Advanced Marketing Services has reached settlements with all but "three or four" publishers regarding the distributor's cooperative advertising irregularities, Curt Smith, company CFO, told PW. Smith said the company "is trying to track down" the few remaining companies with whom AMS has not reached a settlement. AMS is reducing its earnings over the last seven years by $11 million to account for the agreements, which resulted from AMS's overcharging publishers for advertising. Smith said publishers were reimbursed through a combination of cash and in-kind payments.
Smith's remarks accompanied the release of AMS's estimated results for the fiscal year ending March 31, 2005, which showed a 9% decline in revenue, to between $940 million and $970 million, and a net loss of between 73 cents and 83 cents per share. AMS also disclosed that its two largest customers—Costco and Sam's Club—are moving a small portion of their book businesses to rival distributors, including Anderson News. AMS estimated that the decision by the two warehouse clubs will decrease sales by 8%, or some $76 million, in fiscal 2006. Costco and Sam's accounted for 59% of AMS's total revenue in fiscal 2003, the last year for which figures are available. Smith said the clubs had "moved their business before," and he was hopeful that AMS can win them back before the end of the fiscal year.
AMS said the decline in sales in fiscal '05 was due in part to the lack of new bestsellers, a particular problem for AMS since so much of the warehouse club's sales come from hot frontlist.
Costs associated with the government's probe of AMS's advertising practices—which has yielded two indictments to date—as well as expenses tied to its own investigation, contributed to the loss in the year. Other charges included expenses associated with the closure of AMS's Reno, Nev., warehouse and the creation of a new distribution center in Indianapolis. Severance payments to former executives were also recorded in the year. Smith said AMS's internal investigation is complete, but that outside auditors are continuing to review results for fiscal 2004.
