For months this column has used the rough cash burn rate of $15 million a quarter to describe the problem facing the Sun-Times Media Group. In the last week the company has released its 2008 annual report to shareholders and announced a significant layoff.

Combined with the price increase of the Sun-Times, the moves are finally moving the company into a position where survival is possible. Here are the details.

1 The Sun-Times increased the price of its daily newspaper to $1.00. There are a number of assumptions that can be made about how much additional revenue this will generate. First of all, without the current circulation numbers, we will need to estimate the newspaper's circulation.

Based on the annual report, which quotes the Audit Bureau of Circulation report for the year ended March 31, 2008, the average circulation a year ago was 319K for the Monday through Friday newspaper and 229K for the Saturday paper. In addition, examining the revenue from circulation, circ seems to have fallen about 3.6 percent in 2009.

Therefore, we can estimate the current daily circ of the Sun-Times as an average of 307K Monday through Friday and 220K on Saturday.

I'm going to discount the effect of the increase of price on home delivery. Home delivery sales are often effected by special offers. For the purpose of this estimate, let's say that revenues for home delivery are flat. That really means that discounting of the home delivery is more aggressive.

Another assumption is about the number of single copy sales that will be lost due to the price increase. Based on my experiences, I'm going to say four percent will be lost. However, for the purpose of these assumptions, let's make that more than double my estimate: ten percent.

A little more math, the single copy sale at the Sun-Times is 62 percent of the total circulation, or in this case:

1. Total Estimated Weekly Circ (daily only): (307K * 5 days) + 220K = 1,755K
2. Single copy sale 1,755K * 62 percent = 1,088K/ wk
3. Loss due to price increase 1,088K – 10 percent = 979K/ wk
4. Increase in revenue 979K * $0.50/ copy = $489,645/ wk
5. Annualized 489,645 * 52 weeks = $25,461M

The bottom line, an additional $25.46 million annually in revenue, based on these assumptions.

Earlier, at the time of the price increase, I'd estimated the increase in revenue at about $40 million per year. Why?

1. Total Estimated Weekly Circ (daily only): (307K * 5 days) + 220K = 1,755K
2. Loss due to price increase 1,755K – 10 percent = 1,579.5K/ wk
3. Increase in revenue 1,579.5K * $0.50/ copy = $789,750/ wk
4. Annualized 789,750 * 52 weeks = $41,067M

In other words, I'm being more conservative here, taking into consideration the probable effort by management to maintain the home delivery side with discounting.

2 The second action which is having a significant impact on the cash burn rate is the decision this week to terminate 15 percent of the “payroll cost.” Again, I need to make some assumptions and estimates. The first estimate is based on the statement in the company's annual report that “direct employee costs were approximately 52% of the Company’s revenue in... 2008.”

Working with just that number, and the declaration that the company has slashed payroll by 15 percent:

1. Revenue $323.85M
2. Payroll costs * 52 percent
3. $168.40M
4. Less 15 percent - 15 percent
5. $143.14M
6. Difference $25.26M

In other words, if all else remains the same (ahem) the company will have cut costs $25.26M and increased revenue by $25.46M. An annualized change in that cash burn rate of $50.72M. It works out like this:

1. Labor savings: $25.26M
2. Price increase: $25.46M
3. Cash Burn: -$60M
4. New Cash Burn -9.28M/ Y
5. Cash on hand 12/31/08 $79.2M
6. Cash burn 1^st Q 2009 -$15M
7. Est Cash on hand 3/31/09 $64.2M
8. Months to live 64.2 / 9.28 * 12 = 83 mos.

83 MONTHS. That is well beyond the estimated end of the recession, the Company is going to survive, assuming it finds a way out of its tax problems. The test will come when the company files its monthly reports to the bankruptcy court for the month of May. In other words, we'll have a better handle on all this in about two months.