SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 30, 2014

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 one of the largest newspaper companies in the country, based on daily circulation, our operations have included 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.

On April 8, 2014, we entered into a Stock Purchase Agreement to sell the outstanding capital stock of the Anchorage Daily News, Inc. for $34 million in cash. We completed the sale on May 5, 2014. See Note 7, Subsequent Events for further discussion.

We also own a portfolio of premium digital assets, including 15.0% of CareerBuilder LLC, which operates the nation’s largest online jobs website, CareerBuilder.com; 25.6% of Classified Ventures LLC, which operates the auto website Cars.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.  See Note 2, Investments in Unconsolidated Companies for further discussion.

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

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 for the year ended December 29, 2013 ( “Form 10-K”). The fiscal periods included herein comprise 13 weeks for the first-quarter periods.

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, and accounts payable.  The carrying amount of these items approximates fair value.

Long-term debt.  The fair value of our 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 30, 2014, the estimated fair value and carrying value of our long-term debt was $1.7 billion and $1.5 billion, respectively.

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Our non-financial assets measured at fair value on a nonrecurring basis in the accompanying condensed consolidated balance sheets as of March 30, 2014, were assets held for sale, goodwill, intangible assets not subject to amortization and equity method investments. All of these were measured using Level 3 inputs. We utilize valuation techniques that seek to maximize the use of observable inputs and minimize the use of unobservable inputs.

Property, plant and equipment

Property, plant and equipment

During the quarter ended March 30, 2014, we completed the acquisition of a new production facility for $5.2 million in cash. In addition, during the quarter ended March 30, 2014, we incurred $13.5 million in accelerated depreciation (i) related to the production equipment associated with outsourcing our printing process at one newspaper and (ii) resulting from moving the printing operations for another newspaper to the newly purchased production facility. During the quarter ended March 31, 2013, we incurred $2.1 million in accelerated depreciation related to our Miami operations move.

Assets held for sale

Assets held for sale

The increase in assets held for sale, during the quarter ended March 30, 2014, related primarily to identifying and beginning to actively market for sale one of our production facilities for a newspaper at which we outsourced our printing to a third-party. These assets consisted primarily of undeveloped land and buildings. In connection with the classification to assets held for sale, the carrying value of the land and office buildings were reduced to their estimated fair value less selling costs, as determined based on the current market conditions and the selling prices. As a result, an impairment charge of $0.9 million was recorded in the quarter ended March 30, 2014, and is included in other operating expenses on the condensed consolidated statements of operations.

Intangible Assets and Goodwill

Intangible Assets and Goodwill

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

	December 29,		Amortization		March 30,
(in thousands)	2013		Expense		2014
Intangible assets subject to amortization	$	835,461	$	—	$	835,461
Accumulated amortization	(567,737)		(14,313)		(582,050)
	267,724		(14,313)		253,411
Mastheads	198,242		—		198,242
Goodwill	1,013,002		—		1,013,002
Total	$	1,478,968	$	(14,313)	$	1,464,655

Amortization expense with respect to intangible assets is summarized below:

	Quarters Ended
	March 30,		March 31,
(in thousands)	2014		2013
Amortization expense	$	14,313	$	14,251

The estimated amortization expense for the remainder of fiscal year 2014 and the five succeeding fiscal years is as follows:

	Amortization Expense
Year	(in thousands)
2014 (remainder)	$	39,581
2015	48,092
2016	47,721
2017	48,552
2018	46,977
2019	23,477

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 29, 2013	$	(296,669)	$	(8,232)	$	(304,901)
Other comprehensive income (loss) before reclassifications	—		725		725
Amounts reclassified from AOCL	1,882		—		1,882
Other comprehensive income (loss)	1,882		725		2,607
Ending balance - March 30, 2014	$	(294,787)	$	(7,507)	$	(302,294)

	Amount Reclassified from AOCL (in thousands)
	Quarters Ended
	March 30,		March 31,		Affected Line in the Condensed
AOCL Component	2014		2013		Consolidated Statements of Operations
Minimum pension and post-retirement liability	$	3,136	$	5,625	Compensation
	(1,254)		(2,250)		Provision for income taxes
	$	1,882	$	3,375	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:

	Quarters Ended
	March 30,	March 31,
(shares in thousands)	2014	2013
Anti-dilutive stock options	3,668	5,729

Cash Flow Information

Cash Flow Information

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

	Quarters Ended
	March 30,		March 31,
(in thousands)	2014		2013
Interest paid (net of amount capitalized)	$	16,907	$	21,885
Income taxes paid (net of refunds)	4,691		(8,214)

Other non-cash investing activities as of March 30, 2014, and March 31, 2013, related to purchases of property, plant and equipment (“PP&E”) on credit, were $1.0 million and $6.6 million, respectively.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-08 (ASU 2014-08) “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.