Business News

The New York Times Company Reports 2010 Third-Quarter Results

Thursday 21. October 2010 - The New York Times Company announced today 2010 third-quarter results, which are detailed below.

Total revenues decreased 2.7 percent in the third quarter of 2010 compared with the third quarter of 2009 as advertising and circulation revenues declined 1.0 percent and 4.8 percent, respectively. Increased digital advertising revenues, which rose 14.6 percent, partially offset a 5.8 percent decrease in print advertising revenues.
Operating costs excluding depreciation, amortization and severance increased 0.8 percent in the third quarter of 2010 versus the third quarter of 2009. On a GAAP basis, the Company’s operating costs increased 0.1 percent in the third quarter of 2010 versus the third quarter of 2009.
Operating profit excluding depreciation, amortization, severance and the special items discussed below declined 23.6 percent to $62.0 million in the third quarter of 2010 compared with $81.2 million in the third quarter of 2009. On a GAAP basis, the Company had an operating profit of $9.0 million in the third quarter of 2010 compared with an operating loss of $23.7 million in the third quarter of 2009.
Diluted earnings per share from continuing operations excluding severance and the special items discussed below were $.07 per share in the third quarter of 2010 compared with $.16 in the same period of 2009. On a GAAP basis, the Company had a diluted loss per share from continuing operations of $.03 per share in the third quarter of 2010 compared with $.24 in the third quarter of 2009.
The Company reduced its debt and capital lease obligations, net of cash and cash equivalents, by more than one third to approximately $646 million from its balance at the beginning of 2009. The majority of the Company’s debt matures in 2015 or later.
“Our third-quarter results demonstrate our ability to manage our business amidst both uneven economic conditions and a period of intense transition for our industry by investing in our products to reach a broader user base and to better position the Company for its future,” said Janet L. Robinson, president and chief executive officer, The New York Times Company. “At the same time we are cycling past the actions we took last year to re-engineer our cost base. While operating profit, excluding depreciation, amortization, severance and special items, declined year-over-year in the third quarter, year to date through September, operating profit on the same basis grew 45 percent.
“Although we experienced marketplace volatility, it is clear that advertisers are responding to the opportunities to associate their brands with our high quality journalism that engages audiences across multiple, and multiplying, platforms. Online advertising revenue, which rose 15 percent, continued to grow its share of revenue and made up 27 percent of the Company’s total advertising revenues in the third quarter.
“We have remained vigilant in managing our expenses, and we were able to keep our third-quarter operating costs virtually flat with the third quarter last year despite higher compensation costs and newsprint prices, and investments in our digital offerings across the Company. And we continued to improve our liquidity position and generated strong cash flow, finishing the third quarter with approximately $129 million in cash and cash equivalents.
“We remained focused on our comprehensive digital strategy, which includes increasing revenues from our digital sources, introducing new products and innovations that increase user engagement and extending our reach to new audiences across an array of devices. Last week NYTimes.com launched its new app for the iPad, which offers access to more than 25 NYTimes.com sections, all continuously updated throughout the day.
“During the quarter we made significant progress toward the upcoming launch of the pay model for NYTimes.com – building the systems and infrastructure to support the commerce, customer service and product requirements of our cross-platform strategy. We have determined that the model will allow readers referred from third-party sites such as blogs, social media networks and search engines access to that content without triggering the gate, which will preserve NYTimes.com’s significant reach and advertising inventory.
“We recently announced that in the second half of 2011 The Boston Globe will launch a paid subscription Web site, BostonGlobe.com, and that Boston.com will remain free. This two-brand strategy will allow us to better serve consumers and advertisers, will create a second revenue stream and will foster innovation across the sites. Our other New England Media Group property, the Worcester Telegram & Gazette, launched a paid model for its Web site during the third quarter.
“We also announced last month that the Times Company, along with two other major publishers, invested in Ongo Inc., a new venture that will introduce a service that will allow users to read and share digital news and information from multiple publishers.
“The Company is well positioned to thrive in the evolving media marketplace, thanks to the significant progress we have made and continue to make in reinventing our enterprise.”
Comparisons
All quarterly comparisons exclude the results of WQXR-FM, a New York City classical radio station, which was sold in the fourth quarter of 2009. Its results are reported as discontinued operations.
The third-quarter 2010 results from continuing operations included the following special items:
A $16.1 million ($10.2 million after tax or $.07 per share) charge for a write-down of assets at The Boston Globe’s printing facility in Billerica, Mass., which was consolidated into the Boston, Mass., printing facility in the second quarter of 2009. After exploring different opportunities for the assets at Billerica, the Company entered into an agreement in the third quarter of 2010 to sell the majority of these assets to a third party.
A $6.3 million ($3.9 million after tax or $.03 per share) charge for an adjustment to estimated pension withdrawal obligations under several multi-employer pension plans at The Boston Globe.
The third-quarter 2009 results from continuing operations included the following special items:
A $76.1 million ($48.0 million after tax or $.33 per share) charge primarily for estimated pension withdrawal obligations under several multi-employer pension plans as well as a curtailment charge for a Company-sponsored pension plan. The charge was a result of amendments to various collective bargaining agreements at The Boston Globe that allowed the withdrawal from these multi-employer plans and the freezing of benefits under the Company-sponsored plan.
Tax expense of $11.7 million ($.08 per share) from the reduction of the Company’s deferred tax balances as a result of lower income tax rates.
A $5.2 million ($3.0 million after tax or $.02 per share) gain on the sale of surplus real estate assets at the Regional Media Group.
In addition to these special items, the Company had $0.5 million ($0.3 million after tax or $.00 per share) in severance costs in the third quarter of 2010 compared with $2.6 million ($1.6 million after tax or $.01 per share) in the third quarter of 2009.
Unless otherwise noted all comparisons are for the third quarter of 2010 to the third quarter of 2009. 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.
Third-Quarter Results from Continuing Operations
Revenues
Total revenues decreased 2.7 percent to $554.3 million from $569.5 million. Advertising revenues declined 1.0 percent; circulation revenues declined 4.8 percent; and other revenues declined 1.5 percent.
The increase in digital advertising revenues, which rose 14.6 percent, partially offset a 5.8 percent decrease in print advertising revenues. Circulation revenues were lower primarily due to a decline in copies sold across the News Media Group.
Operating Costs
Operating costs increased 0.1 percent to $522.9 million from $522.2 million. Depreciation and amortization decreased to $30.1 million from $31.3 million.
Excluding depreciation, amortization and severance, operating costs increased 0.8 percent to $492.3 million from $488.3 million. Increases in compensation costs and raw materials expense were mostly offset by lower benefits and various other expenses.
Newsprint expense increased 19.6 percent, with 25.8 percent from higher pricing offset in part by 6.2 percent from lower consumption.
Third-Quarter Business Segment Results
News Media Group
Total News Media Group revenues decreased 3.1 percent to $521.9 million from $538.7 million. Advertising revenues declined 1.7 percent, circulation revenues declined 4.8 percent, and other revenues declined 1.9 percent.
The increase in digital advertising revenues, which rose 21.6 percent, mostly offset a 5.8 percent decrease in print advertising revenues. Circulation revenues were lower primarily due to a decline in copies sold across the News Media Group.
News Media Group operating costs decreased 0.3 percent to $493.4 million from $494.7 million. Excluding depreciation, amortization and severance, operating costs increased 0.5 percent to $465.7 million from $463.6 million as increases in compensation costs and raw materials expense from higher newsprint prices were mostly offset by lower benefits and various other expenses.
Operating profit for the News Media Group was $6.0 million in the third quarter of 2010 compared with a loss of $26.9 million in the third quarter of 2009. Excluding depreciation, amortization, severance and special items, operating profit in the third quarter of 2010 decreased 25.2 percent to $56.2 million from $75.1 million, primarily due to lower revenues.
About Group
About Group revenues increased 5.5 percent to $32.5 million from $30.8 million as growth in display advertising was offset in part by lower cost-per-click advertising.
About Group operating costs increased 9.1 percent to $18.6 million from $17.0 million. Excluding depreciation and amortization, operating costs increased 9.7 percent to $15.7 million from $14.3 million primarily because of higher compensation costs and marketing expenses.
Operating profit rose 1.1 percent to $13.9 million from $13.7 million. Excluding depreciation and amortization, operating profit increased 1.8 percent to $16.8 million from $16.5 million, as higher advertising revenues were offset in part by higher costs.
Other Financial Data
Internet Revenues
Internet businesses include NYTimes.com, About.com, Boston.com and other Company Web sites. In the third quarter, total Internet revenues increased 13.3 percent to $89.4 million from $78.9 million, and Internet advertising revenues increased 14.6 percent to $78.3 million from $68.3 million. Internet advertising revenues at the News Media Group increased 21.6 percent to $47.4 million from $39.0 million mainly due to strong growth in national display advertising. In total, Internet businesses accounted for 16.1 percent of the Company’s revenues for the third quarter of 2010 versus 13.9 percent for the third quarter of 2009.
For the first nine months of 2010, the Company’s Internet revenues increased 16.5 percent to $274.1 million from $235.4 million in the same period in 2009, and Internet advertising revenues increased 18.1 percent to $240.7 million from $203.9 million. Internet advertising revenues at the News Media Group increased 17.4 percent to $144.7 million from $123.2 million mainly due to strong growth in national display advertising. In total, Internet businesses accounted for 15.8 percent of the Company’s revenues for the first nine months of 2010 versus 13.4 percent for first nine months of 2009.
Joint Ventures
Income from joint ventures was $5.5 million compared with $7.5 million in the third quarter of 2009. An increase in income from higher paper selling prices at a paper mill in which the Company has an investment was more than offset by lower earnings at other investments.
Interest Expense-net
Interest expense, net decreased mainly as a result of lower average debt outstanding.
Income Taxes
The Company had an effective tax rate benefit of 32.8 percent in the third quarter of 2010. The lower effective tax rate was driven by lower state tax rates applied to the special items in the third quarter of 2010. The effective tax rate for the first nine months of 2010 was 54.8 percent, primarily because of a $10.9 million one-time tax charge for the reduction in future tax benefits for retiree health benefits resulting from the federal health care legislation enacted in the first quarter of 2010.
The Company had an income tax benefit of $2.5 million (effective tax rate of 6.7 percent) on a pre-tax loss of $37.2 million in the third quarter of 2009 and an income tax benefit of $41.9 million (effective tax rate of 37.5 percent) on a pre-tax loss of $111.6 million in the first nine months of 2009. The tax benefit in the third quarter and first nine months of 2009 was unfavorably affected by $11.7 million in tax expense due to the reduction of the Company’s deferred tax asset balances as a result of lower income tax rates.
Cash and Total Debt and Capital Lease Obligations
The following table details the maturities and carrying values of the Company’s debt and capital lease obligations, net of cash and cash equivalents as of September 26, 2010.
(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 (57,248 )
Carrying value of debt $ 767,752
Capital lease obligations 6,730
Total debt and capital lease obligations $ 774,482
Less:
Cash and cash equivalents
128,641
Debt and capital lease obligations, net of cash and cash equivalents $ 645,841
As of the end of the third quarter of 2010, excluding letters of credit, there were no outstanding borrowings under the Company’s $400.0 million revolving credit facility.
The $250 million aggregate principal amount of the 14.053% notes due 2015 may be called on or after January 15, 2012, at an initial redemption price of 105% of the outstanding principal amount, plus accrued interest. Given the terms, the Company currently intends to repay or refinance these notes at the earliest practicable date after January 15, 2012, depending on available financing or other sources of cash at the time.
Capital Expenditures
Capital expenditures totaled approximately $9 million in the third quarter of 2010. Year-to-date capital expenditures totaled approximately $19 million.
Fourth-Quarter and Full Year 2010 Expectations
Based on results in the first half of October, fourth-quarter revenue trends for print advertising are expected to improve modestly from the levels of the third quarter, while digital advertising is expected to be up approximately 10 percent. Similar to the third quarter, circulation revenues are expected to decrease between 4 and 5 percent.
The Company remains vigilant in managing its operating expenses, and expects fourth-quarter operating costs to decline, and operating costs excluding depreciation, amortization and severance to be comparable, to the same period last year, despite significantly higher newsprint prices and costs associated with the launch of the NYTimes.com pay model. The decrease in operating costs on a GAAP basis will be due in large part to a comparison of approximately $25 million in severance costs in the fourth quarter of 2009.
The Company believes that its newsprint price variance will continue to be unfavorable on a year-over-year basis in the fourth quarter. The Company expects higher newsprint prices, excluding a favorable impact on operating expenses of lower consumption, will negatively impact operating expense by approximately $13 million.
In addition, the Company expects the following on a pre-tax basis in 2010:
Depreciation and amortization: $120 to $125 million,
Capital expenditures: $40 to $45 million,
Interest expense, net: $85 to $90 million, and
Income from joint ventures: $8 to $10 million, excluding a gain of approximately $13 million (the Company’s share is approximately $10 million) from the sale of an asset at one of the paper mills in which the Company has an investment.