013, other non-cash financing activities included the release of $238.1 million for the
financing obligation related to the Miami property transaction because we no longer have a continuing
involvement with the Miami property (see Note 3). As of December 29, 2013, other non-cash investing
activities included the release of $227.7 million from property, plant and equipment (‘‘PP&E’’), which also
relates to the conclusion of the Miami property transaction.
We had $0.2 million, $5.7 million and $1.2 million of non-cash financing activities related to purchases of
PP&E on credit as of the end of fiscal years 2013, 2012 and 2011, respectively. We had $1.0 million of
non-cash financing activities related to financing costs for our 9.00% Notes issuance as of the end of fiscal
year 2012.
72
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
9. COMMITMENTS AND CONTINGENCIES
We have certain other obligations for various contractual agreements that secure future rights to goods and
services to be used in the normal course of operations. These include purchase commitments for printing
outsource agreements, planned capital expenditures, lease commitments and self-insurance obligations.
The following table summarizes our minimum annual contractual obligations as of December 29, 2013 and
the estimated timing and effect the obligations have on our liquidity and cash flows in future periods:
(in thousands)
Purchase obligations (1)
Operating leases (2)
Lease obligation
Sublease income
Net lease obligation
Workers’ compensation
obligations (3)
Total (4)
Payments Due By Period
2014
2015
2016
2017
2018
Thereafter
Total
$ 23,864
$ 15,500
$ 14,037
$ 14,122
$ 14,121
$ 31,717
$ 113,361
11,489
(2,406)
9,083
9,594
(1,862)
7,732
8,960
(1,330)
7,630
8,194
(777)
7,417
7,489
(764)
6,725
30,742
(2,204)
28,538
76,468
(9,343)
67,125
4,621
3,269
2,443
1,840
1,432
5,178
18,783
$ 37,568
$ 26,501
$ 24,110
$ 23,379
$ 22,278
$ 65,433
$ 199,269
(1) Represents our purchase obligations primarily related to printing outsource agreements and capital expenditures for
property, plant and equipment expiring at various dates through 2028. As of December 29, 2013, we had a fiscal year 2014
purchase commitment of 81,648 metric tons of newsprint from SP Fiber Technologies.
(2) Represents minimum rental commitments under operating leases with non-cancelable terms in excess of one year and
sublease income from leased space. We rent certain facilities and equipment under operating leases expiring at various
dates through 2028. Total rental expense, included in other operating expenses, from continuing operations amounted to
$11.2 million in fiscal year 2013, $12.5 million in fiscal year 2012 and $13.3 million in fiscal year 2011. Most of the leases
provide that we pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased premises
in addition to the minimum monthly payments. Some of the operating leases have built in escalation clauses. We sublease
office space to other companies under noncancellable agreements that expire at various dates through 2023. Sublease
income from operating leases totaled $3.9 million, $3.8 million and $4.4 million in fiscal years 2013, 2012 and 2011,
respectively.
(3) Represents the expected insurance payments of undiscounted ultimate losses, net of estimated insurance recoveries of
approximately $6.2 million, and is based on our historical payment patterns. We retain the risk for workers’ compensation
resulting from uninsured deductibles per accident or occurrence that are subject to annual aggregate limits. Losses up to
the deductible amounts are accrued based upon known claims incurred and an estimate of claims incurred but not
reported. For the year ended December 29, 2013, we compiled our historical data pertaining to the self-insurance
experiences and actuarially developed the ultimate loss associated with our self-insurance programs for workers’
compensation liability. We believe that the actuarial valuation provides the best estimate of the ultimate losses to be
expected under these programs. The undiscounted ultimate losses of all our self-insurance reserves related to our workers’
compensation liabilities, net of insurance recoveries at December 29, 2013 and December 30, 2012, were $18.7 million and
$19.8 million, respectively. We discount the net amount above to present value using an approximate risk-free rate over the
average life of our insurance claims. For the years ended December 29, 2013 and December 30, 2012, the discount rate
used was 1.9% and 1.1%, respectively. The present value of all self-insurance reserves, net of estimated insurance
recoveries, for our workers’ compensation liability recorded at December 29, 2013 and December 30, 2012, was
$18.7 million and $19.8 million, respectively.
Legal Proceedings and other contingent claims
We are subject to a variety of legal proceedings (including libel, employment, wage and hour, independent
contractor and other legal actions) and governmental proceedings (including environmental matters) that
arise from time to time in the ordinary course of our business. We are unable to estimate the amount or
range of reasonably possible losses. However, we currently believe, after reviewing such actions with
73
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
9. COMMITMENTS AND CONTINGENCIES (continued)
counsel, that the expected outcome of pending actions will not have a material effect on our consolidated
financial statements. No material amounts for any losses from litigation that may ultimately occur have
been recorded in the consolidated financial statements as we believe that any such losses are not probable.
We have certain indemnification obligations related to the sale of assets including but not limited to
insurance claims and multi-employer pension plans of disposed newspaper operations. We believe the
remaining obligations related to disposed assets will not be material to our financial position, results of
operations or cash flows.
As of December 29, 2013, we had $41.1 million of standby letters of credit secured under the Credit
Agreement (see Note 5 for further discussion).
10. COMMON STOCK AND STOCK PLANS
Common Stock
We have two classes of stock; Class A and Class B Common Stock. Both classes of stock participate equally
in dividends. Holders of Class B are entitled to one vote per share and to elect as a class 75% of the Board
of Directors, rounded down to the nearest whole number. Holders of Class A Common Stock are entitled
to one-tenth of a vote per share and to elect as a class 25% of the Board of Directors, rounded up to the
nearest whole number.
Class B Common Stock is convertible at the option of the holder into Class A Common Stock on a
share-for-share basis.
The holders of shares of Class B Common Stock are parties to an agreement, the intent of which is to
preserve control of the Company by the McClatchy family. Under the terms of the agreement, the Class B
shareholders have agreed to restrict the transfer of any shares of Class B Common Stock to one or more
‘‘Permitted Transferees,’’ subject to certain exceptions. A ‘‘Permitted Transferee’’ is any of our current
holders of shares of Class B Common Stock; any lineal descendant of Charles K. McClatchy (1858 to
1936); or a trust for the exclusive benefit of, or in which all of the remainder beneficial interests are owned
by, one or more lineal descendants of Charles K. McClatchy.
Generally, Class B shares can be converted into shares of Class A Common Stock and then transferred
freely (unless, following conversion, the outstanding shares of Class B Common Stock would constitute less
than 25% of the total number of all our outstanding shares of common stock). In the event that a Class B
shareholder attempts to transfer any shares of Class B Common Stock in violation of the agreement, or
upon the happening of certain other events enumerated in the agreement as ‘‘Option Events,’’ each of the
remaining Class B shareholders has an option to purchase a percentage of the total number of shares of
Class B Common Stock proposed to be transferred equal to such remaining Class B shareholder’s
ownership percentage of the total number of outstanding shares of Class B Common Stock. If all the
shares proposed to be transferred are not purchased by the remaining Class B shareholders, we have the
option of purchasing the remaining shares. The agreement can be terminated by the vote of the holders of
80% of the outstanding shares of Class B Common Stock who are subject to the agreement. The
agreement will terminate on September 17, 2047, unless terminated earlier in accordance with its terms.
Stock Plans
During fiscal year 2013, we had five stock-based compensation plans, which are described below.
74
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
10. COMMON STOCK AND STOCK PLANS (continued)
We had two stock option plans which reserved Class A Common shares for issuance to key employees —
the 1994 and 1997 plans (‘‘Employee Plans’’). Terms of each of the Employee Plans were substantially the
same. Options were granted at the market price of the Class A Common Stock on the date of grant. The
options vested in installments over four years, and once vested are exercisable up to 10 years from the date
of grant. Although the plans permit us, at our sole discretion, to settle unexercised options by granting
stock appreciation rights, we do not intend to avail ourselves of this alternative for option grants made
under these plans. Both of these plans have expired and have been replaced by the 2004 stock incentive
plan. During fiscal year 2013, all outstanding grants expired, leaving no grants outstanding under the
Employee Plans as of December 29, 2013.
Our amended and restated stock option plan for outside directors (the ‘‘2001 Director Plan’’) provided for
the issuance of shares of Class A Common Stock. Generally, under this plan each non-employee director
was granted, at the conclusion of each regular annual meeting of stockholders, an option to purchase
shares of Class A Common Stock at fair market value on the date of the grant. Terms of the 2001 Director
Plan were similar to the terms of the Employee Plans. This plan (which had 9,000 outstanding grants at
December 29, 2013) expired and no further grants are being made.
We have a stock incentive plan (the ‘‘2004 Plan’’) that reserved 9,000,000 Class A Common shares for
issuance to key employees and outside directors. Terms of the 2004 Plan are similar to the Employee Plans
and 2001 Director Plan, except that the 2004 Plan permitted the following type of incentive awards in
addition to common stock, stock options and stock appreciation rights (‘‘SARs’’): restricted stock,
unrestricted stock, stock units and dividend equivalent rights. The 2004 Plan was frozen in May 2012.
In May 2012 the shareholders approved The McClatchy Company 2012 Omnibus Incentive Plan (‘‘2012
Plan’’) to replace the 2004 Plan, for all future awards. The 2012 Plan provided that the Class A Common
Stock available for issuance equal to 5,000,000 shares plus the number of shares available for future awards
under the 2004 Plan as of the date of May 16, 2012 (the shareholder meeting date) plus the number of
shares subject to awards outstanding under the 2004 Plan as of May 16, 2012, which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of such shares. The 2012 Plan
generally provides for granting of stock options or SARs only at an exercise price at least equal to fair
market value on the grant date; a 10-year maximum term for stock options and SARs; no repricing of stock
options or SARs without prior shareholder approval; and no reload or ‘‘evergreen’’ share replenishment
features.
Prior to fiscal year 2012, we also had an Amended Employee Stock Purchase Plan (the ‘‘Purchase Plan’’),
which reserved 4,625,000 shares of Class A Common Stock for issuance to employees. Eligible employees
were able to purchase shares at 85% of ‘‘fair market value’’ (as defined by the Purchase Plan) through
payroll deductions. In the third quarter of fiscal year 2011, we issued shares from our Purchase Plan that
exhausted substantially all of the shares reserved under the plan for issuance and we suspended the plan at
that time.
75
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
10. COMMON STOCK AND STOCK PLANS (continued)
Stock Plans Activity
In fiscal year 2013, we granted 15,000 shares of Class A Common Stock to each non-employee director,
resulting in the issuance of 165,000 shares from the 2012 Plan. In fiscal year 2012, we granted 15,000 shares
of Class A Common Stock to each non-employee director, resulting in the issuance of 150,000 shares from
the 2012 Plan.
We granted restricted stock units (‘‘RSUs’’) at fair market value on the date of grant to certain key
employees from the 2012 Plan as summarized below. The RSUs generally vest two to three years after
grant date but terms of each grant is at the discretion of the compensation committee of the board of
directors.
The following table summarizes the RSUs stock activity:
Nonvested — December 26, 2010
Granted
Forfeited
Nonvested — December 25, 2011
Granted
Vested
Forfeited
Nonvested — December 30, 2012
Granted
Vested
Forfeited
Nonvested — December 29, 2013
Weighted
Average Grant
Date Fair
Value
$
$
$
$
$
$
$
$
$
$
$
$
3.42
4.08
3.70
3.73
2.59
3.42
3.48
2.98
2.46
4.08
2.48
2.50
RSUs
845,000
740,000
(140,000)
1,445,000
1,082,000
(765,000)
(660,000)
1,102,000
483,150
(320,000)
(33,500)
1,231,650
As of December 29, 2013, the total fair value of the RSUs that vested during the period was $0.8 million.
As of December 29, 2013, there were $1.4 million of unrecognized compensation costs for nonvested
RSUs, which are expected to be recognized over 1.8 years.
We granted SARs at fair market value on the date of grant to certain key employees from the 2012 Plan as
summarized below. The SARs generally vest four years after grant date but terms of each grant is at the
discretion of the compensation committee of the board of directors.
76
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
10. COMMON STOCK AND STOCK PLANS (continued)
Outstanding options and SARs are summarized as follows:
Outstanding December 26, 2010
Granted
Exercised
Forfeited
Expired
Outstanding December 25, 2011
Granted
Exercised
Forfeited
Expired
Outstanding December 30, 2012
Granted
Exercised
Forfeited
Expired
Outstanding December 29, 2013
Vested and Expected to Vest December 29, 2013
Options exercisable:
December 25, 2011
December 30, 2012
December 29, 2013
Options/
SARs
6,632,200
1,078,500
(152,750)
(132,250)
(702,450)
6,723,250
1,017,500
(27,250)
(1,217,750)
(301,250)
6,194,500
775,000
(545,750)
(58,500)
(254,750)
6,110,500
5,955,143
4,082,500
3,826,250
3,983,875
Weighted
Average
Exercise Price
Aggregate
Intrinsic Value
(in thousands)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
26.82
4.08
1.73
3.99
47.86
22.01
2.76
1.70
54.52
48.33
11.45
2.46
1.72
3.30
48.97
9.69
9.87
$
$
$
$
$
$
$
$
$
$
$
6,060
382
874
33
1,846
847
2,384
2,281
397
1,335
1,306
As of December 29, 2013, there were $2.0 million of unrecognized compensation costs related to options
and SARs granted under our plans. The cost is expected to be recognized over a weighted average period
of 2.3 years.
The following tables summarize information about stock options and SARs outstanding in the stock plans
at December 29, 2013:
Range of Exercise Options/SARs
Outstanding
Prices
$1.50 – $9.07
$9.73 – $35.94
$40.95 – $73.36
Total
4,407,250
1,106,750
596,500
6,110,500
Average
Remaining
Contractual
Life
Weighted
Average
Exercise Price
Options/SARs
Exercisable
Weighted
Average
Exercise Price
6.79
2.86
1.84
5.59
$
$
$
$
2.99
13.19
52.66
9.69
2,280,625
1,106,750
596,500
3,983,875
$
$
$
$
3.00
13.19
52.66
13.27
77
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
10. COMMON STOCK AND STOCK PLANS (continued)
The weighted average remaining contractual life of options exercisable at December 29, 2013, was
4.26 years. The weighted average remaining contractual life of options vested and expected to vest at
December 29, 2013, was 5.52 years. The fair value of the stock options and SARs granted was estimated on
the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the
following table. The expected life of the options represents the period of time that options granted are
expected to be outstanding using the historical exercise behavior of employees. The expected dividend
yield is based on historical dividends declared per year, giving consideration for any anticipated change and
the estimated stock price over the expected life of the options based on historical experience. Expected
volatility was based on historical volatility for a period equal to the stock option’s expected life for shares
granted. The risk-free rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.
Expected life in years
Dividend yield
Volatility
Risk-free interest rate
Weighted average exercise price of options/
SARs granted
Weighted average fair value of options/SARs
granted
2013
4.51
NIL
1.08
0.76%
$2.46
$1.85
2012
6.52
NIL
0.90
1.22%
$2.76
$2.09
2011
6.16
NIL
0.87
2.53%
$4.08
$3.03
Through the third quarter of fiscal year 2011, we also offered eligible employees the option to purchase
Class A Common Stock under the Purchase Plan. The expense associated with the plan was computed
using a Black-Scholes option valuation model with similar assumptions to those described for stock
options, except that volatility is computed using a one-year look back given the short-term nature of this
option. Expense associated with the Purchase Plan is included in the stock-related compensation. There
was no such plan or expense during fiscal years 2013 or 2012.
Stock-Based Compensation
Total stock-based compensation expense consisted of the following:
Years Ended
(in thousands)
Stock-based compensation expense
December 29, December 30, December 25,
2012
2011
2013
$
3,523
$
3,523
$
5,174
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Our 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 holiday seasons. The
78
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
first and third quarters are historically the slowest quarters for revenues and profits. Our quarterly results
are summarized as follows:
(in thousands, except per share
amounts)
Net Revenues
Operating income
Net income (loss)
Net income (loss) per share
(in thousands, except per share
amounts)
Net Revenues
Operating income
Net income (loss)
Net income (loss) per share
March 31,
2013
$
$
$
$
295,109
20,598
(12,741)
(0.15)
March 25,
2012
$
$
$
$
306,689
27,975
(2,087)
(0.02)
Quarters Ended
June 30,
2013
308,789
31,461
11,752
0.14
September 29, December 29,
2013
293,610
27,571
7,265
0.08
$
$
$
$
2013
344,729
45,270
12,527
0.15
$
$
$
$
Quarters Ended
June 24,
2012
320,126
42,935
26,865
0.31
September 23, December 30,
2012
306,332
32,479
5,093
0.06
$
$
$
$
2012
376,492
82,747
(30,015)
(0.35)
$
$
$
$
$
$
$
$
$
$
$
$
The following are significant activities in fiscal year 2013:
(cid:127) During the quarter ended March 31, 2013, we incurred a loss on extinguishment of debt
totaling $12.8 million related to bonds that were redeemed through the completion of our
debt refinancing as described in Note 5 or repurchased through privately negotiated
transactions.
(cid:127) During the quarter ended June 30, 2013, we recognized a gain on the sale of our Miami
property for $10.0 million. See Note 3 for further discussion.
(cid:127) During the quarter ended September 29, 2013, we recognized a gain on the sale of our Miami
property for $2.9 million. See Note 3 for further discussion.
(cid:127) As discussed in Note 1, our fiscal year 2013 reporting period is a 52-week year versus a
53-week year in fiscal year 2012, and as a result, the quarter ended December 29, 2013
includes 13 weeks compared to 14 weeks in the quarter ended December 30, 2012. Also,
during the quarter ended December 29, 2013, we recognized $5.3 million in masthead
impairment charges, $11.9 million in real property and land impairment charges, $11.4 million
in accelerated depreciation on production equipment and $3.0 million in write-downs of
certain other unconsolidated investments. See Notes 1 and 2.
The following are significant activities in fiscal year 2012:
(cid:127) During the quarter ended March 25, 2012, we incurred a gain on extinguishment of debt
totaling $4.4 million related to bonds that were repurchased in the through privately
negotiated transactions.
(cid:127) During the quarter ended June 24, 2012, we had a reversal of non-cash interest expense
totaling $7.8 million related to the release of tax reserves. In addition, we had a favorable
79
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 29, 2013, DECEMBER 30, 2012 AND DECEMBER 25, 2011
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
adjustment to net income totaling $7.0 million for a tax settlement related to state tax
positions previously taken.
(cid:127) As discussed in Note 1, our fiscal year 2012 reporting period is a 53-week year versus a
52-week year in fiscal year 2011, and as a result, the quarter ended December 30, 2012
includes 14 weeks compared to 13 weeks in the quarter ended December 25, 2011. Also,
during the quarter ended December 30, 2012, in connection with our refinance of our 11.50%
Notes, as described in Note 5, we recognized $94.5 million as a loss on extinguishment of debt.
80
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our management evaluated, with the participation of our Chief Executive Officer (‘‘CEO’’) and Chief
Financial Officer (‘‘CFO’’), the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a - 15(e) or 15d - 15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on this
evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and
procedures were effective at that time to ensure that information we are required to disclose in reports
that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our principal executive and principal financial officers, as appropriate, to allow
timely decisions regarding required disclosure and that such information is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission
Rules and Forms.
Changes in internal control over financial reporting.
There was no change in our internal control over financial reporting that occurred during the last fiscal
quarter of fiscal 2013 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in the Securities Exchange Act of 1934, as amended
Rules 13a-15(f). The Company’s internal control system over financial reporting is designed to provide
reasonable assurance regarding the preparation and fair presentation of the Company’s financial
statements presented in accordance with generally accepted accounting principles in the United States of
America.
An internal control system over financial reporting has inherent limitations and may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Management of the Company assessed the effectiveness of the Company’s internal control over financial
reporting as of December 29, 2013. In making this assessment, management used the criteria set forth in
the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework)(COSO). Based on management’s assessment and those criteria,
management believes that the Company’s internal control over financial reporting was effective as of
December 29, 2013.
The McClatchy Company’s independent registered public accounting firm has issued an attestation report
on the Company’s internal control over financial reporting. This report appears in Item 8 – ‘‘Financial
Statements and Supplementary Data’’
ITEM 9B.
OTHER INFORMATION
Not Applicable.
81
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated herein by reference from the proxy statement for the annual meeting of our stockholders to
be filed pursuant to Regulation 14A within 120 days after our fiscal year-end of December 29, 2013.
ITEM 11.
EXECUTIVE COMPENSATION
Incorporated herein by reference from the proxy statement for the annual meeting of our stockholders to
be filed pursuant to Regulation 14A within 120 days after our fiscal year-end of December 29, 2013.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference from the proxy statement for the annual meeting of our stockholders to
be filed pursuant to Regulation 14A within 120 days after our fiscal year-end of December 29, 2013.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Incorporated herein by reference from the proxy statement for the annual meeting of our stockholders to
be filed pursuant to Regulation 14A within 120 days after our fiscal year-end of December 29, 2013.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated herein by reference from the proxy statement for the annual meeting of our stockholders to
be filed pursuant to Regulation 14A within 120 days after our fiscal year-end of December 29, 2013.
82
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)&(c)
(b)
Financial Statements and Financial Statement Schedules filed as a part of this
Report are listed in Item 8 – ‘‘Financial Statements and Supplementary Data’’.
Exhibits listed on the accompanying Index of Exhibits are filed or furnished as part
of this report, following the signature pages.
83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
THE MCCLATCHY COMPANY
(Registrant)
/s/ Patrick J. Talamantes
Patrick J. Talamantes,
President, Chief Executive Officer
and Director
March 6, 2014
84
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Patrick J. Talamantes
Patrick J. Talamantes
/s/ R. Elaine Lintecum
R. Elaine Lintecum
/s/ Lawrence D. Edgar
Lawrence D. Edgar
/s/ Kevin S. McClatchy
Kevin S. McClatchy
/s/ Elizabeth Ballantine
Elizabeth Ballantine
/s/ Leroy Barnes, Jr.
Leroy Barnes, Jr.
/s/ Molly Maloney Evangelisti
Molly Maloney Evangelisti
/s/ Kathleen Foley Feldstein
Kathleen Foley Feldstein
/s/ Craig I. Forman
Craig I. Forman
/s/ Brown McClatchy Maloney
Brown McClatchy Maloney
/s/ William B. McClatchy
William B. McClatchy
/s/ Theodore R. Mitchell
Theodore R. Mitchell
/s/ Clyde W. Ostler
Clyde W. Ostler
/s/ Frederick R. Ruiz
Frederick R. Ruiz
President, Chief Executive Officer
And Director
(Principal Executive Officer)
March 6, 2014
Vice President-Finance, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
March 6, 2014
Controller
(Principal Accounting Officer)
March 6, 2014
Chairman of the Board
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
Director
March 6, 2014
85
INDEX OF EXHIBITS
(Item 15 (a) 3.)
Exhibit
Number
Description
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
The Company’s Restated Certificate of
Incorporation, dated June 26, 2006
The Company’s Bylaws as amended and
restated effective March 20, 2012
Amended and Restated Guaranty dated as of
September 26, 2008, executed by certain
subsidiaries of The McClatchy Company in
favor of the lenders under the Credit
Agreement
Security Agreement dated as of September 26,
2008, executed by The McClatchy Company
and certain of its subsidiaries in favor of Bank
of America, N.A., as Administrative Agent
Commitment Reduction and Amendment and
Restatement Agreement, dated as of June 22,
2012, among the Company and Bank of
America, N.S., as Administrative Agent
Second Amended and Restated Credit
Agreement, dated as of June 22, 2012, among
the Company, the lenders from time to time
party thereto, and Bank of America, N.A.,
Administrative Agent and L/C Issuer
Third Amended and Restated Credit
Agreement dated December 18, 2012 among
the Company, the lenders from time to time
party thereto, and Bank of America, N.A.,
Administrative Agent, Swing Line Lender and
L/C Issuer
Purchase Agreement, dated February 4, 2010,
by and among the Company, certain of the
Company’s subsidiaries and J.P. Morgan
Securities Inc. as Representative of the several
Initial Purchasers relating to the 11.50% Senior
Secured Notes due in 2017
Purchase Agreement, dated December 3, 2012,
by and among the Company, certain of the
Company’s subsidiaries and J.P. Morgan
Securities LLC as Representative of the several
Initial Purchasers relating to the $910 million
9.00% Senior Secured Notes due 2022
Incorporated by reference herein
Form
10-Q
8-K
8-K
Exhibit
File Date/Period End
Date
3.1
3.1
June 25, 2006
March 22, 2012
10.3
September 30, 2008
8-K
10.2
September 30, 2008
8-K
10.1
June 25, 2012
10-Q
10.2
June 25, 2012
8-K
10.1
December 20, 2012
8-K
10.1
February 9, 2010
10-K
10.9
December 30, 2012
86
Exhibit
Number
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Description
Indenture, dated February 11, 2010 among The
McClatchy Company, the subsidiary guarantors
party thereto and The Bank of New York
Mellon Trust Company, N.A. relating to the
11.50% Senior Secured Notes due 2017
Second Supplemental Indenture dated
December 11, 2012, among The McClatchy
Company, the subsidiary guarantors party
thereto and The Bank of New York Mellon
Trust Company, N.A. related to the 11.50%
Senior Secured Notes due to 2017
Indenture, dated as of November 4, 1997,
between Knight-Ridder, Inc. and The Chase
Manhattan Bank of New York, as Trustee,
[Knight-Ridder’s Registration Statement on
Form S-3]
First Supplemental Indenture, dated as of
June 1, 2001, Knight-Ridder, Inc.; The Chase
Manhattan Bank of New York, as original
Trustee; and The Bank of New York, as series
Trustee [Knight-Ridder, Inc. Report on
Form 8-K]
Second Supplemental Indenture, dated as of
November 1, 2004, among Knight-Ridder, Inc.,
JPMorgan Chase Bank (formerly known as The
Chase Manhattan Bank), as trustee, and The
Bank of New York Trust Company, N.A., as
series trustee for the Notes [Knight-Ridder, Inc.
Report on Form 8-K]
Third Supplemental Indenture, dated as of
August 16, 2005, among Knight-Ridder, Inc.,
JPMorgan Chase Bank, N.A. (formerly known
as The Chase Manhattan Bank), as trustee, and
The Bank of New York Trust Company, N.A.,
as series trustee for the Notes [Knight-
Ridder, Inc. Report on Form 8-K]
Fourth Supplemental Indenture dated June 27,
2006, between the Company and Knight-
Ridder Inc.
Indenture dated December 18, 2012, among
The McClatchy Company, the subsidiary
guarantors party thereto and the Bank of New
York Mellon Trust Company, N.A. relating to
the 9.00% Senior Secured Notes due 2022
Incorporated by reference herein
Form
8-K
Exhibit
4.1
File Date/Period End
Date
February 17, 2010
8-K
4.1
December 20, 2012
S-3
4.1
October 10, 1997
8-K
4
June 1, 2001
8-K
4.1
November 4, 2004
8-K
4.1
August 22, 2005
10-Q
10.4
June 25, 2006
8-K
4.2
December 20, 2012
87
Exhibit
Number
10.16
10.17
10.18
Description
Registration Rights Agreement, dated
February 11, 2010, between The McClatchy
Company and J. P. Morgan Securities Inc.,
relating to the 11.50% Senior Secured Notes
due 2017
Registration Rights Agreement dated
December 18, 2012, between The McClatchy
Company and J.P. Morgan Securities LLC,
relating to the 9.00% Senior Secured Notes due
2022
Purchase and Sale Agreement Between the
Company, a Delaware corporation, and
Richwood, Inc., a Florida corporation and
Bayfront 2011 Property, LLC dated May 26,
2011
Incorporated by reference herein
Form
8-K
Exhibit
4.2
File Date/Period End
Date
February 17, 2010
8-K
4.3
December 20, 2012
10-Q
10.42
June 26, 2011
10.19
* The McClatchy Company Management
10-K
Objective Plan Description.
10.20
* Amended and Restated Supplemental Executive 10-K
Retirement Plan
10.21
* Amendment Number 1 to The McClatchy
8-K
Company Supplemental Executive Retirement
Plan
10.22
* Amended and Restated McClatchy Company
Benefit Restoration Plan
10.23
* Amended and Restated McClatchy Company
8-K
8-K
Bonus Recognition Plan
10.4
10.4
10.1
10.1
10.2
December 30, 2000
December 29, 2002
February 10, 2009
July 29, 2011
July 29, 2011
10.24
10.25
10.26
* Amended and Restated 1994 Stock Option Plan 10-Q
* Amended and Restated 1997 Stock Option Plan 10-K
10-K
* Amendment 1 to The McClatchy Company
10.15
10.7
10.16
July 1, 2001
December 29, 2002
December 31, 2006
1997 Stock Option Plan dated January 23, 2007
10.27
* The Company’s Amended and Restated 2001
10-K
10.13
December 26, 2004
Director Stock Option Plan
10.28
* Amendment 1 to The McClatchy Company
10-K
10.18
December 31, 2006
2001 Director Option Plan dated January 23,
2007
10.29
* The Company’s 2004 Stock Incentive Plan, as
10-Q
10.25
June 29, 2008
amended and restated
10.30
* Form of 2004 Stock Incentive Plan
8-K
Nonqualified Stock Option Agreement
10.31
* Form of Restricted Stock Agreement related to
8-K
10.32
the Company’s 2004 Stock Incentive Plan
* Form of Restricted Stock Unit Agreement
8-K
99.1
99.1
10.1
December 16, 2004
January 28, 2005
December 18, 2009
related to the Company’s 2004 Stock Incentive
Plan
10.33
* The McClatchy Company 2012 Omnibus
Incentive Plan
DEF Appendix A
14A
April 2, 2012
88
Incorporated by reference herein
Form
8-K
Exhibit
10.3
File Date/Period End
Date
May 18, 2012
8-K
10.2
May 18, 2012
8-K
8-K
8-K
10.1
10.4
99.1
May 18, 2012
May 18, 2012
May 23, 2005
Exhibit
Number
Description
10.34
* Form of Restricted Stock Unit Agreement
10.35
10.36
10.37
10.38
12
21
23
23.1
23.2
31.1
31.2
under The McClatchy Company 2012 Omnibus
Incentive Plan
* Form of Stock Appreciation Right Agreement
under The McClatchy Company 2012 Omnibus
Incentive Plan
* Employment Agreement between the Company
and Patrick Talamantes dated May 16, 2012
* 2012 Senior Executive Retention Bonus Plan
* Form of Indemnification Agreement between
the Company and each of its officers and
directors
Computation of Earnings to Fixed Charges
Subsidiaries of the Company
Consent of Deloitte & Touche LLP
Consent of PricewaterhouseCoopers LLP
Consent of Ernst & Young LLP
Certification of the Chief Executive Officer of
The McClatchy Company pursuant to
Rule 13a-14(a) under the Exchange Act
Certification of the Chief Financial Officer of
The McClatchy Company pursuant to
Rule 13a-14(a) under the Exchange Act
32.1
** Certification of the Chief Executive Officer of
The McClatchy Company pursuant to 18 U.S.C.
Section 1350
32.2
** Certification of the Chief Financial Officer of
The McClatchy Company pursuant to 18 U.S.C.
Section 1350
Consolidated balance sheets of Classified
Ventures, LLC as of December 31, 2013 and
December 31, 2012 and the related
consolidated statements of operations, changes
in members’ equity, and cash flows for each of
the three years ended December 31, 2013 and
Independent Auditor’s Report as it relates to
2013.
Consolidated balance sheet of
CareerBuilder, LLC as of December 31, 2013
and the related consolidated statements of
operations, comprehensive income, equity, and
cash flows for each of the three years ended
December 31, 2013 and Report of Independent
Auditors as it relates to 2013.
XBRL Instance Document
XBRL Taxonomy Extension Schema
99.1
99.2
101.INS
101.SCH
89
Exhibit
Number
101.CAL
101.DEF
101.LAB
101.PRE
Description
Form
Exhibit
File Date/Period End
Date
Incorporated by reference herein
XBRL Taxonomy Extension Calculation
Linkbase
XBRL Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation
Linkbase
*
Compensation plans or arrangements for the Company’s executive officers and directors
** Furnished, not filed
90
The McClatchy Company
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
(in thousands of dollars, except ratio data)
Year Ended
Exhibit 12
December 29, December 30, December 25, December 26, December 27,
2011
2012
2010
2009
2013
Fixed Charge Computation
Interest expenses:
Net interest expense
Plus: capitalized interest
Gross interest
Interest on unrecognized tax
benefits
Amortization of debt discount
Interest component of rent
expense
$
135,381
798
136,179
$
151,334
748
152,082
$
735
(6,673)
11,689
(9,821)
165,434
193
165,627
5,960
(11,092)
$
177,641
101
177,742
(1,632)
(11,327)
$
127,276
200
127,476
(920)
(7,442)
4,585
5,666
4,509
5,021
5,501
Total fixed charges
$
134,826
$
159,616
$
165,004
$
169,804
$
124,615
Earnings Computation
Income from continuing
operations before income
taxes
Earnings of equity
investments (1)
Impairment related charge
recorded by equity
investee (2)
Interest on unrecognized tax
benefits
Distributed income of equity
investees
Add: fixed charges
Less: capitalized interest
$
32,059
$
(21,526)
$
62,785
$
38,701
$
83,561
(42,651)
(31,935)
(27,762)
(11,752)
(2,130)
—
—
—
(735)
(11,689)
(5,960)
42,436
134,826
(798)
38,600
159,616
(748)
31,625
165,004
(193)
2,947
1,632
24,274
169,804
(101)
2,022
920
1,135
124,615
(200)
Total earnings as adjusted
$
165,137
$
132,318
$
225,498
$
225,505
$
209,923
Ratio Of Earnings to Fixed
Charges
1.22
0.83
1.37
1.33
1.68
(1) The earnings from equity investments in 2012 includes the Company’s portion (approximately $7 million) of
an impairment related charge that was recorded by an equity investee.
(2) Reflects the Company’s portion of loss related to an impairment and recorded in ‘‘Write-down of
investments and land held for sale’’ in the Consolidated Statement of Income.
THE MCCLATCHY COMPANY
SUBSIDIARIES
Exhibit 21
The following is a list of subsidiaries of the Company as of December 29, 2013, omitting subsidiaries which,
considered in the aggregate, would not constitute a significant subsidiary.
Name of Entity
Aboard Publishing, Inc.
Anchorage Daily News, Inc.
Bellingham Herald Publishing, LLC
Belton Publishing Company, Inc.
Big Valley, Inc.
Biscayne Bay Publishing, Inc.
Cass County Publishing Company
Columbus-Ledger Enquirer, Inc.
Cypress Media, Inc.
Cypress Media, LLC
Dagren, Inc.
Double A Publishing, Inc.
East Coast Newspapers, Inc.
El Dorado Newspapers
Gulf Publishing Company, Inc.
HLB Newspapers, Inc.
Idaho Statesman Publishing, LLC
Keltatim Publishing Company, Inc.
Keynoter Publishing Company, Inc.
Lee’s Summit Journal, Inc.
Lexington H-L Services, Inc.
Macon Telegraph Publishing Company
Mail Advertising Corporation
McClatchy Interactive LLC
McClatchy Interactive West
McClatchy International, Inc.
McClatchy Investment Company
McClatchy Leasing Company, Inc.
McClatchy Management Services, Inc.
McClatchy Net Ventures, Inc.
McClatchy News Services, Inc.
McClatchy Newspaper Sales, Inc.
McClatchy Newspapers, Inc.
McClatchy Newsprint Company
McClatchy Property, Inc.
McClatchy Resources, Inc.
McClatchy Sales, Inc.
McClatchy Shared Services, Inc.
McClatchy U.S.A., Inc.
Mediastream, Inc.
Miami Herald Media Company
N&O Holdings, Inc.
Newsprint Ventures, Inc.
Nittany Printing and Publishing Company
Nor-Tex Publishing, Inc.
Jurisdiction of Organization
Florida
Alaska
Delaware
Missouri
California
Florida
Missouri
Georgia
New York
Delaware
Florida
Florida
South Carolina
California
Mississippi
Missouri
Delaware
Kansas
Florida
Missouri
Kentucky
Georgia
Texas
Delaware
Delaware
Delaware
Delaware
Florida
Delaware
Delaware
Michigan
New York
Delaware
Florida
Florida
Florida
Delaware
Florida
Delaware
Delaware
Delaware
Delaware
California
Pennsylvania
Texas
Name of Entity
Jurisdiction of Organization
Oak Street Redevelopment Corporation
Olympian Publishing, LLC
Olympic-Cascade Publishing, Inc.
Pacific Northwest Publishing Company, Inc.
Quad County Publishing, Inc.
Richwood, Inc.
Runways Pub, Inc.
San Luis Obispo Tribune, LLC
Star-Telegram, Inc.
Tacoma News, Inc.
The Bradenton Herald, Inc.
The Charlotte Observer Publishing Company
The Gables Publishing Company
The News and Observer Publishing Company
The State Media Company
The Sun Publishing Company, Inc.
Tribune Newsprint Company
Wichita Eagle and Beacon Publishing Company, Inc.
Wingate Paper Company
Missouri
Delaware
Washington
Florida
Illinois
Florida
Delaware
Delaware
Delaware
Washington
Florida
Delaware
Florida
North Carolina
South Carolina
South Carolina
Utah
Kansas
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements No. 33-56717, No. 333-42903,
No. 333-59811, No. 333-61214, and No. 333-181167 on Form S-8 and No. 333-47909 on Form S-3 and
No. 333-189530 on Form S-4 of our report dated March 6, 2014, relating to the consolidated financial
statements of The McClatchy Company, and the effectiveness of The McClatchy Company’s internal
control over financial reporting, appearing in this Annual Report on Form 10-K of The McClatchy
Company for the year ended December 29, 2013.
Exhibit 23
/s/ DELOITTE & TOUCHE LLP
Sacramento, California
March 6, 2014
Exhibit 31.1
I, Patrick J. Talamantes, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of The McClatchy Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 6, 2014
/s/ Patrick J. Talamantes
Patrick J. Talamantes
Chief Executive Officer
Exhibit 31.2
I, R. Elaine Lintecum, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of The McClatchy Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 6, 2014
/s/ R. Elaine Lintecum
R. Elaine Lintecum
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report of The McClatchy Company (the ‘‘Company’’) on Form 10-K for
the fiscal year ended December 29, 2013 as filed with the Securities and Exchange Commission on the date
hereof (the ‘‘Report’’), I, Patrick J. Talamantes, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: March 6, 2014
/s/ Patrick J. Talamantes
Patrick J. Talamantes
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to The McClatchy
Company and will be retained by The McClatchy Company and furnished to the Securities and Exchange
Commission or its staff upon request.
The foregoing certificate is being furnished to the Securities and Exchange Commission as an exhibit to the
Form 10-K and shall not be considered filed as part of the Form 10-K.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the annual report of The McClatchy Company (the ‘‘Company’’) on Form 10-K for
the fiscal year ended December 29, 2013 as filed with the Securities and Exchange Commission on the date
hereof (the ‘‘Report’’), I, R. Elaine Lintecum, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: March 6, 2014
/s/ R. Elaine Lintecum
R. Elaine Lintecum
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to The McClatchy
Company and will be retained by The McClatchy Company and furnished to the Securities and Exchange
Commission or its staff upon request.
The foregoing certificate is being furnished to the Securities and Exchange Commission as an exhibit to the
Form 10-K and shall not be considered filed as part of the Form 10-K.
STOCKHOLDER INFORMATION
DIRECTORS AND OFFICERS
DIRECTORS
CHAIRMAN OF THE BOARD
Kevin S. McClatchy
OFFICERS
Patrick J. Talamantes
President and Chief Executive Officer
Heather L. Fagundes
Vice President, Human Resources
Anders Gyllenhaal
Vice President,
News and Washington Editor
Christian A. Hendricks
Vice President, Interactive Media
R. Elaine Lintecum
Vice President, Chief Financial Officer
and Treasurer
Karole R. Morgan-Prager
Vice President, Corporate Development,
General Counsel and Secretary
Robert J. Weil
Vice President, Operations
Mark Zieman
Vice President, Operations
Lawrence D. Edgar
Controller
Elizabeth Ballantine
President, EBA Associates
Leroy T. Barnes Jr.
Former Vice President and Treasurer,
PG&E Corporation
Molly Maloney Evangelisti
Former Special Projects Coordinator,
The Sacramento Bee
Kathleen Foley Feldstein
President, Economics Studies, Inc.
Craig Forman
Private Investor and Entrepreneur
Brown McClatchy Maloney
Former Owner and Publisher,
Olympic View Publishing
and Owner, Radio Pacific
Kevin S. McClatchy
Chairman, The McClatchy Company
Former Managing General Partner and
Chief Executive Officer,
Pittsburgh Pirates
William B. McClatchy
Entrepreneur, Journalist and
Co-founder of Index Investing, LLC
Theodore R. Mitchell
President and Chief Executive Officer,
New Schools Venture Fund
Clyde Ostler
Former Group Executive Vice President,
Vice Chairman of Wells Fargo Bank
California
and President of Wells Fargo Family
Wealth
Frederick R. Ruiz
Chairman Emeritus and Co-founder,
Ruiz Foods, Inc.
Patrick J. Talamantes
President and Chief Executive Officer,
The McClatchy Company
GENERAL OFFICE
The McClatchy Company
2100 Q Street
Sacramento, CA 95816
(916) 321-1844
TRANSFER AGENT AND REGISTRAR
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
www.shareowneronline.com
(800) 718-2377
INDEPENDENT AUDITOR
Deloitte & Touche LLP
980 9th Street
Sacramento, CA 95814
FORM 10-K
Upon request, the company will provide,
without charge, a copy of its report on Form
10-K filed with the Securities and Exchange
Commission. Requests should be made in
writing to:
The McClatchy Company
Attention: Assistant Treasurer &
Director of Investor Relations
P. O. Box 15779
Sacramento, CA 95852
ANNUAL MEETING
The annual meeting of stockholders will
be held on Thursday, May 15, 2014, at
9 a.m. Pacific time at the Vizcaya Pavilion,
2019 21st Street, Sacramento, CA 95818.
CERTIFICATIONS OF OFFICERS
The company submitted its Annual CEO
Certification for 2013 to the New York
Stock Exchange on June 13, 2013. The
company has filed with the Securities and
Exchange Commission as Exhibits 31.3 and
31.2 to its Annual Report on Form 10-K for
the fiscal year ended December 29, 2013,
the Certifications of its Chief Executive
Officer and Chief Financial Officer required
in connection with that report by rules
13a-14(a) and 15-d-14(a) under the Securities
Exchange Act.
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2100 Q Street • Sacramento, CA 95816 • (916) 321-1844
www.mcclatchy.com