UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2020
September 29, 2019☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-5837
THE NEW YORK TIMES COMPANYCOMPANY
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
New York | | 13-1102020 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.)
|
620 EIGHTH AVENUE, NEW YORK, Eighth Avenue, New York, New York 10018
(Address and zip code of principal executive offices)
10018(Zip Code)
Registrant’s telephone number, including area code 212-556-1234212-556-1234
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A Common Stock | | NYT | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | | |
Smaller reporting company | ☐ | Emerging growth company | ☐ | | | | |
If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Number of shares of each class of the registrant’s common stock outstanding as of November 1, 2019October 30, 2020 (exclusive of treasury shares):
|
| | | | | | | |
Class A Common Stock | 165,235,217166,435,299 |
| shares |
Class B Common Stock | 803,404781,724 |
| shares |
THE NEW YORK TIMES COMPANY
INDEX
| | | | | | | | | | | | | | | | | | | | |
| | | | |
PART I | | | | Financial Information | | |
Item | 1 | | Financial Statements | | |
| | | Condensed Consolidated Balance Sheets as of September 27, 2020 (unaudited) and December 29, 2019 | | |
| | | Condensed Consolidated Statements of Operations (unaudited) for the quarters and nine months ended September 27, 2020 and September 29, 2019 | | |
| | | Condensed Consolidated Statements of Comprehensive Income (unaudited) for the quarters and nine months ended September 27, 2020 and September 29, 2019 | | |
| | | Condensed Consolidated Statements of Changes In Stockholders’ Equity (unaudited) for the quarters and nine months ended September 27, 2020 and September 29, 2019 | | |
| | | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 27, 2020 and September 29, 2019 | | |
| | | Notes to the Condensed Consolidated Financial Statements | | |
Item | 2 | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | |
Item | 3 | | Quantitative and Qualitative Disclosures about Market Risk | | |
Item | 4 | | Controls and Procedures | | |
| |
PART II | | | | Other Information | | |
Item | 1 | | Legal Proceedings | | |
Item | 1A | | Risk Factors | | |
Item | 2 | | Unregistered Sales of Equity Securities and Use of Proceeds | | |
Item | 6 | | Exhibits | | |
|
| | | | | | |
| | | | |
PART I | | | | Financial Information | | |
Item | 1 | | Financial Statements | | |
| | | Condensed Consolidated Balance Sheets as of September 29, 2019 (unaudited) and December 30, 2018 | | |
| | | Condensed Consolidated Statements of Operations (unaudited) for the quarters and nine months ended September 29, 2019 and September 30, 2018 | | |
| | | Condensed Consolidated Statements of Comprehensive Income (unaudited) for the quarters and nine months ended September 29, 2019 and September 30, 2018 | | |
| | | Condensed Consolidated Statements of Changes In Stockholder’s Equity (unaudited) for the quarters and nine months ended September 29, 2019 and September 30, 2018 | | |
| | | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 29, 2019 and September 30, 2018 | | |
| | | Notes to the Condensed Consolidated Financial Statements | | |
Item | 2 | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | |
Item | 3 | | Quantitative and Qualitative Disclosures about Market Risk | | |
Item | 4 | | Controls and Procedures | | |
| |
PART II | | | | Other Information | | |
Item | 1 | | Legal Proceedings | | |
Item | 1A | | Risk Factors | | |
Item | 2 | | Unregistered Sales of Equity Securities and Use of Proceeds | | |
Item | 6 | | Exhibits | | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | September 29, 2019 |
|
| December 30, 2018 |
| | September 27, 2020 | | December 29, 2019 |
| | (Unaudited) | | | | (Unaudited) | | |
Assets | | | | | Assets | |
Current assets | | | | | Current assets | |
Cash and cash equivalents | | $ | 283,795 |
| | $ | 241,504 |
| Cash and cash equivalents | | $ | 215,763 | | | $ | 230,431 | |
Short-term marketable securities | | 376,863 |
| | 371,301 |
| Short-term marketable securities | | 308,734 | | | 201,785 | |
Accounts receivable (net of allowances of $13,626 in 2019 and $13,249 in 2018) | | 167,081 |
| | 222,464 |
| |
Accounts receivable (net of allowances of $14,153 in 2020 and $14,358 in 2019) | | Accounts receivable (net of allowances of $14,153 in 2020 and $14,358 in 2019) | | 125,337 | | | 213,402 | |
Prepaid expenses | | 31,442 |
| | 25,349 |
| Prepaid expenses | | 32,087 | | | 29,089 | |
Other current assets | | 50,108 |
| | 33,328 |
| Other current assets | | 39,063 | | | 42,124 | |
Total current assets | | 909,289 |
| | 893,946 |
| Total current assets | | 720,984 | | | 716,831 | |
Other assets | | | | | Other assets | | | | |
Long-term marketable securities | | 217,265 |
| | 213,558 |
| Long-term marketable securities | | 275,649 | | | 251,696 | |
Property, plant and equipment (less accumulated depreciation and amortization of $939,234 in 2019 and $911,845 in 2018) | | 627,059 |
| | 638,846 |
| |
Property, plant and equipment (less accumulated depreciation and amortization of $916,109 in 2020 and $950,881 in 2019) | | Property, plant and equipment (less accumulated depreciation and amortization of $916,109 in 2020 and $950,881 in 2019) | | 604,283 | | | 627,121 | |
Goodwill | | 137,256 |
| | 140,282 |
| Goodwill | | 168,700 | | | 138,674 | |
Deferred income taxes | | 124,412 |
| | 128,431 |
| Deferred income taxes | | 109,197 | | | 115,229 | |
Miscellaneous assets | | 239,680 |
| | 182,060 |
| Miscellaneous assets | | 260,728 | | | 239,587 | |
Total assets | | $ | 2,254,961 |
| | $ | 2,197,123 |
| Total assets | | $ | 2,139,541 | | | $ | 2,089,138 | |
See Notes to Condensed Consolidated Financial Statements.
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS-(Continued)
(In thousands, except share and per share data) | | | | September 29, 2019 |
| | December 30, 2018 |
| | September 27, 2020 | | December 29, 2019 |
| | (Unaudited) | | | | (Unaudited) | | |
Liabilities and stockholders’ equity | | | | | Liabilities and stockholders’ equity | |
Current liabilities | | | | | Current liabilities | |
Accounts payable | | $ | 106,867 |
| | $ | 111,553 |
| Accounts payable | | $ | 97,749 | | | $ | 116,571 | |
Accrued payroll and other related liabilities | | 99,055 |
| | 104,543 |
| Accrued payroll and other related liabilities | | 94,101 | | | 108,865 | |
Unexpired subscriptions revenue | | 86,748 |
| | 84,044 |
| Unexpired subscriptions revenue | | 100,149 | | | 88,419 | |
Short-term debt and finance lease obligations | | 246,208 |
| | 253,630 |
| |
| Accrued expenses and other | | 120,904 |
| | 119,534 |
| Accrued expenses and other | | 133,929 | | | 123,840 | |
Total current liabilities | | 659,782 |
| | 673,304 |
| Total current liabilities | | 425,928 | | | 437,695 | |
Other liabilities | | | | | Other liabilities | | | | |
| Pension benefits obligation | | 333,312 |
| | 362,940 |
| Pension benefits obligation | | 286,355 | | | 313,655 | |
Postretirement benefits obligation | | 37,651 |
| | 40,391 |
| Postretirement benefits obligation | | 34,455 | | | 37,688 | |
Other | | 126,450 |
| | 77,847 |
| Other | | 135,549 | | | 126,237 | |
Total other liabilities | | 497,413 |
| | 481,178 |
| Total other liabilities | | 456,359 | | | 477,580 | |
Stockholders’ equity | | | | | Stockholders’ equity | | | | |
Common stock of $.10 par value: | | | | | Common stock of $.10 par value: | |
Class A – authorized: 300,000,000 shares; issued: 2019 – 174,106,014; 2018 – 173,158,414 (including treasury shares: 2019 – 8,870,801; 2018 – 8,870,801) | | 17,411 |
| | 17,316 |
| |
Class B – convertible – authorized and issued shares: 2019 – 803,408; 2018 – 803,408 | | 80 |
| | 80 |
| |
Class A – authorized: 300,000,000 shares; issued: 2020 – 175,215,600; 2019 – 174,242,668 (including treasury shares: 2020 – 8,870,801; 2019 – 8,870,801) | | Class A – authorized: 300,000,000 shares; issued: 2020 – 175,215,600; 2019 – 174,242,668 (including treasury shares: 2020 – 8,870,801; 2019 – 8,870,801) | | 17,521 | | | 17,424 | |
Class B – convertible – authorized and issued shares: 2020 – 781,724; 2019 – 803,404 | | Class B – convertible – authorized and issued shares: 2020 – 781,724; 2019 – 803,404 | | 78 | | | 80 | |
Additional paid-in capital | | 203,293 |
| | 206,316 |
| Additional paid-in capital | | 212,291 | | | 208,028 | |
Retained earnings | | 1,552,788 |
| | 1,506,004 |
| Retained earnings | | 1,672,633 | | | 1,612,658 | |
Common stock held in treasury, at cost | | (171,211 | ) | | (171,211 | ) | Common stock held in treasury, at cost | | (171,211) | | | (171,211) | |
Accumulated other comprehensive loss, net of income taxes: | | | | | Accumulated other comprehensive loss, net of income taxes: | |
Foreign currency translation adjustments | | 2,254 |
| | 4,677 |
| Foreign currency translation adjustments | | 5,710 | | | 3,438 | |
Funded status of benefit plans | | (509,403 | ) | | (520,308 | ) | Funded status of benefit plans | | (485,087) | | | (498,986) | |
Net unrealized gain/(loss) on available-for-sale securities | | 694 |
| | (2,093 | ) | |
Net unrealized gain on available-for-sale securities | | Net unrealized gain on available-for-sale securities | | 3,459 | | | 572 | |
Total accumulated other comprehensive loss, net of income taxes | | (506,455 | ) | | (517,724 | ) | Total accumulated other comprehensive loss, net of income taxes | | (475,918) | | | (494,976) | |
Total New York Times Company stockholders’ equity | | 1,095,906 |
| | 1,040,781 |
| Total New York Times Company stockholders’ equity | | 1,255,394 | | | 1,172,003 | |
Noncontrolling interest | | 1,860 |
| | 1,860 |
| Noncontrolling interest | | 1,860 | | | 1,860 | |
Total stockholders’ equity | | 1,097,766 |
| | 1,042,641 |
| Total stockholders’ equity | | 1,257,254 | | | 1,173,863 | |
Total liabilities and stockholders’ equity | | $ | 2,254,961 |
| | $ | 2,197,123 |
| Total liabilities and stockholders’ equity | | $ | 2,139,541 | | | $ | 2,089,138 | |
See Notes to Condensed Consolidated Financial Statements.
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
| | | | For the Quarters Ended | | For the Nine Months Ended | | | For the Quarters Ended | | For the Nine Months Ended |
| | September 29, 2019 |
|
| September 30, 2018 |
| | September 29, 2019 |
| | September 30, 2018 |
| | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
| | (13 weeks) | | (39 weeks) | | (13 weeks) | | (39 weeks) |
Revenues | | | | | | | | | Revenues | |
Subscription | | $ | 267,302 |
| | $ | 257,796 |
| | $ | 808,568 |
| | $ | 779,018 |
| Subscription | | $ | 300,950 | | | $ | 267,302 | | | $ | 879,573 | | | $ | 808,568 | |
Advertising | | 113,531 |
| | 121,677 |
| | 359,380 |
| | 366,525 |
| Advertising | | 79,253 | | | 113,531 | | | 253,150 | | | 359,380 | |
Other | | 47,668 |
| | 37,873 |
| | 135,873 |
| | 100,311 |
| Other | | 46,692 | | | 47,668 | | | 141,558 | | | 135,873 | |
Total revenues | | 428,501 |
| | 417,346 |
| | 1,303,821 |
| | 1,245,854 |
| Total revenues | | 426,895 | | | 428,501 | | | 1,274,281 | | | 1,303,821 | |
Operating costs | | | | | | | | | Operating costs | |
Production costs: | | | | | | | | | |
Wages and benefits | | 106,377 |
| | 95,941 |
| | 313,244 |
| | 280,688 |
| |
Raw materials | | 18,531 |
| | 19,972 |
| | 57,527 |
| | 54,490 |
| |
Other production costs | | 53,868 |
| | 47,521 |
| | 149,102 |
| | 138,454 |
| |
Total production costs | | 178,776 |
| | 163,434 |
| | 519,873 |
| | 473,632 |
| |
Selling, general and administrative costs | | 207,226 |
| | 202,473 |
| | 638,820 |
| | 614,464 |
| |
Cost of revenue (excluding depreciation and amortization) | | Cost of revenue (excluding depreciation and amortization) | | 235,900 | | | 245,100 | | | 709,719 | | | 729,654 | |
Sales and marketing | | Sales and marketing | | 50,627 | | | 64,218 | | | 164,040 | | | 201,327 | |
Product development | | Product development | | 34,102 | | | 26,669 | | | 95,641 | | | 75,658 | |
General and administrative | | General and administrative | | 51,118 | | | 50,015 | | | 162,791 | | | 152,054 | |
Depreciation and amortization | | 15,450 |
| | 14,847 |
| | 45,548 |
| | 43,969 |
| Depreciation and amortization | | 15,552 | | | 15,450 | | | 46,368 | | | 45,548 | |
Total operating costs | | 401,452 |
| | 380,754 |
| | 1,204,241 |
| | 1,132,065 |
| Total operating costs | | 387,299 | | | 401,452 | | | 1,178,559 | | | 1,204,241 | |
Headquarters redesign and consolidation | | — |
| | — |
| | — |
| | 3,140 |
| |
| Restructuring charge | | 4,008 |
| | — |
| | 4,008 |
| | — |
| Restructuring charge | | 0 | | | 4,008 | | | 0 | | | 4,008 | |
Gain from pension liability adjustment | | (2,045 | ) | | (4,851 | ) | | (2,045 | ) | | (4,851 | ) | Gain from pension liability adjustment | | 0 | | | (2,045) | | | 0 | | | (2,045) | |
Operating profit | | 25,086 |
| | 41,443 |
| | 97,617 |
| | 115,500 |
| Operating profit | | 39,596 | | | 25,086 | | | 95,722 | | | 97,617 | |
Other components of net periodic benefit costs | | 1,834 |
| | 2,335 |
| | 5,502 |
| | 6,226 |
| Other components of net periodic benefit costs | | 2,272 | | | 1,834 | | | 6,735 | | | 5,502 | |
Loss from joint ventures | | — |
| | (16 | ) | | — |
| | (9 | ) | |
Interest expense and other, net | | 755 |
| | 4,026 |
| | 3,572 |
| | 13,439 |
| |
| Interest income/(expense) and other, net | | Interest income/(expense) and other, net | | 3,537 | | | (755) | | | 20,177 | | | (3,572) | |
Income from continuing operations before income taxes | | 22,497 |
| | 35,066 |
| | 88,543 |
| | 95,826 |
| Income from continuing operations before income taxes | | 40,861 | | | 22,497 | | | 109,164 | | | 88,543 | |
Income tax expense | | 6,070 |
| | 10,092 |
| | 16,789 |
| | 25,342 |
| Income tax expense | | 7,283 | | | 6,070 | | | 19,070 | | | 16,789 | |
| Net income | | 16,427 |
| | 24,974 |
| | 71,754 |
| | 70,484 |
| Net income | | 33,578 | | | 16,427 | | | 90,094 | | | 71,754 | |
Net loss attributable to the noncontrolling interest | | — |
| | 2 |
| | — |
| | 1 |
| |
| Net income attributable to The New York Times Company common stockholders | | $ | 16,427 |
| | $ | 24,976 |
| | $ | 71,754 |
| | $ | 70,485 |
| Net income attributable to The New York Times Company common stockholders | | $ | 33,578 | | | $ | 16,427 | | | $ | 90,094 | | | $ | 71,754 | |
Average number of common shares outstanding: | | | | | | | | | Average number of common shares outstanding: | | | | | | | | |
Basic | | 166,148 |
| | 165,064 |
| | 165,976 |
| | 164,742 |
| Basic | | 167,075 | | | 166,148 | | | 166,842 | | | 165,976 | |
Diluted | | 167,555 |
| | 166,966 |
| | 167,384 |
| | 166,671 |
| Diluted | | 168,059 | | | 167,555 | | | 167,943 | | | 167,384 | |
Basic earnings per share attributable to The New York Times Company common stockholders | | $ | 0.10 |
| | $ | 0.15 |
| | $ | 0.43 |
| | $ | 0.43 |
| Basic earnings per share attributable to The New York Times Company common stockholders | | $ | 0.20 | | | $ | 0.10 | | | $ | 0.54 | | | $ | 0.43 | |
Diluted earnings per share attributable to The New York Times Company common stockholders | | $ | 0.10 |
| | $ | 0.15 |
| | $ | 0.43 |
| | $ | 0.42 |
| Diluted earnings per share attributable to The New York Times Company common stockholders | | $ | 0.20 | | | $ | 0.10 | | | $ | 0.54 | | | $ | 0.43 | |
Dividends declared per share | | $ | 0.05 |
| | $ | 0.04 |
| | $ | 0.15 |
| | $ | 0.12 |
| Dividends declared per share | | $ | 0.12 | | | $ | 0.05 | | | $ | 0.18 | | | $ | 0.15 | |
See Notes to Condensed Consolidated Financial Statements.
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
| | | | For the Quarters Ended | | For the Nine Months Ended | | | For the Quarters Ended | | For the Nine Months Ended |
| | September 29, 2019 |
| | September 30, 2018 |
| | September 29, 2019 |
| | September 30, 2018 |
| | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
| | (13 weeks) | | (39 weeks) | | (13 weeks) | | (39 weeks) |
Net income | | $ | 16,427 |
| | $ | 24,974 |
| | $ | 71,754 |
| | $ | 70,484 |
| Net income | | $ | 33,578 | | | $ | 16,427 | | | $ | 90,094 | | | $ | 71,754 | |
Other comprehensive income, before tax: | | | | | | | | | Other comprehensive income, before tax: | |
Loss on foreign currency translation adjustments | | (3,159 | ) | | (567 | ) | | (3,286 | ) | | (2,923 | ) | |
Income/(loss) on foreign currency translation adjustments | | Income/(loss) on foreign currency translation adjustments | | 2,730 | | | (3,159) | | | 3,095 | | | (3,286) | |
Pension and postretirement benefits obligation | | 4,893 |
| | 8,009 |
| | 14,685 |
| | 24,850 |
| Pension and postretirement benefits obligation | | 6,354 | | | 4,893 | | | 18,982 | | | 14,685 | |
Net unrealized gain/(loss) on available-for-sale securities | | 284 |
| | 314 |
| | 3,773 |
| | (784 | ) | |
Net unrealized (loss)/gain on available-for-sale securities | | Net unrealized (loss)/gain on available-for-sale securities | | (854) | | | 284 | | | 3,936 | | | 3,773 | |
Other comprehensive income, before tax | | 2,018 |
| | 7,756 |
| | 15,172 |
| | 21,143 |
| Other comprehensive income, before tax | | 8,230 | | | 2,018 | | | 26,013 | | | 15,172 | |
Income tax expense | | 489 |
| | 2,031 |
| | 3,903 |
| | 5,535 |
| Income tax expense | | 2,192 | | | 489 | | | 6,955 | | | 3,903 | |
Other comprehensive income, net of tax | | 1,529 |
| | 5,725 |
| | 11,269 |
| | 15,608 |
| Other comprehensive income, net of tax | | 6,038 | | | 1,529 | | | 19,058 | | | 11,269 | |
Comprehensive income | | 17,956 |
| | 30,699 |
| | 83,023 |
| | 86,092 |
| |
Comprehensive loss attributable to the noncontrolling interest | | — |
| | 2 |
| | — |
| | 1 |
| |
| Comprehensive income attributable to The New York Times Company common stockholders | | $ | 17,956 |
| | $ | 30,701 |
| | $ | 83,023 |
| | $ | 86,093 |
| Comprehensive income attributable to The New York Times Company common stockholders | | $ | 39,616 | | | $ | 17,956 | | | $ | 109,152 | | | $ | 83,023 | |
See Notes to Condensed Consolidated Financial Statements.
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Quarters Ended September 29, 201927, 2020 and September 30, 201829, 2019
(Unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital Stock - Class A and Class B Common | Additional Paid-in Capital | Retained Earnings | Common Stock Held in Treasury, at Cost | Accumulated Other Comprehensive Loss, Net of Income Taxes | Total New York Times Company Stockholders’ Equity | Non- controlling Interest | Total Stock- holders’ Equity |
|
Balance, June 30, 2019 | $ | 17,488 | | $ | 200,356 | | $ | 1,544,694 | | $ | (171,211) | | $ | (507,984) | | $ | 1,083,343 | | $ | 1,860 | | $ | 1,085,203 | |
| | | | | | | | |
Net income | — | | — | | 16,427 | | — | | — | | 16,427 | | — | | 16,427 | |
Dividends | — | | — | | (8,333) | | — | | — | | (8,333) | | — | | (8,333) | |
Other comprehensive income | — | | — | | — | | — | | 1,529 | | 1,529 | | — | | 1,529 | |
Issuance of shares: | | | | | | | | |
Stock options – 3,000 Class A shares | — | | 33 | | — | | — | | — | | 33 | | — | | 33 | |
Restricted stock units vested – 25,512 Class A shares | 3 | | (3) | | — | | — | | — | | — | | — | | — | |
| | | | | | | | |
Stock-based compensation | — | | 2,907 | | — | | — | | — | | 2,907 | | — | | 2,907 | |
| | | | | | | | |
Balance, September 29, 2019 | $ | 17,491 | | $ | 203,293 | | $ | 1,552,788 | | $ | (171,211) | | $ | (506,455) | | $ | 1,095,906 | | $ | 1,860 | | $ | 1,097,766 | |
| | | | | | | | |
Balance, June 28, 2020 | $ | 17,562 | | $ | 205,618 | | $ | 1,659,158 | | $ | (171,211) | | $ | (481,956) | | $ | 1,229,171 | | $ | 1,860 | | $ | 1,231,031 | |
| | | | | | | | |
Net income | — | | — | | 33,578 | | — | | — | | 33,578 | | — | | 33,578 | |
Dividends | — | | — | | (20,103) | | — | | — | | (20,103) | | — | | (20,103) | |
Other comprehensive income | — | | — | | — | | — | | 6,038 | | 6,038 | | — | | 6,038 | |
Issuance of shares: | | | | | | | | |
Stock options – 372,508 Class A shares | 37 | | 3,397 | | — | | — | | — | | 3,434 | | — | | 3,434 | |
Restricted stock units vested – 635 Class A shares | — | | (16) | | — | | — | | — | | (16) | | — | | (16) | |
| | | | | | | | |
Stock-based compensation | — | | 3,292 | | — | | — | | — | | 3,292 | | — | | 3,292 | |
| | | | | | | | |
Balance, September 27, 2020 | $ | 17,599 | | $ | 212,291 | | $ | 1,672,633 | | $ | (171,211) | | $ | (475,918) | | $ | 1,255,394 | | $ | 1,860 | | $ | 1,257,254 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Stock - Class A and Class B Common | Additional Paid-in Capital | Retained Earnings | Common Stock Held in Treasury, at Cost | Accumulated Other Comprehensive Loss, Net of Income Taxes | Total New York Times Company Stockholders’ Equity | Non- controlling Interest | Total Stock- holders’ Equity |
|
| Balance, July 1, 2018 | $ | 17,376 |
| $ | 201,601 |
| $ | 1,439,121 |
| $ | (171,211 | ) | $ | (507,281 | ) | $ | 979,606 |
| $ | 85 |
| $ | 979,691 |
|
| Net income | — |
| — |
| 24,976 |
| — |
| — |
| 24,976 |
| (2 | ) | 24,974 |
|
| Dividends | — |
| — |
| (6,634 | ) | — |
| — |
| (6,634 | ) | — |
| (6,634 | ) |
| Other comprehensive income | — |
| — |
| — |
| — |
| 5,725 |
| 5,725 |
| — |
| 5,725 |
|
| Issuance of shares: | | | | | | | | |
| Stock options – 34,000 Class A shares | 3 |
| 120 |
| — |
| — |
| — |
| 123 |
| — |
| 123 |
|
| Restricted stock units vested – 7,648 Class A shares | 1 |
| (92 | ) | — |
| — |
| — |
| (91 | ) | — |
| (91 | ) |
| Stock-based compensation | — |
| 2,883 |
| — |
| — |
| — |
| 2,883 |
| — |
| 2,883 |
|
| Balance, September 30, 2018 | $ | 17,380 |
| $ | 204,512 |
| $ | 1,457,463 |
| $ | (171,211 | ) | $ | (501,556 | ) | $ | 1,006,588 |
| $ | 83 |
| $ | 1,006,671 |
|
| | | | | | | | | |
| Balance, June 30, 2019 | $ | 17,488 |
| $ | 200,356 |
| $ | 1,544,694 |
| $ | (171,211 | ) | $ | (507,984 | ) | $ | 1,083,343 |
| $ | 1,860 |
| $ | 1,085,203 |
|
| Net income | — |
| — |
| 16,427 |
| — |
| — |
| 16,427 |
| — |
| 16,427 |
|
| Dividends | — |
| — |
| (8,333 | ) | — |
| — |
| (8,333 | ) | — |
| (8,333 | ) |
| Other comprehensive income | — |
| — |
| — |
| — |
| 1,529 |
| 1,529 |
| — |
| 1,529 |
|
| Issuance of shares: | | | | | | | | |
| Stock options – 3,000 Class A shares | — |
| 33 |
| — |
| — |
| — |
| 33 |
| — |
| 33 |
|
| Restricted stock units vested – 25,512 Class A shares | 3 |
| (3 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
| Stock-based compensation | — |
| 2,907 |
| — |
| — |
| — |
| 2,907 |
| — |
| 2,907 |
|
| Balance, September 29, 2019 | $ | 17,491 |
| $ | 203,293 |
| $ | 1,552,788 |
| $ | (171,211 | ) | $ | (506,455 | ) | $ | 1,095,906 |
| $ | 1,860 |
| $ | 1,097,766 |
|
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 29, 201927, 2020 and September 30, 201829, 2019
(Unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital Stock - Class A and Class B Common | Additional Paid-in Capital | Retained Earnings | Common Stock Held in Treasury, at Cost | Accumulated Other Comprehensive Loss, Net of Income Taxes | Total New York Times Company Stockholders’ Equity | Non- controlling Interest | Total Stock- holders’ Equity |
|
Balance, December 30, 2018 | $ | 17,396 | | $ | 206,316 | | $ | 1,506,004 | | $ | (171,211) | | $ | (517,724) | | $ | 1,040,781 | | $ | 1,860 | | $ | 1,042,641 | |
| | | | | | | | |
Net income | — | | — | | 71,754 | | — | | — | | 71,754 | | — | | 71,754 | |
Dividends | — | | — | | (24,970) | | — | | — | | (24,970) | | — | | (24,970) | |
Other comprehensive income | — | | — | | — | | — | | 11,269 | | 11,269 | | — | | 11,269 | |
Issuance of shares: | | | | | | | | |
Stock options – 282,510 Class A shares | 28 | | 2,970 | | — | | — | | — | | 2,998 | | — | | 2,998 | |
Restricted stock units vested – 246,599 Class A shares | 25 | | (3,750) | | — | | — | | — | | (3,725) | | — | | (3,725) | |
Performance-based awards – 418,491 Class A shares | 42 | | (11,966) | | — | | — | | — | | (11,924) | | — | | (11,924) | |
Stock-based compensation | — | | 9,723 | | — | | — | | — | | 9,723 | | — | | 9,723 | |
Balance, September 29, 2019 | $ | 17,491 | | $ | 203,293 | | $ | 1,552,788 | | $ | (171,211) | | $ | (506,455) | | $ | 1,095,906 | | $ | 1,860 | | $ | 1,097,766 | |
| | | | | | | | |
Balance, December 29, 2019 | $ | 17,504 | | $ | 208,028 | | $ | 1,612,658 | | $ | (171,211) | | $ | (494,976) | | $ | 1,172,003 | | $ | 1,860 | | $ | 1,173,863 | |
| | | | | | | | |
Net income | — | | — | | 90,094 | | — | | — | | 90,094 | | — | | 90,094 | |
Dividends | — | | — | | (30,119) | | — | | — | | (30,119) | | — | | (30,119) | |
Other comprehensive income | — | | — | | — | | — | | 19,058 | | 19,058 | | — | | 19,058 | |
Issuance of shares: | | | | | | | | |
Stock options – 552,018 Class A shares | 55 | | 5,252 | | — | | — | | — | | 5,307 | | — | | 5,307 | |
Restricted stock units vested – 142,136 Class A shares | 14 | | (3,913) | | — | | — | | — | | (3,899) | | — | | (3,899) | |
Performance-based awards – 257,098 Class A shares | 26 | | (7,850) | | — | | — | | — | | (7,824) | | — | | (7,824) | |
Stock-based compensation | — | | 10,774 | | — | | — | | — | | 10,774 | | — | | 10,774 | |
Balance, September 27, 2020 | $ | 17,599 | | $ | 212,291 | | $ | 1,672,633 | | $ | (171,211) | | $ | (475,918) | | $ | 1,255,394 | | $ | 1,860 | | $ | 1,257,254 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Stock - Class A and Class B Common | Additional Paid-in Capital | Retained Earnings | Common Stock Held in Treasury, at Cost | Accumulated Other Comprehensive Loss, Net of Income Taxes | Total New York Times Company Stockholders’ Equity | Non- controlling Interest | Total Stock- holders’ Equity |
|
| Balance, December 31, 2017 | $ | 17,108 |
| $ | 164,275 |
| $ | 1,310,136 |
| $ | (171,211 | ) | $ | (423,029 | ) | $ | 897,279 |
| $ | 84 |
| $ | 897,363 |
|
| Impact of adopting new accounting guidance | — |
| — |
| 96,707 |
| — |
| (94,135 | ) | 2,572 |
| — |
| 2,572 |
|
| Net income | — |
| — |
| 70,485 |
| — |
| — |
| 70,485 |
| (1 | ) | 70,484 |
|
| Dividends | — |
| — |
| (19,865 | ) | — |
| — |
| (19,865 | ) | — |
| (19,865 | ) |
| Other comprehensive income | — |
| — |
| — |
| — |
| 15,608 |
| 15,608 |
| — |
| 15,608 |
|
| Issuance of shares: | | | | | | | | |
| Stock options – 2,219,201 Class A shares | 222 |
| 40,428 |
| — |
| — |
| — |
| 40,650 |
| — |
| 40,650 |
|
| Restricted stock units vested – 230,822 Class A shares | 23 |
| (3,168 | ) | — |
| — |
| — |
| (3,145 | ) | — |
| (3,145 | ) |
| Performance-based awards – 271,841 Class A shares | 27 |
| (5,930 | ) | — |
| — |
| — |
| (5,903 | ) | — |
| (5,903 | ) |
| Stock-based compensation | — |
| 8,907 |
| — |
| — |
| — |
| 8,907 |
| — |
| 8,907 |
|
| Balance, September 30, 2018 | $ | 17,380 |
| $ | 204,512 |
| $ | 1,457,463 |
| $ | (171,211 | ) | $ | (501,556 | ) | $ | 1,006,588 |
| $ | 83 |
| $ | 1,006,671 |
|
| | | | | | | | | |
| Balance, December 30, 2018 | $ | 17,396 |
| $ | 206,316 |
| $ | 1,506,004 |
| $ | (171,211 | ) | $ | (517,724 | ) | $ | 1,040,781 |
| $ | 1,860 |
| $ | 1,042,641 |
|
| Net income | — |
| — |
| 71,754 |
| — |
| — |
| 71,754 |
| — |
| 71,754 |
|
| Dividends | — |
| — |
| (24,970 | ) | — |
| — |
| (24,970 | ) | — |
| (24,970 | ) |
| Other comprehensive income | — |
| — |
| — |
| — |
| 11,269 |
| 11,269 |
| — |
| 11,269 |
|
| Issuance of shares: | | | | | | | | |
| Stock options – 282,510 Class A shares | 28 |
| 2,970 |
| — |
| — |
| — |
| 2,998 |
| — |
| 2,998 |
|
| Restricted stock units vested – 246,599 Class A shares | 25 |
| (3,750 | ) | — |
| — |
| — |
| (3,725 | ) | — |
| (3,725 | ) |
| Performance-based awards – 418,491 Class A shares | 42 |
| (11,966 | ) | — |
| — |
| — |
| (11,924 | ) | — |
| (11,924 | ) |
| Stock-based compensation | — |
| 9,723 |
| — |
| — |
| — |
| 9,723 |
| — |
| 9,723 |
|
| Balance, September 29, 2019 | $ | 17,491 |
| $ | 203,293 |
| $ | 1,552,788 |
| $ | (171,211 | ) | $ | (506,455 | ) | $ | 1,095,906 |
| $ | 1,860 |
| $ | 1,097,766 |
|
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | For the Nine Months Ended | | For the Nine Months Ended |
| | September 29, 2019 |
| | September 30, 2018 |
| | September 27, 2020 | | September 29, 2019 |
| | (39 weeks) | | (39 weeks) |
Cash flows from operating activities | | | | | Cash flows from operating activities | |
Net income | | $ | 71,754 |
| | $ | 70,484 |
| Net income | | $ | 90,094 | | | $ | 71,754 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | | 45,548 |
| | 43,969 |
| Depreciation and amortization | | 46,368 | | | 45,548 | |
Amortization of right of use asset | | Amortization of right of use asset | | 6,446 | | | 5,462 | |
Stock-based compensation expense | | 9,723 |
| | 9,969 |
| Stock-based compensation expense | | 10,744 | | | 9,723 | |
Deferred income taxes | | Deferred income taxes | | (1,209) | | | 0 | |
Gain on non-marketable equity investment | | Gain on non-marketable equity investment | | (10,074) | | | (1,886) | |
| Long-term retirement benefit obligations | | (17,648 | ) | | (19,769 | ) | Long-term retirement benefit obligations | | (11,635) | | | (17,648) | |
| Fair market value adjustment on life insurance products | | (2,215 | ) | | (823 | ) | Fair market value adjustment on life insurance products | | (638) | | | (2,215) | |
Other-net | | (3,350 | ) | | 1,183 |
| Other-net | | (3,658) | | | (6,926) | |
Changes in operating assets and liabilities: | | | | | Changes in operating assets and liabilities: | |
Accounts receivable-net | | 55,383 |
| | 27,024 |
| Accounts receivable-net | | 88,065 | | | 55,383 | |
Other assets | | (17,401 | ) | | 6,226 |
| Other assets | | 3,816 | | | (17,401) | |
Accounts payable, accrued payroll and other liabilities | | (22,898 | ) | | (28,702 | ) | Accounts payable, accrued payroll and other liabilities | | (23,366) | | | (22,898) | |
Unexpired subscriptions | | 2,704 |
| | 6,815 |
| Unexpired subscriptions | | 11,730 | | | 2,704 | |
Net cash provided by operating activities | | 121,600 |
| | 116,376 |
| Net cash provided by operating activities | | 206,683 | | | 121,600 | |
Cash flows from investing activities | | | | | Cash flows from investing activities | | | | |
Purchases of marketable securities | | (466,108 | ) | | (386,842 | ) | Purchases of marketable securities | | (460,117) | | | (466,108) | |
Maturities of marketable securities | | 458,810 |
| | 346,601 |
| Maturities of marketable securities | | 331,786 | | | 458,810 | |
| Business acquisitions | | Business acquisitions | | (33,085) | | | 0 | |
Proceeds from sale of investments – net | | Proceeds from sale of investments – net | | 1,000 | | | 103 | |
Capital expenditures | | (33,101 | ) | | (61,983 | ) | Capital expenditures | | (29,236) | | | (33,101) | |
Other-net | | 3,141 |
| | (1,585 | ) | Other-net | | 2,388 | | | 3,038 | |
Net cash used in investing activities | | (37,258 | ) | | (103,809 | ) | Net cash used in investing activities | | (187,264) | | | (37,258) | |
Cash flows from financing activities | | | | | Cash flows from financing activities | | | | |
Long-term obligations: | | | | | Long-term obligations: | |
Repayment of debt and finance lease obligations | | (7,220 | ) | | (414 | ) | Repayment of debt and finance lease obligations | | 0 | | | (7,220) | |
Dividends paid | | (23,269 | ) | | (19,761 | ) | Dividends paid | | (28,393) | | | (23,269) | |
Payment of contingent consideration | | Payment of contingent consideration | | (862) | | | 0 | |
Capital shares: | | | | | Capital shares: | |
Proceeds from stock option exercises | | 2,998 |
| | 40,650 |
| Proceeds from stock option exercises | | 5,307 | | | 2,998 | |
| Share-based compensation tax withholding | | (15,648 | ) | | (9,048 | ) | Share-based compensation tax withholding | | (11,723) | | | (15,648) | |
Net cash (used in)/provided by financing activities | | (43,139 | ) | | 11,427 |
| |
Net increase in cash, cash equivalents and restricted cash | | 41,203 |
| | 23,994 |
| |
Net cash used in financing activities | | Net cash used in financing activities | | (35,671) | | | (43,139) | |
Net (decrease)/increase in cash, cash equivalents and restricted cash | | Net (decrease)/increase in cash, cash equivalents and restricted cash | | (16,252) | | | 41,203 | |
Effect of exchange rate changes on cash | | (202 | ) | | (540 | ) | Effect of exchange rate changes on cash | | 349 | | | (202) | |
Cash, cash equivalents and restricted cash at the beginning of the period | | 259,799 |
| | 200,936 |
| Cash, cash equivalents and restricted cash at the beginning of the period | | 247,518 | | | 259,799 | |
Cash, cash equivalents and restricted cash at the end of the period | | $ | 300,800 |
| | $ | 224,390 |
| Cash, cash equivalents and restricted cash at the end of the period | | $ | 231,615 | | | $ | 300,800 | |
See Notes to Condensed Consolidated Financial Statements.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management of The New York Times Company (the “Company”), the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of September 29, 2019,27, 2020 and December 30, 2018,29, 2019, and the results of operations, changes in stockholder’sstockholders’ equity and cash flows of the Company for the periods ended September 29, 2019,27, 2020, and September 30, 2018.29, 2019. The Company and its consolidated subsidiaries are referred to collectively as “we,” “us” or “our.” All adjustments necessary for a fair presentation have been included and are of a normal and recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from these interim financial statements. These financial statements, therefore, should be read in conjunction with the Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 30, 2018.29, 2019. Due to the seasonal nature of our business, operating results for the interim periods are not necessarily indicative of a full year’s operations. The fiscal periods included herein comprise 13 weeks and 39 weeks for the third quarter.quarter and nine months, respectively.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements. Actual results could differ from these estimates.
The Company changed the expense captions on its Condensed Consolidated Statement of Operations effective for the quarter ended March 29, 2020. These changes were made in order to reflect how the Company manages its business and to communicate where the Company is investing resources and how this aligns with the Company’s strategy. The Company reclassified expenses for the prior period in order to present comparable financial results. There was no change to consolidated operating income, operating expense, net income or cash flows as a result of this change in classification. See Note 15 for more detail.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as described herein, as of September 29, 2019,27, 2020, our significant accounting policies, which are detailed in our Annual Report on Form 10-K for the year ended December 30, 2018,29, 2019, have not changed materially.
Recently Adopted Accounting Pronouncements
|
| | | |
Accounting Standard Update(s) | Topic | Effective Period | Summary |
2016-02 2018-10 2018-11
2018-20
2019-01
| Leases | Fiscal years beginning after December 30, 2018. Early adoption is permitted. | The Financial Accounting Standards Board (the “FASB”) issued authoritative guidance on accounting for leases and disclosure of key information about leasing arrangements. The guidance requires lessees to recognize the following for all operating and finance leases at such lease’s commencement date: (1) a lease liability, which is the obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset representing the lessee’s right to use, or control the use of, the underlying asset for the lease term. A lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities for short-term leases with a term of 12 months or less. The guidance does not fundamentally change lessor accounting; however, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP.
The Company adopted this Accounting Standard Update (“ASU”) on December 31, 2018, utilizing the modified retrospective approach with optional transition relief. Prior periods have not been retrospectively adjusted and we recorded approximately $36 million of right-of-use asset and $42 million of lease liability in our Condensed Consolidated Balance Sheet. The difference between the right-of-use asset and lease liability was due to deferred rent relating to periods prior to December 31, 2018. We have elected the practical expedients under ASU 2016-02 and have not reassessed any of the following: (1) whether any expired or existing contracts are or contain a lease, (2) the classification of any existing leases prior to the adoption of ASU 2016-02 or (3) initial direct costs for any existing leases. The Company has elected not to apply the recognition requirements in ASU 2016-02 to leases with durations of 12 months or less. Lease payments for leases with durations of 12 months or less are recorded in the statement of operations on a straight-line basis over the term of the lease. In addition, we elected the practical expedient not to separate the lease and non-lease components in the contract for our office space and equipment leases and for office space we lease to third parties.
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued and Not Yet Adopted Accounting Pronouncements
|
| | | | | | | | | | |
Accounting Standard Update(s) | Topic | Effective Period | Summary |
2018-15 | Intangibles—Goodwill and Other—Internal-Use Software | Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. | The FASB issued authoritative guidance that clarifiesClarifies the accounting for implementation costs in cloud computing arrangements. The standard provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. We doThe Company adopted this ASU prospectively on December 30, 2019 and will include capitalized implementation costs in Miscellaneous assets in the Company’s Condensed Consolidated Balance Sheet and within Total operating costs in the Condensed Consolidated Statement of Operations. The adoption did not believe the adoption of this guidance will have a material impact on our condensedthe Company’s consolidated financial statements. |
2018-142018-13 | Compensation—Retirement Benefits—Defined Benefit Plans—General | Fiscal years ending after December 15, 2020. Early adoption is permitted. | The FASB issued authoritative guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We are currently in the process of evaluating the impact of this guidance on our disclosures. |
2018-13 | Fair Value Measurement (Topic 820) Disclosure Framework | Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. | The FASB issued authoritative guidance that modifiesModifies the disclosure requirements on fair value measurements. The amendments of disclosures related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently inThe Company adopted this ASU on December 30, 2019. The adoption did not have a material impact on the process of evaluating the impact of this guidance on ourCompany’s disclosures. |
2016-13 2018-19
2019-04
| Financial Instruments—Credit Losses | Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. | The FASB issued authoritative guidance that amendsAmends guidance on reporting credit losses for assets, including trade receivables, available-for-sale marketable securities and any other financial assets not excluded from the scope that have the contractual right to receive cash. For trade receivables, ASU 2016-13 eliminates the probable initial recognition threshold in current generally accepted accounting standards, and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the gross trade receivables balance to present the net amount expected to be collected. For available-for-sale marketable securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. We are currently inThe Company adopted this ASU on December 30, 2019 using a modified retrospective approach. The adoption did not have a material impact on the process of evaluating the impact of this guidance on our condensedCompany’s consolidated financial statements. |
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (the “FASB”) issued authoritative guidance on the following topics:
| | | | | | | | | | | |
Accounting Standard Update(s) | Topic | Effective Period | Summary |
2019-12 | Simplifying the Accounting for Income Taxes (Topic 740) | Fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted.
| Simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. We do not expect this guidance to have a material impact on our consolidated financial statements. |
2018-14 | Compensation—Retirement Benefits—Defined Benefit Plans—General | Fiscal years ending after December 15, 2020. Early adoption is permitted. | Modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We do not expect this guidance to have a material impact on our consolidated financial statements. |
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.
NOTE 3. REVENUE
We generate revenues principally from subscriptions and advertising. Subscription revenues consist of revenues from subscriptions to our printdigital and digitalprint products (which include our news product, as well as our CrosswordGames (previously Crossword), Cooking and Cookingaudio products) and single-copy and bulk sales of our print products. Subscription revenues are based on both the number of copies of the printed newspaper sold and digital-only subscriptions, and the rates charged to the respective customers.
Advertising revenues are derived from the sale of our advertising products and services on our print and digital platforms. These revenues are primarily determined by the volume, rate and mix of advertisements. Display advertising revenue is principally from advertisers promoting products, services or brands. Displaybrands on digital platforms in the form of banners and video, and in print, in the form of column-inch ads. Advertising revenue is primarily derived from offerings sold directly to marketers by our advertising also includessales teams. A smaller proportion of our total advertising revenues is generated through programmatic auctions run by third-party ad exchanges and from creative services fees, including those associated with our branded content on The Times’s platforms. Otherstudio. Digital advertising primarily represents, for our print products, classified advertising revenue. Digital other advertising revenue primarily includesrevenues also include creative services fees; advertising revenue from our podcasts;fees and advertising revenue generated by Wirecutter, our product review and recommendation website.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Print advertising includes revenue from column-inch ads and classified advertising, including line-ads as well as preprinted advertising, also known as freestanding inserts.
Other revenues primarily consist of revenues from licensing, commercial printing,affiliate referrals from Wirecutter, the leasing of floors in the Company Headquarters, affiliate referrals (revenue generated by offering direct links to merchants in exchange for a portion of the sale price)New York headquarters building located at 620 Eighth Avenue, New York, New York (the “Company Headquarters”), commercial printing, television (primarily from our television series, “The Weekly”),and film, retail commerce and NYT Live (our live events business) and retail commerce..
Subscription, advertising and other revenues were as follows:
| | | | For the Quarters Ended | | For the Nine Months Ended | | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | September 29, 2019 |
| | September 30, 2018 |
| (In thousands) | | September 27, 2020 | | As % of total | | September 29, 2019 | | As % of total | | September 27, 2020 | | As % of total | | September 29, 2019 | | As % of total |
Subscription | | $ | 267,302 |
| | $ | 257,796 |
| | $ | 808,568 |
| | $ | 779,018 |
| Subscription | | $ | 300,950 | | | 70.5 | % | | $ | 267,302 | | | 62.4 | % | | $ | 879,573 | | | 69.0 | % | | $ | 808,568 | | | 62.0 | % |
Advertising | | 113,531 |
| | 121,677 |
| | 359,380 |
| | 366,525 |
| Advertising | | 79,253 | | | 18.6 | % | | 113,531 | | | 26.5 | % | | 253,150 | | | 19.9 | % | | 359,380 | | | 27.6 | % |
Other (1) | | 47,668 |
| | 37,873 |
| | 135,873 |
| | 100,311 |
| Other (1) | | 46,692 | | | 10.9 | % | | 47,668 | | | 11.1 | % | | 141,558 | | | 11.1 | % | | 135,873 | | | 10.4 | % |
Total | | $ | 428,501 |
| | $ | 417,346 |
| | $ | 1,303,821 |
| | $ | 1,245,854 |
| Total | | $ | 426,895 | | | 100.0 | % | | $ | 428,501 | | | 100.0 | % | | $ | 1,274,281 | | | 100.0 | % | | $ | 1,303,821 | | | 100.0 | % |
(1) Other revenue includes building rental revenue, which is not under the scope of Revenue from Contracts with Customers (Topic 606). Building rental revenue was approximately $8$7 million and $7$8 million for the third quarters of 20192020 and 2018,2019, respectively, and approximately $23$22 million and $17$23 million for the first nine months of 20192020 and 2018,2019, respectively.
The following table summarizes digital-only subscription revenues, which are a component of subscription revenues above, for the third quarters and first nine months of 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | September 29, 2019 |
| | September 30, 2018 |
|
Digital-only subscription revenues: | | | | | | | | |
News product subscription revenues(1) | | $ | 107,009 |
| | $ | 95,568 |
| | $ | 313,785 |
| | $ | 279,693 |
|
Other product subscription revenues(2) | | 8,855 |
| | 5,639 |
| | 24,573 |
| | 15,669 |
|
Total digital-only subscription revenues | | $ | 115,864 |
| | $ | 101,207 |
| | $ | 338,358 |
| | $ | 295,362 |
|
(1) Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Crossword and Cooking products are also included in this category. |
(2) Includes revenues from standalone subscriptions to the Company’s Crossword and Cooking products. |
Advertising revenues (print and digital) by category were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended |
| | September 29, 2019 | | September 30, 2018 |
(In thousands) | | Print | | Digital | | Total | | Print | | Digital | | Total |
Advertising revenues: | | | | | | | | | | | | |
Display | | $ | 51,702 |
| | $ | 36,202 |
| | $ | 87,904 |
| | $ | 57,245 |
| | $ | 43,730 |
| | $ | 100,975 |
|
Other | | 7,176 |
| | 18,451 |
| | 25,627 |
| | 6,676 |
| | 14,026 |
| | 20,702 |
|
Total advertising | | $ | 58,878 |
| | $ | 54,653 |
| | $ | 113,531 |
| | $ | 63,921 |
| | $ | 57,756 |
| | $ | 121,677 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended |
| | September 29, 2019 | | September 30, 2018 |
(In thousands) | | Print | | Digital | | Total | | Print | | Digital | | Total |
Advertising revenues: | | | | | | | | | | | | |
Display | | $ | 169,903 |
| | $ | 121,147 |
| | $ | 291,050 |
| | $ | 188,853 |
| | $ | 123,870 |
| | $ | 312,723 |
|
Other | | 21,255 |
| | 47,075 |
| | 68,330 |
| | 22,182 |
| | 31,620 |
| | 53,802 |
|
Total advertising | | $ | 191,158 |
| | $ | 168,222 |
| | $ | 359,380 |
| | $ | 211,035 |
| | $ | 155,490 |
| | $ | 366,525 |
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes digital and print subscription revenues, which are components of subscription revenues above, for the third quarters and first nine months ended September 27, 2020, and September 29, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Digital-only subscription revenues: | | | | | | | | |
News product subscription revenues(1) | | $ | 140,740 | | | $ | 107,009 | | | $ | 392,620 | | | $ | 313,785 | |
Other product subscription revenues(2) | | 14,546 | | | 8,855 | | | 38,660 | | | 24,573 | |
Subtotal digital-only subscriptions | | 155,286 | | | 115,864 | | | 431,280 | | | 338,358 | |
Print subscription revenues: | | | | | | | | |
Domestic home delivery subscription revenues(3) | | 129,912 | | | 126,769 | | | 396,620 | | | 395,011 | |
Single-copy, NYT International and other subscription revenues(4) | | 15,752 | | | 24,669 | | | 51,673 | | | 75,199 | |
Subtotal print subscription revenues | | 145,664 | | | 151,438 | | | 448,293 | | | 470,210 | |
Total subscription revenues | | $ | 300,950 | | | $ | 267,302 | | | $ | 879,573 | | | $ | 808,568 | |
(1) Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Games and Cooking products are also included in this category. |
(2) Includes revenues from standalone subscriptions to the Company’s Games, Cooking and audio products. |
(3) Includes free access to some or all of the Company’s digital products. |
(4) NYT International is the international edition of our print newspaper. |
The following table summarizes digital and print advertising revenues for the third quarters and first nine months of 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | For the Nine Months Ended |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Advertising revenues: | | | | | | | | |
Digital | | $ | 47,763 | | | $ | 54,653 | | | $ | 138,452 | | | $ | 168,222 | |
Print | | 31,490 | | | 58,878 | | | 114,698 | | | 191,158 | |
Total advertising | | $ | 79,253 | | | $ | 113,531 | | | $ | 253,150 | | | $ | 359,380 | |
Performance Obligations
We have remaining performance obligations related to digital archive and other licensing and certain advertising contracts. As of September 29, 2019,27, 2020, the aggregate amount of transaction price allocated to the remaining performance obligations for contracts with a duration greater than one year was approximately $95$153 million. The Company will recognize this revenue as control of the performance obligation is transferred to the customer.obligations are satisfied. We expect that approximately $7$16 million, $25$60 million and $63$77 million will be recognized in the remainder of 2019, 2020, 2021 and thereafter, respectively.
These remaining performance obligations exclude contracts that have an original expected duration of one year or less.
Contract Assets
As of September 29, 2019,27, 2020, and December 30, 2018,29, 2019, the Company had $3.7$2.2 million and $2.5$3.4 million, respectively, in contract assets recorded in Other current assets in the Condensed Consolidated Balance Sheets.Sheets related to digital archiving licensing revenue. The contract asset is reclassified to Accounts receivable when the customer is invoiced based on the contractual billing schedule. The increasedecrease in the contract assets balance of $1.2 million for the nine months ended September 29, 2019,27, 2020, is primarily driven by new contract assets of $1.9 million offset by $0.7 million ofdue to consideration that was reclassified to Accounts receivable when invoiced based on the contractual billing schedules for the nine monthsperiod ended September 29, 2019.27, 2020.
NOTE 4. MARKETABLE SECURITIES
The Company accounts for its marketable securities as available for sale (“AFS”). The Company recorded $0.9$4.7 million and $2.8$0.8 million of net unrealized gains and net unrealized losses, respectively, in Accumulated other comprehensive income (“AOCI”) as of September 27, 2020, and December 29, 2019, and December 30, 2018, respectively.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present the amortized cost, gross unrealized gains and losses, and fair market value of our AFS debt securities as of September 29, 2019,27, 2020, and December 30, 2018:29, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 27, 2020 |
(In thousands) | | Amortized Cost | | Gross unrealized gains | | Gross unrealized losses | | Fair Value |
| | | | | | | | |
Short-term AFS securities | | | | | | | | |
Corporate debt securities | | $ | 119,042 | | | $ | 561 | | | $ | (17) | | | $ | 119,586 | |
U.S. Treasury securities | | 97,712 | | | 94 | | | (4) | | | 97,802 | |
U.S. governmental agency securities | | 47,759 | | | 68 | | | (4) | | | 47,823 | |
Commercial paper | | 43,523 | | | 0 | | | 0 | | | 43,523 | |
| | | | | | | | |
| | | | | | | | |
Total short-term AFS securities | | $ | 308,036 | | | $ | 723 | | | $ | (25) | | | $ | 308,734 | |
Long-term AFS securities | | | | | | | | |
Corporate debt securities | | $ | 118,690 | | | $ | 1,713 | | | $ | (22) | | | $ | 120,381 | |
U.S. Treasury securities | | 88,059 | | | 2,343 | | | 0 | | | 90,402 | |
U.S. governmental agency securities | | 64,881 | | | 89 | | | (104) | | | 64,866 | |
Total long-term AFS securities | | $ | 271,630 | | | $ | 4,145 | | | $ | (126) | | | $ | 275,649 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 29, 2019 |
(In thousands) | | Amortized Cost | | Gross unrealized gains | | Gross unrealized losses | | Fair Value |
| | | | | | | | |
Short-term AFS securities | | | | | | | | |
Corporate debt securities | | $ | 98,864 | | | $ | 271 | | | $ | (9) | | | $ | 99,126 | |
U.S. Treasury securities | | 43,098 | | | 8 | | | (11) | | | 43,095 | |
U.S. governmental agency securities | | 37,471 | | | 35 | | | (4) | | | 37,502 | |
Commercial paper | | 12,561 | | | 0 | | | 0 | | | 12,561 | |
| | | | | | | | |
Certificates of deposit | | 9,501 | | | 0 | | | 0 | | | 9,501 | |
Total short-term AFS securities | | $ | 201,495 | | | $ | 314 | | | $ | (24) | | | $ | 201,785 | |
Long-term AFS securities | | | | | | | | |
Corporate debt securities | | $ | 103,149 | | | $ | 617 | | | $ | (29) | | | $ | 103,737 | |
U.S. Treasury securities | | 101,457 | | | 84 | | | (103) | | | 101,438 | |
U.S. governmental agency securities | | 46,600 | | | 5 | | | (84) | | | 46,521 | |
Total long-term AFS securities | | $ | 251,206 | | | $ | 706 | | | $ | (216) | | | $ | 251,696 | |
|
| | | | | | | | | | | | | | | | |
| | September 29, 2019 |
(In thousands) | | Amortized Cost | | Gross unrealized gains | | Gross unrealized losses | | Fair Value |
Short-term AFS securities | | | | | | | | |
U.S. Treasury securities | | $ | 123,224 |
| | $ | 46 |
| | $ | (47 | ) | | $ | 123,223 |
|
Corporate debt securities | | 109,792 |
| | 263 |
| | (36 | ) | | 110,019 |
|
Commercial paper | | 69,298 |
| | — |
| | — |
| | 69,298 |
|
U.S. governmental agency securities | | 60,515 |
| | 15 |
| | (17 | ) | | 60,513 |
|
Certificates of deposit | | 13,810 |
| | — |
| | — |
| | 13,810 |
|
Total short-term AFS securities | | $ | 376,639 |
| | $ | 324 |
| | $ | (100 | ) | | $ | 376,863 |
|
Long-term AFS securities | | | | | | | |
|
Corporate debt securities | | $ | 93,989 |
| | $ | 696 |
| | $ | (22 | ) | | $ | 94,663 |
|
U.S. Treasury securities | | 71,313 |
| | 121 |
| | (67 | ) | | 71,367 |
|
U.S. governmental agency securities | | 51,258 |
| | 27 |
| | (50 | ) | | 51,235 |
|
Total long-term AFS securities | | $ | 216,560 |
| | $ | 844 |
| | $ | (139 | ) | | $ | 217,265 |
|
12
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | December 30, 2018 |
(In thousands) | | Amortized Cost | | Gross unrealized gains | | Gross unrealized losses | | Fair Value |
Short-term AFS securities | | | | | | | | |
U.S. Treasury securities | | $ | 107,717 |
| | $ | — |
| | $ | (232 | ) | | $ | 107,485 |
|
Corporate debt securities | | 140,631 |
| | 1 |
| | (464 | ) | | 140,168 |
|
Commercial paper | | 8,177 |
| | — |
| | — |
| | 8,177 |
|
U.S. governmental agency securities | | 92,628 |
| | — |
| | (654 | ) | | 91,974 |
|
Certificates of deposit | | 23,497 |
| | — |
| | — |
| | 23,497 |
|
Total short-term AFS securities | | $ | 372,650 |
| | $ | 1 |
| | $ | (1,350 | ) | | $ | 371,301 |
|
Long-term AFS securities | | | | | | | | |
Corporate debt securities | | $ | 130,612 |
| | $ | 44 |
| | $ | (1,032 | ) | | $ | 129,624 |
|
U.S. Treasury securities | | 47,079 |
| | 5 |
| | (347 | ) | | 46,737 |
|
U.S. governmental agency securities | | 37,362 |
| | 3 |
| | (168 | ) | | 37,197 |
|
Total long-term AFS securities | | $ | 215,053 |
| | $ | 52 |
| | $ | (1,547 | ) | | $ | 213,558 |
|
The following tables represent the AFS securities as of September 29, 2019,27, 2020, and December 30, 2018,29, 2019, that were in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 27, 2020 |
| | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
| | | | | | | | | | | | |
Short-term AFS securities | | | | | | | | | | | | |
Corporate debt securities | | $ | 22,174 | | | $ | (17) | | | $ | 0 | | | $ | 0 | | | $ | 22,174 | | | $ | (17) | |
U.S. Treasury securities | | 43,982 | | | (4) | | | 0 | | | 0 | | | 43,982 | | | (4) | |
| | | | | | | | | | | | |
U.S. governmental agency securities | | 4,999 | | | (2) | | | 8,748 | | | (2) | | | 13,747 | | | (4) | |
Total short-term AFS securities | | $ | 71,155 | | | $ | (23) | | | $ | 8,748 | | | $ | (2) | | | $ | 79,903 | | | $ | (25) | |
Long-term AFS securities | | | | | | | | | | | | |
Corporate debt securities | | $ | 10,466 | | | $ | (22) | | | $ | 0 | | | $ | 0 | | | $ | 10,466 | | | $ | (22) | |
| | | | | | | | | | | | |
U.S. governmental agency securities | | 22,146 | | | (104) | | | 0 | | | 0 | | | 22,146 | | | (104) | |
Total long-term AFS securities | | $ | 32,612 | | | $ | (126) | | | $ | 0 | | | $ | 0 | | | $ | 32,612 | | | $ | (126) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 29, 2019 |
| | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Short-term AFS securities | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 14,863 |
| | $ | (7 | ) | | $ | 23,113 |
| | $ | (40 | ) | | $ | 37,976 |
| | $ | (47 | ) |
Corporate debt securities | | 12,678 |
| | (3 | ) | | 36,975 |
| | (33 | ) | | 49,653 |
| | (36 | ) |
U.S. governmental agency securities | | 4,998 |
| | — |
| | 23,188 |
| | (17 | ) | | 28,186 |
| | (17 | ) |
Total short-term AFS securities | | $ | 32,539 |
| | $ | (10 | ) | | $ | 83,276 |
| | $ | (90 | ) | | $ | 115,815 |
| | $ | (100 | ) |
Long-term AFS securities | | | | | | | | | | | | |
Corporate debt securities | | $ | 11,008 |
| | $ | (15 | ) | | $ | 8,004 |
| | $ | (7 | ) | | $ | 19,012 |
| | $ | (22 | ) |
U.S. Treasury securities | | 35,727 |
| | (67 | ) | | — |
| | — |
| | 35,727 |
| | (67 | ) |
U.S. governmental agency securities | | 41,958 |
| | (50 | ) | | — |
| | — |
| | 41,958 |
| | (50 | ) |
Total long-term AFS securities | | $ | 88,693 |
| | $ | (132 | ) | | $ | 8,004 |
| | $ | (7 | ) | | $ | 96,697 |
| | $ | (139 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 29, 2019 |
| | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
| | | | | | | | | | | | |
Short-term AFS securities | | | | | | | | | | | | |
Corporate debt securities | | $ | 20,975 | | | $ | (6) | | | $ | 8,251 | | | $ | (3) | | | $ | 29,226 | | | $ | (9) | |
U.S. Treasury securities | | 13,296 | | | (3) | | | 11,147 | | | (8) | | | 24,443 | | | (11) | |
U.S. governmental agency securities | | 0 | | | 0 | | | 15,000 | | | (4) | | | 15,000 | | | (4) | |
| | | | | | | | | | | | |
Total short-term AFS securities | | $ | 34,271 | | | $ | (9) | | | $ | 34,398 | | | $ | (15) | | | $ | 68,669 | | | $ | (24) | |
Long-term AFS securities | | | | | | | | | | | | |
Corporate debt securities | | $ | 35,891 | | | $ | (25) | | | $ | 4,502 | | | $ | (4) | | | $ | 40,393 | | | $ | (29) | |
U.S. Treasury securities | | 60,935 | | | (103) | | | 0 | | | 0 | | | 60,935 | | | (103) | |
U.S. governmental agency securities | | 34,167 | | | (84) | | | 0 | | | 0 | | | 34,167 | | | (84) | |
Total long-term AFS securities | | $ | 130,993 | | | $ | (212) | | | $ | 4,502 | | | $ | (4) | | | $ | 135,495 | | | $ | (216) | |
We assess AFS securities on a quarterly basis or more often if a potential loss-triggering event occurs. For AFS securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, creditworthiness of the security, and adverse conditions specifically related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 30, 2018 |
| | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses | | Fair Value | | Gross unrealized losses |
Short-term AFS securities | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 70,830 |
| | $ | (31 | ) | | $ | 28,207 |
| | $ | (201 | ) | | $ | 99,037 |
| | $ | (232 | ) |
Corporate debt securities | | 76,886 |
| | (115 | ) | | 61,459 |
| | (349 | ) | | 138,345 |
| | (464 | ) |
U.S. governmental agency securities | | 11,664 |
| | (4 | ) | | 80,311 |
| | (650 | ) | | 91,975 |
| | (654 | ) |
Total short-term AFS securities | | $ | 159,380 |
| | $ | (150 | ) | | $ | 169,977 |
| | $ | (1,200 | ) | | $ | 329,357 |
| | $ | (1,350 | ) |
Long-term AFS securities | | | | | | | | | | | | |
Corporate debt securities | | $ | 81,655 |
| | $ | (570 | ) | | $ | 27,265 |
| | $ | (462 | ) | | $ | 108,920 |
| | $ | (1,032 | ) |
U.S. governmental agency securities | | 21,579 |
| | (36 | ) | | 11,868 |
| | (132 | ) | | 33,447 |
| | (168 | ) |
U.S. Treasury securities | | 20,479 |
| | (29 | ) | | 23,762 |
| | (318 | ) | | 44,241 |
| | (347 | ) |
Total long-term AFS securities | | $ | 123,713 |
| | $ | (635 | ) | | $ | 62,895 |
| | $ | (912 | ) | | $ | 186,608 |
| | $ | (1,547 | ) |
We conduct an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis or more often if a potential loss-triggering event occurs. We consider factors such asis recorded, limited by the duration, severity andamount that the reason for the decline infair value the potential recovery period and whether we intend to sell. We also consider whether (i) it is more likelyless than not that we will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result ofbasis. Any impairment that has not been recorded through an allowance for credit losses.losses is recognized in other comprehensive income.
As of September 29, 2019,27, 2020, we did not intend to sell and it was not likely that we would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. Unrealized losses related to these investments are primarily due to interest rate fluctuations as opposed to changes in credit quality. Therefore, asAs of September 29, 2019,27, 2020, we have recognized 0 OTTI loss.losses or allowance for credit losses related to AFS securities.
As of September 29, 2019,27, 2020, our short-term and long-term marketable securities had remaining maturities of less than 1 month to 12 months and 13 months to 3436 months, respectively. See Note 98 for more information regarding the fair value of our marketable securities.
NOTE 5. GOODWILL AND INTANGIBLES
During the first quarter of 2020, the Company acquired Listen In Audio, Inc., a company that transforms journalism articles into audio that is made available in a subscription-based product named “Audm,” in an all-cash transaction. We paid $8.6 million (comprised of $8.0 million cash payment and $0.6 million note receivable previously issued by the Company, which was canceled at the close of the transaction) and entered into agreements that will likely require retention payments over the three years following the acquisition. The Company allocated the purchase price for this acquisition based on the valuation of assets acquired and liabilities assumed, resulting in allocations primarily to goodwill of $5.8 million and intangibles of $2.7 million in the second quarter of 2020. The carrying amount of the intangible asset related to this acquisition has been included in Miscellaneous assets in our Condensed Consolidated Balance Sheets. The estimated useful life for this asset is 8 years and it is amortized on a straight-line basis.
During the third quarter of 2020, the Company acquired substantially all the assets and certain liabilities of Serial Productions, LLC (“Serial”). The purchase price includes approximately $25.0 million in cash that was paid at closing on July 29, 2020, and $9.3 million of contingent consideration. The contingent consideration is related to contingent payments based on the achievement of certain operational targets, as defined in the acquisition agreement, over the five years following the acquisition. The Company estimated the fair value of the contingent consideration liability using a probability-weighted discounted cash flow model. The fair value is based on significant unobservable inputs and therefore represents a Level 3 measurement as defined in Note 8.
The Company allocated the purchase price for this acquisition based on the valuation of assets acquired and liabilities assumed, resulting in allocations primarily to goodwill of $21.5 million and intangibles of $12.9 million as of the date of acquisition. The carrying amount of the intangible assets related to this acquisition has been included in Miscellaneous assets in our Condensed Consolidated Balance Sheets and include an indefinite-lived intangible of $9.0 million. The estimated useful life for the finite asset is 6 years and it is amortized on a straight-line basis.
The changes in the carrying amount of goodwill as of September 29, 2019,27, 2020, and since December 30, 2018,29, 2019, were as follows:
|
| | | | |
(In thousands) | | Total Company |
Balance as of December 30, 2018 | | $ | 140,282 |
|
Foreign currency translation | | (3,026 | ) |
Balance as of September 29, 2019 | | $ | 137,256 |
|
| | | | | | | | |
(In thousands) | | Total Company |
Balance as of December 29, 2019 | | $ | 138,674 | |
Business acquisitions | | 27,269 | |
Foreign currency translation | | 2,757 | |
Balance as of September 27, 2020 | | $ | 168,700 | |
The foreign currency translation line item reflects changes in goodwill resulting from fluctuating exchange rates related to the consolidation of certain international subsidiaries.
The aggregate carrying amount of intangible assets of $3.3$17.0 million is included in Miscellaneous assets in our Condensed Consolidated Balance Sheets as of September 29, 2019.27, 2020.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. INVESTMENTS
Equity Method Investments
Our investments in joint ventures consists of a 40% equity ownership interest in Madison Paper Industries (“Madison”), a partnership that previously operated a supercalendered paper mill in Maine. The Company and UPM-Kymmene Corporation (“UPM”), a Finnish paper manufacturing company, are partners through subsidiary companies in Madison. The Company’s 40% ownership of Madison is through an 80%-owned consolidated subsidiary that owns 50% of Madison. UPM owns 60% of Madison, including a 10% interest through a 20% noncontrolling interest in the consolidated subsidiary of the Company.
In 2016, the paper mill closed. During the fourth quarter of 2018, we received a $12.5 million cash distribution in connection with the pending liquidation of Madison. We received no distributions from Madison during the first nine months of 2019 and 2018, respectively. We expect to receive a final cash distribution in the range of $5 million to $8 million.
As of September 29, 2019, and December 30, 2018, the value of our investments in joint ventures was zero. Our proportionate share of the operating results of our investment for the quarters ended September 29, 2019, and September 30, 2018, was de minimis and was recorded in Loss from joint ventures in our Condensed Consolidated Statements of Operations.
Non-Marketable Equity Securities
Our non-marketable equity securities are investments in privately held companies/funds without readily determinable market values. Realized gainsGains and losses on non-marketable securities sold or impaired are recognized in Interest expenseincome/(expense) and other, net.
As of September 29, 2019,27, 2020, and December 30, 2018,29, 2019, non-marketable equity securities included in Miscellaneous assets in our Condensed Consolidated Balance Sheets had a carrying value of $13.3$21.8 million and $13.7$13.4 million, respectively. During the first quarter of 2019,2020, we recorded a gain of $1.9$10.1 million from fair value adjustmentgain related to a non-marketable equity investment transaction. The gain is comprised of $2.5 million realized gain due to the partial sale of one of our investments in Interest expensethe investment and other, net in our Condensed Consolidated Statements of Operations.a $7.6 million unrealized gain due to the
NOTE 7. DEBT OBLIGATIONS
Our indebtedness consisted of the repurchase option related to the sale-leaseback of a portion of our New York headquarters building located at 620 Eighth Avenue, New York, New York (the “Company Headquarters”). Our total debt and finance lease obligations consisted of the following:
|
| | | | | | | | |
(In thousands) | | September 29, 2019 |
| | December 30, 2018 |
|
Option to repurchase ownership interest in headquarters building in 2019: | | | | |
Principal amount (1) | | $ | 245,339 |
| | $ | 250,000 |
|
Less unamortized (premium)/discount based on imputed interest rate of 12.0% in 2019 and 13.0% in 2018 | | (869 | ) | | 3,202 |
|
Net option to repurchase ownership interest in headquarters building in 2019 | | 246,208 |
| | 246,798 |
|
Finance lease obligation (2) | | — |
| | 6,832 |
|
Total short-term debt and finance lease obligations | | $ | 246,208 |
| | $ | 253,630 |
|
(1) The reduction in principal amount reflects a $4.7 million credit to the repurchase price as the result of a change in the closing date to December 2019. This credit is accounted for as a reduction in interest expense.
(2) On August 1, 2019, we purchased the previously leased land at our College Point, N.Y., printing and distribution facility, which resulted in the settlement of our finance lease obligation.
See Note 9 for more information regarding the fair value of our debt and Note 15 for more information regarding finance lease obligation.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
mark to market of the remaining investment, and is included in Interest income/(expense) and other, net in our Condensed Consolidated Statements of Operations.
NOTE 7. OTHER
Capitalized Computer Software Costs
Amortization of capitalized computer software costs included in Depreciation and amortization in our Condensed Consolidated Statements of Operations were $3.9 million and $4.4 million in the third quarters of 2020 and 2019, respectively, and $11.6 million and $13.1 million in the first nine months of 2020 and 2019, respectively,
Interest income/(expense) and other, net
Interest expenseincome/(expense) and other, net, as shown in the accompanying Condensed Consolidated Statements of Operations was as follows:
|
| | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | September 29, 2019 |
| | September 30, 2018 |
|
Interest expense | | $ | 7,118 |
| | $ | 7,061 |
| | $ | 21,314 |
| | $ | 21,078 |
|
Amortization of debt costs and (premium)/discount on debt | | (1,278 | ) | | 839 |
| | (590 | ) | | 2,528 |
|
Capitalized interest | | (7 | ) | | (38 | ) | | (59 | ) | | (412 | ) |
Interest income and other expense, net (1) | | (5,078 | ) | | (3,836 | ) | | (17,093 | ) | | (9,755 | ) |
Total interest expense and other, net | | $ | 755 |
| | $ | 4,026 |
| | $ | 3,572 |
| | $ | 13,439 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Interest income and other expense, net (1) | | $ | 3,720 | | | $ | 5,078 | | | $ | 20,724 | | | $ | 17,093 | |
Interest expense | | (188) | | | (7,118) | | | (569) | | | (21,314) | |
Amortization of debt costs and discount on debt | | 0 | | | 1,278 | | | 0 | | | 590 | |
Capitalized interest | | 5 | | | 7 | | | 22 | | | 59 | |
Total interest income/(expense) and other, net | | $ | 3,537 | | | $ | (755) | | | $ | 20,177 | | | $ | (3,572) | |
(1) The nine months ended September 27, 2020, include a $10.1 million gain related to a non-marketable equity investment transaction. The nine months ended September 29, 2019, include a fair value adjustment of $1.9 million related to the sale of a non-marketable equity security.
NoticeRestricted Cash
A reconciliation of Intentcash, cash equivalents and restricted cash as of September 27, 2020, and December 29, 2019, from the Condensed Consolidated Balance Sheets to Exercise Repurchase Option Under Lease Agreementthe Condensed Consolidated Statements of Cash Flows is as follows:
On January 30, 2018, the Company provided notice to an affiliate of W.P. Carey & Co. LLC | | | | | | | | | | | | | | |
(In thousands) | | September 27, 2020 | | December 29, 2019 |
Reconciliation of cash, cash equivalents and restricted cash | | | | |
Cash and cash equivalents | | $ | 215,763 | | | $ | 230,431 | |
Restricted cash included within other current assets | | 550 | | | 528 | |
Restricted cash included within miscellaneous assets | | 15,302 | | | 16,559 | |
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | $ | 231,615 | | | $ | 247,518 | |
Substantially all of the Company’s intentionamount included in restricted cash is set aside to exercise in the fourth quarter of 2019 its option under the Lease Agreement, dated March 6, 2009, by and between the parties (the “Lease”) to repurchase a portion of the Company’s leasehold condominium interest in the Company Headquarters.
The Company has accounted for the transaction as a financing transaction and accounted for the rental payments as interest expense. The difference between the purchase option price and the net sale proceeds from the transaction is being amortized over the 10-year period of 2009-2019 through interest expense.
The Lease was part of a transaction in 2009 under which the Company sold and simultaneously leased back approximately 750,000 rentable square feet, in the Company Headquarters (the “Condo Interest”). The sale price for the Condo Interest was approximately $225 million. In December 2019, we expect to repurchase the Condo Interest for $245.3 million.collateralize workers’ compensation obligations.
Revolving Credit Facility
In September 2019, the Company entered into a $250.0 million five-year unsecured revolving credit facility (the “Credit Facility”). Certain of the Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Facility. Borrowings under the Credit Facility bear interest at specified rates based on our utilization and consolidated leverage ratio. The Credit Facility contains various customary affirmative and negative covenants. In addition, the Company is obligated to pay a quarterly unused commitment fee of 0.20%.
As of September 29, 2019,27, 2020, there were no outstanding borrowings under the Credit Facility and the Company was not aware of any instances of non-compliancein compliance with the financial covenants contained in the documents governing the Credit Facility.
NOTE 8. OTHER
Capitalized Computer SoftwareSeverance Costs
AmortizationWe recognized 0 severance costs in the third quarter of capitalized computer software2020 and $0.3 million in severance costs includedin the third quarter of 2019, and $6.7 million and $2.4 million in the first nine months of 2020 and 2019, respectively. Severance costs recognized in 2020 were largely related to workforce reductions primarily affecting our advertising department. These costs are recorded in DepreciationGeneral and amortizationadministrative costs in our Condensed Consolidated Statements of Operations were $4.4 million and $4.1 million in the third quarters of 2019 and 2018, respectively, and $13.1 million and $11.4 million in the first nine months of 2019 and 2018, respectively.Operations.
Headquarters Redesign and Consolidation
In 2017 and 2018, we redesigned our Company Headquarters, consolidated our space within a smaller number of floors and leased the additional floors to third parties. As the project was substantially completed as of December 30, 2018, we did not incur significant expenses related to these measures in the third quarter and in the first nine months of 2019. We did not incur significant expenses in the third quarter of 2018 and incurred $3.1 million of total expenses in the first nine months of 2018 related to these measures. We capitalized a de minimis amount and approximately $3 million in the third quarters of 2019 and 2018, respectively, and less than $1 million and $14 million in the first nine months of 2019 and 2018, related to these measures.
Marketing Expenses
Marketing expense to promote our brand and products and grow our subscriber base was $38.4 million and $40.4 million in the third quarters of 2019 and 2018, respectively, and $122.5 million and $107.6 million in the first nine months of 2019 and 2018, respectively.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash as of September 29, 2019, and December 30, 2018, from the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash Flows is as follows:
|
| | | | | | | | |
(In thousands) | | September 29, 2019 |
| | December 30, 2018 |
|
Reconciliation of cash, cash equivalents and restricted cash | | | | |
Cash and cash equivalents | | $ | 283,795 |
| | $ | 241,504 |
|
Restricted cash included within other current assets | | 613 |
| | 642 |
|
Restricted cash included within miscellaneous assets | | 16,392 |
| | 17,653 |
|
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | $ | 300,800 |
| | $ | 259,799 |
|
Substantially all of the amount included in restricted cash is set aside to collateralize workers’ compensation obligations.
Restructuring Charge
We recognized a restructuring charge of $4.0 million in the third quarter of 2019, which included impairment and severance charges related to the closure of our digital marketing agency, HelloSociety, LLC. These costs are recorded in Restructuring charge in our Condensed Consolidated Statements of Operations.
Severance Costs
We recognized severance costs of $0.3 million in each of the third quarters of 2019 and 2018, and $2.4 million and $4.9 million in the first nine months of 2019 and 2018, respectively, related to workforce reductions. These costs are recorded in Selling, general and administrative costs in our Condensed Consolidated Statements of Operations.
We had a severance liability of $8.1$10.2 million and $8.3$8.4 million included in Accrued expenses and other in our Condensed Consolidated Balance Sheets as of September 27, 2020, and December 29, 2019, and December 30, 2018, respectively. The September 29, 2019 balance includes severance liabilities related to the restructuring charge recorded in our Condensed Consolidated Statements of Operations. We anticipate most of the payments will be made within the next twelve months.
NOTE 9.8. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon the sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The transaction would be in the principal or most advantageous market for the asset or liability, based on assumptions that a market participant would use in pricing the asset or liability. The fair value hierarchy consists of three levels:
Level 1–quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
Level 2–inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3–unobservable inputs for the asset or liability.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 29, 2019,27, 2020, and December 30, 2018:29, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | September 29, 2019 | | December 30, 2018 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | | | | | | | | | |
Short-term AFS securities (1) | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 123,223 |
| | $ | — |
| | $ | 123,223 |
| | $ | — |
| | $ | 107,485 |
| | $ | — |
| | $ | 107,485 |
| | $ | — |
|
Corporate debt securities | | 110,019 |
| | — |
| | 110,019 |
| | — |
| | 140,168 |
| | — |
| | 140,168 |
| | — |
|
Commercial paper | | 69,298 |
| | — |
| | 69,298 |
| | — |
| | 8,177 |
| | — |
| | 8,177 |
| | — |
|
U.S. governmental agency securities | | 60,513 |
| | — |
| | 60,513 |
| | — |
| | 91,974 |
| | — |
| | 91,974 |
| | — |
|
Certificates of deposit | | 13,810 |
| | — |
| | 13,810 |
| | — |
| | 23,497 |
| | — |
| | 23,497 |
| | — |
|
Total short-term AFS securities | | $ | 376,863 |
| | $ | — |
| | $ | 376,863 |
| | $ | — |
| | $ | 371,301 |
| | $ | — |
| | $ | 371,301 |
| | $ | — |
|
Long-term AFS securities (1) | |
| |
| |
| |
| |
| |
| |
| |
|
Corporate debt securities | | $ | 94,663 |
| | $ | — |
| | $ | 94,663 |
| | $ | — |
| | $ | 129,624 |
| | $ | — |
| | $ | 129,624 |
| | $ | — |
|
U.S. Treasury securities | | 71,367 |
| | — |
| | 71,367 |
| | — |
| | 46,737 |
| | — |
| | 46,737 |
| | — |
|
U.S. governmental agency securities | | 51,235 |
| | — |
| | 51,235 |
| | — |
| | 37,197 |
| | — |
| | 37,197 |
| | — |
|
Total long-term AFS securities | | $ | 217,265 |
| | $ | — |
| | $ | 217,265 |
| | $ | — |
| | $ | 213,558 |
| | $ | — |
| | $ | 213,558 |
| | $ | — |
|
Liabilities: | | | | | | | | | | | | | | | | |
Deferred compensation (2)(3) | | $ | 22,326 |
| | $ | 22,326 |
| | $ | — |
| | $ | — |
| | $ | 23,211 |
| | $ | 23,211 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | September 27, 2020 | | December 29, 2019 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | | | | | | | | | |
Short-term AFS securities (1) | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 119,586 | | | $ | 0 | | | $ | 119,586 | | | $ | 0 | | | $ | 99,126 | | | $ | 0 | | | $ | 99,126 | | | $ | 0 | |
U.S. Treasury securities | | 97,802 | | | 0 | | | 97,802 | | | 0 | | | 43,095 | | | 0 | | | 43,095 | | | 0 | |
U.S. governmental agency securities | | 47,823 | | | 0 | | | 47,823 | | | 0 | | | 37,502 | | | 0 | | | 37,502 | | | 0 | |
Commercial paper | | 43,523 | | | 0 | | | 43,523 | | | 0 | | | 12,561 | | | 0 | | | 12,561 | | | 0 | |
Certificates of deposit | | 0 | | | 0 | | | 0 | | | 0 | | | 9,501 | | | 0 | | | 9,501 | | | 0 | |
Total short-term AFS securities | | $ | 308,734 | | | $ | 0 | | | $ | 308,734 | | | $ | 0 | | | $ | 201,785 | | | $ | 0 | | | $ | 201,785 | | | $ | 0 | |
Long-term AFS securities (1) | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 120,381 | | | $ | 0 | | | $ | 120,381 | | | $ | 0 | | | $ | 103,737 | | | $ | 0 | | | $ | 103,737 | | | $ | 0 | |
U.S. Treasury securities | | 90,402 | | | 0 | | | 90,402 | | | 0 | | | 101,438 | | | 0 | | | 101,438 | | | 0 | |
U.S. governmental agency securities | | 64,866 | | | 0 | | | 64,866 | | | 0 | | | 46,521 | | | 0 | | | 46,521 | | | 0 | |
Total long-term AFS securities | | $ | 275,649 | | | $ | 0 | | | $ | 275,649 | | | $ | 0 | | | $ | 251,696 | | | $ | 0 | | | $ | 251,696 | | | $ | 0 | |
Liabilities: | | | | | | | | | | | | | | | | |
Deferred compensation (2)(3) | | $ | 19,797 | | | $ | 19,797 | | | $ | 0 | | | $ | 0 | | | $ | 23,702 | | | $ | 23,702 | | | $ | 0 | | | $ | 0 | |
Contingent consideration(4) | | $ | 8,431 | | | $ | 0 | | | $ | 0 | | | $ | 8,431 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
(1) We classified these investments as Level 2 since the fair value is based on market observable inputs for investments with similar terms and maturities.
(2) The deferred compensation liability, included in Other liabilities—other in our Condensed Consolidated Balance Sheets, consists of deferrals under The New York Times Company Deferred Executive Compensation Plan (the “DEC”), which previously enabled certain eligible executives to elect to defer a portion of their compensation on a pre-tax basis. The deferred amounts are invested at the executives’ option in various mutual funds. The fair value of deferred compensation is based on the mutual fund investments elected by the executives and on quoted prices in active markets for identical assets. Participation in the DEC was frozen effective December 31, 2015.
(3) The Company invests the assets associated with the deferred compensation assetsliability in life insurance products. Our investments in life insurance products are included in Miscellaneous assets in our Condensed Consolidated Balance Sheets, and were $43.4$46.8 million as of September 29, 2019,27, 2020, and $38.1$46.0 million as of December 30, 2018.29, 2019. The fair value of these assets is measured using the net asset value per share (or its equivalent) and has not been classified in the fair value hierarchy.
Financial Instruments Disclosed, But Not Reported, at Fair Value
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) The carrying value of our debt was approximately $246 million as of September 29, 2019, and approximately $247 million as of December 30, 2018.contingent consideration represents contingent payments in connection with the Serial acquisition. The fair value of our debt was approximately $246 million and $260 million as of September 29, 2019, and December 30, 2018, respectively. We estimateCompany estimated the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade onthe contingent consideration liability using a daily basis in an active market,probability-weighted discounted cash flow model. The estimate of the fair value estimates are based on market observable inputs based on borrowing rates currently availableof contingent consideration requires subjective assumptions to be made regarding probabilities assigned to operational targets and the discount rate. During the three months ended September 27, 2020, the Company made payments of $0.9 million related to the contingent consideration. The remaining balance of $8.4 million is included in Accrued expenses and other, for debt with similar termsthe current portion of the liability, and average maturities (Level 2).Other non-current liabilities, for the long-term portion of the liability, in our Condensed Consolidated Balance Sheets. See Note 5 for more information.
NOTE 10.9. PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension
Single-Employer Plans
We historically sponsored several frozen single-employer defined benefit pension plans. Effective January 1, 2018, the Company became the sole sponsor of the frozen Newspaper Guild of New York - The New York Times Pension Plan (the “Guild-Times Plan”). Previously, the NewsGuild of New York (the “Guild”) and the Company were joint trustees of The Guild-
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Times Plan. Effective December 31, 2018, the Guild-Times Plan and the Retirement Annuity Plan For Craft Employees of The New York Times Companies (the “RAP”) were merged intomaintain The New York Times Companies Pension Plan.
Plan (the “Pension Plan”), a frozen single-employer defined benefit pension plan. The Company and the Guildalso jointly sponsorsponsors a defined benefit plan with The NewsGuild of New York known as the Guild-Times Adjustable Pension Plan (the “APP”), which that continues to accrue active benefits.
We also have a foreign-based pension plan for certain employees (the “foreign plan”). The information for the foreign plan is combined with the information for U.S. non-qualified plans. The benefit obligation of the foreign plan is immaterial to our total benefit obligation.
The components of net periodic pension
costcost/(income) were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended |
| | September 29, 2019 | | September 30, 2018 |
(In thousands) | | Qualified Plans | | Non- Qualified Plans | | All Plans | | Qualified Plans | | Non- Qualified Plans | | All Plans |
Service cost | | $ | 1,278 |
| | $ | — |
| | $ | 1,278 |
| | $ | 2,393 |
| | $ | — |
| | $ | 2,393 |
|
Interest cost | | 14,708 |
| | 2,089 |
| | 16,797 |
| | 13,207 |
| | 1,848 |
| | 15,055 |
|
Expected return on plan assets | | (20,258 | ) | | — |
| | (20,258 | ) | | (20,591 | ) | | — |
| | (20,591 | ) |
Amortization of actuarial loss | | 4,635 |
| | 1,094 |
| | 5,729 |
| | 6,680 |
| | 1,294 |
| | 7,974 |
|
Amortization of prior service credit | | (487 | ) | | — |
| | (487 | ) | | (487 | ) | | — |
| | (487 | ) |
Other | | — |
| | — |
| | — |
| | — |
| | 421 |
| | 421 |
|
Net periodic pension (income)/cost (1) | | $ | (124 | ) | | $ | 3,183 |
| | $ | 3,059 |
| | $ | 1,202 |
| | $ | 3,563 |
| | $ | 4,765 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended |
| | September 27, 2020 | | September 29, 2019 |
(In thousands) | | Qualified Plans | | Non- Qualified Plans | | All Plans | | Qualified Plans | | Non- Qualified Plans | | All Plans |
Service cost | | $ | 2,608 | | | $ | 0 | | | $ | 2,608 | | | $ | 1,278 | | | $ | 0 | | | $ | 1,278 | |
Interest cost | | 11,742 | | | 1,648 | | | 13,390 | | | 14,708 | | | 2,089 | | | 16,797 | |
Expected return on plan assets | | (17,741) | | | 0 | | | (17,741) | | | (20,258) | | | 0 | | | (20,258) | |
Amortization of actuarial loss | | 5,655 | | | 1,521 | | | 7,176 | | | 4,635 | | | 1,094 | | | 5,729 | |
Amortization of prior service credit | | (486) | | | 0 | | | (486) | | | (487) | | | 0 | | | (487) | |
| | | | | | | | | | | | |
Net periodic pension cost/(income) (1) | | $ | 1,778 | | | $ | 3,169 | | | $ | 4,947 | | | $ | (124) | | | $ | 3,183 | | | $ | 3,059 | |
| | | | For the Nine Months Ended | | For the Nine Months Ended |
| | September 29, 2019 | | September 30, 2018 | | | September 27, 2020 | | September 29, 2019 |
(In thousands) | | Qualified Plans | | Non- Qualified Plans | | All Plans | | Qualified Plans | | Non- Qualified Plans | | All Plans | (In thousands) | | Qualified Plans | | Non- Qualified Plans | | All Plans | | Qualified Plans | | Non- Qualified Plans | | All Plans |
Service cost | | $ | 3,835 |
| | $ | — |
| | $ | 3,835 |
| | $ | 7,593 |
| | $ | — |
| | $ | 7,593 |
| Service cost | | $ | 7,822 | | | $ | 0 | | | $ | 7,822 | | | $ | 3,835 | | | $ | 0 | | | $ | 3,835 | |
Interest cost | | 44,125 |
| | 6,265 |
| | 50,390 |
| | 39,564 |
| | 5,543 |
| | 45,107 |
| Interest cost | | 35,226 | | | 4,945 | | | 40,171 | | | 44,125 | | | 6,265 | | | 50,390 | |
Expected return on plan assets | | (60,775 | ) | | — |
| | (60,775 | ) | | (61,736 | ) | | — |
| | (61,736 | ) | Expected return on plan assets | | (53,222) | | | 0 | | | (53,222) | | | (60,775) | | | 0 | | | (60,775) | |
Amortization of actuarial loss | | 13,905 |
| | 3,282 |
| | 17,187 |
| | 20,122 |
| | 3,882 |
| | 24,004 |
| Amortization of actuarial loss | | 16,966 | | | 4,564 | | | 21,530 | | | 13,905 | | | 3,282 | | | 17,187 | |
Amortization of prior service credit | | (1,459 | ) | | — |
| | (1,459 | ) | | (1,459 | ) | | — |
| | (1,459 | ) | Amortization of prior service credit | | (1,459) | | | 0 | | | (1,459) | | | (1,459) | | | 0 | | | (1,459) | |
Other | | — |
| | — |
| | — |
| | — |
| | 421 |
| | 421 |
| |
Net periodic pension (income)/cost (1) | | $ | (369 | ) | | $ | 9,547 |
| | $ | 9,178 |
| | $ | 4,084 |
| | $ | 9,846 |
| | $ | 13,930 |
| |
| Net periodic pension cost/(income) (1) | | Net periodic pension cost/(income) (1) | | $ | 5,333 | | | $ | 9,509 | | | $ | 14,842 | | | $ | (369) | | | $ | 9,547 | | | $ | 9,178 | |
(1) The service cost component of net periodic pension cost is recognized in Total operating costs, while the other components are included in Other components of net periodic benefit costs in our Condensed Consolidated Statements of Operations, below Operating profit.
During the first nine months of 20192020 and 2018,2019, we made pension contributions of $6.3$6.9 million and $6.2$6.3 million, respectively, to the APP. We expect contributions in 20192020 to total approximately $9 million to satisfy funding requirements.
Multiemployer Plans
DuringAs part of our continued effort to reduce the third quartersize and volatility of 2019our pension plan obligations, and 2018the administrative costs related thereto, in October 2020 we recorded a gain of $2.0entered into an agreement with an insurance company to transfer approximately $235 million and $4.9 million, respectively, from multiemployerin pension liability adjustments, which were recorded in Gain from pension liability adjustment in our Condensed Consolidated Statements of Operations.obligations under the Pension Plan. See Note 16 for more information.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Multiemployer Plans
During the third quarter of 2019 we recorded a gain of $2.0 million from a multiemployer pension liability adjustment, which was recorded in Gain from pension liability adjustment in our Condensed Consolidated Statements of Operations.
Other Postretirement Benefits
The components of net periodic postretirement benefit income(income)/cost were as follows:
|
| | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | September 29, 2019 |
| | September 30, 2018 |
|
Service cost | | $ | 6 |
| | $ | 8 |
| | $ | 20 |
| | $ | 18 |
|
Interest cost | | 402 |
| | 370 |
| | 1,202 |
| | 1,108 |
|
Amortization of actuarial loss | | 843 |
| | 1,183 |
| | 2,531 |
| | 3,551 |
|
Amortization of prior service credit | | (1,192 | ) | | (1,590 | ) | | (3,574 | ) | | (4,772 | ) |
Net periodic postretirement benefit cost/(income) (1) | | $ | 59 |
| | $ | (29 | ) | | $ | 179 |
| | $ | (95 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Service cost | | $ | 7 | | | $ | 6 | | | $ | 21 | | | $ | 20 | |
Interest cost | | 257 | | | 402 | | | 770 | | | 1,202 | |
Amortization of actuarial loss | | 763 | | | 843 | | | 2,289 | | | 2,531 | |
Amortization of prior service credit | | (1,099) | | | (1,192) | | | (3,378) | | | (3,574) | |
Net periodic postretirement benefit (income)/cost (1) | | $ | (72) | | | $ | 59 | | | $ | (298) | | | $ | 179 | |
(1) The service cost component of net periodic postretirement benefit cost is recognized in Total operating costs, while the other components are included in Other components of net periodic benefit costs in our Condensed Consolidated Statements of Operations, below Operating profit.
NOTE 11.10. INCOME TAXES
The Company had income tax expense of $7.3 million and $19.1 million in the third quarter and first nine months of 2020, respectively. The Company had income tax expense of $6.1 million and $16.8 million in the third quarter and first nine months of 2019, respectively. The Company had incomeCompany’s effective tax expense of $10.1 millionrates from continuing operations were 17.8% and $25.3 million in17.5% for the third quarter and first nine months of 2018,2020, respectively. The Company’s effective tax rates from continuing operations were 27.0% and 19.0% for the third quarter and first nine months of 2019, respectively. The Company received a tax benefit in the first and third quarters of 2020 and in the first quarter of 2019 from stock price appreciation on stock-based awards that settled in the quarter,quarters, resulting in a lower than statutory tax rate forrates in the third quarter of 2020 and in the first nine months of 2020 and 2019. The
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. We do not expect the tax provisions in the CARES Act to have a material impact on the Company’s effective tax rates from continuing operations were 28.8% and 26.4% for the third quarter and first nine months of 2018, respectively.consolidated financial statements.
NOTE 12.11. EARNINGS PER SHARE
We compute earnings per share using a two-class method, which is an earnings allocation method used when a company’s capital structure includes either two or more classes of common stock or common stock and participating securities. This method determines earnings per share based on dividends declared on common stock and participating securities (i.e., distributed earnings), as well as participation rights of participating securities in any undistributed earnings.
Earnings per share is computed using both basic shares and diluted shares. The difference between basic and diluted shares is that diluted shares include the dilutive effect of the assumed exercise of outstanding securities. Our stock options, stock-settled long-term performance awards and restricted stock units could have a significant impact on diluted shares. The difference between basic and diluted shares of approximately 1.41.0 million and 1.91.1 million as ofin the third quartersquarter and first nine months of 20192020, respectively and 2018, respectively,1.4 million in the third quarter and first nine months of 2019, resulted primarily from the dilutive effect of certain stock options, performance awards and restricted stock units and performance awards.units.
Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the market value of our Class A Common Stock, because their inclusion would result in an anti-dilutive effect on per share amounts.
There were no0 anti-dilutive stock options, stock-settled long-term performance awards or restricted stock units excluded from the computation of diluted earnings per share in the third quarters and first nine months of 20192020 and 2018,2019, respectively.
NOTE 13.12. SUPPLEMENTAL STOCKHOLDERS’ EQUITY INFORMATION
In 2015, the Board of Directors authorized up to $101.1 million of repurchases of shares of the Company’s Class A Common Stock. As of September 29, 2019,27, 2020, repurchases under this authorization totaled $84.9 million (excluding commissions)
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
and $16.2 million remained under this authorization. The Company did not repurchase any shares during the first nine months of 2019.2020. All purchases were made pursuant to our publicly announced share repurchase program. Our Board of Directors has authorized us to purchase shares under this authorization from time to time, subject to market conditions and other factors. There is no expiration date with respect to this authorization.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the changes in AOCI by component as of September 29, 2019: |
| | | | | | | | | | | | | | | | |
(In thousands) | | Foreign Currency Translation Adjustments | | Funded Status of Benefit Plans | | Net Unrealized (Loss)/Gain on Available-For-Sale Securities | | Total Accumulated Other Comprehensive Loss |
Balance as of December 30, 2018 | | $ | 4,677 |
| | $ | (520,308 | ) | | $ | (2,093 | ) | | $ | (517,724 | ) |
Other comprehensive (loss)/income before reclassifications, before tax | | (3,286 | ) | | — |
| | 3,773 |
| | 487 |
|
Amounts reclassified from accumulated other comprehensive loss, before tax | | — |
| | 14,685 |
| | — |
| | 14,685 |
|
Income tax (benefit)/expense | | (863 | ) | | 3,780 |
| | 986 |
| | 3,903 |
|
Net current-period other comprehensive (loss)/income, net of tax | | (2,423 | ) | | 10,905 |
| | 2,787 |
| | 11,269 |
|
Balance as of September 29, 2019 | | $ | 2,254 |
| | $ | (509,403 | ) | | $ | 694 |
| | $ | (506,455 | ) |
27, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Foreign Currency Translation Adjustments | | Funded Status of Benefit Plans | | Net Unrealized Gain on Available-For-Sale Securities | | Total Accumulated Other Comprehensive Loss |
Balance as of December 29, 2019 | | $ | 3,438 | | | $ | (498,986) | | | $ | 572 | | | $ | (494,976) | |
Other comprehensive income before reclassifications, before tax | | 3,095 | | | 0 | | | 3,936 | | | 7,031 | |
Amounts reclassified from accumulated other comprehensive loss, before tax | | 0 | | | 18,982 | | | 0 | | | 18,982 | |
Income tax expense | | 823 | | | 5,083 | | | 1,049 | | | 6,955 | |
Net current-period other comprehensive income, net of tax | | 2,272 | | | 13,899 | | | 2,887 | | | 19,058 | |
| | | | | | | | |
Balance as of September 27, 2020 | | $ | 5,710 | | | $ | (485,087) | | | $ | 3,459 | | | $ | (475,918) | |
The following table summarizes the reclassifications from AOCI for the nine months ended September
29, 2019:27, 2020: |
| | | | | | |
(In thousands)
Detail about accumulated other comprehensive loss components | | Amounts reclassified from accumulated other comprehensive loss | | Affects line item in the statement where net income is presented |
Funded status of benefit plans: | | | | |
Amortization of prior service credit(1) | | $ | (5,033 | ) | | Other components of net periodic benefit costs |
Amortization of actuarial loss(1) | | 19,718 |
| | Other components of net periodic benefit costs |
Total reclassification, before tax(2) | | 14,685 |
| | |
Income tax expense | | 3,780 |
| | Income tax expense |
Total reclassification, net of tax | | $ | 10,905 |
| | |
| | | | | | | | | | | | | | |
| | | | |
(In thousands)
Detail about accumulated other comprehensive loss components | | Amounts reclassified from accumulated other comprehensive loss | | Affects line item in the statement where net income is presented |
Funded status of benefit plans: | | | | |
Amortization of prior service credit(1) | | $ | (4,837) | | | Other components of net periodic benefit costs |
Amortization of actuarial loss(1) | | 23,819 | | | Other components of net periodic benefit costs |
| | | | |
Total reclassification, before tax(2) | | 18,982 | | | |
Income tax expense | | 5,083 | | | Income tax expense |
Total reclassification, net of tax | | $ | 13,899 | | | |
(1) These AOCI components are included in the computation of net periodic benefit cost for pension and other postretirement benefits. See Note 109 for more information.
(2) There were no reclassifications relating to noncontrolling interest for the nine months ended September 29, 2019.27, 2020.
NOTE 14.13. SEGMENT INFORMATION
The Company identifies a business as an operating segment if: (i) it engages in business activities from which it may earn revenues and incur expenses; (ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (who is the Company’s President and Chief Executive Officer) to make decisions about resources to be allocated to the segment and assess its performance; and (iii) it has available discrete financial information. The Company has determined that it has 1 reportable segment. Therefore, all required segment information can be found in the Condensed Consolidated Financial Statements.
NOTE 15. LEASES
Lessee activities
Operating leases
We have operating leases for office space and equipment. We determine if an arrangement is a lease at inception. Certain office space leases provide for rent adjustments relating to changes in real estate taxes and other operating costs. Options to extend the term of operating leases are not recognized as part of the right-of-use asset until we are reasonably certain that the option will be exercised. We may terminate our leases with the notice required under the lease and upon the payment of a termination fee, if required. Our leases do not include substantial variable payments based on index or rate. After the adoption of ASU 2016-02 in 2019, for all leases, a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, are recognized in the Condensed Consolidated Balance Sheet as of September 29, 2019, as described below.
Our leases do not provide a readily determinable implicit discount rate. Therefore, we estimate our incremental borrowing rate to discount the lease payments based on the information available at lease commencement.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We recognize a single lease cost on a straight-line basis over the term of the lease and we classify all cash payments within operating activities in the statement of cash flows. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We evaluate right-of-use assets for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.
On July 2, 2019, we entered into a lease agreement for office space in Long Island City, N.Y. (the “LIC Lease”), which commenced in July and ends in 2035. The present value of lease liabilities associated with the LIC Lease at the commencement date was $22 million.
The table below presents the lease-related assets and liabilities recorded on the balance sheet:
|
| | | | | | |
(In thousands) | | Classification in the Condensed Consolidated Balance Sheet | | September 29, 2019 |
|
Operating lease right-of-use assets | | Miscellaneous assets | | $ | 54,909 |
|
Current operating lease liabilities | | Accrued expenses and other | | $ | 7,733 |
|
Noncurrent operating lease liabilities | | Other | | 56,156 |
|
Total operating lease liabilities | | | | $ | 63,889 |
|
The total lease cost for operating leases included in Selling, general and administrative costs in our Condensed Consolidated Statement of Operations was as follows:
|
| | | | | | | | |
| | For the Quarter Ended |
| | For the Nine Months Ended |
|
(In thousands) | | September 29, 2019 |
Operating lease cost | | $ | 2,763 |
| | $ | 7,310 |
|
Short term and variable lease cost | | 442 |
| | 1,454 |
|
Total lease cost | | $ | 3,205 |
| | $ | 8,764 |
|
The table below presents additional information regarding operating leases:
|
| | | | |
(In thousands, except lease term and discount rate) | | September 29, 2019 |
|
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 6,818 |
|
Right-of-use assets obtained in exchange for operating lease liabilities(1) | | $ | 60,988 |
|
Weighted-average remaining lease term | | 9.9 years |
|
Weighted-average discount rate | | 4.65 | % |
(1) Amounts for the nine months ended September 29, 2019, include the transition adjustment resulting from the adoption of ASU 2016-02 as discussed in Note 2.
Maturities of lease liabilities on an annual basis for the Company's operating leases as of September 29, 2019, were as follows:
|
| | | | |
(In thousands) | | Amount |
|
2019 (3 months ending December 29, 2019) | | $ | 2,284 |
|
2020 | | 9,808 |
|
2021 | | 9,026 |
|
2022 | | 8,577 |
|
2023 | | 7,970 |
|
Later Years | | 41,899 |
|
Total lease payments | | $ | 79,564 |
|
Less: Interest | | (15,675 | ) |
Present value of lease liabilities | | $ | 63,889 |
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Finance lease
We had a finance lease in connection with the land at our College Point, N.Y., printing and distribution facility. Interest on the lease liability was recorded in Interest expense and other, net in our Condensed Consolidated Statement of Operations. Repayments of the principal portion of our lease liability are recorded in financing activities and payments of interest on our lease liability are recorded in operating activities in the statement of cash flows for our finance lease. On August 1, 2019, using existing cash, we purchased the assets under the finance lease for $6.9 million, which resulted in the settlement of our finance lease obligation. See Note 7 for more information.
Lessor activities
Our leases to third parties predominantly relate to office space in the Company Headquarters. We determine if an arrangement is a lease at inception. Office space leases are operating leases and generally include options to extend the term of the lease. Our leases do not include variable payments based on index or rate. We do not separate the lease and non-lease components in a contract. The non-lease components predominantly include charges for utilities usage and other operating expenses estimated based on the proportionate share of the rental space of each lease.
For our office space operating leases, we recognize rental revenue on a straight-line basis over the term of the lease and we classify all cash payments within operating activities in the statement of cash flows.
Residual value risk is not a primary risk resulting from our office space operating leases because of the long-lived nature of the underlying real estate assets which generally hold their value or appreciate in the long term.
We evaluate assets leased to third parties for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.
As of September 29, 2019, the cost and accumulated depreciation related to the Company Headquarters included in Property, plant and equipment in our Condensed Consolidated Balance Sheet was approximately $508 million and $200 million, respectively. Office space leased to third parties represents approximately 39% of rentable square feet of the Company Headquarters.
We generate building rental revenue from the floors in the Company Headquarters that we lease to third parties. The building rental revenue was as follows: |
| | | | | | | | |
| | For the Quarter Ended |
| | For the Nine Months Ended |
|
(In thousands) | | September 29, 2019 |
Building rental revenue (1) | | $ | 7,887 |
| | $ | 22,962 |
|
(1) Building rental revenue includes approximately $3.0 million and $8.8 million of sublease income for the quarter and nine months ended September 29, 2019, respectively.
Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of September 29, 2019, were as follows:
|
| | | | |
(In thousands) | | Amount |
|
2019 (3 months ending December 29, 2019) | | $ | 7,590 |
|
2020 | | 32,242 |
|
2021 | | 32,259 |
|
2022 | | 32,254 |
|
2023 | | 19,329 |
|
Later Years | | 142,162 |
|
Total building rental revenue from operating leases | | $ | 265,836 |
|
NOTE 16.14. CONTINGENT LIABILITIES
Newspaper and Mail Deliverers–Publishers’ Pension Fund
In September 2013, the Newspaper and Mail Deliverers-Publishers’ Pension Fund (the “NMDU Fund”) assessed a partial withdrawal liability against the Company in the gross amount of approximately $26 million for the plan years ending May 31, 2012, and 2013 (the “Initial Assessment”), an amount that was increased to a gross amount of approximately $34 million in December 2014, when the NMDU Fund issued a revised partial withdrawal liability assessment for the plan year ending May
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
31, 2013 (the “Revised Assessment”). The NMDU Fund claimed that when City & Suburban Delivery Systems, Inc., a retail and newsstand distribution subsidiary of the Company and the largest contributor to the NMDU Fund, ceased operations in 2009, it triggered a decline of more than 70% in contribution base units in each of these two plan years.
The Company disagreed with both the NMDU Fund’s determination that a partial withdrawal occurred and the methodology by which it calculated the withdrawal liability, and the parties engaged in arbitration proceedings to resolve the matter. In June 2016, the arbitrator issued an interim award and opinion that supported the NMDU Fund’s determination that a partial withdrawal had occurred, and concluded that the methodology used to calculate the Initial Assessment was correct. However, the arbitrator also concluded that the NMDU Fund’s calculation of the Revised Assessment was incorrect. In July 2017, the arbitrator issued a final award and opinion reflecting the same conclusions, which both the Company and NMDU Fund challenged in federal district court. In March 2018, the court determined that a partial withdrawal had occurred, but supported the Company’s position that the NMDU Fund’s calculation of the withdrawal liability was improper. The Company appealed the court’s decision with respect to the determination that a partial withdrawal had occurred, and the NMDU Fund appealed the court’s decision with respect to the calculation of the withdrawal liability. Oral arguments were held in May 2019.
Due to requirements of the Employee Retirement Income Security Act of 1974 that sponsors make payments demanded by plans during arbitration and any resultant appeals, the Company had been making payments to the NMDU fund since September 2013 based on the NMDU Fund’s demand. As a result, through September 29, 2019, we have paid $21.6 million relating to the Initial Assessment since the receipt of the initial demand letter. We also paid $5.0 million related to the Revised Assessment, which was refunded in July 2016 based on the arbitrator’s ruling.
On September 16, 2019, the Company and the NMDU Fund reached an agreement to settle this matter. As a result of the settlement, the Company recognized a gain of approximately $2.0 million, and as of September 29, 2019, the Company had no contingent liability related to this matter. In addition, each party withdrew its appeal of the March 2018 court decision.
OtherLegal Proceedings
We are involved in various legal actions incidental to our business that are now pending against us. These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made. Although the Company cannot predict the outcome of these matters, it is possible that an unfavorable outcome in one or more matters could be material to the Company’s consolidated results of operations or cash flows for an individual reporting period. However, based on currently available information, management does not believe that the ultimate resolution of these matters, individually or in the aggregate, is likely to have a material effect on the Company’s financial position.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15. RECLASSIFICATION
The Company changed the expense captions on its Condensed Consolidated Statement of Credit CommitmentOperations effective for the quarter ended March 29, 2020. These changes were made in order to reflect how the Company manages its business and to communicate where the Company is investing resources and how this aligns with the Company’s strategy. The Company reclassified expenses for the prior period in order to present comparable financial results. There was no change to consolidated operating income, operating expense, net income or cash flows as a result of this change in classification. A summary of changes is as follows:
We“Production costs” has become “Cost of revenue”:
◦Cost of revenue contains all costs related to content creation, subscriber and advertiser servicing, and print production and distribution costs as well as infrastructure costs related to delivering digital content, which include all cloud and cloud related costs as well as compensation for employees that enhance and maintain our platforms. This represents a change from previously disclosed production costs, which did not include distribution or subscriber servicing costs. In addition, certain product development costs previously included in production costs have issued lettersbeen reclassified to product development.
“Selling, general and administrative” hasbeen split into three lines:
◦Sales and marketing represents all costs related to the Company’s marketing efforts as well as advertising sales costs.
◦Product development represents the Company’s investment into developing and enhancing new and existing product technology including engineering, product development, and data insights.
◦General and administrative includes general management, corporate enterprise technology, building operations, unallocated overhead costs, severance and multiemployer pension plan withdrawal costs.
In addition, incentive compensation, which was previously wholly included in selling, general and administrative, was reclassified to align with the classification of credit totaling $42.4 millionthe related wages across each of the expense captions.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A reconciliation of the expenses as previously disclosed to the recast presentation for the quarter and $48.8 million as ofnine months ended September 29, 2019, and December 30, 2018, respectively, in connectionis as follows:
| | | | | | | | | | | | | | | | | | | | |
| | As Reported for the Quarter Ended September 29, 2019 | | Reclassification | | Recast for the Quarter Ended September 29, 2019 |
Operating costs | | | | | | |
Production costs: | | | | | | |
Wages and benefits | | $ | 106,377 | | | $ | (106,377) | | (1)(2) | $ | 0 | |
Raw materials | | 18,531 | | | (18,531) | | (1) | 0 | |
Other production costs | | 53,868 | | | (53,868) | | (1)(2) | 0 | |
Total production costs | | 178,776 | | | (178,776) | | (1)(2) | 0 | |
Cost of revenue (excluding depreciation and amortization) | | 0 | | | 245,100 | | (1)(3)(4) | 245,100 | |
Selling, general and administrative costs | | 207,226 | | | (207,226) | | (3)(4)(5) | 0 | |
Sales and marketing | | 0 | | | 64,218 | | (4)(5) | 64,218 | |
Product development | | 0 | | | 26,669 | | (2)(4)(5) | 26,669 | |
General and administrative | | 0 | | | 50,015 | | (4)(5) | 50,015 | |
Depreciation and amortization | | 15,450 | | | 0 | | | 15,450 | |
Total operating costs | | $ | 401,452 | | | $ | 0 | | | $ | 401,452 | |
| | | | | | | | | | | | | | | | | | | | |
| | As Reported for the Nine Months Ended September 29, 2019 | | Reclassification | | Recast for the Nine Months Ended September 29, 2019 |
Operating costs | | | | | | |
Production costs: | | | | | | |
Wages and benefits | | $ | 313,244 | | | $ | (313,244) | | (1)(2) | $ | 0 | |
Raw materials | | 57,527 | | | (57,527) | | (1) | 0 | |
Other production costs | | 149,102 | | | (149,102) | | (1)(2) | 0 | |
Total production costs | | 519,873 | | | (519,873) | | (1)(2) | 0 | |
Cost of revenue (excluding depreciation and amortization) | | 0 | | | 729,654 | | (1)(3)(4) | 729,654 | |
Selling, general and administrative costs | | 638,820 | | | (638,820) | | (3)(4)(5) | 0 | |
Sales and marketing | | 0 | | | 201,327 | | (4)(5) | 201,327 | |
Product development | | 0 | | | 75,658 | | (2)(4)(5) | 75,658 | |
General and administrative | | 0 | | | 152,054 | | (4)(5) | 152,054 | |
Depreciation and amortization | | 45,548 | | | 0 | | | 45,548 | |
Total operating costs | | $ | 1,204,241 | | | $ | 0 | | | $ | 1,204,241 | |
(1) In the first quarter of 2020, the Company discontinued the use of the production cost caption. These costs, with the leasingexception of floorsproduct engineering and product design costs, which were reclassified to product development, were reclassified to cost of revenue.
(2) Costs related to developing and enhancing new and existing product technology previously included in production costs were reclassified to product development.
(3) Distribution and fulfillment costs and subscriber and advertising servicing related costs previously included in selling, general and administrative were reclassified to cost of revenue.
(4) Incentive Compensation previously included in selling, general and administrative was reclassified to align with the related salaries in each caption.
(5) In the first quarter of 2020, the Company discontinued the use of the selling, general and administrative cost caption. These costs, with the exception of those related to distribution and fulfillment, subscriber and advertising servicing and incentive compensation related to cost of revenue, were reclassified to the new captions: sales and marketing, product development and general and administrative.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16. SUBSEQUENT EVENT
On October 9, 2020, the Company entered into an agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”) under which approximately $235 million in pension obligations under The New York Times Companies Pension Plan will be transferred to MassMutual.
Under the agreement, the Company will purchase from MassMutual a group annuity contract for approximately 1,850 retirees (and beneficiaries) that will provide for an irrevocable commitment by MassMutual to make annuity payments to the affected retirees. As a result, the payment obligation and administration thereof for the affected retirees will be transferred from the Pension Plan to MassMutual. The transfer will not change the amount of the monthly pension benefits received by the affected retirees.
This arrangement is part of the Company’s continued effort to reduce the overall size and volatility of our pension plan obligations, and the administrative costs related thereto. The purchase of the group annuity contract will be funded through existing Pension Plan assets. As a result of the transaction, the Company expects to recognize a non-cash pension settlement charge of approximately $80-85 million before tax in the Company Headquarters. We expectfourth quarter of 2020. This charge represents the lettersacceleration of credit to expire subsequent to the repurchase of the Condo Interestdeferred charges currently accrued in December 2019. Approximately $47 million and $54 million of marketable securities were designated as collateral for the letters of credit, as of September 29, 2019, and December 30, 2018, respectively.AOCI.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
We are a global media organization that includes our newspaper, printdigital and digitalprint products and related businesses. We have one reportable segment.
We generate revenues principally from subscriptions and advertising. Other revenues primarily consist of revenues from licensing, commercial printing,affiliate referrals from Wirecutter, the leasing of floors in the Company Headquarters, affiliate referrals,our New York headquarters building located at 620 Eighth Avenue, New York, New York (the “Company Headquarters”), commercial printing, television (primarily from our television series, “The Weekly”),and film, retail commerce and NYT Live (our live events business) and retail commerce. .
Our main operating costs are employee-related costs.
In the accompanying analysis of financial information, we present certain information derived from consolidated financial information but not presented in our financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We are presenting in this report supplemental non-GAAP financial performance measures that exclude depreciation, amortization, severance, non-operating retirement costs or multiemployer pension plan withdrawal costs, and certain identified special items, as applicable. These non-GAAP financial measures should not be considered in isolation from or as a substitute for the related GAAP measures, and should be read in conjunction with financial information presented on a GAAP basis. For further information and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, see “Non-Operating Items—Non-GAAP Financial Measurements”Measurements.”
The Company changed the expense captions on its Condensed Consolidated Statement of Operations effective for the quarter ended March 29, 2020. These changes were made in order to reflect how the Company manages its business and to communicate where the Company is investing resources and how this aligns with the Company’s strategy. The Company reclassified expenses for the prior period in order to present comparable financial results. There was no change to consolidated operating income, operating expense, net income or cash flows as a result of this change in classification. See Note 15 of the Notes to the Condensed Consolidated Financial Statements for more details.detail.
Financial Highlights
For the third quarter of 2019, dilutedDiluted earnings per share from continuing operations were $0.20 and $0.10 compared with $0.15 for the third quarterquarters of 2018.2020 and 2019, respectively. Diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items discussed below (or “adjusted diluted earnings per share,” a non-GAAP measure) were $0.12$0.22 and $0.15$0.12 for the third quarters of 20192020 and 2018,2019, respectively.
The Company had an operating profit of $39.6 million in the third quarter of 2020, compared with $25.1 million in the third quarter of 2019, compared with $41.4 million in the third quarter of 2018.2019. The decreaseincrease was principally driven by higher costs and lower advertising revenue that more than offset higher digital-only subscription revenues and otherlower costs, which more than offset lower advertising revenues. Operating profit before depreciation, amortization, severance, multiemployer pension plan withdrawal costs and special items discussed below (or “adjusted operating profit,” a non-GAAP measure) wasincreased to $56.5 million in the third quarter of 2020 from $44.1 million and $53.7 million forin the third quartersquarter of 2019, and 2018, respectively, primarily as a result of the factors identified above.
Total revenues increased 2.7%decreased 0.4% to $426.9 million in the third quarter of 2020 from $428.5 million in the third quarter of 2019, primarily driven by a decrease in advertising revenue and other revenue. These declines were partially offset by higher subscription revenues.
Operating costs decreased in the third quarter of 2020 to $387.3 million from $417.3$401.5 million in the third quarter of 2018, primarily driven by an increase in digital-only subscription revenues2019, largely due to lower media expenses and other revenues,lower advertising sales costs, as well as lower print production and distribution and advertising servicing costs. These were partially offset by a decrease in advertising revenue.
Operating costs increased in the third quarter of 2019 to $401.5 million from $380.8 million in the third quarter of 2018, largely due to higher digital content delivery and journalism costs, including growth in the number of newsroom employees and costs related to our television series, “The Weekly,” as well as growth in the number ofdigital product development employees partially offset by lower print production and distribution costs.in connection with digital subscription strategic initiatives. Operating costs before depreciation, amortization, severance and multiemployer pension plan withdrawal costs (or “adjusted operating costs,” a non-GAAP measure) increaseddecreased in the third quarter of 20192020 to $384.4$370.4 million from $363.7$384.4 million in the third quarter of 2018,2019, primarily as a result of the factors identified above.
Impact of COVID-19 Pandemic
The global coronavirus (COVID-19) pandemic, and attempts to contain it, have continued to result in significant economic disruption, market volatility and uncertainty. These conditions have affected our business and could continue to do so for the foreseeable future.
Unlike many media companies, which are primarily dependent on advertising, we derive substantial revenue from subscriptions (approximately 60% of total revenues in 2019 and 69% in the first three quarters of 2020). Although moderating from the early months of the pandemic, we have experienced significant growth in the number of subscriptions to our digital
news and other products, which is attributable in part to an increase in traffic given the news environment. However, revenues from the single-copy and bulk sales of our print newspaper (which include our international edition and collectively represent less than 10% of our total subscription revenues) have been, and we expect will continue to be, adversely affected as a result of widespread business closures, increased remote working and reductions in travel.
The worldwide economic slowdown caused by the pandemic also led to a significant decline in our advertising revenues, beginning in the first quarter of 2020 and continuing through the third quarter of 2020, and to the extent conditions persist, we expect that our advertising revenues will continue to be adversely affected.
However, our strong balance sheet has enabled us to continue to operate without the liquidity issues experienced by many other companies. As of September 27, 2020, we had cash, cash equivalents and short- and long-term marketable securities of $800.1 million, and we were debt-free. We believe our cash balance and cash provided by operations, in combination with other sources of cash, will be sufficient to meet our financing needs over the next twelve months, enabling us to continue hiring in our newsroom, and in product and technology, and continue investment in important growth areas.
We have incurred and expect to continue to incur some additional costs in response to the pandemic, including certain enhanced employee benefits. These costs have not been significant to date, but we may incur significant additional costs as we continue to implement operational changes in response to the pandemic.
At this time, the complete impact that the COVID-19 pandemic, and the associated economic downturn, will have on our business is uncertain. While we remain confident in our prospects over the longer term, the extent to which the pandemic impacts us will depend on numerous evolving factors and future developments, including the severity and duration of the outbreak, and any resurgence thereof; the impact of the pandemic on economic activity and the companies with which we do business; governmental, business and other actions; travel restrictions; and social distancing measures, among many other factors. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are appropriate. Please see “Part II—Item 1A—Risk Factors” for more information.
RESULTS OF OPERATIONS
The following table presents our consolidated financial results:
| | | | For the Quarters Ended | | | | For the Nine Months Ended | | | | | For the Quarters Ended | | For the Nine Months Ended | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| (In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Revenues | | | | | |
| | | | | | | Revenues | | | | | | | | | | | | |
Subscription | | $ | 267,302 |
| | $ | 257,796 |
| | 3.7 | % | | $ | 808,568 |
| | $ | 779,018 |
| | 3.8 | % | Subscription | | $ | 300,950 | | | $ | 267,302 | | | 12.6 | % | | $ | 879,573 | | | $ | 808,568 | | | 8.8 | % |
Advertising | | 113,531 |
| | 121,677 |
| | (6.7 | )% | | 359,380 |
| | 366,525 |
| | (1.9 | )% | Advertising | | 79,253 | | | 113,531 | | | (30.2) | % | | 253,150 | | | 359,380 | | | (29.6) | % |
Other | | 47,668 |
| | 37,873 |
| | 25.9 | % | | 135,873 |
| | 100,311 |
| | 35.5 | % | Other | | 46,692 | | | 47,668 | | | (2.0) | % | | 141,558 | | | 135,873 | | | 4.2 | % |
Total revenues | | 428,501 |
| | 417,346 |
| | 2.7 | % | | 1,303,821 |
| | 1,245,854 |
| | 4.7 | % | Total revenues | | 426,895 | | | 428,501 | | | (0.4) | % | | 1,274,281 | | | 1,303,821 | | | (2.3) | % |
Operating costs | | | | | | | | | | | | | Operating costs | |
Production costs: | | | | | |
| | | | | | | |
Wages and benefits | | 106,377 |
| | 95,941 |
| | 10.9 | % | | 313,244 |
| | 280,688 |
| | 11.6 | % | |
Raw materials | | 18,531 |
| | 19,972 |
| | (7.2 | )% | | 57,527 |
| | 54,490 |
| | 5.6 | % | |
Other production costs | | 53,868 |
| | 47,521 |
| | 13.4 | % | | 149,102 |
| | 138,454 |
| | 7.7 | % | |
Total production costs | | 178,776 |
| | 163,434 |
| | 9.4 | % | | 519,873 |
| | 473,632 |
| | 9.8 | % | |
Selling, general and administrative costs | | 207,226 |
| | 202,473 |
| | 2.3 | % | | 638,820 |
| | 614,464 |
| | 4.0 | % | |
Cost of revenue (excluding depreciation and amortization) | | Cost of revenue (excluding depreciation and amortization) | | 235,900 | | | 245,100 | | | (3.8) | % | | 709,719 | | | 729,654 | | | (2.7) | % |
Sales and marketing | | Sales and marketing | | 50,627 | | 64,218 | | (21.2) | % | | 164,040 | | 201,327 | | | (18.5) | % |
Product development | | Product development | | 34,102 | | | 26,669 | | | 27.9 | % | | 95,641 | | | 75,658 | | | 26.4 | % |
General and administrative | | General and administrative | | 51,118 | | | 50,015 | | | 2.2 | % | | 162,791 | | | 152,054 | | | 7.1 | % |
Depreciation and amortization | | 15,450 |
| | 14,847 |
| | 4.1 | % | | 45,548 |
| | 43,969 |
| | 3.6 | % | Depreciation and amortization | | 15,552 | | | 15,450 | | | 0.7 | % | | 46,368 | | | 45,548 | | | 1.8 | % |
Total operating costs | | 401,452 |
| | 380,754 |
| | 5.4 | % | | 1,204,241 |
| | 1,132,065 |
| | 6.4 | % | Total operating costs | | 387,299 | | | 401,452 | | | (3.5) | % | | 1,178,559 | | | 1,204,241 | | | (2.1) | % |
Headquarters redesign and consolidation | | — |
| | — |
| | — |
| | — |
| | 3,140 |
| | * |
| |
| Restructuring charge | | 4,008 |
| | — |
| | * |
| | 4,008 |
| | — |
| | * |
| Restructuring charge | | — | | 4,008 | | * | | — | | 4,008 | | | * |
Gain from pension liability adjustment | | (2,045 | ) | | (4,851 | ) | | (57.8 | )% | | (2,045 | ) | | (4,851 | ) | | (57.8 | )% | Gain from pension liability adjustment | | — | | | (2,045) | | | * | | — | | | (2,045) | | | * |
Operating profit | | 25,086 |
| | 41,443 |
| | (39.5 | )% | | 97,617 |
| | 115,500 |
| | (15.5 | )% | Operating profit | | 39,596 | | | 25,086 | | | 57.8 | % | | 95,722 | | | 97,617 | | | (1.9) | % |
Other components of net periodic benefit costs | | 1,834 |
| | 2,335 |
| | (21.5 | )% | | 5,502 |
| | 6,226 |
| | (11.6 | )% | Other components of net periodic benefit costs | | 2,272 | | | 1,834 | | | 23.9 | % | | 6,735 | | | 5,502 | | | 22.4 | % |
Loss from joint ventures | | — |
| | (16 | ) | | * |
| | — |
| | (9 | ) | | * |
| |
Interest expense and other, net | | 755 |
| | 4,026 |
| | (81.2 | )% | | 3,572 |
| | 13,439 |
| | (73.4 | )% | |
| Interest income/(expense) and other, net | | Interest income/(expense) and other, net | | 3,537 | | | (755) | | | * | | 20,177 | | | (3,572) | | | * |
Income from continuing operations before income taxes | | 22,497 |
| | 35,066 |
| | (35.8 | )% | | 88,543 |
| | 95,826 |
| | (7.6 | )% | Income from continuing operations before income taxes | | 40,861 | | | 22,497 | | | 81.6 | % | | 109,164 | | | 88,543 | | | 23.3 | % |
Income tax expense | | 6,070 |
| | 10,092 |
| | (39.9 | )% | | 16,789 |
| | 25,342 |
| | (33.8 | )% | Income tax expense | | 7,283 | | | 6,070 | | | 20.0 | % | | 19,070 | | | 16,789 | | | 13.6 | % |
| Net income | | 16,427 |
| | 24,974 |
| | (34.2 | )% | | 71,754 |
| | 70,484 |
| | 1.8 | % | Net income | | 33,578 | | | 16,427 | | | * | | 90,094 | | | 71,754 | | | 25.6 | % |
Net loss attributable to the noncontrolling interest | | — |
| | 2 |
| | * |
| | — |
| | 1 |
| | * |
| |
| Net income attributable to The New York Times Company common stockholders | | $ | 16,427 |
| | $ | 24,976 |
| | (34.2 | )% | | $ | 71,754 |
| | $ | 70,485 |
| | 1.8 | % | Net income attributable to The New York Times Company common stockholders | | $ | 33,578 | | | $ | 16,427 | | | * | | $ | 90,094 | | | $ | 71,754 | | | 25.6 | % |
* Represents a change equal to or in excess of 100% or not meaningful
Revenues
Subscription Revenues
Subscription revenues consist of revenues from subscriptions to our printdigital and digitalprint products (which include our news product, as well as our CrosswordGames (previously Crossword), Cooking and Cookingaudio products), and single-copy and bulk sales of our print products (which represent less than 10% of these revenues). Revenues from our digital-only news subscriptions include e-readers and replica editions. Our Cooking product first launched as a paid digital product in the third quarter of 2017. Subscription revenues are based on both the number of copies of the printprinted newspaper sold and digital-only subscriptions, and the rates charged to the respective customers.
Subscription revenues increased 3.7%12.6% in the third quarter and 3.8%8.8% in the first nine months of 20192020 compared with the same prior-year periods, primarily due to year-over-year growth of 31.0%49.6% in the number of subscriptions to the Company’s digital products as well as the continued focus on our digital pricing strategy which included price increases in 2020 for our most tenured subscribers. The increases in both periods were partially offset by a decrease in print subscription products.revenue attributable to lower single-copy and bulk sales, primarily as a result of the COVID-19 pandemic, as well as fewer subscriptions, partially offset by an increase in home delivery prices. The third quarter was the first full quarter in which digital-only subscription revenue exceeded print subscription revenue.
Paid digital-only subscriptions totaled approximately 4,053,0006,063,000 at the end of the third quarter of 2019,2020, a 958,000net increase of 393,000 subscriptions compared with the end of the second quarter of 2020 and a net increase of 2,010,000 compared with the end of the third quarter of 2019. The significant rate of year-over-year growth in our digital subscriptions that continued, although moderated, from the early months of the COVID-19 pandemic is attributable in part to an increase in traffic given the news environment, as well as a change made to the digital access model last year, which requires users to register and log in to access most of our content.
Digital-only news product subscriptions totaled approximately 4,665,000 at the end of the third quarter of 2020, a 275,000 net increase compared with the end of the second quarter of 2020 and a 1,468,000 increase compared with the end of the third quarter of 2018. News2019. Other product subscriptions (which include our Games, Cooking and audio products) totaled approximately 3,197,0001,398,000 at the end of the third quarter of 2019, a 656,0002020, an increase of 118,000 subscriptions compared with the end of the second quarter of 2020 and an increase of 542,000 subscriptions compared with the end of the third quarter of 2018. Other product2019.
Print domestic home delivery subscriptions totaled approximately 856,000831,000 at the end of the third quarter of 2019,2020, relatively flat compared with the end of the second quarter of 2020 and a 302,000 increasenet decrease of 34,000 compared with the end of the third quarter of 2018.2019. The year-over-year decrease is a result of secular declines.
The following table summarizes digital-only subscription revenues, which are a component ofdigital and print subscription revenues for the third quarters and first nine months of 20192020 and 2018:2019:
| | | | For the Quarters Ended | | | | For the Nine Months Ended | | | | For the Quarters Ended | | For the Nine Months Ended | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| (In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Digital-only subscription revenues: | | | | | | | | | | | | | Digital-only subscription revenues: | |
News product subscription revenues(1) | | $ | 107,009 |
| | $ | 95,568 |
| | 12.0 | % | | $ | 313,785 |
| | $ | 279,693 |
| | 12.2 | % | News product subscription revenues(1) | | $ | 140,740 | | | $ | 107,009 | | | 31.5 | % | | $ | 392,620 | | | $ | 313,785 | | | 25.1 | % |
Other product subscription revenues(2) | | 8,855 |
| | 5,639 |
| | 57.0 | % | | 24,573 |
| | 15,669 |
| | 56.8 | % | Other product subscription revenues(2) | | 14,546 | | | 8,855 | | | 64.3 | % | | 38,660 | | | 24,573 | | | 57.3 | % |
Total digital-only subscription revenues | | $ | 115,864 |
| | $ | 101,207 |
| | 14.5 | % | | $ | 338,358 |
| | $ | 295,362 |
| | 14.6 | % | |
(1) Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Crossword and Cooking products are also included in this category. | |
(2) Includes revenues from standalone subscriptions to the Company’s Crossword and Cooking products. | |
Subtotal digital-only subscription revenues | | Subtotal digital-only subscription revenues | | 155,286 | | | 115,864 | | | 34.0 | % | | 431,280 | | | 338,358 | | | 27.5 | % |
Print subscription revenues: | | Print subscription revenues: | |
Domestic home delivery subscription revenues(3) | | Domestic home delivery subscription revenues(3) | | 129,912 | | | 126,769 | | | 2.5 | % | | 396,620 | | | 395,011 | | | 0.4 | % |
Single-copy, NYT International and other subscription revenues(4) | | Single-copy, NYT International and other subscription revenues(4) | | 15,752 | | | 24,669 | | | (36.1) | % | | 51,673 | | | 75,199 | | | (31.3) | % |
Subtotal print subscription revenues | | Subtotal print subscription revenues | | 145,664 | | | 151,438 | | | (3.8) | % | | 448,293 | | | 470,210 | | | (4.7) | % |
Total subscription revenues | | Total subscription revenues | | $ | 300,950 | | | $ | 267,302 | | | 12.6 | % | | $ | 879,573 | | | $ | 808,568 | | | 8.8 | % |
(1) Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Games and Cooking products are also included in this category. | | (1) Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Games and Cooking products are also included in this category. |
(2) Includes revenues from standalone subscriptions to the Company’s Games, Cooking and audio products. | | (2) Includes revenues from standalone subscriptions to the Company’s Games, Cooking and audio products. |
(3) Includes free access to some or all of the Company’s digital products. | | (3) Includes free access to some or all of the Company’s digital products. |
(4) NYT International is the international edition of our print newspaper. | | (4) NYT International is the international edition of our print newspaper. |
The following table summarizes digital-onlydigital and print subscriptions as of the end of the third quarters of 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change |
Digital-only subscriptions: | | | | | | |
News product subscriptions(1) | | 4,665 | | | 3,197 | | | 45.9 | % |
Other product subscriptions(2) | | 1,398 | | | 856 | | | 63.3 | % |
Subtotal digital-only subscriptions | | 6,063 | | | 4,053 | | | 49.6 | % |
Print subscriptions | | 831 | | | 865 | | | (3.9) | % |
Total subscriptions | | 6,894 | | | 4,918 | | | 40.2 | % |
| | | | | | |
(1) Includes subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Games and Cooking products are also included in this category. |
(2) Includes standalone subscriptions to the Company’s Games, Cooking and audio products. During the first quarter of 2020, the Company acquired a subscription-based audio product. Approximately 20,000 of the audio product’s subscriptions were included in the Company’s digital-only other product subscriptions at the time of acquisition. |
|
| | | | | | | | | |
| | For the Quarters Ended | | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
|
Digital-only subscriptions: | | | | | | |
News product subscriptions(1) | | 3,197 |
| | 2,541 |
| | 25.8 | % |
Other product subscriptions(2) | | 856 |
| | 554 |
| | 54.5 | % |
Total digital-only subscriptions | | 4,053 |
| | 3,095 |
| | 31.0 | % |
(1) Includes subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Crossword and Cooking products are also included in this category. |
(2) Includes standalone subscriptions to the Company’s Crossword and Cooking products. |
We believe that the significant growth over the last several years in subscriptions to our products demonstrates the success of our “subscription-first” strategy and the willingness of our readers to pay for high-quality journalism. The following charts illustrate the acceleration in net digital-only subscription additions and corresponding subscription revenues as well as the relative stability of our print domestic home delivery subscription products since the launch of the digital pay model in 2011.
(1) Amounts may not add due to rounding.
(2) Print domestic home delivery subscriptions include free access to some or all of our digital products.
(3) Print Other includes single-copy, NYT International and other subscription revenues.
Note: Revenues for 2012 and 2017 include the impact of an additional week.
Advertising Revenues
Advertising revenues are derived from the sale of our advertising products and services on our print and digital platforms. These revenues are primarily determined by the volume, rate and mix of advertisements. Display advertising revenue is principally from advertisers promoting products, services or brands on digital platforms in the form of banners and video, and in print, in the form of column-inch ads,ads. Advertising revenue is primarily derived from offerings sold directly to marketers by our advertising sales teams. A smaller proportion of our total advertising revenues is generated through programmatic auctions run by third-party ad exchanges and on our digital platforms in the form of banners, video, rich media and other interactive ads. Display advertising also includes branded content on The Times’s platforms. Other advertising primarily represents, for our print products, classified advertising revenue,from creative service fees, including line-ads sold in the major categories of real estate, help wanted, automotive and other as well as revenue from preprinted advertising, also known as free-standing inserts. Digital other advertising revenue primarily includes creative services feesthose associated with among other things, our digital marketing agencies and our branded content studio;studio.
Advertising revenues are primarily determined by the volume (e.g., impressions), rate and mix of advertisements. Digital advertising revenue fromincludes our podcasts;core digital advertising business and other digital advertising. Our core digital advertising business includes advertising on websites, mobile applications, podcasts, emails and videos. Direct-sold display advertising, a component of core digital advertising, includes offerings on websites and mobile applications sold directly to marketers by our advertising sales teams. Other digital advertising includes open market programmatic advertising, creative services fees and advertising revenue generated by Wirecutter, our product review and recommendation website. Print advertising includes revenue from column-inch ads and classified advertising, including line-ads as well as preprinted advertising, also known as freestanding inserts.
AdvertisingThe following table summarizes digital and print advertising revenues (printfor the third quarters and digital)first nine months of 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | For the Nine Months Ended |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Advertising revenues: | | | | | | | | | | |
Digital | | $ | 47,763 | | | $ | 54,653 | | | (12.6) | % | | $ | 138,452 | | | $ | 168,222 | | | (17.7) | % |
Print | | 31,490 | | | 58,878 | | | (46.5) | % | | 114,698 | | | 191,158 | | | (40.0) | % |
Total advertising | | $ | 79,253 | | | $ | 113,531 | | | (30.2) | % | | $ | 253,150 | | | $ | 359,380 | | | (29.6) | % |
Digital advertising revenues, which represented 60.3% of total advertising revenues in the third quarter of 2020, declined $6.9 million or 12.6%, to $47.8 million compared with $54.7 million in the same prior-year period primarily driven by categorya decrease in creative service fees. Core digital advertising revenue increased $0.4 million due to growth in podcast and email advertising revenue, which was partially offset by a decrease in revenues attributed to direct-sold display. Direct-sold display impressions declined 23%, while the average rate grew 18%. Other digital advertising revenue decreased $7.3 million as a result of the discontinuation of our HelloSociety and Fake Love creative services businesses, as well as lower creative services demand due to the COVID-19 pandemic. Open market programmatic advertising revenue was flat, as impressions increased by 25%, while the average rate decreased 17%. Overall display advertising impressions increased 71% as a result of an increase in traffic to our products, which were primarily filled by programmatic impressions.
Digital advertising revenues, which represented 54.7% of total advertising revenues in the first nine months of 2020, declined $29.8 million or 17.7% to $138.5 million, compared with $168.2 million in the same prior-year period primarily driven by a decrease in creative services and direct-sold display. Core digital advertising revenue decreased $10.2 million primarily due to a 19% decline in direct-sold display advertising revenue partially offset by a 19% increase in podcast revenues. Direct-sold display impressions declined 15%, while average rate grew 5%. Other digital advertising declined $19.6 million as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | | | | | |
| | September 29, 2019 | | September 30, 2018 | | % Change |
(In thousands) | | Print | | Digital | | Total | | Print | | Digital | | Total | | Print | | Digital | | Total |
Advertising revenues: | | | | | | | | | | | | | | | | |
Display | | $ | 51,702 |
| | $ | 36,202 |
| | $ | 87,904 |
| | $ | 57,245 |
| | $ | 43,730 |
| | $ | 100,975 |
| | (9.7 | )% | | (17.2 | )% | | (12.9 | )% |
Other | | 7,176 |
| | 18,451 |
| | 25,627 |
| | 6,676 |
| | 14,026 |
| | 20,702 |
| | 7.5 | % | | 31.5 | % | | 23.8 | % |
Total advertising | | $ | 58,878 |
| | $ | 54,653 |
| | $ | 113,531 |
| | $ | 63,921 |
| | $ | 57,756 |
| | $ | 121,677 |
| | (7.9 | )% | | (5.4 | )% | | (6.7 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended | | | | | | |
| | September 29, 2019 | | September 30, 2018 | | % Change |
(In thousands) | | Print | | Digital | | Total | | Print | | Digital | | Total | | Print | | Digital | | Total |
Advertising revenues: | | | | | | | | | | | | | | | | |
Display | | $ | 169,903 |
| | $ | 121,147 |
| | $ | 291,050 |
| | $ | 188,853 |
| | $ | 123,870 |
| | $ | 312,723 |
| | (10.0 | )% | | (2.2 | )% | | (6.9 | )% |
Other | | 21,255 |
| | 47,075 |
| | 68,330 |
| | 22,182 |
| | 31,620 |
| | 53,802 |
| | (4.2 | )% | | 48.9 | % | | 27.0 | % |
Total advertising | | $ | 191,158 |
| | $ | 168,222 |
| | $ | 359,380 |
| | $ | 211,035 |
| | $ | 155,490 |
| | $ | 366,525 |
| | (9.4 | )% | | 8.2 | % | | (1.9 | )% |
a result of the discontinuation of HelloSociety and Fake Love creative services business, as well as lower demand for creative services due to the COVID-19 pandemic. This decline was partially offset by growth in open market programmatic advertising, as impressions increased by 51%, while the average rate decreased 30%. Overall display advertising impressions increased 103% as a result of an increase in traffic to our products, which were primarily filled by programmatic impressions.Print advertising revenues, which represented 51.9%39.7% of total advertising revenues for the third quarter of 2019 and 53.2% of total advertising revenues for the first nine months of 2019, declined 7.9% to $58.9 million in the third quarter of 2019 and 9.4%2020, declined $27.4 million or 46.5% to $191.2$31.5 million compared with $58.9 million in the same prior-year period. Print advertising revenues, which represented 45.3% of total advertising revenues in the first nine months of 2019,2020, declined $76.5 million or 40.0% to $114.7 million compared with $63.9$191.2 million and $211.0 million, respectively, in the same prior-year periods.prior year period. The decline in print advertising revenues in the third quarter and in the first nine months of 2019 compared with the sameboth periods in the prior year was driven by a continued decline in display advertising revenue.lower demand as the COVID-19 pandemic further accelerated secular trends. The decline in displayprint advertising revenue in the third quarter of 20192020 was primarily in the financial services,luxury, entertainment, media and home furnishings and luxury categories, partially offset by growth in the advocacy category.categories. The decline in displayprint advertising revenue in the first nine months of 20192020 was primarily in the financial services,entertainment, luxury, media and retail categories, partially offset by growth in the advocacy category.
Digital advertising revenues, which represented 48.1% of total advertising revenues for the third quarter of 2019 and 46.8% of total advertising revenues for the first nine months of 2019, declined 5.4% to $54.7 million in the third quarter of 2019 and increased 8.2% to $168.2 million in the first nine months of 2019, compared with $57.8 million and $155.5 million, respectively, in the same prior-year periods. The decrease in digital advertising revenue for the third quarter of 2019 compared with the same period in the prior year primarily reflected lower revenue from direct-sold advertising on our core digital platforms, partially offset by growth in revenue from podcasts. The increase in digital advertising revenue for the first nine months of 2019 compared with the same period in the prior year primarily reflected growth in revenue from podcasts and creative services, partially offset by lower open market programmatic advertising revenue on our core digital platforms.home furnishings categories.
Other Revenues
Other revenues primarily consist of revenues from licensing, commercial printing,affiliate referrals from Wirecutter, the leasing of floors in the Company Headquarters, affiliate referrals,commercial printing, television (primarily from our television series, “The Weekly”),and film, retail commerce and NYT Live (our live events business). Building rental revenue consists of revenue from the lease of floors in our Company Headquarters, which totaled $7.1 million
and retail commerce.
Other revenues increased 25.9%$7.9 million in the third quarterquarters of 2020 and 2019, respectively, and 35.5%$22.3 million and $23.0 million in the first nine months of 2020 and 2019, respectively.
Other revenues decreased 2.0% in the third quarter of 2020 and increased 4.2% in the first nine months of 2020, compared with the same prior-year periods. The increasedecrease in other revenues for the third quarter of 2019 compared with the same period in the
prior year is2020 was primarily a result of fewer television episodes as well as lower revenues from commercial printing and live events. These declines were partially offset by higher licensing revenue earned from our television series, “The Weekly.”related to Facebook News and affiliate referral revenue related to Wirecutter. The increase in other revenues for the first nine months of 2019 compared with the same period2020 primarily resulted from higher licensing revenue related to Facebook News and affiliate referral revenue related to Wirecutter, partially offset by a decline in the prior year is primarily a result of growth in ourrevenues from commercial printing operations, revenue earned from “The Weekly,” and additional floors of rental revenue from the Company Headquarters.live events.
Operating Costs
As noted above, effective with the quarter ended March 29, 2020, the Company changed the Operating costs captions on its Condensed Consolidated Statement of Operations. See Note 15 of the Notes to the Condensed Consolidated Financial Statements for more detail.
Operating costs were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | | | For the Nine Months Ended | | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
|
Production costs: | | | | | | | | | | | | |
Wages and benefits | | $ | 106,377 |
| | $ | 95,941 |
| | 10.9 | % | | $ | 313,244 |
| | $ | 280,688 |
| | 11.6 | % |
Raw materials | | 18,531 |
| | 19,972 |
| | (7.2 | )% | | 57,527 |
| | 54,490 |
| | 5.6 | % |
Other production costs | | 53,868 |
| | 47,521 |
| | 13.4 | % | | 149,102 |
| | 138,454 |
| | 7.7 | % |
Total production costs | | 178,776 |
| | 163,434 |
| | 9.4 | % | | 519,873 |
| | 473,632 |
| | 9.8 | % |
Selling, general and administrative costs | | 207,226 |
| | 202,473 |
| | 2.3 | % | | 638,820 |
| | 614,464 |
| | 4.0 | % |
Depreciation and amortization | | 15,450 |
| | 14,847 |
| | 4.1 | % | | 45,548 |
| | 43,969 |
| | 3.6 | % |
Total operating costs | | $ | 401,452 |
| | $ | 380,754 |
| | 5.4 | % | | $ | 1,204,241 |
| | $ | 1,132,065 |
| | 6.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended | | | | For the Nine Months Ended | | |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Operating costs: | | | | | | | | | | | | |
Cost of revenue (excluding depreciation and amortization) | | $ | 235,900 | | | $ | 245,100 | | | (3.8) | % | | $ | 709,719 | | | $ | 729,654 | | | (2.7) | % |
Sales and marketing | | 50,627 | | | 64,218 | | | (21.2) | % | | 164,040 | | | 201,327 | | | (18.5) | % |
Product development | | 34,102 | | | 26,669 | | | 27.9 | % | | 95,641 | | | 75,658 | | | 26.4 | % |
General and administrative | | 51,118 | | | 50,015 | | | 2.2 | % | | 162,791 | | | 152,054 | | | 7.1 | % |
Depreciation and amortization | | 15,552 | | | 15,450 | | | 0.7 | % | | 46,368 | | | 45,548 | | | 1.8 | % |
Total operating costs | | $ | 387,299 | | | $ | 401,452 | | | (3.5) | % | | $ | 1,178,559 | | | $ | 1,204,241 | | | (2.1) | % |
Production CostsCost of Revenue (excluding depreciation and amortization)
ProductionCost of revenue includes all costs include items such as labor costs, raw materials and machinery and equipment expenses related to news gatheringcontent creation, subscriber and advertiser servicing, and print production activity,and distribution as well as infrastructure costs related to producing branded content.delivering digital content, which include all cloud and cloud-related costs as well as compensation for employees that enhance and maintain our platforms.
Production costs increasedCost of revenue decreased in the third quarter of 20192020 by $15.3$9.2 million compared with the third quarter of 2018, primarily driven by a $10.42019, largely due to lower print production and distribution costs of $13.5 million increase in wage and benefits and a $6.3lower advertising servicing costs of $7.9 million, increase in other production costs,which were partially offset by a $1.4higher digital content delivery costs of $5.1 million, higher journalism costs of $4.1 million and higher subscriber servicing costs of $3.0 million. The decrease in raw materials.print production and distribution costs was largely due to lower newsprint consumption and pricing, as well as lower outside printing and distribution costs. The decrease in advertising servicing costs was due to lower creative services revenues, as well as lower volume of campaigns and live events. Higher digital content delivery costs were due to a growth in the number of employees to support cloud related operations, content creation and delivery systems and higher cloud storage costs. The increase in wagesjournalism costs was largely driven by an increase in the number of newsroom employees, partially offset by lower costs related to our television series. The increase in subscriber servicing costs was primarily due to higher credit card processing fees and benefitsthird-party commissions due to increased subscriptions.
Cost of revenue decreased in the first nine months of 2020 by $19.9 million compared with the first nine months of 2019, largely due to lower print production and distribution costs of $41.9 million and lower advertising servicing costs of $17.4 million, which were partially offset by higher journalism costs of $19.8 million, higher digital content delivery costs of $12.4 million and higher subscriber servicing costs of $7.2 million. The decreases in print production and distribution costs and in advertising servicing costs were largely due to the factors identified above. The increase in journalism costs was largely driven by an increase in the number of newsroom employees. Higher digital content delivery and subscriber servicing costs were largely due to the factors identified above.
Sales and Marketing
Sales and marketing includes costs related to the Company’s marketing efforts as well as advertising sales costs.
Sales and marketing costs in the third quarter of 2020 decreased by $13.6 million compared with the third quarter of 2019, due primarily to lower media expenses and advertising sales costs.
Sales and marketing costs decreased in the first nine months of 2020 by $37.3 million compared with the first nine months of 2019, primarily as a result of the factors identified above.
Media expenses, a component of sales and marketing costs that represents the cost to promote our subscription business, decreased to $27.3 million in the third quarter of 2020 from $35.9 million in the third quarter of 2019 and decreased to $89.2 million in the first nine months of 2020 from $114.6 million in the first nine months of 2019 as the Company reduced its marketing spend during the COVID-19 pandemic.
Product Development
Product development includes costs associated with the Company’s investment into developing and enhancing new and existing product technology including engineering, product development, and data insights.
Product development costs in the third quarter of 2020 increased by $7.4 million compared with the third quarter of 2019, largely due to growth in the number of newsroom anddigital product development employees. The increase in other production costs was primarily due to expenses incurredemployees in connection with our television series,“The Weekly.” The decrease in raw materials was largely due to lower commercial printingdigital subscription strategic initiatives.
Product development costs and newsprint copies.
Production costs increased in the first nine months of 20192020 increased by $46.2$20.0 million compared with the first nine months of 2018,2019, primarily driven by a $32.6 million increase in wages and benefits, a $10.6 million increase in other production costs and a $3.0 million increase in raw materials. The increase in wages and benefits was largely due growth in the number of our newsroom, product development and commercial printing operations employees. The increase in other production costs was primarily due to expenses incurred in connection with our television series, “The Weekly.” The increase in raw materials was largely due to higher volume as a result of commercial printing operations and higher newsprint prices, partially offset by lower newsprint copies.the factors identified above.
Selling, General and Administrative Costs
Selling, generalGeneral and administrative costs includeincludes general management, corporate enterprise technology, building operations, unallocated overhead costs, associated with the selling, marketingseverance and distribution of products as well as administrative expenses.multiemployer pension plan withdrawal costs.
Selling, generalGeneral and administrative costs in the third quarter of 20192020 increased by $4.8$1.1 million compared with the third quarter of 2018 driven2019, primarily byas a $7.3 million increaseresult of growth in wages and benefits to support growth initiatives, partially offset by $3.2 million in lower distributionthe number of employees, as well as higher outside services costs.
Selling, generalGeneral and administrative costs in the first nine months of 20192020 increased by $24.4$10.7 million compared with the first nine months of 2018 driven2019, primarily byas a $16.8 million increaseresult of severance, growth in wages and benefits to support growth initiatives, a $14.9 million increase in marketing expenses largely due to an increase in subscription acquisition and brand marketing costs, partially offset by a $4.8 million decrease inthe number of employees, as well as higher outside services costs and a $2.5 million decrease in severance.
costs.
Depreciation and Amortization
Depreciation and amortization costs in the third quarter and first nine months of 2019 increased $0.6 million and $1.6 million, respectively,2020 remained relatively flat compared with the same prior-year periods primarily due to building and software projects that were placed in service and started depreciating in the second half of 2018.periods.
Other Items
See Note 87 of the Notes to the Condensed Consolidated Financial Statements for additional information regarding other items.
NON-OPERATING ITEMS
Other Components of Net Periodic Benefit Costs/(Income)Costs
See Note 109 of the Notes to the Condensed Consolidated Financial Statements for information regarding other components of net periodic benefit costs/(income).
Joint Ventures
See Note 6 of the Notes to the Condensed Consolidated Financial Statements for information regarding our joint venture investments.costs.
Interest ExpenseIncome/(expense) and other, Netnet
See Note 7 of the Notes to the Condensed Consolidated Financial Statements for information regarding interest expenseincome/(expense) and other, net.
Income Taxes
See Note 1110 of the Notes to the Condensed Consolidated Financial Statements for information regarding income taxes.
Non-GAAP Financial Measures
We have included in this report certain supplemental financial information derived from consolidated financial information but not presented in our financial statements prepared in accordance with GAAP. Specifically, we have referred to the following non-GAAP financial measures in this report:
•diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and the impact of special items (or adjusted diluted earnings per share from continuing operations);
•operating profit before depreciation, amortization, severance, multiemployer pension plan withdrawal costs and special items (or adjusted operating profit); and
•operating costs before depreciation, amortization, severance and multiemployer pension plan withdrawal costs (or adjusted operating costs).
The special item in 2020 consisted of:
•a $10.1 million gain ($7.4 million after tax or $.04 per share) related to a non-marketable equity investment transaction. The gain is comprised of $2.5 million realized gain due to the partial sale of the investment and an $7.6 million unrealized gain due to the mark to market of the remaining investment, and is included in Interest income/(expense) and other, net in our Condensed Consolidated Statements of Operations.
The special items in 2019 consisted of:
•a $4.0 million charge ($3.0 million after tax or $.02 per share) related to restructuring charges, including impairment and severance charges related to the closure of our digital marketing agency, HelloSociety, LLC; and
•a $2.0 million gain ($1.5 million after tax or $.01 per share) from a multiemployer pension plan liability adjustment.
The special items in 2018 consisted of:
| |
• | a $4.9 million gain ($3.6 million after tax or $.02 per share) from a multiemployer pension plan liability adjustment; and
|
a $1.3 million charge ($0.9 million after tax or $.01 per share) in the second quarter and a $1.9 million charge ($1.4 million after tax or $.01 per share) in the first quarter in connection with the redesign and consolidation of space in the Company Headquarters.
We have included these non-GAAP financial measures because management reviews them on a regular basis and uses them to evaluate and manage the performance of our operations. We believe that, for the reasons outlined below, these non-GAAP financial measures provide useful information to investors as a supplement to reported diluted earnings/(loss) per share from continuing operations, operating profit/(loss) and operating costs. However, these measures should be evaluated only in conjunction with the comparable GAAP financial measures and should not be viewed as alternative or superior measures of GAAP results.
Non-operating retirement costs include:
interest cost, expected return on plan assets, amortization of actuarial gain and loss components and amortization of prior service credits of single-employer pension expense;
interest cost and amortization of actuarial gains and loss components and amortization of prior service credits of retirement medical expense; and
all multiemployer pension plan withdrawal costs.
These non-operating retirement costs are primarily tied to financial market performance including changes in market interest rates and investment performance. Management considers non-operating retirement costs to be outside the performance of the business and believes that presenting adjusted diluted earnings per share from continuing operations excluding non-operating retirement costs and presenting adjusted operating results excluding multiemployer pension plan withdrawal costs, in addition to the Company’s GAAP diluted earnings per share from continuing operations and GAAP operating results, provide increased transparency and a better understanding of the underlying trends in the Company’s operating business performance.
Adjusted diluted earnings per share provides useful information in evaluating the Company’s period-to-period performance because it eliminates items that the Company does not consider to be indicative of earnings from ongoing operating activities. Adjusted operating profit is useful in evaluating the ongoing performance of the Company’s businesses as it excludes the significant non-cash impact of depreciation and amortization as well as items not indicative of ongoing operating activities. Total operating costs include depreciation, amortization, severance and multiemployer pension plan withdrawal costs. Total operating costs, excluding these items, provide investors with helpful supplemental information on the Company’s underlying operating costs that is used by management in its financial and operational decision-making.
Management considers special items, which may include impairment charges, pension settlement charges and other items that arise from time to time, to be outside the ordinary course of our operations. Management believes that excluding these items provides a better understanding of the underlying trends in the Company’s operating performance and allows more accurate comparisons of the Company’s operating results to historical performance. In addition, management excludes severance costs, which may fluctuate significantly from quarter to quarter, because it believes these costs do not necessarily reflect expected future operating costs and do not contribute to a meaningful comparison of the Company’s operating results to historical performance.
Included in our non-GAAP financial measures are non-operating retirement costs which are primarily tied to financial market performance and changes in market interest rates and investment performance. Management considers non-operating retirement costs to be outside the performance of the business and believes that presenting adjusted diluted earnings per share from continuing operations excluding non-operating retirement costs and presenting adjusted operating results excluding multiemployer pension plan withdrawal costs, in addition to the Company’s GAAP diluted earnings per share from continuing operations and GAAP operating results, provide increased transparency and a better understanding of the underlying trends in the Company’s operating business performance.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are set out in the tables below. | | Reconciliation of diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations) | Reconciliation of diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations) | Reconciliation of diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations) |
| | For the Quarters Ended | | | | For the Nine Months Ended | | | | For the Quarters Ended | | For the Nine Months Ended | |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Diluted earnings per share from continuing operations | | $ | 0.10 |
| | $ | 0.15 |
| | (33.3 | )% | | $ | 0.43 |
| | $ | 0.42 |
| | 2.4 | % | Diluted earnings per share from continuing operations | | $ | 0.20 | | | $ | 0.10 | | | * | | $ | 0.54 | | | $ | 0.43 | | | 25.6 | % |
Add: | | | | | | | | | | | | | Add: | |
Severance | | — |
| | — |
| | — |
| | 0.01 |
| | 0.03 |
| | (66.7 | )% | Severance | | — | | | — | | | — | | | 0.04 | | | 0.01 | | | * |
Non-operating retirement costs: | | | | | | | |
|
| |
|
| |
|
| Non-operating retirement costs: | |
Multiemployer pension plan withdrawal costs | | 0.01 |
| | 0.01 |
| | — |
| | 0.03 |
| | 0.03 |
| | — |
| Multiemployer pension plan withdrawal costs | | 0.01 | | | 0.01 | | | — | | | 0.02 | | | 0.03 | | | (33.3) | % |
Other components of net periodic benefit costs | | 0.01 |
| | 0.02 |
| | (50.0 | )% | | 0.03 |
| | 0.04 |
| | (25.0 | )% | Other components of net periodic benefit costs | | 0.01 | | | 0.01 | | | — | | | 0.04 | | | 0.03 | | | 33.3 | % |
Special item: | | | | | | | | | | | | | Special item: | |
Headquarters redesign and consolidation | | — |
| | — |
| | — |
| | — |
| | 0.02 |
| | * |
| |
| Restructuring charge | | 0.02 |
| | — |
| | * |
| | 0.02 |
| | — |
| | * |
| Restructuring charge | | — | | | 0.02 | | | * | | — | | | 0.02 | | | * |
Gain from non- marketable equity security | | Gain from non- marketable equity security | | — | | | — | | | — | | | (0.06) | | | — | | | * |
Gain from pension liability adjustment | | (0.01 | ) | | (0.03 | ) | | (66.7 | )% | | (0.01 | ) | | (0.03 | ) | | (66.7 | )% | Gain from pension liability adjustment | | — | | | (0.01) | | | * | | — | | | (0.01) | | | * |
| Income tax expense of adjustments | | (0.01 | ) | | — |
| | * |
| | (0.02 | ) | | (0.02 | ) | | * |
| Income tax expense of adjustments | | (0.01) | | | (0.01) | | | — | | | (0.01) | | | (0.02) | | | (50.0) | % |
Adjusted diluted earnings per share from continuing operations(1) | | $ | 0.12 |
| | $ | 0.15 |
| | (20.0 | )% | | $ | 0.49 |
| | $ | 0.49 |
| | — |
| Adjusted diluted earnings per share from continuing operations(1) | | $ | 0.22 | | | $ | 0.12 | | | 83.3 | % | | $ | 0.57 | | | $ | 0.49 | | | 16.3 | % |
(1)Amounts may not add due to rounding.
* Represents a change equal to or in excess of 100% or not meaningful
| | Reconciliation of operating profit before depreciation & amortization, severance, multiemployer pension plan withdrawal costs and special items (or adjusted operating profit) | Reconciliation of operating profit before depreciation & amortization, severance, multiemployer pension plan withdrawal costs and special items (or adjusted operating profit) | Reconciliation of operating profit before depreciation & amortization, severance, multiemployer pension plan withdrawal costs and special items (or adjusted operating profit) |
| | For the Quarters Ended | | | | For the Nine Months Ended | | | | For the Quarters Ended | | For the Nine Months Ended | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| (In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Operating profit | | $ | 25,086 |
| | $ | 41,443 |
| | (39.5 | )% | | $ | 97,617 |
| | $ | 115,500 |
| | (15.5 | )% | Operating profit | | $ | 39,596 | | | $ | 25,086 | | | 57.8 | % | | $ | 95,722 | | | $ | 97,617 | | | (1.9) | % |
Add: | | | | | | | | | | | | | Add: | |
Depreciation & amortization | | 15,450 |
| | 14,847 |
| | 4.1 | % | | 45,548 |
| | 43,969 |
| | 3.6 | % | Depreciation & amortization | | 15,552 | | | 15,450 | | | 0.7 | % | | 46,368 | | | 45,548 | | | 1.8 | % |
Severance | | 367 |
| | 293 |
| | 25.3 | % | | 2,441 |
| | 4,926 |
| | (50.4 | )% | Severance | | — | | | 367 | | | * | | 6,675 | | | 2,441 | | | * |
Multiemployer pension plan withdrawal costs | | 1,204 |
| | 1,943 |
| | (38.0 | )% | | 4,454 |
| | 5,838 |
| | (23.7 | )% | Multiemployer pension plan withdrawal costs | | 1,376 | | | 1,204 | | | 14.3 | % | | 4,198 | | | 4,454 | | | (5.7) | % |
Special items: | | | | | | | | | | | | | Special items: | |
Headquarters redesign and consolidation | | — |
| | — |
| | — |
| | — |
| | 3,140 |
| | * |
| |
| Restructuring charge | | 4,008 |
| | — |
| | * |
| | 4,008 |
| | — |
| | * |
| Restructuring charge | | — | | | 4,008 | | | * | | — | | | 4,008 | | | * |
Gain from pension liability adjustment | | (2,045 | ) | | (4,851 | ) | | (57.8 | )% | | (2,045 | ) | | (4,851 | ) | | (57.8 | )% | Gain from pension liability adjustment | | — | | | (2,045) | | | * | | — | | | (2,045) | | | * |
| Adjusted operating profit | | $ | 44,070 |
| | $ | 53,675 |
| | (17.9 | )% | | $ | 152,023 |
| | $ | 168,522 |
| | (9.8 | )% | Adjusted operating profit | | $ | 56,524 | | | $ | 44,070 | | | 28.3 | % | | $ | 152,963 | | | $ | 152,023 | | | 0.6 | % |
* Represents a change equal to or in excess of 100% or not meaningful
|
| | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of operating costs before depreciation & amortization, severance and multiemployer pension plan withdrawal costs (or adjusted operating costs) |
| | For the Quarters Ended | | | | For the Nine Months Ended | | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
|
Operating costs | | $ | 401,452 |
| | $ | 380,754 |
| | 5.4 | % | | $ | 1,204,241 |
| | $ | 1,132,065 |
| | 6.4 | % |
Less: | | | | | | | | | | | | |
Depreciation & amortization | | 15,450 |
| | 14,847 |
| | 4.1 | % | | 45,548 |
| | 43,969 |
| | 3.6 | % |
Severance | | 367 |
| | 293 |
| | 25.3 | % | | 2,441 |
| | 4,926 |
| | (50.4 | )% |
Multiemployer pension plan withdrawal costs | | 1,204 |
| | 1,943 |
| | (38.0 | )% | | 4,454 |
| | 5,838 |
| | (23.7 | )% |
Adjusted operating costs | | $ | 384,431 |
| | $ | 363,671 |
| | 5.7 | % | | $ | 1,151,798 |
| | $ | 1,077,332 |
| | 6.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of operating costs before depreciation & amortization, severance and multiemployer pension plan withdrawal costs (or adjusted operating costs) |
| | For the Quarters Ended | | | | For the Nine Months Ended | | |
(In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change | | September 27, 2020 | | September 29, 2019 | | % Change |
Operating costs | | $ | 387,299 | | | $ | 401,452 | | | (3.5) | % | | $ | 1,178,559 | | | $ | 1,204,241 | | | (2.1) | % |
Less: | | | | | | | | | | | | |
Depreciation & amortization | | 15,552 | | | 15,450 | | | 0.7 | % | | 46,368 | | | 45,548 | | | 1.8 | % |
Severance | | — | | | 367 | | | * | | 6,675 | | | 2,441 | | | * |
Multiemployer pension plan withdrawal costs | | 1,376 | | | 1,204 | | | 14.3 | % | | 4,198 | | | 4,454 | | | (5.7) | % |
Adjusted operating costs | | $ | 370,371 | | | $ | 384,431 | | | (3.7) | % | | $ | 1,121,318 | | | $ | 1,151,798 | | | (2.6) | % |
* Represents a change equal to or in excess of 100% or not meaningful
LIQUIDITY AND CAPITAL RESOURCES
We believe our cash balance and cash provided by operations, in combination with other sources of cash, will be sufficient to meet our financing needs over the next twelve months. Although there is uncertainty related to the anticipated continued effect of the COVID-19 pandemic on our business (see “—Executive Overview— Impact of COVID-19 Pandemic” and “Part II—Item 1A—Risk Factors”), given the strength of our balance sheet, we do not expect the pandemic to materially impact our liquidity position. As of September 29, 2019,27, 2020, we had cash, cash equivalents and short- and long-term marketable securities of $877.9 million and total debt of $246.2 million. Accordingly, our cash, cash equivalents, and marketable securities exceeded total debt by $631.7$800.1 million. Our cash and investmentmarketable securities balances have increased sincebetween the end of 2018,2019 and September 27, 2020, increased, primarily due to cash proceeds from operating activities and lower capital expenditures,proceeds from sale of investments, partially offset by share basedconsideration paid for acquisitions, capital expenditures, dividend payments, and share-based compensation tax withholding and dividend payments.withholding.
We have paid quarterly dividends of $0.04 per share on the Class A and Class B Common Stock fromeach quarter since late 2013 through early 2019.2013. In February 2019,2020, the Board of Directors approved an increase in the quarterly dividend to $0.05$0.06 per share, which was paid in April 2019.2020. In June and September 2019,2020, the Board of Directors declared a quarterly dividend of $0.05$0.06 per share on the Class A and Class B Common Stock, which was paid in July and October 2019.2020. We currently expect to continue to pay comparable cash dividends in the future, although changes in our dividends will be considered by our Board of Directors in light of our earnings, capital requirements, financial condition and other factors considered relevant.
In March 2009, we entered into an agreement to sell and simultaneously lease back the Condo Interest in the Company Headquarters. The sale price for the Condo Interest was $225.0 million less transaction costs, for net proceeds of approximately $211 million. In December 2019, we expect to repurchase the Condo Interest for $245.3 million and fund the purchase from our existing cash and marketable securities.
In addition, on August 1, 2019, using existing cash, we purchased the previously leased land at our College Point, N.Y., printing and distribution facility for $6.9 million.
In September 2019, the Company entered into a $250.0 million five-year revolving credit facility. Certain of the Company’s domestic subsidiaries have guaranteed the Company’s obligations under the credit facility. As of September 29, 2019, there were no outstanding borrowings under the credit facility.
We expect to receive a final cash distribution of approximately $5 million to $8 million related to the wind down of our Madison investment. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for more information on the Company’s investment in Madison.
Capital Resources
Sources and Uses of Cash
Cash flows provided by/(used in) by category were as follows:
| | | | For the Nine Months Ended | | | | For the Nine Months Ended | |
(In thousands) | | September 29, 2019 |
| | September 30, 2018 |
| | % Change |
| (In thousands) | | September 27, 2020 | | September 29, 2019 | | % Change |
Operating activities | | $ | 121,600 |
| | $ | 116,376 |
| | 4.5 | % | Operating activities | | $ | 206,683 | | | $ | 121,600 | | | 70.0 | % |
Investing activities | | $ | (37,258 | ) | | $ | (103,809 | ) | | (64.1 | )% | Investing activities | | $ | (187,264) | | | $ | (37,258) | | | * |
Financing activities | | $ | (43,139 | ) | | $ | 11,427 |
| | * |
| Financing activities | | $ | (35,671) | | | $ | (43,139) | | | (17.3) | % |
* Represents a change equal to or in excess of 100% or not meaningful
Operating Activities
Cash from operating activities is generated by cash receipts from subscriptions, advertising sales and other revenue. Operating cash outflows include payments for employee compensation, pensioncontributions to retirement funds and other benefits,benefit payments, raw materials, marketing expenses, interest and income taxes.
Net cash provided by operating activities increased in the first nine months of 20192020 compared with the same prior-year period primarily due to higher cash collections from customers, lower interest expenseaccounts receivable, higher income and lower incentive compensationhigher cash payments received from prepaid subscriptions, partially offset by higher cash tax payments made to settle accounts payable, accrued payroll and lower cash received from subscriptions.other liabilities.
Investing Activities
Cash from investing activities generally includes proceeds from marketable securities that have matured and the sale of assets, investments or a business. Cash used in investing activities generally includes purchases of marketable securities, payments for capital projects and acquisitions of new businesses and investments.
Net cash used in investing activities in the first nine months of 20192020 was primarily related to approximately $33 million in capital expenditures payments and $7$128.3 million in net purchases of marketable securities.
securities, consideration paid for acquisitions of $33.1 million, and $29.2 million in capital expenditures payments.
Financing Activities
Cash from financing activities generally includes borrowings under third-party financing arrangements, the issuance of long-term debt and funds from stock option exercises. Cash used in financing activities generally includes the repayment of amounts outstanding under third-party financing arrangements, the payment of dividends, the payment of long-term debt and finance lease obligations and share-based compensation tax withholding.
Net cash used in financing activities in the first nine months of 20192020 was primarily related to dividend payments of $23.3$28.4 million stock-basedand share-based compensation tax withholding payments of $15.6 million and the purchase of previously leased land at our College Point, N.Y., printing and distribution facility for $6.9 million, partially offset by proceeds from stock option exercises of approximately $3$11.7 million.
Restricted Cash
We were required to maintain $17.0$15.9 million of restricted cash as of September 29, 2019,27, 2020, and $18.3$17.1 million as of December 30, 2018,29, 2019, substantially all of which is set aside to collateralize workers’ compensation obligations.
Capital Expenditures
Capital expenditures totaled approximately $33$25 million and $48$33 million in the first nine months of 20192020 and 2018,2019, respectively. The decrease in capital expenditures was primarily driven by higherlower expenditures in the first nine months of 2018 related to the redesign and consolidationbuild-out of additional office space in the Company Headquarters.Long Island City, N.Y. and lower expenditures related to improvements at our College Point, N.Y. printing and distribution facility. The cash payments related to capital expenditures totaled approximately $33$29 million and $62$33 million in the first nine months of 20192020 and 2018,2019, respectively.
Third-Party Financing
As of September 29, 2019, our current indebtedness primarily consisted of the repurchase option related to a sale-leaseback of a portion of the Company Headquarters. See Note 7 of the Notes to the Condensed Consolidated Financial Statements for information regarding our total debt and finance lease obligations. See Note 9 of the Notes to the Condensed Consolidated Financial Statements for information regarding the fair value of our short-term debt.
In September 2019, we entered into a $250.0$250 million five-year unsecured credit facility (the “Credit Facility”). Certain of our domestic subsidiaries have guaranteed our obligations under the Credit Facility. As of September 29, 2019,27, 2020, there were no outstanding borrowings under the Credit Facility.
The Credit Facility contains various customary affirmative and negative covenants, including certain financial covenants and various incurrence-based negative covenants described below.
The interest coverage ratio financial covenant provides that the Loan Parties (as defined in the Credit Facility) will be required to maintain on a trailing four-quarter basis a Consolidated Interest Coverage Ratio of not less than 3.00:1.00. Consolidated Interest Coverage Ratio is defined as the ratio of (i) Consolidated EBITDA (as defined by the credit agreement) to (ii) Consolidated Interest Charges (as defined by the credit agreement) for such period.
The leverage ratio financial covenant provides that the Loan Parties will be required to maintain on a trailing four-quarter basis a Consolidated Leverage Ratio of not more than 2.50:1.00. Consolidated Leverage Ratio is defined as the ratio of (i) Consolidated Funded Indebtedness (as defined by the credit agreement) (less the Encumbered Property Escrow Amount (as defined by the credit agreement)) to (ii) Consolidated EBITDA for such period.
In addition, the Credit Facility contains incurrence-based negative covenants that, subject to various exceptions, limit the ability of the Company or its subsidiaries to, among other things:
incur debt (directly or by third party guarantees);
grant liens;
pay dividends;
make investments;
make acquisitions or dispositions; and
prepay debt.
The Credit Facility generally permits the Company to continue to pay its regular quarterly dividend, and to make other restricted payments so long as it iswas in pro forma compliance with the financial covenants and no default has occurred or would result from such other restricted payment. In addition,contained in the Company and its subsidiaries may (in addition to other customary exceptions and baskets), (i) incur indebtedness secured by liens on its headquarters building or its College Point, N.Y., printing and distribution facility, and (ii) incur indebtedness so long as the Company does not exceed, on a pro forma basis, a Consolidated Leverage Ratio of 2.25:1.00 and no default has occurred or would occur from such indebtedness incurrence.Credit Facility.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are detailed in our Annual Report on Form 10-K for the year ended December 30, 2018.29, 2019. Other than as described in Note 2 of the Notes to the Condensed Consolidated Financial Statements, as of September 29, 2019,27, 2020, our critical accounting policies have not changed from December 30, 2018.29, 2019.
CONTRACTUAL OBLIGATIONS & OFF-BALANCE SHEET ARRANGEMENTS
Our contractual obligations and off-balance sheet arrangements are detailed in our Annual Report on Form 10-K for the year ended December 30, 2018.29, 2019. As of September 29, 2019,27, 2020, our contractual obligations and off-balance sheet arrangements have not changed materially from December 30, 2018.29, 2019.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that relate to future events or our future financial performance. We may also make written and oral forward-looking statements in our Securities and Exchange Commission (“SEC”) filings and otherwise. We have tried, where possible, to identify such statements by using words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “could,” “project,” “plan” and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statements are and will be based upon our then-current expectations, estimates and assumptions regarding future events and are applicable only as of the dates of such statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in any such statements. You should bear this in mind as you consider forward-looking statements. Factors that we think could, individually or in the aggregate, cause our actual results to differ materially from expected and historical results include those described under the heading “Part II-Item 1A-Risk Factors” in this report, in our Annual Report on Form 10-K for the year ended December 30, 2018,29, 2019, as well as other risks and factors identified from time to time in our SEC filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our Annual Report on Form 10-K for the year ended December 30, 2018,29, 2019, details our disclosures about market risk. As of September 29, 2019,27, 2020, there were no material changes in our market risks from December 30, 2018.
29, 2019.
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of September 29, 2019.27, 2020. Based upon such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during the quarter ended September 29, 2019,27, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have not experienced a material impact to our internal control over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continuing to monitor and evaluate the situation to minimize any impact of the pandemic on the design and operating effectiveness of our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal actions incidental to our business that are now pending against us. These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made. See Note 16 of the Notes to the Condensed Consolidated Financial Statements for a description of certain matters, which is incorporated herein by reference. Although the Company cannot predict the outcome of these matters, it is possible that an unfavorable outcome in one or more matters could be material to the Company’s consolidated results of operations or cash flows for an individual reporting period. However, based on currently available information, management does not believe that the ultimate resolution of these matters, individually or in the aggregate, is likely to have a material effect on the Company’s financial position.
Item 1A. Risk Factors
There have been no material changes to ourThe following risk factor supplements the risk factors as set forth in “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 30, 2018.29, 2019.
The global coronavirus (COVID-19) pandemic will continue to affect our industry, business and results of operations. The global coronavirus (COVID-19) pandemic and attempts to contain it have continued to result in significant economic disruption, market volatility and uncertainty. As with many companies, the pandemic has disrupted our business and could continue to do so for the foreseeable future.
We derive substantial revenues from the sale of advertising (approximately 29% of our total revenues in 2019). Advertising spending is sensitive to overall economic conditions, and our advertising revenues are adversely affected if advertisers respond to weak and uneven economic conditions by reducing their budgets or shifting spending patterns or priorities, or if they are forced to consolidate or cease operations. The worldwide economic slowdown caused by the outbreak and spread of COVID-19 has materially adversely affected our advertising revenues, and our advertising revenues will likely continue to be adversely affected while these conditions persist. Likewise, the pandemic and attempts to contain it have resulted in the postponement and cancellation of live events, which has adversely affected our revenues from live events and related services, and will continue to adversely affect these revenues to the extent these conditions persist. It is possible that these revenues will not return to pre-pandemic levels once economic conditions improve.
We derive the majority of our revenues from the sale of subscriptions (approximately 60% of our total revenues in 2019). Although we have experienced significant growth in the number of subscriptions to our digital news and other products in the first nine months of 2020, this growth rate has been driven in part by an increase in traffic given the news environment, and may not be sustainable or indicative of results for future periods. In addition, the recent growth may reflect in part the shifting forward of growth that we would have otherwise seen in subsequent periods. Accordingly, the rate of growth in our digital subscriptions, which has moderated since the early months of the pandemic, may continue to moderate due to slower acquisition and/or higher cancellations as and when the pandemic subsides. Furthermore, to the extent that a prolonged weakening of global economic conditions leads consumers to reduce spending on discretionary activities, subscribers may increasingly shift to lower-priced subscription options or may forgo subscriptions altogether. In light of these factors, our ability to obtain new subscribers or to retain subscribers at their current or higher pricing levels could be hindered, reducing our subscription revenue. In addition, revenues from the single-copy and bulk sales of our print newspaper (which include our international edition and collectively represent less than 10% of our total subscription revenues) have been, and we expect will continue to be, adversely affected as a result of widespread business closures, increased remote working and reductions in travel.
In response to public health recommendations, government mandates and other concerns, we have altered certain aspects of our operations, including having the vast majority of our workforce work remotely since March 2020, and remote work arrangements are expected to continue for the majority of our workforce at least through early July 2021. An extended period of remote work arrangements could introduce operational risk (including cybersecurity risk), result in a decline in productivity or otherwise negatively affect our ability to manage the business. In addition, if a significant portion of our workforce is unable to work, including because of illness, travel or government restrictions in connection with COVID-19 or shortages of necessary personal protective equipment, our operations may be negatively impacted. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations as may be required or that we determine are appropriate. We have incurred and expect to continue to incur some additional costs in response to the pandemic, including certain enhanced employee benefits. These costs have not been significant to date, but we may incur significant additional costs as we continue to implement operational changes in response to the pandemic. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our financial results.
The Times is printed at our production and distribution facility in College Point, N.Y., as well as under contract at remote print sites across the United States and throughout the world. If a significant percentage of our College Point employees were unable to work as a result of the pandemic, our ability to print and distribute the newspaper and other commercial print
products in the New York area could be negatively affected. To the extent our newsprint suppliers or print and distribution partners are affected by government “stay-at-home” mandates or recommendations, financial pressures, labor shortages or other circumstances relating to COVID-19 that lead to reduced operations or consolidations or closures of print sites and/or distribution routes, this could lead to an increase in costs to print and distribute our newspapers and/or a decrease in revenues if printing and distribution are disrupted. Some of our print and distribution partners have taken steps to reduce the frequency with which newspapers are printed and distributed, and additional partners may take similar steps. Significant disruptions to operations at our College Point production and distribution facility or at our newsprint suppliers or print and distribution partners could adversely affect our operating results.
It is also possible that the COVID-19 pandemic may accelerate or worsen the other risks discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including the severity and duration of the outbreak, and any resurgence thereof; the impact of the pandemic on economic activity and the companies with which we do business; governmental, business and other actions; travel restrictions and social distancing measures, among many other factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities
On July 17, 2020, August 17, 2020, and September 18, 2020, we issued 1,520, 13,440 and 6,720 shares, respectively, of Class A Common Stock to holders of Class B Common Stock upon the conversion of such Class B shares into Class A shares. The conversions, which were in accordance with our Certificate of Incorporation, did not involve a public offering and were exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
(c) Issuer Purchases of Equity Securities
In 2015, the Board of Directors approved an authorization of $101.1 million to repurchase shares of the Company’s Class A Common Stock. As of September 29, 2019,27, 2020, repurchases under this authorization totaled $84.9 million (excluding commissions), and $16.2 million remained under this authorization. The Company did not repurchase any shares during the first nine months of 2019.2020. All purchases were made pursuant to our publicly announced share repurchase program. Our Board of Directors has authorized us to purchase shares from time to time, subject to market conditions and other factors. There is no expiration date with respect to this authorization.
Item 6. Exhibits
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Exhibit No. | | |
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10.131.1 | | |
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Credit Agreement, dated31.2 | | |
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32.1 | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of September 10, 2019, among The New York Times Company, as borrower, the financial institutions party thereto, as lenders, BankSarbanes-Oxley Act of America, N.A., as administrative agent, swing line lender and L/C Issuer, Wells Fargo Securities, LLC and J.P. Morgan Chase Bank, National Association, and BOFA Securities, Inc., as joint lead arrangers and joint book runners2002 (filed as Exhibit 10.1 to the Company’s Form 8-K dated September 11, 2019, and incorporated by reference herein). |
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31.132.2 | | |
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31.2 | | |
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32.1 | | |
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32.2101.INS | | |
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101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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 5, 2020 | THE NEW YORK TIMES COMPANY |
| | (Registrant) |
| | |
Date: | November 6, 2019 | /s/ Roland A. Caputo |
| | Roland A. Caputo Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|