Business News

The New York Times Company Reports Preliminary Third-Quarter Results

Friday 24. October 2008 - The New York Times Company announced today a preliminary third-quarter loss per share from continuing operations of $.01, including $.07 per share for severance costs, compared with $.10 earnings per share (EPS) in the third quarter last year, which included $.02 per share for severance costs.

Preliminary third-quarter operating profit decreased to $10.0 million from $28.1 million in the third quarter of 2007, while preliminary operating profit excluding depreciation and amortization decreased to $43.9 million from $79.9 million in the third quarter last year.
Preliminary results do not include an anticipated non-cash charge for impairment of goodwill and long-lived assets. Due to the continued softening of business conditions driven by the secular forces affecting the newspaper industry, the Company is testing the assets of its New England Media Group for impairment in the 2008 third quarter. While the results have not yet been finalized, the Company currently estimates a non-cash impairment charge of $100 to $150 million. The Company will record the charge in its financial statements when it files its third-quarter Form 10-Q with the Securities and Exchange Commission. The charge will affect EPS for the third quarter but will not affect the Company’s operating cash flow.
“The impairment charge reflects the decrease in print advertising revenues stemming from the secular changes in the media industry,” said Janet L. Robinson, president and CEO. “It does not, however, affect our cash flow or our long-term strategy of becoming an increasingly digital organization.
“The decline in print advertising revenues this quarter accelerated as the economy slowed. The U.S. presidential election and the turmoil in the world’s financial markets have again demonstrated the need for the high-quality journalism we provide in print and online. The continued strength of our brands is evident in our ability to raise home-delivery and newsstand prices, which resulted in an increase in our circulation revenues. It is also reflected in the strong growth in traffic to our Web sites, which increased 15 percent in September. Online advertising grew 10.2 percent in the quarter, in part due to the introduction of new ad formats. In total, our online revenues now account for 12.4 percent of the Company’s revenues.
“As we continued our drive to reduce expenses, operating costs decreased 6.8 percent compared with the same quarter last year, despite a more than 20 percent increase in the price of newsprint. Given the adverse economic conditions, we will continue our strict cost discipline.
“In this difficult environment, we are reviewing our uses of cash. We have reduced our estimate for capital expenditures in 2008. Next year we expect they will decline from their 2008 level and be approximately $80 million. In addition, our Board of Directors plans to review our dividend policy before the end of this year to determine what is most prudent in light of the overall market conditions.
“As part of our analysis of our uses of cash, we are evaluating future financing arrangements. Based on the conversations we have had with lenders, we expect that we will be able to manage our debt and credit obligations as they mature. Going forward, we plan to continue to explore opportunities to reduce our debt levels.
“As we move into the fourth quarter, our visibility on advertising revenues is limited. To date in October, print advertising revenue declines are similar to those in September but we are seeing slowing in digital advertising revenues, mainly because of less display advertising. We remain committed to executing our strategy of developing new revenue streams for both our print and online products, reducing costs, making full use of our R & D capability and rebalancing our portfolio of businesses.”
Third-Quarter Results

Comparisons
All comparisons are for the third quarter of 2008 to the third quarter of 2007. The results of the Broadcast Media Group, which was sold in the second quarter of 2007, are reported within discontinued operations. Net income from discontinued operations of $8.6 million ($.06 per share) in the third quarter of 2008 was due to a reduction in income taxes on the gain on the sale, and the net loss from discontinued operations of $0.7 million ($.01 per share) in the third quarter of 2007 was due to post-closing adjustments to the gain.
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.
Revenues
Total revenues decreased 8.9 percent to $687.0 million from $754.4 million. Advertising revenues decreased 14.4 percent; circulation revenues increased 1.0 percent; and other revenues declined 4.2 percent. Revenues decreased mainly due to lower print advertising.
Operating Costs
Operating costs decreased 6.8 percent to $677.1 million from $726.3 million. Depreciation and amortization decreased 34.6 percent to $33.9 million from $51.8 million last year, when accelerated depreciation totaled $11.7 million ($6.7 million after tax, or $.05 per share) for assets at the Edison, N.J., printing plant, which the Company closed earlier this year. There was no accelerated depreciation in the third quarter of 2008.
Excluding depreciation and amortization and severance costs, operating costs decreased 6.6 percent to $625.1 million from $669.6 million, mainly due to lower compensation costs and benefits expense. Compensation costs declined primarily as a result of lower incentive compensation and a reduced workforce in the third quarter of 2008 compared with the same period last year. Benefits expense decreased due in part to lower workers’ compensation expense and lower pension and other postretirement expense.
Newsprint expense increased 2.1 percent, stemming from a 22.1 percent increase in prices, offset in part by a 20.0 percent decrease in consumption.
Severance costs were $18.1 million ($10.3 million after tax, or $.07 per share), about half of which was for the shutdown of City & Suburban (C & S), the Company’s retail and newsstand distribution subsidiary, which operates in the New York metropolitan area. The closure of C & S is expected to be completed in January 2009, and additional severance costs may be recorded before it is closed. In the third quarter of last year, the Company had $4.9 million ($2.8 million after tax, or $.02 per share) in severance costs.
Third-Quarter Business Segment Results

News Media Group
Total News Media Group revenues decreased 9.8 percent to $658.3 million from $729.6 million.
Advertising revenues decreased 15.9 percent due to weakness in print advertising at all of the Company’s major properties. In particular, classified advertising revenues decreased across the News Media Group.
Circulation revenues increased 1.0 percent, mainly because of higher prices for The New York Times, partially offset by volume declines. In July and August, The New York Times announced newsstand and home-delivery price increases.
Other revenues decreased 5.4 percent to $61.0 million from $64.5 million primarily because of the elimination of subscription revenues for TimesSelect, an online product offering that was discontinued in September 2007.
Total News Media Group operating costs decreased 6.5 percent to $651.2 million from $696.5 million. Excluding depreciation and amortization and severance costs, operating costs decreased 6.5 percent to $604.1 million from $646.0 million, mainly as a result of the items noted in the operating costs section above.
Operating profit for the News Media Group decreased 78.6 percent to $7.1 million from $33.1 million. Excluding depreciation and amortization, operating profit for the News Media Group decreased 53.9 percent to $36.5 million from $79.2 million.
About Group
Total About Group revenues increased 16.1 percent to $28.7 million from $24.7 million due to increased cost-per-click and display advertising.
Total About Group operating costs decreased 2.8 percent to $17.9 million from $18.4 million. Excluding depreciation and amortization, operating costs increased 5.6 percent to $15.3 million from $14.5 million, mainly because of investments in new revenue initiatives that resulted in higher professional fees. Depreciation and amortization was lower, primarily because an asset reached the end of its amortization period in the second quarter of 2008.
Operating profit grew 71.4 percent to $10.8 million from $6.3 million. The operating profit margin improved significantly because of increased advertising as noted above and lower depreciation and amortization. Operating profit before depreciation and amortization rose 31.0 percent to $13.4 million from $10.2 million, mainly due to higher revenues.
Corporate
Corporate costs decreased 30.3 percent to $7.9 million compared with $11.3 million in the prior-year third quarter mainly due to lower professional fees and compensation costs.
Other Financial Data

Internet Revenues
In the third quarter, the Company’s Internet revenues increased 6.7 percent to $85.1 million from $79.7 million in the third quarter of 2007, and Internet advertising revenues grew 10.2 percent to $74.4 million from $67.5 million. Internet businesses include NYTimes.com, About.com, Boston.com and other company Web sites. In total, Internet businesses accounted for 12.4 percent of the Company’s revenues in the third quarter versus 10.6 percent in the 2007 third quarter.
Joint Ventures
Net income from joint ventures was $12.5 million compared with $5.4 million. Higher earnings resulted from stronger performance at most of the properties in which the Company has equity interests.
Interest Expense-net
Interest expense-net increased to $11.7 million from $10.5 million, as a result of less capitalized interest.
Income Taxes
The Company’s income tax expense of $12.8 million was larger than pre-tax income of $10.8 million in the third quarter. Income taxes were unfavorably affected by non-deductible losses on investments in corporate-owned life insurance policies and a change in Massachusetts state tax law. The effective income tax rate in the third quarter of last year was 39.0 percent.
Cash and Total Debt
At the end of the quarter, cash and cash equivalents were approximately $46 million and total debt was approximately $1.1 billion. The Company’s current source of short-term funding is its revolving credit agreements under which it had approximately $398 million in borrowings outstanding at the end of the quarter.
Capital Expenditures
In the third quarter, total capital expenditures were approximately $27 million. Year to date, capital expenditures totaled approximately $95 million.
Expectations
Below are updated expectations on key items for 2008 unless otherwise noted.
— Cost savings and productivity gains – Previously the Company said it believed that it would achieve a reduction in costs from its year-end 2007 cash cost base of a total of more than $230 million in 2008 and 2009, excluding the effects of inflation, severance costs and one-time costs. More than $130 million of these savings were expected in 2008. As a result of the Company’s continuous cost reduction efforts, it now expects to exceed the $130 million and $230 million targets by even larger amounts. Therefore, the Company will stop measuring its cost savings against these targets. The Company continues to explore a wide range of additional cost reduction initiatives, and as they develop, details will be provided.

— Depreciation and amortization – $145 to $155 million, which includes approximately $5 million of accelerated depreciation expense in the first quarter of 2008 associated with the New York area plant consolidation project. Depreciation for the new headquarters building is expected to be $7 million per quarter.

— Income from joint ventures – $20 to $25 million.

— Interest expense – $49 to $53 million.

— Income tax rate – Previous guidance was 40% to 43%. Due to the significant volatility in the quarter to quarter tax rate, the Company no longer plans to give tax rate guidance.

— Capital expenditures – $140 to $145 million. Previous guidance was $150 to $165 million, including approximately $35 million for the consolidation of the Company’s New York area plants and about $22 million for its new headquarters. For 2009, the Company expects capital expenditures to be approximately $80 million.

— Severance – Previous guidance was $40 to $50 million. Year-to-date severance costs are approximately $57 million, which is higher than previous guidance because of the severance costs associated with the closure of C & S. Additional amounts may be recorded for C & S before it is closed. Due to the uncertainty of the amount of possible severance costs, the Company is not providing updated guidance at this time.