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: June 30, 2007

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 August 2, 2007: 44,120,007

 




PRIMEDIA Inc.
INDEX

Part I. Financial Information:

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2007 and December 31, 2006

2

 

 

 

 

Condensed Statements of Consolidated Operations (Unaudited) for the three months ended June 30, 2007 and 2006

3

 

 

 

 

Condensed Statements of Consolidated Operations (Unaudited) for the six months ended June 30, 2007 and 2006

4

 

 

 

 

Condensed Statements of Consolidated Cash Flows (Unaudited) for the six months ended June 30, 2007 and 2006

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

44

 

 

 

Item 4.

Controls and Procedures

44

 

Part II. Other Information:

 

Item 1A.

Risk Factors

45

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

45

 

 

 

Item 6.

Exhibits

46

 

 

 

 

Signatures

47

 

1




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

 

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

111,040

 

$

5,828

 

Accounts receivable, net

 

28,564

 

115,284

 

Inventories

 

443

 

12,978

 

Prepaid expenses and other

 

15,185

 

18,977

 

Assets of businesses held for sale

 

882,016

 

170,037

 

Total current assets

 

1,037,248

 

323,104

 

 

 

 

 

 

 

Property and equipment (net of accumulated depreciation and amortization of $82,149 in 2007 and $164,478 in 2006)

 

21,078

 

46,390

 

Intangible assets, net

 

25,988

 

187,887

 

Goodwill

 

133,133

 

674,138

 

Other non-current assets

 

15,777

 

22,810

 

Total Assets

 

$

1,233,224

 

$

1,254,329

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIENCY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

10,816

 

$

47,679

 

Accrued expenses and other

 

45,841

 

112,183

 

Deferred revenues

 

1,924

 

79,035

 

Current maturities of long-term debt

 

5,177

 

6,070

 

Liabilities of businesses held for sale

 

203,380

 

50,300

 

Total current liabilities

 

267,138

 

295,267

 

 

 

 

 

 

 

Long-term debt

 

1,312,026

 

1,316,959

 

Deferred revenues

 

11,900

 

12,750

 

Deferred income taxes

 

12,322

 

72,060

 

Other non-current liabilities

 

56,111

 

80,523

 

Total Liabilities

 

1,659,497

 

1,777,559

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ deficiency:

 

 

 

 

 

Common stock ($.01 par value, 350,000,000 shares authorized at June 30, 2007 and December 31, 2006; 45,520,324 and 45,475,527 shares issued and 44,113,256 and 44,068,459 shares outstanding at June 30, 2007 and December 31, 2006, respectively) (1)

 

455

 

455

 

Additional paid-in capital (including warrants of $31,690 at June 30, 2007 and December 31, 2006)

 

2,370,063

 

2,369,220

 

Accumulated deficit

 

(2,720,914

)

(2,817,028

)

Common stock in treasury, at cost (1,407,068 shares at June 30, 2007 and December 31, 2006) (1)

 

(75,877

)

(75,877

)

Total Shareholders’ Deficiency

 

(426,273

)

(523,230

)

 

 

 

 

 

 

Total Liabilities and Shareholders’ Deficiency

 

$

1,233,224

 

$

1,254,329

 

 


(1) Reflects the one-for-six reverse stock split effected on August 1, 2007.  All periods have been restated to reflect the reverse stock split.

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 June 30,

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Revenues, net:

 

 

 

 

 

Advertising

 

$

67,018

 

$

67,291

 

Other

 

14,552

 

13,992

 

Total revenues, net

 

81,570

 

81,283

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

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

 

8,658

 

9,871

 

Marketing and selling

 

23,815

 

22,344

 

Distribution and circulation

 

21,820

 

20,750

 

Editorial

 

1,678

 

1,914

 

Other general expenses

 

7,348

 

8,228

 

Corporate administrative expenses (including non-cash compensation of $397 and $1,619 in 2007 and 2006, respectively)

 

7,438

 

10,628

 

Depreciation and amortization of property and equipment

 

3,286

 

3,377

 

Amortization of intangible assets and other

 

856

 

716

 

Provision for restructuring costs

 

1,015

 

155

 

Loss on sale of businesses

 

 

28

 

 

 

 

 

 

 

Operating income

 

5,656

 

3,272

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

(29,031

)

(32,176

)

Amortization of deferred financing costs

 

(584

)

(657

)

Other income, net

 

1,934

 

629

 

 

 

 

 

 

 

Loss from continuing operations before benefit for income taxes

 

(22,025

)

(28,932

)

Benefit for income taxes

 

10,913

 

9,880

 

 

 

 

 

 

 

Loss from continuing operations

 

(11,112

)

(19,052

)

 

 

 

 

 

 

Discontinued operations, net of tax (including loss on sale of businesses, net of tax, of $(2,270) and $(40) in 2007 and 2006, respectively)

 

18,698

 

16,937

 

Net income (loss)

 

$

7,586

 

$

(2,115

)

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share (1):

 

 

 

 

 

Continuing operations

 

$

(0.25

)

$

(0.43

)

Discontinued operations

 

0.42

 

0.38

 

Net income (loss)

 

$

0.17

 

$

(0.05

)

Basic and diluted common shares outstanding (weighted average) (1)

 

44,098,131

 

43,990,277

 

 


(1) Reflects the one-for-six reverse stock split effected on August 1, 2007.  All periods have been restated to reflect the reverse stock split.

See notes to condensed consolidated financial statements (unaudited).

3




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

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

 

 

 

 

(As restated,
see Note 1)

 

Revenues, net:

 

 

 

 

 

Advertising

 

$

133,299

 

$

134,383

 

Other

 

28,315

 

28,302

 

Total revenues, net

 

161,614

 

162,685

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

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

 

17,258

 

19,798

 

Marketing and selling

 

46,213

 

44,572

 

Distribution and circulation

 

42,010

 

41,843

 

Editorial

 

3,444

 

3,853

 

Other general expenses

 

15,037

 

16,708

 

Corporate administrative expenses (including non-cash compensation of $558 and $2,537 in 2007 and 2006, respectively)

 

14,335

 

19,456

 

Depreciation and amortization of property and equipment

 

6,399

 

6,041

 

Amortization of intangible assets and other

 

1,592

 

1,394

 

Provision for restructuring costs

 

2,604

 

277

 

Loss on sale of businesses

 

 

28

 

 

 

 

 

 

 

Operating income

 

12,722

 

8,715

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

(58,111

)

(63,633

)

Amortization of deferred financing costs

 

(1,168

)

(1,315

)

Other income, net

 

3,820

 

785

 

 

 

 

 

 

 

Loss from continuing operations before benefit for income taxes

 

(42,737

)

(55,448

)

Benefit for income taxes

 

17,369

 

19,419

 

 

 

 

 

 

 

Loss from continuing operations

 

(25,368

)

(36,029

)

 

 

 

 

 

 

Discontinued operations, net of tax (including gain on sale of businesses, net of tax, of $41,258 and $13,668 in 2007 and 2006, respectively)

 

137,608

 

36,322

 

Cumulative effect of change in accounting principle, net of tax (from the adoption of of Statement of Financial Accounting Standard No. 123 (R))

 

 

22

 

Net income

 

$

112,240

 

$

315

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share (1):

 

 

 

 

 

Continuing operations

 

$

(0.57

)

$

(0.82

)

Discontinued operations

 

3.12

 

0.82

 

Cumulative effect of change in accounting principle

 

 

0.00

 

Net income

 

$

2.55

 

$

0.00

 

 

 

 

 

 

 

Basic and diluted common shares outstanding (weighted average) (1)

 

44,092,510

 

43,976,230

 

 


(1) Reflects the one-for-six reverse stock split effected on August 1, 2007.  All periods have been restated to reflect the reverse stock split.

See notes to condensed consolidated financial statements (unaudited).

4




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

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

 

 

 

 

(As restated, 
see Note 1)

 

Operating activities:

 

 

 

 

 

Net income

 

$

112,240

 

$

315

 

Cumulative effect of change in accounting principle, net of tax

 

 

(22

)

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

 

 

 

 

 

Gain on sales of businesses, net

 

(41,258

)

(13,640

)

Deferred income taxes

 

(59,738

)

6,870

 

Other, net

 

14,448

 

16,341

 

Changes in operating assets and liabilities

 

(48,324

)

510

 

Net cash (used in) provided by operating activities

 

(22,632

)

10,374

 

Investing activities:

 

 

 

 

 

Additions to property, equipment and other

 

(11,990

)

(10,767

)

Proceeds from sales of businesses

 

175,391

 

17,000

 

Payments for businesses acquired, net of cash acquired

 

(31,658

)

(15,813

)

Net cash provided by (used in) investing activities

 

131,743

 

(9,580

)

Financing activities:

 

 

 

 

 

Borrowings under credit agreements

 

32,800

 

202,500

 

Repayments of borrowings under credit agreements

 

(36,300

)

(142,500

)

Payments for repurchases of senior notes

 

 

(62,094

)

Proceeds from issuances of common stock, net

 

286

 

265

 

Capital lease payments

 

(571

)

(1,879

)

Other

 

(114

)

(108

)

Net cash used in financing activities

 

(3,899

)

(3,816

)

Increase (decrease) in cash and cash equivalents

 

105,212

 

(3,022

)

Cash and cash equivalents, beginning of period

 

5,828

 

7,255

 

Cash and cash equivalents, end of year period

 

$

111,040

 

$

4,233

 

Supplemental information:

 

 

 

 

 

Cash interest paid, including interest on capital and restructured leases

 

$

58,076

 

$

64,718

 

Cash income taxes paid, net of refunds received

 

$

16,943

 

$

4,740

 

Cash paid for restructuring costs

 

$

4,993

 

$

2,715

 

Businesses acquired:

 

 

 

 

 

Fair value of assets acquired

 

$

32,725

 

$

15,544

 

(Liabilities assumed) net of deferred purchase price payments

 

(1,067

)

269

 

Payments for businesses acquired, net of cash acquired

 

$

31,658

 

$

15,813

 

 

 See notes to condensed consolidated financial statements (unaudited).

5




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 June 30, 2007 and December 31, 2006, the results of consolidated operations of the Company for the three and six months ended June 30, 2007 and 2006 and consolidated cash flows of the Company for the six months ended June 30, 2007 and 2006. 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, 2006 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, 2006. 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, 2006, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The operating results for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for a full year. Certain amounts in the prior periods’ condensed consolidated statement of operations and related notes have been reclassified due to discontinued operations to conform to the presentation for the three and six months ended June 30, 2007.

On August 1, 2007, the Company effected a one-for-six reverse stock split.  The number of outstanding common shares have become one-sixth of their prior amount, and the par value remains at $0.01 per share.  All references to share data in this Quarterly Report on Form 10-Q have been restated to reflect the reverse stock split.  See Note 15 for further details.

Recent Accounting Pronouncements Adopted

SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”

During the fourth quarter of 2006, the Company adopted Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” During the fourth quarter of 2006, the Company concluded that deferred income tax benefits of approximately $7,500 should have been recorded during the year ended December 31, 2005 when it became apparent that certain taxable temporary differences would reverse as a result of classification of businesses as discontinued operations. Management believes that this error totaling approximately $7,500 is not material to the 2006 financial statements. Upon adoption of SAB No. 108 the Company recorded a cumulative effect adjustment as of January 1, 2006 to accumulated deficit of approximately $7,500, which was reflected in the Company’s 2006 Annual Report on Form 10-K.  Of this amount, approximately $5,500 and $2,000 had been recorded to income from discontinued operations in the first quarter and third quarter of 2006, respectively. The consolidated statement of operations for the six months ended June 30, 2006 has been restated to adjust for the impact of the SAB No. 108 adjustment.

FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, effective for fiscal years beginning after December 15, 2006. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial

6




statements in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes”. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that, in order to be recognized, tax benefits must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption were accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. See Note 9 for the adjustments that resulted from the Company’s adoption of FIN 48.

2.                                      Divestitures

The Company has classified the results of certain divested entities and entities planned for disposition as of June 30, 2007 as discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

In the fourth quarter of 2005, the Company decided to pursue the sales of its History and Crafts groups, part of the Enthusiast Media segment.  The Company completed the sale of the History group during  the first quarter of 2006, for $17,000, resulting in a net gain of approximately $13,700.  The sale of the Crafts group was completed during the third quarter of 2006.

In the fourth quarter of 2006, the Company announced that it had agreed to sell its Outdoors group (part of the Enthusiast Media segment), which consists primarily of its hunting, fishing, and shooting titles, for $170,000 in cash. The transaction was completed in January 2007 and the Company recorded a gain of $57,577. The net proceeds from this sale are subject to routine post-closing adjustments. The assets and liabilities of the Outdoors group are included in assets and liabilities of businesses held for sale on the accompanying condensed consolidated balance sheet as of December 31, 2006.

In the fourth quarter of 2006, the Company announced that it would classify the results of operations of its Education segment as discontinued operations, due to the Company actively pursuing the sale of this segment. The Company’s Education segment was comprised of Channel One, a proprietary network for secondary schools; Films Media Group, a leading source of educational video; and PRIMEDIA Healthcare, a medical education business. During the second quarter, the Company completed the sale of Channel One for a loss of $6,399, of which $5,000 was recorded during the first quarter of 2007.  Also during the second quarter of 2007, the Company completed the sale of Films Media Group, for a gain of $184. The remaining assets and liabilities of the Education segment are classified as businesses held for sale on the accompanying consolidated balance sheets as of June 30, 2007 and December 31, 2006 (see further discussion below).

In February 2007, the Company announced that its Board of Directors had authorized the Company to explore the sale of its Enthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothers to manage this process. In May 2007, the Company entered into an agreement to sell the Enthusiast Media Segment for $1,177,900 to Source Interlink Companies, Inc., subject to certain post-closing adjustments. The sale was completed on August 1, 2007.  The Company has applied the proceeds from the sale to pay down debt. See Note 15.

The results of these operations have been classified as discontinued for all periods presented.

7




Total revenues, net, and income before provision for income taxes included in discontinued operations on the accompanying condensed statements of consolidated operations are as follows:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Total revenues, net

 

$

145,715

 

$

187,972

 

$

291,819

 

$

367,588

 

Income before provision for income taxes (1)

 

$

31,628

 

$

32,067

 

$

52,684

 

$

50,070

 

 


(1) Income before provision for income taxes above excludes gains (losses) on sale of businesses.

 The losses on sales of businesses were $2,592 and $40 for the three months ended June 30, 2007 and 2006, respectively.   The gains on sales of businesses were $50,779 and $13,668 for the six months ended June 30, 2007 and 2006, respectively.

During the first half of 2007, the Company recorded a tax benefit of approximately $61,000 related to the Enthusiast Media segment.  This benefit, which is recorded as a component of discontinued operations, represents the tax consequences of the recharacterization of certain indefinite-lived intangible assets to definite-lived in connection with reclassification of the Enthusiast Media segment as held for sale during the first quarter of 2007 and was recorded when it became apparent that certain taxable temporary differences would reverse.

Held for Sale

The assets and liabilities of businesses which the Company has initiated plans to sell, but had not sold, as of June 30, 2007 and December 31, 2006, have been classified as held for sale on the accompanying condensed consolidated balance sheets. As of June 30, 2007, this represents the assets and liabilities of the Enthusiast Media segment and PRIMEDIA Healthcare. As of December 31, 2006, this represents the assets and liabilities of the Outdoors group and the Education segment.

 

 

June 30,
2007

 

December 31,
2006

 

ASSETS

 

 

 

 

 

Accounts receivable, net

 

$

87,879

 

$

17,103

 

Inventories

 

10,781

 

1,750

 

Prepaid expenses and other

 

13,032

 

6,458

 

Property and equipment, net

 

31,094

 

8,234

 

Intangible assets

 

171,528

 

22,595

 

Goodwill

 

562,585

 

105,238

 

Other non-current assets

 

5,117

 

8,659

 

Assets held for sale

 

$

882,016

 

$

170,037

 

LIABILITIES

 

 

 

 

 

Accounts payable

 

$

27,730

 

$

5,500

 

Accrued expenses and other

 

46,477

 

14,977

 

Deferred revenues—current

 

80,439

 

29,472

 

Current maturities of long term debt.

 

846

 

 

Long-term debt

 

1,707

 

 

Other non-current liabilities

 

46,181

 

351

 

Liabilities of businesses held for sale

 

$

203,380

 

$

50,300

 

 

As discussed above, in January 2007, the Company completed the sale of its Outdoors group.  During the second quarter of 2007, the Company completed the sale of Channel One and Films Media Group, part of the Education segment.  On August 1, 2007, the Company completed the sale of the Enthusiast Media segment.  See Note 15.

8




3.                                      Acquisitions

Acquisition of Rentalhouses.com

In February of 2007, the Company acquired the assets of RentalHouses.com, for approximately $9,000 in cash. The Company has not yet completed its purchase price allocation and in the interim has classified the intangible assets to goodwill.

Acquisition of Modified Automotive Group

In January of 2007, the Company acquired Modified Automotive Group, publisher of Modified Magazine, Modified Luxury & Exotics Magazine, Modified Mustangs Magazine, and their related event partnerships and websites, for $15,050 in cash (including acquisition related expenses). The Company completed its purchase price allocation during the second quarter of 2007. This acquisition is part of the Enthusiast Media segment, therefore goodwill is included in assets of businesses held for sale on the accompanying condensed consolidated balance sheet as of June 30, 2007.

 

Amortization
Period

 

Amount
Allocated

 

Goodwill

 

 

$

7,942

 

Advertiser Lists

 

5 years

 

3,000

 

Subscriber Lists

 

5 years

 

580

 

Trademarks

 

 

3,300

 

Non-Compete Agreements

 

5 years

 

490

 

Other

 

 

46

 

 

 

 

 

15,358

 

Less: assumed liabilities

 

 

 

(308

)

Total

 

 

 

$

15,050

 

 

These acquisitions did not have a material impact on the Company’s results of operations for the three and six months ended June 30, 2007.

Other

In the six months ended June 30, 2007, the Company made two small acquisitions totaling approximately $1,500, made earnout payments for prior acquisitions totaling approximately $3,800, and made deferred purchase price payments of approximately $3,100.

4.                                      Accounts Receivable, Net

Accounts receivable, net, consisted of the following:

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

Accounts receivable

 

$

29,631

 

$

124,788

 

Allowance for doubtful accounts

 

(1,067

)

(7,368

)

Allowance for returns and rebates

 

 

(2,136

)

 

 

$

28,564

 

$

115,284

 

 

The decrease in accounts receivable above is due to the Enthusiast Media segment assets and liabilities, which are classified as held for sale on the condensed consolidated balance sheet as of June 30, 2007.

9




5.                                      Inventories

Inventories consisted of the following:

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

Raw materials

 

$

443

 

$

10,915

 

Work in process

 

 

79

 

Finished goods

 

 

1,984

 

 

 

$

443

 

$

12,978

 

 

The decrease in inventories above is due to the Enthusiast Media segment assets and liabilities, which are classified as held for sale on the condensed consolidated balance sheet as of June 30, 2007.

6.                                      Goodwill, Intangible Assets and Other

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Company assesses goodwill and indefinite lived intangible assets for impairment at least once a year. The Company has established October 31 as its 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 six months ended June 30, 2007 and 2006, 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.

Changes in the carrying amount of goodwill for the six months ended June 30, 2007, by operating segment, are as follows:

 

Enthusiast
Media

 

Consumer
Guides

 

Total

 

Balance as of January 1, 2007

 

$

550,952

 

$

123,186

 

$

674,138

 

Purchase price adjustments for valuation reports

 

(4,967

)

601

 

(4,366

)

Goodwill acquired related to the acquisition of businesses

 

16,600

 

9,346

 

25,946

 

Adjustment to goodwill allocated to assets of businesses held for sale

 

(562,585

)

 

(562,585

)

Balance as of June 30, 2007

 

$

 

$

133,133

 

$

133,133

 

 

Intangible assets subject to amortization in accordance with SFAS No. 142 consist of the following:

 

 

Weighted
Average

 

June 30, 2007

 

December 31, 2006

 

 

 

Amortization
Period
(Years)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Membership, subscriber and customer lists

 

4

 

$

34

 

$

34

 

$

 

$

94,011

 

$

71,416

 

$

22,595

 

Advertiser lists

 

12

 

93,105

 

75,166

 

17,939

 

99,004

 

79,987

 

19,017

 

Other

 

8

 

6,060

 

4,743

 

1,317

 

27,924

 

20,012

 

7,912

 

Total

 

12

 

$

99,199

 

$

79,943

 

$

19,256

 

$

220,939

 

$

171,415

 

$

49,524

 

 

Intangible assets not subject to amortization had a carrying value of $6,732 and $138,363 (excluding intangible assets classified as assets of businesses held for sale) as of June 30, 2007 and December 31, 2006, respectively, and consisted primarily of trademarks. Amortization expense for other intangible assets still subject to amortization was $856 and $716 for the three months ended June 30, 2007 and 2006, respectively. Amortization expense for other intangible assets still subject to amortization was $1,592 and $1,394 for the six

10




months ended June 30, 2007 and 2006, respectively. As of June 30, 2007, estimated future amortization expenses of other intangible assets still subject to amortization, are as follows: approximately $2,000 for the remainder of 2007, $3,000 for 2008, and $2,000 for 2009, 2010, 2011 and 2012.

7.                                      Accrued Expenses and Other

Accrued expenses and other current liabilities consisted of the following:

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

Interest payable

 

$

12,424

 

$

12,351

 

Payroll, commissions and related employee benefits

 

11,517

 

25,340

 

Taxes

 

4,984

 

22,928

 

Rent and lease liabilities

 

3,614

 

7,073

 

Deferred purchase price

 

 

4,998

 

Professional fees

 

1,870

 

3,806

 

Retail display costs and allowances

 

 

8,263

 

Circulation costs

 

 

4,840

 

Other

 

11,432

 

22,584

 

 

 

$

45,841

 

$

112,183

 

 

The decrease in accrued expenses and other above is due to the Enthusiast Media segment assets and liabilities, which are classified as held for sale on the condensed consolidated balance sheet as of June 30, 2007.

8.                                      Long-term Debt

Long-term debt consisted of the following:

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

Borrowings under bank credit facilities

 

$

492,500

 

$

496,000

 

87¤8% Senior Notes Due 2011

 

407,047

 

406,733

 

8% Senior Notes Due 2013

 

294,810

 

294,810

 

Senior Floating Rate Notes Due 2010

 

122,500

 

122,500

 

 

 

1,316,857

 

1,320,043

 

Obligation under capital leases

 

346

 

2,986

 

 

 

1,317,203

 

1,323,029

 

Less: Current maturities of long-term debt

 

5,177

 

6,070

 

 

 

$

1,312,026

 

$

1,316,959

 

 

During the first quarter of 2006, the Company purchased $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. In the second quarter of 2006, the Company redeemed $56,615 principal amount of its 87¤8% Senior Notes due May 15, 2011 in six different transactions for $55,262 plus $400 of accrued interest. As a result of these transactions, the Company recorded a gain of $282 and $336, net of the write-off of unamortized deferred financing costs and bond discount for the three and six months ended June 30, 2006, respectively. This gain is included in the other income, net line on the accompanying condensed statements of consolidated operations.

 The Senior Notes and the bank credit facilities all rank senior in right of payment to all subordinated obligations which PRIMEDIA Inc. (a holding company) may incur. The Senior Notes and bank credit facilities are secured by a pledge of stock of Consumer Source Inc. (formerly known as PRIMEDIA Companies Inc.). Consumer Source Inc. includes all of the business and related operations of PRIMEDIA Inc. The operating results of Consumer Source Inc. are the same as consolidated PRIMEDIA Inc., and their balance sheets are substantially the same, except that PRIMEDIA Inc. holds all of the Company’s bank credit facilities, Senior Notes indebtedness, capital stock accounts and other miscellaneous balance sheet accounts.

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

11




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 Senior Floating Rate Notes bear interest equal to the three-month LIBOR plus 5.375% per year. The interest rate of the Senior Floating Rate Notes was 10.735 % as of June 30, 2007.

During the third quarter of 2007, the Company restructured its financing arrangements. See Note 15 for further details.

9.                                      Income Taxes

The Company adopted the provisions of FIN 48 on January 1, 2007.  As a result of the implementation of FIN 48, the Company recognized a liability for uncertain tax positions and related interest and penalties of $16,126 which was accounted for as an increase to the January 1, 2007 balance of accumulated deficit, net of any valuation allowance impact.  The liability is included in other non-current liabilities on the accompanying balance sheet as of June 30, 2007. The total amount of unrecognized tax benefits as of January 1, 2007 was $15,786, net of valuation allowance impact.  Substantially all of this amount would, if recognized, have an effect on the effective income tax rate.   In addition to the unrecognized tax benefits, the Company had $3,689 of interest and penalties accrued as of January 1, 2007.

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions, and the Company is routinely under audit by many different tax authorities. Management believes that its accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law.  This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.   As a result of its net operating loss carryforwards, the Company is subject to federal examination for all years since 1992.

It is possible that federal, state and local tax examinations will be settled during the next twelve months.  If any of these settlements do occur within the next twelve months, the Company would make any necessary adjustments to the liability for unrecognized tax benefits.  Until formal resolutions are reached between the Company and the tax authorities, the determination of a possible audit settlement range with respect to the impact on uncertain tax benefits is not practicable.  On the basis of present information, it is the opinion of the Company’s management that any assessments resulting from the current examinations will not have a material adverse effect on the Company’s consolidated financial statements.  The statute of limitations in select jurisdictions is expected to expire within the next twelve months and may result in a decrease of unrecognized tax benefits and accrued interest of $2,120.

During the quarter ended June 30, 2007, the Company’s liability for unrecognized tax benefits decreased by $206 to $22,190. An additional $577 and $929 of interest was accrued in the three and six months ended June 30, 2007, respectively.

The Company does not amortize the book basis of its indefinite-lived intangible assets, but continues to amortize these intangible assets for tax purposes. For the six months ended June 30, 2007 and 2006, provision for income taxes primarily consisted of deferred income taxes of $1,261 and $1,158, respectively. The Company expects that it will record approximately $1,250, to increase deferred tax liabilities during the remainder of 2007.

10.                               Provision for Restructuring Costs

In the second quarter of 2007, the Company’s management approved a plan to reduce its annual corporate overhead expenses to an amount appropriate to service its continuing Consumer Source operations and relocate

12




its corporate headquarters from New York to Atlanta, where its Consumer Source business is located. The Company expects to complete this plan by March 31, 2008.

In 2006, the Company began cost reduction initiatives to streamline operations, reduce layers of management and consolidate real estate.

Details of the initiatives implemented and the payments made related to both the new and previously implemented plans during the six months ended June 30, 2007 and 2006 are presented in the following tables:

 

 

 

 

Net Provision

 

Payments/write-off

 

 

 

 

 

 

 

for the Six

 

during the Six

 

 

 

 

 

Liability as of

 

Months Ended

 

Months Ended

 

Liability as of

 

 

 

January 1,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2007

 

2007

 

2007

 

2007

 

Employee-related termination costs

 

$

9

 

$

1,704

 

$

(295

)

$

1,418

 

Termination of leases related to office closures

 

24,684

 

1,913

 

(4,355

)

22,242

 

Write-off of deferred rent and other lease liabilities

 

 

(1,013

)

1,013

 

 

Total

 

$

24,693

(1)

$

2,604

(3)

$

(3,637

)

$

23,660

(1)

 

 

 

 

 

Net Provision

 

Payments

 

 

 

 

 

 

 

for the Six

 

during the Six

 

 

 

 

 

Liability as of

 

Months Ended

 

Months Ended

 

Liability as of

 

 

 

January 1,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2006

 

2006

 

2006

 

2006

 

Termination of leases related to office closures

 

26,962

(2)

277

(4)

$

(1,530

)

25,709

(2)

 


(1)             Excludes liabilities related to discontinued operations totaling $1,269 and $1,827 as of June 30, 2007 and January 1, 2007, respectively.

(2)             Excludes liabilities related to discontinued operations totaling $2,965 and $2,511 as of June 30, 2006 and January 1, 2006, respectively.

(3)             Includes $1,374 related to the Consumer Guides segment and $1,230 related to Corporate.

(4)             Includes $270 related to the Consumer Guides segment and $7 related to Corporate.

The remaining liability related to real estate lease commitments for space that the Company no longer occupies, is expected to be paid through 2015. The employee-related termination costs are expected to be paid through 2008. 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 6 office locations and has terminated a total of 107 individuals.

Liabilities of $3,335 and $3,485 representing the current portion of the provision for restructuring costs are included in accrued expenses and other on the condensed consolidated balance sheets as of June 30, 2007 and December 31, 2006, respectively. Liabilities of $20,325 and $21,208 representing the non-current portion of the provision for restructuring costs are included in other non-current liabilities on the condensed consolidated balance sheets as of June 30, 2007 and December 31, 2006, respectively.

11.                               Income per Common Share

Income per common share for the six months ended June 30, 2007 and 2006 has been determined based on net income 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 1,645,000 warrants at June 30, 2007 and 2006, and 3,063,777 and 3,383,963 stock options at June 30, 2007 and 2006, respectively.

On August 1, 2007, the Company effected a one-for-six reverse stock split. All references to share data above have been restated to reflect the reverse stock split. See Note 15 for further details.

13




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 substantially all of the assets of Workplace Learning for the assumption of ongoing liabilities while retaining a secondary liability as the assignor of the building and satellite time leases. The Company received a third party guaranty of up to $10,000 against those lease obligations to reimburse the Company for lease payments made (the “Guaranty”). In the first half of 2006, the Company made payments on behalf of Workplace Learning pursuant to its secondary liability. During the second quarter of 2006, the Company recorded a liability for the fair value of the lease payments, net of sublease income, related to its secondary liability on the lease payments. At that time, the Company also recorded a receivable of $10,000 for the amount due from the third party guarantor for the lease payments. As a result of recording the receivable and liability during the second quarter, the Company has recorded a charge of approximately $7,200 to discontinued operations. In the second half of 2006, the Company commenced a lawsuit to collect on the Guaranty. During the fourth quarter of 2006, the Company determined that it was not probable that the third party would remit payment, as required under the Guaranty, and fully reserved for the $10,000 receivable with a charge to discontinued operations as of December 31, 2006. The Company continues to exercise all available legal remedies against the third party guarantor and to fulfill its secondary obligation regarding the Workplace Learning leases.

At June 30, 2007 and December 31, 2006, the Company has recorded a total liability of $14,997 and $16,156, respectively, for the fair value of the future lease payments, net of estimated sublease income, in the accompanying condensed consolidated balance sheets.

13.                               Business Segment Information

In the fourth quarter of 2006, the Company announced that it would classify the results of operations of its Education segment as discontinued operations, due to the Company actively pursuing the sale of this segment. The Company’s Education segment was comprised of Channel One, a proprietary network for secondary schools; Films Media Group, a leading source of educational video; and PRIMEDIA Healthcare, a medical education business. During the second quarter of 2007, the Company completed the sales of Channel One and Films Media Group.

In February 2007, the Company announced that its Board of Directors had authorized the Company to explore the sale of its Enthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothers to manage this process. In May 2007, the Company entered into an agreement to sell the Enthusiast Media Segment for $1,177,900 to Source Interlink Companies, Inc., subject to certain post-closing adjustments. The sale is was completed on August 1, 2007.   See Note 15.

The operating results of the Enthusiast Media and Education segments have been classified as discontinued operations for all periods presented.

The Company operates in one segment, the Consumer Guides segment, and has a Corporate function, which supports the Consumer Guides segment as well as the Enthusiast Media and Education segments, which are included in discontinued operations. 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.

14




Information regarding the operations of the Company is set forth below based primarily on the nature of the targeted audience. Corporate overhead represents items not allocated to other business segments.

PRIMEDIA evaluates performance based on several factors, of which the financial measure is segment earnings before interest, taxes, depreciation, amortization and other charges (“Segment EBITDA”). Other charges include non-cash compensation, provision for restructuring costs and loss on sale of businesses.

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues, net:

 

 

 

 

 

 

 

 

 

Consumer Guides

 

$

81,570

 

$

81,283

 

$

161,614

 

$

162,685

 

Segment EBITDA:(1)

 

 

 

 

 

 

 

 

 

Consumer Guides

 

$

18,251

 

$

18,176

 

$

37,652

 

$

35,911

 

Corporate Overhead

 

(7,041

)

(9,009

)

(13,777

)

(16,919

)

Segment EBITDA

 

11,210

 

9,167

 

23,875

 

18,992

 

Depreciation and amortization of property and equipment

 

3,286

 

3,377

 

6,399

 

6,041

 

Amortization of intangible assets and other

 

856

 

716

 

1,592

 

1,394

 

Other charges

 

1,412

 

1,802

 

3,162

 

2,842

 

Operating income

 

5,656

 

3,272

 

12,722

 

8,715

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(29,031

)

(32,176

)

(58,111

)

(63,633

)

Amortization of deferred financing costs

 

(584

)

(657

)

(1,168

)

(1,315

)

Other income, net

 

1,934

 

629

 

3,820

 

785

 

Loss from continuing operations before benefit for income taxes

 

$

(22,025

)

$

(28,932

)

$

(42,737

)

$

(55,448

)

 


(1)             Segment EBITDA represents the segments’ earnings before interest, taxes, depreciation, amortization and other charges. 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), or 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 is 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 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.

15




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

The following consolidated financial information is required to be disclosed as the Company had outstanding registered debt as of June 30, 2007.  The registered debt is comprised of all of the Company’s Senior Notes as described in Note 8.  The information that follows presents consolidating financial information as of June 30, 2007 and December 31, 2006 and for the three and six months ended June 30, 2007 and 2006 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 and foreign subsidiaries), which are with limited exceptions the unrestricted subsidiaries, d) elimination entries and e) the Company on a consolidated basis. Corporate operating expenses have been included in the operations of the guarantor subsidiaries. These reclassifications are in compliance with our debt agreements and have not had a material effect on the Company’s debt covenant ratios as defined in the bank credit facilities. Certain 2006 amounts have been recast to conform to the 2007 presentation. The Company believes that this presentation more accurately reflects the financial information of the categories presented below.

The consolidating financial information includes certain allocations of revenues, expenses, assets and liabilities based on management’s best estimates which are not necessarily indicative of 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 consolidating financial statements include cash management activities, management fees, cross promotional activities and other intercompany charges between PRIMEDIA Inc. and the business units and among the business units. The non-guarantor subsidiary results of operations include: internet operations, foreign 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 market rates. All intercompany related activities are eliminated in consolidation. Consumer Source Inc. (formerly known as PRIMEDIA Companies Inc.) includes all of the businesses and related operations of PRIMEDIA Inc. The operating results of Consumer Source Inc. are the same as consolidated PRIMEDIA Inc., and their balance sheets are substantially the same, except that PRIMEDIA Inc. holds all of the Company’s bank credit facilities, Senior Notes indebtedness, capital stock accounts and other miscellaneous balance sheet accounts.

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 Senior Notes. 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.

16




PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
June 30, 2007
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

PRIMEDIA Inc.

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

and

 

 

 

PRIMEDIA Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Subsidiaries

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

104,186

 

$

3,949

 

$

2,905

 

$

 

$

111,040

 

Accounts receivable, net

 

 

24,080

 

4,484

 

 

28,564

 

Inventories

 

 

443

 

 

 

443

 

Prepaid expenses and other

 

6,047

 

4,238

 

4,900

 

 

15,185

 

Assets of businesses held for sale

 

 

708,812

 

173,204

 

 

882,016

 

Total current assets

 

110,233

 

741,522

 

185,493

 

 

1,037,248

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

3,628

 

8,072

 

9,378

 

 

21,078

 

Investment in and advances to subsidiaries

 

459,086

 

(10,023

)

 

(449,063

)

 

Intangible assets, net

 

 

17,576

 

8,412

 

 

25,988

 

Goodwill

 

 

111,770

 

21,363

 

 

133,133

 

Other non-current assets

 

14,630

 

1,147

 

 

 

15,777

 

Total Assets

 

$

587,577

 

$

870,064

 

$

224,646

 

$

(449,063

)

$

1,233,224

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,559

 

$

6,823

 

$

1,434

 

$

 

$

10,816

 

Intercompany payables

 

(407,327

)

(318,335

)

715,639

 

10,023

 

 

Accrued expenses and other

 

32,037

 

11,106

 

2,698

 

 

45,841

 

Deferred revenues

 

1,700

 

135

 

89

 

 

1,924

 

Current maturities of long-term debt

 

5,065

 

112

 

 

 

5,177

 

Liabilities of businesses held for sale

 

 

166,426

 

36,954

 

 

203,380

 

Total current liabilities

 

(365,966

)

(133,733

)

756,814

 

10,023

 

267,138

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,311,926

 

100

 

 

 

1,312,026

 

Intercompany notes payable

 

 

205,282

 

 

(205,282

)

 

Deferred revenues

 

11,900

 

 

 

 

11,900

 

Deferred income taxes

 

 

12,322

 

 

 

12,322

 

Other non-current liabilities

 

55,990

 

121

 

 

 

56,111

 

Total Liabilities

 

1,013,850

 

84,092

 

756,814

 

(195,259

)

1,659,497

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ deficiency:

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

455

 

 

 

 

455

 

Additional paid-in capital

 

2,370,063

 

 

 

 

2,370,063

 

Accumulated deficit

 

(2,720,914

)

785,972

 

(532,168

)

(253,804

)

(2,720,914

)

Common stock in treasury, at cost

 

(75,877

)

 

 

 

(75,877

)

Total Shareholders’ Deficiency

 

(426,273

)

785,972

 

(532,168

)

(253,804

)

(426,273

)

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Deficiency

 

$

587,577

 

$

870,064

 

$

224,646

 

$

(449,063

)

$

1,233,224

 

 

17




PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
(UNAUDITED)
For the Three Months Ended June 30, 2007
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

PRIMEDIA Inc.

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

and

 

 

 

PRIMEDIA Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net:

 

$

 

$

50,329

 

$

33,084

 

$

(1,843

)

$

81,570

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

7,700

 

958

 

 

8,658

 

Marketing and selling

 

 

16,317

 

7,498

 

 

23,815

 

Distribution and circulation

 

 

9,135

 

12,685

 

 

21,820

 

Editorial

 

 

1,404

 

274

 

 

1,678

 

Other general expenses

 

 

(9,753

)

18,944

 

(1,843

)

7,348

 

Corporate administrative expenses (including non-cash compensation)

 

 

6,249

 

1,189

 

 

7,438

 

Depreciation and amortization of property and equipment

 

 

1,300

 

1,986

 

 

3,286

 

Amortization of intangible assets and other

 

 

583

 

273

 

 

856

 

Provision for restructuring costs

 

 

1,015

 

 

 

1,015

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

16,379

 

(10,723

)

 

5,656

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(29,022

)

(9

)

 

 

(29,031

)

Amortization of deferred financing costs

 

(584

)

 

 

 

(584

)

Intercompany management fees and interest

 

9,356

 

(9,356

)

 

 

 

Other income (expense), net

 

 

2,019

 

(85

)

 

1,934

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(20,250

)

9,033

 

(10,808

)

 

(22,025

)

 

 

 

 

 

 

 

 

 

 

 

 

(Provision) benefit for income taxes

 

 

11,018

 

(105

)

 

10,913

 

Equity in earnings (losses) of subsidiaries

 

27,836

 

(12,004

)

 

(15,832

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

7,586

 

8,047

 

(10,913

)

(15,832

)

(11,112

)

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations, net of tax

 

 

19,789

 

(1,091

)

 

18,698

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

7,586

 

$

27,836

 

$

(12,004

)

$

(15,832

)

$

7,586

 

 

18




 

PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
(UNAUDITED)
For the Six Months Ended June 30, 2007
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

PRIMEDIA Inc.

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

and

 

 

 

PRIMEDIA Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net:

 

$

 

$

101,604

 

$

65,962

 

$

(5,952

)

$

161,614

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

15,396

 

1,862

 

 

17,258

 

Marketing and selling

 

 

35,074

 

11,139

 

 

46,213

 

Distribution and circulation

 

 

14,717

 

27,293

 

 

42,010

 

Editorial

 

 

2,969

 

475

 

 

3,444

 

Other general expenses

 

 

(18,876

)

39,865

 

(5,952

)

15,037

 

Corporate administrative expenses (including non-cash compensation)

 

 

12,087

 

2,248

 

 

14,335

 

Depreciation and amortization of property and equipment

 

 

2,596

 

3,803

 

 

6,399

 

Amortization of intangible assets and other

 

 

1,108

 

484

 

 

1,592

 

Provision for restructuring costs

 

 

2,604

 

 

 

2,604

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

33,929

 

(21,207

)

 

12,722

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(58,092

)

(19

)

 

 

(58,111

)

Amortization of deferred financing costs

 

(1,168

)

 

 

 

(1,168

)

Intercompany management fees and interest

 

16,662

 

(16,662

)

 

 

 

Other income (expense), net

 

 

3,922

 

(102

)

 

3,820

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(42,598

)

21,170

 

(21,309

)

 

(42,737

)

 

 

 

 

 

 

 

 

 

 

 

 

(Provision) benefit for income taxes

 

 

17,719

 

(350

)

 

17,369

 

Equity in earnings (losses) of subsidiaries

 

154,838

 

(24,393

)

 

(130,445

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

112,240

 

14,496

 

(21,659

)

(130,445

)

(25,368

)

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations, net of tax

 

 

140,342

 

(2,734

)

 

137,608

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

112,240

 

$

154,838

 

$

(24,393

)

$

(130,445

)

$

112,240

 

 

19




PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
(UNAUDITED)
For the Six Months Ended June 30, 2007
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

PRIMEDIA Inc.

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

and

 

 

 

PRIMEDIA Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Subsidiaries

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

112,240

 

$

154,838

 

$

(24,393

)

$

(130,445

)

$

112,240

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(78,348

)

(127,624

)

6,773

 

112,651

 

(86,548

)

Changes in operating assets and liabilities

 

(33,892

)

8,031

 

(22,463

)

 

(48,324

)

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

35,245

 

(40,083

)

(17,794

)

(22,632

)

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Additions to property, equipment and other

 

 

(8,095

)

(3,895

)

 

(11,990

)

Proceeds from sales of businesses

 

 

170,602

 

4,789

 

 

175,391

 

Payments for businesses acquired, net of cash acquired

 

 

(17,812

)

(13,846

)

 

(31,658

)

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

144,695

 

(12,952

)

 

131,743

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Intercompany activity

 

105,783

 

(179,304

)

55,727

 

17,794

 

 

Borrowings under credit agreements

 

32,800

 

 

 

 

32,800

 

Repayments of borrowings under credit agreements

 

(36,300

)

 

 

 

(36,300

)

Proceeds from issuances of common stock, net

 

286

 

 

 

 

286

 

Capital lease payments

 

 

(543

)

(28

)

 

(571

)

Other