The New York Times Company — Q3 2010 Form 10-Q
Business context and period. The filing covers the 13 weeks ended September 26, 2010, and the 39 weeks ended that date; financial statements are unaudited. The company operates the News Media Group and About Group, with businesses spanning print and digital media and investments accounted for under the equity method. Interim results may be affected by seasonality.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $554.3m | $569.5m | $1,731.8m | $1,759.3m |
| Operating profit/(loss) | $9.0m | ($23.7m) | $122.5m | ($61.9m) |
| Net income/(loss) attributable to common stockholders | ($4.3m) | ($35.6m) | $40.6m | ($71.0m) |
| Basic earnings/(loss) per share | ($0.03) | ($0.25) | $0.28 | ($0.49) |
| Operating margin, calculated | 1.6% | (4.2%) | 7.1% | (3.5%) |
| Cash from operating activities | Not presented by quarter | $92.6m | $137.8m |
Revenue mix and segments. Q3 advertising revenue was $287.0m, down 1.0%; circulation was $229.1m, down 4.8%; and other revenue was $38.2m, down 1.5%. News Media Group revenue declined 3.1% to $521.9m, while About Group revenue rose 5.5% to $32.5m. For the first nine months, News Media revenue fell 2.6% to $1,630.9m and About Group revenue rose 19.0% to $100.9m. News Media online advertising grew 21.6% in Q3 and 17.4% year to date, partly offsetting print advertising declines; digital represented about 26% of total advertising revenue in the first nine months, versus about 22% a year earlier.
Costs and earnings quality. Q3 operating costs were essentially flat year over year at $522.9m; nine-month costs declined 8.1% to $1,586.9m, reflecting lower compensation, benefits, severance and other costs. Q3 included a $16.1m impairment charge on assets at the Globe’s former Billerica printing facility and a $6.3m pension-withdrawal estimate adjustment. Nine-month results also included a $9.1m gain on sale of part of the company’s NESV investment and a $12.7m paper-mill asset-sale gain included in joint-venture income. Comparisons with 2009 are affected by prior-year pension and curtailment charges, asset-sale gains, a lease loss and a debt-redemption premium.
Liquidity, cash flow and debt
- Cash and cash equivalents were $128.6m at September 26, 2010, compared with $36.5m at December 27, 2009. Current assets were $534.8m and current liabilities $456.5m; the calculated current ratio was approximately 1.17.
- Nine-month operating cash flow was $92.6m, down from $137.8m, mainly because of approximately $88m of discretionary contributions to company-sponsored qualified pension plans. Capital expenditures were $20.3m, versus $44.5m in the prior-year period.
- Total debt and capital lease obligations were approximately $774.5m; net of cash, approximately $645.8m. Debt was concentrated in notes due 2012 and 2015 and a headquarters sale-leaseback arrangement. The company said most debt matures in 2015 or later.
- The $400m revolving facility expires in June 2011. There were no borrowings outstanding, though approximately $62m of letters of credit reduced availability. Management expected any renewal or replacement, if obtained, to be at a reduced level and potentially secured or subject to additional restrictions. The company reported compliance with financing covenants and approximately $719m of equity cushion under the facility’s defined covenant measure.
- The 14.053% senior notes due 2015 may be called beginning January 2012; management said it intends to repay or refinance them at the earliest practicable date after then, subject to financing or other available cash.
Outlook, commentary and risks
- Based on results in the first half of October, management expected Q4 print-advertising trends to improve modestly from Q3 levels and digital advertising to increase approximately 10%. It expected circulation revenue to decline 4%–5% year over year.
- Management expected Q4 operating costs to decline year over year, largely because of higher prior-year severance expense, while noting higher newsprint prices and costs associated with the planned 2011 NYTimes.com pay model. Higher newsprint prices were expected to increase operating expenses by approximately $13m, excluding the favorable effect of lower consumption.
- 2010 pre-tax expectations: depreciation and amortization of $120m–$125m; capital expenditures of $40m–$45m; net interest expense of $85m–$90m; and joint-venture income of $8m–$10m, excluding the approximately $13m paper-mill asset-sale gain.
- The company described a challenging economic and competitive environment and the industry’s secular shift toward digital media. Pension contributions may vary with cash flows, investment performance and interest rates. The pension withdrawal liability remains an estimate subject to plan assessments and demands.
- A $10.9m one-time tax charge was recorded in Q1 2010 following federal health-care legislation affecting the tax treatment of certain retiree health benefits. Management said the effect on benefit obligations would be reflected in the year-end measurement. The company also reported approximately $3m of third-party guarantees, approximately $62m of letters of credit and ordinary-course legal actions; management did not expect the legal matters to have a material adverse effect.
- Management stated that disclosure controls were effective, that no material changes to internal control occurred, and that there were no material changes to the risk factors or market-risk disclosures from the prior Form 10-K.
Important facts for investors to verify
- Whether advertising and circulation trends, particularly the shift from print to digital and the forecast Q4 circulation decline, developed as management expected.
- How much of the operating-profit and year-to-date earnings improvement reflects recurring cost performance versus prior-year special charges and 2010 asset-sale gains.
- Cash generation after pension contributions, any further discretionary pension funding, and the final assessed multiemployer withdrawal liability.
- Availability and terms of a replacement revolving credit facility before the June 2011 expiry, and the company’s plan for the high-coupon 14.053% notes.
- Progress, costs and revenue effects of the planned NYTimes.com pay model, alongside newsprint-price exposure.