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by Eric Englund
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?
February
25, 2009
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