Given our ongoing discussion of the cash crunch at the New York Times, we thought it would make sense to take a closer look at the company’s financial position. We realise this is esoteric stuff, but we and some of our friends at the company were curious, so here goes.
If you ignore the potential sale-value of the New York Times’s consolidated businesses (New York Times, Boston Globe, Regional papers), the company has a severely negative net worth. Specifically, it owes about $400 million more than it has. The majority of this money is owed in the next six months, moreover, so this is not some far-off concern.
NYTCo’s operations and debt-service payments are also now consuming more cash each quarter than the company generates. (The company borrowed an additional $25 million in Q3 to fund these losses). Unless NYTCo makes major cost cuts and/or sells or shuts down money-losing divisions, therefore, the picture will only get worse.
A company’s financial position can be divided into two periods: short-term (up to a year) and long-term (more than a year). Neither of these look good for NYTCo. (For the purposes of this analysis, we have ignored intangible assets like “goodwill”, which is essentially an accounting construct, and newsprint inventory, which is small in any case.)
THE SHORT TERM
What NYT Has (Short-Term):
- $46 million of cash
- $366 million owed to it by advertisers
Total: $412 million
What NYT Owes (Short-Term):
- $398 million of short-term debt (due in May)
- $161 million of accounts payable (newsprint, travel, etc.)
- $100 million of payroll (salaries)
- $159 million of other expenses
- $50 million owed on long-term debt and rent
Total: $865 million
Bottom Line: NYTCo owes $453 million more than it has.
Even excluding the $398 million debt payment due in May, the picture is discouraging: The company owes about $50 million more than it has. Since its operations are now burning cash, this picture will only get worse. Even if NYTCo is able to draw down its second $400 million credit line to meet the May debt payment, its short-term liquidity position will be severely negative.
THE LONG TERM
What NYT Has:
- $1.355 billion of buildings, real-estate, printing presses, trucks, technology
- $146 million of investments in joint ventures (Red Sox, etc.)
Total: $1.501 billion
What NYT Owes:
- $673 million of long-term debt
- $7 million of long-term rent
- $284 million of pension benefits
- $214 million of retiree healthcare and other benefits
- $290 million of other liabilities
Total: $1.468 billion
Bottom Line: Balance sheet carrying values can provide a very misleading picture of long-term asset values, especially for things like land and buildings, which may have appreciated (or depreciated) significantly. As a result, there may be significant embedded value in these assets. But assuming the NYT’s land, buildings, and joint-ventures are carried at something approaching market value, NYTCo has only about $33 million more than it owes.
When a company like NYTCo is healthy and generating cash, none of this really matters. The New York Times’s value isn’t in buildings or land–it’s in the value of the brand and ongoing business, which aren’t reflected on the balance sheet. Now that NYTCo has gotten itself in a financial pickle, however, the balance sheet and current cash flows matter a lot.
The NYT’s “current ratio”–current assets vs. current liabilities–is now about 1 to 2, which is horrible (In the next year, the company will be required to pay out more than twice as much value as it has on hand). For comparison, a robustly healthy company, such as Google, has a current ratio of 8 to 1. Even General Motors has a better current ratio than the NYT.
The NYT’s “coverage ratios”–EBITDA to interest payments–are also now alarmingly low: under 4 to 1 in Q3 ($44 million of EBITDA to $12 million of interest payments). These ratios are deteriorating each quarter. By Q1, they will likely turn negative.
The bottom line is that the New York Times will find it very difficult and/or expensive to borrow more money to meet its upcoming liabilities, even over the short term. Now that the stock has collapsed, moreover, it is not in a strong position to issue equity.
Thus, the company’s realistic options have been reduced to:
- Major cost cuts (including dividend)
- Large asset sales
- Sale of equity at fire sale price.
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