Washington, D.C. 20549
American Media, Inc.
On June 29, 2016, American Media, Inc. (the "Company") filed its Annual Report on Form 10-K for the fiscal year ended March 31, 2016 (the "Original Form 10-K"). This Amendment No. 1 (the "Amendment") amends Parts III and IV, Items 10 through 15 of the Original Form 10-K to include information previously omitted from the Original Form 10-K in reliance on General Instruction G to Form 10-K, which provides that registrants may incorporate by reference certain information from a definitive proxy statement filed with the Securities and Exchange Commission (the "SEC") within 120 days after the end of the fiscal year. We are filing this Amendment to include Part III information in the Original Form 10-K because the Company's definitive proxy statement will not be filed within 120 days after the end of the Company's 2016 fiscal year.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment under Item 15 of Part IV hereof.
Except as stated herein, this Amendment does not reflect events occurring after the filing of the Original Form 10-K with the SEC on June 29, 2016 and no attempt has been made in this Amendment to modify or update other disclosures as presented in the Original Form 10-K. Accordingly, this Amendment should be read in conjunction with the Original Form 10-K and our other reports filed with the SEC.
American Media, Inc. and its consolidated subsidiaries are referred to in this Annual Report on Form 10-K (this "Annual Report")Amendment as American Media, AMI, the Company, we, our and us.
Our fiscal year ended on March 31, 2016 and is referred to herein as fiscal 2016. References to our fiscal year (e.g. "fiscal 2016") refer to our fiscal year ended March 31st of the applicable year.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This Annual Report for the fiscal year ended March 31, 2016 contains certain "forward-looking statements," as such term is defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). These forward-looking statements relate to our current beliefs regarding future events or our future operating or financial performance. By their nature, forward-looking statements involve risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements.
Such factors include, but are not limited to, those items described in "Risk Factors" in Item 1A of this Annual Report and those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, as well as other factors.
We have tried, where possible, to identify such statements by using words such as "believes," "expects," "intends," "estimates," "may," "anticipates," "will," "likely," "project," "plans," "should," "could," "potential" or "continue" and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statement is and will be based upon our then current expectations, estimates and assumptions regarding future events and is applicable only as of the dates of such statement. We may also make written and oral forward-looking statements in the reports we file from time to time with the Securities and Exchange Commission (the "SEC").
We caution you not to place undue reliance on any forward-looking statement, which speaks only as of the date of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statement contained in this Annual Report, whether as a result of new information, future events or otherwise, except as required by law.
INDUSTRY DATA AND CIRCULATION INFORMATION
This Annual Report includes publishing industry data, rankings, circulation information, Internet user data, readership information and other industry and market information that we obtained from various third-party sources, internal company sources and public filings. Third-party sources include, but are not limited to, the Alliance for Audited Media ("AAM"), comScore Media Metrix ("comScore"), Publishers Information Bureau as provided by Kantar Media ("PIB"), GfK Mediamark Research & Intelligence ("MRI"), Google Analytics, BPA Circulation Statements and Statement of Ownership figures filed with the U.S. Postal Service.
While we are not aware of any misstatements regarding any industry data presented in this Annual Report and believe such data to be accurate, we have not independently verified any data obtained from third-party sources and cannot assure you of the accuracy or completeness of such data. Such data may involve risks and uncertainties and are subject to change based on various factors. See Item 1A, “Risk Factors.”
Unless otherwise stated herein, all average circulation information for our publications is a per issue average of actual single copy circulation and subscription copies for fiscal 2016. All references to "circulation" are to single copy newsstand sales and paid subscription circulation, unless otherwise specified. References to “verified non-paid subscriptions” are to non-paid subscription copies designated by publishers for readership in public places or intended for individual use by recipients who are likely to have a strong affinity for the content of the publication.
PART IIII
Item 1.10. Business.Directors, Executive Officers and Corporate Governance.
OVERVIEW
American Media, Inc. together with its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") is one of the largest publishers of celebrityDirectors and health and active lifestyle magazines in the United States, with a diversified portfolio of 10 publications that have a combined monthly print and digital audience of more than 39 million readers and monthly on-line audience of approximately 49 million readers.Executive Officers
In August 2014, American Media, Inc.we entered into an agreement and plan of merger (the "Merger Agreement") with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of AMI (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into American Media, Inc. (the "Merger") with American Media, Inc. surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of American Media, Inc.
In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 millionconnection with the Merger, in cash plus an earnout of up to $60 million. As a result,August 2014, Parent, as the operationssole stockholder of the Women's Active Lifestyle segment have been classifiedCompany, elected Messrs. Ratner, Schwartz and Hughes to serve with Mr. Pecker as discontinued operations in all periods presented. We also sold our Country Weekly publication, in November 2014, for approximately $3 millionthe Directors. In addition, Parent appointed Messrs. Ratner, Schwartz and we entered into long-term publishing services agreement for $1 million. The operations of Country Weekly did not meet the criteria for discontinued operations presentation. For additional information on these dispositions, see Note 10, "Dispositions" to our consolidated financial statements included elsewhere in this Annual Report.
After giving effectHughes to the divestitureAudit Committee of our Women's Active Lifestyle segment, our remaining well-known publications cover two primary operating segments: Celebrity and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner and Soap Opera Digest. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers, Flex,the Board with Mr. Olympia and international editions of Muscle & Fitness and Flex.
Total circulation of our remaining print publications with a frequency of six or more times per year, were approximately 3.1 million copies per issue during fiscal 2016 and 3.2 million and 3.5 million copies per issue during fiscal 2015 and 2014, respectively. Our celebrity titles together are number one in market share in newsstand circulation in the celebrity category and, on-line, are the fastest growing brands in the category. Our men's titles have the highest market share of national magazine advertising pages in their competitive set in the United States.
We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with consumers, major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate or enter the market.
The magazine publishing industry is transforming itself into media content providers with multiple revenue sources. The impact has been a decline in circulation and print advertising revenues, partially offset by the growth in digital revenues. Our brands go beyond the printed page. We engage an audience of more than 88 million men and women every month through not only magazines, but also social media, television, and on all digital platforms, from phones and tablets to laptops and desktops. We have transformed from being a leading media company to a lifestyle brand that informs and entertains while also creating consumer and trade events to sell products for our advertisers.
DESCRIPTION OF BUSINESSHughes serving as Chairman.
Our circulation revenue, representing the sale of magazines to consumers, generates more than half of our total revenues. The sale of advertising across our multiple platforms generates approximately one-third of our total revenues. The remaining operating revenues are generated by our other operations related to our brands. See "Management's DiscussionDirectors and Analysis of Financial Condition and Results of Operations - Results of Operations." The majority of our operating revenues are generated in the United States. See Note 13, "Business Segment Information" to our consolidated financial statements included elsewhere in this Annual Report for certain information by geographic area.
Operating Revenues
Circulation
Our circulation revenue, representing the sale of magazines to consumers, generates more than half of our total revenues. Circulation is an important component in determining our advertising revenues because advertising rates are dependent on circulation and audience. Single copy sales (also known as newsstand sales) are sold primarily through national distributors, wholesalers and retailers. Subscriptions are sold primarily through direct mail, or digitally via the Internet. Additionally, single-copy digital issues of our magazines and digital-only subscriptions are sold or distributed through various app stores and other digital storefronts. Our digital subscriptions represent 15% of our 2.0 million net subscriptionsExecutive Officers as of March 31,June 30, 2016, the highest percentage among our competitive set.
As of March 31, 2016, our print publications comprised approximately 24% of total U.S.together with their biographical summaries and Canadian newsstand circulation for weekly publications that are audited by the Alliance for Audited Media.
Newsstand sales include sales through traditional newsstands as well as supermarkets, convenience stores, pharmacies and other retail outlets. Newsstand sales are highly sensitive to cover selection, retail placement and other factors. Through our relationships with national distributors, wholesalers and retailers, we market and arrange for the distribution of our magazines to retailers and the billing and the collection processes pursuant to multi-year arrangements.
We rely on wholesalers for the retail distribution of our magazines. A small number of wholesalers are responsible for a substantial percentage of the wholesale magazine distribution business. The decline in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalersbusiness experience during 2014. Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operation during 2014.
Advertising
The sale of advertising across our multiple platforms generates approximately one-third of our total revenues. We conduct our advertising sales through a combination of corporate and brand sales and marketing teams that sell advertising across multiple media platforms. Our salespeople are divided into specific brand teams, with each team focusing on selling marketing programs that integrate print, digital (such as mobile and desktop), social media and events for our clients. We are also the industry leader in creating sponsored content and native advertising. Combined, our sales teams cover all consumer advertising categories.
The rates at which we sell print advertising depend on each magazine's rate base, which is the circulation of the magazine that we guarantee to our advertisers, as well as our audience size. If we are not able to meet our committed rate base, the price paid by advertisers is generally subject to downward adjustments, including in the form of future credits or discounts. Our published rates for each of our magazines are subject to negotiation with each of our advertisers.
Print advertising revenue continues to be negatively impacted by the decline in the consumer magazine sector coupled with the transformation of advertising from print to digital. Our digital advertising revenue represented 20%, 15% and 11%, respectively, of our total advertising revenue for fiscal 2016, 2015 and 2014.
Advertising revenue is typically highest in the fourth quarter of our fiscal year due to seasonality. See "Seasonality" within this Item 1, "Business," for further information.
Related Operations
Over the past year, we have developed several unique brand extensions across multiple platforms.
In February 2016, we announced a partnership with Dwayne "The Rock" Johnson's company, Seven Bucks Productions. Mr. Johnson is onefive years and directorships of the world's biggest box office stars with over $1.4 billion in ticket sales in 2015 and Seven Bucks Productions has over 50 movie, television and digital projects in development. Our initial venture will be a live television broadcast of the Mr. Olympia event from Las Vegas in September 2016. Mr. Johnson will be one of the co-hosts and we are currently in negotiations with a leading broadcast network to air the live broadcast of the Mr. Olympia event.
We currently publish a custom magazine for GNC Holdings, Inc. ("GNC") on a quarterly basis, utilizing our Men's Fitness (and Shape pursuant to a license agreement) brands. The print version is distributed to approximately 500,000 customers through select GNC stores, with another 1 million digital copies distributed via email to GNC's database of customers. GNC leverages its vendors to advertise in the magazine and AMI retains 100% of the advertising revenues.
The REELZ Channel, available in over 68 million homes, recently premiered a new television series, National Enquirer Investigates and the Discovery Channel will launch a series called Enquiring Minds this fall. We are partnering with The Weinstein Company on both of these televisions series. There is also a feature film and documentary drama television series on The National Enquirer in development with IMG/WME.
Operating Expenses
Our primary operating expenses consist of costs related to the production of our printed magazines, as well as selling, general and administrative expenses.
Paper is the principal raw material utilized in our publications and we have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements.
Printing is a significant component in the production of our printed magazines. The majority of our printing is with a single printer pursuant to a long-term printing contract.
Subscription copies of our magazines are distributed primarily through the United States Postal Service (USPS) as periodicals mail. We coordinate with our printers and local USPS distribution centers to achieve efficiencies in our production and distribution processes and to minimize mail processing costs and delays. However, we are subject to the postal rate increases that affect delivery costs associated with our magazines. Effective May 31, 2015, rates for all classes of mail were increased by approximately 2% by the Postal Regulation Commission. Increases in postal rates are factored into our pricing, however, there can be unexpected increases in postal rates or other delivery charges that would have a negative impact on our results of operations. See Item 1A, "Risk Factors - Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates."
RECENT DEVELOPMENTS
Debt Related Transactions
During the first quarter of fiscal 2016, AMI repurchased $2.0 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in December 2017 (the "First Lien Notes"), plus accrued and unpaid interest in the open market, from the Investors.
In February 2016, we amended the revolving credit facility (the "Revolving Credit Facility") to, among other things, extend the maturity date to June 2017, modify the financial covenants in effect through the date of maturity and provide for certain other provisions.
In March 2016, AMI exchanged approximately $58.9 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors, for approximately $76.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement").
In addition to the New Second Lien Notes Exchange Agreement, AMI also issued, in March 2016, approximately $76.2 million in aggregate principal amount of New Second Lien Notes in a distribution to certain holders of equity interests in the Parent, of which approximately $68.8 million was issued to the Investors and approximately $7.4 million was issued to AMI's Chief Executive Officer (the "Officer"), and approximately $7.3 million aggregate principal amount of New Second Lien Notes were issued to an affiliate of the Investors in exchange for cash.
In March 2016, AMI repurchased the remaining $2.2 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"), plus accrued and unpaid interest in the open market. Upon the full satisfaction and cancellation of all outstanding Second Lien Notes, the collateral agreement securing the Second Lien Notes was terminated and AMI's obligations under the Indenture governing the Second Lien Notes were satisfied in full.
See Note 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes" to our consolidated financial statements included elsewhere in this Annual Report for further information regarding our debt agreements.
BUSINESS SEGMENTS
Our three business segments are described below. Additional financial information relating to these segments may be found in Note 13, "Business Segment Information" in our consolidated financial statements contained elsewhere in this Annual Report, which information is incorporated herein by reference.
Celebrity Brands
Our six celebrity magazines have a 36% share-of-market, selling approximately 0.8 million copies per week, or $3.9 million in retail dollars. In fiscal 2016, they accounted for 74% of our total operating revenues. Circulation revenues were 81% of this segment in fiscal 2016, with print and digital advertising revenue representing the balance.
This segment consists of the following brands in print and digital:
National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, politics, crime, human interest, health and fashion. We recently appointed Dick Morris as the chief political commentator and contributor to expand our political coverage;
Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;
OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;
Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political stars and investigative crime stories that are less mainstream and more salacious than the National Enquirer;
National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s health service and good news for an older tabloid audience; and
Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view.
Certain information related to our Celebrity publications is as follows:
|
| | | | | | |
| | | Frequency (per annum) | | | | Website Unique Visitors (monthly average) |
| Brand | | | 2016 Rate Base | |
| National Enquirer | | 52 x | | n/a | | 1,319,305 |
| Star | | 52 x | | 750 | | 1,194,216 |
| OK! | | 52 x | | 475,000 | | 9,695,688 |
| Globe | | 52 x | | n/a | | 25,382 |
| National Examiner | | 52 x | | n/a | | n/a |
| Soap Opera Digest | | 52 x | | 135,000 | | 396,205 |
The following table sets forth the average circulation (per issue) and U.S. cover prices for our Celebrity segment:
|
| | | | | | | | | |
| (in thousands, except cover price information) | | March 31, 2016 | | March 31, 2015 | | March 31, 2014 |
| National Enquirer | | | | | | |
| Total circulation | | 364 |
| | 415 |
| | 516 |
|
| Subscription circulation | | 97 |
| | 110 |
| | 120 |
|
| Single copy circulation | | 267 |
| | 305 |
| | 396 |
|
| Cover price | | $4.99 | | $4.99 | | $4.99 |
| Star | | | | | | |
| Total circulation | | 754 |
| | 826 |
| | 803 |
|
| Subscription circulation | | 553 |
| | 608 |
| | 501 |
|
| Single copy circulation | | 201 |
| | 218 |
| | 302 |
|
| Cover price | | $4.99 | | $4.99 | | $4.99 |
| OK! | | | | | | |
| Total circulation | | 504 |
| | 432 |
| | 507 |
|
| Subscription circulation | | 383 |
| | 313 |
| | 352 |
|
| Single copy circulation | | 121 |
| | 119 |
| | 155 |
|
| Cover price | | $4.99 | | $4.99 | | $4.99 |
| Globe | | | | | | |
| Total circulation | | 176 |
| | 201 |
| | 246 |
|
| Subscription circulation | | 25 |
| | 27 |
| | 28 |
|
| Single copy circulation | | 151 |
| | 174 |
| | 218 |
|
| Cover price | | $4.99 | | $4.99 | | $3.99 |
| National Examiner | | | | | | |
| Total circulation | | 77 |
| | 82 |
| | 104 |
|
| Subscription circulation | | 8 |
| | 9 |
| | 10 |
|
| Single copy circulation | | 69 |
| | 73 |
| | 94 |
|
| Cover price | | $4.99 | | $4.99 | | $3.99 |
|
| | | | | | | | | |
| (in thousands, except cover price information) | | March 31, 2016 | | March 31, 2015 | | March 31, 2014 |
| Soap Opera Digest | | | | | | |
| Total circulation | | 123 |
| | 138 |
| | 154 |
|
| Subscription circulation | | 77 |
| | 85 |
| | 93 |
|
| Single copy circulation | | 46 |
| | 53 |
| | 61 |
|
| Cover price | | $4.99 | | $4.99 | | $3.99 |
The cover prices increased for Globe, National Examiner and Soap Opera Digest from $3.99 to $4.99 effective with the May 12, 2014 issue.
Men's Active Lifestyle
In fiscal 2016, our Men's Active Lifestyle segment accounted for 25% of our total operating revenues. The relaunch of Men's Fitness from a workout magazine to a men's lifestyle guide continues to attract new lifestyle advertisers including Ralph Lauren, FIJI Water, Louis Vuitton, Nautica, Energizer and SlimFast. During fiscal 2016, total advertising revenues increased 9% for Men's Fitness as compared to the prior year. Traffic has increased on-line as well. Mensfitness.com page views for fiscal 2016 were 844 million, up 17% year-over-year.
Men's Fitness is more than a magazine, it is a lifestyle. Events such as our Ultimate Athlete test both sports skills and strength, and bring the Men's Fitness reader to life for our advertisers, delivering millions of dollars in incremental ad revenue through sponsorship and increased print and digital advertising.
The growth story continues across other men's active lifestyle brands. Traffic continues to increase on-line for MuscleandFitness.com with 573 million page viewspublic corporations during fiscal 2016, up 11% year-over-year. Each year we host the body building industry's biggest consumer health and fitness event built around our Mr. Olympia competition in Las Vegas.
Advertisers crave the audience for these brands: men age 18 to 34 years old. Revenues from print and digital advertising are 67% of the segment’s revenues in fiscal 2016, while circulation revenues are 17% and the Mr. Olympia event represents the balance. This segment consists of the following brands in print and digital:
Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;
Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice;
Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;
Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle, which covers training, nutrition, health, beauty and fashion for today's women; muscleandfitnesshers.com provides expert fitness and lifestyle tips for women to improve strength, muscle growth, endurance, health and style;
Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and
Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United States and distributes in the United Kingdom, France and Germany and licenses the content in Holland and Australia, which are excluded from the table below. Each market edition is in a local language with local content and has its own website.
Certain information related to our Men's Active Lifestyle publications is as follows:
|
| | | | | | |
| | | Frequency (per annum) | | | | Website Unique Visitors (monthly average) |
| Brand | | | 2016 Rate Base | |
| Men's Fitness | | 10 x | | 600,000 | | 12,841,339 |
| Muscle & Fitness | | 10 x | | n/a | | 7,280,187 |
| Flex | | 10 x | | n/a | | 1,002,834 |
| Muscle & Fitness Hers | | 6x | | n/a | | 354,179 |
The following table sets forth the average circulation (per issue) and U.S. cover prices for our Men's Active Lifestyle segment:
|
| | | | | | | | | |
| (in thousands, except cover price information) | | March 31, 2016 | | March 31, 2015 | | March 31, 2014 |
| Men's Fitness | | | | | | |
| Total circulation | | 667 |
| | 671 |
| | 598 |
|
| Subscription circulation | | 565 |
| | 558 |
| | 494 |
|
| Single copy circulation | | 102 |
| | 113 |
| | 104 |
|
| Cover price | | $4.99 | | $4.99 | | $4.99 |
| Muscle & Fitness | | | | | | |
| Total circulation | | 271 |
| | 315 |
| | 327 |
|
| Subscription circulation | | 225 |
| | 260 |
| | 256 |
|
| Single copy circulation | | 46 |
| | 55 |
| | 71 |
|
| Cover price | | $6.99 | | $6.99 | | $6.99 |
| Flex | | | | | | |
| Total circulation | | 63 |
| | 75 |
| | 79 |
|
| Subscription circulation | | 50 |
| | 59 |
| | 57 |
|
| Single copy circulation | | 13 |
| | 16 |
| | 22 |
|
| Cover price | | $6.99 | | $6.99 | | $6.99 |
| Muscle & Fitness Hers | | | | | | |
| Total circulation | | 79 |
| | 85 |
| | 92 |
|
| Subscription circulation | | 42 |
| | 42 |
| | 41 |
|
| Single copy circulation | | 37 |
| | 43 |
| | 51 |
|
| Cover price | | $4.99 | | $4.99 | | $4.99 |
During fiscal 2015, we recorded a pre-tax non-cash impairment charge of $17.4 million for the Men's Active Lifestyle segment goodwill and tradenames. Additional information regarding impairments may be found in Note 3, "Goodwill and Other Identified Intangible Assets" in the consolidated financial statements included elsewhere in this Annual Report.
Corporate and Other
In fiscal 2016, our Corporate and Other segment accounted for 1% of our total operating revenues and includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions.
Corporate overhead expenses are not allocated to other segments and are included in this segment. This includes corporate executives, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.
COMPETITION
Publishing is a highly competitive business and we compete with other magazine publishers for advertising market share and for the time and attention of consumers of magazine media content. We also compete with digital publishers and other forms of media, including websites, digital magazines, social media and mobile apps.
Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, in addition to, the demographic profile of the audience, advertising rates and the effectiveness of our advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising.
Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection, content, quality and price. Competition for subscription-based readership is also based on subscriber acquisition and retention and competition for newsstand-based readership is also based on magazine cover selection as well as the placement and display of magazines in retail outlets. Technological advances and the growing popularity of digitally-delivered content and mobile consumer devices, such as smartphones and tablets, have introduced significant new competition for circulation in the form of readily available free or low-priced digital content.
Our magazine publishing and website operations compete with numerous other magazine and website publishers and other media for circulation and audience. The use of digital devices as distribution platforms for content has increased competition for our business. See the section titled “Risk Factors—We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.” We believe our advertising sales team has the optimal structure to provide compelling integrated marketing solutions for our advertising clients.
Our Celebrity Brands segment competes for readership and advertising dollars with Time, Inc. (People Magazine), Bauer Publishing (In Touch, Life & Style and Closer) and Wenner Media (US Weekly). Our Men's Active Lifestyle segment competes for readership and advertising dollars with Rodale (Men's Health), Wenner Media (Men's Journal) and Conde Naste (GQ). Our special interest publications can compete with a variety of magazines, depending on the focus of the particular issue.
INTELLECTUAL PROPERTY
We use multiple trademarks to distinguish our various publications and brands. These trademarks are the subject of registrations and pending applications filed by us for use with a variety of products and other content, both domestically and internationally, and we continue to expand our worldwide usage and registration of related trademarks. As of March 31, 2016, we had 53 registered trademarks in the United States and 147 corresponding trademarks registered in foreign countries relating to our brand names.
We protect our copyrighted content by registering our publications with the United States Copyright Office. Our extensive portfolio consists of approximately 3,815 copyrights including, but not limited to: National Enquirer, Star, OK!, Globe, National Examiner, Soap Opera Digest, Men's Fitness, Flex, Muscle & Fitness and Muscle & Fitness Hers.We also file copyright registrations for our special interest publications.
We regard our rights in and to our trademarks and copyrights as valuable assets. Accordingly, to protect our trademarks and copyrights against infringement and denigration by third parties, we control access to our proprietary technology and other confidential information through a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships. We also monitor the marketplace for third-party infringement and enforce our rights under trademark, copyright and other applicable laws. Despite our efforts to protect our proprietary rights through intellectual property rights, licenses, and confidentiality agreements, we may not be able to prevent unauthorized parties from using our brand names and content.
GOVERNMENT REGULATIONS
Marketing Regulation
Advertising and promotional information and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including online content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today.
Postal Regulation
The distribution of our magazine subscriptions are affected by the laws and regulations relating to the USPS. The Governors of the USPS review prices for mailing services annually and adjust postage rates periodically. The financial condition of the USPS continues to decline. We continually seek the most economical and effective methods for mail delivery, including cost-saving strategies offered within the postal rate structure. If postal reform legislation is enacted, it could result in, among other things, increases in postal rates, local post office closures and the elimination of Saturday mail delivery. The elimination of current protections against significant and unpredictable rate increases or other changes to the USPS as a result of the enactment of postal reform legislation could have an adverse effect on our businesses.
For more information, see Item 1A, Risk Factors, "Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates."
SEASONALITY
Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.
Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.
EMPLOYEES
As of March 31, 2016, we employed approximately 333 full-time and 70 part-time employees. We believe our current relationships with our employees are generally good.
AVAILABLE INFORMATION AND WEBSITE
Our Registration Statement, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to these documents, as well as certain other forms we file with or furnish to the SEC, can be viewed and downloaded free of charge as soon as reasonably practicable after they have been filed with the SEC by accessing www.sec.gov or visiting our website www.americanmediainc.com and clicking on "About Us" and "Investor Relations." We are providing the address to our website solely for the information of investors. We do not intend the address to be an active link or to incorporate any information included on or accessible through the website into this report.
Item 1A. Risk Factors.
Our business faces many risks. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, prospects and cash flows and the actual outcome of matters as to which forward-looking statements are made in this Annual Report. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition and results of operations in the future.
Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and results of operations.
Our future performance could be affected by our substantial indebtedness. As of March 31, 2016, our total outstanding indebtedness was approximately $393.9 million, consisting of $214.3 million principal amount of debt under the First Lien Notes and $164.4 million principal amount of debt under the New Second Lien Notes (the First Lien Notes and the New Second Lien Notes are collectively referred to herein as the "Senior Secured Notes") and $15.2 million amount of debt under the Revolving Credit Facility. Our total consolidated interest expense was $39.7 million for fiscal 2016, which consists primarily of interest under the Senior Secured Notes and the Revolving Credit Facility. In addition, the Revolving Credit Facility and the indentures governing the Senior Secured Notes contain certain covenants that, subject to certain exceptions, restrict us from paying dividends, incurring additional debt, creating liens, entering into certain mergers or consolidations, making acquisitions or other investments and selling or otherwise disposing of assets.
Our level of indebtedness could have important consequences for our business and operations, including the following:
require us to dedicate a substantial portion of our cash flow from operations for payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and general corporate requirements or to carry out other aspects of our business;
place us at a potential disadvantage compared to our competitors that have less debt;
increase our vulnerability to general adverse economic and industry conditions;
limit our ability to make material acquisitions or take advantage of business opportunities that may arise;
limit our flexibility in planning for, or reacting to, changes in our business industry;
limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of our business; and
expose us to fluctuations in interest rates as the Revolving Credit Facility has a variable rate of interest.
Under the Revolving Credit Facility, we have to comply with a maximum first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. Our ability to satisfy these ratios is dependent on our business performing in accordance with our projections. If the performance of our business deviates from our projections, we may not be able to satisfy these ratios. If we do not comply with these or other covenants and restrictions, we would be in default under our Revolving Credit Facility unless we obtained a waiver from the required lenders thereunder. Our outstanding debt under our Revolving Credit Facility, together with accrued interest, could then be declared immediately due and payable and commitments thereunder could be terminated. Our ability to comply with such provisions may be affected by events beyond our control. Moreover, the instruments governing almost all our other debt contain cross-acceleration provisions so that acceleration under any of our debt may result in a default under our other debt instruments. If a cross-acceleration occurs, the maturity of almost all our debt could be accelerated and become immediately due and payable. If that happens, we would not be able to satisfy our debt obligations, which would have a substantial adverse effect on our ability to continue as a going concern.
Obligations under our Revolving Credit Facility are secured by liens on substantially all our assets and the assets of certain domestic subsidiaries. In addition, our obligations under our Revolving Credit Facility are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of our existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of our existing or subsequently acquired or organized foreign subsidiaries. If we, or one of our restricted subsidiaries, should be declared bankrupt or insolvent, or if we otherwise default under our Revolving Credit Facility, the lenders could declare all the funds borrowed thereunder, together with accrued interest, immediately due and payable and commitments thereunder could be terminated. If we were unable to repay such debt, the lenders could foreclose on the pledged stock of our subsidiaries and on the assets in which they have been granted a security interest.
If our operations do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may need to borrow additional funds to make these payments or undertake alternative financing plans, such as refinancing or restructuring our indebtedness, disposing of assets or reducing or delaying capital investments and acquisitions. We cannot guarantee that such additional funds or alternative financing will be available on favorable terms, if at all. Our inability to generate sufficient cash flow from operations or obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that our business will generate sufficient cash flows from operations or that we can obtain alternative financing proceeds in an amount sufficient to enable us to service our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
Changes in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options.
Our corporate credit rating is currently rated below investment grade by Standard & Poor’s. If our credit ratings are lowered further, borrowing costs for future long-term debt or short-term borrowing facilities may increase and our financing options would be limited. A reduction in our credit rating or the credit rating of our outstanding debt securities may also cause our future borrowings to be subject to additional restrictive covenants that would reduce our flexibility. In addition, macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new acquisitions or capital-intensive internal initiatives.
If we fail to implement our business strategy, our business will be adversely affected.
Our future financial performance and success are dependent in large part upon our ability to successfully implement our business strategy. We may not be able to successfully implement our business strategy or maintain or improve our operating results. In particular, we may not be able to maintain or increase circulation of our publications, obtain new sources of advertising revenues, generate additional revenues by building on the brand names of our publications or raise the cover prices of our publications without causing a decline in circulation.
Any failure to successfully implement our business strategy may adversely affect our ability to service our indebtedness, including our ability to make principal and interest payments on the debt. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.
We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.
We compete in varying degrees with other magazine publishers for market share and for the time and attention of consumers of print magazine content. We believe the overall decline in consumer demand for print magazines has been negatively impacted by the multitude of choices available to consumers for information and entertainment which has intensified our competition with other magazine publishers for share of print magazine readership. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection and content, quality and price as well as placement and display in retail outlets.
We also compete with digital publishers and other forms of media, including websites, digital magazines, tablet editions and mobile apps. The competition we face has intensified as a result of the growing popularity of mobile devices such as tablets and smartphones. Consumers are increasingly opting to consume publisher's content through these digital platforms and are shifting away from print media. These new platforms have reduced the cost of producing and distributing content on a wide scale, allowing new free or low-priced digital content providers to compete with us and other print magazine publishers. The ability of our paid print and digital content to compete successfully with free and low-priced digital content depends on several factors, including our ability to differentiate and distinguish our content from free or low-priced digital content, as well as our ability to increase the value of paid subscriptions to our customers by offering a different, deeper and richer digital experience. If we are unable to distinguish our content from that of our competitors or adapt to new distribution methods, our business, financial condition and results of operations may be adversely affected.
Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, respectively, the demographic profile of the audience, advertising rates and the effectiveness of advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. We believe our advertising sales team has the optimal structure to provide integrated marketing solutions for combined print and digital advertising and we can compete successfully for advertising. If we are unable to convince advertisers of the continuing value of our combined print and digital advertising platforms or offer advertisers unique advertising programs tied to our brands, our business, financial condition and results of operations may be adversely affected.
We are exposed to risk associated with weak domestic and global economic conditions.
We have been adversely affected by weak domestic and global economic conditions and have experienced declines in our circulation and to a lesser extent our advertising revenues. If these conditions persist, our business, financial condition and results of operations may continue to be adversely affected. Factors that affect economic conditions include the rate of unemployment, the level of consumer confidence and changes in consumer spending habits. Because magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to general economic conditions and economic cycles. Certain economic conditions such as general economic downturns, including periods of increased inflation, unemployment levels, tax rates, interest rates, gasoline and other energy prices or declining consumer confidence, negatively impact consumer spending. Reduced consumer spending or a shift in consumer spending patterns away from discretionary items will likely result in reduced demand for our magazines.
Historically, we have been able to offset some of the declines in circulation revenues, in part, through increases in cover prices and cost reductions. We may not be able to increase cover prices without decreasing circulation or be able to take other measures, such as increasing advertising rates or pages and reducing print orders of our titles, to offset such circulation revenue declines. In addition, we may not be able to reverse the circulation revenue declines described above, and such declines in circulation could have a material adverse effect on our business, financial condition and results of operations.
We also face risks associated with the impact of weak domestic and global economic conditions on third parties with which we do business, such as advertisers, suppliers, wholesale distributors, retailers and other parties. For example, if retailers file for reorganization under bankruptcy laws or otherwise experience negative effects on their businesses due to volatile or weak economic conditions, it could reduce the number of outlets for our magazines, which in turn could reduce the attractiveness of our magazines to advertisers. In addition, any financial instability of the wholesalers that distribute our print magazines to retailers could have various negative effects on us. See “We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.”
We derive substantial revenues from the sale of advertising, and a decrease in overall advertising expenditures could lead to a reduction in the amount of advertising that companies are willing to purchase from us and the price at which they purchase it. Expenditures by advertisers tend to be cyclical, reflecting domestic and global economic conditions. If the economic prospects of advertisers or current economic conditions worsen, such conditions could alter current or prospective advertisers’ spending priorities. Declines in consumer spending on advertisers’ products due to weak economic conditions could also indirectly negatively impact our advertising revenues, as advertisers may not perceive as much value from advertising if consumers are purchasing fewer of their products or services.
We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.
We operate a distribution network that relies on wholesalers to distribute our magazines to newsstands and other retail outlets. A small number of wholesalers are responsible for a substantial percentage of wholesale magazine distribution in the United States. We are experiencing significant declines in magazine sales at newsstands and other retail outlets. In light of these declines and the challenging general economic climate, there may be further consolidation among the wholesalers and one or more may become insolvent or unable to pay amounts due in a timely manner. Distribution channel disruptions can impede our ability to distribute magazines to the retail marketplace, which could, among other things, negatively affect the ability of certain magazines to meet the rate base established with advertisers. Disruption in the wholesaler channel, an increase in wholesaler costs or the failure of wholesalers to pay amounts due could adversely affect our business, financial condition and results of operations. See also “Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.”
Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.
During fiscal 2016 and 2015 single copy sales accounted for 78% of total circulation revenue and 79% during fiscal 2014 and consisted of copies distributed to retailers primarily by two wholesalers. During fiscal 2016, 2015 and 2014, The News Group accounted for approximately 48%, 36% and 29%, respectively, of our total operating revenue and Hudson Group accounted for approximately 11%, 9% and 8%, respectively. We have long-term service arrangements with our wholesalers, which provide incentives to maintain certain levels of service. When these arrangements expire, we may not be able to renew them on favorable terms, extend the terms of these arrangements or extend our relationship with the wholesalers at all. Our business, financial condition and results of operations could be adversely affected by disruption of the distribution of our magazines through these wholesalers.
In May 2014, Source, our second-largest wholesaler at such time, notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014.
Changes to U.S. or international regulation of our business or the businesses of our advertisers could cause us to incur additional costs or liabilities, negatively impact our revenues or disrupt our business practices.
Our digital businesses are subject to government regulation in the jurisdictions in which we operate, and our Web sites, which are available worldwide, may be subject to laws regulating the Internet even in jurisdictions where we do not do business. Advertising and promotional information presented to visitors on our websites and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including on-line content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Revenues from our digital businesses could be adversely affected, directly or indirectly, by these existing or future laws and regulations.
Our business performance is also indirectly affected by the laws and regulations that govern the businesses of our advertisers. For example, the pharmaceutical industry, which accounts for a significant portion of our advertising revenues in our Men's Active Lifestyle segment, is subject to regulations of the Food and Drug Administration in the United States requiring pharmaceutical advertisers to communicate certain disclosures to consumers about advertised pharmaceutical products, typically through the purchase of print media advertising. We face the risk that the Food and Drug Administration could change pharmaceutical marketing regulations in a way that is detrimental to the sale of print advertising.
In addition, changes in laws and regulations that currently allow us to retain customer data and to engage in certain forms of consumer marketing, such as automatic renewal of subscriptions for our magazines and negative option offers via direct mail, email, on-line or telephone solicitation, could have a negative impact on our circulation revenues and adversely affect our financial condition and operating performance.
Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates.
The financial condition of the U.S. Postal Service (the “USPS”) continues to decline. In 2015, the USPS introduced new service standards that slowed the delivery of periodic mail and resulted in a portion of our weekly magazines being delivered a day later. Our subscribers expect our weekly magazines to be delivered in the same week that they are printed, and the elimination of Saturday mail delivery or slower delivery of periodicals, absent changes to our internal production schedules, could result in a certain percentage of our weekly magazines not reaching subscribers until the following week. We cannot predict how the USPS will address its fiscal condition in the future, and changes to delivery, reduction in staff or additional closings of processing centers may lead to changes in our internal production schedules or other changes in order to continue to meet our subscribers’ expectations.
Other measures taken to address the declining financial condition of the USPS could include increases in the rates for periodicals and local post office closures. We cannot predict with certainty the magnitude of future price changes in postage. In particular, postage represents a significant component of our total cost to distribute our printed products and represented approximately 8% of our total operating expense for fiscal 2016. If there are significant increases in postal rates and we are not able to offset such increases, our results of operations could be negatively impacted.
Our business and results of operations may be adversely affected by increases in fuel costs and the price of paper.
Many aspects of our business have been directly affected by increases in the cost of fuel and paper. Increased fuel costs have translated into increased costs for the products and services we receive from our third-party suppliers, including, but not limited to, increased production and distribution costs for our products. Paper represents a significant component of our total cost to produce our printed products and represented approximately 12% of our total operating expenses for fiscal 2016. Paper is a commodity and the price has been subject to significant volatility due to supply and demand in the marketplace as well as volatility in the raw material and other costs incurred by our paper suppliers. Although we have a long-term paper supply and purchasing agreement with the largest paper supply broker, we do not have any long-term pricing agreements with paper suppliers and suppliers may raise their prices for paper from time to time.
We cannot predict with certainty the magnitude of future price changes in paper or how increases in fuel costs will affect our third-party suppliers and the rates they charge us. If fuel or paper prices increase and we are not able to offset such increases, our business, financial condition and results of operations would be adversely affected.
Our business may be adversely affected if we lose one or more of our vendors.
We rely on third-party vendors, including paper suppliers, printers, subscription fulfillment houses and subscription agents for the print portion of our business. The industries in which our print-related third-party vendors operate have experienced significant restructurings and consolidation in recent years, resulting in decreased availability of goods and services and competition. Further disruptions in these industries may make our third-party vendors unable or unwilling to provide us with goods and services on favorable terms and may lead to greater dependence on certain vendors, increased prices, and interruptions and delays in the services provided by these vendors, all of which would adversely affect our business.
We may suffer credit losses that could adversely affect our results of operations.
We extend unsecured credit to most of our customers. We recognize that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit exposure also includes the amount of estimated unbilled sales. The level of credit is influenced by the customer’s credit history with us and other available information, including industry-specific data.
We maintain a reserve account for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay, additional allowances might be required, which could have a material adverse effect on our business, results of operations and financial condition.
Future acquisitions, partnerships, publishing services agreements and joint ventures may require significant resources.
In the future, we may seek to grow the Company and its businesses by making acquisitions or entering into partnerships, publishing services agreements or joint ventures. Any future acquisition, partnership, publishing services agreement or joint venture may require that we make significant cash investments, issue stock or incur substantial indebtedness. Such acquisitions and investments may require additional funding which may be provided in the form of additional indebtedness, equity financing or a combination thereof. We cannot assure that any such additional funding will be available to us on acceptable terms, or at all, or that we will be permitted under the terms of the Revolving Credit Facility (or any replacement thereof) or under the terms of the indentures governing our Senior Secured Notes to obtain such financing for such purpose.
We have incurred indebtedness in the past to finance acquisitions. We may finance future acquisitions with additional indebtedness, subject to limits in our debt agreements. As a result, we could face the financial risks associated with incurring additional indebtedness such as reducing our liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.
We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risk and uncertainties.
We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risks and uncertainties, including:
difficulty in integrating newly acquired businesses and operating in an efficient and effective manner;
the inability to maintain key pre-acquisition business relationships;
the potential diversion of senior management's attention from our operations;
the potential loss of key employees of the acquired businesses;
risks associated with integrating financial reporting and internal control systems;
exposure to unanticipated liabilities; and
challenges in achieving strategic objectives, cost savings and other anticipated benefits.
If an acquired business fails to operate as anticipated, cannot be successfully integrated with our existing business or one or more of the other risk and uncertainties identified above occur, our business, results of operations and financial condition could be adversely affected.
Wefive years, are expanding our merchandising and licensing programs into new areas and products, the failure of any of which could diminish the perceived value of our brand, impair our ability to grow and adversely affect our prospects.
Our growth depends to a significant degree upon our ability to develop new or expand existing retail merchandising programs. We have entered into several new merchandising and licensing agreements in the past few years. Some of these agreements include exclusivity provisions and have a duration of many years. While we require that our licensees maintain the quality of our respective brands through specific contractual provisions, we cannot be certain that our licensees, or their manufacturers and distributors, will honor their contractual obligations or that they will not take other actions that will diminish the value of our brands.
There is also a risk that our extension into new business areas will meet with disapproval from consumers. We cannot guarantee that these programs will be fully implemented, or, if implemented, that they will be successful. If the licensing or merchandising programs do not succeed, we may be prohibited from seeking different channels for our products due to the exclusivity provisions and multi-year terms of these agreements. Disputes with new or existing licensees may arise that could hinder our ability to grow or expand our product lines. Disputes also could prevent or delay our ability to collect the licensing revenue that we expect in connection with these products. If such developments occur or our merchandising programs are otherwise not successful, the value and recognition of our brands, as well as our business, financial condition and prospects, could be materially adversely affected.
Divestitures may affect our costs, revenues, profitability and financial position.
In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment. We may decide to divest other segments or lines of business in the future. Divestitures have inherent risks, including possible delays in closing transactions, the risk of lower-than-expected sales proceeds for the divested businesses, unexpected costs associated with the separation of the business to be sold from our integrated information technology systems and other operating systems and potential post-closing claims for indemnification. Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize.
Electronically stored data is subject to the risk of unauthorized access and if our data is compromised in spite of our attempts at protecting this data, we may incur significant costs, lost opportunities and damage to our reputation.
We maintain information necessary to conduct our business, including confidential, proprietary and personal information in digital form. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. We develop and maintain systems to prevent this from occurring, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of intrusion, tampering and theft cannot be eliminated entirely, and risks associated with each of these remain. If our data systems are compromised or if the proprietary information of our customers or employees is misappropriated, our ability to conduct our business may be impaired, our reputation with our customers and employees may be injured resulting in loss of business or morale and we could be exposed to a risk of loss due to business interruption, or litigation.
If we are unable to protect our intellectual property, the value of our intangible assets may be diminished and our competitive position and business may be adversely affected.
Our business relies on a combination of trade secrets, trademarks, tradenames, copyrights and other proprietary rights, as well as contractual arrangements, including licenses, to establish and protect our intellectual property and brand names. Our continued success and competitive position depends on our proprietary trademarks, copyrights and other intellectual property rights. See "Business - Intellectual Property" for a description of our intellectual property assets and the steps we take to protect them.
Other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace. Brand dilution or the introduction of competitive brands could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, thereby negatively impacting our sales. Any such infringement of our intellectual property rights would also likely result in a commitment of our time and resources, financial or otherwise, to protect these rights through litigation or other means. In addition, third parties may assert claims against our intellectual property rights and we may not be able to successfully resolve those claims causing us to lose our ability to use our intellectual property that is the subject of those claims. Such loss could have a material adverse effect on our business, financial condition and results from operations. Furthermore, from time to time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights, which could require us to incur substantial fees and expenses and have a material adverse effect on our business, financial condition and results from operations.
Our performance could be adversely affected if we lose our key personnel.
We believe that our success is largely dependent on the abilities and experience of our senior management team. The loss of the services of one or more of these senior executives could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies. We do not maintain key man life insurance on the lives of our senior management. We have entered into employment agreements or arrangements with our senior management team, which may contain non-compete provisions. While we believe that we could find replacements for these key personnel, the loss of their services could disrupt our business and have a significant adverse effect on our results of operations and financial condition.
Our operating results are subject to seasonal variations.
Our business has experienced, and is expected to continue to experience, seasonality due to, among other things, seasonal advertising patterns and seasonal influences on consumer reading habits. Typically, our revenues from advertising are highest in the fourth quarter. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter.
Pending and future litigation or regulatory proceedings could materially affect our operations.
Since the focus of some of our publications often involves celebrities or controversial subjects and because of our news gathering techniques, the risk of defamation or invasion of privacy litigation or the filing of criminal charges exists. While we have not historically experienced any difficulty obtaining insurance coverage, we cannot assure that we will be able to do so in the future at rates acceptable to us, or at all. In addition to the celebrity litigation in which we may be involved, from time to time we may be involved in commercial litigation. Any pending or future litigation or regulatory proceeding, if adversely determined, could have a material adverse effect on our business, results of operations and financial condition.
Terrorist attacks and other acts of violence or war may affect the financial markets and our business, results of operations and financial condition.
Terrorist attacks may negatively affect our operations and financial condition. There can be no assurance that there will not be further terrorist attacks against the United States or U.S. businesses. These attacks or armed conflicts may directly impact our physical facilities, such as those in New York City, or those of our retailers, suppliers and customers. These events could cause consumer confidence and their discretionary spending to decrease or result in increased volatility in the U.S. and world financial markets and economy. They could result in an economic recession in the United States or abroad. Any of these occurrences could have a material adverse impact on our business, results of operations and financial condition.
If our goodwill or other identifiable intangible assets become impaired, we may be required to record a significant charge to earnings.
Under U.S. generally accepted accounting principles, goodwill and indefinite-lived intangible assets are required to be tested for impairment annually or more often if an event occurs or circumstances change that would indicate a potential impairment exists, and long-lived assets, including finite-lived intangible assets, are required to be tested for impairment upon the occurrence of a triggering event. Factors that could lead to impairment of goodwill and indefinite-lived intangible assets include significant adverse changes in the business climate and declines in the value of our business.
The Company did not record any impairment charges during fiscal 2016. During an evaluation of goodwill and other identified intangible assets during fiscal 2015, the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections. The evaluation resulted in the carrying value of tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $17.4 million to reduce the carrying value of tradenames and goodwill during fiscal 2015.
As of March 31, 2016, the net book value of our goodwill and other intangible assets was approximately $363.1 million. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of fair value and could materially change the impairment charge related to goodwill and tradenames.
Some provisions of Delaware law and our amended and restated certificate of incorporation may deter third parties from acquiring us.
Provisions contained in our amended and restated certificate of incorporation and the laws of Delaware, the state in which we are incorporated, could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our amended and restated certificate of incorporation impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions that our stockholders desire.
If we do not maintain an effective system of internal controls over financial reporting and disclosure controls, our operating results and reputation would be harmed.
Effective internal controls over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully. If we cannot provide reliable financial reports or prevent fraud, our operating results and reputation would be harmed. As part of our ongoing monitoring, we may discover material weaknesses or significant deficiencies in our internal control over financial reporting that require remediation.
We cannot assure that material weaknesses or significant deficiencies, to the extent they exist, in internal controls over financial reporting or disclosure controls would be identified in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal controls over financial reporting and disclosure controls could, among other things, result in losses from fraud or error, cause us not to satisfy our reporting obligations, cause investors to lose confidence in our reported financial information or harm our reputation, all of which could have a material adverse effect on our business, results of operations and financial condition.
Our financial statements are subject to changes in accounting standards that could adversely impact our profitability or financial position.
Our financial statements are subject to the application of accounting principles generally accepted in the United States of America (“US GAAP”), which are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our annual and quarterly reports. An assessment of proposed standards is not provided, as such proposals are subject to change through the exposure draft process and, therefore, their effects on our financial statements cannot be meaningfully assessed. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on the reported results of operations and financial position.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The following table setsset forth certain information concerning the location, use and approximate square footage of our principal locations as of March 31, 2016, all of which are leased:below.
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LocationName | | Principal UseAge | | Approximate Area (in square feet)Position |
Boca Raton, FLDavid J. Pecker | | Corporate headquarters and executive administrative offices64 | | 24,635 |
Chairman, Chief Executive Officer, President and Director |
New York, NYEvan Ratner | | Editorial and sales offices for all of our segments and executive administrative offices53 | | 99,054 |
Director |
Los Angeles, CABarry Schwartz | | Editorial offices for our Celebrity Brands segment51 | | 10,509Director |
| David R. Hughes |
| 53 | | Director |
| Christopher V. Polimeni | | 50 | | Executive Vice President, Chief Financial Officer and Treasurer |
| Kevin Hyson | | 66 | | Executive Vice President and Chief Marketing Officer |
| David Bonnett | | 49 | | Executive Vice President of Digital Media Operations and Chief Information Officer |
| Robert M. O'Neill | | 53 | | Senior Vice President, Operations |
| Brian Kroski | | 46 | | Senior Vice President and Chief Digital Officer |
| Marc Fierman | | 55 | | Senior Vice President and Chief Accounting Officer |
| Eric S. Klee | | 45 | | Senior Vice President, Secretary and General Counsel |
David J. Peckerhas been our Chairman, Chief Executive Officer, President and a Director since May 1999. Prior to 1999, Mr. Pecker was president and chief executive officer of Hachette Filipacchi Magazines, Inc. He was appointed chief executive officer of Hachette Fillipacchi Magazines, Inc. in 1992, after being named president of Hachette Magazines, Inc. in September 1991. Previously, since September 1990, Mr. Pecker had served as executive vice president, chief operating officer and chief financial officer for Hachette Magazines, Inc., formerly Diamandis Communications, Inc. Mr. Pecker has 30 years of publishing industry experience, having worked as the director of financial reporting at CBS, Inc. Magazine Group and as the vice president and controller of Diamandis Communications Inc. Mr. Pecker currently serves as a director of the Madison Square Boys and Girls Club of New York and SlimFast. Mr. Pecker was appointed to the board of trustees of Pace University in February 2009. Mr. Pecker received a B.B.A. degree from Pace University, received an honorary doctorate degree in commercial science from Pace University in 1998 and is the founder, past president and a current director of the Federal Drug Enforcement Foundation. Mr. Pecker was appointed as a director of American Media, Inc. due to his extensive experience in the publishing industry.
Evan Ratner has served as a Director since August 2014 and also serves on the Board's Audit Committee. Mr. Ratner is a Partner and Portfolio Manager at Chatham Asset Management, LLC which he joined in 2009. From 2003 to 2009, Mr. Ratner was employed by Credit Suisse as Managing Director and Head of Distressed Research. From 2002 to 2003, Mr. Ratner served as the Distressed Portfolio Manager for Darmel Management, an event-driven hedge fund. From 1991 to 2002, Mr. Ratner was employed by DLJ/Credit Suisse in investment banking, high yield research and distressed research, rising to the level of Managing Director and Head of Distressed Research. Before joining DLJ, Mr. Ratner was a financial analyst in Goldman Sachs’ Investment Banking Group focusing on financial institutions. Mr. Ratner is a member of the board of directors of The leasesBass Foundation. Mr. Ratner is a member of the Board of Trustees of the Early Childhood Learning Center and serves on the finance committee. Mr. Ratner earned a B.A. degree in Economics from Columbia College and a M.B.A degree in Finance from Columbia University Graduate School of Business. Mr. Ratner was appointed as a director of American Media, Inc. based on his directorship experience as well as his experience in managing high yield and distressed investments.
Barry Schwartz has served as a Director since August 2014 and also serves on the Board's Audit Committee. Mr. Schwartz is a Partner and Senior Analyst: Media, Telecom, Cable and Satellite at Chatham Asset Management, LLC which he joined in 2006. Mr. Schwartz was a co-founder and managing member of Quarry Point Partners, a long-short, high yield hedge fund, from 2004 to 2006. From 2001 to 2004, Mr. Schwartz served as a Managing Director and Head of High Yield Trading and Sales at Bank One Capital Markets (now part of J.P. Morgan). Mr. Schwartz served as the Global Head of High Yield Trading at ABN Amro from 1999 to 2001. Mr. Schwartz also served in a high yield research role at BancAmerica Robertson Stephens, Nomura and PaineWebber, where he specialized in the media and telecom sectors. Mr. Schwartz began his career with Merrill Lynch in 1987. Mr. Schwartz earned a B.S. degree in Accounting and Financial Management from the University of Delaware. Mr. Schwartz was appointed as a director of American Media, Inc. based on his directorship experience as well as his experience in managing high yield and distressed investments.
David R. Hughes has served as a Director since January 2013 and also serves as Chairperson of the Board's Audit Committee. Mr. Hughes joined Shore Memorial Hospital d/b/a Shore Medical Center as chief financial officer in January 2014, prior to which Mr. Hughes served as a member of the board of trustees through November 2013. Mr. Hughes has 27 years of operational and financial experience with executive experience in the gaming and hospitality industry. Mr. Hughes previously served as executive vice president, treasurer and chief financial officer of Trump Entertainment Resorts Inc. from November 2010 until December 2013. In September 2014, Trump Entertainment Resorts Inc. filed for Chapter 11 bankruptcy protection and its Plan of Reorganization was confirmed in March 2015 and became effective in February 2016. Mr. Hughes was corporate executive vice president and chief financial officer of MTR Gaming Group (“MTR”) between May 2008 and November 2010. From 2003 to 2008, Mr. Hughes served in various positions at MTR, including as corporate executive vice president strategic operations and chief operating officer of its flagship property in West Virginia. Mr. Hughes served as chief financial officer of Penn National Gaming's Charles Town Races & Slots property in Charles Town, West Virginia prior to joining MTR. Mr. Hughes also previously held operational and financial positions with major gaming companies throughout the United States, including Atlantic City, New Jersey, having served as senior vice president and chief financial officer of Sun International Resorts Hotel and Casino and in positions at Trump Plaza Hotel and Casino from 1988 to 1995. Mr. Hughes began his career in gaming in table game operations in 1984 at the Sands Hotel and Casino. Mr. Hughes is a member of the board of directors of iPayment, Inc. and serves as the chairman of the compensation committee. Mr. Hughes is a member of the board of directors of Rivers Casino and serves as chairman of the audit and compliance committee. Mr. Hughes is a member of the board of directors of Shore Quality Partners and chairman of the finance committee. Shore Quality Partners is a physician lead organization made up of over 200 physicians. Mr. Hughes also serves on the board of directors of the Greater Atlantic City Chamber of Commerce and the board of directors of St. Joseph Regional School in Somers Point, New Jersey. Mr. Hughes holds a B.S. degree in Business Administration and Accounting from Richard Stockton College and is a Certified Public Accountant (non-active). Mr. Hughes was appointed as a director of American Media, Inc. based on his significant operational and financial experience in the entertainment industry and as a director on other company boards.
Christopher V. Polimeni is Executive Vice President, Chief Financial Officer and Treasurer. Prior to being appointed Chief Financial Officer of the Company in March 2010, Mr. Polimeni served as Executive Vice President, Chief Accounting Officer and Treasurer from July 2009, Senior Vice President, Chief Accounting Officer and Treasurer from January 2009 and Senior Vice President of Finance and Treasurer of the Company from September 2008 and as Senior Vice President of Process Improvement from the time he joined the Company in February 2007 until September 2008. Prior to joining the Company, he formed his own consulting firm in 2003 and provided services in areas such as Securities and Exchange Commission reporting, mergers and acquisitions, internal control evaluations, reorganizations and technology strategic planning and implementation. From 1994 to 2003, Mr. Polimeni served as vice president of finance and corporate controller of GE Supply Logistics (formerly Questron Technology), a provider of inventory logistics management services. Mr. Polimeni worked in public accounting between 1987 and 1994. Mr. Polimeni received a B.B.A. degree in Accounting and Business Computer Information Systems from Hofstra University and passed the Certified Public Accountant exam in 1992.
Kevin Hysonis Executive Vice President and Chief Marketing Officer. Mr. Hyson joined the Company in 1999 as a Senior Vice President and Chief Marketing Officer and was promoted to Executive Vice President in 2001. Prior to joining the Company, Mr. Hyson was president of Hylen Sharp, a marketing firm whose clients included Hachette, JVC and Sony, based in Greenwich, Connecticut from 1990 to 1999.
David Bonnett has been our Executive Vice President of Digital Media Operations since April 2012. Mr. Bonnett has also been our Chief Information Officer since 2006. Mr. Bonnett served in the information technology department of Globe Communications from 1993 and was promoted to Vice President of Information Technology in 1999. His current responsibilities include overseeing the digital operations and technologies department as well as managing the Company's information technology department.
Robert M. O’Neill hasbeen our Senior Vice President, Operations since 2013 and in January of 2016, Mr. O’Neill assumed additional responsibility for the distribution and retail marketing operations. From 2004 to 2013, Mr. O’Neill served as our Vice President, Manufacturing and Logistics. From June 2002 to August 2004, Mr. O’Neill served as our Director, Manufacturing Finance and Administration. Prior to joining the Company, he formed his own consulting firm in 2000. From 1996 to 1999, Mr. O’Neill served as director of finance and administration for Globe Marketing Services. Mr. O’Neill was previously employed by Deloitte & Touche LLP. Mr. O’Neill received a B.S. degree from the University of Central Florida, and is a Certified Public Accountant in the State of Florida and a Veteran of the United States Army.
Brian Kroski has been our Senior Vice President and Chief Digital Officer since December 2014. Prior to being appointed Senior Vice President and Chief Digital Officer, Mr. Kroski served as Vice President and General Manager - Digital Business Operations since April 2013, when he joined the Company. Prior to joining the Company, Mr. Kroski was General Manager, Digital at Dennis Publishing, US from September 2011 through April 2013. Mr. Kroski also served as the Chief Digital Officer at YourTango from December 2010 through August 2011. Mr. Kroski served as the Chief Operating Officer/ President ARTINFO at Louise Blouin Media from November 2009 through December 2010. Mr. Kroski was the General Manager, Online at The New York Observer from October 2006 to October 2009. From March 2004 through October 2006, Mr. Kroski served as a Director of Product Management & Planning at Rodale Press. Mr. Kroski has also worked at web technology, strategy and development agencies where he was responsible for managing deliverables and client relationships.
Marc Fiermanis Senior Vice President and Chief Accounting Officer. Prior to being appointed Chief Accounting Officer of the Company in January 2012, Mr. Fierman served as Senior Vice President of Finance and Chief Financial Officer of Distribution Services, Inc. since July 2011, when he joined the Company. Prior to joining the Company, Mr. Fierman served as Executive Vice President and Chief Financial Officer of Source Interlink Companies from November 2002 to January 2011 and Senior Vice President of Finance of Source Interlink Companies from January 1999 to November 2002. Source Interlink Companies was an integrated media, publishing, merchandising and logistics company. From 1997 to 1999, Mr. Fierman served as Chief Financial Officer and Treasurer of Brand Manufacturing Corp., and Mr. Fierman was an accounting professional between 1982 and 1997. Mr. Fierman received a B.S. degree in Accounting from Brooklyn College, City University of New York and passed the Certified Public Accountant exam in 1987.
Eric S. Klee has been Senior Vice President,Secretary and General Counsel since February 2014. Prior to being appointed Senior Vice President, Mr. Klee served as Vice President, Secretary, and General Counsel since March 2013 and served as Vice President, Secretary and Deputy General Counsel since June 2012 when he joined the Company. Prior to joining the Company, Mr. Klee was the Secretary and General Counsel of Prestige Brands Holdings, Inc. from March 2010 through February 2012 and served as Associate General Counsel for Prestige Brands Holdings from April 2006 through March 2010. Mr. Klee was an Associate at Kane Kessler, P.C. from July 2003 to April 2006. Mr. Klee also served as Assistant General Counsel of NBTY, Inc. from January 2002 to December 2002. From January 2000 to January 2002, Mr. Klee was an Associate at Kaye Scholer LLP. From September 1997 to January 2000, Mr. Klee was an Associate at White & Case LLP. Mr. Klee received a B.A. degree from Tufts University and a J.D. degree from Syracuse University College of Law. Mr. Klee is licensed to practice law in the State of New York.
Corporate Governance
Our Board and its committees are involved, on an ongoing basis, in the oversight of the risk management process as it relates to the business and operations of the Company. The Board believes that good corporate governance is critical to fulfilling the Company’s obligations to our stockholders. Our Board, as a whole, determines the appropriate level of risk for our officesCompany and facilities expire between 2017assesses the specific risks that we face and 2023,reviews management’s strategies for adequately mitigating and somemanaging the identified risks. Although our Board administers this risk management oversight function, our Audit Committee supports our Board in discharging its oversight duties and addresses risks inherent in its respective area. We believe this division of these leases are subjectresponsibilities is an effective approach for addressing the risks we face.
Our Board has adopted a Code of Ethics and Corporate Conduct that applies to our renewal.principal executive officers and senior financial officers, and a Statement of Corporate Governance and a policy regarding Related Person Transactions. Our Audit Committee has adopted an Audit Committee Charter. Our Code of Ethics and Corporate Conduct, Statement of Corporate Governance and policy regarding Related Person Transactions are available on our website, http://www.americanmediainc.com, under “About Us,” and our Audit Committee Charter is available under "About Us," under "Board Committees," and all documents are otherwise available in print to any stockholder who requests them from our Corporate Secretary. Please direct all requests to: Corporate Secretary, American Media, Inc., 4 New York Plaza, 2nd Floor, New York, New York 10004. We intend to post amendments to or waivers from our Code of Ethics and Corporate Conduct (to the extent applicable to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or controller, or persons performing similar functions) on our website, http://www.americanmediainc.com.
Board Independence
Our Board consists of four members. Since our securities are not listed on any national securities exchange, there are no exchange-based independence standards applicable to our Board. However, the Board reviewed the independence of its members based on the independence definition set forth in the NASDAQ Marketplace rules and determined that Messrs. Ratner, Schwartz and Hughes would be deemed independent (the "Independent Directors"). Mr. Pecker, who serves as our Chairman of the Board, Chief Executive Officer and President would not qualify as independent. In making these determinations, the Board considered all relationships between us and each director and each director’s family members and other potential conflicts. Our Board has not appointed a lead independent director and believes this structure allows it the flexibility to select, on an as needed basis, its independent director to manage or supervise a project based on the specific director's background and experience and the subject matter for such project.
Our Independent Directors currently serve or have served as a member of senior management of other public companies and have served as directors of other public companies. We believe that the number of independent, experienced directors that make up our existing facilities are well maintainedBoard benefits our Company and in good operating condition.our stockholders.
Board of Directors and Committees
Our Board held four meetings during fiscal 2016. All of the directors attended 75% or more of the aggregate number of meetings of our Board and the committees on which they served, except for Mr. Ratner who attended 50% of the aggregate number of meetings. The non-employee members of our Board also met (or were offered the opportunity to do so) in executive session without management present as part of each regular meeting.
Our corporate governance documents describe how the Board should conduct its oversight responsibilities in protecting and representing our Company’s stockholders. To assist the Board with its oversight responsibilities, our Board has established the Audit Committee. Concurrent with the Merger, in August 2014, the Board determined that a separate Compensation Committee of the Board was no longer required for the Company’s corporate governance purposes, and the Compensation Committee of the Board was dissolved. As our common stock is privately held by our Parent, the sole stockholder, we do not believe that a standing Nominating Committee is needed for corporate governance purposes.
Audit Committee
The members of our Audit Committee, as appointed by the sole stockholder of the Company, are Messrs. Ratner, Schwartz and Hughes, with Mr. Hughes serving as the Chairperson. Messrs. Ratner, Schwartz and Hughes are Independent Directors. The Board has determined that Mr. Hughes meets the SEC criteria and definition of “audit committee financial expert.”
Item 3.The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities with respect to overseeing management’s maintenance of the reliability and integrity of our accounting policies and financial reporting and disclosure procedures; overseeing management’s establishment and maintenance of processes to assure that an adequate system of internal control is functioning; reviewing our annual and quarterly financial statements; appointing and evaluating the independent accountants and considering and approving any non-audit services proposed to be performed by the independent accountants; and discussing with management and our Board our policies with respect to risk assessment and risk management, as well as our significant financial risk exposures and the actions management has taken to limit, monitor or control such exposures, if any. Our Audit Committee has a charter, a copy of which is available at our website, Legal Proceedings.http://www.americanmediainc.com, under "About Us," under "Board Committees."
On March 10, 2009, Anderson News, L.L.C.The Audit Committee met four times during fiscal 2016.
2010 Restructuring
In November 2010, the Company and Anderson Services, L.L.C., magazine wholesalers (collectively, “Anderson”),certain subsidiaries filed a lawsuit against American Media, Inc., DSI (now known as In-Store Services, Inc.), and various magazine publishers, wholesalers and distributorsprepackaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code in the Federal DistrictUnited States Bankruptcy Court for the Southern District of New York (the “Anderson Action”). Anderson's complaint alleged that the defendants violated Section 1 of the Sherman Act by engaging in a purported industry-wide conspiracy to boycott Anderson and drive it out of business. Plaintiffs also purported to assert claims for defamation, tortious interference with contract and civil conspiracy. The complaint did not specify the amount of damages sought. On August 2,York. In December 2010, the DistrictBankruptcy Court dismissedconfirmed the action in its entirety with prejudiceplan and without leave to repleadthe Company emerged from bankruptcy and on October 25, 2010, denied Anderson's motion for reconsideration of the dismissal decision. Anderson appealed the District Court's decisions.consummated a financial restructuring.
On April 3, 2012,Communication with the Second Circuit issued a decision reversing the dismissal of the lawsuitBoard
Stockholders and reinstating the antitrustother interested parties may communicate with our Board and state law claims (except the defamation claim, which Anderson withdrew), and, on January 7, 2013, the United States Supreme Court declined to review the Second Circuit decision. Following the Second Circuit decision, the case was remandedother non-management directors by sending written communications to the District Court and the parties engaged in discovery. On February 14, 2014, American Media, Inc. filed an amended answer and counterclaim in the Anderson Action asserting an antitrust claim against Anderson News, L.L.C. and Charles Anderson, Jr. based on the same events as Anderson’s claims. Two other defendants also filed the same counterclaim. Fact discovery was completed in May 2014 and expert discovery was completed in October 2014. Anderson submitted an expert report calculating that damages are approximately $470 million, which would be subject to trebling should Anderson prevail against the defendants in the lawsuit. Defendants, including American Media, Inc. and DSI, also submitted an expert report on damages, which opines that, separate and apart from the question of liability, Anderson has suffered no damages.
On December 15, 2014, the parties in the Anderson Action filed motions for summary judgment and to exclude certain proposed expert testimony. On August 20, 2015, the District Court granted the summary judgment motion filed bydirectors c/o our Corporate Secretary, American Media, Inc., DSI and the other defendants, dismissing all of Anderson’s claims against defendants, and granted in part the motions to exclude certain of Anderson’s proposed expert testimony. The court also granted summary judgment dismissing the counterclaim filed by American Media, Inc. and the two other defendants, but did not grant Anderson’s motion to strike defendants’ expert testimony. On August 25, 2015, Anderson filed its notice of appeal of the District Court’s decision granting defendants’ motions. On September 15, 2015, American Media, Inc. filed its notice of appeal of the District Court’s decision granting the motion for summary judgment dismissing the counterclaim. Anderson filed its appellate brief with the U.S. Court of Appeals for the Second Circuit (the “Court of Appeals”) on December 8, 2015. American Media, Inc. and DSI filed their appellate brief with the Court of Appeals on March 8, 2016. The briefing of the appeals was completed in May 2016.
Anderson is in chapter 11 bankruptcy proceedings in Delaware bankruptcy court. On June 10, 2010, American Media, Inc. filed a proof of claim in that proceeding for $5.6 million (which it amended on December 3, 2013 to reflect the counterclaim (described above) it planned to file in the Anderson Action), but Anderson asserts that it has no assets to pay unsecured creditors like American Media, Inc. An independent court-appointed examiner has identified claims that Anderson could assert against Anderson insiders in excess of $340.0 million.
In an order of the Delaware bankruptcy court, entered on November 14, 2011, American Media, Inc. and four other creditors (collectively, the “Creditors”), which also are defendants in the Anderson Action, were granted the right to file lawsuits against Anderson insiders asserting Anderson's claims identified by the examiner. The Creditors' retention of counsel to pursue the claims on a contingency fee basis was also approved. On November 14, 2011, pursuant to this order, a complaint was filed against 10 defendants. After a temporary stay of discovery pending conclusion of fact discovery in the Anderson Action, discovery in the bankruptcy action proceeded. On December 12, 2014, defendants in the adversary action moved for partial summary judgment seeking dismissal of certain of the Creditors’ claims. The motion was denied on June 11, 2015.
While it is not possible to predict the outcome of the Anderson Action or to estimate the impact on American Media, Inc. and DSI of a final judgment against American Media, Inc. and DSI (if that were to occur), American Media, Inc. and DSI believe that the claims asserted by Anderson, in the Anderson Action, are meritless. American Media, Inc. and DSI have antitrust claim insurance that covers defense costs. American Media, Inc. and DSI have filed a claim for insurance coverage with regard to the Anderson Action and certain of their defense costs are being paid by the insurer, and, in the event of a settlement or a damages award by the Court and subject to the applicable policy limits, American Media, Inc. and DSI anticipate seeking reimbursement from the insurer for payment of such settlement or damages. American Media, Inc. and DSI will continue to vigorously defend the case.
In addition, because the focus of some of our publications often involves celebrities and controversial subjects, the risk of defamation or invasion of privacy litigation exists. Our experience indicates that the claims for damages made in celebrity lawsuits are usually inflated and such lawsuits are usually defensible and, in any event, any reasonably foreseeable material liability or settlement would likely be covered by insurance, subject to any applicable deductible and limit. We also periodically evaluate and assess the risks and uncertainties associated with our pending litigation disregarding the existence of insurance that would cover liability for such litigation. At present, in the opinion of management, after consultation with outside legal counsel, the liability resulting from pending litigation, even if insurance were not available, is not expected to have a material effect on our consolidated financial statements.4 New York Plaza, 2nd Floor, New York, New York 10004.
Item 4.11. Mine Safety Disclosures.Executive Compensation.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder MattersCompensation Discussion and Issuer Purchases of Equity Securities.
All of our outstanding shares of common stock are privately held and there is no established public market for our shares. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI in August 2014.Analysis
We did not make any dividend payments inOur Compensation Discussion and Analysis provides detailed information about compensation programs for our named executive officers (the "Named Executive Officers"). Our Named Executive Officers for fiscal 2016, 2015 or 2014, were David J. Pecker, Chairman, Chief Executive Officer and we do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our Revolving Credit Facility restrict our ability to pay dividends,President; Christopher V. Polimeni, Executive Vice President, Chief Financial Officer and any future indebtedness that we may incur could preclude us from paying dividends. With respect to the dividend restriction, the Revolving Credit FacilityTreasurer; Brian Kroski, Senior Vice President and the Indentures include a cap on the total amount of cash available for distribution to our common stockholders.Chief Digital Officer; Kevin Hyson, Executive Vice President and Chief Marketing Officer and David Bonnett, Executive Vice President and Chief Information Officer.
For information regardingPrior to its dissolution, in August 2014, the Compensation Committee was responsible for, among other things, reviewing management and employee compensation policies, plans and programs (including, assessing the impact thereof on any risk-taking behavior they may have on the Company's management); monitoring performance and compensation of our capital structureexecutive officers and other key employees; preparing recommendations and periodic reports to our Board concerning these matters; and administering our former equity compensation plans, see Note 14, "Capital Structure" inincentive plans. Since August 2014, the notes to consolidated financial statements contained elsewhere in this Annual Report.Board has performed the responsibilities previously carried out by the Compensation Committee.
Item 6. Selected Financial Data.
The following table sets forth selected historical consolidated financial information of American Media, Inc. as of and for each year in the five-year period ended March 31, 2016. The selected historical consolidated financial data as of March 31, 2016 and 2015 and for each of the years in the three-year period ended March 31, 2016 are derived from our historical consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated financial data for all other periods presented were derived from our audited consolidated financial statements that are not included elsewhere in this Annual Report.
You should review the selected historical financial data presented below in conjunction with our consolidated financial statements and the accompanying notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Annual Report. As a result of the sale of the Shape, Fit Pregnancy and Natural Health publications in January 2015, the operations of AMI's former Women's Actively Lifestyle segment have been classified as discontinued operations for all periods presented. The prior year amounts have been recast to reflect the sale of the Women's Actively Lifestyle segment as discontinued operations.
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| (in millions) | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Results of Operations | | | | | | | | | |
| Circulation | $ | 142.8 |
| | $ | 166.2 |
| | $ | 187.6 |
| | $ | 203.0 |
| | $ | 217.9 |
|
| Advertising | 68.2 |
| | 67.3 |
| | 73.0 |
| | 65.2 |
| | 72.1 |
|
| Other | 12.0 |
| | 11.7 |
| | 26.8 |
| | 28.5 |
| | 31.5 |
|
| Total operating revenues | 223.0 |
| | 245.2 |
| | 287.3 |
| | 296.6 |
| | 321.5 |
|
| Operating expenses | 197.3 |
| | 251.0 |
| | 253.6 |
| | 297.6 |
| | 268.2 |
|
| Operating income (loss) | 25.7 |
| | (5.8 | ) | | 33.8 |
| | (1.0 | ) | | 53.3 |
|
| Other expenses, net | (43.7 | ) | | (51.2 | ) | | (60.1 | ) | | (61.5 | ) | | (61.5 | ) |
| Income tax provision (benefit) | (36.0 | ) | | (15.7 | ) | | 30.7 |
| | (6.4 | ) | | (22.5 | ) |
| Income (loss) from continuing operations | 18.0 |
| | (41.2 | ) | | (57.0 | ) | | (56.0 | ) | | 14.2 |
|
| Income from discontinued operations, net of income taxes | — |
| | 15.3 |
| | 3.7 |
| | 0.5 |
| | 8.0 |
|
| Net income (loss) | 18.0 |
| | (25.9 | ) | | (53.3 | ) | | (55.5 | ) | | 22.3 |
|
| Less: net income attributable to noncontrolling interests | (1.0 | ) | | (1.2 | ) | | (1.0 | ) | | (0.7 | ) | | (0.7 | ) |
| Net income (loss) attributable to American Media, Inc. and subsidiaries | $ | 17.0 |
| | $ | (27.1 | ) | | $ | (54.3 | ) | | $ | (56.2 | ) | | $ | 21.6 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | March 31, |
| (in millions) | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Cash and cash equivalents | $ | 1.4 |
| | $ | 3.5 |
| | $ | 3.0 |
| | $ | 2.4 |
| | $ | 5.2 |
|
| Goodwill and other identified intangible assets, net | 363.1 |
| | 378.2 |
| | 398.3 |
| | 409.9 |
| | 460.7 |
|
| Total assets | 421.7 |
| | 466.0 |
| | 572.6 |
| | 506.5 |
| | 575.5 |
|
| Total debt, net of premium and discount | 393.9 |
| | 324.3 |
| | 498.5 |
| | 481.9 |
| | 476.9 |
|
| Total stockholders' deficit | (82.5 | ) | | (36.9 | ) | | (132.0 | ) | | (77.8 | ) | | (21.3 | ) |
Notes to Selected Financial Data
Net income (loss) attributable to American Media, Inc. and subsidiaries for fiscal year
2016 includes non-cash amortization expenses of approximately $11.6 million related to the reclassification of certain tradenames from indefinite-lived intangibles to finite-lives of 15 years, effective April 1, 2015.
2015 includes non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $17.4 million, AMI's share of bad debt and other expenses related to wholesaler shutdowns of approximately $8.4 million, costs related to restructuring and severance of approximately $7.1 million and Merger and related transaction costs of approximately $4.8 million.
2014 includes non-cash tradename impairment charges related to certain reporting units of approximately $9.2 million and AMI's share of bad debt related to Source and other wholesaler shutdowns of approximately $5.1 million.
2013 includes non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $50.6 million.
Total stockholders' deficit includes an equity distribution for debt of approximately $62.5 million to certain holders of equity interests in the Parent during fiscal 2016 and approximately $121.5 million related to the exchange of debt for equity with the Parent and Investors during fiscal 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read together with the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. This discussion and analysis contains statements that constitute forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including but not limited to those discussed in "Cautionary Statements Regarding Forward-Looking Information" and "Risk Factors" included in this Annual Report.
ORGANIZATION OF INFORMATION
Our discussion is presented in the following sections:
Executive Summary
Recent Developments and Management Action PlansWe have designed our executive compensation programs to support our overall performance goals. Our compensation programs are based on the principle of "pay for performance," which means the level of compensation received by executives should be closely tied to our corporate financial performance.
ResultsThe Board reviews our executive compensation programs on a regular basis and has structured the programs to consist of Operationstwo principal components: base salary and annual cash bonus opportunities. We refer to these two components as "total direct compensation." We also provide to our officers, as part of a competitive compensation package, limited post-employment benefits and perquisites.
Operating SegmentsWe have designed our compensation programs to attract, motivate, focus and retain employees with the skills required to achieve our performance goals, which are critical to our future success. Our program is designed to reflect each individual’s contribution to our corporate performance while striking an appropriate balance between short-term and longer-term corporate performance.
Liquidity
We consider the following principles and Capital Resourcesobjectives when designing compensation programs for our executive officers and other employees:
Contractual ObligationsOur programs are designed to provide a competitive compensation "opportunity" for our executives. We believe that our executives should be compensated well when our company performs well and Other Commitmentsthat their total direct compensation should vary in relation to our corporate performance.
Seasonality and Quarterly FluctuationsThe more senior a person's position, the more his or her compensation should be "at risk," meaning dependent on our corporate performance.
Off-Balance Sheet FinancingOur compensation programs should support retention of our experienced executives and achievement of our leadership succession plans.
ApplicationOur assessment of Critical Accounting Estimatesthe competitive marketplace and the relative performance of other similar companies.
Recently Adopted and Recently Issued Accounting PronouncementsOverview of How our Executive Compensation is Determined
EXECUTIVE SUMMARYOur Board regularly reviews the components of our executive compensation program and may make changes, from time to time, as deemed appropriate. These reviews may include general comparisons against general market survey data of other similar and comparable companies, including but not limited to:
American Media, Inc. together with its subsidiaries (collectively,Executive compensation policies and practices,
Competitive pay objectives,
Base salaries,
Annual bonus plans, including performance measures and performance targets,
Executives perquisites, and
Executive benefits and protection policies, including severance practices for officers and change in control compensation protection programs.
The Board has the "Company", "AMI", "we", "our"flexibility to establish annual performance measures and goals that are deemed appropriate to help achieve our business strategy, corporate performance and objectives. Individual performance, retention and internal pay equity have been the primary factors considered in any decision to adjust compensation materially. We do not apportion any particular percentage of an executive’s total compensation to base salary, annual bonus opportunities or "us") is onelong-term incentive compensation. Except for base salaries, all other components of the largest publishersexecutives’ compensation are at risk. In allocating the various components of celebritycompensation, we refer to the terms of executives’ employment agreements, the Company’s compensation budget, the likelihood that annual bonus opportunity targets will be met, and health and active lifestyle magazinesthe individuals’ equity holdings in the United States,Company. Although we do not formally benchmark the compensation practices of other companies, we believe, based on generalized market survey data of other similar and comparable companies, that we provide competitive pay, taking into account total compensation, including salaries, annual bonus opportunities and long-term incentives. We do not use compensation consultants in setting compensation for our Named Executive Officers.
Determination of Our Chief Executive Officer’s Compensation
The Board formally reviews our Chief Executive Officer's performance annually. This review is based on our Chief Executive Officer's performance against specific objectives, which include the progress made by our Company in implementing its business strategy and achieving its business objectives, both short-term and long-term. This review considers both quantitative and qualitative performance matters and is a key factor used in setting our Chief Executive Officer's compensation and respective components for the coming year. Specific business objectives and goals that were part of our Chief Executive Officer's performance review for 2016 included the financial performance of our company, progress towards achieving our company's long-term strategic objectives and the development of key leadership talent.
The Board meets in executive session to determine the compensation of our Chief Executive Officer. Members of management, including our Chief Executive Officer, do not make any recommendations regarding the compensation of our Chief Executive Officer. Although the Chief Executive Officer is a member of our Board, he does not attend the executive session when his compensation is discussed and determined.
Role of Our Officers in Settings Compensation for Others
Members of our senior management, including our Named Executive Officers, recommend compensation actions to our Chief Executive Officer for officers in the areas for which they are responsible, but not with respect to their own compensation. Taking these recommendations into consideration, our Chief Executive Officer then makes recommendations to our Board regarding each officer. Our senior management and our Chief Executive Officer base these recommendations on assessments of individual performance and potential to assume greater responsibility. Our Chief Executive Officer discusses the recommendations and the performance of the officers with the Board. The Board reviews our Chief Executive Officer's recommendations, may make modifications based on a diversified portfoliodiscussion of 10 publicationsindividual and corporate performance, and then makes the final decisions regarding each officer's targeted total compensation, and respective components, for the upcoming year. Our officer compensation review occurs annually at the first meeting of the Board after our prior year end and provides the earliest opportunity to review and assess individual and corporate performance for the previous year.
Compensation Program Components
Our executive compensation program consists of two principal components: base salary and annual cash bonus opportunities. In total, these components are designed to link our pay for performance philosophy and provide competitive compensation programs.
We believe that this combination of compensation components provides an appropriate mix of fixed and variable compensation, balances short-term operational performance with long-term value and encourages recruitment and retention of highly qualified executives. All officers participate in each component of the executive compensation program but at different levels or percentages.
The Board has not adopted specific allocations between short-term and long-term compensation. The Board believes that executive compensation should include compensation “at risk” of fluctuation and subject to attaining performance objectives and determines the amount to be “at risk” upon its periodic review of total direct compensation. Variable compensation or compensation “at risk,” such as our annual bonus opportunities, makes up a significant portion of executives’ total compensation.
Base Salary
Base salary is provided to compensate executives for services performed during the fiscal year and is fixed by the terms of the executive’s employment agreement or other employment arrangements. The Board reviews base salary at the end of the term of each executive’s employment agreement in connection with the extension of an executive’s employment agreement. There were no increases in base salary for the Named Executive Officers during fiscal 2016. In accordance with his employment agreement, Mr. Kroski's base salary increased to $375,000 effective April 1, 2016.
Annual Bonus
We design annual bonus opportunities for our executives to link executive pay to our annual financial performance and the individual executive’s job performance. Executives are eligible to receive an annual discretionary bonus or an annual cash incentive payment.
The performance targets are set by the Board at the beginning of the fiscal year. Performance targets are based on budgeted Adjusted EBITDA. We have selected Adjusted EBITDA as the primary performance measure under our annual bonus program because we believe it appropriately evaluates our operating performance compared to our operating plans. Adjusted EBITDA for compensation purposes is calculated using the definition in our revolving credit facility (the "Revolving Credit Facility"). The Board, in its discretion, may set alternative targets in any year for some of or all of the executives.
Annual Discretionary Bonus
The annual discretionary bonus gives the Company the flexibility to take into consideration the different quantitative and qualitative measures over the fiscal year in determining the eligible executive’s bonus. In determining discretionary bonus amounts, the Board may consider a combined monthly printcombination of factors, including Adjusted EBITDA and digital audienceindividual performance. The annual discretionary bonus is payable at the sole discretion of more than 39 million readersthe Chief Executive Officer and monthly on-line audiencethe Board.
Annual Cash Incentive Payment
The annual cash incentive payment creates an incentive for the eligible executive to meet certain financial and operating goals of approximately 49 million readers.the Company. In determining the cash incentive payment amount, the Board may consider a combination of factors, including but not limited to Adjusted EBITDA, a business unit’s budgeted EBITDA, an implementation of a cost savings plans and other performance factors that may be deemed relevant.
Since the cash incentive payment is intended to reward an executive’s ability to meet or exceed performance goals, the attainment of the performance goals is uncertain at the time the goals are established. The Chief Executive Officer and the Board may elect to pay the cash incentive payment even if targets are not achieved.
The following table reflects the range of eligible annual discretionary bonus and annual cash incentive payments that could have been earned, for each Named Executive Officer, pursuant to the terms of each Named Executive Officers’ employment agreement or arrangement and the amount of annual discretionary bonus paid for fiscal 2016 as determined at the sole discretion of the Chief Executive Officer (except with respect to his discretionary bonus) and the Board:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Annual Discretionary | | Annual | | Annual Cash Incentive | Annual |
| | | Bonus Range | | Discretionary | | Bonus Range | Cash |
| | | Minimum | | Maximum | | Bonus | | Minimum | Target | Maximum | Incentive |
| David J. Pecker | | $ | — |
| | $ | 875,000 |
| | $ | 1,312,500 |
| (1) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Christopher V. Polimeni | | $ | — |
| | $ | 175,000 |
| | $ | 262,500 |
| (1) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Brian Kroski | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 150,000 |
| $ | 150,000 |
| $ | 150,000 |
|
| Kevin Hyson | | $ | — |
| | $ | 175,000 |
| | $ | 150,000 |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| David Bonnett | | $ | 65,000 |
| | $ | — |
| | $ | 100,000 |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
(1) - The Board approved annual discretionary bonuses for Messrs. Pecker and Polimeni equal to 1.5 times the maximum annual amount, per their respective employment agreements, given that no discretionary bonuses were paid to Messrs. Pecker and Polimeni for fiscal 2015.
Long-term equity incentive compensation
In August 2014, American Media, Inc. entered into an agreement and plan of merger (the "Merger Agreement")connection with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of AMI (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into American Media, Inc. (the "Merger") with American Media, Inc. surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of American Media, Inc.AMI, including the restricted shares awarded under the Equity Incentive Plan. In connection with the Merger the Equity Incentive Plan was terminated. As a result, there are no outstanding equity awards as of March 31, 2016.
Benefits and Perquisites
Our officers, including our Named Executive Officers, participate in a full range of health, welfare and life insurance benefits and are covered by the same plans as other exempt employees.
We provide support to our Chief Executive Officer for personal financial management services. Since this financial manager is familiar with our compensation program, our Chief Executive Officer’s financial management is enhanced, thereby providing a benefit to the Company and our Chief Executive Officer. The cost of this service for fiscal 2016, 2015 and 2014 was $99,084, $0 and $20,254, respectively, including the gross-up in taxes to make the Chief Executive Officer whole to the extent that taxes were imposed on the Chief Executive Officer in respect of such financial management benefit.
We may, from time to time, provide a housing allowance for an executive officer in instances where we have asked an executive to relocate. Mr. Hyson received a housing allowance of $31,016, $0 and $30,000 during fiscal 2016, 2015 and 2014, respectively.
Historically, we have not provided any other perquisites to our executives and we do not view perquisites or other personal benefits as a major component in our executive compensation program. In January 2015,the future, we soldmay provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive in the performance of his or her duties, to make our Shape, Fit Pregnancyexecutive officers more efficient and Natural Health publications, which comprisedeffective or for recruitment, motivation and retention purposes. Future practices with respect to perquisites or other personal benefits for our Women's Active Lifestyle segment,executive officers will be approved and subject to periodic review by the Board. We do not expect these perquisites to be a material component of our compensation program.
Post-Employment Compensation and Change in Control Provisions
We do not have separate severance agreements with any of our Named Executive Officers, but each Named Executive Officers’ employment agreement or other employment arrangements contain provisions for approximately $60 millionpaying severance under certain circumstances if employment is terminated, and certain of our plans provide for other benefits upon certain change in cash pluscontrol events and terminations of employment, each as described in detail under “Potential Payments Upon Termination or Change in Control” set forth below. The Board believes the change in control and termination benefits that we provide our Named Executive Officers are consistent with the Board’s overall objectives and are similar to benefits offered to executives of comparable companies. The purpose of these benefits are to permit our key executive officers to concentrate on taking actions that are in the best interest of our stockholders without regard to whether such action may ultimately have an earnoutadverse impact on their job security and to enable them to provide objective advice on any potential change in control of upour Company without undue concern regarding its potential impact on their personal financial security and future.
The Board selected the triggering events for change in control and termination benefits for our Chief Executive Officer based on its judgment that these events would likely result in the job security distractions and retention concerns described above. Our change in control compensation protection arrangements for our Chief Executive Officer require the occurrence of two events (a so-called “double trigger”) to $60 million.trigger payments: (1) a “change in control,” and (2) termination “without cause” by the Company or termination by the officer with “good reason” within one year of the change in control.
Upon the occurrence of both triggering events, certain benefits would be provided to the Chief Executive Officer. These benefits include a severance payment in the form of installment payments of base salary for a period of two years and continued benefits and outplacement services for a period of one year.
Due to the application of the “golden parachute” excise tax provision of Internal Revenue Code Section 4999, we have provided our Chief Executive Officer with a gross-up payment, if necessary, so that the executive will receive the same economic terms as if there were no excise tax. The effects of Section 4999 generally are unpredictable and can have different impacts, depending on the executive’s compensation history. As a result, the operationsBoard has determined it is appropriate and consistent with competitive pay packages to pay the cost of the Women's Active Lifestyle segmentexcise tax plus an amount needed to pay income taxes due on such additional payment up to $4.8 million for the Chief Executive Officer.
Messrs. Polimeni, Kroski, Hyson and Bonnett also have been classified“double trigger” severance arrangements which would require a termination “without cause” by the Company in connection with a “change in control” of the Company. In the event of a “change in control” of the Company and a termination “without cause”, each of Messrs. Polimeni, Hyson and Bonnett would receive a severance payment in the form of installment payments of base salary for a period of one year and Mr. Kroski would receive a severance payment in the form of installment payments of base salary for a period of six months.
Deductibility of Executive Compensation/Internal Revenue Code Section 162(m)
Since we do not currently have a class of equity securities that is required to be registered under the Securities Exchange Act of 1934, as discontinued operations in all periods presented. After giving effectamended, we are not subject to Internal Revenue Code Section 162(m).
Compensation Committee Interlocks and Insider Participation
Our Board of Directors reviews management and employee compensation policies, plans and programs including monitoring the divestitureperformance and compensation of our Women's Active Lifestyle segment, we report under a new segment structure beginning inexecutive officers and other key employees. The members of the fourth quarterBoard are: Mr. Pecker, who serves as the Chairperson, and Messrs. Ratner, Schwartz and Hughes. Messrs. Ratner, Schwartz and Hughes are Independent Directors.
Mr. Pecker serves as the Chairman of fiscal 2015the Board, Chief Executive Officer and accordingly have recast prior period segment amounts.President of the Company and was not determined by the Board to be an Independent Director.
Compensation Committee Report
Our remaining well-known publications cover two primary operating segments: CelebrityThe Board of Directors have reviewed and Men's Active Lifestyle. Withindiscussed the preceding Compensation Discussion and Analysis with management and, based on such review and discussion, the Board recommended that the Compensation Discussion and Analysis be included in this Amendment.
Respectfully submitted,
David J. Pecker, Chairperson
Evan Ratner
Barry Schwartz
David R. Hughes
The foregoing section is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filings of the Company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the Securities Act of 1933, as amended (the "Securities Act"), whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Company Risk Assessment
Based on our Celebrity segment,assessment, we believe that our portfoliocompensation and benefit programs have been appropriately designed to attract and retain talent and properly incentivize employees. Although our programs are generally designed to pay for performance and to provide incentive based compensation, the programs contain various mitigating factors to ensure our employees, including our Named Executive Officers, are not encouraged to take unnecessary risks in managing our business. These factors include:
the multiple elements of brands includes: National Enquirer, Star, OK!, Globe, National Examiner our compensation packages, including base salary and Soap Opera Digest. Withinannual bonus programs;
the structure of our Men's Active Lifestyle segment, our portfolioannual cash bonus program; and
oversight of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers and Flex. Our third, non-operating segment, Corporate and Other, includes our international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers.programs by the Board.
We believe our leadership position in these segments provides us with strong competitive advantages incompensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.Company.
Our largest revenue stream comes from single copy newsstand sales. Our second largest revenue stream comes from multi-platform advertising. Our primary operating expenses consist of production, distribution, circulation and other cost of sales, as well as selling, general and administrative expenses. We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business.
We are experiencing declines in our circulation revenue and print advertising as a result of market conditions in the magazine publishing industry. These declines are primarily caused by the disruption in our wholesaler distribution channel, the overall decline in the celebrity newsstand market and the decline in the consumer advertising market coupled with the shift in advertising dollars from print to digital. Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions and current events. Since magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to economic downturns. Adverse changes in the markets we serve generally result in reductions in revenue as a result of lower consumer spending, which can lead to a reduction in advertising revenue.
Our fiscal year ended on March 31, 2016 and is referred to herein as fiscal 2016. References to our fiscal year (e.g. "fiscal 2016") refer to our fiscal year ended March 31st of the applicable year.
RECENT DEVELOPMENTS AND MANAGEMENT ACTION PLANS
Recent Developments
Digital Initiatives
We conduct our advertising sales through a combination of corporate and brand sales and marketing teams that sell advertising across multiple media platforms. Our salespeople are divided into specific brand teams, with each team focusing on selling marketing programs that integrate print, digital (such as mobile and desktop), social media and events for our clients. We are also the industry leader in creating sponsored content and native advertising. Combined, our sales teams cover all consumer advertising categories.
We have launched digital editions for all our brands on the following platforms: Next Issue Media, Apple, Google newsstand, Zinio, Amazon Kindle and Barnes & Noble's Nook. During fiscal 2016, our digital advertising revenue increased 40% over the comparable prior year period.
Print InitiativesSummary Compensation Table
The relaunch of Men's Fitness continues to attract new luxury goods advertisers including Ralph Lauren, FIJI Water, Louis Vuitton, Nautica, Energizersummary compensation table and SlimFast. During fiscal 2016, total advertising revenues increased 9% for Men's Fitness as compared to the prior period.
Related Operations
Over the past year, we have developed several unique brand extensions across multiple platforms.
In February 2016, we announced a partnership with Dwayne "The Rock" Johnson's company, Seven Bucks Productions. Mr. Johnson is one of the world's biggest box office stars with over $1.4 billion in ticket sales in 2015 and Seven Bucks Productions has over 50 movie, television and digital projects in development. Our initial venture will be a live television broadcast of the Mr. Olympia event from Las Vegas in September 2016. Mr. Johnson will be one of the co-hosts and we are currently in negotiations with a leading broadcast network to air the live broadcast of the Mr. Olympia event.
We currently publish a custom magazine for GNC Holdings, Inc. ("GNC")supplemental tables on a quarterly basis, utilizing our Men's Fitness (and Shape pursuant to a license agreement) brands. The print version is distributed to approximately 500,000 customers through select GNC stores, with another 1 million digital copies distributed via email to GNC's database of customers. GNC leverages its vendors to advertise in the magazine and AMI retains 100% of the advertising revenues.
The REELZ Channel, available in 68 million homes, recently premiered a new television series, National Enquirer Investigates and the Discovery Channel will launch a series called Enquiring Minds this fall. We are partnering with The Weinstein Company on both of these televisions series. There is also a feature film and documentary drama television series on The National Enquirer in development with IMG/WME.
Debt Related Transactions
During the first quarter of fiscal 2016, AMI repurchased $2.0 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in December 2017 (the "First Lien Notes"), plus accrued and unpaid interest in the open market, from the Investors.
In February 2016, we amended the revolving credit facility (the "Revolving Credit Facility") to, among other things, extend the maturity date to June 2017, modify the financial covenants in effect through the date of maturity and provide for certain other provisions.
In March 2016, AMI exchanged approximately $58.9 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors, for approximately $76.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement").
In addition to the New Second Lien Notes Exchange Agreement, AMI also issued, in March 2016, approximately $76.2 million in aggregate principal amount of New Second Lien Notes in a distribution to holders of equity interests in the Parent, of which approximately $68.8 million was issued to the Investors and approximately $7.4 million was issued to AMI's Chief Executive Officer (the "Officer"), and approximately $7.3 million aggregate principal amount of New Second Lien Notes were issued to an affiliate of the Investors in exchange for cash.
In March 2016, AMI repurchased the remaining $2.2 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"), plus accrued and unpaid interest in the open market. Upon the full satisfaction and cancellation of all outstanding Second Lien Notes, the collateral agreement securing the Second Lien Notes was terminated and AMI's obligations under the Indenture governing the Second Lien Notes were satisfied in full.
See "Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a further discussion regarding our debt agreements.
Wholesaler Transition
Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operation during 2014. Since then we have transitioned the previous wholesalers' newsstand distribution (approximately 25% of the market) to the two remaining major wholesalers. This transition had an immediate adverse impact on single copy newsstand sales and liquidity during fiscal 2015 and into the first half of fiscal 2016.
Management Action Plans for Cost Savings
During fiscal 2016, we developed and implemented management action plans that resulted in $18.4 million of cost savings in fiscal 2016 and that we expect will result in approximately $6.8 million of cost savings in fiscal 2017 (the "2016 and 2017 Management Action Plans"). These expense reductions were primarily from outsourcing technology and operating functions, digital content re-negotiations, print order efficiencies and editorial and advertising sales staff consolidations. We will realize the benefits from the 2016 and 2017 Management Action Plans during fiscal 2016 and beyond.
During fiscal 2015, we developed and implemented management action plans that resulted in $6.6 million of cost savings in fiscal 2016 and $6.4 million of cost savings in fiscal 2015 (the "2016 and 2015 Management Action Plans"). These expense reductions were primarily from outsourcing technology and operating functions, digital content re-negotiations, and editorial and advertising sales expense reductions. We realized the benefits from the 2016 and 2015 Management Action Plans in fiscal 2016 and fiscal 2015 and certain of these costs savings may benefit fiscal 2017 and beyond.
Reference to Management Action Plans refers to the 2016 and 2017 Management Action Plans and the 2016 and 2015 Management Action Plans.
RESULTS OF OPERATIONS
The following table provides a summary of our operating results for the fiscal years ended March 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal years ended March 31, | | 2016 vs. 2015 | | 2015 vs. 2014 |
| (dollars in millions) | 2016 | 2015 | 2014 | | Amount | Percent | | Amount | Percent |
| Operating revenues: | | | | | | | | | |
| Circulation | $ | 142.8 |
| $ | 166.2 |
| $ | 187.6 |
| | $ | (23.4 | ) | (14 | )% | | $ | (21.4 | ) | (11 | )% |
| Advertising | 68.2 |
| 67.3 |
| 73.0 |
| | 0.9 |
| 1 | % | | (5.7 | ) | (8 | )% |
| Other | 12.0 |
| 11.7 |
| 26.8 |
| | 0.3 |
| 3 | % | | (15.1 | ) | (56 | )% |
| Total operating revenues | 223.0 |
| 245.2 |
| 287.3 |
| | (22.1 | ) | (9 | )% | | (42.2 | ) | (15 | )% |
| Operating expenses | 197.3 |
| 251.0 |
| 253.6 |
| | (53.6 | ) | (21 | )% | | (2.6 | ) | (1 | )% |
| Operating income (loss) | 25.7 |
| (5.8 | ) | 33.8 |
| | 31.5 |
| * |
| | (39.6 | ) | * |
|
| Other expense, net | (43.7 | ) | (51.2 | ) | (60.1 | ) | | 7.5 |
| (15 | )% | | 8.9 |
| (15 | )% |
| Loss from continuing operations before income tax provision (benefit) | (18.0 | ) | (56.9 | ) | (26.3 | ) | | 38.9 |
| (68 | )% | | (30.6 | ) | * |
|
| Income tax provision (benefit) | (36.0 | ) | (15.7 | ) | 30.7 |
| | (20.3 | ) | * |
| | (46.3 | ) | * |
|
| Net income (loss) from continuing operations | 18.0 |
| (41.2 | ) | (57.0 | ) | | 59.2 |
| * |
| | 15.7 |
| (28 | )% |
| Income from discontinued operations, net of taxes | — |
| 15.3 |
| 3.7 |
| | (15.3 | ) | * |
| | 11.6 |
| * |
|
| Net income (loss) | 18.0 |
| (25.9 | ) | (53.3 | ) | | 43.9 |
| * |
| | 27.4 |
| (51 | )% |
| Less: net income attributable to the noncontrolling interest | (1.0 | ) | (1.2 | ) | (1.0 | ) | | 0.2 |
| * |
| | (0.2 | ) | 16 | % |
| Net income (loss) attributable to American Media, Inc. and subsidiaries | $ | 17.0 |
| $ | (27.1 | ) | $ | (54.3 | ) | | $ | 44.1 |
| * |
| | $ | 27.2 |
| (50 | )% |
* - Represents an increase or decrease in excess of 100%.
Operating Revenues
During fiscal 2016, total operating revenues decreased $22.1 million compared to the prior year period primarily due to reduced circulation ($23.4 million), partially offset by increased advertising ($0.9 million) and other revenues ($0.3 million).
Circulation revenue has declined due to the overall decline in the celebrity newsstand magazine market, coupled with the planned discontinuance of our special interest publications ($2.5 million) and certain foreign editions of Muscle & Fitness and Flex ($1.9 million), and the sale of our Country Weekly publication ($2.8 million). The increase in advertising revenue was primarily due to digital. Other revenue increased primarily due to the elimination of joint venture losses recognized in prior years coupled with the increase in revenue from the Mr. Olympia event, partially offset by reduced publishing services revenue.
Total operating revenue decreased $42.2 million during fiscal 2015 primarily due to reduced circulation ($21.4 million), advertising ($5.7 million) and other revenues ($15.1 million).
Circulation revenue declined due to the industry-wide disruption in our wholesaler channel coupled with the decline in the celebrity newsstand magazine market. Advertising revenue declined due to the 11% decline in the consumer advertising market. The decline in other revenue was due to the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million), coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset by higher revenue from the Mr. Olympia event ($1.3 million).
The following table summarizes our operating revenues, by type, as a percentage of total operating revenues:
|
| | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| Circulation | 64% | | 68% | | 65% |
| Advertising | 31% | | 27% | | 25% |
| Other | 5% | | 5% | | 10% |
| Total | 100% | | 100% | | 100% |
Circulation Revenue
Our circulation revenue was generated from the following components for the fiscal years ended March 31, 2016, 2015 and 2014:
|
| | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| Single Copy | 78% | | 78% | | 79% |
| Subscription | 22% | | 22% | | 21% |
| Total | 100% | | 100% | | 100% |
Our circulation revenue, representing the sale of magazines to consumers, generates more than half of our total revenues and is an important component in determining our advertising revenues because advertising rates are dependent on circulation and audience. Single copy sales (also known as newsstand sales) are sold primarily through national distributors, wholesalers and retailers. Subscriptions are sold primarily through direct mail, or digitally via the Internet. Additionally, digital-only subscriptions and single-copy digital issues of our magazines are sold or distributed through various app stores and other digital storefronts. Our digital subscriptions represent 15% of our 2.0 million net subscriptions as of March 31, 2016, the highest percentage among our competitive set.
Circulation revenue declined $23.4 million during fiscal 2016 due to the overall reduction in the celebrity magazine sector ($14.1 million) coupled with the planned discontinuance of our special interest publications ($2.5 million) and certain foreign editions of Muscle & Fitness and Flex ($1.9 million), and the sale of our Country Weekly publication ($2.8 million). During fiscal 2015, circulation revenue declined $21.4 million primarily due to the wholesaler transition ($16.6 million) coupled with the sale of our Country Weekly publication ($2.5 million).
Advertising Revenue
Our advertising revenue was generated from the following components for the fiscal years ended March 31, 2016, 2015 and 2014:
|
| | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| Print | 80% | | 85% | | 89% |
| Digital | 20% | | 15% | | 11% |
| Total | 100% | | 100% | | 100% |
The sale of advertising across our multiple platforms generates approximately one-third of our total revenues. Print advertising revenue continues to be negatively impacted by the decline in the consumer magazine sector coupled with the transformation of advertising from print to digital.
We conduct our advertising sales through a combination of corporate and brand sales and marketing teams that sell advertising across multiple media platforms. Our salespeople are divided into specific brand teams, with each team focusing on selling marketing programs that integrate print, digital (such as mobile and desktop), social media and eventspages disclose compensation information for our clients. We are also the industry leader in creating sponsored content and native advertising. Combined, our sales teams cover all consumer advertising categories.
The rates at which we sell print advertising depend on each magazine's rate base, which is the circulation of the magazine that we guarantee to our advertisers, as well as our audience size. If we are not able to meet our committed rate base, the price paid by advertisers is generally subject to downward adjustments, including in the form of future credits or discounts. Our published rates for each of our magazines are subject to negotiation with each of our advertisers.
Advertising revenue increased $0.9 million during fiscal 2016 due to higher digital advertising ($4.1 million), partially offset by the decline in print advertising ($0.4 million) and the planned discontinuance of certain foreign editions of Muscle & Fitness and Flex ($2.3 million) and the sale of Country Weekly ($0.5 million). During fiscal 2015, advertising revenue decreased $5.7 million due to lower print advertising revenue ($7.7 million), partially offset by higher digital advertising ($2.0 million).
Other Revenue
Our other revenue represented 5% of our operating revenues during fiscal 2016 and 2015 and10% during fiscal 2014.
During fiscal 2016, other revenue increased $0.3 million due to the timing of certain non-recurring streams, partially offset by the reduction in publishing services.
Other revenues decreased $15.1 millionNamed Executive Officers during fiscal 2015 primarily due to the divestiture of our distribution and merchandising company (DSI) in September 2013 ($5.2 million) coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset by the increased revenue from the Mr. Olympia event ($1.3 million).
Operating Expenses
Our operating expenses are comprised of the following for the fiscal years ended March 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal years ended March 31, | | 2016 vs. 2015 | | 2015 vs. 2014 |
| (dollars in millions) | 2016 | 2015 | 2014 | | Amount | Percent | | Amount | Percent |
| Costs of revenues: | | | | | | | | | |
| Production | $ | 54.3 |
| $ | 66.1 |
| $ | 75.7 |
| | $ | (11.8 | ) | (18 | )% | | $ | (9.6 | ) | (13 | )% |
| Editorial | 24.9 |
| 26.8 |
| 30.9 |
| | (1.9 | ) | (7 | )% | | (4.1 | ) | (13 | )% |
| Distribution, circulation and other | 36.2 |
| 39.0 |
| 46.0 |
| | (2.8 | ) | (7 | )% | | (7.0 | ) | (15 | )% |
| Total costs of revenues: | 115.4 |
| 131.9 |
| 152.6 |
| | (16.5 | ) | (13 | )% | | (20.7 | ) | (14 | )% |
| Selling, general and administrative | 55.5 |
| 86.6 |
| 78.3 |
| | (31.2 | ) | (36 | )% | | 8.3 |
| 11 | % |
| Depreciation and amortization | 26.5 |
| 14.0 |
| 13.4 |
| | 12.5 |
| 90 | % | | 0.5 |
| 4 | % |
| Impairment of goodwill and intangible assets | — |
| 18.5 |
| 9.2 |
| | (18.5 | ) | * |
| | 9.2 |
| 100 | % |
| Total operating expenses | $ | 197.3 |
| $ | 251.0 |
| $ | 253.6 |
| | $ | (53.6 | ) | (21 | )% | | $ | (2.6 | ) | (1 | )% |
* - Represents an increase or decrease in excess of 100%.
Costs of Revenues
Costs of revenues consist of costs related to the production of our printed magazines, editorial costs, as well as other expenses.
Our production costs, including paper and printing costs, accounted for approximately 28%, 26% and 30%, respectively, of our total operating expenses for fiscal 2016, 2015 and 2014. Paper is the principal raw material utilized in our publications and we have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States.
Editorial costs include costs associated with manuscripts, photographs and related salaries and accounted for approximately 13%, 11% and 12%, respectively for fiscal 2016, 2015 and 2014.
Our distribution, circulation and other expenses consist primarily of postage and freight for shipment to our wholesalers and fulfillment companies and accounted for approximately 18%, 16% and 18%, respectively, of our total operating expenses for fiscal 2016, 2015 and 2014. We are subject to postal rate increases that affect delivery costs and effective May 31, 2015, rates for all classes of mail were increased by approximately 2% by the Postal Regulation Commission.
Total costs of revenues decreased during fiscal 2016 and 2015 due to the Management Action Plans in the following areas: $11.8 million in production, $1.9 million in editorial and $2.8 million in distribution and circulation for fiscal 2016 and a reduction of $9.6 million in production, $4.1 million in editorial and $7.0 million in distribution and circulation for fiscal 2015.
Selling, General and Administrative
Selling, general and administrative costs decreased $31.2 million during fiscal 2016 compared to the prior year period primarily due to the Management Action Plans for employee-related expenses ($12.2 million), as well as reduced wholesaler-related bad debt expense ($8.4 million), accounting and legal fees ($1.6 million), other non-recurring expenses ($3.5 million) and costs associated with restructuring ($1.5 million).
During fiscal 2015, selling, general and administrative expenses increased $8.3 million as compared to the prior year periods primarily due the Merger and related transactions ($4.8 million), bad debt expense due to the wholesaler bankruptcy ($3.3 million), costs associated with restructuring ($1.5 million) and the timing of gains from insurance settlement recognized in the prior comparable period ($1.4 million), partially offset by the divestiture of our distribution and merchandising company (DSI) in September 2013 ($2.1 million).
Depreciation and Amortization
Depreciation and amortization expenses, which are non-cash, increased $12.5 million and $0.5 million during fiscal 2016 and 2015, respectively, as compared to the prior year periods, primarily due to the reclassification of certain tradenames from indefinite-lived to finite-lived.
Impairment of Goodwill and Intangible Assets
There were no impairment charges recorded during fiscal 2016.
During an evaluation of goodwill and other identified intangible assets during fiscal 2015 and 2014, we determined that indicators were present in certain reporting units that would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily the result of the near-term advertising revenue shortfall coupled with the continued softness in the print publication industry overall, which resulted in lowered future cash flow projections.
As a result, an impairment test of goodwill and identified intangible assets was performed for certain reporting units. The evaluation resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the fair value. As a result, the Company recorded pre-tax non-cash impairment charge totaling $18.5 million for goodwill and tradenames during fiscal 2015 and $9.2 million for tradenames during fiscal 2014, respectively.
Non-Operating Items
Interest Expense
Interest expense decreased $11.2 million and $7.5 million during fiscal 2016 and 2015, respectively, when compared to the prior year period due to the exchange, in March 2016 and January 2015, of certain senior secured notes.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs remained consistent during fiscal 2016 and increased $2.3 million during fiscal 2015, when compared to the prior year period due to the exchange, in March 2016 and January 2015, of certain senior secured notes.
Income Taxes
We recorded an income tax benefit of $36.0 million and $15.7 million and during fiscal 2016 and 2015, respectively, primarily due to the release of the valuation allowance. This was a direct result of the reclassification of certain tradenames from indefinite lived to finite lived effective October 1, 2014 and April 1, 2015.
Net Income (Loss) Attributable to American Media, Inc.
The $17.0 million of net income attributable to American Media, Inc. for fiscal 2016 represents a $44.1 million improvement from the comparable prior year period. This improvement is primarily attributable to the $31.5 million increase in operating income, the $20.3 million increase in benefit for income taxes coupled with the $11.2 million decrease in interest expense, partially offset by the $15.3 million decrease in income from discontinued operations, net of tax and the $3.7 million decrease in other income.
The $27.1 million of net loss attributable to American Media, Inc. for fiscal 2015 represents a $27.2 million improvement from the comparable prior year period. This improvement is primarily attributable to the $46.3 million decrease in provision for income taxes, the $11.6 million increase in income from discontinued operations, net of tax, and the $7.5 million decrease in interest expense, partially offset by the $39.6 million decrease in operating income.
OPERATING SEGMENTS
Our operating segments consist of: Celebrity Brands, Men’s Active Lifestyle and Corporate and Other. After the divestiture of our Women's Active Lifestyle segment, we report under a new segment structure beginning in the fourth quarter of fiscal 2015. Given this change, we have restated prior period segment information to correspond to the current reporting structure. This structure is organized according to the markets each segment serves and allows management to focus its efforts on providing the best content to a wide range of consumers.
Our operating segments consist of the following brands in print and digital, as of March 31, 2016:
Celebrity Brands Segment
National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, politics, crime, human interest, health and fashion. We recently appointed Dick Morris as the chief political commentator and contributor to expand our political coverage;
Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television and reality stars and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;
OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;
Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;
National Examiner, a weekly tabloid (currently available only in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience; and
Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoops and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view.
Men’s Active Lifestyle Segment
Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;
Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice;
Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;
Muscle & Fitness Hers, a fitness physique training magazine designed for active women who want more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle, and covers training, nutrition, health, beauty and fashion for today's women;
Mr. Olympia, a four-day event held annually in September in Las Vegas attracting more than 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness exposition with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and
Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France and Germany and licenses the content in Holland and Australia. Each market edition is in a local language with local content and has its own website.
Corporate and Other Segment
This segment includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back-office functions. Corporate overhead expenses are not allocated to other segments and are as follows: corporate executives, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.
Financial Information Regarding Our Operating Segments
We use operating income (loss) as a primary basis for the chief operating decision maker to evaluate the performance of each of our operating segments and present operating income (loss) before impairment of goodwill and intangible assets, if any, to provide a consistent and comparable measure of our performance between periods. Management uses operating income (loss) before impairment of goodwill and intangible assets, if any, when communicating financial results to the board of directors, stockholders, debt holders and investors as well as when determining performance goals for executive compensation. Management believes this non-GAAP measure, although not a substitute for GAAP, improves comparability. Management also believes our stockholders, debt holders and investors use this measure as a gauge to assess the performance of their investment in the Company.
We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. Our calculations of operating income (loss) herein may be different from the calculations used by other companies, therefore comparability may be limited. The accounting policies for the operating segments are the same as those described in the notes to the consolidated financial statements in this Annual Report, specifically Note 2, "Summary of Significant Accounting Policies."
The following table summarizes our total operating revenues by segment:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal years ended March 31, | | 2016 vs. 2015 | | 2015 vs. 2014 |
| (dollars in millions) | 2016 | 2015 | 2014 | | Amount | Percent | | Amount | Percent |
| Segment operating revenues: | | | | | | | | | |
| Celebrity Brands | $ | 164.4 |
| $ | 179.8 |
| $ | 202.6 |
| | $ | (15.5 | ) | (9 | )% | | $ | (22.8 | ) | (11 | )% |
| Men's Active Lifestyle | 55.6 |
| 59.2 |
| 66.7 |
| | (3.6 | ) | (6 | )% | | (7.5 | ) | (11 | )% |
| Corporate and Other | 3.1 |
| 6.1 |
| 18.1 |
| | (3.1 | ) | (50 | )% | | (11.9 | ) | (66 | )% |
| Total operating revenues | $ | 223.0 |
| $ | 245.2 |
| $ | 287.3 |
| | $ | (22.1 | ) | (9 | )% | | $ | (42.2 | ) | (15 | )% |
Total operating revenues decreased $22.1 million during fiscal 2016 primarily due to reduced circulation ($23.4 million), partially offset by increased advertising ($0.9 million) and other revenues ($0.3 million). During fiscal 2015, total operating revenue decreased $42.2 million primarily due to reduced circulation ($21.4 million), advertising ($5.7 million) and other revenues ($15.1 million).
The following table summarizes the percentage of segment operating revenues:
|
| | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| Segment operating revenues: | | | | | |
| Celebrity Brands | 74% | | 73% | | 71% |
| Men's Active Lifestyle | 25% | | 24% | | 23% |
| Corporate and Other | 1% | | 3% | | 6% |
| Total | 100% | | 100% | | 100% |
The following table summarizes our segment operating income before impairment for goodwill and intangible assets:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal years ended March 31, | | 2016 vs. 2015 | | 2015 vs. 2014 |
| (dollars in millions) | 2016 | 2015 | 2014 | | Amount | Percent | | Amount | Percent |
| Operating income (loss) before impairment: | | | | | | | |
| Celebrity Brands | $ | 54.1 |
| $ | 67.9 |
| $ | 73.3 |
| | $ | (13.8 | ) | (20 | )% | | $ | (5.4 | ) | (7 | )% |
| Men's Active Lifestyle | 13.1 |
| 11.6 |
| 21.0 |
| | 1.6 |
| 13 | % | | (9.4 | ) | (45 | )% |
| Corporate and Other | (41.5 | ) | (66.8 | ) | (51.2 | ) | | 25.3 |
| (38 | )% | | (15.6 | ) | 30 | % |
| Total operating income before impairment | 25.7 |
| 12.7 |
| 43.0 |
| | $ | 13.0 |
| * |
| | $ | (30.3 | ) | (71 | )% |
| Impairment of goodwill and intangible assets | — |
| 18.5 |
| 9.2 |
| | (18.5 | ) | * |
| | 9.2 |
| * |
|
| Total operating income (loss) | $ | 25.7 |
| $ | (5.8 | ) | $ | 33.8 |
| | $ | 31.5 |
| * |
| | $ | (39.6 | ) | * |
|
* - Represents an increase or decrease in excess of 100%.
Total operating income before impairment increased $13.0 million during fiscal 2016 primarily due to the $35.2 million decrease in operating expenses due to the planned expense savings pursuant to the Management Action Plans, partially offset by the $22.1 million decline in operating revenues as mentioned above.
During fiscal 2015, total operating income before impairment decreased $30.3 million primarily due to the $42.2 million decrease in operating revenue previously mentioned, partially offset by the $11.8 million decrease in operating expenses related to the divestiture of our distribution and merchandising company and the planned expense savings pursuant to the Management Action Plans.
There were no impairment charges recorded during fiscal 2016. The pre-tax non-cash impairment charge for goodwill and intangible assets was $18.5 million and $9.2 million, respectively during fiscal 2015 and 2014, and impacted the Men's Active Lifestyle segment goodwill and tradenames. The pre-tax non-cash impairment charges were primarily the result of the near-term advertising revenue shortfall coupled with the continued softness in the print publication industry overall, which resulted in lowered future cash flow projections. See the notes to the consolidated financial statements in this Annual Report, specifically Note 3, "Goodwill and Other Identified Intangible Assets."
Celebrity Brands Segment
The Celebrity Brands segment comprised 74%, 73% and 71% our total operating revenues for fiscal 2016,2015 for fiscal 2014, respectively.
Operating Revenues
Total operating revenues in the Celebrity Brands segment were $164.4 million for fiscal 2016, representing a decrease of $15.5 million, or 9%, over the comparable prior year period. For our continuing publications, total operating revenues declined $10.1 million, or 6%. Circulation revenue declined $14.1 million, or 10%, due to a reduction in the celebrity newsstand market of 12%. This was partially offset by the 11% increase in advertising revenue ($3.0 million) from National Enquirer, OK! and Star, which is counterintuitive to the consumer advertising market, which was down 10%. Total operating revenues were further impacted by the planned discontinuance of our special interest publications ($2.5 million) and the sale of Country Weekly ($2.8 million).
During fiscal 2015, total operating revenues in the Celebrity Brands segment were $179.8 million, representing a decrease of $22.8 million, or 11%, over the comparable prior year period. For our continuing publications, total operating revenues declined $19.2 million, or 10%. Circulation revenue declined $16.6 million, or 10%, due to a reduction in the celebrity newsstand sales primarily due to the industry-wide newsstand distribution disruption, coupled with the 6% decline in advertising revenue ($1.7 million) due to the 11% decline in the consumer magazine sector. Total operating revenues were further impacted by the planned discontinuance of our special interest publications ($0.8 million) and the sale of Country Weekly ($2.5 million).
Operating Income
The Celebrity Brands segment operating income before impairment decreased $13.8 million, or 20%, to $54.1 million during fiscal 2016. This decline was due to the revenue declines previously discussed coupled with an increase in amortization expenses ($11.3 million) related to the reclassification of certain tradenames from indefinite-lived intangibles to finite-lives of 15 years, effective April 1, 2015. These declines are partially offset by the planned reduction in expenses ($13.1 million) pursuant to our Management Action Plans.
Operating income before impairment in the Celebrity Brands segment decreased during fiscal 2015 from prior year by $5.4 million, or 7%, to $67.9 million. This decline was due to the revenue declines mentioned above, partially offset by the planned reduction in expenses ($17.4 million) pursuant to our Management Action Plans.
Men’s Active Lifestyle Segment
The Men’s Active Lifestyle segment represented 25%, 24% and 23% of our consolidated operating revenues for fiscal 2016, 2015 and 2014, respectively.
Operating Revenues
Total operating revenues in the Men’s Active Lifestyle segment were $55.6 million during fiscal 2016, a decrease of $3.6 million, or 6%, over the comparable prior year period. This decline was due to the discontinuance of certain foreign editions of Muscle & Fitness and Flex ($4.9 million) coupled with the decline in print advertising ($1.1 million). These declines were partially offset by the increase in digital advertising revenue ($2.0 million), primarily from Men's Fitness ($1.1 million) and Muscle & Fitness ($0.9 million) due to a 17% and 11% increase in page views, respectively, coupled with the increase in revenue from the Mr. Olympia event ($0.8 million or 12%).
During fiscal 2015, total operating revenues in the Men’s Active Lifestyle segment were $59.2 million, a decrease $7.5 million, or 11%, over the comparable prior year period. The decline in circulation revenue ($2.6 million) and print advertising revenue ($7.1 million) was primarily due to the reduction in the publishing frequency of Muscle & Fitness and Flex, fromtwelve times per year to ten times per year (or two less issues) during fiscal 2015. Print advertising revenue has also been negatively impacted during fiscal 2015 by a major advertiser who shifted their entire advertising budget ($4.0 million) from print to digital and social advertising platform investments outside the Men's Active Lifestyle category. A portion of this advertising business did return to the Men's Active Lifestyle segment during fiscal 2016. These declines were partially offset by the increase in digital advertising revenue ($1.3 million), which is directly attributable to the relaunch and repositioning of Men's Fitness, and the increased revenues from the Mr. Olympia event ($1.3 million, or 26%).
Operating Income
The Men’s Active Lifestyle segment operating income before impairment increased $1.6 million, or 13% to $13.1 million during fiscal 2016. Our planned Management Action Plans reduced expenses by $6.5 million, which was partially offset by an increase in amortization expense ($1.4 million) related to certain tradenames as discussed above coupled with the revenue decline previously mentioned.
Operating income before impairment in the Men’s Active Lifestyle segment declined during fiscal 2015 from the prior year by $9.4 million, or 45%, to $11.6 million. This decline is due to the reasons mentioned above coupled with an increase in amortization expense related to the classification of certain tradenames ($1.5 million).
Corporate and Other Segment
The Corporate and Other segment was 1%, 3% and 6% of our consolidated operating revenues for fiscal 2016, 2015 and 2014, respectively.
Operating Revenues
Total operating revenues in the Corporate and Other segment were $3.1 million during fiscal 2016, a decline of $3.1 million, or 50%, compared to the prior year period, primarily due to the planned reduction in publishing services ($1.3 million) and books publishing ($0.3 million).
During fiscal 2015, total operating revenues in the Corporate and Other segment were $6.1 million, a decrease of $11.9 million, or 66%, from the prior year. This decline was attributable to the divestiture of our distribution and merchandising company in September 2013 ($5.2 million), the timing of the custom video projects for Microsoft ($4.7 million) and the cessation of certain publishing services ($2.3 million).
Operating Loss
Total operating loss before impairment decreased by $25.3 million, or 38%, to $41.5 million during fiscal 2016, compared to the prior year period. This improvement was attributable to the Management Action Plans for employee-related expenses ($11.3 million), as well as reduced wholesaler bad debt expenses ($7.3 million), accounting and legal fees ($1.3 million) and the other non-recurring expenses ($3.5 million), partially offset by the $3.1 million decline in operating revenue previously discussed.
During fiscal 2015, total operating loss before impairment increased by $15.6 million, or 30%, to $66.8 million. This increase was attributable to the $11.9 million decline in operating revenue coupled with a $3.6 million increase in operating expenses. Operating expenses increased primarily due to the bad debt expense related to the wholesaler shutdowns ($3.3 million) and the costs incurred for the Merger and other related transactions ($3.4 million), coupled with the timing of the gains on insurance settlement recognized in the prior comparable period ($1.4 million). These expense increases were partially offset by the $5.2 million decrease in operating expenses related to the divestiture of our distribution and merchandising business.
LIQUIDITY AND CAPITAL RESOURCES
Management’s Assessment of Liquidity
Our operations have historically generated positive net cash flow from operating activities. Our primary sources of liquidity are cash on hand, cash generated from operations, amounts available under our revolving credit facility (the "Revolving Credit Facility") and cash interest savings from our recent debt initiatives.
Our principal uses of cash that affect our liquidity include operational expenditures and debt service costs, including interest payments on and repurchases of our senior secured notes. In addition to the dispositions discussed elsewhere, we expect to continue to evaluate possible acquisitions and dispositions of certain businesses. These transactions, if consummated, could be material and may involve cash or the issuance of additional senior secured notes.
As of March 31, 2016, the Company had $1.4 million of cash, $15.4 million available pursuant to the Revolving Credit Facility and a working capital deficit of $32.7 million, of which approximately $26.6 million relates to deferred revenues. In February 2016, we amended our Revolving Credit Facility to, among other things, extend the maturity date to June 2017 and modify the financial covenants in effect through the date of maturity.
In addition to outstanding borrowings under the Revolving Credit Facility, as of March 31, 2016, there was $378.7 million principal amount of outstanding senior secured debt. Over the next year, the cash interest payments due under these debt agreements are approximately $40.2 million and there are no scheduled principal payments due.
We expect that our current cash balances, cash generated from operating activities, availability under our Revolving Credit Facility, as amended, and the cash interest savings from the recent debt initiatives should be sufficient to meet working capital, capital expenditures, debt service and other cash needs for the next year.
Our level of indebtedness could have important consequences for the business and operations. See Item 1A, "Risk Factors" included in this Annual Report, specifically, "Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and result of operations."
Wholesaler Transition
Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operation during 2014. Since then we have transitioned the previous wholesalers' newsstand distribution (approximately 25% of the market) to the two remaining major wholesalers. This transition had an immediate adverse impact on single copy newsstand sales and liquidity during fiscal 2015 and into the first half of fiscal 2016. We are beginning to see a stabilization in the newsstand sales, and the wholesale supply chain currently and primarily consists of two private companies, owned by billionaires, that have been in the business for decades.
There can be no assurances that our revenue will not be temporarily or permanently reduced if consumers at the impacted retailers do not resume purchasing our publications at the same rate or quantities previously purchased. See Item 1A, "Risk Factors" included in this Annual Report, specifically, "Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations."
Cash Flow Summary
The following information has been derived from the accompanying consolidated financial statements for fiscal 2016, 2015 and 2014. Cash and cash equivalents decreased by $2.1 million during fiscal 2016 and increased $0.4 million during fiscal 2015. The change in cash and cash equivalents is as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | Fiscal years ended March 31, | | Net Change |
| (in millions) | | 2016 | 2015 | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Net income (loss) | | $ | 18.0 |
| $ | (25.9 | ) | $ | (53.3 | ) | | $ | 43.9 |
| | $ | 27.4 |
|
| Non-cash items | | 1.0 |
| 32.0 |
| 72.4 |
| | (30.9 | ) | | (40.5 | ) |
| Net change in operating assets and liabilities | | (15.5 | ) | 6.6 |
| (9.4 | ) | | (22.2 | ) | | 16.0 |
|
| Operating activities | | 3.5 |
| 12.7 |
| 9.8 |
| | (9.2 | ) | | 2.9 |
|
| Investing activities | | (2.7 | ) | 55.7 |
| (18.8 | ) | | (58.3 | ) | | 74.5 |
|
| Financing activities | | (2.6 | ) | (67.2 | ) | 9.5 |
| | 64.6 |
| | (76.7 | ) |
| Effects of exchange rates | | (0.3 | ) | (0.8 | ) | 0.2 |
| | 0.5 |
| | (1.0 | ) |
| Net (decrease) increase in cash and cash equivalents | | $ | (2.1 | ) | $ | 0.4 |
| $ | 0.7 |
| | $ | (2.5 | ) | | $ | (0.3 | ) |
Operating Activities
Cash provided by operating activities is primarily driven by our non-cash items, changes in working capital and the impact of our results of operations. Non-cash items consist primarily of the provision (benefit) for deferred income taxes, depreciation and amortization, amortization of deferred financing costs and deferred rack costs and provisions for doubtful accounts.
Net cash provided by operating activities was $3.5 million and $12.7 million during fiscal 2016 and 2015, respectively, a decline of $9.2 million, primarily due to the $30.9 million net decrease in non-cash items coupled with the $22.2 million net change in operating assets and liabilities, partially offset by the $43.9 million increase in our results of operations.
Non-cash items decreased primarily due to the decrease in impairment of goodwill and intangible assets of $18.5 million, the decrease in provision for doubtful accounts of $8.7 million, the decrease in non-cash payment-in-kind interest accretion of $4.8 million for certain senior secured notes, the increase in benefit for income taxes of $3.9 million and the decrease in the loss on sale of assets of $2.5 million, partially offset by the increase in depreciation and amortization of $11.6 million.
The net change in operating assets and liabilities is primarily due to the $35.6 million net change in accounts payable and accrued expenses,
the $10.3 million net change in inventories resulting from our agreement to outsource paper purchases and the $4.3 million net change in prepaid expenses, partially offset by the $20.6 million net change in trade receivables, the net change in deferred revenue of $3.8 million, the net change in accrued interest of $3.4 million and the net change in deferred rack costs of $2.7 million.
Net cash provided by operating activities increased $2.9 million during fiscal 2015 as compared to fiscal 2014, primarily due to the $27.4 million increase in our results of operations coupled with the $16.0 million net change in operating assets and liabilities, partially offset by the $40.5 million net increase in non-cash items.
Non-cash items decreased primarily due to the decrease in provision for income taxes of $64.7 million, partially offset by the impairment of goodwill and intangible assets of $9.2 million, the increase in provision for doubtful accounts of $3.4 million, the loss on sale of assets of $2.5 million, the increase in non-cash payment-in-kind interest accretion of $2.9 million for certain senior secured notes and the net decrease in amortization of deferred rack and deferred financing costs of $1.6 million.
The net change in operating assets and liabilities is primarily due to the $7.6 million net change in inventories resulting from our agreement to outsource paper purchases, the $6.7 million net change in prepaid expenses, the $3.6 million net change in accounts payable and accrued expenses, the $3.4 million net change in trade receivables, partially offset by the net change in deferred revenue of $2.7 million and the net change in accrued interest of $2.2 million.
Investing activities
Net cash used in investing activities was $2.7 million for fiscal 2016, a decrease of $58.3 million, compared to $55.7 million of net cash provided by investing activities for fiscal 2015. The decrease is primarily attributable to the $63.0 million decrease in proceeds from the sale of assets and the $2.6 million decrease in proceeds from affiliates, partially offset by the $7.2 million decrease in purchases of property and equipment and intangibles assets.
Net cash provided by investing activities was $55.7 million for fiscal 2015, an increase of $74.5 million compared to $18.8 million of net cash used in investing activities for fiscal 2014. The increase is primarily attributable to the $63.0 million in proceeds from the sale of assets and the $2.6 million in proceeds from affiliates coupled with the $2.5 million decrease in investment in affiliates plus the $6.2 million decrease in purchases of property and equipment and intangible assets.
Financing activities
Net cash used in financing activities for fiscal 2016 was $2.6 million, a decrease of $64.6 million, compared to $67.2 million of net cash used in financing activities for fiscal 2015. The decrease is primarily attributable to the $53.7 million decrease in repurchases of certain senior secured notes, the $14.8 million decrease in net borrowings under the Revolving Credit Facility and the $4.3 million decrease in costs incurred in the restructuring, partially offset by the $5.5 million decrease in proceeds from the issuance of certain senior secured notes and the $2.3 million increase in deferred financing costs.
Net cash used in financing activities for fiscal 2015 was $67.2 million, an increase of $76.7 million, compared to $9.5 million of net cash provided by financing activities for fiscal 2014. The increase is primarily attributable to the $55.8 million increase in repurchases of certain senior secured notes, the $31.3 million decrease in net borrowings under the Revolving Credit Facility, partially offset by the $12.5 million in proceeds from the issuance of certain senior secured notes and the $4.0 million decrease in payments for the redemption of Odyssey preferred stock.
Revolving Credit Facility and Senior Secured Notes
Revolving Credit Facility
We maintain a revolving credit facility that provides for borrowing up to $35.0 million, less outstanding letters of credit, which matures in June 2017 (the "Revolving Credit Facility"). The Investors became a lending party to the Revolving Credit Facility during fiscal 2015 and represent a commitment of approximately 42% of the Revolving Credit Facility. See "Revolving Credit Facility Amendments" below for additional historical information.
We have the option to pay interest based on (i) a floating base rate option equal to the greatest of (x) the prime rate in effect on such day; (y) the federal funds effective rate in effect on such day plus ½ of 1%; and (z) one month LIBOR (but no less than 2%) plus 1%, or (ii) LIBOR, in each case, plus a margin. The interest rate under the Revolving Credit Facility has ranged from 8.00% to 8.50% during the fiscal year ended March 31, 2016 and 2015. In addition, the Company is required to pay a commitment fee ranging from 0.50% to 0.75% on the unused portion of the revolving commitment. Commitment fees paid during fiscal 2016, 2015 and 2014 were insignificant.
During fiscal 2016, we borrowed $72.7 million and repaid $72.2 million under the Revolving Credit Facility. At March 31, 2016, the available borrowing capacity is $15.4 million, after considering the $15.2 million outstanding balance and the $4.4 million outstanding letter of credit. The Revolving Credit Facility is included in non-current liabilities in the accompanying consolidated financial statements based on the June 2017 maturity date.
The indebtedness under the Revolving Credit Facility is guaranteed by certain of the domestic subsidiaries of the Company and is secured by liens on substantially all the assets of the Company and certain of its domestic subsidiaries. In addition, the Company’s obligations are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of the Company's existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of its existing or subsequently acquired or organized foreign subsidiaries.
Covenants
The Revolving Credit Facility includes certain representations and warranties, conditions precedent, affirmative covenants, negative covenants and events of default. The negative covenants include financial maintenance covenants comprised of a first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. The Revolving Credit Facility also contains certain covenants that, subject to certain exceptions, restrict paying dividends, incurring additional indebtedness, creating liens, making acquisitions or other investments, entering into certain mergers or consolidations and selling or otherwise disposing of assets. With respect to the dividend restrictions, there is a cap on the total amount of cash available for distribution to our common stockholders.
With regard to the financial maintenance covenants, the first lien leverage ratio covenant must be equal to or less than 3.50 to 1.00 from January 1, 2016 through June 2017. The consolidated leverage ratio covenant must be equal to or less than 5.50 to 1.00 from October 1, 2015 through June 2017. The interest coverage ratio must be equal to or greater than 1.50 to 1.00 from January 1, 2016 through June 2017.
As of March 31, 2016, the Company was in compliance with the covenants under the Revolving Credit Facility.
Although there can be no assurances, management believes that, based on current projections (including projected borrowings and repayments under the Revolving Credit Facility), its operating results for fiscal 2017 will be sufficient to satisfy the financial covenants under the Revolving Credit Facility. The Company’s ability to satisfy the financial covenants is dependent on the business performing in accordance with its projections. If the performance of the Company’s business deviates significantly from its projections, the Company may not be able to satisfy such financial covenants. The Company's projections are subject to a number of factors, many of which are events beyond its control, which could cause its actual results to differ materially from its projections. If the Company does not comply with its financial covenants, the Company will be in default under the Revolving Credit Facility.
Revolving Credit Facility Amendments
In December 2010, we entered into a revolving credit facility with an original maturity date of December 2015 with a commitment for borrowing up to $40.0 million, less outstanding letters of credit. In February 2015, we amended and restated the revolving credit facility to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.
In February 2016, the Company, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into the first amendment to the Revolving Credit Facility with the lenders (the “Consenting Lenders”) constituting the Required Lenders (as defined in the Revolving Credit Facility) to, among other things, extend the maturity date to June 2017, modify the financial covenants in effect through the date of maturity, and provide for certain other provisions.
With regard to the financial covenants, the first lien leverage ratio covenant must be equal to or less than 4.25 to 1.00 from January 1, 2016 through June 2017, provided that the first lien leverage ratio covenant will be lowered to 4.00 to 1.00 if the outstanding aggregate principal amount of the Company's first lien notes is less than $250 million. The consolidated leverage ratio covenant must be equal to or less than 5.25 to 1.00 from January 1, 2016 through June 2017, provided that the consolidated leverage ratio covenant will be lowered to 5.00 to 1.00 if the outstanding principal amount of the Company's first lien notes is less than $250 million. The interest coverage ratio was not amended and must be equal to or greater than 1.50 to 1.00 from January 1, 2016 through June 2017.
In March 2016, the Company, the Administrative Agent and the lenders from time to time party to the Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into the second amendment to the Revolving Credit Facility with the Consenting Lenders constituting the Required Lenders to, among other things, allow for the issuance of additional indebtedness, modify the financial covenants in effect through the date of maturity, and provide for certain other provisions.
With regard to the financial covenants, the first lien leverage ratio covenant must be equal to or less than 3.50 to 1.00 from January 1, 2016 through June 2017 and the provision to lower the first lien leverage ratio based on the outstanding aggregate principal amount of the Company's first lien notes was removed in its entirety. The consolidated leverage ratio must be equal to or less than 5.50 to 1.00 from January 1, 2016 through June 2017 and the provision to lower the consolidated leverage ratio based on the outstanding aggregate principal amount of the Company's first lien notes was removed in its entirety. The interest coverage ratio was not amended and must be equal to or greater than 1.50 to 1.00 from January 1, 2016 through June 2017.
Senior Secured Notes
Our senior secured notes may be comprised of the first lien notes, the second lien notes, the new second lien notes and the second lien PIK notes and are collectively referred to herein as the "Senior Secured Notes." See "Supplemental Indentures" below for a discussion of the amendments to the indentures governing the Senior Secured Notes.
First Lien Notes
In December 2010, we issued $385.0 million aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum, payable semi-annually, and mature in December 2017 (the "First Lien Notes").
During fiscal 2012, we redeemed $20.0 million in aggregate principal amount of First Lien Notes. During fiscal 2014, we repurchased approximately $2.3 million in aggregate principal amount of First Lien Notes in the open market, from the Investors. During fiscal 2015, we repurchased $55.5 million in aggregate principal amount of First Lien Notes in the open market, from the Investors. We also exchanged $32.0 million in aggregate principal amount of First Lien Notes held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement.
During fiscal 2016, we repurchased $2.0 million in aggregate principal amount of First Lien Notes, at a price equal to 105.9% of the aggregate principal amount thereof, plus accrued and unpaid interest in the open market, from the Investors. In March 2016, we exchanged approximately $58.9 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors, for approximately $76.0 million in aggregate principal amount of New Second Lien Notes, pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement"), as further described below.
At March 31, 2016, the First Lien Notes represented an aggregate of $214.3 million of our indebtedness.
The First Lien Notes are guaranteed on a first lien senior secured basis by the same subsidiaries of the Company that guarantee the Revolving Credit Facility. The First Lien Notes and the guarantees thereof are secured by a first-priority lien on substantially all our assets (subject to certain permitted liens and exceptions), pari passu with the liens granted under our Revolving Credit Facility, provided that in the event of a foreclosure on the collateral or insolvency proceedings, obligations under our Revolving Credit Facility will be repaid in full with proceeds from the collateral prior to the obligations under the First Lien Notes.
Second Lien Notes
In December 2010, we issued $104.9 million aggregate principal amounts of senior secured notes, which bear interest at a rate of 13.5% per annum, payable semi-annually, and mature in June 2018 (the "Second Lien Notes").
During fiscal 2014, we exchanged approximately $94.3 million aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 10.0% per annum, are payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”). See "Second Lien PIK Notes" below. During fiscal 2015, we repurchased approximately $0.6 million in aggregate principal amount of Second Lien Notes in the open market, from the Investors and exchanged approximately $7.8 million aggregate principal amount of Second Lien Notes for equity interests in the Parent pursuant to the debt for equity exchange agreement (as discussed below).
During fiscal 2016, we redeemed the remaining $2.2 million in aggregate principal amount of Second Lien Notes at a price equal to 103.4% of the aggregate principal amount thereof, plus accrued and unpaid interest. Upon the full satisfaction and cancellation of all outstanding Second Lien Notes, the collateral agreement securing the Second Lien Notes was terminated and the obligations of the Company under the Indenture governing the Second Lien Notes were satisfied in full.
The Second Lien Notes were guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Revolving Credit Facility and the First Lien Notes. The Second Lien Notes and the guarantees thereof were secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).
New Second Lien Notes
In January 2015, we issued approximately $39.0 million aggregate principal amount of New Second Lien Notes to the Investors, which bear interest at a rate of 7.0% per annum and mature in July 2020. Interest on the New Second Lien Notes is payable semi-annually on July 15th and January 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months. As described above, the New Second Lien Notes were issued in exchange for $32.0 million aggregate principal amount of First Lien Notes pursuant to an exchange agreement.
The New Second Lien Notes were issued under a new indenture (the “New Second Lien Notes Indenture”), by and among American Media, Inc., certain of its subsidiaries listed as guarantors thereto (the "Guarantors") and Wilmington Trust, National Association, as trustee (the "Trustee"). The New Second Lien Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.
In March 2016, we issued approximately $159.6 million aggregate principal amount of additional New Second Lien Notes (the "Additional New Second Lien Notes"). Approximately $76.0 million in aggregate principal amount of Additional New Second Lien Notes were issued in exchange for approximately $58.9 million in aggregate principal amount of First Lien Notes pursuant to the New Second Lien Notes Exchange Agreement, as described above. Approximately $76.2 million in aggregate principal amount of Additional New Second Lien Notes were issued in a distribution to certain holders of equity interests in the Parent, of which approximately $68.8 million was issued to the Investors and approximately $7.4 million was issued to the Officer, and approximately $7.3 million aggregate principal amount of Additional New Second Lien Notes were issued to an affiliate of the Investors for cash.
The Additional New Second Lien Notes were issued under the existing New Second Lien Indenture through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.
At March 31, 2016, the New Second Lien Notes represented an aggregate of $164.4 million of our indebtedness.
The New Second Lien Notes and the Additional New Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Revolving Credit Facility, the First Lien Notes and the Second Lien Notes. The New Second Lien Notes and the Additional New Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).
Second Lien PIK Notes
During fiscal 2014, we issued approximately $94.3 million aggregate principal amount of Second Lien PIK Notes in exchange for an equal aggregate principal amount of Second Lien Notes, pursuant to an exchange agreement (the "Second Lien PIK Notes Exchange Agreement"). The Second Lien PIK Notes were issued under an indenture (the "Second Lien PIK Notes Indenture"), by and among American Media, Inc., the Guarantors and Trustee.
During fiscal 2015, in connection with the Merger Agreement, we issued approximately $12.3 million in aggregate principal amount of additional Second Lien PIK Notes (the "Additional Second Lien PIK Notes"). The Additional Second Lien PIK Notes were issued under the Second Lien PIK Notes Indenture, were assigned the same CUSIP number as the outstanding Second Lien PIK Notes and were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.
The Second Lien PIK Notes were payable in kind at a rate of 10% per annum which totaled $4.8 million and $1.9 million, during fiscal 2015 and 2014, respectively, and was recorded as an increase to the aggregate principal amount of Second Lien PIK Notes outstanding.
In September 2014, pursuant to the debt for equity exchange agreement with the Parent and the Investors, the Investors exchanged approximately $113.3 million aggregate principal amount of Second Lien PIK Notes, plus accrued and unpaid interest, which represented all of the outstanding Second Lien PIK Notes, for equity interests in the Parent. Upon the cancellation of all outstanding Second Lien PIK Notes, the collateral agreement securing the Second Lien PIK Notes was terminated and the obligations of the Company under the Second Lien PIK Notes Indenture were satisfied in full and the discharge thereof was acknowledged by the Trustee.
Debt for Equity Conversion
In September 2014, AMI entered into the debt for equity exchange agreement with the Parent and the Investors, pursuant to which the Investors converted approximately $7.8 million aggregate principal amount of Second Lien Notes and all $113.3 million aggregate principal amount of Second Lien PIK Notes into equity interests in the Parent (the “Conversion”). The Conversion also included the accrued and unpaid interest since the last semi-annual interest payment on June 15, 2014, totaling approximately $2.9 million.
Supplemental Indentures
In August 2014, AMI received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among AMI, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among AMI, the Guarantors and the Trustee and (c) $101 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the applicable notes then outstanding.
As a result of receiving the requisite consents, in August 2014, AMI and the Trustee entered into (a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”) to the Second Lien PIK Notes Indenture.
The Supplemental Indentures amend the Indentures to (a) permit the transactions contemplated by the Merger Agreement including amending the definition of “Change of Control” and permitting the issuance of the Additional Second Lien PIK Notes pursuant to the Second Lien PIK Notes Indenture; and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate AMI’s obligation to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.
In January 2015, we entered into a supplemental indenture (the “2015 Supplemental Indenture”) by and between the Company and Wilmington Trust, National Association, as successor by merger to Wilmington Trust FSB, as trustee and collateral agent (collectively, the “Existing Second Lien Trustee”), to an indenture, dated as of December 22, 2010, by and among the Company, the guarantors party thereto and the Existing Second Lien Trustee (as amended, supplemented or otherwise modified through the date of amendment, the “Existing Second Lien Indenture”). The 2015 Supplemental Indenture contemplates, among other things, the exchange of First Lien Notes for the New Second Lien Notes.
In March 2016, the Company received consents from the holders of (a) $266.1 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among the Company, the Guarantors and the Trustee and (b) $39.0 million principal amount of the outstanding New Second Lien Notes to amend the indenture dated as of January 20, 2015 (as such agreement may be amended, restated or supplemented, the “New Second Lien Notes Indenture” and, together with the First Lien Notes Indenture, the “Indentures”), among the Company, the Guarantors and the Trustee, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the Senior Secured Notes then outstanding.
As a result of receiving the requisite consents, in March 2016, the Company and the Trustee entered into (a) the Fifth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture and (b) the First Supplemental Indenture (the “New Second Lien Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture, the “Supplemental Indentures”). The Supplemental Indentures amend the First Lien Indenture and the New Second Lien Indenture, as applicable, to, among other things, permit the issuance of the Additional New Second Lien Notes.
The Indentures governing the Senior Secured Notes contain certain affirmative covenants, negative covenants and events of default. For example, the Indentures governing the Senior Secured Notes contain covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the Indentures governing the Senior Secured Notes impose certain requirements as to future subsidiary guarantors.
As of March 31, 2016, the Company was in compliance with all of the covenants under the indentures governing the Senior Secured Notes.
Covenant Compliance
As discussed above, our Revolving Credit Facility and the indentures governing the Senior Secured Notes contain various restrictive covenants. With regard to our Revolving Credit Facility, the financial covenants are comprised of a first lien leverage ratio, a consolidated leverage rate and an interest coverage ratio.
The first lien leverage ratio covenant is calculated as the Total First Lien Debt to Consolidated EBITDA (each as defined in the Revolving Credit Facility) and must be equal to or less than 3.50 to 1.00 from January 1, 2016 through June 2017, the maturity date of the Revolving Credit Facility. The consolidated leverage ratio covenant is calculated as the Total Debt to Consolidated EBITDA (each as defined in the Revolving Credit Facility) and must be equal to or less than 5.50 to 1.00 from January 1, 2016 through June 2017, the maturity date of the Revolving Credit Facility. The interest coverage ratio covenant is calculated as the Consolidated EBITDA to Cash Interest Expense (each as defined in the Revolving Credit Facility) and must be equal to or greater than 1.50 to 1.00 from January 1, 2016 through June 2017, maturity date of the Revolving Credit Facility.
As of March 31, 2016, the first lien leverage ratio was 3.05 to 1.00, the consolidated leverage ratio was 5.23 to 1.00 and the interest coverage ratio was 2.06 to 1.00 and the Company was in compliance with the covenants under the Revolving Credit Facility and the indentures governing the Senior Second Notes.
Although there can be no assurances, management believes that, based on current expectations (including projected borrowings and repayments under the Revolving Credit Facility and our recent debt initiatives), our operating results for the next twelve months will be sufficient to satisfy the financial covenants under the Revolving Credit Facility. Our ability to satisfy such financial covenant is dependent on our business performing in accordance with our projections. If the performance of our business deviates from our projections, we may not be able to satisfy such financial covenants. Our projections are subject to a number of factors, many of which are events beyond our control, which could cause our actual results to differ materially from our projections (see "Risk Factors" included in Part I, Item 1A of this Annual Report). If we do not comply with our financial covenants, we would be in default under the Revolving Credit Facility, which could result in all our debt being accelerated due to cross-default provisions in the indentures governing the Senior Secured Notes.
We have the ability to incur additional debt, subject to limitations imposed by our Revolving Credit Facility and the indentures governing the Senior Secured Notes. Under our Revolving Credit Facility and the indentures governing the Senior Secured Notes, in addition to specified permitted indebtedness, we will be able to incur additional indebtedness as long as on a pro forma basis our consolidated leverage ratio is less than 5.50 to 1.00.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
Adjusted EBITDA, a measure we use to gauge our operating performance, is defined as net income (loss) attributable to the Company plus interest expense, provision (benefit) for income taxes, depreciation and amortization, provision for impairment of intangible assets and goodwill, deferred financing costs and deferred rack costs, adjusted for merger and related transaction(s) costs, restructuring costs and severance, costs related to launches, re-launches or closures of publications and certain other costs. We believe that the inclusion of Adjusted EBITDA is appropriate to evaluate our operating performance compared to our operating plans and/or prior years and to value prospective acquisitions. We also believe that Adjusted EBITDA is helpful in highlighting trends because Adjusted EBITDA excludes the impact of certain items that can differ significantly from company to company, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.
Management believes our investors use Adjusted EBITDA as a gauge to measure the performance of their investment in the Company. Management compensates for limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone can provide. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to income from continuing operations as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
Set forth below is a reconciliation of net income (loss) attributable to American Media, Inc. and subsidiaries to Adjusted EBITDA for fiscal 2016, 2015 and 2014:
|
| | | | | | | | | | | |
| | Fiscal years ended March 31, |
| (in millions) | 2016 | | 2015 | | 2014 |
| Net income (loss) attributable to American Media, Inc. and subsidiaries | $ | 17.0 |
| | $ | (27.1 | ) | | $ | (54.3 | ) |
| Add (deduct): | | | | | |
| Interest expense | 39.7 |
| | 50.8 |
| | 58.4 |
|
| Provision (benefit) for income taxes | (36.0 | ) | | (31.3 | ) | | 33.3 |
|
| Depreciation and amortization | 26.5 |
| | 14.9 |
| | 14.2 |
|
| Impairment of goodwill and intangible assets | — |
| | 18.5 |
| | 9.2 |
|
| Amortization of deferred financing costs | 4.0 |
| | 4.0 |
| | 1.7 |
|
| Amortization of deferred rack costs | 5.0 |
| | 5.9 |
| | 6.6 |
|
| Amortization of short-term racks | 8.0 |
| | 8.6 |
| | 8.6 |
|
| Imputed interest on national distributor advances | 2.5 |
| | — |
| | — |
|
| Merger and related transaction(s) costs | — |
| | 4.8 |
| | — |
|
| Restructuring costs and severance | 5.8 |
| | 7.1 |
| | 2.8 |
|
| Loss on sale of publications | — |
| | 2.5 |
| | — |
|
| Costs related to launches and closures of publications | 0.8 |
| | 1.3 |
| | 2.7 |
|
| Costs related to relaunch of publications | — |
| | — |
| | 0.2 |
|
| Restructuring costs related to divestiture of DSI | — |
| | — |
| | 2.8 |
|
| Adjustment for net losses of DSI | — |
| | — |
| | 2.7 |
|
| AMI share of bad debt related to wholesaler shutdowns | 0.7 |
| | 8.4 |
| | 5.1 |
|
| Investment in new digital strategy | — |
| | — |
| | 4.0 |
|
| Pro forma adjustment related to investment in affiliates | — |
| | 0.3 |
| | 1.5 |
|
| Impact of Superstorm Sandy | — |
| | — |
| | 0.2 |
|
| Other | 5.0 |
| | 5.9 |
| | 5.1 |
|
| Adjusted EBITDA | $ | 78.9 |
| | $ | 74.4 |
| | $ | 104.5 |
|
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The following table summarizes our principal contractual obligations as of March 31, 2016:
|
| | | | | | | | | | | | | | | |
| | | Payments due by period |
| | | Less than | 1-3 | 4-5 | After 5 |
| (in millions) | Total | 1 Year | Years | Years | Years |
| Long-term debt (1) | $ | 428.1 |
| $ | — |
| $ | 229.5 |
| $ | 198.6 |
| $ | — |
|
| Debt interest (2) | 103.7 |
| 40.2 |
| 45.6 |
| 18.0 |
| — |
|
| Mr. Olympia, LLC put option (3) | 3.0 |
| 3.0 |
| — |
| — |
| — |
|
| Long-term agreements (4) | 195.4 |
| 31.6 |
| 63.6 |
| 53.6 |
| 46.6 |
|
| Operating lease obligations | 21.0 |
| 2.9 |
| 6.2 |
| 6.2 |
| 5.6 |
|
| Consulting agreements (5) | 29.1 |
| 7.0 |
| 12.3 |
| 9.9 |
| — |
|
| Total contractual cash obligations (6) | $ | 780.2 |
| $ | 84.7 |
| $ | 357.2 |
| $ | 286.3 |
| $ | 52.1 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | Salary | (1)
Bonus | (2)
Stock Awards | (3)
Non-Equity Incentive Plan Compensation | (4)
All Other Compensation | Total |
| David J. Pecker, Chairman, Chief Executive Officer and President | 2016 | $ | 1,750,000 |
| $ | 1,312,500 |
| $ | — |
| $ | — |
| $ | 124,792 |
| $ | 3,187,292 |
|
| 2015 | $ | 1,750,000 |
| $ | — |
| $ | 548 |
| $ | — |
| $ | 2,648,954 |
| $ | 4,399,502 |
|
| 2014 | $ | 1,750,000 |
| $ | 875,000 |
| $ | — |
| $ | — |
| $ | 31,616 |
| $ | 2,656,616 |
|
| | | | | | | | |
| Christopher V. Polimeni, Executive Vice President, Chief Financial Officer and Treasurer | 2016 | $ | 500,000 |
| $ | 262,500 |
| $ | — |
| $ | — |
| $ | 113,000 |
| $ | 875,500 |
|
| 2015 | $ | 500,000 |
| $ | — |
| $ | 5,124 |
| $ | — |
| $ | 2,250,000 |
| $ | 2,755,124 |
|
| 2014 | $ | 400,000 |
| $ | 175,000 |
| $ | — |
| $ | — |
| $ | 77,424 |
| $ | 652,424 |
|
| | | | | | | | |
| Brian Kroski, Senior Vice President and Chief Digital Officer (5) | 2016 | $ | 350,000 |
| $ | — |
| $ | — |
| $ | 150,000 |
| $ | 130,000 |
| $ | 630,000 |
|
| | | | | | | |
| | | | | | | | |
| Kevin Hyson, Executive Vice President and Chief Marketing Officer | 2016 | $ | 325,000 |
| $ | 150,000 |
| $ | — |
| $ | — |
| $ | 31,016 |
| $ | 506,016 |
|
| 2015 | $ | 325,000 |
| $ | 150,000 |
| $ | — |
| $ | — |
| $ | 97,462 |
| $ | 572,462 |
|
| 2014 | $ | 325,000 |
| $ | 150,000 |
| $ | — |
| $ | — |
| $ | 30,000 |
| $ | 505,000 |
|
| | | | | | | | |
| David Bonnett, Executive Vice President and Chief Information Officer | 2016 | $ | 310,000 |
| $ | 125,000 |
| $ | — |
| $ | — |
| $ | 48,000 |
| $ | 483,000 |
|
| 2015 | $ | 310,000 |
| $ | 100,000 |
| $ | — |
| $ | — |
| $ | 118,845 |
| $ | 528,845 |
|
| 2014 | $ | 310,000 |
| $ | 100,000 |
| $ | — |
| $ | — |
| $ | 32,424 |
| $ | 442,424 |
|
|
| | |
| (1) | | Includes principal payments onRepresents annual discretionary bonus as determined in the Revolving Credit Facilitysole discretion of the Chief Executive Officer and Senior Secured Notes. Excludes the original issue discount onBoard, except with respect to the New Second Lien Notes totaling approximately $34.1 million. SeeChief Executive Officer's bonus which was determined solely by the notes to consolidated financial statements in this Annual Report, specifically Notes 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes," for further discussion of long-term debt.Board. |
| (2) | | Includes interest payments on both fixedThe stock awards column reports the aggregate grant date fair value of the restricted stock awards granted to Named Executive Officers. The aggregate grant date fair value is computed in accordance with Accounting Standards Codification Topic 718, disregarding estimates for forfeitures, and variable rate obligations and the commitment feeis based on the unused portionestimated fair value of the Revolving Credit Facility. The interest to be paidAmerican Media, Inc.'s common stock on the variable rate obligation is affected by changes indate of grant. See Note 14, “Capital Structure - Equity Incentive Plan” to our applicable borrowing rate. Excludes the interest expense related to the amortization of the original issue discount on the New Second Lien Notes. See the notes to consolidated financial statements included in this Annual Report, specifically Note 4, "Revolving Credit Facility"the Original Form 10-K. In connection with the Merger, the Parent acquired 100% of the issued and Note 5, "Senior Secured Notes," for further discussion.outstanding shares of common stock of AMI, including the restricted shares awarded under the Equity Incentive Plan. As a result, the stock awards granted during fiscal 2015 are no longer outstanding. |
| (3) | | See notes to consolidated financial statementsRepresents annual cash incentive payments earned by participating individuals based on their position in the Company and the achievement of certain performance measures as discussed in the Compensation Discussion and Analysis section of this Annual Report, specifically Note 9, "Investments in Affiliates and Redeemable Noncontrolling Interests," for a further discussion of the put option as it relates to Mr. Olympia, LLC.Item 11. Executive Compensation. |
| (4) | | See notesAmounts under the “All Other Compensation” column consist, as indicated in the following table, with respect to consolidatedMessrs. Pecker, Polimeni, Kroski, Hyson and Bonnett, one-time incentive payments. In addition, with respect to Mr. Pecker, payments of financial statements in this Annual Report, specifically Note 11, "Commitmentsmanagement and Contingencies,"other services are included, with respect to Mr. Kroski, payments of commissions are included and with respect to Mr. Hyson payments for a further discussion of the long-term agreements related to the circulation of publications. Certain contracts require pricing adjustments based on the Consumer Price Index. |
(5) | | See notes to consolidated financial statements in this Annual Report, specifically Note 11, "Commitments and Contingencies," for a further discussion of the consulting agreements with unrelated third parties to assist with the marketing of our brands. |
(6) | | The timing of future cash flows related to tax liabilities of $0.2 million cannot be reasonably estimated.housing allowance are included. |
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.
Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.
OFF-BALANCE SHEET FINANCING
We do not have any off-balance sheet financing arrangements.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). Preparing financial statements requires management to make estimates, judgments and assumptions regarding uncertainties that may affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates on an on-going basis, including those related to revenue, trade receivables and allowance for doubtful accounts, goodwill and other intangible assets, income taxes and contingent liabilities.
We base our estimates, judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates, judgments and assumptions used in preparing our consolidated financial statements.
Critical accounting policies are those that are both most important to the portrayal of a company’s financial position and results of operations, and require management’s most difficult, subjective or complex judgments. The following accounting policies and estimates are those that management deems most critical. For a complete listing of our significant accounting policies, see Note 2, "Summary of Significant Accounting Policies" to the consolidated financial statements included in Item 8 of this Annual Report.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances. Allowances for uncollectible receivables are estimated based upon a combination of write-off history, aging analysis and any specifically identified troubled accounts.
Newsstand revenues are recognized based on the on-sale dates of magazines and are initially recorded based upon estimates of sales, net of brokerage, returns and estimates of newsstand related fees. Estimated returns are recorded based upon historical experience.
Print advertising revenues are recorded based on the on-sale dates of magazines when the advertisement appears in the magazine and are stated net of agency commissions and cash and sales discounts. Digital advertising revenues on the Company's websites are generally based on the sale of impression-based advertisements, which are recorded in the period in which the advertisements are served.
Other revenues, primarily from licensing opportunities and strategic partnerships for our branded products as well as marketing services performed for third parties by DSI, are recognized when the service is performed.
Goodwill and Intangible Assets
The Company's goodwill and related indefinite-lived intangible assets are tested for impairment on an annual basis, on the first day of the fourth fiscal quarter or more often if an event occurs or circumstances change that would indicate a potential impairment exists. Impairment losses, if any, are reflected in operating income or loss in the consolidated financial statements. The Company's reporting units consist of each of its publications and other consolidated subsidiaries.
The Company reviews finite-lived intangible assets for impairment whenever an event occurs or circumstances change to indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Impairment losses, if any, are reflected in operating income or loss in the consolidated financial statements.
In assessing goodwill and intangible assets for impairment, the Company makes estimates of fair value that are based on its projection of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of income and market approaches to measure fair value. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of the fair value of the reporting units and could materially change the impairment charge related to goodwill and tradenames. For a detailed description of impairment charges, see Note 3, “Goodwill and Other Identified Intangible Assets.”
The Company did not record any impairment charges during fiscal 2016. The Company continues to evaluate goodwill and other identified intangible assets for impairment. Goodwill and other identified intangible assets are material components of the Company's financial statements and impairment charges to the Company's goodwill or other identified intangible assets in future periods could be material to the Company's results of operations.
During an evaluation of goodwill and other identified intangible assets during fiscal 2015 (at September 30, 2014), the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections.
As a result, an interim impairment test of goodwill and other indefinite lived intangible assets was performed during fiscal 2015 for certain reporting units in accordance with FASB Accounting Standards Codification (“ASC”) Topic No. 350, “Goodwill and Other Intangible Assets” (“ASC 350”). Impairment testing for goodwill is a two-step process. The first step compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed to measure the amount of the impairment charge, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill and an impairment charge is recorded for the difference. Impairment testing for indefinite lived intangible assets, consisting of tradenames, compares the fair value of the tradename to the carrying value and an impairment charge is recorded for any excess carrying value over fair value.
The evaluation resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $8.9 million and $8.5 million to reduce the carrying value of goodwill and tradenames, respectively, during fiscal 2015.
As of March 31, 2016, we identified three reporting units with an excess fair value over carrying value of less than 25%. As of March 31, 2016, National Enquirer, Flex and Muscle & Fitness reporting units had goodwill balances of $59.0 million, $5.4 million and $13.4 million, respectively. For all other reporting units, the fair value is substantially in excess of carrying value as of March 31, 2016. While historical performance and current expectations have resulted in fair values of the reporting units in excess of carrying values, if our assumptions are not realized, it is possible that in the future additional impairment charges may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. The Company will continue to monitor the recoverability of its remaining goodwill.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of interim or annual goodwill impairment tests will prove to be accurate predictions of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the aforementioned reporting units may include such items as follows:
A prolonged downturn in the business environment in which the reporting units operate (i.e. circulation and advertising decreases) especially in the markets we serve;
An economic recovery that significantly differs from our assumptions in timing or degree;
Volatility in debt markets resulting in higher discount rates; and
Unexpected regulatory changes for our advertisers.
If our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material.
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever an event occurs or circumstances change to indicate that the carrying amount of such assets may not be fully recoverable. When such factors, events or circumstances indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of undiscounted future cash flows over the remaining lives of the assets to measure recoverability. If the estimated undiscounted cash flows are less than the carrying value of the asset, the loss is measured as the amount by which the carrying value of the asset exceeds fair value computed on a discounted cash flow basis.
The Company did not record any impairment charges for long-lived tangible and intangible assets during fiscal 2016, 2015 and 2014.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The asset and liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The effect on any changes in deferred tax assets and liabilities as a result of a change in tax rates is recognized in income.
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Topic 205 and Topic 360) ("ASU 2014-08") which raises the threshold for disposals to qualify as discontinued operations. Under this new guidance, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (2) an acquired business that is classified as held for sale on the acquisition date. This guidance also requires expanded or new disclosures for discontinued operations, individually material disposals that do not meet the definition of a discontinued operation, an entity's continuing involvement with a discontinued operation following disposal, and retained equity method investments in a discontinued operation. ASU 2014-08 was effective for the Company on April 1, 2015. The adoption of ASU 2014-08 did not have an impact on the consolidated financial position, results of operations or cash flows.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"), which simplifies the presentation of deferred tax assets and deferred tax liabilities. The new guidance no longer requires the presentation of current deferred tax assets and deferred tax liabilities on a classified balance sheet, rather requiring all to be presented as non-current. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company prospectively adopted this guidance in the third quarter of fiscal 2016. As required by this guidance, all deferred tax assets and liabilities are classified as non-current in our consolidated balance sheet as of December 31, 2015, which is a change from our historical presentation wherein certain of our deferred tax assets and liabilities were classified as current and the remainder were classified as non-current. The March 31, 2015 balance sheet has not been retrospectively adjusted. As this guidance impacts presentation only, the adoption of ASU 2015-17 did not have an impact on the results of operations or cash flows.
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern (Topic 205) ("ASU 2014-15"), which establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years ending after December 15, 2016, and interim periods within annual period beginning after December 15, 2016, with early adoption permitted. The Company has not determined the impact the adoption of this guidance will have on the consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) ("ASU 2015-01"), which simplifies the income statement presentation by eliminating the concept of extraordinary items. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidations, Amendments to the Consolidation Analysis (Topic 810) ("ASU 2015-02"), which changes the identification of variable interests, the variable interest characteristic for a limited partnership or similar entity and the primary beneficiary determination all of which are intended to improve the consolidation guidance as well as increase transparency and consistency of financial reporting. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In April 2015, the FASB issued a proposal for a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). Under this proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. As a result of the one-year deferral, ASU 2014-09 will now be effective for the Company on April 1, 2018 using one of two retrospective application methods. The Company has not determined the potential effects on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30) ("ASU 2015-03"), which requires the presentation of debt issuance costs to be reflected as a reduction from the face amount of the related debt, with amortization recorded as interest expense, rather than recording as a deferred asset. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, and requires retrospective application. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial position, results of operations or cash flows, although it will change the financial statement classification of the deferred financing cost. As of March 31, 2016 and 2015, the Company had $8.1 million and $6.4 million of net deferred financing costs, respectively, included on the consolidated balance sheets. Under the new guidance, the net deferred financing costs would offset the carrying amount of the respective debt on the consolidated balance sheets.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) ("ASU 2015-11"), which simplifies the measurement of inventory by requiring certain inventory to be subsequently measured at the lower of cost and net realizable value. The guidance is effective for fiscal years, and interim period within those years, beginning on or after December 15, 2016. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, to clarify that an entity may elect to present debt issuance costs related to a line-of-credit arrangement as an asset, regardless of whether or not there are any outstanding borrowings on the line-of-credit arrangement. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months and disclose certain information about the leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The guidance is effective for fiscal years, and the interim periods within those years, beginning on or after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on the consolidated financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements that are not yet effective will not have a material impact on our financial position, results of operations or cash flows upon adoption.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to certain financial risks in the ordinary course of our business. These risks primarily result from volatility in interest rates, foreign exchange rates, inflation and other general market risks.
Interest Rate Risk
We are exposed to market risk from fluctuations in interest rates. Our primary interest rate risk exposure relates to: (i) the interest rate risk on long-term borrowings, (ii) the impact of interest rate movements on our ability to meet interest expense requirements and comply with financial covenants, and (iii) the impact of interest rate movements on our ability to obtain adequate financing to fund acquisitions, if any.
We generally manage our exposure to interest rate fluctuations through the use of a combination of fixed and variable rate debt. At March 31, 2016, we had $378.7 million outstanding in fixed rate debt. There are no earnings or liquidity risks associated with the Company’s fixed rate debt. Under the Revolving Credit Facility, we have $15.2 million outstanding in variable rate debt at March 31, 2016. The Company is subject to earnings and liquidity risks associated with the variable rate debt.
To date, we have not entered into any derivative financial instruments that are designated as hedges, for the purpose of reducing our exposure to adverse fluctuations in interest rates.
Foreign Currency Exchange Risk
We face exposures to adverse movements in foreign currency exchange rates, as a portion of our revenues, expenses, assets and liabilities are denominated in currencies other than the U.S. dollar, primarily the Canadian dollar, the British pound, and the Euro. These exposures may change over time as our international business practices expand.
We do not believe movements in foreign currencies in which we transact business will significantly affect future net earnings or losses. Foreign currency exchange risk can be quantified by estimating the change in operating revenue resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such an adverse change would not currently have a material impact on our results of operations. However, if our international operations grow, our risk associated with fluctuations in foreign currency exchange rates could increase.
To date, we have not entered into any derivative financial instruments that are designated as hedges, for the purpose of reducing our exposure to adverse fluctuations in foreign currency exchange rates.
Inflationary Risk
We are exposed to fluctuations in operating expenses due to contractual agreements with printers, paper suppliers and wholesale distributors. In addition, we are also exposed to fluctuations in the cost of fuel, paper and postage and certain product placement related costs.
While we do not believe these inflationary risks have had a material effect on our business, financial condition or results of operations, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could have a material impact on our business, financial condition and results of operations.
Item 8. Financial Statements and Supplementary Data.
|
| | | | | | | | | | | | | |
| | | Financial | | | | | |
| Executive and Fiscal Year | | Management | | Housing | | | |
| | Services | | Allowance | | Other | |
| David J. Pecker | | | | | |
| Fiscal 2016 | | $ | 99,084 |
| (a) | $ | — |
| | $ | 25,708 |
| (b) |
| Fiscal 2015 | | $ | — |
| (a) | $ | — |
| | $ | 2,648,954 |
| (b) |
| Fiscal 2014 | | $ | 20,254 |
| (a) | $ | — |
| | $ | 11,362 |
| (b) |
| Christopher V. Polimeni | | | | | |
| Fiscal 2016 | | $ | — |
| | $ | — |
| | $ | 113,000 |
| (c) |
| Fiscal 2015 | | $ | — |
| | $ | — |
| | $ | 2,250,000 |
| (c) |
| Fiscal 2014 | | $ | — |
| | $ | — |
| | $ | 77,424 |
| (c) |
| Brian Kroski | | | | | |
| Fiscal 2016 | | $ | — |
| | $ | — |
| | $ | 130,000 |
| (c) |
| Kevin Hyson | | | | | |
| Fiscal 2016 | | $ | — |
| | $ | 31,016 |
| | $ | — |
| |
| Fiscal 2015 | | $ | — |
| | $ | — |
| | $ | 97,462 |
| (c) |
| Fiscal 2014 | | $ | — |
| | $ | 30,000 |
| | $ | — |
| |
| David Bonnett | | | | | |
| Fiscal 2016 | | $ | — |
| | $ | — |
| | $ | 48,000 |
| (c) |
| Fiscal 2015 | | — |
| | $ | — |
| | 118,845 |
| (c) |
| Fiscal 2014 | | — |
| | $ | — |
| | 32,424 |
| (c) |
|
| | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
| (a) | | Page |
ReportIncludes $39,084, $0 and $8,414 of Independent Registered Public Accounting Firm | |
| | |
Financial Statements | |
| Consolidated Balance Sheets asgross-up in taxes to make the Chief Executive Officer whole to the extent that taxes were imposed on the Chief Executive Officer in respect of March 31, 2016 and 2015
| |
| Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)such financial management benefits for the fiscal years ended March 31,year 2016, 2015 and 2014,
| respectively. |
| (b) | ConsolidatedStatements
| Includes one-time incentive payments of Stockholders' Deficit$14,000 and $2,635,000 for fiscal 2016 and 2015, respectively for the achievement of specific, individual, short-term projects. Also includes $11,708, $13,954 and $11,362 for the reimbursement of country club dues, including $4,950, $7,196 and $5,126 of gross-up taxes to make the Chief Executive Officer whole to the extent that taxes were imposed on the Chief Executive Officer in respect of such benefits for fiscal years ended March 31, 2016, 2015 and 2014, | respectively. |
| (c) | Consolidated Statements of Cash Flows
| Represents one-time incentive payments for the achievement of specific, individual, short-term projects during fiscal years ended March 31, 2016, 2015 and 20142014. Also includes, for Mr. Kroski, $115,000 of commission earned on net collected revenue from the digital properties above certain pre-defined thresholds as set forth in Mr. Kroski's employment agreement. |
|
| Notes to Consolidated Financial Statements
| |
| (5) | | |
Financial Statement Schedule | |
| Schedule II - Valuation and Qualifying AccountsMr. Kroski was not a Named Executive Officer in fiscal 2015 or 2014. As a result, compensation information for thesuch fiscal years ended March 31, 2016, 2015 and 2014
| is not required to be provided in this Summary Compensation Table. |
Grant of Plan Based Awards Table
The following table supplements the disclosures set forth in the column titled Non-Equity Incentive Plan Compensation of the Summary Compensation Table.
|
| | | | | | | | | |
| 2016 Grants of Plan-Based Awards |
| | Estimated future payouts under non-equity incentive plan awards (1) |
| Name | Threshold
($) | Target
($) | Maximum
($) |
| David J. Pecker | $ | — |
| $ | — |
| $ | — |
|
| Christopher V. Polimeni | $ | — |
| $ | — |
| $ | — |
|
| Brian Kroski | $ | — |
| $ | 150,000 |
| $ | 150,000 |
|
| Kevin Hyson | $ | — |
| $ | — |
| $ | — |
|
| David Bonnett | $ | — |
| $ | — |
| $ | — |
|
(1) Payments are made pursuant to the terms set forth in the Named Executive Officer's employment agreement or other employment arrangements. Targets, where applicable, are set by the Company at the beginning of the fiscal year.
the Chief Executive Officer and the Board. In fiscal 2016, 2015 and 2014, the Board and the Compensation Committee, as applicable, exercised its discretion and paid bonuses to the Named Executive Officers.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of American Media, Inc.:
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of American Media, Inc. and subsidiaries (the “Company”) as of March 31, 2016 and 2015, and the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years in the period ended March 31, 2016. Our audits also included the financial statement schedule listed in the Table of Contents at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordanceIn connection with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Boca Raton, Florida
June 29, 2016
AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information) |
| | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
| ASSETS | | | |
| CURRENT ASSETS: | | | |
| Cash and cash equivalents ($1,031 and $880 related to VIEs, respectively) | $ | 1,386 |
| | $ | 3,452 |
|
| Trade receivables, net of allowance for doubtful accounts of $2,319 and $3,281, respectively ($1 and $1 related to VIEs, respectively) | 22,456 |
| | 39,412 |
|
| Inventories ($0 and $95 related to VIEs, respectively) | 1,343 |
| | 873 |
|
| Prepaid expenses and other current assets ($372 and $198 related to VIEs, respectively) | 8,970 |
| | 11,356 |
|
| Total current assets | 34,155 |
| | 55,093 |
|
| PROPERTY AND EQUIPMENT, NET: | | | |
| Leasehold improvements | 3,732 |
| | 3,801 |
|
| Furniture, fixtures and equipment | 21,468 |
| | 43,979 |
|
| Less – accumulated depreciation | (16,488 | ) | | (30,230 | ) |
| Total property and equipment, net ($11 and $25 related to VIEs, respectively) | 8,712 |
| | 17,550 |
|
| OTHER ASSETS: | | | |
| Deferred financing costs, net | 8,129 |
| | 6,383 |
|
| Deferred rack costs, net | 3,284 |
| | 4,824 |
|
| Investments in affiliates | 1,722 |
| | 803 |
|
| Other long-term assets | 2,623 |
| | 3,193 |
|
| Total other assets | 15,758 |
| | 15,203 |
|
| GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS: | | | |
| Goodwill | 153,998 |
| | 153,998 |
|
| Other identified intangibles, net of accumulated amortization of $139,853 and $122,791, respectively ($6,000 related to VIEs) | 209,094 |
| | 224,181 |
|
| Total goodwill and other identified intangible assets, net | 363,092 |
| | 378,179 |
|
| TOTAL ASSETS | $ | 421,717 |
| | $ | 466,025 |
|
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | |
| CURRENT LIABILITIES: | | | |
| Accounts payable ($8 and $43 related to VIEs, respectively) | $ | 10,690 |
| | $ | 15,781 |
|
| Accrued expenses and other liabilities ($12 and $194 related to VIEs, respectively) | 20,147 |
| | 44,015 |
|
| Accrued interest | 9,426 |
| | 10,075 |
|
| Deferred revenues ($850 and $589 related to VIEs, respectively) | 26,610 |
| | 26,734 |
|
| Total current liabilities | 66,873 |
| | 96,605 |
|
| NON-CURRENT LIABILITIES: | | | |
| Senior secured notes, net | 378,718 |
| | 309,569 |
|
| Revolving credit facility | 15,200 |
| | 14,700 |
|
| Other non-current liabilities | 7,035 |
| | 8,352 |
|
| Deferred income taxes | 33,412 |
| | 70,747 |
|
| Total liabilities | 501,238 |
| | 499,973 |
|
| COMMITMENTS AND CONTINGENCIES (see Note 11) |
|
| |
|
|
| Redeemable noncontrolling interests (see Note 9) | 3,000 |
| | 3,000 |
|
| STOCKHOLDERS' DEFICIT: | | | |
| Common stock, $0.0001 par value; 100 shares issued and outstanding as of March 31, 2016 and 2015 | — |
| | — |
|
| Additional paid-in capital | 882,546 |
| | 945,037 |
|
| Accumulated deficit | (964,629 | ) | | (981,593 | ) |
| Accumulated other comprehensive loss | (438 | ) | | (392 | ) |
| Total stockholders' deficit | (82,521 | ) | | (36,948 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 421,717 |
| | $ | 466,025 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
| | | | | | | | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| OPERATING REVENUES: | | | | | |
| Circulation | $ | 142,847 |
| | $ | 166,199 |
| | $ | 187,613 |
|
| Advertising | 68,163 |
| | 67,258 |
| | 72,953 |
|
| Other | 12,031 |
| | 11,723 |
| | 26,780 |
|
| Total operating revenues | 223,041 |
| | 245,180 |
| | 287,346 |
|
| OPERATING EXPENSES: | | | | | |
| Production | 54,296 |
| | 66,088 |
| | 75,664 |
|
| Editorial | 24,896 |
| | 26,804 |
| | 30,870 |
|
| Distribution, circulation and other | 36,193 |
| | 39,010 |
| | 46,023 |
|
| Selling, general and administrative | 55,472 |
| | 86,636 |
| | 78,331 |
|
| Depreciation and amortization | 26,482 |
| | 13,965 |
| | 13,435 |
|
| Impairment of goodwill and intangible assets | — |
| | 18,458 |
| | 9,238 |
|
| Total operating expenses | 197,339 |
| | 250,961 |
| | 253,561 |
|
| OPERATING INCOME (LOSS) | 25,702 |
| | (5,781 | ) | | 33,785 |
|
| OTHER EXPENSES: | | | | | |
| Interest expense | (39,662 | ) | | (50,847 | ) | | (58,355 | ) |
| Amortization of deferred financing costs | (4,026 | ) | | (4,011 | ) | | (1,664 | ) |
| Other income (expenses), net | — |
| | 3,708 |
| | (79 | ) |
| Total other expenses, net | (43,688 | ) | | (51,150 | ) | | (60,098 | ) |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (17,986 | ) | | (56,931 | ) | | (26,313 | ) |
| INCOME TAX PROVISION (BENEFIT) | (35,982 | ) | | (15,689 | ) | | 30,659 |
|
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | 17,996 |
| | (41,242 | ) | | (56,972 | ) |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES | — |
| | 15,334 |
| | 3,701 |
|
| NET INCOME (LOSS) | 17,996 |
| | (25,908 | ) | | (53,271 | ) |
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (1,032 | ) | | (1,219 | ) | | (1,048 | ) |
| NET INCOME (LOSS) ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES | $ | 16,964 |
| | $ | (27,127 | ) | | $ | (54,319 | ) |
| | | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| NET INCOME (LOSS) | $ | 17,996 |
| | $ | (25,908 | ) | | $ | (53,271 | ) |
| Foreign currency translation adjustment | (46 | ) | | (161 | ) | | 108 |
|
| Comprehensive income (loss) | 17,950 |
| | (26,069 | ) | | (53,163 | ) |
| Less: comprehensive income attributable to noncontrolling interests | (1,032 | ) | | (1,219 | ) | | (1,048 | ) |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES | $ | 16,918 |
| | $ | (27,288 | ) | | $ | (54,211 | ) |
The accompanying notes are an integral part of the Consolidated Financial Statements.
AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share information)
|
| | | | | | | | | | | | | | | | | |
| | | | | | Accumulated | |
| | | | Additional | | other | Total |
| | Common stock | paid-in | Accumulated | comprehensive | stockholders' |
| | Shares | Total | capital | deficit | income (loss) | deficit |
| Balances, March 31, 2013 | 10,000,000 |
| $ | 1 |
| $ | 822,723 |
| $ | (900,147 | ) | $ | (339 | ) | $ | (77,762 | ) |
| Net loss | — |
| — |
| — |
| (54,319 | ) | — |
| (54,319 | ) |
| Foreign currency translation | — |
| — |
| — |
| — |
| 108 |
| 108 |
|
| Balances, March 31, 2014 | 10,000,000 |
| 1 |
| 822,723 |
| (954,466 | ) | (231 | ) | (131,973 | ) |
| Net loss | — |
| — |
| — |
| (27,127 | ) | — |
| (27,127 | ) |
| Foreign currency translation | — |
| — |
| — |
| — |
| (161 | ) | (161 | ) |
| Debt for equity conversion, net of expenses (Note 5) | — |
| — |
| 121,535 |
| — |
| — |
| 121,535 |
|
| Issuance of common stock (Note 14) | 1,172,150 |
| — |
| 205 |
| — |
| — |
| 205 |
|
| Retirement of common stock (Note 14) | (11,172,150 | ) | (1 | ) | 1 |
| — |
| — |
| — |
|
| Issuance of common stock (Note 14) | 100 |
| — |
| — |
| — |
| — |
| — |
|
| Capital contribution (Note 14) | — |
| — |
| 573 |
| — |
| — |
| 573 |
|
| Balances, March 31, 2015 | 100 |
| — |
| 945,037 |
| (981,593 | ) | (392 | ) | (36,948 | ) |
| Net income | — |
| — |
| — |
| 16,964 |
| — |
| 16,964 |
|
| Foreign currency translation | — |
| — |
| — |
| — |
| (46 | ) | (46 | ) |
| Equity distribution (Note 5) | — |
| — |
| (62,491 | ) | — |
| — |
| (62,491 | ) |
| Balances, March 31, 2016 | 100 |
| $ | — |
| $ | 882,546 |
| $ | (964,629 | ) | $ | (438 | ) | $ | (82,521 | ) |
The accompanying notes are an integral part of the Consolidated Financial Statements.
AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| | Fiscal years ended March 31, |
| | 2016 | | 2015 | | 2014 |
| OPERATING ACTIVITIES | | | | | |
| Net income (loss) | $ | 17,996 |
| | $ | (25,908 | ) | | $ | (53,271 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 26,482 |
| | 14,920 |
| | 14,203 |
|
| Impairment of goodwill and intangible assets | — |
| | 18,458 |
| | 9,238 |
|
| Amortization of deferred financing costs | 4,026 |
| | 4,011 |
| | 1,664 |
|
| Amortization of deferred rack costs | 4,999 |
| | 5,869 |
| | 6,585 |
|
| Deferred income tax (benefit) provision | (35,646 | ) | | (31,703 | ) | | 33,039 |
|
| Non-cash payment-in-kind interest accretion | — |
| | 4,809 |
| | 1,912 |
|
| Provision for doubtful accounts | — |
| | 8,721 |
| | 5,307 |
|
| Loss on sale of publications | — |
| | 2,472 |
| | — |
|
| Other | 1,163 |
| | 4,410 |
| | 499 |
|
| Changes in operating assets and liabilities: | | | | | |
| Trade receivables | 17,141 |
| | (3,497 | ) | | (6,858 | ) |
| Inventories | (470 | ) | | 9,868 |
| | 2,243 |
|
| Prepaid expenses and other current assets | 696 |
| | 4,964 |
| | (1,727 | ) |
| Deferred rack costs | (3,459 | ) | | (6,149 | ) | | (5,054 | ) |
| Other long-term assets | 570 |
| | 648 |
| | (2,210 | ) |
| Accounts payable | (5,089 | ) | | (3,925 | ) | | 1,798 |
|
| Accrued expenses and other liabilities | (23,749 | ) | | 10,661 |
| | 1,365 |
|
| Accrued interest | 268 |
| | (3,175 | ) | | (926 | ) |
| Other non-current liabilities | (1,317 | ) | | 1,180 |
| | 3,213 |
|
| Deferred revenues | (124 | ) | | (3,929 | ) | | (1,226 | ) |
| Total changes in operating assets and liabilities | (15,533 | ) | | 6,646 |
| | (9,382 | ) |
| Net cash provided by operating activities | 3,487 |
| | 12,705 |
| | 9,794 |
|
| INVESTING ACTIVITIES | | | | | |
| Purchases of property and equipment | (805 | ) | | (7,176 | ) | | (10,514 | ) |
| Purchases of intangible assets | (1,894 | ) | | (2,738 | ) | | (5,615 | ) |
| Proceeds from sale of publications | — |
| | 63,000 |
| | — |
|
| Investments in affiliates | — |
| | — |
| | (2,536 | ) |
| Distributions from affiliates | — |
| | 2,570 |
| | — |
|
| Other | 24 |
| | 9 |
| | (155 | ) |
| Net cash (used in) provided by investing activities | (2,675 | ) | | 55,665 |
| | (18,820 | ) |
| FINANCING ACTIVITIES | | | | | |
| Proceeds from revolving credit facility | 72,700 |
| | 62,800 |
| | 95,600 |
|
| Repayments to revolving credit facility | (72,200 | ) | | (77,100 | ) | | (78,600 | ) |
| Proceeds from issuance of senior secured notes | 7,020 |
| | 12,500 |
| | — |
|
| Senior secured notes repurchases | (4,386 | ) | | (56,100 | ) | | (2,325 | ) |
| Capital contribution | — |
| | 573 |
| | — |
|
| Costs incurred in restructuring | — |
| | (4,315 | ) | | — |
|
| Redemption premium payment | (192 | ) | | (2,206 | ) | | (201 | ) |
| Debt financing costs | (4,360 | ) | | (2,073 | ) | | — |
|
| Payments to noncontrolling interest holders of Olympia | (1,150 | ) | | (1,253 | ) | | (1,004 | ) |
| Payments for redemption of Odyssey preferred stock | — |
| | — |
| | (3,961 | ) |
| Net cash (used in) provided by financing activities | (2,568 | ) | | (67,174 | ) | | 9,509 |
|
| Effect of exchange rate changes on cash | (310 | ) | | (774 | ) | | 189 |
|
| Net (decrease) increase in cash and cash equivalents | (2,066 | ) | | 422 |
| | 672 |
|
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3,452 |
| | 3,030 |
| | 2,358 |
|
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,386 |
| | $ | 3,452 |
| | $ | 3,030 |
|
| | | | | | |
| Supplemental Cash Flow Information and Non-Cash Activity: |
| Cash paid during the period for: | | | | | |
| Income taxes | $ | 408 |
| | $ | 445 |
| | $ | 35 |
|
| Interest | $ | 36,502 |
| | $ | 46,109 |
| | $ | 55,824 |
|
| Non-cash property and equipment (incurred but not paid) | $ | — |
| | $ | 4 |
| | $ | 498 |
|
| Non-cash debt for equity exchange | $ | — |
| | $ | 123,960 |
| | $ | — |
|
| Non-cash equity distribution for debt | $ | 62,491 |
| | $ | — |
| | $ | — |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
AMERICAN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of the Business
Description of the Business
American Media, Inc. and its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") owns and operates the leading celebrity and health and fitness media brands in the United States. AMI was incorporated under the laws of the State of Delaware in 1990 and is headquartered in Boca Raton, Florida. The Company is a wholly-owned subsidiary of AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of the Company (collectively, the "Investors") pursuant to the merger consummated in August 2014 (the "Merger"). As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI, including the Company. See Note 14, "Capital Structure"restricted shares awarded under the Equity Incentive Plan. Except for further information.
the restricted shares awarded under the Equity Incentive Plan, no other type of equity awards have been granted to the Named Executive Officers. In connection with the Merger the Equity Incentive Plan was terminated. As a result, there are no outstanding equity awards as of March 31, 2016, we own and operate a diversified portfolio of 10 publications; National Enquirer, Star, Globe, National Examiner, OK! and Soap Opera Digest are published weekly; Men's Fitness, Muscle & Fitness and Flex; are published 10 times per year and Muscle & Fitness Hers is published bi-monthly.
Our fiscal year ended on March 31, 2016 and may be referred to herein as fiscal 2016.
During fiscal 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 million in cash plus an earnout of upPursuant to $60 million. See Note 10, "Dispositions" for further information. After giving effect to the divestiture of our Women's Active Lifestyle segment, the Company operates and reports financial and operating information in the following two segments: Celebrity Brands and Men's Active Lifestyle. The Company also provides general corporate services to its segments which is reported as a third, non-operating segment, Corporate and Other. See Note 13, "Business Segment Information" for further information regarding the Company's reporting segments.
Liquidity and Operations
The Company is highly leveraged. As of March 31, 2016, the Company had approximately $393.9 million of outstanding indebtedness, consisting of $378.7 million of senior secured notes and $15.2 million under the revolving credit facility. The Company has been adversely impacted by weak economic conditions and has experienced declines in circulation revenue and to a lesser extent advertising revenues. If these conditions persist, the Company’s financial condition and results of operations may continue to be adversely affected. Historically, the Company has been able to offset declines in circulation revenues, in part, through cover price increases, cost reductions and increases in digital advertising revenue. During fiscal 2017, the Company anticipates continued declines in circulation revenues. There can be no assurance that the Company will be successful in continuing to reduce costs and increase digital advertising revenue to offset the expected circulation revenue declines.
Over the next year, the cash interest payments due under the Company's debt agreements are approximately $40.2 million and there are no scheduled principal payments due. As of March 31, 2016, the Company has $1.4 million of cash and $15.4 million available for borrowing pursuant to the revolving credit facility. The Company's revolving credit facility matures in June 2017.
The Company plans to refinance all or a portion of its indebtedness on or before maturity. The Company cannot assure that it will be able to refinance any of its indebtedness on commercially reasonable terms or at all.
As further described in Note 4, "Revolving Credit Facility," in February 2016 the terms of the revolving credit facility were amended and restated to, among other things, extend the maturity date to June 2017 and modify the financial covenants in effect through the date of maturity.
As further described in Note 5, "Senior Secured Notes," in March 2016, the Company entered into an exchangehis employment agreement with the Investors pursuant to which the Investors exchanged approximately $58.9 million in aggregate principal amount of 11.5% first lien notes, due December 2017 for approximately $76.0 million in aggregate principal amount of 7.0% new second lien notes, due July 2020. The Company, also issued, in March 2016, additional 7.0% new second lien notes for approximately $76.2 million in aggregate principal amount in a distribution to certain holders of equity interests in the Parent and issued approximately $7.3 million aggregate principal amount of additional 7.0% new second lien notes to an affiliate of the Investors for cash.
The Company's substantial indebtedness could adversely affect the business, financial condition and results of operations. Specifically, the Company's level of indebtedness could have important consequences for the business and operations, including the following:
requiring the Company to dedicate a substantial portion of its cash flows from operations for payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and general corporate requirements or to carry out other aspects of the business;
placing the Company at a potential disadvantage compared to its competitors that have less debt;
increasing the Company's vulnerability to general adverse economic and industry conditions;
limiting the Company's ability to make material acquisitions or take advantage of business opportunities that may arise;
limiting the Company's flexibility in planning for, or reacting to, changes in the industry;
limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of the business; and
exposing the Company to fluctuations in interest rates as the revolving credit facility has a variable rate of interest.
Several of our smaller wholesalers and our second-largest wholesaler, Source Interlink Distribution ("Source"), ceased operations during fiscal 2015. Since then we have transitioned the previous wholesalers' newsstand distribution to the two remaining major wholesalers. This transition had an immediate adverse impact on single copy newsstand sales and liquidity during fiscal 2015 and into the first half of fiscal 2016.
As a result of declining operating results and cash flow from operations, the Company implemented management action plans during fiscal 2016 that reduced expenses and capital expenditures. The management action plans included outsourcing technology and operation functions, digital content renegotiations, print order efficiencies and editorial and advertising sales staff consolidation.
Although the Company is significantly leveraged, it expects that the current cash balances, liquidity provided in connection with the revolving credit facility, and cash generated from operations, should be sufficient to meet working capital, capital expenditures, debt service, and other cash needs for the next year.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
Our consolidated financial statements reflect our financial statements, those of our wholly-owned domestic and foreign subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own less than 100% of the equity, we record net income (loss) attributable to noncontrolling interests in our consolidated statements of income (loss) equal to the percentage of the interests retained in such entities by the respective noncontrolling parties. All material intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing joint ventures. We continually assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions occur.
See Note 9, “Investments in Affiliates and Redeemable Noncontrolling Interests.”
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Management's estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management's assessments of the probable future outcome of these matters. As a result, actual results could differ from those estimates.
Foreign Currencies
The net assets and operations of entities outside of the United States of America ("U.S.") are translated into U.S. dollars. Assets and liabilities are translated at fiscal year-end exchange rates and income and expense items are translated at average exchange rates prevailing during the fiscal year. Translation adjustments are included in accumulated other comprehensive income (loss).
Cash and Cash Equivalents
Cash and cash equivalents includes cash and short-term investments with original maturities of three months or less. Cash and cash equivalents are stated at cost, which approximates fair value. Cash equivalents are held with high credit quality institutions and are subject to minimal credit and market risk. The value of these assets is based upon quoted prices and markets for identical assets and equals the carrying value, which is considered a Level 1 input.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. The Company writes down inventory for estimated obsolescence and/or excess or damaged inventory. Inventory write-downs during fiscal 2016, 2015 and 2014 were insignificant.
The Company is party to a long-term paper supply and purchasing agreement pursuant to which a third party manages all aspects of the Company's raw material paper inventory. As a result, the Company no longer maintains raw material paper inventory. The finished product inventory, comprised of paper, production and distribution costs of future issues totaled $1.3 million and $0.9 million, respectively, at March 2016 and 2015.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are comprised of the following at March 31st (in thousands):
|
| | | | | | |
| | 2016 | 2015 |
| Direct response advertising costs | $ | 1,847 |
| $ | 2,044 |
|
| Deferred tax assets, net | — |
| 1,689 |
|
| Prepaid insurance | 797 |
| 802 |
|
| Other prepaid expenses | 3,774 |
| 2,920 |
|
| Other receivables | 1,597 |
| 2,946 |
|
| Other current assets | 955 |
| 955 |
|
| Total prepaid expenses and other current assets | $ | 8,970 |
| $ | 11,356 |
|
Direct response advertising costs are capitalized when they are expected to result in probable future benefits. These costs are amortized over the period during which future benefits are expected to be received, which is generally the related one-year subscription period. Amortization expense was $2.7 million, $3.0 million and $3.2 million for fiscal 2016, 2015 and 2014, respectively,the Company paid for certain financial management services to be provided to Mr. Pecker, together with a supplemental gross-up payment to cover Mr. Pecker’s income tax owed for such financial management services fees. During fiscal 2016, Messrs. Pecker, Polimeni, Kroski, Hyson and is partBonnett received one-time incentive payments for the achievement of distribution, circulationspecific, individual, short-term projects. In addition, during fiscal 2016 and other2014, Mr. Hyson received a monthly housing allowance from the Company to subsidize a residence near the New York office.
Outstanding Equity Awards at 2016 Fiscal Year End and Stock Vested
In connection with the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI, including the restricted shares awarded under the Equity Incentive Plan. In connection with the Merger the Equity Incentive Plan was terminated. As a result, there are no outstanding equity awards as of March 31, 2016.
Potential Payments upon Termination or Change in Control
Our Named Executive Officers are entitled to certain payments and benefits under their employment agreements or arrangements upon certain qualifying terminations of employment and a change in control, as described below. As discussed above under “Compensation Discussion and Analysis,” we believe that severance and change in control provisions are important components of our Named Executive Officers’ compensation packages because these provisions allow our key executive officers to concentrate on taking actions that are in the accompanying consolidatedbest interests of our stockholders without regard to whether such action may ultimately have an adverse impact on their job security and to enable them to provide objective advice on any potential change in control of our Company without undue concern regarding its potential impact on their personal financial statements.security and future. Our Named Executive Officers’ right to receive the severance payments described below is subject to their execution and delivery of an effective general release of claims in favor of the Company. In addition, payment of severance benefits to our Named Executive Officers is conditioned on their compliance with any applicable non-compete, non-solicitation and/or confidentiality agreements included in their employment agreement or employment arrangement.
Under our current arrangements, there are no severance payments and/or benefit payments that would be provided in the event of resignation without good reason, termination for cause, retirement, death or disability. In connection with the Merger, the Company experienced a Liquidity Event and each Named Executive Officer was entitled to accelerated vesting of all outstanding shares of restricted stock held by the Named Executive Officer on such date, without requiring termination of employment.
David Pecker
Termination, No Change in Control. If Mr. Pecker’s employment is terminated by the Company “without cause” or by the executive for “good reason,” in any case, outside the context of a change in control (as defined in Mr. Pecker's employment agreement), then, in addition to payments of accrued compensation (including any earned but unpaid bonus) and benefits through the date of termination, the executive will be entitled to receive the following:
installment payments of executive's annual base salary then in effect over the later of the twelve month period following the termination of employment or the scheduled expiration of the executive’s employment agreement;
continued health, life insurance and disability benefits over the later of the twelve month period following the termination of employment or the scheduled expiration of the executive’s employment agreement; and
outplacement services for a period of twelve months.
Change in Control and Qualifying Termination. If Mr. Pecker’s employment is terminated by the Company “without cause” or by the executive for “good reason,” in any case, within one year following a change in control (as defined in Mr. Pecker’s employment agreement) of the Company, then in addition to payments of accrued compensation (including any earned but unpaid bonus) and benefits through the date of termination (and in lieu of the severance described above), the executive will be entitled to receive the following:
installment payments of executive's annual base salary then in effect for a period of two years;
continued health, life insurance and disability benefits for a period of one year;
outplacement services for a period of twelve months; and
a lump sum gross-up payment to reimburse the executive for any excise tax imposed as a result of any payments made in connection with such change in control, up to $4.8 million.
Christopher Polimeni
If Mr. Polimeni’s employment is terminated by the Company “without cause,” then, in addition to payments of accrued compensation (including any earned but unpaid bonus) and benefits through the date of termination, the executive will be entitled to receive the following:
severance payment equal to twelve months of the executive’s annual base salary then in effect payable in installments over a period of twelve months following his termination of employment.
Brian Kroski
If Mr. Kroski’s employment is terminated by the Company “without cause,” then, in addition to payments of accrued compensation (including any earned but unpaid bonus) and benefits through the date of termination, the executive will be entitled to receive the following:
severance payment equal to six months of the executive’s annual base salary then in effect payable in installments over a period of six months following his termination of employment.
Kevin Hyson
If Mr. Hyson’s employment is terminated by the Company “without cause” then, in addition to payments of accrued compensation (including any earned but unpaid bonus) and benefits through the date of termination, the executive will be entitled to receive the following:
severance payment equal to twelve months of the executive’s annual base salary then in effect payable in installments over a period of twelve months following his termination of employment.
David Bonnett
If Mr. Bonnett’s employment is terminated by the Company “without cause” then, in addition to payments of accrued compensation (including any earned but unpaid bonus) and benefits through the date of termination, the executive will be entitled to receive the following:
severance payment equal to twelve months of the executive’s annual base salary then in effect payable in installments over a period of twelve months following his termination of employment.
Summary of Potential Payments
The asset balancefollowing table summarizes the payments that would be made to our Named Executive Officers upon the occurrence of certain qualifying terminations of employment, including in connection with a change in control, assuming that each Named Executive Officer’s termination of employment with the capitalized direct response advertising costs is reviewed quarterly to ensure the amount is realizable. Any write-downs resulting from this review are expensed as subscription acquisition advertising costs in the current period. There were no material write-downs during the three fiscal years in the period ended March 31, 2016.
Property and Equipment
The Company uses the straight-line method of depreciation for financial reporting. The estimated useful lives used for depreciable fixed assets ranges from three to 10 years. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the respective asset, and the period for such depreciation ranges from one to five years. Maintenance and repair costs are charged to expense as incurred.
The Company capitalizes costs incurred in developing or obtaining internal use software and these costs are reflected in property and equipment. Capitalized costs generally include hardware, software and payroll-related costs for employees who are directly associated with and who devote time to the development of internal use computer software. These costs are amortized using the straight-line method over three years. Costs such as maintenance and training are expensed as incurred. Total capitalized costs were $5.8 million and $14.3 million, net of depreciation, as ofoccurred on March 31, 2016 and, 2015, respectively.
Deferred Financing Costs and Original Issue Discount
Debt issuance costs and original issue discount are amortized to interest expense using the effective-interest method over the termwhere relevant, that a change in control of the related indebtedness, which ranges fromCompany occurred on four to seven years.
Deferred Rack Costs
Rack costs are capitalized and amortized as a reduction of circulation revenue, in accordance with the terms of the relevant agreements, usually three yearsMarch 31, 2016. The Company performs periodicAmounts shown in the table below do not include (i) accrued but unpaid salary through the date of termination and timely reviews(ii) other benefits earned or accrued by the Named Executive Officer during his employment that are available to determine if impairment charges are required due to market conditions, including store closings or store bankruptcies.all salaried employees.
Other Long-Term Assets
Other long-term assets are comprised of the following at March 31st (in thousands):
|
| | | | | | | |
| | 2016 | | 2015 |
| Management fee receivable (see Note 9) | $ | 2,098 |
| | $ | 1,894 |
|
| National distributor deposit | 115 |
| | 839 |
|
| Other | 410 |
| | 460 |
|
| Total other long-term assets | $ | 2,623 |
| | $ | 3,193 |
|
Other Amortizable Intangible Assets
Intangible assets consist primarily of tradenames, subscriber lists, customer relationships and other assets and are amortized on a straight-line basis over three to 27 years. The Company evaluates the amortization methods and remaining useful lives of intangible assets on a periodic basis to determine whether events and circumstances warrant a revision to the amortization method or remaining useful lives.
Goodwill and Indefinite-Lived Intangible Asset Impairments
The Company's goodwill and related indefinite-lived intangible assets are tested for impairment on an annual basis, on the first day of the fourth fiscal quarter or more often if an event occurs or circumstances change that would indicate a potential impairment exists. Impairment losses, if any, are reflected in operating income or loss in the consolidated financial statements. The Company's reporting units consist of each of its publications and other consolidated subsidiaries.
In assessing goodwill and intangible assets for impairment, the Company makes estimates of fair value that are based on its projection of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of income and market approaches to measure fair value. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of the fair value of the reporting units and could materially change the impairment charge related to goodwill and tradenames. For a detailed description of impairment charges, see Note 3, “Goodwill and Other Identified Intangible Assets.”
Long-Lived Asset Impairments
The Company reviews long-lived assets for impairment whenever an event occurs or circumstances change to indicate that the carrying amount of such assets may not be fully recoverable. When such factors, events or circumstances indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of undiscounted future cash flows over the remaining lives of the assets to measure recoverability. If the estimated undiscounted cash flows are less than the carrying value of the asset, the loss is measured as the amount by which the carrying value of the asset exceeds fair value computed on a discounted cash flow basis. The Company did not record any impairment charges during fiscal 2016, 2015 and 2014.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities are comprised of the following at March 31st (in thousands): |
| | | | | | | | | | | | | | | | |
| Name | | Benefit | | | | Termination By Company Without Cause | | Termination By Named Executive Officer With Good Reason | | Qualifying Termination upon Change in Control |
| David J. Pecker | | Severance | | (1) | | $ | 1,750,000 |
| | $ | 1,750,000 |
| | $ | 3,500,000 |
|
| | | Benefit values | | (2) | | $ | 16,478 |
| | $ | 16,478 |
| | $ | 16,478 |
|
| | | Outplacement services | | (3) | | $ | 30,000 |
| | $ | 30,000 |
| | $ | 30,000 |
|
| | | Excise gross up | | (4) | | $ | — |
| | $ | — |
| | $ | 166,717 |
|
| | | Total | | | | $ | 1,796,478 |
| | $ | 1,796,478 |
| | $ | 3,713,195 |
|
| | | | | | | | | | | |
| Christopher V. Polimeni | | Severance | | (1) | | $ | 500,000 |
| | $ | — |
| | $ | 500,000 |
|
| | | Total | | | | $ | 500,000 |
| | $ | — |
| | $ | 500,000 |
|
| | | | | | | | | | | |
| Brian Kroski | | Severance | | (1) | | $ | 175,000 |
| | $ | — |
| | $ | 175,000 |
|
| | | Total | | | | $ | 175,000 |
| | $ | — |
| | $ | 175,000 |
|
| | | | | | | | | | | |
| Kevin Hyson | | Severance | | (1) | | $ | 325,000 |
| | $ | — |
| | $ | 325,000 |
|
| | | Total | | | | $ | 325,000 |
| | $ | — |
| | $ | 325,000 |
|
| | | | | | | | | | | |
| David Bonnett | | Severance | | (1) | | $ | 310,000 |
| | $ | — |
| | $ | 310,000 |
|
| | | Total | | | | $ | 310,000 |
| | $ | — |
| | $ | 310,000 |
|
|
| | | | | | | |
| | 2016 | | 2015 |
| Retail display pockets and allowances | $ | 2,419 |
| | $ | 12,153 |
|
| Personnel related costs | 7,023 |
| | 8,315 |
|
| Rack costs | 1,054 |
| | 6,290 |
|
| Production costs | 3,141 |
| | 5,052 |
|
| Distribution and circulation costs | 2,284 |
| | 2,966 |
|
| Restructuring costs | 858 |
| | 4,605 |
|
| Income and other taxes (1) | 685 |
| | 304 |
|
| Other | 2,683 |
| | 4,330 |
|
| Total accrued expenses and other liabilities | $ | 20,147 |
| | $ | 44,015 |
|
|
| | |
| (1) | | Represents continuation of salary payments for the payout period provided under each Named Executive Officer's employment agreement or arrangement. |
| (2) | | Represents the estimated value associated with the continuation of health, life insurance and disability benefits for the payout period provided under the applicable Named Executive Officers' employment agreement or arrangement, based on the cost to provide such coverage as of March 31, 2016. |
| (3) | | Represents the estimated value associated with providing outplacement services for the payout period provided under Mr. Pecker’s employment agreement based on our estimate of the costs as of March 31, 2016 to provide such benefit. |
| (4) | | Represents the additional tax-gross up payments to compensate for excise taxes imposed by Section 4999 of the Internal Revenue Code on the benefits provided. The assumptions used to calculate the excise tax gross-up include the following: an excise tax rate of 20%, a federal tax rate of 35%, New York state tax rate of 8.82% and a Medicare tax rate of 1.45%. |
(1) Includes accruals of $0.6 million for contingent liabilities for non-income related taxes at March 31, 2016 and 2015.Employment Agreements or Arrangements
The Company incurred severance charges related to magazine closures, staff reorganizations and the implementation of certain management action plans for fiscal 2016, 2015 and 2014 of approximately $3.2 million, $2.1 million and $3.0 million, respectively. At March 31, 2016 and 2015, the Company had accrued severance charges of $1.3 million and $0.7 million, respectively, included in personnel related costs.
Contingent Liabilities
The Company has certain contingent liabilities that ariseCertain terms used in the ordinary course of business. The Company accrues for contingent liabilities when it is probable that future expenditures will be madefollowing paragraphs, such as termination without cause and such expenditures can be reasonably estimated. Reserves for contingent liabilitieschange in control, are reflecteddefined and discussed further in the accompanying consolidated financial statements based on management's assessment, alongsection titled Potential Payments Upon Termination or Change in Control above. We have entered into employment agreements or arrangements with legal counsel, of the expected outcome of the contingencies. If the final outcome of the contingencies differs fromour Named Executive Officers. Our Named Executive Officer’s employment agreements also contain certain confidentiality and non-compete and non-solicitation provisions as well as other provisions that currently expected, it would result in a change to earnings in the period determined. See Note 11, “Commitments and Contingencies - Litigation,”are customary for a description of litigation.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances. Allowances for uncollectible receivables are estimated based upon a combination of write-off history, aging analysis and any specifically identified troubled accounts.
Newsstand revenues are recognized based on the on-sale dates of magazines and are initially recorded based upon estimates of sales, net of brokerage, returns and estimates of newsstand related fees. Estimated returns are recorded based upon historical experience.
Print advertising revenues are recorded based on the on-sale dates of magazines when the advertisement appears in the magazine and are stated net of agency commissions and cash and sales discounts. Digital advertising revenues on the Company's websites are generally based on the sale of impression-based advertisements, which are recorded in the period in which the advertisements are served.executive employment agreement.
Other revenues, primarily from licensing opportunitiesIn March 2009, the Company entered into an employment agreement with Mr. Pecker, pursuant to which Mr. Pecker serves as its Chairman, Chief Executive Officer and strategic partnershipsPresident. The initial term of the agreement was for our branded products as well as marketing services performedtwo years, with an annual base salary of $1,500,000. After the initial term, the agreement was amended to, among other things, extend the terms of Mr. Pecker’s employment through March 31, 2013 and increase the annual base salary to $1,750,000. In November 2013, the employment agreement was amended, to among other things, extend the term of Mr. Pecker’s employment through March 31, 2015. In September 2014, the employment agreement was amended, to among other things, extend the term of Mr. Pecker's employment through March 31, 2017. Mr. Pecker’s agreement will automatically renew for third parties by our distribution services group (DSI)an unlimited number of one year periods (the “Subsequent Term”), throughunless either party provides 60 days prior written notice before the datebeginning of divestiture, are recognized when the service is performed.Subsequent Term.
Deferred revenues result primarilyMr. Pecker may from advance payments for subscriptions received from subscribers and is recognized on a straight-line basis, as issues are delivered, overtime to time be eligible to earn an annual discretionary bonus up to 50% of his base salary at the lifediscretion of the subscription. Total deferred revenues are comprisedBoard.
Mr. Pecker is entitled to participate in all employee benefits and incentive compensation plans offered by the Company. In addition, Mr. Pecker may receive reimbursement for certain expenses, including but not limited to travel and travel related expenses, financial management services, certain membership fees and a “tax gross-up” payment for such items, if necessary.
In the event Mr. Pecker is terminated by the Company without cause or Mr. Pecker resigns for good reason, and if Mr. Pecker executes and delivers a release to the Company, he will be entitled to receive severance in the form of installment payments of his base salary plus continued benefits for a period of one year. In addition, Mr. Pecker is entitled to receive outplacement services for a period of one year.
If within 12 months after a change in control event Mr. Pecker is terminated by the Company without cause or he resigns for good reason, and if Mr. Pecker executes and delivers a release to the Company, he will be entitled to receive severance in the form of installment payments of his base salary for a period of two years. In addition, Mr. Pecker is entitled to continued benefits and outplacement services for a period of one year. Lastly, Mr. Pecker may receive a gross-up payment from the Company under certain circumstances, up to a maximum of $4.8 million.
In the event Mr. Pecker’s employment terminates for any other reason, he is not entitled to receive any severance under the terms of his employment agreement.
Mr. Polimeni
In March 2010, the Company entered into an employment agreement with Mr. Polimeni, pursuant to which Mr. Polimeni serves as its Executive Vice President, Chief Financial Officer and Treasurer. In March 2012, the employment agreement was amended, to among other things, extend the term of Mr. Polimeni’s employment through March 31, 2013 and increase the annual salary from $335,000 to $350,000, effective April 1, 2012. As of January 2013, the employment agreement was amended to, among other things, extend the terms of Mr. Polimeni's employment through March 31, 2014 and increase the annual salary from $350,000 to $400,000, effective April 1, 2013. In January 2014, the employment agreement was amended, to among other things, extend the term of Mr. Polimeni's employment through March 31, 2015. In September 2014, the employment agreement was amended, to among other things, extend the term of Mr. Polimeni's employment through March 31, 2017 and increase the annual salary from $400,000 to $500,000, effective September 24, 2014.
Mr. Polimeni is eligible to earn an annual discretionary bonus up to $175,000 at the discretion of the following at March 31st (in thousands):
|
| | | | | | | |
| | 2016 | | 2015 |
| Subscriptions | $ | 23,024 |
| | $ | 25,184 |
|
| Advertising | 918 |
| | 727 |
|
| Other | 2,668 |
| | 823 |
|
| Total deferred revenues | $ | 26,610 |
| | $ | 26,734 |
|
ConcentrationsIn the event Mr. Polimeni is terminated by the Company without cause, and if Mr. Polimeni executes and delivers a release to the Company, he will be entitled to receive severance in the form of installment payments of his base salary for a period of one year. In the event Mr. Polimeni’s employment terminates for any other reason, he is not entitled to receive any severance under the terms of his employment agreement.
Mr. Kroski
In December 2014, the Company entered into an employment arrangement with Mr. Kroski, pursuant to which Mr. Kroski currently serves as its Senior Vice President and Chief Digital Officer. Mr. Kroski's annual base salary is $350,000. Mr. Kroski is eligible to earn an annual cash incentive payment of $150,000 based on the financial results of the digital properties as measured by net collected revenue, as approved by the Board. Mr. Kroski earned $150,000 for fiscal 2016.
In November 2015, the employment agreement was amended to extend the term of Mr. Kroski's employment through March 31, 2018 and provide for annual salary increases from $350,000 to $375,000, effective April 1, 2016 and from $375,000 to $400,000 effective April 1, 2017. In addition, pursuant to the amended employment agreement, Mr. Kroski is eligible to earn an annual cash incentive payment of $175,000 during fiscal 2017 and $200,000 during fiscal 2018 based on the financial results of the digital properties as measured by net collected revenue. Lastly, Mr. Kroski is eligible to receive a commission of 10% of net collected revenue of the digital properties above certain pre-defined thresholds.
In the event Mr. Kroski is terminated by the Company without cause, and if Mr. Kroski executes and delivers a release to the Company, he will be entitled to receive severance in the form of installment payments of his base salary for a period of six months. In the event Mr. Kroski’s employment terminates for any other reason, he is not entitled to receive any severance under the terms of his employment arrangement.
Mr. Hyson
In November 2004, the Company entered into an employment agreement with Mr. Hyson, pursuant to which Mr. Hyson serves as its Executive Vice President and Chief Marketing Officer. Mr. Hyson’s annual base salary is $325,000. In January 2012, the employment agreement was amended to extend the term of Mr. Hyson’s employment through March 31, 2013. As of January 2013, the employment agreement was amended to, among other things, extend the terms of Mr. Hyson's employment through March 31, 2014. In January 2014, the employment agreement was amended, to among other things, extend the term of Mr. Hyson's employment through March 31, 2015.
In December 2014, the employment agreement was amended, to among other things, extend the term of Mr. Hyson's employment through March 31, 2016. In February 2016, the employment agreement was amended, to among other things, extend the term of Mr. Hyson's employment through March 31, 2017. Mr. Hyson is eligible to earn an annual discretionary bonus of up to $175,000 at the discretion of the Chief Executive Officer and the Board. In addition, Mr. Hyson is entitled to participate in all employee benefits and incentive compensation plans offered by the Company.
In the event Mr. Hyson is terminated by the Company without cause, and if Mr. Hyson executes and delivers a release to the Company, he will be entitled to receive severance in the form of installment payments of his base salary for a period of one year. In the event Mr. Hyson’s employment terminates for any other reason, he is not entitled to receive any severance under the terms of his employment agreement.
Mr. Bonnett
In April 2002, the Company entered into an employment agreement with Mr. Bonnett, pursuant to which Mr. Bonnett currently serves as its Executive Vice President and Chief Information Officer. In January 2010, the employment agreement was amended, to among other things, extend the term of Mr. Bonnett’s employment through March 31, 2012. In November 2011, the employment agreement was amended, to among other things, extend the term of Mr. Bonnett’s employment through March 31, 2014. Mr. Bonnett's annual base salary is $310,000. In January 2014, the employment agreement was amended, to among other things, extend the term of Mr. Bonnett's employment through March 31, 2015. In January 2015, the employment agreement was amended, to among other things, extend the term of Mr. Bonnett's employment through March 31, 2017.
In the event Mr. Bonnett is terminated by the Company without cause, and if Mr. Bonnett executes and delivers a release to the Company, he will be entitled to receive severance in the form of installment payments of his base salary for a period of one year. In the event Mr. Bonnett's employment terminates for any other reason, he is not entitled to receive any severance under the terms of his employment agreement.
We rely on wholesalers for the retail distribution of our magazines. A small number of wholesalers are responsible for a substantial percentage of the wholesale magazine distribution business. As ofFiscal Year March 31, 2016, single copy revenues consisted of copies distributed to retailers primarily by two major wholesalers. Director Compensation
During fiscal 2016, 2015Each Independent Director is entitled to be paid $85,000, in cash, as the annual Board retainer fee and 2014, The News Group accountedreimbursed for approximately 48%, 36%travel expenses to attend Board and 29%, respectively,Committee meetings. Directors who also serve as a Committee Chairperson are entitled to be paid, in cash, an annual committee service retainer of our total operating revenues$10,000. Upon certain terminations of the service of certain Independent Directors from the Board, such Directors shall be entitled to receive a lump-sum cash payment equal to $35,000 for each year or partial year such Director served on the Board.
In connection with the Merger, in August 2014, Parent, as the sole stockholder of the Company, elected Messrs. Ratner, Schwartz and The Hudson Group accountedHughes to serve with Mr. Pecker as the Directors. In addition, Parent appointed Messrs. Ratner, Schwartz and Hughes to the Audit Committee of the Board with Mr. Hughes serving as Chairman. Mr. Hughes is the only Director who receives compensation for approximately 11%, 9% and 8%, respectively, of our total operating revenues. We have multi-year service arrangements with our major wholesalers, which provide incentives to maintain certain levels of service.his services on the Board.
The decline in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalers during 2014. Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operations during 2014. Subject to the terms of our agreement with our national distributor, our exposure for bad debt related to Source was approximately $5.0 million to $7.0 million. We reserved approximately $6.9 million and as of March 31, 2015 and approximately $6.6 million of the reserve was utilized to reduce the outstanding receivablesfollowing table sets forth information regarding compensation paid during fiscal 2016.
Product placement costs include the retail display allowance (“RDA”), which is a fee we pay on a quarterly basis to qualifying retailers as an incentive for selling our titles in their stores. Product placement costs are expensed and are recorded as a reduction to revenue as the issue relating to each specific cost is recognized as revenue.
Editorial Costs
External editorial costs relating to photos, artwork and text are expensed as the issue relating to each specific cost is recognized as revenue. Internal editorial costs are expensed as incurred.
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Topic 205 and Topic 360) ("ASU 2014-08") which raises the threshold for disposals to qualify as discontinued operations. Under this new guidance, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (2) an acquired business that is classified as held for sale on the acquisition date. This guidance also requires expanded or new disclosures for discontinued operations, individually material disposals that do not meet the definition of a discontinued operation, an entity's continuing involvement with a discontinued operation following disposal, and retained equity method investments in a discontinued operation. ASU 2014-08 was effective for the Company on April 1, 2015. The adoption of ASU 2014-08 did not have an impact on the consolidated financial position, results of operations or cash flows.
|
| | | | | | | | | | | | | | | | |
| DIRECTOR COMPENSATION |
| | | (1) | |
| | | | |
| | | Fees Earned or Paid in Cash | | Stock Awards | | All Other Compensation | | Total |
| Name | | ($) | | ($) | | ($) | | ($) |
| David J. Pecker | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Evan Ratner (2) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Barry Schwartz (2) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| David Hughes (3) | | $ | 95,000 |
| | $ | — |
| | $ | — |
| | $ | 95,000 |
|
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"), which simplifies the presentation of deferred tax assets and deferred tax liabilities. The new guidance no longer requires the presentation of current deferred tax assets and deferred tax liabilities on a classified balance sheet, rather requiring all to be presented as non-current. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company prospectively adopted this guidance in the third quarter of fiscal 2016. As required by this guidance, all deferred tax assets and liabilities are classified as non-current in our consolidated balance sheet as of December 31, 2015, which is a change from our historical presentation wherein certain of our deferred tax assets and liabilities were classified as current and the remainder were classified as non-current. The March 31, 2015 balance sheet has not been retrospectively adjusted. As this guidance impacts presentation only, the adoption of ASU 2015-17 did not have an impact on the results of operations or cash flows.
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern (Topic 205) ("ASU 2014-15"), which establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years ending after December 15, 2016, and interim periods within annual period beginning after December 15, 2016, with early adoption permitted. The Company has not determined the impact the adoption of this guidance will have on the consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) ("ASU 2015-01"), which simplifies the income statement presentation by eliminating the concept of extraordinary items. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidations, Amendments to the Consolidation Analysis (Topic 810) ("ASU 2015-02"), which changes the identification of variable interests, the variable interest characteristic for a limited partnership or similar entity and the primary beneficiary determination all of which are intended to improve the consolidation guidance as well as increase transparency and consistency of financial reporting. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In April 2015, the FASB issued a proposal for a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). Under this proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. As a result of the one-year deferral, ASU 2014-09 will now be effective for the Company on April 1, 2018 using one of two retrospective application methods. The Company has not determined the potential effects on the consolidated financial statements and related disclosure.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30) ("ASU 2015-03"), which requires the presentation of debt issuance costs to be reflected as a reduction from the face amount of the related debt, with amortization recorded as interest expense, rather than recording as a deferred asset. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, and requires retrospective application. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial position, results of operations or cash flows, although it will change the financial statement classification of the deferred financing cost. As of March 31, 2016 and 2015, the Company had $8.1 million and $6.4 million of net deferred financing costs, respectively, included on the consolidated balance sheets. Under the new guidance, the net deferred financing costs would offset the carrying amount of the respective debt on the consolidated balance sheets.
|
| | |
| (1) | | Fees earned or paid in cash were as follows: |
|
| | | | | | | | | | | | | | |
| Name | | Board Retainer | | Committee Chaired | | Committee Chair fees | | Total |
| David J. Pecker | | $ | — |
| | — | | $ | — |
| | $ | — |
|
| Evan Ratner | | $ | — |
| | — | | $ | — |
| | $ | — |
|
| Barry Schwartz | | $ | — |
| | — | | $ | — |
| | $ | — |
|
| David Hughes | | $ | 85,000 |
| | Audit | | $ | 10,000 |
| | $ | 95,000 |
|
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) ("ASU 2015-11"), which simplifies the measurement of inventory by requiring certain inventory to be subsequently measured at the lower of cost and net realizable value. The guidance is effective for fiscal years, and interim period within those years, beginning on or after December 15, 2016. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, to clarify that an entity may elect to present debt issuance costs related to a line-of-credit arrangement as an asset, regardless of whether or not there are any outstanding borrowings on the line-of-credit arrangement. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months and disclose certain information about the leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The guidance is effective for fiscal years, and the interim periods within those years, beginning on or after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on the consolidated financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements that are not yet effective will not have a material impact on our financial position, results of operations or cash flows upon adoption. |
| | |
| (2) | | Messrs. Ratner and Schwartz are affiliated with the Parent and do not receive compensation for their service on the Board. |
| (3) | | During fiscal 2016, Mr. Hughes served on the Board and the Audit Committee and as the Chairperson of the Audit Committee. |
Note 3 - GoodwillItem 12. Security Ownership of Certain Beneficial Owners and Other Identified Intangible Assets
Goodwill
As of March 31, 2016Management and 2015, the Company had goodwill with a carrying value of $154.0 million. The gross carrying amount and accumulated impairment losses of goodwill, as of March 31, 2016 and 2015, by reportable segment are as follows (in thousands):Related Stockholder Matters.
|
| | | | | | | | | | | | |
| | Celebrity Brands | Men's Active Lifestyle Group | Corporate and Other | Total |
| Goodwill | 428,518 |
| 112,296 |
| 18,190 |
| 559,004 |
|
| Accumulated impairment losses | (304,595 | ) | (89,336 | ) | (11,075 | ) | (405,006 | ) |
| Goodwill, net of impairment losses | $ | 123,923 |
| $ | 22,960 |
| $ | 7,115 |
| $ | 153,998 |
|
Other Identified Intangible Assets
Other identified intangible assets are comprised of the following (in thousands):
|
| | | | | | | |
| | Range of lives
(in years) | March 31, 2016 | March 31, 2015 |
| Intangible assets subject to amortization: | | | |
| Tradenames | 15 - 27 | $ | 220,527 |
| $ | 46,166 |
|
| Subscriber lists | 3 - 15 | 32,702 |
| 32,702 |
|
| Customer relationships | 5 - 10 | 2,300 |
| 2,300 |
|
| Other intangible assets | 3 | 9,608 |
| 7,620 |
|
| Total gross intangible assets subject to amortization | | 265,137 |
| 88,788 |
|
| Accumulated amortization | | (62,043 | ) | (44,970 | ) |
| Total net intangible assets subject to amortization | | 203,094 |
| 43,818 |
|
| Intangible assets not subject to amortization | Indefinite | 6,000 |
| 180,363 |
|
| Total other identified intangible assets, net | | $ | 209,094 |
| $ | 224,181 |
|
Effective April 1, 2015, certain tradenames with a carrying value totaling approximately $174.4 million that were previously assigned indefinite lives have been assigned finite lives of 15 years. During the fiscal year ended March 31, 2016, the amortization expense of these tradenames totaled approximately $11.6 million.
Amortization expense of intangible assets was $17.1 million, $4.3 million and $4.4 million during fiscal 2016, 2015 and 2014, respectively. Based on the carrying value of identified intangible assets recorded at March 31, 2016, and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be as follows (in thousands):
|
| | | | |
| Fiscal Year | | Amortization Expense |
| 2017 | | $ | 16,387 |
|
| 2018 | | 15,476 |
|
| 2019 | | 14,981 |
|
| 2020 | | 14,501 |
|
| 2021 | | 14,437 |
|
| Thereafter | | 127,312 |
|
| | | $ | 203,094 |
|
Impairments
The Company did not record any impairment charges during fiscal 2016. The Company continues to evaluate goodwill and other identified intangible assets for impairment. Goodwill and other identified intangible assets are material components of the Company's financial statements and impairment charges to the Company's goodwill or other identified intangible assets in future periods could be material to the Company's results of operations.
During an evaluation of goodwill and other identified intangible assets during fiscal 2015 (at September 30, 2014), the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections.
As a result, an interim impairment test of goodwill and other indefinite lived intangible assets was performed as of September 30, 2014 for certain reporting units in accordance with FASB Accounting Standards Codification (“ASC”) Topic No. 350, “Goodwill and Other Intangible Assets” (“ASC 350”). Impairment testing for goodwill is a two-step process. The first step compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed to measure the amount of the impairment charge, if any. The second step compares the implied fair value of the reporting unit's goodwillIn connection with the carrying valueMerger, the Parent acquired 100% of that goodwill and an impairment charge is recorded for the difference. Impairment testing for indefinite lived intangible assets, consisting of tradenames, compares the fair value of the tradename to the carrying value and an impairment charge is recorded for any excess carrying value over fair value.
The evaluation performed during fiscal 2015 resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $8.9 million and $8.5 million to reduce the carrying value of goodwill and tradenames, respectively, during the quarter ended September 30, 2014.
Impairment Charge Assumptions
The fair value of the reporting unit's goodwill and tradenames was based on the Company's projections of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business and operational strategies. The valuations employ a combination of income and market approaches to measure fair value. The key assumptions used to determine fair value of the reporting unit's goodwill and tradenames as of September 30, 2014 were:
| |
a) | expected cash flow periods of five years;
|
| |
b) | terminal values based upon terminal growth rates ranging from 2% to 3%;
|
| |
c) | implied multiples used in the business enterprise value income and market approaches ranging from 3.9 to 5.0; and
|
| |
d) | discount rates ranging from 14% to 15%, which were based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting unit.
|
Management believes the discount rates used are consistent with the risks inherent in the Company's current business model and with industry discount rates. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of the fair value of the reporting units and could materially change the impairment charge related to goodwill and tradenames.
Note 4 - Revolving Credit Facility
The Company maintains a revolving credit facility that provides for borrowing up to $35.0 million, less outstanding letters of credit, which matures in June 2017 (the "Revolving Credit Facility"). The Investors became a lending party to the Revolving Credit Facility during fiscal 2015 and represent a commitment of approximately 42% of the Revolving Credit Facility. See "Revolving Credit Facility Amendments" below for additional historical information.
The Company has the option to pay interest based on (i) a floating base rate option equal to the greatest of (x) the prime rate in effect on such day; (y) the federal funds effective rate in effect on such day plus ½ of 1%; and (z) one month LIBOR (but no less than 2%) plus 1%, or (ii) LIBOR, in each case, plus a margin. The interest rate under the Revolving Credit Facility has ranged from 8.00% to 8.50% during the fiscal year endedMarch 31, 2016 and 2015. In addition, the Company is required to pay a commitment fee ranging from 0.50% to 0.75% on the unused portion of the revolving commitment. Commitment fees paid during fiscal 2016, 2015 and 2014 were insignificant.
During fiscal 2016, the Company borrowed $72.7 million and repaid $72.2 million under the Revolving Credit Facility. At March 31, 2016, the available borrowing capacity is $15.4 million, after considering the $15.2 million outstanding balance and the $4.4 million outstanding letter of credit. The Revolving Credit Facility is included in non-current liabilities based on the June 2017 maturity date.
The indebtedness under the Revolving Credit Facility is guaranteed by certain of the domestic subsidiaries of the Company and is secured by liens on substantially all the assets of the Company and certain of its domestic subsidiaries. In addition, the Company’s obligations are secured by a pledge of all the issued and outstanding shares of or other equity interests in, certain of the Company's existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capitalcommon stock of or otherAMI, including the restricted shares awarded under the Equity Incentive Plan. In connection with the Merger the Equity Incentive Plan was terminated. As a result, there are no outstanding equity interests in, certainawards as of its existing or subsequently acquired or organized foreign subsidiaries.March 31, 2016.
Covenants
Security Ownership of Certain Beneficial Owners
The Revolving Credit Facility includes certain representations and warranties, conditions precedent, affirmative covenants, negative covenants and eventstable set forth below contains information as of default. The negative covenants include financial maintenance covenants comprised of a first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. The Revolving Credit Facility also contains certain covenants that, subject to certain exceptions, restrict paying dividends, incurring additional indebtedness, creating liens, making acquisitions or other investments, entering into certain mergers or consolidations and selling or otherwise disposing of assets. WithJune 30, 2016, with respect to the dividend restrictions, there is a cap on the total amountbeneficial ownership of cash available for distribution to our common stockholders.
With regardstock held by: each current Director; each Named Executive Officer; all Directors and executive officers as a group; and any person who is known by us to beneficially own more than 5% of the financial maintenance covenants, the first lien leverage ratio covenant must be equal to or less than 3.50 to 1.00 from January 1, 2016 through June 2017. The consolidated leverage ratio covenant must be equal to or less than 5.50 to 1.00 from October 1, 2015 through June 2017. The interest coverage ratio must be equal to or greater than 1.50 to 1.00 from January 1, 2016 through June 2017.outstanding shares of our common stock.
As of March 31,June 30, 2016, the Company was in compliance with the covenants under the Revolving Credit Facility.
Although there can be no assurances, management believes that, based on current projections (including projected borrowingswere 100 shares of American Media, Inc.'s common stock issued and repayments under the Revolving Credit Facility), the Company's operating results for fiscal 2017 will be sufficient to satisfy the financial covenants under the Revolving Credit Facility. The Company’s ability to satisfy the financial covenants is dependent on the business performing in accordance with its projections. The Company's projections are subject to a number of factors, many of which are events beyond its control, which could cause its actual results to differ materially from its projections. If the Company does not comply with its financial covenants, the Company will be in default under the Revolving Credit Facility.
Revolving Credit Facility Amendments
In December 2010, the Company entered into a revolving credit facility with an original maturity date of December 2015 with a commitment for borrowing up to $40.0 million, less outstanding letters of credit. In February 2015, we amended and restated the revolving credit facility to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.
In February 2016, the Company, JPMorgan Chase Bank, N.A.,outstanding. Except as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the Revolving Credit Facility, as amended, restated, modifiedotherwise noted below, each person or supplemented from time to time, entered into the first amendment to the Revolving Credit Facility with the lenders (the “Consenting Lenders”) constituting the Required Lenders (as definedentity named in the Revolving Credit Facility)following table has sole voting and investment power with respect to among other things, extend the maturity date to June 2017, modify the financial covenants in effect through the date of maturity, and provide for certain other provisions.
With regard to the financial covenants, the first lien leverage ratio covenant must be equal to or less than 4.25 to 1.00 from January 1, 2016 through June 2017, provided that the first lien leverage ratio covenant will be lowered to 4.00 to 1.00 if the outstanding aggregate principal amountall shares of the Company's first lien notes is less than $250 million. The consolidated leverage ratio covenant must be equal toCompany’s common stock that he, she or less than 5.25 to 1.00 from January 1, 2016 through June 2017, provided thatit beneficially owns. Except as otherwise noted below, the consolidated leverage ratio covenant will be lowered to 5.00 to 1.00 if the outstanding principal amountaddress of the Company's first lien notes is less than $250 million. The interest coverage ratio was not amended and must be equal toeach person or greater than 1.50 to 1.00 from January 1, 2016 through June 2017.
In March 2016, the Company, the Administrative Agent and the lenders from time to time party to the Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into the second amendment to the Revolving Credit Facility with the Consenting Lenders constituting the Required Lenders to, among other things, allow for the issuance of additional indebtedness, modify the financial covenantsentity named in effect through the date of maturity, and provide for certain other provisions.
With regard to the financial covenants, the first lien leverage ratio covenant must be equal to or less than 3.50 to 1.00 from January 1, 2016 through June 2017 and the provision to lower the first lien leverage ratio based on the outstanding aggregate principal amount of the Company's first lien notes was removed in its entirety. The consolidated leverage ratio must be equal to or less than 5.50 to 1.00 from January 1, 2016 through June 2017 and the provision to lower the consolidated leverage ratio based on the outstanding aggregate principal amount of the Company's first lien notes was removed in its entirety. The interest coverage ratio was not amended and must be equal to or greater than 1.50 to 1.00 from January 1, 2016 through June 2017.
Note 5 - Senior Secured Notes
Our senior secured notes are comprised of the first lien notes, the second lien notes and the new second lien notes and are collectively referred to herein as the "Senior Secured Notes" and consisted of the following at March 31st (in thousands):table is c/o American Media, Inc., 1000 American Media Way, Boca Raton, Florida 33464.
|
| | | | | | | | |
| | | 2016 | | 2015 |
| First Lien Notes | | $ | 214,277 |
| | $ | 275,175 |
|
| Second Lien Notes | | — |
| | 2,198 |
|
| New Second Lien Notes | | 198,575 |
| | 39,024 |
|
| Unamortized discount | | (34,134 | ) | | (6,828 | ) |
| Total debt obligations | | 378,718 |
| | 309,569 |
|
| Less: current portion of long-term debt | | — |
| | — |
|
| Noncurrent debt obligations | | $ | 378,718 |
| | $ | 309,569 |
|
The future maturities of the Senior Secured Notes as of March 31st are as follows (in thousands): |
| | | | | |
| Name | | Amount of Beneficial Ownership | | Percent of Class |
AMI Parent Holdings, LLC
26 Main Street, Suite 204, Chatham, NJ 07928 | | 100 |
| | 100% |
Chatham Asset Management, LLC
26 Main Street, Suite 204, Chatham, NJ 07928 | | — |
| (1) | —% |
Leon Cooperman
c/o Omega Advisors
810 7th Avenue, 33rd Floor, New York, NY 10019 | | — |
| (2) | —% |
| David J. Pecker | | — |
| (3) | —% |
| Evan Ratner | | — |
|
| —% |
| Barry Schwartz | | — |
|
| —% |
| David R. Hughes | | — |
|
| —% |
| Christopher V. Polimeni | | — |
| (4) | —% |
| Brian Kroski | | — |
|
| —% |
| Kevin Hyson | | — |
|
| —% |
| David Bonnett | | — |
|
| —% |
| Directors and executive officers as a group (eleven persons) | | — |
|
| —% |
|
| | | | |
| Fiscal Year | | Amount |
| 2017 | | $ | — |
|
| 2018 | | 214,277 |
|
| 2019 | | — |
|
| 2020 | | — |
|
| 2021 | | 198,575 |
|
| Thereafter | | — |
|
| Total future maturities | | 412,852 |
|
| Unamortized discount | | (34,134 | ) |
| Total debt obligations | | $ | 378,718 |
|
|
| |
| (1) | Chatham Asset Management, LLC (“Chatham”) is an investment advisor to Chatham Asset High Yield Offshore Fund, Ltd. (“Chatham High Yield Offshore”), Chatham Asset Partners High Yield Fund, LP (“Chatham High Yield”), Chatham Fund, LP (“Chatham Fund”) and Chatham Eureka Fund, L.P. (“Chatham Eureka”), all of which have membership interests in Parent. Chatham Asset GP, LLC (“Chatham GP”) is the general partner of Chatham High Yield, Chatham Fund and Chatham Eureka. Chatham High Yield Offshore, Chatham High Yield, Chatham Fund and Chatham Eureka have 15.74%, 14.67%, 13.56% and 34.04%, respectively, beneficial ownership interest in Parent based on their voting rights as members of Parent. As the Company is a wholly-owned subsidiary of Parent, Chatham, Chatham GP, Chatham High Yield Offshore, Chatham High Yield, Chatham Fund and Chatham Eureka may be deemed to be beneficial owners of the Company to the extent of the percentage membership interests in Parent. Each of Chatham, Chatham GP, Chatham High Yield Offshore, Chatham High Yield, Chatham Fund and Chatham Eureka may be deemed to have voting and investment power over the shares and be beneficial owners of the Company’s shares. Chatham, Chatham GP, Chatham High Yield Offshore, Chatham High Yield, Chatham Fund and Chatham Eureka disclaim any beneficial ownership of the Company’s shares. The information set forth in this footnote is based on information provided to us by Chatham. |
| (2) | Leon Cooperman has a 9.00% beneficial ownership interest in Parent based on his voting rights as a member of Parent. As the Company is a wholly-owned subsidiary of Parent, Mr. Cooperman may be deemed to be a 9.00% beneficial owner of the Company’s shares of common stock due to his indirect voting and investment power over the Company’s shares. Mr. Cooperman disclaims any direct beneficial ownership of the Company’s shares. The information set forth in this footnote is based on information provided to us by Mr. Cooperman. |
| (3) | David J. Pecker has a 10.00% beneficial ownership interest in Parent based on his voting rights as a member of Parent. As the Company is a wholly-owned subsidiary of Parent, Mr. Pecker may be deemed to be a 10.00% beneficial owner of the Company’s shares of common stock due to his indirect voting and investment power over the Company’s shares. Mr. Pecker disclaims any direct beneficial ownership of the Company’s shares. |
| (4) | Christopher V. Polimeni has a 1.50% beneficial ownership interest in Parent based on his voting rights as a member of Parent. As the Company is a wholly-owned subsidiary of Parent, Mr. Polimeni may be deemed to be a 1.50% beneficial owner of the Company’s shares of common stock due to his indirect voting and investment power over the Company’s shares. Mr. Polimeni disclaims any direct beneficial ownership of the Company’s shares. |
As ofItem 13. March 31, 2016, future interest payments on our Senior Secured Notes until maturity in fiscal 2021 is expected to be as following (in thousands):Certain Relationships and Related Transactions, and Director Independence.
|
| | | | |
| Fiscal Year | | Amount |
| 2017 | | $ | 38,542 |
|
| 2018 | | 31,286 |
|
| 2019 | | 13,900 |
|
| 2020 | | 13,900 |
|
| 2021 | | 4,055 |
|
| Thereafter | | — |
|
| Total future payments | | $ | 101,683 |
|
First Lien NotesThe Charter of the Audit Committee requires the Audit Committee to review and approve all proposed transactions or dealings with related persons and to discuss such transactions and their appropriate disclosure in our financial statements with management and the Company’s independent registered public accounting firm. The Charter of the Audit Committee defines a related person as any executive officer, director, nominee for director, or security holder who is the beneficial owner of more than five percent of any class of the Company’s voting securities or any of their immediate family members.
In December 2010,The Board recognizes that related party transactions present a heightened risk of conflicts of interest, improper valuation and/or the Company issuedperception thereof. Therefore, in January 2013, the Board adopted a policy to be followed in connection with all related party transactions involving the Company. The Audit Committee will annually review and assess the adequacy of this policy and recommend any appropriate changes to the Board. Our Related Party Transactions Policy is available on our website, $385.0 millionhttp://www.americanmediainc.com, aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in December 2017 (the "First Lien Notes"). Interest on the First Lien Notes is payable semi-annually on June 15th and December 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months.under “About Us.”
During2016 Related Party Transactions
The Investors are a lending party to the revolving credit facility and during fiscal 2012,2016, the Company redeemed $20.0paid approximately $0.1 million in aggregate principal amount of First Lien Notes. During fiscal 2014, the Company repurchased approximately $2.3 million in aggregate principal amount of First Lien Notes. During fiscal 2015, the Company repurchased $55.5 million in aggregate principal amount of First Lien Notes and exchanged $32.0 million in aggregate principal amount of First Lien Notes for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"),lender fees pursuant to an exchange agreement.the amendments to the revolving credit facility.
During fiscal 2016, the Company repurchased $2.0 million in aggregate principal amount of First Lien Notes, at a price equal to 105.9% of the aggregate principal amount thereof, plus accrued and unpaid interest in the open market. In March 2016, the Company exchanged approximately $58.9 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest for approximately $76.0 million in aggregate principal amount of New Second Lien Notes, pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement"), as further described below.
The First Lien Notes are guaranteed on a first lien senior secured basis by the same subsidiaries of the Company that guarantee the Revolving Credit Facility. The First Lien Notes and the guarantees thereof are secured by a first-priority lien on substantially all our assets (subject to certain permitted liens and exceptions), pari passu with the liens granted under our Revolving Credit Facility, provided that in the event of a foreclosure on the collateral or insolvency proceedings, obligations under our Revolving Credit Facility will be repaid in full with proceeds from the collateral prior to the obligations under the First Lien Notes.
Under the First Lien Notes Indenture (as defined below), the Company has the option to redeem the First Lien Notes, in whole or in part, at the redemption prices set forth below, plus accrued and unpaid interest through the redemption date, if redeemed during the 12-month period beginning on December 15th of each of the years indicated below:
|
| | |
| Year | | Percentage |
| 2015 | | 102.875% |
| 2016 and thereafter | | 100% |
Second Lien Notes
In December 2010, the Company issued $104.9 million aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"). Interest on the Second Lien Notes is payable semi-annually on June 15th and December 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months.
During fiscal 2014, the Company exchanged approximately $94.3 million in aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 10.0% per annum, are payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”), pursuant to an exchange agreement (the “Second Lien PIK Notes Exchange Agreement”), as further described below. During fiscal 2015, the Company repurchased approximately $0.6 million in aggregate principal amount of Second Lien Notes. In addition, during fiscal 2015, the Company entered into an exchange agreement (the "Debt for Equity Exchange Agreement") with the Parent and the Investors pursuant to which the Investors exchanged approximately $7.8 million in aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest, for equity interest in the Parent.
During fiscal 2016, the Company redeemed the remaining $2.2 million in aggregate principal amount of Second Lien Notes at a price equal to 103.4% of the aggregate principal amount thereof, plus accrued and unpaid interest. Upon the full satisfaction and cancellation of all outstanding Second Lien Notes, the collateral agreement securing the Second Lien Notes was terminated and the obligations of the Company under the Indenture governing the Second Lien Notes were satisfied in full.
The Second Lien Notes were guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Revolving Credit Facility and the First Lien Notes. The Second Lien Notes and the guarantees thereof were secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).
New Second Lien Notes
In January 2015, the Company issued approximately $39.0 million aggregate principal amount of New Second Lien Notes, which bear interest at a rate of 7.0% per annum and mature in July 2020. Interest on the New Second Lien Notes is payable semi-annually on July 15th and January 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months. As described above, the New Second Lien Notes were originally issued in exchange for $32.0 million in aggregate principal amount of First Lien Notes pursuant to an exchange agreement.
The New Second Lien Notes were issued under a new indenture (the “New Second Lien Notes Indenture”), by and among American Media, Inc., certain of its subsidiaries listed as guarantors thereto (the "Guarantors") and Wilmington Trust, National Association, as trustee (the "Trustee"). The New Second Lien Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.
In March 2016, the Company issued approximately $159.6 million aggregate principal amount of additional New Second Lien Notes (the "Additional New Second Lien Notes"). Approximately $76.0 million in aggregate principal amount of Additional New Second Lien Notes were issued in exchange for approximately $58.9 million in aggregate principal amount of First Lien Notes pursuant to the New Second Lien Notes Exchange Agreement, as described above. Approximately $76.2 million in aggregate principal amount of Additional New Second Lien Notes were issued in a distribution to certain holders of equity interests in the Parent, of which approximately $68.8 million was issued to the Investors and approximately $7.4 million was issued to AMI's Chief Executive Officer (the "Officer"). Approximately $7.3 million aggregate principal amount of Additional New Second Lien Notes were issued to an affiliate of the Investors in exchange for cash. The Additional New Second Lien Notes were issued under the New Second Lien Notes Indenture through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.
The New Second Lien Notes and the Additional New Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Revolving Credit Facility, the First Lien Notes and the Second Lien Notes. The New Second Lien Notes and the Additional New Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).
Under the New Second Lien Notes Indenture, the Company has the option to redeem the New Second Lien Notes at any time prior to January 15, 2018 at a redemption price equal to 100% of the principal amount, plus a “make-whole” premium and accrued and unpaid interest through the redemption date. At any time prior to January 15, 2018, the Company may redeem up to 35% of the New Second Lien Notes from the net cash proceeds of one or more qualified equity offerings at a redemption price of 107% of the principal amount, plus accrued and unpaid interest through the redemption date, provided that at least 65% of the aggregate principal amount of the New Second Lien Notes remains outstanding after the redemption. The Company has the option to redeem the New Second Lien Notes on or after January 15, 2018, in whole or in part, at the redemption prices set forth below, plus accrued and unpaid interest through the redemption date, if redeemed during the 12-month period beginning on January 15th of each of the years indicated below:
|
| | |
| Year | | Percentage |
| 2018 | | 107% |
| 2019 | | 103.5% |
| 2020 and thereafter | | 100% |
Second Lien PIK Notes
During fiscal 2014, the Company issued approximately $94.3 million aggregate principal amount of Second Lien PIK Notes in exchange for an equal aggregate principal amount of Second Lien Notes pursuant to the Second Lien PIK Notes Exchange Agreement, as described above. The Second Lien PIK Notes were issued under a new indenture (the “Second Lien PIK Notes Indenture”), by and among American Media, Inc., the Guarantors and Trustee.
During fiscal 2015, in connection with the Merger, the Company issued approximately $12.3 million in aggregate principal amount of additional Second Lien PIK Notes (the "Additional Second Lien PIK Notes"). The Additional Second Lien PIK Notes were issued under the Second Lien PIK Notes Indenture, were assigned the same CUSIP number as the outstanding Second Lien PIK Notes and were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.
The Second Lien PIK Notes were payable in kind at a rate of 10% per annum which totaled $4.8 million and $1.9 million, during fiscal 2015 and 2014, respectively, and was recorded as an increase to the aggregate principal amount of Second Lien PIK Notes outstanding.
During fiscal 2015, pursuant to the Debt for Equity Exchange Agreement with the Parent and the Investors, the Investors exchanged approximately $113.3 million aggregate principal amount of Second Lien PIK Notes, plus accrued and unpaid interest, which represented all of the outstanding Second Lien PIK Notes, for equity interests in the Parent. Upon the cancellation of all outstanding Second Lien PIK Notes, the collateral agreement securing the Second Lien PIK Notes was terminated and the obligations of the Company under the Second Lien PIK Notes Indenture were satisfied in full and the discharge thereof was acknowledged by the Trustee.
Supplemental Indentures
In August 2014, AMI received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among AMI, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among AMI, the Guarantors and the Trustee and (c) $101.0 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the applicable notes then outstanding.
As a result of receiving the requisite consents, in August 2014, AMI and the Trustee entered into
(a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture”) to the Second Lien PIK Notes Indenture and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”).
The Supplemental Indentures amend the Indentures to (a) permit the transactions contemplated by the Merger Agreement including amending the definition of “Change of Control” and permitting the issuance of the Additional Second Lien PIK Notes pursuant to the Second Lien PIK Notes Indenture; and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate AMI’s obligation to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.
In January 2015, we entered into a supplemental indenture (the “2015 Supplemental Indenture”) by and between the Company and Wilmington Trust, National Association, as successor by merger to Wilmington Trust FSB, as trustee and collateral agent (collectively, the “Existing Second Lien Trustee”), to an indenture, dated as of December 22, 2010, by and among the Company, the guarantors party thereto and the Existing Second Lien Trustee (as amended, supplemented or otherwise modified through the date of amendment, the “Existing Second Lien Indenture”). The 2015 Supplemental Indenture contemplates, among other things, the exchange of First Lien Notes for the New Second Lien Notes.
In March 2016, the Company received consents from the holders of (a) $266.1 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among the Company, the Guarantors and the Trustee and (b) $39.0 million principal amount of the outstanding New Second Lien Notes to amend the indenture dated as of January 20, 2015 (as such agreement may be amended, restated or supplemented, the “New Second Lien Notes Indenture” and, together with the First Lien Notes Indenture, the “Indentures”), among the Company, the Guarantors and the Trustee, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the Senior Secured Notes then outstanding. Holders of the First Lien Notes that delivered a consent on or prior to March 28, 2016 were entitled to receive cash consideration equal to 1% of the principal amount of First Lien Notes for which consents were delivered (the "Consent Fee"), which totaled approximately $2.7 million, which is reflected in deferred financing costs in the accompanying consolidated financial statements. No consent fee was paid to holder of the New Second Lien Notes.
As a result of receiving the requisite consents, in March 2016, the Company and the Trustee entered into (a) the Fifth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture and (b) the First Supplemental Indenture (the “New Second Lien Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture, the “Supplemental Indentures”). The Supplemental Indentures amend the First Lien Indenture and the New Second Lien Indenture, as applicable, to, among other things, permit the issuance of the Additional New Second Lien Notes.
The Indentures governing the Senior Secured Notes contain certain affirmative covenants, negative covenants and events of default. For example, the Indentures governing the Senior Secured Notes contain covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the Indentures governing the Senior Secured Notes impose certain requirements as to future subsidiary guarantors. As of March 31, 2016, the Company was in compliance with all of the covenants under the indentures governing the Senior Secured Notes.
Note 6 - Fair Value of Financial Instruments
FASB ASC Topic 825, Financial Instruments requires the Company to disclose the fair value of financial instruments that are not measured at fair value in the accompanying financial statements. The fair value of the Company’s financial instruments has been estimated primarily by using inputs, other than quoted prices in active markets, that are observable either directly or indirectly. However, the use of different market assumptions or methods of valuation could result in different fair values.
FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), established a three-tier fair value hierarchy, which prioritizes the use of inputs used in measuring fair value as follows:
Level 1 Observable inputs such as quoted prices in active markets for identical assets and liabilities;
Level 2 Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.
The estimated fair value of the Company’s financial instruments is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | | March 31, 2016 | | March 31, 2015 |
| | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| First Lien Notes | Level 2 | | $ | 214,277 |
| | $ | 221,241 |
| | $ | 275,175 |
| | $ | 282,742 |
|
| Second Lien Notes | Level 2 | | — |
| | — |
| | 2,198 |
| | 2,337 |
|
| New Second Lien Notes | Level 2 | | 164,441 |
| | 152,930 |
| | 32,196 |
| | 33,655 |
|
| | | | $ | 378,718 |
| | $ | 374,171 |
| | $ | 309,569 |
| | $ | 318,734 |
|
The fair value of the First Lien Notes, the Second Lien Notes and the New Second Lien Notes is estimated using quoted market prices for the same or similar issues.
As of March 31, 2016 and 2015, the Company did not have financial assets or liabilities that would require measurement on a recurring basis, based on the guidance in ASC 820. The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and the Revolving Credit Facility. The carrying amount of these accounts approximates fair value.
Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized. During an evaluation of goodwill and other identified intangible assets during fiscal 2015, the carrying value of goodwill and tradenames for certain reporting units exceeded fair value. As a result, the Company recorded an impairment charge that incorporates fair value measurements based on Level 3 inputs. See Note 3 "Goodwill and Other Identified Intangible Assets," for further discussion on measuring the Company's non-financial assets, specifically goodwill and tradenames.
Note 7 - Income Taxes
The Company files a consolidated Federal income tax return. The provision (benefit) for income taxes from continuing operations consists of the following at March 31st (in thousands):
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Current: | | | | | |
| Federal | $ | 437 |
| | $ | — |
| | $ | (160 | ) |
| State | (1,023 | ) | | 88 |
| | 11 |
|
| Foreign | 223 |
| | 50 |
| | 451 |
|
| Total current provision (benefit) | (363 | ) | | 138 |
| | 302 |
|
| Deferred: | | | | | |
| Federal | (28,085 | ) | | (13,907 | ) | | 24,252 |
|
| State | (7,560 | ) | | (1,894 | ) | | 6,138 |
|
| Foreign | 26 |
| | (26 | ) | | (33 | ) |
| Total deferred provision (benefit) | (35,619 | ) | | (15,827 | ) | | 30,357 |
|
| Provision (benefit) for income taxes | $ | (35,982 | ) | | $ | (15,689 | ) | | $ | 30,659 |
|
Income tax provision (benefit) attributable to income from continuing operations was $(36.0) million, $(15.7) million and $30.7 million for fiscal 2016, 2015 and 2014, respectively, and differed from the amounts computed by applying the statutory U.S. federal income tax rate of 35% to pretax income from continuing operations as a result of the following at March 31st (in thousands):
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| U.S expected tax (benefit) provision | $ | (6,295 | ) | | $ | (19,926 | ) | | $ | (9,209 | ) |
| State income taxes, net of federal benefit | (1,923 | ) | | (1,504 | ) | | (755 | ) |
| Meals and entertainment | 279 |
| | 270 |
| | 271 |
|
| Goodwill impairment | — |
| | 1,237 |
| | — |
|
| Valuation allowance on deferred tax assets | (27,139 | ) | | 2,555 |
| | 40,260 |
|
| Debt restructuring | — |
| | 1,277 |
| | — |
|
| Other, net | (904 | ) | | 402 |
| | 92 |
|
| Provision (benefit) for income taxes | $ | (35,982 | ) | | $ | (15,689 | ) | | $ | 30,659 |
|
The tax effected net deferred tax assets and liabilities are comprised of the following at March 31st (in thousands):
|
| | | | | | | |
| | 2016 | | 2015 |
| Deferred tax assets: | | | |
| Net operating losses | $ | 35,257 |
| | $ | 38,215 |
|
| Reserves and accruals | 3,134 |
| | — |
|
| Deferred financing costs | 75 |
| | 273 |
|
| Goodwill and other intangibles | 817 |
| | 980 |
|
| Other | 14,336 |
| | 4,745 |
|
| Gross deferred income tax assets | 53,619 |
| | 44,213 |
|
| Valuation allowance | — |
| | (23,401 | ) |
| Total deferred tax assets | 53,619 |
| | 20,812 |
|
| Deferred tax liabilities: | | | |
| Goodwill and other intangibles | (78,558 | ) | | (82,670 | ) |
| Circulation expenses | (2,324 | ) | | (2,617 | ) |
| Property and equipment | (2,480 | ) | | (3,580 | ) |
| Other | (3,669 | ) | | (2,692 | ) |
| Total deferred tax liabilities | (87,031 | ) | | (91,559 | ) |
| Net deferred tax liability | $ | (33,412 | ) | | $ | (70,747 | ) |
The March 31, 2016 balances reflect the prospective application of newly adopted accounting guidance requiring deferred tax assets and liabilities to be classified as non-current in the consolidated balance sheet. Accordingly, on October 1, 2015, we reclassified $5.4 million of net current deferred tax assets. There were no current deferred tax liabilities to be reclassified. This guidance was not retrospectively applied to the March 31, 2015 balances. As a result, the Company had current deferred tax assets of approximately $1.7 million included in prepaid expenses and other current assets as of March 31, 2015.
At March 31, 2016 and 2015, the Company had gross U.S. federal and state net operating loss carryforwards as follows (in thousands):
|
| | | | | | | |
| | 2016 | | 2015 |
| Federal | $ | 89,179 |
| | $ | 96,628 |
|
| State | 83,089 |
| | 88,399 |
|
The federal net operating loss carryforwards at March 31, 2016 begin to expire in 2030 through 2036. The state net operating loss carryforwards at March 31, 2016 begin to expire in 2016 through 2036. In August 2014, as a result of the Merger, a change of control has occurred. Accordingly, management assessed the impact of the Merger for limitations under section 382 of the Internal Revenue Code ("IRC"). Since the Company was in a net unrealized built-in gain position the Company's annual IRC section 382 limitation will likely increase over the next five years resulting in realized built-in gains. No loss of the net operating loss utilization should result from the Merger.
The asset and liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's valuation allowance related to its deferred tax assets, which was $27.1 million at March 31, 2015, was released during the first quarter of fiscal 2016 based on the weight of positive evidence that the deferred tax assets will be realized due to the reclassification of certain tradenames from indefinite-lived to finite-lived, effective April 1, 2015. In the past, the Company's deferred tax liabilities related to indefinite-lived intangible assets were not considered a future source of income to support the realization of deferred tax assets within the net operating loss carryforward period.
As of March 31, 2016 and 2015, the Company's accrued liabilities for uncertain tax positions related to federal and state income taxes, including interest and penalties, amounted to $0.2 million and $1.3 million, respectively, and are reflected in other non-current liabilities in the accompanying consolidated balance sheets.
The total amount of unrecognized tax benefits as of March 31, 2016 and 2015 was $0.2 million and $0.7 million, respectively. Approximately $0.2 million of this amount would, if recognized, have an effect on the effective income tax rate. In addition to the unrecognized tax benefits, the Company recognized $0.4 million of interest benefit and $0.1 million penalty benefit for fiscal 2016 and had accrued interest and penalties of $0.1 million as of March 31, 2016.
A reconciliation of the change in the unrecognized tax benefits from April 1, 2014 to March 31, 2016 is as follows (in thousands):
|
| | | |
| Balance, April 1, 2014 | $ | 693 |
|
| Increases for tax positions taken during a prior period | — |
|
| Decreases for tax positions taken during a prior period | — |
|
| Lapse of statute of limitations | — |
|
| Balance, March 31, 2015 | $ | 693 |
|
| Decreases for tax positions taken during a prior period | (525 | ) |
| Balance, March 31, 2016 | $ | 168 |
|
The Company has identified its “major” tax jurisdictions to include the U.S. government and the states of California, Florida and New York. The Company's fiscal 2013 through 2015 federal tax returns remain open by statute. The Company's major state tax jurisdictions subject to examination are fiscal 2012 through 2015.
Note 8 - Related Party Transactions
As discussed in Note 4, "Revolving Credit Facility," during fiscal 2015, the Investors became a lending party to the Revolving Credit Facility. During fiscal 2016 and 2015, the Company paid approximately $0.1 million and $0.8 million, respectively, in lender fees pursuant to the amendments to the Revolving Credit Facility, which are included in deferred financing costs in the accompanying consolidated financial statements.
As discussed in Note 5, "Senior Secured Notes," during fiscal 2015, the Company entered into the Debt for Equity Exchange Agreement with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of Senior Secured Notes of the Company, plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent. Also during fiscal 2015, the Company repurchased $56.1 million in aggregate principal amount of Senior Secured Notes, plus accrued and unpaid interest, in the open market, from the Investors. In addition, during fiscal 2015, the Company exchanged approximately $32.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors for approximately $39.0 million in aggregate principal amount of New Second Lien Notes.
As discussed in Note 5, "Senior Secured Notes," during fiscal 2016, the Company repurchased $2.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors. Also, in March 2016, the Company exchanged approximately $58.9 million in aggregate principal amount of Firstfirst lien notes (the "First Lien Notes,Notes"), plus accrued and unpaid interest, held by the Investors for approximately $76.0 million in aggregate principal amount of Newnew second lien notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes. Notes").
In addition, in March 2016, the Company issued approximately $76.2 million in aggregate principal amount of New Second Lien Notes in a distribution to certain holders of equity interests in the Parent, of which approximately $68.8 million was issued to certain Investors and approximately $7.4 million was issued to theAMI's Chief Executive Officer and approximately $7.3 million aggregate principal amount of New Second Lien Notes were issued to an affiliate of the Investors in exchange for cash.
Lastly, in March 2016, the Company paidreceived consents from the holders of the First Lien Notes and the New Second Lien Notes to amend the indentures governing the First Lien Notes and the New Second Lien Notes. Holders of the First Lien Notes that delivered a Consent Feeconsent were entitled to receive cash consideration equal to 1% of the principal amount of First Lien Notes for which consents were delivered (the "Consent Fee"). The Company paid approximately $2.5 million in Consent Fees to the Investors, which are included in deferred financing costs in the accompanying consolidated financial statements.
Mr. Elkins, a former member of our Board of Directors provided certain financial advisory servicesInvestors. No consent fee was paid to the Company through Roxbury Advisory, LLC ("Roxbury"), a company controlled by Mr. Elkins, while he was a member of our Board of Directors. During fiscal 2015, the consulting agreement between Roxbury and the Company was terminated. Payments for the services received from Roxbury totaled $50,000 and $120,000 during fiscal 2015 and 2014, respectively, and the Company had no outstanding payables to Roxbury at March 31, 2016 and 2015.
Note 9 - Investments in Affiliates and Redeemable Noncontrolling Interests
Consolidated Joint Ventures
Mr. Olympia, LLC
In April 2005, the Company entered into a limited liability company agreement to form a joint venture, Mr. Olympia, LLC (“Olympia”), to manage and promote the Mr. Olympia fitness events. At any time prior to October 2019, the Company could be required to purchase all the limited liability company units, from the other limited liability company member, for a fixed price of $3.0 million cash (the "Olympia Put Option"). Any time from October 2019 through April 2020, the Company could require the other limited liability company member to sell, to the Company, all its limited liability company units for $3.0 million cash (the “Olympia Call Option”).
In April 2005, the other limited liability company member licensed certain trademarks related to the Mr. Olympia fitness events (collectively, the “Olympia Trademarks”) to Olympia for $3.0 million, payable by the Company over a 10-year period (the “License Fee”). Upon the exerciseholders of the Olympia Put Option or the Olympia Call Option, the ownership of the Olympia Trademarks will be transferred to Olympia. If the Olympia Put Option or the Olympia Call Option is not exercised, then Olympia will retain the license to the Olympia Trademarks in perpetuity. The License Fee has been recorded as other identified intangibles, and the final payment was made in April 2013.
The Company has a variable interest in the Olympia joint venture, a variable interest entity. The Olympia joint venture is deemed a variable interest entity because there is insufficient equity investment at risk. The Company concluded it is the primary beneficiary because the holder of the Olympia Put Option has the ability to cause the Company to absorb the potential losses of the joint venture and the Company controls the activities that most significantly impact the economic performance of Olympia. As a result, the Company accounts for the Olympia joint venture as a consolidated subsidiary.
The Company follows the accounting for noncontrolling interest in equity that is redeemable at terms other than fair value. Accordingly, the Company has reflected the noncontrolling interest's equity within temporary equity for the Olympia joint venture as the Olympia joint venture’s securities are currently redeemable, pursuant to the terms of the Olympia Put Option. As a result, the Company has recorded the Olympia Put Option, at a minimum, equal to the maximum redemption amount as “Redeemable noncontrolling interests” in the accompanying financial statements.
Effective September 2015, the Company and the other limited liability company member agreed that the distributions made, by Olympia, to the other limited liability company member would be $1.0 million per year, without deduction or offset, and would represent the only distribution payments to which the other limited liability company member would be entitled to as a member of Olympia.
Olympia’s net income attributable to noncontrolling interests was $1.0 million, $1.2 million and $1.1 million during fiscal 2016, 2015 and 2014, respectively.
Zinczenko-AMI Media Ventures, LLC
In February 2013, the Company entered into a limited liability company agreement to form a joint venture, Zinczenko-AMI Media Ventures, LLC ("ZAM"), to create a book publishing division. ZAM was initially capitalized by the Company and the other limited liability company member (the "ZAM LLC Member") and the Company and the ZAM LLC Member each received an initial ownership interest of 51% and 49%, respectively, in ZAM. In accordance with the terms of the limited liability company agreement, the Company is responsible for the day-to-day operations and management of ZAM.
The Company has a variable interest in the ZAM joint venture, a variable interest entity. The ZAM joint venture is deemed a variable interest entity because there is insufficient equity investment at risk. The Company concluded it is the primary beneficiary because the Company controls the activities that most significantly impact the economic performance of ZAM as manager of the day-to-day operations. As a result, the Company accounts for the ZAM joint venture as a consolidated subsidiary.
The operating results of ZAM were insignificant to the Company's consolidated financial statements during fiscal 2016, 2015 and 2014.
Redeemable Financial Instrument
Odyssey Magazine Publishing Group, Inc. (formerly known as Odyssey Magazine Publishing Group, LLC)
In June 2011, the Company entered into a limited liability company agreement to form a joint venture, Odyssey Magazine Publishing Group, LLC (“Odyssey”). Odyssey was initially capitalized by the Company and the other limited liability company member (the “Odyssey LLC Member”) with a total of $23.0 million in cash, and the Company and the Odyssey LLC Member each received an initial 50% ownership interest in Odyssey. In April 2012, pursuant to the exercise of a put option by the Odyssey LLC Member, the Company and the Odyssey LLC Member entered into a membership interest purchase agreement (the “Membership Interest Purchase Agreement”), which required the Company to purchase all of the Odyssey LLC Member’s interest in Odyssey.
In August 2012, Odyssey was converted from a limited liability company to a corporation (the “LLC Conversion”) and its name was changed to Odyssey Magazine Publishing Group, Inc. (“Odyssey Corporation”). Concurrent with the LLC Conversion, the membership interest held by each of the Company and the Odyssey LLC Member in Odyssey was canceled and converted into (i) for the Company, 1,000 shares of Common Stock and 731 shares of series A preferred stock in Odyssey Corporation, and (ii) for the Odyssey LLC Member, 269 shares of series A preferred stock in Odyssey Corporation. In connection with the LLC Conversion, the Company and the Odyssey LLC Member entered into a preferred stock purchase agreement (the “Preferred Stock Purchase Agreement”), wherein the Company purchased the Odyssey LLC Member’s shares of series A preferred stock in Odyssey Corporation and the Membership Interest Purchase Agreement was terminated. The Preferred Stock Purchase Agreement was paid in full as of March 31, 2014.
Redeemable Noncontrolling Interests
The following table reconciles equity attributable to the redeemable noncontrolling interests at March 31st (in thousands):
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| Balance, beginning of year | $ | 3,000 |
| $ | 3,000 |
| $ | 3,000 |
|
| Capital distributions | (1,050 | ) | (1,253 | ) | (1,004 | ) |
| Net income attributable to noncontrolling interests | 1,000 |
| 1,236 |
| 1,056 |
|
| Other | 50 |
| 17 |
| (52 | ) |
| Balance, end of year | $ | 3,000 |
| $ | 3,000 |
| $ | 3,000 |
|
Unconsolidated Joint Ventures
We have other joint ventures that we do not consolidate as we lack the power to direct the activities that significantly impact the economic performance of these entities. The Company's investments in affiliates are carried at the fair value of the investment consideration at the date acquired, plus the Company's equity in undistributed earnings from that date. Unless otherwise disclosed below, the operating results of our unconsolidated joint ventures were insignificant to the Company's consolidated financial statements for fiscal 2016, 2015 and 2014.
Radar Online, LLC
In October 2008, the Company entered into a limited liability company agreement to form Radar Online, LLC, a joint venture ("Radar"), to manage Radar Online, a website focusing on celebrity and entertainment news. Though the Company owns 50% of Radar and can exercise significant influence, it does not control the activities that most significantly impact the economic performance of this joint venture. As a result, the Company accounts for the investment in Radar using the equity method. The operating results of Radar were insignificant to the Company’s consolidated financial statements for fiscal 2016, 2015 and 2014. The management fees receivable from Radar totaled $2.1 million and $1.9 million as of March 31, 2016 and 2015, respectively, and is presented within other long-term assets in the accompanying consolidated financial statements.
Select Media Services, LLC
In September 2013, the Company contributed substantially all of its assets, comprising the Company's distribution and merchandising businesses operated by In Store Services, Inc., formerly known as Distribution Services, Inc. ("DSI"), a wholly-owned subsidiary of American Media, Inc., and $2.3 million in cash in exchange for a 27.5% membership interest in Select Media Services, LLC, a joint venture ("Select"), which operates as a merchandising and in-store services business. Though the Company can exercise significant influence, it does not control the activities that most significantly impact the economic performance of this joint venture. As a result, the Company accounts for the investment in Select using the equity method.
The membership interest and cash contribution in Select was adjusted in September 2014, pursuant to a one-time retroactive adjustment back to September 2013. The Company's membership interest has been replaced with a participation interest in the earnings of Select and the initial capital contribution was refunded to the Company in October 2014 along with the distribution of the Company's participation interest for the twelve months ended August 31, 2014.
During fiscal 2016, the Company's participation interest in Select was modified and Select redeemed the Company's interest in Select for approximately $1.7 million, which is reflected in other revenues in the accompanying consolidated financial statements.
The operating results of Select were insignificant to the Company’s consolidated financial statements for fiscal 2016, 2015 and 2014.
Note 10 - Dispositions
Shape, Fit Pregnancy and Natural Health
In January 2015, the Company and Weider Publications, LLC, a wholly-owned subsidiary of the Company, entered into an asset purchase agreement (the "Purchase Agreement") with Meredith Corporation ("Meredith"). The Purchase Agreement provides for the sale of the Company's Shape, Fit Pregnancy and Natural Health brands and magazines, which comprised its Women's Active Lifestyle segment. The Company received the initial cash consideration of $60.0 million on January 30, 2015 when the transaction closed. The Company is further entitled to additional consideration (the "Additional Consideration"), in the form of a one-time payment, following the completion of Meredith's 2018 fiscal year on June 30, 2018. The Additional Consideration, up to $60.0 million, will be based upon 40% of the adjusted operating profit of the combination of the Company's Shape brand and Meredith's Fitness brand.
Pursuant to the Purchase Agreement, the Company continued to publish the Shape, Fit Pregnancy and Natural Health magazines with on-sale dates through March 31, 2015, after which Meredith assumed publishing responsibilities for such titles. Effective as of the closing, Meredith assumed control over the digital assets used with Shape, Fit Pregnancy and Natural Health. The Company will have no continuing involvement in the operations of these publications subsequent to March 31, 2015.
Net revenue, pre-tax income (loss) from discontinued operations, income tax provision (benefit) and income from discontinued operations, net of income taxes are as follows, in thousands:
|
| | | | | | |
| | For the Years Ended |
| | March 31, 2015 |
| March 31, 2014 |
|
| Net revenue | $ | 53,123 |
| $ | 56,875 |
|
| Pre-tax income (loss) from discontinued operations | (245 | ) | 6,319 |
|
| Income tax provision (benefit) | (15,579 | ) | 2,618 |
|
| Income from discontinued operations, net of income taxes | $ | 15,334 |
| $ | 3,701 |
|
Country Weekly
In November 2014, we sold our Country Weekly publication for approximately $3 million in cash and entered into a long-term publishing services agreement for $1 million. The operating results of Country Weekly were insignificant to the Company's consolidated financial statements for the fiscal years ended March 2015 and 2014 and did not meet the criteria for presentation of discontinued operations. It is the Company's policy to present gains and losses from the sale of businesses that do not meet the criteria for presentation as discontinued operations within other income (expenses) in the accompanying consolidated financial statements.
Note 11 - Commitments and Contingencies
Litigation
On March 10, 2009, Anderson News, L.L.C. and Anderson Services, L.L.C., magazine wholesalers (collectively, “Anderson”), filed a lawsuit against American Media, Inc., DSI (now known as In-Store Services, Inc.), and various magazine publishers, wholesalers and distributors in the Federal District Court for the Southern District of New York (the “Anderson Action”). Anderson's complaint alleged that the defendants violated Section 1 of the Sherman Act by engaging in a purported industry-wide conspiracy to boycott Anderson and drive it out of business. Plaintiffs also purported to assert claims for defamation, tortious interference with contract and civil conspiracy. The complaint did not specify the amount of damages sought. On August 2, 2010, the District Court dismissed the action in its entirety with prejudice and without leave to replead and, on October 25, 2010, denied Anderson's motion for reconsideration of the dismissal decision. Anderson appealed the District Court's decisions.
On April 3, 2012, the Second Circuit issued a decision reversing the dismissal of the lawsuit and reinstating the antitrust and state law claims (except the defamation claim, which Anderson withdrew), and, on January 7, 2013, the United States Supreme Court declined to review the Second Circuit decision. Following the Second Circuit decision, the case was remanded to the District Court and the parties engaged in discovery. On February 14, 2014, American Media, Inc. filed an amended answer and counterclaim in the Anderson Action asserting an antitrust claim against Anderson News, L.L.C. and Charles Anderson, Jr. based on the same events as Anderson’s claims. Two other defendants also filed the same counterclaim. Fact discovery was completed in May 2014 and expert discovery was completed in October 2014. Anderson submitted an expert report calculating that damages are approximately $470 million, which would be subject to trebling should Anderson prevail against the defendants in the lawsuit. Defendants, including American Media, Inc. and DSI, also submitted an expert report on damages, which opines that, separate and apart from the question of liability, Anderson has suffered no damages.
On December 15, 2014, the parties in the Anderson Action filed motions for summary judgment and to exclude certain proposed expert testimony. On August 20, 2015, the District Court granted the summary judgment motion filed by American Media, Inc., DSI and the other defendants, dismissing all of Anderson’s claims against defendants, and granted in part the motions to exclude certain of Anderson’s proposed expert testimony. The court also granted summary judgment dismissing the counterclaim filed by American Media, Inc. and the two other defendants, but did not grant Anderson’s motion to strike defendants’ expert testimony. On August 25, 2015, Anderson filed its notice of appeal of the District Court’s decision granting defendants’ motions. On September 15, 2015, American Media, Inc. filed its notice of appeal of the District Court’s decision granting the motion for summary judgment dismissing the counterclaim. Anderson filed its appellate brief with the U.S. Court of Appeals for the Second Circuit (the “Court of Appeals”) on December 8, 2015. American Media, Inc. and DSI filed their appellate brief with the Court of Appeals on March 8, 2016. The briefing of the appeals was completed in May 2016.
Anderson is in chapter 11 bankruptcy proceedings in Delaware bankruptcy court. On June 10, 2010, American Media, Inc. filed a proof of claim in that proceeding for $5.6 million (which it amended on December 3, 2013 to reflect the counterclaim (described above) it planned to file in the Anderson Action), but Anderson asserts that it has no assets to pay unsecured creditors like American Media, Inc. An independent court-appointed examiner has identified claims that Anderson could assert against Anderson insiders in excess of $340.0 million.
In an order of the Delaware bankruptcy court, entered on November 14, 2011, American Media, Inc. and four other creditors (collectively, the “Creditors”), which also are defendants in the Anderson Action, were granted the right to file lawsuits against Anderson insiders asserting Anderson's claims identified by the examiner. The Creditors' retention of counsel to pursue the claims on a contingency fee basis was also approved. On November 14, 2011, pursuant to this order, a complaint was filed against 10 defendants. After a temporary stay of discovery pending conclusion of fact discovery in the Anderson Action, discovery in the bankruptcy action proceeded. On December 12, 2014, defendants in the adversary action moved for partial summary judgment seeking dismissal of certain of the Creditors’ claims. The motion was denied on June 11, 2015.
While it is not possible to predict the outcome of the Anderson Action or to estimate the impact on American Media, Inc. and DSI of a final judgment against American Media, Inc. and DSI (if that were to occur), American Media, Inc. and DSI believe that the claims asserted by Anderson, in the Anderson Action, are meritless. American Media, Inc. and DSI have antitrust claim insurance that covers defense costs. American Media, Inc. and DSI have filed a claim for insurance coverage with regard to the Anderson Action and certain of their defense costs are being paid by the insurer, and, in the event of a settlement or a damages award by the Court and subject to the applicable policy limits, American Media, Inc. and DSI anticipate seeking reimbursement from the insurer for payment of such settlement or damages. American Media, Inc. and DSI will continue to vigorously defend the case.
In addition, because the focus of some of our publications often involves celebrities and controversial subjects, the risk of defamation or invasion of privacy litigation exists. Our experience indicates that the claims for damages made in celebrity lawsuits are usually inflated and such lawsuits are usually defensible and, in any event, any reasonably foreseeable material liability or settlement would likely be covered by insurance, subject to any applicable deductible and limit. We also periodically evaluate and assess the risks and uncertainties associated with our pending litigation disregarding the existence of insurance that would cover liability for such litigation. At present, in the opinion of management, after consultation with outside legal counsel, the liability resulting from pending litigation, even if insurance were not available, is not expected to have a material effect on our consolidated financial statements.
Long-Term Agreements
The Company has several long-term agreements related to the printing, pre-press and fulfillment of publications. Based on current pricing and production levels, future commitments under these agreements are estimated as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Fiscal Year | Printing | Pre-Press | Fulfillment | Transportation | Total |
| 2017 | $ | 23,587 |
| $ | 631 |
| $ | 3,516 |
| $ | 3,819 |
| $ | 31,553 |
|
| 2018 | 24,115 |
| 631 |
| 3,516 |
| 3,904 |
| 32,166 |
|
| 2019 | 24,655 |
| 315 |
| 3,516 |
| 2,994 |
| 31,480 |
|
| 2020 | 25,207 |
| — |
| 2,637 |
| — |
| 27,844 |
|
| 2021 | 25,771 |
| — |
| — |
| — |
| 25,771 |
|
| Thereafter | 46,551 |
| — |
| — |
| — |
| 46,551 |
|
| Total | $ | 169,886 |
| $ | 1,577 |
| $ | 13,185 |
| $ | 10,717 |
| $ | 195,365 |
|
Operating Leases
During fiscal 2016, the Company leased offices, facilities and equipment under operating lease agreements. The leases for our offices and facilities expire between 2017 and 2023, and some of these leases are subject to our renewal. Total rent expense charged to operations for all such leases was approximately $3.3 million, $3.6 million and $3.4 million for fiscal 2016, 2015 and 2014, respectively. Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term. The future minimum lease payments under operating leases are estimated as follows (in thousands):
|
| | | |
| Fiscal Year | |
| 2017 | $ | 2,945 |
|
| 2018 | 3,107 |
|
| 2019 | 3,120 |
|
| 2020 | 3,120 |
|
| 2021 | 3,120 |
|
| Thereafter | 5,590 |
|
| Total | $ | 21,002 |
|
Other Agreements
The Company has several long-term consulting agreements with unrelated third parties to assist with the marketing of its brands. The future payments under these agreements are estimated as follows (in thousands):
|
| | | |
| Fiscal Year | |
| 2017 | $ | 6,981 |
|
| 2018 | 6,613 |
|
| 2019 | 5,642 |
|
| 2020 | 5,642 |
|
| 2021 | 4,231 |
|
| Thereafter | — |
|
| Total | $ | 29,109 |
|
Note 12 - Licensing and Publishing Services Agreements
Licensing Agreements
During fiscal 2015, the Company entered into a long-term licensing agreement (the "Licensing Agreement") with an unrelated third party (the "Licensee") pursuant to which the Company granted a license for the international publication, in print and digital formats, of Men's Fitness, Muscle & Fitness, Flex and Muscle & Fitness Hers. Upon execution of the Licensing Agreement, the Company received $0.9 million as a guaranteed minimum royalty over the term of the agreement. The Licensing Agreement contributed approximately $0.3 million in revenues during fiscal 2016. The Company is further entitled to additional royalties if actual earned royalties exceed the guaranteed minimum royalty.
Publishing Services
In November 2009, the Company entered into a long-term publishing services agreement with Playboy Enterprises, Inc. (“Playboy”), pursuant to which the Company assumed responsibility for Playboy magazine's advertising sales and marketing, circulation and production management, newsstand distribution and back office financial services. Playboy compensated the Company for these services through fees and commissions for advertising sales on print and digital revenues, in addition to certain cost savings and subscription revenue incentives. The Playboy publishing services agreement terminated in December 2014 and contributed $1.3 million and $3.5 million in revenues and $1.0 million and $1.8 million of operating income during fiscal 2015 and 2014, respectively.
Note 13 - Business Segment Information
After the divestiture of Shape, Fit Pregnancy and Natural Health in January 2015, which comprised our Women's Actively Lifestyle segment, the Company has three reporting segments: Celebrity Brands, Men’s Active Lifestyle and Corporate and Other. The operating segments are based on each having the following characteristics: the operating segments engage in similar business activities from which they earn revenues and incur expenses; the operating results are regularly reviewed by the chief operating decision maker (the "CODM"), and there is discrete financial information. The Company does not aggregate any of its operating segments.
The Celebrity Brands segment includes National Enquirer, Star, Globe, National Examiner, OK! and Soap Opera Digest.
The Men’s Active Lifestyle segment includes Men’s Fitness, Muscle & Fitness, Flex and Muscle & Fitness Hers.
The Corporate and Other segment includes international licensing, photo syndication to third parties and corporate overhead. Corporate overhead expenses are not allocated to other segments and include production, circulation, executive staff, information technology, accounting, legal, human resources and administration department costs. The Corporate and Other segment also includes print and digital advertising sales and strategic management direction in the following areas: manufacturing, subscription circulation, logistics, event marketing and full back office financial functions.
The Company’s accounting policies for the business segments are the same as those described in Note 2, "Summary of Significant Accounting Policies." The following information includes certain intersegment transactions and is, therefore, not necessarily indicative of the results had the operations existed as stand-alone businesses. Intersegment transactions represent intercompany services, which are billed at what management believes are prevailing market rates. These intersegment transactions, which represent transactions between operating units in different business segments, are eliminated in consolidation.
Segment information for fiscal 2016, 2015 and 2014 and the assets employed as of March 31, 2016 and 2015 are as follows (in thousands):
|
| | | | | | | | | | | |
| | Fiscal years ended March 31, |
| 2016 | | 2015 | | 2014 |
| Operating revenues |
| Celebrity Brands | $ | 164,367 |
| | $ | 179,825 |
| | $ | 202,580 |
|
| Men's Active Lifestyle Group | 55,622 |
| | 59,226 |
| | 66,698 |
|
| Corporate and Other | 3,052 |
| | 6,129 |
| | 18,068 |
|
| Total operating revenues | $ | 223,041 |
| | $ | 245,180 |
| | $ | 287,346 |
|
| Operating income (loss) |
| Celebrity Brands | $ | 54,133 |
| | $ | 67,915 |
| | $ | 73,276 |
|
| Men's Active Lifestyle Group | 13,107 |
| | (5,846 | ) | | 11,730 |
|
| Corporate and Other | (41,538 | ) | | (67,850 | ) | | (51,221 | ) |
| Total operating income (loss) | $ | 25,702 |
| | $ | (5,781 | ) | | $ | 33,785 |
|
| Depreciation and amortization |
| Celebrity Brands | $ | 13,155 |
| | $ | 1,787 |
| | $ | 3,545 |
|
| Men's Active Lifestyle Group | 3,852 |
| | 2,478 |
| | 824 |
|
| Corporate and Other | 9,475 |
| | 9,700 |
| | 9,066 |
|
| Total depreciation and amortization | $ | 26,482 |
| | $ | 13,965 |
| | $ | 13,435 |
|
| Impairment of goodwill and intangible assets |
| Men's Active Lifestyle Group | $ | — |
| | $ | 17,403 |
| | $ | 9,238 |
|
| Corporate and Other | — |
| | 1,055 |
| | — |
|
| Total impairment of goodwill and intangible assets | $ | — |
| | $ | 18,458 |
| | $ | 9,238 |
|
| Amortization of deferred rack costs |
| Celebrity Brands | $ | 4,939 |
| | $ | 5,391 |
| | $ | 6,170 |
|
| Men's Active Lifestyle Group | 60 |
| | 74 |
| | 64 |
|
| Total amortization of deferred rack costs | $ | 4,999 |
| | $ | 5,465 |
| | $ | 6,234 |
|
|
| | | | | | | |
| Total Assets | March 31,
2016 | | March 31,
2015 |
| Celebrity Brands | $ | 315,404 |
| | $ | 330,850 |
|
| Men's Active Lifestyle Group | 80,457 |
| | 86,775 |
|
| Corporate and Other (1) | 25,856 |
| | 48,400 |
|
| Total assets | $ | 421,717 |
| | $ | 466,025 |
|
(1) Amounts are primarily comprised of inventories, prepaid expenses, property and equipment, deferred financing costs and certain other assets.
Geographic Data
The Company operates principally in two geographic areas, the United States of America and Europe (primarily the United Kingdom). There were no significant transfers between geographic areas during the three fiscal years ended March 31, 2016. The following tables present revenue by geographic area for fiscal 2016, 2015 and 2014 and the assets employed as of March 31, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| | Fiscal years ended March 31, |
| 2016 | | 2015 | | 2014 |
| Operating revenues: | | | | | |
| United States of America | $ | 217,349 |
| | $ | 234,554 |
| | $ | 275,161 |
|
| Europe | 5,692 |
| | 10,626 |
| | 12,185 |
|
| Total operating revenues | $ | 223,041 |
| | $ | 245,180 |
| | $ | 287,346 |
|
|
| | | | | | | |
| March 31,
2016 | | March 31,
2015 |
| Assets: | | | |
| United States of America | $ | 415,422 |
| | $ | 458,197 |
|
| Europe | 6,295 |
| | 7,828 |
|
| Total assets | $ | 421,717 |
| | $ | 466,025 |
|
Note 14 - Capital Structure
As discussed in Note 1, "Nature of the Business," in August 2014, pursuant to the Merger Agreement, certain Investors of the Company acquired 100% of the issued and outstanding shares of common stock of the Company through the Merger, with the Company surviving the Merger.
Prior to the Merger, the Company had authorized 15,000,000 shares of stock, comprised of 1,000,000 shares of $0.0001 par value preferred stock and 14,000,000 shares of $0.0001 par value common stock. The Board of Directors could determine the rights, preferences and limitations of the preferred stock when issued. Prior to the Merger, there were no shares of preferred stock issued or outstanding, 10,000,000 shares of common stock were issued and outstanding and 1,172,150 shares of restricted common stock were issued and outstanding. See "Stock Based Compensation" below for a further description of the Equity Incentive Plan regarding the shares of restricted common stock.
In accordance with the Merger Agreement, each share of the Company’s common stock issued and outstanding immediately prior to the Merger, including any shares of restricted stock of the Company, were converted into the right to receive $0.1795 per share in cash, and each share of the Company’s common stock was canceled and retired and ceased to exist.
Each share of common stock of the Merger Sub outstanding immediately prior to the Merger was converted into and exchanged for one validly issued, fully paid and non-assessable share of the Company’s common stock. Immediately prior to the Merger, Merger Sub had 100 shares of common stock issued and outstanding. As result, immediately after the Merger, the Company has 100 shares of common stock issued and outstanding, which are owned by the Parent.
Subsequent to the Merger, the Company had authorized 68,000,000 shares of stock, comprised of 1,000,000 shares of $0.0001 preferred stock and 67,000,000 shares of $0.0001 par value common stock. In November 2014, the Company amended the certificate of incorporation of AMI to, among other things, amend the authorized shares of stock. As a result, the Company has authorized 100 shares of $0.0001 par value common stock. At March 31, 2016, there were 100 shares of common stock issued and outstanding.
As discussed in Note 5, "Senior Secured Notes," in September 2014, pursuant to the Debt for Equity Exchange Agreement with the Parent and the Investors, the Investors exchanged approximately $121.1 million aggregate principal amount of Senior Secured Notes, plus accrued and unpaid interest of approximately $2.9 million, for additional equity interests in the Parent.
Also, in September 2014, the Parent made a capital contribution to the Company of approximately $0.6 million in cash.
As discussed in Note 5, "Senior Secured Notes," in March 2016, a non-cash equity distribution was made to certain holders of equity interests in the Parent totaling approximately $62.5 million in exchange for approximately $76.2 million in aggregate principal amount of Additional New Second Lien Notes.
We did not make any dividend payments in fiscal 2016, 2015 or 2014,For further information regarding our revolving credit facility, First Lien Notes and we do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our RevolvingNew Second Lien Notes, see Note 4, "Revolving Credit Facility restrict our ability to pay dividends,Facility" and any future indebtedness that we may incur could preclude us from paying dividends. With respect to the dividend restriction, the Revolving Credit Facility and the Supplemental Indentures include a cap on the total amount of cash available for distributionNote 5, "Senior Secured Notes" to our common stockholders.
Stock Based Compensation
In December 2010, the Company adopted an equity incentive plan (the “Equity Incentive Plan”), which provided for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards and performance compensation awards to incentivize and retain directors, officers, employees, consultants and advisors. Under the terms of the Equity Incentive Plan, the Compensation Committee of the Board of Directors administered the Equity Incentive Plan and had the authority to determine the recipients to whom awards were made, the amount of the awards, the terms of the vesting and other terms as applicable.
Equity Incentive Plan
In December 2010, the Compensation Committee was authorized to issue up to 1.1 million shares of the Company's common stock through the issuance of restricted stock awards. In July 2013, the Compensation Committee was authorized to issue up to an additional 500,000 shares of the Company's common stock through the issuance of restricted awards.
The shares of restricted stock fully vest upon the earlier to occur of a change of control or an initial public offering, each as defined in the Equity Incentive Plan (a “Liquidity Event”). The holders of the restricted stock were entitled to receive dividends, if and when declared by the Company, and could have exercised voting rights with respect to the common shares while the shares were restricted.
During fiscal 2014 and 2015, the Compensation Committee granted 102,500 and 75,600 restricted shares, respectively, to certain key officers, employees and directors under the same terms of the restricted stock grants in fiscal 2011. Certain former employees and directors forfeited their shares of restricted stock upon termination of their employment with the Company or service to the Board of Directors, as applicable, totaling 65,417 and 31,600 during fiscal 2014 and 2015, respectively.
Immediately prior to the Merger, there were 1,172,150 shares of restricted common stock issued and outstanding. In August 2014, as a result of the Merger, a change of control of the Company (which was a Liquidity Event under the Equity Incentive Plan) occurred and the Company recognized stock based compensation expense of approximately $210,000, in accordance with FASB ASC 718, Compensation - Stock Compensation. In connection with the Merger, the Equity Incentive Plan was terminated.
Note 15 - Supplemental Condensed Consolidating Financial Information
The following tables present condensed consolidatingconsolidated financial statements of (a) the parent company, American Media, Inc., as issuer of the Senior Secured Notes; (b) on a combined basis, the subsidiary guarantors of the Senior Secured Notes; and (c) on a combined basis, the subsidiaries that are not guarantors of the Senior Secured Notes. Separate financial statements of the subsidiary guarantors are not presented because the parent company owns all outstanding voting stock of each of the subsidiary guarantors and the guarantee by each subsidiary guarantor is full and unconditional and joint and several. As a result and in accordance with Rule 3-10(f) of Regulation S-X under the Securities Exchange Act of 1934, as amended, the Company includes the following tables in these notes to the condensed consolidated financial statements:
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 102 |
| | $ | 1,284 |
| | $ | — |
| | $ | 1,386 |
|
| Trade receivables, net | — |
| | 22,045 |
| | 411 |
| | — |
| | 22,456 |
|
| Inventories | — |
| | 1,323 |
| | 20 |
| | — |
| | 1,343 |
|
| Prepaid expenses and other current assets | — |
| | 14,329 |
| | 128 |
| | (5,487 | ) | | 8,970 |
|
| Total current assets | — |
| | 37,799 |
| | 1,843 |
| | (5,487 | ) | | 34,155 |
|
| PROPERTY AND EQUIPMENT, NET: | | | | | | | | | |
| Leasehold improvements | — |
| | 3,732 |
| | — |
| | — |
| | 3,732 |
|
| Furniture, fixtures and equipment | — |
| | 21,428 |
| | 40 |
| | — |
| | 21,468 |
|
| Less – accumulated depreciation | — |
| | (16,459 | ) | | (29 | ) | | — |
| | (16,488 | ) |
| Total property and equipment, net | — |
| | 8,701 |
| | 11 |
| | — |
| | 8,712 |
|
| OTHER ASSETS: | | | | | | | | | |
| Deferred financing costs, net | 8,129 |
| | — |
| | — |
| | — |
| | 8,129 |
|
| Deferred rack costs, net | — |
| | 3,284 |
| | — |
| | — |
| | 3,284 |
|
| Investments in affiliates | 545,413 |
| | 365 |
| | — |
| | (544,056 | ) | | 1,722 |
|
| Other long-term assets | 53,434 |
| | 2,623 |
| | — |
| | (53,434 | ) | | 2,623 |
|
| Due from affiliates | — |
| | 290,285 |
| | — |
| | (290,285 | ) | | — |
|
| Total other assets | 606,976 |
| | 296,557 |
| | — |
| | (887,775 | ) | | 15,758 |
|
| GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS: | | | | | | |
| Goodwill | — |
| | 149,488 |
| | 4,510 |
| | — |
| | 153,998 |
|
| Other identified intangibles, net | — |
| | 203,094 |
| | 6,000 |
| | — |
| | 209,094 |
|
| Total goodwill and other identified intangible assets | — |
| | 352,582 |
| | 10,510 |
| | — |
| | 363,092 |
|
| TOTAL ASSETS | $ | 606,976 |
| | $ | 695,639 |
| | $ | 12,364 |
| | $ | (893,262 | ) | | $ | 421,717 |
|
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | |
| Accounts payable | $ | — |
| | $ | 10,582 |
| | $ | 108 |
| | $ | — |
| | $ | 10,690 |
|
| Accrued expenses and other liabilities | — |
| | 20,178 |
| | (31 | ) | | — |
| | 20,147 |
|
| Accrued interest | 9,426 |
| | — |
| | — |
| | — |
| | 9,426 |
|
| Deferred revenues | — |
| | 25,767 |
| | 843 |
| | — |
| | 26,610 |
|
| Total current liabilities | 9,426 |
| | 56,527 |
| | 920 |
| | — |
| | 66,873 |
|
| NON-CURRENT LIABILITIES: | | | | | | | | | |
| Senior secured notes | 378,718 |
| | — |
| | — |
| | — |
| | 378,718 |
|
| Revolving credit facility | 15,200 |
| | — |
| | — |
| | — |
| | 15,200 |
|
| Other non-current liabilities | — |
| | 7,035 |
| | — |
| | — |
| | 7,035 |
|
| Deferred income taxes | — |
| | 92,578 |
| | (245 | ) | | (58,921 | ) | | 33,412 |
|
| Due to affiliates | 286,153 |
| | — |
| | 4,132 |
| | (290,285 | ) | | — |
|
| Total liabilities | 689,497 |
| | 156,140 |
| | 4,807 |
| | (349,206 | ) | | 501,238 |
|
| COMMITMENTS AND CONTINGENCIES | | | | | | |
| Redeemable noncontrolling interests | — |
| | — |
| | 3,000 |
| | — |
| | 3,000 |
|
| STOCKHOLDERS' (DEFICIT) EQUITY: | | | | | | | | | |
| Total stockholders' (deficit) equity | (82,521 | ) | | 539,499 |
| | 4,557 |
| | (544,056 | ) | | (82,521 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | $ | 606,976 |
| | $ | 695,639 |
| | $ | 12,364 |
| | $ | (893,262 | ) | | $ | 421,717 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2015
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 1,040 |
| | $ | 2,412 |
| | $ | — |
| | $ | 3,452 |
|
| Trade receivables, net | — |
| | 38,058 |
| | 1,354 |
| | — |
| | 39,412 |
|
| Inventories | — |
| | 739 |
| | 134 |
| | — |
| | 873 |
|
| Prepaid expenses and other current assets | — |
| | 16,207 |
| | 636 |
| | (5,487 | ) | | 11,356 |
|
| Total current assets | — |
| | 56,044 |
| | 4,536 |
| | (5,487 | ) | | 55,093 |
|
| PROPERTY AND EQUIPMENT, NET: | | | | | | | | | |
| Leasehold improvements | — |
| | 3,801 |
| | — |
| | — |
| | 3,801 |
|
| Furniture, fixtures and equipment | — |
| | 43,189 |
| | 790 |
| | — |
| | 43,979 |
|
| Less – accumulated depreciation | — |
| | (29,465 | ) | | (765 | ) | | — |
| | (30,230 | ) |
| Total property and equipment, net | — |
| | 17,525 |
| | 25 |
| | — |
| | 17,550 |
|
| OTHER ASSETS: | | | | | | | | | |
| Deferred financing costs, net | 6,383 |
| | — |
| | — |
| | — |
| | 6,383 |
|
| Deferred rack costs, net | — |
| | 4,824 |
| | — |
| | — |
| | 4,824 |
|
| Investments in affiliates | 587,126 |
| | 224 |
| | — |
| | (586,547 | ) | | 803 |
|
| Other long-term assets | — |
| | 3,193 |
| | — |
| | — |
| | 3,193 |
|
| Due from affiliates | — |
| | 300,246 |
| | — |
| | (300,246 | ) | | — |
|
| Total other assets | 593,509 |
| | 308,487 |
| | — |
| | (886,793 | ) | | 15,203 |
|
| GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS: |
| Goodwill | — |
| | 149,488 |
| | 4,510 |
| | — |
| | 153,998 |
|
| Other identified intangibles, net | — |
| | 218,181 |
| | 6,000 |
| | — |
| | 224,181 |
|
| Total goodwill and other identified intangible assets | — |
| | 367,669 |
| | 10,510 |
| | — |
| | 378,179 |
|
| TOTAL ASSETS | $ | 593,509 |
| | $ | 749,725 |
| | $ | 15,071 |
| | $ | (892,280 | ) | | $ | 466,025 |
|
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | |
| Accounts payable | $ | — |
| | $ | 15,434 |
| | $ | 347 |
| | $ | — |
| | $ | 15,781 |
|
| Accrued expenses and other liabilities | — |
| | 104,580 |
| | 5,393 |
| | (65,958 | ) | | 44,015 |
|
| Accrued interest | 10,075 |
| | — |
| | — |
| | — |
| | 10,075 |
|
| Deferred revenues | — |
| | 25,718 |
| | 1,016 |
| | — |
| | 26,734 |
|
| Total current liabilities | 10,075 |
| | 145,732 |
| | 6,756 |
| | (65,958 | ) | | 96,605 |
|
| NON-CURRENT LIABILITIES: | | | | | | | | | |
| Senior secured notes | 309,569 |
| | — |
| | — |
| | — |
| | 309,569 |
|
| Revolving credit facility | 14,700 |
| | — |
| | — |
| | — |
| | 14,700 |
|
| Other non-current liabilities | — |
| | 8,352 |
| | — |
| | — |
| | 8,352 |
|
| Deferred income taxes | — |
| | 10,250 |
| | 26 |
| | 60,471 |
| | 70,747 |
|
| Due to affiliates | 296,113 |
| | — |
| | 4,133 |
| | (300,246 | ) | | — |
|
| Total liabilities | 630,457 |
| | 164,334 |
| | 10,915 |
| | (305,733 | ) | | 499,973 |
|
| COMMITMENTS AND CONTINGENCIES | | | | | | |
| Redeemable noncontrolling interests | — |
| | — |
| | 3,000 |
| | — |
| | 3,000 |
|
| STOCKHOLDERS' (DEFICIT) EQUITY: | | | | | | | | | |
| Total stockholders' (deficit) equity | (36,948 | ) | | 585,391 |
| | 1,156 |
| | (586,547 | ) | | (36,948 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | $ | 593,509 |
| | $ | 749,725 |
| | $ | 15,071 |
| | $ | (892,280 | ) | | $ | 466,025 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE FISCAL YEAR ENDED MARCH 31, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| OPERATING REVENUES: | | | | | | | | | |
| Circulation | $ | — |
| | $ | 142,537 |
| | $ | 310 |
| | $ | — |
| | $ | 142,847 |
|
| Advertising | — |
| | 68,046 |
| | 117 |
| | — |
| | 68,163 |
|
| Other | — |
| | 4,926 |
| | 7,105 |
| | — |
| | 12,031 |
|
| Total operating revenues | — |
| | 215,509 |
| | 7,532 |
| | — |
| | 223,041 |
|
| OPERATING EXPENSES: | | | | | | | | | |
| Production | — |
| | 50,357 |
| | 3,939 |
| | — |
| | 54,296 |
|
| Editorial | — |
| | 24,131 |
| | 765 |
| | — |
| | 24,896 |
|
| Distribution, circulation and other cost of sales | — |
| | 36,032 |
| | 161 |
| | — |
| | 36,193 |
|
| Selling, general and administrative | — |
| | 54,201 |
| | 1,271 |
| | — |
| | 55,472 |
|
| Depreciation and amortization | — |
| | 26,469 |
| | 13 |
| | — |
| | 26,482 |
|
| Total operating expenses | — |
| | 191,190 |
| | 6,149 |
| | — |
| | 197,339 |
|
| OPERATING INCOME | — |
| | 24,319 |
| | 1,383 |
| | — |
| | 25,702 |
|
| OTHER EXPENSES: | | | | | | | | | |
| Interest expense | (39,599 | ) | | (15 | ) | | (48 | ) | | — |
| | (39,662 | ) |
| Amortization of deferred financing costs | (4,026 | ) | | — |
| | — |
| | — |
| | (4,026 | ) |
| Other expenses, net | — |
| | (2,012 | ) | | 2,012 |
| | — |
| | — |
|
| Total other expense, net | (43,625 | ) | | (2,027 | ) | | 1,964 |
| | — |
| | (43,688 | ) |
| (LOSS) INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES, AND EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES | (43,625 | ) | | 22,292 |
| | 3,347 |
| | — |
| | (17,986 | ) |
| PROVISION (BENEFIT) FOR INCOME TAXES | (46,439 | ) | | 10,208 |
| | 249 |
| | — |
| | (35,982 | ) |
| EQUITY (LOSSES) IN EARNINGS OF CONSOLIDATED SUBSIDIARIES | 14,150 |
| | (22 | ) | | — |
| | (14,128 | ) | | — |
|
| NET INCOME | 16,964 |
| | 12,062 |
| | 3,098 |
| | (14,128 | ) | | 17,996 |
|
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | (1,032 | ) | | — |
| | (1,032 | ) |
| NET INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC AND SUBSIDIARIES | $ | 16,964 |
| | $ | 12,062 |
| | $ | 2,066 |
| | $ | (14,128 | ) | | $ | 16,964 |
|
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| NET INCOME | $ | 16,964 |
| | $ | 12,062 |
| | $ | 3,098 |
| | $ | (14,128 | ) | | $ | 17,996 |
|
| Foreign currency translation adjustment | — |
| | — |
| | (46 | ) | | — |
| | (46 | ) |
| Comprehensive income | 16,964 |
| | 12,062 |
| | 3,052 |
| | (14,128 | ) | | 17,950 |
|
| Less: comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (1,032 | ) | | — |
| | (1,032 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES | $ | 16,964 |
| | $ | 12,062 |
| | $ | 2,020 |
| | $ | (14,128 | ) | | $ | 16,918 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE FISCAL YEAR ENDED MARCH 31, 2015
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| OPERATING REVENUES: | | | | | | | | | |
| Circulation | $ | — |
| | $ | 161,464 |
| | $ | 4,735 |
| | $ | — |
| | $ | 166,199 |
|
| Advertising | — |
| | 61,566 |
| | 5,692 |
| | — |
| | 67,258 |
|
| Other | — |
| | 4,598 |
| | 7,125 |
| | — |
| | 11,723 |
|
| Total operating revenues | — |
| | 227,628 |
| | 17,552 |
| | — |
| | 245,180 |
|
| OPERATING EXPENSES: | | | | | | | | | |
| Production | — |
| | 59,329 |
| | 6,759 |
| | — |
| | 66,088 |
|
| Editorial | — |
| | 25,258 |
| | 1,546 |
| | — |
| | 26,804 |
|
| Distribution, circulation and other cost of sales | — |
| | 36,961 |
| | 2,049 |
| | — |
| | 39,010 |
|
| Selling, general and administrative | — |
| | 82,325 |
| | 4,311 |
| | — |
| | 86,636 |
|
| Depreciation and amortization | — |
| | 13,785 |
| | 180 |
| | — |
| | 13,965 |
|
| Impairment of goodwill and intangible assets | — |
| | 18,458 |
| | — |
| | — |
| | 18,458 |
|
| Total operating expenses | — |
| | 236,116 |
| | 14,845 |
| | — |
| | 250,961 |
|
| OPERATING INCOME (LOSS) | — |
| | (8,488 | ) | | 2,707 |
| | — |
| | (5,781 | ) |
| OTHER EXPENSES: | | | | | | | | | |
| Interest expense | (50,772 | ) | | (34 | ) | | (41 | ) | | — |
| | (50,847 | ) |
| Amortization of deferred financing costs | (4,011 | ) | | — |
| | — |
| | — |
| | (4,011 | ) |
| Other expenses, net | — |
| | 3,710 |
| | (2 | ) | | — |
| | 3,708 |
|
| Total other expense, net | (54,783 | ) | | 3,676 |
| | (43 | ) | | — |
| | (51,150 | ) |
| (LOSS) INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES, AND EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES | (54,783 | ) | | (4,812 | ) | | 2,664 |
| | — |
| | (56,931 | ) |
| (BENEFIT) PROVISION FOR INCOME TAXES | — |
| | (15,712 | ) | | 23 |
| | — |
| | (15,689 | ) |
| EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES | 27,656 |
| | 185 |
| | — |
| | (27,841 | ) | | — |
|
| NET (LOSS) INCOME FROM CONTINUING OPERATIONS | (27,127 | ) | | 11,085 |
| | 2,641 |
| | (27,841 | ) | | (41,242 | ) |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES | — |
| | 15,334 |
| | — |
| | — |
| | 15,334 |
|
| NET (LOSS) INCOME | (27,127 | ) | | 26,419 |
| | 2,641 |
| | (27,841 | ) | | (25,908 | ) |
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | (1,219 | ) | | — |
| | (1,219 | ) |
| NET (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC AND SUBSIDIARIES | $ | (27,127 | ) | | $ | 26,419 |
| | $ | 1,422 |
| | $ | (27,841 | ) | | $ | (27,127 | ) |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| NET (LOSS) INCOME | $ | (27,127 | ) | | $ | 26,419 |
| | $ | 2,641 |
| | $ | (27,841 | ) | | $ | (25,908 | ) |
| Foreign currency translation adjustment | — |
| | — |
| | (161 | ) | | — |
| | (161 | ) |
| Comprehensive (loss) income | (27,127 | ) | | 26,419 |
| | 2,480 |
| | (27,841 | ) | | (26,069 | ) |
| Less: comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (1,219 | ) | | — |
| | (1,219 | ) |
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES | $ | (27,127 | ) | | $ | 26,419 |
| | $ | 1,261 |
| | $ | (27,841 | ) | | $ | (27,288 | ) |
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE FISCAL YEAR ENDED MARCH 31, 2014
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| OPERATING REVENUES: | | | | | | | | | |
| Circulation | $ | — |
| | $ | 182,575 |
| | $ | 5,038 |
| | $ | — |
| | $ | 187,613 |
|
| Advertising | — |
| | 66,884 |
| | 6,069 |
| | — |
| | 72,953 |
|
| Other | — |
| | 20,489 |
| | 6,291 |
| | — |
| | 26,780 |
|
| Total operating revenues | — |
| | 269,948 |
| | 17,398 |
| | — |
| | 287,346 |
|
| OPERATING EXPENSES: | | | | | | | | | |
| Production | — |
| | 69,872 |
| | 5,792 |
| | — |
| | 75,664 |
|
| Editorial | — |
| | 29,414 |
| | 1,456 |
| | — |
| | 30,870 |
|
| Distribution, circulation and other cost of sales | — |
| | 43,181 |
| | 2,842 |
| | — |
| | 46,023 |
|
| Selling, general and administrative | — |
| | 75,077 |
| | 3,254 |
| | — |
| | 78,331 |
|
| Depreciation and amortization | — |
| | 13,355 |
| | 80 |
| | — |
| | 13,435 |
|
| Impairment of goodwill and intangible assets | — |
| | 9,238 |
| | — |
| | — |
| | 9,238 |
|
| Total operating expenses | — |
| | 240,137 |
| | 13,424 |
| | — |
| | 253,561 |
|
| OPERATING INCOME | — |
| | 29,811 |
| | 3,974 |
| | — |
| | 33,785 |
|
| OTHER EXPENSES: | | | | | | | | | |
| Interest expense | (58,372 | ) | | 17 |
| | — |
| | — |
| | (58,355 | ) |
| Amortization of deferred financing costs | (1,664 | ) | | — |
| | — |
| | — |
| | (1,664 | ) |
| Other expenses, net | — |
| | (79 | ) | | — |
| | — |
| | (79 | ) |
| Total other expense, net | (60,036 | ) | | (62 | ) | | — |
| | — |
| | (60,098 | ) |
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES, AND EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES | (60,036 | ) | | 29,749 |
| | 3,974 |
| | — |
| | (26,313 | ) |
| PROVISION FOR INCOME TAXES | 25,296 |
| | 4,879 |
| | 484 |
| | — |
| | 30,659 |
|
| EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES | 31,013 |
| | 1,387 |
| | — |
| | (32,400 | ) | | — |
|
| NET (LOSS) INCOME FROM CONTINUING OPERATIONS | (54,319 | ) | | 26,257 |
| | 3,490 |
| | (32,400 | ) | | (56,972 | ) |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES | — |
| | 3,701 |
| | — |
| | — |
| | 3,701 |
|
| NET (LOSS) INCOME | (54,319 | ) | | 29,958 |
| | 3,490 |
| | (32,400 | ) | | (53,271 | ) |
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | (1,048 | ) | | — |
| | (1,048 | ) |
| NET (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES | $ | (54,319 | ) | | $ | 29,958 |
| | $ | 2,442 |
| | $ | (32,400 | ) | | $ | (54,319 | ) |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| NET (LOSS) INCOME | $ | (54,319 | ) | | $ | 29,958 |
| | $ | 3,490 |
| | $ | (32,400 | ) | | $ | (53,271 | ) |
| Foreign currency translation adjustment | — |
| | — |
| | 108 |
| | — |
| | 108 |
|
| Comprehensive (loss) income | (54,319 | ) | | 29,958 |
| | 3,598 |
| | (32,400 | ) | | (53,163 | ) |
| Less: comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (1,048 | ) | | — |
| | (1,048 | ) |
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES | $ | (54,319 | ) | | $ | 29,958 |
| | $ | 2,550 |
| | $ | (32,400 | ) | | $ | (54,211 | ) |
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED MARCH 31, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| Cash Flows from Operating Activities: | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | (35,061 | ) | | $ | 38,526 |
| | $ | 22 |
| | $ | — |
| | $ | 3,487 |
|
| Cash Flows from Investing Activities: |
| Purchases of property and equipment | — |
| | (805 | ) | | — |
| | — |
| | (805 | ) |
| Purchase of intangible assets | — |
| | (1,894 | ) | | — |
| | — |
| | (1,894 | ) |
| Due from affiliates | — |
| | (36,479 | ) | | — |
| | 36,479 |
| | — |
|
| Other | — |
| | 24 |
| | — |
| | — |
| | 24 |
|
| Net cash provided by (used in) investing activities | — |
| | (39,154 | ) | | — |
| | 36,479 |
| | (2,675 | ) |
| Cash Flows from Financing Activities: |
| Proceeds from revolving credit facility | 72,700 |
| | — |
| | — |
| | — |
| | 72,700 |
|
| Repayment to revolving credit facility | (72,200 | ) | | — |
| | — |
| | — |
| | (72,200 | ) |
| Proceeds from issuance of senior secured notes | 7,020 |
| | — |
| | — |
| | — |
| | 7,020 |
|
| Senior secured notes repurchases | (4,386 | ) | | — |
| | — |
| | — |
| | (4,386 | ) |
| Redemption premium payment | (192 | ) | | — |
| | — |
| | — |
| | (192 | ) |
| Debt financing costs | (4,360 | ) | | — |
| | — |
| | — |
| | (4,360 | ) |
| Payments to noncontrolling interest holder of Olympia | — |
| | — |
| | (1,150 | ) | | — |
| | (1,150 | ) |
| Due to affiliates | 36,479 |
| | — |
| | — |
| | (36,479 | ) | | — |
|
| Net cash provided by (used in) financing activities | 35,061 |
| | — |
| | (1,150 | ) | | (36,479 | ) | | (2,568 | ) |
| Effect of exchange rate changes on cash | — |
| | (310 | ) | | — |
| | — |
| | (310 | ) |
| Net decrease in cash and cash equivalents | — |
| | (938 | ) | | (1,128 | ) | | — |
| | (2,066 | ) |
| Cash and cash equivalents, beginning of period | — |
| | 1,040 |
| | 2,412 |
| | — |
| | 3,452 |
|
| Cash and cash equivalents, end of period | $ | — |
| | $ | 102 |
| | $ | 1,284 |
| | $ | — |
| | $ | 1,386 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED MARCH 31, 2015
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| Cash Flows from Operating Activities: | | | | | | | | | |
| Net cash (used in) provided by operating activities | $ | (104,995 | ) | | $ | 116,650 |
| | $ | 1,050 |
| | $ | — |
| | $ | 12,705 |
|
| Cash Flows from Investing Activities: | | | | | | | | | |
| Purchases of property and equipment | — |
| | (7,176 | ) | | — |
| | — |
| | (7,176 | ) |
| Purchase of intangible assets | — |
| | (2,738 | ) | | — |
| | — |
| | (2,738 | ) |
| Proceeds from sale of publications | 63,000 |
| | — |
| | — |
| | — |
| | 63,000 |
|
| Distribution from affiliates | — |
| | 2,570 |
| | — |
| | — |
| | 2,570 |
|
| Due from affiliates | — |
| | (107,916 | ) | | — |
| | 107,916 |
| | — |
|
| Other | — |
| | 9 |
| | — |
| | — |
| | 9 |
|
| Net cash used in investing activities | 63,000 |
| | (115,251 | ) | | — |
| | 107,916 |
| | 55,665 |
|
| Cash Flows from Financing Activities: |
|
| |
|
| |
|
| |
|
| |
|
|
| Proceeds from revolving credit facility | 62,800 |
| | — |
| | — |
| | — |
| | 62,800 |
|
| Repayment to revolving credit facility | (77,100 | ) | | — |
| | — |
| | — |
| | (77,100 | ) |
| Proceeds from issuance of senior secured notes | 12,500 |
| | — |
| | — |
| | — |
| | 12,500 |
|
| Senior secured notes repurchases | (56,100 | ) | | — |
| | — |
| | — |
| | (56,100 | ) |
| Capital contribution | 573 |
| | — |
| | — |
| | — |
| | 573 |
|
| Costs incurred in restructuring | (4,315 | ) | | — |
| | — |
| | — |
| | (4,315 | ) |
| Redemption premium payment | (2,206 | ) | | — |
| | — |
| | — |
| | (2,206 | ) |
| Debt financing costs | (2,073 | ) | | — |
| | — |
| | — |
| | (2,073 | ) |
| Payments to noncontrolling interest holder of Olympia | — |
| | — |
| | (1,253 | ) | | — |
| | (1,253 | ) |
| Due to affiliates | 107,916 |
| | — |
| | — |
| | (107,916 | ) | | — |
|
| Net cash provided by (used in) financing activities | 41,995 |
| | — |
| | (1,253 | ) | | (107,916 | ) | | (67,174 | ) |
| Effect of exchange rate changes on cash | — |
| | (774 | ) | | — |
| | — |
| | (774 | ) |
| Net increase (decrease) in cash and cash equivalents | — |
| | 625 |
| | (203 | ) | | — |
| | 422 |
|
| Cash and cash equivalents, beginning of period | — |
| | 415 |
| | 2,615 |
| | — |
| | 3,030 |
|
| Cash and cash equivalents, end of period | $ | — |
| | $ | 1,040 |
| | $ | 2,412 |
| | $ | — |
| | $ | 3,452 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED MARCH 31, 2014
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantors | | Non Guarantors | | Eliminations | | Condensed Consolidated |
| Cash Flows from Operating Activities: | | | | | | | | | |
| Net cash (used in) provided by operating activities | $ | (52,163 | ) | | $ | 59,730 |
| | $ | 4,087 |
| | $ | (1,860 | ) | | $ | 9,794 |
|
| Cash Flows from Investing Activities: | | | | | | | | | |
| Purchases of property and equipment | — |
| | (10,514 | ) | | — |
| | — |
| | (10,514 | ) |
| Purchase of intangible assets | — |
| | (5,615 | ) | | — |
| | — |
| | (5,615 | ) |
| Investments in affiliates | — |
| | (2,536 | ) | | — |
| | — |
| | (2,536 | ) |
| Due from affiliates | — |
| | (41,650 | ) | | — |
| | 41,650 |
| | — |
|
| Other | — |
| | 145 |
| | (300 | ) | | — |
| | (155 | ) |
| Net cash used in investing activities | — |
| | (60,170 | ) | | (300 | ) | | 41,650 |
| | (18,820 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | |
| Proceeds from revolving credit facility | 95,600 |
| | — |
| | — |
| | — |
| | 95,600 |
|
| Repayments to revolving credit facility | (78,600 | ) | | — |
| | — |
| | — |
| | (78,600 | ) |
| Senior secured notes redemption | (2,325 | ) | | — |
| | — |
| | — |
| | (2,325 | ) |
| Redemption premium payment | (201 | ) | | — |
| | — |
| | — |
| | (201 | ) |
| Payments to noncontrolling interest holder of Olympia | — |
| | — |
| | (1,004 | ) | | — |
| | (1,004 | ) |
| Payments for redemption of Odyssey preferred stock | (3,961 | ) | | — |
| | — |
| | — |
| | (3,961 | ) |
| Due to affiliates | 41,650 |
| | — |
| | — |
| | (41,650 | ) | | — |
|
| Dividends paid to parent | — |
| | — |
| | (1,860 | ) | | 1,860 |
| | — |
|
| Net cash provided by (used in) financing activities | 52,163 |
| | — |
| | (2,864 | ) | | (39,790 | ) | | 9,509 |
|
| Effect of exchange rate changes on cash | — |
| | 189 |
| | — |
| | — |
| | 189 |
|
| Net (decrease) increase in cash and cash equivalents | — |
| | (251 | ) | | 923 |
| | — |
| | 672 |
|
| Cash and cash equivalents, beginning of period | — |
| | 666 |
| | 1,692 |
| | — |
| | 2,358 |
|
| Cash and cash equivalents, end of period | $ | — |
| | $ | 415 |
| | $ | 2,615 |
| | $ | — |
| | $ | 3,030 |
|
Note 16 - Selected Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | |
Fiscal Year Ended March 31, 2016 (in thousands) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total |
| Operating revenues | $ | 56,108 |
| $ | 61,932 |
| $ | 55,144 |
| $ | 49,857 |
| $ | 223,041 |
|
| Operating income | 5,045 |
| 8,976 |
| 5,869 |
| 5,812 |
| 25,702 |
|
| Net income (loss) | 24,064 |
| (1,194 | ) | (2,288 | ) | (2,586 | ) | 17,996 |
|
| Net income (loss) attributable to American Media, Inc. and subsidiaries | 24,070 |
| (2,186 | ) | (2,315 | ) | (2,605 | ) | 16,964 |
|
|
| | | | | | | | | | | | | | | |
Fiscal Year Ended March 31, 2015 (in thousands) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total |
| Operating revenues | $ | 63,338 |
| $ | 61,472 |
| $ | 60,145 |
| $ | 60,225 |
| $ | 245,180 |
|
| Operating income (loss) | 4,156 |
| (20,557 | ) | 6,427 |
| 4,193 |
| (5,781 | ) |
| Net income (loss) | (12,038 | ) | (28,777 | ) | 9,953 |
| 4,954 |
| (25,908 | ) |
| Net income (loss) attributable to American Media, Inc. and subsidiaries | (11,968 | ) | (30,062 | ) | 9,960 |
| 4,943 |
| (27,127 | ) |
Fiscal 2016 - each quarter includes approximately $2.9 million related to the reclassification of certain tradenames from indefinite-lived intangibles to finite-lives of 15 years, effective April 1, 2015.
Second Quarter - results include severance of approximately $1.5 million.
Third Quarter - results include legal settlements of approximately $2.0 million.
Fourth Quarter - results include severance of approximately $2.0 million.
Fiscal 2015
First Quarter - results include AMI's share of bad debt and other expenses related to wholesaler shutdowns of approximately $3.9 million.
Second Quarter - results include a non-cash goodwill and tradename impairment charge related to certain reporting units of approximately $17.4 million, Merger and related transaction costs of approximately $3.2 million, and approximately $1.0 million for AMI's share of bad debt and other expenses related to wholesaler shutdowns.
Third Quarter - results include Merger and related transaction costs of approximately $1.6 million and the gain on sale of Country Weekly of approximately $3.4 million.
Fourth Quarter - results include reorganization costs and severance of approximately $3.3 million and approximately $2.6 million of other expenses related to wholesaler shutdowns.
Schedule II - Valuation and Qualifying Accounts
All other financial statements and schedules have been omitted because the information required to be submitted has been included in the consolidated financial statements and related notes included in Item 8 of the Annual Report onOriginal Form 10-K or because they are either not applicable or not required under the rules of Regulation S-X.10-K.
The table below summarizes the activity in the valuation accounts for the periods indicated (in thousands):Director Independence
|
| | | | | | | | | | | | | | | | | | | | |
| Description | | Balance, Beginning of Period | | Additions Charged to Costs and Expenses | | Charged to Other Accounts | | Deductions, Write-Offs, net | | Balance, End of Period |
| Allowance for doubtful accounts: | | | | | | |
| Fiscal years ended March 31, | | | | | | | | |
| 2016 | | $ | 3,281 |
| | $ | — |
| | $ | 97 |
| | $ | (1,059 | ) | | $ | 2,319 |
|
| 2015 | | 6,533 |
| | 8,849 |
| | (11,182 | ) | | (919 | ) | | 3,281 |
|
| 2014 | | 5,473 |
| | 5,605 |
| | (1,078 | ) | | (3,467 | ) | | 6,533 |
|
| Reserve for valuation allowance on deferred tax asset: |
| Fiscal years ended March 31, | | | | | | | | |
| 2016 | | $ | 27,139 |
| | $ | — |
| | $ | — |
| | $ | (27,139 | ) | | $ | — |
|
| 2015 | | 40,261 |
| | — |
| | — |
| | (13,122 | ) | | 27,139 |
|
| 2014 | | — |
| | 40,261 |
| | — |
| | — |
| | 40,261 |
|
| Allowance for excess and obsolete inventory: |
| Fiscal years ended March 31, | | | | | | | | |
| 2016 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| 2015 | | 561 |
| | — |
| | — |
| | (561 | ) | | — |
|
| 2014 | | 445 |
| | 4 |
| | 112 |
| | — |
| | 561 |
|
See Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we evaluated the effectiveness of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), as of the end of the period covered by this report. Based upon that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of March 31, 2016 to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we assessed the effectiveness of our internal control over financial reporting as of March 31, 2016 based on the framework in Internal Control—Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our principal executive and principal financial officers concluded that our internal control over financial reporting was effective as of March 31, 2016 to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles.
Evaluation of Changes in Internal Control Over Financial Reporting
Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we have determined that, during the fourth quarter of fiscal 2016, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Item 9B. Other Information.
None.
PART III
Item 10. Directors,10, "Directors, Executive Officers and Corporate Governance.Governance - Board Independence" for further information regarding our Independent Directors and the determination thereof.
This information will be provided in our definitive Proxy Statement for our 2016 Annual Meeting of Stockholders if filed with the SEC no later than 120 days after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.
Item 11. Executive Compensation.
This information will be provided in our definitive Proxy Statement for our 2016 Annual Meeting of Stockholders if filed with the SEC no later than 120 days after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
This information will be provided in our definitive Proxy Statement for our 2016 Annual Meeting of Stockholders if filed with the SEC no later than 120 days after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
This information will be provided in our definitive Proxy Statement for our 2016 Annual Meeting of Stockholders if filed with the SEC no later than 120 days after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.
Item 14. Principal Accounting Fees and Services.Services.
This information will beThe following table sets forth fees for professional services provided by Deloitte & Touche LLP, the Company's independent registered public accounting firm, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively, “Deloitte”) for the audit of the Company’s financial statements for fiscal 2016 and 2015 and fees billed for audit related services, tax services and all other services rendered by Deloitte during fiscal 2016 and 2015:
|
| | | | | | | |
| | 2016 | | 2015 |
| Audit Fees (1) | $ | 1,034,047 |
| | $ | 1,252,106 |
|
| Audit Related Fees (2) | $ | 40,000 |
| | $ | — |
|
| Tax Fees (3) | $ | 41,499 |
| | $ | 47,693 |
|
| All Other Fees | $ | 2,383 |
| | $ | 2,000 |
|
| Total Fees | $ | 1,117,929 |
| | $ | 1,301,799 |
|
|
| |
| (1) | Represents aggregate fees for professional services provided in connection with the audit of our annual financial statements, reviews of our quarterly financial statements and audit services provided in connection with other statutory or regulatory filings. |
| (2) | Represents aggregate fees for professional services provided in connection with certain transactions related to debt offering and refinancing. |
| (3) | Represents aggregate fees for professional services provided in connection with tax compliance, tax return review and tax advice related to an Internal Revenue Service examination and a voluntary disclosure extension. |
All audit-related services, tax services and other services were pre-approved by our definitive Proxy Statement for our 2016 Annual MeetingAudit Committee, which concluded that the provision of Stockholders if filedsuch services by Deloitte was compatible with the SEC no later than 120 days aftermaintenance of that firm’s independence in the endconduct of our fiscal year coveredits auditing functions. The Audit Committee’s pre-approval policy is to review Deloitte's audit-related, tax and other services and pre-approve such services specifically described to the Audit Committee. The policy authorizes the Audit Committee to delegate to one or more designated members of the Audit Committee pre-approval authority with respect to any such pre-approval reported to the Audit Committee at its next regularly scheduled meeting. The Audit Committee did not approve any services pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.SEC.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following Consolidated Financial Statements filed as part of this report can be found in Item 8 “Financial Statements and Supplementary Data” of this Annual Report:the Original 10-K:
|
| |
| • | Report of Independent Registered Public Accounting Firm |
| • | Consolidated Balance Sheets as of March 31, 2016 and 2015 |
| • | Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the fiscal years ended March 31, 2016, 2015 and 2014 |
| • | Consolidated Statements of Stockholders' Deficit for the fiscal years ended March 31, 2016, 2015 and 2014 |
| • | Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2016, 2015 and 2014 |
| • | Notes to Consolidated Financial Statements |
| • | Schedule II - Valuation and Qualifying Accounts for the fiscal years ended March 31, 2016, 2015 and 2014 |
(b) Exhibits
|
| | |
| Exhibit Number | | Description |
| 2.1 | | Agreement and Plan of Merger, dated as of August 15, 2014, among AMI Parent Holdings LLC, AMI Merger Corporation and American Media, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014). |
| 2.2 | | Asset Purchase Agreement, dated as of January 26, 2015, among American Media, Inc. and its wholly-owned subsidiary Weider Publications, LLC and Meredith Corporation (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 30, 2015). |
| 3.1 | | Amended and Restated Certificate of Incorporation of American Media, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 23, 2015). |
| 3.2 | | Second Amended and Restated By-Laws of American Media, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.1 | | Indenture, dated as of December 1, 2010, between AMO Escrow Corporation (predecessor-in-interest to American Media, Inc.) and Wilmington Trust FSB, as trustee and collateral agent, related to AMO Escrow Corporation's 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.2 | | Form of 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.3 | | First Supplemental Indenture, dated December 22, 2010, among American Media, Inc., the guarantors listed on the signature pages thereto and Wilmington Trust FSB, as trustee and collateral agent, related to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.4 | | Second Supplemental Indenture, dated May 13, 2011, among American Media, Inc., AMI Digital, Inc. and Wilmington Trust FSB, as trustee and collateral agent, related to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.5 | | Third Supplemental Indenture, dated April 25, 2012, among American Media, Inc., Odyssey Magazine Publishing Group LLC (predecessor-in-interest to Odyssey Magazine Publishing Group, Inc.) and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee and collateral agent, related to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.6 | | Fourth Supplemental Indenture, dated as of August 15, 2014, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of December 1, 2010, among American Media, Inc. (as successor by merger to AMO Escrow Corporation), the guarantors party thereto and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Trustee and Collateral Agent, relating to the 11½% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014). |
|
| | |
| 4.7 | * | Fifth Supplemental Indenture, dated as of March 18, 2016, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of December 1, 2010, among American Media, Inc. (as successor by merger to AMO Escrow Corporation), the guarantors party thereto and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Trustee and Collateral Agent, relating to the 11½% First Lien Senior Secured Notes due 2017. |
| 4.8 | | Indenture dated as of December 22, 2010, among American Media, Inc., the guarantors listed on the signature pages thereto and Wilmington Trust FSB, as trustee and collateral agent, relating to American Media, Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.9 | | Form of 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.8 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.10 | | First Supplemental Indenture, dated as of May 13, 2011, among American Media, Inc., AMI Digital, Inc. and Wilmington Trust FSB, as trustee and collateral agent, related to American Media, Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.9 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.11 | | Second Supplemental Indenture, dated as of April 25, 2012, among American Media, Inc., Odyssey Magazine Publishing Group LLC (predecessor-in-interest to Odyssey Magazine Publishing Group, Inc.) and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee and collateral agent, related to American Media Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.10 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 4.12 | | Third Supplemental Indenture, dated as of August 15, 2014, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of December 22, 2010, among American Media, Inc., the guarantors party thereto and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Trustee and Collateral Agent, relating to the 13½% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014). |
| 4.13 | | Fourth Supplemental Indenture, dated as of January 20, 2015, by and between American Media, Inc. and Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as trustee and collateral agent, related to American Media, Inc.'s 13½% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015). |
| 4.14 | | Indenture, dated as of October 2, 2013, by and among American Media, Inc., the Guarantors named therein, and Wilmington Trust, National Association, as Trustee, relating to American Media Inc.'s 10% Second Lien Senior Secured PIK Notes due 2018 (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013). |
| 4.15 | | Form of 10% Second Lien Senior Secured PIK Notes due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013). |
| 4.16 | | First Supplemental Indenture, dated as of August 15, 2014, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of October 2, 2013, among American Media, Inc., the guarantors party thereto and Wilmington Trust, National Association, as Trustee and Collateral Agent, relating to the 10% Second Lien Senior Secured PIK Notes due 2018 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014). |
| 4.17 | | Indenture, dated as of January 20, 2015, by and among American Media, Inc., the guarantors listed on the signatory pages thereto and Wilmington Trust, National Association, as trustee and collateral agent, related to American Media, Inc.'s 7.000% Second Lien Senior Secured Notes due 2020 (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015). |
| 4.18 | * | First Supplemental Indenture, dated as of March 18, 2016, by and among American Media, Inc., the guarantors listed on the signatory pages thereto and Wilmington Trust, National Association, as trustee and collateral agent, related to American Media, Inc.'s 7.000% Second Lien Senior Secured Notes due 2020. |
| 10.1 | | Revolving Credit Agreement, dated as of December 22, 2010, among American Media, Inc., as borrower, the lenders party thereto, JP Morgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities, Inc., as syndication agent, J.P. Morgan Securities, LLC, as co-lead arranger and sole bookrunner, Deutsche Bank Securities, Inc. and Credit Suisse Securities (USA) LLC, as co-lead arrangers, and Credit Suisse Securities (USA) LLC, as documentation agent (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012). |
| 10.2 | | Waiver, dated July 3, 2014, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.45 to the Registrants Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
|
| | |
| 10.3 | | Amendment No. 2, dated July 15, 2014, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.46 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.4 | | Amendment No. 3, dated August 8, 2014, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 14, 2014). |
| 10.5 | | Waiver to Revolving Credit Agreement, dated August 15, 2014, among American Media, Inc., as borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 20, 2014). |
| 10.6 | | Amendment No. 4, dated as of January 20, 2015, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), by and among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015). |
| 10.7 | | Amendment No. 5, dated as of January 27, 2015, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), by and among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 30, 2015). |
| 10.8 | | Waiver to Revolving Credit Agreement, dated February 17, 2015, among American Media, Inc., as borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K filed with the SEC on June 30, 2015). |
| 10.9 | | Amendment and Restatement Agreement, dated as of February 20, 2015, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., as borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed with the SEC on June 30, 2015). |
| 10.10 | | Amendment No. 1, dated as of February 12, 2016, to the Amended and Restated Revolving Credit Agreement, dated February 20, 2015 (as amended, restated, supplemented or otherwise modified from time to time), by and among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 16, 2016. |
| 10.11 | * | Amendment No. 2, dated as of March 18, 2016, to the Amended and Restated Revolving Credit Agreement, dated February 20, 2015 (as amended, restated, supplemented or otherwise modified from time to time), by and among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. |
| 10.12 | | Guarantee and Collateral Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. identified therein, and JP Morgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012). |
| 10.13 | | Collateral Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. identified therein, and Wilmington Trust FSB, as collateral agent, relating to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012). |
| 10.14 | | Collateral Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. identified therein, and Wilmington Trust FSB, as collateral agent, relating to American Media, Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012). |
| 10.15 | | Second Lien PIK Collateral Agreement, dated as of October 2, 2013, by and among American Media, Inc., the guarantors named therein and Wilmington Trust, National Association, as collateral agent (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013). |
| 10.16 | | Collateral Agreement, dated as of January 20, 2015, by and among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, and Wilmington Trust, National Association, as collateral agent, relating to American Media, Inc.'s 7.0% Senior Secured Notes due 2020 (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015). |
|
| | |
| 10.17 | | First Lien Intercreditor Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, JPMorgan Chase Bank, N.A., as Agent and Credit Agreement Collateral Agent, and Wilmington Trust FSB, as Senior Secured Notes Trustee and Senior Secured Notes Collateral Agent (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.18 | | Junior Lien Intercreditor Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, JPMorgan Chase Bank, N.A., as Agent and Revolving Credit Collateral Agent, and Wilmington Trust FSB, as First Lien Trustee, First Lien Collateral Agent, Second Lien Trustee and Second Lien Collateral Agent (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.19 | | Joinder, dated October 2, 2013, to the existing Junior Lien Intercreditor Agreement, dated December 22, 2010, by and among American Media, Inc., the guarantors named therein, the Credit Agreement Agent (as defined therein), Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), in its capacity as First Lien Trustee (as defined therein) and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), in its capacity as Second Lien Trustee (incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013). |
| 10.20 | | Collateral Agent Joinder Agreement No. 2, dated as of January 20, 2015, to the Junior Lien Intercreditor Agreement dated December 22, 2010, by and among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, JPMorgan Chase Bank, N.A., as agent and revolving credit collateral agent, Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as first lien trustee, first lien collateral agent, second lien trustee and second lien collateral agent, and Wilmington Trust, National Association, as additional collateral agent for the additional second priority secured parties (incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015). |
| 10.21 | | Pari Second Lien Intercreditor Agreement, dated January 20, 2015, by and between Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as second lien trustee and second lien collateral agent, and Wilmington Trust, National Association, as the trustee and collateral agent for the 7% Second Lien Senior Secured Notes due 2020 (incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015). |
| 10.22 | | Note Purchase Agreement, dated as of August 15, 2014, among American Media, Inc., the subsidiary guarantors party thereto, certain funds and accounts managed by Chatham Asset Management, LLC and Omega Charitable Partnership, L.P. (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014). |
| 10.23 | | Exchange Agreement, dated as of September 8, 2014, among American Media, Inc., AMI Parent Holdings LLC, Chatham Asset Management, LLC and Omega Charitable Partnership, L.P. (incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2014). |
| 10.24 | | Exchange Agreement, dated as of January 5, 2015, among American Media, Inc., Chatham Asset Management, LLC, Chatham Asset High Yield Master Fund, Ltd., Chatham Eureka Fund, L.P, and Chatham Fund, LP (incorporated herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 23, 2015). |
| 10.25 | * | Exchange Agreement, dated as of March 18, 2016, among American Media, Inc., certain funds and accounts managed by Chatham Asset Management, LLC and Omega Charitable Partnership, L.P. |
| 10.26 | * | Note Purchase Agreement, dated as of March 21, 2016, among American Media, Inc., the subsidiary guarantors party thereto and Blackstone Alternative Multi-Strategy Sub Fund III, LLC. |
| 10.27 | * | Note Purchase Agreement, dated as of March 21, 2016, among American Media, Inc., the subsidiary guarantors party thereto, Leon Cooperman, David Pecker and certain funds and accounts managed by Chatham Asset Management. |
| 10.28 | | Form of Indemnification Agreement by and among American Media, Inc. and the Indemnitee (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 14, 2014). |
| 10.29 | | Employment Agreement of David J. Pecker dated March 2, 2009 (incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012). |
| 10.30 | | Amendment No.1 to Employment Agreement of David J. Pecker dated July 9, 2010 (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.31 | | Amendment No. 2 to Employment Agreement of David J. Pecker dated November 14, 2013 (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2013). |
| 10.32 | | Amendment No. 3 to Employment Agreement of David J. Pecker dated September 22, 2014 (incorporated herein by reference to Exhibit 10.4 to the Registrant's Amended Annual Report on Form 10-K/A filed with the SEC on July 29, 2015). |
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| 10.33 | | Employment Agreement of Christopher Polimeni dated March 8, 2010 (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.34 | | Amendment No. 1 to Employment Agreement of Christopher Polimeni dated January 17, 2011 (incorporated herein by reference to Exhibit 10.12 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.35 | | Amendment No. 2 to Employment Agreement of Christopher Polimeni dated March 13, 2012 (incorporated herein by reference to Exhibit 10.13 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.36 | | Amendment No. 3 to Employment Agreement of Christopher Polimeni dated January 20, 2013 (incorporated herein by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K filed with the SEC on June 24, 2013). |
| 10.37 | | Amendment No. 4 to Employment Agreement of Christopher Polimeni dated January 2, 2014 (incorporated herein by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.38 | | Amendment No. 5 to Employment Agreement of Christopher Polimeni dated September 24, 2014 (incorporated herein by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 23, 2015). |
| 10.39 | ** | Employment Agreement of Brian Kroski dated December 2, 2014. |
| 10.40 | ** | Amendment No. 1 to Employment Agreement of Brian Kroski dated November 1, 2015. |
| 10.41 | | Employment Agreement of Kevin Hyson dated November 1, 2004 (incorporated herein by reference to Exhibit 10.24 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.42 | | Amendment No. 1 to Employment Agreement of Kevin Hyson dated September 12, 2006 (incorporated herein by reference to Exhibit 10.25 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.43 | | Amendment No. 2 to Employment Agreement of Kevin Hyson dated December 15, 2007 (incorporated herein by reference to Exhibit 10.26 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.44 | | Amendment No. 3 to Employment Agreement of Kevin Hyson dated September 20, 2008 (incorporated herein by reference to Exhibit 10.27 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.45 | | Amendment No. 4 to Employment Agreement of Kevin Hyson dated March 19, 2009 (incorporated herein by reference to Exhibit 10.28 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.46 | | Amendment No. 5 to Employment Agreement of Kevin Hyson dated October 18, 2009 (incorporated herein by reference to Exhibit 10.29 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.47 | | Amendment No. 6 to Employment Agreement of Kevin Hyson dated January 17, 2011 (incorporated herein by reference to Exhibit 10.30 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.48 | | Amendment No. 7 to Employment Agreement of Kevin Hyson dated January 2, 2012 (incorporated herein by reference to Exhibit 10.31 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012). |
| 10.49 | | Amendment No. 8 to Employment Agreement of Kevin Hyson dated as of January 20, 2013 (incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K, filed with the SEC on June 24, 2013). |
| 10.50 | | Amendment No. 9 to Employment Agreement of Kevin Hyson dated as of January 2, 2014 (incorporated herein by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.51 | | Amendment No. 10 to Employment Agreement of Kevin Hyson dated as of December 8, 2014 (incorporated herein by reference to Exhibit 10.22 to the Registrant's Amended Annual Report on Form 10-K/A filed with the SEC on July 29, 2015). |
| 10.52 | ** | Amendment No. 11 to Employment Agreement of Kevin Hyson dated as of February 1, 2016. |
| 10.53 | | Employment Agreement of David Bonnett dated April 1, 2002 (incorporated herein by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.54 | | Amendment No. 1 to Employment Agreement of David Bonnett dated April 1, 2005 (incorporated herein by reference to Exhibit 10.28 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.55 | | Amendment No. 2 to Employment Agreement of David Bonnett dated August 1, 2005 (incorporated herein by reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.56 | | Amendment No. 3 to Employment Agreement of David Bonnett dated February 23, 2006 (incorporated herein by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.57 | | Amendment No. 4 to Employment Agreement of David Bonnett dated April 4, 2006 (incorporated herein by reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.58 | | Amendment No. 5 to Employment Agreement of David Bonnett dated April 1, 2007 (incorporated herein by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
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| 10.59 | | Amendment No. 6 to Employment Agreement of David Bonnett dated November 27, 2007 (incorporated herein by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.60 | | Amendment No. 7 to Employment Agreement of David Bonnett dated March 19, 2009 (incorporated herein by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.61 | | Amendment No. 8 to Employment Agreement of David Bonnett dated October 18, 2009 (incorporated herein by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.62 | | Amendment No. 9 to Employment Agreement of David Bonnett dated January 10, 2010 (incorporated herein by reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.63 | | Amendment No. 10 to Employment Agreement of David Bonnett dated January 10, 2010 (incorporated herein by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.64 | | Amendment No. 11 to Employment Agreement of David Bonnett dated November 1, 2011 (incorporated herein by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.65 | | Amendment No. 12 to Employment Agreement of David Bonnett dated January 2, 2014 (incorporated herein by reference to Exhibit 10.39 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014). |
| 10.66 | | Amendment No. 13 to Employment Agreement of David Bonnett dated January 2, 2015 (incorporated herein by reference to Exhibit 10.36 to the Registrant's Amended Annual Report on Form 10-K/A filed with the SEC on July 29, 2015). |
| 12.1 | * | Computation of Ratio of Earnings to Fixed Charges. |
| 21.1 | * | Subsidiaries of American Media, Inc. |
| 31.1 | ** | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer. |
| 31.2 | ** | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer. |
| 32 | *** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
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| 101 | * | The following materials from American Media, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (iii) the Consolidated Statements of Stockholders' Deficit, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. |
| * | | Previously filed as an exhibit to the Original 10-K and incorporated herein by reference. |
| ** | | Filed herewith. |
| *** | | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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| | | |
| | | | AMERICAN MEDIA, INC. |
| | | | |
| Dated: | JuneJuly 29, 2016 | by: | /s/ David J. Pecker |
| | | | David J. Pecker |
| | | | Chairman, President and Chief Executive Officer and President |
| | | | (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
| | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ David J. Pecker | | Chairman, Director, President and Chief Executive Officer and President | | JuneJuly 29, 2016 |
| David J. Pecker | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Christopher V. Polimeni | | Executive Vice President, Chief Financial Officer and Treasurer | | JuneJuly 29, 2016 |
| Christopher V. Polimeni | | (Principal Financial and Accounting Officer) | | |
| | | | | |
| /s/ Evan Ratner | | Director | | JuneJuly 29, 2016 |
| Evan Ratner | | | | |
| | | | | |
| /s/ Barry Schwartz | | Director | | JuneJuly 29, 2016 |
| Barry Schwartz | | | | |
| | | | | |
| /s/ David R. Hughes | | Director | | JuneJuly 29, 2016 |
| David R. Hughes | | | | |
