-----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, UpmKmtL7tSy639qEroWuZUz3yPlB31zDDFpeclJFMNKOBnLI6FVzORPmvRYyTVEF e6AAKbVWSBij5MYm6YjHCw== 0000950144-97-007131.txt : 19970623 0000950144-97-007131.hdr.sgml : 19970623 ACCESSION NUMBER: 0000950144-97-007131 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970620 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11112 FILM NUMBER: 97627377 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-K 1 AMERICAN MEDIA OPERATIONS, INC. FORM 10-K 03/31/97 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996) FOR THE FISCAL YEAR ENDED MARCH 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM ________TO________
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 Securities registered pursuant to Section 12(b) of the Act: 11.625% SENIOR SUBORDINATED NOTES DUE 2004 Securities registered pursuant to Section 12(g) of the Act: NONE 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. The aggregate market value of the voting stock held by non-affiliates as of June 17, 1997 was $0. As of June 17, 1997 there were issued and outstanding 7,507.6 shares of the registrant's common stock, $.20 par value, all of which were held, beneficially and of record, by American Media, Inc. American Media Operations, Inc. meets the conditions set forth under General Instruction J(1)(a) and (b) and is therefore filing this Form with reduced disclosure. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL American Media Operations, Inc. ("Operations") operates through its subsidiaries (together, the "Company") as a leading publisher in the field of personality journalism. The Company publishes National Enquirer, Star, Weekly World News, Soap Opera Magazine, Country Weekly and Soap Opera News, with a current aggregate weekly circulation in excess of 6 million copies. National Enquirer and Star have the second and third largest single copy circulation, respectively, of any weekly periodical. The Company derives over 86% of its revenues from circulation, predominantly single copy sales in supermarkets and other retail outlets, and the remainder from advertising and other sources. Operations' subsidiary, Distribution Services, Inc. ("DSI"), markets the Company's periodicals, as well as those of its client publishers, in approximately 175,000 locations in the United States and Canada, representing, in the opinion of management, virtually complete coverage of traditional periodical distribution outlets. In addition, DSI provides merchandising and information gathering services for non-publisher third parties. The Company's management strategy is to enhance revenues by raising the cover prices of its publications, expanding advertising sales, introducing new products and making acquisitions while at the same time reducing costs through measures such as increasing printing and distribution efficiencies and consolidating support functions. Consistent with this strategy, in fiscal 1997 the Company increased the cover prices of several of its publications, launched a new weekly publication, Soap Opera News, and acquired a controlling interest in Frontline Marketing, Inc. ("Frontline") an in-store advertising company. The Company has explored and continues to explore other selected acquisition opportunities in areas related to its existing businesses. Any significant acquisitions would be subject to the covenants contained in the credit agreement dated November 10, 1994 among the Company, certain banks named therein (the "Banks") including The Chase Manhattan Bank, as Agent bank, (as amended from time to time, the "Credit Agreement") and indenture (the "Indenture") relating to the Company's 11 5/8% Senior Subordinated Notes due 2004. See Notes 5 and 6 of Notes to Consolidated Financial Statements. The Company's business also includes licensing of its trademarks and copyrighted materials for television and video programming as well as syndicating its published material. The registered trademarks owned by the Company include "National Enquirer", a "Star" design, "Weekly World News", "Soap Opera Magazine", "Country Weekly" and "The Untold Story", and the Company has pending trademarks for "Enquiring Minds" and "Enquiring Minds Want to Know", among others. The Company considers its trademarks important to its business. Operations was incorporated under the laws of Delaware in February 1981 and is a wholly-owned subsidiary of American Media, Inc., ("Media"). The Company conducts all of Media's operations and represents substantially all of Media's assets. The Company's headquarters and principal executive offices are located at 600 East Coast Avenue, Lantana, Florida 33464-0002 and the telephone number is (561) 540-1000. THE PUBLICATIONS The Company currently publishes six weekly periodicals: National Enquirer, whose predecessors date back to 1926, is a general interest, tabloid format periodical with an editorial content devoted to celebrity features, human interest stories and service articles covering topics such as health, food and household affairs. Star, which commenced publication in 1974, is a celebrity news-driven periodical with a strong emphasis on news of television performers and the lives of the rich and famous. Star complements this focus with human interest stories of ordinary people thrust into the limelight by extraordinary circumstances. Every issue also includes a variety of service features, such as food, fashion, health, fitness and parenting. 1 3 WEEKLY WORLD NEWS, which commenced publication in 1979, is a black and white tabloid devoted to entertaining and unusual stories. The editorial content of Weekly World News is derived principally from rewritten stories and purchased photographs from agencies and periodicals around the world. SOAP OPERA MAGAZINE, which commenced publication in 1991, provides in-depth coverage of the ten network daytime soap opera programs including summaries of current story lines, exclusive interviews and extensive photo coverage of soap opera stars. COUNTRY WEEKLY, launched in April 1994, presents all aspects of country music, lifestyles, events and personalities. SOAP OPERA NEWS, the Company's newest magazine having been launched in March 1997, is a digest-sized publication covering all aspects of daytime television's soap opera programming including news, features and behind the scene stories about the shows and stars. The following table provides information reflecting a typical weekly issue for each of the publications:
NEWSSTAND PRICE PER COPY FULL PRICE NUMBER OF NUMBER OF ---------------------- SUBSCRIPTION PAGES COLOR PAGES % EDITORIAL UNITED STATES CANADA $ PER COPY --------- ----------- ----------- ------------- ------ ------------ National Enquirer........ 48 30 70% $1.39 $1.69 $0.92 Star..................... 48 30 78 1.39 1.69 0.92 Weekly World News........ 48 n/a 76 1.25 1.35 0.67 Soap Opera Magazine...... 52 52 86 1.59 1.89 0.92 Country Weekly........... 60 60 86 1.69 1.99 0.89 Soap Opera News.......... 132 132 95 1.49 1.79 1.30
Each of the publications, excluding Soap Opera News, periodically publishes expanded issues in place of its regular weekly issue. Depending on the publication, expanded issues typically include 24 to 32 additional pages with domestic cover prices of $2.49 for National Enquirer, Star, Soap Opera Magazine and Country Weekly and $1.95 for Weekly World News. Expanded issues may include an additional focus on particular topics of interest such as fashion, horoscope, artist awards, important celebrities and unusual occurrences in addition to the standard editorial content of a regular weekly issue. Also, on certain occasions special issues are published by National Enquirer and Star in addition to their regular weekly issues. Special issues, which are kept on sale for periods of two to three weeks, are typically 76 pages in length and have a domestic cover price of $2.50. Similar to an expanded issue, a special issue focuses on a particular topic of interest to its readers; however it excludes the editorial features normally found in either an expanded issue or a regular weekly issue. The Company plans to publish 24 expanded issues in fiscal 1998 and may offer special issues should opportunities arise. A table showing the number of expanded and special issues for the past three fiscal years follows:
1997 1996 1995 ------------------ ------------------ ------------------ EXPANDED SPECIAL EXPANDED SPECIAL EXPANDED SPECIAL -------- ------- -------- ------- -------- ------- National Enquirer.................... 4 -- -- 2 -- 2 Star................................. 4 -- 1 1 -- 3 Weekly World News.................... 5 n/a 3 n/a 1 n/a Soap Opera Magazine.................. 4 n/a 1 n/a 1 n/a Country Weekly....................... 4 n/a 4 n/a 1 n/a
In fiscal 1996, the Company also began publishing pocket-sized books under the name Micro Mags which cover such topics as diets, horoscopes, health and psychic phenomena, among others. The current cover price of the Micro Mags is $1.39. The Company plans to publish 8 releases in fiscal 1998, each with 4 titles. OVERSEAS DISTRIBUTION AND FOREIGN OPERATIONS The Company distributes both weekly and special issues of National Enquirer and Weekly World News in the United Kingdom, Europe and, to a minor extent, Asia. For fiscal 1997, combined average weekly 2 4 foreign circulation (excluding Canada) was approximately 137,000 copies as compared to 122,000 in fiscal 1996. The revenues, operating profit and identifiable assets attributable to those markets are not material for any of the last three fiscal years. EDITORIAL The editorial departments of the publications are independent operating entities and have different reporting structures. The editorial groups for NATIONAL ENQUIRER, WEEKLY WORLD NEWS and COUNTRY WEEKLY are based in Lantana, Florida, while editorial offices for STAR, SOAP OPERA MAGAZINE and SOAP OPERA NEWS are based in Tarrytown, New York. The editorial news gathering operations of NATIONAL ENQUIRER are conducted by 6 article editors who, together with their staff reporters in Lantana and Los Angeles, are responsible for developing stories. Under the supervision of an Editor, Executive Editor and Managing Editor, the stories flow from the articles editors to the writers and layout desks. A separate photo department is responsible for obtaining the pictures to be placed in the publication. The full time staff of approximately 70 is complemented by a network of more than 1,000 freelance reporters and other contributors who serve as story idea sources, information sources, reporters and photographers. Stories are rewritten in NATIONAL ENQUIRER style by a highly skilled team of writers. In addition, NATIONAL ENQUIRER has a separate research department consisting of eight employees, whose function is to provide fact checking for stories and to assist the editorial staff with original research. STAR'S reporters, based in Los Angeles, Washington and New York and on assignment, report to a central news editor who is flanked by a photo editor with a worldwide network of photographers. The news and photo desks channel stories and pictures to the Executive Editor and the Editor-in-Chief, who decide on direction, scale and placement, and then brief the production team, consisting of the art desk and the copy desk. STAR'S editorial staff consists of approximately 60 full-time employees and a freelance and editorial contributor network of approximately 150 persons. Fact checking for Star is accomplished by the editorial desks and a separate library staff assists with research for various stories. The editorial staffs of WEEKLY WORLD NEWS, SOAP OPERA MAGAZINE, COUNTRY WEEKLY AND SOAP OPERA NEWS are comprised of approximately 16, 20, 25 and 26 persons, respectively, managed by each publication's editor. Each of the Company's publications uses graphic display computers to configure story layouts while editors determine the final text and perform a last review for accuracy. Once finalized, the completed issues are digitally transmitted to printing plants for printing. In addition to its editorial staff, each publication pays outside sources for story ideas, for information regarding "breaking stories" that is proved to be genuine and for exclusive stories regarding celebrities. The Company also pays free-lance photographers and free-lance reporters for their investigative journalism. Multiple sources as well as documentation are sought for all stories that are potentially controversial or subject to dispute. In addition, the Company retains special libel counsel to review, prior to publication, all sensitive stories and celebrity news and photos. Before publishing book excerpts, the Company generally obtains indemnification from the publisher, author and/or agent concerning publication rights and defamation. CIRCULATION The Company's publications derive a major portion of their revenues from circulation, as opposed to advertising. More than 86% of the Company's consolidated revenue for fiscal 1997 was derived from circulation. Approximately 85% of its circulation revenue was generated by single copy sales and the remainder by subscriptions. CIRCULATION STRATEGY AND PRICING. The Company's strategy is to optimize circulation revenues and operating cash flow, as opposed to the unit sales of its publications. The Company believes that the single copy 3 5 and subscription sales of its publications are not materially sensitive to moderate, periodic price increases, and that there is flexibility to increase both the cover and subscription prices. This belief is based on the price/circulation history of the publications and the pricing history of competing publications relative to the pricing history of the Company's titles. CIRCULATION TRENDS. The following table sets forth average weekly single copy and total unit sales of the Company's publications (excluding special issues) for the past three fiscal years (in thousands):
1997 1996 1995 -------------- -------------- -------------- SINGLE SINGLE SINGLE COPY TOTAL COPY TOTAL COPY TOTAL ------ ----- ------ ----- ------ ----- National Enquirer....................... 2,104 2,543 2,150 2,604 2,512 2,993 Star.................................... 1,858 2,212 2,025 2,397 2,268 2,672 Weekly World News....................... 409 431 438 459 490 510 Soap Opera Magazine..................... 268 330 240 284 272 310 Country Weekly.......................... 219 389 215 333 225 290
Canadian sales during fiscal 1997 represented less than 10% of each publication's average weekly unit sales. Management believes declines in single copy circulation of NATIONAL ENQUIRER, STAR and WEEKLY WORLD NEWS resulted in part from increased competition from other publications and forms of media such as television and radio programs concentrating more heavily on celebrity news. See "Competition". In addition, a portion of such declines are due to the Company's strategy of optimizing circulation revenues and operating cash flows as opposed to maximizing unit sales. All of the Company's publications are sold with full return privileges. Copies not sold are returned to the wholesalers for destruction. The Company periodically audits the return procedures of its wholesalers. SUBSCRIPTIONS Consistent with its strategy with respect to single copy circulation the Company's strategy with respect to subscriptions seeks to optimize subscription revenues and profitability as opposed to subscription unit sales. The Company accomplishes this strategy by focusing primarily on direct-to-publisher subscriptions, however, it also offers agency-sold discounted subscriptions when it believes that such sales will result in economically beneficial levels of full-price renewal subscriptions. All of the Company's publications except WEEKLY WORLD NEWS offer agency-sold subscriptions. Subscription copies are delivered as second class mail. Subscription fulfillment is performed by an unaffiliated company which charges a fee for its services. Renewal rates for the Company's publications (exclusive of subscriptions sold by direct mail agents) were 80% for NATIONAL ENQUIRER, 79% for STAR, 64% for WEEKLY WORLD NEWS, 64% for SOAP OPERA MAGAZINE and 63% for COUNTRY WEEKLY for subscriptions which expired during the first six months of the 1996 calendar year. Average weekly subscription unit sales for the past three fiscal years were as follows (in thousands):
1997 1996 1995 ---- ---- ---- National Enquirer........................................... 439 454 481 Star........................................................ 354 372 404 Weekly World News........................................... 22 21 20 Soap Opera Magazine......................................... 62 44 38 Country Weekly.............................................. 170 118 65
Subscription unit sales declines for NATIONAL ENQUIRER and STAR are attributable to the same competitive factors as previously described for single copy unit sales declines. 4 6 Each of the Company's publications sells both paid-in-advance and billed subscriptions for 52-week periods. Subscriptions of 16 to 26 weeks, depending upon the publication, are also available. Renewals are promoted through a series of mailings and, in some cases, a telephone call to the subscriber. In addition, subscriptions may be promoted through ads in sister publications. ADVERTISING REVENUES The Company maintains advertising sales offices in New York City, Chicago, Los Angeles and Lantana that solicit advertisements for its publications. The following table shows advertising revenues generated by publication for the past three fiscal years (in millions):
1997 1996 1995 ----- ----- ----- National Enquirer........................................... $13.5 $13.0 $14.9 Star........................................................ 7.6 7.8 10.0 Weekly World News........................................... 1.4 1.2 1.2 Soap Opera Magazine......................................... 0.5 0.4 0.2 Country Weekly.............................................. 1.3 0.9 0.7 ----- ----- ----- $24.3 $23.3 $27.0 ===== ===== =====
The following table sets forth advertising revenues by category and as a percent of total advertising revenues for the past five fiscal years (dollars in millions):
TOTAL NATIONAL MAIL ORDER CLASSIFIED ADVERTISING ----------- ----------- ---------- REVENUE $ % $ % $ % ----------- ----- --- ----- --- ---- --- 1997.................................... $24.3 $ 9.9 41% $11.1 46% $3.3 14% 1996.................................... 23.3 8.9 38 11.1 48 3.3 14 1995.................................... 27.0 8.9 33 15.0 56 3.1 11 1994.................................... 25.9 9.0 35 13.8 53 3.1 12 1993.................................... 29.4 11.1 38 14.6 50 3.7 12
Management believes that the decline in advertising revenues since 1993 reflects a combination of factors including, increased competition for advertising revenues from other forms of media concentrating on celebrity news such as television and radio and the effects of decreased circulation levels of NATIONAL ENQUIRER and STAR. Tobacco advertising revenues totaled approximately $4.1 million in fiscal 1997 as compared to approximately $5.3 million in fiscal 1993. Management believes that tobacco advertising as a percentage of national advertising revenue may continue to decline. MARKETING, MERCHANDISING AND INFORMATION GATHERING SERVICES DSI, consisting of more than 170 full time and 1,440 part time personnel, is responsible for marketing the Company's publications, as well as those of its client publishers, in racks at checkout counters in over 175,000 locations in the United States and Canada. DSI covers virtually all traditional periodical distribution outlets. Management believes that DSI's national coverage and marketing skills are one of the key factors that contribute significantly to sales of the Company's publications. Each week, the staff of DSI are routed to review product positions and reposition and restock racks of its clients at the checkout counters in more than 18,000 of the highest volume supermarkets, mass merchandisers and other retail outlets in the United States and Canada. DSI also coordinates or "quarterbacks" the design of rack displays in consultation with retailers and publishers, for approximately 40% of all checkout racks programs initiated annually in the United States and Canada. Although DSI receives no monetary compensation for serving as quarterback, it competes with other companies to serve as quarterback. Coordinating the design and magazine placement of racks enables the Company to obtain favorable positions for its publications which management believes is important in determining its sales volume. Publishers who 5 7 are allocated space on a rack enter into contracts directly with the store owner for the payment of retail display allowances or other charges with respect to that space. Currently, the Company has more than $18 million invested in racks. DSI has contractual agreements to provide various marketing services to third-party clients in the publishing industry, including Hachette Filipacchi Magazines, Inc., which publishes WOMAN'S DAY, WOMAN'S DAY SPECIALS, ELLE, and MIRABELLA; Hearst Magazines, which publishes COSMOPOLITAN, GOOD HOUSEKEEPING, REDBOOK, COUNTRY LIVING, HARPER'S BAZAAR, HOUSE BEAUTIFUL AND VICTORIA; Gruner + Jahr USA/Publishing, which publishes MCCALLS, FAMILY CIRCLE, FITNESS, PARENTS AND YM; Wenner Media, Inc., which publishes US MAGAZINE and ROLLING STONE MAGAZINE; Rodale Press, Inc., which publishes PREVENTION and QUICK & HEALTHY COOKING; and Newsweek, Inc., which publishes NEWSWEEK. DSI has expanded its client base beyond the publishing industry by providing merchandising and information gathering services to various major packaged-products companies, retailers and other marketers. DSI has equipped its field force with hand-held computer terminals in order to enhance the timeliness and accuracy of its information gathering services. Management believes DSI has significant potential for further expansion. In September 1996, the Company acquired an 80% interest in Frontline an in-store advertising company for approximately $2.2 million in cash. Frontline sells advertising space to various product manufacturers and other national advertisers on signage it owns at the checkout counters in about 5,200 grocery stores and considers itself as a premier in-store advertising vehicle for new products and front-end brands. Frontline is responsible for maintaining the signage consisting of an elevated light display and pays the retailer a commission on advertising sales. DSI performs Frontline's field service work and Company management believes there may be additional benefits from offering Frontline's in-store advertising in combination with national advertising sales in the Company's publications. PRODUCTION AND RAW MATERIALS An unrelated third party performs most of the prepress operations for the Company's publications and is responsible for transmitting them electronically to independent printing plants. All of the publications are printed utilizing the rotogravure printing process. The Company has a long-term printing agreement with an unrelated domestic printer to print NATIONAL ENQUIRER and STAR through December 2010. See Note 8 of Notes to Consolidated Financial Statements. This same printer also prints all of the Company's other publications except for NATIONAL ENQUIRER'S United Kingdom edition and SOAP OPERA NEWS which are printed by other unrelated printers. Once printed, the copies are transported by truck to over 200 wholesalers in the United States and Canada who deliver the requisite number of copies to more than 175,000 retail sales locations. The Company believes its relationships with its printing companies are favorable and that there are printing facilities available elsewhere, should the need arise. The following table reflects the average weekly press run for the Company's publications during fiscal 1997 (in thousands):
AVERAGE PRESS RUN -------------- National Enquirer........................................... 4,919 Star........................................................ 4,461 Weekly World News........................................... 1,125 Soap Opera Magazine......................................... 811 Country Weekly.............................................. 878
The principal raw materials utilized by the Company's publications are paper and ink. Paper is purchased directly by the Company from several suppliers based upon pricing and, to a lesser extent, availability. Ink utilized by the Company's publications is supplied by the printers from at least two different ink suppliers. Both paper and ink are commodity products with pricing affected by demand, capacity and economic conditions. The Company believes that adequate sources of supply are, and will continue to be, available to fulfill its requirements. 6 8 Since 1994, the interplay of worldwide demand for paper products and manufacturing capacity at paper mills has resulted in relatively significant paper price volatility for the Company, as well as other publishers. In response to these rising costs, the Company undertook several measures to reduce paper consumption including lowering the print orders of its publications and reducing both the number of pages and trim sizes of certain of its publications. These efforts combined with changes in paper demand and availability has resulted in a substantial decline in the Company's average paper costs during fiscal 1997. Although it is not possible to accurately forecast the future prices of paper, Company management believes prices in fiscal 1998 will likely be lower than the levels experienced in fiscal 1997. COMPETITION All of the Company's publications compete in varying degrees with other publications focusing on personality journalism and those sold at retail checkout counters, as well as other forms of media concentrating on celebrity news, including daily newspapers and television and radio programs. The Company believes that its most direct competitors are Time Warner, Inc. (which publishes PEOPLE and ENTERTAINMENT WEEKLY), Wenner Media, Inc. (which publishes US MAGAZINE), News America Publishing Incorporated (which publishes TV GUIDE), Globe Communications Corp. (which publishes GLOBE, SUN and NATIONAL EXAMINER), K-III Magazine Corporation (which publishes SOAP OPERA DIGEST and SOAP OPERA WEEKLY), Bauer Publishing (which publishes SOAP OPERA UPDATE and SOAPS IN DEPTH) and Meredith Corp. (which publishes COUNTRY AMERICA). Competition for circulation is largely based upon the content of the publication, its placement in supermarkets and other retail outlets and, to a lesser extent, its price. Competition for advertising dollars is largely based upon circulation levels, readership, demographics, price and advertiser results. DSI competes with many other companies at various marketing and distribution levels, such as full- service national distributors, wholesalers, and publishers who have their own marketing organizations. Many of the Company's competitors have substantially larger operating staffs and greater capital resources than the Company. EMPLOYEE RELATIONS The Company employs approximately 530 persons full-time and 1,500 part-time, of whom about 1,600 work for DSI. None of the Company's employees is represented by any union or other labor organization. There have been no strikes or work stoppages against the Company during the last five years. The Company believes that its relations with its employees are good. ITEM 2. PROPERTIES The Company owns its headquarters buildings which are located in Lantana, Florida. The premises, which also houses the editorial staffs of NATIONAL ENQUIRER, WEEKLY WORLD NEWS and COUNTRY WEEKLY, consist of three one-story buildings with an aggregate of 33,700 square feet located on approximately 7.6 acres. The Company also leases 18,800 square feet in Tarrytown, New York for the editorial staffs of STAR, SOAP OPERA MAGAZINE and SOAP OPERA NEWS and 7,700 square feet in West Palm Beach, Florida for DSI. Various other smaller properties are leased primarily in New York and California for certain of the Company's other operations. The Company believes that all of its properties are in generally good condition and are adequate for current operations. All Company owned property is subject to a mortgage as security to the Banks under the Credit Agreement. ITEM 3. LEGAL PROCEEDINGS The Company is involved in a number of litigation matters which have arisen in the ordinary course of business. Although the plaintiffs in some of the Company's legal proceedings are alleging damages in excess of 10% of the Company's current assets, the Company does not believe that these lawsuits are material, either singly or in the aggregate. Because the focus of the Company's publications on personality journalism often involves controversial celebrities or subjects, the risk of libel litigation arises in the ordinary course of the 7 9 Company's business. In addition, the Company's experience suggests that the claims for damages made in such lawsuits are heavily inflated and, in any event, any reasonably foreseeable liability or settlement in excess of policy deductibles would be covered by insurance. At May 8, 1997, the Company was a defendant in 7 libel-based lawsuits. In the opinion of the Company, the outcome of these proceedings will not have a material adverse impact on the Company's consolidated financial position or results of operations. During the five fiscal years ended March 31, 1997, the Company paid approximately $20.7 million in the aggregate for legal fees (including prepublication review and litigation), libel insurance premiums and libel-related settlements, including amounts covered by insurance payments. See "Business -- Editorial". The Company has not experienced any difficulty obtaining libel insurance and does not expect to experience any material difficulty in the future. 8 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS All of the Company's common stock is owned by Media. For the two fiscal years ended March 31, 1997, the Company has paid no cash dividends to Media and will pay no cash dividends on its common stock in the foreseeable future. Instead, it will use cash generated from operating results primarily to make principal and interest payments on its indebtedness. In addition, the payment of future cash dividends is restricted under the terms of its indebtedness, particularly the Credit Agreement, which limits aggregate dividend payments and requires the maintenance of certain financial ratios including operating cash flow and debt coverage ratios. ITEM 6. SELECTED FINANCIAL DATA The selected financial data for each of the five fiscal years in the period ended March 31, 1997 below have been derived from the consolidated financial statements of the Company, which have been audited by independent certified public accountants. The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", the Company's Consolidated Financial Statements and Notes thereto and other financial information appearing elsewhere in this Form 10-K.
FISCAL YEAR ENDED --------------------------------------------------------- MARCH 31, MARCH 25, MARCH 27, MARCH 28, MARCH 29, 1997(1) 1996 1995 1994 1993 --------- --------- --------- --------- --------- (IN THOUSANDS) STATEMENT OF INCOME DATA: Operating Revenues.......................... $315,988 $295,050 $315,299 $300,035 $275,384 Operating Expenses(2)....................... 228,817 228,714 230,401 213,651 201,238 -------- -------- -------- -------- -------- Operating Income............................ 87,171 66,336 84,898 86,384 74,146 Interest Expense............................ (56,284) (56,715) (35,885) (28,721) (32,777) Other Expense, Net.......................... (1,705) (1,195) (1,409) (3,164) (1,467) -------- -------- -------- -------- -------- Income before Income Taxes and Extraordinary Charge.................................... 29,182 8,426 47,604 54,499 39,902 Income Taxes................................ 16,716 8,985 23,755 26,269 19,886 -------- -------- -------- -------- -------- Income (Loss) before Extraordinary Charge... 12,466 (559) 23,849 28,230 20,016 Extraordinary Charge(3)..................... -- -- (11,635) -- -- -------- -------- -------- -------- -------- Net Income (Loss)........................... $ 12,466 $ (559) $ 12,214 $ 28,230 $ 20,016 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Cash and Cash Equivalents................... $ 8,230 $ 4,643 $ 6,297 $ 7,596 $ 5,880 Total Assets................................ 670,850 687,434 711,486 729,763 747,557 Total Debt(4)............................... 528,662 558,906 579,844 322,199 368,927 Total Stockholder's Equity(5)............... 48,457 36,242 36,801 321,012 302,630 OTHER DATA: Depreciation................................ $ 8,145 $ 7,303 $ 6,546 $ 5,843 $ 5,242 Amortization of Intangibles................. 21,075 23,075 28,504 28,278 29,898 Noncash Interest Expense(6)................. 4,644 4,425 9,080 11,005 9,255 Capital Expenditures........................ 8,526 9,072 8,307 7,724 7,590
- --------------- (1) Fiscal 1997 includes 53 weeks as compared to 52 weeks for all other fiscal years presented. (2) Data include television advertising expense of $1,217, $6,296, $9,441, $16,093 and $4,075 for fiscal years 1997, 1996, 1995, 1994 and 1993, respectively. (3) Consists primarily of the write-off of deferred debt costs and charges relating to refinancing of the Company's indebtedness in November 1994. (4) Increase in total debt in fiscal 1995 reflects the November 1994 refinancing of the Company's indebtedness in connection with the payment of a special dividend to Media totaling $292,250. (5) Reflects fiscal 1995 payment of a special dividend to Media totaling $292,250. 9 11 (6) Noncash interest expense represents accretion of discount interest on 10.09% Zero Coupon Notes Due 1997, certain 15% subordinated notes (retired in fiscal 1993) and amortization of deferred debt costs. See Notes 6 and 7 of Notes to Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had cash and cash equivalents of $8.2 million compared to $4.6 million at March 25, 1996. The Company's primary sources of liquidity are cash generated from operations and amounts available under the Company's revolving credit commitment. As of March 31, 1997, the Company had a working capital deficit of $112.4 million of which $59.1 million represents the current portion of long-term indebtedness. The Company's working capital needs are met by the large amounts of cash generated by its business as well as amounts available under the Credit Agreement's $75 million revolving credit commitment. A substantial portion of the Company's cash is used to service its indebtedness, including the payment of principal and interest. Temporary shortfalls in available cash are covered by borrowings under the revolving credit commitment which are reflected as long-term liabilities. 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. As of March 31, 1997, $67 million was available under the Credit Agreement's revolving credit commitment. RESULTS OF OPERATIONS FISCAL 1997 VS FISCAL 1996. Total revenues were $315,988,000 for fiscal 1997 (which includes 53 weeks as compared to 52 weeks in fiscal 1996), an increase of $20,938,000 or 7.1% from total revenues of $295,050,000 in the prior fiscal year. Circulation revenues (which includes all single copy and subscription sales) of $273,567,000 increased $16,162,000 or 6.3% from the prior fiscal year as a result of one additional issue for each publication in fiscal 1997 as well higher revenues generated by NATIONAL ENQUIRER and SOAP OPERA MAGAZINE. Revenues from a $.10 per copy increase in cover price for NATIONAL ENQUIRER, effective with the July 23, 1996 issue, more than offset a decline in NATIONAL ENQUIRER'S average weekly single copy unit sales from fiscal 1996 of 2.1%; a similar price increase for STAR largely offset an average weekly unit sales decline of 8.2%. Management believes the declines in single copy sales of NATIONAL ENQUIRER and STAR, as well as many other publications sold at the check-out counter, are due primarily to the increasingly competitive print and electronic media coverage of personality journalism. SOAP OPERA MAGAZINE'S single copy revenue was higher as average weekly single copy unit sales increased by approximately 11.7% when compared to the prior year. Revenues were also favorably impacted by cover price increases for COUNTRY WEEKLY and WEEKLY WORLD NEWS which showed an increase of 1.9% and a decrease of 6.6%, respectively, in average weekly single copy unit sales when compared to fiscal 1996. Subscription revenues of $39,870,000 increased $2,445,000 or 6.5% over fiscal 1996 as a result of one additional issue for each publication and higher levels of subscriptions generated by COUNTRY WEEKLY and SOAP OPERA MAGAZINE. Advertising revenues of $24,280,000 increased $975,000 or 4.2% compared to fiscal 1996. On an equivalent number of issues basis, advertising revenues increased by approximately $517,000 or 2.2% reflecting higher levels of national advertising in both NATIONAL ENQUIRER and COUNTRY WEEKLY. Operating expenses for fiscal 1997 on an equivalent number of weeks basis (after deducting television advertising and depreciation and amortization) increased by $2,597,000 or 1.4%. Distribution, circulation and other cost of sales together with selling, general and administrative expenses increased by a combined total of $8,673,000 on an equivalent basis primarily reflecting costs associated with the Company's expansion of its in- 10 12 store marketing, merchandising and information gathering services and higher subscription expenses. Production expense was lower by $6,059,000 on an equivalent basis as a result of reduced average paper costs in fiscal 1997 as compared to the prior year. Television advertising expense was lower by $5,079,000 as the Company did not repeat the fiscal 1996 national advertising campaigns for NATIONAL ENQUIRER and STAR. Depreciation and amortization expense decreased as the amortization of an intangible asset with a 5-year life was completed in June 1995. Interest expense decreased $431,000 in fiscal 1997 to $56,284,000 from $56,715,000 in the prior fiscal year. Decreases in the average outstanding indebtedness more than offset one additional week's interest in the current fiscal year. The Company's effective income tax rates were 57.3% and 106.6% for fiscal years 1997 and 1996, respectively, as compared to the federal statutory income tax rate of 35%. The higher effective tax rates result primarily from goodwill amortization which is not deductible for income tax reporting purposes (see Note 4 of Notes to Consolidated Financial Statements). FISCAL 1996 VS FISCAL 1995. Total revenues were $295,050,000 for fiscal 1996, a decrease of 6.4% from total revenues of $315,299,000 for the prior fiscal year. Circulation revenues (which includes all single copy and subscription sales) of $257,405,000 decreased $15,651,000 or 5.7% from the prior fiscal year. The decrease is primarily a result of declines in single copy unit sales of 14.4% and 10.7% for NATIONAL ENQUIRER and STAR, respectively. Declines in single copy circulation were offset, in part, by price increases in NATIONAL ENQUIRER and STAR to $1.29 from $1.25 on March 28, 1995 (issue date). Management believes the declines in single copy sales of NATIONAL ENQUIRER and STAR, as well as many other publications sold at the check-out counter, are due primarily to the increasingly competitive print and electronic media coverage of personality journalism. Subscription revenues of $37,425,000 increased $3,903,000 or 11.6% over fiscal 1995 as a result of both the subscriptions generated by COUNTRY WEEKLY and higher levels of full-price subscriptions sold by NATIONAL ENQUIRER and STAR. Advertising revenues of $23,305,000 decreased $3,728,000 or 13.8% compared to the prior fiscal year. The advertising revenue decrease was caused primarily by declines of 10.7% and 17.8% in NATIONAL ENQUIRER and STAR advertising pages, respectively, reflecting weakness in direct response advertising, particularly in the collectibles market, as well as continued pressure on average advertising revenue per page. Other revenues of $14,340,000 decreased $870,000 or 5.7% resulting primarily from the expiration in fiscal 1995 of an agreement to provide merchandising services to an unrelated client by DSI. Production expense of $84,830,000 increased $9,883,000 or 13.2% reflecting substantially higher paper costs in fiscal 1996 during which the average cost of the Company's paper increased to $725 a metric ton from approximately $490 a metric ton in fiscal 1995. Offsetting these higher paper costs, during fiscal 1996 the Company took steps to reduce paper consumption including lowering the print orders of its publications and reducing the trim sizes of NATIONAL ENQUIRER, STAR and WEEKLY WORLD NEWS. In addition, production and prepress expense savings were achieved from the consolidation of the printing operations of WEEKLY WORLD NEWS, SOAP OPERA MAGAZINE and COUNTRY WEEKLY. Total operating expenses, despite the substantial increase in paper costs, declined by $1,687,000 to $228,714,000 in fiscal 1996 from $230,401,000 in the prior fiscal year due primarily to reduced intangibles amortization and continued emphasis by management on cost containment. Interest expense increased $20,830,000 in fiscal 1996 to $56,715,000 from $35,885,000 in the prior fiscal year reflecting higher average outstanding indebtedness resulting from a November 1994 refinancing in connection with the payment of a special dividend to Media totaling $292,250,000. The Company's effective income tax rates were 106.6% and 49.9% for fiscal years 1996 and 1995, respectively, as compared to the federal statutory income tax rate of 35%. The higher effective tax rates result primarily from goodwill amortization which is not deductible for income tax reporting purposes (see Note 4 of Notes to Consolidated Financial Statements). 11 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S) ------- FINANCIAL STATEMENTS: Report of Independent Certified Public Accountants........ 13 Consolidated Balance Sheets as of March 31, 1997 and March 25, 1996............................................... 14 Consolidated Statements of Income for Each of the Three Fiscal Years in the Period Ended March 31, 1997........ 15 Consolidated Statements of Stockholder's Equity for Each of the Three Fiscal Years in the Period Ended March 31, 1997................................................... 16 Consolidated Statements of Cash Flows for Each of the Three Fiscal Years in the Period Ended March 31, 1997................................................... 17 Notes to Consolidated Financial Statements................ 18-24
Schedules have been omitted since the information is not applicable, not required or because the required information is included in the Consolidated Financial Statements or Notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 12 14 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholder of American Media Operations, Inc.: We have audited the accompanying consolidated balance sheets of American Media Operations, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1997 and March 25, 1996, and the related consolidated statements of income, stockholder's equity and cash flows for each of the three fiscal years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Media Operations, Inc. and subsidiaries as of March 31, 1997 and March 25, 1996, and the results of their operations and their cash flows for each of the three fiscal years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Miami, Florida April 30, 1997 13 15 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997 AND MARCH 25, 1996 (IN 000'S, EXCEPT SHARE INFORMATION)
1997 1996 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 8,230 $ 4,643 Receivables, net.......................................... 8,191 5,405 Inventories............................................... 13,391 14,526 Prepaid income taxes...................................... -- 1,184 Prepaid expenses and other................................ 2,626 2,790 -------- -------- Total current assets............................... 32,438 28,548 -------- -------- DUE FROM PARENT COMPANY..................................... 1,048 617 -------- -------- PROPERTY AND EQUIPMENT, at cost: Land and buildings........................................ 4,039 4,039 Machinery, fixtures and equipment......................... 16,159 11,781 Display racks............................................. 18,854 18,424 -------- -------- 39,052 34,244 Less -- accumulated depreciation.......................... (14,819) (12,981) -------- -------- 24,233 21,263 -------- -------- DEFERRED DEBT COSTS, net.................................... 11,011 13,811 -------- -------- GOODWILL, net of accumulated amortization of $111,285 and $96,130................................................... 493,966 509,121 -------- -------- OTHER INTANGIBLES, net of accumulated amortization of $39,846 and $33,926....................................... 108,154 114,074 -------- -------- $670,850 $687,434 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of term loan.............................. $ 43,355 $ 34,744 10.09% Zero Coupon Notes Due 1997......................... 15,772 -- Accounts payable.......................................... 14,167 18,049 Accrued expenses.......................................... 18,119 14,537 Accrued interest.......................................... 10,037 12,178 Accrued and current deferred income taxes................. 11,022 9,093 Deferred revenues......................................... 32,348 30,506 -------- -------- Total current liabilities.......................... 144,820 119,107 -------- -------- TERM LOAN AND REVOLVING CREDIT COMMITMENT, net of current portion................................................... 269,401 309,756 -------- -------- SUBORDINATED INDEBTEDNESS: 11.63% Senior Subordinated Notes Due 2004................. 200,000 200,000 10.09% Zero Coupon Notes Due 1997......................... -- 14,272 10.38% Senior Subordinated Notes Due 2002................. 134 134 -------- -------- 200,134 214,406 -------- -------- DEFERRED INCOME TAXES....................................... 8,038 7,923 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 8) STOCKHOLDER'S EQUITY: Common stock, $.20 par value; 10,000 shares authorized, 7,507 shares issued and outstanding..................... 2 2 Additional paid-in capital................................ 26,039 26,290 Retained earnings......................................... 22,416 9,950 -------- -------- TOTAL STOCKHOLDER'S EQUITY......................... 48,457 36,242 -------- -------- $670,850 $687,434 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 14 16 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 (IN 000'S)
FISCAL YEAR ENDED --------------------------------- MARCH 31, MARCH 25, MARCH 27, 1997 1996 1995 --------- --------- --------- OPERATING REVENUES: Circulation............................................... $273,567 $257,405 $273,056 Advertising............................................... 24,280 23,305 27,033 Other..................................................... 18,141 14,340 15,210 -------- -------- -------- 315,988 295,050 315,299 -------- -------- -------- OPERATING EXPENSES: Editorial................................................. 28,369 27,851 30,128 Production................................................ 80,286 84,830 74,947 Distribution, circulation and other cost of sales......... 60,514 53,601 56,438 Selling, general and administrative expenses.............. 29,211 25,758 24,397 Television advertising.................................... 1,217 6,296 9,441 Depreciation and amortization............................. 29,220 30,378 35,050 -------- -------- -------- 228,817 228,714 230,401 -------- -------- -------- Operating income.......................................... 87,171 66,336 84,898 INTEREST EXPENSE............................................ (56,284) (56,715) (35,885) OTHER EXPENSE, net.......................................... (1,705) (1,195) (1,409) -------- -------- -------- Income before provision for income taxes and extraordinary charge................................................. 29,182 8,426 47,604 PROVISION FOR INCOME TAXES.................................. 16,716 8,985 23,755 -------- -------- -------- Income (loss) before extraordinary charge................. 12,466 (559) 23,849 EXTRAORDINARY CHARGE, net of income taxes (Note 6).......... -- -- (11,635) -------- -------- -------- Net income (loss)................................. $ 12,466 $ (559) $ 12,214 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 15 17 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 (IN 000'S, EXCEPT SHARE INFORMATION)
COMMON STOCK ADDITIONAL --------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ------ ------ ---------- -------- Balance, March 28, 1994.................................... 7,507 $2 $ 318,540 $ 2,470 Common stock dividends..................................... -- -- (292,250) (4,175) Net income................................................. -- -- -- 12,214 ----- -- --------- ------- Balance, March 27, 1995.................................... 7,507 2 26,290 10,509 Net loss................................................... -- -- -- (559) ----- -- --------- ------- Balance, March 25, 1996.................................... 7,507 2 26,290 9,950 Other...................................................... -- -- (251) -- Net income................................................. -- -- -- 12,466 ----- -- --------- ------- Balance, March 31, 1997.................................... 7,507 $2 $ 26,039 $22,416 ===== ====== ========= =======
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 16 18 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 (IN 000'S)
FISCAL YEAR ENDED ----------------------------------- MARCH 31, MARCH 25, MARCH 27, 1997 1996 1995 --------- --------- --------- Cash Flows from Operating Activities: Net income (loss)......................................... $ 12,466 $ (559) $ 12,214 -------- -------- --------- Adjustments to reconcile net income (loss) to net cash provided from operating activities -- Extraordinary charge, net of income taxes................. -- -- 11,635 Depreciation and amortization............................. 29,220 30,378 35,050 Deferred debt cost amortization........................... 3,144 3,090 2,098 Senior subordinated discount note accretion............... 1,500 1,335 6,982 Deferred income tax provision............................. 1,180 398 3,963 Decrease (increase) in -- Receivables, net........................................ (2,540) (517) (1,144) Due from Parent Company................................. (431) (446) (171) Inventories............................................. 1,135 (5,895) 4,081 Prepaid income taxes.................................... 1,184 3,742 (4,926) Prepaid expenses and other.............................. 283 451 994 Increase (decrease) in -- Accounts payable........................................ (3,912) 1,547 (124) Accrued expenses........................................ 2,894 (4,560) (2,350) Payable to Parent Company............................... -- -- (153) Accrued interest........................................ (2,141) (699) 8,143 Accrued and current deferred income taxes............... 864 416 2,258 Deferred revenues....................................... 1,842 343 2,357 -------- -------- --------- Total adjustments.................................. 34,222 29,583 68,693 -------- -------- --------- Net cash provided from operating activities............. 46,688 29,024 80,907 -------- -------- --------- Cash Flows from Investing Activities: Capital expenditures...................................... (8,526) (9,072) (8,307) Acquisition of business................................... (2,236) -- -- Payments on note receivable............................... -- 1,492 419 -------- -------- --------- Net cash used in investing activities.............. (10,762) (7,580) (7,888) -------- -------- --------- Cash Flows from Financing Activities: Term loan and revolving credit commitment principal repayments.............................................. (85,744) (73,250) (184,750) Proceeds from term loan and revolving credit commitment... 54,000 51,000 428,500 Repayment of senior subordinated indebtedness............. -- (23) (204,653) Proceeds from senior subordinated indebtedness............ -- -- 200,000 Payment of deferred debt costs............................ (344) (825) (16,990) Dividends paid............................................ -- -- (296,425) Other..................................................... (251) -- -- -------- -------- --------- Net cash used in financing activities.............. (32,339) (23,098) (74,318) -------- -------- --------- Net Increase (Decrease) in Cash and Cash Equivalents........ 3,587 (1,654) (1,299) Cash and Cash Equivalents at Beginning of Year.............. 4,643 6,297 7,596 -------- -------- --------- Cash and Cash Equivalents at End of Year.................... $ 8,230 $ 4,643 $ 6,297 ======== ======== ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the year for -- Income taxes............................................ $ 13,203 $ 4,143 $ 22,178 Interest................................................ 53,763 53,709 19,351
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 17 19 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000'S OMITTED IN ALL TABLES) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of American Media Operations, Inc. ("Operations", a wholly-owned subsidiary of American Media, Inc., "Media") and its subsidiaries (National Enquirer, Inc., Star Editorial, Inc., SOM Publishing, Inc., Weekly World News, Inc., Country Weekly, Inc. and Distribution Services, Inc., among others), collectively, the "Company". The Company publishes six weekly publications: NATIONAL ENQUIRER, STAR, SOAP OPERA MAGAZINE, WEEKLY WORLD NEWS, COUNTRY WEEKLY AND SOAP OPERA NEWS. All significant intercompany transactions and balances have been eliminated in consolidation. The Company's fiscal year, which ends on the last Monday in March, includes 53 weeks for the fiscal year ended March 31, 1997 as compared to 52 weeks for the fiscal years ended March 25, 1996 and March 27, 1995. REVENUE RECOGNITION Substantially all publication sales, except subscriptions, are made through an unrelated distributor. Issues, other than special topic issues, are placed on sale approximately one week prior to the issue date; however, circulation revenues and related expenses are recognized for financial statement purposes on an issue date basis (i.e., off sale date). Special topic issue revenues and related expenses are recognized at the on sale date. On the date each issue is placed on sale, the Company receives a percentage of the issue's estimated sales proceeds for its publications as an advance from the distributors. All of the Company's publications are sold with full return privileges. Revenues from copy sales are net of reserves provided for expected sales returns which are established in accordance with generally accepted accounting principles after considering such factors as sales history and available market information. The Company continually monitors the adequacy of the reserves and makes adjustments when necessary. Subscriptions received in advance of the issue date are recognized as income over the term of the subscription on a straight-line basis. Advertising revenues are recognized in the period in which the related advertising appears in the publications. Deferred revenues were comprised of the following:
1997 1996 ------- ------- Single Copy................................................. $ 7,872 $ 7,687 Subscriptions............................................... 24,114 22,421 Advertising................................................. 362 398 ------- ------- $32,348 $30,506 ======= =======
Other revenues, primarily from marketing services performed for third parties by Distribution Services, Inc., are recognized when the service is performed. 18 20 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (000'S OMITTED IN ALL TABLES) PROPERTY AND EQUIPMENT The Company uses straight-line and accelerated depreciation methods for financial reporting and Federal income tax purposes, respectively. The estimated lives used in computing depreciation for financial reporting purposes are as follows:
YEARS ----- Buildings................................................... 22 Machinery, fixtures and equipment........................... 3-10 Display racks............................................... 3
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 approximately $810,000 lower, due to recent declines in paper costs, and $2,928,000 higher than the amounts reported in the accompanying consolidated balance sheets for 1997 and 1996, respectively. Paper inventory for 1997 is stated in accordance with generally accepted accounting principles at LIFO cost as the use of such inventory would result in normal historical gross margins. Inventories are comprised of the following:
1997 1996 ------- ------- Raw materials -- paper...................................... $ 9,477 $10,403 Finished product -- paper, production and distribution costs of future issues.......................................... 3,914 4,123 ------- ------- $13,391 $14,526 ======= =======
USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the accompanying consolidated statements of cash flows, the Company considers cash and cash equivalents to be cash on hand or deposited in demand deposit accounts with financial institutions and highly liquid investments purchased with an original maturity of three months or less. (2) INTANGIBLE ASSETS Purchase price allocations for acquisitions have been made in accordance with Accounting Principles Board Opinion No. 16. The excess of the purchase price, including liabilities assumed, over tangible net assets acquired has been allocated to either specifically identified intangibles or goodwill. Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of " requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less 19 21 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (000'S OMITTED IN ALL TABLES) cost to sell. The Company considers certain events and circumstances including, among others, the historical and projected operating results of acquired businesses, industry trends and general economic conditions to assess whether the remaining estimated useful life of intangible assets may warrant revision or that the remaining balance of intangible assets may not be recoverable. When such assessment indicates that an intangible asset should be evaluated for possible impairment, the Company uses an estimate of undiscounted cash flow over the remaining life of the intangible asset in measuring the recoverability. No such event has occurred to the knowledge of the Company, and the Company has determined there to be no impairment. The adoption of this statement in fiscal 1997 had no impact on the Company's consolidated financial position or results of operations. Goodwill is amortized on a straight-line basis over 40 years. For each of the fiscal years 1997, 1996 and 1995, amortization of goodwill charged to depreciation and amortization in the accompanying consolidated statements of income totaled approximately $15,155,000. Certain intangible assets recorded in connection with the acquisition of Star are amortized on a straight-line basis over their estimated useful lives of 5 to 25 years. Amortization expense relating to these intangible assets for fiscal years 1997, 1996 and 1995, totaling approximately $5,920,000, $7,920,000 and $13,350,000 respectively, is included in depreciation and amortization in the accompanying consolidated statements of income. (3) FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments is as follows:
1997 1996 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Term loan and revolving credit facility, including current portion................... $312,756 $312,756 $344,500 $344,500 Subordinated indebtedness..................... 215,906 230,407 214,406 221,406 Interest rate swap agreement liability........ 88 170 102 1,194
The fair value of the Company's financial instruments is estimated based on the quoted market prices for the same or similar issues or on the current rate offered to the Company for financial instruments of the same remaining maturities. The carrying amount for cash equivalents approximates fair value because of the short maturity of those instruments. In May 1995, the Company entered into a three-year $100 million notional amount interest rate swap agreement which effectively converts a portion of its variable-rate debt to fixed-rate debt at 6.3% per annum to reduce the Company's risk of incurring higher interest costs in the event of rising interest rates. Net interest paid or received related to such agreements is recorded using the accrual method as an adjustment to interest expense. The carrying amount for the interest rate swap agreement represents net interest payable as of period end. In July 1994, the Company terminated an interest rate swap agreement resulting in a gain of $1,500,000 which was amortized as a reduction of interest expense through April 1996. Net interest income (expense) related to interest rate swap agreements totaled $(793,000), $405,000 and $806,000 for fiscal years 1997, 1996 and 1995, respectively. 20 22 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (000'S OMITTED IN ALL TABLES) (4) INCOME TAXES The Company files a consolidated Federal income tax return with Media and calculates its income on a separate return basis. The provision for income taxes, which excludes tax credits related to fiscal year 1995's extraordinary charge, consists of the following:
1997 1996 1995 ------- ------ ------- Current: Federal.................................................. $13,824 $7,641 $17,535 State.................................................... 1,712 946 2,257 ------- ------ ------- Total current.................................... 15,536 8,587 19,792 ------- ------ ------- Deferred: Federal.................................................. 1,050 354 3,511 State.................................................... 130 44 452 ------- ------ ------- Total deferred................................... 1,180 398 3,963 ------- ------ ------- $16,716 $8,985 $23,755 ======= ====== =======
A reconciliation of the expected income tax provision at the statutory Federal income tax rate of 35% to the reported income tax provision is as follows:
1997 1996 1995 ------- ------ ------- Expected income tax provision at statutory rate............ $10,214 $2,949 $16,661 Nondeductible goodwill..................................... 5,304 5,304 5,304 State income taxes, net of Federal benefit................. 1,198 644 1,761 Other, net................................................. -- 88 29 ------- ------ ------- $16,716 $8,985 $23,755 ======= ====== =======
Deferred taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The net deferred tax liability is comprised of the following:
1997 1996 -------- -------- Gross deferred tax assets................................... $ 621 $ 758 -------- -------- Intangibles amortization.................................... (6,116) (6,451) Expense recognition differences............................. (3,698) (3,636) Subscription acquisition costs.............................. (1,882) (1,153) Accelerated depreciation.................................... (1,474) (1,024) Book over tax basis of non-depreciable assets............... (448) (448) Other deferred tax liabilities.............................. (542) (405) -------- -------- Gross deferred tax liabilities.................... (14,160) (13,117) -------- -------- Net deferred tax liabilities...................... $(13,539) $(12,359) ======== ========
Included in accrued and current deferred income taxes in the accompanying consolidated balance sheets for fiscal years 1997 and 1996 are net current deferred taxes payable of $5,501,000 and $4,436,000, respectively. 21 23 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (000'S OMITTED IN ALL TABLES) (5) CREDIT AGREEMENTS In November 1994, the Company completed a refinancing of its then outstanding indebtedness, including its borrowings from banks and certain subordinated indebtedness, in connection with the payment of a special dividend to Media totaling $292.2 million. As part of the refinancing, the Company and a bank syndicate whose agent bank is The Chase Manhattan Corporation (the "Agent Bank" and, collectively the "Banks") entered into a credit agreement (as amended from time to time, the "Credit Agreement") comprised of a $370 million term loan commitment and a $75 million revolving credit commitment. The Credit Agreement includes the following: (a) TERM LOAN COMMITMENTS -- The Company's term loans consist of a $270 million (original amount) commitment (the "Tranche A" loans) and a $100 million (original amount) commitment (the "Tranche B" loans). Amounts borrowed under the Tranche A commitment bear interest at rates based upon either the Alternate Base Rate (as defined) plus 0% to 1 1/4% or the LIBO Rate (as defined) plus 1% to 2 1/4%, predicated upon satisfaction of certain Credit Agreement covenants related to the Company's operating cash flow levels. Tranche B loans bear interest at either the Alternate Base Rate plus 1 1/2% or the LIBO Rate plus 2 1/2%. Amounts due under the term loan commitments are payable in varying semi-annual installments through September 2002. With respect to fiscal year 1996 the Company was required to make a prepayment against its term loan commitment in the amount of $1,107,000 reflecting 75% of its Excess Cash Flow (as defined). No Excess Cash Flow prepayment was required for fiscal year 1997. Excess Cash Flow prepayments (if any) of 50% for fiscal year 1998 and thereafter are required. Any prepayments made from Excess Cash Flow are applied ratably to Tranche A and Tranche B loans based on their original commitment amounts and then, within one tranche, ratably to the installments of principal then remaining. As of March 31, 1997, $207,552,000 and $97,204,000 was outstanding under the term loan's Tranche A and Tranche B commitments, respectively. (b) REVOLVING CREDIT COMMITMENT -- The Credit Agreement also provides for additional borrowings up to a maximum of $75 million, bearing interest at the Tranche A rates described above. This commitment, which expires on November 10, 2001, allows funds to be borrowed and repaid from time to time with permanent reductions in the revolving credit commitment permitted at the Company's option. As of March 31, 1997, borrowings of $8,000,000 were outstanding under the revolving credit commitment. (c) COMMITMENT FEES -- The Company is required to pay a commitment fee ranging from 1/4% to 1/2% of the unused portion of the revolving credit commitment. Commitment fees under the Credit Agreements totaled approximately $330,000, $461,000 and $540,000 for fiscal years 1997, 1996 and 1995, respectively. (d) GUARANTEE, COLLATERAL AND FINANCIAL COVENANTS -- The Company's obligations under the Credit Agreement are guaranteed by all of its subsidiaries and Media. The obligations and such guarantees are secured by (i) a pledge by the Company of all of the capital stock of its subsidiaries, (ii) a pledge of all of the capital stock of the Company and (iii) a security interest in substantially all of the assets of the Company's subsidiaries. In addition to the above, the Credit Agreement also contains certain covenants that, among others, restrict paying cash dividends, incurring additional indebtedness, entering into certain mergers or consolidations, making capital expenditures and selling or otherwise disposing of assets; the Company also is required to satisfy certain financial tests relating to operating cash flow and debt coverage ratios. The Company will pay no cash dividends on its common stock in the foreseeable future, instead using cash generated from operating 22 24 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (000'S OMITTED IN ALL TABLES) results principally to make principal and interest payments on its indebtedness. In addition, the payment of future cash dividends, if any, may be limited under the restrictive covenants of the Credit Agreement. As permitted under the covenants of the Credit Agreement, management fees to affiliates totaling $1,798,000, $1,399,000 and $1,976,000 are included in other expense, net in the accompanying consolidated statements of income for the fiscal years 1997, 1996 and 1995, respectively. The effective interest rates under the Credit Agreement, including amounts borrowed under the term loan commitments and revolving credit commitment, as of March 31, 1997, and for the fiscal years 1997, 1996 and 1995 were 7.7%, 7.7%, 8.1% and 7.8%, respectively. Pursuant to the terms of the Credit Agreement, the Company was required to hedge a portion of its variable rate interest exposure. Accordingly, the Company entered into a series of one-year step cap agreements with major financial institutions on $100 million notional amount of borrowings. The interest rate hedge is at 9% through its maturity in January 1998. The interest rate cap bears no market risk above the premium paid which is being amortized on a straight-line basis over the life of the cap. As of March 31, 1997, the carrying value of the interest rate cap totaled $315,000. (6) SUBORDINATED INDEBTEDNESS The Company's 11.63% Senior Subordinated Notes due 2004 (the "Senior Subordinated Notes due 2004"), which mature on November 15, 2004, pay interest semi-annually on May 15 and November 15 and are redeemable at the Company's option after November 14, 1999 at prices ranging from 104.4% to 100.0% of their face amount. The indenture under which the Senior Subordinated Notes due 2004 were issued includes restrictive covenants that limit, among other things, paying cash dividends, incurring indebtedness, mergers, consolidations and other Restricted Payments (as defined in the Indenture). In connection with the refinancing of its indebtedness in fiscal year 1995 the Company purchased $119,018,000 and $99,861,000 principal amount of its 10.09% Zero Coupon Senior Subordinated Notes due 1997 (the "Zero Coupon Notes") and 10.38% Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes due 2002"), respectively, and recorded an extraordinary charge, net of income taxes, of $11,635,000 reflecting the premiums paid in excess of the recorded amounts of the related indebtedness, the write-off of deferred debt costs (see Note 7) and certain other fees and expenses. The Zero Coupon Notes, of which $15,962,000 in principal amount ($15,772,000 accreted book value) was outstanding at March 31, 1997, are due May 15, 1997. In fiscal years 1997, 1996 and 1995, the Company accreted original issue discount of $1,500,000, $1,335,000 and $6,982,000, respectively, on Zero Coupon Notes, which amounts are included in interest expense in the accompanying consolidated statements of income. Including the amounts borrowed under the Credit Agreement, the following represents aggregate payments of principal due as of March 31, 1997 under the Company's long-term indebtedness for the next five fiscal years calculated after (i) giving effect to accretion of discount on the Zero Coupon Notes at their 23 25 AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (000'S OMITTED IN ALL TABLES) maturity and (ii) excluding any prepayments that may be required under the Credit Agreement's Excess Cash Flow provision:
PRINCIPAL FISCAL YEAR PAYMENTS ----------- --------- 1998...................................................... $ 59,317 1999...................................................... 47,341 2000...................................................... 52,575 2001...................................................... 57,809 2002...................................................... 41,889 Thereafter................................................ 269,921 -------- $528,852 ========
(7) DEFERRED DEBT COSTS Certain costs incurred in connection with the issuance of the Company's long-term debt have been deferred and are amortized as part of interest expense over periods from 8 to 10 years. For fiscal years 1997, 1996 and 1995, amortization of deferred debt costs which is included in interest expense in the accompanying consolidated statements of income totaled approximately $3,144,000, $3,090,000, and $2,098,000, respectively. In connection with the redemption of the Zero Coupon Notes and Senior Subordinated Notes due 2002 and the amendment and restatement of the Credit Agreement, approximately $4,703,000, representing a portion of related unamortized deferred debt costs, was written off and reflected as a component of the extraordinary charge in the accompanying consolidated statement of income for fiscal year 1995. (8) COMMITMENTS AND CONTINGENCIES 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. PRINTING AGREEMENT The Company has entered into a 15 year printing agreement expiring in fiscal 2011 with an unrelated printer to print NATIONAL ENQUIRER and STAR. Based on current pricing and production levels this contract is currently estimated to cost approximately $197 million over its remaining life as follows:
FISCAL YEAR ----------- 1998...................................................... $ 14,355 1999...................................................... 14,355 2000...................................................... 14,605 2001...................................................... 14,587 2002...................................................... 14,587 Thereafter................................................ 124,256 -------- $196,745 ========
In addition, the contract requires pricing adjustments based on changes in the Consumer Price Index. 24 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed with, or incorporated by reference in, and as part of, this Annual Report on Form 10-K. 1. Financial Statements For a complete list of the Financial Statements filed with this Annual Report on Form 10-K, see the Index to Consolidated Financial Statements on Page 12. 2. Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *3.1 -- Certificate of Incorporation of Enquirer/Star, Inc. and amendments thereto (incorporated by reference to Operation's Registration Statement on Form S-1, Registration No. 33-46676, Part II, Item 16, Exhibit 3.5, as filed on March 25, 1992).(1) *3.2 -- Amended By-Laws of Enquirer/Star, Inc. (incorporated by reference to Operation's Registration Statement on Form S-1, Registration No. 33-46676, Part II, Item 16, Exhibit 3.6, as filed on March 25, 1992).(1) *3.3 -- Amendment of Certificate of Incorporation of Operations dated November 7, 1994 changing its name to American Media Operations, Inc. from Enquirer/Star, Inc. (incorporated by reference from Operation's Annual Report on Form 10-K for the year ended March 27, 1995, filed as Exhibit 3.3, File No. 1-11112). *4.1 -- Amended and Restated Security Agreement dated as of October 4, 1989, along with the Security Agreement Amendment, dated as of June 28, 1990, among GP Group, Inc. and its subsidiaries in favor of Manufacturers Hanover Trust Company (now The Chase Manhattan Corporation) as agent for certain banks (in that capacity "as Agent") and certain other parties (incorporated by reference to Media's Registration Statement on Form S-1, Registration No. 33-40647, Part II, Item 16, Exhibit 4.3, as filed on May 17, 1991).(1) *4.2 -- Security Agreement Supplement dated as of November 21, 1994 made by Operations and Country Weekly, Inc. in favor of Chemical Bank (now The Chase Manhattan Corporation), as Agent (incorporated by reference from Operation's Annual Report on Form 10-K for the year ended March 27, 1995, filed as Exhibit 4.2, File No. 1-11112). *4.3 -- Subsidiary Guarantee dated June 7, 1989 made by the subsidiaries of GP Group, Inc. in favor of Manufacturers Hanover Trust Company (now The Chase Manhattan Corporation) as Agent (incorporated by reference to Media's Registration Statement on Form S-1, Registration No. 33-40647, Part II, Item 16, Exhibit 4.6, as filed on May 17, 1991).(1) *4.4 -- Guarantee Supplement dated November 21, 1994 to Subsidiary Guarantee dated June 7, 1989 made by Operations and Country Weekly, Inc. in favor of Chemical Bank (now The Chase Manhattan Corporation), as Agent (incorporated by reference from Operation's Annual Report on Form 10-K for the year ended March 27, 1995, filed as Exhibit 4.4, File No. 1-11112). *4.5 -- Company Pledge Agreement dated as of June 7, 1989, between GP Group Inc. and Manufacturers Hanover Trust Company (now The Chase Manhattan Corporation) as Agent (incorporated by reference to Amendment No. 2 to Media's Registration Statement on Form S-1, Registration No. 33-40647, Part II, Item 16, Exhibit 4.20 as filed on July 11, 1991).(1) *4.6 -- Pledge Agreement Supplement dated as of November 21, 1994 to Pledge Agreement dated as of June 7, 1989 made by Operations, in favor of Chemical Bank (now The Chase Manhattan Corporation), as Agent (incorporated by reference from Operation's Annual Report on Form 10-K for the year ended March 27, 1995, filed as Exhibit 4.6, File No. 1-11112).
25 27
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *4.7 -- Senior Subordinated Note Indenture dated as of November 1, 1994 from Enquirer/Star, Inc. in favor of United States Trust Company of New York, as Trustee, relating to Senior Subordinated Notes due 2004 (including form of Senior Subordinated Notes) (incorporated by reference from Operation's Annual Report on Form 10-K for the year ended March 27, 1995, filed as Exhibit 4.7, File No. 1-11112).(1) *4.8 -- Third Amended and Restated Credit Agreement among Enquirer/Star, Inc., certain Banks and Chemical Bank (now The Chase Manhattan Corporation), as Agent, dated as of November 10, 1994 (incorporated by reference from Operation's Annual Report on Form 10-K for the year ended March 27, 1995, filed as Exhibit 4.8, File No. 1-11112).(1) *4.9 -- First Amendment dated February 1, 1996 to Third Amended and Restated Credit Agreement among Enquirer/Star, Inc., certain Banks and Chemical Bank (now The Chase Manhattan Corporation), as Agent, dated as of November 10, 1994 (incorporated by reference from Operation's Quarterly Report on Form 10-Q for the quarter ended December 25, 1995, filed as Exhibit 4.2, File No. 1-11112).(1) 4.10 -- Second Amendment dated March 20, 1997 to Third Amended and Restated Credit Agreement among Enquirer/Star, Inc., certain Banks and Chemical Bank (now The Chase Manhattan Bank), as Agent, dated as of November 10, 1994.(1) *10.1 -- Split Dollar Life Insurance Agreement dated July 3, 1987, between GP Group, Inc. and Iain Calder (incorporated by reference to Media's Registration Statement on Form S-1, Registration No. 33-40647, Part II, Item 16, Exhibit 10.2, as filed on May 17, 1991).(1) *10.2 -- Tax Sharing Agreement dated as of March 31, 1992, among Group and its subsidiaries (incorporated by reference from Media's Annual Report on Form 10-K for the year ended March 30, 1992, filed as Exhibit 10.15, File No. 1-10784).(1) *10.3 -- Employment Agreement dated as of November 22, 1995 between Media and Iain Calder (incorporated by reference from Media's Annual Report on Form 10-K for the year ended March 25, 1996, filed as Exhibit 10.5, File No. 1-10784). *10.4 -- Employment Agreement dated as of May 1, 1995 between Media and Anthony S. Hoyt (incorporated by reference from Media's Annual Report on Form 10-K for the year ended March 25, 1996, filed as Exhibit 10.6, File No. 1-10784). *10.5 -- Amendment dated as of November 11, 1996 to Employment Agreement dated November 22, 1995 between Media and Iain Calder (incorporated by reference from Media's Annual Report on Form 10-K for the year ended March 31, 1997, filed as Exhibit 10.6, File No. 1-10784). 27 -- Financial Data Schedule (for SEC use only).
- --------------- * Incorporated herein by reference as indicated. (1) Enquirer/Star, Inc. and GP Group, Inc. are now named American Media Operations, Inc. ("Operations"); Enquirer/Star Group, Inc. ("Group") is now named American Media, Inc. ("Media") 3. Form 8-K No reports on Form 8-K were filed by the registrant during the last fiscal quarter of the period covered by this report. 26 28 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 on its behalf by the undersigned, thereto duly authorized, on June 19, 1997. AMERICAN MEDIA OPERATIONS, INC. By: /s/ PETER J. CALLAHAN ------------------------------------ Peter J. Callahan Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on June 19, 1997.
SIGNATURE TITLE --------- ----- /s/ PETER J. CALLAHAN Chairman of the Board, President, Chief - ----------------------------------------------------- Executive Officer and Director (Principal Peter J. Callahan Executive Officer) /s/ RICHARD W. PICKERT Senior Vice President and Chief Financial - ----------------------------------------------------- Officer (Principal Financial Officer) Richard W. Pickert /s/ PETER A. NELSON Vice President, Controller and Chief - ----------------------------------------------------- Accounting Officer (Principal Accounting Peter A. Nelson Officer) /s/ BARRY BAKER Director - ----------------------------------------------------- Barry Baker /s/ ANTHONY J. BOLLAND Director - ----------------------------------------------------- Anthony J. Bolland /s/ MICHAEL J. BOYLAN Director - ----------------------------------------------------- Michael J. Boylan /s/ ROY F. COPPEDGE, III Director - ----------------------------------------------------- Roy F. Coppedge, III /s/ STEVEN B. DODGE Director - ----------------------------------------------------- Steven B. Dodge /s/ GERALD S. HOBBS Director - ----------------------------------------------------- Gerald S. Hobbs /s/ MAYNARD RABINOWITZ Director - ----------------------------------------------------- Maynard Rabinowitz /s/ GERRY M. RITTERMAN Director - ----------------------------------------------------- Gerry M. Ritterman
27 EX-4.10 2 SECOND AMENDMENT RESTATED CREDIT AGREEMENT 1 EXHIBIT 4.10 AMENDMENT, dated as of March 20, 1997 (this "Amendment"), to and of the Third Amended and Restated Credit Agreement, dated as of November 10, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among American Media Operations, Inc. (formerly Enquirer/Star, Inc.) (the "Borrower"), the Subsidiaries signatory thereto (the "Guarantors"), the banks and other financial institutions from time to time parties thereto (the "Banks"), and The Chase Manhattan Bank (formerly Chemical Bank), as agent (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, pursuant to Section 7(k) of the Credit Agreement, any Change in Control is an Event of Default, and "Change in Control" is defined as, among other things, the failure of BVIII, BVIIIA and Macfadden, collectively, to own, directly or indirectly, shares of Capital Stock of 31 American Media, Inc. (formerly Enquirer/Star Group, Inc.) ("AMI") having an economic interest on liquidation of at least certain specified percentages during certain specified periods; WHEREAS, "Macfadden" is defined as "Macfadden Holdings, L.P., a Delaware limited partnership"; WHEREAS, the Borrower has requested that the Credit Agreement be amended to permit Macfadden Holdings, L.P. to effect a current distribution of its Capital Stock of AMI to its general partners, Peter J. Callahan, Maynard Rabinowitz and Michael J. Boylan (collectively, the "Partners"); and WHEREAS, the Banks are willing to agree to such amendment; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower, the Guarantors, the Banks and the Agent hereby agree as follows: Section 1. DEFINED TERMS. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. Section 2. AMENDMENT OF SUBSECTION 1.1 (DEFINED TERMS). Subsection 1.1 of the Credit Agreement is hereby amended by replacing the definition of "Macfadden" with the following: "'Macfadden': Peter J. Callahan, Maynard Rabinowitz and Michael J. Boylan, collectively." Section 3. EFFECTIVE DATE. Upon the later to occur of (i) the execution of this Amendment by the Borrower, the Guarantors, the Required Banks and the Agent and (ii) the transfer by Macfadden Holdings, L.P. of all of its Capital Stock of AMI to the Partners, this Amendment shall become effective as of March 20, 1997. Section 4. MISCELLANEOUS. (a) Except for the amendment expressly provided herein, the Credit Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. The amendment provided herein shall be limited precisely as drafted and shall not be construed to be an amendment or waiver of any other provisions of the Credit Agreement other than as specifically provided herein. (b) The Borrower hereby confirms that, after giving effect hereto, each Credit Document to which it is party remains in full force and effect in accordance with its terms. (c) The Borrower agrees to pay or reimburse the Agent for all of its out-of-pocket costs and reasonable expenses incurred in connection with the Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent. (d) This Amendment may be executed in any number of counterparts by the parties hereto, and all of said counterparts when taken together shall be deemed to constitute one and the same instrument. 28 2 (e) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the date first above written. AMERICAN MEDIA OPERATIONS, INC. By: ------------------------------------ Title: NATIONAL ENQUIRER, INC. WEEKLY WORLD NEWS, INC. DISTRIBUTION SERVICES, INC. NDSI, INC. FAIRVIEW PRINTING, INC. STAR EDITORIAL, INC. SOM PUBLISHING, INC. COUNTRY WEEKLY, INC. By: ------------------------------------ Title: THE CHASE MANHATTAN BANK, as Agent and as a Bank By: ------------------------------------ Title: THE BANK OF NEW YORK By: ------------------------------------ Title: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------ Title: SHAWMUT BANK CONNECTICUT, N.A. By: ------------------------------------ Title: BANQUE PARIBAS By: ------------------------------------ Title: By: ------------------------------------ Title: 29 3 THE BANK OF NOVA SCOTIA By: ------------------------------------ Title: BANK OF HAWAII By: ------------------------------------ Title: BANK OF IRELAND By: ------------------------------------ Title: CREDIT LYONNAIS ATLANTA AGENCY By: ------------------------------------ Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: ------------------------------------ Title: FLEET BANK By: ------------------------------------ Title: TORONTO DOMINION (TEXAS), INC. By: ------------------------------------ Title: EATON VANCE PRIME RATE RESERVES By: ------------------------------------ Title: MERILL LYNCH SENIOR FLOATING RATE FUND, INC. By: ------------------------------------ Title: KEYPORT LIFE INSURANCE By: ------------------------------------ Title: 30 4 THE FIRST NATIONAL BANK OF BOSTON By: ------------------------------------ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ------------------------------------ Title: THE SUMITOMO TRUST & BANKING COMPANY, LIMITED, NEW YORK BRANCH By: ------------------------------------ Title: UNION BANK By: ------------------------------------ Title: CIBC, INC. By: ------------------------------------ Title: NATIONAL CITY BANK By: ------------------------------------ Title: VAN KAMPEN MERRITT PRIME RATE INCOME TRUST By: ------------------------------------ Title: 31 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AMERICAN MEDIA OPERATIONS, INC. FOR THE FISCAL YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 YEAR MAR-31-1997 MAR-26-1996 MAR-31-1997 8,230 0 8,191 0 13,391 32,438 39,052 14,819 670,850 144,820 469,535 0 0 2 48,455 670,850 315,988 315,988 228,817 228,817 1,705 0 56,284 29,182 16,716 12,466 0 0 0 12,466 0 0
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