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NYT > SEC Filings for NYT > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for NEW YORK TIMES CO


9-May-2013

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 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 circulation and advertising. Other revenues primarily consist of revenues from news services/syndication, commercial printing and distribution, digital archives, rental income 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 ("Metro Boston"), which publishes a free daily newspaper in the greater Boston area;

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

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

During the first quarter of 2013, total revenues decreased 2.0% compared with the same prior-year period, driven primarily by declines in advertising revenues, partially offset by growth in circulation revenues.

Compared with the prior-year period, circulation revenues increased 6.5% in the first quarter of 2013, mainly as digital subscription initiatives and the increase in print circulation prices at The Times in early 2013 offset a decline in print copies sold. The Times continues to benefit from improved retention rates in Sunday home-delivery circulation following the launch of digital subscriptions, despite the price increases. We expect circulation revenues to increase in the mid-single digits in the second quarter of 2013 compared with the same prior-year period as we expect to see continued benefit from our digital subscription initiatives, as well as from the home-delivery price increases at The Times in January and at the Globe in May 2013.

The advertising marketplace remained challenging. Compared with the prior-year period, total advertising revenues decreased 11.2% in the first quarter of 2013, as print and digital advertising revenues declined 13.3% and 4.0%, respectively. Advertising revenues continued to be affected by ongoing secular trends and an increasingly complex and fragmented digital advertising marketplace, particularly as the abundance of available inventory and a shift toward advertising networks and exchanges, real-time bidding and other programmatic buying channels to buy audience at scale have led to downward pricing pressure. Advertising revenue trends in the second quarter of 2013 are expected to be down 7% to 8%.

Paid subscribers to digital subscription packages, e-readers and replica editions of The Times and the IHT totaled approximately 676,000 as of the end of the first quarter of 2013, an increase of approximately 36,000 subscribers from the end of the fourth quarter of 2012 and more than 45% growth year-over-year from the end of the first quarter of 2012. Paid digital subscribers to BostonGlobe.com and the Globe's e-readers and replica editions totaled approximately 32,000 as of the end of the first quarter of 2013, an increase of approximately 4,000 subscribers from the end of the fourth quarter of 2012 and more than 50% growth year-over-year from the end of the first quarter of 2012. In total, paid subscribers to our digital products across our Company were approximately 708,000 as of the end of the first quarter of 2013. Operating costs decreased 4.3% in the first quarter of 2013 compared with the same period in 2012 primarily due to lower compensation and benefits costs, raw materials expense and outside printing costs. We will continue to be diligent in reducing expenses and managing legacy costs going forward, but will also remain prepared to invest where appropriate, especially in light of our strategic initiatives. We expect operating costs to decrease in the low-single digits in the second quarter of 2013.
As of March 31, 2013, we had cash, cash equivalents and marketable securities of approximately $866 million and total debt and capital lease obligations of approximately $698 million. Accordingly, our cash, cash equivalents and marketable securities exceeded total debt and capital lease obligations by approximately $168 million. Our liquidity position decreased since the end of 2012 due in part to our contributions of approximately $61 million to certain qualified pension plans, the majority of which were discretionary. Including the first-quarter contributions, we expect to make total contributions of approximately $75 million in 2013 to our qualified pension plans.


Our main priorities in 2013 in evaluating our uses of cash will be investing to grow our business, returning to sustainable growth in revenue and profitability and finding opportunities to further de-leverage our balance sheet and reduce our exposure under our pension plans. Until we have made progress in these areas, we believe it is in the best interests of the Company to maintain a conservative balance sheet and, therefore, we do not believe that this is the appropriate time to restore a dividend.

We expect the following on a pre-tax basis in 2013:
? Results from joint ventures: loss of $1 to $5 million,

? Depreciation and amortization: $90 to $95 million,

? Interest expense, net: $55 to $60 million, and

? Capital expenditures: approximately $40 million.

RECENT DEVELOPMENTS

In February 2013, we announced that we have retained a strategic adviser in connection with a sale of the New England Media Group and our 49% equity interest in Metro Boston. While we can provide no assurances, we expect a transaction to occur during the second half of 2013.
In April 2013, we announced plans for certain strategic initiatives, including the next phase in The Times's digital subscription and paid products strategy, The Times's international expansion under a new unified brand, and a renewed emphasis on both video production and brand extensions, which we will roll out in the fourth quarter of 2013 into 2014. We estimate operating profit will be negatively affected by between $20 to $25 million in 2013 as a result of these initiatives with a modest contribution to revenues while we make significant investments in the initiatives. Investments will largely be for product development and subscriber acquisitions, along with new capabilities in product management, customer management and distribution. We expect that the contribution to operating profit connected to these initiatives will become positive in late 2014 and for the full-year 2015.


RESULTS OF OPERATIONS

The following table presents our consolidated financial results.

                                                                 For the Quarters Ended
                                                          March 31,      March 25,
(In thousands)                                               2013           2012       % Change
Revenues
Circulation                                              $  241,789     $  226,994         6.5
Advertising                                                 191,167        215,234       (11.2 )
Other                                                        32,977         33,204        (0.7 )
Total revenues                                              465,933        475,432        (2.0 )
Operating costs
Production costs:
Raw materials                                                30,093         33,363        (9.8 )
Wages and benefits                                          109,737        109,261         0.4
Other                                                        57,044         60,711        (6.0 )
Total production costs                                      196,874        203,335        (3.2 )
Selling, general and administrative costs                   224,389        229,361        (2.2 )
Depreciation and amortization                                21,800         30,116       (27.6 )
Total operating costs                                       443,063        462,812        (4.3 )
Operating profit                                             22,870         12,620        81.2
Gain on sale of investment                                        -         17,848         N/A
Impairment of investments                                         -          4,900         N/A
Loss from joint ventures                                      2,940             29           *
Interest expense, net                                        14,074         15,452        (8.9 )
Income from continuing operations before income taxes         5,856         10,087       (41.9 )
Income tax expense                                            2,967          1,401           *
Income from continuing operations                             2,889          8,686       (66.7 )
Income from discontinued operations, net of income
taxes                                                             -         33,391         N/A
Net income                                                    2,889         42,077       (93.1 )
Net loss attributable to the noncontrolling interest            249             53           *
Net income attributable to The New York Times Company
common stockholders                                      $    3,138     $   42,130       (92.6 )


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


Revenues

Circulation, advertising and other revenues were as follows:

                                        For the Quarters Ended
                                  March 31,     March 25,
(In thousands)                      2013          2012       % Change
The New York Times Media Group
Circulation                      $  205,482    $  189,967        8.2
Advertising                         153,538       173,359      (11.4 )
Other                                21,655        20,723        4.5
Total                            $  380,675    $  384,049       (0.9 )
New England Media Group
Circulation                      $   36,307    $   37,027       (1.9 )
Advertising                          37,629        41,875      (10.1 )
Other                                11,322        12,481       (9.3 )
Total                            $   85,258    $   91,383       (6.7 )
Total Company
Circulation                      $  241,789    $  226,994        6.5
Advertising                         191,167       215,234      (11.2 )
Other                                32,977        33,204       (0.7 )
Total                            $  465,933    $  475,432       (2.0 )

Circulation Revenues

Circulation revenues are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy and bulk sales) and digital subscriptions sold and the rates charged to the respective customers. Total circulation revenues consist of revenues from our print and digital products, including digital subscription packages on NYTimes.com and across other digital platforms, BostonGlobe.com and digital subscriptions packages at the IHT.

Circulation revenues increased in the first quarter of 2013 compared with the same prior-year period mainly due to digital subscription initiatives and the increase in print circulation prices at the Times in the first quarter of 2013, offset by a decline in print copies sold. Additionally, as home-delivery subscribers receive all digital access for free, The Times continues to benefit from improved retention rates in Sunday home-delivery circulation, despite the price increases, with a slight growth in Sunday home-delivery circulation volume in the first quarter of 2013 compared with the same period in 2012.

Advertising Revenues
Advertising revenues are primarily determined by the volume, rate and mix of advertisements. During the first quarter of 2013, advertising revenue trends remained under pressure due to ongoing secular trends and an uncertain economic environment. In addition, the increasingly complex and fragmented digital advertising marketplace contributed to declines in digital advertising revenues. The market for standard Web-based digital display advertising continued to experience challenges due to the abundance of available advertising inventory and a shift toward digital advertising networks and exchanges, real-time bidding and other programmatic buying channels that allow advertisers to buy audience at scale, causing downward pricing pressure.
Total advertising revenues decreased 11.2% in the first quarter of 2013 compared with the same prior-year period due to lower print and digital advertising revenues across most advertising categories. Print advertising revenues, which represented approximately 76% of total advertising revenues, declined 13.3% in the first quarter of 2013, mainly due to lower national and retail advertising revenues, compared with the same prior-year period. Digital advertising revenues declined 4.0% in the first quarter of 2013 compared with the same prior-year period, primarily due to declines in national


and real estate classified advertising revenues. During the first quarter of 2013, total advertising revenues decreased 10.3% in January, 5.8% in February and 16.9% in March compared with the same prior-year periods in 2012. Advertising revenues (print and digital) by category were as follows:

For the Quarters Ended
                  March 31,     March 25,
(In thousands)      2013          2012       % Change
National         $  130,105    $  145,397      (10.5 )
Retail               29,162        34,301      (15.0 )
Classified           27,001        30,293      (10.9 )
Other                 4,899         5,243       (6.6 )
Total Company    $  191,167    $  215,234      (11.2 )

Below is a percentage breakdown of advertising revenues in the first quarter of 2013 (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                  78 %         12 %         2 %         4 %         - %        3 %           9 %             1 %       100 %
New England Media
Group                        29 %         28 %         6 %         5 %        13 %        8 %          32 %            11 %       100 %
Total Company                68 %         15 %         3 %         4 %         3 %        4 %          14 %             3 %       100 %

The New York Times Media Group

Total advertising revenues decreased in the first quarter of 2013 compared with the same period in 2012 due to lower print and digital advertising revenues. Print advertising revenues were affected by declines in advertiser spending in most advertising categories, reflecting the secular transformation of our industry and the uncertain economic environment. These market factors, in addition to 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 first quarter of 2013.

During the first quarter of 2013, advertising revenues were affected by declines in total national, retail and classified advertising revenues. Total national advertising revenues decreased mainly driven by declines in the studio entertainment and financial services categories. The uncertain national and local economic conditions continued to negatively affect total retail advertising revenues, as retailers cut spending mainly in the department stores category. Secular changes in our industry coupled with the uncertain economic environment contributed to declines in total classified advertising revenues, primarily in the real estate and help-wanted categories.

New England Media Group

Total advertising revenues declined in the first quarter of 2013 compared with the same period in 2012 due to declines in both print and digital advertising revenues. The decline in print advertising revenues was driven by lower advertising in all categories, reflecting secular forces in our industry and the uncertain national and local economic environment. The decrease in digital advertising revenues was mainly due to reduced spending in retail and real estate classified advertising revenues, partially offset by higher automotive classified advertising revenues.

During the first quarter of 2013, total advertising revenues declined primarily due to lower retail and classified advertising revenues. The uncertain national and local economic conditions continued to negatively affect total retail advertising revenues, as retailers cut spending mainly in the department stores category. Secular changes in our industry, coupled with the uncertain economic environment, contributed to declines in total classified advertising revenues, primarily in the real estate and help-wanted categories.


Other Revenues

Other revenues primarily consist of revenues from news services/syndication, commercial printing and distribution, digital archives, rental income and direct mail advertising services. Other revenues decreased slightly in the first quarter of 2013 compared with the same period in 2012.

Operating Costs

Operating costs were as follows:
                                                   For the Quarters Ended
                                             March 31,     March 25,
(In thousands)                                 2013          2012       % Change
Production costs:
Raw materials                               $   30,093    $   33,363       (9.8 )
Wages and benefits                             109,737       109,261        0.4
Other                                           57,044        60,711       (6.0 )
Total production costs                         196,874       203,335       (3.2 )
Selling, general and administrative costs      224,389       229,361       (2.2 )
Depreciation and amortization                   21,800        30,116      (27.6 )
Total operating costs                       $  443,063    $  462,812       (4.3 )

Production Costs

Production costs decreased in the first quarter of 2013 compared with the same period in 2012 mainly due to lower raw materials expense (approximately $3 million), primarily newsprint, and outside printing costs (approximately $2 million). Newsprint expense declined 11.4% in the first quarter of 2013 compared with the same period in 2012, with 7.6% from lower consumption and 3.8% from lower pricing. Cost-savings from contract negotiations primarily contributed to the decline in outside printing costs.

Selling, General and Administrative Costs

Selling, general and administrative costs decreased in the first quarter of 2013 compared with the same period in 2012 primarily due to lower compensation costs (approximately $6 million) and distributions costs (approximately $2 million), offset by higher professional fees (approximately $3 million), from a higher level of consulting services, and various other costs. Compensation costs decreased mainly due to lower salary and staffing levels as well as lower stock-based compensation expense. Lower distribution costs mainly resulted from a decline in print copies sold.

Depreciation and Amortization

Depreciation and amortization expense decreased in the first quarter of 2013 compared with the same prior-year period primarily due to the $6.7 million of accelerated depreciation expense recognized in the first quarter of 2012 for certain assets at the T&G's facility in Millbury, Mass., associated with the consolidation of most of the T&G's printing into the Globe's facility in Boston, which was completed early in the second quarter of 2012.

Non-Operating Items

Joint Ventures

Loss from joint ventures was $2.9 million in the first quarter of 2013 compared with a loss of $29,000 in the first quarter of 2012 primarily due to lower results for the paper mills in which we have an investment.

Gain on Sale of Investment

In the first quarter of 2012, we sold 100 of our units in Fenway Sports Group, resulting in a pre-tax gain of $17.8 million.


Impairment of Investments

In the first quarter of 2012, we recorded a non-cash impairment charge of $4.9 million to reduce the carrying value of certain investments to fair value. The impairment charge was primarily related to our investment in Ongo Inc., a consumer service for reading and sharing digital news and information from multiple publishers.

Interest Expense, Net

"Interest expense, net" in our Condensed Consolidated Statements of Operations
was as follows:
                                               For the Quarters Ended
                                              March 31,        March 25,
(In thousands)                                   2013            2012
Cash interest expense                       $    13,253       $  14,362
Non-cash amortization of discount on debt         1,164           1,159
Capitalized interest                                  -              (7 )
Interest income                                    (343 )           (62 )
Total interest expense, net                 $    14,074       $  15,452

"Interest expense, net" decreased in the first quarter of 2013 compared with the same prior-year period mainly due to the payment at maturity on September 26, 2012, of all $75.0 million outstanding aggregate principal amount of our 4.610% senior notes.

Income Taxes
We had an income tax expense of $3.0 million (effective tax rate of 50.7%) in the first quarter of 2013 primarily impacted by net increases in our reserve for uncertain tax positions.
We had an income tax expense of $1.4 million (effective tax rate of 13.9%) in the first quarter of 2012 primarily impacted by an adjustment to reduce our reserve for uncertain tax positions.
Discontinued Operations
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 of approximately $17 million. The sale resulted in a pre-tax gain of $96.7 million ($61.9 million after-tax). The net after-tax proceeds from the sale were approximately $291 million.

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 in 2012.

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 $23.6 million (including post-closing adjustments recorded in the second and fourth quarters of 2012 totaling $6.6 million).

The results of operations 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 in 2012.


The 2012 results of operations for the About Group and the Regional Media Group presented as discontinued operations are summarized below.

                                                                       For the Quarter Ended
                                                                          March 25, 2012
                                                                             Regional Media
(In thousands)                                               About Group         Group          Total
Revenues                                                   $      23,944     $    6,115       $ 30,059
Total operating costs                                             16,948          8,017         24,965
Pre-tax income/(loss)                                              6,996         (1,902 )        5,094
Income tax expense/(benefit)                                       2,675           (736 )        1,939
Income/(loss) from discontinued operations, net of
income taxes                                                       4,321         (1,166 )        3,155
Gain on sale, net of income taxes:
Gain on sale                                                           -          2,309          2,309
Income tax benefit(1)                                                  -        (27,927 )      (27,927 )
Gain on sale, net of income taxes                                      -         30,236         30,236
Income from discontinued operations, net of income taxes   $       4,321     $   29,070       $ 33,391

(1) The income tax benefit for the Regional Media Group included a tax deduction for goodwill, which was previously non-deductible, triggered upon the sale of the Regional Media Group.

LIQUIDITY AND CAPITAL RESOURCES

We believe our cash balance and cash provided by operations, in combination with other sources of cash, will be sufficient to meet our financing needs over the next twelve months. As of March 31, 2013, we had cash, cash equivalents and marketable securities of approximately $866 million and total debt and capital lease obligations of approximately $698 million. Accordingly, our cash, cash equivalents and marketable securities exceeded total debt and capital lease obligations by approximately $168 million. Our liquidity position decreased since the end of 2012 due in part to our contributions of approximately $61 million to certain qualified pension plans during the first quarter of 2013. Approximately $60 million of our first-quarter 2013 contribution was made to The New York Times Newspaper Guild pension plan, of which $23 million was estimated to be necessary to satisfy minimum funding requirements in 2013. Including the first-quarter contributions, we expect to make total contributions of approximately $75 million in 2013 to our qualified pension plans.

Capital Resources

Sources and Uses of Cash

Cash flows provided by/(used in) by category were as follows:

                          For the Quarters Ended
                          March 31,       March 25,
. . .
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