Court, Costco Give AMS Okay

by Jim Milliot, PW Daily -- Publishers Weekly, 1/4/2007

The bankruptcy court overseeing Advanced Marketing Services reorganization efforts yesterday approved its request to receive $75 million in debtor-in-possession financing. The funding is enough to operate for the next six months.

The wholesaler also received some good news when Costco said publishers that supply books to AMS should continue to do so; AMS is the primary supplier of books to Costco, and its support is crucial to the company's turnaround efforts. A Costco spokesperson said that until further notice, publishers should operate "on a business as usual basis." Costco, the spokesperson added, is monitoring events "on a day-to-day basis." Most of the larger publishers that supply AMS indicated they will continue to do so, but on a COD basis.

In an issue of keen importance to PGW clients, an attorney representing AMS said publishers would have access to their inventory held in AMS's Indiana warehouse, provided they received approval from the bankruptcy court.

In papers filed with the bankruptcy court, AMS reported that sales in the fiscal year ended March 31, 2005, were $823 million and the company had debt of $41 million. The company's liquidity has been hampered by the various investigations into its accounting practices, with legal and accounting expenses totaling $14.3 million in fiscal 2005 and $6.1 million in fiscal 2006. In addition to investigations by the SEC and FBI, AMS had been the target of a class action lawsuit brought by shareholders alleging securities fraud. That matter was settled this summer and fall, and that agreement is not affected by the bankruptcy filing.

The filing also reaffirms AMS's intention to continue to seek new financing or a sale of the company. AMS, with its investment adviser Jefferies and Co., has been looking for new financing options or a strategic partner.