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2016 ANNUAL REPORT
Financial Highlights
(in thousands except per share amounts)
For the Year
Net revenues
Operating expenses
Net loss
Net loss per diluted share
Adjusted net income
Adjusted EBITDA
At Year End
Total assets
Long-term debt
Stockholders’ equity
Shares outstanding:
Class A shares
Class B shares
2016
2015
% change
$977,093
$1,056,574
954,553 1,301,913
(34,193) (300,162)
(34.66)
11,386
181,559
(4.41)
1,382
160,776
-7.5%
-26.7%
NM*
NM*
-88.3%
-11.4%
$1,836,754 $1,923,034
905,425
192,763
829,415
113,913
-4.5%
-8.4%
-40.9%
5,132
2,443
5,713
2,443
-10.2%
-0.0%
Reconciliation of Net Loss to Adjusted Net Income and Adjusted EBITDA
(in thousands)
2016
2015
% change
Net Loss
$(34,193)
$(300,162)
-88.6%
Add back certain items:
Intangible impairment charges
Severance charges
Accelerated depreciation on equipment
Loss on sale of land and relocation charges, net
Technology conversion costs
Costs associated with reorganizing operations
Net acquisition costs and other
Operating expense adjustments
Impairment charges related to equity investments
Gain on extinguishment of debt, net
Gain on sale of equity investments
Certain discrete tax items
Less: Tax effect of adjustments
Adjusted net income
Income tax benefit
Interest expense
Depreciation and amortization, net of accelerated
Non-cash stock compensation
Other, primarily non-operating expense, net
Adjusted EBITDA
9,196
15,160
6,960
3,255
10,837
6,996
47
52,451
1,621
(431)
–
2,278
(20,344)
1,382
(13,065)
83,168
82,486
3,130
3,675
304,848
12,927
10,248
582
380
3,388
34
332,407
8,167
(1,167)
(8,061)
(3,548)
(15,800)
11,836
(11,797)
85,973
91,347
3,178
1,022
$160,776
$181,559
NM*
17.3%
-32.1%
NM*
NM*
106.5%
NM*
NM*
NM*
NM*
NM*
NM*
-88.3%
10.7%
-3.3%
-9.7%
-1.5%
NM*
-11.4%
Reconciliation of Operating Expenses to Adjusted Operating Expenses, a.k.a. Cash Expenses
(in thousands)
Operating expenses
Less:
Operating expense adjustments (from above)
Depreciation and amortization, net of accelerated
Non-cash stock compensation
Other charges
Adjusted operating expenses, a.k.a. cash expenses
* NM = not meaningful
2016
$954,553
52,451
82,486
3,130
169
$816,317
2015
% change
$1,301,913
-26.7%
332,407
91,347
3,178
(34)
$ 875,015
NM*
-9.7%
-1.5%
NM*
-6.7%
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 2016 Annual Report
Page 1
McClatchy is a news and information publisher of
such renowned brands as the
Miami Herald, The Kansas City Star, The Sacramento Bee,
The Charlotte Observer, The (Raleigh) News and Observer, and
the (Fort Worth) Star-Telegram.
McClatchy operates
30 media companies in 14 states,
providing each of its communities with high-quality news and advertising
services in a wide array of digital and print formats. McClatchy is headquartered in
Sacramento, Calif., and listed on the
New York Stock Exchange under the symbol MNI.
Dear Shareholders:
McClatchy begins 2017 with a sharpened focus on
accelerating our digital transformation. This work will
build on significant gains we made in 2016, a year in
which we set new records in digital readership,
video views and digital-only revenue and launched
an innovative digital advertising agency. Those
successes helped us weather industry-wide
declines in print advertising, and they prepare us
for the year ahead.
As we celebrate McClatchy’s 160th birthday, some
things remain constant: our commitment to producing
high-quality public service journalism to serving our
customers and our neighbors from Sacramento to
Miami and in dozens of communities in between.
But we are clear-eyed about the challenges facing
the print newspaper economic model. We will remain
vigilant on cost control and expense reduction. At
the same time, we will deepen our connections to
our local markets by accelerating our digital product
and sales efforts and by using technology as a catalyst
for getting us to the digital future faster.
We added to our portfolio of strong markets in
2016 with the acquisition of our 30th media property,
The Herald-Sun in Durham, North Carolina, on
December 25, 2016. The acquisition offers digital
advertising opportunities as well as operational
synergies. And while small in financial terms, this
acquisition is expected to be deleveraging for the
company.
Financial Results
We continue to generate significant adjusted EBITDA,
reporting $160.8 million in fiscal 2016. In 2016,
we strategically used cash provided by operations,
distributions from equity investments and proceeds
from asset sales to reduce debt by $63.6 million and
to repurchase 655,899 shares of Class A common
stock for $7.8 million. Additionally, we continued to
make investments in our company as we advanced
our digital transformation.
Total revenues for 2016 were $977.1 million, down
7.5% compared to 2015. Total advertising revenues
were $568.7 million, down 10.8% compared to
2015. Industry-wide softness in print advertising
negatively impacted our revenues from traditional
newspaper advertising. But overall audience
revenues were more stable at $364.8 million, and
digital-only audience revenues were up 9% over
the same period.
Because of the start-up costs associated with
reducing our legacy cost infrastructure and expanding
our digital programs, we reported a net loss for 2016
of $34.2 million, or $4.41 per share. But excluding
those start-up costs and certain non-cash expenses,
we reported adjusted net income of $1.4 million.
The McClatchy Company 2016 Annual Report
Page 2
We continued to make investments
in our company as we advanced our
digital transformation
Moving our Digital Businesses Forward
Our digital-only advertising – digital advertising not
tied to a print upsell – grew a record 14.8% in 2016.
The increase came from a number of new initiatives
as well as solid growth across our digital products.
In August, we launched exceleratetm, a digital
agency that designs custom marketing plans for
businesses, then tracks and measures success
every step of the way. It embraces and supports our
sales reinvention strategy and is especially designed
to help our markets generate leads, engage customer
needs and execute fulfillment and retention. We plan
to invest $10 million in exceleratetm throughout 2017,
providing it with a larger sales force and tools to
drive revenue results in McClatchy’s markets as well
as adjacent markets. We believe exceleratetm will
be a meaningful contributor to digital growth in 2017.
We have seen significant success with video. Video
revenues on our player grew by 257% in 2016, and
we continue to add resources to our video team. For
the year, company-wide video views on our player
reached more than 74 million.
In collaboration with the McClatchy Video Lab, the
Star-Telegram in Fort Worth, Texas, produced
Titletown, TX, an award-winning weekly video series
that showcased the pressure and the passion of
high school football. Another video highlight of 2016:
McClatchy’s branded content studio partnered with
SaveMart grocery store to produce a unique 360-
degree video experience, tied to a California NASCAR
race, that used immersive video technology to create
a video-game feel.
Our participation in the Local Media Consortium’s
(LMC) premium programmatic ad exchange also
was a driver of our success with programmatic
advertising in 2016. The LMC’s audience is
significant, approximately 155 million monthly
unique visitors, and our programmatic advertising
growth of 82% in 2016 compared to 2015 was
fueled in part by participating in their exchange.
Nucleus, a national advertising agency in which
McClatchy is a partner, is also expected to help drive
results from larger retailers and national accounts.
Nucleus had a soft launch last summer, but really
is only now beginning its first full year of operation.
Larger retailers and national advertisers tell us that
they appreciate its goal to reach across the top 30
U.S. markets, our integrated multimedia solutions,
and our brand-safe, easy-to-access and scalable
distribution model.
Commitment to Journalism
Public-service journalism remains the cornerstone
of our business, and we’re moving quickly to ensure
that our journalism reaches new audiences in the
digital age. We have added resources in breaking
news, expanded our social media efforts, and
restructured our Washington bureau to produce
journalism that resonates nationally as well as
in our individual markets.
Across the country, our journalists held leaders and
institutions accountable and made our communities
better, all while dramatically increasing the readership
for our work. The Sacramento Bee’s Jack Ohman
won the 2016 Pulitzer Prize for editorial cartooning,
and the Miami Herald was a 2016 Pulitzer finalist
for its coverage of a drug sting that cost millions of
dollars but yielded no significant arrests. With these
honors, we extend our streak of being a Pulitzer
winner or finalist every year for more than a decade.
The McClatchy Company 2016 Annual Report
Page 3
Public-service journalism remains the cornerstone
of our business, and we’re moving quickly to ensure that our journalism
reaches new audiences in the digital age.
Cost Reductions/Legacy
We remain diligent in identifying ways to improve
total revenue trends and reduce legacy costs while
propelling our digital transformation.
We successfully reduced cash expenses, defined
as operating expenses reduced by non-cash
impairments and other items, by more than $58 million
in 2016 compared to 2015. Over the last two years,
operating expenses have declined $109 million and
cash expenses by $116 million. These reductions
are centered on legacy costs and efficiencies
consistent with a more digital company. Among
other things, we reduced production costs by
outsourcing the printing of our newspapers in
Lexington, Kentucky, and San Luis Obispo, California,
and by shifting printing operations in Fresno, California,
and Wichita, Kansas to other McClatchy facilities.
Improving our Capital Structure and
Returning Value to Shareholders
We moved forward with our real estate monetization
efforts throughout 2016 and early 2017.
We closed on a transaction selling The Sacramento
Bee’s covered garage for $5.75 million. We also
entered into separate agreements to sell and
leaseback real property owned by The State Media
Company in Columbia, South Carolina and by
The Sacramento Bee for total gross proceeds of
$67.8 million. The sale of the Wichita Eagle
headquarters was finalized in August, and we have
a Letter of Intent from a new purchaser for our
property in Raleigh, North Carolina.
One of McClatchy’s larger and longest-held
investments continues to be CareerBuilder. In 2016,
we received dividends of $6 million from CareerBuilder.
CareerBuilder is a valuable asset that is less strategic
to us today than it has been in the past, and as a
result we, along with our partners’ are reviewing
strategic alternatives for this business.
We used our cash wisely in 2016. We reduced debt
by $63.6 million overall and by $32.8 million in the
fourth quarter alone. Debt at the end of the fiscal year
was $873.7 million. We have notes due in September
2017 with a principal balance of $16.9 million but no
other maturities coming due until December 2022.
We also returned value to shareholders during 2016
by buying back 655,899 shares of Class A common
stock for $7.8 million.
Strong Leadership
In January 2017, McClatchy’s board of directors
appointed Craig Forman president and chief executive
officer. Craig has a strong track record in both
journalism and digital technology – he’s a digital
leader for the digital era. Craig began his career as a
reporter and bureau chief for The Wall Street Journal,
then went on to serve in executive roles at Where.
com Inc., Appia Inc., Yahoo!, Time Warner, Infoseek
and Dow Jones. Craig served in senior leadership
roles at Earthlink from 2006 to 2009, including
as president of the company’s $1 billion consumer
access and audience business. Craig has been a
member of McClatchy’s board since 2013 and will
remain on the board in his new role.
We extend our sincere gratitude to Pat Talamantes
for his 15 years of service to McClatchy, four as
president and CEO and 11 as vice president of finance
and chief financial officer. Pat led our company
through challenging times in this industry, and he did
it with integrity and genuine concern and kindness for
our employees. Pat positioned us well for the future
and was specifically instrumental in preparing us for
this next chapter. We are all better for having worked
with Pat, and we wish him well.
The McClatchy Company 2016 Annual Report
Page 4
We remain diligent in identifying
ways to improve total revenue trends
and reduce legacy costs
Tim Grieve succeeded Anders Gyllenhaal, who retired
in October 2016, as vice president of news. Tim
started his career as a reporter at The Sacramento
Bee in the 1980s and more recently helped POLITICO
become a national digital success. He returned to
McClatchy in 2015 to lead our digital readership efforts.
Anders was our vice president, news, and Washington
editor since 2010. He left the vice president position
in October in accordance with retirement policies for
corporate officers. After a brief hiatus, he will return
in a new role as senior editor and director of leadership
and development.
Andy Pergam became vice president of video and
new ventures. Andy came to McClatchy in 2014
from The Washington Post, where he was senior
editor and director of video. As vice president, Andy
continues to lead McClatchy’s video operations while
spearheading our corporate development efforts and
managing our venture investment portfolio.
McClatchy board member Kathleen Foley Feldstein
retired in 2016 after nine years on the board. Kate
served on the Knight Ridder board from 1998 until
the acquisition in 2006, at which time she began
serving on McClatchy’s board. We appreciate her
guidance and expertise over the last 18 years.
Maria Thomas was appointed to the board in August,
bringing expertise in technology, digital businesses
and finance from her work at Amazon, Etsy, NPR
and American Express. She has already contributed
guidance around our digital strategies.
As we turn our attention to the work ahead, we are
grateful for the momentum created by our team of
talented and dedicated employees. And we thank
you, our shareholders, for your support throughout
2016 and in the years to come.
Craig I. Forman
Kevin S. McClatchy
President and Chief Executive Officer
Chairman of the Board
March 1, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 25, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-9824
The McClatchy Company
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
organization)
2100 Q Street, Sacramento, CA
(Address of principal executive offices)
52-2080478
(I.R.S. Employer Identification No.)
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
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12 (g) of the Act: None
Yes 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.
Yes 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.
Yes 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).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is 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
Smaller reporting company
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Based on the closing price of the registrant’s Class A Common Stock on the New York Stock Exchange on June 24, 2016, 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 $90.3
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 24, 2017:
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 17, 2017, are incorporated by reference in Part III of this Annual Report on Form 10-K.
Class A Common Stock
Class B Common Stock
5,132,605
2,443,191
DOCUMENTS INCORPORATED BY REFERENCE
(This page has been left blank intentionally.)
TABLE OF CONTENTS
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
SIGNATURES
Exhibits, Financial Statement Schedules
Form 10-K Summary
2
9
16
16
16
16
17
19
20
37
38
74
74
74
75
75
75
75
75
76
76
77
Forward-Looking Statements:
PART I
This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended, including statements relating to our future financial performance, business,
strategies 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. BUSINESS
Overview
The McClatchy Company (the “Company,” “we,” “us” or “our”) is a news and information publisher of well-respected
publications such as the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer,
The (Raleigh) News and Observer, and the (Fort Worth) Star-Telegram. Each of our publications also has online platforms
serving their communities. In December 2016, we acquired certain assets and operations of The (Durham, NC) Herald-
Sun, including related intangible assets. With the addition of this acquisition, we operate 30 media companies in 29 U.S.
markets in 14 states, providing each of these communities with high-quality news and advertising services in a wide array
of digital and print formats. Incorporated in Delaware, we are headquartered in Sacramento, California, and our Class A
Common Stock is listed on the New York Stock Exchange under the symbol MNI.
Our businesses are comprised of daily newspapers, websites and mobile apps, mobile news and advertising, video
products, niche publications, direct marketing, direct mail services and nearby community newspapers. Our media
companies range from large daily newspapers and news websites serving metropolitan areas to non-daily newspapers with
news websites and online platforms serving small communities. For the year ended December 25, 2016, we had an average
aggregate paid daily print circulation of 1.5 million and Sunday print circulation of 2.2 million. We had 56.7 million
average monthly unique visitors to our online platforms for the full year ended December 25, 2016. Our local websites, e-
editions of the printed newspaper and mobile apps in each of our markets now provide us fully developed, but rapidly
evolving channels, to extend our journalism and advertising products to our audience in each market. In 2016, we launched
our full-service digital agency, excelerateTM, which provides digital marketing tools designed to customize digital
marketing plans for our customers.
Our business is roughly divided between those media companies operated west of the Mississippi River and those that are
east of it, but include five operating regions: California, the Carolinas, Southeast, Midwest and Northwest. For the year
ended December 25, 2016, no single media company represented more than 12.0% of total revenues.
In addition to our media companies, we also own 15.0% of CareerBuilder, LLC, which operates a premier online job
website, CareerBuilder.com, as well as certain other digital company investments. In September 2016, TEGNA Inc., the
majority holder of CareerBuilder, LLC, announced that it and other owners, including us, would evaluate strategic
alternatives for CareerBuilder. No specific timeline was announced for this process and no further action has been
announced.
Our fiscal year ends on the last Sunday in December. The fiscal years ended December 25, 2016, December 27, 2015, and
December 28, 2014, consist of 52-week periods.
Strategy
We are committed to a three-pronged strategy to grow our businesses and total revenues as a leading local media company:
2
• First, to maintain our position as the leading local media company in each market by providing high-quality
journalism and advertising information to audiences throughout the day on digital platforms and in our
printed newspapers; and to grow these audiences for the benefit of our advertisers;
• Second, to grow digital revenues. This strategy includes being a leader of local digital business in each of
our markets, including websites, e-editions of the printed newspaper, mobile apps, e-mail products, mobile
services, video products and other electronic media; and
• Third, to extend these franchises by supplementing the reach of the newspaper and digital businesses with
direct marketing, niche publications and events and direct mail products so advertisers can capture both mass
and targeted audiences with one-stop shopping.
To assist us with these strategies, we continually reengineer our operations to reduce legacy costs and strengthen areas
driving performance in news, audience, advertising and digital growth. As a result of our efforts, we saw growth in total
digital revenues in 2016 and we continued our focus on driving results in direct marketing and audience revenues, while
continuing to drive operating expenses down.
Business Initiatives
Our local media companies continue to undergo tremendous structural and cyclical change. In order to strengthen our
position as a leading local media company and implement our strategies, we are focused on the following five major
business initiatives:
Increasing and Broadening Total Revenues
Revenue initiatives in 2016 included revamping our sales forces in our markets, adding resources to our digital sales team,
additional digital sales training, and growing our digital marketing solutions that provides agency services to small and
medium-sized businesses in our markets. We realigned and improved delivery of our content on all platforms, from printed
newspapers to websites to mobile apps in every market. In 2016, we launched our full-service digital agency, excelerateTM,
which provides digital marketing tools designed to customize digital marketing plans for our customers. We also continued
to expand our video efforts to improve storytelling and generate additional advertising revenues.
Revenues exclusive of print newspaper advertising continue to grow as a percentage of total revenues and represented
70.6%, 66.7% and 62.4% of total revenues in 2016, 2015 and 2014, respectively. Our strategy has been to focus on growing
revenue sources that include digital and direct marketing advertising, audience and other non-traditional revenues.
Management expects newspaper print advertising to continue to be a smaller share of overall advertising in the future, due
in part to expected strong growth in digital-only advertising revenues and direct marketing advertising, and more stable
performance in audience revenues. However, we continue to look for opportunities to expand our advertiser base, including
advertisers outside of our markets using our excelerateTM agency services.
Overall, advertising revenues comprise a majority of our total revenues, making the quality of our sales force of greatest
importance. Advertising revenues were approximately 58.2% of total revenues in 2016, 60.3% in 2015 and 63.8% in 2014.
We have a local sales force in each of our markets, and our goal is to have the largest sales force as compared to 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, direct marketing and digital marketing solutions. Our advertisers range
from large national retail chains to local automobile dealerships to small businesses and classified advertisers.
Increasingly, our emphasis has been on growing the breadth of products offered to advertisers, particularly our digital and
direct marketing products, while expanding our relationships with local advertisers. For example, over the last several
years we have provided a “Sunday Select” program, which delivers a package of preprinted advertisements on Sunday to
non-newspaper subscribers that are interested in circulars. For 2016, total digital and direct marketing advertising revenues
represented 49.5% of total advertising revenues on a combined basis compared to 44.9% and 41.1% in 2015 and 2014,
respectively. Our digital products are discussed in more detail below.
In 2016, we expanded our sponsorship of special events programs in our markets, designed for advertisers to connect with
their customers, and expect this type of advertising to grow in 2017.
3
Audience revenues were approximately 37.3%, 34.8% and 32.0% of consolidated total revenues in 2016, 2015 and 2014,
respectively. Our subscription packages have helped diversify our revenues while continuing to drive growth in digital
audience revenues.
Expanding McClatchy’s Digital Business
We continue to be a leader in digital advertising revenues generated on our media companies’ websites and mobile
platforms as a percent of total advertising. In 2016, 30.6% of advertising revenues came from digital products compared
to 26.2% in 2015. For 2016, 69.9% of our digital advertising revenues came from digital-only advertisements where the
online buy was not an “up-sell” from a print buy, compared to 63.5% in 2015. We believe this independent advertising
revenue stream positions us well for the future of our digital business and is evidence of its importance as a delivery
channel for advertisers. During 2016, total digital advertising revenues increased 4.3% compared to a decline of 3.7% in
2015, due primarily to our focus on growing our digital-only advertising in 2016.
Our media companies’ websites and mobile apps, e-mail products, video and mobile services and other electronic media
enable us to engage our readers with real-time news and information that matters to them. During 2016, our websites
attracted an average of approximately 56.7 million unique visitors per month, up 26.8% compared to an average of
approximately 44.7 million unique visitors per month in 2015. Increasing our number of unique visitors brings additional
digital advertising revenue opportunities to our sales teams. In addition, our average mobile traffic was up 35.2% as
compared to 2015, and accounted for 56.9% of all digital traffic we received on a monthly basis.
Our websites offer classified digital advertising products provided by companies in which we hold a minority investment,
including CareerBuilder.com for employment. In 2016, we along with Gannett Co., Inc., Hearst, and tronc, Inc. launched
Nucleus Marketing Solutions, LLC (“Nucleus”). This marketing solutions provider expects to connect national advertisers
with the top 30 U.S. local publishers’ highly engaged audiences across existing and emerging digital platforms. We expect
Nucleus to improve our reach with national advertisers in 2017 and beyond.
We continue to pursue additional new digital products and offerings. In mid-2016, we expanded our concept of
comprehensive digital marketing solutions for local businesses and launched a larger direct marketing business to serve
all businesses in our markets called excelerateTM. We are also expanding this concept to markets beyond those served by
our media companies. 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, excelerateTM helps businesses improve the effectiveness of their marketing and advertising efforts.
In 2016, we continued to expand our advertising efforts on ad exchanges. Our real-time, programmatic buying and selling
of digital advertising inventory – often targeting very specific audiences at very specific times – grew 82.3% in 2016
compared to 2015. Our growth has been bolstered by our participation in the Local Media Consortium (“LMC”) and its
more than 75 member companies representing more than 1,600 daily newspapers and broadcast members. The LMC has
created a private advertising exchange that includes high-quality brand friendly advertising inventory from member
publishers. The LMC’s goal is to provide advertisers with efficient access to high-quality ad impressions. In total, LMC
members serve more than 13 billion ad impressions monthly.
Video revenue increased 257.7% in 2016 compared to 2015, due to our continued expansion of the use of video in our
digital products to both enhance the content that we bring to readers and viewers and also to compete for a growing
advertising stream. During 2016, more than 225 million video views were recorded across all of our digital platforms,
including those on social media platforms and distribution partners, up from 82 million video views in 2015.
All of our markets offer subscription packages for digital content. The packages include a combined digital and print
subscription and a digital-only subscription. Digital-only subscriptions grew to approximately 83,100, an increase of 4.8%
in 2016 compared to 79,300 subscriptions in 2015.
Maintaining Our Commitment to Public Service Journalism
We believe high-quality news content is the foundation of the mass reach necessary for the press to continue 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. Every market is expected to improve annually
4
as evidenced by peer awards, readership studies in its market, maintenance of readership (both print and electronic) and
review of its content and quality. Most importantly, when we talk about our mission, from news meetings to board
meetings, a constant theme is staying true to the public service role we believe defines our work.
During the transition that has reshaped the industry over the past decade, we have moved quickly to expand our digital
reach and deliver the news in a changing technological landscape. We have also made it a focus in our evolution to maintain
the deeper coverage that our communities need. We launched a broad revamping of our approach to news, beginning in
2015 and continuing through 2016, as an area of continuous improvement. One of the central concepts was how to enhance
the depth of coverage along with the speed of our work. We have added resources in breaking news and restructured our
Washington D.C. bureau to work closely with our local markets on coverage unique to their readers and viewers. Every
market added an element across all platforms that highlighted the deeper story. Our larger media companies, from
Sacramento to Charlotte to Miami, included a full section offering in-depth coverage.
Our legacy of public service journalism is the cornerstone of our business and the work of McClatchy's journalists received
significant recognition last year. The Sacramento Bee won the 2016 Pulitzer Prize for editorial cartooning. The Miami
Herald was a 2016 Pulitzer Prize finalist for local reporting for its coverage of a local drug sting that cost tens of millions
of dollars but yielded no significant arrests. With these honors we extend our impressive streak of being a Pulitzer winner
or finalist every year for more than a decade.
Our video journalists are also important to our story-telling capabilities and have won numerous awards. The Star Telegram
won the Local Media Digital Innovation Award for Best Use of Video for their use of video in news stories.
The Sacramento Bee, who was assisted by our Washington D.C. bureau video operations, won the Eppy Award for Best
Photojournalism of a Website with 1 million unique monthly visitors for their series called No Safe Place. The story was
about Afghans who risked their lives for the U.S. but who now struggle in the Sacramento area.
These are just a few of the hundreds of examples of powerful McClatchy journalism published across the company. We
intend to build on our legacy in the years ahead, propelled by the success of our ongoing digital transformation.
Broadening Media Companies’ Audiences in Their Local Markets
Each of our media companies has the largest print circulation of any news media source serving its respective community,
and coupled with its local website and other digital platforms in each community, 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.
Our digital audience continues to grow, which is partially driven by traffic on our websites and other digital platforms.
During 2016, average monthly unique visitors to our digital sites grew 26.8% as a result of continued focus and initiatives
to improve our total revenues. As discussed above, we realigned and improved delivery of our content on all platforms,
from printed newspapers to websites to mobile apps in nearly every market. Our websites offer mobile-friendly versions
for smartphones, and our content is available on e-readers, tablets and other mobile devices.
Daily newspapers paid circulation volumes for 2016 were down 9.3% compared to 2015. The declines in daily circulation
reflect the fragmentation of audiences faced by all media, including our own digital-only subscriptions, as available media
outlets proliferate and readership trends change. Our Sunday circulation volumes were down 10.5% in 2016 compared to
2015.
As noted earlier, in 2016, our monthly mobile traffic was up 35.2% as compared to 2015 and accounted for 56.9% of all
monthly digital traffic we received. We work hard to appeal to our mobile audience. We have invested in new digital
publishing systems to better serve this mobile audience and we have rebuilt all of our news websites to be responsive –
that is, to automatically resize to best fit a user’s screen, be it a smartphone or a tablet or desktop computer, and provide
the optimal viewing experience.
Our news and information follows readers throughout their day. To start their day, we reach our readers with the morning
newspaper or they can check out our latest headlines and stories on their mobile phones. Our news websites, updated
frequently throughout the day, are available to readers via their desktop computers at work and optimized for all of their
different mobile devices.
We also reach audiences through our direct marketing products. In 2016, we distributed approximately 650,000 Sunday
5
Select packages per week, which are packages of preprinted advertisements generally delivered on Sunday to
non-newspaper subscribers who have interest in circulars. We also distribute thousands of e-mail messages each day,
including editorial and advertising content, alerts for dealsaver®, our proprietary daily deals service, 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, we are also focused on cost
efficiencies. Our cost initiatives in 2016 were focused on continuing to reduce legacy costs from our traditional print
business and we have realized significant savings from these efforts, primarily in production and distribution, including
substantial savings in newsprint costs. In addition, in 2016, we made additional reductions in costs to help protect our
profitability in a period of declining print advertising. Total expenses, excluding depreciation, amortization and non-cash
impairment charges, declined $39.9 million in 2016, compared to 2015. This decline was net of investments made in 2016
intended to generate future savings. The ongoing structural and cyclical changes in our markets demand that we respond
by reengineering our operations, as needed, to achieve an efficient and sustainable cost structure. Over the past several
years, we have substantially lowered our cost structure through reducing our workforce, optimizing technology and
maximizing printing, distribution and content efficiencies, all while maintaining operating profitability at each of our
media companies.
In the fourth quarter of 2016, we completed regionalizing our audience distribution operations, our advertising production,
certain human resource functions and certain finance functions. We will continue to outsource, regionalize and consolidate
legacy operations to achieve a more streamlined and efficient cost structure. These changes will result in cost savings in
future years, while giving our operating executives in each market the ability to focus more of their time on our growing
digital and direct marketing media businesses.
In 2016, we outsourced the printing production of four newspapers bringing the total of outsourced operations to 20 of our
30 media companies, which are printed through arrangements with nearby newspapers owned by us or third-party
companies. In other cases, we in-source the printing of nearby newspapers from other companies to maximize the use of
our existing press capacity and generate additional revenues. Five markets (Charlotte, Columbia, Kansas City, Miami and
Sacramento) have become hubs for in-sourcing printing in their areas.
We also believe that using technology is an important component of our ability to continue to operate cost-effectively and
to invest in our business for the future. In 2016 we co-sourced our technology with the international company WIPRO,
LTD to provide the flexibility to add development resources as needed and to cut back costs when those services were not
needed. Much of our technology is employed behind the scenes with a digital publishing system that can distribute news
content to any number of platforms and enterprise-wide systems to support audience and advertising in the digital
environment.
Other Operational Information
Each of our media companies is largely autonomous in its local advertising and editorial operations in order to meet most
effectively the needs of the particular community it serves. However, our operations across our local media companies
have been engineered to strengthen the areas that are driving performance in news, audience, advertising and digital
growth.
We have two operating segments that are aggregated into a single reportable segment. Each operating segment consists
primarily of a group of local media companies with similar economic characteristics, products, customers and distribution
methods. Both operating segments report to one segment manager. One of our operating segments (“Western Segment”)
consists of our media operations in California, the Northwest and the Midwest, while the other operating segment (“Eastern
Segment”) consists primarily of media operations in the Southeast and the Carolinas. Publishers of each of the media
companies make the day-to-day decisions and report to the segment manager, who is responsible for implementing the
operating and financial plans at each operation within the respective operating segment. The corporate managers, including
executive officers, set the basic business, accounting, financial and reporting policies.
As noted previously under “Focusing on Cost Efficiencies While Investing for the Future,” our media companies also
work together to consolidate functions and share resources regionally and across operating segments that lend themselves
6
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’ print and online
products. These efforts are often coordinated through the vice president of operations and corporate personnel.
Our business is somewhat seasonal, with peak revenues and profits generally occurring in the fourth quarter of each year,
reflecting the Thanksgiving and Christmas holidays. The other quarters, when holidays are not as prevalent, are historically
the slower quarters for revenues and profits.
The following table summarizes our media companies, their digital platforms, newspaper circulation and total unique
visitors:
Circulation (1)
Sunday
142,007
203,585
255,499
222,822
138,614
131,668
N/A
Website
www.miamiherald.com
www.kansascity.com
www.sacbee.com
www.star-telegram.com
www.charlotteobserver.com
www.newsobserver.com
www.mcclatchydc.com
www.elnuevoherald.com
www.kentucky.com
www.thestate.com
www.kansas.com
www.thenewstribune.com
www.fresnobee.com
www.idahostatesman.com
www.brandenton.com
www.thesunnews.com
www.macon.com
Media Company
Miami Herald
The Kansas City Star
The Sacramento Bee
Star-Telegram
The Charlotte Observer
The News & Observer
McClatchy DC Bureau
El Nuevo Herald
Lexington Herald-Leader
The State
The Wichita Eagle
The News Tribune
The Fresno Bee
Idaho Statesman
The Bradenton Herald
The Sun News
The Telegraph
Belleville News-Democrat www.bnd.com
Sun Herald
The Modesto Bee
The Tribune
Centre Daily Times
Ledger-Enquirer
The Island Packet
Tri-City Herald
The Bellingham Herald
The Herald
The Olympian
Merced Sun-Star
The Beaufort Gazette
The Herald-Sun
www.sunherald.com
www.modbee.com
www.sanluisobispo.com
www.centredaily.com
www.ledger-enquirer.com
www.islandpacket.com
www.tri-cityherald.com
www.bellinghamherald.com
www.heraldonline.com
www.theolympian.com
www.mercedsunstar.com
www.beaufortgazette.com
www.heraldsun.com
Location
Miami, FL
Kansas City, MO
Sacramento, CA
Fort Worth, TX
Charlotte, NC
Raleigh, NC
Miami, FL
Lexington, KY
Columbia, SC
Wichita, KS
Tacoma, WA
Fresno, CA
Boise, ID
Bradenton, FL
Myrtle Beach, SC
Macon, GA
Belleville, IL
Biloxi, MS
Modesto, CA
San Luis Obispo, CA
State College, PA
Columbus, GA
Hilton Head, SC
Kennewick, WA
Bellingham, WA
Rock Hill, SC
Olympia, WA
Merced, CA
Beaufort, SC
Durham, NC
Daily
103,455
136,600
146,186
196,279
98,906
95,294
N/A
37,348
59,848
48,739
42,200
51,014
93,221
38,952
23,569
26,092
24,506
30,523
23,443
43,715
24,135
13,278
20,183
17,216
21,410
13,143
12,996
16,005
12,235
5,691
N/A
51,142
77,935
103,788
92,872
105,824
123,171
69,603
30,221
34,239
33,755
62,464
34,888
72,359
34,738
17,714
25,783
19,026
33,841
16,794
15,911
32,990
—
6,058
Total
UV (2)
9,404,000
4,508,000
4,456,000
4,294,000
4,174,000
3,915,000
2,424,000
2,420,000
1,931,000
1,822,000
1,522,000
1,500,000
1,308,000
1,071,000
1,054,000
1,005,000
1,002,000
918,000
857,000
797,000
715,000
712,000
686,000
657,000
641,000
552,000
532,000
508,000
335,000
N/A
N/A
55,720,000
N/A
1,476,182 2,189,311
(3)
(4)
(1) Circulation figures are reported as of the end of our fiscal year and are not meant to reflect Alliance for Audited Media
(“AAM”) reported figures.
(2) Total monthly unique visitors for December 2016 according to Adobe Analytics.
(3) The Beaufort Gazette unique visitor activity is included in The Island Packet activity.
(4) The (Durham, NC) Herald-Sun was acquired on December 25, 2016. Statistical information will be provided in future filings.
Other Operations
In addition to our media companies, we also own 15.0% of CareerBuilder, LLC, which operates a premier online job
website, CareerBuilder.com, as well as certain other digital company investments. In September 2016, TEGNA Inc., the
majority holder of CareerBuilder, LLC, announced that it and other owners, including us, would evaluate strategic
alternatives for CareerBuilder. No specific timeline was announced for this process and no further action has been
announced. Our ownership interests and investments in unconsolidated companies and joint ventures including, but not
limited to CareerBuilder, LLC, provided us with $6.0 million of cash distributions in 2016.
7
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, three of our wholly-owned subsidiaries own a combined 27.0% interest in Ponderay Newsprint Company
(“Ponderay”), a general partnership that owns and operates a newsprint mill in the state of Washington.
In 2016, we along with Gannett Co., Inc., Hearst, and tronc, Inc. launched Nucleus Marketing Solutions, LLC (“Nucleus”).
We own a 25.0% interest in Nucleus that is a marketing solutions provider that connects national advertisers with 30 U.S.
local publishers’ highly engaged audiences across existing and emerging digital platforms.
Raw Materials
During 2016 we consumed approximately 84,000 metric tons of newsprint for our operations compared to 99,000 metric
tons in 2015. The decrease in tons consumed was primarily due to changes in our print products at numerous media
companies, as well as lower print advertising sales and print circulation volumes. We estimate that we will use
approximately 72,000 metric tons of newsprint in 2017, depending on the level of print advertising, circulation volumes
and other business considerations.
During 2016, we obtained newsprint from Ponderay, as well as a number of other suppliers. We purchased approximately
20,000 metric tons of newsprint either directly from Ponderay or through a third-party intermediary in 2016.
Our earnings are sensitive to changes in newsprint prices. In 2016, 2015 and 2014, newsprint expense accounted for 4.9%,
5.7% and 7.1%, respectively, of total operating expenses, excluding impairments and other asset write-downs.
Competition
Our newspapers, direct marketing programs, websites and mobile content compete for advertising revenues and readers’
time with television, radio, other media websites, social network sites and mobile apps, 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, competing news sources and the price of the newspaper or digital service.
Our media companies are the largest print circulation of any news media source in each of their respective markets.
However, our media companies have experienced difficulty maintaining or increasing print circulation levels because of
a number of factors. These include 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 a
proliferation of news outlets that fragments audiences. In addition, while our media companies’ internet sites are generally
the leading local websites in each of our major daily newspaper markets, based upon research conducted by us and various
independent sources, changes in readership trends, including a shift of readers to digital media and mobile devices have
continued, and we have continued to experience a 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, we reengineered our operations to strengthen areas driving performance in
news, audience, advertising and digital growth. Our newsrooms also 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. Upgrades are continually made to our mobile apps and
websites. In addition, our websites offer leading digital classified products such as CareerBuilder.com, Cars.com and
HomeFinder.com. We also operate dealsaver®, our proprietary daily deals service, in nearly all of our markets.
Employees — Labor
As of December 25, 2016, we had approximately 5,400 full and part-time employees (equating to approximately 4,600
full-time equivalent employees), of whom approximately 5.3% were represented by unions. Most of our union-represented
employees are currently working under labor agreements with expiration dates through 2018. We have no unions at 24 of
our 30 daily media companies.
8
While our media companies 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 media companies when future negotiations
take place. We believe that in the event of a strike we would be able to continue to publish and deliver to subscribers, a
capability that is critical to retaining revenues from advertising and audience, 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 25,
2016, 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 believe that we currently have any significant environmental issues and in 2016, 2015 and 2014 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 made available, free of charge, on our website at www.mcclatchy.com, as soon as reasonably practicable after
we file or furnish them with the U.S. Securities and Exchange Commission (the “SEC”).
ITEM 1A. RISK FACTORS
We have significant competition in the market for news and advertising, which may reduce our advertising and
audience revenues in the future.
Our primary source of revenues is advertising, followed by audience. The competition we face in the advertising industry
generally results from an increasing number of digital media options available on the internet, which are expanding
advertiser and consumer choices significantly, including social networking tools and mobile and other devices distributing
news and other content. 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. In addition, the proliferation of news sources and advertising platforms has resulted
in significant competition and a negative impact on our traditional print business. 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.
Our advertising revenues are dependent on general economic and business conditions in our markets or those impacting
our customers. Certain aspects of the U.S. economy continue to be challenging in some of our markets. Many traditional
retail companies also face greater competition from online retailers and have faced uncertainty in their businesses, affecting
their advertising spending. These challenging economic and business conditions have had and may continue to have an
adverse effect on our advertising revenues. To the extent these economic conditions continue or worsen, our business and
advertising revenues could 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 or online competition by continuing to reduce
their budgets or shift spending patterns or priorities, or if they are forced to consolidate or cease operations. Consolidation
9
across various industries may also reduce our overall advertising revenues. Further, we are subject to fluctuating economic
conditions in the local markets we serve. For example, real estate advertising fluctuates with the health of the real estate
market. 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 activity is generally slower. If general economic conditions and other factors cause
a decline in revenues, particularly during the fourth quarter, 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. 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 several 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.
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 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:
•
•
•
continue to increase digital audiences;
attract advertisers to our digital products;
tailor our product for mobile devices;
• maintain or increase the advertising rates on our digital products;
•
improve our ability to increase the relevance of advertisements shown to users;
• manage the impact of new technologies that could block or obscure the display of advertisements;
•
•
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
10
periods. For 2016, digital advertising revenues comprised 30.6% of total advertising revenues compared to 26.2% in 2015.
Digital-only advertising revenues increased 14.8% in 2016 compared to 2.9% in 2015. Total digital-only, which includes
digital-only revenues from advertising and audience, was up 14.3% in 2016 compared to 4.7% in 2015. 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:
•
•
structuring our sales force to effectively sell advertising in the digital advertising arena versus our historical
print advertising business;
attracting and retaining employees with the skill sets and knowledge base needed to successfully operate in
digital business; and
• 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, consolidating or regionalizing operations 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 may be 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.
Difficult business conditions in the economy generally and in our industry 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, we recorded masthead impairment charges
of $9.2 million in 2016. We also recorded goodwill impairment charges of $290.9 million in 2015, masthead impairment
charges of $13.9 million, $5.2 million $5.3 million and $2.8 million in 2015, 2014, 2013 and 2011, respectively. As of
December 25, 2016, we have goodwill of $705.2 million and mastheads of $171.4 million. Further erosion of general
economic, market or business conditions (nationally and in our local markets) could have a negative impact on our business
and stock price, which may require that we record additional impairment charges in the future, which negatively affects
our results of operations.
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 cybersecurity incidents that can result from deliberate attacks or system failures. Threats include, but are not
limited to, computer hackings, computer viruses, denial of service attacks, 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 attacks 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 cybersecurity incidents, to date none has 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 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
11
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 $874 million in total consolidated debt.
As of December 25, 2016, we had approximately $873.7 million in total principal indebtedness outstanding. This level of
debt increases our vulnerability to general adverse economic and industry conditions and we may need to refinance our
debt prior to its scheduled maturity. Higher leverage ratios, our credit ratings, our economic performance, adverse financial
markets or other factors 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:
•
•
•
•
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;
• make loans, investments or acquisitions;
•
•
•
•
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:
•
finance our operations;
• make needed capital expenditures;
•
dispose of assets
• make strategic acquisitions or investments or enter into alliances;
• withstand a future downturn in our business or the economy in general;
•
refinance our outstanding indebtedness prior to maturity;
12
•
•
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 in the event of default such security interests could be enforced by the collateral agent for the
secured credit agreement. In the event of such enforcement, we cannot assure you that the proceeds from the 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 25, 2016, we had approximately $873.7 million of total indebtedness outstanding and
approximately $30.7 million in face amount of letters of credit outstanding under a Collateralized Issuance and
Reimbursement Agreement. Of the $873.7 million aggregate principal amount outstanding as of December 25, 2016, we
have approximately $16.9 million of notes with an interest rate of 5.750% due in 2017; $491.4 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 December 25, 2016, the projected benefit obligations of our qualified defined benefit pension plan (“Pension Plan”)
exceeded Pension Plan assets by $487.4 million. 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. 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 25, 2016, our projected benefit obligation of
these plans was $119.1 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. 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 and the secured credit agreement, 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 with respect to our outstanding debt.
13
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 Pension Plan exceeded Pension Plan assets by $487.4 million as of December 25,
2016, an increase of $22.6 million from December 27, 2015, primarily due to unfavorable 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.
The excess of benefit obligations over pension assets is expected to give rise to required pension contributions over the
next several years. Over the last several years federal legislation has provided for pension funding relief in the form of
mandated changes in the discount rates used to calculate the projected benefit obligations for purposes of funding pension
plans. Recent new legislation and calculations use 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, but also mandated increases in fees paid to the Pension
Benefit Guaranty Corporation, also known as the PBGC, based in part on the level of underfunding in the company’s
qualified defined pension plan. 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 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 4.9% of our operating expenses,
excluding impairments, in 2016 compared to 5.7% in 2015. 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:
•
•
•
•
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, our 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 media companies have not
experienced a labor strike for decades. However, we cannot ensure that a strike will not occur at one or more of our media
companies in the future. As of December 25, 2016, approximately 5.3% 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 2018. We face collective bargaining upon the expirations of these labor agreements. Even if our
media companies 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 have invested in certain digital or other 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
a premier online job website, CareerBuilder.com, as well as certain other digital company investments. We have numerous
small “seed” investments in other digital companies. We also own 25.0% of Nucleus, a national marketing agency, and,
through three wholly-owned subsidiaries, a combined 27.0% interest in the Ponderay Newsprint Company. The success
of these ventures is dependent to an extent on the efforts and strategic plans of our partners. As previously announced,
TEGNA, Inc. and the partners who own CareerBuilder, LLC, have decided to evaluate strategic alternatives for
CareerBuilder, LLC, a process and outcome which we do not control. 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.
Circulation volume declines will adversely affect our print audience and print advertising revenues, and audience price
increases could exacerbate declines in circulation volumes.
Print advertising and audience revenues are affected by circulation volumes and readership levels of our print newspapers.
In recent years, newspaper companies, including us, 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;
continued fragmentation of media audiences;
a growing preference among some consumers to receive all or a portion of their news online or other than
from a traditional printed newspaper;
increases in subscription and newsstand rates; and
declining discretionary spending by consumers affected by negative economic conditions.
These factors could also affect our media companies’ 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 volumes would have a material adverse effect
on print advertising revenues. To maintain our circulation base, we may be required to incur additional costs that we may
not be able to recover through audience and advertising revenues.
We rely on third party vendors for various services and if any of those third parties fail 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, distribution and production, as well as various
information technology systems and services. We do not control the operation of these vendors. If any of these third party
vendors terminate their relationship with us, or do 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.
15
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. The adoption
of any laws or regulations that limit use of the internet, including laws or practices limiting internet neutrality, could
decrease demand for, or the usage of, our products and services, which could adversely affect our operating results. 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.
In the ordinary course of business, we and our subsidiaries are parties to litigation and regulatory, environmental and other
proceedings with governmental authorities and administrative agencies. For example, we are currently involved in two
class action lawsuits that are described further in Part II, Item 8, Note 9, Commitments and Contingencies to the
consolidated financial statements. 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 25, 2016, we had newspaper
production facilities in 10 markets in 9 states. Our facilities vary in size and in total occupy about 5.0 million square feet.
Approximately 2.3 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. Also
see Part II, Item 8, Note 12, Subsequent Event, to the consolidated financial statements included as part of this Annual
Report on Form 10-K for a discussion of agreements we have entered into in Sacramento, California and Columbia, South
Carolina to sell and lease back the properties.
We maintain our properties in good condition and believe that our current facilities are adequate to meet the present needs
of our media companies.
See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, specifically
Recent Developments, regarding discussion of contributed properties to our qualified defined benefit pension plan and
recent contracts to sell and lease back certain facilities.
ITEM 3. LEGAL PROCEEDINGS
See Part II, Item 8, Note 9, Commitments and Contingencies to the consolidated financial statements included as part of
this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
None
16
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
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 24, 2017, there were approximately 3,420 and 20 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 2016 and 2015:
Fiscal Year 2016 Quarters Ended:
High
Low
March 27, 2016 (*)
June 26, 2016 (*)
September 25, 2016
December 25, 2016
Fiscal Year 2015 Quarters Ended:
March 29, 2015 (*)
June 28, 2015 (*)
September 27, 2015 (*)
December 27, 2015 (*)
$
$
$
$
$
$
$
$
14.50
17.32
19.77
19.00
High
34.80
19.30
12.80
16.40
$
$
$
$
$
$
$
$
8.30
9.90
13.05
12.94
Low
17.50
10.80
7.50
9.30
(*) The high and low share prices were retroactively adjusted to reflect the one-for–ten (1:10) reverse stock split completed on June 7,
2016.
Dividends:
In 2009, we suspended our quarterly dividend; therefore, we have not paid any cash dividends since the first quarter of
2009. Our credit agreement 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) or have use of other selected baskets under the indenture. However, 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.
Equity Securities:
In 2015, our Board of Directors authorized a share repurchase program for the repurchase of up to $15.0 million of our
Class A Common Stock through December 31, 2016. This program was further amended in May 2016 to authorize a total
of up to $20.0 million to repurchase shares. The shares were repurchased from time to time depending on prevailing market
prices, availability, and market conditions, among other factors. During the year ended December 25, 2016, we
repurchased 0.7 million shares at an average price of $11.83 per share. Inception to date, we repurchased 1.3 million shares
at an average price of $12.28 per share. No shares were repurchased during the quarter ended December 25, 2016.
During the year ended December 25, 2016, we did not sell any equity securities of the Company, which were not registered
under the Securities Act of 1933, as amended.
17
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 and a customized peer group
composed of six companies (“Peer Group”).
Our Peer Group is customized to include six companies that are publicly traded with at least 40% of their revenues from
newspaper publishing. This peer group includes: A.H. Belo Corp., Gannett Co. Inc., Lee Enterprises, Inc., New Media
Investment Group, Inc., The New York Times Company and tronc, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The McClatchy Company, the S&P Midcap 400 Index,
and a Peer Group
$250
$200
$150
$100
$50
$0
12/25/11
12/30/12
12/29/13
12/28/14
12/27/15
12/25/16
The McClatchy Company
S&P Midcap 400
Peer Group
*$100 invested on 12/25/11 in stock or 12/31/11 in index, including reinvestment of dividends.
Index calculated on month-end basis.
Copyright© 2017 Standard & Poor's, a division of S&P Global. All rights reserved.
The McClatchy Company
S&P Midcap 400
Peer Group
Fiscal Years Ended:
12/25/2011 12/30/2012 12/29/2013 12/28/2014 12/27/2015 12/25/2016
57
$
204
$
151
$
51 $
169 $
168 $
100 $
100 $
100 $
146 $
173 $
199 $
141 $
157 $
206 $
126 $
118 $
108 $
18
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
Audience
Other
OPERATING EXPENSES:
Other operating expenses
Depreciation and amortization
Asset impairments
OPERATING INCOME (LOSS)
NON-OPERATING (EXPENSE) INCOME:
Interest expense
Interest income
Equity income in unconsolidated companies, net
Gains related to equity investments
Gain (loss) on extinguishment of debt
Other — primarily write down of investments and Miami
property gain
Other — net
Income (loss) from continuing operations before income taxes
Income tax provision (benefit)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from discontinued operations, net of tax
NET INCOME (LOSS)
Basic earnings per common share:
$
Income (loss) from continuing operations
Discontinued operations, net of tax
Net income (loss) per basic common share
Diluted earnings per common share:
Income (loss) from continuing operations
Discontinued operations, net of tax
Net income (loss) per diluted common share
Dividends per common share:
CONSOLIDATED BALANCE SHEET DATA:
Total assets
Long-term debt
Financing obligations
Stockholders’ equity
December 25, December 27, December 28, December 29, December 30,
2014
2012 (1)
2015
2013
2016
$
568,735 $
364,830
43,528
977,093
637,415 $
367,858
51,301
1,056,574
731,783 $
366,592
48,177
1,146,552
822,128 $
346,311
46,409
1,214,848
895,640
334,580
49,624
1,279,844
855,581
89,446
9,526
954,553
22,540
895,470
101,595
304,848
1,301,913
(245,339)
942,364
113,638
8,227
1,064,229
82,323
955,153
121,570
17,181
1,093,904
120,944
975,525
124,348
—
1,099,873
179,971
(83,168)
463
13,519
—
431
(1,027)
(16)
(69,798)
(47,258)
(13,065)
(34,193)
—
(34,193) $
(4.41) $
—
(4.41) $
(4.41) $
—
(4.41) $
— $
(85,973)
331
18,252
8,061
1,167
(8,166)
(292)
(66,620)
(311,959)
(11,797)
(300,162)
—
(300,162) $
(34.66) $
—
(34.66) $
(34.66) $
—
(34.66) $
— $
(127,503)
254
26,925
705,247
(72,777)
(135,381)
53
45,680
—
(13,643)
(7,841)
579
524,884
607,207
231,230
375,977
(1,988)
373,989 $
9,909
541
(92,841)
28,103
11,659
16,444
2,359
18,803 $
43.32 $
(0.23)
43.09 $
42.55 $
(0.22)
42.33 $
— $
1.90 $
0.30
2.20 $
1.90 $
0.30
2.20 $
— $
(151,334)
88
31,935
—
(88,430)
—
79
(207,662)
(27,691)
(23,725)
(3,966)
3,822
(144)
(0.50)
0.50
—
(0.50)
0.50
—
—
$
$
$
$
$
$ 1,836,754 $ 1,923,034 $ 2,540,716 $ 2,577,739 $ 2,968,853
1,565,458
279,325
42,501
1,473,460
40,264
240,386
829,415
51,616
113,913
905,425
32,398
192,763
994,812
34,551
503,385
(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.
19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to Part I, Item 1 “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 our results of operations and financial condition. 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 25, 2016, December 27, 2015, and
December 28, 2014 included elsewhere in this Annual Report on Form 10-K.
Overview
We are a news and information publisher of well-respected publications and digital platforms such as the Miami
Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer, The (Raleigh) News and Observer, and the
(Fort Worth) Star-Telegram. In December 2016, we acquired certain assets and operations of The (Durham, NC) Herald-
Sun, including related intangible assets. Including this acquisition, we operate 30 media companies in 29 U.S. markets in
14 states, providing each of these communities with high-quality news and advertising services in a wide array of digital
and print formats. We are headquartered in Sacramento, California, and our Class A Common Stock is listed on the New
York Stock Exchange under the symbol MNI. Since the acquisition of The (Durham, NC) Herald-Sun occurred on the last
day of our fiscal year of 2016, none of The Herald-Sun's results are included in our operating results in 2016.
We also own 15.0% of CareerBuilder, LLC, which operates a premier online job website, CareerBuilder.com, as well as
certain other digital company investments. In September 2016, TEGNA Inc., the majority holder of CareerBuilder, LLC,
announced that it and other owners, including us, would evaluate strategic alternatives for CareerBuilder. No specific
timeline was announced for this process and no further action has been announced.
Our fiscal year ends on the last Sunday in December. The fiscal years ended December 25, 2016, December 27, 2015, and
December 28, 2014 consisted of 52-week periods. Since the acquisition of The (Durham, NC) Herald-Sun occurred on the
last day of our fiscal year of 2016, none of The Herald-Sun's operating results are included in our operating results in 2016.
The following table reflects our sources of revenues as a percentage of total revenues for the periods presented:
Revenues:
Advertising
Audience
Other
Total revenues
December 25,
2016
Years Ended
December 27,
2015
December 28,
2014
58.2 %
37.3 %
4.5 %
100.0 %
60.3 %
34.8 %
4.9 %
100.0 %
63.8 %
32.0 %
4.2 %
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. Audience revenues include print and digital subscriptions or a
combination of both. Our print newspapers are primarily delivered by large distributors and certain newspapers utilize
independent contractors. Other revenues include primarily commercial printing and distribution revenues.
See “Results of Operations” section below for a discussion of our revenue performance and contribution by category for
the 2016, 2015 and 2014.
Reverse Stock Split
Recent Developments
A one-for-ten (1:10) reverse stock split of our issued and outstanding Class A and Class B common stock became effective
June 7, 2016. As a result, every ten shares of our common stock outstanding were combined into one share of the same
20
class of our common stock. No fractional shares were issued in connection with the reverse stock split. The par value and
authorized number of shares of the Class A and Class B common stock were not adjusted as a result of the reverse stock
split. All issued and outstanding Class A and Class B common stock and per share amounts contained within our
consolidated financial statements and footnotes have been retroactively adjusted to reflect this reverse stock split for all
periods presented. See Note 1 for additional discussion of this transaction.
Debt Repurchases and Extinguishment of Debt
During 2016, we repurchased a total of $63.6 million in aggregate principal amount of our notes through privately
negotiated transactions, consisting of $38.6 million of our 5.75% Notes due in 2017 and $25.0 million of our 9.00% Senior
Secured Notes due in 2022 (“9.00% Notes”). We recorded a net gain on extinguishment of debt of $0.4 million in 2016.
Share Repurchase Program
In 2015, our Board of Directors authorized a share repurchase program for the repurchase of up to $15.0 million of our
Class A Common Stock through December 31, 2016. This program was further amended in May 2016 to authorize a total
of up to $20 million for the repurchase of our shares. The shares were repurchased from time to time depending on
prevailing market prices, availability, and market conditions, among other factors. The number of shares repurchased and
the average price per share was retroactively adjusted to reflect the one-for-ten (1:10) reverse stock split completed on
June 7, 2016. In 2016, we repurchased 656 thousand shares at a weighted average price of $11.83 per share, or $7.8 million
of the total buyback approved. From inception of the program, we repurchased a total of 1.3 million shares at a weighted
average price of $12.28 per share, or $15.6 million of the total buyback approved.
Contribution of Company-Owned Real Property to Pension Plan
In February 2016, we contributed certain of our real property appraised at $47.1 million to our Pension Plan, and we
entered into lease-back arrangements for the contributed facilities. After applying credits, which resulted from contributing
more than the Pension Plan’s minimum required contribution amounts in prior years, we had no required pension
contribution under the Employee Retirement Income Security Act for fiscal year 2016. We leased back the contributed
facilities under 11-year leases with initial annual payments totaling approximately $3.5 million. The contribution and
leaseback of these properties in 2016 are 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 will be recognized on the contributions until
the sale of the property by the Pension Plan. At the time of our contribution, our pension obligation was reduced and a
financing obligation was recorded equal to $47.1 million. The financing obligation will be reduced by a portion of the
lease payments made to the Pension Plan each month and increased for imputed interest expense on the obligations to the
extent imputed interest exceeds monthly payments. The long-term balance of this obligation at December 25, 2016, and
December 27, 2015, was $51.6 million and $32.4 million, respectively, and relates to certain real properties that were
contributed to the Pension Plan in 2016 and 2011. See Note 7 for additional discussion of this transaction.
Asset sales and leasebacks
In January 2017, we announced that we have entered into separate agreements to sell and lease back real property owned
by The Sacramento Bee in Sacramento, California and The State Media Company in Columbia, South Carolina for total
gross proceeds of $67.8 million. We will lease back these properties under 15-year leases with initial annual payments
totaling $6.2 million. The leases also provide for a repurchase clause allowing us to repurchase these properties after the
15-year lease term and therefore, will be treated as financing leases and accordingly, we continue to depreciate the
carrying value of the properties in our financial statements. No gain or loss will be recognized on the sale and lease back
of any property until we no longer have a continuing involvement in the property. See Note 12 for additional information
on these transactions.
We also continue to consider indications of interest for a sale-leaseback of our Kansas City, Missouri property. There are
no assurances that we will proceed with the sale-leaseback in Kansas City if we do not receive what we consider to be a
fair price in the near term.
21
The following table reflects our financial results on a consolidated basis for 2016, 2015 and 2014:
Results of Operations
(in thousands, except per share amounts)
Income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Net income (loss) per diluted common share:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) per share
December 25,
2016
$
(34,193) $
—
$
(34,193) $
Years Ended
December 27, December 28,
2014
2015
(300,162) $ 375,977
(1,988)
(300,162) $ 373,989
—
$
$
(4.41) $
—
(4.41) $
(34.66) $
—
(34.66) $
42.55
(0.22)
42.33
The decrease in net loss from continuing operations in 2016 compared to 2015 is largely due to non-cash impairment
charges of $9.5 million in 2016 compared to $304.8 million (see Note 4) in 2015. In addition, as described more fully
below, results for 2016 compared to 2015 were impacted by lower total revenues, which were partially offset by a net
decrease in operating expenses due to efforts made to reduce future costs, as described more fully below.
The net income from continuing operations in 2014 was due to income from operations, as well as several transactions,
primarily related to the gains related to the sale of an equity investment.
2016 Compared to 2015
Revenues
The following table summarizes our revenues by category, which compares 2016 to 2015:
(in thousands)
Advertising:
Retail
National
Classified:
Automotive
Real estate
Employment
Other
Total classified
Direct marketing and other
Total advertising
Audience
Other
Total revenues
December 25, December 27,
2016
2015
$
Change
%
Change
Years Ended
$
280,916 $
42,925
318,953 $
45,861
(38,037)
(2,936)
32,382
24,498
23,036
57,431
137,347
107,547
568,735
364,830
43,528
37,789
27,083
30,120
58,707
153,699
118,902
637,415
367,858
51,301
$
977,093 $ 1,056,574 $
(5,407)
(2,585)
(7,084)
(1,276)
(16,352)
(11,355)
(68,680)
(3,028)
(7,773)
(79,481)
(11.9)
(6.4)
(14.3)
(9.5)
(23.5)
(2.2)
(10.6)
(9.5)
(10.8)
(0.8)
(15.2)
(7.5)
In 2016, total revenues decreased 7.5% compared to 2015 primarily due to the continued decline in demand for print
advertising. The largest impact on print advertising came from large retail advertisers who began reducing preprinted insert
advertising and in-newspaper ROP advertising in 2015, which continued in 2016. Other long-term factors contributing to
the decline in print advertising revenues is the desire of advertisers to reach online customers, and the secular shift in
advertising demand from print to digital products. As a result, the print advertising revenues declines were partially offset
by growth in digital advertising.
Advertising Revenues
Total advertising revenues decreased 10.8% in 2016 compared to 2015. While we experienced declines in all of our
advertising revenue categories, the decrease in total advertising revenues was primarily related to declines in print retail
and print and digital classified advertising revenues. These decreases in advertising revenues were partially offset by
increases in certain digital revenue categories, as discussed below.
22
Newspaper advertising is typically display advertising, or in the case of classified, display and/or liner advertising, while
digital advertising can come in many forms, including 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:
Advertising:
Retail
National
Classified
Direct marketing and other
Total advertising
We categorize advertising revenues as follows:
Years Ended
December 25,
2016
December 27,
2015
49.4 %
7.5 %
24.2 %
18.9 %
100.0 %
50.0 %
7.2 %
24.1 %
18.7 %
100.0 %
• 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.
• National – national and major accounts such as telecommunications companies, financial institutions,
movie studios, airlines and other national companies.
• Classified – local auto dealers, employment, real estate and other classified advertising, which includes
remembrances, legal advertisements and other miscellaneous advertising.
• Direct Marketing and Other – primarily preprint advertisements in direct mail, shared mail and niche
publications, events programs total market coverage publications and other miscellaneous advertising
not included in the daily newspaper.
Retail:
In 2016, retail advertising revenues decreased 11.9% compared to 2015, primarily due to decreases of 19.6% in print ROP
advertising revenues and 18.6% in preprint advertising revenues, compared to 2015. These decreases were partially offset
by increases in digital retail advertising of 8.5% in 2016 compared to 2015 as advertisers continue to move to digital. The
overall decreases in retail advertising revenues in 2016 were widespread among ROP and preprint categories.
National:
National advertising revenues decreased 6.4% during 2016 compared to 2015. For 2016, we experienced a 25.3% decrease
in print national advertising and a 17.0% increase in digital national advertising compared to 2015. Overall the decrease
in total national advertising revenues during 2016 was led by the telecommunications category. The increase in digital
national advertising revenues during 2016 was largely led by programmatic digital advertising, including mobile, political
and video revenues.
Classified:
In 2016, classified advertising revenues decreased 10.6% compared to 2015. In 2016 compared to 2015, we experienced
decreases in print classified advertising of 14.5% and decreases in digital classified advertising of 5.2%. The decreases
were across the major classified print categories of automotive, employment and real estate, and the classified digital
category of employment. See below for more detailed discussion of the primary changes in classified advertising revenues.
23
The following is a discussion of the major classified advertising categories for 2016 compared to 2015:
• Automotive advertising revenues decreased 14.3% in 2016. Print automotive advertising revenues declined
35.1% in 2016 as advertisers continued to shift advertising buys from print to digital products. Digital
automotive advertising revenues were down slightly at 0.2% in 2016 primarily due to the decline in bundled
print and digital sales.
• Real estate advertising revenues decreased 9.5% in 2016. Print real estate advertising revenues declined
17.2% in 2016 and digital real estate advertising revenues increased 1.9% in 2016. Print real estate revenues
have decreased due to the continued decline of the print real estate advertising market as it shifts from
traditional media to digital media and the increased competitiveness of digital real estate advertising.
• Employment advertising revenues decreased 23.5% in 2016. The employment market continues to shift from
traditional print media to digital media. However, there is a wide array of digital media options for
employment advertising, including large online-only job market companies, such as CareerBuilder.com, of
which we own 15% and account for on an equity method (see Note 3). As a result, we have experienced
declines in both our print and digital employment advertising. Print employment advertising revenues
declined 27.1% in 2016 and digital employment advertising revenues were down 20.5% in 2016.
• Other classified advertising revenues, which is our largest classified category and includes legal,
remembrance and celebration notices and miscellaneous advertising, decreased 2.2% in 2016. Print other
classified advertising revenues declined 2.4% in 2016 and digital other classified advertising revenues were
down 1.4% in 2016.
Digital:
Digital advertising revenues, which are included in each of the advertising categories discussed above, constituted 30.6%
of total advertising revenues in 2016 compared to 26.2% in 2015. Total digital advertising includes digital advertising both
bundled with print and digital-only advertising. Digital-only advertising is defined as digital advertising sold on a stand-
alone basis or as the primary advertising buy with print sold as an “up-sell.” In 2016, total digital advertising revenues
increased 4.3% to $174.1 million compared to 2015. Digital-only advertising revenues increased 14.8% to $121.7 million
in 2016 compared to 2015. The advertising industry is still experiencing a secular shift in advertising demand from print
to digital products as advertisers look for multiple advertising channels to reach their customers. While our product
offerings and collaboration efforts in digital advertising have grown, we expect to continue to face intense competition in
the digital advertising space. Digital advertising revenues bundled with print products declined 14.0% in 2016 compared
to 2015 as a result of fewer print advertising sales.
Direct Marketing and Other:
Direct marketing and other advertising revenues decreased 9.5% during 2016 compared to 2015. The decrease was
partially due to the declines in the preprint retail advertising by large retail customers as described above and, to a lesser
extent, the elimination of certain niche products during fiscal years 2015 and 2016 that did not meet our profit expectations.
Audience Revenues
Audience revenues decreased 0.8% during 2016 compared to 2015. Overall, digital audience revenues increased 1.7% in
2016 and digital-only audience revenues increased 9.0% in 2016. The increase in digital-only audience revenues is a result
of a 4.8% increase in our digital-only subscribers to 83,100 at the end of 2016 compared to 79,300 at the end of 2015, and
to digital rate increases in our markets. Print audience revenues declined 1.8% in 2016 compared to 2015. We use a
dynamic pricing model for our traditional subscriptions for which pricing is constantly being adjusted based upon a variety
of market factors. This dynamic pricing model helped to partially offset print circulation declines. Print 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. To help reduce potential attrition due to the increased pricing, we also increased our subscription-
related marketing and promotion efforts.
Operating Expenses
Total operating expenses decreased 26.7% in 2016 compared to 2015. The decrease in 2016 was primarily due to lower
impairment charges incurred during 2016 compared to 2015. The decreases in 2016 were also due in part to our continued
24
effort to reduce costs. Our total operating expenses, excluding impairments and asset write-downs, reflect our continued
effort to reduce costs through streamlining processes to gain efficiencies as well as staff reductions.
The following table summarizes our operating expenses, which compares 2016 to 2015:
(in thousands)
Compensation expenses
Newsprint, supplements and printing expenses
Depreciation and amortization expenses
Other operating expenses
Goodwill impairment and other asset write-downs
December 25, December 27,
Years Ended
2016
383,673 $
$
78,893
89,446
393,015
9,526
2015
395,449 $
95,674
101,595
404,347
304,848
$
954,553 $ 1,301,913 $
$
Change
(11,776)
(16,781)
(12,149)
(11,332)
(295,322)
(347,360)
%
Change
(3.0)
(17.5)
(12.0)
(2.8)
(96.9)
(26.7)
Compensation expenses, which include payroll and fringe benefit costs, decreased 3.0% in 2016 compared to 2015. Payroll
expenses declined 4.6% in 2016 compared to 2015, reflecting a 9.1% decline in average full-time equivalent employees.
Payroll expenses include approximately $6.2 million more in severance costs in 2016 compared to 2015 related to
outsourcing printing production and co-sourcing certain other functions. Fringe benefit costs increased 5.8% in 2016
compared to 2015. The increase was primarily due to increases in retirement costs related to our qualified defined benefit
pension plan (“Pension Plan”) of $4.7 million and a $2.3 million charge incurred when we outsourced the printing
production at one of our media companies and exited the multiemployer pension plans that covered the impacted
employees.
Newsprint, supplements and printing expenses decreased 17.5% in 2016 compared to 2015. Newsprint expense declined
18.4% in 2016 compared to 2015. The newsprint expenses declines reflect a 15.8% decrease in newsprint usage and a
3.4% decrease in newsprint prices during 2016 compared to 2015. Printing expenses decreased 15.3% in 2016 compared
to 2015 due to lower outsourced printing costs and lower direct marketing printing costs, as discussed above.
Depreciation and amortization expenses decreased 12.0% in 2016 compared to 2015. Depreciation expense decreased
$11.8 million in 2016 compared to 2015, partially due to the impact and timing of accelerated depreciation during the
periods and due to assets that became fully depreciated in 2015 or early 2016. During 2016, we incurred accelerated
depreciation of $7.0 million compared to $10.3 million in accelerated depreciation during 2015. The accelerated
depreciation during 2016 and 2015 relate to the production equipment associated with outsourcing our printing process at
certain of our media companies. Amortization expense decreased $0.4 million in 2016 compared to 2015.
Other operating expenses decreased 2.8% in 2016 compared to 2015. In 2016, other operating expenses included decreases
in circulation delivery costs of $12.8 million as expected due to decreased circulation volumes, professional fees of $2.1
million, postage of $2.8 million, as well as other miscellaneous expenses of $11.0 million, which were partially offset by
increases in sales costs for digital advertising of $5.4 million and $12.0 million in relocation and other costs, which we
believe will result in significant future cost savings.
In 2016, goodwill impairment and other asset write-downs includes $9.2 million in non-cash impairment charges related
to intangible newspaper mastheads and $0.3 million related to classifying certain assets as assets held for sale during 2016.
In 2015, we recorded non-cash impairment charges related to goodwill of $290.9 million resulting from an interim
goodwill impairment test during the second quarter of 2015, and to intangible newspaper mastheads of $13.9 million
resulting from interim and annual impairment testing. See Notes 1 and 4 for additional discussion.
Interest Expense:
Non-Operating Items
Total interest expense decreased 3.3% in 2016 compared to 2015, primarily reflecting lower overall debt balances due to
the repurchases made in 2016 and 2015. Interest expense on debt declined by $7.4 million, or 8.7% in 2016 compared to
2015. The lower interest expense on debt was partially offset by a $3.8 million increase of non-cash imputed interest
related to our financing obligations that grew due to the contributed real properties to our Pension Plan.
25
Equity Income:
Total income from unconsolidated investments increased 23.8% during 2016 compared to 2015. While we had lower
income from our equity method investments in 2016 compared to 2015, the increase in income from unconsolidated
investments was due to the timing of write-downs. During 2016 and 2015, we recorded write-downs of $1.0 million and
$8.2 million, respectively, which reduced our equity income in unconsolidated companies, net, in the consolidated
statements of operations. The write-down in 2016 was related to our HomeFinder, LLC investment, which was sold in the
first quarter of 2016. The write-down in 2015 was primarily related to CareerBuilder, LLC, which recorded a non-cash,
goodwill impairment charge related to their international reporting unit in the fourth quarter of 2015. Our portion of that
impairment charge was $7.5 million.
Gains related to equity investments:
We recognized $8.1 million in gains related to equity investments during 2015, from a previously sold equity investment,
as a result of a final cash distribution of $7.5 million that was received in the second quarter of 2015 and a final working
capital adjustment of $0.6 million that was received in the first quarter of 2015. There were no such gains in 2016.
Extinguishment of Debt:
During 2016, we repurchased $63.6 million aggregate principal amount of various series of our outstanding notes. We
repurchased these notes at a price higher or lower than par value and wrote off historical discounts and unamortized
issuance costs related to these notes, as applicable, which resulted in a net gain on extinguishment of debt of $0.4 million
in 2016.
During 2015, we repurchased $95.2 million aggregate principal amount of various series of our outstanding notes. We
repurchased these notes at either par or at a price lower than par value and wrote off historical discounts and unamortized
issuance costs related to these notes, as applicable, which resulted in a net gain on extinguishment of debt of $1.2 million
in 2015.
Income Taxes:
In 2016, we recorded an income tax benefit on continuing operations of $13.1 million. The income tax benefit differs from
the expected federal tax amounts primarily due to the inclusion of state income taxes, non-deductible stock related
compensation, certain discrete tax items and the impact from a non-deductible loss for tax purposes related to the transfer
of real property to our Pension Plan.
In 2015, we recorded an income tax benefit on continuing operations of $11.8 million. The income tax benefit differs from
the expected federal tax amounts primarily due to the tax impact of state income taxes, the impact of non-tax-deductible
goodwill, the reversal of unrecognized tax benefits and certain expenses not deductible for income tax purposes.
26
2015 Compared to 2014
Revenues
The following table summarizes our revenues by category, which compares 2015 to 2014:
(in thousands)
Advertising:
Retail
National
Classified:
Automotive
Real estate
Employment
Other
Total classified
Direct marketing and other
Total advertising
Audience
Other
Total revenues
Years Ended
December 27, December 28,
2015
2014
$
Change
%
Change
$
318,953 $
374,425 $
45,861
50,796
(55,472)
(4,935)
(14.8)
(9.7)
37,789
27,083
30,120
58,707
153,699
118,902
637,415
367,858
51,301
53,025
30,240
34,378
61,227
178,870
127,692
731,783
366,592
48,177
$ 1,056,574 $ 1,146,552 $
(15,236)
(3,157)
(4,258)
(2,520)
(25,171)
(8,790)
(94,368)
1,266
3,124
(89,978)
(28.7)
(10.4)
(12.4)
(4.1)
(14.1)
(6.9)
(12.9)
0.3
6.5
(7.8)
During 2015 total revenues decreased 7.8% compared to 2014 primarily due to the continued decline in demand for print
advertising. The largest impact on print advertising came from large retail advertisers who began pulling back preprinted
insert advertising and in-newspaper ROP advertising in 2015. In addition, advertisers’ desire to reach online customers
and the secular shift in advertising demand from print to digital products, which are widely available from many media
competitors and are generally sold at lower prices than print products, contributed to the decline in print advertising
revenues. In addition, the decreases in total advertising revenues were also a result of higher wholesale costs associated
with purchasing certain digital products and services, which are recorded as a reduction to the related revenues, as
described below. The declines in total advertising revenues were partially offset by an increase in our audience revenues,
due primarily to increases in pricing and sales of our subscription products, as well as an increase in other revenues.
Advertising Revenues
Total advertising revenues decreased 12.9% in 2015 compared to 2014. While we experienced declines in all of our
advertising revenue categories, including certain digital advertising revenue categories, the decrease in total advertising
revenues was primarily related to declines in print retail and print and digital classified advertising revenues. These
decreases in advertising revenues were partially offset by increases in certain digital revenue categories, as discussed
below. The decreases were also partially a result of the five-year affiliate agreement we entered into with Cars.com on
October 1, 2014, which resulted in higher wholesale costs related to their digital products and services in 2015 as compared
to 2014. These wholesale costs are recorded as a reduction in the related revenues for these products and services, and
generally reduce total advertising revenues by approximately two percentage points due to the higher costs in the new
affiliate agreement in 2015 compared to prior years.
27
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
Retail:
Years Ended
December 27,
2015
December 28,
2014
50.0 %
7.2 %
24.1 %
18.7 %
100.0 %
51.2 %
6.9 %
24.4 %
17.5 %
100.0 %
In 2015, retail advertising revenues decreased 14.8% compared to 2014, primarily due to decreases of 20.2% in print ROP
advertising revenues and 18.6% in preprint advertising revenues, compared to 2014. These decreases were partially offset
by increases in digital retail advertising of 1.3% in 2015 compared to 2014 as advertisers continue to move to digital. The
overall decreases in retail advertising revenues in 2015 mainly reflect a pullback by large retailers in preprint and ROP
advertising.
National:
National advertising revenues decreased 9.7% during 2015 compared to 2014, with growth coming in the second half of
2015. National advertising grew 1.5% in the second half of 2015 compared to the same period in 2014. For 2015, we
experienced a 24.2% decrease in print national advertising and an 18.1% increase in digital national advertising compared
to 2014. Overall the decrease in total national advertising revenues during 2015 was led by the telecommunications
category, as a result of declines in that category during the first half of 2015, offset by new customers entering the digital
marketplace and new programmatic product offerings.
Classified:
In 2015, classified advertising revenues decreased 14.1% compared to 2014. In 2015 compared to 2014, we experienced
decreases in print classified advertising of 13.9% and decreases in digital classified advertising of 14.3%. The decreases
were across the major classified categories of automotive, employment and real estate. Almost half of the decrease in
automotive was a result of the five-year affiliate agreement with Cars.com signed on October 1, 2014, which resulted in
higher wholesale costs for their digital products and services in 2015. These wholesale costs are recorded as a reduction
in the related revenues for these products and services. We had $28.1 million in wholesale fees during 2015 compared to
$21.3 million in 2014. In addition, advertisers are increasingly using digital advertising, which is more competitive than
print advertising.
The following is a discussion of the major classified advertising categories for 2015 compared to 2014:
• Automotive advertising revenues decreased 28.7% in 2015. Print automotive advertising revenues declined
32.0% in 2015 as advertisers continued to shift advertising buys to digital products. Digital automotive
advertising revenues were down 26.4% in 2015 primarily due to higher wholesale fees to third-party
providers of the automotive products and services.
• Real estate advertising revenues decreased 10.4% in 2015. Print real estate advertising revenues declined
16.0% in 2015 and digital real estate advertising revenues decreased slightly at 0.7% in 2015. Print real estate
revenues have decreased due to the continued decline of the print real estate advertising market as it shifts
from traditional media to digital media and the increased competitiveness of digital real estate advertising.
Digital real estate advertising in 2014 included $0.4 million of revenues from Apartments.com that were not
included in 2015 due to the April 1, 2014, sale of that business by Classified Ventures (former equity
investment). We no longer sell the Apartments.com products or services.
• Employment advertising revenues decreased 12.4% in 2015 reflecting an employment market that continues
to shift from traditional media to digital media, which includes a wider array of options. Print employment
28
advertising revenues declined 12.1% in 2015 and digital employment advertising revenues were down 12.6%
in 2015.
• Other classified advertising revenues, which include legal, remembrance and celebration notices and
miscellaneous advertising, decreased 4.1% in 2015. Print other classified advertising revenues declined 5.1%
in 2015 and digital other classified advertising revenues were down slightly at 0.9% in 2015.
Digital:
Digital advertising revenues, which are included in each of the advertising categories discussed above, constituted 26.2%
of total advertising revenues in 2015 compared to 23.7% in 2014. Total digital advertising includes digital advertising both
bundled with print and sold on a stand-alone basis. In 2015 total digital advertising revenues decreased 3.7% to $167.0
million compared to 2014. Digital-only advertising revenues increased 2.9% to $106.1 million in 2015 compared to 2014.
Certain digital-only advertising revenues declined due to the elimination of the Apartments.com revenues, as described
above, and also due to higher wholesale fees paid to third-party providers of the digital automotive products and services.
The advertising industry is still experiencing a secular shift in advertising demand from print to digital products as
advertisers look for multiple advertising channels to reach their customers, and while our position in the digital revenue
market over time has improved, we expect to continue to face intense competition in the digital advertising space. Digital
advertising revenues sold in conjunction with print products declined 13.4% in 2015 compared to 2014 as a result of fewer
print advertising sales.
Direct Marketing and Other:
Direct marketing and other advertising revenues decreased 6.9% during 2015 compared to 2014. The decrease was
partially due to the declines in the preprint retail advertising by large retail customers as described above and the
elimination of certain niche products during fiscal year 2014 that did not meet our profit expectations.
Audience Revenues
Audience revenues increased 0.3% during 2015 compared to 2014. Overall, audience revenues included an increase of
10.8% in digital audience revenues during 2015, partially offset by lower print audience revenues as a result of lower
circulation volumes. 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 audience revenues.
Operating Expenses
Total operating expenses increased 22.3% in 2015 compared to 2014. The increase in 2015 was primarily due to the
impairment charges of $304.8 million incurred during 2015, offset by decreases in newsprint expense and a greater amount
of accelerated depreciation in 2014. Our total operating expenses reflect our continued effort to reduce costs through
streamlining processes to gain efficiencies as well as headcount reductions.
The following table summarizes our operating expenses, which compares 2015 to 2014:
(in thousands)
Compensation expenses
Newsprint, supplements and printing expenses
Depreciation and amortization expenses
Other operating expenses
Goodwill impairment and other asset write-downs
$
2015
395,449 $
95,674
101,595
404,347
304,848
2014
411,881 $
114,801
113,638
415,682
8,227
$ 1,301,913 $ 1,064,229 $
%
Change
(4.0)
(16.7)
(10.6)
(2.7)
nm
22.3
(16,432)
(19,127)
(12,043)
(11,335)
296,621
237,684
December 29, December 29,
$
Years Ended
Change
nm – not meaningful
Compensation expenses decreased 4.0% in 2015 compared to 2014. The decrease was primarily due to a decrease in
29
payroll expenses in 2015 of 3.5% compared to 2014, reflecting a 9.0% decline in average full-time equivalent employees.
The decrease in payroll expense was partially offset by higher severance costs. Fringe benefits costs in 2015 decreased
6.8% compared to 2014 due to lower headcount.
Newsprint, supplements and printing expenses decreased 16.7% in 2015 compared to 2014. During 2015 compared to
2014, newsprint expense declined 23.4%. The newsprint declines reflect an 18.0% decrease in newsprint usage and a 6.7%
decrease in newsprint prices during 2015 compared to 2014.
Depreciation and amortization expenses decreased 10.6% in 2015 compared to 2014. Depreciation expense decreased $7.5
million in 2015 compared to 2014, partially due to the impact and timing of accelerated depreciation during the periods
and due to assets that became fully depreciated in 2014 or early 2015. During 2015, we incurred accelerated depreciation
of $10.3 million related to the production equipment associated with outsourcing our printing process at a few of our media
companies, compared to $13.5 million in accelerated depreciation during 2014. The accelerated depreciation during 2014,
(i) related to the production equipment associated with outsourcing our printing process at one of our media companies
and (ii) resulted from moving the printing operations for another one of our media companies to a newly purchased
production facility. Amortization expense decreased $4.6 million in 2015 compared to 2014 primarily due to certain
circulation subscriber lists that became fully amortized during the third quarter of 2014.
Other operating expenses decreased 2.7% in 2015 compared to 2014. The decrease in other operating expenses is primarily
due to a decrease in postage of $5.6 million, professional fees of $4.6 million, as well as other miscellaneous expenses of
$8.7 million, which were partially offset by increases in circulation delivery costs of $3.1 million and sales costs for digital
advertising of $4.3 million.
Goodwill impairment and other asset write-downs increased during 2015 compared to 2014. In 2015, we recorded non-
cash impairment charges related to goodwill of $290.9 million resulting from an interim goodwill impairment test during
the second quarter of 2015, and charges to intangible newspaper mastheads of $13.9 million resulting from interim and
annual impairment testing. See Notes 1 and 4 for additional discussion. During 2014, we recorded $8.2 million of non-
cash impairment charges to reduce the carrying value of mastheads, real property, land and non-newsprint inventory. The
charges consisted of $5.2 million for masthead impairments resulting from our annual impairment testing, $2.0 million
write-down of non-newsprint inventory and $1.0 million for a write-down of buildings and land at one of our media
companies.
Interest Expense:
Non-Operating Items
Total interest expense decreased 32.6% in 2015 compared to 2014, primarily reflecting lower overall debt balances due to
the retirements and repurchases made in the fourth quarter of 2014 and to a lesser degree repurchases of debt during 2015.
Equity Income:
Total income from unconsolidated investments decreased 47.1% during 2015 compared to 2014 due to lower income from
our equity method investments. The equity income in unconsolidated companies in the first nine months of 2014 included
income from an equity investment that was sold in October 2014. During 2015, we had no equity income as a result of our
sale of our equity interest in the equity investment. Except for the final distribution of $7.5 million received in the second
quarter of 2015, we will no longer receive equity income or distributions from this former investment. The final distribution
was recorded as a gain on the sale of our ownership interest in the equity investment in 2015, as discussed below. In
addition, during 2015 and 2014, we recorded write-downs of $8.2 million and $7.8 million, respectively, which reduced
our equity income in unconsolidated companies, net, in the consolidated statements of operations. The write-down in 2015
was primarily related to CareerBuilder, LLC, which recorded a non-cash, goodwill impairment charge related to their
international reporting unit in the fourth quarter of 2015. Our portion of that impairment charge was $7.5 million. The
write-down in 2014 was primarily related to our interest in the Ponderay Newsprint Company, which is owned by three of
our wholly-owned subsidiaries.
Gains related to equity investments:
We recognized $8.1 million in gains related to equity investments during 2015 from a previously owned equity investment
30
as a result of a final cash distribution of $7.5 million that was received in the second quarter of 2015 and a final working
capital adjustment of $0.6 million received in the first quarter of 2015.
Extinguishment of Debt:
During 2015, we repurchased $95.2 million aggregate principal amount of various series of our outstanding notes. We
repurchased these notes at either par or at a price lower than par value and wrote off historical discounts and unamortized
issuance costs related to these notes, as applicable, which resulted in a net gain on extinguishment of debt of $1.2 million
in 2015.
During 2014, we repurchased $494.2 million aggregate principal amount of various series of our outstanding notes. We
repurchased these notes at a price higher than par value and wrote off historical discounts and unamortized issuance costs
related to these notes, as applicable, which resulted in a loss on extinguishment of debt of $72.8 million in 2014.
Income Taxes:
In 2015, we recorded an income tax benefit on continuing operations of $11.8 million. The income tax benefit differs from
the expected federal tax amounts primarily due to the tax impact of state income taxes, the impact of non-tax-deductible
goodwill, the reversal of unrecognized tax benefits and certain expenses not deductible for income tax purposes.
In 2014 we recorded an income tax provision on continuing operations of $231.2 million. The income tax provision differs
from the expected federal tax amount primarily due to state taxes, including benefits from certain favorable state tax
adjustments and certain state taxes that do not vary with net income. For 2014, our income tax provision includes the tax
impact of certain discrete tax items, such as (i) gains related to equity investments (ii) certain asset disposals, impairments
and accelerated depreciation, (iii) loss on the repurchase of debt, and (iv) severance.
Sources and Uses of Liquidity and Capital Resources:
Liquidity and Capital Resources
Our cash and cash equivalents were $5.3 million as of December 25, 2016, compared to $9.3 million of cash and cash
equivalents at December 27, 2015.
We expect that most of our cash and cash equivalents, and our cash generated from operations, for the foreseeable future
will be used to repay debt, pay income taxes, fund our capital expenditures, invest in new revenue initiatives, digital
investments and enterprise-wide operating systems, make required contributions to the Pension Plan, repurchase stock,
and other corporate uses as determined by management and our Board of Directors. As of December 25, 2016, we had
approximately $873.7 million in total aggregate principal amounts of debt outstanding, consisting of $16.9 million of our
5.750% notes due in 2017 (also see Note 5), $491.4 million of our 9.00% Notes due 2022 and $365.4 million of our notes
maturing in 2027 and 2029. We expect to continue to opportunistically repurchase our debt from time to time if market
conditions are favorable and we also expect that we will refinance a significant portion of this debt prior to the scheduled
maturity of such debt. However, we may not be able to do so on terms favorable to us or at all. We may also be required
to use cash on hand or cash from operations to meet these obligations. 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.
31
The following table summarizes our cash flows:
(in thousands)
Cash flows provided by (used in)
Operating activities:
Continuing operations
Discontinued operations
Investing activities:
Continuing operations
Discontinued operations
Financing activities;
Continuing operations
Years Ended
December 25, December 27, December 30,
2015
2014
2016
$
75,383 $ (122,529) $
—
—
143,181
(37)
(9,272)
—
13,840
—
552,012
32,953
(70,152)
(102,840)
(4,041) $ (211,529) $
(588,059)
140,050
Increase (decrease) in cash and cash equivalents
$
Operating Activities:
We generated $75.4 million of cash from continuing operating activities in 2016 compared to using $122.5 million of cash
from continuing operations in 2015. The change is primarily due to the timing of income tax payments, net of refunds in
2016 compared to income tax payments in 2015. In 2016, we had net income tax refunds, of $2.5 million compared to
income tax payments of $207.0 million in 2015. This difference was primarily related to the tax payments made in the first
quarter of 2015 related to the gain on sale of a previously owned equity investment that was recorded in the fourth quarter
of 2014, offset by the tax losses on bond repurchases in the fourth quarter of 2014.
In 2014, we generated $143.2 million of cash from continuing operating activities. The decrease in cash generated in 2015
compared to 2014 was primarily due $146.9 million in cash we received from a previously held equity investment who
sold one of their divisions in 2014, and the timing of net income tax payments in 2015, as discussed above, offset by lower
pension contributions in 2015. In 2015 we made income tax payments of $207.0 million, as discussed above, compared to
$77.6 million in 2014. We made no cash pension contributions in 2015 compared to $25 million in 2014.
Pension Plan Matters
In February 2016, we contributed certain of our real property appraised at $47.1 million to our Pension Plan. After applying
credits, which resulted from contributing more than the Pension Plan’s minimum required contribution amounts in prior
years, we had no required pension contribution under the Employee Retirement Income Security Act in fiscal year 2016.
The contribution of real property which exceeded our required pension contribution for 2016 is expected it to reduce our
future pension contributions and expense, all other things being equal. We made no cash contributions to the Pension Plan
during 2015. After applying credits, we also do not expect to have a required pension contribution under the Employee
Retirement Income Security Act in fiscal year 2017.
Investing Activities:
We used $9.3 million of cash from investing activities in 2016, which was primarily due to the purchase of property, plant
and equipment (“PP&E”) for $13.0 million.
We generated $13.8 million of cash from investing activities in 2015, which reflected the receipts associated with the sale
of a former equity investment of $25.6 million from an escrow account and a final cash distribution of $7.5 million, offset
by the purchase of PP&E of $18.6 million.
We generated $552.0 million of cash from investing activities in 2014, which was primarily due to the proceeds received
from the sale of our ownership interest in an unconsolidated equity investment offset by the purchase of $6.8 million in
insurance-related deposits; the purchase of PP&E for $23.4 million, which includes the purchase of a production facility
for $5.2 million; and the purchase of $33.5 million in certificates of deposit, which collateralize our outstanding letters of
credit.
32
Financing Activities:
We used $70.2 million of cash from financing activities in 2016, primarily related to the repurchase of debt and our Class
A Common Stock. During 2016, we repurchased a total of $63.6 million in aggregate principal amount of our 5.75% Notes
due in 2017 and our 9.00% Notes through privately negotiated transactions for $62.3 million in cash. See Note 5 for further
discussion. In addition, $8.1 million was used to repurchase our Class A Common Stock during 2016, primarily related to
the repurchases of 656 thousand shares of our Class A Common Stock under our previously announced repurchase plan
for $7.8 million in cash.
We used $102.8 million of cash from financing activities in 2015 primarily related to the repurchase of our 5.75% Notes
and 9.00% Notes. During 2015, we repurchased $95.2 million of aggregate principal amount of notes for $92.3 million in
cash in privately negotiated repurchases (see Note 5). In addition, $8.4 million was used to purchase our Class A Common
Stock during 2015, primarily related to $7.8 million used to repurchase 615 thousand shares of our Class A Common Stock
under our previously announced repurchase plan.
We used $588.1 million of cash from financing activities in 2014 primarily related to the repurchase of debt. During 2014,
we repurchased $494.2 million of aggregate principal amount of notes for $584.4 million in cash in privately negotiated
repurchases.
Off-Balance-Sheet Arrangements
As of December 25, 2016, 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 2016 our contractual obligations were as follows:
Payments Due By Period
(in thousands)
Long-term debt principal
Interest on long-term debt
Pension obligations (a)
Post-retirement obligations (a)
Workers’ compensation obligations (b)
Other long-term obligations (c)
Financing obligations (d)
Other obligations:
Purchase obligations (e)
Operating leases (f)
1-3
Years
3-5
Years
— $
— $
Less than
$
Total
873,698 $
583,361
606,472
7,403
12,162
14,489
56,269
1 Year
16,865 $
70,565
8,647
1,063
2,079
4,425
4,673
139,190
46,284
1,838
2,636
1,775
9,450
More than
5 Years
856,833
234,416
306,023
2,997
5,841
7,065
33,519
139,190
245,518
1,505
1,606
1,224
8,627
54,990
71,036
15,237
12,008
13,237
19,288
8,222
14,615
18,294
25,125
Total (g)
$
2,279,880 $ 135,562 $ 233,698 $ 420,507 $ 1,490,113
(a)
(b)
(c)
(d)
(e)
(f)
Pension and Post-retirement obligations do not take into account the tax-deductibility of the payments.
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 a
disposed media companies.
Financing obligations include the obligations related to our contribution and leaseback of certain property to the
Pension Plan in 2016 and 2011. See further discussion in Note 7.
Primarily printing outsource agreements and capital expenditures for PP&E.
Excludes payments on leases included in financing obligation above.
33
(g)
The table excludes unrecognized tax benefits, and related penalties and interest, totaling $19.5 million because a
reasonably reliable estimate of the timing of future payments, if any, cannot be determined.
Critical Accounting Policies
This 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 (“West” reporting unit) consists of operations in our California,
Northwest and the Midwest operating regions and the other reporting unit (“East” reporting unit) consists of operations in
our Southeast and Florida 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.
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.
34
We performed an interim goodwill impairment testing at June 28, 2015, based on the reporting units that existed at that
time. Based on that testing, the fair value of our reporting unit that primarily consisted of operations in California, the
Northwest and Texas, exceeded the carrying value by approximately 12.9%, and we did not incur any goodwill impairment
for this reporting unit. The reporting unit that primarily consisted of operations in the Southeast, Florida and the Midwest,
recorded an impairment charge of $290.9 million during the quarter and six months ended June 28, 2015, as described in
Note 4.
Based on our annual impairment testing analysis, at December 25, 2016, the fair value of our West reporting unit exceeded
the carrying value by approximately 20.1%, and the fair value of the East reporting unit exceeded the carrying value by
approximately 44.2%. Assumptions are highly subjective and sensitive to industry and our performance.
Mastheads:
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 discounted cash flows 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 masthead impairment tests as of December 25, 2016 and December 28, 2014, and as a result of
our testing, we recorded a charge of $9.2 million and $5.2 million in 2016 and 2014, respectively. In 2015, we performed
interim and annual masthead impairment testing and as a result of our testing, we recorded a charge of $9.5 million for the
quarter and six months ended June 28, 2015, and a total of $13.9 million in 2015.
Other Intangible Assets:
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 2016, 2015 or 2014.
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.
Current standards of accounting for defined benefit pension plans and post-retirement benefit plans require 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 25, 2016, net retirement obligations in excess
of the retirement plans’ assets were $606.5 million. This amount included $119.1 million for non-qualified plans that do
not have assets and $487.4 million for our qualified plan. At December 27, 2015, net retirement obligations in excess of
the retirement plans’ assets were $581.7 million. This amount included $116.9 million for non-qualified plans that do not
have assets and $464.8 for our qualified plan.
We used discount rates of 4.21% to 4.72% and an assumed long-term return on assets of 7.75% to calculate our retirement
plan expenses in 2016.
For 2016, a change in the weighted average rates would have had the following impact on our net benefit cost:
• A decrease of 50 basis points in the long-term rate of return would have increased our net benefit cost
by approximately $7.0 million;
• A decrease of 25 basis points in the discount rate would have increased our net benefit cost by
approximately $0.1 million.
35
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 1.6% to calculate workers’ compensation reserves as of December 25, 2016. A decrease of 25
basis points in the discount rate would have had a $0.2 million 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 $1.3 million.
For information regarding the impact of certain recent accounting pronouncements, see Note 1.
Recent Accounting Pronouncements
36
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 $200 million. Conversely, a 1.0% decrease in our discount rate
could increase our pension obligations by approximately $244 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.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
39
40
41
42
43
44
45
38
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 its subsidiaries (the
“Company”) as of December 25, 2016 and December 27, 2015, 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
25, 2016. We also have audited the Company’s internal control over financial reporting as of December 25, 2016, based
on criteria established in Internal Control — Integrated Framework (2013) 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 its subsidiaries as of December 25, 2016 and December 27, 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 25, 2016, 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 25, 2016, based on the criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission..
/s/ Deloitte & Touche LLP
Sacramento, California
March 3, 2017
39
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Years Ended
December 25, December 27, December 28,
2015
2014
2016
REVENUES — NET:
Advertising
Audience
Other
OPERATING EXPENSES:
Compensation
Newsprint, supplements and printing expenses
Depreciation and amortization
Other operating expenses
Goodwill impairment and other asset write-downs (see Notes 1 and 2)
OPERATING INCOME (LOSS)
NON-OPERATING (EXPENSE) INCOME:
Interest expense
Interest income
Equity income in unconsolidated companies, net
Gains related to equity investments
Gain (loss) on extinguishment of debt, net
Other — net
Income (loss) before income taxes
Income tax expense (benefit)
$
568,735 $
364,830
43,528
977,093
637,415 $
367,858
51,301
1,056,574
731,783
366,592
48,177
1,146,552
383,673
78,893
89,446
393,015
9,526
954,553
395,449
95,674
101,595
404,347
304,848
1,301,913
411,881
114,801
113,638
415,682
8,227
1,064,229
22,540
(245,339)
82,323
(83,168)
463
12,492
—
431
(16)
(69,798)
(47,258)
(13,065)
(85,973)
331
10,086
8,061
1,167
(292)
(66,620)
(127,503)
254
19,084
705,247
(72,777)
579
524,884
(311,959)
(11,797)
607,207
231,230
INCOME (LOSS) FROM CONTINUING OPERATIONS
(34,193)
(300,162)
375,977
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES
NET INCOME (LOSS)
—
(34,193) $
$
—
(300,162) $
(1,988)
373,989
Net income (loss) per common share:
Basic
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) per share
Diluted
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) per share
Weighted average number of common shares:
Basic
Diluted
$
$
$
$
(4.41) $
—
(4.41) $
(34.66) $
—
(34.66) $
43.32
(0.23)
43.09
(4.41) $
—
(4.41) $
(34.66) $
—
(34.66) $
42.55
(0.22)
42.33
7,750
7,750
8,659
8,659
8,680
8,836
See notes to consolidated financial statements.
40
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS):
Pension and post retirement plans:
Change in pension and post-retirement benefit plans, net of taxes of $25,700, $2,936 and
$73,922
Investment in unconsolidated companies:
Other comprehensive income (loss), net of taxes of $772, $534 and $546
Other comprehensive loss
Comprehensive income (loss)
Years Ended
December 25, December 27, December 28,
2015
(300,162) $
2016
(34,193) $
2014
373,989
$
(38,550)
(4,404)
(110,883)
(1,157)
(39,707)
(73,900) $
(801)
(5,205)
(305,367) $
(819)
(111,702)
262,287
$
See notes to consolidated financial statements.
41
THE MCCLATCHY COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables (net of allowances of $3,254 in 2016 and $4,451 in 2015)
Other receivables
Newsprint, ink and other inventories
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
Deferred income taxes
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
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 5,132,417 in 2016 and 5,878,253 in 2015)
Class B (authorized 60,000,000 shares, issued 2,443,191 in 2016 and 2015)
Additional paid-in-capital
Accumulated deficit
Treasury stock at cost, 34 shares in 2016 and 165,217 shares in 2015
Accumulated other comprehensive loss
See notes to consolidated financial statements.
December 25, December 27,
2016
2015
$
$
$
$
5,291
112,583
11,883
13,939
9,040
14,809
167,545
9,332
138,153
16,367
16,659
5,357
19,194
205,062
297,506
364,219
298,986
705,174
1,004,160
242,382
60,821
64,340
367,543
1,836,754
16,749
36,822
8,647
25,577
7,930
64,728
8,602
20,994
190,049
829,415
604,165
51,616
47,596
1,532,792
$
$
348,651
705,174
1,053,825
233,538
1,312
65,078
299,928
1,923,034
—
41,751
8,450
29,410
687
60,811
9,423
15,195
165,727
905,425
581,852
32,398
44,869
1,564,544
51
24
2,213,098
(1,637,739)
(6)
(461,515)
113,913
1,836,754
$
59
24
2,220,230
(1,603,546)
(2,196)
(421,808)
192,763
1,923,034
$
42
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Less loss from discontinued operations, net of tax
Income (loss) from continuing operations
Reconciliation to net cash provided by (used in) operating activities:
Depreciation and amortization
(Gains) loss on disposal of property and equipment (excluding asset impairments)
Contribution to qualified defined benefit pension plan
Retirement benefit expense
Stock-based compensation expense
Deferred income taxes
Equity income in unconsolidated companies
Gains related to equity investments
Distributions of income from equity investments
Gain on extinguishment of debt, net
Goodwill impairment and other asset write-downs
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) continuing operations
Net cash used in discontinued operations
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
Purchase of certificates of deposit
Proceeds from redemption of certificates of deposit
Purchase of insurance-related deposits
Distributions from equity investments
Contributions to equity investments
Proceeds from sale of equity investments
Other-net
Net cash provided by (used in) continuing operations
Net cash used in discontinued operations
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of public notes
Purchase of treasury shares
Other
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
December 25,
2016
Years Ended
December 27,
December 28,
2015
2014
$
$
(34,193)
—
(34,193)
(300,162)
—
(300,162)
$
373,989
(1,988)
375,977
89,446
(5,844)
—
14,776
3,130
(33,275)
(12,492)
—
6,000
(431)
9,526
(6,141)
26,057
2,720
2,744
(4,964)
(3,600)
11,872
(821)
10,873
75,383
—
75,383
(13,019)
9,241
—
2,323
—
—
(3,817)
—
(4,000)
(9,272)
—
(9,272)
(62,331)
(8,080)
259
(70,152)
(4,041)
9,332
5,291
101,595
347
—
9,971
3,178
(23,087)
(10,086)
(8,061)
7,500
(1,167)
304,848
(5,501)
6,412
2,832
(7,707)
(7,344)
(3,529)
(190,581)
(1,169)
(818)
(122,529)
—
(122,529)
(18,605)
414
—
—
—
7,428
(1,583)
25,553
633
13,840
—
13,840
113,638
(918)
(25,000)
4,632
3,479
(32,233)
(19,084)
(705,247)
160,707
72,777
8,227
(4,137)
19,390
3,822
(111)
(1,870)
(6,291)
186,208
(4,452)
(6,333)
143,181
(37)
143,144
(23,441)
10,301
(33,483)
—
(6,770)
1,621
(4,158)
607,942
—
552,012
32,953
584,965
(92,254)
(8,434)
(2,152)
(102,840)
(211,529)
220,861
9,332
(584,366)
(7,603)
3,910
(588,059)
140,050
80,811
220,861
$
$
See notes to consolidated financial statements.
43
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share and per share amounts)
Balance at December 29, 2013
$
Net income
Other comprehensive loss
Conversion of 21,500 Class B shares to
Class A shares
Issuance of 239,110 Class A shares
under stock plans
Stock compensation expense
Purchase of 159,412 shares of treasury
stock
Retirement of 155,995 shares of treasury
stock
Balance at December 28, 2014
Net loss
Other comprehensive loss
Conversion of 15,400 Class B shares to
Class A shares
Issuance of 91,555 Class A shares under
stock plans
Stock compensation expense
Purchase of 649,448 shares of treasury
stock
Retirement of 488,769 shares of treasury
stock
Balance at December 27, 2015
Net loss
Other comprehensive loss
Issuance of 102,681 Class A shares
under stock plans
Stock compensation expense
Purchase of 683,334 shares of treasury
stock
Retirement of 848,517 shares of treasury
stock
Balance at December 25, 2016
Common Stock
Class B
Class A
$.01 par $.01 par
value
62
—
—
value
$
25
—
—
Additional
Paid-In
Capital
$ 2,222,610
—
—
Accumulated
Other
Accumulated
Comprehensive Treasury
Deficit
$ (1,677,373)
373,989
—
Income (Loss)
(304,901)
$
—
(111,702)
Stock
Total
$
(37) $ 240,386
373,989
(111,702)
—
—
1
(1)
—
2
—
—
—
4,806
3,507
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,808
3,507
—
(7,603)
(7,603)
(2)
63
—
—
—
24
—
—
(7,463)
2,223,460
—
—
—
(1,303,384)
(300,162)
—
—
(416,603)
—
(5,205)
7,465
(175)
—
—
—
503,385
(300,162)
(5,205)
—
—
—
1
—
—
—
—
3,178
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
3,178
—
(8,434)
(8,434)
(5)
59
—
—
—
24
—
—
(6,408)
2,220,230
—
—
—
(1,603,546)
(34,193)
—
—
(421,808)
—
(39,707)
6,413
(2,196)
—
—
—
192,763
(34,193)
(39,707)
1
—
—
—
(1)
3,130
—
—
—
—
—
—
—
—
—
—
—
3,130
—
(8,080)
(8,080)
(9)
51
$
—
24
$
(10,261)
$ 2,213,098
—
$ (1,637,739)
—
(461,515)
10,270
(6)
$
—
$ 113,913
$
See notes to consolidated financial statements.
44
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
1. SIGNIFICANT ACCOUNTING POLICIES
The McClatchy Company (the “Company,” “we,” “us” or “our”) is a news and information publisher of publications and
online platforms such as the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer,
The (Raleigh) News and Observer, and the (Fort Worth) Star-Telegram. In December 2016, we acquired certain assets and
operations of The (Durham, NC) Herald-Sun, including related intangible assets. Including this acquisition, we operate 30
media companies in 29 U.S. markets in 14 states, providing each of our communities with high-quality news and
advertising services in a wide array of digital and print formats. We are headquartered in Sacramento, California, and our
Class A Common Stock is listed on the New York Stock Exchange under the symbol MNI.
In addition to our media companies, we also own 15.0% of CareerBuilder, LLC, which operates a premier online job
website, CareerBuilder.com, as well as certain other digital company investments. See Note 3 for additional discussion. In
September 2016, TEGNA Inc., the majority holder of CareerBuilder, LLC, announced that it and other owners, including
us, would evaluate strategic alternatives for CareerBuilder. No specific timeline was announced for this process and no
further action has been announced.
Our fiscal year ends on the last Sunday in December. The years ended December 25, 2016, December 27, 2015, and
December 28, 2014, consist of 52-week periods. Since the acquisition of The (Durham, NC) Herald-Sun occurred on the
last day of our fiscal year of 2016, none of The Herald-Sun's operating results are included in our operating results in 2016.
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.
Reverse Stock Split
Following our May 2016 annual meeting of shareholders, our Board of Directors approved a one-for-ten (1:10) reverse
stock split of our issued and outstanding Class A and Class B common stock, which became effective June 7, 2016. As a
result, every ten shares of our common stock outstanding were combined into one share of our common stock. The ratio
was the same for the Class A common stock and the Class B common stock and each shareholder held the same percentage
of Class A and Class B common stock outstanding immediately following the reverse stock split as the shareholder held
immediately prior to the reverse stock split. No fractional shares were issued in connection with the reverse stock split.
The par value and authorized number of shares of the Class A and Class B common stock were not adjusted as a result of
the reverse stock split. All issued and outstanding Class A and Class B common stock and per share amounts contained
within our consolidated financial statements and footnotes have been retroactively adjusted to reflect this reverse stock
split for all periods presented.
All restricted stock unit awards and stock appreciation right awards outstanding immediately prior to the reverse stock
split were adjusted by dividing the number of shares of common stock into which the restricted stock units and stock
appreciation rights are exercisable by ten and multiplying the exercise price by ten, all in accordance with the terms of the
agreements governing such awards. All restricted stock units and stock appreciation rights activity contained within our
consolidated financial statement footnotes have been retroactively adjusted to reflect this reverse stock split for all periods
presented.
Revenue recognition
We recognize revenues (i) 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; (ii) from the sale of certain third party digital advertising
products and services on a net basis, with wholesale fees reported as a reduction of the associated revenues; and (iii) for
audience subscriptions as newspapers and access to online sites are delivered over the applicable subscription term. Print
audience revenues are recorded net of direct delivery costs for contracts that are not on a “fee-for-service” arrangement.
45
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Print audience 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: (i) determine
whether and when each element has been delivered; (ii) 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 (iii) 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-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. As of
December 25, 2016, substantially all of our cash and cash equivalents are in excess of the FDIC insured 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. We have
not experienced any losses related to amounts in excess of FDIC limits.
Allowance for doubtful accounts
We maintain an allowance account for estimated losses resulting from the risk that our customers will not make required
payments. At certain of our media companies we establish our allowances based on collection experience, aging of our
receivables and significant individual account credit risk. At the remaining media companies 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.
We provide an allowance for doubtful accounts as follows:
(in thousands)
Balance at beginning of year
Charged to costs and expenses
Amounts written off
Disposition of discontinued operations
Balance at end of year
Newsprint, ink and other inventories
Years Ended
December 25, December 27, December 28,
2015
2014
2016
$
4,451 $
10,137
(11,334)
—
3,254 $
$
5,900 $
8,181
(9,630)
—
4,451 $
6,040
9,305
(9,229)
(216)
5,900
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. During 2014, we recorded a $2.0 million write-down of non-newsprint inventory.
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 2016, 2015 or 2014.
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.
46
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Property, plant and equipment consisted of the following:
December 25,
(in thousands)
Land
Building and improvements
Equipment
Construction in process
Less accumulated depreciation
Property, plant and equipment, net
$
$
2016
50,844 $
314,018
594,005
1,489
960,356
(662,850)
297,506 $
December 27, Estimated
Useful Lives
2015
85,721
332,502 5 - 60 years
648,206 2 - 25 years (1)
7,090
1,073,519
(709,300)
364,219
(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 $41.5 million, $53.2 million and $60.7 million in 2016, 2015 and 2014,
respectively.
During 2016, 2015 and 2014, we incurred $7.0 million, $10.3 million and $13.5 million respectively, in accelerated
depreciation related to the production equipment associated with outsourcing our printing process at certain of our media
companies.
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 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.
Assets held for sale
Assets held for sale includes land and buildings at two of our media companies that we began to actively market for sale
during 2016. In connection with the classification to assets held for sale, the carrying value of the land and building of one
of the media companies was reduced to their estimated fair value less selling costs, as determined based on the current
market conditions and the selling price. As a result, a write-down of $0.3 million was recorded in 2016, and is included in
goodwill impairment and other asset write-downs 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 3 for discussion of investments in unconsolidated companies.
Segment reporting
We operate 30 media companies, providing each of our communities with high-quality news and advertising services in a
wide array of digital and print formats. We have two operating segments that we aggregate into a single reportable segment
because each has similar economic characteristics, products, customers and distribution methods. Our operating segments
are based on how our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), makes decisions
about allocating resources and assessing performance. The CODM is provided discrete financial information for the two
operating segments. Each operating segment consists of a group of media companies and both operating segments report
to the same segment manager. One of our operating segments (“Western Segment”) consists of our media companies
47
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
operations in California, the Northwest, and the Midwest, while the other operating segment (“Eastern Segment”) consists
primarily of media companies operations in the Southeast and Florida.
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 our 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, hypothetical transaction structures, and
for the market based approach, private and public market trading multiples for newspaper assets. 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 2016 or 2014. We determined an impairment charge of $290.9 million in 2015 was required. 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 discussed above, to determine
the fair value of each newspaper masthead. We determined that impairment charges of $9.2 million, $13.9 million and
$5.2 million in 2016, 2015 and 2014, respectively, were required. Also see Note 4.
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 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 2016,
2015 or 2014.
Stock-based compensation
All stock-based compensation, 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 25, 2016, we
had two stock-based compensation plans. See 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:
48
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
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. As of December 25, 2016, and
December 27, 2015, the carrying amount of these items approximates fair value because of the short maturity
of these financial instruments.
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 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 25, 2016, and December 27,
2015, the estimated fair value of long-term debt was $844.0 million and $729.8 million, respectively. At
December 25, 2016, and December 27, 2015, the carrying value of long-term debt was $846.2 million and
$905.4 million, respectively.
Pension plan. As of December 25, 2016, and December 27, 2015, we had assets related to our qualified
defined benefit pension plan measured at fair value. The required disclosures regarding such assets are
presented in Note 7.
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 25, 2016, and December 27,
2015, 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. The significant unobservable inputs include our expected cash flows
and discount rate that we estimate market participants would seek for bearing the risk associated with such assets.
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.
49
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Our accumulated other comprehensive loss (“AOCL”) and reclassifications from AOCL, net of tax, consisted of the
following:
(in thousands)
Balance at December 28, 2014
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL
Other comprehensive income (loss)
Balance at December 27, 2015
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL
Other comprehensive income (loss)
Balance at December 25, 2016
Minimum
Pension and
Post-
Retirement
Liability
$ (407,552) $
—
(4,404)
(4,404)
$ (411,956) $
—
(38,550)
(38,550)
$ (450,506) $
Other
Comprehensive
Loss
Related to
Equity
Investments
Total
(801)
—
(801)
(9,051) $ (416,603)
(801)
(4,404)
(5,205)
(9,852) $ (421,808)
(1,157)
(1,157)
(38,550)
—
(39,707)
(1,157)
(11,009) $ (461,515)
Minimum pension and post-retirement liability
AOCL Component
2016
(64,250) $
25,700
(38,550) $
$
$
Earnings per share (EPS)
Amount Reclassified from
AOCL (in thousands)
Year Ended Year Ended
December 25, December 27,
Affected Line in the
Consolidated Statements of Operations
2015
(7,340) Compensation
2,936 Provision (benefit) for income taxes
(4,404) Net of tax
As discussed previously, all share amounts have been restated to reflect the reverse stock split that became effective on
June 7, 2016, and applied retrospectively. 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:
(shares in thousands)
Anti-dilutive stock options
Recently Adopted Accounting Pronouncements
Years Ended
December 25, December 27, December 28,
2015
2014
2016
431
517
152
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern.” ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern and to provide related footnotes disclosures in certain circumstances. It was effective
for us in the fourth quarter of 2016. The adoption of this guidance did not have an impact on our consolidated financial
statements.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810); Amendments to the Consolidated
Analysis,” which changed the analysis that a reporting entity must perform to determine whether it should consolidate
certain types of legal entities. This guidance was effective for us at the beginning of 2016. The adoption of this guidance
did not have an impact on our consolidated financial statements.
50
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
In April 2015, the FASB issued ASU No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing
Arrangement." ASU 2015-05 provided guidance to customers about whether a cloud computing arrangement includes a
software license. If a cloud computing arrangement includes a software license, the customer should account for the
software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing
arrangement does not include a software license, the customer should account for the arrangement as a service contract.
The new guidance does not change the accounting for service contracts. This guidance was effective for us at the beginning
of 2016. The adoption of this guidance did not have an impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323).” ASU
2016-07 eliminates the requirement that when an existing cost method investment qualifies for use of the equity method,
an investor must restate its historical financial statements, as if the equity method had been used during all previous periods.
Under the new guidance, at the point an investment qualifies for the equity method, any unrealized gain or loss in
accumulated other comprehensive income (loss) will be recognized through earnings. ASU 2016-07 is effective for us for
interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We early adopted
this standard and it did not have an impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements of
Employee Share-Based Payment Accounting.” ASU 2016-09 makes several modifications to Topic 718 related to the
accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement
presentation of excess tax benefits or deficiencies. This guidance also clarifies the statement of cash flows presentation
of certain components of share-based awards. ASU 2016-09 is effective for us for interim and annual reporting periods
beginning after December 15, 2016, with early adoption permitted. We early adopted this standard as of the beginning of
fiscal year 2016. While certain amendments of this standard were not applicable to us or were applied prospectively,
certain other amendments were applied retrospectively as required by the standard. The adoption of this standard did not
have an impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with
Customers.” ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers and supersedes most current revenue recognition guidance. This new revenue recognition
model provides a five-step analysis in determining when and how revenue is recognized. The new model will require
revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration a company expects to receive in exchange for those goods or services. In 2016, the FASB issued additional
updates: ASU No. 2016-08, 2016-10, 2016-11, 2016-12 and 2016-20. These updates provide further guidance and
clarification on specific items within the previously issued update. We are currently in the process of evaluating the impact
of the adoption on our consolidated financial statements. ASU 2014-09, as well as the additional FASB updates noted
above, is effective for us for annual and interim periods beginning on or after December 15, 2017, and early adoption is
permitted for interim or annual reporting periods beginning after December 15, 2016. We do not plan to early adopt this
guidance. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented
("full retrospective"), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date
of initial application ("modified retrospective"). We are planning to adopt the standard using the modified retrospective
method. We are still in the process of finalizing the impact this standard will have on our controls, processes and financial
results, but at this point we do not believe this standard will significantly impact revenue recognition associated with our
primary advertising, audience and other revenue categories. We plan to finalize our determination of the impact by the end
of the second quarter of 2017, and continue to focus on our process and control activities assessments and documentation
during the remainder of 2017.
51
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 simplifies
the measurement of inventory by requiring certain inventory to be measured at the “lower of cost and net realizable value”
and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the
“estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and
transportation.” It is effective for us for interim and annual reporting periods beginning after December 15, 2016. The
standard should be applied prospectively with early adoption permitted. We are still finalizing our assessment of the
impact, but for our primary categories of inventory such as newsprint, we are not expecting a significant impact to our
operations or our consolidated financial statements resulting from the adoption of this standard.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for us for interim and annual
reporting periods beginning after December 15, 2017. We do not believe the adoption of this guidance will have an impact
on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Accounting Standards Codification 842 (“ASC 842”))
and it replaces the existing guidance in ASC 840, “Leases.” ASC 842 requires lessees to recognize most leases on their
balance sheets as lease liabilities with corresponding right-of-use assets. The new lease standard does not substantially
change lessor accounting. It is effective for us for interim and annual reporting periods beginning after December 15, 2018,
with early adoption permitted. We are in the process of reviewing the impact this standard will have on our existing lease
population and the impact the adoption will have on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” ASU 2016-13 requires that financial assets measured at amortized cost be
presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted
from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized
financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based
upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the
reported amount. It is effective for us for interim and annual reporting periods beginning after December 15, 2019, and
early adoption is permitted for interim or annual reporting periods beginning after December 15, 2018. We are currently
in the process of evaluating the impact of the adoption on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments.” ASU 2016-15 addresses eight specific cash flow issues and is intended to reduce
diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash
flows. It is effective for us for interim and annual reporting periods beginning after December 15, 2017, and early adoption
is permitted. We are currently in the process of evaluating the impact of the adoption on our consolidated financial
statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment.” ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates the Step 2
from the goodwill impairment test. It is effective for us for interim and annual reporting periods beginning after December
15, 2019, and early adoption is permitted. We will adopt this standard for any impairment test performed after January 1,
2017, as permitted under the standard. We do not believe the adoption of this guidance will have an impact on our
consolidated financial statements.
2. DIVESTITURE
On May 5, 2014, we completed the sale of the outstanding capital stock of Anchorage Daily News, Inc. (“Anchorage”) to
an assignee of Alaska Dispatch Publishing, LLC for $34.0 million in cash. In accordance with the FASB Accounting
Standards Codification (“ASC”) 205-20, “Discontinued Operations,” the financial results of Anchorage have been reported
as a discontinued operation in our consolidated financial statements for the periods presented.
52
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
The following table summarizes the financial information for the Anchorage’s operations for 2014:
(in thousands)
Revenues
Loss from discontinued operations, before taxes
Income tax provision
Loss from discontinued operations, net of tax, before loss on sale
Gain (loss) on sale of discontinued operations
Income tax provision
Loss on sale of discontinued operations, net of tax
Loss from discontinued operations, net of tax
Year Ended
December 28,
2014
$
$
$
$
$
9,071
(203)
251
(454)
5,391
6,925
(1,534)
(1,988)
3. INVESTMENTS IN UNCONSOLIDATED COMPANIES
Our ownership interest and investment in unconsolidated companies consisted of the following:
(in thousands)
Company
CareerBuilder, LLC
Other
HomeFinder, LLC
% Ownership
December 25,
December 27,
Interest
15.0
Various
2016
236,936
5,446
242,382
$
$
2015
230,170
3,368
233,538
$
$
On February 23, 2016, we, along with Gannett Co. Inc. and tronc, Inc. (the “Selling Partners”) sold all of the assets in
HomeFinder LLC (“HomeFinder”) to Placester Inc. (“Placester”) in exchange for a small stock ownership in Placester and
a 3-year affiliate agreement with Placester to continue to allow the Selling Partners to sell Placester and HomeFinder’s
products and services. As a result of this transaction, during the quarter ended March 27, 2016, we wrote off our
HomeFinder investment of $0.9 million, which was recorded to equity income in unconsolidated companies, net, on our
consolidated statements of operations.
Classified Ventures, LLC
On April 1, 2014, Classified Ventures, LLC (“Classified Ventures”) sold its Apartments.com business for $585 million.
Accordingly, during 2014, we recorded our share of the net gain of $144.2 million, before taxes, as gains related to equity
investments in our consolidated statements of operations. On April 1, 2014, we received a cash distribution of
$146.9 million from Classified Ventures, which is equal to our share of the net proceeds.
On October 1, 2014, we, along with Tribune Media Company, Graham Holdings Company and A. H. Belo Corporation
(the “Selling Partners”) sold all of the Selling Partners’ ownership interests in Classified Ventures to TEGNA, Inc.
(formerly Gannett Co., Inc.) for a price that valued Classified Ventures at $2.5 billion. We recorded gain on sale of our
ownership interest in Classified Ventures of $559.3 million, before taxes, during the fourth quarter of 2014. Under the sale
agreement, $25.6 million of net proceeds was held in escrow until October 1, 2015. On October 1, 2014, we received our
portion of the net cash proceeds, less the escrow amount, of $606.2 million. Upon the closing of the transaction, we entered
into a new, five-year affiliate agreement with Cars.com that will allow us to continue to sell Cars.com products and services
exclusively in our local markets. In the fourth quarter of 2015, we received the $25.6 million escrow balance from the
escrow account.
During the first quarter of 2015, we received $0.6 million from Classified Ventures as a result of the final working capital
adjustment from our sale of Classified Ventures in the fourth quarter of 2014 and in April 2015, we received a final cash
distribution of $7.5 million from Classified Ventures. Both of these transactions were recorded as gains related to equity
investments during 2015, because the company had no continuing ownership interest in Classified Ventures.
53
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Other
In 2014, we recognized a $1.7 million gain on sale of an equity investment in gains related to equity investments in the
consolidated statements of operations.
Write-downs
During 2016 and 2015, we recorded write-downs of $1.0 million and $8.2 million, respectively, which reduced our equity
income in unconsolidated companies, net, in the consolidated statements of operations. The write-down in 2016 was
primarily due to HomeFinder, LLC, as discussed above. The write-down in 2015 was primarily related to CareerBuilder,
LLC, which recorded a non-cash, goodwill impairment charge related to their international reporting unit in the fourth
quarter of 2015. Our portion of that impairment charge was $7.5 million.
We received dividends and other equity distributions from our investments in unconsolidated companies as follows:
(in thousands)
CareerBuilder, LLC
Other
Years Ended
December 25,
2016
December 27,
2015
$
$
6,000 $
—
6,000
$
7,500
7,460
14,960
For 2016, the $6.0 million distribution from CareerBuilder LLC, which represented a return on investment, was recorded
as an operating activity on our consolidated statements of cash flows.
For 2015, the $15.0 million in total distributions from our equity investments included $7.5 million from CareerBuilder
LLC, which represented a return on investment and was recorded as an operating activity, and the $7.5 million from
Classified Ventures (see above) was considered a return of investment because there were no cumulative earnings from
the investee and, therefore, was treated as an investing activity on our consolidated statements of cash flows.
Three of our wholly-owned subsidiaries have a combined 27.0% general partnership interest in Ponderay Newsprint
Company (“Ponderay”) and we purchased some of our newsprint supply from Ponderay during 2016, 2015 and 2014. The
investment in Ponderay is zero as a result of a write off in 2014 and accumulative losses exceeding our carrying value. No
future income or losses from Ponderay will be recorded until our carrying value on our balance sheet is restored through
future earnings by Ponderay.
We have a 49.5% ownership interest in The Seattle Times Company (“STC”). Our investment in 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. We purchase
newsprint from Ponderay directly or through third-party intermediaries and we incur wholesale fees from CareerBuilder,
LLC for the uploading and hosting of online advertising on behalf of our media companies’ advertisers. We record these
expenses for CareerBuilder, LLC as a reduction to the associated digital classified advertising revenues and expenses
related to Ponderay are recorded in operating expenses. The following table summarizes expenses incurred for products
and services provided by unconsolidated companies:
(in thousands)
CareerBuilder, LLC
Ponderay (general partnership)
Years Ended
December 25, December 27,
2016
2015
December 28,
2014
$
863 $
10,767
1,001 $
8,200
1,024
10,433
54
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
As of December 25, 2016, and December 27, 2015, we had approximately $0.1 million and $1.0 million, respectively,
payable collectively to CareerBuilder, LLC and Ponderay.
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:
December 25, December 27,
(in thousands)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity
(in thousands)
Net revenues
Gross profit
Operating income
Net income
2016
332,602 $
$
629,604
263,200
187,188
511,818
2015
365,993
540,629
236,630
228,209
441,783
Year ended
December 25, December 27, December 28,
2015
988,871 $ 1,368,593
1,155,091
843,680
146,809
38,561
151,519
39,143
2016
$ 1,058,296 $
882,493
80,830
68,534
2014
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 27,
2015
833,254 $
$
(663,735)
169,519
179,132
705,174
$ 1,053,825 $
Additions
Impairment Amortization December 25,
Expense
Charges
6,019 $
—
6,019
1,500
—
7,519 $
— $
—
—
(9,196)
—
(9,196) $
— $
2016
839,273
(711,723)
127,550
171,436
705,174
(47,988) $ 1,004,160
(47,988)
(47,988)
—
—
$
December 28,
2014
833,254 $
(615,378)
217,876
193,039
996,115
$ 1,407,030 $
Additions
Impairment Amortization December 27,
Expense
Charges
— $
—
—
(13,907)
(290,941)
— $
—
—
—
—
— $ (304,848) $
— $
2015
833,254
(663,735)
169,519
179,132
705,174
(48,357) $ 1,053,825
(48,357)
(48,357)
—
—
In December 2016, we completed a small acquisition of The (Durham, NC) Herald-Sun and we recognized an intangible
asset related to an agreement we entered into with the purchasers of a covered parking garage under which we will receive
parking spaces, at no cost, with an estimated useful life of 20 years. The transactions are reflected in intangible assets
subject to amortization and in Mastheads. The impact of the acquisition was not material to our consolidated financial
statements, and no other material amounts of assets were acquired or liabilities assumed in this transaction.
Based on our annual impairment testing of goodwill and intangible newspaper mastheads at December 25, 2016, we
recorded $9.2 million in masthead impairments, which was recorded in the goodwill impairment and other asset write-
downs line item on our consolidated statements of operations.
55
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
During the quarter ended June 28, 2015, we performed interim tests of impairment of goodwill and intangible newspaper
mastheads due to the continuing challenging business conditions and the resulting weakness in our stock price. The fair
values of our reporting units for goodwill impairment testing and individual newspaper mastheads were estimated using
the present value of expected future cash flows, using estimates, judgments and assumptions (see Note 1) that we believe
were appropriate in the circumstances. As a result, we recorded an impairment charge related to goodwill of $290.9 million
and an intangible newspaper masthead impairment charge of $9.5 million in the quarter ended June 28, 2015, which were
both recorded in the goodwill impairment and other asset write-downs line item on our consolidated statements of
operations. In addition, based on our annual impairment testing of goodwill and intangible newspaper mastheads at
December 27, 2015, we recorded an additional $4.4 million in masthead impairments, which was recorded in the goodwill
impairment and other asset write-downs line item on our consolidated statements of operations.
Accumulated changes in indefinite lived intangible assets and goodwill as of December 25, 2016, and December 27, 2015,
consisted of the following:
(in thousands)
Mastheads
Goodwill
Total
December 25, 2016
December 27, 2015
Original Gross Accumulated Carrying
Original Gross Accumulated Carrying
Amount
Impairment
Amount
Amount
Impairment
Amount
$
684,500 $
3,571,111
(513,064) $ 171,436
705,174
(2,865,937)
$
4,255,611 $ (3,379,001) $ 876,610
$
683,000 $
(503,868) $ 179,132
705,174
$ 4,254,111 $ (3,369,805) $ 884,306
(2,865,937)
3,571,111
Amortization expense was $48.0 million, $48.4 million and $52.9 million in 2016, 2015 and 2014, respectively. The
estimated amortization expense for the five succeeding fiscal years is as follows:
Year
2017
2018
2019
2020
2021
$
Amortization
Expense
(in thousands)
49,288
47,657
24,151
800
678
5. LONG-TERM DEBT
All of our long-term debt is in fixed rate obligations. As of December 25, 2016, and December 27, 2015, our outstanding
long-term debt consisted of senior secured notes and unsecured notes. They are stated net of unamortized debt issuance
costs and unamortized discounts, if applicable, totaling $27.5 million and $31.9 million as of December 25, 2016, and
December 27, 2015, respectively. The unamortized discounts resulted from recording assumed liabilities at fair value
during a 2006 acquisition.
56
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
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
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
Debt Repurchases and Extinguishment of Debt
Face Value at
December 25, December 25, December 27,
2016
Carrying Value
2015
2016
$
$
$
491,415 $
16,865
89,188
276,230
873,698 $
16,865
856,833 $
483,492 $
16,749
84,862
261,061
846,164 $
16,749
829,415 $
506,571
54,551
84,469
259,834
905,425
—
905,425
During 2016, we repurchased $63.6 million aggregate principal amount of various series of our outstanding notes. We
repurchased these notes at either a price higher or lower than par value and wrote off historical discounts and unamortized
issuance costs related to these notes, as applicable, which resulted in a net gain on extinguishment of debt of $0.4 million
in 2016.
(in thousands)
9.00% senior secured notes due in 2022
5.750% notes due in 2017
Total notes repurchased
$
Face Value
25,000
38,577
63,577
$
During 2015, we repurchased $95.2 million aggregate principal of outstanding notes in privately negotiated transactions.
We repurchased these notes at either par or at a price lower than par value, which was partially offset by the write-off of
historical discounts and unamortized issuance costs related to these notes, as applicable, which resulted in a net gain on
extinguishment of debt of $1.2 million in 2015.
Credit Agreement
Our Third Amended and Restated Credit Agreement, as amended (“Credit Agreement”), is secured by a first-priority
security interest in certain of our assets as described below. The Credit Agreement, among other things, provides for
commitments of $65 million and a maturity date of December 18, 2019. In 2014, we entered into a Collateralized Issuance
and Reimbursement Agreement (“LC Agreement”). Pursuant to the terms of the LC Agreement, we may request letters of
credit be issued on our behalf in an aggregate face amount not to exceed $35.0 million. We are required to provide cash
collateral equal to 101% of the aggregate undrawn stated amount of each outstanding letter of credit.
The Credit Agreement was further amended on January 10, 2017, to allow for flexibility in the use of proceeds of certain
real estate transactions. See Note 12.
As of December 25, 2016, there were $30.7 million face amount of letters of credit outstanding under the LC Agreement
and no amounts drawn under the Credit Agreement. The amounts of standby letters of credit declined to $28.7 million in
January 2017.
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.
57
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Senior Secured Notes and Indenture
Substantially all of our subsidiaries guarantee the obligations under the 9.00% Senior Secured Notes due in 2022 (“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 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 includes, but is 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 sheets or shares of
stock and indebtedness of our subsidiaries.
Covenants under the Senior Debt Agreements
Under the Credit Agreement, we are required to comply with a maximum consolidated total leverage ratio measured on a
quarterly basis. As of December 25, 2016, we are required to maintain a consolidated total leverage ratio of not more than
6.00 to 1.00. For purposes of the consolidated total leverage ratio, debt is largely defined as debt, net of cash on hand in
excess of $20 million. As of December 25, 2016, 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) or have certain other baskets available for our use.
The indenture for the 9.00% Notes and the Credit Agreement include 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 those agreements. 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.
Maturities
The following table presents the approximate annual maturities of outstanding long-term debt as of December 25, 2016,
based upon our required payments, for the next five years and thereafter:
Year
2017
2018
2019
2020
2021
Thereafter
Debt principal
Payments
(in thousands)
16,865
—
—
—
—
856,833
873,698
$
$
58
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
6. INCOME TAXES
Income tax provision (benefit) consisted of:
(in thousands)
Current:
Federal
State
Deferred:
Federal
State
Income tax provision (benefit)
Years Ended
December 25, December 27, December 28,
2015
2014
2016
$
17,641 $
2,569
13,317 $
(2,027)
233,247
30,216
(26,857)
(6,418)
$
(13,065) $
(17,642)
(5,445)
(11,797) $
(29,182)
(3,051)
231,230
The effective tax rate expense (benefit) and the statutory federal income tax rate are reconciled as follows:
(in thousands)
Statutory rate
State taxes, net of federal benefit
Changes in estimates
Changes in unrecognized tax benefits
Settlements
Other
Impact on pension transaction
Goodwill impairment
Stock compensation
Effective tax rate
December 25,
2016
Years Ended
December 27,
2015
December 28,
2014
(35.0)%
(4.6)
(0.1)
(0.3)
—
3.1
6.9
—
2.3
(27.7)%
(35.0)%
(2.1)
0.1
0.3
—
—
—
32.5
0.4
(3.8)%
35.0 %
3.0
—
—
(0.1)
0.1
—
—
0.1
38.1 %
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 assets
December 25, December 27,
2016
2015
$
259,684 $
3,659
3,889
4,345
271,577
(3,889)
267,688
233,101
3,586
2,877
3,765
243,329
(2,877)
240,452
136,159
50,323
7,345
13,040
206,867
160,752
50,434
8,301
19,653
239,140
1,312
$
60,821 $
The timing of recording or releasing a valuation allowance requires significant judgment. A valuation allowance is required
when it is more-likely-than-not that all or a portion of deferred tax assets may not be realized. Establishment and removal
of a valuation allowance requires us to consider all positive and negative evidence and to make a judgmental decision
59
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
regarding the amount of valuation allowance required as of a reporting date. The weight given to the evidence is
commensurate with the extent to which it can be objectively verified. In the evaluations performed as of December 25,
2016, and December 27, 2015, we considered all available evidence. The amount of the valuation allowance that we
recorded represents a portion of deferred taxes that we deemed more-likely-than-not that we will not realize the benefits
in future periods. We will continue to evaluate our ability to realize the net deferred tax assets and the remaining valuation
allowance on a quarterly basis.
The valuation allowance relates to state net operating loss and capital loss carryovers increased by $1.0 million and
$0.6 million in 2016 and 2015, respectively.
As of December 25, 2016, we have net operating loss carryforwards in various states totaling approximately
$240.7 million, which expire in various years between 2024 and 2036 if not used. We also have approximately $0.4 million
of state credit carryovers, which expire in various years between 2023 and 2026 if not used.
As of December 25, 2016, we had approximately $19.5 million of long-term liabilities relating to uncertain tax positions
consisting of approximately $16.5 million in gross unrecognized tax benefits (primarily state tax positions before the
offsetting effect of federal income tax) and $3.0 million in gross accrued interest and penalties. If recognized,
approximately $7.8 million of the net unrecognized tax benefits would impact the effective tax rate, with the remainder
impacting other accounts, primarily deferred taxes. It is reasonably possible that a reduction of up to $0.8 million of
unrecognized tax benefits and related interest may occur within the next 12 months as a result of the expiration of statutes
of limitations.
We record interest on unrecognized tax benefits as a component of interest expense, while penalties are recorded as part
of income tax expense. Related to the unrecognized tax benefits noted below, we recorded interest expense (benefit), of
$0.5 million, ($0.3) million and $0.1 million for 2016, 2015 and 2014, respectively. During 2016, our recorded penalty
expense was immaterial. We recorded penalty expense (benefit) of $0.1 million and ($0.1) million during 2015 and 2014,
respectively. Accrued interest and penalties at December 25, 2016, December 27, 2015, and December 28, 2014, were
approximately $3.0 million, $2.5 million and $2.7 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits consists of the following:
(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
Balance at end of fiscal year
$
Years Ended
December 25, December 27, December 28,
2015
13,046 $
4,433
—
1,435
—
(3,293)
15,621 $
2016
15,621 $
294
(177)
1,516
—
(777)
16,477 $
2014
12,889
1
(363)
1,357
(49)
(789)
13,046
$
As of December 25, 2016, the following tax years and related taxing jurisdictions were open:
Taxing Jurisdiction
Federal
California
Other States
Open
Tax Year
2013-2016
2012-2016
2006-2016
Years Under
Exam
—
—
2012-2015
60
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
7. EMPLOYEE BENEFITS
We maintain a qualified defined benefit pension plan (“Pension Plan”), which covers certain eligible employees. Benefits
are based on years of service that continue to count toward early retirement calculations and vesting previously earned.
No new participants may enter the Pension Plan and no further benefits will accrue.
We also have a limited number of supplemental retirement plans to provide certain key employees and retirees 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 $8.7 million, $8.5 million and $8.5 million in 2016, 2015 and
2014, respectively, for these plans. We also provide or subsidize certain life insurance benefits for employees.
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 25, 2016, and December 27, 2015:
(in thousands)
Change in Benefit Obligation
Pension Benefits
Post-retirement Benefits
2016
2015
2016
2015
Benefit obligation, beginning of year
$ 1,931,320 $ 2,051,907 $
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gain)/loss
Gross benefits paid
Plan settlements (1)
Administrative expenses
Benefit obligation, end of year
(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
Plan settlements (1)
Administrative expenses
Fair value of plan assets, end of year
18,800
88,668
—
75,817
(106,639)
(49,500)
(16,559)
11,680
84,994
—
(101,952)
(103,062)
—
(12,247)
$ 1,941,907 $ 1,931,320 $
9,883 $ 10,602
—
368
35
(87)
(1,035)
—
—
9,883
—
389
21
(1,937)
(953)
—
—
7,403 $
Pension Benefits
Post-retirement Benefits
2016
2015
2016
2015
$ 1,349,603 $ 1,478,686 $
102,713
55,817
—
(106,639)
(49,500)
(16,559)
(22,307)
8,533
—
(103,062)
—
(12,247)
$ 1,335,435 $ 1,349,603 $
— $
—
932
21
(953)
—
—
— $
—
—
1,000
35
(1,035)
—
—
—
(1)
During 2016, the pension plan purchased annuities and settled obligations for a group of annuitants including retirees and
surviving beneficiaries who currently receive a benefit of $180.00 per month or less from the Pension Plan.
(in thousands)
Funded Status
Pension Benefits
Post-retirement Benefits
2016
2015
2016
2015
Fair value of plan assets
Benefit obligations
Funded status and amount recognized, end of year
$ 1,335,435 $ 1,349,603 $
— $
(1,941,907)
(1,931,320)
$
(606,472) $
(581,717) $
(7,403)
(7,403) $
—
(9,883)
(9,883)
61
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Amounts recognized in the consolidated balance sheets at December 25, 2016, and December 27, 2015, consists of:
(in thousands)
Current liability
Noncurrent liability
Pension Benefits
2016
2015
$
$
(8,647) $
(8,450) $
(597,825)
(606,472) $
(573,267)
(581,717) $
Post-retirement Benefits
2016
(1,063) $
(6,340)
(7,403) $
2015
(1,298)
(8,585)
(9,883)
Amounts recognized in accumulated other comprehensive income for the years ended December 25, 2016, and December
27, 2015, consist of:
(in thousands)
Net actuarial loss/(gain)
Prior service cost/(credit)
Pension Benefits
Post-retirement Benefits
2016
769,004 $
—
769,004 $
2015
705,853 $
—
2015
2016
(8,568)
(8,745) $
(10,690)
(9,414)
705,853 $ (18,159) $ (19,258)
$
$
The elements of retirement and post-retirement costs are as follows:
(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
Net retirement expenses
Years Ended
December 25, December 27,
2016
2015
December 28,
2014
$
18,800 $
88,668
(108,429)
—
18,382
17,421
(2,645)
14,776 $
11,680 $
84,994
(106,283)
—
22,194
12,585
(2,614)
9,971 $
8,030
91,004
(107,460)
12
16,009
7,595
(2,963)
4,632
$
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
Weighted average assumptions used in calculating expense:
Pension Benefit
Obligations
Post-retirement
Obligations
2016
2015
2016
2015
4.52 % 4.71 % 3.95 % 4.21 %
Pension Benefit Expense
Post-retirement Expense
December 25, December 27, December 28, December 25, December 27, December 28,
2016
2015
2014
2016
2015
2014
Expected long-term return on plan
assets
Discount rate
Contributions and Cash Flows
7.75 %
4.71 %
7.75 %
4.24 %
8.00 %
5.01 %
N/A
4.21 %
N/A
3.69 %
N/A
4.36 %
In February 2016, we voluntarily contributed certain of our real property appraised at $47.1 million to our Pension Plan
62
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
and we entered into leases for the contributed properties. We expected our required pension contribution under the
Employee Retirement Income Security Act to be approximately $2.0 million in 2016, and the contribution of real property
exceeded our required pension contribution for 2016. The contribution and leaseback of these properties in 2016 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 will be recognized on the contributions until the sale of the property by the Pension
Plan. At the time of our contribution, our pension obligation was reduced and a financing obligation was recorded. The
financing obligation will be reduced by a portion of the lease payments made to the Pension Plan each month. The balance
of this obligation at December 25, 2016, was $51.6 million and relates to certain real properties that were contributed to
the Pension Plan in 2016 and 2011.
We did not have a required cash minimum contribution to the Pension Plan in 2015 and made no voluntary cash
contributions. In 2014, we contributed $25 million of cash to the Pension Plan.
Expected benefit payments to retirees under our retirement and post-retirement plans over the next 10 years are
summarized below:
(in thousands)
2017
2018
2019
2020
2021
2022-2026
Total
Retirement Post-retirement
$
Plans (1)
103,798 $
105,434
110,275
110,621
114,873
607,802
$ 1,152,803 $
Plans
1,063
961
877
793
713
2,561
6,968
(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 25, 2016, and December 27, 2015, the target allocations for the Pension Plan assets were 61% equity
securities, 33% debt securities and 6% real estate securities.
63
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
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 25, 2016:
(in thousands)
Cash and cash equivalents
Mutual funds
Common collective trusts
Real estate
Private equity funds
Total
Pending trades
2016
Plan Assets
Level 1
Level 2
Level 3
Total
$
677 $
444,698
—
—
—
$ 445,375
$
— $
—
816,435
—
—
816,435
— $
—
—
57,531
8,149
$ 65,680
677
444,698
816,435
57,531
8,149
$ 1,327,490
7,945
$ 1,335,435
The table below summarizes changes in the fair value of the Pension Plan’s Level 3 investment assets held for the year
ended December 25, 2016:
(in thousands)
Beginning Balance, December 27, 2015
Purchases, issuances, sales, settlements
Realized gains (losses)
Transfer in or out of level 3
Unrealized gains (losses)
Ending Balance, December 25, 2016
Real Estate Private Equity Total
$ 50,360 $
47,130
8,746
(43,046)
(5,659)
$ 57,531 $
7,282 $ 57,642
46,944
(186)
8,746
—
(43,046)
—
(4,606)
1,053
8,149 $ 65,680
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 27, 2015:
(in thousands)
Cash and cash equivalents
Mutual funds
Corporate debt instruments
Common collective trusts
Real estate
Private equity funds
Total
Pending trades
2015
Plan Assets
Level 1
Level 2
Level 3
Total
— $
—
112
845,686
—
—
845,798
— $
—
—
—
50,360
7,282
$ 57,642
844
436,316
112
845,686
50,360
7,282
$ 1,340,600
9,003
$ 1,349,603
$
844 $
436,316
—
—
—
—
$ 437,160
$
64
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
The table below summarizes changes in the fair value of the Pension Plan’s Level 3 investment assets held for the year
ended December 27, 2015:
(in thousands)
Beginning Balance, December 28, 2014
Realized gains
Transfer in or out of level 3
Unrealized gains
Ending Balance, December 27, 2015
Real Estate Private Equity Total
$ 47,579 $
2,479
(3,936)
4,238
$ 50,360 $
6,636 $ 54,215
2,479
(3,936)
4,884
7,282 $ 57,642
—
—
646
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.
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. In February 2016, we contributed certain of our real property appraised at $47.1 million to our Pension Plan,
and we entered into lease-back arrangements for the contributed facilities. The Pension Plan obtained independent
appraisals of the property, and based on these appraisals, the Pension Plan recorded the contribution at fair value. This
contribution was measured at fair value using Level 3 inputs, which primarily consisted of expected cash flows and
discount rate that we estimated market participants would seek for bearing the risk associated with such assets. 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. We leased back the contributed facilities under 11-year leases
with initial annual payments totaling approximately $3.5 million. A similar contribution of properties was made to the
Pension Plan in 2011, and the accounting treatment for both contributions is described below.
The contributions and leasebacks of these properties are treated as financing transactions and, accordingly, we continue to
depreciate the carrying value of the properties in our financial statements. No gain or loss will be recognized on the
contributions of any property until the sale of the property by the Pension Plan. At the time of our contributions, our
pension obligation was reduced and our financing obligations were recorded equal to the fair market value of the properties.
The financing obligations are reduced by a portion of the lease payments made to the Pension Plan each month, and
increased for imputed interest expense on the obligations to the extent imputed interest exceeds monthly payments. The
long-term balance of this obligation at December 25, 2016, and December 27, 2015, was $51.6 million and $32.4 million,
respectively, and relates to the contributions to the Pension Plan in 2016 and 2011.
Certain properties from the 2011 contributions have been sold by the Pension Plan and others may be sold by the Pension
Plan in the future.
In May 2016, the Pension Plan sold the Charlotte real property for approximately $34.3 million, and we terminated our
lease on the property. The property was included in the 2011 contributions to the Pension Plan discussed previously. As a
result of the sale by the Pension Plan, we recognized a $1.1 million loss on the sale of the Charlotte property in the other
operating expenses on the consolidated statement of operations for 2016. At the time of sale, our financial obligation was
reduced by $25.1 million and we derecognized the assets with a carrying value of $26.2 million from PP&E.
In October 2016, the Pension Plan sold the Olympia real property for approximately $4.8 million. The property was
included in the 2011 contributions to the Pension Plan discussed previously. As a result of the sale by the Pension Plan,
65
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
we recognized approximately $0.2 million loss on the sale of the Olympia property in other operating expenses on the
consolidated statement of operations during the quarter ended December 25, 2016. At the time of sale, our financial
obligation was reduced by $2.6 million and we derecognized the assets with a carrying value of $2.8 million from PP&E.
Private equity funds. Private equity funds represent investments in limited partnerships, which invest in start-up or other
private companies. Fair value was estimated based on valuations of comparable public companies, recent sales of
comparable private and public companies and discounted cash flow analysis of portfolio companies.
401(k) Plan
We have a deferred compensation plan (“401(k) plan”), which enables qualified employees to voluntarily defer
compensation. The 401(k) plan includes a matching company contribution and a supplemental contribution that is tied to
our performance. We suspended our matching contributions to the 401(k) plan in 2009 and as of December 25, 2016, we
have not reinstated that benefit.
8. CASH FLOW INFORMATION
Cash paid for interest and income taxes and other non-cash activities consisted of the following:
(in thousands)
Interest paid (net of amount capitalized)
Income taxes paid (net of refunds)
Year Ended
December 25, December 27, December 28,
2015
80,514 $ 121,375
77,622
207,043
2016
73,373
(2,454)
2014
$
$
Other non-cash investing and financing activities related to pension plan transactions:
Increase of financing obligation for contribution of real property to pension plan
Reduction of pension obligation for contribution of real property to pension plan
Reduction of financing obligation due to sale of real properties by pension plan
Reduction of PP&E due to sale of real properties by pension plan
47,130
(47,130)
(27,632)
(29,002)
(4,126)
(4,644)
The income tax payments in 2015, were primarily related to the net taxes paid for a gain on the sale of a previous owned
equity investment in the fourth quarter of 2014, offset by tax losses on bond repurchases in the fourth quarter of 2014.
While the transactions occurred in the fourth quarter 2014, the actual tax payments were made in the first quarter of 2015.
Other non-cash investing and financing activities related to pension plan transactions consists of the contribution of real
property to the Pension Plan in 2016, the sale of two of the properties by the Pension Plan in 2016, described further in
Note 7, and the sale of one of the properties by the Pension Plan in 2014.
Other non-cash investing activities from continuing operations, related to the recognition of intangible assets during 2016
and 2014, were $3.1 million and $3.1 million, respectively. There were no such transactions in 2015.
66
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
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 25, 2016:
(in thousands)
Purchase obligations (1)
Operating leases (2)
Lease obligations
Sublease income
Net lease obligation
Workers’ compensation obligations (3)
Total (4)
Payments Due By Period
2020
$ 15,237 $ 6,747 $ 6,490 $ 5,484 $ 2,738 $ 18,294 $ 54,990
Thereafter
Total
2021
2019
2018
2017
12,008
(3,040)
8,968
2,079
71,036
(7,692)
63,344
12,162
$ 26,284 $ 16,272 $ 15,093 $ 13,958 $ 9,992 $ 48,897 $ 130,496
10,234
(2,212)
8,022
1,503
25,125
(363)
24,762
5,841
9,054
(1,584)
7,470
1,133
6,740
(217)
6,523
731
7,875
(276)
7,599
875
(1)
(2)
(3)
Represents our purchase obligations primarily related to printing outsource agreements and capital expenditures
for PP&E expiring at various dates through 2028.
Represents minimum rental commitments under operating leases with non-cancelable terms in excess of one year
and sublease income from leased space with non-cancelable terms in excess of one year. 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 $15.4 million, $11.6 million and $12.5 million
in 2016, 2015 and 2014, respectively. 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
non-cancellable agreements that expire at various dates through 2023. Sublease income from operating leases
totaled $4.6 million, $4.6 million and $2.2 million in 2016, 2015 and 2014, respectively.
Represents the expected insurance payments of undiscounted ultimate losses, net of estimated insurance
recoveries of approximately $3.2 million, and was 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 25, 2016, 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 25, 2016, and December 27, 2015, were $12.2 million and $16.6 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 25, 2016, and December 27, 2015, the discount rate used was 1.6% and
1.8%, respectively. The present value of all self-insurance reserves, net of estimated insurance recoveries, for our
workers’ compensation liability recorded at December 25, 2016, and December 27, 2015, was $13.1 million and
$15.3 million, respectively.
Legal Proceedings and other contingent claims
In December 2008, carriers of The Fresno Bee filed a class action lawsuit against us and The Fresno Bee in the Superior
Court of the State of California in Fresno County captioned Becerra v. The McClatchy Company (“Fresno case”) alleging
that the carriers were misclassified as independent contractors and seeking mileage reimbursement. In February 2009, a
substantially similar lawsuit, Sawin v. The McClatchy Company, involving similar allegations was filed by carriers of The
Sacramento Bee (“Sacramento case”) in the Superior Court of the State of California in Sacramento County. The class
67
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
consists of roughly 5,000 carriers in the Sacramento case and 3,500 carriers in the Fresno case. The plaintiffs in both cases
are seeking unspecified restitution for mileage reimbursement. With respect to the Sacramento case, in September 2013,
all wage and hour claims were dismissed and the only remaining claim is an equitable claim for mileage reimbursement
under the California Civil Code. In the Fresno case, in March 2014, all wage and hour claims were dismissed and the only
remaining claim is an equitable claim for mileage reimbursement under the California Civil Code.
The court in the Sacramento case trifurcated the trial into three separate phases: the first phase addressed independent
contractor status, the second phase will address liability, if any, and the third phase will address restitution, if any. On
September 22, 2014, the court in the Sacramento case issued a tentative decision following the first phase, finding that the
carriers that contracted directly with The Sacramento Bee during the period from February 2005 to July 2009 were
misclassified as independent contractors. We objected to the tentative decision but the court ultimately adopted it as final.
The court has not yet established a date for the second and third phases of trial concerning whether The Sacramento Bee
is liable to the carriers in the class for mileage reimbursement or owes any restitution. In June 2016, The McClatchy
Company was dismissed from the lawsuit, leaving The Sacramento Bee as the sole defendant.
The court in the Fresno case bifurcated the trial into two separate phases: the first phase addressed independent contractor
status and liability for mileage reimbursement and the second phase was designated to address restitution, if any. The first
phase of the Fresno case began in the fourth quarter of 2014 and concluded in late March 2015. On April 14, 2016, the
court in the Fresno case issued a statement of final decision in favor of us and The Fresno Bee. Accordingly, there will be
no second phase.
In January 2016, Ponderay Newsprint Company (“PNC”), a general partnership that owns and operates a newsprint mill
in the state of Washington, and of which three of our wholly-owned subsidiaries own a combined 27.0% interest, filed a
complaint in the Superior Court of the State of Washington seeking declaratory judgment and alleging breach of contract
and breach of the duty of good faith and fair dealing against Public Utility District No. 1 of Pend Oreille County (“PUD”)
relating to the industrial power supply contracts (“Supply Contracts”) between PNC and the PUD. This complaint
followed the PUD’s assertion that PNC had effected a termination of the Supply Contracts by the submission of its most
recent power schedule, which called for an uncertain, and probable declining, need for power between 2017-2019. Based
on PNC’s fervent belief that its power schedule was fully compliant with the Supply Contracts, the aforementioned
complaint was filed. In March 2016, the PUD filed a counterclaim against PNC and a third-party complaint against the
individual partners of PNC, alleging breach of contract.
We continue to defend these actions vigorously and expect that we will ultimately prevail. As a result, we have not
established a reserve in connection with the cases. While we believe that a material impact on our consolidated financial
position, results of operations or cash flows from these claims is unlikely, given the inherent uncertainty of litigation, a
possibility exists that future adverse rulings or unfavorable developments could result in future charges that could have a
material impact. We have and will continue to periodically reexamine our estimates of probable liabilities and any
associated expenses and make appropriate adjustments to such estimates based on experience and developments in
litigation.
Other than the cases described above, 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 for these matters. However, we currently believe, after reviewing such actions with 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 25, 2016, we had $30.7 million of standby letters of credit secured under the LC Agreement. The
amounts of standby letters of credit declined to $28.7 million in January 2017.
68
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
10. COMMON STOCK AND STOCK PLANS
Common Stock
As discussed previously, all share amounts have been restated to reflect the reverse stock split that became effective on
June 7, 2016, and applied retrospectively.
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.
In 2015, our Board of Directors authorized a share repurchase program for the repurchase of up to $15.0 million of our
Class A Common Stock through December 31, 2016. This program was further amended in May 2016 to authorize a total
of up to $20.0 million to repurchase shares. The shares were repurchased from time to time depending on prevailing market
prices, availability, and market conditions, among other factors. During the year ended December 25, 2016, we
repurchased approximately 0.7 million shares at an average price of $11.83 per share. Inception to date, we repurchased
1.3 million shares at an average price of $12.28 per share or $15.6 million of the total buyback approved.
Stock Plans
During 2016, we had two stock-based compensation plans, which are described below. These descriptions have been
adjusted to reflect the 1 for 10 reverse stock split, as discussed previously.
The McClatchy Company 2004 Stock Incentive Plan (“2004 Plan”) reserved 900,000 Class A Common shares for issuance
to key employees and outside directors. The options vest in installments over four years, and once vested are exercisable
up to 10 years from the date of grant. In addition, 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 so that no additional awards could be granted
under the plan.
The McClatchy Company 2012 Omnibus Incentive Plan (“2012 Plan”) was adopted in 2012 and 500,000 shares of Class
A Common Stock were reserved for issuance under the 2012 Plan 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
69
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
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 re-pricing of stock options or SARs without prior shareholder approval; and no reload or “evergreen” share
replenishment features.
Stock Plans Activity
In 2016, we granted 4,500 shares of Class A Common Stock to each non-employee director under the 2012 Plan. In 2015,
we adopted The McClatchy Company Director Deferral Program under the 2012 Plan beginning with the 2016 awards.
Three directors elected to defer issuance of their 2016 grants. As such, 31,500 shares were issued and 13,500 were deferred
until the director terminates from the board of directors. In both 2015 and 2014, we granted 1,500 shares of Class A
Common Stock to each non-employee director, resulting in the issuance of 15,000 shares from the 2012 Plan in each of
2015 and 2014.
We granted restricted stock units (“RSUs”) at the grant date fair value to certain key employees under the 2012 Plan as
summarized below. Fair value for RSUs is based on our Class A Common Stock closing price, as reported by the NYSE,
on the date of grant. The RSUs generally vest over three years after grant date but terms of each grant are at the discretion
of the compensation committee of the board of directors.
The following table summarizes the RSUs stock activity:
Nonvested — December 29, 2013
Granted
Vested
Forfeited
Nonvested — December 28, 2014
Granted
Vested
Forfeited
Nonvested — December 27, 2015
Granted
Vested
Forfeited
Nonvested — December 25, 2016
Weighted
Average Grant
Date Fair
Value
$
$
$
$
$
$
$
$
$
$
$
$
$
25.00
46.10
29.20
29.30
36.20
22.80
28.50
30.80
29.83
11.80
24.57
16.32
18.17
RSUs
123,165
85,695
(71,715)
(4,190)
132,955
136,530
(97,000)
(18,605)
153,880
170,440
(112,895)
(7,280)
204,145
As of December 25, 2016, the total fair value of the RSUs that vested during the period was $1.4 million. As of December
25, 2016, there were $2.1 million of unrecognized compensation costs for nonvested RSUs, which are expected to be
recognized over 1.6 years.
When SARs are granted, they are granted at grant date fair value to certain key employees from the 2012 Plan. Fair value
for SARs is determined using a Black-Scholes option valuation model that uses various assumptions, including expected
life in years, volatility and risk-free interest rate. 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.
70
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
Outstanding SARs are summarized as follows:
Outstanding December 29, 2013
Exercised
Forfeited
Expired
Outstanding December 28, 2014
Forfeited
Expired
Outstanding December 27, 2015
Forfeited
Expired
Outstanding December 25, 2016
Vested and Expected to Vest December 25, 2016
Options exercisable:
December 28, 2014
December 27, 2015
December 25, 2016
Weighted
Average
Aggregate
Intrinsic Value
Exercise Price (in thousands)
2,384
3,138
96.90 $
28.63 $
33.79
357.42
92.81 $
26.09
207.56
73.49 $
27.60
322.20
50.29 $
50.31 $
$
$
$
1,542
—
—
—
716
—
—
SARs
611,050 $
(167,825) $
(6,725) $
(51,625) $
384,875 $
(6,875) $
(57,875) $
320,125 $
(50) $
(27,325) $
292,750 $
292,469 $
271,975
277,413
279,100
As of December 25, 2016, there were $0.3 thousand of unrecognized compensation costs related to SARs granted under
our plans. The cost is expected to be recognized over a weighted average period of 0.2 years.
The weighted average remaining contractual life of SARs exercisable at December 25, 2016, was 3.1 years. The weighted
average remaining contractual life of options vested and expected to vest at December 25, 2016, was 3.2 years.
The following tables summarize information about SARs outstanding in the stock plans at December 25, 2016:
Range of Exercise
Prices
$17.00 – $27.60
$34.20 – $97.30
$113.00 – $409.50
Total
Stock-Based Compensation
Average
Remaining
Contractual
Life
Weighted
Average
Weighted
Average
SARs
Exercise Price Exercisable Exercise Price
24.49
39.68
133.48
51.54
123,475 $
100,325 $
55,300 $
279,100 $
24.50
39.68
133.48
50.29
2.86 $
2.42 $
0.85 $
2.33 $
SARs
Outstanding
137,125
100,325
55,300
292,750
Years Ended
December 25, December 28, December 28,
2015
2016
2014
$
3,130 $
3,178 $
3,479
Total stock-based compensation expense consisted of the following:
(in thousands)
Stock-based compensation expense
71
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Our business is somewhat seasonal with peak revenues and profits generally occurring in the fourth quarter of each year
as a result of increased advertising activity during the holiday season. The other quarters are historically slower quarters
for revenues and profits. Our quarterly results are summarized as follows:
Quarters Ended
(in thousands, except per share amounts)
Net revenues
Operating income (loss)
Income (loss) from continuing operations
Net income (loss)
March 27,
2016 (*)
$
$
$
$
237,979 $
(6,047) $
(12,741) $
(12,741) $
June 26,
2016
242,234 $
(2,693) $
(14,734) $
(14,734) $
September 25, December 25,
2016
234,701 $
1,535 $
(9,804) $
(9,804) $
2016
262,179
29,745
3,086
3,086
Net income (loss) per share - diluted
$
(1.58) $
(1.89) $
(1.30) $
0.40
Quarters Ended
(in thousands, except per share amounts)
Net revenues
Operating income (loss)
Income (loss) from continuing operations
Net income (loss)
March 29,
2016 (*)
$
$
$
$
257,178 $
(1,158) $
(11,346) $
(11,346) $
June 28,
2015
262,360 $
(288,966) $
(296,497) $
(296,497) $
September 27, December 27,
2015
251,211 $
8,389 $
(1,149) $
(1,149) $
2015
285,825
36,396
8,830
8,830
Net income (loss) per share - diluted
$
(1.30) $
(33.95) $
(0.15) $
1.04
(*) The per share prices were retroactively adjusted to reflect the one-for–ten (1:10) reverse stock split completed on June 7, 2016.
The following are significant activities in 2016:
• During the quarter ended December 25, 2016, we recognized masthead impairment charges of $9.2 million
as described in Note 1 and Note 4.
The following are significant activities in 2015:
• During the quarter ended June 28, 2015, we recognized a goodwill impairment charge of $290.9 million and
masthead impairment charges of $9.5 million as described in Note 1 and Note 4.
• During the quarter ended December 27, 2015, we recognized masthead impairment charges of $4.4 million
as described in Note 1 and Note 4.
12. SUBSEQUENT EVENTS
In January 2017, we announced that we have entered into separate agreements to sell and lease back real property owned
by The Sacramento Bee in Sacramento, California and The State Media Company in Columbia, South Carolina for total
gross proceeds of $67.8 million.
The Sacramento Bee entered into a transaction to sell its real property which includes The Sacramento Bee building and
surrounding land and buildings. Simultaneously with the closing of the sale, we will enter into a 15-year lease with the
buyer to leaseback the real property with initial annual lease payment of approximately $4.6 million. This transaction
excludes a parking garage formerly owned by The Sacramento Bee, which was sold in December 2016.
In a separate but similar transaction, The State Media Company contracted to sell its real property, including The State
building and surrounding land. We will enter into a 15- year lease with the buyer with initial annual lease payment of
72
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2016, DECEMBER 27, 2015, AND DECEMBER 28, 2014
approximately $1.6 million.
We expect to close these transactions in the second quarter of 2017, subject to customary conditions. A repurchase clause
included in both of the lease agreements, to be entered into at the closing of the transactions, will offer an option for us to
repurchase the real property at the end of the 15-year lease term. As a result, the leases are expected to be accounted for
as financing leases and accordingly, we continue to depreciate the carrying value of the properties in our financial
statements. No gain or loss will be recognized on the sale and lease back of any property until we no longer have a
continuing involvement in the property. Lease payments will reduce the related lease obligation on the balance sheet and
include interest expense associated with the obligation.
Upon closing of the transactions, we are required to first offer the after-tax proceeds from the sales at par to the secured
note holders, in accordance with the indenture for our 9.00% Notes. Under the indenture for our unsecured notes, we have
90 calendar days to reduce debt equal to approximately $48.0 million (subject to change based on market rates at the
closing of the transactions), which reflects the attributable debt associated with the leases. Should the secured note holders
choose not to participate in the par offer, we may alternatively seek to reduce unsecured bonds with the after-tax proceeds
in order to meet our 90-calendar day requirement for debt reduction.
In connection with these sales and leaseback transactions, and certain similar transactions under consideration, we executed
a fourth amendment to our Credit Agreement. The fourth amendment allows the after-tax proceeds from these sales and
leaseback transactions that are not claimed by secured note holders prior to expiration of a par offer to be used to repurchase
any of our unsecured notes in the open market to meet the debt reduction requirements noted above. We could also decide
to hold cash in excess of required debt reduction amounts on our consolidated balance sheet or use the cash for other
corporate purposes.
73
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 fourth fiscal quarter of fiscal
2016 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 25, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in the Internal Control – Integrated Framework (2013 framework).
Based on management’s assessment and those criteria, management believes that the Company’s internal control over
financial reporting was effective as of December 25, 2016.
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.
74
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 25, 2016.
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 25, 2016.
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 25, 2016.
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 25, 2016.
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 25, 2016.
75
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.
ITEM 16. FORM 10-K SUMMARY
None.
76
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/ Craig I. Forman
Craig I. Forman,
President, Chief Executive Officer
and Director
March 3, 2017
77
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
SIGNATURES
/s/ Craig I. Forman
Craig I. Forman
/s/ R. Elaine Lintecum
R. Elaine Lintecum
/s/ Stephanie Shepherd
Stephanie Shepherd
/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/ Brown McClatchy Maloney
Brown McClatchy Maloney
/s/ William B. McClatchy
William B. McClatchy
/s/ Clyde W. Ostler
Clyde W. Ostler
/s/ Frederick R. Ruiz
Frederick R. Ruiz
/s/ Maria Thomas
Maria Thomas
President, Chief Executive Officer
And Director
(Principal Executive Officer)
Vice President-Finance, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
Controller
(Principal Accounting Officer)
Chairman of the Board
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
Director
March 3, 2017
78
INDEX OF EXHIBITS
(Item 15 (a) 3.)
Incorporated by reference herein
Exhibit
Number
3.1
3.2
3.3
Description
The Company’s Restated Certificate of
Incorporation, dated June 26, 2006
Form
10-Q
Exhibit
3.1
The Company’s Bylaws as amended and restated
8-K
effective March 20, 2012
Amended and restated Certificate of Incorporation of
8-K
The McClatchy Company
3.1
3.1
File Date
June 25, 2006
March 22, 2012
June 7, 2016
10.1
Amended and Restated Guaranty dated as of
8-K
10.3
September 30, 2008
10.2
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
8-K
10.2
September 30, 2008
10.3
Commitment Reduction and Amendment and
8-K
10.1
June 25, 2012
Restatement Agreement, dated as of June 22, 2012,
among the Company and Bank of America, N.S., as
Administrative Agent
10.4
Third Amended and Restated Credit Agreement
8-K
10.1
December 20, 2012
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
10.5
Amendment No. 1 to the Third Amended and
8-K
10.1
October 23, 2014
Restated Credit Agreement and Amendment No. 1 to
the Security Agreement, dated October 21, 2014,
between the Company and Bank of America, N.A.,
as Administrative Agent.
10.6
Amendment No. 4 to the Third Amended and
8-K
10.2
January 11, 2017
Restated Credit Agreement and Amendment No. 1 to
the Security Agreement, dated January 10, 2017, by
and between the Company and Bank of America,
N.A., as Administrative Agent.
10.7
Collateralized Issuance and Reimbursement
8-K
10.2
October 23, 2014
Agreement, dated October 21, 2014, between the
Company and Bank of America, N.A
10.8
Indenture, dated as of November 4, 1997, between
S-3
4.1
October 10, 1997
10.9
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]
8-K
4
June 1, 2001
79
Exhibit
Number
10.10
Description
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]
Incorporated by reference herein
Form
8-K
Exhibit
4.1
File Date
November 4, 2004
10.11
Third Supplemental Indenture, dated as of
8-K
4.1
August 22, 2005
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]
10.12
Fourth Supplemental Indenture dated June 27, 2006,
10-Q
10.4
June 25, 2006
10.13
10.14
10.15
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
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
8-K
4.2
December 20, 2012
8-K
4.3
December 20, 2012
10-Q
10.42
June 26, 2011
10.16
* The McClatchy Company Management Objective
10-K
Plan Description.
10.17
* Amended and Restated Supplemental Executive
10-K
Retirement Plan
10.18
* Amendment Number 1 to The McClatchy Company
8-K
Supplemental Executive Retirement Plan
10.19
* Amended and Restated McClatchy Company Benefit
8-K
Restoration Plan
10.20
* Amended and Restated McClatchy Company Bonus
8-K
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
10.21
* The Company’s 2004 Stock Incentive Plan, as
10-Q
10.25
June 29, 2008
amended and restated
10.22
* Form of 2004 Stock Incentive Plan Nonqualified
8-K
Stock Option Agreement
10.23
* Form of Restricted Stock Agreement related to the
8-K
Company’s 2004 Stock Incentive Plan
10.24
* Form of Restricted Stock Unit Agreement related to
8-K
99.1
99.1
10.1
December 16, 2004
January 28, 2005
December 18, 2009
the Company’s 2004 Stock Incentive Plan
10.25
* The McClatchy Company 2012 Omnibus Incentive
Plan
10.26
10.27
* Form of Restricted Stock Unit Agreement under The
McClatchy Company 2012 Omnibus Incentive Plan
* Form of Stock Appreciation Right Agreement under
The McClatchy Company 2012 Omnibus Incentive
Plan
DEF
14A
8-K
8-K
Appendix A
April 2, 2012
10.3
10.2
May 18, 2012
May 18, 2012
80
Exhibit
Number
10.28
10.29
10.30
10.31
10.32
10.33
Description
* Employment Agreement between the Company and
Patrick Talamantes dated February 6, 2015
* 2012 Senior Executive Retention Bonus Plan
* Form of Indemnification Agreement between the
Company and each of its officers and directors
* The McClatchy Company Director Deferral Program
under The McClatchy Company 2012 Omnibus
Incentive Plan
* Form of Stock Award Deferral Election Agreement
under The McClatchy Company 2012 Omnibus
Incentive Plan
Unit Purchase Agreement by and among Classified
Ventures, LLC, Gannett Co., Inc., Tribune Media
Company, The McClatchy Company, Graham
Holdings Company, and A. H. Belo, and certain of
their respective wholly-owned subsidiaries, dated
August 5, 2014
Incorporated by reference herein
Form
8-K
8-K
8-K
Exhibit
10.1
10.4
99.1
File Date
February 6, 2015
May 18, 2012
May 23, 2005
10-K
10.30
December 27, 2015
10-K
10.31
December 27, 2015
8-K
10.1
August 6, 2014
10.34
Consulting Agreement dated July 1, 2015 by and
8-K
between Robert J. Weil and the McClatchy Company
10.35
Form of Contribution Agreement dated February 11,
8-K
10.1
10.1
July 2, 2015
February 12, 2016
12
21
23
31.1
31.2
2016
Computation of Earnings to Fixed Charges
Subsidiaries of the Company
Consent of Deloitte & Touche 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
** Certification of the Chief Financial Officer of The
McClatchy Company pursuant to 18 U.S.C.
Section 1350
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
*
**
Compensation plans or arrangements for the Company’s executive officers and directors
Furnished, not filed
81
The McClatchy Company
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
(in thousands of dollars, except ratio data)
Exhibit 12
Year Ended
December 25, December 27, December 28, December 29, December 30,
2014
2012
2016
2015
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
Total fixed charges
Earnings Computation
Income (loss) from continuing operations
before income taxes (1)
Earnings of equity investments
Impairment related charge recorded by equity investee (2)
Interest on unrecognized tax benefits
Distributed income of equity investees (3)
Add: fixed charges
Less: capitalized interest
Total earnings (loss) as adjusted
$
83,168 $
323
83,491
(470)
(3,024)
5,528
85,525
85,973 $
100
86,073
293
(3,550)
4,319
87,135
127,503 $
434
127,937
(131)
(6,063)
4,859
126,602
135,381 $
798
136,179
735
(6,673)
4,585
134,826
151,334
748
152,082
11,689
(9,821)
5,666
159,616
(47,258)
(12,492)
—
470
6,000
85,525
(323)
31,922 $
(311,959)
(10,086)
7,500
(293)
14,960
87,135
(100)
(212,843) $
607,207
(19,084)
—
131
162,329
126,602
(434)
876,751 $
28,103
(42,651)
—
(735)
42,436
134,826
(798)
161,181 $
(27,691)
(31,935)
—
(11,689)
38,600
159,616
(748)
126,153
Ratio Of Earnings to Fixed Charges (4)
0.37
—
6.93
1.20
0.79
(1)
(2)
(3)
(4)
The income from continuing operations before taxes in 2015 includes non-cash impairment charges of $304.8
million for goodwill and intangibles, and 2014 includes a gain on sale of our equity investments of $561.0 million.
Reflects the Company's portion of loss related to an impairment and it is recorded in "Equity income in
unconsolidated companies, net" in the Consolidated Statements of Operations.
The distributed income of equity investees in 2014 includes the Company's portion (approximately $147 million)
of Classified Ventures LLP's sale of the Apartments.com business.
Earnings were inadequate to cover fixed charges by $214 million for the year ended December 27, 2015, as a
result of non-cash charges of $304.8 million.
THE MCCLATCHY COMPANY
SUBSIDIARIES
Exhibit 21
The following is a list of subsidiaries of the Company as of December 25, 2016, omitting subsidiaries which, considered
in the aggregate, would not constitute a significant subsidiary.
Name of Entity
Aboard Publishing, 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.
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
Jurisdiction of Organization
Florida
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
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 Registration Statements No. 333-181167 on Form S-8 and No. 333-47909
on Form S-3 of our report dated March 3, 2017, 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 25, 2016.
Exhibit 23
/s/ Deloitte & Touche LLP
Sacramento, California
March 3, 2017
Exhibit 31.1
I, Craig I. Forman, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of The McClatchy Company;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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 3, 2017
/s/ Craig I. Forman
Craig I. Forman
Chief Executive Officer
Exhibit 31.2
I, R. Elaine Lintecum, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of The McClatchy Company;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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 3, 2017
/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 25, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig I.
Forman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: March 3, 2017
/s/ Craig I. Forman
Craig I. Forman
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 25, 2016 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: March 3, 2017
/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.
(This page has been left blank intentionally.)
(This page has been left blank intentionally.)
Stockholder Information
(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:257)(cid:70)(cid:72)
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:73)(cid:257)(cid:70)(cid:72)(cid:85)(cid:86)
Directors
Craig I. Forman
President and Chief Executive Officer,
The McClatchy Company
Elizabeth Ballantine
President, EBA Associates
Leroy T. Barnes Jr.
Chairman of the Board
Kevin S. McClatchy
(cid:50)(cid:73)(cid:257)(cid:70)(cid:72)(cid:85)(cid:86)
Craig I. Forman
President and Chief Executive Officer
Former Vice President and Treasurer,
PG&E Corporation
Terrance E. Geiger
Vice President, Technology
Molly Maloney Evangelisti
Former Special Projects Coordinator,
The Sacramento Bee
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
Tim Grieve
Vice President, News
Christian A. Hendricks
Vice President, Products, Marketing
and Innovation
R. Elaine Lintecum
Vice President, Chief Financial Officer
and Treasurer
Billie McConkey
Vice President, Human Resources,
General Counsel and Secretary
William B. McClatchy
Andrew Pergam
Entrepreneur, Journalist and
Co-founder of Index Investing, LLC
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.
Maria Thomas
C-Level startup executive, former
Chief Executive Officer at Etsy and
Senior Vice President and General
Manager NPR Digital
Vice President, Video and New Ventures
Mark Zieman
Vice President, Operations
Stephanie Shepherd
Controller
Stockholder Information
2100 Q Street
Sacramento, CA 95816
(916) 321-1844
www.mcclatchy.com
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: Investor Relations Manager
P. O. Box 15779
Sacramento, CA 95852
Annual Meeting
The annual meeting of stockholders will
be held on Wednesday, May 17, 2017,
at 9 a.m. Pacific time at the Vizcaya
Pavilion, 2019 21st Street, Sacramento,
CA 95818.
(cid:38)(cid:72)(cid:85)(cid:87)(cid:76)(cid:257)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:73)(cid:257)(cid:70)(cid:72)(cid:85)(cid:86)
The company submitted its Annual CEO
Certification for 2016 to the New York
Stock Exchange on June 17, 2016. 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 25, 2016, 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