Business context and reporting period
The New York Times Company’s Form 10-K covers the fiscal year ended December 28, 2014 (52 weeks); it is an annual filing, not a standalone fourth-quarter filing. The company operates one reportable segment centered on The New York Times, the International New York Times, digital subscriptions and related businesses. Revenue is primarily from circulation and advertising. The fourth quarter is typically seasonally strong for advertising.
Financial results and liquidity
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Revenue | $1,588.5 million | $1,577.2 million | +0.7% |
| Operating profit | $91.9 million | $156.1 million | -41.1% |
| Operating margin | 5.8% | 9.9% | Down 4.1 percentage points |
| Income from continuing operations | $33.4 million | $56.9 million | -41.3% |
| Net income attributable to common stockholders | $33.3 million | $65.1 million | -48.8% |
| Diluted EPS from continuing operations | $0.21 | $0.36 | -41.7% |
| Operating cash flow | $80.5 million | $34.9 million | Increased |
Fourth-quarter revenue was $444.7 million versus $443.9 million a year earlier. Operating profit was $62.4 million versus $68.9 million; income from continuing operations attributable to common stockholders was $35.0 million versus $38.7 million; diluted continuing-operations EPS was $0.22 versus $0.24.
- Circulation revenue rose 1.5% to $836.8 million; digital-only subscription, e-reader and replica-edition revenue grew 13.5% to $169.3 million. Paid digital subscribers reached approximately 910,000, up nearly 20% year over year.
- Advertising revenue declined 0.7% to $662.3 million: print fell 4.7%, while digital increased 11.9%. Print represented 73% of advertising revenue. Other revenue grew 3.6% to $89.4 million.
- Operating costs increased 5.2% to $1,484.5 million, including higher wages and benefits and selling, general and administrative costs; lower newsprint and distribution costs partly offset increases.
- Management’s non-GAAP adjusted operating profit was $256.3 million versus $277.1 million (-7.5%); adjusted diluted EPS was $0.43 versus $0.52. These measures exclude specified items and are not substitutes for GAAP results.
- Cash, cash equivalents and marketable securities totaled $981.2 million; debt and capital lease obligations totaled $650.1 million, leaving a reported excess of $331 million. Current assets/current liabilities were 1.91, down from 3.36.
- Long-term debt and capital leases fell to $426.5 million, while $223.7 million of debt was classified current, principally 5.0% notes due March 2015. Capital expenditures were $35.4 million. Dividends paid were $24.9 million.
Material changes, outlook and risks
Revenue growth was modest and reflected circulation and other-revenue gains offsetting advertising weakness. Profitability fell substantially as operating costs rose, strategic initiatives were funded and severance expense increased. The company recorded $36.1 million of severance expense, $36.7 million of non-operating retirement costs, a $9.5 million pension settlement charge, a $9.2 million joint-venture impairment and a $2.6 million distribution-agreement termination charge. A $21.1 million tax benefit, primarily from releasing uncertain-tax-position reserves, partly offset these items. The 2014 net income tax benefit was $3.5 million on $29.9 million of pretax income.
Management described the competitive and fragmented media environment as challenging, with limited visibility. For Q1 2015, it expected circulation revenue to grow at a rate similar to Q4 2014 and net new digital subscribers in the mid-30,000s; advertising revenue to decline in the mid-single digits, with digital advertising up in the low double digits; and other revenue to grow in the mid-single digits. Operating costs and adjusted operating costs were expected to be roughly flat year over year in Q1. For full-year 2015, management expected to maintain or slightly lower those costs versus 2014; depreciation and amortization of $60–$65 million, net interest expense of $40–$45 million, capital expenditures of $35–$45 million, and joint-venture results from breakeven to $5 million.
The qualified pension plans were underfunded by approximately $264 million at year-end, versus $80 million a year earlier; management attributed the deterioration mainly to lower discount rates and updated mortality assumptions. It expected approximately $9 million of qualified-plan contributions in 2015. The broader multiemployer pension withdrawal liability was estimated at $116 million. A pension fund’s revised approximately $34 million partial-withdrawal assessment is disputed and in arbitration; the company recorded no contingency because it did not consider a loss probable. A separate 2015 pension lump-sum offer was expected to produce an approximately $40 million settlement charge; payments of about $98 million were to come from plan assets, not company cash.
The company said cash and operating cash flow, together with other sources, should cover financing needs for the next 12 months, including repayment of the 5.0% notes at maturity. In January 2015, warrant holders exercised warrants in full, providing approximately $101.1 million; the company said it intended to use the proceeds for share repurchases. Principal risks include print-advertising and circulation declines, digital monetization and competition, fixed costs, pension obligations, union negotiations, newsprint supply and pricing, cybersecurity, and debt covenants. The company reported compliance with financing covenants and no material off-balance-sheet arrangements. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether digital-subscription growth and digital advertising gains can offset print circulation and advertising declines, and the associated investment and marketing costs.
- Whether the cost reductions and workforce actions deliver the expected savings without impairing journalism, product quality or future revenue.
- The funding trajectory and assumptions for qualified and non-qualified pensions, multiemployer withdrawal liabilities, and the expected 2015 settlement charge.
- Repayment of the $223.7 million 5.0% notes due March 2015, and the effect of warrant exercise proceeds and planned repurchases on liquidity and share count.
- The outcome of arbitration over the approximately $34 million pension-fund assessment and any changes to recorded pension liabilities or contingencies.