The New York Times Company’s Self-Inflicted Insolvency
by Eric Englund
February 25, 2009
The New York Times Company is committed to the creation of long-term shareholder value through investment and constancy of purpose. ~ Investor Relations
The New York Times Company is in deep financial trouble. For fiscal-year 2008, The New York Times announced, on January 28, 2009, that it had generated a net loss of nearly $58 million. Within weeks, on February 19, 2009, the Times’ board of directors announced it was outright suspending the quarterly dividend. Accordingly, this once-mighty company’s stock is now trading at under $4 per share on the New York Stock Exchange. Conventional wisdom has it that the creative destruction of the marketplace is rendering print media into the dustbin of history. This does not explain, however, The New York Times’ financial woes; as it is much more than just a print media company. The truth of the matter is The New York Times sits on the brink of bankruptcy due to incompetent and destructive financial management which has left its balance sheet in tatters.
When a publicly traded company announces that it had a losing year, it is typically not viewed as good news. Yet, The New York Times’ net loss for fiscal-year 2008 is an anomaly. Since fiscal-year 2000, the Times has operated profitably for seven of the past nine years. In fact, since 2000, this company’s cumulative net profit has amounted to $1,598,062,000 (which averages out, over a nine-year period, to an annual net profit of approximately $177.6 million). From an operations standpoint, this is a respectable performance.
So how can such a profitable company end up becoming insolvent? Before answering this question, let’s look at the latest available financial statement for the New York Times Company – as found in the September 28, 2008 third-quarter 10-Q. The following points convey my analysis of The New York Times Company’s balance sheet and it is a frightening sight indeed – please note that I adhere to a conservative method of financial analysis which dictates that intangible assets are always fully discounted:
- On an as-given basis, The New York Times’ working capital position stood at negative $371,828,000. When fully discounting current deferred tax assets of $80,617,000, the working capital position drops to negative $452,445,000.
- As presented in the balance sheet, this company’s net worth stood at $797,072,000. Upon fully discounting all intangible assets, including goodwill and deferred tax assets, I derived an allowable net worth of negative $171,419,000.
- Cash stood at $45,848,000. This is a paltry cash position for a company that consistently generates over $3 billion in annual revenues.
- The Times has tapped into its $800,000,000 revolving credit facilities to the tune of $397,850,000.
When a company has a negative working capital position, a negative tangible net worth, a low cash position, and heavy short-term bank borrowings, it is reasonable to conclude such a company is insolvent.
To be sure, it is quite the conundrum as to how a consistently profitable company, during this decade, can end up with such an emaciated balance sheet. The mystery disappears altogether once you look at The New York Times Company’s reckless dividend and stock buyback programs. Since 2000, the Times has repurchased $1,951,727,000 worth of its common stock. Always and everywhere, stock buybacks result in a depletion of cash, working capital, and net worth (please see two other articles, here and here, in which I express my absolute distaste for stock buybacks). As for dividends, since 2000, The New York Times has paid out $827,874,000 in dividends. Fundamentally, I have no problem with a company paying out dividends. When a company, on the other hand, is aggressively buying back its own stock, it strikes me as irresponsible balance sheet management to further deplete cash, working capital, and equity by also paying out a dividend. It appears, ultimately, that The New York Times’ executive management was attempting to manage its stock price. With its common stock presently hovering at $4 per share, management has failed miserably here. Stock-price management, clearly, can be deadly to a company’s financial health.
So let’s do some simple math. Since 2000, 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.
The New York Times, most certainly, is encountering a difficult operating environment. The internet has posed a serious challenge to companies involved in print media. Advertising revenues, moreover, are dropping dramatically due to the current economic depression. Nonetheless, had executive management been prudent and conservative with respect to balance sheet management, the Times would have had a war chest full of cash, strong working capital, and strong equity; thus, allowing it the financial flexibility to survive these very challenging times. As things stand today, in my opinion, the Times’ strategic alternatives are probably limited to either seeking an acquirer or reorganizing under Chapter 11 Bankruptcy.
In closing, it is appropriate to bring The New York Times’ op-ed columnist, Maureen Dowd, into the picture. She recently savaged executives from A.I.G., Bank of America, Citigroup, Merrill Lynch and the U.S. automakers; deeming them to be incompetent, self-serving charlatans. In this January 28, 2009 op-ed piece titled Wall Street’s Socialist Jet-Setters, she calls these executives "boobs," "dumb," "obtuse," and "…careless ghouls who murdered the economy." So Ms. Dowd, what do you think of the executives who "murdered" The New York Times Company’s balance sheet? What names would you like to call them?
Shall we bring on the shackles? Shall we bring on the show trials?
© 2009 Eric Englund
Eric Englund has an MBA from Boise State University and lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit Hyperinflation.net.