An insolvent company can stay afloat much longer than anticipated. For example, on July 5, 2006, Karen De Coster and I published an essay titled General Motors, Market Engineering, and Confidence "Protection." In this essay, we stated: "With such a weak balance sheet, GM will not survive a recession. Hence, bankruptcy is a possibility…" On June 1, 2009, nearly three years after we wrote this essay, General Motors filed for Chapter 11 bankruptcy. I was amazed it took that long for GM to throw in the towel. In May of 2005, I wrote an essay critical of Bill Ford, Jr. and Ford Motor Company. I asserted, in this piece, that Ford Motor Company will go bankrupt. Six years later, Ford Motor Company is still standing; yet, I steadfastly maintain it will go bankrupt as Ford’s balance sheet remains a train-wreck. Twenty-six months ago, I penned an essay titled The New York Times Company’s Self-Inflicted Insolvency. How is The Gray Lady staying afloat even though, in my opinion, she is still insolvent? In one word, debt.
So let’s take a look at The New York Times Company’s financial condition at fiscal year-end 2010. Please note I adhere to a conservative method of financial analysis which dictates that intangible assets are always fully discounted. Without further ado, here are the not-so-pretty highlights of The Gray Lady’s sad state of financial disrepair:Long-term debt and capital lease obligations stood at $996.4 million. From fiscal year-end 2008 to fiscal year-end (FYE) 2010, long-term debt and capital lease obligations have increased by $416 million; which is a 71.7% increase over this two-year period. Looking at the balance sheet on an "as-given" basis, the total-liabilities-to-equity ratio is 4 to 1. Anything over 3 to 1 indicates uncomfortably high leverage. After discounting $1,004.5 million of intangible assets, The New York Times Company has an allowable net worth of negative $340.4 million.