UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 28, 2014 | 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, N.Y. | 10018 | |
(Address of principal executive offices) | (Zip code) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Class A Common Stock of $.10 par value | New York Stock Exchange | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ
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 þ No ¨
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | þ | Accelerated filer | ¨ | |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate worldwide market value of Class A Common Stock held by non-affiliates, based on the closing price on June 27, 2014, the last business day of the registrant’s most recently completed second quarter, as reported on the New York Stock Exchange, was approximately $2.2 billion. As of such date, non-affiliates held 66,172 shares of Class B Common Stock. There is no active market for such stock.
The number of outstanding shares of each class of the registrant’s common stock as of February 19, 2015 (exclusive of treasury shares), was as follows: 165,676,726 shares of Class A Common Stock and 816,635 shares of Class B Common Stock.
Documents incorporated by reference
Portions of the Proxy Statement relating to the registrant’s 2015 Annual Meeting of Stockholders, to be held on May 6, 2015, are incorporated by reference into Part III of this report.
INDEX TO THE NEW YORK TIMES COMPANY 2014 ANNUAL REPORT ON FORM 10-K |
ITEM NO. | ||||||
PART I |
FORWARD-LOOKING STATEMENTS |
This Annual Report on Form 10-K, including the sections titled “Item 1A — Risk Factors” and “Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that relate to future events or our future financial performance. We may also make written and oral forward-looking statements in our Securities and Exchange Commission (“SEC”) filings and otherwise. We have tried, where possible, to identify such statements by using words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “could,” “project,” “plan” and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statements are and will be based upon our then-current expectations, estimates and assumptions regarding future events and are applicable only as of the dates of such statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in any such statements. You should bear this in mind as you consider forward-looking statements. Factors that we think could, individually or in the aggregate, cause our actual results to differ materially from expected and historical results include those described in “Item 1A — Risk Factors” below, as well as other risks and factors identified from time to time in our SEC filings.
ITEM 1. BUSINESS |
OVERVIEW
The New York Times Company (the “Company”) was incorporated on August 26, 1896, under the laws of the State of New York. The Company and its consolidated subsidiaries are referred to collectively in this Annual Report on Form 10-K as “we,” “our” and “us.”
We are a global media organization focused on creating, collecting and distributing high-quality news and information. Our continued commitment to premium content and journalistic excellence makes The New York Times brand a trusted source of news and information for readers and viewers across various media. Recognized widely for the quality of our reporting and content, our publications have been awarded many industry and peer accolades, including 114 Pulitzer Prizes and citations.
The Company includes newspapers, digital businesses and investments in paper mills. We currently have one reportable segment with businesses that include:
• | The New York Times (“The Times”); |
• | the International New York Times (“INYT”); |
• | our websites, NYTimes.com and international.nytimes.com; and |
• | related businesses, such as The Times news services division, digital archive distribution, our conferences business and other products and services under The Times brand. |
We generate revenues principally from circulation and advertising. Circulation and advertising revenue information for the Company appears under “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Revenues, operating profit and identifiable assets of our foreign operations are not significant.
The Times’s award-winning content is available in print, online and through other digital platforms. The Times’s print edition, a daily (Mon. – Sat.) and Sunday newspaper in the United States, commenced publication in 1851. The NYTimes.com website was launched in 1996.
INYT is the international edition of The Times, tailored and edited for global audiences. First published in 2013, INYT succeeded the International Herald Tribune, a leading daily newspaper that commenced publishing in Paris in 1887. INYT’s content is also available at international.nytimes.com.
THE NEW YORK TIMES COMPANY – P. 1
During 2014, the Company continued to focus on growing its digital business, while also making targeted investments in its print products. During the year, the Company introduced several new products, including NYT Now, a smartphone app targeted to a younger audience; Times Premier, a suite of exclusive online content and features offered to existing print and digital subscribers for an additional charge; and NYT Cooking, a collection of recipes and outstanding food journalism of The Times available on NYTimes.com and the iPad. NYT Now and NYT Cooking were named among the best apps of 2014 by Apple. We also made several investments in our print products, including a major redesign of The New York Times Magazine, which relaunched in early 2015.
The Company sold the New England Media Group in 2013 and the Regional Media Group and the About Group in 2012. The results of operations for these businesses have been presented as discontinued operations for all periods presented. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 13 of the Notes to the Consolidated Financial Statements for additional information regarding these discontinued operations.
CIRCULATION AND AUDIENCE
Our content reaches a broad audience through our print products, online and through other digital media, including smartphone, tablet and e-reader applications.
Circulation revenues are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy and bulk sales) and digital subscriptions sold and the rates charged to the respective customers. Since 2011, we have charged consumers for content provided on NYTimes.com and other digital platforms. NYTimes.com’s metered model offers users free access to a set number of articles per month and then charges users who are not print home-delivery subscribers, once they exceed that number. All print home-delivery subscribers receive free digital access.
The Times had the largest daily and Sunday circulation of all seven-day newspapers in the United States for the six-month period ended September 30, 2014, according to data collected by the Alliance for Audited Media (“AAM”), an independent agency that audits circulation of most U.S. newspapers and magazines.
For the fiscal year ended December 28, 2014, The Times’s average print circulation (which includes paid and qualified circulation of the newspaper in print) was approximately 648,900 for weekday (Monday to Friday) and 1,185,400 for Sunday. Under AAM’s reporting guidance, qualified circulation represents copies available for individual consumers that are either non-paid or paid by someone other than the individual, such as copies delivered to schools and colleges and copies purchased by businesses for free distribution.
Average circulation for INYT (which includes paid circulation of the newspaper in print and electronic replica editions) for the fiscal years ended December 28, 2014, and December 29, 2013, was approximately 219,500 (estimated) and 220,500, respectively. These figures follow the guidance of Office de Justification de la Diffusion, an agency based in Paris and a member of the International Federation of Audit Bureaux of Circulations that audits the circulation of most newspapers and magazines in France. The final 2014 figure will not be available until April 2015.
According to comScore Media Metrix, an online audience measurement service, in 2014, NYTimes.com had a monthly average of approximately 31 million unique desktop/laptop visitors in the United States and approximately 42 million unique desktop/laptop visitors worldwide. In addition, according to comScore Mobile Metrix, in 2014, we had a monthly average of approximately 28 million unique visitors to The Times on mobile devices in the United States.
Paid subscribers to digital-only subscription packages, e-readers and replica editions totaled approximately 910,000 as of December 28, 2014, an increase of approximately 20% compared with December 29, 2013. This amount includes estimated paid subscribers through our group corporate and group education subscriptions (which collectively represent approximately 5% of total paid digital subscribers) and home-delivery subscribers who also subscribe to Times Premier (which represent approximately 2% of total paid digital subscribers). The number of paid subscribers through group subscriptions is derived using the value of the relevant contract and a discounted basic subscription rate. The actual number of users who have access to our products through group subscriptions is substantially higher.
P. 2 – THE NEW YORK TIMES COMPANY
ADVERTISING
We have a comprehensive portfolio of advertising products and services that we provide across multiple platforms, including print, online and mobile.
Beginning in the fourth quarter of 2014, we divide our advertising revenue into three main categories:
Display Advertising
Display advertising is principally from advertisers promoting products, services or brands, such as financial institutions, movie studios, department stores, American and international fashion and technology, in The Times and INYT. In print, column-inch ads are priced according to established rates, with premiums for color and positioning. The Times had the largest market share in 2014 in print advertising revenue among a national newspaper set that consists of USA Today, The Wall Street Journal and The Times, according to MediaRadar, an independent agency that measures advertising sales volume and estimates advertising revenue.
In digital, display advertising comprises banners, video, rich media and other interactive ads on our website and across other digital platforms. Advertisers pay for advertising based on a cost-per-thousand-impression, programmatic or flat rate, or through sponsorship fees.
Display advertising also includes “Paid Posts,” a native advertising product on The Times’s platforms. The Paid Posts product allows advertisers to present longer form marketing content that is distinct from the Times’s editorial content. In 2014, display advertising (print and digital) represented approximately 91% of advertising revenues.
Classified Advertising
Classified advertising includes line ads sold in the major categories of real estate, help wanted, automotive and other. In print, classified advertisers pay on a per-line basis. In digital, classified advertisers pay on either a per-listing basis for bundled listing packages, or as an add-on to their print ad. In 2014, classified advertising (print and digital) represented approximately 6% of advertising revenues.
Other Advertising
Other advertising primarily includes creative services fees associated with our branded content studio; revenues from preprinted advertising, also known as free-standing inserts; revenues generated from branded bags in which our newspapers are delivered; and advertising revenues from our News Services business. In 2014, other advertising (print and digital) represented approximately 3% of our advertising revenues.
Our businesses are affected in part by seasonal patterns in advertising, with generally higher advertising volume in the fourth quarter due to holiday advertising.
PRINT PRODUCTION AND DISTRIBUTION
The Times is currently printed at our production and distribution facility in College Point, N.Y., as well as under contract at 27 remote print sites across the United States. The Times is delivered to newsstands and retail outlets in the New York metropolitan area through a combination of third-party wholesalers and our own drivers. In other markets in the United States and Canada, The Times is delivered through agreements with other newspapers and third-party delivery agents.
INYT is printed under contract at 39 sites throughout the world and is sold in 140 countries and territories. INYT is distributed through agreements with other newspapers and third-party delivery agents.
OTHER BUSINESSES
Our other businesses primarily include:
• | The Times news services division, which transmits articles, graphics and photographs from The Times and other publications to over 1,900 newspapers, magazines and websites in over 100 countries and territories worldwide. It also comprises a number of other businesses that primarily include our online retail store, product licensing, book development and rights and permissions; |
• | The Company’s conferences business, which is a platform for our live journalism, convenes thought leaders from business, academia and government to discuss topics ranging from education to sustainability to the luxury business; and |
• | Digital archive distribution, which licenses electronic archive databases to resellers of that information in the business, professional and library markets. |
FOREST PRODUCTS INVESTMENTS
We have non-controlling ownership interests in one newsprint company and one mill producing supercalendered paper, a polished paper used in some magazines, catalogs and preprinted inserts, which is a higher-value grade than newsprint (the “Forest Products Investments”). These investments are accounted for under the equity method and reported in “Investments in joint ventures” in our Consolidated Balance Sheets as of December 28, 2014. For additional information on our investments, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 of the Notes to the Consolidated Financial Statements.
We have a 49% equity interest in Donohue Malbaie Inc. (“Malbaie”), a Canadian newsprint company. The other 51% is owned by Resolute FP Canada Inc., a subsidiary of Resolute Forest Products Inc. (“Resolute”), a Delaware corporation. Resolute is a large global manufacturer of paper, market pulp and wood products. Malbaie manufactures newsprint on the paper machine it owns within Resolute’s paper mill in Clermont, Quebec. Malbaie is wholly dependent upon Resolute for its pulp, which is purchased by Malbaie from Resolute’s Clermont paper mill. In 2014, Malbaie produced approximately 214,000 metric tons of newsprint, of which approximately 11% was sold to us, with the balance sold to Resolute for resale.
We have a 40% equity interest in Madison Paper Industries (“Madison”), a partnership operating a supercalendered paper mill in Madison, Maine. Our Company and UPM-Kymmene Corporation, a Finnish paper manufacturing company, are partners through subsidiary companies in Madison. The Company’s percentage ownership is through an 80%-owned consolidated subsidiary. UPM-Kymmene owns 60% of Madison, including a 10% interest through a 20% noncontrolling interest in the consolidated subsidiary of the Company. Madison purchases the majority of its wood from local suppliers, mostly under long-term contracts. In 2014, Madison produced approximately 190,000 metric tons of supercalendered paper, of which approximately 4% was sold to us.
Malbaie and Madison are subject to comprehensive environmental protection laws, regulations and orders of provincial, federal, state and local authorities of Canada and the United States (the “Environmental Laws”). The Environmental Laws impose effluent and emission limitations and require Malbaie and Madison to obtain, and operate in compliance with the conditions of, permits and other governmental authorizations (“Governmental Authorizations”). Malbaie and Madison follow policies and operate monitoring programs designed to ensure compliance with applicable Environmental Laws and Governmental Authorizations and to minimize exposure to environmental liabilities. Various regulatory authorities periodically review the status of the operations of Malbaie and Madison. Based on the foregoing, we believe that Malbaie and Madison are in substantial compliance with such Environmental Laws and Governmental Authorizations.
THE NEW YORK TIMES COMPANY – P. 3
RAW MATERIALS
The primary raw materials we use are newsprint and supercalendered and coated paper. We purchase newsprint from a number of North American producers. In 2014, the paper we used for our print products was purchased from both unrelated suppliers and related suppliers in which we hold equity interests (see “— Forest Products Investments”). A significant portion of newsprint is purchased from Resolute.
In 2014 and 2013, we used the following types and quantities of paper:
(In metric tons) | 2014 | 2013 | |||||
Newsprint | 114,000 | 119,000 | |||||
Supercalendered and Coated Paper(1) | 17,000 | 17,200 | |||||
(1) | The Times uses supercalendered and coated paper for The New York Times Magazine and T: The New York Times Style Magazine. |
COMPETITION
Our print and digital products compete for advertising and consumers with other media in their respective markets, including paid and free newspapers, digital media, broadcast, satellite and cable television, broadcast and satellite radio, magazines, other forms of media and direct marketing. Competition for advertising is generally based upon audience levels and demographics, advertising rates, service, targeting capabilities and advertising results, while competition for consumer revenue and readership is generally based upon platform, format, content, quality, service, timeliness and price.
The Times newspaper competes for print advertising and circulation primarily with national newspapers such as The Wall Street Journal and USA Today; newspapers of general circulation in New York City and its suburbs; other daily and weekly newspapers and television stations and networks in markets in which The Times circulates; and some national news and lifestyle magazines. INYT newspaper’s key competitors include all international sources of English-language news, including The Wall Street Journal’s European and Asian Editions, the Financial Times, Time, Bloomberg Business Week and The Economist.
As our industry continues to experience a secular shift from print to digital media, our print and digital products face increasing competition for audience and advertising from a wide variety of digital alternatives, such as news and other information websites and digital applications, news aggregation sites, sites that cover niche content, social media platforms, digital advertising networks and exchanges, real-time bidding and other programmatic buying channels and other new forms of media. Developments in methods of distribution, such as applications for mobile phones, tablets and other devices, also increase competition for users and digital advertising revenues.
Our websites most directly compete for traffic and readership with other news and information websites and mobile applications. NYTimes.com faces competition from sources such as WSJ.com, Google News, Yahoo! News, huffingtonpost.com, MSNBC and CNN.com. Internationally, international.nytimes.com competes against international online sources of English-language news, including bbc.co.uk, guardian.co.uk, ft.com, huffingtonpost.com and reuters.com. For digital advertising revenues, we face competition from a wide range of companies offering competing products, such as other advertising-supported websites and mobile applications, including websites that provide platforms for classified advertisements, as well as search engines, social media sites and other Internet companies.
P. 4 – THE NEW YORK TIMES COMPANY
EMPLOYEES AND LABOR RELATIONS
We had 3,588 full-time equivalent employees as of December 28, 2014.
As of December 28, 2014, approximately half of our full-time equivalent employees were represented by nine unions. The following is a list of collective bargaining agreements covering various categories of the Company’s employees and their corresponding expiration dates. As indicated below, one collective bargaining agreement has expired and negotiations for a new contract are ongoing. We cannot predict the timing or the outcome of these negotiations.
Employee Category | Expiration Date |
Paper handlers | March 30, 2014 (expired) |
Electricians | March 30, 2015 |
Machinists | March 30, 2015 |
Mailers | March 30, 2016 |
New York Newspaper Guild | March 30, 2016 |
Typographers | March 30, 2016 |
Pressmen | March 30, 2017 |
Stereotypers | March 30, 2017 |
Drivers | March 30, 2020 |
Approximately 130 of our full-time equivalent employees are located in France, and the terms and conditions of employment of those employees are established by a combination of French national labor law, industry-wide collective agreements and Company-specific agreements.
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our website at http://www.nytco.com, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC.
ITEM 1A. RISK FACTORS |
You should carefully consider the risk factors described below, as well as the other information included in this Annual Report on Form 10-K. Our business, financial condition or results of operations could be materially adversely affected by any or all of these risks, or by other risks or uncertainties not presently known or currently deemed immaterial, that may adversely affect us in the future.
We face significant competition in all aspects of our business.
We operate in a highly competitive environment. Our print and digital products compete for advertising and circulation revenue with both traditional and new content providers. This competition has intensified as a result of the continued development of new digital media technologies and new media providers offering online news and other content. Competition among companies offering online content is intense, and new competitors can quickly emerge. Some of our current and potential competitors may have greater resources or better competitive positions in certain areas than we do. These factors may allow our competitors to respond more effectively than us to new technologies and changes in market conditions.
Our ability to compete effectively depends on many factors both within and beyond our control, including among others:
• | our ability to continue to deliver high-quality journalism and content that is interesting and relevant to our audience; |
• | our ability to monetize new and existing print and digital products; |
• | the popularity, usefulness, ease of use, performance, and reliability of our digital products compared with our competitors’ products; |
THE NEW YORK TIMES COMPANY – P. 5
• | the engagement of our readers with our print and digital products; |
• | the maintenance and development of relevant print products in an environment that is increasingly digitally focused; |
• | our ability to attract, retain, and motivate talented journalists and other employees and executives; |
• | our ability to manage and grow our operations in a cost-effective manner; and |
• | our reputation and brand strength relative to those of our competitors. |
Our success depends on our ability to respond and adapt to changes in technology and consumer behavior.
Technology in the media industry continues to evolve rapidly. Advances in technology have led to an increasing number of methods for the delivery and consumption of news and other content. These developments are driving changes in consumer behavior as consumers seek more control over the ways in which they consume content. Unless we are able to use new and existing technologies to distinguish our products and services from those of our competitors and develop in a timely manner compelling new products and services that engage users across platforms, our business, financial condition and prospects may be adversely affected.
Changes in technology and consumer behavior pose a number of challenges that could adversely affect our revenues and competitive position. For example, among others:
• | we may be unable to develop products for mobile devices or other digital platforms that consumers find engaging, that work with a variety of operating systems and networks and that achieve a high level of market acceptance; |
• | there may be changes in user sentiment about the quality or usefulness of our existing products; |
• | news aggregation websites and customized news feeds may reduce our traffic levels by creating a disincentive for users to visit our websites or use our digital products; |
• | failure to successfully manage changes in search engine optimization and social media traffic to increase our digital presence and visibility may reduce our traffic levels; |
• | technical or other problems could prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience; |
• | new delivery platforms may lead to pricing restrictions, the loss of distribution control and the loss of a direct relationship with consumers; |
• | mobile devices, including smartphones and tablets, may present challenges for traditional display advertising; and |
• | technology developed to block the display of advertising on websites could proliferate. |
Responding to these changes may require significant investment. We may be limited in our ability to invest funds and resources in digital products, services or opportunities, and we may incur research and development costs in building, maintaining and evolving our technology infrastructure.
Our advertising revenues are affected by numerous factors, including economic conditions, audience fragmentation and evolving digital advertising market dynamics.
We derive substantial revenues from the sale of advertising in The Times and INYT and in our digital products. Advertising spending is sensitive to overall economic conditions, and our advertising revenues are adversely affected if advertisers respond to weak and uneven economic conditions by reducing their budgets or shifting spending patterns or priorities, or if they are forced to consolidate or cease operations.
In determining whether to buy advertising, our advertisers will consider the demand for our products, demographics of our reader base, advertising rates, results observed by advertisers, and alternative advertising options. The increasing number of digital media options available, through social networking tools and news aggregation websites, has expanded consumer choice significantly, resulting in audience fragmentation and increased competition for advertising.
P. 6 – THE NEW YORK TIMES COMPANY
Print advertising revenue represented approximately 73% of our total 2014 advertising revenues. However, the advertising industry continues to experience a secular shift toward digital advertising, which is less expensive and can offer more directly measurable returns than traditional print media. Because rates for digital advertising are generally lower than for traditional print advertising, our digital advertising revenue may not replace in full print advertising revenue lost as a result of the shift. In addition, growing consumer reliance on mobile devices exacerbates rate pressure, as rates for digital advertising are generally lower on mobile devices than on personal computers. Mobile advertising is a new and rapidly evolving market. If we are unable to grow revenues generated from mobile devices through the development of advertising products that are accepted by marketers and consumers, our advertising revenues will be adversely affected.
Digital advertising networks and exchanges, real-time bidding and other programmatic buying channels that allow advertisers to buy audiences at scale are also playing a more significant role in the advertising marketplace and causing downward pricing pressure. In addition, increased inventory in the digital marketplace and evolving standards for delivery of digital advertising, such as viewability, could adversely affect advertising revenues.
The inability of the Company to retain and grow our subscriber base could adversely affect our results of operations and business.
Circulation revenue comprises a majority of our total revenue. In recent years, we have experienced declining print circulation volume. This is primarily due to increased competition from digital media formats and sources other than traditional newspapers (which are often free to users), higher subscription rates and a growing preference among certain consumers to receive all or a portion of their news from sources other than a newspaper. If we are unable to offset continued revenue declines resulting from falling print circulation volume with revenue from home-delivery price increases, then our print circulation revenue will be adversely affected.
Digital subscriptions for content provided on NYTimes.com and other digital platforms generate substantial revenue for us. Our future growth depends upon our ability to retain and grow our digital subscription base and audience. To do so will require us to evolve our digital subscription model, address changing consumer requirements and develop and improve our digital products while continuing to deliver high-quality journalism and content that is interesting and relevant to our audience. There is no assurance that we will be able to successfully maintain and increase our digital audience or that we will be able to do so without taking steps such as reducing pricing or increasing costs that would affect our margin or profitability.
If we are unable to execute cost-control measures successfully, our total operating costs may be greater than expected, which would adversely affect our profitability.
Over the last several years, we have taken steps to reduce operating costs by reducing staff and employee benefits and implementing general cost-control measures across the Company, and we plan to continue these cost management efforts. If we do not achieve expected savings or our operating costs increase as a result of investments in strategic initiatives, our total operating costs would be greater than anticipated. In addition, if we do not manage our costs properly, such efforts may affect the quality of our products and our ability to generate future revenues. Reductions in staff and employee compensation and benefits could also adversely affect our ability to attract and retain key employees.
Significant portions of our expenses are fixed costs that neither increase nor decrease proportionately with revenues. In addition, our ability to make short-term adjustments to manage our costs or to make changes to our business strategy may be limited by certain of our collective bargaining agreements. If we are not able to implement further cost-control efforts or reduce our fixed costs sufficiently in response to a decline in our revenues, this could adversely affect our results of operations.
Security breaches and other network and information systems disruptions could affect our ability to conduct our business effectively.
Our online systems store and process confidential subscriber, employee and other sensitive personal data, and therefore maintaining our network security is of critical importance. The security of these network and information systems and other technologies is important to our business activities. We use third-party technology and systems for a variety of operations, including encryption and authentication technology, employee email, domain name registration, content delivery to customers, back-office support and other functions. Our systems, and those of third parties upon which our business relies, may be vulnerable to interruption or damage that can result from natural disasters, fires, power outages, acts of terrorism or other similar events, or from deliberate attacks such as computer
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hacking, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing.
Despite the security measures we and our third-party service providers have taken, our computer systems, and those of our vendors, have been, and will likely continue to be, subject to attack. We have implemented controls and taken other preventative measures designed to strengthen our systems against attacks, including measures designed to reduce the impact of a security breach at our third-party vendors. Although the costs of the controls and other measures we have taken to date have not had a material effect on our financial condition, results of operations or liquidity, there can be no assurance as to the cost of additional controls and measures that we may conclude are necessary in the future.
There can also be no assurance that the actions, measures and controls we have implemented will be effective against future attacks or be sufficient to prevent a future security breach or other disruption to our network or information systems, or those of our third-party providers. Such an event could result in a disruption of our services or improper disclosure of personal data or confidential information, which could harm our reputation, require us to expend resources to remedy such a security breach or defend against further attacks, divert management’s attention and resources or subject us to liability under laws that protect personal data, resulting in increased operating costs or loss of revenue.
Our international operations expose us to risks inherent in foreign operations.
We are focused on expanding the international scope of our operations. We face the inherent risks associated with doing business abroad, including:
• | effectively managing and staffing foreign operations, including complying with diverse local labor laws and regulations; |
• | navigating local customs and practices; |
• | responding to government policies that restrict the digital flow of information; |
• | protecting and enforcing our intellectual property rights under varying legal regimes; |
• | complying with international laws and regulations, including those governing the collection, use, retention, sharing and security of consumer data; |
• | addressing political or social instability; |
• | adapting to currency exchange rate fluctuations; and |
• | complying with restrictions on repatriation of funds. |
Adverse developments in any of these areas could have an adverse impact on our business, financial condition and results of operations. In addition, we have limited experience in operating and marketing our products in new international regions and could be at a disadvantage compared to competitors with more experience.
The underfunded status of our pension plans may adversely affect our operations, financial condition and liquidity.
We maintain qualified defined benefit pension plans. In addition, although we sold the New England Media Group in 2013 and the Regional Media Group in 2012, we retained pension assets and liabilities and postretirement obligations related to employees of those businesses. As a result, and although we have frozen participation and benefits under all but two of the qualified pension plans we maintain, our results of operations will be affected by the amount of income or expense we record for, and the contributions we are required to make to, these plans.
Pension income and expense is calculated using a number of actuarial valuations. These valuations reflect assumptions about mortality, as well as financial markets and other economic conditions, which may change based on changes in key economic indicators. The most significant year-end assumptions we use to estimate pension expense are the discount rate and the expected long-term rate of return on the plan assets. Our qualified defined benefit pension plans were underfunded by approximately $264 million as of December 28, 2014. We are required to make contributions to our qualified defined benefit pension plans to comply with minimum funding requirements imposed by laws governing those plans. A decrease in the discount rate used to determine the liabilities for pension obligations may result in increased contributions.
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Failure to achieve expected returns on plan assets driven by various factors, including a continued environment of low interest rates or sustained volatility and disruption in the stock and bond markets, could also result in an increase in the amount of cash we would be required to contribute to these pension plans. In addition, unfavorable changes in underlying assumptions or applicable laws or regulations could materially change the timing and amount of required plan funding. As a result, we may have less cash available for working capital and other corporate uses, which may have an adverse impact on our results of operations, financial condition and liquidity.
Our participation in multiemployer pension plans may subject us to liabilities that could materially adversely affect our results of operations, financial condition and cash flows.
We participate in, and make periodic contributions to, various multiemployer pension plans that cover many of our current and former union employees. Our required contributions to these plans could increase because of a shrinking contribution base as a result of the insolvency or withdrawal of other companies that currently contribute to these plans, the inability or failure of withdrawing companies to pay their withdrawal liability, low interest rates, lower than expected returns on pension fund assets or other funding deficiencies. Our withdrawal liability for any multiemployer pension plan will depend on the nature and timing of any triggering event and the extent of that plan’s funding of vested benefits. If a multiemployer pension plan in which we participate has significant underfunded liabilities, such underfunding will increase the size of our potential withdrawal liability. In addition, under the Pension Protection Act of 2006, special funding rules apply to multiemployer pension plans that are classified as “endangered,” “seriously endangered,” or “critical” status. If plans in which we participate are in critical status, benefit reductions may apply and/or we could be required to make additional contributions. If, in the future, we elect to withdraw from these plans or if we trigger a partial withdrawal due to declines in contribution base units, additional liabilities would need to be recorded that could have an adverse effect on our business, results of operations, financial condition or cash flows.
We have recorded significant withdrawal liabilities with respect to multiemployer pension plans in which we formerly participated, primarily in connection with the sales of the New England and the Regional Media Groups. Until demand letters from some of the multiemployer plans’ trustees are received, the exact amount of the withdrawal liability will not be fully known and, as such, a difference from the recorded estimate could have an adverse effect on our results of operations, financial condition and cash flows. In addition, in the event a mass withdrawal is deemed to have occurred at any of these plans, we may be required to make additional contributions under applicable law.
A significant number of our employees are unionized, and our business and results of operations could be adversely affected if labor agreements were to further restrict our ability to maximize the efficiency of our operations.
Approximately half of our full-time equivalent work force is unionized. As a result, we are required to negotiate the wages, salaries, benefits, staffing levels and other terms with many of our employees collectively. Our results could be adversely affected if future labor negotiations or contracts were to further restrict our ability to maximize the efficiency of our operations. If we are unable to negotiate labor contracts on reasonable terms, or if we were to experience labor unrest or other business interruptions in connection with labor negotiations or otherwise, our ability to produce and deliver our products could be impaired. In addition, our ability to make short-term adjustments to control compensation and benefits costs, change our strategy or otherwise adapt to changing business needs may be limited by the terms and duration of our collective bargaining agreements.
Our brand and reputation are key assets of the Company, and negative perceptions or publicity could adversely affect our business, financial condition and results of operations.
The New York Times brand is a key asset of the Company, and our continued success depends on our ability to preserve, grow and leverage the value of our brand. We believe that we have a very powerful and trusted brand with an excellent reputation for high-quality journalism and content. This reputation could be damaged by incidents that erode consumer trust. Our reputation could also be damaged by failures of third-party vendors we rely on in many contexts. To the extent consumers perceive the quality of our products to be less reliable or our reputation is damaged, our revenues and profitability could be adversely affected.
A significant increase in the price of newsprint, or significant disruptions in our newsprint supply chain, would have an adverse effect on our operating results.
The cost of raw materials, of which newsprint is the major component, represented approximately 6% of our total operating costs in 2014. The price of newsprint has historically been volatile and may increase as a result of
THE NEW YORK TIMES COMPANY – P. 9
various factors, including a reduction in the number of suppliers due to restructurings, bankruptcies and consolidations; declining newsprint supply as a result of paper mill closures and conversions to other grades of paper; and other factors that adversely impact supplier profitability, including increases in operating expenses caused by raw material and energy costs, and currency volatility.
In addition, we rely on our suppliers for deliveries of newsprint. The availability of our newsprint supply may be affected by various factors, including labor unrest, transportation issues and other disruptions that may affect deliveries of newsprint.
If newsprint prices increase significantly or we experience significant disruptions in the availability of our newsprint supply in the future, our operating results will be adversely affected.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our debt agreements contain various covenants that limit our flexibility in operating our businesses, including our ability to engage in specified types of transactions. Subject to certain exceptions, these covenants restrict our ability and the ability of our subsidiaries to, among other things:
• | incur or guarantee additional debt or issue certain preferred equity; |
• | pay dividends on or make distributions to holders of our common stock or make other restricted payments; |
• | create or incur liens on certain assets to secure debt; |
• | make certain investments, acquisitions or dispositions; |
• | consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and |
• | enter into certain transactions with affiliates. |
Our credit ratings, as well as general macroeconomic conditions, may affect our liquidity by increasing borrowing costs and limiting our financing options.
Our long-term debt is currently rated below investment grade by Standard & Poor’s and Moody’s Investors Service. If our credit ratings remain below investment grade or are lowered further, borrowing costs for future long-term debt or short-term borrowing facilities may increase and our financing options, including our access to the unsecured borrowing market, would be limited. We may also be subject to additional restrictive covenants that would reduce our flexibility.
In addition, macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new acquisitions or other capital-intensive initiatives.
Our Class B Common Stock is principally held by descendants of Adolph S. Ochs, through a family trust, and this control could create conflicts of interest or inhibit potential changes of control.
We have two classes of stock: Class A Common Stock and Class B Common Stock. Holders of Class A Common Stock are entitled to elect 30% of the Board of Directors and to vote, with holders of Class B Common Stock, on the reservation of shares for equity grants, certain material acquisitions and the ratification of the selection of our auditors. Holders of Class B Common Stock are entitled to elect the remainder of the Board and to vote on all other matters. Our Class B Common Stock is principally held by descendants of Adolph S. Ochs, who purchased The Times in 1896. A family trust holds approximately 90% of the Class B Common Stock. As a result, the trust has the ability to elect 70% of the Board of Directors and to direct the outcome of any matter that does not require a vote of the Class A Common Stock. Under the terms of the trust agreement, the trustees are directed to retain the Class B Common Stock held in trust and to vote such stock against any merger, sale of assets or other transaction pursuant to which control of The Times passes from the trustees, unless they determine that the primary objective of the trust can be achieved better by the implementation of such transaction. Because this concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that may otherwise be beneficial to our businesses, the market price of our Class A Common Stock could be adversely affected.
Our business may suffer if we cannot protect our intellectual property.
Our business depends on our intellectual property, including our valuable brands, content, services and internally developed technology. We believe our proprietary trademarks and other intellectual property rights are
P. 10 – THE NEW YORK TIMES COMPANY
important to our continued success and our competitive position. Unauthorized parties may attempt to copy or otherwise unlawfully obtain and use our content, services, technology and other intellectual property, and we cannot be certain that the steps we have taken to protect our proprietary rights will prevent any misappropriation or confusion among consumers and merchants, or unauthorized use of these rights.
Advancements in technology have made the unauthorized duplication and wide dissemination of content easier, making the enforcement of intellectual property rights more challenging. In addition, as our business and the risk of misappropriation of our intellectual property rights have become more global in scope, we may not be able to protect our proprietary rights in a cost-effective manner in a multitude of jurisdictions with varying laws.
If we are unable to procure, protect and enforce our intellectual property rights, including maintaining and monetizing our intellectual property rights to our content, we may not realize the full value of these assets, and our business and profitability may suffer. In addition, if we must litigate in the United States or elsewhere to enforce our intellectual property rights or determine the validity and scope of the proprietary rights of others, such litigation may be costly and divert the attention of our management.
We have been, and may be in the future, subject to claims of intellectual property infringement that could adversely affect our business.
We periodically receive claims from third parties alleging infringement, misappropriation or other violations of their intellectual property rights. These third parties often include patent holding companies seeking to monetize patents they have purchased or otherwise obtained through asserting claims of infringement or misuse. Even if we believe that these claims of intellectual property infringement are without merit, defending against the claims can be time-consuming, be expensive to litigate or settle, and cause diversion of management attention.
These intellectual property infringement claims may require us to enter into royalty or licensing agreements on unfavorable terms, use more costly alternative technology or otherwise incur substantial monetary liability. Additionally, these claims may require us to significantly alter certain of our operations. The occurrence of any of these events as a result of these claims could result in substantially increased costs or otherwise adversely affect our business.
Acquisitions, divestitures and other transactions could adversely affect our costs, revenues, profitability and financial position.
In order to position our business to take advantage of growth opportunities, we conduct discussions, evaluate opportunities and enter into agreements for possible acquisitions, divestitures, investments and other transactions. We routinely evaluate our portfolio of businesses and may, as a result, buy or sell different properties. For example, in 2013, we completed the sale of the New England Media Group and our 49% equity interest in Metro Boston. We may also consider the acquisition of specific properties, businesses or technologies that fall outside our traditional lines of business and diversify our portfolio, including those that may operate in new and developing industries, if we deem such properties sufficiently attractive.
Acquisitions or divestitures affect our costs, revenues, profitability and financial condition. Acquisitions involve significant risks, including difficulties in integrating acquired operations, diversion of management resources, debt incurred in financing these acquisitions (including the related possible reduction in our credit ratings and increase in our cost of borrowing), differing levels of management and internal control effectiveness at the acquired entities and other unanticipated problems and liabilities. Competition for certain types of acquisitions, particularly digital properties, is significant. Even if successfully negotiated, closed and integrated, certain acquisitions or investments may prove not to advance our business strategy and may fall short of expected return on investment targets, which would adversely affect our business, results of operations and financial condition.
Legislative and regulatory developments may result in increased costs and lower revenues from our digital businesses.
Our digital businesses are subject to government regulation in the jurisdictions in which we operate, and our websites, which are available worldwide, may be subject to laws regulating the Internet even in jurisdictions where we do not do business. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Revenues from our digital businesses could be adversely affected, directly or indirectly, in particular by existing or future laws and regulations relating to online privacy (including the evolving right to be forgotten) and the collection and use of consumer data in digital media.
THE NEW YORK TIMES COMPANY – P. 11
Adverse results from litigation or governmental investigations can impact our business practices and operating results.
From time to time, we are party to litigation and regulatory, environmental and other proceedings with governmental authorities and administrative agencies. See “Legal Proceedings” regarding certain matters. Adverse outcomes in lawsuits or investigations could result in significant monetary damages or injunctive relief that could adversely affect our results of operations or financial condition as well as our ability to conduct our business as it is presently being conducted.
ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. PROPERTIES |
Our principal executive offices are located in our New York headquarters building in the Times Square area. The building was completed in 2007 and consists of approximately 1.54 million gross square feet, of which approximately 828,000 gross square feet of space have been allocated to us. We owned a leasehold condominium interest representing approximately 58% of the New York headquarters building until March 2009, when we entered into an agreement to sell and simultaneously lease back 21 floors, or approximately 750,000 rentable square feet, currently occupied by us (the “Condo Interest”). The sale price for the Condo Interest was $225.0 million. We have an option exercisable in 2019 to repurchase the Condo Interest for $250.0 million. The lease term is 15 years, and we have three renewal options that could extend the term for an additional 20 years. We continue to own a leasehold condominium interest in seven floors in our New York headquarters building, totaling approximately 216,000 rentable square feet that were not included in the sale-leaseback transaction, all of which are currently leased to third parties.
In addition, we have a printing and distribution facility with 570,000 gross square feet located in College Point, N.Y., on a 31-acre site owned by the City of New York for which we have a ground lease. We have an option to purchase the property at any time before the lease ends in 2019 for $6.9 million. We also currently own other properties with an aggregate of approximately 2,200 gross square feet and lease other properties with an aggregate of approximately 269,200 rentable square feet in various locations.
P. 12 – THE NEW YORK TIMES COMPANY
ITEM 3. LEGAL PROCEEDINGS |
We are involved in various legal actions incidental to our business that 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 Consolidated Financial Statements.
Newspaper and Mail Deliverers – Publishers’ Pension Fund
In September 2013, the Newspaper and Mail Deliverers - Publishers’ Pension Fund (the “Fund”) assessed a partial withdrawal liability to the Company in the amount of $26 million for the plan years ending May 31, 2012 and 2013, an amount that was increased to approximately $34 million in December 2014, when the Fund issued a revised partial withdrawal liability assessment for the plan year ending May 31, 2013. The Fund claims that when City & Suburban, a retail and newsstand distribution subsidiary of the Company and the largest contributor to the Fund, ceased operations in 2009, it triggered a decline of more than 70% in contribution base units in each of these two plan years. The Company disagrees with both the Fund’s determination that a partial withdrawal occurred and the methodology by which it calculated the withdrawal liability and has initiated arbitration proceedings. We do not believe that a loss is probable on this matter and have not recorded a loss contingency for the period ended December 28, 2014.
Pension Benefit Guaranty Corporation
In February 2014, the Pension Benefit Guaranty Corporation (“PBGC”) notified us that it believed the Company had a triggering event under Section 4062(e) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), with respect to The Boston Globe Retirement Plan for Employees Represented by the Boston Newspaper Guild (the “Boston Globe Plan”) and The New York Times Companies Pension Plan on account of the Company’s sale of the New England Media Group.
In June 2014, the PBGC voluntarily withdrew its claim with respect to The New York Times Companies Pension Plan. In December 2014, Congress enacted major changes to Section 4062(e) of ERISA. In light of this amendment, the Company believes that it has no Section 4062(e) liability with respect to the Boston Globe Plan.
ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
THE NEW YORK TIMES COMPANY – P. 13
EXECUTIVE OFFICERS OF THE REGISTRANT
Name | Age | Employed By Registrant Since | Recent Position(s) Held as of February 24, 2015 | ||||
Arthur Sulzberger, Jr. | 63 | 1978 | Chairman (since 1997) and Publisher of The Times (since 1992); Chief Executive Officer (2011 to 2012) | ||||
Mark Thompson | 57 | 2012 | President and Chief Executive Officer (since 2012); Director-General, British Broadcasting Corporation (“BBC”) (2004 to 2012); Chief Executive, Channel 4 Television Corporation (2002 to 2004); and various positions of increasing responsibility at the BBC (1979 to 2001) | ||||
Michael Golden | 65 | 1984 | Vice Chairman (since 1997); President and Chief Operating Officer, Regional Media Group (2009 to 2012); Publisher of the International Herald Tribune (2003 to 2008); Senior Vice President (1997 to 2004) | ||||
James M. Follo | 55 | 2007 | Executive Vice President (since March 2013) and Chief Financial Officer (since 2007); Senior Vice President (2007 to March 2013); Chief Financial and Administrative Officer, Martha Stewart Living Omnimedia, Inc. (2001 to 2006) | ||||
R. Anthony Benten | 51 | 1989 | Senior Vice President, Finance (since 2008) and Corporate Controller (since 2007); Vice President (2003 to 2008); Treasurer (2001 to 2007) | ||||
Kenneth A. Richieri | 63 | 1983 | Executive Vice President (since March 2013) and General Counsel (since 2006); Senior Vice President (2007 to March 2013); Secretary (2008 to 2011); Vice President (2002 to 2007); Deputy General Counsel (2001 to 2005); Vice President and General Counsel, New York Times Digital (1999 to 2003) | ||||
P. 14 – THE NEW YORK TIMES COMPANY
PART II |
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
MARKET INFORMATION
The Class A Common Stock is listed on the New York Stock Exchange. The Class B Common Stock is unlisted and is not actively traded.
The number of security holders of record as of February 19, 2015, was as follows: Class A Common Stock: 6,637; Class B Common Stock: 26.
In September 2013, we announced the initiation of a quarterly dividend in which both classes of our common stock participate equally. Since then, we have paid quarterly dividends of $0.04 per share on the Class A and Class B Common Stock. We currently expect to continue to pay comparable cash dividends in the future, although changes in our dividend program will be considered by our Board of Directors in light of our earnings, capital requirements, financial condition and other factors considered relevant. In addition, our Board of Directors will consider restrictions in any existing indebtedness, such as the terms of our 6.625% senior unsecured notes due 2016, which restrict our ability to pay dividends. See also “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — Our Strategy” and “— Liquidity and Capital Resources — Third-Party Financing.”
The following table sets forth, for the periods indicated, the high and low closing sales prices for the Class A Common Stock as reported on the New York Stock Exchange.
2014 | 2013 | |||||||||||||||
Quarters | High | Low | High | Low | ||||||||||||
First Quarter | $ | 16.81 | $ | 13.75 | $ | 10.13 | $ | 8.18 | ||||||||
Second Quarter | 17.26 | 14.64 | 11.06 | 8.73 | ||||||||||||
Third Quarter | 15.61 | 11.46 | 12.66 | 11.06 | ||||||||||||
Fourth Quarter | 13.61 | 11.22 | 15.47 | 11.94 | ||||||||||||
ISSUER PURCHASES OF EQUITY SECURITIES(1)
Period | Total number of shares of Class A Common Stock purchased (a) | Average price paid per share of Class A Common Stock (b) | Total number of shares of Class A Common Stock purchased as part of publicly announced plans or programs (c) | Maximum number (or approximate dollar value) of shares of Class A Common Stock that may yet be purchased under the plans or programs (d) | |||||||
September 29, 2014 - November 2, 2014 | — | — | — | $ | 91,386,000 | ||||||
November 3, 2014 - November 30, 2014 | — | — | — | $ | 91,386,000 | ||||||
December 1, 2014 - December 28, 2014 | — | — | — | $ | 91,386,000 | ||||||
Total for the fourth quarter of 2014 | — | — | — | $ | 91,386,000 | ||||||
(1) | On April 13, 2004, our Board of Directors authorized repurchases in an amount up to $400 million of our Class A Common Stock. As of December 28, 2014, approximately $91.4 million remained under this authorization. On January 13, 2015, the Board of Directors terminated this authorization and approved a new repurchase authorization of $101.1 million, equal to the cash proceeds received by the Company from an exercise of warrants. As of February 19, 2015, approximately $101.1 million remained under this authorization. Our Board of Directors has authorized us to purchase shares from time to time as market conditions permit. There is no expiration date with respect to this authorization. |
THE NEW YORK TIMES COMPANY – P. 15
PERFORMANCE PRESENTATION
The following graph shows the annual cumulative total stockholder return for the five fiscal years ending December 28, 2014, on an assumed investment of $100 on December 27, 2009, in the Company, the Standard & Poor’s S&P 400 MidCap Stock Index and the Standard & Poor’s S&P 1500 Publishing and Printing Index. Stockholder return is measured by dividing (a) the sum of (i) the cumulative amount of dividends declared for the measurement period, assuming reinvestment of dividends, and (ii) the difference between the issuer’s share price at the end and the beginning of the measurement period, by (b) the share price at the beginning of the measurement period. As a result, stockholder return includes both dividends and stock appreciation.
Stock Performance Comparison Between the S&P 400 Midcap Index, S&P 1500 Publishing & Printing Index and The New York Times Company’s Class A Common Stock
P. 16 – THE NEW YORK TIMES COMPANY
ITEM 6. SELECTED FINANCIAL DATA | |
The Selected Financial Data should be read in conjunction with “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the related Notes in Item 8. The results of operations for the New England Media Group, which was sold in 2013, as well as for the Regional Media Group and the About Group, which were sold in 2012, have been presented as discontinued operations for all periods presented (see Note 13 of the Notes to the Consolidated Financial Statements). The pages following the table show certain items included in Selected Financial Data. All per share amounts on those pages are on a diluted basis. Fiscal year 2012 comprises 53 weeks and all other fiscal years presented in the table below comprise 52 weeks.
As of and for the Years Ended | ||||||||||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | December 25, 2011 | December 26, 2010 | |||||||||||||||
(52 Weeks) | (52 Weeks) | (53 Weeks) | (52 Weeks) | (52 Weeks) | ||||||||||||||||
Statement of Operations Data | ||||||||||||||||||||
Revenues | $ | 1,588,528 | $ | 1,577,230 | $ | 1,595,341 | $ | 1,554,574 | $ | 1,556,839 | ||||||||||
Operating costs | 1,484,505 | 1,411,744 | 1,441,410 | 1,411,652 | 1,422,173 | |||||||||||||||
Early termination charge | 2,550 | — | — | — | — | |||||||||||||||
Pension settlement expense | 9,525 | 3,228 | 47,657 | — | — | |||||||||||||||
Multiemployer pension plan withdrawal expense | — | 6,171 | — | 4,228 | 6,268 | |||||||||||||||
Other expenses | — | — | 2,620 | 4,500 | — | |||||||||||||||
Impairment of assets | — | — | — | 7,458 | — | |||||||||||||||
Operating profit | 91,948 | 156,087 | 103,654 | 126,736 | 128,398 | |||||||||||||||
Gain on sale of investments | — | — | 220,275 | 71,171 | 9,128 | |||||||||||||||
Impairment of investments | — | — | 5,500 | — | — | |||||||||||||||
(Loss)/income from joint ventures | (8,368 | ) | (3,215 | ) | 2,936 | (270 | ) | 18,652 | ||||||||||||
Premium on debt redemption | — | — | — | 46,381 | — | |||||||||||||||
Interest expense, net | 53,730 | 58,073 | 62,808 | 85,243 | 85,052 | |||||||||||||||
Income from continuing operations before income taxes | 29,850 | 94,799 | 258,557 | 66,013 | 71,126 | |||||||||||||||
Income from continuing operations, net of income taxes | 33,391 | 56,907 | 163,940 | 44,596 | 51,745 | |||||||||||||||
(Loss)/income from discontinued operations, net of income taxes | (1,086 | ) | 7,949 | (27,927 | ) | (82,799 | ) | 58,909 | ||||||||||||
Net income/(loss) attributable to The New York Times Company common stockholders | $ | 33,307 | $ | 65,105 | $ | 135,847 | $ | (37,648 | ) | $ | 109,640 | |||||||||
Balance Sheet Data | ||||||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 981,170 | $ | 1,023,780 | $ | 959,754 | $ | 279,997 | $ | 399,642 | ||||||||||
Property, plant and equipment, net | 665,758 | 713,356 | 773,469 | 837,595 | 891,470 | |||||||||||||||
Total assets | 2,566,474 | 2,572,552 | 2,807,470 | 2,887,367 | 3,297,401 | |||||||||||||||
Total debt and capital lease obligations | 650,120 | 684,163 | 696,875 | 773,120 | 996,384 | |||||||||||||||
Total New York Times Company stockholders’ equity | 726,328 | 842,910 | 662,325 | 533,678 | 680,360 | |||||||||||||||
THE NEW YORK TIMES COMPANY – P. 17
As of and for the Years Ended | |||||||||||||||||||||
(In thousands, except ratios, per share and employee data) | December 28, 2014 | December 29, 2013 | December 30, 2012 | December 25, 2011 | December 26, 2010 | ||||||||||||||||
(52 Weeks) | (52 Weeks) | (53 Weeks) | (52 Weeks) | (52 Weeks) | |||||||||||||||||
Per Share of Common Stock | |||||||||||||||||||||
Basic earnings/(loss) per share attributable to The New York Times Company common stockholders: | |||||||||||||||||||||
Income from continuing operations | $ | 0.23 | $ | 0.38 | $ | 1.11 | $ | 0.31 | $ | 0.35 | |||||||||||
(Loss)/income from discontinued operations, net of income taxes | (0.01 | ) | 0.05 | (0.19 | ) | (0.57 | ) | 0.40 | |||||||||||||
Net income/(loss) | $ | 0.22 | $ | 0.43 | $ | 0.92 | $ | (0.26 | ) | $ | 0.75 | ||||||||||
Diluted earnings/(loss) per share attributable to The New York Times Company common stockholders: | |||||||||||||||||||||
Income from continuing operations | $ | 0.21 | $ | 0.36 | $ | 1.07 | $ | 0.30 | $ | 0.33 | |||||||||||
(Loss)/income from discontinued operations, net of income taxes | (0.01 | ) | 0.05 | (0.18 | ) | (0.55 | ) | 0.39 | |||||||||||||
Net income/(loss) | $ | 0.20 | $ | 0.41 | $ | 0.89 | $ | (0.25 | ) | $ | 0.72 | ||||||||||
Dividends declared per share | $ | 0.16 | $ | 0.08 | $ | — | $ | — | $ | — | |||||||||||
New York Times Company stockholders’ equity per share | $ | 4.50 | $ | 5.34 | $ | 4.34 | $ | 3.51 | $ | 4.46 | |||||||||||
Average basic shares outstanding | 150,673 | 149,755 | 148,147 | 147,190 | 145,636 | ||||||||||||||||
Average diluted shares outstanding | 161,323 | 157,774 | 152,693 | 152,007 | 152,600 | ||||||||||||||||
Key Ratios | |||||||||||||||||||||
Operating profit to revenues | 6 | % | 10 | % | 6 | % | 8 | % | 8 | % | |||||||||||
Return on average common stockholders’ equity | 4 | % | 9 | % | 23 | % | (6 | )% | 17 | % | |||||||||||
Return on average total assets | 1 | % | 2 | % | 5 | % | (1 | )% | 3 | % | |||||||||||
Total debt and capital lease obligations to total capitalization | 47 | % | 45 | % | 51 | % | 59 | % | 59 | % | |||||||||||
Current assets to current liabilities | 1.91 | 3.36 | 3.30 | 2.67 | 3.35 | ||||||||||||||||
Ratio of earnings to fixed charges | 1.67 | 2.58 | 4.94 | 1.76 | 1.65 | ||||||||||||||||
Full-Time Equivalent Employees | 3,588 | 3,529 | 5,363 | 7,273 | 7,414 | ||||||||||||||||
The items below are included in the Selected Financial Data.
2014
The items below had a net unfavorable effect on our results from continuing operations of $35.1 million, or $.22 per share:
• | $36.7 million of expenses ($21.7 million after tax, or $.13 per share) for non-operating retirement costs. |
• | a $36.1 million pre-tax charge ($21.4 million after tax, or $.13 per share) for severance costs. |
• | a $21.1 million income tax benefit ($.13 per share) primarily due to reductions in the Company’s reserve for uncertain tax positions. |
• | a $9.5 million pre-tax pension settlement charge ($5.7 million after tax, or $.04 per share) in connection with lump-sum payments made under an immediate pension benefits offer to certain former employees. |
• | a $9.2 million pre-tax charge ($5.9 million after tax or $.04 per share) for the impairment related to the Company’s investment in a joint venture. |
• | a $2.6 million pre-tax charge ($1.5 million after tax, or $.01 per share) for the early termination of a distribution agreement, which will result in distribution cost savings for the Company in future periods. |
P. 18 – THE NEW YORK TIMES COMPANY
2013
The items below had a net unfavorable effect on our results from continuing operations of $25.2 million, or $.16 per share:
• | $20.8 million of expenses ($12.3 million after tax, or $.08 per share) for non-operating retirement costs. |
• | a $12.4 million pre-tax charge ($7.3 million after tax, or $.05 per share) for severance costs. |
• | a $6.2 million pre-tax charge ($3.7 million after tax, or $.02 per share) for a partial withdrawal obligation under a multiemployer pension plan. |
• | a $3.2 million pre-tax pension settlement charge ($1.9 million after tax, or $.01 per share) in connection with lump-sum payments under an immediate pension benefit offer to certain former employees. |
2012 (53-week fiscal year)
The items below had a net favorable effect on our results from continuing operations of $69.2 million, or $.45 per share:
• | a $220.3 million pre-tax gain ($134.7 million after tax, or $.87 per share) on the sales of our ownership interest in Indeed.com and our remaining units in Fenway Sports Group. |
• | a $47.7 million pre-tax pension settlement charge ($27.7 million after tax, or $.18 per share) in connection with lump-sum payments made under an immediate pension benefit offer to certain former employees. |
• | $44.5 million of expenses ($25.9 million after tax, or $.17 per share) for non-operating retirement costs. |
• | a $12.3 million pre-tax charge ($7.2 million after tax, or $.04 per share) for severance costs. |
• | a $5.5 million pre-tax, non-cash charge ($3.2 million after tax, or $.02 per share) for the impairment of certain investments, primarily related to our investment in Ongo Inc., a consumer service for reading and sharing digital news and information from multiple publishers. |
• | a $2.6 million pre-tax charge ($1.5 million after tax, or $.01 per share) in connection with a legal settlement. |
2011
The items below had a net unfavorable effect on our results from continuing operations of $27.9 million, or $.19 per share:
• | a $71.2 million pre-tax gain ($41.4 million after tax, or $.27 per share) from the sales of 390 of our units in Fenway Sports Group and a portion of our interest in Indeed.com. |
• | a $46.4 million pre-tax charge ($27.6 million after tax, or $.18 per share) in connection with the prepayment of all $250.0 million aggregate principal amount of our 14.053% senior unsecured notes. |
• | $43.6 million of expenses ($25.8 million after tax, or $.17 per share) for non-operating retirement costs. |
• | a $10.0 million pre-tax charge ($5.9 million after tax, or $.04 per share) for severance costs. |
• | a $7.5 million pre-tax charge ($4.7 million after tax, or $.03 per share) for the impairment of assets related to certain assets held for sale, primarily of Baseline, Inc. (“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 websites. |
• | a $4.5 million pre-tax charge ($2.6 million after tax, or $.02 per share) for a retirement and consulting agreement in connection with the retirement of our former chief executive officer. |
• | a $4.2 million estimated pre-tax charge ($2.7 million after tax, or $.02 per share) for a pension withdrawal obligation under a multiemployer pension plan at The Boston Globe (the “Globe”). |
THE NEW YORK TIMES COMPANY – P. 19
2010
The items below had a net unfavorable effect on our results from continuing operations of $28.6 million, or $.18 per share:
• | $40.5 million of expenses ($23.8 million after tax, or $.16 per share) for non-operating retirement costs. |
• | a $12.7 million pre-tax gain from the sale of an asset at one of the paper mills in which we have an investment. Our share of the pre-tax gain, after eliminating the noncontrolling interest portion, was $10.2 million ($6.5 million after tax, or $.04 per share). |
• | an $11.4 million charge ($.07 per share) for the reduction in future tax benefits for retiree health benefits resulting from the federal health-care legislation enacted in 2010. |
• | a $9.1 million pre-tax gain ($5.4 million after tax, or $.04 per share) from the sale of 50 of our units in Fenway Sports Group. |
• | a $6.3 million pre-tax charge ($3.7 million after tax, or $.02 per share) for an adjustment to estimated pension withdrawal obligations under several multiemployer pension plans at the Globe. |
• | a $2.7 million pre-tax charge ($1.6 million after tax, or $.01 per share) for severance costs. |
P. 20 – THE NEW YORK TIMES COMPANY
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated financial condition as of December 28, 2014, and results of operations for the three years ended December 28, 2014. This item should be read in conjunction with our Consolidated Financial Statements and the related Notes included in this Annual Report.
EXECUTIVE OVERVIEW
We are a global media organization that includes newspapers, digital businesses and investments in paper mills. We currently have one reportable segment comprising businesses that include The Times, INYT, NYTimes.com, international.nytimes.com and related businesses.
We generate revenues principally from circulation and advertising. Other revenues primarily consist of revenues from news services/syndication, digital archives, office rental income, e-commerce and conferences/events. Our main operating costs are employee-related costs and raw materials, primarily newsprint.
In the accompanying analysis of financial information, we present certain information derived from consolidated financial information but not presented in our financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We are presenting in this report supplemental non-GAAP financial performance measures that exclude depreciation, amortization, severance, non-operating retirement costs and certain identified special items, as applicable. These non-GAAP financial measures should not be considered in isolation from or as a substitute for the related GAAP measures, and should be read in conjunction with financial information presented on a GAAP basis. For further information and reconciliations of these non-GAAP measures to the most directly comparable GAAP items, respectively, diluted (loss)/earnings per share, operating profit and operating costs, see “Results of Operations — Non-GAAP Financial Measures.”
2014 Financial Highlights
In 2014, diluted earnings per share from continuing operations were $0.21, compared with $0.36 for 2013. Diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items discussed below (or “adjusted diluted earnings per share,” a non-GAAP measure) were $0.43 for 2014, compared with $0.52 for 2013.
Operating profit in 2014 was $91.9 million, compared with $156.1 million for 2013. The decline was primarily driven by investment spending related to the Company’s strategic initiatives and severance expense. Operating profit before depreciation, amortization, severance, non-operating retirement costs and special items discussed below (or “adjusted operating profit,” a non-GAAP measure) for 2014 was $256.3 million, compared with $277.1 million for 2013.
Total revenues increased slightly in 2014 to $1.59 billion, compared with $1.58 billion in 2013. This was driven by growth in circulation and other revenues, partially offset by declines in advertising revenues. Compared with 2013, circulation revenues increased 1.5% in 2014, as digital subscription growth and a print home-delivery price increase at The Times offset a decline in the number of print copies sold. Circulation revenues from our digital-only subscription packages increased 13.5% in 2014, compared with 2013. Paid subscribers to digital-only subscription packages totaled approximately 910,000 as of December 28, 2014, a nearly 20% increase compared with year-end 2013.
Advertising revenues remained under pressure during 2014 due to continuing secular trends. Total advertising revenues decreased 0.7% in 2014 compared with 2013, reflecting a 4.7% decrease in print advertising revenues and an 11.9% increase in digital advertising revenues.
Compared with 2013, other revenues increased 3.6% in 2014, driven by our e-commerce business and digital archives.
Operating costs in 2014 increased 5.2% to $1.48 billion, compared with $1.41 billion in 2013. The increase was primarily due to investment spending related to the Company’s strategic initiatives as well as severance expense associated with workforce reductions, partially offset by efficiencies in print distribution. Operating costs before depreciation, amortization, severance and non-operating retirement costs discussed below (or “adjusted operating costs,” a non-GAAP measure) increased 2.5% to $1.33 billion in 2014, compared with $1.30 billion in 2013.
THE NEW YORK TIMES COMPANY – P. 21
Non-operating retirement costs increased to $36.7 million in 2014 from $20.8 million in 2013, driven by lower expected returns on pension assets, higher retiree medical costs and higher pension interest cost.
Outlook
We remain in a challenging business environment, reflecting an increasingly competitive and fragmented landscape, and visibility remains limited.
For the first quarter of 2015, we expect circulation revenues to increase at a rate similar to that of the fourth quarter of 2014, driven by the benefit from our digital subscription initiatives and from the most recent home-delivery price increase, partially offset by print weakness, particularly in newsstand volume. We expect the number of net new digital subscriber additions in the first quarter of 2015 to be in the mid-30,000s.
We expect advertising trends to remain challenging and subject to significant month-to-month volatility. In the first quarter of 2015, we expect advertising revenues to decrease in the mid-single digits compared with the first quarter of 2014, in part due to more challenging year-over-year comparisons, particularly in print. We expect digital advertising revenue to increase in the low double digits in that period.
We expect other revenues to grow in the mid-single digits in the first quarter of 2015 compared with the first quarter of 2014.
We expect operating costs and adjusted operating costs to be roughly flat in the first quarter of 2015 compared with the first quarter of 2014. We also believe that recent expense management efforts, including workforce reductions announced in the fourth quarter of 2014, should allow us to maintain or slightly lower our operating costs and adjusted operating costs in 2015, relative to 2014 levels.
We expect non-operating retirement costs in the first quarter of 2015 to be approximately $10 million compared with $8.9 million in the first quarter of 2014 due to higher multiemployer pension withdrawal costs.
We also expect the following on a pre-tax basis in 2015:
• | Results from joint ventures: breakeven to $5 million, |
• | Depreciation and amortization: $60 million to $65 million, |
• | Interest expense, net: $40 million to $45 million, and |
• | Capital expenditures: $35 million to $45 million. |
Business Environment
We believe that a number of factors and industry trends have had, and will continue to have, an adverse effect on our business and prospects. These include the following:
Competition in our industry
We operate in a highly competitive environment. Our print and digital products compete for advertising and circulation revenue with both traditional and new content providers, and this competition has intensified as a result of new digital media technologies and new media providers offering news and other online content. Competition among companies offering online content is intense; new competitors can quickly emerge, and some competitors may have greater resources or better competitive positions than we do.
Our ability to compete effectively depends, among other things, on our ability to continue delivering high-quality journalism and content that is interesting and relevant to our audience; the popularity, ease of use and performance of our products, and our ability to monetize them; our ability to attract, retain and motivate talented journalists and other employees to develop products that users find engaging; and our ability to manage and grow our business in a cost-effective manner.
P. 22 – THE NEW YORK TIMES COMPANY
Continuing shift to digital over print
Circulation revenue is a significant source of revenue for us and an increasingly important driver as the overall composition of our revenues has shifted in response to the transformations in our industry. The largest portion of our circulation revenue is currently from traditional print products, where we have experienced declining print circulation volume in recent years. This is due to, among other factors, increased competition from digital platforms and sources other than traditional newspapers (which are often free to users), higher subscription and single-copy rates and a growing preference among some consumers for receiving their news from a variety of sources.
Advances in technology have led to an increasing popularity in the distribution of news and other content through smartphones, tablets and other mobile devices, reshaping consumer behavior and expectations for consuming news and other information. Our ability to retain and continue to build on our digital subscription base and audience for our digital products depends on continued market acceptance of our evolving digital subscription model, consumer behavior, pricing, available alternatives from current and new competitors, continued delivery of high-quality journalism and content that is interesting and relevant to users and other factors.
In addition, the advertising industry continues to experience a secular shift toward digital advertising, which is less expensive and can offer more directly measurable returns than traditional print media. The digital advertising marketplace has become increasingly complex and fragmented, particularly as digital advertising networks and exchanges, real-time bidding and other programmatic-buying channels that allow advertisers to buy audience at scale play a more significant role. Competition from a wide variety of digital media and services, many of which charge lower rates than us, and a significant increase in inventory in the digital marketplace have affected, and will likely continue to affect, our ability to attract and retain advertisers and to maintain or increase our advertising rates.
Economic conditions
Global, national and local economic conditions affect various aspects of our business, particularly advertising spending, which drives a significant portion of our revenues. The level of advertising sales in any period may be affected by advertisers’ decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand and general economic conditions. Changes in spending patterns and priorities, including shifts in marketing strategies and budget cuts of key advertisers, in response to economic conditions, have depressed and may continue to depress our advertising revenues.
Fixed costs
A significant portion of our costs are fixed, and therefore we are limited in our ability to reduce these costs in the short term. Our most significant costs are employee-related costs and raw materials, which together accounted for approximately 50% of our total operating costs in 2014. Changes in employee-related costs and the price and availability of newsprint can materially affect our operating results.
For a discussion of these and other factors that could affect our business, results of operations and financial condition, see “Forward-Looking Statements” and “Item 1A — Risk Factors.”
Our Strategy
Our business is operating during a period of transformation for our industry and amidst uneven economic conditions. We anticipate that the challenges we currently face will continue, and we believe that the following elements are key to our efforts to address them.
Strengthening and extending The New York Times brand through our digital offerings
Our priority is to better position our organization for innovation and growth, while maintaining a robust news-gathering operation capable of continuing to provide the high-quality news and information that sets our Company apart. As we continue to face a challenging advertising environment, we are focused on building consumer revenues. Our paid digital subscription model has created a meaningful revenue stream that has partially offset declines in our advertising and print circulation businesses. The continued growth in our digital subscriber base in 2014 underscores the willingness of our readers and users to pay for the high-quality journalism we provide across multiple platforms.
We aim to continue building our digital subscriber base by increasing engagement and subscription opportunities. In 2014, we introduced several new digital products, including NYT Now, Times Premier and NYT Cooking.
THE NEW YORK TIMES COMPANY – P. 23
We believe we have a very powerful and trusted brand that, because of the quality of our journalism, attracts educated, affluent and influential audiences. We are continuing to focus on leveraging our brand and developing and innovating our digital advertising offerings. In early 2014, we introduced Paid Posts, our native advertising product, which has contributed to digital advertising growth. We will also continue to build on the strength of The New York Times brand to expand our presence into new products, markets and endeavors, such as expanding our conferences business and developing our e-commerce business.
As we continue to look for ways to optimize and monetize our products and services, we remain committed to creating quality content and a quality user experience, regardless of the distribution model of news and information.
Managing our expenses
Over the past few years, we have focused on realigning our cost base to ensure that we are operating our businesses efficiently, while maintaining our commitment to investing in high-quality content and achieving our long-term strategy. During the fourth quarter of 2014, we announced workforce reductions that we expect will allow us to strengthen our operating efficiencies while continuing to safeguard the quality of our journalism and invest in our digital products and strategic initiatives. See Note 7 of our Consolidated Financial Statements for additional information regarding these workforce reductions. We will endeavor to be diligent in reducing expenses and managing legacy costs going forward, but will also remain prepared to invest where appropriate.
Strengthening our liquidity
We have continued to strengthen our liquidity position and we remain focused on further de-leveraging and de-risking our balance sheet. As of December 28, 2014, we had cash, cash equivalents and marketable securities of approximately $981 million and total debt and capital lease obligations of approximately $650 million. Accordingly, our cash, cash equivalents and marketable securities exceeded total debt and capital lease obligations by approximately $331 million. We believe our cash balance and cash provided by operations, in combination with other sources of cash, will be sufficient to meet our financing needs over the next 12 months.
In September 2013, we announced the initiation of a quarterly dividend in which both classes of our common stock participate equally. We believe this quarterly dividend allows us to return capital to our stockholders while also maintaining the financial flexibility necessary to continue to invest in our transformation and growth initiatives. Given current conditions and continued volatility in advertising revenues, we believe it is in the best interests of the Company to maintain a conservative balance sheet and a prudent view of our cash flow going forward.
Managing our retirement-related costs
We remain focused on managing the underfunded status of our pension plans and adjusting the size of our pension obligations relative to the size of our Company. Our qualified pension plans were underfunded (meaning the present value of future obligations exceeded the fair value of plan assets) as of December 28, 2014, by approximately $264 million, compared with approximately $80 million as of December 29, 2013. The increase was driven by a decline in interest rates and new mortality tables adopted by the Society of Actuaries during the fourth quarter of 2014, partially offset by solid returns on pension assets. The net impact to our qualified pension plans resulting from the new mortality assumptions was an increase of $104 million. We made contributions of approximately $15 million to certain qualified pension plans in 2014, compared with approximately $74 million in 2013. We expect contributions in 2015 to total approximately $9.0 million to satisfy minimum funding requirements.
We have taken steps over the last few years as part of our ongoing strategy to address our pension obligations, including freezing accruals under the qualified defined benefit pension plans that cover both our non-union employees and those covered by collective bargaining agreements. We have also offered an immediate pension benefit offer in the form of lump-sum payments to certain former employees and we will continue to look for ways to reduce the size of our pension obligations.
While we have made significant progress in our liability-driven investment strategy to reduce the funding volatility of our qualified pension plans, the size of our pension plan obligations relative to the size of our current operations will continue to have a significant impact on our reported financial results. We expect to continue to experience volatility in our retirement-related costs, including pension, multiemployer pension and retiree medical costs. In 2014, our retirement-related costs increased by approximately $16 million to $37 million (excluding a $9.5 million pension settlement charge in 2014), due principally to a lower assumed return on pension plan assets resulting from a shift in asset mix to bonds from equity, higher retiree medical costs and higher pension interest costs. For 2015,
P. 24 – THE NEW YORK TIMES COMPANY
we expect retiree medical costs to be lower due to plan amendments that will reduce the Company’s portion of premiums paid.
Since the first quarter of 2014, we have provided supplemental non-GAAP information on adjusted diluted earnings per share, adjusted operating costs and adjusted operating profit, in each case adjusted to exclude non-operating retirement costs. We believe that this supplemental information helps clarify how the employee benefit costs of our principal plans affect our financial position and how they may affect future operating performance, allowing for a better long-term view of the business. See “Results of Operations — Non-GAAP Financial Measures” for more information.
THE NEW YORK TIMES COMPANY – P. 25
RESULTS OF OPERATIONS
Overview
Fiscal years 2014 and 2013 each comprise 52 weeks and fiscal year 2012 comprises 53 weeks. The effect of the 53rd week (“additional week”) on revenues and operating costs is discussed below. The following table presents our consolidated financial results:
Years Ended | % Change | |||||||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | 14-13 | 13-12 | |||||||||||||
(52 weeks) | (52 weeks) | (53 weeks) | ||||||||||||||||
Revenues | ||||||||||||||||||
Circulation | $ | 836,822 | $ | 824,277 | $ | 795,037 | 1.5 | 3.7 | ||||||||||
Advertising | 662,315 | 666,687 | 711,829 | (0.7 | ) | (6.3 | ) | |||||||||||
Other | 89,391 | 86,266 | 88,475 | 3.6 | (2.5 | ) | ||||||||||||
Total revenues | 1,588,528 | 1,577,230 | 1,595,341 | 0.7 | (1.1 | ) | ||||||||||||
Operating costs | ||||||||||||||||||
Production costs: | ||||||||||||||||||
Raw materials | 88,958 | 92,886 | 106,381 | (4.2 | ) | (12.7 | ) | |||||||||||
Wages and benefits | 357,573 | 332,085 | 331,321 | 7.7 | 0.2 | |||||||||||||
Other | 197,464 | 201,942 | 213,616 | (2.2 | ) | (5.5 | ) | |||||||||||
Total production costs | 643,995 | 626,913 | 651,318 | 2.7 | (3.7 | ) | ||||||||||||
Selling, general and administrative costs | 761,055 | 706,354 | 711,112 | 7.7 | (0.7 | ) | ||||||||||||
Depreciation and amortization | 79,455 | 78,477 | 78,980 | 1.2 | (0.6 | ) | ||||||||||||
Total operating costs | 1,484,505 | 1,411,744 | 1,441,410 | 5.2 | (2.1 | ) | ||||||||||||
Early termination charge | 2,550 | — | — | 100.0 | — | |||||||||||||
Pension settlement charge | 9,525 | 3,228 | 47,657 | * | (93.2 | ) | ||||||||||||
Multiemployer pension plan withdrawal expense | — | 6,171 | — | (100.0 | ) | 100.0 | ||||||||||||
Other expense | — | — | 2,620 | — | (100.0 | ) | ||||||||||||
Operating profit | 91,948 | 156,087 | 103,654 | (41.1 | ) | 50.6 | ||||||||||||
Gain on sale of investments | — | — | 220,275 | — | (100.0 | ) | ||||||||||||
Impairment of investments | — | — | 5,500 | — | (100.0 | ) | ||||||||||||
(Loss)/income from joint ventures | (8,368 | ) | (3,215 | ) | 2,936 | * | * | |||||||||||
Interest expense, net | 53,730 | 58,073 | 62,808 | (7.5 | ) | (7.5 | ) | |||||||||||
Income from continuing operations before income taxes | 29,850 | 94,799 | 258,557 | (68.5 | ) | (63.3 | ) | |||||||||||
Income tax (benefit)/expense | (3,541 | ) | 37,892 | 94,617 | * | (60.0 | ) | |||||||||||
Income from continuing operations | 33,391 | 56,907 | 163,940 | (41.3 | ) | (65.3 | ) | |||||||||||
Discontinued operations: | ||||||||||||||||||
Loss from discontinued operations, net of income taxes | — | (20,413 | ) | (113,447 | ) | (100.0 | ) | (82.0 | ) | |||||||||
(Loss)/gain on sale, net of income taxes | (1,086 | ) | 28,362 | 85,520 | * | (66.8 | ) | |||||||||||
(Loss)/income from discontinued operations, net of income taxes | (1,086 | ) | 7,949 | (27,927 | ) | * | * | |||||||||||
Net income | 32,305 | 64,856 | 136,013 | (50.2 | ) | (52.3 | ) | |||||||||||
Net loss/(income) attributable to the noncontrolling interest | 1,002 | 249 | (166 | ) | * | * | ||||||||||||
Net income attributable to The New York Times Company common stockholders | $ | 33,307 | $ | 65,105 | $ | 135,847 | (48.8 | ) | (52.1 | ) | ||||||||
* Represents an increase or decrease in excess of 100%.
P. 26 – THE NEW YORK TIMES COMPANY
Revenues
Circulation, advertising and other revenues were as follows:
Years Ended | % Change | |||||||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | 14-13 | 13-12 | |||||||||||||
(52 weeks) | (52 weeks) | (53 weeks) | ||||||||||||||||
Circulation | $ | 836,822 | $ | 824,277 | $ | 795,037 | 1.5 | 3.7 | ||||||||||
Advertising | 662,315 | 666,687 | 711,829 | (0.7 | ) | (6.3 | ) | |||||||||||
Other | 89,391 | 86,266 | 88,475 | 3.6 | (2.5 | ) | ||||||||||||
Total | $ | 1,588,528 | $ | 1,577,230 | $ | 1,595,341 | 0.7 | (1.1 | ) | |||||||||
Circulation Revenues
Circulation revenues are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy and bulk sales) and digital subscriptions sold and the rates charged to the respective customers. Total circulation revenues consist of revenues from our print and digital products, including our digital-only subscription packages, e-readers and replica editions.
Circulation revenues increased in 2014 compared with 2013 primarily due to growth in our digital subscription base and the increase in print home-delivery prices at The Times, offset by a reduction in the number of print copies sold. Revenues from our digital-only subscription packages, e-readers and replica editions were $169.3 million in 2014 compared with $149.1 million in 2013, an increase of 13.5%.
Circulation revenues increased in 2013 compared with 2012 primarily due to growth in our digital subscription base and the increase in print home-delivery prices at The Times, offset by a reduction in the number of print copies sold and the effect of the additional week in 2012. Revenues from our digital-only subscription packages, e-readers and replica editions were $149.1 million in 2013 compared with $111.7 million in 2012, an increase of 33.5%.
Advertising Revenues
In the fourth quarter of 2014, the Company reclassified the categories under which advertising revenues are disclosed, including prior period information. Display advertising revenue is principally from advertisers promoting products, services or brands, such as financial institutions, movie studios, department stores, American and international fashion and technology in The Times and INYT. Classified advertising revenue includes line-ads sold in the major categories of real estate, help wanted, automotive and other. Other advertising revenue primarily includes creative services fees associated with our branded content studio; revenue from preprinted advertising, also known as free-standing inserts; revenue generated from branded bags in which our newspapers are delivered; and advertising revenues from our News Services business.
Advertising revenues (print and digital) by category were as follows:
Years Ended | % Change | |||||||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | 14-13 | 13-12 | |||||||||||||
(52 weeks) | (52 weeks) | (53 weeks) | ||||||||||||||||
Display | $ | 606,838 | $ | 609,920 | $ | 649,755 | (0.5 | ) | (6.1 | ) | ||||||||
Classified | 36,689 | 37,453 | 40,922 | (2.0 | ) | (8.5 | ) | |||||||||||
Other | 18,788 | 19,314 | 21,152 | (2.7 | ) | (8.7 | ) | |||||||||||
Total | $ | 662,315 | $ | 666,687 | $ | 711,829 | (0.7 | ) | (6.3 | ) | ||||||||
THE NEW YORK TIMES COMPANY – P. 27
Below is a percentage breakdown of 2014, 2013 and 2012 advertising revenues (print and digital):
Display | Classified | Other | Total | |||||||||
2014 | 91 | % | 6 | % | 3 | % | 100 | % | ||||
2013 | 91 | % | 6 | % | 3 | % | 100 | % | ||||
2012 | 91 | % | 6 | % | 3 | % | 100 | % | ||||
Advertising revenues are primarily determined by the volume, rate and mix of advertisements. Advertising spending, which drives a significant portion of revenues, is sensitive to economic conditions and affected by the continuing transformation of our industry. During 2014, advertising revenues were affected by the ongoing secular shift from print to digital and continued to reflect changes in the spending patterns and marketing strategies of our advertisers as well as an increasingly complex and fragmented digital advertising marketplace. The market for standard web-based digital display advertising continues to experience challenges, due to an abundance of available advertising inventory and a shift toward automation, including digital advertising networks and exchanges, real-time bidding and other programmatic-buying channels that allow advertisers to buy audience at scale, which has led to downward pricing pressure.
In 2014, total advertising revenues decreased primarily due to lower print advertising revenues across most advertising categories. Print advertising revenues, which represented 73% of total advertising revenues, declined 4.7% in 2014 compared with 2013, mainly due to weakness in display advertising. This weakness resulted from reductions primarily in the technology, entertainment and corporate categories. The decline was partially offset by an increase in the financial services, advocacy and international fashion categories.
Digital advertising revenues, which represented 27% of total advertising revenues, increased 11.9% in 2014 compared with 2013 due to an increase in display advertising, partially offset by a decrease in classified advertising revenues. The increase in display advertising primarily resulted from the introduction of Paid Posts and from increases in the technology, telecommunications and media categories, partially offset by declines mainly in the financial services and entertainment categories.
In 2013, total advertising revenues declined mainly due to weakness in display and classified advertising. This weakness resulted from advertisers reducing spending in the face of uneven economic conditions, primarily in the entertainment, financial services and travel categories. The uncertain economic environment, coupled with secular changes in our industry, contributed to declines in total classified advertising revenues, primarily in the real estate, automotive and help wanted categories, partially offset by growth in the telecommunications and corporate categories.
Other Revenues
Other revenues consist primarily of revenues from news services/syndication, digital archives, office rental income, e-commerce and conferences/events.
Other revenues increased in 2014 compared with 2013 driven by higher revenues from our e-commerce business and digital archives.
Other revenues decreased in 2013 compared with 2012, mainly due to our exit from the education business at the end of 2012.
P. 28 – THE NEW YORK TIMES COMPANY
Operating Costs
Operating costs were as follows:
Years Ended | % Change | |||||||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | 14-13 | 13-12 | |||||||||||||
(52 weeks) | (52 weeks) | (53 weeks) | ||||||||||||||||
Production costs: | ||||||||||||||||||
Raw materials | $ | 88,958 | $ | 92,886 | $ | 106,381 | (4.2 | ) | (12.7 | ) | ||||||||
Wages and benefits | 357,573 | 332,085 | 331,321 | 7.7 | 0.2 | |||||||||||||
Other | 197,464 | 201,942 | 213,616 | (2.2 | ) | (5.5 | ) | |||||||||||
Total production costs | 643,995 | 626,913 | 651,318 | 2.7 | (3.7 | ) | ||||||||||||
Selling, general and administrative costs | 761,055 | 706,354 | 711,112 | 7.7 | (0.7 | ) | ||||||||||||
Depreciation and amortization | 79,455 | 78,477 | 78,980 | 1.2 | (0.6 | ) | ||||||||||||
Total operating costs | $ | 1,484,505 | $ | 1,411,744 | $ | 1,441,410 | 5.2 | (2.1 | ) | |||||||||
The components of operating costs as a percentage of total operating costs were as follows:
Years Ended | ||||||
December 28, 2014 | December 29, 2013 | December 30, 2012 | ||||
(52 weeks) | (52 weeks) | (53 weeks) | ||||
Components of operating costs as a percentage of total operating costs | ||||||
Wages and benefits | 44 | % | 40 | % | 40 | % |
Raw materials | 6 | % | 7 | % | 7 | % |
Other operating costs | 45 | % | 47 | % | 47 | % |
Depreciation and amortization | 5 | % | 6 | % | 6 | % |
Total | 100 | % | 100 | % | 100 | % |
The components of operating costs as a percentage of total revenues were as follows:
Years Ended | ||||||
December 28, 2014 | December 29, 2013 | December 30, 2012 | ||||
(52 weeks) | (52 weeks) | (53 weeks) | ||||
Components of operating costs as a percentage of total revenues | ||||||
Wages and benefits | 41 | % | 36 | % | 36 | % |
Raw materials | 5 | % | 6 | % | 7 | % |
Other operating costs | 42 | % | 43 | % | 42 | % |
Depreciation and amortization | 5 | % | 5 | % | 5 | % |
Total | 93 | % | 90 | % | 90 | % |
Production Costs
Production costs increased in 2014 compared with 2013 primarily due to higher wages and benefits (approximately $25 million), offset in part by lower raw materials expense (approximately $4 million). Newsprint expense declined 5.5% in 2014 compared with 2013, with 4.1% from lower consumption and 1.4% from lower pricing. Compensation costs increased mainly due to hiring related to strategic initiatives.
Production costs decreased in 2013 compared with 2012 primarily due to lower raw materials expense (approximately $13 million), mainly newsprint, outside printing costs (approximately $9 million) and pension expense (approximately $3 million), offset in part by higher compensation costs (approximately $4 million). Newsprint expense declined 16.2% in 2013, with 9.8% from lower consumption and 6.4% from lower pricing. Cost savings from contract negotiations mainly contributed to lower outside printing costs. Compensation costs increased
THE NEW YORK TIMES COMPANY – P. 29
mainly due to new hires related to our digital initiatives and lower capitalized salary costs, offset by the additional week in 2012.
Selling, General and Administrative Costs
Selling, general and administrative costs increased in 2014 compared with 2013 primarily due to severance expense associated with workforce reductions as well as higher compensation and benefits (approximately $58 million) and promotion costs (approximately $7 million), offset by lower distribution costs ($14 million). Benefits expense was higher mainly due to higher retirement costs. Promotion costs were higher mainly due to the launch of our new digital products and print circulation marketing. Lower distribution costs were mainly due to fewer print copies produced and transportation efficiency.
Selling, general and administrative costs decreased in 2013 compared with 2012 primarily due to lower pension expense (approximately $18 million) and salaries and wage expenses (approximately $10 million) offset by higher other compensation costs (approximately $13 million). Compensation costs increased primarily due to new hires related to digital initiatives and annual salary merit increases.
Other Items
Early Termination Charge
During 2014, we recorded a $2.6 million charge for the early termination of a distribution agreement, which we expect will result in distribution cost savings for the Company in future periods.
Reserve for Uncertain Tax Positions
During 2014, we recorded a $21.1 million income tax benefit primarily due to a reduction in the Company’s reserve for uncertain tax positions.
Pension Settlement Charges
As part of our strategy to reduce our pension obligations and the resulting volatility of our overall financial condition, during 2014, 2013 and 2012, we offered lump-sum payments to certain former employees participating in both our qualified and non-qualified pension plans. Each lump-sum payment offer resulted in pension settlement charges due to the acceleration of the recognition of the accumulated unrecognized actuarial loss.
2014
In the second quarter of 2014, we recorded a $9.5 million pension settlement charge in connection with lump-sum payments made to certain former employees who participated in certain non-qualified pension plans. These lump-sum payments totaled approximately $24 million and were paid out of Company cash. The effect of this lump-sum payment offer was to reduce our pension obligations by approximately $32 million.
2013
In the fourth quarter of 2013, we recorded a $3.2 million pension settlement charge in connection with lump-sum payments made to certain former employees who participated in certain non-qualified pension plans. These lump-sum payments totaled approximately $11 million and were paid out of Company cash. The effect of this lump-sum payment offer was to reduce our pension obligations by approximately $13 million.
2012
In the fourth quarter of 2012, we recorded a $47.7 million pension settlement charge in connection with lump-sum payments made to certain former employees who participated in The New York Times Companies Pension Plan. These lump-sum payments totaled approximately $112 million and were paid out of the existing assets of the plan. The effect of this lump-sum payment offer was to reduce our pension obligations by approximately $30 million.
Multiemployer Pension Plan Withdrawal Expense
Over the past few years, certain events, such as amendments to various collective bargaining agreements and the sales of the New England Media Group and the Regional Media Group, resulted in withdrawals from multiemployer pension plans. These actions, along with a reduction in covered employees, have resulted in us estimating withdrawal liabilities to certain multiemployer pension plans for our proportionate share of any unfunded vested benefits.
P. 30 – THE NEW YORK TIMES COMPANY
Our multiemployer pension plan withdrawal liability was approximately $116 million as of December 28, 2014 and $119 million as of December 29, 2013. This liability represents the present value of the obligations related to complete and partial withdrawals that have already occurred, as well as an estimate of future partial withdrawals that we considered probable and reasonably estimable. For those plans that have yet to provide us with a demand letter, the actual liability will not be fully known until they complete a final assessment of the withdrawal liability and issue a demand to us. Therefore, the estimate of our multiemployer pension plan liability will be adjusted as more information becomes available that allows us to refine our estimates.
2013
In the third quarter of 2013, we recorded an estimated charge of $6.2 million related to a partial withdrawal obligation under a multiemployer pension plan.
2012
There were nominal charges in 2012 for withdrawal obligations related to our multiemployer pension plans.
Advertising Expenses
Advertising expenses were $89.5 million, $86.0 million, and $83.2 million for December 28, 2014, December 29, 2013 and December 30, 2012 respectively.
Capitalized Computer Software Costs
Capitalized computer software costs (included in depreciation expense) were $29.4 million, $27.4 million, and $22.5 million for December 28, 2014, December 29, 2013 and December 30, 2012 respectively.
Other Expense
2012
In 2012, we recorded a $2.6 million charge in connection with a legal settlement.
NON-OPERATING ITEMS
Gain on Sale of Investments
In the fourth quarter of 2012, Indeed.com, a search engine for jobs in which we had an ownership interest, was sold. The proceeds from the sale of our interest were approximately $167 million and we recognized a pre-tax gain of $164.6 million.
In the first quarter of 2012, we sold 100 of our units in Fenway Sports Group for an aggregate price of $30.0 million, resulting in a pre-tax gain of $17.8 million, and in the second quarter of 2012, we sold our remaining 210 units for an aggregate price of $63.0 million, resulting in a pre-tax gain of $37.8 million.
Impairment of Investments
In 2012, we recorded 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.
(Loss)/Income from Joint Ventures
As of December 28, 2014, we had investments in paper mills that were accounted for under the equity method (Malbaie and Madison). Our proportionate share of the operating results of these investments is recorded in “(Loss)/income from joint ventures” in our Consolidated Statements of Operations. See Note 5 of the Notes to the Consolidated Financial Statements for additional information regarding these investments.
During the fourth quarter of 2014, we recognized an impairment charge of $9.2 million for one of our investments, Madison Paper Industries. Our proportionate share of the loss was $4.7 million after adjusting for tax and the allocation of the loss to the non-controlling interest. See Note 5 of the Notes to the Consolidated Financial Statements for additional information.
In 2014, we had a loss from joint ventures of $8.4 million compared with a loss of $3.2 million in 2013.
THE NEW YORK TIMES COMPANY – P. 31
In the fourth quarter of 2013, as part of the sale of the New England Media Group, we sold our 49% equity interest in Metro Boston, and classified the results as discontinued operations for all periods presented. See Note 13 of the Notes to the Consolidated Financial Statements for additional information.
In 2013, we had a loss from joint ventures of $3.2 million compared with income of $2.9 million in 2012. Joint venture results in 2013 were primarily due to lower results for the paper mills in which we have an investment.
Interest Expense, Net
Interest expense, net, was as follows:
Years Ended | ||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | |||||||||
Cash interest expense | $ | 51,877 | $ | 52,913 | $ | 58,291 | ||||||
Premium on debt repurchases | 2,538 | 2,127 | 428 | |||||||||
Amortization of debt costs and discount on debt | 4,651 | 4,548 | 4,516 | |||||||||
Capitalized interest | (152 | ) | — | (17 | ) | |||||||
Interest income | (5,184 | ) | (1,515 | ) | (410 | ) | ||||||
Total interest expense, net | $ | 53,730 | $ | 58,073 | $ | 62,808 | ||||||
Interest expense, net decreased in 2014 compared with 2013 mainly due to a lower level of debt outstanding as a result of debt repurchases made in 2013 and higher interest income.
Interest expense, net decreased in 2013 compared with 2012 due to a lower level of debt outstanding as a result of repurchases and, in the fourth quarter of 2012, a charge associated with the termination of our $125.0 million revolving credit facility.
Income Taxes
We had income tax benefit of $3.5 million on pre-tax income of $29.9 million in 2014. The effective tax rate for 2014 was favorably affected by approximately $21.1 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.
We had income tax expense of $37.9 million on pre-tax income of $94.8 million in 2013. Our effective tax rate was 40.0% in 2013. The effective tax rate for 2013 was favorably affected by strong returns on corporate-owned life insurance investments and approximately $1.8 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.
We had income tax expense of $94.6 million on pre-tax income of $258.6 million in 2012. Our effective tax rate was 36.6% in 2012. The effective tax rate for 2012 was favorably affected by a lower income tax rate on the sale of our ownership interest in Indeed.com.
Discontinued Operations
New England Media Group
In the fourth quarter of 2013, we completed the sale of substantially all of the assets and operating liabilities of the New England Media Group, consisting of the Globe, BostonGlobe.com, Boston.com, the Worcester Telegram & Gazette (“T&G”), Telegram.com and related properties, and our 49% equity interest in Metro Boston, for approximately $70 million in cash, subject to customary adjustments. The net after-tax proceeds from the sale, including a tax benefit, were approximately $74 million. In 2013, we recognized a pre-tax gain of $47.6 million on the sale ($28.1 million after tax), which was almost entirely comprised of a curtailment gain. This curtailment gain is primarily related to an acceleration of prior service credits from retiree medical plan amendments announced in prior years, and is due to a cessation of service for employees at the New England Media Group. Post-closing adjustments in the first and fourth quarter of 2014 resulted in a nominal loss of $0.3 million. The results of operations of the New England Media Group have been classified as discontinued operations for all periods presented.
P. 32 – THE NEW YORK TIMES COMPANY
About Group
In the fourth quarter of 2012, we completed the sale of the About Group, consisting of About.com, ConsumerSearch.com, CalorieCount.com and related businesses, to IAC/InterActiveCorp. for $300.0 million in cash, plus a net working capital adjustment of approximately $17 million. In 2012, the sale resulted in a pre-tax gain of $96.7 million ($61.9 million after tax). The net after-tax proceeds from the sale were approximately $291 million. In the fourth quarter of 2014, there was a legal settlement that resulted in a nominal loss of $0.2 million. The results of operations of the About Group, which had previously been presented as a reportable segment, have been classified as discontinued operations for all periods presented.
Regional Media Group
In the first quarter of 2012, we completed the sale of the Regional Media Group, consisting of 16 regional newspapers, other print publications and related businesses, to Halifax Media Holdings LLC for approximately $140 million in cash. The net after-tax proceeds from the sale, including a tax benefit, were approximately $150 million. The sale resulted in an after-tax gain of $23.6 million (including post-closing adjustments recorded in the second and fourth quarters of 2012 totaling $6.6 million). In the fourth quarter of 2014, there was an environmental contingency that resulted in a nominal loss of $0.4 million. The results of operations for the Regional Media Group have been classified as discontinued operations for all periods presented.
THE NEW YORK TIMES COMPANY – P. 33
Discontinued operations are summarized in the following charts:
Year ended December 28, 2014 | |||||||||||||||
(In thousands) | New England Media Group | About Group | Regional Media Group | Total | |||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | |||||||
Total operating costs | — | — | — | — | |||||||||||
Multiemployer pension plan withdrawal expense(1) | — | — | — | — | |||||||||||
Impairment of assets(2) | — | — | — | — | |||||||||||
Loss from joint ventures | — | — | — | — | |||||||||||
Interest expense, net | — | — | — | — | |||||||||||
Pre-tax loss | — | — | — | — | |||||||||||
Income tax benefit(3) | — | — | — | — | |||||||||||
Loss from discontinued operations, net of income taxes | — | — | — | — | |||||||||||
Loss on sale, net of income taxes: | |||||||||||||||
Loss on sale | (349 | ) | (229 | ) | (397 | ) | (975 | ) | |||||||
Income tax (benefit)/expense | (127 | ) | (93 | ) | 331 | 111 | |||||||||
Loss on sale, net of income taxes | (222 | ) | (136 | ) | (728 | ) | (1,086 | ) | |||||||
Loss from discontinued operations, net of income taxes | $ | (222 | ) | $ | (136 | ) | $ | (728 | ) | $ | (1,086 | ) | |||
Year Ended December 29, 2013 | |||||||||||||||
(In thousands) | New England Media Group | About Group | Regional Media Group | Total | |||||||||||
Revenues | $ | 287,677 | $ | — | $ | — | $ | 287,677 | |||||||
Total operating costs | 281,414 | — | — | 281,414 | |||||||||||
Multiemployer pension plan withdrawal expense(1) | 7,997 | — | — | 7,997 | |||||||||||
Impairment of assets(2) | 34,300 | — | — | 34,300 | |||||||||||
Loss from joint ventures | (240 | ) | — | — | (240 | ) | |||||||||
Interest expense, net | 9 | — | — | 9 | |||||||||||
Pre-tax loss | (36,283 | ) | — | — | (36,283 | ) | |||||||||
Income tax benefit(3) | (13,373 | ) | (2,497 | ) | — | (15,870 | ) | ||||||||
(Loss)/income from discontinued operations, net of income taxes | (22,910 | ) | 2,497 | — | (20,413 | ) | |||||||||
Gain/(loss) on sale, net of income taxes: | |||||||||||||||
Gain on sale(4) | 47,561 | 419 | — | 47,980 | |||||||||||
Income tax expense | 19,457 | 161 | — | 19,618 | |||||||||||
Gain on sale, net of income taxes | 28,104 | 258 | — | 28,362 | |||||||||||
Income from discontinued operations, net of income taxes | $ | 5,194 | $ | 2,755 | $ | — | $ | 7,949 | |||||||
P. 34 – THE NEW YORK TIMES COMPANY
Year Ended December 30, 2012 | |||||||||||||||
(In thousands) | New England Media Group | About Group | Regional Media Group | Total | |||||||||||
Revenues | $ | 394,739 | $ | 74,970 | $ | 6,115 | $ | 475,824 | |||||||
Total operating costs | 385,527 | 51,140 | 8,017 | 444,684 | |||||||||||
Impairment of assets(2) | — | 194,732 | — | 194,732 | |||||||||||
Income from joint ventures | 68 | — | — | 68 | |||||||||||
Interest expense, net | 7 | — | — | 7 | |||||||||||
Pre-tax income/(loss) | 9,273 | (170,902 | ) | (1,902 | ) | (163,531 | ) | ||||||||
Income tax expense/(benefit) | 10,717 | (60,065 | ) | (736 | ) | (50,084 | ) | ||||||||
Loss from discontinued operations, net of income taxes | (1,444 | ) | (110,837 | ) | (1,166 | ) | (113,447 | ) | |||||||
Gain/(loss) on sale, net of income taxes: | |||||||||||||||
Gain/(loss) on sale | — | 96,675 | (5,441 | ) | 91,234 | ||||||||||
Income tax expense/(benefit)(5) | — | 34,785 | (29,071 | ) | 5,714 | ||||||||||
Gain on sale, net of income taxes | — | 61,890 | 23,630 | 85,520 | |||||||||||
(Loss)/income from discontinued operations, net of income taxes | $ | (1,444 | ) | $ | (48,947 | ) | $ | 22,464 | $ | (27,927 | ) | ||||
(1) | The multiemployer pension plan withdrawal expense in 2013 is related to estimated charges for complete or partial withdrawal obligations under multiemployer pension plans triggered by the sale of the New England Media Group. |
(2) | Included the impairment of fixed assets related to the New England Media Group in 2013 and impairment of goodwill related to the About Group in 2012. |
(3) | The income tax benefit for the About Group in 2013 is related to a change in prior period estimated tax expense. |
(4) | Included in the gain on sale in 2013 is a $49.1 million post-retirement curtailment gain related to the New England Media Group. |
(5) | The income tax benefit for the Regional Media Group in 2012 included a tax deduction for goodwill, which was previously non-deductible, triggered upon the sale of the Regional Media Group. |
Impairment of Assets
2013
New England Media Group
The impairment of assets in 2013 reflects the impairment of fixed assets held for sale that related to the New England Media Group. During the third quarter of 2013, we estimated the fair value less cost to sell of the group held for sale, using unobservable inputs. We recorded a $34.3 million non-cash charge in the third quarter of 2013 for fixed assets at the New England Media Group to reduce the carrying value of fixed assets to their fair value less cost to sell.
2012
About 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 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, primarily 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 NEW YORK TIMES COMPANY – P. 35
Non-GAAP Financial Measures
We have included in this report certain supplemental financial information derived from consolidated financial information but not presented in our financial statements prepared in accordance with GAAP. Specifically, we have referred to the following non-GAAP financial measures in this report:
• | diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and the impact of special items (or adjusted diluted earnings per share from continuing operations); |
• | operating profit before depreciation, amortization, severance, non-operating retirement costs and special items (or adjusted operating profit); and |
• | operating costs before depreciation, amortization, severance and non-operating retirement costs (or adjusted operating costs). |
The special items in 2014 consisted of a $2.6 million charge for the early termination of a distribution agreement, a reduction in the reserve for uncertain tax positions of $21.1 million, a $9.5 million pension settlement charge in connection with a lump-sum payment offer to certain former employees and a $9.2 million non-cash impairment charge related to the Company’s investment in a joint venture. The special items in 2013 consisted of a $3.2 million settlement charge in connection with the Company’s immediate pension benefit offer to certain former employees and a $6.2 million charge for a partial withdrawal obligation under a multiemployer pension plan.
We have included these non-GAAP financial measures because management reviews them on a regular basis and uses them to evaluate and manage the performance of our operations. We believe that, for the reasons outlined below, these non-GAAP financial measures provide useful information to investors as a supplement to reported diluted earnings/(loss) per share from continuing operations, operating profit/(loss) and operating costs. However, these measures should be evaluated only in conjunction with the comparable GAAP financial measures and should not be viewed as alternative or superior measures of GAAP results.
Adjusted diluted earnings per share provides useful information in evaluating our period-to-period performance because it eliminates items that we do not consider to be indicative of earnings from ongoing operating activities. Adjusted operating profit is useful in evaluating the ongoing performance of our businesses as it excludes the significant non-cash impact of depreciation and amortization as well as items not indicative of ongoing operating activities. Total operating costs include depreciation, amortization, severance and non-operating retirement costs. Adjusted operating costs, which exclude these items, provide investors with helpful supplemental information on our underlying operating costs that is used by management in its financial and operational decision-making.
Non-operating retirement costs include:
• | interest cost, expected return on plan assets and amortization of actuarial gain and loss components of pension expense; |
• | interest cost and amortization of actuarial gain and loss components of retiree medical expense; and |
• | all expenses associated with multiemployer pension plan withdrawal obligations. |
These non-operating retirement costs are primarily tied to financial market performance and changes in market interest rates and investment performance. Non-operating retirement costs do not include service costs and amortization of prior service costs for pension and retiree medical benefits, which we believe reflect the ongoing service-related costs of providing pension and retiree medical benefits to our employees. We consider non-operating retirement costs to be outside the performance of our ongoing core business operations and believe that presenting operating results excluding non-operating retirement costs, in addition to our GAAP operating results, will provide increased transparency and a better understanding of the underlying trends in our operating business performance.
Reconciliations of non-GAAP financial measures from, respectively, diluted earnings per share from continuing operations, operating profit and operating costs, the most directly comparable GAAP items, as well as details on the components of non-operating retirement costs, are set out in the tables below.
P. 36 – THE NEW YORK TIMES COMPANY
Reconciliation of diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations) | ||||||||||||||||||
Years Ended | % Change | |||||||||||||||||
(In thousands) | December 28, 2014 | December 29, 2013 | December 30, 2012 | 14-13 | 13-12 | |||||||||||||
Diluted earnings per share from continuing operations | $ | 0.21 | $ | 0.36 | $ | 1.07 | (41.7 | ) | (66.4 | ) | ||||||||
Add: | ||||||||||||||||||
Severance | 0.13 | 0.05 | 0.04 | |||||||||||||||
Non-operating retirement costs | 0.13 | 0.08 | 0.17 | |||||||||||||||
Special items: | ||||||||||||||||||
Early termination charge | 0.01 | — | — | |||||||||||||||
Reduction in uncertain tax positions | (0.13 | ) | — | — | ||||||||||||||
Pension settlement charge | 0.04 | 0.01 | 0.18 | |||||||||||||||
Multiemployer pension plan withdrawal expense | — | 0.02 | — | |||||||||||||||
Impairment charge | 0.04 | — | 0.02 | |||||||||||||||
Gain on sale of investments | — | — | (0.87 | ) | ||||||||||||||
Other expense | — | — | 0.01 | |||||||||||||||
Adjusted diluted earnings per share from continuing operations | $ | 0.43 | $ | 0.52 | $ | 0.62 | (17.3 | ) | (16.1 | ) | ||||||||
Reconciliation of operating profit before depreciation & amortization, severance, non-operating retirement costs and special items (or adjusted operating profit) | |||||||||||||||||||
Years Ended | % Change | ||||||||||||||||||
(In thousands) | December 28, 2014 | ||||||||||||||||||