SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2013

SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Accounting

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 12.2% of Wanderful Media, owner of Find & 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 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 and Amendment No. 1 to the Form 10-K for the year ended December 30, 2012 (collectively “Form 10-K”). The fiscal periods included herein comprise 13 weeks and 26 weeks for the second-quarter and six-month periods, respectively.

Circulation Delivery Contract Accounting Correction

Circulation Delivery Contract Accounting Correction

Subsequent to the issuance of our consolidated financial statements on March 6, 2013, 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, as we are established as the primary obligor through subscriber agreements.  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.  This correction resulted in an increase to circulation revenues and equivalent increases to other operating expenses of $20.8 million and $39.2 million in the quarter and six months ended June 24, 2012, respectively.  We believe this correction is not material to our previously issued financial statements for prior periods.  There is no impact to the previously reported operating income, net income, net income per common share or cash flows from operating activities in any of the periods presented.

Fair Value of Financial Instruments

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 June 30, 2013, the estimated fair value and carrying value of long-term debt was $1.5 billion.

Intangible Assets and Goodwill

Intangible Assets and Goodwill

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

	December 30,		Acquired		Amortization		June 30,
(in thousands)	2012		Assets		Expense		2013
Intangible assets subject to amortization	$	834,961	$	500	-		$	835,461
Accumulated amortization	(510,546)		-		$	(28,502)	(539,048)
	324,415		500		(28,502)		296,413
Mastheads	203,587		-		N/A		203,587
Goodwill	1,012,011		903		N/A		1,012,914
Total	$	1,540,013	$	1,403	$	(28,502)	$	1,512,914

During the quarter ended June 30, 2013, we completed a small acquisition, which is reflected in goodwill and intangible assets subject to amortization.

Amortization expense with respect to intangible assets is summarized below:

	Quarter Ended				Six Months Ended
	June 30,		June 24,		June 30,		June 24,
(in thousands)	2013		2012		2013		2012
Amortization expense	$	14,251	$	14,274	$	28,502	$	28,560

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)	$	28,689
2014	52,774
2015	48,092
2016	47,721
2017	48,552
2018	46,977

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss (“AOCL”) and reclassifications from AOCL, 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	-		(731)		(731)
Amounts reclassified from AOCL	6,773		-		6,773
Other comprehensive income (loss)	6,773		(731)		6,042
Ending balance - June 30, 2013	$	(466,675)	$	(8,599)	$	(475,274)

	Amount Reclassified from AOCL (in thousands)
	Quarter Ended		Six Months Ended
	June 30,		June 30,		Affected Line in the Condensed
AOCL Component	2013		2013		Consolidated Statements of Operations
Minimum pension and post-retirement liability	$	5,664	$	11,289	Compensation
	(2,266)		(4,516)		Provision for income taxes
	$	3,398	$	6,773	Net of tax

Income Taxes

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)

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:

	Quarter Ended		Six Months Ended
	June 30,	June 24,	June 30,	June 24,
(shares in thousands)	2013	2012	2013	2012
Anti-dilutive stock options	5,619	6,293	6,048	5,987

Cash Flow Information

Cash Flow Information

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

	Six Months Ended
	June 30,		June 24,
(in thousands)	2013		2012
Interest paid (net of amount capitalized)	$	65,736	$	73,277
Income taxes paid (received)	(2,861)		14,153

As of June 30, 2013, other non-cash financing activities include the release of $238.1 million for the financing obligation related to the Miami property transaction because we no longer have a continuing involvement with the Miami property (see Note 3).  As of June 30, 2013, other non-cash investing activities includes the release of $227.7 million from property, plant and equipment (“PP&E”), which also relates to the conclusion of the Miami property transaction. In addition, other non-cash financing activities as of June 30, 2013 and June 24, 2012, related to purchases of PP&E on credit, were $1.1 million and $1.8 million, respectively.

Recently Adopted Accounting Pronouncements

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.