FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For Quarter Ended September 28, 1997
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
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(Address of principal executive offices)
10036
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(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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
--- ---
Number of shares of each class of the registrant's common stock outstanding as
of November 2, 1997 (exclusive of treasury shares):
Class A Common Stock 95,552,198 shares
Class B Common Stock 424,801 shares
Exhibit Index is located on page 20 of this document
1
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)
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
---------------------- ----------------------
(13 Weeks) (39 Weeks)
Revenues
Advertising ............................ $ 466,435 $ 424,488 $1,447,979 $1,305,790
Circulation ............................ 165,819 165,578 503,505 491,497
Other .................................. 51,327 41,337 146,505 111,197
---------- ---------- ---------- ----------
Total ............................... 683,581 631,403 2,097,989 1,908,484
---------- ---------- ---------- ----------
Production Costs
Raw Materials .......................... 78,269 85,825 228,026 287,774
Wages and Benefits ..................... 145,633 140,682 453,275 413,062
Other .................................. 126,101 109,880 360,454 321,128
---------- ---------- ---------- ----------
Total ............................... 350,003 336,387 1,041,755 1,021,964
Selling, General and Administrative Expenses 242,243 232,149 736,295 680,510
Impairment Loss ............................ -- 126,763 -- 126,763
---------- ---------- ---------- ----------
Total ............................... 592,246 695,299 1,778,050 1,829,237
---------- ---------- ---------- ----------
Operating Profit (Loss) .................... 91,335 (63,896) 319,939 79,247
Income from Joint Ventures ................. 3,359 6,395 7,726 13,287
Interest Expense, Net ...................... 11,699 7,975 31,406 20,375
Net Gain on Dispositions ................... -- 25,085 -- 32,836
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes .......... 82,995 (40,391) 296,259 104,995
Income Taxes ............................... 36,767 7,293 113,243 73,153
---------- ---------- ---------- ----------
Net Income (Loss) .......................... $ 46,228 $ (47,684) $ 183,016 $ 31,842
========== ========== ========== ==========
Weighted Average Number of Common and
Common Equivalent Shares ................. 99,646 97,008 100,106 97,472
Earnings Per Common and
Common Equivalent Share .................. $ 0.46 $ (0.49) $ 1.83 $ 0.33
Cash Dividends Per Common Share ............ $ 0.16 $ 0.14 $ 0.47 $ 0.42
See notes to condensed consolidated financial statements.
2
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 28, December 29,
1997 1996
------------- ------------
ASSETS (Unaudited)
Current Assets
Cash and short-term investments ................................. $ 37,843 $ 39,103
Accounts receivable - net ....................................... 312,578 309,164
Inventories
Newsprint and magazine paper .................................. 25,570 28,778
Work-in-process, etc .......................................... 4,628 5,030
---------- ----------
Total inventories ........................................... 30,198 33,808
Other current assets ............................................ 93,752 96,697
---------- ----------
Total current assets ........................................ 474,371 478,772
---------- ----------
Other Assets
Investment in joint ventures .................................... 137,317 137,255
Property, plant and equipment (less accumulated
depreciation of $888,007 in 1997 and $807,120 in 1996) ........ 1,383,940 1,358,029
Intangible assets acquired
Cost in excess of net assets acquired (less accumulated
amortization of $204,391 in 1997 and $184,196 in 1996) ........ 1,006,844 1,041,672
Other intangible assets acquired (less accumulated
amortization of $38,654 in 1997 and $23,384 in 1996) .......... 389,705 396,042
Miscellaneous assets ............................................ 138,870 128,101
---------- ----------
TOTAL ASSETS ................................................ $3,531,047 $3,539,871
========== ==========
See notes to condensed consolidated financial statements.
3
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 28, December 29,
1997 1996
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
Current Liabilities
Commercial paper ................................. $ 19,000 $ 45,500
Accounts payable ................................. 186,054 171,853
Accrued payroll and other related liabilities .... 96,125 84,458
Accrued expenses ................................. 232,997 258,468
Unexpired subscriptions .......................... 85,853 90,059
Current portion of capital lease obligations ..... 3,868 3,359
----------- -----------
Total current liabilities ...................... 623,897 653,697
----------- -----------
Other Liabilities
Long-term debt ................................... 590,097 589,693
Capital lease obligations ........................ 46,149 46,939
Deferred income taxes ............................ 154,864 188,560
Other liabilities ................................ 472,358 435,850
----------- -----------
Total noncurrent liabilities ................... 1,263,468 1,261,042
----------- -----------
Total Liabilities .............................. 1,887,365 1,914,739
----------- -----------
Stockholders' Equity
Capital stock .................................... 13,049 12,872
Additional paid in capital ....................... 706,823 663,007
Earnings reinvested in the business .............. 1,428,245 1,290,899
Common stock held in treasury, at cost ........... (504,435) (341,646)
----------- -----------
Total stockholders' equity ..................... 1,643,682 1,625,132
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 3,531,047 $ 3,539,871
=========== ===========
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 Nine Months Ended
---------------------------
September 28, September 29,
1997 1996
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (39 Weeks)
Net cash provided by operating activities .................. $ 309,027 $ 264,868
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ......................... -- (246,805)
Additions to property, plant and equipment ................. (126,578) (157,048)
Net proceeds from dispositions ............................. 11,872 16,878
Other - net ................................................ (198) (1,675)
--------- ---------
Net cash used in investing activities ...................... (114,904) (388,650)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net ..................................... (26,500) 153,900
Long-term debt reduction ................................... (2,827) (2,558)
Capital Shares
Issuance ................................................. 6,317 2,534
Repurchase ............................................... (127,283) (36,829)
Dividends paid to stockholders ............................. (45,434) (40,989)
Other - net ................................................ 344 51
--------- ---------
Net cash (used in) provided by financing activities ........ (195,383) 76,109
--------- ---------
Decrease in cash and short-term investments ................ (1,260) (47,673)
Cash and short-term investments at the beginning of the year 39,103 91,442
--------- ---------
Cash and short-term investments at the end of the quarter .. $ 37,843 $ 43,769
========= =========
NONCASH INVESTING AND FINANCING TRANSACTIONS
Repurchases of common stock in connection with certain exercises under the
Company's stock option plans increased treasury stock by $36,067 and $12,109 in
1997 and 1996, respectively. Additional paid in capital increased by a
corresponding amount.
Asset and liability changes related to acquisitions in 1996 were as follows:
Fair value of assets acquired $268,319
Assets forgiven (9,833)
Liabilities assumed and accrued (11,681)
--------
Net cash paid $246,805
========
SUPPLEMENTAL INFORMATION
Amounts in these statements of cash flows are presented on a cash basis and may
differ from those shown in other sections of the financial statements.
See notes to condensed consolidated financial statements.
5
THE NEW YORK TIMES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying Notes to Condensed Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements
included in the annual report on Form 10-K for the year ended December 29, 1996,
for The New York Times Company (the "Company") filed with the Securities and
Exchange Commission. In the opinion of management, all adjustments necessary for
a fair presentation of the financial position and results of operations, as of
and for the interim period ended, have been included. Due to the seasonal nature
of the Company's business, results for the interim periods are not necessarily
indicative of a full year's operations.
Certain reclassifications have been made to the 1996 Condensed
Consolidated Financial Statements to conform with classifications used at
September 28, 1997.
2. Impairment Loss
In September 1996, the Company recorded a noncash accounting charge
related to an impairment of certain long-lived assets as required by
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121 charge"). As a result of the Company's strategic review process,
analyses were prepared to determine if there was impairment of any long-lived
asset and certain assets, primarily in the Newspaper Group, met the test for
impairment in 1996. These assets were associated with three small regional
newspapers, certain wholesale distribution operations and a printing
facility. The revised carrying values of these assets were generally
calculated on the basis of discounted estimated future cash flow and resulted
in the pre-tax noncash charge of $126,763,000 ($94,500,000 after-tax or $.97
per share).
The SFAS 121 charge had no impact on the Company's 1996 cash flow or its
ability to generate cash flow in the future. As a result of the SFAS 121 charge,
depreciation and amortization expense related to these assets will decrease in
future periods. However, in conjunction with the review for impairment, the
estimated lives of certain of the Company's long-lived assets were reviewed,
which resulted in the acceleration of amortization expense for certain
intangible assets. In the aggregate, the net effect of the change on
depreciation and amortization expense is not anticipated to have a material
effect on earnings per share in the future.
3. Acquisitions/Dispositions
In the first nine months of 1997, the Company sold its NYT Custom
Publishing division and a closed printing facility located in Carlstadt, New
Jersey. These sales did not have a material effect on the Company's consolidated
financial statements. In October 1997, the Company announced that it had entered
into an agreement to sell the assets of its tennis, sailing and ski magazine
businesses. This transaction is expected to be completed in the fourth quarter
of 1997. The operating profit (loss) of these properties was not material to the
results of the Company for the third quarter and the first nine months of 1997.
In July 1996, the Company acquired KFOR-TV in Oklahoma City, Okla., and
WHO-TV in Des Moines, Iowa. The aggregate cost of the acquisition was
approximately $234,075,000, of which approximately $232,925,000 was paid in
cash and the balance represented accrued liabilities. The purchases resulted
in increases in intangible assets of approximately $197,118,000 (consisting
primarily of network affiliation agreements, Federal Communications
Commission licenses and other intangible assets), property plant and
equipment of $29,058,000, other assets of $9,687,000 and other assumed
liabilities of $1,788,000.
6
In June 1996, the Company acquired a newspaper distribution business
that distributes The New York Times and other newspapers and periodicals
throughout the New York City metropolitan area. The aggregate cost of the
acquisition was $32,456,000 of which approximately $13,880,000 was paid in
cash, $9,833,000 in notes and accounts receivable which were forgiven, and
the balance represented assumed and accrued liabilities. The purchase
resulted in increases in intangible assets of approximately $30,438,000
(consisting primarily of a customer list), and accounts receivable and
equipment of $2,018,000.
4. Income Taxes
The reasons for the variances between the effective tax rate on income
before income taxes and the federal statutory rate, exclusive of a favorable
adjustment resulting from the completion of the Company's federal tax audits for
periods through 1992 ("Favorable Tax Adjustment") in 1997, and the SFAS 121
charge and gains on dispositions in 1996, are as follows:
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
----------------------------------------------------------------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
% of % of % of % of
(Dollars in thousands) Amount Pre-tax Amount Pre-tax Amount Pre-tax Amount Pre-tax
- ------------------------------------------------------------------------------------------------------------------------
Tax at federal statutory rate $ 29,048 35.0% $ 21,451 35.0% $103,691 35.0% $ 69,623 35.0%
State and local taxes,
net of federal benefits .... 6,554 7.9% 4,266 7.0% 20,279 6.8% 12,551 6.3%
Amortization of nondeductible
intangible assets acquired . 2,143 2.6% 1,807 2.9% 7,297 2.5% 7,140 3.6%
Other - net ................. (978) (1.2%) 240 0.4% (24) -- 799 0.4%
-----------------------------------------------------------------------------------------
Subtotal .................... 36,767 44.3% 27,764 45.3% 131,243 44.3% 90,113 45.3%
Favorable Tax Adjustment .... -- -- 18,000 --
Impairment Loss ............. -- (32,264) -- (32,264)
Dispositions ................ -- 11,793 -- 15,304
-----------------------------------------------------------------------------------------
Income taxes ................ $ 36,767 $ 7,293 $113,243 $ 73,153
=========================================================================================
5. Earnings Per Share
Earnings per share is computed after preference dividends and is based on
the weighted average number of Class A and Class B common shares outstanding
during the period. The 1997 third-quarter and nine-month calculations reflect
primary earnings per share including incremental shares associated with stock
options in accordance with Accounting Principles Board Opinion No.15, "Earnings
Per Share" ("APB 15"). Fully diluted earnings per share for the third quarter
and the first nine months of 1997 is not presented since dilution is not
material. The potential dilutive effect of stock options on 1996 earnings per
share was not material.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which supersedes APB 15. SFAS 128 is effective for periods ending after December
15, 1997, at which time previously reported earnings per share for periods prior
to the effective date will be restated, as required by the pronouncement. SFAS
128 simplifies the computation of earnings per share by replacing the
7
presentation of primary earnings per share with a presentation of basic earnings
per share which excludes the dilutive effect of common stock equivalents such as
stock options, warrants and other convertible securities. SFAS 128 requires a
dual presentation of basic and diluted earnings per share by entities with
complex capital structures. Diluted earnings per share under SFAS 128 is
computed similarly to fully diluted earnings per share under APB 15.
Pro forma dual presentation of basic and diluted earnings per share for
the third quarter and nine months ended September 28, 1997, assuming the
adoption of SFAS 128 in the first quarter of 1997, is as follows:
Three Months Ended Nine Months Ended
September 28, 1997 September 28, 1997
------------------ ------------------
Basic Earnings Per Share $0.48 $1.89
Diluted Earnings Per Share $0.46 $1.82
6. Debt Obligations
The Company currently maintains $300,000,000 in revolving credit
agreements, $100,000,000 of which was renewed in July 1997 and has been extended
through July 1998, and $200,000,000 of which had an original maturity of July
2001 and has been extended through July 2002. The extended agreements permit
borrowings which bear interest, at the Company's option, (i) for domestic
borrowings: based on the certificates of deposit rate, the Federal Funds rate, a
prime rate or a quoted rate; or (ii) for Eurodollar borrowings: based on the
LIBOR rate, plus various margins based on the Company's credit rating. In
addition, these agreements include provisions which require, among other
matters, specified levels of stockholders' equity. At September 28, 1997,
approximately $917,000,000 of stockholders' equity was unrestricted under these
agreements. At September 28, 1997, and December 29, 1996, the Company had
commercial paper outstanding of $19,000,000 and $45,500,000, respectively, which
is supported by the revolving credit agreements.
7. Stock Repurchase Program
During the first nine months of 1997, the Company repurchased
approximately 2,500,000 shares of Class A Common Stock at a cost of
approximately $114,900,000. The average price of these repurchases was
approximately $47 per share. To date, approximately $41,300,000 remain from the
February 1997 authorization of $150,000,000. Stock repurchases under this
program exclude shares reacquired in connection with certain exercises under the
Company's stock option plans at a cost of approximately $11,800,000.
8. Voluntary Staff Reductions
During the first nine months of 1997, the Company recorded approximately
$2,500,000, or $.01 per share, for pre-tax charges relating to staff reductions
at corporate headquarters and The New York Times. At September 28, 1997, and
December 29, 1996, approximately $20,304,000 and $49,052,000, respectively, were
included in liabilities in the accompanying Condensed Consolidated Balance
Sheets, which represent the unpaid balance of total pre-tax charges relating to
staff reductions. This balance will be principally paid within one year.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Advertising and circulation revenues accounted for approximately 69% and
24%, respectively, of the Company's revenues in the first nine months of 1997.
Advertising revenues influence the pattern of the Company's consolidated
revenues because they are seasonal in nature. Traditionally, second-quarter and
fourth-quarter advertising volume is higher than that which occurs in the first
and third quarters since economic activity tends to be lower in the post-holiday
season and the summer period. Quarterly trends are also affected by the overall
economy and economic conditions that may exist in specific markets served by
each of the Company's business segments.
Newsprint is the major component of the Company's cost of raw materials.
Newsprint prices, which were at historic highs in the first quarter of 1996,
began to decline during the second quarter of 1996, and fell dramatically by
year end. Newsprint prices increased in the first three quarters of 1997. A
subsequent price increase may occur in the last quarter of the year which could
further increase the Company's cost of newsprint by the end of 1997 or the
beginning of 1998. Although the Company expects its cost of newsprint to be
higher in the fourth quarter of 1997 than in the comparable 1996 quarter, the
annual cost of newsprint for 1997 will remain significantly lower than 1996.
The special factors that affected the 1997 and 1996 reported results were
as follows:
1997
o $18.0 million favorable tax adjustment ($.18 per share for the
nine months) resulting from the completion of the Company's
federal tax audits for periods through 1992 ("favorable tax
adjustment").
o $2.5 million pre-tax charge ($.01 per share for the nine
months) for severance and related costs resulting from
work force reductions ("buyouts").
1996
o $126.8 million pre-tax noncash accounting charge ($.97 per
share for the quarter and nine months) related to the
measurement for impairment of long-lived assets as required by
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of" ("SFAS 121 charge").
o $25.1 million pre-tax gain ($.14 per share for the quarter and
nine months) resulting from the realization of a gain
contingency from the disposition of a paper mill in a prior
year.
o $7.8 million pre-tax gain ($.04 per share for the nine months)
from the sale of the 110 Fifth Avenue building.
o $7.0 million pre-tax charge for the quarter ($.04 per share)
and $12.6 million pre-tax charge for the nine months ($.07 per
share) for buyouts.
Results of Operations
The 1997 third-quarter net income was $46.2 million, or $.46 earnings
per share, compared with a net loss of $47.7 million, or $.49 loss per share,
in the third quarter of 1996. For the first nine months of 1997, net income
rose to $183.0 million, or $1.83 per share, from $31.8 million, or $.33 per
share, in 1996. In the 1996 third-quarter and nine-month period, the Company
recorded, among other special factors described above, a noncash accounting
charge of $94.5 million or $.97 per share. Exclusive of the special factors
described above, 1997 third-quarter net income increased 23.8% to $46.2
million, or $.46 per share, from $37.4 million, or $.38 per share in 1996,
and 1997 net income for the nine months increased 43.8% to $166.4 million, or
$1.66 per share, from $115.7 million, or $1.19 per share, in 1996. The higher
1997 net income was principally due to higher advertising revenues and lower
newsprint prices in the Newspaper Group, and to the acquisition and
continuing strong performance of KFOR-TV, Oklahoma City, Okla., and
WHO-TV, Des Moines, Iowa, two NBC affiliates which were acquired in July 1996
("New Television Stations").
9
The earnings per share amounts in the third-quarter and nine-month
periods of 1997 reflect a $.02 and $.06 per share decrease, respectively,
resulting from the inclusion of outstanding stock options in the earnings per
share calculation as required by Accounting Principles Board Opinion No. 15
("APB 15"). This provision of APB 15 was triggered primarily as a result of
the Company's higher stock price. Included in the $.06 per share decrease in
the nine-month period is $.01 per share related to the favorable tax
adjustment, which is a special factor. The 1996 reported results did not
require the inclusion of outstanding stock options. Certain provisions of APB
15 will be superseded by Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which will be adopted in the fourth quarter of 1997, at
which time previously reported earnings per share amounts will be restated,
as required by the pronouncement.
Revenues for the third quarter of 1997 were $683.6 million, an 8.3%
increase over the 1996 third-quarter revenues of $631.4 million. Revenues for
the first nine months of 1997 were $2.1 billion, a 9.9% increase from $1.9
billion in 1996. On a comparable basis, adjusted for the acquisitions of certain
properties, third-quarter and nine-month revenues increased by approximately 8%
and 7%, respectively, over 1996.
Production costs in the third quarter of 1997 were $350.0 million, a 4%
increase over the 1996 third-quarter production costs of $336.4 million.
Production costs for the first nine months of 1997 were $1.04 billion, a 2%
increase from $1.02 billion in 1996. The increase was primarily due to higher
salary and payroll-related costs and depreciation expenses associated with new
production facilities, partially offset by lower raw material costs resulting
from lower paper prices.
Selling, general and administrative expenses ("SGA expenses") in the third
quarter of 1997 were $242.2 million, a 4% increase over the 1996 third quarter
of $232.1 million. SGA expenses, exclusive of buyouts of $7.0 million in the
1996 quarter, increased 8% in the third quarter of 1997. SGA expenses for the
first nine months of 1997 were $736.3 million, an 8% increase from $680.5
million in 1996. SGA expenses, exclusive of buyouts of $2.5 million and $12.6
million in 1997 and 1996, respectively, increased 10% in the first nine months
of 1997. The increases were primarily due to higher salary and payroll-related
costs and promotional expenses.
The Impairment Loss in 1996 is related to the SFAS 121 charge of $126.8
million (See Note 2 of Notes to Condensed Consolidated Financial Statements).
Operating profit in the third quarter of 1997 was $91.3 million compared
with an operating loss of $63.9 million in 1996. Operating profit, exclusive of
buyouts of $7.0 million and the SFAS 121 charge of $126.8 million in the 1996
quarter, increased to $91.3 million in the third quarter of 1997 from $69.9
million in 1996. Operating profit for the first nine months of 1997 was $319.9
million compared with $79.2 million in 1996. Operating profit, exclusive of
buyouts of $2.5 million in the first nine months of 1997 and the SFAS 121 charge
of $126.8 million and buyouts of $12.6 million in 1996, rose to $322.4
10
million in 1997 from $218.6 million in 1996. The improvement in operating profit
was principally due to higher advertising revenues and lower newsprint prices in
the Newspaper Group, and to the acquisition and continuing strong performance of
the New Television Stations.
The 1997 third-quarter earnings before interest, income taxes,
depreciation and amortization ("EBITDA") rose to $139.4 million from $5.6
million in 1996. EBITDA for the first nine months of 1997 rose to $456.4 million
from $233.8 million in 1996. EBITDA for the 1996 third quarter and the first
nine months was $107.2 million and $327.7 million, respectively, exclusive of
the SFAS 121 charge of $126.8 and gains on dispositions of $32.8 million. EBITDA
is presented because it is a widely accepted indicator of funds available to
service debt, although it is not a measure of liquidity or of financial
performance under generally accepted accounting principles ("GAAP"). The Company
believes that EBITDA, while providing useful information, should not be
considered in isolation or as an alternative to net income or cash flows as
determined under GAAP.
Income from Joint Ventures decreased to $3.4 million in the third quarter
of 1997 from $6.4 million in 1996. For the first nine months of 1997, such
income decreased to $7.7 million from $13.3 million in 1996. The decrease in the
third quarter and nine months of 1997 was primarily attributable to lower
selling prices for paper from the mills in which the Company has investments.
The decrease in the nine months was partially offset by the absence of a loss
from a new venture which ceased operations in December 1996.
Interest Expense, Net increased to $11.7 million in the third quarter of
1997 from $8.0 million in 1996. For the nine months of 1997, Interest Expense,
Net increased to $31.4 million from $20.4 million in 1996. Interest income and
capitalized interest included in the amounts presented was $0.8 million and
$6.7 million in the quarter and nine months of 1997, respectively, compared with
$5.6 million and $17.3 million in the comparable quarter and nine months of
1996, respectively. The 1997 increases in Interest Expense, Net were primarily
attributable to lower capitalization of interest associated with construction.
The Company's effective tax rate was 44.3% in the 1997 third quarter
and first nine months of 1997, excluding the favorable tax adjustment,
compared to 45.3% in the 1996 quarter and nine months. The 1996 third-quarter
and nine-month rates exclude the tax effect of the SFAS 121 charge and gains
on dispositions. The variation in the projected annual effective tax rate
was principally attributable to a lower percentage of nondeductible
amortization.
11
Segment Information
- ----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------------------------------------
September 28, September 29, September 28, September 29,
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
(13 Weeks) (39 Weeks)
Revenues
Newspapers $ 605,271 $ 559,562 $ 1,863,330 $ 1,706,440
Magazines 43,377 40,219 129,571 122,628
Broadcasting 34,933 31,622 105,088 79,416
- ----------------------------------------------------------------------------------------
Total $ 683,581 $ 631,403 $ 2,097,989 $ 1,908,484
========================================================================================
Operating Profit (Loss)
Newspapers $ 84,830 $ (61,281) $ 302,716 $ 82,237
Magazines 6,603 6,287 21,561 19,821
Broadcasting 9,656 7,331 27,245 18,703
Unallocated Corporate Expenses (9,754) (16,233) (31,583) (41,514)
- ----------------------------------------------------------------------------------------
Total $ 91,335 $ (63,896) $ 319,939 $ 79,247
========================================================================================
Depreciation and Amortization
Newspapers $ 41,773 $ 34,780 $ 118,787 $ 102,901
Magazines (2,019) (1,929) (5,492) (5,518)
Broadcasting 3,913 4,374 13,334 9,489
Corporate 977 651 1,831 1,252
Joint Ventures 89 96 266 288
- ----------------------------------------------------------------------------------------
Total $ 44,733 $ 37,972 $ 128,726 $ 108,412
========================================================================================
A discussion of the operating results of the Company's segments follows:
Newspaper Group: The New York Times ("The Times"), The Boston Globe ("The
Globe"), 21 Regional Newspapers, newspaper distributors, a news service, a
features syndicate, TimesFax, licensing operations of The New York Times
databases and microfilm and New Ventures. New Ventures include projects
developed in electronic media.
- -----------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
----------------------------------------------------------
September 28, September 29, September 28, September 29,
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
(13 Weeks) (39 Weeks)
Revenues
Newspapers $ 601,011 $ 557,824 $ 1,854,152 $ 1,700,903
New Ventures 4,260 1,738 9,178 5,537
- -----------------------------------------------------------------------------------
Total Revenues $ 605,271 $ 559,562 $ 1,863,330 $ 1,706,440
- -----------------------------------------------------------------------------------
EBITDA
Newspapers $ 128,206 $ 102,191 $ 425,513 $ 317,654
New Ventures (1,603) (3,000) (4,010) (6,824)
- -----------------------------------------------------------------------------------
Total EBITDA $ 126,603 $ 99,191 $ 421,503 $ 310,830
- -----------------------------------------------------------------------------------
Operating Profit (Loss)
Newspapers $ 86,704 $ (54,895) $ 307,475 $ 93,026
New Ventures (1,874) (6,386) (4,759) (10,789)
- -----------------------------------------------------------------------------------
Total Operating Profit $ 84,830 $ (61,281) $ 302,716 $ 82,237
- -----------------------------------------------------------------------------------
12
The Newspaper Group's operating profit was $84.8 million in the third
quarter of 1997 compared with $65.4 million, in 1996, excluding buyouts and the
SFAS 121 charge. Revenues were $605.3 million in the third quarter of 1997,
compared with $559.6 million in 1996. Operating profit for the first nine months
of 1997, excluding buyouts, rose to $304.2 million in 1997 from $214.3 million
in 1996, excluding buyouts and the SFAS 121 charge, on revenues of $1.9 billion
and $1.7 billion, respectively. The increase in the Group's revenues for both
the quarter and nine months was primarily due to higher advertising revenues as
a result of higher rates and volume. The improvement in operating profit in 1997
included the favorable effect of a 14% and 26% decrease for the third-quarter
and nine-month periods, respectively, in the Company's average cost of newsprint
compared to 1996.
Average circulation of daily newspapers for the third quarter and nine
months ended September 28, 1997, on a comparable basis, was as follows:
--------------------------------------------------------------------
Three Months Ended September 28, 1997
------------------------------------------
(Copies in thousands) Weekday % Change Sunday % Change
--------------------------------------------------------------------
Average Circulation
The New York Times 1,060.5 1.0% 1,642.4 0.4%
The Boston Globe 480.6 1.8% 764.9 -0.3%
Regional Newspapers 702.4 0.8% 758.0 0.2%
--------------------------------------------------------------------
--------------------------------------------------------------------
Nine Months Ended September 28, 1997
------------------------------------------
(Copies in thousands) Weekday % Change Sunday % Change
--------------------------------------------------------------------
Average Circulation
The New York Times 1,079.9 -1.5% 1,653.5 -2.2%
The Boston Globe 472.3 -0.1% 756.3 -1.3%
Regional Newspapers 731.4 0.2% 786.9 -0.2%
The average circulation decline for the nine months is partly attributable
to the increase in newsstand and home delivery prices and a decrease in
distribution to selected outlying areas. To increase circulation, the Company is
investing in a national image campaign at The Times, as well as other product
enhancements and improvements in delivery service.
Advertising volume on a comparable basis for the third quarter and nine
months was as follows:
- ----------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 28, 1997 September 28, 1997
---------------------------------------------------
(Inches in thousands) Volume % Change Volume % Change
- ----------------------------------------------------------------------------------------------
Advertising Volume (excluding preprints)
The New York Times 888.1 4.8% 2,827.8 4.5%
The Boston Globe 697.0 0.9% 2,175.8 3.2%
Regional Newspapers 3,777.7 1.4% 11,510.8 0.8%
- ----------------------------------------------------------------------------------------------
Advertising volume at The Times for the third quarter of 1997 increased
approximately 4.8% from the 1996 third quarter. The national, classified and
zoned categories showed increases of 10.0%, 4.3% and 3.0%, respectively, while
the retail category was down 1.7%. For the first nine months of 1997,
advertising volume increased 4.5% from the comparable 1996 period. The national,
classified and zoned categories showed increases of 7.6%, 5.3% and 3.3%,
respectively, while the retail category was down 1.1%. Preprint distribution was
up 26.7% for the quarter and 4.2% for the nine months over 1996.
13
At The Globe, advertising volume for the 1997 third quarter increased 0.9%
from the 1996 third quarter. Advertising volume was higher in the national,
classified and zoned categories by 2.6%, 3.9% and 7.1%, respectively, while the
retail category was down 8.7%. For the first nine months of 1997, advertising
volume increased 3.2% primarily as a result of increases in the national and
classified categories of 4.1% and 6.7%, respectively, offset by a decrease of
3.1% in the retail category. Preprint distribution was up 3.5% for the quarter
and 6.1% for the nine months over 1996.
For the regional newspaper group, advertising volume for the third quarter
increased 1.4% from the 1996 third quarter. For the first nine months of 1997,
advertising volume increased 0.8%. The increases were a result of higher volume
in all advertising categories except legal. Preprint distribution increased
10.8% and 10.5% for the third-quarter and nine-month periods, respectively, over
1996.
Magazine Group: The Magazine Group is comprised of a number of sports-related
publications, related activities in the sports/leisure fields, and New Ventures
such as computerized systems for golf tee time reservations and on-line magazine
services. The revenues for the Group include the amortization of a $40.0 million
non-compete agreement ("Non-Compete"), associated with the divestiture of the
Women's Magazine Division, which is being recognized on a straight-line basis
over four years ending in July 1998.
- ---------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-----------------------------------------------------------
September 28, September 29, September 28, September 29,
(Dollars in thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------
(13 Weeks) (39 Weeks)
Revenues
Sports/Leisure Magazines $40,062 $37,414 $120,400 $114,394
Non-Compete 2,500 2,500 7,500 7,500
New Ventures 815 305 1,671 734
- ---------------------------------------------------------------------------------------
Total Revenues $43,377 $40,219 $129,571 $122,628
- ---------------------------------------------------------------------------------------
EBITDA
Sports/Leisure Magazines $ 6,465 $ 6,982 $ 21,869 $ 19,438
New Ventures (1,881) (1,553) (5,800) (4,064)
- ---------------------------------------------------------------------------------------
Total EBITDA $ 4,584 $ 5,429 $ 16,069 $ 15,374
- ---------------------------------------------------------------------------------------
Operating Profit (Loss)
Sports/Leisure Magazines $ 6,210 $ 5,525 $ 20,504 $ 16,921
Non-Compete 2,500 2,500 7,500 7,500
New Ventures (2,107) (1,738) (6,443) (4,600)
- ---------------------------------------------------------------------------------------
Total Operating Profit $ 6,603 $ 6,287 $ 21,561 $ 19,821
- ---------------------------------------------------------------------------------------
The Magazine Group's operating profit was $6.6 million in the third
quarter of 1997 compared with $7.4 million in 1996, excluding the SFAS 121
charge, on revenues of $43.4 million and $40.2 million, respectively. The
decrease in operating profit in the third quarter of 1997 was primarily
related to increased costs associated with increased promotion expenses and
higher new venture losses. Operating profit for the first nine months was
$21.6 million in 1997 compared with $20.9 million in 1996, excluding the SFAS
121 charge, on revenues of $129.6 million and $122.6 million, respectively.
The improvement in nine-month operating profit was primarily related to
higher advertising revenues as a result of higher ad volume at the
golf-related publications, partially offset by increased losses associated
with new ventures. In October 1997, the Company announced it had entered into
an agreement to sell the assets of its tennis, sailing and ski magazine
businesses. The transaction is expected to be completed in the fourth quarter
of 1997. The results of these magazines will be included in the Group's
results until the divestitures are completed. The operating profit (loss) of
these magazines was not material to the Group in the third quarter or the
first nine months of 1997 and their sale will not have a material impact on
the future results or financial position of the Company.
14
Broadcasting Group: The Broadcasting Group consists of eight network-affiliated
television stations and two radio stations.
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
----------------------------------------------------------
September 28, September 29, September 28, September 29,
(Dollars in thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
(13 Weeks) (26 Weeks)
Revenues $34,933 $31,622 $105,088 $79,416
- --------------------------------------------------------------------------------
EBITDA $13,569 $11,705 $ 40,579 $28,192
- --------------------------------------------------------------------------------
Operating Profit $ 9,656 $ 7,331 $ 27,245 $18,703
- --------------------------------------------------------------------------------
The Broadcasting Group's operating profit rose to $9.7 million in the
third quarter of 1997 from $7.3 million in 1996, on revenues of $34.9 million
and $31.6 million, respectively. Operating profit was $27.2 million for the
first nine months of 1997 compared with $18.9 million in 1996, excluding
buyouts, on revenues of $105.1 million and $79.4 million, respectively. The
revenue and operating profit increases were principally attributable to the
acquisition of the New Television Stations, as well as stronger advertising
revenues at most of the Broadcast properties. The New Television Stations
contributed $3.9 million and $9.1 million of operating profit in the third
quarter and first nine months of 1997, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $309.0 million in the
first nine months of 1997 compared with $264.9 million in 1996. The increase
of $44.2 million, or 17%, in 1997 was attributable to higher earnings and
other changes in working capital. The increase in operating cash flows was
primarily used for the construction of production and distribution
facilities, stock repurchases and the payment of dividends to stockholders.
Net cash used in investing activities was $114.9 million in the first nine
months of 1997 compared with $388.7 million in 1996. The decrease of $273.7
million was primarily attributable to the acquisition of certain properties
in 1996 (See Note 3 of Notes to Condensed Consolidated Financial Statements).
Net cash used in financing activities was $195.4 million in the first nine
months of 1997 compared with cash provided by financing activities of $76.1
million in 1996. The increase of $271.5 million was primarily related to an
increase in share repurchases in 1997 and the financing of the New Television
Stations, partially through the commercial paper program, in 1996 (see
Financing section below).
The Company believes that cash generated from its operations and the
availability of funds from external sources should be adequate to cover
working capital needs, planned capital expenditures, dividend payments to
stockholders, stock repurchases and other cash requirements. The ratio of
current assets to current liabilities was .76 and .77 at September 28, 1997
and September 29, 1996, respectively. The ratio of long-term debt and capital
lease obligations as a percentage of total capitalization was 28% at
September 28, 1997 compared to 34% at September 29, 1996.
Financing: The Company currently maintains $300.0 million in revolving credit
agreements, $100.0 million of which was renewed in July 1997 and has been
extended through July 1998, and $200.0 million of which had an original
maturity of July 2001 and has been extended through July 2002. The extended
agreements permit borrowings which bear interest, at the Company's option,
(i) for domestic borrowings: based on the certificates of deposit rate, the
Federal Funds rate, a prime rate or a quoted rate; or (ii) for Eurodollar
borrowings: based on the LIBOR rate, plus various margins based on the
Company's credit rating. In addition, these agreements included provisions
which require, among other matters, specified levels of stockholders' equity.
Approximately $917.0 million and $863.0 million of stockholders' equity was
unrestricted under these agreements at September 28, 1997, and September 29,
1996, respectively. Approximately $19.0 million and $153.9 million of
commercial paper, supported by the revolving credit agreements, was
outstanding at September 28, 1997 and September 29, 1996, respectively. The
higher level of outstanding commercial paper at September 29, 1996 was
primarily related to the acquisition of the New Television Stations. The
Company's long-term debt, including capital leases, was $636.2 million at
September 28, 1997, of which $100.0 million is due in October 1998. At
September 29, 1996, the Company's long-term debt, including capital leases,
was $791.1 million.
15
Capital Expenditures: The Company currently estimates that, inclusive of the
new facilities in College Point, New York City and Lakeland, Florida, capital
expenditures for 1997 will range from $160.0 million to $180.0 million. The
Company currently anticipates that depreciation and amortization expense will
approximate $170.0 million to $180.0 million for 1997 compared with $147.8
million in 1996.
Stock Repurchase Program: During the first nine months of 1997, the Company
repurchased approximately 2.5 million shares of Class A Common Stock at a
cost of approximately $114.9 million compared to approximately 1.2 million
shares at cost of approximately $34.9 million in 1996. To date, approximately
$41.3 million remain from the February 1997 authorization. Stock repurchases
under this program exclude shares reacquired in connection with certain
exercises under the Company's stock option plans at a cost of approximately
$11.8 million.
Acquisitions/Dispositions: In the first nine months of 1997, the Company sold
its NYT Custom Publishing division and a closed printing facility located in
Carlstadt, New Jersey. These sales did not have a material effect on the
Company's consolidated financial statements. In October 1997, the Company
announced that it had entered into an agreement to sell the assets of its
tennis, sailing and ski magazine businesses. This transaction is expected to
be completed in the fourth quarter of 1997.
In July 1996, the Company acquired the New Television Stations. The
aggregate cost of the acquisition was approximately $234.1 million, of which
approximately $232.9 million was paid in cash ($143.0 million was financed
using the Company's commercial paper facility) and the balance represented
accrued liabilities.
In June 1996, the Company acquired a newspaper distribution business
that distributes The Times, other newspapers and periodicals throughout the
New York City metropolitan area. The aggregate cost of the acquisition was
$32.5 million of which approximately $13.9 million was paid in cash, $9.8
million in notes and accounts receivable which were forgiven, and the balance
represented assumed and accrued liabilities.
Other: At September 28, 1997, approximately $20.3 million of payments remain
from charges associated with staff reductions. This balance will be principally
paid within one year.
The Company is evaluating the potential impact of the situation
commonly referred to as the "Year 2000 problem". The Year 2000 problem, which
is common to most corporations, concerns the inability of information
systems, primarily computer software programs, to properly recognize and
process date sensitive information related to the year 2000. Preliminary
assessment indicates that solutions will involve a mix of purchasing new
systems and modifying existing systems and confirming vendor compliance. The
Company currently anticipates that incremental capital expenditures
associated with the Year 2000 problem will be modest. Additional expenses to
remediate existing systems are currently expected to range between $10.0
million and $15.0 million. These expenses are expected to be incurred through
1999.
16
New Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), and SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 131 establishes standards for reporting financial and descriptive
information for reportable segments on the same basis that is used internally
for evaluating segment performance and the allocation of resources to segments.
The Company is evaluating the effect, if any, of SFAS 131, on its operating
segment reporting disclosure. SFAS 130 establishes standards for presenting
nonshareholder related items that are excluded from net income and reported as
components of stockholders' equity, such as foreign currency translation. These
statements are effective for fiscal years beginning after December 15, 1997. The
adoption of these statements will not have a material effect on the Company's
results of operations or financial position.
Factors That Could Affect Operating Results
Except for the historical information contained herein, the matters
discussed in this quarterly report are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those predicted by such forward-looking statements. Such risks and
uncertainties include national and local conditions that could influence the
level of retail, national and classified advertising revenues as well as
circulation revenue, the impact of competition that could affect levels (rate
and volume) of advertising and circulation generated by the markets served by
the Company's business segments, material increases in newsprint and magazine
paper prices, and other risks detailed from time to time in the Company's
publicly-filed documents, including its Annual Report on Form 10-K for the
period ended December 29, 1996.
17
PART II. OTHER INFORMATION
Item 5. Other Information
On October 16, 1997, the Company announced the following executive
changes: Arthur Ochs Sulzberger resigned as Chairman and Chief Executive
Officer of the Company and was elected Chairman Emeritus; he remains on
the Board of Directors. Arthur O. Sulzberger, Jr. was appointed Chairman
of the Board and continues as Publisher of The New York Times. Russell T.
Lewis, President of the Company, was appointed to the additional position
of Chief Executive Officer, and Michael Golden was elected to the Board
and appointed Vice Chairman and Senior Vice President.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 By-laws as amended through October 16, 1997
10.20 The Company's Non-Employee Directors Deferral Plan
11 Statements re: Computation of earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which
this report is filed.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NEW YORK TIMES COMPANY
(Registrant)
Date: November 12, 1997 /s/ Diane P. Baker
-----------------------------
Diane P. Baker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
19
Exhibit Index to Quarterly Report Form 10-Q
Quarter Ended September 28, 1997
Exhibit No. Exhibit
- ----------- -------
3.2 By-laws as amended through October 16, 1997
10.20 The Company's Non-Employee Directors Deferral Plan.
11 Statements of Computation of Primary and Fully Diluted
Net Income Per Share
27 Financial Data Schedule
20