Business News

The New York Times Company Reports 2009 Second-Quarter Results

Thursday 23. July 2009 - The New York Times Company announced today second-quarter 2009 operating profit of $23.3 million compared with $40.3 million in the second quarter of 2008.

Excluding depreciation, amortization, severance and a pension charge as noted below, operating profit was $66.1 million in the second quarter of 2009 compared with $100.5 million in the second quarter last year.

In the second quarter earnings per share were $.27 compared with earnings per share of $.15 in the second quarter of 2008. Earnings per share in the 2009 second quarter were favorably affected by an income tax adjustment ($.26 per share) and unfavorably affected by a premium related to the early redemption of debt ($.04 per share), a pension charge for a withdrawal obligation ($.02 per share) and severance charges ($.01 per share). Earnings per share in the 2008 second quarter were unfavorably affected by severance charges ($.11 per share). Adjusting for these items, the Company had earnings per share of $.08 in the second quarter of 2009 and earnings per share of $.26 in the same period last year.

“While we continued to experience a very difficult economic climate in the quarter as well as secular changes affecting the entire media industry, we made significant progress in decreasing our cost base and reducing and restructuring our debt,” said Janet Robinson, president and CEO. “Advertising revenues decreased across all major categories although the rate of decline lessened throughout the quarter. As we continue our transition from a company focused primarily on print to one that is increasingly digital in focus and multiplatform in delivery, online advertising revenues are a more important part of our mix. They made up 21 percent of our ad revenues in the quarter, up from 18 percent in the same period a year ago.

“Circulation revenues increased 1.5 percent as a result of higher newsstand and subscription prices for The Times, The Boston Globe and some of our regional newspapers. We believe this shows the value our newspapers provide day in, day out to our readers.

“We again demonstrated our commitment to restructuring our operating costs, which fell 20 percent in the quarter. In the first half of the year, we lowered our operating costs by about $210 million. With our many initiatives to operate more efficiently and effectively across the Company, we are on course to achieve approximately $450 million in savings this year, which amounts to 16 percent of our 2008 cost base.

“During the first half of the year, we reduced the level of our debt by approximately $45 million from our 2008 year-end balance. We plan to continue to lower the amount of outstanding debt with cash flow from operations and proceeds from divestitures, including the recently announced agreement to sell our New York City radio station, WQXR-FM, and the potential sale of our interest in New England Sports Ventures, which includes the Boston Red Sox and New England Sports Network, a highly rated regional cable channel.

“Based on what we have seen so far in July, we expect the advertising environment to continue to be challenging. We believe the rate of decline will moderate slightly in the third quarter from what we experienced in the second quarter.

“As we look ahead, an enduring constant is the outstanding journalism of The New York Times Company and the esteem in which it is held by our readers. For the balance of the year, we are focused on developing innovative new products and platforms based on our high-quality journalism, particularly in the digital area, and continuing to aggressively lower our cost base to better align it with our revenues. When the economy and ad markets improve, we believe we will be very well positioned to benefit from the restructuring of our business.”

Comparisons

The operations of City & Suburban (C & S), the Company’s retail and newsstand distribution subsidiary, which was closed in early January 2009, are included for the entire second quarter of 2008. The effect on the Company’s 2009 second-quarter results was a decrease in other revenues of approximately $18 million, circulation revenues of approximately $3 million and operating costs of approximately $29 million.

The second-quarter 2009 results included the following special items:

A $37.7 million ($.26 per share) tax benefit related to a change in estimate for income taxes in the first half of 2009.
A $9.3 million ($5.6 million after tax or $.04 per share) charge for a premium on the redemption of the Company’s $250.0 million of notes, which was completed in April 2009.
A $6.6 million ($3.8 million after tax or $.02 per share) charge for a pension withdrawal obligation under a multi-employer pension plan related to the closure of C & S.
There were no special items in the second quarter of 2008.

In addition to the special items noted above, the Company had severance costs of $1.7 million ($1.0 million after tax or $.01 per share) in the second quarter of 2009 compared with $27.6 million ($15.7 million after tax or $.11 per share) in the second quarter of 2008.

Unless otherwise noted all comparisons are for the second quarter of 2009 to the second 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.

Second-Quarter Results

Revenues

Total revenues decreased 21.2 percent to $584.5 million from $741.9 million primarily due to lower print and online advertising. Advertising revenues decreased 30.2 percent; circulation revenues rose 1.5 percent; and other revenues decreased 37.3 percent, mainly because of the closure of C & S. Excluding the operations of C & S, total revenues decreased 19.9 percent, circulation revenues increased 3.2 percent and other revenues decreased 11.6 percent.

Operating Costs

Operating costs decreased 20.0 percent to $561.2 million from $701.7 million. Depreciation and amortization increased to $34.4 million compared with $32.6 million in the second quarter last year, primarily from accelerated depreciation resulting from the consolidation of The Boston Globe printing plants.

Excluding depreciation, amortization, severance and the pension charge, operating costs were down 19.2 percent to $518.4 million from $641.4 million as reductions occurred in nearly all major expense categories as a result of cost-saving initiatives, including the closure of C & S.

Newsprint expense declined 24.5 percent, with 22.8 percent from lower consumption and 1.7 percent from lower pricing.

Second-Quarter Business Segment Results

News Media Group

Total News Media Group revenues decreased 21.9 percent to $557.3 million from $713.3 million mainly as a result of lower print and online advertising and the closure of C & S. Excluding C & S, total revenues decreased 20.5 percent.

Advertising revenues declined 31.9 percent due mainly to weakness in print advertising across the News Media Group but also because of a lower volume of online advertising.

Circulation revenues rose 1.5 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 3.2 percent.

Other revenues decreased 37.4 percent primarily because of the closure of C & S. Excluding C & S, other revenues decreased 10.6 percent mainly because of lower commercial printing and direct mail advertising services at the New England Media Group.

Total News Media Group operating costs decreased 19.8 percent to $536.5 million from $668.8 million. Excluding depreciation, amortization, severance and the pension charge, operating costs decreased 19.2 percent to $496.4 million from $614.1 million as reductions occurred in nearly all major expense categories as a result of cost-saving initiatives, including the closure of C & S.

Operating profit for the News Media Group decreased 53.0 percent to $20.9 million from $44.5 million. Excluding depreciation, amortization, severance and the pension charge, operating profit was $60.9 million compared with $99.2 million, primarily because of lower advertising revenues. The closure of
C & S favorably affected the second-quarter 2009 operating results by approximately $8 million.

About Group

Total About Group revenues declined 5.1 percent to $27.1 million from $28.6 million due to lower display advertising, partially offset by higher cost-per-click advertising.

Total About Group operating costs decreased 13.2 percent to $16.9 million from $19.5 million. Excluding depreciation, amortization and severance, operating costs decreased 12.7 percent to $14.1 million from $16.1 million mainly because of lower marketing expenses, compensation and professional fees.

Operating profit rose 12.2 percent to $10.2 million from $9.1 million. Operating profit before depreciation, amortization and severance increased 4.6 percent to $13.1 million from $12.5 million, due to lower expenses.

Other Financial Data

Internet Revenues

Internet businesses include NYTimes.com, About.com, Boston.com and other Company Web sites. Total Internet revenues decreased 14.3 percent to $78.2 million from $91.3 million, and Internet advertising revenues declined 15.5 percent to $68.0 million from $80.5 million. Internet advertising revenues at the News Media Group decreased 21.6 percent to $42.1 million from $53.7 million. In total, Internet businesses accounted for 13.4 percent of the Company’s revenues in the second quarter versus 12.3 percent in the 2008 second quarter.

For the first half of 2009, the Company’s Internet revenues decreased 10.1 percent to $156.5 million from $174.1 million in the same period of 2008, and Internet advertising revenues decreased 11.1 percent to $135.6 million from $152.5 million.

Joint Ventures

Net income from joint ventures was $8.4 million compared with $10.2 million.

Interest Expense-net

Interest expense-net increased to $21.7 million from $12.1 million, as a result of higher interest rates on the Company’s debt.

Income Taxes

The Company’s calculation of taxes resulted in a change in the estimate for the first half of 2009. The effect of the change in the second quarter of 2009 was the recognition of a $37.7 million tax benefit. The effective tax rate for the first half of 2009 was 52.9 percent, primarily because of a favorable adjustment to reduce the Company’s reserve for uncertain tax positions.

Cash and Total Debt

At the end of the quarter, cash and cash equivalents were approximately $37 million and total debt was approximately $1.0 billion.

The table below details the maturities and carrying value of the Company’s debt as of the end of the second quarter of 2009.


(in thousands)
2009
6.95% medium-term notes
$ 44,500
2011
Amount outstanding under revolving credit facility
200,000
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 $ 1,069,500
Unamortized amounts (63,385 )
Carrying value as of June 28, 2009 $ 1,006,115

Capital Expenditures

In the second quarter, total capital expenditures were approximately $9 million. Year-to-date capital expenditures totaled approximately $35 million.

2009 Expectations

For 2009, the Company expects:

Depreciation and amortization to be $135 to $145 million (including $6 million of accelerated depreciation for the consolidation of The Boston Globe’s printing plants),
Capital expenditures to be $70 million,
Interest expense to be $85 million and
Severance costs to be $30 million.
The Company expects operating costs to decrease approximately $450 million as a result of reductions in nearly all major expense categories. This includes year-over-year savings for:

Closure of C & S: $117 million,
Newsprint: $65 million,
Severance: $50 million,
Benefit plan changes for nonunion employees: $18 million,
Boston labor agreements: $10 million in the second half of 2009 and $20 million annually in 2010 and
Boston plant consolidation: $9 million in the second half of 2009 and $18 million annually in 2010.