FORTUNE — There are some dishes, like homemade beef stew, that get increasingly flavorful the more times you cook them. Some documents are like that, too—the more you look at them, the more interesting they get.
The recent Securities and Exchange Commission filing by my current employer, Time Inc., is like that. Time Inc., like Time Warner Cable (TWC) and AOL (TWC) before it, is being spun out of its parent company, Time Warner (TWX), and is scheduled to become a separate, publicly-traded company sometime next year. The Nov. 22 filing is the beginning of the regulatory process to get that done. That’s presumably why Time Inc. filed a document before some key information was available. Among the most important missing pieces: how much debt Time Warner will get Time Inc. to take on. The debt level is one of the items being negotiated by Time and Time Warner.
Because this involves my own employer — and my Fortune colleagues and I have serious skin in the game — I spent an inordinate amount of time trying to get Time Inc.’s and Time Warner’s side of things. But it was in vain. Time Inc. referred me to Time Warner, and Time Warner declined to comment. So I just kept rereading the document, and found all sorts of things — such as the fact that three top Time Inc. executives (all of whom are now former Time Inc. executives) had made deals to get seven-digit bonuses if the spinoff took place. Other Time Inc. executives may have similar deals.
I also saw that Time Inc.’s new chief executive, Joe Ripp, who is leading a company that says in the filing that “We are committed to pursuing operational efficiencies and cost leadership,” got $7.5 million of stock and options (vesting at $1.5 million a year for five years) as a “make whole” deal for what he left behind at his previous employer. On Tuesday, Ripp announced that he’s cutting the maximum company match for Time Inc. 401(k) participants to 5% next year from the current 7%. The company match was boosted to its current level (from the previous 4%) to make employees whole for Time Warner ending the company pension plan in 2010.
I recognize, of course, that some of this, maybe even a lot of it, is inside baseball. But baseball can be an interesting game, even if you’re not a player as my colleagues and I are. So grab your scorecard.
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The more I contemplate the filing, the more interesting it gets. Among other things, it shows that the operating cash flow of Time Inc., the magazine subsidiary of Time Warner, is more than 50% higher than its reported profit. This offers at least some hope for the division when it becomes independent, because — if it’s intelligently managed and not too buried in debt — there are financial resources available to help a primarily print operation adapt to an increasingly digital world.
The filing also shows that for the past three years, virtually all the division’s operating cash flow — $1.42 billion out of $1.456 billion — has gone to Time Warner. That’s 97.5%. I seriously doubt that the services Time Inc. has gotten from Time Warner for things like human resources begin to balance the scales.
What I found especially striking is that Time Inc.’s three former top executives — chief executive Laura Lang, chief financial officer Howard Averill and general counsel Maurice Edelson — stood to get $2.5 million, $1.75 million and $1.75 million, respectively, if the spinoff took place.
Lang, who’s been replaced by Ripp, will get the $2.5 million regardless. Averill forfeited his bonus when he became chief financial officer of Time Warner, which is a sort of interesting switch. Edelson, who like Averill has moved to Time Warner, is still in line to get a bonus if the spinoff goes through. I know these bonuses are the way of the spinoff world, but it strikes me as a serious conflict for people negotiating on behalf of a to-be-spun-off division to have a serious personal financial stake in the spinoff going through. On top of their existing employment contracts, of course.
Then there’s the problem lurking in the weeds: almost half a billion dollars of what I call disguised short-term debt. This shows up as “deferred revenue” on Time Inc.’s balance sheet and consists of the money that subscribers have paid up front for magazines that haven’t yet been delivered.
Say you send a check for a $20, one-year subscription to Fortune. Time Warner ends up with the cash, and Fortune ends up with the obligation to produce the magazines you’ve paid for and to deliver them to you. As of Sept. 30, this obligation for all the division’s magazines was $485 million.
That’s serious money for Time Inc., a year’s worth of operating cash flow. What I have been unable to determine — and I’ve tried for months, quietly and privately, to find out — is whether this obligation is going to be considered debt in the negotiations between Time Inc. and Time Warner over how much debt is appropriate for Time Inc. to carry. I’ve also been unable to find out what, if anything, Time Warner will give Time Inc. to offset that liability, which — to remind you — represents cash that Time Warner has gotten from subscribers while leaving the soon-to-be-independent Time Inc. to foot the expense of making those subscriptions good.
You ignore the subscription liability at your peril. Many people still believe that the late Sidney Harman paid only $1 for Newsweek (my previous employer) in 2010. But that’s wrong. In addition to the buck, Harman assumed an eight-digit (by my estimate) liability to Newsweek’s subscribers. Similarly, the $5 million price that Bloomberg paid in 2009 to buy Fortune competitor BusinessWeek (now Bloomberg BusinessWeek) doesn’t include the eight-digit subscription (my estimate again) liability that Bloomberg assumed.
So there you have it. All these things, not to mention things that I’ve undoubtedly missed, were bubbling in the Time Inc. SEC filing if you had the time and temperament to read it. I’m getting my stewpot ready for my employer’s next filing. I’m sure it will contain plenty of tasty morsels.
DISCLOSURES: Before I joined Fortune in 2007, I wrote that I expected Time Warner to dispose of Time Inc. because I didn’t think the magazine business fit with the rest of Time Warner. I continue to believe that.
I hold Time Warner stock, restricted stock, and stock options whose total value is a significant piece of my investment portfolio.
Marilyn Adamo contributed reporting