-----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, TIY2D3trXAiWsM5/gGWREiIeqw/utBgDlq8RiqAW32ZlUOham5KYcGH8a5IQ/4Bf HGAUkx8UWPSrfWNOuiLp3g== 0000950144-98-012145.txt : 19981110 0000950144-98-012145.hdr.sgml : 19981110 ACCESSION NUMBER: 0000950144-98-012145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980928 FILED AS OF DATE: 19981109 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: 98740678 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 09/28/98 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 September 28, 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 Identification No.) incorporation or organization) 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, 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 November 9, 1998 there were 7,507 shares of common stock outstanding. ================================================================================ 2 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q SEPTEMBER 28, 1998
PAGE(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 - 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................ 11 Signature........................................................... 12
2 3 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 28 AND MARCH 30, 1998 (IN 000'S, EXCEPT PER SHARE INFORMATION)
SEPTEMBER 28 MARCH 30 ------------ -------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,249 $ 7,405 Receivables, net 9,660 7,852 Inventories 9,987 10,390 Prepaid expenses and other 2,922 6,551 --------- --------- Total current assets 27,818 32,198 --------- --------- PROPERTY AND EQUIPMENT, at cost: Land and buildings 4,039 4,039 Machinery, fixtures and equipment 20,932 18,447 Display racks 22,328 21,662 --------- --------- 47,299 44,148 Less - accumulated depreciation (18,881) (18,149) --------- --------- 28,418 25,999 --------- --------- DEFERRED DEBT COSTS, net 6,403 8,688 --------- --------- GOODWILL, net of accumulated amortization of $134,018 and $126,440 471,233 478,811 --------- --------- OTHER INTANGIBLES, net of accumulated amortization of $48,726 and $45,766 99,274 102,234 --------- --------- $ 633,146 $ 647,930 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of term loan $ 12,500 $ -- Accounts payable 12,247 15,587 Accrued expenses 15,098 14,915 Accrued interest 10,024 12,249 Accrued and current deferred income taxes 6,130 9,775 Deferred revenues 27,104 31,749 --------- --------- Total current liabilities 83,103 84,275 --------- --------- PAYABLE TO PARENT COMPANY 3,602 3,728 --------- --------- LONG TERM DEBT: Term Loan and Revolving Credit Commitment, net of current portion 284,500 297,401 11.63% Senior Subordinated Notes Due 2004 200,000 200,000 10.38% Senior Subordinated Notes Due 2002 134 134 --------- --------- 484,634 497,535 --------- --------- DEFERRED INCOME TAXES 7,755 7,919 --------- --------- 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 28,011 28,432 --------- --------- TOTAL STOCKHOLDER'S EQUITY 54,052 54,473 --------- --------- $ 633,146 $ 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 (IN 000'S)
FISCAL QUARTER ENDED TWO FISCAL QUARTERS ENDED ---------------------------- ------------------------------ SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- OPERATING REVENUES: Circulation $ 62,153 $ 68,236 $ 124,951 $ 139,269 Advertising 5,138 5,832 10,692 11,969 Other 5,247 5,541 10,271 10,487 --------- --------- --------- --------- 72,538 79,609 145,914 161,725 --------- --------- --------- --------- OPERATING EXPENSES: Editorial 7,284 7,870 14,666 15,747 Production 19,586 20,798 40,522 41,806 Distribution, circulation and other cost of sales 17,064 16,128 35,266 33,181 Selling, general and administrative expenses 6,187 6,519 12,762 13,924 Depreciation and amortization 7,966 7,489 15,808 14,939 --------- --------- --------- --------- 58,087 58,804 119,024 119,597 --------- --------- --------- --------- Operating income 14,451 20,805 26,890 42,128 INTEREST EXPENSE (11,742) (12,712) (23,937) (25,734) OTHER INCOME (EXPENSE), net (Note 5) (42) (561) 4,151 (859) --------- --------- --------- --------- Income before provision for income taxes and extraordinary charge 2,667 7,532 7,104 15,535 PROVISION FOR INCOME TAXES 2,321 4,170 5,364 8,623 --------- --------- --------- --------- Income before extraordinary charge 346 3,362 1,740 6,912 EXTRAORDINARY CHARGE, net of income taxes of $1,269, related to early extinguishment of debt (Note 4) -- -- 2,161 -- --------- --------- --------- --------- Net income (loss) $ 346 $ 3,362 $ (421) $ 6,912 ========= ========= ========= =========
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 TWO FISCAL QUARTERS ENDED SEPTEMBER 28, 1998 AND SEPTEMBER 29, 1997 (IN 000'S)
SEPTEMBER 28, 1998 SEPTEMBER 29, 1997 ------------------ ------------------ Cash Flows from Operating Activities: Net income (loss) $ (421) $ 6,912 --------- --------- Adjustments to reconcile net income (loss) to net cash provided from operating activities - Extraordinary charge, net of income taxes 2,161 -- Depreciation and amortization 15,808 14,939 Deferred debt cost amortization 831 1,381 Senior subordinated discount note accretion -- 190 Decrease (increase) in - Receivables, net (1,808) 3,567 Inventories 403 2,087 Prepaid expenses and other 3,629 (736) Increase (decrease) in - Accounts payable (3,340) 1,972 Accrued expenses (2,180) 2,260 Accrued and current deferred income taxes (2,540) (1,289) Deferred revenues (4,645) (4,597) --------- --------- Total adjustments 8,319 19,774 --------- --------- Net cash provided from operating activities 7,898 26,686 --------- --------- Capital expenditures representing net cash used in investing activities (7,689) (4,043) --------- --------- Cash Flows from Financing Activities: Term loan and revolving credit commitment principal repayments (334,401) (73,684) Proceeds from revolving credit commitment 334,000 66,000 Repayment of senior subordinated indebtedness -- (15,962) Payment of deferred debt costs (1,964) -- --------- --------- Net cash used in financing activities (2,365) (23,646) --------- --------- Net Decrease in Cash and Cash Equivalents (2,156) (1,003) Cash and Cash Equivalents at Beginning of Period 7,405 8,230 --------- --------- Cash and Cash Equivalents at End of Period $ 5,249 $ 7,227 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for - Income taxes $ 5,118 $ 9,636 Interest 25,331 21,699
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 SEPTEMBER 28, 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 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 periods ended September 28, 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 $422,000 and $170,000 than the amounts reported in the accompanying consolidated balance sheets for September 28 and March 30, 1998, respectively. Inventories are comprised of the following: September 28 March 30 -------------- ---------- Raw materials - paper $ 5,877 $ 6,573 Finished product - paper, production and distribution costs of future issues 4,110 3,817 ------- ------- $ 9,987 $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 effective 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 September 28, 1998 the Company had $297 million in loans under the Credit Agreement of which $47 million was borrowed under the revolving credit commitment. As of September 28, 1998 the Company's effective interest rate on borrowings under the Credit Agreement was 7.4%. The effective rate for borrowings under the Credit Agreement averaged 7.4% for the fiscal quarter ended September 28, 1998 as compared to 7.8% on borrowings for the fiscal quarter ended September 29, 1997. For the two fiscal quarters ended September 28, 1998, the effective rate was 7.5% as compared to 7.8% for the same prior year period. 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 6 7 to extraordinary loss in the fiscal quarter ended June 1998. Costs totaling approximately $1.9 million incurred in 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), net in the accompanying consolidated statement of income for the two fiscal quarters ended September 28, 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. (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) RECENT PRONOUNCEMENTS The Company adopted the Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income" effective with the current fiscal year. SFAS No. 130 defines comprehensive income as a measure of all changes in equity of an enterprise during a period that result from transactions and other economic events of the period other than transactions with owners. The adoption of this pronouncement did not have an impact on the Company's financial position or results of operations for any period presented. In June 1998, the Financial Accounting Standards Board issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities," which standardizes the accounting for derivatives, requiring recognition as either assets or liabilities on the balance sheet and measurement at fair value. The Company plans to adopt this statement in fiscal 2001. The Company has not yet determined the effect adoption of this statement will have on the Company's consolidated financial position, results of operations or cash flows. 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 September 28, 1998 the Company's outstanding indebtedness under the Credit Agreement totaled $297 million of which term loan and revolving credit commitment borrowings were $250 million and $47 million, respectively. For the two fiscal quarters ended September 28, 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 under the Credit Agreeement). At September 28, 1998, the Company had cash and cash equivalents of $5.2 million and a working capital deficit of $55.3 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 two fiscal quarters ended September 28, 1998, cash provided from financing activities totaling $7.9 million was used primarily to fund capital expenditures totaling $7.7 million. The relatively high levels of capital expenditures for the current two fiscal quarters 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. RESULTS OF OPERATIONS FISCAL QUARTER ENDED SEPTEMBER 28, 1998 VS FISCAL QUARTER ENDED SEPTEMBER 29, 1997. Total revenues were $72,538,000 for the current fiscal quarter, a decrease of $7,071,000 or 8.9% 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 include single copy and subscription sales, of $62,153,000 decreased $6,083,000 or 8.9%. Average weekly unit sales of NATIONAL ENQUIRER and STAR declined 10.5% and 15.0%, respectively, reflecting the continued weakness in sales experienced after the August 1997 death of Princess Diana. While trends indicate that single copy sales continue to improve from the lows seen in the fiscal quarter ended December 1997, management is unable to determine when and if sales will return to the levels seen in the comparable prior year periods. Revenue declines caused by the fall in circulation were partially offset by $.10 cover price increases for NATIONAL ENQUIRER and STAR to $1.49 effective with the issues dated July 7, 1998. Decreases in average weekly circulation of 15.8% and 14.9%, respectively, for SOAP OPERA MAGAZINE and SOAP OPERA NEWS reflect the impact of increased competition in the soap opera category, particularly in the number of weekly publications offered for sale during the past one to two years. SOAP OPERA NEWS increased its cover price from $1.99 to $2.99, the same cover price charged by its major digest-size competitors, effective with the issue dated August 18, 1998. COUNTRY 8 9 WEEKLY saw its average weekly circulation decrease 13.1% as compared to the same prior year period reflecting overall weakness in the category which has resulted in the recent folding of two similar content publications. It is unknown what impact these events will have on the future circulation levels of COUNTRY WEEKLY. Circulation has also been negatively impacted by the recent industry-wide weakness in overall response rates to agency-sold subscriptions as a result of adverse publicity and litigation relating to certain major agencies. As a result, subscription revenues, which represented approximately 16% of total circulation revenues in the current fiscal quarter, decreased $363,000 or 3.4%. Advertising revenues of $5,138,000 decreased $694,000 or 11.9% reflecting both fewer national ad pages and reduced average revenue per page in NATIONAL ENQUIRER and STAR resulting from recent declines in circulation levels. Operating expenses for the current fiscal quarter of $58,087,000 were down slightly as compared to the same prior year period total of $58,084,000. Increased distribution expenses, related primarily to higher in-store display costs, were offset by lower production costs due to reduced press runs for the Company's publications as compared to the prior year period. The decrease in editorial expense is attributable largely to cost control efforts at NATIONAL ENQUIRER and STAR. Depreciation and amortization expense increased over the prior year period reflecting depreciation related to SOAP OPERA NEWS display pockets and replacement and upgrades of the Company's information systems. Operating income was $14,451,000 as compared with $20,805,000 primarily as a result of the declines in single copy sales of NATIONAL ENQUIRER and STAR. Interest expense decreased $970,000 in the current fiscal quarter to $11,742,000 from $12,712,000 in the comparable prior year period reflecting decreases in the average balance of outstanding indebtedness as well as lower amounts of deferred debt cost amortization related to the Credit Agreement. The Company's effective income tax rates were 87.0% and 55.4% of income before income taxes for the fiscal quarters ended September 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 that is not deductible for income tax reporting purposes. TWO FISCAL QUARTERS ENDED SEPTEMBER 28, 1998 VS TWO FISCAL QUARTERS ENDED SEPTEMBER 29, 1997. Total revenues were $145,914,000 for the current two fiscal quarters, a decrease of $15,811,000 or 9.8% 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 include single copy and subscription sales, of $124,951,000 decreased $14,318,000 or 10.3%. Average weekly unit sales of NATIONAL ENQUIRER and STAR declined 14.3% and 12.5%, respectively, reflecting the continued weakness in sales of these publications experienced after the August 1997 death of Princess Diana. While trends indicate that single copy sales continue to improve from the lows seen in the fiscal quarter ended December 1997, management is unable to determine when and if sales will return to the levels seen in the comparable prior year periods. Revenue declines caused by the fall in circulation were partially offset by $.10 cover price increases for NATIONAL ENQUIRER and STAR to $1.49 effective with the issues dated July 7, 1998. Decreases in average weekly circulation of 17.5% and 1.8%, respectively, for SOAP OPERA MAGAZINE and SOAP OPERA NEWS reflect the impact of increased competition in the soap opera category, particularly in the number of weekly publications offered for sale during the past one to two years. SOAP OPERA NEWS increased its cover price from $1.99 to $2.99, the same cover price charged by its major digest-size competitors, effective with the issue dated August 18, 1998. COUNTRY WEEKLY saw its average weekly circulation decrease 9.0% as compared to the same prior year period reflecting overall weakness in the category which has resulted in the recent folding of two similar content publications. It is unknown what impact these events will have on the future circulation levels of COUNTY WEEKLY. Subscription unit sales and revenues were flat for the current two fiscal quarters as compared to the same prior year period as subscription sales generated by SOAP OPERA NEWS offset declines in certain of the Company's other publications. Subscription unit sales have been negatively impacted by the recent industry-wide weakness in overall response rates to agency-sold subscriptions as a result of adverse publicity and litigation relating to certain major agencies. 9 10 Advertising revenues of $10,692,000 decreased $1,277,000 or 10.7% reflecting both fewer national ad pages and reduced average revenue per page in NATIONAL ENQUIRER and STAR resulting from recent declines in circulation levels. Operating expenses for the current two fiscal quarters of $119,024,000 were down slightly as compared to the same prior year period total of $119,597,000. Increased distribution expenses, related primarily to higher in-store display costs, were offset by lower production costs due to reduced press runs for the Company's publications as compared to the prior year period. The decrease in editorial expense is attributable largely to cost control efforts at NATIONAL ENQUIRER and STAR. Depreciation and amortization expense increased over the prior year period reflecting depreciation related to SOAP OPERA NEWS display pockets and replacement and upgrades of the Company's information systems. Operating income was $26,890,000 as compared with $42,128,000 primarily as a result of the declines in single copy sales of NATIONAL ENQUIRER and STAR. Interest expense decreased $1,797,000 in the current two fiscal quarters to $23,937,000 from $25,734,000 in the comparable prior year period reflecting decreases in the average balance of outstanding indebtedness as well as lower amounts of deferred debt cost amortization related to the Credit Agreement. The Company's effective income tax rates were 75.5% and 55.5% of income before income taxes for the two fiscal quarters ended September 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 that is not deductible for income tax reporting purposes. YEAR 2000 The Company uses computer technology throughout its business that could be affected by the date change in the year 2000, commonly referred to as the "Year 2000 Issue". The Year 2000 Issue relates to the inability of certain computer programs to properly recognize and process date-sensitive data relative to the year 2000 and beyond. The Company is in the process of evaluating the full scope and related costs to insure that its systems are year 2000 compliant. Preliminary plans are to replace the Company's existing systems with new Year 2000 compliant systems within the normal course of business and, where necessary, to appropriately modify existing systems. Costs for systems modifications to address the Year 2000 Issue will be expensed as incurred and are not expected to have a material adverse effect on the Company's business, financial position or results of operations. However, the Company cannot measure the impact that the Year 2000 Issue may have on its suppliers, customers and other parties with which it conducts business. 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. 10 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 27.......... Financial Data Schedule (for SEC use only) During the fiscal quarter ended September 28, 1998, the Company filed no reports on Form 8-K. 11 12 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: November 9, 1998 By /s/ RICHARD W. PICKERT ------------------------- Richard W. Pickert Senior Vice President Chief Financial Officer 12 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 TWO FISCAL QUARTERS ENDED SEPTEMBER 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-29-1999 MAR-31-1998 SEP-28-1998 5,249 0 9,660 269 9,987 27,818 47,299 18,881 633,146 83,103 484,634 0 0 2 54,050 633,146 145,914 145,914 119,024 119,024 (4,151) 0 23,937 7,104 5,364 1,740 0 2,161 0 (421) 0 0
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