The New York Times Company: 2011 Form 10-K Summary
Business context and reporting period
The Company is a multimedia news and information business with two reportable segments: News Media Group and About Group. Fiscal 2011 was a 52-week year ended December 25, 2011. The filing also reports the fourth quarter, ended the same date. Unless noted otherwise, amounts below are U.S. dollars.
The News Media Group includes The New York Times, the International Herald Tribune, the New England properties and, through January 6, 2012, the Regional Media Group. The About Group includes About.com and related sites. The Regional Media Group sale occurred after year-end, so its 2011 results remain in continuing operations.
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $2.323 billion | $2.393 billion |
| Operating profit | $56.7 million | $234.1 million |
| Operating margin | 2.4% | 9.8% |
| Net income (loss) attributable to common stockholders | $(39.7) million | $107.7 million |
| Diluted earnings (loss) per share | $(0.27) | $0.71 |
| Cash from operating activities | $73.9 million | $153.3 million |
| Cash, cash equivalents and short-term investments | $280.0 million | $399.6 million |
| Total debt and capital lease obligations | $773.1 million | $996.4 million |
Advertising revenue fell 6.1% to $1.221 billion; circulation revenue rose 1.1% to $941.5 million. News Media Group advertising declined 4.7% overall: print advertising fell 7.9%, partly offset by 10.0% growth in digital advertising. Circulation revenue growth reflected digital subscriptions, primarily at The Times. About Group revenue declined 18.6% to $110.8 million, principally from lower cost-per-click and display advertising.
Full-year operating cash flow declined 51.8%, partly reflecting higher working-capital requirements. Capital expenditures were $44.9 million. Management reported net debt of approximately $493 million, down from approximately $597 million at the end of 2010. The current-assets-to-current-liabilities ratio was 1.46, compared with 1.70. The $125 million five-year revolving credit facility had no borrowings at year-end.
In Q4 2011, revenue was $643.0 million, operating profit was $106.7 million, and net income attributable to common stockholders was $58.9 million, or $0.40 per basic share and $0.39 per diluted share. Q4 2010 comparables were revenue of $661.7 million, operating profit of $111.6 million, and attributable net income of $67.1 million, or $0.46 basic and $0.44 diluted per share. The filing notes that advertising is typically seasonally stronger in the fourth quarter.
Material changes and unusual items
- Operating profit fell 75.8% year over year, with the decline driven largely by a $164.4 million asset impairment charge in 2011, versus $16.1 million in 2010. The 2011 charge included $152.1 million of Regional Media Group goodwill impairment, $9.2 million of assets held for sale (primarily Baseline), and $3.1 million at ConsumerSearch.
- The Regional Media Group impairment followed weaker-than-expected results and projected cash flows, particularly from continued print-advertising declines. About Group fair value exceeded carrying value by 18% in the 2011 impairment test, down from 60% in 2010; management said a goodwill impairment could be reasonably likely if projected cash flows are not achieved.
- The Company recorded a $71.2 million pretax gain from sales of Fenway Sports Group units and part of its Indeed.com interest, and a $46.4 million pretax charge for prepaying all $250 million of 14.053% notes. The prepayment was funded with cash; management expected annual interest savings above $39 million through the notes’ original 2015 maturity.
- The sale of 16 Regional Media Group publications closed January 6, 2012, for $143 million cash, subject to adjustments. The Company estimated an after-tax gain of approximately $30 million and net after-tax proceeds, including a tax benefit, of approximately $150 million.
- In February 2012, the Company sold 100 additional Fenway Sports Group units for $30 million and expected to record an approximately $18 million pretax gain. It retained 210 units, or 4.97%, and planned to account for the investment under the cost method going forward.
Outlook, risks and contingencies
Management described economic conditions and advertising visibility as challenging. For Q1 2012, it expected total advertising revenue trends slightly below Q4 2011, with News Media Group digital advertising then trending below the Q4 level. It projected circulation revenue growth in the high single digits, helped by digital subscriptions and a Times print price increase, and operating-cost growth in the low single digits.
For full-year 2012, management forecast pretax depreciation and amortization of $105 million to $110 million, net interest expense of $60 million to $65 million, capital expenditures of $50 million to $60 million, and joint-venture results of $8 million to $10 million. It expected costs to increase modestly in 2012 as it invested in digital capabilities, subscription acquisition and About Group sales and marketing.
- Qualified pension plans were underfunded by approximately $522 million at year-end, compared with $442 million a year earlier. The Company made approximately $151 million in pension contributions in 2011, expected about $45 million of mandatory contributions in 2012, and anticipated funding most of the shortfall over four to five years. Pension assets returned approximately 2% in 2011.
- Estimated multiemployer pension withdrawal liability was approximately $100 million; final amounts depend on plan assessments. The Company also reported approximately $64 million of uncertain tax-position liabilities, including interest and penalties.
- Key business risks include ongoing shifts of readers and advertising from print to digital, uncertain acceptance and audience effects of digital pay models, competition and advertising-rate pressure, and About Group dependence on Google for cost-per-click advertising. Newsprint prices and supply, labor negotiations, fixed costs, pension funding, debt covenants and below-investment-grade credit ratings are additional risks.
- The Company had $75 million of 4.610% notes due September 2012. Management said cash, operating cash flow and other financing sources should be sufficient for financing needs over the following 12 months. The filing reported covenant compliance at year-end; the credit facility includes a springing fixed-charge-coverage covenant if availability falls below specified levels.
- Management believed pending ordinary-course legal actions would not materially adversely affect the consolidated financial statements. No material off-balance-sheet arrangements were reported. The independent auditor issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- Whether digital subscriptions continue to offset print circulation declines without materially reducing digital audiences or advertising revenue.
- Actual 2012 advertising, circulation and cost trends versus management’s Q1 expectations, and the durability of digital-advertising growth.
- About Group traffic, cost-per-click performance and Google relationship, alongside the assumptions underlying its goodwill valuation.
- Pension funding needs, asset returns, discount-rate sensitivity and the final assessment of multiemployer withdrawal liabilities.
- Final Regional Media Group sale proceeds and accounting gain, and the Company’s use of proceeds and repayment of 2012 debt maturities.