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The New York Times Company Reports 2010 Fourth-Quarter and Full-Year Results

Friday 04. February 2011 - The New York Times Company (NYSE: NYT) announced today 2010 fourth-quarter and full-year results, which are detailed below.

Total revenues decreased 2.9 percent in the fourth quarter of 2010 compared with the fourth quarter of 2009 as advertising and circulation revenues declined 3.1 percent and 3.6 percent, respectively. Increased digital advertising revenues, which rose 11.1 percent, partially offset a 7.2 percent decrease in print advertising revenues.
Operating costs excluding depreciation, amortization and severance decreased 1.8 percent in the fourth quarter of 2010 versus the fourth quarter of 2009. On a GAAP basis, the Company’s operating costs decreased 5.3 percent in the fourth quarter of 2010 versus the fourth quarter of 2009.
Operating profit excluding depreciation, amortization, severance and the special items discussed below declined 7.1 percent to $146.4 million in the fourth quarter of 2010 compared with $157.6 million in the fourth quarter of 2009. On a GAAP basis, the Company had an operating profit of $111.6 million in the fourth quarter of 2010 compared with $136.0 million in the fourth quarter of 2009.
For 2010, operating profit excluding depreciation, amortization, severance and the special items discussed below increased 20.0 percent to $384.3 million compared with $320.2 million in 2009, and on a GAAP basis, operating profit increased to $234.1 million from $74.1 million in 2009.
Diluted earnings per share from continuing operations excluding severance and the special items discussed below were $.46 per share in the fourth quarter of 2010 compared with $.44 in the same period of 2009. On a GAAP basis, the Company had diluted earnings per share from continuing operations of $.44 per share in the fourth quarter of 2010 compared with $.48 in the fourth quarter of 2009.
The Company has continued to manage its liquidity position and ended the year with net debt, as defined below, of approximately $597 million and total debt and capital lease obligations of approximately $996 million.
“In 2010 we demonstrated further progress toward our long-term strategy of re-engineering our Company, and grew operating profit excluding depreciation, amortization, severance and special items by 20 percent for the year,” said Janet L. Robinson, president and chief executive officer, The New York Times Company. “During the fourth quarter we maintained our relentless focus on managing costs to mitigate the effects that the ongoing transformation of our industry and an uneven economic recovery had on our operating performance.
“The advertising marketplace was volatile during the quarter. The progress we made on the print advertising front in October and November was not sustained in December due to a combination of difficult year-over-year comparisons and advertiser caution about the economy and consumer spending. And although digital advertising remained strong and grew 11 percent, it could not fully offset the 7 percent decline in print advertising revenues in the fourth quarter.
“We have remained focused on diversifying our revenues and strengthening our digital businesses. Advertising revenues from our digital products have become a much more significant part of our mix and made up 26 percent of the Company’s total advertising revenues in the fourth quarter.
“We have continued to strengthen our balance sheet and improve our liquidity position. In November, we completed a $225.0 million offering of 6.625 percent senior notes and with the proceeds from this transaction, along with strong cash flow from operations, we ended 2010 with $400 million in cash and short-term investments, even after making pension contributions of about $176 million during the year.”
Comparisons
All quarterly and annual 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.
There were no special items in the fourth quarter of 2010.
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.
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.
In addition to these special items, the Company had $4.7 million ($2.8 million after tax or $.02 per share) in severance costs in the fourth quarter of 2010 compared with $24.6 million ($14.3 million after tax or $.10 per share) in the fourth quarter of 2009.
Unless otherwise noted all comparisons are for the fourth quarter of 2010 to the fourth quarter of 2009. This release includes non-GAAP financial measures, a discussion of management’s reasons for the presentation 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 2.9 percent to $661.7 million from $681.2 million. Advertising revenues declined 3.1 percent, circulation revenues declined 3.6 percent and other revenues increased 3.1 percent.
The increase in digital advertising revenues, which rose 11.1 percent, partially offset a 7.2 percent decrease in print advertising revenues. Circulation revenues were lower due to a decline in copies sold across the News Media Group.
Operating Costs
Operating costs decreased 5.3 percent to $550.0 million from $580.7 million. Depreciation and amortization decreased to $30.1 million from $31.3 million.
Excluding depreciation, amortization and severance, operating costs decreased 1.8 percent to $515.2 million from $524.9 million. Decreases in benefits expense, compensation costs and various other costs were partially offset by increases in raw materials expense.
Newsprint expense increased 28.4 percent, with 32.4 percent from higher pricing offset in part by 4.0 percent from lower consumption.
Fourth-Quarter Business Segment Results
News Media Group
Total News Media Group revenues decreased 2.9 percent to $626.5 million from $644.8 million. Advertising revenues declined 3.0 percent, circulation revenues declined 3.6 percent, and other revenues increased 2.6 percent.
The increase in digital advertising revenues, which rose 20.3 percent, partially offset a 7.2 percent decrease in print advertising revenues. Circulation revenues were lower due to a decline in copies sold across the News Media Group.
News Media Group operating costs decreased 4.8 percent to $516.1 million from $542.3 million. Excluding depreciation, amortization and severance, operating costs decreased 1.0 percent to $484.5 million from $489.2 million as decreases in benefits expense, compensation costs and various other costs were partially offset by increases in raw materials expense.
Operating profit for the News Media Group was $110.3 million in the fourth quarter of 2010 compared with $81.4 million in the fourth quarter of 2009. Excluding depreciation, amortization, severance and special items, operating profit in the fourth quarter of 2010 decreased 9.6 percent to $141.9 million from $156.9 million, due to lower revenues.
About Group
About Group revenues decreased 3.0 percent to $35.2 million from $36.3 million due to lower cost-per-click and display advertising. The decrease in cost-per-click advertising was a result of lower page views and click-through rates.
About Group operating costs increased 3.9 percent to $19.1 million from $18.3 million. Excluding depreciation and amortization, operating costs increased 3.4 percent to $16.1 million from $15.6 million primarily because of higher marketing expenses.
Operating profit decreased 10.0 percent to $16.2 million from $18.0 million. Excluding depreciation and amortization, operating profit decreased 7.8 percent to $19.1 million from $20.7 million, due to lower advertising revenues and higher costs.
Corporate
Corporate operating costs decreased 26.0 percent to $14.9 million from $20.1 million primarily due to the timing of variable compensation.
The pension curtailment gain of $56.7 million was recognized at Corporate in the fourth quarter of 2009. As a result, Corporate had an operating profit of $36.6 million for the fourth quarter and $2.0 million for the full year of 2009.
Other Financial Data
Digital Revenues
Digital businesses include NYTimes.com, About.com, Boston.com, other Company Web sites and related digital products. In the fourth quarter, total digital revenues increased 11.0 percent to $113.2 million from $102.0 million, and digital advertising revenues increased 11.1 percent to $100.6 million from $90.6 million. Digital advertising revenues at the News Media Group increased 20.3 percent to $67.5 million from $56.1 million mainly due to strong growth in national display advertising. In total, digital businesses accounted for 17.1 percent of the Company’s revenues for the fourth quarter of 2010 versus 15.0 percent for the fourth quarter of 2009.
For 2010, the Company’s digital revenues increased 14.8 percent to $387.3 million from $337.4 million for 2009, and digital advertising revenues increased 15.9 percent to $341.4 million from $294.5 million. Digital advertising revenues at the News Media Group increased 18.3 percent to $212.2 million from $179.3 million mainly due to strong growth in national display advertising. In total, digital businesses accounted for 16.2 percent of the Company’s revenues for 2010 versus 13.8 percent for 2009.
Joint Ventures
Loss from joint ventures was $3.2 million compared with income from joint ventures of $0.3 million in the fourth quarter of 2009.
Interest Expense-net
Interest expense, net increased to $23.2 million from $20.9 million as a result of higher average debt outstanding.
Income Taxes
The Company had an effective income tax rate of 21.2 percent in the fourth quarter and 38.7 percent for the full year of 2010. In the fourth quarter of 2010, income tax expense was reduced by approximately $19 million for the reversal of reserves for uncertain tax positions due to the closing of tax audits and the lapse of applicable statutes of limitations. The effective tax rate for the 2010 full year was unfavorably affected by a one-time tax charge of approximately $11 million for the reduction in future tax benefits for retiree health benefits resulting from the federal health care legislation enacted in 2010.
The Company had an effective income tax rate of 38.2 percent in the fourth quarter and 58.4 percent for the full year of 2009. The high 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 2009.
Liquidity
In November 2010, the Company completed a $225.0 million private debt offering of 6.625 percent senior unsecured notes due 2016.
The following table details the maturities and carrying values of the Company’s debt and capital lease obligations as of December 26, 2010. Net debt represents debt and capital lease obligations, net of cash and short-term investments.
(in thousands)
2012 4.61% medium-term notes
$ 75,000
2015 5.0% notes and 14.053% notes
500,000
2016 6.625% senior notes
225,000
2019 Option to repurchase ownership interest in headquarters building
250,000
Total $ 1,050,000
Unamortized amounts (60,281 )
Carrying value of debt $ 989,719
Capital lease obligations 6,724
Total debt and capital lease obligations $ 996,443
Less:
Cash and short-term investments
399,642
Net debt $ 596,801
The Company believes net debt provides a useful measure of the Company’s liquidity and overall debt position.
As of the end of the fourth quarter of 2010, excluding letters of credit, there were no outstanding borrowings under the Company’s $400.0 million revolving credit facility.
Capital Expenditures
Capital expenditures totaled approximately $15 million in the fourth quarter and approximately $35 million for the full year.
Pension Obligations
The Company made contributions of approximately $70 million in the fourth quarter and approximately $176 million for the full year to certain Company qualified pension plans. The majority of these contributions were discretionary.
For accounting purposes on a GAAP basis, based on preliminary results, the underfunded status of the Company’s qualified pension plans as of December 26, 2010, was approximately $447 million, an improvement of approximately $74 million from year-end 2009.
For funding purposes on an ERISA basis, based on preliminary results, the underfunded status of the Company’s qualified pension plans as of January 1, 2011, was approximately $275 million, an improvement of approximately $145 million from the prior year. In 2010, the funded status of these pension plans benefited from contributions and favorable asset performance offset, in part, by lower interest rates.
The Company made a $9.0 million contribution to one of its Company-sponsored qualified pension plans in January. The Company may make discretionary contributions in 2011 to its Company-sponsored qualified pension plans based on cash flows, pension asset performance, interest rates and other factors, but will not be required to make mandatory contributions except for contractual contributions of approximately $32 million in connection with The New York Times Newspaper Guild pension plan.
Outlook
Advertising revenue continues to be highly volatile, particularly over the past two months. Accordingly, visibility remains limited. In January 2011 print advertising started out soft and strengthened as the month progressed. Weather was likely a factor impacting volatility and results in the month. The Company finished the month with print advertising revenues decreasing at approximately the same level the Company experienced in the fourth quarter of 2010, and digital advertising revenues increasing in the mid-single digits, as the Company experienced continued strength at the News Media Group partially offset by softness at the About Group.
Circulation revenues in the first quarter are expected to decrease in line with the declines the Company experienced in the second half of 2010.
The Company remains committed to aggressively managing operating expenses despite higher newsprint prices and pension expense. Given current industry forecasts, in 2011, newsprint prices are expected to increase and negatively impact operating expense, particularly in the first half of 2011.
In addition, the Company expects the following on a pre-tax basis in 2011:
Depreciation and amortization: $125 to $130 million,
Interest expense, net: $100 to $105 million, and
Capital expenditures: $45 to $55 million.