THE NEW YORK TIMES COMPANY EXECUTIVE OVERVIEW We are a global media organization that includes our newspaper, print and digital products and related businesses. We have one reportable segment. We generate revenues principally from subscriptions and advertising. Other revenues primarily consist of revenues from licensing, affiliate referrals from Wirecutter, the leasing of floors in ourNew York headquarters building located at620 Eighth Avenue ,New York, New York (the "Company Headquarters"), commercial printing, television and film, retail commerce and NYT Live (our live events business). Our main operating costs are employee-related costs. In the accompanying analysis of financial information, we present certain information derived from consolidated financial information but not presented in our financial statements prepared in accordance with generally accepted accounting principles inthe United States of America ("GAAP"). We are presenting in this report supplemental non-GAAP financial performance measures that exclude depreciation, amortization, severance, non-operating retirement costs or multiemployer pension plan withdrawal costs, and certain identified special items, as applicable. These non-GAAP financial measures should not be considered in isolation from or as a substitute for the related GAAP measures, and should be read in conjunction with financial information presented on a GAAP basis. For further information and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, see "Non-Operating Items-Non-GAAP Financial Measurements." The Company has changed the expense captions on its Condensed Consolidated Statement of Operations effective for the quarter endedMarch 29, 2020 . These changes were made in order to reflect how the Company manages its business and to communicate where the Company is investing resources and how this aligns with the Company's strategy. The Company has reclassified expenses for the prior period in order to present comparable financial results. There is no change to consolidated operating income, operating expense, net income or cash flows as a result of this change in classification. See Note 15 of the Notes to the Condensed Consolidated Financial Statements for more detail. Financial Highlights Diluted earnings per share from continuing operations were$0.14 and$0.15 for the second quarters of 2020 and 2019, respectively. Diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items discussed below (or "adjusted diluted earnings per share," a non-GAAP measure) were$0.18 and$0.17 for the second quarters of 2020 and 2019, respectively. The Company had an operating profit of$28.8 million in the second quarter of 2020, compared with$37.9 million in the second quarter of 2019. The decrease was principally driven by lower advertising revenues, partially offset by higher digital-only subscription revenues and lower costs. Operating profit before depreciation, amortization, severance, multiemployer pension plan withdrawal costs and special items discussed below (or "adjusted operating profit," a non-GAAP measure) decreased to$52.1 million in the second quarter of 2020 from$55.6 million in the second quarter of 2019, primarily as a result of the factors identified above. Total revenues decreased 7.5% to$403.8 million in the second quarter of 2020 from$436.3 million in the second quarter of 2019, primarily driven by a decrease in advertising revenue, as well as a decrease in other revenue as a result of the conclusion of the first season of "The Weekly" television series, and lower revenues from live events and commercial printing. These declines were partially offset by higher subscription revenues driven by year-over-year growth of 50.0% in the number of subscriptions to the Company's digital products, higher licensing revenue related toFacebook News and increased affiliate referral revenue from Wirecutter. Operating costs decreased in the second quarter of 2020 to$374.9 million from$398.3 million in the second quarter of 2019, largely due to lower media expenses and lower advertising sales costs, as well as lower print production and distribution and advertising servicing costs. These were partially offset by higher digital content delivery and journalism costs, including growth in the number of newsroom and technology employees, and higher severance costs. We recognized severance costs of$6.3 million in the second quarter of 2020, compared with$0.7 million in the second quarter of 2019. The severance costs recognized in 2020 were largely related to workforce reductions primarily affecting our advertising department. Operating costs before depreciation, amortization, severance and multiemployer pension plan withdrawal costs (or "adjusted operating costs," a non-GAAP measure) decreased in the second quarter of 2020 to$351.6 million from$380.7 million in the second quarter of 2019, primarily as a result of the factors identified above other than severance. 23 -------------------------------------------------------------------------------- Impact of COVID-19 Pandemic The global coronavirus (COVID-19) pandemic, and attempts to contain it, have continued to result in significant economic disruption, market volatility and uncertainty. These conditions have affected our business and could continue to do so for the foreseeable future. Unlike many media companies, which are primarily dependent on advertising, we derive substantial revenue from subscriptions (approximately 60% of total revenues in 2019 and 68% in the first half of 2020). We experienced significant growth in the number of subscriptions to our digital news and other products in the first and second quarters of 2020, which we attribute in part to an extraordinary increase in traffic given the current news environment. However, revenues from the single-copy and bulk sales of our print newspaper (which include our international edition and collectively represent less than 10% of our total subscription revenues) have been, and we expect will continue to be, adversely affected as a result of widespread business closures, increased remote working and reductions in travel. The worldwide economic slowdown caused by the pandemic also led to a significant decline in our advertising revenues, beginning in the first quarter of 2020 and continuing in the second quarter of 2020, and to the extent conditions persist, we expect that our advertising revenues will continue to be adversely affected. However, our strong balance sheet has enabled us to continue to operate without the liquidity issues experienced by many other companies. As ofJune 28, 2020 , we had cash, cash equivalents and short- and long-term marketable securities of$756.7 million , and we were debt-free. We believe our cash balance and cash provided by operations, in combination with other sources of cash, will be sufficient to meet our financing needs over the next twelve months, enabling us to continue hiring in our newsroom, and in product and technology, and continue investment in important growth areas. We have incurred and expect to continue to incur some additional costs in response to the pandemic, including certain enhanced employee benefits. These costs have not been significant to date, but we may incur significant additional costs as we continue to implement operational changes in response to the pandemic. At this time, the complete impact that the COVID-19 pandemic, and the associated economic downturn, will have on our business is uncertain. While we remain confident in our prospects over the longer term, the extent to which the pandemic impacts us will depend on numerous evolving factors and future developments, including the severity of the virus; the duration of the outbreak; the impact of the pandemic on economic activity and the companies with which we do business; governmental, business and other actions; travel restrictions; and social distancing measures, among many other factors. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are appropriate. Please see "Part II-Item 1A-Risk Factors" for more information. 24 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following table presents our consolidated financial results: For the Quarters Ended For the Six Months Ended (In thousands) June 28, 2020 June 30, 2019 % Change June 28, 2020 June 30, 2019 % Change Revenues Subscription$ 293,189 $ 270,456 8.4 %$ 578,623 $ 541,266 6.9 % Advertising 67,760 120,761 (43.9 )% 173,897 245,849 (29.3 )% Other 42,801 45,041 (5.0 )% 94,866 88,205 7.6 % Total revenues 403,750 436,258 (7.5 )% 847,386 875,320 (3.2 )% Operating costs Cost of revenue (excluding depreciation and amortization) 230,147 245,195 (6.1 )% 473,819 484,554 (2.2 )% Sales and marketing 39,617 62,289 (36.4 )% 113,413 137,109 (17.3 )% Product development 30,737 25,261 21.7 % 61,539 48,989 25.6 % General and administrative 58,812 50,400 16.7 % 111,673 102,039 9.4 % Depreciation and amortization 15,631 15,180 3.0 % 30,816 30,098 2.4 % Total operating costs 374,944 398,325 (5.9 )% 791,260 802,789 (1.4 )% Operating profit 28,806 37,933 (24.1 )% 56,126 72,531 (22.6 )% Other components of net periodic benefit costs 2,149 1,833 17.2 % 4,463 3,668 21.7 % Interest income/(expense) and other, net 2,786 (1,514 ) * 16,640 (2,817 ) * Income from continuing operations before income taxes 29,443 34,586 (14.9 )% 68,303 66,046 3.4 % Income tax expense 5,781 9,415 (38.6 )% 11,787 10,719 10.0 % Net income 23,662 25,171 (6.0 )% 56,516 55,327 2.1 % Net income attributable to The New York Times Company common stockholders$ 23,662 $ 25,171 (6.0 )%$ 56,516 $ 55,327 2.1 %
* Represents a change equal to or in excess of 100% or not meaningful
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Subscription Revenues
Subscription revenues consist of revenues from subscriptions to our print and
digital products (which include our news product, as well as our Crossword,
Cooking and audio products), and single-copy and bulk sales of our print
products (which represent less than 10% of these revenues). Subscription
revenues are based on both the number of copies of the printed newspaper sold
and digital-only subscriptions, and the rates charged to the respective
customers.
Subscription revenues increased 8.4% in the second quarter of 2020 compared with
the same prior-year period, primarily due to year-over-year growth of 50.0% in
the number of subscriptions to the Company's digital products. This was
partially offset by a decrease in print subscription revenue attributable to
lower single copy and bulk sales, as well as fewer subscriptions, partially
offset by an increase in home delivery prices.
Print domestic home delivery subscriptions totaled approximately 840,000 at the
end of the second quarter of 2020, flat compared with the end of the first
quarter of 2020 and a net decrease of 38,000 compared with the end of the second
quarter of 2019. The year-over-year decrease is a result of secular declines.
Paid digital-only subscriptions totaled approximately 5,670,000 at the end of
the second quarter of 2020, a net increase of 669,000 subscriptions compared
with the end of the first quarter of 2020 and a net increase of 1,890,000
compared with the end of the second quarter of 2019. This significant growth in
the second quarter is attributed in part to an extraordinary increase in traffic
given the current news environment, as well as the digital access model that we
launched last year, which requires users to register and log in to access most
of our content.
Digital-only news product subscriptions totaled approximately 4,390,000 at the
end of the second quarter of 2020, a 493,000 net increase compared with the end
of the first quarter of 2020 and a 1,402,000 increase compared with the end of
the second quarter of 2019. Other product subscriptions (which include our
Crossword, Cooking and audio products) totaled approximately 1,280,000 at the
end of the second quarter of 2020, a 176,000 increase compared with the end of
the first quarter of 2020 and a 488,000 increase compared with the end of the
second quarter of 2019.
The following table summarizes print and digital subscription revenues for the
second quarters and first six months of 2020 and 2019:
For the Quarters Ended For the Six Months Ended
June 30,
(In thousands) June 28, 2020 2019 % Change June 28, 2020 June 30, 2019 % Change
Print
subscription
revenues:
Domestic home
delivery
subscription
revenues(1) $ 132,971 $ 133,038 (0.1 )% $ 266,708 $ 268,241 (0.6 )%
Single copy, NYT
International
and other
subscription
revenues(2) 14,234 24,783 (42.6 )% 35,921 50,531 (28.9 )%
Subtotal print
subscription
revenues 147,205 157,821 (6.7 )% 302,629 318,772 (5.1 )%
Digital-only
subscription
revenues:
News product
subscription
revenues(3) 132,922 104,430 27.3 % 251,880 206,776 21.8 %
Other product
subscription
revenues(4) 13,062 8,205 59.2 % 24,114 15,718 53.4 %
Subtotal
digital-only
subscription
revenues 145,984 112,635 29.6 % 275,994 222,494 24.0 %
Total
subscription
revenues$ 293,189 $ 270,456 8.4 %$ 578,623 $ 541,266 6.9 % (1) Includes free access to some or all of the Company's digital products. (2)NYT International is the international edition of our print newspaper. (3) Includes revenues from subscriptions to the Company's news product. News product subscription packages that include access to the Company's Crossword and Cooking products are also included in this category. (4) Includes revenues from standalone subscriptions to the Company's Crossword, Cooking and audio products. 26 --------------------------------------------------------------------------------
The following table summarizes print and digital subscriptions as of the end of the second quarters of 2020 and 2019:
For the Quarters Ended
June 28,
(In thousands) 2020 June 30, 2019 % Change
Print subscriptions 840 878 (4.3 )%
Digital-only subscriptions:
News product subscriptions(1) 4,390 2,988 46.9 %
Other product subscriptions(2) 1,280 792 61.6 %
Subtotal digital-only subscriptions 5,670 3,780 50.0 %
Total subscriptions 6,510 4,658 39.8 %
(1) Includes subscriptions to the Company's news product. News product subscription packages that
include access to the Company's Crossword and Cooking products are also included in this category.
(2) Includes standalone subscriptions to the Company's Crossword, Cooking and audio products.
During the first quarter of 2020, the Company acquired a subscription-based audio product.
Approximately 20,000 of the audio product's subscriptions were included in the Company's
digital-only other product subscriptions at the time of acquisition.
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We believe that the significant growth over the last several years in
subscriptions to our products demonstrates the success of our
"subscription-first" strategy and the willingness of our readers to pay for
high-quality journalism. The following charts illustrate the acceleration in net
digital-only subscription additions and corresponding subscription revenues as
well as the relative stability of our print domestic home delivery subscription
products since the launch of the digital pay model in 2011.
[[Image Removed: chart-e30ac91963eb975d4f6.jpg]]
[[Image Removed: chart-ea568a956eed4e8c005.jpg]]
(1) Amounts may not add due to rounding.
(2) Print domestic home delivery subscriptions include free access to some or
all of our digital products.
(3) Print Other includes single copy, NYT International and other subscription
revenues.
Note: Revenues for 2012 and 2017 include the impact of an additional week.
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Advertising Revenues
Advertising revenues are primarily derived from offerings sold directly to
marketers by our advertising sales teams. A significantly smaller and
diminishing proportion of our total advertising revenues is generated through
programmatic auctions run by third-party ad exchanges. Advertising revenues are
primarily determined by the volume, rate and mix of advertisements. Display
advertising revenue is principally from advertisers promoting products, services
or brands in print in the form of column-inch ads, and on our digital platforms
in the form of banners and video in websites, mobile applications and emails.
Display advertising includes advertisements that direct viewers to branded
content on our platforms. Other print advertising primarily represents
classified advertising revenue, including line-ads sold in the major categories
of real estate, help wanted, automotive and other as well as revenue from
preprinted advertising, also known as free-standing inserts. Other digital
advertising revenue primarily includes creative services fees, including those
associated with our branded content studio; advertising revenue from our
podcasts; and advertising revenue generated by Wirecutter, our product review
and recommendation website.
Advertising revenues (print and digital) by category were as follows:
For the Quarters Ended
June 28, 2020 June 30, 2019 % Change
(In
thousands) Print Digital Total Print Digital Total Print Digital Total
Advertising revenues:
Display $ 21,460 $ 30,466 $ 51,926 $ 55,859 $ 42,833 $ 98,692 (61.6 )% (28.9 )% (47.4 )%
Other 6,769 9,065 15,834 6,876 15,193 22,069 (1.6 )% (40.3 )% (28.3 )%
Total
advertising $ 28,229 $ 39,531 $ 67,760 $ 62,735 $ 58,026 $ 120,761 (55.0 )% (31.9 )% (43.9 )%
For the Six Months Ended
June 28, 2020 June 30, 2019 % Change
(In
thousands) Print Digital Total Print Digital Total Print Digital Total
Advertising revenues:
Display $ 69,619 $ 70,360 $ 139,979 $ 118,201 $ 84,945 $ 203,146 (41.1 )% (17.2 )% (31.1 )%
Other 13,589 20,329 33,918 14,079 28,624 42,703 (3.5 )% (29.0 )% (20.6 )%
Total
advertising $ 83,208 $ 90,689 $ 173,897 $ 132,280 $ 113,569 $ 245,849 (37.1 )% (20.1 )% (29.3 )%
Print advertising revenues, which represented 41.7% of total advertising
revenues for the second quarter of 2020 and 47.8% of total advertising revenues
for the first six months of 2020, declined 55.0% to $28.2 million in the second
quarter of 2020 and 37.1% to $83.2 million in the first six months of 2020,
compared with $62.7 million and $132.3 million , respectively, in the same
prior-year periods. The decline in print advertising revenues in the second
quarter of 2020 and for the six months of 2020 compared with the same prior-year
periods was driven by lower demand as the COVID-19 pandemic further accelerated
secular trends. The decline in print display advertising revenue in the second
quarter of 2020 was primarily in the entertainment, luxury and technology
categories. The decline in print display advertising revenue in the first six
months of 2020 was primarily in the entertainment, luxury and media categories.
Digital advertising revenues, which represented 58.3% of total advertising
revenues for the second quarter of 2020 and 52.2% of total advertising revenues
for the first six months of 2020, declined 31.9% to $39.5 million in the second
quarter of 2020 and 20.1% to $90.7 million in the first six months of 2020,
compared with $58.0 million and $113.6 million , respectively, in the same
prior-year periods. The decrease in digital advertising revenue for the second
quarter of 2020 and for the first six months of 2020 compared with the same
periods in the prior year primarily reflects lower demand for direct-sold
advertising as advertisers respond to weak and uneven economic conditions a
result of the COVID-19 pandemic.
Other Revenues
Other revenues primarily consist of revenues from licensing, affiliate referrals
from Wirecutter, the leasing of floors in our Company Headquarters, commercial
printing, television and film, retail commerce and NYT Live (our live events
business). Building rental revenue consists of revenue from the lease of floors
in our Company Headquarters, which totaled $7.3 million and $7.4 million in the
second quarters of 2020 and 2019, respectively, and $15.2 million and $15.1
million in the first six months of 2020 and 2019, respectively.
Other revenues decreased 5.0% in the second quarter of 2020 and increased 7.6%
in the first six months of 2020, compared with the same prior-year periods. The
decrease in other revenues for the second quarter of 2020 compared with the
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same period in the prior year is primarily a result of the conclusion of the
first season of "The Weekly" television series, as well as lower revenues from
live events and commercial printing. These declines were partially offset by
higher licensing revenue related to Facebook News and affiliate referral revenue
related to Wirecutter. The increase in other revenues for the first six months
of 2020 compared with the same period in the prior year primarily resulted from
higher licensing revenue related to Facebook News and affiliate referral revenue
related to Wirecutter, partially offset by a decline in revenues from commercial
printing and live events.
Operating Costs
As noted above, effective with the quarter ended March 29, 2020 , the Company has
changed the Operating costs captions on its Condensed Consolidated Statement of
Operations. See Note 15 of the Notes to the Condensed Consolidated Financial
Statements for more detail.
Operating costs were as follows:
For the Quarters Ended For the Six Months Ended
(In thousands) June 28, 2020 June 30, 2019 % Change June 28, 2020 June 30, 2019 % Change
Operating costs:
Cost of revenue
(excluding
depreciation and
amortization) $ 230,147 $ 245,195 (6.1 )% $ 473,819 $ 484,554 (2.2 )%
Sales and
marketing 39,617 62,289 (36.4 )% 113,413 137,109 (17.3 )%
Product
development 30,737 25,261 21.7 % 61,539 48,989 25.6 %
General and
administrative 58,812 50,400 16.7 % 111,673 102,039 9.4 %
Depreciation and
amortization 15,631 15,180 3.0 % 30,816 30,098 2.4 %
Total operating
costs $ 374,944 $ 398,325 (5.9 )% $ 791,260 $ 802,789 (1.4 )%
Cost of Revenue (excluding depreciation and amortization)
Cost of revenue includes all costs related to content creation, subscriber and
advertiser servicing, and print production and distribution costs as well
as infrastructure costs related to delivering digital content, which include all
cloud and cloud-related costs as well as compensation for employees that enhance
and maintain our platforms.
Cost of revenue decreased in the second quarter of 2020 by $15.0 million
compared with the second quarter of 2019, largely due to lower print production
and distribution costs of $17.5 million and lower advertising servicing costs of
$7.2 million , which were partially offset by higher digital content delivery
costs of $5.0 million , higher subscriber servicing costs of $2.8 million and
higher journalism costs of $1.9 million . The decrease in print production and
distribution costs was largely due to lower newsprint consumption and pricing
and lower distribution costs. The decrease in advertising servicing costs was
due to lower volume of campaigns and workforce reductions affecting our
advertising department. Higher digital content delivery costs were due to growth
in the number of employees to support cloud related operations, content creation
and delivery systems as well as higher cloud storage costs. The increase in
subscriber servicing costs was primarily due to higher credit card processing
fees due to increased subscriptions. The increase in journalism costs was
largely driven by an increase in the number of newsroom employees, partially
offset by lower costs related to our television series.
Cost of revenue decreased in the first six months of 2020 by $10.7 million
compared with the first six months of 2019, largely due to lower print
production and distribution costs of $28.4 million and lower advertising
servicing costs of $9.6 million , which were partially offset by higher
journalism costs of $15.7 million , higher digital content delivery costs of $7.3
million and higher subscriber servicing costs of $4.2 million . The decreases in
print production and distribution costs and in advertising servicing costs were
largely due to the factors identified above. The increase in journalism costs
was largely driven by an increase in the number of newsroom employees. Higher
digital content delivery and subscriber servicing costs were largely due to the
factors identified above.
Sales and Marketing
Sales and marketing includes costs related to the Company's marketing efforts as
well as advertising sales costs.
Sales and marketing costs in the second quarter of 2020 decreased by $22.7
million compared with the second quarter of 2019, due primarily to lower media
expenses, as well as lower advertising sales costs.
30
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Sales and marketing costs decreased in the first six months of 2020 by $23.7
million compared with the first six months of 2019, primarily as a result of the
factors identified above.
Media expenses, a component of sales and marketing costs, which represents the
cost to promote our subscription business, decreased to $16.5 million in the
second quarter of 2020 from $33.9 million in the first quarter of 2019 and
decreased to $61.9 million in the first six months of 2020 from $78.7 million in
the first six months of 2019 as the Company reduced its marketing spend during
the initial months of the COVID-19 pandemic.
Product Development
Product development includes costs associated with the Company's investment into
developing and enhancing new and existing product technology including
engineering, product development, and data insights.
Product development costs in the second quarter of 2020 increased by $5.5
million compared with the second quarter of 2019, largely due to growth in the
number of digital product development employees in connection with digital
subscription strategic initiatives.
Product development costs in the first six months of 2020 increased by $12.6
million compared with the first six months of 2019, primarily as a result of the
factors identified above.
General and Administrative Costs
General and administrative costs includes general management, corporate
enterprise technology, building operations and unallocated overhead costs.
General and administrative costs in the second quarter of 2020 increased by $8.4
million compared with the second quarter of 2019, primarily due to higher
severance costs largely related to workforce reductions primarily affecting our
advertising department.
General and administrative costs in the first six months of 2020 increased by
$9.6 million compared with the first six months of 2019, primarily as a result
of the factors identified above.
Depreciation and Amortization
Depreciation and amortization costs in the second quarter and first six months
of 2020 remained relatively flat compared with the same prior-year periods.
Other Items
See Note 7 of the Notes to the Condensed Consolidated Financial Statements for
additional information regarding other items.
NON-OPERATING ITEMS
Other Components of Net Periodic Benefit Costs
See Note 9 of the Notes to the Condensed Consolidated Financial Statements for
information regarding other components of net periodic benefit costs.
Interest Income/(expense) and other, net
See Note 7 of the Notes to the Condensed Consolidated Financial Statements for
information regarding interest income/(expense) and other, net.
Income Taxes
See Note 10 of the Notes to the Condensed Consolidated Financial Statements for
information regarding income taxes.
Non-GAAP Financial Measures
We have included in this report certain supplemental financial information
derived from consolidated financial information but not presented in our
financial statements prepared in accordance with GAAP. Specifically, we have
referred to the following non-GAAP financial measures in this report:
• diluted earnings per share from continuing operations excluding severance,
non-operating retirement costs and the impact of special items (or
adjusted diluted earnings per share from continuing operations);
• operating profit before depreciation, amortization, severance,
multiemployer pension plan withdrawal costs and special items (or adjusted
operating profit); and
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• operating costs before depreciation, amortization, severance and
multiemployer pension plan withdrawal costs (or adjusted operating costs).
The special item in 2020 consisted of:
• a
a non-marketable equity investment transaction. The gain is comprised of
an
investment, and is included in Interest income/(expense) and other, net in
our Condensed Consolidated Statements of Operations.
There were no special items in 2019.
We have included these non-GAAP financial measures because management reviews
them on a regular basis and uses them to evaluate and manage the performance of
our operations. We believe that, for the reasons outlined below, these non-GAAP
financial measures provide useful information to investors as a supplement to
reported diluted earnings/(loss) per share from continuing operations, operating
profit/(loss) and operating costs. However, these measures should be evaluated
only in conjunction with the comparable GAAP financial measures and should not
be viewed as alternative or superior measures of GAAP results.
Adjusted diluted earnings per share provides useful information in evaluating
the Company's period-to-period performance because it eliminates items that the
Company does not consider to be indicative of earnings from ongoing operating
activities. Adjusted operating profit is useful in evaluating the ongoing
performance of the Company's businesses as it excludes the significant non-cash
impact of depreciation and amortization as well as items not indicative of
ongoing operating activities. Total operating costs include depreciation,
amortization, severance and multiemployer pension plan withdrawal costs. Total
operating costs, excluding these items, provide investors with helpful
supplemental information on the Company's underlying operating costs that is
used by management in its financial and operational decision-making.
Management considers special items, which may include impairment charges,
pension settlement charges and other items that arise from time to time, to be
outside the ordinary course of our operations. Management believes that
excluding these items provides a better understanding of the underlying trends
in the Company's operating performance and allows more accurate comparisons of
the Company's operating results to historical performance. In addition,
management excludes severance costs, which may fluctuate significantly from
quarter to quarter, because it believes these costs do not necessarily reflect
expected future operating costs and do not contribute to a meaningful comparison
of the Company's operating results to historical performance.
Included in our non-GAAP financial measures are non-operating retirement costs
which are primarily tied to financial market performance and changes in market
interest rates and investment performance. Management considers non-operating
retirement costs to be outside the performance of the business and believes that
presenting adjusted diluted earnings per share from continuing operations
excluding non-operating retirement costs and presenting adjusted operating
results excluding multiemployer pension plan withdrawal costs, in addition to
the Company's GAAP diluted earnings per share from continuing operations and
GAAP operating results, provide increased transparency and a better
understanding of the underlying trends in the Company's operating business
performance.
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--------------------------------------------------------------------------------Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are set out in the tables below. Reconciliation of diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations)
For the Quarters Ended For the Six Months Ended
June 28, 2020 June 30, 2019 % Change June 28, 2020 June 30, 2019 % Change
Diluted earnings
per share from
continuing
operations $ 0.14 $ 0.15 (6.7 )% $ 0.34 $ 0.33 3.0 %
Add:
Severance 0.04 - * 0.04 0.01 *
Non-operating
retirement costs:
Multiemployer
pension plan
withdrawal costs 0.01 0.01 - 0.02 0.02 -
Other components
of net periodic
benefit costs 0.01 0.01 - 0.03 0.02 50.0 %
Special item:
Gain from
non-marketable
equity security - - - (0.06 ) - *
Income tax expense
of adjustments (0.02 ) (0.01 ) * (0.01 ) (0.01 ) -
Adjusted diluted
earnings per share
from continuing
operations(1) $ 0.18 $ 0.17 5.9 % $ 0.35 $ 0.37 (5.4 )%
(1)Amounts may not add due to rounding.
* Represents a change equal to or in excess of 100% or not meaningful
Reconciliation of operating profit before depreciation & amortization, severance, multiemployer pension plan withdrawal
costs and special items (or adjusted operating profit)
For the Quarters Ended For the Six Months Ended
(In thousands) June 28, 2020 June 30, 2019 % Change June 28, 2020 June 30, 2019 % Change
Operating profit $ 28,806 $ 37,933 (24.1 )% $ 56,126 $ 72,531 (22.6 )%
Add:
Depreciation &
amortization 15,631 15,180 3.0 % 30,816 30,098 2.4 %
Severance 6,305 672 * 6,675 2,075 *
Multiemployer
pension plan
withdrawal costs 1,400 1,801 (22.3 )% 2,823 3,250 (13.1 )%
Adjusted
operating profit $ 52,142 $ 55,586 (6.2 )% $ 96,440 $ 107,954 (10.7 )%
* Represents a change equal to or in excess of 100% or not meaningful
33
--------------------------------------------------------------------------------Reconciliation of operating costs before depreciation & amortization, severance and multiemployer pension plan withdrawal costs (or adjusted operating costs)
For the Quarters Ended For the Six Months Ended
(In thousands) June 28, 2020 June 30, 2019 % Change June 28, 2020 June 30, 2019 % Change
Operating costs $ 374,944 $ 398,325 (5.9 )% $ 791,260 $ 802,789 (1.4 )%
Less:
Depreciation &
amortization 15,631 15,180 3.0 % 30,816 30,098 2.4 %
Severance 6,305 672 * 6,675 2,075 *
Multiemployer
pension plan
withdrawal costs 1,400 1,801 (22.3 )% 2,823 3,250 (13.1 )%
Adjusted
operating costs $ 351,608 $ 380,672 (7.6 )% $ 750,946 $ 767,366 (2.1 )%
* Represents a change equal to or in excess of 100% or not meaningful
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LIQUIDITY AND CAPITAL RESOURCES
We believe our cash balance and cash provided by operations, in combination with
other sources of cash, will be sufficient to meet our financing needs over the
next twelve months. Although there is uncertainty related to the anticipated
continued effect of the COVID-19 pandemic on our business (see "-Executive
Overview- Impact of COVID-19 Pandemic" and "Part II-Item 1A-Risk Factors"),
given the strength of our balance sheet, we do not expect the pandemic to
materially impact our liquidity position. As of June 28, 2020 , we had cash, cash
equivalents and short- and long-term marketable securities of $756.7 million .
Our cash and marketable securities balances between the end of 2019 and June 28,
2020 , increased, primarily due to cash proceeds from operating activities and
proceeds from sale of investments, partially offset by capital expenditures,
dividend payments, share-based compensation tax withholding, and costs
associated with the acquisition of a business.
We have paid quarterly dividends on the Class A and Class B Common Stock each
quarter since late 2013. In February 2020 , the Board of Directors approved an
increase in the quarterly dividend to $0.06 per share, which was paid in April
2020 . On June 30, 2020 , the Board of Directors declared a quarterly dividend of
$0.06 per share on the Class A and Class B Common Stock, which was paid in July
2020 . We currently expect to continue to pay comparable cash dividends in the
future, although changes in our dividends will be considered by our Board of
Directors in light of our earnings, capital requirements, financial condition
and other factors considered relevant.
Capital Resources
Sources and Uses of Cash
Cash flows provided by/(used in) by category were as follows:
For the Six Months Ended
(In thousands) June 28, 2020 June 30, 2019 % Change
Operating activities $ 118,590 $ 64,000 85.3 %
Investing activities $ (72,938 ) $ (23,521 ) *
Financing activities $ (28,192 ) $ (27,850 ) 1.2 %
* Represents a change equal to or in excess of 100% or not meaningful
Operating Activities
Cash from operating activities is generated by cash receipts from subscriptions,
advertising sales and other revenue. Operating cash outflows include payments
for employee compensation, pension and other benefits, raw materials, marketing
expenses, interest and income taxes.
Net cash provided by operating activities increased in the first six months of
2020 compared with the same prior-year period due to higher cash collections
from accounts receivable and higher cash payments received from prepaid
subscriptions, partially offset by higher cash payments made to settle accounts
payable, accrued payroll and other liabilities.
Investing Activities
Cash from investing activities generally includes proceeds from marketable
securities that have matured and the sale of assets, investments or a business.
Cash used in investing activities generally includes purchases of marketable
securities, payments for capital projects and acquisitions of new businesses and
investments.
Net cash used in investing activities in the first six months of 2020 was
primarily related to $49.8 million in net purchases of marketable securities,
$21.5 million in capital expenditures payments, and $8.1 million cash outflow
for the acquisition of a business.
Financing Activities
Cash from financing activities generally includes borrowings under third-party
financing arrangements, the issuance of long-term debt and funds from stock
option exercises. Cash used in financing activities generally includes the
repayment of amounts outstanding under third-party financing arrangements, the
payment of dividends, the payment of long-term debt and finance lease
obligations and share-based compensation tax withholding.
Net cash used in financing activities in the first six months of 2020 was
primarily related to dividend payments of $18.4 million and share-based
compensation tax withholding payments of $11.7 million .
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Restricted Cash
We were required to maintain $15.8 million of restricted cash as of June 28,
2020 , and $17.1 million as of December 29, 2019 , substantially all of which is
set aside to collateralize workers' compensation obligations.
Capital Expenditures
Capital expenditures totaled approximately $17 million and $24 million in the
first six months of 2020 and 2019, respectively. The decrease in capital
expenditures was primarily driven by lower investments in technology and lower
expenditures related to improvements at our College Point, N.Y. printing and
distribution facility. The cash payments related to capital expenditures totaled
approximately $22 million and $23 million in the first six months of 2020 and
2019, respectively.
Third-Party Financing
In September 2019 , we entered into a $250 million five-year unsecured credit
facility (the "Credit Facility"). Certain of our domestic subsidiaries have
guaranteed our obligations under the Credit Facility. As of June 28, 2020 , there
were no outstanding borrowings under the Credit Facility and the Company was in
compliance with the financial covenants contained in the Credit Facility.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are detailed in our Annual Report on Form 10-K
for the year ended December 29, 2019 . Other than as described in Note 2 of the
Notes to the Condensed Consolidated Financial Statements, as of June 28, 2020 ,
our critical accounting policies have not changed from December 29, 2019 .
CONTRACTUAL OBLIGATIONS & OFF-BALANCE SHEET ARRANGEMENTS
Our contractual obligations and off-balance sheet arrangements are detailed in
our Annual Report on Form 10-K for the year ended December 29, 2019 . As of
June 28, 2020 , our contractual obligations and off-balance sheet arrangements
have not changed materially from December 29, 2019 .
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the section titled "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contains forward-looking statements that relate to future events or our future
financial performance. We may also make written and oral forward-looking
statements in our Securities and Exchange Commission ("SEC") filings and
otherwise. We have tried, where possible, to identify such statements by using
words such as "believe," "expect," "intend," "estimate," "anticipate," "will,"
"could," "project," "plan" and similar expressions in connection with any
discussion of future operating or financial performance. Any forward-looking
statements are and will be based upon our then-current expectations, estimates
and assumptions regarding future events and are applicable only as of the dates
of such statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
By their nature, forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated in any such statements. You should bear this in mind as you consider
forward-looking statements. Factors that we think could, individually or in the
aggregate, cause our actual results to differ materially from expected and
historical results include those described under the heading "Part II-Item
1A-Risk Factors" in this report, in our Annual Report on Form 10-K for the year
ended December 29, 2019 , as well as other risks and factors identified from time
to time in our SEC filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our Annual Report on Form 10-K for the year ended December 29, 2019 , details our
disclosures about market risk. As of June 28, 2020 , there were no material
changes in our market risks from December 29, 2019 .
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