The New York Times Company — Q1 2011 Form 10-Q
Reporting period: 13 weeks ended March 27, 2011; comparison is the 13 weeks ended March 28, 2010. The company operates the News Media Group and About Group. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $566.5 | $587.9 | -3.6% |
| Operating profit | $31.1 | $52.7 | -41.0% |
| Operating margin | 5.5% | 9.0% | Down 3.5 percentage points |
| Net income attributable to common stockholders | $5.4 | $12.8 | -57.6% |
| Diluted EPS | $0.04 | $0.08 | Down 50% |
| Operating cash flow | $(45.2) | $68.6 | Declined $113.8 |
| Capital expenditures | $12.9 | $7.0 | — |
Advertising revenue was $298.9 million, down 4.4%; circulation was $228.0 million, down 3.7%; and other revenue was $39.6 million, up 3.2%. Operating costs were essentially flat at $535.4 million. Raw-material costs rose 8.7%, while depreciation and amortization fell 5.7%.
News Media Group revenue declined 3.2% to $535.4 million and operating profit fell 36.7% to $30.7 million. About Group revenue declined 10.2% to $31.1 million and operating profit fell 13.9% to $14.3 million. The filing attributes About Group weakness partly to lower click-through rates and page views, including Google ad-design and search-algorithm changes.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $152.5 million, and short-term investments were $199.7 million, for combined liquidity of about $352.3 million, compared with $399.6 million at year-end 2010.
- Total debt and capital lease obligations were about $998.5 million. Net of cash and short-term investments, debt was about $646 million.
- Current assets were $768.2 million and current liabilities were $426.2 million. Stockholders’ equity totaled $689.6 million.
- The $400 million revolving credit agreement expires in June 2011; there were no borrowings outstanding, excluding approximately $55 million of letters of credit. Management expected any renewal or replacement facility, if pursued, to be smaller and secured. The company reported compliance with financing covenants and approximately $774 million of equity headroom under the revolver covenant.
Operating cash use reflected higher working-capital requirements and approximately $54 million of pension contributions. Investing cash use was $172.4 million, primarily because of $169.8 million in short-term investment purchases.
Material changes, outlook and risks
- Total advertising revenue declined 4.4%. News Media Group print advertising fell 7.5%, partly offset by digital advertising growth of 14.9%; across the company, digital advertising growth of 4.5% did not offset the 7.5% print decline. Circulation revenue declined as copies sold fell across the News Media Group.
- Management said advertising softened in March, then improved in April versus March; April’s total advertising decline was approximately at the Q1 rate. It cited an uneven economy, advertiser budget shifts, competition and industry transformation.
- The company completed the global launch of its digital subscription packages on March 28, 2011. Approximately three weeks later it reported more than 100,000 paid digital subscribers, but said it could not yet assess conversion and retention after promotional periods.
- Management expected Q2 operating costs to increase modestly, citing newsprint, pension and promotion costs. Newsprint prices were expected to be higher in Q2 and, based on industry forecasts, to rise in the second half of 2011.
- 2011 pre-tax outlook: depreciation and amortization of $118–$123 million; net interest expense of $100–$105 million; and capital expenditures of $45–$55 million, including digital systems investment. Management expected joint-venture results to be negatively affected by Fenway Sports Group’s Liverpool Football Club acquisition, mainly from related amortization.
- Unusual items included a $5.9 million gain from selling a minor portion of the company’s Indeed.com investment. The prior-year quarter’s joint-venture income included a paper-mill asset-sale gain; Q1 2011 instead recorded a $5.7 million joint-venture loss.
- The effective tax rate was 21.2%, affected by a reduction in reserves for uncertain tax positions. The prior-year 65.6% rate included a $10.9 million charge tied to health-care reform; excluding it, the prior-year rate was 39.3%.
- Management said it believed liquidity and operating cash, together with other financing sources, would meet immediate needs and that it remained focused on reducing debt. Pension contributions may materially affect cash flow; further discretionary contributions could be made. Management said pending ordinary-course legal actions were not expected to have a material adverse effect. No material changes to previously disclosed risk factors or market risks were reported.
Important facts for investors to verify
- Whether digital subscriptions convert to retained, paying subscribers after promotional periods and how they affect circulation revenue.
- Whether advertising trends continue to improve, particularly print advertising, and whether digital growth can offset print declines.
- Newsprint price movements and the resulting effect on costs and margins.
- Revolver renewal or replacement terms ahead of its June 2011 expiration, including the expected reduced size and secured basis.
- Future pension contributions, cash generation and debt reduction, and the effect of Liverpool-related amortization on joint-venture results.