The New York Times Company — Q3 2011 Form 10-Q
Reporting period: 13 weeks ended September 25, 2011; comparative quarter ended September 26, 2010. Nine-month figures cover 39 weeks. Amounts are in U.S. dollars.
Business context and financial performance
The Company operates the News Media Group, including The New York Times, The Boston Globe and regional newspapers, and the About Group, which includes About.com. It also holds equity-method investments. Management cited economic uncertainty and continuing structural change in the newspaper industry.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $537.2m (-3.1%) | $554.3m | $1,680.4m (-3.0%) | $1,731.8m |
| Advertising revenue | $261.8m (-8.8%) | $287.0m | $863.0m (-5.6%) | $914.5m |
| Circulation revenue | $237.0m (+3.4%) | $229.1m | $699.9m (-0.1%) | $700.8m |
| Operating profit/(loss) | $33.0m | $9.0m | $(50.0)m | $122.5m |
| Net income/(loss) attributable to common stockholders | $15.7m | $(4.3)m | $(98.6)m | $40.6m |
| Diluted EPS | $0.10 | $(0.03) | $(0.67) | $0.26 |
Q3 operating margin was approximately 6.2%, versus 1.6% a year earlier; nine-month operating margin was approximately -3.0%, versus 7.1%. The nine-month 2011 operating loss included a $161.3m impairment charge. Q3 2011 results also included a $65.3m investment-sale gain and a $46.4m debt-redemption charge; these items materially affect comparisons.
Revenue, costs and segment developments
- News Media Group revenue fell 2.0% in Q3 and 2.2% year to date. About Group revenue fell 20.8% and 16.0%, respectively.
- News Media Group advertising declined 7.3% in Q3 and 4.4% year to date. Its print advertising fell 10.4% in Q3 and 8.0% year to date; digital advertising grew 6.2% and 12.2%, respectively. Company-wide advertising fell 8.8% in Q3, with print down 10.4% and digital down 4.5%.
- The Times’ digital subscriptions helped lift Q3 circulation revenue and offset print-copy declines. The Company reported approximately 324,000 paid digital subscribers and more than 1.2 million paid or sponsored digital relationships at quarter-end.
- About Group weakness reflected lower cost-per-click and display advertising, lower click-through rates, competition for content traffic, and Google algorithm changes.
- Operating costs declined 3.6% in Q3 and 1.4% year to date, largely from lower compensation and professional fees. Management continued to pursue efficiencies while investing in digital operations.
Cash flow, debt and liquidity
- Operating cash flow was $55.9m for the first nine months, down from $92.6m. Investing cash flow was $(82.0)m and financing cash flow was $(250.2)m, primarily reflecting debt repayment.
- Cash and cash equivalents were $93.7m; short-term investments were $169.8m. Together these totaled approximately $263m. A further $28.6m was restricted cash, primarily for workers’ compensation collateral.
- Debt and capital lease obligations were approximately $772m, down from approximately $996m at year-end 2010. Net of cash, cash equivalents and short-term investments, management reported approximately $509m.
- The Company prepaid $250m principal of 14.053% notes in August for approximately $280m including accrued interest and a make-whole premium. It recorded a $46.4m pretax charge and expected annual interest savings exceeding $39m through January 2015.
- A new $125m, five-year asset-backed revolver replaced the former $400m facility; no borrowings were outstanding at quarter-end. The Company said it was in compliance with debt covenants and believed liquidity sources would meet needs over the next 12 months.
Outlook, risks and other material items
- Management expected Q4 2011 circulation revenue growth in the low- to mid-single digits, primarily from The Times’ digital subscriptions, and operating-cost declines in the low- to mid-single digits. It expected newsprint prices to be relatively flat year over year.
- For 2011, management estimated depreciation and amortization of $120m, net interest expense of $85m, and capital expenditures of $50m. It expected joint-venture results to break even in Q4.
- Advertising visibility remained limited. October advertising trends improved modestly from Q3 due to a slight moderation in print declines; digital advertising trends were similar to Q3.
- The Regional Media Group recorded a $152.1m goodwill impairment, reducing its goodwill to zero, based principally on weaker projected results and continued print-advertising declines. Another $9.2m impairment related to assets held for sale. The valuation used significant assumptions, including a 10.7% discount rate.
- Pension obligations were substantial: $707.7m for pension benefits and $127.8m for postretirement benefits at quarter-end. The Company contributed approximately $70m to qualified pension plans during the first nine months and said market weakness and lower interest rates negatively affected plan funded status. Additional discretionary pension contributions remained possible.
- In October, a retiree medical plan amendment and remeasurement reduced the postretirement liability and increased pretax other comprehensive income by approximately $20m. Management assessed pending ordinary-course legal matters as not expected to have a material adverse financial effect. No material changes to previously disclosed risk factors or market risks were reported.
Key facts for investors to verify
- Whether advertising declines, especially print and About Group advertising, stabilize and whether News Media digital growth continues.
- Whether digital subscriptions produce durable circulation growth and offset print-circulation declines.
- The sustainability of cost reductions and the cash impact of pension funding, particularly if asset markets or interest rates weaken.
- Liquidity and covenant headroom under the smaller asset-backed revolver, alongside remaining debt maturities and the planned savings from the note prepayment.
- The assumptions behind the Regional Media Group impairment and the potential for further impairment or restructuring charges.