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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11112
AMERICAN MEDIA OPERATIONS, INC.
(Exact Name Of The Registrant As Specified In Its Charter)
Delaware 59-2094424
State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
600 East Coast Avenue, Lantana, Florida 33464-0002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 540-1000
American Media Operations, Inc. (1) HAS FILED all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) HAS BEEN subject to such filing requirements for
the past 90 days.
As of August 7, 1997 there were 7,507 shares of common stock outstanding.
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
INDEX TO FORM 10Q
JUNE 30, 1997
PAGES(S)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements -
Consolidated Balance Sheets........................................ 3
Consolidated Statements of Income.................................. 4
Consolidated Statements of Cash Flows.............................. 5
Notes to Consolidated Financial Statements......................... 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 10
Signature.......................................................... 11
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30 AND MARCH 31, 1997
(IN 000'S, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
---------------- ---------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,135 $ 8,230
Receivables, net 6,446 8,191
Inventories 13,220 13,391
Prepaid expenses and other 3,016 2,626
--------------- ---------------
Total current assets 28,817 32,438
--------------- ---------------
DUE FROM PARENT COMPANY 780 1,048
--------------- ---------------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 4,039 4,039
Machinery, fixtures and equipment 17,077 16,159
Display racks 18,561 18,854
--------------- ---------------
39,677 39,052
Less - accumulated depreciation (15,470) (14,819)
--------------- ---------------
24,207 24,233
--------------- ---------------
DEFERRED DEBT COSTS, net 10,313 11,011
--------------- ---------------
GOODWILL, net of accumulated amortization of $115,074 and $111,285 490,177 493,966
--------------- ---------------
OTHER INTANGIBLES, net of accumulated amortization of $41,326 and $39,846 106,674 108,154
--------------- ---------------
$660,968 $670,850
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of term loan $ 43,355 $ 43,355
10.09% Zero Coupon Notes Due 1997 -- 15,772
Accounts payable 13,164 14,167
Accrued expenses 17,421 18,119
Accrued interest 3,287 10,037
Accrued and current deferred income taxes 14,243 11,022
Deferred revenues 28,001 32,348
--------------- ---------------
Total current liabilities 119,471 144,820
--------------- ---------------
LONG TERM DEBT:
Term Loan and Revolving Credit Commitment, net of current portion 281,401 269,401
11.63% Senior Subordinated Notes Due 2004 200,000 200,000
10.38% Senior Subordinated Notes Due 2002 134 134
--------------- ---------------
481,535 469,535
--------------- ---------------
DEFERRED INCOME TAXES 7,955 8,038
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDER'S EQUITY:
Common stock, $.20 par value; 7,507 shares issued and outstanding 2 2
Additional paid-in capital 26,039 26,039
Retained earnings 25,966 22,416
--------------- ---------------
TOTAL STOCKHOLDER'S EQUITY 52,007 48,457
--------------- ---------------
$660,968 $670,850
=============== ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL QUARTERS ENDED JUNE 30, 1997 AND JULY 1, 1996
(IN 000'S)
<TABLE>
<CAPTION>
JUNE 30, JULY 1,
1997 1996
----------------- ---------------
(13 Weeks) (14 Weeks)
<S> <C> <C>
OPERATING REVENUES:
Circulation $71,033 $69,123
Advertising 6,137 7,059
Other 4,946 3,667
---------------- ---------------
82,116 79,849
---------------- ---------------
OPERATING EXPENSES:
Editorial 7,877 7,026
Production 21,008 22,628
Distribution, circulation and other cost of sales 17,053 14,797
Selling, general and administrative expenses 6,937 6,843
Television advertising 468 406
Depreciation and amortization 7,450 7,193
---------------- ---------------
60,793 58,893
---------------- ---------------
Operating income 21,323 20,956
INTEREST EXPENSE (13,022) (15,175)
OTHER EXPENSE, net (298) (431)
---------------- ---------------
Income before provision for income taxes 8,003 5,350
PROVISION FOR INCOME TAXES 4,453 3,514
---------------- ---------------
Net income $3,550 $ 1,836
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</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL QUARTERS ENDED JUNE 30, 1997 AND JULY 1, 1996
(IN 000'S)
<TABLE>
<CAPTION>
JUNE 30, JULY 1,
1997 1996
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(13 Weeks) (14 Weeks)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $3,550 $ 1,836
--------------- ---------------
Adjustments to reconcile net income to net cash provided from operating
activities -
Depreciation and amortization 7,450 7,193
Deferred debt cost amortization 698 811
Senior subordinated discount note accretion 190 382
Decrease (increase) in -
Receivables, net 2,013 495
Inventories 171 986
Prepaid expenses and other (390) 976
Increase (decrease) in -
Accounts payable (1,003) (4,390)
Accrued expenses (7,448) (3,690)
Accrued and current deferred income taxes 3,138 2,136
Deferred revenues (4,347) (4,662)
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Total adjustments 472 237
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Net cash provided from operating activities 4,022 2,073
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Capital expenditures representing net cash used in investing activities (2,155) (1,968)
--------------- ---------------
Cash Flows from Financing Activities:
Term loan and revolving credit commitment principal repayments (24,000) (22,107)
Proceeds from revolving credit commitment 36,000 22,000
Repayment of senior subordinated indebtedness (15,962) --
--------------- ---------------
Net cash used in financing activities (3,962) (107)
--------------- ---------------
Net Decrease in Cash and Cash Equivalents (2,095) (2)
Cash and Cash Equivalents at Beginning of Period 8,230 4,643
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 6,135 $ 4,641
=============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for -
Income taxes $1,120 $130
Interest 18,884 17,946
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(000'S OMITTED IN ALL TABLES)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted financial principles for interim financial
information and with the instructions to Form 10-Q. Except as disclosed herein,
there has been no material change in the information disclosed in the notes to
consolidated financial statements included in the Annual Report on Form 10-K of
American Media Operations, Inc., (together with its wholly-owned subsidiaries,
the "Company") for the fiscal year ended March 31, 1997. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the fiscal quarter ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ending March 30, 1998.
The fiscal quarter ended June 30, 1997 includes 13 weeks as compared to 14
weeks in the same prior year quarter which ended July 1, 1996.
(2) ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS
On occasion the Company enters into interest rate swap agreements and purchases
interest rate caps to reduce the interest rate exposure associated with a
portion of its variable rate indebtedness. The Company does not utilize
derivative financial instruments for trading or other speculative purposes. The
accounting policy for these derivative financial instruments, which are
designated as hedges of its interest rate risk, follows -
* Interest rate swap - Interest rate swap agreements modify the interest
characteristics of the Company's variable rate indebtedness by synthetically
converting a portion of the indebtedness to fixed rate. Interest earned
(payable) under the interest rate swap is credited (charged) to interest expense
using the accrual method. The related accrued receivable or payable is included
in accounts receivable or accrued interest payable. The fair market value of the
swap agreement is not reflected in the financial statements.
* Interest rate cap - Interest rate caps are used to limit the maximum rate
should interest rates rise. The cost of the interest rate cap is amortized to
interest expense using the straight-line method over the life of the cap.
Amounts receivable under the interest rate cap are credited against interest
expense using the accrual method. The unamortized cost of the interest rate cap
is included in deferred debt costs.
Derivative financial instruments terminated at a gain (loss) prior to maturity
are credited (charged) to interest expense over the remaining original life of
the derivative financial instrument.
(3) INVENTORIES
Inventories are generally stated at the lower of cost or market. The Company
uses the last-in, first-out (LIFO) cost method of valuing its inventories. If
the first-in, first-out (FIFO) cost method of valuation, which approximates
market value, had been used, inventories would have been approximately $222,000
and $810,000 lower, due to recent declines in paper costs, than the amounts
reported in the accompanying consolidated balance sheets for June 30 and March
31, 1997, respectively. Paper inventory is stated in accordance with generally
accepted accounting
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principles at LIFO cost as the use of such inventory would result in normal
historical gross margins. Inventories are comprised of the following:
June 30 March 31
------- --------
Raw materials - paper $9,209 $9,477
Finished product - paper, production
and distribution costs of future issues 4,011 3,914
------- -------
13,220 $13,391
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(4) INCOME TAXES
The Company files a consolidated Federal income tax return with its parent
company, American Media, Inc., and calculates its income taxes on a seperate
return basis. Income taxes have been provided based upon the Company's
anticipated annual income tax rate.
(5) CREDIT AGREEMENT
As of June 30, 1997 the Company had $324.8 million in loans outstanding with its
bank syndicate led by The Chase Manhattan Corporation, as agent bank, (the
"Credit Agreement"). As of June 30, 1997, borrowings of $20,000,000 were
outstanding under the Credit Agreement's $75 million revolving credit
commitment.
As of June 30, 1997 the Company's effective interest rate on borrowings under
the Credit Agreement was 7.7%. The effective rate for borrowings under the
Credit Agreement averaged 7.8% for the fiscal quarter ended June 30, 1997 as
compared to 7.9% on borrowings for the fiscal quarter ended July 1, 1996.
(6) LITIGATION
Various suits and claims arising in the ordinary course of business have been
instituted against the Company. The Company has various insurance policies
available to recover potential legal costs incurred by it. The Company
periodically evaluates and assesses the risks and uncertainties associated with
litigation independent from those associated with its potential claim for
recovery from third party insurance carriers. At present, in the opinion of
management, after consultation with legal counsel, the liability resulting from
litigation, if any, will not have a material effect on the Company's
consolidated financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $6.1 million
compared to $8.2 million at March 31, 1997. The Company's primary sources of
liquidity are cash generated from operations and amounts available under the
Company's revolving credit commitment.
As of June 30, 1997, the Company had a working capital deficit of $90.7 million.
The Company does not consider its large working capital deficit as a true
measure of its liquidity position as its working capital needs are met by the
large amounts of cash generated by its business as well as amounts available
under the Credit Agreement's $75 million revolving credit commitment. A
substantial portion of the Company's cash is used to service its indebtedness,
including the payment of principal and interest. Temporary shortfalls in
available cash are covered by borrowings under the revolving credit commitment
which are reflected as long-term liabilities.
Management believes that cash provided by operations will be adequate to meet
its operating liquidity requirements, including all required payments of
principal and interest and is not aware of any commitment which would require
unusual amounts of cash or which would change or otherwise restrict the
Company's currently available capital resources. In addition, the Company does
not intend to pay any cash dividends on its common stock in the foreseeable
future. As of June 30, 1997, $55.0 million was available under the Credit
Agreement's revolving credit commitment.
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED JUNE 30, 1997 VS FISCAL QUARTER ENDED JULY 1, 1996. Total
revenues were $82,116,000 for the current fiscal quarter (which includes 13
weeks as compared to 14 weeks in the prior year quarter), an increase of
$2,267,000 or 2.8% from the same prior year quarter.
Circulation revenues (which includes all single copy and subscription sales) of
$71,033,000 increased $1,910,000 or 2.8% from the comparable prior year quarter.
On an equivalent number of weeks basis, current quarter circulation revenues
increased by $6,847,000 or 10.7% attributable primarily to a 4.4% increase in
NATIONAL ENQUIRER'S average weekly single copy unit sales combined with a July
1996 $.10 cover price increase as well as the revenues contributed by the
Company's newest publication, SOAP OPERA NEWS, launched in March. Revenues
contributed by the Company's other publications were unchanged when compared to
the same prior year period as cover price increases largely offset declines in
average weekly single copy unit sales of 6.7%, 6.8% and 5.7% for STAR, WEEKLY
WORLD NEWS and SOAP OPERA MAGAZINE, respectively. COUNTRY WEEKLY'S average
weekly single copy unit sales were flat for these same periods. Management
believes the declines in average weekly single copy unit sales for STAR, which
is more celebrity focused than NATIONAL ENQUIRER, is due to the increased
attention given celebrity news by all forms of media.
Subscription revenues, which represent approximately 15% of total circulation
revenues, increased $861,000 or 8.7% on an equivalent number of weeks basis due
largely to increases in average weekly subscription unit sales of 70% and 56%
for SOAP OPERA MAGAZINE and COUNTRY WEEKLY, respectively. The Company continues
to promote discounted subscriptions for these magazines as a means of generating
future full-price subscription renewals. Average weekly subscription unit sales
of NATIONAL ENQUIRER and STAR rose 7.4% and 8.9%, respectively, as compared to
the same prior year period reflecting, in large part, the timing of certain
discounted subscription offers.
Advertising revenues of $6,137,000 decreased $922,000 compared to same prior
year quarter. On an equivalent number of weeks basis, advertising revenues
decreased by approximately $418,000 or 6.4% primarily reflecting lower levels of
national advertising in NATIONAL ENQUIRER and STAR. National advertising has
been adversely affected primarily by the loss of tobacco related product
advertising; declines in tobacco advertising is expected to continue for the
foreseeable future. Advertising revenues were also negatively impacted, to a
lesser extent, by reductions in the average revenue per page generated by direct
mail order advertising in the current period.
Other revenues of $4,946,000 increased $1,279,000 or 34.9% over the comparable
prior year period as the Company's subsidiary, Distribution Services, Inc.
("DSI"), continues to expand the marketing, merchandising and information
gathering services it provides to various clients. In addition, the current year
quarter reflects the
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revenues generated by another subsidiary, Frontline Marketing, Inc.
("Frontline"), which sells in-store advertising to various product manufacturers
and service providers.
Operating expenses for the current fiscal quarter on an equivalent number of
weeks basis (after deducting depreciation and amortization) increased by
$5,536,000 or 11.1% reflecting the expenses associated with both SOAP OPERA NEWS
and Frontline which were not included in the comparable prior year period as
well as higher expenses associated with DSI's expanded marketing, merchandising
and information gathering services. Despite the addition of production costs
associated with SOAP OPERA NEWS, overall production costs on an equivalent
number of weeks basis was unchanged reflecting the benefit of lower paper costs
for all of the Company's publications.
Interest expense decreased $2,153,000 in the current fiscal quarter to
$13,022,000 from $15,175,000 in the comparable prior year period reflecting the
effect of one fewer week's interest and decreases in the average balance of
outstanding indebtedness in the current fiscal quarter.
The Company's effective income tax rates were 55.6% and 65.7% of income before
income taxes for the fiscal quarters ended June 30, 1997 and July 1, 1996,
respectively, as compared to the federal statutory income tax rate of 35%. The
higher effective tax rates result primarily from goodwill amortization which is
not deductible for income tax reporting purposes.
INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q may include forward-looking
statements which reflect the Company's views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from both historical or anticipated results and readers are cautioned not to
place undue reliance upon them. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Factors that, among others, could cause
actual results to differ materially from historical results or those anticipated
include: 1) market conditions for the Company's publications 2) competition 3)
market prices for the paper used in printing the Company's publications 4) the
Company's ability to develop new publications and services and 5) changes in
economic climate, including interest rate risk.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Financial Data Schedule (for S.E.C. use only).
During the fiscal quarter ended June 30, 1997, the Company filed no reports on
Form 8-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed by the
undersigned, thereto duly authorized.
AMERICAN MEDIA OPERATIONS, INC.
Registrant
Date: August 12, 1997
By /s/ RICHARD W. PICKERT
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Richard W. Pickert
Senior Vice President
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN MEDIA OPERATIONS, INC. FOR THE THREE MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,135
<SECURITIES> 0
<RECEIVABLES> 6,446
<ALLOWANCES> 0
<INVENTORY> 13,220
<CURRENT-ASSETS> 28,817
<PP&E> 39,677
<DEPRECIATION> 15,470
<TOTAL-ASSETS> 660,968
<CURRENT-LIABILITIES> 119,471
<BONDS> 481,535
0
0
<COMMON> 2
<OTHER-SE> 52,005
<TOTAL-LIABILITY-AND-EQUITY> 660,968
<SALES> 82,116
<TOTAL-REVENUES> 82,116
<CGS> 60,793
<TOTAL-COSTS> 60,793
<OTHER-EXPENSES> 298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,022
<INCOME-PRETAX> 8,003
<INCOME-TAX> 4,453
<INCOME-CONTINUING> 3,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,550
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
