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: March 31, 2000
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
April 30, 2000: 158,320,553
<PAGE>
PRIMEDIA Inc.
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited) as of March 31, 2000 and
December 31, 1999 2
Condensed Statements of Consolidated
Operations (Unaudited) for the three months
ended March 31, 2000 and 1999 3
Condensed Statements of Consolidated
Cash Flows (Unaudited) for the three months
ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated
Financial Statements (Unaudited) 5-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Part II. Other Information:
Signatures 22
<PAGE>
2
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------- -------------------
(dollars in thousands, except per share amounts)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 31,690 $ 28,661
Accounts receivable, net 238,606 235,565
Inventories, net 34,247 32,709
Net assets held for sale 133,830 -
Prepaid expenses and other 52,049 36,480
-------------------- -------------------
Total current assets 490,422 333,415
Property and equipment, net 151,989 152,343
Other intangible assets, net 567,492 619,950
Excess of purchase price over net assets acquired, net 1,098,708 1,215,406
Deferred income tax asset, net 176,200 176,200
Other non-current assets 167,662 217,238
-------------------- -------------------
$ 2,652,473 $ 2,714,552
==================== ===================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 83,142 $ 102,678
Accrued interest payable 23,615 19,379
Accrued expenses and other 204,706 217,737
Deferred revenues 178,382 171,339
Current maturities of long-term debt 22,951 22,740
-------------------- -------------------
Total current liabilities 512,796 533,873
-------------------- -------------------
Long-term debt 1,820,712 1,732,896
-------------------- -------------------
Other non-current liabilities 30,257 31,796
-------------------- -------------------
Exchangeable preferred stock 560,097 559,689
-------------------- -------------------
Common stock subject to redemption ($.01 par value, 33,500 shares
and 53,310 shares outstanding at March 31, 2000
and December 31, 1999, respectively) 778 536
-------------------- -------------------
Shareholders' deficiency:
Common stock ($.01 par value, 150,274,383 shares and 148,346,759
shares issued at March 31, 2000 and December
31, 1999, respectively) 1,503 1,483
Additional paid-in capital 973,804 986,649
Accumulated deficit (1,255,904) (1,203,207)
Accumulated other comprehensive income 22,603 87,364
Unearned stock grant compensation (12,896) (15,250)
Common stock in treasury, at cost (101,848 shares at March 31,
2000 and December 31, 1999) (1,277) (1,277)
-------------------- -------------------
Total shareholders' deficiency (272,167) (144,238)
-------------------- -------------------
$ 2,652,473 $ 2,714,552
==================== ===================
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
3
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------------- -------------------
(dollars in thousands, except per share amounts)
<S> <C> <C>
Sales, net $ 404,450 $ 411,136
Operating costs and expenses:
Cost of goods sold 95,851 93,193
Marketing and selling 86,475 79,110
Distribution, circulation and fulfillment 71,368 73,641
Editorial 33,116 36,056
Other general expenses 53,385 46,770
Corporate administrative expenses (excluding $14,792 of
non-cash compensation in 2000) 8,112 6,967
Depreciation of property and equipment 11,288 12,319
Amortization of intangible assets, excess of purchase
price over net assets acquired and other 34,384 44,404
Non-cash compensation 14,792 -
Integration costs 6,319 -
Provision for product-line closures - 22,000
Gain on sale of investments and other (10,992) -
---------------------- ------------------
Operating income (loss) 352 (3,324)
Other expense:
Interest expense (38,356) (40,418)
Amortization of deferred financing costs (939) (708)
Other, net (488) (1,544)
---------------------- ------------------
Net loss (39,431) (45,994)
Preferred stock dividends - cash (13,266) (13,265)
---------------------- ------------------
Loss applicable to common shareholders $ (52,697) $ (59,259)
====================== ==================
Basic and diluted loss applicable to common shareholders per
common share $ (0.35) $ (0.41)
====================== ==================
Basic and diluted common shares outstanding 149,257,038 144,597,905
====================== ==================
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
4
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------- --------------
(dollars in thousands)
Operating activities:
<S> <C> <C>
Net loss $ (39,431) $ (45,994)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 46,611 57,431
Accretion of discount on acquisition obligation
and other 938 1,643
Non-cash provision for product-line closures - 8,809
Non-cash compensation 14,792 -
Gain on sale of investments and other (10,992) -
Other, net (63) 75
Changes in operating assets and liabilities:
Increase in:
Accounts receivable, net (9,564) (17,648)
Inventories, net (2,467) (374)
Prepaid expenses and other (14,611) (5,902)
Increase (decrease) in:
Accounts payable (19,703) (16,874)
Accrued interest payable 4,236 2,389
Accrued expenses and other (21,486) (8,374)
Deferred revenues 6,143 7,029
Other non-current liabilities (350) 1,040
---------------- --------------
Net cash used in operating activities (45,947) (16,750)
---------------- --------------
Investing activities:
Additions to property, equipment and other, net (16,573) (12,381)
Proceeds from sales of investments and other 14,284 900
Payments for businesses acquired (3,917) (40,379)
Payments for other investments (11,544) (750)
---------------- --------------
Net cash used in investing activities (17,750) (52,610)
---------------- --------------
Financing activities:
Borrowings under credit agreements 206,276 471,064
Repayments of borrowings under credit agreements (113,289) (371,500)
Proceeds from issuances of common stock, net of redemptions 4,715 682
Taxes paid associated with stock option exercises (16,891) -
Dividends paid to preferred stock shareholders (13,266) (13,265)
Deferred financing costs paid (174) (3,181)
Other (645) (492)
---------------- --------------
Net cash provided by financing activities 66,726 83,308
---------------- --------------
Increase in cash and cash equivalents 3,029 13,948
Cash and cash equivalents, beginning of period 28,661 24,538
---------------- --------------
Cash and cash equivalents, end of period $ 31,690 $ 38,486
================ ==============
Supplemental information:
Cash interest paid $ 32,524 $ 35,799
================ ==============
Non-cash activities:
Stock option exercise transactions $ 17,498 $ -
================ =============
Advertising-for-equity transactions $ 10,152 $ -
================ =============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
PRIMEDIA Inc. and Subsidiaries
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. These statements should be
read in conjunction with the Company's annual financial statements and related
notes for the year ended December 31, 1999. The operating results for the
three-month periods ended March 31 are not necessarily indicative of the results
that may be expected for a full year.
On March 30, 2000, the Company realigned its segment reporting to conform to its
new strategic direction, including organization, management and growth
initiatives (see Note 11). The Company's two new segments are consumer
(including both traditional and new media operations) and business-to-business
(including both traditional and new media operations).The Company's traditional
media operations exclude Non-Core Businesses and pro forma Internet (new media)
operations. Pro forma Internet (new media) operations reflect certain
adjustments including the allocation of bundled revenues and various
intercompany expenses. The consumer segment includes PRIMEDIA Consumer
Magazines, PRIMEDIA Enthusiast Group, Films for the Humanities and Sciences,
Channel One Communications, HPC Publications and related Internet operations.
The business-to business segment includes PRIMEDIA Intertec, Bacon's, PRIMEDIA
Information, QWIZ, Inc., Pictorial, Inc., PRIMEDIA Workplace Learning and
related Internet operations (see Note 10).
2. Inventories, Net
Inventories consist of the following:
March 31, December 31,
2000 1999
------------------ ------------------
Finished goods $ 17,530 $ 10,459
Work in process 352 315
Raw materials 18,335 23,707
------------------ ------------------
36,217 34,481
Less: Allowance for obsolescence 1,970 1,772
------------------ ------------------
$ 34,247 $ 32,709
================== ==================
3. Investments
Marketable Securities
In the first quarter of 2000, the Company sold two of PRIMEDIA Ventures'
investments in marketable securities for total proceeds of $11,279 and realized
a gain of $10,689, which is included in gain on sale of investments and other on
the accompanying condensed statement of consolidated operations. In addition,
the Company recorded an unrealized loss of $64,706 related to the revaluation of
its PRIMEDIA Ventures' investments meeting the available-for-sale criteria of
SFAS No.115. This unrealized loss is recorded as a component of comprehensive
loss for the three months ended March 31, 2000 (see Note 8). At March 31, 2000,
the cost and fair value of the investments in marketable securities was $2,217
and $26,493, respectively. At December 31, 1999, the cost and fair value of the
investments in marketable securities was $2,807 and $91,789, respectively.
Advertising-for-equity transactions
In the first quarter of 2000, the Company entered various advertising-for-equity
transactions, some of which also included cash consideration. Through March 31,
2000, the Company's investments totaled approximately $17,000, approximately
$7,000 of which was in cash. The remainder represents advertising and other
services to be rendered by the Company in exchange for these equity investments.
The Company will recognize these amounts as revenue as services are rendered.
These investments are included as other non-current assets on the accompanying
condensed consolidated balance sheet.
Investment in CMGI, Inc.
On March 30, 2000, the Company announced that it will acquire 1,530,000 shares
of common stock of CMGI, Inc. in exchange for eight million shares of the
Company's common stock (par value $.01).
4. Long-Term Debt
Long-term debt consists of the following:
March 31, December 31,
2000 1999
------------------ ------------------
Borrowings under credit facilities $ 1,138,000 $ 1,050,525
10 1/4% Senior Notes due 2004 100,000 100,000
8 1/2% Senior Notes due 2006 299,137 299,109
7 5/8% Senior Notes due 2008 248,786 248,756
------------------ ------------------
1,785,923 1,698,390
Obligation under capital leases 31,148 31,134
Acquisition obligation payable 26,592 26,112
------------------ ------------------
1,843,663 1,755,636
Less: Current portion 22,951 22,740
------------------ ------------------
$ 1,820,712 $ 1,732,896
================== ==================
As of March 31, 2000, the Company had unused bank commitments of approximately
$405,000.
<PAGE>
5. Exchangeable Preferred Stock
Exchangeable Preferred Stock consists of the following:
March 31, December 31,
2000 1999
-------------- ---------------
$10.00 Series D Exchangeable Preferred Stock $ 195,724 $ 195,588
$9.20 Series F Exchangeable Preferred Stock 121,046 120,941
$8.625 Series H Exchangeable Preferred Stock 243,327 243,160
-------------- ---------------
$ 560,097 $ 559,689
============== ===============
$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 March
31, 2000 and December 31, 1999. The liquidation and redemption value at March
31, 2000 and December 31, 1999 was $200,000.
$9.20 Series F Exchangeable Preferred Stock
The Company authorized 1,250,000 shares of $.01 par value, $9.20 Series F
Exchangeable Preferred Stock, all of which was issued and outstanding at March
31, 2000 and December 31, 1999. The liquidation and redemption value at March
31, 2000 and December 31, 1999 was $125,000.
$8.625 Series H Exchangeable Preferred Stock
The Company authorized 2,500,000 shares of $.01 par value, $8.625 Series H
Exchangeable Preferred Stock, all of which was issued and outstanding at March
31, 2000 and December 31, 1999. The liquidation and redemption value at March
31, 2000 and December 31, 1999 was $250,000.
6. Non-cash Compensation
During the three months ended March 31, 2000, the Company recorded $14,792 of
non-cash compensation charges relating to the hiring and retention of certain
key executives. These non-cash compensation charges consist of a $2,354 pro-rata
charge related to 1,380,711 shares of common stock granted to a senior executive
in 1999, and a $12,438 charge related to the extension of stock option
expiration periods for a senior executive during the first quarter of 2000. At
March 31, 2000 and December 31, 1999, unearned stock grant compensation balances
of $12,896 and $15,250, respectively, are recorded on the accompanying condensed
consolidated balance sheets.
7. Integration Costs
During the three months ended March 31, 2000, the Company recorded $6,319 of
integration costs relating to a management reorganization. These integration
costs consist of approximately $2,800 for consultants related to sourcing and
integration initiatives, approximately $2,100 related to severance costs and
approximately $1,400 related to recruiting for senior executives hired during
the first quarter of 2000. Through March 31, 2000, approximately $400 of related
cash payments have been made primarily for recruiting. The remaining costs are
expected to be paid during 2000.
8. Comprehensive Loss
Comprehensive loss for the three months ended March 31, 2000 and 1999 is
presented in the following table:
Three Months Ended
March 31, March 31,
2000 1999
----------- -----------
Net loss $ (39,431) $ (45,994)
Other comprehensive loss:
Unrealized loss on available-for-sale securities,
net of taxes (64,706) -
Foreign currency translation adjustments (55) (35)
----------- -----------
Total comprehensive loss $ (104,192) $ (46,029)
=========== ===========
9. Loss per Common Share
Loss per common share for the three-month periods ended March 31, 2000 and 1999
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.
10. Net Assets Held for Sale
On March 30, 2000, the Company announced its intention to divest QWIZ, Inc.,
Pictorial, Inc. and several business directories (see Note 1). Proceeds from the
sale of these businesses are expected to exceed their carrying values and will
primarily be used to pay down borrowings under the Company's credit facilities.
The net assets of these businesses are recorded at their carrying value as net
assets held for sale on the accompanying condensed consolidated balance sheet as
of March 31, 2000.
11. Business Segment Information
On March 30, 2000, the Company's operations were reclassified into two new
segments, consumer and business-to-business and previously reported results have
been restated accordingly (see Note 1). Information as to the operations of the
Company in different business segments is set forth below based on the nature of
the targeted audience. PRIMEDIA's chief decision maker evaluates performance
based on several factors, of which the primary financial measure is segment
earnings before interest, taxes, depreciation, amortization, non-cash
compensation, integration costs, provision for one-time charges and gain on sale
of investments and other ("EBITDA"). There were no material intersegment sales
between the reported segments.
During 1999, the Company divested the supplemental education group (which
includes Weekly Reader Corporation, PRIMEDIA Reference Inc. and American
Guidance Service Inc.) ("SEG"). In 2000, the Company reclassified SEG as
Non-Core Businesses and has restated prior periods accordingly. 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>
Three Months Ended
March 31,
2000 1999
------------- --------------
Sales, Net:
<S> <C> <C>
Consumer $ 272,194 $ 253,347
Business-to-business 132,256 124,785
Other:
Non-Core Businesses - 33,004
------------- --------------
Total $ 404,450 $ 411,136
============= ==============
EBITDA (1):
Consumer $ 44,071 $ 50,820
Business-to-business 20,184 22,381
Other:
Corporate (8,112) (6,967)
Non-Core Businesses - 9,165
------------- --------------
Total $ 56,143 $ 75,399
============= ==============
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) EBITDA represents earnings before interest, taxes, depreciation,
amortization, non-cash compensation, integration costs,provision for
one-time charges and gain on sale of investments and other.
The following is a reconciliation of EBITDA to operating income (loss):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------- -----------------
<S> <C> <C>
Total EBITDA $ 56,143 $ 75,399
Depreciation of property and equipment (11,288) (12,319)
Amortization of intangible assets, excess of purchase
price over net assets acquired and other (34,384) (44,404)
Non-cash compensation (14,792) -
Integration costs (6,319) -
Gain on sale of investments and other 10,992 -
Provision for product-line closures - (22,000)
---------------- -----------------
Operating income (loss) $ 352 $ (3,324)
================ =================
</TABLE>
<PAGE>
12. Subsequent Events
On April 30, 2000, Liberty Media Corporation ("Liberty Media") and the Company
completed a previously announced transaction in which Liberty Media invested
$200 million in cash in exchange for approximately 5% of the Company's issued
and outstanding shares of common stock, and a warrant to purchase an additional
1.5 million shares of the Company's common stock. The Company also completed its
previously announced purchase of 625,000 shares of Liberty Digital Series A
common stock at $40 per share. The companies are working together to develop
consumer broadband video and other interactive video applications for PRIMEDIA's
portfolio of content.
13. Financial Information for Guarantors of the Company's Debt
The information that follows presents condensed consolidating financial
information as of and for the three months ended March 31, 2000 for a) PRIMEDIA
Inc. (as the Issuer), b) the guarantor subsidiaries, c) the foreign
non-guarantor subsidiaries, d) the unrestricted Internet non-guarantor
subsidiaries, e) elimination entries and f) the Company on a consolidated basis.
The condensed consolidating financial information includes certain allocations
based on management's best estimates and should be read in connection with the
condensed consolidated financial statements of the Company.
<PAGE>
13. Financial Information For Guarantors of the Company's Debt (Continued)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Unrestricted
Foreign Internet PRIMEDIA Inc.
Guarantor Non-Guarantor Non-Guarantor and
PRIMEDIA Inc. Subsidiaries Subsidiaries Subsidiaries Eliminations Subsidiaries
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales, net $ - $ 402,275 $ 1,522 $ 8,818 $ (8,165) $ 404,450
Operating costs and expenses:
Cost of goods sold - 92,575 548 6,668 (3,940) 95,851
Marketing and selling - 79,046 478 7,881 (930) 86,475
Distribution, circulation and fulfillment - 68,485 157 2,726 - 71,368
Editorial - 32,664 108 344 - 33,116
Other general expenses - 47,290 243 5,852 - 53,385
Corporate administrative expenses 7,936 - - 176 - 8,112
Depreciation of property and equipment 450 9,964 25 849 - 11,288
Amortization of intangible assets, excess
of purchase price over net assets
acquired and other 127 33,936 188 133 - 34,384
Non-cash compensation 14,792 - - - - 14,792
Integration costs 6,319 - - - - 6,319
Gain on sale of investments and other - (303) - (10,689) - (10,992)
--------------------------------------------------------------------------------------
Operating income (loss) (29,624) 38,618 (225) (5,122) (3,295) 352
Other income (expense):
Interest expense (36,836) (1,427) (93) - - (38,356)
Amortization of deferred financing costs - (938) - (1) - (939)
Equity in losses of subsidiaries (47,837) - - - 47,837 -
Intercompany management fees and interest 74,683 (74,683) - - - -
Other, net 183 (425) (93) (153) - (488)
--------------------------------------------------------------------------------------
Net loss $ (39,431) $ (38,855) $ (411) $ (5,276) $ 44,542 $ (39,431)
======================================================================================
</TABLE>
<PAGE>
13. Financial Information For Guarantors of the Company's Debt (Continued)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Unrestricted
Foreign Internet PRIMEDIA Inc.
Guarantor Non-Guarantor Non-Guarantor and
PRIMEDIA Inc. Subsidiaries Subsidiaries Subsidiaries Eliminations Subsidiaries
-------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 16,888 $ 10,839 $ 3,154 $ 809 $ - $ 31,690
Accounts receivable, net 640 232,910 749 4,307 - 238,606
Intercompany receivables 147,766 156,939 5,167 711 (310,583) -
Inventories, net - 32,124 6 2,117 - 34,247
Net assets held for sale - 133,399 431 - - 133,830
Prepaid expenses and other 6,663 43,058 84 2,244 - 52,049
-------------------------------------------------------------------------------------------
Total current assets 171,957 609,269 9,591 10,188 (310,583) 490,422
Property and equipment, net 7,404 127,585 178 16,822 - 151,989
Investment in subsidiaries 1,246,022 - - - (1,246,022) -
Other intangible assets, net 2,921 562,124 859 1,588 - 567,492
Excess of purchase price over net
assets acquired, net (13,437) 1,103,790 3,474 4,881 - 1,098,708
Deferred income tax asset, net 176,200 - - - - 176,200
Other non-current assets 18,663 99,456 12 49,531 - 167,662
-------------------------------------------------------------------------------------------
$ 1,609,730 $ 2,502,224 $ 14,114 $ 83,010 $(1,556,605) $ 2,652,473
===========================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 551 $ 81,371 $ 300 $ 920 $ - $ 83,142
Intercompany payables (547,641) 753,996 16,987 87,241 (310,583) -
Accrued interest payable 23,615 - - - - 23,615
Accrued expenses and other 70,912 130,871 218 2,705 - 204,706
Deferred revenues - 173,692 627 4,063 - 178,382
Current maturities of long-term debt 7,257 15,671 - 23 - 22,951
------------------------------------------------------------------------------------------
Total current liabilities (445,306) 1,155,601 18,132 94,952 (310,583) 512,796
-------------------------------------------------------------------------------------------
Long-term debt 1,788,931 31,753 - 28 - 1,820,712
-------------------------------------------------------------------------------------------
Intercompany notes payable - 2,345,394 - - (2,345,394) -
-------------------------------------------------------------------------------------------
Other non-current liabilities - 28,088 253 1,916 - 30,257
-------------------------------------------------------------------------------------------
Exchangeable preferred stock 560,097 - - - - 560,097
-------------------------------------------------------------------------------------------
Common stock subject to redemption 778 - - - - 778
-------------------------------------------------------------------------------------------
Shareholders' deficiency:
Common stock 1,503 - - - - 1,503
Additional paid-in capital 973,804 - - - - 973,804
Accumulated deficit (1,255,904) (1,056,853) (4,356) (38,163) 1,099,372 (1,255,904)
Accumulated other comprehensive
income (loss) - (1,759) 85 24,277 - 22,603
Unearned stock grant compensation (12,896) - - - - (12,896)
Common stock in treasury, at cost (1,277) - - - - (1,277)
-------------------------------------------------------------------------------------------
Total shareholders' deficiency (294,770) (1,058,612) (4,271) (13,886) 1,099,372 (272,167)
-------------------------------------------------------------------------------------------
$ 1,609,730 $ 2,502,224 $ 14,114 $ 83,010 $(1,556,605) $ 2,652,473
===========================================================================================
</TABLE>
<PAGE>
13. Financial Information For Guarantors of the Company's Debt (Continued)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Unrestricted
Foreign Internet PRIMEDIA Inc.
Guarantor Non-Guarantor Non-Guarantor and
PRIMEDIA Inc. Subsidiaries Subsidiaries Subsidiaries Eliminations Subsidiaries
---------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (39,431) $ (38,855) $ (411) $ (5,276) $ 44,542 $ (39,431)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 577 44,838 213 983 - 46,611
Accretion of discount on acquisition
obligation and other 157 781 - - - 938
Non-cash compensation 14,792 - - - - 14,792
Gain on sale of investments and other - (303) - (10,689) - (10,992)
Equity in losses of subsidiaries 47,837 - - - (47,837) -
Intercompany (income) expense (74,683) 67,448 - 3,940 3,295 -
Other, net - (77) 14 - - (63)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net (595) (7,458) (85) (1,426) - (9,564)
Inventories, net - (2,468) 2 (1) - (2,467)
Prepaid expenses and other (63) (10,159) (15) (4,374) - (14,611)
Increase (decrease) in:
Accounts payable (2,891) (16,762) (115) 65 - (19,703)
Accrued interest payable 4,236 - - - - 4,236
Accrued expenses and other 1,876 (22,147) 16 (1,231) - (21,486)
Deferred revenues - 5,086 - 1,057 - 6,143
Other non-current liabilities (1) (353) (1) 5 - (350)
--------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (48,189) 19,571 (382) (16,947) - (45,947)
--------------------------------------------------------------------------------------
Investing activities:
Additions to property, equipment and
other, net (159) (9,395) - (7,019) - (16,573)
Proceeds from sales of investments
and other - 3,000 - 11,284 - 14,284
Payments for businesses acquired - (3,728) - (189) - (3,917)
Payments for other investments (6,725) 71 - (4,890) - (11,544)
--------------------------------------------------------------------------------------
Net cash used in investing activities (6,884) (10,052) - (814) - (17,750)
--------------------------------------------------------------------------------------
Financing activities:
Intercompany activity (7,065) (11,679) 578 18,166 - -
Borrowings under credit agreements 206,000 - 276 - - 206,276
Repayments of borrowings under credit
agreements (113,000) - (289) - - (113,289)
Proceeds from issuances of common
stock, net of redemptions 4,715 - - - - 4,715
Taxes paid associated with stock option
exercises (16,891) - - - - (16,891)
Dividends paid to preferred stock
shareholders (13,266) - - - - (13,266)
Deferred financing costs paid - (174) - - - (174)
Other (53) (592) - - - (645)
--------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 60,440 (12,445) 565 18,166 - 66,726
--------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 5,367 (2,926) 183 405 - 3,029
Cash and cash equivalents, beginning of
period 11,521 13,765 2,971 404 - 28,661
--------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 16,888 $ 10,839 $ 3,154 $ 809 $ - $ 31,690
======================================================================================
</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 has realigned its segment reporting to conform to its new strategic
direction, including organization, management and growth initiatives. The
Company's two new segments are consumer (including both traditional and new
media operations) and business-to-business (including both traditional and new
media operations). The Company's traditional media operations exclude Non-Core
Businesses and pro forma Internet (new media) operations. Pro forma Internet
(new media) operations reflect certain adjustments including the allocation of
bundled revenues and various intercompany expenses. The consumer segment
includes PRIMEDIA Consumer Magazines, PRIMEDIA Enthusiast Group, Films for the
Humanities and Sciences, Channel One Communications, HPC Publications and
related Internet operations. The business-to business segment includes PRIMEDIA
Intertec, Bacon's, PRIMEDIA Information, QWIZ, Inc., Pictorial, Inc., PRIMEDIA
Workplace Learning and related Internet operations.
Management believes a meaningful comparison of the results of operations for the
three months ended March 31, 2000 and 1999 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"). The Non-Core Businesses include the
supplemental education group (which includes Weekly Reader Corporation, PRIMEDIA
Reference Inc. and American Guidance Service Inc.) ("SEG"), which was divested
in the fourth quarter of 1999. Management believes that this presentation is the
most useful way to analyze the historical trends of the businesses.
Prior period results have been restated to reflect the Company's new segment
reporting and reclassification of SEG as a non-core business.
Earnings before interest, taxes, depreciation, amortization, non-cash
compensation, integration costs, provision for one-time charges and gain on sale
of investments and other, 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. This measure may not be comparable to similarly
titled measures used by other companies.
<PAGE>
<TABLE>
<CAPTION>
PRIMEDIA Inc. and Subsidiaries
Unaudited Results of Consolidated Operations
(dollars in thousands)
Three Months Ended
March 31,
2000 1999
---------------- -----------------
Sales, Net:
<S> <C> <C>
Continuing Businesses:
Consumer $ 272,194 $ 253,347
Business-to-business 132,256 124,785
---------------- -----------------
Subtotal 404,450 378,132
Non-Core Businesses - 33,004
---------------- -----------------
Total $ 404,450 $ 411,136
================ =================
EBITDA:
Continuing Businesses:
Consumer $ 44,071 $ 50,820
Business-to-business 20,184 22,381
Corporate (8,112) (6,967)
---------------- -----------------
Subtotal 56,143 66,234
Non-Core Businesses - 9,165
---------------- -----------------
Total $ 56,143 $ 75,399
================ =================
Operating Income (Loss):
Continuing Businesses:
Consumer $ 18,535 $ 22,194
Business-to-business 927 (20,961)
Corporate (19,110) (7,216)
---------------- -----------------
Subtotal 352 (5,983)
Non-Core Businesses - 2,659
---------------- -----------------
Total 352 (3,324)
Other Expense:
Interest expense (38,356) (40,418)
Amortization of deferred
financing costs (939) (708)
Other, net (488) (1,544)
---------------- -----------------
Net Loss $ (39,431) $ (45,994)
================ =================
</TABLE>
RESULTS OF OPERATIONS (dollars in thousands, except per share amounts)
Three months Ended March 31, 2000 Compared to Three months Ended March 31, 1999:
Consolidated Results:
Total sales decreased 1.6% to $404,450 in the first quarter of 2000 from
$411,136 in the 1999 period. Sales from Continuing Businesses increased 7.0% to
$404,450 in 2000 from $378,132 in 1999 due to growth in both segments.
Traditional media sales from continuing businesses increased 5.9% to $395,632 in
2000 from $373,442 in 1999 due to growth in both segments. New media sales from
continuing businesses increased 88.0% to $8,818 in 2000 from $4,690 in 1999 due
to growth in both segments.
Total EBITDA decreased 25.5% to $56,143 in 2000 from $75,399 in 1999. EBITDA
from Continuing Businesses decreased 15.2% to $56,143 in 2000 from $66,234 in
1999 due to decreases in both segments. Traditional media EBITDA from continuing
businesses in 2000 was essentially flat compared to 1999.
Total operating income (loss) was $352 in 2000 compared to $(3,324) in 1999.
Operating income (loss) from Continuing Businesses was $352 in 2000 compared to
$(5,983) in 1999. This change was due to the gain on sale of investments and
other recorded during the first quarter of 2000 and the $22,000 charge related
to product-line closures at PRIMEDIA Workplace Learning recorded during the
first quarter of 1999, partially offset by the decrease in EBITDA and non-cash
compensation and integration costs recorded during 2000.
Interest expense decreased by 5.1% in the first quarter of 2000 compared to
1999. This decrease is the result of the use of proceeds from the sale of SEG to
repay debt during the fourth quarter of 1999, as well as reduced acquisition
activity during the first quarter of 2000.
Consumer:
Sales from Continuing Businesses increased 7.4% to $272,194 in the first quarter
of 2000 from $253,347 in 1999 due primarily to double-digit growth at the
apartment guides, as well as strong advertising at certain consumer and
enthusiast properties. These increases were partially offset by weakness at
Channel One due to lower levels of advertising by certain advertisers.
Traditional media sales from continuing businesses increased 6.8% to $267,957 in
2000 from $250,868 in 1999. New media sales from continuing businesses increased
70.9% to $4,237 in 2000 from $2,479 in 1999 primarily due to an increase in
consumer guide Internet advertising.
EBITDA from Continuing Businesses decreased 13.3% to $44,071 in 2000 from
$50,820 in 1999. The EBITDA margin for Continuing Businesses decreased to 16.2%
in 2000 from 20.1% in 1999. The decreased margin is reflective of increased
Internet spending primarily at HPC Publications, lower levels of advertising at
Channel One and higher circulation costs at the consumer magazines. Traditional
media EBITDA from continuing businesses in 2000 was essentially flat compared to
1999. The traditional media EBITDA margin from continuing businesses decreased
to 20.2% in 2000 from 21.6% in 1999 due to lower levels of advertising at
Channel One and higher circulation costs at the consumer magazines.
Operating income from Continuing Businesses decreased 16.5% to $18,535 in 2000
from $22,194 in 1999. The decrease in operating income was primarily
attributable to the decrease in EBITDA.
Business-to-Business:
Sales from Continuing Businesses increased 6.0% to $132,256 in the first quarter
of 2000 from $124,785 in 1999. The increase is primarily attributable to the
growth at certain business-to-business magazines and trade shows and at Bacon's,
which has launched new on-line products. Traditional media sales from continuing
business increased 4.2% to $127,675 in 2000 from $122,574 in 1999. New media
sales from continuing businesses increased 107.2% to $4,581 in 2000 from $2,211
in 1999 primarily due to growth at Digibid, an online auction site, as well as
new on-line products at Bacon's.
EBITDA from Continuing Businesses decreased 9.8% to $20,184 in 2000 from $22,381
in 1999. The EBITDA margin decreased to 15.3% in 2000 from 17.9% in 1999. The
decrease in the margin is reflective of increased Internet investment and
weakness at PRIMEDIA Workplace Learning due to higher marketing and selling
expenses. Traditional media EBITDA from continuing businesses increased 5.3% to
$24,317 in 2000 from $23,099 in 1999. The traditional media EBITDA margin from
continuing businesses increased slightly to 19.0% in 2000 from 18.8% in 1999.
The increased margin was offset by weakness at PRIMEDIA Workplace Learning due
to higher marketing and selling expenses.
Operating income (loss) from Continuing Businesses increased to $927 in 2000
from $(20,961) in 1999. The increase in operating income is primarily
attributable to the $22,000 provision for product-line closures, which was
recorded during the first quarter of 1999.
Internet Operations:
The following presents information related to the Company's Internet operations.
The results are pro forma for the first three months of 1999 and present these
Internet operations as if they were conducted as stand-alone businesses. Pro
forma adjustments include the allocation of bundled revenues and various
intercompany expenses.
The Company applied standard Internet industry ranges and methodologies to its
historical operating results to calculate pro forma results related to the
following on-line transactions: sales of print products, third-party commerce,
proprietary product sales, subscriptions, display and classified advertisements
and pay-per-use services.
In June 1999, intercompany agreements were put in place and the methodology
utilized in the previous 18 months was consistent with and incorporated into
these agreements. The following pro forma information was prepared as if these
intercompany agreements were in place effective January 1, 1999.
The Company believes the accounting used for the pro forma adjustments provides
a reasonable basis on which to present the pro forma results. The pro forma
Internet information is provided for informational purposes only, should not be
construed to be indicative of the historical results had these Internet
operations been operated as stand-alone operations and is not intended to
project future results of operations of the Internet businesses.
PRIMEDIA Inc. and Subsidiaries
Internet Operations
Three Months Ended March 31,
<TABLE>
<CAPTION>
1999
2000 1999 Pro Forma 1999
Actual Actual Adjustments Pro Forma
----------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Internet Revenues:
Consumer $ 4,237 $ 367 $ 2,112 (1) $ 2,479
Business-to-business 4,581 2,211 - 2,211
----------------- --------------- ------------------ ------------------
Total $ 8,818 $ 2,578 $ 2,112 $ 4,690
================= =============== ================== ==================
Internet EBITDA (Loss) :
Consumer $ (10,076) $ (2,628) $ (712)(2) $ (3,340)
Business-to-business (4,133) 704 (1,422)(2) (718)
Corporate (620) (318) (134)(2) (452)
----------------- --------------- ------------------ ------------------
Total $ (14,829) $ (2,242) $ (2,268) $ (4,510)
================= =============== ================== ==================
</TABLE>
(1) Represents the intercompany allocation of the on-line portion of bundled
classified ad sales related to the consumer guides.
(2) Represents intercompany commissions charged by the traditional media
businesses to the Internet businesses primarily for on-line advertising and
subscriptions, intercompany advertising expense as well as general overhead
allocations.
Liquidity and Capital Resources
Consolidated working capital deficiency including net assets held for sale and
current maturities of long-term debt was $22,374 at March 31, 2000 as compared
to $200,458 at December 31, 1999. Consolidated working capital deficiency
primarily reflects the recording of deferred revenues as a current liability as
well as the expensing of most advertising, editorial and product development
costs as incurred. Consolidated working capital deficiency decreased at March
31, 2000 primarily due to the reclassification of the assets and liabilities of
Pictorial, Inc., QWIZ, Inc. and several business directories to net assets held
for sale.
Net cash used in operating activities during the three months ended March 31,
2000, after interest payments of $32,524 was $45,947, compared to $16,750 during
the same 1999 period, due primarily to increased Internet investments, as well
as other working capital changes. Net additions to property, equipment and other
were $16,573 during the three months ended March 31, 2000 compared to $12,381
during the 1999 period due primarily to increased spending on new office space
and capitalized software expenditures associated with the Company's Internet
operations. Net cash used in investing activities during the three months ended
March 31, 2000 decreased to $17,750 compared to $52,610 in the same 1999 period,
due to the lower level of acquisition spending in 2000, as well as the
realization of additional proceeds from the sales of investments and other in
2000. Net cash provided by financing activities during the three months ended
March 31, 2000 was $66,726 compared to $83,308 in the same 1999 period. The
decrease was primarily attributable to taxes paid associated with stock option
exercises.
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.
Impact of Inflation
The impact of inflation was immaterial during 1999 and through the first three
months of 2000. In the first three months of 2000, paper costs represented
approximately 7% 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. 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.
Impact of the Year 2000
In late 1999, the Company completed its remediation and testing of systems. The
Company expended approximately $5,000 during 1999 for a total of $13,000 in
connection with remediating its systems. These costs were attributable to the
ongoing system improvements of the Company and addressed the year 2000 problem
at the same time. As a result of those planning and implementation efforts, the
Company experienced no significant disruptions in mission critical information
technology and non-information technology systems and those systems successfully
responded to the year 2000 date change. The Company has not experienced any
material problems resulting from year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
year 2000 matters that may arise are addressed promptly. Although the Company
believes it has taken appropriate steps to address the year 2000 problem, there
is no guarantee that the Company's efforts will prevent an unanticipated event,
which may have a material adverse impact on the results of operations and
financial condition.
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
During the first quarter of 2000, there were no significant changes related to
the Company's market risk exposure.
<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: May 15, 2000 /s/ Thomas S. Rogers
----------------------- ---------------------------------
(Signature)
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 15, 2000 /s/ Robert J. Sforzo
------------------------ ---------------------------------
(Signature)
Senior Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 31,690
<SECURITIES> 0
<RECEIVABLES> 272,468
<ALLOWANCES> 33,862
<INVENTORY> 34,247
<CURRENT-ASSETS> 490,422
<PP&E> 324,874
<DEPRECIATION> 172,885
<TOTAL-ASSETS> 2,652,473
<CURRENT-LIABILITIES> 512,796
<BONDS> 1,820,712
560,097
0
<COMMON> 976,085
<OTHER-SE> (1,247,474)
<TOTAL-LIABILITY-AND-EQUITY> 2,652,473
<SALES> 404,450
<TOTAL-REVENUES> 404,450
<CGS> 95,851
<TOTAL-COSTS> 95,851
<OTHER-EXPENSES> 308,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,356
<INCOME-PRETAX> (39,431)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,431)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,431)
<EPS-BASIC> (.35)
<EPS-DILUTED> (.35)
</TABLE>
