FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For Quarter Ended March 28, 1999 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 43D 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 May 7, 1999 (exclusive of treasury shares): Class A Common Stock 175,651,480 shares Class B Common Stock 849,602 shares
PART I. FINANCIAL INFORMATION Item 1. Financial Statements THE NEW YORK TIMES COMPANY CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (Dollars and shares in thousands, except per share data) For the Quarter Ended ------------------------- March 28, March 29, 1999 1998 ------------------------- (13 Weeks) Revenues Advertising ....................................... $522,801 $507,478 Circulation ....................................... 172,557 169,522 Other ............................................. 43,701 45,563 -------- -------- Total ........................................... 739,059 722,563 -------- -------- Production Costs Raw materials ..................................... 87,320 87,778 Wages and benefits ................................ 142,072 141,233 Other ............................................. 100,404 100,971 -------- -------- Total ........................................... 329,796 329,982 Selling, General and Administrative Expenses ......... 294,022 276,211 -------- -------- Total ........................................... 623,818 606,193 -------- -------- Operating Profit ..................................... 115,241 116,370 Income from Joint Ventures ........................... 4,203 4,371 Interest expense - net ............................... 11,896 10,143 Gain on Disposition of Asset ......................... -- 4,619 -------- -------- Income before income taxes ........................... 107,548 115,217 Income Taxes ......................................... 46,138 50,580 -------- -------- Net Income ........................................... $ 61,410 $ 64,637 ======== ======== Average Number of Common Shares Outstanding Basic .............................................. 179,686 192,591 Diluted ............................................ 183,118 197,153 Per Share of Common Stock Basic earnings ..................................... $ .34 $ .34 Diluted earnings ................................... $ .34 $ .33 Dividends .......................................... $ .095 $ .085 See Notes to Consolidated Condensed Financial Statements. 2
THE NEW YORK TIMES COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) March 28, December 27, 1999 1998 -------------------------- ASSETS (Unaudited) Current Assets Cash and short-term investments ................. $ 39,810 $ 35,991 Accounts receivable-net ......................... 321,423 331,933 Inventories Newsprint and magazine paper .................. 31,061 27,705 Work-in-process and other ..................... 5,764 4,582 ---------- ---------- Total inventories .......................... 36,825 32,287 Deferred income taxes ........................... 40,612 40,612 Other current assets ............................ 78,518 76,153 ---------- ---------- Total current assets ....................... 517,188 516,976 ---------- ---------- Other Assets Investment in joint ventures .................... 126,110 122,273 Property, plant and equipment (less accumulated depreciation of $929,658 in 1999 and $897,304 in 1998) .................... 1,305,864 1,326,196 Intangible assets acquired Cost in excess of net assets acquired (less accumulated amortization of $248,138 in 1999 and $240,676 in 1998) ................. 955,883 963,347 Other intangible assets acquired (less accumulated amortization of $69,958 in 1999 and $64,746 in 1998) .................. 359,030 364,226 Miscellaneous assets ............................ 200,044 172,091 ---------- ---------- TOTAL ASSETS ....................................... $3,464,119 $3,465,109 ========== ========== See Notes to Consolidated Condensed Financial Statements. 3
THE NEW YORK TIMES COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) March 28, December 27, 1999 1998 -------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) Current Liabilities Commercial paper outstanding .................. $ 186,450 $ 124,100 Accounts payable .............................. 169,459 163,783 Accrued payroll and other related liabilities . 74,898 87,265 Accrued expenses .............................. 192,058 166,761 Unexpired subscriptions ....................... 85,818 81,080 Current portion of long-term debt and capital lease obligations ................... 1,788 1,867 ----------- ----------- Total current liabilities ................... 710,471 624,856 ----------- ----------- Other Liabilities Long-term debt ................................ 513,858 513,695 Capital lease obligations ..................... 83,682 84,123 Deferred income taxes ......................... 165,338 165,268 Other ......................................... 566,785 545,697 ----------- ----------- Total other liabilities ..................... 1,329,663 1,308,783 ----------- ----------- Total liabilities ........................... 2,040,134 1,933,639 ----------- ----------- Stockholders' Equity Capital stock ................................. 18,760 18,661 Additional paid-in capital .................... 14,533 -- Accumulated other comprehensive loss- foreign currency translation adjustments .... (2,256) (2,609) Retained earnings ............................. 1,721,815 1,677,469 Common stock held in treasury, at cost ........ (328,867) (162,051) ----------- ----------- Total stockholders' equity .................. 1,423,985 1,531,470 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 3,464,119 $ 3,465,109 =========== =========== See Notes to Consolidated Condensed Financial Statements. 4
THE NEW YORK TIMES COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Quarter Ended ------------------------- March 28, March 29, 1999 1998 ------------------------- (13 Weeks) OPERATING ACTIVITIES Net cash provided by operating activities ........ $ 120,959 $ 67,348 --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment ....... (13,583) (20,481) Net proceeds from disposition .................... -- 9,934 Other-net ........................................ (1,599) 1,576 --------- --------- Net cash used in investing activities ............ (15,182) (8,971) --------- --------- FINANCING ACTIVITIES Commercial paper borrowings ...................... 62,350 -- Long-term debt reduction ......................... (521) (1,002) Capital Shares Issuance ...................................... 4,544 2,302 Repurchase .................................... (151,267) (84,380) Dividends paid to stockholders ................... (17,064) (16,368) --------- --------- Net cash used in financing activities ............ (101,958) (99,448) --------- --------- Increase/(decrease) in cash and short-term investments ................................... 3,819 (41,071) Cash and short-term investments at the beginning of the year ......................... 35,991 106,820 --------- --------- Cash and short-term investments at the end of the quarter ............................ $ 39,810 $ 65,749 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION NONCASH FINANCING TRANSACTIONS 1. Repurchases of common stock in connection with noncash exercises under the Company's stock option plans increased treasury stock by $10.0 million in 1999 and $19.1 million in 1998. Additional paid-in capital was increased by a corresponding amount. The cost of shares reacquired in connection with taxes due from optionees on noncash exercises under the Company's stock option plans are included in repurchases in the consolidated condensed statements of cash flows above and amounted to $5.7 million in the 1999 first quarter and $11.4 million in the 1998 first quarter. 2. In February 1999 the Company purchased a minority interest in TheStreet.com for $15.0 million, of which $3.0 million was in cash and $12.0 million represents an irrevocable credit for services to be used by TheStreet.com through February 2003. Investment and deferred revenue accounts were increased by $12.0 million accordingly. OTHER Amounts in these statements of cash flows are presented on a cash basis and may differ from those shown in other sections of the financial statements. See Notes to Consolidated Condensed Financial Statements. 5
THE NEW YORK TIMES COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. General The accompanying Notes to Consolidated Condensed 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 27, 1998, for The New York Times Company (the "Company") filed with the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations, as of and for the interim period ended, have been included. Due to the seasonal nature of the Company's business, results for the interim periods are not necessarily indicative of a full year's operations. Certain reclassifications have been made to the 1998 Consolidated Condensed Financial Statements to conform to classifications used for the three months ended at March 28, 1999. 2. Income Taxes Reconciliations between the effective tax rate on income before income taxes and the federal statutory rate are as follows: - -------------------------------------------------------------------------------- March 28, March 29, For the Quarter Ended 1999 1998 - -------------------------------------------------------------------------------- % of % of (Dollars in thousands) Amount Pretax Amount Pretax - -------------------------------------------------------------------------------- Tax at federal statutory rate ........ $37,642 35.0% $40,326 35.0% State and local taxes-net of federal benefit ...................... 6,174 5.7% 7,764 6.8% Amortization of nondeductible intangible assets acquired ........... 1,978 1.8% 2,219 1.9% Other-net ............................ 344 0.4% 271 0.2% --------------------------------------- Income Tax Expense ................... $46,138 42.9% $50,580 43.9% --------------------------------------- 3. Stock Repurchase Program During the first three months of 1999 the Company repurchased 4,747,000 shares of Class A Common Stock at a cost of $151,119,000. The average price of these repurchases was $31.83 per share. From the end of the first quarter through May 7, 1999, the Company has repurchased 1,323,000 shares at a cost of $41,367,000. As of May 7, 1999, the remaining amount of repurchase authorizations from the Company's Board of Directors is $154,414,000. 4. Voluntary Staff Reductions Staff reduction accruals included in accrued expenses on the Company's Consolidated Condensed Balance Sheets amounted to $19,000,000 at March 28, 1999, and $22,000,000 at December 27, 1998. Most of this balance at March 28, 1999, will be paid within one year. 6
5. Comprehensive Income Comprehensive Income for the Company includes foreign currency translation adjustments in addition to net income as reported in the Company's Consolidated Condensed Financial Statements. Comprehensive income was $61,763,000 for the quarter ended March 28, 1999, and $64,637,000 for the quarter ended March 29, 1998. 6. Segment Statements of Income - -------------------------------------------------------------------------------- For the Quarter Ended ----------------------------- March 28, March 29, (Dollars in thousands) 1999 1998 - -------------------------------------------------------------------------------- (13 Weeks) REVENUES Newspapers ................................. $ 678,250 $ 657,330 Broadcast .................................. 33,093 33,298 Magazines .................................. 27,716 31,935 --------------------------- Total .................................... $ 739,059 $ 722,563 =========================== OPERATING PROFIT (LOSS) Newspapers ................................. $ 112,361 $ 107,589 Broadcast .................................. 6,985 7,284 Magazines .................................. 4,469 8,318 Unallocated Corporate Expenses ............. (8,574) (6,821) --------------------------- Total .................................... 115,241 116,370 --------------------------- Income from Joint Ventures ................. 4,203 4,371 Interest expense, net ...................... 11,896 10,143 Gain on disposition of asset ............... -- 4,619 --------------------------- Income before income taxes ................. 107,548 115,217 Income taxes ............................... 46,138 50,580 --------------------------- NET INCOME ................................. $ 61,410 $ 64,637 =========================== See Management's Discussion and Analysis of this report on Form 10-Q for more details on the Company's reportable operating segments. 7. Dividend Rate Increase On April 15, 1999, the Board of Directors authorized a $.01 increase in the quarterly dividend payments on both Class A and B Common Stock effective with the June 1, 1999, record date. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Advertising revenues accounted for 71% and circulation revenues accounted for 23% of the Company's revenues in the first quarter of 1999. Advertising revenues influence the pattern of the Company's consolidated revenues because they are seasonal in nature. Traditionally, second-quarter and fourth-quarter advertising volume is higher than that which occurs in the first and third quarters since economic activity tends to be lower in the post-holiday season and the summer period. Quarterly trends are also affected by the overall economy and economic conditions that may exist in specific markets served by each of the Company's business segments. Newsprint is the major component of the Company's cost of raw materials. The Company's cost of newsprint was lower in the first quarter of 1999 compared with the first quarter of 1998. The cost of newsprint during 1999 is expected to be below that of 1998 for the balance of the year. The Company's consolidated financial results for the first quarter of 1999 compared with the first quarter of 1998 were as follows: -------------------------------------------------------------- For the Quarter Ended ------------------------------ (Dollars in thousands, except March 28, March 29, per share data) 1999 1998 % Change -------------------------------------------------------------- Revenues $739,059 $722,563 2.3% -------------------------------------------------------------- Operating profit $115,241 $116,370 -1.0% -------------------------------------------------------------- Net Income before special item $ 61,410 $ 62,046 -1.0% Special item -- 2,591 N/A -------------------------------------------------------------- Net Income $ 61,410 $ 64,637 -5.0% -------------------------------------------------------------- Diluted earnings per share before special item $ .34 $ .32 6.3% Special item -- .01 N/A -------------------------------------------------------------- Diluted EPS $ .34 $ .33 3.0% -------------------------------------------------------------- The 1999 first-quarter net income was $61.4 million or $.34 basic ($.34 diluted) earnings per share compared with net income of $64.6 million or $.34 basic ($.33 diluted) earnings per share in the first quarter of 1998. Revenues for the first quarter of 1999 were $739.0 million, a 2.3% increase over 1998 first-quarter revenues of $722.6 million. The increase was primarily due to higher advertising rates and volume in the Newspaper Group. Operating profit decreased slightly to $115.2 million in the first quarter of 1999 from $116.4 million in the first quarter of 1998. This slight decrease is principally related to increased expenses associated with expanding distribution of The New York Times newspaper, partially offset by higher revenues. The Company had a $4.6 million pre-tax gain ($2.6 million after-tax) ($.01 basic and diluted earnings per share) from the sale of equipment in the first quarter of 1998, reflected as a special item above. The 1999 first-quarter earnings before interest, income taxes, depreciation and amortization ("EBITDA") rose to $167.9 million from $166.6 million in the comparable 1998 period. EBITDA is presented because it is a widely accepted indicator of funds available to service debt, although it is not a measure of liquidity or of financial performance under generally accepted accounting principles ("GAAP"). The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. 8
Consolidated operating expenses for 1999 and 1998 were as follows: --------------------------------------------------------- For the Quarter Ended ------------------------------ (Dollars in March 28, March 29, thousands) 1999 1998 % Change --------------------------------------------------------- Production costs Raw materials $ 87,320 $ 87,778 -0.5% Wages and benefits 142,072 141,233 0.6% Other 100,404 100,971 -0.6% --------------------------------------------------------- Total production costs 329,796 329,982 -0.1% --------------------------------------------------------- Selling, general and administrative expenses 294,022 276,211 6.4% --------------------------------------------------------- Total expenses $623,818 $606,193 2.9% --------------------------------------------------------- Production costs for the first quarter of 1999 were $329.8 million, a 0.1% decrease from 1998 first-quarter production costs of $330.0 million. Selling, general and administrative expenses ("SGA expenses") in the first quarter of 1999 were $294.0 million, a 6.4% increase over the 1998 first-quarter SGA expenses of $276.2 million. The higher level of SGA expenses is principally attributable to increased distribution and promotion costs in the Newspaper Group. Other Items Interest expense-net increased to $11.9 million in the 1999 first quarter from $10.1 million in the 1998 first quarter due to the Company's funding of its share repurchase program. The effective income tax rate for the first quarter of 1999 was 42.9%, compared with 43.9% in the 1998 first quarter. The decrease in the effective income tax rate was primarily related to lower state and local income taxes. 9
Consolidated revenues, EBITDA, depreciation and amortization and operating profit by business segment were as follows: -------------------------------------------------------------------- For the Quarter Ended ----------------------------------- March 28, March 29, (Dollars in thousands) 1999 1998 % Change -------------------------------------------------------------------- (13 Weeks) REVENUES Newspapers ................... $ 678,250 $ 657,330 3.2% Broadcast .................... 33,093 33,298 -0.6% Magazines .................... 27,716 31,935 -13.2% ---------------------------------- Total ...................... $ 739,059 $ 722,563 2.3% ================================== EBITDA Newspapers ................... $ 153,541 $ 149,604 2.6% Broadcast .................... 11,355 11,740 -3.3% Magazine ..................... 4,800 6,187 -22.4% Unallocated Corporate Expenses (6,083) (5,412) -12.4% Joint Ventures ............... 4,291 4,459 -3.8% ---------------------------------- Total ...................... $ 167,904 $ 166,578 0.8% ================================== DEPRECIATION AND AMORTIZATION Newspapers ................... $ 41,180 $ 42,015 -2.0% Broadcast .................... 4,370 4,456 -1.9% Magazine ..................... 331 (2,131) N/A Corporate .................... 2,491 1,409 N/A Joint Ventures ............... 88 88 -- ---------------------------------- Total ...................... $ 48,460 $ 45,837 5.7% ================================== OPERATING PROFIT (LOSS) Newspapers ................... $ 112,361 $ 107,589 4.4% Broadcast .................... 6,985 7,284 -4.1% Magazines .................... 4,469 8,318 -46.3% Unallocated Corporate Expenses (8,574) (6,821) -25.7% ---------------------------------- Total ...................... $ 115,241 $ 116,370 -1.0% ================================== Newspaper Group: The Newspaper Group consists of The New York Times ("The Times"), The Boston Globe ("The Globe"), 21 regional newspapers, newspaper distributors, a news service, a features syndicate, TimesFax, licensing operations of the New York Times databases and microfilm and New Ventures. New Ventures include, among other things, projects developed in electronic media. --------------------------------------------------- For the Quarter Ended ----------------------- March 28, March 29, (Dollars in thousands) 1999 1998 --------------------------------------------------- (13 Weeks) Revenues $678,250 $657,330 --------------------------------------------------- EBITDA $153,541 $149,604 --------------------------------------------------- Operating Profit $112,361 $107,589 --------------------------------------------------- 10
Internet-related revenue and operating profit in the Newspaper Group were as follows: -------------------------------------------------------- For the Quarter Ended ------------------------------- March 28, March 29, Dollars in thousands) 1999 1998 % Change -------------------------------------------------------- Revenues Advertising $ 3,866 $ 2,996 29.0% Circulation and Other 846 971 -12.9% ------------------------------- Total $ 4,712 $ 3,967 18.8% =============================== Operating Loss $(3,389) $(1,212) N/A =============================== Internet-related revenue and operating profit includes The New York Times on the Web, New York Today, boston.com and the Regional Newspapers' Web sites. In July 1998, The New York Times on the Web stopped charging users outside the U.S. for subscription fees. Total Newspaper Group revenues were $678.3 million in the first quarter of 1999 compared with $657.3 million in the 1998 first quarter. The 3.2% increase in the Group's revenues for the quarter was primarily due to higher advertising rates and volume. In the first quarter of 1999, the Company's average cost of newsprint decreased 3.0% and consumption increased 0.8% compared with the 1998 first quarter. At The New York Times and the Regional Newspaper Group advertising revenues increased 5.4% and 6.7%, while at The Boston Globe help wanted advertising continued to soften. Circulation revenue at The New York Times increased 3.8% over the 1998 first quarter, reflecting substantial gains in daily and Sunday circulation. First-quarter operating profit for the Newspaper Group increased 4.4% to $112.4 million from $107.6 million in the 1998 first quarter. Advertising, circulation and other revenue, by major product of the Newspaper Group, were as follows: ---------------------------------------------------------- For the Quarter Ended ------------------------------------ March 28, March 29, (Dollars in thousands) 1999 1998 % Change ---------------------------------------------------------- The New York Times Advertising $275,553 $261,348 5.4% Circulation 113,618 109,415 3.8% Other 34,104 34,226 -0.4% ---------------------------------------------------------- Total 423,275 404,989 4.5% ---------------------------------------------------------- The Boston Globe Advertising 108,510 111,295 -2.5% Circulation 32,325 32,862 -1.6% Other 2,169 1,983 9.4% ---------------------------------------------------------- Total 143,004 146,140 -2.1% ---------------------------------------------------------- Regional Newspapers Advertising 87,894 82,355 6.7% Circulation 20,234 20,409 -0.9% Other 3,843 3,437 11.8% ---------------------------------------------------------- Total 111,971 106,201 5.4% ---------------------------------------------------------- Total Newspaper Group Advertising $471,957 $454,998 3.7% Circulation 166,177 162,686 2.1% Other 40,116 39,646 1.2% ---------------------------------------------------------- Total $678,250 $657,330 3.2% ========================================================== 11
Advertising volume on a comparable basis for the quarter was as follows: ---------------------------------------------------------------------- For the Quarter Ended ------------------------------------- (Inches in thousands, preprints March 28, March 29, in thousands of copies) 1999 1998 % Change ---------------------------------------------------------------------- The New York Times Retail 125.3 124.0 1.0% National 349.4 340.7 2.6% Classified 255.0 254.7 0.1% Zoned 223.8 222.5 0.6% ---------------------------------------------------------------------- Total 953.5 941.9 1.2% ---------------------------------------------------------------------- Preprints 96,509.0 74,899.0 28.9% ---------------------------------------------------------------------- The Boston Globe Retail 138.6 139.3 -0.5% National 173.3 168.4 2.9% Classified 337.3 343.0 -1.7% Zoned 55.7 61.5 -9.4% ---------------------------------------------------------------------- Total 704.9 712.2 -1.0% ---------------------------------------------------------------------- Preprints 186,362.0 170,481.0 9.3% ---------------------------------------------------------------------- Regional Newspaper Retail 1,848.8 1,903.5 -2.9% National 68.5 69.4 -1.3% Classified 1,917.8 1,792.0 7.0% Zoned 84.0 82.3 2.1% ---------------------------------------------------------------------- Total 3,919.1 3,847.2 1.9% ---------------------------------------------------------------------- Preprints 270,222.0 261,532.0 3.3% ---------------------------------------------------------------------- Average circulation of newspapers for The Times, The Globe and the Regional Newspapers (excluding non-dailies) for the quarter ended March 28, 1999 (compared with the quarter ended March 29, 1998) was as follows: ------------------------------------------------------------------- For the Quarter Ended March 28, 1999 -------------------------------------- (Copies in thousands) Weekday % Change Sunday % Change ------------------------------------------------------------------- Average Net Paid Circulation The New York Times 1,128.5 2.2% 1,705.8 3.0% The Boston Globe 462.4 0.1% 726.1 -2.7% Regional Newspapers 774.9 -0.3% 826.3 -0.9% ------------------------------------------------------------------- Circulation growth for The New York Times newspaper was primarily due to improved availability in major markets across the nation and its continuing programs to improve the quality and levels of its home-delivery circulation base. Additionally, The Times and The Globe have continued to make improvements in delivery service to attract new readers and retain existing ones. 12
Broadcast Group: The Broadcast Group is comprised of eight network-affiliated television stations and two radio stations. ---------------------------------------------------- For the Quarter Ended ------------------------ March 28, March 29, (Dollars in thousands) 1999 1998 ---------------------------------------------------- (13 Weeks) Revenues $33,093 $33,298 ---------------------------------------------------- EBITDA $11,355 $11,740 ---------------------------------------------------- Operating Profit $ 6,985 $ 7,284 ---------------------------------------------------- First-quarter revenues and operating profit for the Broadcast Group were $33.1 million and $7.0 million in 1999 compared with $33.3 million and $7.3 million in the 1998 first quarter. Revenues and operating profit in the 1998 first quarter were favorably affected by the Winter Olympics, which were broadcast from four of the Company's eight television stations. Magazine Group: The Magazine Group is comprised of three golf publications and related activities in the golf field, and New Ventures, such as on-line magazine services. ---------------------------------------------------- For the Quarter Ended ------------------------ March 28, March 29, (Dollars in thousands) 1999 1998 ---------------------------------------------------- (13 Weeks) Revenues Magazines $27,716 $29,435 Non-Compete -- 2,500 ---------------------------------------------------- Total Revenues $27,716 $31,935 ---------------------------------------------------- EBITDA $ 4,800 $ 6,187 ---------------------------------------------------- Operating Profit (Loss) Magazines $ 4,469 $ 5,818 Non-Compete -- 2,500 ---------------------------------------------------- Total Operating Profit $ 4,469 $ 8,318 ---------------------------------------------------- The Magazine Group's first-quarter revenues and operating profit were $27.7 million and $4.5 million compared with $31.9 million and $8.3 million in the 1998 first quarter. First-quarter revenue and operating profit in 1998 included $2.5 million from the amortization of a non-compete agreement that ended last July. Consolidation in the golf equipment industry and a competitive rate environment also adversely affected the Group's revenues. Liquidity and Capital Resources Net cash provided by operating activities was $121.0 million in the 1999 first quarter, compared with $67.3 million in the 1998 first quarter. The increase of $53.7 million in 1999 was primarily due to a reduction in accounts receivable and an increase in accounts payable, which resulted in an improvement in cash flow. Net cash used in investing activities was $15.2 million in the first quarter of 1999, compared with $9.0 million in the 1998 first quarter. The increase of $6.2 million in 1999 was primarily due to the proceeds from the disposition of equipment in 1998. Net cash used in financing activities was $102.0 million in the first quarter of 1999, compared with $99.4 million in the first quarter of 1998. The increase of $2.6 million in 1999 was primarily related to increased funding of the Company's stock repurchase program. The Company believes that cash generated from its operations and the availability of funds from external sources should be adequate to cover working capital needs, stock repurchases, planned capital expenditures, dividend 13
payments to stockholders and other cash requirements. The ratio of current assets to current liabilities was 73% at March 28, 1999, and 79% at March 29, 1998. This decrease is principally due to an increase in commercial paper outstanding at March 28, 1999, mostly resulting from the funding of stock repurchases. The ratio of long-term debt and capital lease obligations as a percentage of total capitalization was 30% at March 28, 1999, compared with 21% at March 29, 1998. This increase was principally due to the funding of stock repurchases. Financing: The Company's total debt, including commercial paper and capital leases, was $785.8 million at March 28, 1999, and $638.5 million at March 29, 1998. The Company currently maintains $300.0 million in revolving credit agreements, which require, among other matters, specified levels of stockholders' equity. The Company had $186.5 million in commercial paper outstanding at March 28, 1999, which obligations are supported by these revolving credit agreements. No commercial paper was outstanding at March 29, 1998. Approximately $583.2 million of stockholders' equity was unrestricted under these agreements at March 28, 1999, and $905.3 million was unrestricted at March 29, 1998. This decrease was principally due to the funding of stock repurchases. Capital Expenditures: The Company currently estimates that capital expenditures for 1999 will range from $90.0 million to $110.0 million. The Company currently anticipates that depreciation and amortization expense will approximate $195.0 million for 1999 compared with $188.2 million in 1998. Year 2000 Readiness: The Company has evaluated the potential impact of the situation commonly known as the "Year 2000 problem." The Year 2000 problem, which is common to most corporations, concerns the ability of information systems, primarily computer software programs, to properly recognize and process date-sensitive information related to the Year 2000. In April 1997 the Company began to identify all of its Year 2000 concerns for all facets of its operations. A Year 2000 Program Office was established, and a detailed inventory of all systems issues required to be addressed in connection with the Year 2000 was created. Information was gathered for each system including: o type of system and its relative importance o probable method and cost of remediation and o targeted start and end dates for addressing Year 2000 issues. This inventory includes systems to: o create the Company's publications o operate the Company's production and distribution facilities o operate the Company's broadcast stations o operate the Company's business and financial applications and o control facility and infrastructure areas (building systems, utilities, security systems, etc.). The systems identified in the inventory were further categorized into five priority classifications: o Shutdown - highest priority. If these systems (e.g., editorial systems, presses, and utilities) were to fail, the Company's ability to continue its operations would be seriously impaired. Approximately 9% of the identified systems are in this category. 14
o Impractical Workaround - If these systems were to fail, the available alternatives are too expensive to implement. Approximately 9%. o Costly Workaround - If these systems were to fail, a feasible but costly alternative exists. Approximately 28%. o Additional But Manageable Cost - If these systems fail, an alternative solution exists at a moderate cost. Approximately 22%. o No Impact - Little if any consequence to the business if these systems fail. Approximately 32%. By October 1997 the Company had completed the inventory phase and turned its attention to the remediation phase. Target dates for each item in the inventory were identified and are continually monitored to ensure timely resolution of the issues. The remediation strategy involves a mix of purchasing new systems, modifying existing systems, retiring obsolete systems and confirming vendor compliance. As of March 31, 1999, 90% of all systems had been remediated and tested. Testing systems for Year 2000 compliance includes the use of dates that simulate transactions and environments, both prior and subsequent to the Year 2000, including specific testing for leap year. The Company has communicated with most of its suppliers and other vendors, and is contacting its significant advertisers, seeking assurances that they will be Year 2000 compliant. Although there is no certainty that any major business partner will function without disruption in the Year 2000, the Company's goal is to obtain detailed information about its advertisers' and suppliers' Year 2000 plans and to identify those companies that could pose a significant risk of failure. The Company will make alternate arrangements where necessary. Generally, the Company is not dependent on a single source for any products or services, except for products or services supplied by public utilities. In the event a significant supplier or other vendor is unable to provide products or services to the Company due to a Year 2000 failure, the Company believes it has adequate alternate sources for such products or services. There is no guarantee, however, that such alternate products or services would be available at the same terms and conditions or that the Company would not experience some adverse effects as a result of switching to alternate sources. To date, the Company has identified total estimated costs in connection with the Year 2000 problem of between $15 million and $20 million. This estimate does not include systems previously scheduled for replacement without regard to the Year 2000 issue. Of this amount, approximately $10 million will be for systems replacements involving capital outlays (which are not deducted as an expense on the Company's Consolidated Statements of Income). The remaining amount is being deducted as an expense on the Company's Consolidated Statements of Income through 1999. Approximately 75% of this expense total is attributable to the use of currently available internal resources. The cost of the Company's Year 2000 remediation efforts is being funded with cash flows from operations. With respect to its internal operations, those over which the Company has direct control, the Company believes that all of its critical systems (i.e., those categorized in the shutdown or impractical workaround categories described above) will be remediated and tested by the end of the second quarter of 1999. Like most large business enterprises, the Company is reliant upon certain critical vendors. Certain of these vendors have yet to provide a Year 2000 compliant product, while services that are provided by certain other vendors cannot be tested (i.e., power and telecommunications). The Company 15
believes the possibility of critical vendor failures to be remote based on the information supplied to date by such critical vendors. The Company's Year 2000 strategies include contingency planning, encompassing business continuity both within the Company and in the external business environment. The planning effort encompasses all critical Company areas. The Company's contingency planning for the Year 2000 will address a variety of scenarios that could occur. Because of the Company's extensive efforts to formulate and carry out an effective Year 2000 remediation program, the Company believes that such remediation will be completed on a timely basis and should effectively minimize any disruption to the Company's operations due to Year 2000 issues. The Company does not expect Year 2000 issues to have a material effect on its results of operations, liquidity or financial condition. 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 or volume) of retail, national and classified advertising and circulation generated by the Company's various markets and material increases in newsprint and magazine paper 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 27, 1998. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company's quantitative and qualitative market risk is principally associated with market interest rate fluctuations related to its debt obligations. The Company does not consider such market risk significant. 16
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders (a) The Company's annual meeting of stockholders was held on April 15, 1999. (b) The following matters were voted on at the annual meeting: 1. The stockholders (with Class A and Class B stockholders voting separately) elected all of management's nominees for election as Class A Directors and Class B Directors. The results of the vote taken were as follows: Class A Directors: For Withheld - ------------------ --- -------- Raul E. Cesan 152,536,691 3,532,371 Robert A. Lawrence 155,188,068 880,994 Charles H. Price II 155,218,978 850,084 Henry B. Schacht 152,452,957 3,616,105 Donald M. Stewart 155,211,652 857,410 Class B Directors: John F. Akers 838,426 0 Brenda C. Barnes 838,426 0 Richard L. Gelb 837,826 600 Michael Golden 838,426 0 Russell T. Lewis 838,426 0 Ellen R. Marram 838,426 0 Arthur Ochs Sulzberger 838,426 0 Arthur O. Sulzberger, Jr. 838,426 0 Judith P. Sulzberger 838,426 0 2. The stockholders (with Class A and B stockholders voting together) ratified the amendments to the Company's 1991 Executive Cash Bonus Plan and 1991 Executive Stock Incentive Plan. The result of the vote taken was as follows: For: 151,791,389 Against: 4,158,307 Abstain: 957,792 Broker Non-Vote 0 Total Against, Abstain and Broker Non-Vote* 5,116,099 3. The stockholders (with Class A and Class B stockholders voting together) ratified the selection, by the Audit Committee of the Board of Directors, of Deloitte & Touche LLP, independent certified public accountants, as auditors of the Company for the year ending December 26, 1999. The result of the vote taken was as follows: For: 156,149,547 Against: 322,499 Abstain: 435,442 Broker Non-Vote 0 Total Against, Abstain and Broker Non-Vote* 757,941 - ----------- * An abstention had the same effect as a vote against this matter. 17
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.2 The Company's 1991 Executive Stock Incentive Plan, as amended through April 15, 1999. 10.3 The Company's 1991 Executive Cash Bonus Plan, as amended through April 15, 1999. 10.4 The Company's Non-Employee Directors' Stock Option Plan, as restated as of June 17, 1998. 12 Ratio of Earnings to Fixed Charges 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K have been filed during the period for which this report is filed. 18
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE NEW YORK TIMES COMPANY (Registrant) Date: May 12, 1999 /S/ John M. O'Brien ----------------------------- John M. O'Brien Senior Vice President and Chief Financial Officer (Principal Financial Officer) 19
Exhibit Index to Quarterly Report on Form 10-Q Quarter Ended March 28, 1999 Exhibit No. Exhibit ----------- ------- 10.2 The Company's 1991 Executive Stock Incentive Plan, as amended through April 15, 1999 10.3 The Company's 1991 Executive Cash Bonus Plan, as amended through April 15, 1999. 10.4 The Company's Non-Employee Directors' Stock Option Plan, restated as of June 17, 1998 12 Ratio of Earnings to Fixed Charges 27 Financial Data Schedule 20