The New York Times Company — Q1 2013 Form 10-Q
Reporting period: Quarter ended March 31, 2013 (13 weeks), compared with the 13 weeks ended March 25, 2012. The company operates The New York Times Media Group and New England Media Group; it reports one aggregated reportable segment. Management cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $465.9 million | $475.4 million | -2.0% |
| Circulation revenue | $241.8 million | $227.0 million | +6.5% |
| Advertising revenue | $191.2 million | $215.2 million | -11.2% |
| Operating costs | $443.1 million | $462.8 million | -4.3% |
| Operating profit | $22.9 million | $12.6 million | +81.2% |
| Operating margin | 4.9% | 2.7% | Improved |
| Income from continuing operations | $2.9 million | $8.7 million | -66.7% |
| Net income attributable to NYT common stockholders | $3.1 million; $0.02/share | $42.1 million; $0.28/share | -92.6% |
Circulation growth reflected digital subscriptions and higher Times print prices, partly offset by fewer print copies sold. Advertising fell in both print (-13.3%) and digital (-4.0%); print represented approximately 76% of advertising revenue. Lower compensation, raw-material, outside-printing and distribution costs, along with lower depreciation, supported operating profit. Q1 2012 included a $17.8 million gain on an investment sale and a $4.9 million investment impairment; Q1 2013 did not. Q1 2012 also included $33.4 million of discontinued-operations income, including a gain related to the Regional Media Group sale, making the year-over-year net-income comparison particularly nonrecurring-item-sensitive.
Cash, liquidity and debt
- Cash and cash equivalents were $308.0 million at March 31, 2013, down from $820.5 million at year-end 2012. Cash plus marketable securities totaled approximately $865.7 million.
- Net cash used in operating activities was $87.6 million, versus $9.6 million in Q1 2012. The filing attributes the deterioration primarily to higher tax payments and pension contributions: approximately $49 million in federal estimated taxes and $61 million in qualified-plan contributions in Q1 2013.
- Net cash used in investing activities was $425.0 million, primarily due to net purchases of marketable securities. Capital expenditures were $4.6 million.
- Total debt and capital lease obligations were approximately $698.2 million, leaving cash and marketable securities in excess of those obligations by approximately $168 million. Debt included 5.0% notes due 2015, 6.625% notes due 2016, and the headquarters repurchase option due 2019. The fair value of long-term debt was estimated at approximately $843 million versus carrying value of approximately $691 million.
- Current assets were $991.3 million and current liabilities $338.0 million. The company reported covenant compliance and said available liquidity should cover financing needs for the next 12 months.
Outlook and management commentary
- Q2 2013 circulation revenue was expected to grow at a mid-single-digit rate year over year; advertising revenue was expected to decline 7%–8%; operating costs were expected to decline at a low-single-digit rate.
- 2013 pre-tax outlook: joint-venture losses of $1–$5 million, depreciation and amortization of $90–$95 million, net interest expense of $55–$60 million, and capital expenditures of approximately $40 million.
- The company expected approximately $75 million of 2013 qualified pension contributions, including $61 million contributed in Q1. It reported pension and postretirement obligations of $824.0 million at quarter-end.
- Management said it retained a strategic adviser regarding a potential sale of the New England Media Group and its 49% interest in Metro Boston, with a transaction expected in the second half of 2013, though no assurance was given.
- Announced Times initiatives—in digital subscriptions and paid products, international expansion, video, and brand extensions—were expected to reduce 2013 operating profit by $20–$25 million. Management expected their operating-profit contribution to turn positive in late 2014 and for full-year 2015.
- Management said it was not an appropriate time to restore a dividend, prioritizing investment, sustainable growth, deleveraging and reducing pension exposure.
Risks, contingencies and notable items
- Management cited secular advertising pressure and digital-market fragmentation, including abundant inventory, programmatic buying and downward pricing pressure, as continuing challenges. It also cited uncertain economic conditions.
- Income-tax expense was $3.0 million, a 50.7% effective rate, primarily reflecting increases in reserves for uncertain tax positions; Q1 2012’s rate was 13.9%.
- The company reported approximately $15 million in severance liabilities. It maintained $22.3 million of restricted cash, primarily for workers’ compensation collateral.
- Ordinary-course legal actions were pending; management and counsel did not expect ultimate liability to materially adversely affect the financial statements. No material changes to previously disclosed risk factors or market risks were reported.
- Management concluded disclosure controls were effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the expected New England Media Group and Metro Boston transaction occurred, and its proceeds, timing and effect on earnings and liquidity.
- Progress against Q2 revenue and cost expectations, particularly advertising trends and digital/print performance.
- Digital subscriber growth and monetization: approximately 708,000 paid digital subscribers company-wide at quarter-end, including 676,000 for The Times/IHT and 32,000 for the Globe.
- Actual pension contributions and plan obligations versus management’s 2013 estimates, including funding requirements and discretionary contributions.
- Costs, revenue contribution and timing of the announced strategic initiatives relative to the projected $20–$25 million 2013 operating-profit impact.
- Cash generation after pension funding and taxes, while distinguishing operating cash use from the quarter’s substantial purchases of marketable securities.