UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
Commission file number 1-5128
Meredith Corporation
(Exact name of registrant as specified in its charter)
Iowa 42-0410230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1716 Locust Street, Des Moines, Iowa 50309-3023
(Address of principal executive offices) (ZIP Code)
515 - 284-3000
(Registrant's telephone number, including area code)
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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
Common Stock, $1 par value 10,241,848
Class B Stock, $1 par value 3,630,533
Page 1 of 20
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Assets March 31 June 30
(in thousands) 1994 1993
- ---------------------------------- -------- --------
Current Assets:
Cash and cash equivalents $ 5,517 $ 18,569
Marketable securities 12,664 21,422
Receivables, net 104,162 75,761
Inventories 32,773 32,383
Supplies and prepayments 19,477 18,206
Subscription acquisition costs 112,608 105,342
Film rental costs 13,014 15,750
-------- --------
Total Current Assets 300,215 287,433
-------- --------
Property, Plant and Equipment (at cost) 227,142 238,679
Less accumulated depreciation (101,599) (107,792)
-------- --------
Net Property, Plant and Equipment 125,543 130,887
-------- --------
Deferred Film Rental Costs 9,036 12,073
Deferred Subscription Acquisition Costs 79,347 77,091
Other Assets 27,883 23,607
Goodwill and Other Intangibles
(at original cost less accumulated amortization) 345,973 369,677
-------- --------
Total $887,997 $900,768
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
Page 2 of 20
<PAGE>
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Liabilities and Stockholders' Equity March 31 June 30
(in thousands) 1994 1993
- ---------------------------------- -------- --------
Current Liabilities:
Current portion of long-term indebtedness $ 7,300 $ 2,556
Current portion of long-term film rental contracts 8,794 10,229
Accounts payable 24,937 43,368
Accrued taxes and expenses 61,366 55,946
Unearned subscription revenues 157,456 148,556
Deferred income taxes 23,252 21,819
-------- --------
Total Current Liabilities 283,105 282,474
Long-Term Indebtedness 127,084 131,945
Long-Term Film Rental Contracts 5,011 5,638
Unearned Subscription Revenues 106,360 102,107
Deferred Income Taxes 34,990 30,472
Other Deferred Items 29,956 23,876
-------- --------
Total Liabilities 586,506 576,512
-------- --------
Minority Interests 38,384 40,160
-------- --------
Stockholders' Equity:
Series Preferred Stock, par value $1 per share
Authorized 5,000,000 shares; none issued. -- --
Common Stock, par value $1 per share
Authorized 50,000,000 shares; issued and outstanding
10,281,276 shares at March 31 and 11,129,726 at
June 30 (excluding shares held in treasury, 5,570,714
at March 31 and 4,645,420 at June 30). 10,281 11,130
Class B Stock, par value $1 per share, convertible to
Common Stock
Authorized 10,000,000 shares; issued and outstanding
3,633,570 shares at March 31 and 3,703,519 at
June 30. 3,634 3,704
Retained earnings 252,374 272,090
Unearned compensation (3,182) (2,828)
-------- --------
Total Stockholders' Equity 263,107 284,096
-------- --------
Total $887,997 $900,768
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
Page 3 of 20
<PAGE>
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months Nine Months
Ended March 31 Ended March 31
1994 1993 1994 1993
- -------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share)
Revenues (less returns and allowances):
Advertising $ 86,696 $ 84,344 $245,142 $245,477
Circulation 63,820 61,055 191,796 181,468
Consumer books 23,406 21,427 67,554 62,557
All other 31,841 31,892 88,192 76,785
-------- -------- -------- --------
Total Revenues 205,763 198,718 592,684 566,287
-------- -------- -------- --------
Operating Costs and Expenses:
Production, distribution and edit 84,018 81,079 245,463 239,772
Selling, general and administrative 95,964 96,491 277,147 272,996
Depreciation and amortization 9,023 8,817 27,156 23,687
Unusual item (Note 4) -- -- 4,800 --
-------- -------- -------- --------
Total Operating Costs and Expenses 189,005 186,387 554,566 536,455
-------- -------- -------- --------
Income from Operations 16,758 12,331 38,118 29,832
Gain on dispositions (Note 5) -- -- 11,997 --
Interest income 515 340 1,153 1,615
Interest expense (3,185) (3,066) (8,875) (6,857)
Minority interests 770 221 1,935 1,031
-------- -------- -------- --------
Earnings before Income Taxes 14,858 9,826 44,328 25,621
Income taxes (Note 2) 7,642 4,474 22,164 12,119
-------- -------- -------- --------
Net Earnings $ 7,216 $ 5,352 $ 22,164 $ 13,502
======== ======== ======== ========
Net Earnings Per Share $ 0.51 $ 0.35 $ 1.55 $ 0.88
======== ======== ======== ========
Dividends Paid Per Share $ 0.18 $ 0.16 $ 0.50 $ 0.48
======== ======== ======== ========
Avg Number of Shares Outstanding 14079000 15127000 14311000 15371000
======== ======== ======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
Page 4 of 20
<PAGE>
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended March 31 (in thousands) 1994 1993
- ----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Earnings from continuing operations $22,164 $13,502
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and amortization 27,156 23,687
Amortization of film contract rights 16,924 20,515
Deferred income taxes 6,388 --
Unusual item (net of taxes) 2,592 --
(Increase) in receivables (29,267) (17,232)
(Increase) in inventories (390) (1,613)
(Increase) in supplies and prepayments (1,361) (2,771)
(Increase) in subscription acquisition costs (9,522) (902)
(Decrease) in accounts payable and accruals (19,952) (6,231)
Gain on dispositions (net of taxes) (8,197) --
Additions to unearned subscription revenues 13,153 17,434
Additions (reductions) to other deferred items 2,614 (7,800)
------- -------
Net cash provided by operating activities 22,302 38,589
------- -------
Cash Flows from Investing Activities:
Investment in cable partnership, less cash acquired -- (32,740)
Redemption of marketable securities 8,758 26,858
Proceeds from dispositions 33,000 --
(Additions) to property, plant, and equipment (15,082) (10,929)
(Additions) to other assets (7,568) (3,600)
------- -------
Net cash provided (used) by investing activities 19,108 (20,411)
------- -------
Cash Flows from Financing Activities:
Long-term indebtedness retired (117) (690)
Payments for film rental contracts (11,191) (12,349)
Proceeds from common stock issued 2,208 2,611
Purchase of company shares (38,165) (19,284)
Dividends paid (7,197) (7,399)
------- -------
Net cash (used) by financing activities (54,462) (37,111)
------- -------
Net (decrease) in cash and cash equivalents (13,052) (18,933)
Cash and cash equivalents at beginning of year 18,569 42,333
------- -------
Cash and Cash Equivalents at End of Period $ 5,517 $23,400
======= =======
Page 5 of 20
<PAGE>
Supplemental Schedule of Noncash Investing and Financing Activities:
The Company received $2 million of preferred stock in Granite Broadcasting
Corporation ("Granite") in conjunction with the sale of two of its broadcast
television stations to Granite in December 1993.
Approximately $139 million in long-term debt was incurred by Meredith/New
Heritage Strategic Partners, L.P. to purchase North Central Cable
Communications Corporation on September 1, 1992.
The Bismarck/Mandan, North Dakota, cable television system, which was
acquired by Meredith/New Heritage Partnership in January 1992, was
contributed to Meredith/New Heritage Strategic Partners, L.P. prior to
September 1, 1992. This transfer reduced the Company's indirect ownership
interest in the system by $12 million, or 27 percent.
See accompanying Notes to Interim Consolidated Financial Statements.
Page 6 of 20
<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policy
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, which are of a
normal recurring nature and necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year.
2. Income Taxes
On July 1, 1993, the Company adopted SFAS No. 109, "Accounting For Income
Taxes." Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are required, by SFAS No. 109, to
be measured using the tax rate expected to be in effect when the taxes are
actually paid or recovered. Income tax expense will increase or decrease in
the same period in which a change in tax rates is enacted for the effect on
deferred tax assets and liabilities. (The Company previously used the asset
and liability method under Statement 96.)
The effect of the adoption of SFAS No. 109 is not material to the financial
statements. Therefore the prior period's financial statements have not been
restated to apply the provisions of SFAS No. 109. The Omnibus Budget
Reconciliation Act of 1993, enacted in the first quarter of fiscal 1994, raised
the basic corporate federal income tax rate from 34 percent to 35 percent. The
effect on the Company's financial statements of that increase for the first
nine months was $1,803,000 ($1,238,000 expense for the increase in net deferred
tax liabilities, $118,000 expense due to an additional provision required for
six months of fiscal 1993 and $447,000 expense for the first nine months of
fiscal 1994).
For the nine months
ended March 31
Components of income tax expense: -------------------
($ in thousands) 1994 1993
-------------------------------------------------------------------
Currently payable:
Federal $12,731 $ 9,695
State 3,045 2,424
------- -------
15,776 12,119
------- -------
Deferred:
Federal 5,155 -
State 1,233 -
------- -------
6,388 -
------- -------
Total $22,164 $12,119
======= =======
Page 7 of 20
<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
The tax effects of temporary differences that gave rise to the deferred income
tax assets and liabilities at March 31, 1994 and June 30, 1993 are as follows:
($ in thousands)
March 31 June 30
1994 1993*
- ------------------------------------------------------------------------------
Deferred tax assets:
Accumulated bad debt reserve $ 3,535 $ 3,495
Magazine and book return reserves 4,879 3,940
Reserve for postretirement benefits, other
than pensions 5,682 5,257
All other assets 12,937 12,267
------- -------
Total deferred tax assets 27,033 24,959
------- -------
Deferred tax liabilities:
Deferred subscription acquisition costs 64,026 60,037
Accumulated depreciation and amortization 8,074 8,327
Accumulated trademark amortization 5,667 5,667
All other liabilities 7,508 3,219
------- -------
Total deferred tax liabilities 85,275 77,250
------- -------
Net deferred tax liability $58,242 $52,291
======= =======
*Reclassified to conform with current year presentation.
Page 8 of 20
<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
The effective tax rates for the nine months ended March 31, 1994 and 1993 were
50.0 percent and 47.3 percent, respectively. The differences between these
effective tax rates and the basic U. S. federal income tax rate for the
following periods are as follows:
Nine Months Ended March 31 1994 1993
-------------------------------------------------------------------
Expected income tax (basic rate) 35.0% 34.0%
Impact of basic rate increase 3.1 -
State income taxes, less federal
income tax benefits 6.1 6.3
Goodwill amortization 3.5 5.3
Non-deductible equity loss -
cable group 3.6 2.9
Sale of television properties (1.6) -
Other .3 (1.2)
----- -----
Effective income tax rate 50.0% 47.3%
===== =====
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 42 percent are under the LIFO method at both March
31, 1994 and June 30, 1993.
March 31 June 30
1994 1993
-------- --------
($ in thousands)
Raw materials $12,840 $17,894
Work in process 16,084 11,793
Finished goods 14,381 11,978
-------- --------
43,305 41,665
Reserve for LIFO cost valuation (10,532) (9,282)
-------- --------
Total $32,773 $32,383
======== ========
Page 9 of 20
<PAGE>
4. Unusual Item
The Company received tax assessments in the second quarter of the current
fiscal year related to discontinued operations sold in prior years. An unusual
item of $4.8 million was recognized during the second quarter to establish a
reserve for possible liabilities related to these assessments.
5. Sale of Properties
On December 23, 1993, the Company announced the sale of two broadcast
television properties to Granite Broadcasting Corporation ("Granite") for $33
million, $2 million in preferred stock in Granite and a tax certificate. The
two properties sold were WTVH, a CBS affiliate licensed to serve Syracuse, New
York, and KSEE, an NBC affiliate licensed to serve Fresno, California. The
Company received a tax certificate due to Granite being minority-owned. This
certificate can be used, to the Company's benefit, if another broadcast
property is purchased within two years of this sale. Had this sale occurred on
July 1, 1993, the Company's advertising revenues would have decreased by
approximately four percent for the nine months ended March 31, 1994. The
effect on consolidated net earnings and net earnings per share would not have
been significant.
6. Contingencies
Reference is made to Part II - OTHER INFORMATION, Item 1, Legal Proceedings of
this Form 10-Q for the quarterly period ended March 31, 1994.
Page 10 of 20
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter Fiscal 1994 Vs. Third Quarter Fiscal 1993
Meredith Corporation net earnings for the quarter ended March 31, 1994 were
$7,216,000, or 51 cents per share, a 46 percent per share increase from prior
year third quarter earnings of $5,352,000, or 35 cents per share. Improved
results in the Broadcast and Magazine Groups combined with lower corporate non-
operating expenses to result in the increase in earnings. Three cents of the
increase in earnings per share was due to shares repurchased by the Company.
Revenues for the three months ended March 31, 1994 were $205,763,000, a four
percent increase from prior year third quarter revenues of $198,718,000. The
revenue growth was primarily due to increased magazine advertising and
circulation revenues.
Income from operations was $16,758,000 in the third quarter compared to
$12,331,000 in the prior year period. The operating margin advanced from 6.2
percent of net revenues in the fiscal 1993 third quarter to 8.2 percent in the
current quarter, an increase of 32 percent. The following table shows the
percentage of revenues each major expense classification represented in the
current and prior year quarters:
Expense as Percentage of Revenues
Three Months Ended March 31 1994 1993
- ----------------------------------------------------------------------------
Production, distribution and editorial (PD&E) 40.8% 40.8%
Selling, general and administrative (SG&A) 46.6% 48.6%
Depreciation and amortization 4.4% 4.4%
The improvement in operating margin was the result of all segments reporting
lower SG&A expenses in relation to revenues. The most significant decline
occurred in the Publishing segment due to lower book promotion expenses and
prior year costs associated with relocating a magazine operation from
California to Des Moines.
A discussion of results by segment follows:
Publishing: Revenues in the Magazine Group increased six percent from the
prior year third quarter. Total advertising revenues increased six percent,
with many titles posting double-digit percentage increases from the prior-year
quarter. Increased net revenue per advertising page led to revenue increases
for Traditional Home, Midwest Living and Country Home. Successful Farming, the
Page 11 of 20
<PAGE>
Better Homes and Gardens Special Interest Publications and Golf For Women
reported higher advertising revenues primarily due to increased ad pages.
Increased newsstand sales of Better Homes and Gardens Special Interest
Publications and higher subscription revenues from newer titles led to a six
percent increase in Magazine Group circulation revenues compared to the prior-
year quarter.
Magazine Group operating profits increased seven percent from the prior-year
quarter resulting in record third-quarter profits. The improvement was the
result of increased profits for most titles and relocation costs of a magazine
operation in the prior year quarter. (Cross Stitch & Country Crafts magazine
was moved from California to Des Moines in March 1993.) Increased ad revenues
were the primary factor in the profit improvements reported by Successful
Farming, Traditional Home, Country Home and Better Homes and Gardens. In
addition, profits increased due to the performance of three of the Company's
newer titles, Country Home Country Gardens, American Patchwork & Quilting and
Better Homes and Gardens Craft & Wear magazines. These increases in profits
were partially offset by reduced profit margins on certain premium sales,
start-up costs for a new title, Crayola Kids, and increased spending on a Group
marketing campaign.
Book Group revenues increased slightly from the prior year third quarter.
Increased sales volume in the retail and direct response operations was mostly
offset by reduced revenues in the Craftways operations, due to planned
downsizing.
Book Group operating results matched the prior year's third quarter
performance. Lower promotion and overhead costs led to improved results in
Craftways. Syndication results were favorable due to improved performance of
appointment book programs. Book club results improved due to lower promotion
expenses. However, when compared with the prior year quarter, these
improvements were offset by lower results in the retail and direct response
operations. Retail marketing profits declined due to a higher book
manufacturing cost ratio that resulted primarily from the mix of products sold.
An increase in low profit-margin continuity starters led to the decline in
direct response results.
Paper is an essential raw material to the Publishing segment and represents a
significant expense. Paper prices have been fairly stable over the past year
due to soft market conditions and increased international competition. The
Company does not expect to experience a shortage of paper in the foreseeable
future. However, continued growth of the economy could lead to a tightening of
paper supplies and price increases. A similar price increase to that of the
first quarter of fiscal 1994 is expected early in fiscal 1995.
In the third quarter, the Company realized its first revenues and profits from
its licensing agreement with Wal-Mart. In January 1994, Wal-Mart introduced
Better Homes and Gardens garden centers in more than 2,000 stores nationwide.
Royalties are paid to the Company upon the sale of licensed products in the
Wal-Mart/Better Homes and Gardens garden centers.
Page 12 of 20
<PAGE>
Broadcast: Third-quarter revenues declined nine percent in the Broadcast Group
due to the sale of the Company's television stations in Syracuse, New York and
Fresno, California in December 1993. Excluding the prior year revenues of
those stations, revenues increased eleven percent from the prior year third
quarter as all five remaining stations posted increases in both local and
national advertising revenues.
KPHO, the Company's independent station in Phoenix, led the Group in profit
improvement, although the other four stations also posted improved results. In
addition to the increase in advertising revenues, KPHO also benefited from
lower programming expense that resulted from several cost-reducing strategies.
Comparative Group results were also boosted by a prior year third-quarter loss
at one of the stations sold in December.
Real Estate: Revenues increased four percent in the Real Estate Group in the
fiscal third quarter due to higher transaction fees for member firms' home
sales and increased sales of ancillary products and services. Operating
results for the Group improved substantially due to these revenue increases and
lower administrative expenses.
Cable Television: Third quarter revenues declined slightly in the cable
operations due to a lower average revenue per subscriber. This was a result of
the re-regulation of cable pricing which took effect in September 1993. The
decline in revenue per subscriber combined with increased depreciation expense
to result in lower operating profits, before interest expense, at the Minnesota
system. In addition, interest expense increased due to bank fees paid to buy-
out interest rate contracts. The result was a increased loss on cable
operations in the current quarter.
Other: Interest income increased in the current quarter due to interest earned
on notes receivable from the sales of businesses. Corporate nonoperating
expenses declined from the prior-year quarter due to lower pension and legal
expenses.
An increase in the federal corporate income tax rate combined with a larger
non-deductible loss on cable operations to result in a higher effective tax
rate for the third quarter.
First Nine Months Fiscal 1994 Vs. First Nine Months Fiscal 1993
Meredith Corporation net earnings for the nine months ended March 31, 1994 were
$22,164,000, or $1.55 per share. Net earnings included a gain of $11,997,000
($8,197,000 after tax or 57 cents per share) on the dispositions of the
Syracuse and Fresno television properties and a charge of $4,800,000
($2,592,000 after tax or a negative 18 cents per share) for an unusual item,
both in the second quarter. Excluding the post-tax impacts of the gain on
dispositions and the unusual item, comparable earnings for the nine-month
period were $16,559,000, or $1.16 per share, a 32 percent per share increase
from prior year-to-date earnings of $13,502,000, or 88 cents per share. All of
the operating groups, except cable, contributed to the increase in comparable
earnings. Eight cents of the increase in comparable earnings per share was due
to shares repurchased by the Company.
Page 13 of 20
<PAGE>
The net assets of WTVH, a CBS affiliate licensed to serve Syracuse, New York,
and the common stock of a Company subsidiary that owned KSEE, an NBC affiliate
licensed to serve Fresno, California, were sold to Granite Broadcasting
Corporation effective December 26, 1993. The effect on fiscal 1994
consolidated advertising revenues and profits are expected to be immaterial
when compared to the prior year.
The Company received tax assessments in the second quarter of fiscal 1994
related to discontinued operations sold in prior years. An unusual item was
recognized to establish a reserve for these possible tax liabilities. At this
time, the Company intends to protest these assessments but has established a
reserve which it believes will be sufficient to cover any potential
liabilities.
Revenues for the nine months ended March 31, 1994 were $592,684,000, a five
percent increase from prior year revenues of $566,287,000. Factors
contributing to the increase included an additional two months of revenue from
the Minnesota cable television system (purchased in September 1992), increased
magazine circulation revenues and increased retail and direct response book
sales.
Income from operations was $38,118,000 for the nine month period compared to
$29,832,000 in the prior year period. The operating margin rose from 5.3
percent of net revenues last year to 6.4 percent in the current nine months,
despite the negative effect of the unusual item. Excluding the effect of the
unusual item, the operating margin was 7.2 percent, an increase of 36 percent
from the comparable prior-year period. The following table shows the
percentage of revenues each major expense classification represented in the
current and prior year periods:
Expense as Percentage of Revenues
Nine Months Ended March 31 1994 1993
- ---------------------------------------------------------------------------
Production, distribution and editorial (PD&E) 41.4% 42.3%
Selling, general and administrative (SG&A) 46.8% 48.2%
Depreciation and amortization 4.6% 4.2%
Unusual item .8% --
PD&E expenses declined as a percentage of revenues primarily due to lower
programming expense at the broadcast television stations.
SG&A expenses also declined as a percentage of revenues compared to the prior
year period. A favorable adjustment to accrued music license fees in the
Broadcast Group, based on an industry settlement with ASCAP (American Society
of Composers, Authors & Publishers) was the biggest single factor. Other
contributing factors included lower promotion expenses in the Book Group and
lower administrative expenses due to the relocation of a magazine operation
from California to Des Moines in fiscal 1993.
Depreciation and amortization expenses rose as a percentage of net revenues due
to the effect of the timing of the Minnesota cable television system
acquisition on September 1, 1992.
Page 14 of 20
<PAGE>
A discussion of results by segment follows:
Publishing: Revenues in the Magazine Group increased four percent from the
revenues recorded in the nine months ended March 31, 1993. Total advertising
revenue declined one percent, primarily due to the sale of Metropolitan Home
magazine in November 1992. Excluding Metropolitan Home, magazine advertising
revenues increased three percent from the prior year period. A decline in
Better Homes and Gardens advertising revenues (primarily in the first quarter)
was offset by increased ad revenues in almost all of the Company's other
titles. Increases in excess of 25% were reported by Traditional Home, Country
America and Golf For Women, primarily due to additional ad pages. Each of
these titles also reported higher net revenue per page, in part due to
increased rate bases for each of the titles. Circulation revenues in the
Magazine Group increased seven percent compared to the prior-year nine month
period. An increase in newsstand sales of the Better Homes and Gardens Special
Interest Publications was the biggest factor in this increase, followed by
higher subscription revenues from newer titles, including American Patchwork &
Quilting and Better Homes and Gardens Craft & Wear.
Magazine Group operating profits for the first nine months of fiscal 1994
increased 10 percent over the prior year period. Stronger newsstand sales and
profits were reported by Better Homes and Gardens Special Interest
Publications, Ladies' Home Journal (including special issues), Country Home
Country Gardens and Traditional Home. These titles also benefited from
increased advertising revenues, as did Country America and Successful Farming.
Group profits in the first nine months of the prior year were held down by a
loss on Metropolitan Home magazine (sold in November 1992) and by moving costs
associated with relocating Cross Stitch & Country Crafts magazine operations to
Des Moines. These improvements were partially offset by a decline in Better
Homes and Gardens profits due primarily to lower advertising revenues.
Book Group revenues increased two percent from the prior year period due to
increased sales volume in the retail marketing and direct response operations.
Lower volumes in Craftways, syndication programs and most of the book clubs,
primarily due to planned downsizing, partially offset the increases. Book
Group operating results improved significantly from the first nine months of
the prior year, primarily due to increased profits from the Group's retail
marketing operations. Stronger sales of both new and backlist titles combined
with lower reserves for book returns to result in the profit increase. The
book clubs also reported improved results for the period due to lower product
return rates and lower promotion expenses. Partially offsetting these
improvements from prior-year results was a decline in direct response operating
results due to increased product development and premium costs and lower
response rates on annual starter promotions.
Broadcast: Revenues for the first nine months of fiscal 1994 increased
slightly in the Broadcast Group, despite the sale of two of the Company's seven
television stations in December 1993. Revenues at the five remaining
television stations are seven percent above the prior-year period due to
overall increases in local and national advertising revenues. The revenue
increase combined with lower programming expenses and a favorable adjustment to
accrued music license fees to result in a profit increase of more than 70% for
Page 15 of 20
<PAGE>
the Broadcast Group. Programming costs have been held down by a combination of
cost saving measures including the purchase of more first-run programming.
KPHO, the Company's independent station in Phoenix, reported the most
substantial improvement in operating results primarily from a 15 percent
increase in advertising revenues. This increase is due to a stronger sales
force and an improving economy in the Phoenix market.
Real Estate: Revenues increased slightly in the Real Estate Group, while
profits showed significant improvement from the first nine months of fiscal
1993. Transaction fees, the revenues generated by member firms' home sales
activity, increased nine percent due to continued strength in the residential
housing market. Revenues from the sale of ancillary products and services also
increased. A decline in the average revenue per firm from new members joining
the Better Homes and Gardens Real Estate network partially offset the other
revenue increases. Profits for the Group increased due to the revenue
increases and lower administrative expenses.
Cable Television: An increase in revenues and a portion of the decline in
operating results for the cable television operations reflect the acquisition
of the Minnesota system on September 1, 1992. This system is the larger of two
cable television systems, both of which the Company indirectly owns
approximately 70 percent. Nine months' ownership in the current period, versus
seven months in the prior year period, was the primary reason for the revenue
growth of approximately 24 percent. Operating profit, before interest expense,
decreased primarily due to the effect of re-regulation of cable pricing in
September 1993. Increased amortization of acquisition expenses (associated
with the Minnesota system purchase) and increased depreciation expense also
contributed to the decline. Interest expense increased due to two additional
months of debt financing related to the Minnesota system acquisition and bank
fees paid to buy-out interest rate contracts. The result was a larger net loss
for the cable operations in the current period.
In February 1994 the Federal Communications Commission voted to require another
reduction in cable television rates in addition to the reduction which took
effect in September 1993. This latest reduction is intended to cut rates
another seven percent and will become effective between May 15 and July 15,
1994. Due to the complexity of the ruling, the impact on the Company's cable
television operations has not been quantified. However, operating cash flows
for the cable operations are expected to be lower in the next fiscal year due
to this ruling.
The cable industry outlook has changed considerably since the Company decided
to invest in the cable partnership in the fall of 1991. Re-regulation of cable
pricing, changes in cable technology and competitive developments are the
primary factors affecting the industry. In light of these changes, the Company
is evaluating its options in relation to its continued investment in cable
television, including the possible sale of the systems.
Other: The increase in interest expense in the current period reflects two
additional months of debt financing related to the acquisition of the Minnesota
cable television system. Interest income declined in the current period due to
lower interest-earning cash balances that resulted from Company stock
repurchases, timing of payments to the Company's pension plan and the September
1992 investment in the cable television partnership. Corporate nonoperating
expenses decreased compared to the prior year period because of
Page 16 of 20
<PAGE>
lower legal expenses. Legal expenses were high in the prior year due to the
Ladies' Home Journal tax case. A ruling favorable to the Company regarding
this case was received in the third quarter. If the Internal Revenue Service
does not appeal the decision, the Company expects this ruling to have a
material and favorable effect on earnings in the first quarter of fiscal 1995
when the appeal period expires.
The effective tax rate for the nine months ended March 31, 1994 exceeds the
rate in the prior year period primarily due to the increase in the federal
corporate tax rate, that was enacted in August 1993. Accounting rules require
that the effect of a tax rate change on deferred items be reflected in earnings
in the period the change is enacted. To date that increase in the corporate
tax rate has reduced earnings per share by 13 cents. The Company's effective
tax rate also increased versus the prior year due to its share of the increased
loss on the cable operations, most of which is non-deductible to Meredith
Corporation. These increases were partially offset by the favorable effect
from the disposition of the broadcast television stations.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $22,302,000 for the nine
months ended March 31, 1994. This was a decrease of $16,287,000 from the
comparable prior year period. The decrease in cash provided was mostly due to
larger increases in receivables and subscription acquisition costs. Revenue
increases in the Magazine and Book Groups led to increased receivables. The
larger increase in subscription acquisition costs was primarily due to the
prior period's increase being partially offset by the sale of Metropolitan Home
magazine. The larger decrease in accounts payable and accruals was primarily a
result of reclassifications affecting deferred income taxes and other deferred
items.
Investing activities provided cash of $19,108,000 in the nine months ended
March 31, 1994. In the comparable prior year period, investing activities used
$20,411,000. The difference resulted primarily from the proceeds received from
the disposition of the two broadcast television stations in the current period.
Also contributing was a prior year investment in the cable partnership to
purchase the Minnesota cable television system. These items were partially
offset by cash provided by a larger redemption of marketable securities in the
prior year.
Net cash used by financing activities grew from $37,111,000 in the nine months
ended March 31, 1993 to $54,462,000 in the current period due to the increased
use of funds to purchase Company common stock. The number of shares purchased
in the current period was 50 percent higher than in the prior-year period. The
average cost per share was also 32 percent higher in the current period due to
increased market prices. The Company currently has a Board of Directors'
authorization to repurchase up to one million shares of Company stock.
Slightly more than half of those shares have been repurchased as of this date.
The Board of Directors increased the quarterly dividend by 12 percent, or two
cents per share, to 18 cents per share with the dividends payable on March 15,
1994. On an annual basis, a quarterly dividend of 18 cents per share would
increase dividends paid by approximately one million dollars at the current
number of shares outstanding.
Page 17 of 20
<PAGE>
Capital expenditures in fiscal 1994 are expected to increase by approximately
30% over fiscal 1993 levels. This increase is primarily due to the timing of
the Minnesota cable television system acquisition. All planned expenditures in
the cable television systems occur in the ordinary course of business. No
material commitments for expenditures to upgrade the cable distribution systems
have been made. The Company also expects to increase capital spending for new
and upgraded computer networks for the purpose of reducing long-term processing
costs. However, at this time, the Company has made no material commitments for
capital expenditures.
At this time, management expects that cash on hand, plus internally-generated
cash flow, will provide funds for capital expenditures, cash dividends and
other operational cash needs for foreseeable periods. Short-term lines of
credit will be used on an as-needed basis for short-term working capital needs.
The Company does not expect the need for any long-term source of cash to meet
operating requirements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has received federal income tax deficiency notices relative to its
1986, 1987, 1988, 1989 and 1990 tax years. Generally, the claimed deficiencies
related to the amortization of intangibles and other matters connected with the
acquisition of Ladies' Home Journal magazine. On March 14, 1994, Meredith
Corporation received a favorable decision from the United States Tax Court
relating to the federal income tax deficiency notices received.
The dominant issue, determined in favor of the Company, involved the tax basis
and ability to amortize the Ladies' Home Journal subscriber relationships.
Because the Tax Court applied the 1993 decision of the United States Supreme
Court in Newark Morning Ledger Co. v. United States to the facts of the
Company's case, the Company believes an appeal by the Internal Revenue Service
of the Tax Court's opinion is unlikely.
If the Internal Revenue Service does not appeal the Tax Court's decision, the
Company has no remaining exposure to the $12 million potential tax cost that
was previously reported. In addition, the Company believes this decision may
have a material and favorable impact on its net earnings.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
1) Statement re computation of per share earnings: Exhibit 11
(b) Reports on Form 8-K
A Form 8-K dated March 14, 1994 was filed during the quarter ended
March 31, 1994 reporting under Item 5. Other Events., the U. S. Tax Court's
decision regarding the Ladies' Home Journal tax court case.
Page 18 of 20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEREDITH CORPORATION
Registrant
(Larry D. Hartsook)
Larry D. Hartsook
Vice President - Finance
(Principal Financial and
Accounting Officer)
Date: May 12, 1994
Page 19 of 20
Exhibit 11
MEREDITH CORPORATION
Computation of Primary and Fully Diluted Per
Common Share Earnings - Treasury Stock Method
For the Nine Months Ended March 31, 1994 and 1993
(Unaudited)
Weighted average number of shares
1994 1993
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Weighted average number of shares
outstanding in thousands 14,311 14,311 15,371 15,371
Dilutive effect of unexercised
stock options and management
incentive deferred awards in
thousands 94 118 20 20
------ ------ ------ ------
Total 14,405 14,429 15,391 15,391
====== ====== ====== ======
Primary and fully
diluted earnings per common share
1994 1993
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Net earnings per share $1.54* $1.54* $ .88 $ .88
===== ===== ===== =====
Note: Primary - Based on average market prices.
Fully Diluted - Based on the higher of the average market price
or the market price at March 31 of each year.
*Dilution less than three percent from earnings per common share
outstanding and therefore not considered to be material.
Page 20 of 20
