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 30, 2018
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
Title of each class
Class A Common Stock, par value $.01 per share
Name of each exchange on which registered
NYSE American LLC
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 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 every Interactive Data File required to be submitted 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, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 NYSE American LLC on June 29, 2018, 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 $69.7 million. For purposes of the foregoing
calculation only, as required by Form 10-K, the Registrant has included in the shares owned by affiliates, the beneficial ownership of Common Stock of officers and
directors of the Registrant and members of their families, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.
Shares outstanding as of March 1, 2019:
Class A Common Stock
Class B Common Stock
5,408,396
2,428,191
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be filed pursuant to Regulation 14A within 120 days after our fiscal
year end of December 30, 2018, are incorporated by reference in Part III of this Annual Report on Form 10-K.
(This page has been left blank intentionally.)
TABLE OF CONTENTS
PART I
Business
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
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A.
Controls and Procedures
Item 9B. Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Exhibits, Financial Statement Schedules
Form 10-K Summary
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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.
These risks and uncertainties include:
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significant competition in the market for news and advertising;
general economic and business conditions;
changes in technology, services and standards, and changes in consumer behavior;
ability to grow and manage our digital businesses;
our ability to successfully execute cost-control measures, including selling excess assets;
any changes to our business and operations that may result in goodwill and masthead impairment charges;
any harm to our reputation, business and results of operations resulting from data security breaches and other
threats and disruptions;
financial risk arising from our consolidated debt;
restrictions to our business due to covenants in our bond indenture and revolving credit agreement;
our ability to repay our existing indebtedness and meet our other obligations;
potential increase in contributions to our qualified defined benefit pension plan in the next several years;
fluctuating price of newsprint or disruptions in newsprint supply chain;
any labor unrest;
unsuccessful returns from our venture investments;
accelerated decline in print circulation volume;
our reliance on third party vendors;
developments in the laws and regulations to which we are subject resulting in increased costs and lower
advertising revenues; and
adverse results from litigation or governmental investigations.
Although the forward-looking statements in this report reflect the good faith judgment of our management, such statements
can only be based on facts and factors currently known by them. In light of these risks and uncertainties, you are cautioned
not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation
to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances
that may arise after the date of this report. All written and oral forward-looking statements made subsequent to the date of
this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
ITEM 1. BUSINESS
Overview
The McClatchy Company (the “Company,” “we,” “us” or “our”) provides strong, independent local journalism to 30
communities with operations in 14 states, as well as selected national news coverage through our Washington D.C. based
bureau. We also provide a full suite of digital marketing services, both through our local sales teams based in the
communities we serve, as well as through excelerate®, our national digital marketing agency. We consider our journalism
to be in the public interest and strive to be essential to our audiences and advertisers through a wide array of storytelling
formats. We are a publisher of well-respected brands such as the Miami Herald, The Kansas City Star, The Sacramento
Bee, The Charlotte Observer, The (Raleigh) News & Observer, and the (Fort Worth) Star-Telegram. Incorporated in
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Delaware, we are headquartered in Sacramento, California, and our Class A Common Stock is listed on the NYSE
American under the symbol MNI.
The cornerstone of our business is providing content, either editorial or through advertising that will inform, educate,
entertain and enhance the everyday lives of people with ties to the communities in which we operate. Our media companies
and our digital media agency, excelerate®, distribute content, including video products, through our owned and operated
websites and mobile applications, third-party search and ad exchanges, social media platforms, electronic editions of our
daily newspapers (“e-editions”) as well as our printed daily newspapers. We also print selected niche publications and
community newspapers, as well as offer other print and digital direct marketing services. 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. We had 66.4 million average monthly unique visitors to our online platforms
and 3.9 billion page views of our digital products for the full year ended December 30, 2018. Our local websites, e-editions
and mobile applications in each of our markets provide us fully developed but rapidly evolving channels to extend our
journalism and advertising products to our audience in each market. In 2018, we continued to expand our full-service
digital agency, excelerate®, which provides digital marketing tools designed to customize digital marketing plans for our
customers. For the year ended December 30, 2018, we had an average aggregate paid daily print circulation of 1.1 million
and Sunday print circulation of 1.7 million.
Our business is roughly divided between those media companies operated west of the Mississippi River and those that are
east of it, but includes four operating regions: the West, Central, Carolinas and East regions. For the year ended
December 30, 2018, no single media company represented more than 12.0% of our total revenues.
Our fiscal year ends on the last Sunday in December. The fiscal year ended December 30, 2018, consisted of a 52-week
period and fiscal year ended December 31, 2017, consisted of a 53-week period.
Strategy
Our mission is to deliver strong, independent journalism and information. To accomplish this goal, we are committed to a
three-pronged strategy to grow our businesses and total revenues as a leading local media company:
• First, to maintain our position as the leading local media company in each of our markets by providing
independent journalism and advertising information essential to our communities on digital platforms and in
our printed newspapers; and to grow these audiences for the benefit of our advertisers and our communities;
• Second, to grow digital advertising and audience revenues as we transition to a digitally focused, digitally
driven media company. This strategy includes being a leader of local digital businesses in each of our
markets, growing our digital subscriptions and digital audiences in general by providing compelling websites,
e-editions of the printed newspaper, mobile applications, e-mail products, mobile services, video products
and other electronic media; and
• Third, to extend these franchises by supplementing the reach of the digital and printed newspaper and other
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 improve existing digital products and develop new ones, 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 a 14.8% growth in total digital-only revenues in 2018, which includes digital
only advertising and audience revenues. 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. To strengthen our position as
a leading local media company in the markets we serve and implement our strategies, we are focused on the following five
major business initiatives:
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Increasing and Broadening Total Revenues
Revenue initiatives over the last couple of years have included aligning ourselves for digital growth by revamping and
centralizing certain departments and focusing on digital marketing; digital audience growth through new audiences and
digital subscribers; organizing our technology groups to help us better serve our customers; growing our video market
share and developing innovation teams that help us implement additional customer-focused approaches to running our
businesses. In 2018, we continued to expand our full-service digital agency, excelerate®, which provides customized digital
marketing plans for our customers. We also continued to expand our video efforts to improve storytelling and generate
additional advertising revenues.
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
total revenues in the future, due in part to expected strong growth in digital-only advertising revenues and certain areas of
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 excelerate® agency
services.
Currently, advertising revenues represent a majority of our total revenues. Advertising revenues were 51.6% and 55.2%
of total revenues in 2018 and 2017, respectively. Our sales force is responsible for delivering to advertisers a broad array
of advertising products, including digital marketing solutions, and print and direct marketing solutions. Our advertisers
range from large national retail chains to regional automobile dealerships and grocers to small local businesses and even
individuals.
Increasingly, our emphasis has been on growing the breadth of products offered to advertisers, particularly our digital
marketing products, while expanding our relationships with current advertisers and growing new accounts. For 2018, total
digital and direct marketing advertising revenues combined represented 62.6% of total advertising revenues compared to
55.1% in 2017. Our digital products are discussed in more detail below.
Audience revenues were 42.1% and 40.2% of consolidated total revenues in 2018 and 2017, respectively. Our subscription
packages have helped to drive growth in digital audience revenues. Audience revenues have been a more stable revenue
source than advertising as we have leveraged technology to increase the number of digital products we offer and better
understand our digital audience. As a result, digital only audience revenues grew 34.8% in 2018, while the number of
digital subscribers grew by 52,600 as of December 30, 2018, up 51.1% from the end of 2017. See Broadening Our
Audience in Our Local Markets below for a greater description of our efforts in digital audience growth.
Expanding Our Digital Business
We continue to be a leader among local media providers in digital advertising revenues. In 2018, 43.3% of advertising
revenues came from digital products compared to 34.7% in 2017. In 2018, 84.2% of our digital advertising revenues came
from digital-only advertisements (where the online buy was not bundled with a print buy) compared to 77.2% in 2017.
Digital-only advertising revenues grew 13.5%, to $151.7 million in 2018 from $133.7 million in 2017. We believe this
independent advertising revenue stream positions us well for the future of our digital business. During 2018, total digital
advertising revenues increased 4.1% compared to a decrease of 0.6% in 2017. Total digital advertising revenues grew at
a lower growth rate than digital-only advertising primarily due to a decline in print advertising that is associated with
bundled print/digital products and because of our continued focus on growing our digital-only advertising in 2018.
Our media companies’ websites and mobile applications, 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. As discussed below in
Maintaining Our Commitment to Public Service Journalism, our storytelling capability is not only contributing to our
growth in digital subscribers, but also to our digital advertising revenue growth. During 2018, our websites attracted an
average of approximately 66.4 million unique visitors per month. Although this figure is down 6.7%, compared to 2017,
this decline reflects both the changing elements of news coverage (i.e., Hurricane Irma, a significant news event sparking
an extraordinary growth in unique visitors coming to our sites in late 2017 versus no similar event in late 2018), and our
focus on enforcing stricter pay walls in 2018, which resulted in strong growth in digital subscriptions as discussed above.
We had 3.9 billion page views of our digital products for both the full years of 2018 and 2017. In addition, our average
mobile traffic accounted for 65.8% of all digital traffic we received on a monthly basis in 2018 compared to 61.3% in
2017.
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We, along with Gannett Co., Inc., Hearst, and Tribune Publishing Company (formerly tronc, Inc.), own Nucleus Marketing
Solutions, LLC (“Nucleus”). This marketing solutions provider connects national advertisers with the top 30 U.S. local
publishers’ highly engaged audiences across existing and emerging digital platforms. We believe Nucleus has improved
our reach with national advertisers and will continue to do so in 2019 and beyond.
We continue to pursue new digital products and offerings. In 2018, we continued to expand our concept of comprehensive
digital marketing solutions for local businesses via our digital marketing agency called excelerate®. We also continued to
expand the footprint of excelerate® to markets beyond those served by our media companies. Offering advertisers
integrated packages including website customization, search engine marketing and optimization, social media presence
and marketing services, and other multi-platform advertising opportunities, excelerate® helps businesses improve the
effectiveness of their marketing efforts.
In 2018, we continued to expand our advertising efforts on third-party advertising exchanges. Our real-time, programmatic
buying and selling of digital advertising inventory – often targeting very specific audiences at very specific times – grew
10.2% in 2018 compared to 2017. Our growth continues to be strengthened by our participation in the Local Media
Consortium (“LMC”) and its more than 84 member companies representing more than 2,600 daily newspapers, broadcast
and online-only local media outlets. The LMC’s mission is to provide economic benefit to its members by negotiating
partnerships that deliver cost savings or new revenue opportunities. In addition, LMC offers a private advertising exchange
of high-quality advertising inventory from member publishers providing advertisers with access to more than 19 billion
ad impressions monthly.
Video revenue increased 47.5% in 2018 compared to 2017, due to our focus on the use of video in our digital products to
enhance the content that we bring to readers and viewers, and also to compete for a growing advertising stream. During
2018, more than 493 million video views were recorded across our digital platforms, including those on social media
platforms and distribution partners, up nearly 35% from 366 million video views in 2017.
All of our markets offer audience subscription packages for digital content. The packages include a combined digital and
print subscription or a digital-only subscription. Digital-only subscriptions grew to approximately 155,500, an increase of
51.1% at the end of 2018 compared to 102,900 subscriptions at the end of 2017. We have not only increased the number
of our digital-only subscriptions, but we have grown ways in which those subscribers are acquired. For instance, some of
our growth is driven by a new sports-only subscription product branded as SportsPass™, which was launched in 11 of our
markets during 2018. It was first introduced in our Miami market, just before the start of the NFL preseason. Since then
we have expanded it to the other ten markets. In addition, in May 2018, we partnered with Google to offer a way for
readers to purchase a subscription to each of our digital brands. Consumers are able to link our subscription account with
their Google accounts, which allows for a better user experience. We continue to improve our technology to know our
customers better, to identify areas of interest that allows us to target and retarget potential subscribers and to provide new
products to all subscribers.
Maintaining Our Commitment to Public Service Journalism
We believe that independent journalism in the public interest is critical to our democracy. It is also the underpinning of
our success as a business.
We are committed to producing best-in-class journalism and local content in every community we serve. Each of our
newsrooms is expected to improve annually; whether measured by growth in readership, loyalty of readers, our own
assessments of journalistic strengths, or recognition by peers and others. And each of our newsrooms is expected to serve
our core public service mission – holding leaders and institutions accountable and making our communities better places
in which to live.
During the digital transition that has reshaped the industry over the past decade, we have moved quickly to expand our
digital reach and deliver news to readers where they want it and when they want it. Our company-wide “Newsroom
Reinvention” initiative places an intense focus on what our readers want and need from us in a fast-changing news
landscape. We continue to produce ground-breaking accountability journalism – from the Miami Herald’s investigation
of a billionaire sex abuser who received a sweetheart deal, to The Fresno Bee’s deep exploration of a controversial
congressman, to dogged reporting on failures that lead to a fatal bridge collapse in Florida, to a tragic tourist boat accident
in Missouri, and the Star-Telegram’s investigation of hundreds of sex abuse allegations in fundamental Baptist churches.
Meanwhile, our Washington, D.C. bureau continues to work closely with our local newsrooms while being a significant
source of news on the national stage.
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Our heritage of public service journalism is the foundation of our business, and the work of our journalists received
significant recognition in 2018. Journalists from the Miami Herald were finalists for the 2018 Pulitzer Prize for
investigative reporting for their in-depth report on abuses in the juvenile justice system in Florida. Journalists at The Kansas
City Star were finalists for the 2018 Pulitzer Prize in the public service category for their expose on secrecy in state
government. We have been honored with 54 Pulitzer Prize wins and our impressive streak of being a Pulitzer winner or
finalist every year for more than a decade.
Our video journalists continued to produce ambitious stories around breaking news, projects and series that have gained
industry recognition. A podcast series on Rae Carruth, who spent more than 18 years in prison for the killing of his
girlfriend while he played for the NFL’s Carolina Panthers, was named Best Podcast of 2018 by Sports Illustrated. Our
industry-leading approach to drone journalism has seen more than 50 pilots trained, licensed and routinely flying for daily
news coverage across our company, including The Sacramento Bee’s haunting aerials from the devastating Camp Fire in
California.
These are just a few of the hundreds of examples of our powerful 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. For instance, the
digital replica edition of each of our daily newspapers includes stories from our 30 newsrooms and other journalistic
organizations that on many days more than doubles the news that could be found in the daily newspaper delivered to
subscribers’ doorsteps. This additional content, known as “Extra Extra” and “SportsXtra,” has been well received by
readers of our digital products.
Broadening Our Audience in Our 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 currently an
important source of revenues.
Our digital audience continues to be strong. Our digital audience comes from traffic on our websites, social media and
other digital platforms. During 2018, average monthly unique visitors to our digital sites declined 6.7% compared to 2017.
As discussed above, this decline reflects both the changing elements of news coverage (i.e., Hurricane Irma, a significant
news event sparking an extraordinary growth in unique visitors coming to our sites in late 2017 versus no similar event in
late 2018), and our focus on enforcing stricter pay walls in 2018, which resulted in strong growth in digital subscriptions
as discussed above.
In 2018, our monthly mobile traffic was up 0.2% as compared to 2017 and accounted for 65.8% of all monthly digital
traffic we received. Additionally, 493 million video views were recorded across our digital platforms, including those on
social media platforms and distribution partners, up nearly 35% from 2017. We work hard to appeal to our mobile audience.
We have invested in new digital publishing systems to better serve these mobile readers, and we continually update all of
our news websites to be responsive to changes in technology, such as to automatically resize to optimize the viewing
experience on the user’s screen, whether it is on a smartphone, a tablet or desktop.
Our news and information follow readers continuously. To start their day, we reach our readers who can check out our
latest headlines and stories on their mobile phones or with the morning newspaper. Our news websites, updated frequently
throughout the day, are available to readers via their desktop computers and optimized for all of their different mobile
devices.
Daily newspapers paid circulation volumes for 2018 were down 11.1% compared to 2017. The declines in daily circulation
reflect the fragmentation of audiences faced by all media companies, including our own digital-only subscriptions, as
available media outlets proliferate, and readership trends change. Our Sunday circulation volumes were down 9.8% in
2018 compared to 2017.
We also reach audiences through our direct marketing products. In 2018, we distributed approximately 626,000 Sunday
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, as well as other alerts to subscribers and non-subscribers in our markets which
supplement the reach of our print and digital subscriptions.
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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 and audience revenues and digital media, we pay
particular attention to cost efficiencies. Our cost initiatives in 2018 were focused on continuing to reduce legacy costs
from our traditional print business, and we have realized significant savings from these efforts, primarily in postage,
newsroom and advertising regionalization/consolidation, distribution and outsourced printing costs. In 2018, we achieved
reductions in costs to help protect our profitability in a period of declining print advertising. Compensation, newsprint,
supplements and printing expenses and other operating expenses, declined $41.2 million in 2018 compared to 2017. This
decline was net of investments made in 2018 intended to generate future savings or that were necessary to invest in revenue
generating strategies and technology. 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 by reducing our workforce, optimizing technology and maximizing
printing, distribution and content efficiencies.
In 2018, in order to ensure a more collaborative enterprise, we began the process of regionalizing certain areas of our
operations, including newsrooms and advertising departments. We had previously regionalized our publisher and editorial
leadership functions and those transitions continued into 2018. We have previously centralized certain functional areas,
like audience operations, revenue accounting and other functions. We will continue to outsource, regionalize and
consolidate operations to achieve a more streamlined and efficient cost structure. For instance, in early 2019 we announced
a more centralized structure for advertising operations that will be rolled out during the following year. These changes
will result in cost savings in future years, while giving our operating executives, in our Eastern and Western operating
segments (see discussion of segments below in “Other Operational Information”) and in each market, the ability to focus
more of their time on our growing digital and direct marketing media businesses.
As of December 30, 2018, we have outsourced the printing operations at 22 of our 30 media companies and announced
that in early 2019, we would outsource an additional newspaper in the Northwest. With this accomplished, we now have
23 of our 30 newspapers being printed by centers outside of their markets. These newspapers are printed through
arrangements with nearby newspapers owned by us or third-party companies. In markets where we continue to operate
our own printing presses we in-source the printing of nearby newspapers for other companies. This allows us 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-sourced printing in their areas.
Other Operational Information
Historically, each of our media companies was largely autonomous in its local advertising and editorial operations in order
to meet the needs of the particular community it served. However, we continue to regionalize or centralize certain
operations across our local markets to strengthen our local media companies’ ability to collaborate and increase their
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 the West and Central regions, while the other operating segment (“Eastern Segment”)
consists of media operations in the Carolinas and East regions. Regional publishers or local publishers/general managers
of the media companies make 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.
Our media companies also work together to consolidate functions and share resources regionally and across operating
segments that lend themselves to such efficiencies, such as certain regional or national sales efforts, certain editorial
functions, accounting functions, digital publishing systems and products, information technology functions and others.
These efforts are often coordinated through the senior executives and corporate personnel.
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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 operating profits.
The following table summarizes our media companies, their digital platforms, newspaper circulation and total unique
visitors:
Media Company
Miami Herald
The Kansas City Star
Star-Telegram
The Charlotte Observer
The Sacramento Bee
The News & Observer
The State
El Nuevo Herald
Lexington Herald-Leader
The News Tribune
The Wichita Eagle
The Fresno Bee
McClatchy DC Bureau
Idaho Statesman
The Modesto Bee
Belleville News-Democrat www.bnd.com
The Tribune
The Telegraph
The Island Packet
The Herald
Tri-City Herald
The Bradenton Herald
Ledger-Enquirer
Sun Herald
The Sun News
Centre Daily Times
The Bellingham Herald
The Olympian
Merced Sun-Star
The Herald-Sun
The Beaufort Gazette
Location
Miami, FL
Kansas City, MO
Fort Worth, TX
Website
www.miamiherald.com
www.kansascity.com
www.star-telegram.com
www.charlotteobserver.com Charlotte, NC
www.sacbee.com
www.newsobserver.com
www.thestate.com
www.elnuevoherald.com
www.kentucky.com
www.thenewstribune.com
www.kansas.com
www.fresnobee.com
www.mcclatchydc.com
www.idahostatesman.com
www.modbee.com
Sacramento, CA
Raleigh, NC
Columbia, SC
Miami, FL
Lexington, KY
Tacoma, WA
Wichita, KS
Fresno, CA
Boise, ID
Modesto, CA
Belleville, IL
San Luis Obispo, CA
www.sanluisobispo.com
Macon, GA
www.macon.com
Hilton Head, SC
www.islandpacket.com
Rock Hill, SC
www.heraldonline.com
Kennewick, WA
www.tri-cityherald.com
Bradenton, FL
www.brandenton.com
Columbus, GA
www.ledger-enquirer.com
Biloxi, MS
www.sunherald.com
Myrtle Beach, SC
www.thesunnews.com
State College, PA
www.centredaily.com
www.bellinghamherald.com Bellingham, WA
www.theolympian.com
www.mercedsunstar.com
www.heraldsun.com
www.beaufortgazette.com
Olympia, WA
Merced, CA
Durham, NC
Beaufort, SC
(3)
Total
UV (2)
10,523,000
4,912,000
4,161,000
4,078,000
4,042,000
3,732,000
3,084,000
3,133,000
2,231,000
1,782,000
1,722,000
1,694,000
1,519,000
1,497,000
1,332,000
978,000
882,000
806,000
766,000
762,000
762,000
695,000
595,000
590,000
578,000
577,000
563,000
516,000
481,000
371,000
N/A
59,364,000
Circulation (1)
Daily
78,786
98,046
181,289
75,329
103,283
77,043
41,650
23,948
46,268
36,187
35,642
55,713
N/A
31,894
33,426
19,333
17,079
19,169
15,436
9,672
18,255
17,825
14,573
20,833
21,144
11,399
10,124
12,314
9,993
8,177
4,738
1,148,568
Sunday
122,944
137,517
169,300
108,372
205,946
100,286
91,929
31,960
70,370
84,424
80,139
92,982
N/A
56,312
58,175
49,503
27,520
23,716
16,528
12,100
29,487
22,311
17,355
30,016
27,167
14,415
13,214
27,685
—
8,613
5,068
1,735,354
(1) Circulation figures are reported as of the end of our fiscal year 2018 and are not meant to reflect Alliance for Audited Media
(“AAM”) reported figures.
(2) Total monthly unique visitors for December 2018 according to Adobe Analytics.
(3) The Beaufort Gazette unique visitor activity is included in The Island Packet activity.
Other Operations
On September 13, 2018, we sold our remaining 3.0% ownership interest in CareerBuilder, LLC (“CareerBuilder”) and
received gross proceeds of $5.3 million. During 2018, we also received other distributions totaling approximately $2.8
million from CareerBuilder. In July 2017, we sold a majority of our interest in CareerBuilder, which reduced our ownership
interest from 15.0% to approximately 3.0%.
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 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.
We also own a 25.0% interest in Nucleus, a marketing solutions provider as described above.
8
Raw Materials
During 2018, we consumed approximately 50,700 metric tons of newsprint for all of our operations compared to 67,000
metric tons in 2017. 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.
During 2018, our consumed newsprint was purchased through a third-party intermediary, of which approximately 12,700
metric tons of those purchases were newsprint from Ponderay.
Our earnings are somewhat sensitive to changes in newsprint prices, albeit substantially less sensitive as our digital
business continues to grow. In 2018 and 2017, newsprint expense accounted for 4.0% and 4.4%, 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 applications, 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 digital and print readership levels and demographics, advertising rates,
internet usage and advertiser results, while competition for circulation and readership (digital and print) is generally based
upon the content, journalistic quality, service, competing news sources and the price of the newspaper or digital service.
Our media companies’ internet sites are generally a leading local website in each of our major daily markets. We have
continued to shift advertising to digital advertising to stay current with reader trends. Our media companies are also the
largest print circulation of any news media source in each of their respective markets. However, our media companies
have experienced difficulty maintaining print circulation levels because of a number of factors. These include increased
competition from other publications and other forms of media technologies, including the internet and other new media
formats that are often free for users; and a proliferation of news outlets that fragments audiences. 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;
and mobile applications. Upgrades are continually made to our mobile applications and websites.
Employees — Labor
As of December 30, 2018, we had approximately 3,500 full and part-time employees (equating to approximately 3,300
full-time equivalent employees), of whom approximately 5.0% were represented by unions. Most of our union-represented
employees are currently working under labor agreements with expiration dates through 2020. We have unions at 5 of our
30 media companies.
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 hazardous materials. To the best of our knowledge, as of December 30,
2018, we have complied with all applicable environmental certifications with various state environmental agencies and
the U.S. Environmental Protection Agency related to existing underground storage tanks. We do not believe that we
currently have any significant environmental issues and, in 2018 and 2017, had no significant expenses or capital
expenditures related to environmental control facilities.
9
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 are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the
information under this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters are located at 2100 Q Street, Sacramento, California. At December 30, 2018, we had newspaper
production facilities in 8 markets in 7 states. Our facilities vary in size and in total occupy about 4.1 million square feet.
Approximately 2.7 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.
We maintain our properties in good condition and believe that our current facilities are adequate to meet the present needs
of our media companies.
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.
10
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Since September 12, 2017, our Class A Common Stock has been listed on the NYSE American under the symbol MNI.
Prior to that time, our Class A Common Stock was listed on the New York Stock Exchange under the same symbol. 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 March 1, 2019, there were approximately 3,255 and 15 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 name.
Dividends:
In 2009, we suspended our quarterly dividend; therefore, we have not paid any cash dividends since the first quarter of
2009. Under the indenture for the 2026 Notes, dividends 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 determined
pursuant to the indenture), or if we use other available exceptions provided for 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:
During the year ended December 30, 2018, we did not repurchase any equity securities and we did not sell any equity
securities of the Company that were not registered under the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the
information under this Item.
11
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.” Except for historical information, the matters
discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments
concerning various factors that are beyond the Company’s control. Consequently, and because forward-looking statements
are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. 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 two years
ended December 30, 2018 and December 31, 2017, included elsewhere in this Annual Report on Form 10-K.
Overview
We operate 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. We are a publisher of well-respected brands such as the Miami
Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer, The (Raleigh) News & Observer, and the
(Fort Worth) Star-Telegram. We are headquartered in Sacramento, California, and our Class A Common Stock is listed
on the NYSE American under the symbol MNI.
Our fiscal year ends on the last Sunday in December. The fiscal year ended December 30, 2018 consisted of a 52-week
period. Fiscal year ended December 31, 2017 consisted of a 53-week period.
The following table reflects our sources of revenues as a percentage of total revenues for the periods presented:
Revenues:
Advertising
Audience
Other
Total revenues
Years Ended
December 30,
2018
December 31,
2017
51.6 %
42.1 %
6.3 %
100.0 %
55.2 %
40.2 %
4.6 %
100.0 %
Our primary sources of revenues are digital and print advertising and audience subscriptions. All categories (retail, national
and classified) of advertising discussed below include both digital and print advertising. Retail advertising revenues (from
retail clients) include advertising delivered digitally and/or advertising carried as a part of newspapers (run of press
(“ROP”) advertising), advertising inserts placed in newspapers (“preprint advertising”). Audience revenues include either
digital-only subscriptions, or bundled subscriptions, which include both digital and print. Our print newspapers are
delivered by large distributors and independent contractors. Other revenues include, among others, commercial printing
and distribution revenues.
See “Results of Operations” section below for a discussion of our revenue performance and contribution by category for
2018 and 2017.
Debt Repurchases, Redemptions and Refinancing
Recent Developments
On July 16, 2018, we closed on the previously announced offering of $310.0 million aggregate principal amount of our
2026 Notes. The 2026 Notes are guaranteed by certain of our subsidiaries. The 2026 Notes and the guarantees are secured
by a first-priority lien on certain of our subsidiary guarantors’ assets, stock of certain subsidiaries and by second-priority
liens on certain of our subsidiary guarantor’s other assets.
On July 16, 2018, the Notes Trustee, at our direction, delivered a notice of full redemption to the holder of the $344.1
million aggregate principal amount of our outstanding 2022 Notes. The 2022 Notes were redeemed on August 15, 2018,
at a premium, together with accrued and unpaid interest.
12
On July 16, 2018, we entered into a Junior Term Loan Agreement, which provided for $157.1 million Tranche A Junior
Term Loans and $193.5 million Tranche B Junior Term Loans. The Tranche A Junior Term Loans are due on July 15,
2030 and the Tranche B Junior Term Loans are due on July 15, 2031. Our obligations under the Junior Term Loan
Agreement are guaranteed by our subsidiaries that guarantee the 2026 Notes. In December 2018, the $193.5 million of
Tranche B Junior Term Loans were exchanged by the holder for the Notes due on July 15, 2031 (“2031 Notes”). These
2031 Notes are of substantially similar character and terms as the Tranche B Junior Term Loan. As such the Tranche B
Junior Term Loans were fully extinguished at the end of 2018.
On July 16, 2018, the Junior Term Loans were exchanged for $82.1 million in aggregate principal amount of 2027
Debentures and $193.5 million in aggregate principal amount of 2029 Debentures. The Junior Term Loans included $75
million principal of new debt issued at a discount of $15 million.
On July 16, 2018, we entered into an ABL Credit Agreement, which provides for a $65.0 million secured asset-backed
revolving credit facility with a letter of credit subfacility and a swing line subfacility. In addition, the ABL Credit
Agreement provides for a $35.0 million cash secured letter of credit facility. The commitments under the ABL Credit
Agreement expire July 16, 2023.
We used the net proceeds of the 2026 Notes offering, together with cash available under the ABL Credit Agreement, junior
lien term loan financing and cash on hand, to fund our refinancing transaction and related expenses and the satisfaction
and discharge and redemption of all of our outstanding 2022 Notes.
During 2018, excluding the transactions discussed above, we redeemed or repurchased $95.5 million aggregate principal
amount of our 2022 Notes and $5.3 million aggregate principal amount of our 2026 Notes.
Extinguishment of Debt
During 2018, we recorded a net gain on the extinguishment of debt of $30.6 million, as a result of the following
transactions. As a result of the debt refinancing discussed above, we redeemed $344.1 million of our 2022 Notes and we
executed a non-cash exchange of most of our Debentures for new Tranche A and Tranche B Junior Term Loans. We also
redeemed or repurchased $95.5 million of our 2022 Notes and $5.3 million of our 2026 Notes. As a result of these
transactions, we recorded any applicable premiums that were paid, wrote off unamortized discounts and debt issuance
costs, and recorded a fair market value adjustment on the exchange. See Note 5 for further discussion.
Asset Sales and Leasebacks
During 2018, we recognized a net gain of $4.1 million related to the sale of land and buildings in several of our markets.
We also have various sales agreements or letters of intent to sell other properties that may close in 2019.
On April 23, 2018, we closed a sale and leaseback of real property in Columbia, South Carolina. The transaction resulted
in net proceeds of $15.7 million. We are leasing back the Columbia property under a 15-year lease with initial annual
payments totaling approximately $1.6 million. The lease includes a repurchase clause allowing us to repurchase the
property after the 15-year lease term. Accordingly, the lease is being treated as a financing lease, and we continue to
depreciate the carrying value of the property in our financial statements. No gain or loss will be recognized on the sale and
leaseback of the property until we no longer have a continuing involvement in the property.
Under the 2022 Notes Indenture we were required to use the net after tax proceeds of $13.0 million from the Columbia
transaction to reinvest in the Company within 365 days from the date of the sale or to make an offer to the holders of the
2022 Notes to purchase their notes at 100% of the principal amount plus accrued and unpaid interest. On April 25, 2018,
we announced an offer to purchase $13.0 million of the 2022 Notes using the net after tax proceeds from the Columbia
transaction at par plus accrued and unpaid interest. The offer expired on May 22, 2018, and $0.5 million principal amount
of the 2022 Notes were tendered in the offer and redeemed by us at par.
Sale of interest in CareerBuilder
On September 13, 2018, we sold our remaining 3.0% ownership interest in CareerBuilder and received gross proceeds of
$5.3 million. Under the 2026 Notes Indenture we are required to use the net cash proceeds of $5.3 million from the sale
13
of CareerBuilder to redeem our 2026 Notes. In November 2018 we redeemed these notes at par plus accrued and unpaid
interest.
Early retirement incentive program
On February 1, 2019 we announced a voluntary retirement incentive plan that was offered to approximately 450
employees. The plan would allow them to accept a supplemental benefit based on years of service that included a
severance package and their vested benefits under the company’s frozen defined benefit plan in a lump sum payment.
Nearly 50% of the employees have opted into the program which is expected to result in approximately $12 million to $13
million of savings over the remainder of 2019.
The following table reflects our financial results on a consolidated basis for 2018 and 2017:
Results of Operations
(in thousands, except per share amounts)
Net loss
Net loss per diluted common share
Years Ended
December 30,
December 31,
2018
(79,757)
2017
$ (332,358)
(10.27)
$
(43.55)
$
$
The decrease in net loss in 2018 compared to 2017 was primarily due to the timing and amounts of non-cash deferred tax
valuation allowance other non-cash impairment charges and the operating loss in 2018 compared with operating income
in 2017. In 2018, we recorded a non-cash charge of $20.4 million for the deferred tax valuation allowance and a pre-tax
non-cash impairment charge of $37.2 million for intangible newspaper mastheads. In 2017, pre-tax impairment charges
were $193.4 million, primarily related to a $168.2 million impairment of our CareerBuilder equity investment and a $23.4
million impairment of our intangible newspaper mastheads, and non-cash charges that established the deferred tax
valuation allowance of $192.3 million. In addition, advertising revenues were lower, which were partially offset by a
decrease in expenses, as described more fully below.
2018 Compared to 2017
Revenues
The following table summarizes our revenues by category, which compares 2018 to 2017:
(in thousands)
Advertising:
Retail
National
Classified
Direct marketing and other
Total advertising
Audience
Other
Total revenues
Years Ended
December 30,
December 31,
$
2018
2017
Change
%
Change
$
$
191,043 $
42,273
102,635
80,769
416,720
339,506
51,000
807,226 $
236,130 $ (45,087)
1,935
40,338
(17,951)
120,586
(20,816)
101,585
(81,919)
498,639
(23,991)
363,497
41,456
9,544
903,592 $ (96,366)
(19.1)
4.8
(14.9)
(20.5)
(16.4)
(6.6)
23.0
(10.7)
During 2018, total revenues decreased 10.7% compared to 2017 primarily due to the continued decline in demand for print
advertising. Consistent with the end of 2017, the decline in print advertising was primarily a result of large retail advertisers
continuing to reduce preprinted insert and in-newspaper ROP advertising. The decline in print advertising revenues is the
result of the desire of advertisers to reach customers directly through online advertising, and the secular shift in advertising
demand from print to digital products. We expect these trends to continue for the foreseeable future. The decrease in total
revenues was exacerbated by the 53rd week in 2017 (compared to a 52-week year in 2018). The additional week in 2017
provided an estimated additional $6.6 million in advertising revenues, $6.7 million in audience revenues and $14.0 million
in total revenues.
14
Advertising Revenues
Total advertising revenues decreased 16.4% during 2018 compared to 2017, including the impact of one less week in 2018.
We experienced declines in all advertising revenue categories, except national advertising, primarily due to declines in
print advertising revenues. The decreases in print advertising revenues were partially offset by increases in our national
and digital classified advertising revenue categories, as discussed below.
Digital advertising can come in many forms, including banner ads, video, search advertising and/or liner ads, while print
advertising is typically display advertising, or in the case of classified, display and/or liner advertising. Advertising printed
directly in the newspaper is considered ROP advertising while preprint advertising consists of preprinted advertising inserts
delivered with the newspaper or delivered to non-subscribers as direct marketing products.
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 30,
2018
December 31,
2017
45.9 %
10.1 %
24.6 %
19.4 %
100.0 %
47.3 %
8.1 %
24.2 %
20.4 %
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 and most of our programmatic digital advertising.
• 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. These products are generally delivered to non-subscribers of our
daily newspapers.
Retail:
During 2018, retail advertising revenues decreased 19.1% compared to 2017. In 2018, the decrease in retail advertising
revenues was primarily due to decreases of 25.2% in print ROP advertising revenues and 35.4% in preprint advertising
revenues compared to 2017. The overall decreases in retail advertising revenues for 2018 were spread among ROP and
preprint.
National:
National advertising revenues increased 4.8% during 2018 compared to 2017. We experienced an increase of 11.6% in
digital national advertising offset partially by a 10.4% decrease in print national advertising during 2018 compared to
2017. Overall, the increase in digital national advertising revenues during 2018 was largely led by programmatic digital
advertising, including mobile and video revenues.
Classified:
During 2018, classified advertising revenues decreased 14.9% compared to 2017. Automotive, employment and real estate
categories combined accounted for 50.2% of our classified advertising revenues during 2018 compared to 54.9% in 2017.
15
Other classified advertising revenue includes legal, remembrance and celebration notices and miscellaneous classified
advertising. During 2018 compared to 2017, we experienced an 8.3% increase in digital classified advertising led by other
classified advertising and a 33.5% decrease in print classified advertising.
During the first quarter of 2018, we revisited the sales activity in remembrance/obituary sales noting that digital advertising
has, over time, become the predominate source of obituary sales. As a result, we revised the classification of such sales,
which allocates a greater amount of obituary sales from print/digital bundled advertising to digital-only advertising. See
definition of digital-only below. Additionally, we continued to see a shift from other print classified advertising to digital
platforms.
Digital Advertising:
Digital advertising revenues, which are included in each of the advertising categories discussed above, constituted 43.3%
of total advertising revenues during 2018 compared to 34.7% during 2017. Total digital advertising includes digital-only
advertising and digital advertising 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.” Digital-only advertising revenues increased 13.5% to $151.7 million in 2018 compared to 2017.
In 2018, total digital advertising revenues increased 4.1% to $180.2 million compared to 2017 partially reflecting a change
in allocation from print/digital bundled sales to digital-only sales as discussed above.
Digital advertising revenues bundled with print products declined 27.6% to $28.5 million in 2018 compared to 2017 as a
result of fewer print advertising sales. The newspaper industry continues to experience a secular shift in advertising
demand from print to digital products as advertisers look for multiple advertising channels to reach their customers and
are increasingly focused on online 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.
Direct Marketing and Other:
Direct marketing and other advertising revenues decreased 20.5% during 2018 compared to 2017. The decrease was largely
due to declines in preprint advertising by large retail customers that are delivered to non-subscribers as described above
and to a lesser extent, to decreases in our niche products.
Audience Revenues
Audience revenues decreased 6.6% during 2018 compared to 2017. As noted above, the 53rd week in 2017 contributed an
estimated $6.7 million in audience revenues exacerbating the year-over-year decline.
Overall, digital audience revenues increased 2.6% during 2018 and digital-only audience revenues increased 34.8% in
2018 compared to 2017. The increase in digital-only audience revenues during 2018 was a result of a 51.1% increase in
our digital-only subscribers to 155,500 as of the end of 2018 compared to 2017.
Print audience revenues decreased 10.2% in 2018 compared to 2017, primarily due to lower print circulation volumes and
the 53rd week of 2017 that were partially offset by pricing adjustments. We have a dynamic pricing model for our traditional
print subscriptions for which pricing is constantly being adjusted. Print circulation volumes continue to decline as a result
of fragmentation of audiences faced by our industry as available media outlets proliferate and readership trends change.
Operating Expenses
Total operating expenses decreased 3.6% in 2018 compared to 2017. The decrease during 2018 was primarily due to
changes in compensation and newsprint expenses, partially offset by other operating expenses and other asset write-downs
as compared to 2017. Our total operating expenses, excluding other asset write-downs, reflect our continued effort to
reduce costs through streamlining processes to gain efficiencies. Our operating expenses for 2017 also include a 53rd week,
which resulted in higher expenses during 2017 than in 2018.
16
The following table summarizes our operating expenses, which compares 2018 to 2017:
(in thousands)
Compensation expenses
Newsprint, supplements and printing expenses
Depreciation and amortization expenses
Other operating expenses
Other asset write-downs
Years Ended
December 30,
2018
December 31,
2017
$
298,033 $
54,592
76,242
364,038
37,274
338,588 $
66,438
80,129
352,830
23,442
$
830,179 $
861,427 $
$
Change
(40,555)
(11,846)
(3,887)
11,208
13,832
(31,248)
%
Change
(12.0)
(17.8)
(4.9)
3.2
59.0
(3.6)
Compensation expenses, which included both payroll and fringe benefit costs, decreased 12.0% in 2018 compared to 2017.
Payroll expenses declined 13.6% during 2018 compared to 2017, reflecting a 14.8% decline in average full-time equivalent
employees. Fringe benefits costs decreased 3.2% in 2018 compared to 2017 primarily due to decreases in health benefit
costs and other fringe benefit costs, such as the employer portion of taxes, due to the reduction of headcount. These
decreases were partially offset by the implementation of a 401(k) employer match resulting in costs of $2.5 million in
2018 with no comparable expense in 2017.
Newsprint, supplements and printing expenses decreased 17.8% in 2018 compared to 2017. Newsprint expense declined
14.8% during 2018 compared to 2017. The newsprint expense declines reflect a decrease in newsprint tonnage used of
25.5% during 2018, offset by an increase in newsprint prices of 14.3% during 2018 compared to 2017. The newsprint
price increase in 2018 reflect, in part, the temporary impact of U.S. tariffs on Canadian newsprint sold to U.S. newspapers
in 2018 that have since been removed. During these same periods, printing expenses, which are primarily outsourced
printing costs, decreased 22.1%.
Depreciation and amortization expenses decreased 4.9% in 2018 compared to 2017. Depreciation expense decreased $2.2
million in 2018 compared to 2017, as a result of assets becoming fully depreciated in previous periods. Amortization
expense decreased 3.3% in 2018 compared to 2017 primarily due to some intangible assets becoming fully amortized in
2018. We expect a significant portion of the remaining long-lived intangible assets to be fully amortized in the first two
quarters of 2019.
Other operating expenses increased 3.2% in 2018 compared to 2017. Other operating expenses included a $4.1 million
gain on the disposal of property and equipment in 2018 compared to $23.6 million in 2017. This change in the gain was
partially offset by cost savings initiatives and other efforts to reduce operational costs. We have had decreases in various
categories, such as travel, bad debt, postage, circulation delivery costs and other miscellaneous expenses that were partially
offset by increases for software for various enterprise-wide information technology related projects and the 53rd week in
2017.
Other asset write-downs in 2018 include an impairment charge of $37.2 million related to intangible newspaper mastheads,
and a write down of $0.1 million related to classifying certain land and buildings as assets held for sale during the first
quarter of 2018. Other asset write-downs in 2017 include an impairment charge of $21.5 million related to intangible
newspaper mastheads and a write down of $2.0 million of non-newsprint inventory during the first quarter of 2017. See
Notes 1 and 4 for additional discussion.
Interest Expense:
Non-Operating Items
Total interest expense decreased less than 0.1% in 2018 compared to 2017. While the first six months of 2018 experienced
lower overall debt balances due to repurchases of debt made during 2017 and early 2018, in third quarter of 2018, interest
expense related to debt balances increased. This increase was primarily related to the amortization of debt issuance costs
resulting from the refinancing and an extra month of interest expense we paid on our 2022 Notes while the funds were
being held by the trustee until the redemption date of August 15, 2018.
17
In 2018, the increase in total interest expense was also due to increase in our non-cash imputed interest of $5.3 million
related to our financing obligations due to the sales and leasebacks of our Columbia, South Carolina real property in the
second quarter of 2018 and our Sacramento, California real property in the third quarter of 2017.
Equity Income (Loss) in Unconsolidated Companies, Net:
During 2018, we recorded equity income of $0.6 million compared to losses of $1.7 million in 2017. Our positive income
in 2018 resulted from distributions of earnings from our investment in CareerBuilder.
Impairments Related to Investments in Unconsolidated Companies, Net:
As described more fully in Note 3, during 2017, we recorded $2.4 million in impairment charges related to certain other
unconsolidated equity investments and $168.2 million in impairment charges related to our equity investment in
CareerBuilder. We had no impairment charges related to equity investments during 2018.
Gains Related to Investments in Unconsolidated Companies:
As described more fully in Note 3, during 2018, we recorded $1.7 million gain on the sale of our investment in
CareerBuilder. We had no such related transactions during 2017.
Extinguishment of Debt:
During 2018, we recorded a net gain on the extinguishment of debt of $30.6 million as a result of the following transactions:
we redeemed $344.1 million of our 2022 Notes and we executed a non-cash exchange of most of our Debentures for new
Tranche A and Tranche B Junior Term Loans. Also, during 2018, we redeemed or repurchased $95.5 million of our 2022
Notes and we redeemed $5.3 million of our 2026 Notes. As a result of these transactions, we recorded any applicable
premiums that were paid, wrote off unamortized discounts and debt issuance costs, and recorded a gain based on the
relative fair market of the new debt issued as compared to the carrying value of the debt that was extinguished. See Recent
Developments above and Note 5 for further discussion.
During 2017, we retired, repurchased or redeemed $68.7 million aggregate principal amount of various series of our
outstanding notes. We repurchased some of these notes at a price higher than par value and redeemed some at par value.
We wrote off historical debt issuance costs and as a result, we recorded a loss on the extinguishment of debt of $2.7 million
during 2017.
Income Taxes:
In 2018, we recorded an income tax benefit of $2.2 million. As discussed more fully in Note 1 under Income Taxes, during
2018, we recorded a charge of $20.4 million related to the current period impact of the valuation allowance on deferred
taxes. The remaining income tax benefit differed from the expected federal tax amounts primarily due to the inclusion of
state income taxes and certain permanently non-deductible expenses.
In 2017, we recorded an income tax expense of $105.5 million. As discussed more fully in Note 1 (under Income Taxes)
and Note 6, during 2017, we recorded a $192.3 million valuation allowance related to our deferred tax assets because we
determined that it is not more-likely-than-not that we will realize such deferred tax assets. The remaining income tax
benefit differed from the expected federal tax amounts primarily due to the inclusion of state income taxes, the tax impact
of stock compensation, the benefit from the reduced federal tax rate as a result of the Tax Act on our deferred tax liabilities,
and certain permanently non-deductible expenses.
Sources and Uses of Liquidity and Capital Resources:
Liquidity and Capital Resources
Our cash and cash equivalents were $21.9 million as of December 30, 2018, compared to $99.4 million of cash and cash
equivalents at December 31, 2017. Our cash balance at the end of 2017 reflected the receipt of sales proceeds from the
sale or sale and leaseback of some of our buildings and land during 2017, the remaining proceeds received from sale of a
portion of our investment in CareerBuilder in the third quarter of 2017, and cash from operations. In January 2018 we used
18
a significant portion of the cash on hand to redeem $75.0 million aggregate principal amount of our 2022 Notes as
announced in December 2017. We repurchased an additional $20.0 million aggregate principal amount of our 2022 Notes
in February 2018, and $5.3 million aggregate principal amount of our 2026 Notes in December 2018.
For the foreseeable future, we expect that most of our cash and cash equivalents, and our cash generated from operations
will be used to (i) repay debt, (ii) pay income taxes, (iii) fund our capital expenditures, (iv) invest in new revenue initiatives,
digital investments and enterprise-wide operating systems, (v) make required contributions to the Pension Plan, and (vi)
fund other corporate uses as determined by management and our Board of Directors. As of December 30, 2018, we had
approximately $745.1 million in total aggregate principal amount of debt outstanding, consisting of $304.7 million of our
2026 Notes, $89.9 million of our Debentures, $157.1 million of our Tranche A and $193.5 million of our 2031 Notes. As
of December 30, 2018, we were not permitted to incur additional pari passu obligations under the limitation on
indebtedness incurrence test as defined in the 2026 Notes Indenture. See Note 5 and Recent Developments above, regarding
the transactions we entered into in July 2018 related to the restructuring and refinancing of certain of our debt.
We expect to continue to opportunistically repurchase or restructure our debt from time to time if market conditions are
favorable, whether through privately negotiated repurchases of debt using cash from operations, or other types of tender
offers or exchange offers or other means. We may refinance or restructure 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 will be
required to redeem the 2026 Notes from the net cash proceeds of certain asset dispositions and from a portion of our excess
cash flow (as defined in the 2026 Notes Indenture). 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 to fund our operations.
The following table summarizes our cash flows:
(in thousands)
Cash flows provided by (used in)
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Operating Activities:
Years Ended
December 30,
2018
December 31,
2017
$
25,919
(374)
(106,344)
(80,799)
$
$
$
19,123
102,506
(26,523)
95,106
We generated $25.9 million of cash from operating activities in 2018, compared to generating $19.1 million of cash in
2017. The change in cash generated from operating activities was primarily due to the timing of collections of accounts
receivable, which were higher by $5.2 million and timing of payments of accounts payable, which were lower by $10.6
million. The remaining changes in operating activities related to miscellaneous timing differences in other receipts and
payments or receipts.
Pension Plan Matters
We made no cash contributions to the Pension Plan during 2018 and 2017. After applying credits, which resulted from
contributing more than the Pension Plan’s minimum required contribution amounts in prior years, we did not have a
required cash contribution for 2018. We expect to have a required pension contribution of approximately $3.0 million
under the Employee Retirement Income Security Act in fiscal year 2019, and we expect to have material contributions in
the future.
Investing Activities:
We used $0.4 million of cash from investing activities in 2018. We received proceeds from the sale of property, plant and
equipment (“PP&E”) of $5.7 million and from the sale of an investment of $5.3 million. These amounts were offset by the
purchase of PP&E for $11.1 million, net purchases of and proceeds from redemptions of certificates of deposit, which net
to a $2.3 million use of cash and contributions to equity investments of $2.5 million.
19
We generated $102.5 million of cash from investing activities in 2017, which was primarily due to the sale of our interest
in equity investments of $66.9 million and $7.3 million in distributions from our equity investments that exceeded the
cumulative earnings from the investee and such amounts were considered a return of investment. We also sold property
plan and equipment which generated $43.9 million of cash in 2017.
Financing Activities:
We used $106.3 million of cash for financing activities in 2018, compared to using $26.5 million 2017. During 2018, we
repurchased or redeemed $439.6 million principal amount of our 2022 Notes for $459.5 million in cash and incurred
financing costs of $17.7 million related to the refinancing of our debt. Those amounts were offset by cash proceeds of
$361.4 million for the issuance of $310.0 million principal amount of the 2026 Notes and $75.0 million principal amount
of the Junior Term Loans (which represents the excess from the exchange of debt, as more fully described in Note 5). We
also had an increase of $15.7 million in our financing obligations as a result of the sale and leaseback of one of our real
properties, as described in Recent Developments previously.
We used $26.5 million of cash from financing activities in 2017, primarily related to the repurchase of debt. During 2017,
we repurchased at maturity a total of $16.9 million principal amount of our 5.75% Notes due in 2017, and we repurchased
or redeemed $51.8 million principal amount of our 2022 Notes for an aggregate of $70.7 million in cash. These repurchases
were partially offset by the $44.0 million increase in our financial obligations as a result of the sale and leaseback of one
of our real properties.
Off-Balance-Sheet Arrangements
As of December 30, 2018, we did not have any significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii)
of Regulation S-K.
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, 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. An impairment loss is recognized when the carrying amount of the reporting unit’s net
assets exceed the estimated fair value of the reporting unit. We assess goodwill for impairment on an annual basis at a
reporting unit level, and we have identified two reporting units. One reporting unit (“Western” reporting unit) consists of
operations in our West and Central regions and the other reporting unit (“Eastern” reporting unit) consists of operations
primarily in our Carolinas and East 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
in the estimated future discounted cash flows of our reporting units. Our annual test is performed at our fiscal year end.
We test for goodwill impairment using an equal weighting of a market approach and an income approach. We used market
multiples derived from a set of competitors or companies with comparable market characteristics to establish fair values
for a reporting unit (market approach). We also estimate fair value using discounted projected cash flow analysis (income
approach. This analysis requires significant judgments, including future cash flows, which is dependent on internal
forecasts, the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and
20
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.
As of December 30, 2018, the amount of goodwill allocated to the Eastern reporting unit was $240.6 million and the
amount allocated to the Western reporting unit was $464.5 million. We performed the annual goodwill impairment tests
using a terminal growth rate of 1.0% and a discount rate of 10.5% for the income approach and comparable market
multiples from eight companies and a 20% control premium to reflect McClatchy’s two-tiered ownership structure as
inputs for the market approach.
The results of the annual goodwill impairment test for 2018 indicated that an impairment was not required. However, the
risk of a future goodwill impairment for the Western reporting unit has increased. The fair value of our Eastern reporting
unit exceeded the carrying value by 58.2%, and the fair value of our Western reporting unit exceeded the carrying value
by approximately 6.1%. Sensitivity analysis of the inputs to the indicated equity value of the Western reporting unit shows
that decreasing the terminal growth rate or increasing the discount rate by 0.5% reduces the excess of fair value over the
carrying value to 4.2% and 2.8%, respectively. A reduction of the control premium by 5% would reduce the excess of fair
value over the carrying value of the Western reporting unit to 4.2%.
No goodwill impairments were recorded during 2017.
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 the discounted cash flow model discussed above, and estimated
royalty rates 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 interim and annual masthead impairment tests in 2018 and 2017. As a result of our testing, we recorded
total impairment charges of $37.2 million and $21.5 million in 2018 and 2017, respectively.
Other Intangible Assets:
Long-lived assets such as other intangible assets subject to amortization (primarily advertiser and subscriber lists) are
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. No impairment loss was recognized on intangible assets subject
to amortization in 2018 or 2017.
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 30, 2018 and December 31, 2017, we had a
total pension and post-retirement obligation of $661.0 million and $602.1 million, respectively.
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. For our Pension Plan, the net retirement
obligations in excess of the retirement plan assets were $548.2 million and $476.7 million as of December 30, 2018, and
21
December 31, 2017, respectively. We used a discount rate of 3.91% and an assumed long-term return on assets of 7.75%
to calculate our retirement plan expenses in 2018.
We also have a limited number of supplemental and post-retirement plans to provide certain key employees and retirees
with additional retirement benefits. These plans are funded on a pay-as-you-go basis. For these non-qualified plans that do
not have assets, the post-retirement obligations were $112.8 million and $125.4 million as of December 30, 2018, and
December 31, 2017, respectively. We used discount rates of 3.67% to 3.89% to calculate our retirement plan expenses in
2018.
For 2018, for the Pension Plan and the non-qualified post-retirement plans combined, 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 $6.8 million; and
• A decrease of 25 basis points in the discount rate would have decreased our net benefit cost by
approximately $0.3 million.
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.
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.
During 2018, we finalized the impacts of the Tax Act and noted no material adjustments to our previously recorded
balances and results. Additionally, we reviewed the overall valuation allowance as of December 30, 2018, and we
determined that we needed to increase our valuation allowance by $34.0 million as a result of the changes to our deferred
tax asset balances associated with the masthead and other intangible balances, tax amortizable goodwill and pension.
In 2017, we recorded a valuation allowance related to our deferred tax assets of $192.3 million. As a result of the Tax Act,
principally the change that allows an indefinite carryforward period of net operating losses, we reassessed our analysis and
decreased our related valuation allowance by $53.6 million during 2017. Due to the adjustments in 2018 noted above, our
effective tax rate for 2018 is not comparable to the effective tax rate for 2017. See Note 6 for further discussion
The timing of recording or releasing a valuation allowance requires significant judgment. The development of these
expectations involves the use of estimates such as operating profitability. The weight given to the evidence is
commensurate with the extent to which it can be objectively verified. We will continue to maintain a valuation allowance
against our deferred tax assets until sufficient positive evidence arises in future that provides an indication that all or a
portion of the deferred tax assets meet the more likely than not standard that these assets will be realized in the future. If
sufficient positive evidence, such as three-year cumulative pre-tax income, arises in the future that provides an indication
that all or a portion of the deferred tax assets meet the more-likely-than-not standard, the valuation allowance may be
reversed, in whole or in part, in the period that such determination is made.
For information regarding the impact of certain recent accounting pronouncements, see Note 1.
Recent Accounting Pronouncements
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the
information under this Item.
23
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 (Deficit)
Notes to Consolidated Financial Statements
25
27
28
29
30
31
32
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of The McClatchy Company:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The McClatchy Company and subsidiaries (the
“Company”) as of December 30, 2018 and December 31, 2017, and the related consolidated statements of operations,
comprehensive loss, stockholders' equity (deficit), and cash flows for each of the two years in the period ended December
30, 2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s
internal control over financial reporting as of December 30, 2018, based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 30, 2018 and December 31, 2017, and the results of its operations and its cash flows for
each of the two years in the period ended December 30, 2018, 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 30, 2018, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.
Basis for Opinions
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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.
25
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Sacramento, California
March 8, 2019
We have served as the Company’s auditor since at least 1984; however, an earlier year could not be reliably determined.
26
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
REVENUES — NET:
Advertising
Audience
Other
OPERATING EXPENSES:
Compensation
Newsprint, supplements and printing expenses
Depreciation and amortization
Other operating expenses
Other asset write-downs
Years Ended
December 30, December 31,
2018
(52 weeks)
2017
(53 weeks)
$
416,720 $
339,506
51,000
807,226
298,033
54,592
76,242
364,038
37,274
830,179
498,639
363,497
41,456
903,592
338,588
66,438
80,129
352,830
23,442
861,427
OPERATING INCOME (LOSS)
(22,953)
42,165
NON-OPERATING INCOME (EXPENSE):
Interest expense
Interest income
Equity income (loss) in unconsolidated companies, net
Impairments related to investments in unconsolidated companies, net
Gains related to investments in unconsolidated companies
Gain (loss) on extinguishment of debt, net
Retirement benefit expense
Other — net
Loss before income taxes
Income tax (benefit) expense
NET LOSS
Net loss per common share:
Basic
Diluted
Weighted average number of common shares:
Basic
Diluted
(81,397)
640
592
—
1,721
30,577
(11,114)
7
(58,974)
(81,927)
(2,170)
(79,757) $
(81,501)
558
(1,698)
(170,007)
—
(2,700)
(13,404)
(312)
(269,064)
(226,899)
105,459
(332,358)
(10.27) $
(10.27) $
(43.55)
(43.55)
7,768
7,768
7,632
7,632
$
$
$
See notes to consolidated financial statements.
27
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
NET LOSS
OTHER COMPREHENSIVE INCOME (LOSS):
Pension and post retirement plans: (1)
Change in pension and post-retirement benefit plans
Investment in unconsolidated companies: (1)
Other comprehensive income (loss)
Other comprehensive income (loss)
Comprehensive loss
_____________________
(1) There is no income tax benefit associated with the years ended December 30, 2018 and December 31, 2017, due to the recognition
$
$
—
(56,530)
(136,287)
4,046
12,146
(320,212)
Years Ended
December 30,
December 31,
2018
(52 weeks)
2017
(53 weeks)
$
(79,757)
$
(332,358)
(56,530)
8,100
of a valuation allowance.
See notes to consolidated financial statements.
28
THE MCCLATCHY COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
December 30, December 31,
2018
2017
$
$
$
$
21,906
81,709
12,198
9,115
9,920
15,505
150,353
99,387
101,081
11,556
7,918
6,332
19,000
245,274
233,692
257,639
143,347
705,174
848,521
3,888
58,847
62,735
1,295,301
4,312
37,521
11,510
20,481
6,535
58,340
26,037
10,417
5,385
180,538
633,383
20,775
655,310
108,252
38,708
1,456,428
$
$
228,222
705,174
933,396
7,172
62,437
69,609
1,505,918
74,140
31,856
8,941
24,050
10,133
60,436
7,954
9,143
9,689
236,342
707,252
28,062
599,763
91,905
46,926
1,473,908
53
24
2,216,681
(1,954,132)
(2)
(604,289)
(341,665)
1,295,301
$
52
24
2,215,109
(1,970,097)
(51)
(449,369)
(204,332)
1,505,918
$
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables (net of allowances of $3,008 and $3,225)
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
Other assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued pension liabilities
Accrued compensation
Income taxes payable
Unearned revenue
Accrued interest
Financing obligation, current
Other accrued liabilities
Non-current liabilities:
Long-term debt
Deferred income taxes
Pension and postretirement obligations
Financing obligations
Other long-term obligations
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock $.01 par value:
Class A (authorized 200,000,000 shares, issued 5,384,303 shares and 5,256,325 shares)
Class B (authorized 60,000,000 shares, issued 2,428,191 shares and 2,443,191 shares)
Additional paid-in-capital
Accumulated deficit
Treasury stock at cost, 252 shares and 3,157 shares
Accumulated other comprehensive loss
See notes to consolidated financial statements.
29
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Reconciliation to net cash provided by (used in) operating activities:
Depreciation and amortization
Gain on disposal of property and equipment (excluding other asset write-downs)
Retirement benefit expense
Stock-based compensation expense
Deferred income taxes
Equity (income) loss in unconsolidated companies
Gains related to investments in unconsolidated companies
Impairments related to investments in unconsolidated companies, net
Distributions of income from investments in unconsolidated companies
(Gain) loss on extinguishment of debt, net
Other asset write-downs
Bond fees and other debt-related items
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 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
Distributions from equity investments
Contributions to cost and equity investments
Proceeds from sale of unconsolidated companies and other-net
Other-net
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of notes and related expenses
Proceeds from issuance of debt
Payment of financing costs
Proceeds from sale-leaseback financing obligations
Purchase of treasury shares
Other
Net cash used in financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
See notes to consolidated financial statements.
Years Ended
December 30,
2018
December 31,
2017
$
(79,757)
$
(332,358)
76,242
(4,092)
11,114
2,057
(7,287)
(592)
(1,721)
—
2,876
(30,577)
37,274
6,215
(5,755)
16,704
(1,197)
2,475
5,665
(3,577)
(3,058)
18,083
(15,173)
25,919
(11,120)
5,679
(28,651)
30,957
—
(2,540)
5,301
—
(374)
(464,870)
361,449
(17,684)
15,749
(436)
(552)
(106,344)
(80,799)
131,354
50,555
$
$
80,129
(23,590)
13,404
2,475
86,400
1,698
—
170,007
—
2,700
23,442
3,243
(9,468)
11,502
4,064
(605)
(4,966)
(1,472)
2,211
(648)
(9,045)
19,123
(11,114)
43,944
(4,040)
3,433
7,318
(3,937)
66,913
(11)
102,506
(70,715)
—
—
43,971
(508)
729
(26,523)
95,106
36,248
131,354
30
THE MCCLATCHY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands, except share and per share amounts)
Balance at December 25, 2016
Net loss
Other comprehensive income
Issuance of 172,781 Class A shares
under stock plans
Stock compensation expense
Purchase of 51,996 shares of treasury
stock
Retirement of 48,873 shares of treasury
stock
Balance at December 31, 2017
Cumulative effect adjustment of Topic
606
Net loss
Other comprehensive income
Issuance of 162,824 Class A shares
under stock plans
Stock compensation expense
Purchase of 46,941 shares of treasury
stock
Retirement of 49,846 shares of treasury
stock
Reclassification of accumulated other
comprehensive income (loss) tax effects
Balance at December 30, 2018
(2,668)
(79,757)
(56,530)
1
2,057
Common Stock
Class A
$.01 par
value
Class B
$.01 par
value
$
51
—
—
$
24
—
—
Additional
Paid-In
Capital
$ 2,213,098
—
—
2
—
—
—
(2)
2,475
—
—
—
Accumulated
Other
Accumulated
Comprehensive Treasury
Deficit
$ (1,637,739)
(332,358)
—
Income (Loss)
(461,515)
$
—
12,146
—
—
—
—
—
—
Stock
$
(6)
—
—
—
—
Total
$ 113,913
(332,358)
12,146
—
2,475
(508)
(508)
(1)
52
—
24
(462)
2,215,109
—
(1,970,097)
—
(449,369)
463
(51)
—
(204,332)
—
—
—
—
—
—
—
—
—
(2,668)
(79,757)
—
—
—
(56,530)
—
—
—
2
—
—
—
(1)
2,057
—
—
—
(1)
—
(484)
—
—
—
—
—
—
—
—
—
—
(436)
(436)
485
—
—
53
$
—
24
$
—
$ 2,216,681
98,390
$ (1,954,132)
(98,390)
(604,289)
$
—
(2)
—
$ (341,665)
$
See notes to consolidated financial statements.
31
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
1. SIGNIFICANT ACCOUNTING POLICIES
The McClatchy Company (the “Company,” “we,” “us” or “our”) provides strong, independent local journalism to 30
communities with operations in 14 states, as well as selected national news coverage through our Washington D.C. based
bureau. We also provide a full suite of digital marketing services, both through our local sales teams based in the
communities we serve, as well as through excelerate®, our national digital marketing agency. We are a publisher of brands
such as the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer, The (Raleigh) News &
Observer, and the (Fort Worth) Star-Telegram. We are headquartered in Sacramento, California, and our Class A Common
Stock is listed on the NYSE American under the symbol MNI.
Our fiscal year ends on the last Sunday in December. The fiscal year December 30, 2018, consisted of a 52-week period.
The fiscal year ended December 31, 2017 consisted of a 53-week period.
Preparation of the financial statements in conformity with accounting principles generally accepted in the United States
and pursuant to the rules and regulation of the Securities and Exchange Commission (“SEC”) 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.
Revenue recognition
We recognize revenues when control of the promised goods is transferred to our customers or when the services are
performed, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
All revenue recognized on the consolidated statements of operations are the result of contracts with customers, except for
revenues associated with lease income where we are the lessor through a sublease arrangement, as these are outside the
scope of Topic 606. Also see Note 2.
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 30, 2018, substantially all of our cash and cash equivalents are in excess of the FDIC insured limits. We have
not experienced any losses related to amounts in excess of FDIC limits. We routinely assess the financial strength of
significant customers and this assessment, combined with the large number and geographic diversity of our customers,
limits our concentration of risk with respect to trade accounts receivable.
Allowance for doubtful accounts
We maintain an allowance account for estimated losses resulting from the risk that our customers will not make required
payments. 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
Balance at end of year
32
Years Ended
December 30,
2018
December 31,
2017
$
$
3,225 $
8,995
(9,212)
3,008
$
3,254
10,870
(10,899)
3,225
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Newsprint, ink and other inventories
Newsprint, ink and other inventories are stated at the lower of cost (based principally on the first-in, first-out method) and
net realizable value. During 2017, we recorded a $2.0 million write-down of non-newsprint inventory, which was reflected
in the other asset write-downs line on our consolidated statement of operations. There were no similar write-downs of
newsprint, ink or other inventories during 2018.
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 2018 or 2017. 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.
Property, plant and equipment consisted of the following:
December 30, December 31, Estimated
(in thousands)
Land
Building and improvements
Equipment
Construction in process
Less accumulated depreciation
Property, plant and equipment, net
2017
36,491
Useful Lives
289,574 5 - 60 years
555,204 2 - 25 years (1)
$
2018
32,335 $
268,157
506,307
1,890
808,689
(574,997)
$
233,692 $
2,696
883,965
(626,326)
257,639
(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 $28.6 million and $30.8 million in 2018 and 2017, respectively.
During 2018 and 2017, we incurred $0.6 million and $0.3 million, respectively, in accelerated depreciation related to
production equipment that was no longer needed due to outsourcing of 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 building at three of our media companies that we actively marketed for sale during
2018. In connection with classifying these properties as assets held for the sale, the carrying value of the land and building
at one of the properties was reduced to its estimated fair value less selling costs, as determined based on the current market
conditions and the estimated selling price. As a result, during 2018, we recorded a $0.1 million impairment charge which
is included in other asset write-downs on our consolidated statement of operations. The land and building at this property
were subsequently sold during the third quarter of 2018 with no gain or additional loss. Additionally, one of the other
properties that was classified as assets held for sale in 2018 was sold for a gain of $0.5 million.
33
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Investments in unconsolidated companies
We have accounted for non-marketable equity investments under the equity or cost method. Investments through which
we exercise significant influence but do not have control over the investee are accounted for under the equity method.
Investments through which we are not able to exercise significant influence over the investee are accounted for under the
cost method. See Note 3 for discussion of investments in unconsolidated companies.
Financial obligations
Financial obligations consist of contributions of real properties to the Pension Plan in 2016 and 2011 (see Note 7), and real
property previously owned by The Sacramento Bee that was sold and leased back during the third quarter of 2017, and
real property previously owned by The State in Columbia, South Carolina that we sold and leased back during the second
quarter of 2018.
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’
operations in the West and Central, while the other operating segment (“Eastern Segment”) consists primarily of media
company operations in the Carolinas and East.
Goodwill and intangible impairment
Goodwill represents the excess of cost of a business acquisition over the fair value of the net assets acquired. In accordance
with FASB ASC 350 " Intangibles - Goodwill and Other " goodwill is not amortized. An impairment loss is recognized
when the carrying amount of the reporting unit's net assets exceed the estimated fair value of the reporting unit. 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. We perform this testing on operating
segments, which are also considered our reporting units. One reporting unit (“Western” reporting unit) consists of
operations in our West and Central regions and the other reporting unit (“Eastern” reporting unit) consists of operations
primarily in our Carolinas and East regions
We test for goodwill impairment using an equal weighting of a market approach and an income approach. We use market
multiples derived from a set of competitors or companies with comparable market characteristics to establish fair values
for a reporting unit (market approach). We also estimate fair value using discounted projected cash flow analysis (income
approach). This analysis requires significant judgments, including estimation of future cash flows, which is dependent on
internal forecasts, the long-term rate of growth for our business, 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 2018, we considered the challenging
business conditions and the resulting weakness in our stock price in our annual impairment analysis; however, no
impairment was recognized. In 2017, we also concluded no impairment charge 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 to determine the fair value of
each newspaper masthead. We performed interim and annual impairment tests during 2018. Individual newspaper
masthead fair values were estimated using the present value of expected future cash flows, using estimates, judgments and
assumptions discussed above that we believe were appropriate in the circumstances. As a result, we recorded an intangible
newspaper masthead impairment charges of $14.1 million in the third quarter, and $37.2 million for the full year ending
December 30, 2018. In 2017, we recorded impairment charges of $21.5 million. Also see Note 4.
34
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Long-lived assets, such as intangible assets subject to amortization (primarily advertiser and subscriber lists), are 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 impairments of long-lived assets subject to
amortization during 2018 or 2017.
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 30, 2018, 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.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was enacted. The Tax Act makes broad and
complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal corporate rate from 35%
to 21%; (ii) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be
realized; (iii) creating a new limitation on deductible interest expense; (iv) changing rules related to uses and limitations
of net operating loss carryforwards created in tax years beginning after December 31, 2017; (v) bonus depreciation that
will allow for full expensing of qualified property; and (vi) limitations on the deductibility of certain executive
compensation.
The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) in December 2017, which provides guidance on
accounting for the tax effects of the Tax Act. SAB 118 provides that the measurement period for the tax effects of the Tax
Act should not extend more than one year from the date the Tax Act was enacted. During 2018, we finalized the impacts
of the Tax Act and noted no material adjustments to our previously recorded balances and results. The FASB also issued
ASU 2018-02, see below in Note 1, which allowed for certain stranded tax effects resulting from the Tax Act to be
reclassified from accumulated other comprehensive income to retained earnings. We elected to early adopt this standard
and as such recorded a reclass of $98.4 million of stranded tax effects from accumulated other comprehensive income to
retained earnings in 2018.
A tax valuation allowance is required when it is more-likely-than-not that all or a portion of deferred tax assets may not
be realized. The timing of recording or releasing a valuation allowance requires significant judgment. Establishment and
removal of a valuation allowance requires us to consider all positive and negative evidence and to make a judgmental
decision regarding the amount of valuation allowance required as of a reporting date. The assessment considers
expectations of future taxable income or loss, available tax planning strategies and the reversal of temporary differences.
The development of these expectations involves the use of estimates such as operating profitability. The weight given to
the evidence is commensurate with the extent to which it can be objectively verified.
We performed our assessment of the deferred tax assets during the third and fourth quarters of 2017, weighing the positive
and negative evidence as outlined in ASC 740-10, Income Taxes. As we had incurred three years of cumulative pre-tax
losses, such objective negative evidence limits our ability to give significant weight to other positive subjective evidence,
such as projections for future growth and profitability. We will continue to maintain a valuation allowance against our
deferred tax assets until we believe it is more likely than not that these assets will be realized in the future. If sufficient
positive evidence arises in the future that provides an indication that all of or a portion of the deferred tax assets meet the
more likely than not standard, the valuation allowance may be reversed, in whole or in part, in the period that such
determination is made.
Current generally accepted accounting principles prescribe a recognition threshold and measurement of a tax position
taken or expected to be taken in an enterprise’s tax returns. We also evaluate any uncertain tax positions and recognize a
liability for the tax benefit associated with an uncertain tax position if it is more likely than not that the tax position will
35
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
not be sustained on examination by the taxing authorities upon consideration of the technical merits of the position. The
tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement. We record a liability for uncertain tax positions
taken or expected to be taken in a tax return. Any change in judgment related to the expected ultimate resolution of
uncertain tax positions is recognized in earnings in the period in which such change occurs. We record accrued interest
related to unrecognized tax benefits in interest expense. Accrued penalties are recorded as part of income taxes.
Fair value of financial instruments
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the
extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value
measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement
in its entirety. These levels are:
Level 1 — Unadjusted quoted prices available in active markets for identical investments as of the reporting
date.
Level 2 — Observable inputs to the valuation methodology are other than Level 1 inputs and are either directly
or indirectly observable as of the reporting date and fair value can be determined through the use of
models or other valuation methodologies.
Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is little or no
market activity for the asset or liability, and the reporting entity makes estimates and assumptions
related to the pricing of the asset or liability including assumptions regarding risk.
Our policy is to recognize significant transfers between levels at the actual date of the event or circumstance that caused
the transfer. During 2018, as a result of the refinancing transactions discussed in Note 5, we transferred our Debentures
(as defined in Note 5) from Level 2 to Level 3 in the fair value hierarchy.
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 30, 2018, and December
31, 2017, the carrying amount of these items approximates fair value because of the short maturity of these
financial instruments.
Long-term debt. At December 30, 2018 the carrying value and the estimated fair value of our 2026 Notes (as
defined in Note 5) was $287.2 million and $302.4 million, respectively. As of December 31, 2017, the carrying
value and the estimated fair value of the long-term debt, including the current portion of long-term debt, was
$781.4 million and $810.7 million, respectively. The fair value of our 2026 Notes as described above was
determined using quoted market prices, including the current market activity of our publicly-traded notes and
bank debt, trends in investor demand for debt 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 value.
At December 30, 2018, the carrying value and the estimated fair value of our Debentures, Junior Term Loan and
2031 Notes (as defined in Note 5), was $350.4 million and, $296.5 million, respectively. The fair values of our
Debentures, Junior Term loan, and 2031 Notes were estimated based on quoted market prices. When market
evidence was not available or reliable, the fair value was based on the net present value of the future cash flows
using interest rates derived from market inputs and a Treasury yield curve in effect at December 30, 2018. These
are considered to be Level 3 inputs under the fair value measurements and disclosure guidance and may not be
representative of actual value.
Pension plan. As of December 30, 2018, and December 31, 2017, 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.
36
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
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 that are measured at
fair value on a nonrecurring basis are assets held for sale, goodwill, indefinite or finite lived intangible assets and equity
method investments. All of these are 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 the discount rate that we estimate market participants would seek for bearing the risk associated
with such assets. We incurred impairment charges during 2018 and 2017 on our newspaper masthead intangible assets
(see above in Note 1).
Accumulated other comprehensive loss
We record changes in our net assets from non-owner sources in our consolidated statements of stockholders’ equity
(deficit). Such changes relate primarily to valuing our pension liabilities, net of tax effects.
Our accumulated other comprehensive loss (“AOCL”) and reclassifications from AOCL, net of tax, consisted of the
following:
(in thousands)
Balance at December 25, 2016
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL
Other comprehensive income
Balance at December 31, 2017
Amounts reclassified from AOCL
Other comprehensive loss
Balance at December 30, 2018
Minimum
Pension and
Post-
Retirement
Liability
$ (450,506) $
—
8,100
8,100
$ (442,406) $
(153,414)
(153,414)
$ (595,820) $
Other
Comprehensive
Loss
Related to
Equity
Investments
Total
(11,009) $ (461,515)
4,046
4,046
8,100
—
12,146
4,046
(6,963) $ (449,369)
(154,920)
(1,506)
(154,920)
(1,506)
(8,469) $ (604,289)
AOCL Component
Minimum pension and post-retirement liability
Reclassification of AOCL tax effects
$
2018
(56,530) $
(98,390)
2017
Affected Line in the
Consolidated Statements of Operations
8,100 Retirement benefit expense (1)
— Retained earnings (2)
Amount Reclassified from
AOCL (in thousands)
Year Ended Year Ended
December 30, December 31,
_____________________
(1) There is no income tax benefit associated with the years ended December 30, 2018 and December 31, 2017, due to the
$ (154,920) $
8,100 Net of tax
recognition of a valuation allowance.
(2) See Recently adopted accounting pronouncements below
37
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Earnings per share (EPS)
Basic EPS excludes dilution from common stock equivalents and reflects income divided by the weighted average number
of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of outstanding
shares of common stock and dilutive common stock equivalents in the period. Common stock equivalents arise from
dilutive stock appreciation rights and restricted stock units and are computed using the treasury stock method. Anti-dilutive
common stock equivalents are excluded from diluted EPS. The weighted average anti-dilutive common stock equivalents
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 common stock equivalents
Recently Adopted Accounting Pronouncements
Years Ended
December 30,
2018
December 31,
2017
199
278
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-09 (“Topic 606”), “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition
requirements in Topic 605 "Revenue Recognition." 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. Topic 606 requires 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 and
2017, the FASB issued additional updates and these updates provided further guidance and clarification on specific items
within the previously issued update. We adopted Topic 606 as of January 1, 2018, using the modified retrospective
transition method. See Note 2 for further details.
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. We adopted ASU 2016-01 as of January 1, 2018, on
a prospective basis, but it did not have an impact 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. We adopted ASU 2016-15 as of January 1, 2018, retrospectively, but it did not have an impact on our consolidated
financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU
2016-18 addresses the presentation of restricted cash in the statement of cash flows. The standard requires an entity to
include restricted amounts with cash and cash equivalents in the statement of cash flows. An entity will no longer present
transfers between cash and cash equivalents and restricted amounts on the statement of cash flows. We adopted ASU 2016-
18 as of January 1, 2018, using the retrospective transition method to each period presented. As a result of the adoption,
net cash provided by operating activities during 2017 increased $1.0 million to exclude the changes in restricted cash, and
this amount is reflected in our consolidated cash flow statement.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 allows for
reclassification of stranded tax effects resulting from the Tax Act from accumulated other comprehensive income to
retained earnings. Consequently, the standard eliminates the stranded tax effects resulting from the Tax Act and will
improve the usefulness of information reported to financial statement users. However, because the standard only relates to
the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a
change in tax laws or rates be included in income from continuing operations is not affected. This standard also requires
certain disclosures about the stranded tax effects. It is effective for us for interim and annual reporting periods beginning
after December 15, 2018, and early adoption is permitted. During the fourth quarter of 2018, we elected to early adopt this
38
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
standard. As a result of the adoption, we reclassified $98.4 million of stranded tax effects to accumulated deficit. These
previously had been recorded in accumulated other comprehensive income.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” and it replaces the existing guidance in Topic
840, “Leases.” Topic 842 requires lessees to recognize most leases on their balance sheets as lease liabilities with
corresponding right-of-use (ROU) assets. The new lease standard does not substantially change lessor accounting. Topic
842 has been amended by ASUs No. 2018-01, 2018-10, 2018-11 and 2018-20, which provide further guidance and
clarification on specific items within the previously issued update. It is effective for us for interim and annual reporting
periods beginning after December 15, 2018, with early adoption permitted.
We plan to adopt ASC 842 in our next fiscal year beginning December 31, 2018, using the modified retrospective approach,
and to apply the new standard to existing leases on the effective date of the standard. Our leases are made up of mostly
real estate, vehicle and other equipment leases. As a result, we anticipate that ASC 842 will have a material impact on our
consolidated balance sheets due to the recognition of ROU assets and lease liabilities for operating leases. We expect our
accounting for capital leases to remain substantially unchanged and do not expect that adoption will have a material impact
on our consolidated statements of operations. Upon adoption, we expect to recognize additional operating lease liabilities
of approximately $61.0 million with corresponding ROU assets of approximately $52.0 million.
The new standard provides a number of optional practical expedients in transition. We expect to elect the “package of
practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease
identification, lease classification and initial direct costs. The new standard also provides practical expedients for our
ongoing accounting. We expect to elect the short-term lease recognition exemption for all leases that qualify. For those
leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or
lease liabilities for existing short-term leases in transition. We also expect to elect the practical expedient allowing us
combine lease and non-lease components for our real estate leases.
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. In 2018, the FASB issued additional guidance update 2018-19 which clarifies the scope of the guidance
was not meant to include receivables arising from operating leases. ASU 2016-13 and the subsequent update are 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 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-
Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 adds, removes and modifies various
disclosure requirements within Topic 820. It is effective for us for interim and annual reporting periods beginning after
December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this
guidance and delay adoption of the additional disclosures until their effective date. We are currently in the process of
evaluating the impact of the adoption on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plan-General
(Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU
2018-14 adds, removes or clarifies various disclosure requirements within guidance. It is effective for us for annual
reporting periods beginning after December 15, 2020, and early adoption is permitted. We are currently in the process of
evaluating the impact of the adoption on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal -Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
39
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement
that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-
use software (and hosting arrangements that include an internal-use software license). It is effective for us for interim and
annual reporting periods beginning after December 15, 2019, and early adoption is permitted. We are currently in the
process of evaluating the impact of the adoption on our consolidated financial statements.
2. REVENUES
Adoption of ASC 2014-09 (Topic 606), “Revenue from Contracts with Customers”
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were
not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under
Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical
accounting under Topic 605.
We recorded a net increase to opening accumulated deficit of $2.7 million as of January 1, 2018, due to the cumulative
impact of adopting Topic 606, with the impact primarily related to our audience revenues. The impact to revenues as a
result of applying Topic 606 was less than $0.1 million for the year ended December 30, 2018 compared to applying Topic
605.
Revenue Recognition
Revenues are recognized when control of the promised goods is transferred to our customers or services are performed, in
an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
All revenues recognized on the consolidated statements of operations are the result of contracts with customers, except for
revenues associated with lease income where we are the lessor through a sublease arrangement, as these are outside the
scope of Topic 606.
Advertising Revenues
We generate revenues primarily by delivering advertising on our digital media sites, on our partners’ websites and in our
newspapers. These advertising revenues are generated through digital and print performance obligations that are included
in contracts with customers, which are typically one year or less in duration or commitment. There are no differences in
the treatment of digital and print advertising performance obligations or the recognition of revenues for retail, national,
classified, and direct marketing revenue categories under Topic 606.
We generate advertising revenues through digital products that are sold on cost-per-thousand impressions (“CPM”) which
means that an advertiser pays based upon number of times their ad is displayed on our owned and operated websites and
apps, our partners’ websites, ad exchanges, in a video pre-roll or a programmatic bidding exchange. Such revenues are
recognized according to the timing outlined in the contract.
There are also monthly marketing campaigns which may include multiple products such as items sold by CPM, reputation
management, search engine marketing and search engine optimization. In these arrangements as well as in a CPM sale,
the contracted goods and services are performed over the specific contract term and the transfer of the performance
obligation occurs as the benefits are consumed by the customer. As such, revenue is recognized daily regardless of the
performance obligations classification of timing of being point in time or overtime.
Print advertising is advertising that is printed in a publication, inserted into a publication, or physically mailed to a
customer. Our performance obligations for print products are directly associated with the inclusion of the advertisement
in the final publication and delivery of the product on the contracted distribution day. Revenues are recognized at the point
in time that the newspaper publication is delivered, and distribution of the advertisement is satisfied.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We
estimate these amounts based on the expected value approach.
40
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
For ads placed on our partners’ websites or selling a product hosted or managed by partners, we evaluate whether we are
the principal or agent. Generally, we report advertising revenues for ads placed on our partners’ websites or for the resale
of their products on a gross basis; that is, the amounts billed to our customers are recorded as revenues, and amounts paid
to our partners for their products or advertising space are recorded as operating expenses. Where we are the principal, we
are primarily responsible to our customers for fulfillment of the contract goals though, from time to time, we use third-
party goods or services. Our control is further supported by our level of discretion in establishing price and in some cases,
controlling inventory before it is transferred to the customer.
Most products, including the printed newspaper advertising product, banner ads on our websites and video ads on our
owned and operated player are reported on a gross basis. However, there are some third-party products and services that
we offer to customers and various revenue share arrangements, such as exchange platforms, that are reported on a net
revenue basis. When revenues are earned through a reseller of a product or participating in an exchange where control
over the service provided is limited, revenues are presented net of the costs of the arrangement.
Audience Revenues
Audience revenues include digital and print subscriptions or a combination of both at various frequencies of delivery. Our
subscribers typically pay us in advance of when their subscriptions start or shortly thereafter. Our performance obligation
to subscribers of our digital products is the real-time access to news and information delivered through multiple digital
platforms. Our performance obligation to our traditional print subscribers is delivery of the physical newspaper according
to their subscription plan. Revenues related to digital and print subscriptions are recognized ratably each day that a product
is delivered to the subscriber.
Digital subscriptions may be purchased for a day, month, quarter, or year, and revenue is reported daily over the term of
the contract.
Traditional print subscriptions may have various frequencies of delivery based upon each subscriber’s delivery preference.
Revenues are recognized based upon each delivery, therefore at a point in time.
Certain subscribers may enter into a grace period (“grace”) after their previous contract term has expired but before
payment has been received on the renewal. Grace is granted as a continuation of the subscription contract, so that service
is not disrupted, and the extension is accounted for as variable consideration. We estimate these revenue amounts based
on the expected amount to be received, considering the expected discontinuation of service or nonpayment based on
historical experience.
Other Revenues
The largest revenue streams within other revenues are for commercial printing and distribution. The commercial print
agreements are between us and third-party publishers to print and make available for distribution their finished products.
Commercial print contracts are for a daily finished product and each day’s product is unique, or a separate performance
obligation. Revenue is recorded at a point in time upon completion of each day’s print project.
The performance obligation for distribution revenues is the transportation of third-party published products to their
subscribers or stores for resale. Distribution is performed substantially the same over the life of the contract and revenue
is recognized at the point in time each performance obligation is completed.
We report distribution revenues from the third-party publishers on a gross basis. That is, the amounts that we bill to third
party publishers to deliver their finished product to their customers are recorded as revenues, and the amounts paid to our
independent carriers to deliver the third-party product are recorded as operating expenses.
Arrangements with Multiple Performance Obligations
Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue
to each performance obligation based on its stand-alone selling price. We generally determine stand-alone selling prices
41
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
for audience revenue contracts based upon observable market values and the adjusted market assessment. For advertising
revenue contracts with multiple performance obligations, stand-alone selling price is based on the prices charged to
customers or on an adjusted market assessment.
Unearned Revenues
We record unearned revenues when cash payments are received or due in advance of our performance, including amounts
which are refundable.
Our payment terms vary for advertising and subscriber customers. Subscribers generally pay in advance of up to one year.
Advertiser payments are due within 30 days of invoice issuance and therefore amounts paid in advance are not significant.
For advertisers that are considered to be at a higher risk of collectability due to payment history or credit processing, we
require payment before the products or services are delivered to the customer.
Practical Expedients and Exemptions
We expense sales commissions when incurred because the amortization period would have been one year or less if
capitalized. These costs are recorded within compensation expenses.
We record usage-based royalties promised in exchange for use of our intellectual property, including but not limited to
photographs and articles. These royalty revenues are accrued when estimates of usage and recoverability are made. These
revenues are recorded within other revenues.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of
one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for
services performed.
3. INVESTMENTS IN UNCONSOLIDATED COMPANIES
CareerBuilder, LLC
On September 13, 2018, we sold our remaining 3.0% ownership interest in CareerBuilder, LLC (“CareerBuilder”) and
received gross proceeds of $5.3 million. As a result of this sale, we recognized a gain on sale of investments in
unconsolidated companies of $1.7 million in 2018. During 2018, we also received distributions totaling approximately
$2.8 million from CareerBuilder, which relate to the return of earnings. Our 3.0% ownership interest in CareerBuilder was
accounted for under the cost method (measurement alternative under ASU 2016-01).
On June 19, 2017, we along with the then existing ownership group of CareerBuilder announced that we had entered into
an agreement to sell a majority of the collective ownership interest in CareerBuilder to an investor group led by investment
funds managed by affiliates of Apollo Management Group along with the Ontario Teachers' Pension Plan Board. The
transaction closed on July 31, 2017. We received $73.9 million from the closing of the transaction, consisting of
approximately $7.3 million in normal distributions and $66.6 million of gross proceeds. After the close of the transaction,
our ownership interest in CareerBuilder was reduced to approximately 3.0% from 15.0%. We recorded a total of $168.2
million in pre-tax impairment charges on our equity investment in CareerBuilder during 2017 related to this transaction.
Write-downs
During 2018 and 2017, excluding the CareerBuilder impairments noted above, we recorded write-downs of zero and
$2.4 million, respectively. The write-downs in 2017 were related to various investments and were recorded in impairments
related to equity investments in the consolidated statement of operations.
Other
Three of our wholly-owned subsidiaries have a combined 27.0% general partnership interest in Ponderay Newsprint
Company (“Ponderay”). The carrying value of the investment in Ponderay is zero as a result of a write off in 2014 and
42
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
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”). The carrying value of 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 incur expenses related to the purchase of products and services provided by these companies. We purchased some
of our newsprint supply from Ponderay through a third-party intermediary and in 2017, we incurred wholesale fees from
CareerBuilder for the uploading and hosting of online advertising on behalf of our media companies’ advertisers. We
recorded these expenses for CareerBuilder as a reduction to the associated digital classified advertising revenues and
expenses related to Ponderay were recorded in newsprint expenses.
The following table summarizes expenses incurred for products and services provided by unconsolidated companies:
(in thousands)
CareerBuilder, LLC
Ponderay (general partnership)
4. INTANGIBLE ASSETS AND GOODWILL
Changes in identifiable intangible assets and goodwill consisted of the following:
Years Ended
December 30,
2018
December 31,
2017
$
— $
7,975
354
9,162
(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 31,
2017
839,284 $
$
— $
(761,013)
78,271
149,951
705,174
933,396 $
—
—
—
—
— $
$
$
December 25,
2016
839,273 $
(711,723)
127,550
171,436
705,174
$ 1,004,160 $
11 $
—
11
—
—
11 $
Disposition Impairment Amortization December 30,
Additions Adjustment Charges
Expense
— $
—
—
(37,215)
—
(948) $
948
—
—
—
— $ (37,215) $
— $
(47,660)
(47,660)
—
—
(47,660) $
2018
838,336
(807,725)
30,611
112,736
705,174
848,521
Disposition Impairment Amortization December 31,
Additions Adjustment Charges
Expense
— $
—
—
(21,485)
—
— $
—
—
—
—
— $ (21,485) $
— $
(49,290)
(49,290)
—
—
(49,290) $
2017
839,284
(761,013)
78,271
149,951
705,174
933,396
As discussed more fully in Note 1, based on our interim and annual impairment testing of intangible newspaper mastheads
we recorded a total of $37.2 million in masthead impairments during 2018. These impairment charges were recorded in
other asset write-downs line item on our consolidated statements of operations.
Based on our annual impairment testing of goodwill and intangible newspaper mastheads at December 31, 2017, we
recorded $21.5 million in masthead impairments, which were recorded in the goodwill impairment and other asset write-
downs line item on our consolidated statements of operations. We had no goodwill impairments as a result of our annual
impairment testing as of December 31, 2017.
43
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Accumulated changes in indefinite lived intangible assets and goodwill as of December 30, 2018, and December 31, 2017,
consisted of the following:
December 30, 2018
December 31, 2017
(in thousands)
Mastheads
Goodwill
Total
Amount
Original Gross Accumulated Carrying
Amount
112,736
705,174
817,910
$
(2,865,937)
$ (3,437,701) $
$
684,500
3,571,111
$ 4,255,611
(571,764) $
Impairment
Amount
Original Gross Accumulated Carrying
Amount
149,951
705,174
855,125
(534,549)
$
(2,865,937)
3,571,111
$ 4,255,611 $ (3,400,486)
684,500 $
Impairment
$
$
Amortization expense was $47.7 million and $49.3 million in 2018 and 2017, respectively. The estimated amortization
expense for the five succeeding fiscal years is as follows:
Year
2019
2020
2021
2022
2023
$
Amortization
Expense
(in thousands)
24,095
803
680
655
667
5. LONG-TERM DEBT
All of our long-term debt is in fixed rate obligations. As of December 30, 2018, and December 31, 2017, our outstanding
long-term debt consisted of senior secured notes, unsecured notes, and loans. They are stated net of unamortized debt
issuance costs and unamortized discounts, if applicable, totaling $109.2 million and $23.7 million as of December 30,
2018, and December 31, 2017, respectively. The unamortized discounts include; fair value adjustments on unsecured debt
acquired in 2006, as well as the Junior Term Loans and the 2026 Notes that included original issue discounts from the
2018 debt refinancing discussed below.
The face values of the notes, as well as the carrying values are as follows:
(in thousands)
ABL Credit Agreement
Notes:
9.000% senior secured notes due in 2022
9.000% senior secured notes due in 2026
7.795% tranche A junior term loan due in 2030
6.875% senior secured junior lien notes due in 2031
7.150% debentures due in 2027
6.875% debentures due in 2029
Long-term debt
Less current portion
Total long-term debt, net of current
Face Value at
December 30,
2018
Carrying Value
December 30,
December 31,
2018
2017
$
—
$
—
$
—
—
304,700
157,083
193,466
7,105
82,764
745,118
4,575
740,543
—
287,249
123,213
141,447
6,824
78,962
637,695
4,312
633,383
$
$
433,819
—
—
—
85,262
262,311
781,392
74,140
707,252
$
$
$
$
44
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Debt Maturities, Repurchases, Redemptions and Extinguishment of Debt
During 2018 and 2017, we redeemed or repurchased our outstanding debt as follows:
(in thousands)
9.000% senior secured notes due in 2022
5.750% notes due in 2017
9.000% senior secured notes due in 2026
Total notes matured, repurchased or redeemed
Year Ended
December 30,
2018
Face Value
December 31,
2017
Face Value
$
$
439,630
—
5,300
444,930
$
$
51,785
16,865
—
68,650
During 2018, we recorded a net gain on the extinguishment of debt of $30.6 million as a result of the following transactions
that occurred in 2018, as described below.
During the quarter ended September 30, 2018, in conjunction with the refinancing discussed below, we redeemed $344.1
million of our 2022 senior secured notes due in 2022 (“2022 Notes”). We also executed a non-cash exchange of most of
our 7.150% debentures due November 1, 2027 (“2027 Debentures”) and 6.875% debentures due March 15, 2029 (“2029
Debentures” and together with the 2027 Debentures, the “Debentures”) for new Tranche A and Tranche B Junior Term
Loans (as defined below).
The non-cash exchange of the Debentures discussed above was executed with a single lender and its affiliates. We
reviewed all of our debt instruments held by this lender prior to and after the refinancing and determined that the new debt
instruments were substantially different from the previously held instruments. We concluded that the exchange of the
Debentures for the Junior Term Loans should be accounted for as an extinguishment of the Debentures. As a result, during
2018, we recorded a gross gain of $68.7 million, which represents the difference between the carrying value of the
Debentures and the fair market value of the Junior Term Loans at time of the exchange. This gain was partially offset by
a $32.3 million write-off of the unamortized discounts on the Debentures, unamortized debt issuance costs on the 2022
Notes, and premiums paid on the 2022 Notes for a net gain of $30.6 million.
The net gain on extinguishment of debt recorded on the above transactions was partially offset by a loss on extinguishment
of debt recorded in conjunction with our notes redemptions and repurchases during 2018. During 2018, we (i) redeemed
$0.5 million of our 2022 Notes through a tender offer that expired on May 22, 2018, (ii) redeemed $75.0 million of our
2022 Notes, which we had previously announced in December 2017, (iii) repurchased $20.0 million of the 2022 Notes
through a privately negotiated transaction, and (iv) redeemed $5.3 million of our 2026 Notes, which was previously
announced in October 2018. We recorded any applicable premiums that were paid and wrote off the associated debt
issuance costs on the above transactions.
During December 2018, we entered into an indenture (“2031 Notes Indenture”) in the amount of $193.5 million aggregate
principal amount of 6.875% Senior Secured Junior Lien Notes due 2031 (“2031 Notes”). The 2031 Notes were issued in
exchange for an equal principal amount of Tranche B Junior Term Loans (as defined below). These 2031 Notes have
substantially the same terms as the Tranche B Junior Term Loan. As a result of this transaction, the Tranche B Junior Term
Loan has been fully extinguished.
During 2017, we recorded a loss on the extinguishment of debt of $2.7 million as a result of the following transactions.
During 2017, we (i) retired $16.9 million of debt that matured on September 1, 2017; (ii) repurchased a total $50.0 million
of our 2022 Notes through privately negotiated transactions; and (iii) redeemed $1.8 million of the 2022 Notes through
our offer to purchase or privately negotiated transactions. The notes that matured and the notes that were redeemed as a
result of our offer to purchase, were transacted at the principal amount plus accrued and unpaid interest. The 2022 Notes
that we repurchased through privately negotiated transactions were repurchased at a premium, and we wrote off the
associated debt issuance costs.
45
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Debt Refinancing in July 2018
On July 16, 2018, we entered into an Indenture (“2026 Notes Indenture”), among the Company, guarantor subsidiaries of
the Company and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (“2026 Notes
Trustee”), pursuant to which we issued $310.0 million aggregate principal amount of 9.000% Senior Secured Notes due
2026 (“2026 Notes”) as described more fully under the section “2026 Senior Secured Notes and Indenture” below.
In connection with the issuance of the 2026 Notes and other junior debt instruments described below, we completed a
refinancing of all of our 2022 Notes and substantially all of our Debentures, and our revolving credit facilities. On July
16, 2018, we deposited sufficient funds with The Bank of New York Mellon Trust Company, N.A., as trustee (“2022 Notes
Trustee”), to pay the redemption price payable for all outstanding 2022 Notes, plus accrued and unpaid interest due on the
2022 Notes to, but excluding, the redemption date. The 2022 Notes were issued under an Indenture, dated as of December
18, 2012, among the Company, guarantor subsidiaries of the Company and the 2022 Notes Trustee (“2022 Notes
Indenture”).
As a result of this refinancing, we satisfied and discharged our obligations (subject to certain exceptions) under the 2022
Notes Indenture and the related security documents in accordance with the satisfaction and discharge provisions of the
2022 Notes Indenture. Upon the satisfaction and discharge of the 2022 Notes Indenture on July 16, 2018, all of the liens
on the collateral securing the 2022 Notes were released, and we and the guarantors were discharged from our respective
obligations under the 2022 Notes and the guarantees thereof.
On July 16, 2018, the 2022 Notes Trustee, at our direction, delivered a notice of redemption to the holders of all $344.1
million in aggregate principal amount of outstanding 2022 Notes. The redemption to the holders was completed on August
15, 2018.
ABL Credit Agreement
On July 16, 2018, we entered into a credit agreement, among the Company, the subsidiaries of the Company party thereto,
as borrowers, the lenders party thereto, and Wells Fargo Bank, N.A. (“Wells Fargo”), as administrative agent (“ABL Credit
Agreement”). The ABL Credit Agreement provides for up to $65.0 million secured asset-backed revolving credit facility
with a letter of credit subfacility and a swing line subfacility. In addition, the ABL Credit Agreement provides for a $35.0
million cash secured letter of credit facility (“LOC Facility”). The commitments under the ABL Credit Agreement expire
July 16, 2023. Our obligations under the ABL Credit Agreement are guaranteed by us and by certain of our subsidiaries
meeting materiality thresholds set forth in the ABL Credit Agreement as described below.
The proceeds of the loans under the ABL Credit Agreement may be used for working capital and general corporate
purposes. We have the right to prepay loans under the ABL Credit Agreement in whole or in part at any time without
penalty. Subject to availability under the Borrowing Base, amounts repaid may be reborrowed.
As of December 30, 2018, under the ABL Credit Agreement we had $61.0 million of available credit. The Borrowing
Base is recalculated monthly and is subject to seasonality of advertising sales around year-end holiday periods (and
resulting growth in advertising accounts receivable balances). As of December 30, 2018, we had a $28.7 million standby
letters of credit secured under the LOC Facility. We are required to provide cash collateral equal to 100% of the aggregate
undrawn stated amount of each outstanding letter of credit. Cash collateral associated with the LOC Facility is classified
in our consolidated balance sheets in other assets. The amounts of standby letters of credit declined to $26.7 million in
January 2019.
Loans under the ABL Credit Agreement bear interest, at our option, at either a rate based on the London Interbank Offered
Rate (“LIBOR”) for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of
Wells Fargo’s publicly announced prime rate, the federal funds rate plus 0.50% and one-month LIBOR plus 1.0%. The
margin ranges from 1.75% to 2.25% for LIBOR loans and 0.75% to 1.25% for base rate loans and is determined based on
average excess availability. Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the
end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR
loans.
46
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
The ABL Credit Agreement requires us, at any time the availability under our revolving credit facility falls below the
greater of 12.5% of the total facility size or approximately $8.1 million, to maintain a minimum fixed charge coverage
ratio of 1.10 to 1.00 until such time as the availability under our revolving credit facility exceeds such threshold for 30
consecutive days.
The ABL Credit Agreement contains customary affirmative covenants, including covenants regarding the payment of
taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and
regulations. Further, the ABL Credit Agreement contains customary negative covenants limiting our ability and the ability
of our subsidiaries, among other things, to incur debt, grant liens, make investments, make certain restricted payments and
sell assets, subject to certain exceptions. Upon the occurrence and during the continuance of an event of default, the lenders
may declare all outstanding principal and accrued and unpaid interest under the ABL Credit Agreement immediately due
and payable and may exercise the other rights and remedies provided for under the ABL Credit Agreement and related
loan documents. The events of default under the ABL Credit Agreement include, subject to grace periods in certain
instances, payment defaults, cross defaults with certain other indebtedness, breaches of covenants or representations and
warranties, change in control of us and certain bankruptcy and insolvency events with respect to us and our subsidiaries
meeting a materiality threshold set forth in the ABL Credit Agreement.
In connection with entering into the ABL Credit Agreement and the refinancing of our 2022 Notes as described above, we
terminated our Third Amended and Restated Credit Agreement, which had a maturity date of December 18, 2019 and had
no borrowings outstanding as of July 16, 2018, the date of termination.
2026 Senior Secured Notes and Indenture
As discussed above, on July 16, 2018, we entered into the 2026 Notes Indenture and issued $310.0 million aggregate
principal amount of the 2026 Notes in a private placement to qualified institutional buyers in the United States in reliance
on Rule 144A under the Securities Act of 1933, as amended (“Securities Act”), and outside the United States to non-U.S.
persons in reliance on Regulation S under the Securities Act.
The 2026 Notes mature on July 15, 2026, and bear interest at a rate of 9.000% per annum. Interest on the 2026 Notes is
payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2019.
We may redeem the 2026 Notes, in whole or in part, at any time on or after July 15, 2022, at specified redemption prices
and may also redeem up to 40% of the aggregate principal amount of the 2026 Notes using the proceeds of certain equity
offerings completed before July 15, 2021, at specified redemption prices, in each case, as set forth in the 2026 Notes
Indenture. Prior to July 15, 2022, we may also redeem some or all of the 2026 Notes at a redemption price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date and a
“make-whole” premium.
We are required to redeem the 2026 Notes from the net cash proceeds of certain asset dispositions and from a portion of
our excess cash flow (as defined in the 2026 Notes Indenture). As of December 30, 2018, we determined the excess cash
flow due was $4.3 million which is classified as current portion of long-term debt on the consolidated balance sheet.
If we experience specified changes of control triggering events, we must offer to repurchase the 2026 Notes at a repurchase
price equal to 101% of the principal amount of the 2026 Notes repurchased, plus accrued and unpaid interest, if any, to,
but excluding the applicable repurchase date.
The 2026 Notes Indenture contains covenants that, among other things, restrict our ability and our restricted subsidiaries
to:
•
incur certain additional indebtedness and issue preferred stock;
• make certain distributions, investments and other restricted payments;
•
•
•
• merge, consolidate or sell substantially all of our assets, taken as a whole; and
•
sell assets;
agree to any restrictions on the ability of restricted subsidiaries to make payments to us;
create liens;
enter into certain transactions with affiliates.
47
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
These covenants are subject to a number of other limitations and exceptions set forth in the 2026 Notes Indenture.
The 2026 Notes Indenture provides for customary events of default, including, but not limited to, failure to pay principal
and interest, failure to comply with covenants, agreements, or conditions, and certain events of bankruptcy or insolvency
involving us and our significant subsidiaries. In the case of an event of default arising from specified events of bankruptcy
or insolvency, all outstanding 2026 Notes under the 2026 Notes Indenture will become due and payable immediately
without further action or notice. If any other event of default under the 2026 Notes Indenture occurs or is continuing, the
2026 Notes Trustee or holders of at least 25% in aggregate principal amount of the then outstanding 2026 Notes under the
2026 Notes Indenture may declare all of such 2026 Notes to be due and payable immediately.
Fifth Supplemental Indenture
On July 13, 2018, in connection with our outstanding Debentures, we entered into a Fifth Supplemental Indenture
(“Supplemental Indenture”) with The Bank of New York Mellon Trust Company, N.A., as trustee (“Debentures Trustee”),
supplementing the original Indenture which proceeded the issuance of the Debentures in 1997.
The Supplemental Indenture was entered into in connection with our refinancing of existing indebtedness to amend the
Debentures Indenture to eliminate certain restrictive covenants.
Junior Lien Term Loan Agreement and 2031 Notes
On July 16, 2018, we entered into a Junior Lien Term Loan Credit Agreement, among the Company, the guarantors party
thereto, the lenders party thereto and The Bank of New York Mellon, as administrative agent and collateral agent (“Junior
Term Loan Agreement”). The Junior Term Loan Agreement provided for a $157.1 million secured term loan (“Tranche A
Junior Term Loans”) and a $193.5 million term loan (“Tranche B Junior Term Loans” and together with the Tranche A
Junior Term Loans, “Junior Term Loans”). The Tranche A Junior Term Loans mature on July 15, 2030 and the Tranche
B Junior Term Loans had a maturity date of July 15, 2031. Our obligations under the Junior Term Loan Agreement are
guaranteed by our subsidiaries that guarantee the 2026 Notes. Under the terms of the Junior Term Loan Agreement,
affiliates of Chatham Asset Management, LLC may elect to convert up to $75.0 million in aggregate principal amount of
2029 Debentures owned by them into an equal principal amount of Tranche B Junior Term Loans or notes with terms
substantially similar to the Tranche B Junior Term Loans upon written notice to us.
As noted above, in December 2018 Chatham elected to exchange the full amount of $193.5 million of the Tranche B Junior
Term Loans for the 2031 Notes. As such the Tranche B Junior Term Loans were fully extinguished at the end of 2018.
On July 16, 2018, the $82.1 million in aggregate principal amount of 2027 Debentures and $193.5 million in aggregate
principal amount of 2029 Debentures were exchanged for the Junior Term Loans. The cash proceeds from the exchange
were used to redeem a portion of the 2022 Notes, and to pay fees, costs, and expenses in connection with our debt
refinancing. As discussed above, we determined that the instruments held by the single lender, when combined, had
substantially different cash flows from one another and therefore we accounted for the exchange as a debt extinguishment.
We have the right to prepay loans under the Junior Term Loan Agreement, in whole or in part, at any time, at specified
prices that decline over time, plus accrued and unpaid interest, if any, in the case of Tranche A Junior Term Loans. We
have the right to prepay notes under the 2031 Notes, in whole or in part, at any time, at a price equal to 100% of the
principal amount thereof, plus a “make-whole” premium and accrued and unpaid interest, if any. Amounts prepaid may
not be reborrowed.
Tranche A Junior Term Loans and the 2031 Notes bear interest at a rate per annum equal to 7.795% and 6.875%,
respectively. Interest on the loans and notes is payable semi-annually in arrears on January 15 and July 15 of each year,
commencing on January 15, 2019.
The Junior Term Loan Agreement and the 2031 Notes contains customary affirmative covenants, including covenants
regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance
with applicable laws and regulations. Further, the Junior Term Loan Agreement and 2031 Notes contains customary
48
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
negative covenants limiting the ability of us and our subsidiaries, among other things, to incur debt, grant liens, make
investments, make certain restricted payments and sell assets, subject to certain exceptions. Upon the occurrence and
during the continuance of an event of default, the lenders may declare all outstanding principal and accrued and unpaid
interest under the Junior Term Loan Agreement immediately due and payable and may exercise the other rights and
remedies provided for under the Junior Term Loan Agreement and related loan documents. In general, the affirmative and
negative covenants of the Junior Term Loan Agreement and the 2031 Notes are substantially the same as the covenants in
the 2026 Notes Indenture.
Other Debt
After giving effect to the Junior Term Loan Agreement, we have $7.1 million aggregate principal amount of 2027
Debentures and $82.8 million aggregate principal amount of 2029 Debentures outstanding as of December 30, 2018.
Maturities
The following table presents the approximate annual maturities of outstanding long-term debt as of December 30, 2018,
based upon our required payments, for the next five years and thereafter:
Year
2019
2020
2021
2022
2023
Thereafter
Debt principal
6. INCOME TAXES
Income tax provision (benefit) consisted of:
(in thousands)
Current:
Federal
State
Deferred:
Federal
State
Income tax provision (benefit)
Payments
(in thousands)
4,575
—
—
—
—
740,543
745,118
$
$
Years Ended
December 30,
2018
December 31,
2017
$
$
5,546
(429)
$
15,042
4,017
(961)
(6,326)
(2,170)
80,293
6,107
105,459
$
As of December 30, 2018, we completed our accounting for the tax effects of enactment of the Tax Act and noted no
significant adjustments were required. During 2018 and 2017, we re-measured certain deferred tax assets and liabilities
based on the rates at which we expect them to reverse in the future.
49
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
The effective tax rate expense (benefit) and the statutory federal income tax rate are reconciled as follows:
Statutory rate
State taxes, net of federal benefit
Changes in estimates
Changes in unrecognized tax benefits
Other
Impact of valuation allowance
Impact of tax rate changes
Stock compensation
Effective tax rate
The components of deferred tax assets and liabilities consisted of the following:
(in thousands)
Deferred tax assets:
Compensation benefits
State taxes
State loss carryovers
Investments in unconsolidated subsidiaries
Deferred interest expense
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Debt discount
Deferred gain on debt
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Years Ended
December 30,
2018
December 31,
2017
(21.0)%
(35.0) %
(4.3)
0.8
(4.3)
2.8
23.0
—
0.3
(2.7)%
2.4
—
0.6
0.3
80.0
(2.4)
0.6
46.5 %
December 30, December 31,
2018
2017
$
157,715 $
1,909
4,006
4,242
15,342
3,407
186,621
(143,764)
42,857
144,084
2,861
4,338
4,981
—
2,945
159,209
(109,718)
49,491
45,239
17,876
—
517
63,632
(20,775) $
68,665
4,512
4,376
—
77,553
(28,062)
$
The valuation allowance increased by $34.0 million and $105.8 million in 2018 and 2017, respectively.
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
regarding the timing and amount of valuation allowance required as of a reporting date. The assessment takes into account
expectations of future taxable income or loss, available tax planning strategies and the reversal of temporary differences.
The development of these expectations involves the use of estimates such as operating profitability. The weight given to
the evidence is commensurate with the extent to which it can be objectively verified.
We performed an assessment of the deferred tax assets during the third and fourth quarters of 2017, weighing the positive
and negative evidence as outlined in ASC 740, Income Taxes. As we incurred three years of cumulative pre-tax losses,
such objective negative evidence limits our ability to give significant weight to other positive subjective evidence, such as
projections for future growth and profitability. Accordingly, we recorded a valuation allowance charge of $192.3 million
for 2017, which was recorded in income tax (benefit) expense on our consolidated statements of operations. During the
quarter ended December 31, 2017, as a result of the Tax Act, principally the change to allow an indefinite carryforward
period of net operating losses, we reassessed our analysis and decreased our related valuation allowance by $53.6 million.
As of December 31, 2017, our valuation allowance against a majority of our net deferred tax assets was $109.7 million.
As of December 30, 2018, we performed a review of our deferred tax assets and liabilities as well as the corresponding
50
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
valuation allowance amounts. Based on this review, we recorded an additional $34.0 million of valuation allowance due
to changes to the deferred tax balances related to mastheads, tax amortizable goodwill and pension. Of this amount, $20.4
million was included as income tax expense and $13.7 million was recorded as an offset to other comprehensive income
for changes related to our pension deferred tax asset
We will continue to maintain a valuation allowance against our deferred tax assets until it is more-likely-than-not that
these assets will be realized in the future under generally accepted accounting standards. If sufficient positive evidence,
such as three-year cumulative pre-tax income, arises in the future that provides an indication that all or a portion of the
deferred tax assets meet the more-likely-than-not standard, the valuation allowance may be reversed, in whole or in part,
in the period that such determination is made.
As of December 30, 2018, we have net operating loss carryforwards in various states totaling approximately
$281.3 million, which expire in various years between 2024 and 2038 if not used. We also have state tax credits of $0.5
million which expire between 2025 and 2028 if not utilized.
As of December 30, 2018, we had approximately $17.1 million of uncertain tax positions consisting of approximately
$13.8 million in gross unrecognized tax benefits (primarily state tax positions before the offsetting effect of federal income
tax) and $3.3 million in gross accrued interest and penalties. If recognized, approximately $6.9 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 up to $1.9 million reduction 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
($0.6) million and $1.1 million for 2018 and 2017, respectively. We recorded penalty expense (benefit) of ($0.3) million
and $0.3 million during 2018 and 2017, respectively. Accrued interest and penalties at December 30, 2018 and December
31, 2017 were approximately $3.3 million and $4.3 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits consists of the following:
Years Ended
(in thousands)
Balance at beginning of fiscal year
Increases based on tax positions in prior year
Decreases based on tax positions in prior year
Increases based on tax positions in current year
Settlements
Lapse of statute of limitations
Balance at end of fiscal year
$
December 30,
2018
20,764 $
84
(4,261)
1,124
(511)
(3,378)
13,822
December 31,
2017
16,477
3,299
—
1,642
(164)
(490)
20,764
$
$
As of December 30, 2018, the following tax years and related taxing jurisdictions were open:
Taxing Jurisdiction
Federal
California
Other States
7. EMPLOYEE BENEFITS
Open
Tax Year
2015-2018
2014-2018
2006-2018
Years Under
Exam
—
—
—
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.
51
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
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 $8.9 million and $8.7 million in 2018 and 2017, 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 30, 2018, and December 31, 2017:
(in thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year
Interest cost
Plan participants’ contributions
Actuarial (gain)/loss
Gross benefits paid
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
Fair value of plan assets, end of year
(in thousands)
Funded Status
Fair value of plan assets
Benefit obligations
Funded status and amount recognized, end of year
Pension Benefits
Post-retirement Benefits
2018
2017
2018
2017
$ 2,080,013 $ 1,941,907 $ 7,625
256
10
(417)
(647)
$ 1,920,987 $ 2,080,013 $ 6,827
79,154
—
(126,540)
(111,640)
85,468
—
152,353
(99,715)
$ 7,403
271
12
707
(768)
$ 7,625
Pension Benefits
Post-retirement Benefits
2018
2017
2018
2017
$ 1,477,926 $ 1,335,435 $
(115,192)
8,885
—
(111,640)
233,495
8,711
—
(99,715)
$ 1,259,979 $ 1,477,926 $
—
—
637
10
(647)
—
$
$
—
—
756
12
(768)
—
Pension Benefits
Post-retirement Benefits
2018
2017
2018
2017
$ 1,259,979 $ 1,477,926 $
(2,080,013)
—
(6,827)
(602,087) $ (6,827)
—
$
(7,625)
$ (7,625)
(1,920,987)
$
(661,008) $
52
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Amounts recognized in the consolidated balance sheets at December 30, 2018, and December 31, 2017, consist of:
(in thousands)
Current liability
Noncurrent liability
Pension Benefits
Post-retirement Benefits
2018
(11,510) $
2017
2018
(8,941) $ (1,015) $
(649,498)
(661,008) $
(593,146)
(602,087) $ (6,827) $
(5,812)
2017
(1,008)
(6,617)
(7,625)
$
$
Amounts recognized in accumulated other comprehensive income for the years ended December 30, 2018, and December
31, 2017, consist of:
(in thousands)
Net actuarial loss/(gain)
Prior service cost/(credit)
The elements of retirement and post-retirement costs are as follows:
(in thousands)
Pension plans:
Interest Cost
Expected return on plan assets
Actuarial loss
Net pension expense
Net post-retirement benefit credit
Net retirement expenses
Pension Benefits
Post-retirement Benefits
2018
2017
2018
2017
$ 811,063 $ 757,096 $ (7,334) $ (7,820)
(6,534)
$ 811,063 $ 757,096 $ (11,790) $ (14,354)
(4,456)
—
—
Years Ended
December 30,
2018
December 31,
2017
$
$
79,154 $
(90,495)
25,181
13,840
(2,726)
11,114 $
85,468
(89,569)
20,335
16,234
(2,830)
13,404
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
2018
2017
2018
2017
4.42 % 3.91 % 4.15 % 3.60 %
Expected long-term return on plan assets
Discount rate
Contributions and Cash Flows
Pension Benefit Expense
Post-retirement Expense
December 30, December 31, December 30, December 31,
2018
2017
2018
2017
7.75 %
3.91 %
7.75 %
4.52 %
N/A
3.60 %
N/A
3.95 %
We did not have a required cash minimum contribution to the Pension Plan in 2018 or 2017 and made no voluntary cash
contributions. We expect to have a required pension contribution of approximately $3.0 million under the Employee
Retirement Income Security Act in fiscal year 2019.
53
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Expected benefit payments to retirees under our retirement and post-retirement plans over the next 10 years are
summarized below:
(in thousands)
2019
2020
2021
2022
2023
2024-2028
Total
Retirement Post-retirement
$
Plans (1)
111,478 $
112,450
117,079
118,319
120,408
621,158
$ 1,200,892 $
Plans
1,036
925
822
736
656
2,241
6,416
(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, considering 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 30, 2018, and December 31, 2017, the target allocations for the Pension Plan assets were 61% equity
securities, 33% debt securities and 6% real estate securities.
The table below summarizes the Pension Plan’s financial instruments that are carried at fair value on a recurring basis by
the fair value hierarchy levels discussed above, as of the year ended December 30, 2018
(in thousands)
Cash and cash equivalents
Mutual funds
Common collective trusts
Real estate
Private equity funds
Total
2018
Plan Assets
Level 1
Level 2
Level 3
NAV
Total
— $
—
—
—
—
—
— $
—
—
55,398
9,609
$ 65,007
— $
—
1,045,628
—
—
$ 1,045,628
9,366
139,978
1,045,628
55,398
9,609
$ 1,259,979
$
9,366 $
139,978
—
—
—
$ 149,344
$
54
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
The table below summarizes changes in the fair value of the Pension Plan’s Level 3 investment assets held for the year
ended December 30, 2018:
(in thousands)
Beginning Balance, December 31, 2017
Realized gains (losses), net
Transfer in or out of level 3
Unrealized gains (losses), net
Ending Balance, December 30, 2018
Real Estate Private Equity Total
$ 58,050 $
4,528
(8,601)
1,421
$ 55,398 $
9,509 $ 67,559
4,531
(8,601)
1,518
9,609 $ 65,007
3
—
97
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 31, 2017:
(in thousands)
Cash and cash equivalents
Mutual funds
Common collective trusts
Real estate
Private equity funds
Total
2017
Plan Assets
Level 1
Level 2
Level 3
NAV
Total
$
8,498 $
478,565
—
—
—
$ 487,063
$
— $
—
—
—
—
—
— $
—
—
58,050
9,509
$ 67,559
— $
—
923,304
—
—
$ 923,304
8,498
478,565
923,304
58,050
9,509
$ 1,477,926
The table below summarizes changes in the fair value of the Pension Plan’s Level 3 investment assets held for the year
ended December 31, 2017:
(in thousands)
Beginning Balance, December 25, 2016
Realized gains (losses), net
Transfer in or out of level 3
Unrealized gains (losses), net
Ending Balance, December 31, 2017
Real Estate Private Equity Total
$ 57,531 $
4,632
(4,614)
501
$ 58,050 $
8,149 $ 65,680
4,632
—
(4,614)
—
1,861
1,360
9,509 $ 67,559
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.
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. The attributes relating to the nature and risk
of such investments are as follows:
(in thousands)
U.S equity funds (1)
International equity funds (2)
Emerging markets equity funds (3)
Fixed income funds (4)
Total
$
$
2018
296,135 $
311,119
153,927
284,447
1,045,628 $
2017
353,555
569,749
—
—
923,304
Redemption Frequency (if
Currently Eligible)
Daily
Daily - Monthly
Daily
Daily - Semi-Monthly
Redemption Notice
Period
None
None
None - 5-Day
2-Day - 5-Day
55
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
(1) U.S. equity fund strategies - Investments in U.S. equities are defined as commitments to U.S. dollar-denominated, publicly traded
common stocks of U.S. domiciled companies and securities convertible into common stock. The aggregate U.S. equity portfolio is
expected to exhibit characteristics comparable to, but not necessarily equal to, that of the Russell 3000 Index.
(2)
International equity funds strategies - Investments in international developed markets equities are defined as commitments to
publicly traded common stocks and securities convertible into common stock issued by companies primarily domiciled in countries
outside of the U.S.
(3) Emerging markets equity fund strategies - Investments in emerging equities may include commitments to publicly traded common
stocks and securities convertible into common stock issued by companies domiciled in countries considered emerging by one or
more benchmark providers.
(4) Fixed income fund strategies - Fixed income investments may include debt instruments issued by both U.S. and non-U.S.
governments, agencies, “quasi Government” agencies, corporations, and any other public or private regulated debt security.
Real estate: In 2016 and 2011, we contributed certain of our real property to our Pension Plan, and we entered into
leaseback arrangements for the contributed facilities. 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 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.
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 2018, the Pension Plan sold the Lexington real property for approximately $4.1 million and we
terminated our lease on the property. The property was included in the real property contributions that we made to the
Pension Plan in fiscal year 2011. As a result of the sale by the Pension Plan, we recognized a $0.2 million loss on the sale
of the Lexington property in other operating expenses on the consolidated statement of operations in 2018.
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 our proportionate share of the capital in the private equity fund and
was measured using Level 3 inputs.
401(k) Plan
We have a deferred compensation plan (“401(k) plan”), which enables eligible employees to defer compensation. During
the fourth quarter of 2017, we announced the reinstatement of a company matching contribution program beginning with
the first pay check paid in 2018. Our matching contributions during 2018 was $2.5 million and is recorded in our
compensation line item of our consolidated statement of operations. Also, during the fourth quarter of 2017, we terminated
the 401(k) plan supplemental contribution that was tied to performance.
56
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
8. CASH FLOW INFORMATION
Reconciliation of cash, cash equivalents and restricted cash as reporting in the consolidated balance sheets to the total of
the same such amounts show above:
(in thousands)
Cash and equivalents
Restricted cash included in other assets (1)
Total cash, cash equivalents and restricted cash
$
December 30,
2018
21,906
28,649
50,555
$
December 31,
2017
99,387
31,967
131,354
$
$
(1) Restricted cash balances are certificates of deposits or time deposits secured against letters of credit primarily related to contractual
agreements with our workers’ compensation insurance carrier and one of our property leases.
Cash paid for interest and income taxes and other non-cash activities consisted of the following:
Year Ended
(in thousands)
Interest paid (net of amount capitalized)
Income taxes paid (net of refunds)
December 30,
2018
43,313 $
13,935
December 31,
2017
68,861
12,437
$
Other non-cash investing and financing activities related to pension plan transactions:
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
(2,667)
(2,854)
—
—
Other non-cash investing and financing activities related to pension plan transactions consists of the sale of one of the
properties by the Pension Plan in 2018, described further in Note 7.
During 2018, we completed a debt for debt exchange of a majority of the existing 2027 Debentures and 2029 Debentures
for newly issued Tranche A Junior Term Loans and 2031 Notes. This transaction included a non-cash discount of $68.7
million recorded within the gain on extinguishment of debt. See Note 5 for definitions and further information.
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.
57
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
The following table summarizes our minimum annual contractual obligations as of December 30, 2018:
(in thousands)
Purchase obligations (1)
Operating leases (2)
Lease obligations
Sublease income
Net lease obligation
Workers’ compensation obligations (3)
Total
2019
2021
$ 35,371 $ 15,270 $ 9,742 $ 4,487 $ 3,394 $
2023
2020
Thereafter
Total
— $ 68,264
Payments Due By Period
2022
16,408
(4,044)
12,364
2,340
89,603
(6,295)
83,308
12,286
$ 50,075 $ 27,392 $ 20,278 $ 15,195 $ 14,018 $ 36,900 $ 163,858
10,160
(232)
9,928
696
11,921
(1,306)
10,615
1,507
10,178
(334)
9,844
864
31,139
—
31,139
5,761
9,797
(379)
9,418
1,118
(1)
(2)
(3)
Represents our purchase obligations primarily related to printing outsource agreements and capital expenditures for PP&E
expiring at various dates through 2023.
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 2023. Total rental expense, included in other operating expenses, amounted
to $14.3 million and $13.4 million in 2018 and 2017, 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 $5.0
million and $4.8 million in 2018 and 2017, respectively.
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 30, 2018, 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. At December 30, 2018, the undiscounted ultimate losses of all our self-insurance reserves
related to our workers’ compensation liabilities were $12.3 million, net of estimated insurance recoveries of approximately
$1.9 million. At December 31, 2017, the undiscounted ultimate losses of all our self-insurance reserves related to workers’
compensation liabilities were $13.0 million, net of estimated insurance recoveries of approximately $2.2 million.
We discount the net amounts above to present value using an approximate risk-free rate over the average life of our insurance
claims. For the years ended December 30, 2018, and December 31, 2017, the discount rate used was 3.1% and 2.3%,
respectively. The present value of all self-insurance reserves, net of estimated insurance recoveries, for our workers’
compensation liability recorded at December 30, 2018, and December 31, 2017, was $10.7 million and $12.1 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
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: independent contractor status, liability and
restitution. 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. In June 2016, The McClatchy Company was dismissed from the lawsuit, leaving The Sacramento Bee as the
58
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
sole defendant. On August 30, 2017, the court issued a statement of decision ruling that the court would not hold a phase
two trial but would, instead, assume liability from the evidence previously submitted and from the independent contractor
agreements. We objected to this decision, but the court adopted it as final. The third phase has been scheduled to begin on
May 20, 2019.
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. The plaintiffs filed a Notice of Appeal on November 10, 2016.
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 30, 2018, we had $28.7 million of standby letters of credit secured under the LOC Facility. In January
2019, our standby letters of credit secured under the LOC Facility was reduced by $2.0 million to $26.7 million.
10. COMMON STOCK AND STOCK PLANS
Common Stock
We have two classes of stock; Class A and Class B Common Stock. Both classes of stock participate equally in dividends.
Holders of Class B are entitled to one vote per share and to elect as a class 75% of the Board of Directors, rounded down
to the nearest whole number. Holders of Class A Common Stock are entitled to one-tenth of a vote per share and to elect
as a class 25% of the Board of Directors, rounded up to the nearest whole number.
Class B Common Stock is convertible at the option of the holder into Class A Common Stock on a share-for-share basis.
The holders of shares of Class B Common Stock are parties to an agreement, the intent of which is to preserve control of
the Company by the McClatchy family. Under the terms of the agreement, the Class B shareholders have agreed to restrict
the transfer of any shares of Class B Common Stock to one or more “Permitted Transferees,” subject to certain exceptions.
A “Permitted Transferee” is any of our current holders of shares of Class B Common Stock; any lineal descendant of
Charles K. McClatchy (1858 to 1936); or a trust for the exclusive benefit of, or in which all of the remainder beneficial
interests are owned by, one or more lineal descendants of Charles K. McClatchy.
59
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Generally, Class B shares can be converted into shares of Class A Common Stock and then transferred freely (unless,
following conversion, the outstanding shares of Class B Common Stock would constitute less than 25% of the total number
of all our outstanding shares of common stock). In the event that a Class B shareholder attempts to transfer any shares of
Class B Common Stock in violation of the agreement, or upon the happening of certain other events enumerated in the
agreement as “Option Events,” each of the remaining Class B shareholders has an option to purchase a percentage of the
total number of shares of Class B Common Stock proposed to be transferred equal to such remaining Class B shareholder’s
ownership percentage of the total number of outstanding shares of Class B Common Stock. If all the shares proposed to
be transferred are not purchased by the remaining Class B shareholders, we have the option of purchasing the remaining
shares. The agreement can be terminated by the vote of the holders of 80% of the outstanding shares of Class B Common
Stock who are subject to the agreement. The agreement will terminate on September 17, 2047, unless terminated earlier
in accordance with its terms.
Stock Plans
During 2018, we had two stock-based compensation plans, which are described below.
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 vested 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
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 was further amended in May 2017, among other things, to
increase the number of shares of Class A Common Stock reserved for issuance by 500,000 shares. The 2012 Plan, as
amended, 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 2018, we granted 4,500 shares of Class A Common Stock to each non-employee director under the 2012 Plan. In
accordance with The McClatchy Company Director Deferral Program (“Deferral Program”), five directors elected to defer
issuance of their 2018 grants. As such, 27,000 shares were issued and 22,500 were deferred until the director terminates
from the board of directors.
In 2017, we granted 4,500 shares of Class A Common Stock to each non-employee director under the 2012 Plan. Two
directors elected to defer issuance of their 2017 grants under the Deferral Program. As such, 36,000 shares were issued
and 9,000 were deferred until the director terminates from the board of directors. One of the directors who deferred his
award in 2016 terminated from the board of directors during 2017 and therefore was issued his shares.
We granted restricted stock units (“RSUs”) at the grant date fair value to certain key employees under the 2012 Plan as
summarized in the table below. Fair value for RSUs is based on our Class A Common Stock closing price, as reported by
the NYSE American, 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.
60
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
The following table summarizes the RSUs stock activity:
Nonvested — December 25, 2016
Granted
Vested
Forfeited
Nonvested — December 31, 2017
Granted
Vested
Forfeited
Nonvested — December 30, 2018
Weighted
Average Grant
Date Fair
Value
$
$
$
$
$
$
$
$
$
18.17
9.99
16.14
12.86
11.55
8.90
11.38
9.54
9.56
RSUs
204,145
254,405
(206,776)
(5,980)
245,794
278,130
(167,722)
(24,602)
331,600
For the fiscal year ended December 30, 2018, the total fair value of the RSUs that vested was $1.5 million. As of
December 30, 2018, there were $1.9 million of unrecognized compensation costs for non-vested RSUs, which are expected
to be recognized over 1.9 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 the terms of each
grant are at the discretion of the compensation committee of the board of directors.
Outstanding SARs are summarized as follows:
Outstanding December 25, 2016
Expired
Outstanding December 31, 2017
Expired
Outstanding December 30, 2018
SARs exercisable:
December 31, 2017
December 30, 2018
Aggregate
Weighted
Average
Intrinsic Value
Exercise Price (in thousands)
—
SARs
292,750 $
(136,575) $
156,175 $
(42,875) $
113,300 $
50.29 $
71.07
32.12 $
32.09
32.13 $
156,175
113,300
$
$
—
—
—
—
As of December 30, 2018, there were no unrecognized compensation costs related to SARs granted under our plans. The
weighted average remaining contractual life of SARs vested and exercisable at December 30, 2018, was 2.1 years.
The following tables summarize information about SARs outstanding in the stock plans at December 30, 2018:
Range of Exercise
Prices
$24.60 – $40.80
Total
Average
Remaining
Contractual
Life
Weighted
Average
SARs
Exercise Price Exercisable Exercise Price
32.13
32.13
113,300 $
113,300 $
32.13
32.13
2.11 $
2.11 $
Weighted
Average
SARs
Outstanding
113,300
113,300
61
THE MCCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 2018 AND DECEMBER 31, 2017
Stock-Based Compensation
Total stock-based compensation expense consisted of the following:
(in thousands)
Stock-based compensation expense
Years Ended
December 30,
2018
December 31,
2017
$
2,057
$
2,475
62
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
2018 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 30, 2018. 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 30, 2018.
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.
63
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 30, 2018.
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 30, 2018.
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 30, 2018.
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 30, 2018.
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 30, 2018.
64
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) List of documents filed as part of this report:
1. Financial Statements
Our consolidated financial statements are as set forth under Item 8 of this report on Form 10-K.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, not required or the information is included in the
consolidated financial statements.
3. Exhibits
Exhibit
Number
3.1
3.2
3.3
Description
The Company’s Restated Certificate of
Incorporation, dated June 26, 2006
Incorporated by reference herein
Form
10-Q
Exhibit
3.1
File Date
June 25, 2006
The Company’s Bylaws as amended and restated
8-K
effective March 20, 2012
Amended and restated Certificate of Incorporation
8-K
of The McClatchy Company
3.1
3.1
March 22, 2012
June 7, 2016
10.1
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
10.2
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.
10.3
Amendment No. 4 to the Third Amended and
8-K
10.2
January 11, 2017
10.4
10.5
10.6
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.
Collateralized Issuance and Reimbursement
Agreement, dated October 21, 2014, between the
Company and Bank of America, N.A
Indenture, dated as of November 4, 1997, between
Knight- Ridder, Inc. and The Chase Manhattan
Bank of New York, as Trustee, [Knight-Ridder’s
Registration Statement on Form S-3]
First Supplemental Indenture, dated as of June 1,
2001, Knight- Ridder, Inc.; The Chase Manhattan
Bank of New York, as original Trustee; and The
Bank of New York, as series Trustee
[Knight-Ridder, Inc. Report on Form 8-K]
8-K
10.2
October 23, 2014
S-3
4.1
October 10, 1997
8-K
4
June 1, 2001
65
Exhibit
Number
10.7
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
10.8
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]
10.9
Fourth Supplemental Indenture dated June 27,
10-Q
10.4
June 25, 2006
10.10
10.11
2006, between the Company and
Knight-Ridder Inc.
Indenture dated December 18, 2012, among The
McClatchy Company, the subsidiary guarantors
party thereto and the Bank of New York Mellon
Trust Company, N.A. relating to the 9.00% Senior
Secured Notes due 2022
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
8-K
4.2
December 20, 2012
8-K
4.3
December 20, 2012
10.12
Term Loan Framework Agreement, dated as of
10-Q
10.1
May 10, 2018
10.13
April 26, 2018, between The McClatchy Company
and Chatham Asset Management, LLC
Purchase Agreement, dated as of June 29, 2018, by
and among the Company, certain of the Company’s
subsidiaries, J.P. Morgan Securities LLC and Credit
Suisse Securities (USA) LLC
8-K
10.1
July 6, 2018
10.14
Amended and Restated Term Loan Framework
10-Q
10.1
August 9, 2018
10.15
Agreement, dated as of June 26, 2018, between the
Company and Chatham Asset Management, LLC
Credit Agreement dated July 16, 2018, among the
Company, the lenders from time to time party
thereto, and Wells Fargo Bank, N.A., as
administrative agent
10-Q
10.2
August 9, 2018
10.16
Fifth Supplemental Indenture, dated as of July 13,
10-Q
10.3
August 9, 2018
2018, between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee for
the Notes
10.17
Indenture dated July 16, 2018, among the
10-Q
10.4
August 9, 2018
Company, certain subsidiaries of the Company and
The Bank of New York Mellon Trust Company,
N.A., relating to the 9.000% Senior Secured Notes
due 2026
10.18
Form of Global 9.000% Senior Secured Notes due
10-Q
10.5
August 9, 2018
2026 (included in Exhibit 10.17)
66
Exhibit
Number
10.19
10.20
10.21
10.22
Description
Junior Lien Term Loan Agreement dated July 16,
2018, among the Company, the lenders party
thereto, the guarantors party thereto, and The Bank
of New York Mellon, N.A., as administrative agent,
tranche A collateral agent and tranche B collateral
agent
Indenture, dated as of December 18, 2018, among
the Company, subsidiaries of the Company party
thereto as guarantors and The Bank of New York
Mellon, as trustee and collateral agent
Form of Note (included in Exhibit 10.20)
* The McClatchy Company Management Objective
Plan Description.
8-K
10-K
10.23
* Amended and Restated Supplemental Executive
10-K
Retirement Plan
10.24
* Amendment Number 1 to The McClatchy Company
8-K
10.25
Supplemental Executive Retirement Plan
* Amended and Restated McClatchy Company
8-K
Benefit Restoration Plan
10.26
* Amended and Restated McClatchy Company Bonus
8-K
Recognition Plan
Incorporated by reference herein
Form
10-Q
Exhibit
10.6
File Date
August 9, 2018
8-K
4.1
December 18, 2018
4.2
10.4
10.4
10.1
10.1
10.2
December 18, 2018
December 30, 2000
December 30, 2001
February 10, 2009
July 29, 2011
July 29, 2011
10.27
* The Company’s 2004 Stock Incentive Plan, as
10-Q
10.25
June 29, 2008
amended and restated
10.28
* The McClatchy Company 2012 Omnibus Incentive
Plan, as amended and restated
10.29
* Form of Restricted Stock Unit Agreement under
DEF
14A
8-K
Appendix A
April 4, 2017
10.2
May 19, 2017
The McClatchy Company 2012 Omnibus Incentive
Plan, as amended and restated
10.30
* Form of Stock Appreciation Right Agreement
8-K
10.1
May 19, 2017
10.31
under The McClatchy Company 2012 Omnibus
Incentive Plan, as amended and restated
* Form of Indemnification Agreement between the
Company and each of its officers and directors
8-K
99.1
May 23, 2005
10.32
* The McClatchy Company Director Deferral
10-K
10.30
December 27, 2015
10.33
Program under The McClatchy Company 2012
Omnibus Incentive Plan
* Form of Stock Award Deferral Election Agreement
under The McClatchy Company 2012 Omnibus
Incentive Plan
10-K
10.31
December 27, 2015
10.34
* The McClatchy Company Executive Supplemental
8-K
Retirement Plan
10.35
10.36
10.37
10.38
* Employment Agreement dated January 25, 2017 by
and between Craig I. Forman and the Company
* 2017 Senior Executive Retention Plan
* 2017 Retention RSU Award Agreement
* The McClatchy Company 2018 Senior Executive
Retention Plan
10.39
* Form of Amendment No. 1 to Executive
8-K
8-K
8-K
8-K
8-K
10.1
10.1
10.1
10.2
10.1
10.1
January 29, 2018
January 31, 2017
February 28, 2017
February 28, 2017
November 13, 2018
January 25, 2019
10.40
Employment Agreement, dated January 25, 2019,
by and between Craig I. Forman and The
McClatchy Company
* Form of Restricted Stock Unit Agreement under
The McClatchy Company 2017 Senior Executive
Retention Plan
8-K
10.3
May 19, 2017
67
Incorporated by reference herein
Form
8-K
Exhibit
10.1
File Date
February 12, 2016
10-Q
10.1
June 25, 2017
Exhibit
Number
10.41
10.42
21
23
31.1
31.2
Description
Form of Contribution Agreement dated
February 11, 2016
Interests Purchase Agreement, dated as of June 17,
2017, between CareerBuilder, LLC and the Sellers
and Purchaser named therein
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
32.2
** Certification of the Chief Financial Officer of The
McClatchy Company pursuant to 18 U.S.C.
Section 1350
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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
*
**
Compensation plans or arrangements for the Company’s executive officers and directors
Furnished, not filed
ITEM 16. FORM 10-K SUMMARY
None.
68
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 8, 2019
69
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/ Peter R. Farr
Peter R. Farr
/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/ Anjali Joshi
Anjali Joshi
/s/ Brown McClatchy Maloney
Brown McClatchy Maloney
/s/ William B. McClatchy
William B. McClatchy
/s/ Theodore R. Mitchell
Theodore R. Mitchell
/s/ Clyde W. Ostler
Clyde W. Ostler
/s/ Vijay Ravindran
Vijay Ravindran
/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)
March 8, 2019
March 8, 2019
March 8, 2019
Chairman of the Board
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
Director
March 8, 2019
70
THE MCCLATCHY COMPANY
SUBSIDIARIES
Exhibit 21
The following is a list of subsidiaries of the Company as of December 30, 2018, 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.
Biscayne Bay Publishing, Inc.
Cass County Publishing Company
Columbus-Ledger Enquirer, Inc.
Cypress Media, Inc.
Cypress Media, LLC
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 Big Valley, Inc.
McClatchy Interactive LLC
McClatchy Interactive West
McClatchy International, Inc.
McClatchy Investment Company
McClatchy Management Services, Inc.
McClatchy News Services, Inc.
McClatchy Newspapers, Inc.
McClatchy Property, Inc.
McClatchy Resources, Inc.
McClatchy Shared Services, Inc.
McClatchy U.S.A., 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.
San Luis Obispo Tribune, LLC
Star-Telegram, Inc.
Tacoma News, Inc.
The Bradenton Herald, Inc.
The Charlotte Observer 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
Florida
Missouri
Georgia
New York
Delaware
South Carolina
California
Mississippi
Missouri
Delaware
Kansas
Florida
Missouri
Kentucky
Georgia
Texas
California
Delaware
Delaware
Delaware
Delaware
Delaware
Michigan
Delaware
Florida
Florida
Florida
Delaware
Delaware
Delaware
California
Pennsylvania
Texas
Missouri
Delaware
Washington
Florida
Illinois
Delaware
Delaware
Washington
Florida
Delaware
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 8, 2019, 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 30, 2018.
Exhibit 23
/s/ Deloitte & Touche LLP
Sacramento, California
March 8, 2019
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 8, 2019
/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 8, 2019
/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 30, 2018 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 8, 2019
/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 30, 2018 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 8, 2019
/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.
GENERAL OFFICE and
SHAREHOLDER
INFORMATION
The McClatchy Company
2100 Q Street
Sacramento, CA 95816
(916) 321-1844
www.mcclatchy.com
TRANSFER AGENT AND
REGISTRAR
EQ 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
Director
P. O. Box 15779
Sacramento, CA 95852
ANNUAL MEETING
The annual meeting of shareholders
will be held virtually by means of a
live webcast on Thursday, May 16,
2019, at 9 a.m. Pacific time. Access
the meeting by visiting
www.virtualshareholdermeeting.com
/MNI2019.
SHAREHOLDER INFORMATION
DIRECTORS AND OFFICERS
Chairman of the Board
Directors
Kevin S. McClatchy
Officers
Craig I. Forman
President and Chief Executive
Officer
R. Elaine Lintecum
Vice President, Chief Financial
Officer and Treasurer
Scott Manuel
Vice President, Customer and
Product
Billie McConkey
Vice President, Human
Resources,
General Counsel and Secretary
Andrew Pergam
Vice President, News
Operations and New Ventures
Mark Zieman
Vice President, Operations
CERTIFICATIONS OF
OFFICERS
The company submitted its Annual
CEO Certification for 2018 to the
NYSE American on June 26, 2018.
The company has filed with the
Securities and Exchange
Commission as Exhibits 31.1 and
31.2 to its Annual Report on Form
10-K for the fiscal year ended
December 30, 2018, 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.
The McClatchy Company 2012
Annual Report
Craig I. Forman
President and Chief Executive
Officer, The McClatchy
Company
Elizabeth Ballantine
President, EBA Associates
Leroy Barnes Jr.
Former Vice President and
Treasurer, PG&E Corporation
Molly Maloney Evangelisti
Former Special Projects
Coordinator, The Sacramento
Bee
Anjali Joshi
Vice President of Product
Management at Google
Brown McClatchy Maloney
Former Owner and Publisher,
Olympic View Publishing and
Owner, Radio Pacific
Kevin S. McClatchy
Chairman, The McClatchy
Company and Former Managing
General Partner and Chief
Executive Officer, Pittsburgh
Pirates
William McClatchy
Entrepreneur, Journalist and
Co-founder of Index Investing,
LLC
Theodore R. Mitchell
Former Under Secretary of the
United States Department of
Education
Clyde Ostler
Former Group Executive Vice
President, Vice Chairman of
Wells Fargo Bank California
and President of Wells Fargo
Family Wealth
Vijay Ravindran
Co-founder and CEO of Floreo
Maria Thomas
C-Level startup executive,
former Chief Executive Officer
at Etsy and Senior Vice
President and General Manager
of NPR Digital