As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

11/07/08  New York Times Co                 10-Q        9/28/08    6:191                                    Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    862K 
 2: EX-12       Statement re: Computation of Ratios                 HTML     46K 
 3: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     11K 
 4: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     11K 
 5: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML      8K 
 6: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML      8K 

 

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 28, 2008

 

Commission file number 1-5837

 

THE NEW YORK TIMES COMPANY

(Exact name of registrant as specified in its charter)

 

 

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o.

 

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

 

Number of shares of each class of the registrant’s common stock outstanding as of October 31, 2008 (exclusive of treasury shares):

 

Class A Common Stock	142,966,008 shares
Class B Common Stock	825,634 shares

 

 

 

 THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

		Nine Months Ended
		September 28, 2008			September 30, 2007
		(39 weeks)
OPERATING ACTIVITIES
Net cash provided by operating activities		$	144,232		$	29,074
INVESTING ACTIVITIES
Capital expenditures		(134,067		)	(301,176		)
Proceeds from sale of the Broadcast Media Group		—			575,288
Proceeds from the sale of WQEW-AM		—			40,000
Proceeds from the sale of Edison, N.J., assets		—			90,819
Payment for purchase of Edison N.J., printing facility		—			(139,961		)
Acquisitions, net of cash acquired of $2,353 in 2008 and $1,190 in 2007		(5,737		)	(34,087		)
Other investing payments–net		(2,309		)	(3,169		)
Net cash (used in)/provided by investing activities		(142,113		)	227,714
FINANCING ACTIVITIES
Commercial paper repayments-net		(111,741		)	(330,587		)
Borrowings under revolving credit agreements-net		202,850			205,000
Long-term obligations:
Reductions		(46		)	(102,422		)
Capital shares:
Issuances		—			529
Repurchases		(70		)	(2,040		)
Excess tax benefits from stock-based awards		—			165
Dividends paid to stockholders		(99,855		)	(91,824		)
Other financing proceeds–net		—			44,769
Net cash used in financing activities		(8,862		)	(276,410		)
Decrease in cash and cash equivalents		(6,743		)	(19,622		)
Effect of exchange rate changes on cash and cash equivalents		1,059			520
Cash and cash equivalents at the beginning of the year		51,532			72,360
Cash and cash equivalents at the end of the quarter		$	45,848		$	53,258

 

SUPPLEMENTAL DATA

 

Acquisitions

·                  In March 2008, the Company acquired certain assets of the Winter Haven News Chief for $2.5 million and purchased additional Class A units of BehNeem, LLC, increasing its total investment to $4.3 million for a 53% ownership interest.  In the first quarter of 2008, the Company also paid the remaining $0.5 million for UCompareHealthCare.com, which was acquired in March 2007, for a total of $2.3 million.

 

Other

·                  Financing activities – Other financing proceeds in 2007 include cash received from the Company’s real estate development partner for repayment of the Company’s loan receivable in connection with the construction of the Company’s new headquarters.

 

See Notes to Condensed Consolidated Financial Statements.

 

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THE NEW YORK TIMES COMPANY

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1.                         GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

In the opinion of The New York Times Company’s (the “Company”) management, the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of September 28, 2008, and December 30, 2007, and the results of operations and cash flows of the Company for the periods ended September 28, 2008, and September 30, 2007.  All adjustments and reclassifications necessary for a fair presentation have been included and are of a normal and recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission for interim reporting.  As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from these interim financial statements.  These statements, therefore, should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007.  Due to the seasonal nature of the Company’s business, operating results for the interim periods are not necessarily indicative of a full year’s operations.  The fiscal periods included herein comprise 13 weeks for the third-quarter periods and 39 weeks for the nine-month periods.

 

As of September 28, 2008, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007, have not changed materially.

 

The Company adopted Emerging Issues Task Force (“EITF”) No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-4”), on December 31, 2007 (the first day of the Company’s 2008 fiscal year).  EITF 06-4 was issued to clarify the accounting for the deferred compensation and postretirement aspects of endorsement split-dollar life insurance arrangements.  It required the Company to recognize a liability for future benefits in accordance with Statement of Financial Accounting Standards (“FAS”) No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (“FAS 106”).  Accordingly, the Company recorded a liability, which is included in “Other Liabilities – Other” in the Company’s Condensed Consolidated Balance Sheet, for its endorsement split-dollar life insurance arrangement of approximately $9 million through a cumulative-effect adjustment to retained earnings on December 31, 2007.

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FAS No. 157, Fair Value Measurements (“FAS 157”), which establishes a common definition for fair value in accordance with GAAP, and establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements.

 

In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”).  FSP 157-2 delayed the effective date of FAS 157 to fiscal years beginning after

 

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November 15, 2008, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The partial delay is intended to provide all relevant parties more time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of FAS 157.

 

In accordance with FSP 157-2, the Company partially adopted FAS 157 in the first quarter of 2008.  Therefore, in 2008, the Company’s financial statements will reflect the requirements of FAS 157 for any financial assets and liabilities and for any nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a recurring basis.  As of September 28, 2008, the Company does not have any material nonfinancial assets or liabilities for which the requirements under FAS 157 were not applied because of the partial delay under FSP 157-2.

 

As of September 28, 2008, the Company does not have any assets measured at fair value that fall within the scope of FAS 157 and FSP 157-2.  The Company does have a liability for a Company-sponsored deferred executive compensation plan (the “DEC plan”) that falls within the scope of FAS 157 and FSP 157-2, as of September 28, 2008.  The DEC plan enables certain eligible executives to defer a portion of their compensation on a pre-tax basis.  Employees’ contributions earn income based on the performance of investment funds they select.  The DEC plan liability is the amount due to the respective executives and is recorded at fair value on a recurring basis utilizing observable market data (Level 2 under FAS 157).  The fair value of the liability, which is included in “Other Liabilities – Other” in the Company’s Condensed Consolidated Balance Sheet, was approximately $119 million as of September 28, 2008.

 

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“FAS 159”), which is effective in fiscal 2008 and permits entities to choose to measure many financial instruments and certain other items at fair value.  The Company did not elect the fair value option for any items under FAS 159.

 

Recent Accounting Pronouncements

 

In December 2007, the FASB issued FAS No. 141(R), Business Combinations (“FAS 141(R)”) and FAS No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (“FAS 160”).  Changes for business combination transactions pursuant to FAS 141(R) include, among others, expensing acquisition-related transaction costs as incurred, the recognition of contingent consideration arrangements at their acquisition date fair value and capitalization of in-process research and development assets acquired at their acquisition date fair value.  Changes in accounting for noncontrolling (minority) interests pursuant to FAS 160 include, among others, the classification of noncontrolling interest as a component of consolidated stockholders’ equity and the elimination of “minority interest” accounting in results of operations.  FAS 141(R) and FAS 160 are required to be adopted simultaneously and are effective for fiscal years beginning on or after December 15, 2008.  The adoption of FAS 141(R) will affect the accounting for the Company’s acquisitions that occur after the adoption date.  Based on the Company’s current structure, FAS 160 will be immaterial to the Company’s financial statements.

 

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NOTE 2.                         DISCONTINUED OPERATIONS

 

On May 7, 2007, the Company sold its Broadcast Media Group, which consisted of nine network-affiliated television stations, their related Web sites and a digital operating center, for approximately $575 million.  In 2007, the Company recognized a pre-tax gain on the sale of approximately $190 million (approximately $94 million after tax).  In accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), the Broadcast Media Group’s results of operations and the gain on sale are presented as discontinued operations.  Net income from discontinued operations of $8.6 million in the third quarter of 2008 was due to a reduction in income taxes on the gain on the sale, and net loss from discontinued operations of $0.7 million in the third quarter of 2007 was due to post-closing adjustments to the gain.   The first nine months of 2008 also included post-closing adjustments to the gain on the sale.   The results of operations presented as discontinued operations are summarized in the following table.

 

		For the Quarters Ended						For the Nine Months Ended
(In thousands)		September 28, 2008			September 30,  2007			September 28,  2008			September 30, 2007
Revenues		$	—		$	—		$	—		$	46,702
Operating costs		—			—			—			36,854
Pre-tax income		—			—			—			9,848
Income tax expense		—			—			—			4,095
Income from discontinued operations, net of income taxes		—			—			—			5,753
Gain/(loss) on sale, net of income taxes:
Gain/(loss) on sale, before taxes		(26		)	(1,361		)	(565		)	189,880
Income tax (benefit)/expense		(8,637		)	(690		)	(8,865		)	96,221
Gain/(loss) on sale, net of income taxes		8,611			(671		)	8,300			93,659
Discontinued operations, net of income taxes		$	8,611		$	(671	)	$	8,300		$	99,412

 

NOTE 3.                         IMPAIRMENT OF ASSETS

 

In accordance with FAS No. 142, Goodwill and Other Intangible Assets (“FAS 142”), the Company is required to perform an impairment test on goodwill and indefinite-lived intangible assets (mastheads and trade names) annually or if certain circumstances indicate a possible impairment may exist.  The Company’s policy is to complete the required annual impairment test in accordance with FAS 142 in its fiscal fourth quarter.  In accordance with FAS 144, other long-lived assets that are amortized (customer lists, property, plant and equipment and other assets) are required to be tested for impairment if certain circumstances indicate that a possible impairment may exist.  Due to certain impairment indicators, including the continued decline in print advertising revenue affecting the newspaper industry and lower-than-expected current and projected operating results, the Company was required to perform an interim impairment test in the third quarter of 2008 at the New England Media Group.  The New England Media Group, which principally includes the Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette, is part of the News Media Group reportable segment.  The assets tested include goodwill, indefinite-lived intangible assets, other long-lived assets being amortized and an equity method investment in Metro Boston LLC (“Metro Boston”), which publishes a free daily newspaper in the Greater Boston area.

 

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In the first quarter of 2008, the Company recorded a non-cash charge of $18.3 million for the write-down of assets for a systems project at the News Media Group.  The Company reduced the scope of a major advertising and circulation project to decrease capital spending, which resulted in the write-down of previously capitalized costs.

 

NOTE 4.                         GOODWILL AND OTHER INTANGIBLE ASSETS

 

See Note 3 for information on an interim impairment test performed in the third quarter of 2008.

 

The changes in the carrying amount of goodwill were as follows:

 

(In thousands)		News Media Group			About Group			Total
Balance as of December 30, 2007		$	313,459		$	369,981		$	683,440
Goodwill acquired during year		4,416			—			4,416
Goodwill adjusted during the year		—			(3		)	(3		)
Foreign currency translation adjustments		(682		)	—			(682		)
Impairment (see Note 3)		(22,897		)	—			(22,897		)
Balance as of September 28, 2008		$	294,296		$	369,978		$	664,274

 

In March 2008, the Company acquired certain assets of the Winter Haven News Chief (“News Chief”), a regional newspaper in Winter Haven, Fla., for $2.5 million.  Also in March 2008, the Company purchased additional Class A units of BehNeem, LLC (“BehNeem”), increasing its total investment to $4.3 million for a 53% ownership interest.  BehNeem licenses the Epsilen Environment, an integrated online course content, portfolio and communications tool for the education community.  The operating results of the News Chief are included in the results of the Regional Media Group, and the operating results of BehNeem are included in the results of The New York Times Media Group, both of which are part of the News Media Group.

 

Based on valuations of the News Chief and BehNeem, the Company has allocated the excess of the respective purchase prices over the carrying value of the net assets acquired of $1.3 million to goodwill and $0.6 million to other intangible assets (primarily customer lists) for the News Chief, and $3.1 million to goodwill for BehNeem.

 

Other intangible assets acquired were as follows:

 

		September 28, 2008									December 30, 2007
(In thousands)		Gross Carrying Amount			Accumulated Amortization			Net			Gross Carrying Amount			Accumulated Amortization			Net
Amortized other intangible assets:
Customer lists		$	28,407		$	(16,738	)	$	11,669		$	222,267		$	(199,930	)	$	22,337
Other		62,434			(34,408		)	28,026			67,254			(32,841		)	34,413
Total		90,841			(51,146		)	39,695			289,521			(232,771		)	56,750
Unamortized other intangible assets:
Newspaper mastheads		19,186			—			19,186			57,638			—			57,638
Trade names		14,082			—			14,082			14,073			—			14,073
Total		33,268			—			$	33,268		71,711			—			71,711
Total other intangible assets acquired		$	124,109		$	(51,146	)	$	72,963		$	361,232		$	(232,771	)	$	128,461

 

See Note 3 for additional information on an impairment of assets in the third quarter of 2008.

 

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As of September 28, 2008, the remaining weighted-average amortization period was seven years for customer lists and six years for other amortizable intangible assets acquired included in the table above.

 

Amortization expense related to other intangible assets acquired that are subject to amortization was approximately $9 million in the first nine months of 2008, and is expected to be approximately $11 million for the fiscal year 2008.  Estimated annual amortization expense for the next five years related to these intangible assets is expected to be as follows:

 

(In thousands) Year		Amount
2009		$	8,600
2010		$	8,100
2011		$	7,600
2012		$	5,300
2013		$	2,100

 

NOTE 5.                         DEBT OBLIGATIONS

 

The Company’s total debt, including borrowings under revolving credit agreements and capital lease obligations, was $1.1 billion as of September 28, 2008, and including these items and commercial paper, was $1.0 billion as of December 30, 2007.

 

The Company’s $800.0 million revolving credit agreements ($400.0 million credit agreement maturing in May 2009 and $400.0 million credit agreement maturing in June 2011) are used for general corporate purposes.  In addition, these revolving credit agreements provide a facility for the issuance of letters of credit.  Any borrowings under the revolving credit agreements bear interest at specified margins based on the Company’s credit rating, over various floating rates selected by the Company.  The amount available under the Company’s revolving credit agreements is summarized in the following table.

 

(In thousands)		September 28,  2008			December 30, 2007
Revolving credit agreements		$	800,000		$	800,000
Less:
Amount outstanding under revolving credit agreements (weighted average interest rate of 3.1% as of September 28, 2008 and 5.3% as of December 30, 2007)		397,850			195,000
Letters of credit		35,885			24,757
Amount available under revolving credit agreements(1)		$	366,265		$	580,243

 

(1)                               Amount available under the revolving credit agreements also supports the Company’s commercial paper program, of which $111.7 million was outstanding as of December 30, 2007.

 

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The revolving credit agreements each contain a covenant that requires a specified level of stockholders’ equity, which, as defined by the agreements, does not include accumulated other comprehensive loss and excludes the impact of non-cash impairment charges.  The required levels of stockholders’ equity (as defined by the agreements) is the sum of $950.0 million plus an amount equal to 25% of net income for each fiscal year ending after December 28, 2003 for which net income is positive.  As of September 28, 2008, the amount of stockholders’ equity in excess of the required levels was approximately $564 million.

 

The Company did not have commercial paper outstanding as of September 28, 2008 and had $111.7 million outstanding as of December 30, 2007, with an annual weighted-average interest rate of 5.5% and an average of 10 days to maturity from original issuance.

 

“Interest expense, net” in the Company’s Condensed Consolidated Statements of Operations was as follows:

 

		For the Quarters Ended						For the Nine Months Ended
(In thousands)		September 28, 2008			September 30, 2007			September 28, 2008			September 30, 2007
Interest expense		$	12,222		$	13,276		$	37,631		$	45,585
Capitalized interest		(515		)	(1,594		)	(1,977		)	(13,717		)
Interest income		(49		)	(1,212		)	(147		)	(2,944		)
Interest expense, net		$	11,658		$	10,470		$	35,507		$	28,924

 

NOTE 6.                         INCOME TAXES

 

The income tax benefit for the third quarter and first nine months of 2008 was $40.4 million and $30.8 million, respectively, compared with an income tax expense of $9.0 million and $48.7 million for the third quarter and first nine months of 2007.  The Company’s effective income tax rate was 26.0% in the third quarter and 24.8% in the first nine months of 2008 compared with 39.0% in the third quarter and 46.4% in the first nine months of 2007.

 

In 2008, the effective income tax rates were low because the goodwill portion of the non-cash impairment charge and losses on investments in corporate-owned life insurance policies were non-deductible for tax purposes and a change in Massachusetts state tax law had an unfavorable effect.  In 2007, the effective income tax rates were affected by the asset sales in the second quarter of 2007 (see Notes 2 and 8) and an unfavorable tax adjustment for a change in New York State tax law.

 

NOTE 7.                         PENSION AND POSTRETIREMENT BENEFITS

 

See Note 13 for changes made to the Company’s pension and postretirement benefits in the fourth quarter of 2008.

 

Pension

 

The Company sponsors several pension plans, participates in The New York Times Newspaper Guild pension plan, a joint Company and Guild-sponsored plan, and makes contributions to several other plans, in connection with collective bargaining agreements, that are considered multi-employer pension plans.  These plans cover substantially all employees.

 

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the remainder of 2008 in light of recent market performance and may make a discretionary contribution in the fourth quarter of 2008.   The Company currently expects that pension contributions will not be required in 2009, due to funding credits accrued from contributions in prior years, but will continue to assess whether to make discretionary contributions after considering the funded status of its plans, movements in discount rate, investment performance and other factors.

 

Postretirement Benefits

 

The Company provides health and life insurance benefits to retired employees and their eligible dependents, who are not covered by any collective bargaining agreements, if the employees meet specified age and service requirements.  In addition, the Company contributes to a postretirement plan under the provisions of a collective bargaining agreement.  The Company’s policy is to pay its portion of insurance premiums and claims from Company assets.

 

In accordance with FAS 106, the Company accrues the costs of postretirement benefits during the employees’ active years of service.

 

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

 

		For the Quarters Ended						For the Nine Months Ended
(In thousands)		September 28, 2008			September 30, 2007			September 28, 2008			September 30, 2007
Service cost		$	881		$	2,022		$	2,643		$	6,066
Interest cost		3,514			3,748			10,542			11,246
Amortization of prior service cost		(2,908		)	(1,983		)	(8,724		)	(5,949		)
Recognized actuarial loss		1,041			785			3,123			2,354
Effect of curtailment		—			—			—			(4,717		)
Special termination benefits		—			—			—			703
Net periodic postretirement cost		$	2,528		$	4,572		$	7,584		$	9,703

 

NOTE 8.                         OTHER

 

City & Suburban Closure

 

In September 2008, the Company announced the shutdown of City & Suburban (“C&S”), its retail and newsstand distribution subsidiary, which distributes The New York Times (“The Times”) and other publications in the New York metropolitan area.  Going forward, The Times will be distributed to newsstands and retail outlets through a combination of third-party wholesalers and the Company’s own drivers.  Approximately 550 full-time equivalent employees will be affected by the closure.  The closure of C&S is expected to be completed in January 2009.  The primary cost to close C&S is severance costs, of which approximately $9 million was recorded in the third quarter of 2008.  The Company expects to incur additional severance costs and may incur a charge related to the abandonment of various leased properties.

 

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