THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued and Not Yet Adopted Accounting Pronouncements
|
|
|
|
|
Accounting Standard Update(s)
|
Topic
|
Effective Period
|
Summary
|
2018-15
|
Intangibles—Goodwill and Other—Internal-Use Software
|
Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.
|
The FASB issued authoritative guidance that clarifies the accounting for implementation costs in cloud computing arrangements. The standard provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. We do not believe the adoption of this guidance will have a material impact on our condensed consolidated financial statements.
|
2018-14
|
Compensation—Retirement Benefits—Defined Benefit Plans—General
|
Fiscal years ending after December 15, 2020. Early adoption is permitted.
|
The FASB issued authoritative guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We are currently in the process of evaluating the impact of this guidance on our disclosures.
|
2018-13
|
Fair Value Measurement (Topic 820) Disclosure Framework
|
Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.
|
The FASB issued authoritative guidance that modifies the disclosure requirements on fair value measurements. The amendments of disclosures related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently in the process of evaluating the impact of this guidance on our disclosures.
|
2016-13
2018-19
2019-04
|
Financial Instruments—Credit Losses
|
Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
|
The FASB issued authoritative guidance that amends guidance on reporting credit losses for assets, including trade receivables, available-for-sale marketable securities and any other financial assets not excluded from the scope that have the contractual right to receive cash. For trade receivables, ASU 2016-13 eliminates the probable initial recognition threshold in current generally accepted accounting standards, and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the gross trade receivables balance to present the net amount expected to be collected. For available-for-sale marketable securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. We are currently in the process of evaluating the impact of this guidance on our condensed consolidated financial statements.
|
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.
NOTE 3. REVENUE
We generate revenues principally from subscriptions and advertising. Subscription revenues consist of revenues from subscriptions to our print and digital products (which include our news product, as well as our Crossword and Cooking products) and single-copy and bulk sales of our print products. Subscription revenues are based on both the number of copies of the printed newspaper sold and digital-only subscriptions, and the rates charged to the respective customers.
Advertising revenues are derived from the sale of our advertising products and services on our print and digital platforms. These revenues are primarily determined by the volume, rate and mix of advertisements. Display advertising revenue is principally from advertisers promoting products, services or brands. Display advertising also includes branded content on The Times’s platforms. Other advertising primarily represents, for our print products, classified advertising revenue. Digital other advertising revenue primarily includes creative services fees; advertising revenue from our podcasts; and advertising revenue generated by Wirecutter, our product review and recommendation website.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other revenues primarily consist of revenues from licensing, commercial printing, the leasing of floors in the Company Headquarters, affiliate referrals (revenue generated by offering direct links to merchants in exchange for a portion of the sale price), television (primarily from our television series, “The Weekly”), NYT Live (our live events business) and retail commerce.
Subscription, advertising and other revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
(In thousands)
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
Subscription
|
|
$
|
267,302
|
|
|
$
|
257,796
|
|
|
$
|
808,568
|
|
|
$
|
779,018
|
|
Advertising
|
|
113,531
|
|
|
121,677
|
|
|
359,380
|
|
|
366,525
|
|
Other (1)
|
|
47,668
|
|
|
37,873
|
|
|
135,873
|
|
|
100,311
|
|
Total
|
|
$
|
428,501
|
|
|
$
|
417,346
|
|
|
$
|
1,303,821
|
|
|
$
|
1,245,854
|
|
(1) Other revenue includes building rental revenue, which is not under the scope of Revenue from Contracts with Customers (Topic 606). Building rental revenue was approximately $8 million and $7 million for the third quarters of 2019 and 2018, respectively, and approximately $23 million and $17 million for the first nine months of 2019 and 2018, respectively.
The following table summarizes digital-only subscription revenues, which are a component of subscription revenues above, for the third quarters and first nine months of 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
(In thousands)
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
Digital-only subscription revenues:
|
|
|
|
|
|
|
|
|
News product subscription revenues(1)
|
|
$
|
107,009
|
|
|
$
|
95,568
|
|
|
$
|
313,785
|
|
|
$
|
279,693
|
|
Other product subscription revenues(2)
|
|
8,855
|
|
|
5,639
|
|
|
24,573
|
|
|
15,669
|
|
Total digital-only subscription revenues
|
|
$
|
115,864
|
|
|
$
|
101,207
|
|
|
$
|
338,358
|
|
|
$
|
295,362
|
|
(1) Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Crossword and Cooking products are also included in this category.
|
(2) Includes revenues from standalone subscriptions to the Company’s Crossword and Cooking products.
|
Advertising revenues (print and digital) by category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
(In thousands)
|
|
Print
|
|
Digital
|
|
Total
|
|
Print
|
|
Digital
|
|
Total
|
Advertising revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Display
|
|
$
|
51,702
|
|
|
$
|
36,202
|
|
|
$
|
87,904
|
|
|
$
|
57,245
|
|
|
$
|
43,730
|
|
|
$
|
100,975
|
|
Other
|
|
7,176
|
|
|
18,451
|
|
|
25,627
|
|
|
6,676
|
|
|
14,026
|
|
|
20,702
|
|
Total advertising
|
|
$
|
58,878
|
|
|
$
|
54,653
|
|
|
$
|
113,531
|
|
|
$
|
63,921
|
|
|
$
|
57,756
|
|
|
$
|
121,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
(In thousands)
|
|
Print
|
|
Digital
|
|
Total
|
|
Print
|
|
Digital
|
|
Total
|
Advertising revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Display
|
|
$
|
169,903
|
|
|
$
|
121,147
|
|
|
$
|
291,050
|
|
|
$
|
188,853
|
|
|
$
|
123,870
|
|
|
$
|
312,723
|
|
Other
|
|
21,255
|
|
|
47,075
|
|
|
68,330
|
|
|
22,182
|
|
|
31,620
|
|
|
53,802
|
|
Total advertising
|
|
$
|
191,158
|
|
|
$
|
168,222
|
|
|
$
|
359,380
|
|
|
$
|
211,035
|
|
|
$
|
155,490
|
|
|
$
|
366,525
|
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Performance Obligations
We have remaining performance obligations related to digital archive licensing and certain advertising contracts. As of September 29, 2019, the aggregate amount of transaction price allocated to the remaining performance obligations was approximately $95 million. The Company will recognize this revenue as control of the performance obligation is transferred to the customer. We expect that approximately $7 million, $25 million and $63 million will be recognized in the remainder of 2019, 2020 and thereafter, respectively.
These remaining performance obligations exclude contracts that have an original expected duration of one year or less.
Contract Assets
As of September 29, 2019, and December 30, 2018, the Company had $3.7 million and $2.5 million, respectively, in contract assets recorded in Other current assets in the Condensed Consolidated Balance Sheets. The contract asset is reclassified to Accounts receivable when the customer is invoiced based on the contractual billing schedule. The increase in the contract assets balance of $1.2 million for the nine months ended September 29, 2019, is primarily driven by new contract assets of $1.9 million offset by $0.7 million of consideration that was reclassified to Accounts receivable when invoiced based on the contractual billing schedules for the nine months ended September 29, 2019.
NOTE 4. MARKETABLE SECURITIES
The Company accounts for its marketable securities as available for sale (“AFS”). The Company recorded $0.9 million and $2.8 million of net unrealized gains and net unrealized losses, respectively, in Accumulated other comprehensive income (“AOCI”) as of September 29, 2019, and December 30, 2018, respectively.
The following tables present the amortized cost, gross unrealized gains and losses, and fair market value of our AFS debt securities as of September 29, 2019, and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
(In thousands)
|
|
Amortized Cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Fair Value
|
Short-term AFS securities
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
123,224
|
|
|
$
|
46
|
|
|
$
|
(47
|
)
|
|
$
|
123,223
|
|
Corporate debt securities
|
|
109,792
|
|
|
263
|
|
|
(36
|
)
|
|
110,019
|
|
Commercial paper
|
|
69,298
|
|
|
—
|
|
|
—
|
|
|
69,298
|
|
U.S. governmental agency securities
|
|
60,515
|
|
|
15
|
|
|
(17
|
)
|
|
60,513
|
|
Certificates of deposit
|
|
13,810
|
|
|
—
|
|
|
—
|
|
|
13,810
|
|
Total short-term AFS securities
|
|
$
|
376,639
|
|
|
$
|
324
|
|
|
$
|
(100
|
)
|
|
$
|
376,863
|
|
Long-term AFS securities
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
93,989
|
|
|
$
|
696
|
|
|
$
|
(22
|
)
|
|
$
|
94,663
|
|
U.S. Treasury securities
|
|
71,313
|
|
|
121
|
|
|
(67
|
)
|
|
71,367
|
|
U.S. governmental agency securities
|
|
51,258
|
|
|
27
|
|
|
(50
|
)
|
|
51,235
|
|
Total long-term AFS securities
|
|
$
|
216,560
|
|
|
$
|
844
|
|
|
$
|
(139
|
)
|
|
$
|
217,265
|
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
(In thousands)
|
|
Amortized Cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Fair Value
|
Short-term AFS securities
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
107,717
|
|
|
$
|
—
|
|
|
$
|
(232
|
)
|
|
$
|
107,485
|
|
Corporate debt securities
|
|
140,631
|
|
|
1
|
|
|
(464
|
)
|
|
140,168
|
|
Commercial paper
|
|
8,177
|
|
|
—
|
|
|
—
|
|
|
8,177
|
|
U.S. governmental agency securities
|
|
92,628
|
|
|
—
|
|
|
(654
|
)
|
|
91,974
|
|
Certificates of deposit
|
|
23,497
|
|
|
—
|
|
|
—
|
|
|
23,497
|
|
Total short-term AFS securities
|
|
$
|
372,650
|
|
|
$
|
1
|
|
|
$
|
(1,350
|
)
|
|
$
|
371,301
|
|
Long-term AFS securities
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
130,612
|
|
|
$
|
44
|
|
|
$
|
(1,032
|
)
|
|
$
|
129,624
|
|
U.S. Treasury securities
|
|
47,079
|
|
|
5
|
|
|
(347
|
)
|
|
46,737
|
|
U.S. governmental agency securities
|
|
37,362
|
|
|
3
|
|
|
(168
|
)
|
|
37,197
|
|
Total long-term AFS securities
|
|
$
|
215,053
|
|
|
$
|
52
|
|
|
$
|
(1,547
|
)
|
|
$
|
213,558
|
|
The following tables represent the AFS securities as of September 29, 2019, and December 30, 2018, that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
Total
|
(In thousands)
|
|
Fair Value
|
|
Gross unrealized losses
|
|
Fair Value
|
|
Gross unrealized losses
|
|
Fair Value
|
|
Gross unrealized losses
|
Short-term AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
14,863
|
|
|
$
|
(7
|
)
|
|
$
|
23,113
|
|
|
$
|
(40
|
)
|
|
$
|
37,976
|
|
|
$
|
(47
|
)
|
Corporate debt securities
|
|
12,678
|
|
|
(3
|
)
|
|
36,975
|
|
|
(33
|
)
|
|
49,653
|
|
|
(36
|
)
|
U.S. governmental agency securities
|
|
4,998
|
|
|
—
|
|
|
23,188
|
|
|
(17
|
)
|
|
28,186
|
|
|
(17
|
)
|
Total short-term AFS securities
|
|
$
|
32,539
|
|
|
$
|
(10
|
)
|
|
$
|
83,276
|
|
|
$
|
(90
|
)
|
|
$
|
115,815
|
|
|
$
|
(100
|
)
|
Long-term AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
11,008
|
|
|
$
|
(15
|
)
|
|
$
|
8,004
|
|
|
$
|
(7
|
)
|
|
$
|
19,012
|
|
|
$
|
(22
|
)
|
U.S. Treasury securities
|
|
35,727
|
|
|
(67
|
)
|
|
—
|
|
|
—
|
|
|
35,727
|
|
|
(67
|
)
|
U.S. governmental agency securities
|
|
41,958
|
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
41,958
|
|
|
(50
|
)
|
Total long-term AFS securities
|
|
$
|
88,693
|
|
|
$
|
(132
|
)
|
|
$
|
8,004
|
|
|
$
|
(7
|
)
|
|
$
|
96,697
|
|
|
$
|
(139
|
)
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
Total
|
(In thousands)
|
|
Fair Value
|
|
Gross unrealized losses
|
|
Fair Value
|
|
Gross unrealized losses
|
|
Fair Value
|
|
Gross unrealized losses
|
Short-term AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
70,830
|
|
|
$
|
(31
|
)
|
|
$
|
28,207
|
|
|
$
|
(201
|
)
|
|
$
|
99,037
|
|
|
$
|
(232
|
)
|
Corporate debt securities
|
|
76,886
|
|
|
(115
|
)
|
|
61,459
|
|
|
(349
|
)
|
|
138,345
|
|
|
(464
|
)
|
U.S. governmental agency securities
|
|
11,664
|
|
|
(4
|
)
|
|
80,311
|
|
|
(650
|
)
|
|
91,975
|
|
|
(654
|
)
|
Total short-term AFS securities
|
|
$
|
159,380
|
|
|
$
|
(150
|
)
|
|
$
|
169,977
|
|
|
$
|
(1,200
|
)
|
|
$
|
329,357
|
|
|
$
|
(1,350
|
)
|
Long-term AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
81,655
|
|
|
$
|
(570
|
)
|
|
$
|
27,265
|
|
|
$
|
(462
|
)
|
|
$
|
108,920
|
|
|
$
|
(1,032
|
)
|
U.S. governmental agency securities
|
|
21,579
|
|
|
(36
|
)
|
|
11,868
|
|
|
(132
|
)
|
|
33,447
|
|
|
(168
|
)
|
U.S. Treasury securities
|
|
20,479
|
|
|
(29
|
)
|
|
23,762
|
|
|
(318
|
)
|
|
44,241
|
|
|
(347
|
)
|
Total long-term AFS securities
|
|
$
|
123,713
|
|
|
$
|
(635
|
)
|
|
$
|
62,895
|
|
|
$
|
(912
|
)
|
|
$
|
186,608
|
|
|
$
|
(1,547
|
)
|
We conduct an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis or more often if a potential loss-triggering event occurs. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and whether we intend to sell. We also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses.
As of September 29, 2019, we did not intend to sell and it was not likely that we would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. Unrealized losses related to these investments are primarily due to interest rate fluctuations as opposed to changes in credit quality. Therefore, as of September 29, 2019, we have recognized no OTTI loss.
As of September 29, 2019, our short-term and long-term marketable securities had remaining maturities of less than 1 month to 12 months and 13 months to 34 months, respectively. See Note 9 for more information regarding the fair value of our marketable securities.
NOTE 5. GOODWILL AND INTANGIBLES
The changes in the carrying amount of goodwill as of September 29, 2019, and since December 30, 2018, were as follows:
|
|
|
|
|
|
(In thousands)
|
|
Total Company
|
Balance as of December 30, 2018
|
|
$
|
140,282
|
|
Foreign currency translation
|
|
(3,026
|
)
|
Balance as of September 29, 2019
|
|
$
|
137,256
|
|
The foreign currency translation line item reflects changes in goodwill resulting from fluctuating exchange rates related to the consolidation of certain international subsidiaries.
The aggregate carrying amount of intangible assets of $3.3 million is included in Miscellaneous assets in our Condensed Consolidated Balance Sheets as of September 29, 2019.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. INVESTMENTS
Equity Method Investments
Our investments in joint ventures consists of a 40% equity ownership interest in Madison Paper Industries (“Madison”), a partnership that previously operated a supercalendered paper mill in Maine. The Company and UPM-Kymmene Corporation (“UPM”), a Finnish paper manufacturing company, are partners through subsidiary companies in Madison. The Company’s 40% ownership of Madison is through an 80%-owned consolidated subsidiary that owns 50% of Madison. UPM owns 60% of Madison, including a 10% interest through a 20% noncontrolling interest in the consolidated subsidiary of the Company.
In 2016, the paper mill closed. During the fourth quarter of 2018, we received a $12.5 million cash distribution in connection with the pending liquidation of Madison. We received no distributions from Madison during the first nine months of 2019 and 2018, respectively. We expect to receive a final cash distribution in the range of $5 million to $8 million.
As of September 29, 2019, and December 30, 2018, the value of our investments in joint ventures was zero. Our proportionate share of the operating results of our investment for the quarters ended September 29, 2019, and September 30, 2018, was de minimis and was recorded in Loss from joint ventures in our Condensed Consolidated Statements of Operations.
Non-Marketable Equity Securities
Our non-marketable equity securities are investments in privately held companies/funds without readily determinable market values. Realized gains and losses on non-marketable securities sold or impaired are recognized in Interest expense and other, net.
As of September 29, 2019, and December 30, 2018, non-marketable equity securities included in Miscellaneous assets in our Condensed Consolidated Balance Sheets had a carrying value of $13.3 million and $13.7 million, respectively. During the first quarter of 2019, we recorded a gain of $1.9 million from fair value adjustment related to the sale of one of our investments in Interest expense and other, net in our Condensed Consolidated Statements of Operations.
NOTE 7. DEBT OBLIGATIONS
Our indebtedness consisted of the repurchase option related to the sale-leaseback of a portion of our New York headquarters building located at 620 Eighth Avenue, New York, New York (the “Company Headquarters”). Our total debt and finance lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 29, 2019
|
|
|
December 30, 2018
|
|
Option to repurchase ownership interest in headquarters building in 2019:
|
|
|
|
|
Principal amount (1)
|
|
$
|
245,339
|
|
|
$
|
250,000
|
|
Less unamortized (premium)/discount based on imputed interest rate of 12.0% in 2019 and 13.0% in 2018
|
|
(869
|
)
|
|
3,202
|
|
Net option to repurchase ownership interest in headquarters building in 2019
|
|
246,208
|
|
|
246,798
|
|
Finance lease obligation (2)
|
|
—
|
|
|
6,832
|
|
Total short-term debt and finance lease obligations
|
|
$
|
246,208
|
|
|
$
|
253,630
|
|
(1) The reduction in principal amount reflects a $4.7 million credit to the repurchase price as the result of a change in the closing date to December 2019. This credit is accounted for as a reduction in interest expense.
(2) On August 1, 2019, we purchased the previously leased land at our College Point, N.Y., printing and distribution facility, which resulted in the settlement of our finance lease obligation.
See Note 9 for more information regarding the fair value of our debt and Note 15 for more information regarding finance lease obligation.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Interest expense and other, net, as shown in the accompanying Condensed Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
(In thousands)
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
Interest expense
|
|
$
|
7,118
|
|
|
$
|
7,061
|
|
|
$
|
21,314
|
|
|
$
|
21,078
|
|
Amortization of debt costs and (premium)/discount on debt
|
|
(1,278
|
)
|
|
839
|
|
|
(590
|
)
|
|
2,528
|
|
Capitalized interest
|
|
(7
|
)
|
|
(38
|
)
|
|
(59
|
)
|
|
(412
|
)
|
Interest income and other expense, net (1)
|
|
(5,078
|
)
|
|
(3,836
|
)
|
|
(17,093
|
)
|
|
(9,755
|
)
|
Total interest expense and other, net
|
|
$
|
755
|
|
|
$
|
4,026
|
|
|
$
|
3,572
|
|
|
$
|
13,439
|
|
(1) The nine months ended September 29, 2019, include a fair value adjustment of $1.9 million related to the sale of a non-marketable equity security.
Notice of Intent to Exercise Repurchase Option Under Lease Agreement
On January 30, 2018, the Company provided notice to an affiliate of W.P. Carey & Co. LLC of the Company’s intention to exercise in the fourth quarter of 2019 its option under the Lease Agreement, dated March 6, 2009, by and between the parties (the “Lease”) to repurchase a portion of the Company’s leasehold condominium interest in the Company Headquarters.
The Company has accounted for the transaction as a financing transaction and accounted for the rental payments as interest expense. The difference between the purchase option price and the net sale proceeds from the transaction is being amortized over the 10-year period of 2009-2019 through interest expense.
The Lease was part of a transaction in 2009 under which the Company sold and simultaneously leased back approximately 750,000 rentable square feet, in the Company Headquarters (the “Condo Interest”). The sale price for the Condo Interest was approximately $225 million. In December 2019, we expect to repurchase the Condo Interest for $245.3 million.
Revolving Credit Facility
In September 2019, the Company entered into a $250.0 million five-year unsecured revolving credit facility (the “Credit Facility”). Certain of the Company’s domestic subsidiaries have guaranteed the Company’s obligations under the Credit Facility. Borrowings under the Credit Facility bear interest at specified rates based on our utilization and consolidated leverage ratio. The Credit Facility contains various customary affirmative and negative covenants. In addition, the Company is obligated to pay a quarterly unused commitment fee of 0.20%.
As of September 29, 2019, there were no outstanding borrowings under the Credit Facility and the Company was not aware of any instances of non-compliance with the financial covenants contained in the documents governing the Credit Facility.
NOTE 8. OTHER
Capitalized Computer Software Costs
Amortization of capitalized computer software costs included in Depreciation and amortization in our Condensed Consolidated Statements of Operations were $4.4 million and $4.1 million in the third quarters of 2019 and 2018, respectively, and $13.1 million and $11.4 million in the first nine months of 2019 and 2018, respectively.
Headquarters Redesign and Consolidation
In 2017 and 2018, we redesigned our Company Headquarters, consolidated our space within a smaller number of floors and leased the additional floors to third parties. As the project was substantially completed as of December 30, 2018, we did not incur significant expenses related to these measures in the third quarter and in the first nine months of 2019. We did not incur significant expenses in the third quarter of 2018 and incurred $3.1 million of total expenses in the first nine months of 2018 related to these measures. We capitalized a de minimis amount and approximately $3 million in the third quarters of 2019 and 2018, respectively, and less than $1 million and $14 million in the first nine months of 2019 and 2018, related to these measures.
Marketing Expenses
Marketing expense to promote our brand and products and grow our subscriber base was $38.4 million and $40.4 million in the third quarters of 2019 and 2018, respectively, and $122.5 million and $107.6 million in the first nine months of 2019 and 2018, respectively.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash as of September 29, 2019, and December 30, 2018, from the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash Flows is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 29, 2019
|
|
|
December 30, 2018
|
|
Reconciliation of cash, cash equivalents and restricted cash
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
283,795
|
|
|
$
|
241,504
|
|
Restricted cash included within other current assets
|
|
613
|
|
|
642
|
|
Restricted cash included within miscellaneous assets
|
|
16,392
|
|
|
17,653
|
|
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows
|
|
$
|
300,800
|
|
|
$
|
259,799
|
|
Substantially all of the amount included in restricted cash is set aside to collateralize workers’ compensation obligations.
Restructuring Charge
We recognized a restructuring charge of $4.0 million in the third quarter of 2019, which included impairment and severance charges related to the closure of our digital marketing agency, HelloSociety, LLC. These costs are recorded in Restructuring charge in our Condensed Consolidated Statements of Operations.
Severance Costs
We recognized severance costs of $0.3 million in each of the third quarters of 2019 and 2018, and $2.4 million and $4.9 million in the first nine months of 2019 and 2018, respectively, related to workforce reductions. These costs are recorded in Selling, general and administrative costs in our Condensed Consolidated Statements of Operations.
We had a severance liability of $8.1 million and $8.3 million included in Accrued expenses and other in our Condensed Consolidated Balance Sheets as of September 29, 2019, and December 30, 2018, respectively. The September 29, 2019 balance includes severance liabilities related to the restructuring charge recorded in our Condensed Consolidated Statements of Operations. We anticipate most of the payments will be made within the next twelve months.
NOTE 9. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon the sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The transaction would be in the principal or most advantageous market for the asset or liability, based on assumptions that a market participant would use in pricing the asset or liability. The fair value hierarchy consists of three levels:
Level 1–quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
Level 2–inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3–unobservable inputs for the asset or liability.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 29, 2019, and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 29, 2019
|
|
December 30, 2018
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term AFS securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
123,223
|
|
|
$
|
—
|
|
|
$
|
123,223
|
|
|
$
|
—
|
|
|
$
|
107,485
|
|
|
$
|
—
|
|
|
$
|
107,485
|
|
|
$
|
—
|
|
Corporate debt securities
|
|
110,019
|
|
|
—
|
|
|
110,019
|
|
|
—
|
|
|
140,168
|
|
|
—
|
|
|
140,168
|
|
|
—
|
|
Commercial paper
|
|
69,298
|
|
|
—
|
|
|
69,298
|
|
|
—
|
|
|
8,177
|
|
|
—
|
|
|
8,177
|
|
|
—
|
|
U.S. governmental agency securities
|
|
60,513
|
|
|
—
|
|
|
60,513
|
|
|
—
|
|
|
91,974
|
|
|
—
|
|
|
91,974
|
|
|
—
|
|
Certificates of deposit
|
|
13,810
|
|
|
—
|
|
|
13,810
|
|
|
—
|
|
|
23,497
|
|
|
—
|
|
|
23,497
|
|
|
—
|
|
Total short-term AFS securities
|
|
$
|
376,863
|
|
|
$
|
—
|
|
|
$
|
376,863
|
|
|
$
|
—
|
|
|
$
|
371,301
|
|
|
$
|
—
|
|
|
$
|
371,301
|
|
|
$
|
—
|
|
Long-term AFS securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
94,663
|
|
|
$
|
—
|
|
|
$
|
94,663
|
|
|
$
|
—
|
|
|
$
|
129,624
|
|
|
$
|
—
|
|
|
$
|
129,624
|
|
|
$
|
—
|
|
U.S. Treasury securities
|
|
71,367
|
|
|
—
|
|
|
71,367
|
|
|
—
|
|
|
46,737
|
|
|
—
|
|
|
46,737
|
|
|
—
|
|
U.S. governmental agency securities
|
|
51,235
|
|
|
—
|
|
|
51,235
|
|
|
—
|
|
|
37,197
|
|
|
—
|
|
|
37,197
|
|
|
—
|
|
Total long-term AFS securities
|
|
$
|
217,265
|
|
|
$
|
—
|
|
|
$
|
217,265
|
|
|
$
|
—
|
|
|
$
|
213,558
|
|
|
$
|
—
|
|
|
$
|
213,558
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation (2)(3)
|
|
$
|
22,326
|
|
|
$
|
22,326
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,211
|
|
|
$
|
23,211
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1) We classified these investments as Level 2 since the fair value is based on market observable inputs for investments with similar terms and maturities.
(2) The deferred compensation liability, included in Other liabilities—other in our Condensed Consolidated Balance Sheets, consists of deferrals under The New York Times Company Deferred Executive Compensation Plan (the “DEC”), which previously enabled certain eligible executives to elect to defer a portion of their compensation on a pre-tax basis. The deferred amounts are invested at the executives’ option in various mutual funds. The fair value of deferred compensation is based on the mutual fund investments elected by the executives and on quoted prices in active markets for identical assets. Participation in the DEC was frozen effective December 31, 2015.
(3) The Company invests deferred compensation assets in life insurance products. Our investments in life insurance products are included in Miscellaneous assets in our Condensed Consolidated Balance Sheets, and were $43.4 million as of September 29, 2019, and $38.1 million as of December 30, 2018. The fair value of these assets is measured using the net asset value per share (or its equivalent) and has not been classified in the fair value hierarchy.
Financial Instruments Disclosed, But Not Reported, at Fair Value
The carrying value of our debt was approximately $246 million as of September 29, 2019, and approximately $247 million as of December 30, 2018. The fair value of our debt was approximately $246 million and $260 million as of September 29, 2019, and December 30, 2018, respectively. We estimate the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2).
NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension
Single-Employer Plans
We historically sponsored several frozen single-employer defined benefit pension plans. Effective January 1, 2018, the Company became the sole sponsor of the frozen Newspaper Guild of New York - The New York Times Pension Plan (the “Guild-Times Plan”). Previously, the NewsGuild of New York (the “Guild”) and the Company were joint trustees of The Guild-
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Times Plan. Effective December 31, 2018, the Guild-Times Plan and the Retirement Annuity Plan For Craft Employees of The New York Times Companies (the “RAP”) were merged into The New York Times Companies Pension Plan.
The Company and the Guild jointly sponsor the Guild-Times Adjustable Pension Plan (the “APP”), which continues to accrue active benefits.
The components of net periodic pension cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
(In thousands)
|
|
Qualified
Plans
|
|
Non-
Qualified
Plans
|
|
All
Plans
|
|
Qualified
Plans
|
|
Non-
Qualified
Plans
|
|
All
Plans
|
Service cost
|
|
$
|
1,278
|
|
|
$
|
—
|
|
|
$
|
1,278
|
|
|
$
|
2,393
|
|
|
$
|
—
|
|
|
$
|
2,393
|
|
Interest cost
|
|
14,708
|
|
|
2,089
|
|
|
16,797
|
|
|
13,207
|
|
|
1,848
|
|
|
15,055
|
|
Expected return on plan assets
|
|
(20,258
|
)
|
|
—
|
|
|
(20,258
|
)
|
|
(20,591
|
)
|
|
—
|
|
|
(20,591
|
)
|
Amortization of actuarial loss
|
|
4,635
|
|
|
1,094
|
|
|
5,729
|
|
|
6,680
|
|
|
1,294
|
|
|
7,974
|
|
Amortization of prior service credit
|
|
(487
|
)
|
|
—
|
|
|
(487
|
)
|
|
(487
|
)
|
|
—
|
|
|
(487
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
421
|
|
|
421
|
|
Net periodic pension (income)/cost (1)
|
|
$
|
(124
|
)
|
|
$
|
3,183
|
|
|
$
|
3,059
|
|
|
$
|
1,202
|
|
|
$
|
3,563
|
|
|
$
|
4,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
(In thousands)
|
|
Qualified
Plans
|
|
Non-
Qualified
Plans
|
|
All
Plans
|
|
Qualified
Plans
|
|
Non-
Qualified
Plans
|
|
All
Plans
|
Service cost
|
|
$
|
3,835
|
|
|
$
|
—
|
|
|
$
|
3,835
|
|
|
$
|
7,593
|
|
|
$
|
—
|
|
|
$
|
7,593
|
|
Interest cost
|
|
44,125
|
|
|
6,265
|
|
|
50,390
|
|
|
39,564
|
|
|
5,543
|
|
|
45,107
|
|
Expected return on plan assets
|
|
(60,775
|
)
|
|
—
|
|
|
(60,775
|
)
|
|
(61,736
|
)
|
|
—
|
|
|
(61,736
|
)
|
Amortization of actuarial loss
|
|
13,905
|
|
|
3,282
|
|
|
17,187
|
|
|
20,122
|
|
|
3,882
|
|
|
24,004
|
|
Amortization of prior service credit
|
|
(1,459
|
)
|
|
—
|
|
|
(1,459
|
)
|
|
(1,459
|
)
|
|
—
|
|
|
(1,459
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
421
|
|
|
421
|
|
Net periodic pension (income)/cost (1)
|
|
$
|
(369
|
)
|
|
$
|
9,547
|
|
|
$
|
9,178
|
|
|
$
|
4,084
|
|
|
$
|
9,846
|
|
|
$
|
13,930
|
|
(1) The service cost component of net periodic pension cost is recognized in Total operating costs, while the other components are included in Other components of net periodic benefit costs in our Condensed Consolidated Statements of Operations, below Operating profit.
During the first nine months of 2019 and 2018, we made pension contributions of $6.3 million and $6.2 million, respectively, to the APP. We expect contributions in 2019 to total approximately $9 million to satisfy funding requirements.
Multiemployer Plans
During the third quarter of 2019 and 2018 we recorded a gain of $2.0 million and $4.9 million, respectively, from multiemployer pension liability adjustments, which were recorded in Gain from pension liability adjustment in our Condensed Consolidated Statements of Operations. See Note 16 for more information.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other Postretirement Benefits
The components of net periodic postretirement benefit income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
(In thousands)
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
|
September 29, 2019
|
|
|
September 30, 2018
|
|
Service cost
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
20
|
|
|
$
|
18
|
|
Interest cost
|
|
402
|
|
|
370
|
|
|
1,202
|
|
|
1,108
|
|
Amortization of actuarial loss
|
|
843
|
|
|
1,183
|
|
|
2,531
|
|
|
3,551
|
|
Amortization of prior service credit
|
|
(1,192
|
)
|
|
(1,590
|
)
|
|
(3,574
|
)
|
|
(4,772
|
)
|
Net periodic postretirement benefit cost/(income) (1)
|
|
$
|
59
|
|
|
$
|
(29
|
)
|
|
$
|
179
|
|
|
$
|
(95
|
)
|
(1) The service cost component of net periodic postretirement benefit cost is recognized in Total operating costs, while the other components are included in Other components of net periodic benefit costs in our Condensed Consolidated Statements of Operations, below Operating profit.
NOTE 11. INCOME TAXES
The Company had income tax expense of $6.1 million and $16.8 million in the third quarter and first nine months of 2019, respectively. The Company had income tax expense of $10.1 million and $25.3 million in the third quarter and first nine months of 2018, respectively. The Company’s effective tax rates from continuing operations were 27.0% and 19.0% for the third quarter and first nine months of 2019, respectively. The Company received a tax benefit in the first quarter of 2019 from stock price appreciation on stock-based awards that settled in the quarter, resulting in a lower than statutory tax rate for the first nine months of 2019. The Company’s effective tax rates from continuing operations were 28.8% and 26.4% for the third quarter and first nine months of 2018, respectively.
NOTE 12. EARNINGS PER SHARE
We compute earnings per share using a two-class method, which is an earnings allocation method used when a company’s capital structure includes either two or more classes of common stock or common stock and participating securities. This method determines earnings per share based on dividends declared on common stock and participating securities (i.e., distributed earnings), as well as participation rights of participating securities in any undistributed earnings.
Earnings per share is computed using both basic shares and diluted shares. The difference between basic and diluted shares is that diluted shares include the dilutive effect of the assumed exercise of outstanding securities. Our stock options, stock-settled long-term performance awards and restricted stock units could have a significant impact on diluted shares. The difference between basic and diluted shares of approximately 1.4 million and 1.9 million as of the third quarters and first nine months of 2019 and 2018, respectively, resulted primarily from the dilutive effect of certain stock options, restricted stock units and performance awards.
Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the market value of our Class A Common Stock, because their inclusion would result in an anti-dilutive effect on per share amounts.
There were no anti-dilutive stock options, stock-settled long-term performance awards or restricted stock units excluded from the computation of diluted earnings per share in the third quarters and first nine months of 2019 and 2018, respectively.
NOTE 13. SUPPLEMENTAL STOCKHOLDERS’ EQUITY INFORMATION
In 2015, the Board of Directors authorized up to $101.1 million of repurchases of shares of the Company’s Class A Common Stock. As of September 29, 2019, repurchases under this authorization totaled $84.9 million (excluding commissions) and $16.2 million remained under this authorization. The Company did not repurchase any shares during the first nine months of 2019. All purchases were made pursuant to our publicly announced share repurchase program. Our Board of Directors has authorized us to purchase shares under this authorization from time to time, subject to market conditions and other factors. There is no expiration date with respect to this authorization.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the changes in AOCI by component as of September 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
Funded Status of Benefit Plans
|
|
Net Unrealized (Loss)/Gain on Available-For-Sale Securities
|
|
Total Accumulated Other Comprehensive Loss
|
Balance as of December 30, 2018
|
|
$
|
4,677
|
|
|
$
|
(520,308
|
)
|
|
$
|
(2,093
|
)
|
|
$
|
(517,724
|
)
|
Other comprehensive (loss)/income before reclassifications, before tax
|
|
(3,286
|
)
|
|
—
|
|
|
3,773
|
|
|
487
|
|
Amounts reclassified from accumulated other comprehensive loss, before tax
|
|
—
|
|
|
14,685
|
|
|
—
|
|
|
14,685
|
|
Income tax (benefit)/expense
|
|
(863
|
)
|
|
3,780
|
|
|
986
|
|
|
3,903
|
|
Net current-period other comprehensive (loss)/income, net of tax
|
|
(2,423
|
)
|
|
10,905
|
|
|
2,787
|
|
|
11,269
|
|
Balance as of September 29, 2019
|
|
$
|
2,254
|
|
|
$
|
(509,403
|
)
|
|
$
|
694
|
|
|
$
|
(506,455
|
)
|
The following table summarizes the reclassifications from AOCI for the nine months ended September 29, 2019:
|
|
|
|
|
|
|
|
(In thousands)
Detail about accumulated other comprehensive loss components
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
Affects line item in the statement where net income is presented
|
Funded status of benefit plans:
|
|
|
|
|
Amortization of prior service credit(1)
|
|
$
|
(5,033
|
)
|
|
Other components of net periodic benefit costs
|
Amortization of actuarial loss(1)
|
|
19,718
|
|
|
Other components of net periodic benefit costs
|
Total reclassification, before tax(2)
|
|
14,685
|
|
|
|
Income tax expense
|
|
3,780
|
|
|
Income tax expense
|
Total reclassification, net of tax
|
|
$
|
10,905
|
|
|
|
(1) These AOCI components are included in the computation of net periodic benefit cost for pension and other postretirement benefits. See Note 10 for more information.
(2) There were no reclassifications relating to noncontrolling interest for the nine months ended September 29, 2019.
NOTE 14. SEGMENT INFORMATION
The Company identifies a business as an operating segment if: (i) it engages in business activities from which it may earn revenues and incur expenses; (ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (who is the Company’s President and Chief Executive Officer) to make decisions about resources to be allocated to the segment and assess its performance; and (iii) it has available discrete financial information. The Company has determined that it has one reportable segment. Therefore, all required segment information can be found in the Condensed Consolidated Financial Statements.
NOTE 15. LEASES
Lessee activities
Operating leases
We have operating leases for office space and equipment. We determine if an arrangement is a lease at inception. Certain office space leases provide for rent adjustments relating to changes in real estate taxes and other operating costs. Options to extend the term of operating leases are not recognized as part of the right-of-use asset until we are reasonably certain that the option will be exercised. We may terminate our leases with the notice required under the lease and upon the payment of a termination fee, if required. Our leases do not include substantial variable payments based on index or rate. After the adoption of ASU 2016-02 in 2019, for all leases, a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, are recognized in the Condensed Consolidated Balance Sheet as of September 29, 2019, as described below.
Our leases do not provide a readily determinable implicit discount rate. Therefore, we estimate our incremental borrowing rate to discount the lease payments based on the information available at lease commencement.
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We recognize a single lease cost on a straight-line basis over the term of the lease and we classify all cash payments within operating activities in the statement of cash flows. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We evaluate right-of-use assets for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.
On July 2, 2019, we entered into a lease agreement for office space in Long Island City, N.Y. (the “LIC Lease”), which commenced in July and ends in 2035. The present value of lease liabilities associated with the LIC Lease at the commencement date was $22 million.
The table below presents the lease-related assets and liabilities recorded on the balance sheet:
|
|
|
|
|
|
|
|
(In thousands)
|
|
Classification in the Condensed Consolidated Balance Sheet
|
|
September 29, 2019
|
|
Operating lease right-of-use assets
|
|
Miscellaneous assets
|
|
$
|
54,909
|
|
Current operating lease liabilities
|
|
Accrued expenses and other
|
|
$
|
7,733
|
|
Noncurrent operating lease liabilities
|
|
Other
|
|
56,156
|
|
Total operating lease liabilities
|
|
|
|
$
|
63,889
|
|
The total lease cost for operating leases included in Selling, general and administrative costs in our Condensed Consolidated Statement of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
For the Nine Months Ended
|
|
(In thousands)
|
|
September 29, 2019
|
Operating lease cost
|
|
$
|
2,763
|
|
|
$
|
7,310
|
|
Short term and variable lease cost
|
|
442
|
|
|
1,454
|
|
Total lease cost
|
|
$
|
3,205
|
|
|
$
|
8,764
|
|
The table below presents additional information regarding operating leases:
|
|
|
|
|
|
(In thousands, except lease term and discount rate)
|
|
September 29, 2019
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
6,818
|
|
Right-of-use assets obtained in exchange for operating lease liabilities(1)
|
|
$
|
60,988
|
|
Weighted-average remaining lease term
|
|
9.9 years
|
|
Weighted-average discount rate
|
|
4.65
|
%
|
(1) Amounts for the nine months ended September 29, 2019, include the transition adjustment resulting from the adoption of ASU 2016-02 as discussed in Note 2.
Maturities of lease liabilities on an annual basis for the Company's operating leases as of September 29, 2019, were as follows:
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
|
2019 (3 months ending December 29, 2019)
|
|
$
|
2,284
|
|
2020
|
|
9,808
|
|
2021
|
|
9,026
|
|
2022
|
|
8,577
|
|
2023
|
|
7,970
|
|
Later Years
|
|
41,899
|
|
Total lease payments
|
|
$
|
79,564
|
|
Less: Interest
|
|
(15,675
|
)
|
Present value of lease liabilities
|
|
$
|
63,889
|
|
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Finance lease
We had a finance lease in connection with the land at our College Point, N.Y., printing and distribution facility. Interest on the lease liability was recorded in Interest expense and other, net in our Condensed Consolidated Statement of Operations. Repayments of the principal portion of our lease liability are recorded in financing activities and payments of interest on our lease liability are recorded in operating activities in the statement of cash flows for our finance lease. On August 1, 2019, using existing cash, we purchased the assets under the finance lease for $6.9 million, which resulted in the settlement of our finance lease obligation. See Note 7 for more information.
Lessor activities
Our leases to third parties predominantly relate to office space in the Company Headquarters. We determine if an arrangement is a lease at inception. Office space leases are operating leases and generally include options to extend the term of the lease. Our leases do not include variable payments based on index or rate. We do not separate the lease and non-lease components in a contract. The non-lease components predominantly include charges for utilities usage and other operating expenses estimated based on the proportionate share of the rental space of each lease.
For our office space operating leases, we recognize rental revenue on a straight-line basis over the term of the lease and we classify all cash payments within operating activities in the statement of cash flows.
Residual value risk is not a primary risk resulting from our office space operating leases because of the long-lived nature of the underlying real estate assets which generally hold their value or appreciate in the long term.
We evaluate assets leased to third parties for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.
As of September 29, 2019, the cost and accumulated depreciation related to the Company Headquarters included in Property, plant and equipment in our Condensed Consolidated Balance Sheet was approximately $508 million and $200 million, respectively. Office space leased to third parties represents approximately 39% of rentable square feet of the Company Headquarters.
We generate building rental revenue from the floors in the Company Headquarters that we lease to third parties. The building rental revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
For the Nine Months Ended
|
|
(In thousands)
|
|
September 29, 2019
|
Building rental revenue (1)
|
|
$
|
7,887
|
|
|
$
|
22,962
|
|
(1) Building rental revenue includes approximately $3.0 million and $8.8 million of sublease income for the quarter and nine months ended September 29, 2019, respectively.
Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of September 29, 2019, were as follows:
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
|
2019 (3 months ending December 29, 2019)
|
|
$
|
7,590
|
|
2020
|
|
32,242
|
|
2021
|
|
32,259
|
|
2022
|
|
32,254
|
|
2023
|
|
19,329
|
|
Later Years
|
|
142,162
|
|
Total building rental revenue from operating leases
|
|
$
|
265,836
|
|
NOTE 16. CONTINGENT LIABILITIES
Newspaper and Mail Deliverers–Publishers’ Pension Fund
In September 2013, the Newspaper and Mail Deliverers-Publishers’ Pension Fund (the “NMDU Fund”) assessed a partial withdrawal liability against the Company in the gross amount of approximately $26 million for the plan years ending May 31, 2012, and 2013 (the “Initial Assessment”), an amount that was increased to a gross amount of approximately $34 million in December 2014, when the NMDU Fund issued a revised partial withdrawal liability assessment for the plan year ending May
THE NEW YORK TIMES COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
31, 2013 (the “Revised Assessment”). The NMDU Fund claimed that when City & Suburban Delivery Systems, Inc., a retail and newsstand distribution subsidiary of the Company and the largest contributor to the NMDU Fund, ceased operations in 2009, it triggered a decline of more than 70% in contribution base units in each of these two plan years.
The Company disagreed with both the NMDU Fund’s determination that a partial withdrawal occurred and the methodology by which it calculated the withdrawal liability, and the parties engaged in arbitration proceedings to resolve the matter. In June 2016, the arbitrator issued an interim award and opinion that supported the NMDU Fund’s determination that a partial withdrawal had occurred, and concluded that the methodology used to calculate the Initial Assessment was correct. However, the arbitrator also concluded that the NMDU Fund’s calculation of the Revised Assessment was incorrect. In July 2017, the arbitrator issued a final award and opinion reflecting the same conclusions, which both the Company and NMDU Fund challenged in federal district court. In March 2018, the court determined that a partial withdrawal had occurred, but supported the Company’s position that the NMDU Fund’s calculation of the withdrawal liability was improper. The Company appealed the court’s decision with respect to the determination that a partial withdrawal had occurred, and the NMDU Fund appealed the court’s decision with respect to the calculation of the withdrawal liability. Oral arguments were held in May 2019.
Due to requirements of the Employee Retirement Income Security Act of 1974 that sponsors make payments demanded by plans during arbitration and any resultant appeals, the Company had been making payments to the NMDU fund since September 2013 based on the NMDU Fund’s demand. As a result, through September 29, 2019, we have paid $21.6 million relating to the Initial Assessment since the receipt of the initial demand letter. We also paid $5.0 million related to the Revised Assessment, which was refunded in July 2016 based on the arbitrator’s ruling.
On September 16, 2019, the Company and the NMDU Fund reached an agreement to settle this matter. As a result of the settlement, the Company recognized a gain of approximately $2.0 million, and as of September 29, 2019, the Company had no contingent liability related to this matter. In addition, each party withdrew its appeal of the March 2018 court decision.
Other
We are involved in various legal actions incidental to our business that are now pending against us. These actions are generally for amounts greatly in excess of the payments, if any, that may be required to be made. Although the Company cannot predict the outcome of these matters, it is possible that an unfavorable outcome in one or more matters could be material to the Company’s consolidated results of operations or cash flows for an individual reporting period. However, based on currently available information, management does not believe that the ultimate resolution of these matters, individually or in the aggregate, is likely to have a material effect on the Company’s financial position.
Letters of Credit Commitment
We have issued letters of credit totaling $42.4 million and $48.8 million as of September 29, 2019, and December 30, 2018, respectively, in connection with the leasing of floors in the Company Headquarters. We expect the letters of credit to expire subsequent to the repurchase of the Condo Interest in December 2019. Approximately $47 million and $54 million of marketable securities were designated as collateral for the letters of credit, as of September 29, 2019, and December 30, 2018, respectively.