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, 1998 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 13, 1998
----- ---------------------------
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 14
Signature 15
Exhibit Index 16
2
<PAGE>
Item 1. Financial Statements
General Media, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
and Accumulated Deficit
(unaudited)
(amounts in thousands)
Three months ended
March 31,
1997 1998
-------- --------
(restated-note 2)
Publishing
Newsstand $ 11,096 $ 12,019
Advertising 6,361 6,334
Subscription 2,734 3,043
Other 981 915
Entertainment 2,924 5,692
-------- --------
24,096 28,003
-------- --------
Publishing-production, distribution and editorial 11,058 11,548
Entertainment- direct costs 1,649 969
Selling general and administrative 9,869 12,625
Rent expense from affiliated companies 128 124
Depreciation and amortization 461 457
-------- --------
Total operating costs and expenses 23,165 25,723
-------- --------
Income from operations 931 2,280
-------- --------
Interest expense (2,477) (2,477)
Interest income 128 119
-------- --------
(1,418) (78)
(73,299) (75,214)
-------- --------
($74,717) ($75,292)
======== ========
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,
1997 1998
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,308 $ 10,636
Accounts receivable, net of allowance
for doubtful accounts 9,177 10,596
Inventories 5,097 5,273
Prepaid expenses and other current assets 3,580 3,548
Due from affiliated companies 1,148 1,549
Loan to shareholder 732 820
-------- --------
Total current assets 27,042 32,422
PROPERTY AND EQUIPMENT - AT COST;
net of accumulated depreciation 3,793 3,579
OTHER ASSETS
Intangible assets, net 3,194 3,040
Deferred subscription aquisition costs 3,075 2,530
Deferred debt issuance costs, net 2,988 2,740
Loan to affiliated company 1,086 1,086
Other 1,449 1,499
-------- --------
11,792 10,895
-------- --------
$ 42,627 $ 46,896
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 13,909 $ 15,390
Deferred subscription revenue 11,748 12,377
Other liabilities and accrued expenses 4,804 7,316
-------- --------
Total current liabilities 30,461 35,083
SENIOR SECURED NOTES 79,467 79,512
UNEARNED REVENUE 4,699 4,379
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 deficit (75,214) (75,292)
-------- --------
(73,791) (73,869)
-------- --------
$ 42,627 $ 46,896
======== ========
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,
1997 1998
-------- --------
(restated-note 2)
Cash flows from operating activities
Net loss ($ 1,418) ($ 78)
Adjustments to reconcile net loss to
cash provided by operating activities
Depreciation and amortization 461 457
Amortization of debt issuance costs and discounts 292 292
Net change in operating assets and liabilities 1,406 3,234
-------- --------
Net cash provided by operating activities 741 3,905
-------- --------
Cash flows from investing activities
Capital expenditures (78) (88)
-------- --------
Net cash used in investing activities (78) (88)
-------- --------
Cash flows from financing activities
Repayments by (advances to) affiliated companies 29 (401)
Loan to shareholder (88)
-------- --------
Net cash used in financing activities 29 (489)
-------- --------
Net increase in cash and cash equivalents 692 3,328
Cash and cash equivalents at beginning of period 7,164 7,308
-------- --------
Cash and cash equivalents at end of period $ 7,856 $ 10,636
======== ========
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, 1997 has been derived from the audited
financial statements at that date.
2. Inventories
Inventories consist of the following:
December 31, March 31,
1997 1998
------ ------
Paper and printing $2,063 $2,348
Editorials and pictorial 2,210 2,094
Film and programming costs 824 831
------ ------
$5,097 $5,273
====== ======
In 1997, the Company changed its method of determining the cost of paper and
printing inventories from the LIFO method to the FIFO method. Under the current
economic environment of low inflation, the Company believes that the FIFO method
will result in a better measurement of operating results. This change has been
applied by retroactively restating the accompanying consolidated financial
statements. The effect of the restatement was to decrease net loss for the three
months ended March 31, 1997 by $145,000.
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.
6
<PAGE>
General Media, Inc. and Subsidiaries
Notes to Condensed Consolidated
Financial Statements (Unaudited)
(amounts in thousands)
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 make an offer to
purchase outstanding notes if it fails to maintain a consolidated tangible net
worth (deficiency) of no more than ($81.6) million for two consecutive fiscal
quarters, 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, 1998, the Company was in compliance with all
such covenants.
Should the Company continue to incur losses, 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, 1998 and
1997 were $60,000 in each such period.
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" and, together with Penthouse magazine, the "Mens
Magazines"), 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 "Automotive
Magazines"). 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, interactive products and internet
services.
Effective January 1, 1998, the Company changed its presentation of Management's
Discussion and Analysis of Financial Condition and Results of Operations,
whereby income from operations of each business unit excludes corporate
administrative expenses. Corporate administrative expenses includes executive,
human resources, finance and accounting, management information systems and
various other expenses. The 1997 periods presented have been restated to conform
to the 1998 presentation.
Results of Operations (Three Months Ended March 31, 1998 vs. 1997)
The Company's revenues were $28.0 million for the three months ended March 31,
1998, compared to revenues of $24.1 million for the three months ended March 31,
1997, an increase of $3.9 million. Newsstand revenues were $12.0 million and
$11.1 million for the three months ended March 31, 1998 and 1997, respectively,
an increase of $0.9 million. Newsstand revenues for Mens Magazines were $10.7
and $9.9 million for the three months ended March 31, 1998 and 1997,
respectively, an increase of $0.8 million. Newsstand revenues from the
Automotive Magazines were $1.4 million and $1.2 million for the three months
ended March 31, 1998 and 1997, respectively, an increase of $0.2 million.
Advertising revenues were $6.3 million for the three months ended March 31, 1998
and 1997. Advertising revenues from Mens Magazines decreased $0.3 million and
advertising revenues from Automotive Magazines increase $0.3 million during the
period. Subscription revenues were $3.0 million and $2.7 million for the three
months ended March 31, 1998 and 1997, respectively, an increase of $0.3 million.
The increase in subscription revenues is attributable to a $0.1 million increase
in subscription revenues from Mens Magazines and an increase of $0.2 million in
subscription revenues from Automotive Magazines. Revenues for the Entertainment
segment were $5.7 million and $2.9 million for the three months ended March 31,
1998 and 1997, respectively, an increase of $2.8 million. Revenues from the
Company's video business were $1.2 million and $0.6 million for the three months
ended March 31, 1998 and 1997, respectively, an increase of $0.6 million.
Revenues from the Company's pay-per-call business were $1.0 million and $2.3 for
the three months ended March 31, 1998 and 1997, respectively, a decrease of $1.3
million. Revenues from the Company's internet business were $3.5 million and
$0.1 million for the three months ended March 31, 1998 and 1997, respectively,
an increase of $3.4 million.
8
<PAGE>
Item 2. (Continued)
Income from operations was $2.3 million for the three months ended March 31,
1998, compared to $0.9 million for the three months ended March 31, 1997. Income
from operations was positively impacted by increased revenues, as discussed
above, which was partially offset by an increase in production, distribution and
editorial costs resulting from an increase in the number of magazine copies
printed and higher paper costs, as well as increased selling, general and
administrative expenses associated with increased sales and increased
advertising and promotional expenses.
Net non-operating expenses were $2.4 million for the three months ended March
31, 1998 and 1997. Included in interest expense is the amortization of debt
issuance costs and discounts of $0.3 million for the three months ended March
31, 1998 and 1997.
Net loss for the three months ended March 31, 1998 was ($0.1) million, compared
to ($1.4) million for the three months ended March 31, 1997, 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,
--------- ---------
1997 1998 1997 1998
---- ---- ---- ----
Publishing Segment $21.2 $22.3 $ 4.4 $ 3.2
Entertainment Segment 2.9 5.7 0.5 3.2
----- ----- ----- -----
$24.1 $28.0 $ 4.9 $ 6.4
Corporate Administrative Expenses (4.0) (4.1)
----- ----- ----- -----
$24.1 $28.0 $ 0.9 $ 2.3
===== ===== ===== =====
Publishing Segment
The net revenues and income from operations of the Publishing Segment were as
follows :
Income
Net Revenues from operations
------------ ---------------
Three Three
Months Ended Months Ended
March 31, March 31,
--------- ---------
1997 1998 1997 1998
---- ---- ---- ----
Penthouse Magazine and
the Affiliate Publications $ 15.3 $15. 8 $ 2.6 $ 1.9
Foreign edition licensing 0.7 0.6 0.7 0.5
Automotive Magazines 5.2 5.9 1.1 0.8
------ ------ ------ ------
$ 21.2 $ 22.3 $ 4.4 $ 3.2
====== ====== ====== ======
9
<PAGE>
Item 2. (Continued)
Penthouse Magazine and the Affiliate Publications
Revenues for Penthouse magazine and the Affiliate Publications were $15.8
million and $15.3 million for the three months ended March 31, 1998 and 1997,
respectively, an increase of $0.5 million. Newsstand revenue was $10.6 million
and $9.9 million for the three months ended March 31, 1998 and 1997,
respectively, an increase of $0.7 million. The increase in newsstand revenue is
primarily attributable to an 8% increase in the number of newsstand copies sold
of Penthouse magazine. Advertising revenue was $2.9 million and $3.3 million for
the three months ended March 31, 1998 and 1997, respectively, a decrease of $0.4
million. The decline in advertising revenue is primarily attributable to a 13%
decrease in ad pages sold in Penthouse magazine for the three months ended March
31, 1998, as compared to the 1997 period. The Affiliate Publications experienced
a 19% decline in advertising pages sold during the three months ended March 31,
1998, compared to the 1997 period. Subscription revenue was $2.0 million and
$1.8 million for the three months ended March 31, 1998 and 1997, respectively,
an increase of $0.2 million. This increase is attributable to an increase in
subscription copies sold.
Publishing-production, distribution and editorial expenses were $8.6 million for
the three months ended March 31, 1998 and 1997. Paper costs were $3.2 million
for the three months ended March 31, 1997, compared to $3.0 million for the
three months ended March 31, 1997, an increase of $0.2 million. The increase is
due both to one additional issue of Penthouse Letters being printed and an
increase in the cost of paper, partially offset by the reduced number of pages
per issue and a decrease in copies printed of certain publications during the
three months ended March 31, 1998, as compared to the three months ended March
31, 1997. Print costs were $3.2 million for the three months ended March 31,
1998, compared to $3.5 million for the three months ended March 31, 1997, a
decrease of $0.3 million. The decrease is due to the decrease in the number of
pages per issue and copies printed of certain publications, as well as reduced
printing costs due to the renegotiation of the Company's printing contracts in
the third quarter of 1997. These reductions were partially offset by one
additional issue of Penthouse Letters being published during the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997.
Distribution costs were $1.3 million for the three months ended March 31, 1998,
compared to $1.2 million for the three months ended March 31, 1997, an increase
of $0.1 million. The increase is attributable to an increase in subscription
copies being distributed . Editorial costs were $0.9 million for the three
months ended March 31, 1998 and 1997.
Selling, general and administrative expenses were $5.3 million for the three
months ended March 31, 1998, compared to $4.2 million for the three months ended
March 31, 1997, an increase of $1.1 million. The increase is primarily
attributable to the write off of an uncollectible advertising accounts
receivable of $1.0 million which arose through billings during the three months
ended March 31, 1998. The Company terminated its agreement with an advertising
agency that had an exclusive arrangement to sell audiotext advertising in the
Company's magazines. The Company has entered into a new agreement with another
advertising agency on similar terms to that of the prior agreement. The Company
will experience additional bad debt expense through the second quarter of 1998,
as advertising pages in future issues had been printed prior to termination of
the agreement. The Company expects to be able to replace revenues from the
previous advertising agency through its new agreement beginning in the second
half of 1998.
Foreign Edition Licensing
Revenues from licensing of foreign editions were $0.6 million and $0.7 million
for the three months ended March
10
<PAGE>
Item 2. (Continued)
31, 1998 and 1997, respectively, a decrease of $0.1 million. This decrease is
due primarily to the termination of certain contracts with foreign licensees of
Penthouse magazine.
Selling, general and administrative expenses were $0.1 million and $0.0 million
for the three month period ended March 31, 1998 and 1997, respectively, an
increase of $0.1 million. In 1997, the Company received $0.1 million from a
licensee whose receivable balance was previously written off as a bad debt.
Automotive Magazines
Revenues for the Automotive Magazines were $5.9 million and $5.2 million for the
three months ended March 31, 1998 and 1997, respectively, an increase of $0.7
million. Newsstand revenues were $1.4 million and $1.2 million for the three
months ended March 31, 1998 and 1997, respectively, an increase of $0.2 million.
The increase is due primarily to increased cover price of Four Wheeler and Stock
Car magazines. Advertising revenues were $3.4 million and $3.1 million for the
three months ended March 31, 1998 and 1997, respectively, an increase of $0.3
million, resulting from an increase in advertising page rates and pages sold, as
well as advertising revenue of $0.1 million generated from Four Wheeler
Television, which produced its first in a series of 13 cable television shows in
February 1998. Subscription revenues were $1.0 million and $0.8 million for the
three month period ended March 31, 1998 and 1997, respectively, an increase of
$0.2 million due to an increase in subscription copies sold.
Publishing-production, distribution and editorial expenses were $2.9 million and
$2.5 million for the three months ended March 31, 1998 and 1997, respectively,
an increase of $0.4 million. Paper costs were $1.2 million and $0.9 million for
the three months ended March 31, 1998 and March 31, 1997, respectively, an
increase of $0.3 million. Paper costs increased due to an increase in magazine
copies printed, increased pages per copy and an increase in the cost of paper.
Print costs were $1.0 million for the three months ended March 31, 1998 and
1997. Distribution costs were $0.7 million and $0.5 million for the three months
ended March 31, 1998 and 1997, respectively, an increase of $0.2 million, due to
the increase in copies distributed. Editorial costs were $0.1 million for the
three months ended March 31, 1998 and 1997.
Selling, general and administrative expenses were $2.1 million and $1.6 million
for the three months ended March 31, 1998 and 1997, respectively, an increase of
$0.5 million. The increase is primarily attributable to subscription acquisition
spending ($0.3 million), increased salaries ($0.1 million) and increased
subscription fulfillment expense ($0.1 million) related to increased
subscription copies distributed during the three months ended March 31, 1998, as
compared to the three months ended March 31, 1997.
Entertainment Segment
Revenues from the Entertainment Segment were $5.7 million for the three months
ended March 31, 1998, compared to $2.9 million for the three months ended March
31, 1997, an increase of $2.8 million. The Company's video business revenues
were $1.2 million for the three months ended March 31, 1998 compared to $0.6
million for the three months ended March 31, 1997, an increase of $0.6 million.
The increase is due to revenue received from the sale of a videocassette
featuring a well know television personality, revenues received for a
pay-per-view joint venture and increased licensing revenue. Revenues from the
Company's pay-per-call business were $1.0 million and $2.3 million for the three
months ended March 31, 1998 and 1997, respectively, a decrease of $1.3 million.
Effective January 1, 1998, the Company engaged a new service bureau to process
11
<PAGE>
Item 2. (Continued)
its pay-per-call business. Accordingly, revenues for the first quarter of 1998
were lower due to the transition and due to the arrangement with its new service
bureau whereby the Company receives a fixed rate per minute. The arrangement
with the Company's previous service bureau paid revenue on a gross basis and the
Company paid certain expenses directly. The Company's internet business revenues
were $3.5 million and $0.1 million for the three months ended March 31, 1998 and
1997, respectively, an increase of $3.4 million. Internet revenues increased due
to revenues received from the sale of subscriptions to the Company's "Private
Collection", contained within the Company's internet site. Revenues were also
received from a new arrangement, whereby the Company receives a minimum
guaranteed revenue from another internet site "linked" to the Company's internet
site. Such arrangement began in April of 1997.
Direct costs were $0.9 million for the three months ended March 31, 1998,
compared to $1.6 million for the three months ended March 31, 1997, a decrease
of $0.7 million. The decrease is due to the change in service bureaus processing
the Company's pay-per-call business, as discussed above.
Selling, general and administrative expenses were $1.6 million and $0.8 million
for the three months ended March 31, 1998 and March 31, 1997, respectively, an
increase of $0.8 million. The increase is due primarily to higher computer
processing and commission expense relating to the internet business increased
revenues.
Corporate Administrative Expense
Corporate dministrative expenses include executive, human resources, finance and
accounting, management information systems and various other expenses. Corporate
administrative expenses were $4.1 million for the three months ended March 31,
1998, compared to $4.0 million for the three months ended March 31, 1997, an
increase of $0.1 million, due primarily to higher executive compensation..
Rent Expense From Affiliated Companies
Rent expense from affiliated companies represents charges from affiliated
companies for the use of the Company's 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, 1998 and 1997.
Impact of Year 2000
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 issue and is
developing an implementation play to resolve the issue. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year.
The Company presently believes that the Year 2000 problem will not pose
significant operational problems for the Company's computer systems as such
systems have generally been recently implemented or upgraded, and accordingly,
will not have a material adverse effect on the Company's results of operations
or financial position.
12
<PAGE>
Item 2. (Continued)
Liquidity and Capital Resources
At March 31, 1998, the Company had $10.6 million in cash and cash equivalents,
compared to $7.3 million at December 31, 1997. The increase in cash and cash
equivalents during the three months ended March 31, 1998 resulted from net cash
flows provided by operating activities of $3.9 million, cash flows used in
investing activities of $0.1 million, and cash flows used in financing
activities of $0.5 million.
Cash flows from operating activities
Net cash provided by operating activities was $3.9 million for the three months
ended March 31, 1998, compared to net cash provided by operating activities of
$0.7 million for the three months ended March 31, 1997. Net cash provided by
operating activities for the three months ended March 31, 1998 was primarily the
result of income from operations for the period and increased accounts payable
balances due to timing of payments to vendors. Net cash provided by operating
activities for the three months ended March 31, 1997 was primarily the result of
lower paper inventory levels and lower subscription acquisition cost due to
lower spending levels.
Cash flows from investing activities
Cash used in investing activities for capital expenditures was $0.1 million for
the months ended March 31, 1998 and 1997.
Cash flows from financing activities
Cash flows used in financing activities were $0.5 million for the three months
ended March 31, 1998, compared to cash flows provided by financing activities of
$0.1 million for the three months ended March 31, 1997. Affiliated company
investments and advances at March 31, 1998 increased $0.4 million from the
December 31, 1996 balance, whereby the Company is owed $1.5 million by GMI as of
March 31, 1998. 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, in the amount of $1.5
million, has not been made by May 14, 1998. Demand for 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 refinancing of GMI's debts.
The principal shareholder of GMI has guaranteed $1.1 million of the amount due
to the Company. At March 31, 1998, the Company has a loan outstanding to the
principal shareholder of GMI $0.8 million. The loan is evidenced by a promissory
note, bears interest at 13.25% per annum, and is payable on December 31, 1998.
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
The Company's cash balance at March 31, 1998 was $10.6 million, compared to $7.3
million at December 31, 1997. The Company is obligated to make a $4.2 million
interest payment on its Notes on June 30, 1998.
Management believes that it will be able to meet its obligations through the
remainder of 1998 through cash flows from operations and use of its existing
cash balances.
13
<PAGE>
Item 2. (Continued)
Forward-Looking Statements
In addition to historical information, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements. The forward-looking statements are subject to certain risks and
uncertainties including potential adverse governmental regulations, that could
cause actual results to differ materially from those reflected in such forward
looking statements. Readers are cautioned not to place undue reliance in these
forward-looking statements, which reflect management's opinions only as of the
date hereof. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward looking statements.
Part II-Other Information
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, 1998.
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, 1998 By: /s/ James M. Follo
----------------------
Signature
James M. Follo
Vice President-Chief Financial Officer and
Treasurer
(Duly Authorized Officer and
Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Item
- ----------- ----
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, 1998 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-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 10,636
<SECURITIES> 0
<RECEIVABLES> 10,596
<ALLOWANCES> 0
<INVENTORY> 5,273
<CURRENT-ASSETS> 32,422
<PP&E> 3,579
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,896
<CURRENT-LIABILITIES> 35,083
<BONDS> 79,512
0
0
<COMMON> 5
<OTHER-SE> (73,874)
<TOTAL-LIABILITY-AND-EQUITY> 46,896
<SALES> 28,003
<TOTAL-REVENUES> 28,003
<CGS> 12,517
<TOTAL-COSTS> 13,082
<OTHER-EXPENSES> 124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,477)
<INCOME-PRETAX> (78)
<INCOME-TAX> 0
<INCOME-CONTINUING> (78)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
