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EX-21.1 - EXHIBIT 21.1 - AMERICAN MEDIA INCexhibit211_listingofsubsid.htm
EX-12.1 - EXHIBIT 12.1 - AMERICAN MEDIA INCexhibit121_ratioofearnings.htm
EX-10.9 - EXHIBIT 10.9 - AMERICAN MEDIA INCexhibit109_amendmentandres.htm
EX-10.8 - EXHIBIT 10.8 - AMERICAN MEDIA INCexhibit108_waivertorevolvi.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN MEDIA INCami-ex311x20150331.htm
EX-32 - EXHIBIT 32 - AMERICAN MEDIA INCami-ex32_20150331.htm
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EX-31.2 - EXHIBIT 31.2 - AMERICAN MEDIA INCami-ex312x20150331.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended March 31, 2015

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

For the transition period from ____________ to ____________

Commission File Number 001-10784
American Media, Inc.
(Exact name of registrant as specified in its charter)
Delaware
65-0203383
State or other jurisdiction
of incorporation or organization
(I.R.S. Employer
Identification No.)
1000 American Media Way, Boca Raton, Florida 33464
(Address of principal executive offices) (Zip Code)
(561) 997-7733
Registrant’s telephone number, including area code

Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
 
 
Yes o
No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
 
 
Yes þ
No o
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
 
Yes o
No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
 
Yes þ
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.
 
 
 
 
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
 
 
Yes o
No þ




There is no public market for the registrant’s common stock. The number of shares outstanding of the registrant's common stock, $0.0001 par value, as of May 31, 2015 was 100.


DOCUMENTS INCORPORATED BY REFERENCE

Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference from the registrant's definitive Proxy Statement for its 2015 Annual Meeting of Stockholders if filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant's fiscal year covered by this report or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.



AMERICAN MEDIA, INC.
 
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended March 31, 2015
 
TABLE OF CONTENTS
 
 
  Page(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





2


American Media, Inc. and its consolidated subsidiaries are referred to in this Annual Report on Form 10-K (this "Annual Report") as American Media, AMI, the Company, we, our and us.

Our fiscal year ended on March 31, 2015 and is referred to herein as fiscal 2015. References to our fiscal year (e.g. "fiscal 2015") refer to our fiscal year ended March 31st of the applicable year.


CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Annual Report for the fiscal year ended March 31, 2015 contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). These forward-looking statements relate to our current beliefs regarding future events or our future operating or financial performance. By their nature, forward-looking statements involve risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements.

Such factors include, but are not limited to, those items described in "Risk Factors" in Item 1A of this Annual Report and those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, as well as other factors.

We have tried, where possible, to identify such statements by using words such as "believes," "expects," "intends," "estimates," "may," "anticipates," "will," "likely," "project," "plans," "should," "could," "potential" or "continue" and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statement is and will be based upon our then current expectations, estimates and assumptions regarding future events and is applicable only as of the dates of such statement. We may also make written and oral forward-looking statements in the reports we file from time to time with the Securities and Exchange Commission (the "SEC").

We caution you not to place undue reliance on any forward-looking statement, which speaks only as of the date of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statement contained in this Annual Report, whether as a result of new information, future events or otherwise, except as required by law.

INDUSTRY DATA AND CIRCULATION INFORMATION

This Annual Report includes publishing industry data, rankings, circulation information, Internet user data, readership information and other industry and market information that we obtained from various third-party sources, internal company sources and public filings. Third-party sources include, but are not limited to, the Alliance for Audited Media, comScore Media Metrix, Publishers Information Bureau, Google Analytics, BPA Circulation Statements, GfK Mediamark Research & Intelligence and Statement of Ownership figures filed with the U.S. Postal Service. Although we have not independently verified the data contained in these industry publications and reports, we believe based on our industry experience that this data is reliable. Our estimates, in particular as they relate to our general expectations concerning the publishing industry, involve risks and uncertainties and are subject to change based on various factors. See Item 1A, “Risk Factors.”

Unless otherwise indicated, all average circulation information for our publications is a per issue average of actual single copy circulation and subscription copies for fiscal 2015. All references to "circulation" are to single copy newsstand sales and paid subscription circulation, unless otherwise specified. References to “verified non-paid subscriptions” are to non-paid subscription copies designated by publishers for readership in public places or intended for individual use by recipients who are likely to have a strong affinity for the content of the publication.


3


PART I

Item 1. Business.

OVERVIEW

American Media, Inc. together with its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") is one of the largest publishers of celebrity and health and active lifestyle magazines in the United States, with a diversified portfolio of 10 publications that have a combined monthly print and digital audience of more than 40 million readers and monthly on-line audience of approximately 49 million readers.

In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 million in cash plus an earnout of up to $60 million. As a result, the operations of the Women's Active Lifestyle segment have been classified as discontinued operations in all periods presented. We also sold our Country Weekly publication for approximately $3 million in November 2014. The operations of Country Weekly did not meet the criteria for discontinued operations presentation. For additional information on these dispositions, see Note 10, "Dispositions and Acquisitions," to our consolidated financial statements included elsewhere in this Annual Report.

After giving effect to the divestiture of our Women's Active Lifestyle segment, our remaining well-known publications cover two primary operating segments: Celebrity and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner and Soap Opera Digest. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers, Flex, Mr. Olympia and international editions of Muscle & Fitness and Flex.

Total circulation of our remaining print publications with a frequency of six or more times per year, were approximately 3.2 million copies per issue during fiscal 2015 and 3.5 million copies per issue during fiscal 2014 and 2013. Our celebrity titles together are number one in market share in newsstand circulation in the celebrity category and, on-line, are the fastest growing brands in the category. Our men's titles have the highest market share of national magazine advertising pages in their competitive set in the United States.

We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.

Our brands go beyond the printed page. We engage an audience of more than 89 million men and women every month through not only magazines and books, but also social media, television, and on all digital platforms, from phones and tablets to laptops and desktops. We are embarking on a transformation from being a leading media company to a lifestyle brand that informs and entertains while also selling nutritional products and recreational activities.

DESCRIPTION OF BUSINESS

The sale of magazines to consumers via newsstand sales, also known as single copy sales, and subscriptions (our circulation revenue) is our largest revenue stream generating more than half of our total operating revenues. The sale of advertising across our multiple platforms generates approximately one-quarter of our total revenues. The remaining operating revenues are generated by our other operations related to our brands.

We are experiencing declines in our circulation revenue and print advertising as a result of market conditions in the magazine publishing industry. These declines are primarily caused by the disruption in our wholesaler distribution channel (discussed below), the overall decline in the celebrity newsstand market and the decline in the consumer advertising market coupled with the shift in advertising dollars from print to digital. Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions and current events. Since magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to economic downturns. Adverse changes in the markets we serve generally result in reductions in revenue as a result of lower consumer spending, which can lead to a reduction in advertising revenue.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." The majority of our operating revenues are generated in the United States. See Note 13, "Business Segment Information" to our consolidated financial statements included elsewhere in this Annual Report for certain information by geographic area.


4


Operating Revenues

Circulation

Circulation is an important component in determining our advertising revenues because advertising rates are dependent on circulation and audience. Single copy newsstand units are sold through national distributors, wholesalers and retailers. Subscriptions are sold primarily through direct mail, subscription sales agents or digitally via the Internet. Additionally, digital-only subscriptions and single-copy digital issues of our magazines are sold or distributed through various app stores and other digital storefronts.

Our print circulation revenue represented 68% of our total operating revenues in fiscal 2015, of which 78% was generated by single copy newsstand sales and 22% was generated by subscriptions. In fiscal 2014 and 2013, print circulation revenue represented 65% and 68%, respectively, of total operating revenues.

As of March 31, 2015, our print publications comprised approximately 24% of total U.S. and Canadian newsstand circulation for weekly publications that are audited by the Alliance for Audited Media. In addition, as of March 31, 2015, our digital subscriptions represent 20% of our 2.1 million paid subscriptions, the highest percentage among our competitive set. Our digital subscription revenue represented 1% of our total operating revenues for fiscal 2015, 2014 and 2013.

Newsstand Sales

Single copy newsstand units are sold through traditional newsstands as well as supermarkets, convenience stores, pharmacies and other retail outlets. Newsstand sales are highly sensitive to cover selection, retail placement and other factors. Through our relationships with national distributors, wholesalers and retailers, we market and arrange for the distribution of our magazines to retailers and the billing and the collection processes pursuant to multi-year arrangements.

We rely on wholesalers for the retail distribution of our magazines. A small number of wholesalers are responsible for a substantial percentage of the wholesale magazine distribution business. The decline in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalers. Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operation during 2014.

In addition to our relationships with our national distributors and wholesalers, we also have direct relationships with retailers, to which we make payments for the prominent display and sale of our magazines at the checkout section of supermarkets. In addition, we may make incentive payments to qualifying retailers for selling our magazines in their stores or for the space our magazines occupy in the retailers' store.

Advertising

Our second largest revenue stream comes from multi-platform advertising. Our print advertising revenue, generated primarily by national advertisers, represented 23% of our total operating revenues for fiscal 2015 and 2014 and 21% of our total operating revenues for fiscal 2013 and our digital advertising revenue represented 15%, 11% and 5%, respectively, of our total advertising revenue. Our digital advertising revenue represented 4%, 3% and 1%, respectively, of our total operating revenues for fiscal 2015, 2014 and 2013. Advertising revenue is typically highest in the fourth quarter of our fiscal year due to seasonality. See "Seasonality" within this Item 1, "Business," for further information.

We conduct our advertising sales through a combination of corporate and brand sales and marketing teams that sell advertising across multiple media platforms. We integrate editorial, print, digital, mobile and events into one advertising package, creating lasting consumer engagement and generating attractive returns for our advertisers. Our advertising clients are primarily in the packaged goods, sports nutrition products, automotive, entertainment, pharmaceutical, sports apparel, beauty, cosmetics, fashion and direct response sectors.

The rate at which we sell print advertising is dependent on each magazine's rate base, which is the circulation of the magazine that we guarantee to our advertisers, as well as our audience size. If we are not able to meet our committed rate base, the price paid by advertisers is generally subject to downward adjustments, including in the form of future credits or discounts. Our published rates for each of our magazines are subject to negotiation with each of our advertisers.


5


Other

We have a number of other operations related to publishing. In December 2014, we entered into a multi-year e-commerce partnership with GNC Holdings, Inc., across our health and fitness websites. The "Shop GNC" stores offer a selection of GNC products curated by the editors of our health and fitness publications in addition to access to the full GNC.com assortment of products. This is the first partnership of its kind for GNC's e-commerce business with a global media and content partner such as AMI. We also have a long-term agreement with GNC for publishing print editions of our Men's Fitness magazine (and Shape magazine pursuant to a licensing agreement) in a combined special interest publication distributed in over 4,200 GNC stores, on a quarterly basis, in North America.

Last year, we became a strategic partner to Microsoft and produced Men's Fitness and Muscle & Fitness branded exercise and workout videos for Microsoft to incorporate into their Bing Health and Fitness application. This year, we entered into multiple contracts with Microsoft to create and provide additional exercise and workout videos, as well as providing our content for syndication, to be distributed through Microsoft offerings.

Operating Expenses

Our primary operating expenses consist of production, distribution, circulation and other cost of sales, as well as selling, general and administrative expenses.

We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements. We have long-term printing contracts with three major third-party printing companies. Our production expenses, including paper and printing costs, accounted for approximately 26%, 30% and 28% of our operating expenses for fiscal 2015, 2014 and 2013, respectively.

Distribution, circulation and other cost of sales consist primarily of postage and the cost of freight to our wholesalers and fulfillment companies for newsstand and subscription distribution. Also included in this category are editorial expenses which represent costs associated with manuscripts, photographs and related salaries. Our distribution, circulation and other cost of sales accounted for approximately 16% of our operating expenses for fiscal 2015 and 18% for each of fiscal 2014 and 2013.

Subscription copies of our magazines are distributed primarily through the United States Postal Service (USPS) as periodicals mail. We coordinate with our printers and local USPS distribution centers to achieve efficiencies in our production and distribution processes and to minimize mail processing costs and delays. However, we are subject to the postal rate increases that affect delivery costs associated with our magazines. In January 2015, the USPS applied to the Postal Regulation Commission to increase rates by approximately 2% for all classes of mail effective April 2015. The USPS has received acceptance for the rate increase which went into effect on May 31, 2015. Increases in postal rates are factored into our pricing, however, there can be unexpected increases in postal rates or other delivery charges. See Item 1A, "Risk Factors - Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates." Subscription postage accounted for approximately 40%, 34% and 32%, respectively, of our distribution and circulation expenses for fiscal 2015, 2014 and 2013.


6


RECENT DEVELOPMENTS

The Merger

In August 2014, we entered into an agreement and plan of merger (the "Merger Agreement") with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of AMI (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into AMI (the "Merger") with AMI surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI. See "-Merger and Related Transactions" below for further information regarding the Merger Agreement and related transactions.

See Note 14, "Capital Structure" to our consolidated financial statements included elsewhere in this Annual Report for further information regarding our capital structure.

Debt Related Transactions

In connection with the Merger, AMI entered into a note purchase agreement (the "Note Purchase Agreement") with the Investors pursuant to which AMI issued to the Investors approximately $12.3 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 10% per annum, payable in kind, and mature in June 2018 (the "Second Lien PIK Notes").

In September 2014, AMI entered into an exchange agreement (the "Debt for Equity Exchange Agreement") with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of senior secured notes of AMI, consisting of $113.3 million in aggregate principal amount of Second Lien PIK Notes (including the $12.3 million issued in connection with the Note Purchase Agreement) and $7.8 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"), plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent (the "Conversion").

In January 2015, AMI exchanged approximately $32.0 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in June 2017 (the "First Lien Notes"), plus accrued and unpaid interest, held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement").

During fiscal 2015, AMI repurchased approximately $56.1 million in aggregate principal amount of senior secured notes, consisting of $55.5 million in aggregate principal amount of First Lien Notes and $0.6 million in aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors.

In February 2015, we amended and restated the revolving credit facility (the "Amended and Restated Revolving Credit Facility") to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

See Note 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes" to our consolidated financial statements included elsewhere in this Annual Report for further information regarding our debt agreements.

BUSINESS SEGMENTS

Our three business segments are described below. Additional financial information relating to these segments may be found in Note 13, "Business Segment Information" in consolidated financial statements contained elsewhere in this Annual Report, which information is incorporated herein by reference.

Celebrity Brands

Our six celebrity magazines maintain a 35% share-of-market, selling approximately 0.9 million copies per week, or $4.5 million in retail dollars. In fiscal 2015, they accounted for 73% of our total operating revenues. Circulation revenues were 85% of this segment in fiscal 2015, with print and digital advertising revenue representing the balance.


7


This segment consists of the following brands in print and digital:

National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, crime, human interest, health, fashion and beauty;

Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;

OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;

Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;

National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience; and

Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view.

Special Interest Publications. In addition to our periodic publications, we occasionally publish special interest publications. The content of our special interest publications is based on an iconic event allowing us to leverage our distribution network to generate additional revenues. Our special interest publications are sold at newsstands and may include advertising. In fiscal 2015, we published the following special interest publications:

O.J, Marilyn & Diana, Robin Williams, and Elvis under the National Enquirer brand;

JFK, Jr., Plastic Surgery, Hottest Diets and Marilyn Monroe FBI tapes under the Star brand;

Kate Middleton, Kate, and Kardashians under the OK! brand;

Jackie O, Serial Killers, Kidnapped, and 200 Stars Behind Bars under the Globe brand; and

Days of our Lives under the Soap Opera Digest brand.

Certain information related to our Celebrity publications is as follows:
 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2015 Rate Base
 
National Enquirer
 
52 x
 
n/a
 
816,248
Star
 
52 x
 
800,000
 
n/a
OK!
 
52 x
 
500,000
 
6,329,066
Globe
 
52 x
 
n/a
 
18,898
National Examiner
 
52 x
 
n/a
 
n/a
Soap Opera Digest
 
52 x
 
140,000
 
450,757


8


The following table sets forth the average circulation (per issue) and U.S. cover prices for our Celebrity segment:

(in thousands, except cover price information)
 
March 31, 2015
 
March 31, 2014
 
March 31, 2013
National Enquirer
 
 
 
 
 
 
Total circulation
 
415

 
516

 
560

Subscription circulation
 
110

 
120

 
132

Single copy circulation
 
305

 
396

 
428

Cover price
 
$4.99
 
$4.99
 
$3.99
Star
 
 
 
 
 
 
Total circulation
 
826

 
803

 
774

Subscription circulation
 
608

 
501

 
436

Single copy circulation
 
218

 
302

 
338

Cover price
 
$4.99
 
$4.99
 
$3.99
OK!
 
 
 
 
 
 
Total circulation
 
432

 
507

 
497

Subscription circulation
 
313

 
352

 
314

Single copy circulation
 
119

 
155

 
183

Cover price
 
$4.99
 
$4.99
 
$3.99
Globe
 
 
 
 
 
 
Total circulation
 
201

 
246

 
261

Subscription circulation
 
27

 
28

 
30

Single copy circulation
 
174

 
218

 
231

Cover price
 
$4.99
 
$3.99
 
$3.99
National Examiner
 
 
 
 
 
 
Total circulation
 
82

 
104

 
107

Subscription circulation
 
9

 
10

 
10

Single copy circulation
 
73

 
94

 
97

Cover price
 
$4.99
 
$3.99
 
$3.79
Soap Opera Digest
 
 
 
 
 
 
Total circulation
 
138

 
154

 
181

Subscription circulation
 
85

 
93

 
118

Single copy circulation
 
53

 
61

 
63

Cover price
 
$4.99
 
$3.99
 
$3.99

The cover prices increased for National Enquirer, Star and OK! from $3.99 to $4.99 effective with the March 24, 2014 issue. For National Examiner the cover price increased from $3.79 to $3.99 effective with the June 17, 2013 issue and the subsequent increase from $3.99 to $4.99 was effective with the May 12, 2014 issue. The cover prices increased for Globe and Soap Opera Digest from $3.99 to $4.99 effective with the May 12, 2014 issue.


9


Men's Active Lifestyle

In fiscal 2015, our Men's Active Lifestyle segment accounted for 24% of our total operating revenues. A new editorial team has transformed our flagship in the category, Men's Fitness, from a gym magazine to a men's lifestyle guide and continues to attract new advertisers. During fiscal 2015, there were over 100 new lifestyle advertisers, such as Grey Goose, HBO, Garnier, Mazda, Smart Water, New Balance, Dick's Sporting Goods and DSW, which had not previously invested in Men's Fitness. Newsstand buyers continue to respond, and with a 15% jump in single-copy sales, Men's Fitness experienced the strongest increase among its competitive set in fiscal 2015. Traffic has increased on-line as well. Mensfitness.com page views for March 2015 were 30 million, up 76% year-over-year.

Men's Fitness is more than a publication. In partnership with Random House, we published The 101 Greatest Workouts of all Time, which went on sale in January 2014. Events such as our Ultimate Athlete test both sports skills and strength, and bring the Men's Fitness reader to life for our advertisers, delivering millions of dollars in incremental ad revenue through sponsorship and increased print and digital advertising.

The growth story continues across other men's active lifestyle brands. Traffic continues to increase on-line for MuscleandFitness.com with 49 million page views in March 2015, up 47% year-over-year. Each year we host the body building industry's biggest consumer health and fitness event built around our Mr. Olympia competition in Las Vegas.

Advertisers crave the audience for these brands: men age 18 to 34 years old. Revenues from print and digital advertising are 64% of the segment’s revenues in fiscal 2015, while circulation revenues are 21% and the Mr. Olympia event represents the balance. This segment consists of the following brands in print and digital:

Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;

Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice;

Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;

Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle, which covers training, nutrition, health, beauty and fashion for today's women; muscleandfitnesshers.com provides expert fitness and lifestyle tips for women to improve strength, muscle growth, endurance, health and style;

Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and

Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France and Germany and licenses the content in Holland and Australia, which are excluded from the table below. Each market edition is in a local language with local content and has its own website. Effective April 1, 2015, we relocated the business activities for these publications from the United Kingdom to our New York offices.

10


Certain information related to our Men's Active Lifestyle publications is as follows:
 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2015 Rate Base
 
Men's Fitness
 
10 x
 
600,000
 
9,790,586
Muscle & Fitness
 
10 x
 
n/a
 
6,614,557
Flex
 
10 x
 
n/a
 
807,360
Muscle & Fitness Hers
 
6x
 
n/a
 
230,129

The following table sets forth the average circulation (per issue) and U.S. cover prices for our Men's Active Lifestyle segment:

(in thousands, except cover price information)
 
March 31, 2015
 
March 31, 2014
 
March 31, 2013
Men's Fitness
 
 
 
 
 
 
Total circulation
 
671

 
598

 
575

Subscription circulation
 
558

 
494

 
485

Single copy circulation
 
113

 
104

 
90

Cover price
 
$4.99
 
$4.99
 
$4.99
Muscle & Fitness
 
 
 
 
 
 
Total circulation
 
315

 
327

 
322

Subscription circulation
 
260

 
256

 
253

Single copy circulation
 
55

 
71

 
69

Cover price
 
$6.99
 
$6.99
 
$6.99
Flex
 
 
 
 
 
 
Total circulation
 
75

 
79

 
67

Subscription circulation
 
59

 
57

 
44

Single copy circulation
 
16

 
22

 
23

Cover price
 
$6.99
 
$6.99
 
$6.99
Muscle & Fitness Hers
 
 
 
 
 
 
Total circulation
 
85

 
92

 
86

Subscription circulation
 
42

 
41

 
36

Single copy circulation
 
43

 
51

 
50

Cover price
 
$4.99
 
$4.99
 
$4.99

During the second quarter of fiscal 2015, we recorded a pre-tax non-cash impairment charge of $17.4 million for the Men's Active Lifestyle segment goodwill and tradenames. Additional information regarding impairments may be found in Note 3, "Goodwill and Other Identified Intangible Assets" in the consolidated financial statements included elsewhere in this Annual Report.

Corporate and Other

In fiscal 2015, our Corporate and Other segment accounted for 3% of our total operating revenues and includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions. The video content services we provide to Microsoft and the services provided by our former distribution services group to publishing and non-publishing clients, such as placement and monitoring of supermarket racks, marketing and merchandising, are also included in this segment.

Corporate overhead expenses are not allocated to other segments and are included in this segment. This includes corporate executives, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.


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COMPETITION

Publishing is a highly competitive business and we compete with other magazine publishers for advertising market share and for the time and attention of consumers of print magazine content. We also compete with digital publishers and other forms of media, including websites, digital magazines and mobile apps.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, in addition to, the demographic profile of the audience, advertising rates and the effectiveness of our advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection, content, quality, price, as well as placement and display in retail outlets.

Our magazine publishing and website operations compete with numerous other magazine and website publishers and other media for circulation and audience. The use of digital devices as distribution platforms for content has increased competition for our business. See the section titled “Risk Factors—We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.” We believe our advertising sales team has the optimal structure to provide compelling integrated marketing solutions for our advertising clients.

Our Celebrity Brands segment competes for readership and advertising dollars with Time, Inc. (People Magazine), Bauer Publishing (In Touch, Life & Style and Closer) and Wenner Media (US Weekly). Our Men's Active Lifestyle segment competes for readership and advertising dollars with Rodale (Men's Health), Wenner Media (Men's Journal) and Conde Naste (GQ). Our special interest publications can compete with a variety of magazines, depending on the focus of the particular issue.

INTELLECTUAL PROPERTY

We use multiple trademarks to distinguish our various publications and brands. These trademarks are the subject of registrations and pending applications filed by us for use with a variety of products and other content, both domestically and internationally, and we continue to expand our worldwide usage and registration of related trademarks. As of March 31, 2015, we had 53 registered trademarks in the United States and 135 corresponding trademarks registered in foreign countries relating to our brand names.

We protect our copyrighted content by registering our publications with the United States Copyright Office.  Our extensive portfolio consists of approximately 3,443 copyrights including, but not limited to: National Enquirer, Star, OK!, Globe, National Examiner, Soap Opera Digest, Men's Fitness, Flex, Muscle & Fitness and Muscle & Fitness Hers. We also file copyright registrations for our special interest publications.

We regard our rights in and to our trademarks and copyrights as valuable assets. Accordingly, to protect our trademarks and copyrights against infringement and denigration by third parties, we control access to our proprietary technology and other confidential information through a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships. We also monitor the marketplace for third-party infringement and enforce our rights under trademark, copyright and other applicable laws. Despite our efforts to protect our proprietary rights through intellectual property rights, licenses, and confidentiality agreements, we may not be able to prevent unauthorized parties from using our brand names and content.

GOVERNMENT REGULATIONS

Marketing Regulation

Advertising and promotional information and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including online content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today.


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Postal Regulation

The distribution of our magazine subscriptions are affected by the laws and regulations of the U.S. Postal Service (the “USPS”). The Governors of the USPS review prices for mailing services annually and adjust postage rates periodically. We continually seek the most economical and effective methods for mail delivery, including cost-saving strategies offered within the postal rate structure. The financial condition of the USPS continues to decline. If postal reform legislation is enacted, it could result in, among other things, increases in postal rates, local post office closures and the elimination of Saturday mail delivery. The elimination of current protections against significant and unpredictable rate increases or other changes to the USPS as a result of the enactment of postal reform legislation could have an adverse effect on our businesses.

SEASONALITY

Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.

Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.

EMPLOYEES

As of March 31, 2015, we employed approximately 384 full-time and 96 part-time employees. We consider relations with our employees to be good.

AVAILABLE INFORMATION

Our Internet site is www.americanmediainc.com. Our Registration Statement, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to these documents, as well as certain other forms we file with or furnish to the SEC, can be viewed and downloaded free of charge as soon as reasonably practicable after they have been filed with the SEC by accessing www.sec.gov or visiting www.americanmediainc.com and clicking on About Us and Investor Relations. Please note that information on, or that can be accessed through, our website is not deemed “filed” with the SEC and is not incorporated by reference into any of our filings under the Securities Act or the Securities Exchange Act, irrespective of any general incorporation language contained in such filing.

THE MERGER AND RELATED TRANSACTIONS

In August 2014, AMI entered into the Merger Agreement with the Parent and the Merger Sub, whereby the Merger Sub was merged with and into AMI with AMI surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI.

In connection with the Merger, AMI entered into the Note Purchase Agreement with the Investors pursuant to which AMI issued additional Second Lien PIK Notes to the Investors at par plus accrued and interest for a total purchase price equal to $12.5 million.

Prior to the execution of the Merger Agreement and the Note Purchase Agreement, AMI entered into various supplemental indentures to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement and eliminate AMI's obligation to repurchase approximately $12.7 million of First Lien Notes, during fiscal 2015, pursuant to the terms of the indenture of certain senior secured notes and the exchange agreement related to such certain senior secured notes.

In addition, in August 2014, AMI entered into an amendment to the revolving credit facility (the "2010 Revolving Credit Facility") to, among other things, (i) amend the definition of "Change of Control" to permit the Merger, (ii) permit the issuance of additional Second Lien PIK Notes pursuant to the Note Purchase Agreement and (iii) amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ending June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.


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See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" for further information regarding the Merger and related transactions.

HISTORY

American Media, Inc. was incorporated under the laws of the State of Delaware in 1990 and its wholly-owned subsidiary, American Media Operations, Inc., or AMOI, conducted all of AMI’s operations and represented substantially all of AMI’s assets. In November 2010, AMO Escrow Corporation ("AMO Escrow") was formed as an indirect, wholly-owned subsidiary of AMOI for the sole purpose of issuing the First Lien Notes (as defined below) prior to the 2010 Restructuring described below. In December 2010, AMO Escrow merged with and into AMOI, and AMOI merged with and into American Media, Inc., as the surviving corporation in the merger. Given American Media Inc., was a holding company with only one subsidiary and owned 100% of AMOI, the merger did not result in a change in the historical cost basis of AMI’s consolidated assets and liabilities. As the merger occurred between entities under common control, the historical consolidated financial statements of AMOI have been presented as the consolidated financial statements of AMI and the financial information contained herein has been prepared and presented as if AMI had always been the reporting company. The merger of AMOI with and into American Media, Inc. was unrelated to the 2010 restructuring discussed below.

2010 RESTRUCTURING

In November 2010, the Company and certain subsidiaries filed a prepackaged plan of reorganization (the “Plan”) under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Plan identified liabilities subject to compromise of $893.9 million, which included an outstanding term loan of $445.7 million, a revolving credit facility of $60.0 million and previously issued notes of $388.2 million (the “Old Notes”). In December 2010, the Bankruptcy Court confirmed the Plan and the Company emerged from bankruptcy and consummated a financial restructuring through a series of transactions (the “2010 Restructuring”).

As part of the 2010 Restructuring, we amended and restated our certificate of incorporation to, among other things, increase the number of shares authorized to be issued from 11,000,000 to 15,000,000, comprised of 14,000,000 shares of common stock and 1,000,000 shares of preferred stock. We issued 10,000,000 shares of new common stock and canceled all pre-existing equity interests in AMI, including warrants. We did not issue any shares of preferred stock.

Upon emergence, the Company determined it did not meet the requirements to apply fresh start accounting under applicable accounting standards because the holders of existing voting shares immediately before confirmation of the 2010 Restructuring received more than 50% of the voting shares in the emerging Company. Since fresh start accounting did not apply, assets and liabilities not subject to compromise continue to be reflected at historical cost. However, liabilities compromised by confirmed plans were accounted for, as summarized below, in accordance with the guidance provided for reporting entities not qualifying for fresh start accounting.

We exchanged $363.3 million of our Old Notes for 10,000,000 shares of newly issued common stock. The holders of the pre-existing debt also held shares of common stock that were canceled in connection with the 2010 Restructuring. Since this exchange occurred with pre-existing stockholders, the extinguishment of debt transaction was recorded as a capital transaction. As a result, the $587.0 million gain on this debt-for-equity exchange is reflected in the Consolidated Statement of Stockholders' Deficit for fiscal 2011. The gain on the exchange primarily consists of (i) $363.3 million of Old Notes, (ii) $282.7 million of canceled stock and (iii) $176.1 million of forfeited future interest payments on the Old Notes, less (iv) issuance of $235.8 million of equity.

We satisfied the term loan and revolving credit facility of $505.7 million with cash on hand and the proceeds from the issuance of new debt. Specifically, we issued $385.0 million aggregate principal amount of First Lien Notes and $80.0 million aggregate principal amount of Second Lien Notes. We also exchanged $24.9 million of the remaining Old Notes for $24.9 million of Second Lien Notes. Finally, we entered into a $40.0 million revolving credit facility, maturing in December 2015 (the “2010 Revolving Credit Facility”) which replaced our previous revolving credit facility. Under the 2010 Restructuring, the proceeds from the First Lien Notes and the Second Lien Notes and the 2010 Revolving Credit Facility were used to pay (i) the net carrying amount of the term loan and revolving credit facility, including a deferred consent fee and (ii) a 2% make-whole provision. In accordance with applicable accounting standards, the Company recorded this series of transactions as an extinguishment of debt and reflected the $8.6 million loss on extinguishment of debt for fiscal 2011.


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Item 1A. Risk Factors.

Our business faces many risks. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, prospects and cash flows and the actual outcome of matters as to which forward-looking statements are made in this Annual Report. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition and results of operations in the future.

Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and results of operations.

Our future performance could be affected by our substantial indebtedness. As of March 31, 2015, our total outstanding indebtedness was approximately $324.3 million, consisting of $275.2 million principal amount of debt under the First Lien Notes, $2.2 million principal amount of debt under the Second Lien Notes, $32.2 million principal amount of debt under the New Second Lien Notes (the First Lien Notes, the Second Lien Notes and the New Second Lien Notes are collectively referred to herein as the "Senior Secured Notes") and $14.7 million amount of debt under the Amended and Restated Revolving Credit Facility. Our total consolidated interest expense was $50.8 million for fiscal 2015, which consists of interest under the Senior Secured Notes and the Amended and Restated Revolving Credit Facility. In addition, the Amended and Restated Revolving Credit Facility and the indentures governing the Senior Secured Notes contain certain covenants that, subject to certain exceptions, restrict us from paying dividends, incurring additional debt, creating liens, entering into certain mergers or consolidations, making acquisitions or other investments and selling or otherwise disposing of assets.

Our level of indebtedness could have important consequences for our business and operations, including the following:

require us to dedicate a substantial portion of our cash flow from operations for payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and general corporate requirements or to carry out other aspects of our business;

place us at a potential disadvantage compared to our competitors that have less debt;

increase our vulnerability to general adverse economic and industry conditions;

limit our ability to make material acquisitions or take advantage of business opportunities that may arise;

limiting our flexibility in planning for, or reacting to, changes in our business industry;

limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of our business; and

expose us to fluctuations in interest rates as the Amended and Restated Revolving Credit Facility has a variable rate of interest.

Under the Amended and Restated Revolving Credit Facility, we have to comply with a maximum first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. Our ability to satisfy these ratios is dependent on our business performing in accordance with our projections. If the performance of our business deviates from our projections, we may not be able to satisfy these ratios. If we do not comply with these or other covenants and restrictions, we would be in default under our Amended and Restated Revolving Credit Facility unless we obtained a waiver from the required lenders thereunder. Our outstanding debt under our Amended and Restated Revolving Credit Facility, together with accrued interest, could then be declared immediately due and payable and commitments thereunder could be terminated. Our ability to comply with such provisions may be affected by events beyond our control. Moreover, the instruments governing almost all our other debt contain cross-acceleration provisions so that acceleration under any of our debt may result in a default under our other debt instruments. If a cross-acceleration occurs, the maturity of almost all our debt could be accelerated and become immediately due and payable. If that happens, we would not be able to satisfy our debt obligations, which would have a substantial adverse effect on our ability to continue as a going concern.


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Obligations under our Amended and Restated Revolving Credit Facility are secured by liens on substantially all our assets and the assets of certain domestic subsidiaries. In addition, our obligations under our Amended and Restated Revolving Credit Facility are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of our existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of our existing or subsequently acquired or organized foreign subsidiaries. If we, or one of our restricted subsidiaries, should be declared bankrupt or insolvent, or if we otherwise default under our Amended and Restated Revolving Credit Facility, the lenders could declare all the funds borrowed thereunder, together with accrued interest, immediately due and payable and commitments thereunder could be terminated. If we were unable to repay such debt, the lenders could foreclose on the pledged stock of our subsidiaries and on the assets in which they have been granted a security interest.

If our operations do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may need to borrow additional funds to make these payments or undertake alternative financing plans, such as refinancing or restructuring our indebtedness, disposing of assets or reducing or delaying capital investments and acquisitions. We cannot guarantee that such additional funds or alternative financing will be available on favorable terms, if at all. Our inability to generate sufficient cash flow from operations or obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that our business will generate sufficient cash flows from operations or that we can obtain alternative financing proceeds in an amount sufficient to enable us to service our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Changes in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options.
Our corporate credit rating is currently rated below investment grade by Standard & Poor’s. If our credit ratings are lowered further, borrowing costs for future long-term debt or short-term borrowing facilities may increase and our financing options would be limited. A reduction in our credit rating or the credit rating of our outstanding debt securities may also cause our future borrowings to be subject to additional restrictive covenants that would reduce our flexibility. In addition, macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new acquisitions or capital-intensive internal initiatives.
If we fail to implement our business strategy, our business will be adversely affected.

Our future financial performance and success are dependent in large part upon our ability to successfully implement our business strategy. We may not be able to successfully implement our business strategy or improve our operating results. In particular, we may not be able to increase circulation of our publications, obtain new sources of advertising revenues, generate additional revenues by building on the brand names of our publications or raise the cover prices of our publications without causing a decline in circulation.

Any failure to successfully implement our business strategy may adversely affect our ability to service our indebtedness, including our ability to make principal and interest payments on the debt. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.

We compete in varying degrees with other magazine publishers for market share and for the time and attention of consumers of print magazine content. We believe the overall decline in consumer demand for print magazines has been negatively impacted by the multitude of choices available to consumers for information and entertainment which has intensified our competition with other magazine publishers for share of print magazine readership. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection and content, quality and price as well as placement and display in retail outlets.


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We also compete with digital publishers and other forms of media, including websites, digital magazines, tablet editions and mobile apps. The competition we face has intensified as a result of the growing popularity of mobile devices such as tablets and smartphones. Consumers are increasingly opting to consume publisher's content through these digital platforms and are shifting away from print media. These new platforms have reduced the cost of producing and distributing content on a wide scale, allowing new free or low-priced digital content providers to compete with us and other print magazine publishers. The ability of our paid print and digital content to compete successfully with free and low-priced digital content depends on several factors, including our ability to differentiate and distinguish our content from free or low-priced digital content, as well as our ability to increase the value of paid subscriptions to our customers by offering a different, deeper and richer digital experience. If we are unable to distinguish our content from that of our competitors or adapt to new distribution methods, our business, financial condition and results of operations may be adversely affected.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, respectively, the demographic profile of the audience, advertising rates and the effectiveness of advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. We believe our advertising sales team has the optimal structure to provide integrated marketing solutions for combined print and digital advertising and we can compete successfully for advertising. If we are unable to convince advertisers of the continuing value of our combined print and digital advertising platforms or offer advertisers unique advertising programs tied to our brands, our business, financial condition and results of operations may be adversely affected.

We are exposed to risk associated with weak domestic and global economic conditions.

We have been adversely affected by weak domestic and global economic conditions and have experienced declines in our circulation and to a lesser extent our advertising revenues. If these conditions persist, our business, financial condition and results of operations may continue to be adversely affected. Factors that affect economic conditions include the rate of unemployment, the level of consumer confidence and changes in consumer spending habits. Because magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to general economic conditions and economic cycles. Certain economic conditions such as general economic downturns, including periods of increased inflation, unemployment levels, tax rates, interest rates, gasoline and other energy prices or declining consumer confidence, negatively impact consumer spending. Reduced consumer spending or a shift in consumer spending patterns away from discretionary items will likely result in reduced demand for our magazines.

Historically, we have been able to offset some of the declines in circulation revenues, in part, through increases in cover prices and cost reductions. We may not be able to increase cover prices without decreasing circulation or be able to take other measures, such as increasing advertising rates or pages and reducing print orders of our titles, to offset such circulation revenue declines. In addition, we may not be able to reverse the circulation revenue declines described above, and such declines in circulation could have a material adverse effect on our business, financial condition and results of operations.

We also face risks associated with the impact of weak domestic and global economic conditions on third parties with which we do business, such as advertisers, suppliers, wholesale distributors, retailers and other parties. For example, if retailers file for reorganization under bankruptcy laws or otherwise experience negative effects on their businesses due to volatile or weak economic conditions, it could reduce the number of outlets for our magazines, which in turn could reduce the attractiveness of our magazines to advertisers. In addition, any financial instability of the wholesalers that distribute our print magazines to retailers could have various negative effects on us. See “—We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.”

We derive substantial revenues from the sale of advertising, and a decrease in overall advertising expenditures could lead to a reduction in the amount of advertising that companies are willing to purchase from us and the price at which they purchase it. Expenditures by advertisers tend to be cyclical, reflecting domestic and global economic conditions. If the economic prospects of advertisers or current economic conditions worsen, such conditions could alter current or prospective advertisers’ spending priorities. Declines in consumer spending on advertisers’ products due to weak economic conditions could also indirectly negatively impact our advertising revenues, as advertisers may not perceive as much value from advertising if consumers are purchasing fewer of their products or services.


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We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.

We operate a distribution network that relies on wholesalers to distribute our magazines to newsstands and other retail outlets. A small number of wholesalers are responsible for a substantial percentage of wholesale magazine distribution in the United States. We are experiencing significant declines in magazine sales at newsstands and other retail outlets. In light of these declines and the challenging general economic climate, there may be further consolidation among the wholesalers and one or more may become insolvent or unable to pay amounts due in a timely manner. Distribution channel disruptions can impede our ability to distribute magazines to the retail marketplace, which could, among other things, negatively affect the ability of certain magazines to meet the rate base established with advertisers. Disruption in the wholesaler channel, an increase in wholesaler costs or the failure of wholesalers to pay amounts due could adversely affect our business, financial condition and results of operations. See also “Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.”

Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.

During fiscal 2015 single copy sales accounted for 78% of total circulation revenue and 79% during fiscal 2014 and 2013 and consisted of copies distributed to retailers primarily by two wholesalers. During fiscal 2015, 2014 and 2013, The News Group accounted for approximately 36%, 29% and 29%, respectively, of our total operating revenue and Hudson Group accounted for approximately 9%, 8% and 9%, respectively. We have long-term service arrangements with our wholesalers, which provide incentives to maintain certain levels of service. When these arrangements expire, we may not be able to renew them on favorable terms, extend the terms of these arrangements or extend our relationship with the wholesalers at all. Our business, financial condition and results of operations could be adversely affected by disruption of the distribution of our magazines through these wholesalers.

In May 2014, Source, our second-largest wholesaler at such time, notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014.

Changes to U.S. or international regulation of our business or the businesses of our advertisers could cause us to incur additional costs or liabilities, negatively impact our revenues or disrupt our business practices.

Our digital businesses are subject to government regulation in the jurisdictions in which we operate, and our Web sites, which are available worldwide, may be subject to laws regulating the Internet even in jurisdictions where we do not do business. Advertising and promotional information presented to visitors on our websites and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including on-line content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Revenues from our digital businesses could be adversely affected, directly or indirectly, by these existing or future laws and regulations.
Our business performance is also indirectly affected by the laws and regulations that govern the businesses of our advertisers. For example, the pharmaceutical industry, which accounts for a significant portion of our advertising revenues in our Men's Active Lifestyle segment, is subject to regulations of the Food and Drug Administration in the United States requiring pharmaceutical advertisers to communicate certain disclosures to consumers about advertised pharmaceutical products, typically through the purchase of print media advertising. We face the risk that the Food and Drug Administration could change pharmaceutical marketing regulations in a way that is detrimental to the sale of print advertising.

In addition, changes in laws and regulations that currently allow us to retain customer data and to engage in certain forms of consumer marketing, such as automatic renewal of subscriptions for our magazines and negative option offers via direct mail, email, on-line or telephone solicitation, could have a negative impact on our circulation revenues and adversely affect our financial condition and operating performance.


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Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates.

The financial condition of the U.S. Postal Service (the “USPS”) continues to decline. In the past the USPS closed numerous mail processing centers and has announced plans to close additional processing centers in 2014, which could result in slower delivery of first class mail and periodicals. The USPS is currently prohibited under a Congressional resolution from discontinuing Saturday mail delivery, but the USPS and some members of Congress are attempting to lift that ban as part of comprehensive postal reform. Our subscribers expect our weekly magazines to be delivered in the same week that they are printed, and the elimination of Saturday mail delivery or slower delivery of periodicals, absent changes to our internal production schedules, could result in a certain percentage of our weekly magazines not reaching subscribers until the following week. We cannot predict how the USPS will address its fiscal condition in the future, and changes to delivery, reduction in staff or additional closings of processing centers may lead to changes in our internal production schedules or other changes in order to continue to meet our subscribers’ expectations.

Other measures taken to address the declining financial condition of the USPS could include increases in the rates for periodicals and local post office closures. We cannot predict with certainty the magnitude of future price changes in postage. In particular, postage represents a significant component of our total cost to distribute our printed products and represented approximately 6% of our total operating expense for fiscal 2015. If there are significant increases in postal rates and we are not able to offset such increases, our results of operations could be negatively impacted.

Our business and results of operations may be adversely affected by increases in fuel costs and the price of paper.

Many aspects of our business have been directly affected by increases in the cost of fuel and paper. Increased fuel costs have translated into increased costs for the products and services we receive from our third-party suppliers, including, but not limited to, increased production and distribution costs for our products. Paper represents a significant component of our total cost to produce our printed products and represented approximately 11% of our total operating expenses for fiscal 2015. Paper is a commodity and the price has been subject to significant volatility due to supply and demand in the marketplace as well as volatility in the raw material and other costs incurred by our paper suppliers. Although we have a long-term paper supply and purchasing agreement with the largest paper supply broker, we do not have any long-term pricing agreements with paper suppliers and suppliers may raise their prices for paper from time to time.

We cannot predict with certainty the magnitude of future price changes in paper or how increases in fuel costs will affect our third-party suppliers and the rates they charge us. If fuel or paper prices increase and we are not able to offset such increases, our business, financial condition and results of operations would be adversely affected.

Our business may be adversely affected if we lose one or more of our vendors.

We rely on third-party vendors, including paper suppliers, printers, subscription fulfillment houses and subscription agents for the print portion of our business. The industries in which our print-related third-party vendors operate have experienced significant restructurings and consolidation in recent years, resulting in decreased availability of goods and services and competition. Further disruptions in these industries may make our third-party vendors unable or unwilling to provide us with goods and services on favorable terms and may lead to greater dependence on certain vendors, increased prices, and interruptions and delays in the services provided by these vendors, all of which would adversely affect our business.

We may suffer credit losses that could adversely affect our results of operations.

We extend unsecured credit to most of our customers. We recognize that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit exposure also includes the amount of estimated unbilled sales. The level of credit is influenced by the customer’s credit history with us and other available information, including industry-specific data.

We maintain a reserve account for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay, additional allowances might be required, which could have a material adverse effect on our business, results of operations and financial condition.


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Future acquisitions, partnerships, publishing services agreements and joint ventures may require significant resources.

In the future, we may seek to grow the Company and its businesses by making acquisitions or entering into partnerships, publishing services agreements or joint ventures. Any future acquisition, partnership, publishing services agreement or joint venture may require that we make significant cash investments, issue stock or incur substantial indebtedness. Such acquisitions and investments may require additional funding which may be provided in the form of additional indebtedness, equity financing or a combination thereof. We cannot assure that any such additional funding will be available to us on acceptable terms, or at all, or that we will be permitted under the terms of the Amended and Restated Revolving Credit Facility (or any replacement thereof) or under the terms of the indentures governing our Senior Secured Notes to obtain such financing for such purpose.

We have incurred indebtedness in the past to finance acquisitions. We may finance future acquisitions with additional indebtedness, subject to limits in our debt agreements. As a result, we could face the financial risks associated with incurring additional indebtedness such as reducing our liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.

We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risk and uncertainties.

We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risks and uncertainties, including:

difficulty in integrating newly acquired businesses and operating in an efficient and effective manner;

the inability to maintain key pre-acquisition business relationships;

the potential diversion of senior management's attention from our operations;

the potential loss of key employees of the acquired businesses;

risks associated with integrating financial reporting and internal control systems;

exposure to unanticipated liabilities; and

challenges in achieving strategic objectives, cost savings and other anticipated benefits.

If an acquired business fails to operate as anticipated, cannot be successfully integrated with our existing business or one or more of the other risk and uncertainties identified above occur, our business, results of operations and financial condition could be adversely affected.

We are expanding our merchandising and licensing programs into new areas and products, the failure of any of which could diminish the perceived value of our brand, impair our ability to grow and adversely affect our prospects.
Our growth depends to a significant degree upon our ability to develop new or expand existing retail merchandising programs. We have entered into several new merchandising and licensing agreements in the past few years. Some of these agreements include exclusivity provisions and have a duration of many years. While we require that our licensees maintain the quality of our respective brands through specific contractual provisions, we cannot be certain that our licensees, or their manufacturers and distributors, will honor their contractual obligations or that they will not take other actions that will diminish the value of our brands.
There is also a risk that our extension into new business areas will meet with disapproval from consumers. We cannot guarantee that these programs will be fully implemented, or, if implemented, that they will be successful. If the licensing or merchandising programs do not succeed, we may be prohibited from seeking different channels for our products due to the exclusivity provisions and multi-year terms of these agreements. Disputes with new or existing licensees may arise that could hinder our ability to grow or expand our product lines. Disputes also could prevent or delay our ability to collect the licensing revenue that we expect in connection with these products. If such developments occur or our merchandising programs are otherwise not successful, the value and recognition of our brands, as well as our business, financial condition and prospects, could be materially adversely affected.

20


Divestitures may affect our costs, revenues, profitability and financial position.
In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment. We may decide to divest other segments or lines of business in the future. Divestitures have inherent risks, including possible delays in closing transactions, the risk of lower-than-expected sales proceeds for the divested businesses, unexpected costs associated with the separation of the business to be sold from our integrated information technology systems and other operating systems and potential post-closing claims for indemnification. Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize.
Electronically stored data is subject to the risk of unauthorized access and if our data is compromised in spite of our attempts at protecting this data, we may incur significant costs, lost opportunities and damage to our reputation.

We maintain information necessary to conduct our business, including confidential, proprietary and personal information in digital form. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. We develop and maintain systems to prevent this from occurring, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of intrusion, tampering and theft cannot be eliminated entirely, and risks associated with each of these remain. If our data systems are compromised or if the proprietary information of our customers or employees is misappropriated, our ability to conduct our business may be impaired, our reputation with our customers and employees may be injured resulting in loss of business or morale and we could be exposed to a risk of loss due to business interruption, or litigation.

If we are unable to protect our intellectual property, the value of our intangible assets may be diminished and our competitive position and business may be adversely affected.

Our business relies on a combination of trade secrets, trademarks, tradenames, copyrights and other proprietary rights, as well as contractual arrangements, including licenses, to establish and protect our intellectual property and brand names. Our continued success and competitive position depends on our proprietary trademarks, copyrights and other intellectual property rights. See "Business - Intellectual Property" for a description of our intellectual property assets and the steps we take to protect them.

Other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace. Brand dilution or the introduction of competitive brands could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, thereby negatively impacting our sales. Any such infringement of our intellectual property rights would also likely result in a commitment of our time and resources, financial or otherwise, to protect these rights through litigation or other means. In addition, third parties may assert claims against our intellectual property rights and we may not be able to successfully resolve those claims causing us to lose our ability to use our intellectual property that is the subject of those claims. Such loss could have a material adverse effect on our business, financial condition and results from operations. Furthermore, from time to time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights, which could require us to incur substantial fees and expenses and have a material adverse effect on our business, financial condition and results from operations.

Our performance could be adversely affected if we lose our key personnel.

We believe that our success is largely dependent on the abilities and experience of our senior management team. The loss of the services of one or more of these senior executives could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies. We do not maintain key man life insurance on the lives of our senior management. We have entered into employment agreements or arrangements with our senior management team, which may contain non-compete provisions. While we believe that we could find replacements for these key personnel, the loss of their services could disrupt our business and have a significant adverse effect on our results of operations and financial condition.

Our operating results are subject to seasonal variations.

Our business has experienced, and is expected to continue to experience, seasonality due to, among other things, seasonal advertising patterns and seasonal influences on consumer reading habits. Typically, our revenues from advertising are highest in the fourth quarter. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter.


21


Pending and future litigation or regulatory proceedings could materially affect our operations.

Since the focus of some of our publications often involves celebrities or controversial subjects and because of our news gathering techniques, the risk of defamation or invasion of privacy litigation or the filing of criminal charges exists. While we have not historically experienced any difficulty obtaining insurance coverage, we cannot assure that we will be able to do so in the future at rates acceptable to us, or at all. In addition to the celebrity litigation in which we may be involved, from time to time we may be involved in commercial litigation. Any pending or future litigation or regulatory proceeding, if adversely determined, could have a material adverse effect on our business, results of operations and financial condition.

Terrorist attacks and other acts of violence or war may affect the financial markets and our business, results of operations and financial condition.
Terrorist attacks may negatively affect our operations and financial condition. There can be no assurance that there will not be further terrorist attacks against the United States or U.S. businesses. These attacks or armed conflicts may directly impact our physical facilities, such as those in New York City, or those of our retailers, suppliers and customers. These events could cause consumer confidence and their discretionary spending to decrease or result in increased volatility in the U.S. and world financial markets and economy. They could result in an economic recession in the United States or abroad. Any of these occurrences could have a material adverse impact on our business, results of operations and financial condition.
If our goodwill or other identifiable intangible assets become impaired, we may be required to record a significant charge to earnings.

Under U.S. generally accepted accounting principles, goodwill and indefinite-lived intangible assets are required to be tested for impairment annually or more often if an event occurs or circumstances change that would indicate a potential impairment exists, and long-lived assets, including finite-lived intangible assets, are required to be tested for impairment upon the occurrence of a triggering event. Factors that could lead to impairment of goodwill and indefinite-lived intangible assets include significant adverse changes in the business climate and declines in the value of our business.

During an evaluation of goodwill and other identified intangible assets at September 30, 2014, the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections. The evaluation resulted in the carrying value of tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $17.4 million to reduce the carrying value of tradenames and goodwill during the second quarter of fiscal 2015.

As of March 31, 2015, the net book value of our goodwill and other intangible assets was approximately $378.2 million. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of fair value and could materially change the impairment charge related to goodwill and tradenames.

Some provisions of Delaware law and our amended and restated certificate of incorporation may deter third parties from acquiring us.

Provisions contained in our amended and restated certificate of incorporation and the laws of Delaware, the state in which we are incorporated, could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our amended and restated certificate of incorporation impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions that our stockholders desire.

If we do not maintain an effective system of internal controls over financial reporting and disclosure controls, our operating results and reputation would be harmed.

Effective internal controls over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully. If we cannot provide reliable financial reports or prevent fraud, our operating results and reputation would be harmed. As part of our ongoing monitoring, we may discover material weaknesses or significant deficiencies in our internal control over financial reporting that require remediation.


22


We cannot assure that material weaknesses or significant deficiencies, to the extent they exist, in internal controls over financial reporting or disclosure controls would be identified in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal controls over financial reporting and disclosure controls could, among other things, result in losses from fraud or error, cause us not to satisfy our reporting obligations, cause investors to lose confidence in our reported financial information or harm our reputation, all of which could have a material adverse effect on our business, results of operations and financial condition.

Our financial statements are subject to changes in accounting standards that could adversely impact our profitability or financial position.

Our financial statements are subject to the application of accounting principles generally accepted in the United States of America (“US GAAP”), which are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our annual and quarterly reports. An assessment of proposed standards is not provided, as such proposals are subject to change through the exposure draft process and, therefore, their effects on our financial statements cannot be meaningfully assessed. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on the reported results of operations and financial position.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The following table sets forth certain information concerning the location, use and approximate square footage of our principal locations as of March 31, 2015, all of which are leased:
Location
 
Principal Use
 
Approximate Area in Square Feet
Boca Raton, FL
 
Editorial offices for our Celebrity Brands segment, administrative offices for our Publishing Services segment and executive administrative offices
 
55,660

New York, NY
 
Editorial and sales offices for all of our segments and executive administrative officers
 
99,054

Los Angeles, CA
 
Editorial offices for our Celebrity Brands segment
 
10,509


The leases for our offices and facilities expire between 2015 and 2022, and some of these leases are subject to renewal. We believe that our existing facilities are well maintained and in good operating condition.

Item 3.     Legal Proceedings.

On March 10, 2009, Anderson News, L.L.C. and Anderson Services, L.L.C., magazine wholesalers (collectively, “Anderson”), filed a lawsuit against American Media, Inc., DSI (now known as In-Store Services, Inc.), and various magazine publishers, wholesalers and distributors in the Federal District Court for the Southern District of New York (the “Anderson Action”). Anderson's complaint alleged that the defendants violated Section 1 of the Sherman Act by engaging in a purported industry-wide conspiracy to boycott Anderson and drive it out of business. Plaintiffs also purported to assert claims for defamation, tortious interference with contract and civil conspiracy. The complaint did not specify the amount of damages sought. On August 2, 2010, the District Court dismissed the action in its entirety with prejudice and without leave to replead and, on October 25, 2010, denied Anderson's motion for reconsideration of the dismissal decision. Anderson appealed the District Court's decisions.

On April 3, 2012, the Second Circuit issued a decision reversing the dismissal of the lawsuit and reinstating the antitrust and state law claims (except the defamation claim, which Anderson withdrew), and, on January 7, 2013, the United States Supreme Court declined to review the Second Circuit decision. Following the Second Circuit decision, the case has been proceeding in the District Court and the parties engaged in discovery. Fact discovery was completed in May 2014 and expert discovery was completed in October 2014. Anderson submitted an expert report calculating that damages are approximately $470 million, which would be subject to trebling should Anderson prevail against the defendants in the lawsuit. Defendants, including American Media, Inc. and DSI, also have submitted an expert report on damages, which opines that, separate and apart from the question of liability, Anderson has suffered no damages.


23


Anderson is in chapter 11 bankruptcy proceedings in Delaware bankruptcy court. On June 10, 2010, American Media, Inc. filed a proof of claim in that proceeding for $5.6 million (which it amended on December 3, 2013 to reflect the counterclaim (described below) it planned to file in the Anderson Action), but Anderson asserts that it has no assets to pay unsecured creditors like American Media, Inc. An independent court-appointed examiner has identified claims that Anderson could assert against Anderson insiders in excess of $340.0 million.

In an order of the Delaware bankruptcy court, entered on November 14, 2011, American Media, Inc. and four other creditors (collectively, the “Creditors”), which also are defendants in the Anderson Action, were granted the right to file lawsuits against Anderson insiders asserting Anderson's claims identified by the examiner. The Creditors' retention of counsel to pursue the claims on a contingency fee basis was also approved. On November 14, 2011, pursuant to this order, a complaint was filed against 10 defendants. After a temporary stay of discovery pending conclusion of fact discovery in the Anderson Action, discovery in the bankruptcy action proceeded. On December 12, 2014, defendants in the adversary action moved for partial summary judgment seeking dismissal of certain of the Creditors’ claims. The motion was fully briefed on April 20, 2015.

By order dated November 6, 2013, the Delaware bankruptcy court granted American Media, Inc. and four of its co-defendants relief from the automatic bankruptcy stay of litigation against Anderson News, L.L.C. so that they could file a counterclaim in the Anderson Action against Anderson News, L.L.C. alleging that Anderson News, L.L.C. had violated the antitrust laws by engaging in a conspiracy to fix prices that wholesalers would pay publishers for their magazines and seeking an unspecified amount of damages to be proved at trial. Permission was obtained on January 23, 2014 from the District Court to file the counterclaim against Charles Anderson, Jr. and Anderson News, L.L.C. American Media, Inc. filed its amended answer and counterclaim in the Anderson Action on February 14, 2014. On December 15, 2014, the parties in the Anderson Action filed motions for summary judgment and to strike certain proposed expert testimony. The briefing on these motions was completed on April 17, 2015 and a hearing regarding these motions has been scheduled for July 22, 2015.

While it is not possible to predict the outcome of the Anderson Action or to estimate the impact on American Media, Inc. and DSI of a final judgment against American Media, Inc. and DSI (if that were to occur), American Media, Inc. and DSI believe that the claims asserted by Anderson, in the Anderson Action, are meritless. American Media, Inc. and DSI have antitrust claim insurance that covers defense costs. American Media, Inc. and DSI have filed a claim for insurance coverage with regard to the Anderson Action and certain of their defense costs are being paid by the insurer, and, in the event of a settlement or a damages award by the Court and subject to the applicable policy limits, American Media, Inc. and DSI anticipate seeking reimbursement from the insurer for payment of such settlement or damages. American Media, Inc. and DSI will continue to vigorously defend the case.

In addition, because the focus of some of our publications often involves celebrities and controversial subjects, the risk of defamation or invasion of privacy litigation exists. Our experience indicates that the claims for damages made in celebrity lawsuits are usually inflated and such lawsuits are usually defensible and, in any event, any reasonably foreseeable material liability or settlement would likely be covered by insurance, subject to any applicable deductible. We also periodically evaluate and assess the risks and uncertainties associated with our pending litigation disregarding the existence of insurance that would cover liability for such litigation. At present, in the opinion of management, after consultation with outside legal counsel, the liability resulting from pending litigation, even if insurance were not available, is not expected to have a material effect on our consolidated financial statements.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

All of our outstanding shares of common stock are privately held and there is no established public market for our shares. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI in August 2014.

We did not make any dividend payments in fiscal 2015, 2014 or 2013, and we do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our Amended and Restated Revolving Credit Facility restrict our ability to pay dividends, and any future indebtedness that we may incur could preclude us from paying dividends. With respect to the dividend restriction, the Amended and Restated Revolving Credit Facility and the Indentures include a cap on the total amount of cash available for distribution to our common stockholders.


24


For information regarding our capital structure and former equity compensation plans, see Note 14, "Capital Structure" in the notes to consolidated financial statements contained elsewhere in this Annual Report.

Item 6.    Selected Financial Data.

The following table sets forth selected historical consolidated financial information of American Media, Inc. as of and for each year in the five-year period ended March 31, 2015. The selected historical consolidated financial data as of March 31, 2015 and 2014 and for each of the years in the three-year period ended March 31, 2015 are derived from our historical consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated financial data for all other periods presented were derived from our audited consolidated financial statements that are not included elsewhere in this Annual Report.

You should review the selected historical financial data presented below in conjunction with our consolidated financial statements and the accompanying notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Annual Report. As a result of the sale of the Shape, Fit Pregnancy and Natural Health publications, the operations of AMI's former Women's Actively Lifestyle segment have been classified as discontinued operations for all periods presented. The prior year amounts have been recast to reflect the sale of the Women's Actively Lifestyle segment as discontinued operations.
 
Fiscal Year Ended March 31,
(in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Results of Operations
 
 
 
 
 
 
 
 
 
     Circulation
$
166,199

 
$
187,613

 
$
202,958

 
$
217,866

 
$
215,869

     Advertising
67,258

 
72,953

 
65,212

 
72,134

 
76,564

     Other
11,723

 
26,780

 
28,464

 
31,544

 
32,789

          Total operating revenues
245,180

 
287,346

 
296,634

 
321,544

 
325,222

Operating expenses
250,961

 
253,561

 
297,607

 
268,217

 
246,753

Operating income (loss)
(5,781
)
 
33,785

 
(973
)
 
53,327

 
78,469

Other expenses, net
(51,150
)
 
(60,098
)
 
(61,464
)
 
(61,535
)
 
(94,002
)
Income tax provision (benefit)
(15,689
)
 
30,659

 
(6,436
)
 
(22,457
)
 
(1,839
)
Income (loss) from continuing operations
(41,242
)
 
(56,972
)
 
(56,001
)
 
14,249

 
(13,694
)
Income from discontinued operations, net of income taxes
15,334

 
3,701

 
456

 
8,044

 
9,731

Net income (loss)
(25,908
)
 
(53,271
)
 
(55,545
)
 
22,293

 
(3,963
)
Less: net income attributable to noncontrolling interests
(1,219
)
 
(1,048
)
 
(694
)
 
(726
)
 
(510
)
Net income (loss) attributable to American Media, Inc. and subsidiaries
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
 
$
21,567

 
$
(4,473
)
 
March 31,
(in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Cash and cash equivalents
$
3,452

 
$
3,030

 
$
2,358

 
$
5,218

 
$
21,276

Goodwill and other identified intangible assets, net
378,179

 
398,323

 
409,919

 
460,713

 
441,485

Total assets
466,025

 
572,640

 
506,494

 
575,457

 
557,790

Total debt, net of premium and discount
324,269

 
498,477

 
481,889

 
476,889

 
489,889

Total stockholders' deficit
(36,948
)
 
(131,973
)
 
(77,762
)
 
(21,349
)
 
(42,878
)

25


Notes to Selected Financial Data

Net (loss) income attributable to American Media, Inc. and subsidiaries for fiscal year

2015 includes non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $17.4 million, AMI's share of share of bad debt and other expenses related to wholesaler shutdowns of approximately $8.4 million, costs related to restructuring and severance of approximately $7.1 million and Merger and related transaction costs of approximately $4.8 million.

2014 includes non-cash tradename impairment charges related to certain reporting units of approximately $9.2 million and AMI's share of bad debt related to Source and other wholesaler shutdowns of approximately $5.1 million.

2013 includes non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $50.6 million.

2011 includes reorganization costs of approximately $24.5 million and a loss on extinguishment of debt of approximately $8.6 million.

Total stockholders' deficit includes approximately $121.5 million in fiscal 2015 related to the exchange of debt for equity in connection with the Conversion and fiscal 2011 includes a gain on restructuring of approximately $587.0 million related to the exchange of debt for equity in connection with the 2010 Restructuring.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read together with the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. This discussion and analysis contains statements that constitute forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including but not limited to those discussed in "Cautionary Statements Regarding Forward-Looking Information" and "Risk Factors" included in this Annual Report.

ORGANIZATION OF INFORMATION

Our discussion is presented in the following sections:

Executive Summary

Recent Developments and Management Action Plans

Results of Operations

Operating Segments

Liquidity and Capital Resources

Contractual Obligations and Other Commitments

Seasonality and Quarterly Fluctuations

Off-Balance Sheet Financing

Application of Critical Accounting Estimates

Recently Adopted and Recently Issued Accounting Pronouncements


26


EXECUTIVE SUMMARY

American Media, Inc. together with its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") is one of the largest publishers of celebrity and health and active lifestyle magazines in the United States, with a diversified portfolio of 10 publications that have a combined monthly print and digital audience of more than 40 million readers and monthly on-line audience of approximately 49 million readers.

In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 million in cash plus an earnout of up to $60 million. As a result, the operations of the Women's Active Lifestyle segment have been classified as discontinued operations in all periods presented. After giving effect to the divestiture of our Women's Active Lifestyle segment, we report under a new segment structure beginning in the fourth quarter of fiscal 2015 and accordingly have recast prior period segment amounts.

Our remaining well-known publications cover two primary operating segments: Celebrity and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner and Soap Opera Digest. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers and Flex. Our third, non-operating segment, Corporate and Other, includes our international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers.

We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.

Our largest revenue stream comes from single copy newsstand sales. Our second largest revenue stream comes from multi-platform advertising. Our primary operating expenses consist of production, distribution, circulation and other cost of sales, as well as selling, general and administrative expenses. We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business.

We are experiencing declines in our circulation revenue and print advertising as a result of market conditions in the magazine publishing industry. These declines are primarily caused by the disruption in our wholesaler distribution channel, the overall decline in the celebrity newsstand market and the decline in the consumer advertising market coupled with the shift in advertising dollars from print to digital. Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions and current events. Since magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to economic downturns. Adverse changes in the markets we serve generally result in reductions in revenue as a result of lower consumer spending, which can lead to a reduction in advertising revenue.

Our fiscal year ended on March 31, 2015 and is referred to herein as fiscal 2015. References to our fiscal year (e.g. "fiscal 2015") refer to our fiscal year ended March 31st of the applicable year.


27


RECENT DEVELOPMENTS AND MANAGEMENT ACTION PLANS

Recent Developments

The Merger

In August 2014, we entered into an agreement and plan of merger (the "Merger Agreement") with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of AMI (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into AMI (the "Merger") with AMI surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI. See "Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Merger and related transactions.

Debt Related Transactions

In connection with the Merger, AMI entered into a note purchase agreement (the "Note Purchase Agreement") with the Investors pursuant to which AMI issued to the Investors approximately $12.3 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 10% per annum, payable in kind, and mature in June 2018 (the "Second Lien PIK Notes").

In September 2014, AMI entered into an exchange agreement with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of senior secured notes of AMI, consisting of $113.3 million in aggregate principal amount of Second Lien PIK Notes (including the $12.3 million issued in connection with the Note Purchase Agreement) and $7.8 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"), plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent.

In January 2015, AMI exchanged approximately $32.0 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in June 2017 (the "First Lien Notes"), plus accrued and unpaid interest, held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement.

In February 2015, we amended and restated the revolving credit facility to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

During fiscal 2015, AMI repurchased approximately $56.1 million in aggregate principal amount of senior secured notes, consisting of $55.5 million in aggregate principal amount of First Lien Notes and $0.6 million in aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors.

At March 31, 2015, the Company's total principal amount of senior secured notes was approximately $309.6 million.

Subsequent to March 31, 2015, the Company repurchased approximately $2.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors. After giving effect to this repurchase approximately $273.2 million aggregate principal amount of First Lien Notes remain outstanding.

See "Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a further discussion regarding our debt agreements.

Dispositions

In November 2014, AMI sold its Country Weekly publication for approximately $3.0 million in cash and entered into a long-term publishing services agreement. The operating results of Country Weekly were insignificant to the Company's consolidated financial statements for the fiscal years ended March 31, 2015, 2014 and 2013 and did not meet the criteria for presentation of discontinued operations.


28


In January 2015, AMI and its wholly-owned subsidiary Weider Publications, LLC entered into an asset purchase agreement (the "Purchase Agreement") with Meredith Corporation ("Meredith"). The Purchase Agreement provided for the sale of AMI's Shape, Fit Pregnancy and Natural Health brands and magazines, which comprised its Women's Active Lifestyle segment. We received the initial cash consideration of $60.0 million in January 2015 when the transaction closed. AMI is further entitled to additional consideration (the "Additional Consideration"), in the form of a one-time payment, following the completion of Meredith's 2018 fiscal year on June 30, 2018. The Additional Consideration, up to $60.0 million, will be based upon 40% of the adjusted operating profit of the combination of AMI's Shape brand and Meredith's Fitness brand.

Pursuant to the Purchase Agreement, AMI continued to publish the Shape, Fit Pregnancy and Natural Health magazines with on-sale dates through March 31, 2015, after which Meredith assumed publishing responsibilities for such titles. Effective as of the closing, Meredith assumed control over the digital assets used with Shape, Fit Pregnancy and Natural Health. AMI will have no continuing involvement in the operations of these publications subsequent to March 31, 2015.

Digital Initiatives

Our fully integrated print and digital sales team is comprised of more than 60 sales executives, with a dozen digital brand champion sales staff across all the websites. We believe our structure is highly effective to respond to our advertisers' requests for integrated marketing solutions for combined print and digital, as well as digital-only programs. During fiscal 2015, our digital advertising revenue increased 26% over the comparable prior year period.

We have launched digital editions for all our brands on the following platforms: Next Issue Media, Apple, Google newsstand, Zinio, Amazon Kindle and Barnes & Noble's Nook.

Print Initiatives

The relaunch of Men's Fitness continues to attract new luxury goods advertisers. During fiscal 2015, total advertising revenues increased 14% for Men's Fitness as compared to the prior period. During fiscal 2015, there were over 100 new lifestyle advertisers, such as Grey Goose, HBO, Garnier, Mazda, SmartWater, New Balance, Dick's Sporting Goods and DSW, which had not previously invested in Men's Fitness.

The success of Men's Fitness allowed us to reposition Muscle & Fitness in the marketplace to fill the gap in fitness and training content that was left when Men's Fitness expanded its active lifestyle coverage. In addition to its current readers, the editorial for Muscle & Fitness also targets a new generation of fitness enthusiast by broadening the definition of what "fitness" really means. By expanding the editorial focus to include a wider range of fitness training, Muscle & Fitness attracts a wider audience at the newsstand. In addition, we have been able to capture advertising targeted at the fitness realm, but not limited to weight training, such as Nike and Reebok, as well as luxury good advertisers similar to the mix of advertisers in Men's Fitness.

Branded Products

In December 2014, we entered into a multi-year e-commerce partnership with GNC Holdings, Inc., across our health and fitness websites. The "Shop GNC" stores offer a selection of GNC products curated by the editors of our health and fitness publications at the brands in addition to access to the full GNC.com assortment of products. This is the first partnership of its kind for GNC's e-commerce business with a global media and content partner such as AMI. We also have a long-term agreement with GNC for publishing print editions of our Men's Fitness magazine (and Shape magazine pursuant to a licensing agreement with Meredith) in a combined special interest publication distributed in over 4,200 GNC stores, on a quarterly basis, in North America.

Last year, we became a strategic partner to Microsoft and produced Men's Fitness and Muscle & Fitness branded exercise and workout videos for Microsoft to incorporate into their Bing Health and Fitness application. This year, we entered into multiple contracts with Microsoft to create and provide additional exercise and workout videos, as well as providing our content for syndication, to be distributed through Microsoft offerings.

Other Developments

Declines in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalers. Several of our smaller wholesalers ceased operation in early 2014 and Source Interlink Companies ("Source"), our second-largest wholesaler at such time, ceased operations in June 2014.


29


Prior to the execution of the Merger Agreement and the Note Purchase Agreement, AMI entered into various supplemental indentures to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement and eliminate AMI's obligation to repurchase approximately $12.7 million of senior secured notes, during fiscal 2015, pursuant to the terms of the indenture of certain senior secured notes and the exchange agreement related to such certain senior secured notes. See Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Merger and related transactions.

Management Action Plans for Cost Savings

During fiscal 2014, we developed and implemented management action plans that resulted in $5.1 million of cost savings in fiscal 2014 (the "2014 Management Action Plans"). The expense improvements were primarily in print order efficiencies and editorial expense reductions. We realized the benefits from the 2014 Management Actions Plans in fiscal 2014 and certain of these cost savings may benefit fiscal 2015 and beyond.

During fiscal 2015, we developed and implemented management action plans that we expect will result in $6.1 million of cost savings in fiscal 2015 and $5.7 million of cost savings in fiscal 2016 (the "2015 and 2016 Management Action Plans"). These expense improvements were primarily from outsourcing technology and operating functions, digital content re-negotiations, and editorial and advertising sales expense reductions. We will realize the benefits from the 2015 and 2016 Management Action Plans in fiscal 2015, fiscal 2016 and beyond.

Reference to Management Action Plans refers to the 2014 Management Action Plans and the 2015 and 2016 Management Action Plans.

RESULTS OF OPERATIONS

The following table provides a summary of our operating results for the fiscal years ended March 31, 2015, 2014 and 2013 on a consolidated basis:
 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Operating revenues:
 
 
 
 
 
 
 
 
 
Circulation
$
166,199

 
$
187,613

 
$
202,958

 
(11)%
 
(8)%
Advertising
67,258

 
72,953

 
65,212

 
(8)%
 
12%
Other
11,723

 
26,780

 
28,464

 
(56)%
 
(6)%
Total operating revenues
245,180

 
287,346

 
296,634

 
(15)%
 
(3)%
Operating expenses
250,961

 
253,561

 
297,607

 
(1)%
 
(15)%
Operating income (loss)
(5,781
)
 
33,785

 
(973
)
 
*
 
*
Other expense, net
(51,150
)
 
(60,098
)
 
(61,464
)
 
(15)%
 
(2)%
Loss from continuing operations before income tax provision (benefit)
(56,931
)
 
(26,313
)
 
(62,437
)
 
*
 
(58)%
Income tax provision (benefit)
(15,689
)
 
30,659

 
(6,436
)
 
*
 
*
Net loss from continuing operations
(41,242
)
 
(56,972
)
 
(56,001
)
 
(28)%
 
2%
Income (loss) from discontinued operations, net of taxes
15,334

 
3,701

 
456

 
*
 
*
Net loss
(25,908
)
 
(53,271
)
 
(55,545
)
 
(51)%
 
(4)%
Less: net (income) attributable to the noncontrolling interest
(1,219
)
 
(1,048
)
 
(694
)
 
16%
 
51%
Net loss attributable to American Media, Inc. and subsidiaries
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
 
(50)%
 
(3)%
* Represents an increase or decrease in excess of 100%.


30


Operating Revenues

During fiscal 2015, total operating revenues decreased $42.2 million compared to the prior period primarily due to reduced circulation ($21.4 million), advertising ($5.7 million) and other revenues ($15.1 million).

Circulation revenue has declined due to the industry-wide disruption in our wholesaler channel due to the shutdown and bankruptcy of Source coupled with the decline in the celebrity magazine sector. In addition, the consumer advertising market declined 11% which impacted all consumer print magazines. The decline in other revenue was due to the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million), coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset by higher revenue from the Mr. Olympia event ($1.3 million).

Total operating revenues decreased slightly during fiscal 2014 due to a decline in circulation revenue and the divestiture of DSI, which was mostly offset by higher advertising revenue. The increase in advertising revenue was primarily due to the success of the relaunch of Men's Fitness as an active lifestyle magazine.

On a pro forma basis, after the divestiture of DSI, total operating revenues would have increased $5.8 million or 2% during fiscal 2014. Other revenues would have increased $8.7 million or 64% primarily due to our digital initiatives and continued success of the Mr. Olympia event.

The following table summarizes our operating revenues, by type, as a percentage of total operating revenues:

 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Circulation
68%
 
65%
 
68%
Advertising
27%
 
25%
 
22%
Other
5%
 
10%
 
10%
Total
100%
 
100%
 
100%

Circulation Revenue

Total circulation of our print publications with a frequency of six or more times per year, were approximately 3.2 million copies per issue during fiscal 2015 and 3.5 million copies per issue during fiscal 2014 and 2013. As of March 31, 2015, our print publications comprised approximately 24% of total U.S. and Canadian newsstand circulation for weekly publications that are audited by the Alliance for Audited Media.

Our circulation revenue represented 68%, 65% and 68% of our operating revenues during fiscal 2015, 2014 and 2013, respectively and is comprised of the following components:

 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Single Copy
78%
 
79%
 
79%
Subscription
22%
 
21%
 
21%
Total
100%
 
100%
 
100%

As of March 31, 2015, our digital subscriptions represent 20% of our 2.1 million paid subscriptions, the highest percentage among our competitive set. Digital subscription revenue represented 1%, 3% and 4% of our circulation revenue during fiscal 2015, 2014 and 2013, respectively.

Circulation revenue declined $21.4 million and $15.3 million during fiscal 2015 and 2014, respectively, compared to the prior fiscal years due to the continued softness in the consumer magazine sector, coupled with the decline in the celebrity newsstand magazine market and the discontinuance and reduction of special one-time celebrity publications. Circulation revenue was further impacted during fiscal 2015 by the industry-wide disruption in our wholesaler channel due to the shutdown and bankruptcy of Source.


31


Advertising Revenue

Our advertising revenue represented 27%, 25% and 22% of our operating revenues during fiscal 2015, 2014 and 2013, respectively. Our advertising revenue is generated from the following components:
 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Print
85%
 
89%
 
95%
Digital
15%
 
11%
 
5%
Total
100%
 
100%
 
100%

Advertising revenue decreased $5.7 million during fiscal 2015 due to lower print advertising revenue ($7.7 million), partially offset by higher digital advertising ($2.0 million). Print advertising revenue was negatively impacted by the decline in the consumer magazine sector coupled with the reduced frequency of certain publications and the transformation of advertising from print to digital.

Advertising revenue increased $7.7 million during fiscal 2014 due to higher ad spending by beauty, packaged goods and luxury goods advertisers, primarily in Men's Fitness as a result of the market acceptance for the editorial repositioning of this publication. In addition, advertising revenue also increased in Star and OK! magazines due to creative marketing programs, content integration and efficiencies that our advertisers requested.

Other Revenue

Our other revenue represented 5% of our operating revenues during fiscal 2015 and 10% during fiscal 2014 and 2013.

During fiscal 2015, other revenue decreased $15.1 million due to the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million) coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset by the Mr. Olympia event ($1.3 million).

During fiscal 2014, other revenue decreased $1.7 million primarily due to a decline in revenue from the DSI divestiture in September 2013.

On a pro forma basis, post divestiture of DSI, other revenues would have increased $8.7 million or 64% during fiscal 2014. This was due to higher revenues from Microsoft, the Mr. Olympia event and management fees and income from certain joint ventures.

Operating Expenses

The following table provides a summary of our operating expenses for the fiscal years ended March 31, 2015, 2014 and 2013 on a consolidated basis:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Operating Expenses:
 
 
 
 
 
 
 
 
 
Editorial
$
26,804

 
$
30,870

 
$
33,620

 
(13)%
 
(8)%
Production
66,088

 
75,664

 
82,006

 
(13)%
 
(8)%
Distribution, circulation and other costs
39,010

 
46,023

 
53,956

 
(15)%
 
(15)%
Total cost of sales
131,902

 
152,557

 
169,582

 
(14)%
 
(10)%
Selling, general and administrative
86,636

 
78,331

 
67,854

 
11%
 
15%
Depreciation and amortization
13,965

 
13,435

 
9,573

 
4%
 
40%
Impairment of goodwill and intangible assets
18,458

 
9,238

 
50,598

 
100%
 
(82)%
Total operating expenses
$
250,961

 
$
253,561

 
$
297,607

 
(1)%
 
(15)%


32


We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements. We have long-term printing contracts with three major third-party printing companies.

Our production costs, including paper and printing costs, accounted for approximately 26%, 30% and 28% of our total operating expenses for the fiscal years ended March 31, 2015, 2014 and 2013, respectively.

Distribution, circulation and other costs consist primarily of postage and the cost of freight to our wholesalers and fulfillment companies for newsstand and subscription distribution. Our distribution, circulation and other cost of sales accounted for approximately 16% of our operating expenses for fiscal 2015 and 18% for each of fiscal 2014 and 2013.

Total Cost of Sales

Total cost of sales decreased during fiscal 2015 and 2014 compared to the prior year periods primarily due to planned expense reductions pursuant to the Management Action Plans in the following areas: $4.1 million in editorial expenses, $9.6 million in production expenses and $7.0 million in distribution and circulation during fiscal 2015 and $2.8 million in editorial expenses, $6.3 million in production and $7.9 million in distribution and circulation during fiscal 2014.

Selling, General and Administrative

Selling, general and administrative costs increased $8.3 million and $10.5 million during fiscal 2015 and 2014, respectively, as compared to the prior year periods.

Expenses increased during fiscal 2015 primarily due to the Merger and related transactions ($4.8 million), bad debt expense due to the wholesaler bankruptcy ($3.3 million), costs associated with restructuring ($1.5 million) and the timing of gains from insurance settlement recognized in the prior comparable period ($1.4 million), partially offset by the divestiture of our distribution and merchandising business (DSI) in September 2013 ($2.1 million).

The increase during fiscal 2014 was primarily due to the continued investment in our digital strategy ($1.1 million), bad debt expense related to wholesaler shutdowns ($4.7 million), higher advertising sales expenses primarily for salaries and commissions ($1.1 million), increase in outside services ($2.5 million) and restructuring costs, severance and closure of certain publications ($1.0 million). These increases have been partially offset by the divestiture of DSI ($0.2 million).

Depreciation and Amortization

Depreciation and amortization expenses, which are non-cash, increased $0.5 million and $3.9 million during fiscal 2015 and 2014, respectively, as compared to the prior year periods due to the increases in property and equipment and intangible assets.

Impairment of Goodwill and Intangible Assets

During an evaluation of goodwill and other identified intangible assets during fiscal 2015 and 2014, we determined that indicators were present in certain reporting units that would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily the result of the near-term advertising revenue shortfall coupled with the continued softness in the print publication industry overall, which resulted in lowered future cash flow projections.
As a result, an interim impairment test of goodwill and other indefinite-lived intangible assets was performed for certain reporting units. The evaluation resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the fair value. As a result, the Company recorded a pre-tax non-cash impairment charge totaling $18.5 million for goodwill and tradenames and $9.2 million for tradenames during fiscal 2015 and 2014, respectively.


33


Non-Operating Items

Interest Expense

Interest expense decreased $7.5 million and $1.4 million during fiscal 2015 and 2014, respectively, when compared to the prior year period due to reduction in the aggregate principal amount of senior secured notes outstanding.

Amortization of Deferred Debt Costs

Amortization of deferred debt costs increased $2.3 million and $0.2 million during fiscal 2015 and 2014, respectively, due to the additional amortization associated with the reduction of outstanding senior secured notes.

Income Taxes

We recorded an income tax benefit of $15.7 million during fiscal 2015 primarily due to the release of a portion of the valuation allowance. This was a direct result of the reclassification of certain tradenames from indefinite lived to finite lived effective October 1, 2014.

During fiscal 2014, we recorded an income tax provision of $30.7 million due to the $40.3 million valuation allowance which was recorded against the Company's net deferred tax assets.

Net Loss Attributable to American Media, Inc.

The $27.1 million of net loss attributable to American Media, Inc. for fiscal 2015 represents a $27.2 million improvement from the comparable prior year period. This improvement is primarily attributable to the $46.3 million decrease in provision for income taxes, the $11.6 million increase in income from discontinued operations, net of tax, and the $7.5 million decrease in interest expense, partially offset by the $39.6 million decrease in operating income.

The $54.3 million of net loss attributable to American Media, Inc. for fiscal 2014 represents a $1.9 million improvement from the comparable prior year period. This improvement is primarily due to the $34.8 million increase in operating income, the $3.2 million increase in income from discontinued operations, net of tax, and the $1.4 million decrease in interest expense, partially offset by the $37.1 million increase in income tax provision.

OPERATING SEGMENTS

Our operating segments consist of: Celebrity Brands, Men’s Active Lifestyle and Corporate and Other. After the divestiture of our Women's Active Lifestyle segment, we report under a new segment structure beginning in the fourth quarter of fiscal 2015. Given this change, we have restated prior period segment information to correspond to the current segment reporting structure. This reporting structure is organized according to the markets each segment serves and allows management to focus its efforts on providing the best content to a wide range of consumers.

Our operating segments consist of the following brands in print and digital, as of March 31, 2015:

Celebrity Brands Segment

National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, crime, human interest, health, fashion and beauty;

Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;

OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;

Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;


34


National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience; and

Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view.

Men’s Active Lifestyle Segment

Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;

Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice;

Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;

Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle and covers training, nutrition, health, beauty and fashion for today's women;

Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and

Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France and Germany and licenses the content in Holland and Australia. Each market edition is in a local language with local content and has its own website. Effective April 1, 2015, we relocated the business activities for these publications from the United Kingdom to our New York offices.

Corporate and Other Segment

This segment includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions. The video content services we provide to Microsoft and the services provided by our former distribution services group (DSI) to publishing and non-publishing clients are also included in this segment.

Corporate overhead expenses are not allocated to other segments. They are as follows: corporate executive, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.

Financial Information Regarding Our Operating Segments

We use operating income (loss) as a primary basis for the chief operating decision maker to evaluate the performance of each of our operating segments and present operating income (loss) before impairment of goodwill and intangible assets to provide a consistent and comparable measure of our performance between periods. Management uses operating income (loss) before impairment of goodwill and intangible assets when communicating financial results to the board of directors, stockholders, debt holders and investors as well as when determining performance goals for executive compensation. Management believes this non-GAAP measure, although not a substitute for GAAP, improves comparability. Management also believes our stockholders, debt holders and investors use this measure as a gauge to assess the performance of their investment in the Company.


35


We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. Our calculations of operating income (loss) herein may be different from the calculations used by other companies, therefore comparability may be limited. The accounting policies for the operating segments are the same as those described in the notes to the consolidated financial statements in this Annual Report, specifically Note 2, "Summary of Significant Accounting Policies."

The following table summarizes our total operating revenues by segment:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Segment operating revenues:
 
 
 
 
 
 
 
 
 
Celebrity Brands
$
179,825

 
$
202,580

 
$
215,946

 
(11)%
 
(6)%
Men's Active Lifestyle
59,226

 
66,698

 
60,770

 
(11)%
 
10%
Corporate and Other
6,129

 
18,068

 
19,918

 
(66)%
 
(9)%
Total operating revenues
$
245,180

 
$
287,346

 
$
296,634

 
(15)%
 
(3)%

Total operating revenues decreased $42.2 million, or 15%, during fiscal 2015 due to the 18% decline in the overall celebrity newsstand market, primarily due to the industry-wide disruption in our wholesaler distribution channel, coupled with the 11% decline in the consumer advertising market. Other revenue was impacted during fiscal 2015 by the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million), coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset higher revenue from the Mr. Olympia event ($1.3 million).

During fiscal 2014, total operating revenues decreased $9.3 million, or 3%, primarily due to the 11% decline in the celebrity newsstand market coupled with the divestiture of our distribution and merchandising business in September 2013, partially offset by higher advertising revenues in the Celebrity Brands and Men's Active Lifestyle segments.

The following table summarizes the percentage of segment operating revenues:

 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Segment operating revenues:
 
 
 
 
 
Celebrity Brands
73%
 
71%
 
73%
Men's Active Lifestyle
24%
 
23%
 
20%
Corporate and Other
3%
 
6%
 
7%
Total
100%
 
100%
 
100%

The following table summarizes our segment operating income (loss) before impairment for goodwill and intangible assets:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Operating income (loss) before impairment:
 
 
 
 
 
Celebrity Brands
$
67,915

 
$
73,276

 
$
75,114

 
(7)%
 
(2)%
Men's Active Lifestyle
11,557

 
20,968

 
18,163

 
(45)%
 
15%
Corporate and Other
(66,795
)
 
(51,221
)
 
(43,652
)
 
30%
 
17%
Total operating income before impairment
12,677

 
43,023

 
49,625

 
(71)%
 
(13)%
Impairment of goodwill and intangible assets
18,458

 
9,238

 
50,598

 
100%
 
(82)%
Total operating income (loss)
$
(5,781
)
 
$
33,785

 
$
(973
)
 
*
 
*
* Represents an increase or decrease in excess of 100%.


36


Total operating income before impairment decreased $30.3 million and $6.6 million, respectively, during fiscal 2015 and 2014 primarily due to the lower operating revenues previously mentioned. These declines were partially offset by lower operating expenses related to the divestiture of our distribution and merchandising business and the planned expense savings pursuant to the Management Action Plans.

The pre-tax non-cash impairment charge for goodwill and intangible assets was $18.5 million and $9.2 million during fiscal 2015 and 2014, respectively, and impacted the Men's Active Lifestyle segment goodwill and tradenames. The pre-tax non-cash impairment charges were primarily the result of the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, resulting in lowered future cash flow projections. See the notes to the consolidated financial statements in this Annual Report, specifically Note 3, "Goodwill and Other Identified Intangible Assets."

Celebrity Brands Segment

The Celebrity Brands segment comprised 73%, 71% and 73% of our total operating revenues for fiscal 2015, 2014 and 2013, respectively.

Operating Revenues

Total operating revenues in the Celebrity Brands segment were $179.8 million for fiscal 2015, representing a decrease of $22.8 million, or 11%, over the comparable prior year period. Circulation revenue declined $19.7 million, or 11%, due to a reduction in the celebrity newsstand sales primarily due to the bankruptcy of Source, our second largest wholesaler, and the 18% decline in the celebrity newsstand market ($18.4 million) coupled with a planned discontinuance and reduction of special one-time celebrity publications ($1.3 million). Advertising revenue declined $2.1 million due to the softness in the consumer magazine sector.

Total operating revenues in the Celebrity Brands segment were $202.6 million for fiscal 2014 representing a decrease of $13.4 million, or 6%, over the comparable prior year period. Circulation revenue decreased $15.9 million which was caused by the 11% decline in the celebrity newsstand market ($11.7 million), coupled with the discontinuance and reduction of special interest publications ($4.2 million). This decline was partially offset by the $2. 8 million increase in advertising revenue primarily due to the performance of Star and OK!'s marketing programs, content integration and greater efficiencies in reaching our target audience.

Operating Income

The Celebrity Brands segment operating income before impairment decreased $5.4 million, or 7%, to $67.9 million during fiscal 2015.
This decline was caused by the revenue shortfalls mentions above. Our Management Action Plans implemented in fiscal 2014 and 2015 reduced costs by $17.4 million during fiscal 2015.

Operating income before impairment in the Celebrity Brands segment decreased during fiscal 2014 from prior year by $1.8 million, or 2%, to $73.3 million, primarily due to the reasons mentioned above. This was partially offset by our Management Action Plans implemented in fiscal 2013, which reduced expenses by $11.5 million during fiscal 2014.

Men’s Active Lifestyle Segment

The Men’s Active Lifestyle segment represented 24%, 23% and 20% of our consolidated operating revenues for fiscal 2015, 2014 and 2013, respectively.

Operating Revenues

Total operating revenues in the Men’s Active Lifestyle segment were $59.2 million during fiscal 2015, a decrease of $7.5 million, or 11%, over the comparable prior year period. The decline in circulation revenue ($2.6 million) and print advertising revenue ($7.1 million) was primarily due to the reduction in the publishing frequency of Muscle & Fitness and Flex, from twelve times per year to ten times per year (or two less issues) during fiscal 2015. Print advertising revenue has also been negatively impacted during fiscal 2015 by a major advertiser who shifted their entire advertising budget ($4.0 million) from print to digital and social advertising platform investments outside the Men's Active Lifestyle category. A portion of this advertising business has already returned to the Men's Active Lifestyle segment during fiscal 2016. These declines were partially offset by the increase in digital advertising revenue ($1.3 million), which is directly attributable to the relaunch and repositioning of Men's Fitness, and the increased revenues from the Mr. Olympia event ($1.3 million, or 26%).


37


Total operating revenues in the Men’s Active Lifestyle segment for fiscal 2014 were $66.7 million, a $5.9 million, or 10%, increase from prior year. Advertising revenue increased $5.0 million, which is directly attributable to the relaunch and repositioning of Men's Fitness magazine and companion website. In addition, the revenue from the Mr. Olympia event increased $1.4 million, or 37% from prior year. This was partially offset by a $0.9 million decline in circulation revenue.

Operating Income

Operating income before impairment in the Men’s Active Lifestyle segment declined during fiscal 2015 from prior year by $9.4 million, or 45%, to $11.6 million. This decline is due to the reasons mentioned above coupled with an increase in amortization expense related to the classification of certain tradenames from indefinite lived intangibles to finite lives of 15 years, effective October 1, 2014 ($1.5 million).

Operating income before impairment in the Men’s Active Lifestyle segment increased during fiscal 2014 from prior year by $2.8 million, or 15%, to $21.0 million. This increase was attributable to higher advertising volume and the increase in revenue from the Mr. Olympia event, as discussed above, partially offset by the increase in costs associated with the Mr. Olympia event.

Corporate and Other Segment

The Corporate and Other segment was 3%, 6% and 7% of our consolidated operating revenues for fiscal 2015, 2014 and 2013, respectively.

Operating Revenues

Total operating revenues in the Corporate and Other segment were $6.1 million during fiscal 2015, a decrease of $11.9 million, or 66%, from prior year. This decline was attributable to the divestiture of our distribution and merchandising business in September 2013 ($5.2 million), the timing of the custom video projects for Microsoft ($4.7 million) and the cessation of certain publishing services ($2.3 million).

Total operating revenues in the Corporate and Other segment for fiscal 2014 were $18.1 million, a decrease of $1.9 million, or 9%, from prior year. This decrease was due to the $9.8 million decline in revenue due to the divestiture of our distribution and merchandising business in September 2013, partially offset by $4.8 million from the video projects with Microsoft and $1.7 million in management fees and income from certain joint ventures.

Operating Loss

Total operating loss before impairment increased by $15.6 million, or 30%, to $66.8 million during fiscal 2015, compared to the prior year period. This increase was attributable to the $11.9 million decline in operating revenue coupled with a $3.6 million increase in operating expenses. Operating expenses increased primarily due to the bad debt expense related to the wholesaler shutdowns ($3.3 million) and the costs incurred for the Merger and other related transactions ($3.4 million), coupled with the timing of the gains on insurance settlement recognized in the prior comparable period ($1.4 million). These expense increases were partially offset by the $5.2 million decrease in operating expenses related to the divestiture of our distribution and merchandising business.

Total operating loss increased by $7.6 million, or 17%, to $51.2 million during fiscal 2014. This increase was attributable to the $1.9 million decline in operating revenue coupled with an $11.5 million increase in operating expenses, primarily for the continued investment in our digital strategy, bad debt expense related to wholesaler shutdowns, costs related to launches and closures of publications and other non-recurring expenses coupled with the $3.5 million increase in non-cash depreciation and amortization expense. These increases are partially offset by the $9.3 million decrease in operating expenses related to the DSI divestiture.

LIQUIDITY AND CAPITAL RESOURCES

Management’s Assessment of Liquidity

Our operations have historically generated positive net cash flow from operating activities. Our primary sources of liquidity are cash on hand, cash generated from operations, amounts available under our revolving credit facility (the "Amended and Restated Revolving Credit Facility") and cash interest savings from our recent debt reduction initiatives.


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Our principal uses of cash that affect our liquidity include operational expenditures and debt service costs, including interest payments on and repurchases of our senior secured notes. In addition to the dispositions discussed elsewhere, we expect to continue to evaluate possible acquisitions and dispositions of certain businesses. These transactions, if consummated, could be material and may involve cash or the issuance of additional senior secured notes.

As of March 31, 2015, the Company had $3.5 million of cash, $15.9 million available pursuant to the Amended and Restated Revolving Credit Facility, which matures in December 2016, and a working capital deficit of $41.5 million, of which approximately $26.7 million relates to deferred revenues. In addition to outstanding borrowings under the Amended and Restated Revolving Credit Facility, there was $309.6 million principal amount of outstanding senior secured debt as of March 31, 2015. Over the next year, the cash interest payments due under these debt agreements are approximately $34.9 million and there are no scheduled principal payments due.

We expect that our current cash balances, cash generated from operating activities, availability under our Amended and Restated Revolving Credit Facility and the cash interest savings from the recent debt reduction initiatives, should be sufficient to meet working capital, capital expenditures, debt service, and other cash needs for the next year.

Our level of indebtedness could have important consequences for the business and operations. See Item 1A, "Risk Factors" included in this Annual Report, specifically, "Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and result of operations."

Discontinued Wholesaler

As previously discussed, our former second-largest wholesaler ceased operations in May 2014 and filed for bankruptcy in June 2014. We are currently working with the two remaining major wholesalers and retailers to transition the newsstand circulation to them. This had an adverse impact on single copy newsstand sales and liquidity in fiscal 2015 and continues to have an adverse impact into the first quarter of fiscal 2016. There can be no assurances that, after completing the transition of newsstand circulation, our revenue will not be temporarily or permanently reduced if consumers at the impacted retailers do not resume purchasing our publications at the same rate or quantities previously purchased or if the transition to certain retailers is not successful. See Item 1A, "Risk Factors" included in this Annual Report, specifically, "Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations."

Cash Flow Summary

The following information has been derived from the accompanying consolidated financial statements for fiscal 2015, 2014 and 2013. Cash and cash equivalents increased by $0.4 million and $0.7 million during fiscal 2015 and 2014, respectively. The change in cash and cash equivalents is as follows:
 
 
Fiscal years ended March 31,
 
Net Change
in thousands
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Net loss
 
$
(25,908
)
 
$
(53,271
)
 
$
(55,545
)
 
$
27,363

 
$
2,274

Non-cash items
 
31,967

 
72,447

 
71,212

 
(40,480
)
 
1,235

Net change in operating assets and liabilities
 
6,646

 
(9,382
)
 
(572
)
 
16,028

 
(8,810
)
Operating activities
 
12,705

 
9,794

 
15,095

 
2,911

 
(5,301
)
Investing activities
 
55,665

 
(18,820
)
 
(12,680
)
 
74,485

 
(6,140
)
Financing activities
 
(67,174
)
 
9,509

 
(5,016
)
 
(76,683
)
 
14,525

Effects of exchange rates
 
(774
)
 
189

 
(267
)
 
(963
)
 
456

Net increase (decrease) in cash and cash equivalents
 
$
422

 
$
672

 
$
(2,868
)
 
$
(250
)
 
$
3,540


Operating Activities

Cash provided by operating activities is primarily driven by our non-cash items, changes in working capital and the impact of our results of operations. Non-cash items consist primarily of impairment of goodwill and intangible assets, provision (benefit) for income taxes, depreciation and amortization, amortization of deferred debt costs and deferred rack costs, provision for doubtful accounts.


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Net cash provided by operating activities increased $2.9 million during fiscal 2015 as compared to fiscal 2014, primarily due to the $27.4 million increase in our results of operations coupled with the $16.0 million net change in operating assets and liabilities, partially offset by the $40.5 million net increase in non-cash items.

The net change in operating assets and liabilities is primarily due to the $7.6 million net change in inventories resulting from our agreement to outsource paper purchases, the $6.7 million net change in prepaid expenses, the $3.6 million net change in accounts payable and accrued expenses, the $3.4 million net change in trade receivables, partially offset by the net change in deferred revenue of $2.7 million and the net change in accrued interest of $2.2 million.

Non-cash items decreased primarily due to the decrease in provision for income taxes of $64.7 million, partially offset by the impairment of goodwill and intangible assets of $9.2 million, the increase in provision for doubtful account of $3.4 million, the loss on sale of assets of $2.5 million, the increase in non-cash payment-in-kind interest accretion of $2.9 million for the Second Lien PIK Notes and the net decrease in amortization of deferred debt and deferred rack costs of $1.6 million.

Net cash provided by operating activities decreased $5.3 million during fiscal 2014 as compared to fiscal 2013, primarily due to the $8.8 million net change in operating assets and liabilities, partially offset by the $1.2 million net increase in non-cash items coupled with the $2.3 million increase in our results of operations.

The net change in operating assets and liabilities is primarily due to the $12.5 million net change in trade receivables, the $4.7 million net change in prepaid expenses, the $2.2 million net change in other long-term assets and the $1.7 million net change in inventories, partially offset by the net change in accounts payable and accrued expenses of $6.1 million, the net change in other non-current liabilities of $3.6 million and the net change in deferred revenues of $3.3 million.

Non-cash items increased primarily due to the increase in provision for income taxes of $39.3 million, increase in depreciation and amortization of $4.3 million, the increase in provision for doubtful accounts of $2.5 million and the increase in non-cash payment-in-kind interest accretion of $1.9 million for the Second Lien PIK Notes, partially offset by the decrease in the impairment charge for goodwill and intangible assets of $45.3 million and the net decrease in amortization of deferred rack and deferred debt costs of $1.5 million.
  
Investing activities

Net cash provided by investing activities was $55.7 million for fiscal 2015, an increase of $74.5 million, compared to $18.8 million of net cash used in investing activities for fiscal 2014. The increase is primarily attributable to the $63.0 million in proceeds from the sale of assets and the $2.6 million in proceeds from affiliates coupled with the $2.5 million decrease in investment in affiliates plus the $6.2 million decrease in purchases of property and equipment and intangibles assets.

Net cash used in investing activities was $18.8 million for fiscal 2014, an increase of $6.1 million compared to $12.7 million of net cash used in investing activities for fiscal 2013. The increase is primarily attributable to the $4.0 million increase in purchases of property and equipment and intangible assets, coupled with the $2.2 million investment in affiliates. The increase in purchases of intangible assets was due to the investment in our digital strategy.

Financing activities

Net cash used in financing activities for fiscal 2015 was $67.2 million, an increase of $76.7 million, compared to $9.5 million of net cash provided by financing activities for fiscal 2014. The increase is primarily attributable to the $55.8 million increase in repurchases of certain senior secured notes, the $31.3 million decrease in net borrowings under the Amended and Restated Revolving Credit Facility, partially offset by the $12.5 million in proceeds from the issuance of certain senior secured notes and the $4.0 million decrease in payments for the redemption of Odyssey preferred stock.

Net cash used in financing activities for fiscal 2014 was $9.5 million, an increase of $14.5 million, compared to $5.0 million for fiscal 2013. The increase is primarily attributable to the $12.0 million increase in net proceeds from the Amended and Restated Revolving Credit Facility and the $5.1 million decrease in payments to noncontrolling interest holders of Olympia and Odyssey, partially offset by the $2.5 million increase in repurchases of certain senior secured notes.


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Revolving Credit Facility and Senior Secured Notes

Revolving Credit Facility

In December 2010, we entered into a revolving credit facility maturing in December 2015 (the "2010 Revolving Credit Facility"). The 2010 Revolving Credit Facility provided for borrowing up to $40.0 million less outstanding letters of credit. As further discussed below, in February 2015, we amended and restated the 2010 Revolving Credit Facility (the "Amended and Restated Revolving Credit Facility") to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

The Company has the option to pay interest based on (i) a floating base rate option equal to the greatest of (x) the prime rate in effect on such day; (y) the federal funds effective rate in effect on such day plus ½ of 1%; and (z) one month LIBOR (but no less than 2%) plus 1%, or (ii) LIBOR, in each case, plus a margin. The interest rate under the 2010 Revolving Credit Facility has ranged from 8.00% to 8.25% during the fiscal year ended March 31, 2015 and 2014. In addition, the Company is required to pay a commitment fee ranging from 0.50% to 0.75% on the unused portion of the revolving commitment. Commitment fees paid during fiscal 2015, 2014 and 2013 were insignificant.

During fiscal 2015, the Company borrowed $62.8 million and repaid $77.1 million under the Amended and Restated Revolving Credit Facility. At March 31, 2015, the Company has available borrowing capacity of $15.9 million after considering the $14.7 million outstanding balance and the $4.4 million outstanding letter of credit. The outstanding balance at March 31, 2015 of $14.7 million is included in non-current liabilities, as the maturity date of the Amended and Restated Revolving Credit Facility is December 2016.

The indebtedness under the 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility is guaranteed by certain of the domestic subsidiaries of the Company and is secured by liens on substantially all the assets of the Company and certain of its domestic subsidiaries. In addition, the Company’s obligations are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of the Company's existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of its existing or subsequently acquired or organized foreign subsidiaries.

Revolving Credit Facility Amendments

In August 2014, AMI, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 3 (the “Third Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders (the “Consenting Lenders”) constituting the Required Lenders (as defined in the 2010 Revolving Credit Facility).

Pursuant to the Third Credit Agreement Amendment and subject to the Credit Parties’ (as defined in the 2010 Revolving Credit Facility) compliance with the requirements set forth therein, the Consenting Lenders agreed to (i) waive until the earlier of (x) August 15, 2014 and (y) immediately prior to the consummation of the Merger, any potential Default or Event of Default (each, as defined in the 2010 Revolving Credit Facility) arising from the failure to furnish to the Administrative Agent (A) the financial statements, reports and other documents as required under Section 5.01(a) of the 2010 Revolving Credit Facility with respect to the fiscal year of the Company ended March 31, 2014 and (B) the related deliverables required under Sections 5.01(c) and 5.03(b) of the 2010 Revolving Credit Facility, (ii) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture (each as defined), (iii) consent to the sale of certain assets of the Loan Parties (as defined in the 2010 Revolving Credit Facility), (iv) restrict any payment or distribution in respect of the First Lien Notes (as defined) on or prior to June 15, 2015, subject to certain exceptions, including the payment of regularly scheduled interest and any mandatory prepayments and mandatory offers to purchase under the First Lien Notes, and (v) amend the maximum first lien leverage ratio covenant to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ending June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.

In August 2014, AMI received a waiver under the 2010 Revolving Credit Facility to provide additional time to file the Quarterly Report for the quarterly period ended June 30, 2014, with the SEC and to make it available to the 2010 Revolving Credit Facility lenders.


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In January 2015, AMI, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 4 (the “Fourth Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, modify the definition of "Permitted Refinancing Indebtedness” to, among other things, permit the transactions contemplated by the exchange of certain senior secured notes as further described below.

In January 2015, AMI, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 5 (the “Fifth Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, permit the transactions contemplated by the sale of our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, as previously discussed.

In February 2015, AMI received a waiver under the 2010 Revolving Credit Facility to provide additional time to file the Quarterly Report for the quarterly period ended December 31, 2014, with the SEC and to make it available to the 2010 Revolving Credit Facility lenders.

In February 2015, AMI, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into the Amended and Restated Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million, amend the maximum first lien leverage ratio covenant to be equal to or less than 4.75 to 1.00 for the quarter ending March 31, 2015 and 4.50 to 1.00 from April 1, 2015 through December 2016, the maturity date of the Amended and Restated Revolving Credit Facility. In addition to the first lien leverage ratio, the Amended and Restated Revolving Credit Facility includes a consolidated leverage ratio and an interest coverage ratio. The consolidated leverage ratio covenant must be equal to or less than 5.50 to 1.00 for the quarter ended March 31, 2015, 4.75 to 1.00 from April 1, 2015 through September 30, 2015 and 5.50 to 1.00 from October 1, 2015 through December 2016. The interest coverage ratio must be equal to or greater than 1.10 to 1.00 for the quarter ended March 31, 2015 and 1.50 to 1.00 from April 1, 2015 through December 2016.

Covenants

Our 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility include certain representations and warranties, conditions precedent, affirmative covenants, negative covenants and events of default customary for agreements of this type. The negative covenants in the 2010 Revolving Credit Facility include financial maintenance covenants comprised of a first lien leverage ratio calculated using EBITDA as defined in the 2010 Revolving Credit Facility. The negative covenants in the Amended and Restated Revolving Credit Facility includes financial maintenance covenants comprised of a first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. The 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility also contain certain covenants that, subject to certain exceptions, restrict paying dividends, incurring additional indebtedness, creating liens, making acquisitions or other investments, entering into certain mergers or consolidations, prepaying junior debt and selling or disposing of assets. With respect to the dividend restrictions, the 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility include a cap on the total amount of cash available for distribution to our common stockholders.

Senior Secured Notes

First Lien Notes

In December 2010, we issued $385.0 million aggregate principal amounts of senior secured notes, which bear interest at a rate of 11.5% per annum, payable semi-annually, and mature in December 2017 (the "First Lien Notes"). During fiscal 2012, we redeemed $20.0 million in aggregate principal amount of First Lien Notes at a redemption price equal to 103.0% of the aggregate principal amount thereof, plus accrued and unpaid interest. During fiscal 2014, we repurchased approximately $2.3 million in aggregate principal amount of First Lien Notes at a price equal to 108.625% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors.

During fiscal 2015, we repurchased $55.5 million in aggregate principal amount of First Lien Notes at a price equal to 103.9% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors. In January 2015, we exchanged approximately $32.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement"), as further described below.


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At March 31, 2015, the First Lien Notes represented an aggregate of $275.2 million of our indebtedness.

Subsequent to March 31, 2015, we repurchased approximately $2.0 million in aggregate principal amount of First Lien Notes, at a price equal to 105.9% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors. After giving effect to this repurchase approximately $273.2 million aggregate principal amount of First Lien Notes remain outstanding.

In connection with the Merger, we received a permanent waiver of our obligation to redeem approximately $12.7 million of First Lien Notes, during fiscal 2015, pursuant to the terms of the Second Lien PIK Note Indenture and the Exchange Agreement (each as defined below). In connection with the Debt for Equity Exchange Agreement, our obligations under the Second Lien PIK Note Indenture were satisfied in full and we are no longer obligated under the Second Lien PIK Indenture and the Exchange Agreement to make redemptions of First Lien Notes. See description of Second Lien PIK Notes below.

The indenture governing the First Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the First Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the First Lien Notes imposes certain requirements as to future subsidiary guarantors.

The First Lien Notes are guaranteed on a first lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility. The First Lien Notes and the guarantees thereof are secured by a first-priority lien on substantially all our assets (subject to certain permitted liens and exceptions), pari passu with the liens granted under our 2010 Revolving Credit Facility, provided that in the event of a foreclosure on the collateral or of insolvency proceedings, obligations under our 2010 Revolving Credit Facility will be repaid in full with proceeds from the collateral prior to the obligations under the First Lien Notes.

See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the First Lien Notes to, among other things, permit the transaction contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change of Control."

Second Lien Notes

In December 2010, we issued $104.9 million aggregate principal amounts of senior secured notes, which bear interest at a rate of 13.5% per annum, payable semi-annually, and mature in June 2018 (the "Second Lien Notes"). In October 2013, we exchanged approximately $94.3 million aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 10.0% per annum, are payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”). See description of Second Lien PIK Notes below.

In September 2014, approximately $7.8 million aggregate principal amount of Second Lien Notes were converted into equity pursuant to the Debt for Equity Exchange Agreement (as discussed below). During fiscal 2015, we repurchased approximately $0.6 million in aggregate principal amount of Second Lien Notes at a price equal to 108.0% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors. At March 31, 2015, the Company's total principal amount of Second Lien Notes was approximately $2.2 million.

The indenture governing the Second Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the Second Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the Second Lien Notes imposes certain requirements as to future subsidiary guarantors.

The Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Amended and Restated Revolving Credit Facility and the First Lien Notes. The Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).


43


See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the Second Lien Notes to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change of Control."

Second Lien PIK Notes

In October 2013, we issued approximately $94.3 million aggregate principal amount of Second Lien PIK Notes in exchange for an equal aggregate principal amount of Second Lien Notes, pursuant to an exchange agreement (the "Second Lien PIK Notes Exchange Agreement"). The Second Lien PIK Notes were issued under an indenture, by and among American Media, Inc., certain of its subsidiaries listed as guarantors thereto and Wilmington Trust, National Association, as trustee (the "Second Lien PIK Notes Indenture").

The Second Lien PIK Notes are payable in kind at a rate of 10% per annum until the earliest of: (a) December 15, 2016, (b) the closing of a refinancing of the First Lien Notes or (c) upon the occurrence of certain specified events of default relating to the application of the cash interest savings and the right of first offer (any such date being the "Cash Interest Rate Conversion Date"), at which point the interest payable on the then outstanding aggregate principal amount of Second Lien PIK Notes will be payable at a cash interest rate of 13.5% per annum until the June 2018 maturity date. Subject to certain exceptions, under the Second Lien PIK Notes Indenture, cash interest savings resulting from the exchange of the Second Lien Notes of approximately $6.4 million per each semi-annual interest period must be used by the Company to repurchase First Lien Notes until the Cash Interest Rate Conversion Date. The participating holders (as defined in the Exchange Agreement) have a right of first offer to sell any of their First Lien Notes to the Company before the Company makes repurchases of First Lien Notes from any other holders of the First Lien Notes, including those purchases pursuant to open market repurchases.

In August 2014, AMI and the Guarantors entered into an amendment to the Second Lien PIK Notes Exchange Agreement (the “Second Lien PIK Notes Exchange Agreement Amendment”) which provided that AMI was not required to apply the cash interest savings to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014.

In connection with the Merger Agreement, AMI and certain of its subsidiaries (the "Guarantors") entered into the Note Purchase Agreement with the Investors and AMI issued additional Second Lien PIK Notes (the "Additional Notes") to the Investors at par plus accrued interest for a total purchase price equal to $12.5 million. The Additional Notes were issued under the Second Lien PIK Notes Indenture, among AMI, the Guarantors and Wilmington Trust, National Association, as trustee and collateral agent (the "Trustee"), and were assigned the same CUSIP number as the outstanding Second Lien PIK Notes. The Additional Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

The interest payment-in-kind due on December15, 2013 and the June 15, 2014 totaled $1.9 million and $4.8 million, respectively, and were recorded as increases to the Second Lien PIK Notes. In September 2014, pursuant to the Debt for Equity Exchange Agreement (as discussed below), all $113.3 million of outstanding aggregate principal amount of Second Lien PIK Notes were converted into equity.

Debt for Equity Conversion

In September 2014, AMI entered into the Debt for Equity Exchange Agreement with the Parent and the Investors, pursuant to which the Investors converted approximately $7.8 million, or 74%, of aggregate principal amount of Second Lien Notes and approximately $113.3 million, or 100%, of aggregate principal amount of Second Lien PIK Notes into equity (the “Conversion”). The Conversion also included the accrued and unpaid interest since the last semi-annual interest payment on June 15, 2014, totaling approximately $2.9 million. After giving effect to the Conversion, approximately $2.9 million aggregate principal amount of Second Lien Notes remained outstanding and there were no Second Lien PIK Notes outstanding.

In September 2014, upon the cancellation of all outstanding Second Lien PIK Notes, the collateral agreement securing the Second Lien PIK Notes was terminated and the obligations of AMI under the Second Lien PIK Notes Indenture were satisfied in full. As a result, AMI is no longer obligated under the Exchange Agreement or the Exchange Agreement Amendment governing the application of the cash interest savings from the Second Lien PIK Notes to be used to redeem First Lien Notes.


44


New Second Lien Notes

In January 2015, we issued approximately $39.0 million aggregate principal amount of New Second Lien Notes to the Investors, which bear interest at a rate of 7.0% per annum and mature in July 2020. Interest on the New Second Lien Notes is payable semi-annually on July 15th and January 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months. As described above, the New Second Lien Notes were issued in exchange for $32.0 million aggregate principal amount of First Lien Notes pursuant to the New Second Lien Notes Exchange Agreement. The New Second Lien Notes were issued under a new indenture (the “New Second Lien Notes Indenture”), by and among American Media, Inc., the Guarantors and the Trustee. The New Second Lien Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

The indenture governing the New Second Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the New Second Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the New Second Lien Notes imposes certain requirements as to future subsidiary guarantors.

The New Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility, the First Lien Notes and the Second Lien Notes. The New Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).

Supplemental Indentures

In August 2014, AMI received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among AMI, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among AMI, the Guarantors and the Trustee and (c) $101.0 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the applicable notes then outstanding.

As a result of receiving the requisite consents, in August 2014, AMI and the Trustee entered into (a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”) to the Second Lien PIK Notes Indenture.

The Supplemental Indentures amend the Indentures to (a) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture; and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate AMI’s obligation to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.

In January 2015, we entered into a supplemental indenture (the “2015 Supplemental Indenture”) by and between the Company and Wilmington Trust, National Association, as successor by merger to Wilmington Trust FSB, as trustee and collateral agent (collectively, the “Existing Second Lien Trustee”), to an indenture, dated as of December 22, 2010, by and among the Company, the guarantors party thereto and the Existing Second Lien Trustee (as amended, supplemented or otherwise modified through the date of amendment, the “Existing Second Lien Indenture”). The 2015 Supplemental Indenture contemplates, among other things, the Exchange of First Lien Notes for the New Second Lien Notes.


45


Exchange Agreement Amendment

In August 2014, AMI and the Guarantors entered into an Amendment (the "Exchange Agreement Amendment") to the Exchange Agreement, dated as of September 27, 2013, among AMI, the Guarantors and the Investors. The Exchange Agreement Amendment provided that AMI was not required to apply the Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual periods ended June 15, 2014 and December 15, 2014.

Covenant Compliance

As discussed above, our 2010 Revolving Credit Facility, Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes contain various restrictive covenants.

In February 2015, pursuant to our Amended and Restated Revolving Credit Facility, the maximum first lien leverage ratio covenant was amended to be equal to or less than 4.75 to 1.00 for the quarter ending March 31, 2015 and 4.50 to 1.00 from April 1, 2015 through December 2016, the maturity date of the Amended and Restated Revolving Credit Facility. The first lien leverage ratio is calculated as the Total First Lien Debt to Consolidated EBITDA (each as defined in the Amended and Restated Revolving Credit Facility).

In addition to the first lien leverage ratio, the Amended and Restated Revolving Credit Facility includes a consolidated leverage ratio and an interest coverage ratio. The consolidated leverage ratio covenant is calculated as the Total Debt to Consolidated EBITDA (each as defined in the Amended and Restated Revolving Credit Facility) and must be equal to or less than 5.50 to 1.00 for the quarter ended March 31, 2015, 4.75 to 1.00 from April 1, 2015 through September 30, 2015 and 5.50 to 1.00 from October 1, 2015 through December 2016.

The interest coverage ratio covenant is calculated as the Consolidated EBITDA to Cash Interest Expense (each as defined in the Amended and Restated Revolving Credit Facility) and must be equal to or greater than 1.10 to 1.00 for the quarter ended March 31, 2015 and 1.50 to 1.00 from April 1, 2015 through December 2016.

As of March 31, 2015, the first lien leverage ratio was 4.27 to 1.00, the consolidated leverage ratio was 4.77 to 1.00 and the interest coverage ratio was 1.47 to 1.00 and the Company was in compliance with the covenants under the Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes.

Although there can be no assurances, management believes that, based on current expectations (including projected borrowings and repayments under the Amended and Restated Revolving Credit Facility and our recent debt reductions), our operating results for the next twelve months will be sufficient to satisfy the financial covenants under the Amended and Restated Revolving Credit Facility. Our ability to satisfy such financial covenant is dependent on our business performing in accordance with our projections.  If the performance of our business deviates from our projections, we may not be able to satisfy such financial covenants.  Our projections are subject to a number of factors, many of which are events beyond our control, which could cause our actual results to differ materially from our projections (see "Risk Factors" included in Part I, Item 1A of this Annual Report). If we do not comply with our financial covenants, we would be in default under the Amended and Restated Revolving Credit Facility, which could result in all our debt being accelerated due to cross-default provisions in the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes.

We have the ability to incur additional debt, subject to limitations imposed by our Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes. Under our Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes, in addition to specified permitted indebtedness, we will be able to incur additional indebtedness as long as on a pro forma basis our consolidated leverage ratio is less than 4.50 to 1.00.


46


Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

Adjusted EBITDA, a measure we use to gauge our operating performance, is defined as net income (loss) attributable to the Company plus interest expense, provision (benefit) for income taxes, depreciation and amortization, provision for impairment of intangible assets and goodwill, deferred debt costs and deferred rack costs, adjusted for merger and related transaction(s) costs, restructuring costs and severance, costs related to launches, re-launches or closures of publications and certain other costs. We believe that the inclusion of Adjusted EBITDA is appropriate to evaluate our operating performance compared to our operating plans and/or prior years and to value prospective acquisitions. We also believe that Adjusted EBITDA is helpful in highlighting trends because Adjusted EBITDA excludes the impact of certain items that can differ significantly from company to company, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.

Management believes our investors use Adjusted EBITDA as a gauge to measure the performance of their investment in the Company. Management compensates for limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone can provide. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to income from continuing operations as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Set forth below is a reconciliation of net loss attributable to American Media, Inc. and subsidiaries to Adjusted EBITDA for fiscal 2015, 2014 and 2013:

 
Fiscal years ended March 31,
in thousands
2015
 
2014
 
2013
Net loss attributable to American Media, Inc. and subsidiaries
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
Add (deduct):
 
 
 
 
 
Interest expense
50,846

 
58,353

 
59,779

Provision (benefit) for income taxes
(31,268
)
 
33,278

 
(5,994
)
Depreciation and amortization
14,920

 
14,203

 
9,932

Impairment of goodwill and intangible assets
18,458

 
9,238

 
54,523

Amortization of deferred debt costs
4,011

 
1,664

 
1,433

Amortization of deferred rack costs
5,869

 
6,585

 
8,340

Amortization of short-term racks
8,581

 
8,581

 
8,123

Merger and related transaction(s) costs
4,755

 

 

Restructuring costs and severance
7,087

 
2,802

 
2,395

Loss on sale of publications
2,472

 

 

Costs related to launches and closures of publications
1,260

 
2,686

 
2,121

Costs related to relaunch of publications

 
150

 
2,670

Restructuring costs related to divestiture of DSI

 
2,784

 

Adjustment for net losses of DSI

 
2,676

 

AMI share of bad debt related to wholesaler shutdowns
8,352

 
5,052

 

Investment in new digital strategy

 
4,032

 
2,895

Pro forma adjustment related to acquisition of Soap Opera Digest

 

 
439

Pro forma adjustment related to investment in affiliates
312

 
1,502

 

Impact of Superstorm Sandy

 
183

 
4,752

Other
5,902

 
5,080

 
5,140

Adjusted EBITDA
$
74,430

 
$
104,530

 
$
100,309



47


CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The following table summarizes our principal contractual obligations as of March 31, 2015:
 
 
Payments due by period
 
 
Less than
1-3
4-5
After 5
(in thousands)
Total
1 Year
Years
Years
Years
Long-term debt (1)
$
322,269

$

$
287,875

$
2,198

$
32,196

Debt interest (2)
108,865

35,877

63,205

8,498

1,285

Mr. Olympia, LLC put option (3)
3,000

3,000




Long-term agreements (4)
175,451

38,706

72,826

63,890

29

Operating lease obligations
22,471

2,093

5,427

6,240

8,711

Consulting agreements (5)
36,479

7,370

13,594

11,284

4,231

Total contractual cash obligations (6)
$
668,535

$
87,046

$
442,927

$
92,110

$
46,452

(1)
 
Includes principal payments on the Amended and Restated Revolving Credit Facility and Senior Secured Notes. See the notes to consolidated financial statements in this Annual Report, specifically Notes 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes," for further discussion of long-term debt.
(2)
 
Includes interest payments on both fixed and variable rate obligations and the commitment fee on the unused portion of the Amended and Restated Revolving Credit Facility. The interest to be paid on the variable rate obligation is affected by changes in our applicable borrowing rate. See the notes to consolidated financial statements in this Annual Report, specifically Note 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes," for further discussion.
(3)
 
See notes to consolidated financial statements in this Annual Report, specifically Note 9, "Investments in Affiliates and Redeemable Noncontrolling Interests," for a further discussion of the put option as it relates to Mr. Olympia, LLC.
(4)
 
See notes to consolidated financial statements in this Annual Report, specifically Note 11, "Commitments and Contingencies," for a further discussion of the long-term agreements related to the circulation of publications. Certain contracts require pricing adjustments based on the Consumer Price Index.
(5)
 
See notes to consolidated financial statements in this Annual Report, specifically Note 11, "Commitments and Contingencies," for a further discussion of the consulting agreements with unrelated third parties to assist with the marketing of our brands.
(6)
 
The timing of future cash flows related to tax liabilities of $1.3 million cannot be reasonably estimated.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.

Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.

OFF-BALANCE SHEET FINANCING

We do not have any off-balance sheet financing arrangements.


48


APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). Preparing financial statements requires management to make estimates, judgments and assumptions regarding uncertainties that may affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates on an on-going basis, including those related to revenue, trade receivables and allowance for doubtful accounts, goodwill and other intangible assets, income taxes and contingent liabilities.

We base our estimates, judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates, judgments and assumptions used in preparing our consolidated financial statements.

Critical accounting policies are those that are both most important to the portrayal of a company’s financial position and results of operations, and require management’s most difficult, subjective or complex judgments. The following accounting policies and estimates are those that management deems most critical. For a complete listing of our significant accounting policies, see Note 2, "Summary of Significant Account Policies" to the consolidated financial statements included in Item 8 of this Annual Report.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances. Allowances for uncollectible receivables are estimated based upon a combination of write-off history, aging analysis and any specifically identified troubled accounts.

Newsstand revenues are recognized based on the on-sale dates of magazines and are initially recorded based upon estimates of sales, net of brokerage, returns and estimates of newsstand related fees. Estimated returns are recorded based upon historical experience.