FORM 10-Q
UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For Quarter Ended July 1, 2001
Commission file number 1-5837
THE NEW YORK TIMES COMPANY
--------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-1102020
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
229 WEST 43RD STREET, NEW YORK, NEW YORK
----------------------------------------
(Address of principal executive offices)
10036
----------
(Zip Code)
Registrant's telephone number, including area code 212-556-1234
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No |_|.
Number of shares of each class of the registrant's common stock outstanding as
of August 3, 2001 (exclusive of treasury shares):
Class A Common Stock 156,104,681 shares
Class B Common Stock 847,020 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars and shares in thousands, except per share data)
Three Months Ended Six Months Ended
------------------- -----------------------
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
------------------- -----------------------
(13 Weeks) (26 Weeks)
Revenues
Advertising .......................................... $520,218 $628,225 $1,064,509 $1,221,665
Circulation .......................................... 187,946 181,494 372,959 363,826
Other ................................................ 52,118 47,745 100,967 93,792
-------- -------- ---------- ----------
Total ............................................ 760,282 857,464 1,538,435 1,679,283
-------- -------- ---------- ----------
Production costs
Raw materials ........................................ 83,907 84,139 168,986 166,512
Wages and benefits ................................... 148,408 156,705 301,560 312,114
Other ................................................ 109,736 111,374 220,656 220,433
-------- -------- ---------- ----------
Total ............................................ 342,051 352,218 691,202 699,059
Selling, general and administrative expenses ............. 370,020 328,960 684,538 653,510
-------- -------- ---------- ----------
Total ............................................ 712,071 681,178 1,375,740 1,352,569
-------- -------- ---------- ----------
Operating profit ......................................... 48,211 176,286 162,695 326,714
Income from joint ventures ............................... 765 3,622 1,657 7,249
Interest expense - net ................................... 10,399 15,190 25,190 30,532
Other .................................................... 1,250 -- 2,500 --
-------- -------- ---------- ----------
Income from continuing operations before income taxes .... 39,827 164,718 141,662 303,431
Income taxes ............................................. 15,611 68,572 57,364 126,834
-------- -------- ---------- ----------
Income from continuing operations ........................ 24,216 96,146 84,298 176,597
Discontinued operations, net of income taxes:
Income from operations of discontinued Magazine Group -- 5,592 1,192 8,204
Gain on disposal of Magazine Group .................. 241,258 -- 241,258 --
-------- -------- ---------- ----------
Net Income ............................................... $265,474 $101,738 $ 326,748 $ 184,801
======== ======== ========== ==========
Average Number of Common Shares
Basic ............................................... 158,758 169,501 160,323 171,233
Diluted ............................................. 161,687 173,047 163,408 175,110
Basic Earnings Per Share
Income from continuing operations ................... $ 0.15 $ 0.57 $ 0.53 $ 1.03
Discontinued operations, net of income taxes ........ 1.52 0.03 1.51 0.05
-------- -------- ---------- ----------
Net Income .......................................... $ 1.67 $ 0.60 $ 2.04 $ 1.08
======== ======== ========== ==========
Diluted Earnings Per Share
Income from continuing operations .................... $ 0.15 $ 0.56 $ 0.52 $ 1.01
Discontinued operations, net of income taxes ......... 1.49 0.03 1.48 0.05
-------- -------- ---------- ----------
Net Income ........................................... $ 1.64 $ 0.59 $ 2.00 $ 1.06
======== ======== ========== ==========
Dividends per share ...................................... $ 0.125 $ 0.115 $ 0.240 $ 0.220
======== ======== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
2
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 1, December 31,
2001 2000
----------- ------------
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents ..................... $ 113,306 $ 69,043
Accounts receivable-net ....................... 292,367 341,863
Inventories
Newsprint and magazine paper .............. 25,064 30,639
Work-in-process and other ................. 3,354 4,425
---------- ----------
Total inventories .................... 28,418 35,064
Deferred income taxes ......................... 62,939 62,939
Other current assets .......................... 50,679 101,079
---------- ----------
Total current assets ................. 547,709 609,988
---------- ----------
Other Assets
Investments in joint ventures ................. 97,147 107,320
Property, plant and equipment (less accumulated
depreciation of $1,121,899 in 2001
and $1,081,114 in 2000) ................... 1,173,397 1,207,160
Intangible assets acquired
Cost in excess of net assets acquired (less
accumulated amortization of $312,459
in 2001 and $302,571 in 2000) ............. 1,033,389 1,060,796
Other intangible assets acquired (less
accumulated amortization of $126,915
in 2001 and $110,172 in 2000) ............. 402,380 419,302
Miscellaneous assets .......................... 210,483 202,113
---------- ----------
TOTAL ASSETS ...................................... $3,464,505 $3,606,679
========== ==========
See Notes to Condensed Consolidated Financial Statements.
3
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 1, December 31,
2001 2000
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
Current Liabilities
Commercial paper outstanding ................... $ -- $ 291,251
Accounts payable ............................... 153,956 174,552
Accrued payroll and other related liabilities .. 80,191 126,983
Accrued expenses ............................... 232,720 185,003
Accrued income taxes ........................... 123,312 9,852
Unexpired subscriptions ........................ 64,742 87,130
Current portion of long-term debt and
capital lease obligations .................. 42,972 2,599
----------- -----------
Total current liabilities .................. 697,893 877,370
----------- -----------
Other Liabilities
Long-term debt ................................. 513,819 553,415
Capital lease obligations ...................... 82,708 83,451
Deferred income taxes .......................... 107,127 106,247
Other .......................................... 722,492 705,033
----------- -----------
Total other liabilities .................... 1,426,146 1,448,146
----------- -----------
Total liabilities .......................... 2,124,039 2,325,516
----------- -----------
Stockholders' Equity
Capital stock of $.10 par value
Class A - authorized 300,000,000 shares;
issued: 2001 - 168,379,355; 2000 -
166,526,108 (including treasury
shares: 2001 -11,874,895; 2000 -
5,000,000) .............................. 16,838 16,653
Class B - convertible - authorized 847,020
shares; issued: 2001 - 847,020;
2000 - 847,158 ......................... 85 85
Additional paid-in capital ..................... 54,102 --
Deferred compensation on issuance of restricted
Class A common stock ...................... (963) (1,127)
Accumulated other comprehensive loss ........... (1,410) (2,693)
Retained earnings .............................. 1,755,584 1,467,103
Common stock held in treasury, at cost ......... (483,770) (198,858)
----------- -----------
Total stockholders' equity ................. 1,340,466 1,281,163
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 3,464,505 $ 3,606,679
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollars in thousands)
Six Months Ended
----------------------
July 1, June 25,
2001 2000
----------------------
(26 Weeks)
OPERATING ACTIVITIES
Net cash provided by operating activities ............ $ 248,941 $ 299,140
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment ........... (39,433) (28,157)
Business acquired .................................... -- (296,278)
Net proceeds from dispositions ....................... 436,672 --
Other-net ............................................ 343 (9,634)
--------- ---------
Net cash provided by/(used in) investing activities .. 397,582 (334,069)
--------- ---------
FINANCING ACTIVITIES
Commercial paper (payments)/borrowings ............... (291,251) 363,480
Redemption of subsidiary stock ....................... (25,000) --
Long-term debt
Proceeds ....................................... -- 40,000
Payments ....................................... (743) (101,433)
Capital shares
Issuances ...................................... 38,799 23,329
Repurchases .................................... (285,507) (279,160)
Dividends paid to stockholders ....................... (38,558) (37,599)
--------- ---------
Net cash (used in)/provided by financing activities .. (602,260) 8,617
--------- ---------
Increase/(decrease) in cash and cash equivalents ..... 44,263 (26,312)
Cash and cash equivalents at the beginning of the year 69,043 63,861
--------- ---------
Cash and cash equivalents at the end of the quarter .. $ 113,306 $ 37,549
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
BUSINESS ACQUIRED
In January of 2000 the Company acquired certain assets ($313.8 million)
and assumed certain liabilities ($17.5 million) of a newspaper, the
Worcester Telegram & Gazette, for $296.3 million in cash.
OTHER
Amounts in these statements of cash flow are presented on a cash basis and
may differ from those shown in other sections of the financial statements.
See Notes to Condensed Consolidated Financial Statements.
5
THE NEW YORK TIMES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying Notes to Condensed Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements
included in the annual report on Form 10-K for the year ended December 31, 2000,
for The New York Times Company (the "Company") filed with the Securities and
Exchange Commission (the "SEC"). In the opinion of management, all adjustments
necessary for a fair presentation of the financial position and results of
operations, as of and for the interim periods ended, have been included. Due to
the seasonal nature of the Company's business, results for the interim periods
are not necessarily indicative of a full year's operations. The fiscal periods
included herein comprise 13 weeks for the three-month periods and 26 weeks for
the six-month periods.
Certain reclassifications have been made to the 2000 Condensed
Consolidated Financial Statements to conform with classifications used as of and
for the periods ended July 1, 2001.
2. Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS
No. 141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, and prohibits the use
of the pooling-of-interest method. SFAS No. 142, upon adoption, ceases the
amortization of goodwill and requires, among other things, a certain impairment
approach on the carrying value of goodwill. An initial goodwill impairment test
must be completed in the year of adoption with at least an annual impairment
test thereafter. The adoption of SFAS No. 141 has no current impact on the
Company. SFAS No. 142 will be effective for fiscal years beginning after
December 15, 2001. The Company is required to adopt SFAS No. 142 in the first
quarter of 2002 and is currently assessing the impact on its results of
operations and financial position.
Effective January 1, 2001, the Company adopted SFAS No. 133, as amended,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. All derivatives, whether designated as
hedging activities or not, are required to be recorded on the balance sheet at
fair value. If the derivative is designated as a fair-value hedge, the changes
in the fair value of the derivative and the hedged item will be recognized in
earnings. If the derivative is designated as a cash-flow hedge, changes in the
fair value of the derivative will be recorded in other comprehensive income and
will be recognized in the statement of income when the hedged item affects
earnings. For derivatives that do not qualify as a hedge, changes in the fair
value will be recognized in earnings. SFAS No. 133 defines new requirements for
the designation of hedging relationships as well as ongoing effectiveness
assessments in order to use hedge accounting. The Company has various derivative
instruments which are further detailed in notes six and nine to the Condensed
Consolidated Financial Statements in this Form 10-Q.
3. Dispositions
Magazine Sale - Discontinued Operations:
On April 2, 2001, the Company sold its golf properties, which included
Golf Digest, Golf Digest Woman, Golf World, Golf World Business ("Magazine
Group") and GolfDigest.com, to Advance Publications, Inc., for approximately
$435.0 million. The Company recorded a gain from the sale of approximately
$412.0 million ($241.3 million after-tax), or $1.49 per share in the second
quarter and $1.47 per share for the first six months of 2001. The income taxes,
which are due in the third quarter of 2001, related to this gain make up the
principal portion of "Accrued income taxes" in the Company's Condensed
Consolidated Balance Sheets as of July 1, 2001.
The results of operations of the Magazine Group are reported as
discontinued operations for all periods presented. Revenues and operating profit
for the Magazine Group were as follows:
--------------------------------------------------------------------
Three Months Ended Six Months Ended
-----------------------------------------
July 1, June 25, July 1, June 25,
(In millions) 2001 2000 2001 2000
--------------------------------------------------------------------
Revenues $ -- $35.6 $26.5 $64.5
--------------------------------------------------------------------
Operating Profit $ -- $ 9.6 $ 2.0 $14.1
--------------------------------------------------------------------
6
Other Dispositions:
In the second half of 2000, the Company sold seven newspapers and nine
telephone directory operations ("divested Regionals"). In connection with the
sale of one of these papers, the Santa Barbara News-Press, the Company entered
into a five-year, $25.0 million non-compete agreement. This amount will be
recognized as income on a straight-line basis over the life of the agreement,
and is included in the "Other" line on the Company's Condensed Consolidated
Statements of Income.
In the first quarter of 2001, the Company sold substantially all of its
investment in TheStreet.com. The proceeds of the sale approximated carrying
value.
4. Redemption of Subsidiary Stock
Since the Company did not issue a certain new class of stock ("Class C
Stock") to the public by December 31, 2000, the former stockholders of Abuzz
Technologies, Inc. ("Abuzz") (acquired in July 1999) and certain optionees of a
certain subsidiary of the Company have since required such subsidiary to redeem
their shares for cash in the amount of $25.0 million. This redemption occurred
in the first quarter of 2001.
5. Income Taxes
Reconciliations between the effective rate on income before income taxes
and the federal statutory rate are as follows:
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
------------------------------------------------------------------------------
July 1, 2001 June 25, 2000 July 1, 2001 June 25, 2000
------------------------------------------------------------------------------
% of % of % of % of
(Dollars in thousands) Amount Pre-tax Amount Pre-tax Amount Pre-tax Amount Pre-tax
------------------------------------------------------------------------------------------------------------------------------------
Tax at the federal statutory rate ................. $ 13,940 35.0% $ 57,651 35.0% $ 49,582 35.0% $ 106,201 35.0%
State and local income taxes-net of federal benefit 818 2.1% 8,071 4.9% 5,808 4.1% 15,475 5.1%
Amortization of nondeductible intangible
assets acquired ................................... 1,164 2.9% 2,965 1.8% 2,692 1.9% 5,462 1.8%
Other-net ......................................... (311) -0.8% (115) -0.1% (718) -0.5% (304) -0.1%
------------------------------------------------------------------------------
Income tax expense ................................ $ 15,611 39.2% $ 68,572 41.6% $ 57,364 40.5% $ 126,834 41.8%
==============================================================================
6. Debt Obligations
In June 2001, the Company decreased the amount available to borrow under
its revolving credit agreements from $600.0 million to $540.0 million based on
expected liquidity needs. The Company's one-year credit agreement was renewed
and decreased to $270.0 million from $300.0 million and will now mature in June
2002. The Company's multi-year credit agreement was renewed and decreased to
$270.0 million from $300.0 million and will now mature in June 2006. These
revolving credit agreements require, among other provisions, specified levels
(amended in the second quarter of 2001) of stockholders' equity. Approximately
$540.5 million of stockholders' equity was unrestricted under these agreements
as of July 1, 2001, and $262.7 million was unrestricted at December 31, 2000.
The increase in the level of unrestricted stockholders' equity was primarily due
to an amendment to the level of restricted stockholders' equity.
The Company had no commercial paper outstanding at July 1, 2001, and
$291.3 million at December 31, 2000. Commercial paper was paid down with funds
available to the Company from the sale of the Magazine Group and GolfDigest.com.
These obligations are supported by the revolving credit agreements which had no
amounts outstanding
7
as of July 1, 2001, and December 31, 2000. The amount available under the
commercial paper facility was $540.0 million as of July 1, 2001.
In the second quarter of 2001, the Company entered into interest rate swap
agreements, designated as fair-value hedges as defined under SFAS No. 133, based
on notional amounts totaling $100.0 million with variable interest rates which
are reset quarterly based on three-month LIBOR. These agreements were entered
into to manage a portion of the Company's exposure to changes in the fair value
of its ten-year $250.0 million 7.625% notes which mature on March 15, 2005. The
fair value of the swap agreements as of July 1, 2001, was not material. The
difference between fixed and variable interest rates to be paid or received is
accrued as interest rates change, and recognized over the life of the agreements
as an adjustment to interest expense in the Company's Condensed Consolidated
Statements of Income.
Beginning January 1, 2002, if no initial public offering of the Class C
Stock has occurred, venture capital firms that were issued $40.0 million in 7%
subordinated convertible notes in March 2000 (maturing in March 2003) have a
right to require the Company to repurchase the notes at face value through to
maturity. As a result, the Company presents this $40.0 million amount in the
current portion of long-term debt on the Company's Condensed Consolidated
Balance Sheet as of July 1, 2001.
The Company's total debt, including commercial paper and capital leases,
was $639.5 million at July 1, 2001, and $930.7 million at December 31, 2000. The
decrease in total debt was primarily from a decrease in commercial paper
outstanding, which was paid down with the proceeds received from the sale of the
Magazine Group and GolfDigest.com.
7. Common Stock
During the first six months of 2001, the Company repurchased 6.9 million
shares of Class A Common Stock at a cost of $285.5 million. The average price of
these repurchases was $41.44 per share. On April 17, 2001, the Board of
Directors authorized an additional $300.0 million of repurchase expenditures
under the Company's stock repurchase program. As of August 3, 2001, the
remaining amount of the aggregate repurchase authorizations from the Company's
Board of Directors was $421.8 million. Since the end of the quarter, the Company
has repurchased approximately 1.1 million shares at a cost of $48.2 million.
On April 17, 2001, the Board of Directors authorized a $.01 per share
increase in the quarterly dividend on the Company's Class A and Class B Common
Stock from $.115 per share to $.125 per share, effective with the June 2001
dividend.
As of the end of the second quarter of 2001 and the end of fiscal 2000,
the Company had authorizations to make future stock option grants of up to 21.7
million and 21.0 million shares under the Company's 1991 Executive Stock
Incentive Plan.
8
8. Staff Reductions
In April 2001, the Company announced the initiation of a Company-wide work
force reduction program. Total work force reduction expenses amounted to $79.1
million in 2001, all of which were recorded in the second quarter. These charges
are included in "Selling, general and administrative expenses" in the Company's
Condensed Consolidated Statements of Income. Accruals for work force reductions
are included in "Accrued expenses" on the Company's Condensed Consolidated
Balance Sheets and amounted to $66.2 million at July 1, 2001, and $13.6 million
at December 31, 2000. Most of the accruals outstanding at July 1, 2001, will be
paid within one year.
9. Comprehensive Income
Comprehensive income for the Company principally includes unrealized
gains/(losses) on available-for-sale securities, as defined under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, foreign
currency translation adjustments, as well as net income reported in the
Company's Condensed Consolidated Statements of Income.
As of July 1, 2001, the Company has a derivative instrument which is
designated as a cash-flow hedge as defined under SFAS No. 133. This derivative
instrument, which will nominally reduce the Company's exposure to fluctuations
in newsprint prices, was entered into in 1998 and is effective beginning in 2002
through 2008. The adoption of SFAS No. 133 resulted in a pre-tax increase to
comprehensive income of $5.3 million related to this derivative instrument.
Comprehensive income for 2001 and 2000 was as follows:
--------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
-------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------
Net Income $ 265,474 $ 101,738 $ 326,748 $ 184,801
Foreign currency translation gains/(losses) 775 1,127 (261) 888
Change in unrealized losses on marketable securities (199) (8,539) (169) (15,768)
Cumulative effect of change in accounting principle
(SFAS 133) on other comprehensive income -- -- 5,272 --
Unrealized derivative losses on cash-flow hedge (2,752) -- (2,679) --
Income tax benefit/(charge) 851 4,035 (880) 7,268
--------------------------------------------------------------------------------------------------------
Comprehensive income $ 264,149 $ 98,361 $ 328,031 $ 177,189
--------------------------------------------------------------------------------------------------------
The Accumulated other comprehensive loss on the Company's Condensed
Consolidated Balance Sheets was net of a deferred income tax asset of $1.4
million as of July 1, 2001, and $2.3 million as of December 31, 2000.
9
10. Segment Statements of Income
Beginning in 2001, the Company's reportable segments consist of
Newspapers, Broadcast and New York Times Digital. These segments are evaluated
regularly by key management in assessing performance and allocating resources.
Included in Newspapers are The Boston Globe ("The Globe") and the Worcester
Telegram & Gazette (the "T&G"), which are combined and presented as the New
England Newspaper Group. Prior to 2001, the Magazine Group was reported as a
separate segment, but it has since been sold and its results of operations are
classified as discontinued operations for all periods presented.
-------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
-----------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
REVENUES
Newspapers .................................... $ 709,074 $ 801,422 $ 1,443,391 $ 1,575,601
Broadcast ..................................... 38,692 41,323 71,138 75,675
New York Times Digital ........................ 15,336 17,493 29,392 33,080
Intersegment eliminations (A) ................. (2,820) (2,774) (5,486) (5,073)
-----------------------------------------------------
Total ................................... $ 760,282 $ 857,464 $ 1,538,435 $ 1,679,283
=====================================================
OPERATING PROFIT (LOSS)
Newspapers .................................... $ 46,901 $ 183,863 $ 173,640 $ 343,140
Broadcast ..................................... 11,953 13,630 18,211 21,016
New York Times Digital ........................ (1,793) (11,667) (9,479) (17,920)
Unallocated corporate expenses ................ (8,850) (9,540) (19,677) (19,522)
-----------------------------------------------------
Total ................................... 48,211 176,286 162,695 326,714
Income from joint ventures .......................... 765 3,622 1,657 7,249
Interest expense, net ............................... 10,399 15,190 25,190 30,532
Other ............................................... 1,250 -- 2,500 --
-----------------------------------------------------
Income from continuing operations before income taxes 39,827 164,718 141,662 303,431
Income taxes ........................................ 15,611 68,572 57,364 126,834
-----------------------------------------------------
Income from continuing operations ................... 24,216 96,146 84,298 176,597
Discontinued operations, net of income taxes:
Income from operations of discontinued
Magazine Group .......................... -- 5,592 1,192 8,204
Gain on disposal of Magazine Group ............ 241,258 -- 241,258 --
-----------------------------------------------------
Net Income .......................................... $ 265,474 $ 101,738 $ 326,748 $ 184,801
=====================================================
See Management's Discussion and Analysis of Financial Condition and
Results of Operations in this Form 10-Q for more information on the Company's
reportable segments.
(A) Intersegment eliminations primarily include revenues between New
York Times Digital and other segments.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Advertising revenues accounted for approximately 68% and circulation
revenues accounted for 25% of the Company's total revenues in the second quarter
and for the first six months of 2001. In the first half of 2001, the Company
experienced a decline in its advertising revenue compared with the first half of
2000. Given the decline in the Company's advertising revenue to date, as well as
the uncertainty of both the economic climate and the advertising environment for
the remainder of the year, the Company now anticipates Newspaper Group
advertising revenues to be below the level of last year. To help offset these
advertising revenue declines the Company has implemented cost containment
initiatives including a staff reduction program involving voluntary work force
reductions ("Buyouts") and layoffs, as well as other expense reductions.
Additionally, the Company increased circulation prices to mitigate the
advertising revenue decline.
Newsprint is the major component of the Company's cost of raw materials.
Newsprint market prices were higher in the second quarter of 2001 than 2000
levels and are expected to exceed 2000 levels for the second half of the year.
The Company believes it can achieve the 2001 current consensus estimate
for diluted earnings per share of $1.98. However, the Company will continue to
benefit from its cost reduction initiatives, and if an advertising pick-up
occurs in the fourth quarter, the Company may achieve 2001 diluted earnings per
share in the range of $2.07 to $2.15.
Seasonality
Advertising revenues influence the pattern of the Company's consolidated
revenues because they are seasonal in nature. Traditionally, second-quarter and
fourth-quarter advertising volume is higher than that which occurs in the first
and third quarters when economic activity tends to be lower after the holiday
season and in the summer period. Quarterly trends are also affected by the
overall economy and economic conditions that may exist in specific markets
served by each of the Company's business segments.
Sold Properties
On April 2, 2001, the Company sold its golf properties, which included
Golf Digest, Golf Digest Woman, Golf World, Golf World Business ("Magazine
Group") and GolfDigest.com, to Advance Publications, Inc., for approximately
$435.0 million. In the second quarter and first six months of 2001, the Company
recorded a gain from the sale of approximately $412.0 million ($241.3 million
after-tax), or $1.49 per share in the second quarter and $1.47 per share for the
first six months of 2001. The income taxes, which are due in the third quarter
of 2001, related to this gain make up the principal portion of "Accrued income
taxes" in the Company's Condensed Consolidated Balance Sheets as of July 1,
2001.
11
The results of operations of the Magazine Group are reported as
discontinued operations for all periods presented. Revenues, operating profit
and EBITDA (earnings before interest, taxes, depreciation and amortization) for
the Magazine Group were as follows:
---------------------------------------------------------------
Three Months Ended Six Months Ended
---------------------------------------
July 1, June 25, July 1, June 25,
(In millions) 2001 2000 2001 2000
---------------------------------------------------------------
Revenues $ -- $35.6 $26.5 $64.5
---------------------------------------------------------------
Operating Profit $ -- $ 9.6 $ 2.0 $14.1
---------------------------------------------------------------
EBITDA $ -- $ 9.9 $ 2.3 $14.7
---------------------------------------------------------------
Diluted earnings per share from continuing operations and discontinued
operations for 2000 were as follows:
-----------------------------------------------------------------------------------------------------------------------
For the Quarters Ended For the Year Ended
------------------------------------------------------------------------
March 26, June 25, September 24, December 31, December 31,
Diluted Earnings Per Share: 2000 2000 2000 2000 2000
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $0.46 $0.56 $0.43 $0.82 $2.26
-----------------------------------------------------------------------------------------------------------------------
Discontinued operations, net of income taxes $0.01 $0.03 $0.01 $0.01 $0.06
-----------------------------------------------------------------------------------------------------------------------
Net Income $0.47 $0.59 $0.44 $0.83 $2.32
-----------------------------------------------------------------------------------------------------------------------
In the second half of 2000, the Company sold seven newspapers and nine
telephone directory operations ("divested Regionals"). In connection with the
sale of one of these papers, the Santa Barbara News-Press, the Company entered
into a five-year, $25.0 million non-compete agreement (the "non-compete
agreement"). This amount will be recognized as income on a straight-line basis
over the life of the agreement, and is included in the "Other" line on the
Company's Condensed Consolidated Statements of Income.
Special Items
Total special items amounted to $194.9 million ($1.20 per share) for the
second quarter and $195.7 million ($1.19 per share) for the first six months of
2001.
Special items in the second quarter and first six months of 2001 included
the following:
o A $412.0 million pre-tax gain ($1.49 per share in the second quarter
and $1.47 per share for the first six months of 2001) resulting from
the sale of the Magazine Group
o A $79.1 million pre-tax charge ($.29 per share) for work force
reduction expenses
o $1.3 million in income on a pre-tax basis in the second quarter and
$2.5 million in income on a pre-tax basis ($.01 per share) in the
first half of 2001 related to the non-compete agreement.
There were no special items in the first half of 2000.
12
Operating Results
The Company's consolidated financial results for the quarter and six
months ended July 1, 2001, compared with the quarter and six months ended June
25, 2000, were as follows:
-----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
------------------------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands, except per share data) 2001 2000 % Change 2001 2000 % Change
-----------------------------------------------------------------------------------------------------------------------------
Revenues $760,282 $857,464 (11.3) $1,538,435 $1,679,283 (8.4)
-----------------------------------------------------------------------------------------------------------------------------
Operating profit $ 48,211 $176,286 (72.7) $ 162,695 $ 326,714 (50.2)
-----------------------------------------------------------------------------------------------------------------------------
Net Income before special items $ 70,531 $101,738 (30.7) $ 131,068 $ 184,801 (29.1)
Special items 194,943 -- -- 195,680 -- --
-----------------------------------------------------------------------------------------------------------------------------
Net Income $265,474 $101,738 160.9 $ 326,748 $ 184,801 76.8
-----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net Income before special items $ 0.44 $ 0.59 (25.4) $ 0.81 $ 1.06 (23.6)
Special items 1.20 -- -- 1.19 -- --
-----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.64 $ 0.59 178.0 $ 2.00 $ 1.06 88.7
-----------------------------------------------------------------------------------------------------------------------------
Excluding revenues from the divested Regionals, in the second quarter of
2001 total revenues for the Company decreased 9.9% to $760.3 million from $843.5
million in the second quarter of 2000 and advertising revenue decreased 15.8% to
$520.2 million in the second quarter of 2001 from $617.8 million in the second
quarter of 2000. On the same basis, for the first half of 2001 total revenues
for the Company decreased 6.9% to $1,538.4 million from $1,651.9 million in the
first half of 2000 and advertising revenue decreased 11.4% to $1,064.5 million
in the first half of 2001 from $1,201.3 million in the first half of 2000.
Operating profit in the second quarter of 2001 decreased 27.8% to $127.3
million from $176.3 million in the second quarter of 2000, excluding special
items. On the same basis, operating profit for the first half of 2001 decreased
26.0% to $241.8 million from $326.7 million in the corresponding period of 2000.
The 2001 second-quarter net income decreased 30.7% to $70.5 million from
$101.7 million in the second quarter of 2000, excluding special items. On the
same basis, net income for the first six months of 2001 decreased 29.1% to
$131.1 million from $184.8 million for the first six months of 2000.
The decreases in operating results, excluding special items, were
primarily due to a slowing U.S. economy, which resulted in decreased advertising
revenue, particularly in the help-wanted category, as well as a fall-off in
dot-com and technology advertising. The decrease in advertising revenue was
partly offset by an increase in circulation revenue in the first half of 2001
due to certain price increases at The Times and The Globe.
The increase in reported net income in the second quarter and six months
ended July 1, 2001, was principally due to the gain on the sale of the Magazine
Group, partially offset by work force reduction expenses and lower advertising
revenues.
EBITDA
EBITDA for the second quarter and first half of 2001 and 2000 were as
follows:
----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
---------------------------------------------------------------------
July 1, June 25, July 1, June 25,
(In millions) 2001 2000 % Change 2001 2000 % Change
----------------------------------------------------------------------------------------------------------
EBITDA (excluding special items) $175.2 $232.0 (24.5) $340.3 $437.4 (22.2)
----------------------------------------------------------------------------------------------------------
EBITDA (including special items) $ 96.1 $232.0 (58.6) $261.2 $437.4 (40.3)
----------------------------------------------------------------------------------------------------------
The special items impact on 2001 EBITDA is a $79.1 million charge related
to work force reduction expenses.
EBITDA is presented since it is a widely accepted indicator of funds
available to service debt, although it is not a measure of liquidity or of
financial performance under accounting principles generally accepted in the
United States of
13
America ("GAAP"). The EBITDA presented may not be comparable to similarly titled
measures reported by other companies. The Company believes that EBITDA, while
providing useful information, should not be considered in isolation or as an
alternative to net income or cash flows as determined under GAAP.
Consolidated Costs and Expenses
Consolidated operating expenses for the second quarter and first half of
2001 and 2000 were as follows:
------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 % Change 2001 2000 % Change
------------------------------------------------------------------------------------------------------------
Production costs
Raw materials $ 83,907 $ 84,139 (0.3) $ 168,986 $ 166,512 1.5
Wages and benefits 148,408 156,705 (5.3) 301,560 312,114 (3.4)
Other 109,736 111,374 (1.5) 220,656 220,433 0.1
------------------------------------------------------------------------------------------------------------
Total production costs 342,051 352,218 (2.9) 691,202 699,059 (1.1)
Selling, general and
administrative expenses 370,020 328,960 12.5 684,538 653,510 4.7
------------------------------------------------------------------------------------------------------------
Total expenses $712,071 $681,178 4.5 $1,375,740 $1,352,569 1.7
------------------------------------------------------------------------------------------------------------
Excluding the divested Regionals, total production costs decreased 1.5% in
the second quarter and remained flat for the first six months of 2001. Excluding
the divested Regionals and work force reduction expenses, SGA expenses decreased
9.6% and 5.3% in the second quarter and for the first six months of 2001
compared with the corresponding periods in 2000. On the same basis, total
expenses decreased 5.4% in the second quarter and 2.4% for the first six months
of 2001, principally due to lower compensation and promotion costs. The Company
currently expects total expenses for the year, excluding work force reduction
charges and divestitures, to decrease 2% to 4% and are likely to decrease closer
to the higher end of the range.
In the second quarter of 2001, the Company's newsprint expense rose 2.8%
compared with the 2000 second quarter, excluding the divested Regionals. This
resulted from an increase in the average cost per ton of newsprint of 16.5%,
partially offset by a decrease in consumption of 13.7%. For the first six months
of 2001 compared with the first six months of 2000, excluding the divested
Regionals, the Company's newsprint expense increased 4.0%. This resulted from an
increase in the average cost per ton of newsprint of 15.4%, partially offset by
a decrease in consumption of 11.4%. The decrease in consumption in the second
quarter and first half of 2001 was due to lower advertising volume and web-width
reductions at The Boston Globe and seven of the Company's other newspapers.
Other
Interest expense-net decreased to $10.4 million in the 2001 second quarter
and $25.2 million for the first six months of 2001 compared with $15.2 million
and $30.5 million in the comparable 2000 periods. The decrease was due to lower
levels of debt outstanding.
The effective income tax rate for the second quarter of 2001 was 39.2%
compared with 41.6% in the 2000 second quarter. For the first six months of
2001, the effective income tax rate was 40.5% compared with 41.8% in the first
six months of 2000. The decreases for both the quarter and for the first six
months of 2001 were primarily due to lower state and local income taxes.
14
Consolidated revenues, EBITDA, depreciation and amortization and operating
profit by business segment were as follows:
--------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 % Change 2001 2000 % Change
--------------------------------------------------------------------------------------------------------------------------
REVENUES
Newspapers ................... $ 709,074 $ 801,422 (11.5) $ 1,443,391 $ 1,575,601 (8.4)
Broadcast .................... 38,692 41,323 (6.4) 71,138 75,675 (6.0)
New York Times Digital ....... 15,336 17,493 (12.3) 29,392 33,080 (11.1)
Intersegment eliminations (A) (2,820) (2,774) (1.7) (5,486) (5,073) (8.1)
--------------------------------------------------------------------------------------
Total ..................... $ 760,282 $ 857,464 (11.3) $ 1,538,435 $ 1,679,283 (8.4)
======================================================================================
EBITDA
Newspapers ................... $ 86,845 $ 225,917 (61.6) $ 254,448 $ 427,088 (40.4)
Broadcast .................... 16,023 17,932 (10.6) 26,361 29,618 (11.0)
New York Times Digital ....... 68 (8,789) 100.8 (5,935) (12,627) 53.0
Unallocated corporate expenses (7,666) (6,746) (13.6) (15,504) (14,093) (10.0)
Joint ventures ............... 853 3,709 (77.0) 1,833 7,424 (75.3)
--------------------------------------------------------------------------------------
Total ..................... $ 96,123 $ 232,023 (58.6) $ 261,203 $ 437,410 (40.3)
======================================================================================
DEPRECIATION AND AMORTIZATION
Newspapers ................... $ 39,944 $ 42,054 (5.0) $ 80,808 $ 83,948 (3.7)
Broadcast .................... 4,070 4,302 (5.4) 8,150 8,602 (5.3)
New York Times Digital ....... 1,861 2,878 (35.3) 3,544 5,293 (33.0)
Corporate .................... 1,184 2,794 (57.6) 4,173 5,429 (23.1)
Joint ventures ............... 88 88 -- 176 176 --
--------------------------------------------------------------------------------------
Total ..................... $ 47,147 $ 52,116 (9.5) $ 96,851 $ 103,448 (6.4)
======================================================================================
OPERATING PROFIT (LOSS)
Newspapers ................... $ 46,901 $ 183,863 (74.5) $ 173,640 $ 343,140 (49.4)
Broadcast .................... 11,953 13,630 (12.3) 18,211 21,016 (13.3)
New York Times Digital ....... (1,793) (11,667) 84.6 (9,479) (17,920) 47.1
Unallocated corporate expenses (8,850) (9,540) 7.2 (19,677) (19,522) (0.8)
--------------------------------------------------------------------------------------
Total ..................... $ 48,211 $ 176,286 (72.7) $ 162,695 $ 326,714 (50.2)
======================================================================================
(A) Intersegment eliminations primarily include revenues between New York
Times Digital and other segments.
Newspaper Group: The Newspaper Group consists of The New York Times ("The
Times"), the New England Newspaper Group, which includes The Boston Globe ("The
Globe") and the Worcester Telegram & Gazette (the "T&G"), 14 other newspapers,
newspaper distributors, a news service, a features syndicate, TimesDigest,
licensing operations of The New York Times databases and microfilm.
--------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
-----------------------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 % Change 2001 2000 % Change
--------------------------------------------------------------------------------------------------------
Revenues $709,074 $801,422 (11.5) $1,443,391 $1,575,601 (8.4)
--------------------------------------------------------------------------------------------------------
EBITDA $ 86,845 $225,917 (61.6) $ 254,448 $ 427,088 (40.4)
--------------------------------------------------------------------------------------------------------
Operating profit $ 46,901 $183,863 (74.5) $ 173,640 $ 343,140 (49.4)
--------------------------------------------------------------------------------------------------------
Excluding the divested Regionals, total Newspaper Group revenues decreased
10.0% to $709.1 million from $787.5 million in the 2000 second quarter. On the
same basis, for the first six months of 2001, total Newspaper Group revenues
decreased 6.8% to $1,443.4 million from $1,548.3 million for the first six
months of 2000.
15
Operating profit for the Newspaper Group decreased 33.6% to $122.1 million
in the second quarter of 2001 from $183.9 million in the 2000 second quarter,
excluding special items. For the first half of 2001, operating profit decreased
27.5% to $248.9 million from $343.1 million for the first half of 2000,
excluding special items.
Excluding special items and the divested Regionals, total Newspaper Group
operating profit decreased 32.8% and 26.7% for the second quarter and for the
first six months of 2001.
The decrease in results was principally attributable to a slowing U.S.
economy, which resulted in decreased advertising revenue, particularly in the
help-wanted category, as well as a fall-off in dot-com and technology
advertising. Advertising revenue declined across the entire Newspaper Group.
Circulation revenue increased at The Times and The Globe primarily due to price
increases at both newspapers, partially offset by reductions in volume. The
Company currently expects advertising revenue in the Newspaper Group to be below
the level of last year.
Advertising, circulation and other revenue, by major product of the
Newspaper Group, were as follows:
-------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 % Change 2001 2000 % Change
-------------------------------------------------------------------------------------------------------------
The New York Times
Advertising $278,200 $337,731 (17.6) $ 582,062 $ 665,578 (12.5)
Circulation 126,102 117,123 7.7 247,632 234,251 5.7
Other 36,504 32,635 11.9 70,272 64,603 8.8
-------------------------------------------------------------------------------------------------------------
Total $440,806 $487,489 (9.6) $ 899,966 $ 964,432 (6.7)
-------------------------------------------------------------------------------------------------------------
New England Newspaper Group
Advertising $114,743 $145,024 (20.9) $ 235,175 $ 276,542 (15.0)
Circulation 39,987 39,003 2.5 79,671 77,022 3.4
Other 6,938 6,152 12.8 13,446 11,389 18.1
-------------------------------------------------------------------------------------------------------------
Total $161,668 $190,179 (15.0) $ 328,292 $ 364,953 (10.0)
-------------------------------------------------------------------------------------------------------------
Regional Newspapers
Advertising $ 81,380 $ 94,409 (13.8) $ 162,415 $ 185,902 (12.6)
Circulation 21,857 25,368 (13.8) 45,656 52,553 (13.1)
Other 3,363 3,977 (15.4) 7,062 7,761 (9.0)
-------------------------------------------------------------------------------------------------------------
Total $106,600 $123,754 (13.9) $ 215,133 $ 246,216 (12.6)
-------------------------------------------------------------------------------------------------------------
Total Newspaper Group
Advertising $474,323 $577,164 (17.8) $ 979,652 $1,128,022 (13.2)
Circulation 187,946 181,494 3.6 372,959 363,826 2.5
Other 46,805 42,764 9.4 90,780 83,753 8.4
-------------------------------------------------------------------------------------------------------------
Total $709,074 $801,422 (11.5) $1,443,391 $1,575,601 (8.4)
=============================================================================================================
16
The percentage change excluding divested Regionals was as follows:
-----------------------------------------------------------------
Three Months Ended Six Months Ended
-------------------------------------
July 1, July 1,
2001 2001
-----------------------------------------------------------------
Regional Newspapers
Advertising (3.1) (1.9)
Circulation (2.9) (2.3)
Other 0.9 7.1
-----------------------------------------------------------------
Total (2.9) (1.7)
-----------------------------------------------------------------
Total Newspaper Group
Advertising (16.3) (11.6)
Circulation 5.2 4.2
Other 11.1 9.9
-----------------------------------------------------------------
Total (10.0) (6.8)
-----------------------------------------------------------------
Advertising volume was as follows:
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
---------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Inches in thousands, preprints in thousands of copies) 2001 2000 % Change 2001 2000 % Change
-------------------------------------------------------------------------------------------------------------------------
The New York Times
Retail 122.1 142.7 (14.4) 237.8 268.1 (11.3)
National 334.1 426.5 (21.7) 702.6 837.4 (16.1)
Classified 198.8 255.0 (22.0) 421.4 506.9 (16.9)
Zoned 254.5 275.5 (7.6) 518.2 523.2 (1.0)
-------------------------------------------------------------------------------------------------------------------------
Total 909.5 1,099.7 (17.3) 1,880.0 2,135.6 (12.0)
-------------------------------------------------------------------------------------------------------------------------
Preprints 109,935 104,760 4.9 223,784 203,015 10.2
-------------------------------------------------------------------------------------------------------------------------
New England Newspaper Group
Retail 222.3 242.9 (8.5) 410.7 431.9 (4.9)
National 203.0 233.2 (13.0) 389.7 437.0 (10.8)
Classified 419.9 502.5 (16.4) 847.8 974.1 (13.0)
Zoned 238.3 217.1 9.8 429.4 371.2 15.7
-------------------------------------------------------------------------------------------------------------------------
Total 1,083.5 1,195.7 (9.4) 2,077.6 2,214.2 (6.2)
-------------------------------------------------------------------------------------------------------------------------
Preprints 238,657 249,173 (4.2) 458,496 476,925 (3.9)
-------------------------------------------------------------------------------------------------------------------------
Regional Newspapers
Retail 1,438.5 1,834.7 (21.6) 2,802.0 3,653.8 (23.3)
National 59.8 76.4 (21.7) 114.5 149.0 (23.2)
Classified 1,769.4 2,093.1 (15.5) 3,472.2 4,101.8 (15.3)
Legal 150.4 248.3 (39.4) 215.8 334.3 (35.4)
-------------------------------------------------------------------------------------------------------------------------
Total 3,418.1 4,252.5 (19.6) 6,604.5 8,238.9 (19.8)
-------------------------------------------------------------------------------------------------------------------------
Preprints 249,835 279,327 (10.6) 514,435 552,977 (7.0)
-------------------------------------------------------------------------------------------------------------------------
The percentage change excluding divested Regionals was as follows:
----------------------------------------------------------
Three Months Ended Six Months Ended
-------------------------------------
July 1, July 1,
2001 2001
----------------------------------------------------------
Regional Newspapers
Retail (1.3) (3.3)
National 1.0 (1.1)
Classified (1.3) (1.5)
Legal (15.2) (12.0)
----------------------------------------------------------
Total (2.0) (2.6)
----------------------------------------------------------
Preprints (2.8) 1.1
----------------------------------------------------------
17
Average circulation for The Times, the New England Newspaper Group, and
the Regional Newspapers for the second quarter and six months ended July 1,
2001, compared with the second quarter and six months ended June 25, 2000, was
as follows:
-------------------------------------------------------------------------------
Three Months Ended
July 1, 2001
-------------------------------------------------------------------------------
(Copies in thousands) Weekday/Daily % Change Sunday % Change
-------------------------------------------------------------------------------
Average Net Paid Circulation
The New York Times 1,120.0 1.0 1,685.7 (0.8)
New England Newspaper Group 575.0 1.2 827.3 (2.1)
Regional Newspapers
Including divested Regionals 614.3 (14.0) 670.0 (11.4)
Excluding divested Regionals 614.3 (3.5) 670.0 (3.6)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Six Months Ended
July 1, 2001
-------------------------------------------------------------------------------
(Copies in thousands) Weekday/Daily Change Sunday Change
-------------------------------------------------------------------------------
Average Net Paid Circulation
The New York Times 1,140.4 0.2 1,700.6 (0.9)
New England Newspaper Group 570.1 (0.1) 828.6 (2.1)
Regional Newspapers
Including divested Regionals 643.2 (13.2) 703.8 (10.5)
Excluding divested Regionals 643.2 (2.8) 703.8 (2.9)
-------------------------------------------------------------------------------
The Times continues to improve retail availability in major markets across
the nation and to improve the quality and levels of its home delivery
circulation base. Additionally, all of the Company's newspapers are continuing
to make improvements in product delivery and customer service to attract new
readers and retain existing ones.
Broadcast Group: The Broadcast Group comprises eight network-affiliated
television stations and two radio stations.
-----------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 % Change 2001 2000 % Change
-----------------------------------------------------------------------------------------
Revenues $38,692 $41,323 (6.4) $71,138 $75,675 (6.0)
-----------------------------------------------------------------------------------------
EBITDA $16,023 $17,932 (10.6) $26,361 $29,618 (11.0)
-----------------------------------------------------------------------------------------
Operating profit $11,953 $13,630 (12.3) $18,211 $21,016 (13.3)
-----------------------------------------------------------------------------------------
The decrease in revenues resulted from lower levels of advertising revenue
in most categories, particularly automotive and packaged goods.
Excluding special items, operating profit in the second quarter of 2001
decreased 11.2% to $12.1 million from $13.6 million in the second quarter of
2000. On the same basis, operating profit for the first half of 2001 decreased
12.6% to $18.4 million from $21.0 million in the corresponding period of 2000.
This decrease resulted mainly from lower revenues.
New York Times Digital: NYTD is the Company's Internet business division. In the
second quarter of 2001, NYTD consisted of NYTimes.com, Boston.com and Digital
Archive Distribution ("DAD"). In April 2001, the Company sold GolfDigest.com.
------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------------------------------------
July 1, June 25, July 1, June 25,
(Dollars in thousands) 2001 2000 % Change 2001 2000 % Change
------------------------------------------------------------------------------------------
Revenues $ 15,336 $ 17,493 (12.3) $ 29,392 $ 33,080 (11.1)
------------------------------------------------------------------------------------------
EBITDA $ 68 $ (8,789) 100.8 $ (5,935) $(12,627) 53.0
------------------------------------------------------------------------------------------
Operating loss $ (1,793) $(11,667) 84.6 $ (9,479) $(17,920) 47.1
------------------------------------------------------------------------------------------
18
Advertising revenue accounted for approximately 63% and other revenue,
which primarily includes DAD, accounted for the remainder of NYTD's total
revenues for the first half of 2001. Revenues declined mainly due to lower
online display advertising, particularly in the dot-com and technology sectors,
partially offset by growth in classified advertising revenue.
Operating losses in the second quarter of 2001 decreased 90.9% to $1.1
million from $11.7 million in the same quarter last year, excluding special
items. On the same basis, operating losses for the first six months of 2001
decreased 51.2% to $8.7 million from $17.9 million for the first six months of
2000. The decrease in operating losses was principally due to cost reduction
efforts including decreased staffing, promotion and systems costs.
NYTD's goal is to achieve positive EBITDA for the year in 2002.
Liquidity and Capital Resources
The Company's cash flow activity for the first six months of 2001 and 2000
was as follows:
--------------------------------------------------------------------------------
For the Six Months Ended
------------------------
July 1, June 25,
(In millions) 2001 2000
--------------------------------------------------------------------------------
Net cash provided by operating activities $ 248.9 $ 299.1
--------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities $ 397.6 $(334.1)
--------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities $(602.3) $ 8.6
--------------------------------------------------------------------------------
The decrease in operating activities of $50.2 million is principally due
to a decline in earnings. The increase in cash provided by investing activities
of $397.6 million was due to the sale of the Magazine Group and GolfDigest.com
in the second quarter of 2001 compared with cash used in investing activities of
$334.1 million in the prior year which was related to the acquisition of the
T&G. The increase in cash used in financing activities of $610.9 million was
principally related to the repayment of commercial paper borrowings and the
redemption of subsidiary stock in the first half of 2001 as well as the issuance
of debt in the first half of 2000.
The Company believes that cash generated from its operations and the
availability of funds from external sources should be adequate to cover its cash
requirements, including working capital, stock repurchases, planned capital
expenditures and acquisitions, and dividend payments to stockholders. The ratio
of current assets to current liabilities was 78.5% at July 1, 2001, and 69.5% at
December 31, 2000. The ratio of long-term debt and capital lease obligations as
a percentage of total capitalization was 30.8% at July 1, 2001, compared with
33.2% at December 31, 2000.
Financing: In June 2001, the Company decreased the amount available to borrow
under its revolving credit agreements from $600.0 million to $540.0 million
based on expected liquidity needs. The Company's one-year credit agreement was
renewed and decreased to $270.0 million from $300.0 million and will now mature
in June 2002. The Company's multi-year credit agreement was renewed and
decreased to $270.0 million from $300.0 million and will now mature in June
2006. These revolving credit agreements require, among other provisions,
specified levels (amended in the second quarter of 2001) of stockholders'
equity. Approximately $540.5 million of stockholders' equity was unrestricted
under these agreements as of July 1, 2001, and $262.7 million was unrestricted
at December 31, 2000. The increase in the level of unrestricted stockholders'
equity was primarily due to an amendment to the level of restricted
stockholders' equity.
19
The Company had no commercial paper outstanding at July 1, 2001, and
$291.3 million at December 31, 2000. Commercial paper was paid down with funds
available to the Company from the sale of the Magazine Group and GolfDigest.com.
These obligations are supported by the revolving credit agreements which had no
amounts outstanding as of July 1, 2001, and December 31, 2000. The amount
available under the commercial paper facility was $540.0 million as of July 1,
2001.
In the second quarter of 2001, the Company entered into interest rate swap
agreements, designated as fair-value hedges as defined under SFAS No. 133, based
on notional amounts totaling $100.0 million with variable interest rates which
are reset quarterly based on three-month LIBOR. These agreements were entered
into to manage a portion of the Company's exposure to changes in the fair value
of its ten-year $250.0 million 7.625% notes which mature on March 15, 2005. The
fair value of the swap agreements as of July 1, 2001, was not material. The
difference between fixed and variable interest rates to be paid or received is
accrued as interest rates change, and recognized over the life of the agreements
as an adjustment to interest expense in the Company's Condensed Consolidated
Statements of Income.
Beginning January 1, 2002, if no initial public offering of the Class C
Stock has occurred, venture capital firms that were issued $40.0 million in 7%
subordinated convertible notes in March 2000 (maturing in March 2003) have a
right to require the Company to repurchase the notes at face value through to
maturity. As a result, the Company presents this $40.0 million amount in the
current portion of long-term debt on the Company's Condensed Consolidated
Balance Sheet as of July 1, 2001.
The Company's total debt, including commercial paper and capital leases,
was $639.5 million at July 1, 2001, and $930.7 million at December 31, 2000. The
decrease in total debt was primarily from a decrease in commercial paper
outstanding, which was paid down with the proceeds received from the sale of the
Magazine Group and GolfDigest.com.
Since the Company did not issue a certain new class of stock ("Class C
Stock") to the public by December 31, 2000, the former stockholders of Abuzz
Technologies, Inc. ("Abuzz") (acquired in July 1999) and certain optionees of a
certain subsidiary of the Company have since required such subsidiary to redeem
their shares for cash in the amount of $25.0 million. This redemption occurred
in the first quarter of 2001.
Capital Expenditures: The Company currently estimates that capital expenditures
for 2001 will range from $90.0 million to $100.0 million compared with $85.3
million in 2000. The Company currently anticipates that depreciation and
amortization expense for 2001 will be in the range of $195.0 million to $205.0
million compared with $228.0 million in 2000.
Recent Accounting Pronouncements: In July 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
141, Business Combinations ("SFAS No. 141") and SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, and prohibits the use of the pooling-of-interest method. SFAS No. 142,
upon adoption, ceases the amortization of goodwill and requires, among other
things, a certain impairment approach on the carrying value of goodwill. An
initial goodwill impairment test must be completed in the year of adoption with
at least an annual impairment test thereafter. The adoption of SFAS No. 141 has
no current impact on the Company. SFAS No. 142 will be effective for fiscal
years beginning after December 15, 2001. The Company is required to adopt SFAS
No. 142 in the first quarter of 2002 and is currently assessing the impact on
its results of operations and financial position.
Effective January 1, 2001, the Company adopted SFAS No. 133, as amended,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. All derivatives, whether designated as
hedging activities or not, are required to be recorded on the balance sheet at
fair value. If the derivative is designated as a fair-value hedge, the changes
in the fair value of the derivative and the hedged item will be recognized in
earnings. If the derivative is designated as a cash-flow hedge, changes in the
fair value of the derivative will be recorded in other comprehensive income and
will be recognized in the statement of income when the hedged item affects
earnings. For derivatives that do not qualify as a hedge, changes in the fair
value will be recognized in earnings. SFAS No. 133 defines new requirements for
the designation of hedging relationships as well as ongoing effectiveness
assessments in order to use hedge accounting. The Company has various derivative
instruments which are further detailed in notes six and nine to the Condensed
Consolidated Financial Statements in this Form 10-Q.
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Factors That Could Affect Operating Results
Except for the historical information contained herein, the matters
discussed in this quarterly report are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those predicted by such forward-looking statements. These risks and
uncertainties include national and local conditions, as well as competition,
that could influence the levels (rate and volume) of retail, national and
classified advertising and circulation generated by the Company's various
markets; and material increases in newsprint prices. They also include other
risks detailed from time to time in the Company's publicly-filed documents,
including the Company's Annual Report on Form 10-K for the period ended December
31, 2000. The Company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information, future
events, or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's market risk associated with interest rate fluctuations is
related to its debt obligations. The Company does not consider such market risk
significant.
In the second quarter of 2001, the Company entered into interest rate swap
agreements based on notional amounts totaling $100.0 million with variable
interest rates which are reset quarterly based on three-month LIBOR. These
agreements were entered into to manage a portion of the Company's exposure to
changes in the fair value of its ten-year $250.0 million 7.625% notes which
mature on March 15, 2005.
The Company's cost of newsprint, which is significant to its operations,
is subject to market price fluctuations. The Company entered into a derivative
instrument in 1998 that will nominally reduce its exposure to fluctuations in
newsprint prices beginning in 2002 through 2008.
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PART. II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 2, 2001, as previously
reported in the Company's Form 10-Q filed on May 15, 2001.
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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: August 15, 2001 /s/ John M. O'Brien
---------------------------------------
John M. O'Brien
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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Exhibit Index to Quarterly Report Form 10-Q
Quarter Ended July 1, 2001
Exhibit No.
(a) Exhibit
12 Ratio of Earnings to Fixed Charges
24