A Wary Eye on New York Times


On Feb. 18, Standard & Poor's Ratings Services revised its outlook on New York Times Co. (NYT) to negative from stable. At the same time, Standard & Poor's affirmed the A+ long-term corporate credit and senior unsecured debt ratings, and its A-1 short-term corporate credit and commercial paper ratings on the company. About $1.1 billion of debt was outstanding at December, 2004.

The outlook revision reflects the company's planned acquisition of About.com, a leading online consumer-information provider, for $410 million in cash.

MORE DEBT. While the transaction will increase New York Times' reach and scale in the online market, this debt-financed purchase will result in a financial profile that is weak for the A+ corporate credit rating. Ratings may be lowered if New York Times does not strengthen its financial profile in the intermediate term.

The ratings on New York Times reflect the New York-headquartered company's strong market positions, healthy internal cash generation, and historically conservative financial policy. These factors are tempered by the increased pro forma debt levels due to the About.com acquisition and a continued challenging advertising climate.

New York Times is a diversified media concern with newspaper, television, and radio broadcasting, and Internet operations. The news-media group segment, which accounts for more than 90% of revenues and operating cash flow, consists of the nationally distributed newspaper The New York Times, as well as The Boston Globe, The International Herald Tribune, regional newspapers, and related newspaper Web sites.

HIGHER COSTS. The company is subject to the general economy's impact on advertising revenues and the variability of newsprint prices. In addition, New York Times is heavily dependent on The Times, which accounts for more than 50% of the approximately $3.3 billion in annual revenues. Consolidated results over the 2001 to 2003 period were affected by the soft advertising environment.

This was mitigated in part by ongoing cost-control programs. Like other media companies, New York Times continues to face some difficult operating conditions. While overall advertising revenues are recovering, the company's category and geographic trends are mixed. Plus, New York Times is being impacted by higher operating costs, including compensation, promotion, outside printing, and newsprint.

The pro forma financial profile is weak for the rating. However, the company generates meaningful levels of cash flow after capital expenditures and dividends. This discretionary cash flow has been used primarily for share repurchases and investments over the years. Standard & Poor's expects that New York Times will significantly reduce its share repurchases in the intermediate term to provide funds for debt reduction.

Short-term credit factors: New York Times has ample near-term liquidity. At December, 2004, New York Times had $42 million in cash and equivalents, and about $335 million available under its $670 million of revolving credit agreements.

These facilities, which consist of $270 million due June, 2006, and $400 million due May, 2009, are undrawn and are used to back up the commercial-paper program. In January, 2005, the company sold its current headquarters and used these proceeds, along with cash generated from other working-capital changes, to repay about $230 million of debt.

Liquidity also benefits from New York Times' discretionary cash flow generation, which totaled $199 million for the 12 months ended September, 2004 (latest available) and $202 million for the recent nine-month period, vs. $263 million in the prior year.

The company has provided 2005 capital-expenditure guidance in the range of $235 million to $265 million (including $120 million to $135 million for the new headquarters), up from the $169 million ($58 million) spent last year. Annual dividends are in the $90 million area. Share repurchases in 2004 totaled about $290 million. In December, 2004, New York Times made a $57 million pension plan contribution.

In February 2005, it announced plans to redeem its outstanding $72 million of 8.25% debentures due 2025. Also, New York Times' $250 million 7.625% notes mature in March, 2005. It plans to refinance these issues, as well as fund the About.com acquisition, with long-term debt-financing and commercial-paper borrowings. -- from Standard & Poor's Ratings Services


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