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F+W Media files for Chapter 11

Company $105 million in debt

By Robert Cloud

F+W Media Inc. and seven subsidiaries filed for protection under Chapter 11 in bankruptcy court.

Currently headquartered in New York, F+W Media purchased Krause Publications in 2002.

Chet Krause started the company in 1952 with his first publication, Numismatics News.

Over the next three decades, Krause Publications grew to more than 400 employees and published more than 40 hobby magazines and 750 reference and how-to books.

In 1988, Krause converted the company to an Employee Stock Ownership Plan and eventually vested the company’s stock to the employees.

In 2002, a group of employee-shareholders voted to sell Krause Publications to F+W Media for $120 million.

In January and February 2018, F+W Media laid off 41 people at its Iola facility.

F+W Media’s petition
According to its Chapter 11 petition, filed March 10 in federal court in Delaware, F+W Media has $105.2 million in debt and available cash totaling $2.5 million.

The company has faced financial problems since 2008.

The market for subscription periodicals had been in decline because much of their content became available online at no cost to readers.

In 2008, F+W Media shifted its focus to e-commerce based on the belief that the periodical customers would purchase other products, such as craft and hobby supplies, related to their interests.

“The Company took on various additional obligations across its distribution channel, including purchasing the merchandise it would sell online, storing merchandise in leased warehouses, marketing merchandise on websites and responding to customer service inquiries,” the court petition says. “Unfortunately, these additional obligations came at a tremendous cost to the Company, both in terms of monetary loss and deterioration of customer relationships.”

According to the petition, the e-commerce “technology was flawed and customers often had issues with the websites.”

By 2018, F+W Media was spending about $6 million to sell e-commerce products, but generated only $3 million in revenue.

In 2016, F+W Media began restructuring its debt and its lenders eventually held a 97 percent equity interest in the company.

In May 2017, in another attempt to restructure its debt, F+W Media made a debt for equity swap with its lenders, which reduced its existing debt from $100 million to $35 million, plus another $15 million in new loans.

“However, largely as a result of mismanagement, the Company exhausted the entire $15 million of new funding it received in the six months following the restructuring,” the petition says. “The Company’s management dramatically increased spending on technology contracts, merchandise to store in warehouses, and staffing while the Company was faltering and revenue was declining.”

On Jan. 8, 2018, F+W Media’s board of directors terminated the CEO and most of the top executives and replaced them with Greg Osberg, who is currently the company’s CEO.

Over the next several months, F+W Media laid off approximately 40 percent of its workforce.

The company has shifted its e-commerce to third-party vendors and sold off more than $10 million in assets.

Although F+W Media’s subsidiaries had more than $67 million in revenues last year, due to continued cash flow problems, the company believes the only viable alternative that will allow it to survive is to sell almost all its assets.

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