The New York Times Company — Q3 2012 Form 10-Q
Business context and period. The quarter ended September 23, 2012 and comprised 13 weeks; the year-to-date period comprised 39 weeks. Following the announced sale of the About Group, the company reported one reportable segment, comprising its New York Times and New England media businesses. Regional Media Group results and About Group results are presented as discontinued operations.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $449.0 million | $451.6 million | $1,414.3 million | $1,405.2 million |
| Operating profit | $8.5 million | $21.0 million | $64.3 million | $52.8 million |
| Continuing operations, attributable to common stockholders | $(3.7) million | $6.6 million | $42.5 million | $0.8 million |
| Net income (loss), attributable to common stockholders | $2.3 million | $15.7 million | $(43.7) million | $(98.6) million |
| Operating cash flow | Not separately reported | Not separately reported | $124.3 million | $55.9 million |
Revenue and margins. Q3 revenue declined 0.6% year over year as circulation growth was offset by weaker advertising. Advertising fell 8.9% in Q3 and 7.1% year to date; circulation rose 7.4% and 8.5%, respectively. Digital advertising declined 2.2% in Q3, while print advertising declined 10.9%. Operating margin was approximately 1.9% in Q3 versus 4.7% a year earlier, and 4.5% year to date versus 3.8%. The filing does not provide a separate gross margin.
Balance sheet and liquidity. At September 23, cash and cash equivalents were $334.4 million and short-term investments were $279.7 million, or about $614.1 million combined. Total debt and capital lease obligations were $776.9 million; management’s net-debt measure was about $163 million. The company had no borrowings under its $125 million revolving credit facility and reported compliance with financing covenants. Pension and postretirement benefit obligations were $830.9 million and $100.2 million, respectively.
Cash flows and investment. Nine-month capital expenditures were $30.0 million. Investing cash flow was positive $34.9 million, including $140.0 million of proceeds from the Regional Media Group sale and proceeds from the Fenway Sports Group investment sale. Financing cash flow was positive $0.1 million; the prior-year period included $250.4 million of debt repayments. The improvement in operating cash flow reflected lower pension contributions and lower working-capital requirements, among other factors.
Changes, unusual items, and outlook
- Q3 operating profit fell 59.6%, while nine-month operating profit rose 21.8%. The prior-year comparisons included a $65.3 million Q3 2011 investment-sale gain and a $46.4 million debt-redemption charge; 2012 included $55.6 million of Fenway Sports Group gains in the first nine months.
- The About Group recorded a $194.7 million non-cash goodwill impairment in Q2 2012, contributing to the nine-month discontinued-operations loss. Total discontinued-operations loss attributable to the company was $86.3 million for the first nine months.
- Management said the advertising market remained challenging due to economic uncertainty, industry change, and digital-advertising fragmentation. It expected Q4 advertising trends similar to Q3, circulation revenue growth in the mid- to high-single digits, and operating-cost growth in the low-single digits.
- For 2012, management expected pre-tax joint-venture results of $4–$6 million, depreciation and amortization of $95–$100 million, net interest expense of $60–$65 million, and capital expenditures of approximately $35 million. It said cash and operating cash flow, together with other financing sources, should meet needs over the next 12 months.
- After quarter-end, the company completed the About Group sale for $300 million cash plus an approximately $16 million working-capital adjustment; it estimated about $290 million in after-tax proceeds and a $68 million after-tax gain to be recorded in Q4. It also reported approximately $167 million pre-tax proceeds from its Indeed.com stake sale, with expected after-tax proceeds and gain of about $100 million. The $75 million notes maturing September 26 were repaid from cash.
- A voluntary pension-benefit offer could generate an estimated $45 million non-cash settlement charge and approximately $100 million of plan-funded distributions, assuming 50% acceptance. The actual amounts depend on participant elections and actuarial factors. Required 2012 pension contributions were expected to be about $44 million; approximately $37 million had been made by quarter-end.
- Management cited ongoing economic and secular pressures on advertising and pension funding as significant considerations. It also disclosed pending ordinary-course legal matters, which management did not expect to have a material adverse financial effect, and a possible reduction of approximately $19 million in unrecognized tax benefits if certain examinations conclude or limitations periods lapse.
Investor verification priorities
- Track whether circulation and digital subscriptions continue to offset print and digital advertising declines; the company reported approximately 592,000 paid digital subscribers across its products at quarter-end.
- Verify Q4 performance against management’s advertising, circulation, cost, and full-year financial expectations.
- Confirm final About Group sale proceeds and gain, and Indeed.com sale proceeds and gain, when recorded in Q4.
- Assess the impact of the pension offer, including final settlement charge, distributions, and future contribution needs.
- Monitor liquidity and debt after the post-quarter sale proceeds and repayment of the $75 million notes; consider that short-term investments are included in management’s net-debt calculation.
- Review the assumptions behind the About Group impairment and any subsequent impairment or tax developments.