The New York Times Company — Q2 2011 Form 10-Q
Reporting period: 13 weeks ended June 26, 2011; six-month period ended June 26, 2011. Comparisons are with the corresponding 2010 periods. The company operates the News Media Group and About Group and notes that results are seasonal.
Financial performance
Amounts below are in millions, except per-share data.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $576.7 | $589.6 | $1,143.2 | $1,177.5 |
| Operating profit (loss) | $(114.1) | $60.8 | $(83.0) | $113.5 |
| Net income (loss) attributable to common stockholders | $(119.7) | $32.0 | $(114.3) | $44.8 |
| Basic and diluted EPS | $(0.81) | $0.22 basic; $0.21 diluted | $(0.78) | $0.31 basic; $0.29 diluted |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $45.2 | $60.6 |
- Revenue declined 2.2% in Q2 and 2.9% for the first half. Advertising revenue fell 4.0% and 4.2%, respectively; circulation revenue was flat in Q2 and down 1.9% for the half.
- Operating costs, excluding the separately presented impairment and pension-withdrawal charges, declined 0.7% in Q2 and 0.3% for the half. Reported operating margin was approximately negative 19.8% in Q2 and negative 7.3% for the half, versus positive 10.3% and 9.6% in 2010, respectively; the 2011 figures include the impairment charge.
- At June 26, cash and cash equivalents were $178.5 million and short-term investments were $224.7 million. Total debt and capital lease obligations were $1,000.6 million; management reported net debt of approximately $597 million after cash, cash equivalents and short-term investments.
- Current assets were $823.7 million and current liabilities were $663.2 million. The current debt balance includes $229.7 million carrying value of notes subsequently called for repayment. Restricted cash was $28.6 million.
- Six-month investing cash outflow was $236.8 million, primarily reflecting purchases of short-term investments, restricted cash and capital expenditures. Capital expenditures were $23.4 million; cash and cash equivalents fell from $369.7 million at year-end to $178.5 million.
Changes and business drivers
- The $161.3 million Q2 asset impairment comprised a $152.1 million goodwill write-down at the Regional Media Group, reducing its goodwill to zero, and $9.2 million on assets held for sale. Management attributed the goodwill impairment mainly to lower projected long-term results and continuing print-advertising declines. The valuation used significant unobservable assumptions.
- A $4.2 million pension-withdrawal expense was recorded after union employees at The Boston Globe ratified agreement amendments resulting in a partial withdrawal from a multiemployer plan.
- News Media Group revenue declined 1.3% in Q2 and 2.2% for the half. Print advertising fell 6.4% and 6.9%, while digital advertising grew 15.5% and 15.2%, respectively. Regional Media Group revenue declined 6.2% in Q2, and About Group revenue fell 17.3%, reflecting weaker cost-per-click and display advertising, Google changes and increased competition.
- The Times digital subscriptions launched in March and expanded globally in Q2. At quarter-end, paid digital subscribers totaled 281,000, alongside approximately 100,000 sponsored users and 756,000 home-delivery subscribers with linked digital accounts.
- Interest expense, net rose 22.0% in Q2 and 20.7% for the first half, primarily due to higher average debt outstanding. Income from joint ventures also declined, including effects from Fenway Sports Group’s acquisition of Liverpool Football Club.
Outlook, liquidity and other matters
- Management expected Q3 advertising trends to be similar to Q2: digital strength at News Media Group partly offset by About Group softness. It expected total circulation revenue to increase in the low-single digits in Q3, partly due to Times digital subscriptions.
- Management expected operating costs to decline in the low-single digits in the second half of 2011, mostly in Q4. Full-year pre-tax estimates were depreciation and amortization of $115–$120 million, net interest expense of $83–$87 million, and capital expenditures of $45–$55 million. Joint-venture income was expected at $3–$4 million in the second half.
- The company entered a new $125 million, five-year asset-backed revolving facility, replacing a $400 million facility; there were no borrowings under it at quarter-end. The facility is secured by certain advertising receivables and includes financial and incurrence covenants. The company reported covenant compliance at quarter-end.
- After quarter-end, the company agreed to prepay $250 million principal of 14.053% notes on August 15, 2011, using available cash. Estimated payment was approximately $279 million, including accrued interest and a make-whole premium; management expected a Q3 charge of about $46 million and annual interest savings exceeding $39 million through January 2015.
- On July 1, the company sold part of its Fenway Sports Group interest for $117 million, expected to produce an approximately $64 million pre-tax Q3 gain, and retained a 7.3% interest. It continued to explore selling the remaining stake.
- Management said economic uncertainty, advertiser sensitivity, structural change in newspapers, print-ad declines, digital monetization and pension contributions could affect results and liquidity. It considered pending ordinary-course legal matters not likely to have a material adverse effect. No material changes to the annual-report risk factors were reported.
Investor verification priorities
- Assess whether recurring operating performance and cash generation can offset continued print-advertising declines and the sharp About Group revenue contraction.
- Verify digital subscription retention, conversion and revenue contribution; quarter-end subscriber counts include distinct paid, sponsored and linked home-delivery relationships.
- Track cash and investment balances after the planned note prepayment, related premium and charge, and the Fenway sale proceeds and gain.
- Review the assumptions behind the Regional Media Group impairment and whether further impairment indicators emerge.
- Monitor pension funding needs, including discretionary contributions, and liquidity/covenant headroom under the smaller revolving facility.