The New York Times Company — Q2 2016 Form 10-Q
Business context and period: The Company is a global media organization with one reportable segment, spanning print and digital newspapers and related businesses. This unaudited filing covers the 13 weeks ended June 26, 2016, and the six months then ended; comparisons are with the corresponding 2015 periods.
Financial performance
- Q2 revenue: $372.6 million, down 2.7% year over year. Circulation revenue rose 3.0% to $219.5 million; advertising fell 11.7% to $131.2 million; other revenue increased 4.0% to $22.0 million.
- Q2 operating results: GAAP operating profit was $9.1 million, versus $38.1 million a year earlier; operating margin was approximately 2.5%, versus 9.9%. The Company reported a $0.2 million loss attributable to common stockholders, or approximately break-even per diluted share, compared with $16.4 million income, or $0.10 per diluted share. Adjusted operating profit, a non-GAAP measure, was $54.5 million, down 15.4%; adjusted diluted EPS was $0.11 versus $0.13.
- First-half results: Revenue was $752.1 million, down 2.0%. GAAP operating profit was $37.1 million, up from $27.0 million, while the Company recorded an $8.5 million loss attributable to common stockholders versus $2.1 million income in 2015. The period included a $42.3 million loss from joint ventures. Adjusted operating profit was $106.0 million, down 14.2%; adjusted diluted EPS was $0.21 versus $0.25.
- Digital circulation: Q2 digital-only subscription revenue, including news and Crossword products, grew 15.3% to $56.4 million. Paid digital-only subscriptions reached approximately 1.424 million, up 25.5% year over year; news-product subscriptions were approximately 1.212 million, up 22.4%.
- Advertising and costs: Q2 print advertising declined 14.1% and digital advertising declined 6.8%. Traditional website display remained weak, partly offset by mobile, programmatic and branded-content growth. GAAP operating costs declined 1.4% to $339.9 million; adjusted operating costs were essentially flat at $318.2 million.
- Cash flow and investment: First-half operating cash flow was $31.5 million, down from $65.7 million; capital expenditures were $14.6 million. Investing cash flow was $291.6 million, largely reflecting marketable-security maturities and a $38.0 million distribution from corporate-owned life insurance. Cash and equivalents rose to $400.1 million from $105.8 million at year-end.
- Liquidity and debt: Cash, cash equivalents and marketable securities totaled $915.4 million, exceeding total debt and capital-lease obligations of $433.7 million by $481.7 million. The $189.2 million principal amount of 6.625% senior notes was due in December 2016. Debt also included a $250 million headquarters-building repurchase option due in 2019, recorded at $238.1 million net of discount.
- Margins and balance sheet: Pension benefit obligations were $613.4 million and postretirement obligations were $60.1 million at June 26, 2016. Total stockholders’ equity was $799.2 million.
Material changes and unusual items
- Q2 GAAP operating profit fell sharply, reflecting $11.9 million of international-print restructuring costs, an $11.7 million multiemployer pension withdrawal charge, and weaker advertising. Lower non-operating retirement costs and lower SG&A partly offset these pressures.
- The first-half joint-venture loss primarily reflected the announced closure of Madison Paper Industries’ mill. The Company reduced its investment to zero and recorded a $31.9 million liability for the wind-down; management said it did not currently expect significant cash use from the process.
- The first-half comparison also reflects a $40.3 million pension settlement charge in 2015, while 2016 included the Madison loss and larger multiemployer withdrawal expense.
- Cash and marketable securities increased in preparation for repayment at maturity of the 2016 senior notes. First-half investing cash flow was substantially affected by marketable-security maturities, rather than solely by operating performance.
Outlook, risks and contingencies
- The Company said existing cash, operating cash flow and other sources should be sufficient to meet financing needs over the next 12 months. No specific revenue or earnings forecast was provided.
- After reaching an agreement on international-print streamlining, management expected approximately $3 million of additional costs in the second half of 2016. A voluntary employee buyout was expected to generate approximately $11 million of severance costs in Q3.
- In the NMDU pension-fund dispute, an interim arbitration decision supported a partial withdrawal assessment. The Company recorded an $11.3 million liability and expected to appeal; management said the total loss could exceed the recorded liability by zero to approximately $10 million. The fund returned $5.0 million after quarter-end, to be recorded in Q3, and required payments were to continue during the appeal.
- A separate Worcester newspaper-deliverer class action seeks unspecified damages; the Company said it could not estimate a loss range and intends to defend the case. The filing also describes other ordinary-course litigation that could affect results or cash flows in an individual period, though management did not expect a material effect on financial position.
- The board approved a $0.04-per-share dividend after quarter-end, paid July 28, 2016. Management said future dividend levels would be evaluated in light of earnings, capital needs, financial condition and debt restrictions.
Facts investors should verify
- Whether digital subscription growth continues and translates into durable circulation revenue growth.
- Whether print and digital advertising declines stabilize, and how much growth from mobile, programmatic and branded content offsets traditional display weakness.
- Repayment or refinancing of the $189.2 million senior notes due December 2016 and the effect on liquidity.
- Final costs and cash requirements for Madison’s mill wind-down and the international-print restructuring and employee buyout programs.
- Final outcomes and potential payments in the NMDU arbitration appeal and Worcester litigation.