The New York Times Company — FY 2017 Form 10-K
Business context and period: The Company is a global media business with one reportable segment, spanning The New York Times newspaper, digital products and related businesses. It earns revenue primarily from subscriptions and advertising. Fiscal 2017 ended December 31, 2017, comprised 53 weeks; 2016 comprised 52 weeks. The fourth quarter comprised 14 weeks.
Financial performance and position
- Revenue: $1.676 billion, up 7.7% from $1.555 billion. Subscription revenue rose 14.5% to $1.008 billion; advertising revenue fell 3.8% to $558.5 million; other revenue rose 15.6% to $108.7 million.
- Subscriptions and advertising: Digital-only subscriptions reached 2.644 million at year-end, up 41.8%; digital-only subscription revenue increased 46.2% to $340.3 million. Print advertising fell 13.9%, while digital advertising grew 14.2%. The extra fiscal week affects year-over-year comparisons.
- Profit and margins: GAAP operating profit was $112.4 million versus $101.6 million; operating margin was 6.7% versus 6.5%. Net income attributable to common stockholders fell to $4.3 million from $29.1 million, and diluted EPS from continuing operations was $0.03 versus $0.19. Management’s non-GAAP adjusted operating profit was $284.5 million versus $240.9 million; adjusted diluted EPS was $0.80 versus $0.57.
- Fourth quarter: Revenue was $484.1 million versus $439.7 million in Q4 2016. Operating profit was $22.7 million versus $55.6 million; net loss attributable to common stockholders was $56.8 million versus net income of $37.1 million. The 2017 quarter included major pension and tax charges.
- Cash flow and investment: Operating cash flow was $86.7 million, down from $103.9 million. Cash payments for capital expenditures were $84.8 million, versus $30.1 million; reported capital expenditures were approximately $104 million. Cash and marketable securities totaled $732.9 million, compared with $737.5 million.
- Debt and liquidity: Debt and capital lease obligations were $250.2 million, leaving cash and marketable securities $482.7 million above those obligations. The current ratio was 1.80, versus 2.00. Management said liquidity and operating cash flow should cover financing needs over the next 12 months.
- Other balance-sheet metrics: Total assets were $2.100 billion and stockholders’ equity was $897.3 million. Qualified pension plans were underfunded by approximately $69.1 million at year-end, down from $221.9 million.
Material changes versus 2016
- Subscription growth, including digital subscriptions and higher print home-delivery prices, drove total revenue higher and more than offset declining print advertising.
- Operating costs rose 5.5% to $1.488 billion, mainly due to higher selling, general and administrative costs, including compensation, marketing and severance. Production costs decreased 2.0%.
- Operating cash flow declined, principally reflecting approximately $128 million in qualified pension contributions. The Company made $120 million of those contributions voluntarily.
- Joint ventures generated an $18.6 million gain in 2017, compared with a $36.3 million loss in 2016, primarily reflecting Madison Paper Industries asset sales and other investment exits.
Outlook, risks and unusual items
- Strategy and outlook: Management emphasized a subscription-first strategy, continued investment in journalism and digital products, audience engagement, digital advertising, and operating efficiency. The filing provides no specific revenue or earnings guidance. Management expected approximately $8 million in 2018 qualified-pension contributions to meet minimum funding requirements and approximately $12 million in cash distributions from the Madison wind-down.
- Significant 2017 items: Results included a $102.1 million pension settlement charge related to transferring benefit obligations to insurers; a $68.7 million provisional tax charge associated with the Tax Cuts and Jobs Act; a $37.1 million postretirement-plan settlement gain; $23.9 million in severance costs; and $10.1 million in headquarters redesign and consolidation charges. These items materially affected reported earnings.
- Tax uncertainty: The $68.7 million tax charge was a provisional estimate. The Company expected to complete its accounting for the law’s effects by the fourth quarter of fiscal 2018; the final impact could differ.
- Key risks: Print advertising and circulation declines; competition for digital audiences and advertising from large platforms; the possibility that digital advertising will not replace lost print revenue; subscriber retention and acquisition costs; fixed costs and union labor constraints; pension and multiemployer-plan exposures; cybersecurity, privacy and regulatory risks; and newsprint supply and pricing.
- Commitments and contingencies: The Company gave notice in January 2018 of its intent to exercise its 2019 option to repurchase the headquarters Condo Interest for approximately $250 million. A pension-fund dispute could result in additional loss of up to approximately $10 million above the recorded liability, according to management’s estimate. Management did not believe pending legal matters were likely to materially affect financial position, though an adverse individual-period impact was possible.
Important facts for investors to verify
- Whether digital subscription growth and pricing can sustain subscription revenue as print circulation declines.
- Whether digital advertising growth can offset continuing print advertising weakness and margin pressure.
- The final tax impact of the 2017 tax legislation and any resulting adjustments to the provisional charge.
- Future pension funding requirements, actuarial assumptions, and any additional multiemployer withdrawal liabilities.
- The financing and cash implications of the planned 2019 headquarters repurchase, alongside elevated capital spending and dividend commitments.