Was that really the plan?Ok, when I first read Radio Free PGW's Slime of it all post, my first thought was no way would someone pre-plan a bankruptcy for Advanced Marketing Services. It would chew up any remaining good will the retailers and publishers might have towards them. Well, then I saw this Publishers Weely article. Check the last sentence quoting Well Fargo Foothill, "Indeed, prior to the filing, Foothill expected that a sale motion would be filed simultaneously with the [Chapter 11] petitions." Well, um, ok, um, yea. Don't know what else to do with that, but you know, there it is.
Oh, and poking around the Smith Declaration, I came across this tidbit. On July 31st, 2006 AMS defaulted on its line of credit with Wells Fargo due to not filing audited financial reports. So this was an absolute drop-dead deadline for filing those reports. Remember, on November 8th 2005, AMS released updated financial results for FY '00 through '03. The release makes it sound like they knew what the audited results were going to be, so why didn't they have Deloitte & Touche finish the audit? Well on March 20th 2006 AMS released revised updated financial results. The '06 update revised downward the results for '00, '01, and '03. It also included results for '04, and estimates for '05 and '06. The '06 update also states that "the Company believes [the audit] is nearing completion." So what happened in the following 4 months that caused them to not complete auditing the results? Of course Bruce Myers departed on May 6, 2006, but Curt Smith continued on as CFO. Or was it all a smoke screen? As stated in the Smith Declaration, the company had "been seeking to recapitalize their through a strategic transaction ... for eighteen months prior to the Petition Date" of December 29 2006. In other words since July or August 2005, they had been looking for either an investor or purchaser for the company. I can't imagine that went very well, a company with former executives pleading guilty to fraud, unable to produce revised audited financial reports for the prior 4 to 5 years, and wanting a cash infusion in the tens of millions of dollars. The DIP financing is for $75 million, so you have to figure that is in the neighborhood of the amount AMS was seeking. I have worked at companies going through an acquisition. The thing the executives on both sides of the transaction were always trying to confirm with their due diligence was that the financial reports were a true reflection of reality. This is an even better reasons for completing the audit. So again, why didn't it happen? What was the plan?