================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1997 Commission file number 1-5837 The New York Times Company (Exact name of registrant as specified in its charter) New York 13-1102020 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 229 West 43d Street, New York, N.Y. 10036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 556-1234 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Class A Common Stock of $.10 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Not Applicable (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of Class A Common Stock held by non-affiliates as of February 25, 1998, was approximately $5.10 billion. As of such date, non-affiliates held 47,598 shares of Class B Common Stock. There is no active market for such stock. The number of outstanding shares of each class of the registrant's common stock as of February 25, 1998, was as follows: 95,834,039 shares of Class A Common Stock and 424,801 shares of Class B Common Stock. Document incorporated by reference Part ---------------------------------- ---- Proxy Statement for the 1998 Annual Meeting of Stockholders............... III ================================================================================
INDEX TO THE NEW YORK TIMES COMPANY 1997 FORM 10-K ----------------- PART I Item No. Page - - ------- ---- 1. Business............................................................ 1 Introduction...................................................... 1 Newspapers........................................................ 1 The New York Times.............................................. 2 Circulation................................................... 2 Advertising................................................... 3 Production and Distribution................................... 3 Related Businesses............................................ 4 The Boston Globe................................................ 4 Circulation................................................... 4 Advertising................................................... 5 Production and Distribution................................... 5 Regional Newspapers............................................. 6 New Ventures.................................................... 6 Magazines......................................................... 7 New Ventures.................................................... 7 Broadcasting...................................................... 8 Forest Products Investments and Other Joint Ventures.............. 8 Forest Product Investments...................................... 8 Other Joint Ventures............................................ 9 Raw Materials..................................................... 9 Competition....................................................... 9 Employees......................................................... 10 Labor Relations................................................. 10 2. Properties.......................................................... 11 3. Legal Proceedings................................................... 11 4. Submission of Matters to a Vote of Security Holders................. 12 Executive Officers of the Registrant.............................. 12 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters............................................... 14 6. Selected Financial Data............................................. 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 14 8. Financial Statements and Supplementary Data......................... 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 14 PART III 10. Directors and Executive Officers of the Registrant.................. 14 11. Executive Compensation.............................................. 14 12. Security Ownership of Certain Beneficial Owners and Management...... 14 13. Certain Relationships and Related Transactions...................... 14 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 15
PART I 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 forest products investments. 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"); newspaper distributors in the New York City and Boston metropolitan areas; various newspaper on-line products; 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 and The Globe. Magazines: Golf Digest, Golf World and Golf Shop Operations. In November 1997, the Company sold the assets of its tennis, sailing and ski magazines and related businesses. The six magazines included in the sale were 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. In 1997, the Company's consolidated revenues increased to $2,866,418,000 from $2,628,271,000 in 1996. The increase in revenues was principally due to higher advertising revenues at the Newspaper Group as a result of higher rates and volume and the additional revenues associated with the Company's new television stations, acquired in July 1996. The Company's net income in 1997 was $262,301,000, or $2.72 basic earnings per share ($2.66 diluted earnings per share), compared with $84,534,000, or $.87 basic earnings per share ($.86 diluted earnings per share), in 1996. Net income in fiscal 1996 was reduced by a non-cash accounting charge of $94,500,000 or $.97 basic earnings per share ($.96 diluted earnings per share). Exclusive of special items set forth on page F-4 of this Form 10-K, annual earnings from ongoing operations would have been $2.58 basic earnings per share ($2.53 diluted earnings per share) in 1997, compared with $1.91 basic earnings per share ($1.89 diluted earnings per share) in 1996. For fiscal 1997, the increase in net income was primarily a result of higher advertising revenues, lower cost of newsprint for the majority of the year in the Newspaper Group, and the continuing strong performance of the two new television stations, acquired in July 1996, in the Broadcast Group. A summary of segment information for the three years ended December 28, 1997, is set forth on pages F-2 and F-3 of this Form 10-K. Also see "Management's Discussion and Analysis" on pages F-4 through F-11 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 $2,557,080,000 in 1997, compared with $2,348,592,000 in 1996, and an operating profit of $434,057,000 in 1997, compared with $179,611,000 in 1996. (These amounts include
certain special items for 1997 and 1996 which are discussed in more detail in "Management's Discussion and Analysis" on page F-4 of this Form 10-K.) Operating profit for the year, excluding special items, increased due principally to higher advertising revenues resulting from higher rates and volume, and the lower cost of newsprint. The Newspaper Group segment consists of two categories: Newspapers (consisting of The Times, The Globe, 21 Regional Newspapers, newspaper distributors, and certain related businesses) 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 $2,541,262,000 in 1997 and an operating profit of $441,396,000 in 1997, while the New Ventures category had revenues of $15,818,000 and an operating loss of $7,339,000. THE NEW YORK TIMES Circulation The Times is a standard-size weekday and Sunday newspaper which commenced publication in 1851. In 1997, The Times introduced a daily color New York edition with separate daily culture and sports sections, as well as other new features. Weekday color printing, later deadlines for news and sports results, and new and expanded sections were made possible by the Company's new production and distribution facility at College Point, Queens, described below under "The New York Times--Production and Distribution." The Times 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 59% of the circulation is sold in the greater New York City area and 41% 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, 1997, 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, 1997, as audited by ABC (except as indicated), are shown in the table below: Weekday Sunday -------- ------- (Thousands of copies) 1997 (unaudited).......................... 1,090.3 1,651.4 1996...................................... 1,111.8 1,701.8 1995...................................... 1,124.3 1,720.3 During the year ended December 28, 1997, the average weekday circulation of The Times decreased by approximately 13,300 copies to 1,089,600 copies and the average Sunday circulation of The Times decreased by approximately 29,200 copies to 1,651,300 copies. Approximately 58% of the weekday circulation and 51% of the larger Sunday circulation were sold through home and office delivery in 1997, compared with approximately 56% of the weekly circulation and 49% of the larger Sunday circulation sold through home and office delivery in 1996; the remainder were sold primarily on newsstands in 1997 and 1996. 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 added value to its advertisers. The Times embarked on a national marketing campaign in 1997, focusing on home delivery and retail distribution. 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 for the New England and Washington editions 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. 2
Advertising Total volume in The Times for the two years ended December 28, 1997, 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. Full Run ------------------------------ Preprint Retail National Classified Zoned Total(1) Copies Inches Inches Inches Inches Inches Distributed ------ -------- ---------- ------ -------- ----------- (Inches and Preprints in Thousands) 1997 606.8 1,330.8 971.1 1,034.6 3,943.3 318,490 1996 620.2 1,229.6 918.2 1,000.4 3,768.4 296,839 - - ---------- (1) All totals exclude preprint inches. The table includes volume for The New York Times Magazine, which published 3,116 pages of advertising in 1997, compared with 3,009 pages in 1996. Advertising rates for The Times increased an average of 6.5% in January 1997, and 6% in January 1998. Production and Distribution News text, headlines, graphics, photos and advertisements are configured into newspaper pages on electronic editing terminals and sent electronically to high-resolution image setters. The completed pages are then transmitted electronically to The Times's own printing plants in the New York metropolitan area and to remote printing sites around the country. Generally, The Times is printed at 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 January 1997, and became fully operational in the second quarter of 1997. The Times's Manhattan facility was phased out during the second quarter of 1997. The Edison and College Point facilities print all of 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 its Television section and The New York Times Magazine. The New England and Washington editions of The Times are printed under contract at two sites: 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 at printing sites in Chicago, Illinois, and Canton, Ohio; in the West at printing sites in Torrance and Walnut Creek, California, and Tacoma, Washington; in the Southwest at a printing site in Austin, Texas; and in the Southeast at printing sites in Atlanta, Georgia, and Ft. Lauderdale, Florida. It is anticipated that a ninth site will be added in the spring of 1998 in Lakeland, Florida, at the Company's regional newspaper, The Ledger. 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 single copy sales and marketing representative for the National Edition. The Times currently has agreements with approximately 63 newspapers and other delivery agents located in the United 3
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, Long Island (New York), the counties of Westchester (New York) and Fairfield (Connecticut) and central and northern New Jersey. Approximately 85% of The Times's single-copy daily circulation and 87% of its single-copy Sunday circulation in the New York City metropolitan area are delivered to retail outlets by City & Suburban. Approximately 87% of The Times's daily home-delivered circulation and 89% of its Sunday home-delivered circulation are delivered to depots by City & Suburban. Related Businesses The New York Times Electronic Media Company ("Electronic Media") was founded to develop new products and distribution channels for The Times and includes NYT Business Information Services, consumer on-line products, and NYT Television. NYT Business Information Services produces on-line computer databases and The New York Times Index, a print publication. The Company licenses LEXIS/NEXIS, Dow Jones Business Information Services, UMI, The Dialog Corp. and Online Computer Library Center, Incorporated to store, market and distribute its on-line computer databases. The Company also licenses UMI to produce and sell The New York Times Index and The Times on microform and CD-ROM. The New York Times on America Online is one of America Online's most frequently accessed services. The New York Times's Web site, The New York Times on the Web, is located at nytimes.com and has attracted over 3,000,000 registered users. In 1998, the Company anticipates launching a new Web site, New York Today, at nytoday.com, which seeks to be the definitive on-line guide to New York for New Yorkers and visitors. In January 1997, the Company established a division, NYT Television, to pursue certain programming ventures utilizing The Times and other content. The New York Times News Services includes, among other things, The New York Times Syndication Sales Corporation ("Syndication Sales"), The New York Times News Service and TimesFax. 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. In 1997, 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 1997, the Company sold its NYT Custom Publishing division. 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 a standard-size weekday and Sunday newspaper which commenced publication in 1872, and was acquired by the Company in 1993. The Globe is distributed throughout New England, although its circulation is concentrated in the Boston metropolitan area. According to ABC reports, as of September 28, 1997, the weekday 4
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 Globe's average weekday and Sunday paid circulation for the two 12-month periods ended March 30, 1997, and March 31, 1996, as audited by ABC, are shown in the table below: Weekday Sunday -------- ------ (Thousands of copies) 1997.............................................. 468.8 757.4 1996.............................................. 492.9 785.4 During the year ended December 28, 1997, the average weekday circulation of The Globe increased approximately 2,600 copies over 1996 to approximately 474,800 copies and the average Sunday circulation decreased by approximately 7,500 copies below 1996 to approximately 755,200 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. 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 28, 1997, for all editions, as measured by The Globe, is set forth below: Full Run ------------------------------ Preprint Retail National Classified Zoned Total(1) Copies Inches Inches Inches Inches Inches Distributed ------ -------- ---------- ------ -------- ----------- (Inches and Preprints in Thousands) 1997 729.6 601.2 1,374.6 304.5 3,009.9 729,228 1996(2) 764.5 554.6 1,295.3 304.4 2,918.8 686,628 - - ---------- (1) All totals exclude preprint inches. (2) For comparability, 1996 has been restated to conform with the 1997 presentation. Advertising rates in each category of advertising were adjusted in 1997. The latest increase in certain retail advertising rates occurred on September 1, 1997. Increases in classified and national advertising rates were effective as of April 1, 1997, and July 1, 1997, respectively. These rate increases ranged from 3% to 5%. Production and Distribution The Globe's project (commenced in 1989) to electronically design and construct the news text, headlines, graphics and photos on the newspaper page (rather than having them pasted up manually) continued according to plan: full-page output increased in 1997 to a weekly average of 1,200 pages per week, or almost 95% of The Globe's pages produced weekly. The Globe plans to complete the project during 1998. 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. 5
Virtually all of The Globe's home-delivered circulation is delivered through The Globe's distribution subsidiary, Community Newsdealers, Inc. During 1997, The Globe and its subsidiary, Retail Sales, Inc., increased their direct control of single copy distribution to further improve the stability of its circulation base. In December 1997, such distribution accounted for approximately 66% of average daily single copy distribution (up from 60% a year earlier) and 57% of its average Sunday single copy distribution (up from 53% a year earlier). REGIONAL NEWSPAPERS The Company currently owns 18 daily and three non-daily smaller-city newspapers. Daily Newspapers Non-Daily Newspapers ---------------- --------------------- Sarasota Herald-Tribune Times Daily The News-Sun (Sebring/ (Fla.) (Florence, Ala.) Avon Park, Fla.) The Press Democrat (Santa The Tuscaloosa News (Ala.) Marco Island Eagle Rosa, Cal.) The Gadsden Times (Ala.) (Fla.) The Ledger (Lakeland, Fla.) The Courier (Houma, La.) News-Leader The Gainesville Sun (Fla.) Times-News (Fernandina Santa Barbara (Hendersonville, N.C.) Beach, Fla.) News-Press (Cal.) Daily World (Opelousas, La.) Spartanburg The Dispatch (Lexington, N.C.) Herald-Journal (S.C.) Daily Comet (Thibodaux, La.) Wilmington Morning Star Palatka Daily News (Fla.) (N.C.) Lake City Reporter (Fla.) Star-Banner (Ocala, Fla.) The regional daily newspapers' circulation for the years ended December 28, 1997, and December 29, 1996, is shown in the table below: Daily Weekday Non-Daily Sunday ------------- --------- ------ (Thousands of Copies) 1997 733.4 33.0 788.7 1996 730.1 34.0 789.7 Advertising volume, stated on the basis of six columns per page, was 15,659,800 inches in 1997, compared with 15,602,800 inches in 1996. Preprints distributed in 1997 were 1,015,240,000, compared with 928,765,000 in 1996. All of the Regional Newspapers are produced by photocomposition and offset printing. NEW VENTURES The following businesses relating to Newspapers were classified by the Company as "New Ventures" during 1997: The New York Times on America Online, The New York Times on the Web, boston.com, Careerpath.com, various Regional Newspaper on-line services, NYT Television, and the Company's investments in OVATION and Zip2 Corporation. The New York Times on America Online, The New York Times on the Web and NYT Television are described above under "The New York Times--Related Businesses." Boston Globe Electronic Publishing, Inc. operates The Globe's Internet site boston.com, an Internet gateway to Boston and New England. 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. The Sarasota Herald-Tribune operates a 24-hour local news cable television channel which reaches approximately 123,000 subscribers. 6
The Company has an investment in OVATION, a visual and performing arts cable television network, which launched in April 1996. In the fall of 1997, OVATION launched on Time Warner Cable in New York City. OVATION is available through approximately 51 U.S. cable systems as well as in St. Lucia, West Indies, and Bermuda. OVATION currently reaches approximately 880,000 subscribers. During 1997, the Company invested in Zip2 Corporation, a leading provider of software and on-line business systems designed to facilitate newspapers' efforts to capture on-line advertising revenue. The financial results of such New Ventures are set forth in Management's Discussion and Analysis on pages F-4 through F-11 of this Form 10-K. MAGAZINES The Company's Magazine Group had revenues of $164,832,000 in 1997, compared with $161,071,000 in 1996, and an operating profit of $28,332,000 in 1997, compared with $24,778,000 in 1996. In November 1997, the Company sold the assets of its tennis, sailing and ski magazines and related businesses. The six magazines included in the sale were Tennis, Tennis Buyer's Guide, Cruising World, Sailing World, Snow Country and Snow Country Business (the "Sold Magazines"). Excluding the Sold Magazines, the Magazine Group had revenues of $125,104,000 and operating profit of $26,155,000 in 1997. The Magazine Group segment consists of two categories: Magazines (including those publications set forth in the table below and related activities in the golf field) and New Ventures (which included in 1997 a driving range, on-line magazine services and computerized systems for golf tee time reservations). The Magazines category had revenues of $162,676,000 and an operating profit of $36,354,000 in 1997, while the New Ventures category had revenues of $2,156,000 and an operating loss of $8,022,000 in 1997. The Magazine Group's 1997 results include 11 months of results of the Sold Magazines. The Magazine Group's revenues for 1997 include $10,000,000 relating to the non-competition agreement entered into in connection with the sale in 1994 of the Women's Magazines Division. The terms of the sale included a four-year $40,000,000 non-competition agreement, which expires in 1998. As of December 28, 1997, the Company published the magazines listed in the chart below: <TABLE> <CAPTION> Percentage Percentage Increase Increase (Decrease) in (Decrease) in Average Advertising Publication Subject/ Average Circulation Advertising Pages Magazine Cycle Audience Rate Base Circulation(1) Over 1996 Pages(2) Over 1996 -------- ----------- -------- --------- -------------- ------------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> Golf Digest............ Monthly Golf 1,500,000 1,519,900 1.1 1,369 9.3 Golf World............. 46 issues per year Golf 145,000 148,500 1.2 1,457 (1.2) Golf Shop Operations... 10 issues per year Golf trade 23,600(3) 18,200 3.4 1,056 (15.9) </TABLE> - - ---------- (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 Golf Shop Operations, as calculated by the publisher using the same methodology as for PIB. (3) For this trade publication, the average print order is disclosed as the applicable measure for advertisers. NEW VENTURES The Magazine Group offers various golf and travel information and excerpts from its publications on the World Wide Web. During 1997, the Magazine Group opened a driving range adjacent to The Times's printing facility in Edison, New Jersey. The range features heated stalls and a teaching center. In October 1995, the Company acquired the business of PAR Business Systems, Inc., which provided computerized systems for golf tee time reservations and automated pro shop business systems for the golf industry. The tee time system was known as T-LINKS(TM) and was operated by Golf Digest Information Systems, Inc., an indirect subsidiary of the Company. In the fourth quarter of 1997, the Company decided to exit the T-LINKS(TM) business. The financial results of such New Ventures are set forth in Management's Discussion and Analysis on pages F-4 through F-11 of this Form 10-K. 7
BROADCASTING The Broadcast Group had revenues of $144,506,000 in 1997, up from $118,608,000 in 1996, and an operating profit of $39,368,000 in 1997, compared with $30,596,000 in 1996. Higher advertising revenue at most of the Company's television stations, including the full year's revenue at KFOR-TV and WHO-TV (acquired July 1996), 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. Radio and television license renewals are now normally granted for terms of eight years. The license renewal application of WTKR-TV (Norfolk, Virginia) was approved in 1996 and will expire in 2004. The license renewal applications for WREG-TV (Memphis, Tennessee), WHNT-TV (Huntsville, Alabama), WQAD-TV (Moline, Illinois) and KFSM-TV (Fort Smith, Arkansas) were all approved during 1997 for terms expiring in 2005. Applications for renewal of station licenses are due to be filed four months prior to their expiration dates. Pursuant to that schedule, the license renewal application for WHO-TV (Des Moines, Iowa) was filed on September 30, 1997; the license renewal applications for KFOR-TV (Oklahoma City, Oklahoma) and WQXR (FM) and WQEW (AM) (New York, New York) were filed during the first quarter of 1998; and the license renewal application for WNEP-TV (Scranton, Pennsylvania) will be filed in 1999. The Company anticipates that its present and future applications for renewal of its 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 39th largest television market in the United States, Memphis is the 42nd largest, Oklahoma City is the 44th largest market, Wilkes-Barre/Scranton is the 47th largest, Des Moines is the 69th largest market, Huntsville is the 82nd largest, Moline is part of the Quad Cities market, the 89th largest, and Fort Smith is the 116th 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. 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") and the International Herald Tribune. Income from these joint ventures decreased in 1997 to $13,990,000 from $18,223,000 in 1996. The decrease in results for 1997 was due principally to lower selling prices for paper at the Forest Products Investments. 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 1997, Malbaie produced 205,000 metric tons of newsprint, 68,000 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 8
("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 of its wood from local suppliers, mostly under long-term contracts. In 1997, Madison produced 188,000 metric tons, 11,000 tons of which were sold to the Company. 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, Kuala Lumpur, London, Marseille, New York, Paris, Rome, Singapore, Tel Aviv, The Hague, Tokyo, Toulouse and Zurich. The International Herald Tribune opened new print sites in Kuala Lumpur, Malaysia, and Tel Aviv, Israel, in 1997; and it launched an edition of the newspaper in Israel, with an English-language local news section inserted in the global edition, in September 1997. It expects to publish more of these global/local editions in the next few years. 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 1997, The Times used approximately 295,000 metric tons of newsprint, compared to 276,000 in 1996. The New York Times Magazine used approximately 22,000 metric tons of coated paper and supercalendered paper, grades of magazine quality paper, in both 1997 and 1996. In 1997, The Globe used approximately 141,000 metric tons of newsprint, compared to 136,000 in 1996. The Globe used approximately 5,000 metric tons of a grade of paper higher than newsprint for its Sunday magazine both in 1997 and 1996. The Regional Newspapers used approximately 94,000 metric tons of newsprint in 1997, compared to 90,500 in 1996. In 1997, the magazines published by the Magazine Group used approximately 14,500 metric tons of coated paper, compared to 14,400 in 1996. The 1997 amount includes coated paper used by the Sold Magazines through November 1997. 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 unrelated suppliers and related suppliers in which the Company holds equity interests (see "Forest Products Investments"). 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 recent data provided by Competitive Media Reporting, Inc., an independent agency that measures advertising sales volume and estimates 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. 9
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 28, 1997, The Globe ranked first in advertising inches among all newspapers published in Boston and New England. The magazines published by the Company compete directly with other golfing publications as well as with general interest magazines and other media, primarily broadcast and cable television. 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. Malbaie and Madison are in a highly competitive industry. EMPLOYEES As of December 28, 1997, the Company had approximately 13,100 full-time equivalent employees. The Times 5,000 The Globe 3,200 Regional Newspapers 3,400 Broadcast Group 900 Magazine Group 300 Corporate 300 ------ Total Company 13,100 ====== LABOR RELATIONS Approximately 3,800 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 the 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 Newspaper Guild of New York (which contract expires on March 30, 2003, and covers approximately 1,500 employees), the International Brotherhood of Electricians (which contract expires on March 30, 1999, and covers approximately five employees) 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 10 employees in this non-production union) expired in May 1995; the parties are continuing to negotiate a successor contract. The Times has agreements with four of its unions (covering approximately 2,400 employees) on a wage package for the period beginning March 31, 1996, and ending March 30, 2000, except for the Newspaper Guild of New York agreement, which ends on March 30, 2003. City & Suburban reached agreements with two of 10
its unions (covering approximately 25 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 950 employees) are being negotiated. If such negotiations are not successful, the wage packages will be submitted to binding arbitration for resolution. Approximately 2,100 full-time equivalent employees of The Globe and its subsidiaries are represented by 12 unions. On December 28, 1997, The Globe's labor agreement with The Boston Globe Employees Association, an affiliate of The Newspaper Guild representing non-production employees, expired. Negotiations have commenced and The Globe expects them to be completed in 1998. Negotiations continue with one production union whose contract expired in December 31, 1995. The Globe expects to conclude these negotiations in 1998 as well. In late December 1997, The Globe concluded its negotiations with Boston Typographical Union No. 13 (representing composing room employees) for a new 10-year agreement, effective January 1, 1997, through December 31, 2006. Nine other production unions have contracts that continue to be in effect with expiration dates ranging from December 31, 1998, to December 31, 2001. The Company cannot predict the timing or the outcome of the various negotiations described above. 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. 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. A renovation of The Times's newsroom, commenced in 1995, is expected to be complete by 1999. The renovation was designed to give The Times necessary additional space and an enhanced electrical infrastructure. The Company has two modern printing facilities: one in Edison, New Jersey, and the other in College Point, Queens. The Edison facility, a 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 College Point facility is a 515,000 square foot printing and distribution plant which commenced operations 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. These two facilities 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. In 1997, the Company completed the sale of a former production facility in Carlstadt, New Jersey. 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 (in the aggregate, 670,000 square feet). 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 color printing facility was completed in 1997 at The Ledger in Lakeland, Florida. 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. 11
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Executive Officers of the Registrant Employed By Position(s) As Of Name Age Registrant Since February 27, 1998 - - -------------------------- --- ---------------- ----------------------------- Corporate Officers Arthur O. Sulzberger, Jr... 46 1978 Chairman (since 1997) and Publisher of The Times (since 1992) Russell T. Lewis........... 50 1966(1) President (since 1996) and Chief Executive Officer (since 1997); Chief Operating Officer (1996 to 1997); President and General Manager of The Times (1993 to 1996); Deputy General Manager of The Times (1991 to 1993) Michael Golden............. 48 1984 Vice Chairman and Senior Vice President (since 1997); Vice President, Operations Development (1996 to 1997); Executive Vice President, Sports/Leisure Magazines and Publisher of Tennis (1994 to 1995); Executive Vice President and General Manager of Women's Magazines (1991 to 1994) Cynthia H. Augustine....... 40 1986(2) Senior Vice President (since 1998), Human Resources; Partner of Sabin, Bermant and Gould LLP (1994 to 1998); Of Counsel, Sabin, Bermant and Gould LLP (1993 to 1994); Attorney at the Company (1986 to 1993) Diane P. Baker............. 43 1995 Senior Vice President and Chief Financial Officer (since 1995); Treasurer (1996 to 1997); Group Senior Vice President--Chief Financial Officer of R.H. Macy & Co., Inc. ("Macy's") (1993 to 1995); Senior Vice President--Finance and Chief Financial Officer of Macy's (1990 to 1993) Katharine P. Darrow........ 54 1970(3) Senior Vice President (since 1993), Broadcasting (since 1993), Real Estate (since 1993), Corporate Communications (1996 to 1997), Corporate Development and Human Resources (1993 to 1996); Vice Chairman, The International Herald Tribune S.A.S. (since 1996); Vice President (1988 to 1993), Broadcasting/ Information Services and Corporate Development Leonard P. Forman.......... 52 1974(4) Senior Vice President (since 1996), Corporate Development, New Ventures and Electronic Businesses; President and Chief Executive Officer of Nynex/Newsday electronic service joint venture (1995); Chief Operating Officer of the Newspaper Association of America (1992 to 1994) John M. O'Brien............ 55 1960 Senior Vice President (since 1996), Operations; Executive Vice President (1992 to 1996) and Deputy General Manager (1991 to 1996) of The Times Solomon B. Watson IV....... 53 1974 Senior Vice President (since 1996); Vice President (1990 to 1996); General Counsel (since 1989) - - ---------- (1) Mr. Lewis left the Company in 1973 and returned in 1977. (2) Ms. Augustine left the Company in 1993 and returned in 1998. (3) Mrs. Darrow left the Company in 1971 and returned in 1973. (4) Mr. Forman left the Company in 1986 and returned in 1996. 12
Employed By Position(s) As Of Name Age Registrant Since February 27, 1998 - - -------------------------- --- ---------------- ----------------------------- Laura J. Corwin............ 52 1980 Vice President (since 1997); Secretary (since 1989) and Corporate Counsel (1993 to 1997) Stuart Stoller............. 42 1996 Vice President and Corporate Controller (since 1996); Controller of Coopers and Lybrand L.L.P. (1995); Senior Vice President--Control and Accounting of Macy's (1993 to 1995); Group Vice President--Control and Accounting of Macy's (1991 to 1993) Ellen Taus................. 39 1996 Treasurer (since 1997); Assistant Treasurer (1996 to 1997); Independent Financial and Transition Consultant (1994 to 1996); Vice President--Corporate Finance of Macy's (1992 to 1994) Operating Unit Executives James W. FitzGerald........ 59 1968 President, The New York Times Company Magazine Group, Inc. (since 1985) Stephen Golden............. 50 1967(1) Vice President, Forest Products, Health, Safety and Environmental Affairs (since 1992); President of the Company's Forest Products Group (since 1994) C. Frank Roberts........... 54 1970 Vice President, Broadcasting (since 1986); President, The New York Times Company Broadcast Group (since 1985) William O. Taylor.......... 65 1993 Chairman and Chief Executive Officer of Globe Newspaper Company (since 1982); Director (since 1993); Publisher of The Boston Globe (1978 to 1997) James C. Weeks............. 55 1971 President, The New York Times Company Regional Newspaper Group (since 1993); Executive Vice President, Operations, Regional Newspaper Group (1988 to 1993) - - ---------- (1) Mr. Golden left the Company in 1969 and returned in 1974. 13
PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information required by this item appears at page F-31 of this Form 10-K. Item 6. Selected Financial Data. The information required by this item appears at page F-1 of this Form 10-K. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by this item appears at pages F-4 to F-11 of this Form 10-K. Item 8. Financial Statements and Supplementary Data. The information required by this item appears at pages F-2, F-3, pages F-12 to F-30 and page F-32 of this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III 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 7 and pages 9 to 13 of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. Item 11. Executive Compensation. The information required by this item is incorporated by reference to pages 15 to 19, but only up to and not including the section entitled "Performance Presentation," of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is incorporated by reference to pages 1 to 8 of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated by reference to page 13 and pages 16 to 19, but only up to and not including the section entitled "Performance Presentation," of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. 14
PART IV 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 F-2, F-3 and F-12 to F-30. The report of Deloitte & Touche LLP, Independent Public Accountants, dated January 30, 1998, is set forth on page F-31 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 F-2, F-3 and F-12 to F-30. 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. Page ---- Independent Auditors' Consent................................ Exhibit 23 Consolidated Schedules for the Three Years Ended December 28, 1997: II--Valuation and Qualifying Accounts.. S-1 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 Securities and Exchange 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 February 19, 1998. (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 February 19, 1998. 15
(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 February 19, 1998. (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) Amendment No. 1, dated May 1, 1997, to the Company's Supplemental Executive Retirement Plan (filed as an Exhibit to the Company's Form 10-Q dated March 30, 1997, and incorporated by reference herein). (10.7) 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). (10.8) 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). (10.9) 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). (10.10) 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). (10.11) 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). (10.12) 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). (10.13) 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). (10.14) 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). (10.15) API's 1989 Stock Option Plan (filed as Annex F-1 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). (10.16) API's Supplemental Executive Retirement Plan, as amended effective December 17, 1996. 16
(10.17) 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). (10.18) 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. (10.20) The New York Times Designated Employees Deferred Earnings Plan. (10.21) The Company's Non-Employee Directors Deferral Plan (filed as an Exhibit to the Company's Form 10-Q dated November 12, 1997, and incorporated by reference herein). (21) Subsidiaries of the Company. (23) Consent of Deloitte & Touche LLP. (27) Financial Data Schedules. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the fiscal year ended December 28, 1997. 17
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 2, 1998 (Registrant) THE NEW YORK TIMES COMPANY By: /S/ LAURA J. CORWIN --------------------------------------------- Laura J. Corwin, Vice President and 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. Signature Title Date --------- ----- ---- ARTHUR OCHS SULZBERGER Chairman Emeritus, Director March 2, 1998 ARTHUR O. SULZBERGER, JR. Chairman, Director (Principal March 2, 1998 Executive Officer) RUSSELL T. LEWIS Chief Executive Officer, March 2, 1998 President and Director MICHAEL GOLDEN Vice Chairman, Senior Vice March 2, 1998 President and Director JOHN F. AKERS Director March 2, 1998 DIANE P. BAKER Senior Vice President and March 2, 1998 Chief Financial Officer (Principal Financial Officer) RICHARD L. GELB Director March 2, 1998 A. LEON HIGGINBOTHAM, JR. Director March 2, 1998 RUTH S. HOLMBERG Director March 2, 1998 ROBERT A. LAWRENCE Director March 2, 1998 GEORGE B. MUNROE Director March 2, 1998 CHARLES H. PRICE II Director March 2, 1998 GEORGE L. SHINN Director March 2, 1998 DONALD M. STEWART Director March 2, 1998 STUART STOLLER Vice President, Corporate March 2, 1998 Controller (Principal Accounting Officer) JUDITH P. SULZBERGER Director March 2, 1998 WILLIAM O. TAYLOR Director March 2, 1998 18
Appendix 1997 Financial Report
THE NEW YORK TIMES COMPANY 1997 Consolidated Financial Statements - - -------------------------------------------------------------------------------- Contents Page - - -------------------------------------------------------------------------------- Financial Highlights F-1 Segment Information F-2 Management's Discussion and Analysis F-4 Consolidated Statements of Income F-12 Consolidated Balance Sheets F-13 Consolidated Statements of Cash Flows F-15 Consolidated Statements of Stockholders' Equity F-17 Notes to Consolidated Financial Statements F-18 Independent Auditors' Report F-31 Management's Responsibilities Report F-31 Market Information F-31 Quarterly Information F-32 Ten-Year Supplemental Financial Data F-33
<TABLE> <CAPTION> FINANCIAL HIGHLIGHTS - - -------------------------------------------------------------------------------------------------------------------------- Dollars in thousands, except per share data Years Ended ------------------------------------------------------------------------- December 28, December 29, December 31, ------------ ------------ ----------------------------------- <S> <C> <C> <C> <C> <C> 1997 1996 1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------- REVENUES AND INCOME Revenues $2,866,418 $2,628,271 $2,428,124 $2,396,517 $2,057,370 Operating profit 455,102 173,280 232,749 210,899 126,028 Income before income taxes 437,365 197,909 233,839 388,736 48,108 Net income 262,301 84,534 135,860 213,349 6,123 - - -------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Property, plant and equipment - net 1,366,931 1,358,029 1,266,609 1,158,751 1,112,024 Total assets 3,639,018 3,539,871 3,389,704 3,137,631 3,215,204 Long-term debt and capital lease obligations 535,428 636,632 637,873 523,196 460,063 Common stockholders' equity 1,728,062 1,623,379 1,610,349 1,543,539 1,598,883 - - -------------------------------------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK Basic earnings 2.72 .87 1.40 2.05 .07 Diluted earnings 2.66 .86 1.39 2.04 .07 Dividends .64 .57 .56 .56 .56 Common stockholders' equity (end of year) 17.90 16.69 16.50 15.71 14.96 - - -------------------------------------------------------------------------------------------------------------------------- KEY RATIOS (See notes below) Operating profit to revenues 16% 11% 10% 9% 6% Return on average stockholders' equity 15% 10% 8% 7% - Return on average total assets 7% 5% 4% 3% - Long-term debt and capital lease obligations to total capitalization 24% 28% 28% 25% 22% Current assets to current liabilities .88 .74 .92 .92 .89 - - -------------------------------------------------------------------------------------------------------------------------- EMPLOYEES 13,100 12,800 12,300 12,800 13,000 - - -------------------------------------------------------------------------------------------------------------------------- </TABLE> All earnings per share amounts for special items below are the same for basic and diluted earnings per share unless otherwise noted. The following transactions are NOT reflected in the respective year income amounts used in the applicable key ratio calculations presented above: In 1997, the Company recorded an $18.0 million favorable tax adjustment ($.19 basic earnings per share, $.18 diluted earnings per share) resulting from the completion of the Company's federal income tax audits for periods through 1992. In addition, the Company recorded aggregate pre-tax gains totaling $10.4 million ($5.7 million after taxes or $.06 per share) from the sale of the assets of its tennis, sailing and ski businesses and certain small properties, net of the exit costs associated with the shutdown of a golf-related business (see Note 2 of Notes to the consolidated financial statements). The Company also recorded a $10.1 million pre-tax noncash charge ($5.7 million after taxes or $.06 per share) relating to the adoption of Emerging Issues Task Force Issue No. 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation ("EITF 97-13") (see Note 3 of Notes to the consolidated financial statements). In 1996, the Company recorded a $126.8 million pre-tax noncash charge ($94.5 million after taxes or $.97 basic earnings per share, $.96 diluted earnings 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 4 of Notes to the consolidated financial statements). The Company also recorded pre-tax 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 of Notes to the consolidated financial statements). In 1995, the Company sold small regional newspapers (see Note 2 of Notes to the consolidated financial statements). 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, 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 F-33) which lowered net income for the year. Amounts for 1997 through 1993 include The Boston Globe since its acquisition on October 1, 1993. F-1
SEGMENT INFORMATION The Company has classified its business Magazine Group: Three golf-related into the following segments and equity publications and related activities in interests: the golf field, and New Ventures, such as on-line magazine services. Newspaper Group: The New York Times Broadcast Group: Eight ("The Times"), The Boston Globe ("The network-affiliated television Globe"), 21 regional newspapers, stations and two radio stations. newspaper distributors, a news service, a features syndicate, TimesFax, Joint Ventures: Equity ownership licensing operations of The New York interests in a newsprint mill, a Times databases/microfilm and New supercalendered paper mill, a one-half Ventures. New Ventures include, among interest in the International Herald other things, projects developed in Tribune S.A.S., and a new venture. The electronic media. new venture ceased operations in December 1996. - - ------------------------------------------------------------------------------- Dollars in thousands Years Ended ---------------------------------------- December 28, December 29, December 31, 1997 1996 1995 - - ------------------------------------------------------------------------------- REVENUES Newspapers $ 2,557,080 $ 2,348,592 $ 2,180,077 Magazines 164,832 161,071 162,941 Broadcast 144,506 118,608 85,106 - - ------------------------------------------------------------------------------- Total $ 2,866,418 $ 2,628,271 $ 2,428,124 - - ------------------------------------------------------------------------------- OPERATING PROFIT (LOSS) Newspapers $ 434,057 $ 179,611 $ 212,634 Magazines 28,332 24,778 28,741 Broadcast 39,368 30,596 18,943 Unallocated corporate expenses (46,655) (61,705) (27,569) - - ------------------------------------------------------------------------------- Total 455,102 173,280 232,749 Income from Joint Ventures 13,990 18,223 15,029 Interest expense, net 42,115 26,430 25,230 Net gain on dispositions of assets 10,388 32,836 11,291 - - ------------------------------------------------------------------------------- Income before income taxes 437,365 197,909 233,839 Income taxes 175,064 113,375 97,979 - - ------------------------------------------------------------------------------- NET INCOME $ 262,301 $ 84,534 $ 135,860 - - ------------------------------------------------------------------------------- See Notes to the consolidated financial statements. Newspaper Group operating profit for 1997, 1996 and 1995 includes charges of $7.5 million, $31.9 million and $8.5 million, respectively, for costs related to work force reductions ("buyouts"). The 1996 Broadcast Group operating profit includes a charge of $0.3 million for buyouts. The 1996 Newspaper Group and Magazine Group operating profits include $125.7 million and $1.1 million, respectively, of the noncash SFAS 121 charge (see Note 4 of Notes to the consolidated financial statements). Magazine Group 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 in each of 1997, 1996 and 1995. Broadcast Group amounts for 1996 and 1995 were affected by the acquisitions of new television stations (see Note 2 of Notes to the consolidated financial statements). Unallocated corporate expenses for 1997, 1996 and 1995 include charges of $1.0 million, $11.9 million, and $1.6 million, respectively, for buyouts. Unallocated corporate expenses for 1997 also include a $10.1 million noncash charge related to the adoption of EITF 97-13 (see Note 3 of Notes to the consolidated financial statements). F-2
SEGMENT INFORMATION - - ------------------------------------------------------------------------------- Dollars in thousands Years Ended ---------------------------------------- December 28, December 29, December 31, 1997 1996 1995 - - ------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION Newspapers $ 160,192 $ 138,630 $ 132,884 Magazines (7,330) (7,320) (7,000) Broadcast 17,919 14,161 8,527 Corporate 2,761 2,022 1,151 Investment in Joint Ventures 355 384 380 - - ------------------------------------------------------------------------------- Total $ 173,897 $ 147,877 $ 135,942 - - ------------------------------------------------------------------------------- CAPITAL EXPENDITURES Newspapers $ 117,346 $ 179,762 $ 196,096 Magazines 3,205 2,554 736 Broadcast 7,225 4,438 4,093 Corporate 32,392 20,080 11,130 - - ------------------------------------------------------------------------------- Total $ 160,168 $ 206,834 $ 212,055 - - ------------------------------------------------------------------------------- IDENTIFIABLE ASSETS Newspapers $ 2,711,180 $ 2,733,243 $ 2,805,061 Magazines 56,236 92,632 89,731 Broadcast 409,742 406,053 174,363 Corporate 327,510 170,688 191,343 Investment in Joint Ventures 134,350 137,255 129,206 - - ------------------------------------------------------------------------------- Total $ 3,639,018 $ 3,539,871 $ 3,389,704 - - ------------------------------------------------------------------------------- See Notes to the consolidated financial statements. F-3
MANAGEMENT'S DISCUSSION AND ANALYSIS - - ------------------------------------------------------------------------------- OVERVIEW Advertising and circulation revenues accounted for approximately 70% and 23%, respectively, of the Company's revenues in 1997. Other revenues primarily included newspaper wholesaler distribution operations and database royalties. Newsprint is the major component of the Company's cost of raw materials. Newsprint prices fell dramatically throughout 1996 from the historic highs of 1995. Although newsprint prices increased in 1997 and the Company's cost of newsprint was higher in the fourth quarter of 1997 than in the comparable 1996 quarter, the annual cost of newsprint for 1997 was significantly lower than 1996. Newsprint prices are expected to drift upward in 1998, but they are not expected to be as volatile as in the last few years. In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("SFAS 128"), which is effective for fiscal periods ending after December 15, 1997. SFAS 128 replaced primary earnings per share ("EPS") with basic EPS and fully diluted EPS with diluted EPS. SFAS 128 also required previously reported earnings per share to be restated. Earnings per share amounts presented in the following Management's Discussion and Analysis are in accordance with the new accounting pronouncement. All earnings per share amounts are also the same for basic and diluted earnings per share unless otherwise noted. RESULTS OF OPERATIONS: 1997 COMPARED WITH 1996 In 1997, the Company reported net income of $262.3 million or $2.72 basic earnings per share ($2.66 diluted earnings per share), compared with $84.5 million or $.87 basic earnings per share ($.86 diluted earnings per share), in 1996. Net income in fiscal 1996 was reduced by a noncash accounting charge of $94.5 million or $.97 basic earnings per share ($.96 diluted earnings per share) (see special items described below). Exclusive of the special items described below, net income for 1997 increased 34% to $249.0 million, or $2.58 basic earnings per share ($2.53 diluted earnings per share), from net income for 1996 of $185.9 million, or $1.91 basic earnings per share ($1.89 diluted earnings per share). The increase in 1997 net income was primarily a result of higher advertising revenues, lower cost of newsprint for the majority of the year in the Newspaper Group, and the continuing strong performance of KFOR-TV, Oklahoma City, Okla., and WHO-TV, Des Moines, Iowa, both acquired in July 1996, in the Broadcast Group. Earnings for 1997 were affected by the following special items: - $18.0 million favorable tax adjustment ($.19 basic earnings per share, $.18 diluted earnings per share) resulting from the completion of the Company's federal income tax audits for periods through 1992 ("favorable tax adjustment"). - $10.4 million aggregate pre-tax gain ($.06 per share) resulting from the sale of the assets of the tennis, sailing and ski businesses and certain small properties, net of the exit costs associated with the shutdown of a golf-related business. - $10.1 million pre-tax charge ($.06 per share) resulting from a noncash charge relating to the adoption of Emerging Issues Task Force Issue No. 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation ("EITF 97-13 charge"). - $8.5 million pre-tax charge ($.05 per share) for severance and related costs resulting from work force reductions ("buyouts"). Earnings for 1996 were affected by the following special items: - $126.8 million pre-tax charge ($.97 basic earnings per share, $.96 diluted earnings per share) resulting from a noncash charge relating to SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("SFAS 121 charge"). - $44.1 million pre-tax charge ($.25 per share) for buyouts. - $25.1 million pre-tax gain ($.14 per share) resulting from the realization of a gain contingency from the disposition of a paper mill in a prior year ("paper mill 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"). Consolidated revenues for 1997 were $2.87 billion, an increase of 9.1% over revenues of $2.63 billion in 1996. On a comparable basis, adjusted for the acquisitions/dispositions of certain properties, 1997 revenues increased by approximately 7% over 1996. The increase in revenues on a comparable basis was primarily due to higher advertising revenues at the Newspaper Group as a result of higher rates and volume. Production costs for 1997 increased 3.8% to $1.41 billion from $1.36 billion in 1996. The increase was primarily due to higher salary and payroll-related costs and depreciation expenses associated with new production facilities, partially offset by a lower cost of newsprint during the majority of the year. Selling, general and administrative expenses ("SGA expenses") for 1997 increased 3.3% to $999.1 million from $967.1 million in 1996. SGA expenses for 1997, exclusive of buyouts and the EITF 97-13 charge (see Note 3 of Notes to the consolidated financial statements), increased 6.2% to $980.5 from $923.0 million in 1996, exclusive of buyouts. F-4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - - -------------------------------------------------------------------------------- The impairment loss in 1996 is related to the SFAS 121 charge of $126.8 million (see Note 4 of Notes to the consolidated financial statements). Operating profit for 1997 rose to $455.1 million from $173.3 million in 1996. Operating profit for 1997, exclusive of buyouts and the EITF 97-13 charge, rose to $473.7 million from $344.2 million in 1996, exclusive of the SFAS 121 charge and buyouts. The improvement in operating profit was principally attributable to higher advertising revenues and a lower cost of newsprint for the majority of the year in the Newspaper Group, and to the continuing strong performance of KFOR-TV and WHO-TV. The Company's earnings for the year before interest, income taxes, depreciation and amortization ("EBITDA") for 1997 rose to $653.4 million from $372.2 million in 1996. EBITDA for 1997, excluding gains on dispositions, exit costs associated with the shutdown of a golf-related business and the EITF 97-13 charge, was $653.1 million compared with $466.1 million in 1996, excluding the SFAS 121 charge and gains on dispositions. EBITDA is presented because it is a widely accepted indicator of funds available to service debt, although it is not a measure of liquidity or of financial performance under generally accepted accounting principles ("GAAP"). The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. In 1997, Interest expense, net increased to $42.1 million from $26.4 million in 1996. The increase was primarily a result of lower capitalization of interest expense associated with construction. Interest income and capitalized interest included in the amounts presented were $8.3 million in 1997 compared with $23.9 million in 1996. Net gains on dispositions were $10.4 million in 1997 compared with $32.8 million in 1996. The 1997 results include the sale of the assets of the tennis, sailing and ski businesses and certain small properties, net of the exit costs associated with the shutdown of a golf-related business (see special items described above). The 1996 results include the paper mill gain realization and the sale of a building (see special items described above). The Company's annual effective tax rate was 44.1% in 1997 compared with 44.7% in 1996. The 1997 and 1996 effective tax rates exclude the favorable tax adjustment, taxes associated with disposition of assets and the SFAS 121 charge where appropriate. The effective tax rate change was primarily attributable to non-taxable items. The following discussion provides additional information with respect to the Company's traditional operations and new ventures: NEWSPAPER GROUP: The Times, 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, among other things, projects developed in electronic media. - - ----------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 - - ----------------------------------------------------------------------------- REVENUES Newspapers $2,541,262 $2,340,029 New Ventures 15,818 8,563 - - ----------------------------------------------------------------------------- Total Revenues $2,557,080 $2,348,592 - - ----------------------------------------------------------------------------- EBITDA Newspapers $ 600,581 $ 454,944 New Ventures (6,332) (11,011) - - ---------------------------------------------------------------------------- Total EBITDA $ 594,249 $ 443,933 - - ---------------------------------------------------------------------------- OPERATING PROFIT (LOSS) Newspapers $ 441,396 $ 195,176 New Ventures (7,339) (15,565) - - ---------------------------------------------------------------------------- Total Operating Profit $ 434,057 $ 179,611 - - ----------------------------------------------------------------------------- The Newspaper Group's operating profit for 1997, excluding buyouts, rose to $441.6 million from $337.2 million in 1996, excluding the SFAS 121 charge and buyouts, on revenues of $2.6 billion and $2.3 billion, respectively. The 8.9% increase in revenues for the year was primarily due to higher advertising as a result of higher rates and volume. Other revenue increased 25.5% in 1997 due to the expanded wholesale newspaper delivery operations of The Times. Operating profit for the year included a favorable 15% decrease in the cost of newsprint compared to 1996, exclusive of LIFO adjustments. Advertising volume on a comparable basis for the year was as follows: - - ----------------------------------------------------------------------------- (Inches in thousands) 1997 % Change - - ----------------------------------------------------------------------------- ADVERTISING VOLUME (excluding preprints) The New York Times 3,943.3 4.6% The Boston Globe 3,009.9 3.1% Regional Newspapers 15,659.8 0.4% - - ------------------------------------------- --------------------------------- Advertising volume at The Times increased 4.6% in 1997 over 1996. The national, classified and zoned categories increased 8.2%, 5.8% and 3.4%, respectively, while the retail category decreased 2.2%. Preprint distribution in 1997 improved 7.3% over 1996. Advertising volume at The Globe increased 3.1% in 1997 over 1996. The national and classified categories increased 8.4% and 6.1%, respectively, the zoned category remained flat and the retail category decreased 4.6%. Preprint distribution in 1997 improved 6.2% over 1996. Advertising volume at the Regional Newspapers increased 0.4% in 1997 over 1996. The national and classified categories increased 14.4% and 2.0%, respectively, while the retail and legal categories decreased 1.1% and 5.1%, respectively. Preprint distribution in 1997 improved 9.3% over 1996. F-5
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) 1997 % Change 1997 % Change - - ------------------------------------------------------------------------- AVERAGE CIRCULATION The New York Times 1,089.6 (1.2%) 1,651.3 (1.7%) The Boston Globe 474.8 0.6% 755.2 (1.0%) Regional Newspapers 733.4 0.5% 788.7 (0.1%) - - ------------------------------------------------------------------------- The average circulation decline for the year at The Times and on Sunday at The Globe and the Regional Newspapers is partly attributable to increases in newsstand and home delivery prices and a decrease in distribution to selected outlying areas. To increase circulation, The Times is investing in a national image campaign, adding new products and sections and has also entered into approximately 63 home delivery distribution arrangements to expand national circulation. In addition, the Company has added new products and sections, and made improvements in delivery service at The Globe and the Regional Newspapers. The benefit of these programs began to be realized in the latter part of 1997. Magazine Group: The Magazine Group is comprised of three golf-related publications and related activities in the golf field, and New Ventures, such as 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 on a straight-line basis over four years ending in July 1998. - - --------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 - - --------------------------------------------------------------------------- REVENUES Magazines $152,676 $150,033 Non-Compete 10,000 10,000 New Ventures 2,156 1,038 - - --------------------------------------------------------------------------- Total Revenues $164,832 $161,071 - - --------------------------------------------------------------------------- EBITDA Magazines $ 28,131 $ 25,555 New Ventures (7,129) (7,026) - - --------------------------------------------------------------------------- Total EBITDA $ 21,002 $ 18,529 - - --------------------------------------------------------------------------- OPERATING PROFIT (LOSS) Magazines $ 26,354 $ 22,537 Non-Compete 10,000 10,000 New Ventures (8,022) (7,759) - - --------------------------------------------------------------------------- Total Operating Profit $ 28,332 $ 24,778 - - --------------------------------------------------------------------------- The Magazine Group's operating profit for 1997 was $28.3 million compared with $25.8 million in 1996, excluding the SFAS 121 charge, on revenues of $164.8 million and $161.1 million, respectively. The improvement in operating profit was primarily related to higher advertising revenues as a result of increased advertising pages at the golf-related publications. Advertising pages for Golf Digest, as reported to Publisher's Information Bureau, increased 9.3% to 1,369 pages in 1997. New Venture losses were primarily attributable to the operations of a tee time reservation system. The Company decided to exit this business in the fourth quarter of 1997. In November 1997, the Company completed the sale of the assets of its tennis, sailing and ski magazine businesses (see Note 2 of Notes to the consolidated financial statements). The Magazine Group's 1997 results include eleven months of results of the sold magazine businesses. BROADCAST GROUP: The Broadcast Group is comprised of eight network-affiliated television stations and two radio stations. - - --------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 - - --------------------------------------------------------------------------- REVENUES $144,506 $118,608 - - --------------------------------------------------------------------------- EBITDA $ 57,287 $ 44,757 - - --------------------------------------------------------------------------- OPERATING PROFIT $ 39,368 $ 30,596 - - --------------------------------------------------------------------------- The Broadcast Group's operating profit was $39.4 million in 1997 compared with $30.9 million in 1996, excluding buyouts, on revenues of $144.5 million and $118.6 million, respectively. The revenue and operating profit increases were principally attributable to the strong performance of KFOR-TV and WHO-TV. These new stations, which were acquired in July 1996, contributed $12.7 million and $6.1 million of operating profit in 1997 and 1996, respectively. JOINT VENTURES: Income from Joint Ventures decreased to $14.0 million in 1997 from $18.2 million in 1996. The decrease was primarily attributable to lower selling prices for paper from the mills in which the Company has investments, partially offset by the absence of a loss from a new venture, which ceased operations in December 1996. RESULTS OF OPERATIONS: 1996 COMPARED WITH 1995 In 1996, the Company reported net income of $84.5 million or $.87 basic earnings per share ($.86 diluted earnings per share), compared with $135.9 million or $1.40 basic earnings per share ($1.39 diluted earnings per share), in 1995. Net income in fiscal 1996 was reduced by a noncash accounting charge of $94.5 million or $.97 basic earnings per share ($.96 diluted earnings per share) (see special items described below). Exclusive of the special items described below, net income for 1996 increased 36% to $185.9 million or $1.91 basic earnings per share ($1.89 diluted earnings per share), from net income for 1995 of $136.7 million, or $1.41 basic per share ($1.40 diluted earnings 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. Earnings for 1996 were affected by the following special items: - $126.8 million pre-tax charge ($.97 basic earnings per share, $.96 diluted earnings per share) resulting from the SFAS 121 charge. F-6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - - ------------------------------------------------------------------------------- - $44.1 million pre-tax charge ($.25 per share) for buyouts. - $25.1 million pre-tax gain ($.14 per share) resulting from the paper mill gain realization. - $7.8 million pre-tax gain ($.04 per share) from sale of a building. Earnings for 1995 were affected by the following special items: - $10.1 million pre-tax charge ($.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"). Consolidated revenues for 1996 were $2.63 billion, an increase of 8.2% over revenues of $2.43 billion in 1995. On a comparable basis, adjusted for acquisitions/dispositions of certain properties, 1996 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. Production costs for 1996 increased 2.1% to $1.36 billion from $1.33 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. SGA expenses for 1996 increased 12.2% to $967.1 million from $861.9 million in 1995. SGA expenses in 1996, exclusive of buyouts, increased 8.4% to $923.0 million from $851.8 million in 1995. The increase was primarily due to higher salaries and benefits, and increased amortization expense associated with new acquisitions. The impairment loss in 1996 is related to the SFAS 121 charge of $126.8 million (see Note 4 of Notes to the consolidated financial statements). Operating profit for 1996 decreased to $173.3 million from $232.7 million in 1995. Operating profit for 1996, excluding buyouts and the SFAS 121 charge,rose to $344.2 million from $242.8 million in 1995, excluding buyouts. 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. The Company's EBITDA for 1996 decreased to $372.2 million from $395.0 million in 1995. EBITDA for 1996, excluding the SFAS 121 charge and gains on dispositions, rose to $466.1 million from $383.7 million in 1995, excluding a gain from a disposition. EBITDA is presented because it is a widely accepted indicator of funds available to service debt, although it is not a measure of liquidity or of financial performance under GAAP. The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. In 1996, Interest expense, net increased to $26.4 million from $25.2 million in 1995. The increase net was a result of higher debt levels incurred for acquisitions partially offset by higher capitalization of interest expense associated with construction. Interest income and capitalized interest included in the amounts presented was $23.9 million in 1996 compared with $23.5 million in 1995. Net gains on dispositions were $32.8 million in 1996 and $11.3 million in 1995. The 1996 results include the paper mill gain realization and the sale of a building (see special items described above). The 1995 results include the sale of small newspapers (see special items 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: - - --------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 - - --------------------------------------------------------------------------- REVENUES Newspapers $2,340,029 $2,179,120 New Ventures 8,563 957 - - --------------------------------------------------------------------------- Total Revenues $2,348,592 $2,180,077 - - --------------------------------------------------------------------------- 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, rose to $337.2 million from $221.1 million in 1995, excluding buyouts, on revenues of $2.3 billion and $2.2 billion, respectively. The 7.7% 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 28.1% for the year as the Newspaper Group 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. 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 2,918.8 0.7% Regional Newspapers 15,560.6 0.2% - - ------------------------------------------------------------------------- F-7
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - - ------------------------------------------------------------------------------- Advertising volume at The Times decreased 1.1% in 1996 over 1995. The zoned, retail and classified categories decreased 5.1%, 6.4%, and 0.2%, respectively, while national experienced an increase of 4.8%. Advertising volume at The Globe increased 0.7% in 1996 over 1995. Classified and zoned categories increased 6.9% and 0.1%, respectively, while the retail and national categories decreased 5.5% and 3.7%, respectively. Preprint distribution in 1996 decreased 4.8% over 1995. Advertising volume at the Regional Newspapers increased 0.2% in 1996 over 1995. Legal and classified categories increased 11.9% and 4.0%, respectively, while the retail and national categories decreased 3.5% and 1.2%, respectively. Preprint distribution in 1996 improved 1.5% 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%) - - --------------------------------------------------------------------------- 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 on a straight-line basis over four years ending in July 1998. - - ----------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 - - ----------------------------------------------------------------------------- REVENUES Magazines $150,033 $152,819 Non-Compete 10,000 10,000 New Ventures 1,038 122 - - ----------------------------------------------------------------------------- Total Revenues $161,071 $162,941 - - ----------------------------------------------------------------------------- EBITDA Magazines $ 25,555 $ 22,876 New Ventures (7,026) (1,135) - - ----------------------------------------------------------------------------- Total EBITDA $ 18,529 $ 21,741 - - ----------------------------------------------------------------------------- OPERATING PROFIT (LOSS) 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, 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. Advertising pages for Golf Digest, as reported to Publisher's Information Bureau, decreased 4.0% to 1,252 pages and for Tennis increased 3.6% to 743 pages in 1996. BROADCAST GROUP: - - --------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 - - --------------------------------------------------------------------------- REVENUES $118,608 $ 85,106 - - --------------------------------------------------------------------------- EBITDA $ 44,757 $ 27,470 - - --------------------------------------------------------------------------- OPERATING PROFIT $ 30,596 $ 18,943 - - --------------------------------------------------------------------------- The Broadcast Group's operating profit for 1996, excluding buyouts, was $30.9 million 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, which was acquired in June 1995, and to KFOR-TV and WHO-TV, which were acquired in July 1996. These three stations contributed $11.3 million of operating profit in 1996. 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. F-8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - - ------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $452.2 million in 1997 compared with $425.1 million in 1996. The increase of $27.1 million, or 6.4%, was primarily attributable to higher earnings. The increase in operating cash flows was primarily used for the construction of production and distribution facilities, stock repurchases and the payment of dividends to stockholders. Net cash used in investing activities was $119.1 million in 1997 compared with $420.8 million in 1996. The decrease of $301.7 million was primarily attributable to the acquisition of certain properties in 1996 (See Note 2 of Notes to the consolidated financial statements). Net cash used in financing activities was $265.3 million in 1997 compared with $56.6 million in 1996. The increase of $208.7 million was primarily related to an increase in share repurchases and a reduction in commercial paper borrowings in 1997 (see Financing below). 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, stock repurchases, planned capital expenditures, dividend payments to stockholders and other cash requirements. The ratio of current assets to current liabilities was .88 at December 28, 1997, and .74 at December 29, 1996. The increase in the ratio of current assets to current liabilities is primarily related to an increase in short-term investments offset, in part, by an increase in the current portion of debt. Long-term debt and capital lease obligations, as a percentage of total capitalization, was 24% at December 28, 1997, and 28% at December 29, 1996. FINANCING: The Company currently maintains $300.0 million in revolving credit agreements (the "Revolvers"), $100.0 million of which was renewed in July 1997 and has been extended through July 1998, and $200.0 million of which had an original maturity of July 2001 and has been extended through July 2002. The Revolvers 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 Revolvers include provisions which require, among other matters, specified levels of stockholders' equity. Approximately $935.9 million of stockholders' equity was unrestricted under the Revolvers at December 28, 1997. The Company's long-term debt, including capital leases, was $535.4 million at December 28, 1997, compared with $636.6 million at December 29, 1996. 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 Revolvers. In July 1996, the Company utilized approximately $143.0 million of its commercial paper facility to finance the acquisition of KFOR-TV and WHO-TV. At December 28, 1997, the Company had no borrowings outstanding under its commercial paper facility. 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%. ACQUISITIONS/DISPOSITIONS: In November 1997, the Company sold the assets of its tennis, sailing, and ski businesses ("magazine sale") and certain small properties, and exited a golf-related business. These transactions resulted in a $10.4 million net pre-tax gain ($5.7 million after taxes, or $.06 per share). This gain does not include a portion of the proceeds of the magazine sale, which is in escrow pending the completion of a post-closing requirement. In 1997, the Company sold its NYT Custom Publishing division and a closed printing facility. These sales did not have a material effect on the Company's consolidated financial statements. In July 1996, the Company acquired KFOR-TV and WHO-TV. The aggregate cost of the acquisition was approximately $234.1 million, of which approximately $232.9 million was paid in cash ($143.0 million was financed using the Company's commercial paper facility) and the balance represented accrued 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 $32.5 million, of which approximately $13.9 million was paid in cash, $9.8 million in notes and accounts receivable which were forgiven, and the balance represented assumed and accrued liabilities. CAPITAL EXPENDITURES: In 1997, the Company completed construction of a new production and distribution facility in New York City for The Times and a new printing facility in Lakeland, Florida, for a Regional Newspaper. The cost of the new facilities was approximately $356.3 million, exclusive of estimated capitalized interest of $38.6 million. The Company currently estimates that capital expenditures for 1998 will range from $90.0 million to $110.0 million compared with $160.2 million in 1997 and $206.8 million in 1996. STOCK REPURCHASE PROGRAM: The Company repurchased approximately 3.0 million shares of Class A Common stock at a cost of $145.6 million in 1997 compared with approximately 1.4 million shares at a cost of $43.8 million in 1996 pursuant to a stock repurchase plan which began in February 1995. In December 1997, the Company's Board of Directors authorized additional expenditures of up to $215.0 million for share repurchases. 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. As of February 1, 1998, the remaining amount of repurchase authorizations is approximately $188.5 million. Stock repurchases under this program exclude shares reacquired in connection with certain exercises under the Company's stock option plans at a cost of approximately $22.2 million in 1997. F-9
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - - ------------------------------------------------------------------------------- In 1997, the Company redeemed all of its outstanding 5 1/2 percent cumulative prior preference stock at par value at a cost of approximately $1.8 million. NONCASH ACCOUNTING CHARGES: The $10.1 million EITF 97-13 charge recorded in the fourth quarter of 1997 was related to certain corporate expenses associated with the Company's business process/technology reengineering program. This charge had no impact on the Company's 1997 cash flow. The $126.8 million SFAS 121 charge recorded in the third quarter of 1996 was related to an impairment of certain long-lived assets. This charge had no impact on the Company's 1996 cash flow and will not impact 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 changes to depreciation and amortization expense are not expected to have a material effect on net income in the future. OTHER: At December 28, 1997, approximately $25.0 million of payments had not yet been made from prior charges for buyouts. This balance will principally be paid within one year. The Company has evaluated the potential impact of the situation commonly referred to as the "Year 2000 problem." The Year 2000 problem, which is common to most corporations, concerns the inability of information systems, primarily computer software programs, to properly recognize and process date sensitive information related to the year 2000. Preliminary assessment indicates that solutions will involve a mix of purchasing new systems, modifying existing systems, retiring obsolete systems and confirming vendor compliance. The Company currently anticipates that incremental capital expenditures associated with the Year 2000 problem will be modest. Additional expenses to remediate existing systems are currently expected to range between $10.0 million and $15.0 million. These expenses are expected to be incurred through 1999. NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"), and SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 131 establishes standards for reporting financial and descriptive information for reportable segments on the same basis that is used internally for evaluating segment performance and the allocation of resources to segments. The Company is evaluating the effect, if any, of SFAS 131 on its operating segment reporting disclosure. SFAS 130 establishes standards for presenting nonshareholder related items that are excluded from net income and reported as components of stockholders' equity, such as foreign currency translation. These statements are effective for fiscal years beginning after December 15, 1997. The adoption of these statements will not have a material effect on the Company's results of operations or financial position. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION 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 levels of the Company's retail, national and, most particularly, classified advertising revenue. Structural changes in the retail environment may also depress the level of display 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 historically volatile raw material prices increase materially, the Company's operating results could be adversely affected. F-10
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED) - - ------------------------------------------------------------------------------- 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 largest 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. PRODUCT PORTFOLIO; ACQUISITIONS: 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. Acquisitions involve risks, including difficulties in integrating acquired operations, diversions of management resources, debt incurred in financing such acquisitions and unanticipated problems and liabilities. 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 ("FCC") adopted rules in 1997 under which all television stations are required to change to a new system of digital broadcasting. The direct hardware costs of this change will be substantial and the new digital stations are unlikely to produce significant additional revenue until consumers have purchased a substantial number of digital television receivers. Additionally, the new digital transmission systems to be used by television stations, cable systems and direct broadcast satellites could 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. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. F-11
CONSOLIDATED STATEMENTS OF INCOME - - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Dollars and shares in thousands, except per share data Years Ended ----------------------------------------- December 28, December 29, December 31, 1997 1996 1995 - - --------------------------------------------------------------------------------------- <S> <C> <C> <C> REVENUES Advertising $1,999,844 $1,811,411 $1,682,707 Circulation 672,662 659,818 613,527 Other 193,912 157,042 131,890 - - --------------------------------------------------------------------------------------- Total 2,866,418 2,628,271 2,428,124 - - --------------------------------------------------------------------------------------- COSTS AND EXPENSES Production costs Raw materials 317,811 363,503 363,808 Wages and benefits 604,924 557,543 548,812 Other 489,531 440,038 420,863 - - --------------------------------------------------------------------------------------- Total 1,412,266 1,361,084 1,333,483 Selling, general and administrative expenses 999,050 967,144 861,892 Impairment loss -- 126,763 -- - - --------------------------------------------------------------------------------------- Total 2,411,316 2,454,991 2,195,375 - - --------------------------------------------------------------------------------------- OPERATING PROFIT 455,102 173,280 232,749 Income from Joint Ventures 13,990 18,223 15,029 Interest expense, net 42,115 26,430 25,230 Net gain on dispositions of assets 10,388 32,836 11,291 - - --------------------------------------------------------------------------------------- Income before income taxes 437,365 197,909 233,839 Income taxes 175,064 113,375 97,979 - - --------------------------------------------------------------------------------------- NET INCOME $ 262,301 $ 84,534 $ 135,860 - - --------------------------------------------------------------------------------------- Average number of common shares outstanding Basic 96,520 97,293 96,854 Diluted 98,575 98,442 97,376 - - --------------------------------------------------------------------------------------- Per share of common stock Basic Earnings $ 2.72 $ .87 $ 1.40 Diluted Earnings 2.66 .86 1.39 Dividends .64 .57 .56 - - --------------------------------------------------------------------------------------- </TABLE> See Notes to the consolidated financial statements. F-12
CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> - - ---------------------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - ---------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS CURRENT ASSETS Cash and short-term investments (at cost which approximates market: 1997, $72,516; 1996, $157) $ 106,820 $ 39,103 Accounts receivable (net of allowances: 1997, $25,887; 1996, $31,312) 331,287 309,164 Inventories 32,134 33,808 Deferred income taxes 60,039 36,162 Other current assets 85,555 60,535 - - ---------------------------------------------------------------------------------------------- Total current assets 615,835 478,772 - - ---------------------------------------------------------------------------------------------- INVESTMENT IN JOINT VENTURES 133,054 137,255 - - ---------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 71,515 64,384 Buildings, building equipment and improvements 793,311 646,029 Equipment 1,317,446 1,057,555 Construction and equipment installations in progress 52,933 397,181 - - ---------------------------------------------------------------------------------------------- Total - at cost 2,235,205 2,165,149 Less accumulated depreciation 868,274 807,120 - - ---------------------------------------------------------------------------------------------- Property, plant and equipment - net 1,366,931 1,358,029 - - ---------------------------------------------------------------------------------------------- INTANGIBLE ASSETS ACQUIRED Costs in excess of net assets acquired 1,204,021 1,225,868 Other intangible assets acquired 428,474 419,426 - - ---------------------------------------------------------------------------------------------- Total 1,632,495 1,645,294 Less accumulated amortization 254,790 207,580 - - ---------------------------------------------------------------------------------------------- Intangible assets acquired - net 1,377,705 1,437,714 - - ---------------------------------------------------------------------------------------------- MISCELLANEOUS ASSETS 145,493 128,101 - - ---------------------------------------------------------------------------------------------- Total $3,639,018 $3,539,871 - - ---------------------------------------------------------------------------------------------- </TABLE> See Notes to the consolidated financial statements. F-13
<TABLE> <CAPTION> - - ----------------------------------------------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> CURRENT LIABILITIES Commercial paper outstanding $ -- $ 45,500 Accounts payable 189,580 171,853 Accrued payroll and other related liabilities 103,511 84,458 Accrued expenses 217,742 247,657 Unexpired subscriptions 82,621 90,059 Current portion of long-term debt and capital lease obligations 104,033 3,359 - - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 697,487 642,886 - - ----------------------------------------------------------------------------------------------------------------------- OTHER LIABILITIES Long-term debt 490,237 589,693 Capital lease obligations 45,191 46,939 Deferred income taxes 186,705 188,560 Other 491,336 446,661 - - ----------------------------------------------------------------------------------------------------------------------- Total other liabilities 1,213,469 1,271,853 - - ----------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 5 1/2 percent cumulative prior preference stock of $100 par value - authorized 110,000 shares; outstanding: 1997 - none; 1996, 17,530 shares -- 1,753 Serial preferred stock of $1 par value - authorized 200,000 shares - none issued -- -- Common stock of $.10 par value: Class A - authorized 200,000,000 shares; issued: 1997, 113,283,790 shares; 1996, 110,622,041 shares (including treasury shares: 1997, 17,079,743; 1996, 13,349,205) 11,328 11,062 Class B, convertible - authorized 600,000 shares; issued: 1997, 564,744 shares; 1996, 568,259 shares (including treasury shares: 1997 and 1996, 139,943) 57 57 Additional paid-in capital 773,367 663,007 Earnings reinvested in the business 1,488,910 1,290,899 Common stock held in treasury, at cost (545,600) (341,646) - - ----------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,728,062 1,625,132 - - ----------------------------------------------------------------------------------------------------------------------- Total $ 3,639,018 $ 3,539,871 - - ----------------------------------------------------------------------------------------------------------------------- </TABLE> See Notes to the consolidated financial statements. F-14
CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> - - --------------------------------------------------------------------------------------------------------------------------- Dollars in thousands Years Ended ----------------------------------------- December 28, December 29, December 31, 1997 1996 1995 - - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 262,301 $ 84,534 $ 135,860 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 128,427 108,787 102,271 Amortization - net 45,470 39,090 33,671 Impairment loss -- 126,763 -- Business process/technology reengineering charge 10,100 -- -- Equity in operations of Joint Ventures - net (16,006) (21,713) (20,064) Cash distributions and dividends from Joint Ventures 14,982 16,957 7,980 Net gain on dispositions (10,388) (32,836) (11,291) Deferred income taxes (26,559) (6,005) (9,225) Changes in operating assets and liabilities, net of acquisitions/dispositions: Increase in accounts receivable - net (29,216) (24,192) (32,762) Decrease (Increase) in inventories 1,152 9,036 (12,723) (Increase) Decrease in other current assets (4,927) (25,821) 51,939 Increase in accounts payable 31,279 14,919 28,200 (Decrease) Increase in accrued payroll and accrued expenses (8,559) 81,118 43,837 Increase in unexpired subscriptions 4,359 8,093 4,832 Other - net 49,741 46,351 (26,227) - - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 452,156 425,081 296,298 - - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from dispositions 39,727 16,878 27,536 Businesses acquired, net of cash acquired -- (246,805) (71,299) Additions to property, plant and equipment (152,671) (211,320) (200,688) Purchases of marketable securities -- -- (39,370) Proceeds from sales of marketable securities -- -- 39,370 Other investing proceeds 593 24,815 4,960 Other investing payments (6,782) (4,357) (17,788) - - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (119,133) (420,789) (257,279) - - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Commercial paper (repayments) borrowings (45,500) 45,500 -- Long-term obligations Increase -- -- 400,000 Reduction (3,847) (3,377) (275,727) Capital shares Issuance 9,930 5,358 1,908 Repurchase (162,615) (48,631) (49,987) Dividends paid to stockholders (61,865) (55,532) (54,291) Preferred stock redemption (1,753) -- -- Other financing proceeds (payments) 344 51 (10,899) - - --------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (265,306) (56,631) 11,004 - - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Cash and short-term investments 67,717 (52,339) 50,023 Cash and short-term investments at the beginning of the year 39,103 91,442 41,419 - - --------------------------------------------------------------------------------------------------------------------------- Cash and short-term investments at the end of the year $ 106,820 $ 39,103 $ 91,442 - - --------------------------------------------------------------------------------------------------------------------------- </TABLE> See Notes to the consolidated financial statements and supplemental disclosures to consolidated statements of cash flows. F-15
SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> - - --------------------------------------------------------------------------------------- Dollars in thousands Years Ended ------------------------------------------ December 28, December 29, December 31, 1997 1996 1995 - - --------------------------------------------------------------------------------------- <S> <C> <C> <C> NONCASH INVESTING AND FINANCING TRANSACTIONS Businesses acquired Fair value of assets acquired $ 268,319 $ 72,977 Assets forgiven (9,833) -- Liabilities assumed and incurred (11,681) (1,678) --------- --------- Net cash paid $ 246,805 $ 71,299 ========= ========= Issuance of common shares - net $ 30,561 $ 23,155 $ 22,477 ========= ========= ========= CASH FLOW INFORMATION Cash payments during the year for Interest (net of amount capitalized) $ 39,122 $ 24,367 $ 29,277 ========= ========= ========= Income taxes $ 169,115 $ 133,871 $ 86,851 ========= ========= ========= - - --------------------------------------------------------------------------------------- </TABLE> 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 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 (see Note 9 of Notes to the consolidated financial statements). F-16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Dollars in thousands, except per share data Capital Stock Common --------------------------------------- Earnings Stock Additional Reinvested Held in 5 1/2 % Class A Class B Paid-in in the Treasury, Preference Common Common Capital Business at cost Total - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> BALANCE, JANUARY 1, 1995 $ 1,753 $ 10,805 $ 57 $ 597,860 $ 1,179,715 $ (244,898) $ 1,545,292 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income 135,860 135,860 - - ---------------------------------------------------------------------------------------------------------------------------------- Dividends, preference - $5.50 per share (96) Dividends, common - (96) $.56 per share (54,195) (54,195) - - ---------------------------------------------------------------------------------------------------------------------------------- Issuance of shares: Retirement units, etc. - 21,421 Class A shares from treasury (308) 533 225 Employee stock purchase plan - 1,100,348 Class A shares 1 (4,852) 26,023 21,172 Stock options - 297,569 Class A shares 89 22,925 (16,317) 6,697 Stock conversions - 1,202 shares -- -- - - ---------------------------------------------------------------------------------------------------------------------------------- Purchase of company stock: 2,054,904 Class A shares (46,536) (46,536) Proceeds from the sale of put options 285 285 Fulfilled equity put option obligations 2,660 2,660 - - ---------------------------------------------------------------------------------------------------------------------------------- Foreign currency translation 738 738 - - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 1,753 10,895 57 618,570 1,262,022 (281,195) 1,612,102 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income 84,534 84,534 - - ---------------------------------------------------------------------------------------------------------------------------------- Dividends, preference - $5.50 per share (96) (96) Dividends, common - $.57 per share (55,436) (55,436) - - ---------------------------------------------------------------------------------------------------------------------------------- Issuance of shares: Retirement units, etc. - 16,127 Class A shares from treasury (271) 383 112 Employee stock purchase plan - 967,125 Class A shares 729 22,707 23,436 Stock options - 508,222 Class A shares 167 43,928 (39,702) 4,393 Stock conversions - 660 shares -- -- - - ---------------------------------------------------------------------------------------------------------------------------------- Purchase of company stock: 1,394,900 Class A shares (43,839) (43,839) Proceeds from the sale of put options 51 51 - - ---------------------------------------------------------------------------------------------------------------------------------- Foreign currency translation (125) (125) - - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 29, 1996 1,753 11,062 57 663,007 1,290,899 (341,646) 1,625,132 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income 262,301 262,301 - - ---------------------------------------------------------------------------------------------------------------------------------- Dividends, preference - $4.125 per share (72) (72) Dividends, common - $.64 per share (61,793) (61,793) - - ---------------------------------------------------------------------------------------------------------------------------------- Issuance of shares: Retirement units, etc. - 8,595 Class A shares from treasury 202 202 404 Employee stock purchase plan - 799,285 Class A shares 8,335 18,730 27,065 Stock options - 1,080,963 Class A shares 266 101,570 (77,423) 24,413 Stock awards - 3,850 Class A Shares (91) 91 -- Stock conversions - 3,515 shares -- -- - - ----------------------------------------------------------------------------------------------------------------------------------- Purchase of company stock: 2,966,000 Class A shares (145,554) (145,554) Preferred stock redemption (1,753) (1,753) Proceeds from the sale of put options 344 344 - - ---------------------------------------------------------------------------------------------------------------------------------- Foreign currency translation (2,425) (2,425) - - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 28, 1997 -- $ 11,328 $ 57 $ 773,367 $ 1,488,910 $ (545,600) $ 1,728,062 - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> See Notes to the consolidated financial statements. F-17
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 broadcasting. 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 year-end exchange rates. Results of operations are translated at average rates of exchange in effect during the year. The resultant translation adjustment is included as a component of stockholders' equity. EARNINGS PER SHARE. In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("SFAS 128"), which is effective for fiscal periods ending after December 15, 1997 (see Note 6). SFAS 128 replaced primary earnings per share ("EPS") with basic EPS and fully diluted EPS with diluted EPS. Basic EPS is calculated by dividing net earnings available to common shares by weighted average common shares outstanding. Diluted EPS is calculated similarly, except that it includes the dilutive effect of the assumed exercise of securities, including the effect of shares issuable under the Company's incentive plans (see Note 13). SFAS 128 also required previously reported earnings per share to be restated. All per share amounts included in the footnotes are the same for basic and diluted earnings per share unless otherwise noted. The adoption of SFAS 128 did not have a material effect on the calculation of EPS. CASH AND SHORT-TERM INVESTMENTS. For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly-liquid debt instruments purchased with original 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. No such contracts were outstanding at December 28, 1997. INVESTMENT TAX CREDITS. The Company uses the deferred method of accounting for investment tax credits. 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 1997, the Company adopted the provisions of Emerging Issues Task Force Issue No. 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation ("EITF 97-13") (see Note 3). F-18
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"), and SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 131 establishes standards for reporting financial and descriptive information for reportable segments on the same basis that is used internally for evaluating segment performance and the allocation of resources to segments. The Company is evaluating the effect, if any, of SFAS 131 on its operating segment reporting disclosure. SFAS 130 establishes standards for presenting nonshareholder related items that are excluded from net income and reported as components of stockholders' equity, such as foreign currency translation. These statements are effective for fiscal year beginning after December 15, 1997. The adoption of these statements will not have a material effect on the Company's results of operations or financial position. - - -------------------------------------------------------------------------------- 2. ACQUISITIONS/DISPOSITIONS ACQUISITIONS: In July 1996, the Company acquired KFOR-TV in Oklahoma City, Okla. and WHO-TV in Des Moines, Iowa. The aggregate cost of the acquisition was approximately $234,075,000, of which approximately $232,925,000 was paid in cash and the balance represented accrued liabilities. The purchases resulted in increases in intangible assets of approximately $197,118,000 (consisting primarily of network affiliation agreements, Federal Communications Commission licenses and other intangible assets), property plant and equipment of $29,058,000, other assets of $9,687,000 and other 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 $32,456,000, of which approximately $13,880,000 was paid in cash, $9,833,000 in notes and accounts receivable which were forgiven, and the balance represented assumed and accrued liabilities. The purchase resulted in increases in intangible assets of approximately $30,438,000 (consisting primarily of a customer list), and accounts receivable and equipment of $2,018,000. 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 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 November 1997, the Company sold the assets of its tennis, sailing, and ski businesses ("magazine sale") and certain small properties, and exited a golf-related business. These transactions resulted in a $10,388,000 net pre-tax gain ($5,663,000 after-taxes, or $.06 per share). This gain does not include a portion of the proceeds of the magazine sale, which is in escrow pending the completion of a post-closing requirement. In 1997, the Company sold its NYT Custom Publishing division and a closed printing facility. These sales did not have a material effect on the Company's consolidated financial statements. 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. - - -------------------------------------------------------------------------------- 3. BUSINESS PROCESS/TECHNOLOGY REENGINEERING CHARGE In the fourth quarter of 1997, the Company recorded a pre-tax noncash accounting charge of $10,100,000 ($5,686,000 after-tax, or $.06 per share) as a result of adopting the provisions of EITF 97-13. This charge related to certain expenses associated with the Company's business process/technology reengineering program. This charge had no impact on the Company's 1997 cash flow. F-19
- - -------------------------------------------------------------------------------- 4. IMPAIRMENT LOSS In September 1996, the Company recorded a noncash accounting charge related to an impairment of certain long-lived assets as required by SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("SFAS 121 charge"), 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, 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 flows and resulted in a pre-tax noncash charge of $126,763,000 ($94,500,000 after-tax, or $.97 basic earnings per share, $.96 diluted earnings per share). The SFAS 121 charge had no impact on the Company's 1996 cash flow and will not impact 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 changes to depreciation and amortization expense are not expected to have a material effect on net income in the future. - - -------------------------------------------------------------------------------- 5. 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 the 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 $9,680,000, $6,200,000 and $3,650,000 in 1997, 1996 and 1995, respectively. Loans to Madison by the 80%-owned subsidiary of the Company totaled $1,769,000 and $1,882,000, in 1996 and 1995, respectively. Loan repayments in 1997 were $2,470,000. No contributions were made to Madison in 1997, 1996 or 1995. The Company received distributions from Malbaie of $5,302,000, $10,757,000 and $4,330,000 in 1997, 1996 and 1995, respectively. No loans or contributions were made to Malbaie in 1997, 1996 or 1995. The current portion of debt of the paper mills included in current liabilities in the adjacent table was $145,000 and $10,500,000 at December 28, 1997, and December 29, 1996, respectively. All long-term debt of the Paper mills matures in 1999. The debt of the Paper mills is not guaranteed by the Company. Condensed combined balance sheets of the Paper mills are as follows: - - -------------------------------------------------------------------------------- Condensed Combined Balance Sheets of Paper mills - - -------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - -------------------------------------------------------------------------------- Current assets $ 67,023 $ 73,781 Less current liabilities 31,817 36,477 - - -------------------------------------------------------------------------------- Working capital 35,206 37,304 Fixed assets, net 215,427 226,938 Long-term debt (99) (245) Deferred income taxes and other (96,168) (109,074) - - -------------------------------------------------------------------------------- Net assets $154,366 $ 154,923 - - -------------------------------------------------------------------------------- Condensed combined income statements of the Paper mills are as follows: - - ------------------------------------------------------------------------------- Condensed Combined Income Statements of Paper mills - - -------------------------------------------------------------------------------- Dollars in thousands 1997 1996 1995 - - -------------------------------------------------------------------------------- Net sales and other income $234,290 $268,654 $268,377 Costs and expenses 196,415 203,120 216,342 - - -------------------------------------------------------------------------------- Income before taxes 37,875 65,534 52,035 Income tax expense 5,577 9,635 7,969 - - -------------------------------------------------------------------------------- Net income $ 32,298 $ 55,899 $ 44,066 - - -------------------------------------------------------------------------------- The condensed combined financial information of the Paper mills excludes the income tax effects attributable to Madison. Such tax effects (see Note 9) 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 28, 1997, F-20
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 $2,745,000, $320,000 and $195,000 at December 28,1997, December 29, 1996 and December 31, 1995, respectively. During 1997, 1996 and 1995, the Company's Newspaper Group purchased newsprint and supercalendered paper from the Paper mills at competitive prices. Such purchases aggregated approximately $74,000,000, $80,000,000, and $59,000,000, respectively. - - -------------------------------------------------------------------------------- 6. EARNINGS PER SHARE The Company adopted the provisions of SFAS 128 in the fourth quarter of 1997. Basic and diluted earnings per share for the years ended December 28, 1997, December 29, 1996, and December 31, 1995 were computed as follows: <TABLE> <CAPTION> - - ------------------------------------------------------------------------------------------------- Dollars and shares in thousands, except per share data 1997 1996 1995 - - ------------------------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Basic Earnings Per Share Computation Numerator: Net Income $262,301 $ 84,534 $135,860 Less cumulative preference stock dividends 72 96 96 -------- -------- -------- Income available to common stockholders $262,229 $ 84,438 $135,764 Denominator: Average number of common shares outstanding 96,520 97,293 96,854 - - ------------------------------------------------------------------------------------------------- Basic Earnings Per Share $ 2.72 $ 0.87 $ 1.40 - - ------------------------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------------------------- Diluted Earnings Per Share Computation Numerator: Net Income $262,301 $ 84,534 $135,860 Less cumulative preference stock dividends 72 96 96 -------- -------- -------- Income available to common stockholders $262,229 $ 84,438 $135,764 Denominator: Average number of common shares outstanding 96,520 97,293 96,854 Incremental shares for assumed exercise of securities 2,055 1,149 522 -------- -------- -------- Total shares 98,575 98,442 97,376 - - ------------------------------------------------------------------------------------------------- Diluted Earnings Per Share $ 2.66 $ 0.86 $ 1.39 - - ------------------------------------------------------------------------------------------------- </TABLE> Outstanding stock options to purchase common stock with an exercise price greater than the average market price of common stock were not included in the computation of diluted earnings per share. The balance of such options was approximately 2,195,000 in 1997, 2,167,000 in 1996, and 5,673,000 in 1995. The incremental shares for assumed exercise of securities was determined using the Treasury Stock method. - - -------------------------------------------------------------------------------- 7. INVENTORIES Inventories as shown in the accompanying Consolidated Balance Sheets are composed of the following: - - -------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - -------------------------------------------------------------------------------- Newsprint and magazine paper $27,694 $28,778 Work-in-process, etc. 4,440 5,030 - - -------------------------------------------------------------------------------- Total $32,134 $33,808 - - -------------------------------------------------------------------------------- Inventories are stated at the lower of cost or current market value. Cost was determined utilizing the LIFO method for 78% of inventory in 1997 and 1996. The replacement cost of inventory was approximately $36,400,000 and $36,700,000 at December 28, 1997, and December 29, 1996, respectively. F-21
- - -------------------------------------------------------------------------------- 8. DEBT Long-term debt consists of the following: - - -------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - -------------------------------------------------------------------------------- 5.50% to 5.77% Senior Notes due $200,000 $200,000 1998 and 2000 (a) 7.625% Notes due 2005, net of unamortized 245,001 244,501 debt costs of $4,999 in 1997, $5,499 in 1996; effective interest rate 7.996% (b) 8.25% Debentures due 2025 (due 145,236 145,192 2005 at option of Company), net of unamortized debt costs of $4,764 in 1997, $4,808 in 1996; effective interest rate 8.553% (b) - - -------------------------------------------------------------------------------- Total notes and debentures 590,237 589,693 - - -------------------------------------------------------------------------------- Less: current portion 100,000 - - - -------------------------------------------------------------------------------- Total long-term debt $490,237 $589,693 - - -------------------------------------------------------------------------------- (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 the 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 $632,200,000 and $626,600,000 at December 28, 1997 and December 29, 1996, respectively. - - -------------------------------------------------------------------------------- In July 1996, the Company entered into a $100,000,000 revolving credit agreement and a $200,000,000 revolving credit agreement with a group of banks the (the "Revolvers"). The Revolvers replaced existing revolving credit agreements aggregating $170,000,000. The Revolvers, $100,000,000 of which was renewed in July 1997 and has been extended through July 1998, and $200,000,000 of which had an original maturity of July 2001 and has been extended through July 2002, at which time any outstanding borrowings would be payable. The $100,000,000 agreement provides for an annual facility fee of 0.0475%. The $200,000,000 agreement provides for an annual facility fee of 0.0675% based on the Company's current credit rating. No borrowings under the Revolvers were outstanding during 1997 or 1996. 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 Revolvers. Borrowings are in the form of unsecured notes sold at a discount with maturities ranging up to 270 days. At December 28, 1997, the Company had no outstanding commercial paper. 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 Revolvers 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 Revolvers include provisions which require, among other matters, specified levels of stockholders' equity. At December 28, 1997, approximately $935,900,000 of stockholders' equity was unrestricted under the Revolvers. The aggregate face amount of maturities of long-term debt over the next five years are as follows: 1998, $100,000,000; 1999, none; 2000, $100,000,000; 2001, none; 2002, none and $400,000,000 thereafter. Interest expense, net as shown in the accompanying Consolidated Statements of Income consists of the following: - - -------------------------------------------------------------------------------- Dollars in thousands 1997 1996 1995 - - -------------------------------------------------------------------------------- Interest expense $50,433 $50,333 $48,751 Capitalized interest (5,394) (19,574) (15,177) Interest income (2,924) (4,329) (8,344) - - -------------------------------------------------------------------------------- Interest expense, net $42,115 $26,430 $25,230 - - -------------------------------------------------------------------------------- F-22
- - -------------------------------------------------------------------------------- 9. 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 in the adjacent table: - - -------------------------------------------------------------------------------- Dollars in thousands 1997 1996 1995 - - -------------------------------------------------------------------------------- Current tax expense Federal $146,550 $ 90,886 $105,999 State, local, foreign 55,073 28,494 1,970 - - -------------------------------------------------------------------------------- 201,623 119,380 107,969 - - -------------------------------------------------------------------------------- Deferred tax expense Federal (24,102) 6,076 (22,483) State, local, foreign (2,457) (12,081) 12,493 - - -------------------------------------------------------------------------------- (26,559) (6,005) (9,990) - - -------------------------------------------------------------------------------- Income tax expense $175,064 $113,375 $ 97,979 - - -------------------------------------------------------------------------------- The reasons for the variance between the effective tax rate on income before income taxes and the federal statutory rate (exclusive of a favorable tax adjustment of $18,000,000 in fiscal 1997 resulting from the completion of the Company's federal income tax audits for periods through 1992 ("favorable tax adjustment"), the impairment loss in fiscal 1996 and gains on dispositions in each period) are presented on the table below: <TABLE> <CAPTION> - - -------------------------------------------------------------------------------------------------------------- Dollars in thousands 1997 1996 1995 - - -------------------------------------------------------------------------------------------------------------- % of % of % of Amount Pretax Amount Pretax Amount Pretax - - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Tax at federal statutory rate $ 149,442 35.0% $ 102,143 35.0% $ 77,892 35.0% Increase (decrease) resulting from State and local taxes - net 32,837 7.7 14,310 4.9 8,880 4.0 Amortization of nondeductible intangible assets acquired 9,892 2.3 12,856 4.4 11,061 5.0 Other - net (3,832) (.9) 1,026 .4 (6,188) (2.8) - - -------------------------------------------------------------------------------------------------------------- Subtotal 188,339 44.1% 130,335 44.7% 91,645 41.2% - - -------------------------------------------------------------------------------------------------------------- Impairment loss -- (32,264) -- - - -------------------------------------------------------------------------------------------------------------- Favorable tax adjustment (18,000) -- -- - - -------------------------------------------------------------------------------------------------------------- Dispositions 4,725 15,304 6,334 - - -------------------------------------------------------------------------------------------------------------- Income tax expense $ 175,064 $ 113,375 $ 97,979 - - -------------------------------------------------------------------------------------------------------------- </TABLE> 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. During 1996, federal tax authorities issued a favorable ruling on matters affecting The Globe which had originated prior to its acquisition in 1993. As a result, accrued federal taxes were reduced by $25,000,000 relating to a pre-acquisition tax contingency predominately related to pre-acquisition net operating loss carryforwards. The remainder of the reduction is related to other pre-acquisition tax contingencies. In accordance with SFAS 109, this tax benefit was excluded from income and was applied as a reduction of goodwill. 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. Income tax benefits, which related to the exercise of options and the employee stock purchase plan, reduced current taxes payable and increased additional paid-in capital by $38,553,000, $3,645,000, and $837,000 during 1997, 1996 and 1995, respectively. Foreign taxes included in income tax expense totaled $877,000, $882,000 and $774,000 in 1997, 1996 and 1995, respectively. Foreign taxes are principally applicable to the Company's equity in the operations of a Canadian newsprint mill. F-23
At December 28, 1997, tax loss carryforwards included only state tax loss benefits. The benefits are attributable to tax operating losses totaling $8,105,000 at December 28, 1997. Such loss carryforwards expire in accordance with provisions of applicable tax laws and have remaining lives ranging from 1 to 15 years. These tax loss carryforwards will, more likely than not, expire unused, and as such the Company's valuation allowance has increased to $8,105,000, as of December 28, 1997. The Company generated approximately $17,000,000 in investment tax credits in the state of New York, in connection with the construction of its College Point facility. The unused investment tax credit carryforward at December 28, 1997, was approximately $12,000,000, which the Company has the ability to utilize for 15 years. For financial statement purposes, the Company has selected the deferred method of accounting for investment tax credits, and as such, will amortize the $17,000,000 tax benefit over the average useful life of the assets. The Internal Revenue Service has completed its examination of federal income tax returns for all years through 1992. Examinations of the tax returns for the years 1993 through 1995 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. The components of the net deferred tax liabilities recognized on the respective Consolidated Balance Sheets are as follows: - - ------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - ------------------------------------------------------------------------------- Deferred Tax Assets Retirement, postemployment and deferred compensation plans $174,069 $168,795 Accruals for other employee benefits, compensation, insurance and other 33,244 20,654 Accounts receivable allowances 26,561 18,231 Other 41,527 23,896 - - ------------------------------------------------------------------------------- Total deferred tax assets 275,401 231,576 Valuation allowance (8,105) (4,671) - - ------------------------------------------------------------------------------- Net deferred tax assets 267,296 226,905 - - ------------------------------------------------------------------------------- Deferred Tax Liabilities Property, plant and equipment 230,712 250,636 Intangible assets 98,076 80,057 Investments in Joint Ventures 42,057 39,787 Other 23,117 9,650 - - ------------------------------------------------------------------------------- Total deferred tax liabilities 393,962 380,130 - - ------------------------------------------------------------------------------- Net deferred tax liability 126,666 153,225 - - ------------------------------------------------------------------------------- Amounts included in: Other current assets 60,039 36,162 Accrued expenses -- (827) - - ------------------------------------------------------------------------------- Deferred income tax liability $186,705 $188,560 - - ------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 10. VOLUNTARY STAFF REDUCTIONS The Company recorded pre-tax charges of approximately $8,500,000, or $.05 per share, $44,100,000, or $.25 per share, and $10,100,000, or $.06 per share in 1997, 1996 and 1995, respectively. At December 28, 1997 and December 29, 1996, approximately $24,990,000 and $49,052,000, respectively, of these charges were unpaid. This balance will be principally paid within one year. F-24
- - -------------------------------------------------------------------------------- 11. 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 contribu-tions. 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. The components of net periodic pension cost for all Company-sponsored pension plans were as follows: - - -------------------------------------------------------------------------------- Dollars in thousands 1997 1996 1995 - - -------------------------------------------------------------------------------- Service cost $ 19,645 $ 20,984 $ 16,413 Interest cost 48,734 45,353 41,859 Actual (return) loss on plan assets (138,597) (59,062) (74,904) Net amortization and deferral 100,509 25,683 42,320 - - -------------------------------------------------------------------------------- Net periodic pension cost $ 30,291 $ 32,958 $ 25,688 - - -------------------------------------------------------------------------------- Assumptions used in the actuarial computations were: - - -------------------------------------------------------------------------------- 1997 1996 1995 - - -------------------------------------------------------------------------------- Discount rate 7.25% 7.75% 7.25% 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 $22,430,000 in 1997, $21,111,000 in 1996, and $20,679,000 in 1995. Plan assets, which were valued as of September 30, 1997 and 1996, 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 qualified plans, which were valued at September 30, 1997 and 1996, was as follows: - - ------------------------------------------------------------------------------- Dollars in thousands Plans Whose Assets Exceed Accumulated Benefits ---------------------------------------- December 28, December 29, 1997 1996 - - ------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation $489,526 $367,438 - - ------------------------------------------------------------------------------- Accumulated benefit obligation 502,615 375,492 - - ------------------------------------------------------------------------------- Projected benefit obligation 603,746 454,995 Plan assets at fair value 620,562 439,184 - - ------------------------------------------------------------------------------- Projected benefit obligation (less than) in excess of plan assets (16,816) 15,811 Unrecognized net gains 90,519 27,493 Unrecognized prior service cost 2,372 2,529 Unrecognized transition asset 420 419 - - ------------------------------------------------------------------------------- Recorded pension liability $ 76,495 $ 46,252 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Dollars in thousands Plans Whose Assets Exceed Accumulated Benefits ---------------------------------------- December 28, December 29, 1997 1996 - - ------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation -- $64,312 - - ------------------------------------------------------------------------------- Accumulated benefit obligation -- 67,789 - - ------------------------------------------------------------------------------- Projected benefit obligation -- 71,167 Plan assets at fair value -- 66,459 - - ------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets -- 4,708 Unrecognized net gains -- 8,962 Fourth-quarter contribution, net -- (431) - - ------------------------------------------------------------------------------- Recorded pension liability -- $13,239 - - ------------------------------------------------------------------------------- The Company's liability for its unfunded non-qualified plans (the "Plans") was $84,161,000 and $71,204,000 as of December 28, 1997 and December 29, 1996, respectively. At December 28, 1997, the projected benefit obligation of the Plans totaled $119,751,000 of which $41,559,000 ($34,174,000 of unrecognized actuarial losses, $5,319,000 of unrecognized prior service cost and $2,066,000 of unrecognized transition obligation) is subject to amortization. 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. These amounts are not included in the funded status of the qualified plans shown in the table above. Included in the recorded pension liability for 1997 and 1996 is a minimum liability of $7,234,000 and $796,000, respectively, relating to the unfunded status of the Plans. Miscellaneous assets in the Consolidated Balance Sheets in both years included a related intangible asset of an equal amount. F-25
- - -------------------------------------------------------------------------------- 12. 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. The components of net periodic postretirement cost were as follows: - - -------------------------------------------------------------------------------- Dollars in thousands 1997 1996 1995 - - -------------------------------------------------------------------------------- Service cost for benefits earned during the period $ 3,680 $ 3,682 $ 2,820 Interest cost on accumulated postretirement obligation 8,581 8,250 8,142 Net amortization and deferral (3,194) (2,367) (3,120) - - -------------------------------------------------------------------------------- Net periodic postretirement cost $ 9,067 $ 9,565 $ 7,842 - - -------------------------------------------------------------------------------- The Company's policy is to fund the above-mentioned plans as claims and premiums are paid. For 1997, 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 9.25% and 8.0% in the first year, grading down to 5.0% in the year 2008. 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. The following table sets forth the accrued postretirement benefit liability amounts included in Accrued Expenses and Other Liabilities in the Consolidated Balance Sheets at December 28, 1997, and December 29, 1996, based on valuation dates of September 30 in each year: - - -------------------------------------------------------------------------------- Dollars in thousands December 28, December 29, 1997 1996 - - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees $ 54,410 $ 51,164 Fully eligible active plan participants 23,434 19,510 Other active plan participants 49,576 43,451 - - -------------------------------------------------------------------------------- Total 127,420 114,125 Unrecognized net gains 26,677 32,212 Unrecognized prior service cost 10,186 11,929 Fourth-quarter benefit payments (878) (822) - - -------------------------------------------------------------------------------- Total accrued postretirement benefit liability 163,405 157,444 Current portion included in accrued expenses 5,465 4,400 - - -------------------------------------------------------------------------------- Long-term accrued postretirement benefit liability $157,940 $153,044 - - -------------------------------------------------------------------------------- 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 28, 1997, by $17,736,000, and increase the net periodic postretirement benefit cost for 1997 by $2,057,000. 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 $26,873,000, $24,745,000 and $26,034,000 in 1997, 1996 and 1995, 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 employee's active years of service. F-26
- - -------------------------------------------------------------------------------- 13. EXECUTIVE AND NON-EMPLOYEE DIRECTORS' INCENTIVE PLANS 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. The 1997 annual grant increased the number of shares of Class A Common Stock a director may purchase from the Company from 1,000 to 2,000 shares 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 28, 1997 were as follows: <TABLE> <CAPTION> - - ------------------------------------------------------------------------------------------------ Shares in thousands 1997 1996 1995 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Options outstanding, beginning of year 10,369 $28 10,007 $25 9,282 $24 Granted 2,218 64 2,169 38 2,047 30 Exercised (2,658) 25 (1,672) 24 (910) 21 Forfeited (137) 17 (135) 28 (412) 27 ------ ------ ------ Options outstanding, end of year 9,792 37 10,369 28 10,007 25 ====== ====== ====== Options exercisable, end of year 4,639 26 5,279 24 5,273 24 ====== ====== ====== - - ------------------------------------------------------------------------------------------------ </TABLE> The following table summarizes information about the Company's stock options outstanding as of December 28, 1997: <TABLE> <CAPTION> - - ---------------------------------------------------------------------------------------------------------- Shares in thousands Options Outstanding Options Exercisable ------------------------------------------------------ ----------------------------- Weighted Average Exercise Price Outstanding Remaining Contractual Weighted Remaining Exercisable Weighted Average Ranges Shares Life Exercise Price Shares Exercise Price - - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $10-19 222 4 years $15 222 $15 $20-29 3,560 6 years 24 3,053 24 $30-39 3,792 9 years 34 1,364 33 $40-64 2,218 10 years 64 -- -- ----- ----- 9,792 37 4,639 26 ===== ===== - - ---------------------------------------------------------------------------------------------------------- </TABLE> F-27
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 14) (collectively referred to herein as "Employee Stock Based Plans"). Accordingly, no compensation cost has been recognized for the aforementioned plans. The Company adopted the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, in 1996. The weighted average fair value of $18.53 and $10.94 for 1997 and 1996 stock option grants, respectively, and of $8.81 and $5.81 for 1997 and 1996 employee stock purchase plan ("ESPP") rights, respectively, were estimated at the date of grant using the Black-Scholes option valuation model and the following assumptions: <TABLE> <CAPTION> - - ------------------------------------------------------------------------------------- Stock Options ESPP Rights ------------------ ---------------- 1997 1996 1997 1996 - - ------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Risk-free interest rate 5.72% 6.14% 5.45% 5.47% Expected life 5 years 5 years 1.1 years 1.2 years Expected volatility 22.62% 23.84% 22.62% 21.22% Expected dividend yield 1.05% 1.56% 1.66% 2.0% - - ------------------------------------------------------------------------------------- </TABLE> Had compensation cost for the Employee Stock Based Plans been determined over the vesting period based 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: <TABLE> <CAPTION> - - -------------------------------------------------------------------------------------------- Dollars in thousands, except per share data 1997 1996 ----------------------- ---------------------- As reported Pro forma As reported Pro forma - - -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net Income $262,301 $249,582 $84,534 $76,889 Basic earnings per share $ 2.72 $ 2.59 $ .87 $ .79 Diluted earnings per share $ 2.66 $ 2.53 $ .86 $ .78 - - -------------------------------------------------------------------------------------------- </TABLE> The pro forma effect for 1997 and 1996 on the amounts presented above 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. - - -------------------------------------------------------------------------------- 14. CAPITAL STOCK The 5 1/2 percent cumulative prior preference stock was redeemable at the option of the Company on 30 days' notice at par plus accrued dividends and was entitled to an annual dividend of $5.50 payable quarterly. The Company redeemed all outstanding shares of its 5 1/2 percent cumulative prior preference stock on October 1, 1997, at par value at a cost of $1,753,000. The serial preferred stock was subordinate to the 5 1/2 percent 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 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. In 1997, the Company spent approximately $145,554,000 to repurchase approximately 2,966,000 shares of Class A Common Stock, at an average price of $49.07. In December 1997, the Company's Board of Directors F-28
authorized additional expenditures of up to $215,000,000 for share repurchases. 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. During the period December 29, 1997 through February 1, 1998, the Company spent approximately $37,400,000 to repurchase approximately 577,000 shares of Class A Common Stock at an average price of $64.89. As of February 1, 1998, the remaining amount of repurchase authorizations is approximately $188,500,000. Stock repurchases under this program exclude shares reacquired in connection with certain exercises under the Company's stock option plans at a cost of approximately $22,242,000 in 1997. Had the 1997 and 1996 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, the Company sells equity put options in private placements that entitle the holder, upon exercise, to sell shares of Class A Common Stock to the Company at a specified price. In 1997 and 1996, put options for 180,000 and 40,000 shares were issued for $344,000 and $51,000 in premiums, respectively, which have been accounted for as a part of additional paid-in capital. All put options issued have expired. Shares of Class A Common Stock reserved for issuance were as follows: - - -------------------------------------------------------------------------------- Shares in thousands December 28, December 29, 1997 1996 - - -------------------------------------------------------------------------------- Stock Options Outstanding 9,792 10,369 Available 7,691 9,793 Employee Stock Purchase Plan Available 2,936 3,735 Stock Awards Available 963 964 Voluntary Conversion of Class B Common Stock Available 565 568 Retirement Units Outstanding 159 175 - - -------------------------------------------------------------------------------- Total 22,106 25,604 - - -------------------------------------------------------------------------------- Under the 1998 Offering of the ESPP, eligible employees may purchase Class A Common Stock through payroll deductions during 1998 plan year at the lower of $44.84 per share (85% of the average market price on October 1, 1997) or 85% of the average market price on November 25, 1998. 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 799,000 shares, 967,000 shares and 1,100,000 shares in 1997, 1996 and 1995, respectively. - - -------------------------------------------------------------------------------- 15. COMMITMENTS AND CONTINGENT LIABILITIES OPERATING LEASES: Such lease commitments are primarily for office space and equipment. Certain office space leases provide for rent adjustments relating to changes in real estate taxes and other operating expenses. Rental expense amounted to $30,408,000 in 1997, $29,664,000 in 1996, and $27,699,000 in 1995. The approximate minimum rental commitments under noncancelable leases at December 28, 1997, were as follows: 1998, $14,121,000; 1999, $12,598,000; 2000, $9,160,000; 2001, $6,387,000; 2002, $5,627,000 and $15,943,000 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 has completed building a printing and distribution facility. The Company has the option to purchase the property at any time prior to the end of the lease in 2019. Under the terms of the lease agreement with the City of New York, the Company receives various tax and energy cost reductions. The Company also has a long-term lease for a building and site in Edison, N.J. The lease provides the Company with certain early cancellation rights, as well as renewal and purchase options. For financial reporting purposes, the Edison 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 28, 1997 and December 29, 1996) 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 28, 1997: - - -------------------------------------------------------------------------------- Dollars in thousands Amount - - -------------------------------------------------------------------------------- 1998 $ 7,976 1999 8,491 2000 7,958 2001 7,277 2002 7,045 Later years 43,365 - - -------------------------------------------------------------------------------- Total minimum lease payments 82,112 Less: imputed interest (32,888) - - -------------------------------------------------------------------------------- Present value of net minimum lease payments including current maturities of $4,033 $49,224 - - -------------------------------------------------------------------------------- OTHER: 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. F-29
16. SEGMENTS The Company's segment and related information is included on pages F-2 and F-3 of this Appendix. The information for the years 1997, 1996 and 1995 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. - - -------------------------------------------------------------------------------- 17. RECLASSIFICATIONS For comparability, certain 1996 and 1995 amounts have been reclassified to conform with the 1997 presentation. F-30
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 28, 1997 and December 29, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 28, 1997. 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 28, 1997 and December 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1997 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 January 30, 1998 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 New York Stock Exchange. Prior to September 25, 1997, the Class A Common Stock was listed on the American Stock Exchange. The Class B Common Stock is unlisted and is not actively traded. The approximate number of security holders of record as of January 31, 1998 was as follows: Class A Common Stock: 12,055; Class B Common Stock: 35. The market price range of Class A Common Stock in 1997 and 1996 is as follows: - - -------------------------------------------------------------------------------- Quarter Ended 1997 1996 - - -------------------------------------------------------------------------------- High Low High Low March 30 $47.88 $36.38 March 31 $30.50 $25.75 June 29 51.75 40.00 June 30 33.87 28.37 September 28 55.31 45.56 September 29 33.87 27.50 December 28 66.50 50.00 December 29 39.87 33.25 Year 66.50 36.38 Year 39.87 25.75 - - -------------------------------------------------------------------------------- F-31
<TABLE> <CAPTION> QUARTERLY INFORMATION (Unaudited) - - ----------------------------------------------------------------------------------------------------------------------------- Dollars and shares in millions, First Quarter Second Quarter Third Quarter Fourth Quarter Year except per share data ----------------------------------------------------------------------------------------- 1997 (a) 1996 1997 (a) 1996 1997 1996 1997 1996 1997 1996 - - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Revenues $692.4 $627.6 $721.9 $649.5 $683.6 $631.4 $768.4 $719.8 $2,866.4 $2,628.3 - - ----------------------------------------------------------------------------------------------------------------------------- Costs and Expenses Production costs: Raw materials 73.5 105.6 76.3 96.4 78.3 85.8 89.7 75.7 317.8 363.5 Wages and benefits 158.4 136.8 149.3 135.6 145.6 140.7 151.6 144.5 604.9 557.5 Other 114.6 105.1 119.7 106.1 126.1 109.9 129.1 118.9 489.5 440.0 - - ----------------------------------------------------------------------------------------------------------------------------- Total 346.5 347.5 345.3 338.1 350.0 336.4 370.4 339.1 1,412.2 1,361.0 Selling, general and administrative expenses 244.6 219.5 249.3 228.9 242.3 232.1 262.8 286.7 999.1 967.2 Impairment Loss -- -- -- -- -- 126.8 -- -- -- 126.8 - - ----------------------------------------------------------------------------------------------------------------------------- Total 591.1 567.0 594.6 567.0 592.3 695.3 633.2 625.8 2,411.3 2,455.0 - - ----------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) 101.3 60.6 127.3 82.5 91.3 (63.9) 135.2 94.0 455.1 173.3 Income from Joint Ventures 1.3 4.7 3.1 2.2 3.4 6.4 6.3 4.9 14.0 18.2 Interest expense, net 8.3 6.4 11.4 6.0 11.7 8.0 10.8 6.0 42.1 26.4 Net gain on dispositions of assets -- -- -- 7.8 -- 25.1 10.4 -- 10.4 32.9 Income taxes 42.5 26.2 34.1 39.7 36.8 7.3 61.8 40.2 175.1 113.4 - - ----------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 51.8 $ 32.7 $ 84.9 $ 46.8 $ 46.2 $(47.7) $ 79.3 $ 52.7 $ 262.3 $ 84.6 - - ----------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding Basic 97.8 97.7 96.2 97.8 95.9 97.0 96.2 96.8 96.5 97.3 Diluted 99.6 98.4 98.1 98.9 98.0 98.0 98.5 98.3 98.6 98.4 Per share of common stock Basic Earnings $ .53 $ .33 $ .88 $ .48 $ .48 $ (.49) $ .82 $ .54 $ 2.72 $ .87 Diluted Earnings .52 .33 .87 .47 .47 (.49) .81 .54 2.66 .86 - - ----------------------------------------------------------------------------------------------------------------------------- Dividends .15 .14 .16 .14 .16 .14 .17 .15 .64 .57 - - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> All earnings per share amounts for special items below are the same basic and diluted earnings per share unless otherwise noted. The 1997 and 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. First-quarter 1997 results included a $2.5 million pre-tax charge ($.01 per share) for severance and related costs for work force reductions ("buyouts"). Second-quarter 1997 results included an $18.0 million favorable adjustment ($.19 basic earning per share, $.18 diluted earnings per share) resulting from the completion of the Company's federal income tax audits for periods through 1992. Fourth-quarter 1997 results included a $10.4 million aggregate pre-tax gain ($.06 per share) resulting from the sale of the assets of the tennis, sailing and ski businesses and certain small properties, net of the exit costs associated with the shutdown of a golf-related business. Fourth-quarter 1997 results also included a $10.1 million pre-tax noncash charge ($.06 per share) relating to EITF Issue No. 97-13 and a $6.0 million pre-tax charge ($.04 basic earnings per share, $.03 diluted earning per share) for buyouts. First-quarter 1996 results included a $1.2 million pre-tax charge for 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 $126.8 million pre-tax noncash accounting charge ($.97 basic earning per share, $.96 diluted earnings per share) related to the measurement for impairment of long-lived assets as required by SFAS No. 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. (a) For comparability, certain amounts have been reclassified to conform with the current presentation. F-32
<TABLE> <CAPTION> TEN-YEAR SUPPLEMENTAL FINANCIAL DATA - - -------------------------------------------------------------------------------------------------------------------------------- Dollars and shares in millions, Years Ended December except per share data -------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 - - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> REVENUES AND INCOME Revenues $2,866 $2,628 $2,428 $2,397 $ 2,057 $ 1,810 $ 1,737 $1,808 $ 1,797 $1,728 - - -------------------------------------------------------------------------------------------------------------------------------- Operating Profit 455 173 233 211 126 88 93 129 168 251 - - -------------------------------------------------------------------------------------------------------------------------------- Income (Loss) from Joint Ventures 14 18 15 5 (53) (9) (9) 8 (11) 35 - - -------------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations 262 85 136 213 6 (11) 47 65 68 161 Discontinued operations -- -- -- -- -- -- -- -- 199 7 Net cumulative effect of accounting changes -- -- -- -- -- (34) -- -- -- -- - - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) 262 85 136 213 6 (45) 47 65 267 168 - - -------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET Total assets 3,639 3,540 3,390 3,138 3,215 1,995 2,128 2,150 2,188 1,915 Long-term debt and capital lease obligations 535 637 638 523 460 207 213 319 337 378 Common stockholders' equity 1,728 1,623 1,610 1,544 1,599 1,000 1,073 1,056 1,064 873 - - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK Continuing operations 2.72 .87 1.40 2.05 .07 (.14) .61 .85 .87 2.00 Discontinued operations -- -- -- -- -- -- -- -- 2.52 .08 Net cumulative effect of accounting changes -- -- -- -- -- (.43) -- -- -- -- Basic Earnings 2.72 .87 1.40 2.05 .07 (.57) .61 .85 3.39 2.08 Diluted Earnings 2.66 .86 1.39 2.04 .07 (.57) .60 .84 3.37 2.06 Dividends .64 .57 .56 .56 .56 .56 .56 .54 .50 .46 Common stockholders' equity (end of year) 17.90 16.69 16.50 15.71 14.96 12.54 13.70 13.68 13.63 11.02 - - -------------------------------------------------------------------------------------------------------------------------------- Shares Outstanding (end of year) Class A and Class B Common 96.6 97.7 97.6 98.2 106.9 79.7 78.4 77.2 78.1 79.2 - - -------------------------------------------------------------------------------------------------------------------------------- Market Price (end of year) 64.06 38.50 29.62 22.12 26.25 26.37 23.62 20.62 26.37 26.87 - - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> 1997 - Results included: a $10.4 million pre-tax gain ($.06 per share) resulting from the sale of the assets of the tennis, sailing and ski businesses and certain small properties, net of the exit costs associated with the shutdown of a golf-related business; a $10.1 million pre-tax noncash accounting charge ($.06 per share) related to EITF 97-13; an $8.5 million pre-tax charge ($.05 per share) for buyouts; an $18.0 million ($.19 basic earnings per share, $.18 diluted earnings per share) favorable tax adjustment. 1996 -Results included: a $126.8 million pre-tax noncash accounting charge ($.97 basic earnings per share, $.96 diluted earnings per share) related to SFAS 121; $44.1 million pre-tax charge ($.25 per share) for buyouts; $25.1 million pre-tax gain ($.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 newspapers; $10.1 million pre-tax charge ($.06 per share) for buyouts. 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 a minority interest in a newsprint mill. 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) from the sale of assets; $35.4 million of pre-tax charges ($.23 per share) for buyouts; pre-tax noncash charge of $47.0 million ($.56 basic earnings per share, $.55 diluted earnings per share) to write down the Gaspesia investment. 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 sale of assets; a $28.0 million pre-tax charge ($.20 per share) for buyouts; $21.4 million pre-tax charge ($.15 per share) for labor disruptions, training and start-up costs at Edison. Net cumulative effect of accounting changes ($.43 basic earnings per share, $.42 diluted earnings per share includes 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 basic earnings per share, $2.44 diluted earnings 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 ($2.52 basic earnings per share, $2.50 diluted earnings per share); a $30.0 million pre-tax charge ($.22 per share) for buyouts; 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. F-33
SCHEDULE II THE NEW YORK TIMES COMPANY VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended December 28, 1997 <TABLE> <CAPTION> - - ------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - - ------------------------------------------------------------------------------------- Additions Deductions for charged to purposes for Balance at costs and which Balance at beginning of expenses or accounts were end of Description period revenues set up period - - ------------------------------------------------------------------------------------- Dollars in thousands <S> <C> <C> <C> <C> Year Ended December 28, 1997 Deducted from assets to which they apply Uncollectible accounts ....... $24,359 $22,423 $25,893 $20,889 Returns and allowances, etc .. 6,953 8,997 10,952 4,998 ------- ------- ------- ------- Total ....................... $31,312 $31,420 $36,845 $25,887 ======= ======= ======= ======= Year Ended December 29, 1996 Deducted from assets to which they apply Uncollectible accounts ....... $18,942 $23,526 $18,109 $24,359 Returns and allowances, etc .. 6,923 10,324 10,294 6,953 ------- ------- ------- ------- Total ....................... $25,865 $33,850 $28,403 $31,312 ======= ======= ======= ======= Year Ended December 31, 1995 Deducted from assets to which they apply Uncollectible accounts ....... $22,268 $20,749 $24,075 $18,942 Returns and allowances, etc .. 5,889 9,892 8,858 6,923 ------- ------- ------- ------- Total ....................... $28,157 $30,641 $32,933 $25,865 ======= ======= ======= ======= </TABLE> 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 February 19, 1998. (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 February 19, 1998. (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 February 19, 1998. (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) Amendment No. 1, dated May 1, 1997, to the Company's Supplemental Executive Retirement Plan (filed as an Exhibit to the Company's Form 10-Q dated March 30, 1997, and incorporated by reference herein). (10.7) 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). (10.8) 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). (10.9) 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). (10.10) 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). (10.11) 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). (10.12) 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). (10.13) 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). (10.14) 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). (10.15) API's 1989 Stock Option Plan (filed as Annex F-1 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). (10.16) API's Supplemental Executive Retirement Plan, as amended effective December 17, 1996. (10.17) 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). (10.18) 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. (10.20) The New York Times Designated Employees Deferred Earnings Plan. (10.21) The Company's Non-Employee Directors Deferral Plan (filed as an Exhibit to the Company's Form 10-Q dated November 12, 1997, and incorporated by reference herein). (21) Subsidiaries of the Company. (23) Consent of Deloitte & Touche LLP. (27) Financial Data Schedule.