AMI is Once Again Unable to Meet Restatement Deadline

American Media Inc., publisher of Star and National Enquirer magazines, announced Wednesday it will once again be unable to meet a financial restatement deadline set by the company's note holders. AMI was to file a restatement on its third quarter 2006 financial statements and a 10-K document Oct. 31. The deadline has been put off twice already this year. AMI asked its note holders to extend the deadlines on both the third quarter financials and the 10-K filing to February 15.

AMI last released financial statements in November 2005. Those statements included the results for the second quarter of last year. At the time, the company posted revenues of $130.4 million and EBITDA of $36.2 million for that quarter. But the company has spent the past year reviewing its financials from 2003, 2004, 2005 and 2006. The company told note holders this week that it expects its 2006 full-year earnings to include revenues of $504.9 million and EBITDA of $110.9 million. AMI spokesman Richard Valvo said Thursday the delay in the restatements is due to "technical accounting issues that take some time to resolve."

Moody's Investor Services Senior Analyst John Page says the company's ability to improve profitability is a concern of Moody's, which has been tracking the company's progress for bond-rating purposes. He said the company's approximately $1 billion debt load, and its failure to show a return on the investments it's made in the past three years in the revamping of Star magazine, and its 2003, $350 million purchase of the Weider Fitness publications, are other issues of concern.

Page says the company's repeated failure to meet its restatement deadlines is troubling. "It's definitely a concern," he said. "How can investors look at the quality of their investment if they don't have any financial statements to look at?"

In addition to requesting its October deadlines be moved, AMI also requested note holders:

• Extend the deadline to provide the company's 10-Q for the first quarter of fiscal 2007 from
  December 15, 2006 to March 15, 2007
• Extend the deadline to provide the company's 10-Q for the second quarter of fiscal 2007 from
  January 31, 2007 to March 15, 2007
• Extend the deadline to provide the company's 10-Q for the third quarter of fiscal 2007 from
  March 1, 2007 to March 15, 2007
• And for a financial covenant amendment that would include:
  • Waiver for March 2006 and June 2006 financial covenants
  • Carve-out for above-the-line tax entries
  • Modest adjustment in September 2006 Senior Secured Leverage and Total Leverage financial
    covenant levels
  • Timing of deadlines and amount of amendment fee to be no less favorable than for AMI bondholders
  • Signatures requested no later than 4 pm on Thursday, October 26

The company is struggling to rebuild core brands, including Star, which was remade last year into a glossy celebrity magazine to help it rebound from a newsstand slump. "The company has been a company in transition for a while," said Page. "As it moves away from the tabloid industry, it may be able to regain profitability. They made the Weider acquisition (in 2003) and their transforming Star from a tabloid to full-fledged celebrity magazine is a good move, but that comes with its costs and it's been relatively expensive. The problem is we haven't really seen that expense pan out yet."

Valvo said the investments have paid off, but declined to offer details as to how they've paid off.

To help with its new focus on its core magazines, including Star and the Enquirer, AMI announced earlier this year it would sell three of its Weider titles Muscle & Fitness, Muscle & Fitness Hers and Flex. It also plans to sell music title, Country Weekly and Mira! The company told note holders Wednesday that first round bids on the titles closed September 25 with interest from both strategic and financial parties, and that the sale is expected to close by the end of year. Weider Fitness is believed to be interested in buying the titles back.

While selling the magazines, which generated an estimated $84 million in revenue and $29.6 million in operating income for the 12 months ended March 31, is a good idea on surface, it may not solve American Media's problems, said Page. "The result should help to reduce their debt level," he said. "But most of these publications are generating cash flow for the company. So, by selling them, you're getting that money to pay down your debt, but you're also losing the cash flow that comes from those properties."

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