How Bad Is It at A.H. Belo?

It could be very bad. In July, when we last looked at its financials, I said the market was being irrational for its low valuation of $122 million. Today that valuation has sunk to $40 million. When I first saw that figure today, I was dumbstruck. Surely, Belo’s real estate is worth that much. But then I plunged into the financials to make my case that the market has gone insane — and now I must admit I’m not so sure it has. The company looks like it is running out of cash.

For the third quarter ending September 30, A.H. Belo had current assets of $122 million with current liabilities of $113 million, giving it a net working capital of $8 million $9 million. Cash flow from operations was $25 million but deducted from that were $14 million in capital expenditures, netting $11 million. (My rule of thumb for media companies, learned over years of hard experience, is that we need about 10 percent of our annual revenues in cash to operate: in A.H. Belo’s case, that would be about $60 million to $80 million.) Belo’s cash position, which looks perilous to me, has to have gotten worse since the economic collapse; ours certainly has. As for that real estate, in today’s market it could probably bring in $30 million or so, if anyone could get the financing to buy it. But it is co-owned with its broadcasting sibling, Belo Corp., so the net effect of a sale would only be $15 million or so.

This analysis is dated, to be sure: I’m depending on September 30 balance sheet numbers. On the other hand, things have gone into the ditch since then. Riverside, California, where the company owns the Press-Enterprise, is the worst real estate market in the country and has an unemployment rate of 9.5 percent. In Providence, where it owns the Journal, October home sales fell 12 percent, the largest decline in the Northeast.

So it seems the market is being rational after all. In which case, it is time to be worried about how A.H. Belo and the Morning News will manage to survive. Any commenters who have a media financial background or inside knowledge would be greatly appreciated. I would love someone to challenge or — even better — disprove my gloomy assessment.