The New York Times Company — 2012 Form 10-K
Business context and reporting period. The filing covers the 53-week fiscal year ended December 30, 2012; 2011 was a 52-week year. The company’s continuing businesses were The New York Times Media Group and the New England Media Group, with one reportable segment. Results for the About Group and Regional Media Group are presented as discontinued operations. In February 2013, the company said it had retained an adviser regarding a possible sale of the New England Media Group and its 49% interest in Metro Boston.
Financial results
| Metric | FY 2012 | FY 2011 | Change / context |
|---|---|---|---|
| Revenue | $1,990.1 million | $1,952.6 million | Up 1.9%; 2012 included an additional week |
| Advertising revenue | $898.1 million | $954.5 million | Down 5.9%; print advertising fell 7.7%, while digital advertising was flat |
| Circulation revenue | $953.0 million | $863.0 million | Up 10.4%; for the first time, annual circulation revenue exceeded advertising revenue |
| Operating costs | $1,830.4 million | $1,791.0 million | Up 2.2% |
| Operating profit | $108.3 million | $143.7 million | Down 24.6%; operating margin was about 5.4%, versus 7.4% |
| Income from continuing operations | $159.8 million | $51.3 million | Includes substantial investment-sale gains |
| Net income/(loss) attributable to common stockholders | $133.2 million | $(39.7) million | Diluted EPS: $0.87 versus $(0.26) |
| Cash provided by operating activities | $79.3 million | $73.9 million | Up 7.3% |
| Capital expenditures | $34.9 million | $44.9 million | Derived operating cash flow less capital expenditures was $44.4 million |
Fourth-quarter results (14 weeks) included revenue of $575.8 million, operating profit of $44.0 million, and income from continuing operations of $117.4 million. The quarter’s $164.6 million pre-tax gain on the Indeed.com sale materially affected results.
Liquidity, debt, and other key metrics
- Cash, cash equivalents, and short-term investments totaled $955.3 million at year-end, up from $280.0 million. Debt and capital lease obligations were $697.1 million, leaving approximately $258 million more cash and short-term investments than debt and leases.
- Current assets were $1,308.4 million and current liabilities $422.6 million; the current ratio was 3.10. Total assets were $2,806.3 million and company stockholders’ equity was $632.5 million.
- Year-end debt included $244.0 million of 5.0% notes due 2015, $221.5 million of 6.625% notes due 2016, and $224.5 million recorded for the headquarters sale-leaseback financing. The company repaid $75 million of 4.610% notes at maturity and terminated its $125 million revolving credit facility in 2012.
- The company reported no variable-rate debt and said it complied with financing covenants. Standard & Poor’s raised its senior unsecured debt rating to BB- in December 2012; the filing says ratings remained below investment grade.
- Qualified pension plans were underfunded by approximately $396 million; total pension obligations, including unfunded plans, were $699.3 million. Multiemployer pension withdrawal liabilities were estimated at $109 million.
Material changes, outlook, and risks
- Revenue mix and operations: Digital subscriptions, print price increases, and the extra fiscal week supported circulation growth, partly offset by declining print copies sold. Management said digital subscriptions helped offset softness in advertising and print circulation. Higher compensation, including digital initiative hiring, contributed to increased costs.
- Divestitures and unusual items: The company sold the About Group for $300 million cash plus an approximately $17 million working-capital adjustment, reporting a $96.7 million pre-tax gain and approximately $291 million net after-tax proceeds. It sold the Regional Media Group for approximately $140 million cash. It also received approximately $167 million from the sale of its Indeed.com interest and $93 million from selling its remaining Fenway Sports Group units. Total pre-tax gains on investment sales were $220.3 million. A $194.7 million non-cash goodwill impairment at About was recorded in discontinued operations. A $48.7 million non-cash pension settlement charge was recorded in continuing operations.
- Management outlook: For Q1 2013, management expected total advertising revenue trends below Q4 2012, excluding the extra week; circulation revenue growth in the mid-single digits; and operating costs down in the low-to-mid single digits, partly reflecting comparison with accelerated depreciation in Q1 2012. For 2013, management forecast 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 $40–$50 million.
- Liquidity and capital allocation: Management believed cash, operating cash flow, and other financing sources would cover needs for the next 12 months. It prioritized investment in growth, revenue and profitability recovery, deleveraging, and pension-risk reduction, and said it did not consider a dividend restoration appropriate at that time. No dividends had been paid since 2008.
- Principal risks: Advertising sensitivity to economic conditions and migration of advertising to lower-priced digital channels; continued print circulation declines; ability to retain digital subscribers and audiences; execution of cost controls and digital investment; pension funding and multiemployer withdrawal liabilities; union negotiations (several Globe agreements had expired); newsprint pricing and supply; debt covenants and below-investment-grade ratings; and cybersecurity. The company disclosed a 2012 cyberattack it believed was foreign-government sponsored, but said customer and employee data systems were not breached.
- Management stated ordinary-course legal matters were not expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Separate recurring operating performance from the $220.3 million pre-tax investment-sale gains and other unusual items; assess operating profit and cash generation without those gains.
- Confirm the comparability effect of the 53rd fiscal week and discontinued-operation accounting when evaluating year-over-year revenue, earnings, and cash flow.
- Track whether digital subscription growth and circulation pricing can offset print and advertising declines, including the company’s Q1 2013 outlook against subsequent reported results.
- Monitor the proposed New England Media Group and Metro Boston sale, including proceeds, timing, and any resulting changes to revenue, costs, and liabilities.
- Review pension funding needs, the assumptions underlying the $396 million qualified-plan underfunding and $109 million multiemployer withdrawal estimate, and actual 2013 contributions.
- Assess debt maturities, covenant restrictions, and refinancing options, as well as the effect of maintaining a large cash balance while the company remains below investment grade.