UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

For the transition period from        to       

Commission file number: 1‑9824

The McClatchy Company

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒ Yes ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  ☐ Yes ☒ No

Based on the closing price of the registrant’s Class A Common Stock on the New York Stock Exchange on June 24, 2016, the last business day of the registrant’s second fiscal quarter, the aggregate market value of the voting and non‑voting common equity held by non‑affiliates was approximately $90.3 million. For purposes of the foregoing calculation only, as required by Form 10‑K, the Registrant has included in the shares owned by affiliates, the beneficial ownership of Common Stock of officers and directors of the Registrant and members of their families, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

Shares outstanding as of February 24, 2017:

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on May 17, 2017, are incorporated by reference in Part III of this Annual Report on Form 10‑K.

TABLE OF CONTENTS

PART I

Forward‑Looking Statements:

This annual report on Form 10‑K contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including statements relating to our future financial performance, business, strategies and operations. These statements are based upon our current expectations and knowledge of factors impacting our business and are generally preceded by, followed by or are a part of sentences that include the words “believes,” “expects,” “anticipates,” “estimates” or similar expressions. All statements, other than statements of historical fact, are statements that could be deemed forward‑looking statements. For all of those statements, we claim the protection of the safe harbor for forward‑looking statements contained in the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, trends and uncertainties. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward‑looking statements is included in the section entitled “Risk Factors” (refer to Part I, Item 1A). We undertake no obligation to revise or update any forward‑looking statements except as required under applicable law.

ITEM 1.  BUSINESS

Overview

The McClatchy Company (the “Company,” “we,” “us” or “our”) is a news and information publisher of well-respected publications such as the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer,  The (Raleigh) News and Observer, and the (Fort Worth) Star-Telegram. Each of our publications also has online platforms serving their communities. In December 2016, we acquired certain assets and operations of The (Durham, NC) Herald-Sun, including related intangible assets. With the addition of this acquisition, we operate 30 media companies in 29 U.S. markets in 14 states, providing each of these communities with high-quality news and advertising services in a wide array of digital and print formats. Incorporated in Delaware, we are headquartered in Sacramento, California, and our Class A Common Stock is listed on the New York Stock Exchange under the symbol MNI.

Our businesses are comprised of daily newspapers, websites and mobile apps, mobile news and advertising, video products, niche publications, direct marketing,  direct mail services and nearby community newspapers. Our media companies range from large daily newspapers and news websites serving metropolitan areas to non‑daily newspapers with news websites and online platforms serving small communities. For the year ended December 25, 2016, we had an average aggregate paid daily print circulation of 1.5 million and Sunday print circulation of 2.2 million. We had 56.7 million average monthly unique visitors to our online platforms for the full year ended December 25, 2016.  Our local websites, e-editions of the printed newspaper and mobile apps in each of our markets now provide us fully developed, but rapidly evolving channels, to extend our journalism and advertising products to our audience in each market. In 2016, we launched our full-service digital agency, excelerateTM, which provides digital marketing tools designed to customize digital marketing plans for our customers.

Our business is roughly divided between those media companies operated west of the Mississippi River and those that are east of it, but include five operating regions: California, the Carolinas, Southeast, Midwest and Northwest. For the year ended December 25, 2016, no single media company represented more than 12.0% of total revenues.

In addition to our media companies, we also own 15.0% of CareerBuilder, LLC, which operates a premier online job website, CareerBuilder.com, as well as certain other digital company investments. In September 2016, TEGNA Inc., the majority holder of CareerBuilder, LLC, announced that it and other owners, including us, would evaluate strategic alternatives for CareerBuilder. No specific timeline was announced for this process and no further action has been announced. 

Our fiscal year ends on the last Sunday in December. The fiscal years ended December 25, 2016,  December 27, 2015, and December 28, 2014,  consist of 52‑week periods.

Strategy

We are committed to a three‑pronged strategy to grow our businesses and total revenues as a leading local media company:

To assist us with these strategies, we continually reengineer our operations to reduce legacy costs and strengthen areas driving performance in news, audience, advertising and digital growth. As a result of our efforts, we saw growth in total digital revenues in 2016 and we continued our focus on driving results in direct marketing and audience revenues, while continuing to drive operating expenses down.

Business Initiatives

Our local media companies continue to undergo tremendous structural and cyclical change. In order to strengthen our position as a leading local media company and implement our strategies, we are focused on the following five major business initiatives:

Increasing and Broadening Total Revenues

Revenue initiatives in 2016 included revamping our sales forces in our markets, adding resources to our digital sales team, additional digital sales training, and growing our digital marketing solutions that provides agency services to small and medium-sized businesses in our markets. We realigned and improved delivery of our content on all platforms, from printed newspapers to websites to mobile apps in every market. In 2016, we launched our full-service digital agency, excelerateTM, which provides digital marketing tools designed to customize digital marketing plans for our customers. We also continued to expand our video efforts to improve storytelling and generate additional advertising revenues.

Revenues exclusive of print newspaper advertising continue to grow as a percentage of total revenues and represented 70.6%, 66.7% and 62.4% of total revenues in 2016,  2015 and 2014, respectively. Our strategy has been to focus on growing revenue sources that include digital and direct marketing advertising, audience and other non-traditional revenues. Management expects newspaper print advertising to continue to be a smaller share of overall advertising in the future, due in part to expected strong growth in digital-only advertising revenues and direct marketing advertising, and more stable performance in audience revenues. However, we continue to look for opportunities to expand our advertiser base, including advertisers outside of our markets using our excelerateTM agency services.

Overall, advertising revenues comprise a majority of our total revenues, making the quality of our sales force of greatest importance. Advertising revenues were approximately 58.2% of total revenues in 2016,  60.3% in 2015 and 63.8% in 2014. We have a local sales force in each of our markets, and our goal is to have the largest sales force as compared to other local media outlets and websites in those markets. Our sales forces are responsible for delivering to advertisers the broad array of our advertising products, including print, direct marketing and digital marketing solutions. Our advertisers range from large national retail chains to local automobile dealerships to small businesses and classified advertisers.

Increasingly, our emphasis has been on growing the breadth of products offered to advertisers, particularly our digital and direct marketing products, while expanding our relationships with local advertisers. For example, over the last several years we have provided a “Sunday Select” program, which delivers a package of preprinted advertisements on Sunday to non‑newspaper subscribers that are interested in circulars.  For 2016, total digital and direct marketing advertising revenues represented 49.5% of total advertising revenues on a combined basis compared to 44.9% and 41.1%  in 2015 and 2014, respectively. Our digital products are discussed in more detail below.

In 2016, we expanded our sponsorship of special events programs in our markets, designed for advertisers to connect with their customers, and expect this type of advertising to grow in 2017. 

Audience revenues were approximately 37.3%, 34.8% and 32.0% of consolidated total revenues in 2016, 2015 and 2014, respectively. Our subscription packages have helped diversify our revenues while continuing to drive growth in digital audience revenues. 

Expanding McClatchy’s Digital Business

We continue to be a leader in digital advertising revenues generated on our media companies’ websites and mobile platforms as a percent of total advertising.  In 2016, 30.6%  of advertising revenues came from digital products compared to 26.2%  in 2015. For 2016,  69.9% of our digital advertising revenues came from digital-only advertisements where the online buy was not an “up-sell”  from a print buy, compared to 63.5% in 2015. We believe this independent advertising revenue stream positions us well for the future of our digital business and is evidence of its importance as a delivery channel for advertisers. During 2016, total digital advertising revenues increased 4.3% compared to a decline of 3.7% in 2015, due primarily to our focus on growing our digital-only advertising in 2016. 

Our media companies’ websites and mobile apps, e‑mail products,  video and mobile services and other electronic media enable us to engage our readers with real‑time news and information that matters to them. During 2016, our websites attracted an average of approximately 56.7 million unique visitors per month, up 26.8% compared to an average of approximately 44.7 million unique visitors per month in 2015. Increasing our number of unique visitors brings additional digital advertising revenue opportunities to our sales teams. In addition, our average mobile traffic was up 35.2% as compared to 2015, and accounted for 56.9% of all digital traffic we received on a monthly basis.

Our websites offer classified digital advertising products provided by companies in which we hold a  minority investment, including CareerBuilder.com for employment. In 2016, we along with Gannett Co., Inc., Hearst, and tronc, Inc. launched Nucleus Marketing Solutions, LLC (“Nucleus”). This marketing solutions provider expects to connect national advertisers with the top 30 U.S. local publishers’ highly engaged audiences across existing and emerging digital platforms. We expect Nucleus to improve our reach with national advertisers in 2017 and beyond.

We continue to pursue additional new digital products and offerings. In  mid-2016, we expanded our concept of comprehensive digital marketing solutions for local businesses and launched a larger direct marketing business to serve all businesses in our markets called excelerateTM. We are also expanding this concept to markets beyond those served by our media companies. By offering advertisers integrated packages including website customization, search engine marketing and optimization, social media presence and marketing services, and other multi‑platform advertising opportunities, excelerateTM helps businesses improve the effectiveness of their marketing and advertising efforts.

In 2016, we continued to expand our advertising efforts on ad exchanges. Our real-time, programmatic buying and selling of digital advertising inventory – often targeting very specific audiences at very specific times – grew 82.3% in 2016 compared to 2015.  Our growth has been bolstered by our participation in the Local Media Consortium (“LMC”) and its more than 75 member companies representing more than 1,600 daily newspapers and broadcast members. The LMC has created a private advertising exchange that includes high-quality brand friendly advertising inventory from member publishers. The LMC’s goal is to provide advertisers with efficient access to high-quality ad impressions. In total, LMC members serve more than 13 billion ad impressions monthly. 

Video revenue increased 257.7% in 2016 compared to 2015, due to our continued expansion of the use of video in our digital products to both enhance the content that we bring to readers and viewers and also to compete for a growing advertising stream. During 2016, more than 225 million video views were recorded across all of our digital platforms, including those on social media platforms and distribution partners, up from 82 million video views in 2015.

All of our markets offer subscription packages for digital content. The packages include a combined digital and print subscription and a digital‑only subscription. Digital‑only subscriptions grew to approximately 83,100, an increase of 4.8% in 2016 compared to 79,300 subscriptions in 2015.

Maintaining Our Commitment to Public Service Journalism 

We believe high‑quality news content is the foundation of the mass reach necessary for the press to continue to play its role in a democratic society. It is also the underpinning of our success in the marketplace.

We are committed to developing best‑in‑class journalism and local content. Every market is expected to improve annually

as evidenced by peer awards, readership studies in its market, maintenance of readership (both print and electronic) and review of its content and quality. Most importantly, when we talk about our mission, from news meetings to board meetings, a constant theme is staying true to the public service role we believe defines our work.

During the transition that has reshaped the industry over the past decade, we have moved quickly to expand our digital reach and deliver the news in a changing technological landscape. We have also made it a focus in our evolution to maintain the deeper coverage that our communities need. We launched a broad revamping of our approach to news, beginning in 2015 and continuing through 2016,  as an area of continuous improvement. One of the central concepts was how to enhance the depth of coverage along with the speed of our work. We have added resources in breaking news and restructured our Washington D.C. bureau to work closely with our local markets on coverage unique to their readers and viewers. Every market added an element across all platforms that highlighted the deeper story. Our larger media companies, from Sacramento to Charlotte to Miami, included a full section offering in-depth coverage.

Our legacy of public service journalism is the cornerstone of our business and the work of McClatchy's journalists received significant recognition last year. The Sacramento Bee won the 2016 Pulitzer Prize for editorial cartooning. The Miami Herald was a 2016 Pulitzer Prize finalist for local reporting for its coverage of a local drug sting that cost tens of millions of dollars but yielded no significant arrests. With these honors we extend our impressive streak of being a Pulitzer winner or finalist every year for more than a decade.

Our video journalists are also important to our story-telling capabilities and have won numerous awards. The Star Telegram won the Local Media Digital Innovation Award for Best Use of Video for their use of video in news stories.

The Sacramento Bee, who was assisted by our Washington D.C. bureau video operations, won the Eppy Award for Best Photojournalism of a Website with 1 million unique monthly visitors for their series called No Safe Place. The story was about Afghans who risked their lives for the U.S. but who now struggle in the Sacramento area.

These are just a few of the hundreds of examples of powerful McClatchy journalism published across the company. We intend to build on our legacy in the years ahead, propelled by the success of our ongoing digital transformation.

Broadening Media Companies’ Audiences in Their Local Markets

Each of our media companies has the largest print circulation of any news media source serving its respective community, and coupled with its local website and other digital platforms in each community, reaches a broad audience in each market. We believe that our broad reach in each market is of primary importance in attracting advertising, which is our principal source of revenues. 

Our digital audience continues to grow, which is partially driven by traffic on our websites and other digital platforms. During 2016, average monthly unique visitors to our digital sites grew 26.8%  as a result of continued focus and initiatives to improve our total revenues. As discussed above, we realigned and improved delivery of our content on all platforms, from printed newspapers to websites to mobile apps in nearly every market. Our websites offer mobile‑friendly versions for smartphones, and our content is available on e‑readers, tablets and other mobile devices.

Daily newspapers paid circulation volumes for 2016 were down 9.3% compared to 2015. The declines in daily circulation reflect the fragmentation of audiences faced by all media, including our own digital‑only subscriptions, as available media outlets proliferate and readership trends change. Our Sunday circulation volumes were down 10.5% in 2016 compared to 2015.

As noted earlier, in 2016, our monthly mobile traffic was up 35.2% as compared to 2015 and accounted for 56.9% of all monthly digital traffic we received. We work hard to appeal to our mobile audience. We have invested in new digital publishing systems to better serve this mobile audience and we have rebuilt all of our news websites to be responsive – that is, to automatically resize to best fit a user’s screen, be it a smartphone or a tablet or desktop computer, and provide the optimal viewing experience.

Our news and information follows readers throughout their day. To start their day, we reach our readers with the morning newspaper or they can check out our latest headlines and stories on their mobile phones. Our news websites, updated frequently throughout the day, are available to readers via their desktop computers at work and optimized for all of their different mobile devices.

We also reach audiences through our direct marketing products. In 2016, we distributed approximately 650,000 Sunday

Select packages per week, which are packages of preprinted advertisements generally delivered on Sunday to non‑newspaper subscribers who have interest in circulars. We also distribute thousands of e-mail messages each day, including editorial and advertising content, alerts for dealsaver®, our proprietary daily deals service, and other alerts to subscribers and non‑subscribers in our markets which supplement the reach of our print and digital subscriptions. 

To remain the leading local media company for the communities we serve and a must‑buy for advertisers, we are focused on maintaining a broad reach of print and digital audiences in each of our markets. We will continue to refine and strengthen our print platform, but our growth increasingly comes from our digital products and the beneficial impact those products have on the total audience we deliver for our advertisers.

Focusing on Cost Efficiencies While Investing for the Future

While continuing to maintain our core business in news, advertising sales and digital, we are also focused on cost efficiencies. Our cost initiatives in 2016 were focused on continuing to reduce legacy costs from our traditional print business and we have realized significant savings from these efforts, primarily in production and distribution, including substantial savings in newsprint costs. In addition, in 2016, we made additional reductions in costs to help protect our profitability in a period of declining print advertising. Total expenses, excluding depreciation, amortization and non-cash impairment charges, declined $39.9 million in 2016, compared to 2015.  This decline was net of investments made in 2016 intended to generate future savings. The ongoing structural and cyclical changes in our markets demand that we respond by reengineering our operations, as needed, to achieve an efficient and sustainable cost structure. Over the past several years, we have substantially lowered our cost structure through reducing our workforce, optimizing technology and maximizing printing, distribution and content efficiencies, all while maintaining operating profitability at each of our media companies.

In the fourth quarter of 2016, we completed regionalizing our audience distribution operations, our advertising production, certain human resource functions and certain finance functions. We will continue to outsource, regionalize and consolidate legacy operations to achieve a more streamlined and efficient cost structure. These changes will result in cost savings in future years,  while giving our operating executives in each market the ability to focus more of their time on our growing digital and direct marketing media businesses.

In 2016, we outsourced the printing production of four newspapers bringing the total of outsourced operations to 20 of our 30 media companies, which are printed through arrangements with nearby newspapers owned by us or third-party companies. In other cases, we in‑source the printing of nearby newspapers from other companies to maximize the use of our existing press capacity and generate additional revenues. Five markets  (Charlotte, Columbia, Kansas City, Miami and Sacramento) have become hubs for in-sourcing printing in their areas.

We also believe that using technology is an important component of our ability to continue to operate cost‑effectively and to invest in our business for the future. In 2016 we co-sourced our technology with the international company WIPRO, LTD to provide the flexibility to add development resources as needed and to cut back costs when those services were not needed. Much of our technology is employed behind the scenes with a digital publishing system that can distribute news content to any number of platforms and enterprise-wide systems to support audience and advertising in the digital environment.

Other Operational Information

Each of our media companies is largely autonomous in its local advertising and editorial operations in order to meet most effectively the needs of the particular community it serves. However, our operations across our local media companies have been engineered to strengthen the areas that are driving performance in news, audience, advertising and digital growth.

We have two operating segments that are aggregated into a single reportable segment. Each operating segment consists primarily of a group of local media companies with similar economic characteristics, products, customers and distribution methods. Both operating segments report to one segment manager. One of our operating segments (“Western Segment”) consists of our media operations in California, the Northwest and the Midwest, while the other operating segment (“Eastern Segment”) consists primarily of media operations in the Southeast and the Carolinas. Publishers of each of the media companies make the day‑to‑day decisions and report to the segment manager, who is responsible for implementing the operating and financial plans at each operation within the respective operating segment. The corporate managers, including executive officers, set the basic business, accounting, financial and reporting policies.

As noted previously under “Focusing on Cost Efficiencies While Investing for the Future,” our media companies also work together to consolidate functions and share resources regionally and across operating segments that lend themselves

to such efficiencies, such as certain regional or national sales efforts, accounting functions, digital publishing systems and products, information technology functions and others. Our corporate advertising department is headed by a vice president of advertising who works with our largest advertisers in placing advertising across our operating segments’ print and online products. These efforts are often coordinated through the vice president of operations and corporate personnel.

Our business is somewhat seasonal, with peak revenues and profits generally occurring in the fourth quarter of each year, reflecting the Thanksgiving and Christmas holidays.  The other quarters, when holidays are not as prevalent, are historically the slower quarters for revenues and profits.

The following table summarizes our media companies, their digital platforms, newspaper circulation and total unique visitors: 

Other Operations

In addition to our media companies, we also own 15.0% of CareerBuilder, LLC, which operates a premier online job website, CareerBuilder.com, as well as certain other digital company investments. In September 2016, TEGNA Inc., the majority holder of CareerBuilder, LLC, announced that it and other owners, including us, would evaluate strategic alternatives for CareerBuilder. No specific timeline was announced for this process and no further action has been announced.  Our ownership interests and investments in unconsolidated companies and joint ventures including, but not limited to CareerBuilder, LLC, provided us with $6.0 million of cash distributions in 2016. 

We own 49.5% of the voting stock and 70.6% of the nonvoting stock of The Seattle Times Company. The Seattle Times Company owns The Seattle Times newspaper, weekly newspapers in the Puget Sound area and daily newspapers located in Walla Walla and Yakima, Washington, and all of their related websites and mobile applications.

In addition, three of our wholly-owned subsidiaries own a combined 27.0% interest in Ponderay Newsprint Company (“Ponderay”), a general partnership that owns and operates a newsprint mill in the state of Washington. 

In 2016, we along with Gannett Co., Inc., Hearst, and tronc, Inc. launched Nucleus Marketing Solutions, LLC (“Nucleus”). We own a 25.0% interest in Nucleus that is a marketing solutions provider that connects national advertisers with 30 U.S. local publishers’ highly engaged audiences across existing and emerging digital platforms.

Raw Materials 

During 2016 we consumed approximately 84,000 metric tons of newsprint for our operations compared to 99,000 metric tons in 2015. The decrease in tons consumed was primarily due to changes in our print products at numerous media companies, as well as lower print advertising sales and print circulation volumes. We estimate that we will use approximately 72,000 metric tons of newsprint in 2017, depending on the level of print advertising, circulation volumes and other business considerations.

During 2016, we obtained newsprint from Ponderay,  as well as a number of other suppliers. We purchased approximately 20,000 metric tons of newsprint either directly from Ponderay or through a third-party intermediary in 2016.

Our earnings are sensitive to changes in newsprint prices. In 2016, 2015 and 2014, newsprint expense accounted for 4.9%, 5.7% and 7.1%, respectively, of total operating expenses, excluding impairments and other asset write-downs.  

Competition

Our newspapers, direct marketing programs, websites and mobile content compete for advertising revenues and readers’ time with television, radio, other media websites, social network sites and mobile apps, direct mail companies, free shoppers, suburban neighborhood and national newspapers and other publications, and billboard companies, among others. In some of our markets, our newspapers also compete with other newspapers published in nearby cities and towns. Competition for advertising is generally based upon print readership levels and demographics, advertising rates, internet usage and advertiser results, while competition for circulation and readership is generally based upon the content, journalistic quality, service, competing news sources and the price of the newspaper or digital service.

Our media companies are the largest print circulation of any news media source in each of their respective markets. However, our media companies have experienced difficulty maintaining or increasing print circulation levels because of a number of factors. These include increased competition from other publications and other forms of media technologies available in various markets, including the internet and other new media formats that are often free for users; and a  proliferation of news outlets that fragments audiences. In addition, while our media companies’ internet sites are generally the leading local websites in each of our major daily newspaper markets, based upon research conducted by us and various independent sources, changes in readership trends, including a shift of readers to digital media and mobile devices have continued, and we have continued to experience a shift of advertising to digital advertising. We face greater competition, particularly in the areas of employment, automotive and real estate advertising, from online competitors.

To address the structural shift to digital media, we reengineered our operations to strengthen areas driving performance in news, audience, advertising and digital growth. Our newsrooms also provide editorial content on a wide variety of platforms and formats from our daily newspaper to leading local websites; on social network sites such as Facebook and Twitter; on smartphones and on e‑readers; on websites and blogs; in niche online publications and in e‑mail newsletters; through RSS (rich site summary) feeds and mobile applications.  Upgrades are continually made to our mobile apps and websites. In addition, our websites offer leading digital classified products such as CareerBuilder.com, Cars.com and HomeFinder.com. We also operate dealsaver®, our proprietary daily deals service, in nearly all of our markets.

Employees — Labor

As of December 25, 2016, we had approximately 5,400 full and part‑time employees (equating to approximately 4,600 full‑time equivalent employees), of whom approximately 5.3% were represented by unions. Most of our union‑represented employees are currently working under labor agreements with expiration dates through 2018. We have no unions at 24 of our 30 daily media companies.

While our media companies have not had a strike for decades, and we do not currently anticipate a strike occurring, we cannot preclude the possibility that a strike may occur at one or more of our media companies when future negotiations take place. We believe that in the event of a strike we would be able to continue to publish and deliver to subscribers, a capability that is critical to retaining revenues from advertising and audience, although there can be no assurance that we will be able to continue to publish in the event of a strike.

Compliance with Environmental Laws

We use appropriate waste disposal techniques for items such as ink and other hazardous materials. As of December 25, 2016, we have $1.0 million in a letter of credit shared among various state environmental agencies and the U.S. Environmental Protection Agency to provide collateral related to existing or previously removed storage tanks. However, we do not believe that we currently have any significant environmental issues and in 2016, 2015 and 2014 had no significant expenses or capital expenditures related to environmental control facilities.

Available Information

Our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are made available, free of charge, on our website at www.mcclatchy.com,  as soon as reasonably practicable after we file or furnish them with the U.S. Securities and Exchange Commission (the “SEC”).

ITEM 1A.  RISK FACTORS

We have significant competition in the market for news and advertising, which may reduce our advertising and audience revenues in the future.

Our primary source of revenues is advertising, followed by audience. The competition we face in the advertising industry generally results from  an increasing number of digital media options available on the internet, which are expanding advertiser and consumer choices significantly, including social networking tools and mobile and other devices distributing news and other content. Faced with a multitude of media choices and a dramatic increase in accessible information, consumers may place greater value on when, where, how and at what price they consume digital content than they do on the source or reliability of such content. News aggregation websites and customized news feeds (often free to users) may reduce our traffic levels by minimizing the need for the audience to visit our websites or use our digital applications directly. Online traffic is also driven by internet search results; therefore, such results are critical to our ability to compete successfully. Search engines frequently update and change the methods for directing search queries to web pages or change methodologies and metrics for valuing the quality and performance of internet traffic on delivering cost‑per‑click advertisements. The failure to successfully manage search engine optimization efforts across our businesses could result in significant decreases in traffic to our various websites, which could result in substantial decreases in conversion rates and repeat business, as well as increased costs if we were to replace free traffic with paid traffic, any or all of which could adversely affect our business, financial condition and results of operations. If traffic levels stagnate or decline, we may not be able to create sufficient advertiser interest in our digital businesses or to maintain or increase the advertising rates of the inventory on our digital platforms. In addition, the proliferation of news sources and advertising platforms has resulted in significant competition and a negative impact on our traditional print business. This increased competition for our advertisers and consumers has had and is expected to continue to have an adverse effect on our business and financial results, including negatively impacting revenues and operating income.

Our advertising revenues may decline due to weak general economic and business conditions.

Our advertising revenues are dependent on general economic and business conditions in our markets or those impacting our customers.  Certain aspects of the U.S. economy continue to be challenging in some of our markets. Many traditional retail companies also face greater competition from online retailers and have faced uncertainty in their businesses, affecting their advertising spending. These challenging economic and business conditions have had and may continue to have an adverse effect on our advertising revenues. To the extent these economic conditions continue or worsen, our business and advertising revenues could be further adversely affected, which could negatively impact our operations and cash flows and our ability to meet the covenants in our debt agreements. Our advertising revenues will be particularly adversely affected if advertisers respond to weak and uneven economic conditions or online competition by continuing to reduce their budgets or shift spending patterns or priorities, or if they are forced to consolidate or cease operations. Consolidation

across various industries may also reduce our overall advertising revenues. Further, we are subject to fluctuating economic conditions in the local markets we serve. For example, real estate advertising fluctuates with the health of the real estate market. In addition, seasonal variations in consumer spending cause our quarterly advertising revenues to fluctuate. Advertising revenues in the second and fourth quarters, which contain more holidays, are typically higher than in the first and third quarters, in which economic activity is generally slower. If general economic conditions and other factors cause a decline in revenues, particularly during the fourth quarter, we may not be able to increase or maintain our revenues for the year, which would have an adverse effect on our business and financial results.

To remain competitive, we must be able to respond to and exploit changes in technology, services and standards and changes in consumer behavior. Significant capital investments may be required.

Technology in the media industry continues to evolve rapidly. Advances in technology have led to an increasing number of methods for delivery of news and other content and have resulted in a wide variety of consumer demands and expectations, which are also rapidly evolving. For example, the number of people who access online services through devices other than personal computers, including smartphones, handheld tablets and mobile devices has increased dramatically in the past several years and is projected to continue to increase. If we are unable to exploit new and existing technologies to distinguish our products and services from those of our competitors or adapt to new distribution methods that provide optimal user experiences, our business and financial results may be adversely affected.

Technological developments also pose other challenges that could adversely affect our revenues and competitive position. New delivery platforms may lead to pricing restrictions, the loss of distribution control and the loss of a direct relationship with consumers. We may also be adversely affected if the use of technology developed to block the display of advertising on websites proliferates.

Technological developments and any changes we make to our business model may require significant capital investments. We may be limited in our ability to invest funds and resources in digital products, services or opportunities and we may incur costs of research and development in building and maintaining the necessary and continually evolving technology infrastructure. Some of our existing competitors and new entrants may have greater operational, financial and other resources or may otherwise be better positioned to compete for opportunities and as a result, our digital businesses may be less successful, which could adversely affect our business and financial results.

If we are not successful in growing and managing our digital businesses, our business, financial condition will be adversely affected.

Our future growth depends to a significant degree upon the development and management of our digital businesses. The growth of our digital businesses over the long term depends on various factors, including, among other things, the ability to:

In addition, we expect that our digital business will continue to increase as a percentage of our total revenues in future

periods. For 2016, digital advertising revenues comprised 30.6%  of total advertising revenues compared to 26.2% in 2015.  Digital‑only advertising revenues increased 14.8% in 2016 compared to 2.9% in 2015. Total digital‑only, which includes digital‑only revenues from advertising and audience, was up 14.3% in 2016 compared to 4.7% in 2015. As our digital business becomes a greater portion of our overall business, we will face a number of increased risks from managing our digital operations, including, but not limited, to the following:

If we are unable to execute cost‑control measures successfully, our total operating costs may be greater than expected, which may adversely affect our profitability.

As a result of adverse general economic and business conditions and our operating results, we have taken steps to lower operating costs by reducing workforce, consolidating or regionalizing operations and implementing general cost‑control measures. If we do not achieve expected savings from these initiatives, or if our operating costs increase as a result of these initiatives, our total operating costs may be greater than anticipated. These cost‑control measures may also affect our business and our ability to generate future revenue. Because portions of our expenses are fixed costs that neither increase nor decrease proportionately with revenues, we may be limited in our ability to reduce costs in the short term to offset any declines in revenues. If these cost‑control efforts do not reduce costs sufficiently or otherwise adversely affect our business, income from continuing operations may decline.

Difficult business conditions in the economy generally and in our industry or changes to our business and operations may result in goodwill and masthead impairment charges.

Due to business conditions, including lower revenues and operating cash flow, we recorded masthead impairment charges of $9.2 million in 2016.  We also recorded goodwill impairment charges of $290.9 million in 2015, masthead impairment charges of $13.9 million, $5.2 million $5.3 million and $2.8 million in 2015, 2014, 2013 and 2011, respectively. As of December 25, 2016, we have goodwill of $705.2 million and mastheads of $171.4 million. Further erosion of general economic, market or business conditions (nationally and in our local markets) could have a negative impact on our business and stock price, which may require that we record additional impairment charges in the future, which negatively affects our results of operations.

Our business, reputation and results of operations could be negatively impacted by data security breaches and other security threats and disruptions. 

Certain network and information systems are critical to our business activities. Network and information systems may be affected by cybersecurity incidents that can result from deliberate attacks or system failures. Threats include, but are not limited to, computer hackings, computer viruses, denial of service attacks, worms or other destructive or disruptive software, or other malicious activities. Our security measures may also be breached due to employee error, malfeasance, or otherwise. As a result of these breaches, an unauthorized party may obtain access to our data or our users’ data or our systems may be compromised. These events evolve quickly and often are not recognized until after an attack is launched, so we may be unable to anticipate these attacks or to implement adequate preventative measures. Our network and information systems may also be compromised by power outages, fire, natural disasters, terrorist attacks, war or other similar events. There can be no assurance that the actions, measures and controls we have implemented will be sufficient to prevent disruptions to mission-critical systems, the unauthorized release of confidential information or corruption of data. Although we have experienced cybersecurity incidents, to date none has had a material impact on our financial condition, results of operations or liquidity. Nonetheless, these types of events are likely to occur in the future and such events could disrupt our operations or other third party information technology systems in which we are involved. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems, or infrastructure by employees, others with authorized access to our systems, or unauthorized persons could result in legal or

financial liability or otherwise negatively impact our operations. They also could require significant management attention and resources, and could negatively impact our reputation among our customers, advertisers and the public, which could have a negative impact on our financial condition, results of operations or liquidity.

We are subject to significant financial risk as a result of our $874  million in total consolidated debt.

As of December 25, 2016, we had approximately $873.7  million in total principal indebtedness outstanding. This level of debt increases our vulnerability to general adverse economic and industry conditions and we may need to refinance our debt prior to its scheduled maturity. Higher leverage ratios, our credit ratings, our economic performance, adverse financial markets or other factors could adversely affect our future ability to refinance maturing debt on commercially acceptable terms, or at all, or the ultimate structure of such refinancing.

Covenants in the indenture governing the notes and our other existing debt agreements will restrict our business.

The indenture governing our 9.00% Senior Secured Notes due in 2022 (the “9.00% Notes”) and our secured credit agreement contain various covenants that limit, subject to certain exceptions, our ability and/or our restricted subsidiaries’ ability to, among other things:

The restrictions contained in the indenture governing the 9.00% Notes and the secured credit agreement could adversely affect our ability to:

Our ability to comply with covenants contained in the indenture for the 9.00% Notes and our secured credit agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us. In addition, our obligations under the 9.00% Notes and the secured credit agreement are secured, subject to permitted liens, on a first‑priority basis, and in the event of default such security interests could be enforced by the collateral agent for the secured credit agreement. In the event of such enforcement, we cannot assure you that the proceeds from the enforcement would be sufficient to pay our obligations under the 9.00% Notes or secured credit agreement or at all.

We have significant financial obligations and in the future we will need cash to repay our existing indebtedness and meet our other obligations. Our inability to generate sufficient cash to pay our obligations would adversely affect our business.

We may not be able to generate sufficient cash internally to repay all of our indebtedness at maturity or to meet our other obligations. As of December 25, 2016, we had approximately $873.7  million of total indebtedness outstanding and approximately $30.7 million in face amount of letters of credit outstanding under a Collateralized Issuance and Reimbursement Agreement. Of the $873.7 million aggregate principal amount outstanding as of December 25, 2016, we have approximately $16.9 million of notes with an interest rate of 5.750% due in 2017; $491.4 million of 9.00% Notes due in 2022; approximately $89.2 million of debentures with an interest rate of 7.150% due in 2027 and approximately $276.2 million of debentures with an interest rate of 6.875% due in 2029.

As of December 25, 2016, the projected benefit obligations of our qualified defined benefit pension plan (“Pension Plan”) exceeded Pension Plan assets by $487.4 million. Future contributions are subject to numerous assumptions, including, among others, changes in interest rates, returns on assets in the Pension Plan and future government regulations. In addition, we have a limited number of supplemental retirement plans, which provide certain key employees with additional retirement benefits. These plans have no assets; however as of December 25, 2016, our projected benefit obligation of these plans was $119.1 million. These plans are on a pay‑as‑you‑go basis.

Our ability to make payments on and to refinance our indebtedness, including the 9.00% Notes and our other series of outstanding notes, to make required contributions to the Pension Plan, to fund the supplemental retirement plans and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness, including the 9.00% Notes and our other series of outstanding notes or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness, on or before the maturity thereof, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations or our ability to refinance our existing debt. The terms of existing or future debt instruments, including the indenture governing the 9.00% Notes and the secured credit agreement, may limit or prevent us from taking any of these actions. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations with respect to our outstanding debt.

We may be required to make greater contributions to our qualified defined benefit pension plans in the next several years than previously required, placing greater liquidity needs upon our operations.

The projected benefit obligations of the Pension Plan exceeded Pension Plan assets by $487.4 million as of December 25, 2016, an increase of $22.6 million from December 27, 2015, primarily due to unfavorable change in the discount rate. The value of the Pension Plan assets fluctuates based on many factors, including changes in interest rates and market returns.

The excess of benefit obligations over pension assets is expected to give rise to required pension contributions over the next several years. Over the last several years federal legislation has provided for pension funding relief in the form of mandated changes in the discount rates used to calculate the projected benefit obligations for purposes of funding pension plans. Recent new legislation and calculations use historical averages of long‑term highly‑rated corporate bonds (within ranges as defined in the legislation) which have an impact of applying a higher discount rate to determine the projected benefit obligations for funding and current long‑term interest rates, but also mandated increases in fees paid to the Pension Benefit Guaranty Corporation, also known as the PBGC, based in part on the level of underfunding in the company’s qualified defined pension plan. Even with the relief provided by these legislative rules, we expect future contributions to be required. In addition, adverse conditions in the capital markets and/or lower long‑term interest rates may result in greater annual contribution requirements, placing greater liquidity needs upon our operations.

We require newsprint for operations and, therefore, our operating results may be adversely affected if the price of newsprint increases or if we experience disruptions in our newsprint supply chain.

Newsprint is the major component of our cost of raw materials. Newsprint accounted for 4.9% of our operating expenses, excluding impairments, in 2016 compared to 5.7% in 2015. Accordingly, our earnings are sensitive to changes in newsprint prices. The price of newsprint has historically been volatile and may increase as a result of various factors, including:

We have not attempted to hedge price fluctuations in the normal purchases of newsprint or enter into contracts with embedded derivatives for the purchase of newsprint other than the natural hedge created by our ownership interest in Ponderay. If the price of newsprint increases materially, our operating results could be adversely affected. In addition, we rely on a limited number of suppliers for deliveries of newsprint. If newsprint suppliers experience labor unrest, transportation difficulties or other supply disruptions, our ability to produce and deliver newspapers could be impaired and/or the cost of the newsprint could increase, both of which would negatively affect our operating results.

A portion of our employees are members of unions, and if we experience labor unrest, our ability to produce and deliver newspapers could be impaired.

If we experience labor unrest, our ability to produce and deliver newspapers could be impaired in some locations. In addition, the results of future labor negotiations could harm our operating results. Our media companies have not experienced a labor strike for decades. However, we cannot ensure that a strike will not occur at one or more of our media companies in the future. As of December 25, 2016,  approximately 5.3% of full‑time and part‑time employees were represented by unions. Most of our union‑represented employees are currently working under labor agreements, with expiration dates through 2018. We face collective bargaining upon the expirations of these labor agreements. Even if our media companies do not suffer a labor strike, our operating results could be harmed if the results of labor negotiations restrict our ability to maximize the efficiency of our newspaper operations. In addition, our ability to make short‑term adjustments to control compensation and benefits costs, rebalance our portfolio of businesses or otherwise adapt to changing business needs may be limited by the terms and duration of our collective bargaining agreements.

We have invested in certain digital or other ventures, but such ventures may not be as successful as expected, which could adversely affect our results of operations.

We continue to evaluate our business and make strategic investments in digital ventures, either alone or with partners, to further our digital growth. We have, among others, investments with other partners in CareerBuilder LLC, which operates a premier online job website, CareerBuilder.com,  as well as certain other digital company investments. We have numerous small “seed” investments in other digital companies. We also own 25.0% of Nucleus, a national marketing agency, and, through three wholly-owned subsidiaries, a combined 27.0% interest in the Ponderay Newsprint Company. The success of these ventures is dependent to an extent on the efforts and strategic plans of our partners. As previously announced, TEGNA, Inc. and the partners who own CareerBuilder, LLC, have decided to evaluate strategic alternatives for CareerBuilder, LLC, a process and outcome which we do not control. Further, our ability to monetize the investments and/or the value we may receive upon any disposition may depend on the actions of our partners. As a result, our ability to control the timing or process relating to a disposition may be limited, which could adversely affect the liquidity of these investments or the value we may ultimately attain upon disposition. If the value of the companies in which we invest declines, we may be required to record a charge to earnings. There can be no assurances that we will receive a return on these investments or that they will result in advertising growth or will produce equity income or capital gains in future years.

Circulation volume declines will adversely affect our print audience and print advertising revenues, and audience price increases could exacerbate declines in circulation volumes.

Print advertising and audience revenues are affected by circulation volumes and readership levels of our print newspapers. In recent years, newspaper companies, including us, have experienced difficulty maintaining or increasing print circulation levels because of a number of factors, including:

These factors could also affect our media companies’ ability to institute circulation price increases for print products. Also, print price increases have historically had an initial negative impact on circulation volumes that may not be mitigated with additional marketing and promotion. A prolonged reduction in circulation volumes would have a material adverse effect on print advertising revenues. To maintain our circulation base, we may be required to incur additional costs that we may not be able to recover through audience and advertising revenues.

We rely on third party vendors for various services and if any of those third parties fail to fulfill their obligations to us with quality and timeliness we expect, or if our relationship with such vendors is damaged, our business may be harmed.

We rely on third party vendors to provide various services such as printing, distribution and production, as well as various information technology systems and services. We do not control the operation of these vendors. If any of these third party vendors terminate their relationship with us, or do not provide an adequate level of service, it would be disruptive to our business as we seek to replace the vendor or remedy the inadequate level of service. This disruption may adversely affect our operating results. 

Developments in the laws and regulations to which we are subject may result in increased costs and lower advertising revenues from our digital businesses.

We are generally subject to government regulation in the jurisdictions in which we operate. In addition, our websites are available worldwide and are subject to laws regulating the internet both within and outside the United States. The adoption of any laws or regulations that limit use of the internet, including laws or practices limiting internet neutrality, could decrease demand for, or the usage of, our products and services, which could adversely affect our operating results. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Advertising revenues from our digital businesses could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to the use of consumer data in digital media.

Adverse results from litigation or governmental investigations can impact our business practices and operating results.

In the ordinary course of business, we and our subsidiaries are parties to litigation and regulatory, environmental and other proceedings with governmental authorities and administrative agencies. For example, we are currently involved in two class action lawsuits that are described further in Part II, Item 8, Note 9, Commitments and Contingencies to the consolidated financial statements.  Adverse outcomes in lawsuits or investigations could result in significant monetary damages or injunctive relief that could adversely affect our operating results or financial condition as well as our ability to conduct our business as it is presently being conducted.  

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None

ITEM 2.  PROPERTIES

Our corporate headquarters are located at 2100 Q Street, Sacramento, California. At December 25, 2016, we had newspaper production facilities in 10 markets in 9 states. Our facilities vary in size and in total occupy about 5.0 million square feet. Approximately 2.3 million of the total square footage is leased from others, while we own the properties for the remaining square footage. We own substantially all of our production equipment, although certain office equipment is leased. Also see Part II, Item 8, Note 12, Subsequent Event,  to the consolidated financial statements included as part of this Annual Report on Form 10-K for a discussion of agreements we have entered into in Sacramento, California and Columbia, South Carolina to sell and lease back the properties.

We maintain our properties in good condition and believe that our current facilities are adequate to meet the present needs of our media companies.

See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, specifically Recent Developments, regarding discussion of contributed properties to our qualified defined benefit pension plan and recent contracts to sell and lease back certain facilities.

ITEM 3.  LEGAL PROCEEDINGS

See Part II, Item 8, Note 9, Commitments and Contingencies to the consolidated financial statements included as part of this Annual Report on Form 10-K.

ITEM 4.  MINE SAFETY DISCLOSURES

None

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our Class A Common Stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “MNI.” A small amount of Class A Common Stock is also traded on other exchanges. Our Class B Common Stock is not publicly traded. As of February 24, 2017, there were approximately 3,420 and 20 record holders of our Class A and Class B Common Stock, respectively. We believe that the total number of holders of our Class A Common Stock is much higher since many shares are held in street names. The following table lists the high and low prices of our Class A Common Stock as reported by the NYSE for each fiscal quarter of 2016 and 2015:

(*)  The high and low share prices were retroactively adjusted to reflect the one-for–ten (1:10) reverse stock split completed on June 7, 2016. 

Dividends:

In 2009, we suspended our quarterly dividend; therefore, we have not paid any cash dividends since the first quarter of 2009. Our credit agreement prohibits the payment of a dividend if a payment would not be permitted under the indenture for the 9.00% Notes (discussed below). Dividends under the indenture for the 9.00% Notes are allowed if the consolidated leverage ratio (as defined in the indenture) is less than 5.25 to 1.00 and we have sufficient amounts under our restricted payments basket (as defined in the indenture) or have use of other selected baskets under the indenture. However, the payment and amount of future dividends remain within the discretion of the Board of Directors and will depend upon our future earnings, financial condition, and other factors considered relevant by the Board of Directors.

Equity Securities:

In 2015, our Board of Directors authorized a share repurchase program for the repurchase of up to $15.0 million of our Class A Common Stock through December 31, 2016. This program was further amended in May 2016 to authorize a total of up to $20.0 million to repurchase shares. The shares were repurchased from time to time depending on prevailing market prices, availability, and market conditions, among other factors. During the year ended December 25, 2016, we repurchased  0.7 million shares at an average price of $11.83 per share. Inception to date, we repurchased 1.3 million shares at an average price of $12.28 per share. No shares were repurchased during the quarter ended December 25, 2016.

During the year ended December 25, 2016, we did not sell any equity securities of the Company, which were not registered under the Securities Act of 1933, as amended.

Performance Graph:

The following graph compares the cumulative five‑year total return attained by shareholders on The McClatchy Company’s common stock versus the cumulative total returns of the S&P Midcap 400 index and a customized peer group composed of six companies (“Peer Group”).

Our Peer Group is customized to include six companies that are publicly traded with at least 40% of their revenues from newspaper publishing. This peer group includes: A.H. Belo Corp., Gannett Co. Inc., Lee Enterprises, Inc., New Media

Investment Group, Inc., The New York Times Company and tronc, Inc. 

ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes, and other financial data included elsewhere in this annual report. Historical results are not necessarily indicative of the results to be expected in future periods.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Reference is made to Part I, Item 1 “Forward‑Looking Statements” and Item 1A “Risk Factors,” which describes important factors that could cause actual results to differ from expectations and non‑historical information contained herein. In addition, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. MD&A should be read in conjunction with our audited consolidated financial statements and accompanying notes to the consolidated financial statements (“Notes”) as of and for each of the three years ended December 25, 2016, December 27, 2015, and December 28, 2014 included elsewhere in this Annual Report on Form 10‑K.

Overview

We are a news and information publisher of well-respected publications and digital platforms such as the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer,  The (Raleigh) News and Observer, and the (Fort Worth) Star-Telegram. In December 2016, we acquired certain assets and operations of The (Durham, NC) Herald-Sun, including related intangible assets. Including this acquisition, we operate 30 media companies in 29 U.S. markets in 14 states, providing each of these communities with high-quality news and advertising services in a wide array of digital and print formats. We are headquartered in Sacramento, California, and our Class A Common Stock is listed on the New York Stock Exchange under the symbol MNI. Since the acquisition of The (Durham, NC) Herald-Sun occurred on the last day of our fiscal year of 2016, none of The Herald-Sun's results are included in our operating results in 2016.

We also own 15.0% of CareerBuilder, LLC, which operates a premier online job website, CareerBuilder.com, as well as certain other digital company investments. In September 2016, TEGNA Inc., the majority holder of CareerBuilder, LLC, announced that it and other owners, including us, would evaluate strategic alternatives for CareerBuilder. No specific timeline was announced for this process and no further action has been announced.

Our fiscal year ends on the last Sunday in December. The fiscal years ended December 25, 2016, December 27, 2015, and December 28, 2014 consisted of 52‑week periods. Since the acquisition of The (Durham, NC) Herald-Sun occurred on the last day of our fiscal year of 2016, none of The Herald-Sun's operating results are included in our operating results in 2016.

The following table reflects our sources of revenues as a percentage of total revenues for the periods presented:

Our primary sources of revenues are print and digital advertising. All categories (retail, national and classified) of advertising discussed below include both print and digital advertising. Retail advertising revenues include advertising carried as a part of newspapers (run of press (“ROP”) advertising), advertising inserts placed in newspapers (“preprint advertising”) and/or advertising delivered digitally. Audience revenues include print and digital subscriptions or a combination of both. Our print newspapers are primarily delivered by large distributors and certain newspapers utilize independent contractors. Other revenues include primarily commercial printing and distribution revenues.

See “Results of Operations” section below for a discussion of our revenue performance and contribution by category for the 2016, 2015 and 2014.

Recent Developments

Reverse Stock Split

A one-for-ten (1:10) reverse stock split of our issued and outstanding Class A and Class B common stock became effective June 7, 2016. As a result, every ten shares of our common stock outstanding were combined into one share of the same

class of our common stock. No fractional shares were issued in connection with the reverse stock split. The par value and authorized number of shares of the Class A and Class B common stock were not adjusted as a result of the reverse stock split. All issued and outstanding Class A and Class B common stock and per share amounts contained within our consolidated financial statements and footnotes have been retroactively adjusted to reflect this reverse stock split for all periods presented. See Note 1 for additional discussion of this transaction.

Debt Repurchases and Extinguishment of Debt

During 2016, we repurchased a total of $63.6 million in aggregate principal amount of our notes through privately negotiated transactions, consisting of $38.6 million of our 5.75% Notes due in 2017 and $25.0 million of our 9.00% Senior Secured Notes due in 2022 (“9.00% Notes”). We recorded a net gain on extinguishment of debt of $0.4 million in 2016.

Share Repurchase Program

In 2015, our Board of Directors authorized a share repurchase program for the repurchase of up to $15.0 million of our Class A Common Stock through December 31, 2016. This program was further amended in May 2016 to authorize a total of up to $20 million for the repurchase of our shares. The shares were repurchased from time to time depending on prevailing market prices, availability, and market conditions, among other factors. The number of shares repurchased and the average price per share was retroactively adjusted to reflect the one-for-ten (1:10) reverse stock split completed on June 7, 2016. In 2016, we repurchased 656 thousand shares at a weighted average price of $11.83 per share, or $7.8 million of the total buyback approved. From inception of the program, we repurchased a total of 1.3 million shares at a weighted average price of $12.28 per share, or $15.6 million of the total buyback approved.

Contribution of Company-Owned Real Property to Pension Plan

In February 2016, we contributed certain of our real property appraised at $47.1 million to our Pension Plan, and we entered into lease-back arrangements for the contributed facilities. After applying credits, which resulted from contributing more than the Pension Plan’s minimum required contribution amounts in prior years, we had no required pension contribution under the Employee Retirement Income Security Act for fiscal year 2016. We leased back the contributed facilities under 11-year leases with initial annual payments totaling approximately $3.5 million. The contribution and leaseback of these properties in 2016 are treated as a financing transaction and, accordingly, we continue to depreciate the carrying value of the properties in our financial statements. No gain or loss will be recognized on the contributions until the sale of the property by the Pension Plan. At the time of our contribution, our pension obligation was reduced and a financing obligation was recorded equal to $47.1 million. The financing obligation will be reduced by a portion of the lease payments made to the Pension Plan each month and increased for imputed interest expense on the obligations to the extent imputed interest exceeds monthly payments. The long-term balance of this obligation at December 25, 2016, and December 27, 2015, was $51.6 million and $32.4 million, respectively, and relates to certain real properties that were contributed to the Pension Plan in 2016 and 2011. See Note 7 for additional discussion of this transaction.

Asset sales and leasebacks

In January 2017, we announced that we have entered into separate agreements to sell and lease back real property owned by The Sacramento Bee in Sacramento, California and The State Media Company in Columbia, South Carolina for total gross proceeds of $67.8 million. We will lease back these properties under 15-year leases with initial annual payments totaling $6.2 million. The leases also provide for a repurchase clause allowing us to repurchase these properties after the 15-year lease term and therefore, will be treated as financing leases and accordingly, we continue to depreciate the carrying value of the properties in our financial statements. No gain or loss will be recognized on the sale and lease back of any property until we no longer have a continuing involvement in the property. See Note 12 for additional information on these transactions.

We also continue to consider indications of interest for a sale-leaseback of our Kansas City, Missouri property. There are no assurances that we will proceed with the sale-leaseback in Kansas City if we do not receive what we consider to be a fair price in the near term. 

Results of Operations

The following table reflects our financial results on a consolidated basis for 2016, 2015 and 2014:

The decrease in net loss from continuing operations in 2016 compared to 2015 is largely due to non-cash impairment charges of $9.5 million in 2016 compared to $304.8 million (see Note 4) in 2015. In addition, as described more fully below, results for 2016 compared to 2015 were impacted by lower total revenues, which were partially offset by a net decrease in operating expenses due to efforts made to reduce future costs, as described more fully below.

The net income from continuing operations in 2014 was due to income from operations, as well as several transactions, primarily related to the gains related to the sale of an equity investment.

2016 Compared to 2015

Revenues

The following table summarizes our revenues by category, which compares 2016 to 2015:

In 2016, total revenues decreased 7.5% compared to 2015 primarily due to the continued decline in demand for print advertising. The largest impact on print advertising came from large retail advertisers who began reducing preprinted insert advertising and in-newspaper ROP advertising in 2015, which continued in 2016. Other long-term factors contributing to the decline in print advertising revenues is the desire of advertisers to reach online customers, and the secular shift in advertising demand from print to digital products. As a result, the print advertising revenues declines were partially offset by growth in digital advertising.

Advertising Revenues

Total advertising revenues decreased 10.8% in 2016 compared to 2015. While we experienced declines in all of our advertising revenue categories, the decrease in total advertising revenues was primarily related to declines in print retail and print and digital classified advertising revenues. These decreases in advertising revenues were partially offset by increases in certain digital revenue categories, as discussed below.

Newspaper advertising is typically display advertising, or in the case of classified, display and/or liner advertising, while digital advertising can come in many forms, including banner ads, video, search advertising and/or liner ads. Advertising printed directly in the newspaper is considered ROP advertising while preprint advertising consists of preprinted advertising inserts delivered with the newspaper.

The following table reflects the category of advertising revenues as a percentage of total advertising revenues for the periods presented:

We categorize advertising revenues as follows:

Retail:

In 2016, retail advertising revenues decreased 11.9% compared to 2015, primarily due to decreases of 19.6% in print ROP advertising revenues and 18.6% in preprint advertising revenues, compared to 2015. These decreases were partially offset by increases in digital retail advertising of 8.5% in 2016 compared to 2015 as advertisers continue to move to digital. The overall decreases in retail advertising revenues in 2016 were widespread among ROP and preprint categories.

National:

National advertising revenues decreased 6.4% during 2016 compared to 2015. For 2016, we experienced a 25.3% decrease in print national advertising and a 17.0% increase in digital national advertising compared to 2015. Overall the decrease in total national advertising revenues during 2016 was led by the telecommunications category. The increase in digital national advertising revenues during 2016 was largely led by programmatic digital advertising, including mobile, political and video revenues.

Classified:

In 2016, classified advertising revenues decreased 10.6% compared to 2015. In 2016 compared to 2015, we experienced decreases in print classified advertising of 14.5% and decreases in digital classified advertising of 5.2%. The decreases were across the major classified print categories of automotive, employment and real estate, and the classified digital category of employment. See below for more detailed discussion of the primary changes in classified advertising revenues.

The following is a discussion of the major classified advertising categories for 2016 compared to 2015:

Digital:

Digital advertising revenues, which are included in each of the advertising categories discussed above, constituted 30.6% of total advertising revenues in 2016 compared to 26.2% in 2015. Total digital advertising includes digital advertising both bundled with print and digital-only advertising. Digital-only advertising is defined as digital advertising sold on a stand-alone basis or as the primary advertising buy with print sold as an “up-sell.” In 2016, total digital advertising revenues increased 4.3% to $174.1 million compared to 2015. Digital-only advertising revenues increased 14.8% to $121.7 million in 2016 compared to 2015. The advertising industry is still experiencing a secular shift in advertising demand from print to digital products as advertisers look for multiple advertising channels to reach their customers. While our product offerings and collaboration efforts in digital advertising have grown, we expect to continue to face intense competition in the digital advertising space. Digital advertising revenues bundled with print products declined 14.0% in 2016 compared to 2015 as a result of fewer print advertising sales. 

Direct Marketing and Other:

Direct marketing and other advertising revenues decreased 9.5% during 2016 compared to 2015.  The decrease was partially due to the declines in the preprint retail advertising by large retail customers as described above and, to a lesser extent, the elimination of certain niche products during fiscal years 2015 and 2016 that did not meet our profit expectations.

Audience Revenues

Audience revenues decreased 0.8% during 2016 compared to 2015. Overall, digital audience revenues increased 1.7% in 2016 and digital-only audience revenues increased 9.0% in 2016. The increase in digital-only audience revenues is a result of a 4.8% increase in our digital-only subscribers to 83,100 at the end of 2016 compared to 79,300 at the end of 2015, and to digital rate increases in our markets. Print audience revenues declined 1.8% in 2016 compared to 2015. We use a dynamic pricing model for our traditional subscriptions for which pricing is constantly being adjusted based upon a variety of market factors. This dynamic pricing model helped to partially offset print circulation declines. Print circulation volumes continue to decline as a result of fragmentation of audiences faced by all media as available media outlets proliferate and readership trends change. To help reduce potential attrition due to the increased pricing, we also increased our subscription-related marketing and promotion efforts. 

Operating Expenses

Total operating expenses decreased 26.7% in 2016 compared to 2015. The decrease in 2016 was primarily due to lower impairment charges incurred during 2016 compared to 2015. The decreases in 2016 were also due in part to our continued

effort to reduce costs. Our total operating expenses, excluding impairments and asset write-downs, reflect our continued effort to reduce costs through streamlining processes to gain efficiencies as well as staff reductions.

The following table summarizes our operating expenses, which compares 2016 to 2015:

Compensation expenses, which include payroll and fringe benefit costs, decreased 3.0% in 2016 compared to 2015.  Payroll expenses declined 4.6% in 2016 compared to 2015, reflecting a 9.1% decline in average full-time equivalent employees. Payroll expenses include approximately $6.2 million more in severance costs in 2016 compared to 2015 related to outsourcing printing production and co-sourcing certain other functions. Fringe benefit costs increased 5.8% in 2016 compared to 2015. The increase was primarily due to increases in retirement costs related to our qualified defined benefit pension plan (“Pension Plan”) of $4.7 million and a $2.3 million charge incurred when we outsourced the printing production at one of our media companies and exited the multiemployer pension plans that covered the impacted employees. 

Newsprint, supplements and printing expenses decreased 17.5% in 2016 compared to 2015.  Newsprint expense declined 18.4% in 2016 compared to 2015. The newsprint expenses declines reflect a 15.8% decrease in newsprint usage and a 3.4% decrease in newsprint prices during 2016  compared to 2015.  Printing expenses decreased 15.3% in 2016 compared to 2015 due to lower outsourced printing costs and lower direct marketing printing costs, as discussed above.

Depreciation and amortization expenses decreased 12.0% in 2016 compared to 2015. Depreciation expense decreased $11.8 million in 2016 compared to 2015,  partially due to the impact and timing of accelerated depreciation during the periods and due to assets that became fully depreciated in 2015 or early 2016. During 2016, we incurred accelerated depreciation of $7.0 million compared to $10.3 million in accelerated depreciation during 2015. The accelerated depreciation during 2016 and 2015 relate to the production equipment associated with outsourcing our printing process at certain of our media companies. Amortization expense decreased $0.4 million in 2016  compared to 2015.

Other operating expenses decreased 2.8% in 2016 compared to 2015.  In 2016, other operating expenses included decreases in circulation delivery costs of $12.8 million as expected due to decreased circulation volumes, professional fees of $2.1 million, postage of $2.8 million, as well as other miscellaneous expenses of $11.0 million, which were partially offset by increases in sales costs for digital advertising of $5.4 million and $12.0 million in relocation and other costs, which we believe will result in significant future cost savings.

In 2016, goodwill impairment and other asset write-downs includes $9.2 million in non-cash impairment charges related to intangible newspaper mastheads and $0.3 million related to classifying certain assets as assets held for sale during 2016. In 2015, we recorded non-cash impairment charges related to goodwill of $290.9 million resulting from an interim goodwill impairment test during the second quarter of 2015, and to intangible newspaper mastheads of $13.9 million resulting from interim and annual impairment testing. See  Notes 1 and 4  for additional discussion.

Non‑Operating Items

Interest Expense:

Total interest expense decreased 3.3% in 2016 compared to 2015, primarily reflecting lower overall debt balances due to the repurchases made in 2016 and 2015. Interest expense on debt declined by $7.4 million, or 8.7% in 2016 compared to 2015. The lower interest expense on debt was partially offset by a $3.8 million increase of non-cash imputed interest related to our financing obligations that grew due to the contributed real properties to our Pension Plan.

Equity Income:

Total income from unconsolidated investments increased 23.8% during 2016 compared to 2015. While we had lower income from our equity method investments in 2016 compared to 2015, the increase in income from unconsolidated investments was due to the timing of write-downs. During 2016 and 2015, we recorded write‑downs of $1.0 million and $8.2 million, respectively, which reduced our equity income in unconsolidated companies, net, in the consolidated statements of operations. The write-down in 2016 was related to our HomeFinder, LLC investment, which was sold in the first quarter of 2016. The write-down in 2015 was primarily related to CareerBuilder, LLC, which recorded a non-cash, goodwill impairment charge related to their international reporting unit in the fourth quarter of 2015. Our portion of that impairment charge was $7.5 million. 

Gains related to equity investments:

We recognized $8.1 million in gains related to equity investments during 2015, from a previously sold equity investment, as a result of a final cash distribution of $7.5 million that was received in the second quarter of 2015 and a final working capital adjustment of $0.6 million that was received in the first quarter of 2015. There were no such gains in 2016.

Extinguishment of Debt:

During 2016, we repurchased $63.6 million aggregate principal amount of various series of our outstanding notes. We repurchased these notes at a price higher or lower than par value and wrote off historical discounts and unamortized issuance costs related to these notes, as applicable, which resulted in a net gain on extinguishment of debt of $0.4 million in 2016.

During 2015, we repurchased $95.2 million aggregate principal amount of various series of our outstanding notes. We repurchased these notes at either par or at a price lower than par value and wrote off historical discounts and unamortized issuance costs related to these notes, as applicable, which resulted in a net gain on extinguishment of debt of $1.2 million in 2015.

Income Taxes:

In 2016, we recorded an income tax benefit on continuing operations of $13.1 million. The income tax benefit differs from the expected federal tax amounts primarily due to the inclusion of state income taxes, non-deductible stock related compensation, certain discrete tax items and the impact from a non-deductible loss for tax purposes related to the transfer of real property to our Pension Plan. 

In 2015, we recorded an income tax benefit on continuing operations of $11.8 million. The income tax benefit differs from the expected federal tax amounts primarily due to the tax impact of state income taxes, the impact of non-tax-deductible goodwill, the reversal of unrecognized tax benefits and certain expenses not deductible for income tax purposes. 

2015 Compared to 2014

Revenues

The following table summarizes our revenues by category, which compares 2015 to 2014: