The New York Times (NYT) is running on fumes. And one of the challenges the company faces in trying to avoid bankruptcy is that shutting-down money-losing operations actually costs money.
For example, shutting down some New York distribution operations, which the NYT announced it would do in early September, will cost about $50 million (disclosed in an 8K filing yesterday). The move will eliminate $30 million of losses annually, which is good, but the NYT can’t afford to write $50 million checks these days.
(To put the $50 million in context, the company only had $46 million of cash at the end of Q3 and it had to borrow more money to fund its operations in the quarter.)
Bottom line, the closure expense, which will presumably hit the books in Q4 and Q1, will further weaken the company’s balance sheet. The NYT says it is working with creditors to “manage” its debt obligations, but it has yet to explain how it plans to come up with the $400 million it needs to pony up in May.
On September 8, 2008, the Company announced that, in January 2009, it will close City & Suburban, its distribution organisation that delivers The New York Times and other newspapers and magazines to newsstands and retail outlets in the New York metropolitan region. Going forward, The New York Times will be distributed to newsstand and retail outlets through a combination of third-party wholesalers and the Company’s own drivers.
Approximately 530 full-time equivalent employees will be affected by the closure and the Company plans to provide severance packages to them. On November 25, 2008, members of the drivers’ union ratified an agreement reached between the Company and the union, including severance payments in connection with the closure.
As a result, the Company estimates that it will record total costs of $48 to $53 million in connection with the closure, consisting primarily of approximately $30 million for staff reduction costs and a $14 million charge related to above-market operating lease agreements. The remainder of the estimated costs are primarily related to transition costs, accelerated depreciation on certain assets and funding of a union pension plan. The majority of these costs will be recorded by the end of the Company’s 2008 fiscal year-end, with the remainder recorded in the first quarter of 2009. In addition, the Company is currently negotiating to sell a City & Suburban location that it owns. The timing of the sale is not currently known.
The Company expects the closure of City & Suburban to improve the operating results of The New York Times Media Group by approximately $30 million on an annual basis. This is a result of an estimated decrease in costs of approximately $120 million to operate City & Suburban, offset in part by an estimated decrease in revenue of approximately $90 million. The revenue decrease is expected to be in other revenues (from the elimination of delivering third-party publications) and in circulation revenue (from the sale of The New York Times to wholesale distributors rather than retailers).