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EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - NEW YORK TIMES COex322_9242017.htm
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - NEW YORK TIMES COex321_9242017.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION - NEW YORK TIMES COex312_9242017.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION - NEW YORK TIMES COex311_9242017.htm
EX-12 - RATIO OF EARNINGS TO FIXED CHARGES - NEW YORK TIMES COex12_9242017.htm
EX-10.1 - AMENDMENT NO. 4 TO THE SUPPLEMENTAL RETIREMENT AND INVESTMENT PLAN - NEW YORK TIMES COex101_9242017.htm
 
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 24, 2017
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
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
620 EIGHTH AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)
10018
(Zip Code)
Registrant’s telephone number, including area code 212-556-1234
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x      No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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  x
 
Accelerated filer  o
 
Non-accelerated filer  o 
Smaller reporting company  o
 
Emerging growth company  o
 
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o     No  x
Number of shares of each class of the registrant’s common stock outstanding as of October 27, 2017 (exclusive of treasury shares): 
Class A Common Stock
161,394,059

shares
Class B Common Stock
808,763

shares
 




THE NEW YORK TIMES COMPANY
INDEX

 
 
ITEM NO.
 
 
PART I
 
 
 
Financial Information
 
Item
1
 
Financial Statements
 
 
 
 
Condensed Consolidated Balance Sheets as September 24, 2017 
(unaudited) and December 25, 2016
 
 
 
 
Condensed Consolidated Statements of Operations (unaudited) for the quarters and nine months ended September 24, 2017 and September 25, 2016
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the quarters and nine months ended September 24, 2017 and September 25, 2016
 
 
 
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 24, 2017 and September 25, 2016
 
 
 
 
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 24, 2017

December 25, 2016
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
244,667

 
$
100,692

Short-term marketable securities
 
336,442

 
449,535

Accounts receivable (net of allowances of $13,838 in 2017 and $16,815 in 2016)
 
142,323

 
197,355

Prepaid expenses
 
17,869

 
15,948

Other current assets
 
26,462

 
32,648

Total current assets
 
767,763

 
796,178

Other assets
 
 
 
 
Long-term marketable securities
 
241,782

 
187,299

Investments in joint ventures
 
20,472

 
15,614

Property, plant and equipment (less accumulated depreciation and amortization of $945,416 in 2017 and $903,736 in 2016)
 
618,835

 
596,743

Goodwill
 
143,171

 
134,517

Deferred income taxes
 
290,473

 
301,342

Miscellaneous assets
 
156,462

 
153,702

Total assets
 
$
2,238,958

 
$
2,185,395

 See Notes to Condensed Consolidated Financial Statements.

1



THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS-(Continued)
(In thousands, except share and per share data)
 
 
September 24, 2017
 
December 25, 2016
 
 
(Unaudited)
 
 
Liabilities and stockholders’ equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
116,724

 
$
104,463

Accrued payroll and other related liabilities
 
90,651

 
96,463

Unexpired subscriptions
 
76,886

 
66,686

Accrued expenses and other
 
134,411

 
131,125

Total current liabilities
 
418,672

 
398,737

Other liabilities
 
 
 
 
Long-term debt and capital lease obligations
 
249,375

 
246,978

Pension benefits obligation
 
518,395

 
558,790

Postretirement benefits obligation
 
55,107

 
57,999

Other
 
78,735

 
78,647

Total other liabilities
 
901,612

 
942,414

Stockholders’ equity
 
 
 
 
Common stock of $.10 par value:
 
 
 
 
Class A – authorized: 300,000,000 shares; issued: 2017 – 170,220,136; 2016 – 169,206,879 (including treasury shares: 2017 – 8,870,801; 2016 – 8,870,801)
 
17,022

 
16,921

Class B – convertible – authorized and issued shares: 2017 – 810,933; 2016 – 816,632 (including treasury shares: 2017 – none; 2016 – none)
 
81

 
82

Additional paid-in capital
 
159,830

 
149,928

Retained earnings
 
1,373,478

 
1,331,911

Common stock held in treasury, at cost
 
(171,211
)
 
(171,211
)
Accumulated other comprehensive loss, net of income taxes:
 
 
 
 
Foreign currency translation adjustments
 
5,571

 
(1,822
)
Funded status of benefit plans
 
(465,440
)
 
(477,994
)
Net unrealized loss on available-for-sale securities
 
(653
)
 

Total accumulated other comprehensive loss, net of income taxes
 
(460,522
)
 
(479,816
)
Total New York Times Company stockholders’ equity
 
918,678

 
847,815

Noncontrolling interest
 
(4
)
 
(3,571
)
Total stockholders’ equity
 
918,674

 
844,244

Total liabilities and stockholders’ equity
 
$
2,238,958

 
$
2,185,395

 See Notes to Condensed Consolidated Financial Statements.


2



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
 
 
September 24, 2017


September 25, 2016

 
September 24, 2017

 
September 25, 2016

 
 
(13 weeks)
 
(39 weeks)
Revenues
 
 
 
 
 
 
 
 
Subscription
 
$
246,638

 
$
217,099

 
$
739,050

 
$
654,573

Advertising
 
113,633

 
124,898

 
375,895

 
395,733

Other
 
25,364

 
21,550

 
76,568

 
65,386

Total revenues
 
385,635

 
363,547

 
1,191,513

 
1,115,692

Operating costs
 
 
 
 
 
 
 
 
Production costs:
 
 
 
 
 
 
 
 
Wages and benefits
 
89,866

 
91,041

 
269,209

 
274,142

Raw materials
 
15,718

 
18,228

 
48,461

 
53,115

Other
 
44,336

 
47,347

 
134,771

 
139,938

Total production costs
 
149,920

 
156,616

 
452,441

 
467,195

Selling, general and administrative costs
 
184,483

 
184,596

 
595,491

 
534,911

Depreciation and amortization
 
15,677

 
15,384

 
46,961

 
46,003

Total operating costs
 
350,080

 
356,596

 
1,094,893

 
1,048,109

Headquarters redesign and consolidation
 
2,542

 

 
6,929

 

Restructuring charge
 

 
2,949

 

 
14,804

Multiemployer pension plan withdrawal expense
 

 
(4,971
)
 

 
6,730

Operating profit
 
33,013

 
8,973

 
89,691

 
46,049

Gain/(loss) from joint ventures
 
31,557

 
463

 
31,464

 
(41,845
)
Interest expense, net
 
4,660

 
9,032

 
15,118

 
26,955

Income/(loss) from continuing operations before income taxes
 
59,910

 
404

 
106,037

 
(22,751
)
Income tax expense/(benefit)
 
23,420

 
121

 
40,873

 
(8,956
)
Income/(loss) from continuing operations
 
36,490

 
283

 
65,164

 
(13,795
)
Loss from discontinued operations, net of income taxes
 
488

 

 
488

 

Net income/(loss)
 
36,002

 
283

 
64,676

 
(13,795
)
Net (income)/loss attributable to the noncontrolling interest
 
(3,673
)
 
123

 
(3,567
)
 
5,719

Net income/(loss) attributable to The New York Times Company common stockholders
 
$
32,329

 
$
406

 
$
61,109

 
$
(8,076
)
Average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
162,173

 
161,185

 
161,798

 
161,092

Diluted
 
164,405

 
162,945

 
164,005

 
161,092

Basic earnings/(loss) per share attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations
 
$
0.20

 
$

 
$
0.38

 
$
(0.05
)
Loss from discontinued operations, net of income taxes
 

 

 

 

Net income/(loss)
 
$
0.20

 
$

 
$
0.38

 
$
(0.05
)
 See Notes to Condensed Consolidated Financial Statements.

3



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
 
 
September 24, 2017

 
September 25, 2016

 
September 24, 2017

 
September 25, 2016

 
 
(13 weeks)
 
(39 weeks)
Diluted earnings/(loss) per share attributable to The New York Times Company common stockholders:
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations
 
$
0.20

 
$

 
$
0.37

 
$
(0.05
)
Loss from discontinued operations, net of income taxes
 

 

 

 

Net income/(loss)
 
$
0.20

 
$

 
$
0.37

 
$
(0.05
)
Dividends declared per share
 
$
0.08

 
$
0.08

 
$
0.12

 
$
0.12

 See Notes to Condensed Consolidated Financial Statements.

4



THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
 
For the Quarters Ended
 
For the Nine Months Ended
 
 
September 24, 2017

 
September 25, 2016

 
September 24, 2017

 
September 25, 2016

 
 
(13 weeks)
 
(39 weeks)
Net income/(loss)
 
$
36,002

 
$
283

 
$
64,676

 
$
(13,795
)
Other comprehensive income, before tax:
 
 
 
 
 
 
 
 
Income on foreign currency translation adjustments
 
6,099

 
604

 
11,170

 
2,110

Pension and postretirement benefits obligation
 
6,921

 
6,552

 
20,762

 
19,655

Net unrealized loss on available-for-sale securities
 
(1,081
)
 

 
(1,081
)
 

Other comprehensive income, before tax
 
11,939

 
7,156

 
30,851

 
21,765

Income tax expense
 
4,200

 
2,912

 
11,557

 
8,492

Other comprehensive income, net of tax
 
7,739

 
4,244

 
19,294

 
13,273

Comprehensive income/(loss)
 
43,741

 
4,527

 
83,970

 
(522
)
Comprehensive (income)/loss attributable to the noncontrolling interest
 
(3,673
)
 
123

 
(3,567
)
 
5,719

Comprehensive income attributable to The New York Times Company common stockholders
 
$
40,068

 
$
4,650

 
$
80,403

 
$
5,197

 See Notes to Condensed Consolidated Financial Statements.

5



THE NEW YORK TIMES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
For the Nine Months Ended
 
 
September 24, 2017

 
September 25, 2016

 
 
(39 weeks)
Cash flows from operating activities
 
 
 
 
Net income/(loss)
 
$
64,676

 
$
(13,795
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Restructuring charge
 

 
14,804

Multiemployer pension plan charges
 

 
11,701

Depreciation and amortization
 
46,961

 
46,003

Stock-based compensation expense
 
10,927

 
8,561

Undistributed (gain)/loss of joint ventures
 
(31,464
)
 
41,845

Long-term retirement benefit obligations
 
(21,897
)
 
(22,366
)
Uncertain tax positions
 
139

 
53

Other-net
 
2,609

 
8,257

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable-net
 
55,032

 
54,591

Other assets
 
(1,761
)
 
(21,926
)
Accounts payable, accrued payroll and other liabilities
 
12,473

 
(45,546
)
Unexpired subscriptions
 
10,200

 
3,461

Net cash provided by operating activities
 
147,895

 
85,643

Cash flows from investing activities
 
 
 
 
Purchases of marketable securities
 
(398,246
)
 
(514,809
)
Maturities of marketable securities
 
454,022

 
522,655

Cash distribution from corporate-owned life insurance
 

 
38,000

Business acquisitions
 

 
(15,410
)
Purchase of investments – net of proceeds
 
(422
)
 
(1,840
)
Change in restricted cash
 
7,014

 
3,816

Capital expenditures
 
(47,831
)
 
(21,820
)
Other-net
 
1,070

 
(380
)
Net cash provided by investing activities
 
15,607

 
10,212

Cash flows from financing activities
 
 
 
 
Long-term obligations:
 
 
 
 
Repayment of debt and capital lease obligations
 
(414
)
 
(460
)
Dividends paid
 
(19,483
)
 
(19,416
)
Capital shares:
 
 
 
 
Stock issuances
 
4,142

 
273

Repurchases
 

 
(15,684
)
Share-based compensation tax withholding
 
(3,984
)
 
(9,572
)
Net cash used in financing activities
 
(19,739
)
 
(44,859
)
Net increase in cash and cash equivalents
 
143,763

 
50,996

Effect of exchange rate changes on cash
 
212

 
166

Cash and cash equivalents at the beginning of the period
 
100,692

 
105,776

Cash and cash equivalents at the end of the period
 
$
244,667

 
$
156,938

 See Notes to Condensed Consolidated Financial Statements.

6


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 24, 2017 and December 25, 2016, and the results of operations and cash flows of the Company for the periods ended September 24, 2017 and September 25, 2016. 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 25, 2016. 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 for the third quarter.
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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as described herein, as of September 24, 2017, our significant accounting policies, which are detailed in our Annual Report on Form 10-K for the year ended December 25, 2016, have not changed:
Marketable Securities
We have investments in marketable debt securities. We determine the appropriate classification of our investments at the date of purchase and reevaluate the classifications at the balance sheet date. Marketable debt securities with maturities of 12 months or less are classified as short-term. Marketable debt securities with maturities greater than 12 months are classified as long-term. Historically, we have accounted for all marketable securities as held-to-maturity (“HTM”) and stated at amortized cost as we had the intent and ability to hold our marketable debt securities until maturity. However, on June 29, 2017, our Board of Directors approved a change to the Company’s cash reserve investment policy to allow the Company to sell marketable securities prior to maturity. Beginning in the third quarter of 2017, the Company reclassified all marketable securities from HTM to available-for-sale (“AFS”).
Securities that we might not hold until maturity are classified as AFS securities and reported at fair value. Unrealized gains and losses, after applicable income taxes, are reported in accumulated other comprehensive income/(loss).
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 as the duration, severity and the reason for the decline in value, the potential recovery period and whether we intend to sell. For AFS securities, we also consider whether (i) it is more likely 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 of credit losses.
Other
As of the second quarter of 2017, the Company has renamed “circulation revenues” as “subscription revenues.” Subscription revenues consist of revenues from subscriptions to our print and digital products (including our news product, as well as Crossword and Cooking products), as well as single-copy sales of our print products (which comprise approximately 10% of these revenues). These 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.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation,” which provides guidance on accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance became effective for the Company for fiscal years beginning after December 25, 2016.
As a result of the adoption of ASU 2016-09 in the first quarter of 2017, we recognized excess tax windfalls in income tax expense rather than additional paid-in capital of $0.1 million and $0.2 million for the quarter and nine months ended

7


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

September 24, 2017, respectively. Excess tax shortfalls and/or windfalls for share-based payments are now included in net cash from operating activities rather than net cash from financing activities. The changes have been applied prospectively in accordance with the ASU and prior periods have not been adjusted. Additionally, the presentation of employee taxes paid to taxing authorities for share-based transactions are now included in net cash from financing activities rather than net cash from operating activities. This change was applied retrospectively and as a result, we reclassified $9.6 million for the nine months ended September 25, 2016 in our Condensed Statement of Cash Flows from operating activities to financing activities. No other material changes resulted from the adoption of this standard.
Recently Issued Accounting Pronouncements
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The new guidance requires the service cost component to be presented separately from the other components of net benefit costs. Service cost will be presented with other employee compensation cost within operations. The other components of net benefit cost, such as interest cost, amortization of prior service cost and gains or losses are required to be presented outside of operations. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied retrospectively for the presentation of the service cost component in the income statement and allows a practical expedient for the estimation basis for applying the retrospective presentation requirements.
Since the changes required in ASU 2017-07 only change the Condensed Consolidated Statements of Operations classification of the components of net periodic benefit cost, no changes are expected to net income. Upon adoption of the ASU during the first quarter of 2018, the Company will separately present the components of net periodic benefit cost or income, excluding the service cost component, in non-operating expenses on a retrospective basis. The historical components of net periodic benefit cost are disclosed in the Company’s previously filed Quarterly Reports on Form 10-Q and its 2016 Annual Report on Form 10-K.
In June 2016, FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for 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. We are currently in the process of evaluating the impact of this guidance on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which provides 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 the 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. This guidance becomes effective for the Company for fiscal years beginning after December 30, 2018. Early application is permitted. This guidance will be applied on a modified retrospective basis for leases existing at, or entered into after, the earliest period presented in the financial statements. We are currently in the process of evaluating the impact of the new leasing guidance and expect that most of our operating lease commitments will be subject to the new standard. The adoption of the standard will require us to add right-of-use assets and lease liabilities onto our balance sheet. Based upon our initial evaluation, we do not expect the adoption of the standard to have a material effect on our results of operations and liquidity.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments including requirements to measure most equity investments at fair value with changes in fair value recognized in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying notes to the financial statements. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently in the process of evaluating the impact of this guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which prescribes a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers. The new guidance

8


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

will supersede virtually all existing revenue guidance under GAAP and International Financial Reporting Standards and is effective for fiscal years beginning after December 31, 2017. There are two transition options available to entities: the full retrospective approach or the modified retrospective approach. Under the full retrospective approach, the Company would restate prior periods in compliance with Accounting Standards Codification 250, “Accounting Changes and Error Corrections.” Alternatively, the Company may elect the modified retrospective approach, which allows for the new revenue standard to be applied to existing contracts as of the effective date with a cumulative catch-up adjustment recorded to retained earnings. We currently anticipate adopting the new standard using the modified retrospective method beginning January 1, 2018.
Subsequently, in March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the implementation guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB also issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” to reduce the cost and complexity of applying the guidance on identifying promised goods or services when identifying a performance obligation and improve the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients,” to reduce the cost and complexity of applying the guidance to address certain issues on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The amendments in ASU 2014-09, 2016-10, and 2016-12 do not change the core principle of ASU 2014-09.
Based upon our initial evaluation, we do not expect the adoption of ASU 2014-09 to have a material effect on our financial condition or results of operations. While we continue to evaluate the impact of the new revenue guidance, we currently believe that the most significant changes will be primarily related to how we account for certain licensing arrangements in the other revenue category.
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. MARKETABLE SECURITIES
As noted in Note 2, the Company reclassified all marketable securities from HTM to AFS in the third quarter of 2017, following a change to the Company’s cash reserve investment policy that allows the Company to sell marketable securities prior to maturity. This change resulted in the recording of a $1.1 million net unrealized loss in other comprehensive income. The reclassification of the investment portfolio to AFS was made to provide increased flexibility in the use of our investments to support current operations.
The following table presents the amortized cost, gross unrealized gains and losses, and fair market value of our AFS securities as of September 24, 2017:
 
 
September 24, 2017
(In thousands)
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair Value
Short-term AFS securities
 
 
 
 
 
 
 
 
U.S Treasury securities
 
$
73,220

 
$

 
$
(45
)
 
$
73,175

Corporate debt securities
 
156,683

 
35

 
(79
)
 
156,639

U.S. governmental agency securities
 
53,842

 
1

 
(89
)
 
53,754

Certificates of deposit
 
20,403

 

 

 
20,403

Commercial paper
 
32,471

 

 

 
32,471

Total short-term AFS securities
 
$
336,619

 
$
36

 
$
(213
)
 
$
336,442

Long-term AFS securities
 
 
 
 
 
 
 

U.S. governmental agency securities
 
$
97,431

 
$
2

 
$
(616
)
 
96,817

Corporate debt securities
 
97,583

 
21

 
(259
)
 
97,345

U.S Treasury securities
 
47,672

 

 
(52
)
 
47,620

Total long-term AFS securities
 
$
242,686

 
$
23

 
$
(927
)
 
$
241,782




9


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table represents the AFS securities as of September 24, 2017 that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:
 
 
September 24, 2017
 
 
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
 
$
73,175

 
$
(45
)
 
$

 
$

 
$
73,175

 
$
(45
)
Corporate debt securities
 
101,648

 
(77
)
 
2,500

 
(2
)
 
104,148

 
(79
)
U.S. governmental agency securities
 
42,490

 
(53
)
 
8,964

 
(36
)
 
51,454

 
(89
)
Total short-term AFS securities
 
$
217,313

 
$
(175
)
 
$
11,464

 
$
(38
)
 
$
228,777

 
$
(213
)
Long-term AFS securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. governmental agency securities
 
$
47,620

 
$
(312
)
 
$

 
(304
)
 
$
47,620

 
$
(616
)
Corporate debt securities
 
66,428

 
(196
)
 
8,918

 
(63
)
 
75,346

 
(259
)
U.S Treasury securities
 
53,142

 
(52
)
 
39,697

 

 
92,839

 
(52
)
Total long-term AFS securities
 
$
167,190

 
$
(560
)
 
$
48,615

 
$
(367
)
 
$
215,805

 
$
(927
)
We periodically review our AFS securities for OTTI. See Note 2 for factors we consider when assessing AFS securities for OTTI. As of September 24, 2017, 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, as of September 24, 2017, we have recognized no OTTI loss.
The following table presents the amortized cost of our HTM securities as of December 25, 2016:
 
 
December 25, 2016
(In thousands)

 
Amortized Cost
Short-term HTM securities (1)
 
 
U.S Treasury securities
 
$
150,623

Corporate debt securities
 
150,599

U.S. governmental agency securities
 
64,135

Commercial paper
 
84,178

Total short-term HTM securities
 
$
449,535

Long-term HTM securities (1)
 

U.S. governmental agency securities
 
$
110,732

Corporate debt securities
 
61,775

U.S Treasury securities
 
14,792

Total long-term HTM securities
 
$
187,299

(1) All HTM securities were recorded at amortized cost and not adjusted to fair value in accordance with the HTM accounting treatment. As of December 25, 2016, the amortized cost approximated fair value because of the short-term maturity and highly liquid nature of these investments.
As of September 24, 2017, our short-term and long-term marketable securities had remaining maturities of less than 1 month to 12 months and 13 months to 34 months, respectively. See Note 8 for additional information regarding the fair value of our marketable securities.


10


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. GOODWILL AND INTANGIBLES
In 2016, the Company acquired two digital marketing agencies, HelloSociety, LLC and Fake Love, LLC for an aggregate of $15.4 million in separate all-cash transactions. Also in 2016, the Company acquired Submarine Leisure Club, Inc., which owned the product review and recommendation websites The Wirecutter and The Sweethome, in an all-cash transaction. We paid $25.0 million, including a payment made for a non-compete agreement, and also entered into a consulting agreement and retention agreements that will likely require payments over the three years following the acquisition.
The Company allocated the purchase prices for these acquisitions based on the final valuation of assets acquired and liabilities assumed, resulting in allocations to goodwill, intangibles, property, plant and equipment and other miscellaneous assets.
The aggregate carrying amount of intangible assets of $8.6 million related to these acquisitions has been included in “Miscellaneous Assets” in our Condensed Consolidated Balance Sheets. The estimated useful lives for these assets range from 3 to 7 years and are amortized on a straight-line basis.
The changes in the carrying amount of goodwill as of September 24, 2017, and since December 25, 2016, were as follows:
(In thousands)
 
Total Company
Balance as of December 25, 2016
 
$
134,517

Measurement period adjustment (1)
 
(198
)
Foreign currency translation
 
8,852

Balance as of September 24, 2017
 
$
143,171

(1)Includes measurement period adjustment in connection with the Submarine Leisure Club, Inc. acquisition.
The foreign currency translation line item reflects changes in goodwill resulting from fluctuating exchange rates related to the consolidation of certain international subsidiaries.
NOTE 5. INVESTMENTS
Equity Method Investments
As of September 24, 2017, our investments in joint ventures totaled $20.5 million and we had equity ownership interests in the following entities:
Company
 
Approximate %
Ownership
Donohue Malbaie Inc.
 
49
%
Madison Paper Industries
 
40
%
We have investments in Donohue Malbaie Inc. (“Malbaie”), a Canadian newsprint company, and Madison Paper Industries (“Madison”), a partnership that previously operated a supercalendered paper mill in Maine. In the third quarter of 2017, we sold our 30% ownership in Women in the World Media, LLC, a live event conference business, for a nominal amount.
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 which 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. The paper mill was closed in May 2016. During the first quarter of 2016, we recognized a $41.4 million loss from joint ventures related to the closure. The Company’s proportionate share of the loss was $20.1 million after tax and net of noncontrolling interest. As a result of the mill closure, we wrote our investment down to zero.
The Company’s joint venture in Madison is currently being liquidated. In the fourth quarter of 2016, Madison sold certain assets at the mill site and we recognized a gain of $3.9 million related to the sale. In the third quarter of 2017, Madison sold the remaining assets at the mill site (which primarily consisted of hydro power assets), and the Company recognized a gain of $30.1 million related to this sale. The Company’s proportionate share of the gain was $16.1 million after tax and net of noncontrolling interest.

11


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents summarized income statement information for Madison, which follows a calendar year:
 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands)
 
September 30, 2017

 
September 30, 2016

 
September 30, 2017

 
September 30, 2016

Revenues
 
$

 
$

 
$

 
$
40,523

Expenses:
 
 
 
 
 
 
 
 
Cost of sales
 
(105
)
 
(1,450
)
 
(1,277
)
 
(68,039
)
General and administrative income/(expense) and other
 
60,216

 
(566
)
 
59,662

 
(66,056
)
Total costs and expenses
 
60,111

 
(2,016
)
 
58,385

 
(134,095
)
Operating income/(loss)
 
60,111

 
(2,016
)
 
58,385

 
(93,572
)
Other (expense)/income
 
(1
)
 
2

 
(7
)
 
4

Net income/(loss)
 
$
60,110

 
$
(2,014
)
 
$
58,378

 
$
(93,568
)
We received no distributions from our equity method investments during the quarters and nine months ended September 24, 2017 and September 25, 2016.
We purchase newsprint from Malbaie, and previously purchased supercalendered paper from Madison, at competitive prices. These purchases totaled $2.3 million and $3.7 million for the third quarters ended September 24, 2017, and September 25, 2016, respectively, and $7.7 million and $10.3 million for the nine-month periods ended September 24, 2017, and September 25, 2016, respectively.
Cost Method Investments
The aggregate carrying amounts of cost method investments included in “Miscellaneous assets’’ in our Condensed Consolidated Balance Sheets were $14.0 million and $13.6 million for September 24, 2017 and December 25, 2016, respectively.
NOTE 6. DEBT OBLIGATIONS
Our indebtedness consisted of the repurchase option related to a sale-leaseback of a portion of our New York headquarters. Our total debt and capital lease obligations consisted of the following:
(In thousands)
 
September 24, 2017

 
December 25, 2016

Option to repurchase ownership interest in headquarters building in 2019:
 
 
 
 
Principal amount
 
$
250,000

 
$
250,000

Less unamortized discount based on imputed interest rate of 13.0%
 
7,423

 
9,801

Total option to repurchase ownership interest in headquarters building in 2019
 
242,577

 
240,199

Capital lease obligations
 
6,798

 
6,779

Total long-term debt and capital lease obligations
 
$
249,375

 
$
246,978

See Note 8 for additional information regarding the fair value of our long-term debt.
“Interest expense, 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 24, 2017

 
September 25, 2016

 
September 24, 2017

 
September 25, 2016

Interest expense
 
$
6,956

 
$
10,022

 
$
20,775

 
$
29,964

Amortization of debt costs and discount on debt
 
801

 
1,226

 
2,379

 
3,670

Capitalized interest
 
(345
)
 
(131
)
 
(852
)
 
(412
)
Interest income
 
(2,752
)
 
(2,085
)
 
(7,184
)
 
(6,267
)
Total interest expense, net
 
$
4,660

 
$
9,032

 
$
15,118

 
$
26,955


12


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 7. OTHER
Advertising Expenses
Advertising expenses incurred to promote our brand, subscription products and marketing services were $26.6 million and $22.3 million in the third quarters of 2017 and 2016, respectively, and $86.0 million and $63.6 million in the first nine months of 2017 and 2016, respectively.
Capitalized Computer Software Costs
Amortization of capitalized computer software costs included in “Depreciation and amortization” in our Condensed Consolidated Statements of Operations were $4.0 million and $2.8 million in the third quarters of 2017 and 2016, respectively, and $9.7 million and $8.5 million in the first nine months of 2017 and 2016, respectively.
Headquarters Redesign and Consolidation
In December 2016, we announced plans to redesign our headquarters building, consolidate our space within a smaller number of floors and lease the additional floors to third parties. These changes are expected to generate additional rental income and result in a more collaborative workspace. We incurred $2.5 million and $6.9 million of total costs related to these measures in the third quarter and first nine months of 2017, respectively. The capital expenditures related to these measures were approximately $26 million and $37 million in the third quarter and the first nine months of 2017, respectively.
Severance Costs
On May 31, 2017, we announced certain measures in our newsroom designed to streamline our editing process and allow us to make further investments in the newsroom. These measures resulted in a workforce reduction primarily affecting our newsroom. We recognized severance costs of $2.1 million in the third quarter of 2017 and $23.0 million in the first nine months of 2017, substantially all of which were related to this workforce reduction. We recognized severance costs of $13.0 million in the third quarter of 2016 and $18.3 million in the first nine months of 2016. These costs are recorded in “Selling, general and administrative costs” in our Condensed Consolidated Statements of Operations.
Additionally, during the second quarter of 2016, we announced certain measures to streamline our international print operations and support future growth efforts. These measures included a redesign of our international print newspaper and the relocation of certain editing and production operations conducted in Paris to our locations in Hong Kong and New York. During the third and second quarters of 2016, we incurred $2.9 million and $11.9 million, respectively, of total costs related to the measures, primarily related to relocation and severance charges. These costs were recorded in “Restructuring charge” in our Condensed Consolidated Statements of Operations.
We had a severance liability of $25.2 million and $23.2 million included in “Accrued expenses and other” in our Condensed Consolidated Balance Sheets as of September 24, 2017, and December 25, 2016, respectively. We anticipate most of the expenditures will be recognized within the next twelve months.
NOTE 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.

13


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 24, 2017, and December 25, 2016:
(In thousands)
 
September 24, 2017
 
December 25, 2016 (3)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term AFS securities (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S Treasury securities
 
$
73,175

 
$

 
$
73,175

 
$

 
$

 
$

 
$

 
$

Corporate debt securities
 
156,639

 

 
156,639

 

 

 

 

 

U.S. governmental agency securities
 
53,754

 

 
53,754

 

 

 

 

 

Certificates of deposit
 
20,403

 

 
20,403

 

 

 

 

 

Commercial paper
 
32,471

 

 
32,471

 

 

 

 

 

Total short-term AFS securities
 
$
336,442

 
$

 
$
336,442

 
$

 
$

 
$

 
$

 
$

Long-term AFS securities (1)
 

 

 

 

 

 

 

 

U.S. governmental agency securities
 
$
96,817

 
$

 
$
96,817

 
$

 
$

 
$

 
$

 
$

Corporate debt securities
 
97,345

 

 
97,345

 

 

 

 

 

U.S Treasury securities
 
47,620

 

 
47,620

 

 

 

 

 

Total long-term AFS securities
 
$
241,782

 
$

 
$
241,782

 
$

 
$

 
$

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation (2)
 
$
28,354

 
$
28,354

 
$

 
$

 
$
31,006

 
$
31,006

 
$

 
$

(1) Our marketable securities, which include U.S. Treasury securities, corporate debt securities, U.S. government agency securities, municipal securities, certificates of deposit and commercial paper, are recorded at fair value (see Note 3). 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 enables 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) As noted in Note 2, in the third quarter of 2017, we reclassified our marketable securities from HTM to AFS. Prior to being classified as AFS, the securities were recorded at amortized cost and not adjusted to fair value in accordance with the HTM accounting treatment.
Financial Instruments Disclosed, But Not Reported, at Fair Value
The carrying value of our long-term debt was approximately $243 million as of September 24, 2017 and approximately $240 million as of December 25, 2016. The fair value of our long-term debt was approximately $281 million and $298 million as of September 24, 2017 and December 25, 2016, respectively. We estimate the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2).
NOTE 9. PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension
Single-Employer Plans
We sponsor several single-employer defined benefit pension plans, the majority of which have been frozen. We also participate in two joint Company and Guild-sponsored defined benefit pension plans covering employees who are members of

14


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The NewsGuild of New York, including The Newspaper Guild of New York - The New York Times Pension Fund, which was frozen in 2012 and replaced by a successor plan, The Guild-Times Adjustable Pension Plan.
The components of net periodic pension cost were as follows:
 
 
For the Quarters Ended
 
 
September 24, 2017
 
September 25, 2016
(In thousands)
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All
Plans
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All
Plans
Service cost
 
$
2,423

 
$

 
$
2,423

 
$
2,248

 
$

 
$
2,248

Interest cost
 
15,596

 
1,956

 
17,552

 
16,573

 
2,034

 
18,607

Expected return on plan assets
 
(26,136
)
 

 
(26,136
)
 
(27,790
)
 

 
(27,790
)
Amortization of actuarial loss
 
7,351

 
1,088

 
8,439

 
7,069

 
1,054

 
8,123

Amortization of prior service credit
 
(486
)
 

 
(486
)
 
(487
)
 

 
(487
)
Net periodic pension (income)/cost
 
$
(1,252
)
 
$
3,044

 
$
1,792

 
$
(2,387
)
 
$
3,088

 
$
701

 
 
For the Nine Months Ended
 
 
September 24, 2017
 
September 25, 2016
(In thousands)
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All
Plans
 
Qualified
Plans
 
Non-
Qualified
Plans
 
All
Plans
Service cost
 
$
7,269

 
$

 
$
7,269

 
$
6,743

 
$

 
$
6,743

Interest cost
 
46,784

 
5,868

 
52,652

 
49,720

 
6,102

 
55,822

Expected return on plan assets
 
(78,408
)
 

 
(78,408
)
 
(83,369
)
 

 
(83,369
)
Amortization of actuarial loss
 
22,057

 
3,264

 
25,321

 
21,206

 
3,160

 
24,366

Amortization of prior service credit
 
(1,458
)
 

 
(1,458
)
 
(1,459
)
 

 
(1,459
)
Net periodic pension (income)/cost
 
$
(3,756
)
 
$
9,132

 
$
5,376

 
$
(7,159
)
 
$
9,262

 
$
2,103

During the first nine months of 2017 and 2016, we made pension contributions of $5.9 million and $6.0 million, respectively, to certain qualified pension plans.
As part of our continued effort to reduce the size and volatility of our pension obligations, in October 2017, the Company entered into agreements with an insurance company to transfer future benefit obligations and annuity administration for certain retirees (or their beneficiaries) in two of the Company’s qualified pension plans. Additionally, as part of our management of the funded status of our qualified pension plans, in October 2017, the Company made a $100 million aggregate contribution to these pension plans, which was funded by cash on hand. See Note 15 for additional information.
Multiemployer Plans
During the third quarter of 2016, we received $5.0 million in connection with an arbitration matter related to a multiemployer pension plan. In the second quarter of 2016, we recorded a charge of $11.7 million related to partial withdrawal obligation under a multiemployer pension plan in connection with the same arbitration matter. See Note 14 for additional information with respect to the arbitration.

15


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other Postretirement Benefits
The components of net periodic postretirement benefit income were as follows:
 
 
For the Quarters Ended
 
For the Nine Months Ended
(In thousands)
 
September 24, 2017

 
September 25, 2016

 
September 24, 2017

 
September 25, 2016

Service cost
 
$
92

 
$
104

 
$
276

 
$
313

Interest cost
 
470

 
495

 
1,410

 
1,485

Amortization of actuarial loss
 
905

 
1,026

 
2,715

 
3,078

Amortization of prior service credit
 
(1,939
)
 
(2,110
)
 
(5,816
)
 
(6,330
)
Net periodic postretirement benefit income
 
$
(472
)
 
$
(485
)
 
$
(1,415
)
 
$
(1,454
)
NOTE 10. INCOME TAXES
The Company had income tax expense of $23.4 million and $40.9 million in the third quarter and first nine months of 2017, respectively. The Company had income tax expense of $0.1 million in the third quarter of 2016 and an income tax benefit of $9.0 million in the first nine months of 2016. The increase in income tax expense was primarily due to higher income from continuing operations in the third quarter and first nine months of 2017.
The Company’s effective tax rates from continuing operations were 39.1% and 38.5% for the third quarter and first nine months of 2017, respectively. The Company’s effective tax rates from continuing operations were 30.0% and 39.4% for the third quarter and first nine months of 2016, respectively. The higher effective tax rate in the third quarter of 2017 was primarily due to higher income from continuing operations compared with the same period prior year.

NOTE 11. EARNINGS/(LOSS) PER SHARE
We compute earnings/(loss) per share using a two-class method, 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/(loss) 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/(loss) 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.
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.
The number of stock options excluded from the computation of diluted earnings per share because they were anti-dilutive was approximately 2 million in the third quarter and first nine months of 2017, respectively, and approximately 5 million and 6 million in the third quarter and first nine months of 2016, respectively.
There were no anti-dilutive stock-settled long-term performance awards and restricted stock units excluded from the computation of diluted earnings per share in the third quarter of 2017 or first nine months of 2017 and 2016. The number of stock-settled long-term performance awards and restricted stock units excluded from the computation of diluted earnings per share because they were anti-dilutive was approximately 2 million in the third quarter of 2016.

16


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 12. SUPPLEMENTAL STOCKHOLDERS’ EQUITY INFORMATION
Stockholders’ equity is summarized as follows:
(In thousands)
 
Total New York Times Company Stockholders’ Equity
 
Noncontrolling Interest
 
Total Stockholders’ Equity
Balance as of December 25, 2016
 
$
847,815

 
$
(3,571
)
 
$
844,244

Net income
 
61,109

 
3,567

 
64,676

Other comprehensive income, net of tax
 
19,294

 

 
19,294

Effect of issuance of shares
 
158

 

 
158

Dividends declared
 
(19,543
)
 

 
(19,543
)
Stock-based compensation
 
9,845

 

 
9,845

Balance as of September 24, 2017
 
$
918,678

 
$
(4
)
 
$
918,674

(In thousands)
 
Total New York Times Company Stockholders’ Equity
 
Noncontrolling Interest
 
Total Stockholders’ Equity
Balance as of December 27, 2015
 
$
826,751

 
$
1,704

 
$
828,455

Net loss
 
(8,076
)
 
(5,719
)
 
(13,795
)
Other comprehensive income, net of tax
 
13,273

 

 
13,273

Effect of issuance of shares
 
(9,298
)
 

 
(9,298
)
Share repurchases
 
(15,056
)
 

 
(15,056
)
Dividends declared
 
(19,414
)
 

 
(19,414
)
Stock-based compensation
 
9,006

 

 
9,006

Balance as of September 25, 2016
 
$
797,186

 
$
(4,015
)
 
$
793,171

On January 14, 2015, the Board of Directors approved an authorization of $101.1 million to repurchase shares of the Company’s Class A Common Stock. The Company did not repurchase any shares during the third quarter of 2017. As of September 24, 2017, the Company had repurchased 6,690,905 Class A shares under this authorization for a cost of $84.9 million (excluding commissions) and $16.2 million remained. 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 following table summarizes the changes in accumulated other comprehensive income (“AOCI”) by component as of September 24, 2017:
(In thousands)
 
Foreign Currency Translation Adjustments
 
Funded Status of Benefit Plans
 
Net unrealized Loss on available-for-sale Securities
 
Total Accumulated Other Comprehensive Loss
Balance as of December 25, 2016
 
$
(1,822
)
 
$
(477,994
)
 

 
$
(479,816
)
Other comprehensive income (loss) before reclassifications, before tax(1)
 
11,170

 

 
(1,081
)
 
10,089

Amounts reclassified from accumulated other comprehensive loss, before tax(1)
 

 
20,762

 

 
20,762

Income tax expense (benefit) (1)
 
3,777

 
8,208

 
(428
)
 
11,557

Net current-period other comprehensive income, net of tax
 
7,393

 
12,554

 
(653
)
 
19,294

Balance as of September 24, 2017
 
$
5,571

 
$
(465,440
)
 
(653
)
 
$
(460,522
)
(1)
All amounts are shown net of noncontrolling interest.

17


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the reclassifications from AOCI for the nine months ended September 24, 2017:
(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)
 
$
(7,274
)
 
Selling, general & administrative costs
Amortization of actuarial loss(1)
 
28,036

 
Selling, general & administrative costs
Total reclassification, before tax(2)
 
20,762

 
 
Income tax expense
 
8,208

 
Income tax expense
Total reclassification, net of tax
 
$
12,554

 
 
(1)
These accumulated other comprehensive income components are included in the computation of net periodic benefit cost for pension and other retirement benefits. See Note 9 for additional information.
(2)
There were no reclassifications relating to noncontrolling interest for the nine months ended September 24, 2017.
NOTE 13. SEGMENT INFORMATION
We have one reportable segment that includes The New York Times, NYTimes.com and related businesses. Therefore, all required segment information can be found in the Condensed Consolidated Financial Statements.
Our operating segment generated revenues principally from subscriptions and advertising. Other revenues consist primarily of revenues from news services/syndication, digital archives, building rental income, NYT Live (our live events business), e-commerce and affiliate referrals.
NOTE 14. CONTINGENT LIABILITIES
Restricted Cash
We were required to maintain $17.9 million and $24.9 million of restricted cash as of September 24, 2017 and December 25, 2016, respectively, the majority of which is set aside to collateralize workers’ compensation obligations. The decrease reflects the settlement of certain litigation described below.
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 amount of approximately $26 million for the plan years ending May 31, 2012 and 2013 (the “Initial Assessment”), an amount that was increased to approximately $34 million in December 2014, when the NMDU Fund issued a revised partial withdrawal liability assessment for the plan year ending May 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 the Company has appealed.
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 relating to the Initial Assessment and February 2015 relating to the Revised Assessment based on the NMDU Fund’s demand. As a result, as of September 24, 2017, we have paid $14.4 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. The Company recognized $0.1 million and $0.3 million of expense for the third quarter and nine months ended September 24, 2017, respectively. The Company recognized $4.5 million income (inclusive of a special item of $5.0 million) and $10.6 million of expense (inclusive of a special item of $6.7 million) for the third quarter and nine months ended September 25, 2016, respectively.

18


THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company had a liability of $7.3 million as of September 24, 2017, related to this matter. Management believes it is reasonably possible that the total loss in this matter could exceed the liability established by a range of zero to approximately $10 million.
NEMG T&G, Inc. 
The Company was involved in class action litigation brought on behalf of individuals who, from 2006 to 2011, delivered newspapers at NEMG T&G, Inc., a subsidiary of the Company (“T&G”). T&G was a part of the New England Media Group, which the Company sold in 2013. The plaintiffs asserted several claims against T&G, including a challenge to their classification as independent contractors, and sought unspecified damages. In December 2016, the Company reached a settlement with respect to the claims, which was approved by the court in May 2017. As a result of the settlement, the Company recorded charges of $3.7 million ($2.3 million after tax) in the fourth quarter of 2016 and $0.8 million ($0.5 million after tax) in the third quarter of 2017 within discontinued operations.
Other
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.
NOTE 15. SUBSEQUENT EVENTS
Transfer of Certain Pension Obligations

On October 18, 2017, the Company entered into agreements with Massachusetts Mutual Life Insurance Company (“MassMutual”) relating to The New York Times Companies Pension Plan and The Retirement Annuity Plan for Craft Employees of The New York Times Company (collectively, the “Pension Plans”). Under the agreements, the Company will purchase from MassMutual group annuity contracts with respect to the Pension Plans and transfer to MassMutual the future benefit obligations and annuity administration for approximately 3,800 retirees (or their beneficiaries). The pension benefit obligations and annuity administration for these transferred participants will be transferred to MassMutual and MassMutual will irrevocably guarantee the pension benefits for these participants.

This arrangement is part of the Company’s continued effort to reduce the overall size and volatility of our pension plan obligations, as well as the premiums and other administrative costs related thereto. By transferring these obligations to MassMutual, the Company expects to reduce its qualified pension plan obligations by approximately $225 million. The purchase of the group annuity contracts is being funded through existing assets of the Pension Plans’ respective trusts. As a result of this arrangement, the Company expects to recognize a pension settlement charge of approximately $95 million before tax in the fourth quarter of 2017. This charge represents the acceleration of deferred charges currently accrued in AOCI.

Discretionary Pension Contribution

On October 20, 2017, the Company made a $100 million aggregate discretionary contribution to the Pension Plans as part of the Company’s management of the funded status of these plans.






19



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
We are a global media organization that includes print and digital products and investments. We have one reportable segment with businesses that include our newspaper, websites, mobile applications and related businesses.
We generate revenues principally from subscriptions and advertising. Other revenues primarily consist of revenues from news services/syndication, digital archives, building rental income, NYT Live (our live events business), e-commerce and affiliate referrals. 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”). These supplemental non-GAAP financial performance measures exclude depreciation, amortization, severance, non-operating retirement 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 “—Results of Operations—Non-GAAP Financial Measures.”
Financial Highlights
For the third quarter of 2017, diluted earnings per share from continuing operations were $0.20, compared with $0.00 for the third quarter of 2016. 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 $0.13 and $0.06 for the third quarters of 2017 and 2016, respectively.
The Company had an operating profit of $33.0 million in the third quarter of 2017, compared with $9.0 million in the third quarter of 2016. The increase was largely due to higher digital subscription revenues and lower severance costs, which more than offset lower print advertising revenues. Operating profit before depreciation, amortization, severance, non-operating retirement costs and special items discussed below (or “adjusted operating profit,” a non-GAAP measure) was $56.5 million and $39.2 million for the third quarters of 2017 and 2016, respectively.
Total revenues increased 6.1% to $385.6 million in the third quarter of 2017 from $363.5 million in the third quarter of 2016, primarily driven by increases in digital and print subscription revenue, as well as digital advertising revenue, partially offset by a decrease in print advertising revenue.
Subscription revenues increased 13.6% in the third quarter of 2017 compared with the third quarter of 2016, primarily due to significant growth in recent quarters in the number of subscriptions to the Company’s digital subscription products, as well as the 2017 increase in home-delivery prices for The New York Times newspaper, which more than offset a decline in print copies sold. Revenue from our digital-only subscription products (which include our news product, as well as our Crossword and Cooking products) increased 46.3% in the third quarter of 2017 compared with the third quarter of 2016. Our Cooking product first launched as a paid digital product earlier in the third quarter of 2017.
Paid digital-only subscriptions totaled approximately 2,487,000 at the end of the third quarter of 2017, a 59.1% increase compared with the end of the third quarter of 2016. News product subscriptions totaled approximately 2,132,000 at the end of the third quarter of 2017, a 59.3% increase compared with the end of the third quarter of 2016. Other product subscriptions totaled approximately 355,000 at the end of the third quarter of 2017, a 57.8% increase compared with the end of the third quarter of 2016.
Total advertising revenues decreased 9.0% in the third quarter of 2017 compared with the third quarter of 2016, reflecting a 20.1% decrease in print advertising revenues, partially offset by an 11.0% increase in digital advertising revenues. The decrease in print advertising revenues resulted from a decline in display advertising, primarily in the luxury, travel, real estate, media, technology, and telecommunications categories. The increase in digital advertising revenues primarily reflected increases in revenue from our smartphone platform, programmatic channels and branded content, partially offset by a continued decrease in traditional website display advertising. We expect advertising revenues to remain under pressure in the fourth quarter of 2017, with digital advertising revenues expected to be flat or slightly lower compared with the same prior year period.
Other revenues increased 17.7% in the third quarter of 2017 compared with the third quarter of 2016, largely due to affiliate referral revenue associated with the product review and recommendation websites, The Wirecutter and The Sweethome, which the Company acquired in October 2016. The two websites were subsequently combined and re-branded as “Wirecutter.”

20



Operating costs decreased in the third quarter of 2017 to $350.1 million from $356.6 million in the third quarter of 2016, largely due to lower severance, print production and distribution costs, and savings in international operations, which were partially offset by higher costs following the acquisitions of Wirecutter and digital marketing agency, Fake Love, and higher marketing costs. Operating costs before depreciation, amortization, severance and non-operating retirement costs (or “adjusted operating costs,” a non-GAAP measure) increased in the third quarter of 2017 to $329.2 million from $324.4 million in the third quarter of 2016.
Non-operating retirement costs decreased to $3.1 million during the third quarter of 2017 from $3.8 million in the third quarter of 2016 primarily due to lower multiemployer pension plan withdrawal expense.

21



RESULTS OF OPERATIONS
The following table presents our consolidated financial results:
 
 
For the Quarters Ended
 
 
 
For the Nine Months Ended
 
 
(In thousands)
 
September 24, 2017

 
September 25, 2016

 
% Change

 
September 24, 2017

 
September 25, 2016

 
% Change

Revenues
 
 
 
 
 

 
 
 
 
 
 
Subscription
 
$
246,638

 
$
217,099

 
13.6
 %
 
$
739,050

 
$
654,573

 
12.9
 %
Advertising
 
113,633

 
124,898

 
(9.0
)%
 
375,895

 
395,733

 
(5.0
)%
Other
 
25,364

 
21,550

 
17.7
 %
 
76,568

 
65,386

 
17.1
 %
Total revenues
 
385,635

 
363,547

 
6.1
 %
 
1,191,513

 
1,115,692

 
6.8
 %
Operating costs
 
 
 
 
 
 
 
 
 
 
 
 
Production costs:
 
 
 
 
 

 
 
 
 
 
 
Wages and benefits
 
89,866

 
91,041

 
(1.3
)%
 
269,209

 
274,142

 
(1.8
)%
Raw materials
 
15,718

 
18,228

 
(13.8
)%
 
48,461

 
53,115

 
(8.8
)%
Other
 
44,336

 
47,347

 
(6.4
)%
 
134,771

 
139,938

 
(3.7
)%
Total production costs
 
149,920

 
156,616

 
(4.3
)%
 
452,441

 
467,195

 
(3.2
)%
Selling, general and administrative costs
 
184,483

 
184,596

 
(0.1
)%
 
595,491

 
534,911

 
11.3
 %
Depreciation and amortization
 
15,677

 
15,384

 
1.9
 %
 
46,961

 
46,003

 
2.1
 %
Total operating costs
 
350,080

 
356,596

 
(1.8
)%
 
1,094,893

 
1,048,109

 
4.5
 %
Headquarters redesign and consolidation
 
2,542

 

 
*

 
6,929