The New York Times Company — FY 2016 Form 10-K
Reporting period and business: Fiscal year ended December 25, 2016 (52 weeks). The company operates one reportable segment spanning The New York Times newspaper, digital products and related businesses. Revenue is generated primarily from circulation and advertising. This is an annual filing; fourth-quarter figures are included below where available.
Financial performance
| Metric | FY 2016 | FY 2015 | Change |
|---|---|---|---|
| Revenue | $1,555.3 million | $1,579.2 million | Down 1.5% |
| Operating profit | $101.6 million | $136.6 million | Down 25.6% |
| Operating margin | 6.5% | 8.7% | Down 2.2 percentage points |
| Net income attributable to common stockholders | $29.1 million | $63.2 million | Down 54.0% |
| Diluted EPS from continuing operations | $0.19 | $0.38 | Down 50.0% |
| Cash provided by operating activities | $94.2 million | $175.3 million | Down 46.2% |
Revenue mix shifted toward subscriptions: circulation revenue rose 3.4% to $880.5 million, while advertising revenue fell 9.1% to $580.7 million. Other revenue increased 6.0% to $94.1 million. Digital-only subscription revenue grew 17.0% to $232.8 million; paid digital-only subscriptions reached approximately 1.853 million, up 46% year over year. Digital advertising rose 5.9% to $208.8 million, but print advertising declined 15.8% to $372.0 million.
Fourth quarter: Revenue was $439.7 million versus $444.7 million in Q4 2015. Operating profit was $55.6 million versus $87.7 million; net income attributable to common stockholders was $37.1 million versus $51.7 million; diluted EPS was $0.23 versus $0.31. The fourth quarter is seasonally stronger for advertising.
Balance sheet, debt and liquidity
- Cash, cash equivalents and marketable securities totaled $737.5 million at year-end, down from $904.6 million. Current assets were $796.2 million and current liabilities $398.7 million; the current ratio was 2.00.
- Total debt and capital lease obligations were $247.0 million, versus $431.2 million a year earlier. Cash and marketable securities exceeded those obligations by approximately $490.5 million.
- The company repaid the remaining $189.2 million principal of its 6.625% senior notes at maturity in December 2016. Remaining obligations primarily include the headquarters repurchase-option financing and capital leases. The company expects to exercise its $250 million headquarters repurchase option in 2019.
- Capital expenditures were $30.1 million. Financing cash outflows included debt repayment, $25.9 million of dividends and $15.7 million of share repurchases.
Material changes and unusual items
- Operating costs increased 1.3% to $1.411 billion, despite lower print production and distribution costs; higher technology, marketing, newsroom and compensation costs contributed.
- Adjusted operating profit, a company-defined non-GAAP measure, declined 16.7% to $240.9 million; adjusted diluted EPS declined to $0.57 from $0.71. These measures exclude specified costs and should be considered alongside GAAP results.
- The Madison Paper Industries mill closure drove a $36.3 million full-year loss from joint ventures. The company wrote its investment down to zero and recorded a $28.3 million liability; proceeds from a planned sale of hydro-power assets were expected to cover Madison’s obligations.
- Other significant 2016 items included $21.3 million of pension settlement charges, $14.8 million of international print restructuring charges, $18.8 million of severance costs and $6.7 million of multiemployer pension withdrawal expense. A $3.7 million litigation settlement related to the former New England Media Group was recorded in discontinued operations.
Outlook, commentary and risks
Management provided no specific revenue or earnings guidance. It said cash and operating cash flow, together with other sources, should be sufficient for financing needs over the next 12 months. Management expects approximately $9 million of qualified pension contributions in 2017 and continues to prioritize digital growth, international expansion, subscription engagement, advertising innovation and cost efficiency. The company reported that paid subscriptions surpassed three million in early 2017 and committed more than $50 million to international digital potential.
Key risks include continued print advertising and circulation declines; digital advertising competition, pricing pressure and ad blocking; the need to retain digital subscribers and sustain news-event-driven subscriber gains; fixed costs and union labor constraints; pension and multiemployer plan obligations; newsprint pricing and supply; execution and integration of acquisitions; cybersecurity, privacy and regulatory exposure; and litigation. Qualified defined-benefit pension plans were underfunded by approximately $221.9 million, while the recorded multiemployer withdrawal liability was approximately $113 million. The company cautioned that final plan assessments could differ from estimates. Two collective bargaining agreements had expired, with negotiations ongoing.
Important facts for investors to verify
- Whether digital subscription growth and related revenue continue after the late-2016 election-driven increase.
- Whether digital advertising growth can offset persistent print advertising declines and preserve advertising margins.
- The timing and amount of Madison liquidation proceeds and any reversal of the $28.3 million liability.
- Actual pension funding needs, multiemployer withdrawal assessments and outcomes of related disputes.
- The expected cost, rental-income impact and financing implications of the planned headquarters consolidation and 2019 repurchase option.
- Management’s adjusted performance measures against GAAP results, including the recurring or nonrecurring nature of excluded expenses.