THE NEW YORK TIMES COMPANY The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated financial condition as ofDecember 27, 2020 , and results of operations for the three years endedDecember 27, 2020 . Please read this item together with our Consolidated Financial Statements and the related Notes included in this Annual Report. Due to the change in expense captions in 2020 and resulting expense reclassification in prior periods, as discussed below, we included discussions of 2018 results that were impacted by the reclassification. Otherwise, we have omitted discussion of 2018 results where it would be redundant to the discussion previously included in Part II, Item 7, of our 2019 Annual Report on Form 10-K, filed with theSEC onFebruary 27, 2020 . Significant components of the management's discussion and analysis of results of operations and financial condition section include: PAGE
Executive Overview: The executive overview section provides a summary of The
Times Company and our business.
Results of Operations: The results of operations section provides an analysis of our
34
results on a consolidated basis for the three years ended
December 27, 2020.
Non-Operating Items: The non-operating items section provides an analysis of our 43
non-GAAP financial measures to the most directly comparable GAAP
measures for the two years ended December 27, 2020.Liquidity and Capital The liquidity and capital resources section provides a discussion 47
Resources: of our cash flows for the two years ended December 27, 2020 , and
restricted cash, capital expenditures, and outstanding debt,
commitments and contingencies existing as of December 27, 2020 .
Critical Accounting The critical accounting policies and
estimates section provides 50
Policies: detail with respect to accounting policies that are considered by
management to require significant judgment and use of estimates
and that could have a significant impact on our financial
statements.
Pensions and Other The pensions and other postretirement benefits section provides a 52
Postretirement Benefits: discussion of our benefit plans.
EXECUTIVE OVERVIEW
We are a global media organization that includes our digital and print products
and related businesses. We have one reportable segment with businesses that
include our core news product and other interest-specific products, and related
content and services.
We generate revenues principally from subscriptions and advertising. Other
revenues primarily consist of revenues from licensing, Wirecutter affiliate
referrals, the leasing of floors in the Company headquarters, commercial
printing, television and film, retail commerce and our live events business.
Our main operating costs are employee-related costs.
In the accompanying analysis of financial information, we present certain
information derived from consolidated financial information but not presented in
our financial statements prepared in accordance with generally accepted
accounting principles in the United States of America ("GAAP"). We are
presenting in this report supplemental non-GAAP financial performance measures
that exclude depreciation, amortization, severance, non-operating retirement
costs and certain identified special items, as applicable. These non-GAAP
financial measures should not be considered in isolation from or as a substitute
for the related GAAP measures and should be read in conjunction with financial
information presented on a GAAP basis. For further information and
reconciliations of these non-GAAP measures to the most directly comparable GAAP
measures, see "- Results of Operations - Non-GAAP Financial Measures."
THE NEW YORK TIMES COMPANY - P. 29
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The Company changed the expense captions on its Consolidated Statement of
Operations effective for the quarter ended March 29, 2020 . These changes were
made in order to reflect how the Company manages its business and to communicate
where the Company is investing resources and how this aligns with the Company's
strategy. The Company reclassified expenses for the prior periods in order to
present comparable financial results. There was no change to consolidated
operating income, total operating costs, net income or cash flows as a result of
this change in classification. See Note 19 of the Notes to the Consolidated
Financial Statements for more detail.
We believe that a number of factors and industry trends have, and will continue
to, present risks and challenges to our business. For a detailed discussion of
certain factors that could affect our business, results of operations and
financial condition, see "Item 1A - Risk Factors."
2020 Financial Highlights
In 2020, diluted earnings per share from continuing operations were $0.60 ,
compared with $0.83 for 2019. Diluted earnings per share from continuing
operations excluding severance, non-operating retirement costs and special items
discussed below (or "adjusted diluted earnings per share," a non-GAAP measure)
were $0.97 for 2020, compared with $0.92 for 2019.
Operating profit in 2020 was $176.3 million , compared with $175.6 million for
2019, as the decrease in operating costs was largely offset by lower revenues.
Operating profit before depreciation, amortization, severance, multiemployer
pension plan withdrawal costs and special items discussed below (or "adjusted
operating profit," a non-GAAP measure) was $250.6 million and $248.4 million for
2020 and 2019, respectively.
Total revenues decreased 1.6% to $1.78 billion in 2020 from $1.81 billion in
2019, primarily driven by a decrease in advertising revenue and other revenue,
partially offset by an increase in digital-only subscription revenues.
Subscription revenues increased 10.3% to $1.20 billion in 2020. Advertising
revenues decreased 26.1% to $392.4 million in 2020 largely due to lower print
advertising revenue, driven by reduced spending by advertisers in connection
with the effects of the Covid-19 pandemic, which further accelerated secular
trends. Other revenues decreased 0.9% to $195.9 million in 2020.
Operating costs decreased in 2020 to $1.61 billion from $1.63 billion in 2019,
due to a decrease in sales and marketing costs and cost of revenue costs,
partially offset by an increase in product development costs and general and
administrative costs. Operating costs before depreciation, amortization,
severance and multiemployer pension plan withdrawal costs (or "adjusted
operating costs," a non-GAAP measure) decreased in 2020 to $1.53 billion from
$1.56 billion in 2019.
Impact of Covid-19 Pandemic
The global Covid-19 pandemic, and efforts to contain it, have continued to cause
significant economic disruption, market volatility and uncertainty. These
conditions have affected our business and could continue to do so for the
foreseeable future.
Unlike many media companies, which are primarily dependent on advertising, we
derive substantial revenue from subscriptions (approximately 67% of total
revenues in 2020). We experienced significant growth in the number of
subscriptions to our digital news and other products in 2020, which we believe
was attributable in part to an increase in traffic given the news environment,
and we do not expect the 2020 growth rate to be sustainable or indicative of
results for future periods. While subscriptions grew, revenues from the
single-copy and bulk sales of our print newspaper (which collectively
represented approximately 6% of our total subscription revenues in 2020) were,
and we expect will continue to be, adversely affected as a result of widespread
business closures, continued increased levels of remote working and reductions
in travel.
The worldwide economic conditions caused by the pandemic also led to a
significant decline in our advertising revenues in 2020, and we expect that our
advertising revenues will likely continue to be adversely affected if and while
these conditions persist.
However, our strong balance sheet has enabled us to continue to operate without
the liquidity issues experienced by many other companies. As of December 27,
2020 , we had cash, cash equivalents and short- and long-term marketable
securities of $882.0 million , and we were debt-free. We believe our cash balance
and cash provided by operations, in combination with other sources of cash, will
be sufficient to meet our financing needs over the next
P. 30 - THE NEW YORK TIMES COMPANY
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twelve months, enabling us to continue hiring in our newsroom, and in product
and technology, and continue to invest in important growth areas.
We have incurred and expect to continue to incur costs in connection with the
pandemic, including costs relating to our workforce, such as enhanced employee
benefits. These costs included a bonus in September 2020 to all employees other
than senior-most leaders to recognize their outstanding efforts and support them
with any additional financial needs stemming from the pandemic. Our costs in
connection with the pandemic have not been significant to date, but we may incur
significant additional costs as circumstances evolve, including costs in
connection with potential operational changes.
At this time, the full impact that the Covid-19 pandemic, and the associated
economic conditions, will have on our business is uncertain. While we remain
confident in our prospects over the longer term, the extent to which the
pandemic impacts us will depend on numerous evolving factors and future
developments, including the scope and duration of the pandemic (including the
extent of any resurgence thereof and the availability of effective treatments or
vaccines); the impact of the pandemic on economic conditions and the companies
with which we do business; governmental, business and other actions; travel
restrictions; and social distancing measures, among many other factors. We will
continue to actively monitor the situation and may take further actions that
alter our business operations as may be required by federal, state, local or
foreign authorities, or that we determine are appropriate. Please see "Item 1A -
Risk Factors" for more information.
Our Strategy
This past year accelerated many of the transformations under way in our
industry, highlighting both challenges and opportunities for the Company. We
believe that the following priorities will be key to our strategic efforts.
Producing the best journalism
We believe that The Times's original and high-quality reporting, storytelling
and journalistic excellence across topics and formats set us apart from other
news organizations and is at the heart of what makes our journalism worth paying
for.
Throughout a tumultuous year, the journalism produced by our global newsroom
helped readers understand the world on wide-ranging topics, including the
Covid-19 pandemic and its many reverberations, a national reckoning over race
and social justice, and the U.S. presidential election and its aftermath. Our
ground-breaking coverage continues to be recognized, including in the number of
Pulitzer prizes The Times has received - more than any other news organization.
We made significant investments in our newsroom, including in our capabilities
in live, visual and data journalism, and in audio, including in our highly
popular news podcast, The Daily, which was downloaded 2.5 billion times in 2020.
We acquired Serial Productions , the company that produces the groundbreaking
"Serial" podcast, and Audm, which transforms long-form journalism articles into
audio.
In 2021, we expect to make significant further investments in our journalism and
remain committed to providing trustworthy, interesting and relevant content that
sets The Times apart.
Growing engagement with our products
We saw extraordinary growth in our audience this past year, driven by an
unprecedented news environment and our improved ability to draw and engage
readers. We have focused on, and will continue focusing on, maintaining our
audience reach, creating habitual engagement with more users and demonstrating
why independent, high-quality journalism is worth paying for.
We further enhanced our core digital news product to optimize user experience
and deepen engagement, including by improving our users' experience in
up-to-the-minute coverage, expanding our use of visual and data journalism,
creating new story formats, enhancing email newsletters like The Morning, and
personalizing aspects of our customer experience, all of which are beginning to
drive increased engagement.
This year was also the first full year of our new access model, which generally
offers users who have registered free access to a limited number of articles
before requiring users to subscribe for access to additional content. We believe
these changes have strengthened our direct relationships with readers and
supported our digital subscription growth efforts.
THE NEW YORK TIMES COMPANY - P. 31
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In addition, we continued to raise our ambitions for our other digital products
and services. We expect to invest more in content, product development and
marketing for Games and Cooking, to explore new opportunities for Wirecutter as
a subscription product, to experiment in audio and to test the concept of an app
for children. We see all of these products as a way for The Times to mean even
more in people's lives, and also to make a relationship with our brand more
valuable.
Effectively monetizing our products
We added 2.3 million net digital subscriptions in 2020, by far the most annual
net subscription additions in our history. We believe that this significant
growth demonstrates the continued success of our "subscription-first" strategy.
As of December 27, 2020 , we had approximately 7.5 million total subscriptions to
our products.
In addition to our strong subscription growth, in 2020, we introduced our
first-ever digital price increase on tenured subscribers, from which we saw
strong results, and we continued to focus on retaining as many subscribers as
possible as they transition to higher prices. We will continue to look for
opportunities to deepen our economic relationships with subscribers, including
introducing subscribers to more of the products currently in our portfolio.
We will also continue to invest in brand marketing initiatives to reinforce the
importance of deeply reported independent journalism and the value of The Times
brand.
In addition to digital subscription revenue, high-margin digital advertising
revenue remains an important part of our business. We believe our journalism
attracts valuable audiences, and that we provide a safe and trusted platform for
advertisers' brands. By developing innovative and compelling advertising
offerings that integrate well with the user experience, we believe we can
provide significant value to advertisers. During a challenging year, we
continued to adapt our advertising business by focusing on our first-party data
products, which allow the Company to leverage its large and coveted audiences in
privacy-forward ways, and by focusing on our growing audio advertising business.
We expect each will continue to play critical roles in our digital advertising
business.
Looking ahead, we will continue exploring additional opportunities to grow and
engage our audience, further innovate our products and invest in brand marketing
initiatives, while remaining committed to creating high-quality journalism that
sets The Times apart. At the same time, we will continue to apply disciplined
cost-management to fund continued investment in our business and support
long-term profitable growth. This includes maximizing the efficiency and
profitability of our print products and services, which remain a significant
part of our business.
Making technology and data a bigger propellant of our growth
Achieving our ambition will require products and technology that match the
quality of our journalism. In addition to having our consumer-facing products
enable our journalism to be even more accessible, engaging and impactful, this
also includes improving the underlying systems that allow users to seamlessly
move among various devices and products. In recent years, we have realigned our
organizational structure to improve the speed and effectiveness of our product
development process and optimize our data and technology platforms. Looking
ahead, we believe this will enable us to build platforms that power our
multi-product portfolio and products that engage users. We are focused on
building strength in specialized engineering disciplines and continuing to
improve the quality and security of our data and systems. As we invest in our
array of products and our digital business grows in size, scope and complexity,
we will continue to invest in maintaining, integrating, improving and scaling
our technical infrastructure.
Fostering a culture that enables our mission and people to thrive
We believe our ability to attract, develop and maximize the contributions of
world-class talent, and to create the conditions for our people to do their best
work, is vital to the continued success of our mission and business and central
to our long-term strategy. As we continue to transform the Company and foster a
culture that enables our mission and people to thrive, we are focused on
building a diverse, equitable and inclusive workplace and workforce that help to
make our news report deeper and richer, and better able to address the needs and
experiences of our growing, global audience; incentivizing, developing and
promoting our talent; and supporting the health, safety and well-being of our
employees.
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Effectively managing our liquidity and our non-operating costs
We have continued to strengthen our liquidity position and further de-leverage
and de-risk our balance sheet. As of December 27, 2020 , the Company had cash,
cash equivalents and marketable securities of approximately $882 million and was
debt-free.
In addition, we remain focused on managing our pension plan obligations. We have
taken steps over the last several years to reduce the size and volatility of our
pension obligations, including freezing accruals under all but one of our
qualified defined benefit pension plans, making immediate pension benefits
offers in the form of lump-sum payments to certain former employees and
transferring certain future benefit obligations and administrative costs to
insurers. During 2020, we entered into an agreement to transfer certain future
benefit obligations and administrative costs to an insurer, which allowed us to
reduce our overall qualified pension plan obligations by approximately $236
million . See Note 9 of the Notes to the Consolidated Financial Statements for
additional information on these actions.
As of December 27, 2020 , our qualified pension plans had plan assets that were
$36 million above the present value of future benefits obligations, compared
with an underfunded status of approximately $12 million (meaning the present
value of future benefits obligations exceeded the fair value of plan assets) as
of December 29, 2019 . We made contributions of approximately $10 million to
certain qualified pension plans in each of 2020 and 2019. We expect to make
contributions in 2021 to satisfy minimum funding requirements of approximately
$10 million . We will continue to look for ways to reduce the size and volatility
of our pension obligations.
While we have made significant progress in our liability-driven investment
strategy to reduce the funding volatility of our qualified pension plans, the
size of our pension plan obligations relative to the size of our current
operations will continue to have an impact on our reported financial results. We
expect to continue to experience volatility in our retirement-related costs,
particularly due to the impact of changing discount rates and mortality
assumptions on our unfunded, non-qualified pension plans and retiree medical
costs, and due to the poor funded status of several of the multiemployer plans
in which we participate.
THE NEW YORK TIMES COMPANY - P. 33
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RESULTS OF OPERATIONS
Overview
Fiscal years 2020, 2019 and 2018 each comprised 52 weeks. The following table
presents our consolidated financial results:
Years Ended % Change
December 27, December 29, December 30,
(In thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Revenues
Subscription $ 1,195,368 $ 1,083,851 $ 1,042,571 10.3 4.0
Advertising 392,420 530,678 558,253 (26.1) (4.9)
Other 195,851 197,655 147,774 (0.9) 33.8
Total revenues 1,783,639 1,812,184 1,748,598 (1.6) 3.6
Operating costs
Cost of revenue (excluding
depreciation and amortization) 960,222 989,029 947,884 (2.9) 4.3
Sales and marketing 229,040 272,657 271,164 (16.0) 0.6
Product development 132,428 105,514 84,098 25.5 25.5
General and administrative 223,557 206,778 196,621 8.1 5.2
Depreciation and amortization 62,136 60,661 59,011 2.4
2.8
Total operating costs 1,607,383 1,634,639 1,558,778 (1.7) 4.9 Headquarters redesign and consolidation - - 4,504 - * Restructuring charge - 4,008 - * * Gain from pension liability adjustment - (2,045) (4,851) * (57.8) Operating profit 176,256 175,582 190,167 0.4 (7.7) Other components of net periodic benefit costs 89,154 7,302 8,274 * (11.7) Gain from joint ventures 5,000 - 10,764 * * Interest income/(expense) and other, net 23,330 (3,820) (16,566) *
(76.9)
Income from continuing operations before income taxes 115,432 164,460 176,091 (29.8) (6.6) Income tax expense 14,595 24,494 48,631 (40.4) (49.6) Net income 100,837 139,966 127,460 (28.0) 9.8 Net income attributable to the noncontrolling interest (734) - (1,776) * *
Net income attributable to
(28.5) 11.4
* Represents a change equal to or in excess of 100% or one that is not meaningful.
P. 34 -THE NEW YORK TIMES COMPANY --------------------------------------------------------------------------------
Revenues
Subscription, advertising and other revenues were as follows:
Years Ended % Change
December 27, December 29, December 30,
(In thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Subscription $ 1,195,368 $ 1,083,851 $ 1,042,571 10.3 4.0
Advertising 392,420 530,678 558,253 (26.1) (4.9)
Other 195,851 197,655 147,774 (0.9) 33.8
Total $ 1,783,639 $ 1,812,184 $ 1,748,598 (1.6) 3.6
Subscription Revenues
Subscription revenues consist of revenues from subscriptions to our digital and
print products (which include our news product, as well as our Games (previously
Crossword), Cooking and Audm products), and single-copy and bulk sales of our
print products (which represent less than 10% of these revenues). Subscription
revenues are based on both the number of copies of the printed newspaper sold
and digital-only subscriptions, and the rates charged to the respective
customers.
The following table summarizes digital and print subscription revenues for the
years ended December 27, 2020 , December 29, 2019 , and December 30, 2018 :
Years Ended % Change
December 27, December 29, December 30,
(In thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Digital-only subscription
revenues:
News product subscription
revenues(1) $ 543,578 $ 426,125 $ 378,484 27.6 12.6
Other product subscription
revenues(2) 54,702 34,327 22,136 59.4 55.1
Subtotal digital-only
subscriptions 598,280 460,452 400,620 29.9 14.9
Print subscription revenues
Domestic home delivery
subscription revenues(3) 528,970 524,543 532,748 0.8 (1.5)
Single-copy, NYT International and
other subscription revenues(4) 68,118 98,856 109,203 (31.1) (9.5)
Subtotal print subscription
revenues 597,088 623,399 641,951 (4.2) (2.9)
Total subscription revenues $ 1,195,368 $ 1,083,851 $ 1,042,571 10.3 4.0
(1) Includes revenues from subscriptions to the Company's news product. News
product subscription packages that include access to the Company's Games,
Cooking and Audm products are also included in this category.
(2) Includes revenues from standalone subscriptions to the Company's Games,
Cooking and Audm products.
(3) Includes free access to some or all of the Company's digital products
(4) NYT International is the international edition of our print newspaper.
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The following table summarizes digital and print subscriptions as of
As of % Change
(In thousands) December 27, 2020 December 29, 2019 December 30, 2018 2020 vs. 2019 2019 vs. 2018
Digital-only subscriptions:News product subscriptions(1) 5,090 3,429 2,713 48.4 26.4 Other product subscriptions(2) 1,600 966 647 65.6 49.3 Subtotal digital-only subscriptions 6,690 4,395 3,360 52.2 30.8 Print subscriptions 833 856 924 (2.7) (7.4) Total subscriptions 7,523 5,251 4,284 43.3 22.6 (1) Includes subscriptions to the Company's news product. News product subscription packages that include access to the Company's Games and Cooking products are also included in this category. (2) Includes standalone subscriptions to the Company's Games, Cooking and Audm products. During the first quarter of 2020, the Company acquired Audm, a read-aloud audio service. Approximately 20,000 of Audm's subscriptions were included in the Company's digital-only other product subscriptions at the time of acquisition. We believe that the significant growth over the last several years in subscriptions to TheTimes's products demonstrates the success of our "subscription-first" strategy and the willingness of our readers to pay for high-quality journalism. The following charts illustrate the acceleration in net digital-only subscription additions and corresponding subscription revenues, as well as the relative stability of our print domestic home delivery subscription products since the launch of the digital pay model in 2011. P. 36 -THE NEW YORK TIMES COMPANY -------------------------------------------------------------------------------- [[Image Removed: nyt-20201227_g2.jpg]] [[Image Removed: nyt-20201227_g3.jpg]] (1) Amounts may not add due to rounding. (2) Print domestic home delivery subscriptions include free access to some or all of our digital products. (3) Print Other includes single-copy,NYT International and other subscription revenues. Note: Revenues for 2012 and 2017 include the impact of an additional week. THE NEW YORK TIMES COMPANY - P. 37 -------------------------------------------------------------------------------- 2020 Compared with 2019 Subscription revenues increased 10.3% in 2020 compared with 2019. The increase was primarily due to an increase in digital subscription revenue driven by year-over-year growth of 52.2% in the number of subscriptions to the Company's digital-only products, as well as the continued focus on our digital pricing strategy, which included price increases in 2020 for our most tenured subscribers and retention of promotional subscriptions that have graduated to higher prices. The increase was partially offset by a decrease in print subscription revenue attributable to lower single-copy and bulk sales, primarily as a result of the Covid-19 pandemic, as well as fewer home delivery subscriptions, partially offset by an increase in home delivery prices. Paid digital-only subscriptions totaled approximately 6,690,000 at the end of 2020, a net increase of 2,295,000 subscriptions compared with the end of 2019. The significant rate of year-over-year growth in our digital subscriptions is attributable in part, we believe, to an increase in traffic given the news environment, as well as a change made to the digital access model during 2019, which requires users to register and log in to access most of our content. We do not expect the 2020 growth rate to be sustainable or indicative of results for future periods. Digital-only news product subscriptions totaled approximately 5,090,000 at the end of 2020, a net increase of 1,661,000 subscriptions compared with the end of 2019. Other product subscriptions (which include our Games, Cooking and Audm products) totaled approximately 1,600,000 at the end of 2020, a net increase of 634,000 subscriptions compared with the end of 2019. Print domestic home delivery subscriptions totaled approximately 833,000 at the end of 2020, a net decrease of 23,000 subscriptions compared with the end of 2019. The year-over-year decrease is a result of secular declines. 2019 Compared with 2018 Subscription revenues increased 4.0% in 2019 compared with 2018. The increase was primarily due to year-over-year growth of 30.8% in the number of subscriptions to the Company's digital-only products. The increase was partially offset by a decrease in print subscription revenue attributable to a decline in home delivery subscriptions, as well as lower single-copy and bulk sales, partially offset by an increase in home delivery prices. Paid digital-only subscriptions totaled approximately 4,395,000 at the end of 2019, a net increase of 1,035,000 subscriptions compared with the end of 2018. The growth in our digital subscriptions is attributable in part to an increase in traffic given the news environment, as well as a change made to the digital access model during 2019, which requires users to register and log in to access most of our content. Digital-only news product subscriptions totaled approximately 3,429,000 at the end of 2019, a net increase of 716,000 subscriptions compared with the end of 2018. Other product subscriptions (which, in 2019, included our Games and Cooking products) totaled approximately 966,000 at the end of 2019, a net increase of 319,000 subscriptions compared with the end of 2018. Print domestic home delivery subscriptions totaled approximately 856,000 at the end of 2019, a net decrease of 68,000 subscriptions compared with the end of 2018. The year-over-year decrease is a result of secular declines. Advertising Revenues Advertising revenue is principally from advertisers (such as technology, financial and luxury goods companies) promoting products, services or brands on digital platforms in the form of display ads, audio and video, and in print, in the form of column-inch ads. Advertising revenue is primarily derived from offerings sold directly to marketers by our advertising sales teams. A smaller proportion of our total advertising revenues is generated through programmatic auctions run by third-party ad exchanges. Advertising revenues are primarily determined by the volume (e.g., impressions), rate and mix of advertisements. Digital advertising includes our core digital advertising business and other digital advertising. Our core digital advertising business includes direct-sold website, mobile application, podcast, email and video advertisements. Direct-sold display advertising, a component of core digital advertising, includes offerings on websites and mobile applications sold directly to marketers by our advertising sales teams. Other digital advertising includes open-market programmatic advertising and creative services fees. Print advertising includes revenue from P. 38 -THE NEW YORK TIMES COMPANY --------------------------------------------------------------------------------
column-inch ads and classified advertising, including line-ads as well as preprinted advertising, also known as freestanding inserts.
The following table summarizes digital and print advertising revenues for the
years ended
Years Ended % Change
December 27, December 29, December 30,
(In thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Advertising revenues
Digital $ 228,594 $ 260,454 $ 258,873 (12.2) % 0.6 %
Print 163,826 270,224 299,380 (39.4) % (9.7) %
Total advertising $ 392,420 $ 530,678 $ 558,253 (26.1) % (4.9) %
2020 Compared with 2019
Digital advertising revenues, which represented 58.3% of total advertising
revenues in 2020, declined $31.9 million or 12.2% to $228.6 million , compared
with $260.5 million in 2019, primarily driven by a decrease in creative service
fees and direct-sold display advertising revenue. Core digital advertising
revenue decreased $5.8 million , primarily due to a 12% decline in direct-sold
display advertising revenue partially offset by a 26% increase in podcast
advertising revenues. Direct-sold display impressions declined 15%, while the
average rate grew 3%. Other digital advertising declined $26.1 million as a
result of lower creative services revenue resulting from the closure of our
HelloSociety and Fake Love digital marketing agencies and reduced spending by
advertisers in connection with the effects of the Covid-19 pandemic. This
decline was partially offset by 7.8% growth in open-market programmatic
advertising revenue, as impressions increased by 40%, while the average rate
decreased 23%. Overall display advertising impressions sold increased 21% as a
result of an increase in traffic to our products, which were primarily filled by
programmatic impressions.
Print advertising revenues, which represented 41.7% of total advertising
revenues in 2020, declined $106.4 million or 39.4% to $163.8 million in 2020
compared with $270.2 million in 2019. The decline was primarily in the
entertainment, luxury and media categories, and was driven by reduced spending
by advertisers in connection with the effects of the Covid-19 pandemic, which
further accelerated secular trends.
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2019 Compared with 2018
Digital advertising revenues, which represented 49.1% of total advertising
revenues in 2019, increased 0.6% to $260.5 million in 2019 compared with $258.9
million in 2018. The increase primarily reflected increases in podcast revenue,
partially offset by a decrease in direct-sold display advertising revenue. Core
digital advertising revenue increased $5.9 million primarily due to a 149%
increase in podcast revenues, partially offset by 9% decline in direct-sold
display advertising revenue. Direct-sold display impressions increased by 1%,
while the average rate declined 4%. Other digital advertising revenue decreased
$4.4 million primarily as a result of the closure of our HelloSociety digital
marketing agency. Open-market programmatic advertising revenue decreased
slightly, as impressions grew by 1%, while the average rate decreased 8%.
Overall display advertising impressions sold increased 1%.
Print advertising revenues, which represented 51% of total advertising revenues
in 2019, declined 9.7% to $270.2 million in 2019 compared with $299.4 million in
2018. The decline was primarily in the financial services and luxury categories.
Other Revenues
Other revenues primarily consist of revenues from licensing, Wirecutter
affiliate referrals, the leasing of floors in the Company Headquarters,
commercial printing, television and film, retail commerce and our live events
business. Building rental revenue consists of revenue from the leasing of floors
in our Company Headquarters, which totaled $28.5 million , $30.6 million and
$23.3 million in 2020, 2019 and 2018, respectively.
2020 Compared with 2019
Other revenues decreased 0.9% in 2020 compared with 2019, primarily as a result
of fewer episodes in our television series ("The Weekly," which had 23 episodes
in 2019, became "NYT Presents" in 2020, which had 12 episodes), as well as lower
revenues from live events as a result of the effects of the Covid-19 pandemic,
and lower revenues from commercial printing. These declines were partially
offset by higher Wirecutter affiliate referral revenues and licensing revenue
related to Facebook News , to which the Company licenses select content for
access by its users.
2019 Compared with 2018
Other revenues increased 33.8% in 2019 compared with 2018, primarily due to
revenue earned from our television series, "The Weekly," as well as growth in
commercial printing operations and higher rental revenue from the lease of
additional space in our Company Headquarters.
P. 40 -THE NEW YORK TIMES COMPANY --------------------------------------------------------------------------------
Operating Costs
Effective with the quarter ended
Years Ended % Change
December 27, December 29, December 30,
(In thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Operating costs:
Cost of revenue (excluding
depreciation and amortization) $ 960,222 $ 989,029 $ 947,884 (2.9) 4.3
Sales and marketing 229,040 272,657 271,164 (16.0) 0.6
Product development 132,428 105,514 84,098 25.5 25.5
General and administrative 223,557 206,778 196,621 8.1 5.2
Depreciation and amortization 62,136 60,661 59,011 2.4
2.8
Total operating costs$ 1,607,383 $ 1,634,639 $ 1,558,778 (1.7)
4.9
The components of operating costs as a percentage of total operating costs were
as follows:
Years Ended
December 27, December 29, December 30,
2020 2019 2018
Components of operating costs as a percentage of
total operating costs
Cost of revenue (excluding depreciation and
amortization) 60 % 61 % 61 %
Sales and marketing 14 % 17 % 17 %
Product development 8 % 6 % 5 %
General and administrative 14 % 12 % 13 %
Depreciation and amortization 4 % 4 % 4 %
Total 100 % 100 % 100 %
The components of operating costs as a percentage of total revenues were as
follows:
Years Ended
December 27, December 29, December 30,
2020 2019 2018
Components of operating costs as a percentage
of total revenues
Cost of revenue (excluding depreciation and
amortization) 54 % 55 % 54 %
Sales and marketing 13 % 15 % 16 %
Product development 7 % 6 % 5 %
General and administrative 13 % 11 % 11 %
Depreciation and amortization 3 % 3 % 3 %
Total 90 % 90 % 89 %
THE NEW YORK TIMES COMPANY - P. 41-------------------------------------------------------------------------------- Cost of Revenue (excluding depreciation and amortization) Cost of revenue includes all costs related to content creation, subscriber and advertiser servicing, and print production and distribution as well as infrastructure costs related to delivering digital content, which include all cloud and cloud-related costs as well as compensation for employees that enhance and maintain our platforms. 2020 Compared with 2019 Cost of revenue decreased$28.8 million in 2020 compared with 2019, primarily driven by a$53.4 million decrease in print production and distribution costs and a decrease in advertising servicing costs of$28.1 million , partially offset by higher journalism costs of$24.8 million , higher digital content delivery costs of$16.2 million , and higher subscriber servicing costs of$11.7 million . The decrease in print production and distribution costs was largely due to fewer print copies produced and newsprint pricing, as well as lower outside printing and distribution costs. The decrease in advertising servicing costs was a result of the closure of our HelloSociety and Fake Love digital marketing agencies, as well as lower volume of creative services campaigns and live events. Higher journalism costs were due to an increase in the number of newsroom employees, partially offset by lower costs related to our television series. The increase in digital content delivery costs were due to a growth in the number of employees and higher cloud-related costs. The increase in subscriber servicing costs was primarily due to higher credit card processing fees and third-party commissions due to increased subscriptions. 2019 Compared with 2018 Cost of revenue increased$41.1 million in 2019 compared with 2018, primarily driven by a$41.5 million increase in journalism costs, higher subscriber servicing costs of$8.9 million , and higher digital content and delivery costs of$3.1 million , partially offset by a decrease in print production and distribution costs of$14.2 million . The increase in journalism was largely due to the increase in newsroom employees and higher costs related to our television series. The increase in subscriber servicing costs was primarily due to higher credit card processing fees and third-party commissions due to increased subscriptions. The increase in digital content delivery costs was largely due to a growth in the number of employees and higher cloud costs. The decrease in print production and distribution costs was largely due to fewer print copies produced and lower outside printing expenses, partially offset by higher newsprint pricing. Sales and Marketing Sales and marketing includes costs related to the Company's marketing efforts as well as advertising sales costs. 2020 Compared with 2019 Sales and marketing costs decreased in 2020 by$43.6 million compared with 2019, primarily due to lower media expenses and advertising sales costs. Media expenses, a component of sales and marketing costs that represents the cost to promote our subscription business, decreased to$129.6 million in 2020 from$156.9 million in 2019, as the Company reduced its marketing spend. 2019 Compared with 2018 Sales and marketing costs increased in 2019 by$1.5 million compared with 2018, primarily driven by an increase in media expenses and advertising sales costs, partially offset by a lower number of employees. Media expenses increased to$156.9 million in 2019 from$131.5 million in 2018 as the Company increased its marketing spend to promote its subscription business and brand. Product Development Product development includes costs associated with the Company's investment into developing and enhancing new and existing product technology, including engineering, product development and data insights. 2020 Compared with 2019 Product development costs increased in 2020 by$26.9 million compared with 2019, largely due to growth in the number of digital product development employees to support our digital subscription strategic initiatives. P. 42 -THE NEW YORK TIMES COMPANY -------------------------------------------------------------------------------- 2019 Compared with 2018 Product development costs increased in 2019 by$21.4 million compared with 2018, primarily due to a growth in the number of employees to support our digital subscription strategic initiatives. General and Administrative Costs General and administrative costs include general management, corporate enterprise technology, building operations, unallocated overhead costs, severance and multiemployer pension plan withdrawal costs. 2020 Compared with 2019 General and administrative costs increased in 2020 by$16.8 million compared with 2019, primarily as a result of growth in the number of employees, as well as higher outside services costs. 2019 Compared with 2018 General and administrative costs increased in 2019 by$10.2 million compared with 2018, primarily due to a growth in the number of employees. Depreciation and Amortization 2020 Compared with 2019 Depreciation and amortization costs increased in 2020 compared with 2019 due to equipment and building projects that started depreciating during 2020. 2019 Compared with 2018 Depreciation and amortization costs increased in 2019 compared with 2018 due to building and software projects that were placed in service and started depreciating in the second half of 2018. Other Items See Note 7 of the Notes to the Consolidated Financial Statements for more information regarding other items. NON-OPERATING ITEMS Investments in Joint Ventures See Note 6 of the Notes to the Consolidated Financial Statements for information regarding our joint venture investments. Interest Expense and Other,Net See Note 7 of the Notes to the Consolidated Financial Statements for information regarding interest expense and other. Income Taxes See Note 12 of the Notes to the Consolidated Financial Statements for information regarding income taxes. Other Components of Net Periodic Benefit Costs See Note 9 and 10 of the Notes to the Consolidated Financial Statements for information regarding other components of net periodic benefit costs. Non-GAAP Financial Measures We have included in this report certain supplemental financial information derived from consolidated financial information but not presented in our financial statements prepared in accordance with GAAP. Specifically, we have referred to the following non-GAAP financial measures in this report: •diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and the impact of special items (or adjusted diluted earnings per share from continuing operations); •operating profit before depreciation, amortization, severance, multiemployer pension plan withdrawal costs and special items (or adjusted operating profit); andTHE NEW YORK TIMES COMPANY - P. 43 -------------------------------------------------------------------------------- •operating costs before depreciation, amortization, severance and multiemployer pension plan withdrawal costs (or adjusted operating costs). The special items in 2020 consisted of: •a$10.1 million gain ($7.4 million after tax or$0.04 per share) related to a non-marketable equity investment transaction. The gain is comprised of$2.5 million realized gain due to the partial sale of the investment and a$7.6 million unrealized gain due to the mark to market of the remaining investment, and is included in Interest income/(expense) and other, net in our Consolidated Statements of Operations. •A$5 million gain ($3.1 million or$0.02 per share after tax and net of noncontrolling interest) reflecting our proportionate share of a distribution from the pending liquidation ofMadison , in which the Company has an investment through a subsidiary. •$80.6 million in pension settlement charges ($59.1 million after tax or$0.35 per share) in connection with the transfer of certain pension benefit obligations to an insurer. The special items in 2019 consisted of: •a$4.0 million charge ($3.0 million after tax or$0.02 per share) related to restructuring charges, including impairment and severance charges related to the closure of our digital marketing agency,HelloSociety, LLC ; and •a$2.0 million gain ($1.5 million after tax or$0.01 per share) from a multiemployer pension plan liability adjustment. We have included these non-GAAP financial measures because management reviews them on a regular basis and uses them to evaluate and manage the performance of our operations. We believe that, for the reasons outlined below, these non-GAAP financial measures provide useful information to investors as a supplement to reported diluted earnings/(loss) per share from continuing operations, operating profit/(loss) and operating costs. However, these measures should be evaluated only in conjunction with the comparable GAAP financial measures and should not be viewed as alternative or superior measures of GAAP results. Adjusted diluted earnings per share provides useful information in evaluating the Company's period-to-period performance because it eliminates items that the Company does not consider to be indicative of earnings from ongoing operating activities. Adjusted operating profit is useful in evaluating the ongoing performance of the Company's business as it excludes the significant non-cash impact of depreciation and amortization, as well as items not indicative of ongoing operating activities. Total operating costs include depreciation, amortization, severance and multiemployer pension plan withdrawal costs. Total operating costs excluding these items provide investors with helpful supplemental information on the Company's underlying operating costs that is used by management in its financial and operational decision-making. Management considers special items, which may include impairment charges, pension settlement charges and other items that arise from time to time, to be outside the ordinary course of our operations. Management believes that excluding these items provides a better understanding of the underlying trends in the Company's operating performance and allows more accurate comparisons of the Company's operating results to historical performance. In addition, management excludes severance costs, which may fluctuate significantly from quarter to quarter, because it believes these costs do not necessarily reflect expected future operating costs and do not contribute to a meaningful comparison of the Company's operating results to historical performance. Included in our non-GAAP financial measures are non-operating retirement costs which are primarily tied to financial market performance and changes in market interest rates and investment performance. Management considers non-operating retirement costs to be outside the performance of the business and believes that presenting adjusted diluted earnings per share from continuing operations excluding non-operating retirement costs and presenting adjusted operating results excluding multiemployer pension plan withdrawal costs, in addition to the Company's GAAP diluted earnings per share from continuing operations and GAAP operating results, provide increased transparency and a better understanding of the underlying trends in the Company's operating business performance. P. 44 -THE NEW YORK TIMES COMPANY -------------------------------------------------------------------------------- Reconciliations of non-GAAP financial measures from, respectively, diluted earnings per share from continuing operations, operating profit and operating costs, the most directly comparable GAAP items, as well as details on the components of non-operating retirement costs, are set out in the tables below. Reconciliation of diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations) Years Ended % Change December
27,
2020 2019 2020 vs. 2019
Diluted earnings per share from continuing operations
$ 0.83 (27.7) %
Add:
Severance 0.04 0.02 * Non-operating retirement costs: Multiemployer pension plan withdrawal costs 0.03 0.04 (25.0) % Other components of net periodic benefit costs 0.05 0.04 25.0 % Special items: Restructuring charge - 0.02 * Gain from non-marketable equity security (0.06) - * Gain from pension liability adjustment - (0.01) * Gain from joint venture, net of noncontrolling interest (0.03) - * Pension settlement charge 0.48 - * Income tax expense of adjustments (0.14) (0.03) *
Adjusted diluted earnings per share from continuing operations (1)
$ 0.97 $ 0.92 5.4 %
* Represents a change equal to or in excess of 100% or one that is not meaningful. (1) Amounts may not add due to rounding.
THE NEW YORK TIMES COMPANY - P. 45
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Reconciliation of operating profit before depreciation and amortization, severance, multiemployer
pension plan withdrawal costs and special items (or adjusted operating profit)
Years Ended % Change
December 27, December 29,
(In thousands) 2020 2019 2020 vs. 2019
Operating profit $ 176,256 175,582 0.4 %
Add:
Depreciation and amortization 62,136 60,661 2.4 %
Severance 6,675 3,979 67.8
Multiemployer pension plan withdrawal costs 5,550 6,183 (10.2) %
Special items:
Restructuring charge - 4,008 *
Gain from pension liability adjustment - (2,045) *
Adjusted operating profit $ 250,617 $ 248,368 0.9 %
* Represents a change equal to or in excess of 100% or one that is not
meaningful.
Reconciliation of operating costs before depreciation and amortization, severance and multiemployer
pension plan withdrawal costs (or adjusted operating costs)
Years Ended % Change
December 27, December 29,
(In thousands) 2020 2019 2020 vs. 2019
Operating costs $ 1,607,383 $ 1,634,639 (1.7) %
Less:
Depreciation and amortization 62,136 60,661 2.4 %
Severance 6,675 3,979 67.8
Multiemployer pension plan withdrawal costs 5,550 6,183 (10.2) %
Adjusted operating costs $ 1,533,022 $ 1,563,816 (2.0) %
* Represents a change equal to or in excess of 100% or one that is not
meaningful.
P. 46 - THE NEW YORK TIMES COMPANY
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LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents information about our financial position.
Financial Position Summary
% Change
December 27, December 29,
(In thousands, except ratios) 2020 2019 2020 vs. 2019
Cash and cash equivalents $ 286,079 $ 230,431 24.1
Marketable securities 595,911 453,481 31.4
Total New York Times Company stockholders' equity 1,325,517 1,172,003 13.1
Ratios:
Current assets to current liabilities 1.72 1.64 * Represents an increase or decrease in excess of 100%. Our primary sources of cash inflows from operations were revenues from subscription and advertising sales. Subscription and advertising revenues provided about 67% and 22%, respectively, of total revenues in 2020. The remaining cash inflows were primarily from other revenue sources such as licensing, affiliate referrals, the leasing of floors in the Company Headquarters, commercial printing, television and film, retail commerce and our live events business. Our primary sources of cash outflows were for employee compensation and benefits and other operating expenses. We believe our cash and cash equivalents, marketable securities balance and cash provided by operations, in combination with other sources of cash, will be sufficient to meet our financing needs over the next 12 months. We have continued to strengthen our liquidity position and our debt profile. As ofDecember 27, 2020 , we had cash and cash equivalents and marketable securities of$882.0 million . Our cash and cash equivalents and marketable securities balances increased in 2020, primarily due to cash proceeds from operating activities, partially offset by dividend payments, capital expenditures, consideration paid for acquisitions, and share-based compensation tax withholding. We have paid quarterly dividends on the Class A and Class B Common Stock since late 2013. InFebruary 2021 , the Board of Directors approved a quarterly dividend of$0.07 per share, an increase of$0.01 per share from the previous quarter. We currently expect to continue to pay comparable cash dividends in the future, although changes in our dividend program will be considered by our Board of Directors in light of our earnings, capital requirements, financial condition and other factors considered relevant. During 2020, we made contributions of$9.5 million to certain qualified pension plans funded by cash on hand. As ofDecember 27, 2020 , our qualified pension plans had plan assets that were$36.2 million above the present value of future benefits obligations, an improvement of$47.8 million from an underfunded balance of$11.6 million as ofDecember 29, 2019 . We expect contributions made to satisfy minimum funding requirements to total approximately$10 million in 2021. InOctober 2020 , we entered into an agreement with an insurance company to transfer the future benefit obligations and annuity administration for certain retirees (or their beneficiaries) in The New York Times Companies Pension Plan (the "Pension Plan"). This transfer of plan assets and obligations reduced the Company's qualified pension plan obligations by$236.3 million . In early 2015, the Board of Directors authorized up to$101.1 million of repurchases of shares of the Company's Class A common stock. As ofDecember 27, 2020 , repurchases under this authorization totaled$84.9 million (excluding commissions) and$16.2 million remained. Our Board of Directors has authorized us to purchase shares from time to time, subject to market conditions and other factors. There is no expiration date with respect to this authorization. There have been no purchases under this authorization since 2016. THE NEW YORK TIMES COMPANY - P. 47 -------------------------------------------------------------------------------- Capital Resources Sources and Uses of Cash Cash flows provided by/(used in) by category were as follows: Years Ended % Change December 27, December 29, (In thousands) 2020 2019 2020 vs. 2019 Operating activities$ 297,933 $ 189,898 56.9 Investing activities$ (199,080) $ 93,212 * Financing activities$ (44,973) $ (295,291) (84.8) * Represents an increase or decrease in excess of 100%. Operating Activities Cash from operating activities is generated by cash receipts from subscriptions, advertising sales and other revenue. Operating cash outflows include payments for employee compensation, pension and other benefits, raw materials, marketing expenses, interest and income taxes. Net cash provided by operating activities increased in 2020 compared with 2019 due to lower cash payments for operating expenses, higher cash payments received from accounts receivable and prepaid subscriptions, and the timing of cash payments for operating liabilities. Investing Activities Cash from investing activities generally includes proceeds from marketable securities that have matured and the sale of assets, investments or a business. Cash used in investing activities generally includes purchases of marketable securities, payments for capital projects, acquisitions of new businesses and investments. Net cash used in investing activities in 2020 was primarily related to$141.2 in net purchases of marketable securities,$34.5 million in capital expenditures payments, and$33.1 million in consideration paid for acquisitions. Financing Activities Cash from financing activities generally includes borrowings under third-party financing arrangements, the issuance of long-term debt and funds from stock option exercises. Cash used in financing activities generally includes the repayment of amounts outstanding under third-party financing arrangements, the payment of dividends, the payment of long-term debt and capital lease obligations, and stock-based compensation tax withholding. Net cash used in financing activities in 2020 was primarily related to dividend payments of$38.4 million and tax payments made in connection with our stock-based compensation of$11.7 million . See "- Third-Party Financing" below and our Consolidated Statements of Cash Flows for additional information on our sources and uses of cash. Restricted Cash We were required to maintain$15.9 million of restricted cash as ofDecember 27, 2020 , and$17.1 million as ofDecember 29, 2019 , substantially all of which is set aside to collateralize workers' compensation obligations. Capital Expenditures Capital expenditures totaled approximately$30 million and$49 million in 2020 and 2019, respectively. The decrease in capital expenditures was primarily driven by lower expenditures related to the build-out of additional office space inLong Island City, N.Y. , and lower expenditures related to improvements at ourCollege Point, N.Y. , printing and distribution facility. The cash payments related to the capital expenditures totaled approximately$34 million and$45 million in 2020 and 2019, respectively. Third-Party Financing As ofDecember 27, 2020 , there were no outstanding borrowings under the Credit Facility and the Company P. 48 -THE NEW YORK TIMES COMPANY -------------------------------------------------------------------------------- was in compliance with the financial covenants contained in the Credit Facility. See Note 7 for information regarding the Credit Facility. Contractual Obligations The information provided is based on management's best estimate and assumptions of our contractual obligations as ofDecember 27, 2020 . Actual payments in future periods may vary from those reflected in the table. Payment due in (In thousands) Total 2021 2022-2023
2024-2025 Later Years Operating leases(1) 74,349 11,356 19,466 14,888
28,639
Benefit plans(2) 376,648 50,450 91,440 79,048 155,710
Total $ 450,997 $ 61,806 $ 110,906 $ 93,936 $ 184,349
(1)See Note 17 of the Notes to the Consolidated Financial Statements for
additional information related to our operating leases.
(2)The Company's general funding policy with respect to qualified pension plans
is to contribute amounts at least sufficient to satisfy the minimum amount
required by applicable law and regulations. Contributions for our qualified
pension plans and future benefit payments for our unfunded pension and other
postretirement benefit payments have been estimated over a 10-year period;
therefore, the amounts included in the "Later Years" column only include
payments for the period of 2026-2030. For our funded qualified pension plans,
estimating funding depends on several variables, including the performance of
the plans' investments, assumptions for discount rates, expected long-term rates
of return on assets, rates of compensation increases (applicable only for the
Guild-Times Adjustable Pension Plan that has not been frozen) and other factors.
Thus, our actual contributions could vary substantially from these estimates.
While benefit payments under these plans are expected to continue beyond 2030,
we have included in this table only those benefit payments estimated over the
next 10 years. Benefit plans in the table above also include estimated payments
for multiemployer pension plan withdrawal liabilities. See Notes 9 and 10 of the
Notes to the Consolidated Financial Statements for additional information
related to our pension and other postretirement benefits plans.
Other Liabilities - Other in our Consolidated Balance Sheets include liabilities
related to (1) deferred compensation, primarily related to our deferred
executive compensation plan (the "DEC") and (2) various other liabilities,
including our contingent tax liability for uncertain tax positions and
contingent consideration. These liabilities are not included in the table above
primarily because the timing of the future payments is not determinable. See
Note 11 of the Notes to the Consolidated Financial Statements for additional
information.
The DEC previously enabled certain eligible executives to elect to defer a
portion of their compensation on a pre-tax basis. The deferred amounts are
invested at the executives' option in various mutual funds. The fair value of
deferred compensation is based on the mutual fund investments elected by the
executives and on quoted prices in active markets for identical assets. The fair
value of deferred compensation was $22.2 million as of December 27, 2020 . The
DEC was frozen effective December 31, 2015 , and no new contributions may be made
into the plan. See Note 11 of the Notes to the Consolidated Financial Statements
for additional information on Other Liabilities - Other.
Our liability for uncertain tax positions was approximately $8 million ,
including approximately $1 million of accrued interest as of December 27, 2020 .
Until formal resolutions are reached between us and the taxing authorities,
determining the timing and amount of possible audit settlements relating to
uncertain tax positions is not practicable. Therefore, we do not include this
obligation in the table of contractual obligations. See Note 12 of the Notes to
the Consolidated Financial Statements for additional information regarding
income taxes.
The contingent consideration represents contingent payments in connection with
the acquisition of substantially all the assets and certain liabilities of
Serial Productions, LLC . The Company estimated the fair value of the contingent
consideration liability using a probability-weighted discounted cash flow model.
The estimate of the fair value of contingent consideration requires subjective
assumptions to be made regarding probabilities assigned to operational targets
and the discount rate. The contingent consideration balance of $8.4 million as
of December 27, 2020 , is included in Accrued expenses and other, for the current
portion of the liability, and Other non-current liabilities, for the long-term
portion of the liability, in our Consolidated Balance Sheets. See Note 5 for
more information.
We have a contract through the end of 2022 with Resolute FP US Inc. , a
subsidiary of Resolute Forest Products Inc., a major paper supplier, to purchase
newsprint. The contract requires us to purchase annually the lesser of a fixed
number of tons or a percentage of our total newsprint requirement at market rate
in an arm's length transaction. Since the quantities of newsprint purchased
annually under this contract are based on our total newsprint requirement, the
amount of the related payments for these purchases is excluded from the table
above.
THE NEW YORK TIMES COMPANY - P. 49
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Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements as of December 27,
2020 .
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements are prepared in accordance with GAAP. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the amounts reported in the Consolidated Financial
Statements for the periods presented.
We continually evaluate the policies and estimates we use to prepare our
Consolidated Financial Statements. In general, management's estimates are based
on historical experience, information from third-party professionals and various
other assumptions that are believed to be reasonable under the facts and
circumstances. Actual results may differ from those estimates made by
management.
Our critical accounting policies include our accounting for goodwill and
intangibles, retirement benefits, revenue recognition and income taxes. Specific
risks related to our critical accounting policies are discussed below.
Goodwill and Intangibles
We evaluate whether there has been an impairment of goodwill or intangible
assets not amortized on an annual basis or in an interim period if certain
circumstances indicate that a possible impairment may exist. For a description
of our related accounting policies, refer to Note 2 of the Notes to the
Consolidated Financial Statements.
December 27, December 29,
(In thousands) 2020 2019
Goodwill $ 171,657 $ 138,674
Intangibles $ 16,298 $ 2,984
Total assets $ 2,307,689 $ 2,089,138
Percentage of goodwill and intangibles to total assets 8 % 7 %
The impairment analysis is considered critical because of the significance of
goodwill and intangibles to our Consolidated Balance Sheets.
We test for goodwill impairment at a reporting unit level. We first perform a
qualitative assessment to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying value.
If we determine that it is more likely than not that the fair value of a
reporting unit is less than its carrying value, we compare the fair value of a
reporting unit with its carrying amount, including goodwill. Fair value is
calculated by a combination of a discounted cash flow model and a market
approach model.
The discounted cash flow analysis requires us to make various judgments,
estimates and assumptions, many of which are interdependent, about future
revenues, operating margins, growth rates, capital expenditures, working
capital, discount rates and royalty rates. The starting point for the
assumptions used in our discounted cash flow analysis is the annual long-range
financial forecast. The annual planning process that we undertake to prepare the
long-range financial forecast takes into consideration a multitude of factors,
including historical growth rates and operating performance, related industry
trends, macroeconomic conditions, and marketplace data, among others.
Assumptions are also made for perpetual growth rates for periods beyond the
long-range financial forecast period. Our estimates of fair value are sensitive
to changes in all of these variables, certain of which relate to broader
macroeconomic conditions outside our control.
The market approach analysis includes applying a multiple, based on comparable
market transactions, to certain operating metrics of a reporting unit.
The significant estimates and assumptions used by management in assessing the
recoverability of goodwill and intangibles are estimated future cash flows,
discount rates, growth rates, as well as other factors. Any changes in these
estimates or assumptions could result in an impairment charge. The estimates,
based on reasonable and supportable assumptions and projections, require
management's subjective judgment. Depending on the assumptions and estimates
used, the estimated results of the impairment tests can vary within a range of
outcomes.
P. 50 - THE NEW YORK TIMES COMPANY
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For the 2020 annual impairment testing, based on our qualitative assessment, we
concluded that goodwill is not impaired.
Retirement Benefits
Our single-employer pension and other postretirement benefit costs and
obligations are accounted for using actuarial valuations. We recognize the
funded status of these plans - measured as the difference between plan assets,
if funded, and the benefit obligation - on the balance sheet and recognize
changes in the funded status that arise during the period but are not recognized
as components of net periodic pension cost, within other comprehensive
income/(loss), net of tax. The assets related to our funded pension plans are
measured at fair value.
We also recognize the present value of liabilities associated with the
withdrawal from multiemployer pension plans.
We consider accounting for retirement plans critical to our operations because
management is required to make significant subjective judgments about a number
of actuarial assumptions, which include discount rates, long-term return on plan
assets and mortality rates. These assumptions may have an effect on the amount
and timing of future contributions. Depending on the assumptions and estimates
used, the impact from our pension and other postretirement benefits could vary
within a range of outcomes and could have a material effect on our Consolidated
Financial Statements.
See "- Pensions and Other Postretirement Benefits" below for more information on
our retirement benefits.
Revenue Recognition
Our contracts with customers sometimes include promises to transfer multiple
products and services to a customer. Determining whether products and services
are considered distinct performance obligations that should be accounted for
separately versus together may require significant judgment. We use an
observable price to determine the standalone selling price for separate
performance obligations if available or, when not available, an estimate that
maximizes the use of observable inputs and faithfully depicts the selling price
of the promised goods or services if we sold those goods or services separately
to a similar customer in similar circumstances.
Income Taxes
We consider accounting for income taxes critical to our operating results
because management is required to make significant subjective judgments in
developing our provision for income taxes, including the determination of
deferred tax assets and liabilities, and any valuation allowances that may be
required against deferred tax assets.
Income taxes are recognized for the following: (1) the amount of taxes payable
for the current year and (2) deferred tax assets and liabilities for the future
tax consequences of events that have been recognized differently in the
financial statements than for tax purposes. Deferred tax assets and liabilities
are established using statutory tax rates and are adjusted for tax rate changes
in the period of enactment.
We assess whether our deferred tax assets shall be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Our process includes collecting positive (i.e.,
sources of taxable income) and negative (i.e., recent historical losses)
evidence and assessing, based on the evidence, whether it is more likely than
not that the deferred tax assets will not be realized.
We release tax effects from accumulated other comprehensive income/(loss) for
pension and other postretirement benefits on a plan by plan approach.
We recognize in our financial statements the impact of a tax position if that
tax position is more likely than not of being sustained on audit, based on the
technical merits of the tax position. This involves the identification of
potential uncertain tax positions, the evaluation of tax law and an assessment
of whether a liability for uncertain tax positions is necessary. Different
conclusions reached in this assessment can have a material impact on the
Consolidated Financial Statements.
We operate within multiple taxing jurisdictions and are subject to audit in
these jurisdictions. These audits can involve complex issues, which could
require an extended period of time to resolve. Until formal resolutions are
reached between us and the taxing authorities, determining the timing and amount
of possible audit settlements relating to uncertain tax positions is not
practicable.
THE NEW YORK TIMES COMPANY - P. 51
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PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We maintain the Pension Plan, a frozen single-employer defined benefit pension
plan. The Company and The NewsGuild of New York (the "Guild") jointly sponsor
the Guild-Times Adjustable Pension Plan (the "APP"), which continues to accrue
active benefits. Effective January 1, 2018 , the Company became the sole sponsor
of the frozen Newspaper Guild of New York - The New York Times Pension Plan (the
"Guild-Times Plan"). The Guild-Times Plan was previously joint trusteed between
the Guild and the Company. Effective December 31, 2018 , the Guild-Times Plan and
the Retirement Annuity Plan For Craft Employees of The New York Times Companies
were merged into the Pension Plan. Our pension liability also includes our
multiemployer pension plan withdrawal obligations. Our liability for
postretirement obligations includes our liability to provide health benefits to
eligible retired employees.
The table below includes the liability for all of these plans.
December 27, December 29,
(In thousands) 2020 2019
Pension and other postretirement liabilities (includes current portion)
$ 397,918 $ 384,670 Total liabilities$ 979,578 $ 915,275 Percentage of pension and other postretirement liabilities to total liabilities 40.6 % 42.0 % Pension Benefits Our Company-sponsored defined benefit pension plans include qualified plans (funded) as well as non-qualified plans (unfunded). These plans provide participating employees with retirement benefits in accordance with benefit formulas detailed in each plan. All of our non-qualified plans, which provide enhanced retirement benefits to select employees, are frozen, except for a foreign-based pension plan discussed below. Our joint Company and Guild-sponsored plan is a qualified plan and is included in the table below. We also have a foreign-based pension plan for certain non-U.S. employees (the "foreign plan"). The information for the foreign plan is combined with the information forU.S. non-qualified plans. The benefit obligation of the foreign plan is immaterial to our total benefit obligation. The funded status of our qualified and non-qualified pension plans as ofDecember 27, 2020 , is as follows: December 27, 2020 Qualified Non-Qualified (In thousands) Plans Plans All Plans Pension obligation$ 1,549,012 $ 259,593 $ 1,808,605 Fair value of plan assets 1,585,221 - 1,585,221 Pension asset/obligation, net$ 36,209 $ (259,593) $ (223,384) We made contributions of approximately$10 million to the APP in 2020. We expect contributions made to satisfy minimum funding requirements to total approximately$10 million in 2021. Pension expense is calculated using a number of actuarial assumptions, including an expected long-term rate of return on assets (for qualified plans) and a discount rate. Our methodology in selecting these actuarial assumptions is discussed below. In determining the expected long-term rate of return on assets, we evaluated input from our investment consultants, actuaries and investment management firms, including our review of asset class return expectations, as well as long-term historical asset class returns. Projected returns by such consultants and economists are based on broad equity and bond indices. Our objective is to select an average rate of earnings expected on existing plan assets and expected contributions to the plan (less plan expenses to be incurred) during the year. The expected long-term rate of return determined on this basis was 4.75% at the beginning of 2020. Our plan assets had an average rate of return of approximately 16.99% in 2020 and an average annual return of approximately 11.15% over the three-year P. 52 -THE NEW YORK TIMES COMPANY -------------------------------------------------------------------------------- period 2018-2020. We regularly review our actual asset allocation and periodically rebalance our investments to meet our investment strategy. The market-related value of plan assets is multiplied by the expected long-term rate of return on assets to compute the expected return on plan assets, a component of net periodic pension cost. The market-related value of plan assets is a calculated value that recognizes changes in fair value over three years. Based on the composition of our assets at the end of the year, we estimated our 2021 expected long-term rate of return to be 3.75%. If we had decreased our expected long-term rate of return on our plan assets by 50 basis points in 2020, pension expense would have increased by approximately$7 million for our qualified pension plans. Our funding requirements would not have been materially affected. We determined our discount rate using aRyan ALM, Inc. Curve (the "Ryan Curve"). The Ryan Curve provides the bonds included in the curve and allows adjustments for certain outliers (i.e., bonds on "watch"). We believe the Ryan Curve allows us to calculate an appropriate discount rate. To determine our discount rate, we project a cash flow based on annual accrued benefits. For active participants, the benefits under the respective pension plans are projected to the date of termination. The projected plan cash flow is discounted to the measurement date, which is the last day of our fiscal year, using the annual spot rates provided in the Ryan Curve. A single discount rate is then computed so that the present value of the benefit cash flow equals the present value computed using the Ryan Curve rates. The weighted-average discount rate determined on this basis was 2.64% for our qualified plans and 2.39% for our non-qualified plans as ofDecember 27, 2020 . If we had decreased the expected discount rate by 50 basis points for our qualified plans and our non-qualified plans in 2020, pension expense would have decreased by approximately$0.3 million and our pension obligation would have increased by approximately$117 million as ofDecember 27, 2020 . We will continue to evaluate all of our actuarial assumptions, generally on an annual basis, and will adjust as necessary. Actual pension expense will depend on future investment performance, changes in future discount rates, the level of contributions we make and various other factors. We also recognize the present value of pension liabilities associated with the withdrawal from multiemployer pension plans. Our multiemployer pension plan withdrawal liability was approximately$76 million as ofDecember 27, 2020 . This liability represents the present value of the obligations related to complete and partial withdrawals that have already occurred as well as an estimate of future partial withdrawals that we considered probable and reasonably estimable. For those plans that have yet to provide us with a demand letter, the actual liability will not be known until they complete a final assessment of the withdrawal liability and issue a demand to us. Therefore, the estimate of our multiemployer pension plan liability will be adjusted as more information becomes available that allows us to refine our estimates. See Note 9 of the Notes to the Consolidated Financial Statements for additional information regarding our pension plans. Other Postretirement Benefits We provide health benefits to certain primarily grandfathered retired employee groups (and their eligible dependents) who meet the definition of an eligible participant and certain age and service requirements, as outlined in the plan document. There is a de minimis liability for retiree health benefits for active employees. While we offer pre-age 65 retiree medical coverage to employees who meet certain retiree medical eligibility requirements, we do not provide post-age 65 retiree medical benefits for employees who retired on or afterMarch 1, 2009 . We accrue the costs of postretirement benefits during the employees' active years of service and our policy is to pay our portion of insurance premiums and claims from general corporate assets. See Note 10 of the Notes to the Consolidated Financial Statements for additional information regarding our other postretirement benefits. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 of the Notes to the Consolidated Financial Statements for information regarding recent accounting pronouncements. THE NEW YORK TIMES COMPANY - P. 53 --------------------------------------------------------------------------------
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