Financial
Statements and Supplemental Schedule
Knight
Ridder 401k Plan
December
31, 2007 and 2006, and for the Year Ended December 31, 2007
With
Reports of Independent Registered Public Accounting Firms
Knight
Ridder 401k Plan
Financial
Statements
and
Supplemental Schedule
December
31, 2007 and 2006, and
for the
Year Ended December 31, 2007
Table
of Contents
Reports of Independent
Registered Public Accounting
Firms......................................................................1
Audited
Financial Statements
|
Statements
of Net Assets Available for
Benefits..........................................................................................3
|
|
Statement
of Changes in Net Assets Available for
Benefits.........................................................................4
|
| Notes
to Financial
Statements.......................................................................................................................5 |
Supplemental
Schedule
|
Schedule
H, Line 4i – Schedule of Assets (Held At End of
Year).............................................................15
|
Report
of Independent Registered Public Accounting Firm
To the
Participants of the Knight Ridder 401k Plan and The McClatchy Company Retirement
Committee:
We have
audited the accompanying statements of net assets available for benefits of the
Knight Ridder 401k Plan (the “Plan”) as of December 31, 2007, and the related
statement of changes in net assets available for benefits for the year ended
December 31, 2007. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Plan
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Plan's
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis
for our opinion.
In our
opinion, such financial statements present fairly, in all material respects, the
net assets available for benefits of the Plan as of December 31, 2007, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 2007 in conformity with accounting principles generally
accepted in the United States of America.
Our
audits were conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The supplemental schedule of assets
(held at end of year) as of December 31, 2007 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This supplemental schedule is
the responsibility of the Plan's management. Such schedule has been
subjected to the auditing procedures applied in our audit of the basic 2007
financial statements and, in our opinion, is fairly stated in all material
respects when considered in relation to the basic financial statements taken as
a whole.
/s/Deloitte
& Touche, LLP
San
Francisco, CA
June 27,
2008
Report
of Independent Registered Public Accounting Firm
To the
Participants and The McClatchy Company Retirement Committee:
We have
audited the accompanying statement of net assets available for benefits of the
Knight Ridder 401k Plan as of December 31, 2006. This statement of net assets
available for benefits is the responsibility of the Plan’s management. Our
responsibility is to express an opinion on this statement of net assets
available for benefits based on our audit.
We
conducted our audit in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Plan’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Plan’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the statement of net assets available for benefits referred to above
presents fairly, in all material respects, the net assets available for benefits
of the Plan at December 31, 2006, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst
& Young, LLP
Sacramento,
California
June 25,
2007
Statements
of Net Assets Available for Benefits
|
|
|
December
31,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Investments,
at fair value
|
|
$ |
611,306,419 |
|
|
$ |
649,141,810 |
|
|
Net
assets available for benefits
|
|
$ |
611,306,419 |
|
|
$ |
649,141,810 |
|
See
notes to financial statements.
Statement
of Changes in Net Assets Available for Benefits
Year
ended December 31, 2007
|
Additions
|
|
|
|
|
Net
depreciation in fair value of investments
|
|
$ |
(27,840,395 |
) |
|
Interest
and dividend income
|
|
|
41,597,382 |
|
|
|
|
|
|
|
|
Contributions:
|
|
|
|
|
|
Employer
|
|
|
7,399,066 |
|
|
Participants
|
|
|
25,122,786 |
|
|
Total
contributions
|
|
|
32,521,852 |
|
|
|
|
|
|
|
|
Other
additions
|
|
|
571,645 |
|
|
Total
additions
|
|
|
46,850,484 |
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
Benefits
paid to participants
|
|
|
84,248,061 |
|
|
Transfers
to related plans
|
|
|
401,907 |
|
|
Fees
and other deductions
|
|
|
35,907 |
|
|
Total
deductions
|
|
|
84,685,875 |
|
|
Net
decrease
|
|
|
(37,835,391 |
) |
|
|
|
|
|
|
|
Net
assets available for benefits:
|
|
|
|
|
|
Beginning
of year
|
|
|
649,141,810 |
|
|
End
of year
|
|
$ |
611,306,419 |
|
See
notes to financial statements.
Notes to
Financial Statements
December
31, 2007
1.
Description of the Plan
The
following description of the Knight Ridder 401k Plan (the “Plan”) provides only
general information. Participants should refer to the plan document for a more
complete description of the Plan’s provisions.
Acquisition
& Disposition Transactions
On
June 27, 2006, The McClatchy Company (the “Company” or “McClatchy”)
completed the purchase of Knight-Ridder, Inc. (“Knight Ridder”) pursuant to a
definitive merger agreement entered into on March 12, 2006, under which the
Company paid Knight Ridder shareholders a per share price consisting of $40.00
in cash and .5118 of a Class A McClatchy common share (the
“Acquisition”).
In
conjunction with the Acquisition, the Company divested 12 Knight Ridder
newspapers for strategic and antitrust reasons. The divested newspapers were the
Philadelphia
Inquirer; Philadelphia Daily News; San Jose Mercury News; St.
Paul Pioneer Press; Akron
Beacon Journal (OH); Wilkes Barre
Times Leader (PA); Aberdeen
American News (SD); Grand Forks
Herald (ND); Ft. Wayne
News-Sentinel (IN); Contra
Costa Times (CA); Monterey
Herald (CA); and Duluth
News Tribune (MN). Four of the 12 newspapers were sold concurrently with
the closing of the Acquisition. The remaining eight newspapers were owned for
periods ranging from two days to 36 days following the closing of the
Acquisition. Participants who were employees of the 12 divested
newspapers ceased participation in the Plan and became 100% vested in any
employer contribution accounts. As of December 31, 2006, substantially all of
the amount owed to the participants of the 12 divested papers had been paid by
the plan. The Company also sponsors The McClatchy Company Deferred
Compensation and Investment Plan (“the McClatchy Plan”). During 2007,
certain former Knight Ridder employees became eligible to participate in the
McClatchy Plan. Some of these employees transferred their accounts
from the Plan to the McClatchy Plan. The aggregate amount transferred
totaled $401,907.
Notes to
Financial Statements (continued)
1.
Description of the Plan (continued)
General
The Plan
is a defined contribution plan covering substantially all of the Company’s
employees who were former Knight Ridder employees. In most cases, an eligible
employee can participate after completing one year of service, as defined in the
plan document (at least 1,000 hours during the first twelve months of employment
or during a plan year that begins after hire) or, if earlier, upon contributing
substantially all of a vested lump sum benefit earned under a qualified
retirement plan maintained by a previous employer.
The Plan
was established under the provisions of Section 401(a) of the Internal Revenue
Code (the “Code”), and includes a qualified cash or deferred arrangement as
defined in Section 401(k) of the Code, for the benefit of eligible employees of
the Company. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”).
Knight
Ridder and its affiliates were members of the Knight-Ridder, Inc. consolidated
group through June 26, 2006. The plan sponsor was changed from Knight
Ridder to the Company effective June 27, 2006.
Contributions
Subject
to annual limits, participants in the Plan may elect to contribute, on a pre-tax
basis, up to 75% of their eligible compensation as defined by the Plan. Amounts
representing distributions from other qualified defined contribution or defined
benefit plans may be rolled into this Plan. Most participants may also
contribute up to 20% of their compensation on an after-tax basis. The Company
generally makes matching contributions of 50% of the first 6% of compensation
that a participant contributes to the Plan per pay period up to an annual
maximum.
Participants
who are age 50 or older by the end of the year can make special “catch-up”
contributions above the plan limits. The maximum special “catch-up”
contribution amount allowed by the Internal Revenue Service was $5,000 in 2007
and 2006.
Certain
employee groups earn matching contributions under alternative provisions as
approved by the Plan’s retirement committee, including no match in certain
cases. In some cases, the Company makes contributions other than matching
contributions. No significant other contributions were made during
2007. Details of these provisions are available in the plan
document.
Notes to
Financial Statements (continued)
1.
Description of the Plan (continued)
Contributions
(continued)
Participants
are allowed to direct their contributions into any of the Plan’s investment fund
options. Through June 26, 2006, they were also allowed to immediately redirect
employer contributions from the Knight Ridder Common Stock Fund into any of the
Plan’s other investment options. On June 27, 2006, the Knight Ridder Common
Stock Fund was converted into the McClatchy Common Stock Fund. Contributions
into the McClatchy Common Stock Fund, which invests primarily in shares of
McClatchy common stock, are no longer permitted as of June 27, 2006; however,
participants can transfer monies out of this fund. By December 31,
2008, all balances in the McClatchy Common Stock Fund will be transferred out of
the fund into the other fund investments based on the participant’s elections or
the participant’s default fund.
Contributions
into the Walt Disney Company Common Stock Fund, which invests primarily in
shares of Walt Disney Company common stock, are no longer permitted; however,
participants can transfer monies out of this fund. By December 31, 2008, all
balances in the Walt Disney Company Common Stock Fund will be transferred out of
the fund into the other fund investments based on the participant’s elections or
the participant’s default fund.
Participant
Accounts
Each
participant’s account is credited with the participant’s voluntary contributions
and allocations of: (i) Company matching contributions and (ii) Plan
earnings and losses. Allocations are determined in accordance with the
provisions of the plan document. The benefit to which a participant is entitled
is the benefit that can be provided from the vested portion of the participant’s
account.
Vesting
Participants
are immediately vested in their voluntary contributions plus earnings thereon.
Vesting in Company matching contributions is based on years of service.
Participants generally become 25% vested after two years of service, 50% vested
after three years of service, 75% vested after four years of service, and 100%
vested after five years of service. Two-year 100% vesting applies to
a participant who was an employee of Knight Ridder Digital.
Notes to
Financial Statements (continued)
|
1.
Description of the Plan (continued)
|
Vesting
(continued)
Participants
forfeit non-vested Company contributions and earnings upon termination of
employment. All amounts forfeited are used to first restore previously forfeited
nonvested account balances for currently rehired former participants, if any,
and then to reduce future Company matching contributions. Amounts
forfeited for the year ended December 31, 2007 were not considered
material.
Participant
Loans
Participants
may borrow from their fund accounts an amount equal to the lesser of $50,000 or
50% of their vested account balance. The minimum amount a participant can borrow
is $500. Loans are secured by the balance in the participant’s account and bear
interest at a rate commensurate with local prevailing lending rates. Loan terms
may not exceed five years unless the loan is used to purchase the participant’s
primary residence, in which case repayment must be made within 15 years.
Principal and interest are paid ratably through payroll deductions.
Payment
of Benefits
Following
termination of employment, retirement, disability or death, distribution to a
participant shall be made in a lump sum cash payment except as otherwise
provided in the plan document. In service distributions to employees are limited
to the distribution of after-tax contributions and earnings, distribution after
age 59½, or when certain hardship criteria are met.
Administrative
Expenses
Fees and
expenses of the Plan for legal, accounting, and other administrative services
may be paid directly by the Company, or at the Company’s discretion, may be paid
in whole or in part from plan assets. During 2007, substantially all expenses
were paid by the Company on behalf of the Plan.
Plan
Termination
Although
it has not expressed any intent to do so, the Company has the right at any time
to amend the plan document to discontinue future matching contributions or to
terminate the Plan, subject to the provisions of ERISA. In the event of plan
termination, participants will become fully vested in their
accounts.
Notes to
Financial Statements (continued)
1. Description
of the Plan (continued)
Reductions
in Workforce
On June
16, 2008, the Company announced plans to reduce its workforce by approximately
10%. Management is in the process of evaluating the impact, if any,
of these reductions in the workforce on the Plan’s terms or participant’s vested
balances.
2.
Significant Accounting Policies
Basis
of Accounting
The
financial statements of the Plan are prepared in accordance with accounting
principles generally accepted in the United States of America.
Valuation
of Investments and Income Recognition
The
Plan’s investments are stated at fair value. The fair value of investments in
mutual funds is based on quoted market prices, which represent the net asset
values of shares held by the Plan at year end. The fair value of common stock is
based on the New York Stock Exchange quoted closing value on the last business
day of the plan year. The common collective trust fund is stated at quoted
redemption value, which includes fully benefit responsive investment contracts
held by the common collective trust fund at their contract value. The
quoted redemption value of the common collective trust fund is not materially
different from the unit value calculated when considering the fair value of the
fund’s fully benefit responsive investment contracts. The money
market account is valued on the basis of historical cost plus accrued interest,
which approximates fair value. Participant loans are valued at their outstanding
balances, which approximate fair value.
Purchases
and sales of securities are recorded on a trade-date basis. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend
date.
Payment
of Benefits
Benefit
payments are recorded when paid.
Notes to
Financial Statements (continued)
2.
Significant Accounting Policies (continued)
Income
Tax Status
The Plan
has received a determination letter from the Internal Revenue Service dated
April 1, 2003, stating that the Plan is qualified under Section 401(a) of
the Code and, therefore, the related trust is exempt from taxation. Subsequent
to this issuance of the determination letter, the Plan was amended and restated.
Once qualified, the Plan is required to operate in conformity with the Code to
maintain its qualification. Although certain provisions adopted in the recent
plan restatement specific to compliance with the Economic Growth and Tax Relief
Reconciliation Act of 2001 were not covered by the current determination letter,
the plan administrator believes the Plan is being operated in compliance with
the applicable requirements of the Code and, therefore, believes that the Plan,
as amended and restated, is qualified and the related trust is tax
exempt.
Use
of Estimates
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of net assets
available for benefits and changes therein and disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
Risks
and Uncertainties
The Plan
invests in various investment securities. Investment securities are exposed to
various risks such as interest rate, market, and credit risks. Due to the level
of risk associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment balances will occur in the
near term and that such changes could potentially affect participants’ account
balances and the amounts reported in the statement of net assets available for
benefits.
Notes to
Financial Statements (continued)
2.
Significant Accounting Policies (continued)
New
Accounting Pronouncements
Fair
Value Measurements
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS 157 applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value but does not expand
the use of fair value in any new circumstances. In this standard, the FASB
clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability. In support of
this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. The provisions of SFAS 157 are
effective for financial statements issued for fiscal years beginning after
November 15, 2007.
In
November 2007, the FASB agreed to defer the effective date of Statement 157 one
full year for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).
Management
does not expect the adoption of SFAS 157 to have a material impact to the Plan’s
net assets available for benefits or changes in net assets available for
benefits.
Fair
Value Option for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued Statement No. 159 (SFAS 159), The Fair Value
Option for Financial Assets and Financial Liabilities—Including an Amendment of
FASB Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value at specified
election dates. The entity will report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. The fair value option: (a) may be applied instrument by
instrument, with a few exceptions, such as investments otherwise accounted for
by the equity method; (b) is irrevocable (unless a new election date occurs);
and (c) is applied only to entire instruments and not to portions of
instruments. The provisions of SFAS 159 are effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. The adoption of
SFAS 159 is not expected to have a material impact to the Plan’s net assets
available for benefits or changes in net assets available for
benefits.
Notes to
Financial Statements (continued)
3.
Investments
During
2007, the Plan’s investments (including investments purchased, sold, as well as
held during the year) depreciated in fair value as determined by quoted market
prices as follows:
|
|
|
Net
Realized
and
Unrealized
Depreciation
in
Fair Value
of
Investments
|
|
|
|
|
|
|
|
Mutual
funds
|
|
$ |
(13,132,587 |
) |
|
Common
stock
|
|
|
(14,707,808 |
) |
|
|
|
$ |
(27,840,395 |
) |
Investments
that represent 5% or more of the fair value of the Plan’s net assets are
as
follows:
|
|
|
December
31,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
Vanguard
500 Index Fund
|
|
$ |
94,396,387 |
|
|
$ |
101,586,324 |
|
|
Vanguard
Explorer Fund
|
|
|
32,948,775 |
|
|
|
35,132,596 |
|
|
Vanguard
Federal Money Market Fund
|
|
|
* |
|
|
|
39,155,225 |
|
|
Vanguard
International Growth Fund
|
|
|
47,219,345 |
|
|
|
40,333,199 |
|
|
Vanguard
Prime Money Market Fund
|
|
|
35,823,321 |
|
|
|
33,999,929 |
|
|
Vanguard
Target Retirement 2015 Fund
|
|
|
30,660,262 |
|
|
|
* |
|
|
Vanguard
Wellington Fund
|
|
|
62,701,350 |
|
|
|
61,225,041 |
|
|
Vanguard
Windsor Fund
|
|
|
127,255,944 |
|
|
|
151,839,150 |
|
*Fair
value is less than 5% of the Plan’s net assets.
Notes to
Financial Statements (continued)
4.
Related Party and Party-in-Interest Transactions
At
December 31, 2007 and 2006, approximately 1% and 4%, respectively, of the Plan’s
investments are in shares of the Company’s Common Stock Fund. Investments in
shares of McClatchy Common Stock Fund constitute party-in-interest transactions.
Purchases and sales of McClatchy Common Stock Fund for the year ended December
31, 2007 totaled $76,345 and $4,230,292, respectively.
The Plan
invests in shares of mutual funds managed by an affiliate of Vanguard Fiduciary
Trust Company ("VFTC"). VFTC acts as trustee for only those investments as
defined by the Plan and therefore, these transactions qualify as exempt
party-in-interest transactions. Participant loans are also considered
party in interest transactions.
Supplemental
Schedule
Knight
Ridder 401k Plan
EIN#
52-2080478, Plan #022
Schedule
H, Line 4i – Schedule of Assets (Held At End of Year)
December
31, 2007
|
(a)
|
|
(b)
Identity of issue, borrower,
lessor,
or similar party
|
|
(c)
Description of investment including maturity date, rate of interest,
collateral, par, or maturity date
|
|
(e)
Current value
|
|
| |
|
|
|
|
|
|
|
| |
|
Vanguard
Fiduciary Trust Company:
|
|
|
|
|
|
| |
|
Mutual
funds:
|
|
|
|
|
|
| |
* |
|
500
Index Fund
|
|
698,456 shares
|
|
$ |
94,396,387 |
|
| |
* |
|
Explorer
Fund
|
|
462,829 shares
|
|
|
32,948,775 |
|
| |
* |
|
Federal
Money Market Fund
|
|
88 shares
|
|
|
88 |
|
| |
* |
|
International
Growth Fund
|
|
1,902,472
shares
|
|
|
47,219,345 |
|
| |
* |
|
LT
Investment Grade Fund
|
|
2,875,981
shares
|
|
|
26,056,390 |
|
| |
* |
|
Mid-Cap
Index Fund
|
|
1,146,514
shares
|
|
|
23,732,833 |
|
| |
* |
|
Morgan
Growth Fund
|
|
867,028
shares
|
|
|
16,941,731 |
|
| |
* |
|
Target
Retirement 2005 Fund
|
|
392,365
shares
|
|
|
4,716,227 |
|
| |
* |
|
Target
Retirement 2015 Fund
|
|
2,347,646
shares
|
|
|
30,660,262 |
|
| |
* |
|
Target
Retirement 2025 Fund
|
|
1,926,118
shares
|
|
|
26,426,346 |
|
| |
* |
|
Target
Retirement 2035 Fund
|
|
854,738
shares
|
|
|
12,496,268 |
|
| |
* |
|
Target
Retirement 2045 Fund
|
|
272,344
shares
|
|
|
4,109,673 |
|
| |
* |
|
Target
Retirement Inc. Fund
|
|
141,562
shares
|
|
|
1,575,590 |
|
| |
* |
|
Total
Bond Market Index Fund
|
|
1,314,825
shares
|
|
|
13,358,617 |
|
| |
* |
|
Wellington
Fund
|
|
1,922,175
shares
|
|
|
62,701,350 |
|
| |
* |
|
Windsor
Fund
|
|
8,100,315
shares
|
|
|
127,255,944 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Common/collective
trust fund:
|
|
|
|
|
|
|
| |
* |
|
Vanguard
Retirement Savings Trust **
|
|
23,093,361
units
|
|
|
23,093,361 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Money
market fund:
|
|
|
|
|
|
|
| |
* |
|
Prime
Money Market Fund
|
|
35,823,321
shares
|
|
|
35,823,321 |
|
| |
|
|
|
|
|
|
|
|
|
| |
* |
|
The
McClatchy Company
Common Stock Fund
|
|
391,633
shares
|
|
|
4,903,240 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
The
Walt Disney Company
Common Stock Fund
|
|
151,876
shares
|
|
|
4,902,558 |
|
| |
|
|
|
|
|
|
|
|
|
| |
* |
|
Participant
loans
|
|
Interest
rates ranging from 4.0% to 9.5%,
maturing
through 2022
|
|
|
17,988,113 |
|
| |
|
|
Total
investments
|
|
|
|
$ |
611,306,419 |
|
|
|
* Indicates
a party-in-interest.
|
|
|
**
Vanguard Retirement Savings Trust is stated at contract value, which
materially reflects fair value. See Note 2 to the Financial
Statements.
|
|
|
Column
(d), cost, has been omitted, as all investments are
participant-directed.
|
15