SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
of the Securities Exchange Act of 1934
Commission
For the Quarterly Period Ended March 31, 1996 File No. 33-76716
General Media, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3750988
- - -------------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification Number)
277 Park Avenue, New York, NY 10172
- - -------------------------------- ----------------------
(Address of Principal Executive Zip Code
Offices)
(212) 702-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 10, 1996
----- ---------------------------
Common stock, $.01 par value 475,000
<PAGE>
GENERAL MEDIA , INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
PART I-FINANCIAL INFORMATION
- - ----------------------------
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II- OTHER INFORMATION
- - --------------------------
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote
of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
2
<PAGE>
Item 1. Financial Statements
- - ----------------------------
General Media, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
(amounts in thousands)
Three months ended
March 31,
---------
1995 1996
-------- --------
Net revenues
Publishing
Newsstand $ 14,370 $ 13,219
Advertising 5,858 6,991
Subscription 2,983 2,931
Other 752 1,122
Entertainment 4,517 3,764
-------- --------
28,480 28,027
-------- --------
Operating costs and expenses
Publishing-production, distribution and editorial 13,765 13,245
Entertainment-direct costs 2,545 1,830
Selling, general and administrative 12,267 11,294
Rent expense from affiliated companies 404 220
Depreciation and amortization 339 440
-------- --------
Total operating costs and expenses 29,320 27,029
-------- --------
Income (loss) from operations (840) 998
-------- --------
Other income (expense)
Interest expense (2,686) (2,476)
Interest income 177 55
-------- --------
NET LOSS ($ 3,349) ($ 1,423)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
General Media, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(amounts in thousands)
December 31, March 31,
1995 1996
-------- --------
ASSETS
------
CURRENT ASSETS
- - --------------
Cash and cash equivalents $ 4,380 $ 6,898
Accounts receivable, net of allowance
for doubtful accounts 13,089 13,074
Inventories 7,847 7,070
Prepaid expenses and other current assets 3,443 3,387
Due from affiliated companies 973 1,352
-------- --------
Total current assets 29,732 31,781
PROPERTY AND EQUIPMENT - AT COST;
net of accumulated depreciation 5,592 5,380
OTHER ASSETS
- - ------------
Intangible assets, net 4,427 4,273
Deferred subscription aquisition costs 2,341 2,013
Deferred debt issuance costs, net 4,967 4,720
Loan to affiliated company 1,086 1,086
Other 1,362 1,379
-------- --------
14,183 13,471
-------- --------
$ 49,507 $ 50,632
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
- - -------------------
Accounts payable $ 12,869 $ 12,820
Deferred subscription revenue 14,179 14,327
Other liabilities and accrued expenses 6,226 8,926
-------- --------
Total current liabilities 33,274 36,073
SENIOR SECURED NOTES 79,112 79,157
UNEARNED REVENUE 7,390 7,095
REDEEMABLE WARRANTS 1,791 1,791
STOCKHOLDERS' DEFICIENCY
- - ------------------------
Common stock, $.01 par value; 1,000,000
shares; issued and outstanding, 475,000 shares 5 5
Capital in excess of par value 1,418 1,418
Accumulated distributions, net of retained earnings (73,483) (74,907)
-------- --------
(72,060) (73,484)
-------- --------
$ 49,507 $ 50,632
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
General Media, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
Three months ended
March 31,
---------
1995 1996
-------- --------
Cash flows from operating activities
- - ------------------------------------
Net loss for the period ($ 3,349) ($ 1,423)
Adjustments to reconcile loss to net cash
provided by (used in) operating activities
Depreciation and amortization 339 440
Amortization of debt issuance costs and discounts 307 292
Net change in operating assets and liabilities 1,444 3,662
-------- --------
Net cash provided by (used in) operations (1,259) 2,971
-------- --------
Cash flows from investing activities
- - ------------------------------------
Capital expenditures (3,075) (73)
Payments from affiliated company 268
-------- --------
Net cash used in investing activities (2,807) (73)
-------- --------
Cash flows from financing activities
- - ------------------------------------
Advances to affiliated companies (1,093) (380)
Repayment of advances to affiliated companies 897
-------- --------
Net cash used in financing activities (196) (380)
-------- --------
Net increase (decrease) in cash and cash
equivalents (4,262) 2,518
Cash and cash equivalents at beginning of period 19,203 4,380
-------- --------
Cash and cash equivalents at end of period $ 14,941 $ 6,898
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
General Media, Inc. and Subsidiaries
Notes to Condensed Consolidated
Financial Statements (Unaudited)
(amounts in thousands)
1. Basis of Preparation
General Media, Inc. (the "Company") is a wholly-owned subsidiary of General
Media International, Inc. ("GMI").
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal, recurring adjustments considered necessary for a fair
presentation, have been included. The balance sheet information for December 31,
1995 has been derived from the audited financial statements at that date.
2. Inventories
Inventories consist of the following:
December 31, March 31,
1995 1996
------ ------
Paper and printing $4,792 $4,112
Editorials and pictorial 1,785 1,662
Film and programming costs 2,483 2,227
------ ------
9,060 8,001
Less- LIFO allowance-paper and printing 1,213 931
------ ------
$7,847 $7,070
====== ======
Paper and printing costs are valued at the lower of cost (last-in, first-out
method) or market. Editorials and pictorials are valued at actual cost, which is
not greater than market. Film and programming costs are the direct cost of
production, less amounts amortized over the expected period of revenue,
generally twelve months from the film release date.
6
<PAGE>
General Media, Inc. and Subsidiaries
Notes to Condensed Consolidated
Financial Statements (Unaudited)
(amounts in thousands)
3. Management Charge
The Company incurs shared common indirect expenses for the benefit of GMI and
affiliated companies, including accounting, personnel, data processing, employee
relations and other administrative services. In addition, the Company is charged
by GMI and its subsidiaries for the benefit of other corporate overhead costs,
executive compensation and other costs which principally relate to office space.
These allocations are based on factors determined by management of the Company
to be appropriate for the particular item, including estimated relative time
commitments of managerial personnel, relative number of employees and relative
square footage of all space occupied. Management believes that the allocation
method and amounts are reasonable.
4. Senior Secured Notes
On December 21, 1993, the Company issued $85 million of Senior Secured Notes
(the "Notes") at an issue price equal to 99.387% of the principal amount of the
Notes. The Notes mature on December 31, 2000 and bear interest at 10-5/8% per
annum, which is payable semiannually. In July 1995, the Company repurchased $5.0
million face amount of its outstanding senior secured notes, including 5,000
warrants, for cash of $4.1 million.
The Notes are fully and unconditionally guaranteed, jointly and severally, by
each of the Company's direct and indirect subsidiaries (the "Subsidiary
Guarantors"). Each of the Subsidiary Guarantors is a wholly-owned subsidiary of
the Company. The Company is a holding company with no separate assets,
liabilities or operations other than its investment in its subsidiaries and the
Notes. Financial statements of the Subsidiary Guarantors have not been presented
because the aggregate assets, liabilities, operations and equity of the
Subsidiary Guarantors are substantially equivalent to the assets, liabilities,
operations and equity of the Company on a consolidated basis.
The Indenture contains covenants which, among other things, (i) restrict the
ability of the Company to dispose of assets, incur indebtedness, create liens
and make certain investments, (ii) require the Company to maintain a minimum
consolidated tangible net worth (deficiency) of $75,193,566 and (iii) restrict
the Company's ability to pay dividends unless certain financial performance
tests are met. The Company's subsidiaries, who are guarantors of the senior
secured notes under the Indenture, however, are permitted to pay intercompany
dividends on their shares of common stock. The ability of the Company and its
subsidiaries to incur additional debt is severely limited by such covenants. As
of March 31, 1996, the Company was in compliance with all such covenants.
Should the Company incur losses in the future, such that the Company's net worth
(deficiency) declines below ($75.2) million for two consecutive quarters, the
Company would be required to purchase on the last day of the next following
fiscal quarter, ten percent of the principal amount of the senior secured notes
then outstanding at a price of 101% of the principal amount thereof .
5. Statement of Cash Flows
Cash payments made for interest during the three months ended March 31, 1996 and
1995 were $60,000 and $ 120,000, respectively.
7
<PAGE>
Item 2.
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Several of the Company's businesses can experience fluctuations in quarterly
performance. For example, newsstand revenues vary from issue to issue with
higher revenues for special and higher priced issues and any issue including
editorial or pictorial features that generate unusual public interest. In
addition, revenues from the licensing of the Company's trademarks, products and
videos vary with the timing of new agreements. As a result, the Company's
performance in any quarterly period is not necessarily reflective of full-year
results.
The Company is currently engaged in activities in two industry segments:
publishing and entertainment. The publishing segment of the Company is engaged
in the publication of Penthouse magazine and six affiliate magazines (the
"Affiliate Publications"), the licensing of the Penthouse brand name to
publishers in foreign countries and the publication of four specialty automotive
magazines; Four Wheeler, Stock Car Racing, Open Wheel and Super Stock and Drag
Illustrated. The entertainment segment of the Company produces a number of
adult-oriented entertainment products, including pay-per-call telephone lines,
videocassettes, online/internet services and CD-ROM interactive products.
Results of Operations (Three Months Ended March 31, 1996 vs. 1995)
- - -------------------------------------------------------------------
The Company's revenues were $28.0 million for the three months ended March 31,
1996, compared to revenues of $28.5 million for the three months ended March 31,
1995, a decrease of $0.5 million. Newsstand revenues were $13.2 million and
$14.4 million for the three months ended March 31, 1996 and 1995, respectively.
Newsstand revenues for Mens Magazines were $11.9 and $13.0 million for the three
month period ended March 31, 1996 and 1995, respectively, a decrease of $1.1
million. Newsstand revenues from the Automotive magazines were $1.4 million for
the three months ended March 31, 1996 and 1995. Advertising revenues were $7.0
million and $5.9 million for the three months ended March 31, 1996 and 1995,
respectively, an increase $1.1 million. The increase is attributable to a $0.7
million increase in Mens' Magazines and a $0.4 million increase in Automotive
Magazines. Subscription revenues were $2.9 million and $3.0 million for the
three months ended March 31, 1996 and 1995, respectively, a decrease $0.1
million, primarily from Men's Magazines. Revenues for the Entertainment segment
were $3.8 million and $4.5 million for the three months ended March 31, 1996 and
1995, respectively, a decrease of $0.7 million. Revenues from the Company's
pay-per-call and video businesses decreased $0.4 million and $0.7 million,
respectively, which were partially offset by revenues from the Company's
online/internet business of $0.4 million during the three months ended March 31,
1996.
Income (loss) from operations was $1.0 million for the three months ended March
31, 1996, compared to ($0.8) million for the three months ended March 31, 1995.
Income from operations was positively impacted by a decrease in production,
distribution and editorial costs resulting from a reduction in the number of
magazine copies printed, as well as headcount reductions and other cost
reductions, which reduced selling, general and administrative costs during the
three months ended March 31, 1996, as compared to the three months ended March
31, 1995. Costs of $0.4 million, incurred during the three month period ended
March 31, 1995 related to the relocation of the Company's principal corporate
office, also contributed to reduced
8
<PAGE>
Item 2. (Continued)
- - -------------------
selling general and administrative expenses during the three months ended March
31, 1996, as compared to the three months ended March 31, 1995.
Net non-operating expenses were $2.4 million for the three months ended March
31, 1996, compared to $2.5 million in 1995, a decrease of $0.1 million, as a
result of the repurchase of $5.0 million of senior secured notes by the Company
in July 1995. Included in interest expense is the amortization of debt issuance
costs and discounts of $0.3 million for the three months ended March 31, 1996
and 1995.
Net loss for the three months ended March 31, 1996 was ($1.4) million, compared
to ($3.3) million for the three months ended March 31, 1995, as a result of the
above discussed factors.
The net revenues and income (loss) from operations of the Company were as
follows:
Income (loss)
Net Revenue from operations
----------- ---------------
Three Three
Months Ended Months Ended
March 31, March 31,
--------- ---------
1995 1996 1995 1996
---- ---- ---- ----
Publishing Segment $24.0 $24.2 $(1.8) $ 0.2
Entertainment Segment 4.5 3.8 1.0 0.8
----- ----- ----- -----
$28.5 $28.0 $(0.8) $ 1.0
===== ===== ===== =====
Publishing Segment
- - ------------------
The net revenues and income (loss) from operations of the Publishing Segment
were as follows :
Income (loss)
Net Revenue from operations
----------- ---------------
Three Three
Months Ended Months Ended
March 31, March 31,
--------- ---------
1995 1996 1995 1996
---- ---- ---- ----
Penthouse Magazine and
the Affiliate Publications $18.4 $18.3 $(2.4) $(0.8)
Foreign edition licensing 0.6 0.6 0.4 0.4
Automotive Magazines 5.0 5.3 0.2 0.6
----- ----- ----- -----
$24.0 $24.2 $(1.8) $ 0.2
===== ===== ===== =====
Penthouse Magazine and the Affiliate Publications
Revenues for the Penthouse magazine and the Affiliate Publications were $18.3
million for the three months ended March 31, 1996, compared to $18.4 million for
the three months ended March 31, 1995, a decrease of $0.1 million. Newsstand
revenue for the three months ended March 31, 1996 was $11.9 million, compared to
$13.0 million for the three months ended March 31, 1995, a decrease of $1.1
million. The decrease is primarily attributable to a decrease in the number of
newsstand copies sold of both Penthouse magazine and the Affiliate publications
during the three months ended March 31, 1996, as compared to the 1995 period.
The decline in copies sold was partially offset by higher cover prices for
several of the Company's magazines
9
<PAGE>
Item 2. (Continued)
- - -------------------
during the three months ended March 31, 1996. The Company increased the cover
price of Penthouse magazine, beginning with the June 1995 issue. Accordingly,
the Company will now publish annually, four issues of Penthouse magazine at
$6.99 per issue and eight issues at $5.99. Advertising revenue was $4.0 million
for the three months ended March 31, 1996, compared to $3.3 million for the
three months ended March 31, 1995, an increase of $0.7 million, primarily
attributable to an increase in advertising pages sold in the Affiliate
publications and an increase in the advertising rate per page in Penthouse
magazine. Subscription revenue was $2.0 million for the three months ended March
31, 1996 and 1995. Other revenue was $0.5 million for the three months ended
March 31, 1996, compared to $0.1 million for the three months ended March 31,
1995, an increase of $0.4 million. The increase is attributable to revenues
received from the sale of multiple past issues of the Company's publications
sold as value-packs.
Publishing-production, distribution and editorial expenses were $10.3 million
for the three months ended March 31, 1996, compared to $11.1 million for the
three months ended March 31, 1995, a decrease of $0.8 million. Paper costs were
$4.3 million for the three months ended March 31, 1996, compared to $4.5 million
for the three months ended March 31, 1995, a decrease of $0.2 million. Paper
costs were reduced by reducing print orders and the number of pages printed of
certain publications. However, these decreases were offset by increased in paper
costs attributable to increased cost of paper and the increased frequency of
Penthouse Comix in the three months ended March 31, 1996. Print costs were $3.6
million for the three months ended March 31, 1996, compared to $4.1 million for
the three months ended March 31, 1995, a decrease of $0.5 million. The decrease
is attributable to decreases in print orders and the number of pages printed of
certain publications, partially offset by increases in the cost of printing and
the increased frequency of Penthouse Comix. Distribution costs were $1.6 million
for the three months ended March 31, 1996, compared to $1.5 million for the
three months ended March 31, 1995, an increase of $0.1 million. The increase is
attributable to the increased frequency of publication of Penthouse Comix and
generally higher distribution costs. Editorial costs were $1.0 million for the
three month period ended March 31, 1996, compared to $0.8 million for the period
ended March 31, 1995, an increase of $0.2 million, due to the increased
frequency of publication of Penthouse Comix and a change in the editorial
content of Forum magazine. During the three months ended March 31, 1996 the
adjustment to the LIFO reserve resulted in reduced costs of $0.4 million, as
compared to the 1995 period.
Selling, general and administrative expenses were $8.4 million for the three
months ended March 31, 1996, compared to $9.3 million for the three months ended
March 31, 1995, a decrease of $0.9 million. The decrease is primarily
attributable to moving expense incurred in 1995 ($0.4 million), lower
subscription fulfillment costs during the three months ended March 31, 1996
related to the change to a new fulfillment company ($0.1 million), lower
salaries expense in 1996 due to corporate downsizing ($0.2 million) and a
decrease in legal fees ($0.2 million).
Rent expense from affiliated companies represents charges from affiliated
companies for the use of the Company's corporate and executive offices. The
charge is based upon the Company's proportionate share of the operating expenses
of such offices. Rent expense from affiliated companies was $0.2 million for the
three months ended March 31, 1996, compared to $0.4 million for the three months
ended March 31, 1995, a decrease of $0.2 million, because, effective March 1,
1995, in connection with the relocation of the Company's principal corporate
offices, rent expense for the Company's corporate office is included in selling,
general and administrative expense, rather than in rent expense from affiliated
companies.
Depreciation and amortization was $0.3 million for the three months ended March
31, 1996, compared to $0.1 million for the three months ended March 31, 1995, an
increase of $0.2 million, as a result of the amortization of leasehold
improvements incurred in connection with the relocation of the Company's offices
in 1995.
10
<PAGE>
Item 2. (Continued)
- - -------------------
Foreign Edition Licensing
Revenues from licensing of foreign editions were $0.6 million for the three
months ended March 31, 1996 and 1995. Selling, general and administrative
expenses were $0.2 million for the three months ended September 30, 1996 and
1995.
Automotive Magazines
Revenues for the Automotive Magazines were $5.3 million for the three months
ended March 31, 1996, compared to revenues of $5.0 million for the three months
ended March 31, 1995, an increase of $0.3 million. Newsstand revenues were $1.4
million for the three months ended March 31, 1996 and 1995. Advertising revenues
were $3.0 million for the three months ended March 31, 1995, compared to $2.6
million for the three months ended March 31, 1995, an increase of $0.3 million,
resulting from an increase in advertising page rates, partially offset by a
decrease in advertising pages sold. Subscription revenues remained constant
between each period at $1.0 million.
Publishing-production, distribution and editorial expenses were $3.0 million for
the three months ended March 31, 1996, compared to $2.7 million for the three
months ended March 31, 1995, an increase of $0.3 million. Paper costs were $1.3
million for the three months ended March 31, 1996, compared to $1.0 million for
the three months ended March 31, 1995, an increase of $0.3 million. The increase
in paper costs is primarily attributable to increased cost of paper, partially
offset by a lower number of copies printed. Print costs were $1.1 million for
the three months ended March 31, 1996 and 1995. Distribution costs were $0.5
million for the three months ended September 30, 1995, compared to $0.4 million
for the three months ended September 30, 1994, an increase of $0.1 million due
to generally higher distribution costs.
Selling, general and administrative expenses were $1.6 million for the three
months ended March 31, 1996, compared to $1.8 million for the three months ended
March 31, 1995, a decrease of $0.2 million. The decrease is primarily
attributable to lower fulfillment costs associated with a change to a new
subscription fulfillment company and lower direct mail costs.
Depreciation and amortization was $0.1 million for the three months ended March
31, 1996, compared to $0.3 million for the three months ended March 31, 1995, a
decrease of $0.2 million, as a result of certain intangible assets becoming
fully amortized in 1995.
Entertainment Segment
- - ---------------------
Revenues from the Entertainment Segment were $3.8 million for the three months
ended March 31, 1996, compared to $4.5 million for the three months ended March
31, 1995, a decrease of $0.7 million. The Company's pay-per-call and video
divisions accounted for decreases of $0.4 million and $0.7 million,
respectively. These decreases are partially offset by $0.4 million in revenues
from the Company's online/internet business. The decrease in pay-per-call
revenues is primarily attributable to a required reduction in the extension of
credit to callers that did not meet certain criteria established by the Company,
the purpose of which was to reduce the amount of customer chargebacks to a level
acceptable to credit card companies. The Company's video division revenue
decrease is due primarily to fewer videocassettes sold through the Company's
national wholesale distributor during the three months ended March 31, 1996, as
compared to the three months ended March 31, 1995. Furthermore, fewer
videocassettes related to the 25th anniversary issue of Penthouse magazine were
sold during the three months ended March 31, 1996, as compared to the three
months ended March 31, 1995. On-line/internet revenues have been achieved
primarily through the
11
<PAGE>
Item 2. (Continued)
- - -------------------
implementation, in August 1995, of a pay subscription service on the internet.
Direct costs were $1.8 million for the three months ended March 31, 1996,
compared to $2.5 million for the three months ended March 31, 1995, a decrease
of $0.7 million. The Company's video division experienced a $0.3 million
decrease in direct expenses primarily associated with declines in fulfillment
and distribution costs associated with lower sales volume. The Company's
pay-per-call business experienced a $0.4 million reduction in costs attributed
to lower levels of customer chargebacks due to the reduction in the extension of
credit to callers that did not meet certain criteria established by the Company,
as previously discussed.
Selling, general and administrative expenses were $1.2 million for the three
months ended March 31, 1996 compared to $1.0 million for the three months ended
March 31, 1995, an increase of $0.2 million. The increase in is primarily
attributable to costs associated with the Company's online/internet business,
which began operations in August 1995 ($0.3 million) and higher levels of legal
fees paid ($0.2 million). These increases were partially offset by lower costs
of the Company's video and pay-per-call businesses due primarily to lower sales
volume.
Liquidity and Capital Resources
- - -------------------------------
At March 31, 1996, the Company had $ 6.9 million in cash and cash equivalents,
compared to $4.4 million at December 31, 1995. The increase in cash and cash
equivalents during the three months ended March 31, 1996 resulted from net cash
flows provided by operating activities of $3.0 million, net cash flows used in
investing activities of $0.1, and net cash flows used in financing activities of
$0.4 million.
Cash flows from operating activities
- - ------------------------------------
Net cash provided by operating activities was $3.0 million for the three months
ended March 31, 1996, compared to net cash used in operating activities of $1.3
million for the three months ended March 31, 1995. Net cash provided by
operating activities for the three months ended March 31, 1996 was primarily a
result of the income from operations during the period and a decrease in paper
inventory due the reduced number of magazine copies bring printed, therefore
requiring less paper inventory on hand. Net cash used in operating activities of
$1.3 million for the three months ended March 31, 1995 was primarily a result of
the net loss for the period.
Cash flows from investing activities
- - ------------------------------------
Cash used in investing activities for the three months ended March 31, 1996 was
$0.1 million, compared to cash used in investing activities of $2.8 million for
the three months ended March 31, 1995. Cash used in investing activities during
the three months ended March 31, 1995 was primarily the result of the relocation
of the Company's principal corporate offices in February 1995. The Company
expects capital expenditures to be less than $0.5 million for 1996.
Cash flows from financing activities
- - ------------------------------------
Cash flows used in financing activities were $0.4 million for the three months
ended March 31, 1996, compared to $0.2 million for the three months ended March
31, 1995.
Affiliated company investments and advances at March 31, 1996 increased $0.4
million from the December 31, 1995 balance, whereby the Company is owed $1.4
million from GMI as of March 31, 1996. These balances regularly result from the
impact of certain cost sharing and expense allocation agreements with GMI and
its subsidiaries, whereby certain costs, such as shared corporate salaries and
overhead, are paid by the Company and a portion charged to GMI and its
subsidiaries as incurred. These charges generally result in
12
<PAGE>
Item 2. (Continued)
- - -------------------
amounts due to the Company, and are generally repaid sixty days after the end of
each quarter in accordance with the terms of an expense sharing agreement. The
reimbursement by GMI, due on February 28, 1996, in the amount of $1.0 million,
has not been made as of May 10, 1996. Demand for such payment has been made in
writing. The additional amount due from GMI , in the amount of $0.4 million, is
not expected to be received from GMI by its due date of May 31, 1996. Management
of the Company believes that GMI and its subsidiaries have sufficient assets to
enable the Company to recover its advance through liquidation of certain of
those assets or through the refinancing of GMI's debts. The principal
shareholder of GMI has guaranteed $1.0 million of the amount due to the Company.
The ability of the Company to incur additional debt is severely limited by the
terms of its senior secured notes and the Indenture. Pursuant to the Indenture,
the Company may not declare a dividend on its common stock, subject to certain
exceptions, unless it meets certain financial covenants set forth therein. The
Company's subsidiaries which are guarantors of the senior secured notes under
the Indenture, however, are permitted to make intercompany dividends on their
common stock.
Future outlook
- - --------------
Due to losses incurred by the Company in 1995 and during the three months ended
March 31, 1996, as well as other factors described in "Liquidity and Capital
Resources", the Company's cash balance at March 31, 1996 was reduced to $6.9
million, from $14.9 million at March 31, 1995. The Company is obligated to make
a $4.2 million interest payment on its outstanding senior secured notes on June
30, 1996.
The Company has been recently adversely impacted by significant paper price
increases and could be further adversely impacted should the price of paper
increase in the future. Additionally, the Company's recent results from
operations have been negatively impacted by decreased newsstand circulation from
Mens Magazines, booksize increases, higher occupancy costs, and other expense
increases. While management has recently taken steps to reduce costs, such as
reducing book size, changing paper grades and reducing employee headcount, and
increase revenues through cover price increases and other revenue enhancements ,
which it expects will enable the Company to achieve improved operating results
in 1996, no assurances of this can be given, particularly should newsstand
circulation and revenue continue to decline.
Should the Company incur losses in the future, such that the Company's net worth
(deficiency) declines below ($75.2) million for two consecutive quarters, the
Company would be required to purchase on the last day of the next following
fiscal quarter, ten percent of the principal amount of the senior secured notes
then outstanding at a price of 101% of the principal amount thereof .
While the Company believes that its cash balance is sufficient to meet its
obligations through June 30, 1996, its ability to meet its obligations beyond
that date, and therefore continue as a going concern in the future, is dependent
upon its ability to return to profitable operations in 1996.
Item 6. Exhibits and reports on Form 8-K
- - ------- --------------------------------
(a) The exhibits listed in the "Exhibit Index" are filed as part of
this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March
31, 1996.
13
<PAGE>
Part II-Other Information
-------------------------
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.
General Media, Inc.
(Registrant)
Dated: May 13, 1996 By: /s/ Patrick J. Gavin
------------------------
Signature
Patrick J. Gavin
Executive Vice President-Operations
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from General
Media, Inc's March 31, 1996 Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 6,898
<SECURITIES> 0
<RECEIVABLES> 13,074
<ALLOWANCES> 0
<INVENTORY> 7,070
<CURRENT-ASSETS> 31,781
<PP&E> 5,380
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,632
<CURRENT-LIABILITIES> 36,073
<BONDS> 79,157
0
0
<COMMON> 5
<OTHER-SE> (73,489)
<TOTAL-LIABILITY-AND-EQUITY> 50,632
<SALES> 28,027
<TOTAL-REVENUES> 28,027
<CGS> 15,075
<TOTAL-COSTS> 11,734
<OTHER-EXPENSES> 220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,476
<INCOME-PRETAX> (1,423)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,423)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
