New York Times Company Is Still Insolvent
by Eric Englund: The
Duplicity of Warren Buffett
company can stay afloat much longer than anticipated. For example,
on July 5, 2006, Karen De Coster
and I published an essay titled General
Motors, Market Engineering, and Confidence "Protection."
In this essay, we stated: "With such a weak balance sheet,
GM will not survive a recession. Hence, bankruptcy is a possibility…"
On June 1, 2009, nearly three years after we wrote this essay, General
for Chapter 11 bankruptcy. I was amazed it took that long for
GM to throw in the towel. In May of 2005, I wrote an essay
critical of Bill Ford, Jr. and Ford Motor Company. I asserted, in
this piece, that Ford Motor Company will go bankrupt. Six years
later, Ford Motor Company is still standing; yet, I steadfastly
maintain it will go bankrupt as Ford’s balance sheet remains a train-wreck.
Twenty-six months ago, I penned an essay titled The
New York Times Company’s Self-Inflicted Insolvency. How
is The Gray
Lady staying afloat even though, in my opinion, she is still
insolvent? In one word, debt.
So let’s take
a look at The New York Times Company’s financial condition at fiscal
year-end 2010. Please note I adhere to a conservative method
of financial analysis which dictates that intangible assets are
always fully discounted. Without further ado, here are the not-so-pretty
highlights of The Gray Lady’s sad state of financial disrepair:
debt and capital lease obligations stood at $996.4 million.
- From fiscal
year-end 2008 to fiscal year-end (FYE) 2010, long-term debt and
capital lease obligations have increased by $416 million; which
is a 71.7% increase over this two-year period.
at the balance sheet on an "as-given" basis, the total-liabilities-to-equity
ratio is 4 to 1. Anything over 3 to 1 indicates uncomfortably
- After discounting
$1,004.5 million of intangible assets, The New York Times Company
has an allowable net worth of negative $340.4 million.
What may give
some adoring supporters of The Gray Lady some solace is her improvement,
capital, since fiscal year-end 2008. As of FYE 2010, allowable
working capital stood at $284 million. This is a vast improvement
over her allowable working capital position, of negative $460.8
million, at FYE 2008. Two consecutive years of profitability, to
be sure, will help rebuild working capital. On the other hand, the
improvement in working capital also came at the price of going much
deeper into debt over the past two years; with three key debt transactions
being highlighted below (amounts owed are as of FYE 2010):
- $227.7 million
owed to companies affiliated with Carlos
Slim. Proceeds from this loan netted The New York Times $221.3
million in 2009. The effective interest rate, on this transaction,
- $217.3 million
owed in relationship to sale-leaseback financing of The New
York Times’ ownership interest in its headquarters building.
Proceeds from The Gray Lady’s sale-leaseback arrangement netted
her $210.5 million in 2009. The effective interest rate, on this
transaction, is 13%.
- $220.1 million
owed on 6.625% senior unsecured notes issued in November of 2010.
This transaction netted the Times $220.2 million in cash
and has an effective interest rate of 7%.
borrowings, over the past two years, were instrumental in helping
The New York Times to pay down its bank line to $0 (down
from $380 million), to redeem $259.5 million of long-term debt,
to make debt repayments of $99.6 million, and to bring working capital
significantly into positive territory. Unquestionably, replacing
$380 million of short-term bank debt, with long-term debt, gave
working capital a considerable boost.
Taking on debt,
at such high interest rates, clearly indicates The New York Times
Company’s management team is desperate. Keep in mind that this heavy
borrowing binge is a manifestation of The Gray Lady’s reckless financial
management during the first decade of this millennium. Regarding
the time period of 2000 through the third quarter of 2008, I stated
the following in my essay The New York Times Company’s Self-Inflicted
The New York Times Company has generated a respectable cumulative
net income of $1,598,062,000. Yet management, over the same period,
has paid out $2,779,601,000 for stock buybacks and dividends.
This means, during the present decade, stock buybacks and dividends
have exceeded cumulative net income by an astonishing $1,181,539,000.
Is it any wonder The New York Times' balance sheet is such a train-wreck?
Operationally, this company has done well during the past nine
years. Conversely, the company's balance sheet has been hideously
mismanaged by an incompetent executive management team – as supervised
by a grossly negligent board of directors.
So, as a result
of this negligent financial management, the Times had to load up
on debt in order to stay afloat a while longer – how much longer
is anyone’s guess.
In light of
the terrible economy and the grim prospects for print media, what
is the prognosis for The Gray Lady? As Gary North points out in
his excellent LRC piece titled Why
I Hung Up on a New York Times Reporter, 2011 is not shaping
up, so far, to be a good year for The New York Times. In the first
quarter of 2011, both operating profit and earnings per share have
declined dramatically when compared to the first quarter of 2010.
As Dr. North stated in his article: "Profits are fading fast.
It is clear what is happening. The Times is going belly-up."
I agree and
the sooner the better.
Englund [send him mail], who
has an MBA from Boise State University, lives in the state of Oregon.
He is the publisher of The
Hyperinflation Survival Guide by Dr. Gerald Swanson. He is
also a member of The National Society, Sons of the American Revolution.
You are invited to visit his website.
© 2011 Eric Englund
Best of Eric Englund