FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For Quarter Ended: June 30, 1998
Commission file number: 1-11106
PRIMEDIA Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3647573
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
745 Fifth Avenue, New York, New York
(Address of principal executive offices)
10151
(Zip Code)
Registrant's telephone number, including area code (212) 745-0100
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, par value $.01 per share, outstanding as of
July 31, 1998: 145,400,960
<PAGE>
PRIMEDIA Inc.
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements
- --------
Condensed Consolidated Balance Sheets
(Unaudited) as of December 31, 1997 and
June 30, 1998
2
Condensed Statements of Consolidated
Operations (Unaudited) for the six months
ended June 30, 1997 and 1998 3
Condensed Statements of Consolidated
Operations (Unaudited) for the three months
ended June 30, 1997 and 1998 4
Condensed Statements of Consolidated
Cash Flows (Unaudited) for the six months
ended June 30, 1997 and 1998 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6-12
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of Operations 13-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
- --------
Item 4. Submission of Matters to a Vote of Security Holders 24
- --------
Part II. Other Information: None
Signatures 25
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------- -------------
(dollars in thousands, except per share amounts)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 22,978 $ 20,863
Accounts receivable, net 199,289 206,211
Inventories, net 27,597 36,786
Net assets held for sale 38,665 23,900
Prepaid expenses and other 33,971 38,489
------------- -------------
Total current assets 322,500 326,249
Property and equipment, net 116,361 121,135
Other intangible assets, net 660,268 781,792
Excess of purchase price over net assets acquired, net 1,111,785 1,261,008
Deferred income tax asset, net 176,200 176,200
Other non-current assets 98,876 112,824
------------- -------------
$ 2,485,990 $ 2,779,208
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 95,546 $ 76,832
Accrued interest payable 13,622 21,462
Accrued expenses and other 204,770 201,615
Deferred revenues 140,474 170,506
Current maturities of long-term debt 14,333 22,167
------------- -------------
Total current liabilities 468,745 492,582
------------- -------------
Long-term debt 1,656,541 1,689,526
------------- -------------
Other non-current liabilities 48,271 61,637
------------- -------------
Exchangeable preferred stock 470,280 557,448
------------- -------------
Common stock subject to redemption ($.01 par value,
402,650 shares and 356,909 shares outstanding at December
31, 1997 and June 30, 1998, respectively) 4,376 4,274
------------- -------------
Shareholders' deficiency:
Common stock ($.01 par value, 129,797,078 shares and
145,080,351 shares outstanding at December 31, 1997
and June 30, 1998, respectively) 1,298 1,451
Additional paid-in capital 780,191 978,215
Accumulated deficit (929,011) (982,655)
Accumulated other comprehensive loss (1,543) (1,557)
Common stock in treasury, at cost (1,048,600 shares and 1,687,300
shares at December 31, 1997 and June 30, 1998, respectively) (13,158) (21,713)
------------- -------------
Total shareholders' deficiency (162,223) (26,259)
------------- -------------
$ 2,485,990 $ 2,779,208
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1998
---- ----
(dollars in thousands, except per share amounts)
Sales, net:
<S> <C> <C>
Specialty Magazines $ 363,477 $ 441,574
Education 221,355 143,466
Information 136,221 149,996
------------- -------------
Total sales, net 721,053 735,036
Operating costs and expenses:
Cost of goods sold 159,663 170,624
Marketing and selling 138,718 130,861
Distribution, circulation and fulfillment 127,249 128,710
Editorial 59,677 70,338
Other general expenses 80,839 76,696
Corporate administrative expenses 12,710 13,222
Depreciation and amortization of prepublication
costs, property and equipment 18,224 19,011
Gain on the sale of business, net and other - (1,849)
Amortization of intangible assets, excess of purchase
price over net assets acquired and other 63,977 74,727
------------- -------------
Operating income 59,996 52,696
Other income (expense):
Interest expense (68,963) (67,792)
Amortization of deferred financing costs (1,582) (1,585)
Other, net 18 (276)
------------- -------------
Loss before income tax benefit and extraordinary charge (10,531) (16,957)
Income tax benefit - carryback claim 1,685 -
------------- -------------
Loss before extraordinary charge (8,846) (16,957)
Extraordinary charge - extinguishment of debt (15,401) -
------------- -------------
Net loss (24,247) (16,957)
Preferred stock dividends:
Cash (20,330) (27,546)
Non-cash dividends in kind (4,451) -
Series B Preferred Stock redemption premium - (9,141)
------------- -------------
Loss applicable to common shareholders $ (49,028) $ (53,644)
============= =============
Basic and diluted loss applicable to common shareholders
per common share:
Loss before extraordinary charge $ (.26) $ (.38)
Extraordinary charge (.12) -
------------- -------------
Net loss $ (.38) $ (.38)
============= =============
Basic and diluted common shares outstanding 129,201,826 140,173,171
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1998
--------- ---------
(dollars in thousands, except per share amounts)
Sales, net:
<S> <C> <C>
Specialty Magazines $ 189,364 $ 247,345
Education 107,487 65,204
Information 71,911 77,501
------------- -------------
Total sales, net 368,762 390,050
Operating costs and expenses:
Cost of goods sold 79,565 89,184
Marketing and selling 68,516 70,337
Distribution, circulation and fulfillment 63,862 65,584
Editorial 30,367 37,739
Other general expenses 38,336 40,664
Corporate administrative expenses 5,960 6,845
Depreciation and amortization of prepublication costs,
property and equipment 8,385 9,856
Gain on the sale of business, net and other - (1,849)
Amortization of intangible assets, excess of purchase
price over net assets acquired and other 34,253 43,276
------------- -------------
Operating income 39,518 28,414
Other expense:
Interest expense (34,622) (34,371)
Amortization of deferred financing costs (740) (833)
Other, net (456) (435)
------------- -------------
Income (loss) before extraordinary charge 3,700 (7,225)
Extraordinary charge - extinguishment of debt (13,847) -
------------- -------------
Net loss (10,147) (7,225)
Preferred stock dividends:
Cash (12,455) (13,202)
------------- -------------
Loss applicable to common shareholders $ (22,602) $ (20,427)
============= =============
Basic and diluted loss applicable to common shareholders
per common share:
Loss before extraordinary charge $ (.07) $ (.14)
Extraordinary charge (.11) -
------------- -------------
Net loss $ (.18) $ (.14)
============= =============
Basic and diluted common shares outstanding 129,289,307 145,659,940
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1998
---- ----
(dollars in thousands)
Operating activities:
<S> <C> <C>
Net loss $ (24,247) $ (16,957)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 83,783 95,323
Gain on the sale of business, net and other - (1,849)
Accretion of discount on acquisition obligation, distribution
advance and other 3,305 3,691
Extraordinary charge - extinguishment of debt 15,401 -
Other, net (177) 257
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net 22,515 19,856
Inventories, net 1,130 (4,705)
Prepaid expenses and other (11,333) (8,096)
Increase (decrease) in:
Accounts payable (29,085) (24,088)
Accrued interest payable 876 7,840
Accrued expenses and other (16,185) (27,579)
Deferred revenues (18,737) (13,918)
Other non-current liabilities (1,844) (1,543)
------------- -------------
Net cash provided by operating activities 25,402 28,232
------------- -------------
Investing activities:
Additions to property, equipment and other, net (14,603) (16,983)
Proceeds from sales of businesses 5,423 27,750
Payments for businesses acquired (142,291) (313,587)
Investments in joint ventures - (3,655)
------------- -------------
Net cash used in investing activities (151,471) (306,475)
------------- -------------
Financing activities:
Borrowings under credit agreements 523,930 520,265
Repayments of borrowings under credit agreements (142,950) (727,400)
Payments of acquisition obligation (3,000) (3,000)
Proceeds from issuances of common stock, net of redemptions 2,203 200,981
Redemptions and purchases of 10 5/8% Senior Notes (242,787) -
Redemption of Series B Preferred Stock - (166,739)
Proceeds from issuance of 7 5/8% Senior Notes, net of discount - 248,562
Proceeds from issuance of Series G Preferred Stock, net of
issuance costs - 242,299
Purchases of common stock for the treasury - (8,555)
Dividends paid to preferred stock shareholders (20,330) (23,974)
Deferred financing costs paid (1,617) (5,269)
Other 233 (1,042)
------------- -------------
Net cash provided by financing activities 115,682 276,128
------------- -------------
Decrease in cash and cash equivalents (10,387) (2,115)
Cash and cash equivalents, beginning of period 36,655 22,978
------------- -------------
Cash and cash equivalents, end of period $ 26,268 $ 20,863
============= =============
Supplemental information:
Cash interest paid $ 67,060 $ 58,578
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PRIMEDIA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in thousands, except per share amounts)
1. Basis of Presentation
---------------------
PRIMEDIA Inc., together with its subsidiaries, is herein referred to as either
"PRIMEDIA" or the "Company". In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the prior year financial statements to conform to the
classifications used in the current period. The operating results for the three
and six-month periods ended June 30 are not necessarily indicative of the
results that may be expected for a full year.
The Company's operations have been organized into three business segments:
specialty magazines, education and information. In the first quarter of 1998,
the Company reclassified PRIMEDIA Reference from the information segment to the
education segment and has restated prior periods accordingly. The Company's
management believes that the education segment is more reflective of the focus
of the PRIMEDIA Reference products.
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" (see Note 12). In 1998, the
Company adopted the American Institute of Certified Public Accountants'
("AICPA") Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". Under the Company's
previous accounting policy, internal use software costs, whether developed or
obtained, were generally expensed as incurred. In compliance with SOP 98-1, the
Company expenses costs incurred in the preliminary project stage and,
thereafter, capitalizes costs incurred in the developing or obtaining of
internal use software. Certain costs, such as maintenance and training, are
expensed as incurred. Capitalized costs are amortized over a period of not more
than five years and are subject to impairment evaluation in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". The adoption of SOP 98-1 resulted
in an increase in operating income and a decrease in net loss of approximately
$2,800 ($.02 per share) and approximately $4,100 ($.03 per share) for the three
and six months ended June 30, 1998, respectively.
On April 3, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" which requires that costs of start-up activities, including
organizational costs, be expensed as incurred. This SOP will be effective with
the Company's 1999 consolidated financial statements. In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which becomes effective for the
Company's 2000 consolidated financial statements. SFAS No. 133 requires that
derivative instruments be measured at fair value and recognized as assets or
liabilities in a company's statement of financial position. In the opinion of
the Company's management, it is not anticipated that the adoption of these new
accounting pronouncements will have a material effect on the consolidated
financial statements of the Company.
2. Acquisitions and Joint Ventures
--------------------------------
During the six-month period ended June 30, 1998, the Company completed several
acquisitions which were financed through borrowings under the Company's credit
agreements. On March 19, 1998, the Company acquired the Cowles Enthusiast Media
and Cowles Business Media divisions (collectively "Cowles") of Cowles Media
Company from McClatchy Newspapers, Inc. This acquisition includes 25 enthusiast
magazines, 11 technical and trade magazines and 15 trade shows. On May 11, 1998,
the Company completed the acquisition of American Trucker, a publisher of 18
regional truck "traders". In addition, the Company made five product-line
acquisitions in the specialty magazines segment and three in the information
segment. Cash payments for these acquisitions on an aggregate basis approximated
$314,000 (net of liabilities assumed of approximately $76,000) including certain
immaterial purchase price adjustments related to prior year acquisitions. The
excess purchase price over net assets acquired was approximately $172,000.
The preliminary purchase cost allocations for the 1998 acquisitions are subject
to adjustment when additional information concerning asset and liability
valuations is obtained. The final asset and liability fair values may differ
from those set forth in the accompanying condensed consolidated balance sheet at
June 30, 1998; however, the changes are not expected to have a material effect
on the consolidated financial statements of the Company.
These acquisitions have all been accounted for by the purchase method. The
financial statements include the operating results of these acquisitions
subsequent to their respective dates of acquisition. If the foregoing
acquisitions had occurred on January 1, 1997, they would not have had a material
impact on the results of operations for the three and six-month periods ended
June 30, 1997 and 1998.
In the first quarter of 1998, the Company created PRIMEDIA Ventures, a fund to
invest in early-stage Internet companies and other technology opportunities such
as commerce services, enterprise software applications and advertising-related
technologies. Its first investment related to an on-line wedding gift registry
service. In addition, the Company entered into a joint venture in China to
publish trade magazines in Chinese language editions.
3. Non-Core Businesses
-------------------
As part of its strategy to focus on areas of its business that have the greatest
potential for growth, during 1996 and 1997, the Company decided to divest the
following non-core business units: Katharine Gibbs Schools, Inc. ("Katharine
Gibbs"), Newbridge Communications, Inc. (excluding Films for the Humanities and
Sciences), Krames Communications Incorporated ("Krames"), Stagebill, Intertec
Mailing Services and New Woman which have been divested and The Daily Racing
Form which is currently being held for sale (see Note 13).
During the first quarter of 1998, the Company decided to divest Nelson
Information, Inc. ("Nelson") and discontinue certain enthusiast titles, some of
which have already been sold. In addition, the Company decided to discontinue
the Funk and Wagnalls' products. During the second quarter of 1998, the Company
completed the sale of the outstanding common stock of Nelson to Thomson
Information Services Inc. In connection with the sale of Nelson, the Company
recorded a gain which is included in gain on the sale of business, net and other
on the accompanying condensed statements of consolidated operations for the
three and six months ended June 30, 1998.
The aforementioned divestitures and product discontinuations, as well as the
unit held for sale are collectively referred to as Non-Core Businesses. The net
assets of The Daily Racing Form have been recorded at net realizable value as
net assets held for sale on the accompanying condensed consolidated balance
sheets at December 31, 1997 and June 30, 1998.
Total sales for the Non-Core Businesses were $78,888 and $19,089 for the
three-month periods ended June 30, 1997 and 1998, respectively, and $155,485 and
$35,552 for the six-month periods ended June 30, 1997 and 1998, respectively.
Operating income for the Non-Core Businesses was $11,149 and $10,545 for the
three-month periods ended June 30, 1997 and 1998, respectively, and $10,095 and
$12,298 for the six-month periods ended June 30, 1997 and 1998, respectively.
4. Network Shutdown
----------------
In June 1998, the Company decided, that effective August 1, 1998, it would
discontinue Executive Education Network ("EXEN"), a PRIMEDIA Workplace Learning
network, due to unprofitability and increased competition in this field. As a
result, the Company recorded a $4,000 provision related to expected
discontinuance costs, which was recorded net of the gain on the sale of Nelson.
In addition, the Company recorded a $5,800 write-down of EXEN's excess of
purchase price over net assets acquired and other intangible assets which is
included in amortization expense. The provision and write-down are included on
the accompanying condensed statements of consolidated operations for the three
and six months ended June 30, 1998.
5. $9.20 Series E Exchangeable Preferred Stock Exchange Offer
----------------------------------------------------------
On September 26, 1997, the Company completed a private offering of 1,250,000
shares of $9.20 Series E Exchangeable Preferred Stock ("Series E Preferred
Stock") at $100 per share. On February 17, 1998, the Company exchanged the
1,250,000 shares of Series E Preferred Stock for 1,250,000 shares of $9.20
Series F Exchangeable Preferred Stock ("Series F Preferred Stock"). The terms of
the Series F Preferred Stock are the same as the Series E Preferred Stock except
that the Series F Preferred Stock has been registered under the Securities Act
of 1933. The Series F Preferred Stock is exchangeable into 9.20% Class F
Subordinated Exchange Debentures due 2009, in whole but not in part, at the
option of the Company on any scheduled dividend payment date. Dividends on the
Series F Preferred Stock accrued and were cumulative from the last dividend
payment date on which dividends were paid on shares of the Series E Preferred
Stock. The Series E / Series F Preferred Stock is recorded on the accompanying
condensed consolidated balance sheets at the aggregate redemption value (net of
unamortized issuance costs) of $120,504 and $120,207 at December 31, 1997 and
June 30, 1998, respectively.
6. Offerings
---------
$8.625 Series G / Series H Exchangeable Preferred Stock
On February 17, 1998, the Company completed a private offering of 2,500,000
shares of $8.625 Series G Exchangeable Preferred Stock ("Series G Preferred
Stock") at $99.40 per share. Annual dividends of $8.625 per share on the Series
G Preferred Stock were cumulative and payable quarterly, in cash, commencing
July 1, 1998. On June 10, 1998, the Company exchanged the 2,500,000 shares of
Series G Preferred Stock for 2,500,000 shares of $8.625 Series H Exchangeable
Preferred Stock ("Series H Preferred Stock"). The terms of the Series H
Preferred Stock are the same as the terms of the Series G Preferred Stock except
that the Series H Preferred Stock has been registered under the Securities Act
of 1933. Prior to April 1, 2001, the Company may, at its option, redeem in whole
or in part, up to $125,000 of the aggregate liquidation preference of the Series
H Preferred Stock at a price per share of $108.625 plus accrued and unpaid
dividends to the redemption date subject to certain other restrictions. On or
after April 1, 2003, the Series H Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at prices ranging from 104.313% with annual
reductions to 100% in 2006 plus accrued and unpaid dividends. The Company is
required to redeem the Series H Preferred Stock on April 1, 2010 at a redemption
price equal to the liquidation preference of $100 per share, plus accrued and
unpaid dividends. The Series H Preferred Stock is exchangeable, in whole but not
in part, at the option of the Company, on any scheduled dividend payment date
into 8 5/8% Class H Subordinated Exchange Debentures due 2010. The Series H
Preferred Stock is recorded on the accompanying condensed consolidated balance
sheet at the aggregate redemption value (net of unamortized discount and
issuance costs) of $242,562 at June 30, 1998.
7 5/8% Senior Notes due 2008
On February 17, 1998, the Company completed a private offering of $250,000 7
5/8% Senior Notes due 2008, (" Old 7 5/8% Senior Notes"). The Old 7 5/8% Senior
Notes were issued at 99.425% and mature on April 1, 2008, with no sinking fund.
Interest on the Old 7 5/8% Senior Notes was payable semi-annually in April and
October at the annual rate of 7 5/8% commencing October 1, 1998. On June 10,
1998, the Company exchanged the Old 7 5/8% Senior Notes for a new series of
$250,000 7 5/8% Senior Notes due 2008 ("New 7 5/8% Senior Notes"). The terms of
the New 7 5/8% Senior Notes are the same as the terms of the Old 7 5/8% Senior
Notes except that the New 7 5/8% Notes have been registered under the Securities
Act of 1933. The New 7 5/8% Senior Notes may not be redeemed prior to April 1,
2003 other than in connection with a change of control. Beginning on April 1,
2003 and thereafter, the New 7 5/8% Senior Notes are redeemable in whole or in
part, at the option of the Company, at prices ranging from 103.813% with annual
reductions to 100% in 2006 plus accrued and unpaid interest. The New 7 5/8%
Senior Notes are recorded on the accompanying condensed consolidated balance
sheet at their aggregate redemption value (net of unamortized discount) of
$248,592 at June 30, 1998.
Net proceeds from these private offerings were used to redeem the $11.625 Series
B Exchangeable Preferred Stock ("Series B Preferred Stock") (see Note 10) and to
repay borrowings outstanding under the Bank Credit Facilities, which amounts may
be reborrowed for general corporate purposes including acquisitions.
7. Related Party Transactions
--------------------------
On March 18, 1998, KKR 1996 Fund L.P., a Delaware limited partnership affiliated
with Kohlberg Kravis Roberts & Co. ("KKR"), purchased 16,666,667 shares of newly
issued common stock from the Company for approximately $200,000 (the "KKR Fund
Investment"). The net proceeds (after issuance costs) from the KKR Fund
Investment were used to repay borrowings outstanding under the Bank Credit
Facilities, which amounts may be reborrowed for general corporate purposes
including acquisitions.
8. Inventories, net:
-----------------
Inventories consist of the following:
December 31, June 30,
1997 1998
------ ------
Finished goods $ 12,271 $ 12,461
Work in process 3,314 184
Raw materials 14,494 26,994
--------------- ---------------
30,079 39,639
Less allowance for obsolescence 2,482 2,853
=============== ===============
$ 27,597 $ 36,786
=============== ===============
9. Long-term debt
--------------
Long-term debt consists of the following:
December 31, June 30,
1997 1998
------- ------
Borrowings under Bank Credit Facilities $ 1,218,101 $ 1,010,966
10 1/4% Senior Notes due 2004 100,000 100,000
8 1/2% Senior Notes due 2006 298,902 298,951
7 5/8% Senior Notes due 2008 (see Note 6) - 248,592
------------- -------------
1,617,003 1,658,509
Acquisition obligation payable 53,871 53,184
------------- -------------
1,670,874 1,711,693
Less current portion 14,333 22,167
------------- -------------
$ 1,656,541 $ 1,689,526
============= =============
In July 1997, in order to hedge its interest rate risk, the Company entered into
four, three-year and two, four-year interest rate swap agreements, with an
aggregate notional amount of $600,000. Under these new swap agreements, which
commenced on January 2, 1998, the Company receives a floating rate of interest
based on three-month LIBOR, which resets quarterly, and the Company pays a fixed
rate of interest, each quarter, for the terms of the respective agreements. In
May 1998, two interest rate swap agreements, which were entered into in May 1995
and have an aggregate notional amount of $200,000, expired. In the first six
months of 1998, the weighted average variable and weighted average fixed
interest rates on these swap agreements were 5.8% and 6.4%, respectively.
On April 20, 1998, the 364-day credit facility with The Chase Manhattan Bank,
the Bank of New York, Bankers Trust Company and the Bank of Nova Scotia as
agents (the "New Credit Facility") expired. As a result, the Company has total
commitments of $1,400,000 and can borrow up to $1,500,000 in the aggregate under
its Bank Credit Facilities.
10. Exchangeable Preferred Stock
----------------------------
Exchangeable Preferred Stock consists of the following:
December 31, June 30,
1997 1998
------ ------
$11.625 Series B Exchangeable Preferred Stock $ 155,281 $ -
$10.00 Series D Exchangeable Preferred Stock 194,495 194,679
$9.20 Series E / Series F Exchangeable Preferred Stock 120,504 120,207
$8.625 Series H Exchangeable Preferred Stock - 242,562
--------- ---------
$ 470,280 $ 557,448
========= =========
$11.625 Series B Exchangeable Preferred Stock
The Company authorized 2,000,000 shares of $.01 par value Series B Preferred
Stock, 1,576,036 shares of which were issued and outstanding at December 31,
1997. The liquidation and redemption value at December 31, 1997 was $157,604.
On March 20, 1998, the Company redeemed all outstanding shares of Series B
Preferred Stock at a price of $105.80 per share, plus accrued and unpaid
dividends, aggregating approximately $169,000 (see Note 6).
$10.00 Series D Exchangeable Preferred Stock
The Company authorized 2,000,000 shares of $.01 par value $10.00 Series D
Exchangeable Preferred Stock, all of which was issued and outstanding at
December 31, 1997 and June 30, 1998. The liquidation and redemption value at
December 31, 1997 and June 30, 1998 was $200,000.
$9.20 Series E / Series F Exchangeable Preferred Stock
The Company authorized 1,250,000 shares of $.01 par value Series E / Series F
Preferred Stock, all of which was issued and outstanding at December 31, 1997
and June 30, 1998. The liquidation and redemption value at December 31, 1997 and
June 30, 1998 was $125,000 (see Note 5).
$8.625 Series H Exchangeable Preferred Stock
The Company authorized 2,500,000 shares of $.01 par value Series H Preferred
Stock, all of which was issued and outstanding at June 30, 1998. The liquidation
and redemption value at June 30, 1998 was $250,000 (see Note 6).
11. Loss per Common Share
---------------------
Loss per share for the three and six-month periods ended June 30, 1997 and 1998
has been determined based on loss before extraordinary charge after preferred
stock dividends, divided by the weighted average number of common shares
outstanding for all periods presented. The effect of the assumed exercise of
non-qualified stock options was not included in the computation of diluted loss
per share because the effect of inclusion would be antidilutive. The adoption of
SFAS No. 128, "Earnings Per Share", which became effective beginning in the
fourth quarter of 1997, did not result in the restatement of previously reported
loss per share amounts for the three and six months ended June 30, 1997.
12. Comprehensive Income
---------------------
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires the disclosure of comprehensive
income, defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. The
adoption of this new accounting standard did not have a material effect on the
consolidated financial statements of the Company.
Comprehensive loss for the six and three months ended June 30, 1997 and 1998 is
presented in the following table:
Six Months Ended
June 30, June 30,
1997 1998
------- -------
Net loss $ (24,247) $ (16,957)
Other comprehensive loss:
Foreign currency translation adjustments (358) (14)
============ ============
Total comprehensive loss $ (24,605) $ (16,971)
============ ============
Three Months Ended
June 30, June 30,
1997 1998
------- -------
Net loss $ (10,147) $ (7,225)
Other comprehensive loss:
Foreign currency translation adjustments (77) (135)
============ ============
Total comprehensive loss $ (10,224) $ (7,360)
============ ============
13. Subsequent Events
------------------
For the period from July 1, 1998 through August 13, 1998, the Company completed
two product-line acquisitions in the education and information segments. The
aggregate purchase price for such acquisitions was approximately $54,000, all of
which was financed through borrowings under the Company's Bank Credit
Facilities.
On July 23, 1998, the Company signed a definitive agreement to sell the
outstanding stock of The Daily Racing Form to a group of investors led by the
merchant banking affiliate of Alpine Capital Group of New York and journalist
Steven Crist. The Company expects the proceeds from the sale to exceed the
carrying value of The Daily Racing Form at June 30, 1998, and the Company
expects the sale to be completed in the third quarter of 1998.
On August 7, 1998, the Company announced that it had completed its existing
stock repurchase program and its Board of Directors has authorized a new program
for the purchase of up to $15,000 of the Company's outstanding common shares.
The Company has not established a specific timetable for the repurchases. The
purchased shares will become treasury shares and will be available for general
corporate purposes.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
PRIMEDIA Inc., together with its subsidiaries, is herein referred to as either
"PRIMEDIA" or the "Company."
The following discussion and analysis of the Company's unaudited financial
condition and results of operations should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto. The
Company organizes its businesses into three segments: specialty magazines
(specialty consumer magazines and technical and trade magazines), education
(classroom learning and workplace learning) and information (consumer
information and business information).
In the first quarter of 1998, the Company reclassified PRIMEDIA Reference from
the information segment to the education segment and has restated prior periods
accordingly. The Company's management believes that the education segment is
more reflective of the focus of the PRIMEDIA Reference products.
Management believes a meaningful comparison of the results of operations for the
three and six-months ended June 30, 1997 and 1998 is obtained by using the
segment information. In addition, the Company presents results from "continuing
businesses" which exclude the results of the Non-Core Businesses ("Continuing
Businesses"). The Non-Core Businesses include: (i) Krames, Katharine Gibbs, New
Woman, Intertec Mailing Services, Newbridge Communications, Inc. (excluding
Films for the Humanities and Sciences), Stagebill, Nelson and certain enthusiast
titles, which have been divested, (ii) The Daily Racing Form which is being held
for sale (see "Recent Developments") and (iii) the Funk and Wagnalls' products
and certain enthusiast titles, which are being discontinued. Management believes
that this presentation is the most useful way to analyze the historical trends
of the businesses.
<PAGE>
PRIMEDIA INC.
Unaudited Results of Consolidated Operations
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1998 1997 1998
------ ------ ------ ------
Sales, Net
<S> <C> <C> <C> <C>
Continuing Businesses:
Specialty Magazines $ 336,036 $ 440,155 $ 174,929 $ 247,112
Education 126,828 140,039 61,149 62,389
Information 102,704 119,290 53,796 61,460
------------- ------------- ------------- -------------
Subtotal 565,568 699,484 289,874 370,961
Non-Core Businesses: 155,485 35,552 78,888 19,089
------------- ------------- ------------- -------------
Total $ 721,053 $ 735,036 $ 368,762 $ 390,050
============= ============= ============= =============
Operating Income (Loss):
Continuing Businesses:
Specialty Magazines $ 48,170 $ 46,905 $ 28,916 $ 29,242
Education 6,336 (10,023) 569 (14,783)
Information 7,849 17,075 4,940 10,434
Corporate (12,454) (13,559) (6,056) (7,024)
------------- ------------- ------------- -------------
Subtotal 49,901 40,398 28,369 17,869
Non-Core Businesses: 10,095 12,298 11,149 10,545
------------- ------------- ------------- -------------
Total 59,996 52,696 39,518 28,414
Other Income (Expense):
Interest Expense (68,963) (67,792) (34,622) (34,371)
Amortization of deferred
financing costs (1,582) (1,585) (740) (833)
Other, net 18 (276) (456) (435)
------------- ------------- ------------- -------------
Income (loss) before income tax benefit
and extraordinary charge (10,531) (16,957) 3,700 (7,225)
Income tax benefit -carryback
claim 1,685 - - -
------------- ------------- ------------- -------------
Income (loss) before extraordinary
charge (8,846) (16,957) 3,700 (7,225)
Extraordinary charge - extinguishment
of debt (15,401) - (13,847) -
------------- ------------- ------------- -------------
Net loss $ (24,247) $ (16,957) $ (10,147) $ (7,225)
============= ============= ============= =============
</TABLE>
<PAGE>
RESULTS OF OPERATIONS (dollars in thousands, except per share amounts)
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997:
Consolidated Results:
Sales from Continuing Businesses increased 23.7% to $699,484 in the first six
months of 1998 from $565,568 in 1997, due to sales increases in all segments.
Sales as reported, including the Non-Core Businesses, increased by 1.9% in the
first six months of 1998 as compared to the same period in 1997.
Operating income from Continuing Businesses decreased 19.0% to $40,398 during
the first six months of 1998 from $49,901 during the same period in 1997. This
decrease was attributable to the EXEN shutdown provision, the satellite failure
at Channel One as well as the reduced margins at Soap Opera Digest due to the
change from a bi-weekly to a weekly publication. In addition, amortization
expense increased due to the write-off of EXEN's goodwill and other intangible
assets as well as acquisitions. These factors were partially offset by strength
in the information segment. Operating income as reported, including the Non-Core
Businesses, decreased by 12.2% in the first six months of 1998 as compared to
the same period in 1997.
Interest expense decreased by $1,171 or 1.7% during the first six months of 1998
as compared to the first six months of 1997. Interest savings associated with
the 1998 offerings were mitigated by increased borrowings to fund acquisitions
during the 1998 period.
The extraordinary charge in the first six months of 1997 reflects the write-off
of deferred financing costs and an interest premium associated with the
redemption of the Company's 10 5/8% Senior Notes.
Specialty Magazines:
Results from Continuing Businesses exclude New Woman, Stagebill, Intertec
Mailing Services and certain enthusiast titles recently sold or discontinued.
Sales from Continuing Businesses increased 31.0% to $440,155 during the first
six months of 1998 from $336,036 during the same period in 1997, due largely to
advertising and circulation growth at Seventeen as well as advertising growth at
various other specialty consumer and technical and trade magazines which
aggregated approximately $13,000. Acquisitions including Park Avenue Publishing,
Plaza Communications, Cardinal Business Media, Lapidary Journal, American
Trucker, Cowles Business Media and Cowles Enthusiast Media contributed
approximately $85,000 to the sales growth.
Operating income from Continuing Businesses decreased 2.6% to $46,905 during the
first six months of 1998 from $48,170 during the same period in 1997, due to
increased goodwill and other intangible amortization expense resulting from
acquisitions, the Soap Opera Digest frequency change, Cowles acquisition
integration costs and increased product investments.
Education:
Results from Continuing Businesses exclude Krames, Katharine Gibbs, Newbridge
(excluding Films for the Humanities and Sciences) and the Funk and Wagnalls'
products. Sales from Continuing Businesses increased 10.4% to $140,039 during
the first six months of 1998 from $126,828 during the same period in 1997
primarily attributable to the acquisitions of Cover Concepts, QWIZ and
Pictorial, offset by reduced advertising revenue at Channel One due to the
failure of PanAmSat's Galaxy IV satellite, which interrupted broadcasting for
the last two weeks of the school year, and lower revenues at PRIMEDIA Workplace
Learning.
Operating income (loss) from Continuing Businesses decreased to $(10,023) during
the first six months of 1998 from $6,336 during the same period in 1997, due
primarily to the EXEN shutdown provision, write-off of EXEN's goodwill and other
intangible assets and the satellite failure at Channel One.
Information:
Results from Continuing Businesses exclude The Daily Racing Form, and Nelson.
Sales from Continuing Businesses increased 16.1% to $119,290 during the first
six months of 1998 from $102,704 during the same period in 1997. This increase
is primarily attributable to advertising and distribution revenue growth at
Haas, approximating $10,000, as well as strong growth at Bacon's.
Operating income from Continuing Businesses increased to $17,075 during the
first six months of 1998 from $7,849 during the same period in 1997, due largely
to the strong sales growth and declining other intangible asset amortization
expense due to the use of accelerated amortization methods.
Non-Core Businesses:
Sales from Non-Core Businesses declined to $35,552 during the first six months
of 1998 from $155,485 during the same period in 1997. Most of this decline
resulted from the divestitures of certain Non-Core Businesses during the second
half of 1997.
Operating income from Non-Core Businesses increased to $12,298 during the first
six months of 1998 from $10,095 during the same period in 1997, largely
attributable to the gain on the sale of Nelson, offset by the divestitures of
certain Non-Core Businesses in the second half of 1997.
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997:
Consolidated Results:
Sales from Continuing Businesses increased 28.0% to $370,961 in the second
quarter of 1998 from $289,874 in 1997, due to sales increases in all segments.
Sales as reported , including the Non-Core Businesses, increased by 5.8% in the
second quarter of 1998 as compared to the same period in 1997.
Operating income from Continuing Businesses decreased 37.0% to $17,869 during
the second quarter of 1998 from $28,369 during the same period in 1997. This
decrease was primarily attributable to the EXEN shutdown provision, the
satellite failure at Channel One as well as the reduced margins at Soap Opera
Digest due to the change from a bi-weekly to a weekly publication. In addition,
amortization expense increased due to the write-off of EXEN's goodwill and other
intangible assets as well as acquisitions. These factors were partially offset
by strength in the information segment. Operating income as reported, including
the Non-Core Businesses, decreased by 28.1% in the second quarter of 1998 as
compared to the same period in 1997.
Interest expense decreased by .7% during the second quarter of 1998 as compared
to the second quarter of 1997. Interest savings associated with the 1998
offerings were mitigated by increased borrowings to fund acquisitions during the
1998 period.
The extraordinary charge in the second quarter of 1997 reflects the write-off of
deferred financing costs and an interest premium associated with the redemption
of the Company's 10 5/8% Senior Notes.
Specialty Magazines:
Results from Continuing Businesses exclude New Woman, Stagebill, Intertec
Mailing Services and certain enthusiast titles recently sold or discontinued.
Sales from Continuing Businesses increased 41.3% to $247,112 during the second
quarter of 1998 from $174,929 during the same period in 1997, due largely to
advertising and circulation growth at Seventeen as well as advertising growth at
various other specialty consumer and technical and trade magazines which
aggregated approximately $7,000. Acquisitions including Park Avenue Publishing,
Plaza Communications, Cardinal Business Media, Lapidary Journal, American
Trucker, Cowles Business Media and Cowles Enthusiast Media contributed
approximately $67,000 to the sales growth.
Operating income from Continuing Businesses increased 1.1% to $29,242 during the
second quarter of 1998 from $28,916 during the same period in 1997, due
primarily to sales growth offset by increased goodwill and other intangible
amortization resulting from acquisitions, the Soap Opera Digest frequency
change, Cowles acquisition integration costs and increased product investments.
Education:
Results from Continuing Businesses exclude Krames, Katharine Gibbs, Newbridge
(excluding Films for the Humanities and Sciences) and the Funk and Wagnalls'
products. Sales from Continuing Businesses increased 2.0% to $62,389 during the
second quarter of 1998 from $61,149 during the same period in 1997 primarily
attributable to the acquisitions of Cover Concepts, QWIZ and Pictorial, offset
by lower advertising revenue at Channel One due to the satellite failure.
Operating income (loss) from Continuing Businesses decreased to $(14,783) during
the second quarter of 1998 from $569 during the same period in 1997, due
primarily to the EXEN shutdown provision and write-off of related goodwill and
other intangible assets and the satellite failure at Channel One.
Information:
Results from Continuing Businesses exclude The Daily Racing Form and Nelson.
Sales from Continuing Businesses increased 14.2% to $61,460 during the second
quarter of 1998 from $53,796 during the same period in 1997. This increase is
primarily attributable to strong organic growth at Haas and Bacon's.
Operating income from Continuing Businesses increased to $10,434 during the
second quarter of 1998 from $4,940 during the same period in 1997, due largely
to the sales growth as well as a decline in intangible asset amortization
expense.
Non-Core Businesses:
Sales from Non-Core Businesses declined 75.8% to $19,089 during the second
quarter of 1998 from $78,888 during the same period in 1997. Most of this
decline resulted from the divestitures of certain Non-Core Businesses during the
second half of 1997.
Operating income from Non-Core Businesses decreased to $10,545 during the second
quarter of 1998 from $11,149 during the same period in 1997, largely
attributable to the divestitures of certain Non-Core Businesses in the second
half of 1997, offset by the gain on the sale of Nelson.
Liquidity and Capital Resources
Consolidated working capital deficiency including net assets held for sale and
current maturities of long-term debt was $166,333 at June 30, 1998 as compared
to $146,245 at December 31, 1997. Consolidated working capital deficiency
reflects the expensing of editorial and product development costs when incurred
and the recording of deferred revenues as a current liability. Advertising costs
are expensed when the promotional activities occur except for certain
direct-response advertising costs which are capitalized as other non-current
assets and amortized over the estimated period of future benefit.
Earnings before interest, taxes, depreciation, amortization and provision for
one-time charges, or EBITDA, is a widely used and commonly reported standard
measure utilized by analysts, investors and other interested parties in the
analysis of the media industry. EBITDA is included in the following discussion
to provide additional information for determining the ability of the Company to
meet its future debt service requirements and to pay cash dividends on its
preferred stock. EBITDA is not intended to represent cash flow from operations
and should not be considered as an alternative to net income or loss as an
indicator of the Company's operating performance or to cash flows as a measure
of liquidity. This information is disclosed herein to permit a more complete
comparative analysis of the Company's operating performance relative to other
companies in its industry.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1998 1997 1998
------ ------ ------ ------
EBITDA:
<S> <C> <C> <C> <C>
Continuing Businesses:
Specialty Magazines $ 75,505 $ 86,211 $ 43,591 $ 52,705
Education 40,693 36,892 20,013 13,518
Information 23,488 29,139 13,138 16,582
Corporate (12,710) (13,222) (5,960) (6,845)
------------- ------------- ------------- -------------
Subtotal 126,976 139,020 70,782 75,960
Non-Core Businesses 15,221 5,565 11,374 3,737
------------- ------------- ------------- -------------
Total $ 142,197 $ 144,585 $ 82,156 $ 79,697
============= ============= ============= =============
Net Cash Provided by (Used in)
Operating Activities:
Continuing Businesses:
Specialty Magazines $ 64,740 $ 55,603 $ 44,898 $ 44,420
Education 15,395 20,562 11,364 15,571
Information 19,544 27,857 8,135 17,342
Corporate (79,045) (76,559) (40,213) (28,954)
------------ ------------- ------------- -------------
Subtotal 20,634 27,463 24,184 48,379
Non-Core Businesses 4,768 769 8,779 (834)
------------- ------------- ------------- -------------
Total $ 25,402 $ 28,232 $ 32,963 $ 47,545
============ ============= ============= =============
Net Cash Provided by (Used in)
Investing Activities:
Continuing Businesses:
Specialty Magazines $ (44,718) $ (295,057) $ (2,024) $ (109,553)
Education (81,802) (11,215) (62,866) (4,791)
Information (25,225) (23,257) (16,320) (8,145)
Corporate (656) (3,742) (318) (1,420)
------------- ------------- ------------- -------------
Subtotal (152,401) (333,271) (81,528) (123,909)
Non-Core Businesses 930 26,796 3,480 26,407
------------- ------------- ------------- -------------
Total $ (151,471) $ (306,475) $ (78,048) $ (97,502)
============= ============= ============= =============
Net Cash Provided by (Used in)
Financing Activities:
Continuing Businesses:
Specialty Magazines $ (1,606) $ (3,170) $ (1,592) $ (1,625)
Education (559) (1,167) (304) (286)
Information (1,199) (2,653) (1,167) (2,432)
Corporate 118,493 283,078 43,831 45,557
------------- ------------- ------------- -------------
Subtotal 115,129 276,088 40,768 41,214
Non-Core Businesses 553 40 12 40
------------- ------------- ------------- -------------
Total $ 115,682 $ 276,128 $ 40,780 $ 41,254
============= ============= ============= =============
</TABLE>
<PAGE>
EBITDA from Continuing Businesses increased by 9.5% to $139,020 in the six
months ended June 30, 1998 over 1997 mainly as a result of growth in the
specialty magazines and information segments attributable to existing operations
and product acquisitions. EBITDA from Continuing Businesses in the specialty
magazines segment increased 14.2% to $86,211 primarily due to growth from
acquisitions, partially offset by reduced margins at Soap Opera Digest due to
the change from a bi-weekly to a weekly magazine, integration costs associated
with the Cowles acquisition and increased product investments. EBITDA from
Continuing Businesses in the education segment decreased 9.3% to $36,892 largely
attributable to the satellite failure at Channel One and increased losses
incurred at EXEN, which was discontinued on August 1, 1998. EBITDA from
Continuing Businesses in the information segment increased 24.1% to $29,139 due
to revenue growth at Haas and Bacon's. EBITDA from the Non-Core Businesses
declined to $5,565 primarily as a result of the timing of divestitures most of
which occurred in the second half of 1997.
Net cash provided by operating activities, as reported, during the six months
ended June 30, 1998, after interest payments of $58,578, was $28,232, an
increase of $2,830 over the same 1997 period, due primarily to EBITDA growth.
Net capital expenditures were $16,983 during the six months ended June 30, 1998
which was an increase of $2,380 from the 1997 period due to increased
capitalized software expenditures, offset by a decrease due to the timing of
divestitures most of which occurred in the second half of 1997. Payments for
acquisitions of $313,587 were made during the six months ended June 30, 1998 for
the Cowles, American Trucker and other product line acquisitions. Net cash
provided by financing activities, as reported, during the six months ended June
30, 1998 was $276,128 as compared to $115,682 in the same 1997 period. The
increase was primarily attributable to increased borrowings associated with
acquisitions.
EBITDA from Continuing Businesses increased by 7.3% to $75,960 in the three
months ended June 30, 1998 over 1997 mainly as a result of growth in the
specialty magazines and information segments attributable to existing operations
and product acquisitions. EBITDA from Continuing Businesses in the specialty
magazines segment increased 20.9% to $52,705 primarily due to advertising and
circulation revenue growth and certain acquisitions, partially offset by reduced
margins at Soap Opera Digest, Cowles acquisition integration costs and
additional product investments. EBITDA from Continuing Businesses in the
education segment decreased 32.5% to $13,518 largely attributable to the
satellite failure at Channel One and increased losses incurred at EXEN. EBITDA
from Continuing Businesses in the information segment increased 26.2% to $16,582
due to strong organic growth at Haas and Bacon's. EBITDA from the Non-Core
Businesses declined to $3,737 primarily as a result of the timing of
divestitures most of which occurred in the second half of 1997.
Net cash provided by operating activities, as reported, during the three months
ended June 30, 1998, after interest payments of $25,704, was $47,545, an
increase of $14,582 over the same 1997 period, due primarily to strong accounts
receivable collections. Net capital expenditures were $11,066 during the three
months ended June 30, 1998 which was an increase of $3,451 from the 1997 period
due to increased capitalized software expenditures, offset by a decrease due to
the timing of divestitures, most of which occurred in the second half of 1997.
Payments for acquisitions of $113,436 were made during the three months ended
June 30, 1998 for the American Trucker and other product line acquisitions. Net
cash provided by financing activities, as reported, during the three months
ended June 30, 1998 was $41,254 as compared to $40,780 in the same 1997 period,
representing an increase of 1.2%.
Financing Arrangements
In July 1997, in order to hedge its interest rate risk, the Company entered into
four, three-year and two, four-year interest rate swap agreements, with an
aggregate notional amount of $600,000. Under these new swap agreements, which
commenced on January 2, 1998, the Company receives a floating rate of interest
based on three-month LIBOR, which resets quarterly, and the Company pays a fixed
rate of interest, each quarter, for the terms of the respective agreements. In
May 1998, two interest rate swap agreements, which were entered into in May 1995
and have an aggregate notional amount of $200,000, expired. In the first six
months of 1998, the weighted average variable and weighted average fixed
interest rates on these swap agreements were 5.8% and 6.4%, respectively.
On September 26, 1997, the Company completed a private offering of 1,250,000
shares of Series E Preferred Stock at $100 per share. On February 17, 1998, the
Company exchanged the 1,250,000 shares of Series E Preferred Stock for 1,250,000
shares of Series F Preferred Stock. The terms of the Series F Preferred Stock
are the same as the Series E Preferred Stock except that the Series F Preferred
Stock has been registered under the Securities Act of 1933. The Series F
Preferred Stock is exchangeable into 9.20% Class F Subordinated Exchange
Debentures due 2009, in whole but not in part, at the option of the Company on
any scheduled dividend payment date. Dividends on the Series F Preferred Stock
accrued and were cumulative from the last dividend payment date on which
dividends were paid on shares of the Series E Preferred Stock.
On February 17, 1998, the Company completed a private offering of 2,500,000
shares of Series G Preferred Stock at $99.40 per share. Annual dividends of
$8.625 per share on the Series G Preferred Stock were cumulative and payable
quarterly, in cash, commencing July 1, 1998. On June 10, 1998, the Company
exchanged the 2,500,000 shares of Series G Preferred Stock for 2,500,000 shares
of Series H Preferred Stock. The terms of the Series H Preferred Stock are the
same as the terms of the Series G Preferred Stock except that the Series H
Preferred Stock has been registered under the Securities Act of 1933. Prior to
April 1, 2001, the Company may, at its option, redeem in whole or in part, up to
$125,000 of the aggregate liquidation preference of the Series H Preferred Stock
at a price per share of $108.625 plus accrued and unpaid dividends to the
redemption date subject to certain other restrictions. On or after April 1,
2003, the Series H Preferred Stock may be redeemed in whole or in part, at the
option of the Company, at prices ranging from 104.313% with annual reductions to
100% in 2006 plus accrued and unpaid dividends. The Company is required to
redeem the Series H Preferred Stock on April 1, 2010 at a redemption price equal
to the liquidation preference of $100 per share, plus accrued and unpaid
dividends. The Series H Preferred Stock is exchangeable, in whole but not in
part, at the option of the Company, on any scheduled dividend payment date into
8 5/8% Class H Subordinated Exchange Debentures due 2010.
On February 17, 1998, the Company completed a private offering of $250,000 Old 7
5/8% Senior Notes. The Old 7 5/8% Senior Notes were issued at 99.425% and mature
on April 1, 2008, with no sinking fund. Interest on the Old 7 5/8% Senior Notes
was payable semi-annually in April and October at the annual rate of 7 5/8%
commencing October 1, 1998. On June 10, 1998, the Company exchanged the Old 7
5/8% Senior Notes for $250,000 New 7 5/8% Senior Notes. The terms of the New 7
5/8% Senior Notes are the same as the terms of the Old 7 5/8% Senior Notes
except that the New 7 5/8% Notes have been registered under the Securities Act
of 1933. The New 7 5/8% Senior Notes may not be redeemed prior to April 1, 2003
other than in connection with a change of control. Beginning on April 1, 2003
and thereafter, the New 7 5/8% Senior Notes are redeemable in whole or in part,
at the option of the Company, at prices ranging from 103.813% with annual
reductions to 100% in 2006 plus accrued and unpaid interest.
Net proceeds from these private offerings were used to redeem the Series B
Preferred Stock and to repay borrowings outstanding under the Bank Credit
Facilities, which amounts may be reborrowed for general corporate purposes
including acquisitions.
On March 18, 1998, KKR 1996 Fund L.P., a Delaware limited partnership affiliated
with KKR, purchased 16,666,667 shares of newly issued common stock from the
Company for approximately $200,000. The net proceeds (after issuance costs) from
the KKR Fund Investment were used to repay borrowings outstanding under the Bank
Credit Facilities, which amounts may be reborrowed for general corporate
purposes including acquisitions.
On April 20, 1998, the 364-day credit facility with The Chase Manhattan Bank,
the Bank of New York, Bankers Trust Company and the Bank of Nova Scotia as
agents expired. As a result, the Company has total commitments of $1,400,000 and
can borrow up to $1,500,000 in the aggregate under its Bank Credit Facilities.
Recent Developments
For the period from July 1, 1998 through August 13, 1998, the Company completed
two product-line acquisitions in the education and information segments. The
aggregate purchase price for such acquisitions was approximately $54,000, all of
which was financed through borrowings under the Company's Bank Credit
Facilities.
On July 23, 1998, the Company signed a definitive agreement to sell the
outstanding stock of The Daily Racing Form to a group of investors led by the
merchant banking affiliate of Alpine Capital Group of New York and journalist
Steven Crist. The Company expects the proceeds from the sale to exceed the
carrying value of The Daily Racing Form at June 30, 1998 and the Company expects
the sale to be completed in the third quarter of 1998.
On August 7, 1998, the Company announced that it had completed its existing
stock repurchase program and its Board of Directors has authorized a new program
for the purchase of up to $15,000 of the Company's outstanding common shares.
The Company has not established a specific timetable for the repurchases. The
purchased shares will become treasury shares and will be available for general
corporate purposes.
Impact of Inflation
The impact of inflation was immaterial during 1997 and through the first six
months of 1998. Paper prices declined through the first six months of 1997.
Moderate paper price increases occurred in July 1997 and in January 1998 for
most of the grades of paper used by the Company. In the first six months of
1998, paper costs represented approximately 9% of the Company's total operating
costs and expenses. Postage for product distribution and direct mail
solicitations is also a significant expense of the Company. The Company uses the
U.S. Postal Service for distribution of many of its products and marketing
materials. Postage costs increase periodically and can be expected to increase
in the future. In the past, the effects of inflation on operating expenses have
substantially been offset by PRIMEDIA's ability to increase selling prices. No
assurances can be given that the Company can pass such cost increases through to
its customers. In addition to pricing actions, the Company is continuing to
examine all aspects of the manufacturing and purchasing processes to identify
ways to offset some of these price increases.
Year 2000
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000 problem." The Year 2000 problem, which is common
to most corporations, relates to the inability of information systems, primarily
computer software programs, to properly recognize and process date sensitive
information related to the year 2000 and beyond. An assessment of the Company's
systems indicates that the costs associated with solving the Year 2000 problem
will be immaterial, due largely to investments already made in information
systems in recent years. A significant portion of the Company's efforts related
to this issue involves assessing vendor compliance and developing contingency
plans to deal with situations where significant vendors are perceived to be at
risk from the Year 2000 problem.
Forward-Looking Information
This report contains certain forward-looking statements concerning the Company's
operations, economic performance and financial condition. These statements are
based upon a number of assumptions and estimates which are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions which are subject to change. Some
of the assumptions may not materialize and unanticipated events will occur which
can affect the Company's results.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on May 21, 1998.
(b) At the meeting, incumbent directors William F. Reilly, Henry R. Kravis,
George R. Roberts, Michael T. Tokarz, Perry Golkin, Charles G. McCurdy, Beverly
C. Chell and Meyer Feldberg were re-elected.
(c) Set forth below is a description of the items that were voted upon at such
meeting and the number of votes cast for, against or withheld, plus abstentions
and broker non-votes, as to each such matter and director.
(i) Election of Directors:
An election of eight directors was held and the shares so present were voted for
as follows for the election of each of the following:
Number of Number of
Shares Voted For Shares Withheld
------------------- ----------------
William F. Reilly 139,853,154 391,198
Henry R. Kravis 139,851,661 392,691
George R. Roberts 139,852,671 391,681
Michael T. Tokarz 139,852,671 391,681
Perry Golkin 139,852,015 392,337
Charles G. McCurdy 139,854,691 389,661
Beverly C. Chell 139,854,590 389,762
Meyer Feldberg 139,878,511 365,841
(ii) The approval of Deloitte & Touche LLP as independent public accountants for
the Company for the fiscal year ending December 31, 1998 was ratified with
140,219,339 votes for, 9,535 votes against and 15,478 votes abstaining.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIMEDIA Inc.
(Registrant)
Date: August 14, 1998 /s/ William F. Reilly
----------------- --------------------------------------
(Signature)
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 14, 1998 /s/ Curtis A. Thompson
----------------- --------------------------------------
(Signature)
Vice President and Controller
(Principal Accounting Officer)
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