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| NYT > SEC Filings for NYT > Form 10-Q on 4-Nov-2009 | All Recent SEC Filings |
4-Nov-2009
Quarterly Report
We are a diversified media company that currently includes newspapers, Internet businesses, investments in paper mills and other investments. 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"), the International Herald Tribune, NYTimes.com, global.nytimes.com, WQXR-FM (which was sold in October 2009) and related businesses; the New England Media Group, which principally includes The Boston Globe (the "Globe"), Boston.com, the Worcester Telegram & Gazette, Telegram.com and related businesses; and the Regional Media Group, which includes 14 daily newspapers, other print publications and related businesses). The News Media Group generates revenues principally from print and online 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, rental income and direct mail advertising services. In 2008, other revenues also included revenues from the delivery of third-party publications by City & Suburban Delivery Systems, Inc. ("City & Suburban"), which was closed in early January 2009. 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.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 (95 % in the first nine months of 2009) are derived from the sale of advertisements (cost-per-click and display advertising). Cost-per-click advertising accounts for 60% 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 in quadrantONE LLC, an online advertising network that sells bundled premium, targeted display advertising onto local newspaper and other Web sites, and
• a 17.75% interest in New England Sports Ventures ("NESV"), which owns the Boston Red Sox, Fenway Park and adjacent real estate, approximately 80% of the New England Sports Network (the regional cable sports network that televises the Red Sox games) and 50% of Roush Fenway Racing, a leading NASCAR team. In January 2009, we announced that we were exploring the sale of our interest in NESV.
In light of difficult economic conditions, we have also taken steps in the first nine months of 2009 to improve our liquidity. These liquidity efforts are further described in the "Liquidity and Capital Resources" section below and include the execution of a sale-leaseback financing for a portion of the space we own and occupy in our New York City headquarters and the issuance of senior unsecured notes and warrants. The proceeds from these transactions were used to repay existing debt. More than three-quarters of our debt now matures in 2015 or later.
RECENT DEVELOPMENTS
New England Media Group
The New England Media Group, which includes the Globe, the Worcester Telegram & Gazette and their Web sites, has been affected by secular and cyclical forces affecting the media industry. We have responded by developing a strategic plan that includes consolidating printing facilities, raising circulation prices and reducing compensation and headcount. In addition, we retained Goldman, Sachs & Co. to explore a potential sale of the New England Media Group. However, after careful consideration and analysis, in October 2009, we terminated the process to explore the sale of the Globe, Boston.com and related businesses. We continue to assess strategic alternatives for the Worcester Telegram & Gazette.
As part of our restructuring efforts, earlier in the year, we engaged in extensive negotiations with the Globe's unions on various cost-cutting measures. In the second and third quarters of 2009, employees of the Globe represented by various unions ratified amendments to their collective bargaining agreements, which we project will save $20 million in annual operating costs.
In addition, amendments to several collective bargaining agreements allowed us to withdraw or partially withdraw from various multi-employer pension plans. These withdrawals resulted in withdrawal liabilities to these respective plans for our proportionate share of any unfunded vested benefits. In the third quarter of 2009, we recorded a $73.6 million charge for the present value of estimated future payments under the pension withdrawal liabilities. Our total estimated future payments relating to withdrawal liabilities to these multi-employer plans are approximately $187 million. These amounts will be adjusted as more information becomes available that will allow us to refine the estimate. The actual liability will not be known until each plan completes a final assessment of the withdrawal liability and issues a demand to us. While the exact period over which the payment of these liabilities would be made has not yet been determined, a withdrawal liability is generally paid in installments over a period of time that could extend up to 20 years (or beyond in the case of a mass withdrawal). Our estimate assumes a payment period of approximately 20 years.
Sale of Assets
On October 8, 2009, we completed the sale of WQXR-FM, our New York City radio station to subsidiaries of Univision Radio Inc. and WNYC Radio for a total of approximately $45 million. Univision Radio paid us $33.5 million to exchange the FCC 105.9 FM broadcast license and transmitting equipment for our license, equipment and stronger signal at 96.3 FM. At the same time, WNYC Radio purchased the FCC license for 105.9 FM, all related transmitting equipment and WQXR's call letters and Web site from us for $11.5 million. Univision Radio is retaining the WCAA-FM call letters. We used the proceeds from the sale to pay outstanding debt. We expect to record an after-tax gain on the sale of approximately $23 million.
In the third quarter of 2009, we sold certain surplus real estate assets at the Regional Media Group and recorded a gain on the sales totaling $5.2 million.
In the second quarter of 2009, we sold the TimesDaily, a daily newspaper located in Florence, Ala., for $11.5 million. We recorded a gain on the sale of $0.3 million in the second quarter of 2009.
In April 2009, we made a one-year secured term loan of approximately $13 million to a third party that provides home-delivery services for The Times and the Globe and circulation customer services for The Times. We had previously guaranteed the payments under the circulation service provider's credit facility for approximately $20 million to enable it to obtain more favorable financing terms (see Note 10 of the Notes to the Condensed Consolidated Financial Statements). However, the credit facility, which expired in April 2009, and our guarantee were replaced by our loan. The circulation service provider has agreed to pay us interest at an annual rate of 13% and has granted a security interest in all of its assets to secure the payment of the loan. In September 2009, the circulation service provider repaid $1 million, and therefore the amount outstanding as of September 27, 2009 is approximately $12 million.
City & Suburban Closure
In January 2009, we closed City & Suburban, which operated a wholesale distribution business that delivered The Times and other newspapers and magazines to newsstands and retail outlets in the New York metropolitan area. With this change, we moved to a distribution model similar to that of The Times's national edition. As a result, The Times is currently delivered to newsstands and retail outlets in the New York metropolitan area through a combination of third-party wholesalers and our own drivers. In other markets in the United States and Canada, The Times is delivered through agreements with other newspapers and third-party delivery agents.
As of September 27, 2009, total costs recorded to close City & Suburban were approximately $59 million, of which approximately $26 million was recorded in the first nine months of 2009 and approximately $33 million was recorded in 2008 (principally consisting of $29 million in severance costs). In the first nine months of 2009, the costs included a $16.4 million estimated loss, recorded in the first quarter, for the present value of remaining rental payments under leases, for property previously occupied by City & Suburban, in excess of estimated rental income under potential subleases and a $6.6 million estimated charge, recorded in the second quarter for the present value of estimated future payments under a pension withdrawal liability related to a multi-employer pension plan. While the majority of costs to close City & Suburban have been recognized as of September 27, 2009, the loss on abandoned leases may be adjusted as we enter into subleases or other transactions to utilize or exit the vacant properties, and the estimated pension charge may be adjusted when we receive a final assessment regarding the actual pension withdrawal liability to be paid (see Note 5 of the Notes to the Condensed Consolidated Financial Statements).
The effect of the closure on our third-quarter 2009 results was a decrease in other revenues (from the elimination of the delivery of third-party publications) of approximately $19 million, circulation revenues (from the sale of The Times to wholesale distributors rather than retailers) of approximately $2 million and operating costs of approximately $31 million.
The effect of the closure on our nine-month 2009 results was a decrease in other revenues of approximately $54 million, circulation revenues of approximately $7 million and operating costs of approximately $88 million.
In the second quarter of 2009, we completed the consolidation of the Globe's printing facility in Billerica, Mass., into our Boston, Mass., facility. As of September 27, 2009, total costs recorded to close the Billerica facility were approximately $29 million, of which approximately $25 million was recorded in the first nine months of 2009 (approximately $13 million in severance, approximately $6 million in accelerated depreciation and approximately $6 million in moving costs) and approximately $4 million was recorded in 2008 (for accelerated depreciation). The majority of the costs to close the Billerica facility have been recognized as of September 27, 2009.
Capital expenditures to consolidate printing operations into one printing plant were approximately $4 million, of which the majority was incurred in the first nine months of 2009.
Severance Costs
We recognized severance costs of $3.8 million in the third quarter of 2009 and $30.5 million in the first nine months of 2009. In the third quarter and first nine months of 2008, we recognized severance costs of $18.1 million and $56.9 million, respectively. These costs were primarily recognized at the News Media Group related to various initiatives and are primarily recorded in "Selling, general and administrative costs" in our Condensed Consolidated Statements of Operations.
These expectations have not changed since detailed in our earnings press release for the third quarter of 2009 except for our expectations on severance costs and year-over-year savings on severance.
For 2009, approximate expectations are as follows:
• Depreciation and amortization: $135 to $140 million (including $6 million of accelerated depreciation for the consolidation of the Globe's printing plants),
• Capital expenditures: $60 million,
• Interest expense: $85 million and
• Severance costs: $50 million.
We expect to save approximately $475 million in operating costs as a result of reductions in nearly all major expense categories. This includes approximate year-over-year savings for:
• Closure of City & Suburban: $118 million,
• Newsprint: $65 million,
• Severance: $30 million,
• Benefit plan changes for nonunion employees: $18 million,
• Boston labor agreements: $10 million in the second half of 2009 and $20 million annually in 2010,
• Boston plant consolidation: $9 million in the second half of 2009 and $18 million annually in 2010 and
• Significant savings as a result of the decrease in the size of our workforce, which at the end of September 2009 was down 20 percent from the prior year, and a reduction in salaries in the second quarter of 2009.
RESULTS OF OPERATIONS
The following table presents our consolidated financial results.
For the Quarters Ended For the Nine Months Ended
September 27, September 28, % September 27, September 28, %
(In thousands) 2009 2008 Change 2009 2008 Change
Revenues
Advertising $ 290,998 $ 398,196 (26.9 ) $ 942,926 $ 1,310,912 (28.1 )
Circulation 240,766 225,689 6.7 697,156 676,486 3.1
Other 38,857 63,157 (38.5 ) 124,046 189,404 (34.5 )
Total revenues 570,621 687,042 (16.9 ) 1,764,128 2,176,802 (19.0 )
Operating costs
Production costs:
Raw materials 31,901 62,645 (49.1 ) 130,349 182,006 (28.4 )
Wages and benefits 129,046 148,183 (12.9 ) 404,998 473,695 (14.5 )
Other 80,246 111,418 (28.0 ) 250,689 331,508 (24.4 )
Total production costs 241,193 322,246 (25.2 ) 786,036 987,209 (20.4 )
Selling, general and administrative
costs 252,635 320,929 (21.3 ) 845,392 1,006,392 (16.0 )
Depreciation and amortization 31,319 33,881 (7.6 ) 102,517 108,454 (5.5 )
Total operating costs 525,147 677,056 (22.4 ) 1,733,945 2,102,055 (17.5 )
Pension withdrawal and curtailment
expense 76,110 - N/A 82,759 - N/A
Gain on sale of assets 5,198 - N/A 5,198 - N/A
Loss on leases - - N/A 16,363 - N/A
Impairment of assets - 160,430 N/A - 178,721 N/A
Operating loss (25,438 ) (150,444 ) (83.1 ) (63,741 ) (103,974 ) (38.7 )
Net income from joint ventures 7,498 6,892 8.8 20,335 15,264 33.2
Interest expense, net 21,028 11,658 80.4 60,830 35,507 71.3
Premium on debt redemption - - N/A 9,250 - N/A
Loss from continuing operations
before income taxes (38,968 ) (155,210 ) (74.9 ) (113,486 ) (124,217 ) (8.6 )
Income tax benefit (3,233 ) (40,360 ) (92.0 ) (42,646 ) (30,801 ) 38.5
Loss from continuing operations (35,735 ) (114,850 ) (68.9 ) (70,840 ) (93,416 ) (24.2 )
Discontinued operations, net of
income taxes-Broadcast Media Group - 8,611 N/A - 8,300 N/A
Net loss (35,735 ) (106,239 ) (66.4 ) (70,840 ) (85,116 ) (16.8 )
Net loss/(income) attributable to
the noncontrolling interest 111 (54 ) * (188 ) (371 ) (49.3 )
Net loss attributable to The New
York Times Company common
stockholders $ (35,624 ) $ (106,293 ) (66.5 ) $ (71,028 ) $ (85,487 ) (16.9 )
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* 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
September 27, September 28, % September 27, September 28, %
(In thousands) 2009 2008 Change 2009 2008 Change
Revenues:
News Media Group $ 539,849 $ 658,336 (18.0 ) $ 1,679,371 $ 2,091,314 (19.7 )
About Group 30,772 28,706 7.2 84,757 85,488 (0.9 )
Total revenues $ 570,621 $ 687,042 (16.9 ) $ 1,764,128 $ 2,176,802 (19.0 )
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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
September 27, September 28, % September 27, September 28, %
(In thousands) 2009 2008 Change 2009 2008 Change
The New York Times Media Group
Advertising $ 164,501 $ 234,001 (29.7 ) $ 550,712 $ 781,607 (29.5 )
Circulation 175,246 165,993 5.6 508,511 496,866 2.3
Other 23,294 43,800 (46.8 ) 74,842 130,587 (42.7 )
Total $ 363,041 $ 443,794 (18.2 ) $ 1,134,065 $ 1,409,060 (19.5 )
New England Media Group
Advertising $ 53,927 $ 74,060 (27.2 ) $ 168,299 $ 240,591 (30.0 )
Circulation 45,930 38,797 18.4 124,462 114,060 9.1
Other 9,804 12,683 (22.7 ) 30,801 38,029 (19.0 )
Total $ 109,661 $ 125,540 (12.6 ) $ 323,562 $ 392,680 (17.6 )
Regional Media Group
Advertising $ 43,217 $ 63,547 (32.0 ) $ 143,229 $ 209,212 (31.5 )
Circulation 19,590 20,899 (6.3 ) 64,183 65,560 (2.1 )
Other 4,340 4,556 (4.7 ) 14,332 14,802 (3.2 )
Total $ 67,147 $ 89,002 (24.6 ) $ 221,744 $ 289,574 (23.4 )
Total News Media Group
Advertising $ 261,645 $ 371,608 (29.6 ) $ 862,240 $ 1,231,410 (30.0 )
Circulation 240,766 225,689 6.7 697,156 676,486 3.1
Other 37,438 61,039 (38.7 ) 119,975 183,418 (34.6 )
Total $ 539,849 $ 658,336 (18.0 ) $ 1,679,371 $ 2,091,314 (19.7 )
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Advertising Revenues
Advertising revenue is primarily determined by the volume, rate and mix of advertisements. The effect of the global economic downturn, coupled with the secular changes affecting newspapers, resulted in significant revenue declines in the third quarter and first nine months of 2009. Advertisers pulled back on print placements in all categories - national, classified and retail. Total News Media Group advertising revenues decreased in the third quarter and first nine months of 2009 compared with the same periods in the prior year, primarily due to lower print and online volume. Print advertising revenues, which represented approximately 86% of total advertising revenues for the News Media Group, declined 31.2% for the third quarter and 31.8% for the first nine months of 2009. Online advertising revenues decreased 18.5% in the third quarter of 2009 and 16.4% for the first nine months of 2009, mainly due to classified advertising declines.
Advertising revenues (print and online) by category for the News Media Group were as follows:
For the Quarters Ended For the Nine Months Ended
September 27, September 28, % September 27, September 28, %
(In thousands) 2009 2008 Change 2009 2008 Change
National $ 134,986 $ 188,666 (28.5 ) $ 454,459 $ 616,475 (26.3 )
Retail 64,829 86,507 (25.1 ) 210,775 281,188 (25.0 )
Classified 51,046 82,778 (38.3 ) 164,303 289,730 (43.3 )
Other 10,784 13,657 (21.0 ) 32,703 44,017 (25.7 )
Total $ 261,645 $ 371,608 (29.6 ) $ 862,240 $ 1,231,410 (30.0 )
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Classified
Retail Other
and Help- Real Auto- Total Advertising
National Preprint Wanted Estate motive Other Classified Revenue Total
The New York Times Media Group 72 % 13 % 3 % 6 % 1 % 3 % 13 % 2 % 100 %
New England Media Group 30 % 33 % 5 % 7 % 9 % 7 % 28 % 9 % 100 %
Regional Media Group 4 % 59 % 5 % 9 % 7 % 10 % 31 % 6 % 100 %
Total News Media Group 53 % 24 % 4 % 7 % 4 % 4 % 19 % 4 % 100 %
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The New York Times Media Group
Total advertising revenues declined in the third quarter and first nine months . . .
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