1. SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Accounting

The McClatchy Company (the “Company,” “we,” “us” or “our”) is a leading news, advertising and information provider, offering a wide array of print and digital products in each of the markets it serves. As the third largest newspaper company in the United States, based on daily circulation, our operations include 30 daily newspapers, community newspapers, websites, mobile news and advertising, niche publications, direct marketing and direct mail services. Our largest newspapers include the Fort Worth Star-Telegram, The Sacramento Bee, The Kansas City Star, The Miami Herald, The Charlotte Observer and The (Raleigh) News & Observer. We are listed on the New York Stock Exchange under the symbol MNI.

We also own a portfolio of premium digital assets, including 15.0% of CareerBuilder LLC, which operates the nation’s largest online job website, CareerBuilder.com; 25.6% of Classified Ventures LLC, a company that offers classified websites such as the auto website Cars.com and the rental website Apartments.com; 33.3% of HomeFinder LLC, which operates the online real estate website HomeFinder.com; and 11.4% of Wanderful Media, owner of Find n Save®, a digital shopping portal that provides advertisers with a common platform to reach online audiences with digital circulars, coupons and display advertising.

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

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. The financial statements contained in this report are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 30, 2012. The fiscal periods included herein comprise 13 weeks for the first-quarter periods.

Circulation Delivery Contract Accounting

Subsequent to the issuance of our consolidated financial statements for the year ended December 30, 2012, we determined that circulation revenues associated with our “fee for service” contracts with distributors and carriers should be presented on a gross basis, as opposed to on a net basis. The difference in presentation results in delivery costs associated with these contracts being reported as other operating expenses, rather than as a reduction in circulation revenues, in our condensed consolidated statements of operations. We believe this error is not material to our previously issued financial statements for prior periods. Accordingly, the classifications in the condensed consolidated statements of operations for the quarter ended March 25, 2012 have been corrected in this Form 10-Q, resulting in increases to circulation revenues and other operating expenses of $18.4 million. There was no impact to the previously reported operating income, net loss or net loss per common share.

Fair Value of Financial Instruments

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1 –	Unadjusted quoted prices available in active markets for identical investments as of the reporting date.

Level 2 –	Observable inputs to the valuation methodology are other than Level 1 inputs and are either directly or indirectly observable as of the reporting date and fair value can be determined through the use of models or other valuation methodologies.

Level 3 –	Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk.

Our policy is to recognize significant transfers between levels at the actual date of the event or circumstance that caused the transfer. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, accounts receivable, certificates of deposit (in other assets) and accounts payable. The carrying amount of these items approximates fair value.

Long-term debt. The fair value of long-term debt is determined using quoted market prices and other inputs that were derived from available market information including the current market activity of our publicly-traded notes and bank debt, trends in investor demand and market values of comparable publicly-traded debt. These are considered to be Level 2 inputs under the fair value measurements and disclosure guidance, and may not be representative of actual value. At March 31, 2013, the estimated fair value and carrying value of long-term debt was $1.6 billion and $1.5 billion, respectively.

Intangible Assets and Goodwill

Intangible assets (primarily advertiser and subscriber lists) and goodwill consisted of the following:

	December 30,			Amortization			March 31,
(in thousands)	2012			Expense			2013
Intangible assets subject to amortization	$	834,961					$	834,961
Accumulated amortization	(510,546		)	$	(14,251	)	(524,797		)
	324,415			(14,251		)	310,164
Mastheads	203,587			N/A			203,587
Goodwill	1,012,011			N/A			1,012,011
Total	$	1,540,013		$	(14,251	)	$	1,525,762

The estimated amortization expense for the remainder of fiscal year 2013 and the five succeeding fiscal years is as follows:

	Amortization Expense
Year	(in thousands)
2013 (remainder)	$	42,753
2014	52,524
2015	48,030
2016	47,721
2017	48,552
2018	46,977

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss (“AOCI”) and reclassifications from AOCI, net of tax, consisted of the following:

(in thousands)	Minimum Pension and Post- Retirement Liability			Other Comprehensive Loss Related to Equity Investments			Total
Beginning balance - December 30, 2012	$	(473,448	)	$	(7,868	)	$	(481,316	)
Other comprehensive income (loss) before reclassifications	—			(663		)	(663		)
Amounts reclassified from AOCI (1)	3,375			—			3,375
Other comprehensive income (loss)	3,375			(663		)	2,712
Ending balance - March 31, 2013	$	(470,073	)	$	(8,531	)	$	(478,604	)

(1) Reclassified amounts related to pension and post retirement liabilities affect the compensation line item on the condensed consolidated statements of operations. The reclassified amounts are net of a tax benefit of $2,250.

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.

We recognize accrued interest related to unrecognized tax benefits in interest expense. Accrued penalties are recognized as a component of income tax expense.

Earnings Per Share (EPS)

Basic EPS excludes dilution from common stock equivalents and reflects income divided by the weighted average number of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of outstanding shares of common stock and dilutive common stock equivalents in the period. Common stock equivalents arise from dilutive stock options, restricted stock units and restricted stock and are computed using the treasury stock method. Anti-dilutive common stock equivalents are excluded from diluted EPS. The weighted average anti-dilutive stock options that could potentially dilute basic EPS in the future, but were not included in the weighted average share calculation, consisted of the following:

	Three Months Ended
	March 31,	March 25,
(shares in thousands)	2013	2012
Anti-dilutive stock options	5,729	7,724

Cash Flow Information

Cash paid for interest and income taxes consisted of the following:

	Three Months Ended
	March 31,			March 25,
(in thousands)	2013			2012
Interest paid (net of amount capitalized)	$	21,885		$	68,061
Income taxes paid (net of refunds)	(8,214		)	8,935

In the quarters ended March 31, 2013 and March 25, 2012, other significant reconciling items between net loss and net cash from operations included a (gain) loss on extinguishment of debt ($12.8 million and $(4.4) million in 2013 and 2012, respectively) as described in Note 4 and contributions to the qualified defined benefit pension plan ($7.5 million and $40.0 million in 2013 and 2012, respectively) as described in Note 5. Other non-cash financing activities as of March 31, 2013 and March 25, 2012, related to purchases of property, plant and equipment on credit, was $6.6 million and $0.6 million, respectively.

Recently Adopted Accounting Pronouncements

As of the beginning of the first quarter of 2013, we adopted the Financial Accounting Standards Board (“FASB”) accounting standards update (“ASU”) issued in February 2013. The ASU requires new disclosures about reclassifications from accumulated other comprehensive loss to net income. These disclosures may be presented on the face of the statements or in the notes to the consolidated financial statements. Accordingly, we have presented reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations in the notes to our condensed consolidated financial statements.

As of the beginning of the first quarter of 2013, we adopted the FASB ASU issued in July 2012. The ASU provides new guidance on annual impairment testing of indefinite-lived intangible assets. The ASU allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on its qualitative assessment an entity concludes it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. The adoption of this standard did not impact our condensed consolidated financial statements.