The New York Times Company — 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 29, 2013 (52 weeks); the comparable 2012 year contained 53 weeks. The company operates one reportable segment centered on The New York Times, the International New York Times, digital subscriptions and related businesses. Results of the New England Media Group, sold in October 2013, are presented as discontinued operations.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $1.577 billion | $1.595 billion |
| Operating profit | $156.1 million | $103.7 million |
| Income from continuing operations | $56.9 million | $163.9 million |
| Net income attributable to common stockholders | $65.1 million | $135.8 million |
| Diluted EPS, continuing operations / total | $0.36 / $0.41 | $1.07 / $0.89 |
| Cash from operating activities | $34.9 million | $79.3 million |
- Annual operating margin was approximately 9.9%, versus 6.5% in 2012. Operating costs declined 2.1% to $1.412 billion.
- Circulation revenue rose 3.7% to $824.3 million; advertising revenue fell 6.3% to $666.7 million; other revenue declined 2.5% to $86.3 million. Digital-only subscription revenue increased 33.5% to $149.1 million, and paid digital subscribers reached approximately 760,000, up about 19%.
- For Q4 2013, revenue was $443.9 million, operating profit $68.9 million, income from continuing operations $38.7 million and net income attributable to common stockholders $65.6 million. Q4 diluted EPS was $0.24 from continuing operations and $0.41 overall. The 2012 fourth quarter included 14 weeks, versus 13 weeks in 2013.
- At year-end, cash and cash equivalents were $482.7 million and marketable securities totaled $541.0 million, or approximately $1.024 billion combined. Total debt and capital lease obligations were $684.2 million; the combined cash and securities balance exceeded them by more than $300 million. Current ratio was 3.36.
- Debt and capital lease obligations declined from $696.9 million. Operating cash flow fell year over year; management cited the disposal of About Group before its sale in 2012 and higher tax payments, partly offset by lower pension contributions. Capital expenditures were $16.9 million.
- Qualified pension plans were underfunded by approximately $80.6 million, compared with $349.7 million in 2012. The company contributed about $74 million to qualified plans in 2013 and expected approximately $16 million of minimum required contributions in 2014.
Material changes and unusual items
- Revenue fell 1.1% year over year despite circulation growth; the prior year had an additional week. Print advertising declined 7.0% and digital advertising declined 4.3% in 2013.
- Operating profit improved, while net income fell sharply from 2012, when the company recognized $220.3 million in gains from sales of its Indeed.com and Fenway Sports Group interests. 2013 operating results included $12.4 million of severance charges, $6.2 million of multiemployer pension withdrawal expense and $3.2 million of pension settlement expense.
- The New England Media Group was sold for approximately $70 million cash, subject to customary adjustments; reported net after-tax proceeds, including a tax benefit, were about $74 million. The company recorded a $34.3 million impairment before sale and a $28.1 million after-tax gain on sale, largely reflecting a pension-related curtailment gain. Its 2013 operating results were reported as discontinued operations.
- Management corrected an actuarial error that had overstated pension obligations by approximately $50.4 million at year-end 2012. The company said prior-period errors were not material individually or in aggregate; the correction had no cash-flow impact.
- The company began quarterly dividends in 2013, declaring $0.08 per share for the year. No shares were repurchased under the public repurchase program during 2013.
Outlook, commentary and risks
- Management described a challenging, increasingly fragmented media and advertising environment with limited visibility. It expects circulation revenue to increase in the low single digits in Q1 2014 versus Q1 2013; Q1 advertising trends were expected to resemble Q4 2013 on a 13-week comparison.
- Q1 2014 operating costs were forecast to rise in the low- to mid-single digits year over year as growth investments accelerate. Management expected those initiatives to add approximately $25–$30 million of costs in 2014, weigh on full-year operating profit, and potentially begin contributing positively late in the year.
- 2014 estimates included joint-venture results of break-even to a $1 million loss, depreciation and amortization of $75–$85 million, net interest expense of $55–$60 million and capital expenditures of $35–$45 million. Retirement-related costs were expected to increase approximately $19 million to $37 million.
- Management said liquidity and operating cash generation should be sufficient for financing needs over the next 12 months. It emphasized continued investment in digital and international growth, expense management and pension-risk reduction.
- Key risks include continued print circulation and advertising declines; digital advertising price pressure and competition; economic weakness; execution and cost risks in digital and global growth initiatives; underfunded pension and multiemployer withdrawal obligations; union and labor constraints; newsprint supply and price exposure; debt covenants and below-investment-grade credit ratings; cybersecurity, intellectual-property and regulatory risks; and concentrated voting control by the Ochs family trust.
- The Newspaper and Mail Deliverers’ pension fund demanded approximately $26 million, alleging partial withdrawal; the company disputes the claim and had not recorded a loss contingency because it did not consider loss probable. The PBGC separately asserted a potential pension-plan triggering event related to the New England Media Group sale; the company disputed that position and did not expect a material adverse outcome.
- Ernst & Young issued unqualified audit opinions on the financial statements and internal controls. Management concluded disclosure controls and internal control over financial reporting were effective at year-end.
Investor verification priorities
- Track digital subscriber growth, retention, pricing and the ability of digital consumer revenue to offset declining print circulation and advertising.
- Assess advertising performance by print versus digital and by category, including whether the 2014 outlook accounts for the different quarter lengths in comparisons.
- Reconcile reported earnings with the 2012 investment-sale gains and 2013 pension, severance and discontinued-operation items.
- Monitor operating cash flow, the composition and liquidity of marketable securities, debt maturities and covenant restrictions on dividends or other capital returns.
- Verify pension funding assumptions, expected contributions and the resolution of the disputed multiemployer fund demand and PBGC matter.