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EX-32.2 - EX-32.2 - MCCLATCHY COmni-20170326ex322bb26ea.htm
EX-32.1 - EX-32.1 - MCCLATCHY COmni-20170326ex321aae712.htm
EX-31.2 - EX-31.2 - MCCLATCHY COmni-20170326ex31263140d.htm
EX-31.1 - EX-31.1 - MCCLATCHY COmni-20170326ex31190cb46.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:  March 26, 2017

 

or

 

                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number: 1-9824

 

G:\SHARED\CONTROL\Financial Reporting\2016\Q1 2016 10Q\Working Copy\Vertical_White (1).JPG

 

The McClatchy Company

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

52-2080478

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

2100 “Q” Street, Sacramento, CA

 

95816

(Address of principal executive offices)

 

(Zip Code)

 

 

 

 

 

 

916-321-1844

 

 

(Registrant’s telephone number, including area code)

 

 

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 Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer ◻

Accelerated filer ☒

 

 

 

 

Non-accelerated filer (Do not check if smaller reporting company) ◻

Smaller reporting company ◻

Emerging growth company ◻

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act).

 

Yes ◻  No ☒

 

As of April 28, 2017, the registrant had shares of common stock as listed below outstanding:

 

 

 

Class A Common Stock

5,178,199

Class B Common Stock

2,443,191

 

 

 


 

 

THE MCCLATCHY COMPANY

 

TABLE OF CONTENTS

 

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 26,

 

March 27,

 

 

    

2017

 

2016

 

REVENUES — NET:

 

 

 

 

 

 

 

Advertising

 

$

119,889

 

$

136,256

 

Audience

 

 

91,416

 

 

90,662

 

Other

 

 

9,907

 

 

11,061

 

 

 

 

221,212

 

 

237,979

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Compensation

 

 

91,408

 

 

99,080

 

Newsprint, supplements and printing expenses

 

 

17,845

 

 

19,032

 

Depreciation and amortization

 

 

19,804

 

 

24,562

 

Other operating expenses

 

 

96,674

 

 

97,658

 

 

 

 

225,731

 

 

240,332

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(4,519)

 

 

(2,353)

 

 

 

 

 

 

 

 

 

NON-OPERATING (EXPENSE) INCOME:

 

 

 

 

 

 

 

Interest expense

 

 

(20,454)

 

 

(20,247)

 

Interest income

 

 

153

 

 

96

 

Equity income in unconsolidated companies, net

 

 

63

 

 

2,741

 

Impairments related to equity investments

 

 

(123,000)

 

 

(892)

 

Gain on extinguishment of debt, net

 

 

 —

 

 

1,535

 

Retirement benefit expense

 

 

(3,327)

 

 

(3,694)

 

Other — net

 

 

60

 

 

(42)

 

 

 

 

(146,505)

 

 

(20,503)

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(151,024)

 

 

(22,856)

 

Income tax benefit

 

 

(55,449)

 

 

(10,115)

 

NET LOSS

 

$

(95,575)

 

$

(12,741)

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

Basic

 

$

(12.60)

 

$

(1.58)

 

Diluted

 

$

(12.60)

 

$

(1.58)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

Basic

 

 

7,588

 

 

8,058

 

Diluted

 

 

7,588

 

 

8,058

 

 

See notes to the condensed consolidated financial statements.

 

 

1


 

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; amounts in thousands) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 26,

 

March 27,

 

 

    

2017

 

2016

 

NET LOSS

 

$

(95,575)

 

$

(12,741)

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

Pension and post retirement plans:

 

 

 

 

 

 

 

Change in pension and post-retirement benefit plans, net of taxes of $(1,714) and $(1,535)    

 

 

2,571

 

 

2,302

 

Investment in unconsolidated companies:

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes of $(48) and $330

 

 

72

 

 

(495)

 

Other comprehensive income

 

 

2,643

 

 

1,807

 

Comprehensive loss

 

$

(92,932)

 

$

(10,934)

 

 

See notes to the condensed consolidated financial statements.

 

 

2


 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; amounts in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

    

March 26,

    

December 25,

 

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,790

 

$

5,291

 

Trade receivables (net of allowances of $3,563 in 2017 and $3,254 in 2016)

 

 

89,406

 

 

112,583

 

Other receivables

 

 

11,282

 

 

11,883

 

Newsprint, ink and other inventories

 

 

11,296

 

 

13,939

 

Assets held for sale

 

 

15,285

 

 

9,040

 

Other current assets

 

 

17,158

 

 

14,809

 

 

 

 

168,217

 

 

167,545

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

285,378

 

 

297,506

 

Intangible assets:

 

 

 

 

 

 

 

Identifiable intangibles — net

 

 

286,914

 

 

298,986

 

Goodwill

 

 

705,174

 

 

705,174

 

 

 

 

992,088

 

 

1,004,160

 

Investments and other assets:

 

 

 

 

 

 

 

Investments in unconsolidated companies

 

 

121,752

 

 

242,382

 

Deferred income taxes

 

 

115,055

 

 

60,821

 

Other assets

 

 

63,546

 

 

64,340

 

 

 

 

300,353

 

 

367,543

 

 

 

$

1,746,036

 

$

1,836,754

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

16,788

 

$

16,749

 

Accounts payable

 

 

33,167

 

 

36,822

 

Accrued pension liabilities

 

 

8,647

 

 

8,647

 

Accrued compensation

 

 

24,225

 

 

25,577

 

Income taxes payable

 

 

8,168

 

 

7,930

 

Unearned revenue

 

 

67,807

 

 

64,728

 

Accrued interest

 

 

16,258

 

 

8,602

 

Other accrued liabilities

 

 

20,480

 

 

20,994

 

 

 

 

195,540

 

 

190,049

 

Non-current liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

830,199

 

 

829,415

 

Pension and postretirement obligations

 

 

600,645

 

 

604,165

 

Financing obligations

 

 

52,021

 

 

51,616

 

Other long-term obligations

 

 

45,904

 

 

47,596

 

 

 

 

1,528,769

 

 

1,532,792

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock $.01 par value:

 

 

 

 

 

 

 

Class A (authorized 200,000,000 shares, issued 5,164,277 in 2017 and 5,132,417 in 2016)

 

 

52

 

 

51

 

Class B (authorized 60,000,000 shares, issued 2,443,191 in 2017 and 2016) 

 

 

24

 

 

24

 

Additional paid-in-capital

 

 

2,214,128

 

 

2,213,098

 

Accumulated deficit

 

 

(1,733,314)

 

 

(1,637,739)

 

Treasury stock at cost, 11,402 shares in 2017 and 34 shares in 2016

 

 

(291)

 

 

(6)

 

Accumulated other comprehensive loss

 

 

(458,872)

 

 

(461,515)

 

 

 

 

21,727

 

 

113,913

 

 

 

$

1,746,036

 

$

1,836,754

 

 

See notes to the condensed consolidated financial statements.

3


 

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited; amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

 

    

2017

    

2016

    

CASH FLOWS FROM OPERATING ACTIVITIES:

    

 

 

    

 

 

 

Net loss

 

$

(95,575)

 

$

(12,741)

 

 

 

 

 

 

 

 

 

Reconciliation to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19,804

 

 

24,562

 

Gains on disposal of property and equipment (excluding other asset write-downs)

 

 

(384)

 

 

(73)

 

Retirement benefit expense

 

 

3,327

 

 

3,694

 

Stock-based compensation expense

 

 

1,029

 

 

1,374

 

Equity income in unconsolidated companies

 

 

(63)

 

 

(2,741)

 

Impairments related to equity investments

 

 

123,000

 

 

892

 

Gain on extinguishment of debt, net

 

 

 —

 

 

(1,535)

 

Other asset write-downs

 

 

1,957

 

 

 —

 

Other

 

 

(1,716)

 

 

(1,691)

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

 

23,177

 

 

36,390

 

Inventories

 

 

686

 

 

(2,475)

 

Other assets

 

 

(1,066)

 

 

1,072

 

Accounts payable

 

 

(3,655)

 

 

(2,939)

 

Accrued compensation

 

 

(1,352)

 

 

(1,866)

 

Income taxes

 

 

(55,646)

 

 

(10,341)

 

Accrued interest

 

 

7,656

 

 

7,312

 

Other liabilities

 

 

305

 

 

6,867

 

Net cash provided by operating activities

 

 

21,484

 

 

45,761

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,680)

 

 

(3,314)

 

Proceeds from sale of property, plant and equipment and other

 

 

392

 

 

 —

 

Contributions to equity investments

 

 

(1,808)

 

 

(500)

 

Proceeds from sale of equity investments and other-net

 

 

(11)

 

 

111

 

Net cash used in investing activities

 

 

(3,107)

 

 

(3,703)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Repurchase of public notes

 

 

 —

 

 

(28,804)

 

Purchase of treasury shares

 

 

(285)

 

 

(3,939)

 

Other

 

 

407

 

 

(1,060)

 

Net cash provided by (used in) financing activities

 

 

122

 

 

(33,803)

 

Increase in cash and cash equivalents

 

 

18,499

 

 

8,255

 

Cash and cash equivalents at beginning of period

 

 

5,291

 

 

9,332

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD 

 

$

23,790

 

$

17,587

 

 

See notes to the condensed consolidated financial statements

4


 

 

THE MCCLATCHY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)

 

1.  SIGNIFICANT ACCOUNTING POLICIES

 

Business and Basis of Accounting

 

The McClatchy Company (the “Company,” “we,” “us” or “our”) is a news and information publisher of well-respected publications such as the Miami HeraldThe Kansas City StarThe Sacramento BeeThe Charlotte Observer,  The (Raleigh) News & Observer, and the (Fort Worth) Star-Telegram. Each of our publications also has online platforms serving their communities. We operate 30 media companies 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.

 

In addition to our media companies, we also own 15.0% of CareerBuilder LLC (“CareerBuilder”), which operates a premier online jobs website, CareerBuilder.com, as well as certain other digital investments. See Note 3. 

 

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

 

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, that are necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. The financial statements contained in this report are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 25, 2016 (“Form 10-K”). Each of the fiscal periods included herein comprise 13 weeks.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation in our condensed consolidated financial statements related to the early retrospective adoption of Accounting Standards Update (“ASU”) No. 2017-07 relating to the classification of net periodic pension expense, as described below. In accordance with the early adoption of ASU No. 2017-07 for the three months ended March 27, 2016, we reclassified net periodic pension and postretirement costs of $3.7 million from the compensation line item in operating expenses to the retirement benefit expense line item in non-operating (expense) income on the condensed consolidated statement of operations, which is described further in Note 5. There were no other changes to the prior periods’ condensed consolidated financial statements, except those described in Note 5.

 

Fair Value of Financial Instruments

 

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

 

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

 

5


 

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

 

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

 

Our policy is to recognize significant transfers between levels at the actual date of the event or circumstance that caused the transfer. 

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

 

Cash and cash equivalents, accounts receivable and accounts payable.  As of March 26, 2017, and December 25, 2016, the carrying amount of these items approximates fair value because of the short maturity of these financial instruments.

 

Long-term debt.  The fair value of our long-term debt is determined using quoted market prices and other inputs that were derived from available market information, including the current market activity of our publicly-traded notes and bank debt, trends in investor demand for debt and market values of comparable publicly-traded debt. These are considered to be Level 2 inputs under the fair value measurements and disclosure guidance, and may not be representative of actual value. At March 26, 2017 and December 25, 2016, the estimated fair value of long-term debt, including the current portion of long-term debt, was $836.5 million and $844.0 million, respectively. At March 26, 2017, and December 25, 2016, the carrying value of our long-term debt, including the current portion of long-term debt, was $847.0 million and $846.2 million, respectively.

 

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Our non-financial assets that may be measured at fair value on a nonrecurring basis are assets held for sale, goodwill, intangible assets not subject to amortization and equity method investments. All of these are measured using Level 3 inputs. We utilize valuation techniques that seek to maximize the use of observable inputs and minimize the use of unobservable inputs. The significant unobservable inputs include our expected cash flows and the discount rates that we estimate market participants would seek for bearing the risk associated with such assets. See Note 3 regarding a discussion related to an impairment charged during the three months ended March 26, 2017, on our equity method investments.

 

Newsprint, ink and other inventories

 

Newsprint, ink and other inventories are stated at the lower of cost (based principally on the first‑in, first‑out method) and net realizable value. During the three months ended March 26, 2017, we recorded a $2.0 million write‑down of non-newsprint inventory, which is reflected in the other operating expenses, on the condensed consolidated statement of operations.

Property, Plant and Equipment

 

During the three months ended March 27, 2016, we incurred $2.8 million in accelerated depreciation related to production equipment associated with outsourcing our printing process at a few of our media companies. No similar transactions were recorded during the three months ended March 26, 2017.

 

6


 

Depreciation expense with respect to property, plant and equipment is summarized below:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

(in thousands)

 

2017

 

2016

 

Depreciation expense

 

$

7,721

 

$

12,564

 

 

Assets Held for Sale

 

During the three months ended March 26, 2017, we began to actively market for sale the land and building at one of our media companies. No impairment charges were incurred during the three months ended March 26, 2017, as a result of placing these assets into assets held for sale. In addition, assets held for sale continues to include land and buildings at two of our media companies that we began to actively market for sale during 2016.

 

Intangible Assets and Goodwill

 

We test for impairment of goodwill annually, at year‑end, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The required approach uses accounting judgments and estimates of future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different results. Impairment testing is done at a reporting unit level. We perform this testing on operating segments, which are also considered our reporting units. An impairment loss is recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The fair value of our reporting units is determined using a combination of a discounted cash flow model and market based approaches. The estimates and judgments that most significantly affect the fair value calculation are assumptions related to revenue growth, newsprint prices, compensation levels, discount rate, hypothetical transaction structures, and for the market based approach, private and public market trading multiples for newspaper assets. We consider current market capitalization, based upon the recent stock market prices, plus an estimated control premium in determining the reasonableness of the aggregate fair value of the reporting units. We had no impairment of goodwill during the three months ended March 26, 2017, or March 27, 2016.

 

Newspaper mastheads (newspaper titles and website domain names) are not subject to amortization and are tested for impairment annually, at year‑end, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of each newspaper masthead with its carrying amount. We use a relief-from-royalty approach that utilizes the discounted cash flow model discussed above, to determine the fair value of each newspaper masthead. We had no impairment of newspaper mastheads during the three months ended March 26, 2017, or March 27, 2016. 

 

Long‑lived assets such as intangible assets (primarily advertiser and subscriber lists) are amortized and tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of each asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of such asset group. We had no impairment of long‑lived assets subject to amortization during the three months ended March 26, 2017, or March 27, 2016.

 

Segment Reporting

 

We operate 30 media companies, providing each of our communities with high-quality news and advertising services in a wide array of digital and print formats. We have two operating segments that we aggregate into a single reportable segment because each has similar economic characteristics, products, customers and distribution methods. Our operating segments are based on how our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), makes decisions about allocating resources and assessing performance. The CODM is provided discrete financial information for the two operating segments. Each operating segment consists of a group of media companies and both operating segments report to the same segment manager. One of our operating segments (“Western Segment”) consists of our media operations in

7


 

California, the Northwest, and the Midwest, while the other operating segment (“Eastern Segment”) consists primarily of media operations in the Southeast and Florida.

 

Accumulated Other Comprehensive Loss

 

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

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Other

    

 

 

 

 

 

Minimum

 

Comprehensive

 

 

 

 

 

 

Pension and

 

Loss

 

 

 

 

 

 

Post-

 

Related to

 

 

 

 

 

 

Retirement

 

Equity

 

 

 

 

(in thousands)

 

Liability

 

Investments

 

Total

 

Balance at December 25, 2016

 

$

(450,506)

 

$

(11,009)

 

$

(461,515)

 

Other comprehensive income (loss) before reclassifications

 

 

 —

 

 

72

 

 

72

 

Amounts reclassified from AOCL

 

 

2,571

 

 

 

 

2,571

 

Other comprehensive income (loss)

 

 

2,571

 

 

72

 

 

2,643

 

Balance at March 26, 2017

 

$

(447,935)

 

$

(10,937)

 

$

(458,872)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

    

 

(in thousands)

March 26,

 

March 27,

 

Affected Line in the Condensed

AOCL Component

2017

 

2016

 

Consolidated Statements of Operations

Minimum pension and post-retirement liability

$

4,285

 

$

3,837

 

Retirement benefit expense

 

 

(1,714)

 

 

(1,535)

 

Benefit for income taxes

 

$

2,571

 

$

2,302

 

Net of tax

 

Income Taxes

 

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

 

Current accounting standards in the United States prescribe a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax returns. We recognize accrued interest related to unrecognized tax benefits in interest expense. Accrued penalties are recognized as a component of income tax expense.

 

Earnings Per Share (EPS)

 

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

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

(shares in thousands)

 

2017

 

2016

 

Anti-dilutive common stock equivalents

    

340

 

449

 

 

8


 

Cash Flow Information

 

Cash paid for interest and income taxes and other non-cash activities consisted of the following:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

(in thousands)

 

2017

 

2016

 

Interest paid (net of amount capitalized)

    

$

9,980

    

$

11,087

 

Income taxes paid (net of refunds)

 

 

12

 

 

(5,850)

 

 

 

 

 

 

 

 

 

Other non-cash investing and financing activities related to pension plan transactions:

 

 

 

 

 

 

 

Increase of financing obligation for contribution of real property to pension plan

 

 

 —

 

 

47,130

 

Reduction of pension obligation for contribution of real property to pension plan

 

 

 —

 

 

(47,130)

 

 

Other non-cash financing activities relate to the contribution of real property to the Pension Plan. See Note 5 for further discussion.

 

Recently Adopted Accounting Pronouncements

 

In July 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 simplified the measurement of inventory by requiring certain inventory to be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” are eliminated. The ASU defined net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” Effective December 26, 2016, we adopted this standard and will apply it prospectively. We did not have a material impact to our primary categories of inventory such as newsprint for our operations or our condensed consolidated statement of operations from the adoption of this standard.  

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplified the subsequent measurement of goodwill and eliminated the Step 2 from the goodwill impairment test. This standard was effective for us in fiscal year 2020 with early adoption permitted. We early adopted this standard for any impairment test performed after January 1, 2017, as permitted under the standard. The adoption of this guidance did not impact our condensed consolidated financial statements.

 

In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 required that an employer report the service cost component in the same line items or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in the standard are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. It was effective for us for in fiscal year 2018 with early adoption permitted. The amendments in this ASU are required to be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. At the beginning of fiscal year 2017, we early adopted this standard using the practical expedient. For the three months ended March 27, 2016, we reclassified net periodic pension and postretirement costs of $3.7 million from the compensation line item within operating expenses to the retirement benefit expense line item in non-operating (expense) income in the condensed consolidated statement of operations to conform to the current year presentation. There were no other changes to the condensed consolidated financial statements, except those described in Note 5.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This new revenue recognition

9


 

model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In 2016 and 2017, the FASB issued additional updates: ASU No. 2016-08, 2016-10, 2016-11, 2016-12, 2016-20 and 2017-05. These updates provide further guidance and clarification on specific items within the previously issued update. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements. ASU 2014-09, as well as the additional FASB updates noted above, is effective for us for annual and interim periods beginning on or after December 15, 2017, and early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. We do not plan to early adopt this guidance. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented ("full retrospective"), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application ("modified retrospective"). We are planning to adopt the standard using the modified retrospective method. We are still in the process of finalizing the impact this standard will have on our controls, processes and financial results, but we do not believe this standard will significantly impact revenue recognition associated with our primary advertising, audience and other revenue categories. We plan to finalize our determination of the impact by the end of the second quarter of 2017, and continue to focus on our process and control activities assessments and documentation during the remainder of 2017.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for us for interim and annual reporting periods beginning after December 15, 2017. We do not believe the adoption of this guidance will have an impact on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Accounting Standards Codification 842 (“ASC 842”)) and it replaces the existing guidance in ASC 840, “Leases.” ASC 842 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The new lease standard does not substantially change lessor accounting. It is effective for us for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We are in the process of reviewing the impact this standard will have on our existing lease population and the impact the adoption will have on our condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. It is effective for us for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted for interim or annual reporting periods beginning after December 15, 2018. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. It is effective for us for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

10


 

2.  INTANGIBLE ASSETS AND GOODWILL

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 25,

 

Acquisition

 

Amortization

 

March 26,

 

(in thousands)

    

2016

    

Adjustments

 

Expense

    

2017

 

Intangible assets subject to amortization

 

$

839,273

 

$

11

 

$

 —

 

$

839,284

 

Accumulated amortization

 

 

(711,723)

 

 

 -

 

 

(12,083)

 

 

(723,806)

 

 

 

 

127,550

 

 

11

 

 

(12,083)

 

 

115,478

 

Mastheads

 

 

171,436

 

 

 -

 

 

 —

 

 

171,436

 

Goodwill

 

 

705,174

 

 

 -

 

 

 —

 

 

705,174

 

Total

 

$

1,004,160

 

$

11

 

$

(12,083)

 

$

992,088

 

 

Amortization expense with respect to intangible assets is summarized below:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

(in thousands)

 

2017

 

2016

 

Amortization expense

 

 $

12,083

 

 $

11,998

 

 

The estimated amortization expense for the remainder of fiscal year 2017 and the five succeeding fiscal years is as follows: 

 

 

 

 

 

 

 

Amortization

 

 

Expense

Year

 

(in thousands)

2017 (Remainder)

 

 $

37,207

2018

 

 

47,660

2019

 

 

24,154

2020

 

 

803

2021

 

 

680

2022

 

 

655

 

 

3.  INVESTMENTS IN UNCONSOLIDATED COMPANIES

 

The carrying value of investments in unconsolidated companies consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

% Ownership

    

March 26,

    

December 25,

 

Company

    

Interest

    

2017

    

2016

 

CareerBuilder, LLC

 

15.0

 

$

115,646

 

$

236,936

 

Other

 

Various

 

 

6,106

 

 

5,446

 

 

 

 

 

$

121,752

 

$

242,382

 

 

The owners of CareerBuilder, including us, continue to pursue a strategic review of this business, which may include a range of possible outcomes. Throughout the first quarter of 2017, the owners reviewed several potential strategic outcomes. In March, the range of possible outcomes was narrowed and we determined there was sufficient indication that the carrying value of our investment in CareerBuilder should be reviewed for impairment. As a result of using our best estimate of fair value at that time, we recorded a  $123.0 million pre-tax impairment charge on our equity investment in CareerBuilder during the three months ended March 26, 2017. The value of the investment and other balances reflect only our estimated fair value and should not be perceived as indicative of a potential strategic outcome or the level of values recorded by other owners. We expect the strategic review of CareerBuilder to continue and have no estimate of timing of the process.

 

On February 23, 2016, we, along with Gannett Co. Inc. and Tribune Publishing Co. (now “tronc, Inc.”) (the “Selling Partners”) sold all of the assets in HomeFinder LLC (“HomeFinder”) to Placester Inc. (“Placester”) in exchange for a small stock ownership in Placester and a 3-year affiliate agreement with Placester to continue to allow the Selling Partners to

11


 

sell Placester and HomeFinder’s products and services. As a result of this transaction, during the quarter ended March 27, 2016, we wrote off our HomeFinder investment of $0.9 million, which is recorded in equity income in unconsolidated companies, net, on our condensed consolidated statements of operations.

 

 

4.  LONG-TERM DEBT

 

Our long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Face Value at

 

Carrying Value

 

 

 

March 26,

 

March 26,

 

December 25,

 

(in thousands)

 

2017

 

2017

 

2016

 

Notes:

    

 

    

    

 

    

    

 

    

 

9.00% senior secured notes due in 2022

 

$

491,415

 

$

483,872

 

$

483,492

 

5.750% notes due in 2017

 

 

16,865

 

 

16,788

 

 

16,749

 

7.150% debentures due in 2027

 

 

89,188

 

 

84,960

 

 

84,862

 

6.875% debentures due in 2029

 

 

276,230

 

 

261,367

 

 

261,061

 

Long-term debt

 

$

873,698

 

$

846,987

 

$

846,164

 

Less current portion

 

 

16,865

 

 

16,788

 

 

16,749

 

Total long-term debt, net of current

 

$

856,833

 

$

830,199

 

$

829,415

 

 

Our outstanding notes are stated net of unamortized debt issuance costs and unamortized discounts, if applicable, totaling $26.7 million and $27.5 million as of March 26, 2017, and December 25, 2016, respectively.

 

Debt Repurchases and Gain on Extinguishment of Debt

 

During the three months ended March 27, 2016, we repurchased a total $30.8 million of the 5.75% and 9.00% notes through a privately negotiated transaction. We recorded a net gain on the extinguishment of debt of $1.5 million during the three months ended March 27, 2016. We repurchased these notes at a discount and wrote off historical discounts and debt issuance costs during the three months ended March 27, 2016. There were no debt repurchases during the three months ended March 26, 2017.

 

Credit Agreement

 

Our Third Amended and Restated Credit Agreement, as amended (“Credit Agreement”), is secured by a first-priority security interest in certain of our assets as described below. The Credit Agreement, among other things, provides for commitments of $65.0 million and a maturity date of December 18, 2019. In 2014, we entered into a Collateralized Issuance and Reimbursement Agreement (“LC Agreement”). Pursuant to the terms of LC Agreement, we may request letters of credit be issued on our behalf in an aggregate face amount not to exceed $35.0 million. We are required to provide cash collateral equal to 101% of the aggregate undrawn stated amount of each outstanding letter of credit.

 

The Credit Agreement was further amended in January 2017 to allow for flexibility in the use of proceeds of certain real estate transactions.

 

As of March 26, 2017, there were standby letters of credit outstanding under the LC Agreement with an aggregate face amount of $28.7 million. There were no borrowings outstanding under the Credit Agreement as of March 26, 2017.

 

Under the Credit Agreement, we may borrow at either the London Interbank Offered Rate plus a spread ranging from 275 basis points to 425 basis points, or at a base rate plus a spread ranging from 175 basis points to 325 basis points, in each case based upon our consolidated total leverage ratio. The Credit Agreement provides for a commitment fee payable on the unused revolving credit ranging from 50 basis points to 62.5 basis points, based upon our consolidated total leverage ratio.

 

Senior Secured Notes and Indenture

 

Substantially all of our subsidiaries guarantee the obligations under the 9.00% Notes and the Credit Agreement. We own 100% of each of the guarantor subsidiaries and we have no significant independent assets or operations separate from the

12


 

subsidiaries that guarantee our 9.00% Notes and the Credit Agreement. The guarantees provided by the guarantor subsidiaries are full and unconditional and joint and several, and the subsidiaries other than the subsidiary guarantors are minor.

 

In addition, we have granted a security interest to the banks that are a party to the Credit Agreement and the trustee under the indenture governing the 9.00% Notes that includes, but is not limited to, intangible assets, inventory, receivables and certain minority investments as collateral for the debt. The security interest does not include any property, plant & equipment (“PP&E”), leasehold interests or improvements with respect to such PP&E which would be reflected on our condensed consolidated balance sheets or shares of stock and indebtedness of our subsidiaries.

 

Covenants under the Senior Debt Agreements

 

Under the Credit Agreement, we are required to comply with a maximum consolidated total leverage ratio measured on a quarterly basis. As of March 26, 2017, we are required to maintain a consolidated total leverage ratio of not more than 6.00 to 1.00.  For purposes of the consolidated total leverage ratio, debt is largely defined as debt, net of cash on hand in excess of $20.0 million. As of March 26, 2017, we were in compliance with our financial covenants.

 

The Credit Agreement also 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).

 

The indenture for the 9.00% Notes and the Credit Agreement include a number of restrictive covenants that are applicable to us and our restricted subsidiaries. The covenants are subject to a number of important exceptions and qualifications set forth in those agreements. These covenants include, among other things, restrictions on our ability to incur additional debt; make investments and other restricted payments; pay dividends on capital stock or redeem or repurchase capital stock or certain of our outstanding notes or debentures prior to stated maturity; sell assets or enter into sale/leaseback transactions; create specified liens; create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions; engage in certain transactions with affiliates; and consolidate or merge with or into other companies or sell all or substantially all of the Company’s and our subsidiaries’ assets, taken as a whole.

 

5.  EMPLOYEE BENEFITS

 

We maintain a qualified defined benefit pension plan (“Pension Plan”), which covers certain eligible current and former employees and has been frozen since March 31, 2009.  No new participants may enter the Pension Plan and no further benefits will accrue. However, years of service continue to count toward early retirement calculations and vesting of benefits previously earned.

 

We also have a limited number of supplemental retirement plans to provide certain key current and former employees with additional retirement benefits.  These plans are funded on a pay-as-you-go basis and the accrued pension obligation is largely included in other long-term obligations.

 

13


 

The elements of retirement expense are as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

(in thousands)

 

2017

 

2016

 

Pension plans:

    

 

    

 

 

    

 

Service Cost

 

$

 —

 

$

 —

 

Interest Cost

 

 

21,367

 

 

22,167

 

Expected return on plan assets

 

 

(22,392)

 

 

(22,407)

 

Actuarial loss

 

 

5,084

 

 

4,596

 

Net pension expense

 

 

4,059

 

 

4,356

 

Net post-retirement benefit credit

 

 

(732)

 

 

(662)

 

Net retirement benefit expenses

 

$

3,327

 

$

3,694

 

 

Changes In Presentation

 

As discussed more fully in Note 1, we recently adopted ASU No. 2017-07, which provides guidance on presentation of service costs and the other components of net retirement expenses.

 

Service costs represent the annual growth in benefits earned by participants over the 12 months of the fiscal year. Since our Pension Plan is frozen and no benefits continue to accrue for our participants, we have determined in connection with the adoption of ASU 2017-07 that service costs are zero for all periods presented. Historically, we have included expenses paid from the Pension Plan trust, including Public Benefit Guaranty Corporation (PBGC), audit, actuarial, legal and administrative fees, as service costs in our footnote presentation of the components of net periodic pension cost. We have determined that the vast majority of these types of expenses reflect a reduction to the expected return on plan assets because they reduce the expected growth of the trust assets. As such, we have elected to reclassify the trust-paid expenses related to our Pension Plan as a reduction to expected return on plan assets for all periods presented. For the three months ended March 27, 2016, we have reclassified expenses of $4.7 million from service costs to expected return on plan assets in the table above. This change in presentation had no impact on net retirement expenses.

 

 

Contribution of Company-owned Real Property to Pension Plan

 

In February 2016, we voluntarily 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 properties. We leased back the contributed facilities under 11-year leases with initial annual payments totaling approximately $3.5 million. A similar contribution of properties was made to the Pension Plan in 2011, and the accounting treatment for both contributions is described below.

 

The contributions and leasebacks of these properties are treated as financing transactions 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 of any property until the sale of the property by the Pension Plan. At the time of our contributions, our pension obligation was reduced and our financing obligations were recorded equal to the fair market value of the properties. The financing obligations are 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 March 26, 2017, and December 25, 2016, was $52.0 million and $51.6 million, respectively, and relates to the contributions to the Pension Plan in 2016 and 2011.

 

6.  COMMITMENTS AND CONTINGENCIES

 

In December 2008, carriers of The Fresno Bee filed a class action lawsuit against us and The Fresno Bee in the Superior Court of the State of California in Fresno County captioned Becerra v. The McClatchy Company (“Fresno case”) alleging that the carriers were misclassified as independent contractors and seeking mileage reimbursement. In February 2009, a substantially similar lawsuit, Sawin v. The McClatchy Company, involving similar allegations was filed by carriers of The

14


 

Sacramento Bee (“Sacramento case”) in the Superior Court of the State of California in Sacramento County. The class consists of roughly 5,000 carriers in the Sacramento case and 3,500 carriers in the Fresno case. The plaintiffs in both cases are seeking unspecified restitution for mileage reimbursement. With respect to the Sacramento case, in September 2013, all wage and hour claims were dismissed and the only remaining claim is an equitable claim for mileage reimbursement under the California Civil Code. In the Fresno case, in March 2014, all wage and hour claims were dismissed and the only remaining claim is an equitable claim for mileage reimbursement under the California Civil Code.

 

The court in the Sacramento case trifurcated the trial into three separate phases: the first phase addressed independent contractor status, the second phase will address liability, if any, and the third phase will address restitution, if any. On September 22, 2014, the court in the Sacramento case issued a tentative decision following the first phase, finding that the carriers that contracted directly with The Sacramento Bee during the period from February 2005 to July 2009 were misclassified as independent contractors. We objected to the tentative decision but the court ultimately adopted it as final. The court has not yet established a date for the second and third phases of trial concerning whether The Sacramento Bee is liable to the carriers in the class for mileage reimbursement or owes any restitution. In June 2016, The McClatchy Company was dismissed from the lawsuit, leaving The Sacramento Bee as the sole defendant.

 

The court in the Fresno case bifurcated the trial into two separate phases: the first phase addressed independent contractor status and liability for mileage reimbursement and the second phase was designated to address restitution, if any. The first phase of the Fresno case began in the fourth quarter of 2014 and concluded in late March 2015. On April 14, 2016, the court in the Fresno case issued a statement of final decision in favor of us and The Fresno Bee. Accordingly, there will be no second phase. The plantiffs filed a Notice of Appeal on November 10, 2016.

 

In January 2016, Ponderay Newsprint Company (“PNC”), a general partnership that owns and operates a newsprint mill in the state of Washington, and of which three of our wholly-owned subsidiaries own a combined 27% interest, filed a complaint in the Superior Court of the State of Washington seeking declaratory judgment and alleging breach of contract and breach of the duty of good faith and fair dealing against Public Utility District No. 1 of Pend Oreille County (“PUD”) relating to the industrial power supply contracts (“Supply Contracts”) between PNC and the PUD. This complaint followed the PUD’s assertion that PNC had effected a termination of the Supply Contracts by the submission of its most recent power schedule, which called for an uncertain, and probably declining, need for power between 2017-2019. Based on PNC’s fervent belief that its power schedule was fully compliant with the Supply Contracts, the aforementioned complaint was filed. In March 2016, the PUD filed a counterclaim against PNC and a third-party complaint against the individual partners of PNC, alleging breach of contract.

 

We continue to defend these actions vigorously and expect that we will ultimately prevail. As a result, we have not established a reserve in connection with the cases. While we believe that a material impact on our condensed consolidated financial position, results of operations or cash flows from these claims is unlikely, given the inherent uncertainty of litigation, a possibility exists that future adverse rulings or unfavorable developments could result in future charges that could have a material impact. We have and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and make appropriate adjustments to such estimates based on experience and developments in litigation.

 

Other than the cases described above, we are subject to a variety of legal proceedings (including libel, employment, wage and hour, independent contractor and other legal actions) and governmental proceedings (including environmental matters) that arise from time to time in the ordinary course of our business. We are unable to estimate the amount or range of reasonably possible losses for these matters. However, we currently believe, after reviewing such actions with counsel, that the expected outcome of pending actions will not have a material effect on our condensed consolidated financial statements. No material amounts for any losses from litigation that may ultimately occur have been recorded in the condensed consolidated financial statements as we believe that any such losses are not probable.

 

15


 

We have certain indemnification obligations related to the sale of assets including but not limited to insurance claims and multi-employer pension plans of disposed newspaper operations. We believe the remaining obligations related to disposed assets will not be material to our financial position, results of operations or cash flows.

 

As of March 26, 2017, we had $28.7 million of standby letters of credit secured under the LC Agreement.

 

7.  STOCK PLANS

 

Stock Plans Activity

 

The following table summarizes the restricted stock units (“RSUs”) activity during the three months ended March 26, 2017:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

Average Grant

 

 

 

 

Date Fair

 

    

 

    

Value

Nonvested — December 25, 2016

 

204,145

 

$

18.17

Granted

 

151,905

 

$

11.50

Vested

 

(113,266)

 

$

21.13

Forfeited

 

(270)

 

$

23.40

Nonvested — March 26, 2017

 

242,514

 

$

12.60

 

The total fair value of the RSUs that vested during the three months ended March 26, 2017, was $1.3 million.

 

The following table summarizes the stock appreciation rights (“SARs”) activity during the three months ended March 26, 2017: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

Aggregate

 

 

 

 

 

Average

 

Intrinsic Value

 

 

    

SARs

    

Exercise Price

    

(in thousands)

 

Outstanding December 25, 2016

 

292,750

 

$

50.29

 

$

 —

 

Expired

 

(1,850)

 

$

108.78

 

 

 

 

Outstanding March 26, 2017

 

290,900

 

$

49.92

 

$

 —

 

 

Stock-Based Compensation

 

All stock-based payments, including grants of stock appreciation rights, restricted stock units and common stock under equity incentive plans, are recognized in the financial statements based on their grant date fair values. As of March 26, 2017, we had two stock-based compensation plans. Stock-based compensation expenses are reported in the compensation line item in the condensed consolidated statements of operations. Total stock-based compensation expense for the periods presented in this report, are as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

(in thousands)

 

2017

 

2016

 

Stock-based compensation expense

    

$

1,029

 

$

1,374

 

 

 

 

 

16


 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Information

 

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including statements relating to future financial performance and operations, trends in advertising, uses of cash, the refinancing of our debt and our pension plan obligations. 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” in Part I, Item 1A of our 2016 Annual Report on Form 10-K as well as our other filings with the Securities and Exchange Commission, including our disclosures herein. We undertake no obligation to revise or update any forward-looking statements except as required under applicable law.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of The McClatchy Company and its consolidated subsidiaries (together, the “Company,” “we,” “us” or “our”). This MD&A should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes to the financial statements (“Notes”) as of and for the three months ended March 26, 2017, included in Item 1 of this Quarterly Report on Form 10-Q, as well as with our audited consolidated financial statements and accompanying notes to the financial statements and MD&A contained in our 2016 Annual Report filed on Form 10-K with the Securities and Exchange Commission on March 6, 2017. All period references are to our fiscal periods unless otherwise indicated.

 

Overview

 

We are a news and information publisher of well-respected publications such as the Miami HeraldThe Kansas City StarThe Sacramento BeeThe Charlotte Observer,  The (Raleigh) News & Observer, and the (Fort Worth) Star-Telegram. We operate 30 media companies 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.

 

We also own 15.0% of CareerBuilder, LLC (“CareerBuilder”), which operates the nation’s largest online jobs website, CareerBuilder.com, as well as certain other digital investments. See Recent Developments below.

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 26,

 

March 27,

 

 

 

2017