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New York Times Company 10-Q 2006

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2

 

FORM 10-Q

 

UNITED STATES
SECURITIES EXCHANGE COMMISSION

Washington, D.C. 20549

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For quarterly period ended March 26, 2006

 

Commission file number 1-5837

 

THE NEW YORK TIMES COMPANY

(Exact name of registrant as specified in its charter)

 

NEW YORK

 

13-1102020

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

229 WEST 43RD STREET, NEW YORK, NEW YORK

(Address of principal executive offices)

 

10036

(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 ý  No o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  Large accelerated filer ý Accelerated filer o Non-accelerated filer 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 ý.

 

Number of shares of each class of the registrant’s common stock outstanding as of April 28, 2006 (exclusive of treasury shares):

 

 

Class A Common Stock

144,014,500 shares

 

 

Class B Common Stock

833,132 shares

 

 

 



 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars and shares in thousands, except per share data)

 

 

 

For the Quarters Ended

 

 

 

March 2006

 

March 2005

 

 

 

(13 Weeks)

 

Revenues

 

 

 

 

 

Advertising

 

$

554,627

 

$

533,779

 

Circulation

 

220,281

 

219,617

 

Other

 

56,864

 

52,187

 

Total

 

831,772

 

805,583

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

Raw materials

 

81,937

 

74,829

 

Wages and benefits

 

176,377

 

176,908

 

Other

 

135,520

 

125,194

 

Total

 

393,834

 

376,931

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

369,662

 

343,526

 

 

 

 

 

 

 

Total

 

763,496

 

720,457

 

 

 

 

 

 

 

Gain on sale of assets

 

 

122,946

 

 

 

 

 

 

 

Operating profit

 

68,276

 

208,072

 

 

 

 

 

 

 

Net income/(loss) from joint ventures

 

1,967

 

(248

)

 

 

 

 

 

 

Interest expense, net

 

12,524

 

14,248

 

 

 

 

 

 

 

Other income

 

 

1,250

 

 

 

 

 

 

 

Income before income taxes and minority interest

 

57,719

 

194,826

 

 

 

 

 

 

 

Income taxes

 

22,857

 

83,658

 

 

 

 

 

 

 

Minority interest in net loss/(income) of subsidiaries

 

93

 

(119

)

 

 

 

 

 

 

Net income

 

$

34,955

 

$

111,049

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

 

 

 

Basic

 

145,165

 

145,868

 

Diluted

 

145,361

 

146,771

 

 

 

 

 

 

 

Basic earnings per share

 

$

.24

 

$

.76

 

 

 

 

 

 

 

Diluted earnings per share

 

$

.24

 

$

.76

 

 

 

 

 

 

 

Dividends per share

 

$

.165

 

$

.155

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Dollars in thousands)

 

 

 

March 2006

 

December 2005

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,184

 

$

44,927

 

 

 

 

 

 

 

Accounts receivable-net

 

390,887

 

435,273

 

 

 

 

 

 

 

Inventories

 

 

 

 

 

Newsprint and magazine paper

 

25,724

 

28,190

 

Work-in-process and other

 

3,922

 

3,910

 

Total inventories

 

29,646

 

32,100

 

 

 

 

 

 

 

Deferred income taxes

 

68,118

 

68,118

 

 

 

 

 

 

 

Other current assets

 

68,394

 

77,328

 

 

 

 

 

 

 

Total current assets

 

597,229

 

657,746

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Investments in joint ventures

 

239,601

 

238,369

 

 

 

 

 

 

 

Property, plant and equipment (less accumulated depreciation and amortization of $1,384,024 in 2006 and $1,368,187 in 2005)

 

1,502,875

 

1,468,403

 

 

 

 

 

 

 

Intangible assets acquired

 

 

 

 

 

Goodwill

 

1,440,650

 

1,439,881

 

 

 

 

 

 

 

Other intangible assets acquired (less accumulated amortization of $175,330 in 2006 and $168,319 in 2005)

 

404,332

 

411,106

 

 

 

 

 

 

 

Miscellaneous assets

 

340,076

 

317,532

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

4,524,763

 

$

4,533,037

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

March 2006

 

December 2005

 

 

 

(Unaudited)

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Commercial paper outstanding

 

$

507,405

 

$

496,450

 

Accounts payable

 

191,584

 

201,119

 

Accrued payroll and other related liabilities

 

90,385

 

100,390

 

Accrued expenses

 

148,285

 

185,063

 

Unexpired subscriptions

 

85,530

 

81,870

 

Current portion of long-term debt and capital lease obligations

 

1,598

 

1,630

 

 

 

 

 

 

 

Total current liabilities

 

1,024,787

 

1,066,522

 

 

 

 

 

 

 

Other Liabilities

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

822,154

 

821,962

 

Capital lease obligations

 

75,968

 

76,338

 

Deferred income taxes

 

79,989

 

79,806

 

Other

 

786,036

 

783,185

 

 

 

 

 

 

 

Total other liabilities

 

1,764,147

 

1,761,291

 

 

 

 

 

 

 

Minority Interest

 

208,719

 

188,976

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Common stock of $.10 par value:

 

 

 

 

 

Class A – authorized 300,000,000 shares; issued: 2006 – 151,054,843; 2005 – 150,939,371 (including treasury shares: 2006 – 6,851,836; 2005 – 6,558,299)

 

15,106

 

15,094

 

Class B – convertible – authorized and issued shares; 2006 – 834,242; 2005 – 834,242

 

83

 

83

 

Additional paid-in capital

 

61,921

 

55,148

 

Retained earnings

 

1,836,671

 

1,825,763

 

Common stock held in treasury, at cost

 

(269,897

)

(261,964

)

Accumulated other comprehensive loss, net of income taxes

 

(116,774

)

(117,876

)

 

 

 

 

 

 

Total stockholders’ equity

 

1,527,110

 

1,516,248

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

4,524,763

 

$

4,533,037

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



 

THE NEW YORK TIMES COMPANY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

For the Quarters Ended

 

 

 

March 2006

 

March 2005

 

 

 

(13 Weeks)

 

OPERATING ACTIVITIES

 

 

 

 

 

Net cash provided by operating activities

 

$

76,425

 

$

135,304

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(65,168

)

(52,576

)

Acquisitions

 

 

(413,232

)

Investment

 

 

(16,500

)

Net proceeds from sale of assets

 

 

176,044

 

Other investing proceeds/(payments)-net

 

1,810

 

(440

)

 

 

 

 

 

 

Net cash used in investing activities

 

(63,358

)

(306,704

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Commercial paper borrowings-net

 

10,956

 

32,250

 

Long-term obligations:

 

 

 

 

 

Increases

 

 

497,543

 

Reductions

 

(405

)

(322,293

)

Capital shares:

 

 

 

 

 

Issuances

 

2,501

 

2,524

 

Repurchases

 

(7,092

)

(21,714

)

Excess tax benefits from stock-based awards

 

472

 

870

 

Dividends paid to stockholders

 

(24,047

)

(22,598

)

Other financing (payments)/proceeds-net

 

(267

)

445

 

 

 

 

 

 

 

Net cash (used in)/provided by financing activities

 

(17,882

)

167,027

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(4,815

)

(4,373

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

72

 

(214

)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

44,927

 

42,389

 

Cash and cash equivalents at the end of the quarter

 

$

40,184

 

$

37,802

 

 

SUPPLEMENTAL DATA

Acquisitions

 

        In March 2005, the Company acquired 100% of the outstanding common stock of About, Inc., a leading online consumer information provider, for approximately $410 million (see Note 2).

 

        In February 2005, the Company acquired the North Bay Business Journal, a weekly publication targeting business leaders in California’s Sonoma, Napa and Marin counties, for approximately $3 million (see Note 2).

 

Investment

 

        In March 2005, the Company invested $16.5 million to acquire a 49% interest in Metro Boston LLC, which publishes a free daily newspaper catering to young professionals in the Greater Boston area.

 

Other

 

        The Company’s and its development partner’s interests in the Company’s new headquarters are approximately 58% and 42% (see Note 11). Due to the Company’s majority interest, 100% of the financial position and results of operations of the building partnership are consolidated with those of the Company. Cash capital expenditures attributable to the Company’s development partner’s interest in the Company’s new headquarters were approximately $18 and $12 million in the first quarter of 2006 and 2005.

 

See Notes to Condensed Consolidated Financial Statements.

 

5



 

THE NEW YORK TIMES COMPANY

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.           General

 

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 March 26, 2006 and December 25, 2005, and the results of operations and cash flows of the Company for the periods ended March 26, 2006, and March 27, 2005.  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 Company’s Condensed Consolidated Financial Statements and related Notes 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 25, 2005.  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.

 

Unless specifically stated otherwise, all references to March 2006 and March 2005 refer to the Company’s fiscal periods ended, or the dates as of, March 26, 2006 and March 27, 2005, respectively.  All references to December 2005 refer to the Company’s fiscal year ended, or the date as of, December 25, 2005.  Certain reclassifications have been made to the prior periods to conform to classifications used as of and for the period ended March 2006.  The fiscal periods included herein comprise 13 weeks.

 

As of March 2006, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 25, 2005, have not changed materially.

 

2.           Goodwill and Other Intangible Assets

 

Goodwill is the excess of cost over the fair market value of tangible net assets acquired.  Goodwill is not amortized but tested for impairment annually or, if certain circumstances indicate a possible impairment may exist, in accordance with Statement of Financial Accounting Standards (“FAS”) No. 142, Goodwill and Other Intangible Assets.

 

Other intangible assets acquired consist primarily of mastheads and licenses on various acquired properties, customer lists, as well as other assets.  Other intangible assets acquired that have indefinite lives (mastheads and licenses) are not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist.  Certain other intangible assets acquired (customer lists and other assets) are amortized over their estimated useful lives.

 

Based on independent valuations of About.com (acquired March 18, 2005) and North Bay Business Journal (“North Bay”) (acquired February 1, 2005) and a preliminary independent valuation of KAUT-TV (acquired November 3, 2005), the Company has allocated the excess of the purchase prices over the carrying value of the net assets acquired as follows: About.com- $343.4 million to goodwill and $62.2 million to other intangible assets (primarily content, customer lists and a contract); North Bay- $2.1 million to goodwill and

 

6



 

$0.9 million to other intangible assets (primarily customer lists); KAUT-TV- $0.6 million to goodwill and $14.3 million to other intangible assets (primarily FCC licenses). The goodwill for the acquisitions described above is tax-deductible.

 

The preliminary purchase price allocation for the acquisition of KAUT-TV is subject to adjustment when additional information concerning asset and liability valuations is obtained. The final asset and liability fair values may differ from those included in the Company’s Condensed Consolidated Balance Sheet as of March 2006; however, the changes are not expected to have a material effect on the Company’s Condensed Consolidated Financial Statements.

 

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

 

(Dollars in thousands)

 

News
Media
Group

 

Broadcast
Media
Group

 

About.
com

 

Total

 

Balance as of December 2005

 

$

1,055,648

 

$

40,544

 

$

343,689

 

$

1,439,881

 

Goodwill adjusted during year

 

 

35

 

(259

)

(224

)

Foreign currency translation

 

993

 

 

 

993

 

Balance as of March 2006

 

$

1,056,641

 

$

40,579

 

$

343,430

 

$

1,440,650

 

 

Goodwill was adjusted in the first quarter of 2006 for changes to the purchase price allocations.

 

The foreign currency translation line item above reflects changes in Goodwill resulting from fluctuating exchange rates related to the consolidation of the International Herald Tribune (the “IHT”).

 

Other intangible assets acquired were as follows:

 

 

 

March 2006

 

December 2005

 

(Dollars in thousands)

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Amortized other intangible assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer lists

 

$

218,589

 

$

(160,550

)

$

58,039

 

$

218,584

 

$

(155,763

)

$

62,821

 

Other

 

55,425

 

(14,780

)

40,645

 

55,399

 

(12,556

)

42,843

 

Total

 

274,014

 

(175,330

)

98,684

 

273,983

 

(168,319

)

105,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized other intangible assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

Broadcast licenses

 

233,895

 

 

233,895

 

233,895

 

 

233,895

 

Newspaper mastheads

 

71,753

 

 

71,753

 

71,547

 

 

71,547

 

Total

 

305,648

 

 

305,648

 

305,442

 

 

305,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other intangible assets acquired

 

$

579,662

 

$

(175,330

)

$

404,332

 

$

579,425

 

$

(168,319

)

$

411,106

 

 

Certain amounts in the table above include the foreign currency translation adjustment related to the consolidation of the IHT.

 

As of March 2006, the remaining weighted-average amortization period is seven years for customer lists and six years for other intangible assets acquired included in the table above.

 

Amortization expense related to other intangible assets acquired that are subject to amortization was $6.8 million for the first quarter of 2006 and is expected to be approximately $24 million for the fiscal year 2006.

 

7



 

Estimated annual amortization expense for the next five years related to these intangible assets is expected to be as follows:

 

(Dollars in thousands)
Year

 

Amount

 

2007

 

$

15,000

 

2008

 

12,200

 

2009

 

10,900

 

2010

 

10,700

 

2011

 

10,600

 

 

3.           Debt Obligations

 

The Company’s total debt, including commercial paper and capital lease obligations, was $1.4 billion as of March 2006.

 

The Company’s $600.0 million commercial paper program is supported by the revolving credit agreements described below.  Commercial paper issued by the Company is unsecured and can have maturities of up to 270 days.  The Company had $507.4 million in commercial paper outstanding as of March 2006, with an annual weighted-average interest rate of 4.7% and an average of 60 days to maturity from original issuance.

 

The primary purpose of the Company’s revolving credit agreements is to support the Company’s commercial paper program.  In addition, these revolving credit agreements provide a facility for the issuance of letters of credit.  Of the total $670.0 million available under the two revolving credit agreements ($400 million five-year revolving credit agreement maturing in May 2009 and $270 million multi-year credit agreement maturing in June 2006), the Company has issued letters of credit of approximately $32 million.  The remaining balance of approximately $638 million supports the Company’s commercial paper program discussed above.  The Company expects to renew the credit agreements, as needed, prior to expiration.  There were no borrowings outstanding under the revolving credit agreements as of March 2006 or December 2005.

 

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 revolving credit agreements contain a covenant that requires specified levels of stockholders’ equity.  As of March 2006, the amount of stockholders’ equity in excess of the required levels was approximately $438 million.

 

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

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

Interest expense

 

$

17,318

 

$

12,814

 

Loss from extinguishment of debt(a)

 

 

4,767

 

Interest income

 

(1,957

)

(844

)

Capitalized interest

 

(2,837

)

(2,489

)

Interest expense, net

 

$

12,524

 

$

14,248

 

 


(a)  The Company redeemed all of its $71.9 million 8.25% debentures in March 2005.

 

4.           Derivative Instruments

 

In the first quarter of 2006, the Company entered into a forward starting interest rate swap agreement (“forward starting swap agreement”) designated as a cash-flow hedge as defined under FAS No. 133, as

 

8



 

amended, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”). The forward starting swap agreement, which has a notional amount totaling $50.0 million, is intended to lock in a fixed interest rate on the issuance of debt expected in December 2006. As of March 2006, the fair value of the forward starting swap agreement resulted in an unrealized loss of $0.3 million that was recorded in “Accrued expenses” and “Accumulated other comprehensive loss, net of income taxes” in the Company’s Condensed Consolidated Balance Sheet.  There was no amount recognized in earnings related to the forward starting swap agreement.

 

In March 2006 and December 2005, the Company terminated forward starting swap agreements designated as cash-flow hedges as defined under FAS 133 because the debt for which the forward starting swap agreements were entered into was not issued.  The termination of the forward starting swap agreements resulted in a gain of $3.4 million, of which $3.0 million was unrealized and $0.4 million was recognized in earnings.  The Company expects to amortize the unrealized gain of $3.0 million into earnings over the maturity period of debt that it expects to issue in December 2006 as discussed above.

 

5.           Common Stock

 

During the first quarter of 2006, the Company repurchased 0.3 million shares of its Class A Common Stock under its stock repurchase program at a cost of $7.8 million.  The average price of these repurchases was $26.97 per share.

 

On April 18, 2006, the Company’s Board of Directors authorized a $.01 per share increase in the quarterly dividend on the Company’s Class A and Class B Common Stock to $.175 per share from $.165 per share effective with the June 2006 dividend.

 

6.           Pension and Postretirement Benefits

 

Pension

 

The components of net periodic pension cost of all Company-sponsored pension plans were as follows:

 

 

 

For the Quarters Ended

 

 

 

March 2006

 

March 2005

 

(Dollars in thousands)

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Qualified
Plans

 

Non-
Qualified
Plans

 

All Plans

 

Service cost

 

$

10,319

 

$

588

 

$

10,907

 

$

9,362

 

$

569

 

$

9,931

 

Interest cost

 

17,896

 

3,015

 

20,911

 

16,887

 

2,831

 

19,718

 

Expected return on plan assets

 

(23,484

)

 

(23,484

)

(20,930

)

 

(20,930

)

Amortization of prior service cost

 

101

 

17

 

118

 

101

 

17

 

118

 

Recognized actuarial loss

 

4,680

 

1,664

 

6,344

 

4,600

 

1,193

 

5,793

 

Net periodic pension cost

 

$

9,512

 

$

5,284

 

$

14,796

 

$

10,020

 

$

4,610

 

$

14,630

 

 

The Company did not make any contributions to its pension plans in the first quarter of 2006.  Although the Company does not have any minimum funding requirements in 2006 (under the Employee Retirement Income Security Act of 1974, as amended, and Internal Revenue Code requirements), it may elect to make a contribution. The amount of the contribution, if any, would be based on the results of the January 1, 2006 valuation, market performance and interest rates in 2006 as well as other factors. Assuming that the Company achieves an 8.75% return on pension assets, that interest rates are stable and that there are no material changes to the Company’s benefits structure in 2006, it expects to make contributions in the fourth quarter of 2006 of approximately the same amount as the contributions made in 2005.  In December 2005, the Company made tax-deductible contributions of $47.3 million to its qualified pension plans.

 

9



 

Postretirement Benefits

 

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

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

Service cost

 

$

1,885

 

$

1,730

 

Interest cost

 

3,028

 

3,053

 

Amortization of prior service cost

 

(1,543

)

(1,293

)

Recognized actuarial loss

 

787

 

659

 

Net periodic postretirement cost

 

$

4,157

 

$

4,149

 

 

Pursuant to the Medicare Prescription Drug Improvement and Modernization Act of 2003, through December 2005, the Company integrated its postretirement benefit plan with Medicare (the “Integration Method”). Under this option, benefits paid by the Company are offset by Medicare.  Beginning in 2006, the Company elected to receive the Medicare retiree drug subsidy instead of the benefit under the Integration Method.

 

In February 2006 the Company announced amendments, such as the elimination of retiree-medical benefits to new employees, to its postretirement benefit plan effective January 1, 2007.  The amendments will reduce the future obligations and expense under this plan.

 

7.           Other

 

WQEW Sale

 

One of the Company’s New York City radio stations, WQEW-AM (“WQEW”), receives revenues under a time brokerage agreement with ABC, Inc. (“ABC”), that provides substantially all of WQEW’s programming.  Under a separate option agreement, ABC has the right to acquire WQEW at the end of 2006 and, in the first quarter of 2006, ABC notified the Company of its intention to exercise this right.  The sale is currently scheduled to close in the first quarter of 2007 with a purchase price of $40 million and is subject to Federal Communications Commission approval.  At closing, the Company will recognize a significant portion of the sale price as a gain because the net book value of WQEW’s net assets being sold are nominal.

 

Staff Reductions

 

In the first quarter of 2006, the Company recognized a charge of $9.4 million ($5.2 million after tax or $.04 per share) for costs associated with a staff reduction program announced in September 2005.  This charge is recorded in “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statement of Income.  As of March 2006, the Company had a staff reduction liability of approximately $19 million included in “Accrued expenses” in the Company's Condensed Consolidated Balance Sheet.

 

Sale of Assets

 

In the first quarter of 2005, the Company recognized a $122.9 million pre-tax gain resulting from the sale of its current headquarters in New York City ($114.5 million) and the sale of property in Sarasota, Florida ($8.4 million).

 

10



 

8.             Earnings Per Share

 

Basic and diluted earnings per share have been computed as follows:

 

 

 

For the Quarters Ended

 

(In thousands, except per share data)

 

March 2006

 

March 2005

 

Basic earnings per share computation:

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

Net income

 

$

34,955

 

$

111,049

 

Denominator

 

 

 

 

 

Average number of common shares outstanding

 

145,165

 

145,868

 

Basic earnings per share

 

$

.24

 

$

.76

 

Diluted earnings per share computation:

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

Net income

 

$

34,955

 

$

111,049

 

Denominator

 

 

 

 

 

Average number of common shares outstanding

 

145,165

 

145,868

 

Incremental shares for assumed exercise of securities

 

196

 

903

 

Total shares

 

145,361

 

146,771

 

Diluted earnings per share

 

$

.24

 

$

.76

 

 

The difference between basic and diluted shares is primarily due to the assumed exercise of stock options included in the diluted earnings per share computation.

 

Stock options with exercise prices that exceeded the average fair market value of the Company’s Common Stock had an antidilutive effect and, therefore, were excluded from the computation of diluted earnings per share.  Approximately 31 million stock options with exercise prices ranging from $27.45 to $48.54 were excluded from the computation in the first quarter of 2006, and approximately 24 million stock options with exercise prices ranging from $39.60 to $48.54 million were excluded from the computation in the first quarter of 2005.

 

9.             Comprehensive Income

 

Comprehensive income for the Company includes foreign currency translation adjustments, unrealized derivative gains on cash-flow hedges, unrealized gains/(losses) on marketable securities and “Net income” reported in the Company’s Condensed Consolidated Statements of Income.

 

Comprehensive income was as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

Net income

 

$

34,955

 

$

111,049

 

Foreign currency translation adjustments

 

849

 

2,037

 

Unrealized derivative gains on cash-flow hedges

 

376

 

162

 

Unrealized gains/(losses) on marketable securities

 

60

 

(126

)

Income tax charge

 

(183

)

(20

)

Comprehensive income

 

$

36,057

 

$

113,102

 

 

The “Accumulated other comprehensive loss, net of income taxes” in the Company’s Condensed Consolidated Balance Sheets was net of a deferred income tax benefit of approximately $97 million as of March 2006 and December 2005.

 

11



 

10.           Segment Statements of Income

 

The Company’s reportable segments consist of the News Media Group, the Broadcast Media Group and About.com. These segments are evaluated regularly by key management in assessing performance and allocating resources.

 

              Below is a description of the Company’s reportable segments:

 

News Media Group (consisting of The New York Times Media Group, which includes The New York Times (“The Times”), NYTimes.com, the IHT and two New York City radio stations; the New England Media Group, which includes The Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 15 daily newspapers and their related digital operations).

 

Broadcast Media Group (consisting of nine network-affiliated television stations and their related digital operations).

 

About.com (an online consumer information provider).

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

News Media Group

 

$

780,991

 

$

773,166

 

Broadcast Media Group

 

31,954

 

31,317

 

About.com (from March 18, 2005)

 

18,827

 

1,100

 

Total

 

$

831,772

 

$

805,583

 

 

 

 

 

 

 

OPERATING PROFIT (LOSS)

 

 

 

 

 

News Media Group

 

$

68,311

 

$

91,309

 

Broadcast Media Group

 

3,197

 

4,051

 

About.com (from March 18, 2005)

 

7,564

 

142

 

Corporate

 

(10,796

)

(10,376

)

Gain on Sale of Assets

 

 

122,946

 

Total

 

$

68,276

 

$

208,072

 

 

 

 

 

 

 

Net income/(loss) from joint ventures

 

1,967

 

(248

)

Interest expense, net

 

12,524

 

14,248

 

Other income

 

 

1,250

 

Income before income taxes and minority interest

 

57,719

 

194,826

 

Income taxes

 

22,857

 

83,658

 

Minority interest in net loss/(income) of subsidiaries

 

93

 

(119

)

 

 

 

 

 

 

Net income

 

$

34,955

 

$

111,049

 

 

The News Media Group operating profit includes a charge of $9.2 million and the Corporate operating loss includes a charge of $0.2 million in the first quarter of 2006 related to staff reduction expenses (see Note 7).

 

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q for a discussion on the Company’s reportable segments.

 

12



 

11.           Contingent Liabilities

 

New Headquarters Building

 

The Company is in the process of constructing a 1.54 million square foot condominium office building (the “Building”) in New York City that will serve as its new headquarters.  In December 2001, a wholly-owned subsidiary of the Company (“NYT”), and FC Lion LLC (a partnership between an affiliate of the Forest City Ratner Companies and an affiliate of ING Real Estate, “FC”) became the sole members of The New York Times Building LLC (the “Building Partnership”), a partnership established for the purpose of constructing the Building.

 

Actual and anticipated capital expenditures in connection with the Building, net of proceeds from the sale of its existing headquarters, including both core and shell and interior construction costs, are detailed in the table below.

 

Capital Expenditures

 

 

 

 

 

 

 

(Dollars in millions)

 

NYT

 

FC

 

Total

 

2001-2005

 

$241

 

$184

 

$425

 

2006

 

$240-$270

 

$130-$150

 

$370-$420

 

2007

 

$120-$128

 

$86-$95

 

$206-$223

 

Total

 

$601-$639

 

$400-$429

 

$1,001-$1,068

 

Less: net sale proceeds (a)

 

$106

 

 

$106

 

Total, net of sale proceeds

 

$495-$533

(b)

$400-$429

 

$895-$962

 

 


(a) Represents cash proceeds from the sale of the Company’s existing headquarters (see Note 7), net of income taxes and transaction costs.  This amount is not net of the Company’s rental payments associated with the leaseback.

 

(b) Includes estimated capitalized interest and salaries in the range of $45 to $55 million.

 

See the Company’s Annual Report on Form 10-K for the year ended December 25, 2005, for additional information regarding the Building.

 

Third-Party Guarantees

 

The Company has outstanding guarantees on behalf of a third party that provides circulation customer service, telemarketing and home-delivery services for The Times and the Globe (the “circulation servicer”), and on behalf of two third parties that provide printing and distribution services for The Times’s National Edition (the “National Edition printers”).  In accordance with accounting principles generally accepted in the United States of America, the contingent obligations related to these guarantees are not reflected in the Company’s Condensed Consolidated Balance Sheets as of March 2006 and December 2005.

 

The Company has guaranteed the payments under the circulation servicer’s credit facility and any miscellaneous costs related to any default thereunder (the “credit facility guarantee”).  The total amount of the credit facility guarantee was $20 million as of March 2006.  The amount outstanding under the credit facility, which expired and was renewed in April 2006, was approximately $18 million as of March 2006.  The credit facility guarantee was made by the Company to allow the circulation servicer to obtain more favorable financing terms.  The circulation servicer has agreed to reimburse the Company for any amounts the Company pays under the credit facility guarantee and has granted the Company a security interest in all of its assets to secure repayment of any amounts the Company pays under the credit facility guarantee.

 

13



 

In addition, the Company has guaranteed the payments of two property leases of the circulation servicer and any miscellaneous costs related to any default thereunder (the “property lease guarantees”).  The total amount of the property lease guarantees was approximately $3 million as of March 2006.  One property lease expires in June 2008 and the other property lease expires in May 2009.  The property lease guarantees were made by the Company to allow the circulation servicer to obtain space to conduct business.

 

The Company would have to perform the obligations of the circulation servicer under the credit facility and property lease guarantees if the circulation servicer defaulted under the terms of its credit facility or lease agreements.

 

The Company has guaranteed a portion of the payments of an equipment lease of a National Edition printer and any miscellaneous costs related to any default thereunder (the “equipment lease guarantee”).  The total amount of the equipment lease guarantee was approximately $3 million as of March 2006.  The equipment lease expires in March 2011.  The Company made the equipment lease guarantee to allow the National Edition printer to obtain lower cost of lease financing.

 

The Company has also guaranteed certain debt of one of the two National Edition printers and any miscellaneous costs related to any default thereunder (the “debt guarantee”).  The total amount of the debt guarantee was approximately $6 million as of March 2006.  The debt guarantee, which expires in May 2012, was made by the Company to allow the National Edition printer to obtain a lower cost of borrowing.

 

The Company has obtained a secured guarantee from a related party of the National Edition printer to repay the Company for any amounts that it would pay under the debt guarantee.  In addition, the Company has a security interest in the equipment that was purchased by the National Edition printer with the funds it received from its debt issuance, as well as other equipment and real property.

 

The Company would have to perform the obligations of the National Edition printers under the equipment lease and debt guarantees if the National Edition printers defaulted under the terms of their equipment leases or debt agreements.

 

Other

 

The Company also has letters of credit of approximately $34 million, which are required by insurance companies, to provide support for the Company’s workers’ compensation liability.  The workers’ compensation liability is included in the Company’s Condensed Consolidated Balance Sheet as of March 2006.

 

There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company.  These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made.  It is the opinion of management after reviewing these actions with legal counsel to the Company that the ultimate liability that might result from these actions would not have a material adverse effect on the Company’s Condensed Consolidated Financial Statements.

 

12.           Subsequent Event

 

On April 8, 2006, the Company exercised its right to require Discovery Communications, Inc. to purchase the Company’s 50% investment in the Discovery Times Channel, a digital cable channel.  As part of

 

14



 

the initial investment in the channel, this right was exercisable following the fourth anniversary of the investment.  By contract, the sale price is determined by a formula, with a floor of $80 million and a ceiling of $135 million, as calculated by an independent appraiser.  The independent appraiser has not yet been selected.  The Company’s investment in the channel was approximately $104 million as of March 2006.  Based on the sale price, which results from the independent appraisal, the Company will record a gain or loss, depending on whether the price is higher or lower than the investment balance.

 

15



 

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

 

EXECUTIVE OVERVIEW

 

Our Business

 

The New York Times Company is a leading media and news organization with a portfolio of premier properties serving our audiences through print, broadcast, online and mobile technology.  Building on our 155-year history of excellence in journalism, we are continuing our evolution into a multiplatform media organization by developing the skills, discipline and flexibility to compete in an increasingly digital world.

 

To benefit all of our shareholders, our goals are to:

 

      grow revenues across our existing businesses and platforms,

 

      create new online products in key content areas through internal development or prudent acquisitions,

 

      institutionalize a forward-looking research and development capability that will enable us to anticipate and capitalize on changes in media usage and

 

      reduce costs and improve the efficiency and effectiveness of our operations.

 

The business model for each of our segments is summarized below:

 

News Media Group (consisting of The New York Times Media Group, which includes The New York Times (“The Times”), NYTimes.com, the International Herald Tribune (the “IHT”) and two New York City radio stations; the New England Media Group, which includes The Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 15 daily newspapers and their related print and digital businesses). The News Media Group derives advertising revenues by offering advertisers a means to promote their brands, products and services to the buying public in print, online and through radio. The News Media Group also derives circulation revenues by offering the public timely news and editorial materials and advertisements. Other revenues, which make up the remainder of revenues, primarily consist of revenues from wholesale delivery operations, news services and direct marketing.  The News Media Group’s main operating expenses are employee-related costs and raw materials, primarily newsprint.

 

Broadcast Media Group (consisting of nine network-affiliated television stations and their related digital operations). The Broadcast Media Group derives almost all of its revenues (98% in the first quarter of 2006 ) from the sale of commercial time to advertisers. The Broadcast Media Group’s main operating expenses are employee-related costs and programming costs.

 

About.com acquired March 18, 2005 (an online consumer information provider). About.com generates revenues through display advertising relevant to the adjacent content, cost-per-click advertising (sponsored links in which About.com is paid when a user clicks on the ad) and e-commerce (including sales lead generation). Almost all of its revenues (95% in the first quarter of 2006) are derived from the sale of advertisements (display and cost-per-click advertising). Cost-per-click advertising accounts for 57% of About.com’s total advertising revenues. About.com does not charge a subscription fee for access to its Web site. About.com’s main operating expenses are employee-related costs and content and hosting costs.

 

16



 

Joint Ventures Our long-term strategy is also pursued through our equity investments, which are:

 

                        a 49% interest in Metro Boston LLC,

 

                        a 49% interest in a Canadian newsprint company, Donohue Malbaie Inc., and a 40% interest in a partnership, Madison Paper Industries, operating a supercalendered paper mill in Maine, and

 

                        a 16.7% interest in New England Sports Ventures, which owns the Boston Red Sox, Fenway Park and approximately 80% of the New England Sports Network, a regional cable sports network.

 

We also have a 50% interest in the Discovery Times Channel (“DTC”), a digital cable television channel (see below).

 

Recent Developments

 

Discovery Times Channel

 

On April 8, 2006, we exercised our right to require Discovery Communications, Inc. to purchase our 50% investment in DTC. As part of the initial investment in the channel, this right was exercisable following the fourth anniversary of the investment. By contract, the sale price is determined by a formula, with a floor of $80 million and a ceiling of $135 million, as calculated by an independent appraiser. The independent appraiser has not yet been selected. Our investment in the channel was approximately $104 million as of March 26, 2006. Based on the sale price, which results from the independent appraisal, we will record a gain or loss, depending on whether the price is higher or lower than the investment balance.

 

WQEW Sale

 

One of our New York City radio stations, WQEW-AM (“WQEW”), receives revenues under a time brokerage agreement with ABC, Inc. (“ABC”), that provides substantially all of WQEW’s programming. Under a separate option agreement, ABC has the right to acquire WQEW at the end of 2006 and, in the first quarter of 2006, ABC notified the Company of its intention to exercise this right. The sale is currently scheduled to close in the first quarter of 2007 with a purchase price of $40 million and is subject to Federal Communications Commission approval. At closing, we will recognize a significant portion of the sale price as a gain because the net book value of WQEW’s net assets being sold are nominal.

 

2006 Highlights

 

Below are highlights for the first quarter of 2006. See the remaining portion of this discussion for more details on the items discussed below.

 

                        Advertising revenues grew 3.9% in the first quarter of 2006 compared with the same period last year, mainly due to the acquisition of About.com and growth in online revenues. Higher print advertising rates were more than offset by lower print volume.

 

17



 

                        Circulation revenues increased 0.3% compared with the same period last year due to growth at The New York Times Media Group and the Regional Media Group, partially offset by declines at the New England Media Group.

 

                        Other revenues increased 9.0% compared with the first quarter of 2005, primarily due to the introduction of TimesSelect, higher commercial printing revenues and the inclusion of About.com.

 

                        Total costs and expenses in the first quarter of 2006 included staff reduction expenses of $9.4 million and About.com expenses of $11.3 million; in the first quarter of 2005, we had no staff reduction expenses and only $1.0 million of expenses related to About.com, which was acquired late in the first quarter. Expenses increased by 6.0% in large part due to these costs. Excluding these items, expenses grew at a lower rate, primarily due to higher distribution, outside printing, raw materials and promotion expense.

 

                        Net income and diluted earnings per share in the first quarter of 2006 were $35.0 million and $.24 per share compared with $111.0 million and $.76 per share in the first quarter of 2005. In the first quarter of 2006, net income and diluted earnings per share included a charge of $5.2 million or $.04 per share related to staff reductions, and the first quarter of 2005 included a gain of $67.8 million or $.46 per share from the sale of assets.

 

Trend and Uncertainties

 

Our Annual Report on Form 10-K for the year ended December 25, 2005, details trends and uncertainties applicable to our Company. As of March 26, 2006, there have been no material changes in these trends and uncertainties.

 

2006 Expectations

 

We have not provided 2006 guidance for earnings, revenue growth or expense growth. Below are certain items that will affect the financial statements in 2006 as well as guidance on certain key financial measures.

 

                        Because we have a fiscal year that equalizes the number of Sundays, 2006 has an extra week. In the fourth quarter of 2006, there will be 14 weeks rather than 13.

 

                        We expect that the News Media Group will benefit from higher print and online advertising rates in 2006. At The Times, print rates rose approximately 5%, and at the Globe and our Regional Media Group, print rates increased approximately 3%.

 

                        The Times raised home-delivery rates in New York and across the country about 4% effective February 6, 2006. This is expected to result in additional circulation revenues of approximately $7 to $8 million in 2006.

 

                        The Times decreased the number of pages devoted to stock tables from six to two Tuesday through Saturday. As a result, we expect to save $3 million in newsprint in 2006 and $4 million on an annualized basis.

 

                        The Broadcast Media Group results are expected to benefit from a full year of revenues for KAUT-TV

 

18



 

and mid-term elections and in the first quarter benefited from the Winter Olympics.

 

                        Our revenues will include a full year of revenue from About.com, which is expected to have double-digit revenue and operating profit growth.

 

                        We will also remain focused on reducing costs, improving efficiencies and streamlining operations. Our process mapping and productivity gains are expected to lead to annual savings of approximately $45 million in 2006, with about a third of the savings related to our staff reduction programs.

 

The key financial measures for 2006 discussed in the table below are computed under accounting principles generally accepted in the United States of America (“GAAP”).

 

Item

 

2006 Expectation

 

Newsprint cost per ton

 

Growth expected to be 11% to 13%

 

Depreciation & amortization

 

$154 to $158 million

 

Capital expenditures

 

$485 to $535 million(a)

 

Results from joint ventures

 

$18 to $22 million

 

Interest expense

 

$58 to $62 million

 

Tax rate

 

39.6%

 

 


(a)       Under GAAP, total capital expenditures reflected in our financial statements include our capital expenditures for our new headquarters building as well as those of our development partner:

 

Company*

 

$355 to $385 million

 

Development partner

 

$130 to $150 million

 

 

 

$485 to $535 million

 

 


* Includes $240 to $270 million for our new headquarters

 

19



 

RESULTS OF OPERATIONS

 

Overview

 

Unless specifically stated otherwise, all references to March 2006 and March 2005 refer to our fiscal periods ended, or the dates as of, March 26, 2006 and March 27, 2005, respectively. All references to December 2005, unless specifically stated otherwise, refer to our fiscal year ended, or the date as of, December 25, 2005.

 

The following table presents our consolidated financial results on a GAAP basis.

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

Advertising

 

$

554,627

 

$

533,779

 

3.9

 

Circulation

 

220,281

 

219,617

 

0.3

 

Other

 

56,864

 

52,187

 

9.0

 

Total

 

 

831,772

 

 

805,583

 

3.3

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

 

 

Raw materials

 

81,937

 

74,829

 

9.5

 

Wages and benefits

 

176,377

 

176,908

 

(0.3

)

Other

 

135,520

 

125,194

 

8.2

 

Total

 

393,834

 

376,931

 

4.5

 

Selling, general and administrative expenses

 

369,662

 

343,526

 

7.6

 

Total

 

763,496

 

720,457

 

6.0

 

Gain on sale of assets

 

 

122,946

 

N/A

 

OPERATING PROFIT

 

68,276

 

208,072

 

(67.2

)

Net income/(loss) from joint ventures

 

1,967

 

(248

)

 

Interest expense, net

 

12,524

 

14,248

 

(12.1

)

Other income

 

 

1,250

 

N/A

 

Income before income taxes and minority interest

 

57,719

 

194,826

 

(70.4

)

Income taxes

 

22,857

 

83,658

 

(72.7

)

Minority interest in net loss/(income) of subsidiaries

 

93

 

(119

)

 

NET INCOME

 

$

34,955

 

$

111,049

 

(68.5

)

 


*   Represents an increase in excess of 100%.

 

Revenues

 

Revenues by reportable segment and for the Company as a whole were as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

News Media Group

 

$

780,991

 

$

773,166

 

1.0

 

Broadcast Media Group

 

31,954

 

31,317

 

2.0

 

About.com (from March 18, 2005)

 

18,827

 

1,100

 

 

Total

 

$

831,772

 

$

805,583

 

3.3

 

 


*   Represents an increase in excess of 100%.

 

20



 

News Media Group

 

Advertising, circulation and other revenues by operating segment of the News Media Group and for the Group as a whole were as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

The New York Times Media Group

 

 

 

 

 

 

 

Advertising

 

$

307,811

 

$

301,466

 

2.1

 

Circulation

 

156,473

 

153,716

 

1.8

 

Other

 

40,033

 

38,078

 

5.1

 

Total

 

$

504,317

 

$

493,260

 

2.2

 

New England Media Group

 

 

 

 

 

 

 

Advertising

 

$

101,537

 

$

109,407

 

(7.2

)

Circulation

 

40,296

 

42,739

 

(5.7

)

Other

 

9,405

 

8,031

 

17.1

 

Total

 

$

151,238

 

$

160,177

 

(5.6

)

Regional Media Group

 

 

 

 

 

 

 

Advertising

 

$

96,049

 

$

91,254

 

5.3

 

Circulation

 

23,512

 

23,162

 

1.5

 

Other

 

5,875

 

5,313

 

10.6

 

Total

 

$

125,436

 

$

119,729

 

4.8

 

Total News Media Group

 

 

 

 

 

 

 

Advertising

 

$

505,397

 

$

502,127

 

0.7

 

Circulation

 

220,281

 

219,617

 

0.3

 

Other

 

55,313

 

51,422

 

7.6

 

Total

 

$

780,991

 

$

773,166

 

1.0

 

 

Advertising Revenues

 

Advertising revenue is primarily determined by the volume, rate and mix of advertisements. In the first quarter of 2006, advertising revenues increased compared with the first quarter of 2005 mainly due to growth in online revenues. Higher print advertising rates were more than offset by lower print volume (see the chart below for a breakdown of volume by category). Advertising revenues at The New York Times Media Group were higher in the first quarter of 2006 than the first quarter of 2005 due to higher classified and national advertising revenue. The New England Media Group advertising revenues were lower in the first quarter of 2006 than 2005 because of decreases in national, retail and classified advertising revenues. Advertising revenues for the Regional Media Group increased due to higher classified advertising revenues. The News Media Group’s online advertising revenues rose 23.0% in the first quarter of 2006 compared with the first quarter of 2005 due to growth in all categories.

 

In the first quarter we benefited from the timing of Easter, which was in April in 2006 but in March in 2005. Traditionally, Easter is a time of reduced overall advertising because classified advertising typically declines on the holiday. Retail advertising normally increases in the days leading up to Easter.

 

21



 

Print advertising volume for the News Media Group was as follows:

 

 

 

For the Quarters Ended

 

(Inches in thousands, preprints in
thousands of copies)

 

March 2006

 

March 2005

 

% Change

 

 

 

 

 

 

 

 

 

National (a)

 

581.7

 

589.1

 

(1.3

)

Retail

 

1,507.0

 

1,559.3

 

(3.4

)

Classified

 

2,376.5

 

2,339.7

 

1.6

 

Part Run/Zoned

 

460.4

 

482.2

 

(4.5

)

Total

 

4,925.6

 

4,970.3

 

(0.9

)

Preprints

 

686,150

 

688,071

 

(0.3

)

 


(a) Includes all advertising volume from the IHT.

 

Circulation Revenues

 

Circulation revenue is based on the number of copies sold and the subscription rate charged to customers. Circulation revenues in 2006 increased 0.3% compared with the prior year periods due to growth at The New York Times Media Group and the Regional Media Group primarily from higher home-delivery rates partially offset by declines at the New England Media Group primarily from fewer copies sold.

 

Broadcast Media Group

 

Broadcast Media Group revenues increased 2.0% to $32.0 million from $31.3 million, due to additional revenues resulting from the acquisition of KAUT-TV in November 2005. Excluding KAUT-TV, Broadcast Media Group revenues decreased as declines in automotive advertising and network compensation were partially offset by higher Olympic advertising.

 

Costs and Expenses

 

Costs and expenses were as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

Production costs:

 

 

 

 

 

 

 

Raw materials

 

$

81,937

 

$

74,829

 

9.5

 

Wages and benefits

 

176,377

 

176,908

 

(0.3

)

Other

 

135,520

 

125,194

 

8.2

 

Total production costs

 

393,834

 

376,931

 

4.5

 

Selling, general and administrative expenses

 

369,662

 

343,526

 

7.6

 

Total

 

$

763,496

 

$

720,457

 

6.0

 

 

Production Costs

 

Total production costs in the first quarter of 2006 increased because of the acquisition of About.com as well as increased raw materials and outside printing expense. Raw materials expense increased primarily due to higher newsprint expense and magazine paper expense. Newsprint expense increased 5.9% in the first quarter of 2006 compared with the prior year period due to an 8.2% increase from higher price partially offset by a 2.3% decrease from lower consumption. Magazine paper expense increased due to higher consumption and prices.

 

22



 

Selling, General and Administrative Expenses

 

Total selling, general and administrative (“SG&A”) expenses increased because of staff reductions expense, the inclusion of About.com for the entire quarter in 2006 and higher distribution and promotion expense.

 

The following table sets forth consolidated costs and expenses by reportable segment, Corporate and the Company as a whole.

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

Costs and expenses:

 

 

 

 

 

 

 

News Media Group

 

$

712,680

 

$

681,857

 

4.5

 

Broadcast Media Group

 

28,757

 

27,266

 

5.5

 

About.com (from March 18, 2005)

 

11,263

 

958

 

 

Corporate

 

10,796

 

10,376

 

4.0

 

Total

 

$

763,496

 

$

720,457

 

6.0

 

 


*   Represents an increase in excess of 100%.

 

News Media Group

 

In the first quarter of 2006, costs and expenses for the News Media Group increased primarily due to staff reduction expenses and higher distribution, outside printing, raw materials and promotion expense.

 

Broadcast Media Group

 

Costs and expenses for the Broadcast Media Group increased in the first quarter of 2006 compared with the same period in 2005 primarily due to the acquisition of KAUT-TV in November 2005.

 

Depreciation and Amortization

 

Consolidated depreciation and amortization by reportable segment, Corporate and for the Company as a whole, were as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

Depreciation and amortization:

 

 

 

 

 

 

 

News Media Group

 

$

30,949

 

$

29,665

 

4.3

 

Broadcast Media Group

 

2,333

 

1,986

 

17.5

 

About.com (from March 18, 2005)

 

2,959

 

220

 

 

Corporate

 

1,568

 

1,730

 

(9.4

)

Depreciation and amortization

 

$

37,809

 

$

33,601

 

12.5

 

 


*   Represents an increase in excess of 100%.

 

23



 

Operating Profit

 

Consolidated operating profit by reportable segment, Corporate and for the Company as a whole were as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

Operating Profit (Loss):

 

 

 

 

 

 

 

News Media Group

 

$

68,311

 

$

91,309

 

(25.2

)

Broadcast Media Group

 

3,197

 

4,051

 

(21.1

)

About.com (from March 18, 2005)

 

7,564

 

142

 

 

Corporate

 

(10,796

)

(10,376

)

4.0

 

Gain on Sale of Assets

 

 

122,946

 

N/A

 

Operating Profit

 

$

68,276

 

$

208,072

 

(67.2

)

 


*   Represents an increase in excess of 100%.

 

In the first quarter of 2005, we recognized a pre-tax gain of $122.9 million from the sale of our existing New York City headquarters as well as property in Florida.

 

The reasons underlying the period-to-period changes in each segment’s and Corporate’s operating profit (loss) are discussed above under “Revenues” and “Costs and Expenses.”

 

Non-operating Items

 

Joint Ventures

 

Net income from joint ventures totaled $2.0 million in the first quarter of 2006 compared with a net loss of $0.2 million in the first quarter of 2005, primarily because of better operating results at DTC.

 

Interest Expense, Net

 

“Interest expense, net” in our Condensed Consolidated Statements of Income was as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

Interest expense

 

$

17,318

 

$

12,814

 

Loss from extinguishment of debt

 

 

4,767

 

Interest income

 

(1,957

)

(844

)

Capitalized interest

 

(2,837

)

(2,489

)

Interest expense, net

 

$

12,524

 

$

14,248

 

 

In the first quarter of 2006, interest expense, net included the impact of higher short-term interest rates. In the first quarter of 2005, we redeemed our $71.9 million 8.25% debentures, resulting in a loss of $4.8 million from the extinguishment of this debt.

 

24



 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

We expect our cash balance, cash provided from operations and available third-party financing, described below, to be sufficient to meet our normal operating commitments and debt requirements, to fund planned capital expenditures, to pay dividends to our stockholders, to repurchase shares of our Class A Common Stock and to make contributions to our pension plans.

 

We repurchase Class A Common Stock under our stock repurchase program from time to time either in the open market or through private transactions, and these repurchases may be suspended from time to time or discontinued. During the first quarter of 2006, we repurchased 0.3 million shares of Class A Common Stock at a cost of approximately $8 million. From March 27, 2006 through April 28, 2006, we repurchased 0.2 million shares at a cost of approximately $6 million. In 2005, we repurchased 1.7 million shares of Class A Common Stock at a cost of approximately $57 million.

 

We expect dividends to increase to approximately $100 million in 2006 from approximately $95 million in 2005 as our Board of Directors authorized a $.01 per share increase in the quarterly dividend on our Class A and Class B Common Stock to $.175 per share from $.165 per share effective with the June 2006 dividend.

 

New Headquarters Building

 

We are in the process of constructing our new headquarters building in New York City (the “Building”), which we expect to occupy in the second quarter of 2007. In December 2001, one of our wholly-owned subsidiaries (“NYT”), and FC Lion LLC (a partnership between an affiliate of the Forest City Ratner Companies and an affiliate of ING Real Estate, “FC”) became the sole members of The New York Times Building LLC (the “Building Partnership”), a partnership established for the purpose of constructing the Building.

 

Actual and anticipated capital expenditures in connection with the Building, net of proceeds from sale of our existing headquarters, including both core and shell and interior construction costs, are detailed in the table below.

 

Capital Expenditures

 

 

 

 

 

 

 

(Dollars in millions)

 

NYT

 

FC

 

Total

 

2001-2005

 

$241

 

$184

 

$425

 

2006

 

$240-$270

 

$130-$150

 

$370-$420

 

2007

 

$120-$128

 

$86-$95

 

$206-$223

 

Total

 

$601-$639

 

$400-$429

 

$1,001-$1,068

 

Less: net sale proceeds (a)

 

$106

 

 

$106

 

Total, net of sale proceeds

 

$495-$533

(b)

$400-$429

 

$895-$962

 

 


(a)  Represents cash proceeds from the sale of our existing headquarters net of income taxes and transaction costs. This amount is not net of our rental payments associated with the leaseback.

 

(b)  Includes estimated capitalized interest and salaries in the range of $45 to $55 million.

 

We are continuing to analyze our space requirements and believe that we will have approximately five surplus floors in our portion of the Building. Upon the Building’s completion, we will consider whether to sublet or sell this space and whether to enter into other financing arrangements, including sale-leaseback and/or

 

25



 

mortgage financing, for our condominium interest. In each case, the decision will be subject to market conditions and other factors.

 

See our Annual Report on Form 10-K for the year ended December 25, 2005, for additional information regarding the Building.

 

Capital Resources

Sources and Uses of Cash

 

Cash flows by category were as follows:

 

 

 

For the Quarters Ended

 

(Dollars in thousands)

 

March 2006

 

March 2005

 

% Change

 

Operating Activities

 

$

76,425

 

$

135,304

 

(43.5

)

Investing Activities

 

$

(63,358

)