When the New York Times (NYT) reported its Q1 results, we summarized the situation by saying the company’s cash crisis is still critical and bankruptcy is a very real possibility. The company has now published more detailed numbers in its 10Q. The Q1 operating cash burn was not as severe as we estimated, but the basic conclusion stands.
NYTCo CFO James Follo squeezed some cash out of the company’s balance sheet in the quarter by stretching payables and accelerating the collection of receivables. This is smart financial management, especially under the circumstances. This held the company’s free cash flow loss to $4 million instead of the $28 million that we initially estimated.
If the company is able to maintain a neutral or slim cash burn (which it absolutely should), NYTCo’s near-term survival should not be an issue. Specifically, if Follo can avoid burning more than $100 million of cash in the next two years, the day of reckoning will be postponed until 2011, when some of the big debts start coming due (starting with a $400 million line of credit, which, by then, will be maxed out).
The 10Q confirms that NYTCo has $131 million of borrowing capacity left (we had estimated $135 million). Thanks to a change in a financial assumption (the discount rate), the unfunded pension hole has also been reduced to $300 million instead of the $500+ million that the company reported at the end of Q4. The terms of the company’s Carlos Slim financing are far more onerous than they initially appeared, however, and the rest of the situation remains the same.
The company’s current ratio is negative: Its short-term cash obligations exceed its short-term assets by about $200 million. It has about $1 billion of debt it will have to pay off over the next decade (not including the pension hole).
Over the next year, NYTCo will continue to try to reduce near-term pressure by cutting costs, raising more capital, and/or selling assets. With regard to raising capital, the money is likely to remain extraordinarily expensive. The last time the company raised additional capital, from Carlos Slim, it was forced to pay a 15% annual interest rate plus warrants and agree to some onerous terms (see below).
Over the next year, the company will also likely continue to try to sell its Red Sox stake, which could bring in another $150 million or so. Thanks to the terms of the Carlos Slim loan, however, any “excess cash” (over $10 million) from this transaction must be used to repay senior debt (senior to Carlos), make acquisitions, or fund capital expenditures–or it must immediately be shipped to the Mexican billionaire. This means it can’t be used to fund operations or repay the line of credit. The same conditions will apply to any other transactions the company does.
(This confirms that taking Slim’s money was an absolute emergency: NYTCo gave away warrants on more than 10% of the company in exchange for what amounted to a short-term bridge loan at a usurious interest rate. The moment the company sells an asset, it will have to send all the money to Slim.).
New York Times staffers will also not be encouraged to learn that the company may still have to fire people.
“Given the current economic outlook, we will continue to evaluate additional cost-reduction opportunities, including further staff reductions.”