The New York Times Company — Q3 2016 Form 10-Q
Business context and period. The Company operates one reportable media segment, including The New York Times, NYTimes.com, print and digital products, and related businesses. The quarter ended September 25, 2016 and comprised 13 weeks; year-to-date results cover 39 weeks. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $363.5 | $367.4 | $1,115.7 | $1,134.5 |
| Operating profit | $9.0 | $21.9 | $46.0 | $48.9 |
| Net income (loss) attributable to common stockholders | $0.4 | $9.4 | ($8.1) | $11.6 |
| Diluted EPS | $0.00 | $0.06 | ($0.05) | $0.07 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $76.1 | $108.0 |
- Revenue mix: Q3 circulation revenue rose 3.0% to $217.1, advertising fell 7.7% to $124.9, and other revenue increased 1.0% to $21.6. Total revenue declined 1.0%.
- Profit and margins: Q3 GAAP operating margin was approximately 2.5%, versus 6.0% a year earlier. Adjusted operating profit, a non-GAAP measure, fell 17.7% to $39.2; adjusted operating margin was approximately 10.8%, versus 13.0%. Adjusted diluted EPS was $0.06 versus $0.09. For the first nine months, adjusted operating profit declined 15.2% to $145.2 and adjusted diluted EPS fell to $0.27 from $0.34.
- Cash flow and investment: Nine-month operating cash flow decreased 29.6%. Investing activities provided $10.2 and financing activities used $35.3. Capital expenditures were $21.8; dividends paid were $19.4 and share repurchases were $15.7.
- Liquidity and debt: Cash, cash equivalents and marketable securities totaled $944.9 at September 25, including $156.9 cash and $787.9 marketable securities. Debt and capital lease obligations totaled $434.9, leaving $510.0 more cash and securities than debt. The $189.0 senior notes were due December 15, 2016; management said it planned to repay them at maturity. Current liabilities were $572.8 and current assets $962.8.
- Balance sheet: Total assets were $2,356.9, down from $2,417.7 at December 27, 2015. Pension and postretirement obligations totaled $659.1; stockholders’ equity was $793.2.
Material changes and management commentary
- Paid digital-only subscriptions, including news and Crossword products, reached approximately 1.557 million, up 29.8% year over year. News-product digital subscription revenue rose 15.4% in Q3 to $56.1.
- Advertising remained pressured: print advertising fell 18.5% in Q3, while digital advertising increased 21.4%. Management attributed digital growth mainly to mobile, programmatic buying and branded content, partly offset by weaker traditional website display advertising. Print weakness reflected continued declines in display advertising.
- Q3 operating costs rose 3.2% to $356.6. Management cited higher severance, advertising and technology costs, partly offset by lower print production and distribution costs and lower non-operating retirement costs. Q3 severance expense was $13.0, primarily related to a voluntary buyout program.
- Year-to-date results included a $41.8 loss from joint ventures, principally related to the closure of Madison Paper Industries’ mill. The Company wrote its investment down to zero and recorded a $31.9 liability for its share of Madison losses to date. Management expected proceeds from hydro-power asset sales to cover Madison obligations and did not expect significant Company cash outlays for the wind-down.
- The Company recorded $14.8 of costs through September for streamlining international print operations and expected approximately $0.5 of additional costs in Q4 2016; cash disbursements were expected to begin in Q4.
Outlook, risks and other notable items
- Management said available cash, operating cash flow and other sources were expected to meet financing needs over the next 12 months. No broader revenue or earnings guidance was provided.
- The NMDU Fund arbitration interim decision supported a partial withdrawal liability. The Company recorded a $10.5 liability, expected to appeal the final decision, and said a further loss could range from zero to approximately $10.0 above the recorded liability. Required payments continue.
- In Worcester newspaper-deliverer litigation, plaintiffs challenge their classification as independent contractors and seek unspecified damages; the Company said it could not estimate a possible loss. Management noted that adverse outcomes in legal matters could materially affect results or cash flows in an individual period, though it did not expect a material effect on financial position overall.
- On October 24, 2016, after quarter-end, the Company acquired The Wirecutter and The Sweethome for $25.0 in cash, including a non-compete payment; consulting and retention agreements may require additional payments over three years.
- The Company offered certain former employees pension lump-sum payments, with the election period ending November 14, 2016. It expected 2016 pension contributions of $7.8.
- Management reported no material change in risk factors or market risks. Disclosure controls were deemed effective; a new HR and payroll system implemented July 5 was subject to ongoing internal-control evaluation.
Key facts for investors to verify
- Whether the $189.0 million senior notes were repaid at maturity and the resulting post-quarter liquidity position.
- Subsequent trends in digital subscriptions and digital advertising, and whether they continue to offset print advertising declines.
- Cash costs and final proceeds or liabilities from the Madison mill wind-down, and the outcome of the NMDU Fund appeal.
- Actual restructuring and voluntary-buyout costs, and any additional payments associated with the Wirecutter and Sweethome acquisition.
- Cash-flow trends, pension funding requirements, and the effect of ongoing legal contingencies.