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Philadelphia 'Inquirer' Discloses Financial Information
Recent Bankruptcy Court Filings Bring The Finances Into Focus
By JOHN P. CONNOLLY, The Bulletin
In a midnight filing, the company that operates The Philadelphia Inquirer submitted its schedule of assets and liabilities yesterday, narrowly making a bankruptcy court deadline.
The filings, which were required by the court by April 15, showed that the company had $500 million in assets and total liabilities of $432 million. The schedules are the latest financial information submitted to the U.S. Bankruptcy Court of Eastern Pennsylvania.
Philadelphia Newspapers, which operates both The Inquirer and Daily News, submitted its projections this week for how it will use its cash collateral until a May hearing on refinancing.
While the budget ending April 10 showed the company finishing with only $3.4 million left, the new budget shows that the company had $16.1 million at their disposal. A spokesman for the company explained the difference in numbers as reflecting an increase in favorable performance payments received, as well as having fewer disbursements. Additionally, the previous budget had assumed payments for critical vendors, a payment that has not yet been approved by the bankruptcy court. The payments, estimated at about $5 million, will be ruled on at an April 21 hearing.
Creditors have criticized Philadelphia Newspapers for inaccurate projections, most recently in a filing objecting to the company’s continued use of cash collateral. As evidence, the creditors pointed to the company’s missed annual projections, as well as its misses on earnings before interest, taxes, depreciation and amortization (EBITDA).
“Since the debtors’ acquisition in June 2006, the debtors have not produced a financial forecast that it has attained, much less exceeded,” said the filing. “Specifically, despite revising its business plan twice during 2008, the debtors were not able to closely project 2008 annual results. Indeed, the forecasts produced in late December 2007 and March 2008 were so badly missed that they exceeded a negative variance of 40 percent. After the 2008 forecast completions were missed, the EBITDA for the immediate months following were also missed, demonstrating that management was incapable of projecting their businesses in the very short term.”
Creditors also criticized the continuing drop in EBITDA estimates, saying that the estimate fell by 42 percent shortly after executive vice president Richard Thayer told the bankruptcy court that the 2009 EBITDA would exceed $25 million. According to the filing, the company’s latest financial forecast shows negative EBITDA for January, February, March and May 2009.
The company, however, defends the varying projections on the grounds that the moribund newspaper economy has made it difficult to predict advertising revenue. The company’s solution lies in a more conservative approach to financial forecasts than has been used in the past.
“The truth is that the debtors’ inability to accurately project their 2008 revenues merely means that they, like virtually every company in the country, did not foresee that 2008 would be a year of unprecedented economic distress across the nation, affecting virtually every industry,” said the company in a filing responding to the criticism.
The company maintains that despite its losses of cash collateral and problematic predictions, it is still profitable and is still a valuable and viable enterprise.
“Philadelphia Newspapers is ranked as one of the most efficiently operated newspapers in the country,” said Jay Devine, a spokesman for Philadelphia Newspapers. “Like every media company in the nation, we have been seriously impacted by the current economic recession and deterioration in the advertising market. However, last year we had an operating profit of $36 million and managed to remove more than $70 million in run rate expenses from the business.”
Among this week’s other filings was the first application of Dilworth Paxson LLP, a law firm that represents Philadelphia Newspapers, for payment. Because Philadelphia Newspapers is under the protection of the court, the firm must submit its request for payment to the court for approval.
The Dilworth Paxson request is for a total fees value of $634,973, and $62,203 in expenses. The firm is currently seeking $420,182 of that amount as an interim payment. The fees accrued so far are from February 22, when Philadelphia Newspapers filed for bankruptcy, through March 31.
Philadelphia Newspapers and its creditors still need to come to an agreement over refinancing and restructuring the company before it can leave bankruptcy. The hearing for the refinancing has been rescheduled multiple times to give both sides an opportunity to negotiate, and will not be held until May.
John P. Connolly can be reached at jconnolly@thebulletin.us
Upcoming Inquirer Bankruptcy Hearing Dates
April 20, 2009 10 a.m. – The bankruptcy court will hear arguments and evidence on the debtors’ desire to initiate an investigation of creditors for illegally taping a portion of a meeting conversation with debtors.
April 21, 2009 10 a.m. – The bankruptcy court will rule on whether or not to authorize the debtors to enter into trade agreements with critical vendors, and to pay certain fees and taxes.
April 29, 2009 9:30 a.m. – Two plaintiffs in lawsuits against the Inquirer are asking the bankruptcy court to reconsider its decision to extend automatic stay to their cases. Hearings on this question will occur on this date.
May 19, 2009 10 a.m. – Debtors and Creditors are scheduled to discuss DIP financing, which will allow the company to restructure, on this date.
Timeline Of The Inky Bankruptcy
September 30, 2008 – Philadelphia Newspapers, LLC (PN) fails to pay $3.3 million in interest and principal to creditors.
Mid-November, 2008 – PN submits a plan for $20 million in new equity to creditors, which is rejected. It is decided that the creditors will put together their own proposal for the troubled company.
January 29, 2009 – Citizens Bank and the steering group submit to the debtors their own plan for $20 million in a loan.
February 6, 2009 – Citizens Bank sends a letter for PN to sign that would engage the company in a DIP commitment.
February 9, 2009 – PN tells its creditors that it has found its own DIP financing.
February 10, 2009 – PN delivers a letter to its creditors outlining their new DIP financing from Callowhill Partners, LLC.
February 11, 2009 – Citizens Bank delivers a revised DIP financing commitment to PN.
February 13, 2009 – PN sends out a letter, committing to the DIP financing and incorporating the terms set out by Citizens Bank on February 11. PN informed Citizens Bank that it objected to some of the terms of the new DIP.
February 22, 2009 – Philadelphia Newspapers files for bankruptcy, having terminated the previous DIP agreement.
February 23, 2009 – Richard Thayer, Executive Vice President of Philadelphia Newspapers, submits a statement to bankruptcy court projecting that the debtors’ 2009 adjusted EBITDA “will exceed $25 million.”
February 24, 2009 – Bankruptcy court allows PN to access cash collateral to continue operations. The first budget, spanning Feb. 20 to March 6, projects a cumulative loss of $1.6 million for the company.
March 9, 2009 – PN suggests a $50 million cash infusion into the company as an avenue out of bankruptcy. Creditors reject the proposal. Further, hearings over PN’s DIP financing were delayed another week, allowing the company further access to cash collateral. Projections for this budget show a $4.7 million loss through March 20.
March 16, 2009 – Bankruptcy court extends PN’s deadline for the submission of schedules of assets and liabilities to April 15. DIP hearings are extended another two weeks.
March 23, 2009 – PN requests that Philadelphia Media Holdings (PMH), CEO Brian Tierney and other employees be granted automatic stay from lawsuits proceeding against them.
March 27, 2009 – PN is granted continuing access to cash collateral, with a budget projecting a two-week loss of $6.3 million through April 10.
March 31, 2009 – DIP hearings are again delayed, this time to April 16.
April 1, 2009 – The Philadelphia Daily News begins publishing as an edition of The Philadelphia Inquirer, allowing PN to count the circulation of the two papers together.
April 6, 2009 – Bankruptcy court grants the automatic stay request for Tierney, PMH. The DIP hearing is once again delayed, this time until May 19.
April 13, 2009 – Creditors and PN begin to negotiate in the courthouse, delaying the beginning of hearings for three hours. At issue is PN’s desire to investigate alleged illegal recordings at meetings by creditors.
April 15, 2009 – PN and other creditors submit schedules listing their assets and liabilities.
The filings, which were required by the court by April 15, showed that the company had $500 million in assets and total liabilities of $432 million. The schedules are the latest financial information submitted to the U.S. Bankruptcy Court of Eastern Pennsylvania.
Philadelphia Newspapers, which operates both The Inquirer and Daily News, submitted its projections this week for how it will use its cash collateral until a May hearing on refinancing.
While the budget ending April 10 showed the company finishing with only $3.4 million left, the new budget shows that the company had $16.1 million at their disposal. A spokesman for the company explained the difference in numbers as reflecting an increase in favorable performance payments received, as well as having fewer disbursements. Additionally, the previous budget had assumed payments for critical vendors, a payment that has not yet been approved by the bankruptcy court. The payments, estimated at about $5 million, will be ruled on at an April 21 hearing.
Creditors have criticized Philadelphia Newspapers for inaccurate projections, most recently in a filing objecting to the company’s continued use of cash collateral. As evidence, the creditors pointed to the company’s missed annual projections, as well as its misses on earnings before interest, taxes, depreciation and amortization (EBITDA).
“Since the debtors’ acquisition in June 2006, the debtors have not produced a financial forecast that it has attained, much less exceeded,” said the filing. “Specifically, despite revising its business plan twice during 2008, the debtors were not able to closely project 2008 annual results. Indeed, the forecasts produced in late December 2007 and March 2008 were so badly missed that they exceeded a negative variance of 40 percent. After the 2008 forecast completions were missed, the EBITDA for the immediate months following were also missed, demonstrating that management was incapable of projecting their businesses in the very short term.”
Creditors also criticized the continuing drop in EBITDA estimates, saying that the estimate fell by 42 percent shortly after executive vice president Richard Thayer told the bankruptcy court that the 2009 EBITDA would exceed $25 million. According to the filing, the company’s latest financial forecast shows negative EBITDA for January, February, March and May 2009.
The company, however, defends the varying projections on the grounds that the moribund newspaper economy has made it difficult to predict advertising revenue. The company’s solution lies in a more conservative approach to financial forecasts than has been used in the past.
“The truth is that the debtors’ inability to accurately project their 2008 revenues merely means that they, like virtually every company in the country, did not foresee that 2008 would be a year of unprecedented economic distress across the nation, affecting virtually every industry,” said the company in a filing responding to the criticism.
The company maintains that despite its losses of cash collateral and problematic predictions, it is still profitable and is still a valuable and viable enterprise.
“Philadelphia Newspapers is ranked as one of the most efficiently operated newspapers in the country,” said Jay Devine, a spokesman for Philadelphia Newspapers. “Like every media company in the nation, we have been seriously impacted by the current economic recession and deterioration in the advertising market. However, last year we had an operating profit of $36 million and managed to remove more than $70 million in run rate expenses from the business.”
Among this week’s other filings was the first application of Dilworth Paxson LLP, a law firm that represents Philadelphia Newspapers, for payment. Because Philadelphia Newspapers is under the protection of the court, the firm must submit its request for payment to the court for approval.
The Dilworth Paxson request is for a total fees value of $634,973, and $62,203 in expenses. The firm is currently seeking $420,182 of that amount as an interim payment. The fees accrued so far are from February 22, when Philadelphia Newspapers filed for bankruptcy, through March 31.
Philadelphia Newspapers and its creditors still need to come to an agreement over refinancing and restructuring the company before it can leave bankruptcy. The hearing for the refinancing has been rescheduled multiple times to give both sides an opportunity to negotiate, and will not be held until May.
John P. Connolly can be reached at jconnolly@thebulletin.us
Upcoming Inquirer Bankruptcy Hearing Dates
April 20, 2009 10 a.m. – The bankruptcy court will hear arguments and evidence on the debtors’ desire to initiate an investigation of creditors for illegally taping a portion of a meeting conversation with debtors.
April 21, 2009 10 a.m. – The bankruptcy court will rule on whether or not to authorize the debtors to enter into trade agreements with critical vendors, and to pay certain fees and taxes.
April 29, 2009 9:30 a.m. – Two plaintiffs in lawsuits against the Inquirer are asking the bankruptcy court to reconsider its decision to extend automatic stay to their cases. Hearings on this question will occur on this date.
May 19, 2009 10 a.m. – Debtors and Creditors are scheduled to discuss DIP financing, which will allow the company to restructure, on this date.
Timeline Of The Inky Bankruptcy
September 30, 2008 – Philadelphia Newspapers, LLC (PN) fails to pay $3.3 million in interest and principal to creditors.
Mid-November, 2008 – PN submits a plan for $20 million in new equity to creditors, which is rejected. It is decided that the creditors will put together their own proposal for the troubled company.
January 29, 2009 – Citizens Bank and the steering group submit to the debtors their own plan for $20 million in a loan.
February 6, 2009 – Citizens Bank sends a letter for PN to sign that would engage the company in a DIP commitment.
February 9, 2009 – PN tells its creditors that it has found its own DIP financing.
February 10, 2009 – PN delivers a letter to its creditors outlining their new DIP financing from Callowhill Partners, LLC.
February 11, 2009 – Citizens Bank delivers a revised DIP financing commitment to PN.
February 13, 2009 – PN sends out a letter, committing to the DIP financing and incorporating the terms set out by Citizens Bank on February 11. PN informed Citizens Bank that it objected to some of the terms of the new DIP.
February 22, 2009 – Philadelphia Newspapers files for bankruptcy, having terminated the previous DIP agreement.
February 23, 2009 – Richard Thayer, Executive Vice President of Philadelphia Newspapers, submits a statement to bankruptcy court projecting that the debtors’ 2009 adjusted EBITDA “will exceed $25 million.”
February 24, 2009 – Bankruptcy court allows PN to access cash collateral to continue operations. The first budget, spanning Feb. 20 to March 6, projects a cumulative loss of $1.6 million for the company.
March 9, 2009 – PN suggests a $50 million cash infusion into the company as an avenue out of bankruptcy. Creditors reject the proposal. Further, hearings over PN’s DIP financing were delayed another week, allowing the company further access to cash collateral. Projections for this budget show a $4.7 million loss through March 20.
March 16, 2009 – Bankruptcy court extends PN’s deadline for the submission of schedules of assets and liabilities to April 15. DIP hearings are extended another two weeks.
March 23, 2009 – PN requests that Philadelphia Media Holdings (PMH), CEO Brian Tierney and other employees be granted automatic stay from lawsuits proceeding against them.
March 27, 2009 – PN is granted continuing access to cash collateral, with a budget projecting a two-week loss of $6.3 million through April 10.
March 31, 2009 – DIP hearings are again delayed, this time to April 16.
April 1, 2009 – The Philadelphia Daily News begins publishing as an edition of The Philadelphia Inquirer, allowing PN to count the circulation of the two papers together.
April 6, 2009 – Bankruptcy court grants the automatic stay request for Tierney, PMH. The DIP hearing is once again delayed, this time until May 19.
April 13, 2009 – Creditors and PN begin to negotiate in the courthouse, delaying the beginning of hearings for three hours. At issue is PN’s desire to investigate alleged illegal recordings at meetings by creditors.
April 15, 2009 – PN and other creditors submit schedules listing their assets and liabilities.
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