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NYT > SEC Filings for NYT > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for NEW YORK TIMES CO

Form 10-Q for NEW YORK TIMES CO


2-Nov-2012

Quarterly Report


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

We are a leading global, multimedia news and information company that currently includes newspapers, digital businesses, investments in paper mills and other investments.
We had previously classified our businesses into two reportable segments, the News Media Group and the About Group. Following the announcement of the sale of the About Group in August 2012, the About Group has been classified as a discontinued operation for all periods presented. See the "Recent Developments" section for additional information on the sale of the About Group. As a result, effective for the quarter ended September 23, 2012, we have one reportable segment.
We currently have two divisions: The New York Times Media Group, which includes The New York Times (the "Times"), the International Herald Tribune (the "IHT"), NYTimes.com, and related businesses; and the New England Media Group, which includes The Boston Globe (the "Globe"), BostonGlobe.com, Boston.com, the Worcester Telegram & Gazette (the "T&G"), Telegram.com, and related businesses. These divisions generate revenues principally from advertising and circulation. Other revenues primarily consist of revenues from news services/syndication, commercial printing, rental income, digital archives and direct mail advertising services. Our main operating costs primarily consist of employee-related costs and raw materials, primarily newsprint.
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; and

? a 25% interest in quadrantONE LLC, an online advertising network that sells bundled premium, targeted display advertising onto local newspaper and other Web sites.

Total revenues decreased 0.6% during the third quarter of 2012, and increased 0.6% during the first nine months of 2012, compared with the same prior-year periods, driven primarily by declines in advertising revenues, offset by growth in circulation revenues.
The advertising marketplace remained challenging. Compared with the prior-year periods, total advertising revenues decreased 8.9% and 7.1% in the third quarter and first nine months of 2012, respectively, as both print and digital advertising revenues experienced declines. Print advertising revenues decreased 10.9% and 8.6% in the third quarter and first nine months of 2012, respectively. Digital advertising revenues decreased 2.2% and 2.0% in the third quarter and first nine months of 2012, respectively. Advertising revenue trends have remained under pressure from the challenging economic environment, ongoing secular trends and an increasingly complex and fragmented digital advertising marketplace. We expect total advertising revenue trends in the fourth quarter of 2012 to be similar to third-quarter 2012 levels.
Our results for the third quarter and first nine months of 2012 reflect strong growth in circulation revenues as we continue to execute on our digital strategy, expanding our digital subscription base and further developing this consumer revenue stream. Compared with the prior-year periods, circulation revenues increased 7.4% and 8.5% in the third quarter and first nine months of 2012, respectively, mainly as growth in digital subscriptions and the increase in print circulation prices in the first half of 2012 at The Times and the Globe offset a decline in print copies sold. In addition, in the third quarter of 2012, The Times has continued to see benefits to its home-delivery circulation following the launch of digital subscriptions, including improved retention rates of home-delivery subscribers, who receive all digital access for free, and growth in Sunday home-delivery circulation volume. We expect circulation revenues to increase in the mid- to high-single digits in the fourth quarter of 2012 because of growth in digital subscriptions as well as print price increases implemented during the first half of 2012.
Paid subscribers to digital subscription packages, e-readers and replica editions of The Times and the IHT totaled approximately 566,000 as of the end of the third quarter of 2012, an increase of approximately 57,000 or 11% since the end of the second quarter of 2012. Paid digital subscribers to BostonGlobe.com and the Globe's e-readers and replica editions totaled approximately 26,000 as of the end of the third quarter of 2012, an increase of approximately 3,000 or 13% since the end of the second quarter of 2012. In total, paid subscribers to our digital products across our Company were approximately 592,000 as of the end of the third quarter of 2012.


Operating costs increased 2.3% in the third quarter of 2012 compared with the same period in 2011 primarily due to higher performance-based compensation costs, benefits costs, stock-based compensation expense and costs associated with higher commercial printing revenues at the New England Media Group, offset in part by lower outside printing costs, depreciation and amortization expense, professional fees and raw materials expense. Operating costs increased 0.8% in the first nine months of 2012 compared with the same prior-year period primarily due to higher performance-based compensation costs, severance costs, depreciation and amortization expense and costs associated with higher commercial printing revenues, offset in part by lower professional fees, outside printing costs and benefits expense. Our cost management efforts are focused on balancing our investments to support and grow our digital and journalistic initiatives, while finding additional cost efficiencies across the organization. We expect operating costs to increase in the low-single digits in the fourth quarter of 2012.
Our cash, cash equivalents and short-term investments were approximately $614 million as of September 23, 2012, an increase of approximately $334 million since the end of 2011, largely due to the proceeds from the sales of the Regional Media Group and our interest in Fenway Sports Group, as well as cash flows from operations. As of September 23, 2012, our total debt and capital lease obligations were approximately $777 million and our total debt and capital lease obligations, net of cash, cash equivalents and short-term investments, or "net debt," were approximately $163 million. We believe net debt provides a useful measure of our liquidity and overall debt position. As of September 23, 2012, we had no outstanding borrowings under our $125.0 million asset-backed five-year revolving credit facility. Early in the fourth quarter of 2012, we further improved our liquidity and overall debt position with the proceeds from the sales of the About Group and our ownership interest in Indeed.com, as well as the repayment of certain senior notes that had matured. See the "Recent Developments" section for additional information on these transactions that occurred early in the fourth quarter of 2012. We expect the following on a pre-tax basis in 2012:
? Results from joint ventures: $4 to $6 million,

? Depreciation and amortization: $95 to $100 million,

? Interest expense, net: $60 to $65 million, and

? Capital expenditures: approximately $35 million.


RECENT DEVELOPMENTS

Discontinued Operations

Sale of the About Group

On September 24, 2012, we completed the sale of the About Group, consisting of About.com, ConsumerSearch.com, CalorieCount.com and related businesses, to IAC/InterActiveCorp for $300.0 million in cash, plus a net working capital adjustment at closing of approximately $16 million, subject to customary post-closing review and finalization. We expect the net after-tax proceeds from the sale will be approximately $290 million and we will record an after-tax gain estimated to be approximately $68 million in the fourth quarter of 2012. The results of operations of the About Group, which had previously been presented as a reportable segment, have been classified as discontinued operations for all periods presented.

Sale of the Regional Media Group

On January 6, 2012, we completed the sale of the Regional Media Group, consisting of 16 regional newspapers, other print publications and related businesses, to Halifax Media Holdings LLC for approximately $140 million in cash. The net after-tax proceeds from the sale, including a tax benefit, were approximately $150 million. The sale resulted in an after-tax gain of $25.7 million, including post-closing adjustments recorded in the second quarter of 2012 totaling $4.5 million. The results for the Regional Media Group, which had previously been included in the News Media Group reportable segment, have been classified as discontinued operations for all periods presented.

Investments
Sale of Our Interest in Indeed.com

In early October 2012, Indeed.com, a search engine for jobs, in which we had an ownership interest, was sold. The pre-tax proceeds from the sale of our interest were approximately $167 million. We expect the after-tax proceeds and the after-tax gain from the sale, which will be recorded in the fourth quarter of 2012, to be approximately $100 million.

Sale of Our Interest in Fenway Sports Group In February 2012, we sold 100 of our units in Fenway Sports Group for an aggregate price of $30.0 million (pre-tax gain of $17.8 million in the first quarter of 2012) and in May 2012, we sold our remaining 210 units for an aggregate price of $63.0 million (pre-tax gain of $37.8 million in the second quarter of 2012). These sales resulted in a pre-tax gain of $55.6 million in 2012.
Impairment of Investments
In the first nine months of 2012, we recorded non-cash impairment charges of $5.5 million to reduce the carrying value of certain investments to fair value. The impairment charges were primarily related to our investment in Ongo Inc., a consumer service for reading and sharing digital news and information from multiple publishers.
Accelerated Depreciation
In the first quarter of 2012, we recorded a $6.7 million charge for accelerated depreciation for certain assets at the T&G's facility in Millbury, Mass., associated with the consolidation of most of T&G's printing into the Globe's facility in Boston, Mass., which was completed early in the second quarter of 2012.
4.610% Notes

On September 26, 2012, we repaid all $75.0 million outstanding aggregate principal amount of the 4.610% senior notes that matured on that date. We funded the repayment from available cash.


Immediate Pension Benefit Offer

As part of our strategy to reduce our pension obligations and the resulting volatility of our overall financial condition, in September 2012, we offered certain former employees who participate in The New York Times Companies Pension Plan the option to receive a one-time lump sum payment equal to the present value of the participant's pension benefit (payable in cash or rolled over into a qualified retirement plan or IRA) or to commence an immediate monthly annuity. This voluntary offer was made to approximately 5,200 eligible terminated vested participants in The New York Times Companies Pension Plan, representing approximately 15% of the Company's total qualified pension plan liabilities, which was approximately $1.987 billion as of December 25, 2011. The election period for this voluntary offer will end during the fourth quarter of 2012.

If an individual elects to receive a lump sum, the pension obligation to the individual will be settled. Assuming an acceptance rate of 50% of the pension obligations associated with the offer, we would record a non-cash settlement charge of approximately $45 million and would make settlement distributions of approximately $100 million in the fourth quarter of 2012. The actual amount of the charge and settlement distributions will largely depend upon the number of participants electing the offer and the associated pension benefit of those electing participants, as well as interest rates and asset performance. When the election period closes, the actual amount of the settlement charge will be actuarially determined and the charge is associated with the acceleration of the recognition of the accumulated unrecognized actuarial loss. The settlement distributions, the majority of which will be made by the end of 2012, will be made with existing assets of the pension plan and not with Company cash. We expect this offer to have a minimal impact on our underfunded pension plan balance and the timing and amount of our funding obligations.


RESULTS OF OPERATIONS

The following table presents our consolidated financial results.

                                        For the Quarters Ended                     For the Nine Months Ended
                               September 23,   September 25,               September 23,   September 25,
(In thousands)                     2012            2011        % Change        2012            2011        % Change
Revenues
Advertising                    $  182,641      $  200,508         (8.9 )   $  618,103      $  665,492         (7.1 )
Circulation                       234,867         218,601          7.4        695,152         640,917          8.5
Other                              31,520          32,460         (2.9 )      101,007          98,826          2.2
Total revenues                    449,028         451,569         (0.6 )    1,414,262       1,405,235          0.6
Operating costs
Production costs:
Raw materials                      31,592          32,722         (3.5 )       98,551         101,097         (2.5 )
Wages and benefits                107,487         103,179          4.2        324,529         317,615          2.2
Other                              62,498          61,603          1.5        185,038         184,937          0.1
Total production costs            201,577         197,504          2.1        608,118         603,649          0.7
Selling, general and
administrative costs              216,457         209,269          3.4        666,291         664,731          0.2
Depreciation and
amortization                       22,485          23,747         (5.3 )       75,521          70,564          7.0
Total operating costs             440,519         430,520          2.3      1,349,930       1,338,944          0.8
Impairment of assets                    -               -          N/A              -           9,225          N/A
Pension withdrawal expense              -               -          N/A              -           4,228          N/A
Operating profit                    8,509          21,049        (59.6 )       64,332          52,838         21.8
Gain on sale of investments             -          65,273          N/A         55,645          71,171        (21.8 )
Impairment of investments             600               -          N/A          5,500               -          N/A
Income/(loss) from joint
ventures                            1,027          (1,068 )          *          2,077          (4,026 )          *
Premium on debt redemption              -          46,381          N/A              -          46,381          N/A
Interest expense, net              15,497          20,039        (22.7 )       46,413          69,782        (33.5 )
(Loss)/income from
continuing operations before
income taxes                       (6,561 )        18,834            *         70,141           3,820            *
Income tax (benefit)/expense       (2,796 )        12,440            *         27,707           3,509            *
(Loss)/income from
continuing operations              (3,765 )         6,394            *         42,434             311            *
Income/(loss) from
discontinued operations, net
of income taxes                     6,026           9,074        (33.6 )      (86,272 )       (99,440 )      (13.2 )
Net income/(loss)                   2,261          15,468        (85.4 )      (43,838 )       (99,129 )      (55.8 )
Net loss attributable to the
noncontrolling interest                21             217        (90.3 )          101             515        (80.4 )
Net income/(loss)
attributable to The New York
Times Company common
stockholders                   $    2,282      $   15,685        (85.5 )   $  (43,737 )    $  (98,614 )      (55.6 )


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


Revenues

Advertising, circulation and other revenues were as follows:

                                              For the Quarters Ended                             For the Nine Months Ended
                                   September 23,       September 25,                   September 23,       September 25,
(In thousands)                         2012                2011          % Change          2012                2011          % Change
The New York Times Media Group
Advertising                      $       140,880     $       156,092        (9.7 )   $       485,368     $       521,488        (6.9 )
Circulation                              194,739             178,241         9.3             578,914             522,131        10.9
Other                                     19,718              22,524       (12.5 )            62,944              68,003        (7.4 )
Total                            $       355,337     $       356,857        (0.4 )   $     1,127,226     $     1,111,622         1.4
New England Media Group
Advertising                      $        41,761     $        44,416        (6.0 )   $       132,735     $       144,004        (7.8 )
Circulation                               40,128              40,360        (0.6 )           116,238             118,786        (2.1 )
Other                                     11,802               9,936        18.8              38,063              30,823        23.5
Total                            $        93,691     $        94,712        (1.1 )   $       287,036     $       293,613        (2.2 )
Total Company
Advertising                      $       182,641     $       200,508        (8.9 )   $       618,103     $       665,492        (7.1 )
Circulation                              234,867             218,601         7.4             695,152             640,917         8.5
Other                                     31,520              32,460        (2.9 )           101,007              98,826         2.2
Total                            $       449,028     $       451,569        (0.6 )   $     1,414,262     $     1,405,235         0.6

Advertising Revenues
Advertising revenues are primarily determined by the volume, rate and mix of advertisements. Advertising spending, which drives a significant portion of revenues, is susceptible to economic conditions and the ongoing secular transformation of our industry. During the third quarter and first nine months of 2012, the advertising marketplace remained challenging as advertisers continued to exercise caution in response to the uneven economic environment, which has been compounded by weakened business confidence associated with the uncertainty around the presidential election and concerns over the combination of sizeable tax increases and cuts to federal spending, known as the fiscal cliff, that is set to take effect at the start of 2013 in the United States. Changes in spending patterns and marketing strategies of our advertisers in response to such conditions and an increasingly complex and fragmented digital advertising marketplace contributed to declines in both our print and digital advertising revenues during the third quarter and first nine months of 2012. The market for standard Web-based digital display advertising has also been challenging, due to an abundance of available advertising inventory and a shift toward advertising exchanges, real-time bidding and other programmatic buying channels that allow advertisers to buy audience at scale, which has led to downward pricing pressure. Overall, total advertising revenue trends in the third quarter of 2012 declined from first- and second-quarter 2012 levels. During the third quarter of 2012, total advertising revenues were down 3.8% in July, 11.1% in August and 11.3% in September, compared with the same prior-year periods.
Total advertising revenues decreased 8.9% in the third quarter of 2012 and 7.1% in the first nine months of 2012 compared with the same prior-year periods due to lower print and digital advertising revenues across most advertising categories. Print advertising revenues, which represented approximately 76% of total advertising revenues, declined 10.9% in the third quarter of 2012 and 8.6% in the first nine months of 2012, mainly due to lower national and retail display advertising revenues, compared with the same prior-year periods. Digital advertising revenues declined 2.2% in the third quarter of 2012 and 2.0% in the first nine months of 2012 compared with the same prior-year periods, primarily due to declines in national display and real estate classified advertising revenues partially offset by higher retail advertising revenues.


Advertising revenues (print and digital) by category were as follows:

                                          For the Quarters Ended                             For the Nine Months Ended
                               September 23,       September 25,                   September 23,        September 25,
(In thousands)                     2012                2011          % Change           2012                2011          % Change
National                     $       118,084     $       130,543        (9.5 )   $        410,967     $       442,324        (7.1 )
Retail                                30,343              33,527        (9.5 )            100,615             105,111        (4.3 )
Classified                            27,561              29,938        (7.9 )             88,338              98,153       (10.0 )
Other                                  6,653               6,500         2.4               18,183              19,904        (8.6 )
Total Company                $       182,641     $       200,508        (8.9 )   $        618,103     $       665,492        (7.1 )

Below is a percentage breakdown of advertising revenues in the first nine months of 2012 (print and digital) by division.

                                                                    Classified
                                        Retail                                                                       Other
                                         and         Help-       Real       Auto-                    Total        Advertising
                          National     Preprint     Wanted      Estate      motive      Other      Classified      Revenues      Total
The New York Times
Media Group                  77 %         13 %         2 %         4 %         1 %        2 %           9 %             1 %       100 %
New England Media
Group                        30 %         29 %         5 %         6 %        11 %        8 %          30 %            11 %       100 %
Total Company                67 %         16 %         3 %         5 %         3 %        3 %          14 %             3 %       100 %

The New York Times Media Group

Total advertising revenues decreased in the third quarter and first nine months of 2012 compared with the same periods in 2011 due to lower print and digital advertising revenues. Print advertising revenues were affected by declines in advertiser spending in most advertising categories, reflecting the continued uneven U.S. economic environment, uncertain global conditions and secular transformation of our industry. Market factors, including the weak economic climate and an increasingly competitive landscape, also contributed to reduced spending on digital platforms and pricing pressure in digital advertising. Digital advertising revenues declined primarily in the national display and real estate classified advertising categories during the third quarter of 2012. Digital advertising revenues declined primarily in the real estate classified and national display advertising categories, offset in part by improvement in retail advertising revenues during the first nine months of 2012.

During the third quarter of 2012, total advertising revenues declined mainly due to lower national, classified and retail advertising revenues compared with the third quarter of 2011. Total national advertising revenues decreased mainly driven by declines in the financial services, technology and studio entertainment categories offset in part by growth in the automotive category. 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. The uncertain national and local economic conditions continued to negatively affect total retail advertising revenues, as retailers cut spending mainly in the department stores and mass market categories.

During the first nine months of 2012, total advertising revenues declined mainly in the national and classified advertising categories compared with the same prior-year period. The decrease in total national advertising revenues was mainly driven by declines in the technology, studio entertainment and financial services categories, offset in part by growth in the luxury category. The soft economic environment coupled with secular changes in our industry contributed to declines in total classified advertising revenues, primarily in the real estate and automotive classified categories. Total retail advertising revenues were in line with the same prior-year period as advertisers increased spending mainly in the fashion jewelry category, offset in part by lower revenues in the mass market and home furnishings categories.


New England Media Group

Total advertising revenues declined in the third quarter and first nine months of 2012 compared with the same periods in 2011 due to declines in print advertising revenues, offset in part by growth in digital advertising revenues. The decline in print advertising revenues was driven by lower advertising in most categories, reflecting uncertain national and local economic conditions and secular transformation of our industry. Compared with the same prior-year periods, digital advertising revenues grew during the third quarter and first nine months of 2012, primarily in the automotive classified and retail advertising categories during the first nine months of 2012.

During the third quarter and first nine months of 2012, total advertising revenues declined mainly due to lower national, retail and classified advertising revenues. Total national advertising revenues decreased primarily due to a decline in the telecommunications category during the third quarter of 2012 and in the financial services and banks categories during the first nine months of 2012. The uncertain national and local economic conditions continued to negatively affect total retail advertising revenues, as retailers cut spending mainly in the department stores and home furnishings categories. While the soft economic environment coupled with secular changes in our industry contributed to declines in the total classified advertising revenues, primarily in the real estate category, advertisers did increase spending in the automotive and help-wanted categories.

Circulation Revenues

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