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NYT > SEC Filings for NYT > Form 10-K on 26-Feb-2014All Recent SEC Filings

Show all filings for NEW YORK TIMES CO

Form 10-K for NEW YORK TIMES CO


26-Feb-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated financial condition as of December 29, 2013, and results of operations for the three years ended December 29, 2013. This item should be read in conjunction with our Consolidated Financial Statements and the related Notes included in this Annual Report.
EXECUTIVE OVERVIEW
We are a global media organization that includes newspapers, digital businesses and investments in paper mills. We currently have one reportable segment comprising businesses that include The Times, the International New York Times, NYTimes.com, international.nytimes.com and related businesses.
Our revenues were $1.6 billion in 2013. We generate revenues principally from circulation and advertising. Other revenues primarily consist of revenues from news services/syndication, digital archives, rental income and conferences/events. Our main operating costs are employee-related costs and raw materials, primarily newsprint.
Joint Ventures
Our investments accounted for under the equity method are primarily as follows:
a 49% interest in a Canadian newsprint company, Malbaie; and

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

Discontinued Operations
On October 24, 2013, we completed the sale of substantially all of the assets and operating liabilities of the New England Media Group, consisting of the Globe, BostonGlobe.com, Boston.com, the T&G, Telegram.com and related properties, for approximately $70 million in cash, subject to customary adjustments. As part of the transaction, we also sold our 49% equity interest in Metro Boston. The net after-tax proceeds from the sale, including a tax benefit, were approximately $74 million.
As a result of the New England Media Group meeting the criteria of being held for sale in the third quarter of 2013, we recorded an impairment charge of $34.3 million reflecting the difference between the expected sales price and the New England Media Group's net assets at such time. In the fourth quarter of 2013, when the sale was completed, we recognized a pre-tax gain of $47.6 million ($28.1 million after-tax), which was almost entirely comprised of a curtailment gain. This curtailment gain is primarily related to an acceleration of prior service credits from plan amendments announced in prior years, and is due to a reduction in the expected years of future Company service for employees at the New England Media Group.
Results of operations for the New England Media Group, as well as for the About Group and the Regional Media Group that were sold in 2012, have been treated as discontinued operations for all periods presented in this report. For further information regarding our discontinued operations, see "- Discontinued Operations" and Note 15 of the Notes to the Consolidated Financial Statements. Business Environment
We believe that a number of factors and industry trends have had, and will continue to have, an adverse effect on our business and prospects. These include the following:
Secular shift to digital media choices
The competition for advertising revenues in various markets has intensified as a result of the continued development of digital media technologies and platforms. We have expanded and will continue to expand our digital offerings; however, the largest portion of our revenues are currently from traditional print products where advertising revenues have been declining. We believe that the shift from traditional media formats to a growing number of digital media choices and changing consumer behavior have contributed to, and are likely to continue to contribute to, a decline in print advertising.
The digital advertising marketplace has become increasingly complex and fragmented, particularly as digital advertising networks and exchanges, real-time bidding and other programmatic-buying channels that allow

THE NEW YORK TIMES COMPANY - P. 21

advertisers to buy audience at scale play a more significant role. Competition from a wide variety of digital media and services and a significant increase in inventory in the digital marketplace have affected, and we expect will continue to affect, our ability to attract and retain advertisers and to maintain or increase our advertising rates. In addition, advances in technology have led to an increasing popularity in the distribution of news and other content through mobile phones, tablets and other mobile devices, reshaping consumer behavior and expectations for consuming news and information. The digital advertising model is still evolving to address these rapid technological changes. Furthermore, as the advertising environment remains challenged, media companies have increasingly re-evaluated business models that have been largely dependent on advertising, with increasing numbers shifting their focus toward various forms of digital subscription models.
Circulation
Circulation is a significant source of revenue for us and an increasingly important driver as the overall composition of our revenues has shifted, and we expect will continue to shift, in response to the transformations in our industry. In recent years, our newspaper properties, and the newspaper industry as a whole, have experienced declining print circulation volume. This is due to, among other factors, increased competition from digital platforms and sources other than traditional newspapers (often free to users), changes in discretionary spending by consumers affected by economic conditions, higher subscription and single-copy rates and a growing preference among some consumers for receiving their news from a variety of sources.
Our paid digital subscription model has created a meaningful revenue stream. Our ability to retain and continue to build on our digital subscription base and audience for our digital products depends on continued market acceptance of our evolving digital subscription model, consumer habits, pricing, available alternatives from current and new competitors, delivery of high-quality journalism and content that is interesting and relevant to users, an adequate and adaptable digital infrastructure, access to delivery platforms on acceptable terms and other factors.
Economic conditions
Advertising spending, which drives a significant portion of our revenues, is sensitive to economic conditions. Global, national and local economic conditions affect the levels of our advertising revenues. The level of advertising sales in any period may be affected by advertisers' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand and general economic conditions. Changes in spending patterns and priorities, including shifts in marketing strategies and budget cuts of key advertisers, in response to economic conditions, have depressed and may continue to depress our advertising revenues.
Costs
A significant portion of our costs are fixed, and therefore we are limited in our ability to reduce these costs in the short term. Our most significant costs are employee-related costs and raw materials, which together accounted for approximately 50% of our total operating costs in 2013. Changes in employee-related costs and the price and availability of newsprint can materially affect our operating results.
For a discussion of these and other factors that could affect our business, results of operations and financial condition, see "Forward-Looking Statements" and "Item 1A - Risk Factors."
Our Strategy
Our business is operating during a period of transformation for our industry and amidst uneven economic conditions. We anticipate that the challenges we currently face will continue, and we believe that the following elements are key to our efforts to address them.
Focusing on our core business by strengthening and extending The New York Times brand and our digital offerings
The sale of the New England Media Group in the fourth quarter of 2013 allows us to focus on The Times brand and on further developing and growing our core business, as well as investing in our transformation to a more digitally-focused multimedia news and information company. Our priority is to better position our streamlined organization for innovation and growth, while maintaining a robust news-gathering operation capable of continuing to provide the high-quality news and information that sets our Company apart.
As we continue to face a challenging advertising environment, we are focused on building consumer revenues. The growth in our digital subscriber base in 2013, more than two years into the implementation of our paid digital

P. 22 - THE NEW YORK TIMES COMPANY


subscription model, underscores the willingness of our readers and users to pay for the high-quality journalism we provide across multiple platforms. The Times's paid digital subscription model has created a meaningful revenue stream that has partially offset the softness in our advertising and print circulation businesses.
We aim to continue to build our digital subscriber base by increasing engagement and subscription opportunities. As part of our efforts to expand digital subscription sales outside the United States, in the fourth quarter of 2013, we rebranded the International Herald Tribune as the International New York Times to create a single global media brand, and we are focused on further scaling this international opportunity in 2014. In addition, we believe there are consumers who are interested in both lower-priced and premium versions of The Times's current digital products, and we plan to begin to introduce new options to the market in the first half of 2014.
We believe we have a very powerful and trusted brand that, because of the quality of our journalism, attracts educated, affluent and influential audiences. We are continuing to focus on leveraging our brand and developing and innovating our digital advertising offerings to restore digital advertising revenues to growth. We will also continue to build on the strength of The New York Times brand to expand our presence into new products, markets and endeavors, such as expanding our conference and events business and developing our e-commerce business and games.
As we continue to look for ways to optimize and monetize our products and services, we remain committed to creating quality content and a quality user experience, regardless of the distribution model of news and information. Managing our expenses
Over the past few years, we have focused on realigning our cost base to ensure that we are operating our businesses efficiently, while maintaining our commitment to investing in high-quality content and achieving our long-term strategy. Our operating costs decreased in 2013, mainly due to lower pension expense, raw materials expense, and salaries and wage expense. We remained disciplined in our approach toward costs in 2013 and focused on realigning our work force, finding efficiencies in our production and distribution operations and further leveraging our centralized processes and resources.
We will endeavor to be diligent in reducing expenses and managing legacy costs going forward, but will also remain prepared to invest where appropriate. We expect to continue to invest in growing our business digitally and globally. Managing expenses will remain a priority and our focus will be on identifying operational efficiencies across our organization. Strengthening our liquidity
We have continued to strengthen our liquidity position and we remain focused on further de-leveraging and de-risking our balance sheet.
As of December 29, 2013, we had cash, cash equivalents and marketable securities of approximately $1 billion and total debt and capital lease obligations of approximately $684 million. Accordingly, our cash, cash equivalents and marketable securities exceeded total debt and capital lease obligations by over $300 million. Our cash position improved in 2013, primarily due to cash flows from operations and the proceeds from the sale of the New England Media Group and our ownership interest in Metro Boston, offset by contributions totaling approximately $74 million during 2013 to certain qualified pension plans. 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 12 months.
In September 2013, we announced the initiation of a quarterly dividend. A dividend of $0.04 per share was paid on our Class A and Class B Common Stock in October 2013, and an additional dividend of $0.04 per share of Class A and Class B Common Stock was declared in December 2013 and paid in January 2014. We believe this quarterly dividend allows us to return capital to our stockholders while also maintaining the financial flexibility necessary to continue to invest in our transformation and growth initiatives. Given current conditions and continued volatility in advertising revenues, as well as the early stage of our growth strategy, we believe it is in the best interests of the Company to maintain a conservative balance sheet and a prudent view of our cash flow going forward.
Managing our retirement-related costs
We remain focused on managing the underfunded status of our pension plans and adjusting the size of our pension obligations relative to the size of our Company. Our qualified pension plans were underfunded (meaning the present value of future obligations exceeded the fair value of plan assets) as of December 29, 2013, by approximately

THE NEW YORK TIMES COMPANY - P. 23

$80 million, compared with approximately $350 million as of December 30, 2012. The improvement in the funded status of these pension plans reflects the increase in interest rates in 2013, solid returns on pension assets, contributions we made in early 2013 and the elimination of obligations resulting from the acceptance by certain former employees of a one-time lump-sum payment offer in 2012. We made contributions of approximately $74 million to certain qualified pension plans in 2013 compared with approximately $144 million in 2012. We expect contributions to total approximately $16 million to satisfy minimum funding requirements in 2014.
We have taken other steps over the last few years as part of our ongoing strategy to address our pension obligations, including freezing accruals under the qualified defined benefit pension plans that cover both our non-union employees and those covered by collective bargaining agreements. In November 2012, in connection with ratified amendments to a collective bargaining agreement covering employees in The New York Times Newspaper Guild, we froze benefit accruals under the existing defined benefit pension plan, a step that will significantly limit future funding volatility for that plan and, accordingly, volatility of the Company's overall financial condition. As part of such amendments, we adopted a new, low volatility, defined benefit pension plan, subject to the approval of the Internal Revenue Service. We have also offered one-time lump-sum payments to certain former employees and we will continue to look for ways to reduce the size of our pension obligations.
While we have made significant progress in our liability-driven investment strategy to reduce the funding volatility of our qualified pension plans, the size of our pension plan obligations relative to the size of our current operations will continue to have a significant impact on our reported financial results. We expect to continue to experience significant volatility in 2014 in our retirement-related costs, including pension, multiemployer pension and retiree medical costs. In 2013, our retirement-related costs declined by approximately $27 million to $18 million (excluding a $6.2 million multiemployer pension plan withdrawal expense in 2013), as pension interest costs were significantly lower and expected earnings on plan assets were significantly higher in 2013 than in 2012. In 2014, we expect that retirement-related costs will increase approximately $19 million to $37 million, due principally to a lower expected return on pension plan assets due to a shift in asset mix from equity to bonds, higher interest costs, the impact of the acceleration of prior service costs due to the sale of the New England Media Group on retiree medical costs, and higher expenses associated with our multiemployer pension plan withdrawal obligations.
Our retirement plan obligations have not declined proportionately with the relative size of our business over the years, since we have largely retained all pension liabilities following the sales of the New England and Regional Media Groups. As a result, volatility resulting from changes in what we refer to as our "non-operating retirement costs" may obscure trends in the financial performance of our operating business. Non-operating retirement costs include interest cost, expected return on plan assets and amortization of actuarial gains and loss components of pension expense; interest cost and amortization of actuarial gains and loss components of retiree medical expense; and all expenses associated with multiemployer pension plan withdrawal obligations. These non-operating retirement costs are primarily tied to financial market performance and amortization of changes in market interest rates and investment performance. Non-operating retirement costs do not include service costs and amortization of prior service costs for pension and retiree medical benefits, which we believe reflect the ongoing service-related costs of providing pension benefits to our employees. We consider non-operating retirement costs to be outside the performance of the business and we believe presenting operating results excluding non-operating retirement costs, in addition to our GAAP operating results, will provide increased transparency and a better understanding of the underlying trends in our operating business performance. Beginning in 2014, we will provide supplemental non-GAAP information on adjusted operating costs and adjusted operating profit, in each case adjusted to exclude non-operating retirement costs. We believe that this supplemental information will help clarify how the employee benefit costs of our principal plans affect our financial position and how they may affect future operating performance, allowing for a better long-term view of the business. Outlook
We remain in a challenging business environment, reflecting an increasingly competitive and fragmented landscape, and visibility remains limited. Total circulation revenues are projected to increase in the low-single digits in the first quarter of 2014 compared with the first quarter of 2013, as we expect to benefit from our digital subscription initiatives, as well as from the print home-delivery price increase implemented in the first quarter of 2014. We expect total advertising revenue trends for the first quarter of 2014 to be similar to the trends experienced in the fourth quarter of 2013 based on a 13-week comparison.

P. 24 - THE NEW YORK TIMES COMPANY


We expect operating costs in the first quarter of 2014 to increase in the low- to mid-single digits compared with the first quarter of 2013 as investments around the Company's strategic growth initiatives accelerate. In addition to higher retirement-related costs described above, we expect that costs related to our growth initiatives will increase by approximately $25 to $30 million in 2014 compared with 2013. We expect that operating profit will be negatively affected by these growth initiatives for the full year 2014, with potential positive contributions to profitability beginning late in 2014. In addition, we expect the following on a pre-tax basis in 2014:
Results from joint ventures: $0 to a loss of $1 million,

Depreciation and amortization: $75 to $85 million,

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

Capital expenditures: $35 to $45 million.

THE NEW YORK TIMES COMPANY - P. 25

RESULTS OF OPERATIONS

Overview
Fiscal years 2013 and 2011 each comprise 52 weeks and fiscal year 2012 comprises
53 weeks. The effect of the 53rd week ("additional week") on revenues and
operating costs is discussed below. The following table presents our
consolidated financial results:
                                                            Years Ended                             % Change
                                         December 29,       December 30,       December 25,
(In thousands)                                   2013               2012               2011     13-12     12-11
                                       (52 weeks)            (53 weeks)      (52 weeks)
Revenues
Circulation                            $      824,277     $      795,037     $      705,163       3.7      12.7
Advertising                                   666,687            711,829            756,148      (6.3 )    (5.9 )
Other                                          86,266             88,475             93,263      (2.5 )    (5.1 )
Total revenues                              1,577,230          1,595,341          1,554,574      (1.1 )     2.6
Operating costs
Production costs:
Raw materials                                  92,886            106,381            108,267     (12.7 )    (1.7 )
Wages and benefits                            332,085            331,321            315,900       0.2       4.9
Other                                         201,942            213,616            216,094      (5.5 )    (1.1 )
Total production costs                        626,913            651,318            640,261      (3.7 )     1.7
Selling, general and administrative
costs                                         706,354            711,112            687,558      (0.7 )     3.4
Depreciation and amortization                  78,477             78,980             83,833      (0.6 )    (5.8 )
Total operating costs                       1,411,744          1,441,410          1,411,652      (2.1 )     2.1
Pension settlement expense                      3,228             47,657                  -     (93.2 )     N/A
Multiemployer pension plan
withdrawal expense                              6,171                  -              4,228       N/A         *
Other expense                                       -              2,620              4,500         *     (41.8 )
Impairment of assets                                -                  -              7,458       N/A         *
Operating profit                              156,087            103,654            126,736      50.6     (18.2 )
Gain on sale of investments                         -            220,275             71,171         *         *
Impairment of investments                           -              5,500                  -         *       N/A
(Loss)/income from joint ventures              (3,215 )            2,936               (270 )       *         *
Premium on debt redemption                          -                  -             46,381       N/A         *
Interest expense, net                          58,073             62,808             85,243      (7.5 )   (26.3 )
Income from continuing operations
before income taxes                            94,799            258,557             66,013     (63.3 )       *
Income tax expense                             37,892             94,617             21,417     (60.0 )       *
Income from continuing operations              56,907            163,940             44,596     (65.3 )       *
Discontinued operations:
(Loss) from discontinued operations,
net of income taxes                           (20,413 )         (113,447 )          (82,799 )   (82.0 )    37.0
Gain on sale, net of income taxes              28,362             85,520                  -     (66.8 )     N/A
Income/(loss) from discontinued
operations, net of income taxes                 7,949            (27,927 )          (82,799 )       *     (66.3 )
Net income/(loss)                              64,856            136,013            (38,203 )   (52.3 )       *
Net loss/(income) attributable to
the noncontrolling interest                       249               (166 )              555         *         *
Net income/(loss) attributable to
The New York Times Company common
stockholders                           $       65,105     $      135,847     $      (37,648 )   (52.1 )       *

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

P. 26 - THE NEW YORK TIMES COMPANY
--------------------------------------------------------------------------------

Revenues
Circulation, advertising and other revenues were as follows:
                                     Years Ended                           % Change
                   December 29,      December 30,      December 25,
(In thousands)             2013              2012              2011    13-12     12-11
                 (52 weeks)          (53 weeks)      (52 weeks)
Circulation      $      824,277    $      795,037    $      705,163      3.7      12.7
Advertising             666,687           711,829           756,148     (6.3 )    (5.9 )
Other                    86,266            88,475            93,263     (2.5 )    (5.1 )
Total            $    1,577,230    $    1,595,341    $    1,554,574     (1.1 )     2.6

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 our digital-only subscription packages, e-readers and replica editions.
Circulation revenues increased in 2013 compared with 2012 primarily due to growth in our digital subscription base and the increase in print home-delivery prices at The Times, offset by a decline resulting from fewer print copies sold and the effect of the additional week in 2012. Revenues from our digital-only subscription packages, e-readers and replica editions were $149.1 million in 2013 compared with $111.7 million in 2012, an increase of 33.5%.
Circulation revenues increased in 2012 compared with 2011 mainly as growth in our digital subscription base, the increase in print home-delivery prices in the first half of 2012 at The Times and the effect of the additional week in 2012 offset a decline resulting from fewer print copies sold. Revenues from our digital-only subscription packages, e-readers and replica editions were $111.7 million in 2012 compared with $44.3 million in 2011. In addition, as home-delivery subscribers receive all digital access for free, we saw benefits to The Times's home-delivery circulation with slight growth in Sunday home-delivery circulation volume in 2012 compared with 2011. Advertising Revenues
Advertising revenues (print and digital) by category were as follows:

                                     Years Ended                           % Change
                   December 29,      December 30,      December 25,
(In thousands)             2013              2012              2011    13-12     12-11
                 (52 weeks)        (53 weeks)        (52 weeks)
National         $      522,085    $      545,888    $      579,695     (4.4 )    (5.8 )
Retail                   82,614            95,709            95,301    (13.7 )     0.4
Classified               57,069            64,575            74,084    (11.6 )   (12.8 )
Other                     4,919             5,657             7,068    (13.0 )   (20.0 )
Total            $      666,687    $      711,829    $      756,148     (6.3 )    (5.9 )

. . .

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