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New York Times Company Reports 2012 Fourth-Quarter and Full-Year Results

Friday 08. February 2013 - The New York Times Company (NYSE: NYT) announced today fourth-quarter 2012 diluted earnings per share from continuing operations increased to $.76 from $.34 in the same period of 2011, largely due to the special items discussed below.

Excluding severance and special items, diluted earnings per share from continuing operations decreased to $.32 in the fourth quarter of 2012 from $.39 in the fourth quarter of 2011. The decrease was due principally to a higher effective tax rate applicable in the fourth quarter of 2012 after the exclusion of severance and special items.
The Company had operating profit of $44.0 million in the fourth quarter of 2012 compared with $90.8 million in the same period of 2011. Excluding depreciation, amortization, severance and the special items discussed below, operating profit was $124.5 million in the fourth quarter of 2012 compared with $126.8 million in the fourth quarter of 2011.
“2012 showed both the opportunities and challenges we face as a company,” said Mark Thompson, president and chief executive officer. “We saw continued strong growth in digital subscriptions as well as increased revenue from our large print circulation base. Indeed, for the first time in our history, annual circulation revenues surpassed those from advertising. Our pay model continued to prove itself, with approximately 668,000 paid digital subscriptions across the Company at quarter end, up 13 percent from the end of the third quarter.
“The demonstrated willingness of users here and around the world to pay for the high quality journalism for which The New York Times and the Company’s other titles are renowned will be a key building block in the strategy for growth, which we are currently developing and which I will have much more to say about later in the year.
“By contrast, the advertising environment remained challenging in the fourth quarter, with advertising revenue trends similar to third-quarter levels.
“We continued to improve our liquidity position in the fourth quarter. In addition to steady cash flow from operations, our balance sheet was further strengthened by the sales of the About Group and our ownership interest in Indeed.com, as we sharpened our focus on our core brands. All in, we ended 2012 with approximately $955 million in cash and short-term investments, even after making pension contributions and debt payments totaling about $188 million during the fourth quarter. At year end, our total cash position exceeded total debt and capital lease obligations by approximately $258 million.”
Comparisons
Unless otherwise noted, all comparisons are for the fourth quarter of 2012 to the fourth quarter of 2011. The results of the Regional Media Group, which was sold in the first quarter of 2012, and the results of the About Group, which was sold in the fourth quarter of 2012, are reported within discontinued operations for all periods presented.
Because of the Company’s fiscal calendar, the 2012 fourth quarter and year included an additional week (14 weeks and 53 weeks) compared with the 2011 fourth quarter and year (13 weeks and 52 weeks). A reconciliation of revenues, excluding the estimated effect of the additional week, to revenues including the additional week, is included in the exhibits to this release.
This release includes other 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.
The fourth-quarter 2012 results included the following special items:
A $164.6 million ($102.4 million after tax or $.66 per share) gain on the sale of the Company’s ownership interest in Indeed.com, a search engine for jobs.
A $48.7 million ($28.3 million after tax or $.18 per share) non-cash settlement charge in connection with the Company’s immediate pension benefit offer to certain former employees.
A $2.6 million ($1.5 million after tax or $.01 per share) charge in connection with a legal settlement.
The fourth-quarter 2011 results included the following special item:
A $4.5 million ($2.6 million after tax or $.02 per share) charge for a retirement and consulting agreement in connection with the retirement of the Company’s former chief executive officer at the end of 2011.
In addition, the Company had severance costs of $7.9 million ($4.4 million after tax or $.03 per share) and $7.9 million ($4.7 million after tax or $.03 per share) in the fourth quarters of 2012 and 2011, respectively.
Sale of About Group – Discontinued Operations
On September 24, 2012, the first day of the fiscal fourth quarter, the Company completed the sale of the About Group for $300 million in cash, plus a net working capital adjustment of approximately $17 million. As a result of the sale, the Company recorded a gain of $96.7 million ($61.9 million after tax) in the fourth quarter of 2012. The net after-tax proceeds from the sale were approximately $291 million.
Fourth-Quarter Results from Continuing Operations
Revenues
Total revenues increased 5.2 percent to $575.8 million from $547.4 million. Advertising revenues decreased 3.1 percent, while circulation and other revenues increased 16.1 percent and 4.8 percent, respectively. Excluding the additional week, estimated total revenues decreased 0.7 percent, with advertising revenues down 8.3 percent and circulation and other revenues up 8.6 percent and 2.1 percent, respectively.
Print advertising revenues decreased 5.6 percent and digital advertising revenues rose 5.1 percent. Excluding the additional week, estimated print and digital advertising revenues decreased 10.2 percent and 1.7 percent, respectively, largely due to the uneven economic environment, ongoing secular trends and an increasingly complex and fragmented digital advertising marketplace. Circulation revenues rose mainly as growth in digital subscriptions and the increase in print circulation prices in the first half of 2012 at The New York Times and The Boston Globe offset a decline in print copies sold.
Operating Costs
Operating costs increased 6.3 percent to $480.5 million from $452.1 million. Excluding depreciation, amortization and severance, operating costs increased 7.3 percent to $451.3 million from $420.6 million. In addition to the effect of the additional week, costs rose mainly due to higher promotion costs, benefits expense and various other costs, offset in part by lower compensation costs, including stock-based compensation, and raw materials expense.
Other Data
Digital
Digital businesses principally include NYTimes.com, BostonGlobe.com and Boston.com. In the fourth quarter of 2012, digital advertising revenues increased 5.1 percent to $69.0 million from $65.7 million. For the full year of 2012, digital advertising revenues increased 0.2 percent to $214.8 million from $214.5 million in 2011. Excluding the additional week, estimated digital advertising revenues decreased 1.7 percent in the fourth quarter and 1.9 percent for the full year of 2012.
Digital advertising revenues as a percentage of total Company advertising revenues were 24.7 percent in the fourth quarter of 2012 compared with 22.7 percent in the fourth quarter of 2011. For the full year, digital advertising revenues as a percentage of total Company advertising revenues were 23.9 percent in 2012 compared with 22.5 percent in 2011.
Paid subscribers to The New York Times and the International Herald Tribune digital subscription packages, e-readers and replica editions totaled approximately 640,000 as of the end of the fourth quarter of 2012, an increase of approximately 13 percent since the end of the third quarter of 2012. Paid digital subscribers to BostonGlobe.com and The Boston Globe’s e-readers and replica editions totaled approximately 28,000 as of the end of the fourth quarter of 2012, up approximately 8 percent since the end of the third quarter of 2012.
Joint Ventures
Income from joint ventures decreased to $0.9 million from $4.1 million largely because of the divestiture of the Company’s ownership interest in Fenway Sports Group in the first half of 2012, coupled with lower results for the paper mills in which the Company has an investment.
Interest Expense, net
Interest expense, net increased to $16.4 million from $15.5 million mainly due to charges related to the termination of the Company’s revolving credit facility and the repurchase of $5.9 million principal amount of the Company’s 5.0 percent senior notes due March 15, 2015, offset by lower interest expense due to the Company’s payment at maturity on September 26, 2012 of all $75 million aggregate principal amount of the Company’s 4.610 percent senior notes.
Income Taxes
The Company had income tax expense of $75.8 million (effective tax rate of 39.2 percent) in the fourth quarter and $103.5 million (effective tax rate of 39.3 percent) for the full year of 2012. The Company’s effective tax rate in the fourth quarter of 2012 was favorably affected by a lower income tax rate on the sale of the Company’s ownership interest in Indeed.com. The Company had income tax expense of $28.4 million (effective tax rate of 35.8 percent) in the fourth quarter and $31.9 million (effective tax rate of 38.4 percent) for the full year of 2011. Excluding severance and special items, the Company’s effective tax rate was 43.9 percent in the fourth quarter of 2012 compared with 36.5 percent in the fourth quarter of 2011. The 36.5 percent tax rate in the 2011 fourth quarter was favorably affected by the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.
Liquidity
The following table details the original maturities and carrying values of the Company’s debt and capital lease obligations as of December 30, 2012.
(in thousands)
December 30, 2012
2015

5.0% senior notes
$ 244,100
2016

6.625% senior notes
225,000
2019

Option to repurchase ownership interest in headquarters building
250,000
Total
$ 719,100
Less: Unamortized amounts
(29,045 )
Carrying value of debt
$ 690,055
Capital lease obligations
7,023
Total debt and capital lease obligations
$ 697,078

At the end of 2012, cash and short-term investments were approximately $955 million (excluding restricted cash of approximately $24 million that is subject to certain collateral requirements). As a result, the Company’s cash and short-term investments exceeded total debt and capital lease obligations by approximately $258 million. The Company believes this provides a useful measure of its liquidity and overall debt position.
In the fourth quarter of 2012, the Company’s cash and short-term investments improved by more than $340 million from the third quarter of 2012, in large part due to proceeds from the sales of the About Group and the Company’s ownership interest in Indeed.com. During the fourth quarter, the Company also repaid in full the $75 million 4.610 percent senior notes that matured on September 26, 2012, repurchased $5.9 million principal amount of the 5.0 percent senior notes due March 15, 2015, and terminated its $125 million asset-backed revolving credit facility.
In early October 2012, Indeed.com, in which the Company had an ownership interest, was sold. The pre-tax proceeds from the sale of the Company’s interest were approximately $167 million and the net after-tax proceeds were approximately $104 million.
Capital Expenditures
Capital expenditures totaled approximately $6 million in the fourth quarter and approximately $26 million in 2012.
Pension Obligations
As part of the Company’s ongoing strategy to reduce its pension obligations and the resulting volatility of the Company’s overall financial condition, in September 2012, it offered certain former employees who participate in The New York Times Companies Pension Plan the option to receive a one-time lump sum payment equal to the present value of the participant’s pension benefit or to commence an immediate monthly annuity. As a result, the Company recorded a non-cash settlement charge of $48.7 million in connection with the lump sum payments made in the fourth quarter of 2012, which totaled approximately $112 million. These lump sum distributions were made with existing assets of The New York Times Companies Pension Plan and not with Company cash.
For accounting purposes on a GAAP basis, based on preliminary results, the underfunded status of the Company’s qualified pension plans as of December 30, 2012, was approximately $396 million. While the funded status of the Company’s qualified pension plans was negatively affected by the decline in interest rates, that decline was more than offset by contributions, the lump-sum offer and solid returns in pension asset performance.
The Company made contributions of approximately $107 million in the fourth quarter and approximately $144 million for the full year of 2012 to certain qualified pension plans. The majority of these contributions were discretionary. In January 2013, the Company made a contribution of approximately $57 million to The New York Times Newspaper Guild pension plan, of which $20 million was necessary to satisfy minimum funding requirements in 2013. For the full year 2013, the Company expects mandatory contributions to other qualified pension plans to raise total contributions to approximately $71 million. The Company will continue to evaluate whether to make additional discretionary contributions in 2013 to its qualified pension plans based on cash flows, pension asset performance, interest rates and other factors.
Outlook
Total advertising revenue trends in the first quarter of 2013 are expected to be similar to the level experienced in the fourth quarter of 2012 on a 13-week basis.
Total circulation revenues are projected to increase in the mid-single digits in the first quarter of 2013 because the Company expects to benefit from its digital subscription initiatives as well as from the print circulation price increase at The New York Times implemented in the first quarter of 2013.
The Company expects first-quarter operating costs to decrease in the low- to mid-single digits largely because it is cycling against approximately $7 million in accelerated depreciation in the first quarter of 2012. Operating costs, excluding depreciation, amortization and severance, are expected to decrease in the low-single digits compared with the same period last year.
In addition, the Company expects the following on a pre-tax basis in 2013:
Results from joint ventures: loss of $1 to $5 million,
Depreciation and amortization: $90 to $95 million,
Interest expense, net: $55 to $60 million, and
Capital expenditures: $40 to $50 million.