UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2008
Commission file number 1-5837
THE NEW YORK TIMES COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK |
|
13-1102020 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
620 EIGHTH AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)
10018
(Zip Code)
Registrants telephone number, including area code 212-556-1234
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.
Number of shares of each class of the registrants common stock outstanding as of August 1, 2008 (exclusive of treasury shares):
Class A Common Stock |
142,955,214 shares |
|
Class B Common Stock |
825,634 shares |
|
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
|
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
|
|
(13 weeks) |
|
(26 weeks) |
|
||||||||
Revenues |
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
$ |
454,377 |
|
$ |
508,467 |
|
$ |
912,716 |
|
$ |
1,013,382 |
|
Circulation |
|
224,168 |
|
218,664 |
|
450,797 |
|
441,118 |
|
||||
Other |
|
63,360 |
|
61,812 |
|
126,247 |
|
120,463 |
|
||||
Total revenues |
|
741,905 |
|
788,943 |
|
1,489,760 |
|
1,574,963 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating costs |
|
|
|
|
|
|
|
|
|
||||
Production costs: |
|
|
|
|
|
|
|
|
|
||||
Raw materials |
|
60,285 |
|
63,139 |
|
119,361 |
|
138,035 |
|
||||
Wages and benefits |
|
155,605 |
|
158,883 |
|
325,512 |
|
324,443 |
|
||||
Other |
|
108,509 |
|
103,900 |
|
220,090 |
|
208,469 |
|
||||
Total production costs |
|
324,399 |
|
325,922 |
|
664,963 |
|
670,947 |
|
||||
Selling, general and administrative costs |
|
344,609 |
|
344,481 |
|
685,463 |
|
686,542 |
|
||||
Depreciation and amortization |
|
32,642 |
|
46,645 |
|
74,573 |
|
91,082 |
|
||||
Total operating costs |
|
701,650 |
|
717,048 |
|
1,424,999 |
|
1,448,571 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Impairment of assets |
|
|
|
|
|
18,291 |
|
|
|
||||
Net loss on sale of assets |
|
|
|
68,156 |
|
|
|
68,156 |
|
||||
Gain on sale of WQEW-AM |
|
|
|
39,578 |
|
|
|
39,578 |
|
||||
Operating profit |
|
40,255 |
|
43,317 |
|
46,470 |
|
97,814 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income from joint ventures |
|
10,165 |
|
4,745 |
|
8,372 |
|
2,592 |
|
||||
Interest expense, net |
|
12,104 |
|
7,126 |
|
23,849 |
|
18,454 |
|
||||
Income from continuing operations before income taxes and minority interest |
|
38,316 |
|
40,936 |
|
30,993 |
|
81,952 |
|
||||
Income tax expense |
|
17,251 |
|
18,851 |
|
9,559 |
|
39,750 |
|
||||
Minority interest in net income of subsidiaries |
|
(213 |
) |
(24 |
) |
(317 |
) |
(15 |
) |
||||
Income from continuing operations |
|
20,852 |
|
22,061 |
|
21,117 |
|
42,187 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Discontinued operations, Broadcast Media Group: |
|
|
|
|
|
|
|
|
|
||||
Income from discontinued operations, net of income taxes |
|
|
|
1,977 |
|
|
|
5,753 |
|
||||
Gain/(loss) on sale, net of income taxes |
|
289 |
|
94,330 |
|
(311 |
) |
94,330 |
|
||||
Discontinued operations, net of income taxes |
|
289 |
|
96,307 |
|
(311 |
) |
100,083 |
|
||||
Net income |
|
$ |
21,141 |
|
$ |
118,368 |
|
$ |
20,806 |
|
$ |
142,270 |
|
|
|
|
|
|
|
|
|
|
|
||||
Average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
143,776 |
|
143,906 |
|
143,768 |
|
143,901 |
|
||||
Diluted |
|
144,037 |
|
144,114 |
|
144,051 |
|
144,114 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.29 |
|
Discontinued operations, net of income taxes |
|
|
|
0.67 |
|
|
|
0.70 |
|
||||
Net income |
|
$ |
0.15 |
|
$ |
0.82 |
|
$ |
0.15 |
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.29 |
|
Discontinued operations, net of income taxes |
|
|
|
0.67 |
|
|
|
0.70 |
|
||||
Net income |
|
$ |
0.15 |
|
$ |
0.82 |
|
$ |
0.15 |
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends per share |
|
$ |
0.230 |
|
$ |
0.230 |
|
$ |
0.460 |
|
$ |
0.405 |
|
See Notes to Condensed Consolidated Financial Statements.
2
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
June 29, 2008 |
|
December 30, 2007 |
|
||
|
|
(Unaudited) |
|
|
|
||
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
||
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
41,699 |
|
$ |
51,532 |
|
Accounts receivable-net |
|
368,877 |
|
437,882 |
|
||
Inventories: |
|
|
|
|
|
||
Newsprint and magazine paper |
|
23,933 |
|
21,929 |
|
||
Other inventory |
|
5,256 |
|
4,966 |
|
||
Total inventories |
|
29,189 |
|
26,895 |
|
||
|
|
|
|
|
|
||
Deferred income taxes |
|
80,617 |
|
92,335 |
|
||
Other current assets |
|
61,997 |
|
55,801 |
|
||
|
|
|
|
|
|
||
Total current assets |
|
582,379 |
|
664,445 |
|
||
|
|
|
|
|
|
||
Other Assets |
|
|
|
|
|
||
|
|
|
|
|
|
||
Investments in joint ventures |
|
142,630 |
|
137,831 |
|
||
Property, plant and equipment (less accumulated depreciation and amortization of $1,020,620 in 2008 and $1,138,837 in 2007) |
|
1,450,298 |
|
1,468,013 |
|
||
Intangible assets acquired: |
|
|
|
|
|
||
Goodwill |
|
694,360 |
|
683,440 |
|
||
Other intangible assets acquired |
|
123,950 |
|
128,461 |
|
||
Total intangible assets acquired |
|
818,310 |
|
811,901 |
|
||
|
|
|
|
|
|
||
Deferred income taxes |
|
97,970 |
|
112,379 |
|
||
Miscellaneous assets |
|
266,703 |
|
278,523 |
|
||
|
|
|
|
|
|
||
TOTAL ASSETS |
|
$ |
3,358,290 |
|
$ |
3,473,092 |
|
See Notes to Condensed Consolidated Financial Statements.
3
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
June 29, 2008 |
|
December 30, 2007 |
|
||
|
|
(Unaudited) |
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Commercial paper outstanding |
|
$ |
3,500 |
|
$ |
111,741 |
|
Borrowings under revolving credit agreements |
|
370,000 |
|
195,000 |
|
||
Accounts payable |
|
197,736 |
|
202,923 |
|
||
Accrued payroll and other related liabilities |
|
94,893 |
|
142,201 |
|
||
Accrued expenses |
|
161,079 |
|
193,222 |
|
||
Unexpired subscriptions |
|
81,861 |
|
81,110 |
|
||
Current portion of long-term debt and capital lease obligations |
|
49,548 |
|
49,539 |
|
||
|
|
|
|
|
|
||
Total current liabilities |
|
958,617 |
|
975,736 |
|
||
|
|
|
|
|
|
||
Other Liabilities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Long-term debt |
|
672,338 |
|
672,005 |
|
||
Capital lease obligations |
|
6,655 |
|
6,694 |
|
||
Pension benefits obligation |
|
282,731 |
|
281,517 |
|
||
Postretirement benefits obligation |
|
214,110 |
|
213,500 |
|
||
Other |
|
309,318 |
|
339,533 |
|
||
|
|
|
|
|
|
||
Total other liabilities |
|
1,485,152 |
|
1,513,249 |
|
||
|
|
|
|
|
|
||
Minority Interest |
|
7,271 |
|
5,907 |
|
||
|
|
|
|
|
|
||
Stockholders Equity |
|
|
|
|
|
||
|
|
|
|
|
|
||
Common stock of $.10 par value: |
|
|
|
|
|
||
Class A authorized 300,000,000 shares; issued: 2008 148,057,158; 2007 148,057,158 (including treasury shares: 2008 5,102,842; 2007 5,154,989) |
|
14,806 |
|
14,806 |
|
||
Class B convertible authorized and issued shares: 2008 825,634; 2007 825,634 |
|
83 |
|
83 |
|
||
Additional paid-in capital |
|
20,560 |
|
9,869 |
|
||
Retained earnings |
|
1,082,496 |
|
1,170,288 |
|
||
Common stock held in treasury, at cost |
|
(160,411 |
) |
(161,395 |
) |
||
Accumulated other comprehensive loss, net of income taxes: |
|
|
|
|
|
||
Foreign currency translation adjustments |
|
24,385 |
|
19,660 |
|
||
Funded status of benefit plans |
|
(74,669 |
) |
(75,111 |
) |
||
Total accumulated other comprehensive loss, net of income taxes |
|
(50,284 |
) |
(55,451 |
) |
||
|
|
|
|
|
|
||
Total stockholders equity |
|
907,250 |
|
978,200 |
|
||
|
|
|
|
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
3,358,290 |
|
$ |
3,473,092 |
|
See Notes to Condensed Consolidated Financial Statements.
4
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
Six Months Ended |
|
||||
|
|
June 29, 2008 |
|
July 1, 2007 |
|
||
|
|
(26 weeks) |
|
||||
OPERATING ACTIVITIES |
|
|
|
|
|
||
Net cash provided by/(used in) operating activities |
|
$ |
99,959 |
|
$ |
(11,745 |
) |
|
|
|
|
|
|
||
INVESTING ACTIVITIES |
|
|
|
|
|
||
Capital expenditures |
|
(103,917 |
) |
(225,652 |
) |
||
Proceeds from sale of the Broadcast Media Group |
|
|
|
575,288 |
|
||
Proceeds from sale of WQEW-AM |
|
|
|
40,000 |
|
||
Proceeds from sale of Edison, N.J., assets |
|
|
|
90,819 |
|
||
Payment for purchase of Edison, N.J., printing facility |
|
|
|
(139,961 |
) |
||
Acquisitions, net of cash acquired of $2,353 in 2008 and $1,190 in 2007 |
|
(5,197 |
) |
(27,632 |
) |
||
Other investing paymentsnet |
|
(2,159 |
) |
(7,453 |
) |
||
|
|
|
|
|
|
||
Net cash (used in)/provided by investing activities |
|
(111,273 |
) |
305,409 |
|
||
|
|
|
|
|
|
||
FINANCING ACTIVITIES |
|
|
|
|
|
||
Commercial paper repayments-net |
|
(108,241 |
) |
(184,525 |
) |
||
Borrowings under revolving credit agreements-net |
|
175,000 |
|
|
|
||
Long-term obligations: |
|
|
|
|
|
||
Reductions |
|
(30 |
) |
(102,412 |
) |
||
Capital shares: |
|
|
|
|
|
||
Issuances |
|
|
|
529 |
|
||
Repurchases |
|
(17 |
) |
(816 |
) |
||
Excess tax benefits from stock-based awards |
|
|
|
43 |
|
||
Dividends paid to stockholders |
|
(66,573 |
) |
(58,574 |
) |
||
Other financing proceedsnet |
|
|
|
37,221 |
|
||
|
|
|
|
|
|
||
Net cash provided by/(used in) financing activities |
|
139 |
|
(308,534 |
) |
||
|
|
|
|
|
|
||
Decrease in cash and cash equivalents |
|
(11,175 |
) |
(14,870 |
) |
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
1,342 |
|
154 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents at the beginning of the year |
|
51,532 |
|
72,360 |
|
||
Cash and cash equivalents at the end of the quarter |
|
$ |
41,699 |
|
$ |
57,644 |
|
SUPPLEMENTAL DATA
· In March 2008, the Company acquired certain assets of the Winter Haven News Chief for $2.5 million and purchased additional Class A units of BehNeem, LLC, increasing its total investment to $4.3 million for a 53% ownership interest. In the first quarter of 2008, the Company also paid the remaining $0.5 million for UCompareHealthCare.com, which was acquired in March 2007, for a total of $2.3 million.
Other
· Financing activities Other financing proceeds in 2007 include cash received from the Companys real estate development partner for repayment of the Companys loan receivable in connection with the construction of the Companys new headquarters.
See Notes to Condensed Consolidated Financial Statements.
5
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of The New York Times Companys (the Company) management, the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of June 29, 2008, and December 30, 2007, and the results of operations and cash flows of the Company for the periods ended June 29, 2008, and July 1, 2007. All adjustments necessary for a fair presentation have been included and are of a normal and recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted from these interim financial statements. These statements, therefore, should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Companys Annual Report on Form 10-K for the year ended December 30, 2007. Due to the seasonal nature of the Companys business, operating results for the interim periods are not necessarily indicative of a full years operations. The fiscal periods included herein comprise 13 weeks for the second-quarter periods and 26 weeks for the six-month periods.
As of June 29, 2008, the Companys significant accounting policies, which are detailed in the Companys Annual Report on Form 10-K for the year ended December 30, 2007, have not changed materially.
The Company adopted Emerging Issues Task Force (EITF) No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4), on December 31, 2007 (the first day of the Companys 2008 fiscal year). EITF 06-4 was issued to clarify the accounting for the deferred compensation and postretirement aspects of endorsement split-dollar life insurance arrangements. It required the Company to recognize a liability for future benefits in accordance with Statement of Financial Accounting Standards (FAS) No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions (FAS 106). Accordingly, the Company recorded a liability, which is included in Other Liabilities Other in the Companys Condensed Consolidated Balance Sheet, for its endorsement split-dollar life insurance arrangement of approximately $9 million through a cumulative-effect adjustment to retained earnings on December 31, 2007.
In September 2006, the Financial Accounting Standards Board (FASB) issued FAS No. 157, Fair Value Measurements (FAS 157), which establishes a common definition for fair value in accordance with GAAP, and establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements.
In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2). FSP 157-2 delayed the effective date of FAS 157 to fiscal years beginning after
6
November 15, 2008, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The partial delay is intended to provide all relevant parties more time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of FAS 157.
In accordance with FSP 157-2, the Company partially adopted FAS 157 in the first quarter of 2008. Therefore, in 2008, the Companys financial statements will reflect the requirements of FAS 157 for any financial assets and liabilities and for any nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a recurring basis. As of June 29, 2008, the Company does not have any material nonfinancial assets or liabilities for which the requirements under FAS 157 were not applied because of the partial delay under FSP 157-2.
As of June 29, 2008, the Company does not have any assets measured at fair value that fall within the scope of FAS 157 and FSP 157-2. The Company does have a liability for a Company-sponsored deferred executive compensation plan (the DEC plan) that falls within the scope of FAS 157 and FSP 157-2, as of June 29, 2008. The DEC plan enables certain eligible executives to defer a portion of their compensation on a pre-tax basis. Employees contributions earn income based on the performance of investment funds they select. The DEC plan liability is the amount due to the respective executives and is recorded at fair value on a recurring basis utilizing observable market data (Level 2 under FAS 157). The fair value of the liability, which is included in Other Liabilities Other in the Companys Condensed Consolidated Balance Sheet, was approximately $129 million as of June 29, 2008.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (FAS 159), which is effective in fiscal 2008 and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any items under FAS 159.
Recent Accounting Pronouncements
In December 2007, the FASB issued FAS No. 141(R), Business Combinations (FAS 141(R)) and FAS No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (FAS 160). Changes for business combination transactions pursuant to FAS 141(R) include, among others, expensing acquisition-related transaction costs as incurred, the recognition of contingent consideration arrangements at their acquisition date fair value and capitalization of in-process research and development assets acquired at their acquisition date fair value. Changes in accounting for noncontrolling (minority) interests pursuant to FAS 160 include, among others, the classification of noncontrolling interest as a component of consolidated stockholders equity and the elimination of minority interest accounting in results of operations. FAS 141(R) and FAS 160 are required to be adopted simultaneously and are effective for fiscal years beginning on or after December 15, 2008. The adoption of FAS 141(R) will affect the accounting for the Companys acquisitions that occur after the adoption date. Based on the Companys current structure, FAS 160 will be immaterial to the Companys financial statements.
7
NOTE 2. DISCONTINUED OPERATIONS
On May 7, 2007, the Company sold its Broadcast Media Group, which consisted of nine network-affiliated television stations, their related Web sites and digital operating center, for approximately $575 million. In 2007, the Company recognized a pre-tax gain on the sale of $190.0 million ($94.0 million after tax). In accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Broadcast Media Groups results of operations and the gain on sale are presented as discontinued operations. In 2008, the gain/(loss) on sale included post-closing adjustments. The results of operations presented as discontinued operations are summarized below.
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
Revenues |
|
$ |
|
|
$ |
13,798 |
|
$ |
|
|
$ |
46,702 |
|
Operating costs |
|
|
|
10,451 |
|
|
|
36,854 |
|
||||
Pre-tax income |
|
|
|
3,347 |
|
|
|
9,848 |
|
||||
Income tax expense |
|
|
|
1,370 |
|
|
|
4,095 |
|
||||
Income from discontinued operations, net of income taxes |
|
|
|
1,977 |
|
|
|
5,753 |
|
||||
Gain/(loss) on sale, net of income tax expense of $211 in the second quarter of 2008, income tax benefit of $228 in the first six months of 2008, and income tax expense of $96,911 in the second quarter and first six months of 2007 |
|
289 |
|
94,330 |
|
(311 |
) |
94,330 |
|
||||
Discontinued operations, net of income taxes |
|
$ |
289 |
|
$ |
96,307 |
|
$ |
(311 |
) |
$ |
100,083 |
|
NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is the excess of cost over the fair market value of tangible and other intangible assets acquired. Goodwill is not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist, in accordance with FAS No. 142, Goodwill and Other Intangible Assets.
Other intangible assets acquired consist primarily of mastheads on various acquired properties, customer lists, trade names, as well as other assets. Other intangible assets acquired that have indefinite lives (mastheads and trade names) are not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist. Certain other intangible assets acquired (customer lists and other assets) are amortized over their estimated useful lives.
The Company performs its annual impairment testing in the fourth quarter of its fiscal year.
The changes in the carrying amount of goodwill were as follows:
(In thousands) |
|
News Media |
|
About |
|
Total |
|
|||
Balance as of December 30, 2007 |
|
$ |
313,459 |
|
$ |
369,981 |
|
$ |
683,440 |
|
Goodwill acquired during year |
|
4,415 |
|
|
|
4,415 |
|
|||
Goodwill adjusted during the year |
|
|
|
(3 |
) |
(3 |
) |
|||
Foreign currency translation adjustments |
|
6,508 |
|
|
|
6,508 |
|
|||
Balance as of June 29, 2008 |
|
$ |
324,382 |
|
$ |
369,978 |
|
$ |
694,360 |
|
8
In March 2008, the Company acquired certain assets of the Winter Haven News Chief (News Chief), a regional newspaper in Winter Haven, Fla., for $2.5 million. Also in March 2008, the Company purchased additional Class A units of BehNeem, LLC (BehNeem), increasing its total investment to $4.3 million for a 53% ownership interest. BehNeem licenses the Epsilen Environment, an integrated online course content, portfolio and communications tool for the education community. The operating results of the News Chief are included in the results of the Regional Media Group and the operating results of BehNeem are included in the results of The New York Times Media Group, both of which are part of the News Media Group.
Based on preliminary valuations of the News Chief and BehNeem, the Company has allocated the excess of the respective purchase prices over the carrying value of the net assets acquired of $1.3 million to goodwill and $0.6 million to other intangible assets (primarily customer lists) for the News Chief, and $3.1 million to goodwill for BehNeem.
Other intangible assets acquired were as follows:
|
|
June 29, 2008 |
|
December 30, 2007 |
|
||||||||||||||
(In thousands) |
|
Gross Carrying |
|
Accumulated |
|
Net |
|
Gross Carrying |
|
Accumulated |
|
Net |
|
||||||
Amortized other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer lists |
|
$ |
222,763 |
|
$ |
(201,825 |
) |
$ |
20,938 |
|
$ |
222,267 |
|
$ |
(199,930 |
) |
$ |
22,337 |
|
Other |
|
67,620 |
|
(37,684 |
) |
29,936 |
|
67,254 |
|
(32,841 |
) |
34,413 |
|
||||||
Total |
|
290,383 |
|
(239,509 |
) |
50,874 |
|
289,521 |
|
(232,771 |
) |
56,750 |
|
||||||
Unamortized other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Newspaper mastheads |
|
58,994 |
|
|
|
58,994 |
|
57,638 |
|
|
|
57,638 |
|
||||||
Trade names |
|
14,082 |
|
|
|
14,082 |
|
14,073 |
|
|
|
14,073 |
|
||||||
Total |
|
73,076 |
|
|
|
73,076 |
|
71,711 |
|
|
|
71,711 |
|
||||||
Total other intangible assets acquired |
|
$ |
363,459 |
|
$ |
(239,509 |
) |
$ |
123,950 |
|
$ |
361,232 |
|
$ |
(232,771 |
) |
$ |
128,461 |
|
As of June 29, 2008, the remaining weighted-average amortization period was seven years for customer lists and six years for other amortizable intangible assets acquired included in the table above.
Amortization expense related to other intangible assets acquired that are subject to amortization was approximately $7 million in the first six months of 2008, and is expected to be approximately $12 million for the fiscal year 2008. Estimated annual amortization expense for the next five years related to these intangible assets is expected to be as follows:
(In thousands) |
|
|
|
|
Year |
|
Amount |
|
|
2009 |
|
$ |
9,900 |
|
2010 |
|
9,400 |
|
|
2011 |
|
8,900 |
|
|
2012 |
|
6,700 |
|
|
2013 |
|
3,400 |
|
|
9
NOTE 4. DEBT OBLIGATIONS
The Companys total debt, including commercial paper, borrowings under revolving credit agreements and capital lease obligations, was $1.1 billion as of June 29, 2008, and $1.0 billion as of December 30, 2007.
The Companys $800.0 million revolving credit agreements ($400.0 million credit agreement maturing in May 2009 and $400.0 million credit agreement maturing in June 2011) are used for general corporate purposes and may be used to support its commercial paper program. In addition, these revolving credit agreements provide a facility for the issuance of letters of credit. Of the total $800.0 million available under the two revolving credit agreements, the Company has issued letters of credit of approximately $30 million as of June 29, 2008. The Company had $370.0 million outstanding under its revolving credit agreements, with a weighted-average interest rate of 2.9%, as of June 29, 2008. As of December 30, 2007, the Company had $195.0 million outstanding under its revolving credit agreements, with a weighted-average interest rate of 5.3%. Any borrowings under the revolving credit agreements bear interest at specified margins based on the Companys credit rating, over various floating rates selected by the Company.
The revolving credit agreements each contain a covenant that requires a specified level of stockholders equity (as defined in the agreements). As of June 29, 2008, the amount of stockholders equity in excess of the required levels was approximately $556 million.
The Companys $725.0 million commercial paper program is supported by the revolving credit agreements. Commercial paper issued by the Company is unsecured and can have maturities of up to 270 days, but generally matures within 90 days. The Company had $3.5 million in commercial paper outstanding as of June 29, 2008, with an annual weighted-average interest rate of 3.5% and an average of three days to maturity from original issuance. The Company had $111.7 million outstanding as of December 30, 2007, with an annual weighted-average interest rate of 5.5% and an average of 10 days to maturity from original issuance.
Interest expense, net in the Companys Condensed Consolidated Statements of Operations was as follows:
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
Interest expense |
|
$ |
12,568 |
|
$ |
14,005 |
|
$ |
25,409 |
|
$ |
32,309 |
|
Capitalized interest |
|
(406 |
) |
(6,201 |
) |
(1,462 |
) |
(12,123 |
) |
||||
Interest income |
|
(58 |
) |
(678 |
) |
(98 |
) |
(1,732 |
) |
||||
Interest expense, net |
|
$ |
12,104 |
|
$ |
7,126 |
|
$ |
23,849 |
|
$ |
18,454 |
|
10
NOTE 5. INCOME TAXES
The Companys effective income tax rate was 45.0% in the second quarter and 30.8% in the first six months of 2008 compared with 46.0% in the second quarter and 48.5% in the first six months of 2007.
In the first quarter of 2008, the Company recognized a $4.6 million adjustment to reduce the Companys reserve for uncertain tax positions. This adjustment reduced the effective income tax rate for the first six months of 2008. In 2007, the effective income tax rates were affected by the asset sales in the second quarter of 2007 (see Notes 2 and 8) and an unfavorable tax adjustment of $4.5 million for a change in New York State tax law (effective January 1, 2007) that required a revaluation of existing deferred tax balances in the first quarter of 2007.
NOTE 6. COMMON STOCK
On June 19, 2008, the Board declared a dividend of $.23 per share on the Companys Class A and B Common Stock. The dividend is payable on September 15, 2008, to shareholders of record on September 2, 2008. The estimated dividend payable of approximately $33 million is included in Accounts payable in the Companys Condensed Consolidated Balance Sheet as of June 29, 2008.
NOTE 7. PENSION AND POSTRETIREMENT BENEFITS
Pension
The Company sponsors several pension plans and makes contributions to several others, in connection with collective bargaining agreements, that are considered multi-employer pension plans. These plans cover substantially all employees.
The Company-sponsored plans include qualified (funded) plans as well as non-qualified (unfunded) plans. These plans provide participating employees with retirement benefits in accordance with benefit formulas detailed in each plan. The Companys non-qualified plans provide retirement benefits only to certain highly compensated employees of the Company.
The Company also has a foreign-based pension plan for certain International Herald Tribune (IHT) employees (the Foreign plan). The information for the Foreign plan is combined with the information for U.S. non-qualified plans. The benefit obligation of the Foreign plan is immaterial to the Companys total benefit obligation.
11
The components of net periodic pension cost of all Company-sponsored pension plans were as follows:
|
|
For the Quarters Ended |
|
||||||||||||||||
|
|
June 29, 2008 |
|
July 1, 2007 |
|
||||||||||||||
(In thousands) |
|
Qualified |
|
Non- |
|
All Plans |
|
Qualified |
|
Non- |
|
All Plans |
|
||||||
Service cost |
|
$ |
10,110 |
|
$ |
710 |
|
$ |
10,820 |
|
$ |
10,899 |
|
$ |
519 |
|
$ |
11,418 |
|
Interest cost |
|
25,078 |
|
3,463 |
|
28,541 |
|
23,515 |
|
3,574 |
|
27,089 |
|
||||||
Expected return on plan assets |
|
(31,915 |
) |
|
|
(31,915 |
) |
(30,712 |
) |
|
|
(30,712 |
) |
||||||
Amortization of prior service cost |
|
362 |
|
17 |
|
379 |
|
363 |
|
18 |
|
381 |
|
||||||
Recognized actuarial loss |
|
729 |
|
1,238 |
|
1,967 |
|
1,070 |
|
1,983 |
|
3,053 |
|
||||||
Effect of curtailment |
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
||||||
Special termination benefits |
|
|
|
|
|
|
|
|
|
908 |
|
908 |
|
||||||
Net periodic pension cost |
|
$ |
4,364 |
|
$ |
5,428 |
|
$ |
9,792 |
|
$ |
5,150 |
|
$ |
7,002 |
|
$ |
12,152 |
|
|
|
For the Six Months Ended |
|
||||||||||||||||
|
|
June 29, 2008 |
|
July 1, 2007 |
|
||||||||||||||
(In thousands) |
|
Qualified |
|
Non- |
|
All Plans |
|
Qualified |
|
Non- |
|
All Plans |
|
||||||
Service cost |
|
$ |
20,220 |
|
$ |
1,420 |
|
$ |
21,640 |
|
$ |
22,807 |
|
$ |
1,038 |
|
$ |
23,845 |
|
Interest cost |
|
50,156 |
|
6,926 |
|
57,082 |
|
47,001 |
|
7,148 |
|
54,149 |
|
||||||
Expected return on plan assets |
|
(63,830 |
) |
|
|
(63,830 |
) |
(60,671 |
) |
|
|
(60,671 |
) |
||||||
Amortization of prior service cost |
|
724 |
|
34 |
|
758 |
|
722 |
|
35 |
|
757 |
|
||||||
Recognized actuarial loss |
|
1,458 |
|
2,476 |
|
3,934 |
|
3,144 |
|
3,965 |
|
7,109 |
|
||||||
Effect of curtailment |
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
||||||
Special termination benefits |
|
|
|
|
|
|
|
|
|
908 |
|
908 |
|
||||||
Net periodic pension cost |
|
$ |
8,728 |
|
$ |
10,856 |
|
$ |
19,584 |
|
$ |
13,018 |
|
$ |
13,094 |
|
$ |
26,112 |
|
Although the Company does not have any quarterly funding requirements in 2008 (under the Employee Retirement Income Security Act of 1974, as amended, and Internal Revenue Code requirements), the Company will make contractual funding contributions of approximately $18 million (approximately $6 million was made in the first six months of 2008) for The New York Times Newspaper Guild pension plan. The Company does not expect to make additional contributions to its other pension plans in 2008.
Postretirement Benefits
The Company provides health and life insurance benefits to retired employees and their eligible dependents, who are not covered by any collective bargaining agreements, if the employees meet specified age and service requirements. In addition, the Company contributes to a postretirement plan under the provisions of a collective bargaining agreement. The Companys policy is to pay its portion of insurance premiums and claims from Company assets.
In accordance with FAS 106, the Company accrues the costs of postretirement benefits during the employees active years of service.
12
The components of net periodic postretirement benefit cost were as follows:
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
Service cost |
|
$ |
881 |
|
$ |
1,853 |
|
$ |
1,762 |
|
$ |
4,044 |
|
Interest cost |
|
3,514 |
|
3,547 |
|
7,028 |
|
7,498 |
|
||||
Amortization of prior service credit |
|
(2,908 |
) |
(1,892 |
) |
(5,816 |
) |
(3,966 |
) |
||||
Recognized actuarial loss |
|
1,041 |
|
674 |
|
2,082 |
|
1,569 |
|
||||
Effect of curtailment |
|
|
|
(4,717 |
) |
|
|
(4,717 |
) |
||||
Special termination benefits |
|
|
|
703 |
|
|
|
703 |
|
||||
Net periodic postretirement cost |
|
$ |
2,528 |
|
$ |
168 |
|
$ |
5,056 |
|
$ |
5,131 |
|
NOTE 8. OTHER
Severance Charges
The Company recognized severance charges of $27.6 million in the second quarter of 2008 and $38.8 million in the first six months of 2008. In the second quarter and first six months of 2007, the Company recognized severance charges of $5.0 million and $12.8 million, respectively. Most of the charges in these periods were recognized at the News Media Group. These charges are primarily recorded in Selling, general and administrative costs in the Companys Condensed Consolidated Statements of Operations. As of June 29, 2008, the Company had a severance liability of approximately $25 million included in Accrued expenses in the Companys Condensed Consolidated Balance Sheet.
Impairment of Assets
In the first quarter of 2008, the Company recorded a non-cash charge of $18.3 million for the write-down of assets for a systems project at the News Media Group. The Company reduced the scope of a major advertising and circulation project to decrease capital spending, which resulted in the write-down of previously capitalized costs.
Plant Consolidation
In 2006, the Company announced plans to consolidate the printing operations of a facility it leased in Edison, N.J., into its newest facility in College Point, N.Y. As part of the consolidation, the Company purchased the Edison facility and then sold it, with two adjacent properties it already owned, to a third party. The purchase and sale of the Edison facility closed in the second quarter of 2007, relieving the Company of rental terms that were above market as well as certain restoration obligations under the original lease. As a result of the sale, the Company recognized a pre-tax loss of $68.2 million ($41.3 million after tax) in the second quarter of 2007.
The Edison facility was closed in March 2008. The costs to close the Edison facility are estimated to be $90 to $94 million, principally consisting of accelerated depreciation charges ($68.5 million), severance costs ($16 to $20 million) and plant restoration costs ($5.3 million). The majority of these costs, approximately $87 million (approximately $7 million in the first six months of 2008), have been recognized as of June 29, 2008.
13
Sale of WQEW-AM
On April 26, 2007, the Company sold WQEW-AM to Radio Disney, LLC (which had been providing substantially all of WQEW-AM programming through a time brokerage agreement) for $40 million. The Company recognized a pre-tax gain of $39.6 million ($21.2 million after-tax) in the second quarter of 2007.
NOTE 9. EARNINGS PER SHARE
Basic and diluted earnings per share have been computed as follows:
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
(In thousands, except per share data) |
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
Basic earnings per share computation: |
|
|
|
|
|
|
|
|
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
20,852 |
|
$ |
22,061 |
|
$ |
21,117 |
|
$ |
42,187 |
|
Discontinued operations, net of income taxes Broadcast Media Group |
|
289 |
|
96,307 |
|
(311 |
) |
100,083 |
|
||||
Net income |
|
$ |
21,141 |
|
$ |
118,368 |
|
$ |
20,806 |
|
$ |
142,270 |
|
Denominator |
|
|
|
|
|
|
|
|
|
||||
Average number of common shares outstanding |
|
143,776 |
|
143,906 |
|
143,768 |
|
143,901 |
|
||||
Income from continuing operations |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.29 |
|
Discontinued operations, net of income taxes Broadcast Media Group |
|
|
|
0.67 |
|
|
|
0.70 |
|
||||
Basic earnings per share |
|
$ |
0.15 |
|
$ |
0.82 |
|
$ |
0.15 |
|
$ |
0.99 |
|
Diluted earnings per share computation: |
|
|
|
|
|
|
|
|
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
20,852 |
|
$ |
22,061 |
|
$ |
21,117 |
|
$ |
42,187 |
|
Discontinued operations, net of income taxes Broadcast Media Group |
|
289 |
|
96,307 |
|
(311 |
) |
100,083 |
|
||||
Net income |
|
$ |
21,141 |
|
$ |
118,368 |
|
$ |
20,806 |
|
$ |
142,270 |
|
Denominator |
|
|
|
|
|
|
|
|
|
||||
Average number of common shares outstanding |
|
143,776 |
|
143,906 |
|
143,768 |
|
143,901 |
|
||||
Incremental shares for assumed exercise of securities |
|
261 |
|
208 |
|
283 |
|
213 |
|
||||
Total shares |
|
144,037 |
|
144,114 |
|
144,051 |
|
144,114 |
|
||||
Income from continuing operations |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.29 |
|
Discontinued operations, net of income taxes Broadcast Media Group |
|
|
|
0.67 |
|
|
|
0.70 |
|
||||
Diluted earnings per share |
|
$ |
0.15 |
|
$ |
0.82 |
|
$ |
0.15 |
|
$ |
0.99 |
|
The difference between basic and diluted shares is generally due to the assumed exercise of stock options and the assumed vesting of restricted stock units included in the diluted earnings per share computation.
Stock options with exercise prices that exceeded the average fair market value of the Companys Common Stock had an antidilutive effect and, therefore, were excluded from the computation of diluted earnings per share. Approximately 32 million stock options and approximately 31 million stock options with exercise prices ranging from $19.88 to $48.54 were excluded from the computation in the second quarter and first six months of 2008. Approximately 32 million stock options with exercise prices ranging from $23.83 to $48.54 were excluded from the computation in the second quarter and first six months of 2007.
14
NOTE 10. COMPREHENSIVE INCOME
Comprehensive income was as follows:
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
Net income |
|
$ |
21,141 |
|
$ |
118,368 |
|
$ |
20,806 |
|
$ |
142,270 |
|
Foreign currency translation adjustments |
|
206 |
|
2,719 |
|
8,667 |
|
3,602 |
|
||||
Adjustments to pension and postretirement benefits obligations |
|
|
|
56,711 |
|
|
|
56,711 |
|
||||
Amortization of unrecognized amounts included in pension and postretirement benefits obligations |
|
479 |
|
(2,486 |
) |
958 |
|
767 |
|
||||
Income tax charge |
|
(279 |
) |
(34,493 |
) |
(4,456 |
) |
(39,143 |
) |
||||
Comprehensive income |
|
$ |
21,547 |
|
$ |
140,819 |
|
$ |
25,975 |
|
$ |
164,207 |
|
The Accumulated other comprehensive loss, net of income taxes in the Companys Condensed Consolidated Balance Sheets was net of a deferred income tax benefit of approximately $48 million as of June 29, 2008, and approximately $53 million as of December 30, 2007.
NOTE 11. SEGMENT INFORMATION
The Companys reportable segments consist of the News Media Group and the About Group. These segments are evaluated regularly by management in assessing performance and allocating resources.
Below is a description of the Companys reportable segments:
News Media Group (consisting of The New York Times Media Group, which principally includes The New York Times (The Times), NYTimes.com, the IHT and WQXR-FM; the New England Media Group, which principally includes The Boston Globe (the Globe), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 15 daily newspapers, other print publications and their related digital operations); and
About Group (consisting of the Web sites of About.com, ConsumerSearch.com, UCompareHealthCare.com and Calorie-Count.com).
The Broadcast Media Group, which was sold on May 7, 2007, is classified as a discontinued operation and is no longer included as a reportable segment (see Note 2).
15
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
June 29, 2008 |
|
July 1, 2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
||||
News Media Group |
|
$ |
713,293 |
|
$ |
764,238 |
|
$ |
1,432,978 |
|
$ |
1,527,715 |
|
About Group |
|
28,612 |
|
24,705 |
|
56,782 |
|
47,248 |
|
||||
Total |
|
$ |
741,905 |
|
$ |
788,943 |
|
$ |
1,489,760 |
|
$ |
1,574,963 |
|
|
|
|
|
|
|
|
|
|
|
||||
OPERATING PROFIT (LOSS) |
|
|
|
|
|
|
|
|
|
||||
News Media Group (1) |
|
$ |
44,472 |
|
$ |
46,653 |
|
$ |
57,757 |
|
$ |
106,282 |
|
About Group |
|
9,116 |
|
8,511 |
|
18,637 |
|
16,841 |
|
||||
Corporate |
|
(13,333 |
) |
(11,847 |
) |
(29,924 |
) |
(25,309 |
) |
||||
Total |
|
$ |
40,255 |
|
$ |
43,317 |
|
$ |
46,470 |
|
$ |
97,814 |
|
Net income from joint ventures |
|
10,165 |
|
4,745 |
|
8,372 |
|
2,592 |
|
||||
Interest expense, net |
|
12,104 |
|
7,126 |
|
23,849 |
|
18,454 |
|
||||
Income from continuing operations before income taxes and minority interest |
|
38,316 |
|
40,936 |
|
30,993 |
|
81,952 |
|
||||
Income tax expense |
|
17,251 |
|
18,851 |
|
9,559 |
|
39,750 |
|
||||
Minority interest in net income of subsidiaries |
|
(213 |
) |
(24 |
) |
(317 |
) |
(15 |
) |
||||
Income from continuing operations |
|
20,852 |
|
22,061 |
|
21,117 |
|
42,187 |
|
||||
Discontinued operations, Broadcast Media Group: |
|
|
|
|
|
|
|
|
|
||||
Income from discontinued operations, net of income taxes |
|
|
|
1,977 |
|
|
|
5,753 |
|
||||
Gain/(loss) on sale, net of income taxes |
|
289 |
|
94,330 |
|
(311 |
) |
94,330 |
|
||||
Discontinued operations, net of income taxes |
|
289 |
|
96,307 |
|
(311 |
) |
100,083 |
|
||||
Net income |
|
$ |
21,141 |
|
$ |
118,368 |
|
$ |
20,806 |
|
$ |
142,270 |
|
(1) In the first quarter of 2008, a non-cash charge of $18.3 million was recorded for the write-down of assets for a systems project at the News Media Group. Operating profit for the second quarter and first six months of 2007 included a $68.2 million net loss from the sale of assets and $39.6 million gain from the sale of WQEW-AM.
NOTE 12. CONTINGENT LIABILITIES
The Company has outstanding guarantees on behalf of a third party that provides circulation customer service, telemarketing and home-delivery services for The Times and the Globe, and on behalf of two third parties that provide printing and distribution services for The Timess National Edition. The guarantees are for payments under a credit facility and property and equipment leases, and for certain debt and costs related to any default. The total amount of the guarantees was approximately $26 million as of June 29, 2008. In accordance with GAAP, the contingent obligations related to these guarantees are not reflected in the Companys Condensed Consolidated Balance Sheets as of June 29, 2008 and December 30, 2007.
Other
The Company also has letters of credit of approximately $30 million as of June 29, 2008, which are primarily to satisfy requirements by insurance companies, to provide support for the Companys workers compensation liability. The workers compensation liability (approximately $52 million) is included in the Companys Condensed Consolidated Balance Sheet as of June 29, 2008.
There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company. These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made. It is the opinion of management after reviewing these actions with legal counsel to the Company that the ultimate liability that might result from these actions would not have a material adverse effect on the Companys Condensed Consolidated Financial Statements.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
We are a leading media and news organization serving our audiences through print, online, mobile and radio technology. Our segments and divisions are:
News Media Group (consisting of The New York Times Media Group, which principally includes The New York Times (The Times), NYTimes.com, the International Herald Tribune and WQXR-FM; the New England Media Group, which principally includes The Boston Globe (the Globe), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 15 daily newspapers, other print publications and their related digital operations). The News Media Group generates revenues principally from print, online and radio advertising and through circulation. Other revenues, which make up the remainder of revenues, primarily consist of revenues from wholesale delivery operations, news services/syndication, commercial printing, digital archives, direct mail advertising services and rental income. The News Media Groups main operating costs are employee-related costs and raw materials, primarily newsprint.
About Group (consisting of the Web sites of About.com, ConsumerSearch.com, UCompareHealthCare.com and Calorie-Count.com). The About Group principally generates revenues from cost-per-click advertising (sponsored links for which the About Group is paid when a user clicks on the ad), display advertising that is relevant to its adjacent content, and e-commerce (including sales lead generation). Almost all of its revenues (93% in the first six months of 2008) are derived from the sale of advertisements (cost-per-click and display advertising). Cost-per-click advertising accounts for 57% of the About Groups total advertising revenues. The About Groups 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 (acquired in 2008 for a nominal amount) in quadrantONE LLC, a consortium online advertising network that sells bundled premium, targeted display advertising from local newspaper Web sites and other affiliates, and
· an approximately 17.5% interest in New England Sports Ventures, which owns the Boston Red Sox, Fenway Park and adjacent real estate, approximately 80% of the New England Sports Network, a regional cable sports network, and 50% of Roush Fenway Racing, a leading NASCAR team.
17
RECENT DEVELOPMENTS
Severance Charges
We recognized severance charges of $27.6 million in the second quarter of 2008 and $38.8 million in the first six months of 2008. In the second quarter and first six months of 2007, we recognized severance charges of $5.0 million and $12.8 million, respectively. Most of the charges in these periods were recognized at the News Media Group. These charges are primarily recorded in Selling, general and administrative costs in our Condensed Consolidated Statements of Operations.
Acquisitions
In March 2008, we acquired certain assets of the Winter Haven News Chief (News Chief), a regional newspaper in Winter Haven, Fla., for $2.5 million. Also in March 2008, we purchased additional Class A units of BehNeem, LLC (BehNeem), increasing our total investment to $4.3 million for a 53% ownership interest. BehNeem licenses the Epsilen Environment, an integrated online course content, portfolio and communications tool for the education community. The operating results of the News Chief are included in the results of the Regional Media Group and the operating results of BehNeem are included in the results of The New York Times Media Group, both of which are part of the News Media Group.
See Note 3 of the Notes to the Condensed Consolidated Financial Statements.
Impairment of Assets
In the first quarter of 2008, we recorded a non-cash charge of $18.3 million for the write-down of assets for a systems project at the News Media Group. We reduced the scope of a major advertising and circulation project to decrease capital spending, which resulted in the write-down of previously capitalized costs.
Plant Consolidation
In 2006, we announced plans to consolidate the printing operations of a facility we leased in Edison, N.J., into our newest facility in College Point, N.Y. As part of the consolidation, we purchased the Edison facility and then sold it, with two adjacent properties we already owned, to a third party. The purchase and sale of the Edison facility closed in the second quarter of 2007, relieving us of rental terms that were above market as well as certain restoration obligations under the original lease. As a result of the sale, we recognized a pre-tax loss of $68.2 million ($41.3 million after tax) in the second quarter of 2007.
The Edison facility was closed in March 2008. The costs to close the Edison facility are estimated to be $90 to $94 million, principally consisting of accelerated depreciation charges ($68.5 million), severance costs ($16 to $20 million) and plant restoration costs ($5.3 million). The majority of these costs, approximately $87 million (approximately $7 million in the first six months of 2008), have been recognized as of June 29, 2008.
18
2008 EXPECTATIONS
Expectations regarding key financial measures for 2008 are in the table below.
Item |
|
2008 Expectations |
Depreciation & amortization |
|
$145 to $155 million(1) |
Income from joint ventures |
|
$20 to $25 million |
Interest expense |
|
$49 to $53 million |
Income tax rate |
|
40% to 43%(2) |
Capital expenditures |
|
$150 to $165 million(3) |
Severance charges |
|
$40 to $50 million |
(1) Includes approximately $5 million of accelerated depreciation expense in the first quarter of 2008 associated with the New York area plant consolidation project. Depreciation for our new headquarters building is expected to be approximately $7 million per quarter.
(2) There are many factors that can result in significant volatility quarter to quarter.
(3) Includes approximately $35 million for the consolidation of our New York area plants and about $22 million for our new headquarters.
In addition, we believe that we can achieve a reduction in costs from our year-end 2007 cash cost base of a total of more than $230 million in 2008 and 2009, excluding the effects of inflation, severance costs and one-time costs. More than $130 million of these savings are expected in 2008.
19
RESULTS OF OPERATIONS
The following table presents our consolidated financial results.
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
$ |
454,377 |
|
$ |
508,467 |
|
(10.6 |
) |
$ |
912,716 |
|
$ |
1,013,382 |
|
(9.9 |
) |
Circulation |
|
224,168 |
|
218,664 |
|
2.5 |
|
450,797 |
|
441,118 |
|
2.2 |
|
||||
Other |
|
63,360 |
|
61,812 |
|
2.5 |
|
126,247 |
|
120,463 |
|
4.8 |
|
||||
Total revenues |
|
741,905 |
|
788,943 |
|
(6.0 |
) |
1,489,760 |
|
1,574,963 |
|
(5.4 |
) |
||||
Operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Production costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Raw materials |
|
60,285 |
|
63,139 |
|
(4.5 |
) |
119,361 |
|
138,035 |
|
(13.5 |
) |
||||
Wages and benefits |
|
155,605 |
|
158,883 |
|
(2.1 |
) |
325,512 |
|
324,443 |
|
0.3 |
|
||||
Other |
|
108,509 |
|
103,900 |
|
4.4 |
|
220,090 |
|
208,469 |
|
5.6 |
|
||||
Total production costs |
|
324,399 |
|
325,922 |
|
(0.5 |
) |
664,963 |
|
670,947 |
|
(0.9 |
) |
||||
Selling, general and administrative costs |
|
344,609 |
|
344,481 |
|
0.0 |
|
685,463 |
|
686,542 |
|
(0.2 |
) |
||||
Depreciation and amortization |
|
32,642 |
|
46,645 |
|
(30.0 |
) |
74,573 |
|
91,082 |
|
(18.1 |
) |
||||
Total operating costs |
|
701,650 |
|
717,048 |
|
(2.1 |
) |
1,424,999 |
|
1,448,571 |
|
(1.6 |
) |
||||
Impairment of assets |
|
|
|
|
|
N/A |
|
18,291 |
|
|
|
N/A |
|
||||
Net loss on sale of assets |
|
|
|
68,156 |
|
N/A |
|
|
|
68,156 |
|
N/A |
|
||||
Gain on sale of WQEW-AM |
|
|
|
39,578 |
|
N/A |
|
|
|
39,578 |
|
N/A |
|
||||
Operating profit |
|
40,255 |
|
43,317 |
|
(7.1 |
) |
46,470 |
|
97,814 |
|
(52.5 |
) |
||||
Net income from joint ventures |
|
10,165 |
|
4,745 |
|
* |
|
8,372 |
|
2,592 |
|
* |
|
||||
Interest expense, net |
|
12,104 |
|
7,126 |
|
69.9 |
|
23,849 |
|
18,454 |
|
29.2 |
|
||||
Income from continuing operations before income taxes and minority interest |
|
38,316 |
|
40,936 |
|
(6.4 |
) |
30,993 |
|
81,952 |
|
(62.2 |
) |
||||
Income tax expense |
|
17,251 |
|
18,851 |
|
(8.5 |
) |
9,559 |
|
39,750 |
|
(76.0 |
) |
||||
Minority interest in net income of subsidiaries |
|
(213 |
) |
(24 |
) |
* |
|
(317 |
) |
(15 |
) |
* |
|
||||
Income from continuing operations |
|
20,852 |
|
22,061 |
|
(5.5 |
) |
21,117 |
|
42,187 |
|
(49.9 |
) |
||||
Discontinued operations, Broadcast Media Group: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from discontinued operations, net of income taxes |
|
|
|
1,977 |
|
N/A |
|
|
|
5,753 |
|
N/A |
|
||||
Gain/(loss) on sale, net of income taxes |
|
289 |
|
94,330 |
|
(99.7 |
) |
(311 |
) |
94,330 |
|
* |
|
||||
Discontinued operations, net of income taxes Broadcast Media Group |
|
289 |
|
96,307 |
|
(99.7 |
) |
(311 |
) |
100,083 |
|
* |
|
||||
Net income |
|
$ |
21,141 |
|
$ |
118,368 |
|
(82.1 |
) |
$ |
20,806 |
|
$ |
142,270 |
|
(85.4 |
) |
* 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 Six Months Ended |
|
||||||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
News Media Group |
|
$ |
713,293 |
|
$ |
764,238 |
|
(6.7 |
) |
$ |
1,432,978 |
|
$ |
1,527,715 |
|
(6.2 |
) |
About Group |
|
28,612 |
|
24,705 |
|
15.8 |
|
56,782 |
|
47,248 |
|
20.2 |
|
||||
Total revenues |
|
$ |
741,905 |
|
$ |
788,943 |
|
(6.0 |
) |
$ |
1,489,760 |
|
$ |
1,574,963 |
|
(5.4 |
) |
20
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 Six Months Ended |
|
||||||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
||||
The New York Times Media Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
$ |
270,906 |
|
$ |
299,394 |
|
(9.5 |
) |
$ |
547,606 |
|
$ |
596,540 |
|
(8.2 |
) |
Circulation |
|
165,088 |
|
157,888 |
|
4.6 |
|
330,873 |
|
318,550 |
|
3.9 |
|
||||
Other |
|
43,506 |
|
44,143 |
|
(1.4 |
) |
86,787 |
|
86,219 |
|
0.7 |
|
||||
Total |
|
$ |
479,500 |
|
$ |
501,425 |
|
(4.4 |
) |
$ |
965,266 |
|
$ |
1,001,309 |
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
New England Media Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
$ |
85,153 |
|
$ |
100,334 |
|
(15.1 |
) |
$ |
166,531 |
|
$ |
197,576 |
|
(15.7 |
) |
Circulation |
|
37,588 |
|
39,297 |
|
(4.3 |
) |
75,263 |
|
77,782 |
|
(3.2 |
) |
||||
Other |
|
12,752 |
|
10,657 |
|
19.7 |
|
25,346 |
|
20,050 |
|
26.4 |
|
||||
Total |
|
$ |
135,493 |
|
$ |
150,288 |
|
(9.8 |
) |
$ |
267,140 |
|
$ |
295,408 |
|
(9.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Regional Media Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
$ |
71,584 |
|
$ |
85,205 |
|
(16.0 |
) |
$ |
145,665 |
|
$ |
174,411 |
|
(16.5 |
) |
Circulation |
|
21,492 |
|
21,479 |
|
0.1 |
|
44,661 |
|
44,786 |
|
(0.3 |
) |
||||
Other |
|
5,224 |
|
5,841 |
|
(10.6 |
) |
10,246 |
|
11,801 |
|
(13.2 |
) |
||||
Total |
|
$ |
98,300 |
|
$ |
112,525 |
|
(12.6 |
) |
$ |
200,572 |
|
$ |
230,998 |
|
(13.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total News Media Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
$ |
427,643 |
|
$ |
484,933 |
|
(11.8 |
) |
$ |
859,802 |
|
$ |
968,527 |
|
(11.2 |
) |
Circulation |
|
224,168 |
|
218,664 |
|
2.5 |
|
450,797 |
|
441,118 |
|
2.2 |
|
||||
Other |
|
61,482 |
|
60,641 |
|
1.4 |
|
122,379 |
|
118,070 |
|
3.6 |
|
||||
Total |
|
$ |
713,293 |
|
$ |
764,238 |
|
(6.7 |
) |
$ |
1,432,978 |
|
$ |
1,527,715 |
|
(6.2 |
) |
Advertising Revenues
Advertising revenue is primarily determined by the volume, rate and mix of advertisements. Total News Media Group advertising revenues decreased in the second quarter and first six months of 2008 primarily due to lower print volume. Print advertising revenues declined 15.1% and 13.9% in the second quarter and first six months of 2008, respectively, while online advertising revenues increased 20.8% and 16.8% in the same periods. Difficult national and local economic conditions and a secular shift of print advertising to online alternatives have continued to negatively affect national, classified and retail advertising at the News Media Group.
Advertising revenues (print and online) by category for the News Media Group were as follows:
|
|
For the Quarters Ended |
|
For the Six Months Ended |
|
||||||||||||
(In thousands) |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
June 29, 2008 |
|
July 1, 2007 |
|
% Change |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
National |
|
$ |
211,368 |
|
$ |
224,244 |
|
(5.7 |
) |
$ |
427,809 |
|
$ |
449,146 |
|
(4.8 |
) |
Retail |
|
99,254 |
|
109,640 |
|
(9.5 |
) |
194,681 |
|
216,989 |
|
(10.3 |
) |
||||
Classified |
|
101,633 |
|
134,471 |
|
(24.4 |
) |
206,952 |
|
270,578 |
|
(23.5 |
) |
||||
Other |
|
15,388 |
|
16,578 |
|
(7.2 |
) |
30,360 |
|
31,814 |
|
(4.6 |
) |
||||
Total |
|
$ |
427,643 |
|
$ |
484,933 |
|
(11.8 |
) |
$ |
859,802 |
|
$ |
968,527 |
|
(11.2 < |