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, 1999
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, 1999: 145,468,389
<PAGE>
PRIMEDIA Inc.
INDEX
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
------
Condensed Consolidated Balance Sheets
(Unaudited) as of June 30, 1999 and
December 31, 1998 2
Condensed Statements of Consolidated
Operations (Unaudited) for the six months
ended June 30, 1999 and 1998 3
Condensed Statements of Consolidated
Operations (Unaudited) for the three months
ended June 30, 1999 and 1998 4
Condensed Statements of Consolidated
Cash Flows (Unaudited) for the six months
ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6-10
Item 2. Management's Discussion and Analysis of
------ Financial Condition and Results of Operations 11-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
------
Item 4. Submission of Matters to a Vote of Security Holders 20
------
Part II. Other Information: None
Signatures 21
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- ------------------
(dollars in thousands, except per share amounts)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 30,642 $ 24,538
Accounts receivable, net 226,392 247,138
Inventories, net 31,313 41,254
Net assets held for sale 159,791 -
Prepaid expenses and other 49,028 34,212
--------------- ---------------
Total current assets 497,166 347,142
Property and equipment, net 140,379 147,658
Other intangible assets, net 630,280 730,241
Excess of purchase price over net assets acquired, net 1,482,022 1,526,503
Deferred income tax asset, net 176,200 176,200
Other non-current assets 112,369 113,330
--------------- ---------------
$ 3,038,416 $ 3,041,074
=============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 82,378 $ 118,637
Accrued interest payable 24,458 20,451
Accrued expenses and other 213,325 220,571
Deferred revenues 173,726 197,131
Current portion of long-term debt 23,487 24,397
--------------- ---------------
Total current liabilities 517,374 581,187
--------------- ---------------
Long-term debt 2,085,158 1,956,997
--------------- ---------------
Other non-current liabilities 31,832 25,788
--------------- ---------------
Exchangeable preferred stock 558,593 557,841
--------------- ---------------
Common stock subject to redemption ($.01 par value, 118,260 shares
and 294,119 shares outstanding at June 30, 1999
and December 31, 1998, respectively) 1,582 2,964
--------------- ---------------
Shareholders' deficiency:
Common stock ($.01 par value, 148,071,149 shares and 146,966,562
shares issued at June 30, 1999 and December 31, 1998,
respectively) 1,481 1,470
Additional paid-in capital 985,019 979,720
Accumulated deficit (1,107,441) (1,030,032)
Accumulated other comprehensive loss (1,726) (1,720)
Common stock in treasury, at cost (2,772,300 shares and
2,752,300 shares at June 30, 1999 and December 31, 1998, respectively) (33,456) (33,141)
--------------- ---------------
Total shareholders' deficiency (156,123) (83,703)
--------------- ---------------
$ 3,038,416 $ 3,041,074
=============== ===============
</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,
1999 1998
----------------- ------------------
(dollars in thousands, except per share amounts)
<S> <C> <C>
Sales, net $ 837,449 $ 735,036
Operating costs and expenses:
Cost of goods sold 190,687 170,624
Marketing and selling 158,185 130,861
Distribution, circulation and fulfillment 142,828 128,710
Editorial 73,176 70,338
Other general expenses 93,097 76,696
Corporate administrative expenses 13,931 13,222
Depreciation of property and equipment 24,054 19,011
Gain on the sale of business, net and other - (1,849)
Provision for product line closures 22,000 -
Amortization of intangible assets, excess of purchase
price over net assets acquired and other 87,034 74,727
----------------- ----------------
Operating income 32,457 52,696
Other expense:
Interest expense (81,536) (67,792)
Amortization of deferred financing costs (1,571) (1,585)
Other, net (228) (276)
----------------- ----------------
Net loss (50,878) (16,957)
Preferred stock dividends:
Cash (26,531) (27,546)
Series B Preferred Stock redemption premium - (9,141)
----------------- ----------------
Loss applicable to common shareholders $ (77,409) $ (53,644)
================= ================
Basic and diluted loss applicable to common shareholders per
common share:
Net loss $ (.53) $ (.38)
================= ================
Basic and diluted common shares outstanding 144,984,704 140,173,171
================= ================
</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,
1999 1998
----------------- ----------------
(dollars in thousands, except per share amounts)
<S> <C> <C>
Sales, net $ 426,313 $ 390,050
Operating costs and expenses:
Cost of goods sold 97,494 89,184
Marketing and selling 79,075 70,337
Distribution, circulation and fulfillment 69,187 65,584
Editorial 37,120 37,739
Other general expenses 46,327 40,664
Corporate administrative expenses 6,964 6,845
Depreciation of property and equipment 11,735 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 42,630 43,276
--------------- ---------------
Operating income 35,781 28,414
Other income (expense):
Interest expense (41,118) (34,371)
Amortization of deferred financing costs (863) (833)
Other, net 1,316 (435)
--------------- ---------------
Net loss (4,884) (7,225)
Preferred stock dividends:
Cash (13,266) (13,202)
--------------- ---------------
Loss applicable to common shareholders $ (18,150) $ (20,427)
=============== ===============
Basic and diluted loss applicable to common shareholders per
common share:
Net loss $ (.12) $ (.14)
=============== ===============
Basic and diluted common shares outstanding 145,371,502 145,659,940
=============== ===============
</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,
1999 1998
--------------- ---------------
(dollars in thousands)
Operating activities:
<S> <C> <C>
Net loss $ (50,878) $ (16,957)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 112,659 95,323
Gain on the sale of business, net and other - (1,849)
Accretion of discount on acquisition obligation, distribution
advance and other 2,615 3,691
Non-cash provision for product line closures 8,809 -
Other, net (1,099) 257
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net (12,572) 19,856
Inventories, net (3,969) (4,705)
Prepaid expenses and other (15,516) (8,096)
Increase (decrease) in:
Accounts payable (27,695) (24,088)
Accrued interest payable 4,007 7,840
Accrued expenses and other (20,247) (27,579)
Deferred revenues (2,098) (13,918)
Other non-current liabilities (4) (1,543)
--------------- ---------------
Net cash provided by (used in) operating activities (5,988) 28,232
--------------- ---------------
Investing activities:
Additions to property, equipment and other, net (25,018) (16,983)
Proceeds from sales of businesses 5,370 27,750
Payments for businesses acquired (63,806) (313,587)
Investments in joint ventures (4,630) (3,655)
--------------- ---------------
Net cash used in investing activities (88,084) (306,475)
--------------- ---------------
Financing activities:
Borrowings under credit agreements 624,227 520,265
Repayments of borrowings under credit agreements (487,000) (727,400)
Payments of acquisition obligation (10,833) (3,000)
Proceeds from issuances of common stock, net of redemptions 4,680 200,981
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 (exchanged into Series H)
Preferred Stock, net of issuance costs - 242,299
Purchases of common stock for the treasury (315) (8,555)
Dividends paid to preferred stock shareholders (26,531) (23,974)
Deferred financing costs paid (3,177) (5,269)
Other (875) (1,042)
--------------- ---------------
Net cash provided by financing activities 100,176 276,128
--------------- ---------------
Increase (decrease) in cash and cash equivalents 6,104 (2,115)
Cash and cash equivalents, beginning of period 24,538 22,978
--------------- ---------------
Cash and cash equivalents, end of period $ 30,642 $ 20,863
=============== ===============
Supplemental information:
Cash interest paid $ 77,533 $ 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's condensed consolidated financial statements
to conform to the presentation used in the current period. These statements
should be read in conjunction with the Company's annual financial statements and
related notes for the year ended December 31, 1998. 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.
2. Inventories, net
----------------
Inventories consist of the following:
June 30, December 31,
1999 1998
-------------- --------------
Finished goods $ 7,929 $ 21,974
Work in process 248 223
Raw materials 24,641 22,262
-------------- --------------
32,818 44,459
Less: Allowance for obsolescence 1,505 3,205
-------------- ==============
$ 31,313 $ 41,254
============== ==============
3. Long-term debt
--------------
Long-term debt consists of the following:
June 30, December 31,
1999 1998
------------- --------------
Borrowings under credit facilities $ 1,395,463 $ 1,258,236
10 1/4% Senior Notes due 2004 100,000 100,000
8 1/2% Senior Notes due 2006 299,054 299,001
7 5/8% Senior Notes due 2008 248,698 248,643
------------- --------------
2,043,215 1,905,880
Obligation under capital leases 30,506 31,335
Acquisition obligation payable 34,924 44,179
------------- --------------
2,108,645 1,981,394
Less: Current portion 23,487 24,397
------------- --------------
$ 2,085,158 $ 1,956,997
============= ==============
<PAGE>
On March 11, 1999, the Company completed an amendment and restatement of its
credit facilities to increase them by $250,000. The principal amount of the
additional $250,000 will be repaid semi-annually on June 30 and December 31 of
each year, with an initial payment of $1,250 on June 30, 2000, installments of
$1,250 on each payment date thereafter through December 31, 2003 and a final
payment of $240,000 on July 31, 2004. Additionally, the Company entered into a
separate $150,000 bank revolving credit facility with a final maturity on
December 30, 1999 and there are currently no borrowings outstanding under this
facility. As of June 30, 1999, the Company has unused bank commitments of
approximately $342,000.
4. Exchangeable Preferred Stock
----------------------------
Exchangeable Preferred Stock consists of the following:
June 30, December 31,
1999 1998
------------- -------------
$10.00 Series D Exchangeable Preferred Stock $ 195,315 $ 195,042
$9.20 Series F Exchangeable Preferred Stock 120,451 120,306
$8.625 Series H Exchangeable Preferred Stock 242,827 242,493
------------- -------------
$ 558,593 $ 557,841
============= =============
$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 June
30, 1999 and December 31, 1998. The liquidation and redemption value at June 30,
1999 and December 31, 1998 was $200,000.
$9.20 Series F Exchangeable Preferred Stock
The Company authorized 1,250,000 shares of $.01 par value Series F Exchangeable
Preferred Stock, all of which was issued and outstanding at June 30, 1999 and
December 31, 1998. The liquidation and redemption value at June 30, 1999 and
December 31, 1998 was $125,000.
$8.625 Series H Exchangeable Preferred Stock
The Company authorized 2,500,000 shares of $.01 par value Series H Exchangeable
Preferred Stock, all of which was issued and outstanding at June 30, 1999 and
December 31, 1998. The liquidation and redemption value at June 30, 1999 and
December 31, 1998 was $250,000.
<PAGE>
5. Comprehensive Income (Loss)
---------------------------
Comprehensive income (loss) for the six and three months ended June 30, 1999 and
1998 is presented in the following tables:
Six Months Ended
June 30, June 30,
1999 1998
------------ ----------
Net loss $ (50,878) $ (16,957)
Other comprehensive loss:
Foreign currency translation adjustments (6) (14)
------------ ----------
Total comprehensive loss $ (50,884) $ (16,971)
============ ==========
Three Months Ended
June 30, June 30,
1999 1998
----------- ----------
Net loss $ (4,884) $ (7,225)
Other comprehensive income (loss):
Foreign currency translation adjustments 29 (135)
----------- ----------
Total comprehensive loss $ (4,855) $ (7,360)
=========== ==========
6. Loss per Common Share
---------------------
Loss per share for the six and three-month periods ended June 30, 1999 and 1998
has been determined based on net loss 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.
7. Acquisitions
------------
During the six-month period ended June 30, 1999, the Company completed several
acquisitions, in all segments, which were financed through borrowings under the
Company's credit agreements. The cash payments for these acquisitions on an
aggregate basis were $63,806 (net of liabilities assumed of approximately
$49,700) and the excess purchase price over net assets acquired was
approximately $77,200. These amounts include certain purchase price adjustments
related to prior year acquisitions.
The preliminary purchase cost allocations for the 1999 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, 1999; however, the changes are not expected to have a material effect
on the consolidated financial statements of the Company.
<PAGE>
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, 1998, they would not have had a material
impact on the results of operations for the six or three-month periods ended
June 30, 1999 and 1998.
8. Divestitures
------------
On April 22, 1999, the Company announced its intention to divest its
supplemental education group, which is comprised of Weekly Reader, American
Guidance Service and PRIMEDIA Reference. At that time, in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived
Assets to Be Disposed Of", the supplemental education group ceased to depreciate
its property and equipment and ceased to amortize its intangible assets and
excess of purchase price over net assets acquired. The Company expects to
complete the divestitures by the end of 1999. Proceeds from the sale of the
group are expected to exceed its net carrying value and will primarily be used
to pay down borrowings under the credit facilities. The net assets of the
supplemental education group are recorded at their carrying value as net assets
held for sale on the accompanying condensed consolidated balance sheet as of
June 30, 1999.
9. Product Line Closures
---------------------
During the first quarter of 1999, the Company discontinued five unprofitable
PRIMEDIA Workplace Learning product lines, as part of a program to return the
Company's focus to accreditation oriented vocational networks and associated
products. In relation to these discontinuances, the Company has recorded a
$22,000 charge primarily for severance, transponder and office site leases and
the recoverability of related goodwill and certain other assets. The results of
PRIMEDIA Workplace Learning are included in the Company's education segment.
10. Business Segment Information
----------------------------
The Company's operations have been classified into three business segments:
specialty magazines, information and education. Information as to the operations
of the Company in different business segments is set forth below based on the
nature of the products offered. PRIMEDIA's chief decision maker evaluates
performance based on several factors, of which the primary financial measure is
business segment earnings before interest, taxes, depreciation, amortization and
provision for one-time charges ("EBITDA"). There were no material intersegment
sales between the reported segments.
During 1998, the Company divested or discontinued the following non-core
business units: Nelson Publications, Inc. ("Nelson"), The Daily Racing Form,
certain enthusiast titles and the Funk and Wagnalls' products. These
divestitures and product discontinuances are collectively referred to as
Non-Core Businesses. The Company has segregated the Non-Core Businesses from the
aforementioned segments because the Company's chief decision-maker views these
businesses separately when evaluating and making decisions regarding ongoing
operations.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Sales, Net:
<S> <C> <C> <C> <C>
Specialty Magazines $ 515,991 $ 440,155 $ 269,828 $ 247,112
Information 150,058 119,290 76,313 61,460
Education 171,400 140,039 80,172 62,389
Other:
Non-Core Businesses - 35,552 - 19,089
------------- ------------- ------------- -------------
Total $ 837,449 $ 735,036 $ 426,313 $ 390,050
============= ============= ============= =============
EBITDA (1):
Specialty Magazines $ 97,384 $ 86,211 $ 57,744 $ 52,705
Information 32,285 29,139 17,117 16,582
Education 49,807 36,892 22,249 13,518
Other:
Corporate (13,931) (13,222) (6,964) (6,845)
Non-Core Businesses - 5,565 - 3,737
-------------- ------------- -------------- -------------
Total $ 165,545 $ 144,585 $ 90,146 $ 79,697
============== ============= ============== =============
</TABLE>
(1) EBITDA represents earnings before interest, taxes, depreciation,
amortization and provision for one-time charges.
The following is a reconciliation of EBITDA to operating income:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total EBITDA $ 165,545 $ 144,585 $ 90,146 $ 79,697
Depreciation of property and equipment (24,054) (19,011) (11,735) (9,856)
Amortization of intangible assets, excess
of purchase price over net assets
acquired and other (87,034) (74,727) (42,630) (43,276)
Gain on sale of business, net and other - 1,849 - 1,849
Provision for product line closures (22,000) - -
-
------------ ------------ ============ ============
Operating income $ 32,457 $ 52,696 $ 35,781 $ 28,414
============ ============ ============ ============
</TABLE>
<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 business to business magazines), information
(consumer information and business information) and education (classroom
learning and workplace learning).
Management believes a meaningful comparison of the results of operations for the
six and three months ended June 30, 1999 and 1998 is obtained by using the
segment information. In addition, the Company presents results from continuing
businesses ("Continuing Businesses") which exclude the results of the non-core
businesses ("Non-Core Businesses"), which are either sold businesses or product
discontinuances. The Non-Core Businesses include Nelson, The Daily Racing Form,
certain enthusiast titles and Funk and Wagnalls' products which have been
divested or discontinued in 1998. Management believes that this presentation is
the most useful way to analyze the historical trends of the businesses.
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. It is also the primary financial measure used by
the Company's chief decision maker when evaluating performance. 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>
PRIMEDIA INC.
Unaudited Results of Consolidated Operations
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Sales, Net:
<S> <C> <C> <C> <C>
Continuing Businesses:
Specialty Magazines $ 515,991 $ 440,155 $ 269,828 $ 247,112
Information 150,058 119,290 76,313 61,460
Education 171,400 140,039 80,172 62,389
--------------- --------------- --------------- ---------------
Subtotal 837,449 699,484 426,313 370,961
Non-Core Businesses - 35,552 - 19,089
--------------- --------------- --------------- ---------------
Total $ 837,449 $ 735,036 $ 426,313 $ 390,050
=============== =============== =============== ===============
EBITDA:
Continuing Businesses:
Specialty Magazines $ 97,384 $ 86,211 $ 57,744 $ 52,705
Information 32,285 29,139 17,117 16,582
Education 49,807 36,892 22,249 13,518
Corporate (13,931) (13,222) (6,964) (6,845)
--------------- --------------- --------------- ---------------
Subtotal 165,545 139,020 90,146 75,960
Non-Core Businesses - 5,565 - 3,737
--------------- --------------- --------------- ---------------
Total $ 165,545 $ 144,585 $ 90,146 $ 79,697
=============== =============== =============== ===============
Operating Income (Loss):
Continuing Businesses:
Specialty Magazines $ 45,288 $ 46,905 $ 31,020 $ 29,242
Information 15,202 17,075 7,560 10,434
Education (13,599) (10,023) 4,419 (14,783)
Corporate (14,434) (13,559) (7,218) (7,024)
--------------- --------------- -------------- ---------------
Subtotal 32,457 40,398 35,781 17,869
Non-Core Businesses - 12,298 - 10,545
--------------- --------------- -------------- ---------------
Total 32,457 52,696 35,781 28,414
Other Income (Expense):
Interest expense (81,536) (67,792) (41,118) (34,371)
Amortization of deferred
financing costs (1,571) (1,585) (863) (833)
Other, net (228) (276) 1,316 (435)
--------------- --------------- -------------- ---------------
Net Loss $ (50,878) $ (16,957) $ (4,884) $ (7,225)
=============== =============== ============== ===============
</TABLE>
<PAGE>
RESULTS OF OPERATIONS (dollars in thousands, except per share amounts)
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998:
Consolidated Results:
- ---------------------
Total sales increased 13.9% to $837,449 in the first six months of 1999 from
$735,036 in the 1998 period. Sales from Continuing Businesses increased 19.7% to
$837,449 in 1999 from $699,484 in 1998 due to growth in all segments.
Total EBITDA increased $20,960 or 14.5% to $165,545 in 1999 from $144,585
in 1998. EBITDA from Continuing Businesses increased 19.1% to $165,545 in
1999 from $139,020 in 1998 due to growth in all segments.
Total operating income decreased 38.4% to $32,457 in 1999 compared to $52,696 in
1998. Operating income from Continuing Businesses decreased 19.7% to $32,457 in
1999 compared to $40,398 in 1998. This decrease was due primarily to the $22,000
charge related to product line closures at PRIMEDIA Workplace Learning, and
increased amortization expense resulting from acquisitions, which more than
offset the growth in EBITDA.
Interest expense increased by $13,744 or 20.3% in the first six months of 1999
compared to 1998. This increase is the result of increased borrowings to
fund acquisitions made during 1999 and 1998.
Specialty Magazines:
- --------------------
Sales from Continuing Businesses increased 17.2% to $515,991 in the first six
months of 1999 from $440,155 in 1998, due primarily to the impact of
acquisitions, such as PRIMEDIA Enthusiast Publications ("PEP", formerly known as
Cowles Enthusiast Media) and the Youth Entertainment Group. The Company's
consumer titles generally benefited from a positive advertising and circulation
environment during the first six months of 1999.
EBITDA from Continuing Businesses increased 13.0% to $97,384 in 1999 from
$86,211 in 1998. The EBITDA margin for Continuing Businesses decreased to 18.9%
in 1999 from 19.6% in 1998. The decreased margin is reflective of increased
advertising and circulation costs for the soap opera titles and higher
circulation costs at Seventeen in the first six months of 1999.
Operating income from Continuing Businesses decreased 3.4% to $45,288 in 1999
from $46,905 in 1998. The EBITDA growth during the 1999 period was more than
offset by increased amortization arising from acquisitions.
Information:
- ------------
Sales from Continuing Businesses increased 25.8% to $150,058 in the first
six months of 1999 from $119,290 in 1998. The increase is primarily
attributable to the growth of apartment guides as well as acquisitions.
EBITDA from Continuing Businesses increased 10.8% to $32,285 in 1999 from
$29,139 in 1998. The EBITDA margin decreased to 21.5% in 1999 from 24.4% in
1998. The decrease in the margin is reflective of increased Internet investment
in 1999 and a shift in mix to higher growth, lower margin apartment guides.
Operating income from Continuing Businesses decreased 11.0% to $15,202 in 1999
from $17,075 in 1998. The EBITDA growth during the 1999 period was more than
offset by increased amortization arising from acquisitions.
Education:
- ----------
Sales from Continuing Businesses increased 22.4% to $171,400 in the first six
months of 1999 from $140,039 in 1998, primarily attributable to acquisitions,
such as American Guidance Service, partially offset by lower sales at PRIMEDIA
Workplace Learning where unprofitable product lines were closed. In addition,
for the first six months of 1998, advertising revenue at Channel One was
reduced due to the failure of Pan Am's Galaxy IV satellite, which interrupted
broadcasting for the last two weeks of the school year.
EBITDA from Continuing Businesses increased 35.0% to $49,807 in 1999 from
$36,892 in 1998. The EBITDA margin increased to 29.1% in 1999 from 26.3% in
1998. The increase in the margin reflects the positive results of the refocusing
effort at PRIMEDIA Workplace Learning, as well as the satellite failure at
Channel One, which occurred during the first half of 1998.
Operating loss from Continuing Businesses increased 35.7% to $13,599 in 1999
from $10,023 in 1998. This change was due primarily to the $22,000 charge
related to product line closures at PRIMEDIA Workplace Learning which more than
offset EBITDA growth during the 1999 period.
<PAGE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998:
Consolidated Results:
- ---------------------
Total sales increased 9.3% to $426,313 in the second quarter of 1999 from
$390,050 in the 1998 period. Sales from Continuing Businesses increased 14.9% to
$426,313 in the second quarter of 1999 from $370,961 in the second quarter of
1998 due to growth in all segments.
Total EBITDA increased $10,449 or 13.1% to $90,146 in the second quarter of 1999
from $79,697 in the second quarter of 1998. EBITDA from Continuing Businesses
increased 18.7% to $90,146 in the second quarter of 1999 from $75,960 in the
second quarter of 1998 due to growth in all segments.
Total operating income increased 25.9% to $35,781 in the second quarter of 1999
compared to $28,414 in the second quarter of 1998. Operating income from
Continuing Businesses increased 100.2% to $35,781 in the second quarter of 1999
compared to $17,869 in the second quarter of 1998. This change was due
primarily to the growth in EBITDA.
Interest expense increased by $6,747 or 19.6% in the second quarter of 1999
compared to 1998. This increase is the result of increased borrowings to
fund acquisitions made during 1999 and 1998.
Specialty Magazines:
- --------------------
Sales from Continuing Businesses increased 9.2% to $269,828 in the second
quarter of 1999 from $247,112 in 1998, due primarily to the impact of
acquisitions, such as the Youth Entertainment Group and trade shows. The
Company's consumer titles generally benefited from a positive advertising and
circulation environment during 1999, while certain business to business titles
in the international and capital equipment areas experienced softness.
EBITDA from Continuing Businesses increased 9.6% to $57,744 in the second
quarter of 1999 from $52,705 in the second quarter of 1998. The EBITDA margin
for Continuing Businesses increased slightly to 21.4% in the second quarter of
1999.
Operating income from Continuing Businesses increased 6.1% to $31,020 in the
second quarter of 1999 from $29,242 in the second quarter of 1998. The EBITDA
growth during the 1999 period more than offset the increased amortization
arising from acquisitions.
Information:
- ------------
Sales from Continuing Businesses increased 24.2% to $76,313 in the second
quarter of 1999 from $61,460 in the same period of 1998. The increase is
primarily attributable to the growth of apartment guides as well as
acquisitions.
EBITDA from Continuing Businesses increased 3.2% to $17,117 in the second
quarter of 1999 from $16,582 in the same period of 1998. The EBITDA margin
decreased to 22.4% in the second quarter of 1999 from 27.0% in the same period
of 1998. The decrease in the margin is reflective of increased Internet
investment in 1999 and a shift in mix to higher growth, lower margin apartment
guides.
Operating income from Continuing Businesses decreased 27.5% to $7,560 in the
second quarter of 1999 from $10,434 in the same period of 1998. The EBITDA
growth during the 1999 period was more than offset by increased amortization
arising from acquisitions.
Education:
- ----------
Sales from Continuing Businesses increased 28.5% to $80,172 in the second
quarter of 1999 from $62,389 in the same period of 1998, primarily attributable
to acquisitions, such as American Guidance Service, partially offset by lower
sales at PRIMEDIA Workplace Learning where unprofitable product lines were
closed. In addition, for the second quarter of 1998, advertising revenue at
Channel One was reduced due to the failure of Pan Am's Galaxy IV satellite,
which interrupted broadcasting for the last two weeks of the school year.
EBITDA from Continuing Businesses increased 64.6% to $22,249 in the second
quarter of 1999 from $13,518 in the same period of 1998. The EBITDA margin
increased to 27.8% in the second quarter of 1999 from 21.7% in the second
quarter of 1998. The increase in the margin reflects the positive results of the
refocusing effort at PRIMEDIA Workplace Learning, as well as the satellite
failure at Channel One, which occurred during the second quarter of 1998.
Operating income (loss) from Continuing Businesses was $4,419 in the second
quarter of 1999 compared to $(14,783) in the second quarter of 1998. This change
was due primarily to growth in EBITDA and an unprofitable network discontinuance
provision recorded in the second quarter of 1998.
Liquidity and Capital Resources:
- -------------------------------
Consolidated working capital deficiency, including net assets held for sale and
current portion of long-term debt, was $20,208 at June 30, 1999 as compared to
$234,045 at December 31, 1998. Consolidated working capital deficiency primarily
reflects the recording of deferred revenues as a current liability. In addition,
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.
Consolidated working capital deficiency has decreased at June 30, 1999 primarily
due to the reclassification of the assets and liabilities of the Company's
supplemental education group to net assets held for sale.
Net cash provided by (used in) operating activities during the six months ended
June 30, 1999, after interest payments of $77,533, was $(5,988), as compared to
$28,232 during the same 1998 period, primarily due to higher interest payments
and increased accounts receivable levels which more than offset EBITDA growth.
Net capital expenditures were $25,018 during the six months ended June 30, 1999
compared to $16,983 during the 1998 period due primarily to increased spending
on new office space and computer system upgrades. Net cash used in investing
activities during the six months ended June 30, 1999 decreased to $88,084
compared to $306,475 in the same 1998 period, due to the higher level of
acquisition spending in 1998. Net cash provided by financing activities during
the six months ended June 30, 1999 was $100,176, compared to $276,128 in the
same 1998 period. Borrowings were higher in 1998 to fund greater acquisition
spending.
The Company believes its liquidity, capital resources and cash flow are
sufficient to fund planned capital expenditures, working capital requirements,
interest and principal payments on its debt, the payment of preferred stock
dividends and other anticipated expenditures for the foreseeable future.
Financing Arrangements:
- -----------------------
On March 11, 1999, the Company completed an amendment and restatement of its
credit facilities to increase them by $250,000. The principal amount of the
additional $250,000 will be repaid semi-annually on June 30 and December 31 of
each year, with an initial payment of $1,250 on June 30, 2000, installments of
$1,250 on each payment date thereafter through December 31, 2003 and a final
payment of $240,000 on July 31, 2004. Additionally, the Company entered into a
separate $150,000 bank revolving credit facility with a final maturity on
December 30, 1999 and there are currently no borrowings outstanding under this
facility. As of June 30, 1999, the Company has unused bank commitments of
approximately $342,000.
Divestitures:
- -------------
On April 22, 1999, the Company announced its intention to divest its
supplemental education group, which is comprised of Weekly Reader, American
Guidance Service and PRIMEDIA Reference. The Company expects to complete the
divestitures by the end of 1999. Proceeds from the sale of the group are
expected to exceed its net carrying value and will primarily be used to pay down
borrowings under the credit facilities.
Impact of Inflation:
- --------------------
The impact of inflation was immaterial during 1998 and through the first six
months of 1999. Paper prices modestly declined through the first six months of
1999. In the first six months of 1999, paper costs represented approximately 8%
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 increased approximately 4%
in January 1999. 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 Readiness Disclosure:
- -------------------------------
PRIMEDIA has evaluated the potential impact of the situation commonly referred
to as the "Year 2000 Problem". The Year 2000 Problem potentially exists for most
companies since many computer systems in use today were designed and developed
using two digits, rather than four, to specify the year. As a result, such
systems will recognize the year 2000 as "00". This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken. Although the Company does not believe that the Year 2000
Problem will have a material effect on its operations or results, the Company
has undertaken certain actions described below to mitigate the results thereof.
PRIMEDIA instituted a company-wide Year 2000 Project ("Project") beginning early
1997. The Project addresses issues regarding computer infrastructure, system
software and third-party vendors. The Project has been divided into four phases:
(1) inventorying all computer systems and identifying those with Year 2000
issues; (2) assessment including prioritization; (3) remediation including
modification, upgrading and replacement; and (4) testing. The Company's senior
management and the Board of Directors receive regular updates on the status of
the Project. As of June 30, 1999, the majority of the Company's critical systems
have been remediated and tested. Further testing will continue to ensure that
all remaining systems are compliant.
PRIMEDIA has communicated with significant third party vendors that provide
services to the Company's operations. This has enabled PRIMEDIA to assess the
Year 2000 readiness of the third-party vendors and, in turn, the Company's
vulnerability to their non-compliance. These vendors include the paper suppliers
and service entities that provide print and distribution services. Although the
Company may not be able to assure itself as to the Year 2000 compliance by such
vendors, the Company will remain involved with the vendors' progress and is
currently developing contingency plans as needed.
The total cost of approximately $13,000 is attributable to the on-going system
improvements of the Company and addresses the Year 2000 Problem at the same
time. As of June 30, 1999, the majority of the $13,000 has been expended through
funding from existing operations. The remaining amount is expected to be
incurred during the third quarter of 1999 and is not expected to have a material
effect on the Company's liquidity or results of operations. These costs include
the replacement of systems and equipment, outside consultants and software
repairs. The Project has been integrated into the Company's overall technology
upgrading plans and no important information technology plans have been
deferred.
At this time, the Company believes the risks associated with the Year 2000
Problem lie within third-party vendor compliance. These risks are associated
with certain production and distribution processes and could involve a loss of
revenue. While an estimate of the revenue loss cannot be determined at this
time, the Company believes that the diversity of its product lines and vendors
would mitigate such risks until such time that a problem, if any, has been
remedied.
Forward-Looking Information:
- ----------------------------
This report contains certain forward-looking statements concerning the Company's
operations, economic performance, financial condition and Year 2000 Problem
activities. 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
During the first six-months of 1999, there were no significant changes related
to the Company's market risk exposure.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on May 12, 1999.
(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 and new director H. John Greeniaus
was 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 nine 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 141,635,520 270,882
Henry R. Kravis 141,646,429 259,973
George R. Roberts 141,686,129 220,273
Michael T. Tokarz 141,647,054 259,348
Perry Golkin 141,647,054 259,348
Charles G. McCurdy 141,647,129 259,273
Beverly C. Chell 141,645,870 260,532
Meyer Feldberg 141,686,954 219,448
H. John Greeniaus 141,687,454 218,948
(ii) The approval of the Company's Short-Term Senior Executive Non-Discretionary
Plan was ratified with 141,706,117 votes for, 160,986 votes against and 39,299
votes abstaining.
(iii) The approval of the Company's Long-Term Incentive Compensation Plan was
ratified with 138,885,618 votes for, 2,984,563 votes against and 36,221 votes
abstaining.
(iv) The approval of the Company's 1992 Stock Purchase and Option Plan (as
amended) was ratified with 140,629,158 votes for, 1,226,368 votes against and
50,876 votes abstaining.
(v) The approval of Deloitte & Touche LLP as independent public accountants for
the Company for the fiscal year ending December 31, 1999 was ratified with
141,871,730 votes for, 15,645 votes against and 19,027 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 12, 1999 /s/ William F. Reilly
------------------ -----------------------------------------------
(Signature)
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 12, 1999 /s/ Robert J. Sforzo
------------------- -----------------------------------------------
(Signature)
Vice President and Controller
(Principal Accounting Officer)
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