The New York Times Company — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013; comparative periods ended June 24, 2012. Dollar amounts below are in millions unless noted. The company reported one consolidated segment, with New York Times Media Group and New England Media Group as operating divisions.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $485.4 | $489.8 | $951.3 | $965.2 |
| Operating profit | $53.4 | $44.1 | $77.1 | $57.6 |
| Operating margin | 11.0% | 9.0% | 8.1% | 6.0% |
| Continuing-operations income | $20.1 | $38.0 | $23.5 | $47.2 |
| Net income (loss) attributable to common stockholders | $20.1 | $(87.6) | $23.7 | $(45.0) |
| Diluted EPS from continuing operations | $0.13 | $0.25 | $0.15 | $0.31 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(26.6) | $73.9 |
- Q2 circulation revenue grew 5.1%; advertising fell 5.8% and other revenue declined 9.7%. First-half circulation rose 5.8%, while advertising fell 8.5%.
- Digital-only subscription, e-reader and replica-edition revenue increased 44.1% in Q2 and 51.7% in the first half. Paid digital subscribers across the company were approximately 738,000 at quarter-end, up nearly 40% year over year.
- Operating costs declined 3.1% in Q2 and 3.7% in the first half, supporting higher operating profit. Q2 net income from continuing operations nevertheless fell year over year, in part because 2012 included a $37.8 million gain on the sale of an investment; first-half 2012 included a $55.6 million gain.
Balance sheet, liquidity and debt
- At June 30, cash and cash equivalents were $358.6 million; short- and long-term marketable securities totaled $559.4 million. Combined cash and securities were approximately $918 million, down from about $960 million at year-end 2012.
- Total debt and capital lease obligations were approximately $694.3 million, compared with $697.1 million at year-end. Cash and marketable securities exceeded these obligations by approximately $224 million. Current assets were $1,053.5 million and current liabilities $353.1 million.
- Six-month investing cash outflow was $429.9 million, primarily reflecting net purchases of marketable securities. Capital expenditures were $7.0 million. The company attributed negative operating cash flow partly to $68 million of pension contributions and approximately $50 million of income-tax payments.
- Long-term debt included 5.0% senior notes due 2015, 6.625% senior notes due 2016, and a $226.4 million headquarters repurchase option due in 2019. The company repurchased $5.0 million principal of 6.625% notes and recorded a $0.6 million pre-tax charge. It reported compliance with financing covenants.
Material changes, outlook and risks
- Advertising pressure: Management cited secular industry shifts, a challenging marketplace and digital-advertising supply and pricing pressures. Print advertising declined 6.8% in Q2 and 10.0% in the first half; digital advertising declined 2.7% and 3.3%, respectively. The Q2 monthly pattern was uneven, including a 12.0% decline in May.
- Strategic investment: Initiatives announced in April include digital subscription and paid-product development, international expansion, video and brand extensions. Management estimated a $20–$25 million negative impact on 2013 operating profit, with positive operating-profit contribution expected in late 2014 and for full-year 2015.
- Guidance: The company did not update third-quarter or full-year 2013 guidance because of the pending New England Media Group sale.
- Pending sale after quarter-end: On August 3, 2013, the company agreed to sell the New England Media Group and its 49% Metro Boston interest for $70 million cash, subject to customary adjustments. It expected a $15–$25 million after-tax sale loss and $70–$80 million net after-tax proceeds, including a tax benefit, for general corporate purposes. The company will retain related pension and postretirement obligations. It estimated a pre-tax $50 million postretirement curtailment gain and $10–$20 million pre-tax multiemployer pension withdrawal charge; actual withdrawal liability remained undetermined.
- Pension accounting correction: An actuarial valuation error affecting approximately 800 participants overstated the pension obligation by about $50.4 million at December 30, 2012 and $50.9 million at March 31, 2013. Prior periods were adjusted; management said the errors were not material to those periods individually or in aggregate, but the correction was material to current-period comparisons. No cash-flow impact was reported. The company estimated qualified-plan underfunding at approximately $150 million pre-tax and expected about $75 million of 2013 contributions in total, with no further contributions planned beyond mandatory requirements.
- Effective tax rates were 47.4% in Q2 and 47.8% for the first half, with uncertain-tax-position reserves and permanent differences contributing unfavorably. Management said ordinary-course legal actions were not expected to have a material adverse effect. No material changes to disclosed risk factors or market risks were reported.
Important facts for investors to verify
- Closing, final proceeds, sale accounting and retained benefit-plan liabilities for the New England Media Group and Metro Boston transaction.
- Final multiemployer pension withdrawal liability and the actual pension funding outlook.
- Progress in digital subscriber growth and monetization, alongside continued advertising declines and their effect on revenue and margins.
- Whether strategic initiatives meet management’s estimated cost and contribution timelines.
- Effects of the pension correction on comparability of reported results and future filings.