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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11106
PRIMEDIA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3647573
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
745 FIFTH AVENUE, NEW YORK, NEW YORK 10151
(Address of principal executive offices) (Zip Code)
(212) 745-0100
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE............. NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the common equity of PRIMEDIA Inc.
("PRIMEDIA") which is held by non-affiliates of PRIMEDIA at March 8, 2002 was
approximately $276 million.
As of March 8, 2002, 243,154,063 shares of PRIMEDIA's Common Stock were
outstanding.
The following documents are incorporated into this Form 10-K by reference:
PRIMEDIA's notice of annual meeting and proxy statement for its 2002 annual
meeting of shareholders into Part III hereof.
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TABLE OF GUARANTORS
STATE OR OTHER PRIMARY STANDARD I.R.S.
EXACT NAME OF JURISDICTION OF INDUSTRIAL EMPLOYER
REGISTRANT AS SPECIFIED INCORPORATION OR CLASSIFICATION IDENTIFICATION
IN ITS CHARTER ORGANIZATION CODE NUMBER NUMBER
---------------------------------------------------- ---------------- ---------------- --------------
Adams/Intertec International, Inc................... Delaware 51112 95-3549600
Adams/Laux Company, Inc............................. Delaware 51112 04-3250143
Canoe & Kayak, Inc.................................. Delaware 51112 41-1895510
Channel One Communications Corp..................... Delaware 51312 13-3783278
Communication Concepts, Inc......................... Nevada 51112 88-0329261
Cover Concepts Marketing Services, LLC.............. Delaware 54189 04-3370389
CSK Publishing Company Incorporated................. Delaware 51112 13-3023395
ENO Productions, Inc................................ Delaware 51211 13-4162379
Films for the Humanities & Sciences, Inc............ Delaware 51211 13-1932571
Game & Fish Publications, Inc....................... Delaware 51112 11-3633432
Go Lo Entertainment, Inc............................ California 56192 95-4307031
Haas Publishing Companies, Inc...................... Delaware 51113 58-1858150
Hacienda Productions, Inc........................... Delaware 51211 13-4167234
Horse & Rider, Inc.................................. California 51112 33-0480523
HPC Brazil, Inc..................................... Delaware 51113 13-4083040
IntelliChoice, Inc.................................. California 51112 77-0168905
Kagan Media Appraisals, Inc......................... Delaware 51112 77-0157500
Kagan Seminars, Inc................................. Delaware 51112 94-2515843
Kagan World Media, Inc.............................. Delaware 51112 77-0225377
Liberty Management Corporation...................... Delaware 551112 23-2241870
Liberty Productions, Inc............................ Delaware 56192 23-2075682
Low Rider Publishing Group, Inc..................... California 51112 95-4307029
McMullen Argus Publishing, Inc...................... California 51112 95-2663753
Media Central IP Corp............................... Delaware 551112 13-4199107
Miramar Communications Inc.......................... California 51112 95-2845391
New Car Shows, Inc.................................. Delaware 56192 23-2965172
Paul Kagan Associates, Inc.......................... Delaware 51112 13-4140957
PRIMEDIA Business Magazines & Media Inc............. Delaware 51112 48-1071277
PRIMEDIA Companies Inc.............................. Delaware 551112 13-4177687
PRIMEDIA Enthusiast Publications, Inc............... Pennsylvania 51112 23-1577768
PRIMEDIA Finance Shared Services Inc................ Delaware 551112 13-4144616
PRIMEDIA Holdings III Inc........................... Delaware 551112 13-3617238
PRIMEDIA Information Inc............................ Delaware 51112 13-3555670
PRIMEDIA Leisure Group Inc.......................... Delaware 551112 51-0386031
PRIMEDIA Magazines Inc.............................. Delaware 51112 13-3616344
PRIMEDIA Magazines Finance Inc...................... Delaware 51112 13-3616343
PRIMEDIA Membership Clubs Inc....................... Delaware 81391 33-0759805
PRIMEDIA Special Interest Publications Inc.......... Delaware 51112 52-1654079
PRIMEDIA Specialty Group Inc........................ Delaware 551112 36-4099296
PRIMEDIA Workplace Learning LLC..................... Texas 61143 13-4119787
PRIMEDIA Workplace Learning LP...................... Delaware 61143 13-4119784
Pro Associates Inc.................................. Delaware 56192 25-1587282
Simba Information Inc............................... Connecticut 51112 06-1281600
The Virtual Flyshop, Inc............................ Colorado 51112 84-1318377
The address, including zip code, and telephone number, including area code,
of each additional registrant's principal executive office is 745 Fifth Avenue,
New York, New York 10151 (212-745-0100).
These companies are listed as guarantors of the debt securities of the
registrant. The consolidating condensed financial statements of the Company
depicting separately its guarantor and non-guarantor subsidiaries are presented
as Note 26 of the notes to the consolidated financial statements. All of the
equity securities of each of the guarantors set forth in the table above are
owned, either directly or indirectly, by PRIMEDIA, and there has been no default
during the preceding 36 calendar months with respect to any indebtedness or
material long-term leases of PRIMEDIA or any of the guarantors.
ii
PRIMEDIA INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2001
CROSS REFERENCE SHEET FOR
PARTS I, II, III AND IV
PAGE
--------
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5. Market for Registrant's Common Equity and Related 9
Stockholder Matters.......................................
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 7A. Quantitative and Qualitative Disclosures About Market 33
Risk......................................................
Item 8. Financial Statements and Supplementary Data................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 99
PART III Omitted, except Item 10 as to Executive Officers is included
as part of Part I
Item 1...................................................... 99
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on 99
Form 8-K..................................................
iii
PART I
ITEM 1. BUSINESS
GENERAL
PRIMEDIA Inc. ("PRIMEDIA" or the "Company") is the "new tradition in media"
combining traditional and new media. It is a targeted media company with leading
positions in consumer and business-to-business markets. Our properties utilize
the "full media arsenal" to deliver content via print (magazines, books and
directories), video (digital broadband, satellite and cable), live events (trade
and consumer shows) and the Internet. Our products serve highly specialized
niches and capitalize on the growing trend toward targeted rather than mass
information distribution. Based on the available relevant operating statistics
(such as ad pages and circulation) we estimate PRIMEDIA's products commanded an
average market share greater than 50% in their respective markets during 2001.
Many of the Company's products, such as those provided by PRIMEDIA's
consumer magazines, business-to-business magazines, CHANNEL ONE NEWS, the
apartments and homes guides and About.com, Inc.'s ("About") websites afford
advertisers with an opportunity to directly reach niche market audiences. In
2001, 57% of PRIMEDIA's total revenue was from lead generation advertising, 17%
was from brand awareness advertising and 26% was from non-advertising sources
(subscription revenue and non-advertising sales). Unlike general brand awareness
advertising, lead generation advertising is focused on triggering a potential
purchase decision by the reader, user or viewer. In 2001, the Company had over
91,000 advertising customers and a salesforce of over 1,500 to serve them.
In 2001, the Company continued to integrate its operating units and support
functions. One aspect of the integration, which began in 2000, was to improve
productivity through cost reduction. To that end, the Company commenced a
strategic sourcing initiative to leverage its purchasing power across all
spending for certain manufacturing (paper, printing, pre-press, printed
materials) and non-manufacturing (travel, express mail, office supplies,
temporary help) commodities. Significant cost savings were achieved through
consolidating the procurement of goods and services. During 2001, the strategic
sourcing initiative continued to generate cost savings, aggregating
approximately $24 million in annualized savings. Additionally, in 2000, the
Company began to consolidate certain back office functions. In 2001, the Company
completed the centralization of its payroll processing into one shared service
operation and outsourced the majority of its daily help desk function for
desk-top PC support. Both of these activities resulted in reduced costs through
headcount reductions and standardization of processes.
During 2000, the Company formed the PRIMEDIA Integrated Sales and Marketing
Group to sell integrated marketing packages across all PRIMEDIA traditional and
new media vehicles. In addition, the Company is centralizing and standardizing
technology across the Company.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7, page 12) provides a description of segment results.
2001 ACQUISITIONS
In February 2001, About, the leading producer of original content on the
Internet, was merged with a subsidiary of PRIMEDIA. About is a platform
comprised of a network of more than 400 highly-targeted topic-specific websites.
Through the efforts of knowledgeable human guides who manage the sites, the
sites provide high-quality original content including moderated forums and chat
rooms and links to related websites. This merger created one of the leading
targeted media companies, providing a vast array of marketing solutions to
advertisers and niche content to users. The operations of About are included in
the Company's consumer segment for the last ten months of 2001. About has been
fully integrated into the Company's operations and provides a ready solution for
the Company's targeted content. As of January 2002, About's combined unique
visitor traffic has continued to grow and its web sites rank #5 in the United
States as measured by MEDIA METRIX. About has become a cost-effective source of
magazine subscriptions for the Company and, in 2001, the Company generated over
215,000 paid subscriptions via its web sites. By leveraging About's information
technology platform company-wide, the Company has significantly reduced its
third party Internet spending. Also, About's web sites provide the Internet
component for packaged corporate sales enabling the Company to offer complete
marketing solutions to advertisers. The effective integration of About has
resulted in a significant headcount decrease and substantial expense reduction
across all of the Company's new media platforms. The Company believes that the
current book value of the fully integrated About does not accurately reflect
these overall benefits to PRIMEDIA's operations.
In August 2001, PRIMEDIA acquired EMAP Inc. ("EMAP", formerly known as
Petersen Publishing) from EMAP plc. EMAP had more than 60 consumer titles
reaching over 75 million enthusiasts through a combination of magazines, network
and cable television shows, web sites and live consumer events. The combination
of PRIMEDIA and EMAP has made PRIMEDIA the largest specialty magazine publisher
in the U.S. in terms of revenue and single copy sales. With EMAP, PRIMEDIA has
been able to add significant scale in the automotive enthusiast market, thereby
making it more attractive to the new car automotive advertising market as a
result of the combination of AUTOMOBILE magazine and EMAP's MOTOR TREND. The
acquisition of EMAP enhanced our position as the leading provider of niche topic
video in the U.S. by adding five more weekly television programs. This
acquisition added higher growth categories such as high tech and action sports
niches to the Company's enthusiast magazine business. PRIMEDIA will also
continue to achieve efficiencies through increased scale of operations in the
areas of paper purchasing, circulation, production, technology, finance and
others.
CONSUMER
CONSUMER MAGAZINE AND MEDIA GROUP
The Company is the largest specialty consumer magazine company in the U.S.,
with over 150 titles including SEVENTEEN, NEW YORK, AUTOMOBILE, MOTOR TREND, FLY
FISHERMAN, AMERICAN BABY, POWER & MOTORYACHT and leadership positions in such
categories as automotive, motorcycle, crafts, teens, high technology, outdoor
recreation and city magazines. In 2001, over half of these specialty consumer
magazines were number one in their markets. The principal sources of specialty
consumer magazines' sales are lead generation advertising, circulation and
ancillary revenues. For the year ended December 31, 2001, 53% of the sales was
from advertising, 35% from circulation and 12% from ancillary sources.
Readers value specialty consumer magazines for their targeted editorial
content and also rely on them as catalogues of products in the relevant topic
areas. This catalogue aspect makes the specialty consumer magazines important
media buys for advertisers. Advertising sales for the Company's specialty
consumer magazines are generated largely by in-house sales forces. The magazines
compete for advertising on the basis of circulation and the niche markets they
serve. Each of the Company's specialty consumer magazines faces competition in
its subject area from a variety of publishers and competes for readers on the
basis of the high quality of its targeted editorial, which is provided by
in-house and free-lance writers.
The Company is the largest publisher of teen media in the United States.
SEVENTEEN is the leading young women's fashion and beauty magazine based on both
circulation and advertising pages, with fashion, boys, beauty, talent and
lifestyle editorial targeted to girls aged 12 to 24. SEVENTEEN'S monthly rate
base is 2.35 million and its total monthly readership is over 14 million. Its
principal direct competitor is TEEN PEOPLE. SEVENTEEN competes for circulation
based on the nature and quality of its editorial. The Company acquired TEEN
magazine as part of the EMAP acquisition. In February 2002, the Company
announced that TEEN will become a newsstand only special publication with such
topics as back to school and teen prom. The Company also publishes magazines
aimed at the 10-13 year old market with four titles (TIGER BEAT, BOP, TEEN BEAT
and SIXTEEN).
The Company publishes the flagship magazines for the cities of New York and
Chicago. Since it was founded in April 1968, NEW YORK has been New York City's
magazine of record, with extensive and regular coverage of local and national
news, entertainment, culture, fashion and personalities.
2
The Company publishes 48 automotive enthusiast magazines, including
AUTOMOBILE and MOTOR TREND, catering to the high-end automotive market, as well
as such highly specialized enthusiast titles as LOWRIDER, the largest retail
sales magazine in the automotive category, TRUCKIN', the leading enthusiast
truck customization publication, MUSCLE MUSTANG & FAST FORDS, VETTE and SPORT
COMPACT CAR. The Company also publishes eight motorcycle enthusiast magazines,
including MOTORCYCLIST and DIRT RIDER. Supplementing the print publications,
PRIMEDIA has a strong presence on the Internet with the companion website to
each publication. In the high-end and new car markets, PRIMEDIA's publications
compete against CAR AND DRIVER and ROAD AND TRACK, both owned by Hachette
Filipacchi Magazines.
In the parenting category, the Company publishes AMERICAN BABY, a monthly
publication distributed to approximately two million expectant and new parents.
The Company also offers a series of ancillary products such as americanbaby.com,
a cable television program called American Baby, a consumer expo called Baby
Faire and sampling and couponing programs. The unit's principal competitor is
BABY TALK.
In 2001, the Company published MODERN BRIDE plus 16 regional bridal
magazines. In February 2002, the Company sold the Modern Bride Group to Advance
Magazine Publishers Inc. for total consideration, including a service agreement,
of approximately $52 million.
The Company is the leading publisher of magazines for outdoor enthusiasts
with such titles as FLORIDA SPORTSMAN, FLY FISHERMAN, SAIL, POWER & MOTORYACHT
and SURFING and for equine enthusiasts with such titles as EQUUS and PRACTICAL
HORSEMAN, and EquiSearch.com, the leading Internet community for equine
enthusiasts.
PRIMEDIA publishes the two leading soap magazines, SOAP OPERA DIGEST and
SOAP OPERA WEEKLY. Both publications compete for circulation on the basis of
editorial content and quality against such publications as SOAP OPERA UPDATE and
SOAPS IN DEPTH, both of which have substantially lower circulation.
The Company has a mix of sales between retail (largely newsstand and other
retail outlets) and subscription and is more heavily weighted toward retail. The
Company depends on direct mail, telemarketing and in magazine promotions. The
Internet has become an efficient, cost-effective source of subscription sales
for the Company. In 2001, the Company generated over 215,000 paid subscriptions
via the Internet.
The Company operates RetailVision, the largest specialty magazine
distribution company in the U.S., which distributes over 700 titles, including
those of the Company and 98 other publishers, to approximately 50,000
independent niche retailers such as craft shops, tackle shops, record/music
stores and health food shops.
CONSUMER GUIDES
The Company is the largest publisher of rental apartment guides in the U.S.
with 77 local versions, most of which are distributed monthly and provide
informational listings about featured apartment communities. Advertising
community managers, who need to fill vacant apartments, provide 100% of
apartment guide advertising revenues. The Company is the dominant information
provider in apartment listings and continues to gain in market share from
newspaper classifieds and other competitors due to the cost effectiveness of its
products as measured by cost per lease to the advertiser. The Company's only
national competitor is FOR RENT. The majority of customers purchase 12-month
contracts, and in 2001, approximately 90% of customers renewed their contracts
when they expired.
The average number of monthly visitors to the Company's Internet site,
apartmentguide.com, grew approximately 43% to approximately 1,650,000 per month
in 2001. Apartmentguide.com is the exclusive partner of MSN's Home Advisor and
has been a primary partner to Yahoo. The site, which carries all advertising
included in the print products, is the largest in depth of content on the
Internet, with approximately 18,800 properties as of December 31, 2001. Rental
leads delivered to apartment advertisers were up approximately 45%, from
approximately 1,570,000 in 2000 to approximately 2,260,000 in 2001.
3
The site offers many premium features not provided by its print products
including virtual tours and search functionality. Approximately 7,800 of these
premium products were sold during 2001.
The Company is a leader in new home guides with guides in 17 major markets
including northern California, southern California, Denver, Phoenix, Dallas-Fort
Worth, Philadelphia and Atlanta.
In December 2000, the Company expanded into a new but related line of
business by acquiring Exit Info, a publisher of free local interest guides
containing coupons and information on local attractions, distributed through
fast food restaurants and convenience stores.
A major strategic advantage is the Company's DistribuTech Division which is
the nation's largest distributor of free publications, including its own
consumer directories and over 1,300 other titles. In 2001, it distributed
publications to over 16,500 grocery, convenience, video and drug stores in 70
metropolitan areas, as well as universities, military bases and major employers,
as well as over 40,000 other locations. The majority of these locations are
operated under exclusive distribution agreements. The guides are typically
displayed in free-standing, multi-pocket racks. DistribuTech generates revenues
by leasing rack pockets to other publications that it also distributes.
DistribuTech competes for its rack program on the basis of its prime retail
locations.
PRIMEDIA TELEVISION
The Company is one of the largest producers and distributors of special
interest videos in the United States.
CHANNEL ONE NETWORK'S news program, CHANNEL ONE NEWS, is the only daily news
program targeted at secondary school students. The award-winning program
contains news stories and features on issues of concern to teenagers, delivered
in a relevant and engaging way. CHANNEL ONE NEWS broadcasts every school day via
satellite to approximately 8.1 million students, 360,000 classrooms and
approximately 400,000 educators in approximately 12,100 secondary schools in the
United States, reaching more students than any other electronically delivered
educational product. CHANNEL ONE NEWS has ten times the teenage audience of the
evening newscasts of ABC, CBS, NBC and the cable networks combined. Its daily
reach in the teen market is more than twenty-five times that of MTV.
Schools sign up for the CHANNEL ONE NETWORK service under a three-year
contract pursuant to which they agree to show CHANNEL ONE NEWS, in its entirety,
on at least 90% of all school days. CHANNEL ONE NETWORK provides schools a
turnkey system of videocassette recorders and network televisions. These
products and services are provided to schools at no charge; revenues are
generated by two minutes of advertising shown during the 12-minute daily
newscast. In addition, CHANNEL ONE CONNECTION provides a maximum of 120 minutes
of educational programming per school day at no charge.
CHANNEL ONE NETWORK has a library of over 2,200 broadcasts including
approximately 200 single subject series, 95 of which have been released as
videos. The Company's channelone.com on-line network and its teachworld.com
provide supplemental information to students and educators.
CHANNEL ONE NEWS has no direct competition in the schools but does compete
for advertising dollars with other media aimed at teenagers. The Company's
primary competitive advantages are prize winning programming and total audience
reach.
Films for the Humanities and Sciences ("Films") is the exclusive distributor
of approximately 550 owned and 9,000 licensed educational videos, videodiscs,
CD-ROMs and related products. These products are sold primarily by direct mail
to teachers, instructors and librarians serving primarily grades 8 to 12 and
college markets. Films is the largest distributor of such products to colleges
and high schools and competes on the basis of quality and breadth of the subject
matter.
PRIMEDIA Digital Video ("PDV"), formed in 2000, develops, produces and
distributes video properties based on the Company's brands and franchises.
Additionally, PDV manages the Company's
4
Dallas-based video production facility where video product is developed and
produced for both the Company's own programming needs and for third party
customers.
BUSINESS-TO-BUSINESS
BUSINESS MAGAZINES AND MEDIA GROUP
The Company is the third largest U.S. publisher of business-to-business
magazines with approximately 70 titles that provide vital information to
professionals in such fields as communications (TELEPHONY), agriculture (SOYBEAN
DIGEST), transportation (FLEET OWNER), industrial (ENGINEERING AND MINING
JOURNAL), professional services (REGISTERED REPRESENTATIVE) and entertainment
(BROADCAST ENGINEERING). In 2001, 50% of these titles ranked number one in their
category based on advertising pages. In 2001, 96% of magazine revenue was
derived from advertising as most copies of these magazines are distributed on a
controlled circulation basis, meaning that they are distributed free of charge
to select qualified readers.
Because each of the business-to-business magazines is distributed almost
exclusively to purchasing decision-makers in a targeted industry group, product
and service providers are able to focus their advertising. Advertising rates are
based on the quality and size of the circulation within the target group as well
as competitive factors. These magazines compete for advertising on the basis of
advertising rates, circulation, reach, editorial content and readership
commitment. Advertising sales are made by in-house sales forces and are
supplemented by independent representatives in selected regions and overseas.
The Company sponsors seminars and trade shows, serving the advertisers and
readers of the corresponding publications, including WASTE AGE, LIGHTING
DIMENSIONS INTERNATIONAL, INTERNATIONAL WIRELESS COMMUNICATIONS EXPO and POWER
EXPO.
The Company also publishes periodicals that provide in-depth data on
selected markets. WARD'S AUTOMOTIVE REPORTS is recognized as the authoritative
source for industry-wide statistics on automotive production and sales. In
addition, the Company publishes used vehicle valuation information in print and
electronic formats. Other databases include THE ELECTRONICS SOURCE BOOK and
AC-U-KWIK.
The Company also operates a business-to-business Internet operation serving
numerous industries and leveraging off of PRIMEDIA's already strong traditional
media presence. The sites are offered in such fields as media
(mediacentral.com), marketing (marketingclick.com), agriculture (agriclick.com)
and telecommunications (telecomclick.com). In December 2001, these sites
collectively received more than 1.5 million page views.
INFORMATION
In November 2001, the Company completed the sale of Bacon's Information,
Inc. ("Bacons") to Observer AB for $90 million, $15 million of which represented
a note receivable as of December 31, 2001. The related gain on the sale of
Bacons approximated $54.6 million. The proceeds from the sale of Bacons were
primarily used to pay down borrowings under the Company's credit facilities.
WORKPLACE LEARNING
PRIMEDIA Workplace Learning, a leading provider of high quality video for
professional training and company information purposes, largely delivers its
products via satellite and increasingly over the Internet. It is a leader in
such markets as automotive (AUTOMOTIVE SATELLITE TELEVISION NETWORK), industrial
(INDUSTRIAL TRAINING SYSTEMS), healthcare (HEALTH AND SCIENCES TELEVISION
NETWORK), government (LAW ENFORCEMENT TELEVISION NETWORK), fire and emergency
services (FIRE & EMERGENCY TELEVISION NETWORK) and banking (BANKER TRAINING AND
CONSULTING COMPANY). Its library includes over 200,000 tapes, representing
nearly 79,000 hours of programming. To provide online learning management
services in addition to content, in 2001, the Company launched PRIMEnet, its
most comprehensive e-learning delivery and management platform.
5
In addition to the satellite and tape delivered content, PRIMEDIA Workplace
Learning has been expanding to exploit the sponsorship opportunities its vast
library affords. The Company is targeting special niche markets and target
audiences currently served by its "must have" training products. By providing
programming, product showcases, product placement and advertising packages for
specific sponsors, the Company expects to be able to provide them with tailored
marketing solutions to meet very specific marketing challenges.
As a result of the tragic events of September 11, 2001, the Company has seen
increased demand for some of its product offerings, related to fire and
emergency services, due largely to its unique content and its ability to train
and educate through various delivery mechanisms.
PRODUCTION AND FULFILLMENT
Virtually all of the Company's print products are printed and bound by
independent printers. The Company believes that because of its buying power,
outside printing services can be purchased at favorable prices. The Company
provides most of the content for its electronically delivered products but
outsources technology and production.
The principal raw material used in the Company's products is paper. PRIMEDIA
purchases paper directly from several paper mills, including the three major
paper mills. The Company has used strategic sourcing principles to gain stable
supplies at favorable prices.
The Company uses the U.S. Postal Service for distribution of many of its
products and marketing materials and is therefore subject to postage rate
changes. Many of the Company's products are packaged and delivered to the U.S.
Postal Service directly by the printer. Other products are sent from warehouses
and other facilities operated by the Company.
COMPANY ORGANIZATION
PRIMEDIA was incorporated on November 22, 1991 in the State of Delaware. The
principal executive office of the Company is located at 745 Fifth Avenue, New
York, New York, 10151; telephone number (212) 745-0100. Its domain name is
"Primedia.com".
The Company holds regular meetings to inform investors about the Company. To
obtain information on these meetings or to learn more about the Company please
contact:
James Magrone
Senior Vice President, Investor Relations
Tel: 212-745-0634
Email: jmagrone@primedia.com
The 2002 PRIMEDIA Annual Meeting will be held on Thursday, May 16, 2002, at
10:00 a.m., at the Four Seasons Hotel, 57 East 57th Street, New York, NY.
6
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of PRIMEDIA:
NAME AGE POSITION(S)
---- -------- --------------------------------------------------------
Thomas S. Rogers..................... 47 Chairman of the Board and Chief Executive Officer and
Director
Charles G. McCurdy................... 46 President and Director
Beverly C. Chell..................... 59 Vice Chairman, General Counsel, Secretary and Director
Lawrence R. Rutkowski................ 43 Executive Vice President and Chief Financial Officer
Michaelanne C. Discepolo............. 49 Executive Vice President, Human Resources
David G. Ferm........................ 54 Executive Vice President, President and Chief Executive
Officer, Business-to-Business Group
John P. Loughlin..................... 45 Executive Vice President, President and Chief Executive
Officer, Consumer Magazine and Media Group
Robert C. Metz....................... 49 President and Chief Executive Officer, Consumer Guides
Group
H. James Ritts III................... 48 President and Chief Executive Officer, Channel One
Network; Chief Executive Officer, PRIMEDIA Digital Video
Matthew A. Flynn..................... 44 Senior Vice President and Treasurer
Robert J. Sforzo..................... 54 Senior Vice President and Controller
Mr. Rogers is Chairman of the Board, Chief Executive Officer and a Director
of PRIMEDIA. Mr. Rogers joined the Company in October 1999 and before that
served as President of NBC Cable since 1988 and Executive Vice President of NBC
since 1992.
Mr. McCurdy is President and a Director of PRIMEDIA.
Ms. Chell is Vice Chairman, General Counsel, Secretary and a Director of
PRIMEDIA.
Mr. Rutkowski has been Executive Vice President and Chief Financial Officer
of PRIMEDIA since January 2000. Before joining the Company, Mr. Rutkowski was
Senior Vice President and Chief Financial Officer of Business Development and
Strategic Planning for NBC and prior to 1999 was Vice President, Corporate
Finance and Controller at NBC since 1993.
Ms. Discepolo has been Executive Vice President, Human Resources of PRIMEDIA
since March 2001, Senior Vice President, Human Resources since December 1999 and
Vice President, Human Resources from January 1993 to December 1999.
Mr. Ferm has been Executive Vice President and President and Chief Executive
Officer of the PRIMEDIA Business-to-Business Group since February 2000. Before
joining the Company, Mr. Ferm was President of McGraw Hill's Business Week Group
and prior to 1999 was the publisher of BUSINESS WEEK.
Mr. Loughlin has been President and Chief Executive Officer of the Consumer
Magazine and Media Group since March 2000 and Executive Vice President of
PRIMEDIA since June 2000. Before joining the Company, Mr. Loughlin was President
of Meredith Corporation's Broadcast Group since 1998. Prior to that, he was Vice
President and Publishing Director of Meredith's Magazine Group since 1993.
Mr. Metz is President and Chief Executive Officer of the Consumer Guides
Group. Mr. Metz began his business career with Haas Publishing Companies, Inc.
in 1975.
Mr. Ritts has been President and Chief Executive Officer of Channel One
Network and Chief Executive Officer of PRIMEDIA Digital Video since April 2000.
Before joining the Company, Mr. Ritts served as Chief Executive Officer of the
Digital Entertainment Network from March 1999 to March 2000
7
and Commissioner of the Ladies Professional Golf Association from 1996 to 1999.
Before that, Mr. Ritts was a co-founder of Channel One.
Mr. Flynn has been Senior Vice President and Treasurer since March 2001.
Before joining the Company, Mr. Flynn was Managing Director for Banc of America
Securities LLC, in the Media and Telecom Group.
Mr. Sforzo, a Senior Vice President of PRIMEDIA since December 1999, has
been Vice President and Controller of PRIMEDIA since October 1998. Prior to that
time, he was the Vice President of Internal Audit starting in June 1997. From
September 1994 to June 1997, he was the Executive Vice President and Chief
Financial Officer of The Katharine Gibbs Schools, Inc.
The business address of the above executive officers of the Company, with
the exception of Mr. Metz, is the address of the principal executive office of
PRIMEDIA. The business address of Mr. Metz is 3119 Campus Drive, Norcross, GA
30071.
EMPLOYEES
During 2001, the Company's headcount was impacted by the acquisition of EMAP
and About and a reduction of workforce due to integration, economic conditions
and several divestitures. As of December 31, 2001, the Company had approximately
6,550 full-time equivalent employees. None of these employees are union members.
Management considers its relations with its employees to be good.
ITEM 2. PROPERTIES.
During 2001 and 2000, in connection with the cost reduction and integration
plans, the Company has closed and consolidated in excess of fifteen office
locations.
The Company's principal leased properties used by the consumer segment are
located in Alabama, Arizona, Arkansas, California, Colorado, Connecticut,
Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts,
Michigan, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New
York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee,
Texas, Utah, Vermont, Virginia, and Washington; and used by the
business-to-business segment are located in Alabama, California, Colorado,
Connecticut, Georgia, Illinois, Kansas, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Missouri, New Jersey, New York, Pennsylvania, Tennessee,
Texas, United Kingdom, Virginia, and Washington. Property is owned by the
Company and used in the consumer segment in Illinois, Minnesota and West
Virginia and in the business-to-business segment in Mississippi. The Company's
only production facilities are small printing operations for Films, broadcast
production facilities for PDV, PRIMEDIA Workplace Learning and Channel One and
video duplicating facilities for PRIMEDIA Workplace Learning and Films. The
Company's distribution properties and their capacity is adequate to satisfy the
Company's needs.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings and no material legal
proceedings including any that were terminated in the fourth quarter of 2001, to
which the Company is or was a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of 2001.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PRIMEDIA Common Stock is listed on the New York Stock Exchange, under Ticker
Symbol "PRM". As of March 8, 2002, there were 470 holders of record of PRIMEDIA
Common Stock. The Company has not paid and has no present intention to pay
dividends on its Common Stock. High, low and closing sales prices for 2001 and
2000 were as follows:
2001 SALES PRICE
------------------------------
QUARTER ENDED HIGH LOW CLOSE
------------- -------- -------- --------
March 31......................................... $12.94 $6.25 $6.30
June 30.......................................... $ 9.10 $4.87 $6.79
September 30..................................... $ 7.80 $2.05 $2.35
December 31...................................... $ 4.35 $1.70 $4.35
2000 SALES PRICE
------------------------------
QUARTER ENDED HIGH LOW CLOSE
------------- -------- -------- --------
March 31......................................... $34.88 $15.50 $32.00
June 30.......................................... $32.00 $18.06 $22.75
September 30..................................... $22.31 $16.00 $16.38
December 31...................................... $17.00 $7.00 $11.94
The closing stock price decreased by 63.6% from December 31, 2000 to
December 31, 2001. From January 1, 2002 through March 8, 2002, the high price
for the stock was $4.60, the low price was $2.10 and the closing price on
March 8, 2002 was $3.44.
9
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data were derived from the audited
consolidated financial statements of the Company. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
related notes thereto included elsewhere herein.
PRIMEDIA INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Sales, net.................................... $ 1,742,293 $ 1,690,952 $ 1,716,102 $ 1,573,573 $ 1,487,595
Depreciation of property and equipment........ 82,449 52,920 47,653 42,214 37,334
Amortization of intangible assets, excess of
purchase price over net assets acquired and
other(1).................................... 713,572 128,355 452,149 176,755 146,831
Other (income) charges(2)..................... 44,868 41,570 (213,580) (7,216) 138,640
Operating income (loss)....................... (677,660) 33,834 54,332 118,157 (20,793)
Provision for the impairment of
investments(3).............................. 106,512 188,526 -- -- --
Interest expense.............................. 145,960 143,988 164,909 144,442 136,625
Income tax benefit (expense)(4)............... (135,000) (41,200) (6,500) -- 1,685
Loss before extraordinary charge.............. (1,111,641) (346,826) (120,113) (37,736) (157,439)
Extraordinary charge-extinguishment of
debt(5)..................................... -- -- -- -- (15,401)
Net loss...................................... (1,111,641) (346,826) (120,113) (37,736) (172,840)
Preferred stock dividends and related
accretion(6)................................ 62,236 53,063 53,062 63,285 65,073
Loss applicable to common shareholders........ (1,173,877) (399,889) (173,175) (101,021) (237,913)
Basic and diluted loss applicable to common
shareholders per common share(7):
Loss before extraordinary charge............ $ (5.42) $ (2.48) $ (1.19) $ (.71) $ (1.72)
============== ============== ============ =========== ============
Net loss.................................... $ (5.42) $ (2.48) $ (1.19) $ (.71) $ (1.84)
============== ============== ============ =========== ============
Basic and diluted common shares
outstanding(7).............................. 216,531,500 161,104,053 145,418,441 142,529,024 129,304,900
OTHER DATA:
EBITDA(8)..................................... $ 171,766 $ 256,679 $ 340,554 $ 329,910 $ 302,012
Additions to property, equipment and other,
net......................................... 60,740 77,579 69,488 55,238 31,108
Net cash provided by (used in) operating
activities.................................. (101,348) 52,546 107,298 140,804 125,360
Net cash provided by (used in) investing
activities.................................. (407,057) (54,644) 186,081 (609,621) (185,725)
Net cash provided by (used in) financing
activities.................................. 518,303 (2,873) (289,256) 470,377 46,688
AT DECEMBER 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 33,588 $ 23,690 $ 28,661 $ 24,538 $ 22,978
Working capital deficiency(9)................. (220,259) (346,447) (200,458) (234,045) (146,245)
Other intangible assets and excess of purchase
price over net assets acquired, gross....... 3,853,495 2,854,492 3,024,955 3,171,598 2,508,650
Less: accumulated amortization............ 1,823,768 1,206,900 1,189,599 914,854 736,597
-------------- -------------- ------------ ----------- ------------
Other intangible assets and excess of purchase
price over net assets acquired, net......... 2,029,727 1,647,592 1,835,356 2,256,744 1,772,053
Total assets.................................. 2,732,007 2,677,479 2,714,552 3,041,074 2,485,990
Long-term debt(10)............................ 1,945,631 1,503,188 1,732,896 1,956,997 1,682,224
Exchangeable preferred stock.................. 562,957 561,324 559,689 557,841 470,280
Total shareholders' deficiency................ (480,592) (236,026) (144,238) (83,703) (162,223)
(See notes on the following page)
10
NOTES TO SELECTED FINANCIAL DATA
(1) Includes a provision for the impairment of long-lived assets, primarily
excess of purchase price over net assets acquired, of $444,699 and $275,788
for the years ended December 31, 2001 and 1999, respectively.
(2) Represents non-cash compensation and non-recurring charges of $58,181 and
$35,210 for the years ended December 31, 2001 and 2000, respectively, a
provision for severance, closures and restructuring related costs of
$43,920, $20,798 and $22,000 for the years ended December 31, 2001, 2000
and 1999, respectively, (gain) loss on the sales of businesses and other,
net of $(57,233), $(14,438), $(235,580), $(7,216), and $138,640 for the
years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(3) Represents a provision for the impairment of the Company's investment in
CMGI, Inc. of approximately $7,000 and $155,500 for the years ended
December 31, 2001 and 2000, respectively, the Company's investment in
Liberty Digital of approximately $700 and $21,900 for the years ended
December 31, 2001 and 2000, respectively, the Company's investments in
various assets-for-equity transactions of $81,600 for the year ended
December 31, 2001 and various other PRIMEDIA investments of approximately
$17,200 and $11,200 for the years ended December 31, 2001 and 2000,
respectively.
(4) During 2001 and 2000, the Company increased its valuation allowance due to
continued historical operating losses and the impairment of long-lived
assets, primarily excess of purchase price over net assets acquired, and
investments, resulting in a provision for income taxes of $135,000 and
$41,200, respectively. At December 31, 1999, 1998 and 1997, the Company's
management determined that no adjustment to net deferred income tax assets
was required. In prior years, management determined that a portion of the
net deferred income tax assets would likely be realized and accordingly,
for the year ended December 31, 1997, the Company recorded an income tax
benefit relating to a carryback claim of $1,685. In 1999, the Company
recorded income tax expense of $6,500 related to a provision for current
state and local taxes incurred as a result of the gain on the sale of the
Supplemental Education Group. At December 31, 2001, the Company had
aggregate net operating and capital loss carryforwards of approximately
$1,549,600 which will be available to reduce future taxable income.
(5) Represents the write-off of unamortized deferred financing costs and the
premiums paid on the redemptions of the 10 5/8% Senior Notes.
(6) Includes the premiums paid on the redemptions of the $11.625 Series B
Exchangeable Preferred Stock and the $2.875 Senior Exchangeable Preferred
Stock in 1998 and 1997, respectively. In 1997, the Company recorded a
preferred stock dividend accrual in the amount of $9,517. Of the total
dividend accrual recorded in 1997, the amounts that relate to prior periods
were not material.
(7) Basic and diluted loss per common share, as well as the basic and diluted
common shares outstanding, were computed as described in Note 15 of the
notes to the consolidated financial statements included elsewhere in this
Annual Report.
(8) Represents earnings before interest, taxes, depreciation, amortization and
other (income) and charges including non-cash compensation and
non-recurring charges of $58,181 and $35,210 for the years ended December
31, 2001 and 2000, respectively, a provision for severance, closures and
restructuring related costs of $43,920, $20,798 and $22,000 for the years
ended December 31, 2001, 2000 and 1999, respectively, and (gain) loss on
the sales of businesses and other, net of $(57,233), $(14,438), $(235,580),
$(7,216), and $138,640 for the years ended December 31, 2001, 2000, 1999,
1998 and 1997, respectively and for the year ended December 31, 2001,
EBITDA excludes $8,537 of other integration costs included in general and
administrative expenses. The $8,537 of other integration costs principally
represent internal personnel costs associated with the consolidation of
11
certain company-wide functions as well as fees paid to consultants related
to the centralization of certain support functions and the implementation
of certain standardized technology. EBITDA is not intended to represent
cash flow from operating activities and should not be considered as an
alternative to net income (loss) (as determined in conformity with
generally accepted accounting principles) as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The
Company believes EBITDA is a standard measure commonly reported and widely
used by analysts, investors and other interested parties in the media
industry. Accordingly, this information has been disclosed herein to permit
a more complete comparative analysis of the Company's operating performance
relative to other companies in its industry. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity. The primary difference between EBITDA and cash
flows provided by operating activities relates to changes in working
capital requirements and payments made for interest and income taxes.
Additionally, EBITDA is not available for the Company's discretionary use
as there are legal requirements to pay preferred stock dividends and repay
debt, among other payments. EBITDA as presented may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate EBITDA in identical manners, and therefore,
is not necessarily an accurate measure of comparison between companies.
(9) Includes current maturities of long-term debt and net assets held for sale,
where applicable. Consolidated working capital reflects certain industry
working capital practices and accounting principles, including the
expensing of certain editorial and product development costs when incurred
and the recording of deferred revenue from subscriptions as a current
liability. Advertising costs are expensed when the promotional activities
occur except for certain direct-response advertising costs which are
capitalized and amortized over the estimated period of future benefit.
(10) Excludes current maturities of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS).
INTRODUCTION
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
historical consolidated financial statements and notes thereto included
elsewhere in this Annual Report. The Company's two segments are consumer and
business-to-business. The Company's consumer segment produces and distributes
content for various niche consumer markets through magazines, guides, videos and
over the Internet. The consumer segment includes the Consumer Magazine and Media
Group, Consumer Guides and PRIMEDIA Television. The Company's
business-to-business segment produces and distributes content through magazines,
books, over the Internet and through databases to business professionals in such
fields as communications, agriculture, professional services, media,
transportation and healthcare. The business-to-business segment includes the
Business Magazines & Media Group, Workplace Learning and PRIMEDIA Information.
Corporate represents items not allocated to other business segments such as
general corporate administration.
12
Management believes a meaningful comparison of the results of operations for
2001, 2000 and 1999 is obtained by using the segment information and by
presenting results from continuing businesses ("Continuing Businesses"), which
exclude the results of the non-core businesses (the "Non-Core Businesses"). The
Non-Core Businesses are those businesses that have been divested, discontinued
or that management is evaluating for turnaround or shutdown. The Non-Core
Businesses include: Supplemental Education Group ("SEG") (divested in
November 1999), which includes Weekly Reader Corporation, PRIMEDIA
Reference Inc. and American Guidance Service, Inc., QWIZ, Inc. (divested in
April 2001), Pictorial, Inc. (divested in June 2000), certain business
directories (divested in October 2000), Bacons and certain titles of the
Business Magazine & Media Group, Consumer Guides, EMAP and PRIMEDIA Enthusiast
Group which are discontinued or will be divested. In addition, the Company has
restructured or consolidated several new media properties, including
Industryclick and GR8Ride, whose value can be realized with far greater
efficiency by having select functions absorbed by the core operations and has
included these properties in Non-Core Businesses. It is management's intention
that businesses designated as Non-Core Businesses will be classified as such for
short periods of time, generally not to exceed one year. The information
presented below includes certain intercompany transactions and is therefore not
necessarily indicative of the results had the operations existed as stand-alone
businesses. In the ordinary course of business, corporate administrative costs
of approximately $9,900, $9,600 and $8,300 were allocated to the Non-Core
Businesses during the years ended December 31, 2001, 2000 and 1999,
respectively. The Company believes that these costs, many of which are
transaction driven, such as the processing of payables and payroll, will be
permanently reduced upon the shutdown or divestiture of the Non-Core Businesses.
These intercompany transactions are eliminated in consolidation. The Company has
reclassified certain product lines as Non-Core Businesses and in certain
instances has restated prior periods accordingly. The Company believes that the
amounts that have not been restated are not significant.
Additional selected financial data for the Company organized on the
foregoing basis are presented below:
YEARS ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
----------- ---------- ----------
Sales, Net:
Continuing Businesses:
Consumer........................................... $ 1,311,005 $1,129,942 $1,016,084
Business-to-Business............................... 423,204 473,589 440,013
Eliminations....................................... (65,451) (46,312) --
----------- ---------- ----------
Subtotal......................................... 1,668,758 1,557,219 1,456,097
Non-Core Businesses.................................... 73,535 133,733 260,005
----------- ---------- ----------
Total............................................ $ 1,742,293 $1,690,952 $1,716,102
=========== ========== ==========
EBITDA(1):
Continuing Businesses:
Consumer........................................... $ 163,517 $ 199,748 $ 214,829
Business-to-Business(2)............................ 68,897 114,076 95,901
Corporate.......................................... (32,308) (33,974) (34,986)
----------- ---------- ----------
Subtotal......................................... 200,106 279,850 275,744
Non-Core Businesses.................................... (28,340) (23,171) 64,810
----------- ---------- ----------
Total............................................ $ 171,766 $ 256,679 $ 340,554
=========== ========== ==========
(CONTINUED ON FOLLOWING PAGE)
13
YEARS ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
----------- ---------- ----------
Depreciation, Amortization and Other Charges (Income)(3):
Continuing Businesses:
Consumer........................................... $ 653,839 $ 108,849 $ 128,170
Business-to-Business............................... 91,835 63,326 357,503
Corporate.......................................... 38,083 30,205 (4,115)
----------- ---------- ----------
Subtotal......................................... 783,757 202,380 481,558
Non-Core Businesses.................................... 65,669 20,465 (195,336)
----------- ---------- ----------
Total............................................ $ 849,426 $ 222,845 $ 286,222
=========== ========== ==========
Operating Income (Loss):
Continuing Businesses:
Consumer........................................... $ (490,322) $ 90,899 $ 86,659
Business-to-Business............................... (22,938) 50,750 (261,602)
Corporate.......................................... (70,391) (64,179) (30,871)
----------- ---------- ----------
Subtotal......................................... (583,651) 77,470 (205,814)
Non-Core Businesses.................................... (94,009) (43,636) 260,146
----------- ---------- ----------
Total............................................ (677,660) 33,834 54,332
Other Income (Expense):
Provision for the impairment of investments............ (106,512) (188,526) --
Interest expense....................................... (145,960) (143,988) (164,909)
Amortization of deferred financing costs............... (10,947) (3,836) (3,286)
Other, net............................................. (35,562) (3,110) 250
----------- ---------- ----------
Loss before income tax expense........................... (976,641) (305,626) (113,613)
Income tax expense....................................... (135,000) (41,200) (6,500)
----------- ---------- ----------
Net loss................................................. $(1,111,641) $ (346,826) $ (120,113)
=========== ========== ==========
------------------------
(1) Represents earnings before interest, taxes, depreciation, amortization and
other charges (income) including non-cash compensation and non-recurring
charges of $58,181 and $35,210 for the years ended December 31, 2001 and
2000, respectively, a provision for severance, closures and restructuring
related costs of $43,920, $20,798 and $22,000 for the years ended
December 31, 2001, 2000 and 1999, respectively, gain on the sales of
businesses and other, net of $57,233, $14,438 and $235,580 for the years
ended December 31, 2001, 2000 and 1999, respectively, and for the year ended
December 31, 2001, EBITDA excludes $8,537 of other integration costs
included in general and administrative expenses. The $8,537 of other
integration costs principally represent internal personnel costs associated
with the consolidation of certain company-wide functions as well as fees
paid to consultants related to the centralization of certain support
functions and the implementation of standardized technology. EBITDA is not
intended to represent cash flow from operating activities and should not be
considered as an alternative to net income (loss) (as determined in
conformity with generally accepted accounting principles) as an indicator of
the Company's operating performance or to cash flows as a measure of
liquidity. The Company believes EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested parties
in the media industry. Accordingly, this information has been disclosed
herein to permit a more complete comparative analysis of the Company's
operating performance relative to other companies in its industry. EBITDA
should not be considered in isolation or as a substitute for other measures
of financial performance or liquidity. The primary difference between EBITDA
and cash flows provided by operating activities relates to changes in
working capital requirements and payments made for interest and income
taxes.
14
Additionally, EBITDA is not available for the Company's discretionary use as
there are legal requirements to pay preferred stock dividends and repay
debt, among other payments. EBITDA as presented may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate EBITDA in identical manners, and therefore,
is not necessarily an accurate measure of comparison between companies.
(2) Includes the reversal of a $4,000 sales tax accrual that was no longer
required. The reversal was recorded during the three months ended March 31,
2001.
(3) Amortization includes a provision for the impairment of long-lived assets,
primarily excess of purchase price over net assets acquired, of $444,699 and
$275,788 for the years ended December 31, 2001 and 1999, respectively. Other
charges (income) include non-cash compensation and non-recurring charges, a
provision for severance, closures and restructuring related costs, gain on
the sales of businesses and other, net and other integration costs included
in general and administrative expenses referred to in Note (1) above.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
CONSOLIDATED RESULTS:
Sales from Continuing Businesses increased 7.2% to $1,668,758 in 2001 from
$1,557,219 in 2000, due to growth in the consumer segment of $181,063 partially
offset by a decline in the business-to-business segment of $50,385, further
detailed below. Total sales, including Continuing and Non-Core Businesses,
increased 3.0% to $1,742,293 in 2001 from $1,690,952 in 2000.
During 2001 and 2000, the Company entered various assets-for-equity
transactions, some of which also included cash consideration. The non-cash
consideration was comprised of advertising, content licensing and other services
to be rendered by the Company in exchange for equity in these entities. The
Company recognizes these amounts as revenue in accordance with the Company's
revenue recognition policies. Revenue recognized in connection with these
assets-for-equity transactions was approximately $53,800 and $46,800 during the
years ended December 31, 2001 and 2000, respectively. The revenue from these
transactions declined quarterly throughout 2001 and will be substantially
reduced in future periods. In addition, for the years ended December 31, 2001
and 2000, revenue from barter transactions was approximately $38,000 and $8,000,
respectively, with equal related expense amounts in each year.
EBITDA from Continuing Businesses decreased 28.5% to $200,106 in 2001 from
$279,850 in 2000, due to decreases of $36,231 and $45,179 related to the
consumer and business-to-business segments, respectively, further detailed
below. Total EBITDA, including Continuing and Non-Core Businesses, decreased
33.1% to $171,766 in 2001 from $256,679 in 2000 due to declines in both
segments.
Operating income (loss) from Continuing Businesses was $(583,651) in 2001
compared to $77,470 in 2000. This decrease was primarily due to an increase in
amortization expense of approximately $219,000 primarily due to acquisitions as
well as approximately $345,000 related to provisions for the impairment of
long-lived assets of our Continuing Businesses, primarily excess of purchase
price over net assets acquired. These impairments, further detailed below, were
the result of certain product discontinuances as well as the Company's
determination that the estimated future undiscounted cash flows were not
sufficient to cover the carrying value of these assets. Total operating income
(loss), including Continuing and Non-Core Businesses, was $(677,660) in 2001
compared to $33,834 in 2000.
Interest expense increased by $1,972 or 1.4% in 2001 compared to 2000. This
increase is due to increased borrowings of $265,000 under the bank credit
facilities to finance the EMAP acquisition, partially offset by the Company's
use of proceeds of approximately $90,400 primarily related to the sale of
15
Bacons and cash acquired in connection with the About merger of approximately
$109,500 to repay borrowings under the bank credit facilities.
During 2001 and 2000, the net deferred income tax asset was reduced by
$135,000 and $41,200, respectively, the Company increased its valuation
allowance and recorded a related provision for income taxes due to continued
historical operating losses and the impairment of long-lived assets, primarily
excess of purchase price over net assets acquired, and investments.
CONSUMER SEGMENT (INCLUDING CONSUMER MAGAZINE AND MEDIA GROUP, CONSUMER GUIDES
AND PRIMEDIA TELEVISION):
Sales from Continuing Businesses increased 16.0% to $1,311,005 in 2001 from
$1,129,942 in 2000, before intercompany eliminations. This increase was due
primarily to growth at the Company's Consumer Guides (approximately $40,700) and
the acquisitions of About and EMAP whose combined results (approximately
$139,100) are included in the consumer segment for the periods subsequent to
their respective acquisition dates. New media sales from Continuing Businesses
increased 241.8% to $85,672 in 2001 from $25,068 in 2000, primarily due to
acquisitions and organic growth at apartmentguide.com (approximately $52,800) of
which approximately $10,200 represents organic growth. These new media sales
include the allocation of bundled revenues (print and online billed together)
and various intercompany transactions, which are eliminated in consolidation. As
a result, the new media sales from Continuing Businesses are not necessarily
indicative of the results had the new media businesses been operated as
stand-alone operations. Revenue recognized in connection with assets-for-equity
transactions, which was generally in the traditional businesses, was
approximately $43,700 and $33,400 for the years ended December 31, 2001 and
2000, respectively. For the years ended December 31, 2001 and 2000, revenue from
barter transactions was approximately $29,000 and $2,000, respectively, with
equal related expense amounts in each year.
EBITDA from Continuing Businesses decreased 18.1% to $163,517 in 2001 from
$199,748 in 2000. This decrease was due primarily to EBITDA declines at certain
consumer magazines (approximately $46,900 in the aggregate) resulting from
advertising softness, partially offset by strength at Consumer Guides
(approximately $18,400) and an EBITDA increase from the acquisitions of EMAP and
About (approximately $2,800 net) whose results are included for periods
subsequent to their respective acquisition dates. The EBITDA margin decreased to
12.5% in 2001 compared to 17.7% in 2000 primarily due to increased industry-wide
advertising softness as well as increased Internet spending as a result of the
About acquisition.
During the first quarter of 2002, the Company completed the sale of the
Modern Bride Group ("MBG"), which includes MODERN BRIDE plus 16 regional bridal
magazines. Sales from Continuing Businesses include sales of MBG of $47,032 and
$48,941 during 2001 and 2000, respectively. EBITDA from Continuing Businesses
includes EBITDA of MBG of $6,054 (includes an EBITDA impact of approximately
$3,400 of revenue from assets-for-equity transactions) and $6,465 (includes an
EBITDA impact of approximately $225 of revenue from assets-for-equity
transactions) during 2001 and 2000, respectively. The 2001 EBITDA excludes the
Company's equity in losses from its investment in Internet Gift Registries,
which is accounted for under the equity method of accounting. In 2000, there was
no EBITDA impact from this investment, as it was appropriately accounted for
under the cost method of accounting.
Operating income (loss) from Continuing Businesses, was $(490,322) in 2001
compared to $90,899 in 2000. The decrease in operating income was attributable
to the decrease in EBITDA, an increase in amortization expense as a result of
the About and EMAP acquisitions (approximately $154,400) and the write-off of
excess of purchase price over net assets acquired approximating $326,300
relating to About. This write-off was the result of the Company's determination
that the estimated future undiscounted cash flows were not sufficient to cover
the carrying value of the excess of purchase price over net assets acquired.
This determination did not reflect other benefits realized or expected to be
realized, across PRIMEDIA, as a result of the integration of About.
16
BUSINESS-TO-BUSINESS SEGMENT (INCLUDING BUSINESS MAGAZINES AND MEDIA GROUP,
WORKPLACE LEARNING AND PRIMEDIA INFORMATION):
Sales from Continuing Businesses decreased 10.6% to $423,204 in 2001 from
$473,589 in 2000, before intercompany eliminations. This decrease was due
primarily to industry advertising softness at certain business-to-business
magazines and trade shows (approximately $49,500). New media sales from
Continuing Businesses decreased 2.8% to $12,502 in 2001 from $12,860 in 2000.
These new media sales include various intercompany transactions, which are
eliminated in consolidation. As a result, the new media sales from Continuing
Businesses are not necessarily indicative of the results had the new media
businesses been operated as stand-alone operations. Revenue recognized in
connection with assets-for-equity transactions was approximately $10,100 and
$13,400 for the years ended December 31, 2001 and 2000, respectively. For the
years ended December 31, 2001 and 2000, revenue from barter transactions was
approximately $9,000 and $6,000, respectively, with equal related expense
amounts in each year.
EBITDA from Continuing Businesses decreased 39.6% to $68,897 in 2001 from
$114,076 in 2000. This decrease was due primarily to weakness at the Business
Magazines & Media Group (approximately $42,800). The EBITDA margin decreased to
16.3% in 2001 compared to 24.1% in 2000 primarily due to softness in
business-to-business advertising.
Operating income (loss) from Continuing Businesses, was $(22,938) in 2001
compared to $50,750 in 2000. The decrease in operating income was attributable
to the decrease in EBITDA and an increase in amortization expense related to the
write-off of excess of purchase price over net assets acquired and intangible
assets at certain business-to-business segment products (approximately $17,700).
This write-off was the result of the Company's determination that the estimated
future undiscounted cash flows were not sufficient to cover the carrying value
of certain long-lived assets, primarily excess of purchase price over net assets
acquired.
CORPORATE:
Corporate expenses decreased to $32,308 in 2001 from $33,974 in 2000.
Corporate operating loss increased to $70,391 in 2001 from $64,179 in 2000.
Operating loss includes approximately $30,200 and $27,800 of non-cash
compensation and non-recurring charges during the years ended December 31, 2001
and 2000, respectively, representing executive compensation in the form of stock
and option grants and the extension of certain stock option expiration periods.
NON-CORE BUSINESSES:
Sales from Non-Core Businesses decreased to $73,535 in 2001 from $133,733 in
2000 due to the completion of certain divestitures.
EBITDA from the Non-Core Businesses was $(28,340) in 2001 compared to
$(23,171) in 2000. Corporate administrative costs of approximately $9,900 and
$9,600 were allocated to the Non-Core Businesses during the years ended
December 31, 2001 and 2000, respectively. The Company believes that these costs,
many of which are transaction driven, such as the processing of payables and
payroll, will be permanently reduced or eliminated upon the shutdown or
divestiture of the Non-Core Businesses.
During 2001, the Company shutdown or divested approximately 40 properties.
EBITDA losses from these properties approximated $34,000 for the year ended
December 31, 2001. These EBITDA losses were partially offset by positive EBITDA
at Bacons, which was divested during 2001.
Operating loss from Non-Core Businesses increased to $94,009 in 2001 from
$43,636 in 2000 due to the decline in EBITDA. Operating loss also includes the
gain on the sale of Bacons of approximately $54,600 which was substantially
offset by increases in depreciation and amortization primarily due to
impairments of long-lived assets, primarily excess of purchase price over net
assets acquired (approximately $111,000), resulting from the Company's decision
to shutdown certain operations.
17
In November 2001, the Company completed the sale of Bacons to Observer AB
for $90,000, $15,000 of which represented a note receivable as of December 31,
2001. The gain on the sale of Bacons approximated $54,600. The proceeds from the
sale of Bacons were primarily used to pay down borrowings under the Company's
credit facilities.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
CONSOLIDATED RESULTS:
Sales from Continuing Businesses increased 6.9% to $1,557,219 in 2000 from
$1,456,097 in 1999. This increase was due to growth of $113,858 and $33,576 in
the consumer and business-to-business segments, respectively, further detailed
below. Total sales, including Continuing and Non-Core Businesses, decreased 1.5%
to $1,690,952 in 2000 from $1,716,102 in 1999.
During 2000, the Company entered various assets-for-equity transactions,
some of which also included cash consideration. The non-cash consideration was
comprised of advertising, content licensing and other services to be rendered by
the Company in exchange for equity in these entities. The Company recognizes
these amounts as revenue in accordance with the Company's revenue recognition
policies. Revenue recognized in connection with these assets-for-equity
transactions was approximately $46,800 during the year ended December 31, 2000.
In addition, for the years ended December 31, 2000 and 1999, revenue from barter
transactions was approximately $8,000 and $0, respectively, with equal related
expense amounts in each year.
EBITDA from Continuing Businesses increased 1.5% to $279,850 in 2000 from
$275,744 in 1999. This increase was due to an increase in the
business-to-business segment of $18,175 partially offset by a decrease in the
consumer segment of $15,081, further detailed below. Total EBITDA, including
Continuing and Non-Core Businesses, decreased 24.6% to $256,679 in 2000 from
$340,554 in 1999 due primarily to declines in Non-Core Businesses.
Operating income (loss) from Continuing Businesses was $77,470 in 2000
compared to $(205,814) in 1999. This increase was primarily due to a provision
for impairment of long-lived assets, primarily excess of purchase price over net
assets acquired, recorded in 1999 related to the business-to-business segment.
Total operating income, including Continuing and Non-Core Businesses, was
$33,834 in 2000 compared to $54,332 in 1999.
Interest expense decreased by $20,921 or 12.7% in 2000 compared to 1999.
This decrease was due to decreased borrowings outstanding for most of the year.
Proceeds from the sales of businesses and other of approximately $174,100 and
the Liberty Media investment of $200,000 were used to pay down borrowings.
Approximately $350,000 of the proceeds from the sale of SEG, which occurred
during the fourth quarter of 1999, was used to repay borrowings under the
Company's bank credit facilities.
During 2000, the net deferred income tax asset was reduced by $41,200, the
Company increased its valuation allowance and recorded a related provision for
income taxes due to historical operating losses and the impairment of
investments. The Company's management determined that no adjustment to the net
deferred income tax asset was required at December 31, 1999. In 1999, the
Company recorded income tax expense of $6,500 related to a provision for current
state and local taxes incurred as a result of the gain on the sale of SEG.
CONSUMER SEGMENT (INCLUDING CONSUMER MAGAZINE AND MEDIA GROUP, CONSUMER GUIDES
AND PRIMEDIA TELEVISION):
Sales from Continuing Businesses increased 11.2% to $1,129,942 in 2000 from
$1,016,084 in 1999, before intercompany eliminations. This increase was due
primarily to growth at the Company's Consumer Guides (approximately $51,800),
growth in advertising and other revenues at certain consumer magazines and
increased Internet advertising at related websites (approximately $63,600)
partially offset by reduced
18
newsstand sales at the soap opera and other consumer titles (approximately
$13,400). New media sales from Continuing Businesses increased 88.8% to $25,068
in 2000 from $13,280 in 1999, primarily due to strength at apartmentguide.com
(approximately $5,400) and other consumer websites. These new media sales
include the allocation of bundled revenues (print and online billed together)
and various intercompany transactions, which are eliminated in consolidation. As
a result, the new media sales from Continuing Businesses is not necessarily
indicative of the results had the new media businesses been operated as stand-
alone operations. Revenue recognized in connection with assets-for-equity
transactions was approximately $33,400 for the year ended December 31, 2000. For
the year ended December 31, 2000 revenue and expense from barter transactions
was approximately $2,000.
EBITDA from Continuing Businesses decreased 7.0% to $199,748 in 2000 from
$214,829 in 1999. This decrease was primarily due to net decreases at the soap
opera and other consumer titles (approximately $8,400) and EBITDA losses at
PRIMEDIA Digital Video (approximately $4,100). The EBITDA margin decreased to
17.7% in 2000 compared to 21.1% in 1999 primarily due to increased Internet
spending and reduced newsstand sales at the soap opera and other enthusiast
titles.
During the first quarter of 2002, the Company completed the sale of the MBG.
Sales from Continuing Businesses include sales of MBG of $48,941 and $44,113
during 2000 and 1999, respectively. EBITDA from Continuing Businesses include
EBITDA of MBG of $6,465 (includes an EBITDA impact of approximately $225 of
revenue from assets-for-equity transactions) and $5,312 (does not include any
EBITDA impact because there were no assets-for-equity transactions) during 2000
and 1999, respectively.
Operating income from Continuing Businesses, was $90,899 in 2000 compared to
$86,659 in 1999. The increase in operating income was attributable to the
decrease in amortization of intangible assets and excess of purchase price over
net assets acquired in 2000 as compared to 1999 (approximately $23,300)
partially offset by the decrease in EBITDA. Included in amortization during 1999
is the $14,333 long-lived asset impairment charge. This write-off was the result
of the Company's determination that the estimated future undiscounted cash flows
were not sufficient to cover the carrying value of certain long-lived assets,
primarily excess of purchase price over net assets acquired.
BUSINESS-TO-BUSINESS SEGMENT (INCLUDING BUSINESS MAGAZINES AND MEDIA GROUP,
WORKPLACE LEARNING AND CERTAIN PRODUCT LINES OF PRIMEDIA INFORMATION):
Sales from Continuing Businesses increased 7.6% to $473,589 in 2000 from
$440,013 in 1999, before intercompany eliminations. This increase was due
primarily to growth in advertising at certain business-to-business magazines and
trade shows (approximately $40,600) partially offset by declines at various
other business-to-business units. New media sales from Continuing Businesses
increased 50.6% to $12,860 in 2000 from $8,539 in 1999, primarily due to growth
in various business-to-business websites. These new media sales include various
intercompany transactions, which are eliminated in consolidation. As a result,
the new media sales from Continuing Businesses are not necessarily indicative of
the results had the new media businesses been operated as stand-alone
operations. Revenue recognized in connection with assets-for-equity transactions
was approximately $13,400 for the year ended December 31, 2000. For the year
ended December 31, 2000, revenue and expense from barter transactions was
approximately $6,000.
EBITDA from Continuing Businesses increased 19.0% to $114,076 in 2000 from
$95,901 in 1999. This increase was due primarily to strength at the Business
Magazines & Media Group (approximately $20,600). The EBITDA margin increased to
24.1% in 2000 compared to 21.8% in 1999 primarily due to growth in advertising
at certain business-to-business magazines, related websites and trade shows.
Operating income (loss) from Continuing Businesses, was $50,750 in 2000
compared to $(261,602) in 1999. The increase in operating income was
attributable to the 1999 provision for impairment of excess of purchase price
over net assets acquired (approximately $261,500). This write-off was the result
of the Company's determination that the estimated future undiscounted cash flows
were not sufficient to cover the carrying value of excess of purchase price over
net assets acquired.
19
CORPORATE:
Corporate expenses decreased to $33,974 in 2000 from $34,986 in 1999.
Corporate operating loss increased to $64,179 in 2000 from $30,871 in 1999.
Operating loss includes approximately $27,800 of non-cash compensation and
non-recurring charges during the year ended December 31, 2000, representing
executive compensation in the form of stock and option grants and the extension
of certain stock option expiration periods.
NON-CORE BUSINESSES:
Sales from Non-Core Businesses decreased to $133,733 in 2000 from $260,005
in 1999 due to the completion of certain divestitures.
EBITDA from the Non-Core Businesses was $(23,171) in 2000 compared to
$64,810 in 1999. Corporate administrative costs of approximately $9,600 and
$8,300 were allocated to the Non-Core Businesses during the years ended
December 31, 2000 and 1999, respectively. The Company believes that these costs,
many of which are transaction driven, such as the processing of payables and
payroll, will be permanently reduced or eliminated upon the shutdown or
divestiture of the Non-Core Businesses.
Operating income (loss) from Non-Core Businesses was $(43,636) in 2000
compared to $260,146 in 1999. The increase in operating loss was due to the 1999
gain on sale of SEG of $227,700 as well as the EBITDA decrease.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Consolidated working capital deficiency, which includes current maturities
of long-term debt, was $(220,259) at December 31, 2001 compared to $(346,447) at
December 31, 2000. The increase in working capital is primarily attributable to
a reduction of current maturities of the Company's long-term debt as a result of
a refinancing of the Company's outstanding debt obligations as well as other
working capital changes. Consolidated working capital reflects certain industry
working capital practices and accounting principles, including the recording of
deferred revenue from subscriptions as a current liability as well as the
expensing of certain advertising, editorial and product development costs as
incurred.
At December 31, 2001, the Company had cash and unused credit facilities in
excess of $220,000 as further discussed below. The Company believes that due
substantially to anticipated asset sale proceeds, the amount of cash and unused
credit facilities will increase at December 31, 2002. In addition, there are no
material required debt repayments until June 1, 2004. A change in the grade of
our debt instruments by the outside rating agencies would not negatively impact
our ability to use our available lines of credit or the borrowing rate under our
credit facilities. As of March 28, 2002 the Company's senior debt ratings from
Moody's was B1 and from Standard and Poor's was B.
The Company believes its liquidity, capital resources and cash flow are
sufficient to fund planned capital expenditures, working capital requirements,
interest and principal payments on its debt, the payment of preferred stock
dividends and other anticipated expenditures for the next fiscal year. The
Company has and continues to implement various cost-cutting programs and cash
conservation plans which involve the limitation of capital expenditures and the
control of working capital. These plans should help mitigate any future cash
flow shortfalls.
CASH FLOW - 2001 COMPARED TO 2000
Net cash provided by (used in) operating activities, as reported, during
2001, after interest payments of $128,639, decreased to $(101,348) as compared
to $52,546 during 2000, primarily due to the decrease in EBITDA of $84,900, due
primarily to advertising softness, as well as payments related to accounts
payable
20
and other accrued expenses of approximately $60,800. Net capital expenditures
decreased 21.7% to $60,740 during 2001 compared to $77,579 during 2000 due
primarily to higher levels of spending during 2000 on new office space and
capitalized software expenditures associated with the Company's new media
operations. Net cash used in investing activities during 2001 was $407,057
compared to $54,644 during 2000. This increase was primarily due to the EMAP
acquisition of $515,000 partially offset by the cash acquired from the About
acquisition of $109,490. Net cash provided by (used in) financing activities
during 2001 was $518,303 compared to $(2,873) during 2000. The change was
primarily attributable to proceeds from the debt drawdowns of approximately
$265,000 and equity issuances associated with the EMAP financing of
approximately $250,000.
CASH FLOW - 2000 COMPARED TO 1999
Net cash provided by operating activities, as reported, during 2000, after
interest payments of $141,937, decreased 51.0% to $52,546 as compared to
$107,298 during 1999, primarily due to a decrease in EBITDA of approximately
$83,900 due primarily to increased new media investments partially offset by a
decrease in interest payments of approximately $23,000. Net capital expenditures
increased 11.6% to $77,579 during 2000 compared to $69,488 during 1999 due
primarily to increased spending on new office space and capitalized software
expenditures associated with the Company's new media operations. Net cash
provided by (used in) investing activities during 2000 was $(54,644) compared to
$186,081 during 1999 due to reduced proceeds from the sales of businesses of
approximately $239,300. Net cash used in financing activities during 2000 was
$2,873 compared to $289,256 during 1999. The change was primarily attributable
to the Liberty Media Corporation investment of $200,000 in 2000.
FINANCING ARRANGEMENTS - NEW CREDIT AGREEMENT
On June 20, 2001, the Company completed a refinancing of its existing bank
credit facilities pursuant to new bank credit facilities with The Chase
Manhattan Bank, Bank of America, N.A., The Bank of New York, and The Bank of
Nova Scotia, as agents. The debt under the new credit agreement (as well as
certain of the Company's other equally and ratably secured indebtedness) is
secured by a pledge of the stock of PRIMEDIA Companies Inc. an intermediate
holding company, owned directly by the Company, which owns directly or
indirectly all shares of PRIMEDIA subsidiaries that guarantee such debt.
Borrowings under the bank credit facilities are guaranteed by each of our wholly
owned domestic restricted subsidiaries as determined by the Company's management
in accordance with the provisions and limitations of the Company's credit
agreement. The guarantees are full, unconditional and joint and several. Certain
of our subsidiaries which primarily represent Internet assets and businesses,
including About, new launches and other properties under evaluation for
turnaround or shutdown and foreign subsidiaries, are not guarantors of the bank
credit facilities.
Substantially all proceeds from sales of businesses and other investments
were used to pay down borrowings under the credit agreement. The borrowings
under the bank credit facilities may be used for general corporate and working
capital purposes as well as to finance certain future acquisitions. The bank
credit facilities consist of the following:
- a $475,000 revolving loan facility, of which $261,000 was outstanding at
December 31, 2001;
- a term loan A, of which $100,000 was outstanding at December 31, 2001; and
- a term loan B, of which $422,875 was outstanding at December 31, 2001.
As of December 31, 2001, the Company had $783,875 of borrowings outstanding,
approximately $25,000 aggregate face amount of letters of credit outstanding and
unused bank commitments of approximately $189,000 under the bank credit
facilities.
With the exception of the term loan B, the amounts borrowed bear interest,
at the Company's option, at either the higher of the base rate plus an
applicable margin ranging from 0.125% to 1.5% or the
21
Eurodollar Rate plus an applicable margin ranging from 1.125% to 2.5%. The term
loan B bears interest at the base rate plus 1.75% or the Eurodollar Rate plus
2.75%. At December 31, 2001, the weighted average variable interest rate on all
outstanding borrowings under the bank credit facilities was approximately 4.9%.
Under the bank credit facilities, the Company has agreed to pay commitment
fees at a per annum rate of either 0.375% or 0.5%, depending on its debt to
EBITDA ratio, as defined in the new credit agreement, on the daily average
aggregate unutilized commitment under the revolving loan commitment. During
2001, the Company's commitment fees were paid at a weighted average rate of .4%.
The Company also has agreed to pay certain fees with respect to the issuance of
letters of credit and an annual administration fee.
The commitments under the revolving loan commitment are subject to mandatory
reductions semi-annually on June 30 and December 31, commencing December 31,
2004, with the final reduction on June 30, 2008. The aggregate mandatory
reductions of the revolving loan commitments under the bank credit facilities
are $23,750 in 2004, $47,500 in 2005, $71,250 in 2006, $142,500 in 2007 and a
final reduction of $190,000 in 2008. To the extent that the total revolving
credit loans outstanding exceed the reduced commitment amount, these loans must
be paid down to an amount equal to or less than the reduced commitment amount.
However, if the total revolving credit loans outstanding do not exceed the
reduced commitment amount, then there is no requirement to pay down any of the
revolving credit loans until the final reduction in 2008. Aggregate term loan
payments under the bank credit facilities are $4,250 in 2002 and 2003, $16,750
in 2004, $29,250 in 2005, 2006 and 2007, $16,750 in 2008 and $393,125 in 2009.
The bank credit facilities, among other things, limit the Company's ability
to change the nature of its businesses, incur indebtedness, create liens, sell
assets, engage in mergers, consolidations or transactions with affiliates, make
investments in or loans to certain subsidiaries, issue guarantees and make
certain restricted payments including dividend payments on the Company's common
stock in excess of $75,000 in any given year.
The bank credit facilities and senior notes of the Company contain certain
customary events of default which generally give the banks or the noteholders,
as applicable, the right to accelerate payments of outstanding debt. Under the
bank credit facilities, these events include:
- failure to maintain PRIMEDIA's required covenant ratios, as described
below;
- failure to make a payment of principal, interest or fees within five days
after its due date;
- default, beyond any applicable grace period, on any aggregate indebtedness
of PRIMEDIA exceeding $20,000
- occurrence of certain insolvency proceedings with respect to PRIMEDIA or
any of its material subsidiaries;
- entry of one judgment or decree involving a liability of $15,000 or more
(or more than one involving an aggregate liability of $25,000 or more);
and
- occurrence of certain events constituting a change of control of the
Company.
The events of default contained in PRIMEDIA's senior notes are similar to,
but generally less restrictive than, those contained in the Company's bank
credit facilities.
The Company does not anticipate the occurrence of any of these default
events. Upon the occurrence of such an event, the Company has the ability to
cure or renegotiate with its lenders.
Under the most restrictive debt covenants as defined in the Company's credit
agreement, the Company must maintain a minimum interest coverage ratio, as
defined, of 1.80 to 1 and a minimum fixed charge coverage ratio, as defined, of
1.05 to 1. The Company's maximum allowable debt leverage ratio, as defined, is
6.0 to 1. The maximum leverage ratio decreases to 5.75 to 1, 5.5 to 1, 5.0 to 1
and 4.5 to 1,
22
respectively, on July 1, 2003, January 1, 2004, January 1, 2005 and January 1,
2006. The minimum interest coverage ratio increases to 2.0 to 1, 2.25 to 1 and
2.5 to 1, respectively, on July 1, 2003, January 1, 2004 and January 1, 2005.
The Company is in compliance with the financial and operating covenants of its
financing arrangements. At December 31, 2001, the Company's debt leverage ratio
defined as the ratio of consolidated EBITDA to debt (which provides for among
other things, the inclusion in EBITDA from certain intercompany transactions
between subsidiaries that guarantee the debt and subsidiaries that are
non-guarantors), in the bank credit facilities was approximately 5.5 to 1.
As a result of the refinancing of the Company's old bank credit facilities,
the Company wrote-off the remaining balances of deferred financing costs
originally recorded approximating $7,250. This amount is included in
amortization of deferred financing costs on the statement of consolidated
operations for the year ended December 31, 2001 included elsewhere in this
Annual Report.
In 2001, the Company completed an offering of $500,000 of 8 7/8% Senior
Notes. Net proceeds from this offering of approximately $493,000 were used to
repay borrowings under the revolving credit facilities.
The 10 1/4% Senior Notes mature in June 2004, the 8 1/2% Senior Notes mature
in February 2006, the 7 5/8% Senior Notes mature in April 2008 and the 8 7/8%
Senior Notes mature in May 2011.
The Company has no special purpose entities or off balance sheet debt, other
than as related to operating leases in the ordinary course of business which are
fully disclosed in the footnotes to the consolidated financial statements
included elsewhere in this Annual Report. In addition, on a regular basis the
Company holds meetings with its shareholders, bond-holders and banks and the
rating agencies to discuss the operating performance of the Company.
OTHER ARRANGEMENTS
In connection with the About merger, two executives of About entered into
share lockup agreements with the Company, pursuant to which they agreed to
specific restrictions regarding the transferability of their shares of PRIMEDIA
common stock issued in the merger. Under the terms of those agreements, during
the first year after the closing of the merger, the executives could sell a
portion of their shares of the Company's common stock, subject to the Company's
right of first refusal with respect to any sale. In the event that the gross
proceeds received on sale were less than $33,125 (assuming all shares are sold),
the Company agreed to pay the executives the amount of such shortfall ("the
Shortfall Payment").
During the third quarter of 2001, one of the executives, who subsequently
left the Company, advised the Company that he was selling 1,429,344 shares of
the Company's common stock in the market. Concurrently therewith, the executive
assigned to a financial institution the right to receive his Shortfall Payment
on that number of shares. The financial institution advised the Company that it
purchased 1,429,344 shares of the Company's common stock in the market. The
financial institution has agreed to waive its right to the Shortfall Payment in
exchange for the Company's agreement to make the financial institution whole if
it sells such shares which it purchased in the market for proceeds of less than
approximately $23,406. In connection with these agreements, the Company has
recorded a liability of approximately $18,411 at December 31, 2001 representing
the Shortfall Payments due under both agreements, based on the fair value of the
Company's stock on such date. As of March 8, 2002, the financial institution had
sold all of the shares in the open market for proceeds of approximately $3,300.
As a result, in April 2002, the Company is obligated to pay approximately
$20,300 to the financial institution, which is reflected in the table below. As
a result of this executive leaving the Company, half of his restricted shares
(1,105,550 shares) and options (1,302,650 options) were accelerated and the
remainder was forfeited resulting in a reversal of unearned compensation of
$19,166. Additionally, the remaining options expired on February 14, 2002.
23
FINANCING ARRANGMENTS--CONTRACTUAL OBLIGATIONS
The contractual obligations of the Company as of December 31, 2001, are as
follows:
LESS THAN AFTER
CONTRACTUAL CASH OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
---------------------------- ---------- --------- --------- --------- ----------
Long-term debt.......................... $1,925,217 $ 4,250 $121,000 $357,853 $1,442,114
Capital lease obligations............... 28,679 4,015 6,905 2,896 14,863
Operating leases........................ 360,462 56,057 94,668 75,994 133,743
Obligation related to share lockup
agreement............................. 20,300 20,300 -- -- --
---------- ------- -------- -------- ----------
Total Contractual Cash Obligations...... $2,334,658 $84,622 $222,573 $436,743 $1,590,720
========== ======= ======== ======== ==========
The Company has other commercial commitments in the form of letters of
credit of approximately $25,000 aggregate face value which expire before the end
of 2002.
FINANCING ARRANGEMENTS - EMAP FINANCING
On August 24, 2001, the Company acquired, by merger, 100% of the outstanding
common stock of the publishing business of EMAP. The acquisition of EMAP is
expected to strengthen the Company's unique mix of category specific endemic
advertising as well as circulation revenue. Further, this acquisition advances
PRIMEDIA to the number one spot in the magazine industry in terms of revenue and
single copy sales. The total consideration was $525,000 comprised of $515,000 in
cash, including an estimate of working capital settlements of $10,000, (which is
subject to final settlement) and warrants to acquire 2,000,000 shares of the
Company's common stock at $9 per share. The fair value of the warrants was
approximately $10,000 and was determined using a Black Scholes pricing model.
These warrants expire ten years from the date of issuance.
The Company financed the acquisition of EMAP by (1) issuing 1,000,000 shares
of Series J Convertible Preferred Stock to KKR 1996 Fund (a partnership
associated with Kohlberg Kravis Roberts & Co. L.P., ("KKR") a related party of
the Company) for $125,000 and (2) drawing upon its revolving credit facility in
an amount of approximately $265,000. In addition, KKR 1996 Fund purchased from
the Company $125,000 of common stock and Series K Convertible Preferred Stock,
both at a price per share equal to $4.70. This resulted in an additional
10,800,000 shares of common stock and 15,795,745 shares of Series K Convertible
Preferred Stock. On September 27, 2001, all of the issued and outstanding shares
of the Series K Convertible Preferred Stock were, in accordance with their
terms, converted into 15,795,745 shares of the Company's common stock.
The Series J Convertible Preferred Stock is convertible at the option of the
holder after one year from the date of issuance, into approximately 17,900,000
shares of the Company's common stock at a conversion price of $7 per share,
subject to adjustment. Dividends on the Series J Convertible Preferred Stock
accrue at an annual rate of 12.5% and are payable quarterly in kind. During
2001, the Company paid dividends-in-kind (31,248 shares of Series J Convertible
Preferred Stock) valued at approximately $3,900. The Company has the option to
redeem any or all of the shares of the Series J Convertible Preferred Stock at
any time for cash at 100% of the liquidation preference of each share being
redeemed. On any dividend payment date, the Company has the option to exchange
the Series J Convertible Preferred Stock into 12.5% Class J Subordinated Notes.
The Company's ability to redeem or exchange the Series J Convertible Preferred
Stock into debt is subject to the approval of a majority of the independent
directors.
In connection with the equity financing by KKR 1996 Fund, the Company paid
KKR 1996 Fund a commitment fee consisting of warrants to purchase 1,250,000
shares of common stock of the Company at an exercise price of $7 per share,
subject to adjustment, and a funding fee consisting of warrants to purchase an
additional 2,620,000 shares of the Company's common stock at an exercise price
of $7 per
24
share, subject to adjustment. These warrants may be exercised after the first
anniversary of the grant date and expire on August 24, 2011 or upon a change in
control, as defined. In addition, the Company may be required to issue to KKR
1996 Fund additional warrants to purchase up to 4,000,000 shares of the
Company's common stock at an exercise price of $7 per share, subject to
adjustment. The issuance of the additional 4,000,000 warrants is contingent upon
the length of time that the Series J Convertible Preferred Stock is outstanding.
If the Series J Convertible Preferred Stock is outstanding for three, six, nine
or twelve months from the date of issuance, KKR 1996 Fund will receive the
additional warrants to purchase 250,000, 1 million, 1.25 million and
1.5 million shares of common stock, respectively. Accordingly, during November
2001, the Company issued to KKR 1996 Fund additional warrants to purchase
250,000 shares of the Company's common stock. The Company ascribed a value of
$498 to these warrants using the Black Scholes pricing model. These warrants
expire ten years from the date of issuance or upon a change in control. The
consolidated financial statements do not reflect the issuance of the additional
3,750,000 contingent warrants. Upon issuance, the Company would value these
contingent warrants using the Black Scholes pricing model and would deduct the
ascribed value as a component of the loss applicable to common shareholders.
The 1,250,000 warrants issued to KKR 1996 Fund represent a commitment fee
related to the financing transaction as a whole. The Company valued these
warrants at $5,622 using the Black Scholes pricing model and recorded them as a
component of additional paid-in capital.
The Company attributed the 2,620,000 funding warrants to the issuance of the
Series J Convertible Preferred Stock. The Company valued these warrants at
$9,679 using the Black Scholes pricing model and has accordingly reduced the
face value of the Series J Convertible Preferred Stock. The Company is accreting
the difference between the carrying value and the redemption value of the
Series J Convertible Preferred Stock to additional paid in capital using the
effective interest method over a one year period as the earliest date at which
the preferred stock is convertible is one year from the date of issuance. The
accretion is deducted in the calculation of loss applicable to common
shareholders.
All of the above described financing transactions between the Company and
KKR were reviewed by and recommended for approval by a Special Committee of the
Company's Board of Directors, comprised solely of independent directors (neither
employees of the Company nor affiliated with KKR). In connection therewith, the
Special Committee retained its own counsel and investment banker to advise it as
to the financing transactions. Such financing transactions were approved by the
full Board of Directors, following such recommendation.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements require us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to allowances for doubtful accounts, reserves for sales returns
and allowances, reserves for severance, closures and restructuring related
costs, purchase price allocations, impairments of investments, divestiture
reserves and the recoverability of long-lived assets including excess of
purchase price over net assets acquired. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable under
the circumstances. These form the basis of our judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates which would effect our
reported results from operations. We believe the following is a description of
the critical accounting policies and estimates used in the preparation of our
consolidated financial statements.
25
Allowances for doubtful accounts are estimated losses resulting from our
customers' failure to make required payments. The Company continually monitors
collections from customers and provides a provision for estimated credit losses.
The Company aggressively pursues collection efforts on these overdue accounts
and upon collection reverses the write-off in future periods. If future payments
by our customers were to differ from our estimates, we may need to increase or
decrease our allowances for doubtful accounts.
Reserves for sales returns and allowances are primarily related to our
newsstand sales. The Company estimates and maintains these reserves based
primarily on its distributors' historical return practices and our actual return
experience. If actual sales returns and allowances differ from the estimated
return and allowance rates used, we may need to increase or decrease our reserve
for sales returns and allowances.
Reserves for severance, closures and restructuring related costs are
estimated costs resulting from management's plans and actions to integrate the
Company and consolidate certain back office functions. If the future payments of
these costs were to differ from our estimates, we may need to increase or
decrease our reserves.
The Company records purchase price allocations for our acquisitions based on
preliminary information received at the date of acquisition and based on our
acquisition experience. These allocations are subject to adjustments and are
finalized once additional information concerning asset and liability valuations
is obtained, typically from an independent appraisal. The final asset and
liability fair values may differ from the preliminary allocations. If the final
allocations for the acquisitions differ from the preliminary allocations, we may
need to increase or decrease our depreciation and/or amortization expense, for
the acquired assets.
The Company has held or currently holds investments in various companies.
Investments where the Company has the ability to exercise significant influence
over financial and accounting policies are accounted for under the equity method
of accounting and the Company records its share of income (losses) of these
investments based upon the investee's most recent available financial
information, typically on a three-month lag. Investments where the Company does
not have significant influence are accounted for under the cost method. Some of
the investments that we have made have been in publicly traded companies, which
may have highly volatile share prices. Other investments are in private
companies that have no active market by which fair values can be easily
assessed. For significant transactions involving equity securities in private
companies, the Company obtains and considers independent third-party valuations
where appropriate. Such valuations use a variety of methodologies to estimate
fair value, including comparing the security with securities of publicly traded
companies in similar lines of business, comparing the nature of security, price,
and related terms of investors in the same round of financing, applying price
multiples to estimated future operating results for the private company, and
then also estimating discounted cash flows for that company. Using these
valuations and other information available to the Company, such as the Company's
knowledge of the industry and knowledge of specific information about the
Investee, the Company determines the estimated fair value of the securities
received. As required by Emerging Issues Task Force ("EITF") Issue No. 00-8,
"Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction
with Providing Goods and Services," the fair value of the equity securities
received is determined as of the earlier of the date a performance commitment is
reached or the vesting date.
We record an investment impairment charge when we believe an investment has
experienced a decline in value that is other than temporary. Future adverse
changes in market conditions or poor operating results of underlying investments
could result in losses or an inability to recover the carrying value of the
investments, thereby possibly requiring an impairment charge to the carrying
value of the asset, in the future.
Reserves for estimated obligations relating to divestitures may arise as a
result of the sale of certain titles or business units. These reserves are
established for such items that we remain liable for after the sale
26
is completed and are recorded at the time of the divesture as part of the gain
or loss on the sale of the divested asset or business. If the future payments
for such items differ from our estimates, there could be a change in the
determination of the gain or loss on sale of the business.
The Company periodically evaluates the recoverability of our long-lived
assets, including property and equipment, excess of purchase price over net
assets acquired and intangible assets, whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable or in
connection with its annual financial review process. Our evaluations include
analyses based on the cash flows generated by the underlying assets,
profitability information, including estimated future operating results, trends
or other determinants of fair value. If the value of the asset determined by
these evaluations is less than its carrying amount, an impairment is recognized
for the difference between the fair value and the carrying value of the asset.
Future adverse changes in market conditions or poor operating results of the
related business may indicate an inability to recover the carrying value of the
assets, thereby possibly requiring an impairment charge to the carrying value of
the asset, in the future.
RISK FACTORS
Set forth below are risks and uncertainties that could cause actual results
to differ materially from the results contemplated by the forward looking
statements contained in this Annual Report.
GENERAL ECONOMIC TRENDS MAY REDUCE OUR ADVERTISING REVENUES.
Our advertising revenues are subject to the risks arising from adverse
changes in domestic and global economic conditions. A decline in the level of
business activity of our advertisers has had an adverse effect on our revenues
and profit margins. Because of the recent economic slowdown in the United
States, many advertisers, particularly business-to-business advertisers, are
reducing advertising expenditures. The further impact of this slowdown on us is
difficult to predict, but it may result in further reductions in advertising
revenue. If the current economic slowdown continues or worsens, our results of
operations may be adversely affected.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND OTHER MONETARY OBLIGATIONS, WHICH CONSUME A
SUBSTANTIAL PORTION OF THE CASH FLOW THAT WE GENERATE.
A substantial portion of our cash flow is dedicated to the payment of
interest on indebtedness and to the payment of dividends on our preferred stock,
which reduces funds available for capital expenditures and business
opportunities and may limit our ability to respond to adverse developments in
our business or in the economy.
OUR DEBT INSTRUMENTS LIMIT OUR BUSINESS FLEXIBILITY BY IMPOSING OPERATING AND
FINANCIAL RESTRICTIONS ON OUR OPERATIONS.
The agreements and indentures governing our indebtedness impose, specific
operating and financial restrictions on us. These restrictions impose
limitations on our ability to, among other things:
- change the nature of our business;
- incur additional indebtedness;
- create liens on our assets;
- sell assets;
- issue stock;
- engage in mergers, consolidations or transactions with our affiliates;
- make investments in or loans to specific subsidiaries;
27
- make guarantees or specific restricted payments; and
- declare or making dividend payments on our common or preferred stock.
INCREASES IN PAPER AND POSTAGE COSTS MAY HAVE AN ADVERSE IMPACT ON OUR FUTURE
FINANCIAL RESULTS.
The price of paper is a significant expense relating to our print products
and direct mail solicitations. Paper price increases may have an adverse effect
on our future results. Postage for product distribution and direct mail
solicitations is also a significant expense. We use the U.S. Postal Service for
distribution of many of our products and marketing materials. Postage costs
increased in January 2001 and July 2001 and can be expected to increase in the
future. We may not be able to pass these cost increases through to our
customers.
WE DEPEND ON SOME IMPORTANT EMPLOYEES, AND THE LOSS OF ANY OF THOSE EMPLOYEES
MAY HARM OUR BUSINESS.
Our performance is substantially dependent on the performance of our
executive officers and other key employees. In addition, our success is
dependent on our ability to attract, train, retain and motivate high quality
personnel, especially for our management team. The loss of the services of any
of our executive officers or key employees may harm our business.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 2001, the Company had aggregate net operating and capital
loss carryforwards of approximately $1,549,600 which will be available to reduce
future taxable income through 2021.
RELATED PARTY TRANSACTIONS
The Company and a partnership managed by KKR completed the financing
transactions described above. In addition, during each of the years ended
December 31, 2001, 2000 and 1999, the Company incurred and paid administrative
and other fees to KKR, an affiliated party, of $1,000. Approximately $750 of the
2001 fee was capitalized as acquisition and financing costs. During the years
ended December 31, 2001, 2000 and 1999, the Company paid directors' fees to
certain partners of KKR aggregating $220, $206 and $195, respectively.
During 2000, a partnership affiliated with KKR purchased shares of About on
the open market. These shares converted to shares of the Company at the merger
completion date.
PROVISION FOR SEVERANCE, CLOSURES AND RESTRUCTURING RELATED COSTS
During 2001 and 2000, the Company implemented plans to integrate the
operations of the Company and consolidate many back office functions. The
Company expects that these plans will continue to result in future savings. All
restructuring related charges were expensed as incurred.
With the acquisition of About, during the first quarter of 2001, the Company
announced additional cost initiatives that would continue to implement and
expand upon the cost initiatives enacted during 2000.
28
Details of the initiatives implemented and the payments made in furtherance
of these plans in the years ended December 31, 2001 and 2000 are presented in
the following tables:
PAYMENTS/WRITE-OFF
NET PROVISION FOR THE DURING THE LIABILITY AS OF
LIABILITY AS OF YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, 2001 2001
----------------- --------------------- ------------------ ---------------
Severance and closures:
Employee-related termination
costs..................... $ 7,063 $17,855 $15,875 $ 9,043
Termination of contracts.... 1,519 2,737 1,938 2,318
Termination of leases
related to office
closures.................. 1,634 12,467 1,064 13,037
Write-off of leasehold
improvements.............. -- 4,552 4,552 --
Other....................... 213 -- 213 --
------- ------- ------- -------
10,429 37,611 23,642 24,398
------- ------- ------- -------
Restructuring related:
Consulting services......... 498 3,055 3,553 --
Relocation and other
employee costs............ 462 3,221 3,683 --
Other....................... -- 33 33 --
------- ------- ------- -------
960 6,309 7,269 --
------- ------- ------- -------
Total severance, closures and
restructuring related
costs....................... $11,389 $43,920 $30,911 $24,398
======= ======= ======= =======
PAYMENTS
NET PROVISION FOR THE DURING THE LIABILITY AS OF
LIABILITY AS OF YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, 1999 DECEMBER 31, 2000 DECEMBER 31, 2000 2000
----------------- --------------------- ------------------ ---------------
Severance and closures:
Employee related termination
costs...................... $ 188 $ 9,631 $ 2,756 $ 7,063
Termination of contracts..... -- 1,541 22 1,519
Termination of leases related
to office closures......... 1,561 1,018 945 1,634
Other........................ 3,920 (1,898) 1,809 213
------- ------- ------- -------
5,669 10,292 5,532 10,429
------- ------- ------- -------
Restructuring related:
Consulting services.......... -- 6,651 6,153 498
Relocation and other employee
costs...................... -- 3,855 3,393 462
------- ------- ------- -------
-- 10,506 9,546 960
------- ------- ------- -------
Total severance, closures and
restructuring related
costs........................ $ 5,669 $20,798 $15,078 $11,389
======= ======= ======= =======
A significant portion of the remaining costs are expected to be paid during
2002 with the balance, primarily related to leases, to be paid through 2015. To
eliminate the lease related costs, the Company is aggressively pursuing
subleases of its available office space.
Included in the net provision for the years ended December 31, 2001 and 2000
are reversals of $1,884 and $3,302, respectively, of previously recorded
accruals.
29
As a result of the implementation of the 2001 and 2000 plans, the Company
has closed and consolidated in excess of fifteen office locations and has
notified 1,320 individuals that they will be terminated under these plans. As of
December 31, 2001, 1,315 of those individuals have been terminated.
The Company expects to realize sufficient savings from its plans to
integrate the operations of the Company and to recover the costs associated with
these plans, within a nine-month period.
The liabilities representing the provision for severance, closures and
restructuring related costs are included in accrued expenses and other on the
consolidated balance sheets included elsewhere in this Annual Report.
During 1999, the Company discontinued five unprofitable PRIMEDIA Workplace
Learning product lines as part of a program to return the Company's focus to
accreditation-oriented vocational networks and associated products. In relation
to these discontinuances, the Company recorded a $22,000 charge for
approximately $9,000 related to transponder and office site leases and
approximately $9,000 related to the recoverability of related excess of purchase
price over net assets acquired and certain other assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2001, the EITF reached a consensus on EITF Issue No. 01-9,
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)." EITF 01-9 codifies and reconciles certain
issues addressing the accounting for consideration given by a vendor to a
customer (including both a reseller of the vendor's products and an entity that
purchases the vendor's products from a reseller), including certain issues
covered by EITF Issue No. 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products." Both EITF 01-9 and
EITF 00-25, which will be effective for the Company in the first quarter of
2002, clarify the income statement classification of costs incurred by a vendor
in connection with the customer's purchase or promotion of the vendor's
products. The adoption of EITF 01-9 and EITF 00-25 will result in a net
reclassification of product placement and brokerage costs previously classified
as operating expenses in the statements of consolidated operations to reductions
of revenues earned from such activities. The change in classifications will have
no impact on the Company's results of operations, cash flows or financial
position. The reclassification would have resulted in a net decrease in sales
and a corresponding decrease in operating expenses of approximately $21,000,
$15,000 and $19,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
In July 2001, the Financial Accounting Standards Board ("FASB") issued two
new statements, Statement of Financial Accounting Standards ("SFAS") No.141,
"Business Combinations," and SFAS No.142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that the purchase method be used for all business
combinations initiated after June 30, 2001 and prohibits the use of the pooling
of interest method. SFAS No.142 changes the method by which companies may
recognize intangible assets in purchase business combinations and generally
requires identifiable intangible assets to be recognized separately from
goodwill, also referred to as excess of purchase price over net assets acquired.
In addition, it eliminates the amortization of all existing and newly acquired
goodwill and indefinite lived intangible assets on a prospective basis and
requires companies to assess goodwill for impairment, at least annually, based
on the fair value of the reporting unit associated with the goodwill.
The Company adopted SFAS 141 and certain provisions of SFAS 142 in
connection with the EMAP acquisition as required by the statements. The excess
of purchase price over net assets acquired related to the acquisition of EMAP
has not and will not be amortized. The identifiable intangible assets are
currently being amortized over a fifteen-year useful life, which is subject to a
final valuation and purchase price allocation.
The Company adopted SFAS 142 on January 1, 2002 as required by the
statement, for all remaining excess of purchase price over net assets acquired
and identifiable intangible assets. Upon adoption, the
30
Company ceased the amortization of excess of purchase price over net assets
acquired and other indefinite lived intangible assets, which consist primarily
of trademarks. At least annually, the Company is required to test for impairment
its excess of purchase price over net assets acquired and indefinite lived
intangible assets.
The EITF of the FASB is expected to provide further guidance on certain
implementation issues related to the adoption of SFAS 142. The Company is unable
to predict the outcome of these deliberations and is using its best judgment to
interpret SFAS 142.
Based on the Company's preliminary evaluation, the estimated effect of
adoption of SFAS 142, prior to the review of any excess of purchase price of net
assets acquired and other indefinite lived intangibles for impairment, had the
pronouncement been adopted at the beginning of each of the fiscal years 2001,
2000 and 1999, there would have been a reduction in amortization of
approximately $186,000, $44,000 and $68,000, respectively. The Company also
estimates that it will record a deferred tax expense of approximately $62,000 on
January 1, 2002 in connection with the adoption of SFAS 142 and will record an
additional deferred income tax provision of approximately $25,000 during the
year ending December 31, 2002 relating to the book and tax differences in the
amortization of excess of purchase price over net assets acquired.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This statement also supersedes the accounting and reporting
provisions of Accounting Principles Board ("APB") Opinion 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", relating to the disposal of a segment of a business. SFAS
No. 121 did not address the accounting for business segments accounted for as
discontinued operations under APB Opinion 30 and therefore two accounting models
existed for long-lived assets to be disposed of. SFAS No. 144 established one
accounting model for long-lived assets to be held and used, long-lived assets
(including those accounted for as a discontinued operation) to be disposed of by
sale and long-lived assets to be disposed of other than by sale, and resolved
certain implementation issues related to SFAS No. 121. The Company adopted SFAS
No. 144 on January 1, 2002, and it is not expected to have a material effect on
its results of operations or financial position.
RECENT DEVELOPMENTS
On February 24, 2002, in accordance with the financing provided by KKR 1996
Fund, detailed in the FINANCING ARRANGEMENTS--EMAP FINANCING section above, the
Company issued to KKR 1996 Fund additional warrants to purchase 1,000,000 shares
of the Company's common stock as the Series J Convertible Preferred Stock
continued to be outstanding six months from the date of issuance. The Company
ascribed a value of $2,160 to these warrants based on a Black Scholes pricing
model.
On February 28, 2002, the Company completed the sale of its Modern Bride
Group to Advance Magazine Publishers Inc. for total consideration, including a
service agreement, of approximately $52,000.
IMPACT OF INFLATION AND OTHER COSTS
The impact of inflation was immaterial during 2001, 2000 and 1999. Postage
for product distribution and direct mail solicitations is a significant expense
of the Company. The Company uses the U.S. Postal Service for distribution of
many of its products and marketing materials. Postage rates increased
approximately 4% in January 1999, approximately 10% in January 2001 and
approximately 3% in July 2001. In the past, the effects of inflation on
operating expenses have substantially been offset by PRIMEDIA's ability to
increase selling prices. No assurances can be given that the Company can pass
such cost increases through to its customers. In addition to pricing actions,
the Company is continuing to examine all aspects of the manufacturing and
purchasing processes to identify ways to offset some of these price increases.
Paper
31
expense declined through the first three quarters of 1999 and increased
approximately 7% in the fourth quarter of 1999. During 2000, paper expense
increased approximately 5%. During 2001, paper expenses decreased approximately
7%. During 2001, 2000 and 1999, paper costs represented approximately 5%, 8% and
8%, respectively, of the Company's total operating costs and expenses. This
trend is a function of a softening in paper prices and decreased paper
consumption through improved distribution and enhanced controls surrounding
paper purchases and usage by the Company.
SEASONALITY
The Company's operations are seasonal in nature. Operating results have
historically been stronger in the second half of the year with generally
strongest results generated in the fourth quarter of the year. The seasonality
of the Company's business reflects (i) the relationship between advertising
purchases and the retail and academic cycles and (ii) subscription promotions
and the holiday season. This seasonality causes, and will likely continue to
cause, a variation in the Company's quarterly operating results. Such variations
have an effect on the timing of the Company's cash flows and the reported
quarterly results.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition. These
statements are based upon a number of assumptions and estimates which are
inherently subject to uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions which are
subject to change. Some of these assumptions may not materialize and
unanticipated events will occur which can affect the Company's results.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to the impact of changes in interest rates. In the
normal course of business, the Company may manage fluctuations in interest rates
through the use of swap agreements to hedge a portion of its floating rate
borrowings. The Company's objective in managing this exposure is to reduce
fluctuations in earnings and cash flows associated with changes in interest
rates.
The following table provides information about our financial instruments
that are sensitive to changes in interest rates, including debt obligations and
interest rate swaps at December 31, 2001 and 2000. For debt obligations, the
table presents mandatory principal reductions, repayment schedules of
outstanding debt and projected weighted average interest rates by expected
maturity dates. For interest rate swaps, the table presents notional amounts and
projected weighted average interest rates by contractual maturity dates. At
December 31, 2001, the Company had interest rate swap contracts to pay
fixed-rates of interest and receive variable-rates of interest on $200,000 of
notional amounts of indebtedness, which matured on January 2, 2002 and have not
been renewed. For variable rate instruments, we have indicated the applicable
floating rate index.
AT DECEMBER 31, 2001
FAIR VALUE
2002 2003 2004 2005 2006 THEREAFTER TOTAL AT 12/31/01
-------- -------- ---------- -------- -------- ---------- ---------- -----------
LIABILITIES
Long-Term Debt Including
Current Portion:
Fixed Rate Debt.............. $ -- $ -- $100,000 $ -- $300,000 $750,000 $1,150,000 $ 999,921
Weighted Average Interest
Rate....................... 8.63% 8.63% 8.47% 8.47% 8.46% 8.46% 8.63%
Variable Rate Debt........... $ -- $ -- $ -- $ -- $ 12,250 $771,625 $ 783,875 $ 783,875
Average Interest
Rate--Forward LIBOR Curve
Plus Determined Spread..... 5.12% 7.03% 8.08% 8.59% 8.89% 9.35% 8.22%
FAIR VALUE
AT 12/31/01
-----------
INTEREST RATE DERIVATIVES
Interest Rate Swaps:
Pay Fixed/Receive Variable..... $ 1,897
AT DECEMBER 31, 2000
FAIR VALUE
2001 2002 2003 2004 2005 THEREAFTER TOTAL AT 12/31/00
-------- ---------- ---------- -------- -------- ---------- ---------- -----------
LIABILITIES
Long-Term Debt Including
Current Portion:
Fixed Rate Debt............ $ 9,070 $ -- $ -- $100,000 $ -- $550,000 $ 659,070 $ 625,450
Weighted Average Interest
Rate..................... 8.43% 8.43% 8.43% 8.10% 8.10% 8.10% 8.43%
Variable Rate Debt......... $ -- $217,500 $282,500 $430,000 $ -- $ -- $ 930,000 $ 930,000
Average Interest
Rate--Forward LIBOR Curve
Plus Determined Spread... 6.48% 6.56% 6.77% 6.65% -- -- 6.62%
FAIR VALUE
2001 AT 12/31/00
-------- -----------
INTEREST RATE DERIVATIVES
Interest Rate Swaps:
Pay Fixed/Receive
Variable--Notional
Amount.................... $200,000 $ 1,247
Average pay rate............ 6.30%
Average receive
rate--Forward LIBOR
Curve..................... 5.61%
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
PRIMEDIA INC. AND SUBSIDIARIES
Independent Auditors' Report.............................. 35
Statements of Consolidated Operations for the Years Ended
December 31, 2001, 2000 and
1999.................................................... 36
Consolidated Balance Sheets as of December 31, 2001 and
2000.................................................... 37
Statements of Consolidated Cash Flows for the Years Ended
December 31, 2001, 2000
and 1999................................................ 38
Statements of Shareholders' Deficiency for the Years Ended
December 31, 2001, 2000 and 1999........................ 40
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2001, 2000
and 1999................................................ 42
34
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
PRIMEDIA Inc.
New York, New York:
We have audited the accompanying consolidated balance sheets of PRIMEDIA
Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related statements of consolidated operations, shareholders' deficiency, and
cash flows for each of the three years in the period ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 2001 and 2000, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Notes 2 and 19 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended, effective
January 1, 2001.
DELOITTE & TOUCHE LLP
New York, New York
February 7, 2002
(February 28, 2002 as to Note 27
and March 8, 2002 as to Note 17)
35
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
------------ ------------ ------------
Sales, net.................................................. $ 1,742,293 $ 1,690,952 $ 1,716,102
Operating costs and expenses:
Cost of goods sold........................................ 423,432 394,494 402,568
Marketing and selling..................................... 429,505 386,843 366,307
Distribution, circulation and fulfillment................. 292,935 255,511 246,445
Editorial................................................. 160,162 137,845 135,494
Other general expenses.................................... 240,933 225,606 189,748
Corporate administrative expenses (excluding $58,181 and
$35,210 of non-cash compensation and non-recurring
charges in 2001 and 2000, respectively)................. 32,097 33,974 34,986
Depreciation of property and equipment.................... 82,449 52,920 47,653
Amortization of intangible assets, excess of purchase
price over net assets acquired and other (including
$444,699 and $275,788 of provision for impairment in
2001 and 1999, respectively)............................ 713,572 128,355 452,149
Non-cash compensation and non-recurring charges........... 58,181 35,210 --
Provision for severance, closures and restructuring
related costs........................................... 43,920 20,798 22,000
Gain on the sales of businesses and other, net............ (57,233) (14,438) (235,580)
------------ ------------ ------------
Operating income (loss)..................................... (677,660) 33,834 54,332
Other income (expense):
Provision for the impairment of investments............... (106,512) (188,526) --
Interest expense.......................................... (145,960) (143,988) (164,909)
Amortization of deferred financing costs.................. (10,947) (3,836) (3,286)
Other, net................................................ (35,562) (3,110) 250
------------ ------------ ------------
Loss before income tax expense.............................. (976,641) (305,626) (113,613)
Income tax expense.......................................... (135,000) (41,200) (6,500)
------------ ------------ ------------
Net loss.................................................... (1,111,641) (346,826) (120,113)
Preferred stock dividends and related accretion............. (62,236) (53,063) (53,062)
------------ ------------ ------------
Loss applicable to common shareholders...................... $ (1,173,877) $ (399,889) $ (173,175)
============ ============ ============
Basic and diluted loss applicable to common shareholders per
common share:
Net loss.................................................. $ (5.42) $ (2.48) $ (1.19)
============ ============ ============
Basic and diluted common shares outstanding................. 216,531,500 161,104,053 145,418,441
============ ============ ============
See notes to consolidated financial statements.
36
'
PRIMEDIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
-------------------------
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 33,588 $ 23,690
Accounts receivable, net.................................. 275,704 265,946
Inventories, net.......................................... 34,064 28,681
Prepaid expenses and other................................ 64,612 48,630
----------- -----------
Total current assets.................................. 407,968 366,947
Property and equipment, net................................. 170,234 175,560
Other intangible assets, net................................ 605,097 506,156
Excess of purchase price over net assets acquired, net...... 1,424,630 1,141,436
Deferred income tax asset, net.............................. -- 135,000
Other investments........................................... 45,993 265,468
Other non-current assets.................................... 78,085 86,912
----------- -----------
$ 2,732,007 $ 2,677,479
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable.......................................... $ 135,502 $ 120,786
Accrued interest payable.................................. 33,568 18,822
Accrued expenses and other................................ 243,266 222,773
Deferred revenues......................................... 207,626 235,548
Current maturities of long-term debt...................... 8,265 115,465
----------- -----------
Total current liabilities............................. 628,227 713,394
----------- -----------
Long-term debt.............................................. 1,945,631 1,503,188
----------- -----------
Deferred revenues........................................... 49,016 112,296
----------- -----------
Other non-current liabilities............................... 26,768 23,303
----------- -----------
Commitments and contingencies (Note 22)
Exchangeable preferred stock (aggregated liquidation and
redemption values of $575,000)............................ 562,957 561,324
----------- -----------
Shareholders' deficiency:
Series J convertible preferred stock ($.01 par value,
1,031,248 shares issued and outstanding, aggregate
liquidation and redemption value of $128,906 at
December 31, 2001)...................................... 122,015 --
Common stock ($.01 par value, 250,894,668 shares and
167,798,702 shares issued at December 31, 2001 and
December 31, 2000, respectively)........................ 2,509 1,678
Additional paid-in capital (including warrants of $25,799
at December 31, 2001)................................... 2,258,932 1,366,950
Accumulated deficit....................................... (2,772,201) (1,603,096)
Accumulated other comprehensive loss...................... (2,122) (1,558)
Unearned compensation..................................... (11,882) --
Common stock in treasury, at cost (7,793,175 shares at
December 31, 2001)...................................... (77,843) --
----------- -----------
Total shareholders' deficiency........................ (480,592) (236,026)
----------- -----------
$ 2,732,007 $ 2,677,479
=========== ===========
See notes to consolidated financial statements.
37
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
----------- --------- -----------
OPERATING ACTIVITIES:
Net loss.................................................. $(1,111,641) $(346,826) $ (120,113)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 806,968 185,111 503,088
Gain on the sales of businesses and other, net.......... (57,233) (14,438) (235,580)
Non-cash revenue related to assets-for-equity
transactions.......................................... (53,750) (46,806) --
Equity in losses of equity method investments........... 39,761 10,137 691
Accretion of discount on acquisition obligation and
other................................................. 1,657 3,938 5,474
Non-cash compensation and non-cash non-recurring
charges............................................... 29,628 35,210 --
Provision for the impairment of investments............. 106,512 188,526 --
Provision for product-line closures..................... -- -- 8,809
Deferred income taxes................................... 135,000 41,200 --
Other, net.............................................. 6,866 (577) 285
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net................................ 50,371 (33,791) (24,818)
Inventories, net........................................ 16,650 2,745 (4,983)
Prepaid expenses and other.............................. (12,909) (13,293) (9,678)
Increase (decrease) in:
Accounts payable........................................ (24,115) 17,284 (465)
Accrued interest payable................................ 14,746 (557) (1,072)
Accrued expenses and other.............................. (36,719) 20,397 (3,588)
Deferred revenues....................................... (11,982) (254) (10,859)
Other non-current liabilities........................... (1,158) 4,540 107
----------- --------- -----------
Net cash provided by (used in) operating activities..... (101,348) 52,546 107,298
----------- --------- -----------
INVESTING ACTIVITIES:
Additions to property, equipment and other, net........... (60,740) (77,579) (69,488)
Proceeds from sales of businesses and other............... 90,413 174,149 413,433
Payments for businesses acquired, net of cash acquired.... (425,848) (70,098) (145,567)
Payments for other investments............................ (10,882) (81,116) (12,297)
----------- --------- -----------
Net cash provided by (used in) investing activities..... (407,057) (54,644) 186,081
----------- --------- -----------
FINANCING ACTIVITIES:
Borrowings under credit agreements........................ 1,474,600 641,150 862,789
Repayments of borrowings under credit agreements.......... (1,620,725) (761,675) (1,070,500)
Proceeds from issuance of 8 7/8% Senior Notes, net of
discount................................................ 492,685 -- --
Payments of acquisition obligation........................ (8,833) (19,167) (21,166)
Proceeds from issuances of common stock and Series K
Convertible Preferred Stock, net........................ 130,299 194,594 9,234
Proceeds from issuance of Series J Preferred Stock, net... 124,649 -- --
Purchases of common stock for the treasury................ -- (512) (10,508)
Dividends paid to preferred stock shareholders............ (53,060) (53,063) (53,062)
Deferred financing costs paid............................. (17,888) (192) (5,697)
Other..................................................... (3,424) (4,008) (346)
----------- --------- -----------
Net cash provided by (used in) financing activities..... 518,303 (2,873) (289,256)
----------- --------- -----------
Increase (decrease) in cash and cash equivalents............ 9,898 (4,971) 4,123
Cash and cash equivalents, beginning of year................ 23,690 28,661 24,538
----------- --------- -----------
Cash and cash equivalents, end of year...................... $ 33,588 $ 23,690 $ 28,661
=========== ========= ===========
38
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
----------- --------- -----------
SUPPLEMENTAL INFORMATION:
Businesses acquired:
Fair value of assets acquired........................... $ 1,396,655 $ 86,747 $ 204,111
Less: Liabilities assumed............................... 160,768 4,298 36,044
Less: Stock consideration for businesses acquired....... 700,549 12,351 22,500
Less: cash acquired in connection with the About
acquisition........................................... 109,490 -- --
----------- --------- -----------
Cash paid for businesses acquired....................... $ 425,848 $ 70,098 $ 145,567
=========== ========= ===========
Interest paid............................................. $ 128,639 $ 141,937 $ 164,956
=========== ========= ===========
Cash taxes paid, net of refunds........................... $ (111) $ 3,866 $ 1,298
=========== ========= ===========
Non-cash investing and financing activities:
Assets acquired under capital lease obligations......... $ 730 $ 4,161 $ 3,052
=========== ========= ===========
Stock option exercise transactions...................... $ -- $ 17,498 $ --
=========== ========= ===========
Exchange of the Company's common shares for common
shares of CMGI, Inc................................... $ -- $ 164,000 $ --
=========== ========= ===========
Exchange of the Company's common shares for shares of
Internet Gift Registries.............................. $ 6,457 $ -- $ --
=========== ========= ===========
Conversion of the Company's investment in About common
shares held prior to the merger date into the
Company's treasury stock.............................. $ 74,865 $ -- $ --
=========== ========= ===========
Compensatory common shares and stock options issued in
connection with the About merger...................... $ 58,826 $ -- $ --
=========== ========= ===========
Issuance of warrants in connection with EMAP acquisition
and related financing................................. $ 16,120 $ -- $ --
=========== ========= ===========
Accretion in carrying value of exchangeable and
convertible preferred stock........................... $ 4,772 $ 1,635 $ 1,848
=========== ========= ===========
Payment of dividends-in-kind on Series J Convertible
Preferred Stock....................................... $ 3,906 $ -- $ --
=========== ========= ===========
Assets-for-equity transactions.......................... $ 29,639 $ 192,880 $ --
=========== ========= ===========
Accretion in carrying value of common stock subject to
redemption............................................ $ -- $ -- $ 247
=========== ========= ===========
See notes to consolidated financial statements.
39
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at January 1, 1999.........
Comprehensive loss:
Net loss.......................
Other comprehensive income:
Unrealized gain on
available-for-sale
securities..................
Foreign currency translation
adjustments.................
Comprehensive loss.............
Issuances of common stock, net of
issuance costs...................
Purchases of treasury stock........
Issuance of treasury stock.........
Treasury stock issued for
acquisitions.....................
Stock grant........................
Compensation expense recognized....
Expiration of redemption feature on
common stock subject to
redemption.......................
$10.00 Series D Exchangeable
Preferred Stock--cash
dividends........................
$9.20 Series F Exchangeable
Preferred Stock--cash
dividends........................
$8.625 Series H Exchangeable
Preferred Stock--cash
dividends........................
Other..............................
Balance at December 31, 1999.......
Comprehensive loss:
Net loss.......................
Other comprehensive loss:
Unrealized loss on
available-for-sale
securities..................
Foreign currency translation
adjustments.................
Comprehensive loss.............
Issuances of common stock, net of
issuance costs...................
Issuance of common stock in
connection with CMGI
investment.......................
Issuance of common stock in
connection with Liberty Digital
investment.......................
Issuance of common stock in
connection with Kagan
acquisition......................
Purchases of common stock..........
Purchases of treasury stock........
Compensation expense recognized....
Expiration of redemption feature on
common stock subject to
redemption.......................
$10.00 Series D Exchangeable
Preferred Stock--cash
dividends........................
$9.20 Series F Exchangeable
Preferred Stock--cash
dividends........................
$8.625 Series H Exchangeable
Preferred Stock--cash
dividends........................
Other..............................
Balance at December 31, 2000.......
Comprehensive loss:
Net loss.......................
Other comprehensive loss:
Cumulative effect of
SFAS 133 adoption...........
Change in fair value of
derivative instruments......
Unrealized loss on
available-for-sale
securities..................
Foreign currency translation
adjustments.................
Comprehensive loss.............
Issuances of common stock and
replacement options in connection
with About merger................
Issuances of restricted stock and
options to About executives......
Forfeiture of common stock and
options related to About
executive separation.............
Net compensation expense recognized
in connection with About
merger...........................
Issuances of common stock, net of
issuance costs...................
Issuance of warrants in connection
wtih EMAP acquisition............
Issuance of Series J Convertible
Preferred Stock and related
warrants in connection with EMAP
acquisition, net.................
Issuance of Common Stock in
connection wtih EMAP
acquisition......................
$10.00 Series D Exchangeable
Preferred Stock--cash
dividends........................
$9.20 Series F Exchangeable
Preferred Stock--cash
dividends........................
$8.625 Series H Exchangeable
Preferred Stock--cash
dividends........................
Series J Convertible Preferred
Stock--Dividends in kind.........
Other..............................
Balance at December 31, 2001.......
See notes to consolidated financial statements.
40
SERIES J ACCUMULATED COMMON STOCK
CONVERTIBLE COMMON STOCK ADDITIONAL OTHER IN TREASURY
PREFERRED ------------------- PAID-IN ACCUMULATED COMPREHENSIVE UNEARNED --------------------
STOCK SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) COMPENSATION SHARES AMOUNT TOTAL
----------- ----------- ------ ---------- ------------ ------------- ------------ ---------- -------- -----------
$ -- 146,966,562 $1,470 $ 979,720 $(1,030,032) $ (1,720) $ -- 2,752,300 $(33,141) $ (83,703)
(120,113) (120,113)
88,982 88,982
102 102
-----------
(31,029)
-----------
1,243,229 12 8,831 8,843
730,237 (10,508) (10,508)
(279) (181,818) 2,279 2,000
(288) (1,818,160) 22,788 22,500
(305) (17,000) (1,380,711) 17,305 --
1,750 1,750
136,968 1 1,065 1,066
(20,000) (20,000)
(11,500) (11,500)
(21,562) (21,562)
(2,095) (2,095)
-------- ----------- ------ ---------- ----------- -------- -------- ---------- -------- -----------
-- 148,346,759 1,483 986,649 (1,203,207) 87,364 (15,250) 101,848 (1,277) (144,238)
(346,826) (346,826)
(88,289) (88,289)
(633) (633)
-----------
(435,748)
-----------
4,354,219 43 28,940 28,983
8,000,000 80 163,920 164,000
8,000,000 80 199,920 200,000
668,652 7 10,555 (131,348) 1,789 12,351
(1,624,238) (16) (34,373) (34,389)
29,500 (512) (512)
12,437 15,250 27,687
53,310 1 879 880
(20,000) (20,000)
(11,500) (11,500)
(21,563) (21,563)
(1,977) (1,977)
-------- ----------- ------ ---------- ----------- -------- -------- ---------- -------- -----------
-- 167,798,702 1,678 1,366,950 (1,603,096) (1,558) -- -- -- (236,026)
(1,111,641) (1,111,641)
(1,247) (1,247)
(650) (650)
(693) (693)
2,026 2,026
-----------
(1,112,205)
-----------
52,418,727 524 707,617 (7,592) 7,467,693 (74,865) 625,684
2,955,450 29 51,205 (51,234) --
(1,105,550) (11) (19,155) 19,166 --
28,124 28,124
1,261,961 13 5,751 5,764
10,498 (498) 10,000
114,970 9,679 124,649
26,595,745 266 124,269 124,535
(20,000) (20,000)
(11,500) (11,500)
(21,560) (21,560)
3,906 (3,906) --
3,139 969,633 10 2,118 (346) 325,482 (2,978) 1,943
-------- ----------- ------ ---------- ----------- -------- -------- ---------- -------- -----------
$122,015 250,894,668 $2,509 $2,258,932 $(2,772,201) $ (2,122) $(11,882) 7,793,175 $(77,843) $ (480,592)
======== =========== ====== ========== =========== ======== ======== ========== ======== ===========
41
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
PRIMEDIA Inc. (which together with its subsidiaries is herein referred to as
either "PRIMEDIA" or the "Company" unless the context implies otherwise) is the
"new tradition in media" combining traditional and new media. It is a targeted
media company with leading positions in consumer and business-to-business
markets. PRIMEDIA's properties utilize the "full media arsenal" to deliver
content via print (magazines and directories), video (digital broadband,
satellite and cable), live events (trade and consumer shows) and the Internet.
PRIMEDIA's products serve highly specialized niches and capitalize on the
growing trend toward targeted rather than mass information distribution.
The Company's two business segments are consumer and business-to-business.
The Company's consumer segment produces and distributes magazines, guides and
videos for consumers in various niche markets. The consumer segment includes the
Consumer Magazine and Media Group, Consumer Guides and PRIMEDIA Television. The
Company's business-to-business segment produces and distributes magazines,
books, directories and vocational training materials to business professionals
in such fields as communications, agriculture, professional services, media,
automotive and healthcare. The business-to-business segment includes the
Business Magazines & Media Group, Workplace Learning, and PRIMEDIA Information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of PRIMEDIA and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform with the presentation used in the current period.
USE OF ESTIMATES. The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. Significant accounting
estimates include the establishment of the allowances for doubtful accounts,
reserves for sales returns and allowances, provisions for severance, closures
and restructuring related costs, purchase price allocations, impairments of
investments, divestiture reserves and the recoverability of long-lived assets
including excess of purchase price over net assets acquired.
CONCENTRATIONS OF CREDIT RISK. Substantially all of the Company's trade
receivables are from subscription and advertising customers located throughout
the United States. The Company establishes its credit policies based on an
ongoing evaluation of its customers' credit worthiness and competitive market
conditions and establishes its allowance for doubtful accounts based on an
assessment of exposures to credit losses at each balance sheet date. The Company
believes its allowance for doubtful accounts is sufficient based on the credit
exposures outstanding at December 31, 2001.
CASH AND CASH EQUIVALENTS. Management considers all highly liquid
instruments purchased with an original maturity of 90 days or less to be cash
equivalents.
INVENTORIES. Inventories, including paper, purchased articles, photographs
and art, are valued at the lower of cost or market, principally on a first-in,
first-out ("FIFO") basis.
42
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT. Property and equipment, net are stated at cost less
accumulated depreciation and amortization. Depreciation of property and
equipment, including the amortization of leasehold improvements, is provided at
rates based on the estimated useful lives or lease terms, if shorter, using
primarily the straight-line method. Improvements are capitalized while
maintenance and repairs are expensed as incurred. Whenever significant events or
changes occur, such as those affecting general market conditions or pertaining
to a specific industry or an asset category, the Company reviews the property
and equipment for impairment. When such factors, events or circumstances
indicate that property and equipment should be evaluated for possible
impairment, the Company uses an estimate of cash flows (undiscounted and without
interest charges) over the remaining lives of the assets to measure
recoverability. If the estimated cash flows are less than the carrying value of
the asset, the loss is measured as the amount by which the carrying value of the
asset exceeds fair value.
OTHER INVESTMENTS. Investments where the Company has the ability to
exercise significant influence over financial and accounting policies are
accounted for under the equity method of accounting. The Company records its
share of income (losses) of certain equity investees based upon the investee's
most recent available financial information, typically on a three month lag.
Investments where the Company does not have significant influence are accounted
for under the cost method.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," investments in marketable securities are classified as
available-for-sale and are carried at fair market value, with the unrealized
gains and losses reported in accumulated other comprehensive income (loss)
("OCI").
Other investments are periodically reviewed by the Company for impairment
whenever significant events or changes occur, such as those affecting general
market conditions or those pertaining to a specific industry or an individual
investment, which could result in the carrying value of an investment exceeding
its fair value. An impairment will be considered to have occurred when it is
determined that the decline in fair value below its carrying value is other than
temporary, based on consideration of all available evidence. If it has been
determined that an impairment in value has occurred, the carrying value of the
investment would be written down to an amount equivalent to the fair value of
the investment. The determination of fair value begins with a contemporaneous
market price because that price reflects the market's most recent evaluation of
the total mix of available information. Absent a contemporaneous market price,
determination of fair value is based on all other available information,
including but not limited to, recent financing obtained and/or projected revenue
streams.
EDITORIAL AND PRODUCT DEVELOPMENT COSTS. Editorial costs and product
development costs are generally expensed as incurred. Product development costs
include the cost of artwork, graphics, prepress, plates and photography for new
products.
ADVERTISING AND SUBSCRIPTION ACQUISITION COSTS. Advertising and
subscription acquisition costs are expensed the first time the advertising takes
place, except for certain direct-response advertising, the primary purpose of
which is to elicit sales from customers who can be shown to have responded
specifically to the advertising and that results in probable future economic
benefits. Direct-response advertising consists of product promotional mailings,
catalogues, telemarketing and subscription promotions. These direct-response
advertising costs are capitalized as assets and amortized over the estimated
period of future benefit. The amortization periods range from 6 months to 2
years subsequent to the promotional
43
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
event. Amortization of direct-response advertising costs is included in
marketing and selling expenses on the accompanying statements of consolidated
operations. Advertising expense was approximately $141,000, $142,000 and
$116,000, during the years ended December 31, 2001, 2000 and 1999, respectively.
DEFERRED FINANCING COSTS. Deferred financing costs are being amortized by
the straight-line method over the terms of the related indebtedness.
DEFERRED WIRING AND INSTALLATION COSTS. Wiring and installation costs
incurred by PRIMEDIA Workplace Learning and Channel One have been capitalized
and are being amortized by the straight-line method over the related estimated
useful lives which are 5 years for PRIMEDIA Workplace Learning and 3 years for
Channel One. In 2000, management reduced the estimated remaining useful life of
all wiring and installation costs at Channel One from 5 years to 3 years due to
the anticipated obsolescence of such assets in 2003. The change in estimated
useful life of all wiring and installation costs at Channel One resulted in a
decrease in operating income and an equal increase in net loss of approximately
$6,500 ($.04 per share) for the year ended December 31, 2000.
$10.00 SERIES D EXCHANGEABLE PREFERRED STOCK ("SERIES D PREFERRED STOCK"),
$9.20 SERIES F EXCHANGEABLE PREFERRED STOCK ("SERIES F PREFERRED STOCK"), $8.625
SERIES H EXCHANGEABLE PREFERRED STOCK ("SERIES H PREFERRED STOCK") AND SERIES J
CONVERTIBLE PREFERRED STOCK ("SERIES J CONVERTIBLE PREFERRED STOCK"). The
Series D Preferred Stock, Series F Preferred Stock, Series H Preferred Stock and
Series J Convertible Preferred Stock were stated at fair value on the date of
issuance less issuance costs. The difference between their carrying values and
their redemption values is being accreted (using the interest method) by
periodic charges to additional paid-in capital. The accretion is deducted in the
calculation of net loss applicable to common shareholders.
INTERNAL-USE SOFTWARE. In compliance with American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," the
Company expenses costs incurred in the preliminary project stage and,
thereafter, capitalizes costs incurred in the developing or obtaining of
internal use software and includes them in property and equipment, net. Certain
costs, such as maintenance and training, are expensed as incurred. Capitalized
costs are amortized over a period of not more than three years using the
straight-line method. In addition, in compliance with SOP 98-1 and Emerging
Issues Task Force ("EITF") No. 00-2, "Accounting for Web Site Development
Costs," direct internal and external costs associated with the development of
the features and functionality of the Company's websites incurred during the
application and infrastructure development phase have been capitalized, and are
included in property and equipment, net on the accompanying consolidated balance
sheets. Typical capitalized costs include but are not limited to, acquisition
and development of software tools required for the development and operation of
the website, acquisition and registration costs for domain names and costs
incurred to develop graphics for the website. These capitalized costs are
amortized over the estimated useful life of up to three years using the
straight-line method. Capitalized software costs are subject to impairment
evaluation in accordance with the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
44
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS. Effective January 1, 2001, the Company
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133, as amended and interpreted, establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.
SFAS No.133 requires that all derivatives, whether designated in hedging
relationships or not, be recorded on the balance sheet at fair value regardless
of the purpose or intent for holding them. If a derivative is designated as a
fair-value hedge, changes in the fair value of the derivative and the related
change in the hedged item are recognized in operations. If a derivative is
designated as a cash-flow hedge, changes in the fair value of the derivative are
recorded in OCI and are recognized in the statement of consolidated operations
when the hedged item affects operations. For a derivative that does not qualify
as a hedge, changes in fair value are recognized in operations.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE
ASSETS. During 2001, other intangible assets were being amortized using both
accelerated and straight-line methods over periods ranging from 1/2 of 1 year to
40 years. The excess of purchase price over net assets acquired was being
amortized on a straight-line basis over 3 and 40 years. Whenever significant
events or changes occur, such as those affecting general market conditions or
pertaining to a specific industry or an individual acquisition, the
recoverability of the carrying values of the excess of the purchase price over
the net assets acquired and other intangible assets is evaluated to determine if
an impairment in value has occurred. An impairment in value will be considered
to have occurred when it is determined that the undiscounted future operating
cash flows generated by the acquired businesses are not sufficient to recover
the carrying value of such intangible assets. If the estimated cash flows are
less than the carrying value of the intangible assets, the loss is measured as
the amount by which the carrying value of the assets exceeds its fair value.
As discussed in "Recent Accounting Pronouncements", the Company adopted
certain provisions of SFAS No.142, "Goodwill and Other Intangible Assets", in
connection with the Emap, Inc. ("EMAP") acquisition and accordingly, has not
amortized the excess of purchase price over net assets acquired from this
acquisition. The identifiable intangible assets from the EMAP acquisition are
currently being amortized in accordance with the Company's policies stated
above. The Company will adopt SFAS 142 on January 1, 2002 for all remaining
excess of purchase price over net assets acquired and identifiable intangible
assets. Upon adoption, the Company will no longer amortize excess of purchase
price over net assets acquired and other indefinite lived intangible assets
(primarily trademarks). At least annually, the Company will test for impairment
its excess of purchase price over net assets acquired and intangible assets that
are determined to have an indefinite life. Intangibles with a definite useful
life will continue to be tested for impairment in accordance with guidance in
SFAS 144.
REVENUE RECOGNITION. Advertising revenues for all consumer magazines are
recognized as income at the on-sale date, net of provisions for estimated
rebates, adjustments and discounts. Other advertising revenues are generally
recognized based on the publications' cover dates. Online advertising is
generally recognized as advertisements are run. Newsstand sales are recognized
as revenue at the on-sale date for all publications, net of provisions for
estimated returns. Subscriptions are recorded as deferred revenue when received
and recognized as revenue over the term of the subscription. Workplace
Learning's subscription and broadcast fees for satellite and videotape network
services are recognized in the month services are rendered. Sales of books and
other items are recognized as revenue upon shipment, net of an allowance
45
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for returns. In compliance with EITF No. 00-10, "Accounting for Shipping and
Handling Fees and Costs," distribution costs charged to customers are recognized
as revenue when the related product is shipped. Channel One's advertising
revenue, net of commissions, is recognized as advertisements are aired on the
program. Certain advertisers are guaranteed a minimum number of viewers per
advertisement shown; the revenue recognized is based on the actual viewers
delivered not to exceed the original contract value. The Company also derives
revenue from various licensing agreements, which grant the licensee rights to
use the trademarks and brand names of the Company in connection with the
manufacture and sale of certain designated products. Licensing revenue is
generally recognized by the Company as earned.
From time to time, the Company enters into multiple element arrangements
whereby it may provide a combination of services including print advertising,
content licensing, customer lists, on-line advertising and other services.
Revenue from each element is recorded when the following conditions exist:
(1) the product or service provided represents a separate earnings process;
(2) the fair value of each element can be determined separately and; (3) the
undelivered elements are not essential to the functionality of a delivered
element. If the conditions for each element described above do not exist,
revenue is recognized as earned using revenue recognition principles applicable
to those elements as if it were one arrangement, generally on a straight-line
basis. The Securities and Exchange Commission ("SEC") has recognized the
diversity in practice in accounting for multiple element arrangements and the
complexity of these arrangements. The staff of the SEC has asked the EITF to
provide additional accounting guidance on those transactions. The EITF has added
issue No. 00-21, "Accounting for Multiple Element Revenue Arrangements," to its
agenda to address the accounting issues related to the recognition of revenue.
BARTER TRANSACTIONS. The Company trades advertisements in its traditional
and online properties in exchange for trade show space and booths and
advertising in properties of other companies. Revenue and related expenses from
barter transactions are recorded at fair value in accordance with EITF
No. 99-17, "Accounting for Advertising Barter Transactions." Revenue from barter
transactions is recognized in accordance with the Company's revenue recognition
policies. Expense from barter transactions is generally recognized as incurred.
Revenue from barter transactions was approximately $38,000 and $8,000 for the
years ended December 31, 2001 and 2000, respectively with equal related expense
amounts in each year. There was no revenue and expense from barter transactions
recorded during 1999.
FOREIGN CURRENCY. Gains and losses on foreign currency transactions, which
are not significant, have been included in other, net on the accompanying
statements of consolidated operations. The effects of translation of foreign
currency financial statements into U.S. dollars are included in OCI within
shareholders' deficiency on the accompanying consolidated balance sheets.
RECENT ACCOUNTING PRONOUNCEMENTS. In November 2001, the EITF reached a
consensus on EITF Issue No. 01-9, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)." EITF 01-9
codifies and reconciles certain issues addressing the accounting for
consideration given by a vendor to a customer (including both a reseller of the
vendor's products and an entity that purchases the vendor's products from a
reseller), including certain issues covered by EITF Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." Both EITF 01-9 and EITF 00-25, which will be effective for
the Company in the first quarter of 2002, clarify the income statement
classification of costs incurred by a vendor in connection with the customer's
purchase or promotion of the vendor's products. The adoption of EITF 01-9 and
EITF
46
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
00-25 will result in a net reclassification of product placement and brokerage
costs previously classified as distribution, circulation and fulfillment
operating expenses in the statements of consolidated operations to reductions of
revenues earned from such activities. The change in classifications will have no
impact on the Company's results of operations, cash flows or financial position.
The reclassification would have resulted in a net decrease in sales and a
corresponding decrease in operating expenses of approximately $21,000, $15,000
and $19,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
In July 2001, the Financial Accounting Standards Board ("FASB") issued two
new statements, SFAS No.141, "Business Combinations," and SFAS No.142, "Goodwill
and Other Intangible Assets". SFAS No. 141 requires that the purchase method be
used for all business combinations initiated after June 30, 2001 and prohibits
the use of the pooling of interest method. SFAS No.142 changes the method by
which companies may recognize intangible assets in purchase business
combinations and generally requires identifiable intangible assets to be
recognized separately from goodwill. In addition, it eliminates the amortization
of all existing and newly acquired goodwill and indefinite lived intangible
assets on a prospective basis and requires companies to assess goodwill for
impairment, at least annually, based on the fair value of the reporting unit
associated with the goodwill.
The Company adopted SFAS 141 and certain provisions of SFAS 142 in
connection with the EMAP acquisition as required by the statements. The excess
of purchase price over net assets acquired related to the acquisition of EMAP
has not and will not be amortized. The identifiable intangible assets are
currently being amortized over a fifteen-year useful life, which is subject to a
final valuation and purchase price allocation.
The Company adopted SFAS 142 on January 1, 2002 as required by the
statement, for all remaining excess of purchase price over net assets acquired
and identifiable intangible assets. Upon adoption, the Company ceased the
amortization of excess of purchase price over net assets acquired and other
indefinite lived intangible assets, which consist primarily of trademarks. At
least annually, the Company is required to test for impairment its excess of
purchase price over net assets acquired and indefinite lived intangible assets.
The EITF of the FASB is expected to provide further guidance on certain
implementation issues related to the adoption of SFAS 142. The Company is unable
to predict the outcome of these deliberations and is using its best judgment to
interpret SFAS 142.
Based on the Company's preliminary evaluation, the estimated effect of
adoption of SFAS 142, prior to the review of any excess of purchase price of net
assets acquired and other indefinite lived intangibles for impairment, had the
pronouncement been adopted at the beginning of each of the fiscal years 2001,
2000 and 1999, there would have been a reduction in amortization of
approximately $186,000, $44,000 and $68,000, respectively. The Company also
estimates that it will record a deferred tax expense of approximately $62,000 on
January 1, 2002 in connection with the adoption of SFAS 142 and will record an
additional deferred income tax provision of approximately $25,000 during the
year ending December 31, 2002 relating to the book and tax differences in the
amortization of excess of purchase price over net assets acquired.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This statement also supersedes the
47
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounting and reporting provisions of Accounting Principles Board ("APB")
Opinion 30, "Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," relating to the disposal of a segment of a
business. SFAS No. 121 did not address the accounting for business segments
accounted for as discontinued operations under APB Opinion 30 and therefore two
accounting models existed for long-lived assets to be disposed of. SFAS No. 144
established one accounting model for long-lived assets to be held and used,
long-lived assets (including those accounted for as a discontinued operation) to
be disposed of by sale and long-lived assets to be disposed of other than by
sale, and resolved certain implementation issues related to SFAS No. 121. The
Company adopted SFAS No. 144 on January 1, 2002, and it is not expected to have
a material effect on its results of operations or financial position.
3. ACQUISITIONS AND OTHER INVESTMENTS
ACQUISITIONS. The Company acquired certain net assets or stock of:
1999--Game & Fish, a publisher of 30 state and regional specific game and
fish magazines, a producer of trade shows and a publisher of a monthly trade
magazine for the emerging telecom carrier market. In addition to the
aforementioned, the Company completed several other smaller acquisitions. The
1999 acquisitions, if they had occurred on January 1 of the year prior to
acquisition, would not have had a material impact on the results of operations.
The cash payments for these acquisitions on an aggregate basis were
approximately $145,600, in addition to the issuance of 1,818,160 shares of the
Company's common stock valued at approximately $22,500.
2000--Adams/Laux Company, Inc. and Adams/Intertec International, Inc. which
publish, sell advertising in and distribute magazines and other publications
relating to the meeting and conference industry and the electric power industry
and Kagan World Media, Inc. and affiliated companies which publish, host
seminars and provide consulting services dealing with the professional sports,
media, telecommunications, cable, internet and broadcast industries. In
addition, the Company completed several other smaller acquisitions. The 2000
acquisitions, if they had occurred on January 1 of the year prior to acquisition
would not have had a material impact on the results of operations. The 2000
acquisitions were primarily financed through borrowings under the Company's
credit agreements. The cash payments for these acquisitions on an aggregate
basis were approximately $70,100, in addition to the issuance of 800,000 shares
of the Company's common stock valued at approximately $12,400.
2001--About.com, Inc. ("About"), a platform comprised of a network of more
than 400 highly targeted topic-specific websites and EMAP from EMAP America
Partners. EMAP publishes more than 60 consumer titles reaching over 75 million
enthusiasts through a combination of magazines, network and cable television
shows, web sites and live consumer events. In addition, the Company completed
several other smaller acquisitions. The pro forma effect of the About and EMAP
acquisitions on the Company's operations is presented below. The other
acquisitions, if they had occurred on January 1 of the year prior to acquisition
would not have had a material impact on the results of operations. The cash
payments for these acquisitions, net of cash received were approximately
$425,800. The payments were net of liabilities assumed of approximately
$160,800. The excess of purchase price over net assets acquired and other
intangible assets were approximately $1,112,500.
48
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
The acquisitions have been accounted for by the purchase method. The
preliminary purchase cost allocations for the above-mentioned current year's
acquisitions are subject to adjustment when additional information concerning
asset and liability valuations is obtained. The final asset and liability fair
values may differ from those set forth on the accompanying consolidated balance
sheet at December 31, 2001; however, the changes are not expected to have a
material effect on the consolidated financial position, results of operations or
cash flows of the Company. The consolidated financial statements include the
operating results of acquisitions subsequent to their respective dates of
acquisition.
ABOUT
On February 28, 2001, the Company completed its merger with About. This
merger created an integrated traditional and new media company, providing a vast
array of marketing solutions to advertisers and niche content to users. Through
the efforts of knowledgeable human guides who manage the About sites, the sites
provide high-quality original articles, moderated forums and chat rooms and
links to related websites.
Under terms of the merger agreement, shareholders of About received
approximately 45,000,000 shares of the Company or 2.3409 shares for each About
share. An independent appraisal has been completed during 2001 and was used to
allocate the purchase price to the fair value of assets acquired and liabilities
assumed including identifiable intangibles. The excess of purchase price over
net assets acquired related to the About merger was amortized during 2001 over
an estimated useful life of three years. The Company believed that a three-year
life was responsive to the rapid rate of change in the Internet industry and was
consistent with other recent mergers of a comparable nature. Other identifiable
intangible assets are being amortized over a period of three years. The Company
determined that the value of its shares of common stock issued was $11.81 per
share, based on the weighted-average market values for the two days prior and
two days succeeding the acquisition announcement date. The fair value of the
vested and unvested options issued was determined using a Black Scholes pricing
model. The following is a summary of the calculation of the purchase price, as
well as the allocation of purchase price to the fair value of net assets
acquired:
Total number of shares of PRIMEDIA common stock issued to
consummate the merger..................................... 44,951,034
Fair value per share of PRIMEDIA common stock............... $ 11.81
----------
Value of shares of PRIMEDIA common stock issued............. 530,872
Fair value of replacement options issued (13,383,579
options).................................................. 102,404
Less: Unearned compensation relating to unvested options.... (7,592)
Cost of About shares acquired prior to the merger converted
to treasury stock......................................... 74,865
Direct merger costs......................................... 16,792
----------
Total purchase price........................................ 717,341
Less: Fair value of net tangible assets..................... (175,140)
Less: Fair value of identifiable intangible assets.......... (24,743)
----------
Excess of purchase price over net assets acquired........... $ 517,458
==========
In connection with the merger with About, 13,383,579 outstanding options to
purchase shares of About common stock held by certain individuals were converted
into options to purchase shares of
49
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
PRIMEDIA common stock. The fair value of the vested and unvested options issued
by PRIMEDIA was approximately $102,000 determined using a Black Scholes pricing
model. As of December 31, 2001, a number of these options have been forfeited or
expired unexercised (see Note 14). Most of these remaining outstanding options
have an exercise price which exceeded the Company's share price on December 31,
2001. On February 28, 2001, the date that the Company granted these unvested
replacement options, the intrinsic value of the "in-the-money" unvested
replacement options was $19,741. Based on a four-year service period from the
original date that these options were granted, the Company classified $7,592 as
unearned compensation relating to unvested options. The remaining $12,149 is
included within the total purchase price.
In the fourth quarter of 2001, concurrent with its annual financial review
process, the Company determined that the estimated future undiscounted cash
flows of About were not sufficient to cover the carrying value of the excess of
purchase price over net assets acquired. Accordingly, the Company recorded an
impairment charge of $326,297 to write down About's excess of purchase price
over net assets acquired to the estimated fair value. About is part of the
consumer segment.
In addition, in connection with the acquisition, the Company entered into
various agreements with two key executives of About as discussed in Note 17.
EMAP
On August 24, 2001, the Company acquired, by merger, 100% of the outstanding
common stock of the publishing business of EMAP. The acquisition of EMAP is
expected to strengthen the Company's unique mix of category specific endemic
advertising as well as circulation revenue. Further, this acquisition advances
PRIMEDIA to the number one spot in the specialty magazine industry in terms of
revenue and single copy sales. The total consideration was $525,000, comprised
of $515,000 in cash, including an estimate of working capital settlements of
$10,000 (which is subject to final settlement), and warrants to acquire
2,000,000 shares of the Company's common stock at $9 per share. The fair value
of the warrants was approximately $10,000 and was determined using a Black
Scholes pricing model. These warrants expire ten years from the date of
issuance.
The Company financed the acquisition of EMAP by (1) issuing 1,000,000 shares
of Series J Convertible Preferred Stock to KKR 1996 Fund (a partnership
associated with Kohlberg Kravis Roberts & Co. L.P., ("KKR") a related party of
the Company) for $125,000 and (2) drawing upon its revolving credit facility in
an amount of approximately $265,000. In addition, KKR 1996 Fund purchased from
the Company $125,000 of common stock and Series K Convertible Preferred Stock,
both at a price per share equal to $4.70. This resulted in an additional
10,800,000 shares of common stock and 15,795,745 shares of Series K Convertible
Preferred Stock. On September 27, 2001, all of the issued and outstanding shares
of the Series K Convertible Preferred Stock were, in accordance with their
terms, converted into 15,795,745 shares of the Company's common stock.
The Series J Convertible Preferred Stock is convertible at the option of the
holder after one year from the date of issuance, into approximately 17,900,000
shares of the Company's common stock at a conversion price of $7 per share,
subject to adjustment. Dividends on the Series J Convertible Preferred Stock
accrue at an annual rate of 12.5% and are payable quarterly in-kind. During
2001, the Company paid dividends-in-kind (31,248 shares of Series J Convertible
Preferred Stock) valued at approximately $3,900. The
50
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
Company has the option to redeem any or all of the shares of the Series J
Convertible Preferred Stock at any time for cash at 100% of the liquidation
preference of each share being redeemed. On any dividend payment date, the
Company has the option to exchange the Series J Convertible Preferred Stock into
12.5% Class J Subordinated Notes. The Company's ability to redeem or exchange
the Series J Convertible Preferred Stock into debt is subject to the approval of
a majority of the independent directors.
In connection with the equity financing by KKR 1996 Fund, the Company paid
KKR 1996 Fund a commitment fee consisting of warrants to purchase 1,250,000
shares of common stock of the Company at an exercise price of $7 per share,
subject to adjustment, and a funding fee consisting of warrants to purchase an
additional 2,620,000 shares of the Company's common stock at an exercise price
of $7 per share, subject to adjustment. These warrants may be exercised after
the first anniversary of the grant date and expire on August 24, 2011 or upon a
change in control, as defined. In addition, the Company may be required to issue
to KKR 1996 Fund additional warrants to purchase up to 4,000,000 shares of the
Company's common stock at an exercise price of $7 per share, subject to
adjustment. The issuance of the additional 4,000,000 warrants is contingent upon
the length of time that the Series J Convertible Preferred Stock is outstanding.
If the Series J Convertible Preferred Stock is outstanding for three, six, nine
or twelve months from the date of issuance, KKR 1996 Fund will receive the
additional warrants to purchase 250,000, 1 million, 1.25 million and 1.5 million
shares of common stock, respectively. Accordingly, during November 2001, the
Company issued to KKR 1996 Fund additional warrants to purchase 250,000 shares
of the Company's common stock. The Company ascribed a value of $498 to these
warrants using the Black Scholes pricing model. These warrants expire ten years
from the date of issuance or upon a change in control. The consolidated
financial statements do not reflect the issuance of the additional 3,750,000
contingent warrants. Upon issuance, the Company would value these contingent
warrants using the Black Scholes pricing model and would deduct the ascribed
value as a component of the loss applicable to common shareholders.
The 1,250,000 warrants issued to KKR 1996 Fund represent a commitment fee
related to the financing transaction as a whole. The Company valued these
warrants at $5,622 using the Black Scholes pricing model and recorded them as a
component of additional paid-in capital.
The Company attributed the 2,620,000 funding warrants to the issuance of the
Series J Convertible Preferred Stock. The Company valued these warrants at
$9,679 using the Black Scholes pricing model and has accordingly reduced the
face value of the Series J Convertible Preferred Stock. The Company is accreting
the difference between the carrying value and the redemption value of the Series
J Convertible Preferred Stock to additional paid in capital using the effective
interest method over a one year period as the earliest date at which the
preferred stock is convertible is one year from the date of issuance. The
accretion is deducted in the calculation of loss applicable to common
shareholders.
51
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
The following is a summary of the calculation of the purchase price, as
described above, as well as the allocation of the purchase price to the fair
value of the net assets acquired:
Purchase consideration (including working capital and other
settlements).............................................. $525,000
Direct acquisition costs.................................... 6,565
--------
Total purchase price........................................ 531,565
Add: Fair value of net tangible liabilities of EMAP......... 36,331
--------
Total excess of purchase price over net assets acquired and
intangible assets......................................... $567,896
========
The purchase price has been allocated based on management's best estimate of
the fair value of assets acquired and liabilities assumed based on the
historical financial statements of EMAP. The excess purchase price over the fair
value of net tangible liabilities acquired has been allocated to other
identifiable intangibles and excess of purchase price over net assets acquired
based on an analysis of the Company's past experience with similar acquisitions.
Of the total excess of purchase price over net assets acquired and intangible
assets, $408,764 has been allocated to excess of purchase price over net assets
acquired which is not being amortized under SFAS No. 142, but is being amortized
for tax purposes, and $159,132 has been allocated to other intangible assets,
which are being amortized over a 15 year period. If the Company had recorded
amortization of the excess of purchase price over net assets acquired in
connection with the EMAP acquisition in accordance with the Company's historical
amortization policies, amortization expense would have increased by
approximately $3,300 in 2001. This reflects preliminary estimates of the
allocation of purchase consideration. The final allocation of the purchase
consideration will be determined based on an independent appraisal and a
comprehensive final evaluation of the fair values and useful lives of EMAP's
tangible assets acquired, identifiable intangible assets and excess of purchase
price over net assets acquired at the time of the acquisition. The final
determination may result in asset and liability fair values and useful lives
that are different than the preliminary estimates of these amounts.
The Company's consolidated results of operations includes results of
operations of About and EMAP from their respective dates of acquisition. The
results of About and EMAP are included in the Company's consumer segment. The
unaudited pro forma information below presents the consolidated results of
operations as if the About and EMAP acquisitions had occurred as of January 1,
2000. In accordance with SFAS No. 142, these pro forma adjustments assume that
none of the excess of purchase price over net assets acquired associated with
the EMAP acquisition is amortized. If the Company had recorded amortization of
the excess of purchase price over net assets acquired in connection with the
EMAP acquisition in accordance with the Company's historical amortization
policies, assuming the acquisition occurred on January 1, 2000, amortization
expense would have increased by approximately $9,900 in both 2001 and 2000. The
unaudited pro forma information has been included for comparative purposes and
is
52
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
not indicative of the results of operations of the consolidated Company had the
transactions occurred as of January 1, 2000, nor is it necessarily indicative of
future results.
YEARS ENDED DECEMBER 31,
---------------------------------
2001 2000
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Sales, net.................................................. $ 1,937,072 $ 2,144,492
Loss applicable to common shareholders...................... $ (1,308,673) $ (679,938)
Basic and diluted loss applicable to common shareholders per
common share.............................................. $ (5.39) $ (2.92)
Weighted average shares used in basic and diluted loss
applicable to common shareholders per common share........ 242,615,842 232,676,207
OTHER INVESTMENTS.
Other investments consist of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
Cost method investments..................................... $40,189 $211,694
Equity method investments................................... 5,804 23,442
Available-for-sale securities............................... -- 19,708
Other....................................................... -- 10,624
------- --------
$45,993 $265,468
======= ========
Available-for-sale securities consist of the following:
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
At December 31, 2000................................ $19,015 $ 693 $ -- $19,708
======= ======= ======= =======
PRIMEDIA VENTURES' INVESTMENTS.
In 1998, the Company created PRIMEDIA Ventures, Inc. ("PRIMEDIA Ventures")
to invest in early-stage Internet companies and other technology opportunities
such as e-commerce services, enterprise software applications and
advertising-related technologies.
The Company sold investments and received proceeds of approximately $3,100,
$10,100 and $7,100 and realized gains on the sales of various PRIMEDIA Ventures
investments of approximately $1,400, $8,600 and $6,180 in 2001, 2000 and 1999,
respectively. These gains are included in gain on the sales of businesses and
other, net on the accompanying statements of consolidated operations.
The Company recorded provisions for impairment of various PRIMEDIA Ventures'
investments of approximately $6,500 and $11,200 in 2001 and 2000, respectively.
These provisions for impairment are
53
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
included as a component of provision for the impairment of investments on the
accompanying statements of consolidated operations for the years ended
December 31, 2001 and 2000.
INVESTMENT IN CMGI, INC.
In May 2000, the Company acquired 1,530,000 shares of common stock of CMGI,
Inc. in exchange for 8,000,000 shares, or 5%, of the Company's common stock (par
value $.01) subject to a one year lockup. The transaction was valued at
$164,000, which represents the fair value of the Company's common stock
exchanged on the exchange date. The Company recorded provisions for impairment
of its investment in CMGI, Inc. of approximately $7,000 and $155,500 during 2001
and 2000, respectively, as the decline in the value of the investment was deemed
to be other than temporary. These provisions for impairment, which were based on
the then market values of CMGI, Inc. common stock, are included as a component
of provision for the impairment of investments on the accompanying statements of
consolidated operations for the years ended December 31, 2001 and 2000.
In October 2001, the Company sold its investment in CMGI for total proceeds
and gain on sale of $2,149 and $619, respectively. The gain on sale is included
as a component of gain on the sale of businesses and other, net on the
accompanying statement of consolidated operations for the year ended
December 31, 2001.
INVESTMENT IN LIBERTY DIGITAL.
In April 2000, the Company completed its purchase of 625,000 shares of
Liberty Digital Series A common stock at forty dollars per share for an
aggregate purchase price of $25,000. The Company recorded provisions for
impairment of its investment in Liberty Digital of approximately $700 and
$21,900 during 2001 and 2000, respectively, as the decline in the value of the
investment was deemed to be other than temporary. These provisions for
impairment, which were based on the then market value of Liberty Digital common
stock, are included as a component of provision for the impairment of
investments on the accompanying statements of consolidated operations for the
years ended December 31, 2001 and 2000.
During 2001, the Company sold its investment in Liberty Digital for total
proceeds and loss on sale of $1,838 and $668, respectively. The loss on sale is
included as a component of gain on the sales of business and other, net on the
accompanying statement of consolidated operations for the year ended
December 31, 2001.
ASSETS-FOR-EQUITY TRANSACTIONS.
During 2000, the Company began making strategic investments in companies
("Investees") which included various assets-for-equity transactions. Under these
transactions, the Company provides promotional services, such as print
advertising, content licensing, customer lists, online advertising and other
services in exchange for equity in these entities. Additionally, the Company
made cash investments in certain of the Investees. The Company's investments in
Investees, included in other investments on the accompanying consolidated
balance sheets, totaled approximately $33,000 (approximately $28,000
representing cost method investments and approximately $5,000 representing
equity method investments) and $213,000 (approximately $191,000 representing
cost method investments and approximately $22,000 representing equity method
investments) at December 31, 2001 and 2000, respectively. At December 31,
54
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
2000, $67,000 of these cost method investments represented assets-for-equity
transactions with About which were eliminated in consolidation upon the
completion of the merger. During the years ended December 31, 2001 and 2000, the
Company made cash investments in the Investees of approximately $5,800 and
$28,000, respectively. The remainder represents advertising, content licensing
and other services to be rendered by the Company in exchange for the equity in
these entities. The Company recognizes these amounts as revenue in accordance
with the Company's revenue recognition policies. During the years ended
December 31, 2001 and 2000, the Company recorded revenue from these agreements
approximating $53,800 and $46,800, respectively. These amounts also include
$16,800 and $16,400 of revenue related to the Company's equity method Investees
for the years ended December 31, 2001 and 2000, respectively. At December 31,
2001 and 2000, respectively, approximately $13,000 and $149,000 relating to the
agreements with Investees is included as deferred revenues on the accompanying
consolidated balance sheets.
These transactions are recorded at the fair value of the equity securities
received. As an observable market price does not exist for equity securities of
private companies, estimates of fair value of such securities are more
subjective than for securities of public companies. For significant transactions
involving equity securities in private companies, the Company obtains and
considers independent third-party valuations where appropriate. Such valuations
use a variety of methodologies to estimate fair value, including comparing the
security with securities of publicly traded companies in similar lines of
business, comparing the nature of security, price, and related terms of
investors in the same round of financing, applying price multiples to estimated
future operating results for the private company, and then also estimating
discounted cash flows for that company. Using these valuations and other
information available to the Company, such as the Company's knowledge of the
industry and knowledge of specific information about the Investee, the Company
determines the estimated fair value of the securities received. As required by
EITF No. 00-8, "Accounting by a Grantee for an Equity Instrument to Be Received
in Conjunction with Providing Goods and Services," the fair value of the equity
securities received is determined as of the earlier of the date a performance
commitment is reached or the vesting date.
The Company continually evaluates all of its investments for potential
impairment. If an investment is deemed to have an other than temporary decline
in fair value, its carrying value will be reduced to fair market value. During
the year ended December 31, 2001, the decline in value of certain of the
Company's investments was deemed to be other than temporary. Accordingly, the
Company reversed approximately $74,500 of related deferred revenue and recorded
a provision for impairment of its investments in certain Investees of $81,600.
During the years ended December 31, 2001 and 2000, respectively, the Company
recorded approximately $36,800 and $7,700 of equity method losses from
Investees, which is included in other, net on the accompanying statements of
consolidated operations.
INVESTMENTS IN ABOUT
During 2000, the Company entered into additional business arrangements with
About whereby the Company has provided or will provide approximately $89,000 of
advertising and promotional services, over a five-year period, as well as the
right to use a mailing list owned by the Company, in exchange for an aggregate
of 2,873,595 shares of common stock of About. The Company and About have also
entered into certain agreements pursuant to which the Company has agreed to
purchase advertising and promotional
55
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
services on the About network. These agreements provide for payments to About in
the aggregate of $15,900. At the merger completion date, these agreements became
intercompany agreements, the activity of which, subsequent to the merger
completion date, has been and will continue to be eliminated in consolidation.
During 2001 and 2000, in accordance with the terms of these agreements, the
Company recorded revenue of approximately $21,000 and $9,000, respectively, and
expenses of approximately $3,500 and $4,700, respectively.
In addition, during 2000, the Company purchased 316,500 shares of About in
the open market for approximately $7,800. The Company recorded an unrealized
gain of $693 relating to its investment in About, which meets the criteria of
SFAS No. 115. This unrealized gain is recorded as a component of OCI on the
accompanying consolidated balance sheet at December 31, 2000.
At December 31, 2000, the Company's investment in About approximated
$74,000.
4. DIVESTITURES
1999
On April 22, 1999, the Company announced its intention to divest its
supplemental education group ("SEG"), which is comprised of Weekly Reader,
American Guidance Service and PRIMEDIA Reference and their respective
subsidiaries. At that time, in accordance with SFAS No. 121, SEG ceased to
depreciate its property and equipment and ceased to amortize its other
intangible assets and excess of purchase price over net assets acquired.
On November 17, 1999, the Company completed the sale of stock of SEG to WRC
Media, Inc. for $395,000 in cash. In connection with the sale, the Company
recorded a gain of $227,710. Proceeds from the sale of the group were primarily
used to pay down borrowings under the Company's bank credit facilities. The
Company retained a 5.1% equity interest in SEG which is recorded in other
investments on the accompanying consolidated balance sheets.
2000
On March 30, 2000, the Company announced its intention to divest
QWIZ, Inc., Pictorial, Inc. and 18 business directories ("Directories"). At that
time, in accordance with SFAS No. 121, these businesses ceased to depreciate
their property and equipment and ceased to amortize their other intangible
assets and excess of purchase price over net assets acquired.
On June 30, 2000, the Company completed the sale of Pictorial, Inc. to BISYS
for total consideration of $129,000 in cash, which includes proceeds from the
sale of the business as well as payments received related to a non-compete
agreement. The value of the non-compete agreement is approximately $25,000 and
is included in deferred revenues on the accompanying consolidated balance
sheets. The non-compete agreement is being amortized over a 15-year period. In
connection with the sale, the Company recorded a gain of approximately $17,300,
net of estimated selling costs. The Company has used the proceeds from this sale
for repayment of borrowings under its credit facilities.
During the quarter ended June 30, 2000, the Company received $10,000 related
to the final settlement on a prior period divestiture. This receipt is included
in other, net on the accompanying statement of consolidated operations.
56
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. DIVESTITURES (CONTINUED)
On October 18, 2000, the Company completed the sale of Directories to an
acquisition group formed by Bariston Partners, LLC for $34,000 in cash. In
connection with the sale, the Company recorded a gain of approximately $10,800.
Proceeds from the sale of Directories were primarily used to pay down borrowings
under the Company's credit facilities.
During the fourth quarter of 2000, the Company recorded a provision of
approximately $28,200, to write-down the assets of QWIZ, Inc. to their net
realizable value. This provision is included in gain on the sales of businesses
and other, net on the accompanying statement of consolidated operations for the
year ended December 31, 2000.
2001
In April 2001, the Company completed the sale of QWIZ, Inc. for $7,000 of
cash. The related gain on the sale of QWIZ, Inc. approximates $300 and is
included in the gain on sales of businesses and other, net on the accompanying
statement of consolidated operations for the year ended December 31, 2001.
Proceeds from the sale of QWIZ, Inc. were primarily used to pay down borrowings
under the Company's credit facilities.
In November 2001, the Company completed the sale of Bacon's Information,
Inc. ("Bacons") to Observer AB for $90,000, $15,000 of which represented a note
receivable and is included as a component of prepaid expenses and other on the
accompanying balance sheet as of December 31, 2001. The gain on the sale of
Bacons approximates $54,600 and is included in gain on the sales of businesses
and other, net on the accompanying statement of consolidated operations for the
year ended December 31, 2001. Proceeds from the sale of Bacons were primarily
used to pay down borrowings under the Company's credit facilities.
In addition, during 2001, the Company completed several other smaller
divestitures which were not material to the results of operations or cash flows
of the Company for the year ended December 31, 2001.
5. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
Accounts receivable..................................... $304,971 $296,223
Less: Allowance for doubtful accounts................... 19,311 17,111
Allowance for returns and rebates.................. 9,956 13,166
-------- --------
$275,704 $265,946
======== ========
57
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. INVENTORIES, NET
Inventories consist of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
Finished goods............................................ $ 7,346 $10,556
Work in process........................................... 38 78
Raw materials............................................. 28,323 21,233
------- -------
35,707 31,867
Less: Allowance for obsolescence.......................... 1,643 3,186
------- -------
$34,064 $28,681
======= =======
7. PROPERTY AND EQUIPMENT, NET
Property and equipment, including that held under capital leases, consist of
the following:
2001 DECEMBER 31,
RANGE OF LIVES -------------------
(YEARS) 2001 2000
-------------- -------- --------
Land....................................... -- $ 1,662 $ 1,874
Buildings and improvements................. 1-40 66,016 56,780
Furniture and fixtures..................... 5-7 42,183 39,344
Machinery and equipment.................... 3-10 165,726 131,335
Internal use software...................... 1-3 89,228 68,442
School equipment........................... 3-10 71,574 71,765
Other...................................... 2-10 9,274 6,565
-------- --------
445,663 376,105
Less: Accumulated depreciation and
amortization............................. 275,429 200,545
-------- --------
$170,234 $175,560
======== ========
Included in property and equipment are assets which were acquired under
capital leases in the amount of $45,357 and $43,977 with accumulated
amortization of $17,089 and $11,388 at December 31, 2001 and 2000, respectively
(see Note 22).
58
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INTANGIBLE ASSETS AND EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, NET
Other intangible assets consist of the following:
2001 DECEMBER 31,
RANGE OF LIVES -----------------------
(YEARS) 2001 2000
-------------- ---------- ----------
Trademarks.............................. 3-40 $ 447,758 $ 359,709
Membership, subscriber and customer
lists................................. 2-20 499,530 448,546
Non-compete agreements.................. 1-10 213,585 220,393
Trademark license agreements............ 2-15 2,967 2,967
Copyrights.............................. 3-20 20,251 18,303
Databases............................... 2-12 13,662 10,117
Advertiser lists........................ .5-20 202,083 189,438
Distribution agreements................. 1-7 11,745 11,745
Other................................... 1-5 10,880 10,162
---------- ----------
1,422,461 1,271,380
Less: Accumulated amortization.......... 817,364 765,224
---------- ----------
$ 605,097 $ 506,156
========== ==========
The excess of the purchase price over the fair value of the net assets
acquired is net of accumulated amortization of $1,006,404 and $441,676 at
December 31, 2001 and 2000, respectively.
Amortization of intangible assets of $97,315, $80,363, and $112,763,
amortization of excess of purchase price over net assets acquired of $599,877,
$34,060 and $332,191 and other amortization of $16,380, $13,932, and $7,195 is
included on the accompanying statements of consolidated operations under the
caption amortization of intangible assets, excess of purchase price over net
assets acquired and other for the years ended December 31, 2001, 2000 and 1999,
respectively.
In addition to the About impairment charge discussed in Note 3, the Company
recorded $118,402 of other impairment charges in 2001 to write down certain
long-lived assets, primarily the excess of purchase price over net assets
acquired and other intangible assets related to certain product lines of the
Business Magazines and Media Group, the Youth Entertainment Group, a component
of the Consumer Magazines and Media Group, and PRIMEDIA Information. The
Business Magazines and Media Group and PRIMEDIA Information Inc. are parts of
the business-to-business segment and the Consumer Magazine and Media Group is
part of the consumer segment. These write-downs were the result of certain
product discontinuances as well as impairments determined in connection with the
Company's annual financial review process when the Company determined that the
estimated future undiscounted cash flows were not sufficient to cover the
carrying value of certain long-lived assets, primarily excess of purchase price
over net assets acquired. These write-downs are included as a component of
amortization of intangible assets, excess of purchase price over net assets
acquired and other on the accompanying statement of consolidated operations.
In the fourth quarter of 1999, concurrent with its annual financial review
process, the Company determined that the estimated future undiscounted cash
flows were not sufficient to cover the carrying value of certain long-lived
assets. Accordingly, the Company recorded an impairment charge of $261,455 to
write-down PRIMEDIA Workplace Learning's excess of purchase price over net
assets acquired to the estimated fair value. The estimated fair value was based
on anticipated future operating cash flows to be generated by PRIMEDIA Workplace
Learning, discounted at a rate commensurate with the risk involved.
59
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INTANGIBLE ASSETS AND EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, NET
(CONTINUED)
PRIMEDIA Workplace Learning is part of the business-to-business segment. The
Company also recorded a $14,333 impairment charge in 1999 to write-down certain
long-lived assets, primarily the excess of purchase price over the net assets
acquired and other intangible assets of certain Consumer Guides, a component of
the consumer segment. These write-downs are included as a component of
amortization of intangible assets, excess of purchase price over net assets
acquired and other on the accompanying statement of consolidated operations.
9. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
Deferred financing costs, net....................... $22,324 $ 15,384
Deferred wiring and installation costs, net......... 21,069 35,050
Direct-response advertising costs, net.............. 15,630 15,832
Prepublication and programming costs, net........... 13,315 11,934
Other............................................... 5,747 8,712
------- --------
$78,085 $ 86,912
======= ========
The deferred financing costs are net of accumulated amortization of $8,911
and $12,456 at December 31, 2001 and 2000, respectively. The deferred wiring and
installation costs are net of accumulated amortization of $56,449 and $42,055 at
December 31, 2001 and 2000, respectively. Direct-response advertising costs are
net of accumulated amortization of $116,700 and $98,194 at December 31, 2001 and
2000, respectively. Prepublication and programming costs are net of accumulated
amortization of $35,196 and $28,312 at December 31, 2001 and 2000, respectively.
60
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. ACCRUED EXPENSES AND OTHER
Accrued expenses and other current liabilities consist of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
Payroll, commissions and related employee benefits...... $ 86,106 $ 79,330
Rent and lease liabilities.............................. 20,085 15,533
Obligation related to share lockup agreements (see
Note 17).............................................. 18,411 --
Retail display costs and allowances..................... 17,340 16,152
Promotion costs......................................... 6,431 21,250
Royalties............................................... 2,809 3,521
Circulation costs....................................... 13,862 9,970
Professional fees....................................... 8,633 11,718
Taxes................................................... 13,189 18,191
Deferred purchase price................................. 4,153 11,140
Dividends payable....................................... 10,646 10,646
Other................................................... 41,601 25,322
-------- --------
$243,266 $222,773
======== ========
11. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
Borrowings under bank credit facilities.............. $ 783,875 $ 930,000
10 1/4% Senior Notes Due 2004........................ 100,000 100,000
8 1/2% Senior Notes Due 2006........................ 299,353 299,226
7 5/8% Senior Notes Due 2008........................ 249,011 248,879
8 7/8% Senior Notes Due 2011........................ 492,978 --
---------- ----------
1,925,217 1,578,105
Obligation under capital leases (see Note 22)........ 28,679 31,478
Acquisition obligation payable....................... -- 9,070
---------- ----------
1,953,896 1,618,653
Less: Current maturities of long-term debt........... 8,265 115,465
---------- ----------
$1,945,631 $1,503,188
========== ==========
On June 20, 2001, the Company completed a refinancing of its existing bank
credit facilities pursuant to new bank credit facilities with The Chase
Manhattan Bank, Bank of America, N.A., The Bank of New York, and The Bank of
Nova Scotia, as agents. The debt under the new credit agreement (as well as
certain of the Company's other equally and ratably secured indebtedness) is
secured by a pledge of the stock of PRIMEDIA Companies Inc., an intermediate
holding company, owned directly by the Company, which owns directly or
indirectly all shares of PRIMEDIA subsidiaries that guarantee such debt.
Borrowings
61
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. LONG-TERM DEBT (CONTINUED)
under the bank credit facilities are guaranteed by each of our wholly owned
domestic restricted subsidiaries as determined by the Company's management in
accordance with the provisions and limitations of the Company's credit
agreement. The guarantees are full, unconditional and joint and several. Certain
of our subsidiaries which primarily represent Internet assets and businesses,
new launches and other properties under evaluation for turnaround or shutdown
and foreign subsidiaries, are not guarantors of the bank credit facilities.
Substantially all proceeds from sales of businesses and other investments
were used to paydown borrowings under the credit agreement. The borrowings under
the bank credit facilities may be used for general corporate and working capital
purposes as well as to finance certain future acquisitions. The bank credit
facilities consist of the following:
- a $475,000 revolving loan facility, of which $261,000 was outstanding at
December 31, 2001;
- a term loan A, of which $100,000 was outstanding at December 31, 2001; and
- a term loan B, of which $422,875 was outstanding at December 31, 2001.
As of December 31, 2001, the Company had $783,875 of borrowings outstanding,
approximately $25,000 aggregate face amount of letters of credit outstanding and
unused bank commitments of approximately $189,000 under the bank credit
facilities.
With the exception of the term loan B, the amounts borrowed bear interest,
at the Company's option, at either the higher of the base rate plus an
applicable margin ranging from 0.125% to 1.5% or the Eurodollar Rate plus an
applicable margin ranging from 1.125% to 2.5%. The term loan B bears interest at
the base rate plus 1.75% or the Eurodollar Rate plus 2.75%. At December 31,
2001, the weighted average variable interest rate on all outstanding borrowings
under the bank credit facilities was approximately 4.9%.
Under the bank credit facilities, the Company has agreed to pay commitment
fees at a per annum rate of either 0.375% or 0.5%, depending on its debt to
EBITDA ratio, as defined in the new credit agreement, on the daily average
aggregate unutilized commitment under the revolving loan commitment. During
2001, the Company's commitment fees were paid at a weighted average rate of .4%.
The Company also has agreed to pay certain fees with respect to the issuance of
letters of credit and an annual administration fee.
The commitments under the revolving loan commitment are subject to mandatory
reductions semi-annually on June 30 and December 31, commencing December 31,
2004, with the final reduction on June 30, 2008. The aggregate mandatory
reductions of the revolving loan commitments under the bank credit facilities
are $23,750 in 2004, $47,500 in 2005, $71,250 in 2006, $142,500 in 2007 and a
final reduction of $190,000 in 2008. To the extent that the total revolving
credit loans outstanding exceed the reduced commitment amount, these loans must
be paid down to an amount equal to or less than the reduced commitment amount.
However, if the total revolving credit loans outstanding do not exceed the
reduced commitment amount, then there is no requirement to pay down any of the
revolving credit loans until the final reduction in 2008. Aggregate term loan
payments under the bank credit facilities are $4,250 in 2002 and 2003, $16,750
in 2004, $29,250 in 2005, 2006 and 2007, $16,750 in 2008 and $393,125 in 2009.
The bank credit facilities, among other things, limit the Company's ability
to change the nature of its businesses, incur indebtedness, create liens, sell
assets, engage in mergers, consolidations or transactions
62
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. LONG-TERM DEBT (CONTINUED)
with affiliates, make investments in or loans to certain subsidiaries, issue
guarantees and make certain restricted payments including dividend payments on
the Company's common stock in excess of $75,000 in any given year.
The bank credit facilities and senior notes of the Company contain certain
customary events of default which generally give the banks or the noteholders,
as applicable, the right to accelerate payments of outstanding debt. Under the
bank credit facilities, these events include:
- failure to maintain required covenant ratios, as described below;
- failure to make a payment of principal, interest or fees within five days
after its due date;
- default, beyond any applicable grace period, on any aggregate indebtedness
of PRIMEDIA exceeding $20,000
- occurrence of certain insolvency proceedings with respect to PRIMEDIA or
any of its material subsidiaries;
- entry of one judgment or decree involving a liability of $15,000 or more
(or more than one involving an aggregate liability of $25,000 or more);
and
- occurrence of certain events constituting a change of control of the
Company.
The events of default contained in PRIMEDIA's senior notes are similar to,
but generally less restrictive than, those contained in the Company's bank
credit facilities.
The Company does not anticipate the occurrence of any of these default
events. Upon the occurrence of such an event, the Company has the ability to
cure or renegotiate with its lenders.
Under the most restrictive debt covenants as defined in the Company's credit
agreement, the Company must maintain a minimum interest coverage ratio, as
defined, of 1.80 to 1 and a minimum fixed charge coverage ratio, as defined, of
1.05 to 1. The Company's maximum allowable debt leverage ratio, as defined, is
6.0 to 1. The maximum leverage ratio decreases to 5.75 to 1, 5.5 to 1, 5.0 to 1
and 4.5 to 1, respectively, on July 1, 2003, January 1, 2004, January 1, 2005
and January 1, 2006. The minimum interest coverage ratio increases to 2.0 to 1,
2.25 to 1 and 2.5 to 1, respectively, on July 1, 2003, January 1, 2004 and
January 1, 2005. The Company is in compliance with the financial and operating
covenants of its financing arrangements.
As a result of the refinancing of the Company's old bank credit facilities,
the Company wrote-off the remaining balances of deferred financing costs
originally recorded approximating $7,250. This amount is included in
amortization of deferred financing costs on the accompanying statement of
consolidated operations for the year ended December 31, 2001.
10 1/4% SENIOR NOTES. Interest is payable semi-annually in June and
December at an annual rate of 10 1/4%. The 10 1/4% Senior Notes mature on
June 1, 2004, with no sinking fund requirements. The 10 1/4% Senior Notes are
redeemable at 100% in 2002 plus accrued and unpaid interest.
8 1/2% SENIOR NOTES. Interest is payable semi-annually in February and
August at an annual rate of 8 1/2%. The 8 1/2% Senior Notes mature on February
1, 2006, with no sinking fund requirements. The 8 1/2% Senior
63
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. LONG-TERM DEBT (CONTINUED)
Notes are redeemable in whole or in part, at the option of the Company, at
prices ranging from 102.125% in 2002 to 100% in 2003 plus accrued and unpaid
interest.
7 5/8% SENIOR NOTES. Interest is payable semi-annually in April and October
at the annual rate of 7 5/8%. The 7 5/8% Senior Notes may not be redeemed prior
to April 1, 2003 other than in connection with a change of control. Beginning on
April 1, 2003 and thereafter, the 7 5/8% Senior Notes are redeemable in whole or
in part, at the option of the Company, at prices ranging from 103.813% with
annual reductions to 100% in 2006 and thereafter, plus accrued and unpaid
interest.
8 7/8% SENIOR NOTES. In 2001, the Company completed an offering of $500,000
of 8 7/8% Senior Notes. Net proceeds from this offering of approximately
$493,000 were used to repay borrowings under the revolving credit facilities.
The 8 7/8% Senior Notes mature on May 15, 2011, with no sinking fund
requirements, and have interest payable semi-annually in May and November at an
annual rate of 8 7/8%. Beginning in 2006, the 8 7/8% Senior Notes are redeemable
at 104.438% with annual reductions to 100% in 2009 plus accrued and unpaid
interest.
If the Company becomes subject to a change of control, each holder of the
notes will have the right to require the Company to purchase any or all of the
notes at a purchase price equal to 101% of the aggregate principal amount of the
notes plus accrued and unpaid interest, if any, to the date of purchase.
The 10 1/4% Senior Notes, 8 1/2% Senior Notes, 7 5/8% Senior Notes, and the
8 7/8% Senior Notes (together referred to as the "Senior Notes"), and the credit
facility, all rank senior in right of payment to all subordinated indebtedness
of PRIMEDIA Inc. (a holding company). The Senior Notes are fully,
unconditionally and jointly and severally guaranteed by each of our domestic
restricted subsidiaries. The Senior Notes are secured by a pledge of stock of
PRIMEDIA Companies Inc.
ACQUISITION OBLIGATION. In connection with the acquisition of certain of
the Company's consumer magazine operations and THE DAILY RACING FORM, an
obligation was recorded equivalent to the present value of the principal and
interest payments of the notes payable. The interest rate used in calculating
the present value was 13%, which represents management's estimate of the
prevailing market rate of interest for such obligation at the time of the
acquisition. This amount was fully repaid in 2001.
The scheduled repayments of all debt outstanding, including capital leases,
as of December 31, 2001, are as follows:
YEARS ENDING CAPITAL LEASE
DECEMBER 31, DEBT OBLIGATIONS TOTAL
------------ ---------- ------------- ----------
2002.................................... $ 4,250 $ 4,015 $ 8,265
2003.................................... 4,250 3,687 7,937
2004.................................... 116,750 3,218 119,968
2005.................................... 29,250 1,524 30,774
2006.................................... 328,603 1,372 329,975
Thereafter.............................. 1,442,114 14,863 1,456,977
---------- ------- ----------
$1,925,217 $28,679 $1,953,896
========== ======= ==========
64
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. INCOME TAXES
At December 31, 2001, the Company had aggregate net operating and capital
loss carryforwards for Federal and state income tax purposes of approximately
$1,549,600 which will be available to reduce future taxable income. The
utilization of such net operating losses ("NOLs") and capital losses is subject
to certain limitations under Federal income tax laws. In certain instances, such
NOLs may only be used to reduce future taxable income of the respective company
which generated the NOLs. The capital losses may only be used to offset future
capital gains. The NOLs and capital losses are scheduled to expire in the
following years:
CAPITAL
NOLS LOSSES TOTAL
---------- -------- ----------
2003....................................... $ 24,500 $ -- $ 24,500
2004....................................... 60,351 -- 60,351
2005....................................... 102,404 165,147 267,551
2006....................................... 87,903 147,670 235,573
2007....................................... 43,506 -- 43,506
2008....................................... 88,112 -- 88,112
2009....................................... 71,229 -- 71,229
2010....................................... 151,856 -- 151,856
2011....................................... 31,812 -- 31,812
2012....................................... 63,737 -- 63,737
2015....................................... 35,426 -- 35,426
2016....................................... 57,896 -- 57,896
2017....................................... 21,312 -- 21,312
2018....................................... 78,892 -- 78,892
2019....................................... 56,389 -- 56,389
2020....................................... 56,579 -- 56,579
2021....................................... 204,909 -- 204,909
---------- -------- ----------
$1,236,813 $312,817 $1,549,630
========== ======== ==========
65
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating and capital loss carryforwards. The tax effects of significant items
comprising the Company's net deferred income tax assets are as follows:
DECEMBER 31, 2001
------------------------------
FEDERAL STATE TOTAL
-------- -------- --------
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of accrued expenses
and other................................................. $ 20,229 $ 5,926 $ 26,155
Difference between book and tax basis of other intangible
assets.................................................... 47,477 13,909 61,386
Operating loss carryforwards................................ 389,509 67,026 456,535
Capital loss carryforwards.................................. 109,157 939 110,096
Net unrealized loss on investments.......................... 34,922 10,231 45,153
Alternate minimum tax credit carryforwards.................. 1,249 -- 1,249
-------- ------- --------
Total....................................................... 602,543 98,031 700,574
-------- ------- --------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible
assets.................................................... 2,221 650 2,871
Difference between book and tax basis of property and
equipment................................................. 5,864 1,718 7,582
Other....................................................... 6,232 1,724 7,956
-------- ------- --------
Total....................................................... 14,317 4,092 18,409
-------- ------- --------
Net deferred income tax assets.............................. 588,226 93,939 682,165
Less: Valuation allowances.................................. 588,226 93,939 682,165
-------- ------- --------
Net......................................................... $ -- $ -- $ --
======== ======= ========
DECEMBER 31, 2000
------------------------------
FEDERAL STATE TOTAL
-------- -------- --------
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory.......... $ 660 $ 193 $ 853
Difference between book and tax basis of accrued expenses
and other................................................. 28,433 8,330 36,763
Difference between book and tax basis of other intangible
assets.................................................... 44,515 13,041 57,556
Operating loss carryforwards................................ 230,908 49,026 279,934
Capital loss carryforwards.................................. 91,783 1,318 93,101
Net unrealized loss on investments.......................... 59,966 5,254 65,220
Alternative minimum tax credit carryforwards................ 1,356 -- 1,356
-------- ------- --------
Total....................................................... 457,621 77,162 534,783
-------- ------- --------
66
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. INCOME TAXES (CONTINUED)
DECEMBER 31, 2000
------------------------------
FEDERAL STATE TOTAL
-------- -------- --------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible
assets.................................................... 27,535 8,067 35,602
Difference between book and tax basis of property and
equipment................................................. 12,829 3,759 16,588
Other....................................................... 4,872 1,427 6,299
-------- ------- --------
Total....................................................... 45,236 13,253 58,489
-------- ------- --------
Net deferred income tax assets.............................. 412,385 63,909 476,294
Less: Valuation allowances.................................. 293,497 47,797 341,294
-------- ------- --------
Net......................................................... $118,888 $16,112 $135,000
======== ======= ========
Income tax expense (benefit) is as follows:
2001 2000 1999
--------- --------- --------
Current
Federal................................................... $ -- $ -- $ --
State and local........................................... -- -- 6,500
--------- --------- --------
Total current expense................................... -- -- 6,500
--------- --------- --------
Deferred
Federal................................................... (175,841) (226,312) 74,552
State and local........................................... (30,030) (22,786) 4,116
--------- --------- --------
Total deferred expense.................................. (205,871) (249,098) 78,668
--------- --------- --------
Change in valuation allowance............................... 340,871 290,298 (78,668)
--------- --------- --------
Total provision for income taxes............................ $ 135,000 $ 41,200 $ 6,500
========= ========= ========
At December 31, 2001, 2000 and 1999, management of the Company reviewed
recent operating results and projected future operating results. At the end of
2000 and 1999, management determined that a portion of the net deferred income
tax assets would likely be realized. However, at the end of 2001, management
determined that the net deferred income tax asset would not likely be realized.
During 2001 and 2000, the Company increased its valuation allowance due to
continued historical operating losses and the impairment of investments,
resulting in a provision for income taxes of $135,000 and $41,200, respectively.
The amount of the net deferred income tax asset was not adjusted in 1999.
A portion of the valuation allowances in the amount of approximately $79,300
at December 31, 2001 relates to net deferred tax assets which were recorded in
accounting for the acquisitions of various entities. The recognition of such
amount in future years will be allocated to reduce the excess of the purchase
price over the net assets acquired and other non-current intangible assets.
In 1999, the Company recorded income tax expense of $6,500 related to a
provision for current state and local taxes incurred as a result of the gain on
the sale of SEG.
67
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. EXCHANGEABLE PREFERRED STOCK
Exchangeable Preferred Stock consists of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
$10.00 Series D Exchangeable Preferred Stock ($.01 par
value, 2,000,000 shares).................................. $196,679 $196,133
$9.20 Series F Exchangeable Preferred Stock ($.01 par value,
1,250,000 shares)......................................... 121,781 121,361
$8.625 Series H Exchangeable Preferred Stock ($.01 par
value, 2,500,000 shares).................................. 244,497 243,830
-------- --------
$562,957 $561,324
======== ========
$10.00 SERIES D EXCHANGEABLE PREFERRED STOCK. Annual dividends of $10.00
per share on the Series D Preferred Stock are cumulative and payable quarterly,
in cash. On or after February 1, 2001, the Series D Preferred Stock may be
redeemed in whole or in part, at the option of the Company, at specified
redemption prices plus accrued and unpaid dividends. The Company is required to
redeem the Series D Preferred Stock on February 1, 2008 at a redemption price
equal to the liquidation preference of $100 per share, plus accrued and unpaid
dividends. The Series D Preferred Stock is exchangeable in whole but not in
part, at the option of the Company, on any scheduled dividend payment date, into
10% Class D Subordinated Exchange Debentures due 2008 provided the Company is in
compliance with the terms of its credit agreement. The liquidation and
redemption value at December 31, 2001 and 2000 was $200,000.
$9.20 SERIES F EXCHANGEABLE PREFERRED STOCK. Annual dividends of $9.20 per
share on the Series F Preferred Stock are cumulative and payable quarterly, in
cash. The Company is required to redeem the Series F Preferred Stock on
November 1, 2009 at a redemption price equal to the liquidation preference of
$100 per share, plus accrued and unpaid dividends. The Series F Preferred Stock
is exchangeable into 9.20% Class F Subordinated Exchange Debentures due 2009, in
whole but not in part, at the option of the Company on any scheduled dividend
payment date provided the Company is in compliance with the terms of its credit
agreement. As of December 31, 2001 and 2000, the liquidation and redemption
value of the Series F Preferred Stock was $125,000.
$8.625 SERIES H EXCHANGEABLE PREFERRED STOCK. Annual dividends of $8.625
per share on the Series H Preferred Stock are cumulative and payable quarterly,
in cash. On or after April 1, 2003, the Series H Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at prices ranging from
104.313% with annual reductions to 100% in 2006, plus accrued and unpaid
dividends. The Company is required to redeem the Series H Preferred Stock on
April 1, 2010 at a redemption price equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends. The Series H Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company, on any
scheduled dividend payment date into 8 5/8% Class H Subordinated Exchange
Debentures due 2010 provided the Company is in compliance with the terms of its
credit agreement. As of December 31, 2001 and 2000, the liquidation and
redemption value of the Series H Preferred Stock was $250,000.
There are no required maturity payments for the Company's Exchangeable
Preferred Stock during the next five years.
68
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMON STOCK
STOCK ISSUANCES. In April 2000, Liberty Media Corporation ("Liberty Media")
invested $200,000 in cash in exchange for 8,000,000 shares of the Company's
issued and outstanding shares of common stock, subject to a one-year lockup, and
a warrant to purchase an additional 1,500,000 shares of the Company's common
stock. The warrant received by Liberty Media is exercisable at $25 per share on
or before April 19, 2003. Additionally, Liberty Media has received an option to
acquire a 12.5% stake in the Company's subsidiary, PRIMEDIA Digital Video.
During 2000, in connection with PRIMEDIA's investment in Internet Gift
Registries, Inc. ("IGR"), PRIMEDIA agreed to make an offer to exchange shares of
its common stock ("the exchange offering") for up to 3,764,000 shares of IGR
stock and up to 556,088 shares of IGR Series B preferred stock. In July 2001,
pursuant to the exchange offering, PRIMEDIA issued 969,633 shares of common
stock. The exchange was recorded at approximately $6,500, the fair market value
of the Company's shares on the date of issuance.
Pursuant to PRIMEDIA's acquisition of About in February 2001, the Company
exchanged approximately 52,400,000 shares of its common stock for the common
stock of About. Of the total shares exchanged, approximately 7,500,000 were held
by PRIMEDIA prior to the acquisition and were classified as treasury shares
after the exchange.
In August 2001, in connection with PRIMEDIA's acquisition of EMAP,
investment funds managed by KKR purchased 10,800,000 shares of newly issued
common stock for $50,760. Concurrently, KKR purchased 15,796,000 shares of
PRIMEDIA's Series K Convertible Preferred stock for $74,240. These shares were
converted into approximately 15,796,000 shares of the Company's common stock in
September 2001.
SHARE REPURCHASES. Under its share repurchase program, the Company's board
of directors authorized the repurchase of up to $30,000 of its outstanding
common stock from time to time in the open market and through privately
negotiated transactions. There were no repurchases during 2001. During 2000, the
Company repurchased 29,500 shares of common stock for $512 at a weighted average
price of $17.36. During 1999, the Company repurchased 730,237 shares of common
stock for $10,508 at a weighted average price of $14.39. The 1999 repurchases
included 694,637 shares that were repurchased for $10,000 and were not part of
the share repurchase program. All repurchases above are recorded at cost.
STOCK PURCHASE AND OPTION PLANS. The PRIMEDIA Stock Purchase and Option
Plan (the "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
Plan has authorized grants of up to 35,000,000 shares of the Company's common
stock or options to management personnel.
During 1999, the Company granted 1,380,711 restricted shares of common stock
from the treasury, to a senior executive. During 2000, pursuant to the grant,
the vesting period accelerated based upon the achievement of certain stock
performance measures. Accordingly, non-cash compensation expense of $15,250 was
recognized in 2000. In addition, in 2001, approximately 3,000,000 restricted
shares of the Company's common stock were issued to About executives in
connection with the employment agreements entered into as a result of the About
merger (see Note 17).
As part of the merger with About, the Company assumed certain About stock
purchase and option plans. No stock purchases will be allowed and no options
will be granted under these plans and grantees will be issued the Company's
common stock upon exercise of options. On the date of merger, the Company
69
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMON STOCK (CONTINUED)
assumed approximately 13,400,000 options outstanding under the About plan (see
Note 3). These options are included as options granted in the option table
below.
Stock options are generally granted with exercise prices at quoted market
value at time of issuance. Most of the options are exercisable at the rate of
20% per year over a five-year period commencing on the effective date of the
grant. Most options granted pursuant to the Plan will expire no later than ten
years from the date the option was granted.
During 1999, the Company granted 5,000,000 stock options to a senior
executive. These options were to vest over 4 years, with accelerated vesting
upon the achievement of certain stock performance measures. During 2000,
2,000,000 of these options vested in accordance with the accelerated vesting
provisions of the original grant. During 2001, the Company granted approximately
2,200,000 stock options to its employees at an exercise price of $1.85 per
share, the market price of the Company's common stock on the date of issuance.
In addition, in connection with the employment agreements entered into as a
result of the About merger, approximately 3,500,000 stock options were issued to
About executives at an exercise price equal to 30% of the fair market value per
share on the date of issuance (see Note 17).
A summary of the status of the Company's stock option plan as of December
31, 2001, 2000 and 1999, and changes during the years ended on those dates is
presented below:
2001 2000 1999
---- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS EXERCISE PRICE PRICE OPTIONS EXERCISE PRICE PRICE OPTIONS
---------- -------------- -------- ---------- -------------- -------- ----------
Outstanding--
beginning of
year............... 13,463,101 $ 5.00-$27.13 $10.68 17,090,286 $ 5.00-$15.56 $ 9.28 12,229,973
Granted............ 20,416,150 $ 0.08-$55.33 $ 9.92 1,418,500 $ 8.25-$27.13 $16.66 6,534,200
Exercised.......... (947,062) $ 0.14-$15.56 $ 3.41 (4,354,219) $ 5.00-$15.56 $ 6.59 (1,243,229)
Forfeited.......... (4,179,250) $ 1.20-$55.33 $10.54 (691,466) $ 8.00-$27.00 $14.06 (430,658)
---------- ---------- ----------
Outstanding--end of
year............... 28,752,939 $ 0.08-$55.33 $ 9.82 13,463,101 $ 5.00-$27.13 $10.68 17,090,286
========== ========== ==========
Exercisable--end of
year............... 19,163,949 $ 0.08-$55.33 $10.44 8,675,593 $ 5.00-$16.50 $ 8.82 9,391,717
========== ========== ==========
1999
----
WEIGHTED
AVERAGE
EXERCISE
EXERCISE PRICE PRICE
-------------- --------
Outstanding--
beginning of
year............... $ 5.00-$14.69 $ 7.16
Granted............ $ 8.00-$15.56 $13.02
Exercised.......... $ 5.00-$14.25 $ 6.98
Forfeited.......... $ 5.00-$15.56 $12.15
Outstanding--end of
year............... $ 5.00-$15.56 $ 9.28
Exercisable--end of
year............... $ 5.00-$14.69 $ 6.43
The weighted-average fair value per option for options granted in 2001, 2000
and 1999 was $5.39, $13.02 and $8.26, respectively.
70
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMON STOCK (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2001:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER NUMBER WEIGHTED EXERCISE PRICE EXERCISE PRICE
RANGE OF OUTSTANDING EXERCISABLE AT AVERAGE REMAINING FOR OUTSTANDING FOR EXERCISABLE
EXERCISE PRICES AT 12/31/01 12/31/01 CONTRACTUAL LIFE OPTIONS OPTIONS
--------------- -------------- -------------- ----------------- --------------- ---------------
$ 0.08 122 122 8 $ 0.08 $ 0.08
$ 0.14-$ 0.20 25,541 15,325 8 $ 0.16 $ 0.14
$ 0.22-$ 0.27 92,089 92,089 6 $ 0.22 $ 0.22
$ 0.43 83,832 56,571 6 $ 0.43 $ 0.43
$ 1.20-$ 1.80 22,749 19,722 7 $ 1.49 $ 1.46
$ 1.84-$ 2.35 2,215,975 34,498 10 $ 1.85 $ 1.93
$ 2.85-$ 3.69 2,206,167 1,326,566 9 $ 2.85 $ 2.85
$ 4.85-$ 7.25 4,251,337 4,073,976 2 $ 5.40 $ 5.34
$ 7.43-$11.13 4,828,139 3,863,829 7 $ 9.41 $ 9.47
$11.19-$16.78 12,187,985 8,648,152 8 $13.27 $13.24
$16.87-$25.10 2,289,323 673,201 9 $18.21 $19.42
$25.44-$38.02 538,782 349,660 8 $27.66 $27.65
$38.39-$55.33 10,898 10,238 8 $46.35 $46.81
---------- ----------- ------ ------
28,752,939 19,163,949 7 $ 9.82 $10.44
========== =========== ====== ======
SFAS No. 123, "Accounting for Stock Based Compensation," provides for a
fair-value based method of accounting for employee options and measures
compensation expense using an option valuation model that takes into account, as
of the grant date, the exercise price and expected life of the option, the
current price of the underlying stock and its expected volatility, expected
dividends on the stock, and the risk-free interest rate for the expected term of
the option. The Company has elected to continue accounting for employee
stock-based compensation under APB No. 25 and related interpretations. Under APB
No. 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value of these options was estimated at the date of grant using
the Black-Scholes pricing model for options granted in 2001, 2000 and 1999. The
following weighted-average assumptions were used for 2001, 2000 and 1999,
respectively: risk-free interest rates of 4.70%, 6.29% and 6.21%; dividend
yields of 0.0%, 0.0% and 0.0%; volatility factors of the expected market price
of the Company's common stock of 100.42%, 72.12% and 49.29%; and a
weighted-average expected life of the option of five years. The estimated fair
value of options granted during 2001, 2000 and 1999 was $110,007, $18,467 and
$53,976, respectively.
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. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
71
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMON STOCK (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows:
2001 2000 1999
----------- --------- ---------
Pro forma net loss........................................ $(1,149,050) $(366,611) $(127,177)
Pro forma loss applicable to common shareholders.......... $(1,211,286) $(419,674) $(180,239)
Pro forma basic and diluted loss per common share......... $ (5.59) $ (2.60) $ (1.24)
The Company had reserved approximately 10,900,000 shares of the Company's
common stock for future grants in connection with the Plan at December 31, 2001.
15. NET LOSS PER SHARE
Net loss per share has been determined based on net loss after preferred
stock dividends and related accretion, divided by the weighted average number of
common shares outstanding for all periods presented.
Options to purchase 28,752,939, 13,463,101 and 17,090,286 shares of common
stock were outstanding at December 31, 2001, 2000 and 1999, respectively, but
were not included in the computation of diluted loss per share because the
effect of their inclusion would be antidilutive. In addition, for 2001, warrants
to purchase 6,120,000 shares of common stock and the potential conversion of the
Series J Convertible Preferred Stock including declared dividends into
approximately 18,400,000 shares of common stock were not included in the
computation of diluted loss per share because the effect of their inclusion
would be antidilutive.
16. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
Foreign currency translation adjustments.................. $ (225) $(2,251)
Change in fair value of derivative instruments............ (1,897) --
Unrealized gain on available-for-sale securities.......... -- 693
------- -------
$(2,122) $(1,558)
======= =======
17. NON-CASH COMPENSATION AND NON-RECURRING CHARGES
In connection with the About merger, certain senior executives were granted
2,955,450 shares of restricted PRIMEDIA common stock. These shares of restricted
PRIMEDIA common stock, which were valued at $9.50 per share, the closing stock
price on February 28, 2001, vest at a rate of 25% per year and are subject to
the executives' continued employment. Unearned compensation of $28,077 and
non-cash compensation of $13,572 which reflects pro rata vesting on a graded
basis were recorded for the year ended December 31, 2001.
In addition, these senior executives were granted options to purchase
3,482,300 shares of PRIMEDIA common stock at an exercise price of $2.85, equal
to thirty percent of the fair market value per share on that date. These options
vest at a rate of 25% per year and are subject to the executives' continued
employment. Unearned compensation of $23,157 and non-cash compensation of
$11,194 which reflects pro
72
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. NON-CASH COMPENSATION AND NON-RECURRING CHARGES (CONTINUED)
rata vesting on a graded basis was recorded for the year ended December 31,
2001. Amounts reflect a 70% market value discount ($6.65 per share) based on a
PRIMEDIA per share market value of $9.50 which was the closing price on
February 28, 2001.
Two senior executives of About also entered into share lockup agreements
with the Company, pursuant to which they agreed to specific restrictions
regarding the transferability of their shares of PRIMEDIA common stock issued in
the merger. Under the terms of those agreements, during the first year after the
closing of the merger, the executives could sell a portion of their shares of
the Company's common stock, subject to the Company's right of first refusal with
respect to any sale. In the event that the gross proceeds received on sale were
less than $33,125 (assuming all shares are sold), the Company agreed to pay the
executives the amount of such shortfall ("the Shortfall Payment").
During the third quarter of 2001, one of the executives, who subsequently
left the Company, advised the Company that he was selling 1,429,344 shares of
the Company's common stock in the market. Concurrently therewith, the executive
assigned to a financial institution the right to receive his Shortfall Payment
on that number of shares. The financial institution advised the Company that it
purchased 1,429,344 shares of the Company's common stock in the market. The
financial institution has agreed to waive its right to the Shortfall Payment in
exchange for the Company's agreement to make the financial institution whole if
it sells such shares, which it purchased in the market, for proceeds of less
than approximately $23,406. In connection with these agreements, the Company has
recorded a liability of approximately $18,411 at December 31, 2001 representing
the Shortfall Payments due under both agreements, based on the fair value of the
Company's stock on such date. This liability is a component of accrued expenses
and other on the accompanying consolidated balance sheet at December 31, 2001.
As of March 8, 2002, the financial institution had sold all of the shares in the
open market for proceeds of approximately $3,300. As a result, in April 2002,
the Company is obligated to pay approximately $20,300 to the financial
institution. As a result of this executive leaving the Company, half of his
restricted shares (1,105,550 shares) and options (1,302,650 options) were
accelerated and the remainder was forfeited, resulting in a reversal of unearned
compensation of $19,166.
During the year ended December 31, 2001, the Company recorded $58,181 of
non-cash compensation and non-recurring charges. These non-cash compensation
charges consisted of a $24,766 charge related to the restricted stock and option
grants to two key executives of About discussed above, a $3,358 charge related
to the amortization of the intrinsic value of unvested "in-the-money" options
issued in connection with the About merger and a $1,502 charge related to the
issuance of stock in connection with an acquisition. These non-recurring charges
consisted of a $26,480 charge related to the share lockup arrangements with
certain executives of About discussed above and a $2,073 charge related to
certain non-recurring compensation arrangements with certain senior executives.
During the year ended December 31, 2000, the Company recorded $27,810 of
non-cash compensation charges relating to the hiring and retention of certain
key executives. These non-cash compensation charges consisted of a $15,250
charge related to 1,380,711 restricted shares of common stock granted to a
senior executive in 1999, a $12,437 charge related to the extension of the
expiration period of 1,000,000 options, previously granted to a senior
executive, for an additional 10 year period beyond the original expiration date
and a $123 charge related to the granting of stock options to certain directors.
During the second quarter of 2000, the Company recorded $7,400 of non-cash
non-recurring charges relating to the recoverability of certain assets of the
business-to-business segment.
73
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. PROVISION FOR SEVERANCE, CLOSURES AND RESTRUCTURING RELATED COSTS
During 2001 and 2000, the Company implemented plans to integrate the
operations of the Company and consolidate many back office functions. The
Company expects that these plans will continue to result in future savings. All
restructuring related charges were expensed as incurred.
With the acquisition of About coupled with other cost initiatives, during
the first quarter of 2001, the Company announced additional cost initiatives
that would continue to implement and expand upon the cost initiatives enacted
during 2000.
Details of the initiatives implemented and the payments made in furtherance
of these plans in the years ended December 31, 2001 and 2000 are presented in
the following tables:
PAYMENTS/WRITE-OFF
NET PROVISION FOR THE DURING THE LIABILITY AS OF
LIABILITY AS OF YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, 2001 2001
----------------- --------------------- ------------------ ---------------
Severance and closures:
Employee-related termination
costs...................... $ 7,063 $17,855 $15,875 $ 9,043
Termination of contracts..... 1,519 2,737 1,938 2,318
Termination of leases related
to office closures......... 1,634 12,467 1,064 13,037
Write-off of leasehold
improvements............... -- 4,552 4,552 --
Other........................ 213 -- 213 --
------- ------- ------- -------
10,429 37,611 23,642 24,398
------- ------- ------- -------
Restructuring related:
Consulting services.......... 498 3,055 3,553 --
Relocation and other employee
costs...................... 462 3,221 3,683 --
Other........................ -- 33 33 --
------- ------- ------- -------
960 6,309 7,269 --
------- ------- ------- -------
Total severance, closures and
restructuring related
costs........................ $11,389 $43,920 $30,911 $24,398
======= ======= ======= =======
PAYMENTS
NET PROVISION FOR THE DURING THE
LIABILITY AS OF YEAR ENDED YEAR ENDED LIABILITY AS OF
DECEMBER 31, 1999 DECEMBER 31, 2000 DECEMBER 31, 2000 DECEMBER 31, 2000
----------------- --------------------- ------------------ ------------------
Severance and closures:
Employee-related
termination costs..... $ 188 $ 9,631 $ 2,756 $ 7,063
Termination of
contracts............. -- 1,541 22 1,519
Termination of leases
related to office
closures.............. 1,561 1,018 945 1,634
Other................... 3,920 (1,898) 1,809 213
------- ------- ------- -------
5,669 10,292 5,532 10,429
------- ------- ------- -------
Restructuring related:
Consulting services..... -- 6,651 6,153 498
74
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. PROVISION FOR SEVERANCE, CLOSURES AND RESTRUCTURING RELATED COSTS
(CONTINUED)
PAYMENTS
NET PROVISION FOR THE DURING THE
LIABILITY AS OF YEAR ENDED YEAR ENDED LIABILITY AS OF
DECEMBER 31, 1999 DECEMBER 31, 2000 DECEMBER 31, 2000 DECEMBER 31, 2000
----------------- --------------------- ------------------ ------------------
Relocation and other
employee costs........ -- 3,855 3,393 462
------- ------- ------- -------
-- 10,506 9,546 960
------- ------- ------- -------
Total severance, closures
and restructuring
related costs........... $ 5,669 $20,798 $15,078 $11,389
======= ======= ======= =======
A significant portion of the remaining costs are expected to be paid during
2002 with the balance, primarily related to leases, to be paid through 2015.
Included in the net provision for the years ended December 31, 2001 and 2000
are reversals of $1,884 and $3,302, respectively, of previously recorded
accruals.
As a result of the implementation of the 2001 and 2000 plans, the Company
has closed and consolidated in excess of fifteen office locations and has
notified 1,320 individuals that they will be terminated under these plans. As of
December 31, 2001, 1,315 of those individuals have been terminated.
The liabilities representing the provision for severance, closures and
restructuring related costs are included in accrued expenses and other on the
accompanying consolidated balance sheets.
During 1999, the Company discontinued five unprofitable PRIMEDIA Workplace
Learning product lines as part of a program to return the Company's focus to
accreditation oriented vocational networks and associated products. In relation
to these discontinuances, the Company recorded a $22,000 charge for
approximately $9,000 related to transponder and office site leases and
approximately $9,000 related to the recoverability of related excess of purchase
price over net assets acquired and certain other assets.
19. DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company recorded an expense of approximately
$27 as a cumulative transition adjustment to earnings, which is included in
other, net on the statement of consolidated operations, relating to derivatives
not designated as hedges prior to the adoption of SFAS No. 133, and $1,247 as a
reduction to OCI as a cumulative transition adjustment for derivatives
designated as cash flow-type hedges prior to adopting SFAS No. 133.
INTEREST RATE SWAP CONTRACTS
The Company uses derivative financial instruments, principally interest rate
swap contracts, to manage the risks associated with interest rate fluctuations
on its floating rate borrowings. Interest rate swap contracts are used to adjust
the proportion of total debt that is subject to variable interest rates. Under
the terms of its interest rate swap contracts, the Company agrees to pay an
amount equal to a specified fixed-rate of interest times a notional principal
amount, and to receive in return an amount equal to a specified variable-rate of
interest times the same notional principal amount. The notional amounts of the
contract are not exchanged. No other cash payments are made unless the contract
is terminated prior to maturity, in which case the amount paid or received in
settlement is established by agreement at the time of termination, and usually
represents the net present value, at current rates of interest, of the remaining
obligations to exchange payments under the terms of the contract. Interest rate
swap contracts are entered into with major financial institutions in order to
minimize credit risk. Prior to entering into any
75
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
interest rate swap contracts, the Company considers, among other things, swap
terms including the reference rate, payment and maturity dates and the notional
amount in determining if the interest rate swap contract will be effective at
modifying an existing debt obligation.
The Company's interest rate swap contracts are considered to be a hedge
against changes in the amount of future cash flows associated with the Company's
interest payments. Accordingly, the interest rate swap contracts are reflected
at fair value on the Company's consolidated balance sheet and the related gains
and losses on these contracts are deferred in shareholders' deficiency as a
component of OCI. These gains and losses are then amortized as an adjustment to
interest expense over the same period in which the related interest payments
being hedged are recognized in operations. However, to the extent that any of
these contracts are not considered to be perfectly effective in offsetting the
change in the value of the interest payments being hedged, any changes in fair
value relating to the ineffective portion of these contracts are immediately
recognized in operations. The net effect of this accounting on the Company's
operating results is that interest expense on the portion of variable-rate debt
being hedged is generally recorded based on fixed interest rates.
At December 31, 2001, the Company had interest rate swap contracts to pay
fixed-rates of interest and receive variable-rates of interest on $200,000 of
notional amount of indebtedness. These swaps matured on January 2, 2002 and have
not been renewed. For the year ended December 31, 2001, the Company's interest
rate swap contracts, which are included as a component of accrued interest
payable on the accompanying consolidated balance sheet as of December 31, 2001,
were considered to be highly effective. Accordingly, the decrease in fair value
of these contracts of $650 for the year ended December 31, 2001 was recognized
as a component of OCI.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
DECEMBER 31,
---------------------------------------------------------
2001 2000
--------------------------- ---------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
10 1/4% Senior Notes.......................... $100,000 $ 97,580 $100,000 $100,560
8 1/2% Senior Notes........................... 299,353 264,119 299,226 283,367
7 5/8% Senior Notes........................... 249,011 196,021 248,879 232,453
8 7/8% Senior Notes........................... 492,978 442,201 -- --
Acquisition Obligation........................ -- -- 9,070 9,070
Series D Preferred Stock...................... 196,679 113,406 196,133 164,000
Series F Preferred Stock...................... 121,781 69,001 121,361 97,500
Series H Preferred Stock...................... 244,497 136,088 243,830 187,500
Interest Rate Swap Agreements................. 1,897 1,897 -- 1,247
76
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of the senior notes was determined based on the quoted market
prices, the fair value of the preferred stocks was based on recent bid prices
and the fair value of the acquisition obligation was estimated using discounted
cash flow analysis, based on current incremental borrowing rates for similar
types of borrowing arrangements. The fair value of the interest rate swap
agreements was determined using discounted cash flow models.
For instruments including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, the carrying amount approximates fair
value because of the short maturity of these instruments. The fair value of
floating-rate long-term debt approximates carrying value because these
instruments re-price frequently at current market prices.
21. BENEFIT PLANS AND OTHER EMPLOYEE COSTS
RETIREMENT PLANS. Substantially all of the Company's employees are eligible
to participate in defined contribution plans. The expense recognized for all of
these plans was approximately $5,500 in 2001, $5,800 in 2000 and $9,500 in 1999.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP"). During March 2000, the Company
approved and implemented the PRIMEDIA Employee Stock Purchase Plan. The ESPP is
intended to encourage long-term investment in the Company and to assist eligible
employees of the Company and its eligible subsidiaries to purchase common stock
of the Company through payroll deductions at a discount. The ESPP permits full-
time or part-time employees who customarily work at least 20 hours per week and
five months a year to purchase shares of the Company's common stock at the
lesser of 90% of the closing stock price on the first or last day of the
offering period. In connection with the ESPP, for the offering period ended
December 31, 2000, 132,793 shares were issued in January 2001, at a share price
of $10.7438. For the offering period ended June 30, 2001, 182,106 shares were
issued in July 2001, at a share price of $6.111 and for the offering period
ended December 31, 2001, 207,044 shares were issued in January 2002, at a share
price of $3.915.
22. COMMITMENTS AND CONTINGENCIES
COMMITMENTS. Total rent expense under operating leases was $49,388, $41,310
and $38,099 for the years ended December 31, 2001, 2000 and 1999, respectively.
Certain leases are subject to escalation clauses and certain leases contain
renewal options. The leases primarily relate to real estate and equipment. The
following annual rental commitments include $13,037 that has been reserved for
as part of the provision for severance, closures and restructuring related costs
(see Note 18) and is included in accrued expenses and other in the accompanying
December 31, 2001 consolidated balance sheet. This amount represents the net
present valued obligation, taking into account anticipated sub-leases, for
offices
77
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
22. COMMITMENTS AND CONTINGENCIES (CONTINUED)
closed or to be closed by the Company that still have remaining lease
obligations. Minimum rental commitments under noncancelable operating leases are
as follows:
YEARS ENDING DECEMBER 31,
-------------------------
2002.................................................. $ 56,057
2003.................................................. 50,467
2004.................................................. 44,201
2005.................................................. 40,849
2006.................................................. 35,145
Thereafter............................................ 133,743
--------
$360,462
========
Future minimum lease payments under capital leases (see Notes 7 and 11) are
as follows:
YEARS ENDING DECEMBER 31,
-------------------------
2002.................................................. $ 6,135
2003.................................................. 5,470
2004.................................................. 4,620
2005.................................................. 2,743
2006.................................................. 2,666
Thereafter............................................ 18,653
-------
40,287
Less: Amount representing interest (at rates ranging
from 4.4% to 12.9%)................................. 11,608
-------
Present value of net minimum lease payments........... 28,679
Less: Current portion................................. 4,015
-------
Long-term obligations (included in long-term debt).... $24,664
=======
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 affect on the consolidated
financial statements of the Company.
At December 31, 2001, the Company had approximately $25,000 aggregate face
amount of letters of credit outstanding (see Note 11).
23. RELATED PARTY TRANSACTIONS
The Company and a partnership managed by KKR completed the financing
transactions described in Note 3. In addition, during each of the years ended
December 31, 2001, 2000 and 1999, the Company incurred and paid administrative
and other fees to KKR, an affiliated party, of $1,000. Approximately $750 of the
2001 fee was capitalized as acquisition and financing costs. During the years
ended December 31, 2001, 2000 and 1999, the Company paid directors' fees to
certain partners of KKR aggregating $220, $206 and $195, respectively.
During 2000, a partnership affiliated with KKR purchased shares of About on
the open market. These shares converted to shares of the Company at the merger
completion date.
78
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
24. UNAUDITED QUARTERLY FINANCIAL INFORMATION
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------------ ------------ ------------ ------------ ------------
FOR THE YEAR ENDED
DECEMBER 31, 2001:
Sales, net................ $ 427,006 $ 445,278 $ 418,623 $ 451,386 $ 1,742,293
Operating loss............ (28,947) (62,490) (178,484) (407,739) (677,660)
Net loss.................. (85,808) (139,680) (277,869) (608,284) (1,111,641)
Loss applicable to common
shareholders............ (99,482) (153,353) (292,817) (628,225) (1,173,877)
Basic and diluted loss
applicable to common
shareholders per common
share................... $ (.54) $ (.72) $ (1.29) $ (2.60) $ (5.42)
Basic and diluted common
shares outstanding...... 183,027,919 213,515,036 227,640,526 241,942,518 216,531,500
FOR THE YEAR ENDED
DECEMBER 31, 2000:
Sales, net................ $ 404,450 $ 425,527 $ 401,647 $ 459,328 $ 1,690,952
Operating income (loss)... 352 21,838 (6,989) 18,633 33,834
Net loss.................. (39,431) (7,068) (43,019) (257,308) (346,826)
Loss applicable to common
shareholders............ (52,697) (20,333) (56,285) (270,574) (399,889)
Basic and diluted loss
applicable to common
shareholders per common
share................... $ (.35) $ (.13) $ (.34) $ (1.62) $ (2.48)
Basic and diluted common
shares outstanding...... 149,257,038 161,034,718 166,639,589 167,484,869 161,104,053
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included on a quarterly basis.
During the first quarter of 2001, the Company recorded non-cash compensation
and non-recurring charges of $2,560, provision for severance, closures and
restructuring related costs of $6,487, gain on the sales of businesses and
other, net of $527 and provision for the impairment of investments of $3,248.
During the second quarter of 2001, the Company recorded non-cash compensation
and non-recurring charges of $10,168, provision for severance, closures and
restructuring related costs of $6,015, loss on the sales of businesses and
other, net of $(24) and provision for the impairment of investments of $27,559.
During the third quarter of 2001, the Company recorded non-cash compensation and
non-recurring charges of $47,440, provision for severance, closures and
restructuring related costs of $15,633, loss on the sales of businesses and
other, net of $(70) and provision for the impairment of investments of $57,684.
In addition, during the third quarter of 2001, the Company recorded $47,460 of
impairments to write-down certain long-lived assets, primarily the excess of
purchase price over net assets acquired and other intangible assets. These
impairments are included as a component of amortization of intangible assets,
79
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
24. UNAUDITED QUARTERLY FINANCIAL INFORMATION (CONTINUED)
excess of purchase price over net assets acquired and other on the accompanying
statement of consolidated operations. During the fourth quarter of 2001, the
Company recorded non-cash compensation and non-recurring charges of $(1,987),
provision for severance, closures and restructuring related costs of $15,785,
gain on the sales of businesses and other, net of $56,800 primarily attributable
to the sale of Bacons, provision for the impairment of investments of $18,021
and deferred income tax expense of $135,000. In addition, during the fourth
quarter of 2001, the Company recorded $397,239 of impairments to write down
certain long-lived assets, primarily the excess of purchase price over net
assets acquired and other intangible assets. These impairments are included as a
component of amortization of intangible assets, excess of purchase price over
net assets acquired and other on the accompanying statement of consolidated
operations.
During the first quarter of 2000, the Company recorded non-cash compensation
of $14,792, restructuring related costs of $6,319 and gain on the sale of
businesses and other of $10,992. During the second quarter of 2000, the Company
recorded non-cash compensation and non-recurring charges of $9,752, a provision
for severance, closures and restructuring related costs of $10,399 and gain on
the sale of businesses and other, net of $17,490. During the third quarter of
2000, the Company recorded non-cash compensation of $2,354, a provision for
severance, closures and restructuring related costs of $2,291 and loss on the
sale of businesses and other, net of $(1,658). During the fourth quarter of
2000, the Company recorded non-cash compensation of $8,312, a provision for
severance, closures and restructuring related costs of $1,789, loss on the sale
of businesses and other, net of $(12,386) and a provision for the impairment of
investments of $188,526. During the fourth quarter of 2000, the Company recorded
income tax expense of $41,200.
All of these items, with the exception of the provision for the impairment
of investments and income tax expense, are included in operating income (loss).
25. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into two business segments:
consumer and business-to-business. The Company's consumer segment produces and
distributes magazines, guides and videos for consumers in various niche markets.
The Company's business-to-business segment produces and distributes magazines,
books, directories and vocational training materials to business professionals
in such fields as communications, agriculture, professional services, media,
transportation and healthcare. These segment results are regularly reviewed by
the Company's chief operating decision-maker to make decisions about resources
to be allocated to the segment and assess its performance. The Company's
Non-Core Businesses include SEG, QWIZ, Inc., Pictorial, Inc., certain business
directories, Bacon's, certain titles of the Business Magazines & Media Group,
Consumer Guides, EMAP, PRIMEDIA Enthusiast Group and the Youth Entertainment
Group, and certain other businesses to be divested or discontinued. In addition,
the Company has restructured or consolidated several new media properties,
including IndustryClick and GR8Ride, whose value can be realized with far
greater efficiency by having select functions absorbed by the core operations
and has included these properties in Non-Core Businesses. It is management's
intention that businesses designated as Non-Core Businesses will be classified
as such for short periods of time, generally not to exceed one year. The Company
has segregated the Non-Core Businesses from the aforementioned segments because
the Company's chief operating decision-maker views these businesses separately
when evaluating and making decisions regarding ongoing operations. The
information presented below includes certain allocations and intercompany
transactions and is therefore, not necessarily indicative of the results had the
operations existed as stand-alone businesses. In the ordinary course of
80
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
25. BUSINESS SEGMENT INFORMATION (CONTINUED)
business, corporate administrative costs of approximately $9,900, $9,600 and
$8,300 were allocated to the Non-Core Businesses during the years ended
December 31, 2001, 2000 and 1999, respectively. The Company believes that these
costs, many of which are transaction driven, such as the processing of payables
and payroll, will be permanently reduced or eliminated upon the shutdown or
divestiture of the Non-Core Businesses. These intercompany transactions are
eliminated in consolidation. Information as to the operations of the Company in
different business segments is set forth below based on the nature of the
targeted audience. Corporate represents items not allocated to other business
segments such as general corporate administration. PRIMEDIA evaluates
performance based on several factors, of which the primary financial measure is
segment earnings before interest, taxes, depreciation, amortization and other
(income) charges ("EBITDA"). Other (income) charges include non-cash
compensation and non-recurring charges, provision for severance, closures and
restructuring related costs and gain on sales of businesses and other, net.
The Company has reclassified certain product lines as Non-Core Businesses
and, in certain instances has restated prior periods accordingly. The Company
believes that the amounts that have not been restated are not significant.
2001 2000 1999
---------- ---------- ----------
SALES, NET:
Continuing Businesses:
Consumer(1).......................... $1,311,005 $1,129,942 $1,016,084
Business-to-Business................. 423,204 473,589 440,013
Eliminations......................... (65,451) (46,312) --
Non-Core Businesses.................... 73,535 133,733 260,005
---------- ---------- ----------
Total.............................. $1,742,293 $1,690,952 $1,716,102
========== ========== ==========
EBITDA(2):
Continuing Businesses:
Consumer(1).......................... $ 163,517 $ 199,748 $ 214,829
Business-to-Business(3).............. 68,897 114,076 95,901
Other:
Corporate.......................... (32,308) (33,974) (34,986)
Non-Core Businesses.................... (28,340) (23,171) 64,810
---------- ---------- ----------
Total.............................. $ 171,766 $ 256,679 $ 340,554
========== ========== ==========
DEPRECIATION OF PROPERTY AND EQUIPMENT:
Continuing Businesses:
Consumer............................. $ 47,679 $ 26,294 $ 26,955
Business-to-Business................. 26,255 18,856 15,525
Other:
Corporate.......................... 2,109 1,947 1,515
Non-Core Businesses.................... 6,406 5,823 3,658
---------- ---------- ----------
Total.............................. $ 82,449 $ 52,920 $ 47,653
========== ========== ==========
81
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
25. BUSINESS SEGMENT INFORMATION (CONTINUED)
TOTAL ASSETS:
Continuing Businesses:
Consumer............................. $2,003,653 $1,402,577 $1,393,232
Business-to-Business................. 622,737 707,529 704,251
Other:
Corporate.......................... 75,171 405,128 300,710
Non-Core Businesses.................... 30,446 162,245 316,359
---------- ---------- ----------
Total.............................. $2,732,007 $2,677,479 $2,714,552
========== ========== ==========
ADDITIONS TO PROPERTY, EQUIPMENT AND OTHER, NET:
Continuing Businesses:
Consumer............................. $ 39,822 $ 33,039 $ 32,485
Business-to-Business................. 12,358 23,348 26,544
Other:
Corporate.......................... 2,251 1,192 1,163
Non-Core Businesses.................... 6,309 20,000 9,296
---------- ---------- ----------
Total.............................. $ 60,740 $ 77,579 $ 69,488
========== ========== ==========
The following is a reconciliation of EBITDA to operating income (loss).
2001 2000 1999
--------- --------- ---------
Total EBITDA (2)............................ $ 171,766 $ 256,679 $ 340,554
Depreciation of property and equipment...... (82,449) (52,920) (47,653)
Amortization of intangible assets, excess of
purchase price over net assets acquired
and other (4)............................. (713,572) (128,355) (452,149)
Non-cash compensation and non-recurring
charges................................... (58,181) (35,210) --
Gain on the sales of businesses and other,
net....................................... 57,233 14,438 235,580
Provision for severance, closures and
restructuring related costs............... (43,920) (20,798) (22,000)
Other integration costs included in general
and administrative expenses (5)........... (8,537) -- --
--------- --------- ---------
Operating income (loss)..................... $(677,660) $ 33,834 $ 54,332
========= ========= =========
------------------------------
(1) Includes results of Modern Bride Group (which includes MODERN BRIDE plus 16
regional bridal magazines) which was divested during 2002. Sales of Modern
Bride Group were $47,032, $48,941, and $44,113 during 2001, 2000 and 1999,
respectively. EBITDA of Modern Bride Group was $6,054 (includes EBITDA
impact of approximately $3,400 of revenue from assets-for-equity
transactions), $6,465 (includes EBITDA impact of approximately $225 of
revenue from assets-for-equity transactions) and $5,312 (does not include
any EBITDA impact because there were no assets-for-equity transactions)
during 2001, 2000 and 1999, respectively.
(2) Represents earnings before interest, taxes, depreciation, amortization and
other (income) and charges including non-cash compensation and non-recurring
charges of $58,181 and $35,210 for the years ended December 31, 2001 and
2000, respectively, a provision for severance, closures and restructuring
related costs of $43,920, $20,798 and $22,000 for the years ended
December 31, 2001, 2000 and 1999, respectively, and (gain) on the sales of
businesses and other, net of $(57,233), $(14,438) and $(235,580) for the
years ended December 31, 2001, 2000, and 1999, respectively, and for the
year ended December 31, 2001,
82
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
25. BUSINESS SEGMENT INFORMATION (CONTINUED)
EBITDA excludes $8,537 of other integration costs included in general and
administrative expenses. EBITDA is not intended to represent cash flow from
operating activities and should not be considered as an alternative to net
income (loss) (as determined in conformity with generally accepted
accounting principles) as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. The Company believes
EBITDA is a standard measure commonly reported and widely used by analysts,
investors and other interested parties in the media industry. Accordingly,
this information has been disclosed herein to permit a more complete
comparative analysis of the Company's operating performance relative to
other companies in its industry. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity. The primary difference between EBITDA and cash flows provided by
operating activities relates to changes in working capital requirements and
payments made for interest and income taxes. Additionally, EBITDA is not
available for the Company's discretionary use as there are legal
requirements to pay preferred stock dividends and repay debt, among other
payments. EBITDA as presented may not be comparable to similarly titled
measures reported by other companies, since not all companies necessarily
calculate EBITDA in identical manners, and therefore, is not necessarily an
accurate measure of comparison between companies.
(3) Includes the reversal of a $4,000 sales tax accrual that was no longer
required. The reversal was recorded during the three months ended March 31,
2001.
(4) Includes a provision for the impairment of long-lived assets of $444,699 and
$275,788 for the years ended December 31, 2001 and 1999, respectively.
(5) Includes certain integration costs primarily related to the About merger and
other Company-wide integration efforts. These costs principally represent
internal personnel costs associated with the consolidation of company-wide
functions as well as fees paid to consultants related to the centralization
of certain support functions and implementation of certain standardized
technology.
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT
The information that follows presents condensed consolidating financial
information as of and for the years ended December 31, 2001, 2000 and 1999 for
a) PRIMEDIA Inc. (as the Issuer), b) the guarantor subsidiaries, 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), d) elimination entries and e) the Company on
a consolidated basis. Certain businesses, which were included as guarantor
subsidiaries in 1999 and 2000 have been classified as non-guarantor subsidiaries
in 2001.
The December 31, 1999 results for the non-guarantor subsidiaries are for a
six-month period.
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 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 receivable and payable
balances in the accompanying condensed consolidating balance sheets includes
cash management activities, management fees, cross promotional activities and
other intercompany charges between Corporate and the business units and among
the business units. Such intercompany balances are eliminated in consolidation.
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 expenses described above are billed, by the Company, at market
rates. All intercompany related activities are eliminated in consolidation.
83
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
Sales, net..................................... $ -- $1,516,489 $ 294,172 $(68,368) $ 1,742,293
Operating costs and expenses:
Cost of goods sold........................... -- 364,951 126,638 (68,157) 423,432
Marketing and selling........................ 80 323,812 105,613 -- 429,505
Distribution, circulation and fulfillment.... -- 209,100 83,835 -- 292,935
Editorial.................................... -- 118,869 41,293 -- 160,162
Other general expenses....................... 131 152,108 88,694 -- 240,933
Corporate administrative expenses (excluding
non-cash compensation and non-recurring
charges)................................... 29,226 1,182 1,900 (211) 32,097
Depreciation of property and equipment....... 2,108 42,149 38,192 -- 82,449
Amortization of intangible assets, excess of
purchase price over net assets acquired and
other (including impairments).............. 509 163,654 549,409 -- 713,572
Non-cash compensation and non-recurring
charges.................................... 30,199 -- 27,982 -- 58,181
Provision for severance, closures and
restructuring related costs................ 14,201 7,592 22,127 -- 43,920
(Gain) loss on the sales of businesses and
other, net................................. (9,218) (48,848) 833 -- (57,233)
----------- ---------- --------- -------- -----------
Operating income (loss)........................ (67,236) 181,920 (792,344) -- (677,660)
Other income (expense):
Provision for the impairment of
investments................................ (93,869) -- (12,643) (106,512)
Interest expense............................. (142,223) (3,335) (402) -- (145,960)
Amortization of deferred financing costs..... (603) (10,205) (139) -- (10,947)
Equity in losses of subsidiaries............. (855,146) -- -- 855,146 --
Intercompany management fees and interest.... 215,896 (215,896) -- -- --
Other, net................................... (34,005) 14,716 (16,273) -- (35,562)
----------- ---------- --------- -------- -----------
Loss before income tax expense................. (977,186) (32,800) (821,801) 855,146 (976,641)
Income tax expense............................. (134,455) (386) (159) -- (135,000)
----------- ---------- --------- -------- -----------
Net loss....................................... $(1,111,641) $ (33,186) $(821,960) $855,146 $(1,111,641)
=========== ========== ========= ======== ===========
84
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
ASSETS
Current assets:
Cash and cash equivalents........... $ 17,478 $ 13,257 $ 2,853 $ -- $ 33,588
Accounts receivable, net............ 991 241,817 32,896 -- 275,704
Intercompany receivables............ 852,188 486,870 78,932 (1,417,990) --
Inventories, net.................... -- 31,986 2,078 -- 34,064
Prepaid expenses and other.......... 8,849 45,371 10,392 -- 64,612
----------- ----------- --------- ----------- -----------
Total current assets.............. 879,506 819,301 127,151 (1,417,990) 407,968
Property and equipment, net........... 6,590 109,909 53,735 -- 170,234
Investment in and advances to
subsidiaries........................ 1,233,308 -- -- (1,233,308) --
Other intangible assets, net.......... 1,451 569,397 34,249 -- 605,097
Excess of purchase price over net
assets acquired, net................ (6,077) 1,331,633 99,074 -- 1,424,630
Other investments..................... 39,777 -- 6,216 -- 45,993
Other non-current assets.............. (106) 76,491 1,700 -- 78,085
----------- ----------- --------- ----------- -----------
$ 2,154,449 $ 2,906,731 $ 322,125 $(2,651,298) $ 2,732,007
=========== =========== ========= =========== ===========
LIABILITIES AND SHAREHOLDERS'
DEFICIENCY
Current liabilities:
Accounts payable.................... $ 2,510 $ 115,122 $ 17,870 $ -- $ 135,502
Intercompany payables............... -- 986,891 431,099 (1,417,990) --
Accrued interest payable............ 33,568 -- -- -- 33,568
Accrued expenses and other.......... 70,458 119,451 53,357 -- 243,266
Deferred revenues................... 37,346 175,110 (4,830) -- 207,626
Current maturities of long-term
debt.............................. 4,319 3,934 12 -- 8,265
----------- ----------- --------- ----------- -----------
Total current liabilities......... 148,201 1,400,508 497,508 (1,417,990) 628,227
----------- ----------- --------- ----------- -----------
Long-term debt........................ 1,921,305 24,326 -- -- 1,945,631
----------- ----------- --------- ----------- -----------
Intercompany notes payable............ -- 2,491,381 781,349 (3,272,730) --
----------- ----------- --------- ----------- -----------
Deferred revenues..................... 2,578 46,438 -- -- 49,016
----------- ----------- --------- ----------- -----------
Other non-current liabilities......... -- 25,464 1,304 -- 26,768
----------- ----------- --------- ----------- -----------
Exchangeable preferred stock.......... 562,957 -- -- -- 562,957
----------- ----------- --------- ----------- -----------
85
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
Shareholders' deficiency:
Series J convertible preferred
stock............................. 122,015 -- -- -- 122,015
Common stock........................ 2,509 -- -- -- 2,509
Additional paid-in capital.......... 2,258,932 -- -- -- 2,258,932
Accumulated deficit................. (2,772,201) (1,081,036) (957,817) 2,038,853 (2,772,201)
Accumulated other comprehensive
loss.............................. (2,122) (350) (219) 569 (2,122)
Unearned compensation............... (11,882) -- -- -- (11,882)
Common stock in treasury, at cost... (77,843) -- -- -- (77,843)
----------- ----------- --------- ----------- -----------
Total shareholders' deficiency.... (480,592) (1,081,386) (958,036) 2,039,422 (480,592)
----------- ----------- --------- ----------- -----------
$ 2,154,449 $ 2,906,731 $ 322,125 $(2,651,298) $ 2,732,007
=========== =========== ========= =========== ===========
86
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
OPERATING ACTIVITIES:
Net loss.................................... $(1,111,641) $ (33,186) $(821,960) $ 855,146 $(1,111,641)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 3,220 216,051 587,697 -- 806,968
(Gain) loss on the sales of businesses and
other, net.............................. (9,218) (53,926) 5,911 -- (57,233)
Non-cash revenue related to
assets-for-equity transactions.......... -- (35,092) (18,658) -- (53,750)
Equity in losses of equity method
investments............................. 37,015 732 2,014 -- 39,761
Accretion of discount on acquisition
obligation and other.................... 660 997 -- -- 1,657
Non-cash compensation and non-cash non-
recurring charges....................... 28,125 -- 1,503 -- 29,628
Provision for the impairment of
investments............................. 93,869 -- 12,643 -- 106,512
Equity in losses of subsidiaries.......... 855,146 -- -- (855,146) --
Intercompany (income) expense............. (215,896) 215,896 -- -- --
Deferred income taxes..................... 135,000 -- -- -- 135,000
Other, net................................ -- (2,008) 8,874 -- 6,866
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net.................. (921) 30,994 20,298 -- 50,371
Inventories, net.......................... -- 4,415 12,235 -- 16,650
Prepaid expenses and other................ (35,531) 1,417 21,205 -- (12,909)
Increase (decrease) in:
Accounts payable.......................... (5,043) (13,849) (5,223) -- (24,115)
Accrued interest payable.................. 14,746 48 (48) -- 14,746
Accrued expenses and other................ 4,620 (16,042) (25,297) -- (36,719)
Deferred revenues......................... (30) (10,140) (1,812) -- (11,982)
Other non-current liabilities............. 146 (25,320) 24,016 -- (1,158)
----------- --------- --------- --------- -----------
Net cash provided by (used in) operating
activities............................ (205,733) 280,987 (176,602) -- (101,348)
----------- --------- --------- --------- -----------
INVESTING ACTIVITIES:
Additions to property, equipment and other,
net....................................... (2,140) (29,555) (29,045) -- (60,740)
Proceeds from sales of businesses and
other..................................... 6,557 82,871 985 -- 90,413
Payments for businesses acquired, net of
cash acquired............................. 10,000 (543,930) 108,082 -- (425,848)
Payments for other investments.............. (12,672) (1,560) 3,350 -- (10,882)
----------- --------- --------- --------- -----------
Net cash provided by (used in) investing
activities............................ 1,745 (492,174) 83,372 -- (407,057)
----------- --------- --------- --------- -----------
87
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
FINANCING ACTIVITIES:
Intercompany activity....................... $ (328,583) $ 233,591 $ 94,992 $ -- $ --
Borrowings under credit agreements.......... 1,474,600 -- -- -- 1,474,600
Repayments of borrowings under credit
agreements................................ (1,620,725) -- -- -- (1,620,725)
Proceeds from issuances of 8 7/8% Senior
Notes, net of discount.................... 492,685 -- -- -- 492,685
Payments of acquisition obligation.......... (3,310) (5,523) -- -- (8,833)
Proceeds from issuances of common stock and
Series K Convertible Preferred Stock,
net....................................... 130,202 -- 97 -- 130,299
Proceeds from issuance of Series J Preferred
Stock, net................................ 124,649 -- -- -- 124,649
Dividends paid to preferred stock
shareholders.............................. (53,060) -- -- -- (53,060)
Deferred financing costs paid............... (370) (17,518) -- -- (17,888)
Other....................................... (158) (3,199) (67) -- (3,424)
----------- --------- --------- --------- -----------
Net cash provided by financing
activities............................ 215,930 207,351 95,022 -- 518,303
----------- --------- --------- --------- -----------
Increase (decrease) in cash and cash
equivalents................................. 11,942 (3,836) 1,792 -- 9,898
Cash and cash equivalents, beginning of
year........................................ $ 5,536 $ 17,093 $ 1,061 $ -- $ 23,690
----------- --------- --------- --------- -----------
Cash and cash equivalents, end of year........ $ 17,478 $ 13,257 $ 2,853 $ -- $ 33,588
=========== ========= ========= ========= ===========
88
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
Sales, net..................................... $ -- $1,679,542 $ 61,989 $(50,579) $1,690,952
Operating costs and expenses:
Cost of goods sold........................... -- 385,772 59,301 (50,579) 394,494
Marketing and selling........................ -- 363,253 23,590 -- 386,843
Distribution, circulation and fulfillment.... -- 233,435 22,076 -- 255,511
Editorial.................................... -- 132,358 5,487 -- 137,845
Other general expenses....................... -- 184,759 40,847 -- 225,606
Corporate administrative expenses (excluding
non-cash compensation and non-recurring
charges)................................... 33,023 -- 951 -- 33,974
Depreciation of property and equipment....... 1,947 43,093 7,880 -- 52,920
Amortization of intangible assets, excess of
purchase price over net assets acquired and
other...................................... 328 126,355 1,672 -- 128,355
Non-cash compensation and non-recurring
charges.................................... 27,810 7,400 -- -- 35,210
Provision for severance, closures and
restructuring related costs................ 14,372 6,281 145 -- 20,798
Gain on the sales of businesses and other,
net........................................ (5,669) (5,906) (2,863) -- (14,438)
--------- ---------- --------- -------- ----------
Operating income (loss)........................ (71,811) 202,742 (97,097) -- 33,834
Other income (expense):
Provision for the impairment of
investments................................ (177,344) -- (11,182) (188,526)
Interest expense............................. (138,060) (5,650) (278) -- (143,988)
Amortization of deferred financing costs..... -- (3,836) -- -- (3,836)
Equity in losses of subsidiaries............. (134,536) -- -- 134,536 --
Intercompany management fees and interest.... 224,988 (224,988) -- -- --
Other, net................................... (8,863) 6,135 (382) -- (3,110)
--------- ---------- --------- -------- ----------
Loss before income tax expense................. (305,626) (25,597) (108,939) 134,536 (305,626)
Income tax expense............................. (41,200) -- -- -- (41,200)
--------- ---------- --------- -------- ----------
Net loss....................................... $(346,826) $ (25,597) $(108,939) $134,536 $ (346,826)
========= ========== ========= ======== ==========
89
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
ASSETS
Current assets
Cash and cash equivalents................ $ 5,536 $ 16,995 $ 1,159 $ -- $ 23,690
Accounts receivable, net................. 70 257,075 8,801 -- 265,946
Intercompany receivables................. 774,165 324,678 17,690 (1,116,533) --
Inventories, net......................... -- 27,827 854 -- 28,681
Prepaid expenses and other............... 2,253 36,913 9,464 -- 48,630
----------- ----------- -------- ----------- -----------
Total current assets................... 782,024 663,488 37,968 (1,116,533) 366,947
Property and equipment, net................ 6,554 128,016 40,990 -- 175,560
Investment in and advances to
subsidiaries............................. 950,319 -- -- (950,319) --
Other intangible assets, net............... 2,353 501,861 1,942 -- 506,156
Excess of purchase price over net assets
acquired, net............................ (13,070) 1,146,701 7,805 -- 1,141,436
Deferred income tax asset, net............. 135,000 -- -- -- 135,000
Other investments.......................... 248,236 914 16,318 -- 265,468
Other non-current assets................... 1,857 84,910 145 -- 86,912
----------- ----------- -------- ----------- -----------
$ 2,113,273 $ 2,525,890 $105,168 $(2,066,852) $ 2,677,479
=========== =========== ======== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable......................... $ 7,552 $ 109,650 $ 3,584 $ -- $ 120,786
Intercompany payables.................... -- 899,208 217,325 (1,116,533) --
Accrued interest payable................. 18,822 -- -- -- 18,822
Accrued expenses and other............... 67,734 144,270 10,769 -- 222,773
Deferred revenues........................ 26,164 190,914 18,470 -- 235,548
Current maturities of long-term debt..... 105,744 9,706 15 -- 115,465
----------- ----------- -------- ----------- -----------
Total current liabilities.............. 226,016 1,353,748 250,163 (1,116,533) 713,394
----------- ----------- -------- ----------- -----------
Long-term debt............................. 1,476,128 27,051 9 -- 1,503,188
----------- ----------- -------- ----------- -----------
Intercompany notes payable................. -- 2,138,619 -- (2,138,619) --
----------- ----------- -------- ----------- -----------
Deferred revenues.......................... 85,831 26,465 -- -- 112,296
----------- ----------- -------- ----------- -----------
Other non-current liabilities.............. -- 22,114 1,189 -- 23,303
----------- ----------- -------- ----------- -----------
Exchangeable preferred stock............... 561,324 -- -- -- 561,324
----------- ----------- -------- ----------- -----------
90
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
Shareholders' deficiency:
Common stock............................. 1,678 -- -- -- 1,678
Additional paid-in capital............... 1,366,950 -- -- -- 1,366,950
Accumulated deficit...................... (1,603,096) (1,040,278) (145,771) 1,186,049 (1,603,096)
Accumulated other comprehensive income
(loss)................................. (1,558) (1,829) (422) 2,251 (1,558)
Unearned stock grant compensation........ -- -- -- -- --
Common stock in treasury,
at cost................................ -- -- -- -- --
---------- ----------- -------- ----------- ----------
Total shareholders' deficiency......... (236,026) (1,042,107) (146,193) 1,188,300 (236,026)
---------- ----------- -------- ----------- ----------
$2,113,273 $ 2,525,890 $105,168 $(2,066,852) $2,677,479
========== =========== ======== =========== ==========
91
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
OPERATING ACTIVITIES:
Net loss.................................... $(346,826) $ (25,597) $(108,939) $ 134,536 $(346,826)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 2,275 173,284 9,552 -- 185,111
Gain on the sales of businesses and other,
net..................................... (5,669) (5,906) (2,863) -- (14,438)
Non-cash revenue related to
assets-for-equity transactions.......... -- (39,395) (7,411) -- (46,806)
Equity in losses of equity method
investments............................. 8,257 1,880 -- -- 10,137
Accretion of discount on acquisition
obligation and other.................... 841 3,097 -- -- 3,938
Non-cash compensation and non-cash non-
recurring charges....................... 27,810 7,400 -- -- 35,210
Provision for the impairment of
investments............................. 177,344 -- 11,182 -- 188,526
Equity in losses of subsidiaries.......... 134,536 -- -- (134,536) --
Intercompany (income) expense............. (224,988) 224,988 -- -- --
Deferred income taxes..................... 41,200 -- -- -- 41,200
Other, net................................ (32) (234) (311) -- (577)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net.................. (25) (28,256) (5,510) -- (33,791)
Inventories, net.......................... -- 1,475 1,270 -- 2,745
Prepaid expenses and other................ (2,302) (3,812) (7,179) -- (13,293)
Increase (decrease) in:
Accounts payable.......................... 4,110 10,900 2,274 -- 17,284
Accrued interest payable.................. (557) -- -- -- (557)
Accrued expenses and other................ 10,803 2,796 6,798 -- 20,397
Deferred revenues......................... 30 (6,250) 5,966 -- (254)
Other non-current liabilities............. (21) 4,539 22 -- 4,540
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................ (173,214) 320,909 (95,149) -- 52,546
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Additions to property, equipment and other,
net....................................... (1,189) (43,895) (32,495) -- (77,579)
Proceeds from sales of businesses and
other..................................... -- 164,256 9,893 -- 174,149
Payments for businesses acquired, net of
cash acquired............................. -- (68,610) (1,488) -- (70,098)
Payments for other investments.............. (66,664) (1,935) (12,517) -- (81,116)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities............................ (67,853) 49,816 (36,607) -- (54,644)
--------- --------- --------- --------- ---------
92
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
FINANCING ACTIVITIES:
Intercompany activity....................... $ 216,242 $(351,358) $ 135,116 $ -- $ --
Borrowings under credit agreements.......... 641,150 -- -- -- 641,150
Repayments of borrowings under credit
agreements................................ (756,150) 51 (5,576) -- (761,675)
Payments of acquisition obligation.......... (7,182) (11,985) -- -- (19,167)
Proceeds from issuances of common stock, net
of redemptions............................ 194,594 -- -- -- 194,594
Purchases of common stock for the
treasury.................................. (512) -- -- -- (512)
Dividends paid to preferred stock
shareholders.............................. (53,063) -- -- -- (53,063)
Deferred financing costs paid............... -- (192) -- -- (192)
Other....................................... 3 (4,011) -- -- (4,008)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................ 235,082 (367,495) 129,540 -- (2,873)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents................................. (5,985) 3,230 (2,216) -- (4,971)
Cash and cash equivalents, beginning of
year........................................ 11,521 13,765 3,375 -- 28,661
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year........ $ 5,536 $ 16,995 $ 1,159 $ -- $ 23,690
========= ========= ========= ========= =========
93
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
Sales, net................................... $ -- $ 1,704,006 $ 19,725 $ (7,629) $ 1,716,102
Operating costs and expenses:
Cost of goods sold......................... -- 393,803 16,394 (7,629) 402,568
Marketing and selling...................... -- 357,197 9,110 -- 366,307
Distribution, circulation and
fulfillment.............................. -- 239,581 6,864 -- 246,445
Editorial.................................. -- 134,821 673 -- 135,494
Other general expenses..................... -- 179,630 10,118 -- 189,748
Corporate administrative expenses.......... 34,216 770 -- -- 34,986
Depreciation of property and equipment..... 1,515 44,885 1,253 -- 47,653
Amortization of intangible assets, excess
of purchase price over net assets
acquired and other (including
impairments)............................. 473 450,843 833 -- 452,149
Provision for severance, closures and
restructuring related costs.............. -- 22,000 -- -- 22,000
Gain on the sales of businesses and other,
net...................................... -- (229,402) (6,178) -- (235,580)
--------- ----------- -------- --------- -----------
Operating income (loss)...................... (36,204) 109,878 (19,342) -- 54,332
Other income (expense):
Interest expense........................... (158,055) (6,495) (359) -- (164,909)
Amortization of deferred financing costs... (143) (3,139) (4) -- (3,286)
Equity in losses of subsidiaries........... (123,001) -- -- 123,001 --
Intercompany income (expense).............. 196,019 (196,004) (15) -- --
Other, net................................. 1,271 (329) (692) -- 250
--------- ----------- -------- --------- -----------
Loss before income tax expense............... (120,113) (96,089) (20,412) 123,001 (113,613)
Income tax expense........................... -- (6,500) -- -- (6,500)
--------- ----------- -------- --------- -----------
Net loss..................................... $(120,113) $ (102,589) $(20,412) $ 123,001 $ (120,113)
========= =========== ======== ========= ===========
94
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
ASSETS
Current assets
Cash and cash equivalents................ $ 11,521 $ 13,765 $ 3,375 $ -- $ 28,661
Accounts receivable, net................. 67 231,506 3,992 -- 235,565
Intercompany receivables................. 866,999 96,850 6,600 (970,449) --
Inventories, net......................... -- 30,585 2,124 -- 32,709
Prepaid expenses and other............... 1,576 33,822 1,082 -- 36,480
---------- ----------- -------- ----------- ----------
Total current assets................... 880,163 406,528 17,173 (970,449) 333,415
Property and equipment, net................ 7,603 133,287 11,453 -- 152,343
Investment in and advances to
subsidiaries............................. 1,287,095 -- -- (1,287,095) --
Other intangible assets, net............... 3,048 612,198 4,704 -- 619,950
Excess of purchase price over net assets
acquired, net............................ (13,437) 1,216,901 11,942 -- 1,215,406
Deferred income tax asset, net............. 176,200 -- -- -- 176,200
Other investments.......................... 5,785 933 105,461 -- 112,179
Other non-current assets................... 2,881 100,740 1,438 -- 105,059
---------- ----------- -------- ----------- ----------
$2,349,338 $ 2,470,587 $152,171 $(2,257,544) $2,714,552
========== =========== ======== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable......................... $ 3,442 $ 97,801 $ 1,435 $ -- $ 102,678
Intercompany payables.................... 150,938 737,129 82,382 (970,449) --
Accrued interest payable................. 19,379 -- -- -- 19,379
Accrued expenses and other............... 56,597 156,951 4,189 -- 217,737
Deferred revenues........................ -- 167,579 3,760 -- 171,339
Current maturities of long-term debt..... 7,280 15,460 -- -- 22,740
---------- ----------- -------- ----------- ----------
Total current liabilities.............. 237,636 1,174,920 91,766 (970,449) 533,873
---------- ----------- -------- ----------- ----------
Long-term debt............................. 1,695,715 31,656 5,525 -- 1,732,896
---------- ----------- -------- ----------- ----------
Intercompany notes payable................. -- 2,250,568 697 (2,251,265) --
---------- ----------- -------- ----------- ----------
Other non-current liabilities.............. -- 29,684 2,112 -- 31,796
---------- ----------- -------- ----------- ----------
Exchangeable preferred stock............... 559,689 -- -- -- 559,689
---------- ----------- -------- ----------- ----------
Common stock subject to redemption......... 536 -- -- -- 536
---------- ----------- -------- ----------- ----------
Shareholders' equity (deficiency):
Common stock............................. 1,483 -- -- -- 1,483
Additional paid-in capital............... 986,649 -- -- -- 986,649
Accumulated deficit...................... (1,203,207) (1,014,505) (37,029) 1,051,534 (1,203,207)
Accumulated other comprehensive income
(loss)................................. 87,364 (1,736) 89,100 (87,364) 87,364
95
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
Unearned stock grant compensation........ $ (15,250) $ -- $ -- $ -- $ (15,250)
Common stock in treasury,
at cost................................ (1,277) -- -- -- (1,277)
---------- ----------- -------- ----------- ----------
Total shareholders' equity
(deficiency)......................... (144,238) (1,016,241) 52,071 964,170 (144,238)
---------- ----------- -------- ----------- ----------
$2,349,338 $ 2,470,587 $152,171 $(2,257,544) $2,714,552
========== =========== ======== =========== ==========
96
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
OPERATING ACTIVITIES:
Net loss................................... $ (120,113) $ (102,589) $(20,412) $ 123,001 $ (120,113)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 2,131 498,867 2,090 -- 503,088
Gain on the sales of businesses and
other, net............................. -- (229,402) (6,178) -- (235,580)
Equity in losses of equity method
investments............................ -- 691 -- -- 691
Accretion of discount on acquisition
obligation and other................... 1,340 4,134 -- -- 5,474
Equity in losses of subsidiaries......... 123,001 -- -- (123,001) --
Intercompany (income) expense............ (196,019) 196,004 15 -- --
Provision for product-line closures...... -- 8,809 -- -- 8,809
Other, net............................... 1,710 (1,027) (398) -- 285
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable, net................. 140 (25,395) 437 -- (24,818)
Inventories, net......................... -- (2,952) (2,031) -- (4,983)
Prepaid expenses and other............... (3,183) (5,416) (1,079) -- (9,678)
Increase (decrease) in:
Accounts payable......................... 3,175 (3,995) 355 -- (465)
Accrued interest payable................. (1,072) -- -- -- (1,072)
Accrued expenses and other............... (1,959) (3,143) 1,514 -- (3,588)
Deferred revenues........................ -- (10,301) (558) -- (10,859)
Other non-current liabilities............ -- 88 19 -- 107
----------- ----------- -------- ----------- -----------
Net cash provided by (used in)
operating activities................. (190,849) 324,373 (26,226) -- 107,298
----------- ----------- -------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property, equipment and other,
net...................................... (1,163) (58,559) (9,766) -- (69,488)
Proceeds from sales of businesses and
other.................................... -- 406,292 7,141 -- 413,433
Payments for businesses acquired, net of
cash acquired............................ -- (142,902) (2,665) -- (145,567)
Payments for other investments............. -- (4,630) (7,667) -- (12,297)
----------- ----------- -------- ----------- -----------
Net cash provided by (used in)
investing activities................. (1,163) 200,201 (12,957) -- 186,081
----------- ----------- -------- ----------- -----------
97
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT (CONTINUED)
PRIMEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
PRIMEDIA INC.
GUARANTOR NON-GUARANTOR AND
PRIMEDIA INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- ------------ -------------- ------------ ---------------
FINANCING ACTIVITIES:
Intercompany activity.................... $ 470,212 $ 1,031,485 $ 40,270 $(1,541,967) $ --
Borrowings under credit agreements....... 862,500 1 288 -- 862,789
Repayments of borrowings under credit
agreements............................. (1,070,500) -- -- -- (1,070,500)
Payments of acquisition obligation....... (7,931) (13,235) -- -- (21,166)
Proceeds from issuances of common stock,
net of redemptions..................... 9,234 -- -- -- 9,234
Increase (decrease) in subsidiary capital
stock.................................. -- (1,541,967) -- 1,541,967 --
Purchases of common stock for the
treasury............................... (10,508) -- -- -- (10,508)
Dividends paid to preferred stock
shareholders........................... (53,062) -- -- -- (53,062)
Deferred financing costs paid............ (2,023) (3,672) (2) -- (5,697)
Other.................................... 16 (359) (3) -- (346)
----------- ----------- -------- ----------- -----------
Net cash provided by (used in)
financing activities................. 197,938 (527,747) 40,553 -- (289,256)
----------- ----------- -------- ----------- -----------
Increase (decrease) in cash and cash
equivalents................................ 5,926 (3,173) 1,370 -- 4,123
Cash and cash equivalents, beginning of
period..................................... 5,595 16,938 2,005 -- 24,538
----------- ----------- -------- ----------- -----------
Cash and cash equivalents, end of period..... $ 11,521 $ 13,765 $ 3,375 $ -- $ 28,661
=========== =========== ======== =========== ===========
27. SUBSEQUENT EVENTS
On February 24, 2002, in accordance with the financing provided by KKR 1996
Fund, the Company issued to KKR 1996 Fund additional warrants to purchase
1,000,000 shares of the Company's common stock as the Series J Convertible
Preferred Stock continued to be outstanding six months from the date of issuance
(see Note 3). The Company ascribed a value of $2,160 to these warrants based on
a Black Scholes pricing model.
On February 28, 2002, the Company completed the sale of its Modern Bride
Group to Advance Magazine Publishers Inc. for total consideration, including a
service agreement, of approximately $52,000.
98
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
PART III
Items 10, 11, 12 and 13 are omitted, except for information as to Executive
Officers set forth in Part I, Item 1, as the proxy statement is incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this report:
1. Index to Financial Statements
See Table of Contents to Financial Statements included in Part II, Item 8
of this report.
2. Index to Financial Statement Schedules
PAGE
--------
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
PRIMEDIA Inc. and Subsidiaries
For the Year Ended December 31, 2001............... S-1
For the Year Ended December 31, 2000............... S-2
For the Year Ended December 31, 1999............... S-3
Independent Auditors' Report on Schedule............. S-4
All schedules, except those set forth above, have been omitted since the
information required to be submitted has been included in the Consolidated
Financial Statements or Notes thereto or has been omitted as not applicable or
not required.
(b)--Reports on Form 8-K
PRIMEDIA Inc. filed its Current Report on Form 8-K on October 12, 2001
including information required by Item 5. This report dated October 12, 2001
announced that the Company has been informed that CMGI, Inc. sold 6,115,200
shares of PRIMEDIA Inc. common stock to an institutional investor in a privately
negotiated transaction.
PRIMEDIA Inc. filed its Current Report on Form 8-K/A on November 7, 2001
including information required by Items 2 and 7. This report dated August 24,
2001 announced that the Company has completed the acquisition of the publishing
business of EMAP, Inc. In addition, this report contained unaudited pro forma
financial information, the audited consolidated financial statements of EMAP,
Inc. as of and for the year ended March 31, 2001 and the notes thereto,
unaudited consolidated financial statements as of and for the three months ended
June 30, 2001 and the notes thereto and the consent of EMAP, Inc.'s independent
auditors.
(c)--Exhibits
2.1 --Agreement and Plan of Merger among PRIMEDIA Inc.,
Abracadabra Acquisition Corporation and About.com, Inc.
dated as of October 29, 2000. (18)
2.2 --Stock Purchase Agreement date as of July 1, 2001 among
Emap PLC, Emap America Partners, Emap Inc. and PRIMEDIA
Inc. (23)
3.1 --Certificate of Incorporation of K-III. (7)
99
3.2 --Certificate of Amendment to Certificate of Incorporation
of K-III (changing name from K-III to PRIMEDIA Inc.) (14)
3.3 --Certificate of Designations of the Series D Preferred
Stock. (11)
3.4 --Certificate of Designations of the Series F Preferred
Stock. (13)
3.5 --Certificate of Designations of the Series H Preferred
Stock. (15)
3.6 --Certificate of Designations of the Series K Preferred
Stock (*)
3.7 --Certificate of Designations of the Series J Preferred
Stock (*)
3.8 --Amended and Restated By-laws of K-III. (7)
3.9 --Certificate of Incorporation of Intertec Publishing
Corporation. (2)
3.10 --Certificate of Amendment to Certificate of Incorporation
of Intertec Publishing Corporation (changing name to
PRIMEDIA Intertec Corporation) (16)
3.11 --Certificate of Amendment to Certificate of Incorporation
of Intertec Publishing Corporation (changing name from
PRIMEDIA Intertec Corporation to Intertec Publishing
Corporation) (17)
3.12 --Amended and Restated By-laws of Intertec Publishing
Corporation. (2)
3.13 --Certificate of Amendment to Certificate of Incorporation
of PRIMEDIA Business Magazines and Media Inc. (changing
name from Intertec Publishing Corporation) (*)
3.14 --Certificate of Incorporation of Newbridge Communications,
Inc. (2)
3.15 --Certificate of Amendment to Certificate of Incorporation
of Newbridge Communications, Inc. (changing name to Films
for the Humanities and Sciences, Inc.) (14)
3.16 --By-laws of Newbridge Communications, Inc. (2)
3.17 --Certificate of Incorporation of K-III Directory
Corporation (1)
3.18 --Certificate of Amendment to Certificate of Incorporation
of K-III Directory Corporation (changing name to PRIMEDIA
Information Inc.) (14)
3.19 --By-laws of K-III Directory Corporation (1)
3.20 --Certificate of Incorporation of K-III Magazine
Corporation. (2)
3.21 --Certificate of Amendment to Certificate of Incorporation
of K-III Magazine Corporation (changing name to PRIMEDIA
Magazines Inc.) (14)
3.22 --By-laws of K-III Magazine Corporation. (2)
3.23 --Certificate of Incorporation of K-III Magazine Finance
Corporation. (2)
3.24 --Certificate of Amendment to Certificate of Incorporation
of K-III Magazine Finance Corporation (changing name to
PRIMEDIA Magazines Finance Inc.) (14)
3.25 --By-laws of K-III Magazine Finance Corporation. (2)
3.26 --Certificate of Incorporation of K-III Holdings Corporation
III. (2)
3.27 --Certificate of Amendment to Certificate of Incorporation
of K-III Holdings Corporation III (changing name to
PRIMEDIA Holdings III Inc.) (14)
3.28 --By-laws of K-III Holdings Corporation III. (2)
3.29 --Certificate of Incorporation of Haas Publishing Companies,
Inc. (5)
3.30 --By-laws of Haas Publishing Companies, Inc. (5)
3.31 --Certificate of Incorporation of Channel One Communications
Corporation. (8)
3.32 --By-laws of Channel One Communications Corporation. (8)
100
3.33 --Certificate of Incorporation of PJS Publications, Inc. (8)
3.34 --Certificate of Amendment to Certificate of Incorporation
of PJS Publications, Inc. (changing name to PRIMEDIA
Special Interest Publications Inc.) (14)
3.35 --By-laws of PJS Publications, Inc. (8)
3.36 --Certificate of Incorporation of Symbol of Excellence
Publishers, Inc. (8)
3.37 --By-laws of Symbol of Excellence Publishers, Inc. (8)
3.38 --Certificate of Incorporation of American Heat Video
Productions, Inc. (12)
3.39 --By-laws of American Heat Video Productions, Inc. (12)
3.40 --Certificate of Incorporation of Bankers Consulting
Company (12)
3.41 --By-laws of Bankers Consulting Company (12)
3.42 --Certificate of Incorporation of Industrial Training
Systems Corporation (12)
3.43 --By-laws of Industrial Training Systems Corporation (12)
3.44 --Certificate of Incorporation of Law Enforcement Television
Network, Inc. (TX) (12)
3.45 --By-laws of Law Enforcement Television Network, Inc.
(TX) (12)
3.46 --Certificate of Incorporation of Lockert Jackson &
Associates, Inc. (12)
3.47 --By-laws of Lockert Jackson & Associates, Inc. (12)
3.48 --Certificate of Incorporation of TI-IN Acquisition
Corporation (12)
3.49 --By-laws of TI-IN Acquisition Corporation (12)
3.50 --Certificate of Incorporation of Westcott Communications,
Inc. (12)
3.51 --Certificate of Amendment to Certificate of Incorporation
of Westcott Communications, Inc. (changing name to
PRIMEDIA Workplace Learning, Inc.) (14)
3.52 --By-laws of Westcott Communications, Inc. (12)
3.53 --Certificate of Incorporation of Westcott Communications
Michigan, Inc. (12)
3.54 --By-laws of Westcott Communications Michigan, Inc. (12)
3.55 --Certificate of Incorporation of Westcott ECI, Inc. (12)
3.56 --By-laws of Westcott ECI, Inc. (12)
3.57 --Certificate of Incorporation of McMullen Argus Publishing,
Inc. (12)
3.58 --By-laws of McMullen Argus Publishing, Inc. (12)
3.59 --Certificate of Incorporation of The Apartment Guide of
Nashville, Inc. (14)
3.60 --By-laws of The Apartment Guide of Nashville, Inc. (14)
3.61 --Certificate of Incorporation of Cardinal Business Media,
Inc. (14)
3.62 --By-laws of Cardinal Business Media, Inc. (14)
3.63 --Certificate of Incorporation of Cardinal Business Media
Holdings, Inc. (14)
3.64 --By-laws of Cardinal Business Media Holdings, Inc. (14)
3.65 --Certificate of Formation of Cover Concepts Marketing
Services, LLC (14)
3.66 --Limited Liability Company Agreement of Cover Concepts
Marketing Services, LLC (14)
3.67 --Certificate of Incorporation of CSK Publishing Company
Incorporated (14)
101
3.68 --By-laws of CSK Publishing Company Incorporated (14)
3.69 --Certificate of Incorporation of GO LO Entertainment,
Inc. (14)
3.70 --By-laws of GO LO Entertainment, Inc. (14)
3.71 --Certificate of Incorporation of Guinn Communications,
Inc. (14)
3.72 --By-laws of Guinn Communications, Inc. (14)
3.73 --Certificate of Incorporation of IntelliChoice, Inc. (14)
3.74 --By-laws of IntelliChoice, Inc. (14)
3.75 --Certificate of Incorporation of Little Rock Apartment
Guide, Inc. (14)
3.76 --By-laws of Little Rock Apartment Guide, Inc. (14)
3.77 --Certificate of Incorporation of Memphis Apartment Guide,
Inc. (14)
3.78 --By-laws of Memphis Apartment Guide, Inc. (14)
3.79 --Certificate of Incorporation of Low Rider Publishing
Group, Inc. (14)
3.80 --By-laws of Low Rider Publishing Group, Inc. (14)
3.81 --Certificate of Incorporation of Pictorial, Inc. (14)
3.82 --By-laws of Pictorial, Inc. (14)
3.83 --Certificate of Incorporation of Plaza Communications,
Inc. (14)
3.84 --By-laws of Plaza Communications, Inc. (14)
3.85 --Certificate of Incorporation of Canoe & Kayak, Inc. (14)
3.86 --By-laws of Canoe & Kayak, Inc. (14)
3.87 --Certificate of Amendment to Certificate of Incorporation
of Cowles Enthusiast Media, Inc. (changing name to
PRIMEDIA Enthusiast Publications, Inc.) (16)
3.88 --Certificate of Incorporation of Cowles Enthusiast Media,
Inc. (14)
3.89 --By-laws of Cowles Enthusiast Media, Inc. (14)
3.90 --Certificate of Incorporation of Cowles/Simba Information,
Inc. (14)
3.91 --Certificate of Amendment to Certificate of Incorporation
of Cowles/Simba Information, Inc. (changing name to Simba
Information) (16)
3.92 --By-laws of Cowles/Simba Information, Inc. (14)
3.93 --Certificate of Incorporation of Cumberland Publishing,
Inc. (14)
3.94 --By-laws of Cumberland Publishing, Inc. (14)
3.95 --Certificate of Incorporation of Horse & Rider, Inc. (14)
3.96 --By-laws of Horse & Rider, Inc. (14)
3.97 --Certificate of Incorporation of RetailVision, Inc. (14)
3.98 --By-laws of RetailVision, Inc. (14)
3.99 --Certificate of Incorporation of The Virtual Flyshop,
Inc. (14)
3.100 --By-laws of The Virtual Flyshop, Inc. (14)
3.101 --Certificate of Incorporation of Cambridge Research Group,
Ltd. (16)
3.102 --By-laws of Cambridge Research Group, Ltd. (16)
3.103 --Certificate of Formation of CommCorp. LLC (16)
102
3.104 --Amendment to Limited Liability Company Operating Agreement
of
CommCorp. LLC (16)
3.105 --Certificate of Incorporation of Maddux Publishing,
Inc. (16)
3.106 --By-laws of Maddux Publishing, Inc. (16)
3.107 --Certificate of Amendment of Articles of Incorporation of
Miramar
Communications, Inc. (16)
3.108 --By-laws of Miramar Communications, Inc. (16)
3.109 --Certificate of Incorporation for TSECRP, Inc. (16)
3.110 --By-laws of TSECRP, Inc. (16)
3.111 --Certificate of Incorporation of Calibre Press, Inc. (17)
3.112 --By-Laws of Calibre Press, Inc. (17)
3.113 --Certificate of Incorporation of Communication Concepts,
Inc. (17)
3.114 --By-Laws of Communication Concepts, Inc. (17)
3.115 --Certificate of Incorporation of Game & Fish Merger
Subsidiary, Inc. (17)
3.116 --By-Laws of Game & Fish Merger Subsidiary, Inc. (17)
3.117 --Certificate of Incorporation of Meridian Education
Corporation (17)
3.118 --By-Laws of Meridian Education Corporation (17)
3.119 --Second Amended and Restated Certificate of Incorporation
of About.com, Inc., as amended by a Certificate of
Ownership and Merger and a Certificate of Amendment, filed
on May 9, 2000 (20)
3.120 --Amended and Restated Bylaws of About.com, Inc. (21)
3.121 --Certificate of Incorporation of PRIMEDIA Companies Inc.
(*)
3.122 --By-Laws of PRIMEDIA Companies, Inc. (*)
3.123 --Certificate of Incorporation of PRIMEDIA Leisure Group
Inc. (*)
3.124 --By-Laws of PRIMEDIA Leisure Group Inc. (*)
3.125 --Certificate of Incorporation of PRIMEDIA Specialty Group
Inc. (*)
3.126 --By-Laws of PRIMEDIA Specialty Group Inc. (*)
4.1 --10 1/4% Senior Note Indenture (including form of note and
form of guarantee). (8)
4.2 --8 1/2% Senior Note Indenture (including forms of note and
guarantee). (9)
4.3 --Form of Class D Subordinated Debenture Indenture
(including form of debenture). (11)
4.4 --Form of Class F Subordinated Debenture Indenture
(including form of debenture). (13)
4.5 --Form of Class H Subordinated Debenture Indenture
(including form of debenture). (15)
4.6 --7 5/8% Senior Note Indenture (including form of note and
form of guarantee). (15)
4.7 --8 7/8% Senior Note Indenture (including forms of note and
guarantee). (22)
10.1 --Credit Agreement dated as of June 20, 2001 with The Chase
Manhattan Bank, as administrative agent, Bank of America
N.A., as syndication agent, and The Bank of New York and
The Bank of Nova Scotia, as co-documentation agents. (*)
103
10.2 --Forms of Pledge Agreement, Subsidiary Guaranty and
Contribution Agreement (with respect to Exhibit 10.1). (*)
+10.3 --Form of Amended and Restated K-III 1992 Stock Purchase and
Option Plan. (7)
+10.4 --Amendment No. 1 to the 1992 Stock Purchase and Option Plan
Amended and Restated as of March 5, 1997. (12)
+10.5 --Form of Common Stock Purchase Agreement between K-III and
senior management. (2)
+10.6 --Form of Common Stock Purchase Agreement between K-III and
various purchasers. (2)
+10.7 --Form of Non-Qualified Stock Option Agreement between K-III
and various employees. (2)
10.8 --Form of Common Stock Purchase Agreement between K-III and
senior management. (2)
10.9 --Form of Common Stock Purchase Agreement between K-III and
various purchasers. (2)
10.10 --Form of Securities Purchase Agreement between PRIMEDIA
Inc. and KKR 1996 Fund L.P. (16)
+10.11 --Form of Non-Qualified Stock Option Agreement between K-III
and various employees. (2)
10.12 --Amended Registration Rights Agreement dated as of
February 5, 1998 among PRIMEDIA Inc., KKR 1996 Fund L.P.,
MA Associates, L.P., FP Associates, L.P., Magazine
Associates, L.P., Publishing Associates, L.P., Channel One
Associates, L.P. and KKR Partners II, L.P. with respect to
common stock of K-III. (16)
10.13 --Securities Purchase Agreement (Common) dated as of
August 24, 2001 between PRIMEDIA Inc. and KKR 1996 Fund
L.P. (*)
10.14 --Securities Purchase Agreement (Preferred) dated as of
August 24, 2001 between PRIMEDIA Inc. and KKR 1996 Fund
L.P. (*)
+10.15 --Free Cash Flow Long-Term Plan. (1)
+10.16 --Executive Incentive Compensation Plan. (8)
+10.17 --Pension Plan. (1)
+10.18 --1995 Restoration Plan. (8)
+10.19 --Agreement, dated as of December 24, 1996, between K-III
Communications Corporation and Jack L. Farnsworth (12)
+10.20 --Agreement, dated as of November 30, 1999, between PRIMEDIA
Inc. and William F. Reilly (17)
+10.21 --Agreement, dated as of October 27, 1999, between PRIMEDIA
Inc. and Thomas S. Rogers and Amendment I dated as of
October 27, 1999 (17)
+10.22 --Agreement, dated October 29, 2000, among PRIMEDIA Inc.,
About.com, Inc. and Scott Kurnit (18)
+10.23 --Agreement dated December 2, 2000 between PRIMEDIA Inc. and
Larry Rutkowski. (23)
+10.24 --Agreement dated February 25, 2000 between PRIMEDIA Inc.
and David Ferm. (23)
104
+10.25 --Agreement dated March 16, 2000 between PRIMEDIA Inc. and
John Loughlin. (23)
+10.26 --Agreement dated September 17, 2001 between PRIMEDIA Inc.
and Scott Kurnit (*)
+10.27 --Option Extention Agreement dated April 7, 2001 between
PRIMEDIA Inc. and Beverly Chell (*)
+10.28 --Agreement dated April 7, 2001 between PRIMEDIA Inc. and
Charles McCurdy (*)
+10.29 --Stock Option Agreement dated December 3, 1999 between
PRIMEDIA Inc. and Thomas Rogers (*)
+10.30 --Option Extention Agreement dated April 7, 2001 between
PRIMEDIA Inc. and Charles McCurdy (*)
+10.31 --Agreement dated April 2, 2001 between PRIMEDIA Inc. and
Beverly Chell (*)
+10.32 --Lock-Up Agreement dated as of October 29, 2000 between
PRIMEDIA Inc. and Scott Kurnit. (18)
+10.33 --PRIMEDIA Inc. 2001 Stock Incentive Plan (19)
21 --Subsidiaries of PRIMEDIA. (*)
23 --Independent Auditors' Consent (*)
------------------------
(1) Incorporated by reference to K-III Communications Corporation's Annual
Report on Form 10-K for the year ended December 31, 1992. File No. 1-11106.
(2) Incorporated by reference to K-III Communications Corporation's Registration
Statement on Form S-1, File No. 33-46116.
(3) Incorporated by reference to K-III Communications Corporation's Registration
Statement on Form S-1, File No. 33-60786.
(4) Incorporated by reference to K-III Communications Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993. File No. 1-11106.
(5) Incorporated by reference to K-III Communications Corporation's Registration
Statement on Form S-1, File No. 33-77520.
(6) Incorporated by reference to K-III Communications Corporation's Current
Report on Form 8-K dated September 30, 1994.
(7) Incorporated by reference to K-III Communications Corporation's Registration
Statement on Form S-1, File No. 33-96516.
(8) Incorporated by reference to K-III Communications Corporation Annual Report
on Form 10-K for the year ended December 31, 1994, File No. 1-11106.
(9) Incorporated by reference to K-III Communications Corporation's Form 10-K
for the year ended December 31, 1995, File No. 1-11106.
(10) Incorporated by reference to K-III Communications Corporation's Form 10-Q
for the quarter ended March 31, 1996.
(11) Incorporated by reference to K-III Communications Corporation's
Registration Statement on Form S-4, File No. 333-03691.
(12) Incorporated by reference to K-III Communications Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, File No. 1-11106.
(13) Incorporated by reference to K-III Communications Corporation's
Registration Statement on Form S-4, File No. 333-38451.
(14) Incorporated by reference to K-III Communications Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997,
File No. 1-11106.
105
(15) Incorporated by reference to PRIMEDIA Inc.'s Registration Statement on
Form S-4, File No. 333-51891.
(16) Incorporated by reference to K-III Communications Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, File No. 1-11106.
(17) Incorporated by reference to PRIMEDIA Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1999, File No. 1-11106.
(18) Incorporated by reference to PRIMEDIA Inc.'s Registration Statement on Form
S-4,
File No. 333-54540.
(19) Incorporated by reference to PRIMEDIA Inc.'s Registration Statement on Form
S-8, File
No. 333-56300.
(20) Incorporated by reference to About.com, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, File No. 000-25525.
(21) Incorporated by reference to Exhibit 3.5 of About.com, Inc.'s Registration
Statement on Form S-1, File No. 333-69881.
(22) Incorporated by reference to Exhibit 4.7 filed with PRIMEDIA Inc.'s
Registration Statement Form S-4 (Registration No 333-67804).
(23) Incorporated by reference to PRIMEDIA Inc.'s Annual Report on Form 10-K for
the year ended December 31, 2000, File No. 1-11106.
------------------------
+ Executive contract or compensation plan or arrangement.
(*) Filed herewith.
106
SUPPLEMENTAL INFORMATION
The foregoing information is being provided to comply with the annual report
requirements of the New York Stock Exchange.
The Company's Board of Directors is:
Thomas S. Rogers Chairman of the Board and Chief Executive Officer,
PRIMEDIA Inc.
David Bell Vice Chairman of The Interpublic Group of Companies
Beverly C. Chell Vice Chairman, General Counsel and Secretary,
PRIMEDIA Inc.
Meyer Feldberg Professor and Dean, Columbia University Graduate
School of Business
Perry Golkin General Partner, KKR Associates; member of the
limited liability company which serves as the general
partner of KKR
H. John Greeniaus Former Chairman and Chief Executive Officer of
Nabisco, Inc.
Henry R. Kravis Founding Partner, Kohlberg Kravis Roberts & Co. L.P.;
managing member of the Executive Committee of the
limited liability company which serves as the general
partner of KKR
Charles G. McCurdy President, PRIMEDIA Inc.
George R. Roberts Founding Partner, Kohlberg Kravis Roberts & Co. L.P.;
managing member of the Executive Committee of the
limited liability company which serves as the general
partner of KKR
Michael T. Tokarz General Partner, KKR Associates; member of the
limited liability company which serves as the general
partner of KKR
Messrs. Rogers, Golkin, Kravis and Tokarz are members of the Executive
Committee. Messrs. Bell, Feldberg and Greeniaus are members of the Audit
Committee. Messrs. Golkin, Kravis and Tokarz are members of the Compensation
Committee.
The Company's Registrar and Transfer Agent for the Common Stock is the Bank
of New York.
107
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on April 1, 2002.
PRIMEDIA INC.
By /s/ BEVERLY C. CHELL
...........................................
(Beverly C. Chell)
VICE CHAIRMAN AND SECRETARY
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
in the capacities indicated on April 1, 2002.
SIGNATURES TITLE
--------------------------------------------------- ------------------------------------------------
/s/ THOMAS S. ROGERS Chairman, Chief Executive Officer and Director
.................................................. (Principal Executive Officer)
(Thomas S. Rogers)
/s/ CHARLES G. MCCURDY President and Director
..................................................
(Charles G. McCurdy)
/s/ BEVERLY C. CHELL Vice Chairman, Secretary and Director
..................................................
(Beverly C. Chell)
/s/ DAVID BELL Director
..................................................
(David Bell)
/s/ MEYER FELDBERG Director
..................................................
(Meyer Feldberg)
Director
..................................................
(Perry Golkin)
/s/ H. JOHN GREENIAUS Director
..................................................
(H. John Greeniaus)
Director
..................................................
(Henry R. Kravis)
Director
..................................................
(George R. Roberts)
Director
..................................................
(Michael T. Tokarz)
/s/ LAWRENCE R. RUTKOWSKI Executive Vice President and Principal Financial
.................................................. Officer
(Lawrence R. Rutkowski)
/s/ ROBERT J. SFORZO Senior Vice President and Principal Accounting
.................................................. Officer
(Robert J. Sforzo)
108
SCHEDULE II
PRIMEDIA INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
Accounts receivable
Allowance for doubtful
accounts.................. $ 17,111 $ 13,014 $ 3,354 (1) $(14,010)(2) $ 19,311
$ (158)(3)
Allowance for returns and
rebates................... $ 13,166 $ 4,798 $ (290)(3) $ (7,718)(2) $ 9,956
Inventory
Allowance for
obsolescence.............. $ 3,186 $ 669 $ (195)(3) $ (2,017)(2) $ 1,643
Accumulated amortization
Excess of purchase price
over net assets
acquired.................. $441,676 $599,877(4) $ (5,905)(3) $(29,244)(2) $1,006,404
Other intangibles........... $765,224 $ 97,315(4) $(32,534)(3) $(12,641)(2) $ 817,364
Deferred financing costs.... $ 12,456 $ 3,700 $ -- $ (7,245)(2) $ 8,911
Deferred wiring and
installation costs........ $ 42,055 $ 16,380 $ (1,986)(3) $ -- $ 56,449
Prepublication and
programming costs......... $ 28,312 $ 7,171 $ (287)(3) $ -- $ 35,196
Direct-response advertising
costs..................... $ 98,194 $ 26,624 $ -- $ (8,118)(2) $ 116,700
------------------------
Notes:
(1) Increases in related valuation account result from the recovery of amounts
previously written off.
(2) Deductions from related valuation account result from write-offs and returns
related to accounts receivable, inventory and deferred financing costs and
write-offs of fully amortized amounts.
(3) Deductions from related valuation account result principally from
divestitures.
(4) Includes impairments of $444,699.
S-1
SCHEDULE II
PRIMEDIA INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
Accounts receivable
Allowance for doubtful
accounts.................... $ 14,644 $ 16,311 $ 2,416 (1) $(16,080)(2) $ 17,111
$ (180)(3)
Allowance for returns
and rebates................. $ 18,102 $ 23,989 $ (26)(3) $(28,899)(2) $ 13,166
Inventory
Allowance for obsolescence.... $ 1,772 $ 1,518 $ (57)(3) $ (47)(2) $ 3,186
Accumulated amortization
Excess of purchase price over
net assets acquired......... $430,156 $ 34,060 $ (14,009)(3) $ (8,531)(2) $ 441,676
Other intangibles............. $759,443 $ 80,363 $ (62,815)(3) $(11,767)(2) $ 765,224
Deferred financing costs...... $ 9,840 $ 3,836 $ -- $ (1,220)(2) $ 12,456
Deferred wiring and
installation costs.......... $ 30,078 $ 13,932 $ (1,955)(3) $ -- $ 42,055
Prepublication and programming
costs....................... $ 17,386 $ 11,214 $ (288)(3) $ -- $ 28,312
Direct-response advertising
costs....................... $ 86,341 $ 28,049 $ (324)(3) $(15,872)(2) $ 98,194
------------------------
Notes:
(1) Increases in related valuation account result from the recovery of amounts
previously written off.
(2) Deductions from related valuation account result from write-offs and returns
related to accounts receivable and inventory and write-offs of fully
amortized amounts.
(3) Deductions from related valuation account result principally from
divestitures.
S-2
SCHEDULE II
PRIMEDIA INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
Accounts receivable
Allowance for doubtful
accounts.................. $ 15,796 $ 14,440 $ 2,177 (1) $(16,056)(2) $ 14,644
$ (1,713)(3)
Allowance for returns and
rebates................... $ 21,507 $ 17,445 $ 370 (1) $(17,221)(2) $ 18,102
$ (3,999)(3)
Inventory
Allowance for
obsolescence.............. $ 3,205 $ 2,756 $ (2,766)(3) $ (1,423)(2) $ 1,772
Accumulated amortization
Excess of purchase price
over net assets
acquired.................. $137,094 $332,191(4) $ (25,580)(3) $(13,549)(2) $ 430,156
Other intangibles........... $777,760 $112,763(4) $(128,935)(3) $ (2,145)(2) $ 759,443
Deferred financing costs.... $ 7,309 $ 3,286 $ (674)(3) $ (81)(2) $ 9,840
Deferred wiring and
installation costs........ $ 24,523 $ 7,195 $ -- $ (1,640)(2) $ 30,078
Prepublication and
programming costs......... $ 11,765 $ 7,367 $ (415)(3) $ (1,331)(2) $ 17,386
Direct-response advertising
costs..................... $ 70,113 $ 35,487 $ (8,118)(3) $(11,141)(2) $ 86,341
------------------------
Notes:
(1) Increases in related valuation account result from the recovery of amounts
previously written off.
(2) Deductions from related valuation account result from write-offs and actual
returns.
(3) Deductions from related valuation account result principally from
divestitures.
(4) Includes impairments of $275,788.
S-3
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Shareholders and Board of Directors of
PRIMEDIA Inc.
New York, New York:
We have audited the consolidated balance sheets of PRIMEDIA Inc. and
subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related
statements of consolidated operations, shareholders' deficiency and cash flows
for each of the three years in the period ended December 31, 2001, and have
issued our report thereon dated February 7, 2002 (February 28, 2002 as to
Note 27 and March 8, 2002 as to Note 17) (which report on the consolidated
financial statements expresses an unqualified opinion and includes an
explanatory paragraph referring to PRIMEDIA's adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instrument and Hedging
Activities," as amended, effective January 1, 2001); such financial statements
and report are included elsewhere in this Form 10-K. Our audits also included
the financial statement schedule of the Company, listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 7, 2002
(February 28, 2002 as to Note 27
and March 8, 2002 as to Note 17)
S-4