The New York Times Company — Q3 2013 Form 10-Q
Business context and reporting period
The filing covers the 13 weeks ended September 29, 2013, and the first 39 weeks of fiscal 2013. The company’s continuing business was its New York Times Media Group, including The New York Times, the International New York Times and related digital businesses. Results are seasonal, and interim results may not indicate full-year performance.
Financial performance and liquidity
- Revenue: Third-quarter continuing-business revenue was $361.7 million, up 1.8% year over year. Circulation revenue rose 4.8% to $204.2 million; advertising fell 2.0% to $138.0 million. Nine-month revenue was $1.133 billion, up 0.5%; circulation grew 6.5%, while advertising declined 6.3%.
- Profitability: Third-quarter operating profit was $12.9 million, versus $8.9 million, with an operating margin of approximately 3.6% versus 2.5%. This included a $6.2 million pension withdrawal charge. Nine-month operating profit was $87.2 million, up 27.8%, with an approximately 7.7% margin versus 6.1%.
- Net income and EPS: The company reported a third-quarter net loss of $24.3 million, or $0.16 per diluted share, versus net income of $2.7 million, or $0.02 per share. The 2013 loss included $19.0 million from discontinued operations, including a $34.3 million noncash impairment of New England Media Group assets. Nine-month net loss was $0.8 million, or approximately break-even diluted EPS, versus a $42.4 million loss, or $0.28 per share. Nine-month continuing-operations income fell to $18.2 million from $45.6 million; the 2012 period included a $55.6 million investment-sale gain.
- Cash flow: Operating cash flow for the first nine months was $10.1 million, down from $124.3 million. The company cited higher pension contributions ($71 million versus $37 million) and income-tax payments ($50 million versus $5 million). Investing activities used $424.6 million, primarily reflecting net purchases of marketable securities; financing activities used $16.2 million. Cash and cash equivalents fell to $390.0 million from $820.5 million at year-end.
- Liquidity and debt: Cash, cash equivalents and marketable securities totaled approximately $938 million at quarter-end, exceeding approximately $683 million of debt and capital lease obligations by about $255 million. Total debt and leases declined from approximately $697 million at year-end. The company reported compliance with financing covenants. Long-term debt’s estimated fair value was approximately $814 million, above its carrying value of approximately $676 million.
- Other metrics: Digital-only subscription packages, e-readers and replica editions generated $37.7 million in Q3 and $110.0 million year to date, up 29.0% and 42.4%, respectively. Paid digital subscribers totaled approximately 727,000, up more than 28% year over year. A quarterly dividend of $0.04 per share was initiated.
Material changes and significant events
- Circulation growth, supported by digital subscriptions and 2013 print price increases, more than offset modest Q3 advertising weakness. Digital advertising declined 3.4% in Q3; print advertising declined 1.6%.
- On October 24, 2013, after quarter-end, the company completed the sale of substantially all New England Media Group assets and operating liabilities for approximately $70 million in cash, subject to customary adjustments. Expected net after-tax proceeds were approximately $75 million. The company retained related pension and postretirement obligations.
- The company expects to record an estimated $50 million pretax gain in Q4 from remeasurement and curtailment of postretirement benefits associated with the sale. The estimate is primarily related to accelerated prior-service credits.
- The New England sale triggered estimated multiemployer pension withdrawal obligations of approximately $8 million; final plan assessments were pending. Separately, the company recorded a $6.2 million Q3 charge for a partial withdrawal from another multiemployer plan.
- During the first nine months, the company contributed approximately $71 million to qualified pension plans and repurchased $17.4 million principal amount of its 6.625% notes, recording $2.1 million in pretax repurchase charges.
Outlook, management commentary and risks
- Management expected Q4 circulation revenue to increase in the low single digits and advertising revenue to decrease in the low single digits, each compared with Q4 2012 excluding that period’s extra week. It expected approximately as many net new digital subscribers as in Q3 and cautioned that advertising could remain volatile.
- Management expected Q4 operating costs to rise in the low single digits versus Q4 2012, including the effect of the extra week in 2012, as strategic investments accelerated. Strategic initiatives were expected to reduce operating profit by approximately $10 million in Q4 and $15 million to $20 million for full-year 2013.
- 2013 pretax expectations: joint-venture losses of $2 million to $4 million; depreciation and amortization of $75 million to $80 million; net interest expense of $55 million to $60 million; and capital expenditures of $15 million to $20 million. Total qualified pension contributions were expected to be approximately $75 million, with no additional contributions beyond mandatory requirements.
- Management said liquidity and expected operating cash flow, together with other sources, should meet financing needs for the next 12 months. It emphasized maintaining a conservative balance sheet amid advertising volatility and the early stage of its growth strategy.
- Key risks include structural and pricing pressure in print and digital advertising, economic uncertainty, pension funding and withdrawal obligations, and execution of digital and international growth initiatives. The company said there were no material changes to previously disclosed risk factors or market risks.
Investor verification points
- Verify the final sale proceeds and customary adjustments for the New England Media Group, and the subsequent accounting for retained pension and postretirement obligations.
- Track final multiemployer pension withdrawal assessments, including the estimated $8 million sale-related obligation and the separately recorded $6.2 million charge.
- Assess whether circulation and digital subscription growth can offset advertising declines and the expected costs of strategic initiatives.
- Monitor operating cash generation, pension contributions, liquidity and upcoming debt maturities, including the 2015 and 2016 senior notes.
- Review the approximately $26 million pension-fund demand: the company disputed the claim, said a loss was not probable, and recorded no contingency.
- Compare Q4 and full-year results with management’s stated outlook; these forecasts are forward-looking and subject to risks and uncertainty.