10-Q 1 a08-25698_110q.htm 10-Q

 

 

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 28, 2008

 

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, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x     Accelerated filer o     Non-accelerated filer o     Smaller reporting company 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 October 31, 2008 (exclusive of treasury shares):

 

Class A Common Stock

142,966,008 shares

 

Class B Common Stock

825,634 shares

 

 

 

 



 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

 

 

September 28,
2008

 

September 30,
2007

 

September 28,
2008

 

September 30,
2007

 

 

 

(13 weeks)

 

(39 weeks)

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Advertising

 

$

398,196

 

$

465,043

 

$

1,310,912

 

$

1,478,425

 

Circulation

 

225,689

 

223,420

 

676,486

 

664,538

 

Other

 

63,157

 

65,896

 

189,404

 

186,359

 

Total revenues

 

687,042

 

754,359

 

2,176,802

 

2,329,322

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

 

 

 

 

 

 

 

Production costs:

 

 

 

 

 

 

 

 

 

Raw materials

 

62,645

 

58,643

 

182,006

 

196,678

 

Wages and benefits

 

148,183

 

163,367

 

473,695

 

487,810

 

Other

 

111,418

 

109,952

 

331,508

 

318,421

 

Total production costs

 

322,246

 

331,962

 

987,209

 

1,002,909

 

Selling, general and administrative costs

 

320,929

 

342,503

 

1,006,392

 

1,029,045

 

Depreciation and amortization

 

33,881

 

51,789

 

108,454

 

142,871

 

Total operating costs

 

677,056

 

726,254

 

2,102,055

 

2,174,825

 

 

 

 

 

 

 

 

 

 

 

Impairment of assets

 

160,430

 

 

178,721

 

 

Net loss on sale of assets

 

 

 

 

68,156

 

Gain on sale of WQEW-AM

 

 

 

 

39,578

 

Operating (loss)/profit

 

(150,444

)

28,105

 

(103,974

)

125,919

 

 

 

 

 

 

 

 

 

 

 

Net income from joint ventures

 

6,892

 

5,412

 

15,264

 

8,004

 

Interest expense, net

 

11,658

 

10,470

 

35,507

 

28,924

 

(Loss)/income from continuing operations before income taxes and minority interest

 

(155,210

)

23,047

 

(124,217

)

104,999

 

Income tax (benefit)/expense

 

(40,360

)

8,991

 

(30,801

)

48,741

 

Minority interest in net (income)/loss of subsidiaries

 

(54

)

54

 

(371

)

39

 

(Loss)/income from continuing operations

 

(114,904

)

14,110

 

(93,787

)

56,297

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations, Broadcast Media Group:

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

 

 

5,753

 

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

 

8,611

 

(671

)

8,300

 

93,659

 

Discontinued operations, net of income taxes

 

8,611

 

(671

)

8,300

 

99,412

 

Net (loss)/income

 

$

(106,293

)

$

13,439

 

$

(85,487

)

$

155,709

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

143,782

 

143,902

 

143,773

 

143,901

 

Diluted

 

143,782

 

144,112

 

143,773

 

144,057

 

 

 

 

 

 

 

 

 

 

 

Basic (loss)/earnings per share:

 

 

 

 

 

 

 

 

 

(Loss)/income from continuing operations

 

$

(0.80

)

$

0.10

 

$

(0.65

)

$

0.39

 

Discontinued operations, net of income taxes

 

0.06

 

(0.01

)

0.06

 

0.69

 

Net (loss)/income

 

$

(0.74

)

$

0.09

 

$

(0.59

)

$

1.08

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss)/earnings per share:

 

 

 

 

 

 

 

 

 

(Loss)/income from continued operations

 

$

(0.80

)

$

0.10

 

$

(0.65

)

$

0.39

 

Discontinued operations, net of income taxes

 

0.06

 

(0.01

)

0.06

 

0.69

 

Net (loss)/income

 

$

(0.74

)

$

0.09

 

$

(0.59

)

$

1.08

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.230

 

$

0.230

 

$

0.690

 

$

0.635

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

September 28, 2008

 

December 30, 2007

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,848

 

$

51,532

 

Accounts receivable-net

 

364,637

 

437,882

 

Inventories:

 

 

 

 

 

Newsprint and magazine paper

 

21,376

 

21,929

 

Other inventory

 

6,163

 

4,966

 

Total inventories

 

27,539

 

26,895

 

 

 

 

 

 

 

Deferred income taxes

 

80,617

 

92,335

 

Other current assets

 

58,637

 

55,801

 

 

 

 

 

 

 

Total current assets

 

577,278

 

664,445

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Investment in joint ventures

 

146,150

 

137,831

 

Property, plant and equipment (less accumulated depreciation and amortization of $918,975 in 2008 and $1,138,837 in 2007)

 

1,354,796

 

1,468,013

 

Intangible assets acquired:

 

 

 

 

 

Goodwill

 

664,274

 

683,440

 

Other intangible assets acquired

 

72,963

 

128,461

 

Total intangible assets acquired

 

737,237

 

811,901

 

 

 

 

 

 

 

Deferred income taxes

 

150,637

 

112,379

 

Miscellaneous assets

 

255,597

 

278,523

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,221,695

 

$

3,473,092

 

 

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 28, 2008

 

December 30, 2007

 

 

 

(Unaudited)

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Commercial paper outstanding

 

$

 

$

111,741

 

Borrowings under revolving credit agreements

 

397,850

 

195,000

 

Accounts payable

 

160,718

 

202,923

 

Accrued payroll and other related liabilities

 

100,195

 

142,201

 

Accrued expenses

 

158,510

 

193,222

 

Unexpired subscriptions

 

82,284

 

81,110

 

Current portion of long-term debt and capital lease obligations

 

49,549

 

49,539

 

 

 

 

 

 

 

Total current liabilities

 

949,106

 

975,736

 

 

 

 

 

 

 

Other Liabilities

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

672,508

 

672,005

 

Capital lease obligations

 

6,650

 

6,694

 

Pension benefits obligation

 

284,281

 

281,517

 

Postretirement benefits obligation

 

214,424

 

213,500

 

Other

 

290,329

 

339,533

 

 

 

 

 

 

 

Total other liabilities

 

1,468,192

 

1,513,249

 

 

 

 

 

 

 

Minority Interest

 

7,325

 

5,907

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Common stock of $.10 par value:

 

 

 

 

 

Class A – authorized 300,000,000 shares; issued: 2008 – 148,057,158; 2007 – 148,057,158 (including treasury shares: 2008 – 5,091,299; 2007 – 5,154,989)

 

14,806

 

14,806

 

Class B – convertible – authorized and issued shares: 2008 – 825,634; 2007 – 825,634

 

83

 

83

 

Additional paid-in-capital

 

22,484

 

9,869

 

Retained earnings

 

975,989

 

1,170,288

 

Common stock held in treasury, at cost

 

(160,178

)

(161,395

)

Accumulated other comprehensive loss, net of income taxes:

 

 

 

 

 

Foreign currency translation adjustments

 

18,279

 

19,660

 

Funded status of benefit plans

 

(74,391

)

(75,111

)

Total accumulated other comprehensive loss, net of income taxes

 

(56,112

)

(55,451

)

 

 

 

 

 

 

Total stockholders’ equity

 

797,072

 

978,200

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

3,221,695

 

$

3,473,092

 

 

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 28, 2008

 

September 30, 2007

 

 

 

(39 weeks)

 

OPERATING ACTIVITIES

 

 

 

 

 

Net cash provided by operating activities

 

$

144,232

 

$

29,074

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(134,067

)

(301,176

)

Proceeds from sale of the Broadcast Media Group

 

 

575,288

 

Proceeds from the sale of WQEW-AM

 

 

40,000

 

Proceeds from the 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 $2,353 in 2008 and $1,190 in 2007

 

(5,737

)

(34,087

)

Other investing payments–net

 

(2,309

)

(3,169

)

 

 

 

 

 

 

Net cash (used in)/provided by investing activities

 

(142,113

)

227,714

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Commercial paper repayments-net

 

(111,741

)

(330,587

)

Borrowings under revolving credit agreements-net

 

202,850

 

205,000

 

Long-term obligations:

 

 

 

 

 

Reductions

 

(46

)

(102,422

)

Capital shares:

 

 

 

 

 

Issuances

 

 

529

 

Repurchases

 

(70

)

(2,040

)

Excess tax benefits from stock-based awards

 

 

165

 

Dividends paid to stockholders

 

(99,855

)

(91,824

)

Other financing proceeds–net

 

 

44,769

 

 

 

 

 

 

 

Net cash used in financing activities

 

(8,862

)

(276,410

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(6,743

)

(19,622

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1,059

 

520

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

51,532

 

72,360

 

Cash and cash equivalents at the end of the quarter

 

$

45,848

 

$

53,258

 

 

SUPPLEMENTAL DATA

 

Acquisitions

·                  In March 2008, the Company acquired certain assets of the Winter Haven News Chief for $2.5 million and purchased additional Class A units of BehNeem, LLC, increasing its total investment to $4.3 million for a 53% ownership interest.  In the first quarter of 2008, the Company also paid the remaining $0.5 million for UCompareHealthCare.com, which was acquired in March 2007, for a total of $2.3 million.

 

Other

·                  Financing activities – Other financing proceeds in 2007 include cash received from the Company’s real estate development partner for repayment of the Company’s loan receivable in connection with the construction of the Company’s new headquarters.

 

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 28, 2008, and December 30, 2007, and the results of operations and cash flows of the Company for the periods ended September 28, 2008, and September 30, 2007.  All adjustments and reclassifications 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 financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission for interim reporting.  As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from these interim financial statements.  These statements, therefore, 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 30, 2007.  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.  The fiscal periods included herein comprise 13 weeks for the third-quarter periods and 39 weeks for the nine-month periods.

 

As of September 28, 2008, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007, have not changed materially.

 

The Company adopted Emerging Issues Task Force (“EITF”) No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-4”), on December 31, 2007 (the first day of the Company’s 2008 fiscal year).  EITF 06-4 was issued to clarify the accounting for the deferred compensation and postretirement aspects of endorsement split-dollar life insurance arrangements.  It required the Company to recognize a liability for future benefits in accordance with Statement of Financial Accounting Standards (“FAS”) No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (“FAS 106”).  Accordingly, the Company recorded a liability, which is included in “Other Liabilities – Other” in the Company’s Condensed Consolidated Balance Sheet, for its endorsement split-dollar life insurance arrangement of approximately $9 million through a cumulative-effect adjustment to retained earnings on December 31, 2007.

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FAS No. 157, Fair Value Measurements (“FAS 157”), which establishes a common definition for fair value in accordance with GAAP, and establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements.

 

In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”).  FSP 157-2 delayed the effective date of FAS 157 to fiscal years beginning after

 

6



 

November 15, 2008, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The partial delay is intended to provide all relevant parties more time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of FAS 157.

 

In accordance with FSP 157-2, the Company partially adopted FAS 157 in the first quarter of 2008.  Therefore, in 2008, the Company’s financial statements will reflect the requirements of FAS 157 for any financial assets and liabilities and for any nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a recurring basis.  As of September 28, 2008, the Company does not have any material nonfinancial assets or liabilities for which the requirements under FAS 157 were not applied because of the partial delay under FSP 157-2.

 

As of September 28, 2008, the Company does not have any assets measured at fair value that fall within the scope of FAS 157 and FSP 157-2.  The Company does have a liability for a Company-sponsored deferred executive compensation plan (the “DEC plan”) that falls within the scope of FAS 157 and FSP 157-2, as of September 28, 2008.  The DEC plan enables certain eligible executives to defer a portion of their compensation on a pre-tax basis.  Employees’ contributions earn income based on the performance of investment funds they select.  The DEC plan liability is the amount due to the respective executives and is recorded at fair value on a recurring basis utilizing observable market data (Level 2 under FAS 157).  The fair value of the liability, which is included in “Other Liabilities – Other” in the Company’s Condensed Consolidated Balance Sheet, was approximately $119 million as of September 28, 2008.

 

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“FAS 159”), which is effective in fiscal 2008 and permits entities to choose to measure many financial instruments and certain other items at fair value.  The Company did not elect the fair value option for any items under FAS 159.

 

Recent Accounting Pronouncements

 

In December 2007, the FASB issued FAS No. 141(R), Business Combinations (“FAS 141(R)”) and FAS No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (“FAS 160”).  Changes for business combination transactions pursuant to FAS 141(R) include, among others, expensing acquisition-related transaction costs as incurred, the recognition of contingent consideration arrangements at their acquisition date fair value and capitalization of in-process research and development assets acquired at their acquisition date fair value.  Changes in accounting for noncontrolling (minority) interests pursuant to FAS 160 include, among others, the classification of noncontrolling interest as a component of consolidated stockholders’ equity and the elimination of “minority interest” accounting in results of operations.  FAS 141(R) and FAS 160 are required to be adopted simultaneously and are effective for fiscal years beginning on or after December 15, 2008.  The adoption of FAS 141(R) will affect the accounting for the Company’s acquisitions that occur after the adoption date.  Based on the Company’s current structure, FAS 160 will be immaterial to the Company’s financial statements.

 

7



 

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 a digital operating center, for approximately $575 million.  In 2007, the Company recognized a pre-tax gain on the sale of approximately $190 million (approximately $94 million after tax).  In accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), the Broadcast Media Group’s results of operations and the gain on sale are presented as discontinued operations.  Net income from discontinued operations of $8.6 million in the third quarter of 2008 was due to a reduction in income taxes on the gain on the sale, and net loss from discontinued operations of $0.7 million in the third quarter of 2007 was due to post-closing adjustments to the gain.   The first nine months of 2008 also included post-closing adjustments to the gain on the sale.   The results of operations presented as discontinued operations are summarized in the following table.

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 28,
2008

 

September 30,
 2007

 

September 28,
 2008

 

September 30,
2007

 

Revenues

 

$

 

$

 

$

 

$

46,702

 

Operating costs

 

 

 

 

36,854

 

Pre-tax income

 

 

 

 

9,848

 

Income tax expense

 

 

 

 

4,095

 

Income from discontinued operations, net of income taxes

 

 

 

 

5,753

 

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

 

 

 

 

 

 

 

 

 

Gain/(loss) on sale, before taxes

 

(26

)

(1,361

)

(565

)

189,880

 

Income tax (benefit)/expense

 

(8,637

)

(690

)

(8,865

)

96,221

 

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

 

8,611

 

(671

)

8,300

 

93,659

 

Discontinued operations, net of income taxes

 

$

8,611

 

$

(671

)

$

8,300

 

$

99,412

 

 

NOTE 3.                         IMPAIRMENT OF ASSETS

 

In accordance with FAS No. 142, Goodwill and Other Intangible Assets (“FAS 142”), the Company is required to perform an impairment test on goodwill and indefinite-lived intangible assets (mastheads and trade names) annually or if certain circumstances indicate a possible impairment may exist.  The Company’s policy is to complete the required annual impairment test in accordance with FAS 142 in its fiscal fourth quarter.  In accordance with FAS 144, other long-lived assets that are amortized (customer lists, property, plant and equipment and other assets) are required to be tested for impairment if certain circumstances indicate that a possible impairment may exist.  Due to certain impairment indicators, including the continued decline in print advertising revenue affecting the newspaper industry and lower-than-expected current and projected operating results, the Company was required to perform an interim impairment test in the third quarter of 2008 at the New England Media Group.  The New England Media Group, which principally includes the Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette, is part of the News Media Group reportable segment.  The assets tested include goodwill, indefinite-lived intangible assets, other long-lived assets being amortized and an equity method investment in Metro Boston LLC (“Metro Boston”), which publishes a free daily newspaper in the Greater Boston area.

 

8



 

The Company has not finalized its interim impairment analysis due to the timing and complexity of the calculations required.  However, the Company has recorded an estimated non-cash impairment charge in the third quarter of 2008 of $166.0 million ($112.8 million after tax, or $.78 per share) based on calculations performed to date.  Any adjustment to the estimate recorded will be made in the fourth quarter of 2008 when the Company finalizes the interim third-quarter 2008 impairment test.

 

The impairment charge in the third quarter of 2008, which is included in the line items “Impairment of assets” and “Net income from joint ventures” in the Company’s 2008 Condensed Consolidated Statements of Operations, is presented below by asset:

 

(In thousands)

 

Pre-tax

 

Tax

 

After-tax

 

Newspaper mastheads

 

$

38,312

 

$

14,229

 

$

24,083

 

Goodwill

 

22,897

 

 

22,897

 

Customer list

 

8,336

 

3,086

 

5,250

 

Property, plant and equipment

 

90,885

 

33,809

 

57,076

 

Impairment of assets

 

160,430

 

51,124

 

109,306

 

Metro Boston investment

 

5,600

 

2,084

 

3,516

 

Total

 

$

166,030

 

$

53,208

 

$

112,822

 

 

The impairment mainly resulted from lower projected operating results and cash flows of the New England Media Group primarily due to the secular decline of print advertising revenue.  These factors resulted in the carrying value of the assets being greater than their fair value, and therefore a write-down to fair value was required.

 

Goodwill is the excess of cost over the fair market value of tangible and other intangible assets acquired. The fair value of the New England Media Group’s goodwill is the residual fair value after allocating the total fair value of the New England Media Group to its other assets, net of liabilities.  The total fair value of the New England Media Group was estimated using a combination of a discounted cash flow model (present value of future cash flows) and a market approach model based on comparable businesses.  The goodwill is not tax deductible because the 1993 acquisition of the Globe was structured as a tax-free stock transaction.

 

The fair value of the mastheads was calculated using a relief-from-royalty method and the fair value of the customer list was calculated by estimating the present value of associated future cash flows.

 

The property, plant and equipment of the New England Media Group has been estimated at fair value less cost to sell.  The fair value was determined giving consideration to market and income approaches to value.

 

The carrying value of the investment in Metro Boston was written down to fair value because the business had experienced lower-than-expected growth and it anticipates lower growth compared to previous projections, leading the Company to conclude that the investment was other than temporarily impaired.

 

In connection with its required annual impairment test, the Company will test goodwill and indefinite-lived intangible assets in all other reporting units in the fourth quarter of 2008.  Any impairment resulting from these tests would be recorded in the fourth quarter of 2008.

 

9



 

In the first quarter of 2008, the Company recorded a non-cash charge of $18.3 million for the write-down of assets for a systems project at the News Media Group.  The Company reduced the scope of a major advertising and circulation project to decrease capital spending, which resulted in the write-down of previously capitalized costs.

 

NOTE 4.                         GOODWILL AND OTHER INTANGIBLE ASSETS

 

See Note 3 for information on an interim impairment test performed in the third quarter of 2008.

 

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

 

(In thousands)

 

News Media
Group

 

About
Group

 

Total

 

Balance as of December 30, 2007

 

$

313,459

 

$

369,981

 

$

683,440

 

Goodwill acquired during year

 

4,416

 

 

4,416

 

Goodwill adjusted during the year

 

 

(3

)

(3

)

Foreign currency translation adjustments

 

(682

)

 

(682

)

Impairment (see Note 3)

 

(22,897

)

 

(22,897

)

Balance as of September 28, 2008

 

$

294,296

 

$

369,978

 

$

664,274

 

 

In March 2008, the Company acquired certain assets of the Winter Haven News Chief (“News Chief”), a regional newspaper in Winter Haven, Fla., for $2.5 million.  Also in March 2008, the Company purchased additional Class A units of BehNeem, LLC (“BehNeem”), increasing its total investment to $4.3 million for a 53% ownership interest.  BehNeem licenses the Epsilen Environment, an integrated online course content, portfolio and communications tool for the education community.  The operating results of the News Chief are included in the results of the Regional Media Group, and the operating results of BehNeem are included in the results of The New York Times Media Group, both of which are part of the News Media Group.

 

Based on valuations of the News Chief and BehNeem, the Company has allocated the excess of the respective purchase prices over the carrying value of the net assets acquired of $1.3 million to goodwill and $0.6 million to other intangible assets (primarily customer lists) for the News Chief, and $3.1 million to goodwill for BehNeem.

 

Other intangible assets acquired were as follows:

 

 

 

September 28, 2008

 

December 30, 2007

 

(In thousands)

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Amortized other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer lists

 

$

28,407

 

$

(16,738

)

$

11,669

 

$

222,267

 

$

(199,930

)

$

22,337

 

Other

 

62,434

 

(34,408

)

28,026

 

67,254

 

(32,841

)

34,413

 

Total

 

90,841

 

(51,146

)

39,695

 

289,521

 

(232,771

)

56,750

 

Unamortized other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Newspaper mastheads

 

19,186

 

 

19,186

 

57,638

 

 

57,638

 

Trade names

 

14,082

 

 

14,082

 

14,073

 

 

14,073

 

Total

 

33,268

 

 

$

33,268

 

71,711

 

 

71,711

 

Total other intangible assets acquired

 

$

124,109

 

$

(51,146

)

$

72,963

 

$

361,232

 

$

(232,771

)

$

128,461

 

 

See Note 3 for additional information on an impairment of assets in the third quarter of 2008.

 

10



 

As of September 28, 2008, the remaining weighted-average amortization period was seven 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 $9 million in the first nine months of 2008, and is expected to be approximately $11 million for the fiscal year 2008.  Estimated annual amortization expense for the next five years related to these intangible assets is expected to be as follows:

 

(In thousands)
Year

 

Amount

 

2009

 

$

8,600

 

2010

 

$

8,100

 

2011

 

$

7,600

 

2012

 

$

5,300

 

2013

 

$

2,100

 

 

NOTE 5.                         DEBT OBLIGATIONS

 

The Company’s total debt, including borrowings under revolving credit agreements and capital lease obligations, was $1.1 billion as of September 28, 2008, and including these items and commercial paper, was $1.0 billion as of December 30, 2007.

 

The Company’s $800.0 million revolving credit agreements ($400.0 million credit agreement maturing in May 2009 and $400.0 million credit agreement maturing in June 2011) are used for general corporate purposes.  In addition, these revolving credit agreements provide a facility for the issuance of letters of credit.  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 amount available under the Company’s revolving credit agreements is summarized in the following table.

 

(In thousands)

 

September 28,
 2008

 

December 30,
2007

 

Revolving credit agreements

 

$

800,000

 

$

800,000

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Amount outstanding under revolving credit agreements (weighted average interest rate of 3.1% as of September 28, 2008 and 5.3% as of December 30, 2007)

 

397,850

 

195,000

 

Letters of credit

 

35,885

 

24,757

 

Amount available under revolving credit agreements(1)

 

$

366,265

 

$

580,243

 

 


(1)                               Amount available under the revolving credit agreements also supports the Company’s commercial paper program, of which $111.7 million was outstanding as of December 30, 2007.

 

11



 

The revolving credit agreements each contain a covenant that requires a specified level of stockholders’ equity, which, as defined by the agreements, does not include accumulated other comprehensive loss and excludes the impact of non-cash impairment charges.  The required levels of stockholders’ equity (as defined by the agreements) is the sum of $950.0 million plus an amount equal to 25% of net income for each fiscal year ending after December 28, 2003 for which net income is positive.  As of September 28, 2008, the amount of stockholders’ equity in excess of the required levels was approximately $564 million.

 

The Company did not have commercial paper outstanding as of September 28, 2008 and had $111.7 million outstanding as of December 30, 2007, with an annual weighted-average interest rate of 5.5% and an average of 10 days to maturity from original issuance.

 

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

 

 

 

For the Quarters Ended

 

For the Nine Months Ended 

 

(In thousands)

 

September 28,
2008

 

September 30,
2007

 

September 28,
2008

 

September 30,
2007

 

Interest expense

 

$

12,222

 

$

13,276

 

$

37,631

 

$

45,585

 

Capitalized interest

 

(515

)

(1,594

)

(1,977

)

(13,717

)

Interest income

 

(49

)

(1,212

)

(147

)

(2,944

)

Interest expense, net

 

$

11,658

 

$

10,470

 

$

35,507

 

$

28,924

 

 

NOTE 6.                         INCOME TAXES

 

The income tax benefit for the third quarter and first nine months of 2008 was $40.4 million and $30.8 million, respectively, compared with an income tax expense of $9.0 million and $48.7 million for the third quarter and first nine months of 2007.  The Company’s effective income tax rate was 26.0% in the third quarter and 24.8% in the first nine months of 2008 compared with 39.0% in the third quarter and 46.4% in the first nine months of 2007.

 

In 2008, the effective income tax rates were low because the goodwill portion of the non-cash impairment charge and losses on investments in corporate-owned life insurance policies were non-deductible for tax purposes and a change in Massachusetts state tax law had an unfavorable effect.  In 2007, the effective income tax rates were affected by the asset sales in the second quarter of 2007 (see Notes 2 and 8) and an unfavorable tax adjustment for a change in New York State tax law.

 

NOTE 7.                         PENSION AND POSTRETIREMENT BENEFITS

 

See Note 13 for changes made to the Company’s pension and postretirement benefits in the fourth quarter of 2008.

 

Pension

 

The Company sponsors several pension plans, participates in The New York Times Newspaper Guild pension plan, a joint Company and Guild-sponsored plan, and makes contributions to several other plans, in connection with collective bargaining agreements, that are considered multi-employer pension plans.  These plans cover substantially all employees.

 

12



 

The Company-sponsored plans include qualified (funded) plans as well as non-qualified (unfunded) plans. These plans provide participating employees with retirement benefits in accordance with benefit formulas detailed in each plan.  The Company’s non-qualified plans provide retirement benefits only to certain highly compensated employees of the Company.

 

The Company also has a foreign-based pension plan for certain International Herald Tribune (“IHT”) employees (the “Foreign plan”).  The information for the Foreign plan is combined with the information for U.S. non-qualified plans.  The benefit obligation of the Foreign plan is immaterial to the Company’s total benefit obligation.

 

The components of net periodic pension cost of all Company-sponsored plans and The New York Times Newspaper Guild pension plan were as follows:

 

 

 

For the Quarters Ended

 

 

 

September 28, 2008

 

September 30, 2007

 

(In thousands)

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Service cost

 

$

10,110

 

$

710

 

$

10,820

 

$

11,403

 

$

519

 

$

11,922

 

Interest cost

 

25,078

 

3,463

 

28,541

 

23,500

 

3,574

 

27,074

 

Expected return on plan assets

 

(31,915

)

 

(31,915

)

(30,335

)

 

(30,335

)

Amortization of prior service cost

 

462

 

17

 

479

 

360

 

18

 

378

 

Recognized actuarial loss

 

729

 

1,238

 

1,967

 

1,571

 

1,982

 

3,553

 

Net periodic pension cost

 

$

4,464

 

$

5,428

 

$

9,892

 

$

6,499

 

$

6,093

 

$

12,592

 

 

 

 

For the Nine Months Ended

 

 

 

September 28, 2008

 

September 30, 2007

 

(In thousands)

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Service cost

 

$

30,330

 

$

2,130

 

$

32,460

 

$

34,210

 

$

1,557

 

$

35,767

 

Interest cost

 

75,234

 

10,389

 

85,623

 

70,501

 

10,722

 

81,223

 

Expected return on plan assets

 

(95,745

)

 

(95,745

)

(91,006

)

 

(91,006

)

Amortization of prior service cost

 

1,186

 

51

 

1,237

 

1,082

 

53

 

1,135

 

Recognized actuarial loss

 

2,187

 

3,714

 

5,901

 

4,715

 

5,947

 

10,662

 

Effect of curtailment

 

 

 

 

15

 

 

15

 

Special termination benefits

 

 

 

 

 

908

 

908

 

Net periodic pension cost

 

$

13,192

 

$

16,284

 

$

29,476

 

$

19,517

 

$

19,187

 

$

38,704

 

 

Recent declines in domestic and foreign equity markets have negatively affected the year-to-date returns on the Company’s pension plan assets.  The Company completes an annual valuation of its pension plans as of its fiscal year-end.  If markets do not recover by this valuation date, the lower asset values will result in charges to comprehensive (loss)/income, will likely increase pension expense in the next fiscal year, and could lead to greater cash contributions in future years.

 

The Company does not have any quarterly funding requirements for Company-sponsored pension plans in 2008 (under the Employee Retirement Income Security Act of 1974, as amended, and Internal Revenue Code requirements), although it will make contractual funding contributions of $16.5 million (approximately $8 million was made in the first nine months of 2008) for The New York Times Newspaper Guild pension plan.  The Company is currently evaluating the amount of its pension funding for

 

13



 

the remainder of 2008 in light of recent market performance and may make a discretionary contribution in the fourth quarter of 2008.   The Company currently expects that pension contributions will not be required in 2009, due to funding credits accrued from contributions in prior years, but will continue to assess whether to make discretionary contributions after considering the funded status of its plans, movements in discount rate, investment performance and other factors.

 

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.  The Company’s policy is to pay its portion of insurance premiums and claims from Company assets.

 

In accordance with FAS 106, the Company accrues the costs of postretirement benefits during the employees’ active years of service.

 

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

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 28,
2008

 

September 30,
2007

 

September 28,
2008

 

September 30,
2007

 

Service cost

 

$

881

 

$

2,022

 

$

2,643

 

$

6,066

 

Interest cost

 

3,514

 

3,748

 

10,542

 

11,246

 

Amortization of prior service cost

 

(2,908

)

(1,983

)

(8,724

)

(5,949

)

Recognized actuarial loss

 

1,041

 

785

 

3,123

 

2,354

 

Effect of curtailment

 

 

 

 

(4,717

)

Special termination benefits

 

 

 

 

703

 

Net periodic postretirement cost

 

$

2,528

 

$

4,572

 

$

7,584

 

$

9,703

 

 

NOTE 8.                         OTHER

 

City & Suburban Closure

 

In September 2008, the Company announced the shutdown of City & Suburban (“C&S”), its retail and newsstand distribution subsidiary, which distributes The New York Times (“The Times”) and other publications in the New York metropolitan area.  Going forward, The Times will be distributed to newsstands and retail outlets through a combination of third-party wholesalers and the Company’s own drivers.  Approximately 550 full-time equivalent employees will be affected by the closure.  The closure of C&S is expected to be completed in January 2009.  The primary cost to close C&S is severance costs, of which approximately $9 million was recorded in the third quarter of 2008.  The Company expects to incur additional severance costs and may incur a charge related to the abandonment of various leased properties.

 

14



 

Plant Closing - Billerica, Mass.

 

In September 2008, the Company announced that it plans to close its printing plant in Billerica, Mass., and consolidate the printing of the Globe into its main printing plant in Dorchester, Mass.  While the exact timing of the closing has not yet been set, it is expected to occur in the second half of 2009.  The plant is being closed because the Company no longer needs as many presses to print all copies of the Globe.  The cost savings and one-time costs related to the closing and the capital expenditures related to the consolidation cannot be estimated at this time because this information is dependent on ongoing negotiations with labor unions and certain production decisions not yet made.  Certain property, plant and equipment located at the Billerica plant was impaired and a related write-down is included within the Company’s total New England Media Group impairment charge (see Note 3).

 

Severance Costs

 

The Company recognized severance costs of $18.1 million in the third quarter of 2008 and $56.9 million in the first nine months of 2008.  In the third quarter and first nine months of 2007, the Company recognized severance costs of $4.9 million and $17.6 million, respectively.  Most of the costs in these periods were recognized at the News Media Group.  These costs are primarily recorded in “Selling, general and administrative costs” in the Company’s Condensed Consolidated Statements of Operations.  As of September 28, 2008, the Company had a severance liability of approximately $32 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 newest 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.

 

The Edison facility was closed in March 2008.  The costs to close the Edison facility were approximately $89 million, principally consisting of accelerated depreciation charges (approximately $69 million), severance costs (approximately $15 million) and plant restoration costs (approximately $5 million).

 

Sale of WQEW-AM

 

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

 

15



 

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 28,
2008

 

September 30,
2007

 

September 28,
2008

 

September 30,
2007

 

Basic (loss)/earnings per share computation:

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

(Loss)/income from continuing operations

 

$

(114,904

)

$

14,110

 

$

(93,787

)

$

56,297

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

8,611

 

(671

)

8,300

 

99,412

 

Net (loss)/income

 

$

(106,293

)

$

13,439

 

$

(85,487

)

$

155,709

 

Denominator

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

143,782

 

143,902

 

143,773

 

143,901

 

(Loss)/income from continuing operations

 

$

(0.80

)

$

0.10

 

$

(0.65

)

$

0.39

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

0.06

 

(0.01

)

0.06

 

0.69

 

Basic (loss)/earnings per share

 

$

(0.74

)

$

0.09

 

$

(0.59

)

$

1.08

 

Diluted (loss)/earnings per share computation:

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

(Loss)/income from continuing operations

 

$

(114,904

)

$

14,110

 

$

(93,787

)

$

56,297

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

8,611

 

(671

)

8,300

 

99,412

 

Net (loss)/income

 

$

(106,293

)

$

13,439

 

$

(85,487

)

$

155,709

 

Denominator

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

143,782

 

143,902

 

143,773

 

143,901

 

Incremental share for assumed exercise of securities

 

 

210

 

 

156

 

Total shares

 

143,782

 

144,112

 

143,773

 

144,057

 

(Loss)/income from continuing operations

 

$

(0.80

)

$

0.10

 

$

(0.65

)

$

0.39

 

Discontinued operations, net of income taxes – Broadcast Media Group

 

0.06

 

(0.01

)

0.06

 

0.69

 

Diluted (loss)/earnings per share

 

$

(0.74

)

$

0.09

 

$

(0.59

)

$

1.08

 

 

The difference between basic and diluted shares is generally due to the assumed exercise of stock options and the assumed vesting of restricted stock units included in diluted shares.

 

In 2008, a nominal number of potential common shares were not included in diluted shares because of their antidilutive effect as a result of the loss from continuing operations.

 

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 diluted shares.  Approximately 32 million stock options with exercise prices ranging from $13.03 to $48.54 were excluded from the computation in the third quarter and first nine months of 2008.  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 first nine months of 2007.

 

 

16



 

NOTE 10.                  COMPREHENSIVE (LOSS)/INCOME

 

Comprehensive (loss)/income was as follows:

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 28,
2008

 

September 30,
2007

 

September 28,
2008

 

September 30,
2007

 

Net (loss)/income

 

$

(106,293

)

$

13,439

 

$

(85,487

)

$

155,709

 

Foreign currency translation adjustments

 

(10,559

)

7,074

 

(1,892

)

10,676

 

Adjustments to pension and postretirement benefits obligations

 

 

49,517

 

 

106,228

 

Amortization of unrecognized amounts included in pension and postretirement benefits obligations

 

579

 

2,733

 

1,537

 

3,500

 

Income tax charge/(benefit)

 

4,149

 

(28,805

)

(307

(67,948

)

Comprehensive (loss)/income

 

$

(112,124

)

$

43,958

 

$

(86,149

)

$

208,165

 

 

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 $53 million as of September 28, 2008 and December 30, 2007.

 

NOTE 11.                  SEGMENT INFORMATION

 

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 Times, NYTimes.com, the IHT and WQXR-FM; the New England Media Group, which principally includes the Globe, Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 15 daily newspapers, other print publications and their related digital operations); and

 

About Group (consisting of the Web sites of About.com, ConsumerSearch.com, UCompareHealthCare.com and Caloriecount.about.com).

 

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).

 

17



 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 28,
2008

 

September 30,
2007

 

September 28,
2008

 

September 30,
2007

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

News Media Group

 

$

658,336

 

$

729,635

 

$

2,091,314

 

$

2,257,350

 

About Group

 

28,706

 

24,724

 

85,488

 

71,972

 

Total

 

$

687,042

 

$

754,359

 

$

2,176,802

 

$

2,329,322

 

 

 

 

 

 

 

 

 

 

 

OPERATING (LOSS)/PROFIT

 

 

 

 

 

 

 

 

 

News Media Group(1)

 

$

(153,340

)

$

33,136

 

$

(95,583

)

$

139,418

 

About Group

 

10,784

 

6,291

 

29,421

 

23,132

 

Corporate

 

(7,888

)

(11,322

)

(37,812

)

(36,631

)

Total

 

$

(150,444

)

$

28,105

 

$

(103,974

)

$

125,919

 

Net income from joint ventures(1)

 

6,892

 

5,412

 

15,264

 

8,004

 

Interest expense, net

 

11,658

 

10,470

 

35,507

 

28,924

 

(Loss)/income from continuing operations before income taxes and minority interest

 

(155,210

)

23,047

 

(124,217

)

104,999

 

Income tax (benefit)/expense

 

(40,360

)

8,991

 

(30,801

)

48,741

 

Minority interest in net (income)/loss of subsidiaries

 

(54

)

54

 

(371

)

39

 

(Loss)/income from continuing operations

 

(114,904

)

14,110

 

(93,787

)

56,297

 

Discontinued operations, Broadcast Media Group:

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

 

 

5,753

 

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

 

8,611

 

(671

)

8,300

 

93,659

 

Discontinued operations, net of income taxes

 

8,611

 

(671

)

8,300

 

99,412

 

Net (loss)/income

 

$

(106,293

)

$

13,439

 

$

(85,487

)

$

155,709

 

 


(1)                               A non-cash charge of $166.0 million was recorded for the impairment of assets ($160.4 million affecting operating profit) and an equity method investment ($5.6 million affecting net income from joint ventures) in the third quarter of 2008.  Operating profit in the first quarter of 2008 included a non-cash charge of $18.3 million for the impairment of assets for a systems project.  Operating profit for the first nine months of 2007 included a $68.2 million net loss from the sale of assets and $39.6 million gain from the sale of WQEW-AM.

 

NOTE 12.                  CONTINGENT LIABILITIES

 

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, and on behalf of two third parties that provide printing and distribution services for The Times’s National Edition.  The guarantees are for payments under a credit facility and property and equipment leases, and for certain debt and costs related to any default.  The total amount of the guarantees was approximately $26 million as of September 28, 2008.  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 28, 2008 and December 30, 2007.

 

Other

 

The Company also has letters of credit of approximately $36 million as of September 28, 2008, which are primarily to satisfy requirements by insurance companies, to provide support for the Company’s workers’ compensation liability.  The workers’ compensation liability (approximately $48 million) is included in the Company’s Condensed Consolidated Balance Sheet as of September 28, 2008.

 

18



 

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.

 

NOTE 13.                  SUBSEQUENT EVENTS

 

On October 22, 2008, the Company adopted amendments to a number of its retirement plans for non-union employees.  First, the Company decreased the benefit formula for pension benefits for all active non-union employees, effective January 1, 2009.  Additionally, the Company amended its retiree medical plan to eliminate post-age 65 retiree medical benefits for all employees who retire on or after March 1, 2009.  The Company currently plans to continue to offer pre-age 65 retiree medical coverage to employees who take early retirement on or after March 1, 2009, and meet the retiree medical eligibility requirements, until they become Medicare eligible.

 

The Company expects the pension and retiree medical plan changes to result in savings of approximately $24 million in 2009 and to reduce its pension benefits obligation by approximately $70 million and its postretirement benefits obligation by approximately $20 million.

 

Additionally, the Company is increasing the match on employee contributions to the non-union defined contribution plan, effective January 1, 2009, to up to 5% from 3%.  The Company expects additional expense of approximately $6 million based on current employee participation.

 

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, mobile and radio 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 15 daily newspapers, other print publications 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 news services/syndication, commercial printing, digital archives, direct mail advertising services, rental income and wholesale delivery operations, which we expect to close in January 2009 as discussed below.  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 Caloriecount.about.com).  The About Group principally generates revenues from cost-per-click advertising (sponsored links for which the About Group is paid when a user clicks on the ad), display advertising that is relevant to its adjacent content, and e-commerce (including sales lead generation).  Almost all of its revenues (93% in the first nine months of 2008) are derived from the sale of advertisements (cost-per-click and display advertising).  Cost-per-click advertising accounts for 56% 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 (“Metro Boston”), which publishes a free daily newspaper 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,

 

·                  a 25% interest (acquired in 2008 for a nominal amount) in quadrantONE LLC, a consortium online advertising network that sells bundled premium, targeted display advertising from local newspaper Web sites and other affiliates, and

 

·                  an approximately 17.5% interest in New England Sports Ventures, which owns the Boston Red Sox, Fenway Park and adjacent real estate, approximately 80% of the New England Sports Network, a regional cable sports network, and 50% of Roush Fenway Racing, a leading NASCAR team.

 

20



 

RECENT DEVELOPMENTS

 

Impairment of Assets

 

In accordance with Statement of Financial Accounting Standards (“FAS”) No. 142, Goodwill and Other Intangible Assets (“FAS 142”), we are required to perform an impairment test on goodwill and indefinite-lived intangible assets (mastheads and trade names) annually or if certain circumstances indicate a possible impairment may exist.  Our policy is to complete the required annual impairment test in accordance with FAS 142 in our fiscal fourth quarter.  In accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, other long-lived assets that are amortized (customer lists, property, plant and equipment and other assets) are required to be tested for impairment if certain circumstances indicate that a possible impairment may exist.  Due to certain impairment indicators, including the continued decline in print advertising revenue affecting the newspaper industry and lower-than-expected current and projected operating results, we were required to perform an interim impairment test in the third quarter of 2008 at the New England Media Group.  The assets tested include goodwill, indefinite-lived intangible assets, other long-lived assets being amortized and an equity method investment in Metro Boston.

 

We have not finalized our interim impairment analysis due to the timing and complexity of the calculations required.  However, we have recorded an estimated non-cash impairment charge in the third quarter of 2008 of $166.0 million ($112.8 million after tax, or $.78 per share) based on calculations performed to date.  Any adjustment to the estimate recorded will be made in the fourth quarter of 2008 when we finalize the interim third-quarter 2008 impairment test.

 

The impairment charge in the third quarter of 2008, which is included in the line items “Impairment of assets” and “Net income from joint ventures” in our 2008 Condensed Consolidated Statements of Operations, is presented below by asset:

 

(In thousands)

 

Pre-tax

 

Tax

 

After-tax

 

Newspaper mastheads

 

$

38,312

 

$

14,229

 

$

24,083

 

Goodwill

 

22,897

 

 

22,897

 

Customer list

 

8,336

 

3,086

 

5,250

 

Property, plant and equipment

 

90,885

 

33,809

 

57,076

 

Impairment of assets

 

160,430

 

51,124

 

109,306

 

Metro Boston investment

 

5,600

 

2,084

 

3,516

 

Total

 

$

166,030

 

$

53,208

 

$

112,822

 

 

The impairment mainly resulted from lower projected operating results and cash flows of the New England Media Group primarily due to the secular decline of print advertising revenue.  These factors resulted in the carrying value of the assets being greater than their fair value, and therefore a write-down to fair value was required.

 

Goodwill is the excess of cost over the fair market value of tangible and other intangible assets acquired. The fair value of the New England Media Group’s goodwill is the residual fair value after allocating the total fair value of the New England Media Group to its other assets, net of liabilities. The total fair value of the New England

 

21



 

Media Group was estimated using a combination of a discounted cash flow model (present value of future cash flows) and a market approach model based on comparable businesses.  The goodwill is not tax deductible because the 1993 acquisition of the Globe was structured as a tax-free stock transaction.

 

The fair value of the mastheads was calculated using a relief-from-royalty method and the fair value of the customer list was calculated by estimating the present value of associated future cash flows.

 

The property, plant and equipment of the New England Media Group has been estimated at fair value less cost to sell.  The fair value was determined giving consideration to market and income approaches to value.

 

The carrying value of our investment in Metro Boston was written down to fair value because the business had experienced lower-than-expected growth and we anticipate lower growth compared to previous projections, leading us to conclude that our investment was other than temporarily impaired.

 

In connection with our required annual impairment test, we will test goodwill and indefinite-lived intangible assets in all other reporting units in the fourth quarter of 2008.  Any impairment resulting from these tests would be recorded in the fourth quarter of 2008.

 

In the first quarter of 2008, we recorded a non-cash charge of $18.3 million for the write-down of assets for a systems project at the News Media Group.  We reduced the scope of a major advertising and circulation project to decrease capital spending, which resulted in the write-down of previously capitalized costs.

 

Retirement Plans Amendments

 

On October 22, 2008, we adopted amendments to a number of our retirement plans for non-union employees.  First, we decreased the benefit formula for pension benefits for all active non-union employees, effective January 1, 2009.  Additionally, we amended our retiree medical plan to eliminate post-age 65 retiree medical benefits for all employees who retire on or after March 1, 2009.  We currently plan to continue to offer pre-age 65 retiree medical coverage to employees who take early retirement on or after March 1, 2009, and meet the retiree medical eligibility requirements, until they become Medicare eligible.

 

We expect the pension and retiree medical plan changes to result in savings of approximately $24 million in 2009 and to reduce our pension benefits obligation by approximately $70 million and our postretirement benefits obligation by approximately $20 million.

 

Additionally, we are increasing the match on employee contributions to the non-union defined contribution plan, effective January 1, 2009, to up to 5% from 3%.  We expect additional expense of approximately $6 million based on current employee participation.

 

22



 

City & Suburban Closure

 

In September 2008, we announced the shutdown of City & Suburban (“C&S”), our retail and newsstand distribution subsidiary, which distributes The Times and other publications in the New York metropolitan area. Going forward, The Times will be distributed to newsstands and retail outlets through a combination of third-party wholesalers and our own drivers. Approximately 550 full-time equivalent employees will be affected by the closure. The closure of C&S is expected to be completed in January 2009. The primary cost to close C&S is severance costs, of which approximately $9 million was recorded in the third quarter of 2008. We expect to incur additional severance costs and may incur a charge related to the abandonment of various leased properties.

 

Plant Closing - Billerica, Mass.

 

In September 2008, we announced that we plan to close our printing plant in Billerica, Mass., and consolidate the printing of the Globe into our main printing plant in Dorchester, Mass. While the exact timing of the closing has not yet been set, it is expected to occur in the second half of 2009. The plant is being closed because we no longer need as many presses to print all copies of the Globe. The cost savings and one-time costs related to the closing and the capital expenditures related to the consolidation cannot be estimated at this time because this information is dependent on ongoing negotiations with labor unions and certain production decisions not yet made. Certain property, plant and equipment located at the Billerica plant was impaired and a related write-down is included within our total New England Media Group impairment charge (see Note 3 of the Notes to the Condensed Consolidated Financial Statements).

 

Severance Costs

 

We recognized severance costs of $18.1 million in the third quarter of 2008 and $56.9 million in the first nine months of 2008. In the third quarter and first nine months of 2007, we recognized severance costs of $4.9 million and $17.6 million, respectively. Most of the costs in these periods were recognized at the News Media Group. These costs are primarily recorded in “Selling, general and administrative costs” in our Condensed Consolidated Statements of Operations.

 

Acquisitions

 

In March 2008, we acquired certain assets of the Winter Haven News Chief (“News Chief”), a regional newspaper in Winter Haven, Fla., for $2.5 million. Also in March 2008, we purchased additional Class A units of BehNeem, LLC (“BehNeem”), increasing our total investment to $4.3 million for a 53% ownership interest. BehNeem licenses the Epsilen Environment, an integrated online course content, portfolio and communications tool for the education community. The operating results of the News Chief are included in the results of the Regional Media Group and the operating results of BehNeem are included in the results of The New York Times Media Group, both of which are part of the News Media Group.

 

See Note 4 of the Notes to the Condensed Consolidated Financial Statements.

 

23



 

Plant Consolidation

 

In 2006, we announced plans to consolidate the printing operations of a facility we leased in Edison, N.J., into our newest facility in College Point, N.Y. As part of the consolidation, we purchased the Edison facility and then sold 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.

 

The Edison facility was closed in March 2008. The costs to close the Edison facility were approximately $89 million, principally consisting of accelerated depreciation charges (approximately $69 million), severance costs (approximately $15 million) and plant restoration costs (approximately $5 million).

 

2008 EXPECTATIONS

 

Expectations regarding certain financial measures for 2008 are in the table below.

 

Item

 

2008 Expectations

Depreciation & amortization

 

 

$145 to $155 million(1)

Income from joint ventures

 

 

$15 to $20 million(2)

Interest expense

 

 

$49 to $53 million

Capital expenditures

 

 

$140 to $145 million(3)

 


(1)

 

Includes approximately $5 million of accelerated depreciation expense in the first quarter of 2008 associated with the New York area plant consolidation project. Depreciation for our new headquarters building is expected to be approximately $7 million per quarter.

 

 

 

(2)

 

Includes an estimated $5.6 million non-cash impairment charge for Metro Boston recorded in the third quarter of 2008.

 

 

 

(3)

 

For 2009, we expect capital expenditures to be approximately $80 million.

 

Due to significant volatility from quarter to quarter, we will no longer provide tax rate guidance.

 

For the first nine months of 2008, severance costs were approximately $57 million, which is higher than previous guidance because of the severance costs associated with the expected closure of C&S. Additional amounts may be recorded for C&S before it is closed. Due to the uncertainty of the amount of possible severance costs, we are not providing updated guidance.

 

Previously we said we believe we would achieve a reduction in costs from our year-end 2007 cash cost base of a total of more than $230 million in 2008 and 2009, excluding the effects of inflation, severance costs and one-time costs. More than $130 million of these savings were expected in 2008. As a result of our continuous cost reduction efforts, we now expect to exceed the $130 million and $230 million targets by even larger amounts. Therefore, we will stop measuring our cost savings against these targets. We continue to explore a wide range of additional cost reduction initiatives.

 

24



 

RESULTS OF OPERATIONS

 

The following table presents our consolidated financial results.

 

 

 

For the Quarters Ended

 

For the Nine Months Ended

 

(In thousands)

 

September 28,
2008

 

September 30,
2007

 

% Change

 

September 28,
2008

 

September 30,
2007

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

398,196

 

$

465,043

 

(14.4

)

$

1,310,912

 

$

1,478,425

 

(11.3

)

Circulation

 

225,689

 

223,420

 

1.0

 

676,486

 

664,538

 

1.8

 

Other

 

63,157

 

65,896

 

(4.2

)

189,404

 

186,359

 

1.6

 

Total revenues

 

687,042

 

754,359

 

(8.9

)

2,176,802

 

2,329,322

 

(6.5

)

Operating costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Production costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials

 

62,645

 

58,643

 

6.8

 

182,006

 

196,678

 

(7.5

)

Wages and benefits

 

148,183

 

163,367

 

(9.3

)

473,695

 

487,810

 

(2.9

)

Other

 

111,418

 

109,952

 

1.3

 

331,508

 

318,421

 

4.1

 

Total production costs

 

322,246

 

331,962

 

(2.9

)

987,209

 

1,002,909

 

(1.6

)

Selling, general and administrative costs

 

320,929

 

342,503

 

(6.3

)

1,006,392

 

1,029,045

 

(2.2

)

Depreciation and amortization

 

33,881

 

51,789

 

(34.6

)

108,454

 

142,871

 

(24.1

)

Total operating costs

 

677,056

 

726,254

 

(6.8

)

2,102,055

 

2,174,825

 

(3.3

)

Impairment of assets

 

160,430

 

 

N/A

 

178,721

 

 

N/A

 

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 (loss)/profit

 

(150,444

)

28,105

 

*

 

(103,974

)

125,919

 

*

 

Net income from joint ventures

 

6,892

 

5,412

 

27.3

 

15,264

 

8,004

 

90.7

 

Interest expense, net

 

11,658

 

10,470

 

11.3

 

35,507

 

28,924

 

22.8

 

(Loss)/income from continuing operations before income taxes and minority interest

 

(155,210

)

23,047

 

*

 

(124,217

)

104,999

 

*

 

Income tax (benefit)/expense

 

(40,360

)

8,991

 

*

 

(30,801

)

48,741

 

*

 

Minority interest in net (income)/loss of subsidiaries

 

(54

)

54

 

*

 

(371

)

39

 

*

 

(Loss)/income from continuing operations

 

(114,904

)

14,110

 

*

 

(93,787

)

56,297

 

*

 

Discontinued operations, Broadcast Media Group:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

 

N/A

 

 

5,753

 

N/A

 

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

 

8,611

 

(671

)

*

 

8,300

 

93,659

 

(91.1

)

Discontinued operations, net of income taxes – Broadcast Media Group

 

8,611

 

(671

)

*

 

8,300

 

99,412

 

(91.7

)

Net (loss)/income

 

$

(106,293

)

$

13,439

 

*

 

$

(85,487

)

$

155,709

 

*

 

 


* 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 28,
2008

 

September 30,
2007

 

% Change

 

September 28,
2008

 

September 30,
2007

 

% Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

News Media Group

 

$

658,336

 

$

729,635

 

(9.8

)

$

2,091,314

 

$

2,257,350

 

(7.4

)

About Group

 

28,706

 

24,724

 

16.1

 

85,488

 

71,972

 

18.8

 

Total revenues

 

$

687,042

 

$

754,359

 

(8.9

)

$

2,176,802

 

$

2,329,322

 

(6.5

)

 

25



 

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 28,
2008

 

September 30,
2007

 

% Change

 

September 28,
2008

 

September 30,
2007

 

% Change

 

The New York Times Media Group

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

234,001

 

$

271,234

 

(13.7

)

$

781,607

 

$

867,774

 

(9.9

)

Circulation

 

165,993

 

162,896

 

1.9

 

496,866

 

481,446

 

3.2

 

Other

 

43,800

 

47,388

 

(7.6

)

130,587

 

133,607

 

(2.3

)

Total

 

$

443,794

 

$

481,518

 

(7.8

)

$

1,409,060

 

$

1,482,827

 

(5.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New England Media Group

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

74,060

 

$

91,838

 

(19.4

)

$

240,591

 

$

289,414

 

(16.9

)

Circulation

 

38,797

 

39,755

 

(2.4

)

114,060

 

117,537