ITEM 1. BUSINESS.
INTRODUCTION
The New York Times Company (the "Company") was incorporated on August 26, 1896, under the laws of the State of New York. The Company is a diversified media company including newspapers, magazines, television and radio stations, electronic information and publishing and interests in forest products companies.
The Company currently classifies its businesses into the following segments:
Newspapers: THE NEW YORK TIMES ("THE TIMES"); THE BOSTON GLOBE, a daily newspaper, and the BOSTON SUNDAY GLOBE (both editions, "THE GLOBE"); 18 other daily and three non-daily newspapers in Alabama, California, Florida, Louisiana, North Carolina and South Carolina ("Regional Newspapers"); various newspaper on-line products; newspaper distributors in the New York City and Boston metropolitan areas; news, photo and graphics services and news and features syndication; TIMESFAX; THE NEW YORK TIMES INDEX; and licensing of electronic data bases and microform, CD-ROM products and the trademarks and copyrights of THE TIMES.
Magazines: GOLF DIGEST, GOLF WORLD, GOLF SHOP OPERATIONS, TENNIS, TENNIS BUYER'S GUIDE, CRUISING WORLD, SAILING WORLD, SNOW COUNTRY and SNOW COUNTRY BUSINESS. In March 1997, the Company announced its intention to sell TENNIS, TENNIS BUYER'S GUIDE, CRUISING WORLD, SAILING WORLD, SNOW COUNTRY and SNOW COUNTRY BUSINESS.
Broadcasting: television stations WTKR-TV in Norfolk, Virginia; WREG-TV in Memphis, Tennessee; KFOR-TV in Oklahoma City, Oklahoma; WNEP-TV in Wilkes-Barre/Scranton, Pennsylvania; WHO-TV in Des Moines, Iowa; WHNT-TV in Huntsville, Alabama; WQAD-TV in Moline, Illinois; and KFSM-TV in Fort Smith, Arkansas; and radio stations WQXR (FM) and WQEW (AM) in New York City.
Forest Products Investments and Other Joint Ventures: Minority equity interests in a Canadian newsprint company and a supercalendered paper manufacturing partnership in Maine and a one-half interest in the INTERNATIONAL HERALD TRIBUNE.
SUMMARY OF SEGMENT INFORMATION
In 1996, the Company's consolidated revenues increased to $2,615,026,000 from $2,409,069,000 in 1995. The increase in revenues was principally due to higher advertising and circulation rates at the Newspaper Group and the additional revenues associated with the Company's recently acquired television stations. The Company's net income in 1996 was $84,534,000, or $.87 per share, compared with $135,860,000, or $1.40 per share, in 1995. Exclusive of special factors set forth on page on this Form 10-K, annual earnings from ongoing operations would have been $1.91 per share in 1996, compared with $1.41 per share in 1995. A summary of segment information for the three years ended December 29, 1996, is set forth on pages and of this Form 10-K. Also see "Management's Discussion and Analysis" on pages through of this Form 10-K.
The Company changed its fiscal year-end to the last Sunday in December, beginning with the fiscal year ended December 29, 1996.
NEWSPAPERS
The Newspaper Group had revenues of $2,335,346,000 in 1996, compared with $2,161,022,000 in 1995, and an operating profit of $179,611,000 in 1996, compared with $212,634,000 in 1995. (These amounts include certain special items for 1996 which are discussed in more detail in "Management's Discussion and Analysis" on page of this Form 10-K.) Operating profit for the year after special items increased due to higher advertising and circulation revenues resulting from higher rates.
The Newspaper Group segment consists of two categories: Newspapers (consisting of THE NEW YORK TIMES, THE BOSTON GLOBE, 21 Regional Newspapers, newspaper distributors, and Information Services) and New Ventures (consisting of projects developed in electronic media by THE TIMES, THE GLOBE and the Regional Newspapers, as well as various new media investments). The Newspapers category had revenues of $2,326,784,000 in 1996 and an operating profit of $195,176,000 in 1996, while the New Ventures category had revenues of $8,562,000 and an operating loss of $15,565,000.
THE NEW YORK TIMES CIRCULATION
THE TIMES, a standard-size weekday and Sunday newspaper which commenced publication in 1851, is circulated in each of the 50 states, the District of Columbia and worldwide. Approximately 62% of the weekday (Monday through Friday) circulation is sold in the 31 counties that make up the greater New York City area, which includes New York City, Westchester and parts of upstate New York, Connecticut and New Jersey; 38% is sold elsewhere. On Sundays, approximately 60% of the circulation is sold in the greater New York City area and 40% elsewhere. According to reports of the Audit Bureau of Circulations ("ABC"), an independent agency that audits the circulation of most U.S. newspapers and magazines, for the six-month period ended September 30, 1996, of all seven-day United States newspapers, THE TIMES's weekday and Sunday circulations were the largest.
THE TIMES's average weekday and Sunday circulations for the three 12-month periods ended September 30, 1996, as audited by ABC (except as indicated), are shown in the table below:
During the year ended December 29, 1996, the average weekday circulation of THE TIMES decreased by approximately 17,800 copies to 1,102,900 copies and the average Sunday circulation of THE TIMES decreased by approximately 32,100 copies to 1,680,500 copies. Approximately 56% of the weekday circulation and 49% of the larger Sunday circulation were sold through home and office delivery; the remainder was sold primarily on newsstands. THE TIMES's increasing percentage of home and office delivery is part of its continuing strategy to improve the stability of its circulation base and provide enhanced value to its advertisers.
The weekly rate charged to subscribers for home-delivered copies of THE TIMES in the New York City metropolitan area is $7.20. The suggested newsstand price of THE TIMES within the New York City metropolitan area is $.60 on weekdays and $2.50 on Sundays. The suggested newsstand price in the New England-Middle Atlantic states outside the New York City metropolitan area is $1.00 on weekdays and $3.00 on Sundays. The suggested newsstand price of the National Edition, distributed throughout the rest of the country, is $1.00 on weekdays and $4.00 on Sundays.
ADVERTISING
THE TIMES published 3,768,400 inches of advertising in 1996, compared with 3,811,100 inches in the comparable 1995 period. Both figures include part-run volume, which totaled 1,000,400 inches in 1996, compared with 1,054,300 inches in 1995.
Total volume in THE TIMES for the two years ended December 29, 1996, as measured by THE TIMES, is shown in the table below. The "National" heading in the table below includes such categories as entertainment, financial, magazine and general advertising.
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(1) All totals exclude preprint inches.
(2) For comparability, 1995 has been restated to conform with the 1996 presentation.
The table includes volume for THE NEW YORK TIMES MAGAZINE, which published 3,009 pages of advertising in 1996, compared with 2,809 pages in 1995.
Advertising rates for THE TIMES increased an average of 9.5% in January 1996, and 6.5% in January 1997.
PRODUCTION AND DISTRIBUTION
THE TIMES is processed through electronic editing terminals and sent electronically to high-resolution image setters. THE TIMES's program to enable editors to paginate the newspaper, by electronically designing and constructing the news text, headlines and graphics on the newspaper page rather than having them pasted up manually, was virtually completed in 1996. In 1997, one last remaining section will be paginated and the news and advertising on each page of the newspaper will be merged electronically.
Generally, THE TIMES is printed at its Manhattan production facility, its production and distribution facility in Edison, New Jersey, and its new production and distribution facility in College Point, Queens. The College Point facility began to come on line in 1996, and will become fully operational in the second half of 1997. The Manhattan facility will be phased out during 1997.
When the transition is complete, the Edison and College Point facilities will print all the advance sections of the Sunday newspaper (except THE NEW YORK TIMES MAGAZINE and the Television section) and all of the weekday New York edition. The Edison facility houses six 10-unit Goss Colorliner presses; College Point has five of the same presses. Both facilities have the capacity to print in color and have modern, automated packaging and distribution equipment.
THE TIMES has agreements with two commercial printing companies to print THE NEW YORK TIMES MAGAZINE and its Television section. On February 18, 1997, THE TIMES began to distribute copies of the newspaper from two Northeast printing sites with which it has entered into contract printing agreements. These sites are near Boston (at THE GLOBE) and in Springfield, Virginia.
The National Edition of THE TIMES is printed under contract at eight sites: in the Midwest from printing sites in Chicago, Illinois, and Warren, Ohio; in the West from printing sites in Torrance and Walnut Creek, California, and Tacoma, Washington; in the Southwest from a printing site in Austin, Texas; and in the Southeast from printing sites in Atlanta, Georgia, and Ft. Lauderdale, Florida. Satellite transmission of page images to the National Edition printing sites permits early-morning delivery to homes and newsstands in many major markets. THE TIMES entered into an agreement, effective January 1, 1997, with a national magazine distribution company to become the exclusive sales and marketing representative for the National Edition. During 1996, THE TIMES entered into agreements with approximately 30 newspapers and other delivery agents located in the United States and Canada to deliver THE TIMES in their respective markets and, in some cases, to expand current markets. The agreements include various arrangements for delivery on Sundays and weekdays to homes and newsstands.
A subsidiary of the Company, City & Suburban Delivery Systems, Inc. ("City & Suburban") operates a wholesale newspaper distribution business that distributes THE TIMES and other newspapers and periodicals in New York City and central and northern New Jersey. In June 1996 City & Suburban acquired the business of Imperial Delivery Service, Inc., a newspaper wholesaler that distributed newspapers and other periodicals throughout Long Island (New York) and the counties of Westchester (New York) and Fairfield (Connecticut). In October 1996, City & Suburban expanded its operations into central New Jersey. Approximately 69% of THE TIMES's single-copy daily circulation and 70% of its single-copy Sunday circulation in the New York City metropolitan area are delivered to retail outlets through City & Suburban. Approximately 88% of THE TIMES's daily home-delivered circulation and 91% of its Sunday home-delivered circulation are delivered to depots through City & Suburban.
THE BOSTON GLOBE
THE GLOBE is owned and published by the Company's subsidiary, Globe Newspaper Company (as used herein, "THE GLOBE" may also be used to refer to Globe Newspaper Company).
CIRCULATION
THE GLOBE is distributed throughout New England, although its circulation is concentrated in the Boston metropolitan area. According to ABC reports, as of September 29, 1996, the weekday circulation of THE GLOBE was the 14th largest of any weekday newspaper; circulation of the Sunday edition was the ninth largest of any Sunday newspaper published in the United States; and its weekday and Sunday circulation was the largest of all newspapers published in either Boston or New England.
The following table shows the average weekday and Sunday paid circulation of THE GLOBE for the editions and the periods indicated, as reported to or audited by ABC.
During the year ended December 29, 1996, the average weekday circulation of THE GLOBE decreased 25,500 copies below 1995 to 472,200 copies and the average Sunday circulation decreased by 26,600 copies below 1995 to 762,700 copies.
Approximately 71% of THE GLOBE's total weekday circulation and 60% of THE GLOBE's total Sunday circulation are sold through home or office delivery; the remainder are sold primarily on newsstands. Virtually all of THE GLOBE's home-delivered circulation is delivered through THE GLOBE's distribution subsidiary, Community Newsdealers, Inc. During 1996, THE GLOBE and its subsidiary, Retail Sales, Inc., assumed greater direct control of single copy distribution to further improve the stability of its circulation base. In December 1996, such distribution accounted for approximately 60% of average daily single copy distribution (up from 54% in January 1996) and 53% of its average Sunday single copy distribution (up from 45% in January 1996).
The weekly rate charged to subscribers for home-delivered copies of THE GLOBE is $5.00 within the 30-mile radius of Boston and $5.50 outside of the 30-mile radius. The suggested newsstand price of THE GLOBE throughout its circulation area is $.50 on weekdays and $2.00 on Sundays.
ADVERTISING
THE GLOBE's total advertising volume by category of advertising for the two years ended December 29, 1996, for all editions, as measured by THE GLOBE, is set forth below:
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(1) All totals exclude preprint inches.
(2) For comparability, 1995 has been restated to conform with the 1996 presentation.
Advertising rates in each category of advertising were adjusted in 1996. The latest increase in retail advertising rates occurred on September 1, 1996. Increases in classified and national advertising rates occurred effective April 1, 1996, and July 1, 1996, respectively. These rate increases ranged from 5% to 8%.
PRODUCTION
THE GLOBE's pagination project, which started in 1989, continued according to plan, as full-page output increased in 1996 to a weekly average of 1,100 pages per week, or almost 90% of THE GLOBE's pages produced weekly. THE GLOBE plans to complete pagination of the remaining portions of the newspaper during 1997.
All editions of THE GLOBE are printed and prepared for delivery at its main Boston plant or its Billerica, Massachusetts, satellite plant. Both of the plants use Goss Metroliner offset presses. THE GLOBE also owns a Sunday pre-print storage, inserting and packaging plant in Westwood, Massachusetts.
REGIONAL NEWSPAPERS
The Company currently owns 18 daily and three non-daily smaller-city newspapers.
The regional daily newspapers' weekday circulation for the year ended December 29, 1996, decreased 23,600 copies to 730,100 copies, and Sunday circulation decreased 14,200 copies to 789,700 copies; the circulation of the non-dailies decreased 2,000 copies to 34,000 copies. Advertising volume, stated on the basis of six columns per page, was 15,560,600 inches in 1996, compared with 15,525,100 inches in 1995. These figures exclude the circulation numbers and advertising volume of seven newspapers which were
sold in 1995. (See Note 2 of Notes to Consolidated Financial Statements.) Preprints distributed in 1996 were 929,486,000, compared with 915,930,000 in 1995 (in each case, not including preprints distributed by the seven Regional Newspapers sold in 1995).
All of the Regional Newspapers are produced by photocomposition and offset printing.
INFORMATION SERVICES
The New York Times Syndication Sales Corporation ("Syndication Sales") operates The New York Times News Service, The New York Times Syndicate and the licensing and reprint permission operations of THE TIMES. The News Service transmits articles, graphics and photographs from THE TIMES, THE GLOBE and other publications to approximately 650 newspapers and magazines in the United States and in more than 50 countries worldwide. The New York Times Syndicate markets other supplemental news services and feature material, graphics and photographs from THE TIMES and other leading news sources to newspapers and magazines around the world. Syndication Sales maintains two sites (introduced in 1995) on the World Wide Web with news about computers and health.
NYT Business Information Services, through the group's Index department and Times On-Line Services, Inc., produces THE NEW YORK TIMES INDEX, a print publication. The Company licenses LEXIS/ NEXIS, Dow Jones Business Information Services, UMI, Knight-Ridder Information, Inc., DataTimes and Online Computer Library Center, Incorporated to store, market and distribute its on-line computer data bases. The Company also licenses UMI to produce and sell THE NEW YORK TIMES INDEX and THE TIMES on microform and CD-ROM.
In 1996, the Company continued to expand its distribution of TIMESFAX, a six- to eight-page synopsis of THE TIMES delivered to customers' facsimile machines or personal computers in markets where THE TIMES is not easily available. In addition to distribution by satellite to cruise ships and U.S. Navy vessels, TIMESFAX is distributed to hotels, governments and corporations in over 50 countries and territories. It can also be accessed via the Internet.
NYT Custom Publishing designs, writes, edits, produces, sells and markets magazines for clients under contract, including IBM and Four Seasons Hotels Limited. The Company has announced that the NYT Custom Publishing division is for sale.
Information Services also develops and markets new services, including CD-ROM disks, database marketing and multimedia education services.
As of January 1997, Information Services was restructured and Syndication Sales, NYT Business Information Services, and TIMESFAX became a part of THE NEW YORK TIMES.
NEW VENTURES
In 1994, the Company created and introduced @TIMES, an on-line service which carries information from THE TIMES on America Online. This service, now renamed The New York Times on America Online, is one of the most frequently accessed services on America Online. THE NEW YORK TIMES's website, The New York Times on the Web, is located at "nytimes.com." and went on-line in January 1996. The New York Times on the Web has attracted almost 1 million registered users with an average of over 3 million pages per week viewed by users of the site. In the fall of 1995, a new subsidiary of THE GLOBE, Boston Globe Electronic Publishing, Inc., launched its Internet site located at "Boston.com." Its goal is to become the principal information provider for Internet users interested in New England. During 1996, both Boston.com and The New York Times on the Web generated advertising revenue. THE TIMES and THE GLOBE have participated in the development of Careerpath.com, the leading employment database on the Internet. Several Regional Newspapers have created on-line services tailored to their local market interests and needs. Also, the SARASOTA HERALD-TRIBUNE operates a 24-hour local news cable television channel which reaches approximately 90,000 subscribers.
In April 1995, the Company acquired a majority interest in Video News International ("VNI"), a worldwide video newsgathering operation specializing in low-cost, high-quality footage for sale globally to major television and cable networks. In December 1996, VNI ceased operations. In January 1997, the Company established a unit to pursue certain programming ventures utilizing THE NEW YORK TIMES and other content.
In September 1995, the Company invested in OVATION, a visual and performing arts cable television network, which launched in April 1996. OVATION is available through 29 U.S. cable systems as well as in St. Lucia, West Indies, and Bermuda. OVATION currently reaches 800,000 subscribers.
MAGAZINES
The Company's Magazine Group had revenues of $161,077,000 in 1996, compared with $162,941,000 in 1995, and operating profit of $24,778,000 in 1996, compared with $28,741,000 in 1995.
The Magazine Group segment consists of two categories: Magazines (including those publications set forth in the table below) and New Ventures (including computerized systems for golf tee time reservations, on-line magazine services and related activities in the sports/leisure field). The Magazines category had revenues of $160,039,000 in 1996 and an operating profit of $32,537,000 in 1996, while the New Ventures category had revenues of $1,038,000 and an operating loss of $7,759,000 in 1996. The Magazine Group's revenues for 1996 include $10,000,000 relating to the non-competition agreement entered into in connection with the sale of the Women's Magazines Division on July 26, 1994, to Gruner+Jahr Printing and Publishing Co. The terms of the sale included a four-year $40,000,000 non-competition agreement. (See Note 2 of Notes to Consolidated Financial Statements.)
As of December 29, 1996, the Company published the magazines listed in the chart below:
- ------------------------------ (1) As reported by the publisher to ABC or the Business Publications Association.
(2) As reported by the publisher to Publisher's Information Bureau ("PIB"); or, in the case of trade publications, as calculated by the publisher using the same methodology as for PIB.
(3) For these trade publications, the average print order is disclosed as the applicable measure for advertisers.
In March 1997, the Company announced its intention to sell TENNIS, TENNIS BUYER'S GUIDE, CRUISING WORLD, SAILING WORLD, SNOW COUNTRY and SNOW COUNTRY BUSINESS.
NEW VENTURES
In October 1995, the Company acquired the business of PAR Business Systems, Inc., which provides computerized systems for golf tee time reservations and automated pro shop business systems for the golf industry. The tee time system is known as T-LINKS-TM- and is being operated by Golf Digest Information Systems, Inc., an indirect subsidiary of the Company. The Magazine Group has also commenced construction of a driving range at THE TIMES's printing facility in Edison, New Jersey. The range will feature heated stalls and a teaching center. The Magazine Group offers various golf and travel information and excerpts from its publications on the World Wide Web.
BROADCASTING
The Broadcast Group had revenues of $118,603,000 in 1996, up from $85,106,000 in 1995, and an operating profit of $30,596,000 in 1996, compared with $18,943,000 in 1995. The Company acquired KFOR-TV, an NBC affiliate, which serves the Oklahoma City, Oklahoma, market and WHO-TV, an NBC affiliate, which serves the Des Moines, Iowa, market, in July 1996. (See Note 2 of Notes to Consolidated Financial Statements.) The acquisition, Olympic advertising revenue at KFOR-TV and WHO-TV, and higher advertising revenues at most of the Company's other stations, including the full year's revenues at WTKR-TV (acquired in June 1995), accounted for the improved results.
The Company's television and radio stations are operated under licenses from the Federal Communications Commission ("FCC") and are subject to FCC regulations. The Telecommunications Act of 1996 lengthened television station license terms from five to eight years and radio station license terms from seven to eight years. The licenses for WREG-TV (Memphis, Tenn.), WHNT-TV (Huntsville, Ala.), WQAD-TV (Moline, Ill.) and KFSM-TV (Fort Smith, Ark.) will expire on August 1, 1997, April 1, 1997, December 1, 1997, and June 1, 1997, respectively. Applications for renewal of the licenses are due four months prior to the expiration date. The licenses of KFOR-TV (Oklahoma City, Okla.) and WHO-TV (Des Moines, Iowa) will expire in 1998. The license for WNEP-TV (Wilkes-Barre/Scranton, Pa.) will expire in 1999. The license for WTKR-TV was just renewed for a five-year term expiring October 1, 2001, which will be extended to October 1, 2004, pursuant to the FCC's implementation of the Telecommunications Act of 1996. The Company expects its future applications for renewal of its television station licenses will result in such licenses being renewed for eight-year periods.
All of the television stations have three principal sources of revenue: local advertising sold to advertisers in the immediate geographic areas of the stations, national spot advertising and compensation paid by the networks for carrying commercial network programs. WTKR-TV, WREG-TV, WHNT-TV and KFSM-TV are affiliated with the CBS Television Network; WNEP-TV and WQAD-TV are affiliated with the ABC Television Network; and KFOR-TV and WHO-TV are affiliated with the NBC Television Network.
WTKR-TV, WREG-TV, KFOR-TV, WHO-TV, WQAD-TV and KFSM-TV are in the VHF band; WNEP-TV and WHNT-TV are in the UHF band, as are all other stations in their markets. According to A. C. Nielsen Company, a research company which measures audiences for television stations, Norfolk is the 40th largest television market in the United States, Memphis is the 42nd largest, Oklahoma City is the 43rd largest market, Wilkes-Barre/Scranton is the 49th largest, Des Moines is the 72nd largest market, Huntsville is the 81st largest, Moline is part of the Quad Cities market, the 88th largest, and Fort Smith is the 118th largest market.
The Company's two radio stations serve the New York City metropolitan area. WQXR (FM) is currently the only commercial classical music station serving this market. WQEW (AM) is the only station covering the total New York City region that offers a format of American popular standards for the market. The licenses of WQEW(AM) and WQXR(FM) were renewed during 1994 and will expire on
June 1, 1998. The Company expects its future applications for renewal of the radio station licenses will result in such licenses being renewed for an eight-year period.
FOREST PRODUCTS INVESTMENTS AND OTHER JOINT VENTURES
The Company has ownership interests in one newsprint mill and one supercalendered paper mill (the "Forest Products Investments"), the INTERNATIONAL HERALD TRIBUNE and a new venture. Income from these joint ventures in 1996 was $18,223,000, increased from $15,029,000 in 1995. The improved results for 1996 were due principally to higher average selling prices for paper at the Forest Products Investments, partially offset by losses incurred by the new venture.
FOREST PRODUCTS INVESTMENTS
The Company has a 49% equity interest in a Canadian newsprint company, Donohue Malbaie Inc. ("Malbaie"). The other 51% is owned by Donohue, Inc. ("Donohue"), a publicly-traded Canadian company whose voting shares are controlled by Quebecor, a Canadian publishing company. Malbaie purchases pulp from Donohue and manufactures newsprint from this raw material on the paper machine it owns within the Donohue paper mill at Clermont, Quebec. Malbaie is wholly dependent upon Donohue for its pulp. In 1996 Malbaie produced 196,000 metric tons of newsprint, 76,000 tons of which were sold to the Company, with the balance sold to Donohue for resale.
The Company has an equity interest in a partnership operating a supercalendered paper mill in Maine, Madison Paper Industries ("Madison"). Madison is a partnership between Northern SC Paper Corporation ("Northern") and a subsidiary of Myllykoski Oy, a Finnish papermaking company. Through Northern, the Company's interest in Madison is 40%. Madison produces supercalendered paper at its facility in Madison, Maine. Madison purchases all its wood from local suppliers, mostly under long-term contracts. In 1996 Madison produced 169,000 metric tons, 11,000 tons of which were sold to the Company. In 1997 Madison's five largest customers (of which the fourth largest is the Company) are expected to purchase approximately 54% of Madison's budgeted production.
The debt of Malbaie and Madison is not guaranteed by the Company.
Malbaie and Madison are subject to comprehensive environmental protection laws, regulations and orders of provincial, federal, state and local authorities of Canada or the United States (the "Environmental Laws"). The Environmental Laws impose effluent and emission limitations and require Malbaie and Madison to obtain, and operate in compliance with the conditions of, permits and other governmental authorizations ("Governmental Authorizations"). Malbaie and Madison follow policies and operate monitoring programs to ensure compliance with applicable Environmental Laws and Governmental Authorizations and to minimize exposure to environmental liabilities. Various regulatory authorities periodically review the status of the operations of Malbaie and Madison. Based on the foregoing, the Company believes that Malbaie and Madison are in substantial compliance with such Environmental Laws and Governmental Authorizations.
OTHER JOINT VENTURES
Each of the Company and The Washington Post Company owns a one-half interest in the International Herald Tribune S.A.S, which publishes the INTERNATIONAL HERALD TRIBUNE. In 1996, the Company began a five-year term as managing partner of the newspaper's operations. The newspaper is edited in Paris and printed simultaneously in Frankfurt, Hong Kong, London, Marseille, New York, Paris, Rome, Singapore, The Hague, Tokyo and Zurich. The International Herald Tribune opened a new print site in Kuala Lumpur, Malaysia, and expects to open one in Bangkok, Thailand, in the first half of 1997.
NYT Broadcast Holdings, Inc., a wholly-owned subsidiary of the Company, owns 10% (down from 40% at the beginning of 1996) of Popcorn Channel, L.P. The Popcorn Channel, a basic cable network which launched in November 1995, ceased operations in December 1996.
RAW MATERIALS
The primary raw materials used by the Company are newsprint and supercalendered and coated paper. Neither the Company nor any of its businesses is dependent on any one supplier of paper.
In 1996, THE TIMES used approximately 276,000 metric tons of newsprint, compared to 281,000 in 1995. The 1995 amount has been restated to include newsprint used to print the Sunday television guide in order to conform with the 1996 amount. In 1996, THE NEW YORK TIMES MAGAZINE used approximately 19,000 metric tons of supercalendered paper, a grade of magazine quality paper, compared to 20,000 in 1995. In 1996, THE GLOBE used approximately 136,000 metric tons of newsprint, compared to 142,000 in 1995. The 1995 amount has been restated to include newsprint used to print the Sunday comics and the television guide in order to conform with the 1996 amount. The Regional Newspapers used approximately 90,500 metric tons of newsprint in 1996, compared to 94,000 in 1995. In 1996, the magazines published by the Magazine Group used approximately 14,400 metric tons of coated paper, compared to 16,100 in 1995.
The paper used by THE TIMES, THE NEW YORK TIMES MAGAZINE, THE GLOBE, the Regional Newspapers and the magazines published by the Magazine Group was purchased under long-term contracts with related suppliers in which the Company holds equity interests (see "Forest Product Investments") and unrelated suppliers.
COMPETITION
THE TIMES competes with newspapers of general circulation in New York City and its suburbs. THE TIMES also competes in varying degrees with national publications such as THE WALL STREET JOURNAL and USA TODAY and with magazines, television, radio and other media. Based on a specially prepared report by Competitive Media Reporting, Inc., an independent agency that measures advertising revenue, and THE TIMES's internal analysis, THE TIMES believes that it ranks first by a substantial margin in advertising revenue in the general weekday and Sunday newspaper field in the New York City metropolitan area. The Regional Newspapers and the INTERNATIONAL HERALD TRIBUNE compete with a variety of other advertising media in their respective markets.
THE GLOBE competes with other daily, weekly and national newspapers distributed in Boston, its neighboring suburbs and the greater New England region, including, among others, THE BOSTON HERALD (daily and Sunday). THE GLOBE also competes with other communications media, such as direct mail, magazines, radio and television (including cable television). Based on information supplied by major daily newspapers published in New England and assembled by the New England Newspaper Association, Inc., for the 12-month period ending December 29, 1996, THE GLOBE ranked first in advertising inches among all newspapers published in Boston and New England.
All the magazines published by the Company compete directly with comparable publications as well as with general interest magazines and other media, such as newspapers and broadcasting.
All of the Company's television stations compete directly with other television stations in their respective markets and with other video services, such as cable network programming carried on local cable systems. WQXR (FM) competes for listeners with WNYC (FM) (a non-commercial station) for the classical music audience, and it and WQEW (AM) compete for listeners and revenues with many adult-audience commercial radio stations and other media in New York City and surrounding suburbs.
Syndication Sales's operations compete with several other syndicated features and supplemental news services.
Madison and Malbaie are in a highly competitive industry.
EMPLOYEES
As of December 29, 1996, the Company had approximately 12,800 full-time equivalent employees.
Approximately 3,950 full-time equivalent employees of THE TIMES and City & Suburban are represented by 16 unions. THE TIMES has collective bargaining agreements effective through March 30, 2000, with all of its production unions, except for New York Newspaper Printing Pressmen's Union (which contract expires on March 30, 2005, and covers approximately 450 employees), and with all of its non-production unions, except for the International Brotherhood of Electricians (which contract expires on March 30, 1999, and covers approximately 20 employees in this non-production union) and the International Union of Operating Engineers. (One of this non-production union's contracts with THE TIMES, covering approximately 20 employees, expired in mid-1996; the parties are continuing to negotiate a successor contract.) City & Suburban has collective bargaining agreements effective through March 30, 2000, with its sole production union and with two of its three non-production unions. City & Suburban's contract with the United Auto Workers (covering approximately 50 employees in this non-production union) expired in May 1995; the parties are continuing to negotiate a successor contract. THE TIMES reached agreements with three of its production unions (covering approximately 970 employees) on a wage package for the period beginning March 31, 1996, and ending March 30, 2000. Wage packages covering the same period with the other unions representing production and non-production employees at THE TIMES and City & Suburban (approximately 3,400 employees) are being negotiated. If such negotiations are not successful, the wage packages will be submitted to binding arbitration for resolution.
THE GLOBE and its subsidiaries employ approximately 3,000 full-time equivalent employees. Of these, approximately 2,000 are represented by 12 unions. As of December 29, 1996, a labor agreement with one of its 11 production unions expired. Negotiations have commenced and THE GLOBE expects them to be successfully completed in 1997. Negotiations continue with two production unions, one of whose contract expired on December 31, 1992 and the other on December 31, 1995. THE GLOBE expects to conclude these negotiations successfully in 1997 as well. Eight other production unions have contracts which continue to be in effect with expiration dates ranging from December 31, 1998, to December 31, 2001. Its agreement for the period January 1, 1995, through December 31, 1997, with The Boston Globe Employees Association ("BGEA"), an affiliate of The Newspaper Guild that represents non-production employees of THE GLOBE, was ratified by the BGEA membership on March 20, 1997.
Three other entities owned by the Company (THE PRESS DEMOCRAT, WQXR and WQEW) also have collective bargaining agreements covering certain of their employees.
ITEM 2.
ITEM 2. PROPERTIES.
THE TIMES: The Company owns its headquarters at 229 West 43d Street, New York, New York. The building has 15 stories and approximately 714,000 square feet of floor space and serves as a publishing facility for THE TIMES. During late 1995, a renovation of THE TIMES's newsroom commenced. The renovation is expected to be complete by 1999. The renovation was designed to give THE TIMES necessary additional space and an enhanced electrical infrastructure.
A second publishing facility is located in Edison, New Jersey. This 1,300,000 square foot production and distribution facility is occupied pursuant to a long-term lease with renewal and purchase options. The Edison plant began producing newspapers in 1992. The Edison facility replaced an older production facility in Carlstadt, New Jersey, which is for sale.
The Edison facility was the first step in a plan to modernize the production facilities of THE TIMES. To complete its modernization plan, the Company will replace the production facility housed in the basement at its 43d Street facility with a 515,000 square foot printing and distribution plant in College Point, Queens, to be operational in the middle of 1997. The Company is leasing the 31-acre site in College Point and has the option to purchase the property at any time prior to the end of the lease in 2019. Together with the Edison plant, the College Point facility will provide a number of benefits, including later deadlines, increased color in the daily paper, increased flexibility in paging and sectioning the paper and daily advertising inserts.
THE GLOBE owns its printing plants in Boston (652,000 square feet) and Billerica (290,000 square feet), Massachusetts, as well as its Sunday pre-print storage, inserting and packaging plant in Westwood, Massachusetts (115,000 square feet). THE GLOBE and its subsidiaries own or lease office and other facilities that are suitable and adequate for their current activities.
The Regional Newspapers own their printing facilities. The Company's Regional Newspapers, magazines, broadcast stations and information businesses own or lease office facilities that are suitable and adequate for their current activities. A new 180,000 square foot color printing facility is under construction at THE LEDGER in Lakeland, Florida, and completion is expected by the end of 1997.
The Company sold its office building at 110 Fifth Avenue in New York City in June 1996. The building had been used by the Women's Magazines Division, which was sold in 1994.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company. Such actions are usually 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 such actions with legal counsel to the Company that the ultimate liability which might result from such actions will not have a material adverse effect on the consolidated financial position or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------ (1) During the past five years, all of the executive officers listed above have held positions which were the same or substantially similar to those they currently hold except as indicated above. (2) Mr. Lewis left the Company in 1973 and returned in 1977. (3) Mrs. Darrow left the Company in 1971 and returned in 1973.
- ------------------------ (1) During the past five years, all of the executive officers listed above have held positions which were the same or substantially similar to those they currently hold except as indicated above. (2) Mr. Forman left the Company in 1986 and returned in 1996. (3) Mr. Golden left the Company in 1969 and returned in 1974.
- ------------------------------
(1) During the past five years, all of the executive officers listed above have held positions which were the same or substantially similar to those they currently hold except as indicated above.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item appears at page of this Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item appears at page of this Form 10-K.
ITEM 7.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this item appears at pages to of this Form 10-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears at pages,, pages to and page of this Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In addition to the information set forth under the caption "Executive Officers of the Registrant" in Part I of this Form 10-K, the information required by this item is incorporated by reference to the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" on page 8 and pages 10 to 14, but only up to and not including the section entitled "Certain Information about the Board of Directors", of the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to pages 14 to 20, but only up to and not including the section entitled "Performance Presentation", of the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to pages 1 to 9 of the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to page 14 and pages 17 to 20, but only up to and not including the section entitled "Performance Presentation", of the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
(a) The consolidated financial statements of the Company are filed as part of this Form 10-K and are set forth on pages, and to . The report of Deloitte & Touche LLP, Independent Public Accountants, dated February 3, 1997, is set forth on page of this Form 10-K.
(b) The following additional consolidated financial information is filed as part of this Form 10-K and should be read in conjunction with the consolidated financial statements set forth on pages, and to. Schedules not included with this additional consolidated financial information have been omitted either because they are not applicable or because the required information is shown in the consolidated financial statements at the aforementioned pages.
Separate financial statements and supplemental schedules of associated companies accounted for by the equity method are omitted in accordance with the provisions of Rule 3-09 of Regulation S-X.
(2) EXHIBITS
(2.1) Agreement and Plan of Merger dated as of June 11, 1993, as amended by the First Amendment dated as of August 12, 1993, by and among the Company, Sphere, Inc. and Affiliated Publications, Inc. ("API") (filed as Exhibit 2 to the Form S-4 Registration Statement, Registration No. 33-50043, on August 23, 1993, and included as Annex I to the Joint Proxy Statement/ Prospectus included in such Registration Statement (schedules omitted--the Company agrees to furnish a copy of any schedule to the Commission upon request), and incorporated by reference herein).
(3.1) Certificate of Incorporation as amended by the Class A and Class B stockholders and as restated on September 29, 1993 (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(3.2) By-laws as amended through March 20, 1997.
(4) The Company agrees to furnish to the Commission upon request a copy of any instrument with respect to long-term debt of the Company and any subsidiary for which consolidated or unconsolidated financial statements are required to be filed, and for which the amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
(9.1) Globe Voting Trust Agreement, dated as of October 1, 1993, as amended effective October 1, 1995 (filed as an Exhibit to the Company's Form 10-K dated March 11, 1996, and incorporated by reference herein).
(10.1) The Company's Executive Incentive Compensation Plan as amended through December 20, 1990 (filed as an Exhibit to the Company's Form 10-K dated March 1, 1991, and incorporated by reference herein).
(10.2) The Company's 1991 Executive Stock Incentive Plan, as amended through September 19, 1996 (filed as an Exhibit to the Company's 10-Q dated November 12, 1996, and incorporated by reference herein).
(10.3) The Company's 1991 Executive Cash Bonus Plan, as amended through September 19, 1996 (filed as an Exhibit to the Company's 10-Q dated November 12, 1996, and incorporated by reference herein).
(10.4) The Company's Non-Employee Directors' Stock Option Plan, as amended through September 19, 1996 (filed as an Exhibit to the Company's 10-Q dated November 12, 1996, and incorporated by reference herein).
(10.5) The Company's Supplemental Executive Retirement Plan, as amended and restated through January 1, 1993 (filed as an Exhibit to the Company's Form 10-K dated March 11, 1996, and incorporated by reference herein).
(10.6) Lease (short form) between the Company and Z Edison Limited Partnership dated April 8, 1987 (filed as an Exhibit to the Company's Form 10-K dated March 27, 1988, and incorporated by reference herein).
(10.7) Agreement of Lease, dated as of December 15, 1993, between The City of New York, Landlord, and the Company, Tenant (as successor to New York City Economic Development Corporation (the "EDC"), pursuant to an Assignment and Assumption of Lease With Consent, made as of December 15, 1993, between the EDC, as Assignor, to the Company, as Assignee) (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.8) Funding Agreement #1, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.9) Funding Agreement #2, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.10) Funding Agreement #3, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.11) Funding Agreement #4, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.12) New York City Public Utility Service Power Service Agreement, made as of May 3, 1993, between The City of New York, acting by and through its Public Utility Service, and The New York Times Newspaper Division of the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.13) Employment Agreement, dated May 19, 1993, between API, Globe Newspaper Company and William O. Taylor (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.14) API's 1989 Stock Option Plan (filed as Annex to API's Proxy Statement-Joint Prospectus, dated as of April 28, 1989, contained in API's Registration Statement on Form S-4 (Registration Statement No. 33-28373) declared effective April 28, 1989, and incorporated by reference herein).
(10.15) API's Supplemental Executive Retirement Plan, as amended effective September 15, 1993 (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.16) API's 1990 Stock Option Plan (Restated 1991) (filed as Exhibit 1 to API's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1991 (Commission File No. 1-10251), and incorporated by reference herein).
(10.17) Form of Substituted Stock Option Agreement/Incentive 87 among API, its predecessor company and certain employees (filed as Exhibit 10.29 to Post-Effective Amendment No. 1 filed August 11, 1989, to API's Registration Statement on Form S-4 (Registration Statement No. 33-28373) declared effective April 28, 1989, and incorporated by reference herein).
(10.18) Form of Substituted Stock Option Agreement/Incentive 88 among API, its predecessor company and certain employees (filed as Exhibit 10.31 to Post-Effective Amendment No. 1 filed August 11, 1989, to API's Registration Statement on Form S-4 (Registration Statement No. 33-28373) declared effective April 28, 1989, and incorporated by reference herein).
(10.19) The Company's Deferred Executive Compensation Plan, as amended through November 8, 1996.
(11) Statements of Computation of Primary and Fully-Diluted Net Income Per Share.
(21) Subsidiaries of the Company.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fiscal year ended December 29, 1996.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Date: March 28, 1997 (Registrant)
THE NEW YORK TIMES COMPANY
By: /S/ LAURA J. CORWIN ...............................
Laura J. Corwin, SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
APPENDIX
1996 FINANCIAL REPORT
THE NEW YORK TIMES COMPANY
1996 CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------- Contents Page - --------------------------------------------------------------------------------
Financial Highlights
Segment Information
Management's Discussion and Analysis
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
Independent Auditors' Report
Management's Responsibilities Report
Market Information
Quarterly Information
Ten-Year Supplemental Financial Data
The following transactions are NOT reflected in the respective year income amounts used in the applicable key ratio calculations presented above:
In 1996, the Company recorded a $126.8 million pre-tax non-cash charge ($94.5 million after taxes or $.97 per share) relating to Statement of Financial Accounting Standards No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("SFAS 121 charge") (see Note 3). The Company also recorded gains totaling $32.8 million ($17.5 million after taxes or $.18 per share) from the sale of a building and the realization of a gain contingency from the disposition of a paper mill in a prior year (see Note 2).
In 1995, the Company sold small regional newspapers (see Note 2). The sales resulted in a pre-tax gain of approximately $11.3 million ($5.0 million after taxes or $.05 per share).
In 1994, the Company sold its Women's Magazines Division and U.K. golf publications, and divested a minority interest in a Canadian paper mill (see Note 2), which resulted in a net pre-tax gain of approximately $200.9 million ($103.3 million after taxes or $.99 per share).
For 1993, return on average stockholders' equity and return on average total assets are less than 1% due to several factors (see) which lowered net income for the year. Amounts for 1996 through 1993 include The Boston Globe since its acquisition on October 1, 1993.
In 1992, the Company closed The Gwinnett (Ga.) Daily News and sold the residual assets. The closing and related sale resulted in a pre-tax loss of $53.8 million ($37.1 million after taxes or $.47 per share). Net cumulative effect of accounting changes reflects the 1992 adoption of the change in methods of accounting for income taxes, postretirement benefits other than pensions and postemployment benefits.
SEGMENT INFORMATION - -------------------------------------------------------------------------------
The Company has classified its business into the following segments and equity interests:
NEWSPAPER GROUP: 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/microfilm and New Ventures. New Ventures include projects developed in electronic media by The Times and The Globe.
MAGAZINE GROUP: Numerous sports-related publications and related activities in the sports/leisure field, and New Ventures such as computerized systems for golf tee time reservations and on-line magazine services.
BROADCAST GROUP: Eight network-affiliated television stations and two radio stations.
JOINT VENTURES: Equity ownership interests in a newsprint mill, a supercalendered paper mill, a one-half interest in the International Herald Tribune S.A.S., and a new venture. The new venture ceased operations in December 1996.
See notes to consolidated financial statements.
Newspaper Group operating profit for 1996 and 1995 includes charges of $31.9 million and $8.5 million, respectively, for costs related to staff reductions. The 1996 Broadcast Group operating profit includes charges of $0.3 million for costs related to staff reductions. Unallocated corporate expenses for 1996 and 1995 include a charge of $11.9 million and $1.6 million, respectively, for costs related to staff reductions.
The 1996 Newspaper Group and Magazine Group operating profits include $125.7 million and $1.1 million, respectively, of the non-cash SFAS 121 charge.
Magazine Group amounts for 1994 were affected by the dispositions of the Women's Magazines Division and the U.K. golf publications (see Note 2). The 1996, 1995 and 1994 amounts include the amortization of the income relating to a $40.0 million non-compete agreement, associated with the disposition of the Women's Magazines Division, which is being recognized straight-line over four years. Amortization of this income was $10.0 million, $10.0 million and $4.2 million in 1996, 1995 and 1994, respectively.
Broadcast Group amounts for 1996 and 1995 were affected by the acquisitions of new television stations (see Note 2).
See notes to consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS - --------------------------------------------------------------------------------
OVERVIEW
Advertising and circulation revenues accounted for approximately 69% and 23%, respectively, of the Company's revenues in 1996. Other revenues primarily include newspaper wholesaler distribution operations and database royalties.
The Company and the entire publishing industry were adversely affected by the significant increases in newsprint and magazine paper prices throughout 1995 and into the first quarter of 1996. Paper prices began to decline during the second quarter of 1996 and were lower at 1996 year-end than at 1995 year-end. Although newsprint prices are expected to drift upward in 1997, they are not expected to be as volatile as in the last two years.
Per share amounts in the following Management's Discussion and Analysis are computed on an after-tax basis.
RESULTS OF OPERATIONS: 1996 COMPARED WITH 1995
In 1996, the Company reported net income of $84.5 million, or $.87 per share, compared with $135.9 million, or $1.40 per share, in 1995.
Exclusive of the special factors described below, net income for 1996 increased 36% to $185.9 million, or $1.91 per share, from net income for 1995 of $136.7 million, or $1.41 per share. The higher 1996 net income was principally due to improved operations in the Newspaper and Broadcast Groups and higher earnings from the Company's investments in paper mills.
Consolidated revenues for 1996 were $2.62 billion, an increase of 8.5% over revenues of $2.41 billion in 1995. On a comparable basis, adjusted for acquisitions/dispositions, annual revenues increased by approximately 8% in 1996 over 1995. The increase in revenues on a comparable basis was primarily due to higher advertising and circulation rates at the Newspaper Group.
Operating profit before special factors rose to $344.2 million in 1996 from $242.8 million in 1995. The improvement in operating profit from the Newspaper and Broadcast Groups was partially offset by incremental corporate expenses associated with the Company's reengineering initiatives and higher net development losses in new ventures.
Production costs and expenses for 1996 increased 3.3% to $1.35 billion from $1.30 billion in 1995. The increase was due to higher salaries and benefits, and increased depreciation expense associated with new equipment offset, in part, by lower newsprint and magazine paper expenses.
Selling, general and administrative expenses for 1996 increased 10.9% to $967.1 million from $871.9 million in 1995. The increase was primarily due to higher severance charges, salaries and benefits, and increased amortization expense associated with new acquisitions.
Included in 1996 operating costs and expenses is a $126.8 million charge for an impairment loss (see Note 3 of notes to consolidated financial statements).
Earnings for 1996 were affected by the following special factors:
- $44.1 million pre-tax charge ($.25 per share) for severance and related costs resulting from work force reductions ("buyouts").
- $126.8 million pre-tax charge ($.97 per share) resulting from a non-cash charge relating to Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("SFAS 121 charge").
- $25.1 million pre-tax gain ($.14 per share) resulting from the realization of a gain contingency from the disposition of a paper mill in a prior year ("Gain realization").
- $7.8 million pre-tax gain ($.04 per share) from the sale of the Company's 110 Fifth Avenue building ("Sale of a building").
Earnings for 1995 were affected by the following special factors:
- $10.1 million pre-tax charge ($.06 per share) for buyouts.
- $11.3 million pre-tax gain ($.05 per share) resulting from the sale of six small regional newspapers ("Sale of small newspapers").
The Company's earnings for the year before interest, income taxes, depreciation and amortization ("EBITDA"), excluding the SFAS 121 charge and gains on dispositions, rose to $466.1 million in 1996 from $383.7 million in 1995.
Interest expense, net of interest income, increased to $26.4 million from $25.2 million in 1995. The increase was a result of higher debt levels incurred for acquisitions, partially offset by higher levels of capitalized interest associated with new construction.
Net gains on dispositions were $32.8 million in 1996 and $11.3 million in 1995. The 1996 results include the Gain realization and the Sale of a building (see special factors described above). The 1995 results include the Sale of small newspapers (see special factors described above).
The Company's annual effective tax rate was 44.7% in 1996, exclusive of taxes associated with the gains and the SFAS 121 charge, as compared to 41.2% in 1995. The variation in the rate was primarily due to a favorable state tax ruling in 1995.
The following discussion provides additional information with respect to the Company's traditional operations and new ventures:
NEWSPAPER GROUP: 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/microfilm and New Ventures. New Ventures include projects developed in electronic media by The Times and The Globe.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 - ------------------------------------------------------------------------------- REVENUES
Newspapers $ 2,326,784 $ 2,160,065 New Ventures 8,562 957 - ------------------------------------------------------------------------------- Total Revenues $ 2,335,346 $ 2,161,022 - ------------------------------------------------------------------------------- EBITDA
Newspapers $ 454,944 $ 354,154 New Ventures (11,011) (8,636) - ------------------------------------------------------------------------------- Total EBITDA $ 443,933 $ 345,518 - ------------------------------------------------------------------------------- OPERATING PROFIT (LOSS)
Newspapers $ 195,176 $ 221,685 New Ventures (15,565) (9,051) - ------------------------------------------------------------------------------- Total Operating Profit $ 179,611 $ 212,634 - -------------------------------------------------------------------------------
The Newspaper Group's operating profit for 1996, excluding buyouts and the SFAS 121 charge associated with the Group, rose to $337.2 million from $221.1 million in 1995, on revenues of $2.3 billion and $2.2 billion, respectively. The 8% increase in revenues for the year was primarily due to higher advertising and circulation revenues as a result of higher rates. Due to the higher rates, certain properties experienced softness in advertising and circulation volume. Other revenue increased 26% for the year as the Newspaper Group acquired and expanded its wholesale newspaper delivery operations. Operating profit for the year improved despite a 6.3% increase in the Group's average cost of newsprint, exclusive of a LIFO credit, over 1995.
Average circulation of daily newspapers on a comparable basis for the year was as follows:
- ----------------------------------------------------------------------------- Weekday Sunday - ----------------------------------------------------------------------------- (Copies in thousands) 1996 % Change 1996 % Change - ----------------------------------------------------------------------------- AVERAGE CIRCULATION
The New York Times 1,102.9 -1.6 1,680.5 -1.9 The Boston Globe 472.2 -5.1 762.7 -3.4 Regional Newspapers 730.1 -3.1 789.7 -1.8 - -----------------------------------------------------------------------------
Advertising volume on a comparable basis for the year was as follows: - ------------------------------------------------------------------------------- (Inches in thousands) 1996 % Change - ------------------------------------------------------------------------------- ADVERTISING VOLUME (excluding preprints)
The New York Times 3,768.4 -1.1 The Boston Globe 2,951.2 +0.7 Regional Newspapers 15,560.6 +0.2 - -------------------------------------------------------------------------------
Advertising volume at The Times decreased 1.1% over 1995. Zoned, retail and classified categories showed decreases of 5.1%, 6.4%, and 0.2%, respectively, while national experienced an increase of 4.8%.
At The Globe, advertising volume for the year increased 0.7% over 1995. Classified and zoned categories showed increases of 6.9% and 0.1%, respectively, offset by decreases in retail and national categories of 5.5% and 3.7%, respectively. Preprint distribution in 1996 was down 4.8% over 1995.
Advertising volume at the Regional Newspapers increased 0.2% over 1995. Legal and classified categories showed increases of 11.9% and 4.0%, respectively, offset by decreases in retail and national categories of 3.5% and 1.2%, respectively. Preprint distribution in 1996 was up 1.5% over 1995.
MAGAZINE GROUP: The Magazine Group is comprised of a number of sports-related publications and related activities in the sports/leisure fields, and New Ventures such as computerized systems for golf tee-time reservations and on-line magazine services.
The revenues for the Group include a $40.0 million non-compete agreement associated with the divestiture of the Women's Magazine Division, which is being recognized straight-line over four years ending in July 1998.
- ---------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 - ---------------------------------------------------------------------------- REVENUES
Sports/Leisure Magazines $ 150,039 $ 152,819 Non-Compete 10,000 10,000 New Ventures 1,038 122 - ---------------------------------------------------------------------------- Total Revenues $ 161,077 $ 162,941 - ---------------------------------------------------------------------------- EBITDA
Sports/Leisure Magazines $ 25,555 $ 22,876 New Ventures (7,026) (1,135) - ---------------------------------------------------------------------------- Total EBITDA $ 18,529 $ 21,741 - ---------------------------------------------------------------------------- OPERATING PROFIT (LOSS)
Sports/Leisure Magazines $ 22,537 $ 19,971 Non-Compete 10,000 10,000 New Ventures (7,759) (1,230) - ---------------------------------------------------------------------------- Total Operating Profit $ 24,778 $ 28,741 - ----------------------------------------------------------------------------
The Magazine Group's operating profit for 1996, excluding the SFAS 121 charge associated with the Group, was $25.8 million in 1996 compared with $28.7 million in 1995, on revenues of $161.1 million and $162.9 million, respectively. The decreases for the year were primarily related to the higher net development losses from its new ventures. (See Recent Developments on page.)
Advertising pages, as reported to Publisher's Information Bureau, for Golf Digest decreased 4.0% to 1,252 pages and for Tennis increased 3.6% to 743 pages.
BROADCAST GROUP: The Broadcast Group is comprised of eight network-affiliated television stations and two radio stations.
- ------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 - -------------------------------------------------------------------------
Revenues $ 118,603 $ 85,106 - ------------------------------------------------------------------------- EBITDA $ 44,757 $ 27,470 - ------------------------------------------------------------------------- Operating Profit $ 30,596 $ 18,943 - -------------------------------------------------------------------------
The Broadcast Group's operating profit, excluding buyouts associated with the Group, was $30.9 million in 1996, compared with $18.9 million in 1995, on revenues of $118.6 million and $85.1 million, respectively.
The revenue and operating profit increases were principally attributable to the performance of WTKR-TV, Norfolk, Virginia, which was acquired in June 1995, and two NBC affiliates acquired in July 1996, KFOR-TV, Oklahoma City, Oklahoma, and WHO-TV, Des Moines, Iowa ("New Television Stations"). These three stations contributed $11.3 million of operating profit in 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - ------------------------------------------------------------------------------
JOINT VENTURES: Income from Joint Ventures increased to $18.2 million in 1996 from $15.0 million in 1995. The increase was primarily the result of higher average selling prices for paper at the mills in which the Company has investments, offset by losses incurred from a new venture. The new venture ceased operations in December 1996.
RESULTS OF OPERATIONS: 1995 COMPARED WITH 1994
In 1995, the Company reported net income of $135.9 million, or $1.40 per share, compared with net income of $213.3 million, or $2.05 per share, in 1994.
Exclusive of the special factors described below, annual earnings from ongoing operations would have been $1.41 per share in 1995, compared with $1.06 per share in 1994, an increase of 33%. The improvement in ongoing operations in 1995 earnings was primarily due to higher revenues from the Company's newspaper and broadcast properties and higher earnings from the Company's investments in paper mills.
Consolidated revenues for 1995 increased to $2.41 billion from $2.36 billion in 1994. Excluding the revenues attributable to the operations divested during 1995 and 1994, annual revenues on a comparable basis were up 8% over 1994. The growth in revenues for the year was driven by strong revenues at the newspaper and broadcast properties.
Production costs and expenses for 1995 increased 3.3% to $1.30 billion from $1.26 billion in 1994. The increase was primarily due to higher newsprint and magazine paper expenses, and higher salaries and benefits expenses.
Selling, general and administrative expenses for 1995 decreased 1.3% to $871.9 million from $883.2 million in 1994. The decrease was due to the absence of costs and expenses associated with the 1995 and 1994 divestitures offset, in part, by higher salaries and benefits costs and buyouts.
Earnings for 1995 were affected by the following special factors:
- $10.1 million pre-tax charge ($.06 per share) for buyouts.
- $11.3 million pre-tax gain ($.05 per share) on the Sale of small newspapers.
Earnings for 1994 were affected by the following special factor:
- $200.9 million net pre-tax gain ($.99 per share) relating to the divestitures of the Women's Magazines Division, U.K. golf publications ("Divested magazines") and a minority interest in Gaspesia Pulp & Paper Company Ltd. ("Gaspesia"), a Canadian newsprint mill.
The Company's earnings for the year before interest, income taxes, depreciation and amortization ("EBITDA"), excluding the net gains from the 1995 and 1994 divestitures, rose to $383.7 million from $362.9 million in the comparable 1994 period.
Interest expense, net of interest income, declined to $25.2 million from $28.2 million in 1994. The 1995 decline was due to higher levels of capitalized interest in connection with new construction and a lower rate of interest on the Company's outstanding debt, offset by higher debt balances.
Net gains on dispositions were $11.3 million in 1995 and $200.9 million in 1994. The 1995 results include the Sale of small newspapers and the 1994 results include the net gains associated with the Divested magazines and Gaspesia.
Exclusive of taxes related to the 1995 and the 1994 divestitures, the annual effective income tax rate for 1995 was 41.2%, as compared with 41.4% in 1994. The 1995 tax rate includes the effects of a 1995 favorable state tax ruling. The 1994 rate includes the utilization of capital loss carryforwards.
The following discussion provides additional information with respect to the Company's traditional operations and new ventures:
NEWSPAPER GROUP:
- ------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ------------------------------------------------------------------------------- REVENUES
Newspapers $ 2,160,065 $ 2,005,047 New Ventures 957 - - ------------------------------------------------------------------------------- Total Revenues $ 2,161,022 $ 2,005,047 - ------------------------------------------------------------------------------- EBITDA
Newspapers $ 354,154 $ 342,177 New Ventures (8,636) - - ------------------------------------------------------------------------------- Total EBITDA $ 345,518 $ 342,177 - ------------------------------------------------------------------------------- OPERATING PROFIT (LOSS)
Newspapers $ 221,685 $ 206,790 New Ventures (9,051) - - ------------------------------------------------------------------------------- Total Operating Profit $ 212,634 $ 206,790 - -------------------------------------------------------------------------------
Excluding buyouts associated with the Group, operating profit in 1995 was $221.1 million compared with $206.8 million in 1994. Revenues increased to $2.16 billion in 1995 from $2.01 billion in the prior year. Operating profit improved despite a significant increase in newsprint prices over 1994. Increased advertising and circulation rates and cost controls enabled the Group to overcome a $76.2 million increase for the year in newsprint costs (net of conservation programs).
Revenues increased approximately 8% for the year. The increase was attributable to higher advertising rates and volume, higher circulation revenues and database royalties. The Times experienced a 15% increase in circulation revenues while The Globe recorded an 11% increase for the year. At the 21 Regional Newspapers, circulation revenue grew 7% for the year.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
Average circulation of daily newspapers on a comparable basis for the year was as follows:
- -------------------------------------------------------------------------- Weekday Sunday - -------------------------------------------------------------------------- (Copies in thousands) 1995 % Change 1995 % Change - -------------------------------------------------------------------------- AVERAGE CIRCULATION
The New York Times 1,120.7 -1.9 1,712.6 -1.8 The Boston Globe 497.7 -1.3 789.3 -1.9 Regional Newspapers 753.7 -2.3 803.9 -1.6 - --------------------------------------------------------------------------
The average circulation decline is partly attributable to the increase in newsstand and home delivery prices and a decrease in distribution to selected outlying areas. Advertising volume on a comparable basis for the year was as follows:
- ------------------------------------------------------------------------------ (Inches in thousands) 1995 % Change - ------------------------------------------------------------------------------ ADVERTISING VOLUME (excluding preprints)
The New York Times 3,831.2 +2.6 The Boston Globe 2,946.9 +2.2 Regional Newspapers 15,525.1 +1.1 - ------------------------------------------------------------------------------
Advertising volume at The Times increased 2.6% over 1994. Zoned and national advertising categories increased 14.6% and 1.3%, respectively, while retail and classified advertising experienced decreases of 3.8% and 2.8%, respectively.
At The Globe, advertising volume for the year increased 2.2% over 1994. Advertising increased in all categories except retail, which declined 2.1%. Advertising volume for the 21 Regional Newspapers increased 1.1% over 1994. Classified advertising increased 8.0%, while the retail category decreased 2.1%.
MAGAZINE GROUP:
- ------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ------------------------------------------------------------------------- REVENUES
Sports/Leisure Magazines $ 152,819 $ 144,777 New Ventures 122 - Non-Compete 10,000 4,167 1994 Divested Magazines - 131,473 - ------------------------------------------------------------------------- Total Revenues $ 162,941 $ 280,417 - ------------------------------------------------------------------------- EBITDA
Sports/Leisure Magazines $ 22,876 $ 21,967 New Ventures (1,135) - 1994 Divested Magazines - 1,019 - ------------------------------------------------------------------------- Total EBITDA $ 21,741 $ 22,986 - ------------------------------------------------------------------------- OPERATING PROFIT (LOSS) Sports/Leisure Magazines $ 19,971 $ 19,439 New Ventures (1,230) - Non-Compete 10,000 4,167 1994 Divested Magazines - (4,046) - ------------------------------------------------------------------------- Total Operating Profit $ 28,741 $ 19,560 - -------------------------------------------------------------------------
The revenues for the Group include a $40.0 million non-compete agreement, associated with the divestiture of the Women's Magazine Division, which is being recognized straight-line over four years beginning August 1994.
Operating profit for the Group was $28.7 million in 1995, compared with $19.6 million in 1994, on revenues of $162.9 million and $280.4 million, respectively. The decrease in revenues for the year was primarily due to the revenues attributable to the Women's Magazines Division and the U.K. golf publications, which were sold in the third quarter of 1994.
Excluding the operations of the 1994 Divested magazines and the non-compete income, revenues for 1995 increased approximately 6% due to higher advertising revenues at Golf Digest and Golf World USA offset, in part, by sluggish advertising at Tennis magazine. Operating profit for the Group increased slightly due to improved revenues offset by higher paper prices and subscription costs.
Advertising pages, as reported to Publisher's Information Bureau, for Golf Digest decreased 1.3% to 1,304 pages and for Tennis decreased 12.9% to 717 pages.
BROADCAST GROUP: The Broadcast Group consisted of six network-affiliated television stations and two radio stations.
- ---------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------- Revenues $85,106 $71,318 - ---------------------------------------------------------------------------- EBITDA $27,470 $20,540 - ---------------------------------------------------------------------------- Operating Profit $18,943 $13,626 - ----------------------------------------------------------------------------
The Broadcast Group's operating profit increased 39% over 1994. The Group's operating profit was $18.9 million in 1995, compared with $13.6 million in 1994, on revenues of $85.1 million and $71.3 million, respectively. Increased results for the year were due to higher local advertising revenues, higher network compensation and the added operations of WTKR-TV, Norfolk, Va., which was acquired in June 1995.
JOINT VENTURES: Income from Joint Ventures was $15.0 million in 1995 compared with $5.1 million in 1994. The 1995 improvement resulted principally from higher selling prices for paper at the mills in which the Company has investments.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $426.0 million in 1996. Such cash, in addition to borrowed funds, was primarily used for acquisitions, the construction of production and distribution facilities, stock repurchases and the payment of dividends to stockholders. The Company believes that cash generated from its operations and the availability of funds from external sources, as discussed below, should be adequate to cover working capital needs, planned capital expenditures, dividend payments to stockholders and other cash requirements. The ratio of current assets to current liabilities was .73 at December 29, 1996, and .91 at December 31, 1995. The decrease in the ratio of current assets to current liabilities is primarily related to an increase in current liabilities which resulted, in part, from the accrual of buyouts at the end of 1996 (see Other on page), commercial paper-borrowings and a decrease in inventories. However, such increases in current liabilities and the decrease in inventories aided the improvement in net cash provided by operations. In 1997, the Company does not anticipate the same level of net cash provided by operations as that resulting from working capital improvements in 1996. Long-term debt and capital lease obligations as a percentage of total capitalization was 28% at both December 29, 1996 and December 31, 1995.
FINANCING: In July 1996, the Company entered into a $200.0 million revolving credit agreement and a $100.0 million revolving credit agreement with a group of banks ("New Agreements"). The New Agreements replaced existing revolving credit agreements aggregating $170.0 million. The New Agreements expire in July 1997 and July 2001, respectively, at which time any outstanding borrowings would be payable. The facilities covered by the New Agreements will be used for acquisitions and general corporate purposes. Interest is payable on a quarterly basis for both agreements. The New Agreements include provisions which require, among other matters, specified levels of stockholders' equity. At December 29, 1996, approximately $900.0 million of stockholders' equity was unrestricted under the New Agreements.
In July 1996, the Company increased its ability to issue commercial paper from $200.0 to $300.0 million, which is supported by the Company's New Agreements. In July 1996, the Company utilized approximately $143.0 million of its commercial paper facility to finance the acquisition of the New Television Stations. At December 29, 1996, the Company had approximately $45.5 million in outstanding commercial paper with original maturities ranging up to 82 days, at a weighted average interest rate of approximately 5.5%.
In 1996, a former jointly-owned affiliate, Spruce Falls Power and Paper Company Limited, repaid a $26.5 million loan receivable. The loan repayment period was not scheduled to commence until December 1997.
ACQUISITIONS: In July 1996, the Company acquired the New Television Stations. The aggregate cost of the acquisition was approximately $234.1 million, of which approximately $233.6 million was paid in cash ($143.0 million was financed using the Company's commercial paper facility) and the balance representing assumed liabilities.
In 1996, the Company acquired newspaper distribution businesses that distribute The Times, other newspapers and periodicals throughout the New York City metropolitan area. The aggregate cost of these acquisitions was approximately $31.7 million, of which approximately $14.1 million was paid in cash, $9.8 million in notes and accounts receivable which were forgiven, and the balance representing assumed liabilities.
CAPITAL EXPENDITURES: The Company is constructing a new production and distribution facility at College Point in New York City, for the production of The Times and a new printing facility in Lakeland, Florida, for a regional newspaper. The Company estimates that the cost of the new facilities will be approximately $383.0 million, exclusive of estimated capitalized interest of $37.0 million. At December 29, 1996, approximately $307.0 million had been incurred, exclusive of capitalized interest for these projects. Construction at College Point began in August 1994 and completion is expected by the middle of 1997. Construction in Lakeland began in June 1995 and completion is expected by the end of 1997.
The Company currently estimates that, inclusive of the College Point and Lakeland facilities, capital expenditures for 1997 will range from $170.0 million to $190.0 million, exclusive of capitalized interest.
STOCK REPURCHASE PROGRAM: At January 1, 1996, approximately $18.0 million remained under a $50.0 million authorization pursuant to a stock repurchase plan announced in February 1995. In May 1996, the Board of Directors authorized additional expenditures of up to $32.0 million. During 1996, the Company spent approximately $43.8 million under these authorizations. In February 1997, the Board of Directors authorized expenditures of an additional $150.0 million. Under the authorizations, purchases may be made from time to time either in the open market or through private transactions. Purchases may be suspended from time to time or discontinued. To date, approximately $152.7 million remain from the authorizations.
IMPAIRMENT LOSS: The $126.8 million SFAS 121 charge recorded in the third quarter of 1996 had no impact on the Company's 1996 cash flow or its ability to generate cash flow in the future. As a result of the SFAS 121 charge, depreciation and amortization expense related to certain assets will decrease in future periods. In conjunction with the review for impairment, the estimated useful lives of certain of the Company's long-lived assets were reviewed. This review resulted in the acceleration of amortization expense for certain intangible assets. In the aggregate, the net effect of the changes on depreciation and amortization expense is not expected to have a material affect on net income in the future.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------
RECENT DEVELOPMENTS: In March 1997, the Company announced its intention to sell the NYT Custom Publishing division and the following sports/leisure magazines: Tennis, Tennis Buyer's Guide, Cruising World, Sailing World, Snow Country and Snow Country Business. The sale of these businesses will not have a material impact on the future results of operations or the financial position of the Company.
NEW ACCOUNTING PRONOUNCEMENTS: In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share ("SFAS 128"), effective for financial statements issued for periods ending after December 15, 1997. SFAS 128 will eliminate the required disclosure of primary earnings per share which includes the dilutive effect of stock options, warrants and other convertible securities ("common stock equivalents") and instead require reporting of "basic" earnings per share, which will exclude common stock equivalents. Additionally, SFAS 128 changes the methodology for fully diluted earnings per share. Under the pronouncement, the Company anticipates that future reported earnings per share will be higher than under current rules, assuming stock prices remain at current or higher levels. Earnings per share presented in these financial statements would not be affected under the new pronouncement.
OTHER: At December 29, 1996 and December 31, 1995, approximately $49.1 million and $17.5 million of cash payments have not yet been made from prior charges for buyouts. The cash payments associated with these charges are expected to occur over the next three years as a result of the timing of certain union pension and welfare fund contributions. The Company expects to fund the amounts through internally-generated funds.
FACTORS THAT COULD AFFECT OPERATING RESULTS
This Annual Report on Form 10-K contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ("SEC") filings and otherwise. The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to the following factors, among other risks and factors identified from time to time in the Company's filings with the SEC:
ADVERTISING REVENUES: Advertising revenue is the Company's most significant source of revenue. Competition from other forms of media available in the Company's respective markets, including direct marketing, affects the Company's ability to attract and retain advertisers and to increase advertising rates.
In addition, advertising and thus the Company's quarterly consolidated results are seasonal in nature. Traditionally, second-quarter and fourth-quarter advertising volume is higher than in the first and third quarters. National and local economic conditions, most particularly in the New York City and Boston metropolitan regions, influence the Company's retail, national and, most particularly, classified advertising revenue.
CIRCULATION REVENUES: Circulation revenue is a significant source of revenue for the Company. Circulation revenue and the Company's ability to achieve price increases for its products are affected by competition from other publications and other forms of media available in the Company's respective markets. Circulation could also be negatively affected by an economic downturn in the Company's markets, including, but not limited to, the New York City or Boston metropolitan regions, decreased consumer spending on discretionary items like newspapers and magazines and the decreasing number of newspaper readers among young people.
PAPER PRICES: Newsprint and magazine paper are the Company's most important raw materials and represent a significant component of the Company's cost of goods sold. To the extent that such raw material prices increase materially, the Company's operating results could be adversely affected.
LABOR RELATIONS: Advances in technology and other factors have allowed the Company to realize cost savings by reducing the size of its overall workforce. There is no assurance that the Company will continue to be able to realize cost savings in such manner. A significant portion of the Company's employees are unionized, and the Company's results could be adversely affected if labor negotiations were to restrict its ability to maximize the efficiency of its operations. In addition, if the Company experienced labor unrest, its ability to produce and deliver its products could be impaired.
NEW PRODUCTS IN NEW MARKETS: There are substantial uncertainties associated with the Company's efforts to develop new products and services for evolving markets. The success of these ventures will be determined not only by the Company's efforts, but in some cases by those of its partners, fellow investors and licensees. Initial timetables for the introduction and development of new products or services may not be achieved, and price/profitability targets may not prove feasible. External factors, such as the development of competitive alternatives and market response, may cause new markets to move in unanticipated directions.
Because of the potential threat to the Company's traditional sources of revenue (particularly classified advertising and circulation) posed by on-line competition, the Company may seek to develop its own on-line products, which may incur losses. The Company may also consider the acquisition of specific properties or business which fall outside its preferred parameters if such properties are deemed sufficiently attractive to the Company. Acquisitions involve risks, including difficulties in integrating acquired operations, diversions of management resources, debt incurred in financing such acquisitions and unanticipated problems and liabilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED)
PRODUCT PORTFOLIO: From time to time, the Company evaluates the various components of its portfolio of products and may, as a result, buy or sell different properties. Such acquisitions or divestitures may affect the Company's costs, revenues and profitability.
TELEVISION BROADCASTING: The Company's television stations are subject to continuing technological and regulatory developments that may affect their future profitability. The advent of digital broadcasting is one such development. The Federal Communications Commission is expected to issue rules in 1997 under which all television stations will change to a new system of digital broadcasting. The direct hardware costs of this change will be substantial, and the new digital transmission systems to be used by television stations, cable systems and direct broadcast satellites will greatly increase the number of electronic video services with which the Company's stations compete.
The foregoing list of factors should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the date hereof.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements and supplemental disclosures to consolidated statements of cash flows.
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.
During 1996, federal tax authorities issued a favorable ruling on matters affecting The Boston Globe which had originated prior to its acquisition in 1993. As a result, accrued federal taxes were reduced by $25,000,000. In accordance with SFAS 109, this tax benefit was excluded from income and was applied as a reduction of goodwill.
For 1994, the increase in income taxes paid (and corresponding decrease in net cash provided by operating activities) is in large part due to an increase in estimated income tax payments of approximately $113,500,000 related to the net gain on dispositions in 1994. Under Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," all income tax payments are included in determining net cash flow from operating activities, but the net cash proceeds received from the dispositions are reported as an investing cash inflow.
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The New York Times Company (the "Company") is engaged in diversified activities in the communications field. The Company's principal businesses are newspapers, magazines and broadcast. The Company also has equity interests in a Canadian newsprint mill and a supercalendered paper mill. The Company's major source of revenue is advertising from its newspaper business. The newspapers operate in the Northeast, Southeast and California markets.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company after elimination of intercompany items.
FISCAL YEAR. The Company changed its fiscal year-end to the last Sunday in December, beginning with the fiscal year ended December 29, 1996.
INVENTORIES. Inventories are stated at the lower of cost or current market value. Inventory cost generally is based on the last-in, first-out ("LIFO") method for newsprint and magazine paper and the first-in, first-out ("FIFO") method for other inventories.
INVESTMENTS. Investments in which the Company has at least a 20% but not more than 50% interest are accounted for under the equity method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at cost, and depreciation is computed by the straight-line method over estimated service lives. The Company capitalizes interest costs as part of the cost of constructing major facilities and equipment.
INTANGIBLE ASSETS ACQUIRED. Costs in excess of net assets acquired consist of excess costs of businesses acquired over values assigned to their net tangible assets and other intangible assets. The Company evaluates quarterly whether there has been a permanent impairment in any of its intangible assets, inclusive of goodwill. An impairment in value will be considered to have occurred when it is determined that the undiscounted future operating cash flows generated by the acquired businesses are not sufficient to recover the carrying values of such intangible assets. If it has been determined that an impairment in value has occurred, the excess of the purchase price over the net assets acquired and intangible assets would be written down to an amount which will be equivalent to the present value of the future operating cash flows to be generated by the acquired businesses. The excess costs which arose from acquisitions after October 31, 1970 are being amortized by the straight-line method principally over 40 years. The remaining portion of such excess, which arose from acquisitions before November 1, 1970 (approximately $13,000,000), is not being amortized since in the opinion of management there has been no diminution in value. Other intangible assets acquired consist principally of advertiser and subscriber relationships and mastheads which are being amortized over their remaining lives, ranging from 5 to 40 years. The general policy relating to intangible assets is a life of 5 years for various software licenses and a life of 40 years for mastheads on various acquired properties.
SUBSCRIPTION REVENUES AND COSTS. Proceeds from subscriptions and related costs, principally agency commissions, are deferred at the time of sale and are included in the Consolidated Statements of Income on a pro rata basis over the terms of the subscriptions.
FOREIGN CURRENCY TRANSLATION. The assets and liabilities of foreign companies are translated at the year-end exchange rates. Results of operations are translated at the average rates of exchange in effect during the year. The resultant translation adjustment is included as a component of stockholders' equity.
EARNINGS PER SHARE. Earnings per share is computed after preference dividends and is based on the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. The effect of shares issuable under the Company's Incentive Plans (see Note 12), including stock options, is not material and therefore is excluded from the computation.
CASH AND SHORT-TERM INVESTMENTS. For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents. The Company has overdraft positions at certain banks as a result of outstanding checks, which have been reclassified to accounts payable.
DERIVATIVES. The Company enters into foreign exchange contracts as a hedge against foreign accounts payable. Market value gains and losses are recognized, and the resulting credit or debit offsets foreign exchange gains on those payables. As of December 29, 1996, these contracts were immaterial.
USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS. In 1996, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("SFAS 121") (see Note 3) and the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123") (see Note 12).
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share ("SFAS 128"), effective for financial statements issued for periods ending after December 15, 1997. SFAS 128 will eliminate the required disclosure of primary earnings per share which includes the dilutive effect of stock options, warrants and other convertible securities ("common stock equivalents") and instead require reporting of "basic" earnings per share, which will exclude common stock equivalents. Additionally, SFAS 128 changes the methodology for fully diluted earnings per share. Under the pronouncement, the Company anticipates that future reported earnings per share will be higher than under current rules, assuming stock prices remain at current or higher levels. Earnings per share presented in these financial statements would not be affected under the new pronouncement.
- ------------------------------------------------------------------------------- 2. ACQUISITIONS/DISPOSITIONS
ACQUISITIONS: In July 1996, the Company acquired KFOR-TV in Oklahoma City, Oklahoma, and WHO-TV in Des Moines, Iowa ("New Television Stations"). The aggregate cost of the acquisition was approximately $234,075,000, of which approximately $233,626,000 was paid in cash and the balance representing assumed liabilities. The purchases resulted in increases in intangible assets of approximately $192,644,000 (consisting primarily of network affiliation agreements, Federal Communications Commission ("FCC") licenses and other intangible assets), property, plant and equipment of $33,532,000, other assets of $9,687,000, and assumed liabilities of $1,788,000.
In 1996, the Company acquired newspaper distribution businesses that distribute The Times, other newspapers and periodicals throughout the New York City metropolitan area. The aggregate cost of these acquisitions was approximately $31,673,000, of which approximately $14,130,000 was paid in cash, $9,833,000 in notes and accounts receivable which were forgiven, and the balance representing assumed liabilities. The purchase resulted in increases in intangible assets of approximately $28,644,000 (consisting primarily of a customer list), and accounts receivable and equipment of $3,029,000.
In June 1995, the Company acquired WTKR-TV in Norfolk, Virginia. The aggregate net cost of the acquisition was $71,299,000 which was paid in cash. The purchase resulted in increases in other intangible assets of approximately $61,343,000 (which consist of a network affiliation agreement, FCC licenses and other intangible assets), property, plant and equipment of $11,189,000, and other assets of $445,000. Net liabilities assumed as a result of the transaction totaled approximately $1,678,000.
These acquisitions have been accounted for by the purchase method. The preliminary purchase cost allocations for the above-mentioned acquisitions are subject to adjustment when additional information concerning asset and liability valuations is obtained. The final asset and liability fair values may differ from those set forth in the accompanying consolidated balance sheet at December 29, 1996, however, the changes are not expected to have a material effect on the consolidated financial position of the Company. The consolidated financial statements include the operating results of these acquisitions subsequent to their respective dates of acquisition. The foregoing acquisitions, if they had occurred on January 1 of the year prior to acquisition, would not have had a material impact on the results of operations.
DISPOSITIONS: In connection with the divestiture of a newsprint mill in 1991, the Company made a loan commitment of up to $26,500,000 to the new owners of the mill. At December 31, 1995, the commitment was fully funded. In 1996, the Company received the funds to satisfy this loan. As a result of the repayment, the Company realized a $25,085,000 pre-tax gain ($13,292,000 after taxes, or $.14 per share) resulting from the realization of a gain contingency from the divestiture of the mill.
In June 1996, the Company sold the 110 Fifth Avenue building in New York City which the Women's Magazine Division formerly occupied. The sale resulted in a $7,751,000 pre-tax gain ($4,240,000 after taxes, or $.04 per share).
In the third quarter of 1995, the Company completed the sales of six small regional newspapers: The Daily Commercial (Leesburg, FL); The Daily Corinthian (Corinth, MS), The Messenger (Madisonville, KY), The Lenoir News-Topic (Lenoir, NC), The State Gazette (Dyersburg, TN) and The Banner-Independent (Booneville, MS). The sales resulted in a net pre-tax gain of approximately $11,300,000 ($5,000,000 after taxes, or $.05 per share). In May 1995, the Company sold The York County Coast Star (Kennebunk, ME). The sale did not have a material effect on the Company's consolidated financial statements. These dispositions will not have a material impact on the future operations of the Company.
In December 1994, the Company divested its minority interest in Gaspesia Pulp & Paper Company Ltd. ("Gaspesia"), a Canadian newsprint mill. The Company's 49% interest was transferred to Abitibi-Price, Inc., the majority owner. In connection with the transfer, a pre-tax charge of approximately $3,100,000 ($.02 per share) was recorded. In 1993, the Company wrote down its investment in Gaspesia by $47,000,000 ($.56 per share) to reflect its net realizable value.
In July and August 1994, the Company completed the sales of its Women's Magazines Division and U.K. golf publications, respectively. These transactions resulted in a pre-tax gain of approximately $204,000,000 ($1.01 per share). In connection with the sale of the Women's Magazines Division, the Company entered into a four-year non-compete agreement, for which it received $40,000,000. This amount is being recognized as operating income, on a straight-line basis, over a four-year period commencing with the closing of the sale on July 26, 1994.
The divestitures of the Women's Magazines Division, U.K. golf publications and the minority interest in Gaspesia resulted in a net pre-tax gain of $200,900,000 ($103,300,000 after taxes, or $.99 per share).
Pro forma operating results for the year ended December 31, 1994, had the magazines sales occurred as of January 1, 1994 were as follows: revenues of $2,231,942,000; net income of $115,518,000; and net income per share of $1.11.
The above pro forma results are not necessarily indicative of the operating results that would have occurred had the sales taken place as of the beginning of the period provided, nor necessarily indicative of results that may be achieved in the future. The gain on the sales is not included in the above pro forma operating results.
In February 1994, the Company completed the sale of BPI Communications, L.P., a partnership in which the Company acquired a one-third interest through the 1993 acquisition of The Boston Globe. The Company received approximately $55,000,000 in 1994 from the sale. For financial reporting purposes, no gain or loss was recognized on the sale.
- ------------------------------------------------------------------------------- 3. IMPAIRMENT LOSS
In September 1996, the Company recorded a non-cash accounting charge related to an impairment of certain long-lived assets as required by SFAS 121 which was principally, in concept, the accounting policy used by the Company in prior years. As a result of the Company's strategic review process, updated analyses were prepared to determine if there was impairment of any long-lived asset and certain assets, primarily in the Newspaper Group, met the test for impairment. These assets were associated with three small regional newspapers, certain wholesale distribution operations and a printing facility. The revised carrying values of these assets were generally calculated on the basis of discounted estimated future cash flow and resulted in a pre-tax non-cash charge of $126,763,000 ($94,500,000 after-tax, or $.97 per share).
The SFAS 121 charge had no impact on the Company's 1996 cash flow or its ability to generate cash flow in the future. As a result of the SFAS 121 charge, depreciation and amortization expense related to these assets will decrease in future periods. However, in conjunction with the review for impairment, the estimated lives of certain of the Company's long-lived assets were reviewed, which resulted in the acceleration of amortization expense for certain intangible assets. In the aggregate, the net effect of the change on depreciation and amortization expense is not expected to have a material affect on net income in the future.
- ------------------------------------------------------------------------------- 4. INVESTMENT IN JOINT VENTURES
Investment in Joint Ventures consists of equity ownership interests in two paper mills ("Forest Products Investments"), the International Herald Tribune S.A.S. ("IHT"), and the operations of a new venture. The new venture ceased operations in December 1996. The results of IHT and the new venture are not material to the operations of the Company.
The Forest Products Investments consist of a newsprint company, Donohue Malbaie Inc. ("Malbaie"), and a partnership operating a supercalendered paper mill in Maine, Madison Paper Industries ("Madison") (collectively referred to herein as "Paper mills"). The equity interest in Malbaie represents a 49% ownership interest.
The Company and Myllykoski Oy, a Finnish paper manufacturing company, are partners through subsidiary companies in Madison. The partners' interests in the net assets of Madison at any time will depend on their capital accounts, as defined, at such time. Through an 80%-owned subsidiary, the Company's share of Madison's profits and losses is 40%.
The Company received distributions from Madison of $6,200,000 and $3,650,000, in 1996 and 1995, respectively. No distributions were received in 1994. Loans to Madison by the 80%-owned subsidiary of the Company totaled $1,769,000, $1,882,000 and $1,523,000, in 1996, 1995 and 1994, respectively. No contributions were made to Madison in 1996, 1995 or 1994.
The Company received distributions from Malbaie of $10,757,000, $4,330,000 and $8,224,000 in 1996, 1995 and 1994, respectively. No loans or contributions were made to Malbaie in 1996, 1995 or 1994.
In December 1994, the Company divested its minority interest in Gaspesia, which was written down to its net realizable value in 1993 (see Note 2).
Condensed combined balance sheets of the Paper mills are as follows:
- -------------------------------------------------------------------------- CONDENSED COMBINED BALANCE SHEETS OF PAPER MILLS - -------------------------------------------------------------------------- Dollars in thousands December 29, December 31, 1996 1995 - -------------------------------------------------------------------------- Current assets $ 73,781 $ 94,934 Less current liabilities 36,477 88,129 - -------------------------------------------------------------------------- Working capital 37,304 6,805 Fixed assets, net 226,938 234,240 Long-term debt (245) (771) Deferred income taxes and other (109,074) (106,667) - -------------------------------------------------------------------------- Net assets $ 154,923 $ 133,607 - --------------------------------------------------------------------------
The current portion of debt of the Paper mills of $10,500,000 is included in current liabilities in the above tables. At December 29, 1996, long-term debt of the Paper mills matures as follows: 1998, $137,000; and 1999, $108,000. The debt of the Paper mills is not guaranteed by the Company.
Condensed combined income statements of the Paper mills are as follows:
- ------------------------------------------------------------------------------- CONDENSED COMBINED INCOME STATEMENTS OF PAPER MILLS - ------------------------------------------------------------- Dollars in thousands 1996 1995 1994 - ------------------------------------------------------------- Net sales and other income $268,654 $268,377 $189,805 Costs and expenses 203,120 216,342 180,860 - ------------------------------------------------------------- Income before taxes 65,534 52,035 8,945 Income tax expense 9,635 7,969 1,136 - ------------------------------------------------------------- Net income $ 55,899 $ 44,066 $ 7,809 - -------------------------------------------------------------
The condensed combined financial information of the Paper mills excludes the income tax effects attributable to Madison. Such tax effects (see Note 8) have been included in the Company's consolidated financial statements.
Adjustments from translating certain balance sheet accounts, for each of the three years in the period ended December 29, 1996, are set forth in the Consolidated Statements of Stockholders' Equity. The cumulative translation adjustment (included in earnings reinvested in the business) decreased stockholders' equity by $320,000 and $195,000 at December 29, 1996 and December 31, 1995, respectively. Upon the disposition of Gaspesia in 1994, stockholders' equity was increased by $3,000,000, net of tax, to reflect the cumulative translation adjustment related to Gaspesia.
During 1996, 1995 and 1994, the Company's Newspaper Group purchased newsprint and supercalendered paper from the Paper mills (including Gaspesia through the disposal date) at competitive prices. Such purchases aggregated approximately $80,000,000, $59,000,000, and $107,000,000, respectively.
- ------------------------------------------------------------------------------- 5. INVENTORIES
Inventories as shown in the accompanying Consolidated Balance Sheets are composed of the following:
- ----------------------------------------------------------------------- Dollars in thousands December 29, December 31, 1996 1995 - ----------------------------------------------------------------------- Newsprint and magazine paper $28,778 $36,965 Work-in-process, etc. 5,030 5,879 - ----------------------------------------------------------------------- Total $33,808 $42,844 - -----------------------------------------------------------------------
Inventories are stated at the lower of cost or current market value. Cost is determined utilizing the LIFO method for 78% and 70% of inventory in 1996 and 1995, respectively. The replacement cost of inventory was approximately $36,700,000 and $54,600,000 at December 29, 1996 and December 31, 1995, respectively.
- ------------------------------------------------------------------------------- 6. LEASE COMMITMENTS
OPERATING LEASES: Such lease commitments are primarily for office space and equipment. Certain office space leases provide for adjustments relating to changes in real estate taxes and other operating expenses.
Rental expense amounted to $29,664,000 in 1996, $27,699,000 in 1995 and $26,559,000 in 1994. The approximate minimum rental commitments under noncancelable leases (exclusive of minimum sublease rentals of $292,000) at December 29, 1996 were as follows: 1997, $15,312,000; 1998, $12,555,000; 1999, $10,097,000; 2000, $6,840,000; 2001, $5,683,000 and $15,250,000 thereafter.
CAPITAL LEASES: In 1994, the Company recorded a $5,000,000 capital lease for 31 acres of City-owned land in College Point, New York City, on which the Company is building a printing and distribution facility. The lease will continue for 25 years after the start of construction with an option to ultimately purchase the property. Under the terms of the lease agreement with the City of New York, the Company would receive various tax and energy cost reductions.
The Company also has a long-term lease for a building and site in Edison, New Jersey. The lease provides the Company with certain early cancellation rights, as well as renewal and purchase options. For financial reporting purposes, the lease has been classified as a capital lease; accordingly, an asset of approximately $57,000,000 (included in buildings, building equipment and improvements at December 29, 1996 and December 31, 1995) has been recorded.
The following is a schedule of future minimum lease payments under all capitalized leases together with the present value of the net minimum lease payments as of December 29, 1996:
- -------------------------------------------------------- Dollars in thousands Amount - -------------------------------------------------------- 1997 $ 7,965 1998 7,765 1999 7,538 2000 7,457 2001 7,014 Later years 49,884 - -------------------------------------------------------- Total minimum lease payments 87,623 Less: amount representing interest 37,325 - -------------------------------------------------------- Present value of net minimum lease payments including current maturities of $3,359 $50,298 - --------------------------------------------------------
- ------------------------------------------------------------------------------- 7. DEBT
Long-Term Debt consists of the following:
(a) In October 1993, the Company issued senior notes totaling $200,000,000 to an insurance company with interest payable semi-annually. Five-year notes totaling $100,000,000 were issued at an annual rate of 5.50%, and the remaining $100,000,000 were issued as six and one-half year notes at an annual rate of 5.77%.
(b) In March 1995, the Company completed a public offering of $400,000,000 of unsecured notes and debentures. The offering consisted of ten-year notes aggregating $250,000,000 maturing March 15, 2005 at an annual rate of 7.625% (the "Notes") and 30-year debentures aggregating $150,000,000 maturing March 15, 2025 at an annual rate of 8.25% (the "Debentures") (collectively referred to herein as the "Offering"). The Debentures are callable after ten years. Interest is payable semi-annually on March 15 and September 15 on both the Notes and Debentures.
The net proceeds from the Offering were used to repay the principal balance of $162,300,000 of 11.85% Notes due March 31, 1995, $50,000,000 of 9.34% Notes due July 15, 1995 and indebtedness outstanding under the Company's commercial paper program. The remaining net proceeds were used for general corporate purposes.
Based on borrowing rates currently available for debt with similar terms and average maturities, the fair value of long-term debt, excluding the current portion, was approximately $626,600,000 and $647,900,000 at December 29, 1996 and December 31, 1995, respectively.
- -------------------------------------------------------------------------------
In July 1996, the Company entered into a $200,000,000 revolving credit agreement and a $100,000,000 revolving credit agreement with a group of banks ("New Agreements"). The New Agreements replaced existing revolving credit agreements aggregating $170,000,000. The New Agreements expire in July 1997 and July 2001, respectively, at which time any outstanding borrowings would be payable. The $200,000,000 agreement provides for an annual facility fee of 0.0675% based on the Company's current credit rating. The $100,000,000 agreement provides for an annual facility fee of 0.0475%.
No borrowings under any of the above agreements were outstanding during 1996 and 1995.
In July 1996, the Company increased its ability to issue commercial paper from $200,000,000 to $300,000,000, which is supported by the Company's New Agreements. Borrowings are in the form of unsecured notes sold at a discount with maturities ranging up to 270 days. At December 29, 1996, the Company had approximately $45,500,000 in outstanding commercial paper with original maturities ranging up to 82 days, at a weighted average interest rate of approximately 5.5%.
The New Agreements permit borrowings which bear interest, at the Company's option, (i) for domestic borrowings: based on the certificates of deposit rate, the Federal Funds rate, a prime rate or a quoted rate; or (ii) for Eurodollar borrowings: based on the LIBOR rate, plus various margins based on the Company's credit rating. The New Agreements include provisions which require, among other matters, specified levels of stockholders' equity. At December 29, 1996, approximately $900,000,000 of stockholders' equity was unrestricted under the New Agreements.
The aggregate face amount of maturities of long-term debt over the next five years are as follows: 1997, none; 1998, $100,000,000; 1999, none; 2000, $100,000,000; 2001, none and $400,000,000 thereafter.
Interest expense, net of capitalized interest and interest income, as shown in the accompanying Consolidated Statements of Income consists of the following:
- --------------------------------------------------------------------- Dollars in thousands 1996 1995 1994 - --------------------------------------------------------------------- Interest expense $50,333 $48,751 $39,823 Capitalized interest (19,574) (15,177) (4,943) Interest income (4,329) (8,344) (6,718) - --------------------------------------------------------------------- Net $26,430 $25,230 $28,162 - ---------------------------------------------------------------------
- ------------------------------------------------------------------------------- 8. INCOME TAXES
Income tax expense for each of the years presented is determined in accordance with SFAS No. 109, Accounting for Income Taxes ("SFAS 109").
The components of income tax expense as shown in the Consolidated Statements of Income is presented on the adjacent table:
- ----------------------------------------------------------------------- Dollars in thousands 1996 1995 1994 - ----------------------------------------------------------------------- Current tax expense Federal $ 90,886 $ 105,999 $ 159,779 State, local, foreign 28,494 1,970 49,651 - ----------------------------------------------------------------------- 119,380 107,969 209,430 - ----------------------------------------------------------------------- Deferred tax expense Federal 6,076 (22,483) (20,955) State, local, foreign (12,081) 12,493 (13,088) - ----------------------------------------------------------------------- (6,005) (9,990) (34,043) - ----------------------------------------------------------------------- Income tax expense $ 113,375 $ 97,979 $ 175,387 - -----------------------------------------------------------------------
Tax expense in 1996 was reduced by $5,571,000 ($8,517,000 before federal tax effect) due to a reduction in the valuation allowance attributable to state net operating loss tax benefits. Other state and local operating loss tax benefits further reduced 1996 tax expense by $2,507,000.
Tax expense in 1995 was reduced by $10,986,000 as a result of a favorable state tax ruling and adjustments to federal, state and local tax liabilities. A further reduction of $4,339,000 ($6,676,000 before federal tax effect) in 1995 tax expense relates to a reduction in the valuation allowance attributable to state and local capital and net operating loss tax benefits. The remaining decrease in the valuation allowance is due principally to the expiration of net operating loss tax benefits and does not affect income tax expense.
Tax expense in 1994 was reduced by approximately $10,000,000 relating to a decrease in the valuation allowance and $3,000,000 from the recognition of federal capital loss tax benefits. The decrease in the valuation allowance is associated with federal capital loss tax benefits. An increase in the valuation allowance associated with state and local capital loss carryforward tax benefits added approximately $688,000 (net of federal tax benefit) to 1994 tax expense.
During 1996, federal tax authorities issued a favorable ruling on matters affecting The Boston Globe which had originated prior to its acquisition in 1993. As a result, accrued federal taxes were reduced by $25,000,000. In accordance with SFAS 109, this tax benefit was excluded from income and was applied as a reduction of goodwill. Income tax benefits, which related to the exercise of options and the employee stock purchase plan, reduced current taxes payable and increased additional capital by $3,645,000, $837,000, and $2,434,000 during 1996, 1995 and 1994, respectively.
Foreign taxes included in income tax expense totaled $882,000, $774,000 and $5,096,000 in fiscal 1996, 1995 and 1994, respectively. Foreign taxes are principally applicable to the Company's equity in the operations of a Canadian newsprint mill. In 1994, $4,759,000 of foreign taxes were attributable to the disposition of the Company's U.K. golf publications.
Current income taxes payable are included in accrued expenses while refundable amounts are included in other current assets.
- ----------------------------------------------------------------------------- Dollars in thousands December 29, December 31, 1996 1995 - ----------------------------------------------------------------------------- Deferred Tax Assets Intangible assets acquired $ 17,541 $ 5,941 Accrued state and local taxes 12,852 17,033 Postretirement and postemployment benefits 90,160 86,822 Other accrued employee benefits and compensation 109,761 93,777 Accounts receivable allowances 20,116 14,443 Deferred income 7,940 25,996 Other 12,273 20,231 - ----------------------------------------------------------------------------- Total deferred tax assets 270,643 264,243 Valuation allowance (4,671) (10,724) - ----------------------------------------------------------------------------- Net deferred tax assets $265,972 $253,519 - -----------------------------------------------------------------------------
At December 29, 1996, tax loss carryforwards include only state and local tax loss benefits. The benefits are attributable to tax operating losses. Such loss carryforwards expire in accordance with provisions of applicable tax laws and have remaining lives ranging from 1 to 15 years. The remaining operating loss carryforwards will result in a reduction of state and local income taxes of approximately $5,006,000 and will expire in years through 2008.
In 1989, the FCC granted the Company a tax certificate in connection with the sale of its cable television system. This certificate enables the Company to defer income taxes on the gain to future years by reducing the tax bases of various assets which would otherwise be available as tax deductions.
The components of the net deferred tax liabilities recognized on the respective Consolidated Balance Sheets are as follows:
- ----------------------------------------------------------------------------- Dollars in thousands December 29, December 31, 1996 1995 - ----------------------------------------------------------------------------- Deferred Tax Liabilities Property, plant and equipment $130,954 $ 94,714 Tax certificate 93,495 113,238 Nontaxable acquisition 115,514 123,880 Safe harbor tax lease 17,843 18,975 Investments in Joint Ventures 44,094 51,608 Other 17,298 10,335 - ----------------------------------------------------------------------------- Total deferred tax liabilities 419,198 412,750 - ----------------------------------------------------------------------------- Net deferred tax assets (265,972) (253,519) - ----------------------------------------------------------------------------- Net deferred tax liability 153,226 159,231 - ----------------------------------------------------------------------------- Less amounts included in: Other current assets (36,164) (23,533) Accrued expenses 830 780 - ----------------------------------------------------------------------------- Deferred income taxes $188,560 $181,984 - -----------------------------------------------------------------------------
Federal income tax returns for all years through 1989 have been examined by the Internal Revenue Service and the respective tax years have been closed by statute. Examinations of the tax returns for the years 1990 through 1993 are in process. Management is of the opinion that any assessments resulting from these examinations will not have a material effect on the consolidated financial statements.
- -------------------------------------------------------------------------------- 9. VOLUNTARY STAFF REDUCTIONS
The Company recorded pre-tax charges of approximately $44,100,000, or $.25 per share, and $10,100,000, or $.06 per share in 1996 and 1995, respectively, for work force reductions primarily at The New York Times, The Boston Globe and corporate headquarters. In 1993, the Company recorded pre-tax charges of $35,400,000, or $.23 per share, for severance and related costs for work force reductions at The Times.
At December 29, 1996 and December 31, 1995, approximately $49,052,000 and $17,472,000, respectively, are included in accrued expenses in the accompanying Consolidated Balance Sheets, which represents the unpaid balance of the pre-tax charges. The remaining cash payments associated with these charges are expected to be paid over the next three years due to the timing of certain union pension and welfare fund contributions.
- ------------------------------------------------------------------------------- 10. PENSION PLANS
The Company sponsors several pension plans and makes contributions to several others in connection with collective bargaining agreements, including a joint Company-union plan and a number of joint industry-union plans. These plans cover substantially all employees.
The Company-sponsored pension plans provide participating employees with retirement benefits in accordance with benefit provision formulas which are based on years of service and final average or career pay and, where applicable, employee contributions. Funding is based on an evaluation and review of the assets, liabilities and requirements of each plan. In 1996, the Company merged the assets of two of the plans. Retirement benefits are also provided under supplemental unfunded pension plans.
Net periodic pension cost for all Company-sponsored plans was $32,958,000 in 1996, $25,688,000 in 1995, and $32,730,000 in 1994. The components of net periodic pension cost are:
- ------------------------------------------------------------------------------ Dollars in thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost $ 20,984 $ 16,413 $ 19,194 Interest cost 45,353 41,859 38,933 Actual (return) loss on plan assets (59,062) (74,904) 2,942 Curtailment loss - - 1,887 Net amortization and deferral 25,683 42,320 (30,226) - ------------------------------------------------------------------------------ Net periodic pension cost $ 32,958 $ 25,688 $ 32,730 - ------------------------------------------------------------------------------
As a result of the sale of the Women's Magazines Division, the Company recognized a curtailment loss in 1994 (see Note 2). Accordingly, net periodic pension cost relating to certain plans was remeasured at July 1994, using an increased discount rate of 8.0%.
Assumptions used in the actuarial computations were:
- ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Discount rate 7.75% 7.25% 8.25% Rate of increase in compensation levels 5.50% 5.50% 5.50% Expected long-term rate of return on assets 8.75% 8.75% 8.75% - -------------------------------------------------------------------------------
In connection with collective bargaining agreements, the Company contributes to several other pension plans including a joint Company-union plan and a number of joint industry-union plans. Contributions are determined as a function of hours worked or period earnings. Pension cost for these plans was $21,111,000 in 1996, $20,679,000 in 1995, and $19,535,000 in 1994.
Plan assets which were valued as of September 30, 1996 and 1995, consist of money market investments, investments in marketable fixed income and equity securities, an investment in a diversified real estate equity fund and investments in group annuity insurance contracts.
The funded status of the Company's plans which were valued at September 30, 1996 and 1995 is as follows:
- ---------------------------------------------------------------------------- Dollars in thousands Plans Whose Plans Whose Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets - ---------------------------------------------------------------------------- December 29, 1996 - ---------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation $367,438 $ 64,312 - ---------------------------------------------------------------------------- Accumulated benefit obligation 375,492 67,789 - ---------------------------------------------------------------------------- Projected benefit obligation 454,995 71,167 Plan assets at fair value 439,184 66,459 - ---------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 15,811 4,708 Unrecognized net gains 27,493 8,962 Unrecognized prior service cost 2,529 - Unrecognized transition asset 419 - Fourth-quarter contribution, net - (431) - ---------------------------------------------------------------------------- Recorded pension liability $ 46,252 $ 13,239 - ---------------------------------------------------------------------------- December 31, 1995 - ---------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation $234,139 $198,233 - ---------------------------------------------------------------------------- Accumulated benefit obligation 239,507 205,260 - ---------------------------------------------------------------------------- Projected benefit obligation 297,317 237,302 Plan assets at fair value 269,633 178,539 - ---------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 27,684 58,763 Unrecognized net (losses) (28,150) (2,725) Unrecognized prior service cost 6,131 (3,445) Unrecognized transition (obligation) asset (1,645) 2,063 Fourth-quarter contribution, net (1,365) (8,297) - ---------------------------------------------------------------------------- Recorded pension liability $ 2,655 $ 46,359 - ----------------------------------------------------------------------------
The Company's liability for its unfunded non-qualified plans ("the Plans") was $71,204,000 and $64,549,000 as of December 29, 1996 and December 31, 1995, respectively. At December 29, 1996, the projected benefit obligation of the Plans totaled $100,665,000 of which $30,257,000 ($21,645,000 of unrecognized actuarial losses, $5,910,000 of unrecognized prior service cost and $2,702,000 of unrecognized transition obligation) is subject to amortization. At December 31, 1995, the projected benefit obligation of the Plans totaled $93,048,000 of which $30,883,000 ($21,046,000 of unrecognized actuarial losses, $6,500,000 of unrecognized prior service cost and $3,337,000 of unrecognized transition obligation) is subject to amortization. These amounts are not included in the funded status of the plans shown above.
An additional minimum liability of $796,000 in 1996 and $2,384,000 in 1995 relating to the unfunded status of these Plans is included in other liabilities in the Consolidated Balance Sheets. Miscellaneous assets in both years includes a related intangible asset of an equal amount.
- ------------------------------------------------------------------------------- 11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS
The Company provides health and life insurance benefits to retired employees (and their eligible dependents) who are not covered by any collective bargaining agreements if the employee meets specified age and service requirements.
In accordance with SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, the Company accrues the costs of such benefits during the employee's active years of service.
Net periodic postretirement cost was $9,565,000 in 1996, $7,842,000 in 1995, and $12,419,000 in 1994, respectively. The decrease in 1995 cost was a result of a plan amendment which was adopted to reduce benefits for participants retiring after January 1, 1995. The effect of this plan amendment on the accumulated postretirement benefit obligation was a reduction of $16,736,000. This amount is being amortized over a period of approximately nine years beginning in 1995. The components of this cost are as follows:
- ------------------------------------------------------------------------------ Dollars in thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost for benefits earned during the period $3,682 $2,820 $ 4,629 Interest cost on accumulated postretirement obligation 8,250 8,142 9,376 Net amortization and deferral (2,367) (3,120) (102) Curtailment gain (See Note 2) - - (1,484) - ------------------------------------------------------------------------------ Net periodic postretirement cost $9,565 $7,842 $12,419 - ------------------------------------------------------------------------------
The Company's policy is to fund the above-mentioned plans as claims and premiums are paid.
For 1996, the accumulated postretirement benefit obligation was determined using a discount rate of 7.75%, an estimated increase in compensation levels of 5.5% and a health care cost trend rate of between 10.0% and 8.5% in the first year, grading down to 5.0% in the year 2008.
For 1995, the accumulated postretirement benefit obligation was determined using a discount rate of 7.25%, an estimated increase in compensation levels of 5.5% and a health care cost trend rate of between 11.0% and 9.25% in the first year, grading down to 5.0% in the year 2008.
For 1994, the accumulated postretirement benefit obligation was determined using a discount rate of 8.25%, an estimated increase in compensation levels of 5.5% and a health care cost trend rate of between 12.0% and 10.0% in the first year, grading down to 5.0% in the year 2008.
The following table sets forth the amounts included in Accrued Expenses and Other Liabilities in the Consolidated Balance Sheets at December 29, 1996 and December 31, 1995, based on valuation dates of September 30 in each year:
- ------------------------------------------------------------------------- Dollars in thousands December 29, December 31, 1996 1995 - ------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees $ 51,164 $ 55,954 Fully eligible active plan participants 19,510 19,870 Other active plan participants 43,451 44,965 - ------------------------------------------------------------------------- Total 114,125 120,789 Unrecognized net gains 32,212 16,536 Unrecognized prior service cost 11,929 13,597 Fourth-quarter benefit payments (822) (544) - ------------------------------------------------------------------------- Total accrued postretirement benefit liability 157,444 150,378 Current portion included in accrued expenses 4,400 4,400 - ------------------------------------------------------------------------- Long-term accrued postretirement benefit liability $153,044 $145,978 - -------------------------------------------------------------------------
Increasing the assumed health care cost trend rates by one percentage point in each year and holding all other assumptions constant would increase the accumulated postretirement benefit obligation as of December 29, 1996 by $16,465,000, and increase the net periodic postretirement benefit cost for 1996 by $2,090,000.
In connection with collective bargaining agreements, the Company contributes to several welfare plans including a joint Company-union plan and a number of joint industry-union plans. Contributions are determined as a function of hours worked or period earnings. Portions of these contributions, which cannot be disaggregated, related to postretirement benefits for plan participants. Total contributions to these welfare funds were approximately $24,745,000, $26,034,000 and $25,460,000 in 1996, 1995 and 1994, respectively.
In accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits, the Company accrues the cost of certain benefits provided to former or inactive employees, after employment but before retirement, such as workers' compensation, disability benefits and health care continuation coverage during the employees' active years of service.
- ------------------------------------------------------------------------------- 12. EXECUTIVE AND NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
Under the Company's 1991 Executive Stock Incentive Plan and 1991 Executive Cash Bonus Plan (together the "1991 Executive Plans"), the Board of Directors may authorize incentive compensation awards and grant stock options to key employees of the Company. Awards may be granted in cash, restricted and unrestricted shares of the Company's Class A Common Stock, Retirement Units or such other forms as the Board of Directors deems appropriate. Under the 1991 Executive Plans, stock options of up to 20,000,000 shares of Class A Common Stock may be granted and stock awards of up to 1,000,000 shares of Class A Common Stock may be made. In adopting the 1991 Executive Plans, shares previously available for issuance of retirement units and stock options under prior plans are no longer available for future awards.
Retirement Units are payable in Class A Common Stock generally over a period of ten years following retirement.
Stock options currently outstanding were granted under the Company's 1984 Stock Option Plan and the 1991 Executive Plans.
The Plans provide for granting of both incentive and non-qualified stock options principally at an option price per share of 100% of the fair market value of the Class A Common Stock on the date of grant. These options have a term of ten years, and become exercisable in annual periods ranging from one year to four years from the date of grant. Payment upon exercise of an option may be made in cash, with previously-acquired shares, with shares (valued at fair market value) which would be otherwise issued on the exercise of the option or any combination thereof.
Under the Company's Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), non-qualified options with ten-year terms are granted annually to each non-employee director of the Company. Each annual grant allows the director to purchase from the Company up to 1,000 shares of Class A Common Stock at the fair market value of such shares at the date of grant. Options for an aggregate of 250,000 shares of Class A Common Stock may be granted under the Directors' Plan.
Changes in the Company's stock options for each of the three years in the period ended December 29, 1996 were as follows:
- --------------------------------------------------------------------------------
The Company applies Accounting Principles Board Opinion No. 25, Accounting For Stock Issued to Employees, and related interpretations to accounting for its stock option and employee stock purchase plans (see Note 13), (collectively referred to herein as "Employee Stock Based Plans"). Accordingly, no compensation cost has been recognized for the aforementioned plans. Had compensation cost for the Employee Stock Based Plans been determined over the vesting period on the fair value at the grant date for awards under those plans, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below. The fair value of each option grant and employee stock purchase plan ("ESPP") rights are estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996: (a) Stock options: dividend yield, 1.88%; expected volatility, 25.91%; risk-free rate, 5.53%; expected life, 5 years; (b) ESPP rights: dividend yield, 2.0%; expected volatility, 21.22%; risk-free rate, 5.47%; expected life, 1 year. The fair value on the date of grant of stock options and ESPP rights offered in 1996 was $8.12 and $5.81, respectively. The pro forma effect for 1996 on the amounts presented below is not representative of the pro forma effect in future years because it does not take into account pro forma compensation expense related to grants made prior to 1995. The pro forma effect on net income for 1995 is not material because substantially all grants were made in December 1995. The pro forma effect and the related disclosure below is in accordance with the disclosure provisions of SFAS 123.
- ----------------------------------------------------------------------------- Dollars in thousands 1996 ------------------------------------ except per share data As reported Pro forma - ----------------------------------------------------------------------------- Net income $84,534 $76,889 Earnings per share $ .87 $ .79 - -----------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 13. CAPITAL STOCK
The 5 1/2% cumulative prior preference stock, which is redeemable at the option of the Company on 30-days notice at par plus accrued dividends, is entitled to an annual dividend of $5.50 payable quarterly.
The serial preferred stock is subordinate to the 5 1/2% cumulative prior preference stock. The Board of Directors is authorized to set the distinguishing characteristics of each series prior to issuance, including the granting of limited or full voting rights; however, the consideration received must be at least $100 per share. No shares of serial preferred stock have been issued.
The Class A and Class B Common Stock are entitled to equal participation in the event of liquidation and in dividend declarations. The Class B Common Stock is convertible at the holders' option on a share-for-share basis into Class A shares. As provided for in the Certificate of Incorporation, the Class A Common Stock has limited voting rights, including the right to elect thirty percent of the directors of the Board, and the Class A and Class B Common Stock have the right to vote together on reservations of Company stock for stock options and other stock-related plans, on the ratification of the selection of independent certified public accountants and, in certain circumstances, on acquisitions of the stock or assets of other companies. Otherwise, except as provided by the laws of the State of New York, all voting power is vested solely and exclusively in the holders of the Class B Common Stock.
At the April 1996 annual meeting of the Company's Class A and B Common Shareholders, an amendment to the 1991 Executive Stock Incentive Plan was approved to reserve an additional 10,000,000 shares of Class A Common Stock for issuance thereunder pursuant to the exercise of stock options.
In 1995, the Company spent approximately $46,500,000 to repurchase approximately 2,055,000 shares of Class A Common Stock, at an average price of $22.65, under the October 1994 authorization of $100,000,000 and the February 1995 authorization of $50,000,000. In 1996, the Company spent approximately $43,800,000 to repurchase approximately 1,395,000 shares of Class A Common Stock, at an average price of $31.43, under the February 1995 authorization and the May 1996 authorization of $32,000,000. After December 29, 1996, the Company spent approximately $3,500,000 to repurchase approximately 91,000 shares of Class A Common Stock at an average price of $38.13. In February 1997, the Board of Directors authorized expenditures of an additional $150.0 million. Under the authorizations, purchases may be made from time to time either in the open market or through private transactions. Purchases may be suspended from time to time or discontinued. To date, the remaining amount of these authorizations is approximately $152,700,000. Had the 1996 and 1995 stock repurchases occurred as of January 1 in the respective years, the impact on earnings per share would have been immaterial.
In addition to the Company's stock repurchase program, in 1994 the Company began to sell equity put options in a series of private placements that entitle the holder, upon exercise, to sell shares of Class A Common Stock to the Company at a specified price. In 1996 and 1995, put options for 40,000 and 300,000 shares were issued for $51,000 and $285,000 in premiums, respectively, which have been accounted for as a part of additional capital. All put options issued have expired. Premiums received in 1995 reduced the average price of shares repurchased during 1995 to $22.51 per share from $22.65 per share.
Under the 1997 Offering of the ESPP, eligible employees may purchase Class A Common Stock through payroll deductions during 1997 at the lower of $30.60 per share (85% of the average market price on November 1, 1996) or 85% of the average market price on November 26, 1997. Approximately 35 to 40 percent of eligible employees have participated in the ESPP in the last three years. Under the ESPP, the Company issued approximately 967,000 shares, 1,100,000 shares and 1,191,000 shares in 1996, 1995 and 1994, respectively.
Shares of Class A Common Stock reserved for issuance were as follows:
- --------------------------------------------------------------------------- December 29, 1996 December 31, 1995 - --------------------------------------------------------------------------- Stock Options Outstanding 10,368,627 10,007,225 Available 9,793,667 1,888,961 Employee Stock Purchase Plan Available 3,735,123 4,702,248 Stock Awards Available 963,880 965,686 Voluntary Conversion of Class B Common Stock Available 568,259 568,919 Retirement Units Outstanding 174,844 197,000 - --------------------------------------------------------------------------- Total 25,604,400 18,330,039 - ---------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 14. SEGMENTS
The Company's segment and related information is included on pages and of this Appendix. The information for the years 1996, 1995 and 1994 appearing therein is presented on a basis consistent with, and is an integral part of, the consolidated financial statements. Revenues from individual customers, revenues between business segments and revenues, operating profit and identifiable assets of foreign operations are not significant.
- ------------------------------------------------------------------------------- 15. COMMITMENTS AND CONTINGENT LIABILITIES
New printing and distribution facilities are under construction at College Point in New York City, and Lakeland, Florida. The cost of the new facilities is currently estimated to be $383,000,000, excluding capitalized interest of $37,000,000. At December 29, 1996, the Company had incurred capital expenditures of approximately $307,000,000, excluding capitalized interest.
There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company. Such actions are usually 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 such actions with legal counsel to the Company that the ultimate liability which might result from such actions would not have a material adverse effect on the consolidated financial statements.
- ------------------------------------------------------------------------------- 16. RECLASSIFICATIONS
For comparability, certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation.
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS OF THE NEW YORK TIMES COMPANY:
We have audited the accompanying consolidated balance sheets of The New York Times Company as of December 29, 1996 and December 31, 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 29, 1996. Our audits also include the financial statement schedule listed in the Index at Item 14a. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The New York Times Company as of December 29, 1996 and December 31, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
- - Deloitte & Touche LLP -
New York, New York February 3, 1997
MANAGEMENT'S RESPONSIBILITIES REPORT
The Company's consolidated financial statements were prepared by management who is responsible for their integrity and objectivity. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on management's best estimates and judgments.
Management is further responsible for maintaining a system of internal accounting control, designed to provide reasonable assurance that the Company's assets are adequately safeguarded and that the accounting records reflect transactions executed in accordance with management's authorization. The system of internal control is continually reviewed for its effectiveness and is augmented by written policies and procedures, the careful selection and training of qualified personnel and a program of internal audit.
The consolidated financial statements were audited by Deloitte & Touche LLP, independent auditors. Their audit was conducted in accordance with generally accepted auditing standards and their report is shown on this page.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with the independent auditors, internal auditors and management to discuss specific accounting, financial reporting and internal control matters. Both the independent auditors and the internal auditors have full and free access to the Audit Committee. Each year the Audit Committee selects, subject to ratification by stockholders, the firm which is to perform audit and other related work for the Company.
- ------------------------------------------------------------------------------- MARKET INFORMATION - -------------------------------------------------------------------------------
The Class A Common Stock is listed on the American Stock Exchange. The Class B Common Stock and the 5 1/2% cumulative prior preference stock are unlisted and are not actively traded. Dividends on the preference stock were paid at the quarterly rate of $1.375 per share during each of the last two years. The approximate number of security holders of record as of February 28, 1997 was as follows: Class A Common Stock: 12,949; Class B Common Stock: 40; 5 1/2% cumulative prior preference stock: 56. The market price range of Class A Common Stock in 1996 and 1995 is as follows:
- ------------------------------------------------------------------------------ Quarter Ended 1996 1995 - ------------------------------------------------------------------------------ High Low High Low March 31 $30.50 $25.75 March 31 $23.50 $20.12 June 30 33.87 28.37 June 30 24.50 21.62 September 29 33.87 27.50 September 30 29.25 22.62 December 29 39.87 33.25 December 31 30.87 27.12 Year 39.87 25.75 Year 30.87 20.12 - ------------------------------------------------------------------------------
QUARTERLY INFORMATION (UNAUDITED)
The 1996 quarters do not equal the respective year-end amounts for earnings per share due to the weighted average number of shares outstanding used in the computations for the respective periods. Per share amounts for the respective quarters and years have been computed using the average number of common shares outstanding as presented in the table above.
The Company's largest source of revenues is advertising, which influences the pattern of the Company's quarterly consolidated revenues and is seasonal in nature. Traditionally, second-quarter and fourth-quarter advertising volume is higher than that which occurs in the first and third quarters. Advertising volume tends to be less in these quarters primarily because economic activity is lower in the post holiday season and summer periods. 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.
The Company and the entire publishing industry was adversely affected by significant increases in newsprint and magazine paper prices throughout 1995 and into the first quarter of 1996.
First-quarter 1996 results included a $1.2 million pre-tax charge for severance and related costs for work force reductions ("buyouts").
Second-quarter 1996 results included a $4.4 million pre-tax charge ($.03 per share) for buyouts and a $7.8 million pre-tax gain ($.04 per share) on the sale of the 110 Fifth Avenue building.
Third-quarter 1996 results included a $126.8 million pre-tax non-cash accounting charge ($.97 per share) related to the measurement for impairment of long-lived assets as required by SFAS 121, a $25.1 million pre-tax gain ($.14 per share) resulting from the realization of a gain contingency from the disposition of a paper mill in a prior year and a $7.0 million pre-tax charge ($.04 per share) for buyouts.
Fourth-quarter 1996 results included a $31.5 million pre-tax charge ($.18 per share) for buyouts.
Third-quarter 1995 results included an $11.3 million pre-tax gain ($.05 per share) from the sales of small regional newspapers.
Fourth-quarter 1995 results included a $10.1 million pre-tax charge ($.06 per share) for buyouts.
TEN-YEAR SUPPLEMENTAL FINANCIAL DATA
1996 - Results included: a $126.8 million pre-tax non-cash accounting charge ($.97 per share) related to the measurement for impairment of long-lived assets; $44.1 million pre-tax charge ($.25 per share) for work force reductions; $25.1 million pre-tax gain ($.14 per share) resulting from the realization of a gain contingency from the disposition of a paper mill in a prior year; $7.8 million pre-tax gain ($.04 per share) on the sale of an office building.
1995 - Results included: a net pre-tax gain of $11.3 million ($.05 per share) from the sales of small regional newspapers; $10.1 million pre-tax charge ($.06 per share) for work force reductions.
1994 - Results included: a net pre-tax gain of $200.9 million ($.99 per share) from the sales of the Women's Magazines Division and U.K. golf publications and the disposition of Gaspesia.
1993 - Results included: a pre-tax $3.7 million charge ($.02 per share) for rate adjustments due to a severe snowstorm; $4.4 million ($.05 per share) of additional tax expense for remeasurement of deferred tax balances due to the enactment of the 1993 Tax Act; $1.2 million ($.02 per share) of additional tax expense due to the 1993 Tax Act which increased the federal corporate income tax rate; a $2.6 million pre-tax gain ($.02 per share) on the sale of assets; $35.4 million of pre-tax charges ($.23 per share) for staff reductions at The Times; pre-tax non-cash charge of $47.0 million ($.56 per share) against equity in operations to write down the Gaspesia investment to its net realizable value.
1992 - Results included: $53.8 million pre-tax loss ($.47 per share) on the closing of The Gwinnett (Ga.) Daily News; a $3.1 million pre-tax gain ($.02 per share) from the sales of assets; a $28.0 million pre-tax charge ($.20 per share) for voluntary union staff reductions at The Times; $21.4 million pre-tax charge ($.15 per share) for labor disruptions and training and start-up costs at Edison. Net cumulative effect of accounting changes reflects the 1992 adoption of the change in methods of accounting for income taxes, postretirement benefits other than pensions and postemployment benefits.
1991 - Results included: a $20.0 million pre-tax charge ($.15 per share) for voluntary union staff reductions at The Times; the reversal of a provision for income taxes of $10.0 million ($.13 per share) for a favorable tax settlement.
1989 - Results included: an after-tax gain of $193.3 million ($2.46 per share) from the sale of the Company's cable television operations, of which the gain and results of operations through the 1989 sale date are included as discontinued operations; a $30.0 million pre-tax charge ($.22 per share) for voluntary union staff reductions at The Times; a pre-tax charge of $27.2 million ($.35 per share) for a valuation reserve against the Company's investment in the Forest Products Investments.
SCHEDULE II
THE NEW YORK TIMES COMPANY VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 29, 1996
S-1
EXHIBIT INDEX
(2.1) Agreement and Plan of Merger dated as of June 11, 1993, as amended by the First Amendment dated as of August 12, 1993, by and among the Company, Sphere, Inc. and Affiliated Publications, Inc. ("API") (filed as Exhibit 2 to the Form S-4 Registration Statement, Registration No. 33-50043, on August 23, 1993, and included as Annex I to the Joint Proxy Statement/ Prospectus included in such Registration Statement (schedules omitted--the Company agrees to furnish a copy of any schedule to the Commission upon request), and incorporated by reference herein).
(3.1) Certificate of Incorporation as amended by the Class A and Class B stockholders and as restated on September 29, 1993 (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(3.2) By-laws as amended through March 20, 1997.
(4) The Company agrees to furnish to the Commission upon request a copy of any instrument with respect to long-term debt of the Company and any subsidiary for which consolidated or unconsolidated financial statements are required to be filed, and for which the amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
(9.1) Globe Voting Trust Agreement, dated as of October 1, 1993, as amended effective October 1, 1995 (filed as an Exhibit to the Company's Form 10-K dated March 11, 1996, and incorporated by reference herein).
(10.1) The Company's Executive Incentive Compensation Plan as amended through December 20, 1990 (filed as an Exhibit to the Company's Form 10-K dated March 1, 1991, and incorporated by reference herein).
(10.2) The Company's 1991 Executive Stock Incentive Plan, as amended through September 19, 1996 (filed as an Exhibit to the Company's 10-Q dated November 12, 1996, and incorporated by reference herein).
(10.3) The Company's 1991 Executive Cash Bonus Plan, as amended through September 19, 1996 (filed as an Exhibit to the Company's 10-Q dated November 12, 1996, and incorporated by reference herein).
(10.4) The Company's Non-Employee Directors' Stock Option Plan, as amended through September 19, 1996 (filed as an Exhibit to the Company's 10-Q dated November 12, 1996, and incorporated by reference herein).
(10.5) The Company's Supplemental Executive Retirement Plan, as amended and restated through January 1, 1993 (filed as an Exhibit to the Company's Form 10-K dated March 11, 1996, and incorporated by reference herein).
(10.6) Lease (short form) between the Company and Z Edison Limited Partnership dated April 8, 1987 (filed as an Exhibit to the Company's Form 10-K dated March 27, 1988, and incorporated by reference herein).
(10.7) Agreement of Lease, dated as of December 15, 1993, between The City of New York, Landlord, and the Company, Tenant (as successor to New York City Economic Development Corporation (the "EDC"), pursuant to an Assignment and Assumption of Lease With Consent, made as of December 15, 1993, between the EDC, as Assignor, to the Company, as Assignee) (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.8) Funding Agreement #1, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.9) Funding Agreement #2, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.10) Funding Agreement #3, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.11) Funding Agreement #4, dated as of December 15, 1993, between the EDC and the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.12) New York City Public Utility Service Power Service Agreement, made as of May 3, 1993, between The City of New York, acting by and through its Public Utility Service, and The New York Times Newspaper Division of the Company (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.13) Employment Agreement, dated May 19, 1993, between API, Globe Newspaper Company and William O. Taylor (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.14) API's 1989 Stock Option Plan (filed as Annex to API's Proxy Statement-Joint Prospectus, dated as of April 28, 1989, contained in API's Registration Statement on Form S-4 (Registration Statement No. 33-28373) declared effective April 28, 1989, and incorporated by reference herein).
(10.15) API's Supplemental Executive Retirement Plan, as amended effective September 15, 1993 (filed as an Exhibit to the Company's Form 10-K dated March 21, 1994, and incorporated by reference herein).
(10.16) API's 1990 Stock Option Plan (Restated 1991) (filed as Exhibit 1 to API's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1991 (Commission File No. 1-10251), and incorporated by reference herein).
(10.17) Form of Substituted Stock Option Agreement/Incentive 87 among API, its predecessor company and certain employees (filed as Exhibit 10.29 to Post-Effective Amendment No. 1 filed August 11, 1989, to API's Registration Statement on Form S-4 (Registration Statement No. 33-28373) declared effective April 28, 1989, and incorporated by reference herein).
(10.18) Form of Substituted Stock Option Agreement/Incentive 88 among API, its predecessor company and certain employees (filed as Exhibit 10.31 to Post-Effective Amendment No. 1 filed August 11, 1989, to API's Registration Statement on Form S-4 (Registration Statement No. 33-28373) declared effective April 28, 1989, and incorporated by reference herein).
(10.19) The Company's Deferred Executive Compensation Plan, as amended through November 8, 1996.
(11) Statements of Computation of Primary and Fully-Diluted Net Income Per Share.
(21) Subsidiaries of the Company.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.