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NYT > SEC Filings for NYT > Form 10-Q on 3-Nov-2011All Recent SEC Filings

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Form 10-Q for NEW YORK TIMES CO


3-Nov-2011

Quarterly Report


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

We are a diversified media company that currently includes newspapers, digital businesses, investments in paper mills and other investments. We classify our businesses based on our operating strategies into two reportable segments, the News Media Group and the About Group. Our segments and divisions are:

News Media Group (consisting of The New York Times Media Group, which includes The New York Times ("The Times"), the International Herald Tribune, NYTimes.com, and related businesses; the New England Media Group, which includes The Boston Globe (the "Globe"), BostonGlobe.com, 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 digital advertising and through print and digital circulation. Other revenues primarily consist of revenues from news services/syndication, commercial printing, rental income, digital archives and direct mail advertising services. The News Media Group's main operating costs are employee-related costs and raw materials, primarily newsprint.

About Group (consisting of About.com, ConsumerSearch.com, CalorieCount.com and related businesses). The About Group generates revenues through cost-per-click advertising (sponsored links for which the About Group is paid when a user clicks on the ad), display advertising and e-commerce (including sales lead generation). Almost all of its revenues (95% in the first nine months of 2011) are derived from the sale of cost-per-click and display advertising. Cost-per-click advertising accounted for 56% of the About Group's total advertising revenues in the first nine months of 2011. The About Group's main operating costs are employee-related costs and content and hosting costs.

Joint Ventures Our investments accounted for under the equity method are as follows:
? a 49% interest in Metro Boston LLC, which publishes a free daily newspaper 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 7.3% interest in Fenway Sports Group, which owns the Boston Red Sox baseball club; Liverpool Football Club (a soccer team in the English Premier League); approximately 80% of New England Sports Network (a regional cable sports network that televises the Red Sox and Boston Bruins hockey games); and 50% of Roush Fenway Racing (a leading NASCAR team).

During the third quarter and first nine months of 2011, we experienced a decline in total revenues of 3.1% and 3.0%, respectively, reflecting the continuing uncertainty in economic conditions and ongoing transformation of our industry, while operating costs decreased 3.6% and 1.4%, respectively, compared with the same prior-year periods.

The advertising marketplace remained challenging in the third quarter as advertisers exercised more caution than in the first half of 2011 in response to uneven economic conditions and lingering uncertainty about the economic outlook. Compared with the prior-year period, total advertising revenues decreased 8.8% in the third quarter of 2011 as print advertising revenues declined 10.4% and digital advertising revenues declined 4.5%. The decline in digital advertising revenues was driven by continued challenges at the About Group, offset in part by an increase in the News Media Group's digital advertising revenues, the growth of which moderated in the third quarter of 2011 compared with recent quarters. For the first nine months of 2011, total advertising revenues decreased 5.6% as an 8.0% decline in print advertising revenues was partially offset by 0.9% growth in digital advertising revenues, compared with the same prior-year period. Visibility remains limited for advertising. In October, we saw total advertising revenue trends improve modestly relative to those of the third quarter of 2011 due to a slight moderation in declines in print advertising revenues. October total digital advertising revenue trends were similar to those of the third quarter of 2011.

About Group advertising revenues decreased in the third quarter and first nine months of 2011 compared with the same prior-year periods mainly as a result of declines in both cost-per-click and display advertising. Cost-per-click advertising revenues decreased primarily due to lower click-through rates and the negative effect on page views mainly due to increased competition in the content space and the algorithm changes Google implemented during the first quarter of 2011. The About Group is implementing a plan to grow content and traffic, improve its advertising effectiveness, and aggressively respond to the increased competition in both the display and search engine advertising markets.

Circulation revenues increased 3.4% in the third quarter and remained flat in the first nine months of 2011 compared with the same prior-year periods. The introduction of The Times digital subscriptions in the second quarter of 2011 helped to offset the decline in print copies sold across the News Media Group in the third quarter of 2011. We expect total circulation revenues to increase in the low- to mid-single digits in the fourth quarter of 2011 primarily due to the positive effect of launching The Times digital subscriptions.


Paid digital subscribers to The Times digital subscription packages, e-readers and replica editions totaled approximately 324,000 as of the end of the third quarter of 2011. In addition to these paid digital subscribers, as of the end of the third quarter of 2011, The Times had more than 100,000 highly engaged users, with free access to NYTimes.com and smartphone apps until the end of 2011, sponsored by a luxury automobile brand, and approximately 800,000 home-delivery subscribers with linked digital accounts, who receive free digital access. In total, The Times had paid and sponsored relationships with over 1.2 million digital users as of the end of the third quarter of 2011.

Operating costs decreased 3.6% in the third quarter and 1.4% in the first nine months of 2011 compared with the same periods in 2010 primarily as lower compensation costs and professional fees were partially offset by higher promotion costs, as well as by newsprint and various other expenses in the first nine months of 2011. We remain focused on identifying further efficiencies across our operations, which through 2012 may include increased manufacturing efficiencies, further leveraging of centralized resources and lower ongoing outside printing expenses, while continuing to invest in our digital businesses. We expect operating costs to decline in the low- to mid-single digits in the fourth quarter of 2011. Newsprint prices have remained stable since July 2010 and in the fourth quarter of 2011, are expected to be relatively flat versus the same period in 2010.

We have continued to manage our liquidity position and finished the quarter with cash, cash equivalents and short-term investments of approximately $263 million, even after the prepayment of our $250.0 million 14.053% senior unsecured notes due January 15, 2015 ("14.053% Notes") and making pension contributions of about $70 million to certain qualified pension plans in the first nine months of 2011. As of September 25, 2011, our total debt and capital lease obligations were approximately $772 million and our total debt and capital lease obligations, net of cash, cash equivalents and short-term investments, which we believe provides a useful measure of our liquidity and overall debt position, were approximately $509 million. Over the past two years, we have taken decisive steps to strengthen our liquidity position and improve our debt profile. These efforts have allowed us to prepay on August 15, 2011, all of our $250.0 million 14.053% Notes, more than three years before these notes were scheduled to mature. In addition, in June 2011, we entered into a new $125.0 million asset-backed five-year revolving credit facility that replaced our $400.0 million revolving credit facility. As of September 25, 2011, we had no outstanding borrowings under the new credit facility. See the "Recent Developments" section for additional information on the prepayment of our 14.053% Notes and the new revolving credit facility.

We expect the following on a pre-tax basis in 2011:
? Depreciation and amortization: $120 million,

? Interest expense, net: $85 million, and

? Capital expenditures: $50 million, which includes investments in digital systems across our Company.

We expect results from joint ventures to be breakeven in the fourth quarter of 2011. Results for joint ventures in 2011 are negatively impacted by Fenway Sports Group's acquisition of Liverpool Football Club, mainly due to amortization expense associated with the purchase. See also the "Recent Developments" section for additional information on the partial sale of our ownership interest in Fenway Sports Group during the third quarter of 2011.


RECENT DEVELOPMENTS

Amended Retiree Benefit Plan

In October 2011, we amended our retiree medical plan by, among other things, placing a cap (effective January 1, 2012) on our contributions for certain retiree groups. In connection with this plan amendment, we remeasured our postretirement obligation as of the plan amendment date. The plan amendment and remeasurement resulted in a decrease in the postretirement liability and an increase in other comprehensive income (before taxes) of approximately $20 million in October 2011.

Prepayment of 14.053% Notes

On August 15, 2011, we prepaid in full all $250.0 million outstanding principal amount of the 14.053% Notes. The prepayment totaled approximately $280 million, which included (1) the $250.0 million aggregate principal amount of the 14.053% Notes, (2) approximately $3 million representing all interest accrued and unpaid on the 14.053% Notes to August 15, 2011, and (3) a make-whole premium amount of approximately $27 million due in connection with the prepayment. We funded the prepayment from available cash. As a result of this prepayment, we recorded a $46.4 million pre-tax charge in the third quarter of 2011 and expect to save in excess of $39 million annually in interest expense through January 15, 2015.

Gain on Sale of Investments

On July 1, 2011, we sold 390 of our remaining 700 units in Fenway Sports Group for $117.0 million. We recorded a pre-tax gain of $65.3 million in the third quarter of 2011. This transaction is in addition to the sale of 50 units of our original 750 units in Fenway Sports Group that resulted in a pre-tax gain of $9.1 million in the second quarter of 2010. Following these transactions, we own 310 units, or 7.3% of Fenway Sports Group. We continue to market our remaining interest in Fenway Sports Group, in whole or in parts.

In the first quarter of 2011, we sold a minor portion of our interest in Indeed.com, a job listing aggregator, resulting in a gain of $5.9 million. We still retain a substantial portion of our initial interest in Indeed.com.

Impairment of Assets

In the second quarter of 2011, we recorded a $161.3 million charge for the impairment of assets at the News Media Group. The impairment consisted of the write-down of goodwill at the Regional Media Group of $152.1 million and the write-down of certain assets held for sale of $9.2 million. See "Results of Operations - Other Items - Impairment of Assets" for additional information.

Pension Withdrawal Expense

In the second quarter of 2011, certain employees of the Globe represented by a union, ratified amendments to their collective bargaining agreement resulting in a partial withdrawal from a multiemployer pension plan. We recorded an estimated $4.2 million charge for our withdrawal obligation under this multiemployer pension plan.

New Revolving Credit Facility

In June 2011, we entered into a new $125.0 million asset-backed five-year revolving credit facility. This new credit facility replaced our $400.0 million revolving credit facility, which was to expire on June 21, 2011. Borrowings under the new credit facility will be secured by a lien on certain advertising receivables. In addition, borrowings bear interest at specified margins based on our utilization and at rates that vary between the LIBOR and prime rates (as defined by the credit agreement) depending on the term to maturities we specify. See "Liquidity and Capital Resources - Third-Party Financing" for additional information.

Pension Contributions

In the first nine months of 2011, we made contributions of approximately $70 million to certain qualified pension plans. The majority of these contributions were discretionary. Based on our contractual obligations, we expect to make 2011 contributions of approximately $32 million (of which approximately $26 million was made in the first nine months of 2011) to The New York Times Newspaper Guild pension plan.


The recent declines in interest rates as well as softness in the equity market have had a negative effect on the funded status of many defined benefit pension plans, including our Company-sponsored and joint Company and Guild-sponsored plans. Except for contractual contributions to The New York Times Newspaper Guild pension plan, we have addressed our minimum funding requirements for 2011 and a significant portion for 2012 through discretionary contributions. However, we may make additional discretionary contributions in 2011 to our Company-sponsored qualified pension plans based on cash flows, pension asset performance, interest rates and other factors.


RESULTS OF OPERATIONS

The following table presents our consolidated financial results.

                                                 For the Quarters Ended                           For the Nine Months Ended
                                      September 25,      September 26,                  September 25,      September 26,
(In thousands)                             2011               2010         % Change          2011               2010         % Change
Revenues
Advertising                          $      261,779     $      286,980        (8.8 )   $      862,954     $      914,518        (5.6 )
Circulation                                 236,964            229,148         3.4            699,898            700,819        (0.1 )
Other                                        38,492             38,205         0.8            117,589            116,450         1.0
Total revenues                              537,235            554,333        (3.1 )        1,680,441          1,731,787        (3.0 )
Operating costs
Production costs:
Raw materials                                37,890             39,571        (4.2 )          118,040            114,962         2.7
Wages and benefits                          121,109            123,766        (2.1 )          373,127            376,204        (0.8 )
Other                                        73,904             74,047        (0.2 )          222,211            223,869        (0.7 )
Total production costs                      232,903            237,384        (1.9 )          713,378            715,035        (0.2 )
Selling, general and
administrative costs                        241,885            255,440        (5.3 )          763,878            781,044        (2.2 )
Depreciation and amortization                29,402             30,100        (2.3 )           87,597             90,816        (3.5 )
Total operating costs                       504,190            522,924        (3.6 )        1,564,853          1,586,895        (1.4 )
Impairment of assets                              -             16,148         N/A            161,318             16,148           *
Pension withdrawal expense                        -              6,268         N/A              4,228              6,268       (32.5 )
Operating profit/(loss)                      33,045              8,993           *            (49,958 )          122,476           *
Gain on sale of investments                  65,273                  -         N/A             71,171              9,128           *
(Loss)/income from joint ventures            (1,068 )            5,482           *             (4,026 )           22,271           *
Premium on debt redemption                   46,381                  -         N/A             46,381                  -         N/A
Interest expense, net                        20,039             20,627        (2.9 )           69,782             61,825        12.9
Income/(loss) from continuing
operations before income taxes               30,830             (6,152 )         *            (98,976 )           92,050           *
Income tax expense/(benefit)                 15,362             (2,018 )         *                153             50,444       (99.7 )
Income/(loss) from continuing
operations                                   15,468             (4,134 )         *            (99,129 )           41,606           *
(Loss)/income from discontinued
operations, net of income taxes                   -               (224 )       N/A                  -                 13         N/A
Net income/(loss)                            15,468             (4,358 )         *            (99,129 )           41,619           *
Net loss/(income) attributable to
the noncontrolling interest                     217                 97           *                515             (1,054 )         *
Net income/(loss) attributable to
The New York Times Company common
stockholders                         $       15,685     $       (4,261 )         *     $      (98,614 )   $       40,565           *


* 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 25,       September 26,                   September 25,       September 26,
(In thousands)             2011                2010          % Change          2011                2010          % Change
News Media Group     $       511,511     $       521,868        (2.0 )   $     1,595,731     $     1,630,935        (2.2 )
About Group                   25,724              32,465       (20.8 )            84,710             100,852       (16.0 )
Total revenues       $       537,235     $       554,333        (3.1 )   $     1,680,441     $     1,731,787        (3.0 )


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 25,       September 26,                   September 25,       September 26,
(In thousands)                         2011                2010          % Change          2011                2010          % Change
The New York Times Media Group
Advertising                      $       156,092     $       166,076        (6.0 )   $       521,488     $       536,423        (2.8 )
Circulation                              178,241             167,838         6.2             522,131             514,075         1.6
Other                                     22,524              21,012         7.2              68,003              65,575         3.7
Total                            $       356,857     $       354,926         0.5     $     1,111,622     $     1,116,073        (0.4 )
New England Media Group
Advertising                      $        44,416     $        49,177        (9.7 )   $       144,004     $       152,746        (5.7 )
Circulation                               40,360              42,659        (5.4 )           118,786             126,095        (5.8 )
Other                                      9,936              10,983        (9.5 )            30,823              31,841        (3.2 )
Total                            $        94,712     $       102,819        (7.9 )   $       293,613     $       310,682        (5.5 )
Regional Media Group
Advertising                      $        36,833     $        40,807        (9.7 )   $       116,973     $       129,339        (9.6 )
Circulation                               18,363              18,651        (1.5 )            58,981              60,649        (2.8 )
Other                                      4,746               4,665         1.7              14,542              14,192         2.5
Total                            $        59,942     $        64,123        (6.5 )   $       190,496     $       204,180        (6.7 )
Total News Media Group
Advertising                      $       237,341     $       256,060        (7.3 )   $       782,465     $       818,508        (4.4 )
Circulation                              236,964             229,148         3.4             699,898             700,819        (0.1 )
Other                                     37,206              36,660         1.5             113,368             111,608         1.6
Total                            $       511,511     $       521,868        (2.0 )   $     1,595,731     $     1,630,935        (2.2 )

Advertising Revenues

Advertising revenue is primarily determined by the volume, rate and mix of advertisements. Total News Media Group advertising revenues decreased in the third quarter and first nine months of 2011 compared with the same prior-year periods primarily due to lower print volume across all advertising categories, offset in part by higher digital advertising revenues. Print advertising revenues, which represented approximately 79% of total advertising revenues for the News Media Group, declined 10.4% in the third quarter of 2011, mainly due to lower national and classified advertising, and 8.0% in first nine months of 2011, mainly due to lower national and retail advertising, compared with the same prior-year periods. Digital advertising revenues grew 6.2% in the third quarter of 2011, primarily due to growth in retail and national display advertising, and 12.2% in the first nine months of 2011, primarily due to strong growth in national display advertising, compared with the same prior-year periods.

Advertising revenues (print and digital) by category for the News Media Group were as follows:

                               For the Quarters Ended                             For the Nine Months Ended
                    September 25,       September 26,                   September 25,        September 26,
(In thousands)          2011                2010          % Change           2011                2010          % Change
National          $       132,240     $       141,156        (6.3 )   $        447,577     $       456,263        (1.9 )
Retail                     55,385              58,832        (5.9 )            174,221             189,025        (7.8 )
Classified                 40,713              46,127       (11.7 )            132,979             145,268        (8.5 )
Other                       9,003               9,945        (9.5 )             27,688              27,952        (0.9 )
Total             $       237,341     $       256,060        (7.3 )   $        782,465     $       818,508        (4.4 )


Below is a percentage breakdown of advertising revenues in the first nine months of 2011 (print and digital) by division.

                                                                          Classified
                                                Retail                                                                   Other
                                                 and        Help-       Real       Auto-                 Total        Advertising
                                  National     Preprint     Wanted     Estate      motive    Other     Classified       Revenue      Total
The New York Times Media Group       76 %         12 %        3 %         5 %         1 %       2 %        11 %             1 %       100 %
New England Media Group              31 %         30 %        5 %         6 %        10 %       8 %        29 %            10 %       100 %
Regional Media Group                  4 %         59 %        5 %         7 %         8 %      10 %        30 %             7 %       100 %
Total News Media Group               57 %         22 %        3 %         6 %         4 %       4 %        17 %             4 %       100 %

The New York Times Media Group

Total advertising revenues decreased in the third quarter and first nine months of 2011 compared with the third quarter and first nine months of 2010 as declines in print advertising revenues were partially offset by growth in digital advertising revenues. Print advertising revenues were affected by declines in the volume of spending in most advertising categories, reflecting the continued uneven economic environment, recent global events and secular forces. Growth in digital advertising revenues was driven by increased spending on digital platforms, primarily in the national advertising category.

Total national advertising revenues decreased in the third quarter and first nine months of 2011. The decrease in total national advertising revenues was led by declines in the travel, media and corporate categories offset in part by gains in the technology and luxury categories in the first nine months of 2011 compared with the same period in 2010. Total retail advertising revenues declined as advertisers reduced spending in the face of the uncertain economic climate in the third quarter and first nine months of 2011. The continued uneven economic environment and secular changes in our industry contributed to declines in total classified advertising revenues, primarily in the real estate and automotive categories, in the first nine months of 2011.

New England Media Group

Total advertising revenues declined in the third quarter and first nine months of 2011 compared with the third quarter and first nine months of 2010 due to declines in print advertising revenues, partially offset by growth in digital advertising revenues. The decline in print advertising revenues was driven by lower advertising in all categories, reflecting uncertain national and local economic conditions and secular forces in our industry. The increase in digital advertising revenues was due to higher spending in the national and automotive classified categories in the first nine months of 2011.

The uncertain national and local economic conditions continued to negatively affect total retail advertising revenues, as retailers cut the volume of spending mainly in the department stores and home furnishings categories in the third quarter and first nine months of 2011. The soft economic environment coupled with secular changes in our industry contributed to declines in total classified advertising revenues, primarily in the real estate category, in the third quarter and first nine months of 2011.

Regional Media Group

Total advertising revenues declined in the third quarter and first nine months of 2011 compared with the third quarter and first nine months of 2010 due to . . .

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