Edgar Filing: NEW YORK TIMES CO

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2018

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 incorporation or organization)		(I.R.S. Employer Identification No.)

620 EIGHTH AVENUE, NEW YORK, NEW YORK

(Address of principal executive offices)

10018

(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o
Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of each class of the registrant’s common stock outstanding as of August 3, 2018 (exclusive of treasury shares):



Class A Common Stock	164,086,219	shares
Class B Common Stock	803,408	shares

THE NEW YORK TIMES COMPANY

INDEX



	ITEM NO.
PART I		Financial Information	1
Item	1	Financial Statements	1
		Condensed Consolidated Balance Sheets as of July 1, 2018 (unaudited) and December 31, 2017	1
		Condensed Consolidated Statements of Operations (unaudited) for the quarters and six months ended July 1, 2018 and June 25, 2017	3
		Condensed Consolidated Statements of Comprehensive Income (unaudited) for the quarters and six months ended July 1, 2018 and June 25, 2017	4
		Condensed Consolidated Statements of Changes In Stockholder’s Equity (unaudited) as of July 1, 2018 and June 25, 2017	5
		Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended July 1, 2018 and June 25, 2017	6
		Notes to the Condensed Consolidated Financial Statements	7
Item	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item	3	Quantitative and Qualitative Disclosures about Market Risk	35
Item	4	Controls and Procedures	36

PART II		Other Information	37
Item	1	Legal Proceedings	37
Item	1A	Risk Factors	37
Item	2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item	6	Exhibits	38

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	July 1, 2018		December 31, 2017
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	236,511	$	182,911
Short-term marketable securities	293,791		308,589
Accounts receivable (net of allowances of $12,886 in 2018 and $14,542 in 2017)	137,909		184,885
Prepaid expenses	27,021		22,851
Other current assets	34,722		50,463
Total current assets	729,954		749,699
Other assets
Long-term marketable securities	248,848		241,411
Property, plant and equipment (less accumulated depreciation and amortization of $936,283 in 2018 and $945,401 in 2017)	645,567		640,939
Goodwill	141,742		143,549
Deferred income taxes	148,686		153,046
Miscellaneous assets	184,325		171,136
Total assets	$	2,099,122	$	2,099,780

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS-(Continued)

(In thousands, except share and per share data)



	July 1, 2018			December 31, 2017
	(Unaudited)
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	105,389		$	125,479
Accrued payroll and other related liabilities	70,149			104,614
Unexpired subscriptions revenue	82,410			75,054
Accrued expenses and other	103,916			110,510
Total current liabilities	361,864			415,657
Other liabilities
Long-term debt and capital lease obligations	251,911			250,209
Pension benefits obligation	382,031			405,422
Postretirement benefits obligation	46,559			48,816
Other	77,066			82,313
Total other liabilities	757,567			786,760
Stockholders’ equity
Common stock of $.10 par value:
Class A – authorized: 300,000,000 shares; issued: 2018 – 172,957,020; 2017 – 170,276,449 (including treasury shares: 2018 – 8,870,801; 2017 – 8,870,801)	17,296			17,028
Class B – convertible – authorized and issued shares: 2018 – 803,408; 2017 – 803,763	80			80
Additional paid-in capital	201,601			164,275
Retained earnings	1,439,121			1,310,136
Common stock held in treasury, at cost	(171,211		)	(171,211		)
Accumulated other comprehensive loss, net of income taxes:
Foreign currency translation adjustments	6,164			6,328
Funded status of benefit plans	(510,763		)	(427,819		)
Net unrealized loss on available-for-sale securities	(2,682		)	(1,538		)
Total accumulated other comprehensive loss, net of income taxes	(507,281		)	(423,029		)
Total New York Times Company stockholders’ equity	979,606			897,279
Noncontrolling interest	85			84
Total stockholders’ equity	979,691			897,363
Total liabilities and stockholders’ equity	$	2,099,122		$	2,099,780

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



	For the Quarters Ended						For the Six Months Ended
	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
	(13 weeks)						(26 weeks)
Revenues
Subscription	$	260,629		$	250,037		$	521,222		$	492,412
Advertising	119,201			132,234			244,848			262,262
Other	34,730			24,803			62,438			51,204
Total revenues	414,560			407,074			828,508			805,878
Operating costs
Production costs:
Wages and benefits	92,754			88,799			184,747			179,813
Raw materials	17,826			15,813			34,518			32,743
Other production costs	45,277			45,082			90,933			90,435
Total production costs	155,857			149,694			310,198			302,991
Selling, general and administrative costs	203,368			213,788			411,991			412,925
Depreciation and amortization	14,081			15,131			29,122			31,284
Total operating costs	373,306			378,613			751,311			747,200
Headquarters redesign and consolidation	1,252			1,985			3,140			4,387
Operating profit	40,002			26,476			74,057			54,291
Other components of net periodic benefit costs/(income)	1,863			(1,193		)	3,891			(2,387		)
(Loss)/Gain from joint ventures	(8		)	(266		)	7			(93		)
Interest expense and other, net	4,536			5,133			9,413			10,458
Income from continuing operations before income taxes	33,595			22,270			60,760			46,127
Income tax expense	9,999			6,711			15,250			17,453
Net income	23,596			15,559			45,510			28,674
Net loss/(income) attributable to the noncontrolling interest	1			40			(1		)	106
Net income attributable to The New York Times Company common stockholders	$	23,597		$	15,599		$	45,509		$	28,780
Average number of common shares outstanding:
Basic	165,027			161,787			164,581			161,624
Diluted	166,899			163,808			166,515			163,673
Basic earnings per share attributable to The New York Times Company common stockholders	$	0.14		$	0.10		$	0.28		$	0.18
Diluted earnings per share attributable to The New York Times Company common stockholders	$	0.14		$	0.09		$	0.27		$	0.17
Dividends declared per share	$	0.04		$	—		$	0.08		$	0.04

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)



	For the Quarters Ended					For the Six Months Ended
	July 1, 2018			June 25, 2017		July 1, 2018			June 25, 2017
	(13 weeks)					(26 weeks)
Net income	$	23,596		$	15,559	$	45,510		$	28,674
Other comprehensive income, before tax:
(Loss)/income on foreign currency translation adjustments	(4,629		)	2,896		(2,356		)	5,071
Pension and postretirement benefits obligation	7,081			6,920		16,841			13,841
Net unrealized income/(loss) on available-for-sale securities	273			—		(1,098		)	—
Other comprehensive income, before tax	2,725			9,816		13,387			18,912
Income tax expense	684			3,826		3,504			7,357
Other comprehensive income, net of tax	2,041			5,990		9,883			11,555
Comprehensive income	25,637			21,549		55,393			40,229
Comprehensive loss/(income) attributable to the noncontrolling interest	1			40		(1		)	106
Comprehensive income attributable to The New York Times Company common stockholders	$	25,638		$	21,589	$	55,392		$	40,335

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)



	Capital Stock Class A and Class B Common		Additional Paid-in Capital			Retained Earnings			Common Stock Held in Treasury, at Cost			Accumulated Other Comprehensive Loss, Net of Income Taxes			Total New York Times Company Stockholders’ Equity			Non- controlling Interest			Total Stock- holders’ Equity

Balance, December 25, 2016	$	17,003	$	149,928		$	1,331,911		$	(171,211	)	$	(479,816	)	$	847,815		$	(3,571	)	$	844,244
Net income	—		—			28,780			—			—			28,780			(106		)	28,674
Dividends	—		—			(6,496		)	—			—			(6,496		)	—			(6,496		)
Other comprehensive income	—		—			—			—			11,555			11,555			—			11,555
Issuance of shares:
Stock options – 460,909 Class A shares	46		2,661			—			—			—			2,707			—			2,707
Restricted stock units vested – 245,858 Class A shares	24		(2,479		)	—			—			—			(2,455		)	—			(2,455		)
Performance-based awards – 115,881 Class A shares	12		(1,360		)	—			—			—			(1,348		)	—			(1,348		)
Stock-based compensation	—		7,145			—			—			—			7,145			—			7,145
Balance, June 25, 2017	$	17,085	$	155,895		$	1,354,195		$	(171,211	)	$	(468,261	)	$	887,703		$	(3,677	)	$	884,026

Balance, December 31, 2017	$	17,108	$	164,275		$	1,310,136		$	(171,211	)	$	(423,029	)	$	897,279		$	84		$	897,363
Impact of adopting new accounting guidance						96,707						(94,135		)	2,572			—			2,572
Net income	—		—			45,509			—			—			45,509			1			45,510
Dividends	—		—			(13,231		)	—			—			(13,231		)	—			(13,231		)
Other comprehensive income	—		—			—			—			9,883			9,883			—			9,883
Issuance of shares:
Stock options – 2,185,201 Class A shares	219		40,308			—			—			—			40,527			—			40,527
Restricted stock units vested – 223,174 Class A shares	22		(3,076		)	—			—			—			(3,054		)	—			(3,054		)
Performance-based awards – 271,841 Class A shares	27		(5,930		)	—			—			—			(5,903		)	—			(5,903		)
Stock-based compensation	—		6,024			—			—			—			6,024			—			6,024
Balance, July 1, 2018	$	17,376	$	201,601		$	1,439,121		$	(171,211	)	$	(507,281	)	$	979,606		$	85		$	979,691

THE NEW YORK TIMES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	For the Six Months Ended
	July 1, 2018			June 25, 2017
	(26 weeks)
Cash flows from operating activities
Net income	$	45,510		$	28,674
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,122			31,284
Stock-based compensation expense	7,145			8,010
Undistributed (gain)/loss of joint ventures	(7		)	93
Long-term retirement benefit obligations	(8,435		)	(13,279		)
Other-net	965			1,737
Changes in operating assets and liabilities:
Accounts receivable-net	46,976			47,802
Other assets	14,430			3,040
Accounts payable, accrued payroll and other liabilities	(65,393		)	(20,353		)
Unexpired subscriptions	7,356			12,453
Net cash provided by operating activities	77,669			99,461
Cash flows from investing activities
Purchases of marketable securities	(229,534		)	(245,033		)
Maturities of marketable securities	234,883			277,499
Capital expenditures	(45,529		)	(21,411		)
Other-net	(1,474		)	36
Net cash (used in)/provided by investing activities	(41,654		)	11,091
Cash flows from financing activities
Long-term obligations:
Repayment of debt and capital lease obligations	(276		)	(276		)
Dividends paid	(13,128		)	(12,969		)
Capital shares:
Proceeds from stock option exercises	40,527			2,706
Share-based compensation tax withholding	(8,956		)	(3,803		)
Net cash provided by/(used in) financing activities	18,167			(14,342		)
Net increase in cash, cash equivalents and restricted cash	54,182			96,210
Effect of exchange rate changes on cash	(473		)	268
Cash, cash equivalents and restricted cash at the beginning of the period	200,936			125,550
Cash, cash equivalents and restricted cash at the end of the period	$	254,645		$	222,028

See Notes to Condensed Consolidated Financial Statements.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

In the opinion of management of The New York Times Company (the “Company”), the Condensed Consolidated Financial Statements present fairly the financial position of the Company as of July 1, 2018, and December 31, 2017, and the results of operations, changes in stockholder’s equity statement and cash flows of the Company for the periods ended July 1, 2018, and June 25, 2017. The Company and its consolidated subsidiaries are referred to collectively as “we,” “us” or “our.” All adjustments necessary for a fair presentation have been included and are of a normal and recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from these interim financial statements. These financial statements, therefore, should be read in conjunction with the Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Due to the seasonal nature of our business, operating results for the interim periods are not necessarily indicative of a full year’s operations. The fiscal periods included herein comprise 13 weeks for the second quarter.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements. Actual results could differ from these estimates.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as described herein, as of July 1, 2018, our significant accounting policies, which are detailed in our Annual Report on Form 10-K for the year ended December 31, 2017, have not changed materially.

Recently Adopted Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-05, which amends Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes” to conform with SEC Staff Accounting Bulletin 118, issued in December 2017 which allowed SEC registrants to record provisional amounts for the year ended December 31, 2017, due to the complexities involved in accounting for the enactment of the 2017 Tax Cuts and Jobs Act (the “Act”). The standard was effective upon issuance. During the six months ended July 1, 2018, we have not recorded any measurement period adjustments to the provisional estimate recorded at December 31, 2017 for the Act. The accounting for the impact of the Act is expected to be completed by the fourth quarter of this year.

In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The new guidance provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate related to the Act is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company elected to adopt this guidance to reclassify the stranded tax effects from AOCI to retained earnings in the first quarter of 2018. Our current accounting policy related to releasing tax effects from AOCI for pension and other postretirement benefits is a plan by plan approach. Accordingly, the Company recorded a $94.1 million cumulative effect adjustment for stranded tax effects, such as pension and other postretirement benefits, to “Retained earnings” on January 1, 2018. See Note 13 for more information.

In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The new guidance requires the service cost component to be presented separately from the other components of net benefit costs. Service cost will be presented with other employee compensation cost within “Operating costs.” The other components of net periodic benefit costs, such as interest cost, amortization of prior service cost and gains or losses are required to be presented outside of operations. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied retrospectively for the presentation of the service cost component in the income statement and allows a practical expedient for the estimation basis for applying the retrospective presentation requirements.

Since ASU 2017-07 only requires change to the Condensed Consolidated Statements of Operations classification of the components of net periodic benefit cost, there are no changes to income from continuing operations or net income. As a result of the adoption of the ASU during the first quarter of 2018, the service cost component of net periodic benefit costs continues to be recognized in total operating costs and the other components of net periodic benefit costs have been reclassified to “Other

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

components of net periodic benefit costs/(income)” in the Condensed Consolidated Statements of Operations below “Operating profit” on a retrospective basis. The Company reclassified $0.4 million and $0.8 million of credits from “Production costs” and “Selling and general and administrative costs,” respectively, to “Other components of net periodic benefit costs/(income)” in the second quarter of 2017 and $0.5 million and $1.9 million of credits from “Production costs” and “Selling and general and administrative costs,” respectively, to “Other components of net periodic benefit costs/(income)” in the first six months of 2017. See Note 10 for the components of net periodic benefit costs/(income) for our pension and other postretirement benefits plans.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flow: Restricted Cash,” which amends the guidance in ASC 230 on the classification and presentation of restricted cash in the statement of cash flows. The key requirements of the ASU are: (1) all entities should include in their cash and cash-equivalent balances in the statements of cash flows those amounts that are deemed to be restricted cash or restricted cash equivalents, (2) a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash, cash equivalents and restricted cash, (3) changes in restricted cash that result from transfers between cash, cash equivalents and restricted cash should not be presented as cash flow activities in the statement of cash flows, and (4) an entity with a material balance of amounts generally described as restricted cash must disclose information about the nature of the restrictions. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.

As a result of the adoption of ASU 2016-18 in the first quarter of 2018, the Company included the restricted cash balance with the cash and cash equivalents balances in the Condensed Consolidated Statements of Cash Flows on a retrospective basis. The reclassification did not have a material impact to the Condensed Consolidated Statement of Cash Flows for the first six months of 2017. The Company has added a reconciliation from the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statement of Cash Flows. See Note 8 for more information.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including requirements to measure most equity investments at fair value with changes in fair value recognized in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying notes to the financial statements. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Subsequently, in February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments, Recognition and Measurement of Financial Assets and Financial Liabilities,” which provided several clarifications and amendments to the standard. The new guidance must be adopted by the third quarter of 2018 (an interim period). Early adoption is permitted.

We adopted ASU 2016-01 in the first quarter of 2018 and elected the measurement alternative, defined as cost, less impairments, adjusted by observable price changes, given our equity instruments are without readily determinable fair values. This guidance did not impact our available-for-sale (“AFS”) securities because we only hold debt securities. We also early adopted ASU 2018-03 in the first quarter of 2018. The adoptions of ASU 2016-01 and ASU 2018-03 did not have a material effect on our Condensed Consolidated Financial Statements. See Note 6 for more information.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which prescribes a single comprehensive model for entities to use in the accounting of revenue arising from contracts with customers. The new guidance supersedes virtually all existing revenue guidance under GAAP and is effective for fiscal years beginning after December 31, 2017. There are two transition options available to entities: the full retrospective approach or the modified retrospective approach.

Subsequently, in March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the implementation guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB also issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” to reduce the cost and complexity of applying the guidance when identifying a performance obligation and improve the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” to reduce the cost and complexity of applying the guidance to address certain issues on assessing collectability, presentation of sales taxes, noncash consideration and completed contracts and contract modifications at transition. The clarifying amendments in ASU 2016-08, 2016-10 and 2016-12 do not change the core principle of ASU 2014-09. We refer to ASU 2014-09 and the clarifying amendments collectively as “Topic 606.”

On January 1, 2018, the Company adopted Topic 606. The Company has elected the modified retrospective approach, which allows for the new revenue standard to be applied to all existing contracts as of the effective date and a cumulative catch-

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

up adjustment to be recorded to “Retained earnings.” The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The most significant change to the Company’s accounting practices related to accounting for certain licensing arrangements in the other revenue category for which archival and updated content is included. Under the former revenue guidance, licensing revenue was generally recognized over the term of the contract based on the annual minimum guarantee amount specified in the contractual agreement with the licensee. Based on the guidance of Topic 606, the Company has determined that the archival content and updated content included in these licensing arrangements represent two separate performance obligations. As such, a portion of the total contract consideration related to the archival content was recognized at the commencement of the contract when control of the archival content is transferred. The remaining contractual consideration will be recognized proportionately over the term of the contract when updated content is transferred to the licensee, in line with when the control of the new content is transferred.

The net impact of these changes accelerated the revenue of contracts not completed as of January 1, 2018. In connection with the adoption of the standard the Company recorded a net increase to opening retained earnings of $2.6 million ($3.5 million before tax) and a contract asset of $3.5 million, with $1.3 million categorized as a current asset and $2.2 million categorized as a long term asset as of January 1, 2018. The impact to “Other revenues” as a result of applying Topic 606 will be a decrease of $1.3 million for the twelve months ended December 30, 2018.

Our subscription and advertising revenues were not changed by the new guidance. See Note 3 for more information on our revenues and the application of Topic 606.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses.” The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for AFS debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently in the process of evaluating the impact of this guidance on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which provides guidance on accounting for leases and disclosure of key information about leasing arrangements. The guidance requires lessees to recognize the following for all operating and finance leases at the commencement date: (1) a lease liability, which is the obligation to make lease payments arising from a lease, measured on a discounted basis, and (2) a right-of-use asset representing the lessee’s right to use, or control the use of, the underlying asset for the lease term. A lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities for short-term leases with a term of 12 months or less. The guidance does not fundamentally change lessor accounting; however, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. In July 2018, the FASB also issued ASU 2018-11, Targeted Improvements to Topic 842, which provides an alternative transition method at the transition date, allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings upon adoption.

This guidance becomes effective for the Company for fiscal years beginning after December 30, 2018. While early application is permitted, the Company expects to adopt this guidance in the first quarter of 2019 utilizing the alternative transition method. The adoption of the standards will require us to add right-of-use assets and lease liabilities onto our balance sheet. Based on our lease portfolio at December 31, 2017, the right-of-use asset and lease liability would have been in the range of $40 million to $45 million on our Consolidated Balance Sheets based on the remaining lease payments, with no material impact to our Condensed Consolidated Statement of Operations or liquidity. However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s lease portfolio as of the adoption date.

The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3. REVENUE

We generate revenues principally from subscriptions and advertising. Subscription revenues consist of revenues from subscriptions to our print and digital products (which include our news product, as well as our Crossword and Cooking products) and single-copy and bulk sales of our print products. Subscription revenues are based on both the number of copies of the printed newspaper sold and digital-only subscriptions, and the rates charged to the respective customers.

Advertising revenues are derived from the sale of our advertising products and services on our print and digital platforms. These revenues are primarily determined by the volume, rate and mix of advertisements.

Other revenues primarily consist of revenues from news services/syndication, building rental income, affiliate referrals, digital archive licensing, NYT Live (our live events business), commercial printing, and retail commerce.

Revenue is recognized when a performance obligation is satisfied by transferring a promised good or service to a customer. A good or service is considered transferred when the customer obtains control, which is when the customer has the ability to direct the use of and/or obtain substantially all of the benefits of an asset.

Proceeds from subscription revenues are deferred at the time of sale and are recognized on a pro rata basis over the terms of the subscriptions. Payment is typically due upfront and the revenue is recognized ratably over the subscription period. The deferred proceeds are recorded within “Unexpired subscription revenue” in the Condensed Consolidated Balance Sheet. Single-copy revenue is recognized based on date of publication, net of provisions for related returns. Payment for single-copy sales is typically due upon complete satisfaction of our performance obligations. The Company does not have significant financing components or significant payment terms as we only offer industry standard payment terms to our customers.

When our subscriptions are sold through third parties, we are a principal in the transaction and, therefore, revenues and related costs to third parties for these sales are reported on a gross basis. We are considered a principal if we control a promised good or service before transferring that good or service to the customer. The Company considers several factors to determine if it controls the good and therefore is the principal. These factors include: (i) if we have primary responsibility for fulfilling the promise, (ii) if we have inventory risk before the goods or services are transferred to the customer or after the transfer of control to the customer, and (iii) if we have discretion in establishing price for the specified good or service.

Advertising revenues are recognized when advertisements are published in newspapers or placed on digital platforms or, with respect to certain digital advertising, each time a user clicks on certain advertisements, net of provisions for estimated rebates and rate adjustments.

We recognize a rebate obligation as a reduction of revenues based on the amount of estimated rebates that will be earned related to the underlying revenue transactions during the period. Measurement of the rebate obligation is estimated based on the historical experience of the number of customers that ultimately earn and use the rebate. We recognize a reserve for rate adjustments as a reduction of revenues based on the amount of estimated post-billing adjustments that will be claimed. Measurement of the rate adjustment reserve is estimated based on historical experience of credits actually issued.

Payment for advertising is due upon complete satisfaction of our performance obligations. The Company has a formal credit checking policy, procedures, and controls in place that evaluate collectability prior to ad publication. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts do not include a significant financing component.

Subscription, advertising, and other revenues were as follows:



	For the Quarters Ended				For the Six Months Ended
(In thousands)	July 1, 2018		June 25, 2017		July 1, 2018		June 25, 2017
Subscription	$	260,629	$	250,037	$	521,222	$	492,412
Advertising	119,201		132,234		244,848		262,262
Other ⁽¹⁾	34,730		24,803		62,438		51,204
Total	$	414,560	$	407,074	$	828,508	$	805,878

⁽¹⁾ Other revenue includes approximately $6 million and $4 million of building rental income for the second quarters of 2018 and 2017, respectively, and approximately $10 million and $8 million for the first six months of 2018 and 2017, respectively, which is not under the scope of Topic 606.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes digital-only subscription revenues, which are a component of subscription revenues above, for the second quarters and first six months of 2018 and 2017:



	For the Quarters Ended				For the Six Months Ended
(In thousands)	July 1, 2018		June 25, 2017		July 1, 2018		June 25, 2017
Digital-only subscription revenues:
News product subscription revenues⁽¹⁾	$	93,549	$	79,300	$	184,125	$	152,161
Other product subscription revenues⁽²⁾	5,194		3,243		10,030		6,199
Total digital-only subscription revenues	$	98,743	$	82,543	$	194,155	$	158,360
⁽¹⁾Includes revenues from subscriptions to the Company’s news product. News product subscription packages that include access to the Company’s Crossword and Cooking products are also included in this category.
⁽²⁾Includes revenues from standalone subscriptions to the Company’s Crossword and Cooking products.

Advertising revenues (print and digital) by category were as follows:



	For the Quarters Ended
	July 1, 2018						June 25, 2017
(In thousands)	Print		Digital		Total		Print		Digital		Total
Display	$	60,803	$	41,443	$	102,246	$	68,499	$	44,485	$	112,984
Classified and Other	7,367		9,588		16,955		8,557		10,693		19,250
Total advertising	$	68,170	$	51,031	$	119,201	$	77,056	$	55,178	$	132,234



	For the Six Months Ended
	July 1, 2018						June 25, 2017
(In thousands)	Print		Digital		Total		Print		Digital		Total
Display	$	131,608	$	80,140	$	211,748	$	140,126	$	87,461	$	227,587
Classified and Other	15,506		17,594		33,100		17,287		17,388		34,675
Total advertising	$	147,114	$	97,734	$	244,848	$	157,413	$	104,849	$	262,262

Performance Obligations

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price.

In the case of our licensing contracts, the transaction price was allocated among the performance obligations, (i) the archival content and (ii) the updated content, based on the Company’s estimate of the standalone selling price of the performance obligations as they are currently not sold separately.

As of July 1, 2018, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $29 million. The Company will recognize this revenue as control of the performance obligation is transferred to the customer. We expect that approximately $9 million, $10 million, and $10 million will be recognized in the remainder of 2018, 2019, and 2020, respectively.

Contract Assets

We record revenue from performance obligations when performance obligations are satisfied. For our licensing revenue, we record revenue related to the portion of performance obligation (i) satisfied at the commencement of the contract when the customer obtains control of the archival content or (ii) when the updated content is transferred. We receive payments from customers based upon contractual billing schedules. As the transfer of control represents a right to the contract consideration, we record a contract asset in “Other current assets” for short-term contract assets and “Miscellaneous assets” for long-term contract assets on the Consolidated Balance Sheet for any amounts not yet invoiced to the customer. As of July 1, 2018, the Company had $2.9 million in contract assets recorded in the Condensed Consolidated Balance Sheet. The contract asset is reclassified to “Accounts receivable” when the customer is invoiced based on the contractual billing schedule. The increase in the contract assets balance for the six months ended July 1, 2018, is primarily driven by the cumulative catch-up adjustment recorded by the Company on January 1, 2018, of $3.5 million as a result of adoption of Topic 606, offset by $0.6 million of consideration that was reclassified to “Accounts receivable” when invoiced based on the contractual billing schedules for the period ended July 1, 2018.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Significant Judgments

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 the entity sold those goods or services separately to a similar customer in similar circumstances.

Practical Expedients and Exemptions

We expense the cost to obtain or fulfill a contract as incurred because the amortization period of the asset that the entity otherwise would have recognized is one year or less. We also apply the practical expedient for the significant financing component when the difference between the payment and the transfer of the products and services is a year or less.

NOTE 4. MARKETABLE SECURITIES

The Company accounts for its marketable securities as AFS. The Company recorded $3.6 million and $2.5 million of net unrealized loss in AOCI as of July 1, 2018, and December 31, 2017, respectively.

The following tables present the amortized cost, gross unrealized gains and losses, and fair market value of our AFS debt securities as of July 1, 2018, and December 31, 2017:



	July 1, 2018
(In thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Short-term AFS securities
Corporate debt securities	$	120,937	$	1	$	(453	)	$	120,485
U.S Treasury securities	101,952		—		(142		)	101,810
U.S. governmental agency securities	50,932		—		(149		)	50,783
Commercial paper	17,520		—		—			17,520
Certificates of deposit	3,193		—		—			3,193
Total short-term AFS securities	$	294,534	$	1	$	(744	)	$	293,791
Long-term AFS securities
Corporate debt securities	$	117,341	$	7	$	(1,123	)	$	116,225
U.S. governmental agency securities	91,824		—		(1,146		)	90,678
U.S Treasury securities	42,582		—		(637		)	41,945
Total long-term AFS securities	$	251,747	$	7	$	(2,906	)	$	248,848



	December 31, 2017
(In thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Short-term AFS securities
Corporate debt securities	$	150,334	$	—	$	(227	)	$	150,107
U.S Treasury securities	70,985		—		(34		)	70,951
U.S. governmental agency securities	45,819		—		(179		)	45,640
Commercial paper	32,591		—		—			32,591
Certificates of deposit	9,300		—		—			9,300
Total short-term AFS securities	$	309,029	$	—	$	(440	)	$	308,589
Long-term AFS securities
U.S. governmental agency securities	$	97,798	$	—	$	(1,019	)	96,779
Corporate debt securities	92,687		—		(683		)	92,004
U.S Treasury securities	53,031		—		(403		)	52,628
Total long-term AFS securities	$	243,516	$	—	$	(2,105	)	$	241,411

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables represent the AFS securities as of July 1, 2018 and December 31, 2017, that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:



	July 1, 2018
	Less than 12 Months					12 Months or Greater					Total
(In thousands)	Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses
Short-term AFS securities
Corporate debt securities	$	97,827	$	(347	)	$	16,353	$	(106	)	$	114,180	$	(453	)
U.S Treasury securities	102,834		(142		)	—		—			102,834		(142		)
U.S. governmental agency securities	17,319		(12		)	33,465		(137		)	50,784		(149		)
Total short-term AFS securities	$	217,980	$	(501	)	$	49,818	$	(243	)	$	267,798	$	(744	)
Long-term AFS securities
Corporate debt securities	$	112,576	$	(1,094	)	$	1,972	$	(29	)	$	114,548	$	(1,123	)
U.S Treasury securities	41,500		(637		)	—		—			41,500		(637		)
U.S. governmental agency securities	32,245		(300		)	58,432		(846		)	90,677		(1,146		)
Total long-term AFS securities	$	186,321	$	(2,031	)	$	60,404	$	(875	)	$	246,725	$	(2,906	)



	December 31, 2017
	Less than 12 Months					12 Months or Greater					Total
(In thousands)	Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses			Fair Value		Gross unrealized losses
Short-term AFS securities
Corporate debt securities	$	140,111	$	(199	)	$	9,996	$	(28	)	$	150,107	$	(227	)
U.S Treasury securities	70,951		(34		)	—		—			70,951		(34		)
U.S. governmental agency securities	19,770		(50		)	25,870		(129		)	45,640		(179		)
Total short-term AFS securities	$	230,832	$	(283	)	$	35,866	$	(157	)	$	266,698	$	(440	)
Long-term AFS securities
Corporate debt securities	$	81,118	$	(579	)	$	10,886	$	(104	)	$	92,004	$	(683	)
U.S Treasury securities	23,998		(125		)	72,781		(894		)	96,779		(1,019		)
U.S. governmental agency securities	52,628		(403		)	—		—			52,628		(403		)
Total long-term AFS securities	$	157,744	$	(1,107	)	$	83,667	$	(998	)	$	241,411	$	(2,105	)

We conduct an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis or more often if a potential loss-triggering event occurs. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and whether we intend to sell. We also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses.

As of July 1, 2018, we did not intend to sell and it was not likely that we would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. Unrealized losses related to these investments are primarily due to interest rate fluctuations as opposed to changes in credit quality. Therefore, as of July 1, 2018, we have recognized no OTTI loss.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of July 1, 2018, our short-term and long-term marketable securities had remaining maturities of less than 1 month to 12 months and 13 months to 35 months, respectively. See Note 9 for more information regarding the fair value of our marketable securities.

NOTE 5. GOODWILL AND INTANGIBLES

The changes in the carrying amount of goodwill as of July 1, 2018, and since December 31, 2017, were as follows:



(In thousands)	Total Company
Balance as of December 31, 2017	$	143,549
Foreign currency translation	(1,807		)
Balance as of July 1, 2018	$	141,742

The foreign currency translation line item reflects changes in goodwill resulting from fluctuating exchange rates related to the consolidation of certain international subsidiaries.

The aggregate carrying amount of intangible assets of $7.2 million is included in “Miscellaneous assets” in our Condensed Consolidated Balance Sheets as of July 1, 2018.

NOTE 6. INVESTMENTS

Equity Method Investments

As of July 1, 2018, our investments in joint ventures of $1.7 million consisted of a 40% equity ownership interest in Madison Paper Industries (“Madison”), a partnership that previously operated a supercalendered paper mill in Maine. In 2016, the paper mill closed and the partnership is currently in the process of liquidation.

The investment is accounted for under the equity method, and is recorded in “Miscellaneous assets” in our Condensed Consolidated Balance Sheets. Our proportionate share of the operating results of our investment is recorded in “(Loss)/Gain from joint ventures” in our Condensed Consolidated Statements of Operations.

The Company and UPM-Kymmene Corporation (“UPM”), a Finnish paper manufacturing company, are partners through subsidiary companies in Madison. The Company’s 40% ownership of Madison is through an 80%-owned consolidated subsidiary which owns 50% of Madison. UPM owns 60% of Madison, including a 10% interest through a 20% noncontrolling interest in the consolidated subsidiary of the Company. In 2016, we recognized a $41.4 million loss from joint ventures related to the closure. The Company’s proportionate share of the loss was $20.1 million after tax and net of noncontrolling interest. As a result of the mill closure, we wrote our investment down to zero. In the fourth quarter of 2016, Madison sold certain assets at the mill site and we recognized a gain of $3.9 million related to the sale. In 2017, we recognized a gain of $20.8 million, primarily related to the sale of the remaining assets, partially offset by the loss related to our proportionate share of Madison’s settlement of certain pension obligations.

The following table presents summarized income statement information for Madison, which follows a calendar year:



	For the Quarters Ended						For the Six Months Ended
(In thousands)	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Revenues	$	—		$	—		$	—		$	—
Expenses:
Cost of sales	—			(118		)	—			(1,172		)
General and administrative income/(expense) and other	(43		)	(528		)	(34		)	(554		)
Total expense	(43		)	(646		)	(34		)	(1,726		)
Operating loss	(43		)	(646		)	(34		)	(1,726		)
Other income/(expense)	28			(4		)	48			(6		)
Net (loss)/income	$	(15	)	$	(650	)	$	14		$	(1,732	)

We received no distributions from Madison during the second quarters and first six months of 2018 and 2017, respectively.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Non-Marketable Equity Securities

Our non-marketable equity securities are investments in privately held companies/funds without readily determinable market values. Prior to January 1, 2018 and the adoption of ASU 2016-01, we accounted for our non-marketable equity securities at cost less impairment. Subsequent to the adoption of ASU 2016-01 as of January 1, 2018, we elected the measurement alternative, defined as cost, less impairments, adjusted by observable price changes given our non-marketable equity securities are without readily determinable fair values. We estimate the fair value based on valuation methods using the observable transaction price at the transaction date. Realized gains and losses on non-marketable securities sold or impaired are recognized in “Interest expense and other, net.”

Non-marketable equity securities are classified within Level 3 in the fair value hierarchy. See Note 9 for the definition of Level 3. As of July 1, 2018 and December 31, 2017, non-marketable equity securities included in “Miscellaneous assets’’ in our Condensed Consolidated Balance Sheets had a carrying value of $14.4 million and $13.6 million, respectively. We did not have any material fair value adjustments in the second quarter and first six months of 2018.

NOTE 7. DEBT OBLIGATIONS

Our indebtedness consisted of the repurchase option related to a sale-leaseback of a portion of our New York headquarters. Our total debt and capital lease obligations consisted of the following:



(In thousands)	July 1, 2018		December 31, 2017
Option to repurchase ownership interest in headquarters building in 2019:
Principal amount	$	250,000	$	250,000
Less unamortized discount based on imputed interest rate of 13.0%	4,907		6,596
Net option to repurchase ownership interest in headquarters building in 2019	245,093		243,404
Capital lease obligations	6,818		6,805
Total long-term debt and capital lease obligations	$	251,911	$	250,209

See Note 9 for more information regarding the fair value of our long-term debt.

“Interest expense and other, net,” as shown in the accompanying Condensed Consolidated Statements of Operations was as follows:



	For the Quarters Ended						For the Six Months Ended
(In thousands)	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Interest expense	$	7,059		$	6,955		$	14,017		$	13,819
Amortization of debt costs and discount on debt	813			778			1,689			1,578
Capitalized interest	(219		)	(287		)	(374		)	(507		)
Interest income and other, net	(3,117		)	(2,313		)	(5,919		)	(4,432		)
Total interest expense and other, net	$	4,536		$	5,133		$	9,413		$	10,458

Notice of Intent to Exercise Repurchase Option Under Lease Agreement

On January 30, 2018, the Company provided notice to an affiliate of W.P. Carey & Co. LLC of the Company’s intention to exercise its option under the Lease Agreement, dated March 6, 2009, by and between the parties (the “Lease”) to repurchase a portion of the Company’s leasehold condominium interest in the Company’s headquarters building located at 620 Eighth Avenue, New York, New York (the “Condo Interest”).

The Lease was part of a transaction in 2009 under which the Company sold and simultaneously leased back approximately 750,000 rentable square feet, comprising the Condo Interest. The sale price for the Condo Interest was approximately $225 million. Under the Lease, the Company has an option exercisable in the second half of 2019 to repurchase the Condo Interest for approximately $250 million.

The Company has accounted for the transaction as a financing transaction, and has continued to depreciate the Condo Interest and account for the rental payments as interest expense. The difference between the purchase option price and the net sale proceeds from the transaction is being amortized over the 10-year period of 2009-2019 through interest expense.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8. OTHER

Advertising Expenses

Advertising expenses incurred to promote our brand, subscription products and marketing services were $35.6 million and $25.8 million in the second quarters of 2018 and 2017, respectively, and $67.2 million and $59.4 million in the first six months of 2018 and 2017, respectively.

Capitalized Computer Software Costs

Amortization of capitalized computer software costs included in “Depreciation and amortization” in our Condensed Consolidated Statements of Operations were $3.9 million and $2.7 million in the second quarters of 2018 and 2017, respectively, and $7.3 million and $5.8 million in the first six months of 2018 and 2017, respectively.

Headquarters Redesign and Consolidation

In December 2016, we announced plans to redesign our headquarters building, consolidate our space within a smaller number of floors and lease the additional floors to third parties. We expect to complete this project by the fourth quarter of 2018. These changes are expected to generate additional rental income and result in a more collaborative workspace. We incurred $1.3 million and $2.0 million of total expenses related to these measures in the second quarter of 2018 and 2017, respectively, and $3.1 million and $4.4 million in the first six months of 2018 and 2017, respectively. The capital expenditures related to these measures were approximately $5 million and $10 million in the second quarters of 2018 and 2017, respectively, and $11 million in the first six months of 2018 and 2017, respectively.

Restricted Cash

A reconciliation of cash, cash equivalents and restricted cash as of July 1, 2018 and December 31, 2017 from the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash Flows is as follows:



(In thousands)	July 1, 2018		December 31, 2017

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	236,511	$	182,911
Restricted cash included within other current assets	365		375
Restricted cash included within miscellaneous assets	17,769		17,650
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	254,645	$	200,936

Substantially all of the amount included in restricted cash is set aside to collateralize workers’ compensation obligations.

Severance Costs

We recognized severance costs of $2.2 million and $19.3 million in the second quarters of 2018 and 2017, respectively, and $4.6 million and $20.9 million in the first six months of 2018 and 2017, respectively, for workforce reduction. These costs are recorded in “Selling, general and administrative costs” in our Condensed Consolidated Statements of Operations.

We had a severance liability of $10.7 million and $18.8 million included in “Accrued expenses and other” in our Condensed Consolidated Balance Sheets as of July 1, 2018, and December 31, 2017, respectively. We anticipate most of the payments will be made within the next twelve months.

NOTE 9. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon the sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The transaction would be in the principal or most advantageous market for the asset or liability, based on assumptions that a market participant would use in pricing the asset or liability. The fair value hierarchy consists of three levels:

Level 1–quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2–inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3–unobservable inputs for the asset or liability.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of July 1, 2018, and December 31, 2017:



(In thousands)	July 1, 2018								December 31, 2017
(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Short-term AFS securities ⁽¹⁾
Corporate debt securities	$	120,485	$	—	$	120,485	$	—	$	150,107	$	—	$	150,107	$	—
U.S. Treasury securities	101,810		—		101,810		—		70,951		—		70,951		—
U.S. governmental agency securities	50,783		—		50,783		—		45,640		—		45,640		—
Commercial paper	17,520		—		17,520		—		32,591		—		32,591		—
Certificates of deposit	3,193		—		3,193		—		9,300		—		9,300		—
Total short-term AFS securities	$	293,791	$	—	$	293,791	$	—	$	308,589	$	—	$	308,589	$	—
Long-term AFS securities ⁽¹⁾
Corporate debt securities	$	116,225	$	—	$	116,225	$	—	$	92,004	$	—	$	92,004	$	—
U.S. Treasury securities	41,945		—		41,945		—		52,628		—		52,628		—
U.S. governmental agency securities	90,678		—		90,678		—		96,779		—		96,779		—
Total long-term AFS securities	$	248,848	$	—	$	248,848	$	—	$	241,411	$	—	$	241,411	$	—
Liabilities:
Deferred compensation ⁽²⁾	$	24,826	$	24,826	$	—	$	—	$	29,526	$	29,526	$	—	$	—

⁽¹⁾ Our marketable securities, which include U.S. Treasury securities, corporate debt securities, U.S. government agency securities, municipal securities, certificates of deposit and commercial paper, are recorded at fair value (see Note 4). We classified these investments as Level 2 since the fair value is based on market observable inputs for investments with similar terms and maturities.

⁽²⁾ The deferred compensation liability, included in “Other liabilities—other” in our Condensed Consolidated Balance Sheets, consists of deferrals under The New York Times Company Deferred Executive Compensation Plan (the “DEC”), which enables certain eligible executives to elect to defer a portion of their compensation on a pre-tax basis. The deferred amounts are invested at the executives’ option in various mutual funds. The fair value of deferred compensation is based on the mutual fund investments elected by the executives and on quoted prices in active markets for identical assets. Participation in the DEC was frozen effective December 31, 2015.

Financial Instruments Disclosed, But Not Reported, at Fair Value

The carrying value of our long-term debt was approximately $245 million as of July 1, 2018, and approximately $243 million as of December 31, 2017. The fair value of our long-term debt was approximately $268 million and $279 million as of July 1, 2018, and December 31, 2017, respectively. We estimate the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2).

NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS

Pension

Single-Employer Plans

We sponsor several frozen single-employer defined benefit pension plans including The Newspaper Guild of New York - The New York Times Pension Fund, which prior to January 1, 2018, was a joint Company and Guild-sponsored defined benefit pension plan. We also participate in The Guild-Times Adjustable Pension Plan, a joint Company and Guild sponsored defined benefit pension plan covering employees who are members of The NewsGuild of New York. Participants in The Guild-Times Adjustable Pension Plan continue to actively accrue benefits.

THE NEW YORK TIMES COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of net periodic pension cost were as follows:



	For the Quarters Ended
	July 1, 2018								June 25, 2017
(In thousands)	Qualified Plans			Non- Qualified Plans		All Plans			Qualified Plans			Non- Qualified Plans		All Plans
Service cost	$	2,553		$	—	$	2,553		$	2,423		$	—	$	2,423
Interest cost	13,206			1,848		15,054			15,594			1,956		17,550
Expected return on plan assets	(20,591		)	—		(20,591		)	(26,136		)	—		(26,136		)
Amortization of actuarial loss	6,680			1,294		7,974			7,353			1,088		8,441
Amortization of prior service credit	(486		)	—		(486		)	(486		)	—		(486		)
Net periodic pension cost/(income)	$	1,362		$	3,142	$	4,504		$	(1,252	)	$	3,044	$	1,792



	For the Six Months Ended
	July 1, 2018								June 25, 2017
(In thousands)	Qualified Plans			Non- Qualified Plans		All Plans			Qualified Plans			Non- Qualified Plans		All Plans
Service cost	$	5,200		$	—	$	5,200		$	4,846		$	—	$	4,846
Interest cost	26,357			3,695		30,052			31,188			3,912		35,100
Expected return on plan assets	(41,145		)	—		(41,145		)	(52,272		)	—		(52,272		)
Amortization of actuarial loss	13,442			2,588		16,030			14,706			2,176		16,882
Amortization of prior service credit	(972		)	—		(972		)	(972		)	—		(972		)
Net periodic pension cost/(income)	$	2,882		$	6,283	$	9,165		$	(2,504	)	$	6,088	$	3,584

In the first quarter of 2018, the Company signed an agreement that froze the accrual of benefits under the Retirement Annuity Plan For Craft Employees of The New York Times Companies (“RAP”) with respect to all participants covered by a collective bargaining agreement between the Company and The Newspaper and Mail Deliverers' Union of New York and Vicinity. This group of participants was the last group under the RAP to have their benefit accruals frozen. As a result, we recorded a curtailment of $2.6 million in 2018.

During the first six months of 2018 and 2017, we made pension contributions of $4.2 million and $3.8 million, respectively, to certain qualified pension plans. We expect contributions in 2018 to total approximately $8 million to satisfy funding requirements.