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 September 30, 2007

 

Commission file number 1-5837

 

THE NEW YORK TIMES COMPANY

(Exact name of registrant as specified in its charter)

 

NEW YORK

 

13-1102020

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

620 EIGHTH AVENUE, NEW YORK, NEW YORK

(Address of principal executive offices)

 

10018

(Zip Code)

 

Registrant’s telephone number, including area code

212-556-1234

 

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  x  No  o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer  x  Accelerated filer  o  Non-accelerated filer  o.

 

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

 

Number of shares of each class of the registrant’s common stock outstanding as of November 2, 2007 (exclusive of treasury shares):

 

 

Class A Common Stock

143,025,736 shares

 

 

Class B Common Stock

825,852 shares

 

 

 

 



 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

 

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

 

 

(13 weeks)

 

(39 weeks)

 

Revenues

 

 

 

 

 

 

 

 

 

Advertising

 

$

465,043

 

$

465,476

 

$

1,478,425

 

$

1,527,604

 

Circulation

 

223,420

 

215,007

 

664,538

 

654,993

 

Other

 

65,896

 

59,103

 

186,359

 

175,822

 

Total revenues

 

754,359

 

739,586

 

2,329,322

 

2,358,419

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

 

 

 

 

Raw materials

 

58,643

 

75,178

 

196,678

 

241,593

 

Wages and benefits

 

163,367

 

162,908

 

487,810

 

490,701

 

Other

 

109,952

 

106,012

 

318,421

 

322,879

 

Total production costs

 

331,962

 

344,098

 

1,002,909

 

1,055,173

 

Selling, general and administrative costs

 

342,503

 

340,927

 

1,029,045

 

1,030,941

 

Depreciation and amortization

 

51,789

 

36,676

 

142,871

 

107,712

 

Total operating costs

 

726,254

 

721,701

 

2,174,825

 

2,193,826

 

 

 

 

 

 

 

 

 

 

 

Net loss on sale of assets

 

 

 

68,156

 

 

Gain on sale of WQEW-AM

 

 

 

39,578

 

 

Operating profit

 

28,105

 

17,885

 

125,919

 

164,593

 

 

 

 

 

 

 

 

 

 

 

Net income from joint ventures

 

5,412

 

7,348

 

8,004

 

18,085

 

Interest expense, net

 

10,470

 

13,267

 

28,924

 

39,025

 

Income from continuing operations before income taxes and minority interest

 

23,047

 

11,966

 

104,999

 

143,653

 

Income taxes

 

8,991

 

3,926

 

48,741

 

51,557

 

Minority interest in net loss of subsidiaries

 

54

 

267

 

39

 

604

 

Income from continuing operations

 

14,110

 

8,307

 

56,297

 

92,700

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations, Broadcast Media Group:

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

4,290

 

5,753

 

11,890

 

Gain/(loss) on sale, net of income taxes

 

(671

)

 

93,659

 

 

Discontinued operations, net of income taxes

 

(671

)

4,290

 

99,412

 

11,890

 

Net income

 

$

13,439

 

$

12,597

 

$

155,709

 

$

104,590

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

143,902

 

144,454

 

143,901

 

144,803

 

Diluted

 

144,112

 

144,568

 

144,057

 

144,982

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.10

 

$

0.06

 

$

0.39

 

$

0.64

 

Discontinued operations, net of income taxes

 

(0.01

)

0.03

 

0.69

 

0.08

 

Net income

 

$

0.09

 

$

0.09

 

$

1.08

 

$

0.72

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.10

 

$

0.06

 

$

0.39

 

$

0.64

 

Discontinued operations, net of income taxes

 

(0.01

)

0.03

 

0.69

 

0.08

 

Net income

 

$

0.09

 

$

0.09

 

$

1.08

 

$

0.72

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.230

 

$

0.175

 

$

0.635

 

$

0.515

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

September 30, 2007

 

December 31, 2006

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,258

 

$

72,360

 

Accounts receivable-net

 

369,756

 

402,639

 

Inventories

 

 

 

 

 

Newsprint and other paper

 

22,210

 

32,594

 

Work-in-process and other

 

4,487

 

4,102

 

Total inventories

 

26,697

 

36,696

 

 

 

 

 

 

 

Deferred income taxes

 

92,563

 

73,729

 

Assets held for sale

 

 

357,028

 

Other current assets

 

76,481

 

242,591

 

 

 

 

 

 

 

Total current assets

 

618,755

 

1,185,043

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Investments in joint ventures

 

150,254

 

145,125

 

Property, plant and equipment (less accumulated depreciation and amortization of $1,119,194 in 2007 and $1,297,546 in 2006)

 

1,423,799

 

1,375,365

 

 

 

 

 

 

 

Intangible assets acquired

 

 

 

 

 

Goodwill

 

680,292

 

650,920

 

Other intangible assets acquired (less accumulated amortization of $228,806 in 2007 and $217,972 in 2006)

 

142,491

 

133,448

 

Deferred income taxes

 

197,855

 

125,681

 

Miscellaneous assets

 

265,090

 

240,346

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,478,536

 

$

3,855,928

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

September 30, 2007

 

December 31, 2006

 

 

 

(Unaudited)

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Commercial paper outstanding

 

$

91,438

 

$

422,025

 

Borrowings under revolving credit agreements

 

205,000

 

 

Accounts payable

 

187,982

 

242,528

 

Accrued payroll and other related liabilities

 

120,829

 

121,240

 

Accrued expenses

 

192,366

 

200,030

 

Unexpired subscriptions

 

81,060

 

83,298

 

Current portion of long-term debt and capital lease obligations

 

67

 

104,168

 

Construction loan

 

 

124,705

 

 

 

 

 

 

 

Total current liabilities

 

878,742

 

1,297,994

 

 

 

 

 

 

 

Other Liabilities

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

721,296

 

720,790

 

Capital lease obligations

 

6,691

 

74,240

 

Pension benefits obligation

 

351,269

 

384,277

 

Postretirement benefits obligation

 

197,175

 

256,740

 

Other

 

395,137

 

296,078

 

 

 

 

 

 

 

Total other liabilities

 

1,671,568

 

1,732,125

 

 

 

 

 

 

 

Minority Interest

 

5,928

 

5,967

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Common stock of $.10 par value:
Class A – authorized 300,000,000 shares; issued: 2007 – 148,050,220; 2006 –     148,026,952 (including treasury shares: 2007– 5,017,767; 2006 – 5,000,000)

 

14,805

 

14,804

 

Class B – convertible – authorized and issued shares:
2007 – 832,572; 2006 – 832,592

 

83

 

82

 

Additional paid-in capital

 

10,708

 

 

Retained earnings

 

1,150,536

 

1,111,006

 

Common stock held in treasury, at cost

 

(159,126

)

(158,886

)

Accumulated other comprehensive loss, net of income taxes

 

(94,708

)

(147,164

)

 

 

 

 

 

 

Total stockholders’ equity

 

922,298

 

819,842

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

3,478,536

 

$

3,855,928

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30, 2007

 

September 24, 2006

 

 

 

(39 weeks)

 

OPERATING ACTIVITIES

 

 

 

 

 

Net cash provided by operating activities

 

$

29,074

 

$

208,993

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(301,176

)

(210,624

)

Proceeds from sale of the Broadcast Media Group

 

575,288

 

 

Proceeds from sale of WQEW-AM

 

40,000

 

 

Proceeds from sale of Edison, N.J., assets

 

90,819

 

 

Payment for purchase of Edison, N.J., printing facility

 

(139,961

)

 

Acquisitions, net of cash acquired of $1,190 in 2007

 

(34,087

)

(35,742

)

Other investing payments–net

 

(3,169

)

(105

)

 

 

 

 

 

 

Net cash provided by/(used in) investing activities

 

227,714

 

(246,471

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Commercial paper (repayments)/borrowings-net

 

(330,587

)

70,150

 

Borrowings under revolving credit agreements-net

 

205,000

 

 

Construction loan borrowings

 

 

61,120

 

Long-term obligations:

 

 

 

 

 

Reductions

 

(102,422

)

(1,217

)

Capital shares:

 

 

 

 

 

Issuances

 

529

 

8,684

 

Repurchases

 

(2,040

)

(33,955

)

Excess tax benefits from stock-based awards

 

165

 

1,106

 

Dividends paid to stockholders

 

(91,824

)

(74,842

)

Other financing proceeds–net

 

44,769

 

 

 

 

 

 

 

 

Net cash (used in)/provided by financing activities

 

(276,410

)

31,046

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(19,622

)

(6,432

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

520

 

200

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

72,360

 

44,927

 

Cash and cash equivalents at the end of the quarter

 

$

53,258

 

$

38,695

 

 

SUPPLEMENTAL DATA

 

Acquisitions

                  In May 2007, the Company acquired ConsumerSearch, Inc. for approximately $33 million.

                  In March 2007, the Company acquired UCompareHealthCare.com for $2.3 million. The Company paid approximately $1.8 million in the first quarter of 2007 and withheld the remaining $0.5 million for a one-year indemnification period.

 

Other

                  Financing activities – Other financing proceeds in 2007 includes cash received from the Company’s real estate development partner for repayment of the Company’s loan receivable.

 

Non-Cash

                  As of December 31, 2006, approximately $125 million was outstanding under the Company’s real estate development partner’s construction loan. In January 2007, the Company was released as a co-borrower, and therefore the receivable and the construction loan were reversed and are not included in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2007. See Note 12 for additional information related to the Company’s new headquarters.

                  As part of the purchase and sale of the Company’s Edison, N.J., printing facility (see Note 8), the Company terminated its existing capital lease agreement. This resulted in the reversal of the related assets (approximately $86 million) and capital lease obligation (approximately $69 million).

 

See Notes to Condensed Consolidated Financial Statements.

 

5



 

THE NEW YORK TIMES COMPANY

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1.                         GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

In the opinion of The New York Times Company’s (the “Company”) management, the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of September 30, 2007, and December 31, 2006, and the results of operations and cash flows of the Company for the periods ended September 30, 2007, and September 24, 2006. All adjustments necessary for a fair presentation have been included and are of a normal and recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s Condensed Consolidated Financial Statements and related Notes should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Due to the seasonal nature of the Company’s business, operating results for the interim periods are not necessarily indicative of a full year’s operations.

 

As of September 30, 2007, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, have not changed materially, except for the adoption of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”) (see Note 5).

 

Certain reclassifications have been made to the prior periods to conform to classifications used as of and for the period ended September 30, 2007, such as presenting depreciation and amortization separately from production and selling, general and administrative costs. The fiscal periods included herein comprise 13 weeks for the third-quarter periods and 39 weeks for the nine-month periods.

 

Recent Accounting Pronouncements

 

In February 2007, FASB issued Statement of Financial Accounting Standards (“FAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting FAS 159 on its financial statements.

 

In September 2006, FASB issued FAS No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a common definition for fair value under accounting principles generally accepted in the United States of America (“GAAP”), establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting FAS 157 on its financial statements.

 

In September 2006, FASB ratified the Emerging Issues Task Force (“EITF”) conclusion under EITF No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-4”). Diversity in practice exists in accounting for the deferred compensation

 

6



 

and postretirement aspects of endorsement split-dollar life insurance arrangements. EITF 06-4 was issued to clarify the accounting and requires employers to recognize a liability for future benefits in accordance with FAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12, Omnibus Opinion—1967 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee.

 

EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted.  The effects of adopting EITF 06-4 can be recorded either as (i) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity as of the beginning of the year of adoption, or (ii) a change in accounting principle through retrospective application to all prior periods. The Company is currently evaluating the impact of adopting EITF 06-4 on its financial statements.

 

NOTE 2.                         DISCONTINUED OPERATIONS

 

On May 7, 2007, the Company sold its Broadcast Media Group, which consisted of nine network-affiliated television stations, their related Web sites and digital operating center, for approximately $575 million. The Company recognized a pre-tax gain on the sale of $189.9 million ($93.7 million after-tax) for the first nine months of 2007.

 

In accordance with the provisions of FAS No. 144, Accounting for Costs Associated with Exit or Disposal Activities, the Broadcast Media Group’s results of operations and the gain on the sale are presented as discontinued operations, and certain assets and liabilities are classified as held for sale for the period presented before the sale. The results of operations presented as discontinued operations through May 7, 2007, and the assets and liabilities classified as held for sale as of December 31, 2006, are summarized below. In the third quarter of 2007, the Company recorded post-closing adjustments resulting in a decrease in the gain.

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

Revenues

 

$

 

$

36,476

 

$

46,702

 

$

107,542

 

Total operating costs

 

 

29,205

 

36,854

 

87,389

 

Pre-tax income

 

 

7,271

 

9,848

 

20,153

 

Income taxes

 

 

2,981

 

4,095

 

8,263

 

Income from discontinued operations, net of income taxes

 

 

4,290

 

5,753

 

11,890

 

Gain/(loss) on sale, net of income taxes of $690 in the third quarter of 2007 and $96,221 for the nine months ending 2007

 

(671

)

 

93,659

 

 

Discontinued operations, net of income taxes

 

$

(671

)

$

4,290

 

$

99,412

 

$

11,890

 

 

(In thousands)

 

December 31, 2006

 

Property, plant & equipment, net

 

$

64,309

 

Goodwill

 

41,658

 

Other intangible assets, net

 

234,105

 

Other assets

 

16,956

 

Assets held for sale

 

357,028

 

Program rights liability(a)

 

14,931

 

Net assets held for sale

 

$

342,097

 


(a)       Included in “Accounts payable” in the Condensed Consolidated Balance Sheet.

 

7



 

NOTE 3.                         GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill is the excess of cost over the fair market value of tangible and other intangible assets acquired. Goodwill is not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist, in accordance with FAS No. 142, Goodwill and Other Intangible Assets.

 

Other intangible assets acquired consist primarily of mastheads on various acquired properties, customer lists, trade names, as well as other assets. Other intangible assets acquired that have indefinite lives (mastheads and trade names) are not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist. Certain other intangible assets acquired (customer lists and other assets) are amortized over their estimated useful lives.

 

The Company performs its annual impairment testing in the fourth quarter of its fiscal year.

 

The changes in the carrying amount of goodwill were as follows:

 

(In thousands)

 

News Media
Group

 

About
Group

 

Total

 

Balance as of December 31, 2006

 

$

306,564

 

$

344,356

 

$

650,920

 

Goodwill acquired during year

 

 

25,577

 

25,577

 

Goodwill adjusted during the year

 

(2,305

)

 

(2,305

)

Foreign currency translation

 

6,100

 

 

6,100

 

Balance as of September 30, 2007

 

$

310,359

 

$

369,933

 

$

680,292

 

 

On May 4, 2007, the Company acquired ConsumerSearch, Inc., a leading online aggregator and publisher of consumer product reviews, for approximately $33 million. The related Web site ConsumerSearch.com includes product comparisons and recommendations and adds a new functionality to the About Group.

 

On March 27, 2007, the Company acquired UCompareHealthCare.com, a site that provides dynamic Web-based interactive tools to consumers to enable them to measure the quality of certain healthcare services, for $2.3 million. The Company paid approximately $1.8 million and withheld the remaining $0.5 million for a one-year indemnification period. UCompareHealthCare.com expands the About Group’s online health channel.

 

The Condensed Consolidated Financial Statements include the operating results of these acquisitions subsequent to the dates of acquisition.

 

Based on preliminary valuations of ConsumerSearch and UCompareHealthCare.com, the Company has allocated the excess of the purchase price over the carrying value of the net liabilities assumed of $24.0 million to goodwill and $15.5 million to other intangible assets for ConsumerSearch, and net assets acquired of $1.5 million to goodwill and $0.8 million to other intangible assets for UCompareHealthCare.com. The goodwill for the UCompareHealthCare.com acquisition is tax-deductible, but the goodwill for the ConsumerSearch acquisition is not tax-deductible. The intangible assets of ConsumerSearch consist of its trade name, customer relationships, content and proprietary technology. The intangible assets of UCompareHealthCare.com consist of content and proprietary technology.

 

8



 

The preliminary purchase price allocations for the ConsumerSearch and UCompareHealthCare.com acquisitions are subject to adjustment when additional information concerning asset and liability valuations is obtained. The final asset and liability fair values may differ from those included in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2007; however, the changes are not expected to have a material effect on the Company’s Condensed Consolidated Financial Statements.

 

Other intangible assets acquired were as follows:

 

 

 

September 30, 2007

 

December 31, 2006

 

(In thousands)

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Amortized other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer lists

 

$

222,247

 

$

(199,012

)

$

23,235

 

$

220,935

 

$

(196,268

)

$

24,667

 

Other

 

65,803

 

(29,794

)

36,009

 

63,777

 

(21,704

)

42,073

 

Total

 

288,050

 

(228,806

)

59,244

 

284,712

 

(217,972

)

66,740

 

Unamortized other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

15,186

 

 

15,186

 

 

 

 

Newspaper mastheads

 

68,061

 

 

68,061

 

66,708

 

 

66,708

 

Total

 

83,247

 

 

83,247

 

66,708

 

 

66,708

 

Total other intangible assets acquired

 

$

371,297

 

$

(228,806

)

$

142,491

 

$

351,420

 

$

(217,972

)

$

133,448

 

 

As of September 30, 2007, the remaining weighted-average amortization period was eight years for customer lists and six years for other amortizable intangible assets acquired included in the table above.

 

Amortization expense related to other intangible assets acquired that are subject to amortization was approximately $11 million in the first nine months of 2007, and is expected to be approximately $14 million for the fiscal year 2007. Estimated annual amortization expense for the next five years related to these intangible assets is expected to be as follows:

 

(In thousands)

 

 

 

Year

 

Amount

 

2008

 

$

11,600

 

2009

 

9,500

 

2010

 

9,100

 

2011

 

8,600

 

2012

 

6,500

 

 

NOTE 4.                         DEBT OBLIGATIONS

 

The Company’s total debt, including commercial paper, revolving credit agreements and capital lease obligations, was $1.0 billion as of September 30, 2007. Until January 2007, the Company was a co-borrower under a $320 million non-recourse construction loan in connection with the construction of its new headquarters. The Company did not draw down on the construction loan, which was used by its development partner. However, as a co-borrower, the Company was required to record the amount outstanding of the construction loan on its financial statements. The Company also recorded a receivable, due from its development partner, for the same amount outstanding under the construction loan. As of December 31, 2006, approximately $125 million was outstanding under the construction loan and recorded as a receivable included in “Other current assets” in the Condensed Consolidated Balance Sheet. In January 2007, with the Company’s release as a co-borrower, the receivable and the construction loan

 

9



 

were reversed and are not included in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2007. See Note 12 for additional information related to the Company’s new headquarters.

 

The Company’s $725.0 million commercial paper program is supported by the revolving credit agreements described below. Commercial paper issued by the Company is unsecured and can have maturities of up to 270 days. The Company had $91.4 million in commercial paper outstanding as of September 30, 2007, with an annual weighted-average interest rate of 6.1% and an average of 11 days to maturity from original issuance.

 

The Company’s $800.0 million revolving credit agreements support its commercial paper program and may also be used for general corporate purposes. In addition, these revolving credit agreements provide a facility for the issuance of letters of credit. Of the total $800.0 million available under the two revolving credit agreements ($400.0 million credit agreement maturing in May 2009; and $400.0 million credit agreement maturing in June 2011), the Company has issued letters of credit of approximately $24 million. As of September 30, 2007, the Company had $205.0 million outstanding under its revolving credit agreements, with a weighted average interest rate of 5.8%. The remaining balance of approximately $571 million supports the Company’s commercial paper program. There were no borrowings outstanding under the revolving credit agreements as of December 31, 2006.

 

Any borrowings under the revolving credit agreements bear interest at specified margins based on the Company’s credit rating, over various floating rates selected by the Company.

 

The revolving credit agreements each contain a covenant that requires a specified level of stockholders’ equity (as defined in the agreements). As of September 30, 2007, the amount of stockholders’ equity in excess of the required levels was approximately $668 million.

 

The Company’s five-year 5.350% notes aggregating $50.0 million matured on April 16, 2007, and its five-year 4.625% notes aggregating $52.0 million matured on June 25, 2007. As of December 31, 2006, these notes were recorded in “Current portion of long-term debt and capital lease obligations.”  In the second quarter of 2007, the Company made principal repayments totaling $102.0 million.

 

As part of the purchase and sale of the Company’s Edison, N.J., printing facility (see Note 8), the Company terminated its existing capital lease agreement. This resulted in the reversal of the related assets (approximately $86 million) and capital lease obligation (approximately $69 million).

 

“Interest expense, net” in the Company’s Condensed Consolidated Statements of Income was as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

Interest expense

 

$

13,276

 

$

19,000

 

$

45,585

 

$

54,979

 

Interest income

 

(1,212

)

(1,875

)

(2,944

)

(6,079

)

Capitalized interest

 

(1,594

)

(3,858

)

(13,717

)

(9,875

)

Interest expense, net

 

$

10,470

 

$

13,267

 

$

28,924

 

$

39,025

 

 

10



 

NOTE 5.                         INCOME TAXES

 

The Company’s effective income tax rate increased to 39.0% in the third quarter and 46.4% in the first nine months of 2007 compared with 32.8% in the third quarter and 35.9% in the first nine months of 2006. In the third quarter and first nine months of 2006, a favorable tax adjustment, related to the filing of the Company’s 2005 federal tax return, lowered the tax rate. For the first nine months of 2007, the increases were primarily due to the income taxes associated with asset sales in the second quarter of 2007 (see Notes 2 and 8)  and a net tax adjustment. The tax adjustment was primarily due to the application of a change in New York state law (effective January 1, 2007) that required a revaluation of the existing deferred tax balances.

 

On January 1, 2007, the Company adopted FIN 48. The adoption of FIN 48 resulted in a cumulative effect adjustment of approximately $24 million recorded as a reduction to the beginning balance of retained earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

(In thousands)

 

 

 

Balance at January 1, 2007

 

$

108,474

 

Additions based on tax positions related to the current year

 

20,372

 

Additions for tax positions of prior years

 

 

Reductions for tax positions of prior years

 

(8,379

)

Settlements

 

 

Balance at September 30, 2007

 

$

120,467

 

 

The total amount of unrecognized tax benefits that would, if recognized, affect the effective income tax rate was approximately $65 million as of September 30, 2007, and approximately $57 million as of December 31, 2006.

 

The Company also recognizes accrued interest expense and penalties related to the unrecognized tax benefits as additional tax expense, which is consistent with prior periods. The total amount of accrued interest and penalties was approximately $32 million as of September 30, 2007, and was approximately $25 million as of December 31, 2006.

 

With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2000. Management believes that its accrual for tax liabilities is adequate for all open audit years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

 

It is reasonably possible that U.S. federal, state and local, and non-U.S. tax examinations will be settled during the next twelve months. If any of these tax audit settlements do occur within the next twelve months, the Company would make any necessary adjustments to the accrual for uncertain tax benefits. Until formal resolutions are reached between the Company and the tax authorities, the determination of a possible audit settlement range for the effect on uncertain tax benefits is not practicable. On the basis of present information, it is the opinion of the Company’s management that any assessments resulting from the current audits will not have a material effect on the Company’s consolidated financial statements.

 

11



 

NOTE 6.                         COMMON STOCK

 

During the first nine months of 2007, the Company repurchased 89,117 shares of its Class A Common Stock under its stock repurchase program at a cost of $1.9 million. The average price of these repurchases was $21.65 per share. As of September 30, 2007, approximately $92 million remained from the Company’s current share repurchase authorization.

 

On March 22, 2007, the Company’s Board of Directors authorized a $.23 per share dividend on the Company’s Class A and Class B Common Stock, effective with the June 2007 dividend, representing a 31% increase from the prior quarterly dividend of $.175 per share.

 

NOTE 7.                         PENSION AND POSTRETIREMENT BENEFITS

 

Pension

 

The Company sponsors several pension plans (qualified funded plans and non-qualified unfunded plans) and makes contributions to several multi-employer pension plans, in connection with collective bargaining agreements. These plans cover substantially all employees.

 

On May 7, 2007, the Company sold the Broadcast Media Group. As part of the sale, Broadcast Media Group employees no longer accrue benefits under the Company’s pension plan and those employees who on the date of sale were within a year of becoming eligible for early retirement were bridged to retirement-eligible status. Upon retirement, all Broadcast Media Group employees will receive pension benefits equal to their vested amount as of the date of the sale. The sale significantly reduced the expected years of future service from current employees, resulting in a curtailment of the pension plan. The Company recorded a special termination charge, for benefits provided to employees bridged to retirement-eligible status, of $0.9 million, which is reflected in the gain on the sale of the Broadcast Media Group.

 

In connection with the curtailment, the Company remeasured one of its pension plans as of the date of the sale of the Broadcast Media Group. The curtailment and remeasurement resulted in a decrease in the pension liability and an increase in other comprehensive income (before taxes) of $40.4 million.

 

The components of net periodic pension cost of all Company-sponsored pension plans were as follows:

 

 

 

For the Quarters Ended

 

 

 

September 30, 2007

 

September 24, 2006

 

(In thousands)

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Service cost

 

$

11,403

 

$

519

 

$

11,922

 

$

12,888

 

$

589

 

$

13,477

 

Interest cost

 

23,500

 

3,574

 

27,074

 

22,261

 

3,015

 

25,276

 

Expected return on plan assets

 

(30,335

)

 

(30,335

)

(28,162

)

 

(28,162

)

Amortization of prior service cost

 

360

 

18

 

378

 

361

 

18

 

379

 

Recognized actuarial loss

 

1,571

 

1,982

 

3,553

 

5,887

 

1,665

 

7,552

 

Net periodic pension cost

 

$

6,499

 

$

6,093

 

$

12,592

 

$

13,235

 

$

5,287

 

$

18,522

 

 

12



 

 

 

For the Nine Months Ended

 

 

 

September 30, 2007

 

September 24, 2006

 

(In thousands)

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Service cost

 

$

34,210

 

$

1,557

 

$

35,767

 

$

38,907

 

$

1,765

 

$

40,672

 

Interest cost

 

70,501

 

10,722

 

81,223

 

66,754

 

9,045

 

75,799

 

Expected return on plan assets

 

(91,006

)

 

(91,006

)

(84,445

)

 

(84,445

)

Amortization of prior service cost

 

1,082

 

53

 

1,135

 

1,095

 

52

 

1,147

 

Recognized actuarial loss

 

4,715

 

5,947

 

10,662

 

17,922

 

4,993

 

22,915

 

Effect of curtailment

 

15

 

 

15

 

512

 

 

512

 

Special termination benefits

 

 

908

 

908

 

 

 

 

Net periodic pension cost

 

$

19,517

 

$

19,187

 

$

38,704

 

$

40,745

 

$

15,855

 

$

56,600

 

 

Although the Company does not have any quarterly funding requirements in 2007 (under the Employee Retirement Income Security Act of 1974, as amended, and Internal Revenue Code requirements), the Company will make contractual funding contributions of approximately $13 million (approximately $10 million was made in the first nine months of 2007) for The New York Times Newspaper Guild pension plan. The Company does not expect to make additional contributions to its other pension plans.

 

Postretirement Benefits

 

The Company provides health and life insurance benefits to retired employees (and their eligible dependents) who are not covered by any collective bargaining agreements if the employees meet specified age and service requirements. In addition, the Company contributes to a postretirement plan under the provisions of a collective bargaining agreement.

 

As part of the Broadcast Media Group sale, those employees who on the date of sale were within a year of becoming retirement eligible under the Company’s postretirement plan will be eligible to receive postretirement benefits upon reaching age 55. All other Broadcast Media Group employees under age 55 are no longer eligible for benefits under the Company’s postretirement plan. The sale significantly reduced the expected years of future service from current employees, resulting in a curtailment of the postretirement plan. The Company recorded a curtailment gain of $4.7 million and a special termination charge, for benefits provided to employees bridged to retirement-eligible status, of $0.7 million, which is reflected in the gain on the sale of the Broadcast Media Group.

 

In connection with the curtailment, the Company remeasured one of its postretirement plans as of the date of the sale of the Broadcast Media Group. The curtailment and remeasurement resulted in a decrease in the postretirement liability of $5.1 million and an increase in other comprehensive income (before taxes) of $0.4 million.

 

In the third quarter of 2007, the Company amended one of its postretirement plans by placing a 3% cap (effective January 1, 2008) on the Company’s annual medical contribution increase for post-65 retirees. In connection with this plan amendment, the Company remeasured its postretirement obligation as of the plan amendment date. The plan amendment and remeasurement resulted in a decrease in the postretirement liability and an increase in other comprehensive income (before taxes) of approximately $50 million.

 

13



 

The components of net periodic postretirement benefit cost were as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

Service cost

 

$

2,022

 

$

2,376

 

$

6,066

 

$

7,128

 

Interest cost

 

3,748

 

3,667

 

11,246

 

11,001

 

Expected return on plan assets

 

 

(10

)

 

(30

)

Amortization of prior service credit

 

(1,983

)

(1,794

)

(5,949

)

(5,382

)

Recognized actuarial loss

 

785

 

744

 

2,354

 

2,232

 

Effect of curtailment

 

 

 

(4,717

)

 

Special termination benefits

 

 

 

703

 

 

Net periodic postretirement cost

 

$

4,572

 

$

4,983

 

$

9,703

 

$

14,949

 

 

NOTE 8.                         OTHER

 

Staff Reductions

 

The Company recognized staff reduction charges of $4.9 million in the third quarter of 2007 and $17.6 million in the first nine months of 2007. In the third quarter and first nine months of 2006, the Company recognized staff reduction charges of $7.4 million and $25.9 million, respectively. Most of the charges in 2007 and 2006 were recognized at the News Media Group. These charges are primarily recorded in “Selling, general and administrative costs” in the Company’s Condensed Consolidated Statements of Income. As of September 30, 2007, the Company had a staff reduction liability of $10.0 million included in “Accrued expenses” in the Company’s Condensed Consolidated Balance Sheet.

 

Plant Consolidation

 

In 2006, the Company announced plans to consolidate the printing operations of a facility it leased in Edison, N.J., into its newer facility in College Point, N.Y. As part of the consolidation, the Company purchased the Edison facility and then sold it, with two adjacent properties it already owned, to a third party. The purchase and sale of the Edison facility closed in the second quarter of 2007, relieving the Company of rental terms that were above market as well as certain restoration obligations under the original lease. As a result of the sale, the Company recognized a pre-tax loss of $68.2 million ($41.3 million after-tax) in the second quarter of 2007. This loss is recorded in “Net loss on sale of assets” in the Company’s Condensed Consolidated Statements of Income.

 

As part of the consolidation, the Company expects a workforce reduction of approximately 300 full-time equivalent employees resulting in a charge of $16 to $20 million for staff reduction costs, of which approximately $1 million was recorded as of September 30, 2007, with the majority of the remaining amount to be recorded in the fourth quarter of 2007.

 

14



 

Sale of WQEW-AM

 

On April 26, 2007, the Company sold WQEW-AM to Radio Disney, LLC (which provided substantially all of WQEW-AM programming through a licensing agreement) for $40.0 million. The Company recognized a pre-tax gain of $39.6 million ($21.2 million after-tax) in the second quarter of 2007.

 

NOTE 9.                         EARNINGS PER SHARE

 

Basic and diluted earnings per share have been computed as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands, except per share data)

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

Basic earnings per share computation:

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

14,110

 

$

8,307

 

$

56,297

 

$

92,700

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

(671

)

4,290

 

99,412

 

11,890

 

Net income

 

$

13,439

 

$

12,597

 

$

155,709

 

$

104,590

 

Denominator

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

143,902

 

144,454

 

143,901

 

144,803

 

Income from continuing operations

 

$

.10

 

$

.06

 

$

.39

 

$

.64

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

(.01

)

.03

 

.69

 

.08

 

Basic earnings per share

 

$

.09

 

$

.09

 

$

1.08

 

$

.72

 

Diluted earnings per share computation:

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

14,110

 

$

8,307

 

$

56,297

 

$

92,700

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

(671

)

4,290

 

99,412

 

11,890

 

Net income

 

$

13,439

 

$

12,597

 

$

155,709

 

$

104,590

 

Denominator

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

143,902

 

144,454

 

143,901

 

144,803

 

Incremental shares for assumed exercise of securities

 

210

 

114

 

156

 

179

 

Total shares

 

144,112

 

144,568

 

144,057

 

144,982

 

Income from continuing operations

 

$

.10

 

$

.06

 

$

.39

 

$

.64

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

(.01

)

.03

 

.69

 

.08

 

Diluted earnings per share

 

$

.09

 

$

.09

 

$

1.08

 

$

.72

 

 

The difference between basic and diluted shares is primarily due to the assumed exercise of stock options included in the diluted earnings per share computation.

 

Stock options with exercise prices that exceeded the average fair market value of the Company’s Common Stock had an antidilutive effect and, therefore, were excluded from the computation of diluted earnings per share. Approximately 32 million stock options with exercise prices ranging from $22.23 to $48.54 were excluded from the computation in the third quarter and the first nine months of 2007. Approximately 30 million stock options with exercise prices ranging from $22.94 to $48.54 were excluded from the computation in the third quarter of 2006, and approximately 30 million stock options with exercise prices ranging from $25.05 to $48.54 were excluded from the computation in the first nine months of 2006.

 

15



 

NOTE 10.                  COMPREHENSIVE INCOME

 

Comprehensive income was as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

Net income

 

$

13,439

 

$

12,597

 

$

155,709

 

$

104,590

 

Foreign currency translation adjustments

 

7,074

 

2,040

 

10,676

 

7,142

 

Unrealized derivative gains on cash-flow hedges

 

 

(3,945

)

 

(1,014

)

Unrealized gain on marketable securities

 

 

 

 

36

 

Reclassification adjustment for realized loss included in net income

 

 

 

 

468

 

Adjustments to pension and postretirement obligations

 

49,517

 

 

106,228

 

 

Amortization of unrecognized amounts included in pension and postretirement obligations

 

2,733

 

 

3,500

 

 

Income tax charge

 

(28,805

)

1,631

 

(67,948

)

194

 

Comprehensive income

 

$

43,958

 

$

12,323

 

$

208,165

 

$

111,416

 

 

The adjustments to pension and postretirement obligations in the above table were due to remeasurements of the obligations in 2007 (see Note 7).

 

The “Accumulated other comprehensive loss, net of income taxes” in the Company’s Condensed Consolidated Balance Sheets was net of a deferred income tax benefit of approximately $84 million as of September 30, 2007, and approximately $152 million as of December 31, 2006.

 

NOTE 11.                  SEGMENT STATEMENTS OF INCOME

 

The Company’s reportable segments consist of the News Media Group and the About Group. These segments are evaluated regularly by management in assessing performance and allocating resources.

 

Below is a description of the Company’s reportable segments:

 

News Media Group (consisting of The New York Times Media Group, which principally includes The New York Times (“The Times”), NYTimes.com, the International Herald Tribune and WQXR-FM; the New England Media Group, which principally includes The Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 14 daily newspapers and their related digital operations); and

 

About Group (consisting of the Web sites of About.com, ConsumerSearch.com, UCompareHealthCare.com and Calorie-Count.com). The Company acquired UCompareHealthCare.com in the first quarter of 2007 and ConsumerSearch, Inc. in the second quarter of 2007 (see Note 3). The Condensed Consolidated Financial Statements include the operating results of these acquisitions subsequent to the date of each acquisition.

 

The Broadcast Media Group, which was sold on May 7, 2007, is classified as a discontinued operation and is no longer included as a reportable segment (see Note 2).

 

16



 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

September 30,
2007

 

September 24,
2006

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

News Media Group

 

$

729,635

 

$

721,260

 

$

2,257,350

 

$

2,302,441

 

About Group

 

24,724

 

18,326

 

71,972

 

55,978

 

Total

 

$

754,359

 

$

739,586

 

$

2,329,322

 

$

2,358,419

 

 

 

 

 

 

 

 

 

 

 

OPERATING PROFIT (LOSS)

 

 

 

 

 

 

 

 

 

News Media Group

 

$

33,136

 

$

23,183

 

$

139,418

 

$

178,371

 

About Group

 

6,291

 

6,418

 

23,132

 

20,670

 

Corporate

 

(11,322

)

(11,716

)

(36,631

)

(34,448

)

Total

 

$

28,105

 

$

17,885

 

$

125,919

 

$

164,593

 

Net income from joint ventures

 

5,412

 

7,348

 

8,004

 

18,085

 

Interest expense, net

 

10,470

 

13,267

 

28,924

 

39,025

 

Income from continuing operations before income taxes and minority interest

 

23,047

 

11,966

 

104,999

 

143,653

 

Income taxes

 

8,991

 

3,926

 

48,741

 

51,557

 

Minority interest in net loss of subsidiaries

 

54

 

267

 

39

 

604

 

Income from continuing operations

 

14,110

 

8,307

 

56,297

 

92,700

 

Discontinued operations, Broadcast Media Group:

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

4,290

 

5,753

 

11,890

 

Gain/(loss) on sale, net of income taxes

 

(671

)

 

93,659

 

 

Discontinued operations, net of income taxes

 

(671

)

4,290

 

99,412

 

11,890

 

Net income

 

$

13,439

 

$

12,597

 

$

155,709

 

$

104,590

 

 

NOTE 12.                  CONTINGENT LIABILITIES

 

New Headquarters Building

 

The Company recently relocated into its new headquarters building in New York City (the “Building”). In December 2001, a wholly owned subsidiary of the Company (“NYT”) and FC Lion LLC (a partnership between an affiliate of the Forest City Ratner Companies and an affiliate of ING Real Estate) became the sole members of The New York Times Building LLC (the “Building Partnership”), a partnership established for the purpose of constructing the Building.  In August 2006, the Building was converted to a leasehold condominium, and NYT and FC Lion LLC each acquired ownership of its respective leasehold condominium units. Also in August 2006, Forest City Ratner Companies purchased the ownership interest in FC Lion LLC of the ING Real Estate affiliate. In turn, FC Lion LLC assigned its ownership interest in the Building Partnership and the FC Lion LLC condominium units to FC Eighth Ave., LLC.

 

In connection with the construction of the Building, the Building Partnership obtained a construction loan, secured by the Building. In January 2007, the construction loan was amended to release NYT as a co-borrower and release NYT’s condominium units from the related lien. The Company was also released from its obligation to make an extension loan. The Company no longer includes the construction loan in its financial statements (see Note 4).

 

The Company’s actual and anticipated capital expenditures in connection with the Building, net of proceeds from the sale of its previous headquarters, including core and shell and interior construction costs, are detailed in the following table.

 

17



 

Capital Expenditures

 

 

 

(In millions)

 

NYT

 

2001-2006

 

$434

 

2007(a)

 

$165-$185

 

Total

 

$599-$619

 

Less: net sale proceeds(b)

 

$106

 

Total, net of sale proceeds(c)

 

$493-$513

 


(a)       Excludes additional excess site acquisition costs (“ESAC”) that the Company expects to pay in 2008 or subsequently in connection with ongoing condemnation proceedings, the outcomes of which are not currently determinable. The Company will receive credits, totaling the amount of ESAC payments, against future payments to be made in lieu of real estate taxes.

 

(b)       Represents cash proceeds from the sale of the Company’s previous headquarters in 2006, net of income taxes and transaction costs.

 

(c)        Includes estimated capitalized interest and salaries of approximately $48 million.

 

See the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, for additional information regarding the Building. In addition, during the first quarter of 2007, the Company leased five floors in its portion of the Building under a 15-year non-cancelable agreement.

 

Third-Party Guarantees

 

The Company has outstanding guarantees on behalf of a third party that provides circulation customer service, telemarketing and home-delivery services for The Times and the Globe (the “circulation servicer”), and on behalf of two third parties that provide printing and distribution services for The Times’s National Edition (the “National Edition printers”). In accordance with GAAP, the contingent obligations related to these guarantees are not reflected in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006.

 

The Company has guaranteed the payments under the circulation servicer’s credit facility and any miscellaneous costs related to any default thereunder (the “credit facility guarantee”). As of September 30, 2007, the total amount of the credit facility guarantee was approximately $20 million and the amount outstanding under the credit facility was approximately $15 million. On April 23, 2007, the credit facility was extended for another year and the amount available was reduced to $17.5 million. The credit facility guarantee was made by the Company to allow the circulation servicer to obtain more favorable financing terms. The circulation servicer has agreed to reimburse the Company for any amounts the Company pays under the credit facility guarantee and has granted the Company a security interest in all of its assets to secure repayment of any amounts the Company pays under the credit facility guarantee. In addition, the Company has guaranteed the payments of two property leases of the circulation servicer and any miscellaneous costs related to any default thereunder (the “property lease guarantees”). The total amount of the property lease guarantees was approximately $2 million as of September 30, 2007. One property lease expires in June 2008 and the other property lease expires in May 2009. The property lease guarantees were made by the Company to allow the circulation servicer to obtain space to conduct business.

 

The Company has guaranteed a portion of the payments of an equipment lease of a National Edition printer and any miscellaneous costs related to any default thereunder (the “equipment lease guarantee”). The total amount of the equipment lease guarantee was approximately $2 million as of September 30, 2007. The

 

18



 

equipment lease expires in March 2011. The Company made the equipment lease guarantee to allow the National Edition printer to obtain lower cost of lease financing.

 

The Company has also guaranteed certain debt of one of the two National Edition printers and any miscellaneous costs related to any default thereunder (the “debt guarantee”). The total amount of the debt guarantee was approximately $5 million as of September 30, 2007. The debt guarantee, which expires in May 2012, was made by the Company to allow the National Edition printer to obtain a lower cost of borrowing. The Company has obtained a secured guarantee from a related party of this National Edition printer to repay the Company for any amounts that it would pay under the debt guarantee. In addition, the Company has a security interest in the equipment that was purchased by the National Edition printer with the funds it received from its debt issuance, as well as other equipment and real property.

 

The Company would have to perform the obligations of the circulation servicer under the credit facility and property lease guarantees and of the National Edition printers under the equipment lease and debt guarantees if any of the circulation servicer or the National Edition printers defaulted under the terms of their respective agreements.

 

Other

 

The Company also has letters of credit of approximately $24 million, which are required by insurance companies, to provide support for the Company’s workers’ compensation liability. The workers’ compensation liability is included in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2007.

 

There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company. These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made. It is the opinion of management after reviewing these actions with legal counsel to the Company that the ultimate liability that might result from these actions would not have a material adverse effect on the Company’s Condensed Consolidated Financial Statements.

 

19



 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

We are a leading media and news organization serving our audiences through print, online and mobile technology. Our segments and divisions are:

 

News Media Group (consisting of The New York Times Media Group, which principally includes The New York Times (“The Times”), NYTimes.com, the International Herald Tribune and WQXR-FM; the New England Media Group, which principally includes The Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 14 daily newspapers and their related digital operations). The News Media Group generates revenues principally from print, online and radio advertising and through circulation. Other revenues, which make up the remainder of revenues, primarily consist of revenues from wholesale delivery operations, news services/syndication, digital archives, TimesSelect, Baseline StudioSystems, rental income and commercial printing. The News Media Group’s main operating costs are employee-related costs and raw materials, primarily newsprint.

 

About Group (consisting of the Web sites of About.com, ConsumerSearch.com, UCompareHealthCare.com and Calorie-Count.com). The About Group principally generates revenues from display advertising relevant to its adjacent content, cost-per-click advertising (sponsored links for which the About Group is paid when a user clicks on the ad) and e-commerce (including sales lead generation). Almost all of its revenues (95% in the first nine months of 2007) are derived from the sale of advertisements (display and cost-per-click advertising). Cost-per-click advertising accounts for 49% of the About Group’s total advertising revenues. The About Group’s main operating costs are employee-related costs and content and hosting costs.

 

Joint Ventures  Our investments accounted for under the equity method are as follows:

 

                  a 49% interest in Metro Boston LLC, which publishes a free daily newspaper catering to professionals and students in the Greater Boston area,

 

                  a 49% interest in a Canadian newsprint company, Donohue Malbaie Inc.,

 

                  a 40% interest in a partnership, Madison Paper Industries, operating a supercalendered paper mill in Maine, and

 

                  an approximately 17% interest in New England Sports Ventures, which owns the Boston Red Sox, Fenway Park and adjacent real estate, 80% of the New England Sports Network, a regional cable sports network, and 50% of Roush Fenway Racing, a leading NASCAR team.

 

RECENT DEVELOPMENTS

 

Broadcast Media Group Sale

 

On May 7, 2007, we sold the Broadcast Media Group, consisting of nine network-affiliated television stations, their related Web sites and the digital operating center, for approximately $575 million. This decision was a result of our ongoing analysis of our business portfolio and has allowed us to place an even greater emphasis on developing and integrating our print and growing digital resources. We recognized a pre-tax gain on the sale of

 

20



 

$189.9 million ($93.7 million after-tax) for the first nine months of 2007, and we used the cash proceeds of the sale to repay our outstanding commercial paper.

 

Acquisitions

 

On May 4, 2007, we acquired ConsumerSearch, Inc., a leading online aggregator and publisher of consumer product reviews, for approximately $33 million.

 

On March 27, 2007, we acquired UCompareHealthCare.com, a site that provides dynamic Web-based interactive tools to consumers to enable them to measure the quality of certain healthcare services, for $2.3 million.

 

The operating results of these acquisitions are included within the operating results of the About Group from the dates of acquisition. See Note 3 of the Notes to the Condensed Consolidated Financial Statements.

 

Sale of WQEW-AM

 

On April 26, 2007, we sold WQEW-AM (“WQEW”) to Radio Disney, LLC (which had been providing substantially all of WQEW programming through a licensing agreement) for $40 million. We recognized a pre-tax gain of $39.6 million ($21.2 million after-tax) in the second quarter of 2007.

 

Plant Consolidation

 

We are in the process of consolidating the printing operations of a facility we lease in Edison, N.J., into our newer facility in College Point, N.Y. The plant consolidation is part of our expense reduction initiatives and is expected to be completed in the second quarter of 2008. As part of the consolidation, we originally planned to sublease the Edison facility through 2018, the end of the then-existing lease term. After evaluating the options with respect to the original lease, we decided it was financially prudent to purchase the Edison facility and sell it, with two adjacent properties we already owned, to a third party. The purchase and sale of the Edison facility closed in the second quarter of 2007, relieving us of rental terms that were above market as well as certain restoration obligations under the original lease. As a result of the sale, we recognized a pre-tax loss of $68.2 million ($41.3 million after-tax) in the second quarter of 2007.

 

In addition to the loss mentioned above, we estimate costs to close the Edison facility as follows:

 

                  $66 to $69 million for accelerated depreciation expense, of which approximately $57 million has been recognized through September 30, 2007.  The remainder will be recognized through the end of the first quarter of 2008 ($6 to $7 million in the fourth quarter of 2007; and $3 to $5 million in the first quarter of 2008).  This expense is for the acceleration of depreciation expense for assets that we continue to own at the Edison facility, mainly printing presses.

 

                  $16 to $20 million for staff reduction costs, of which approximately $1 million was recorded as of September 30, 2007, with the majority of the remaining amount to be recorded in the fourth quarter of 2007.  As part of the consolidation, we expect a workforce reduction of approximately 300 full-time

 

21



 

equivalent employees. 

 

                  $5 to $6 million in other costs, mainly restoration costs, under the new Edison lease, of which approximately $2 million was recorded as of September 30, 2007. The remainder will be recognized through the end of the second quarter of 2008.

 

Capital expenditures for the plant consolidation are estimated to be $135 to $147 million, a significant portion of which will be made in 2007. We expect to save $30 million annually due to lower operating costs and have avoided the need for approximately $50 million in capital investment at the Edison facility over the next ten years.

 

FOURTH QUARTER 2007 EXPECTATIONS

 

Expectations regarding key financial measures for the fourth quarter of 2007 are discussed in the table below.

 

Item

 

Fourth Quarter 2007 Expectation

Staff reduction costs

 

$14 to $16 million

Depreciation & amortization

 

$48 to $50 million(a)

Income from joint ventures

 

Loss of $3 to $5 million

Interest expense

 

$11 to $13 million

Income tax rate

 

Approximately 41%

Capital expenditures

 

$50 to $80 million


(a)       Includes $6 to $7 million of accelerated depreciation expense associated with the plant consolidation project, mainly presses. Depreciation for our new headquarters building in New York City is expected to be approximately $7 to $8 million per quarter.

 

In addition, we believe that we can achieve a reduction in costs from our year-end 2007 cost base of approximately $230 million in 2008 and 2009, excluding the effects of inflation and certain one-time costs. About $130 million of these savings are expected in 2008.

 

22



 

RESULTS OF OPERATIONS

 

The following table presents our consolidated financial results.

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

% Change

 

September 30,
2007

 

September 24,
2006

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

465,043

 

$

465,476

 

(0.1

)

$

1,478,425

 

$

1,527,604

 

(3.2

)

Circulation

 

223,420

 

215,007

 

3.9

 

664,538

 

654,993

 

1.5

 

Other

 

65,896

 

59,103

 

11.5

 

186,359

 

175,822

 

6.0

 

Total revenues

 

754,359

 

739,586

 

2.0

 

2,329,322

 

2,358,419

 

(1.2

)

Operating costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials

 

58,643

 

75,178

 

(22.0

)

196,678

 

241,593

 

(18.6

)

Wages and benefits

 

163,367

 

162,908

 

0.3

 

487,810

 

490,701

 

(0.6

)

Other

 

109,952

 

106,012

 

3.7

 

318,421

 

322,879

 

(1.4

)

Total production costs

 

331,962

 

344,098

 

(3.5

)

1,002,909

 

1,055,173

 

(5.0

)

Selling, general and administrative costs

 

342,503

 

340,927

 

0.5

 

1,029,045

 

1,030,941

 

(0.2

)

Depreciation and amortization

 

51,789

 

36,676

 

41.2

 

142,871

 

107,712

 

32.6

 

Total operating costs

 

726,254

 

721,701

 

0.6

 

2,174,825

 

2,193,826

 

(0.9

)

Net loss on sale of assets

 

 

 

N/A

 

68,156

 

 

N/A

 

Gain on sale of WQEW- AM

 

 

 

N/A

 

39,578

 

 

N/A

 

Operating profit

 

28,105

 

17,885

 

57.1

 

125,919

 

164,593

 

(23.5

)

Net income from joint ventures

 

5,412

 

7,348

 

(26.3

)

8,004

 

18,085

 

(55.7

)

Interest expense, net

 

10,470

 

13,267

 

(21.1

)

28,924

 

39,025

 

(25.9

)

Income from continuing operations before income taxes and minority interest

 

23,047

 

11,966

 

92.6

 

104,999

 

143,653

 

(26.9

)

Income taxes

 

8,991

 

3,926

 

*

 

48,741

 

51,557

 

(5.5

)

Minority interest in net loss of subsidiaries

 

54

 

267

 

(79.8

)

39

 

604

 

(93.5

)

Income from continuing operations

 

14,110

 

8,307

 

69.9

 

56,297

 

92,700

 

(39.3

)

Discontinued operations, Broadcast Media Group:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

4,290

 

(100.0

)

5,753

 

11,890

 

(51.6

)

Gain/(loss) on sale, net of income taxes

 

(671

)

 

N/A

 

93,659

 

 

N/A

 

Discontinued operations, net of income taxes

 

(671

)

4,290

 

*

 

99,412

 

11,890

 

*

 

Net income

 

$

13,439

 

$

12,597

 

6.7

 

$

155,709

 

$

104,590

 

48.9

 

 


* Represents an increase or decrease in excess of 100%.

 

Revenues

 

Revenues by reportable segment and for the Company as a whole were as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

% Change

 

September 30,
2007

 

September 24,
2006

 

% Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

News Media Group

 

$

729,635

 

$

721,260

 

1.2

 

$

2,257,350

 

$

2,302,441

 

(2.0

)

About Group

 

24,724

 

18,326

 

34.9

 

71,972

 

55,978

 

28.6

 

Total revenues

 

$

754,359

 

$

739,586

 

2.0

 

$

2,329,322

 

$

2,358,419

 

(1.2

)

 

23



 

News Media Group

 

Advertising, circulation and other revenues by operating segment of the News Media Group and for the Group as a whole were as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 30,
2007

 

September 24,
2006

 

% Change

 

September 30,
2007

 

September 24,
2006

 

% Change

 

The New York Times Media Group

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

271,234

 

$

261,653

 

3.7

 

$

867,774

 

$

885,509

 

(2.0

)

Circulation

 

162,896

 

153,739

 

6.0

 

481,446

 

467,858

 

2.9

 

Other

 

47,388

 

41,516

 

14.1

 

133,607

 

123,337

 

8.3

 

Total

 

$

481,518

 

$

456,908

 

5.4

 

$

1,482,827

 

$

1,476,704

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New England Media Group

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

91,838

 

$

97,424

 

(5.7

)

$

289,414

 

$

307,569

 

(5.9

)

Circulation

 

39,755

 

40,483

 

(1.8

)

117,537

 

121,055

 

(2.9

)

Other

 

11,498

 

11,146

 

3.2

 

31,548

 

32,173

 

(1.9

)

Total

 

$

143,091

 

$

149,053

 

(4.0

)

$

438,499

 

$

460,797

 

(4.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regional Media Group

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

78,609

 

$

88,938

 

(11.6

)

$

253,020

 

$

281,330

 

(10.1

)

Circulation

 

20,769

 

20,785

 

(0.1

)

65,555

 

66,080

 

(0.8

)

Other

 

5,648

 

5,576

 

1.3

 

17,449

 

17,530

 

(0.5

)

Total

 

$

105,026

 

$

115,299

 

(8.9

)

$

336,024

 

$

364,940

 

(7.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total News Media Group

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

441,681

 

$

448,015

 

(1.4

)

$

1,410,208

 

$

1,474,408

 

(4.4

)

Circulation

 

223,420

 

215,007

 

3.9

 

664,538

 

654,993

 

1.5

 

Other

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