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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 December 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11112
AMERICAN MEDIA OPERATIONS, INC.
(Exact name of the registrant as specified in its charter)
----------------------------------------------------------
Delaware 59-2094424
(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
600 East Coast Avenue, Lantana, Florida 33464-0002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 540-1000
American Media, Inc. (1) HAS FILED all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months, and (2) HAS BEEN subject to such filing requirements for the past 90
days.
As of February 10, 1999 there were 7,507 shares of common stock outstanding.
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 28, 1998
PAGE(S)
---------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements -
Consolidated Balance Sheets................................... 3
Consolidated Statements of Income............................. 4
Consolidated Statements of Cash Flows......................... 5
Notes to Consolidated Financial Statements.................... 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 8 - 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 12
Signature..................................................... 13
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AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 28 AND MARCH 30, 1998
(IN 000'S, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 28 MARCH 30
----------- ----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,502 $ 7,405
Receivables, net 10,373 7,852
Inventories 11,045 10,390
Prepaid expenses and other 2,882 6,551
--------- ---------
Total current assets 31,802 32,198
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 4,039 4,039
Machinery, fixtures and equipment 21,436 18,447
Display racks 23,699 21,662
--------- ---------
49,174 44,148
Less - accumulated depreciation (19,701) (18,149)
--------- ---------
29,473 25,999
--------- ---------
DEFERRED DEBT COSTS, net 6,065 8,688
--------- ---------
GOODWILL, net of accumulated amortization of $137,806 and $126,440 467,445 478,811
--------- ---------
OTHER INTANGIBLES, net of accumulated amortization of $50,206 and $45,766 97,794 102,234
--------- ---------
$ 632,579 $ 647,930
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of term loan $ 18,750 $ --
Accounts payable 19,433 15,587
Accrued expenses 15,020 14,915
Accrued interest 4,685 12,249
Accrued and current deferred income taxes 7,822 9,775
Deferred revenues 26,817 31,749
--------- ---------
Total current liabilities 92,527 84,275
--------- ---------
PAYABLE TO PARENT COMPANY 3,618 3,728
--------- ---------
LONG TERM DEBT:
Term Loan and Revolving Credit Commitment, net of current portion 273,250 297,401
11.63% Senior Subordinated Notes Due 2004 200,000 200,000
10.38% Senior Subordinated Notes Due 2002 134 134
--------- ---------
473,384 497,535
--------- ---------
DEFERRED INCOME TAXES 7,673 7,919
--------- ---------
CONTINGENCIES (NOTE 6)
STOCKHOLDER'S EQUITY:
Common stock, $.20 par value; 7,507 shares issued and outstanding 2 2
Additional paid-in capital 26,039 26,039
Retained earnings 29,336 28,432
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 55,377 54,473
--------- ---------
$ 632,579 $ 647,930
========= =========
</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
(IN 000'S)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED THREE FISCAL QUARTERS ENDED
---------------------------- ----------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
1998 1997 1998 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Circulation $ 64,572 $ 62,617 $ 189,523 $ 201,886
Advertising 6,190 5,829 16,882 17,798
Other 5,507 5,634 15,778 16,121
--------- --------- --------- ---------
76,269 74,080 222,183 235,805
--------- --------- --------- ---------
OPERATING EXPENSES:
Editorial 7,174 7,255 21,840 23,002
Production 20,250 20,353 60,772 62,159
Distribution, circulation and other cost of sales 16,881 17,020 52,147 50,201
Selling, general and administrative expenses 7,020 6,873 19,782 20,797
Depreciation and amortization 8,186 7,632 23,994 22,571
--------- --------- --------- ---------
59,511 59,133 178,535 178,730
--------- --------- --------- ---------
Operating income 16,758 14,947 43,648 57,075
INTEREST EXPENSE (11,638) (12,444) (35,575) (38,178)
OTHER INCOME (EXPENSE), net (Note 5) (651) 29 3,500 (830)
--------- --------- --------- ---------
Income before provision for income taxes
and extraordinary charge 4,469 2,532 11,573 18,067
PROVISION FOR INCOME TAXES 3,144 2,267 8,508 10,890
--------- --------- --------- ---------
Income before extraordinary charge 1,325 265 3,065 7,177
EXTRAORDINARY CHARGE, net of income taxes of
$1,269, related to early
extinguishment of debt (Note 4) -- -- 2,161 --
--------- --------- --------- ---------
Net income $ 1,325 $ 265 $ 904 $ 7,177
========= ========= ========= =========
</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 THREE FISCAL QUARTERS ENDED DECEMBER 28, 1998 AND DECEMBER 29, 1997
(IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1998 1997
----------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 904 $ 7,177
--------- ---------
Adjustments to reconcile net income to net cash provided from
operating activities -
Extraordinary charge, net of income taxes 2,161 --
Depreciation and amortization 23,994 22,571
Deferred debt cost amortization 1,169 2,053
Senior subordinated discount note accretion -- 190
Decrease (increase) in -
Receivables, net (2,521) 917
Inventories (655) 4,609
Prepaid expenses and other 3,669 (1,255)
Increase (decrease) in -
Accounts payable 3,846 11,638
Accrued expenses (7,580) (4,944)
Accrued and current deferred income taxes (931) (3,850)
Deferred revenues (4,932) (4,770)
--------- ---------
Total adjustments 18,220 27,159
--------- ---------
Net cash provided from operating activities 19,124 34,336
--------- ---------
Capital expenditures representing net cash used in investing activities (11,662) (7,151)
--------- ---------
Cash Flows from Financing Activities:
Term loan and revolving credit commitment principal repayments (353,401) (96,184)
Proceeds from revolving credit commitment 348,000 80,500
Repayment of senior subordinated indebtedness -- (15,962)
Payment of deferred debt costs (1,964) (300)
--------- ---------
Net cash used in financing activities (7,365) (31,946)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 97 (4,761)
Cash and Cash Equivalents at Beginning of Period 7,405 8,230
--------- ---------
Cash and Cash Equivalents at End of Period $ 7,502 $ 3,469
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for -
Income taxes $ 6,588 $ 14,143
Interest 41,970 40,309
</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
DECEMBER 28, 1998
(000'S OMITTED IN ALL TABLES)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Except as
disclosed herein, there has been no material change in the information disclosed
in the notes to consolidated financial statements included in the Annual Report
on Form 10-K of American Media Operations, Inc., (together with its
subsidiaries, the "Company") for the fiscal year ended March 30, 1998. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the fiscal periods ended
December 28, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 29, 1999.
(2) INVENTORIES
Inventories are generally stated at the lower of cost or market. The Company
uses the last-in, first-out (LIFO) cost method of valuing its inventories. If
the first-in, first-out (FIFO) cost method of valuation, which approximates
market value, had been used, inventories would have been greater by $281,000 and
$170,000 than the amounts reported in the accompanying consolidated balance
sheets for December 28 and March 30, 1998, respectively. Inventories are
comprised of the following:
December 28 March 30
------------ ----------
Raw materials - paper $ 7,215 $ 6,573
Finished product - paper, production
and distribution costs of future issues 3,830 3,817
----------- ----------
$11,045 $10,390
=========== ==========
(3) INCOME TAXES
The Company files a consolidated Federal income tax return with its parent
company, American Media, Inc., and calculates its income taxes on a separate
return basis. Income taxes have been provided based upon the Company's
anticipated effective annual income tax rate.
(4) CREDIT AGREEMENT
On June 5, 1998, the Company and a bank syndicate whose agent bank is The Chase
Manhattan Corporation (the "Agent Bank" and, collectively, the "Banks") entered
into an amended and restated credit agreement. The new credit agreement (the
"Credit Agreement") which is comprised of a $250 million term loan commitment
and a $120 million revolving credit commitment provides it with certain
advantages as compared to its prior credit agreement (the "Prior Credit
Agreement", together with the Credit Agreement, the "Credit Agreements")
including an extension of the loan term to March 2004, reduced annual loan
amortization payments and generally more favorable interest rate margins and
loan covenants, among others. As of December 28, 1998 the Company had $292
million in loans under the Credit Agreement of which $42 million was borrowed
under the revolving credit commitment.
As of December 28, 1998 the Company's effective interest rate on borrowings
under the Credit Agreement was 7.0%. The effective rate for borrowings under the
Credit Agreement averaged 7.2% for the fiscal quarter ended December 28, 1998 as
compared to 7.7% on borrowings for the fiscal quarter ended December 29, 1997.
For the three fiscal quarters ended December 28, 1998, the effective rate was
7.6% as compared to 7.8% for the same prior year period.
In connection with the amendment and restatement of the Credit Agreement,
remaining deferred debt costs related to the Prior Credit Agreement totaling
approximately $3.4 million ($2.2 million net of income taxes) were charged
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to extraordinary loss in the fiscal quarter ended June 1998. Costs totaling
approximately $1.9 million incurred in connection with the Credit Agreement have
been deferred and are being amortized to interest expense through March 2004.
(5) OTHER INCOME (EXPENSE), NET
Included in Other Income (Expense), net in the accompanying consolidated
statement of income for the three fiscal quarters ended December 28, 1998 is a
net gain of $4.4 million from the settlement of certain litigation related to a
subsidiary of the Company which ceased operations in fiscal 1997.
(6) LITIGATION
Various suits and claims arising in the ordinary course of business have been
instituted against the Company. The Company has various insurance policies
available to recover potential legal costs incurred by it. The Company
periodically evaluates and assesses the risks and uncertainties associated with
litigation independent from those associated with its potential claim for
recovery from third party insurance carriers. At present, in the opinion of
management, after consultation with legal counsel, the liability resulting from
litigation, if any, will not have a material effect on the Company's
consolidated financial statements.
(7) RECENT PRONOUNCEMENTS
The Company adopted the Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income" effective with the current fiscal year.
SFAS No. 130 defines comprehensive income as a measure of all changes in equity
of an enterprise during a period that result from transactions and other
economic events of the period other than transactions with owners. For all
periods presented comprehensive income is the same as net income.
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivatives, requiring recognition as either
assets or liabilities on the balance sheet and measurement at fair value. The
Company plans to adopt this statement in fiscal 2001. The Company has not yet
determined the effect adoption of this statement will have on the Company's
consolidated financial position, results of operations or cash flows.
(8) SUBSEQUENT EVENT
On February 3, 1999 the Company sold certain of the trademarks and publishing
assets of SOAP OPERA MAGAZINE and SOAP OPERA NEWS to Primedia, Inc. ("Primedia")
for $10 million in cash and the assumption by Primedia of the publications'
deferred subscription liability. The Company may be entitled to receive
additional cash payments from Primedia over the next four years under the terms
of the purchase agreement.
The Company has ceased publication of SOAP OPERA MAGAZINE and SOAP OPERA NEWS
effective with the issues dated February 16, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On June 5, 1998, the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with its bank syndicate consisting of a $250
million term loan and a $120 million revolving credit commitment. The advantages
over its then existing credit agreement (the "Prior Credit Agreement", together
with the Credit Agreement, the "Credit Agreements") include an extension of the
loan term to March 2004, reduced annual loan amortization payments and generally
more favorable interest rate margins and loan covenants, among others.
At December 28, 1998 the Company's outstanding indebtedness under the Credit
Agreement totaled $292 million of which term loan and revolving credit
commitment borrowings were $250 million and $42 million, respectively. For the
three fiscal quarters ended December 28, 1998 the effective interest rate on
borrowings under the Credit Agreements was 7.6%. The Company has entered into a
three-year $100 million notional amount interest rate swap agreement expiring in
November 2000 under which the Company pays a fixed rate of 5.95% and receives
interest based on the three-month LIBOR rate thereby converting $100 million of
the Company's variable rate debt to 5.95% (before considering the additional
applicable interest margin spreads charged under the Credit Agreement).
At December 28, 1998, the Company had cash and cash equivalents of $7.5 million
and a working capital deficit of $60.7 million. The Company does not consider
its working capital deficit to be a true measure of its liquidity position as
its working capital needs typically are met by the large amounts of cash
generated by its business. The Company's primary sources of liquidity are cash
generated from operations and amounts available under the revolving credit
commitment. Any temporary shortfalls in available cash are covered by borrowings
under the Credit Agreement's revolving credit commitment which are reflected as
long-term liabilities. For the three fiscal quarters ended December 28, 1998,
cash provided from operating activities totaling $19.1 million was used
primarily to fund capital expenditures totaling $11.7 million and to reduce
borrowings outstanding under the Credit Agreements totaling $5.4 million. The
relatively high levels of capital expenditures for the current three fiscal
quarters reflects recent spending on SOAP OPERA NEWS display pockets and
replacement and upgrades of the Company's information systems.
Management believes that cash provided by operations will be adequate to meet
its operating liquidity requirements, including all required payments of
principal and interest and is not aware of any commitment which would require
unusual amounts of cash or which would change or otherwise restrict the
Company's currently available capital resources. In addition, the Company does
not intend to pay any cash dividends on its common stock in the foreseeable
future.
RESULTS OF OPERATIONS
OPERATING REVENUES
CIRCULATION REVENUES. Circulation revenues which are comprised of single copy
(or newsstand) and subscription sales increased $1,955,000 or 3.1% and decreased
$12,363,000 or 6.1%, respectively, for the quarter and nine months ended
December 28, 1998 compared to the quarter and nine months ended December 27,
1997. Substantially all of the decrease in circulation revenues for the current
nine month period was related to declines in single copy sales of NATIONAL
ENQUIRER and STAR resulting from adverse publicity associated with the August
1997 death of Princess Diana. Circulation revenues for the current fiscal year
periods were positively impacted by cover price increases for NATIONAL ENQUIRER
and STAR ($.10 to $1.49 on July 7, 1998), SOAP OPERA NEWS ($1.00 to $2.99 on
August 18, 1998) and WEEKLY WORLD NEWS ($.14 to $1.39 on September 1, 1998).
Average weekly single copy sales for NATIONAL ENQUIRER and STAR, excluding sales
estimate revisions, increased by 7.3% and 2.7%, respectively, for the current
quarter as compared to the same prior year quarter. For the nine month period
ended December 28, 1998 average weekly single copy sales for both NATIONAL
ENQUIRER and STAR decreased by 12.5% as compared to the same prior year period
reflecting the negative impact on sales caused by the adverse publicity related
to the death of Princess Diana. While single copy unit sales for these two
publications have improved from the low levels experienced in the months
immediately after her death they have not returned to the prior levels. The
Company is currently testing both fifteen and thirty seconds long
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television commercials in selected markets; preliminary plans are to undertake a
national television advertising campaign during the next fiscal year.
Decreases in average weekly circulation of 25.3% and 13.6% for SOAP OPERA
MAGAZINE and SOAP OPERA NEWS, respectively, in the current quarter as compared
to the same prior year quarter reflects the impact of increased competition in
the soap opera category. For the current and prior year nine month periods,
average weekly circulation declines for SOAP OPERA MAGAZINE and SOAP OPERA NEWS
were 19.9% and 5.4%, respectively. Competition has been impacted primarily by an
increase in the number of weekly publications offered for sale during the past
several years.
COUNTRY WEEKLY'S average weekly circulation decreased 13.3% and 10.4% for the
quarter and nine months ended December 28, 1998, respectively as compared to the
same prior year periods reflecting overall weakness in the category which has
resulted in the recent folding of a competitive title. In order to take
advantage of the opportunity to increase its subscription base COUNTRY WEEKLY
will engage in a direct mail campaign during the fourth fiscal quarter. In
addition, effective with the issue dated March 2, 1999, the publication will
increase to 60 pages from the current 56, upgrade the quality of certain of its
pages as a means of attracting more national advertising and increase its cover
price to $1.99 from $1.79.
Subscription revenues, which represent approximately 16% to 17% of circulation
revenues, remained flat for the current fiscal periods when compared to the same
prior year periods. One method of increasing the subscription bases of the
Company's publications has been to offer discounted subscriptions through an
agent. Recent adverse publicity from litigation initiated by several states
against certain agents has resulted in weaker responses than are typically
expected from the discounted subscription offers. However, because discounted
subscriptions are not profitable until they are renewed at full price, a lower
response rate should have no immediate adverse effect on the Company's result of
operations. It is unknown what the potential long term impact would be on
subscription levels and profitability should response rates remain weak.
ADVERTISING REVENUES. Advertising revenues for the current quarter increased
$361,000 or 6.2% as compared to the same prior year quarter as higher levels of
national advertising in NATIONAL ENQUIRER and STAR more than offset decreases in
classified advertising. Based upon insertion orders received to date for the
quarter ending March 29, 1999 it appears that the more favorable outlook for
national advertising in NATIONAL ENQUIRER and STAR will continue for at least
the remainder of fiscal 1999. For the nine month period ended December 28,1998
advertising revenues decreased by $916,000 or 5.1% as compared to the same prior
year period due primarily to declines in classified advertising and, to a lesser
extent, national advertising in NATIONAL ENQUIRER and STAR.
OPERATING EXPENSES
Total operating expenses for the quarter and the nine month period ended
December 28, 1998 were flat when compared to the same prior year periods.
Editorial costs for current three fiscal quarters decreased by $1,162,000
reflecting cost control efforts of the editorial departments at NATIONAL
ENQUIRER and STAR. Lower production costs of $1,387,000 for the nine months
ended December 28, 1998 as compared to the prior year period resulted primarily
from reduced press runs of SOAP OPERA NEWS; this decrease partially offset an
increase in distribution, circulation and other cost of sales of $1,946,000
related to higher in-store display expenses of which SOAP OPERA NEWS represented
a majority of the increase. Depreciation and amortization expense increased for
the quarter and the nine month period ended December 28, 1998 by $554,000 and
$1,423,000, respectively, compared to the quarter and nine month period ended
December 27, 1997 reflecting depreciation related to additional SOAP OPERA NEWS
display pockets and replacement and upgrades of the Company's information
systems.
NON OPERATING EXPENSES AND EXTRAORDINARY CHARGE
Interest expense decreased for the quarter and the nine month period ended
December 28, 1998 by $806,000 and $2,603,000, respectively, compared to the
quarter and nine month period ended December 27, 1997. These decreases are the
result of reduced average balances of outstanding indebtedness, more favorable
interest rates and lower amounts of deferred debt cost amortization related to
the Credit Agreement.
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Other income was $3,500,000 for the nine month period ended December 28, 1998
compared to expenses of $830,000 for the same prior year period because of a net
gain of $4.4 million from the favorable settlement of certain litigation which
was recorded in the first fiscal quarter.
During the fiscal quarter ended June 1998, the Company recorded an extraordinary
charge totaling approximately $3.4 million ($2.2 million net of income taxes)
related to the charge off of remaining deferred debt costs of the Prior Credit
Agreement.
INCOME TAXES
The effective income tax rates for the quarter and the nine month period ended
December 28, 1998 were 70.4% and 73.5%, respectively, of income before income
taxes as compared to the federal statutory income tax rate of 35%. The higher
effective tax rates result primarily from the effect of goodwill amortization
that is not deductible for income tax reporting purposes. These rates differ
from the effective income tax rates for the quarter and the nine month period
ended December 27, 1997 of 89.5% and 60.3%, respectively, because of changes in
the ratio of non deductible goodwill as a percentage of income before income
taxes.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs that were written
using only two digits, rather than four, to represent a year. Date-sensitive
software or hardware may not be able to distinguish between 1900 and 2000 and
programs that perform arithmetic operations, comparisons or sorting of date
fields may begin yielding incorrect results. This could potentially cause a
system failure or miscalculations that could disrupt operations. To address the
impact of Y2K on its computer programs, embedded chips and significant third
party suppliers the Company has formed a task force led by its information
services department. This task force has taken an inventory of all of the
potential Y2K issues that may exist within the Company and is in the process of
completing its assessment of their impact. Certain key systems of the Company
(e.g. financial applications) have already been identified as Y2K compliant; in
addition, because of the recent replacement of a majority of the Company's
computer hardware there is little likelihood that this equipment is not Y2K
compliant. The Company believes the largest areas of risk for Y2K noncompliance
are its internally developed software applications and the handheld
communication devices used in merchandising. The Company has purchased
specialized software that will allow it to identify and correct Y2K problems
within its software applications and expects to have key applications modified
and tested by June 1999. The task force, along with the information services
department, is currently assessing alternatives related to the handheld
communication devices that include either remediation or replacement with newer
devices that are more technologically capable. The Company plans to migrate to
newer technology that is now available in handheld communications devices in
order to expand the scope and efficiency of its merchandising and information
gathering services. The Company will accelerate the timing of the migration to
the new handheld technology should the cost of remediation of the existing
handhelds prove to be economically prohibitive.
At the present time, the Y2K project is estimated to cost approximately $500,000
and will be funded through cash flows from operations. Approximately $230,000 of
the estimated Y2K costs will relate to hardware and software purchases and will
be capitalized with the remainder being expensed as incurred. Should the
decision be made to replace DSI's handheld devices, the estimate would increase
by approximately $4.1 million with approximately $3.9 million of the related
costs being capitalized. The Company would also fund these purchases using cash
flow from operations.
In addition to assessing the Y2K status of its internal systems, the Company is
communicating with its significant suppliers to obtain reasonable assurance that
their products and business systems will be Y2K compliant. The Company relies on
certain suppliers to deliver a broad range of goods and services, including
prepress operations, printing services, paper, wholesale distribution, mailings
and banking services. Although the Company has taken, and will continue to take,
reasonable efforts to gather information to determine and verify the readiness
of products and dependencies, there can be no assurances that reliable
information will be offered or otherwise available.
At present, the Company believes its technology systems will be Y2K compliant
and that the Y2K issue will not present a materially adverse risk to the
Company's future results of operations, financial position or cash flow.
However, there may be isolated incidences of non-compliance for which the
Company plans to allocate internal
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resources and retain dedicated consultants should this occur. In addition, there
is the risk that a significant supplier may not be Y2K compliant. In order to
mitigate the effects of a significant suppliers' potential failure to remediate
the Y2K issue in a timely manner the Company would take appropriate actions
including arranging for alternate suppliers, re-running processes if errors
occur, and using manual intervention to ensure the continuation of operations
where necessary. Should this happen, it may result in significant delays in
business operations including, but not limited to, delays in delivery of
products resulting in loss of revenue, increased operating costs, loss of
customers or suppliers, or other significant disruptions to the Company's
business which could have a material adverse effect on the Company's future
results of operations, financial position or cash flow.
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 5) changes in
economic climate, including interest rate risk and 6) potential adverse effects
of unresolved Year 2000 problems including external key suppliers.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the fiscal quarter ended December 28, 1998, the Company filed no reports
on Form 8-K.
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SIGNATURE
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: February 10, 1999 By /s/ PETER A. NELSON
----------------------
Peter A. Nelson
Executive Vice President
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN MEDIA OPERATIONS, INC. FOR THE FISCAL QUARTER
ENDED DECEMBER 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1999
<PERIOD-START> MAR-31-1998
<PERIOD-END> DEC-28-1998
<CASH> 7,502
<SECURITIES> 0
<RECEIVABLES> 10,373
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<PP&E> 49,174
<DEPRECIATION> 19,701
<TOTAL-ASSETS> 632,579
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0
0
<COMMON> 2
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<SALES> 222,183
<TOTAL-REVENUES> 222,183
<CGS> 178,535
<TOTAL-COSTS> 178,535
<OTHER-EXPENSES> (3,500)
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<INCOME-PRETAX> 11,573
<INCOME-TAX> 8,508
<INCOME-CONTINUING> 3,065
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<EXTRAORDINARY> 2,161
<CHANGES> 0
<NET-INCOME> 904
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
