UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2006

 

Commission file number: 1-11106

PRIMEDIA Inc.
(Exact name of registrant as specified in its charter)

Delaware

 

13-3647573

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

745 Fifth Avenue, New York, New York
(Address of principal executive offices)

10151
(Zip Code)

Registrant’s telephone number, including area code   (212) 745-0100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  o                          Accelerated filer  x                            Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  
o    No  x

Number of shares of common stock, par value $.01 per share, of PRIMEDIA Inc. outstanding as of April 30, 2006: 264,011,416

 




PRIMEDIA Inc.

INDEX

 

 

 

 

 

 

Part I. Financial Information:

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2006 and December 31, 2005

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Consolidated Operations (Unaudited) for the three months ended March 31, 2006 and 2005

 

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Consolidated Cash Flows (Unaudited) for the three months ended March 31, 2006 and 2005

 

4

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

5

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

42

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

42

 

 

 

 

 

 

 

Part II. Other Information:

 

 

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

43

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

43

 

1




PRIMEDIA INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share amounts)

 

 

March 31,
2006

 

December 31,
2005

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

6,596

 

$

7,255

 

Accounts receivable, net

 

139,647

 

134,773

 

Inventories

 

20,754

 

21,212

 

Prepaid expenses and other

 

40,924

 

29,722

 

Assets held for sale

 

111,083

 

109,129

 

Total current assets

 

319,004

 

302,091

 

 

 

 

 

 

 

Property and equipment (net of accumulated depreciation and amortization of $227,951 in 2006 and $226,600 in 2005)

 

53,215

 

56,868

 

Intangible assets, net

 

226,007

 

231,404

 

Goodwill

 

775,960

 

763,177

 

Other non-current assets

 

28,434

 

35,928

 

Total Assets

 

$

1,402,620

 

$

1,389,468

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

55,638

 

$

52,984

 

Accrued expenses and other

 

130,543

 

122,319

 

Deferred revenues

 

115,203

 

107,940

 

Current maturities of long-term debt

 

6,668

 

7,677

 

Liabilities of businesses held for sale

 

33,078

 

33,203

 

Total current liabilities

 

341,130

 

324,123

 

 

 

 

 

 

 

Long-term debt

 

1,449,186

 

1,456,770

 

Deferred revenues

 

14,025

 

14,447

 

Deferred income taxes

 

84,990

 

87,655

 

Other non-current liabilities

 

76,244

 

78,202

 

Total Liabilities

 

1,965,575

 

1,961,197

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

Shareholders' deficiency:

 

 

 

 

 

Common stock ($.01 par value, 350,000,000 shares authorized at March 31, 2006 and December 31, 2005; 272,328,882 and 272,158,878 shares issued at March 31, 2006 and December 31, 2005, respectively)

 

2,724

 

2,722

 

Additional paid-in capital (including warrants of $31,690 at March 31, 2006 and December 31, 2005)

 

2,363,881

 

2,363,071

 

Accumulated deficit

 

(2,853,683

)

(2,861,645

)

Common stock in treasury, at cost (8,442,409 shares at March 31, 2006 and December 31, 2005)  

 

(75,877

)

(75,877

)

Total Shareholders' Deficiency

 

(562,955

)

(571,729

)

Total Liabilities and Shareholders' Deficiency

 

$

1,402,620

 

$

1,389,468

 

 

See notes to condensed consolidated financial statements (unaudited).

2




 

PRIMEDIA INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Operations (Unaudited)
(in thousands, except share and per share amounts)

 

 

Three Months Ended March 31,

 

 

 

2006

 

2005

 

Revenues, net:

 

 

 

 

 

Advertising

 

$

154,131

 

$

150,877

 

Circulation

 

49,005

 

49,368

 

Other

 

38,255

 

28,520

 

Total revenues, net

 

241,391

 

228,765

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Cost of goods sold (exclusive of depreciation of property and equipment)

 

56,483

 

46,549

 

Marketing and selling

 

48,273

 

47,622

 

Distribution, circulation and fulfillment

 

48,601

 

45,904

 

Editorial

 

17,148

 

16,786

 

Other general expenses

 

32,293

 

30,904

 

Corporate administrative expenses (including non-cash compensation of $918 and $1,201 in 2006 and 2005, respectively)

 

7,345

 

7,771

 

Depreciation of property and equipment

 

6,605

 

6,026

 

Amortization of intangible assets and other

 

2,958

 

2,202

 

Provision for severance, closures and restructuring related costs

 

376

 

1,033

 

 

 

 

 

 

 

Operating income

 

21,309

 

23,968

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

(30,826

)

(33,121

)

Interest on shares subject to mandatory redemption

 

 

(10,945

)

Amortization of deferred financing costs

 

(659

)

(1,334

)

Other income, net

 

158

 

671

 

 

 

 

 

 

 

Loss from continuing operations before benefit (provision) for income taxes

 

(10,018

)

(20,761

)

Benefit (provision) for income taxes

 

1,150

 

(3,648

)

 

 

 

 

 

 

Loss from continuing operations

 

(8,868

)

(24,409

)

 

 

 

 

 

 

Discontinued operations, net of tax (including gain on sale of businesses, net of tax, of $13,707 and $383,178 in 2006 and 2005, respectively)

 

16,808

 

389,923

 

Cumulative effect of change in accounting principle (from the adoption of Statement of

 

 

 

 

 

Financial Accounting Standards No. 123 (R))

 

22

 

 

Net income

 

$

7,962

 

$

365,514

 

 

 

 

 

 

 

Basic and diluted income (loss) per common share:

 

 

 

 

 

Continuing operations

 

$

(0.03

)

$

(0.09

)

Discontinued operations

 

0.06

 

1.48

 

Net income

 

$

0.03

 

$

1.39

 

 

 

 

 

 

 

Basic and diluted common shares outstanding (weighted average)

 

263,773,104

 

262,661,656

 

 

See notes to condensed consolidated financial statements (unaudited).

3




 

PRIMEDIA INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Cash Flows (Unaudited)
(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2006

 

2005

 

Operating activities:

 

 

 

 

 

Net income

 

$

7,962

 

$

365,514

 

Cumulative effect of a change in accounting principle

 

(22

)

 

Adjustments to reconcile net income to net cash provided by
operating activities

 

(5,217

)

(365,002

)

Changes in operating assets and liabilities

 

5,101

 

4,094

 

Net cash provided by operating activities

 

7,824

 

4,606

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Additions to property, equipment and other

 

(4,730

)

(5,891

)

Proceeds from sales of businesses

 

17,000

 

431,306

 

Payments for businesses acquired, net of cash acquired

 

(12,317

)

(7,820

)

Net cash (used in) provided by investing activities

 

(47

)

417,595

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Borrowings under credit agreements

 

69,600

 

63,150

 

Repayments of borrowings under credit agreements

 

(70,100

)

(131,650

)

Payments for repurchases of senior notes

 

(6,832

)

 

Proceeds from issuances of common stock

 

246

 

1,074

 

Deferred financing costs paid

 

 

(62

)

Capital lease payments

 

(1,296

)

(2,073

)

Other

 

(54

)

(51

)

Net cash used in financing activities

 

(8,436

)

(69,612

)

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(659

)

352,589

 

Cash and cash equivalents, beginning of period

 

7,255

 

13,000

 

Cash and cash equivalents, end of period

 

$

6,596

 

$

365,589

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

Cash interest paid, including interest on capital and restructured leases

 

$

16,033

 

$

14,256

 

Cash interest paid on shares subject to mandatory redemption

 

$

 

$

10,945

 

Cash taxes paid, net of refunds received

 

$

4,079

 

$

58

 

Cash paid for severence, closures and restructuring related costs

 

$

1,666

 

$

4,503

 

Businesses acquired:

 

 

 

 

 

Fair value of assets acquired

 

$

14,315

 

$

7,888

 

(Liabilities assumed) net of deferred purchase price payments

 

(1,998

)

(68

)

Payments for businesses acquired, net of cash acquired

 

$

12,317

 

$

7,820

 

 

See notes to condensed consolidated financial statements (unaudited).

4




 

PRIMEDIA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share amounts)

1.   Summary of Significant Accounting Policies

Basis of Presentation

PRIMEDIA Inc., together with its subsidiaries, is herein referred to as either “PRIMEDIA” or the “Company” unless the context implies otherwise. In the opinion of the Company’s management, the condensed consolidated financial statements present fairly the consolidated financial position of the Company as of March 31, 2006 and December 31, 2005, the results of consolidated operations of the Company for the three months ended March 31, 2006 and 2005, and consolidated cash flows of the Company for the three months ended March 31, 2006 and 2005. The adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet as of December 31, 2005 has been derived from the Company’s audited consolidated balance sheet included in the Company’s annual report on Form 10-K for the year ended December 31, 2005. All intercompany accounts and transactions have been eliminated in consolidation. These statements should be read in conjunction with the Company’s annual consolidated financial statements and related notes for the year ended December 31, 2005, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The operating results for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for a full year. Certain amounts in the prior periods’ condensed consolidated financial statements and related notes have been reclassified to conform to the presentation as of and for the three months ended March 31, 2006.

Stock-Based Compensation

The Company has a stock-based employee compensation plan which is described in Note 9. Prior to January 1, 2006, the Company accounted for stock based compensation using the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”, under the prospective method. Upon adoption, the Company began expensing the fair value of stock-based compensation for all grants, modifications or settlements made on or after January 1, 2003. Effective January 1, 2006, the Company adopted the provisions of, and account for stock-based compensation in accordance with, the FASB Statement of Financial Accounting Standards No. 123—revised 2004 (“SFAS No. 123(R)”), “Share-Based Payment”, which replaced SFAS No. 123 and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The Company elected the modified prospective method, under which prior periods are not revised for comparative purposes. The modified prospective transition method requires recognition of compensation expense from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employees awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date. The adoption of SFAS No. 123(R) did not have a material impact on the Company’s consolidated financial position, results of operations and cash flows. See Note 9 for further information.

Recent Accounting Pronouncements

During the first quarter of 2006 there were no accounting pronouncements adopted that will have a material impact on the Company’s consolidated financial statements.

2.   Divestitures

The Company has classified the results of certain divested entities as discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

On March 18, 2005, the Company completed the sale of About.com, part of the Enthusiast Media segment, the results of which have been classified as discontinued operations for the period up to the date of sale. Gross proceeds from the sale of approximately $410,600 were used to reduce the Company’s borrowings under its

5




revolving bank credit facilities and for general corporate purposes. The Company recorded a net gain on the sale of About.com of $378,906 included in discontinued operations for the three months ended March 31, 2005.

On March 31, 2005, the Company completed the sale of Bankers Training & Consulting Company, the financial services division of Workplace Learning. The Company recorded a net gain of approximately $4,298 included in discontinued operations for the three months ended March 31, 2005.  On April 1, 2005, the Company sold the remaining net assets of Workplace Learning for the assumption of liabilities. The operating results of Workplace Learning have been classified as discontinued operations for the period up to the date of sale.

On September 30, 2005, the Company sold its Business Information Segment for approximately $385,000, and during the fourth quarter of 2005, the Company sold Ward’s Automotive Group (“Ward’s”). The operating results of the Business Information segment, including Ward’s, have been classified as discontinued operations for the periods up to the date of sale.  Additionally, during the third quarter of 2005, the Company discontinued the operations of two magazines in the Enthusiast Media segment. Their operating results have been classified as discontinued operations for the period up to the date the two magazines were discontinued. The net proceeds from these sales are subject to routine post-closing adjustments.

During the fourth quarter of 2005, the Company decided to pursue the sales of its Crafts and History groups, part of the Enthusiast Media segment, and discontinue the operations of its Software on Demand division, part of the Education segment. The operating results of these operations have been classified as discontinued operations for all periods presented.

In February of 2006, the Company completed the sale of the History group for $17,000, resulting in a net gain of approximately $13,700. The sale of this group reflects the Company’s increased focus on growing its properties that reach the valuable 18-34 male demographic. The net proceeds from this sale are subject to routine post-closing adjustments.

Net assets sold were comprised of the following:

Accounts receivable

 

$

535

 

Intangible assets

 

2,613

 

Goodwill

 

9,568

 

Other assets

 

835

 

 

 

13,551

 

 

 

 

 

Deferred revenues

 

(10,292

)

Other liabilities

 

(11

)

 

 

(10,303

)

Net assets sold

 

$

3,248

 

 

During the first quarter of 2006, the Company decided to actively pursue the sale of its Films Media group within the Education segment. The operating results of the Films Media group have been classified as discontinued operations for all periods presented.

Total revenues, net, and income before provision for income taxes included in discontinued operations for the three months ended March 31, 2006 and 2005 on the accompanying condensed statements of consolidated operations are as follows:

 

Three Months Ended
March 31,

 

 

 

2006

 

2005

 

Total revenues, net

 

$

19,627

 

$

93,335

 

Income before provision for income taxes

 

$

1,505

 

$

7,156

 

 

6




Income before provision for income taxes above excludes gains on sale of businesses, net of tax, of $13,707 and $383,178 for the three months ended March 31, 2006 and 2005, respectively.

Held for Sale

The assets and liabilities of businesses which the Company has initiated plans to sell, but had not sold, as of March 31, 2006 and December 31, 2005, have been reclassified to held for sale on the accompanying consolidated balance sheets. For March 31, 2006, this represents the assets and liabilities of the Crafts and Films Media groups. For December 31, 2005, this represents the assets and liabilities of the Crafts and History groups.

 

 

March 31,
2006

 

December 31,
2005

 

ASSETS

 

 

 

 

 

Accounts receivable, net

 

$

13,662

 

$

12,994

 

Inventories

 

1,841

 

1,273

 

Prepaid expenses and other

 

2,031

 

883

 

Property and equipment, net

 

2,852

 

1,617

 

Intangible assets

 

5,054

 

5,148

 

Goodwill

 

78,794

 

87,214

 

Other non-current assets

 

6,849

 

 

Assets held for sale

 

$

111,083

 

$

109,129

 

LIABILITIES

 

 

 

 

 

Accounts payable

 

$

6,808

 

$

3,929

 

Accrued expenses and other

 

5,176

 

1,085

 

Deferred revenues—current

 

20,673

 

28,189

 

Other non-current liabilities

 

421

 

 

Liabilities of businesses held for sale

 

$

33,078

 

$

33,203

 

 

3.   Acquisitions

Automotive.com - Forward Agreement

On November 15, 2005, the Company purchased Automotive.com, Inc. (“Automotive.com”). PRIMEDIA and the minority shareholders entered into a forward agreement through which PRIMEDIA will purchase the remaining 20% of Automotive.com’s stock within a short period of time after the 2008 audit date, or if the forward agreement is extended, the 2009 audit date (early 2010). The settlement price of the forward agreement is based on a measure of Automotive.com’s earnings in the fiscal year prior to settlement.

For accounting purposes, the forward agreement was bifurcated into the components relating to the Chief Executive Officer (“CEO”) of Automotive.com and the other minority shareholders. The component relating to the CEO was measured at intrinsic value for the one and one half months remaining in 2005 following the transaction date. On January 1, 2006, PRIMEDIA adopted the provisions of SFAS 123(R) (see Note 9), which requires that the portion of the forward agreement relating to the CEO be recorded as a liability and measured at fair value. On January 1 and March 31, 2006, the Company used an independent third party to assist in the valuation of this portion of the forward agreement. The initial recognition of the liability, as of January 1, 2006, totaling $330, was recorded as a portion of the cumulative effect of an accounting change (due to the adoption of SFAS 123(R)). The liability measured on March 31, 2006 was $949 resulting in compensation expense of $619.

The component of the forward agreement relating to the other minority shareholders was recorded as a liability at fair value as of the transaction date and an adjustment to the purchase price. On March 31, 2006, the Company utilized a

7




third party to assist in the valuation of this portion of the forward agreement. The fair value of this liability was $22,699, resulting in a reduction to interest expense of $982.

The Company will utilize an independent third party to assist in the valuation of the forward agreement on a quarterly basis through the settlement date.

RentClicks

In January 2006, the Consumer Guides segment acquired the assets of RentClicks for approximately $12,700 in cash and a potential earnout consideration. The amount of the earnout consideration will be charged to goodwill when and if it is earned and is based on a measure of RentClicks’ earnings for 2006. The Company is utilizing an independent third party to assist in the purchase price allocation and in the interim has classified the purchase price primarily to goodwill.

4.   Accounts Receivable, Net

Accounts receivable, net, consisted of the following:

 

March 31,

 

December 31,

 

 

 

2006

 

2005

 

Accounts receivable

 

$

149,794

 

$

146,289

 

Allowance for doubtful accounts

 

(7,742

)

(8,256

)

Allowance for returns and rebates

 

(2,405

)

(3,260

)

 

 

$

139,647

 

$

134,773

 

 

5.   Inventories

Inventories consisted of the following:

 

March 31,

 

December 31,

 

 

 

2006

 

2005

 

Raw materials

 

$

17,350

 

$

17,895

 

Work in process

 

105

 

125

 

Finished goods

 

3,299

 

3,192

 

 

 

$

20,754

 

$

21,212

 

 

6.   Goodwill, Other Intangible Assets and Other

In accordance with SFAS 142, “Goodwill and Other Intangible Assets”, the Company assesses goodwill and indefinite lived intangible assets for impairment at least once a year. The Company has established October 31 as the annual impairment test date. In addition to the annual impairment test, an assessment is also required whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the three months ended March 31, 2006 and 2005, there were no events or changes in circumstances requiring the Company to perform an impairment test related to goodwill, intangible assets or other finite lived assets, and accordingly, there were no impairments recorded.

With the adoption of SFAS 142, the Company no longer amortizes the book basis in the indefinite-lived intangibles, but continues to amortize these intangibles for tax purposes. For the three months ended March 31, 2006 and 2005, income tax expense primarily consisted of deferred income taxes of $2,769 and $3,578, respectively. The Company expects that it will record a total of approximately $12,000 to increase deferred tax liabilities during the remainder of 2006.

Changes in the carrying amount of goodwill for the three months ended March 31, 2006, by operating segment, are as follows:

8




 

 

Enthusiast
Media

 

Consumer
Guides

 

Total

 

Balance as of January 1, 2006

 

$

650,510

 

$

112,667

 

$

763,177

 

Purchase price adjustments for valuation reports

 

(143

)

1,527

 

1,384

 

Adjustment to goodwill allocated to assets held for sale

 

975

 

 

975

 

Goodwill acquired related to the acquisition of businesses

 

 

12,547

 

12,547

 

Goodwill written off related to the sale of businesses

 

(2,123

)

 

(2,123

)

Balance as of March 31, 2006

 

$

649,219

 

$

126,741

 

$

775,960

 

 

Intangible assets subject to amortization in accordance with SFAS 142 consist of the following:

 

 

 

 

March 31, 2006

 

December 31, 2005

 

 

 

Range
of Lives

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Membership, subscriber and customer lists

 

2-20

 

$

189,139

 

$

163,064

 

$

26,075

 

$

194,926

 

$

166,553

 

$

28,373

 

Advertiser lists

 

4-20

 

96,065

 

80,002

 

16,063

 

96,065

 

79,418

 

16,647

 

Other

 

1-20

 

109,486

 

98,752

 

10,734

 

109,894

 

97,945

 

11,949

 

 

 

 

 

$

394,690

 

$

341,818

 

$

52,872

 

$

400,885

 

$

343,916

 

$

56,969

 

 

Intangible assets not subject to amortization had a carrying value of $173,135 and $174,435 at March 31, 2006 and December 31, 2005, respectively, and consisted primarily of trademarks. Amortization expense for other intangible assets still subject to amortization was $2,798 and $1,857 for the three months ended March 31, 2006 and 2005, respectively. Amortization of deferred wiring costs of $160 and $345 for the three months ended March 31, 2006 and 2005, respectively, is also included in amortization of intangible assets and other on the accompanying condensed statements of consolidated operations. At March 31, 2006, estimated future amortization expenses of other intangible assets still subject to amortization, excluding deferred wiring costs, are as follows: approximately $8,000 for the remainder of 2006 and approximately $10,000, $6,000, $5,000 and $4,000 for 2007, 2008, 2009 and 2010, respectively.

9




7.   Accrued Expenses and OtherAccrued expenses and other current liabilities consisted of the following:

 

 

March 31,

 

December 31,

 

 

 

2006

 

2005

 

Payroll, commissions and related employee benefits

 

$

37,163

 

$

30,333

 

Rent and lease liabilities

 

5,697

 

5,643

 

Retail display costs and allowances

 

10,573

 

11,450

 

Royalties

 

89

 

2,337

 

Circulation costs

 

5,713

 

5,399

 

Professional fees

 

2,592

 

2,943

 

Taxes

 

15,954

 

19,475

 

Deferred purchase price

 

4,162

 

2,724

 

Interest payable

 

29,264

 

13,794

 

Other

 

19,336

 

28,221

 

 

 

$

130,543

 

$

122,319

 

 

8.   Long-term Debt

Long-term debt consisted of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2006

 

2005

 

Borrowings under bank credit facilities

 

$

512,500

 

$

513,000

 

87¤8% Senior Notes Due 2011

 

464,216

 

471,013

 

8% Senior Notes Due 2013

 

300,000

 

300,000

 

Senior Floating Rate Notes Due 2010

 

175,000

 

175,000

 

 

 

1,451,716

 

1,459,013

 

Obligation under capital leases

 

4,138

 

5,434

 

 

 

1,455,854

 

1,464,447

 

Less: Current maturities of long-term debt

 

6,668

 

7,677

 

 

 

$

1,449,186

 

$

1,456,770

 

 

In the first quarter of 2006, the Company redeemed $7,025 principal amount of its 87¤8% Senior Notes due May 15, 2011 in three different transactions for $6,832 plus $200 of accrued interest. As a result, the Company recorded a gain of $54 net of the write-off of unamortized deferred financing costs and bond discount. This amount is included in the other income, net line on the accompanying condensed statements of consoldiated operations for the three months ended March 31, 2006.

Under the most restrictive covenants as defined in the bank credit facilities agreement, as amended on September 30, 2005, the Company must maintain a minimum interest coverage ratio, as defined, of 1.75 to 1 and a minimum fixed charge coverage ratio, as defined, of 1.05 to 1. The maximum allowable debt leverage ratio, as defined in the bank credit facilities, is 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007. The Company is in compliance with all of the financial and operating covenants of its financing arrangements.

The Senior Floating Rate Notes bear interest equal to three-month LIBOR plus 5.375% per year.

9.   Share-Based Compensation Plans

Accounting Prior to Adoption of SFAS 123(R)

Prior to January 1, 2006, the Company accounted for stock based compensation using SFAS No. 123 under the prospective method. Upon adoption on January 1, 2003, the Company began expensing the fair value of stock-based compensation for all grants, modifications or settlements made on or after January 1, 2003. The company adopted SFAS No. 123(R) on January 1, 2006.

The PRIMEDIA Inc. 1992 Stock Purchase and Option Plan, as amended (the “Stock Option Plan”), authorizes sales of shares of common stock and grants of incentive awards in the form of, among other things, stock options to key employees and other persons with a unique relationship with the Company. The Stock Option Plan has authorized grants of up to 45,000,000 shares of the Company’s common stock or options to management personnel.

Stock options are generally granted with exercise prices at or above quoted market value at time of issuance. Most of the options are exercisable at the rate of 20%-33% per year commencing on the effective date of the grant. Most options granted pursuant to the Stock Option Plan will expire no later than ten years from the date the option was granted. The grant date fair value is calculated using the Black-Scholes pricing model.

Summary of Impact of SFAS 123(R)

Under the fair value recognition provisions of SFAS No. 123(R), stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The Company elected the modified prospective method, under which prior periods are not revised for comparative purposes. The modified prospective transition method requires recognition of compensation expense from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employees awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date.

Upon adoption of SFAS No. 123(R), the Company recorded an increase in net income of $352 as a portion of the cumulative effect of change in accounting principle due to SFAS No. 123(R)’s requirement to apply an estimated forfeiture rate to unvested awards (previously the Company recognized forfeitures when occurred) and a reduction to net income of $330 as a portion of the cumulative effect of change in accounting principle as described in Note 3.

10




The adoption of SFAS No. 123(R) did not have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

Pro Forma Disclosure for the Three Months Ended March 31, 2005

Pro forma information regarding net income and earnings per share is required by SFAS No. 123(R), and has been determined as if the Company had accounted for its employee stock options granted on or before December 31, 2002 under the fair value method. The fair value of these options was estimated at the date of grant using the Black-Scholes pricing model with assumptions noted in the Stock Options section below.

 

Three Months Ended
March, 31, 2005

 

Reported net income

 

$

365,514

 

Add: stock-based employee compensation expense included in reported net income

 

566

 

 

 

 

 

Deduct: total stock-based employee compensation expense determined under fair value based method for all awards

 

(1,770

)

 

 

 

 

Pro forma net income

 

$

364,310

 

 

 

 

 

Per common share:

 

 

 

Reported basic and diluted income

 

$

1.39

 

Pro forma basic and diluted income

 

$

1.39

 

 

Fair Value Calculations by Award

Stock Options

The fair value of each option award was estimated at the date of grant using the Black-Scholes pricing model that uses the assumptions noted in the following table. Because the Black-Scholes pricing model incorporates ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on historical volatilities of the Company’s stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is derived from the historical exercise behavior of employees and represents the period of time that options granted are expected to be outstanding. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

11




 

 

Three Months ended
March 31, 2005(*)

 

Expected volatility

 

75.30

%

Weighted-average volatility

 

75.30

%

Expected dividends

 

 

Expected term (in years)

 

3

 

Risk-free rate

 

3.25%-3.96%

 

 

(*) The Company did not grant stock options during the three months ended March 31, 2006.

The Black-Scholes pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate of its employee stock options.

A summary of the company’s stock options award activity as of March 31, 2006 and changes during the three months ended March 31, 2006 is presented below:

 

Options

 

Weighted
Average
Exercise
Price

 

Weighted
Average
remaining
Contractual
Term

 

Outstanding at January 1, 2006.

 

20,712,058

 

$

7.65

 

 

 

Expired

 

(128,414

)

$

7.01

 

 

 

Forfeited

 

(115,915

)

$

3.26

 

 

 

Outstanding at March 31, 2006

 

20,467,729

 

$

7.67

 

4

 

Exercisable at March 31, 2006

 

17,842,809

 

$

8.11

 

4

 

 

No options were granted, exercised or settled in cash in the first quarter of 2006. In the first quarter of 2005, the weighted-average fair value per option for options granted was $2.12, the Company received $703 in cash from the exercise of stock options and 3,600 stock options were settled in cash for $7.

The Company’s policy for attributing the value of graded vested share-based compensation awards is on a straight-line basis over the requisite service period for the entire award. As of March 31, 2006, there were $1,912 of total unrecognized compensation cost related to unvested stock options. The cost is expected to be recognized over a weighted average period of 1 year.

Nonvested shares

The weighted average fair value of nonvested shares granted in the first quarter of 2005 was $3.48.

A summary of the Company’s nonvested shares award activity as of March 31, 2006 and changes during the three months ended March 31, 2006 is presented below:

12




 

 

 

Number of
Shares

 

Weighted Average
Grant-Date
Fair Value

 

Nonvested Shares at January 1, 2006

 

847,646

 

$

2.98

 

Vested

 

(20,000

)

$

2.36

 

Forfeited

 

(3,333

)

$

2.90

 

Nonvested Shares at March 31, 2006

 

824,313

 

$

3.00

 

 

As of March 31, 2006, there were $1,563 of total unrecognized compensation cost related to nonvested shares. The cost is expected to be recognized over a weighted average period of 1 year.

The total fair value of shares vested during the three-month period ended March 31, 2006 was $47.

The Company had reserved approximately 9,795,921 shares of the Company’s common stock for future grants in connection with the Stock Option Plan at March 31, 2006.

Employee Stock Purchase Plan (“ESPP”)

Effective January 1, 2006, the ESPP was amended to provide that the purchase price of shares through the ESPP is 95% of the closing stock price on the last day of the offering period. Due to the amendment, the ESPP became non-compensatory and thus no charges were recorded for the three months ended March 31, 2006. ESPP non-cash compensation for the three months ended March 31, 2005 did not have a material impact on the Company’s statements of consolidated operations. In January 2006, the Company issued 170,054 shares purchased under the ESPP during the offering period of the six months ended December 31, 2005.

The Company had reserved approximately 2,564,000 shares of the Company’s common stock for future grants in connection with the ESPP at March 31, 2006.

Non-Cash Compensation

 

Three Months Ended
March 31,

 

 

 

2006

 

2005

 

Nonvested shares(1)

 

$

392

 

$

635

 

Share Based Compensation (SFAS 123(R) and SFAS 123)(2)

 

526

 

566

 

Total

 

$

918

 

$

1,201

 


(1)             The Company recognized $392 and $635 for the three months ended March 31, 2006 and 2005, respectively, of non-cash compensation charges related to the Company’s grants of nonvested shares to certain executives during 2003, 2004 and 2005. These grants are being expensed ratably over their related vesting periods.

(2)             In accordance with SFAS 123R in 2006 and SFAS 123 in 2005, the Company recorded a non-cash compensation charge of $526 and $566 for the three months ended March 31, 2006 and 2005, respectively, relating to stock options in both 2006 and 2005 and the PRIMEDIA ESPP in 2005.

13




 

 

10.   Provision for Severance, Closures and Restructuring Related Costs

During the first quarter of 2006, the Company began new cost reduction initiatives, primarily due to recent divestitures, to streamline operations, reduce layers of management and consolidate real estate.

Details of the new initiatives implemented and the payments made related to both the new and previously implemented plans during the three months ended March 31, 2006 and 2005 are presented in the following tables:

 

Liability as of
January 1,
2006

 

Net Provision 
for the Three
Months Ended
March 31,
2006

 

Payments
during the Three
Months Ended
March 31,
2006

 

Liability as of
March 31, 2006

 

Severance and closures:

 

 

 

 

 

 

 

 

 

Employee-related termination costs

 

$

245

 

$

280

 

$

(181

)

$

344

 

Termination of leases related to office closures

 

29,228

 

96

 

(1,485

)

27,839

 

Total severance and closures

 

$

29,473

 

$

376

 

$

(1,666

)

$

28,183

 

 

 

Liability as of
January 1,
2005

 

Net Provision 
for the Three
Months Ended
March 31,
2005

 

Payments
during the Three
Months Ended
March 31,
2005

 

Liability as of
March 31, 2005

 

Severance and closures:

 

 

 

 

 

 

 

 

 

Employee-related termination costs

 

$

1,499

 

$

672

 

$

(1,391

)

$

780

 

Termination of leases related to office closures

 

34,450

 

361

 

(2,567

)

32,244

 

Total severance and closures

 

$

35,949

(1)

$

1,033

(2)

$

(3,958

)

$

33,024

 


(1)             Reduced for liabilities relating to discontinued operations totaling $1,876 at January 1, 2005.

(2)             Adjusted to exclude net provisions related to discontinued operations totaling $25 for the three months ended March 31, 2005.

The remaining liability related to real estate lease commitments for space that the Company no longer occupies, is expected to be paid through 2015. To reduce the lease related costs, the Company has aggressively pursued subleases of its available office space. These leases have been recorded at their net present value amounts and are net of sublease income amounts. The Company evaluates the appropriateness of its reserves on a quarterly basis.

As a result of the implementation of this new plan, the Company has closed 1 office location and has notified a total of 5 individuals that they would be terminated under this plan. As of March 31, 2006, 4 of these individuals have been terminated.

Liabilities of $3,585 and $3,972 representing the current portion of the provision for severance, closures and restructuring related costs are included in accrued expenses and other on the condensed consolidated balance sheets as of March 31, 2006 and December 31, 2005, respectively. Liabilities of $24,598 and $25,501 representing the non-current portion of the provision for severance, closures and restructuring related costs are included in other non-current liabilities on the condensed consolidated balance sheets as of March 31, 2006 and December 31, 2005, respectively.

For purposes of the Company’s bank credit facility and Senior Note agreements, the provision for severance, closures and restructuring related costs is excluded from the Company’s calculation of consolidated EBITDA.

14




 

 

11.   Income per Common Share

Income per common share for the three months ended March 31, 2006 and 2005 has been determined based on net income applicable to common shareholders, divided by the weighted average number of common shares outstanding for all periods presented.

The securities that could potentially dilute basic earnings per share in the future consist of approximately 9,870,000 warrants and 20,467,729 stock options at March 31, 2006. These securities were not included in the computation of diluted income per share because the effect of their inclusion would be antidilutive.

12.   Commitments and Contingencies

The Company is involved in ordinary and routine litigation incidental to its business. In the opinion of management, there is no pending legal proceeding that would have a material adverse effect on the condensed consolidated financial statements of the Company.

In 2005, the Company sold the remaining net assets of Workplace Learning for the assumption of liabilities, however, the Company retains a secondary liability regarding the payment of the Carrolton, TX lease which has future minimum lease payments of approximately $14,000.

13.   Business Segment Information

The Company’s products compete primarily in the United States, in three principal segments: Enthusiast Media, Consumer Guides and Education. PRIMEDIA believes that this structure aligns its businesses to provide a clearer sense of its strategic focus and operating performance.

The Enthusiast Media segment produces and distributes content through magazines and via the Internet to consumers in various niche and enthusiast markets. It connects buyers and sellers through the Company’s comsumer magazine brands, Internet, events, television, radio, licensing and merchandising.

The Consumer Guides segment is the nation’s largest publisher and distributor of free publications, including Apartment Guide, New Home Guide and Auto Guide and operates related Internet sites.

The Education segment consists of Channel One, a proprietary network to secondary schools, and PRIMEDIA Healthcare, a continuing medical education business.

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 advertising and other 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.

Information regarding the operations of the Company in different business segments is set forth below based primarily on the nature of the targeted audience. Corporate represents items not allocated to other business segments. PRIMEDIA evaluates performance based on several factors, of which the primary financial measure is segment earnings before interest, taxes, depreciation, amortization and other charges (income) (“Segment EBITDA”). Other charges (income) include non-cash compensation and provision for severance, closures and restructuring related costs.

15




 

 

 

 

Three Months Ended March 31,

 

 

 

2006

 

2005

 

Revenues, net:

 

 

 

 

 

Continuing Businesses:

 

 

 

 

 

Enthusiast Media

 

$

150,128

 

$

140,006

 

Consumer Guides

 

81,402

 

75,648

 

Education

 

9,938

 

13,209

 

Intersegment Eliminations

 

(77

)

(98

)

Total

 

$

241,391

 

$

228,765

 

 

 

 

 

 

 

Segment EBITDA: (1)

 

 

 

 

 

Continuing Businesses:

 

 

 

 

 

Enthusiast Media

 

21,048

 

$

20,806

 

Consumer Guides

 

17,736

 

18,244

 

Education

 

(175

)

1,962

 

Corporate Overhead

 

(6,443

)

(6,582

)

Total Segment EBITDA

 

$

32,166

 

$

34,430

 

 

 

 

 

 

 

Depreciation, amortization and other charges: (2)

 

 

 

 

 

Continuing Businesses:

 

 

 

 

 

Enthusiast Media

 

$

5,924

 

$

4,539

 

Consumer Guides

 

3,127

 

2,547

 

Education

 

551

 

1,593

 

Corporate overhead

 

1,255

 

1,783

 

 

 

$

10,857

 

$

10,462

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

Continuing Businesses:

 

 

 

 

 

Enthusiast Media

 

$

15,124

 

$

16,267

 

Consumer Guides

 

14,609

 

15,697

 

Education

 

(726

)

369

 

Corporate

 

(7,698

)

(8,365

)

Total

 

$

21,309

 

$

23,968

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense (3)

 

(30,826

)

(33,121

)

Interest on shares subject to mandatory redemption (4)

 

 

(10,945

)

Amortization of deferred financing costs

 

(659

)

(1,334

)

Other income, net

 

158

 

671

 

Loss from continuing operations before benefit (provision) for income taxes

 

(10,018

)

(20,761

)

Benefit (provision) for income taxes

 

1,150

 

(3,648

)

Loss from continuing operations

 

(8,868

)

(24,409

)

Discontinued operations (5)

 

16,808

 

389,923

 

Cumulative effect of a change in accounting principle (from the adoption of SFAS 123(R))

 

22

 

 

Net income

 

$

7,962

 

$

365,514

 

 

16




 

 

 


(1)             Segment EBITDA represents the segments’ earnings before interest, taxes, depreciation, amortization and other charges (income) (see Note 2 below). Segment EBITDA is not intended to be and should not be considered as an alternative to net income or loss (as determined in conformity with generally accepted accounting principles), as an indicator of the Company’s operating performance. Segment EBITDA is presented herein because the Company’s chief operating decision maker evaluates and measures each business unit’s performance based on its Segment EBITDA results. PRIMEDIA believes that Segment EBITDA an accurate indicator of its segments’ results, because it focuses on revenue and operating cost items driven by each operating managers’ performance, and excludes items largely outside of the operating managers’ control. Segment EBITDA may not be available for the Company’s discretionary use as there are requirements to repay debt, among other payments. Segment EBITDA as presented may not be comparable to similarly titled measures reported by other companies since not all companies necessarily calculate Segment EBITDA in an identical manner, and therefore, is not necessarily an accurate measure of comparison between companies.

(2)             Other charges include non-cash compensation and provision for severance, closures and restructuring related costs.

(3)             The 2006 interest expense was reduced by $982 due to the quarterly fair value measurement of the liability arising from the forward agreement related to the Automotive.com acquisition.

(4)             During 2005, the Company redeemed all of its outstanding shares subject to mandatory redemption (liquidation preference of approximately $475,000).

(5)             Discontinued operations include a gain on sale of businesses, net of $13,707 and $383,178 for the three months ended March 31, 2006 and 2005, respectively.

14.   Financial Information for Guarantors of the Company’s Debt

The information that follows presents condensed consolidating financial information as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005 for a) PRIMEDIA Inc. (as the Issuer), b) the guarantor subsidiaries, which are with limited exceptions, the restricted subsidiaries, represent the core PRIMEDIA businesses and exclude investment and other development properties included in the unrestricted category, c) the non-guarantor subsidiaries (primarily representing Internet assets and businesses, new launches and other properties under evaluation for turnaround or shutdown), which are with limited exceptions, the unrestricted subsidiaries, d) elimination entries and e) the Company on a consolidated basis. During the three months ended March 31, 2006, there have been no reclassifications between restricted and unrestricted subsidiaries.

The condensed consolidating financial information includes certain allocations of revenues, expenses, assets and liabilities based on management’s best estimates which are not necessarily indicative of the financial position, results of operations and cash flows that these entities would have achieved on a stand-alone basis and should be read in conjunction with the consolidated financial statements of the Company. The intercompany balances in the accompanying condensed consolidating financial statements include cash management activities, management fees, cross promotional activities and other intercompany charges between Corporate and the business units and among the business units. The non-guarantor subsidiaries results of operations include: Internet operations, certain distribution operations, certain start-up magazine businesses, revenues and related expenses derived from the licensing of certain products of guarantor subsidiaries and expenses associated with the cross promotion by the guarantor subsidiaries of the activities of the non-guarantor subsidiaries. The transactions described above are billed, by the Company, at what the Company believes are prevailing market rates. All intercompany related activities are eliminated in consolidation.

The Company is herewith providing detailed information and disclosure as to the methodology used in determining compliance with the leverage ratio in the credit facilities agreement. Under its bank credit facilities and Senior Note agreements, the Company is allowed to designate certain businesses as unrestricted subsidiaries to the extent that the value of those businesses does not exceed the permitted amounts, as defined in these agreements. The Company has designated certain of its businesses as unrestricted (the “Unrestricted Group”), which primarily represent Internet businesses, trademark and content licensing and service companies, new launches (including traditional start-ups), other properties under evaluation for turnaround or shutdown and foreign subsidiaries. Except for those specifically designated by the Company as unrestricted, all businesses of the Company are restricted (the “Restricted Group”). Indebtedness under the bank credit facilities and Senior Note agreements is guaranteed by each of the Company’s 100%-owned domestic subsidiaries in the Restricted Group in accordance with the provisions and limitations of the Company’s bank credit facilities and Senior Note agreements. The guarantees are full, unconditional and joint and several. The Unrestricted Group does not guarantee the bank credit facilities or

17




 

 

Senior Notes. Although Automotive.com is included in the Restricted Group under the bank credit facilities agreement it does not guarantee the debt. For purposes of determining compliance with certain financial covenants under the Company’s bank credit facilities, the Unrestricted Group’s results (positive or negative), are not reflected in the Consolidated EBITDA of the Restricted Group which, as defined in the bank credit facilities agreement, excludes losses of the Unrestricted Group, non-cash charges and restructuring charges and is adjusted primarily for the trailing four quarters results of acquisitions and divestitures and estimated savings for acquired business.

18




PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
March 31, 2006
(dollars in thousands)

 

 

Primedia Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Primedia Inc.
and
Subsidiaries

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

309

 

$

4,253

 

$

2,034

 

$

 

$

6,596

 

Accounts receivable, net

 

 

118,048

 

21,599

 

 

139,647

 

Inventories

 

 

18,547

 

2,207

 

 

20,754

 

Prepaid expenses and other

 

4,978

 

15,601

 

20,345

 

 

40,924

 

Assets held for sale

 

 

111,083

 

 

 

111,083

 

Total current assets

 

5,287

 

267,532

 

46,185

 

 

319,004

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

2,840

 

39,272

 

11,103

 

 

53,215

 

Investment in and advances to subsidiaries

 

1,293,192

 

 

 

(1,293,192

)

 

Other intangible assets, net

 

 

185,028

 

40,979

 

 

226,007

 

Goodwill

 

 

671,861

 

104,099

 

 

775,960

 

Other non-current assets

 

4,570

 

21,890

 

1,974

 

 

28,434

 

 

 

$

1,305,889

 

$

1,185,583

 

$

204,340

 

$

(1,293,192

)

$

1,402,620

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,574

 

$

45,502

 

$

4,562

 

 

$

55,638

 

Intercompany payables

 

225,702

 

(914,465

)

688,763

 

 

 

Accrued expenses and other

 

56,128

 

60,929

 

13,486

 

 

130,543

 

Deferred revenues

 

1,738

 

105,841

 

7,624

 

 

115,203

 

Current maturities of long-term debt

 

5,057

 

1,582

 

29

 

 

6,668

 

Liabilities of businesses held for sale 

 

 

33,078

 

 

 

33,078

 

Total current liabilities

 

294,199

 

(667,533

)

714,464

 

 

341,130

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,446,864

 

2,218

 

104

 

 

1,449,186

 

Intercompany notes payable

 

 

2,218,757

 

 

(2,218,757

)

 

Deferred revenues

 

14,025

 

 

 

 

14,025

 

Deferred income taxes

 

84,990

 

 

 

 

 

84,990

 

Other non-current liabilities

 

28,766

 

21,208

 

26,270

 

 

76,244

 

Total liabilities

 

1,868,844

 

1,574,650

 

740,838

 

(2,218,757

)

1,965,575

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ deficiency:

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

2,724

 

 

 

 

2,724

 

Additional paid-in capital

 

2,363,881

 

 

 

 

2,363,881

 

Accumulated deficit

 

(2,853,683

)

(389,067

)

(536,498

)

925,565

 

(2,853,683

)

Common stock in treasury, at cost

 

(75,877

)

 

 

 

(75,877

)

Total shareholders’ deficiency

 

(562,955

)

(389,067

)

(536,498

)

925,565

 

(562,955

)

 

 

$

1,305,889

 

$

1,185,583

 

$

204,340

 

$

(1,293,192

)

$

1,402,620

 

 

19




PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31, 2006
(dollars in thousands)

 

 

Primedia Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Primedia Inc.
and
Subsidiaries

 

Sales, net

 

$

 

$

192,427

 

$

51,373

 

$

(2,409

)

$

241,391

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

48,067

 

8,416

 

 

56,483

 

Marketing and selling

 

 

39,141

 

9,132

 

 

48,273

 

Distribution, circulation and fulfillment

 

 

26,093

 

22,508

 

 

48,601

 

Editorial

 

 

14,499

 

2,649

 

 

17,148

 

Other general expenses

 

16

 

16,355

 

18,331

 

(2,409

)

32,293

 

Corporate administrative expenses (including non-cash compensaion)

 

5,850

 

24

 

1,471

 

 

7,345

 

Depreciation of property and equipment

 

361

 

4,357

 

1,887

 

 

6,605

 

Amortization of intangible assets and other

 

 

1,512

 

1,446

 

 

2,958

 

Provision for severance, closures and restructuring related costs

 

 

361

 

15

 

 

376

 

Gain on sales of businesses and other, net

 

 

(570

)

570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(6,227

)

42,588

 

(15,052

)

 

21,309

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(31,444

)

(340

)

958

 

 

(30,826

)

Amortization of deferred financing costs

 

 

(631

)

(28

)

 

(659

)

Intercompany management fees and interest 

 

36,161

 

(34,800

)

(1,361

)

 

 

Other, net

 

297

 

(162

)

23

 

 

158

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before benefit (provision) for income taxes

 

(1,213)

 

6,655

 

(15,460

)

 

(10,018

)

 

 

 

 

 

 

 

 

 

 

 

 

Benefit (provision) for income taxes

 

1,256

 

(100

)

(6

)

 

1,150

 

Equity in losses of subsidiaries

 

5,271

 

 

 

(5,271

)

 

Income (loss) from continuing operations

 

5,314

 

6,555

 

(16,936

)

(5,271

)

(8,868

)

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations, net of tax

 

2,296

 

14,697

 

(185

)

 

16,808

 

Cumulative effect of change in accounting principle

 

352

 

(330

)

 

 

 

22

 

Net income (loss)

 

$

7,962

 

$

20,922

 

$

(15,651

)

$

(5,271

)

$

7,962

 

 

20




PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31, 2006
(dollars in thousands)

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

Primedia Inc.
and

 

 

 

Primedia Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Subsidiaries

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

7,962

 

$

20,922

 

$

(15,651

)

$

(5,271

)

$

7,962

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of a change in accounting principle

 

(352

)

 

330

 

 

(22

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities 

 

(42,648

)

27,834

 

4,326

 

5,271

 

(5,217

)

Changes in operating assets and liabilities 

 

8,861

 

16,386

 

(20,146

)

 

5,101

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

(26,177

)

65,142

 

(31,141

)

 

7,824

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Additions to property, equipment and other, net

 

(113

)

(3,038

)

(1,579

)

 

(4,730

)

Proceeds from sales of businesses and other

 

 

30,039

 

(13,039

)

 

17,000

 

Payments for businesses acquired, net of cash acquired

 

 

 

(12,292

)

(25

)

 

(12,317

)

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

(113

)

14,709

 

(14,643

)

 

(47

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Intercompany activity

 

34,135

 

(79,068

)

44,933

 

 

 

Borrowings under credit agreements

 

69,600

 

 

 

 

69,600

 

Repayments of borrowings under credit agreements

 

(70,100

)

 

 

 

(70,100

)

Payments for repurchases of senior notes 

 

(6,832

)

 

 

 

(6,832

)

Proceeds from issuances of common stock

 

246

 

 

 

 

246

 

Capital Lease Obligations

 

(771

)

(658

)

133

 

 

 

(1,296

)

Other

 

 

(54

)

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

26,278

 

(79,780

)

45,066

 

 

(8,436

)

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(12

)

71

 

(718

)

 

(659

)

Cash and cash equivalents, beginning of period

 

321

 

4,182

 

2,752

 

 

7,255

 

Cash and cash equivalents, end of period  

 

$

309

 

$

4,253

 

$

2,034

 

$

 

$

6,596

 

 

21




 

PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
December 31, 2005
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

PRIMEDIA Inc.

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

and

 

 

 

  PRIMEDIA Inc.  

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

    Subsidiaries    

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

321

 

$

4,182

 

$

2,752

 

$

 

$

7,255

 

Accounts receivable, net

 

 

117,528

 

17,245

 

 

134,773

 

Inventories

 

 

19,601

 

1,611

 

 

21,212

 

Prepaid expenses and other

 

8,622

 

17,668

 

3,432

 

 

29,722

 

Assets held for sale

 

 

109,129

 

 

 

109,129

 

Total current assets

 

8,943

 

268,108

 

25,040

 

 

302,091

 

Property and equipment, net

 

3,090

 

42,215

 

11,563

 

 

56,868

 

Investment in and advances to subsidiaries

 

471,538

 

 

 

(471,538

)

 

Other intangible assets, net

 

 

186,554

 

44,850

 

 

231,404

 

Goodwill

 

 

648,185

 

114,992

 

 

763,177

 

Other non-current assets

 

4,727

 

28,990

 

2,211

 

 

35,928

 

Total assets

 

$

488,298

 

$

1,174,052

 

$

198,656

 

$

(471,538

)

$

1,389,468

 

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,140

 

$

37,949

 

$

6,895

 

$

 

$

52,984

 

Intercompany payables and receivables

 

(588,458

)

(867,988

)

1,456,446

 

 

 

Accrued expenses and other

 

46,975

 

67,395

 

7,949

 

 

122,319

 

Deferred revenues

 

1,738

 

94,335

 

11,867

 

 

107,940

 

Current maturities of long-term debt

 

5,816

 

1,827

 

34

 

 

7,677

 

Liabilities of businesses held for sale

 

 

33,203

 

 

 

33,203

 

Total current liabilities

 

(525,789

)

(633,279

)

1,483,191

 

 

324,123

 

Long-term debt

 

1,454,174

 

2,457

 

139

 

 

1,456,770

 

Intercompany notes payable

 

 

2,226,286

 

 

(2,226,286

)

 

Deferred revenues

 

14,447

 

 

 

 

14,447

 

Deferred income taxes

 

87,655

 

 

 

 

87,655

 

Other non-current liabilities

 

29,540

 

22,069

 

26,593

 

 

78,202

 

Total Liabilities

 

1,060,027

 

1,617,533

 

1,509,923

 

(2,226,286

)

1,961,197

 

Shareholders' deficiency: