Business context and reporting period
The New York Times Company filed this unaudited Form 10-Q for the 13 weeks ended June 27, 2010, and the 26 weeks ended that date. Its principal segments are News Media Group (newspapers and related digital businesses) and About Group (digital information and advertising businesses). Comparisons are with the quarter and six months ended June 28, 2009.
Financial results and liquidity
Dollar figures below are in millions unless stated otherwise.
| Metric | Q2 2010 | Q2 2009 | First half 2010 | First half 2009 |
|---|---|---|---|---|
| Revenue | $589.6 | $582.7 | $1,177.5 | $1,189.8 |
| Operating profit/(loss) | $60.8 | $23.5 | $113.5 | $(38.2) |
| Operating margin (approx.) | 10.3% | 4.0% | 9.6% | (3.2)% |
| Net income/(loss) attributable to common stockholders | $32.0 | $39.1 | $44.8 | $(35.4) |
| Diluted EPS | $0.21 | $0.27 | $0.29 | $(0.25) |
- Q2 advertising revenue was nearly flat at $314.9 million; circulation rose 3.2% to $234.8 million. First-half advertising fell 3.2%, while circulation increased 3.3%.
- Operating costs declined 4.3% in Q2 and 11.7% in the first half, reflecting lower production costs, compensation, and other expenses. Q2 operating profit improved substantially, but common-stockholder net income declined 18.0% year over year.
- First-half operating cash flow was $60.6 million, versus $52.4 million in 2009. Investing activities provided $5.6 million and financing activities provided $0.7 million. Cash ended the period at $102.4 million, up from $36.5 million at year-end 2009.
- At June 27, current assets were $481.1 million and current liabilities $444.5 million. Debt and capital lease obligations totaled approximately $772.7 million; net of cash, approximately $670 million. Most debt matures in 2015 or later.
- The $400 million revolving credit facility, expiring June 2011, had no borrowings outstanding; approximately $62 million of letters of credit were issued. The company reported compliance with financing covenants and approximately $719 million of headroom under the facility’s defined equity covenant.
Material changes versus the prior comparable period
- Q2 revenue increased 1.2%, while first-half revenue declined 1.0%. About Group revenue grew 24.1% in Q2 and 26.7% in the first half; News Media Group revenue was nearly flat in Q2 and down 2.4% for the first half.
- Digital advertising growth partly offset continued print declines. News Media Group online advertising rose 19.8% in Q2 and 15.5% in the first half; print advertising fell 6.1% and 9.3%, respectively. Online advertising represented about 26% of first-half advertising revenue, compared with about 21% a year earlier.
- Cost reductions and the absence of prior-year charges helped operating results: 2009 included a $16.4 million lease-loss charge and $6.8 million pension withdrawal/curtailment expense in the first half.
- First-half 2010 earnings included a $9.1 million Q2 pretax gain from selling part of the company’s NESV investment and $12.7 million of Q1 joint-venture income from a paper-mill asset sale. First-half 2009 results included a $37.7 million tax benefit in Q2.
Outlook, management commentary, risks and unusual items
- Management expected Q3 2010 print advertising trends to improve relative to Q2, with digital advertising expected to trend in the mid-to-high teens. It cautioned that advertising visibility remained limited.
- Management expected Q3 circulation revenue to decline 3%–5% year over year as the company cycled past June 2009 price increases. It anticipated higher year-over-year costs in the low-to-mid single digits in Q3, then Q4 costs comparable with the prior year.
- Rising newsprint prices were expected to increase second-half 2010 operating expenses by approximately $25 million, before the favorable effect of lower newsprint consumption. Management also cited variable compensation, the end of certain salary rollbacks, promotional costs for the NYTimes.com pay model, and comparison with earlier cost savings.
- For 2010, management forecast depreciation and amortization of $120–$125 million, capital expenditures of $45–$55 million, net interest expense of $85–$90 million, and joint-venture income of $5–$10 million excluding the approximately $13 million paper-mill asset gain.
- The company contributed $87.5 million to qualified pension plans in Q2 and said further discretionary contributions could be made depending on cash flows and other factors. It expected approximately $22 million of contractual contributions to the Newspaper Guild pension plan for 2010.
- A one-time $10.9 million tax charge was recorded in Q1 due to 2010 federal health-care legislation. Separately, management expected an approximately $16 million Q3 2010 charge to write down most assets at the former Billerica printing facility for sale.
- Management described a challenging, competitive environment, ongoing migration of advertising to digital media, and lingering economic uncertainty. It expected 2010 cash balances, operating cash flow, and third-party financing to be sufficient for cash obligations. S&P raised the company’s senior unsecured debt rating to B+ with a stable outlook in July 2010.
- Contingencies included approximately $4 million of guarantees for two service providers and pending ordinary-course legal actions; management did not expect the legal matters to have a material adverse effect. The filing reported no material changes to risk factors or market risks from the 2009 Form 10-K.
Important facts for investors to verify
- Whether digital advertising gains can offset persistent print advertising declines, and how Q3 advertising trends developed after the filing.
- Whether circulation revenue followed management’s expected 3%–5% Q3 decline and whether pricing or volume drove subsequent results.
- The realization and timing of the expected $25 million second-half newsprint cost headwind and the approximately $16 million Billerica asset impairment.
- Future pension contributions, pension funding requirements, and the effect of retirement obligations on cash flow and liquidity.
- The company’s ability to service debt, maintain covenant headroom, and refinance or repay obligations as they mature; the revolving credit facility expires in June 2011.
- The recurring earnings contribution apart from the NESV sale gain, paper-mill asset gain, tax items, and prior-year unusual charges and benefits.