NYT 10-Q 9.23.2012


 
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 September 23, 2012
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
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
620 EIGHTH AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)
10018
(Zip Code)
Registrant’s 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 registrant’s common stock outstanding as of October 26, 2012 (exclusive of treasury shares):
 
Class A Common Stock
  
 
147,677,343

  shares
Class B Common Stock
  
 
818,385

  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 Nine Months Ended
 
 
September 23,
2012
 
September 25,
2011
 
September 23,
2012
 
September 25,
2011
 
 
(13 weeks)
 
(39 weeks)
Revenues
 
 
 
 
 
 
 
 
Advertising
 
$
182,641

 
$
200,508

 
$
618,103

 
$
665,492

Circulation
 
234,867

 
218,601

 
695,152

 
640,917

Other
 
31,520

 
32,460

 
101,007

 
98,826

Total revenues
 
449,028

 
451,569

 
1,414,262

 
1,405,235

Operating costs
 
 
 
 
 
 
 
 
Production costs:
 
 
 
 
 
 
 
 
Raw materials
 
31,592

 
32,722

 
98,551

 
101,097

Wages and benefits
 
107,487

 
103,179

 
324,529

 
317,615

Other
 
62,498

 
61,603

 
185,038

 
184,937

Total production costs
 
201,577

 
197,504

 
608,118

 
603,649

Selling, general and administrative costs
 
216,457

 
209,269

 
666,291

 
664,731

Depreciation and amortization
 
22,485

 
23,747

 
75,521

 
70,564

Total operating costs
 
440,519

 
430,520

 
1,349,930

 
1,338,944

Impairment of assets
 
—

 
—

 
—

 
9,225

Pension withdrawal expense
 
—

 
—

 
—

 
4,228

Operating profit
 
8,509

 
21,049

 
64,332

 
52,838

Gain on sale of investments
 
—

 
65,273

 
55,645

 
71,171

Impairment of investments
 
600

 
—

 
5,500

 
—

Income/(loss) from joint ventures
 
1,027

 
(1,068
)
 
2,077

 
(4,026
)
Premium on debt redemption
 
—

 
46,381

 
—

 
46,381

Interest expense, net
 
15,497

 
20,039

 
46,413

 
69,782

(Loss)/income from continuing operations before income taxes
 
(6,561
)
 
18,834

 
70,141

 
3,820

Income tax (benefit)/expense
 
(2,796
)
 
12,440

 
27,707

 
3,509

(Loss)/income from continuing operations
 
(3,765
)
 
6,394

 
42,434

 
311

Income/(loss) from discontinued operations, net of income taxes
 
6,026

 
9,074

 
(86,272
)
 
(99,440
)
Net income/(loss)
 
2,261

 
15,468

 
(43,838
)
 
(99,129
)
Net loss attributable to the noncontrolling interest
 
21

 
217

 
101

 
515

Net income/(loss) attributable to The New York Times Company common stockholders
 
$
2,282

 
$
15,685

 
$
(43,737
)

$
(98,614
)
Amounts attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
(Loss)/income from continuing operations
 
$
(3,744
)
 
$
6,611

 
$
42,535

 
$
826

Income/(loss) from discontinued operations, net of income taxes
 
6,026

 
9,074

 
(86,272
)
 
(99,440
)
Net income/(loss)
 
$
2,282

 
$
15,685

 
$
(43,737
)
 
$
(98,614
)
Average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
148,254

 
147,355

 
148,042

 
147,103

Diluted
 
148,254

 
151,293

 
151,762

 
152,424

Basic (loss)/earnings per share attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
(Loss)/income from continuing operations
 
$
(0.02
)
 
$
0.05

 
$
0.29

 
$
0.01

Income/(loss) from discontinued operations, net of income taxes
 
0.04

 
0.06

 
(0.59
)
 
(0.68
)
Net income/(loss)
 
$
0.02

 
$
0.11

 
$
(0.30
)
 
$
(0.67
)
Diluted (loss)/earnings per share attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
(Loss)/income from continuing operations
 
$
(0.02
)
 
$
0.04

 
$
0.28

 
$
0.01

Income/(loss) from discontinued operations, net of income taxes
 
0.04

 
0.06

 
(0.57
)
 
(0.66
)
Net income/(loss)
 
$
0.02

 
$
0.10

 
$
(0.29
)
 
$
(0.65
)
See Notes to Condensed Consolidated Financial Statements.

2


THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
(In thousands)
 
 
For the Quarters Ended
 
For the Nine Months Ended
 
 
September 23,
2012
 
September 25,
2011
 
September 23,
2012
 
September 25,
2011
 
 
(13 weeks)
 
(39 weeks)
Net income/(loss)
 
$
2,261

 
$
15,468

 
$
(43,838
)
 
$
(99,129
)
Other comprehensive income, before tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
3,251

 
(5,186
)
 
(1,148
)
 
3,258

Unrealized derivative gain on cash-flow hedge of equity method investment
 
—

 
726

 
1,143

 
803

Unrealized (loss)/gain on available-for-sale security
 
(2,338
)
 
—

 
1,251

 
—

Pension and postretirement benefits obligation:
 
 
 
 
 
 
 
 
Adjustments related to pension and postretirement benefits obligation
 
—

 
—

 
(16,090
)
 
—

Amortization of unrecognized amounts included in pension and postretirement benefits obligation
 
5,888

 
5,999

 
17,659

 
14,642

Total pension and postretirement benefits obligation
 
5,888

 
5,999

 
1,569

 
14,642

Other comprehensive income, before tax
 
6,801

 
1,539

 
2,815

 
18,703

Income tax expense
 
2,568

 
857

 
815

 
7,838

Other comprehensive income, net of tax
 
4,233

 
682

 
2,000

 
10,865

Comprehensive income/(loss)
 
6,494

 
16,150

 
(41,838
)
 
(88,264
)
Comprehensive loss attributable to the noncontrolling interest
 
21

 
217

 
101

 
515

Comprehensive income/(loss) attributable to The New York Times Company common stockholders
 
$
6,515

 
$
16,367

 
$
(41,737
)
 
$
(87,749
)
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)
 
September 23,
2012
 
December 25,
2011
 
(Unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
334,374

 
$
175,151

Short-term investments
279,740

 
104,846

Restricted cash
24,341

 
27,628

Accounts receivable (net of allowances of $17,646 in 2012 and $17,275 in 2011)
195,489

 
247,436

Inventories:
 
 
 
Newsprint and magazine paper
11,536

 
14,567

Other inventory
2,373

 
3,213

Total inventories
13,909

 
17,780

Deferred income taxes
73,055

 
73,055

Other current assets
49,883

 
55,665

Assets held for sale
223,887

 
590,002

Total current assets
1,194,678

 
1,291,563

Other assets
 
 
 
Investments in joint ventures
43,151

 
82,019

Property, plant and equipment (less accumulated depreciation and amortization of $929,432 in 2012 and $862,665 in 2011)
877,883

 
937,140

Goodwill (less accumulated impairment losses of $805,218 in 2012 and 2011)
121,251

 
121,618

Deferred income taxes
344,062

 
280,283

Miscellaneous assets
144,540

 
170,827

Total assets
$
2,725,565

 
$
2,883,450

See Notes to Condensed Consolidated Financial Statements.


4


THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS-(Continued)
(In thousands, except share and per share data)
 
September 23,
2012
 
December 25,
2011
 
(Unaudited)
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
94,315

 
$
98,385

Accrued payroll and other related liabilities
97,401

 
112,024

Unexpired subscriptions
66,537

 
63,103

Accrued expenses
129,586

 
165,564

Current portion of long-term debt and capital lease obligations
75,261

 
74,900

Total current liabilities
463,100

 
513,976

Other liabilities
 
 
 
Long-term debt and capital lease obligations
701,678

 
698,220

Pension benefits obligation
830,868

 
880,504

Postretirement benefits obligation
100,248

 
104,192

Other
154,537

 
177,049

Total other liabilities
1,787,331

 
1,859,965

Stockholders’ equity
 
 
 
Common stock of $.10 par value:
 
 
 
Class A – authorized 300,000,000 shares; issued: 2012 – 150,228,385 ; 2011 – 150,007,446 (including treasury shares: 2012 – 2,677,379 ; 2011 – 2,979,786)
15,023

 
15,001

Class B – convertible – authorized and issued shares: 2012 – 818,385; 2011 – 818,885 (including treasury shares: 2012 – 0; 2011 – 0)
82

 
82

Additional paid-in capital
31,181

 
32,024

Retained earnings
1,042,888

 
1,086,625

Common stock held in treasury, at cost
(102,690
)
 
(110,974
)
Accumulated other comprehensive loss, net of income taxes:
 
 
 
Foreign currency translation adjustments
10,418

 
10,928

Unrealized derivative loss on cash-flow hedge of equity method investment
—

 
(652
)
Change in unrealized gain on available-for-sale security
732

 
—

Funded status of benefit plans
(525,548
)
 
(526,674
)
Total accumulated other comprehensive loss, net of income taxes
(514,398
)
 
(516,398
)
Total New York Times Company stockholders’ equity
472,086

 
506,360

Noncontrolling interest
3,048

 
3,149

Total stockholders’ equity
475,134

 
509,509

Total liabilities and stockholders’ equity
$
2,725,565

 
$
2,883,450

See Notes to Condensed Consolidated Financial Statements.


5


THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
For the Nine Months Ended
 
September 23,
2012
 
September 25,
2011
 
(39 weeks)
Cash flows from operating activities
 
 
 
Net loss
$
(43,838
)
 
$
(99,129
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Impairment of assets
194,732

 
161,318

Pension withdrawal expense
—

 
4,228

Gain on sale of investments
(55,645
)
 
(71,171
)
Impairment of investments
5,500

 
—

Premium on debt redemption
—

 
46,381

Loss on sale of Regional Media Group
4,717

 
—

Depreciation and amortization
82,538

 
87,597

Stock-based compensation expense
5,618

 
5,790

Undistributed income/loss of equity method investments–net of dividends
2,418

 
4,026

Long-term retirement benefit obligations
(33,650
)
 
(59,430
)
Other–net
8,862

 
10,341

Changes in operating assets and liabilities–net of dispositions:
 
 
 
Accounts receivable–net
49,218

 
51,324

Inventories
3,311

 
(2,884
)
Other current assets
(1,575
)
 
1,754

Accounts payable and other liabilities
(101,576
)
 
(86,421
)
Unexpired subscriptions
3,639

 
2,150

Net cash provided by operating activities
124,269

 
55,874

Cash flows from investing activities
 
 
 
Purchases of short-term investments
(439,700
)
 
(259,724
)
Maturities of short-term investments
264,806

 
119,934

Proceeds from sale of Regional Media Group
140,044

 
—

Proceeds from investments–net of purchases
96,431

 
115,258

Proceeds from the sale of assets
—

 
6,667

Capital expenditures
(29,978
)
 
(35,457
)
Change in restricted cash
3,287

 
(28,628
)
Net cash provided by/(used in) investing activities
34,890

 
(81,950
)
Cash flows from financing activities
 
 
 
Long-term obligations:
 
 
 
Repayments
(432
)
 
(250,442
)
Capital shares:
 
 
 
Issuances
536

 
218

Net cash provided by/(used in) financing activities
104

 
(250,224
)
Increase/(decrease) in cash and cash equivalents
159,263

 
(276,300
)
Effect of exchange rate changes on cash and cash equivalents
(40
)
 
317

Cash and cash equivalents at the beginning of the year
175,151

 
369,668

Cash and cash equivalents at the end of the quarter
$
334,374

 
$
93,685

See Notes to Condensed Consolidated Financial Statements.

6
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1. BASIS OF PRESENTATION

In the opinion of The New York Times Company’s (the “Company”) management, the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of September 23, 2012, and December 25, 2011, and the results of operations and cash flows of the Company for the periods ended September 23, 2012, and September 25, 2011. The Company and its consolidated subsidiaries are referred to collectively as “we,” “us” or “our.” 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 have been condensed or omitted from these interim financial statements. These financial statements, therefore, should be read in conjunction with the Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 25, 2011. Due to the seasonal nature of our business, operating results for the interim periods are not necessarily indicative of a full year’s operations. The fiscal periods included herein comprise 13 weeks for the third-quarter periods and 39 weeks for the nine-month periods.
 
For comparability, certain prior-year amounts have been reclassified to conform with the 2012 presentation, specifically reclassifications related to discontinued operations (see Note 11).

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of September 23, 2012, our significant accounting policies, which are detailed in our Annual Report on Form 10-K for the year ended December 25, 2011, have not changed materially.

We report components of comprehensive income in two separate but consecutive statements consisting of an income statement followed by a separate statement of comprehensive income/(loss) in accordance with the Financial Accounting Standard Board’s amended guidance on the presentation of comprehensive income. The new guidance was effective for us in the first quarter of 2012.

NOTE 3. SHORT-TERM INVESTMENTS

We have short-term investments, with original maturities of longer than 3 months, in U.S. Treasury securities and commercial paper as of September 23, 2012, and in U.S. Treasury securities as of December 25, 2011. Since we have the intention and ability to hold these investments to maturity, they are classified as held-to-maturity and are reported at amortized cost.

The carrying value of the short-term investments was $279.7 million as of September 23, 2012, which included approximately $250 million in U.S. Treasury securities and approximately $30 million in commercial paper, and $104.8 million in U.S. Treasury securities as of December 25, 2011. The short-term investments have remaining maturities of about 1 month to 10 months as of September 23, 2012.

See Note 8 for information regarding the fair value of our short-term investments.


7
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



NOTE 4. GOODWILL

The following table displays the carrying amount of goodwill as of September 23, 2012 and December 25, 2011:
(In thousands)
 
Total Company
Balance as of December 25, 2011:
 
 
Goodwill
 
$
926,836

Accumulated impairment losses
 
(805,218
)
Balance as of December 25, 2011
 
121,618

Foreign currency translation
 
(367
)
Balance as of September 23, 2012:
 
 
Goodwill
 
926,469

Accumulated impairment losses
 
(805,218
)
Balance as of September 23, 2012
 
$
121,251


NOTE 5. INVESTMENTS

Equity Method Investments

As of September 23, 2012, our investments in joint ventures consisted of equity ownership interests in the following entities:

Company
 
Approximate %
Ownership
Metro Boston LLC
 
49
%
Donohue Malbaie Inc.
 
49
%
Madison Paper Industries
 
40
%
quadrantONE LLC
 
25
%

Cost Method Investments
Gain on Sale of Investments

In February 2012, we sold 100 of our units in Fenway Sports Group for an aggregate price of $30.0 million (pre-tax gain of $17.8 million in the first quarter of 2012) and in May 2012, we sold our remaining 210 units for an aggregate price of $63.0 million (pre-tax gain of $37.8 million in the second quarter of 2012). These sales resulted in a pre-tax gain of $55.6 million in 2012. Effective with the February 2012 sale, given our reduced ownership level and lack of influence on the operations of Fenway Sports Group, we changed the accounting for this investment from the equity method to the cost method in the first quarter of 2012. Therefore, starting in February 2012, we no longer recognized our proportionate share of the operating results of Fenway Sports Group in joint venture results in our Condensed Consolidated Statements of Operations.
In July 2011, we sold 390 of our units in Fenway Sports Group for an aggregate price of $117.0 million (pre-tax gain of $65.3 million in the third quarter of 2011).
In the first quarter of 2011, we sold a minor portion of our interest in Indeed.com, a search engine for jobs, resulting in a pre-tax gain of $5.9 million. In early October 2012, our remaining ownership interest in Indeed.com was sold. See Note 16 for additional information regarding this sale.

8
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Impairment of Investments
In the first nine months of 2012, we recorded non-cash impairment charges of $5.5 million to reduce the carrying value of certain investments to fair value. The impairment charges were primarily related to our investment in Ongo Inc., a consumer service for reading and sharing digital news and information from multiple publishers. See Note 8 for additional information regarding the fair value of these investments.
Available-for-Sale Security

In connection with the initial public offering of Brightcove, Inc. in the first quarter of 2012, changes in the fair value of our investment in Brightcove, Inc. (available-for-sale security) are recognized as unrealized gains or losses within “Miscellaneous assets” and “Accumulated other comprehensive loss” in our Condensed Consolidated Balance Sheets and “Unrealized (loss)/gain on available-for-sale security” in our Condensed Consolidated Statements of Comprehensive Income/(Loss). As of September 23, 2012, we recognized an unrealized gain of $1.3 million ($0.7 million after-tax). In the third quarter of 2012, we had proceeds from the sale of a portion of our shares in Brightcove, Inc. totaling $0.7 million and recorded a nominal gain on the sale. See Note 8 for additional information regarding the fair value of our investment in Brightcove, Inc.

NOTE 6. DEBT OBLIGATIONS
As of September 23, 2012, our current indebtedness included senior notes and a sale-leaseback of a portion of our New York headquarters. Our total debt and capital lease obligations consisted of the following:
(In thousands)
 
Coupon Rate
 
September 23,
2012
 
December 25,
2011
Senior notes due 2012
 
4.610
%
 
$
75,000

 
$
74,900

Senior notes due 2015
 
5.0
%
 
249,914

 
249,891

Senior notes due 2016
 
6.625
%
 
221,334

 
220,787

Option to repurchase ownership interest in headquarters building in 2019
 
 
 
223,577

 
220,861

Total debt
 
 
 
769,825

 
766,439

Capital lease obligations
 
 
 
7,114

 
6,681

Total debt and capital lease obligations
 
 
 
$
776,939

 
$
773,120

See Note 8 for information regarding the fair value of our long-term debt.
As of September 23, 2012, there were $0 outstanding borrowings under our $125.0 million asset-backed 5-year revolving credit facility.
On September 26, 2012, we repaid all $75.0 million outstanding aggregate principal amount of the 4.610% senior notes that matured on that date. See Note 16 for additional information.
Premium on Debt Redemption
On August 15, 2011, we prepaid in full all $250.0 million outstanding aggregate principal amount of the 14.053% senior unsecured notes due January 15, 2015 (the “14.053% Notes”). The prepayment totaled approximately $280 million, comprising (1) the $250.0 million aggregate principal amount of the 14.053% Notes, (2) approximately $3 million representing all interest that was accrued and unpaid on the 14.053% Notes to August 15, 2011, and (3) a make-whole premium amount of approximately $27 million due in connection with the prepayment. We funded the prepayment from available cash. As a result of this prepayment, we recorded a $46.4 million pre-tax charge in the third quarter of 2011.

9
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Interest Expense, Net
“Interest expense, net” in our Condensed Consolidated Statements of Operations was as follows:
 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands)
 
September 23,
2012
 
September 25,
2011
 
September 23,
2012
 
September 25,
2011
Cash interest expense
 
$
14,460

 
$
18,712

 
$
43,256

 
$
64,880

Non-cash amortization of discount on debt
 
1,129

 
1,445

 
3,386

 
5,632

Capitalized interest
 
—

 
(11
)
 
(14
)
 
(343
)
Interest income
 
(92
)
 
(107
)
 
(215
)
 
(387
)
Total interest expense, net
 
$
15,497

 
$
20,039

 
$
46,413

 
$
69,782


NOTE 7. OTHER

Severance Costs

We recognized severance costs of $3.0 million in the third quarter of 2012 and $10.1 million in the first nine months of 2012. These costs are recorded in “Selling, general and administrative costs” in our Condensed Consolidated Statements of Operations. As of September 23, 2012, we had a severance liability of approximately $12 million included in “Accrued expenses” in our Condensed Consolidated Balance Sheets.

Accelerated Depreciation

In the first quarter of 2012, we recorded a $6.7 million charge for accelerated depreciation for certain assets at the Worcester Telegram & Gazette’s (“T&G”) facility in Millbury, Mass., associated with the consolidation of most of T&G’s printing into The Boston Globe’s (the “Globe”) facility in Boston, Mass., which was completed early in the second quarter of 2012.

Impairment of Assets

In the second quarter of 2011, we classified certain assets as held for sale, primarily of Baseline, an online subscription database and research service for information on the film and television industries and a provider of premium film and television data to Web sites. The carrying value of these assets was greater than their fair value, less cost to sell, resulting in an impairment of certain intangible assets and property totaling $9.2 million. The impairment charge reduced the carrying value of intangible assets to $0 and the property to a nominal value. In October 2011, we sold Baseline, which resulted in a nominal gain.

NOTE 8. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon the sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The transaction would be in the principal or most advantageous market for the asset or liability, based on assumptions that a market participant would use in pricing the asset or liability.
The fair value hierarchy consists of three levels:
Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 – unobservable inputs for the asset or liability.

10
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Assets Measured and Recorded at Fair Value on a Recurring Basis
The following table summarizes our financial assets measured at fair value on a recurring basis as of September 23, 2012:
(In thousands)
 
September 23, 2012
 
Total
 
Level 1
 
Level 2

Level 3
Available-for-sale security
 
$
7,674

 
$
7,674

 
$
—

 
$
—

Certain financial assets are valued using market prices on the active markets. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. In the first quarter of 2012, the common stock of Brightcove, Inc. (available-for-sale security) began to trade on an active market (see Note 5).
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Certain non-financial assets, such as goodwill, other intangible assets, property, plant and equipment and certain investments, are only recorded at fair value if an impairment charge is recognized. The following table presents non-financial assets that were measured and recorded at fair value on a non-recurring basis and the impairment losses recorded during 2012 on those assets:
(In thousands)
 
Carrying Value
 
Fair Value Measured and Recorded Using
 
Impairment Losses
 
as of September 23, 2012
 
Level 1
 
Level 2
 
Level 3
 
2012
Goodwill(1)
 
$
172,544

 
$
—

 
$
—

 
$
172,544

 
$
194,732

(2) 
Cost method investments
 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,500

 
(1) Goodwill relates to the About Group and is classified within “Assets held for sale” as of September 23, 2012. See Note 11 for additional information.
(2) Impairment losses relate to the About Group and are included within “Income/(loss) from discontinued operations, net of income taxes” for the nine months ended September 23, 2012. See Note 11 for additional information.
The impairment charge totaling $194.7 million in the table above was related to goodwill at the About Group in the second quarter of 2012 (see Note 11). The total fair value of the About Group was determined using a discounted cash flow model (present value of future cash flows). We estimated a 3.5% annual growth rate to arrive at a residual year representing the perpetual cash flows of the About Group. The residual year cash flow was capitalized to arrive at the terminal value of the About Group. Utilizing a discount rate of 15.0%, the present value of the cash flows during the projection period and terminal value were aggregated to estimate the fair value of the About Group. In our 2011 annual impairment test, we had assumed a 5.0% annual growth rate and a 13.8% discount rate. In determining the appropriate discount rate, we considered the weighted-average cost of capital for comparable companies.
The impairment charges totaling $5.5 million for the cost method investments in the first nine months of 2012, which were primarily related to our investment in Ongo Inc., were due to events surrounding ceasing the operations of our investments (see Note 5). We determined the fair value of these investments using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable companies. The income approach includes the use of a discounted cash flow model.
Financial Instruments Disclosed, But Not Recorded, at Fair Value
Our short-term investments, which include U.S. Treasury securities and commercial paper, are recorded at amortized cost (see Note 3). As of September 23, 2012 and December 25, 2011, the amortized cost approximated fair value because of the short-term maturity and highly liquid nature of these investments. We classified these investments as Level 2 since the fair value estimates are based on market observable inputs for investments with similar terms and maturities.
The carrying value of our long-term debt was approximately $695 million as of September 23, 2012 and $692 million as of December 25, 2011. The fair value of our long-term debt was approximately $850 million as of September 23, 2012 and $800 million as of December 25, 2011. We estimate the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2).

11
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



NOTE 9. PENSION AND OTHER POSTRETIREMENT BENEFITS

Pension

Single-Employer Plans
The components of net periodic pension cost of all Company-sponsored defined benefit pension plans and The New York Times Newspaper Guild pension plan, a joint Company and Guild-sponsored plan, were as follows:

 
 
For the Quarters Ended
 
 
September 23, 2012
 
September 25, 2011
(In thousands)
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All Plans
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All Plans
Service cost
 
$
2,894

 
$
377

 
$
3,271

 
$
3,019

 
$
377

 
$
3,396

Interest cost
 
24,130

 
3,165

 
27,295

 
24,998

 
3,286

 
28,284

Expected return on plan assets
 
(29,614
)
 
—

 
(29,614
)
 
(27,953
)
 
—

 
(27,953
)
Amortization of prior service cost
 
201

 
—

 
201

 
201

 
—

 
201

Recognized actuarial loss
 
7,471

 
1,162

 
8,633

 
6,445

 
804

 
7,249

Net periodic pension cost
 
$
5,082

 
$
4,704

 
$
9,786

 
$
6,710

 
$
4,467

 
$
11,177


 
 
For the Nine Months Ended
 
 
September 23, 2012
 
September 25, 2011
(In thousands)
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All Plans
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All Plans
Service cost
 
$
8,795

 
$
1,131

 
$
9,926

 
$
9,057

 
$
1,131

 
$
10,188

Interest cost
 
72,447

 
9,495

 
81,942

 
74,994

 
9,858

 
84,852

Expected return on plan assets
 
(88,805
)
 
—

 
(88,805
)
 
(83,859
)
 
—

 
(83,859
)
Amortization of prior service cost
 
603

 
—

 
603

 
603

 
—

 
603

Recognized actuarial loss
 
22,408

 
3,486

 
25,894

 
19,335

 
2,412

 
21,747

Net periodic pension cost
 
$
15,448

 
$
14,112

 
$
29,560

 
$
20,130

 
$
13,401

 
$
33,531


Pursuant to an amendment to a collective bargaining agreement covering the mailers of The New York Times (“The Times”), we froze such mailers’ benefit accruals under a Company-sponsored pension plan. This resulted in a remeasurement and curtailment of the pension plan in the first quarter of 2012, which reduced the underfunded status of the plan by approximately $3 million. This amount is recognized within “Accumulated other comprehensive loss” in our Condensed Consolidated Balance Sheet as of September 23, 2012.

In 2012, we expect to make mandatory contributions of approximately $44 million (of which approximately $37 million was made in the first nine months of 2012), primarily contractual contributions to The New York Times Newspaper Guild pension plan. In addition to contractual contributions to The New York Times Newspaper Guild pension plan and our minimum funding requirements, we may make discretionary contributions in the fourth quarter of 2012 to our Company-sponsored qualified pension plans depending on cash flows, pension asset performance, interest rates and other factors.

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


12
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Other Postretirement Benefits

The components of net periodic postretirement benefit income were as follows:

 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands)
 
September 23,
2012
 
September 25,
2011
 
September 23,
2012
 
September 25,
2011
Service cost
 
$
239

 
$
290

 
$
717

 
$
870

Interest cost
 
1,246

 
1,825

 
3,738

 
5,475

Amortization of prior service credit
 
(3,778
)
 
(3,901
)
 
(11,334
)
 
(11,703
)
Recognized actuarial loss
 
832

 
481

 
2,496

 
1,443

Curtailment gain
 
—

 
—

 
(27,213
)
 
—

Net periodic postretirement benefit income
 
$
(1,461
)
 
$
(1,305
)
 
$
(31,596
)
 
$
(3,915
)

In the first quarter of 2012, we sold the Regional Media Group (see Note 11). The sale significantly reduced the expected years of future service for current employees, resulting in a remeasurement and curtailment of a postretirement benefit plan. We recognized a curtailment gain of $27.2 million in the first quarter of 2012. The curtailment gain is included in the gain on the sale within “Income/(loss) from discontinued operations, net of income taxes” in the Condensed Consolidated Statements of Operations.
NOTE 10. INCOME TAXES

We had an income tax benefit of $2.8 million (effective tax rate of 42.6%) in the third quarter of 2012 and an income tax expense of $27.7 million (effective tax rate of 39.5%) in the first nine months of 2012.

We had an effective tax rate of 66.1% in the third quarter of 2011 primarily driven by the impact of the gain on sale of 390 of our units in Fenway Sports Group and the charge in connection with the prepayment of our 14.053% Notes. The effective tax rate for the first nine months of 2011 is not meaningful given the near break-even results.

It is reasonably possible that certain income tax examinations may be concluded, or statutes of limitation may lapse, before the end of our fiscal year 2013, which could result in a decrease in unrecognized tax benefits of approximately $19 million that would, if recognized, impact the effective tax rate.

NOTE 11. DISCONTINUED OPERATIONS

About Group

On August 26, 2012, we announced our plan to sell the About Group, consisting of About.com, ConsumerSearch.com, CalorieCount.com and related businesses, to IAC/InterActiveCorp. 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 and certain assets are classified as held for sale for all periods presented.

On September 24, 2012, we completed the sale of the About Group. See Note 16 for additional information regarding this sale.

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, which we are using for general corporate purposes. The sale resulted in an after-tax gain of $25.7 million (including post-closing adjustments recorded in the second quarter of 2012 totaling $4.5 million).


13
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



The results for the Regional Media Group, which had previously been included in the News Media Group reportable segment, have been classified as discontinued operations for all periods presented and certain assets and liabilities are classified as held for sale as of December 25, 2011.

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

 
 
For the Quarters Ended
 
 
September 23, 2012
 
September 25, 2011
(In thousands)
 
About Group
 
Regional Media Group
 
Total
 
About Group
 
Regional Media Group
 
Total
Revenues
 
$
25,616

 
$
—

 
$
25,616

 
$
25,724

 
$
59,942

 
$
85,666

Total operating costs
 
16,687

 
—

 
16,687

 
16,302

 
57,368

 
73,670

Pre-tax income
 
8,929

 
—

 
8,929

 
9,422

 
2,574

 
11,996

Income tax expense/(benefit)
 
2,903

 
—

 
2,903

 
3,619

 
(697
)
 
2,922

Income from discontinued operations, net of income taxes
 
$
6,026

 
$
—

 
$
6,026

 
$
5,803

 
$
3,271

 
$
9,074


 
 
For the Nine Months Ended
 
 
September 23, 2012
 
September 25, 2011
(In thousands)
 
About Group
 
Regional Media Group
 
Total
 
About Group
 
Regional Media Group
 
Total
Revenues
 
$
74,970

 
$
6,115

 
$
81,085

 
$
84,710

 
$
190,496

 
$
275,206

Total operating costs
 
51,140

 
8,017

 
59,157

 
49,666

 
176,243

 
225,909

Impairment of goodwill
 
194,732

 
—

 
194,732

 
—

 
152,093

 
152,093

Pre-tax (loss)/income
 
(170,902
)
 
(1,902
)
 
(172,804
)
 
35,044

 
(137,840
)
 
(102,796
)
Income tax (benefit)/expense(1)
 
(60,065
)
 
(736
)
 
(60,801
)
 
13,459

 
(16,815
)
 
(3,356
)
(Loss)/income from discontinued operations, net of income taxes
 
(110,837
)
 
(1,166
)
 
(112,003
)
 
21,585

 
(121,025
)
 
(99,440
)
(Loss)/gain on sale, net of income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
Loss on sale
 
—

 
(4,717
)
 
(4,717
)
 
—

 
—

 
—

Income tax benefit(2)
 
—

 
(30,448
)
 
(30,448
)
 
—

 
—

 
—

Gain on sale, net of income taxes
 
—

 
25,731

 
25,731

 
—

 
—

 
—

(Loss)/income from discontinued operations, net of income taxes
 
$
(110,837
)
 
$
24,565

 
$
(86,272
)
 
$
21,585

 
$
(121,025
)
 
$
(99,440
)
(1) The income tax benefit in the first nine months of 2011 was unfavorably impacted because a portion of the charge for the impairment of the Regional Media Group’s goodwill was non-deductible.
(2) The income tax benefit for the first nine months of 2012 includes a tax deduction for goodwill, which was previously non-deductible, triggered upon the sale of the Regional Media Group.

Our policy is to perform our annual goodwill impairment test in the fourth quarter of our fiscal year. However, due to certain impairment indicators at the About Group, we performed an interim impairment test as of June 24, 2012. The interim impairment test resulted in a $194.7 million estimated non-cash charge in the second quarter of 2012 for the impairment of goodwill at the About Group. Our expectations for future operating results and cash flows at the About Group in the long-term were lower than our previous estimates driven by a reassessment of the sustainability of our estimated long-term growth rate for display advertising. The reduction in our estimated long-term growth rate resulted in the carrying value of the net assets being greater than their fair value, and therefore a write-down of goodwill to its fair value was required. The fair value of the About Group’s goodwill was the residual fair value after allocating the total fair value of the About Group to its other assets, net of liabilities. See Note 8 for information regarding the fair value of goodwill.


14
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



The assets and liabilities classified as held for sale for the About Group and the Regional Media Group are summarized below.

 
 
September 23, 2012
 
December 25, 2011
(In thousands)
 
About Group
 
Regional Media Group
 
Total
 
About Group
 
Regional Media Group
 
Total
Accounts receivable, net
 
$
19,179

 
$
—

 
$
19,179

 
$
14,369

 
$
26,550

 
$
40,919

Property, plant and equipment, net
 
5,340

 
—

 
5,340

 
1,763

 
146,287

 
148,050

Goodwill
 
172,544

 
—

 
172,544

 
367,276

 
—

 
367,276

Other intangible assets acquired
 
13,616

 
—

 
13,616

 
17,210

 
330

 
17,540

Other assets
 
13,208

 
—

 
13,208

 
11,203

 
5,014

 
16,217

Total assets held for sale
 
223,887

 
—

 
223,887

 
411,821

 
178,181

 
590,002

Total liabilities(1)
 
—

 
—

 
—

 
—

 
19,568

 
19,568

Net assets
 
$
223,887

 
$
—

 
$
223,887

 
$
411,821

 
$
158,613

 
$
570,434

(1) Included in “Accrued expenses” in our Condensed Consolidated Balance Sheet as of December 25, 2011.

NOTE 12. EARNINGS/(LOSS) PER SHARE

Basic and diluted earnings/(loss) per share have been computed as follows:

 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands, except per share data)
 
September 23,
2012
 
September 25,
2011
 
September 23,
2012
 
September 25,
2011
Amounts attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
(Loss)/income from continuing operations
 
$
(3,744
)
 
$
6,611

 
$
42,535

 
$
826

Income/(loss) from discontinued operations, net of income taxes
 
6,026

 
9,074

 
(86,272
)
 
(99,440
)
Net income/(loss)
 
$
2,282

 
$
15,685

 
$
(43,737
)
 
$
(98,614
)
Average number of common shares outstanding–Basic
 
148,254

 
147,355

 
148,042

 
147,103

Incremental shares for assumed exercise of securities
 
—

 
3,938

 
3,720

 
5,321

Average number of common shares outstanding–Diluted
 
148,254

 
151,293

 
151,762

 
152,424

Basic (loss)/earnings per share attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
(Loss)/income from continuing operations
 
$
(0.02
)
 
$
0.05

 
$
0.29

 
$
0.01

Income/(loss) from discontinued operations, net of income taxes
 
0.04

 
0.06

 
(0.59
)
 
(0.68
)
Net income/(loss)–Basic
 
$
0.02

 
$
0.11

 
$
(0.30
)
 
$
(0.67
)
Diluted (loss)/earnings per share attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
(Loss)/income from continuing operations
 
$
(0.02
)
 
$
0.04

 
$
0.28

 
$
0.01

Income/(loss) from discontinued operations, net of income taxes
 
0.04

 
0.06

 
(0.57
)
 
(0.66
)
Net income/(loss)–Diluted
 
$
0.02

 
$
0.10

 
$
(0.29
)
 
$
(0.65
)

The difference between basic and diluted shares is that diluted shares include the dilutive effect of the assumed exercise of outstanding securities. Our stock options and warrants could have the most significant impact on diluted shares.

Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the market value of our Class A common stock, because their inclusion would have an anti-dilutive effect on per share amounts.


15
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



The number of stock options that were excluded from the computation of diluted earnings per share, because they were anti-dilutive, were approximately 18 million in the third quarter of 2012, approximately 16 million in the first nine months of 2012 and approximately 20 million in the third quarter and first nine months of 2011.

A total of 15.9 million warrants were excluded from the computation of diluted earnings per share in the third quarter of 2012 because they were anti-dilutive.

NOTE 13. SUPPLEMENTAL STOCKHOLDERS’ EQUITY INFORMATION

Stockholders’ equity is summarized as follows:
 
(In thousands)
 
Total New York Times Company Stockholders’ Equity
 
Noncontrolling Interest
 
Total Stockholders’ Equity
Balance as of December 25, 2011
 
$
506,360

 
$
3,149

 
$
509,509

Net loss
 
(43,737
)
 
(101
)
 
(43,838
)
Other comprehensive income, net of tax
 
2,000

 
—

 
2,000

Effect of issuance of shares
 
2,093

 
—

 
2,093

Stock-based compensation
 
5,370

 
—

 
5,370

Balance as of September 23, 2012
 
$
472,086

 
$
3,048

 
$
475,134

 
(In thousands)
 
Total New York Times Company Stockholders’ Equity
 
Noncontrolling Interest
 
Total Stockholders’ Equity
Balance as of December 26, 2010
 
$
659,927

 
$
4,149

 
$
664,076

Net loss
 
(98,614
)
 
(515
)
 
(99,129
)
Other comprehensive income, net of tax
 
10,865

 
—

 
10,865

Effect of issuance of shares
 
8,055

 
—

 
8,055

Stock-based compensation
 
8,815

 
—

 
8,815

Balance as of September 25, 2011
 
$
589,048

 
$
3,634

 
$
592,682


NOTE 14. SEGMENT INFORMATION

Our reportable segments previously consisted of the News Media Group and the About Group. Following the announcement of our plan to sell the About Group in August 2012, the About Group has been classified as a discontinued operation for all periods presented. See Note 11 for additional information on the sale of the About Group. Effective for the quarter ended September 23, 2012, we have one reportable segment. Therefore, all required segment information can be found in the condensed consolidated financial statements.
We have two operating segments: The New York Times Media Group, which includes The Times, the International Herald Tribune, NYTimes.com, and related businesses; and the New England Media Group, which includes the Globe, BostonGlobe.com, Boston.com, the Worcester Telegram & Gazette, Telegram.com, and related businesses. The economic characteristics, products, services, production processes, customer types and distribution methods for these operating segments are substantially similar and therefore have been aggregated into one reportable segment. These operating segments generate revenues principally from advertising and circulation. Other revenues primarily consist of revenues from news services/syndication, commercial printing, rental income, digital archives and direct mail advertising services.

16
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



NOTE 15. CONTINGENT LIABILITIES

Restricted Cash

We were required to maintain $24.3 million of restricted cash as of September 23, 2012 subject to certain collateral requirements primarily for obligations under our workers’ compensation programs.

Other

There are various legal actions that have arisen in the ordinary course of business and are now pending against us. 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 our legal counsel that the ultimate liability that might result from these actions would not have a material adverse effect on our Condensed Consolidated Financial Statements.

NOTE 16. SUBSEQUENT EVENTS

Indeed.com

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

4.610% Notes

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

About Group

On September 24, 2012, we completed the sale of the About Group for $300.0 million in cash, plus a net working capital adjustment at closing of approximately $16 million, subject to customary post-closing review and finalization. We expect the net after-tax proceeds from the sale will be approximately $290 million and we will record, in the fourth quarter of 2012, an after-tax gain estimated to be approximately $68 million.

Immediate Pension Benefit Offer

In September 2012, we offered certain former employees who participate in The New York Times Companies Pension Plan the option to receive a one-time lump sum payment equal to the present value of the participant’s pension benefit (payable in cash or rolled over into a qualified retirement plan or IRA) or to commence an immediate monthly annuity. The election period for this voluntary offer will end during the fourth quarter of 2012.

If an individual elects to receive a lump sum, the pension obligation to the individual will be settled. Assuming an acceptance rate of 50% of the pension obligations associated with the offer, we would record a non-cash settlement charge of approximately $45 million in the fourth quarter of 2012. The actual amount of the charge will largely depend upon the number of participants electing the offer and the associated pension benefit of those electing participants, as well as interest rates and asset performance. When the election period closes, the actual amount of the settlement charge will be actuarially determined and the charge is associated with the acceleration of the recognition of the accumulated unrecognized actuarial loss. This offer is expected to have a minimal impact on our underfunded pension plan balance and the timing and amount of our funding obligations.






17


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

We are a leading global, multimedia news and information company that currently includes newspapers, digital businesses, investments in paper mills and other investments.
We had previously classified our businesses into two reportable segments, the News Media Group and the About Group. Following the announcement of the sale of the About Group in August 2012, the About Group has been classified as a discontinued operation for all periods presented. See the “Recent Developments” section for additional information on the sale of the About Group. As a result, effective for the quarter ended September 23, 2012, we have one reportable segment.
We currently have two divisions: The New York Times Media Group, which includes The New York Times (the “Times”), the International Herald Tribune (the “IHT”), NYTimes.com, and related businesses; and the New England Media Group, which includes The Boston Globe (the “Globe”), BostonGlobe.com, Boston.com, the Worcester Telegram & Gazette (the “T&G”), Telegram.com, and related businesses. These divisions generate revenues principally from advertising and circulation. Other revenues primarily consist of revenues from news services/syndication, commercial printing, rental income, digital archives and direct mail advertising services. Our main operating costs primarily consist of employee-related costs and raw materials, primarily newsprint.
Joint Ventures Our investments accounted for under the equity method are as follows:
▪
a 49% interest in Metro Boston LLC, which publishes a free daily newspaper in the greater Boston area;
▪
a 49% interest in a Canadian newsprint company, Donohue Malbaie Inc.;
▪
a 40% interest in a partnership, Madison Paper Industries, operating a supercalendered paper mill in Maine; and
▪
a 25% interest in quadrantONE LLC, an online advertising network that sells bundled premium, targeted display advertising onto local newspaper and other Web sites.
Total revenues decreased 0.6% during the third quarter of 2012, and increased 0.6% during the first nine months of 2012, compared with the same prior-year periods, driven primarily by declines in advertising revenues, offset by growth in circulation revenues.
The advertising marketplace remained challenging. Compared with the prior-year periods, total advertising revenues decreased 8.9% and 7.1% in the third quarter and first nine months of 2012, respectively, as both print and digital advertising revenues experienced declines. Print advertising revenues decreased 10.9% and 8.6% in the third quarter and first nine months of 2012, respectively. Digital advertising revenues decreased 2.2% and 2.0% in the third quarter and first nine months of 2012, respectively. Advertising revenue trends have remained under pressure from the challenging economic environment, ongoing secular trends and an increasingly complex and fragmented digital advertising marketplace. We expect total advertising revenue trends in the fourth quarter of 2012 to be similar to third-quarter 2012 levels.
Our results for the third quarter and first nine months of 2012 reflect strong growth in circulation revenues as we continue to execute on our digital strategy, expanding our digital subscription base and further developing this consumer revenue stream. Compared with the prior-year periods, circulation revenues increased 7.4% and 8.5% in the third quarter and first nine months of 2012, respectively, mainly as growth in digital subscriptions and the increase in print circulation prices in the first half of 2012 at The Times and the Globe offset a decline in print copies sold. In addition, in the third quarter of 2012, The Times has continued to see benefits to its home-delivery circulation following the launch of digital subscriptions, including improved retention rates of home-delivery subscribers, who receive all digital access for free, and growth in Sunday home-delivery circulation volume. We expect circulation revenues to increase in the mid- to high-single digits in the fourth quarter of 2012 because of growth in digital subscriptions as well as print price increases implemented during the first half of 2012.
Paid subscribers to digital subscription packages, e-readers and replica editions of The Times and the IHT totaled approximately 566,000 as of the end of the third quarter of 2012, an increase of approximately 57,000 or 11% since the end of the second quarter of 2012. Paid digital subscribers to BostonGlobe.com and the Globe’s e-readers and replica editions totaled approximately 26,000 as of the end of the third quarter of 2012, an increase of approximately 3,000 or 13% since the end of the second quarter of 2012. In total, paid subscribers to our digital products across our Company were approximately 592,000 as of the end of the third quarter of 2012.

18


Operating costs increased 2.3% in the third quarter of 2012 compared with the same period in 2011 primarily due to higher performance-based compensation costs, benefits costs, stock-based compensation expense and costs associated with higher commercial printing revenues at the New England Media Group, offset in part by lower outside printing costs, depreciation and amortization expense, professional fees and raw materials expense. Operating costs increased 0.8% in the first nine months of 2012 compared with the same prior-year period primarily due to higher performance-based compensation costs, severance costs, depreciation and amortization expense and costs associated with higher commercial printing revenues, offset in part by lower professional fees, outside printing costs and benefits expense. Our cost management efforts are focused on balancing our investments to support and grow our digital and journalistic initiatives, while finding additional cost efficiencies across the organization. We expect operating costs to increase in the low-single digits in the fourth quarter of 2012.
Our cash, cash equivalents and short-term investments were approximately $614 million as of September 23, 2012, an increase of approximately $334 million since the end of 2011, largely due to the proceeds from the sales of the Regional Media Group and our interest in Fenway Sports Group, as well as cash flows from operations. As of September 23, 2012, our total debt and capital lease obligations were approximately $777 million and our total debt and capital lease obligations, net of cash, cash equivalents and short-term investments, or “net debt,” were approximately $163 million. We believe net debt provides a useful measure of our liquidity and overall debt position. As of September 23, 2012, we had no outstanding borrowings under our $125.0 million asset-backed five-year revolving credit facility. Early in the fourth quarter of 2012, we further improved our liquidity and overall debt position with the proceeds from the sales of the About Group and our ownership interest in Indeed.com, as well as the repayment of certain senior notes that had matured. See the “Recent Developments” section for additional information on these transactions that occurred early in the fourth quarter of 2012.
We expect the following on a pre-tax basis in 2012:
▪
Results from joint ventures: $4 to $6 million,
▪
Depreciation and amortization: $95 to $100 million,
▪
Interest expense, net: $60 to $65 million, and
▪
Capital expenditures: approximately $35 million.


19


RECENT DEVELOPMENTS

Discontinued Operations

Sale of the About Group

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

Sale of the Regional Media Group

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

Investments
Sale of Our Interest in Indeed.com

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

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

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




20


Immediate Pension Benefit Offer

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

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









21


RESULTS OF OPERATIONS

The following table presents our consolidated financial results.
 
 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands)
 
September 23, 2012
 
September 25, 2011
 
% Change
 
September 23, 2012
 
September 25, 2011
 
% Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Advertising
 
$
182,641

 
$
200,508

 
(8.9
)
 
$
618,103

 
$
665,492

 
(7.1
)
Circulation
 
234,867

 
218,601

 
7.4

 
695,152

 
640,917

 
8.5

Other
 
31,520

 
32,460

 
(2.9
)
 
101,007

 
98,826

 
2.2

Total revenues
 
449,028

 
451,569

 
(0.6
)
 
1,414,262

 
1,405,235

 
0.6

Operating costs
 
 
 
 
 
 
 
 
 
 
 
 
Production costs:
 
 
 
 
 
 
 
 
 
 
 
 
Raw materials
 
31,592

 
32,722

 
(3.5
)
 
98,551

 
101,097

 
(2.5
)
Wages and benefits
 
107,487

 
103,179

 
4.2

 
324,529

 
317,615

 
2.2

Other
 
62,498

 
61,603

 
1.5

 
185,038

 
184,937

 
0.1

Total production costs
 
201,577

 
197,504

 
2.1

 
608,118

 
603,649

 
0.7

Selling, general and administrative costs
 
216,457

 
209,269

 
3.4

 
666,291

 
664,731

 
0.2

Depreciation and amortization
 
22,485

 
23,747

 
(5.3
)
 
75,521

 
70,564

 
7.0

Total operating costs
 
440,519

 
430,520

 
2.3

 
1,349,930

 
1,338,944

 
0.8

Impairment of assets
 
—

 
—

 
N/A

 
—

 
9,225

 
N/A

Pension withdrawal expense
 
—

 
—

 
N/A

 
—

 
4,228

 
N/A

Operating profit
 
8,509

 
21,049

 
(59.6
)
 
64,332

 
52,838

 
21.8

Gain on sale of investments
 
—

 
65,273

 
N/A

 
55,645

 
71,171

 
(21.8
)
Impairment of investments
 
600

 
—

 
N/A

 
5,500

 
—

 
N/A

Income/(loss) from joint ventures
 
1,027

 
(1,068
)
 
*

 
2,077

 
(4,026
)
 
*

Premium on debt redemption
 
—

 
46,381

 
N/A

 
—

 
46,381

 
N/A

Interest expense, net
 
15,497

 
20,039

 
(22.7
)
 
46,413

 
69,782

 
(33.5
)
(Loss)/income from continuing operations before income taxes
 
(6,561
)
 
18,834

 
*

 
70,141

 
3,820

 
*

Income tax (benefit)/expense
 
(2,796
)
 
12,440

 
*

 
27,707

 
3,509

 
*

(Loss)/income from continuing operations
 
(3,765
)
 
6,394

 
*

 
42,434

 
311

 
*

Income/(loss) from discontinued operations, net of income taxes
 
6,026

 
9,074

 
(33.6
)
 
(86,272
)
 
(99,440
)
 
(13.2
)
Net income/(loss)
 
2,261

 
15,468

 
(85.4
)
 
(43,838
)
 
(99,129
)
 
(55.8
)
Net loss attributable to the noncontrolling interest
 
21

 
217

 
(90.3
)
 
101

 
515

 
(80.4
)
Net income/(loss) attributable to The New York Times Company common stockholders
 
$
2,282

 
$
15,685

 
(85.5
)
 
$
(43,737
)
 
$
(98,614
)
 
(55.6
)
* Represents an increase or decrease in excess of 100%.
 
 
 
 
 
 
 
 
 
 


22


Revenues

Advertising, circulation and other revenues were as follows:

 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands)
 
September 23,
2012
 
September 25,
2011
 
% Change
 
September 23,
2012
 
September 25,
2011
 
% Change
The New York Times Media Group
 
 
 
 
 
 
 
 
 
 
 
 
Advertising
 
$
140,880

 
$
156,092

 
(9.7
)
 
$
485,368

 
$
521,488

 
(6.9
)
Circulation
 
194,739

 
178,241

 
9.3

 
578,914

 
522,131

 
10.9

Other
 
19,718

 
22,524

 
(12.5
)
 
62,944

 
68,003

 
(7.4
)
Total
 
$
355,337

 
$
356,857

 
(0.4
)
 
$
1,127,226

 
$
1,111,622

 
1.4

New England Media Group
 
 
 
 
 
 
 

 

 
 
Advertising
 
$
41,761

 
$
44,416

 
(6.0
)
 
$
132,735

 
$
144,004

 
(7.8
)
Circulation
 
40,128

 
40,360

 
(0.6
)
 
116,238

 
118,786

 
(2.1
)
Other
 
11,802

 
9,936

 
18.8

 
38,063

 
30,823

 
23.5

Total
 
$
93,691

 
$
94,712

 
(1.1
)
 
$
287,036

 
$
293,613

 
(2.2
)
Total Company
 
 
 
 
 
 
 
 
 
 
 
 
Advertising
 
$
182,641

 
$
200,508

 
(8.9
)
 
$
618,103

 
$
665,492

 
(7.1
)
Circulation
 
234,867

 
218,601

 
7.4

 
695,152

 
640,917

 
8.5

Other
 
31,520

 
32,460

 
(2.9
)