BUSINESS AND BASIS OF ACCOUNTING	3 Months Ended
Mar. 29, 2020
BUSINESS AND BASIS OF ACCOUNTING
BUSINESS AND BASIS OF ACCOUNTING	THE MCCLATCHY COMPANY (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS AND BASIS OF ACCOUNTING The McClatchy Company (“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. Basis of Presentation Preparation of the financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulation of the Securities and Exchange Commission requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The condensed consolidated financial statements include the Company and our subsidiaries. Intercompany balances and transactions are eliminated. The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, that are necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. These financial statements are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 29, 2019 (“Form 10-K”). Each of the fiscal periods included herein comprise 13 weeks for the first-quarter periods. Reclassifications Certain amounts in the accompanying condensed consolidated statement of operations and condensed consolidated statement of cash flows for the three months ended March 31, 2019, have been reclassified to conform to the three months ended March 29, 2020, presentation. Going Concern We have concluded that our financial condition and projected operating results (including the effects of the COVID-19 pandemic as defined below), required contributions to our qualified defined benefit pension plan (“Pension Plan”) (as described below), defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 Cases (see Note 2) raise substantial doubt as to our ability to continue as a going concern and it is not probable that our plans will mitigate the going concern uncertainty within the next twelve months. As of March 29, 2020, we faced liquidity challenges relating to approximately $124.2 million in minimum required contributions that are due in the next 12 months to our Pension Plan. In January 2020, we entered into a Standstill Agreement with the Pension Benefit Guaranty Corporation (“PBGC”), pursuant to which the PBGC agreed not to exercise the remedies available to it as a result of our not making a previously scheduled qualified pension contribution of $4.0 million due in January 2020. The payment obligations to the Pension Plan were further stayed when we filed for reorganization under Chapter 11 in February 2020. However, section 3608 of the CARES Act (as defined below) delays all minimum required contributions due in calendar year 2020 until January 1, 2021. As a result, the notice of missed payment in January 2020 no longer constitutes a missed contribution as of March 29, 2020. As of March 29, 2020, we had $703.3 million aggregate principal amount of outstanding debt consisting of $262.9 million of our Senior Secured Notes due 2026 (“2026 Notes” or “First Lien Notes”), $157.1 million of our Junior Term Loan, $268.4 million of our senior secured junior lien 2031 Notes and $14.9 million of our Debentures. See Notes 2 and 7 regarding a discussion about our long-term debt obligations that have been reclassified to liabilities subject to compromise as of March 29, 2020. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Financial Reporting in Reorganization Effective February 13, 2020, we applied Accounting Standard Codification, No. 852, “Reorganizations,” (“ASC 852”) which is applicable to companies under Chapter 11 bankruptcy protection. ASC 852 requires the financial statements for periods subsequent to the Chapter 11 filing to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as “Reorganization items, net” in the condensed consolidated statements of operations. In addition, the balance sheet must distinguish between debtor pre-petition liabilities subject to compromise from pre-petition or post-petition liabilities that are not subject to compromise. Liabilities subject to compromise are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. See Note 2 for additional discussion of the liabilities subject to compromise and reorganization items, net. NYSE American Delisting Our Class A Common Stock was previously listed on the NYSE American under the symbol MNI. On February 13, 2020, the NYSE American suspended the trading of our Class A Common Stock upon our filing the Chapter 11 petitions, and our Class A Common Stock has been quoted “over-the-counter” on the OTC Pink Market, operated by OTC Markets Group, under the symbol MNIQQ. On February 21, 2020, the NYSE American filed a Form 25 with the SEC to delist our Class A Common Stock from the NYSE American. The delisting was effective 10 days after the Form 25 was filed. The deregistration of the Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), became effective on May 21, 2020, 90 days after the filing date of the Form 25. Coronavirus (COVID-19) Pandemic In early 2020, the World Health Organization declared that the recent coronavirus disease 2019 (“COVID-19”) outbreak was a global health emergency and then in March 2020, they raised the COVID-19 outbreak to “pandemic” status. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and customer activity, event cancellations and restrictions, service cancellations, reductions and other changes, significant challenges in healthcare service preparation and delivery, quarantines and related government actions and policies, as well as general concern and uncertainty that has negatively affected the economic environment. We are unable to predict the duration or extent of the COVID-19 induced business disruption, or its financial impact. The COVID-19 outbreak has negatively impacted our advertising revenues and the collectability of some of our accounts receivables. To address the financial impact of COVID-19, we have taken steps to reduce operating expenses, while continuing to deliver news and information that is vital to our subscribers and customers in the communities we serve. We will continue to monitor the COVID-19 situation and the impact it has on our financial results, which may require us to take additional actions to ensure our operating expenses align with revenues. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Key provisions of the CARES Act include one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to certain businesses, and temporary amendments to the Internal Revenue Code. While we do not qualify for any of the business loans or grants under the CARES Act, modifications to the tax rules for the carryback of net operating losses and business interest limitations allowed us to file for a federal tax refund of approximately $11.7 million. In addition, section 2302 of the CARES Act allows us to delay the payment of our share of certain payroll taxes incurred from March 27, 2020, through December 31, 2020. As discussed above, the CARES Act permits a delay in the payment of minimum required pension contributions due in 2020 to January 1, 2021. The delayed payment must include interest from the original due dates of the minimum required contribution. See Notes 2 and 8 regarding a discussion about our pension and post-retirement obligations that have been reclassed to liabilities subject to compromise as of March 29, 2020.

THE MCCLATCHY COMPANY

(DEBTOR IN POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BUSINESS AND BASIS OF ACCOUNTING

The McClatchy Company (“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.

Basis of Presentation

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulation of the Securities and Exchange Commission requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The condensed consolidated financial statements include the Company and our subsidiaries. Intercompany balances and transactions are eliminated.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, that are necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. These financial statements are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 29, 2019 (“Form 10-K”). Each of the fiscal periods included herein comprise 13 weeks for the first-quarter periods.

Reclassifications

Certain amounts in the accompanying condensed consolidated statement of operations and condensed consolidated statement of cash flows for the three months ended March 31, 2019, have been reclassified to conform to the three months ended March 29, 2020, presentation.

Going Concern

We have concluded that our financial condition and projected operating results (including the effects of the COVID-19 pandemic as defined below), required contributions to our qualified defined benefit pension plan (“Pension Plan”) (as described below), defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 Cases (see Note 2) raise substantial doubt as to our ability to continue as a going concern and it is not probable that our plans will mitigate the going concern uncertainty within the next twelve months.

As of March 29, 2020, we faced liquidity challenges relating to approximately $124.2 million in minimum required contributions that are due in the next 12 months to our Pension Plan. In January 2020, we entered into a Standstill Agreement with the Pension Benefit Guaranty Corporation (“PBGC”), pursuant to which the PBGC agreed not to exercise the remedies available to it as a result of our not making a previously scheduled qualified pension contribution of $4.0 million due in January 2020. The payment obligations to the Pension Plan were further stayed when we filed for reorganization under Chapter 11 in February 2020. However, section 3608 of the CARES Act (as defined below) delays all minimum required contributions due in calendar year 2020 until January 1, 2021. As a result, the notice of missed payment in January 2020 no longer constitutes a missed contribution as of March 29, 2020.

As of March 29, 2020, we had $703.3 million aggregate principal amount of outstanding debt consisting of $262.9 million of our Senior Secured Notes due 2026 (“2026 Notes” or “First Lien Notes”), $157.1 million of our Junior Term Loan, $268.4 million of our senior secured junior lien 2031 Notes and $14.9 million of our Debentures. See Notes 2 and 7 regarding a discussion about our long-term debt obligations that have been reclassified to liabilities subject to compromise as of March 29, 2020.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Financial Reporting in Reorganization

Effective February 13, 2020, we applied Accounting Standard Codification, No. 852, “Reorganizations,” (“ASC 852”) which is applicable to companies under Chapter 11 bankruptcy protection. ASC 852 requires the financial statements for periods subsequent to the Chapter 11 filing to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as “Reorganization items, net” in the condensed consolidated statements of operations. In addition, the balance sheet must distinguish between debtor pre-petition liabilities subject to compromise from pre-petition or post-petition liabilities that are not subject to compromise. Liabilities subject to compromise are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. See Note 2 for additional discussion of the liabilities subject to compromise and reorganization items, net.

NYSE American Delisting

Our Class A Common Stock was previously listed on the NYSE American under the symbol MNI. On February 13, 2020, the NYSE American suspended the trading of our Class A Common Stock upon our filing the Chapter 11 petitions, and our Class A Common Stock has been quoted “over-the-counter” on the OTC Pink Market, operated by OTC Markets Group, under the symbol MNIQQ. On February 21, 2020, the NYSE American filed a Form 25 with the SEC to delist our Class A Common Stock from the NYSE American. The delisting was effective 10 days after the Form 25 was filed. The deregistration of the Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), became effective on May 21, 2020, 90 days after the filing date of the Form 25.

Coronavirus (COVID-19) Pandemic

In early 2020, the World Health Organization declared that the recent coronavirus disease 2019 (“COVID-19”) outbreak was a global health emergency and then in March 2020, they raised the COVID-19 outbreak to “pandemic” status. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and customer activity, event cancellations and restrictions, service cancellations, reductions and other changes, significant challenges in healthcare service preparation and delivery, quarantines and related government actions and policies, as well as general concern and uncertainty that has negatively affected the economic environment.

We are unable to predict the duration or extent of the COVID-19 induced business disruption, or its financial impact. The COVID-19 outbreak has negatively impacted our advertising revenues and the collectability of some of our accounts receivables. To address the financial impact of COVID-19, we have taken steps to reduce operating expenses, while continuing to deliver news and information that is vital to our subscribers and customers in the communities we serve. We will continue to monitor the COVID-19 situation and the impact it has on our financial results, which may require us to take additional actions to ensure our operating expenses align with revenues.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Key provisions of the CARES Act include one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to certain businesses, and temporary amendments to the Internal Revenue Code.

While we do not qualify for any of the business loans or grants under the CARES Act, modifications to the tax rules for the carryback of net operating losses and business interest limitations allowed us to file for a federal tax refund of approximately $11.7 million. In addition, section 2302 of the CARES Act allows us to delay the payment of our share of certain payroll taxes incurred from March 27, 2020, through December 31, 2020.

As discussed above, the CARES Act permits a delay in the payment of minimum required pension contributions due in 2020 to January 1, 2021. The delayed payment must include interest from the original due dates of the minimum required contribution. See Notes 2 and 8 regarding a discussion about our pension and post-retirement obligations that have been reclassed to liabilities subject to compromise as of March 29, 2020.