NOTE 6.

EMPLOYEE BENEFITS

The Company sponsors a qualified defined benefit pension plan, which covers a majority of its employees hired prior to March 2009. Benefits are based on age, years of service and compensation. Contributions to the plan are made by the Company in amounts deemed necessary to provide the required benefits and as required by law. All of the Company's defined benefit plans were frozen in March 2009.

Contribution of Cash and Real Property to Qualified Defined Benefit Plan: On May 27, 2011, the Company contributed $163.0 million of cash to its qualified defined benefit pension plan using proceeds from the sale of real property in Miami (see Note 2). On January 14, 2011, the Company contributed Company-owned real property from seven locations to its qualified defined benefit pension plan. The pension plan obtained independent appraisals of the property, and based on these appraisals the plan recorded the contribution (the fair value of the property) at $49.7 million on January 14, 2011.

The Company entered into leases for the seven contributed properties for 10 years at an initial annual rent of approximately $4.0 million and expects to continue to use the seven properties in its newspaper operations. The properties are managed on behalf of the pension plan by an independent fiduciary, and the terms of the leases were negotiated with the fiduciary.

The contribution and leaseback of the properties were treated as a financing transaction and, accordingly, the Company will continue to depreciate the carrying value of the properties in its financial statements, and no gain or loss has been recognized on the contribution. The Company's pension obligation has been reduced by $49.7 million, and a long-term and short-term financing obligation equaling $45.7 million (in financing obligations) and $4.0 million (in other accrued liabilities), respectively, was recorded on the date of the contribution. The financing obligation is reduced by a portion of lease payments made to the pension plan each month and the balance of this obligation at December 25, 2011, was $48.0 million.

In January 2012 the Company made a $40.0 million contribution to its qualified defined benefit plan to reduce its unfunded plan liability. The Company expects this contribution to satisfy all of its required contributions for fiscal 2012. Currently the Company does not expect to make additional pension plan contributions in fiscal 2012.

The Company made an $8.2 million contribution to its retirement plan in fiscal 2010.

The Company has a limited number of supplemental retirement plans to provide key employees hired prior to March 2009 with additional retirement benefits, which were also frozen on March 31, 2009. These plans are funded on a pay-as-you-go basis and the accrued pension obligation is largely included in other long-term obligations. The Company paid $7.4 million in fiscal 2011 and $7.5 million in both fiscal 2010 and 2009 for these plans.

The Company provides or subsidizes certain life insurance benefits for employees. In addition the Company had separate deferred compensation plans (401(k) plans) for employees of Knight Ridder, Inc. and The McClatchy Company, which enable qualified employees to voluntarily defer compensation. On March 31, 2009, the Company temporarily suspended its matching contribution to the 401(k) plans. On June 29, 2009, the Knight Ridder 401(k) plan was merged into The McClatchy Company 401(k) Plan ("McClatchy Plan"). The McClatchy Plan, as amended, includes a Company match (once reinstated) and a supplemental contribution that is tied to Company performance (as defined in the plan). See the table below for a summary of expenses related to the Company's deferred compensation plans.

The elements of retirement costs for continuing operations are as follows (in thousands):


	December 25, 2011			December 26, 2010			December 27, 2009
	December 25, 2011			December 26, 2010			December 27, 2009
Pension plans:
Service Cost	$	5,600		$	5,885		$	6,783
Interest Cost		92,961			93,796			95,136
Expected return on plan assets		(104,251	)		(96,151	)		(99,326	)
Prior service cost amortization		14			14			34
Actuarial loss		6,726			2,229			16
Curtailment loss		—			—			(1,900	)

Net pension expense		1,050			5,773			743
Net post-retirement benefit (credit) expense		(234	)		(205	)		916
Deferred compensation plan expense (credit)		(71	)		10,790			2,236

Net retirement expenses	$	745		$	16,358		$	3,895

The following tables provide reconciliations of the pension and postretirement benefit plans' benefit obligations, fair value of assets, funded status and amounts recognized in the Company's Consolidated Balance Sheet at December 25, 2011, and December 26, 2010 (in thousands):


	Pension Benefits						Postretirement Benefits
	2011			2010			2011			2010
Change in Benefit Obligation
Benefit obligation, beginning of year	$	1,634,124		$	1,589,495		$	30,585		$	34,636
Service cost		5,600			5,885			—			—
Interest cost		92,961			93,796			1,358			1,487
Plan participants' contributions		—			—			1,044			1,329
Actuarial (gain)/loss		120,283			31,215			(1,796	)		(1,985	)
Gross benefits paid		(83,660	)		(80,625	)		(3,717	)		(4,882	)
Administrative expenses		(5,449	)		(5,642	)		—			—

Benefit obligation, end of year	$	1,763,859		$	1,634,124		$	27,474		$	30,585

Accumulated benefit obligation, end of year	$	1,763,859		$	1,634,124
Change in Plan Assets
Fair value of plan assets, beginning of year	$	1,051,410		$	984,868		$	—		$	—
Actual return on plan assets		50,778			137,181			—			—
Employer contribution		220,227			15,628			2,673			3,553
Plan participants' contributions		—			—			1,044			1,329
Gross benefits paid		(83,660	)		(80,625	)		(3,717	)		(4,882	)
Administrative expenses		(5,449	)		(5,642	)		—			—

Fair value of plan assets, end of year	$	1,233,306		$	1,051,410		$	—		$	—

Funded Status
Fair value of plan assets	$	1,233,306		$	1,051,410		$	—		$	—
Benefit obligations		(1,763,859	)		(1,634,124	)		(27,474	)		(30,585	)

Funded status and amount recognized, end of year	$	(530,553	)	$	(582,714	)	$	(27,474	)	$	(30,585	)

Amounts recognized in the statement of financial position consist of:
Current liability	$	(37,462	)	$	(7,355	)	$	(3,897	)	$	(4,440	)
Noncurrent liability		(493,091	)		(575,359	)		(23,577	)		(26,145	)

	$	(530,553	)	$	(582,714	)	$	(27,474	)	$	(30,585	)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss/(gain)	$	585,839		$	418,809		$	(9,634	)	$	(8,350	)
Prior service cost/(credit)		41			55			(8,618	)		(9,697	)

	$	585,880		$	418,864		$	(18,252	)	$	(18,047	)

As of December 25, 2011, and December 26, 2010, the measurement dates for the plans, plan assets and related target allocations are as follows (dollars in thousands):


	December 25, 2011		December 26, 2010		2012 Target Allocation
Equity securities	$	720,395	$	621,842		60	%
Debt securities		322,721		217,269		28	%
Real estate		77,960		51,679		7	%
Commodities		57,721		51,619		5	%
Cash equivalents and other		54,509		109,001		NIL

Plan assets	$	1,233,306	$	1,051,410		100	%

The Company's investment policies are designed to maximize plans' 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.

The Company's 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.

The Company's assumed long-term return on assets was developed using a weighted average return based upon its portfolio of assets and expected returns for each asset class, taking into account 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.

Expected benefit payments to retirees under the Company's retirement and post-retirement plans over the next 10 years are summarized below (in thousands):


	Retirement Plans (1)		Post-retirement Plans
	Retirement Plans (1)		Post-retirement Plans
2012	$	85,117	$	3,897
2013		87,405		3,502
2014		91,127		3,200
2015		94,893		2,921
2016		98,454		2,587
2017-2021		558,209		8,794

Total	$	1,015,205	$	24,901

(1)	Largely to be paid from the qualified defined benefit pension plan

The Company's 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:


	2011			2010
Discount rate in determining pension benefit obligation		5.32	%		5.90	%
Discount rate in determining post-retirement obligations		4.26	%		4.84	%

Weighted average assumptions used in calculating expense:


	2011			2010			2009
Long-term return on assets		8.25	%		8.25	%		8.25	%
Discount rate in determining pension expense		5.90	%		6.05	%		6.52	%
Discount rate in determining post-retirement expense		4.84	%		5.09	%		6.22	%

The following table summarizes data for pension plans with accumulated benefit obligations in excess of plan assets (in thousands):


	December 25, 2011		December 26, 2010
Projected benefit and accumulated benefit obligation	$	1,763,859	$	1,634,124
Fair value of plan assets		1,233,306		1,051,410

For the post-retirement plans, the medical cost trend rates are expected to decline from 8.0% in 2011 to 5.0% by the year 2018. As of December 25, 2011, a 1% increase in the assumed health care cost trend rate would increase the benefit obligation by $1.1 million, and a 1% decrease in the assumed health care cost trend rate would decrease the benefit obligation by $1.0 million. As of December 26, 2010, a 1.0% increase in the assumed health care cost trend rate would increase the benefit obligation by $1.3 million, and a 1.0% decrease in the assumed health care cost trend rate would decrease the benefit obligation by $1.1 million.

Fair Value Measurement:

Fair value measurements accounting framework establishes a framework for measuring fair value of assets and liabilities. This framework provides a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1—Inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date.

Level 2—Inputs to the valuation methodology are other than quoted prices in active markets, which 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—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.

The table below summarizes the plan's financial instruments for fiscal 2011 that are carried at fair value on a recurring basis by the fair value hierarchy levels discussed above (in thousands):


	2011 Plan Assets
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	30,816	$	—	$	—	$	30,816
Mutual funds		40,861		—		—		40,861
Corporate stock		211		—		—		211
Corporate debt instruments		—		86,776		—		86,776
U.S. Government securities		—		236,063		—		236,063
Common collective trusts		—		764,983		—		764,983
Mortgage and asset backed securities		—		22,265		—		22,265
Real estate		—		—		50,530		50,530
Other		—		14,418		8,899		23,317

Total	$	71,888	$	1,124,505	$	59,429		1,255,822

Pending trades								(22,516	)

							$	1,233,306

The table below summarizes changes in the fair value of the plan's Level 3 investment assets held for the year ended December 25, 2011 (in thousands):


	Real Estate			Private Equity		Receivable			Total
Beginning Balance, December 26, 2010	$	—		$	7,792	$	28,936		$	36,728
Purchases, issuances, sales, settlements		49,710			—		(28,936	)		20,774
Realized gains		3,472								3,472
Transfer in or out of level 3		(3,472	)							(3,472	)
Unrealized gains		820			1,107		—			1,927

Ending Balance, December 25, 2011	$	50,530		$	8,899	$	—		$	59,429

The table below summarizes the plan's financial instruments for fiscal 2010 that are carried at fair value on a recurring basis by the fair value hierarchy levels discussed above (in thousands):


	2010 Plan Assets
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	38,717	$	—	$	—	$	38,717
Mutual funds		32,708		—		—		32,708
Corporate stock		200		—		—		200
Corporate debt instruments		—		70,060		—		70,060
U.S. Government securities		—		171,942		—		171,942
Common collective trusts		—		692,553		—		692,553
Mortgage and asset backed securities		—		17,140		—		17,140
Other		—		9,612		36,728		46,340

Total	$	71,625	$	961,307	$	36,728		1,069,660

Pending trades								(18,250	)

							$	1,051,410

The table below summarizes changes in the fair value of the plan's Level 3 investment assets held for the year ended December 26, 2010 (in thousands):


	Commercial Bank Loans			Private Equity			Receivable			Total
Beginning Balance, December 27, 2009	$	1,538		$	7,904		$	32,216		$	41,658
Purchases, issuances, sales, settlements		(5,165	)		(172	)		(3,280	)		(8,617	)
Unrealized gains		3,627			60			—			3,687

Ending Balance, December 26, 2010	$	—		$	7,792		$	28,936		$	36,728

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.

Corporate stock. The fair value of corporate stock is based on the exchange quoted market prices. When quoted prices are not available for identical stock, an industry standard valuation model is used which maximizes observable inputs.

Corporate debt instruments. The fair value of corporate debt instruments is based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar debt instruments, the fair value is based upon an industry valuation model, which maximizes observable inputs.

U.S. Government securities. U.S. government securities primarily consist of investments in U.S. Treasury Bonds, Indexed Linked Bonds and Treasury Inflation Protected Securities. The fair value of U.S. government securities is based on quoted market prices when available or is based on yields currently available on comparable securities or on an industry valuation model, which maximizes observable inputs.

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.

Mortgage and asset backed securities. Mortgage and asset backed securities are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable.

Other. Other includes:

Private Equity Fund. Private equity funds represent investments in limited partnerships, which invest in start-up or other private companies. Fair value is estimated based on valuations of comparable public companies, recent sales of comparable private and public companies, and discounted cash flow analysis of portfolio companies and is included as a Level 3 investment in the table above.

Receivable. This asset represented the estimated amount to be received from a redemption request made from an equity investment fund in 2008. In early 2009, the Company became aware of a regulatory action and criminal charges for securities fraud filed against two principals that operated the investment strategy in which the fund was invested. The fund assets are held by a court-appointed receiver. Criminal and civil claims continue against the fund principals. The plan received $37.0 million from the receiver in fiscal 2011 and has recorded no additional receivable as it cannot determine if or when additional funds may be recovered. This asset was included as a Level 3 investment in the 2010 table above.

Real Estate. On January 14, 2011, the Company contributed Company-owned real property from seven locations to its qualified defined benefit pension plan. The pension plan obtained independent appraisals of the property, and based on these appraisals the plan recorded the contribution at fair value on January 14, 2011. The properties are leased by the Company for its newspaper operations. The properties are managed on behalf of the pension plan by an independent fiduciary, and the terms of the leases between the Company and the plan were negotiated with the fiduciary. The property is valued by independent appraisals conducted under the direction of the independent fiduciary.