<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
FORM 10-K
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10784
</TABLE>
---------------------
AMERICAN MEDIA, INC.
(Exact Name of the Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 65-0203383
(State or other jurisdiction of (IRS Employee
incorporation or organization) Identification No.)
600 EAST COAST AVENUE, LANTANA, FLORIDA 33464-0002
(Address of principal executive offices) (Zip Code)
</TABLE>
---------------------
Registrant's telephone number, including area code (561) 540-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Class A Common Stock, $.01 Par Value New York Stock Exchange, Inc.
</TABLE>
---------------------
Securities registered pursuant to Section 12(g) of the Act: None
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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained to the
best of the 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. [ ]
The aggregate market value of the voting stock held by non-affiliates was
$131,429,000, based on the closing market price on the New York Stock Exchange
Composite Tape on June 19, 1998 and determined by subtracting from the number of
shares of Class A Common Stock outstanding on that date, the number of shares of
Class A Common Stock held by directors, officers and the partnerships which in
the aggregate have a majority of the of the combined voting power of all classes
of American Media, Inc.'s outstanding common stock.
As of June 19, 1998 there were 21,780,423 shares of Class A Common Stock
and 20,702,005 shares of Class C Common Stock outstanding.
---------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Part III -- Portions of Registrant's Proxy Statement relating to the 1998
Annual Meeting of Stockholders to be held on August 12, 1998.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION AND OVERVIEW
American Media, Inc. ("Media") operates through its subsidiaries as a
leading publisher in the field of personality journalism. American Media
Operations, Inc., ("Operations") a wholly-owned subsidiary of Media (together,
the "Company"), conducts all of the Company's business operations and owns
substantially all of the Company's assets including the capital stock of its
subsidiaries. Operations, through its subsidiaries, publishes National Enquirer,
Star, Weekly World News, Soap Opera Magazine, Country Weekly and Soap Opera
News, with a current aggregate weekly circulation in excess of 5 million copies.
National Enquirer and Star have the second and third largest single copy
circulation, respectively, of any weekly periodical. The Company derives over
85% of its revenues from circulation, predominantly single copy sales in
supermarkets and other retail outlets, and the remainder from advertising and
other sources. Operations' subsidiary, Distribution Services, Inc. ("DSI"),
markets the Company's periodicals, as well as those of its client publishers, in
approximately 175,000 locations in the United States and Canada, representing,
in the opinion of management, virtually complete coverage of traditional
periodical distribution outlets. In addition, DSI provides merchandising and
information gathering services for non-publisher third parties.
The Company's management strategy is to enhance revenues by raising the
cover prices of its publications, expanding advertising sales and introducing
new products while at the same time reducing costs through measures such as
increasing printing and distribution efficiencies and consolidating support
functions. The Company has explored and continues to explore selected
acquisition opportunities in areas related to its existing businesses. Any
significant acquisitions would be subject to the covenants contained in the
credit agreement dated June 5, 1998 among Operations, certain banks named
therein (the "Banks") including The Chase Manhattan Bank, as Agent bank, (as
amended from time to time, the "Credit Agreement") and indenture (the
"Indenture") relating to the Company's 11 5/8% Senior Subordinated Notes due
2004. See Notes 5 and 6 of Notes to Consolidated Financial Statements.
The Company's business also includes licensing of its trademarks and
copyrighted materials for television and video programming as well as
syndicating its published material. The registered trademarks owned by the
Company include "National Enquirer", a "Star" design, "Weekly World News," "Soap
Opera Magazine", "Country Weekly", "The Untold Story" and "Enquiring Minds Want
to Know". The Company has pending a trademark for "Soap Opera News". The Company
considers its trademarks important to its business.
Media was incorporated under the laws of Delaware in 1990. Operations was
incorporated under the laws of Delaware in 1981. The headquarters and principal
executive offices for both Media and Operations are located at 600 East Coast
Avenue, Lantana, Florida 33464-0002 and the telephone number is (561) 540-1000.
THE PUBLICATIONS
The Company currently publishes six weekly periodicals:
- National Enquirer, whose predecessors date back to 1926, is a general
interest, tabloid format weekly periodical with an editorial content
devoted to celebrity features, human interest stories and service articles
covering topics such as health, food and household affairs.
- Star, which commenced publication in 1974, is a celebrity news-driven
weekly periodical with a strong emphasis on news of television performers
and the lives of the rich and famous. Star complements this focus with
human interest stories of ordinary people thrust into the limelight by
extraordinary circumstances. Issues also include a variety of service
features, such as food, fashion, health, fitness and parenting.
- Weekly World News, which commenced publication in 1979, is a black and
white tabloid devoted to entertaining and unusual stories. The editorial
content of Weekly World News is derived principally from rewritten stories
and purchased photographs from agencies and periodicals around the world.
1
<PAGE> 3
- Soap Opera Magazine, which commenced publication in 1991, is a weekly
publication that provides in-depth coverage of the ten network daytime
soap opera programs including summaries of current story lines, exclusive
interviews and extensive photo coverage of soap opera stars.
- Country Weekly, launched in April 1994, presents all aspects of country
music, lifestyles, events and personalities.
- Soap Opera News, the Company's newest magazine having been launched in
March 1997, is a weekly digest-sized publication covering all aspects of
daytime television's soap opera programming including news, features and
behind the scene stories about the shows and stars.
The following table provides current information reflecting a typical
weekly issue for each of the publications:
<TABLE>
<CAPTION>
NEWSSTAND PRICE PER COPY FULL PRICE
NUMBER OF NUMBER OF % EDITORIAL ------------------------- SUBSCRIPTION
PAGES COLOR PAGES TEXT UNITED STATES CANADA US$ PER COPY
--------- ----------- ----------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
National Enquirer...... 48 30 70% $1.39 $1.69 $0.92
Star................... 48 30 78 1.39 1.69 0.92
Weekly World News...... 48 n/a 76 1.25 1.39 0.67
Soap Opera Magazine.... 52 52 86 1.79 1.99 0.92
Country Weekly......... 60 60 86 1.79 2.09 0.89
Soap Opera News........ 132 132 95 1.99 2.49 0.96
</TABLE>
The Company has announced cover price increases for National Enquirer and
Star to $1.49 and $1.79 for the United States and Canada, respectively,
beginning with the issues dated July 7, 1998.
Each of the publications, excluding Soap Opera News, periodically publishes
expanded issues in place of its regular weekly issue. Depending on the
publication, expanded issues typically include 24 to 32 additional pages with
domestic cover prices of $2.49 for National Enquirer, Star, Soap Opera Magazine
and Country Weekly and $1.95 for Weekly World News. Expanded issues may include
an additional focus on particular topics of interest such as fashion, horoscope,
artist awards, important celebrities and unusual occurrences in addition to the
standard editorial content of a regular weekly issue. A table showing the number
of expanded issues for the past three fiscal years follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
National Enquirer........................................... 4 4 --
Star........................................................ 4 4 1
Weekly World News........................................... 3 5 3
Soap Opera Magazine......................................... 6 4 1
Country Weekly.............................................. 6 4 4
</TABLE>
The Company also publishes pocket-sized books under the name Micro Mags
covering such topics as diets, horoscopes, health and psychic phenomena, among
others. Eight releases are published annually, each with 4 titles, at a current
cover price of $1.49.
OVERSEAS DISTRIBUTION AND FOREIGN OPERATIONS
The Company distributes both weekly and special issues of National Enquirer
and Weekly World News in the United Kingdom, Europe and, to a minor extent,
Asia. For fiscal 1998, combined average weekly foreign circulation (excluding
Canada) was approximately 156,000 copies as compared to 137,000 in fiscal 1997.
The revenues, operating profit and identifiable assets attributable to those
markets are not material for any of the last three fiscal years.
CIRCULATION REVENUES
The Company's publications derive a major portion of their revenues from
circulation, as opposed to advertising. More than 85% of the Company's total
consolidated revenue is derived from circulation.
2
<PAGE> 4
Approximately 84% of its circulation revenue is generated by single copy sales
and the remainder by subscription sales.
Circulation Strategy and Pricing. The Company's strategy is to optimize
circulation revenues and operating cash flow, as opposed to the unit sales of
its publications. The Company believes that the single copy and subscription
sales of its publications are not materially sensitive to moderate, periodic
price increases, and that there is flexibility to increase both the cover and
subscription prices. This belief is based on the price/circulation history of
the publications and the pricing history of competing publications relative to
the pricing history of the Company's titles.
Circulation Trends. The following table sets forth average weekly single
copy and total unit sales of the Company's publications for the past three
fiscal years (in thousands).
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
SINGLE SINGLE SINGLE
COPY TOTAL COPY TOTAL COPY TOTAL
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
National Enquirer.................................... 1,932 2,391 2,104 2,543 2,150 2,604
Star................................................. 1,618 1,983 1,858 2,212 2,025 2,397
Weekly World News.................................... 356 377 409 431 438 459
Soap Opera Magazine.................................. 217 304 268 330 240 284
Country Weekly....................................... 202 416 219 389 215 333
Soap Opera News...................................... 146 163 n/a n/a n/a n/a
</TABLE>
Canadian sales during fiscal 1998 represented less than 10% of each
publication's average weekly unit sales.
Management believes declines in single copy circulation of National
Enquirer and Star resulted in part from increased competition from other
publications and forms of media such as television and radio programs
concentrating more heavily on celebrity news. Fiscal 1998 single copy
circulation declines for National Enquirer and Star also resulted from the
adverse publicity and related distribution interruptions that occurred
subsequent to the death of Princess Diana and have yet to recover to levels
realized prior to the accident. While recent trends indicate that single copy
sales are improving from the low levels following the Princess Diana tragedy,
management is unable to determine if sales will return to prior levels or if
there will be any long-term effect on overall circulation. In addition, the
strategy of optimizing circulation revenues and operating cash flows as opposed
to maximizing unit sales may have contributed to declines in circulation of the
Company's publications.
All of the Company's publications are sold with full return privileges.
Copies not sold are returned to the wholesalers for destruction. The Company
periodically audits the return procedures of its wholesalers.
Subscriptions. Sales of subscriptions, which represent less than 15% of
total consolidated revenues, are comprised primarily of the more profitable
direct-to-publisher sales. This is consistent with the Company's strategy of
optimizing subscription revenues and profitability as opposed to subscription
unit sales. On a regular basis however, the Company also offers agency-sold
discounted subscriptions when it believes that such sales will result in
economically beneficial levels of full-price renewal subscriptions. All of the
Company's publications except Weekly World News offer agency-sold subscriptions.
3
<PAGE> 5
Renewal rates for the Company's publications (exclusive of subscriptions
sold by direct mail agents) were 81% for National Enquirer, 79% for Star, 63%
for Weekly World News, 62% for Soap Opera Magazine and 67% for Country Weekly
for subscriptions which expired during the first six months of the 1997 calendar
year. Average weekly subscription unit sales for the past three fiscal years
were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
National Enquirer........................................... 459 439 454
Star........................................................ 365 354 372
Weekly World News........................................... 21 22 21
Soap Opera Magazine......................................... 87 62 44
Country Weekly.............................................. 214 170 118
Soap Opera News............................................. 17 n/a n/a
</TABLE>
Each of the Company's publications sells both paid-in-advance and billed
subscriptions for 52-week periods. Subscriptions of 16 to 26 weeks, depending
upon the publication, are also available. Renewals are promoted through a series
of mailings and, in some cases, a telephone call to the subscriber. In addition,
subscriptions may be promoted through ads in sister publications. Subscription
copies are delivered as second class mail and fulfillment is performed by an
unaffiliated company which charges a fee for its services.
ADVERTISING REVENUES
Advertising revenues in the Company's publications comprise approximately
8% of total consolidated revenues. To solicit advertising for its publications,
the Company maintains sales offices in New York City, Chicago, Los Angeles,
Nashville and Lantana. The following table shows advertising revenues by
publication for the past three fiscal years (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
National Enquirer........................................... $12.6 $13.5 $13.0
Star........................................................ 7.0 7.6 7.8
Weekly World News........................................... 1.2 1.4 1.2
Soap Opera Magazine......................................... 0.7 0.5 0.4
Country Weekly.............................................. 2.0 1.3 0.9
Soap Opera News............................................. 0.1 n/a n/a
----- ----- -----
$23.6 $24.3 $23.3
===== ===== =====
</TABLE>
The following table sets forth advertising revenues by category and as a
percent of total advertising revenues for the past five fiscal years (dollars in
millions):
<TABLE>
<CAPTION>
TOTAL NATIONAL MAIL ORDER CLASSIFIED
ADVERTISING ---------- ----------- ----------
REVENUE $ % $ % $ %
----------- ---- --- ----- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1998..................................... $23.6 $9.2 39% $11.7 50% $2.7 11%
1997..................................... 24.3 9.9 41 11.1 46 3.3 13
1996..................................... 23.3 8.9 38 11.1 48 3.3 14
1995..................................... 27.0 8.9 33 15.0 56 3.1 11
1994..................................... 25.9 9.0 35 13.8 53 3.1 12
</TABLE>
OTHER REVENUES
The Company's other revenues comprise approximately 7% of total
consolidated revenues and include revenues from marketing, merchandising and
information gathering services provided by DSI to third party clients, in-store
advertising revenues generated by Frontline Marketing, Inc. ("Frontline"), an
80% owned subsidiary and, to a lesser extent, revenues from the syndication of
photographs and stories appearing in the Company's publications and sales of
ancillary products.
4
<PAGE> 6
DSI has contractual agreements to provide various marketing services to
third-party clients in the publishing industry, including Hachette Filipacchi
Magazines, Inc., which publishes Woman's Day, Woman's Day Specials, Elle, and
Mirabella; Hearst Magazines, which publishes Cosmopolitan, Good Housekeeping,
Redbook, Country Living, Harper's Bazaar, House Beautiful, Marie Claire and
Victoria; Gruner + Jahr USA/ Publishing, which publishes McCalls, Family Circle,
Family Circle Specials, Fitness, Parents, Child and YM; Wenner Media, Inc.,
which publishes US Magazine and Rolling Stone Magazine; Rodale Press, Inc.,
which publishes Prevention and Prevention Guides; and Newsweek, Inc., which
publishes Newsweek.
In addition, DSI provides merchandising and information gathering services
to various major packaged-products companies, retailers and other marketers. DSI
has equipped its field force with hand-held computer terminals in order to
enhance the timeliness and accuracy of its information gathering services.
Management believes DSI has significant potential for further expansion.
Frontline sells advertising space to various product manufacturers and
other national advertisers on signage it owns at the checkout counters in about
5,100 grocery stores and considers itself as a premier in-store advertising
vehicle for new products and front-end brands. Frontline is responsible for
maintaining the signage consisting of an elevated light display and pays the
retailer a commission on advertising sales. DSI performs a majority of
Frontline's field service work and Company management believes there may be
additional benefits from offering Frontline's in-store advertising in
combination with national advertising sales in the Company's publications.
EDITORIAL OPERATIONS
The editorial departments of the publications are independent operating
entities and have different reporting structures. The editorial groups for
National Enquirer, Weekly World News and Country Weekly are based in Lantana,
Florida, while editorial offices for Star, Soap Opera Magazine and Soap Opera
News are based in Tarrytown, New York.
The editorial news gathering operations of National Enquirer are conducted
by 6 article editors who, together with their staff reporters in Lantana and Los
Angeles, are responsible for developing stories. Under the supervision of an
Editor, Executive Editor and Managing Editor, the stories flow from the articles
editors to the writers and layout desks. A separate photo department is
responsible for obtaining the pictures to be placed in the publication.
The full time staff of approximately 80 is complemented by a network of
more than 1,000 freelance reporters and other contributors who serve as story
idea sources, information sources, reporters and photographers. Stories are
rewritten in National Enquirer style by a highly skilled team of writers. In
addition, National Enquirer has a separate research department consisting of
eight employees, whose function is to provide fact checking for stories and to
assist the editorial staff with original research.
Star's reporters, based in Los Angeles, Washington and New York and on
assignment, report to a central news editor who is flanked by a photo editor
with a worldwide network of photographers. The news and photo desks channel
stories and pictures to the Executive Editor and the Editor-in-Chief, who decide
on direction, scale and placement, and then brief the production team,
consisting of the art desk and the copy desk.
Star's editorial staff consists of approximately 60 full-time employees and
a freelance and editorial contributor network of approximately 150 persons. Fact
checking for Star is accomplished by the editorial desks and a separate library
staff assists with research for various stories.
The editorial staffs of Weekly World News, Soap Opera Magazine, Country
Weekly and Soap Opera News are comprised of approximately 14, 21, 25 and 23
persons, respectively, managed by each publication's editor.
5
<PAGE> 7
In addition to its editorial staff, each publication pays outside sources
for story ideas, for information regarding "breaking stories" that is proved to
be genuine and for exclusive stories regarding celebrities. The Company also
pays free-lance photographers and free-lance reporters for their investigative
journalism. Multiple sources as well as documentation are sought for all stories
that are potentially controversial or subject to dispute. In addition, the
Company retains special libel counsel to review, prior to publication, sensitive
stories and celebrity news and photos. Before publishing book excerpts, the
Company generally obtains indemnification from the publisher, author and/or
agent concerning publication rights and defamation.
Each of the Company's publications uses graphic display computers to
configure story layouts while editors determine the final text and perform a
last review for accuracy. Once finalized, the completed issues are digitally
transmitted to printing plants for printing.
PRODUCTION AND RAW MATERIALS
An unrelated third party performs most of the prepress operations for the
Company's publications and is responsible for transmitting them electronically
to independent printing plants. All of the publications are printed utilizing
the rotogravure printing process. The Company has a long-term printing agreement
with an unrelated domestic printer to print National Enquirer and Star through
December 2010. See Note 11 of Notes to Consolidated Financial Statements. This
same printer also prints all of the Company's other publications except for
National Enquirer's United Kingdom edition and Micro Mags which are printed by
other unrelated printers. Once printed, the copies are transported by truck to
over 200 wholesalers in the United States and Canada who deliver the requisite
number of copies to more than 175,000 retail sales locations. The Company
believes its relationships with its printing companies are favorable and that
there are printing facilities available elsewhere, should the need arise. For
fiscal 1998 the average weekly press runs of the Company's publications were as
follows (in thousands): National Enquirer -- 4,604; Star -- 4,092; Weekly World
News -- 1,106; Soap Opera Magazine -- 803; Country Weekly -- 833 and Soap Opera
News -- 783.
The principal raw materials utilized by the Company's publications are
paper and ink. Paper is purchased directly by the Company from several suppliers
based upon pricing and, to a lesser extent, availability. Ink utilized by the
Company's publications is supplied by the printers from at least two different
ink suppliers. Both paper and ink are commodity products with pricing affected
by demand, capacity and economic conditions. The Company believes that adequate
sources of supply are, and will continue to be, available to fulfill its
requirements.
In 1995 and 1996, the effects of increased worldwide demand for paper
products and the limited manufacturing capacity at paper mills resulted in
relatively significant paper price volatility for the Company, as well as other
publishers. For example, the Company's average paper costs increased
approximately 40% from the beginning of fiscal 1995 to the end of fiscal 1996.
In response to these higher costs, the Company undertook several measures to
reduce paper consumption including lowering the print orders of its publications
and reducing both the number of pages and trim sizes of certain of its
publications. These efforts combined with declines in paper costs resulted in a
decrease in the Company's paper costs beginning in fiscal 1997. Although it is
not possible to accurately forecast the future prices of paper, Company
management believes prices in the near future will not exhibit the levels of
volatility experienced several years ago; however, any significant future
increases in paper prices could have an adverse impact on the Company's
operating results. From time to time the Company enters into short-term
agreements with paper suppliers to fix the costs of its purchases as a means of
partially mitigating its near term exposure to paper price increases. The
Company is assessing the merits of using the recently emerging longer-term
newsprint hedging contracts which are being offered in the marketplace by
private institutions.
MARKETING, MERCHANDISING AND DISTRIBUTION
DSI, consisting of more than 180 full time and 1,600 part time personnel,
is responsible for marketing the Company's publications, as well as those of its
client publishers, in racks at checkout counters in over 175,000 locations in
the United States and Canada. DSI covers virtually all traditional periodical
distribution outlets. Management believes that DSI's national coverage and
marketing skills are one of the key factors that contribute significantly to
sales of the Company's publications.
6
<PAGE> 8
Each week, the merchandising staff of DSI are routed to review product
positions and reposition and restock racks of its clients, including the
Company's publications, at the checkout counters in more than 17,000 of the
highest volume supermarkets, mass merchandisers and other retail outlets in the
United States and Canada. DSI is not responsible for the physical delivery of
the newsstand copies of the Company's publications or those of its clients which
is performed by wholesalers or, in some cases, by direct delivery to the
retailer which then places the copies on the appropriate racks.
DSI also acts as category captain in the design of rack displays in
consultation with retailers and publishers, for approximately 40% of all
checkout racks programs initiated annually in the United States and Canada.
Although DSI receives no monetary compensation for serving in this capacity, it
competes with other companies to serve the retail community. Coordinating the
design and magazine placement of racks enables the Company to obtain favorable
positions for its publications which management believes is important in
determining its sales volume. Publishers who are allocated space on a rack enter
into contracts directly with the store owner for the payment of retail display
allowances or other charges with respect to that space. Currently, the Company
has more than $21 million invested in racks.
COMPETITION
The Company's publications compete in varying degrees with other
publications focusing on personality journalism and other forms of media
concentrating on celebrity news, including daily newspapers and television and
radio programs. The Company believes that its most direct competitors are Time
Warner, Inc. (which publishes People and Entertainment Weekly), Wenner Media,
Inc. (which publishes US Magazine), News America Publishing Incorporated (which
publishes TV Guide), Globe Communications Corp. (which publishes Globe, Sun and
National Examiner), Primedia Inc. (which publishes Soap Opera Digest and Soap
Opera Weekly), Bauer Publishing (which publishes Soap Opera Update and Soaps In
Depth) and Meredith Corp. (which publishes Country America). Competition for
circulation is largely based upon the content of the publication, its placement
in supermarkets and other retail outlets and, to a lesser extent, its price.
Competition for advertising dollars is largely based upon circulation levels,
readership, demographics, price and advertiser results. DSI competes with many
other companies at various marketing and distribution levels, such as
full-service national distributors, wholesalers, and publishers who have their
own marketing organizations. Many of the Company's competitors have
substantially larger operating staffs and greater capital resources than the
Company.
7
<PAGE> 9
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers and
their positions with the Company. Executive officers of the Company do not have
a specific term of office but rather serve at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE POSITION
----------------- --- --------
<S> <C> <C>
Peter J. Callahan.................. 56 Chairman, President, Chief Executive Officer and Director
Michael J. Boylan.................. 51 Vice Chairman, Publishing Operations and Director
Maynard Rabinowitz................. 56 Vice Chairman, Finance, Administration and Legal Affairs,
Secretary and Director
Anthony J. Bolland................. 44 Vice President and Director
Roy F. Coppedge, III............... 50 Vice President and Director
Richard W. Pickert................. 57 Senior Vice President and Chief Financial Officer
John Cocce......................... 52 Senior Vice President, Manufacturing
Anthony S. Hoyt.................... 59 Senior Vice President, Publisher, National Enquirer and
Star
Patrick M. Linskey................. 62 Executive Vice President, Corporate Marketing, National
Enquirer, Inc.
Larry Roos......................... 33 Senior Vice President, Chief Information Officer
Harold E. Clontz................... 50 Vice President and Editor, Weekly World News
Peter A. Nelson.................... 42 Vice President, Controller and Chief Accounting Officer
Susan Napolitano................... 44 Vice President, Human Resources
Richard E. Smith................... 62 Vice President, Circulation
Robert Cornella.................... 51 Vice President, Manufacturing
Michael R. Roscoe.................. 51 President and Chief Executive Officer, DSI
</TABLE>
Mr. Callahan joined the Company in 1989 and has held his present position
with Media since 1990. Mr. Callahan is also the owner, with others, of companies
publishing approximately 50 magazines, including general interest magazines and
trade publications. The companies include Macfadden Publishing, Inc., The
Sterling/Macfadden Partnership and Macfadden Trade Publishing LLC (collectively,
the "Macfadden Companies"). Mr. Callahan has been a director of Media since 1990
and Operations since 1989.
Mr. Boylan joined the Company in 1989 and has held his present position
with Media since 1990. Mr. Boylan is also a part owner of certain of the
Macfadden Companies. Mr. Boylan has been a director of Media since 1990 and
Operations since 1989.
Mr. Rabinowitz joined the Company in 1989 and has held his present position
with Media since 1990. Mr. Rabinowitz is also a part owner of certain of the
Macfadden Companies. Mr. Rabinowitz has been a director of Media since 1990 and
Operations since 1989.
Mr. Bolland joined the Company in 1989 and has held his present position
with Media since 1990. Since 1983, Mr. Bolland has been a partner of Boston
Ventures Company Limited Partnership III and its predecessors, the general
partner of Boston Ventures Limited Partnership III and Boston Ventures Limited
Partnership IIIA (together, "Boston Ventures"). Boston Ventures together with
its affiliates have made 44 investments totaling $1.1 billion, predominantly in
the media and communications industries. Mr. Bolland has been a director of
Media since 1990 and of Operations since 1989.
Mr. Coppedge joined the Company in 1989 and has held his present position
with Media since 1990. Since 1983, Mr. Coppedge has been a partner of Boston
Ventures Company Limited Partnership III. Mr. Coppedge has been a director of
Media since 1990 and of Operations since 1989.
8
<PAGE> 10
Mr. Pickert joined the Company in 1986 as Vice President, Financial
Operations and Treasurer and has been Senior Vice President and Chief Financial
Officer since February 1995.
Mr. Cocce joined the Company in 1992 as Production Manager and became
Senior Vice President, Manufacturing in February 1995.
Mr. Hoyt joined the Company in April 1995 as Senior Vice President,
Publisher National Enquirer and Star. Prior to joining the Company, Mr. Hoyt was
employed by Hearst Corporation for 11 years where he held the position of
Publisher of Cosmopolitan since July 1993.
Mr. Linskey joined the National Enquirer as Publisher in 1987 and has held
his present position since 1991.
Mr. Roos joined the Company in September 1997 as Senior Vice President,
Chief Information Officer. Prior to joining the Company, Mr. Roos was employed
by Burger King's Purchasing company, Restaurant Services, Inc. for 5 years where
he held the position of Vice President, MIS & Logistics and Chief Information
Officer.
Mr. Clontz joined Weekly World News in 1981 and has held his present
position as Vice President since 1990.
Mr. Nelson joined the Company in 1989 as Controller and has been Vice
President, Controller and Chief Accounting Officer since February 1995.
Ms. Napolitano has been employed by the Company for 18 years and has been
Vice President, Human Resources since 1991.
Mr. Smith joined the Company in 1991 and has served as Vice President,
Circulation since 1992.
Mr. Cornella has been employed by the Company for 17 years and was promoted
to Vice President, Manufacturing in February 1995. Prior to his promotion, Mr.
Cornella held the position of Production Manager since 1979.
Mr. Roscoe joined the Company in 1984 and was promoted to President, DSI in
1986. In December 1995 Mr. Roscoe was promoted to the position of President and
Chief Executive Officer, DSI.
EMPLOYEE RELATIONS
The Company employs approximately 550 persons full-time and 1,550
part-time, of whom about 1,800 work for DSI. None of the Company's employees is
represented by any union or other labor organization. There have been no strikes
or work stoppages against the Company during the last five years. The Company
believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company owns its headquarters buildings which are located in Lantana,
Florida. The premises, which also houses the editorial staffs of National
Enquirer, Weekly World News and Country Weekly, consist of three one-story
buildings with an aggregate of 33,700 square feet located on approximately 7.6
acres. All Company owned property is subject to a mortgage as security to the
Banks under the Credit Agreement.
The Company also leases 18,800 square feet in Tarrytown, New York for the
editorial staffs of Star, Soap Opera Magazine and Soap Opera News, 8,200 square
feet in New York, New York for advertising personnel and 10,300 square feet in
West Palm Beach, Florida for DSI. Various other smaller properties are leased
primarily in New York and California for certain of the Company's other
operations. The Company believes that all of its properties are in generally
good condition and are adequate for current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of litigation matters which have arisen
in the ordinary course of business. Although the plaintiffs in some of the
Company's legal proceedings are alleging damages in excess of
9
<PAGE> 11
10% of the Company's current assets, the Company does not believe that these
lawsuits are material, either singly or in the aggregate. Because the focus of
the Company's publications on personality journalism often involves
controversial celebrities or subjects, the risk of libel litigation arises in
the ordinary course of the Company's business. In addition, the Company's
experience suggests that the claims for damages made in such lawsuits are
heavily inflated and, in any event, any reasonably foreseeable liability or
settlement in excess of policy deductibles would be covered by insurance. At May
8, 1998, the Company was a defendant in 6 libel-based lawsuits. In the opinion
of the Company, the outcome of these proceedings will not have a material
adverse impact on the Company's consolidated financial position or results of
operations. During the five fiscal years ended March 30, 1998, the Company paid
approximately $20.8 million in the aggregate for legal fees (including
prepublication review and litigation), libel insurance premiums and
libel-related settlements, including amounts covered by insurance payments. The
Company has not experienced any difficulty obtaining libel insurance and does
not expect to experience any material difficulty in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's Security Holders
during the fourth quarter of the fiscal year ended March 30, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock, $.01 par value (the "Class A Stock") is
listed on the New York Stock Exchange ("NYSE") under the symbol ENQ. The
following table sets forth the high and low sales prices per share for each
fiscal quarter for the two fiscal years ended March 30, 1998, as reported on the
NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL 1998 ---- ---
<S> <C> <C>
Fourth Quarter (from December 30, 1997 to March 30, 1998)... $ 7 13/16 $ 6 11/16
Third Quarter (from September 30, 1997 to December 29,
1997)..................................................... 8 11/16 7 1/8
Second Quarter (from July 1, 1997 to September 29, 1997).... 9 6 3/4
First Quarter (from April 1, 1997 to June 30, 1997)......... 7 5 1/2
FISCAL 1997
Fourth Quarter (from December 31, 1996 to March 31, 1997)... 6 5 3/8
Third Quarter (from October 1, 1996 to December 30, 1996)... 6 1/8 5
Second Quarter (from July 2, 1996 to September 30, 1996).... 5 7/8 4 1/2
First Quarter (from March 26, 1996 to July 1, 1996)......... 5 1/4 2 7/8
</TABLE>
Media's authorized common stock consists of three classes, Class A Common
Stock, $.01 par value (the "Class A Stock"), Class B Common Stock, $.01 par
value (the "Class B Stock") and Class C Common Stock, $.01 par value (the "Class
C Stock") (collectively, the "Common Stock"), which are substantially identical
except as to voting and conversion rights. Class A Stock has one vote per share
on all matters, Class B Stock, none of which is outstanding, has one vote per
share on all matters other than the election of directors, and Class C Stock has
three votes per share on all matters. The Class B and Class C Stock are
convertible into Class A Stock on a share-for-share basis at any time at the
option of the holder. All of the outstanding shares of the Class C Stock, which
is held by PEMIMA, L.P. (a Delaware limited partnership controlled by Messrs.
Callahan, Boylan and Rabinowitz whose only asset is Class C Common Stock) and
Boston Ventures will automatically convert into Class A Stock upon any transfer
to a Non-Affiliate (as defined in Media's Certificate of Incorporation).
10
<PAGE> 12
Pursuant to a Stockholders, Registration Rights and Voting Agreement among
PEMIMA, L.P., as successor, and Boston Ventures, dated April 8, 1993 (as amended
from time to time), PEMIMA, L.P. and Boston Ventures have agreed to vote their
respective shares of Class A Stock and Class C Stock in concert with respect to
certain matters including the election of the Board of Directors of Media. In
addition, PEMIMA, L.P. and Boston Ventures have agreed to vote in concert with
respect to a merger or consolidation, sale or other disposition, liquidation or
dissolution and any amendment of the certificate of incorporation or bylaws of
Media which would have an adverse effect on any of the parties.
As of May 20, 1998 there were approximately 230 shareholders of record of
the Class A Stock. Since PEMIMA, L.P. and Boston Ventures hold all of the
outstanding shares of the Class C Stock and collectively own approximately 75.2%
of the combined voting power of outstanding Media Common Stock they can, in
general, determine the outcome of any matter submitted to the stockholders for
approval.
For the three fiscal years ended March 30, 1998 Media has paid no dividends
and will pay no cash dividends on its common stock in the foreseeable future.
Instead it will use cash generated from operating results primarily to make
principal and interest payments on its indebtedness. In addition, the payment of
future cash dividends may be dependent upon the availability of cash dividends
from Operations, currently the Company's only material source of cash.
Operations' ability to pay cash dividends, if any, is restricted under the terms
of its indebtedness, particularly the Credit Agreement which limits aggregate
dividend payments and requires the maintenance of certain financial ratios
including operating cash flow and debt coverage ratios.
11
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for each of the five fiscal years in the period
ended March 30, 1998 below have been derived from the consolidated financial
statements of the Company, which have been audited by independent certified
public accountants. The following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Company's Consolidated Financial Statements and
Notes thereto and other financial information appearing elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
MARCH 30, MARCH 31, MARCH 25, MARCH 27, MARCH 28,
1998 1997(1) 1996 1995 1994
--------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating Revenues..................... $307,684 $315,988 $295,050 $315,299 $300,035
Operating Expenses(2).................. 237,724 229,398 229,283 230,954 214,142
-------- -------- -------- -------- --------
Operating Income....................... 69,960 86,590 65,767 84,345 85,893
Interest Expense....................... (50,486) (56,284) (56,715) (35,885) (28,721)
Other Expense, Net..................... (1,790) (1,855) (1,345) (1,559) (3,343)
-------- -------- -------- -------- --------
Income before Income Taxes and
Extraordinary Charge................. 17,684 28,451 7,707 46,901 53,829
Income Taxes........................... 12,152 16,440 8,714 23,490 26,016
-------- -------- -------- -------- --------
Income (Loss) before Extraordinary
Charge............................... 5,532 12,011 (1,007) 23,411 27,813
Extraordinary Charge(3)................ -- -- -- (11,635) --
-------- -------- -------- -------- --------
Net Income (Loss)...................... $ 5,532 $ 12,011 $ (1,007) $ 11,776 $ 27,813
======== ======== ======== ======== ========
Basic and Diluted Earnings (Loss) per
Share:(4)
Before Extraordinary Charge.......... $ 0.13 $ 0.29 $ (0.02) $ 0.56 $ 0.67
Net Income (Loss).................... 0.13 0.29 (0.02) 0.28 0.67
Cash Dividends per Share of Common
Stock(5)............................. -- -- -- 7.10 0.20
BALANCE SHEET DATA:
Cash and Cash Equivalents.............. $ 7,405 $ 8,230 $ 4,643 $ 6,297 $ 7,596
Total Assets........................... 648,060 669,894 686,920 711,410 729,865
Total Debt(6).......................... 497,535 528,662 558,906 579,844 322,199
Total Stockholders' Equity(5).......... 58,338 47,781 35,976 37,016 321,331
OTHER DATA:
Depreciation........................... $ 9,252 $ 8,145 $ 7,303 $ 6,546 $ 5,843
Amortization of Intangibles............ 21,075 21,075 23,075 28,504 28,278
Noncash Interest Expense(7)............ 2,812 4,644 4,425 9,080 11,005
Capital Expenditures................... 11,018 8,526 9,072 8,307 7,724
</TABLE>
- ---------------
(1) Fiscal 1997 includes 53 weeks as compared to 52 weeks for all other fiscal
years presented.
(2) Data include television advertising expense of $1,062, $1,217, $6,296,
$9,441, and $16,093 for fiscal years 1998, 1997, 1996, 1995, and 1994,
respectively.
(3) Consists primarily of the write-off of deferred debt costs and charges
relating to refinancing of the Company's indebtedness in November 1994.
(4) Reflects the adoption of SFAS No. 128, "Earnings per Share" which had no
effect on previously reported earnings per share data.
(5) Reflects fiscal 1995 payment of a special dividend of $7 per share totaling
$292,250.
(6) Increase in total debt in fiscal 1995 reflects the November 1994 refinancing
of the Company's indebtedness in connection with the payment of a special
dividend.
(7) Noncash interest expense represents accretion of discount interest on 10.09%
Zero Coupon Notes Due 1997 and amortization of deferred debt costs.
12
<PAGE> 14
ITEM 7. 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 (see Note 5 of
Notes to Consolidated Financial Statements). The advantages over its then
existing credit agreement (the "Prior Credit Agreement") 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 March 30, 1998 the Company's outstanding indebtedness totaled $497.5 million
of which $261.4 million represented borrowings under the Prior Credit
Agreement's term loan and $36.0 million under the Prior Credit Agreement's
revolving credit commitment.
The effective interest rate under the Prior Credit Agreement's term loan
and revolving credit commitment was 7.8% for fiscal 1998. Effective November
1997 the Company entered into a three-year $100 million notional amount interest
rate swap agreement under which the Company will pay a fixed rate of 5.95% and
receive interest based on the three-month LIBOR rate. This swap agreement in
combination with a similar $100 million notional amount interest rate swap
agreement which expired in May 1998 effectively converted $200 million of the
Company's variable rate debt under the Prior Credit Agreement to a fixed rate of
6.12% (before considering the additional interest margin charged by the bank
syndicate predicated upon cash flow levels) through May 1998.
At March 30, 1998, the Company had cash and cash equivalents of $7.4
million and a working capital deficit of $51.9 million. The Company does not
consider its working capital deficit as 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, amounts available under the revolving credit
commitment and, to a lesser extent, proceeds from the sale of the Company's
common stock. Any temporary shortfalls in available cash are covered by
borrowings under the revolving credit commitment which are reflected as
long-term liabilities. For fiscal 1998 net cash provided from operating
activities totaling $36.8 million was used primarily to make payments of
principal on the Company's indebtedness totaling $31.3 million.
Management believes that cash provided by operations will be adequate to
meet its operating liquidity requirements, including all required payments of
principal and interest and is not aware of any commitment which would require
unusual amounts of cash or which would change or otherwise restrict the
Company's currently available capital resources. In addition, the Company does
not intend to pay any cash dividends on its common stock in the foreseeable
future.
RESULTS OF OPERATIONS
Fiscal 1998 vs Fiscal 1997. Total revenues were $307,684,000 for fiscal
1998 (which includes 52 weeks as compared to 53 weeks in fiscal 1997), a
decrease of $8,304,000 or 2.6% from total revenues of $315,988,000 in the prior
fiscal year.
Circulation revenues (which includes all single copy and subscription
sales) of $262,249,000 decreased $11,318,000 or 4.1% from the prior year. On an
equivalent number of weeks basis, current period single copy circulation
revenues fell by approximately $6,156,000 or 2.3% as revenues generated by Soap
Opera News, which published only one issue in the prior fiscal year, were unable
to offset circulation revenue declines for National Enquirer and Star.
In fiscal 1998, primarily as a result of adverse publicity resulting from
the August 1997 death of Princess Diana, National Enquirer and Star average
weekly single copy circulation declined by 8.2% and 12.9%, respectively, when
compared to the prior fiscal year. Management believes that Star, which is more
celebrity focused than National Enquirer, was also impacted to a greater extent
by competition from other forms of media covering celebrity news. Revenues from
per copy cover price increases of $.10 in July 1996 helped to offset a portion
of the circulation declines for these publications. Soap Opera Magazine's
average weekly
13
<PAGE> 15
circulation continues to reflect the impact of increased competition in the soap
opera category as unit sales declined 8.0%. Country Weekly's average weekly
circulation increased 6.9% as higher subscription levels more than offset a
decline in average weekly unit sales of 7.5%. A Weekly World News cover price
increase helped to reduce the impact on circulation revenues of a 13.0% decline
in single copy unit sales.
Subscription revenues of $42,440,000 in fiscal 1998 increased $2,570,000 or
6.4%. Expressed on an equivalent number of weeks basis, subscription revenues
increased by approximately $3,322,000 or 8.5% due largely to increases in
average weekly subscription unit sales of 25.8%, 4.7% and 38.9% for Country
Weekly, National Enquirer and Soap Opera Magazine, respectively, as well as
subscriptions generated by Soap Opera News.
Advertising revenues of $23,643,000 declined $637,000 or 2.6% compared to
fiscal 1997; on an equivalent number of weeks basis, advertising revenues were
flat. During fiscal 1998 lower levels of national advertising in National
Enquirer and Star were partially offset by higher national advertising revenues
generated by Country Weekly. National advertising, particularly in National
Enquirer and Star, has been adversely affected by the loss of tobacco related
product advertising. Management believes that the tobacco industry, as a whole,
has curtailed its print media based advertising because of a lack of clear
legislative guidelines that will address the future of tobacco products
advertising in the United States. Until this issue is resolved, the Company's
tobacco related advertising revenues may continue to be adversely affected.
Advertising revenues were also negatively impacted by reductions in the average
revenue per page generated by direct mail order and classified advertising.
Other revenues of $21,792,000 increased $3,651,000 or 20.1% over fiscal
1997 reflecting revenues generated by Frontline, acquired in September 1996,
which sells in-store advertising to various product manufacturers and service
providers and, to a lesser extent, DSI, which continues to expand the marketing,
merchandising and information gathering services it provides to various clients.
Operating expenses on an equivalent number of weeks basis (excluding
depreciation and amortization) increased by $10,996,000 or 5.6% over fiscal 1997
reflecting the expenses associated with both Soap Opera News and Frontline which
were included for a portion of the prior year. Distribution related expenses
were higher due to increased subscription fulfillment and DSI's expanded
marketing, merchandising and information gathering services. Excluding
production costs associated with Soap Opera News, on an equivalent number of
issues basis overall production costs declined reflecting the benefit of lower
paper and ink costs.
Operating income of $69,960,000 decreased $16,630,000 as compared to fiscal
1997 due primarily to the operating losses generated by Soap Opera News totaling
approximately $8.5 million and one fewer week included in the current year.
Interest expense declined $5,798,000 in fiscal 1998 to $50,486,000
reflecting one less week of interest and decreases in the average balance of
outstanding indebtedness.
The Company's effective income tax rates were 68.7% and 57.8% for fiscal
years 1998 and 1997, respectively, as compared to the statutory federal income
tax rate of 35%. The higher effective tax rates result primarily from goodwill
amortization which is not deductible for income tax reporting purposes (see Note
4 of Notes to Consolidated Financial Statements).
Fiscal 1997 vs Fiscal 1996. Total revenues were $315,988,000 for fiscal
1997 (which includes 53 weeks as compared to 52 weeks in fiscal 1996), an
increase of $20,938,000 or 7.1% from total revenues of $295,050,000 in the prior
fiscal year.
Circulation revenues (which includes all single copy and subscription
sales) of $273,567,000 increased $16,162,000 or 6.3% from the prior fiscal year
as a result of one additional issue for each publication in fiscal 1997 as well
as higher revenues generated by National Enquirer and Soap Opera Magazine.
Revenues from a $.10 per copy increase in cover price for National Enquirer,
effective with the July 23, 1996 issue, more than offset a decline in National
Enquirer's average weekly single copy unit sales from fiscal 1996 of 2.1%; a
similar price increase for Star largely offset an average weekly unit sales
decline of 8.2%. Management believes the
14
<PAGE> 16
declines in single copy sales of National Enquirer and Star, as well as many
other publications sold at the check-out counter, are due primarily to the
increasingly competitive print and electronic media coverage of personality
journalism. Soap Opera Magazine's single copy revenue was higher as average
weekly single copy unit sales increased by approximately 11.7% when compared to
the prior year. Revenues were also favorably impacted by cover price increases
for Country Weekly and Weekly World News which showed an increase of 1.9% and a
decrease of 6.6%, respectively, in average weekly single copy unit sales when
compared to fiscal 1996.
Subscription revenues of $39,870,000 increased $2,445,000 or 6.5% over
fiscal 1996 as a result of one additional issue for each publication and higher
levels of subscriptions generated by Country Weekly and Soap Opera Magazine.
Advertising revenues of $24,280,000 increased $975,000 or 4.2% compared to
fiscal 1996. On an equivalent number of issues basis, advertising revenues
increased by approximately $517,000 or 2.2% reflecting higher levels of national
advertising in both National Enquirer and Country Weekly.
Operating expenses for fiscal 1997 on an equivalent number of weeks basis
(excluding television advertising and depreciation and amortization) increased
by $2,598,000 or 1.3%. Distribution, circulation and other cost of sales
together with selling, general and administrative expenses increased by a
combined total of $8,674,000 on an equivalent basis primarily reflecting costs
associated with the Company's expansion of its in-store marketing, merchandising
and information gathering services and higher subscription expenses. Production
expense was lower by $6,059,000 on an equivalent basis as a result of reduced
average paper costs in fiscal 1997 as compared to the prior year. Television
advertising expense was lower by $5,079,000 as the Company did not repeat the
fiscal 1996 national advertising campaigns for National Enquirer and Star.
Depreciation and amortization expense decreased as the amortization of an
intangible asset with a 5-year life was completed in June 1995.
Interest expense decreased $431,000 in fiscal 1997 to $56,284,000 from
$56,715,000 in the prior fiscal year. Decreases in the average outstanding
indebtedness more than offset one additional week's interest in the current
fiscal year.
The Company's effective income tax rates were 57.8% and 113.1% for fiscal
years 1997 and 1996, respectively, as compared to the statutory federal income
tax rate of 35%. The higher effective tax rates result primarily from goodwill
amortization which is not deductible for income tax reporting purposes.
YEAR 2000
The Company uses computer technology throughout its business that could be
affected by the date change in the year 2000, commonly referred to as the "Year
2000 Issue". The Year 2000 Issue relates to the inability of certain computer
programs to properly recognize and process date-sensitive data relative to the
year 2000 and beyond. The Company is in the process of evaluating the full scope
and related costs to insure that its systems are year 2000 compliant.
Preliminary plans are to replace the Company's existing systems with new year
2000 compliant systems within the normal course of business and, where
necessary, to appropriately modify existing systems. Costs for systems
modifications to address the Year 2000 Issue will be expensed as incurred and
are not expected to have a material adverse effect on the Company's business,
financial position or results of operations. However, the Company cannot measure
the impact that the Year 2000 Issue may have on its suppliers, customers and
other parties with which it conducts business.
INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-K 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
15
<PAGE> 17
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.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants.......... 18
Consolidated Balance Sheets as of March 30, 1998 and March
31, 1997.................................................. 19
Consolidated Statements of Income for Each of the Three
Fiscal Years in the Period Ended March 30, 1998........... 20
Consolidated Statements of Stockholders' Equity for Each of
the Three Fiscal Years in the Period Ended March 30,
1998...................................................... 21
Consolidated Statements of Cash Flows for Each of the Three
Fiscal Years in the Period Ended March 30, 1998........... 22
Notes to Consolidated Financial Statements.................. 23-31
SCHEDULE:
I. Condensed Financial Information of Registrant as of March
30, 1998 and March 31, 1997 and for Each of the Three
Fiscal Years in the Period Ended March 30, 1998........... 32-33
Schedules other than that listed above have been omitted
since the information is not applicable, not required or
because the required information is included in the
Consolidated Financial Statements or Notes thereto........
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
17
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
American Media, Inc.:
We have audited the accompanying consolidated balance sheets of American
Media, Inc. (a Delaware corporation) and subsidiary as of March 30, 1998 and
March 31, 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
March 30, 1998. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Media, Inc. and
subsidiary as of March 30, 1998 and March 31, 1997, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended March 30, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying Schedule I
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
May 8, 1998 (except with respect to
the matters discussed in Note 5,
as to which the date is June 5, 1998).
18
<PAGE> 20
AMERICAN MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 30, 1998 AND MARCH 31, 1997
(IN 000'S, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 7,405 $ 8,230
Receivables, net.......................................... 7,852 8,190
Inventories............................................... 10,390 13,391
Prepaid income taxes...................................... 2,612 --
Prepaid expenses and other................................ 4,069 2,719
-------- --------
Total current assets............................... 32,328 32,530
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings........................................ 4,039 4,039
Machinery, fixtures and equipment......................... 18,447 16,159
Display racks............................................. 21,662 18,854
-------- --------
44,148 39,052
Less -- accumulated depreciation.......................... (18,149) (14,819)
-------- --------
25,999 24,233
-------- --------
DEFERRED DEBT COSTS, net.................................... 8,688 11,011
-------- --------
GOODWILL, net of accumulated amortization of $126,440 and
$111,285.................................................. 478,811 493,966
-------- --------
OTHER INTANGIBLES, net of accumulated amortization of
$45,766 and $39,846....................................... 102,234 108,154
-------- --------
$648,060 $669,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of term loan.............................. $ -- $ 43,355
10.09% Zero Coupon Notes Due 1997......................... -- 15,772
Accounts payable.......................................... 15,556 13,863
Accrued expenses.......................................... 14,939 18,143
Accrued interest.......................................... 12,249 10,037
Accrued and current deferred income taxes................. 9,775 11,022
Deferred revenues......................................... 31,749 32,348
-------- --------
Total current liabilities.......................... 84,268 144,540
-------- --------
TERM LOAN AND REVOLVING CREDIT
COMMITMENT, net of current portion........................ 297,401 269,401
-------- --------
SUBORDINATED INDEBTEDNESS:
11.63% Senior Subordinated Notes Due 2004................. 200,000 200,000
10.38% Senior Subordinated Notes Due 2002................. 134 134
-------- --------
200,134 200,134
-------- --------
DEFERRED INCOME TAXES....................................... 7,919 8,038
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; issued and outstanding as
follows --
Class A -- 22,084 and 21,751 in 1998; 21,402 and 21,078
in 1997................................................ 221 214
Class C -- 20,702 in 1998 and 1997...................... 207 207
Additional paid-in capital................................ 59,018 53,927
Retained earnings (deficit)............................... 4,948 (584)
Less -- Stock held in treasury, at cost................... (6,056) (5,983)
-------- --------
TOTAL STOCKHOLDERS' EQUITY......................... 58,338 47,781
-------- --------
$648,060 $669,894
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
19
<PAGE> 21
AMERICAN MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE FISCAL YEARS ENDED MARCH 30, 1998
(IN 000'S, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
MARCH 30, MARCH 31, MARCH 25,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES:
Circulation............................................... $262,249 $273,567 $257,405
Advertising............................................... 23,643 24,280 23,305
Other..................................................... 21,792 18,141 14,340
-------- -------- --------
307,684 315,988 295,050
-------- -------- --------
OPERATING EXPENSES:
Editorial................................................. 30,497 28,369 27,851
Production................................................ 82,296 80,286 84,830
Distribution, circulation and other cost of sales......... 66,883 60,514 53,601
Selling, general and administrative expenses.............. 26,659 29,792 26,327
Television advertising.................................... 1,062 1,217 6,296
Depreciation and amortization............................. 30,327 29,220 30,378
-------- -------- --------
237,724 229,398 229,283
-------- -------- --------
Operating income.......................................... 69,960 86,590 65,767
INTEREST EXPENSE............................................ (50,486) (56,284) (56,715)
OTHER EXPENSE, net.......................................... (1,790) (1,855) (1,345)
-------- -------- --------
Income before provision for income taxes.................. 17,684 28,451 7,707
PROVISION FOR INCOME TAXES.................................. 12,152 16,440 8,714
-------- -------- --------
Net income (loss)......................................... $ 5,532 $ 12,011 $ (1,007)
======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE................. $ 0.13 $ 0.29 $ (0.02)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
20
<PAGE> 22
AMERICAN MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED MARCH 30, 1998
(IN 000'S)
<TABLE>
<CAPTION>
COMMON STOCK, $.01 PAR VALUE
---------------------------------
CLASS A CLASS C ADDITIONAL RETAINED TREASURY STOCK
--------------- --------------- PAID-IN EARNINGS ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
------ ------ ------ ------ ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 27, 1995..... 21,356 $213 20,702 $207 $53,949 $(11,588) 284 $(5,765)
Issuance of common stock.... 21 1 -- -- 105 -- -- --
Acquisition of treasury
stock..................... -- -- -- -- -- -- 24 (139)
Net loss.................... -- -- -- -- -- (1,007) -- --
------ ---- ------ ---- ------- -------- --- -------
Balance, March 25, 1996..... 21,377 214 20,702 207 54,054 (12,595) 308 (5,904)
Issuance of common stock.... 25 -- -- -- 124 -- -- --
Acquisition of treasury
stock..................... -- -- -- -- -- -- 16 (79)
Other....................... -- -- -- -- (251) -- -- --
Net income.................. -- -- -- -- -- 12,011 -- --
------ ---- ------ ---- ------- -------- --- -------
Balance, March 31, 1997..... 21,402 214 20,702 207 53,927 (584) 324 (5,983)
Exercise of common stock
options................... 673 7 -- -- 4,628 -- -- --
Income tax benefits relating
to exercised options...... -- -- -- -- 374 -- -- --
Other common stock
issuances................. 9 -- -- -- 89 -- -- --
Acquisition of treasury
stock..................... -- -- -- -- -- -- 9 (73)
Net income.................. -- -- -- -- -- 5,532 -- --
------ ---- ------ ---- ------- -------- --- -------
Balance, March 30, 1998..... 22,084 $221 20,702 $207 $59,018 $ 4,948 333 $(6,056)
====== ==== ====== ==== ======= ======== === =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
21
<PAGE> 23
AMERICAN MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED MARCH 30, 1998
(IN 000'S)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
MARCH 30, MARCH 31, MARCH 25,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 5,532 $ 12,011 $ (1,007)
--------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided from operating activities --
Depreciation and amortization............................. 30,327 29,220 30,378
Deferred debt cost amortization........................... 2,623 3,144 3,090
Senior subordinated discount note accretion............... 190 1,500 1,335
Deferred income tax provision............................. 186 1,180 398
Decrease (increase) in --
Receivables, net....................................... 338 (2,539) (517)
Inventories............................................ 3,001 1,135 (5,895)
Prepaid income taxes................................... (2,612) 1,184 3,742
Prepaid expenses and other............................. (1,350) 293 443
Increase (decrease) in --
Accounts payable....................................... 1,693 (3,943) 1,590
Accrued expenses....................................... (3,204) 2,893 (4,560)
Accrued interest....................................... 2,212 (2,141) (699)
Accrued and current deferred income taxes.............. (1,552) 864 416
Deferred revenues...................................... (599) 1,842 343
--------- -------- --------
Total adjustments................................. 31,253 34,632 30,064
--------- -------- --------
Net cash provided from operating activities....... 36,785 46,643 29,057
--------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures...................................... (11,018) (8,526) (9,072)
Acquisition of business................................... -- (2,236) --
Payment on note receivable................................ -- -- 1,492
--------- -------- --------
Net cash used in investing activities............. (11,018) (10,762) (7,580)
--------- -------- --------
Cash Flows from Financing Activities:
Term loan and revolving credit commitment principal
repayments............................................. (133,855) (85,744) (73,250)
Proceeds from term loan and revolving credit commitment... 118,500 54,000 51,000
Repayment of senior subordinated indebtedness............. (15,962) -- (23)
Proceeds from stock option exercises...................... 5,009 -- --
Payment of deferred debt costs............................ (300) (344) (825)
Other..................................................... 16 (206) (33)
--------- -------- --------
Net cash used in financing activities............. (26,592) (32,294) (23,131)
--------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........ (825) 3,587 (1,654)
Cash and Cash Equivalents at Beginning of Year.............. 8,230 4,643 6,297
--------- -------- --------
Cash and Cash Equivalents at End of Year.................... $ 7,405 $ 8,230 $ 4,643
========= ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for --
Income taxes........................................... $ 15,422 $ 13,203 $ 4,143
Interest............................................... 45,462 53,763 53,709
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
22
<PAGE> 24
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of American
Media, Inc. ("Media"), its wholly-owned subsidiary, American Media Operations,
Inc. ("Operations") and its subsidiaries (National Enquirer, Inc., Star
Editorial, Inc., SOM Publishing, Inc., Weekly World News, Inc., Country Weekly,
Inc. and Distribution Services, Inc., among others), collectively, the
"Company". The Company publishes six weekly publications: National Enquirer,
Star, Soap Opera Magazine, Weekly World News, Country Weekly and Soap Opera
News. All significant intercompany transactions and balances have been
eliminated in consolidation. The Company's fiscal year, which ends on the last
Monday in March, includes 52 weeks for the fiscal years ended March 30, 1998 and
March 25, 1996 compared to 53 weeks for the fiscal year ended March 31, 1997.
Revenue Recognition
Substantially all publication sales, except subscriptions, are made through
an unrelated distributor. Issues, other than special topic issues, are placed on
sale approximately one week prior to the issue date; however, circulation
revenues and related expenses are recognized for financial statement purposes on
an issue date basis (i.e., off sale date). Special topic issue revenues and
related expenses are recognized at the on sale date. On the date each issue is
placed on sale, the Company receives a percentage of the issue's estimated sales
proceeds for its publications as an advance from the distributors. All of the
Company's publications are sold with full return privileges.
Revenues from copy sales are net of reserves provided for expected sales
returns which are established in accordance with generally accepted accounting
principles after considering such factors as sales history and available market
information. The Company continually monitors the adequacy of the reserves and
makes adjustments when necessary.
Subscriptions received in advance of the issue date are recognized as
income over the term of the subscription on a straight-line basis. Advertising
revenues are recognized in the period in which the related advertising appears
in the publications. Other revenues are recognized when the service is
performed.
Deferred revenues were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Single Copy................................................. $ 6,887 $ 7,872
Subscriptions............................................... 24,578 24,114
Advertising................................................. 284 362
------- -------
$31,749 $32,348
======= =======
</TABLE>
Property and Equipment
The Company uses straight-line and accelerated depreciation methods for
financial reporting and Federal income tax purposes, respectively. The estimated
lives used in computing depreciation for financial reporting purposes are 22
years for buildings, 3 years for display racks and 5 to 10 years for all other
depreciable fixed assets.
23
<PAGE> 25
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $170,000 higher and $810,000 lower than the amounts reported in
the accompanying consolidated balance sheets for 1998 and 1997, respectively.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Raw materials -- paper...................................... $ 6,573 $ 9,477
Finished product -- paper, production and distribution costs
of future issues.......................................... 3,817 3,914
------- -------
$10,390 $13,391
======= =======
</TABLE>
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require companies to
record compensation related to stock options using a fair value based method. As
permitted under SFAS No. 123, the Company has chosen to continue to account for
stock-based compensation in accordance with Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees". Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair value of the shares underlying the options in excess of the exercise price
at the date of grant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidated Statements of Cash Flows
For purposes of the accompanying consolidated statements of cash flows, the
Company considers cash and cash equivalents to be cash on hand or deposited in
demand deposit accounts with financial institutions and highly liquid
investments purchased with an original maturity of three months or less.
(2) INTANGIBLE ASSETS:
Purchase price allocations for acquisitions have been made in accordance
with APB No. 16. The excess of the purchase price, including liabilities
assumed, over tangible net assets acquired has been allocated to either
specifically identified intangibles or goodwill.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company considers certain events and
circumstances including, among others, the historical and projected operating
results of acquired businesses, industry trends and general economic conditions
to assess whether the remaining estimated useful life of intangible assets may
warrant revision or that the remaining balance of intangible assets may not be
recoverable. When such assessment indicates that an intangible asset should be
evaluated
24
<PAGE> 26
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for possible impairment, the Company uses an estimate of undiscounted cash flow
over the remaining life of the intangible asset in measuring the recoverability.
No such event has occurred to the knowledge of the Company, and the Company has
determined there to be no impairment.
Goodwill is amortized on a straight-line basis over 40 years. For each of
the fiscal years 1998, 1997 and 1996, amortization of goodwill charged to
depreciation and amortization in the accompanying consolidated statements of
income totaled approximately $15,155,000.
Certain intangible assets recorded in connection with the acquisition of
Star are amortized on a straight-line basis over their estimated useful lives of
5 to 25 years. Amortization expense relating to these intangible assets for
fiscal years 1998, 1997 and 1996, totaling approximately $5,920,000, $5,920,000
and $7,920,000 respectively, is included in depreciation and amortization in the
accompanying consolidated statements of income.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments as of year
end is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Term loan and revolving credit facility,
including current portion................... $297,401 $297,401 $312,756 $312,756
Subordinated indebtedness..................... 200,134 217,134 215,906 230,407
Interest rate swap agreement liability........ 122 299 88 170
</TABLE>
The fair value of the Company's financial instruments is estimated based on
the quoted market prices for the same or similar issues or on the current rate
offered to the Company for financial instruments of the same remaining
maturities. The carrying amount for cash equivalents approximates fair value
because of the short maturity of those instruments.
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.
25
<PAGE> 27
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has entered into two three-year $100 million notional amount
interest rate swap agreement which effectively convert a portion of its
variable-rate debt to fixed-rate debt. The interest rate swap agreements which
expire in May 1998 and November 2000 have fixed interest rates of 6.30% and
5.95%, respectively. The carrying amounts for the interest rate swap agreements
represents net interest payable as of period end. Net interest income (expense)
related to interest rate swap agreements totaled $(655,000), $(793,000) and
$405,000 for the fiscal years 1998, 1997 and 1996, respectively.
(4) INCOME TAXES:
The Company files a consolidated Federal income tax return. The provision
for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................. $10,971 $13,578 $ 7,400
State................................................... 995 1,682 916
------- ------- -------
Total current................................... 11,966 15,260 8,316
------- ------- -------
Deferred:
Federal................................................. 169 1,050 354
State................................................... 17 130 44
------- ------- -------
Total deferred.................................. 186 1,180 398
------- ------- -------
$12,152 $16,440 $ 8,714
======= ======= =======
</TABLE>
A reconciliation of the expected income tax provision at the statutory
Federal income tax rate of 35% to the reported income tax provision is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected income tax provision at statutory rate........... $ 6,189 $ 9,958 $ 2,697
Nondeductible goodwill.................................... 5,304 5,304 5,304
State income taxes, net of Federal benefit................ 637 1,178 625
Other, net................................................ 22 -- 88
------- ------- -------
$12,152 $16,440 $ 8,714
======= ======= =======
</TABLE>
Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The net deferred tax liability
is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Gross deferred tax assets................................... $ 444 $ 621
-------- --------
Intangibles amortization.................................... (5,674) (6,116)
Expense recognition differences............................. (3,719) (3,698)
Subscription acquisition costs.............................. (1,861) (1,882)
Accelerated depreciation.................................... (1,797) (1,474)
Book over tax basis of non-depreciable assets............... (448) (448)
Inventory capitalization.................................... (670) (542)
-------- --------
Gross deferred tax liabilities.................... (14,169) (14,160)
-------- --------
Net deferred tax liabilities...................... $(13,725) $(13,539)
======== ========
</TABLE>
26
<PAGE> 28
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in accrued and current deferred income taxes in the accompanying
consolidated balance sheets for fiscal years 1998 and 1997 are net current
deferred taxes payable of $5,806,000 and $5,501,000, respectively.
(5) CREDIT AGREEMENTS:
On June 5, 1998, Operations and its subsidiaries 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") 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. The Credit
Agreement includes the following:
(a) Term Loan Commitment -- Amounts borrowed under the Credit
Agreement's term loan commitment bear interest at rates based upon either
the Alternate Base Rate (as defined) plus 0% to .75% or the LIBO Rate (as
defined) plus .75% to 1.75%, predicated upon satisfaction of certain
covenants related to Operation's operating cash flow levels. Amounts due
under the term loan commitment are payable in varying quarterly
installments through March 2004. As of March 30, 1998, $261,401,000 was
outstanding under the Prior Credit Agreement's term loan commitment.
(b) Revolving Credit Commitment -- The Credit Agreement also provides
for additional borrowings up to a maximum of $120 million, bearing interest
at the term loan commitment rates described above. This commitment, which
expires in March 2004, allows funds to be borrowed and repaid from time to
time with permanent reductions in the revolving credit commitment permitted
at the Company's option. As of March 30, 1998, borrowings of $36,000,000
were outstanding under the Prior Credit Agreement's revolving credit
commitment.
(c) Commitment Fees -- The Company is required to pay a commitment fee
ranging from .25% to .50% of the unused portion of the Credit Agreement's
revolving credit commitment. Commitment fees under the Prior Credit
Agreement totaled approximately $246,000, $330,000 and $461,000 for fiscal
years 1998, 1997 and 1996, respectively.
(d) Guarantee, Collateral and Financial Covenants -- Operations'
obligations under the Credit Agreement are guaranteed by all of its
subsidiaries and Media. The obligations and such guarantees are secured by
(i) a pledge by Operations of all of the capital stock of its subsidiaries,
(ii) a pledge of all of the capital stock of Operations and (iii) a
security interest in substantially all of the assets of Operations'
subsidiaries.
In addition to the above, the Credit Agreement also contains certain
covenants that, among others, restrict paying cash dividends, incurring
additional indebtedness, entering into certain mergers or consolidations, making
capital expenditures and selling or otherwise disposing of assets. Operations
also is required to satisfy certain financial tests relating to operating cash
flow and debt coverage ratios. The Company plans to pay no cash dividends on its
common stock in the foreseeable future, instead using cash generated from
operating results principally to make principal and interest payments on its
indebtedness.
As permitted under the covenants of the Prior Credit Agreement, management
fees to affiliates totaling $1,681,000, $1,798,000 and $1,399,000 are included
in other expense, net in the accompanying consolidated statements of income for
the fiscal years 1998, 1997 and 1996, respectively.
The effective interest rates under the Prior Credit Agreement, including
amounts borrowed under the term loan commitments and revolving credit
commitment, as of March 30, 1998, and for the fiscal years 1998, 1997 and 1996
were 7.6%, 7.8%, 7.9% and 8.1%, respectively.
27
<PAGE> 29
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SUBORDINATED INDEBTEDNESS:
The Company's 11.63% Senior Subordinated Notes due 2004 (the "Senior
Subordinated Notes due 2004"), which mature on November 15, 2004, pay interest
semi-annually on May 15 and November 15 and are redeemable at Operation's option
after November 14, 1999 at prices ranging from 104.4% to 100.0% of their face
amount. The indenture under which the Senior Subordinated Notes due 2004 were
issued includes restrictive covenants that limit, among other things, paying
cash dividends, incurring indebtedness, mergers, consolidations and other
Restricted Payments (as defined in the Indenture).
Including the amounts borrowed under the Credit Agreement, the following
represents aggregate payments of principal due as of March 30, 1998 under the
Company's long-term indebtedness for the next five fiscal years:
<TABLE>
<CAPTION>
PRINCIPAL
FISCAL YEAR PAYMENTS
- ----------- ---------
<S> <C>
1999........................................................ $ --
2000........................................................ 18,750
2001........................................................ 34,375
2002........................................................ 46,875
2003........................................................ 75,134
Thereafter.................................................. 322,401
--------
$497,535
========
</TABLE>
(7) STOCKHOLDERS' EQUITY:
The Company's three classes of common stock share equally as to dividends.
Class A and Class B common stock have one vote per share and Class C common has
three votes per share in all matters, except with respect to the election of the
Board of Directors for which Class B common stock has no voting rights. Class B
and Class C common stock are convertible into Class A common stock on a
share-for-share basis at the option of the holder and are mandatorily
convertible under certain circumstances (as defined).
The Company is authorized to issue 100,000,000 shares of Class A common
stock, 20,000,000 shares of Class B common stock and 25,000,000 shares of Class
C common stock. The Company is also authorized to issue 10,000,000 shares of
Preferred Stock, $.01 par value, none of which has been issued.
During fiscal year 1998 the Company issued 672,645 shares of Class A common
stock in connection with the exercise of stock options by participants in the
stock option plan (see Note 10).
During fiscal years 1998, 1997 and 1996, there were 563, 9,253 and (2,990)
net shares of Class A common stock, respectively, issued to (purchased from)
participants in the Company's Employee Profit Sharing Plan.
(8) EARNINGS (LOSS) PER SHARE:
Earnings per share was calculated based upon SFAS No. 128, "Earnings Per
Share", which was adopted by the Company in the current fiscal year. Adoption of
SFAS No. 128, which superseded the previous standard (APB No. 15), had no effect
on the Company's previously reported earnings per share amounts.
28
<PAGE> 30
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Diluted earnings per share, which is the same as basic earnings per share
for all periods presented, includes the effect of incremental shares issued
assuming the exercise of dilutive common stock options under the treasury stock
method, as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARES
OUTSTANDING
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Basic shares............................................... 42,140 41,777 41,770
Dilutive effect of common stock options.................... 220 14 --
------ ------ ------
Diluted shares............................................. 42,360 41,791 41,770
====== ====== ======
</TABLE>
(9) DEFERRED DEBT COSTS:
Certain costs incurred in connection with the issuance of the Company's
long-term debt have been deferred and are amortized as part of interest expense
over periods from 8 to 10 years. For fiscal years 1998, 1997 and 1996,
amortization of deferred debt costs which is included in interest expense in the
accompanying consolidated statements of income totaled approximately $2,622,000,
$3,144,000, and $3,090,000, respectively. In connection with the amendment and
restatement of the Credit Agreement (see Note 5) unamortized deferred debt costs
related to the Prior Credit Agreement totaling approximately $3.4 million will
be charged to extraordinary loss in the fiscal quarter ended June 1998. Costs
related to the new Credit Agreement will be deferred and amortized to interest
expense through March 2004.
(10) STOCK OPTION PLAN:
The American Media, Inc. Amended and Restated Stock Option Plan (the
"Option Plan") has reserved 3.2 million shares of Class A common stock for the
granting of options to key employees and directors of the Company. Options
granted under the Option Plan are designated as either an Incentive Stock Option
("ISO") or a Non-Incentive Stock Option ("NSO") and may be exercised in such
installments as the Stock Option Committee of the Board of Directors determines
at the date of grant, but in no instance for a period greater than 10 years.
ISO's are granted at a price not less than the fair market value of the
Company's common stock at the date of grant, while NSO's may not be priced at
less than 75% of fair market value at the grant date. Options granted to date
(all designated as ISO's) are for terms of five to ten years from the grant
date, subject to certain employment provisions and are exercisable in cumulative
33 1/3% installments accruing annually from the anniversary of the grant date.
29
<PAGE> 31
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's Option Plan as of fiscal year end
1998, 1997 and 1996 and changes during the years then ended follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Number of options:
Outstanding at beginning of
year........................... 1,687 $6.33 1,367 $7.07 914 $7.25
Granted........................... 554 7.53 613 5.10 530 6.77
Exercised......................... (673) 6.89 -- -- -- --
Forfeited......................... (21) 5.94 (79) 7.09 (77) 7.15
Expired........................... (12) 7.25 (214) 7.25 -- --
----- ----- -----
Outstanding at end of year........ 1,535 6.52 1,687 6.33 1,367 7.07
===== ===== =====
Number of options at year-end:
Exercisable....................... 429 6.43 751 7.14 749 7.25
===== ===== =====
Available for grant............... 990 511 831
===== ===== =====
Weighted-average fair value of
options granted during the year... $3.62 $2.48 $3.38
===== ===== =====
</TABLE>
Significant option groups outstanding at March 30, 1998 and related
weighted-average price and life information follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- ----------------------------
NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE REMAINING LIFE
RANGE OF EXERCISE PRICES SHARES EXERCISE PRICE SHARES EXERCISE PRICE IN YEARS
- ------------------------ --------- ---------------- --------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$4.00 to $5.99......... 567 $5.18 154 $5.36 3.5
$6.00 to $7.99......... 908 7.19 275 7.02 3.3
$8.00 to $9.99......... 60 8.82 -- -- 8.6
</TABLE>
As discussed in the Summary of Significant Accounting Policies, the Company
follows APB No. 25 in accounting for the Option Plan and accordingly, no
compensation cost has been recognized. Had compensation cost been recorded
pursuant to SFAS No. 123, the Company's net income (loss) and earnings (loss)
per share would have decreased (increased) accordingly. Using the Black-Scholes
option pricing model for all options granted after March 27, 1995, the Company's
pro forma results and related assumptions follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Pro forma results --
Net income (loss)........................................ $4,302 $11,241 $(1,545)
Basic and diluted earnings (loss) per share.............. $ 0.10 $ 0.27 $ (0.04)
Assumptions --
Expected option life (years)............................. 5 5 5
Risk-free interest rate.................................. 5.7% 6.0% 6.9%
Expected volatility...................................... 46.0% 46.0% 46.0%
Annual dividend.......................................... -- -- --
</TABLE>
30
<PAGE> 32
AMERICAN MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES:
Litigation
Various suits and claims arising in the ordinary course of business have
been instituted against the Company. The Company has various insurance policies
available to recover potential legal costs incurred by it. The Company
periodically evaluates and assesses the risks and uncertainties associated with
litigation independent from those associated with its potential claim for
recovery from third party insurance carriers. At present, in the opinion of
management, after consultation with legal counsel, the liability resulting from
litigation, if any, will not have a material effect on the Company's
consolidated financial statements.
Printing Agreement
The Company has entered into a 15 year printing agreement expiring in
fiscal 2011 with an unrelated printer to print National Enquirer and Star. Based
on current pricing and production levels this contract, which requires pricing
adjustments based on changes in the Consumer Price Index, is estimated to cost
approximately $184 million over its remaining life as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999........................................................ $ 14,524
2000........................................................ 14,774
2001........................................................ 14,748
2002........................................................ 14,748
2003........................................................ 15,031
Thereafter.................................................. 110,595
--------
$184,420
========
</TABLE>
(12) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL QUARTER
-------------------------------------
FIRST SECOND THIRD FOURTH FISCAL YEAR
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 30, 1998:
Revenues........................................ $82,116 $79,609 $74,080 $71,879 $307,684
======= ======= ======= ======= ========
Operating income................................ $21,179 $20,639 $14,791 $13,351 $ 69,960
======= ======= ======= ======= ========
Net income (loss)............................... $ 3,437 $ 3,232 $ 144 $(1,281) $ 5,532
======= ======= ======= ======= ========
Basic and diluted earnings (loss) per share..... $ .08 $ .08 $ -- $ (.03) $ .13
======= ======= ======= ======= ========
FISCAL YEAR ENDED MARCH 31, 1997:
Revenues........................................ $79,849 $78,117 $77,530 $80,492 $315,988
======= ======= ======= ======= ========
Operating income................................ $20,826 $22,074 $20,086 $23,604 $ 86,590
======= ======= ======= ======= ========
Net income...................................... $ 1,732 $ 3,168 $ 2,322 $ 4,789 $ 12,011
======= ======= ======= ======= ========
Basic and diluted earnings per share............ $ .04 $ .08 $ .06 $ .11 $ .29
======= ======= ======= ======= ========
</TABLE>
31
<PAGE> 33
SCHEDULE I
AMERICAN MEDIA, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN 000'S)
The following is unconsolidated condensed financial information for
American Media, Inc. as of March 30, 1998 and March 31, 1997 and for each of the
three fiscal years in the period ended March 30, 1998:
A. CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash........................................................ $ 35 $ 307
Prepaid expenses............................................ 130 93
------- -------
Total current assets.............................. 165 400
Receivable from American Media Operations, Inc.............. 3,728 --
Investment in American Media Operations, Inc................ 54,473 48,457
------- -------
$58,366 $48,857
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $ 28 $ 27
Payable to American Media Operations, Inc................... -- 1,049
------- -------
Total current liabilities......................... 28 1,076
------- -------
Stockholders' equity:
Common stock.............................................. 428 421
Other stockholders' equity................................ 57,910 47,360
------- -------
58,338 47,781
------- -------
$58,366 $48,857
======= =======
</TABLE>
B. CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
MARCH 30, MARCH 31, MARCH 25,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating expenses...................................... $ (620) $ (581) $ (569)
Other expenses.......................................... (149) (150) (150)
Income tax credit....................................... 285 276 271
------ ------- -------
Net loss before equity in income (loss) of
American Media Operations, Inc. ............ (484) (455) (448)
Equity in income (loss) of American Media Operations,
Inc. ................................................. 6,016 12,466 (559)
------ ------- -------
Net income (loss)............................. $5,532 $12,011 $(1,007)
====== ======= =======
</TABLE>
32
<PAGE> 34
AMERICAN MEDIA, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
(IN 000'S)
C. CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
MARCH 30, MARCH 31, MARCH 25,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from Operating Activities:
Net income (loss)..................................... $5,532 $12,011 $(1,007)
Adjustment to reconcile net income (loss) to net cash
from operating activities:
Equity in net loss (income) of American Media
Operations, Inc. ................................ (6,016) (12,466) 559
Decrease (increase) in --
Prepaid expenses................................... (37) 10 (8)
Receivable from American Media Operations, Inc..... (3,728) -- --
Increase (decrease) in --
Accounts payable................................... 1 1 --
Payable to American Media Operations, Inc. ........ (1,049) 432 446
------ ------- -------
Net cash used in operations........................... (5,297) (12) (10)
------ ------- -------
Cash Flows from Financing Activities:
Exercise of common stock options...................... 5,009 -- --
Other................................................. 16 45 (33)
------ ------- -------
Net cash provided from (used in) financing activities... 5,025 45 (33)
------ ------- -------
Net increase (decrease) in cash......................... (272) 33 (43)
Cash at beginning of year............................... 307 274 317
------ ------- -------
Cash at end of year..................................... $ 35 $ 307 $ 274
====== ======= =======
</TABLE>
D. NOTE -- Payment of dividends by the Company's subsidiary, American Media
Operations, Inc., is restricted under its Credit Agreement with the Banks and
Indenture relating to its subordinated indebtedness. See Notes 5 and 6 of Notes
to Consolidated Financial Statements.
33
<PAGE> 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Media's executive officers is included in Part I
under "Executive Officers of the Company". Other information required by this
item will be contained in the Proxy Statement of Media relating to the 1998
Annual Meeting of stockholders to be held on August 12, 1998, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Proxy
Statement of Media relating to the 1998 Annual Meeting of stockholders to be
held on August 12, 1998, and is incorporated herein by reference, provided that
the Compensation Committee Report and Performance Graph which is contained in
Media's proxy statement shall not be deemed to be incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will be contained in the Proxy
Statement of Media relating to the 1998 Annual Meeting of stockholders to be
held on August 12, 1998, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Proxy
Statement of Media relating to the 1998 Annual Meeting of stockholders to be
held on August 12, 1998, and is incorporated herein by reference.
34
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed with, or incorporated by reference in,
and as part of, this Annual Report on Form 10-K.
1. FINANCIAL STATEMENTS
For a complete list of the Financial Statements and Schedule filed with
this Annual Report on Form 10-K, see the Index to Consolidated Financial
Statements and Schedule on Page 17.
2. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
*3.1 -- Restated Certificate of Incorporation of Group dated June
20, 1991 (incorporated by reference to Amendment 2 to
Media's Registration Statement on Form S-1, Registration No.
33-40647, Part III, Item 16, Exhibit 3.1, as filed on July
11, 1991).(1)
*3.2 -- Amendment to Restated Certificate of Incorporation of Group
dated July 15, 1991 (incorporated by reference to Amendment
No. 4 to Media's Registration Statement on Form S-1,
Registration No. 33-40647, Part II, Item 16, Exhibit 3.4, as
filed on July 19, 1991).(1)
*3.3 -- Amendment of Certificate of Incorporation of Group dated
November 1, 1994 changing its name to American Media, Inc.
from Enquirer/Star Group, Inc. (incorporated by reference
from Media's Annual Report on Form 10-K for the year ended
March 27, 1995, filed as Exhibit 3.3, File No. 1-10784).
*3.4 -- Amended and Restated By-laws of Group dated May 20, 1993
(incorporated by reference from Media's Annual Report on
Form 10-K for the year ended March 29, 1993, filed as
Exhibit 3.3, File No. 1-10784).(1)
*4.1 -- Fourth Amended and Restated Credit Agreement among
Operations, certain Banks and The Chase Manhattan Bank, as
Agent, dated as of June 5, 1998 (incorporated by reference
from Operation's Annual Report on Form 10-K for the year
ended March 30, 1998, filed as Exhibit 4.1, File No. 1-
11112).
*4.2 -- First Amended and Restated Company Pledge Agreement dated as
of June 5, 1998, between Operations and The Chase Manhattan
Bank, as Agent (incorporated by reference from Operation's
Annual Report on Form 10-K for the year ended March 30,
1998, filed as Exhibit 4.2, File No. 1-11112).
4.3 -- Third Amended and Restated Pledge Agreement dated as of June
5, 1998, made by Media in favor of The Chase Manhattan Bank,
as Agent.
*4.4 -- Amended and Restated Security Agreement dated as of October
4, 1989, along with the Security Agreement Amendment, dated
as of June 28, 1990, among GP Group, Inc. and its
subsidiaries in favor of Manufacturers Hanover Trust Company
(now The Chase Manhattan Bank) as agent for certain banks
(in that capacity "as Agent") and certain other parties
(incorporated by reference to Media's Registration Statement
on Form S-1, Registration No. 33-40647, Part II, Item 16,
Exhibit 4.3, as filed on May 17, 1991).(1)
*4.5 -- Security Agreement Supplement dated November 21, 1994 made
by Operations and Country Weekly, Inc. in favor of Chemical
Bank (now The Chase Manhattan Bank), as Agent (incorporated
by reference from Operation's Annual Report on Form 10-K for
the year ended March 27, 1995, filed as Exhibit 4.2, File
No. 1-11112).
*4.6 -- Security Agreement Supplements dated June 5, 1998 made by
Operations and each of Frontline Marketing, Inc., Retail
Marketing Network, Inc. and American Media Marketing, Inc.
in favor of The Chase Manhattan Bank, as Agent (incorporated
by reference from Operation's Annual Report on Form 10-K for
the year ended March 30, 1998, filed as Exhibit 4.5, File
No. 1-11112).
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
*4.7 -- Subsidiary Guarantee dated as of June 7, 1989 made by the
subsidiaries of GP Group, Inc. in favor of Manufacturers
Hanover Trust Company (now The Chase Manhattan Bank) as
Agent (incorporated by reference to Media's Registration
Statement on Form S-1, Registration No. 33-40647, Part II,
Item 16, Exhibit 4.6, as filed on May 17, 1991).(1)
*4.8 -- Guarantee Supplement dated November 21, 1994 to Subsidiary
Guarantee dated June 7, 1989 made by Operations and Country
Weekly, Inc. in favor of Chemical Bank (now The Chase
Manhattan Bank), as Agent (incorporated by reference from
Operation's Annual Report on Form 10-K for the year ended
March 27, 1995, filed as Exhibit 4.4, File No. 1-11112).
*4.9 -- Guarantee Supplements dated June 5, 1998 to Subsidiary
Guarantee dated June 7, 1989 made by Operations and each of
Frontline Marketing, Inc., Retail Marketing Network, Inc.
and American Media Marketing, Inc. in favor of The Chase
Manhattan Bank, as Agent (incorporated by reference from
Operation's Annual Report on Form 10-K for the year ended
March 30, 1998, filed as Exhibit 4.8, File No. 1-11112).
*4.10 -- Senior Subordinated Note Indenture dated as of November 1,
1994 from Enquirer/Star, Inc. in favor of United States
Trust Company of New York, as Trustee, relating to Senior
Subordinated Notes due 2004 (including form of Senior
Subordinated Notes) (incorporated by reference from
Operation's Annual Report on Form 10-K for the year ended
March 27, 1995, filed as Exhibit 4.7, File No. 1-11112).(1)
*4.11 -- Stockholders, Registration Rights and Voting Agreement dated
as of April 8, 1993, among Group, Macfadden L.P., Boston
Ventures, The Scottish Investment Trust PLC and CBC Capital
Partners, Inc. (incorporated by reference to Media's filing
on Form 8-K dated June 30, 1993, Exhibit 99, File No.
1-10784).(1)
*4.12 -- Assumption and Assignment Agreement dated as of March 20,
1997 among Macfadden Holdings, L.P., Peter J. Callahan,
Maynard Rabinowitz and Michael J. Boylan (incorporated by
reference from Media's Annual Report on Form 10-K for the
year ended March 31, 1997, filed as Exhibit 4.13, File No.
1-10784).
*10.1 -- Tax Sharing Agreement dated as of March 31, 1992, among
Group and its subsidiaries (incorporated by reference from
Media's Annual Report on Form 10-K for the year ended March
30, 1992, filed as Exhibit 10.15, File No. 1-10784).(1)
*10.2 -- Enquirer/Star Group, Inc. Amended and Restated Stock Option
Plan (incorporated by reference from Media's Annual Report
on Form 10-K for the year ended March 29, 1993, filed as
Exhibit 10.7, File No. 1-10784).(1)
*10.3 -- Amendment to American Media, Inc's. Amended and Restated
Stock Option Plan dated as of August 13, 1997 (incorporated
by reference from Media's filing on Form S-8 as filed on
August 22, 1997, File No. 333-34221).
11 -- Statement re: computation of per share earnings (see Note 8
to the Consolidated Financial Statements of the Company
which are set forth in Part II, Item 8 of Registrant's
current report on Form 10-K for the fiscal year ended March
30, 1998).
21 -- Subsidiaries of Registrant.
23 -- Consent of Arthur Andersen LLP.
</TABLE>
- ---------------
(1) Enquirer/Star Group, Inc. ("Group") is now named American Media, Inc.
("Media"); Enquirer/Star, Inc. and GP Group, Inc. are now named American
Media Operations, Inc. ("Operations").
* Incorporated herein by reference as indicated.
3. FORM 8-K
No reports on Form 8-K were filed by the registrant during the last fiscal
quarter of the period covered by this report.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on June 19, 1998.
AMERICAN MEDIA, INC.
By: /s/ PETER J. CALLAHAN
------------------------------------
Peter J. Callahan
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacities
indicated on June 19, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER J. CALLAHAN Chairman of the Board, President, Chief
- ----------------------------------------------------- Executive Officer and Director (Principal
Peter J. Callahan Executive Officer)
/s/ RICHARD W. PICKERT Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial Officer)
Richard W. Pickert
/s/ PETER A. NELSON Vice President, Controller and Chief
- ----------------------------------------------------- Accounting Officer (Principal Accounting
Peter A. Nelson Officer)
/s/ BARRY BAKER Director
- -----------------------------------------------------
Barry Baker
/s/ ANTHONY J. BOLLAND Director
- -----------------------------------------------------
Anthony J. Bolland
/s/ MICHAEL J. BOYLAN Director
- -----------------------------------------------------
Michael J. Boylan
/s/ ROY F. COPPEDGE, III Director
- -----------------------------------------------------
Roy F. Coppedge, III
/s/ STEVEN B. DODGE Director
- -----------------------------------------------------
Steven B. Dodge
/s/ GERALD S. HOBBS Director
- -----------------------------------------------------
Gerald S. Hobbs
/s/ MAYNARD RABINOWITZ Director
- -----------------------------------------------------
Maynard Rabinowitz
/s/ GERRY M. RITTERMAN Director
- -----------------------------------------------------
Gerry M. Ritterman
</TABLE>
37
<PAGE> 1
EXHIBIT 4.3
THIRD AMENDED AND RESTATED MEDIA PLEDGE AGREEMENT
THIRD AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of June
5, 1998, made by AMERICAN MEDIA, INC. (formerly known as Enquirer/Star Group,
Inc., the "PLEDGOR"), in favor of THE CHASE MANHATTAN BANK (as successor to
Chemical Bank ("CHEMICAL")) as agent (in such capacity the "AGENT") for the
banks (the "BANKS") parties to the Fourth Amended and Restated Credit Agreement,
dated as of June 5, 1998 (as amended, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among AMERICAN MEDIA OPERATIONS, INC.
(formerly known as Enquirer/Star, Inc.), a Delaware corporation (the "COMPANY"),
certain of its subsidiaries, the Banks and the Agent.
W I T N E S S E T H:
--------------------
WHEREAS, the Company, certain banks and Chemical, as agent for
such banks, are parties to the Third Amended and Restated Credit Agreement,
dated as of November 10, 1994 (as further amended, the "EXISTING CREDIT
AGREEMENT");
WHEREAS, it was a condition precedent to the effectiveness of
the Existing Credit Agreement that the Pledgor execute and deliver the Second
Amended and Restated Group Pledge Agreement dated as of November 21, 1994 (as
heretofore amended, modified or supplemented, the "EXISTING PLEDGE AGREEMENT");
WHEREAS, the Company has requested that the Existing Credit
Agreement be amended and restated to extend the final maturity and restructure
the amortization schedule of the Existing Term Loans (as defined in the Credit
Agreement) and extend the availability of the Revolving Credit Commitments (as
defined in the Credit Agreement) and to make certain other changes to the
Existing Credit Agreement and, to effect the foregoing, the Company has entered
into the Credit Agreement with the other parties thereto; and
WHEREAS, it is a condition precedent to the effectiveness of
the Credit Agreement that the Pledgor shall have amended and restated the
Existing Pledge Agreement as set forth in this Pledge Agreement;
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Banks to enter into the Credit Agreement, the Pledgor hereby
agrees with the Agent, for the ratable benefit of the Banks that the Existing
Pledge Agreement shall be amended and restated to read in its entirety as
follows:
<PAGE> 2
2
1. DEFINED TERMS. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein are so used as so defined,
and the following terms shall have the following meanings:
"CODE" means the Uniform Commercial Code from time to time in
effect in the State of New York.
"COLLATERAL" means the Pledged Stock and all Proceeds.
"INVESTMENT VEHICLE" as defined in subsection 6(f)(i).
"OBLIGATIONS" means (a) the unpaid principal of and interest
on (including interest accruing on or after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Company, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding)
the Notes and all other obligations and liabilities of the Company to
the Agent and the Banks, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the
Credit Agreement, the Notes, the other Credit Documents to which the
Company is a party or this Pledge Agreement and any other document
made, delivered or given in connection therewith or herewith, whether
on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees
and disbursements of counsel to the Agent or to the Banks that are
required to be paid by the Company pursuant to the terms of the Credit
Agreement or this Pledge Agreement) or otherwise and (b) all
obligations and liabilities of the Company to any Bank under or in
connection with any Interest Rate Hedge Agreement.
"PLEDGE AGREEMENT" means this Third Amended and Restated Group
Pledge Agreement, as amended, supplemented or otherwise modified from
time to time.
"PLEDGED STOCK" means the shares of capital stock of the
Company listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by the Company to the Pledgor while this Pledge
Agreement is in effect.
"PROCEEDS" means all "proceeds" as such term is defined in
Section 9-306(1) of the Uniform Commercial Code in effect in the State
of New York on the date hereof and, in any event, shall include,
without limitation, all dividends or other income from the Pledged
Stock, collections thereon or distributions with respect thereto.
<PAGE> 3
3
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor has
delivered or hereby delivers to the Agent, for the ratable benefit of the Banks,
all the Pledged Stock and hereby
<PAGE> 4
4
grants to the Agent, for the ratable benefit of the Banks, a first security
interest in the Collateral, as collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Agent
of each certificate representing one or more shares of Pledged Stock to the
Agent, the Pledgor has delivered or shall deliver an undated stock power
covering such certificate, duly executed in blank by the Pledgor with, if the
Agent so requests, signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) the Pledgor has the power and authority and the legal
right to execute and deliver, to perform its obligations under, and to
grant the Lien on the Collateral pursuant to, this Pledge Agreement and
has taken all necessary action to authorize its execution, delivery and
performance of, and grant of the Lien on the Collateral pursuant to,
this Pledge Agreement;
(b) this Pledge Agreement constitutes a legal, valid and
binding obligation of the Pledgor enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law);
(c) the execution, delivery and performance of this Pledge
Agreement will not violate any provision of any Requirement of Law or
Contractual Obligation of the Pledgor and will not result in the
creation or imposition of any Lien on any of the properties or revenues
of the Pledgor pursuant to any Requirement of Law or Contractual
Obligation, except as contemplated hereby;
(d) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any partner
or creditor of the Pledgor or stockholder or creditor of the issuer),
is required in connection with the execution, delivery, performance,
validity or enforceability of this Pledge Agreement;
(e) no litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the
knowledge of the Pledgor, threatened by or against the Pledgor or
against any of its properties or revenues with respect to this Pledge
Agreement or any of the transactions contemplated hereby;
<PAGE> 5
5
(f) the shares of Pledged Stock listed on Schedule I
constitute all of the issued and outstanding shares of all classes of
the capital stock of the Company as of the date hereof;
(g) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable;
(h) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock listed on Schedule I,
free of any and all Liens or options in favor of, or claims of, any
other Person, except the Lien created by this Pledge Agreement; and
(i) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority Lien on the
Pledged Stock, enforceable as such against all creditors of the Pledgor
and any Persons purporting to purchase any Collateral from the Pledgor.
5. AFFIRMATIVE COVENANTS. The Pledgor covenants and agrees
with the Agent and the Banks that, from and after the date of this Pledge
Agreement until the Obligations are paid in full and the Commitments are
terminated:
(a) if the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as the agent of the Agent
and the Banks, hold the same in trust for the Agent and the Banks and
deliver the same forthwith to the Agent in the exact form received,
duly indorsed by the Pledgor to the Agent, if required, together with
an undated stock power covering such certificate duly executed in blank
by the Pledgor and with, if the Agent so requests, signature
guaranteed, to be held by the Agent, subject to the terms hereof, as
additional collateral security for the Obligations. Any sums paid upon
or in respect of the Pledged Stock upon the liquidation or dissolution
of the Company shall be paid over to the Agent to be held by it
hereunder as additional collateral security for the Obligations, and in
case any distribution of capital shall be made on or in respect of the
Pledged Stock or any property shall be distributed upon or with respect
to the Pledged Stock pursuant to the recapitalization or
reclassification of the capital of the Company or pursuant to the
reorganization thereof, the property so distributed shall be delivered
to the Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid
or distributed in respect of the Pledged Stock shall be received by the
Pledgor, the Pledgor shall,
<PAGE> 6
6
until such money or property is paid or delivered to the Agent, hold
such money or property in trust for the Banks, segregated from other
funds of the Pledgor, as additional collateral security for the
Obligations;
(b) at any time and from time to time, upon the written
request of the Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Agent
may reasonably request for the purposes of obtaining or preserving the
full benefits of this Pledge Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument or chattel
paper shall be immediately delivered to the Agent, duly endorsed in a
manner satisfactory to the Agent, to be held as Collateral pursuant to
this Pledge Agreement;
(c) the Pledgor agrees to pay, and to save the Agent and the
Banks harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamps, excise, sales
or other taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default
shall have occurred and be continuing and the Agent shall have given notice to
the Pledgor of the Agent's intent to exercise its corresponding rights pursuant
to paragraph 9 below, the Pledgor shall be permitted to receive and retain all
cash dividends paid, to the extent permitted by the Credit Agreement, in respect
of the Pledged Stock. Unless an Event of Default shall have occurred and be
continuing and the Agent shall have given notice to the Pledgor of the Agent's
intent to exercise its corresponding rights pursuant to paragraph 9 below, the
Pledgor shall be permitted to exercise all voting and corporate rights with
respect to the Pledged Stock, PROVIDED, HOWEVER, that no vote shall be cast or
corporate right exercised or other action taken which, in the Agent's reasonable
judgment, would impair the Collateral or which would be inconsistent with or
result in any violation of any provision of the Credit Agreement, the Notes, the
other Credit Documents to which the Company is a party or this Pledge Agreement.
7. RIGHTS OF THE BANKS AND THE AGENT. (a) If an Event of
Default shall occur and be continuing and the Agent shall give notice of its
intent to exercise such rights to the Pledgor, the Agent shall have the right to
receive any and all cash dividends paid in respect of the Pledged Stock and make
application thereof to the Obligations in such order as the Agent may determine.
If an Event of Default shall have occurred and be continuing and the Agent shall
give notice of its intent to exercise such rights to the Pledgor, all shares of
the Pledged Stock shall be registered in the name of the Agent or its nominee,
and the Agent or its nominee may thereafter exercise (i) all voting, corporate
and other rights pertaining to such shares of the Pledged Stock at any meeting
of shareholders of the Company or otherwise and (ii) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to
<PAGE> 7
7
exchange at its discretion any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of the Company, or upon the exercise by the Pledgor or
the Agent of any right, privilege or option pertaining to such shares of the
Pledged Stock, and in connection therewith, the right to deposit and deliver any
and all of the Pledged Stock with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine), all without liability except to account for property actually
received by it, but the Agent shall have no duty to the Pledgor to exercise any
such right, privilege or option and shall not be responsible for any failure to
do so or delay in so doing.
(b) The rights of the Agent and the Banks hereunder shall not
be conditioned or contingent upon the pursuit by the Agent or any Bank of any
right or remedy against the Company or against any other Person which may be or
become liable in respect of all or any part of the Obligations or against any
collateral security therefor, guarantee therefor or right of offset with respect
thereto. Neither the Agent nor any Bank shall be liable for any failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so, nor shall the Agent be under any obligation to sell or
otherwise dispose of any Collateral upon the request of the Pledgor or any other
Person or to take any other action whatsoever with regard to the Collateral or
any part thereof.
8. REMEDIES. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Banks, may exercise, in addition to all
other rights and remedies granted in this Pledge Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Pledgor, the Company or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give an option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board or office
of the Agent or any Bank or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Agent or any Bank
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Pledgor, which right or equity is hereby waived or released. The Agent shall
apply any Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Agent and the Banks
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Agent, to the payment in whole or in part of the
Obligations, in such order as the Agent may elect, and only after such
application and after the payment by the Agent of any other
<PAGE> 8
8
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Agent account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Agent or any Bank arising
out of the exercise by them of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition. The Pledgor further waives and agrees not to assert any
rights or privileges which it may acquire under Section 9-112 of the Code.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Agent shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to paragraph 8 hereof, and if in the opinion of the Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Pledgor will cause the Company to (i) execute and
deliver, and cause the directors and officers of the Company to execute and
deliver, all such instruments and documents, and do or cause to be done all such
other acts as may be, in the opinion of the Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) to use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (iii) to make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Agent, are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. The Pledgor agrees to cause the Company to comply
with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Agent shall designate and to make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) The Pledgor recognizes that the Agent may be unable to
effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall not
merely because it is a private sale be deemed to have been made in a
commercially unreasonable manner. The Agent shall be under no obligation to
delay a sale of any of the Pledged Stock for the period of time necessary to
permit the Company to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if the Company
would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do
or cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this paragraph 9
valid and binding and in compliance with any and all
<PAGE> 9
9
other applicable Requirements of Law. The Pledgor further agrees that a breach
of any of the covenants contained in this paragraph 9 will cause irreparable
injury to the Agent and the Banks, that the Agent and the Banks have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this paragraph 10 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred and is continuing under the
Credit Agreement, it being understood that nothing in this sentence shall be
deemed to constitute a waiver by the Pledgor of the requirements of Section
9-504(3) of the Code that every aspect of the disposition of Collateral must be
commercially reasonable.
10. NO SUBROGATION. Notwithstanding any payment or payments
made by the Pledgor hereunder, or any setoff or application of funds of the
Pledgor by any Bank, or the receipt of any amounts by the Agent or any Bank with
respect to any of the Collateral, the Pledgor shall not be entitled to be
subrogated to any of the rights of the Agent or any Bank against the Company or
against any other collateral security held by the Agent or any Bank for the
payment of the Obligations, nor shall the Pledgor seek any reimbursement from
the Company in respect of payments made by the Pledgor in connection with the
Collateral, or amounts realized by the Agent or any Bank in connection with the
Collateral. If any amount shall be paid to the Pledgor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by the Pledgor in trust for the Agent
and the Banks, segregated from other funds of the Pledgor, and shall, forthwith
upon receipt by the Pledgor, be turned over to the Agent in the exact form
received by the Pledgor (duly indorsed by the Pledgor to the Agent, if required)
to be applied against the Obligations, whether matured or unmatured, in such
order as the Agent may determine.
11. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS. The
Pledgor shall remain obligated hereunder, and the Collateral shall remain
subject to the Lien granted hereby, notwithstanding that, without any
reservation of rights against the Pledgor, and without notice to or further
assent by the Pledgor, any demand for payment of any of the Obligations made by
the Agent or any Bank may be rescinded by the Agent or such Bank, and any of the
Obligations continued, and the Obligations, or the liability of the Company or
any other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered, or released by the Agent or any Bank, and the
Credit Agreement, the Notes, the other Credit Documents to which the Company is
a party and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or part, as the
Banks (or the Required Banks, as the case may be) may deem advisable from time
to time, and any guarantee, right of offset or other collateral security at any
time held by the Agent or any Bank for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Agent nor any Bank
shall have any obligation to protect, secure, perfect or insure any other Lien
at any time held by it as security for the Obligations or any property subject
thereto. The Pledgor waives any and all notice of the creation, renewal,
extension or accrual of any of the Obligations and notice of or proof of
reliance by the Agent or any Bank upon this Pledge Agreement; the Obligations,
and any
<PAGE> 10
10
of them, shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Pledge Agreement; and all dealings between the
Company and the Pledgor, on the one hand, and the Agent and the Banks, on the
other, shall likewise be conclusively presumed to have been had or consummated
in reliance upon this Pledge Agreement. The Pledgor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Company or the Pledgor with respect to the Obligations.
12. LIMITATION ON DUTIES REGARDING COLLATERAL. The Agent's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Agent deals with similar
securities and property for its own account. Neither the Agent, any Bank nor any
of their respective directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Pledgor or otherwise.
13. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
14. SEVERABILITY. Any provision of this Pledge Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
<PAGE> 11
11
15. PARAGRAPH HEADINGS. The paragraph headings used in this
Pledge Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. NO WAIVER; CUMULATIVE REMEDIES. Neither the Agent nor any
Bank shall by any act (except by a written instrument pursuant to paragraph 18
hereof) be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Bank, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Agent or any Bank of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Agent
or such Bank would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any other rights or remedies provided by law.
17. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING
LAW. None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Agent, PROVIDED that any provision of this Pledge Agreement
may be waived by the Agent in a letter or agreement executed by the Agent or by
telex or facsimile transmission from the Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Agent and the Banks and their respective successors and assigns.
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
18. NOTICES. Notices by the Agent to the Pledgor or the
Company may be given by mail, by telex or by facsimile transmission, addressed
or transmitted to the Pledgor or the Company at its address or transmission
number set forth under its signature below and shall be effective (a) in the
case of mail, five days after deposit in the postal system, first class postage
pre-paid, and (b) in the case of telex or facsimile notices, when sent. The
Pledgor and the Company may change their respective addresses and transmission
numbers by written notice to the Agent.
19. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO COMPANY. The
Pledgor hereby authorizes and instructs the Company to comply with any
instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Pledge Agreement, without any other or further instructions from the
Pledgor, and the Pledgor agrees that the Company shall be fully protected in so
complying.
20. AUTHORITY OF AGENT. The Pledgor acknowledges that the
rights and responsibilities of the Agent under this Pledge Agreement with
respect to any action taken by the Agent or the exercise or non-exercise by the
Agent of any option, voting right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Pledge Agreement
<PAGE> 12
12
shall, as between the Agent and the Banks, be governed by the Credit Agreement
and by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Agent and the Pledgor, the Agent shall be
conclusively presumed to be acting as agent for the Banks with full and valid
authority so to act or refrain from acting, and neither the Pledgor nor the
Company shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
21. RESTATEMENT. It is the intention of each of the parties
hereto that all obligations of the Pledgor under the Existing Pledge Agreement
be continued hereunder, and that the Existing Pledge Agreement be amended and
restated to reflect such continuation and to preserve the pledge of stock by the
Pledgor to the Agent under the Existing Pledge Agreement.
<PAGE> 13
13
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
AMERICAN MEDIA, INC.
By:
--------------------------------
Title:
Address for Notices:
c/o AMERICAN MEDIA OPERATIONS, INC.
600 East Coast Avenue
Lantana, Florida 33462
Attention: Richard W. Pickert and
Peter A. Nelson
Telecopy: (561) 540-1018
Telephone: (561) 540-1111
with a copy to:
Boston Ventures Management, Inc.
One Federal Street
23rd Floor
Boston, Massachusetts 02110
Attention: Roy F. Coppedge, III
Anthony J. Bolland
Telecopy: (617) 350-1500
Telephone: (617) 350-1500
Accepted and Agreed:
THE CHASE MANHATTAN BANK,
as Agent
By:
---------------------------
Title:
<PAGE> 14
14
ACKNOWLEDGEMENT AND CONSENT
The Company referred to in the foregoing Third Amended and
Restated Pledge Agreement hereby acknowledges receipt of a copy thereof and
agrees to be bound thereby and to comply with the terms thereof insofar as such
terms are applicable to it. The Company agrees to notify, in accordance with the
provisions of subsection 9.2 of the Credit Agreement, the Agent promptly in
writing of the occurrence of any of the events described in paragraph 5(a) of
the Third Amended and Restated Pledge Agreement. The Company further agrees that
the terms of paragraph 9(c) of the Third Amended and Restated Pledge Agreement
shall apply to it, MUTATIS mutandis, with respect to all actions that may be
required of it under or pursuant to or arising out of paragraph 9 of the Third
Amended and Restated Pledge Agreement.
AMERICAN MEDIA OPERATIONS, INC.
By:
---------------------------
Title:
<PAGE> 15
15
SCHEDULE 1
To Pledge
Agreement
---------
DESCRIPTION OF PLEDGED STOCK
Stock
Class of Certificate No. of
Company Stock No. Shares
- ------- ----- --- ------
American Media Common Stock
Operations, Inc. $.20 par value 3 7,507.58
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF AMERICAN MEDIA, INC.
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OF INCORPORATION
- --------------- ----------------------
<S> <C> <C>
(1) American Media Operations, Inc.............................. Delaware
(2) National Enquirer, Inc...................................... Florida
(3) Weekly World News, Inc...................................... Florida
(4) Distribution Services, Inc.................................. Delaware
(5) SOM Publishing, Inc......................................... Florida
(6) NDSI, Inc................................................... Delaware
(7) Star Editorial, Inc......................................... Delaware
(8) Country Weekly, Inc......................................... Delaware
</TABLE>
38
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed registration statements on Form S-8 (File No. 33-43810 and
33-44803).
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
June 19, 1998.
39
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN MEDIA, INC. FOR THE FISCAL YEAR ENDED MARCH
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-30-1998
<CASH> 7,405
<SECURITIES> 0
<RECEIVABLES> 7,852
<ALLOWANCES> 266
<INVENTORY> 10,390
<CURRENT-ASSETS> 32,328
<PP&E> 44,148
<DEPRECIATION> 18,149
<TOTAL-ASSETS> 648,060
<CURRENT-LIABILITIES> 84,268
<BONDS> 497,535
0
0
<COMMON> 428
<OTHER-SE> 57,910
<TOTAL-LIABILITY-AND-EQUITY> 648,060
<SALES> 307,684
<TOTAL-REVENUES> 307,684
<CGS> 237,724
<TOTAL-COSTS> 237,724
<OTHER-EXPENSES> 1,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,486
<INCOME-PRETAX> 17,684
<INCOME-TAX> 12,152
<INCOME-CONTINUING> 5,532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,532
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
