The New York Times Company — Q2 2012 Form 10-Q
Business context and period. The filing covers the 13 weeks ended June 24, 2012, and the first 26 weeks of fiscal 2012, compared with the periods ended June 26, 2011. The company operates the News Media Group and About Group. Results are unaudited; management cautions that interim results may not indicate full-year performance because of seasonality.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $515.2m | $512.0m | $1,014.6m | $1,012.7m |
| Advertising revenue | $244.3m | $262.1m | $482.1m | $521.0m |
| Circulation revenue | $233.3m | $215.4m | $460.3m | $422.3m |
| Operating profit/(loss) | ($143.6m) | $31.5m | ($124.0m) | $57.4m |
| Continuing operations profit/(loss), attributable to common stockholders | ($83.6m) | $7.7m | ($70.6m) | $10.0m |
| Net loss attributable to common stockholders | ($88.1m) | ($119.7m) | ($46.0m) | ($114.3m) |
| Basic net loss per share | ($0.60) | ($0.81) | ($0.31) | ($0.78) |
| Cash provided by operating activities | Not separately stated | Not separately stated | $73.9m | $45.2m |
Q2 total revenue grew 0.6%; circulation rose 8.3%, while advertising fell 6.8%. For the first six months, revenue increased 0.2%, circulation increased 9.0%, and advertising declined 7.5%. Q2 operating costs were down 0.6%; six-month costs were up 0.2%. Reported operating margins were approximately negative 27.9% in Q2 and negative 12.2% for the six months, primarily reflecting the goodwill impairment. Excluding that charge, approximate operating margins were 9.9% and 7.0%, respectively; these are derived figures, not company-reported non-GAAP measures.
Liquidity, debt and cash flow
- At June 24, cash and cash equivalents were $290.3m and short-term investments were $279.9m; together, approximately $570m. Restricted cash of $24.3m was not freely available.
- Total debt and capital lease obligations were $775.8m, including $75.0m current debt. Management reported net debt of approximately $206m. No borrowings were outstanding on the $125m revolving credit facility, and the company reported compliance with financing covenants.
- Cash from operations for the first six months was $73.9m; capital expenditures were $19.2m, implying approximate operating cash flow less capital expenditures of $54.7m. Cash and cash equivalents increased $115.4m from year-end 2011.
- Management attributed improved liquidity in part to proceeds from the Regional Media Group and Fenway Sports Group sales, as well as operating cash flow. The company had approximately $75m of 4.610% senior notes due at the beginning of Q4 2012.
- Total assets were $2.72bn and stockholders’ equity was $466.8m at quarter-end. The pension benefits obligation was $848.7m.
Material changes and unusual items
- A $194.7m estimated, non-cash goodwill impairment at About Group drove the reported operating loss. Management lowered long-term display-advertising growth and cash-flow assumptions; the impairment test was to be completed in Q3, and the estimate could change.
- News Media Group Q2 revenue increased 1.2%, while About Group revenue declined 8.7%. For the six months, About Group revenue fell 16.3%. News Media Group circulation growth offset advertising weakness.
- The company sold its remaining Fenway Sports Group interest in May; 2012 sales generated $55.6m of pre-tax gains ($37.8m in Q2). It also completed the sale of 16 regional newspapers in January for approximately $140m cash; reported six-month discontinued-operations income included a $25.7m after-tax sale gain.
- Q2 interest expense, net, declined to $15.5m from $25.2m, mainly following the 2011 prepayment of high-coupon senior notes. Six-month expense declined to $30.9m from $49.7m.
- Six-month operating cash flow improved from $45.2m to $73.9m, principally because pension contributions to certain qualified plans were about $24m, versus about $62m in the prior-year period.
- The company recorded $4.9m of investment impairment in Q1, primarily related to Ongo, and $6.7m of accelerated depreciation related to consolidating T&G printing at the Globe facility. Severance costs were $7.1m in the first six months; the quarter-end severance liability was approximately $12m.
Outlook, commentary and risks
- Management expected Q3 2012 total advertising trends to improve from Q2, with digital performance improving across the company. It projected circulation revenue growth in the mid- to high-single digits in Q3.
- Management expected About Group performance to improve meaningfully in the second half of 2012, with display and cost-per-click advertising revenues projected to return to positive growth. This outlook is subject to execution and advertising-market uncertainty.
- Q3 operating costs were expected to increase in the low- to mid-single digits, reflecting digital investment, About Group sales and marketing, new commercial printing activity and variable compensation, partly offset by cost savings.
- For 2012, management forecast pre-tax joint-venture results of $6m–$8m, depreciation and amortization of $105m–$110m, net interest expense of $60m–$65m, and capital expenditures of approximately $50m.
- Management said cash, operating cash flow and other financing sources should be sufficient for the next 12 months, while identifying pension funding and repayment of the $75m note as cash priorities. Mandatory pension contributions were expected to total approximately $47m in 2012; further discretionary contributions remained possible.
- Key operating risks include persistent economic and secular pressure on advertising, competition in digital advertising, and About Group’s revised long-term growth assumptions. S&P lowered its ratings outlook from positive to stable in July 2012, citing continued secular pressure. Management reported no material change in risk factors or market risks from the 2011 annual filing. Pending ordinary-course legal actions were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether About Group’s Q3 impairment estimate changes and whether its advertising recovery and projected positive growth materialize.
- Whether advertising declines moderate as forecast, particularly given the reported 12.6% year-over-year drop in total advertising in June.
- Digital subscription trends: approximately 509,000 paid Times and IHT subscribers, 23,000 Boston Globe digital subscribers, and 532,000 across the company at quarter-end.
- Repayment of the $75m note due at the beginning of Q4, covenant headroom, and liquidity after sale proceeds and pension contributions.
- Actual pension contributions versus the expected $47m, and any discretionary funding needs.
- Completion of the About Group impairment assessment and the assumptions behind its fair value estimate, including the 3.5% terminal growth rate and 15.0% discount rate.