10-K 1 ami-20140331x10k.htm 10-K AMI-2014.03.31-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 001-10784
American Media, Inc.
(Exact name of registrant as specified in its charter)
Delaware
65-0203383
State or other jurisdiction
of incorporation or organization
(I.R.S. Employer
Identification No.)
1000 American Media Way, Boca Raton, Florida 33464
(Address of principal executive offices) (Zip Code)
(561) 997-7733
Registrant’s telephone number, including area code

Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
 
 
Yes o
No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
 
 
Yes þ
No o
Indicate by check mark whether the registrant (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
 
Yes o
No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
 
Yes þ
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
 
 
 
    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
 
 
Yes o
No þ



There is no public market for the registrant’s common stock. The number of shares outstanding of the registrant's common stock, $0.0001 par value, as of July 31, 2014 was 11,172,150.



AMERICAN MEDIA, INC.
 
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended March 31, 2014
 
TABLE OF CONTENTS
 
 
  Page(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





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American Media, Inc. and its consolidated subsidiaries are referred to in this Annual Report on Form 10-K (this "Annual Report") as American Media, AMI, the Company, we, our and us.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Annual Report for the fiscal year ended March 31, 2014 contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). These forward-looking statements relate to our current beliefs regarding future events or our future operating or financial performance. By their nature, forward-looking statements involve risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements.

Such factors include, but are not limited to, those items described in "Risk Factors" in Item 1A of this Annual Report and those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, as well as other factors.

We have tried, where possible, to identify such statements by using words such as "believes," "expects," "intends," "estimates," "may," "anticipates," "will," "likely," "project," "plans," "should," "could," "potential" or "continue" and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statement is and will be based upon our then current expectations, estimates and assumptions regarding future events and is applicable only as of the dates of such statement. We may also make written and oral forward-looking statements in the reports we file from time to time with the Securities and Exchange Commission (the "SEC").

We caution you not to place undue reliance on any forward-looking statement, which speaks only as of the date of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statement contained in this Annual Report, whether as a result of new information, future events or otherwise, except as required by law.

INDUSTRY DATA AND CIRCULATION INFORMATION

This Annual Report includes publishing industry data, rankings, circulation information, Internet user data, readership information and other industry and market information that we obtain from various third-party sources, internal company sources and public filings. These third-party sources include, but are not limited to, the Alliance for Audited Media, comScore, Publishers Information Bureau, Google Analytics, BPA Circulation Statements, GfK Mediamark Research & Intelligence and Statement of Ownership figures filed with the U.S. Postal Service. Although we have not independently verified the data contained in these industry publications and reports, we believe based on our industry experience that this data is reliable. Our estimates, in particular as they relate to our general expectations concerning the publishing industry, involve risks and uncertainties and are subject to change based on various factors. See Item 1A, “Risk Factors.”

Unless otherwise indicated, all average circulation information for our publications is a per issue average of actual single copy circulation and subscription copies for fiscal 2014. All references to "circulation" are to single copy newsstand sales and paid subscription circulation, unless otherwise specified. References to “verified non-paid subscriptions” are to non-paid subscription copies designated by publishers for readership in public places or intended for individual use by recipients who are likely to have a strong affinity for the content of the publication.

PART I

Item 1. Business.

GENERAL

American Media, Inc., the largest publisher of celebrity and health and active lifestyle magazines in the United States, operates a diversified portfolio of 14 publications that have a combined monthly print and digital audience of more than 53 million readers and monthly on-line audience of approximately 40 million readers. Our celebrity titles together are number one in market share in newsstand circulation in the celebrity category and, on-line, are the fastest growing brands in the category. Our health and active lifestyle titles together have the highest market share of national magazine advertising pages in their competitive set in the United States. Total circulation of our print publications with a frequency of six or more times per year, were approximately 6.0 million, 5.9 million and 6.4 million copies per issue during fiscal 2014, 2013 and 2012, respectively.


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Our well-known publications span three primary operating segments: Celebrity, Women's Active Lifestyle and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner, Soap Opera Digest and Country Weekly. Within our Women's Active Lifestyle segment, our portfolio of brands includes: Shape, Fit Pregnancy and Natural Health. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers and Flex.

We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.

Our brands go beyond the printed page. We engage an audience of more than 93 million men and women every month through not only magazines and books, but also social media, television, and on all digital platforms, from phones and tablets to laptops and desktops. We are embarking on a transformation from being a leading media company to a lifestyle brand that informs and entertains while also selling apparel, nutritional products, and recreational activities.

Our fiscal year ended on March 31, 2014 and is referred to herein as fiscal 2014. References to our fiscal year (e.g. "fiscal 2014") refer to our fiscal year ended March 31st of the applicable fiscal year.

DESCRIPTION OF BUSINESS

We currently generate a significant portion of our revenue from newsstand and advertising sales. In future years, we expect that a growing share of revenue will come from joint ventures and sales of branded products.

Our largest revenue stream comes from single copy newsstand sales. Our total print circulation revenue represented 57% of our total operating revenues in fiscal 2014, of which 78% was generated by single copy sales and the remaining 22% was generated by subscriptions. In fiscal 2013 and 2012, print circulation revenue represented 61% and 59%, respectively, of total operating revenues. Single copy newsstand units are sold through national distributors, wholesalers and retailers, and subscription copies are delivered by mail or digitally via the Internet. As of March 31, 2014, our print publications comprised approximately 26% of total U.S. and Canadian newsstand circulation for weekly publications that are audited by the Alliance for Audited Media. In addition, as of March 31, 2014, our digital subscriptions represent 23% of our 4.1 million paid subscriptions, the highest percentage among our competitive set. Our digital subscription revenue represented 1% of our total operating revenues for fiscal 2014 and was not significant in fiscal 2013 and 2012.

Our second largest revenue stream comes from multi-platform advertising. Our print advertising revenue, generated primarily by national advertisers, represented 31%, 28% and 31%, respectively, of our total operating revenues for fiscal 2014, 2013 and 2012 and our digital advertising revenue represented 12%, 9% and 6%, respectively, of our total advertising revenue. Our digital advertising revenue represented 4%, 3% and 2%, respectively, of our total operating revenues for fiscal 2014, 2013 and 2012. Advertising revenue is typically highest in the fourth quarter of our fiscal year due to seasonality, as more fully discussed below.

Our advertising clients are primarily in the packaged goods, sports nutrition products, automotive, entertainment, pharmaceutical, sports apparel, beauty, cosmetics, fashion and direct response sectors. We integrate editorial, print, digital, mobile and events into one advertising package, creating lasting consumer engagement and generating attractive returns for our advertisers. American Media ad pages were down less than 1% year-over-year for the period January 1, 2014 to March 31, 2014, while the industry was down 8%. AMI was also number one in ad pages among major U.S. publishers with more than 1,000 pages of advertising for the period January 2014 through March 31, 2014 according to the Publishers Information Bureau.

Our primary operating expenses consist of production, distribution, circulation, editorial and selling, general and administrative expenses. We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Distribution and circulation expenses primarily consist of postage and other costs associated with fulfilling subscriptions and newsstand transportation. Editorial expenses represent costs associated with manuscripts, photographs and related salaries.

Paper is the principal raw material utilized in our publications. We purchase paper directly from suppliers and ship it to third-party printing companies. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements. We have long-term printing contracts with three major third-party printing companies. Our production expenses, including paper and printing costs, accounted for approximately 29%, 27% and 35% of our operating expenses for fiscal 2014, 2013 and 2012, respectively.

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Our distribution and circulation expenses, which included the cost of freight to our wholesalers and fulfillment companies for newsstand and subscription distribution, accounted for approximately 19% of our operating expenses for fiscal 2014 and 2013 and 24% for fiscal 2012. Subscription magazines are also distributed primarily through the United States Postal Service and subscription postage accounted for approximately 37%, 35% and 34%, respectively of our distribution and circulation expenses for fiscal 2014, 2013 and 2012.
 
Sales and marketing of the magazines to retailers is handled by third-party wholesalers through multi-year arrangements. During fiscal 2014 and 2013, approximately 43% of our circulation revenue was derived from two of these third-party wholesalers and during fiscal and 2012 it was approximately 35%. Billing, collection and distribution services for retail sales of the magazines are handled by a national distributor. In May 2014, our second-largest wholesaler notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014. We are currently working with two remaining wholesalers and retailers to transition to them the newsstand circulation previously handled by this wholesaler. We estimate that it will take approximately twelve to twenty four weeks for the transition to be completed. Our single copy newsstand sales could be reduced by approximately $10.0 million to $20.0 million during this transition period, depending on the length of time required to complete the transition to the remaining two wholesalers. In addition, after completing the transition, our revenues could be temporarily or permanently reduced if consumers at the impacted retailers do not resume purchasing our publications at the same rate or quantities previously purchased.

In addition to our relationships with our national distributors and wholesalers, we also have direct relationships with retailers, to which we pay one or more of the following:
Rack Costs – We make payments to retailers to prominently display and sell our print publications at the checkout section of supermarkets and other large retailers, typically for three year periods.
 
 
Display Continuity Allowances (“DCA”) – DCA is a payment that we make directly to the retailer and is similar to slotting fees paid by other industries to supermarkets.
 
 
Retail Display Allowance (“RDA”) – RDA is a fee we pay on a quarterly basis to qualifying retailers as an incentive for selling our titles in its stores. On average, RDA payments are equal to approximately 10% of the cover price for each magazine sold.
 
 
Retail Display Payments (“RDP”) – We pay this quarterly incentive directly to retailers based on the fixed amount of pockets our titles occupy on the retailers' display fixtures. This fee is similar to RDA, except that the amount is fixed. We pay either RDA or RDP to a particular retailer, not both, for each title.

BUSINESS AND OTHER DEVELOPMENTS

Business Developments

Digital Initiatives

We continue to expand the availability of our print content on digital platforms. Our digital revenue for fiscal 2014 increased 83% to $23.1 million, over the comparable prior year period driven by our digital team comprised of senior executives hired from companies such as Fox Mobile, Microsoft and Google and the continued implementation of our digital investment strategy. We now have a fully integrated print and digital sales team of more than 90 sales executives, with a dozen digital brand champion sales staff across all the websites. We believe our structure is highly effective to respond to our advertisers' requests for integrated marketing solutions for combined print and digital, as well as digital-only programs.

We continue to expand our digital distribution platform across our other well-known brands by launching digital magazines, or "digi-mags," and building out our other websites. We have launched digital editions for all our brands on the Apple and Google newsstands and Zinio, Amazon Kindle and Barnes & Noble Nook platforms. We are also launching single-subject, single-sponsored "digi-mags" for both Apple and Android operating systems, and we are currently syndicating Shape content on Yahoo! Shine, AOL, Huffington Post, StyleList and Kitchen Daily.

In May 2014, we launched the AMI InPrint app, a new mobile app for the iPhone and iPad which provides readers with unlimited access to all our publications and lifestyle books for an introductory price of $0.99 per month. The InPrint app was launched for the Android operating system in July 2014.



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Print Initiatives

The relaunch of Men's Fitness and Shape in both print and digital formats continues to be successful as advertising revenues continue to increase. During fiscal 2014, advertising revenues increased 45% and 18% for Men's Fitness and Shape, respectively, as compared to prior year. We published one less issue of Shape magazine during fiscal 2014 versus the prior year period.

In April 2013, we redesigned and repositioned Men's Fitness, from a gym-focused, work-out only magazine to one targeting young men with active lifestyles with fitness as the new measure of success. The new editorial vision of Men's Fitness has continued to attract new luxury goods advertisers. From October 1, 2013 through March 31, 2014, there were 22 new lifestyle advertisers, such as Channel Sport, which had not previously invested in Men's Fitness.

In May 2013, Shape regained the number one share-of-market position in newsstand sales growth and print advertising pages. Shape is the category leader in print ad pages with a 31% share of market within its competitive set against Self, Fitness and Women's Health. The relaunch of Shape continues to attract new advertising clients, and from October 1, 2013 to March 31, 2014, there were 36 new advertisers which had not previously invested in Shape.

Arnold Schwarzenegger has returned to AMI as the Group Executive Editor for Muscle & Fitness and Flex upon the completion of his term as governor of California. Since Mr. Schwarzenegger's return, we have experienced an increase in advertising revenues at Muscle & Fitness. During fiscal 2014, advertising revenue increased 12% for Muscle & Fitness over the comparable prior year period. One of our nutritional supplement advertisers has launched an Arnold Schwarzenegger branded line of supplements supporting the four pillars of fitness: performance, power and strength, nutrient support and recovery. These supplements are available at most major health and nutrition specialty stores as well as through on-line retailers. To support this launch, we have secured an exclusive commitment for both print and digital advertising starting with the October 2013 edition of Muscle & Fitness.

Branded Products

In the beginning of fiscal 2014, we became a preferred digital content partner for Microsoft and entered into agreements to produce Shape, Men's Fitness and Muscle & Fitness branded exercise and workout videos for Microsoft to incorporate into their Bing Health and Fitness application.

We are continuing to promote Shape branded products, and launched Shape nutritional products which are available in CVS, Rite Aid, Drugstore.com and Target. Based on the success of the launch, we will expand the Shape nutritional products to be on sale in Walgreens in fiscal 2015. In July 2013, we signed a license agreement for a line of Shape women’s active wear which will be designed by a major apparel designer and is expected to be in retail stores by November 2014.

Pursuant to our long-term agreement with David Zinczenko and his company, Galvanized Media, they continue to work exclusively on Men's Fitness and Muscle & Fitness and a branded book division for AMI utilizing the Men's Fitness, Shape and Natural Health brands. With Mr. Zinczenko's assistance we have redesigned and relaunched Men's Fitness and Muscle & Fitness and published several books. The Men's Fitness branded book The 101 Greatest Workouts of all Time, went on sale in January 2014. The Shape branded books The Bikini Body Diet and Clean Green Drinks: 100+ Cleansing Recipes to Renew & Restore Your Body and Mind went on sale in September 2013 and April 2014, respectively. The Natural Health branded book The Doctor's Book of Natural Health Remedies went on sale in April 2014. Mr. Zinczenko spent more than 20 years at Rodale, where he served as editor-in-chief of Men's Health and general manager of Women's Health and Rodale Books.

In September 2013, together with our strategic partners, REELZ Channel, owned by Hubbard Broadcasting, and UnConventional Studios, LLC, we launched OK!TV, a television show based on OK! magazine, which was syndicated in approximately 80% of the United States. In addition to the syndication market, the REELZ channel airs the show the day after it runs in syndication, to approximately 70 million households.


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Other Developments

In September 2013, we divested substantially all of the assets primarily used in the distribution and merchandising businesses operated by Distribution Services, Inc. (“DSI”), a wholly-owned subsidiary of American Media, Inc. DSI was an in-store product merchandising and marketing company doing business in the U.S. and Canada. DSI serviced the Company by placing and monitoring its print publications, as well as third-party publications, to ensure prominent display in major national and regional retail, drug and supermarket chains. DSI also provided marketing, merchandising and information gathering services to third parties, including non-publishing clients. The divested assets, which consisted primarily of working capital (exclusive of $3.7 million in accounts receivable which are being collected by AMI), the sales and support workforce and certain other related assets, were contributed together with $2.3 million cash in exchange for a membership interest in a limited liability company.

In October 2013, we exchanged approximately $94.3 million aggregate principal amount of our 13.5% second lien notes due June 2018 (the "Second Lien Notes") for an equal aggregate principal amount of new senior secured notes, which bear interest at a rate of 10% per annum, payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”), pursuant to an exchange agreement (the “Exchange Agreement”). The Exchange Agreement provides for, among other things, interest payments, in kind, at a rate of 10% per annum until December 15, 2016 or earlier upon the occurrence of certain specified events, at which time interest payments on the Second Lien PIK Notes will be payable in cash at a rate of 13.5% per annum. Subject to certain exceptions, we are required under the indenture governing the Second Lien PIK Notes and the Exchange Agreement to utilize the cash interest savings to repurchase certain of our 11.5% first lien notes due December 2017 (the "First Lien Notes"). After giving effect to this exchange, approximately $10.6 million principal amount of Second Lien Notes remains outstanding. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources," for further discussion regarding the Second Lien Notes and the Second Lien PIK Notes.

During the third quarter of fiscal 2014, we recorded a pre-tax non-cash impairment charge of $9.2 million for the Men's Active Lifestyle segment tradenames.

In February 2014, we repurchased approximately $2.3 million aggregate principal amount of our First Lien Notes in accordance with the Second Lien PIK Notes' Exchange Agreement and the indenture governing the Second Lien PIK Notes.

In July 2014, we received waivers under our revolving credit facility providing us additional time to file this Annual Report for the fiscal year ended March 31, 2014 with the SEC and make it available to the revolving credit facility lenders.

In August 2014, we entered into an agreement and plan of merger (the “Merger Agreement”) with certain investors of AMI (collectively, the “Investors”) for the Investors to acquire 100% of the issued and outstanding shares of common stock of AMI through a merger (the “Merger”) whereby a subsidiary of an entity owned by funds managed and/or controlled by the Investors will be merged with and into AMI, with AMI surviving the Merger. In connection with signing the Merger Agreement, we also entered into a note purchase agreement (the "Note Purchase Agreement") with the Investors pursuant to which we will issue additional Second Lien PIK Notes to the Investors at par plus accrued interest for a total purchase price equal to $12.5 million. The closing of the Merger and the closing under the Note Purchase Agreement are expected to occur after the filing of this Annual Report with the SEC on the date hereof. See "-Merger and Related Transactions" below for further information regarding the Merger Agreement and the Note Purchase Agreement.

In addition, in August 2014, prior to executing the Merger Agreement and the Note Purchase Agreement, AMI entered into an amendment to the revolving credit facility to, among other things, (i) amend the definition of "Change in Control," (ii) permit the issuance of additional Second Lien PIK Notes pursuant to the Note Purchase Agreement and (iii) amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ended June 30, 2015. From July 1, 2015 through December 31, 2015, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.

Similarly, prior to the execution of the Merger Agreement and the Notes Purchase Agreement, AMI entered into various supplemental indentures to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement and eliminate AMI's obligation to repurchase approximately $12.7 million of First Lien Notes using the cash interest savings from the semi-annual interest periods ending on June 15, 2014 and December 31, 2014. See "-Merger and Related Transactions" below for additional discussion.

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Merger and Related Transactions

Merger Agreement

On August 15, 2014, AMI entered into the Merger Agreement with the Investors, pursuant to which and subject to the satisfaction or waiver of the conditions described therein, an affiliate of the Investors will merge with and into AMI, with AMI continuing as the surviving entity. Pursuant to the terms and conditions of the Merger Agreement, the Investors will acquire AMI for $2.0 million in cash, payable upon the closing of the Merger. In addition, approximately $513.0 million of outstanding indebtedness will remain in place.

Each of AMI and the Investors has made certain representations and warranties in the Merger Agreement. The Merger Agreement also contains certain covenants and agreements, including, among others, restrictions on the operations of AMI's business prior to the closing of the Merger. The board of directors of AMI may change its recommendation to its stockholders to adopt the Merger Agreement following the occurrence of one or more other intervening events that were not known on the date of the Merger Agreement, and the board of directors of AMI determines in good faith that failure to make a change in its recommendation would be inconsistent with the directors' fiduciary duties under applicable law.

The consummation of the Merger is subject to certain closing conditions, including, among others, (i) the absence of a material adverse effect on AMI and its subsidiaries since the date of the Merger Agreement, (ii) the issuance, sale and purchase of AMI's Second Lien PIK Notes in accordance with the Note Purchase Agreement, (iii) compliance with the drag-along obligations set forth in the Stockholders' Agreement, dated as of December 22, 2010, as amended, among AMI and its stockholders, (iv) the absence of any order that makes the Merger illegal, or that enjoins or otherwise prohibits the closing of the Merger and (v) there are no existing defaults under any of the Debt Documents (as defined in the Merger Agreement) that are continuing after giving effect to all Debt Waivers (as defined in the Merger Agreement).

The Merger Agreement may be terminated under certain circumstances, including, among other, (i) by the Investors or AMI if (A) one or more of the conditions set forth in the Merger Agreement has not been fulfilled as of August 29, 2014, or such later date provided by the Merger Agreement (the “Outside Date”), (B) the required stockholder vote is not obtained or (C) any governmental entity has issued an order restraining, enjoining or otherwise prohibiting the closing of the Merger; (ii) by AMI if all conditions to the Investors’ obligation to consummate the Merger continue to be satisfied, AMI stood ready, willing and able to consummate the Merger, and the Merger has not been consummated within two business days of the Outside Date; and (iii) by the Investors, if the board of directors of AMI changes its recommendation.

The Merger Agreement provides that if AMI terminates the Merger Agreement under certain circumstances, AMI will be required to pay to the Investors a termination fee equal to $5.0 million plus reimbursement of expenses.

Note Purchase Agreement

In connection with the Merger Agreement, on August 15, 2014, AMI and certain of its subsidiaries (the Guarantors") entered into the Note Purchase Agreement with the Investors.

The Note Purchase Agreement provides, subject to certain conditions, for AMI to issue and sell to the Investors, and the Investors to purchase from AMI, an aggregate principal amount of additional Second Lien PIK Notes (the “Additional Notes”) to be issued under the indenture dated as of October 2, 2013 (as such agreement may be amended, restated or supplemented on the date hereof, the “Second Lien PIK Notes Indenture”), among AMI, the Guarantors and Wilmington Trust, National Association, as trustee and collateral agent (the “Trustee”), such that the aggregate principal amount of the Additional Notes purchased plus the accrued interest thereon from the most recent date to which interest has been paid on the then outstanding Second Lien PIK Notes to the closing date (the “Closing Date”) for the Merger will equal $12.5 million. The Investors will pay $1,000 per $1,000 of principal amount of the Additional Notes to be purchased by the Investors on the Closing Date plus accrued interest thereon from the most recent date to which interest has been paid on the then outstanding Second Lien PIK Notes, for an aggregate purchase price of $12.5 million. The issuance, sale and purchase is expected to close upon the satisfaction of certain closing conditions, concurrently with the Merger. After giving effect to the issuance and assuming a closing date for the Merger of August 15, 2014, approximately $113.3 million in aggregate principal amount of Second Lien PIK Notes will be outstanding.

The Additional Notes will be issued under the Second Lien PIK Notes Indenture and will be treated as a single class under the Second Lien PIK Notes Indenture with, and will be assigned the same CUSIP number as, the outstanding Second Lien PIK Notes. The Additional Notes will be issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.



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Supplemental Indentures

On August 15, 2014, AMI announced that it has received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented on the date hereof, the “First Lien Notes Indenture”), among AMI, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented on the date hereof, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among AMI, the Guarantors and the Trustee and (c) $101.0 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the applicable series of notes then outstanding.

As a result of receiving the requisite consents, on August 15, 2014, AMI and the Trustee entered into (a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”) to the Second Lien PIK Notes Indenture.

The Supplemental Indentures amend the Indentures to (a) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate AMI’s obligation to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.

Credit Agreement Amendment

On August 8, 2014, AMI, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the Revolving Credit Agreement, dated as of December 22, 2010 (as amended, restated, modified or supplemented from time to time, the “Credit Agreement”), entered into Amendment No. 3 (the “Credit Agreement Amendment”) to the Credit Agreement with lenders (the “Consenting Lenders”) constituting the Required Lenders (as defined in the Credit Agreement).

Pursuant to the Credit Agreement Amendment and subject to the Credit Parties’ (as defined in the Credit Agreement) compliance with the requirements set forth therein, the Consenting Lenders have agreed to (i) waive until the earlier of (x) August 15, 2014 and (y) immediately prior to the consummation of the Merger, any potential Default or Event of Default (each, as defined in the Credit Agreement) arising from the failure to furnish to the Administrative Agent (A) the financial statements, reports and other documents as required under Section 5.01(a) of the Credit Agreement with respect to the fiscal year of AMI ended March 31, 2014 and (B) the related deliverables required under Sections 5.01(c) and 5.03(b) of the Credit Agreement, (ii) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change in Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture, (iii) consent to the sale of certain assets of the Loan Parties (as defined in the Credit Agreement), (iv) restrict any payment or distribution in respect of the First Lien Notes on or prior to June 15, 2015, subject to certain exceptions, including the payment of regularly scheduled interest and any mandatory prepayments and mandatory offers to purchase under the First Lien Notes, and (v) amend the maximum first lien leverage ratio covenant.

Exchange Agreement Amendment

On August 15, 2014, AMI and the Guarantors entered into an Amendment (the “Exchange Agreement Amendment”) to the Exchange Agreement, dated as of September 27, 2013, among AMI, the Guarantors and the Investors.

The Exchange Agreement Amendment provides that AMI is not required to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014.





9


BUSINESS SEGMENTS

Our four business segments are described below. Additional financial information relating to these segments may be found in Note 13, "Business Segment Information" in consolidated financial statements contained elsewhere in this Annual Report, which information is incorporated herein by reference.

Celebrity Brands

Our seven celebrity magazines maintain a 38% share-of-market, selling approximately 1.1 million copies per week, or $5.3 million in retail dollars. In fiscal 2014, they accounted for 59% of our total operating revenues. Circulation revenues were 85% of this segment in fiscal 2014, with print and digital advertising revenue representing the balance.

This segment consists of the following brands in print and digital:

National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, crime, human interest, health, fashion and beauty;

Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;

OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;

Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;

National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience;
Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view; and

Country Weekly, a weekly magazine that for almost two decades has been the authority on the music and lifestyle of country's biggest stars; CountryWeekly.com is a companion site that focuses on music and news.

Special Interest Publications. In addition to our periodic publications, we occasionally publish special interest publications. The content of our special interest publications is based on an iconic event allowing us to leverage our distribution network to generate additional revenues. Our special interest publications are sold at newsstands and may include advertising. In fiscal 2014, we published the following:

Sinatra, JFK, Jr., Who Killed the Kennedys, Crimes of the Century, A-Z Guide to Kennedy Assassination, Elvis and American Gangsters under the National Enquirer brand;

The 90s, Hottest Bodies & Diets, and Hottest Couples & Weddings under the OK! brand;

Lucille Ball, Michael Jackson, Princess Diana, Secrets of TV Stars, Jack & Jackie Kennedy and Women Who Kill under the Globe brand;

Soaps Weddings under the Soap Opera Digest brand; and

Celebrating George Jones and 20 Years of Country Music under the Country Weekly Brand.


10


Certain information related to our Celebrity publications is as follows:
 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2014 Rate Base
 
National Enquirer
 
52 x
 
n/a
 
1,106,978
Star
 
52 x
 
800,000
 
n/a
OK!
 
52 x
 
500,000
 
2,210,251
Globe
 
52 x
 
n/a
 
15,433
National Examiner
 
52 x
 
n/a
 
n/a
Soap Opera Digest
 
52 x
 
n/a
 
317,021
Country Weekly
 
52 x
 
n/a
 
384,175

The following table sets forth the average circulation (per issue) and U.S. cover prices for our Celebrity segment:

(in thousands, except cover price information)
 
March 31, 2014
 
March 31, 2013
 
March 31, 2012
National Enquirer
 
 
 
 
 
 
Total circulation
 
516

 
560

 
625

Subscription circulation
 
120

 
132

 
146

Single copy circulation
 
396

 
428

 
479

Cover price
 
$4.99
 
$3.99
 
$3.99
Star
 
 
 
 
 
 
Total circulation
 
803

 
774

 
831

Subscription circulation
 
501

 
436

 
408

Single copy circulation
 
302

 
338

 
423

Cover price
 
$4.99
 
$3.99
 
$3.99
OK!
 
 
 
 
 
 
Total circulation
 
507

 
497

 
557

Subscription circulation
 
352

 
314

 
321

Single copy circulation
 
155

 
183

 
236

Cover price
 
$4.99
 
$3.99
 
$3.99
Globe
 
 
 
 
 
 
Total circulation
 
246

 
261

 
271

Subscription circulation
 
28

 
30

 
33

Single copy circulation
 
218

 
231

 
238

Cover price
 
$3.99
 
$3.99
 
$3.99
National Examiner
 
 
 
 
 
 
Total circulation
 
104

 
107

 
109

Subscription circulation
 
10

 
10

 
10

Single copy circulation
 
94

 
97

 
99

Cover price
 
$3.99
 
$3.79
 
$3.79
Soap Opera Digest
 
 
 
 
 
 
Total circulation
 
154

 
181

 
282

Subscription circulation
 
93

 
118

 
209

Single copy circulation
 
61

 
63

 
73

Cover price
 
$3.99
 
$3.99
 
$3.99


11


(in thousands, except cover price information)
 
March 31, 2014
 
March 31, 2013
 
March 31, 2012
Country Weekly
 
 
 
 
 
 
Total circulation
 
51

 
56

 
63

Subscription circulation
 
11

 
11

 
11

Single copy circulation
 
40

 
45

 
52

Cover price
 
$3.49
 
$2.99
 
$2.99

The cover prices increased for National Enquirer, Star and OK! from $3.99 to $4.99 effective with the March 24, 2014 issue. For National Examiner the cover price increased from $3.79 to $3.99 and for Country Weekly the cover price increased from $2.99 to $3.49, both effective with the June 17, 2013 issue. Effective with the May 12, 2014 issue, the cover prices increased for Country Weekly from $3.49 to $4.49 and for Globe and Soap Opera Digest from $3.99 to $4.99.

Women's Active Lifestyle

In fiscal 2014, our Women's Active Lifestyle segment accounted for 17% of our total operating revenues. Our flagship brand, Shape, is number one in its category in both circulation and print advertising, with 18% growth in advertising in fiscal 2014, an average of 1.6 million print copies sold each month, and a large and fast-growing on-line presence. Shape.com had 7.2 million unique viewers in March 2014, up 15% versus the previous year, and a 60% jump in page views to 61 million. Of that traffic, 55% came from mobile and tablet devices. Shape has 2.9 million followers across social media platforms.

Our Women's Active Lifestyle brands extend into women's lives beyond the print and digital publications. In partnership with Random House, we published The Bikini Body Diet, which went on sale in September 2013 and Clean Green Drinks: 100+ Cleansing Recipes to Renew & Restore Your Body and Mind and The Doctor's Book of Natural Health Remedies both of which went on sale in April 2014. We will see further revenue through our dietary supplement partnership, Shape active wear licensing arrangement and our Shape Up with Jillian Michaels events.

Revenues from print and digital advertising are 84% of the segment’s revenues in fiscal 2014, while circulation revenues represent the balance. This segment consists of the following brands in print and digital:

Shape, which provides information on the cutting edge of fitness, nutrition, health, lifestyle and other inspirational topics to help women lead healthier lives and offers extensive beauty, celebrity and fashion coverage; Shape.com, which mirrors the magazine’s editorial point of view, features daily coverage for today’s women in the blog “Shape Your Life” and videos such as “The Victoria’s Secret Core Workout,” Shape cover shoots with celebrities, and exercise tips from celebrity personal trainers;

Fit Pregnancy, which delivers information on health, maternity fashion, food, parenting and fitness to women during pregnancy and the postpartum period; FitPregnancy.com features the content of the magazine and also contains news and updates to guide expectant mothers through each stage of pregnancy; and
  
Natural Health, which offers readers practical information to benefit from the latest advancements in the fields of health, food, beauty, pets, exercise and advice to improve fitness and the environment; NaturalHealthMag.com is a companion site to the magazine that features health blogs, recipe finders, and various videos that focus on the latest news and updates in the wellness category.

Starting in 2013, we reduced the frequency of Shape magazine, to match our competitors' schedules, from a monthly publication to ten times per year. Certain information related to our Women's Active Lifestyle publications is as follows:

 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2014 Rate Base
 
Shape
 
10 x
 
1,600,000

 
5,851,548
Fit Pregnancy
 
6 x
 
500,000

 
1,106,001
Natural Health
 
6 x
 
300,000

 
137,233


12


The following table sets forth the average circulation (per issue) and U.S. cover prices for our Women's Active Lifestyle segment:

(in thousands, except cover price information)
 
March 31, 2014
 
March 31, 2013
 
March 31, 2012
Shape
 
 
 
 
 
 
Total circulation
 
1,642

 
1,614

 
1,605

Subscription circulation
 
1,440

 
1,423

 
1,410

Single copy circulation
 
202

 
191

 
195

Cover price
 
$4.99
 
$4.99
 
$4.99
Fit Pregnancy
 
 
 
 
 
 
Total circulation
 
501

 
502

 
502

Subscription circulation
 
471

 
470

 
463

Single copy circulation
 
30

 
32

 
39

Cover price
 
$5.95
 
$5.95
 
$5.95
Natural Health
 
 
 
 
 
 
Total circulation
 
310

 
301

 
307

Subscription circulation
 
268

 
259

 
269

Single copy circulation
 
42

 
42

 
38

Cover price
 
$4.99
 
$4.99
 
$4.99

The cover price increased for Shape from $4.99 to $5.99 effective with the July/August 2014 issue, which went on sale June 23, 2014.

Men's Active Lifestyle

In fiscal 2014, our Men's Active Lifestyle segment accounted for 19% of our total operating revenues. A new editorial team has transformed our flagship in the category, Men's Fitness, from a gym magazine to a men's lifestyle guide and continues to attract new advertisers. From October 1, 2013 through March 31, 2014, there were 22 new lifestyle advertisers, such as Channel Sport. Newsstand buyers have responded, and with a 20% jump in single-copy sales, Men's Fitness leads the young men's active lifestyle set in fiscal 2014. Traffic has increased on-line as well. Mensfitness.com page views for March 2014 were 40 million, up 163% year-over-year. The industry has taken notice of the changes, and Men's Fitness was honored with Ad Week's award for the Hottest Reborn Magazine in 2013 and was named to the Ad Age A-List of magazines for 2013.

As with Shape, Men's Fitness is more than a publication. In partnership with Random House, we published The 101 Greatest Workouts of all Time, which went on sale in January 2014. We will see further revenue through our line of men's multivitamins which are now available in Target. Events such as our Ultimate Athlete test both sports skills and strength, and bring the Men's Fitness reader to life for our advertisers, delivering millions of dollars in incremental ad revenue through sponsorship and increased print and digital advertising.

The growth story continues across other men's active lifestyle brands. Traffic continues to increase on-line for MuscleandFitness.com with 33 million page views in March 2014, up 492% year-over-year. Each year we host the body building industry's biggest consumer health and fitness event built around our Mr. Olympia competition in Las Vegas.

Advertisers crave the audience for these brands: men age 18 to 34 years old. Revenues from print and digital advertising are 66% of the segment’s revenues in fiscal 2014, while circulation revenues are 23% and the Mr. Olympia event represents the balance. This segment consists of the following brands in print and digital:

Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;

Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice, and hosts an on-line store for users to buy the products they see on the website;


13


Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;

Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle and covers training, nutrition, health, beauty and fashion for today's women; muscleandfitnesshers.com provides expert fitness and lifestyle tips for women to improve strength, muscle growth, endurance, health and style;

Muscle & Fitness e-commerce, a store selling pre- and post-workout sports nutritional supplements supported by Muscle & Fitness magazine;

Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and

Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France, Italy, Germany, Holland and Australia, which are excluded from the table below. Each market edition is in a local language with local content and has its own website.

Certain information related to our Men's Active Lifestyle publications is as follows:
 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2014 Rate Base
 
Men's Fitness
 
10 x
 
550,000
 
4,996,954
Muscle & Fitness
 
12 x
 
n/a
 
2,808,117
Flex
 
12 x
 
n/a
 
507,453
Muscle & Fitness Hers
 
6x
 
n/a
 
321,787

The following table sets forth the average circulation (per issue) and U.S. cover prices for our Men's Active Lifestyle segment:

(in thousands, except cover price information)
 
March 31, 2014
 
March 31, 2013
 
March 31, 2012
Men's Fitness
 
 
 
 
 
 
Total circulation
 
598

 
575

 
538

Subscription circulation
 
494

 
485

 
455

Single copy circulation
 
104

 
90

 
83

Cover price
 
$4.99
 
$4.99
 
$4.99
Muscle & Fitness
 
 
 
 
 
 
Total circulation
 
327

 
322

 
347

Subscription circulation
 
256

 
253

 
267

Single copy circulation
 
71

 
69

 
80

Cover price
 
$6.99
 
$6.99
 
$6.99
Flex
 
 
 
 
 
 
Total circulation
 
79

 
67

 
78

Subscription circulation
 
57

 
44

 
46

Single copy circulation
 
22

 
23

 
32

Cover price
 
$6.99
 
$6.99
 
$6.99


14


(in thousands, except cover price information)
 
March 31, 2014
 
March 31, 2013
 
March 31, 2012
Muscle & Fitness Hers
 
 
 
 
 
 
Total circulation
 
92

 
86

 
89

Subscription circulation
 
41

 
36

 
31

Single copy circulation
 
51

 
50

 
58

Cover price
 
$4.99
 
$4.99
 
$4.99

Corporate and Other

In fiscal 2014, our Corporate and Other segment accounted for 5% of our total operating revenues and includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions. The video content services we provide to Microsoft and the services provided by our former distribution services group to publishing and non-publishing clients, such as placement and monitoring of supermarket racks, marketing and merchandising, are also included in this segment.

Corporate overhead expenses are not allocated to other segments and are included in this segment. This includes corporate executives, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.

COMPETITION

Publishing is a highly competitive business and we compete with other magazine publishers for advertising market share and for the time and attention of consumers of print magazine content. We also compete with digital publishers and other forms of media, including websites, digital magazines and mobile apps.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, in addition to, the demographic profile of the audience, advertising rates and the effectiveness of our advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection, content, quality, price, as well as placement and display in retail outlets.

Our magazine publishing and website operations compete with numerous other magazine and website publishers and other media for circulation and audience. The use of digital devices as distribution platforms for content has increased competition for our business. See the section titled “Risk Factors—We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.” We believe our advertising sales team has the optimal structure to provide integrated marketing solutions.

Our Celebrity Brands segment competes for readership and advertising dollars with Time, Inc. (People Magazine) and Bauer Publishing (In Touch and Life & Style) as well as Wenner Media (US Weekly). Our Women's Active Lifestyle segment competes for readership and advertising dollars with Condé Nast Publications (Self), Meredith Corporation (Fitness, Parents and American Baby) and Rodale (Women's Health and Prevention). Our Men's Active Lifestyle segment competes for readership and advertising dollars with Rodale (Men's Health), Wenner Media (Men's Journal) and Advanced Research Media, Inc. (Muscular Development). Our special interest publications can compete with a variety of magazines, depending on the focus of the particular issue.

INTELLECTUAL PROPERTY

We use multiple trademarks to distinguish our various publications and brands. These trademarks are the subject of registrations and pending applications filed by us for use with a variety of products and other content, both domestically and internationally, and we continue to expand our worldwide usage and registration of related trademarks. As of March 31, 2014, we had 64 registered trademarks in the United States and 224 corresponding trademarks registered in foreign countries relating to our brand names.

We protect our copyrighted content by registering our publications with the United States Copyright Office.  Our extensive portfolio consists of approximately 3,000 copyrights including, but not limited to: National Enquirer, Star, OK!, Globe, National Examiner, Soap Opera Digest, Country Weekly, Shape, Fit Pregnancy, Natural Health, Men's Fitness, Flex and Muscle & Fitness. We  also file copyright registrations for our special interest publications.


15


We regard our rights in and to our trademarks and copyrights as valuable assets. Accordingly, to protect our trademarks and copyrights against infringement and denigration by third parties, we control access to our proprietary technology and other confidential information through a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright and other applicable laws. Despite our efforts to protect our proprietary rights through intellectual property rights, licenses, and confidentiality agreements, we may not be able to prevent unauthorized parties from using our brand names and content.

GOVERNMENT REGULATIONS

Marketing Regulation

Advertising and promotional information and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including online content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today.

Postal Regulation

The distribution of our magazine subscriptions are affected by the laws and regulations of the U.S. Postal Service (the “USPS”). The Governors of the USPS review prices for mailing services annually and adjust postage rates periodically. We continually seek the most economical and effective methods for mail delivery, including cost-saving strategies offered within the postal rate structure. The financial condition of the USPS continues to decline. If postal reform legislation is enacted, it could result in, among other things, increases in postal rates, local post office closures and the elimination of Saturday mail delivery. The elimination of current protections against significant and unpredictable rate increases or other changes to the USPS as a result of the enactment of postal reform legislation could have an adverse effect on our businesses.

SEASONALITY

Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.

Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.

EMPLOYEES

As of March 31, 2014, we employed approximately 534 full-time and 56 part-time employees. We consider relations with our employees to be good.

AVAILABLE INFORMATION

Our Internet site is www.americanmediainc.com. Our Registration Statement, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to these documents, as well as certain other forms we file with or furnish to the SEC, can be viewed and downloaded free of charge as soon as reasonably practicable after they have been filed with the SEC by accessing www.sec.gov or visiting www.americanmediainc.com and clicking on About Us and Investor Relations. Please note that information on, or that can be accessed through, our website is not deemed “filed” with the SEC and is not incorporated by reference into any of our filings under the Securities Act or the Securities Exchange Act, irrespective of any general incorporation language contained in such filing.


16


HISTORY

American Media, Inc. was incorporated under the laws of the State of Delaware in 1990 and its wholly-owned subsidiary, American Media Operations, Inc., or AMOI, conducted all of AMI’s operations and represented substantially all of AMI’s assets. In November 2010, AMO Escrow Corporation, or AMO Escrow, was formed as an indirect, wholly-owned subsidiary of AMOI for the sole purpose of issuing the First Lien Notes (as defined below) prior to the 2010 Restructuring described below. In December 2010, AMO Escrow merged with and into AMOI, and AMOI merged with and into American Media, Inc., as the surviving corporation in the merger. Given American Media Inc., was a holding company with only one subsidiary and owned 100% of AMOI, the merger did not result in a change in the historical cost basis of AMI’s consolidated assets and liabilities. As the merger occurred between entities under common control, the historical consolidated financial statements of AMOI have been presented as the consolidated financial statements of AMI and the financial information contained herein have been prepared and presented as if AMI had always been the reporting company. The merger of AMOI with and into American Media, Inc. was unrelated to the 2010 restructuring discussed below.

2010 RESTRUCTURING

In November 2010, the Company and certain subsidiaries filed a prepackaged plan of reorganization (the “Plan”) under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Plan identified liabilities subject to compromise of $893.9 million, which included an outstanding term loan of $445.7 million, a revolving credit facility of $60.0 million and previously issued notes of $388.2 million (the “Old Notes”). In December 2010, the Bankruptcy Court confirmed the Plan and the Company emerged from bankruptcy and consummated a financial restructuring through a series of transactions (the “2010 Restructuring”).

As part of the 2010 Restructuring, we amended and restated our certificate of incorporation to, among other things, increase the number of shares authorized to be issued from 11,000,000 to 15,000,000, comprised of 14,000,000 shares of common stock and 1,000,000 shares of preferred stock. We issued 10,000,000 shares of new common stock and canceled all pre-existing equity interests in AMI, including warrants. We did not issue any shares of preferred stock.

Upon emergence, the Company determined it did not meet the requirements to apply fresh start accounting under applicable accounting standards because the holders of existing voting shares immediately before confirmation of the 2010 Restructuring received more than 50% of the voting shares in the emerging Company. Since fresh start accounting did not apply, assets and liabilities not subject to compromise continue to be reflected at historical cost. However, liabilities compromised by confirmed plans were accounted for, as summarized below, in accordance with the guidance provided for reporting entities not qualifying for fresh start accounting.

We exchanged $363.3 million of our Old Notes for 10,000,000 shares of newly issued common stock. The holders of the pre-existing debt also held shares of common stock that were canceled in connection with the 2010 Restructuring. Since this exchange occurred with pre-existing stockholders, the extinguishment of debt transaction was recorded as a capital transaction. As a result, the $587.0 million gain on this debt-for-equity exchange is reflected in the Consolidated Statement of Stockholders' Deficit for fiscal 2011. The gain on the exchange primarily consists of (i) $363.3 million of Old Notes, (ii) $282.7 million of canceled stock and (iii) $176.1 million of forfeited future interest payments on the Old Notes, less (iv) issuance of $235.8 million of equity.

We satisfied the term loan and revolving credit facility of $505.7 million with cash on hand and the proceeds from the issuance of new debt. Specifically, we issued $385.0 million aggregate principal amount of First Lien Notes and $80.0 million aggregate principal amount of Second Lien Notes. We also exchanged $24.9 million of the remaining Old Notes for $24.9 million of Second Lien Notes. Finally, we entered into a $40.0 million revolving credit facility, maturing in December 2015 (the “2010 Revolving Credit Facility”) which replaced our previous revolving credit facility. Under the 2010 Restructuring, the proceeds from the First Lien Notes and the Second Lien Notes and the 2010 Revolving Credit Facility were used to pay (i) the net carrying amount of the term loan and revolving credit facility, including a deferred consent fee and (ii) a 2% make-whole provision. In accordance with applicable accounting standards, the Company recorded this series of transactions as an extinguishment of debt and reflected the $8.6 million loss on extinguishment of debt for fiscal 2011.

Item 1A. Risk Factors.

Our business faces many risks. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, prospects and cash flows. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition and results of operations in the future.

17


Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and results of operations.

Our future performance could be affected by our substantial indebtedness. As of March 31, 2014, our total outstanding indebtedness was approximately $498.5 million, consisting of $362.7 million principal amount of debt under the First Lien Notes, $10.6 million principal amount of debt under the Second Lien Notes, $96.2 million principal amount of debt under the Second Lien PIK Notes (the First Lien Notes, the Second Lien Notes and the Second Lien PIK Notes are collectively referred to herein as the "Senior Secured Notes") and $29.0 million amount of debt under the 2010 Revolving Credit Facility. Our total consolidated interest expense was $58.4 million for fiscal 2014, which consists of interest under the Senior Secured Notes and the 2010 Revolving Credit Facility. Further, although we reduced our cash interest expense payments under the Second Lien Notes as a result of the exchange of Second Lien PIK Notes for Second Lien Notes pursuant to the Exchange Agreement, we are required under the indenture governing the Second Lien PIK Notes and the Exchange Agreement to utilize the cash interest savings to repurchase First Lien Notes. Pursuant to the Merger Agreement, we have obtained a permanent waiver of our obligation to redeem approximately $12.7 million of First Lien Notes, during fiscal 2015, pursuant to the terms of the Second Lien PIK Notes Supplemental Indenture and the Exchange Agreement Amendment. In addition, the 2010 Revolving Credit Facility and the indentures governing the Senior Secured Notes contain certain covenants that, subject to certain exceptions, restrict us from paying dividends, incurring additional debt, creating liens, entering into certain mergers or consolidations, making acquisitions or other investments and selling or otherwise disposing of assets.

Our level of indebtedness could have important consequences for our business and operations, including the following:

require us to dedicate a substantial portion of our cash flow from operations for payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and general corporate requirements or to carry out other aspects of our business;

expose us to fluctuations in interest rates as the 2010 Revolving Credit Facility has a variable rate of interest;

place us at a potential disadvantage compared to our competitors that have less debt;

increase our vulnerability to general adverse economic and industry conditions;

limit our ability to make material acquisitions or take advantage of business opportunities that may arise;

limiting our flexibility in planning for, or reacting to, changes in our business industry; and

limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of our business.

Under the 2010 Revolving Credit Facility, we have to comply with a maximum first lien leverage ratio. Our ability to satisfy this ratio is dependent on our business performing in accordance with our projections. If the performance of our business deviates from our projections, we may not be able to satisfy this ratio. If we do not comply with this or other covenants and restrictions, we would be in default under our 2010 Revolving Credit Facility unless we obtained a waiver from the required lenders thereunder. Our outstanding debt under our 2010 Revolving Credit Facility, together with accrued interest, could then be declared immediately due and payable and commitments thereunder could be terminated. Our ability to comply with such provisions may be affected by events beyond our control. Moreover, the instruments governing almost all our other debt contain cross-acceleration provisions so that acceleration under any of our debt may result in a default under our other debt instruments. If a cross-acceleration occurs, the maturity of almost all our debt could be accelerated and become immediately due and payable. If that happens, we would not be able to satisfy our debt obligations, which would have a substantial adverse effect on our ability to continue as a going concern. In connection with the Merger Agreement, we entered into an amendment to the 2010 Revolving Credit Facility to, among other things, amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ended June 30, 2015. From July 1, 2015 through December 31, 2015, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.


18


Obligations under our 2010 Revolving Credit Facility are secured by liens on substantially all our assets and the assets of certain domestic subsidiaries. In addition, our obligations under our 2010 Revolving Credit Facility are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of our existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of our existing or subsequently acquired or organized foreign subsidiaries. If we, or one of our restricted subsidiaries, should be declared bankrupt or insolvent, or if we otherwise default under our 2010 Revolving Credit Facility, the lenders could declare all the funds borrowed thereunder, together with accrued interest, immediately due and payable and commitments thereunder could be terminated. If we were unable to repay such debt, the lenders could foreclose on the pledged stock of our subsidiaries and on the assets in which they have been granted a security interest.

If our operations do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may need to borrow additional funds to make these payments or undertake alternative financing plans, such as refinancing or restructuring our indebtedness, disposing of assets or reducing or delaying capital investments and acquisitions. We cannot guarantee that such additional funds or alternative financing will be available on favorable terms, if at all. Our inability to generate sufficient cash flow from operations or obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that our business will generate sufficient cash flows from operations or that we can obtain alternative financing proceeds in an amount sufficient to enable us to service our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Changes in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options.
Our corporate credit rating is currently rated below investment grade by Standard & Poor’s. If our credit ratings are lowered further, borrowing costs for future long-term debt or short-term borrowing facilities may increase and our financing options would be limited. A reduction in our credit rating or the credit rating of our outstanding debt securities may also cause our future borrowings to be subject to additional restrictive covenants that would reduce our flexibility. In addition, macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new acquisitions or capital-intensive internal initiatives.
If we fail to implement our business strategy, our business will be adversely affected.

Our future financial performance and success are dependent in large part upon our ability to successfully implement our business strategy. We may not be able to successfully implement our business strategy or improve our operating results. In particular, we may not be able to increase circulation of our publications, obtain new sources of advertising revenues, generate additional revenues by building on the brand names of our publications or raise the cover prices of our publications without causing a decline in circulation.

Any failure to successfully implement our business strategy may adversely affect our ability to service our indebtedness, including our ability to make principal and interest payments on the debt. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.

We compete in varying degrees with other magazine publishers for market share and for the time and attention of consumers of print magazine content. We believe the overall decline in consumer demand for print magazines has been negatively impacted by the multitude of choices available to consumers for information and entertainment which has intensified our competition with other magazine publishers for share of print magazine readership. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection and content, quality and price as well as placement and display in retail outlets.


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We also compete with digital publishers and other forms of media, including websites, digital magazines, tablet editions and mobile apps. The competition we face has intensified as a result of the growing popularity of mobile devices such as tablets and smartphones. Consumers are increasingly opting to consume publisher's content through these digital platforms and are shifting away from print media. These new platforms have reduced the cost of producing and distributing content on a wide scale, allowing new free or low-priced digital content providers to compete with us and other print magazine publishers. The ability of our paid print and digital content to compete successfully with free and low-priced digital content depends on several factors, including our ability to differentiate and distinguish our content from free or low-priced digital content, as well as our ability to increase the value of paid subscriptions to our customers by offering a different, deeper and richer digital experience. If we are unable to distinguish our content from that of our competitors or adapt to new distribution methods, our business, financial condition and results of operations may be adversely affected.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, respectively, the demographic profile of the audience, advertising rates and the effectiveness of advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. We believe our advertising sales team has the optimal structure to provide integrated marketing solutions for combined print and digital advertising and we can compete successfully for advertising. If we are unable to convince advertisers of the continuing value of our combined print and digital advertising platforms or offer advertisers unique advertising programs tied to our brands, our business, financial condition and results of operations may be adversely affected.

We are exposed to risk associated with weak domestic and global economic conditions.

We have been adversely affected by weak domestic and global economic conditions and have experienced declines in our circulation and to a lesser extent our advertising revenues. If these conditions persist, our business, financial condition and results of operations may continue to be adversely affected. Factors that affect economic conditions include the rate of unemployment, the level of consumer confidence and changes in consumer spending habits. Because magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to general economic conditions and economic cycles. Certain economic conditions such as general economic downturns, including periods of increased inflation, unemployment levels, tax rates, interest rates, gasoline and other energy prices or declining consumer confidence, negatively impact consumer spending. Reduced consumer spending or a shift in consumer spending patterns away from discretionary items will likely result in reduced demand for our magazines.

Historically, we have been able to offset some of the declines in circulation revenues, in part, through increases in cover prices and cost reductions. We may not be able to increase cover prices without decreasing circulation or be able to take other measures, such as increasing advertising revenue rates or pages and reducing print orders of our titles, to offset such circulation revenue declines. In addition, we may not be able to reverse the circulation revenue declines described above, and such declines in circulation could have a material adverse effect on our business, financial condition and results of operations.

We also face risks associated with the impact of weak domestic and global economic conditions on third parties with which we do business, such as advertisers, suppliers, wholesale distributors, retailers and other parties. For example, if retailers file for reorganization under bankruptcy laws or otherwise experience negative effects on their businesses due to volatile or weak economic conditions, it could reduce the number of outlets for our magazines, which in turn could reduce the attractiveness of our magazines to advertisers. In addition, any financial instability of the wholesalers that distribute our print magazines to retailers could have various negative effects on us. See “—We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.”

We derive substantial revenues from the sale of advertising, and a decrease in overall advertising expenditures could lead to a reduction in the amount of advertising that companies are willing to purchase from us and the price at which they purchase it. Expenditures by advertisers tend to be cyclical, reflecting domestic and global economic conditions. If the economic prospects of advertisers or current economic conditions worsen, such conditions could alter current or prospective advertisers’ spending priorities. Declines in consumer spending on advertisers’ products due to weak economic conditions could also indirectly negatively impact our advertising revenues, as advertisers may not perceive as much value from advertising if consumers are purchasing fewer of their products or services.


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We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.

We operate a distribution network that relies on wholesalers to distribute our magazines to newsstands and other retail outlets. A small number of wholesalers are responsible for a substantial percentage of wholesale magazine distribution in the United States. We are experiencing significant declines in magazine sales at newsstands and other retail outlets. In light of these declines and the challenging general economic climate, there may be further consolidation among the wholesalers and one or more may become insolvent or unable to pay amounts due in a timely manner. Distribution channel disruptions can impede our ability to distribute magazines to the retail marketplace, which could, among other things, negatively affect the ability of certain magazines to meet the rate base established with advertisers. Disruption in the wholesaler channel, an increase in wholesaler costs or the failure of wholesalers to pay amounts due could adversely affect our business, financial condition and results of operations. See also “Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.”

Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.

During fiscal 2014, 2013 and 2012, single copy sales accounted for 78% of total circulation revenue and consisted of copies distributed to retailers primarily by two wholesalers. During fiscal 2014, 2013 and 2012, The News Group accounted for approximately 29%, 29% and 23%, respectively, of our total operating revenue and Source Interlink Companies accounted for approximately 14%, 14% and 12%, respectively, of our total operating revenue. We have long-term service arrangements with our wholesalers, which provide incentives to maintain certain levels of service. When these arrangements expire, we may not be able to renew them on favorable terms, extend the terms of these arrangements or extend our relationship with the wholesalers at all. Our business, financial condition and results of operations could be adversely affected by disruption of the distribution of our magazines through these wholesalers.

In May 2014, our second-largest wholesaler notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Current Developments and Management Action Plans - Other Developments" for additional information.

Changes to U.S. or international regulation of our business or the businesses of our advertisers could cause us to incur additional costs or liabilities, negatively impact our revenues or disrupt our business practices.

Our digital businesses are subject to government regulation in the jurisdictions in which we operate, and our Web sites, which are available worldwide, may be subject to laws regulating the Internet even in jurisdictions where we do not do business. Advertising and promotional information presented to visitors on our websites and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including on-line content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Revenues from our digital businesses could be adversely affected, directly or indirectly, by these existing or future laws and regulations. Furthermore, our OK! TV news magazine show may subject us to regulation by the FCC, which could result in previously inapplicable and unanticipated costs.
Our business performance is also indirectly affected by the laws and regulations that govern the businesses of our advertisers. For example, the pharmaceutical industry, which accounts for a significant portion of our advertising revenues in our Men's Active Lifestyle segment, is subject to regulations of the Food and Drug Administration in the United States requiring pharmaceutical advertisers to communicate certain disclosures to consumers about advertised pharmaceutical products, typically through the purchase of print media advertising. We face the risk that the Food and Drug Administration could change pharmaceutical marketing regulations in a way that is detrimental to the sale of print advertising.

In addition, changes in laws and regulations that currently allow us to retain customer data and to engage in certain forms of consumer marketing, such as automatic renewal of subscriptions for our magazines and negative option offers via direct mail, email, on-line or telephone solicitation, could have a negative impact on our circulation revenues and adversely affect our financial condition and operating performance.


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Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates.

The financial condition of the U.S. Postal Service (the “USPS”) continues to decline. In the past the USPS closed numerous mail processing centers and has announced plans to close additional processing centers in 2014, which could result in slower delivery of first class mail and periodicals. The USPS is currently prohibited under a Congressional resolution from discontinuing Saturday mail delivery, but the USPS and some members of Congress are attempting to lift that ban as part of comprehensive postal reform. Our subscribers expect our weekly magazines to be delivered in the same week that they are printed, and the elimination of Saturday mail delivery or slower delivery of periodicals, absent changes to our internal production schedules, could result in a certain percentage of our weekly magazines not reaching subscribers until the following week. We cannot predict how the USPS will address its fiscal condition in the future, and changes to delivery, reduction in staff or additional closings of processing centers may lead to changes in our internal production schedules or other changes in order to continue to meet our subscribers’ expectations.

Other measures taken to address the declining financial condition of the USPS could include increases in the rates for periodicals and local post office closures. We cannot predict with certainty the magnitude of future price changes in postage. In particular, postage represents a significant component of our total cost to distribute our printed products and represented approximately 7% of our total operating expense for fiscal 2014. If there are significant increases in postal rates and we are not able to offset such increases, our results of operations could be negatively impacted.

Our business and results of operations may be adversely affected by increases in fuel costs and the price of paper.

Many aspects of our business have been directly affected by increases in the cost of fuel and paper. Increased fuel costs have translated into increased costs for the products and services we receive from our third-party suppliers, including, but not limited to, increased production and distribution costs for our products. Paper represents a significant component of our total cost to produce our printed products and represented approximately 13% of our total operating expenses for fiscal 2014. Paper is a commodity and the price has been subject to significant volatility due to supply and demand in the marketplace as well as volatility in the raw material and other costs incurred by our paper suppliers. We have not entered into a long-term supply agreement with our paper suppliers, and they may raise their prices for paper from time to time.

We cannot predict with certainty the magnitude of future price changes in paper or how increases in fuel costs will affect our third-party suppliers and the rates they charge us. If fuel or paper prices increase and we are not able to offset such increases, our business, financial condition and results of operations would be adversely affected.

Our business may be adversely affected if we lose one or more of our vendors.

We rely on third-party vendors, including paper suppliers, printers, subscription fulfillment houses and subscription agents for the print portion of our business. The industries in which our print related third-party vendors operate have experienced significant restructurings and consolidation in recent years, resulting in decreased availability of goods and services and competition. Further disruptions in these industries may make our third-party vendors unable or unwilling to provide us with goods and services on favorable terms and may lead to greater dependence on certain vendors, increased prices, and interruptions and delays in the services provided by these vendors, all of which would adversely affect our business.

We may suffer credit losses that could adversely affect our results of operations.

We extend unsecured credit to most of our customers. We recognize that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit exposure also includes the amount of estimated unbilled sales. The level of credit is influenced by the customer’s credit history with us and other available information, including industry-specific data.

We maintain a reserve account for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay, additional allowances might be required, which could have a material adverse effect on our business, results of operations and financial condition.

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Future acquisitions, partnerships, publishing services agreements and joint ventures may require significant resources.

In the future, we may seek to grow the Company and its businesses by making acquisitions or entering into partnerships, publishing services agreements or joint ventures. Any future acquisition, partnership, publishing services agreement or joint venture may require that we make significant cash investments, issue stock or incur substantial indebtedness. Such acquisitions and investments may require additional funding which may be provided in the form of additional indebtedness, equity financing or a combination thereof. We cannot assure that any such additional funding will be available to us on acceptable terms, or at all, or that we will be permitted under the terms of the 2010 Revolving Credit Facility (or any replacement thereof) or under the terms of the indentures governing our Senior Secured Notes to obtain such financing for such purpose.

We have incurred indebtedness in the past to finance acquisitions. We may finance future acquisitions with additional indebtedness, subject to limits in our debt agreements. As a result, we could face the financial risks associated with incurring additional indebtedness such as reducing our liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.

We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risk and uncertainties.

We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risks and uncertainties, including:

difficulty in integrating newly acquired businesses and operating in an efficient and effective manner;

the inability to maintain key pre-acquisition business relationships;
the potential diversion of senior management's attention from our operations;

the potential loss of key employees of the acquired businesses;

risks associated with integrating financial reporting and internal control systems;

exposure to unanticipated liabilities; and

challenges in achieving strategic objectives, cost savings and other anticipated benefits.

If an acquired business fails to operate as anticipated, cannot be successfully integrated with our existing business or one or more of the other risk and uncertainties identified occur in connection with our acquisitions, our business, results of operations and financial condition could be adversely affected.

We are expanding our merchandising and licensing programs into new areas and products, the failure of any of which could diminish the perceived value of our brand, impair our ability to grow and adversely affect our prospects.
Our growth depends to a significant degree upon our ability to develop new or expand existing retail merchandising programs. We have entered into several new merchandising and licensing agreements in the past few years. Some of these agreements include exclusivity provisions and have a duration of many years. While we require that our licensees maintain the quality of our respective brands through specific contractual provisions, we cannot be certain that our licensees, or their manufacturers and distributors, will honor their contractual obligations or that they will not take other actions that will diminish the value of our brands.
There is also a risk that our extension into new business areas will meet with disapproval from consumers. We cannot guarantee that these programs will be fully implemented, or, if implemented, that they will be successful. If the licensing or merchandising programs do not succeed, we may be prohibited from seeking different channels for our products due to the exclusivity provisions and multi-year terms of these agreements. Disputes with new or existing licensees may arise that could hinder our ability to grow or expand our product lines. Disputes also could prevent or delay our ability to collect the licensing revenue that we expect in connection with these products. If such developments occur or our merchandising programs are otherwise not successful, the value and recognition of our brands, as well as our business, financial condition and prospects, could be materially adversely affected.

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Divestitures may affect our costs, revenues, profitability and financial position.
In September 2013, we divested substantially all of the assets comprising our distribution and merchandising businesses operated by Distribution Services, Inc. We may decide to divest other segments or lines of business in the future. Divestitures have inherent risks, including possible delays in closing transactions (including potential difficulties in obtaining regulatory approvals), the risk of lower-than-expected sales proceeds for the divested businesses, unexpected costs associated with the separation of the business to be sold from our integrated information technology systems and other operating systems and potential post-closing claims for indemnification. Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize.
Electronically stored data is subject to the risk of unauthorized access and if our data is compromised in spite of our attempts at protecting this data, we may incur significant costs, lost opportunities and damage to our reputation.

We maintain information necessary to conduct our business, including confidential, proprietary and personal information in digital form. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. We develop and maintain systems to prevent this from occurring, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of intrusion, tampering and theft cannot be eliminated entirely, and risks associated with each of these remain. If our data systems are compromised or if the proprietary information of our customers or employees is misappropriated, our ability to conduct our business may be impaired, our reputation with our customers and employees may be injured resulting in loss of business or morale and we could be exposed to a risk of loss due to business interruption, or litigation.

If we are unable to protect our intellectual property, the value of our intangible assets may be diminished and our competitive position and business may be adversely affected.

Our business relies on a combination of trade secrets, trademarks, tradenames, copyrights and other proprietary rights, as well as contractual arrangements, including licenses, to establish and protect our intellectual property and brand names. Our continued success and competitive position depends on our proprietary trademarks and other intellectual property rights. See "Business - Intellectual Property" for a description of our intellectual property assets and the steps we take to protect them.

Other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace. Brand dilution or the introduction of competitive brands could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, thereby negatively impacting our sales. Any such infringement of our intellectual property rights would also likely result in a commitment of our time and resources, financial or otherwise, to protect these rights through litigation or other means. In addition, third parties may assert claims against our intellectual property rights and we may not be able to successfully resolve those claims causing us to lose our ability to use our intellectual property that is the subject of those claims. Such loss could have a material adverse effect on our business, financial condition and results from operations. Furthermore, from time to time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights, which could require us to incur substantial fees and expenses and have a material adverse effect on our business, financial condition and results from operations.

Our performance could be adversely affected if we lose our key personnel.

We believe that our success is largely dependent on the abilities and experience of our senior management team. The loss of the services of one or more of these senior executives could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies. We do not maintain key man life insurance on the lives of our senior management. We have entered into employment agreements or arrangements with our senior management team, which may contain non-compete provisions. While we believe that we could find replacements for these key personnel, the loss of their services could disrupt our business and have a significant adverse effect on our results of operations and financial condition.

Our operating results are subject to seasonal variations.

Our business has experienced, and is expected to continue to experience, seasonality due to, among other things, seasonal advertising patterns and seasonal influences on consumer reading habits. Typically, our revenues from advertising are highest in the fourth quarter. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter.

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Pending and future litigation or regulatory proceedings could materially affect our operations.

Since the focus of some of our publications often involves celebrities or controversial subjects and because of our news gathering techniques, the risk of defamation or invasion of privacy litigation or the filing of criminal charges exists. While we have not historically experienced any difficulty obtaining insurance coverage, we cannot assure that we will be able to do so in the future at rates acceptable to us, or at all. In addition to the celebrity litigation in which we may be involved, from time to time we may be involved in commercial litigation. Any pending or future litigation or regulatory proceeding, if adversely determined, could have a material adverse effect on our business, results of operations and financial condition.

Terrorist attacks and other acts of violence or war may affect the financial markets and our business, results of operations and financial condition.
Terrorist attacks may negatively affect our operations and financial condition. There can be no assurance that there will not be further terrorist attacks against the United States or U.S. businesses. These attacks or armed conflicts may directly impact our physical facilities, such as those in New York City, or those of our retailers, suppliers and customers. These events could cause consumer confidence and their discretionary spending to decrease or result in increased volatility in the U.S. and world financial markets and economy. They could result in an economic recession in the United States or abroad. Any of these occurrences could have a material adverse impact on our business, results of operations and financial condition.
If our goodwill or other identifiable intangible assets become impaired, we may be required to record a significant charge to earnings.

Under U.S. generally accepted accounting principles, goodwill and indefinite-lived intangible assets are required to be tested for impairment annually or more often if an event occurs or circumstances change that would indicate a potential impairment exists, and long-lived assets, including finite-lived intangible assets, are required to be tested for impairment upon the occurrence of a triggering event. Factors that could lead to impairment of goodwill and indefinite-lived intangible assets include significant adverse changes in the business climate and declines in the value of our business.

During an evaluation of goodwill and other identified intangible assets at December 31, 2013, the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the U.S. economy, which impacts consumer spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections. The evaluation resulted in the carrying value of tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $9.2 million to reduce the carrying value of tradenames during the third quarter of fiscal 2014.

As of March 31, 2014, the net book value of our goodwill and other intangible assets was approximately $456.5 million. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of fair value and could materially change the impairment charge related to goodwill and tradenames.

Some provisions of Delaware law and our amended and restated certificate of incorporation, as well as our stockholders’ agreement, may deter third parties from acquiring us.

Provisions contained in our amended and restated certificate of incorporation and the laws of Delaware, the state in which we are incorporated, as well as our stockholders’ agreement, could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our amended and restated certificate of incorporation and stockholders’ agreement impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions that our stockholders desire.

If we do not maintain an effective system of internal controls over financial reporting and disclosure controls, our operating results
and reputation would be harmed.

Effective internal controls over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully. If we cannot provide reliable financial reports or prevent fraud, our operating results and reputation would be harmed. As part of our ongoing monitoring, we may discover material weaknesses or significant deficiencies in our internal control over financial reporting that require remediation.


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We cannot assure that material weaknesses or significant deficiencies, to the extent they exist, in internal controls over financial reporting or disclosure controls would be identified in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal controls over financial reporting and disclosure controls could, among other things, result in losses from fraud or error, cause us not to satisfy our reporting obligations, cause investors to lose confidence in our reported financial information or harm our reputation, all of which could have a material adverse effect on our business, results of operations and financial condition.

Our financial statements are subject to changes in accounting standards that could adversely impact our profitability or financial position.

Our financial statements are subject to the application of accounting principles generally accepted in the United States of America (“US GAAP”), which are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our annual and quarterly reports. An assessment of proposed standards is not provided, as such proposals are subject to change through the exposure draft process and, therefore, their effects on our financial statements cannot be meaningfully assessed. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on the reported results of operations and financial position.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The following table sets forth certain information concerning the location, use and approximate square footage of our principal locations as of March 31, 2014, all of which are leased:
Location
 
Principal Use
 
Approximate Area in Square Feet
Boca Raton, FL
 
Editorial offices for our Celebrity Brands segment, administrative offices for our Publishing Services segment and executive administrative offices
 
55,660

New York, NY
 
Editorial and sales offices for all of our segments and executive administrative officers
 
99,054

Los Angeles, CA
 
Editorial offices for our Celebrity Brands segment
 
13,718


The leases for our offices and facilities expire between 2014 and 2022, and some of these leases are subject to renewal. We believe that our existing facilities are well maintained and in good operating condition.

Item 3.     Legal Proceedings.

Litigation

On March 10, 2009, Anderson News, L.L.C. and Anderson Services, L.L.C., magazine wholesalers (collectively, “Anderson”), filed a lawsuit against American Media, Inc., DSI, and various magazine publishers, wholesalers and distributors in the Federal District Court for the Southern District of New York (the “Anderson Action”). Anderson's complaint alleged that the defendants violated Section 1 of the Sherman Act by engaging in a purported industry-wide conspiracy to boycott Anderson and drive it out of business. Plaintiffs also purported to assert claims for defamation, tortious interference with contract and civil conspiracy. The complaint did not specify the amount of damages sought. On August 2, 2010, the District Court dismissed the action in its entirety with prejudice and without leave to replead and, on October 25, 2010, denied Anderson's motion for reconsideration of the dismissal decision. Anderson appealed the District Court's decisions.


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On April 3, 2012, the Second Circuit issued a decision reversing the dismissal of the lawsuit and reinstating the antitrust and state law claims (except the defamation claim, which Anderson withdrew), and, on January 7, 2013, the United States Supreme Court declined to review the Second Circuit decision. Following the Second Circuit decision, the case has been proceeding in the District Court and the parties are engaged in discovery. Fact discovery was completed in May 2014 and expert discovery is scheduled to be completed in October 2014. Anderson has recently submitted an expert report calculating that damages are approximately $470 million, which would be subject to trebling should Anderson prevail against the defendants in the lawsuit. Defendants, including American Media, Inc. and DSI, also have submitted an expert report on damages, which opines that, separate and apart from the question of liability, Anderson has suffered no damages.

Anderson is in chapter 11 bankruptcy proceedings in Delaware bankruptcy court. On June 10, 2010, American Media, Inc. filed a proof of claim in that proceeding for $5.6 million, (which it amended on December 3, 2013 to reflect the counterclaim (described below) it planned to file in the Anderson Action), but Anderson asserts that it has no assets to pay unsecured creditors like American Media, Inc. An independent court-appointed examiner has identified claims that Anderson could assert against Anderson insiders in excess of $340.0 million.

In an order of the Delaware bankruptcy court, entered on November 14, 2011, American Media, Inc. and four other creditors (collectively, the “Creditors”), which also are defendants in the Anderson Action, were granted the right to file lawsuits against Anderson insiders asserting Anderson's claims identified by the examiner. The Creditors' retention of counsel to pursue the claims on a contingency fee basis was also approved. On November 14, 2011, pursuant to this order, a complaint was filed against 10 defendants. The bankruptcy court, however, entered a stay of discovery pending conclusion of fact discovery in the Anderson Action, which stay was recently lifted by the bankruptcy court, and discovery in the bankruptcy action has commenced. By order dated November 6, 2013, the Delaware bankruptcy court granted American Media, Inc. and four of its co-defendants relief from the automatic bankruptcy stay of litigation against Anderson News, L.L.C. so that they could file a counterclaim in the Anderson Action against Anderson News, L.L.C. alleging that Anderson News, L.L.C. had violated the antitrust laws by engaging in a conspiracy to fix prices that wholesalers would pay publishers for their magazines and seeking an unspecified amount of damages to be proved at trial.  Permission was obtained on January 23, 2014 from the District Court to file the counterclaim against Charles Anderson, Jr. and Anderson News, L.L.C.
     
While it is not possible to predict the outcome of the Anderson Action or to estimate the impact on American Media, Inc. and DSI of a final judgment against American Media, Inc. and DSI (if that were to occur), American Media, Inc. and DSI believe that the claims asserted by Anderson, in the Anderson Action, are meritless. American Media, Inc. and DSI have antitrust claim insurance that covers defense costs. American Media, Inc. and DSI have filed a claim for insurance coverage with regard to the Anderson Action and certain of their defense costs are being paid by the insurer, and, in the event of a settlement or a damages award by the Court and subject to the applicable policy limits, American Media, Inc. and DSI anticipate seeking reimbursement from the insurer for payment of such settlement or damages. American Media, Inc. and DSI will continue to vigorously defend the case.

In addition, because the focus of some of our publications often involves celebrities and controversial subjects, the risk of defamation or invasion of privacy litigation exists. Our experience indicates that the claims for damages made in celebrity lawsuits are usually inflated and such lawsuits are usually defensible and, in any event, any reasonably foreseeable material liability or settlement would likely be covered by insurance, subject to any applicable deductible. We also periodically evaluate and assess the risks and uncertainties associated with our pending litigation disregarding the existence of insurance that would cover liability for such litigation. At present, in the opinion of management, after consultation with outside legal counsel, the liability resulting from pending litigation, even if insurance were not available, is not expected to have a material effect on our consolidated financial statements.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

All of our outstanding shares of common stock are privately held and there is no established public market for our shares. As of July 31, 2014, there were approximately 68 record holders of our common stock.


27


We did not make any dividend payments in fiscal 2014 or 2013, and we do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our 2010 Revolving Credit Facility restrict our ability to pay dividends, and any future indebtedness that we may incur could preclude us from paying dividends. With respect to the dividend restriction, the 2010 Revolving Credit Facility and the Indentures include a cap on the total amount of cash available for distribution to our common stockholders.

For information regarding equity compensation plans, see Note 14, "Capital Structure" in the notes to consolidated financial statements contained elsewhere in this Annual Report.

Item 6.    Selected Financial Data.

The selected financial information set forth below for the five fiscal years ended March 31, 2014 is not necessarily indicative of results of future operations, should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto contained in Item 8, "Financial Statements and Supplementary Data" of this Annual Report. The notes to Selected Financial Data below include certain factors that may affect the comparability of the information presented below.
 
Fiscal Year Ended March 31,
(in thousands)
2014
 
2013
 
2012
 
2011
 
2010
Results of Operations
 
 
 
 
 
 
 
 
 
     Circulation
$
196,421

 
$
212,720

 
$
228,683

 
$
228,694

 
$
246,214

     Advertising
120,578

 
107,151

 
126,117

 
135,868

 
134,281

     Other
27,222

 
28,655

 
31,816

 
33,077

 
31,935

          Total operating revenues
344,221

 
348,526

 
386,616

 
397,639

 
412,430

Operating expenses
304,118

 
348,601

 
320,299

 
303,612

 
331,453

Operating income (loss)
40,103

 
(75
)
 
66,317

 
94,027

 
80,977

Other expenses, net
(60,096
)
 
(61,464
)
 
(61,533
)
 
(93,987
)
 
(54,494
)
Income tax provision (benefit)
33,278

 
(5,994
)
 
(17,509
)
 
4,003

 
22,756

Net (loss) income
(53,271
)
 
(55,545
)
 
22,293

 
(3,963
)
 
3,727

Less: net income attributable to noncontrolling interests
(1,048
)
 
(694
)
 
(726
)
 
(510
)
 
(509
)
Net (loss) income attributable to American Media, Inc. and subsidiaries
$
(54,319
)
 
$
(56,239
)
 
$
21,567

 
$
(4,473
)
 
$
3,218

Financial position at March 31,
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3,035

 
$
2,375

 
$
5,226

 
$
21,285

 
$
6,606

Goodwill and other identified intangible assets, net
456,547

 
465,384

 
519,469

 
499,898

 
502,520

Total assets
572,640

 
577,451

 
651,648

 
637,521

 
620,459

Total debt, net of premium and discount
498,477

 
481,889

 
476,889

 
489,889

 
1,014,480

Total stockholders' deficit
(131,973
)
 
(77,762
)
 
(21,349
)
 
(42,878
)
 
(578,434
)
Notes to Selected Financial Data

Net (loss) income attributable to American Media, Inc. and subsidiaries for fiscal year

2014 results include non-cash tradename impairment charges related to certain reporting units of approximately $9.2 million and AMI's share of bad debt related to Source and other wholesaler shutdowns of approximately $5.1 million.

2013 results include non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $54.5 million.

2011 results include reorganization costs of approximately $24.5 million and a loss on extinguishment of debt of approximately $8.6 million.

2010 results include non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $17.6 million.

28


Total debt, net of premium and discount includes current maturities of long-term debt and future interest payments on the pre-existing debt prior to the 2010 Restructuring, reflected in the carrying amount of the total debt, of $198.4 million in fiscal 2010. As a result, we did not recognize interest expense on certain pre-existing debt.

Total stockholders' deficit includes a gain on restructuring of approximately $587.0 million in fiscal 2011 related to the exchange of debt for equity in connection with the 2010 Restructuring.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed in "Cautionary Statements Regarding Forward-Looking Information" and "Risk Factors" included in this Annual Report. Our MD&A is presented in the following sections:

Executive Summary

Current Developments and Management Action Plans

Results of Operations

Operating Segments

Liquidity and Capital Resources

Contractual Obligations and Other Commitments

Seasonality and Quarterly Fluctuations

Off-Balance Sheet Financing

Application of Critical Accounting Estimates

Recently Adopted and Recently Issued Accounting Pronouncements

EXECUTIVE SUMMARY

We are the largest publisher of celebrity and health and active lifestyle magazines in the United States and operate a diversified portfolio of 14 publications. Our celebrity titles together are number one in market share in newsstand circulation in the celebrity category and, on-line, are the fastest growing brands in the category. Our health and active lifestyle titles together have the highest market share of national magazine advertising pages in their competitive set in the United States. Total circulation of our print publications with a frequency of six or more times per year were approximately 6.0 million copies per issue during the fiscal year ended March 31, 2014.

Our well-known publications span three primary operating segments: Celebrity, Women's Active Lifestyle and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner, Soap Opera Digest and Country Weekly. Within our Women's Active Lifestyle segment, our portfolio of brands includes: Shape, Fit Pregnancy and Natural Health. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers and Flex.


29


We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.

Our brands go beyond the printed page. We engage an audience of men and women every month through not only books and magazines, but also social media, television, and on all digital platforms, from phones and tablets to laptops and desktops. We are embarking on a transformation from a leading media company to a lifestyle brand that informs and entertains while also selling apparel, nutritional products, and recreational activities.

Our largest revenue stream comes from single copy newsstand sales. Our print circulation revenue is 57% of our operating revenue for the fiscal year ended March 31, 2014, of which 78% was generated by single copy sales and the remaining 22% was generated by subscriptions. Single copy newsstand units are sold through national distributors, wholesalers and retailers, and subscription copies are mailed to subscribers and sold as digital copies. As of March 31, 2014, our digital subscriptions represent 23% of our 4.1 million paid subscriptions, the highest percentage among our competitive set. Our digital subscription revenue represented 1% of our total operating revenues for the fiscal year ended March 31, 2014.

Our second largest revenue stream comes from multi-platform advertising. Our print advertising revenue, generated primarily by national advertisers, represented 31% of our total operating revenues and our digital advertising revenue represented 12% of our total advertising revenue for the fiscal year ended March 31, 2014. Our digital advertising revenue represented 4% of our total operating revenues for the fiscal year ended March 31, 2014. Advertising revenue is typically highest in the fourth quarter of our fiscal year due to seasonality.

Our primary operating expenses consist of production, distribution, circulation, editorial and selling, general and administrative. We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Distribution and circulation expenses primarily consist of postage and other costs associated with fulfilling subscriptions and newsstand transportation. Editorial expenses represent costs associated with manuscripts, photographs and related salaries.

Paper is the principal raw material utilized in our publications. We purchase paper directly from suppliers and ship it to third-party printing companies. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements. We have long-term printing contracts with three major third-party printing companies. Our production expenses, including paper and printing costs, accounted for approximately 29%, 27% and 35% of our operating expenses for the fiscal years ended March 31, 2014, 2013 and 2012, respectively.

Sales and marketing of the magazines to retailers is handled by third-party wholesalers through multi-year arrangements. During the fiscal years ended March 31, 2014, 2013 and 2012, approximately 43%, 43% and 35%, respectively, of our circulation revenue was derived from two of these third-party wholesalers. Billing, collection and distribution services for retail sales of the magazines are handled by a national distributor. In May 2014, our second-largest wholesaler notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014. For information regarding the future impact on the Company, see "Current Developments and Management Action Plans - Current Developments - Other Developments" below.

Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions and current events. Economic downturns in the markets we serve generally result in reductions in revenue as a result of lower consumer spending, which can lead to a reduction in advertising revenue.

Our fiscal year ended on March 31, 2014 and is referred to herein as fiscal 2014. References to our fiscal year (e.g. "fiscal 2014") refer to our fiscal year ended March 31st of the applicable fiscal year.


30


CURRENT DEVELOPMENTS AND MANAGEMENT ACTION PLANS

Current Developments

Digital Initiatives

We continue to expand the availability of our print content on digital platforms. Our digital revenue for fiscal 2014 increased 83% to $23.1 million, over the comparable prior year period driven by our digital team comprised of senior executives hired from companies such as Fox Mobile, Microsoft and Google and the continued implementation of our digital investment strategy. We now have a fully integrated print and digital sales team of more than 90 sales executives, with a dozen digital brand champion sales staff across all the websites. We believe our structure is highly effective to respond to our advertisers' requests for integrated marketing solutions for combined print and digital, as well as digital-only programs.

We continue to expand our digital distribution platform across our other well-known brands by launching digital magazines, or "digi-mags," and building out our other websites. We have launched digital editions for all our brands on the Apple and Google newsstands and Zinio, Amazon Kindle and Barnes & Noble Nook platforms. We are also launching single-subject, single-sponsored "digi-mags" for both Apple and Android operating systems, and we are currently syndicating Shape content on Yahoo! Shine, AOL, Huffington Post, StyleList and Kitchen Daily.

In May 2014, we launched the AMI InPrint app, a new mobile app for the iPhone and iPad which provides readers with unlimited access to all our publications and lifestyle books for an introductory price of $0.99 per month. The InPrint app was launched for the Android operating system in July 2014.

Print Initiatives

The relaunch of Men's Fitness and Shape in both print and digital formats continues to be successful as advertising revenues continue to increase. During fiscal 2014, advertising revenues increased 45% and 18% for Men's Fitness and Shape, respectively, as compared to prior year. We published one less issue of Shape magazine during fiscal 2014 versus the prior year period.

In April 2013, we redesigned and repositioned Men's Fitness, from a gym-focused, work-out only magazine to one targeting young men with active lifestyles with fitness as the new measure of success. The new editorial vision of Men's Fitness has continued to attract new luxury goods advertisers. From October 1, 2013 through March 31, 2014, there were 22 new lifestyle advertisers, such as Channel Sport, which had not previously invested in Men's Fitness.

In May 2013, Shape regained the number one share-of-market position in newsstand sales growth and print advertising pages. It is the category leader in print ad pages with a 31% share of market within its competitive set against Self, Fitness and Women's Health. The relaunch of Shape continues to attract new advertising clients, and from October 1, 2013 to March 31, 2014, there were 36 new advertisers which had not previously invested in Shape.

Arnold Schwarzenegger has returned to AMI as the Group Executive Editor for Muscle & Fitness and Flex upon the completion of his term as governor of California. Since Mr. Schwarzenegger's return, we have experienced an increase in advertising revenues at Muscle & Fitness. During fiscal 2014, advertising revenue increased 12% for Muscle & Fitness over the comparable prior year period. One of our nutritional supplement advertisers has launched an Arnold Schwarzenegger branded line of supplements supporting the four pillars of fitness: performance, power and strength, nutrient support and recovery. These supplements are available at most major health and nutrition specialty stores as well as through on-line retailers. To support this launch, we have secured an exclusive commitment for both print and digital advertising starting with the October 2013 edition of Muscle & Fitness.

Branded Products

In the beginning of fiscal 2014, we became a preferred digital content partner for Microsoft and entered into agreements to produce Shape, Men's Fitness and Muscle & Fitness branded exercise and workout videos for Microsoft to incorporate into their Bing Health and Fitness application.

We are continuing to promote Shape branded products, and launched Shape nutritional products which are available in CVS, Rite Aid, Drugstore.com and Target. Based on the success of the launch, we will expand the Shape nutritional products to be on sale in Walgreens in fiscal 2015. In July 2013, we signed a license agreement for a line of Shape women’s active wear which will be designed by a major apparel designer and is expected to be in retail stores by November 2014.

31


Pursuant to our long-term agreement with David Zinczenko and his company, Galvanized Media, they continue to work exclusively on Men's Fitness and Muscle & Fitness and a branded book division for AMI utilizing the Men's Fitness, Shape and Natural Health brands. With Mr. Zinczenko's assistance we have redesigned and relaunched Men's Fitness and Muscle & Fitness and published several books. The Men's Fitness branded book The 101 Greatest Workouts of all Time, went on sale in January 2014. The Shape branded books The Bikini Body Diet and Clean Green Drinks: 100+ Cleansing Recipes to Renew & Restore Your Body and Mind went on sale in September 2013 and April 2014, respectively. The Natural Health branded book The Doctor's Book of Natural Health Remedies went on sale in April 2014. Mr. Zinczenko spent more than 20 years at Rodale, where he served as editor-in-chief of Men's Health and general manager of Women's Health and Rodale Books.

In September 2013, together with our strategic partners, REELZ Channel, owned by Hubbard Broadcasting, and UnConventional Studios, LLC, we launched OK!TV, a television show based on OK! magazine, which was syndicated in approximately 80% of the United States. In addition to the syndication market, the REELZ channel airs the show the day after it runs in syndication, to approximately 70 million households.

Other Developments

In September 2013, we divested substantially all of the assets primarily used in the distribution and merchandising businesses operated by Distribution Services, Inc. (“DSI”), a wholly-owned subsidiary of American Media, Inc. DSI was an in-store product merchandising and marketing company doing business in the U.S. and Canada. DSI serviced the Company by placing and monitoring its print publications, as well as third-party publications, to ensure prominent display in major national and regional retail, drug and supermarket chains. DSI also provided marketing, merchandising and information gathering services to third parties, including non-magazine clients. The divested assets, which consisted primarily of working capital (exclusive of $3.7 million in accounts receivable which are being collected by AMI), the sales and support workforce and certain other related assets, were contributed together with $2.3 million cash in exchange for a membership interest in a limited liability company.

In October 2013, we exchanged approximately $94.3 million aggregate principal amount of our 13.5% second lien notes due June 2018 (the "Second Lien Notes") for an equal aggregate principal amount of new senior secured notes, which bear interest at a rate of 10.0% per annum, payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”), pursuant to an exchange agreement (the “Exchange Agreement”). The Exchange Agreement provides for, among other things, interest payments, in kind, at a rate of 10% per annum until December 15, 2016 or earlier upon the occurrence of certain specified events, at which time interest payments on the Second Lien PIK Notes will be payable in cash at a rate of 13.5% per annum. Subject to certain exceptions, we are required under the indenture governing the Second Lien PIK Notes and the Exchange Agreement to utilize the cash interest savings to repurchase certain of our 11.5% first lien notes due December 2017 (the "First Lien Notes"). After giving effect to this exchange, approximately $10.6 million principal amount of Second Lien Notes remains outstanding. See "Liquidity and Capital Resources" for further discussion regarding the Second Lien Notes and the Second Lien PIK Notes.

During the third quarter of fiscal 2014, we recorded a pre-tax non-cash impairment charge of $9.2 million for the Men's Active Lifestyle segment tradenames.

In February 2014, we repurchased approximately $2.3 million aggregate principal amount of our First Lien Notes in accordance with the Second Lien PIK Notes' Exchange Agreement.

In May 2014, we were notified by our national distributor (the “Distributor”) for our publications in the U.S. and Canada that, due to non-payment of their receivables from our second-largest wholesaler (the “Wholesaler”), the Distributor will cease shipping our publications to the Wholesaler effective immediately. Further, in May 2014, the Wholesaler notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014. On our behalf, the Distributor utilizes wholesalers to sell our publications to retailers for ultimate sale to consumers. Our net sales to this Wholesaler were approximately 14% of our total operating revenues during the fiscal year ended March 31, 2014. Subject to the terms of our agreement with the Distributor, our exposure for bad debt related to the Wholesaler is currently expected to be approximately $5.0 million to $7.0 million, of which $2.0 million is included in our operating expenses for the fiscal year ended March 31, 2014.

Our Distributor is working with the two remaining wholesalers and retailers to transition the newsstand circulation to them. We estimate that it will take approximately twelve to twenty four weeks for the transition to be completed. Our single copy newsstand sales could be reduced by approximately $10.0 million to $20.0 million during this transition period, depending on the length of time required to complete the transition to the remaining two wholesalers. In addition, after completing the transition, our revenues could be temporarily or permanently reduced if consumers at the impacted retailers do not resume purchasing our publications at the same rate or quantities previously purchased.

32



In July 2014, we received waivers under our revolving credit facility providing us additional time to file this Annual Report for the fiscal year ended March 31, 2014 with the SEC and make it available to the revolving credit facility lenders.
In August 2014, we entered into an agreement and plan of merger (the “Merger Agreement”) with certain investors of AMI (collectively, the “Investors”) for the Investors to acquire 100% of the issued and outstanding shares of common stock of AMI through a merger (the “Merger”) whereby a subsidiary of an entity owned by funds managed and/or controlled by the Investors will be merged with and into AMI, with AMI surviving the Merger. In connection with signing the Merger Agreement, we also entered into a note purchase agreement (the "Note Purchase Agreement") with the Investors pursuant to which we will issue additional Second Lien PIK Notes to the Investors at par plus accrued interest for a total purchase price equal to $12.5 million. The closing of the Merger and the closing under the Note Purchase Agreement are expected to occur after the filing of this Annual Report with the SEC on the date hereof. See "Liquidity and Capital Resources - Merger and Related Transactions" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results and Operations," for further information regarding the Merger Agreement and the Note Purchase agreement.

In addition, in August 2014, prior to executing the Merger Agreement and the Note Purchase Agreement, AMI entered into an amendment to the revolving credit facility to, among other things, (i) amend the definition of "Change in Control," (ii) permit the issuance of additional Second Lien PIK Notes pursuant to the Note Purchase Agreement and (iii) amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ended June 30, 2015. From July 1, 2015 through December 31, 2015, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.

Similarly, prior to the execution of the Merger Agreement and the Notes Purchase Agreement, AMI entered into various supplemental indentures to, among other things, permit the transactions contemplated by the Merger Agreements and the Note Purchase Agreement and eliminate AMI's obligation to repurchase approximately $12.7 million of First Lien Notes using the cash interest savings from the semi-annual interest periods ending on June 15, 2014 and December 31, 2014. See "Liquidity and Capital Resources - Merger and Related Transactions" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results and Operations," for further discussion.

Management Action Plans for Revenue Enhancement and Cost Savings

During fiscal 2012, we developed and implemented management action plans totaling $31.7 million of cost savings in fiscal year 2012 (the "2012 Management Action Plans"). The expense reductions were primarily in the production area related to the renegotiation and extension of our RR Donnelly printing contract, print order reductions to increase efficiencies for all of our publications, reduced book sizes to be comparable to our competitive set, reduced general and administrative and employee related expenses, as well as paper rate savings based on our in-house purchasing strategy. We realized the benefits from the 2012 Management Action Plan in fiscal 2012, 2013 and 2014 and we will continue to receive certain of these cost savings throughout fiscal 2015 and beyond.

During fiscal 2013, we developed and implemented management action plans that resulted in revenue enhancements of $8.4 million and operating income of $3.1 million from the publishing of 27 additional pop-iconic special issues, primarily in the Celebrity Brands segment. In addition to the revenue enhancements, we developed and implemented management action plans that resulted in $13.7 million of cost savings in fiscal 2013 (the "2013 Management Action Plans"). The expense improvements were primarily in the manufacturing area related to the ongoing benefits from our RR Donnelly printing contract, print order efficiency plans, paper rate savings based on our in-house purchasing strategy, efficient book sizes and reduced employee-related expenses. We realized the benefits from the 2013 Management Action Plan in fiscal 2013 and 2014 and we will continue to receive certain of these cost savings throughout fiscal 2015 and beyond.

During fiscal 2014, we developed and implemented management action plans that resulted in $5.1 million of cost savings in fiscal 2014 (the "2014 Management Action Plans"). The expense improvements were primarily in print order efficiency plans and editorial expense reductions. We realized the benefits from the 2014 Management Actions Plan in fiscal 2014 and we will continue to receive certain of these cost savings throughout fiscal 2015 and beyond.

Reference to Management Action Plans refers to the 2012 Management Action Plans, 2013 Management Action Plans and 2014 Management Action Plans, collectively.


33


RESULTS OF OPERATIONS

The following table summarizes our operating results on a consolidated basis:
 
Fiscal years ended March 31,
 
% Change
(in thousands)
2014
 
2013
 
2012
 
'14 vs. '13
 
'13 vs. '12
Operating revenues:
 
 
 
 
 
 
 
 
 
Circulation
$
196,421

 
$
212,720

 
$
228,683

 
(8
)%
 
(7
)%
Advertising
120,578

 
107,151

 
126,117

 
13
 %
 
(15
)%
Other
27,222

 
28,655

 
31,816

 
(5
)%
 
(10
)%
Total operating revenues
$
344,221

 
$
348,526

 
$
386,616

 
(1
)%
 
(10
)%
Operating expenses
304,118

 
348,601

 
320,299

 
(13
)%
 
9
 %
Operating (loss) income
40,103

 
(75
)
 
66,317

 
*

 
*

Other expense, net
(60,096
)
 
(61,464
)
 
(61,533
)
 
(2
)%
 
 %
Loss (income) before income taxes
(19,993
)
 
(61,539
)
 
4,784

 
(68
)%
 
*

Income tax provision (benefit)
33,278

 
(5,994
)
 
(17,509
)
 
*

 
(66
)%
Net loss (income)
(53,271
)
 
(55,545
)
 
22,293

 
(4
)%
 
*

Less: net (income) attributable to the noncontrolling interest
(1,048
)
 
(694
)
 
(726
)
 
51
 %
 
(4
)%
Net loss attributable to American Media, Inc. and subsidiaries
$
(54,319
)
 
$
(56,239
)
 
$
21,567

 
(3
)%
 
*

* Represents an increase or decrease in excess of 100%.

Operating Revenues

Total operating revenues decreased slightly during fiscal 2014 due to a decline in circulation revenue and the divestiture of DSI, which was mostly offset by the increase in advertising revenue. Advertising revenue continues to increase as a result of the market acceptance for the editorial repositioning of Shape and Men's Fitness. On a pro forma basis, after the divestiture of DSI, total operating revenues would have increased $5.8 million or 2% during fiscal 2014. Other revenues would have increased $8.7 million or 64% primarily due to our digital initiatives and continuing success of the Mr. Olympia event.

During fiscal 2013, total operating revenues decreased 10% due to a decline in circulation and advertising revenue. Advertising revenue declined as print advertisers shifted their advertising dollars from print to broadcast for the 2012 Summer Olympics coupled with the impact of Superstorm Sandy which caused media planning delays and cancellation of print media commitments.

The following table summarizes our operating revenues, by type, as a percentage of total operating revenues:
 
Fiscal years ended March 31,
 
2014
 
2013
 
2012
Circulation
57
%
 
61
%
 
59
%
Advertising
35
%
 
31
%
 
33
%
Other
8
%
 
8
%
 
8
%
Total
100
%
 
100
%
 
100
%

Circulation Revenue

Our circulation revenue represented 57%, 61% and 59% of our operating revenues during fiscal 2014, 2013 and 2012, respectively. Our circulation revenue is comprised of the following components:
 
Fiscal years ended March 31,
 
2014
 
2013
 
2012
Single Copy
78
%
 
78
%
 
78
%
Subscription
22
%
 
22
%
 
22
%
Total
100
%
 
100
%
 
100
%

34



Digital subscription revenue represented 2%, 3% and 1% of our circulation revenue during fiscal 2014, 2013 and 2012, respectively.

Circulation revenue declined $16.3 million and $16.0 million during fiscal 2014 and 2013, respectively, compared to the prior fiscal year due to the continued softness in the U.S. economy, coupled with the decline in the celebrity magazine market and the discontinuance and reduction of special publications. Circulation revenue was further impacted during fiscal 2013 by the temporary closures of thousands of stores in the Mid-Atlantic and Northeast regions due to Superstorm Sandy.

Advertising Revenue

Our advertising revenue represented 35%, 31% and 33% of our operating revenues during fiscal 2014, 2013 and 2012, respectively. Our advertising revenue is generated from the following components:
 
Fiscal years ended March 31,
 
2014
 
2013
 
2012
Print
88
%
 
91
%
 
94
%
Digital
12
%
 
9
%
 
6
%
Total
100
%
 
100
%
 
100
%

Advertising revenue increased $13.4 million during fiscal 2014 due to higher ad spending by beauty, packaged goods, luxury goods and pharmaceutical advertisers, primarily in Shape and Men's Fitness as a result of the market acceptance for the editorial repositioning of these magazines. In addition, advertising revenue has also increased in Star and OK! magazine due to the performance of our superior marketing programs, content integration and greater efficiencies in reaching our target audience.

Advertising revenue decreased $19.0 million during fiscal 2013 due to reduced ad spending by beauty, packaged goods and luxury goods advertisers, primarily in Shape and Star. During fiscal 2013, these print advertisers shifted their advertising dollars from print to broadcast for the 2012 Summer Olympics. There was also a reduction in ad spending by pharmaceutical advertisers, primarily in Men's Fitness, Muscle and Fitness and Flex. During fiscal 2013, these print advertisers canceled their advertising dollars for sports nutrition and diet products due to federal regulatory complaints on their products. All of these advertisers returned to these publications during the first quarter of fiscal 2014 with new products. Lastly, several of these advertisers' ad agencies were impacted by Superstorm Sandy in fiscal 2013, which caused media planning delays and cancellation of print media commitments.

Other Revenue

Our other revenue represented 8% of our operating revenues during fiscal 2014, 2013 and 2012.

During fiscal 2014, other revenue decreased $1.4 million primarily due to a decline in revenue from the DSI divestiture in September 2013. On a pro forma basis, to reflect the divestiture of DSI, other revenues would have increased $8.7 million or 64%, due to the increase in revenues from the Microsoft projects, the Mr. Olympia event and management fees and income from certain joint ventures.

During fiscal 2013, other revenue decreased $3.2 million primarily due to a 10% decline in newsstand sales for the publishing industry, which caused a $3.0 million revenue shortfall in DSI, which was partially offset by a $0.6 million increase from publishing services, coupled with the non-recurring termination fee we received in fiscal 2012 of $1.4 million upon the termination of one of our international licensing agreements.

35


Operating Expenses

Operating expenses during fiscal 2014, 2013 and 2012 were as follows:
 
Fiscal years ended March 31,
 
% Change
(in thousands)
2014
 
2013
 
2012
 
'14 vs. '13
 
'13 vs. '12
Operating Expenses:
 
 
 
 
 
 
 
 
 
Editorial
$
38,510

 
$
40,850

 
$
43,008

 
(6
)%
 
(5
)%
Production
89,195

 
95,809

 
112,281

 
(7
)%
 
(15
)%
Distribution, circulation and other cost of sales
57,241

 
65,742

 
77,020

 
(13
)%
 
(15
)%
Total production related costs
184,946

 
202,401

 
232,309

 
(9
)%
 
(13
)%
Selling, general and administrative
95,731

 
81,745

 
79,451

 
17
 %
 
3
 %
Depreciation and amortization
14,203

 
9,932

 
8,539

 
43
 %
 
16
 %
Impairment of goodwill and intangible assets
9,238

 
54,523

 

 
(83
)%
 
*

Total operating expenses
$
304,118

 
$
348,601

 
$
320,299

 
(13
)%
 
9
 %
* Represents an increase or decrease in excess of 100%.

Total Production Related Costs

Production related costs decreased during fiscal 2014 and 2013 compared to the prior year periods primarily due to planned expense reductions pursuant to the Management Action Plans in the following areas: $2.3 million in editorial expenses, $6.6 million in production expenses and $8.5 million in distribution and circulation during fiscal 2014 and $2.2 million in editorial expenses, $16.5 million in production and $11.3 million in distribution and circulation during fiscal 2013.

Selling, General and Administrative

Selling, general and administrative costs increased $14.0 million and $2.3 million during fiscal 2014 and 2013, respectively, as compared to the prior year periods.

Expenses increased during fiscal 2014 primarily due to the continued investment in our digital strategy ($1.1 million), bad debt expense related to wholesaler shutdowns ($4.7 million), higher advertising sales expenses primarily for salaries and commissions ($2.7 million), increase in outside services ($2.8 million) and restructuring costs, severance and closure of certain publications ($1.0 million). These increases have been partially offset by the divestiture of DSI ($0.2 million).

The increase during fiscal 2013 is primarily attributable to a $1.3 million bad debt expense related to a single advertiser and our continued investment in our digital strategy.

Depreciation and Amortization

Depreciation and amortization expenses, which are non-cash, increased $4.3 million and $1.4 million during fiscal 2014 and 2013, respectively, as compared to the prior year periods due to the increases in property and equipment and intangible assets.

Impairment of Goodwill and Intangible Assets

During an evaluation of goodwill and other identified intangible assets during fiscal 2014 and 2013, we determined that indicators were present in certain reporting units that would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily the result of the near-term advertising revenue shortfall coupled with the continued softness in the print publication industry overall, which resulted in lowered future cash flow projections.
As a result, an interim impairment test of goodwill and other indefinite-lived intangible assets was performed as of December 31, 2013 and 2012 for certain reporting units. The evaluation resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the fair value. As a result, the Company recorded a pre-tax non-cash impairment charge totaling $9.2 million for tradenames and $54.5 million for goodwill and tradenames during fiscal 2014 and 2013, respectively.


36


Non-Operating Items

Interest Expense

Interest expense decreased $1.4 million during fiscal 2014 and increased $1.4 million during fiscal 2013 when compared to the prior year period due to the additional interest on the First Lien Notes during the registration default period in fiscal 2013.

Amortization of Deferred Debt Costs

Amortization of deferred debt costs increased during fiscal 2014 due to the acceleration of amortization associated with the redemption of approximately $2.3 million principal amount of First Lien Notes in February 2014. The redemption of approximately $20.0 million principal amount of First Lien Notes during fiscal 2012 resulted in a decrease in amortization expenses of the related deferred debt costs during fiscal 2013.

Income Taxes

We recorded an income tax provision of $33.3 million during fiscal 2014 due to the $40.3 million valuation allowance which was recorded against the Company's net deferred tax assets.

During fiscal 2013 and 2012, we recorded an income benefit of $6.0 million and $17.5 million, respectively. The decrease in income tax benefit is due to the elimination of a previously recognized valuation allowance of $17.7 million against the Company's deferred tax assets during fiscal 2012.

Net Loss Attributable to American Media, Inc.

The $54.3 million of net loss attributable to American Media, Inc. for fiscal 2014 represents a $1.9 million decrease from the comparable prior year period. This decrease is primarily attributable to the $40.2 million increase in operating income and the $1.4 million decrease in interest expense, partially offset by the $39.3 million increase in provision for income taxes.

The $56.2 million of net loss attributable to American Media, Inc. for fiscal 2013 represents a $77.8 million increase from the comparable prior year period. This increase is primarily due to the $66.4 million increase in operating loss and the $11.5 million decrease in income tax benefit.

OPERATING SEGMENTS

Our operating segments consist of: Celebrity Brands, Women’s Active Lifestyle, Men’s Active Lifestyle and Corporate and Other. After the divestiture of the DSI business, which was included in and comprised the majority of our publishing services segment, the publishing services segment has been combined with the Corporate and Other segment effective with the quarter ended September 30, 2013. Given this change, we have restated prior period segment information to correspond to the current segment reporting structure. This reporting structure is organized according to the markets each segment serves and allows management to focus its efforts on providing the best content to a wide range of consumers. Our operating segments consist of the following brands in print and digital:

Celebrity Brands Segment

National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, crime, human interest, health, fashion and beauty;

Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;

OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;

Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;


37


National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience;

Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view; and

Country Weekly, a weekly magazine that for almost two decades has been the authority on the music and lifestyle of country's biggest stars; CountryWeekly.com is a companion site that focuses on music and news.

Women’s Active Lifestyle Segment

Shape, which provides information on the cutting edge of fitness, nutrition, health, lifestyle and other inspirational topics to help women lead healthier lives and offers extensive beauty, celebrity and fashion coverage; Shape.com, which mirrors the magazine’s editorial point of view, features daily coverage for today’s women in the blog “Shape Your Life” and videos such as “The Victoria’s Secret Core Workout,” Shape cover shoots with celebrities, and exercise tips from celebrity personal trainers;

Fit Pregnancy, which delivers information on health, maternity fashion, food, parenting and fitness to women during pregnancy and the postpartum period; FitPregnancy.com features the content of the magazine and also contains news and updates to guide expectant mothers through each stage of pregnancy; and
  
Natural Health, which offers readers practical information to benefit from the latest advancements in the fields of health, food, beauty, pets, exercise and advice to improve fitness and the environment; NaturalHealthMag.com is a companion site to the magazine that features health blogs, recipe finders, and various videos that focus on the latest news and updates in the wellness category.

Men’s Active Lifestyle Segment

Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;

Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice, and hosts an on-line store for users to buy the products they see on the website;

Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;

Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle and covers training, nutrition, health, beauty and fashion for today's women;

Muscle & Fitness e-commerce, a store selling pre- and post-workout sports nutritional supplements supported by Muscle & Fitness magazine;

Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and

Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France, Italy, Germany, Holland and Australia. Each market edition is in a local language with local content and has its own website.

38


Corporate and Other Segment

This segment includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions. The video content services we provide to Microsoft and the services provided by our former distribution services group to publishing and non-publishing clients, such as placement and monitoring of supermarket racks, marketing and merchandising, are also included in this segment.

Corporate overhead expenses are not allocated to other segments are and included in this segment. This includes corporate executives, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.

Financial Information Regarding Our Operating Segments

The tables below disclose revenue and operating income (loss) for our reportable segments.

We use operating income (loss) as a primary basis for the chief operating decision maker to evaluate the performance of each of our operating segments and present operating income (loss) before impairment of goodwill and intangible assets to provide a consistent and comparable measure of our performance between periods. Management uses operating income (loss) before impairment of goodwill and intangible assets when communicating financial results to the board of directors, stockholders, debt holders and investors as well as when determining performance goals for executive compensation. Management believes this non-GAAP measure, although not a substitute for GAAP, improves comparability. Management also believes our stockholders, debt holders and investors use this measure as a gauge to assess the performance of their investment in the Company.

We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. Our calculations of operating income (loss) herein may be different from the calculations used by other companies, therefore comparability may be limited. The accounting policies for the operating segments are the same as those described in the notes to the financial statements in this Annual Report, specifically Note 2, "Summary of Significant Accounting Policies."

The following table summarizes our total operating revenues by segment:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2014
 
2013
 
2012
 
'14 vs. '13
 
'13 vs. '12
Segment operating revenues:
 
 
 
 
 
 
 
 
 
Celebrity Brands
$
202,580

 
$
215,946

 
$
233,885

 
(6
)%
 
(8
)%
Women's Active Lifestyle
56,875

 
51,892

 
65,072

 
10
 %
 
(20
)%
Men's Active Lifestyle
66,698

 
60,770

 
60,853

 
10
 %
 
 %
Corporate and Other
18,068

 
19,918

 
26,806

 
(9
)%
 
(26
)%
Total operating revenues
$
344,221

 
$
348,526

 
$
386,616

 
(1
)%
 
(10
)%

Total operating revenues decreased $4.3 million, or 1%, during fiscal 2014 primarily due to the 11% decline in the celebrity newsstand market. The decline of revenue in the Corporate and Other segment was primarily due to the divestiture of DSI. This was mostly offset by higher advertising revenues in the Women's and Men's Active Lifestyle segments.

During fiscal 2013, total operating revenues decreased $38.1 million, or 10%, primarily due to reduced advertising spending in the Women’s and Men's Active Lifestyle segments, coupled with a 10% decline in the celebrity newsstand market.
 

39


The following table summarizes the percentage of segment operating revenues:

 
Fiscal years ended March 31,
 
2014
 
2013
 
2012
Segment operating revenues:
 
 
 
 
 
Celebrity Brands
59
%
 
62
%
 
60
%
Women's Active Lifestyle
17
%
 
15
%
 
17
%
Men's Active Lifestyle
19
%
 
17
%
 
16
%
Corporate and Other
5
%
 
6
%
 
7
%
Total
100
%
 
100
%
 
100
%

The following table summarizes our segment operating income (loss) before impairment for goodwill and intangible assets:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2014
 
2013
 
2012
 
'14 vs. '13
 
'13 vs. '12
Operating income (loss) before impairment:
 
 
 
 
 
Celebrity Brands
$
73,276

 
$
75,114

 
$
73,479

 
(2
)%
 
2
 %
Women's Active Lifestyle
6,318

 
4,823

 
12,990

 
31
 %
 
(63
)%
Men's Active Lifestyle
20,968

 
18,163

 
19,847

 
15
 %
 
(8
)%
Corporate and Other
(51,221
)
 
(43,652
)
 
(39,999
)
 
17
 %
 
9
 %
Total operating income before impairment
$
49,341

 
$
54,448

 
$
66,317

 
(9
)%
 
(18
)%
Impairment of goodwill and intangible assets
9,238

 
54,523

 

 
 
 
 
Total operating income (loss)
$
40,103

 
$
(75
)
 
$
66,317

 
 
 
 

Total operating income before impairment decreased $5.1 million, or 9%, during fiscal 2014 primarily due to the lower operating revenues previously mentioned. This was partially offset by lower operating expenses related to the divestiture of DSI and the Management Action Plans.

Total operating income before impairment decreased $11.9 million, or 18%, during fiscal 2013 primarily due to the lower operating revenue previously mentioned. This was partially offset by the planned expense savings pursuant to the Management Action Plans.

The pre-tax non-cash impairment charge for goodwill and intangible assets was $9.2 million and $54.5 million during fiscal 2014 and 2013, respectively. The fiscal 2014 charge of $9.2 million impacted the Men's Active Lifestyle segment tradenames. The fiscal 2013 charge impacted the Celebrity Brands segment goodwill by $42.8 million, the Women's Active Lifestyle segment tradenames by $3.9 million and the Men's Active Lifestyle segment goodwill and tradenames by $7.8 million. The pre-tax non-cash impairment charges were primarily the result of the continuing softness in the U.S. economy, which impacts consumer spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections. See the notes to the consolidated financial statements in this Annual Report, specifically Note 3, "Goodwill and Other Identified Intangible Assets."

Celebrity Brands Segment

The Celebrity Brands segment comprised 59%, 62% and 60% of our total operating revenues for fiscal 2014, 2013 and 2012, respectively.

Operating Revenues

Total operating revenues in the Celebrity Brands segment were $202.6 million for fiscal 2014, representing a decrease of $13.4 million, or 6%, over the comparable prior year period. Circulation revenue decreased $15.9 million which was caused by an 11% decline in the celebrity newsstand market ($11.7 million), coupled with the discontinuance and reduction of special interest publications ($4.2 million). This decline was partially offset by the $2.8 million increase in advertising revenue primarily due to the performance of Star and OK!'s superior marketing programs, content integration and greater efficiencies in reaching our target audience.


40


Total operating revenues in the Celebrity Brands segment were $215.9 million for fiscal 2013 representing a decrease of $17.9 million, or 8%, over the comparable prior year period. Circulation revenue decreased $16.7 million during fiscal 2013, of which $6.3 million was due to the discontinuation of certain titles and $10.4 million was due to the 10% decline in overall newsstand sales for the publishing industry. Advertising revenue declined $6.1 million due to the consumer magazine sector being down 5%, as well as the impact of Superstorm Sandy. These decreases have been partially offset by an increase in operating revenue of $4.9 million during fiscal 2013 as compared to the same period of prior year due to the acquisition of OK! in June 2011.

Operating Income

The Celebrity Brands segment operating income before impairment decreased $1.8 million, or 2%, to $73.3 million during fiscal 2014.
This decline was due to the reasons mentioned above. This was partially offset by our Management Action Plans implemented in fiscal 2013, which reduced expenses by $11.5 million during fiscal 2014.

Operating income before impairment in the Celebrity Brands segment increased during fiscal 2013 from prior year by $1.6 million, or 2%, to $75.1 million, primarily attributable to the planned expense reductions resulting from the implementation of our Management Action Plans.

Women’s Active Lifestyle Segment

The Women’s Active Lifestyle segment represented 17%, 15% and 17% of our consolidated operating revenues for fiscal 2014, 2013 and 2012, respectively.

Operating Revenues

Total operating revenues in the Women’s Active Lifestyle segment were $56.9 million during fiscal 2014, an increase of $5.0 million, or 10%, from prior year. This increase was primarily due to the repositioning of Shape magazine which successfully generated revenue from beauty, fashion and retail advertisers. The $5.7 million increase in advertising revenue over prior year was accomplished with only ten issues of Shape magazine compare to eleven issues published in the prior year. This increase in advertising revenue was partially offset by a $1.0 million decline in circulation revenue due to publishing one less issue of Shape magazine.

Total operating revenues in the Women’s Active Lifestyle segment for fiscal 2013 were $51.9 million, a decrease of $13.2 million, or 20%, from prior year. We reduced the frequency of Shape magazine, to match our competitors' schedules, from 12 times per year to 10 times per year, resulting in one less issue in fiscal 2013, or $4.0 million in operating revenues, which was partially offset by a 205% growth in digital traffic for Shape.com, or $0.9 million in operating revenues. The remaining decrease is due to the consumer ad market being down 7%, caused by a shift of advertisers, such as Procter & Gamble, Coca Cola and Kraft Foods, from print to broadcast for the 2012 Summer Olympics and Superstorm Sandy, which negatively impacted advertising revenue by $10.1 million primarily for Shape magazine.

Operating Income

Operating income before impairment in the Women’s Active Lifestyle segment increased during fiscal 2014 from prior year by $1.5 million to $6.3 million. The operating expenses increased $3.5 million, primarily due to an investment in Shape's book size, which resulted in higher production costs. This was more than offset by the increase in operating revenues discussed above.

Operating income before impairment in the Women’s Active Lifestyle segment decreased during fiscal 2013 from prior year by $8.2 million to $4.8 million. This decrease in operating income was primarily attributable to Shape magazine as described above. This was partially offset by the implementation of our Management Action Plans, which reduced total operating expenses by approximately $5.0 million.

Men’s Active Lifestyle Segment

The Men’s Active Lifestyle segment represented 19%, 17% and 16% of our consolidated operating revenues for fiscal 2014, 2013 and 2012, respectively.


41


Operating Revenues

Total operating revenues in the Men’s Active Lifestyle segment were $66.7 million during fiscal 2014, an increase of $5.9 million, or 10%, from prior year. Advertising revenue increased $5.0 million, which is directly attributable to the relaunch and reposition of Men's Fitness magazine and the related website. In addition, the revenue from the September 2013 Mr. Olympia event increased $1.4 million, or 37%, from prior year. This was partially offset by a $0.9 million decline in circulation revenue.

Total operating revenues in the Men’s Active Lifestyle segment for fiscal 2013 were $60.8 million, a minimal decrease from prior year. Our digital initiatives and the success of the 2012 Mr. Olympia event resulted in an increase in operating revenue of $1.8 million. This was partially offset by the 7% decline in the ad market for consumer magazines which negatively impacted advertising revenue by $1.2 million, coupled with a $0.6 million newsstand shortfall caused by the newsstand industry decline of 10%.

Operating Income

Operating income before impairment in the Men’s Active Lifestyle segment increased during fiscal 2014 from prior year by $2.8 million, or 15%, to $21.0 million. This increase was attributable to higher advertising volume, as discussed above, partially offset by the increase in costs associated with the Mr. Olympia event.

Operating income before impairment in the Men’s Active Lifestyle segment decreased during fiscal 2013 from prior year by $1.7 million, or 8%, to $18.2 million. This decrease was attributable to the $1.6 million increase in operating expenses, primarily due to our investment in digital as we continue to implement our digital strategy.

Corporate and Other Segment

The Corporate and Other segment was 5%, 6% and 7% of our consolidated operating revenues for fiscal 2014, 2013 and 2012, respectively.

Operating Revenues

Total operating revenues in the Corporate and Other segment were $18.1 million during fiscal 2014, a decrease of $1.9 million, or 9%, from prior year. This decrease was due to the $9.8 million decline in revenue due to the DSI divestiture in September 2013, partially offset by $4.8 million from the video projects with Microsoft and $1.7 million in management fees and income from certain joint ventures.

Total operating revenues in the Corporate and Other segment for fiscal 2013 were $19.9 million, a decrease of $6.9 million, or 26%, from prior year. This decline was primarily due to the non-recurring termination fee we received in fiscal 2012 of $1.4 million upon the termination of one of our international licensing agreements. In addition, operating revenue declined due to discontinued titles ($0.5 million) and the inclusion of special issues published during fiscal 2012 in the Corporate and Other segment ($2.0 million). During fiscal 2013, all special issues published have been included in the operating segment of the parent magazine.

Operating Loss

Total operating loss increased by $7.6 million, or 17%, to $51.2 million during fiscal 2014. This increase was attributable to the $1.9 million decline in operating revenue coupled with a $11.5 million increase in operating expenses, primarily for the continued investment in our digital strategy, costs related to launches and closures of publications and other non-recurring expenses coupled with the $3.5 million increase in non-cash depreciation and amortization expense. These increases are partially offset by the $9.3 million decrease in operating expenses related to the DSI divestiture.

Total operating loss increased by $3.7 million, or 9%, to $43.7 million during fiscal 2013. This increase was attributable to the $6.9 million decline in operating revenue partially offset by the $3.4 million reduction in operating expenses primarily due to the implementation of the Management Action Plans.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2014, we had cash and cash equivalents of $3.0 million and a working capital deficit of $21.9 million.

42


Cash Flow Summary

The following information has been derived from the accompanying financial statements for fiscal 2014, 2013 and 2012. Cash and cash equivalents increased by $0.7 million during fiscal 2014 and decreased by $2.9 million during fiscal 2013, respectively. The change in cash and cash equivalents is as follows:
 
 
Fiscal years ended March 31,
 
Net Change
in thousands
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Net (loss) income
 
$
(53,271
)
 
$
(55,545
)
 
$
22,293

 
$
2,274

 
$
(77,838
)
Non-cash items
 
72,434

 
71,229

 
6,570

 
1,205

 
64,659

Net change in operating assets and liabilities
 
(9,382
)
 
(572
)
 
(7,184
)
 
(8,810
)
 
6,612

Operating activities
 
9,781

 
15,112

 
21,679

 
(5,331
)
 
(6,567
)
Investing activities
 
(18,820
)
 
(12,680
)
 
(35,857
)
 
(6,140
)
 
23,177

Financing activities
 
9,509

 
(5,016
)
 
(1,706
)
 
14,525

 
(3,310
)
Effects of exchange rates
 
190

 
(267
)
 
(175
)
 
457

 
(92
)
Net increase (decrease) in cash and cash equivalents
 
$
660

 
$
(2,851
)
 
$
(16,059
)
 
$
3,511

 
$
13,208


Operating Activities

Cash provided by operating activities is primarily driven by our non-cash items, changes in working capital and the impact of our results of operations. Non-cash items consist primarily of provision (benefit) for income taxes, depreciation and amortization, amortization of deferred debt costs and deferred rack costs, provision for doubtful accounts and impairment of goodwill and intangible assets.

Net cash provided by operating activities decreased $5.3 million during fiscal 2014 as compared to fiscal 2013, primarily due to the $8.8 million net change in operating assets and liabilities, partially offset by the $1.2 million net increase in non-cash items coupled with the $2.3 million increase in our results of operations.

The net change in operating assets and liabilities is primarily due to the $12.5 million net change in trade receivables, the $4.7 million net change in prepaid expenses, the $2.2 million net change in other long-term assets and the $1.7 million net change in inventories, partially offset by the net change in accounts payable and accrued expenses of $6.1 million, the net change in other non-current liabilities of $3.6 million and the net change in deferred revenues of $3.3 million.

Non-cash items increased primarily due to the increase in provision for income taxes of $39.3 million, the increase in depreciation and amortization of $4.3 million, the increase in provision for doubtful account of $2.5 million and the increase in non-cash payment-in-kind interest accretion of $1.9 million for the Second Lien PIK Notes, partially offset by the decrease in the impairment charge for goodwill and intangible assets of $45.3 million and the net decrease in amortization of deferred debt and deferred rack costs of $1.5 million.

Net cash provided by operating activities decreased $6.6 million during fiscal 2013 as compared to fiscal 2012, primarily due to the $77.8 million decrease in our results of operations, partially offset by the $64.7 million net increase in non-cash items and the $6.6 million net change in operating assets and liabilities.

Non-cash items increased primarily due to the impairment charges of $54.5 million, the decrease in deferred tax benefits of $11.2 million, the increase in depreciation and amortization expense of $1.4 million and the increase in provision for doubtful accounts of $1.3 million, partially offset by the decrease in amortization of deferred rack and deferred debt costs of $2.4 million and the decrease in other non-cash items of $1.5 million.

The net change in operating assets and liabilities is primarily due to the $10.6 million net change in trade receivables, the $5.4 million net change in deferred rack costs, the $4.2 million net change in inventories and the $1.6 million net change in accrued interest, partially offset by the net change in accounts payable and accrued expenses of $9.4 million and a $5.8 million change in other working capital items. Working capital items have decreased due to the overall decline in operating revenue from the continued softness in the U.S. economy and the decrease in consumer discretionary spending.

43


Investing activities

Net cash used in investing activities was $18.8 million for fiscal 2014, an increase of $6.1 million, compared to $12.7 million of net cash used in investing activities for fiscal 2013. The increase is primarily attributable to the $4.0 million increase in purchases of property and equipment and intangibles assets, coupled with the $2.2 million investment in affiliates. The increase in purchases of intangible assets is due to our continued investment in our digital strategy.

Net cash used in investing activities was $12.7 million and $35.9 million for fiscal 2013 and 2012, respectively. The fluctuation in cash used is primarily attributable to the acquisition of OK! during fiscal 2012, which used $23.0 million in cash.

Financing activities

Net cash provided by financing activities for fiscal 2014 was $9.5 million, an increase of $14.5 million, compared to $5.0 million of net cash used for fiscal 2013. The increase is primarily attributable to the $12.0 million increase in net borrowings under the 2010 Revolving Credit Facility and the $5.8 million decrease in payments to the noncontrolling interest holders of Olympia and Odyssey, partially offset by the $2.3 million increase in redemption payments on the First Lien Notes and the $0.8 million increase in payments for the redemption of Odyssey preferred stock.

Net cash used in financing activities for fiscal 2013 was $5.0 million, an increase of $3.3 million, compared to $1.7 million for fiscal 2012. The increase is primarily attributable to the $13.5 million decrease in proceeds in Odyssey from noncontrolling interest holder, the $8.4 million increase in payments to noncontrolling interest holders of Odyssey and the $2.0 million decrease in net proceeds from the 2010 Revolving Credit Facility. These decreases have been partially offset by $20.6 million decrease in redemption payments on the First Lien Notes.

Merger and Related Transactions

Merger Agreement

On August 15, 2014, AMI entered into the Merger Agreement with the Investors, pursuant to which and subject to the satisfaction or waiver of the conditions described therein, an affiliate of the Investors will merge with and into AMI, with AMI continuing as the surviving entity. Pursuant to the terms and conditions of the Merger Agreement, the Investors will acquire AMI for $2.0 million in cash, payable upon the closing of the Merger. In addition, approximately $513.0 million of outstanding indebtedness will remain in place.

Each of AMI and the Investors has made certain representations and warranties in the Merger Agreement. The Merger Agreement also contains certain covenants and agreements, including, among others, restrictions on the operations of AMI's business prior to the closing of the Merger. The board of directors of AMI may change its recommendation to its stockholders to adopt the Merger Agreement following the occurrence of one or more other intervening events that were not know on the date of the Merger Agreement, and the board of directors of AMI determines in good faith that failure to make a change in its recommendation would be inconsistent with the directors' fiduciary duties under applicable law.

The consummation of the Merger is subject to certain closing conditions, including, among others, (i) the absence of a material adverse effect on AMI and its subsidiaries since the date of the Merger Agreement, (ii) the issuance, sale and purchase of AMI's Second Lien PIK Notes in accordance with the Note Purchase Agreement, (iii) compliance with the drag-along obligations set forth in the Stockholders' Agreement, dated as of December 22, 2010, as amended, among AMI and its stockholders, (iv) the absence of any order that makes the Merger illegal, or that enjoins or otherwise prohibits the closing of the Merger and (v) there are no existing defaults under any of the Debt Documents (as defined in the Merger Agreement) that are continuing after giving effect to all Debt Waivers (as defined in the Merger Agreement).

The Merger Agreement may be terminated under certain circumstances, including, among other, (i) by the Investors or AMI if (A) one or more of the conditions set forth in the Merger Agreement has not been fulfilled as of August 29, 2014, or such later date provided by the Merger Agreement (the “Outside Date”), (B) the required stockholder vote is not obtained or (C) any governmental entity has issued an order restraining, enjoining or otherwise prohibiting the closing of the Merger; (ii) by AMI if all conditions to the Investors’ obligation to consummate the Merger continue to be satisfied, AMI stood ready, willing and able to consummate the Merger, and the Merger has not been consummated within two business days of the Outside Date; and (iii) by the Investors, if the board of directors of AMI changes its recommendation.

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The Merger Agreement provides that if AMI terminates the Merger Agreement under certain circumstances, AMI will be required to pay to the Investors a termination fee equal to $5.0 million plus reimbursement of expenses.

Note Purchase Agreement

In connection with the Merger Agreement, on August 15, 2014, AMI and certain of its subsidiaries (the Guarantors") entered into the Note Purchase Agreement with the Investors.

The Note Purchase Agreement provides, subject to certain conditions, for AMI to issue and sell to the Investors, and the Investors to purchase from AMI, an aggregate principal amount of additional Second Lien PIK Notes (the “Additional Notes”) to be issued under the indenture dated as of October 2, 2013 (as such agreement may be amended, restated or supplemented on the date hereof, the “Second Lien PIK Notes Indenture”), among AMI, the Guarantors and Wilmington Trust, National Association, as trustee and collateral agent (the “Trustee”), such that the aggregate principal amount of the Additional Notes purchased plus the accrued interest thereon from the most recent date to which interest has been paid on the then outstanding Second Lien PIK Notes to the closing date (the “Closing Date”) for the Merger will equal $12.5 million. The Investors will pay $1,000 per $1,000 of principal amount of the Additional Notes to be purchased by the Investors on the Closing Date plus accrued interest thereon from the most recent date to which interest has been paid on the then outstanding Second Lien PIK Notes, for an aggregate purchase price of $12.5 million. The issuance, sale and purchase is expected to close upon the satisfaction of certain closing conditions, concurrently with the Merger. After giving effect to the issuance and assuming a closing date for the Merger of August 15, 2014, approximately $113.3 million in aggregate principal amount of Second Lien PIK Notes will be outstanding.

The Additional Notes will be issued under the Second Lien PIK Notes Indenture and will be treated as a single class under the Second Lien PIK Notes Indenture with, and will be assigned the same CUSIP number as, the outstanding Second Lien PIK Notes. The Additional Notes will be issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

Credit Facility and Long Term Debt

Revolving Credit Facility

In December 2010, we entered into a revolving credit facility maturing in December 2015 (the “2010 Revolving Credit Facility”). The agreement governing the 2010 Revolving Credit Facility provides for borrowing up to $40.0 million, less outstanding letters of credit.

During fiscal 2014, the Company borrowed $95.6 million and repaid $78.6 million under the 2010 Revolving Credit Facility. At March 31, 2014, the Company had available borrowing capacity of $6.6 million after considering the $29.0 million outstanding balance and the $4.4 million outstanding letter of credit. The outstanding balance of the 2010 Revolving Credit Facility on March 31, 2014 of $29.0 million is a non-current liability, as the outstanding balance is not due until December 2015.

Our 2010 Revolving Credit Facility requires mandatory prepayments of the loans outstanding thereunder to the extent that total revolving exposures exceed total revolving commitments. Our 2010 Revolving Credit Facility requires us to pay, from December 22, 2010 until the commitments expire under our 2010 Revolving Credit Facility, a commitment fee ranging from 0.50% to 0.75% of the unused portion of the revolving commitment. We have the option to pay interest on outstanding balances based on (i) a floating base rate option equal to the greatest of (x) the prime rate in effect on such day; (y) the federal funds effective rate in effect on such day plus ½ of 1%; and (z) one month LIBOR (but no less than 2%) plus 1%, or (ii) based on LIBOR, in each case, plus a margin. The interest rate under the 2010 Revolving Credit Facility has ranged from 8.00% to 8.25% during fiscal 2014.

Our 2010 Revolving Credit Facility includes certain representations and warranties, conditions precedent, affirmative covenants, negative covenants and events of default customary for agreements of this type. The negative covenants include a financial maintenance covenant comprised of a first lien leverage ratio calculated using EBITDA as defined in the 2010 Revolving Credit Facility. In August 2014, prior to executing the Merger Agreement and the Note Purchase Agreement, we entered into an amendment to the 2010 Revolving Credit Facility to, among other things amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ended June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment. See "Credit Agreement Amendment" below for additional discussion.

Our 2010 Revolving Credit Facility also contains certain covenants that, subject to certain exceptions, restrict paying dividends, incurring additional indebtedness, creating liens, making acquisitions or other investments, entering into certain mergers or consolidations, prepaying junior debt and selling or disposing of assets.

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The indebtedness under our 2010 Revolving Credit Facility is guaranteed by certain of our domestic subsidiaries and is secured by liens on substantially all our assets. In addition, our obligations are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of our existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of our existing or subsequently acquired or organized foreign subsidiaries. The equity interests of American Media, Inc. have not been pledged to the lenders.

Credit Agreement Amendment

On August 8, 2014, AMI, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the Revolving Credit Agreement, dated as of December 22, 2010 (as amended, restated, modified or supplemented from time to time, the “Credit Agreement”), entered into Amendment No. 3 (the “Credit Agreement Amendment”) to the Credit Agreement with lenders (the “Consenting Lenders”) constituting the Required Lenders (as defined in the Credit Agreement).

Pursuant to the Credit Agreement Amendment and subject to the Credit Parties’ (as defined in the Credit Agreement) compliance with the requirements set forth therein, the Consenting Lenders have agreed to (i) waive until the earlier of (x) August 15, 2014 and (y) immediately prior to the consummation of the Merger, any potential Default or Event of Default (each, as defined in the Credit Agreement) arising from the failure to furnish to the Administrative Agent (A) the financial statements, reports and other documents as required under Section 5.01(a) of the Credit Agreement with respect to the fiscal year of AMI ended March 31, 2014 and (B) the related deliverables required under Sections 5.01(c) and 5.03(b) of the Credit Agreement, (ii) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change in Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture, (iii) consent to the sale of certain assets of the Loan Parties (as defined in the Credit Agreement), (iv) restrict any payment or distribution in respect of the First Lien Notes on or prior to June 15, 2015, subject to certain exceptions, including the payment of regularly scheduled interest and any mandatory prepayments and mandatory offers to purchase under the First Lien Notes, and (v) amend the maximum first lien leverage ratio covenant.

First Lien Notes

In December 2010, we issued $385.0 million aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum, payable semi-annually, and mature in December 2017 (the “First Lien Notes”). During the first quarter of fiscal 2012, we redeemed $20.0 million in aggregate principal amount of the First Lien Notes at a redemption price equal to 103.0% of the aggregate principal amount thereof, plus accrued and unpaid interest.

The total cash interest savings from the December 15, 2013 interest payment on the Second Lien Notes and Second Lien PIK Notes totaled $2.6 million and was used to repurchase approximately $2.3 million in aggregate principal amount of First Lien Notes at a redemption price equal to 108.6% of the aggregate principal amount thereof, plus accrued and unpaid interest on February 28, 2014. At March 31, 2014, the First Lien Notes represented an aggregate of $362.7 million of our indebtedness.

The indenture governing the First Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the First Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the First Lien Notes imposes certain requirements as to future subsidiary guarantors.

The First Lien Notes are guaranteed on a first lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility, the Second Lien Notes and the Second Lien PIK Notes. The First Lien Notes and the guarantees thereof are secured by a first-priority lien on substantially all our assets (subject to certain permitted liens and exceptions), pari passu with the liens granted under our 2010 Revolving Credit Facility, provided that in the event of a foreclosure on the collateral or of insolvency proceedings, obligations under our 2010 Revolving Credit Facility will be repaid in full with proceeds from the collateral prior to the obligations under the First Lien Notes.

See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the First Lien Notes to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change in Control."

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Registration Rights Agreement

In connection with the issuance of the First Lien Notes, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the holders and the guarantors of the First Lien Notes, which, among other things, required the Company to file an exchange offer registration statement with the Securities and Exchange Commission (the “SEC”). Pursuant to the Registration Rights Agreement, the Company was required to offer to exchange (the "Exchange Offer") up to $365.0 million of the 11.5% senior notes due December 2017 (the “Exchange Notes”), which were registered under the Securities Act of 1933, as amended, for up to $365.0 million of our First Lien Notes, which we issued in December 2010. The terms of the Exchange Notes are identical to the terms of the First Lien Notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the First Lien Notes do not apply to the Exchange Notes.

The Company was required to commence the Exchange Offer once the exchange offer registration statement was declared effective by the SEC and use commercially reasonable efforts to complete the Exchange Offer no later than February 24, 2012. Since the Exchange Offer was not completed until November 20, 2012, a registration default occurred and the Company incurred approximately $1.3 million in additional interest on the First Lien Notes during the registration default period. The registration default did not impact our compliance with the indentures governing the First Lien Notes, the Second Lien Notes or the 2010 Revolving Credit Facility.

Second Lien Notes

In December 2010, we issued $104.9 million aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum, payable semi-annually, and mature in June 2018 (the “Second Lien Notes”). In October 2013, we exchanged approximately $94.3 million aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of new second lien senior secured notes, which currently bear interest at a rate of 10% per annum, are payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”). See description of Second Lien PIK Notes below. At March 31, 2014, the Second Lien Notes represented an aggregate of $10.6 million of our indebtedness.

The indenture governing the Second Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the Second Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the Second Lien Notes imposes certain requirements as to future subsidiary guarantors.

The Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility, the First Lien Notes and the Second Lien PIK Notes. The Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).

See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the Second Lien Notes to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change in Control."

Second Lien PIK Notes

In October 2013, we exchanged approximately $94.3 million aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of Second Lien PIK Notes, pursuant to an exchange agreement (the “Exchange Agreement”). The Second Lien PIK Notes were issued under an indenture, by and among American Media, Inc., certain of its subsidiaries listed as guarantors thereto and Wilmington Trust, National Association, as trustee (the “Second Lien PIK Notes Indenture”).


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The Second Lien PIK Notes are payable in kind at a rate of 10% per annum until the earliest of: (a) December 15, 2016, (b) the closing of a refinancing of the First Lien Notes or (c) upon the occurrence of certain specified events of default relating to the application of the cash interest savings and the right of first offer (any such date being the "Cash Interest Rate Conversion Date"), at which point the interest payable on the then outstanding aggregate principal amount of Second Lien PIK Notes will be payable at a cash interest rate of 13.5% per annum until the June 2018 maturity date. Subject to certain exceptions, under the Second Lien PIK Indenture cash interest savings resulting from the exchange of the Second Lien Notes of approximately $6.4 million per each semi-annual interest period must be used by the Company to repurchase First Lien Notes until the Cash Interest Rate Conversion Date. The participating holders (as defined in the Exchange Agreement) have a right of first offer to sell any of their First Lien Notes to the Company before the Company makes repurchases of First Lien Notes from any other holders of the First Lien Notes, including those purchases pursuant to open market repurchases. Pursuant to the Merger Agreement, we have obtained a permanent waiver of our obligation to redeem approximately $12.7 million of First Lien Notes, during fiscal 2015, pursuant to the terms of the Second Lien PIK Notes Indenture and the Exchange Agreement.

The interest payment-in-kind due on December 15, 2013 totaled $1.9 million and was recorded as an increase to the Senior Secured Notes in the accompanying financial statements. At March 31, 2014, the Second Lien PIK Notes represented an aggregate of $96.2 million of our indebtedness. The interest payment-in-kind due on June 15, 2014 totaled $4.8 million and was recorded as an increase to the Second Lien PIK Notes. In connection with the Merger Agreement, we issued approximately $12.3 million aggregate principal amount of additional Second Lien PIK Notes. Currently, the Second Lien PIK Notes represent an aggregate of $113.3 million of our indebtedness.

The indenture governing the Second Lien PIK Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the Second Lien PIK Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the Second Lien PIK Notes imposes certain requirements as to future subsidiary guarantors.

The Second Lien PIK Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility, the First Lien Notes and the Second Lien Notes. The Second Lien PIK Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).

The Exchange Agreement also provides that, should the Company effect a refinancing of the First Lien Notes, under certain circumstances the Company may require additional exchanges at its option. Upon completion of a refinancing of the First Lien Notes, the Company may require (i) the participating holders to exchange up to $55.0 million in aggregate principal amount of the Company’s First Lien Notes for Second Lien PIK Notes or, alternatively, new second lien cash pay notes (the “New Second Lien Cash Pay Notes”) to be issued by the Company at a future date pursuant to the terms of the Exchange Agreement and a new indenture that would govern the New Second Lien Cash Pay Notes (the “Optional First Lien Note Exchange”); and/or (ii) the holders of all Second Lien PIK Notes (including any Second Lien PIK Notes received in the Optional First Lien Note Exchange) to exchange all of their Second Lien PIK Notes for New Second Lien Cash Pay Notes (the "Optional Second Lien Note Exchange"). In the event of the Optional Second Lien Note Exchange, certain of the participating holders may have the right to designate one independent director, in total, to the Board of Directors of the Company under certain conditions.

See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the Second Lien PIK Notes to, among other things, waive AMI's obligation to apply the cash interest savings to repurchase outstanding First Lien Notes and permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change in Control." See also "Exchange Agreement Amendment" below for a discussion of the amendment to the Exchange Agreement.

Supplemental Indentures

On August 15, 2014, AMI announced that it has received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented on the date hereof, the “First Lien Notes Indenture”), among AMI, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented on the date hereof, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among AMI, the Guarantors and the Trustee and (c) $101.0 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the applicable series of notes then outstanding.


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As a result of receiving the requisite consents, on August 15, 2014, AMI and the Trustee entered into (a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”) to the Second Lien PIK Notes Indenture.

The Supplemental Indentures amend the Indentures to (a) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate AMI’s obligation to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.

Exchange Agreement Amendment

On August 15, 2014, AMI and the Guarantors entered into an Amendment (the “Exchange Agreement Amendment”) to the Exchange Agreement, dated as of September 27, 2013, among AMI, the Guarantors and the Investors.

The Exchange Agreement Amendment provides that AMI is not required to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014.

Covenant Compliance

As discussed above, our 2010 Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the Second Lien PIK Notes contain various restrictive covenants. Under our 2010 Revolving Credit Facility, the first lien leverage ratio (Total First Lien Debt to EBITDA, each as defined in our 2010 Revolving Credit Facility) must be equal to or less than 4.50 to 1.00 through March 31, 2014. In August 2014, we entered into an amendment to the 2010 Revolving Credit Facility to, among other things, amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ended June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.

As of March 31, 2014, the first lien leverage ratio was 3.97 to 1.00 and the Company was in compliance with the first lien leverage ratio and the other covenants under the 2010 Revolving Credit Facility and under the indentures governing the First Lien Notes, the Second Lien Notes and the Second Lien PIK Notes.

Although there can be no assurances, we anticipate that, based on current projections (including projected borrowings and repayments under the 2010 Revolving Credit Facility), our operating results for the next twelve months will be sufficient to satisfy the first lien leverage covenant under the 2010 Revolving Credit Facility, as amended. Our ability to satisfy such financial covenant is dependent on our business performing in accordance with our projections.  If the performance of our business deviates from our projections, we may not be able to satisfy such financial covenant.  Our projections are subject to a number of factors, many of which are events beyond our control, which could cause our actual results to differ materially from our projections (see Risk Factors included in Part I, Item 1A of this Annual Report). If we do not comply with our financial covenant, we would be in default under the 2010 Revolving Credit Facility, which could result in all our debt being accelerated due to cross-default provisions in the indentures governing the First Lien Notes, the Second Lien Notes and the Second Lien PIK Notes.

We have the ability to incur additional debt, subject to limitations imposed by our 2010 Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the Second Lien PIK Notes. Under our 2010 Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the Second Lien PIK Notes, in addition to specified permitted indebtedness, we will be able to incur additional indebtedness as long as on a pro forma basis our consolidated leverage ratio is less than 4.50 to 1.00.

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Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

Adjusted EBITDA, a measure we use to gauge our operating performance, is defined as net income (loss) attributable to the Company plus interest expense, provision (benefit) for income taxes, depreciation of property and equipment, amortization of intangible assets, deferred debt costs and deferred rack costs, provision for impairment of intangible assets and goodwill, adjusted for gains or costs related to closures, launches or re-launches of publications, restructuring costs and severance and certain other costs. We believe that the inclusion of Adjusted EBITDA is appropriate to evaluate our operating performance compared to our operating plans and/or prior years and to value prospective acquisitions. We also believe that Adjusted EBITDA is helpful in highlighting trends because Adjusted EBITDA excludes the impact of certain items that can differ significantly from company to company, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.

Management believes our investors use Adjusted EBITDA as a gauge to measure the performance of their investment in the Company. Management compensates for limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone can provide. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to income from continuing operations as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Set forth below is a reconciliation of net (loss) income attributable to American Media, Inc. and subsidiaries to Adjusted EBITDA for fiscal 2014, 2013 and 2012:


 
Fiscal years ended March 31,
in thousands
2014