The New York Times Company — Q3 2015 Form 10-Q
Business context and period. The company operates one reportable media segment, including The New York Times, International New York Times, digital products and related businesses. The 13-week quarter ended September 27, 2015; comparisons are with the quarter ended September 28, 2014. Nine-month figures cover 39 weeks.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $367.4m | $364.7m | $1,134.5m | $1,143.8m |
| Operating profit/(loss) | $21.9m | $(9.0)m | $48.9m | $29.5m |
| Net income/(loss) attributable to common stockholders | $9.4m | $(12.5)m | $11.6m | $(1.6)m |
| Diluted EPS from continuing operations | $0.06 | $(0.08) | $0.07 | $0.00 |
| Operating cash flow | — | — | $108.0m | $36.2m |
Q3 operating margin was approximately 6.0%, versus a loss margin of approximately 2.5% a year earlier. Management-reported adjusted operating profit, a non-GAAP measure, was $47.6m for the quarter versus $40.0m; adjusted diluted EPS was $0.09 versus $0.03. Nine-month adjusted operating profit was $171.2m versus $152.4m.
- Revenue mix: Q3 circulation revenue rose 1.1% to $209.1m; advertising fell 2.1% to $135.4m; other revenue rose 16.2% to $23.0m. Digital-only subscription, e-reader and replica-edition revenue increased 13.8%; digital-only paid subscribers reached approximately 1.041m, up about 51,000 from Q2.
- Costs: Q3 operating costs declined 7.6% to $345.5m. Lower severance, depreciation and amortization, print distribution, raw-material and external printing costs contributed. Nine-month results included $40.3m of pension settlement charges and a $4.7m multiemployer pension withdrawal charge.
- Cash and liquidity: At September 27, cash and cash equivalents were $144.6m; short- and long-term marketable securities totaled $728.1m. Combined cash and securities were $872.7m, exceeding debt and capital lease obligations of $430.0m by $442.7m. Current assets were $914.1m and current liabilities $323.8m.
- Debt: The company repaid $223.7m of 5.0% senior notes at maturity in March. Remaining obligations were $430.0m, including $188.2m of 6.625% notes due December 2016, a $235.1m headquarters building repurchase option due in 2019, and $6.8m of capital leases. The company reported compliance with financing covenants.
- Cash uses and shareholder returns: Nine-month investing cash flow was $45.4m, mainly reflecting marketable-security maturities; financing cash flow was $(184.5)m, including debt repayment, dividends and repurchases, partly offset by $101.1m from warrant exercise. Capital expenditures were $21.2m. Dividends paid were $20.1m; the board also authorized share repurchases funded up to the warrant proceeds.
Material changes and management commentary
Revenue was nearly flat in Q3, while operating costs fell and the company returned to GAAP operating and net profitability. Print circulation declines continued but were offset by digital subscription growth and a home-delivery price increase. Advertising remained pressured: Q3 print advertising declined 0.9% and digital advertising declined 5.0%. Management cited fewer non-repeating digital campaigns, shifts away from traditional website display toward mobile, video and Paid Posts, and the transition to an industry viewability standard. Other revenue growth reflected NYT Live, Crossword and rental income.
Management described the business environment as challenging and fragmented, with limited visibility and significant month-to-month advertising volatility. For Q4 2015, it expected circulation revenue growth at a rate similar to Q3, 40,000–45,000 net digital subscriber additions, total advertising revenue down in the mid-single digits, digital advertising up in the mid-single digits, other revenue up in the mid-single digits, and operating costs down in the low- to mid-single digits. The viewability transition may affect near-term ad revenue; the company also monitors the risk from ad-blocking technology.
For full-year 2015, management projected joint-venture results around breakeven, depreciation and amortization of $60m–$65m, net interest expense of $40m–$45m, and capital expenditures of approximately $35m. These are forward-looking estimates, not guarantees.
Unusual items, contingencies and risks
- A $40.3m pension settlement charge followed a lump-sum offer to former employees. The $98.3m payments came from qualified pension-plan assets, not company cash, and reduced pension obligations by $142.8m. The company also recorded a $4.7m partial multiemployer-plan withdrawal charge.
- A pension fund assessed a partial withdrawal liability of approximately $34m. The company disputes the assessment and calculation; arbitration was pending. Management did not consider a loss probable and recorded no contingency, while continuing required quarterly payments; cumulative payments were $9.8m.
- The pension benefits obligation was $604.8m and the postretirement benefits obligation $67.5m. Management expected total 2015 qualified-plan contributions of $7.7m.
- Management said other pending legal actions were not expected to have a material adverse effect. No material changes to the annual report’s risk factors or market-risk disclosures were reported. The company stated disclosure controls were effective and reported no material change in internal control during the quarter.
Important facts for investors to verify
- Whether digital subscriber additions and circulation revenue can continue to offset declining print circulation.
- Whether advertising stabilizes, particularly given Q4 guidance, viewability changes, mobile/video mix shifts and ad-blocking risk.
- How much of the operating-profit improvement reflects sustainable cost reductions versus lower prior-year severance and depreciation charges; assess GAAP results alongside management’s non-GAAP measures.
- Progress and outcome of arbitration over the approximately $34m pension-fund assessment, along with pension funding and liability trends.
- Cash and securities available after debt service, repurchases, dividends and ongoing operating requirements; confirm the timing and terms of the headquarters repurchase option.