Financial desperation grows at the New York Times

By Thomas Lifson

Silicon Alley blogger Henry Blodgett draws our attention to yet another sign of the impending financial crisis at the New York Times Company. Two shelf-registrations, available for use sometime in the future, will enable to company to sell securities to raise money, including class A common stock. Sale of new common stock would mean that current shareholders would see their equity diluted, assuming new investors can be persuaded to part with their money for such a rapidly-declining stock.

As Blodgett points out, the timing for such an equity issue is terrible. Not so long ago, Times shares sold for $20, and only a few years ago fetched $50. Today, it closed barely at $7 a share. Had Pinch Sulzberger understood the gravity of his situation (as AT has been warning for years), he could have secured a much higher price for any new equity issue than would be possible today.

The filings are mostly boilerplate, but a footnote to a table in Form S-3ASR reveals the extent of the company's financial deterioration. The ratio of earnings to fixed charges measures the company's ability to pay the bills which must be paid, no matter how many layoffs or cost cutting measures are taken. Normally, companies want that ratio to be a healthy multiple. The table reveals that at the end of 2003, it was a multiple of 8.65; in 2006, 6.22; in 2007, 3.75; and this year, there is no ratio, because, the footnote explains, earnings were inadequate to cover fixed charges by $132 million, thanks to non-cash charges related to the write-down of its billion dollar-plus disastrous investment in New England newspapers just before their value collapsed. Writeoffs notwithstanding, the trend downward is unmistakable, and cannot be sustained.

It will be interesting to see who, if anyone, stands in line to invest in Class A shares of the Times, especially since control of the board of directors rests in the hands of Class B shareholders, basically members of the Sulzberger family.

For the New York Times Company, 2008 has been an annus horibilis. And as long as we are using Latin: Caveat emptor.