Time Inc. cuts out 2nd largest wholesaler claiming uncollectible receivables
After the bell this afternoon Time Inc. dropped some bad news: it will be cutting out its second largest wholesaler (which is most likely Source Interlink) stating that the unnamed company’s “failure to pay amounts due to the Company and after discussions with the wholesaler.”
In reaction, Time Inc. has amended the terms of its existing agreement with its largest wholesaler to expand its retail locations.
Here is the SEC filing:
On May 25, 2014, Time Inc. (the “Company”) informed the second-largest wholesaler of the Company’s publications (the “Discontinued Wholesaler”) that effective immediately the Company will discontinue sales of publications to that wholesaler. The Discontinued Wholesaler distributed publications primarily through U.S. retail outlets and the Company’s sales to that wholesaler collectively represented approximately 2% of the Company’s total 2013 revenues. This action was taken after due deliberation as a result of the Discontinued Wholesaler’s failure to pay amounts due to the Company and after discussions with the wholesaler. In connection with this action, the Company has determined that approximately $7 million of receivables from the Discontinued Wholesaler on the Company’s March 31, 2014 balance sheet are uncollectible and will be charged to earnings as bad debt expense in the second quarter of 2014. In addition, the Company has determined that it will not be able to collect for, and therefore to recognize revenues in respect of, approximately $19 million of net sales made to the Discontinued Wholesaler during the second quarter of 2014.
In light of the foregoing, on May 25, 2014, the Company amended the terms of its existing agreement with the largest wholesaler of the Company’s publications to retail outlets (the “Selected Wholesaler”) to expand the retail locations serviced by such wholesaler to include the vast majority of those that had been serviced by the Discontinued Wholesaler prior to the aforementioned discontinuation. The Company expects that it will take approximately six to twelve weeks for the Selected Wholesaler to fully ramp up its distribution capabilities to cover the additional retail outlets. During this transition period, the Company estimates that its revenues will be adversely affected by approximately $4 million and that it will incur approximately $1 million of incremental transition costs. After the transition period, the Company does not expect the change in its distribution arrangements to have a material impact on future results of operations, although changes to the payment terms of the Company’s agreement with the Selected Wholesaler are expected to result in an increase in days receivables outstanding and a resultant decrease in 2014 operating cash flows of approximately $12 million. The Company’s amended agreement with the Selected Wholesaler extends through May 2019.
The Company closely monitors its retail distribution network and the impact of the continued financial pressures on U.S. magazine wholesalers resulting from the industry-wide decline in sales at newsstands and other retail outlets. The Company replaced the Discontinued Wholesaler only after careful assessment of its financial condition and future business prospects. The Company believes that the actions it has taken will improve the strength and stability of its retail distribution network. However, the Company will continue to closely monitor industry-wide trends and the implications they may have on its relationships with its wholesalers.