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, 1997 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 12, 1997
----- ---------------------------
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 14
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 14
Signature 15
Exhibit Index 16
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,
1996 1997
-------- --------
Net revenues
Publishing
Newsstand $ 13,219 $ 11,096
Advertising 6,991 6,361
Subscription 2,931 2,734
Other 1,122 981
Entertainment 3,764 2,924
-------- --------
28,027 24,096
-------- --------
Operating costs and expenses
Publishing-production, distribution and editorial 13,245 11,204
Entertainment- direct costs 1,830 1,649
Selling, general and administrative 11,294 9,873
Rent expense from affiliated companies 220 124
Depreciation and amortization 440 461
-------- --------
Total operating costs and expenses 27,029 23,311
-------- --------
Income from operations 998 785
-------- --------
Other income (expense)
Interest expense (2,476) (2,477)
Interest income 55 128
-------- --------
NET LOSS (1,423) (1,564)
======== ========
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,
1996 1997
------------ ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,164 $ 7,856
Accounts receivable, net of allowance
for doubtful accounts 11,751 13,434
Inventories 5,250 4,493
Prepaid expenses and other current assets 2,692 3,274
Due from affiliated companies 624 595
-------- --------
Total current assets 27,481 29,652
PROPERTY AND EQUIPMENT - AT COST;
net of accumulated depreciation 4,716 4,487
OTHER ASSETS
Intangible assets, net 3,810 3,656
Deferred subscription aquisition costs 2,162 2,002
Deferred debt issuance costs, net 3,977 3,730
Loan to affiliated company 1,086 1,086
Other 1,654 1,618
-------- --------
12,689 12,092
-------- --------
$ 44,886 $ 46,231
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 13,918 $ 13,698
Deferred subscription revenue 10,914 12,001
Other liabilities and accrued expenses 5,402 7,721
-------- --------
Total current liabilities 30,234 33,420
SENIOR SECURED NOTES 79,290 79,334
UNEARNED REVENUE 6,160 5,839
COMMITMENTS AND CONTINGENCIES
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 (74,012) (75,576)
-------- --------
(72,589) (74,153)
-------- --------
$ 44,886 $ 46,231
======== ========
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)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss ($ 1,423) ($ 1,564)
Adjustments to reconcile net loss to
cash used in operating activities
Depreciation and amortization 440 461
Amortization of debt issuance costs and discounts 292 292
Net change in operating assets and liabilities 3,662 1,552
-------- --------
Net cash provided by operating activities 2,971 741
-------- --------
Cash flows from investing activities
Capital expenditures (73) (78)
-------- --------
Net cash used in investing activities (73) (78)
-------- --------
Cash flows from financing activities
Repayments by(advances to) affiliated companies (380) 29
-------- --------
Net cash provided by (used in) financing activities (380) 29
-------- --------
Net increase in cash and cash equivalents 2,518 692
Cash and cash equivalents at beginning of period 4,380 7,164
-------- --------
Cash and cash equivalents at end of period $ 6,898 $ 7,856
======== ========
</TABLE>
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,
1996 has been derived from the audited financial statements at that date.
2. Inventories
Inventories consist of the following:
December 31, March 31,
1996 1997
------------ ---------
Paper and printing $ 2,581 $ 2,235
Editorials and pictorial 2,288 2,208
Film and programming costs 1,094 909
-------- --------
5,963 5,352
Less- LIFO allowance-paper and printing 713 859
-------- --------
$ 5,250 $ 4,493
======== ========
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 valued at 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
In December 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 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
consolidated tangible net worth (deficiency) of no more than ($81.6) million,
and (iii) limits the Company's ability to pay dividends unless certain financial
performance tests are met. The Subsidiary Guarantors 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, 1997, 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 ($81.6) 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 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, 1997 and
1996 were $60,000, 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 Drag Racing Monthly.
The entertainment segment of the Company produces a number of adult-oriented
entertainment products, including pay-per- call telephone lines, videocassettes,
pay-per-view programming, CD-ROM interactive products and internet services.
Results of Operations (Three Months Ended March 31, 1997 vs. 1996)
The Company's revenues were $24.1 million for the three months ended March 31,
1997, compared to revenues of $28.0 million for the three months ended March 31,
1996, a decrease of $3.9 million. Newsstand revenues were $11.1 million and
$13.2 million for the three months ended March 31, 1997 and 1996, respectively,
a decrease of $2.1 million. Newsstand revenues for Mens' Magazines were $9.9 and
$11.9 million for the three months ended March 31, 1997 and 1996, respectively,
a decrease of $2.0 million. Newsstand revenues from the Automotive Magazines
were $1.2 million and $1.4 million for the three months ended March 31, 1997 and
1996, respectively, a decrease of $0.2 million. Advertising revenues were $6.4
million and $7.0 million for the three months ended March 31, 1997 and 1996,
respectively, a decrease $0.6 million. The decrease in advertising revenues is
attributable to a $0.7 million decrease in Mens' Magazines, partially offset by
a $0.1 million increase in Automotive Magazines. Subscription revenues were $2.7
million and $2.9 million for the three months ended March 31, 1997 and 1996,
respectively, a decrease of $0.2 million. The decrease in subscription revenues
is attributable to a $0.1 million decrease in revenues from Mens' Magazines and
a $0.1 million decrease in revenues from Automotive Magazines. Revenues for the
Entertainment segment were $2.9 million and $3.8 million for the three months
ended March 31, 1997 and 1996, respectively, a decrease of $0.9 million.
Revenues from the Company's video business decreased $0.4 million, revenues from
the Company's pay-per-call business decreased $0.1 million and revenues from the
Company's internet business decreased $0.3 million during the three months ended
March 31, 1997, as compared to the three month period ended March 31, 1996.
Income from operations was $0.8 million for the three months ended March 31,
1997, compared to $1.0 million for the three months ended March 31, 1996. 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 lower selling expenses associated with lower
sales, headcount reductions due to corporate restructuring and other spending
efficiencies, which reduced selling, general and administrative costs in 1997.
Net non-operating expenses were $2.4 million for the three months ended March
31, 1997 and 1996. Included in interest expense is the amortization of debt
issuance costs and discounts of $0.3 million for the three months ended March
31, 1997 and 1996.
8
<PAGE>
Item 2. (Continued)
Net loss for the three months ended March 31, 1997 was ($1.6 ) million, compared
to ($1.4) million for the three months ended March 31, 1996, as a result of the
above discussed factors.
The net revenues and income from operations of the Company were as follows:
Income
Net Revenue from operations
----------- ---------------
Three Three
Months Ended Months Ended
March 31, March 31,
----------- ---------------
1996 1997 1996 1997
---- ---- ---- ----
Publishing Segment $ 24.2 $ 21.2 $ 0.2 $ 0.8
Entertainment Segment 3.8 2.9 0.8 0.0
------- ------- ------ ------
$ 28.0 $ 24.1 $ 1.0 $ 0.8
======= ======= ====== ======
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,
----------- ---------------
1996 1997 1996 1997
---- ---- ---- ----
Penthouse Magazine and
the Affiliate Publications $ 18.3 $ 15.3 $ (0.8) $ (0.4)
Foreign edition licensing 0.6 0.7 0.4 0.6
Automotive Magazines 5.3 5.2 0.6 0.6
------- ------- ------ ------
$ 24.2 $ 21.2 $ 0.2 $ 0.8
======= ======= ====== ======
Penthouse Magazine and the Affiliate Publications
Revenues for Penthouse magazine and the Affiliate Publications were $15.3
million and $18.3 million for the three months ended March 31, 1997 and 1996,
respectively, a decrease of $3.0 million. Newsstand revenue for the three months
ended March 31, 1997 was $9.9 million, compared to $11.9 million for the three
months ended March 31, 1996, a decrease of $2.0 million. The decrease in
newsstand revenue is primarily attributable to a decrease of 14% in the number
of newsstand copies sold of Penthouse magazine, as well as a decrease of 18% in
the number of newsstand copies sold of the Affiliate Publications during the
three months ended March 31, 1997, as compared to the 1996 period. The decline
in newsstand revenue and newsstand copies sold was also due to one less issue of
Penthouse Letters being published during the three months ended March 31, 1997,
as compared to the 1996 period. Advertising revenue was $3.2 million for the
three months ended March 31, 1997, compared to $4.0 million for the three months
ended March 31, 1996, an decrease of $0.8 million. The decline in advertising
revenue is primarily attributable to a 12% decrease in ad pages
9
<PAGE>
Item 2. (Continued)
sold in Penthouse magazine for the three months ended March 31, 1997, as
compared to the 1996 period. The Affiliate Publications experienced a 37%
decline in advertising pages sold during the three months ended March 31, 1997,
compared to the 1996 period. The decline was also due to one less issue of
Penthouse Letters being published during the three months ended March 31,
1997, as compared to the three months ended March 31, 1996. Subscription revenue
was $1.8 million and $2.0 million for the three months ended March 31, 1997 and
1996, respectively, a decrease of $0.2 million. This decrease is attributable to
a 19% decline in the number of subscription copies sold, partially offset by a
higher average rate per subscription copy sold. The increased rate per copy was
due primarily to a change in the mix of sales between agency sales, which
generate a low per copy remit rate, and direct to customer sales. Other revenue
was $0.3 million for the three months ended March 31, 1997, compared to $0.5
million for the three months ended March 31, 1996, a decrease of $0.2 million.
The decrease in other revenues is primarily attributable to a decrease in
revenues received from the sale of past issues of the Company's publications
sold as value-packs and a decrease in royalty revenue.
Publishing-production, distribution and editorial expenses were $8.7 million for
the three months ended March 31, 1997, compared to $10.3 million for the three
months ended March 31, 1996, a decrease of $1.6 million. Paper costs were $3.1
million for the three months ended March 31, 1997, compared to $4.2 million for
the three months ended March 31, 1996, a decrease of $1.1 million. The decrease
is due both to a decline in the cost of paper and the reduced number of copies
printed of certain publications, as well as the company publishing one less
issue of Penthouse Letters during the three months ended March 31, 1997, as
compared to the three months ended March 31, 1996. Print costs were $3.5 million
for the three months ended March 31, 1997, compared to $3.6 million for the
three months ended March 31, 1996, a decrease of $0.1 million. The decrease is
attributable to the decreased number of copies printed and to the printing of
one less issue of Penthouse Letters during the three months ended March 31,
1997, as compared to the three months ended March 31, 1996. These savings were
partially offset by higher printing costs in 1997. Distribution costs were $1.2
million for the three months ended March 31, 1997, compared to $1.6 million for
the three months ended March 31, 1996, a decrease of $0.4 million. The decrease
is attributable to fewer copies being distributed and lower costs associated
with Value Packs. Editorial costs were $0.9 million for the three months ended
March 31, 1997, compared to $1.0 million for the three months ended March 31,
1996, a decrease of $0.1 million, due to decreased spending levels in Penthouse
Comix and Forum, partially offset by higher writeoffs of obsolete pictorial
inventory. During the three months ended March 31, 1997 the adjustment to the
LIFO reserve resulted in increased expense of $0.4 million, as compared to the
1996 period.
Selling, general and administrative expenses were $6.7 million for the three
months ended March 31, 1997, compared to $8.4 million for the three months ended
March 31, 1996, a decrease of $1.7 million. The decrease is primarily
attributable to lower salaries, employee benefits, travel and entertainment, and
temporary personnel expenses in 1997, as a result of corporate restructuring
($0.5 million), lower advertising expenditures and related costs($0.5 million)
and lower retail display allowances taken by retailers due to lower newsstand
sales($0.3 million). Additionally, corporate overhead allocations to the Mens
Magazine group was less ($0.5 million) during the three months ended March 31,
1997, compared to the three months ended March 31, 1996.
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 $0.1 million for the
three months ended March 31, 1997, compared to $0.2 million for the three months
ended March 31, 1996, a decrease of $0.1 million, due to lower operating costs
incurred by the affiliated companies resulting in a lower rent charge.
Depreciation and amortization was $0.2 million and $0.3 million for the three
months ended March 31, 1997 and 1996, respectively.
10
<PAGE>
Item 2. (Continued)
Foreign Edition Licensing
Revenues from licensing of foreign editions were $0.7 million and $0.6 million
for the three months ended March 31, 1997 and 1996, respectively. This increase
is due primarily to the addition of four new licensees in 1997, partially offset
by the loss of one licensee.
Selling, general and administrative expenses were $0.1 million and $0.2 million
for the three months ended March 31, 1997 and 1996, respectively. This decrease
is attributable to a lowering of the reserve for doubtful accounts of $0.1
million and a reduction of consulting fees of $0.1 million, offset by higher
corporate overhead allocations of $0.1 million during the three months ended
March 31, 1997, as compared to the three months ended March 31,1996.
Automotive Magazines
Revenues for the Automotive Magazines were $5.2 million for the three months
ended March 31, 1997, compared to revenues of $5.3 million for the three months
ended March 31, 1996, a decrease of $0.1 million. Newsstand revenues were $1.2
million and $1.4 million for the three months ended March 31, 1997 and 1996,
respectively, a decrease of $0.2 million due primarily to an automotive special
issue being published during the three months ended March 31, 1996. Advertising
revenues were $3.1 million for the three months ended March 31, 1997, compared
to $3.0 million for the three months ended March 31, 1996, an increase of $0.1
million, resulting primarily from an increase in advertising page rates and an
increase in advertising pages sold. Subscription revenues were $0.9 million and
$1.0 million for the period ended March 31, 1997 and 1996, respectively, a
decrease of $0.1 million due primarily to a decline in subscription circulation.
Publishing-production, distribution and editorial expenses were $2.5 million and
$3.0 million for the three months ended March 31, 1997 and 1996, respectively, a
decrease of $0.5 million. Paper costs were $0.9 million for the three months
ended March 31, 1997, compared to $1.2 million for the three months ended March
31, 1996, a decrease of $0.3 million. The decrease in paper costs is primarily
attributable to a significant decrease in the cost of paper and an automotive
special being published during the three months ended March 31, 1996, partially
offset by costs associated with more magazine copies being printed and more
pages per issue. Print costs were $1.0 million and $1.1 million for the three
months ended March 31, 1997 and 1996, a decrease of $0.1 million. The decrease
is primarily attributable to an automotive special issue being published during
the three months ended March 31, 1996, offset by increased cost associated with
the higher number of magazine copies printed and pages per issue. Distribution
costs were $0.5 million for the three months ended March 31, 1997 and March 31,
1996. Editorial costs were $0.1 million for the three months ended March 31,
1997 and 1996.
Selling, general and administrative expenses were $1.9 million and $1.6 million
for the three months ended March 31, 1997 and 1996, respectively, an increase of
$0.3 million. The increase is attributable to an increase in corporate overhead
allocations charged to the Automotive Magazines during the three months ended
March 31, 1997, as compared to the three months ended March 31, 1996.
Depreciation and amortization was $0.2 million for the three months ended March
31, 1997, compared to $0.1 million for the three months ended March 31, 1996, an
increase of $0.1 million.
11
<PAGE>
Item 2. (Continued)
Entertainment Segment
Revenues from the Entertainment Segment were $2.9 million for the three months
ended March 31, 1997, compared to $3.8 million for the three months ended March
31, 1996, a decrease of $0.9 million. The Company's video and CD-ROM business
revenues decreased $0.4 million, the pay-per-call business revenues decreased
$0.1 million and the internet business revenues decreased $0.3 million. The
Company's video division revenue decrease is primarily due to fewer
videocassettes sold through the Company's national wholesale distributor and
lower video licensing revenues during the three months ended March 31, 1997, as
compared to the three months ended March 31, 1996. Furthermore, the Company has
discontinued its CD-ROM products and accordingly there was no revenues during
the three months ended March 31,1997, as compared to $0.2 million for the three
months ended March 31, 1996. The decrease in pay-per-call revenues is partially
attributable to lower circulation of the Company's Mens Magazines. Internet
revenues were lower as a result of technical problems encountered in the
transition to a new server hosting the Company's internet site software. These
problems were resolved in March 1997 and the Company again began receiving
revenues during that month.
Direct costs were $1.6 million for the three months ended March 31, 1997,
compared to $1.8 million for the three months ended March 31, 1996, a decrease
of $0.2 million. The Company's video division experienced a $0.2 million
decrease in direct expenses primarily associated with lower video production
costs and lower fulfillment and distribution costs associated with a lower sales
volume.
Selling, general and administrative expenses were $1.2 million for the three
months ended March 31, 1997 and March 31, 1996.Corporate overhead allocations
were $0.2 million higher during the three months ended March 31, 1997, as
compared to the three months ended March 31, 1996, offset by lower legal fees
and consulting costs of $0.2 million during the 1997 period.
Liquidity and Capital Resources
At March 31, 1997, the Company had $ 7.9 million in cash and cash equivalents,
compared to $7.2 million at December 31, 1996. The increase in cash and cash
equivalents during the three months ended March 31, 1997 resulted from net cash
flows provided by operating activities of $0.7 million, partially offset by net
cash flows used in investing activities of $0.1 million.
Cash flows from operating activities
Net cash provided by operating activities was $0.7 million for the three months
ended March 31, 1997, compared to net cash provided by operating activities of
$3.0 million for the three months ended March 31, 1996. Net cash provided by
operating activities for the three months ended March 31, 1997 was primarily the
result of a decline in inventory balances as the price of paper has declined
since mid-1996, a decline in deferred subscription acquisition costs due to
lower spending levels, and an increase in accounts payable balances due to the
timing of payments to vendors, as well as income from operations for the period.
Net cash provided by operating activities for the three months ended March 31,
1996 was primarily a result of the income from operations for the period and a
decrease in inventory, due to less magazine copies being printed, therefore
requiring less paper inventory on hand.
Cash flows from investing activities
Cash used in investing activities for capital expenditures was $0.1 million for
thee three months ended March 31, 1997 and March 31, 1996.
12
<PAGE>
Item 2. (Continued)
Cash flows from financing activities
Cash flows provided by financing activities were $0.0 million for the three
months ended March 31, 1997, compared to cash flows used in financing activities
of $0.4 million for the three months ended March 31, 1996. Affiliated company
investments and advances at March 31, 1997 decreased from the December 31, 1996
balance, whereby the Company is owed $0.6 million from GMI as of March 31, 1997.
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 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, 1997, in the
amount of $0.6 million, has not been made by May 13, 1997. Demand for such
payment has been made in writing. 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 the
entire amount due to the Company. GMI has agreed in writing to repay the entire
amount due from the proceeds of certain pending transactions.
The ability of the Company to incur additional debt is severely limited by the
terms of its 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 Subsidiary
Guarantors under the Indenture, however, are permitted to make intercompany
dividends on their common stock.
Future outlook
Due to factors discussed in "Liquidity and Capital Resources", the Company's
cash balance at March 31, 1997 increased to $7.9 million, from $7.2 million at
December 31, 1996. The Company is obligated to make a $4.2 million interest
payment on its Notes on June 30, 1997.
The Company's results from operations continues to be negatively impacted by
decreased newsstand circulation and advertisising revenues from Mens Magazines.
Newsstand circulation has continued to decline during the first quarter of 1997,
resulting in continued net losses to the Company. While it is difficult to
predict future newsstand sales of the Company's magazines, it is unlikely that
the Company can achieve profitable results of operations during 1997, if such
sales continue to decline. Furthermore, should the Company incur additional
losses in the future, such that the Company's net worth (deficiency) declines
from the amount at March 31, 1997 of ($77.9) million, below ($81.6) 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 Notes then outstanding at a price of 101 % of the principal amount thereof .
13
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In May 1996, an action was brought against the Company alleging the wrongful
possession and seeking to prevent the publication of certain photographs in
Penthouse magazine. This claim was settled in May 1997.
In August 1996, an action was brought against the Company alleging various
wrongs in connection with the Company's dealings with the former editor of
Penthouse Comix and Mens Adventure Comix. The complaint alleges RICO violations,
breach of contract, trademark and copyright infringement and other charges and
demands damages in excess of $20 million. The Company believes that the claim is
without merit and has tendered defense of this action to its insurance carrier.
In the opinion of management, the outcome of this litigation is not reasonably
likely to have a material adverse effect on the Company's financial position or
results of operations.
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, 1997.
14
<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.
General Media, Inc.
(Registrant)
Dated: May 14, 1997 By: /s/Patrick J. Gavin
----------------------
Signature
Patrick J. Gavin
Executive Vice President
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL
MEDIA, INC'S MARCH 31, 1997 FORM 10Q 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,856
<SECURITIES> 0
<RECEIVABLES> 13,434
<ALLOWANCES> 0
<INVENTORY> 4,493
<CURRENT-ASSETS> 29,652
<PP&E> 4,487
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,231
<CURRENT-LIABILITIES> 33,420
<BONDS> 79,334
0
0
<COMMON> 5
<OTHER-SE> (74,158)
<TOTAL-LIABILITY-AND-EQUITY> 46,231
<SALES> 24,096
<TOTAL-REVENUES> 24,096
<CGS> 12,853
<TOTAL-COSTS> 10,334
<OTHER-EXPENSES> 124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,349
<INCOME-PRETAX> (1,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,564)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
