FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 24, 2006

Commission file number 1-5837

THE NEW YORK TIMES COMPANY

(Exact name of registrant as specified in its charter)

 

229 WEST 43RD STREET, NEW YORK, NEW YORK

(Address of principal executive offices)

10036

(Zip Code)

Registrant’s telephone number, including area code 212-556-1234

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x  Accelerated filer  o  Non-accelerated filer  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, 2006 (exclusive of treasury shares):

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars and shares in thousands, except per share data)

		Three Months Ended						Nine Months Ended
		September 2006			September 2005			September  2006			September 2005
		(13 Weeks)						(39 Weeks)
Revenues
Advertising		$	465,476		$	485,644		$	1,528,225		$	1,524,829
Circulation		215,007			217,872			654,993			655,971
Other		59,103			54,287			175,822			159,154
Total revenues		739,586			757,803			2,359,040			2,339,954
Production costs
Raw materials		75,178			75,718			241,593			228,899
Wages and benefits		162,912			164,405			490,701			493,845
Other		124,478			124,845			377,862			362,613
Total production costs		362,568			364,968			1,110,156			1,085,357
Selling, general and administrative expenses		356,542			353,448			1,073,941			1,036,758
Total costs and expenses		719,110			718,416			2,184,097			2,122,115
Gain on sale of assets		—			—			—			122,946
Operating profit		20,476			39,387			174,943			340,785
Net income from joint ventures		7,348			5,000			18,085			7,890
Interest expense, net		13,267			11,677			39,025			37,769
Income from non-compete agreement		—			1,250			—			3,750
Income from continuing operations before income taxes and minority interest		14,557			33,960			154,003			314,656
Income taxes		5,091			14,404			56,206			130,753
Minority interest in net loss/(income) of subsidiaries		267			167			604			(113		)
Income from continuing operations		9,733			19,723			98,401			183,790
Discontinued operations, net of income taxes – Broadcast Media Group		4,290			3,358			11,890			11,155
Net income		$	14,023		$	23,081		$	110,291		$	194,945
Average number of common shares outstanding
Basic		144,454			145,214			144,803			145,535
Diluted		144,568			145,602			144,982			146,077
Basic earnings per share:
Income from continuing operations		$	.07		$	.14		$	.68		$	1.26
Discontinued operations, net of income taxes		.03			.02			.08			.08
Net income		$	.10		$	.16		$	.76		$	1.34
Diluted earnings per share:
Income from continuing operations		$	.07		$	.14		$	.68		$	1.26
Discontinued operations, net of income taxes		.03			.02			.08			.07
Net income		$	.10		$	.16		$	.76		$	1.33
Dividends per share		$	.175		$	.165		$	.515		$	.485

 

See Notes to Condensed Consolidated Financial Statements.

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THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

		September 2006			December 2005
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	38,695		$	44,927
Accounts receivable-net		370,619			435,273
Inventories
Newsprint and magazine paper		26,524			28,190
Work-in-process and other		4,564			3,910
Total inventories		31,088			32,100
Deferred income taxes		68,118			68,118
Assets held for sale (see Note 3)		355,846			359,152
Other current assets (see Note 9)		307,920			72,073
Total current assets		1,172,286			1,011,643
Other Assets
Investments in joint ventures (see Note 2)		147,028			238,369
Property, plant and equipment (less accumulated depreciation and amortization of $1,330,967 in 2006 and $1,265,465 in 2005)		1,309,465			1,401,368
Intangible assets acquired
Goodwill		1,440,818			1,399,337
Other intangible assets acquired (less accumulated amortization of $188,951 in 2006 and $168,319 in 2005)		157,272			176,572
Miscellaneous assets		223,309			305,748
TOTAL ASSETS		$	4,450,178		$	4,533,037

 

See Notes to Condensed Consolidated Financial Statements.

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THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

		September 2006			December 2005
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Commercial paper outstanding		$	566,600		$	496,450
Accounts payable		224,378			212,901
Accrued payroll and other related liabilities		109,544			100,390
Accrued expenses		147,565			185,063
Unexpired subscriptions		80,515			81,870
Current portion of long-term debt and capital lease obligations		103,868			1,630
Construction loan (see Notes 5 and 13)		78,488			—
Total current liabilities		1,310,958			1,078,304
Other Liabilities
Long-term debt		720,625			821,962
Capital lease obligations		74,921			76,338
Deferred income taxes		4,958			79,806
Other		789,758			771,403
Total other liabilities		1,590,262			1,749,509
Minority Interest (see Note 13)		5,617			188,976
Stockholders’ Equity
Common stock of $.10 par value:
Class A – authorized 300,000,000 shares; issued: 2006 – 151,374,838; 2005 – 150,939,371 (including treasury shares: 2006 – 8,092,745; 2005 – 6,558,299)		15,137			15,094
Class B – convertible – authorized and issued shares; 2006 - 832,622; 2005 – 834,242		83			83
Additional paid-in capital		76,647			55,148
Retained earnings		1,861,212			1,825,763
Common stock held in treasury, at cost		(298,688		)	(261,964		)
Accumulated other comprehensive loss, net of income taxes		(111,050		)	(117,876		)
Total stockholders’ equity		1,543,341			1,516,248
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	4,450,178		$	4,533,037

 

See Notes to Condensed Consolidated Financial Statements.

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THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

		Nine Months Ended
		September 2006			September 2005
		(39 Weeks)
OPERATING ACTIVITIES
Net cash provided by operating activities		$	208,993		$	226,991
INVESTING ACTIVITIES
Capital expenditures		(210,624		)	(145,803		)
Acquisitions		(35,742		)	(413,953		)
Investments		—			(19,057		)
Net proceeds from sale of assets		—			183,173
Other investing payments – net		(105		)	(765		)
Net cash used in investing activities		(246,471		)	(396,405		)
FINANCING ACTIVITIES
Commercial paper borrowings-net		70,150			95,675
Construction loan borrowings		61,120			—
Long-term obligations:
Increases		—			497,543
Reductions		(1,217		)	(323,079		)
Capital shares:
Issuances		8,684			7,425
Repurchases		(33,955		)	(46,682		)
Excess tax benefits from stock-based awards		1,106			3,395
Dividends paid to stockholders		(74,842		)	(70,572		)
Other financing proceeds – net		—			1,245
Net cash provided by financing activities		31,046			164,950
Decrease in cash and cash equivalents		(6,432		)	(4,464		)
Effect of exchange rate changes on cash and cash equivalents		200			(737		)
Cash and cash equivalents at the beginning of the year		44,927			42,389
Cash and cash equivalents at the end of the quarter		$	38,695		$	37,188

 

SUPPLEMENTAL DATA

Acquisitions

·                  In 2006, the Company acquired Baseline StudioSystems for approximately $35 million and Calorie-Count.com for $0.9 million (see Note 2).

·                  In 2005, the Company acquired About, Inc. for approximately $410 million and North Bay Business Journal for approximately $3 million (see Note 2).

Investment

·                  In 2005, the Company invested $16.5 million to acquire a 49% interest in Metro Boston LLC.

Other

·                  In August 2006, the Company’s new headquarters building was converted to a leasehold condominium, with the Company and its development partner acquiring ownership of their respective leasehold condominium units (see Note 13).  The Company’s capital expenditures include those of its development partner through August 2006.  Cash capital expenditures attributable to the Company’s development partner’s interest in the Company’s new headquarters were approximately $52 million and $32 million in the first nine months of 2006 and 2005.

Non-Cash

·                  In August 2006, in connection with the conversion of the Company’s new headquarters to a leasehold condominium, the Company made a non-cash distribution of its development partner’s net assets of approximately $260 million.  Beginning in September 2006, the Company is recording a non-cash receivable and loan payable for the amount that the Company’s development partner draws down on the construction loan (see Note 5).  The non-cash receivable and loan payable recorded as of September 2006 was approximately $17 million.  See Note 13 for additional information regarding the Company’s new headquarters.

·                  In September 2006, the Company signed a contract to sell its 50% ownership interest in Discovery Times Channel for $100 million.  The cash was received in October 2006.

See Notes to Condensed Consolidated Financial Statements.

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THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.                         GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of The New York Times Company’s (the “Company”) management, the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of September 24, 2006 and December 25, 2005, and the results of operations and cash flows of the Company for the periods ended September 24, 2006 and September 25, 2005.  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 Company’s Condensed Consolidated Financial Statements and related Notes should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2005.  Due to the seasonal nature of the Company’s business, operating results for the interim periods are not necessarily indicative of a full year’s operations.

As of September 24, 2006, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 25, 2005, have not changed materially.

Unless specifically stated otherwise, all references to September 2006 and September 2005 refer to the Company’s fiscal periods ended, or the dates as of, September 24, 2006 and September 25, 2005, respectively.  All references to December 2005 refer to the Company’s fiscal year ended, or the date as of, December 25, 2005.  Certain reclassifications have been made to the prior periods to conform to classifications used as of and for the period ended September 2006, specifically reclassifications related to a discontinued operation (see Note 3).  The fiscal periods included herein comprise 13 weeks for the three-month periods and 39 weeks for the nine-month periods.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 157, Fair Value Measurements (“FAS 157”).  FAS 157 establishes a common definition for fair value under accounting principles generally accepted in the United States of America (“GAAP”), establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements.  FAS 157 is effective for fiscal years beginning after November 15, 2007.  The Company is currently evaluating the impact of adopting FAS 157 on its financial statements.

In September 2006, the FASB issued FAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“FAS 158”).  FAS 158 requires an entity to recognize the funded status of its defined postretirement plans on the balance sheet and to recognize changes in the funded status, that arise during the period but are not recognized as components of net periodic benefit cost, within other comprehensive income, net of income taxes.  FAS 158 also requires additional disclosures in the notes to financial statements.  The recognition and disclosure provisions of FAS 158 are effective for the Company as of the end of its fiscal

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year ending after December 15, 2006.  The Company is currently evaluating the impact of adopting FAS 158 on its financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”).  SAB 108 requires that registrants utilize both an income statement assessment and a balance sheet assessment (“dual approach”) to evaluate the quantitative effects of financial statement misstatements.  The Company has utilized an income statement assessment to evaluate the quantitative effects of financial statement misstatements.  SAB 108 permits the Company to initially apply its provisions either by i) restating prior financial statements as if the dual approach had always been used or ii) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of the beginning of the Company’s 2006 fiscal year, with an offsetting adjustment recorded to the opening balance of retained earnings.  The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006.  The Company is currently evaluating the impact of adopting SAB 108 on its financial statements.

In June 2006, FASB issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions (“tax positions”).  FIN 48 requires that the Company recognize in its financial statements the impact of a tax position if that tax position is more likely than not of being sustained on audit, based on the technical merits of the tax position.  The provisions of FIN 48 are effective as of the beginning of the Company’s 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings.  The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

NOTE 2.                         ACQUISITIONS AND DISPOSITIONS

2006 Acquisitions

The Company acquired Baseline StudioSystems (“Baseline”), a leading online database and research service for information on the film and television industries, on August 28, 2006, for $35.0 million and the assumption of certain liabilities, and Calorie-Count.com (“Calorie-Count”), a site that offers weight loss tools and nutritional information, on September 14, 2006, for $0.9 million.  These acquisitions will further expand the Company’s online content and functionality as well as continue to diversify the Company’s online revenue base.  The Company’s Condensed Consolidated Financial Statements include the operating results of these acquisitions subsequent to their date of acquisition.  Baseline is part of NYTimes.com, within the News Media Group, and Calorie-Count is part of About.com (see Note 12).

The Company has allocated the excess of the purchase prices over the carrying value of the net assets acquired as follows: Baseline – $35.2 million to goodwill; Calorie-Count – $0.9 million to goodwill (see Note 4).  The goodwill for the acquisitions described above is tax-deductible.  The preliminary purchase price allocations for the acquisitions of Baseline and Calorie-Count are subject to adjustment when additional information concerning asset and liability

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valuations is obtained.  The final asset and liability fair values may differ from those included in the Company’s Condensed Consolidated Balance Sheet as of September 2006; however, the changes are not expected to have a material effect on the Company’s Condensed Consolidated Financial Statements.

2005 Acquisitions

Based on independent valuations of About.com (acquired March 18, 2005) and North Bay Business Journal (“North Bay”) (acquired February 1, 2005) and a preliminary independent valuation of KAUT-TV (acquired November 3, 2005), the Company has allocated the excess of the purchase prices over the carrying value of the net assets acquired as follows: About.com- $343.4 million to goodwill and $62.2 million to other intangible assets (primarily content, customer lists and a contract); North Bay- $2.1 million to goodwill and $0.9 million to other intangible assets (primarily customer lists); and KAUT-TV- $1.7 million to goodwill and $14.3 million to other intangible assets (primarily FCC licenses).  The goodwill for the acquisitions described above is tax-deductible.  The goodwill and other intangible assets for KAUT-TV have been reclassified to “Assets held for sale” in the Company’s Condensed Consolidated Balance Sheets (see Note 3).

Sale of Discovery Times Channel Investment

In September 2006, the Company signed a contract to sell its 50% ownership interest in Discovery Times Channel (“DTC”), a digital cable channel, for $100 million.  The sale resulted in the Company liquidating its investment in DTC of approximately $108 million, which was included in “Investments in joint ventures” in the Company’s Condensed Consolidated Balance Sheet, and recording a loss of approximately $8 million in “Net income from joint ventures” in the Company’s Condensed Consolidated Statement of Income.  The Company received the proceeds from this sale in October 2006.

Sale of WQEW

One of the Company’s New York City radio stations, WQEW-AM (“WQEW”), receives revenues under a time brokerage agreement with ABC, Inc. (“ABC”), that provides substantially all of WQEW’s programming.  Under a separate option agreement, ABC has the right to acquire WQEW at the end of 2006 and, in the first quarter of 2006, ABC notified the Company of its intention to exercise this right.  The sale is currently scheduled to close in the first quarter of 2007 with a purchase price of $40 million and is subject to Federal Communications Commission approval.  At closing, the Company will recognize a significant portion of the sale price as a gain because the net book value of WQEW’s net assets being sold is nominal.

Sale of Assets

In the first quarter of 2005, the Company recognized a $122.9 million pre-tax gain resulting from the sale of its current headquarters in New York City ($114.5 million) and the sale of property in Sarasota, Florida ($8.4 million).

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NOTE 3.                         DISCONTINUED OPERATIONS

On September 12, 2006, the Company announced plans to sell its Broadcast Media Group, which consists of nine network-affiliated television stations and their related digital operations.  This decision was a result of the Company’s ongoing analysis of its business portfolio and will allow the Company to place an even greater emphasis on developing and integrating its print and growing digital resources.  The sale, for which the Company expects to receive cash, is expected to be completed in the first half of 2007.

In accordance with the provisions of FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), the Broadcast Media Group’s results of operations are presented as discontinued operations and certain assets and liabilities are classified as held for sale for all periods presented.  The results of operations presented as discontinued operations and the assets and liabilities classified as held for sale are summarized below.

		Three Months Ended						Nine Months Ended
(Dollars in thousands)		September 2006			September 2005			September 2006			September  2005
Revenues		$	36,476		$	33,280		$	107,542		$	101,781
Total costs and expenses		29,205			27,588			87,389			82,873
Pre-tax income		7,271			5,692			20,153			18,908
Income taxes		2,981			2,334			8,263			7,753
Discontinued operations, net of income taxes		$	4,290		$	3,358		$	11,890		$	11,155

 

(Dollars in thousands)		September  2006			December  2005
Property, plant & equipment, net		$	63,436		$	67,035
Goodwill		41,681			40,544
Other intangible assets, net		234,105			234,534
Other assets		16,624			17,039
Assets held for sale		355,846			359,152
Program rights liability (a)		15,023			15,604
Net assets held for sale		$	340,823		$	343,548

 

(a) Included in “Accounts payable” in the Condensed Consolidated Balance Sheets.

NOTE 4.                         GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess of cost over the fair market value of tangible net assets acquired.  Goodwill is not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist, in accordance with FAS No. 142, Goodwill and Other Intangible Assets.

Other intangible assets acquired consist primarily of newspaper mastheads on various acquired properties, customer lists, as well as other assets.  Other intangible assets acquired that have indefinite lives (mastheads) are not amortized but tested for impairment annually or if certain circumstances indicate a possible impairment may exist.  Certain other intangible assets acquired (customer lists and other assets) are amortized over their estimated useful lives.

The Company performs its annual impairment testing in the fourth quarter of its fiscal year.

For the first nine months of 2006, the operating results of the New England Media Group have trended lower than expected due to, among other factors, advertiser consolidations in the New England area and increased competition with online media.  If this trend continues, it is possible that certain assets at the New England Media Group could be impaired in the future, in which case the assets would be written down to their fair value.

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The changes in the carrying amount of Goodwill were as follows:

(Dollars in thousands)		News Media Group			About.com			Total
Balance as of December 2005		$	1,055,648		$	343,689		$	1,399,337
Goodwill acquired during year (see Note 2)		35,248			926			36,174
Goodwill adjusted during year		—			(259		)	(259		)
Foreign currency translation		5,566			—			5,566
Balance as of September 2006		$	1,096,462		$	344,356		$	1,440,818

 

Goodwill was adjusted in 2006 for changes to the purchase price allocation.  The foreign currency translation line item above reflects changes in Goodwill resulting from fluctuating exchange rates related to the consolidation of the International Herald Tribune (the “IHT”).

Other intangible assets acquired were as follows:

		September 2006									December 2005
(Dollars in thousands)		Gross Carrying Amount			Accumulated Amortization			Net			Gross Carrying Amount			Accumulated Amortization			Net
Amortized other intangible assets acquired:
Customer lists		$	218,364		$	(169,822	)	$	48,542		$	218,326		$	(155,763	)	$	62,563
Other		55,160			(19,129		)	36,031			55,018			(12,556		)	42,462
Total		273,524			(188,951		)	84,573			273,344			(168,319		)	105,025
Unamortized other intangible assets acquired:
Newspaper mastheads		72,699			—			72,699			71,547			—			71,547
Total other intangible assets acquired		$	346,223		$	(188,951	)	$	157,272		$	344,891		$	(168,319	)	$	176,572

 

Certain amounts in the table above include the foreign currency translation adjustment related to the consolidation of the IHT.

As of September 2006, the remaining weighted-average amortization period is eight years for customer lists and six years for other intangible assets acquired included in the table above.

Amortization expense related to other intangible assets acquired that are subject to amortization was approximately $21 million in the first nine months of 2006, and is expected to be approximately $24 million for the fiscal year 2006.  Estimated annual amortization expense for the next five years related to these intangible assets is expected to be as follows:

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NOTE 5.                         DEBT OBLIGATIONS

The Company’s total debt, including commercial paper, capital lease obligations and a construction loan (see below), was $1.5 billion as of September 2006.

 The Company is a co-borrower under a $320 million non-recourse construction loan in connection with the construction of its new headquarters.  The Company does not draw down on the construction loan, which is utilized by its development partner.  However, as a co-borrower, the Company is required to record the amount outstanding of the construction loan on its financial statements.  The Company also records a receivable, due from its development partner, for the same amount outstanding under the construction loan (see Note 9).  As of September 2006, $78.5 million was outstanding under the construction loan.  See Note 13 for additional information related to the Company’s new headquarters.

In the third quarter of 2006, the Company increased the amount available under its commercial paper program, which is supported by the revolving credit agreements described below, to $725 million from $600 million.  Commercial paper issued by the Company is unsecured and can have maturities of up to 270 days.  The Company had $566.6 million in commercial paper outstanding as of September 2006, with an annual weighted-average interest rate of 5.4% and an average of 58 days to maturity from original issuance.

The primary purpose of the Company’s revolving credit agreements is to support the Company’s commercial paper program.  In addition, these revolving credit agreements provide a facility for the issuance of letters of credit.  In June 2006, the Company replaced its $270 million multi-year credit agreement with a $400 million credit agreement maturing in June 2011.  Of the total $800 million available under the two revolving credit agreements ($400 million credit agreement maturing in May 2009 and $400 million credit agreement maturing in June 2011), the Company has issued letters of credit of approximately $31 million.  The remaining balance of approximately $769 million supports the Company’s commercial paper program discussed above.  There were no borrowings outstanding under the revolving credit agreements as of September 2006 or December 2005.

Any borrowings under the revolving credit agreements bear interest at specified margins based on the Company’s credit rating, over various floating rates selected by the Company.

The revolving credit agreements each contain a covenant that requires a specified level of stockholders’ equity.  As of September 2006, the amount of stockholders’ equity in excess of the required levels was approximately $455 million.

The Company’s five-year 5.350% notes aggregating $50 million mature on April 16, 2007 and its five-year 4.625% notes aggregating $52 million mature on June 25, 2007.  As a result, the Company reclassified these notes from “Long-term debt” to “Current portion of long-term debt and capital lease obligations” in the Company’s Condensed Consolidated Balance Sheet.

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“Interest expense, net” in the Company’s Condensed Consolidated Statements of Income was as follows:

		Three Months Ended						Nine Months Ended
(Dollars in thousands)		September 2006			September 2005			September 2006			September 2005
Interest expense		$	19,000		$	15,739		$	54,979		$	43,747
Loss from extinguishment of debt(a)		—			—			—			4,767
Interest income		(1,875		)	(965		)	(6,079		)	(2,705		)
Capitalized interest		(3,858		)	(3,097		)	(9,875		)	(8,040		)
Interest expense, net		$	13,267		$	11,677		$	39,025		$	37,769

 

(a)       The Company redeemed all of its $71.9 million 8.25% debentures in March 2005.

NOTE 6.                         DERIVATIVE INSTRUMENTS

In 2006, the Company entered into forward starting interest rate swap agreements (“forward starting swap agreements”) designated as cash-flow hedges as defined under FAS No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”).  The forward starting swap agreements, which have a notional amount totaling $75.0 million, are intended to lock in a fixed interest rate on the issuance of debt expected in December 2006.  As of September 2006, the fair value of the forward starting swap agreements resulted in an unrealized loss of $1.7 million that was recorded in “Accrued expenses” and “Accumulated other comprehensive loss, net of income taxes” in the Company’s Condensed Consolidated Balance Sheet.  There was no amount recognized in earnings related to the forward starting swap agreements.

In March 2006 and December 2005, the Company terminated forward starting swap agreements designated as cash-flow hedges as defined under FAS 133 because the debt for which these agreements were entered into was not issued.  The termination of these agreements resulted in a gain of $3.4 million, of which $3.0 million was unrealized and $0.4 million was recognized in earnings.  The Company expects to amortize the unrealized gain of $3.0 million into earnings over the maturity period of debt that it expects to issue in December 2006 as discussed above.

NOTE 7.                         COMMON STOCK

During the first nine months of 2006, the Company repurchased 1.5 million shares of its Class A Common Stock under its stock repurchase program at a cost of $36.5 million.  The average price of these repurchases was $23.92 per share.

On April 18, 2006, the Company’s Board of Directors authorized a $.01 per share increase in the quarterly dividend on the Company’s Class A and Class B Common Stock to $.175 per share from $.165 per share effective with the June 2006 dividend.

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NOTE 8.                         PENSION AND POSTRETIREMENT BENEFITS

Pension

The components of net periodic pension cost of all Company-sponsored pension plans were as follows:

		Three Months Ended
		September 2006									September 2005
(Dollars in thousands)		Qualified Plans			Non- Qualified Plans			All Plans			Qualified Plans			Non- Qualified Plans			All Plans
Service cost		$	10,076		$	589		$	10,665		$	9,362		$	569		$	9,931
Interest cost		17,925			3,015			20,940			16,887			2,831			19,718
Expected return on plan assets		(23,525		)	—			(23,525		)	(20,930		)	—			(20,930		)
Amortization of prior service cost		89			18			107			101			17			118
Recognized actuarial loss		4,419			1,665			6,084			4,600			1,193			5,793
Net periodic pension cost		$	8,984		$	5,287		$	14,271		$	10,020		$	4,610		$	14,630

 

		Nine Months Ended
		September 2006									September 2005
(Dollars in thousands)		Qualified Plans			Non- Qualified Plans			All Plans			Qualified Plans			Non- Qualified Plans			All Plans
Service cost		$	30,471		$	1,765		$	32,236		$	28,086		$	1,707		$	29,793
Interest cost		53,746			9,045			62,791			50,661			8,493			59,154
Expected return on plan assets		(70,534		)	—			(70,534		)	(62,790		)	—			(62,790		)
Amortization of prior service cost		279			52			331			303			51			354
Recognized actuarial loss		13,518			4,993			18,511			13,800			3,579			17,379
Curtailment(a)		512			—			512			—			—			—
Net periodic pension cost		$	27,992		$	15,855		$	43,847		$	30,060		$	13,830		$	43,890

 

(a)       The staff reduction programs implemented in 2005 resulted in a curtailment charge reflecting accelerated recognition of unrecognized prior service cost under one of the Company’s plans because the expected years of the affected employees’ future service was reduced.

The Company made a tax-deductible contribution of $0.8 million to one of its qualified pension plans in the third quarter of 2006.  In the fourth quarter of 2006, the Company plans to make a tax-deductible contribution to its qualified pension plans of approximately $4 million.  The Company does not pre-fund its non-qualified pension plans, but rather pays for benefits as required from cash from operations.

Postretirement Benefits

The components of net periodic postretirement benefit cost were as follows:

		Three Months Ended						Nine Months Ended
(Dollars in thousands)		September 2006			September 2005			September 2006			September 2005
Service cost		$	1,885		$	1,730		$	5,655		$	5,190
Interest cost		3,028			3,053			9,084			9,159
Amortization of prior service cost		(1,543		)	(1,293		)	(4,629		)	(3,879		)
Recognized actuarial loss		787			659			2,361			1,977
Net periodic postretirement cost		$	4,157		$	4,149		$	12,471		$	12,447

 

Pursuant to the Medicare Prescription Drug Improvement and Modernization Act of 2003, through December 2005, the Company integrated its postretirement benefit plan with Medicare (the “Integration Method”).  Under this option, benefits paid by the Company are offset by Medicare.  Beginning in 2006, the Company elected to receive the Medicare retiree drug subsidy instead of the benefit under the Integration Method.

In February 2006, the Company announced amendments to its postretirement benefit plan effective January 1, 2007, such as the elimination of retiree-medical benefits to new employees.  The amendments will reduce the future obligations and expense under this plan.

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NOTE 9.                         OTHER

Staff Reductions

The Company recognized staff reduction charges of $7.4 million in the third quarter of 2006 and $25.9 million in the first nine months of 2006.  In the third quarter and first nine months of 2005, the Company recognized staff reduction charges of $12.4 million and $22.3 million.  Most of the charges in 2006 and 2005 were recognized at the News Media Group.  These charges are recorded in “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income.  As of September 2006, the Company had a staff reduction liability of approximately $18.3 million included in “Accrued expenses” in the Company’s Condensed Consolidated Balance Sheet.

Other Current Assets

In the second quarter of 2006, the Company’s development partner began to repay the Company for its share of costs associated with the Company’s new headquarters that the Company previously paid on the development partner’s behalf (see Note 13).  The amount due to the Company is expected to be fully repaid within one year, and therefore this amount was reclassified from “Miscellaneous assets” to “Other current assets” in the Company’s Condensed Consolidated Balance Sheet as of June 2006.  The amount due to the Company was approximately $87 million as of September 2006.

The Company also has a receivable due from its development partner that is associated with borrowings under a construction loan attributable to the Company’s development partner (see Note 5).  The amount due to the Company is approximately $78 million and is recorded in “Other current assets” in the Company’s Condensed Consolidated Balance Sheet as of September 2006.

The proceeds of $100 million from the sale of the Company’s 50% ownership interest in DTC were received in October 2006 (see Note 2).  Therefore, a receivable for this amount was recorded in “Other current assets” in the Company’s Condensed Consolidated Balance Sheet as of September 2006.

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NOTE 10.                  EARNINGS PER SHARE

Basic and diluted earnings per share have been computed as follows:

		Three Months Ended						Nine Months Ended
(In thousands, except per share data)		September 2006			September 2005			September  2006			September 2005
Basic earnings per share computation:
Numerator
Income from continuing operations		$	9,733		$	19,723		$	98,401		$	183,790
Discontinued operations, net of income taxes – Broadcast Media Group		4,290			3,358			11,890			11,155
Net income		$	14,023		$	23,081		$	110,291		$	194,945
Denominator
Average number of common shares outstanding		144,454			145,214			144,803			145, 535
Income from continuing operations		$	.07		$	.14		$	.68		$	1.26
Discontinued operations, net of income taxes – Broadcast Media Group		.03			.02			.08			.08
Net income		$	.10		$	.16		$	.76		$	1.34
Diluted earnings per share computation:
Numerator
Income from continuing operations		$	9,733		$	19,723		$	98,401		$	183,790
Discontinued operations, net of income taxes – Broadcast Media Group		4,290			3,358			11,890			11,155
Net income		$	14,023		$	23,081		$	110,291		$	194,945
Denominator
Average number of common shares outstanding		144,454			145,214			144,803			145,535
Incremental shares for assumed exercise of securities		114			388			179			542
Total shares		144,568			145,602			144,982			146,077
Income from continuing operations		$	.07		$	.14		$	.68		$	1.26
Discontinued operations, net of income taxes – Broadcast Media Group		.03			.02			.08			.07
Net Income		$	.10		$	.16		$	.76		$	1.33

 

The difference between basic and diluted shares is primarily due to the assumed exercise of stock options included in the diluted earnings per share computation.

Stock options with exercise prices that exceeded the average fair market value of the Company’s Common Stock had an antidilutive effect and, therefore, were excluded from the computation of diluted earnings per share.  Approximately 30 million stock options with exercise prices ranging from $22.94 to $48.54 were excluded from the computation in the third quarter of 2006 and approximately 30 million stock options with exercise prices ranging from $25.05 to $48.54 were excluded from the computation in the first nine months of 2006.  Approximately 29 million stock options with exercise prices ranging from $32.34 to $48.54 were excluded from the computation in the third quarter of 2005, and approximately 24 million stock options with exercise prices ranging from $36.31 to $48.54 were excluded from the computation in the first nine months of 2005.

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NOTE 11.                  COMPREHENSIVE INCOME

Comprehensive income for the Company includes foreign currency translation adjustments, unrealized derivative (losses)/gains on cash-flow hedges, unrealized (losses)/gains on marketable securities and “Net income” reported in the Company’s Condensed Consolidated Statements of Income.

Comprehensive income was as follows:

		Three Months Ended						Nine Months Ended
(Dollars in thousands)		September 2006			September 2005			September 2006			September 2005
Net income		$	14,023		$	23,081		$	110,291		$	194,945
Foreign currency translation adjustments		2,040			1,434			7,142			(7,567		)
Unrealized derivative (losses)/gains on cash – flow hedges		(3,945		)	1,641			(1,014		)	1,285
Unrealized (losses)/gains on marketable securities		—			(24		)	36			(142		)
Reclassification adjustment for realized loss included in net income		—			—			468			—
Income tax benefit/(charge)		1,631			(690		)	194			(589		)
Comprehensive income		$	13,749		$	25,442		$	117,117		$	187,932

 

The “Accumulated other comprehensive loss, net of income taxes” in the Company’s Condensed Consolidated Balance Sheets was net of a deferred income tax benefit of approximately $97 million as of September 2006 and December 2005.

NOTE 12.                  SEGMENT STATEMENTS OF INCOME

The Company’s reportable segments consist of the News Media Group and About.com.  These segments are evaluated regularly by key management in assessing performance and allocating resources.

Below is a description of the Company’s reportable segments:

News Media Group (consisting of The New York Times Media Group, which includes The New York Times (“The Times”), NYTimes.com, the IHT and two New York City radio stations; the New England Media Group, which includes The Boston Globe (the “Globe”), Boston.com and the Worcester Telegram & Gazette; and the Regional Media Group, which includes 14 daily newspapers and their related digital operations); and

About.com (an online consumer information provider).

During the third quarter of 2006, the Company acquired Baseline, which is part of NYTimes.com within the New York Times Media Group, and Calorie-Count, which is part of About.com (see Note 2).

The Broadcast Media Group is now classified as a discontinued operation and is no longer included as a reportable segment (see Note 3).

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		Three Months Ended						Nine Months Ended
(Dollars in thousands)		September 2006			September 2005			September 2006			September 2005
REVENUES
News Media Group		$	721,260		$	743,631		$	2,302,441		$	2,312,731
About.com (from March 18, 2005)		18,326			14,172			56,599			27,223
Total		$	739,586		$	757,803		$	2,359,040		$	2,339,954
OPERATING PROFIT (LOSS)
News Media Group		$	25,541		$	45,269		$	186,996		$	243,814
About.com (from March 18, 2005)		6,418			3,847			21,291			6,503
Corporate		(11,483		)	(9,729		)	(33,344		)	(32,478		)
Gain on Sale of Assets		—			—			—			122,946
Total		$	20,476		$	39,387		$	174,943		$	340,785
Net income from joint ventures		7,348			5,000			18,085			7,890
Interest expense, net		13,267			11,677			39,025			37,769
Income from non-compete agreement		—			1,250			—			3,750
Income from continuing operations before income taxes and minority interest		14,557			33,960			154,003			314,656
Income taxes		5,091			14,404			56,206			130,753
Minority interest in net loss/(income) of subsidiaries		267			167			604			(113		)
Income from continuing operations		9,733			19,723			98,401			183,790
Discontinued operations, net of income taxes – Broadcast Media Group		4,290			3,358			11,890			11,155
NET INCOME		$	14,023		$	23,081		$	110,291		$	194,945

 

See Note 9 for information regarding staff reduction charges recorded in 2006 and 2005.

NOTE 13.                  CONTINGENT LIABILITIES

New Headquarters Building

The Company is in the process of constructing a 1.54 million square foot condominium office building (the “Building”) in New York City that will serve as its new headquarters.  In December 2001, a wholly owned subsidiary of the Company (“NYT”) and FC Lion LLC (a partnership between an affiliate of the Forest City Ratner Companies and an affiliate of ING Real Estate) became the sole members of The New York Times Building LLC (the “Building Partnership”), a New York limited liability company established for the purpose of constructing the Building.

In August 2006, the Building was converted to a leasehold condominium, and NYT and FC Lion LLC each acquired ownership of its respective leasehold condominium units.  Also in August 2006, Forest City Ratner Companies purchased the ownership interest in FC Lion LLC of the ING Real Estate affiliate.  In turn, FC Lion LLC assigned its ownership interest in the Building Partnership and the FC Lion LLC condominium units to FC Eighth Ave., LLC (“FC”).

NYT’s condominium interests represent approximately 58% of the Building, and FC’s condominium interests represent approximately 42%.  NYT’s and FC’s percentage interests in the Building Partnership are also approximately 58% and 42%.  The Building Partnership will remain in effect until substantial completion of the Building’s core and shell.

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Before the Building was converted to a leasehold condominium, the leasehold interest in the Building was held by the Building Partnership, and, because of the Company’s majority interest in the Building Partnership, FC’s interest in the Building was consolidated in the Company’s financial statements.  As a result of the Building’s conversion to a leasehold condominium, the Building Partnership no longer holds any leasehold interest in the Building, and, as a result, FC’s condominium units and capital expenditures (see below) are not consolidated in the Company’s financial statements.  Accordingly, the assets and interest in the Building Partnership attributable to FC, which were included in “Property, plant and equipment” and “Minority Interest,” were reversed and are no longer included in the Company’s Condensed Consolidated Balance Sheet as of September 2006.

In December 2001, the Building Partnership entered into a land acquisition and development agreement (“LADA”) for the Building site with a New York State agency, which subsequently acquired title to the site through a condemnation proceeding.  Pursuant to the LADA, the Building Partnership was required to fund all costs of acquiring the Building site, including the purchase price of approximately $86 million, and certain additional amounts (“excess site acquisition costs”) to be paid in connection with the condemnation proceeding.  NYT and FC were required to post letters of credit for these acquisition costs.  As of September 2006, approximately $14 million remained undrawn on a letter of credit posted by the Company on behalf of NYT and approximately $11 million remained undrawn on a letter of credit posted by Forest City Enterprises, Inc. (“FCE”) on behalf of FC.

The New York State agency leased the site to the Building Partnership under a 99-year lease (the “Ground Lease”) dated December 12, 2001.  Concurrently, the Building Partnership entered into 99-year subleases with NYT and FC Lion LLC with respect to their portions of the Building (the “Ground Subleases”).  On September 24, 2003, the New York State agency conveyed vacant possession of the Building site to the Building Partnership.

In connection with the condominium declaration, the Building Partnership’s interest as lessee under the Ground Lease and as lessor under the Ground Subleases was assigned to the New York State agency, and the Ground Subleases now constitute direct subleases between the New York State agency, as landlord, and NYT and FC, respectively, as tenants.

Under the terms of the Ground Subleases, no fixed rent is payable, but NYT and FC, respectively, must make payments in lieu of real estate taxes (“PILOT”), pay percentage (profit) rent with respect to retail portions of the Building, and make certain other payments over the term of the Ground Subleases.  NYT and FC receive credits for allocated excess site acquisition costs against 85% of the PILOT payments.  The Ground Subleases give NYT and FC, or their designees, the option to purchase the Building, which option must be exercised jointly, at any time after the initial 29 years of the term of the Ground Subleases for nominal consideration.  Pursuant to the condominium declaration, NYT has the sole right to determine when the purchase option will be exercised, provided that FC may require the exercise of the purchase option if NYT has not done so within five years prior to the expiration of the 99-year terms of the Ground Subleases.

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In August 2004, the Building Partnership commenced construction of the Building and, under the Ground Subleases, NYT and FC are required to complete construction of the Building’s core and shell within 36 months following construction commencement, subject to certain extensions.  The Company and FCE have guaranteed the obligation to complete construction of the Building in accordance with the Ground Subleases.

Pursuant to the Operating Agreement of the Building Partnership, dated December 12, 2001, and amended June 25, 2004, and August 15, 2006, (the “Operating Agreement”), the funds for construction of the Building are being provided through a construction loan and capital contributions of NYT and FC.  On June 25, 2004, the Building Partnership closed a construction loan with Capmark Finance, Inc. (formerly GMAC Commercial Mortgage Corporation) (the “construction lender”), which is providing a non-recourse loan of up to $320 million (the “construction loan”), secured by the Building, for construction of the Building’s core and shell as well as other development costs.  NYT elected not to borrow any portion of its share of the total costs of the Building through this construction loan and, instead, has made and will make capital contributions to the Building Partnership for its share of Building costs.  FC’s share of the total costs of the Building are being funded through capital contributions and the construction loan.

In connection with the condominium declaration, the Building Partnership, NYT and FC became co-borrowers under the construction loan, which is now secured by NYT’s and FC’s respective condominium interests.  As a co-borrower, the Company is required to record the amount outstanding of the construction loan on its financial statements (see Note 5).  The Company also records a receivable, due from its development partner, for the same amount outstanding under the construction loan (see Note 9).  As of September 2006, $78.5 million was outstanding under the construction loan.

Under the terms of the Operating Agreement and the construction loan, NYT was required to fund all of its construction equity related to construction of the core and shell as well as other development costs prior to the funding of the construction loan.  In May 2006, NYT completed the funding of its required construction equity and FC began drawing down on the construction loan to pay its share of the costs (see Note 5).   Because NYT funded its construction equity first, a portion of its funds was used to fund FC’s share of Building costs (the “FC funded share”) prior to commencement of funding of the construction loan.  The FC funded share bears interest at the construction loan rate and is being repaid to NYT out of construction loan draws (see Note 9).  FC’s interest in the Building Partnership and all of the membership interests in FC have been pledged to NYT to secure repayment of the FC funded share.

The construction loan, made through a building loan agreement and a project loan agreement, bears interest at an initial annual rate of LIBOR plus 265 basis points and will mature on July 1, 2008, subject to the borrowers’ right to extend the maturity date for two six-month periods upon the satisfaction of certain terms and conditions.  FCE has provided the construction lender with a guaranty of completion with respect to the Building conditioned upon the availability of the construction loan and NYT construction capital contributions.  In addition, the Company has provided the construction lender with a guaranty of NYT’s obligation to complete the interior construction of the NYT portions of the Building.

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Under the terms of the Operating Agreement and the construction loan, the lien of the construction loan will be released from the NYT condominium units upon substantial completion of the Building’s core and shell but will remain upon the FC condominium units until the construction loan is repaid in full.  If FC is unable to obtain other financing to repay the construction loan upon substantial completion of the Building’s core and shell, the Company is required to make a loan (the “extension loan”) to FC of approximately $119.5 million to pay a portion of the construction loan balance.  The extension loan will have a maturity date of five years following substantial completion of the core and shell of the Building, bear interest at 1% per annum in excess of the construction loan rate, and be secured by a second mortgage lien on the FC condominium units.

The Company’s actual and anticipated capital expenditures in connection with the Building, net of proceeds from the sale of the Company’s existing headquarters, including both core and shell and interior construction costs, are detailed in the table below.

Capital Expenditures

(Dollars in millions)		NYT
2001-2005		$241
2006		$215-$230
2007		$145-$168
Total		$601-$639
Less: net sale proceeds(a)		$106
Total, net of sale proceeds		$495-$533(b)

 

(a)       Represents cash proceeds from the sale of the Company’s existing headquarters (see Note 2), net of income taxes and transaction costs.

(b)       Includes estimated capitalized interest and salaries in the range of $40 to $50 million.

FC’s capital expenditures were consolidated in the Company’s financial statements through August 2006, when the Building was converted to a leasehold condominium.  FC’s actual capital expenditures from 2001 through August 2006 were approximately $239 million.

Third-Party Guarantees

The Company has outstanding guarantees on behalf of a third party that provides circulation customer service, telemarketing and home-delivery services for The Times and the Globe (the “circulation servicer”), and on behalf of two third parties that provide printing and distribution services for The Time’s National Edition (the “National Edition printers”).  In accordance with GAAP, the contingent obligations related to these guarantees are not reflected in the Company’s Condensed Consolidated Balance Sheets as of September 2006 and December 2005.

The Company has guaranteed the payments under the circulation servicer’s credit facility and any miscellaneous costs related to any default thereunder (the “credit facility guarantee”).  The total amount of the credit facility guarantee was $20 million as of September 2006.  The amount outstanding under the credit facility, which expired and was renewed in April 2006, was approximately $17 million as of September 2006.  The credit facility guarantee was made by the Company to allow the circulation servicer to obtain more favorable financing terms.  The circulation servicer has agreed to reimburse the Company for any amounts the Company pays under the credit facility guarantee and has granted the Company a security interest in all of its assets to secure repayment of any amounts the Company pays under the credit facility guarantee.

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In addition, the Company has guaranteed the payments of two property leases of the circulation servicer and any miscellaneous costs related to any default thereunder (the “property lease guarantees”).  The total amount of the property lease guarantees was approximately $2 million as of September 2006.  One property lease expires in June 2008 and the other property lease expires in May 2009.  The property lease guarantees were made by the Company to allow the circulation servicer to obtain space to conduct business.

The Company would have to perform the obligations of the circulation servicer under the credit facility and property lease guarantees if the circulation servicer defaulted under the terms of its credit facility or lease agreements.

The Company has guaranteed a portion of the payments of an equipment lease of a National Edition printer and any miscellaneous costs related to any default thereunder (the “equipment lease guarantee”).  The total amount of the equipment lease guarantee was approximately $2 million as of September 2006.  The equipment lease expires in March 2011.  The Company made the equipment lease guarantee to allow the National Edition printer to obtain lower cost of lease financing.

The Company has also guaranteed certain debt of one of the two National Edition printers and any miscellaneous costs related to any default thereunder (the “debt guarantee”).  The total amount of the debt guarantee was approximately $6 million as of September 2006.  The debt guarantee, which expires in May 2012, was made by the Company to allow the National Edition printer to obtain a lower cost of borrowing.

The Company has obtained a secured guarantee from a related party of the National Edition printer to repay the Company for any amounts that it would pay under the debt guarantee.  In addition, the Company has a security interest in the equipment that was purchased by the National Edition printer with the funds it received from its debt issuance, as well as other equipment and real property.

The Company would have to perform the obligations of the National Edition printers under the equipment lease and debt guarantees if the National Edition printers defaulted under the terms of their equipment leases or debt agreements.

Other

The Company also has letters of credit of approximately $33 million, which are required by insurance companies, to provide support for the Company’s workers’ compensation liability.  The workers’ compensation liability is included in the Company’s Condensed Consolidated Balance Sheet as of September 2006.

There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company.  These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made.  It is the opinion of management after reviewing these actions with legal counsel to the Company that the ultimate liability that might result from these actions would not have a material adverse effect on the Company’s Condensed Consolidated Financial Statements.

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