The New York Times Company — Q1 2014 10-Q
Business context and period. The filing covers the 13 weeks ended March 30, 2014, compared with the 13 weeks ended March 31, 2013. The company’s continuing operations comprise The New York Times, the International New York Times, digital products and related businesses. The New England Media Group sale closed in October 2013; its results are presented as discontinued operations.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $390.4 million | $380.7 million |
| Operating profit | $22.1 million | $28.1 million |
| Operating margin | 5.7% | 7.4% |
| Income from continuing operations | $2.8 million | $6.1 million |
| Net income attributable to NYT common stockholders | $1.7 million | $3.6 million |
| Diluted EPS from continuing operations | $0.02 | $0.04 |
| Net cash used in operating activities | $4.4 million | $87.6 million |
Revenue rose 2.6%: circulation increased 2.1%, advertising 3.4%, and other revenue 1.4%. Digital-only subscription, e-reader and replica-edition revenue rose 13.6% to $40.3 million; paid subscribers reached approximately 799,000, up more than 18% year over year. Print advertising increased 3.7% and digital advertising 2.2%.
Operating costs increased 3.8% to $365.8 million, primarily from higher compensation, benefits and retirement costs, partly offset by printing and distribution savings. GAAP operating profit fell 21.6%. Management’s non-GAAP adjusted operating profit was $56.6 million versus $57.1 million; adjusted diluted EPS was $0.07 versus $0.08. These measures exclude specified costs and should be considered alongside GAAP results. The reported continuing-operations effective tax rate was 56.9%, affected by uncertain-tax-position reserve adjustments.
Cash, debt and liquidity
At March 30, 2014, cash and cash equivalents were $308.7 million and marketable securities totaled $664.6 million, for approximately $973 million of cash and investments. Total debt and capital lease obligations were $685.3 million; cash and investments exceeded these obligations by approximately $288 million. The $244.1 million of 5.0% senior notes due 2015 was classified as current. The company reported compliance with financing covenants and said liquidity should meet financing needs over the next 12 months.
Cash and cash equivalents declined $174.1 million during the quarter. Investing cash outflow was $164.2 million, largely reflecting net purchases of marketable securities and repayment of $26.0 million in loans against corporate-owned life insurance. Operating cash use improved from $87.6 million a year earlier, mainly because of lower tax payments and pension contributions. Capital expenditures were $10.5 million. The company paid $6.0 million in dividends and declared a $0.04-per-share quarterly dividend, paid April 24, 2014.
Outlook, changes and notable items
- For Q2 2014, management expected circulation revenue to increase in the low single digits, advertising revenue to decline in the mid-single digits, and operating and adjusted operating costs to rise in the low-to-mid single digits year over year.
- Management expected strategic growth initiative costs to increase by $25–$30 million in 2014 versus 2013, reaching approximately $45–$50 million for the year. It also forecast 2014 depreciation and amortization of $75–$85 million, net interest expense of $53–$57 million, capital expenditures of $35–$45 million, and breakeven joint-venture results.
- Management expected 2014 retirement-related costs of $37 million, approximately $19 million above 2013 excluding a prior-year multiemployer withdrawal expense. Proposed mortality-table changes could increase pension and postretirement liabilities by approximately $150 million and annual expense by approximately $10 million when implemented; future funding requirements may also rise.
- Q1 included a $2.6 million charge to terminate a distribution agreement, expected to produce future distribution savings, and $3.1 million in severance costs. A first-quarter working-capital adjustment on the New England Media Group sale resulted in a $1.0 million after-tax loss.
- The company expects a second-quarter non-cash pension settlement charge of approximately $9 million related to lump-sum payments estimated at $24 million. It expected approximately $16 million of qualified pension contributions for 2014.
- Risks include a competitive and fragmented media environment, limited visibility and volatile advertising demand. A pension fund has demanded approximately $26 million in alleged withdrawal liability; the company disputes the claim and has not accrued a loss. The PBGC has raised a possible ERISA triggering event related to the New England Media Group sale; the outcome is uncertain, though management did not expect a material adverse effect.
Important facts for investors to verify
- Whether digital subscription growth and pricing can continue to offset declines in print circulation and support revenue growth.
- Whether the forecast mid-single-digit Q2 advertising decline and higher growth-investment costs affect operating performance as expected.
- The 2015 note maturity, refinancing or repayment plans, and the effect of pension funding and mortality-assumption changes on liquidity.
- Developments in the $26 million pension-fund demand and the PBGC matter, including any escrow, bond or contribution requirements.
- Actual 2014 digital-growth spending, pension settlement costs, dividend decisions and cash-flow performance versus management’s expectations.