-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCI0tfc8qP0Bw6nOr0WxWSF4Up26VkLsE4rDJF1QFYu8oLLtLpSk2gqnqJS6PFtI sorvziCaUspKR9C8mWkF1A== 0000950144-98-009402.txt : 19980812 0000950144-98-009402.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950144-98-009402 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980629 FILED AS OF DATE: 19980811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MEDIA OPERATIONS INC CENTRAL INDEX KEY: 0000853927 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 650203383 STATE OF INCORPORATION: DE FISCAL YEAR END: 0326 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11112 FILM NUMBER: 98682251 BUSINESS ADDRESS: STREET 1: 600 SOUTHEAST COAST AVE CITY: LANTANA STATE: FL ZIP: 33462 BUSINESS PHONE: 4075861111 MAIL ADDRESS: STREET 1: 600 SOUTH EAST COAST AVE CITY: LANTANA STATE: FL ZIP: 33462 FORMER COMPANY: FORMER CONFORMED NAME: ENQUIRER STAR INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GP GROUP INC DATE OF NAME CHANGE: 19910815 10-Q 1 AMERICAN MEDIA OPERATIONS, INC. FORM 10-Q 06/29/98 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 29, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-11112 AMERICAN MEDIA OPERATIONS, INC. (Exact name of the registrant as specified in its charter) Delaware 59-2094424 (State or other jurisdiction of (IRS Employee incorporation or organization) Identification No.) 600 East Coast Avenue, Lantana , Florida 33464-0002 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (561) 540-1000 American Media Operations, Inc. (1) HAS FILED all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) HAS BEEN subject to such filing requirements for the past 90 days. As of August 7, 1998 there were 7,507 shares of common stock outstanding. ================================================================================ 2 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q JUNE 29, 1998 Pages(s) -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - Consolidated Balance Sheets ..................................... 3 Consolidated Statements of Income ............................... 4 Consolidated Statements of Cash Flows ........................... 5 Notes to Consolidated Financial Statements ...................... 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................... 8 - 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ........................ 9 Signature ....................................................... 10 2 3 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 29 and March 30, 1998 (in 000's, except share information)
June 29 March 30 --------- --------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,056 $ 7,405 Receivables, net 13,002 7,852 Inventories 10,372 10,390 Prepaid expenses and other 2,927 6,551 --------- --------- Total current assets 27,357 32,198 --------- --------- PROPERTY AND EQUIPMENT, at cost: Land and buildings 4,039 4,039 Machinery, fixtures and equipment 19,980 18,447 Display racks 21,531 21,662 --------- --------- 45,550 44,148 Less - accumulated depreciation (17,881) (18,149) --------- --------- 27,669 25,999 --------- --------- DEFERRED DEBT COSTS, net 6,740 8,688 --------- --------- GOODWILL, net of accumulated amortization of $130,229 and $126,440 475,022 478,811 --------- --------- OTHER INTANGIBLES, net of accumulated amortization of $47,246 and $45,766 100,754 102,234 --------- --------- $ 637,542 $ 647,930 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of term loan $ 6,250 $ -- Accounts payable 14,107 15,587 Accrued expenses 13,430 14,915 Accrued interest 4,361 12,249 Accrued and current deferred income taxes 8,723 9,775 Deferred revenues 26,426 31,749 --------- --------- Total current liabilities 73,297 84,275 --------- --------- PAYABLE TO PARENT COMPANY 3,818 3,728 --------- --------- LONG TERM DEBT: Term Loan and Revolving Credit Commitment, net of current portion 298,750 297,401 11.63% Senior Subordinated Notes Due 2004 200,000 200,000 10.38% Senior Subordinated Notes Due 2002 134 134 --------- --------- 498,884 497,535 --------- --------- DEFERRED INCOME TAXES 7,837 7,919 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDER'S EQUITY: Common stock, $.20 par value; 7,507 shares issued and outstanding 2 2 Additional paid-in capital 26,039 26,039 Retained earnings 27,665 28,432 --------- --------- TOTAL STOCKHOLDER'S EQUITY 53,706 54,473 --------- --------- $ 637,542 $ 647,930 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 3 4 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For The Fiscal Quarters Ended June 29, 1998 and June 30, 1997 (in 000's)
1998 1997 -------- -------- OPERATING REVENUES: Circulation $ 62,798 $ 71,033 Advertising 5,554 6,137 Other 5,024 4,946 -------- -------- 73,376 82,116 -------- -------- OPERATING EXPENSES: Editorial 7,382 7,877 Production 20,936 21,008 Distribution, circulation and other cost of sales 18,202 17,053 Selling, general and administrative expenses 6,575 7,405 Depreciation and amortization 7,842 7,450 -------- -------- 60,937 60,793 -------- -------- Operating income 12,439 21,323 INTEREST EXPENSE (12,195) (13,022) OTHER INCOME (EXPENSE), net (Note 5) 4,193 (298) -------- -------- Income before provision for income taxes and extraordinary charge 4,437 8,003 PROVISION FOR INCOME TAXES 3,043 4,453 -------- -------- Income before extraordinary charge 1,394 3,550 EXTRAORDINARY CHARGE, net of income taxes of $1,269, related to early extinguishment of debt (Note 4) 2,161 -- -------- -------- Net income (loss) $ (767) $ 3,550 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 5 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For The Fiscal Quarters Ended June 29, 1998 and June 30, 1997 (in 000's)
1998 1997 --------- --------- Cash Flows from Operating Activities: Net income (loss) $ (767) $ 3,550 --------- --------- Adjustments to reconcile net income (loss) to net cash provided from (used in) operating activities - Extraordinary charge, net of income taxes 2,161 -- Depreciation and amortization 7,842 7,450 Deferred debt cost amortization 494 698 Senior subordinated discount note accretion -- 190 Decrease (increase) in - Receivables, net (5,150) 2,013 Inventories 18 171 Prepaid expenses and other 3,624 (390) Increase (decrease) in - Accounts payable (1,480) (1,003) Accrued expenses (9,295) (7,448) Accrued and current deferred income taxes 135 3,138 Deferred revenues (5,323) (4,347) --------- --------- Total adjustments (6,974) 472 --------- --------- Net cash provided from (used in) operating activities (7,741) 4,022 --------- --------- Capital expenditures representing net cash used in investing activities (4,243) (2,155) --------- --------- Cash Flows from Financing Activities: Term loan and revolving credit commitment principal repayments (318,401) (24,000) Proceeds from revolving credit commitment 326,000 36,000 Repayment of senior subordinated indebtedness -- (15,962) Payment of deferred debt costs (1,964) -- --------- --------- Net cash provided from (used in) financing activities 5,635 (3,962) --------- --------- Net Decrease in Cash and Cash Equivalents (6,349) (2,095) Cash and Cash Equivalents at Beginning of Period 7,405 8,230 --------- --------- Cash and Cash Equivalents at End of Period $ 1,056 $ 6,135 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for - Income taxes $ 194 $ 1,120 Interest 19,589 18,884
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 6 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 1998 (000's omitted in all tables) (unaudited) (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the Annual Report on Form 10-K of American Media Operations, Inc., (together with its wholly-owned subsidiaries, the "Company") for the fiscal year ended March 30, 1998. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the fiscal quarter ended June 29, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending March 29, 1999. (2) INVENTORIES Inventories are generally stated at the lower of cost or market. The Company uses the last-in, first-out (LIFO) cost method of valuing its inventories. If the first-in, first-out (FIFO) cost method of valuation, which approximates market value, had been used, inventories would have been greater by $4,000 and $170,000 than the amounts reported in the accompanying consolidated balance sheets for June 29 and March 30, 1998, respectively. Inventories are comprised of the following: June 29 March 30 ------- ------- Raw materials - paper $ 6,585 $ 6,573 Finished product - paper, production and distribution costs of future issues 3,787 3,817 ------- ------- $10,372 $10,390 ======= ======= (3) INCOME TAXES The Company files a consolidated Federal income tax return with its parent company, American Media, Inc., and calculates its income taxes on a separate return basis. Income taxes have been provided based upon the Company's anticipated annual income tax rate. (4) CREDIT AGREEMENT On June 5, 1998, the Company and a bank syndicate whose agent bank is The Chase Manhattan Corporation (the "Agent Bank" and, collectively, the "Banks") entered into an amended and restated credit agreement. The new credit agreement (the "Credit Agreement") which is comprised of a $250 million term loan commitment and a $120 million revolving credit commitment provides it with certain advantages as compared to its prior credit agreement (the "Prior Credit Agreement", together with the Credit Agreement, the "Credit Agreements") including an extension of the loan term to March 2004, reduced annual loan amortization payments and generally more favorable interest rate margins and loan covenants, among others. As of June 29, 1998 the Company had $305 million in loans under the Credit Agreement of which $55 million was borrowed under the revolving credit commitment. As of June 29, 1998 the Company's effective interest rate on borrowings under the Credit Agreement was 7.2%. The effective rate for borrowings under the Credit Agreements averaged 7.5% for the fiscal quarter ended June 29, 1998 as compared to 7.8% on borrowings for the fiscal quarter ended June 30, 1997. In connection with the amendment and restatement of the Credit Agreement, remaining deferred debt costs related to the Prior Credit Agreement totaling approximately $3.4 million ($2.2 million net of income taxes) were charged to extraordinary loss in the fiscal quarter ended June 1998. Costs totaling approximately $1.9 million incurred in 6 7 connection with the Credit Agreement have been deferred and are being amortized to interest expense through March 2004. (5) OTHER INCOME (EXPENSE) Included in Other Income (Expense) in the accompanying consolidated statement of income for the fiscal quarter ended June 29, 1998 is a net gain of $4.4 million from the settlement of certain litigation related to a subsidiary of the Company which ceased operations in fiscal 1997. The settlement amount is included in Receivables, net in the accompanying consolidated balance sheet as of June 29, 1998. (6) LITIGATION Various suits and claims arising in the ordinary course of business have been instituted against the Company. The Company has various insurance policies available to recover potential legal costs incurred by it. The Company periodically evaluates and assesses the risks and uncertainties associated with litigation independent from those associated with its potential claim for recovery from third party insurance carriers. At present, in the opinion of management, after consultation with legal counsel, the liability resulting from litigation, if any, will not have a material effect on the Company's consolidated financial statements. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES On June 5, 1998, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with its bank syndicate consisting of a $250 million term loan and a $120 million revolving credit commitment. The advantages over its then existing credit agreement (the "Prior Credit Agreement", together with the Credit Agreement, the "Credit Agreements") include an extension of the loan term to March 2004, reduced annual loan amortization payments and generally more favorable interest rate margins and loan covenants, among others. At June 29, 1998 the Company's outstanding indebtedness under the Credit Agreement totaled $305 million of which term loan and revolving credit commitment borrowings were $250 million and $55 million, respectively. For the fiscal quarter ended June 29, 1998 the effective interest rate on borrowings under the Credit Agreements was 7.5%. The Company has entered into a three-year $100 million notional amount interest rate swap agreement expiring in November 2000 under which the Company pays a fixed rate of 5.95% and receives interest based on the three-month LIBOR rate thereby converting $100 million of the Company's variable rate debt to 5.95% (before considering the additional applicable interest margin spreads charged by the bank syndicate). At June 29, 1998, the Company had cash and cash equivalents of $1.1 million and a working capital deficit of $45.9 million. The Company does not consider its working capital deficit to be a true measure of its liquidity position as its working capital needs typically are met by the large amounts of cash generated by its business. The Company's primary sources of liquidity are cash generated from operations and amounts available under the revolving credit commitment. Any temporary shortfalls in available cash are covered by borrowings under the Credit Agreement's revolving credit commitment which are reflected as long-term liabilities. For the fiscal quarter ended June 29, 1998, cash provided from financing activities totaling $5.6 million, together with cash on hand as of March 30, 1998 of $7.4 million, was used to fund operating activities of $7.7 million and to make capital expenditures of $4.2 million. The relatively high levels of capital expenditures for the current fiscal quarter reflects recent spending on SOAP OPERA NEWS display pockets and replacement and upgrades of the Company's information systems. Management believes that cash provided by operations will be adequate to meet its operating liquidity requirements, including all required payments of principal and interest and is not aware of any commitment which would require unusual amounts of cash or which would change or otherwise restrict the Company's currently available capital resources. In addition, the Company does not intend to pay any cash dividends on its common stock in the foreseeable future. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income. Comprehensive income is defined as the change in equity during the financial reporting period of a business enterprise resulting from non-owner sources. The adoption of SFAS No. 130 in the current fiscal quarter had no impact on the Company's financial position or results of operations and comprehensive income (loss) is the same as net income (loss) for all periods presented. RESULTS OF OPERATIONS FISCAL QUARTER ENDED JUNE 29, 1998 VS FISCAL QUARTER ENDED JUNE 30, 1997. Total revenues were $73,376,000 for the current fiscal quarter, a decrease of $8,740,000 or 10.6% from the comparable prior year quarter. Substantially all of the revenue decrease was the result of declines in single copy sales of NATIONAL ENQUIRER and STAR as their sales have yet to return to the levels experienced before the adverse publicity associated with the death of Princess Diana. Circulation revenues, which includes single copy and subscription sales, of $62,798,000 decreased $8,235,000 or 11.6%. Average weekly unit sales of NATIONAL ENQUIRER and STAR declined 17.7% and 9.0%, respectively. While recent trends indicate that single copy sales are improving from the lows seen in the fiscal quarter ended December 1997, management is unable to determine when and if sales will return to levels experienced prior to the August 1997 death of Princess Diana or if there will be a continuing effect on overall circulation. Decreases in average weekly circulation of 4.6% and 19.3%, respectively, for COUNTRY WEEKLY and SOAP OPERA MAGAZINE, which continues to reflect the impact of increased competition in the soap opera category, were partially offset by cover price increases 8 9 that became effective during the current quarter. SOAP OPERA NEWS average weekly circulation increased 13.1% as compared to the prior year period as it continues to expand its pocket facings in retail outlets. The Company has announced $.10 cover price increases for NATIONAL ENQUIRER and STAR to $1.49 effective with the issues dated July 7, 1998 and SOAP OPERA NEWS will increase its cover price to $2.99, the same cover price charged by its major competitors, effective with the issue dated August 18, 1998. Subscription revenues, which represent approximately 18% of total circulation revenues, increased $346,000 or 3.2% as a result of higher subscription revenues generated by SOAP OPERA NEWS and NATIONAL ENQUIRER. Advertising revenues of $5,554,000 decreased $583,000 or 9.5% reflecting lower levels of advertising in NATIONAL ENQUIRER and STAR partially offset by higher advertising revenues generated by COUNTRY WEEKLY. NATIONAL ENQUIRER and STAR advertising sales reflect the impact of the recent lower circulation levels resulting in reduced average revenue per page. Operating expenses for the current fiscal quarter of $60,937,000 were flat as compared to the same prior year period total of $60,793,000 as increased distribution costs related primarily to SOAP OPERA NEWS was offset by lower editorial expenses at NATIONAL ENQUIRER and STAR and a reduction in television advertising expense of $457,000 which is included in selling, general and administrative expense. Operating income was $12,439,000 as compared with $21,323,000 primarily as a result of the declines in single copy sales of NATIONAL ENQUIRER and STAR. Interest expense decreased $827,000 in the current fiscal quarter to $12,195,000 from $13,022,000 in the comparable prior year period reflecting decreases in the average balance of outstanding indebtedness. Other income totaled $4,193,000 for the current fiscal quarter as compared to an expense of $298,000 in the prior year period as the Company recorded a net gain of $4.4 million from the settlement of certain litigation related to a subsidiary of the Company which ceased operations in fiscal 1997. The Company's effective income tax rates were 68.6% and 55.6% of income before income taxes for the fiscal quarters ended June 1998 and 1997, respectively, as compared to the federal statutory income tax rate of 35%. The higher effective tax rates result primarily from the effect of goodwill amortization which is not deductible for income tax reporting purposes. During the fiscal quarter ended June 1998 the Company recorded an after tax extraordinary charge of $2,161,000 consisting principally of the charge-off of unamortized deferred debt costs relating to the refinancing of the Prior Credit Agreement. INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS Certain matters discussed in this Form 10-Q may include forward-looking statements which reflect the Company's views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from both historical or anticipated results and readers are cautioned not to place undue reliance upon them. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that, among others, could cause actual results to differ materially from historical results or those anticipated include: 1) market conditions for the Company's publications 2) competition 3) market prices for the paper used in printing the Company's publications 4) the Company's ability to develop new publications and services and 5) changes in economic climate, including interest rate risk. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on form 8-K During the fiscal quarter ended June 29, 1998, the Company filed no reports on Form 8-K. 9 10 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned, thereto duly authorized. AMERICAN MEDIA OPERATIONS, INC. Registrant Date: August 7, 1998 By /s/ RICHARD W. PICKERT ------------------------- Richard W. Pickert Senior Vice President Chief Financial Officer 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AMERICAN MEDIA OPERATIONS, INC. FOR THE FISCAL QUARTER ENDED JUNE 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-29-1999 MAR-31-1998 JUN-29-1998 1,056 0 13,002 269 10,372 27,357 45,550 17,881 637,542 73,297 505,134 0 0 2 53,704 637,542 73,376 73,376 60,937 60,937 (4,193) 0 12,195 4,437 3,043 1,394 0 (2,161) 0 (767) 0 0
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