Business context and reporting period
The New York Times Company’s unaudited Form 10-Q covers the 13 weeks ended March 25, 2012, compared with the 13 weeks ended March 27, 2011. Its continuing reportable segments were News Media Group and About Group. The Regional Media Group was sold in January 2012 and is presented as discontinued operations.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $499.4 million | $500.7 million | -0.3% |
| Advertising revenue | $237.9 million | $258.9 million | -8.1% |
| Circulation revenue | $227.0 million | $206.9 million | +9.7% |
| Operating profit | $19.6 million | $25.9 million | -24.3% |
| Income from continuing operations attributable to common shareholders | $13.1 million; $0.09 diluted EPS | $2.3 million; $0.02 diluted EPS | Higher |
| Net income attributable to common shareholders | $42.1 million; $0.28 diluted EPS | $5.4 million; $0.04 diluted EPS | Higher |
| Net cash used in operating activities | $9.6 million | $45.2 million | Improved |
Operating margin was approximately 3.9%, down from 5.2%. Continuing-operations income attributable to shareholders was approximately 2.6% of revenue, versus 0.5%. Net income included discontinued-operation income of $29.1 million, chiefly the $30.2 million after-tax gain on the Regional Media Group sale, partly offset by that business’s operating loss through the sale date.
At March 25, cash and cash equivalents were $206.5 million and short-term investments were $224.9 million, totaling approximately $431.3 million; restricted cash of $27.3 million is separate. Debt and capital lease obligations totaled $774.3 million, or approximately $343 million net of cash and short-term investments. The company had no borrowings on its $125 million revolving credit facility and reported covenant compliance. Cash and short-term investments increased substantially during the quarter, primarily from asset-sale proceeds.
Total assets were $2.82 billion and stockholders’ equity was $555.9 million. Pension and postretirement benefit obligations totaled approximately $963.5 million. Capital expenditures were $9.4 million in the quarter.
Material changes and notable items
- Circulation growth, driven by digital subscriptions and print price increases, nearly offset advertising weakness. News Media Group revenue rose 1.3%; About Group revenue fell 23.1%.
- News Media Group advertising revenue declined 6.1%; print advertising fell 7.2% and digital advertising fell 2.3%. Company-wide digital advertising declined 10.3%, mainly reflecting About Group declines.
- Operating costs increased 1.1%, while depreciation and amortization rose 25.8%, including $6.7 million of accelerated depreciation tied to the T&G printing consolidation. Severance expense was $5.3 million, versus $0.7 million a year earlier.
- Investment-related items included a $17.8 million pretax gain from selling part of the Fenway Sports Group investment, a $4.9 million noncash investment impairment, and a $7.0 million pretax unrealized gain on Brightcove recorded in other comprehensive income.
- Net cash used in operations improved primarily because pension contributions to certain qualified plans were lower than in the prior-year quarter. Investing cash flow was positive, mainly due to Regional Media Group and Fenway Sports Group sale proceeds.
Outlook, risks and contingencies
- Management expected Q2 News Media Group advertising trends to be similar to Q1; About Group advertising trends to improve modestly, with no meaningful improvement expected until the second half of 2012. The company cited an uneven economy, uncertain global conditions, competition, and secular changes in advertising.
- Management expected Q2 circulation revenue growth in the high single digits, reflecting digital subscriptions and print price increases. It expected operating costs to rise in the low single digits in Q2 and modestly for full-year 2012.
- Full-year 2012 pretax expectations: joint venture results of $8–$10 million; depreciation and amortization of $105–$110 million; net interest expense of $60–$65 million; and capital expenditures of $50–$60 million.
- Management believed cash, operating cash flow and other financing sources would meet needs over the next 12 months. It expected approximately $47 million of mandatory pension contributions in 2012, including about $12 million already made in Q1; additional discretionary contributions were possible.
- The filing reported ordinary-course legal actions and management’s view that their ultimate liability would not materially adversely affect the financial statements. No material changes to the previously disclosed risk factors or market risks were reported.
Important facts for investors to verify
- Whether advertising trends, particularly About Group digital advertising, improved as management expected in the second half of 2012.
- Whether circulation growth and digital subscriber additions continued to offset print volume declines; the filing reported approximately 472,000 paid digital subscribers across company products as of March 18, 2012.
- How much reported earnings depended on the Regional Media Group sale, Fenway investment gain, pension curtailment accounting and other unusual items, versus recurring continuing operations.
- Cash generation after pension contributions, remaining asset-sale proceeds, upcoming debt maturities, and the company’s ability to fund pension obligations and planned investment.
- Whether the $4.9 million investment impairment and the fair value of remaining investments indicate further exposure to valuation losses.