Edgar Filing: NEW YORK TIMES CO

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

Commission file number 1-5837

THE NEW YORK TIMES COMPANY

(Exact name of registrant as specified in its charter)



NEW YORK		13-1102020
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

620 EIGHTH AVENUE, NEW YORK, NEW YORK

(Address of principal executive offices)

10018

(Zip Code)

Registrant’s telephone number, including area code 212-556-1234

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o
Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of each class of the registrant’s common stock outstanding as of October 30, 2018 (exclusive of treasury shares):



Class A Common Stock	164,146,697	shares
Class B Common Stock	803,408	shares

THE NEW YORK TIMES COMPANY

INDEX




PART I		Financial Information	1
Item	1	Financial Statements	1
		Condensed Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	1
		Condensed Consolidated Statements of Operations (unaudited) for the quarters and nine months ended September 30, 2018 and September 24, 2017	3
		Condensed Consolidated Statements of Comprehensive Income (unaudited) for the quarters and nine months ended September 30, 2018 and September 24, 2017	5
		Condensed Consolidated Statements of Changes In Stockholder’s Equity (unaudited) as of September 30, 2018 and September 24, 2017	6
		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and September 24, 2017	7
		Notes to the Condensed Consolidated Financial Statements	8
Item	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item	3	Quantitative and Qualitative Disclosures about Market Risk	38
Item	4	Controls and Procedures	39

PART II		Other Information	40
Item	1	Legal Proceedings	40
Item	1A	Risk Factors	40
Item	2	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item	6	Exhibits	41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	September 30, 2018		December 31, 2017
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	206,179	$	182,911
Short-term marketable securities	348,222		308,589
Accounts receivable (net of allowances of $13,370 in 2018 and $14,542 in 2017)	157,861		184,885
Prepaid expenses	26,709		22,851
Other current assets	43,666		50,463
Total current assets	782,637		749,699
Other assets
Long-term marketable securities	240,055		241,411
Property, plant and equipment (less accumulated depreciation and amortization of $944,455 in 2018 and $945,401 in 2017)	645,964		640,939
Goodwill	141,273		143,549
Deferred income taxes	146,682		153,046
Miscellaneous assets	184,777		171,136
Total assets	$	2,141,388	$	2,099,780

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS-(Continued)

(In thousands, except share and per share data)



	September 30, 2018			December 31, 2017
	(Unaudited)
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	113,848		$	125,479
Accrued payroll and other related liabilities	91,108			104,614
Unexpired subscriptions revenue	81,869			75,054
Accrued expenses and other	116,137			110,510
Total current liabilities	402,962			415,657
Other liabilities
Long-term debt and capital lease obligations	245,932			250,209
Pension benefits obligation	363,509			405,422
Postretirement benefits obligation	45,524			48,816
Other	76,790			82,313
Total other liabilities	731,755			786,760
Stockholders’ equity
Common stock of $.10 par value:
Class A – authorized: 300,000,000 shares; issued: 2018 – 172,998,668; 2017 – 170,276,449 (including treasury shares: 2018 – 8,870,801; 2017 – 8,870,801)	17,300			17,028
Class B – convertible – authorized and issued shares: 2018 – 803,408; 2017 – 803,763	80			80
Additional paid-in capital	204,512			164,275
Retained earnings	1,457,463			1,310,136
Common stock held in treasury, at cost	(171,211		)	(171,211		)
Accumulated other comprehensive loss, net of income taxes:
Foreign currency translation adjustments	5,745			6,328
Funded status of benefit plans	(504,851		)	(427,819		)
Net unrealized loss on available-for-sale securities	(2,450		)	(1,538		)
Total accumulated other comprehensive loss, net of income taxes	(501,556		)	(423,029		)
Total New York Times Company stockholders’ equity	1,006,588			897,279
Noncontrolling interest	83			84
Total stockholders’ equity	1,006,671			897,363
Total liabilities and stockholders’ equity	$	2,141,388		$	2,099,780

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



	For the Quarters Ended						For the Nine Months Ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
	(13 weeks)						(39 weeks)
Revenues
Subscription	$	257,796		$	246,638		$	779,018		$	739,050
Advertising	121,677			113,633			366,525			375,895
Other	37,873			25,364			100,311			76,568
Total revenues	417,346			385,635			1,245,854			1,191,513
Operating costs
Production costs:
Wages and benefits	95,941			90,100			280,688			269,913
Raw materials	19,972			15,718			54,490			48,461
Other production costs	47,521			44,336			138,454			134,771
Total production costs	163,434			150,154			473,632			453,145
Selling, general and administrative costs	202,473			185,442			614,464			598,367
Depreciation and amortization	14,847			15,677			43,969			46,961
Total operating costs	380,754			351,273			1,132,065			1,098,473
Headquarters redesign and consolidation	—			2,542			3,140			6,929
Gain from pension liability adjustment	(4,851		)	—			(4,851		)	—
Operating profit	41,443			31,820			115,500			86,111
Other components of net periodic benefit costs/(income)	2,335			(1,193		)	6,226			(3,580		)
(Loss)/Gain from joint ventures	(16		)	31,557			(9		)	31,464
Interest expense and other, net	4,026			4,660			13,439			15,118
Income from continuing operations before income taxes	35,066			59,910			95,826			106,037
Income tax expense	10,092			23,420			25,342			40,873
Income from continuing operations	24,974			36,490			70,484			65,164
Loss from discontinued operations, net of income taxes	—			488			—			488
Net income	24,974			36,002			70,484			64,676
Net loss/(income) attributable to the noncontrolling interest	2			(3,673		)	1			(3,567		)
Net income attributable to The New York Times Company common stockholders	$	24,976		$	32,329		$	70,485		$	61,109
Average number of common shares outstanding:
Basic	165,064			162,173			164,742			161,798
Diluted	166,966			164,405			166,671			164,005
Basic earnings per share attributable to The New York Times Company common stockholders
Income from continuing operations	$	0.15		$	0.20		$	0.43		$	0.38
Loss from discontinued operations, net of income taxes	—			—			—			—
Net income	$	0.15		$	0.20		$	0.43		$	0.38

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



	For the Quarters Ended				For the Nine Months Ended
	September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017
	(13 weeks)				(39 weeks)
Diluted earnings per share attributable to The New York Times Company common stockholders
Income from continuing operations	$	0.15	$	0.20	$	0.42	$	0.37
Loss from discontinued operations, net of income taxes	—		—		—		—
Net income	$	0.15	$	0.20	$	0.42	$	0.37
Dividends declared per share	$	0.04	$	0.08	$	0.12	$	0.12

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)



	For the Quarters Ended						For the Nine Months Ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
	(13 weeks)						(39 weeks)
Net income	$	24,974		$	36,002		$	70,484		$	64,676
Other comprehensive income, before tax:
(Loss)/income on foreign currency translation adjustments	(567		)	6,099			(2,923		)	11,170
Pension and postretirement benefits obligation	8,009			6,921			24,850			20,762
Net unrealized income/(loss) on available-for-sale securities	314			(1,081		)	(784		)	(1,081		)
Other comprehensive income, before tax	7,756			11,939			21,143			30,851
Income tax expense	2,031			4,200			5,535			11,557
Other comprehensive income, net of tax	5,725			7,739			15,608			19,294
Comprehensive income	30,699			43,741			86,092			83,970
Comprehensive loss/(income) attributable to the noncontrolling interest	2			(3,673		)	1			(3,567		)
Comprehensive income attributable to The New York Times Company common stockholders	$	30,701		$	40,068		$	86,093		$	80,403

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)



	Capital Stock Class A and Class B Common		Additional Paid-in Capital			Retained Earnings			Common Stock Held in Treasury, at Cost			Accumulated Other Comprehensive Loss, Net of Income Taxes			Total New York Times Company Stockholders’ Equity			Non- controlling Interest			Total Stock- holders’ Equity

Balance, December 25, 2016	$	17,003	$	149,928		$	1,331,911		$	(171,211	)	$	(479,816	)	$	847,815		$	(3,571	)	$	844,244
Net income	—		—			61,109			—			—			61,109			3,567			64,676
Dividends	—		—			(19,543		)	—			—			(19,543		)	—			(19,543		)
Other comprehensive income	—		—			—			—			19,294			19,294			—			19,294
Issuance of shares:
Stock options – 615,150 Class A shares	62		4,080			—			—			—			4,142			—			4,142
Restricted stock units vested – 276,527 Class A shares	28		(2,664		)	—			—			—			(2,636		)	—			(2,636		)
Performance-based awards – 115,881 Class A shares	12		(1,360		)	—			—			—			(1,348		)	—			(1,348		)
Stock-based compensation	—		9,845			—			—			—			9,845			—			9,845
Balance, September 24, 2017	$	17,105	$	159,829		$	1,373,477		$	(171,211	)	$	(460,522	)	$	918,678		$	(4	)	$	918,674

Balance, December 31, 2017	$	17,108	$	164,275		$	1,310,136		$	(171,211	)	$	(423,029	)	$	897,279		$	84		$	897,363
Impact of adopting new accounting guidance						96,707						(94,135		)	2,572			—			2,572
Net income	—		—			70,485			—			—			70,485			(1		)	70,484
Dividends	—		—			(19,865		)	—			—			(19,865		)	—			(19,865		)
Other comprehensive income	—		—			—			—			15,608			15,608			—			15,608
Issuance of shares:
Stock options – 2,219,201 Class A shares	222		40,428			—			—			—			40,650			—			40,650
Restricted stock units vested – 230,822 Class A shares	23		(3,168		)	—			—			—			(3,145		)	—			(3,145		)
Performance-based awards – 271,841 Class A shares	27		(5,930		)	—			—			—			(5,903		)	—			(5,903		)
Stock-based compensation	—		8,907			—			—			—			8,907			—			8,907
Balance, September 30, 2018	$	17,380	$	204,512		$	1,457,463		$	(171,211	)	$	(501,556	)	$	1,006,588		$	83		$	1,006,671

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	For the Nine Months Ended
	September 30, 2018			September 24, 2017
	(39 weeks)
Cash flows from operating activities
Net income	$	70,484		$	64,676
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	43,969			46,961
Stock-based compensation expense	9,969			10,927
Undistributed (gain)/loss of joint ventures	9			(31,464		)
Long-term retirement benefit obligations	(19,769		)	(21,897		)
Other-net	351			2,748
Changes in operating assets and liabilities:
Accounts receivable-net	27,024			55,032
Other assets	6,226			(1,761		)
Accounts payable, accrued payroll and other liabilities	(28,702		)	12,473
Unexpired subscriptions	6,815			10,200
Net cash provided by operating activities	116,376			147,895
Cash flows from investing activities
Purchases of marketable securities	(386,842		)	(398,246		)
Maturities of marketable securities	346,601			454,022
Capital expenditures	(61,983		)	(47,831		)
Other-net	(1,585		)	648
Net cash (used in)/provided by investing activities	(103,809		)	8,593
Cash flows from financing activities
Long-term obligations:
Repayment of debt and capital lease obligations	(414		)	(414		)
Dividends paid	(19,761		)	(19,483		)
Capital shares:
Proceeds from stock option exercises	40,650			4,142
Share-based compensation tax withholding	(9,048		)	(3,984		)
Net cash provided by/(used in) financing activities	11,427			(19,739		)
Net increase in cash, cash equivalents and restricted cash	23,994			136,749
Effect of exchange rate changes on cash	(540		)	294
Cash, cash equivalents and restricted cash at the beginning of the period	200,936			125,550
Cash, cash equivalents and restricted cash at the end of the period	$	224,390		$	262,593

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

In the opinion of management of The New York Times Company (the “Company”), the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of September 30, 2018, and December 31, 2017, and the results of operations, changes in stockholder’s equity and cash flows of the Company for the periods ended September 30, 2018, and September 24, 2017. The Company and its consolidated subsidiaries are referred to collectively as “we,” “us” or “our.” All adjustments necessary for a fair presentation have been included and are of a normal and recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from these interim financial statements. These financial statements, therefore, should be read in conjunction with the Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Due to the seasonal nature of our business, operating results for the interim periods are not necessarily indicative of a full year’s operations. The fiscal periods included herein comprise 13 weeks for the third quarter.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements. Actual results could differ from these estimates.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as described herein, as of September 30, 2018, our significant accounting policies, which are detailed in our Annual Report on Form 10-K for the year ended December 31, 2017, have not changed materially.

Recently Adopted Accounting Pronouncements



Accounting Standard Update(s)	Topic	Effective Period	Summary
2018-05	Income Taxes (Topic 740)	Upon issuance	The Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes” to conform with SEC Staff Accounting Bulletin 118, issued in December 2017, which allowed SEC registrants to record provisional amounts for the year ended December 31, 2017, due to the complexities involved in accounting for the enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”). During the nine months ended September 30, 2018, we did not record any measurement period adjustments to the provisional estimate recorded at December 31, 2017 for the Tax Act. The accounting for the impact of the Tax Act is expected to be completed by the fourth quarter of 2018.
2018-02	Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	Fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.	The FASB issued authoritative guidance providing financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate related to the Tax Act is recorded. The Company elected to adopt this guidance to reclassify the stranded tax effects from AOCI to retained earnings in the first quarter of 2018. Our current accounting policy related to releasing tax effects from AOCI for pension and other postretirement benefits is a plan by plan approach. Accordingly, the Company recorded a $94.1 million cumulative effect adjustment for stranded tax effects, such as pension and other postretirement benefits, to “Retained earnings” on January 1, 2018. See Note 13 for more information.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Accounting Standard Update(s)	Topic	Effective Period	Summary
2017-07	Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	Fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.	The FASB issued authoritative guidance that requires the service cost component of net periodic benefit costs to be presented separately from the other components of net periodic benefit costs. Service cost will be presented with other employee compensation cost within “Operating costs.” The other components of net periodic benefit costs, such as interest cost, amortization of prior service cost and gains or losses, are required to be presented outside of operations. The guidance should be applied retrospectively for the presentation of the service cost component in the income statement and allows a practical expedient for the estimation basis for applying the retrospective presentation requirements. Since Accounting Standards Update (“ASU”) 2017-07 only requires change to the Condensed Consolidated Statements of Operations classification of the components of net periodic benefit cost, there are no changes to income from continuing operations or net income. As a result of the adoption of the ASU during the first quarter of 2018, the service cost component of net periodic benefit costs continues to be recognized in total operating costs and the other components of net periodic benefit costs have been reclassified to “Other components of net periodic benefit costs/(income)” in the Condensed Consolidated Statements of Operations below “Operating profit” on a retrospective basis. The Company reclassified $0.2 million and $1.0 million of credits from “Production costs” and “Selling and general and administrative costs,” respectively, to “Other components of net periodic benefit costs/(income)” in the third quarter of 2017 and $0.7 million and $2.9 million of credits from “Production costs” and “Selling and general and administrative costs,” respectively, to “Other components of net periodic benefit costs/(income)” in the first nine months of 2017. See Note 10 for the components of net periodic benefit costs/(income) for our pension and other postretirement benefits plans.
2016-18	Statement of Cash Flow: Restricted Cash	Fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.	The FASB issued authoritative guidance that amends the guidance in ASC 230 on the classification and presentation of restricted cash in the statement of cash flows. The key requirements of the ASU are: (1) all entities should include in their cash and cash-equivalent balances in the statements of cash flows those amounts that are deemed to be restricted cash or restricted cash equivalents, (2) a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash, cash equivalents and restricted cash, (3) changes in restricted cash that result from transfers between cash, cash equivalents and restricted cash should not be presented as cash flow activities in the statement of cash flows and (4) an entity with a material balance of amounts generally described as restricted cash must disclose information about the nature of the restrictions. As a result of the adoption of ASU 2016-18 in the first quarter of 2018, the Company included the restricted cash balance with the cash and cash equivalents balances in the Condensed Consolidated Statements of Cash Flows on a retrospective basis. The reclassification did not have a material impact to the Condensed Consolidated Statement of Cash Flows for the first nine months of 2017. The Company has added a reconciliation from the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statement of Cash Flows. See Note 8 for more information.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Accounting Standard Update(s)	Topic	Effective Period	Summary
2016-01 2018-03	Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities	Fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.	The FASB issued authoritative guidance that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including requirements to measure most equity investments at fair value with changes in fair value recognized in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying notes to the financial statements. We adopted ASU 2016-01 in the first quarter of 2018 and elected the measurement alternative, defined as cost, less impairments, adjusted by observable price changes, given our equity instruments are without readily determinable fair values. This guidance did not impact our available-for-sale (“AFS”) securities because we only hold debt securities. We also early adopted ASU 2018-03 in the first quarter of 2018. The adoptions of ASU 2016-01 and ASU 2018-03 did not have a material effect on our Condensed Consolidated Financial Statements. See Note 6 for more information.
2014-09 2016-08 2016-10 2016-12	Revenue from Contracts with Customers (Topic 606)	Fiscal years beginning after December 31, 2017	The FASB issued authoritative guidance that prescribes a single comprehensive model for entities to use in the accounting of revenue arising from contracts with customers. The new guidance supersedes virtually all existing revenue guidance under GAAP. There are two transition options available to entities: the full retrospective approach or the modified retrospective approach. On January 1, 2018, the Company adopted Topic 606. The Company has elected the modified retrospective approach, which allows for the new revenue standard to be applied to all existing contracts as of the effective date and a cumulative catch-up adjustment to be recorded to “Retained earnings.” The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when a performance obligation is satisfied. The most significant change to the Company’s accounting practices related to accounting for certain licensing arrangements in the other revenue category for which archival and updated content is included. Under the former revenue guidance, licensing revenue was generally recognized over the term of the contract based on the annual minimum guarantee amount specified in the contractual agreement with the licensee. Based on the guidance of Topic 606, the Company has determined that the archival content and updated content included in these licensing arrangements represent two separate performance obligations. As such, a portion of the total contract consideration related to the archival content was recognized at the commencement of the contract when control of the archival content is transferred. The remaining contractual consideration will be recognized proportionately over the term of the contract when updated content is transferred to the licensee, in line with when the control of the new content is transferred. The net impact of these changes accelerated the revenue of contracts not completed as of January 1, 2018. In connection with the adoption of the standard the Company recorded a net increase to opening retained earnings of $2.6 million ($3.5 million before tax) and a contract asset of $3.5 million, with $1.3 million categorized as a current asset and $2.2 million categorized as a long term asset as of January 1, 2018. The impact to “Other revenues” as a result of applying Topic 606 will be a decrease of $1.3 million for the twelve months ended December 30, 2018. Our subscription and advertising revenues were not changed by the new guidance. See Note 3 for more information on our revenues and the application of Topic 606.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recently Issued and Not Yet Adopted Accounting Pronouncements



Accounting Standard Update(s)	Topic	Effective Period	Summary
2018-15	Intangibles—Goodwill and Other—Internal-Use Software	Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.	The FASB issued authoritative guidance that clarifies the accounting for implementation costs in cloud computing arrangements. The standard provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. We are currently in the process of evaluating the impact of this guidance on our consolidated financial statements.
2018-14	Compensation—Retirement Benefits—Defined Benefit Plans—General	Fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted.	The FASB issued authoritative guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We are currently in the process of evaluating the impact of this guidance on our consolidated financial statements.
2018-13	Fair Value Measurement (Topic 820) Disclosure Framework	Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.	The FASB issued authoritative guidance that modifies the disclosure requirements on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently in the process of evaluating the impact of this guidance on our consolidated financial statements.
2016-13	Financial Instruments—Credit Losses	Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.	The FASB issued authoritative guidance that amends guidance on reporting credit losses for assets, including trade receivables, available-for-sale marketable securities and any other financial assets not excluded from the scope that have the contractual right to receive cash. For trade receivables, ASU 2016-13 eliminates the probable initial recognition threshold in current generally accepted accounting standards, and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the gross trade receivables balance to present the net amount expected to be collected. For available-for-sale marketable securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Accounting Standard Update(s)	Topic	Effective Period	Summary
2016-02 2018-10 2018-11	Leases	Fiscal years beginning after December 30, 2018. Early adoption is permitted.	The FASB issued authoritative guidance that provides guidance on accounting for leases and disclosure of key information about leasing arrangements. The guidance requires lessees to recognize the following for all operating and finance leases at the commencement date: (1) a lease liability, which is the obligation to make lease payments arising from a lease, measured on a discounted basis, and (2) a right-of-use asset representing the lessee’s right to use, or control the use of, the underlying asset for the lease term. A lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities for short-term leases with a term of 12 months or less. The guidance does not fundamentally change lessor accounting; however, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP. The Company expects to adopt this guidance in the first quarter of 2019 utilizing the alternative transition method. Upon adoption, the Company expects to elect the transition package of practical expedients permitted within the new standard, which, among other things, allows the carryforward of the historical lease classification and allows the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings. The Company continues to evaluate which other, if any, practical expedients will be elected. The adoption of the standards will require us to add right-of-use assets and lease liabilities onto our balance sheet. Based on our lease portfolio at December 31, 2017, the right-of-use asset and lease liability would have been in the range of $40 million to $45 million on our Consolidated Balance Sheets based on the remaining lease payments, with no material impact to our Consolidated Statement of Operations or liquidity. However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s lease portfolio as of the adoption date.

The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.

NOTE 3. REVENUE

We generate revenues principally from subscriptions and advertising. Subscription revenues consist of revenues from subscriptions to our print and digital products (which include our news product, as well as our Crossword and Cooking products) and single-copy and bulk sales of our print products. Subscription revenues are based on both the number of copies of the printed newspaper sold and digital-only subscriptions, and the rates charged to the respective customers.

Advertising revenues are derived from the sale of our advertising products and services on our print and digital platforms. These revenues are primarily determined by the volume, rate and mix of advertisements.

Other revenues primarily consist of revenues from commercial printing, building rental income, news services/syndication, affiliate referrals (revenue generated by offering direct links to merchants in exchange for a portion of the sale price), digital archive licensing, NYT Live (our live events business) and retail commerce.

Revenue is recognized when a performance obligation is satisfied by transferring a promised good or service to a customer. A good or service is considered transferred when the customer obtains control, which is when the customer has the ability to direct the use of and/or obtain substantially all of the benefits of an asset.

Proceeds from subscription revenues are deferred at the time of sale and are recognized on a pro rata basis over the terms of the subscriptions. Payment is typically due upfront and the revenue is recognized ratably over the subscription period. The deferred proceeds are recorded within “Unexpired subscription revenue” in the Condensed Consolidated Balance Sheet. Single-copy revenue is recognized based on date of publication, net of provisions for related returns. Payment for single-copy sales is typically due upon complete satisfaction of our performance obligations. The Company does not have significant financing components or significant payment terms as we only offer industry standard payment terms to our customers.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

When our subscriptions are sold through third parties, we are a principal in the transaction and, therefore, revenues and related costs to third parties for these sales are reported on a gross basis. We are considered a principal if we control a promised good or service before transferring that good or service to the customer. The Company considers several factors to determine if it controls the good and therefore is the principal. These factors include: (1) if we have primary responsibility for fulfilling the promise, (2) if we have inventory risk before the goods or services are transferred to the customer or after the transfer of control to the customer and (3) if we have discretion in establishing price for the specified good or service.

Advertising revenues are recognized when advertisements are published in newspapers or placed on digital platforms or, with respect to certain digital advertising, each time a user clicks on certain advertisements, net of provisions for estimated rebates and rate adjustments.

We recognize a rebate obligation as a reduction of revenues based on the amount of estimated rebates that will be earned related to the underlying revenue transactions during the period. Measurement of the rebate obligation is estimated based on the historical experience of the number of customers that ultimately earn and use the rebate. We recognize a reserve for rate adjustments as a reduction of revenues based on the amount of estimated post-billing adjustments that will be claimed. Measurement of the rate adjustment reserve is estimated based on historical experience of credits actually issued.

Payment for advertising is due upon complete satisfaction of our performance obligations. The Company has a formal credit checking policy, procedures and controls in place that evaluate collectability prior to ad publication. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts do not include a significant financing component.

Subscription, advertising and other revenues were as follows:



	For the Quarters Ended				For the Nine Months Ended
(In thousands)	September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017
Subscription	$	257,796	$	246,638	$	779,018	$	739,050
Advertising	121,677		113,633		366,525		375,895
Other ⁽¹⁾	37,873		25,364		100,311		76,568
Total	$	417,346	$	385,635	$	1,245,854	$	1,191,513

⁽¹⁾ Other revenue includes approximately $7 million and $5 million of building rental income for the third quarters of 2018 and 2017, respectively, and approximately $17 million and $13 million for the first nine months of 2018 and 2017, respectively, which is not under the scope of Topic 606.

The following table summarizes digital-only subscription revenues, which are a component of subscription revenues above, for the third quarters and first nine months of 2018 and 2017:



	For the Quarters Ended				For the Nine Months Ended
(In thousands)	September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017
Digital-only subscription revenues:
News product subscription revenues⁽¹⁾	$	95,568	$	82,073	$	279,693	$	234,234
Other product subscription revenues⁽²⁾	5,639		3,610		15,669		9,810
Total digital-only subscription revenues	$	101,207	$	85,683	$	295,362	$	244,044
⁽¹⁾Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Crossword and Cooking products are also included in this category.
⁽²⁾Includes revenues from standalone subscriptions to the Company’s Crossword and Cooking products.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Advertising revenues (print and digital) by category were as follows:



	For the Quarters Ended
	September 30, 2018						September 24, 2017
(In thousands)	Print		Digital		Total		Print		Digital		Total
Display	$	57,245	$	43,730	$	100,975	$	56,710	$	41,547	$	98,257
Classified and Other	6,676		14,026		20,702		7,679		7,697		15,376
Total advertising	$	63,921	$	57,756	$	121,677	$	64,389	$	49,244	$	113,633



	For the Nine Months Ended
	September 30, 2018						September 24, 2017
(In thousands)	Print		Digital		Total		Print		Digital		Total
Display	$	188,853	$	123,870	$	312,723	$	196,836	$	129,008	$	325,844
Classified and Other	22,182		31,620		53,802		24,966		25,085		50,051
Total advertising	$	211,035	$	155,490	$	366,525	$	221,802	$	154,093	$	375,895

Performance Obligations

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price.

In the case of our licensing contracts, the transaction price was allocated among the performance obligations, (i) the archival content and (ii) the updated content, based on the Company’s estimate of the standalone selling price of each of the performance obligations, as they are currently not sold separately.

As of September 30, 2018, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $25 million. The Company will recognize this revenue as control of the performance obligation is transferred to the customer. We expect that approximately $5 million, $10 million and $10 million will be recognized in the remainder of 2018, 2019 and 2020, respectively.

Contract Assets

We record revenue from performance obligations when performance obligations are satisfied. For our licensing revenue, we record revenue related to the portion of performance obligation (i) satisfied at the commencement of the contract when the customer obtains control of the archival content or (ii) when the updated content is transferred. We receive payments from customers based upon contractual billing schedules. As the transfer of control represents a right to the contract consideration, we record a contract asset in “Other current assets” for short-term contract assets and “Miscellaneous assets” for long-term contract assets on the Consolidated Balance Sheet for any amounts not yet invoiced to the customer. As of September 30, 2018, the Company had $2.6 million in contract assets recorded in the Condensed Consolidated Balance Sheet. The contract asset is reclassified to “Accounts receivable” when the customer is invoiced based on the contractual billing schedule. The increase in the contract assets balance for the nine months ended September 30, 2018, is primarily driven by the cumulative catch-up adjustment recorded by the Company on January 1, 2018, of $3.5 million as a result of adoption of Topic 606, offset by $0.9 million of consideration that was reclassified to “Accounts receivable” when invoiced based on the contractual billing schedules for the period ended September 30, 2018.

Significant Judgments

Our contracts with customers sometimes include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. We use an observable price to determine the standalone selling price for separate performance obligations if available or, when not available, an estimate that maximizes the use of observable inputs and faithfully depicts the selling price of the promised goods or services if we sold those goods or services separately to a similar customer in similar circumstances.

Practical Expedients and Exemptions

We expense the cost to obtain or fulfill a contract as incurred because the amortization period of the asset that the entity otherwise would have recognized is one year or less. We also apply the practical expedient for the significant financing component when the difference between the payment and the transfer of the products and services is a year or less.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. MARKETABLE SECURITIES

The Company accounts for its marketable securities as AFS. The Company recorded $3.3 million and $2.5 million of net unrealized loss in AOCI as of September 30, 2018, and December 31, 2017, respectively.

The following tables present the amortized cost, gross unrealized gains and losses, and fair market value of our AFS debt securities as of September 30, 2018, and December 31, 2017:



	September 30, 2018
(In thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Short-term AFS securities
Corporate debt securities	$	138,983	$	2	$	(350	)	$	138,635
U.S. Treasury securities	113,016		—		(232		)	112,784
U.S. governmental agency securities	77,872		—		(717		)	77,155
Commercial paper	11,800		—		—			11,800
Certificates of deposit	7,848		—		—			7,848
Total short-term AFS securities	$	349,519	$	2	$	(1,299	)	$	348,222
Long-term AFS securities
Corporate debt securities	$	139,179	$	14	$	(959	)	$	138,234
U.S. governmental agency securities	48,347		—		(458		)	47,889
U.S. Treasury securities	54,560		—		(628		)	53,932
Total long-term AFS securities	$	242,086	$	14	$	(2,045	)	$	240,055



	December 31, 2017
(In thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Short-term AFS securities
Corporate debt securities	$	150,334	$	—	$	(227	)	$	150,107
U.S. Treasury securities	70,985		—		(34		)	70,951
U.S. governmental agency securities	45,819		—		(179		)	45,640
Commercial paper	32,591		—		—			32,591
Certificates of deposit	9,300		—		—			9,300
Total short-term AFS securities	$	309,029	$	—	$	(440	)	$	308,589
Long-term AFS securities
U.S. governmental agency securities	$	97,798	$	—	$	(1,019	)	96,779
Corporate debt securities	92,687		—		(683		)	92,004
U.S. Treasury securities	53,031		—		(403		)	52,628
Total long-term AFS securities	$	243,516	$	—	$	(2,105	)	$	241,411

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables represent the AFS securities as of September 30, 2018 and December 31, 2017, that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:



	September 30, 2018
	Less than 12 Months					12 Months or Greater					Total
(In thousands)	Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses
Short-term AFS securities
Corporate debt securities	$	82,866	$	(123	)	$	41,587	$	(227	)	$	124,453	$	(350	)
U.S. Treasury securities	92,021		(56		)	20,763		(176		)	112,784		(232		)
U.S. governmental agency securities	3,484		(3		)	73,670		(714		)	77,154		(717		)
Total short-term AFS securities	$	178,371	$	(182	)	$	136,020	$	(1,117	)	$	314,391	$	(1,299	)
Long-term AFS securities
Corporate debt securities	$	94,522	$	(459	)	$	28,379	$	(500	)	$	122,901	$	(959	)
U.S. Treasury securities	35,178		(305		)	18,754		(323		)	53,932		(628		)
U.S. governmental agency securities	37,688		(318		)	10,202		(140		)	47,890		(458		)
Total long-term AFS securities	$	167,388	$	(1,082	)	$	57,335	$	(963	)	$	224,723	$	(2,045	)



	December 31, 2017
	Less than 12 Months					12 Months or Greater					Total
(In thousands)	Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses
Short-term AFS securities
Corporate debt securities	$	140,111	$	(199	)	$	9,996	$	(28	)	$	150,107	$	(227	)
U.S. Treasury securities	70,951		(34		)	—		—			70,951		(34		)
U.S. governmental agency securities	19,770		(50		)	25,870		(129		)	45,640		(179		)
Total short-term AFS securities	$	230,832	$	(283	)	$	35,866	$	(157	)	$	266,698	$	(440	)
Long-term AFS securities
Corporate debt securities	$	81,118	$	(579	)	$	10,886	$	(104	)	$	92,004	$	(683	)
U.S. Treasury securities	23,998		(125		)	72,781		(894		)	96,779		(1,019		)
U.S. governmental agency securities	52,628		(403		)	—		—			52,628		(403		)
Total long-term AFS securities	$	157,744	$	(1,107	)	$	83,667	$	(998	)	$	241,411	$	(2,105	)

We conduct an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis or more often if a potential loss-triggering event occurs. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and whether we intend to sell. We also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses.

As of September 30, 2018, we did not intend to sell and it was not likely that we would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. Unrealized losses related to these investments are primarily due to interest rate fluctuations as opposed to changes in credit quality. Therefore, as of September 30, 2018, we have recognized no OTTI loss.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2018, our short-term and long-term marketable securities had remaining maturities of less than 1 month to 12 months and 13 months to 35 months, respectively. See Note 9 for more information regarding the fair value of our marketable securities.

NOTE 5. GOODWILL AND INTANGIBLES

The changes in the carrying amount of goodwill as of September 30, 2018, and since December 31, 2017, were as follows:



(In thousands)	Total Company
Balance as of December 31, 2017	$	143,549
Foreign currency translation	(2,276		)
Balance as of September 30, 2018	$	141,273

The foreign currency translation line item reflects changes in goodwill resulting from fluctuating exchange rates related to the consolidation of certain international subsidiaries.

The aggregate carrying amount of intangible assets of $6.7 million is included in “Miscellaneous assets” in our Condensed Consolidated Balance Sheets as of September 30, 2018.

NOTE 6. INVESTMENTS

Equity Method Investments

As of September 30, 2018, our investments in joint ventures of $1.7 million consisted of a 40% equity ownership interest in Madison Paper Industries (“Madison”), a partnership that previously operated a supercalendered paper mill in Maine. The Company and UPM-Kymmene Corporation (“UPM”), a Finnish paper manufacturing company, are partners through subsidiary companies in Madison. The Company’s 40% ownership of Madison is through an 80%-owned consolidated subsidiary that owns 50% of Madison. UPM owns 60% of Madison, including a 10% interest through a 20% noncontrolling interest in the consolidated subsidiary of the Company.

In 2016, the paper mill closed and we recognized a $41.4 million loss related to the closure. As a result of the mill closure, we wrote our investment down to zero. In the fourth quarter of 2016, Madison sold certain assets at the mill site and we recognized a $3.9 million gain related to the sale. In 2017, we recognized a $20.8 million gain, primarily related to the sale of the remaining assets (which primarily consisted of hydro power assets), partially offset by the loss related to Madison’s settlement of certain pension obligations. The partnership is currently in the process of liquidation.

The investment is accounted for under the equity method, and is recorded in “Miscellaneous assets” in our Condensed Consolidated Balance Sheets. Our proportionate share of the operating results of our investment is recorded in “(Loss)/Gain from joint ventures” in our Condensed Consolidated Statements of Operations.

The following table presents summarized income statement information for Madison, which follows a calendar year:



	For the Quarters Ended						For the Nine Months Ended
(In thousands)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Revenues	$	—		$	—		$	—		$	—
Expenses:
Cost of sales	—			(105		)	—			(1,277		)
General and administrative (expense)/income and other	(65		)	60,216			(99		)	59,662
Total (expense)/income	(65		)	60,111			(99		)	58,385
Operating (loss)/income	(65		)	60,111			(99		)	58,385
Other income/(expense)	33			(1		)	81			(7		)
Net (loss)/income	$	(32	)	$	60,110		$	(18	)	$	58,378

We received no distributions from Madison during the third quarters and first nine months of 2018 and 2017, respectively.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Non-Marketable Equity Securities

Our non-marketable equity securities are investments in privately held companies/funds without readily determinable market values. Prior to January 1, 2018 and the adoption of ASU 2016-01, we accounted for our non-marketable equity securities at cost less impairment. Subsequent to the adoption of ASU 2016-01 as of January 1, 2018, we elected the measurement alternative, defined as cost, less impairments, adjusted by observable price changes given our non-marketable equity securities are without readily determinable fair values. We estimate the fair value based on valuation methods using the observable transaction price at the transaction date. Realized gains and losses on non-marketable securities sold or impaired are recognized in “Interest expense and other, net.”

Non-marketable equity securities are classified within Level 3 in the fair value hierarchy. See Note 9 for the definition of Level 3. As of September 30, 2018 and December 31, 2017, non-marketable equity securities included in “Miscellaneous assets’’ in our Condensed Consolidated Balance Sheets had a carrying value of $14.6 million and $13.6 million, respectively. We did not have any material fair value adjustments in the third quarter and first nine months of 2018.

NOTE 7. DEBT OBLIGATIONS

Our indebtedness consisted of the repurchase option related to a sale-leaseback of a portion of our New York headquarters. Our total debt and capital lease obligations consisted of the following:



(In thousands)	September 30, 2018		December 31, 2017
Option to repurchase ownership interest in headquarters building in 2019:
Principal amount	$	250,000	$	250,000
Less unamortized discount based on imputed interest rate of 13.0%	4,068		6,596
Net option to repurchase ownership interest in headquarters building in 2019	245,932		243,404
Capital lease obligations	6,825		6,805
Total debt and capital lease obligations	252,757		250,209
Less current portion	6,825		—
Total long term debt and capital lease obligations	$	245,932	$	250,209

The current portion of capital lease obligations of $6.8 million as of September 30, 2018, is included in “Accrued expenses and other” as shown in the accompanying Condensed Consolidated Balance Sheets. See Note 9 for more information regarding the fair value of our long-term debt.

“Interest expense and other, net,” as shown in the accompanying Condensed Consolidated Statements of Operations was as follows:



	For the Quarters Ended						For the Nine Months Ended
(In thousands)	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
Interest expense	$	7,061		$	6,956		$	21,078		$	20,775
Amortization of debt costs and discount on debt	839			801			2,528			2,379
Capitalized interest	(38		)	(345		)	(412		)	(852		)
Interest income and other, net	(3,836		)	(2,752		)	(9,755		)	(7,184		)
Total interest expense and other, net	$	4,026		$	4,660		$	13,439		$	15,118

Notice of Intent to Exercise Repurchase Option Under Lease Agreement

On January 30, 2018, the Company provided notice to an affiliate of W.P. Carey & Co. LLC of the Company’s intention to exercise its option under the Lease Agreement, dated March 6, 2009, by and between the parties (the “Lease”) to repurchase a portion of the Company’s leasehold condominium interest in the Company’s headquarters building located at 620 Eighth Avenue, New York, New York (the “Condo Interest”).

The Lease was part of a transaction in 2009 under which the Company sold and simultaneously leased back approximately 750,000 rentable square feet, comprising the Condo Interest. The sale price for the Condo Interest was

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

approximately $225 million. Under the Lease, the Company has an option exercisable in the second half of 2019 to repurchase the Condo Interest for approximately $250 million.

The Company has accounted for the transaction as a financing transaction, and has continued to depreciate the Condo Interest and account for the rental payments as interest expense. The difference between the purchase option price and the net sale proceeds from the transaction is being amortized over the 10-year period of 2009-2019 through interest expense.

NOTE 8. OTHER

Advertising Expenses

Advertising expenses incurred to promote our brand and products (which we also refer to as marketing expenses) were $40.4 million and $26.6 million in the third quarters of 2018 and 2017, respectively, and $107.6 million and $86.0 million in the first nine months of 2018 and 2017, respectively.

Capitalized Computer Software Costs

Amortization of capitalized computer software costs included in “Depreciation and amortization” in our Condensed Consolidated Statements of Operations were $4.1 million and $4.0 million in the third quarters of 2018 and 2017, respectively, and $11.4 million and $9.7 million in the first nine months of 2018 and 2017, respectively.

Headquarters Redesign and Consolidation

In December 2016, we announced plans to redesign our headquarters building, consolidate our space within a smaller number of floors and lease the additional floors to third parties. We incurred $2.5 million of total expenses related to these measures in the third quarter of 2017, and $3.1 million and $6.9 million in the first nine months of 2018 and 2017, respectively. We capitalized approximately $3 million and $26 million in the third quarters of 2018 and 2017, respectively, and $14 million and $37 million in the first nine months of 2018 and 2017, respectively, related to these measures. We expect the capital expenditures and spending in connection with this project to be completed in the fourth quarter of 2018.

Restricted Cash

A reconciliation of cash, cash equivalents and restricted cash as of September 30, 2018 and December 31, 2017 from the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash Flows is as follows:



(In thousands)	September 30, 2018		December 31, 2017

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	206,179	$	182,911
Restricted cash included within other current assets	651		375
Restricted cash included within miscellaneous assets	17,560		17,650
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	224,390	$	200,936

Substantially all of the amount included in restricted cash is set aside to collateralize workers’ compensation obligations.

Severance Costs

We recognized severance costs of $0.3 million and $2.1 million in the third quarters of 2018 and 2017, respectively, and $4.9 million and $23.0 million in the first nine months of 2018 and 2017, respectively, related to workforce reductions. The costs in 2017 were related to a workforce reduction primarily affecting our newsroom in connection with measures to streamline our editing process and allow for further investments in the newsroom. These costs are recorded in “Selling, general and administrative costs” in our Condensed Consolidated Statements of Operations.

We had a severance liability of $8.3 million and $18.8 million included in “Accrued expenses and other” in our Condensed Consolidated Balance Sheets as of September 30, 2018, and December 31, 2017, respectively. We anticipate most of the payments will be made within the next twelve months.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon the sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The transaction would be in the principal or most advantageous market for the asset or liability, based on assumptions that a market participant would use in pricing the asset or liability. The fair value hierarchy consists of three levels:

Level 1–quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2–inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3–unobservable inputs for the asset or liability.

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2018, and December 31, 2017:



(In thousands)	September 30, 2018								December 31, 2017
(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Short-term AFS securities ⁽¹⁾
Corporate debt securities	$	138,635	$	—	$	138,635	$	—	$	150,107	$	—	$	150,107	$	—
U.S. Treasury securities	112,784		—		112,784		—		70,951		—		70,951		—
U.S. governmental agency securities	77,155		—		77,155		—		45,640		—		45,640		—
Commercial paper	11,800		—		11,800		—		32,591		—		32,591		—
Certificates of deposit	7,848		—		7,848		—		9,300		—		9,300		—
Total short-term AFS securities	$	348,222	$	—	$	348,222	$	—	$	308,589	$	—	$	308,589	$	—
Long-term AFS securities ⁽¹⁾
Corporate debt securities	$	138,234	$	—	$	138,234	$	—	$	92,004	$	—	$	92,004	$	—
U.S. Treasury securities	53,932		—		53,932		—		52,628		—		52,628		—
U.S. governmental agency securities	47,889		—		47,889		—		96,779		—		96,779		—
Total long-term AFS securities	$	240,055	$	—	$	240,055	$	—	$	241,411	$	—	$	241,411	$	—
Liabilities:
Deferred compensation ⁽²⁾	$	25,817	$	25,817	$	—	$	—	$	29,526	$	29,526	$	—	$	—

⁽¹⁾ Our marketable securities, which include U.S. Treasury securities, corporate debt securities, U.S. government agency securities, municipal securities, certificates of deposit and commercial paper, are recorded at fair value (see Note 4). We classified these investments as Level 2 since the fair value is based on market observable inputs for investments with similar terms and maturities.

⁽²⁾ The deferred compensation liability, included in “Other liabilities—other” in our Condensed Consolidated Balance Sheets, consists of deferrals under The New York Times Company Deferred Executive Compensation Plan (the “DEC”), which enables certain eligible executives to elect to defer a portion of their compensation on a pre-tax basis. The deferred amounts are invested at the executives’ option in various mutual funds. The fair value of deferred compensation is based on the mutual fund investments elected by the executives and on quoted prices in active markets for identical assets. Participation in the DEC was frozen effective December 31, 2015.

Financial Instruments Disclosed, But Not Reported, at Fair Value

The carrying value of our long-term debt was approximately $246 million as of September 30, 2018, and approximately $243 million as of December 31, 2017. The fair value of our long-term debt was approximately $266 million and $279 million as of September 30, 2018, and December 31, 2017, respectively. We estimate the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2).

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS

Pension

Single-Employer Plans

We sponsor several frozen single-employer defined benefit pension plans including The Newspaper Guild of New York - The New York Times Pension Fund, which prior to January 1, 2018, was a joint Company and Guild-sponsored defined benefit pension plan. We also participate in The Guild-Times Adjustable Pension Plan, a joint Company and Guild sponsored defined benefit pension plan covering employees who are members of The NewsGuild of New York. Participants in The Guild-Times Adjustable Pension Plan continue to actively accrue benefits.

The components of net periodic pension cost were as follows:



	For the Quarters Ended
	September 30, 2018								September 24, 2017
(In thousands)	Qualified Plans			Non- Qualified Plans		All Plans			Qualified Plans			Non- Qualified Plans		All Plans
Service cost	$	2,393		$	—	$	2,393		$	2,423		$	—	$	2,423
Interest cost	13,207			1,848		15,055			15,596			1,956		17,552
Expected return on plan assets	(20,591		)	—		(20,591		)	(26,136		)	—