Business News

The New York Times Company Reports 2009 Fourth-Quarter and Full-Year Results

Thursday 11. February 2010 - The New York Times Company announced today 2009 fourth-quarter and full-year results.

Operating profit excluding depreciation, amortization, severance and the special items discussed below grew 10.9 percent to $157.6 million in the fourth quarter of 2009 compared with $142.1 million in the fourth quarter of 2008. On a GAAP basis, the Company had an operating profit of $136.0 million compared with $63.0 million in the fourth quarter of 2008.
Operating costs excluding depreciation, amortization and severance declined 16.3 percent in the fourth quarter of 2009 versus the fourth quarter of 2008. On a GAAP basis, the Company’s operating costs declined 15.5 percent in the fourth quarter of 2009 versus the fourth quarter of 2008. For the year operating costs declined by approximately $475 million as a result of reductions in nearly all major expense categories.
Diluted earnings per share from continuing operations excluding severance and special items were $.44 per share in the fourth quarter of 2009 compared with $.36 per share in the same period of 2008. On a GAAP basis, the Company had diluted earnings per share from continuing operations of $.48 per share in the fourth quarter of 2009 compared with $.19 per share in the fourth quarter of 2008.
The Company has reduced its debt by over $290 million to $769 million from its balance at the end of 2008 of $1.059 billion. As of the end of the quarter, excluding $67 million in letters of credit, there were no outstanding borrowings under the Company’s $400 million revolving credit facility.
Total revenues were down 11.5 percent in the quarter, a significant improvement from the third quarter decline of 16.9 percent.
“We were pleased to see advertisers increase their rate of spending across our newspapers, Web sites and other platforms as advertising trends improved during the fourth quarter,” said Janet Robinson, president and CEO. “Our results also reflect our ability to restructure our cost base, introduce new products and innovations, leverage our brand strength and extend our reach to new audiences.
“In the fourth quarter total advertising revenues declined approximately 15 percent compared with the fourth quarter of 2008, as a 20 percent decrease in print advertising was offset in part by growth in digital advertising, which rose nearly 11 percent. While the advertising market remains challenging, the rate of decline across the major advertising categories – national, retail and classified – lessened as the quarter progressed.
“Circulation revenues increased 2 percent as we were able to command higher subscription and newsstand prices at The New York Times and The Boston Globe. This growth demonstrates the strong demand and loyalty for our high quality news and information in print, even as the content marketplace becomes increasingly digital.
“Once again we were encouraged by the strong performance at the About Group, whose fourth-quarter operating profit rose 80 percent to $18 million. The Group’s advertising revenues grew 23 percent on healthy gains in both cost-per-click and display advertising.
“We continued to capitalize on our ability to aggressively manage our expenses, as evidenced in an approximately 16 percent decline in operating costs. And we remain focused on securing strong performance on costs as we continue to reposition our Company for the evolving media marketplace.
“Looking ahead, visibility remains limited for advertising. In the first quarter of 2010, we expect the rate of decline for print advertising to continue to improve modestly from the fourth quarter of 2009, while digital advertising is expected to perform in line with the fourth-quarter level.
“Lastly, we havebeguntaking steps to enhance our digital strategy by planning to introduce apaid model for NYTimes.com in 2011, to create an additional revenue stream while preservingour robust advertising business. We continue to embrace innovative new platforms and devices that provide rich experiences for our content.”
Discontinued Operations
In October 2009, the Company completed the sale of WQXR-FM, its New York City classical radio station, for gross proceeds of approximately $45 million. The Company recorded a pre-tax gain on the sale of $34.9 million ($19.5 million after tax, or $.13 per share). The results for WQXR-FM, which had previously been included in The New York Times Media Group, are now classified as discontinued operations for all periods presented. The Company has made reclassifications in all periods presented to reflect this change.
Comparisons
All quarterly and annual comparisons exclude the results of WQXR-FM. The operations of City & Suburban (C & S), the Company’s retail and newsstand distribution subsidiary, which closed in early January 2009, are included for the entire fourth quarter of 2008. The effect of the C&S closure on the Company’s 2009 fourth-quarter results compared with the fourth quarter of 2008 was a decrease in other revenues of approximately $20 million, circulation revenues of approximately $1 million and operating costs of approximately $31 million.
The fourth-quarter 2009 results from continuing operations included the following special items:
A $56.7 million ($32.4 million after tax or $.22 per share) pension curtailment gain resulting from the freezing of benefits under various Company-sponsored qualified and non-qualified pension plans.
An $18.3 million ($10.5 million after tax or $.07 per share) charge for a loss on leases ($14.8 million) and a fee ($3.5 million) for the early termination of a third-party printing contract. The lease charge includes an $8.3 million loss on a lease for office space at The New York Times Media Group as well as an adjustment of $6.5 million to the estimated loss on leases recorded in the first quarter associated with the C & S closing.
A $4.2 million ($2.6 million after tax or $.01 per share) charge for a write-down of assets due to the reduced scope of a systems project.
The fourth-quarter 2008 results from continuing operations included the following special item:
A non-cash charge of $19.2 million ($10.7 million after tax, or $.07 per share) for the write-down of an intangible asset at the International Herald Tribune, whose results are included in The New York Times Media Group.
In addition to these special items, the Company had severance costs of $24.6 million ($14.3 million after tax or $.10 per share) in the fourth quarter of 2009 compared with $24.1 million ($13.7 million after tax or $.10 per share) in the fourth quarter of 2008.
Unless otherwise noted all comparisons are for the fourth quarter of 2009 to the fourth quarter of 2008. This release includes non-GAAP financial measures, and the exhibits include a discussion of management’s use of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures.
Fourth-Quarter Results from Continuing Operations
Revenues
Total revenues decreased 11.5 percent to $681.2 million from $769.5 million primarily due to lower print advertising. Advertising revenues decreased 14.7 percent; circulation revenues rose 2.4 percent; and other revenues decreased 37.0 percent, mainly because of the closure of C & S. Excluding the operations of C & S, total revenues decreased 9.0 percent, circulation revenues increased 3.0 percent and other revenues decreased 11.7 percent.
Operating Costs
Operating costs decreased 15.5 percent to $580.7 million from $687.4 million. Depreciation and amortization decreased to $31.3 million from $35.9 million in the fourth quarter of 2008.
Excluding depreciation, amortization and severance, operating costs were down 16.3 percent to $524.9 million from $627.4 million as reductions occurred in nearly all major expense categories as a result of cost-saving initiatives, including the closure of C & S. In addition, newsprint expense declined 48.2 percent, with 34.5 percent from lower pricing and 13.7 percent from lower consumption.
Fourth-Quarter Business Segment Results
News Media Group
Total News Media Group revenues decreased 12.8 percent to $644.8 million from $739.7 million mainly as a result of lower print advertising and the closure of C & S. Excluding C & S, total revenues decreased 10.2 percent.
Advertising revenues decreased 17.1 percent mainly due to weakness in print advertising across the News Media Group. Print advertising declines of 20.0 percent were offset in part by a 4.1 percent growth in online advertising.
Circulation revenues increased 2.4 percent, mainly because of higher subscription and newsstand prices at The New York Times and The Boston Globe, offset in part by volume declines across the News Media Group and the closure of C & S. Excluding C & S, circulation revenues increased 3.0 percent.
Other revenues decreased 38.0 percent due in large part to the closure of C & S. Excluding C & S, other revenues decreased 12.2 percent mainly because of lower revenues from commercial printing.
News Media Group operating costs decreased 17.3 percent to $542.3 million from $655.7 million. Excluding depreciation, amortization and severance, operating costs decreased 18.6 percent to $489.2 million from $601.2 million as reductions occurred in nearly all major expense categories as a result of cost-saving initiatives, including the closure of C & S. In addition, newsprint expense declined 48.2 percent, with 34.5 percent from lower pricing and 13.7 percent from lower consumption.
Operating profit for the News Media Group was $81.4 million compared with $64.8 million. Excluding depreciation, amortization, severance and special items, operating profit rose 13.3 percent to $156.9 million from $138.5 million, primarily due to lower operating costs. The closure of C & S favorably affected the fourth-quarter 2009 operating profit by approximately $10 million.
About Group
About Group revenues increased 21.8 percent to $36.3 million from $29.8 million due to higher cost-per-click and display advertising.
About Group operating costs decreased 7.6 percent to $18.3 million from $19.8 million. Excluding depreciation and amortization, operating costs decreased 6.2 percent to $15.6 million from $16.6 million mainly because of lower marketing expenses and professional fees, offset in part by higher compensation costs.
Operating profit rose 80.3 percent to $18.0 million from $10.0 million. Excluding depreciation and amortization, operating profit increased 57.2 percent to $20.7 million from $13.2 million, due to higher revenues and lower operating costs.
Corporate
Corporate costs were $20.1 million compared with $11.8 million in the fourth quarter of 2008 mainly due to higher performance-related compensation costs.
The pension curtailment gain of $56.7 million was recognized at Corporate. Therefore, Corporate had an operating profit of $36.6 million for the fourth quarter of 2009 and $2.0 million for the full year.
Other Financial Data
Internet Revenues
Internet businesses include NYTimes.com, About.com, Boston.com and other Company Web sites. In the fourth quarter, total Internet revenues increased 10.3 percent to $102.0 million from $92.5 million, and Internet advertising revenues increased 10.6 percent to $90.6 million from $81.9 million. Internet advertising revenues at the News Media Group increased 4.1 percent to $56.1 million from $53.8 million mainly due to growth in display advertising. In total, Internet businesses accounted for 15.0 percent of the Company’s revenues for the fourth quarter of 2009 versus 12.0 percent for the fourth quarter of 2008.
For 2009, the Company’s Internet revenues decreased 4.1 percent to $337.4 million from $351.6 million for 2008, and Internet advertising revenues decreased 4.6 percent to $294.5 million for 2009 from $308.7 million for 2008. Internet advertising revenues at the News Media Group decreased 10.9 percent to $179.3 million for 2009 from $201.2 million for 2008. In total, Internet businesses accounted for 13.8 percent of the Company’s revenues for 2009 versus 12.0 percent for 2008.
Joint Ventures
Net income from joint ventures was $0.3 million for the fourth quarter of 2009 compared with $1.8 million for the fourth quarter of 2008. Results at the paper mills in which the Company has investments were negatively affected in the fourth quarter of 2009 by lower paper selling prices. For 2009, net income from joint ventures was $20.7 million compared with $17.1 million for 2008.
Interest Expense-net
Interest expense-net increased to $20.9 million from $12.3 million, as a result of higher interest rates on the Company’s debt offset in part by lower average debt outstanding.
Income Taxes
The Company’s effective income tax rate was 38.2 percent in the fourth quarter and 58.4 percent for the full year of 2009. The higher tax rate for the year was driven by the impact of certain items, including the reduction of deferred tax asset balances resulting from lower income tax rates on near break-even results.
In 2008, the Company’s effective tax rate was 47.5 percent for the fourth quarter and 8.3 percent for the full year. The 2008 fourth-quarter and full year effective income tax rates were unfavorably affected by non-deductible losses on investments in corporate-owned life insurance policies. For the full year, the effective income tax rate was also unfavorably affected by a non-deductible goodwill impairment charge.
Cash and Total Debt
At the end of the quarter, cash and cash equivalents were approximately $37 million.
The following table details the maturities and carrying values of the Company’s debt as of the end of the fourth quarter of 2009.
(in thousands)
2012
4.61% medium-term notes
$ 75,000
2015
5.0% notes and 14.053% notes
500,000
2019
Option to repurchase ownership interest in headquarters building
250,000
Total $ 825,000
Unamortized amounts (62,535 )
Carrying value as of December 27, 2009 $ 762,465
In addition, the Company had approximately $7 million of capital lease obligations outstanding as of the end of the fourth quarter.
Capital Expenditures
Capital expenditures totaled approximately $8 million in the fourth quarter and approximately $45 million for the full year.
Pension Obligations
The Company’s pension assets benefited from strong performance in 2009.
For accounting purposes on a GAAP basis, based on preliminary results, the underfunded status of the Company’s qualified pension plans improved by approximately $120 million from year-end 2008.
For funding purposes on an ERISA basis, the Company previously disclosed a January 1, 2009 underfunded status for its qualified pension plans of approximately $300 million. This funding gap reflected the use of temporary valuation relief allowed by the U.S. Treasury Department.
As of January 1, 2009, without the valuation relief, the Company’s underfunded status would have been approximately $535 million. Based on preliminary results, the Company estimates a January 1, 2010 underfunded status of $420 million.
The Company does not have mandatory contributions to its sponsored qualified plans in 2010 due to existing funding credits. However, the Company may choose to make discretionary contributions in 2010 to address a portion of this funding gap. At this time, the Company expects to make contributions in the range of $60 to $80 million to its sponsored qualified plans but may adjust this range based on cash flows, pension asset performance, interest rates and other factors. The Company also expects to make contractual contributions of approximately $22 to $28 million in connection with The New York Times Newspaper Guild pension plan.
2010 Expectations
For 2010, approximate expectations are as follows:
Depreciation and amortization to be $125 to $130 million,
Capital expenditures to be $40 to $50 million, and
Interest expense to be $85 to $90 million.
In 2010, the Company expects to see the full-year benefit of several actions it took in 2009, including the consolidation of the plants and amendments to various labor agreements at The Boston Globe, and freezing of various Company-sponsored qualified and non-qualified pension plans, supplemental executive retirement plan and various other non-qualified defined benefit plans.