UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
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)
Registrant's telephone number, including area code: 515 - 284-3000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $1 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Title of class - Class B Stock, par value $1
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The registrant estimates the aggregate market value of voting stock held by
non-affiliates of the registrant at July 31, 1996, was $712,644,000 based upon
the closing price on the New York Stock Exchange at that date.
Number of common shares outstanding at July 31, 1996: 20,278,501
Number of class B shares outstanding at July 31, 1996: 6,568,377
----------
Total common and class B shares outstanding 26,846,878
==========
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DOCUMENT INCORPORATED BY REFERENCE
Description of document Part of the Form 10-K
------------------------------------ --------------------------------
Certain portions of the Registrant's
Proxy Statement for the Annual Part III to the extent described
Meeting of Stockholders to be therein.
held on November 11, 1996
PART I
Item 1. Business
General
- -------
Meredith Corporation (the Company) was founded in 1902 by Edwin Thomas
Meredith, and incorporated in Iowa in 1905. Since its start with Successful
Farming magazine, the Company has expanded its operations, primarily in
magazine publishing and television broadcasting, through internal growth and
acquisitions.
Today, Meredith Corporation has three operating segments for reporting
purposes: Publishing, Broadcasting, and Real Estate. Virtually all businesses
within each segment operate in the United States. The Publishing segment
includes magazine and book publishing and brand licensing operations. The
Broadcasting segment includes the operation of seven network-affiliated
television stations. The Real Estate segment includes franchise and marketing
operations. In previously reported fiscal years, the Company's segments
included a cable television segment. It was classified as discontinued in
fiscal 1996 due to the intended sale of all cable television operations, and
prior years' financial results have been restated accordingly.
The Company's largest source of revenues is magazine and television
advertising. Television advertising tends to be seasonal in nature with higher
revenues traditionally reported in the second and fourth fiscal quarters.
Certain other revenues are also somewhat seasonal, such as real estate
franchise fees which are generally highest during the spring and summer months.
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Trademarks (e.g. Better Homes and Gardens, Ladies' Home Journal) are very
important to the Company's Publishing segment. Better Homes and Gardens and
its familiar "house and trees" logo is also crucial to the Real Estate segment.
Local recognition of television station call letters is important in
maintaining audience shares in the Broadcasting segment. Name recognition and
the public image of these trademarks are vital to both ongoing operations and
the introduction of new businesses. Accordingly, the Company aggressively
defends it trademarks.
The Company did not have any material expenses for research and development
during any of the past three fiscal years.
There is no material effect on capital expenditures, earnings and the
competitive position of the Company regarding compliance with federal, state
and local provisions relating to the discharge of materials into the
environment and to the protection of the environment.
The Company had 2,310 employees at June 30, 1996 (including 153 part-time
employees and 252 employees in the discontinued cable operation).
Business Developments
- ---------------------
The Company formalized plans to sell all of its ownership interest in cable
television systems and therefore classified its Cable segment as a discontinued
operation effective September 30, 1995. In April 1996, the Meredith/New
Heritage Partnership, of which the Company indirectly owns 96 percent,
announced the signing of an agreement to sell its 73 percent ownership interest
in Meredith/New Heritage Strategic Partners, L.P. Pending approvals, the sale
is expected to close in the second quarter of fiscal 1997. This sale will
complete the Company's exit from the cable television business. Meredith
Corporation expects to record a net gain of approximately $15 to $20 million
after taxes from the sale.
In July 1995, the Company announced an alliance with The Reader's Digest
Association, Inc., granting Reader's Digest the rights for direct-response
marketing of certain Meredith-trademarked products. In December 1995, the
Company sold to Book-of-the-Month Club, Inc., the accounts receivable,
membership lists and product inventory of three book clubs: Better Homes and
Gardens Crafts Club, Better Homes and Gardens Cook Book Club and Country Homes
and Gardens Book Club. These actions resulted in a significantly smaller book
publishing operation for the Company, with a primary focus on the sale of books
through retail marketing channels.
In January 1996, the Company acquired the assets of WOGX, a FOX-affiliated
television station serving the Ocala/Gainesville, Florida market.
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In fiscal 1996, all of the Company's New York City employees were relocated
into consolidated office space. The Company entered into a long-term lease
agreement for these offices at considerable cost savings. Also in June 1996,
ground was broken for the construction of a new office building in Des Moines,
adjacent to current corporate headquarters. When completed, this building will
increase operational efficiency by enabling all Des Moines employees to be
located on a corporate campus.
Overview of Fiscal 1996 Financial Results
- -----------------------------------------
Fiscal 1996 revenues for the Company were $867,137,000, an increase of 5
percent over fiscal 1995 revenues of $829,401,000. This increase was primarily
due to higher advertising revenues in both the Company's magazine and
broadcasting operations. Advertising revenues in the Broadcasting segment were
boosted by an additional six months of operations of WSMV-TV in Nashville,
acquired by the Company in January 1995.
Company operating profit in fiscal 1996 increased to $97,505,000 from
$72,702,000 in fiscal 1995, an increase of 34 percent. All business groups
reported higher operating profits in fiscal 1996.
Fiscal 1996 net earnings were $53,940,000, or $1.91 per share. In fiscal 1995,
the Company experienced a net loss of $6,315,000, or 23 cents per share due to
the recognition of a non-cash charge for the cumulative effect of a change in
accounting principle. (See Note 3 to Consolidated Financial Statements on page
F-35 of this Form 10-K.) Fiscal 1996 earnings per share from continuing
operations before special items were $1.82, up 28 percent from comparable
fiscal 1995 results. Special items included the gain on sale of book clubs in
fiscal 1996 and IRS interest income in fiscal 1995.
See Financial Information about Industry Segments beginning on page F-4 of this
Form 10-K.
Description of Business
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PUBLISHING
- ----------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Publishing revenues $696,285 $683,331 $622,953
Publishing operating profit $ 64,107 $ 48,636 $ 45,678
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Publishing revenues, representing 80 percent of the Company's consolidated
revenues in fiscal 1996, increased 2 percent as higher magazine advertising
revenues more than offset the decline in revenues resulting from the downsizing
of book operations. This downsizing had a favorable effect on book operating
results which combined with a strong performance in magazine publishing to
result in a 32 percent increase in Publishing operating profit.
Magazine
- --------
Magazine operations account for more than 90 percent of the revenues and
operating profit of the Publishing segment. Meredith Corporation currently
publishes 19 subscription magazines that appeal primarily to consumers in the
home and family market. Key advertising and circulation information for major
subscription titles is as follows:
Title Frequency Rate Base Ad Pages
----- --------- --------- --------
Better Homes and Gardens - Home service
Fiscal 1996 Monthly 7,600,000 1,753
Fiscal 1995 Monthly 7,600,000 1,592
Ladies' Home Journal - Women's service
Fiscal 1996 Monthly 4,500,000 1,250
Fiscal 1995 Monthly 5,000,000 1,482
Country Home - Home decorating
Fiscal 1996 Bi-monthly 1,000,000 472
Fiscal 1995 Bi-monthly 1,000,000 531
Country America - Country music and lifestyle
Fiscal 1996 10x/year 900,000 429
Fiscal 1995 10x/year 1,000,000 599
Midwest Living - Regional travel and lifestyle
Fiscal 1996 Bi-monthly 815,000 587
Fiscal 1995 Bi-monthly 815,000 561
Traditional Home - Home decorating
Fiscal 1996 Bi-monthly 775,000 445
Fiscal 1995 Bi-monthly 725,000 474
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Title Frequency Rate Base Ad Pages
----- --------- --------- --------
WOOD - Woodworking projects and techniques
Fiscal 1996 9x/year 600,000 332
Fiscal 1995 9x/year 650,000 328
Successful Farming - Farm information
Fiscal 1996 12x/year 485,000 495
Fiscal 1995 12x/year 485,000 641
Golf for Women - Golf instruction and information
Fiscal 1996 Bi-monthly 325,000 367
Fiscal 1995 Bi-monthly 325,000 322
Crayola Kids - Kids' reading, crafts and games
Fiscal 1996 Bi-monthly 350,000 107
Fiscal 1995 Bi-monthly 300,000 96
Rate base is the circulation guaranteed to advertisers.
Ad pages are as reported to Publisher's Information Bureau, Agricom, or if
unreported, as calculated by the publisher using a similar methodology.
Better Homes and Gardens magazine, the Company's flagship, accounts for a
significant percentage of revenues and operating profits of the Publishing
segment and the Company.
Country America, published by Country America Corporation, is jointly owned by
Meredith Corporation (which owns 80 percent), TNN:The Nashville Network, and
Group W Satellite Communications. In fiscal 1997, Country America will begin
publishing on a bi-monthly schedule.
Crayola Kids is published by Meredith Custom Publishing under a license from
Binney & Smith Properties, Inc., makers of Crayola crayons.
Other subscription magazines published by the Company include Cross Stitch &
Needlework and three Better Homes and Gardens craft titles (Decorative
Woodcrafts, Floral & Nature Crafts and American Patchwork & Quilting). The
Company discontinued publication of home garden magazine and three small
woodworking/craft titles in fiscal 1996. All subscription titles, except
Successful Farming, are also sold on newsstands. Successful Farming is
available only by subscription to qualified farm families.
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In addition, one of the larger contributors to revenues and operating profit of
magazine publishing is a group of magazines sold primarily on the newsstand,
the Better Homes and Gardens Special Interest Publications. These titles are
issued from one to four times annually. Approximately 40 different titles (75
issues) were published in fiscal 1996 in categories including decorating, do-
it-yourself, home plans, crafts, gardening, holidays and cooking. Total annual
advertising and circulation revenues of these publications exceed those of
other Company-owned titles, except Better Homes and Gardens and Ladies' Home
Journal.
Several subscription magazines also publish related specialty magazines sold
primarily on newsstands. Ladies' Home Journal published two special interest
issues in fiscal 1996. Country Home published four editions of Country Gardens
and one Holidays at Home edition in fiscal 1996. Traditional Home introduced
Renovation Style, publishing two issues in fiscal 1996. In addition, the
Company publishes numerous craft magazines sold primarily on newsstands.
Meredith Custom Publishing (MCP) provides custom publishing services to
advertisers and other external clients on both one-time and periodic bases.
Current clients for ongoing periodicals include Sears Roebuck & Company,
Northwest Airlines and The Home Depot. MCP operates California Tourism
Publications, a wholly-owned subsidiary of Meredith Corporation, that produces
travel publications for the California Division of Tourism. MCP also publishes
travel guides for other states and cities. MCP published a series of brochures
for Metropolitan Life Insurance Company in fiscal 1996. MCP manages the
licensing agreement with Hallmark Cards, Inc., which involves the marketing of
Better Homes and Gardens Heart and Home Collection cards and specialty
products. The creation and sale of premiums and specialty products, typically
for one-time promotional purposes, are also significant sources of revenues for
the custom publishing operations.
Meredith Custom Marketing develops comprehensive integrated marketing programs
which may include magazine advertising, custom publishing and resources from
other operating segments.
American Park Network, a wholly owned subsidiary, publishes the country's
largest collection of visitor guide magazines for national, state and wildlife
parks. American Park Network published 20 guides, primarily furnished free to
park visitors, in fiscal 1996.
Magazine operations also realize revenues from the sale of ancillary products
and services.
The Company also has a 50 percent interest in a monthly Australian edition of
Better Homes and Gardens magazine.
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Magazine Advertising
- --------------------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Magazine advertising revenues $308,959 $276,312 $236,814
Advertising revenues are generated primarily from sales to clients engaged in
consumer advertising. Many of the Company's larger magazines offer advertisers
different regional and demographic editions which contain the same basic
editorial material but permit advertisers to concentrate their advertising in
specific markets or to target specific audiences. The Company sells three
primary types of magazine advertising: run of press, mail order and insert.
Most of the Company's advertising pages and revenues are derived from run of
press advertising. Meredith has a group sales staff specializing in
advertising sales across titles.
Magazine Circulation
- --------------------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Magazine circulation
revenues $272,406 $269,029 $257,453
Subscription revenues, the largest source of circulation revenues, are
generated through direct-mail solicitation, agencies, insert cards and other
means. Newsstand sales, including single-copy sales at supermarkets, drug-
stores and other retail outlets, also are important sources of circulation
revenues for most magazines. Magazine wholesalers have the right to receive
credit for magazines returned to them by retailers.
Books
- -----
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Consumer book revenues $ 56,481 $ 86,568 $ 86,040
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The Company publishes and markets a line of 225 consumer home and family
service books, published primarily under the Better Homes and Gardens
trademark. They are sold through retail book and specialty stores, mass
merchandisers and other means. Approximately 40 new or revised titles were
published during fiscal 1996. Books are primarily sold on a fully returnable
basis. The Company has also retained the direct-marketing rights to selected
annual trademarked titles.
The decline in consumer book revenues in fiscal 1996 reflects the elimination
of most book direct-response marketing revenues due to the July 1995 Reader's
Digest alliance and the December 1995 sale of three book clubs. The Company
expects to receive royalties for the use of Meredith trademarks as a result of
these actions.
Brand Licensing
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The Company has licensed Wal-Mart Stores, Inc., to operate Better Homes and
Gardens Garden Centers in its stores nationwide. In addition, Wal-Mart stores
began to offer Better Homes and Gardens Floral & Nature Crafts-labeled products
in January 1996. The Company receives royalties for sales of licensed products
offered exclusively in Wal-Mart stores.
Other Publishing
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The Company has licensed Multicom Publishing, Inc., in which it has a minority
ownership interest, to develop and publish CD-ROM titles based on Meredith's
home and family editorial products. The Company earns royalties on the sales
of these titles. In addition, several of the Company's magazines have
established web sites on the Internet. The most extensive of these web sites
is Successful Farming @griculture Online, which recently began offering
subscriptions to premium services in addition to its core material. Also, The
Better Homes Kitchen is available through CompuServe. None of these ventures
is currently a material source of revenues.
Production and Delivery
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The major raw materials essential to this segment are coated and uncoated
publication paper and book-grade papers. Strong demand and a relatively fixed
level of supply resulted in sharp increases in paper prices in fiscal 1995 and
early fiscal 1996. Since January 1996, market conditions have softened and
some reductions in the Company's paper prices have occurred. At June 30,
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1996, the Company's paper prices were about 35 percent higher than two years
ago. Since then, major paper suppliers have announced further price
reductions. However, price increases may occur later in fiscal 1997. The
Company has contractual agreements with major paper manufacturers to ensure
adequate supplies of paper for planned publishing requirements. Efforts to
minimize the impact of price increases to-date have included changes in
magazine rate base levels and paper type and weight.
Postage is also a significant expense to this segment due to the large volume
of magazine and subscription promotion mailings. A postal rate increase in
January 1995 resulted in an annual increase of approximately 13 percent. The
Publishing operations continually seek the most economical and effective
methods for mail delivery. Accordingly, certain cost-saving measures, such as
pre-sorting and drop-shipping to central postal centers, are utilized. The
Board of Governors of the U. S. Postal Service has approved increased
discounts, effective July 1, 1996, for carrier-route sorting. The Company
believes this will result in cost savings for the Publishing segment. Some
magazine subscription invoices include a separate charge for postage and
handling.
Paper and postage expenses together account for approximately one-third of the
Publishing segment's operating costs.
The Company has printing contracts for all of it's magazine titles. It's two
largest titles, Better Homes and Gardens and Ladies' Home Journal, are printed
under long-term contracts with a major United States printer. All of the
Company's published books are manufactured by outside printers with the Company
usually supplying the paper. Book manufacturing contracts are generally on a
title-by-title basis.
Most fulfillment services for the Company's Publishing segment are provided by
an unrelated third party under negotiated contract terms. National newsstand
distribution services are also provided by an unrelated third party under a
multi-year agreement.
Competition
- -----------
Publishing is a highly competitive business. The Company's magazines, books,
and related publishing products and services compete with other mass media and
many other types of leisure-time activities. Overall competitive factors in
this segment include price, editorial quality and customer service.
Competition for advertising dollars in magazine operations is primarily based
on advertising rates, reader response to advertisers' products and services and
effectiveness of sales teams. Better Homes and Gardens and Ladies' Home
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Journal compete for readers and advertising dollars primarily in the women's
service magazine category. Both are part of a group known as the "Seven
Sisters," which also includes Family Circle, Good Housekeeping, McCall's,
Redbook and Woman's Day magazines, published by other companies. In fiscal
1996, the combined advertising revenue market share of Better Homes and Gardens
and Ladies' Home Journal magazines totalled 37 percent. This share exceeded
all other corporate publishers included in the Seven Sisters.
BROADCASTING
- ------------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Broadcasting advertising
revenues $137,964 $116,460 $ 95,525
Broadcasting total revenues $145,932 $121,690 $100,012
Broadcasting operating profit $ 52,311 $ 41,883 $ 19,189
Broadcasting revenues, representing 17 percent of the Company's consolidated
revenues in fiscal 1996, increased 20 percent and operating profit increased 25
percent in fiscal 1996. These increases were primarily due to a full year's
ownership of WSMV-TV, an NBC affiliate in Nashville acquired in January 1995.
The following table lists selected information regarding the Company's
television stations:
Station, Channel, DMA Major
Market, Network National Expiration Average Commercial
Affiliation, TV Homes Market Date of Audience TV Stations
Frequency in DMA Rank FCC License Share in Market
- ----------------- --------- -------- ----------- -------- -----------
KPHO-TV, Ch. 5 1,170,000 17 10- 1-1998 10.5% 4 VHF
Phoenix, Ariz. 3 UHF
(CBS) VHF
WOFL-TV, Ch. 35 998,000 22 2- 1-1997 9.8% 3 VHF
Orlando, Fla. 3 UHF
(FOX) UHF
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KCTV, Ch. 5 780,000 32 2- 1-1998 18.0% 3 VHF
Kansas City, Mo. 3 UHF
(CBS) VHF
WSMV-TV, Ch. 4 766,000 33 8- 1-1997 20.0% 3 VHF
Nashville, Tenn. 2 UHF
(NBC) VHF
WNEM-TV, Ch. 5 450,000 60 10- 1-1997 19.5% 2 VHF
Flint/Saginaw, Mich. 2 UHF
(CBS) VHF
KVVU-TV, Ch. 5 400,000 66 10- 1-1998 10.5% 4 VHF
Las Vegas, Nev. 3 UHF
(FOX) VHF
WOGX-TV, Ch. 51 95,000 167 2- 1-1997 12.5% 2 UHF
Ocala/Gainesville, Fla.
(FOX) UHF
VHF (very high frequency) stations transmit on channels 2 through 13; UHF
(ultra high frequency) stations transmit on channels above 13. Technical
factors and area topography determine the market served by a television
station.
Designated Market Area (DMA), as defined by A. C. Nielsen Company (Nielsen), is
an exclusive geographic area consisting of all counties in which local stations
receive a preponderance of total viewing hours. The market rank is the Nielsen
1995-96 DMA rank based on estimated television households as reported by
Nielsen Media Research.
Average audience share represents the estimated percentage of households using
television tuned to the station. The percentages shown reflect the average
Nielsen ratings share for the July 1995, November 1995, February 1996 and May
1996 measurement periods from 9 a.m. to midnight daily.
The number of major commercial television stations reported is from "Investing
in Television, '96 Market Report" dated May 1996. The Company's station and
all other stations reporting revenues are included. Public television stations
are not included.
WOGX was acquired in January 1996. WSMV was acquired in January 1995.
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WNEM became a CBS affiliate in January 1995. Previously, it was an NBC
affiliate. KPHO became a CBS affiliate in September 1994. It was previously
an independent station.
Operations
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Advertising is the principal source of revenues for the Broadcasting segment.
The stations sell commercial time to both local and national advertisers.
Rates for national and local spot advertising are influenced primarily by the
market size and audience demographics for programming. Most national
advertising is sold by a national advertising representative firm. Local
advertising revenues are generated by sales staff at each station's location.
All of the Company's television stations are network affiliates and as such
receive programming and/or cash compensation from their national network. In
exchange, much of the advertising time during this programming is sold by the
network. Affiliation with a national network has an important influence on a
station's revenues. The audience share drawn by a network's programming
affects the rates at which advertising time is sold. New and extended network
affiliation contracts signed in the past two years have increased the Company's
network compensation.
Competition
- -----------
Meredith television stations compete directly for advertising dollars and
programming in each of their markets with other television stations and cable
television providers. Other mass media providers such as newspapers and radio
stations also provide competition for market advertising dollars and for
entertainment and news information. Ownership consolidation continues to occur
in the television broadcast industry. In addition, the Telecommunication Act
of 1996 is expected to increase competition in part due to the ability of new
video service providers (e.g. telephone companies) to enter the industry. The
Company cannot predict the effects of these actions on the future results of
the Company's broadcasting operations.
Regulation
- ----------
Television broadcasting operations are subject to regulation by the Federal
Communications Commission (FCC) under the Communications Act of 1934, as
amended (Communications Act). Under the Communications Act, the FCC performs
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many regulatory functions including granting of station licenses and
determining regulations and policies which affect the ownership, operation,
programming and employment practices of broadcast stations. The FCC must
approve all television licenses and therefore compliance with FCC regulations
is essential to the operation of this segment. The maximum term for which the
FCC may grant and renew broadcast licenses was increased from five to eight
years by the 1996 Act. The Company is not aware of any reason why its
television station licenses would not be renewed. The 1996 Act changed the
former ownership limit of twelve television stations or total national audience
reach of no more than 25 percent of television households. Under the 1996 Act,
the 25 percent limit was raised to 35 percent and there is no limit on the
absolute number of stations that may be owned. (The information given in this
section is not intended to be a complete listing of all regulatory provisions
currently in effect.)
Congressional legislation and FCC rules are subject to change and these groups
may adopt regulations that could affect future operations and profitability of
the Company's Broadcasting segment. The FCC recently proposed the adoption of
rules for implementing digital advanced television service. Additional related
proposals are expected in the near future. The Company cannot predict what
changes to current legislation will be adopted or determine what impact any
changes could have on its television broadcasting operations.
REAL ESTATE
- -----------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Real Estate revenues $ 25,303 $ 24,429 $ 21,813
Real Estate operating profit $ 3,496 $ 2,298 $ 1,914
Increased revenues and operating profit in the Company's Real Estate segment
resulted primarily from increased franchise fees received from member firms.
Operations
- ----------
The Better Homes and Gardens Real Estate Service is a national residential real
estate marketing service which licenses the rights to exclusive territories to
selected real estate firms. Members and affiliates (real estate companies
affiliated with larger member firms) totaled 787 in the United States and 19 in
Canada and other countries on June 30, 1996. The primary revenue sources of
the Real Estate segment are franchise fees (based on a percentage of each
member's gross commission income on residential housing sales) and the sale of
marketing programs and materials to member firms.
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Competition
- -----------
The real estate business is highly competitive and customer service remains
vital to the success of this segment. The Real Estate Service competes for
members with other national real estate franchise networks primarily on the
bases of benefits provided to the member and fees for membership. Some
ownership consolidation of national franchise networks has occurred recently in
the industry. Currently, the Better Homes and Gardens Real Estate Service is
one of the five largest residential real estate franchise networks in the
country.
DISCONTINUED OPERATION
- ----------------------
On April 19, 1996, the Company, through its cable venture, Meredith/New
Heritage Partnership, announced the signing of an agreement to sell the
venture's 73 percent ownership interest in Meredith/New Heritage Strategic
Partners, L.P. (Strategic Partners) to its minority partner, Continental
Cablevision, Inc. (Continental). Strategic Partners owns and operates cable
television systems with approximately 126,000 subscribers in the
Minneapolis/St. Paul area. These systems are the only cable television
operations currently owned by Strategic Partners. (Previously, Strategic
Partners also owned a system with 24,000 subscribers in Bismarck, North Dakota,
which was sold in March 1995.) Pending approvals from local franchise
authorities, the FCC and others, the sale is expected to close during the
second quarter of fiscal 1997. The total value of the systems has been placed
at $262.5 million. Meredith Corporation expects to receive approximately $115
to $120 million in cash (net of taxes)and recognize a gain estimated at $15 to
$20 million (net of taxes) from the sale. The calculation of the estimated
gain includes actual deferred and expected net operating results of the Cable
segment from September 30, 1995 until the sale date. (See Note 2 to
Consolidated Financial Statements on page F-32 of this Form 10-K for financial
and other information related to the discontinued cable operation.)
Pursuant to General Instruction G(3), information regarding executive officers
required by Item 401(b) of Regulation S-K is included in Part I of this report.
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Executive Officers of the Registrant (as of September 10, 1996)
Executive
Officer
Name Age Title Since
- ------------------- --- --------------------------------------- ---------
E. T. Meredith III 63 Chairman of the Executive Committee of
the Board 1968
Jack D. Rehm 63 Chairman of the Board and
Chief Executive Officer 1980
William T. Kerr 55 President and Chief Operating Officer 1991
Christopher M. Little 55 President - Publishing Group 1994
Philip A. Jones 52 President - Broadcasting Group 1989
Allen L. Sabbag 52 President - Real Estate Group 1983
Leo R. Armatis 58 Vice President - Corporate Relations 1995
Larry D. Hartsook 53 Vice President - Finance 1991
Thomas L. Slaughter 42 Vice President - General Counsel
and Secretary 1995
Executive officers are elected to one-year terms of office each November. All
present executive officers except Mr. Little have been employed by the Company
for at least five years. Mr. Little served as a vice president and publishing
director of the Magazine Group from October 1992 to June 1994. Prior to
joining Meredith, Mr. Little had been president of Cowles Magazines, Inc.,
since 1989. Mr. Meredith, Mr. Rehm and Mr. Kerr are directors of the Company.
Item 2. Properties
The following is a summary description of significant physical properties owned
and leased by the Company and its subsidiaries. The description sets forth the
location, approximate size of any building area, acreage of any land owned,
expiration date of any lease, and principal activity carried on at the
location. In addition, the Company owns or leases transmitter sites and office
facilities in approximately 40 locations. All facilities are in good condition
and provide suitable and adequate space for the operations currently at each
location. However, the Company has begun construction of a 180,000 square foot
office building adjacent to its Des Moines corporate headquarters, located at
1716 Locust Street. Upon completion in late calendar year 1997, use of the new
facility is expected to increase operational efficiency by enabling all Des
Moines employees to be located on a corporate campus. With the exception of
the current headquarters facility, the Company plans to sell and discontinue
leasing all other Des Moines office locations in fiscal year 1998.
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Owned
- -----
Area
Location (Square Feet) Acreage Principal Activity
- -------------------------- ------------- ------- --------------------------
Des Moines, Iowa 354,500 9.0 Publishing and corporate
Des Moines, Iowa 90,000 0.5 Real estate and publishing
Saginaw, Michigan 60,700 0.5 Broadcasting
Fairway, Kansas 58,000 3.2 Broadcasting
Nashville, Tennessee 55,000 11.2 Broadcasting
Phoenix, Arizona 43,000 4.0 Broadcasting
Orlando, Florida 38,000 5.0 Broadcasting
Henderson-Las Vegas, Nevada 31,700 3.5 Broadcasting
Des Moines, Iowa 15,000 0.4 Real estate
Ocala, Florida 12,800 3.5 Broadcasting
Leased
- ------
Area
Location (Square Feet) Expires Principal Activity
- ----------------------- ------------- -------- ------------------------
New York, New York 104,700 12-31-11 Publishing and corporate
Des Moines, Iowa 47,400 1-31-98 Publishing
Roseville, Minnesota 41,000 8-31-98 Cable
Chicago, Illinois 12,500 7-31-00 Publishing
Item 3. Legal Proceedings
There are various legal proceedings pending against the Company arising from
the ordinary course of business. In the opinion of management, any liability
which could arise from any such proceedings would not have a material adverse
affect on the consolidated results of operations or financial position of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of stockholders since the last annual
meeting held on November 13, 1995.
- 17 -
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal market for trading the Company's common stock is the New York
Stock Exchange (trading symbol MDP). No separate public trading market exists
for the Company's class B stock, which is convertible share-for-share at any
time into common stock. Holders of each class of common stock receive equal
dividends per share.
The range of trading prices for the Company's common stock and the dividends
paid during the past two fiscal years are presented below on a per-share basis.
Information has been restated to reflect a two-for-one stock split in March
1995.
High Low Dividends
------- ------- ---------
Fiscal 1996
First Quarter $42 1/2 $23 1/2 $ .10
Second Quarter 42 34 3/8 .10
Third Quarter 48 3/4 40 1/8 .11
Fourth Quarter 48 5/8 39 1/8 .11
Fiscal 1995
First Quarter $24 9/16 $21 1/4 $ .09
Second Quarter 24 9/16 22 3/16 .09
Third Quarter 27 22 5/8 .10
Fourth Quarter 27 24 1/8 .10
Stock of the Company became publicly traded in 1946, and quarterly dividends
have been paid continuously since 1947. It is anticipated that comparable
dividends will continue to be paid.
On August 30, 1996, there were approximately 2,000 holders of record of the
Company's common stock and 1,500 holders of record of class B stock.
Item 6. Selected Financial Data
The information required by this Item is set forth on pages F-2 and F-3 of this
Form 10-K and is incorporated herein by reference.
- 18 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is set forth on pages F-6 through F-18 of
this Form 10-K and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth on pages F-19 through F-55
of this Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 11,
1996, under the caption "Election of Directors" and in Part I of this Form 10-K
on page 16 under the caption "Executive Officers of the Registrant" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 11,
1996, under the captions "Compensation of Executive Officers" and "Retirement
Programs and Employment Agreements" and in the last two paragraphs under the
caption "Board Committees" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 11,
1996, under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
- 19 -
<PAGE>
Item 13. Certain Relationships and Related Transactions
There are no reportable relationships or transactions.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following consolidated financial statements listed under (a) 1. and the
financial statement schedule listed under (a) 2. of the Company and its
subsidiaries are filed as part of this report as set forth on the Index at page
F-1.
(a) 1. Financial Statements:
Consolidated Statements of Earnings for the years ended
June 30, 1996, 1995 and 1994
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. Financial Statement Schedules as of or for each of the three
years ended June 30, 1996:
Schedule I - Condensed Financial Information has been omitted as the
information is not materially different than the information
presented in the Consolidated Financial Statements contained
in this Form 10-K and referenced to above in Item 14.(a)1.
due to the classification of the Cable segment as a discontinued
operation in fiscal year 1996.
Schedule II - Valuation and Qualifying Accounts
All other Schedules have been omitted for the reason that the items
required by such schedules are not present in the consolidated
financial statements, are covered in the consolidated financial
statements or notes thereto, or are not significant in amount.
(a) 3. Exhibits. Certain of the exhibits to this Form 10-K are incorporated
herein by reference, as specified: - (See index to attached exhibits
on page E-1 of this Form 10-K.)
- 20 -
<PAGE>
3.1 The Company's Restated Articles of Incorporation, as amended,
are incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
3.2 The Restated Bylaws, as amended, are incorporated herein by
reference to Exhibit 3.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
4.1 Term Loan Agreement among Meredith Corporation, The Northern
Trust Company, as agent, and a group of banks dated as of
December 19, 1994, is incorporated herein by reference to
Exhibit 4 to the Company's Current Report on Form 8-K/A-1 dated
January 5, 1995.
4.2 Loan Agreement among Meredith/New Heritage Strategic Partners
L.P., The Toronto Dominion Bank, as agent, and a group of
banks, as amended, is incorporated herein by reference to
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1994 (the Company's Form 10-Q
dated December 31, 1994). Amendment dated March 15, 1996 to
the aforementioned loan agreement is incorporated herein by
reference to Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996.
10.1 Nonqualified Stock Option Award Agreement between the Company
and Jack D. Rehm effective August 10, 1994, is incorporated
herein by reference to Exhibit 10a to the Company's Form 10-Q
dated December 31, 1994.
10.2 Restricted Stock Agreement between the Company and Jack D. Rehm
effective September 1, 1994, is incorporated herein by
reference to Exhibit 10b to the Company's Form 10-Q dated
December 31, 1994.
10.3 Nonqualified Stock Option Award Agreement between the Company
and William T. Kerr effective August 10, 1994, is incorporated
herein by reference to Exhibit 10c to the Company's Form 10-Q
dated December 31, 1994.
10.4 Statement re: Nonqualified Stock Option Award Agreements
between the Company and its executive officers is incorporated
herein by reference to Exhibit 10d to the Company's Form 10-Q
dated December 31, 1994.
- 21 -
<PAGE>
10.5 Asset Purchase Agreement by and between Cook Inlet Television
Partners, L.P. and Cook Inlet Television License Partners, L.P.
and Meredith Corporation, dated as of August 19, 1994, is
incorporated herein by reference to Exhibit 2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
10.6 Meredith Corporation Deferred Compensation Plan, dated as of
November 8, 1993, is incorporated herein by reference to Exhibit
10 to the Company's Quarterly Report on Form 10-Q for the
quarter ending December 31, 1993.
10.7 Meredith Corporation 1993 Stock Option Plan for Non-Employee
Directors is incorporated herein by reference to Exhibit A to
the Proxy Statement for the Annual Meeting of Shareholders on
November 8, 1993.
10.8 1992 Meredith Corporation Stock Incentive Plan Agreement
between the Company and Jack D. Rehm effective August 12, 1992,
is incorporated herein by reference to Exhibit 10a(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (the Company's Form 10-Q dated September
30, 1992). First Amendment to the aforementioned agreement is
incorporated herein by reference to Exhibit 10a to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
10.9 1992 Meredith Corporation Stock Incentive Plan Agreement
between the Company and Jack D. Rehm effective August 12, 1992,
is incorporated herein by reference to Exhibit 10a(2) to the
Company's Form 10-Q dated September 30, 1992. First Amendment
to the aforementioned agreement is incorporated herein by
reference to Exhibit 10a to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.
10.10 Restricted Stock Agreement between the Company and Jack D.
Rehm, effective September 22, 1992, is incorporated herein by
reference to Exhibit 10b(1) to the Company's Form 10-Q dated
September 30, 1992.
10.11 Restricted Stock Agreement between the Company and Jack D.
Rehm, effective September 22, 1992, is incorporated herein by
reference to Exhibit 10b(2) to the Company's Form 10-Q dated
September 30, 1992.
- 22 -
<PAGE>
10.12 Stock Purchase Agreement dated as of February 11, 1992,
regarding the purchase of North Central Cable Communications
Corporation is incorporated herein by reference to Exhibit 2
to the Company's Current Report on Form 8-K dated September 1,
1992.
10.13 1992 Meredith Corporation Stock Incentive Plan effective
August 12, 1992, is incorporated herein by reference to Exhibit
10b to the Company's Annual Report on Form 10-K for the year
ended June 30, 1992.
10.14 Employment contract by and between Meredith Corporation and
Jack D. Rehm as of July 1, 1992, is incorporated herein by
reference to Exhibit 10c to the Company's Annual Report on
Form 10-K for the year ended June 30, 1992.
10.15 Meredith/New Heritage Partnership Agreement is incorporated
herein by reference to Exhibit 10a to the Company's Quarterly
Report on Form 10-Q for the quarter ending September 30, 1991.
10.16 Employment Agreement between the Company and William T. Kerr
is incorporated herein by reference to Exhibit 10b to the
Company's Quarterly Report on Form 10-Q for the quarter ending
September 30, 1991.
10.17 Meredith Corporation 1980 Long Term Incentive Plan as amended
is incorporated herein by reference to Exhibit 10e to the
Company's Annual Report on Form 10-K for the fiscal year
ending June 30, 1991.
10.18 Meredith Corporation 1990 Restricted Stock Plan for Non-
Employee Directors is incorporated herein by reference to
Exhibit A to the Proxy Statement for the Annual Meeting of
Shareholders on November 12, 1990.
10.19 Indemnification Agreement in the form entered into between the
Company and its Officers and Directors is incorporated herein
by reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ending December 31, 1988.
10.20 Second Amendment to Employment Contract between the Company
and Robert A. Burnett, Retired Chairman of the Board of the
Company (the Employment Contract). (The Employment Contract
is incorporated herein by reference to Exhibit 10 to the
Company's Annual Report on Form 10-K for the year ended
- 23 -
<PAGE>
June 30, 1988. First amendment to the Employment Contract,
dated November 11, 1991, is incorporated herein by reference
to Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1991.)
10.21 Meredith Corporation 1986 Restricted Stock Award Plan is
incorporated herein by reference to Exhibit A to the Proxy
Statement for the Annual Meeting of Shareholders on November
10, 1986.
10.22 Severance Agreement in the form entered into between the
Company and its Officers is incorporated herein by reference
to Exhibit 10 to the Company's Annual Report on Form 10-K for
the fiscal year ending June 30, 1986.
(11) Statement re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K dated April 19, 1996, was filed in the Company's fourth
fiscal quarter reporting that the Company, through its cable venture
with New Heritage Associates, had reached an agreement to sell the
venture's interest in several suburban Minneapolis/St. Paul cable
television systems to Continental Cablevision, Inc.
- 24 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Thomas L. Slaughter
------------------------------------
Thomas L. Slaughter, Vice President-
General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Larry D. Hartsook /s/ Jack D. Rehm
- --------------------------------- ------------------------------
Larry D. Hartsook Jack D. Rehm, Chairman, Chief
Vice President-Finance (Principal Executive Officer and Director
Accounting and Financial Officer) (Principal Executive Officer)
/s/ E. T. Meredith III /s/ William T. Kerr
- --------------------------------- ------------------------------
E. T. Meredith III William T. Kerr
Chairman of the Executive President, Chief Operating
Committee and Director Officer and Director
/s/ Herbert M. Baum /s/ Robert A. Burnett
- --------------------------------- ------------------------------
Herbert M. Baum, Director Robert A. Burnett, Director
/s/ Pierson M. Grieve /s/ Frederick B. Henry
- --------------------------------- ------------------------------
Pierson M. Grieve, Director Frederick B. Henry, Director
/s/ Joel W. Johnson /s/ Robert E. Lee
- --------------------------------- ------------------------------
Joel W. Johnson, Director Robert E. Lee, Director
/s/ Richard S. Levitt /s/ Nicholas L. Reding
- --------------------------------- ------------------------------
Richard S. Levitt, Director Nicholas L. Reding, Director
/s/ Barbara S. Uehling
---------------------------------
Barbara S. Uehling, Director
Each of the above signatures is affixed as of September 20, 1996.
<PAGE>
Index to Consolidated Financial Statements, Financial
Schedules and Other Financial Information
Page
----
Selected Financial Data F- 2
Financial Information about Industry Segments F- 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations F- 6
Consolidated Financial Statements:
Statements of Earnings F-19
Balance Sheets F-21
Statements of Stockholders' Equity F-24
Statements of Cash Flows F-26
Notes (including supplementary data) F-28
Independent Auditors' Report F-55
Report of Management F-56
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-57
F-l
<PAGE>
Selected Financial Data
Meredith Corporation and Subsidiaries
Years Ended June 30 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
($ in thousands, except per share)
Results of operations
Total revenues $867,137 $829,401 $744,735 $721,944 $699,714
======== ======== ======== ======== ========
Earnings from continuing
operations $ 54,657 $ 44,198 $ 32,473 $ 21,441 $ 794
Discontinued operation
(net of tax) (717) (4,353) (5,319) (2,815) 175
Cumulative effect of change in
accounting principle(net of tax) -- (46,160) -- -- (7,300)
-------- -------- -------- -------- --------
Net earnings (loss) $ 53,940 $ (6,315)$ 27,154 $ 18,626 $ (6,331)
======== ======== ======== ======== ========
Per share information
Earnings from continuing
operations $ 1.94 $ 1.59 $ 1.15 $ 0.70 $ 0.03
Discontinued operation
(net of tax) (0.03) (0.15) (0.19) (0.09) --
Cumulative effect of change in
accounting principle(net of tax) -- (1.67) -- -- (0.23)
-------- -------- -------- -------- --------
Net earnings (loss) $ 1.91 $ (0.23)$ 0.96 $ 0.61 $ (0.20)
======== ======== ======== ======== ========
Dividends paid to stockholders $ 0.42 $ 0.38 $ 0.34 $ 0.32 $ 0.32
======== ======== ======== ======== ========
Financial position at June 30
Total assets $733,773 $743,796 $679,813 $716,716 $739,277
======== ======== ======== ======== ========
Long-term obligations
(including current portion) $ 71,482 $102,259 $ 10,801 $ 15,867 $ 17,505
======== ======== ======== ======== ========
General:
Prior years are restated to conform with current-year presentation.
Significant acquisitions occurred in January 1995 with the purchase of WSMV and
in September 1992 with the purchase of North Central cable television systems.
The Cable segment was classified as a discontinued operation effective
September 30, 1995.
F-2
<PAGE>
Per-share amounts are computed on weighted-average number of shares outstanding
for the year.
The data have been adjusted to reflect a two-for-one stock split in March 1995.
Long-term obligations include film rental contracts and Company debt associated
with continuing operations.
Earnings from continuing operations (all per-share amounts are post-tax):
Fiscal 1996 includes a gain of $5,898,000, or 12 cents per share, from the sale
of three book clubs.
Fiscal 1995 includes interest income of $8,554,000, or 17 cents per share, from
the IRS for the settlement of the Company's 1986 through 1990 tax years.
Fiscal 1994 includes non-recurring items of $5,584,000 for broadcasting film
write-downs and $1,800,000 for taxes on disposed properties, or a total of 14
cents per share and a gain of $11,997,000, or 28 cents per share, from the
disposition of the Syracuse and Fresno television properties.
Fiscal 1992 includes non-recurring items of $12,983,000 for restructuring costs
and $13,400,000 for book inventory write-downs and other items, or a total of
51 cents per share.
Discontinued operation:
In fiscal 1996, the Cable segment was classified as a discontinued operation.
Fiscal 1996 reflects cable net losses for the first quarter only. Losses since
September 30, 1995, have been deferred as the Company expects to realize a net
gain from the sale of cable operations.
Fiscal 1995 includes a post-tax gain of $1,101,000, or 4 cents per share, from
the disposition of a cable property.
Changes in accounting principles:
Fiscal 1995 reflects the adoption of Practice Bulletin 13, "Direct-Response
Advertising and Probable Future Benefits."
Fiscal 1992 reflects the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
F-3
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Meredith Corporation and Subsidiaries
Years ended June 30 1996 1995 1994
- -----------------------------------------------------------------------
(in thousands)
Revenues
Publishing $696,285 $683,331 $622,953
Broadcasting 145,932 121,690 100,012
Real Estate 25,303 24,429 21,813
Less: Inter-segment revenues (383) (49) (43)
--------- --------- ---------
Total revenues $867,137 $829,401 $744,735
========= ========= =========
Operating profit
Publishing $ 64,107 $ 48,636 $ 45,678
Broadcasting 52,311 41,883 19,189
Real Estate 3,496 2,298 1,914
Unallocated corporate expense (22,409) (20,115) (20,905)
--------- --------- ---------
Income from operations 97,505 72,702 45,876
Gain on dispositions 5,898 -- 11,997
Interest income 2,183 10,913 1,835
Interest expense (5,530) (4,019) (306)
--------- --------- ---------
Earnings from continuing operations
before income taxes $100,056 $ 79,596 $ 59,402
========= ========= =========
Identifiable assets
Publishing $299,627 $341,652 $413,605
Broadcasting 282,849 261,643 94,010
Real Estate 11,013 11,479 10,057
Unallocated corporate 52,233 40,925 71,562
--------- --------- ---------
Assets of continuing operations 645,722 655,699 589,234
Net assets of discontinued
operations 88,051 88,097 90,579
--------- --------- ---------
Total assets $733,773 $743,796 $679,813
========= ========= =========
F-4
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Meredith Corporation and Subsidiaries
Years ended June 30 1996 1995 1994
- -----------------------------------------------------------------------
(in thousands)
Depreciation/amortization
Publishing $ 10,126 $ 10,192 $ 10,418
Broadcasting 10,909 6,903 4,551
Real Estate 477 465 520
Unallocated corporate 3,618 1,457 1,453
--------- --------- ---------
Total depreciation/amortization $ 25,130 $ 19,017 $ 16,942
========= ========= =========
Capital expenditures
Publishing $ 2,397 $ 2,087 $ 4,329
Broadcasting 7,736 8,465 2,808
Real Estate 605 158 552
Unallocated corporate 19,135 2,574 1,554
--------- --------- ---------
Total capital expenditures $ 29,873 $ 13,284 $ 9,243
========= ========= =========
Prior-year financial information about industry segments has been restated to
reflect the current-year classification of the Company's Cable segment as a
discontinued operation. Prior-year Broadcasting segment revenues have been
restated to conform with the current-year presentation. The Broadcasting
segment revenue restatement had no effect on reported segment operating profit.
See pages 2 through 15 of this Form 10-K for description of revenue
sources.
Operating profit for industry segment reporting is revenues less operating
costs for continuing operations and does not include gains on dispositions,
interest income and expense, or unallocated corporate expense, which is
primarily corporate staff and miscellaneous expenses.
Fiscal 1995 Publishing segment operating profit was reduced by $5.1 million due
to a change in accounting principle related to subscription acquisition costs.
Identifiable assets include intangibles, fixed and all other assets identified
with each segment. Unallocated corporate assets consist primarily of cash and
cash items and miscellaneous assets not assignable to one of the segments.
F-5
<PAGE>
Fiscal 1996 unallocated corporate identifiable assets and capital expenditures
included spending for equipment and leasehold improvements related to the New
York City office consolidation and construction-in-progress for the new Des
Moines office building.
Fiscal 1996 unallocated corporate depreciation/amortization included an
approximate $2 million reduction in goodwill arising from a 1988 acquisition.
See Management's Discussion and Analysis on pages F-6 through F-18 for
discussion of significant factors affecting comparability.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Note: All per-share amounts are computed on a post-tax basis and all note
references are to the Notes to Consolidated Financial Statements.
Significant Events
Fiscal 1996
- -----------
The Company formalized plans to sell all of its ownership interests in cable
television systems and therefore classified its Cable segment as a discontinued
operation effective September 30, 1995. In April 1996, the Meredith/New
Heritage Partnership, of which the Company indirectly owns 96 percent,
announced the signing of an agreement to sell its 73 percent ownership interest
in Meredith/New Heritage Strategic Partners, L.P. (Strategic Partners) to its
minority partner, Continental Cablevision, Inc. Pending approvals, the sale is
expected to close in the second quarter of fiscal 1997. This sale will
complete the Company's exit from the cable television business. Meredith
Corporation expects to record a net gain of approximately $15 to $20 million
after taxes from the sale. Accordingly, the Company's share of cable's net
loss since September 30, 1995, has been deferred.
In July 1995, the Company announced an alliance with The Reader's Digest
Association, Inc., granting Reader's Digest the rights for direct-response
marketing of certain Meredith-trademarked products. In December 1995, the
Company sold to Book-of-the-Month Club, Inc., the accounts receivable,
membership lists and product inventory of three book clubs: Better Homes and
Gardens Crafts Club, Better Homes and Gardens Cook Book Club and Country Homes
and Gardens Book Club. These actions resulted in a significantly smaller book
publishing operation, with a primary focus on the sale of books through retail
marketing channels.
F-6
<PAGE>
In January 1996, the Company acquired the assets of WOGX, a FOX network
affiliate serving Ocala/Gainesville, Fla., the 167th-ranked television market.
Fiscal 1995
- -----------
In January 1995, the Company acquired the assets of WSMV, an NBC network
affiliate in Nashville, Tenn., for $159.0 million. WSMV serves the 33rd-ranked
television market in the United States.
In fiscal 1995, two of the Company's broadcast television stations became CBS
affiliates. KPHO-Phoenix, which was previously an independent station,
affiliated with CBS in September 1994. WNEM-Flint/Saginaw, formerly an NBC
affiliate, joined CBS in January 1995.
The Company recorded a non-cash charge of $46.2 million post-tax, or $1.67 per
share, in fiscal 1995 for the cumulative effect of a change in accounting
principle related to subscription acquisition costs (Note 3).
Fiscal 1994
- -----------
In December 1993, the Company sold two broadcast television stations: WTVH-
Syracuse and KSEE-Fresno.
Other
The Company will adopt Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," in fiscal 1997. Management believes its adoption
will not have a material effect on the results of operations or financial
position of the Company. In addition, SFAS No. 123, "Accounting for Stock-
Based Compensation," becomes effective in fiscal 1997. The Company will retain
the current accounting method for stock-based compensation plans and will
provide the necessary disclosure as required by SFAS No. 123 in fiscal 1997.
See Note 1 for further explanation of these accounting principles.
F-7
<PAGE>
Results of Operations
Consolidated
- ------------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands, except per share)
Total revenues $867,137 $829,401 $744,735
======== ======== ========
EBITDA $122,635 $ 91,719 $ 70,202
======== ======== ========
Income from operations $ 97,505 $ 72,702 $ 45,876
======== ======== ========
Earnings from
continuing operations $ 54,657 $ 44,198 $ 32,473
======== ======== ========
Excluding special items $ 51,278 $ 39,451 $ 28,263
======== ======== ========
Net earnings (loss) $ 53,940 $ (6,315) $ 27,154
======== ======== ========
Per Share:
Earnings from
continuing operations $ 1.94 $ 1.59 $ 1.15
======== ======== ========
Excluding special items $ 1.82 $ 1.42 $ 1.01
======== ======== ========
Net earnings (loss) $ 1.91 $ (.23) $ .96
======== ======== ========
EBITDA is earnings from continuing operations before interest, taxes,
depreciation and amortization, excluding special items: gains on dispositions,
IRS interest income and non-recurring items.
Earnings from continuing operations were affected by the following special
items (all amounts are post-tax):
Fiscal 1996
- -----------
A gain of $3.4 million (12 cents per share) from the disposition of three
book clubs in December 1995 (Note 9).
F-8
<PAGE>
Fiscal 1995
- -----------
Interest income of $4.7 million (17 cents per share) from the Internal
Revenue Service (IRS) (Note 5).
Fiscal 1994
- -----------
A gain of $8.2 million (28 cents per share) from the dispositions of the
Syracuse and Fresno television properties in December 1993 (Note 9); and
a non-recurring charge of $4.0 million (14 cents per share) for the write-
down of broadcasting film assets at KPHO-Phoenix and a reserve for taxes on
disposed properties (Note 4).
Fiscal 1996 v. 1995 - Net earnings of $53.9 million, or $1.91 per share, were
recorded in fiscal 1996 compared to a net loss of $6.3 million, or 23 cents per
share, in fiscal 1995. The net loss in fiscal 1995 reflected a $46.2 million
non-cash charge for the cumulative effect of a change in accounting principle.
Fiscal 1996 earnings per share from continuing operations increased 22 percent.
Exclusive of the special items previously identified, the Company reported a 28
percent per-share increase, which included improved results in all of the
Company's continuing businesses.
Fiscal 1996 revenues increased 5 percent. Increases in magazine and
broadcasting advertising revenues were partially offset by lower revenues from
book operations, due to the alliance with Reader's Digest and the sale of the
book clubs. Fiscal 1996 included 12 months of revenues from WSMV-Nashville
versus six months in fiscal 1995.
EBITDA and income from operations each increased 34 percent. The operating
profit margin rose from 8.8 percent of revenues in fiscal 1995 to 11.2 percent
in fiscal 1996. Lower selling, general and administrative expenses, in total
and as a percentage of revenues, were the primary factor in the margin
improvement. The decline was due to downsizing in the book operations.
Operating costs and expenses were $769.6 million in fiscal 1996 compared with
$756.7 million in the prior year. The increase primarily reflected higher
paper expenses for magazines (due to price and volume increases) and a full
year of operating expenses for WSMV-Nashville. Depreciation and amortization
expenses increased due to a full year of amortization of intangibles arising
from the WSMV-Nashville acquisition and an adjustment of approximately $2
million to goodwill arising from a 1988 acquisition. These increases in
expenses were partially offset by lower expenses in book operations due to
downsizing.
F-9
<PAGE>
Net interest expense (excluding fiscal 1995 IRS interest income) rose to $3.3
million in fiscal 1996 from $1.7 million in the prior year due to debt incurred
for the purchase of WSMV-Nashville in January 1995.
The Company's effective tax rate was 45.4 percent compared with 44.5 percent in
fiscal 1995. The increase in the current-year rate reflected the non-
deductible adjustment to goodwill recorded in fiscal 1996.
Fiscal 1995 v. 1994 - A non-cash charge for the cumulative effect of a change
in accounting principle caused the Company to record a net loss of $6.3
million, or 23 cents per share, in fiscal 1995. This compares to net earnings
of $27.2 million, or 96 cents per share, in fiscal 1994. Per share earnings
from continuing operations increased 38 percent in fiscal 1995. Exclusive of
the special items previously noted, earnings per share increased 41 percent.
The improvement was due primarily to increased operating profits in the
Company's broadcasting and magazine businesses.
Revenues increased 11 percent in fiscal 1995. The growth was due primarily to
higher magazine and broadcasting advertising revenues. Increases in magazine
circulation and custom publishing revenues also contributed. Fiscal 1995
included six months of revenues from WSMV-Nashville while fiscal 1994 included
six months of revenues from WTVH-Syracuse and KSEE-Fresno (television stations
sold in December 1993). Excluding these ownership changes, the revenue
increase remained at 11 percent.
EBITDA increased 31 percent, and income from operations increased 58 percent in
fiscal 1995. EBITDA increased due to the notable improvement in operating
results. The operating profit margin rose from 6.2 percent (7.2 percent
excluding the non-recurring charge) in fiscal 1994 to 8.8 percent in fiscal
1995. Lower selling, general and administrative expenses as a percentage of
revenues in the Publishing segment were the primary factor in the margin
improvement.
Operating costs and expenses were $756.7 million in fiscal 1995 compared with
$691.5 million (exclusive of the non-recurring charge) in fiscal 1994. The
increase reflects higher paper, manufacturing and delivery expenses for
magazines (due to volume and price increases), increased magazine circulation
expenses (including the impact of the change in accounting principle on fiscal
1995 operating costs) and higher payroll and related costs (due to additional
staff in new fiscal 1995 operations and annual merit increases).
The Company reported net interest expense (excluding IRS interest income) of
$1.7 million in fiscal 1995 compared to net interest income of $1.5 million in
fiscal 1994. The difference was primarily due to debt incurred for the
purchase of WSMV-Nashville in January 1995.
F-10
<PAGE>
The Company's effective tax rate was 44.5 percent in fiscal 1995 compared with
45.3 percent in fiscal 1994. The fiscal 1995 provision benefited from
increased operating earnings, which lessened the effect of non-deductible items
on the overall tax rate. The fiscal 1994 provision benefited from a favorable
tax rate on the gain on disposition of two television stations. This was
partially offset by the unfavorable impact of the federal corporate tax rate
increase on the Company's deferred tax liabilities.
Publishing
- ----------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
Revenues (in thousands)
---------
Magazine advertising $308,959 $276,312 $236,814
Magazine circulation 272,406 269,029 257,453
Consumer book 56,481 86,568 86,040
Other 58,439 51,422 42,646
-------- -------- --------
Total revenues $696,285 $683,331 $622,953
======== ======== ========
Operating profit $ 64,107 $ 48,636 $ 45,678
======== ======== ========
Fiscal 1996 v. 1995 - Total revenues increased 2 percent from fiscal 1995.
Magazine advertising revenues grew 12 percent, primarily due to the strength of
Better Homes and Gardens, the Company's largest circulation title. Better
Homes and Gardens magazine's ad pages increased 10 percent and the average
revenue per page was 6 percent above the prior year. Advertising revenues from
new custom publishing projects also contributed to the overall increase. In
addition, Country Home, Traditional Home and Golf for Women magazines each
reported double-digit percentage gains in ad revenues, due to a combination of
increased ad pages and higher revenues per page. Magazine circulation revenues
increased slightly in fiscal 1996. An increased volume of newsstand sales of
Better Homes and Gardens Special Interest Publications and the introduction of
several new craft titles were offset by lower subscription revenues at Ladies'
Home Journal and Country America magazines and the closing of several other
craft/woodworking titles. Rate base reductions led to the decline in
subscription revenues at Ladies' Home Journal and Country America. Consumer
book revenues declined 35 percent due to the mid-year sale of three book clubs
and significantly lower sales volumes in the direct-response operations due to
the Reader's Digest alliance. Other publishing revenues (including premiums,
periodicals, contract print production, list rentals and ancillary products)
increased 14 percent, primarily due to an increase in contract print production
volumes.
F-11
<PAGE>
Operating profit was up 32 percent due to improved operating results from book
publishing and the fourth consecutive year of record operating profit from
magazine publishing. Better Homes and Gardens led the magazine operations to a
14 percent increase in operating profit despite higher paper prices, which
averaged more than 20 percent higher than the prior year. Increased
advertising revenues and lower subscription acquisition expenses, due to fewer
new prospect mailings, fueled the record operating profit performance of Better
Homes and Gardens. Also contributing to the magazine operating profit
improvement were lower magazine start-up costs and increased operating profits
from WOOD, Golf for Women and a group of small craft titles. The reduction in
new magazine start-up costs reflected the fiscal 1995 introduction of home
garden magazine. The Company discontinued publication of home garden late in
fiscal 1996 when projections for its long-term performance did not meet Company
goals.
The operating results of Ladies' Home Journal, the Company's second largest
circulation title, and Country America were lower in fiscal 1996. Increases in
paper and postage costs led to the decisions to reduce each of these titles'
advertising rate bases by 10 percent in fiscal 1996. Traditional Home and
Successful Farming magazines also reported lower operating profits in fiscal
1996. The decline at Traditional Home reflected higher subscription
acquisition costs related to a 7 percent rate base increase. Successful
Farming magazine's operating profit was held down by costs associated with the
start-up of Successful Farming @griculture Online and lower advertising
revenues due to fewer ad pages.
The Company's book business reported its first operating profit since fiscal
1990. The effects of downsizing, including reduced payroll and related costs,
favorable adjustments to inventory reserves and reduced operating losses in
the direct-response business, led to the improvement. As expected, expenses
related to discontinuing the Company's direct-response marketing efforts were
offset by payments received from the Reader's Digest alliance. This alliance
is still in the testing phase and future royalties are not expected to have a
material impact on financial results in the near term. The actions taken in
fiscal 1996 are expected to result in a book business focused primarily on
retail, that is smaller in terms of revenues, but will consistently contribute
to the Company's operating profit.
Revenues and operating profit from the Company's brand licensing agreements
with Wal-Mart Stores, Inc., increased in fiscal 1996 due to higher license fees
from the Better Homes and Gardens' Garden Centers, along with a new crafts
licensing agreement. Wal-Mart stores began to offer Better Homes and Gardens
Floral & Nature Crafts branded merchandise in January 1996.
Paper and postage are significant expenses, accounting for approximately one-
third of the Publishing segment's operating costs. The Company's average paper
F-12
<PAGE>
prices were more than 20 percent higher in fiscal 1996 due to paper price
increases in fiscal 1995 and the first half of fiscal 1996. The price
increases reflected a tightening of the paper market due to strong demand and a
relatively fixed level of supply. By mid-year, the market softened and prices
began to moderate. At June 30, 1996, paper prices were approximately 4 percent
higher than a year earlier. Since June 30, 1996, major paper suppliers have
announced further price reductions. However, price increases may occur later
in fiscal 1997. Postage costs increased due to a full year impact of the
January 1995 rate increase. The next major postal rate adjustment is expected
in fiscal 1998.
Fiscal 1995 v. 1994 - Revenues increased 10 percent from fiscal 1994. Magazine
advertising revenues grew 17 percent, primarily due to strong advertising page
gains by most magazines. Better Homes and Gardens and Ladies' Home Journal,
the Company's two largest circulation titles, reported ad page increases of 13
percent and 6 percent, respectively. Traditional Home, WOOD, Golf for Women
and the Better Homes and Gardens Special Interest Publications all reported
double-digit percentage gains in ad pages. Magazine circulation revenues
increased 4 percent, primarily due to higher revenues from new fiscal 1995
titles (including Crayola Kids, Better Homes and Gardens Floral & Nature Crafts
and home garden) and increased volume of newsstand sales of the Better Homes
and Gardens Special Interest Publications. Consumer book revenues increased
slightly, as higher sales volumes in retail marketing more than offset lower
sales volumes in the direct-response operations. Other publishing revenues
were up due to a significant increase in new fiscal 1995 custom publishing
business.
Operating profit increased 6 percent from fiscal 1994 despite the unfavorable
effect of the subscription accounting change on operating results. Excluding
that impact, operating profit was up 18 percent, largely due to the strong
performance of magazine operations, led by the Company's flagship, Better Homes
and Gardens magazine. Advertising revenue growth fueled the operating profit
performances of Better Homes and Gardens, Ladies' Home Journal, Traditional
Home, WOOD, Successful Farming, Country Home and Midwest Living magazines and
the Company's lineup of Better Homes and Gardens Special Interest Publications.
Partially offsetting these improvements were increases in paper and postage
costs, increased costs for fiscal 1995 magazine start-ups and expansion in the
custom publishing area. The increase in new-title start-up costs primarily
reflected costs associated with a bimonthly gardening magazine, home garden,
introduced in the third quarter of fiscal 1995.
An increased operating loss was reported by book operations due to increased
investment in the acquisition of new book club members and lower volumes and
higher promotion costs in direct-response operations. Partially offsetting
these declines was higher operating profit from retail marketing, due to
increased sales volumes and lower product return rates.
F-13
<PAGE>
A full year's operating results from the Company's garden licensing agreement
with Wal-Mart Stores, Inc., were reflected in fiscal 1995 segment operating
profit versus six months of results in fiscal 1994.
The prices paid for paper purchased, a significant expense to the Company,
increased approximately 30 percent during fiscal 1995, largely due to strong
demand and a relatively fixed level of supply. A postal rate increase occurred
in January 1995, raising the Company's postage costs by approximately 13
percent on an annualized basis.
Broadcasting
- ------------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Revenues
--------
Advertising $137,964 $116,460 $ 95,525
Other 7,968 5,230 4,487
-------- -------- --------
Total revenues $145,932 $121,690 $100,012
======== ======== ========
Operating profit $ 52,311 $ 41,883 $ 19,189
======== ======== ========
Prior years' revenues have been restated to conform with the
current-year presentation.
Fiscal 1996 v. 1995 - Revenues increased 20 percent in fiscal 1996. An
additional six months of revenues from WSMV-Nashville, acquired in January
1995, was the primary reason for the increase. Revenues from WOGX-Ocala/
Gainesville, acquired in January 1996, also contributed. Revenues of
comparable operations increased 4 percent from the prior year due to higher
advertising revenues at WOFL-Orlando, KPHO-Phoenix and WSMV-Nashville. WOFL-
Orlando and WSMV-Nashville benefited from higher spot rates due to increased
local market demand for television advertising. The improvement at KPHO-
Phoenix was primarily due to a full year as a CBS affiliate in fiscal 1996.
Advertising revenues were down at WNEM-Flint/Saginaw. Management believes the
decline was primarily due to the station's change in affiliation from NBC to
CBS in January 1995.
Operating profit increased 25 percent from the prior year largely due to an
additional six months of operating profit from WSMV-Nashville. Excluding that
impact and the operating profit of newly acquired WOGX-Ocala/Gainesville,
F-14
<PAGE>
operating profit was up 6 percent. The primary factors in the improvement were
the revenue-related increase at WSMV-Nashville, increased revenues and lower
programming expense at KPHO-Phoenix and favorable administrative expenses.
Operating profit was down slightly at WOFL-Orlando due to the write-down of
certain film assets as a result of the planned introduction of local news
programming in fiscal 1997. Operating profits also declined at WNEM-Flint/
Saginaw and KCTV-Kansas City. The decline at WNEM-Flint/Saginaw was primarily
revenue-related. Higher programming costs were largely responsible for the
decline at KCTV-Kansas City.
Fiscal 1995 v. 1994 - Revenues increased 22 percent in fiscal 1995, including
six months of revenues from newly acquired WSMV-Nashville. Fiscal 1994
included six months of revenues from two television stations sold in December
1993. Revenues at the five comparable stations increased 17 percent due to
strong local and national advertising revenues. Improved market demand for
television advertising led to higher spot rates and increased ad revenues at
all stations. KPHO-Phoenix experienced the largest revenue increase, primarily
due to its September 1994 affiliation with the CBS network.
Operating profit increased 118 percent from fiscal 1994. Excluding the non-
recurring item from fiscal 1994 (a film write-down of $5.6 million at KPHO-
Phoenix related to its CBS affiliation), operating profit increased 69 percent.
Increased ad revenues, lower programming expenses and the inclusion of WSMV-
Nashville operations for six months were the primary factors in the
improvement. Operating profits at the five comparable stations, excluding the
non-recurring item from fiscal 1994, increased 48 percent, as all stations
reported significant improvements. As with revenues, KPHO-Phoenix reported the
largest percentage improvement in operating profit. The decline in programming
expense was due to increased use of first-run syndicated programming and the
fiscal 1994 film write-down at KPHO-Phoenix. Fiscal 1994 segment operating
profit included a favorable adjustment to accrued music license fees resulting
from the broadcast industry's settlement with ASCAP/BMI (American Society of
Composers, Authors & Publishers and Broadcast Music Industry).
Real Estate
- -----------
Years ended June 30 1996 1995 1994
------------------- -------- -------- --------
(in thousands)
Total revenues $ 25,303 $ 24,429 $ 21,813
======== ======== ========
Operating profit $ 3,496 $ 2,298 $ 1,914
======== ======== ========
F-15
<PAGE>
Fiscal 1996 v. 1995 - Led by higher transaction fee revenues and the signing of
a master franchise agreement in Thailand, revenues increased 4 percent in
fiscal 1996. The growth in transaction fee revenues generated by members'
residential home sales volume primarily reflected record membership levels.
Operating profit increased 52 percent largely due to the revenue increase.
Fiscal 1995 v. 1994 - Higher transaction fee revenues and increased product and
publication sales volumes led to a 12 percent increase in revenues in fiscal
1995. The increase in transaction fees reflected continued strength in
existing home sales and an increase in the number of member firms. Increased
revenues also were the primary factor in a 20 percent operating profit
increase.
Discontinued Operation
- -----------------------
Fiscal 1996 v. 1995 - Revenues from the discontinued cable operation increased
slightly to $51.8 million, despite the March 1995 sale of the smaller of
Strategic Partners' two cable television properties. Revenues of the remaining
cable television system in Minnesota increased 15 percent due to an increase in
the number of subscribers, along with subscriber rate increases. The
discontinued cable operation reported a net loss of $1.1 million for fiscal
1996 versus a net loss of $5.5 million in fiscal 1995 (excluding the gain on
disposition). The improvement reflected a revenue-related increase in
operating profit and lower interest expense. Net interest expense was lower in
fiscal 1996 due to principal payments that reduced outstanding debt. (Note:
The fiscal 1996 Consolidated Statement of Earnings includes a net loss of $.7
million through September 30, 1995, the date the cable operation was classified
as discontinued. Results since that date have been deferred as the Company
expects to record a net gain on the sale of its remaining cable interests in
fiscal 1997.)
Fiscal 1995 v. 1994 - On March 9, 1995, Strategic Partners sold its cable
television system in North Dakota, the smaller of its two cable television
properties, of which the Company indirectly owned approximately 70 percent.
Revenues of the remaining cable television system in Minnesota increased 4
percent as subscriber growth more than offset the negative effects of federally
mandated subscriber rate rollbacks. After interest expense, the cable
television operations experienced a net loss comparable to the fiscal 1994
loss. Operating profit declined due to the sale of the North Dakota system;
however, this decrease was offset by lower interest expense, which resulted in
the comparable net loss. Proceeds from the sale of the North Dakota system
were used to reduce Strategic Partners' outstanding bank debt, as required by
its loan agreement.
F-16
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents increased by $2.0 million in fiscal 1996 compared to
a decrease in cash of $19.7 million in fiscal 1995. The Company's primary
source of cash continues to be cash provided by operating activities, which
increased 63 percent in fiscal 1996 to $106.7 million. The increase reflected
higher operating income and a reduction in working capital in fiscal 1996. The
reduction in working capital primarily related to receipt of the Ladies' Home
Journal income tax settlement and lower levels of trade accounts receivable.
Other changes in net cash provided related largely to business acquisitions and
dispositions. The fiscal 1995 decreases in subscription acquisition costs and
deferred income taxes reflected the recognition of the cumulative effect of the
change in accounting principle as of July 1, 1994, which had no effect on cash.
The decreases in accounts receivable, inventories, and supplies and prepayments
on the Consolidated Balance Sheets at June 30, 1996, were due primarily to the
downsizing in book operations. The increase in property, plant and equipment
at June 30, 1996, primarily reflected purchases of broadcasting technical
equipment and equipment/leasehold improvements related to the New York City
office consolidation.
Company debt associated with continuing operations, incurred for the
acquisition of WSMV-Nashville, totaled $50.0 million at June 30, 1996. In
addition to the required debt payment of $15.0 million in fiscal 1996, the
Company prepaid $10.0 million in August 1995 and $15.0 million in February
1996. The loan agreement requires annual and/or semi-annual payments through
June 1, 1998, the final payment date. The Company's operating cash flows are
expected to provide adequate funds for debt and interest payments.
In fiscal 1996, the Company spent $29.6 million for the repurchase on the open
market of 691,000 shares of Meredith Corporation common stock. This compares
with spending of $3.8 million for 168,000 shares (adjusted for the March 1995
stock split) in the prior year. As of June 30, 1996, approximately 309,000
shares could be repurchased under an existing authorization by the Board of
Directors. In August 1996, the Board authorized the repurchase of up to 1
million additional shares subject to market conditions. The status of the
repurchase program is reviewed at each quarterly Board of Directors meeting.
On January 29, 1996, the Board of Directors increased the quarterly dividend by
10 percent, or 1 cent per share, to 11 cents per share effective with the
dividend payable on March 15, 1996. On an annual basis, this increase will
result in the payment of approximately $1.1 million in additional dividends, at
the current number of shares outstanding. Dividends paid in fiscal 1996 were
$11.5 million (42 cents per share) compared with $10.4 million (38 cents per
share) in fiscal 1995.
F-17
<PAGE>
Capital expenditures for continuing operations increased to $29.9 million, more
than double fiscal 1995 spending of $13.3 million. The increase primarily
reflected spending for leasehold and other improvements to relocated office
facilities in New York City and construction of a new office building in Des
Moines. The New York project, which cost approximately $11 million, is
substantially complete and employees have moved into their new location. The
new office building and related improvements in Des Moines are expected to cost
approximately $40 million. Fiscal 1996 spending for this project totaled
approximately $7 million. The balance will occur in fiscal 1997 and 1998.
Funds for the new Des Moines building and other capital expenditures are
expected to be provided by cash from operating activities. The Company has
made no other material commitments for capital expenditures.
At this time, management expects that cash on hand, internally generated cash
flow and short-term bank debt under existing bank lines of credit will provide
funds for working capital requirements and any additional cash needs (e.g.,
cash dividends, stock repurchases) for foreseeable periods. At June 30, 1996,
Meredith Corporation had unused committed lines of credit totaling $30.0
million. The Company does not expect the need for any long-term source of cash
to meet working capital requirements.
Discontinued Operation
- ----------------------
At June 30, 1996, Strategic Partners' debt totaled $86.3 million. Required
financial ratio tests, as amended, were met at June 30, 1996. Strategic
Partners' debt is non-recourse to Meredith Corporation. The loan agreement has
provisions which restrict additional debt and investments and prohibit payments
of dividends or distributions except for specified payments under certain
conditions not causing a default under the loan agreement. Borrowings are
secured by the assets of Strategic Partners totaling approximately $217 million
at June 30, 1996. Restricted net assets of Strategic Partners included in the
Company's Consolidated Balance Sheet at June 30, 1996, totaled $88.1 million.
These restrictions have no effect on the Company's ability to meet its cash
obligations.
On March 15, 1996, Strategic Partners and the banks amended the aforementioned
loan agreement to reflect the intended sale of all of its cable television
systems. Significant amended terms and provisions related to the maturity
date. All borrowings outstanding under the loan agreement are now due on the
earlier of December 31, 1996, or the date of sale of Strategic Partners' cable
television systems, expected to occur in the fiscal 1997 second quarter.
Meredith Corporation expects to receive approximately $115 million to $120
million (after taxes) in cash from the sale. Management intends to use the
proceeds to pay off existing Company debt, fund Company stock repurchases and
for other operational needs.
F-18
<PAGE>
Financial Statements and Supplementary Data
Consolidated Statements of Earnings
Meredith Corporation and Subsidiaries
Years ended June 30 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands, except per share)
Revenues (less returns and allowances):
Advertising $446,923 $392,772 $332,339
Circulation 272,406 269,029 257,453
Consumer books 56,481 86,568 86,040
All other 91,327 81,032 68,903
--------- --------- ---------
Total revenues 867,137 829,401 744,735
-------- --------- ---------
Operating costs and expenses:
Production, distribution and edit 366,408 345,025 311,343
Selling, general and administrative 378,094 392,657 363,190
Depreciation and amortization 25,130 19,017 16,942
Non-recurring items -- -- 7,384
--------- --------- ---------
Total operating costs and expenses 769,632 756,699 698,859
--------- --------- ---------
Income from operations 97,505 72,702 45,876
Gain on dispositions 5,898 -- 11,997
Interest income - IRS settlement -- 8,554 --
Interest income 2,183 2,359 1,835
Interest expense (5,530) (4,019) (306)
--------- --------- ---------
Earnings from continuing operations
before income taxes 100,056 79,596 59,402
Income taxes 45,399 35,398 26,929
--------- --------- ---------
Earnings from continuing operations 54,657 44,198 32,473
Discontinued operation (Note 2):
Loss from cable operations (717) (5,454) (5,319)
Gain on disposition -- 1,101 --
--------- --------- ---------
Earnings before cumulative effect of
change in accounting principle 53,940 39,845 27,154
Cumulative effect of change in
accounting principle -- (46,160) --
--------- --------- ---------
Net earnings (loss) $ 53,940 $ (6,315) $ 27,154
========= ========= =========
F-19
<PAGE>
Consolidated Statements of Earnings - Continued
Meredith Corporation and Subsidiaries
Years ended June 30 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands, except per share)
Net earnings (loss) per share:
Earnings from continuing operations $ 1.94 $ 1.59 $ 1.15
Discontinued operation (0.03) (0.15) (0.19)
Cumulative effect of change in
accounting principle -- (1.67) --
--------- --------- ---------
Net earnings (loss) per share $ 1.91 $ (0.23) $ 0.96
========= ========= =========
Average shares outstanding 28,173 27,754 28,365
========= ========= ==========
See accompanying Notes to Consolidated Financial Statements.
See Note 3 for pro forma effects in 1995 and 1994 of change in accounting
principle on selected statements of earnings items.
F-20
<PAGE>
Consolidated Balance Sheets
Meredith Corporation and Subsidiaries
Assets June 30 1996 1995
- -----------------------------------------------------------------------
(in thousands)
Current assets:
Cash and cash equivalents $ 13,801 $ 11,825
Accounts receivable 100,650 115,362
Less allowances for doubtful accounts and returns (11,202) (17,171)
--------- ---------
Net receivables 89,448 98,191
Inventories 31,185 46,781
Supplies and prepayments 8,104 23,774
Film rental costs 10,321 4,423
Deferred income taxes 8,930 --
Subscription acquisition costs 48,887 65,604
--------- ---------
Total current assets 210,676 250,598
Property, plant and equipment:
Land and improvements 5,032 4,951
Buildings and improvements 49,717 49,780
Machinery and equipment 112,526 100,485
Leasehold improvements 7,667 4,514
Construction in progress 7,913 4,217
--------- ---------
Total property, plant and equipment 182,855 163,947
Less accumulated depreciation (102,856) (101,506)
--------- ---------
Net property, plant and equipment 79,999 62,441
Net assets of discontinued operation 88,051 88,097
Subscription acquisition costs 46,745 34,957
Film rental costs 6,816 3,777
Other assets 19,043 21,290
Goodwill and other intangibles
(at original cost less accumulated amortization
of $67,627 in 1996 and $55,147 in 1995) 282,443 282,636
--------- ---------
Total assets $733,773 $743,796
========= =========
See accompanying Notes to Consolidated Financial Statements.
F-21<PAGE>
<PAGE>
Consolidated Balance Sheets - Continued
Meredith Corporation and Subsidiaries
Liabilities and Stockholders' Equity June 30 1996 1995
- -----------------------------------------------------------------------
(in thousands, except share data)
Current liabilities:
Current portion of long-term debt $ 15,000 $ 15,000
Current portion of long-term film
rental contracts 13,063 7,290
Accounts payable 42,085 48,601
Accruals:
Taxes, including income taxes 8,042 8,279
Compensation & benefits 24,150 23,365
Distribution expenses 15,678 10,571
Other expenses 21,088 15,001
--------- ---------
Total accruals 68,958 57,216
Unearned subscription revenues 140,401 150,927
--------- ---------
Total current liabilities 279,507 279,034
Long-term debt 35,000 75,000
Long-term film rental contracts 8,419 4,969
Unearned subscription revenues 97,811 96,381
Deferred income taxes 25,510 18,492
Other deferred items 25,962 28,870
--------- ---------
Total liabilities 472,209 502,746
--------- ---------
F-22
<PAGE>
Consolidated Balance Sheets - Continued
Meredith Corporation and Subsidiaries
Liabilities and Stockholders' Equity June 30 1996 1995
- -----------------------------------------------------------------------
(in thousands, except share data)
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 80,000,000 shares; issued and
outstanding 20,380,437 shares in 1996
(excluding 12,207,776 shares held in treasury)
and 20,579,565 shares in 1995 (excluding
11,601,465 shares held in treasury) 20,380 20,580
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 6,568,583 shares in 1996
and 6,905,062 shares in 1995 6,569 6,905
Additional paid-in-capital -- 873
Retained earnings 236,903 216,485
Unearned compensation (2,288) (3,793)
--------- ---------
Total stockholders' equity 261,564 241,050
--------- ---------
Total liabilities and stockholders' equity $733,773 $743,796
========= =========
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
Consolidated Statements of Stockholders' Equity
Meredith Corporation and Subsidiaries
Add'l Unearned
Common Class B Paid-in Retained Compensa-
(in thousands) Stock Stock Capital Earnings tion Total
- -------------------------------------------------------------------------------
Balance at June 30, 1993 $11,130 $3,704 $ -- $272,090 ($2,828)$284,096
- -------------------------------------------------------------------------------
Net earnings -- -- -- 27,154 -- 27,154
Stock issued under various
incentive plans,
net of forfeitures 76 3 2,644 -- (1,112) 1,611
Purchase of Company stock (1,192) -- (3,020) (42,650) -- (46,862)
Conversion of class B to
common stock 105 (105) -- -- -- --
Dividends paid, 34 cents
per share
Common stock -- -- -- (7,194) -- (7,194)
Class B stock -- -- -- (2,483) -- (2,483)
Restricted stock amortized
to operations -- -- -- -- 1,063 1,063
Other -- -- 376 -- -- 376
- -------------------------------------------------------------------------------
Balance at June 30, 1994 10,119 3,602 -- 246,917 (2,877) 257,761
- -------------------------------------------------------------------------------
Net (loss) -- -- -- (6,315) -- (6,315)
Stock issued under various
incentive plans,
net of forfeitures 115 4 4,497 -- (2,215) 2,401
Purchase of Company stock (84) -- (3,675) -- -- (3,759)
Conversion of class B to
common stock 220 (220) -- -- -- --
Two-for-one stock split 10,210 3,519 -- (13,729) -- --
Dividends paid, 38 cents
per share
Common stock -- -- -- (7,697) -- (7,697)
Class B stock -- -- -- (2,691) -- (2,691)
Restricted stock amortized
to operations -- -- -- -- 1,299 1,299
Other -- -- 51 -- -- 51
- -------------------------------------------------------------------------------
Balance at June 30, 1995 20,580 6,905 873 216,485 (3,793) 241,050
- -------------------------------------------------------------------------------
F-24<PAGE>
<PAGE>
Consolidated Statements of Stockholders' Equity - Continued
Meredith Corporation and Subsidiaries
Add'l Unearned
Common Class B Paid-in Retained Compensa-
(in thousands) Stock Stock Capital Earnings tion Total
- -------------------------------------------------------------------------------
Net earnings -- -- -- 53,940 -- 53,940
Stock issued under various
incentive plans,
net of forfeitures 155 -- 4,228 -- 164 4,547
Purchase of Company stock (691) -- (6,865) (22,001) -- (29,557)
Conversion of class B to
common stock 336 (336) -- -- -- --
Dividends paid, 42 cents
per share
Common stock -- -- -- (8,726) -- (8,726)
Class B stock -- -- -- (2,795) -- (2,795)
Restricted stock amortized
to operations -- -- -- -- 1,341 1,341
Tax benefit from
incentive plans -- -- 1,474 -- -- 1,474
Other -- -- 290 -- -- 290
- -------------------------------------------------------------------------------
Balance at June 30, 1996 $20,380 $6,569 $ -- $236,903 ($2,288)$261,564
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE>
Consolidated Statements of Cash Flows
Meredith Corporation and Subsidiaries
Years ended June 30 1996 1995 1994
- ------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Earnings before cumulative effect of
change in accounting principle $ 53,940 $ 39,845 $ 27,154
Less cumulative effect of change in accounting
principle -- (46,160) --
--------- --------- ---------
Net earnings (loss) 53,940 (6,315) 27,154
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 25,130 19,017 16,942
Amortization of film contract rights 18,950 18,133 22,274
Non-recurring items, net of taxes -- -- 3,987
Gain on dispositions, net of taxes (3,379) -- (8,197)
Loss from discontinued operation 717 4,353 5,319
Changes in assets and liabilities:
Accounts receivable 1,632 (23,627) (4,406)
Inventories 10,694 (11,819) (2,579)
Supplies and prepayments 9,794 (4,607) (384)
Subscription acquisition costs 4,929 81,114 758
Accounts payable (10,064) 14,711 (7,832)
Accruals 8,664 6,530 (2,211)
Unearned subscription revenues (9,096) (1,051) (2,304)
Deferred income taxes (2,272) (36,719) 3,717
Other deferred items (2,908) 5,765 (305)
--------- --------- ---------
Net cash provided by operating activities 106,731 65,485 51,933
--------- --------- ---------
Cash flows from investing activities:
Redemptions of marketable securities -- 16,189 9,244
Proceeds from dispositions 27,894 -- 33,000
Acquisitions of businesses (14,500) (159,000) --
Additions to property, plant and equipment (29,873) (13,284) (9,243)
Changes in other assets 2,514 5,388 (1,396)
--------- --------- ---------
Net cash (used) provided by investing activities (13,965) (150,707) 31,605
--------- --------- ---------
F-26
<PAGE>
Consolidated Statements of Cash Flows - Continued
Meredith Corporation and Subsidiaries
Years ended June 30 1996 1995 1994
- ------------------------------------------------------------------------------
(in thousands)
Cash flows from financing activities:
Long-term debt incurred -- 100,000 --
Long-term debt retired (40,000) (10,000) --
Payments for film rental contracts (17,364) (14,085) (14,633)
Proceeds from common stock issued 7,652 3,751 3,048
Purchases of Company stock (29,557) (3,759) (46,862)
Dividends paid (11,521) (10,388) (9,677)
--------- --------- ---------
Net cash (used) provided by financing activities (90,790) 65,519 (68,124)
--------- --------- ---------
Net increase (decrease) in cash & cash equivalents 1,976 (19,703) 15,414
Cash and cash equivalents at beginning of year 11,825 31,528 16,114
--------- --------- ---------
Cash and cash equivalents at end of year $ 13,801 $ 11,825 $ 31,528
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid
Interest $ 8,814 $ 2,270 $ 194
Income taxes $ 45,719 $ 40,438 $ 17,085
Non-cash transactions
Film rental costs financed by contracts
payable $ 26,587 $ 15,543 $ 9,567
Supplemental schedule of non-cash investing and financing activities:
The Company received $2 million of preferred stock in Granite Broadcasting
Corporation in conjunction with the sale of two broadcasting stations in
December 1993.
See accompanying Notes to Consolidated Financial Statements.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Meredith Corporation and Subsidiaries
1. Organization and Summary of Accounting Policies
a. Nature of operations
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. The Company's principal businesses are magazine
publishing and television broadcasting. Operating profits of the Publishing
and Broadcasting segments were 53.5 percent and 43.6 percent, respectively, of
total operating profits before unallocated corporate expenses in fiscal 1996.
Magazine operations accounted for more than 90 percent of the revenues and
operating profit of the Publishing segment, which also includes book publishing
and brand licensing. Better Homes and Gardens is the most significant
trademark to the Publishing segment and is used extensively in magazine and
book publishing and licensing operations. The Company also operates a
residential real estate marketing and franchising business under the Better
Homes and Gardens trademark. Meredith's operations are diversified
geographically within the United States, and the Company has a broad customer
base. In September 1995, the Company classified its cable business as a
discontinued operation. The sale of all of Meredith's ownership interest in
the cable operation is expected to be completed in the second quarter of fiscal
1997.
Significant Revenue Categories
Years ended June 30 1996 1995 1994
----------------------- -------- -------- --------
(in thousands)
Advertising:
Magazine $308,959 $276,312 $236,814
Broadcasting 137,964 116,460 95,525
Magazine circulation 272,406 269,029 257,453
Consumer book 56,481 86,568 86,040
All other 91,327 81,032 68,903
-------- -------- --------
Total revenues $867,137 $829,401 $744,735
======== ======== ========
Advertising and magazine circulation revenues accounted for approximately 52
percent and 31 percent, respectively, of the Company's revenues in fiscal 1996.
Revenues and operating results can be affected by changes in the demand for
advertising and/or consumer demand for our products. National and local
economic conditions largely affect the overall industry levels of advertising
revenues. Magazine circulation revenues are generally affected by national
and/or regional economic conditions and competition from other forms of media.
F-28
<PAGE>
b. Principles of consolidation
The consolidated financial statements include the accounts of Meredith
Corporation and its majority-owned subsidiaries (the Company). The accounts of
the Cable segment, classified as a discontinued operation during fiscal 1996,
are reflected as a single line item in the Company's consolidated financial
statements. All significant intercompany transactions have been eliminated.
c. Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
could differ from those estimates.
d. Cash and cash equivalents
All cash and short-term investments with original maturities of three months or
less are considered cash and cash equivalents, since they are readily
convertible to cash. These short-term investments are stated at cost which
approximated market value.
e. Marketable securities
No marketable securities were owned at any time during fiscal 1996 or at June
30, 1995. Marketable securities held during fiscal 1995 were classified as
available for sale. Proceeds from sales and maturities of securities were
$16.2 million in fiscal 1995. Realized gains and losses were not material.
The costs used to compute realized gains and losses were determined by specific
identification.
f. Inventories
Paper inventories are stated at cost, which is not in excess of market value,
using the last-in, first-out (LIFO) method. All other inventories are stated
at the lower of cost (first-in, first-out or average) or market.
F-29
<PAGE>
g. Subscription acquisition costs
Subscription acquisition costs primarily represent magazine direct-mail agency
commissions. These costs are deferred and amortized over the related
subscription term, typically one or two years.
h. Property, plant and equipment
Property, plant and equipment are stated at cost. Costs of replacements and
major improvements are capitalized; maintenance and repairs are charged to
operations as incurred. Depreciation expense is provided primarily by the
straight-line method over the estimated useful lives of the assets: 5 to 45
years for buildings and improvements, and 3 to 20 years for machinery and
equipment. The costs of leasehold improvements are amortized over the lesser
of the useful lives or the terms of the respective leases. Depreciation and
amortization of property, plant and equipment was $12.4 million in fiscal 1996
($10.5 million in fiscal 1995 and $10.0 million in fiscal 1994).
i. Broadcasting film contract rights
Film contract rights and the liabilities for future payments are reflected in
the consolidated financial statements when programs become available for
broadcast. These rights are valued at the lower of cost or estimated net
realizable value and are generally charged to operations on an accelerated
basis over the contract period. Amortization of these rights is included in
production, distribution and editorial expenses.
j. Goodwill and other intangibles
Excess costs over values assigned to tangible assets of businesses acquired are
being amortized by the straight-line method over periods not exceeding 40
years. These include goodwill, television network affiliations and government
licenses. The values of goodwill and other intangibles have been determined by
independent appraisals. The Company periodically evaluates the carrying value
of intangibles (including goodwill) to determine if impairment has occurred.
This evaluation primarily consists of comparison of the current value to
estimated future undiscounted cash flows and long-term business strategies of
the underlying business.
F-30
<PAGE>
k. Revenues
Advertising revenues are recognized when the advertisements are published or
aired. Revenues from magazine subscriptions are deferred and recognized
proportionately as products are delivered to subscribers. Revenues from
magazines sold on the newsstand and books are recognized at shipment, net of
provisions for returns.
l. Advertising expenses
Total advertising expenses included in the Consolidated Statements of Earnings
were $76.1 million in fiscal 1996 and $173.0 million in fiscal 1995 (including
the cumulative effect of the accounting change). Deferred advertising costs
included in the Consolidated Balance Sheets as of June 30, 1996 and 1995, were
not material.
m. Computation of earnings (loss) per share
Earnings (loss) per share of common stock is computed by dividing the weighted-
average number of shares of common stock, class B stock and common stock
equivalents outstanding during each year into applicable earnings or loss.
Common stock equivalents include dilutive stock options issued under Company
stock option plans.
n. Other
Certain prior-year financial information has been reclassified or restated to
conform to the fiscal 1996 financial statement presentation.
In 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," was issued by the Financial Accounting Standards Board
(FASB). This statement requires the review of the recorded values of long-
lived assets (including intangibles) when facts and circumstances indicate that
the carrying values may not be recoverable. In addition, the statement
requires certain adjustments for closing and sales costs to the carrying values
of assets to be disposed. The Company will adopt SFAS No. 121 in fiscal 1997,
as required. Management believes its adoption will not have a material effect
on the results of operations or financial position of the Company.
F-31
<PAGE>
Also in 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes a fair value-based method of
accounting for stock-based compensation plans. While it's adoption is
encouraged for all stock-based plans, companies may continue applying the
current accounting treatment prescribed by the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Companies continuing to apply the provisions of APB Opinion No. 25
must, however, provide certain pro forma disclosures as if SFAS No. 123 were
adopted for all stock-based compensation plans. The Company will retain the
current accounting method for stock-based compensation plans and will provide
the necessary disclosure as required in fiscal 1997.
2. Discontinued Operation
The Company formalized plans to sell its ownership interest in cable television
systems and therefore classified its Cable segment as a discontinued operation
effective September 30, 1995. On April 19, 1996, the Meredith/New Heritage
partnership, of which the Company indirectly owns 96 percent, announced the
signing of an agreement to sell its 73 percent ownership interest in Meredith/
New Heritage Strategic Partners, L.P. (Strategic Partners) to its minority
partner, Continental Cablevision, Inc. (Continental). Pending approvals from
local franchise authorities, the Federal Communications Commission and others,
the sale is expected to close in the second quarter of fiscal 1997. The total
value of the systems, which are located in the Minneapolis/St. Paul area and
have approximately 126,000 subscribers, has been placed at $262.5 million.
Meredith Corporation expects to receive approximately $115 to $120 million in
cash (net of taxes) and recognize a gain of approximately $15 to $20 million
(net of taxes and deferred net losses) from the sale.
Prior-year financial statements have been restated to reflect the Cable segment
as a discontinued operation. Summarized financial information for the
discontinued cable operation follows:
Results of operations
Years ended June 30 1996 1995 1994
- ------------------- ------- ------- -------
(in thousands)
Net revenues $51,750 $51,189 $51,653
======= ======= =======
Income from operations $ 5,111 $ 3,006 $ 3,761
======= ======= =======
F-32
<PAGE>
Net interest expense $ 6,513 $10,474 $11,162
======= ======= =======
(Loss) before income taxes $ (961) $(5,207) $(5,169)
Income taxes 102 247 150
------- ------- -------
Net (loss) from discontinued
operation $(1,063) $(5,454) $(5,319)
======= ======= =======
Gain on disposition $ -- $ 1,101 $ --
======= ======= =======
Fiscal 1996 first quarter discontinued operating results included in the
Consolidated Statement of Earnings reflected revenues of $12,223,000,
income from operations of $721,000 and a net loss of $717,000 (including an
income tax benefit of $27,000). Cable net losses since the measurement
date of September 30, 1995, have been deferred as required since the
Company expects to realize a net gain from the sale. Cable results since
September 30, 1995, included revenues of $39,527,000, income from
operations of $4,390,000 and a net loss of $346,000 (including income tax
expense of $129,000).
In March 1995, Strategic Partners sold the net assets of its Bismarck/
Mandan, N.D., cable television operations for a pre-tax gain of
$3,501,000. The Company's share was $1,101,000, including income tax
expense of $1,573,000.
Balance sheets
June 30 1996 1995
- -------- -------- --------
(in thousands)
Net property, plant and equipment $ 70,957 $ 69,323
Goodwill and other intangibles 136,033 145,595
Current portion of long-term debt (86,278) (91,079)
Minority interests (37,213) (37,300)
Other net 4,552 1,558
-------- --------
Net assets of discontinued operation $ 88,051 $ 88,097
======== ========
F-33
<PAGE>
Major components of cash flows
Years ended June 30 1996 1995 1994
- ------------------- -------- -------- -------
(in thousands)
Net (loss) from discontinued operation $ (1,063) $ (5,454) $ (5,319)
Depreciation and amortization 16,383 17,431 17,314
Other 1,277 (4,095) (54)
-------- -------- -------
Net cash provided by discontinued
cable operation $ 16,597 $ 7,882 $ 11,941
======== ======== =======
Proceeds from disposition $ -- $ 49,000 $ --
Capital expenditures (10,713) (11,459) (11,530)
Other (108) 473 64
-------- -------- -------
Net cash (used) provided by
investing activities of
discontinued cable operation $(10,821) $ 38,014 $(11,466)
======== ======== =======
Long-term debt incurred $ -- $ -- $ 3,499
Long-term debt retired (4,801) (46,921) --
-------- -------- -------
Net cash (used) provided by
financing activities of
discontinued cable operation $ (4,801) $(46,921) $ 3,499
======== ======== =======
Strategic Partners owed $86.3 million as of June 30, 1996, to a group of ten
banks. On March 15, 1996, Strategic Partners and the banks amended the loan
agreement to reflect the intended sale of all of its cable television systems.
Significant amended terms and provisions relate to the maturity date. All
borrowings outstanding under the loan agreement are now due on the earlier of
December 31, 1996, or the date of the sale of Strategic Partners' cable
television systems. The carrying amounts of this debt and the related interest
payable approximate fair values due to the short-term nature of the interest
periods available under the loan agreement.
Interest was payable under interest rate swap agreements until September 1,
1995. On that date, interest rates on the total outstanding borrowing
converted to short-term rates based on Eurodollar, prime and/or certificate of
deposit rates as provided in the loan agreement. As of June 30, 1996, the
weighted-average rate of interest on Strategic Partners' debt was 6.9 percent.
Interest expense related to this debt is reflected in the loss from the
discontinued cable operation as the debt is specifically attributable to the
Cable segment and is non-recourse to Meredith Corporation.
F-34
<PAGE>
The loan agreement has provisions which restrict additional debt and
investments and prohibit payments of dividends or distributions except for
specified payments under certain conditions not causing a default under the
loan agreement. Borrowings are secured by the assets of Strategic Partners
totaling approximately $217 million at June 30, 1996. Restricted net assets of
Strategic Partners included in the Company's Consolidated Balance Sheet at June
30, 1996, totaled $88.1 million. Required financial ratio tests, as amended,
were met by Strategic Partners at June 30, 1996.
The purchase agreement related to the acquisition of the Minneapolis/St. Paul
systems by Strategic Partners provides for contingent payments to the former
owners if actual cash flows exceed certain targeted cash flows. No contingent
payments were paid or owed through June 30, 1996. None is expected to be owed
for the fiscal 1997 period prior to the sale.
The Company has been advised by Strategic Partners that cable management
believes it has complied in all material respects with the provisions of the
Cable Television Consumer Protection and Competition Act of 1992, including
rate-setting provisions. However, since rates for regulated services are
subject to review, Strategic Partners may be subject to a customer refund
liability. The amounts of refunds, if any, which could be payable by Strategic
Partners in the event rates are successfully challenged by franchising
authorities are not currently estimable.
The cable television operations have nonexclusive franchise agreements with six
cable commissions. These agreements, which expire from 1997 to 2006, require
the payment of fees, generally 5 percent of operating revenues. Additionally,
certain franchise agreements require Strategic Partners to provide community
television programming. These agreements require annual payments of
approximately $1 million and are effective for the term of the franchise
agreements and any renewals of them. Cable management believes its operations
are materially in compliance with the terms of the franchise agreements in each
of the municipalities in which it offers cable television services.
3. Change in Accounting Policy for Subscription Acquisition Costs
In December 1993, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 93-7, "Reporting on Advertising Costs." The Company adopted SOP 93-7 in
fiscal 1994 and believed its policy of capitalizing most magazine subscription
acquisition costs and recognizing expense pro rata with the delivery of
magazines was materially in compliance with AICPA requirements. The statement
specifies that direct-response advertising costs should be capitalized if they
can be shown to both (1) result in specific sales and (2) result in probable
F-35
<PAGE>
future benefits (defined as probable future revenues in excess of future costs
incurred to attain those revenues). The Company has two revenue streams
related to the sale of magazine subscriptions: subscriber and advertising
revenues. The Company believed both types of revenues were related to its
direct-response advertising efforts.
In December 1994, the Financial Accounting Standards Board approved the
issuance of Practice Bulletin 13, "Direct-Response Advertising and Probable
Future Benefits." Practice Bulletin 13 interpreted SOP 93-7 to specify that
only "primary revenues" (defined as those revenues from sales to customers
receiving and responding to direct-response advertising efforts) could be used
in determining probable future benefits as defined by SOP 93-7. Therefore, in
accordance with the requirements of Practice Bulletin 13, the Company now
expenses most direct-response subscription acquisition costs as incurred, since
subscriber revenues alone do not support the capitalization of these costs.
The effect of adopting Practice Bulletin 13 on fiscal 1995 earnings before the
cumulative effect of the change in accounting principle was additional post-tax
expense of $3.0 million, or 11 cents per share. The effect on fiscal 1995 net
earnings (including a non-cash charge of $46.2 million post-tax, or $1.67 per
share, for the cumulative effect as of July 1, 1994) was $49.2 million, or
$1.78 per share. The cumulative effect of this change in accounting principle
as of July 1, 1994, on the Company's fiscal 1995 Consolidated Balance Sheet was
to reduce subscription acquisition costs by $76.9 million, deferred income tax
liabilities by $30.7 million and retained earnings by $46.2 million.
Pro forma amounts (unaudited) for fiscal 1995 and 1994, assuming the new
accounting principle was applied in the periods prior to fiscal 1995, follow
with comparisons to actual results:
Years ended June 30 1995 1994
------------------- -------- --------
(in thousands, except per share)
Earnings before cumulative
effect of change in
accounting principle:
As reported $39,845 $27,154
Pro forma $39,845 $29,548
Net (loss) earnings:
As reported $(6,315) $27,154
Pro forma $39,845 $29,548
F-36
<PAGE>
Earnings per share before
cumulative effect of change
in accounting principle:
As reported $1.44 $ .96
Pro forma $1.44 $1.04
Net (loss) earnings per share:
As reported $(.23) $ .96
Pro forma $1.44 $1.04
4. Non-recurring Items
In the second quarter of fiscal 1994, a non-recurring pre-tax charge of $4.8
million was recorded to establish a reserve for taxes on disposed properties.
In the fourth quarter of fiscal 1994, $3.0 million of this reserve was reversed
based on the resolution of a reserved assessment at no tax cost to the Company.
The Company believes it has sufficient reserves to cover any potential
remaining liability related to these properties.
Also in the fiscal 1994 fourth quarter, a pre-tax charge of $5.6 million was
recorded for the write-down of film assets at KPHO, the Company's Phoenix
television station, due to reaching an affiliation agreement with CBS,
effective in September 1994.
5. Internal Revenue Service (IRS) Settlement
In the first quarter of fiscal 1995, the Company recognized interest income of
$8.6 million (pre-tax) as a result of a favorable decision from the United
States Tax Court regarding the settlement of its 1986 through 1990 income tax
years. Federal income tax deficiency notices from the IRS related to those tax
years were contested by the Company in Tax Court in fiscal 1993. These tax
deficiency notices were primarily related to the Company's acquisition of
Ladies' Home Journal magazine in January 1986. The Company also recorded an
approximate $9 million reduction in goodwill related to the Ladies' Home
Journal acquisition. The benefit of this reduction is being realized over the
remaining life of the goodwill.
6. Disclosures Regarding the Fair Value of Financial Instruments
F-37
<PAGE>
a. Broadcasting film contract rights
The Company has commitments for the purchase of broadcasting film contract
rights. The fair value of commitments for currently available film rights is
the present value of future payments totaling $20.3 million at June 30, 1996
($11.9 million at June 30, 1995). In addition, commitments for unavailable
film rights, not reflected in the Consolidated Balance Sheets, had fair values
of $23.0 million and $36.2 million at June 30, 1996 and 1995, respectively
(Note 15).
b. Long-term debt
Long-term debt on the Company's Consolidated Balance Sheets of $50.0 million
and $90.0 million at June 30, 1996 and 1995, respectively, relates to the term
loan incurred to purchase WSMV in January 1995. The carrying amounts of this
debt and the related interest payable approximate fair values due to the short-
term nature of the interest periods available under the term loan agreement
(Note 10).
c. Other
The carrying amounts reported on the Consolidated Balance Sheets at June 30,
1996 and 1995, for all other assets and liabilities (and all other liabilities
not appearing on the Consolidated Balance Sheets per Note 15) subject to SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments," approximate
their respective fair values. Fair value estimates are made at a specific
point in time based on relevant market and financial instrument information.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect these estimates.
7. Inventories
Inventories consist primarily of paper stock and books. Of net inventory
values shown, approximate portions determined using the LIFO method were: 1996
- - 67 percent; 1995 - 55 percent; 1994 - 32 percent; and 1993 - 42 percent. The
decrease in finished goods inventory at June 30, 1996, was from the downsizing
of the Company's book operations reflecting the fiscal 1996 direct-response
marketing alliance with Reader's Digest and the sale of the Company's book
clubs. The increase in raw materials at June 30, 1995, was related to the
purchase of paper in the Publishing segment prior to a July 1, 1995, price
increase.
F-38
<PAGE>
June 30 1996 1995 1994 1993
- -------- ------- ------- ------- -------
(in thousands)
Raw materials..................... $28,354 $32,320 $15,366 $17,894
Work in process................... 11,907 13,801 13,132 11,793
Finished goods.................... 4,276 13,059 15,086 11,978
------- ------- ------- -------
44,537 59,180 43,584 41,665
Reserve for LIFO cost valuation... (13,352) (12,399) ( 8,622) (9,282)
------- ------- ------- -------
Inventories....................... $31,185 $46,781 $34,962 $32,383
======= ======= ======= =======
8. Acquisitions
On January 1, 1996, the Company acquired the assets of WOGX, a FOX-affiliated
television station serving Ocala/Gainesville, Fla. Had this acquisition
occurred on July 1, 1995, the effect on consolidated revenues and net earnings
would not have been material.
On January 5, 1995, the Company purchased substantially all of the assets of
WSMV, an NBC-affiliated television station in Nashville, Tenn., from Cook Inlet
Television Partners for $159.0 million. Cash from short-term investments,
lines of credit and a $100.0 million term borrowing from a group of banks were
used to purchase WSMV.
The acquisition of WSMV has been accounted for by the purchase method. The
cost of this acquisition was allocated to assets and liabilities based on their
fair market appraised values. Goodwill and other intangibles, related to the
station's NBC affiliation and FCC license, were recognized as a result of the
purchase.
The operating results of WSMV have been included in the Company's consolidated
financial statements from the date of acquisition. Pro forma disclosure (as if
the transaction occurred at the beginning of the Company's fiscal year) of
unaudited results of operations for the years ended June 30, 1995 and 1994, is
as follows:
Years ended June 30 1995 1994
------------------- -------- --------
(in thousands, except per share)
Revenues $845,396 $770,288
======== ========
F-39
<PAGE>
Earnings before cumulative effect of
change in accounting principle $ 40,122 $ 27,072
Cumulative effect of change in
accounting principle (46,160) --
-------- --------
Net (loss) earnings $ (6,038) $ 27,072
======== ========
Net (loss) earnings per share:
Earnings before cumulative effect of
change in accounting principle $ 1.45 $ .95
Cumulative effect of change in
accounting principle (1.67) --
-------- --------
Net (loss) earnings per share $ (.22) $ .95
======== ========
9. Sale of Properties
On December 28, 1995, the Company sold the accounts receivable, membership
lists and product inventory of the Better Homes and Gardens Crafts Club, Better
Homes and Gardens Cook Book Club and Country Homes and Gardens Book Club for a
pre-tax gain of $5.9 million ($3.4 million post-tax).
On December 26, 1993, the Company sold the net assets of WTVH, a television
station operating in Syracuse, N. Y., and the common stock of a Company
subsidiary that owned KSEE, a television station operating in Fresno, Calif.,
for a pre-tax gain of $12.0 million ($8.2 million post-tax).
The gains on these sales are included in net earnings (loss) for their
respective years. If these sales had occurred on July 1 of the respective
fiscal year, the impacts on the Company's consolidated revenues and net
earnings (loss) would not have been significant.
10. Long-term Debt
In connection with the purchase of WSMV in January 1995, the Company entered
into a term loan agreement for $100.0 million with a group of banks.
Borrowings outstanding under this agreement as of June 30, 1996 and 1995, were
$50.0 million and $90.0 million, respectively. Interest is payable based on
short-term Eurodollar and/or prime rates of interest, at the option of the
F-40
<PAGE>
Company. At June 30, 1996, the weighted-average rate of interest was 5.8
percent. This loan agreement contains certain covenants, including cash flow
coverage requirements. The Company has been in compliance with these covenants
since the inception of the loan. The term loan requires repayments through
June 1, 1998, the final payment date. The aggregate annual maturities of the
term loan in future fiscal years are $15.0 million in 1997 and $35.0 million in
1998.
At June 30, 1996, Meredith Corporation had unused committed lines of credit
totaling $30.0 million ($10.0 million expires on December 31, 1996, and $20.0
million expires on June 30, 1998). Commitment fees paid were not material.
11. Income Taxes
Income tax expense was allocated as follows:
Years ended June 30 1996 1995 1994
- -------------------- ------- ------- -------
(in thousands)
Earnings from continuing operations $45,399 $35,398 $26,929
Discontinued operation (27) 1,820 150
Cumulative effect of change in
accounting principle -- (30,773) --
------- ------- -------
Total $45,372 $ 6,445 $27,079
======= ======= =======
Income tax expense attributable to earnings from continuing operations consists
of:
Years ended June 30 1996 1995 1994
- -------------------- ------- ------- -------
(in thousands)
Currently payable:
Federal................................ $38,784 $33,453 $20,248
State.................................. 8,887 7,891 3,401
------- ------- -------
47,671 41,344 23,649
------- ------- -------
F-41
<PAGE>
Deferred:
Federal................................ $(1,817) $(4,757) $ 2,650
State.................................. (455) (1,189) 630
------- ------- -------
(2,272) (5,946) 3,280
------- ------- -------
Total............................... $45,399 $35,398 $26,929
======= ======= =======
The tax effects of temporary differences that gave rise to the deferred income
tax assets and liabilities are as follows:
June 30 1996 1995
-------- ------- -------
(in thousands)
Deferred tax assets:
Allowances for doubtful accounts
and returns $11,377 $14,530
Compensation and benefits 14,281 13,463
Expenses deductible for taxes in
different years than accrued 16,064 10,911
All other assets 1,206 2,463
------- -------
Total deferred tax assets $42,928 $41,367
------- -------
Deferred tax liabilities:
Subscription acquisition costs $29,515 $29,133
Accumulated depreciation and amortization 16,519 13,569
Gains on dispositions 8,874 9,318
Expenses deductible for taxes in
different years than accrued 4,297 7,530
All other liabilities 303 669
------- -------
Total deferred tax liabilities $59,508 $60,219
------- -------
Net deferred tax liability $16,580 $18,852
======= =======
No valuation allowance has been recorded for deferred tax assets, as management
believes it is more likely than not that those assets will be realized through
generation of future taxable income.
The differences between the effective tax rates and the basic U.S. federal
income tax rate are as follows:
F-42
<PAGE>
Years ended June 30 1996 1995 1994
- -------------------- ------ ------ ------
Expected income tax (basic rate) ............ 35.0% 35.0% 35.0%
Impact of basic rate increase................ -- -- 2.3
State income taxes,
less federal income tax benefits............ 5.5 5.6 4.4
Goodwill amortization........................ 2.3 2.2 2.9
Sale of television properties................ -- -- (1.6)
Other........................................ 2.6 1.7 2.3
----- ----- -----
Effective income tax rate ................. 45.4% 44.5% 45.3%
===== ===== =====
12. Pension and Postretirement Benefit Plans
Pension Plans
- -------------
The Company has noncontributory pension plans covering substantially all
employees. The Company's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only benefits attributed to service to date, but also
for those expected to be earned in the future. Assets held in the plans are a
mix of equity and debt securities. Benefits for non-bargained plans are
determined based on length of service and compensation at retirement. For
bargained plans, benefits are determined based on negotiated accruals.
Net periodic pension cost included the following components:
Years ended June 30 1996 1995 1994
- -------------------- ------ ------ ------
(in thousands)
Service cost - benefits earned during
the period.................................. $3,124 $3,035 $3,033
Interest cost on projected benefit obligation. 4,457 4,196 3,854
Actual return on assets....................... (19,145) (3,730) (3,749)
Deferred investment gain...................... 15,760 396 704
Amortization.................................. 770 807 842
------ ------ ------
Net periodic pension cost................... $4,966 $4,704 $4,684
====== ====== ======
The following table sets forth the plans' funded status and amounts recognized
in the Company's Consolidated Balance Sheets. Overfunded plans are those in
which the fair value of plan assets exceeds the accumulated benefit obligation.
F-43
<PAGE>
1996 1995
------------------ ------------------
Over- Under- Over- Under-
funded funded funded funded
June 30 Plans Plans Plans Plans
- -------- --------- ------- -------- --------
(in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation........$(44,308) $ (7,141) $(40,194) $(6,056)
======= ======= ======== ========
Accumulated benefit obligation...$(46,071) $ (8,094) $(41,742) $(6,509)
======= ======= ======== ========
Projected benefit obligation.....$(51,695) $(11,960) $(46,641) $(9,756)
Plan assets at fair value.......... 63,300 193 42,316 102
------- ------- -------- --------
Projected benefit obligation less
than (in excess of) plan assets... 11,605 (11,767) (4,325) (9,654)
Unrecognized net (gain) loss....... (12,565) 1,809 (550) 502
Unrecognized net obligation........ 731 1,918 854 2,171
Unrecognized prior service cost.... 1,131 1,395 1,338 1,568
Adjustment required to recognize
minimum liability................. -- (1,771) -- (1,506)
------- ------- -------- --------
Prepaid pension (pension liability)
recognized in the balance sheets.. $ 902 $ (8,416) $ (2,683) $ (6,919)
======= ======= ======== ========
The weighted-average assumed discount rates used in determining the projected
benefit obligation at June 30, 1996, were 7.5 percent before retirement and
6.25 percent after retirement. (At June 30, 1995, assumed discount rates were
8.0 percent before retirement and 6.25 percent after retirement.) The average
rate of increase used for future compensation levels was 6.0 percent at June
30, 1996 and 1995. The weighted-average expected long-term rate of return on
assets used in determining pension expense was 8.5 percent at June 30, 1996 and
1995.
Postretirement Benefit Plans
- ----------------------------
The Company sponsors defined health care and life insurance plans which provide
benefits to eligible retirees. The health plan is contributory with retiree
contributions adjusted annually. A portion of the Company's contribution is a
fixed dollar amount based on age and years of service at retirement. The
health insurance plan contains the cost-sharing features of coinsurance and/or
F-44
<PAGE>
deductibles. The life plan is paid for by the Company. Benefits under both
plans are based on eligible status for retirement and length of service.
Substantially all of the Company's employees may become eligible for these
benefits upon reaching age 55 and having worked continuously for the Company at
least 10 years. Cash payments related to retiree health and life benefits were
$.9 million in fiscal 1996 ($1.0 million and $.9 million in 1995 and 1994,
respectively). The Company funds its postretirement benefits through a 401(h)
account. All assets are held in equity securities.
A summary of the components of net periodic postretirement benefit costs
follows:
Years ended June 30 1996 1995 1994
- -------------------- ------ ------ ------
(in thousands)
Service cost - benefits earned during
the period................................... $ 341 $ 340 $ 610
Interest cost on projected benefit obligation. 897 885 1,182
Actual return on assets....................... (116) (76) (3)
Net amortization and deferral................. (136) (152) 50
------ ------ ------
Net periodic postretirement benefit cost.... $ 986 $ 997 $1,839
====== ====== ======
The following table sets forth the obligations recognized in the Company's
Consolidated Balance Sheets regarding postretirement benefits and the plan's
funded status:
June 30 1996 1995
-------- -------- --------
(in thousands)
Actuarial present value of benefit obligations:
Retirees.................................... $ (8,653) $ (7,457)
Active employees............................ (4,858) (3,989)
-------- --------
Total..................................... (13,511) (11,446)
Plan assets at fair value..................... 841 499
-------- --------
Accumulated benefit obligation in excess of
plan assets.................................. (12,670) (10,947)
Unrecognized prior service cost............... (3,043) (3,242)
Unrecognized net loss ........................ 1,706 26
-------- --------
Postretirement benefit liability recognized
in the balance sheets........................ $(14,007) $(14,163)
======== ========
F-45
<PAGE>
The weighted-average assumed discount rates used in determining the actuarial
present value of postretirement benefits were 7.5 percent at June 30, 1996, and
8.0 percent in 1995. The weighted-average annual assumed rates of increase in
the health care cost trend rate for employees under age 65 were 12.0 and 14.0
percent for fiscal years 1996 and 1995, respectively. The rate is expected to
decrease by 1.0 percent annually to 6.5 percent in 2002 and remain at that
level. For employees 65 and older, the assumed rates of increase were 9.0 and
11.0 percent for fiscal years 1996 and 1995, respectively. The rate is
expected to decrease by 1.0 percent annually to 5.5 percent in 2000 and remain
at that level. By increasing the trend rate by one percentage point each year,
the accumulated postretirement benefit obligation for retiree health benefits
would increase as of June 30, 1996 and 1995, by $.6 million and $.5 million,
respectively. The net periodic postretirement health care benefit cost would
increase by $.1 million in both fiscal 1996 and 1995. The average rate of
compensation increase used to determine the accumulated benefit obligation for
life insurance benefits was 6.0 percent at June 30, 1996 and 1995. The
weighted-average expected long-term rate of return on assets used in
determining postretirement benefit cost was 8.5 percent at June 30, 1996 and
1995.
13. Capital Stock
The Company has two classes of common stock outstanding, common and class B.
Holders of each class of common stock receive equal dividends per share. Class
B stock, which has ten votes per share, is not transferable as class B stock
except to family members of the holder or certain other related entities. At
any time, class B stock is convertible, share for share, into common stock with
one vote per share. Class B stock transferred to persons or entities not
entitled to receive it as class B stock will automatically be converted and
issued as common stock to the transferee. The principal market for trading the
Company's common stock is the New York Stock Exchange (trading symbol MDP). No
separate public trading market for the Company's class B stock exists.
Stock of the Company became publicly traded in 1946, and quarterly dividends
have been paid continuously since 1947. It is anticipated that comparable
dividends will continue to be paid.
On August 30, 1996, there were approximately 2,000 holders of record of the
Company's common stock and 1,500 holders of record of class B stock.
From time to time, the Company's Board of Directors has authorized the
repurchase of shares of the Company's common stock on the open market. During
fiscal 1996, the Company repurchased 691,000 shares of its common stock at a
cost of $29.6 million (168,000 shares were repurchased in fiscal 1995 for $3.8
million and 2,385,000 shares were repurchased in fiscal 1994 for $46.9
million). Fiscal 1995 and 1994 shares have been adjusted for the March 1995
stock split.
F-46
<PAGE>
14. Common Stock and Stock Option Plans
Savings and Investment Plan
- ---------------------------
The Company maintains a 401(k) Savings and Investment Plan which permits
eligible employees to contribute funds on a pre-tax basis. The plan provides
for employee contributions of up to 12.0 percent of eligible compensation with
the Company matching $ .75 per $1 contributed for the first 5.0 percent.
Employees choose among various investment options, including the Company's
common stock.
Under this plan, 84,442 common shares were issued during fiscal 1996 at market
prices totaling $3.1 million (91,289 shares totaling $2.2 million in 1995 and
73,798 shares totaling $1.4 million in 1994). A total of 8,520,000 shares has
been reserved for this plan, of which 8,047,909 have been issued as of June 30,
1996.
Restricted Stock Plans
- ----------------------
The Company has two stock incentive plans under which eligible key employees
have been awarded restricted common stock of the Company and a restricted stock
plan for nonemployee directors. All plans have restriction periods tied
primarily to employment and/or service. The awards are recorded at the market
value on the date of the grant as unearned compensation and amortized over the
restriction periods. Restricted stock and annual expense information is as
follows:
Years ended June 30 1996 1995 1994
- ------------------- ---- ---- ----
Number of restricted shares awarded... 11,854 100,472 67,586
Average market price of awarded shares $37.95 $24.42 $18.36
Restricted shares outstanding......... 359,048 438,974 395,700
Annual expense, net (in thousands).... $1,341 $1,299 $1,063
F-47
<PAGE>
Stock Option Plans
- ------------------
Non-qualified stock options for shares of the Company's common stock also are
granted to eligible key employees under a Company stock incentive plan. The
plan provides for granting of options at an option price per share not less
than the market price per share of the Company's common stock on the date of
the grant. Most options become exercisable in increments of one-third on each
of the following three annual anniversary dates. In fiscal 1995, 320,000 of
the options granted under the plan were subject to exercise vesting tied to
attainment of future specified Company financial goals. In fiscal 1996 certain
of those goals were met and in August 1996 the majority of those options
vested. Exercise rights for granted options expire on the earlier of ten years
after issuance or after the end of employment except in certain circumstances.
The Company also has a non-qualified stock option plan which was adopted in
fiscal 1994 for nonemployee directors. Each director is granted options for
2,000 shares of common stock annually. These options vest 40, 30 and 30
percent in each successive year. No options can be issued under this plan
after July 31, 2003, and exercise rights expire on the earlier of ten years
after issuance or after the end of the director's service.
A summary of stock option activity and prices follows:
Option Price
Outstanding per Share
----------- ---------------
Balance at June 30, 1993 548,400 $13.22 - $16.53
Granted 298,600 17.07 - 20.44
Exercised (5,000) 13.22
Forfeited (2,000) 13.22
-----------
Balance at June 30, 1994 840,000 $13.22 - $20.44
Granted 795,092 23.13 - 23.81
Exercised (5,400) 13.22 - 17.06
Forfeited (19,100) 13.22 - 23.13
-----------
Balance at June 30, 1995 1,610,592 $13.22 - $23.81
Granted 406,300 33.50 - 41.88
Exercised (96,600) 13.22 - 23.13
Forfeited (134,638) 17.06 - 33.50
-----------
Balance at June 30, 1996 1,785,654 $13.22 - $41.88
===========
F-48
<PAGE>
Exercisable at June 30, 1996 729,232 $13.22 - $23.69
Options which became exercisable
during the year ended:
June 30, 1994 182,800 $13.22 - $16.53
June 30, 1995 283,600 13.22 - 20.44
June 30, 1996 369,832 13.22 - 23.69
96,600 shares were issued from options exercised in fiscal 1996 at market
prices ranging from $29.00 to $47.375. 5,400 shares were issued in fiscal 1995
at market prices ranging from $23.69 to $25.97 and 5,000 shares were issued in
fiscal 1994 at market prices ranging from $17.06 to $20.88.
The maximum number of shares reserved for use in all Company restricted stock
and stock incentive plans totals approximately 3,550,000. The total number of
restricted stock shares and stock options which have been awarded under these
plans as of June 30, 1996, was approximately 2,842,000.
15. Commitments and Contingent Liabilities
The Company occupies certain facilities and sales offices and uses certain
equipment under lease agreements. Rental expense for such leases was $6.0
million in 1996; $7.2 million in 1995; and $7.0 million in 1994. Minimum
rental commitments at June 30, 1996, under all noncancellable operating leases
are payable as follows:
Land and Machinery
Years ended June 30 Buildings and Equipment Total
- --------------------------------------------------------------------------
(in thousands)
1997.......................... $ 2,555 $ 113 $ 2,668
1998.......................... 2,769 69 2,838
1999.......................... 3,273 30 3,303
2000.......................... 2,549 -- 2,549
2001.......................... 2,719 -- 2,719
Later years................... 31,385 -- 31,385
------- ------- -------
Total....................... $45,250 $ 212 $45,462
======= ======= =======
F-49
<PAGE>
The Company entered into a lease agreement in January 1995 for office space in
New York City. This agreement is effective from January 1, 1996, through
December 31, 2011, and provides for one consolidated New York office location
instead of the three former locations. The Company moved into this office
space during the second and third quarters of fiscal 1996.
In the normal course of business, leases that expire are generally renewed or
replaced by leases on similar property.
Film rental contracts payable are noninterest-bearing, and the amounts due in
future fiscal years are $13.1 million in 1997; $6.0 million in 1998; $2.3
million in 1999; and $.1 million thereafter. The Company also is obligated to
make payments under contracts for programs not currently available for use, and
therefore not included in the consolidated financial statements, in the amount
of $25.9 million at June 30, 1996 ($40.7 million at June 30, 1995). The
portions of these payments due in succeeding years are $6.3 million in 1997;
$7.1 million in 1998; $6.4 million in 1999; $4.4 million in 2000; and $1.7
million thereafter.
The Company is involved in certain litigation and claims arising in the normal
course of business. In the opinion of management, liabilities, if any, arising
from existing litigation and claims are not considered material in relation to
the Company's earnings and financial position.
16. Industry Segment Information
See Financial Information about Industry Segments on page F-4, F-5 and F-6 of
this Form 10-K for the fiscal year ended June 30, 1996.
F-50
<PAGE>
17. Selected Quarterly Financial Data (unaudited)
First Second Third Fourth
Year ended June 30, 1996 Quarter Quarter Quarter Quarter Total
- ------------------------ -------- -------- -------- -------- --------
(in thousands, except per share)
Revenues
Publishing............... $166,563 $171,436 $179,999 $178,287 $696,285
Broadcasting............. 34,134 38,306 33,835 39,657 145,932
Real Estate.............. 6,206 6,382 5,593 7,122 25,303
Less: Inter-segment revenues (330) (16) (9) (28) (383)
-------- -------- -------- -------- --------
Total revenues........... $206,573 $216,108 $219,418 $225,038 $867,137
======== ======== ======== ======== ========
Operating Profit
Publishing............... $ 9,070 $ 13,533 $ 22,356 $ 19,148 $ 64,107
Broadcasting............. 12,761 15,526 9,356 14,668 52,311
Real Estate.............. 1,020 1,096 298 1,082 3,496
Unallocated corporate exp. (4,633) (5,968) (4,722) (7,086) (22,409)
-------- -------- -------- -------- --------
Income from operations... $ 18,218 $ 24,187 $ 27,288 $ 27,812 $ 97,505
======== ======== ======== ======== ========
Earnings
Earnings from continuing
operations.............. $ 9,509 $ 16,078 $ 13,789 $ 15,281 $ 54,657
Discontinued operation... (717) -- -- -- (717)
-------- -------- -------- -------- --------
Net earnings............. $ 8,792 $ 16,078 $ 13,789 $ 15,281 $ 53,940
======== ======== ======== ======== ========
Earnings per share:
Earnings from continuing
operations.............. $ .34 $ .57 $ .49 $ .54 $ 1.94
Discontinued operation... (.03) -- -- -- (.03)
-------- -------- -------- -------- --------
Net earnings per share... $ .31 $ .57 $ .49 $ .54 $ 1.91
======== ======== ======== ======== ========
Dividends per share...... $ .10 $ .10 $ .11 $ .11 $ .42
======== ======== ======== ======== ========
Stock price per share:
High................... $ 42 1/2 $ 42 $ 48 3/4 $ 48 5/8
Low.................... $ 23 1/2 $ 34 3/8 $ 40 1/8 $ 39 1/8
F-51
<PAGE>
Fiscal 1996
- -----------
First through third quarter revenues have been reduced by the amount of
broadcasting national representative commissions ($1.1, $1.1 and $1.0 million
respectively in each quarter) to conform with fiscal 1996 fourth quarter and
year-end presentations. This reclassification had no effect on income from
operations or net earnings.
Second quarter earnings from continuing operations include a post-tax gain of
$3.4 million from the disposition of the Company's book clubs (Note 9).
Fourth quarter Publishing segment operating profit was favorably impacted by a
$2.7 million reduction of LIFO inventory expense due to lower fourth quarter
paper prices.
Results of the discontinued operation reflect losses for the first quarter
only. Losses since September 30, 1995, have been deferred as the Company
expects to realize a net gain from the sale of cable operations (Note 2).
See Management's Discussion and Analysis starting on page F-6 of this Form 10-K
for other factors affecting comparability.
First Second Third Fourth
Year ended June 30, 1995 Quarter Quarter Quarter Quarter Total
- ------------------------ -------- -------- -------- -------- --------
(in thousands, except per share)
Revenues
Publishing............... $155,069 $164,537 $181,088 $182,637 $683,331
Broadcasting............. 25,164 30,027 29,994 36,505 121,690
Real Estate.............. 6,293 6,008 5,361 6,767 24,429
Less: Inter-segment revenues (12) (19) (8) (10) (49)
-------- -------- -------- -------- --------
Total revenues........... $186,514 $200,553 $216,435 $225,899 $829,401
======== ======== ======== ======== ========
Operating Profit
Publishing............... $ 10,263 $ 9,103 $ 17,060 $ 12,210 $ 48,636
Broadcasting............. 6,269 13,256 7,956 14,402 41,883
Real Estate.............. 699 644 43 912 2,298
Unallocated corporate exp. (4,155) (4,899) (4,813) (6,248) (20,115)
-------- -------- -------- -------- --------
Income from operations... $ 13,076 $ 18,104 $ 20,246 $ 21,276 $ 72,702
======== ======== ======== ======== ========
F-52
<PAGE>
Earnings
Earnings from continuing
operations.............. $ 12,281 $ 10,482 $ 10,436 $ 10,999 $ 44,198
Discontinued operation... (1,609) (1,563) (257) (924) (4,353)
-------- -------- -------- -------- --------
Earnings before cumulative
effect of change in
accounting principle.... 10,672 8,919 10,179 10,075 39,845
Cumulative effect of change
in accounting principle (46,160) -- -- -- (46,160)
-------- -------- -------- -------- --------
Net (loss) earnings...... $(35,488) $ 8,919 $ 10,179 $ 10,075 $ (6,315)
======== ======== ======== ======== ========
Earnings per share:
Earnings from continuing
operations.............. $ .44 $ .38 $ .38 $ .39 $ 1.59
Discontinued operation... (.05) (.06) (.01) (.03) (.15)
-------- -------- -------- -------- --------
Earnings before cumulative
effect of change in
accounting principle.... .39 .32 .37 .36 1.44
Cumulative effect of change
in accounting principle (1.67) -- -- -- (1.67)
-------- -------- -------- -------- --------
Net(loss)earnings per share$ (1.28) $ .32 $ .37 $ .36 $ (.23)
======== ======== ======== ======== ========
Dividends per share...... $ .09 $ .09 $ .10 $ .10 $ .38
======== ======== ======== ======== ========
Stock price per share:
High.................... $24 9/16 $24 9/16 $ 27 $ 27
Low..................... $21 1/4 $22 3/16 $ 22 5/8 $ 24 1/8
======== ======== ======== ========
Fiscal 1995
- -----------
Revenues have been reduced by the amount of broadcasting national
representative commissions to conform with fiscal 1996 year-end presentation.
Total restatement for the fiscal year was $4.0 million ($.8, $1.1, $.9 and $1.2
million respectively in each quarter). This reclassification had no effect on
income from operations or net (loss) earnings.
F-53
<PAGE>
Revenues and income from operations have been restated to reflect the Company's
Cable segment as a discontinued operation. Revenues for the fiscal year were
reduced by $51.2 million ($12.8, $13.3, $13.1 and $12.0 million respectively in
each quarter). Income from operations was reduced by $3.0 million ($ .5, $ .8,
$1.0 and $ .7 million respectively in each quarter).
First quarter earnings from continuing operations include $4.7 million in post-
tax interest income from the Internal Revenue Service, primarily related to the
favorable resolution of the Ladies' Home Journal magazine tax case (Note 5).
The third quarter loss from the discontinued operation includes a post-tax gain
of $1.1 million from the disposition of a cable television system (Note 2).
Third and fourth quarter financial data reflect the acquisition of WSMV (Note
8).
See Note 3 regarding the change in accounting principle.
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Meredith Corporation:
We have audited the accompanying consolidated balance sheets of Meredith
Corporation and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1996. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related financial statement schedule, as listed in Part IV,
Item 14(a)2 herein. These consolidated financial statements and financial
statement schedule are the responsibility of Company management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meredith
Corporation and subsidiaries at June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for subscription acquisition costs in 1995 to
adopt the provisions of Practice Bulletin 13, "Direct-Response Advertising and
Probable Future Benefits."
KPMG Peat Marwick LLP
Des Moines, Iowa
August 2, 1996
F-55
<PAGE>
REPORT OF MANAGEMENT
Meredith management is responsible for the preparation, integrity and
objectivity of the financial information included in this annual report to
shareholders. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based on management's informed judgments and estimates.
To meet management's responsibility for financial reporting, internal control
systems and accounting procedures are designed to provide reasonable assurance
as to the reliability of financial records. In addition, the internal audit
staff monitors and reports on compliance with Company policies, procedures and
internal control systems.
The consolidated financial statements have been audited by independent
auditors. In accordance with generally accepted auditing standards, the
independent auditors conducted a review of the Company's internal accounting
controls and performed tests and other procedures necessary to determine an
opinion on the fairness of the Company's consolidated financial statements.
The independent auditors were given unrestricted access to all financial
records and related information, including all Board of Directors' and Board
Committees' minutes. The Audit Committee of the Board of Directors, which
consists of five independent directors, meets with the independent auditors,
management and internal auditors to review accounting, auditing and financial
reporting matters. To ensure complete independence, the independent auditors
have direct access to the Audit Committee, with or without the presence of
management representatives.
Larry D. Hartsook
Vice President - Finance
F-56
<PAGE>
Schedule II
MEREDITH CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 1996, 1995 and 1994
(in thousands)
Year ended June 30, 1996
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- --------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $10,060 $ 7,948 $ 0 $11,959* $ 6,049
accounts
Reserve for returns 7,111 17,060 0 19,018** 5,153
------- ------- ---- ------- -------
$17,171 $25,008 $ 0 $30,977 $11,202
======= ======= ==== ======= =======
Year ended June 30, 1995
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- --------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $10,313 $ 9,804 $ 0 $10,057* $10,060
accounts
Reserve for returns 7,003 26,417 0 26,309** 7,111
------- ------- ---- ------- -------
$17,316 $36,221 $ 0 $36,366 $17,171
======= ======= ==== ======= =======
F-57
<PAGE>
Year ended June 30, 1994
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- --------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $ 9,902 $11,740 $ 0 $11,329* $10,313
accounts
Reserve for returns 6,352 38,500 0 37,849** 7,003
------- ------- ---- ------- -------
$16,254 $50,240 $ 0 $49,178 $17,316
======= ======= ==== ======= =======
*Bad debts charged to reserve.
**Actual returns charged to reserve.
F-58
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- ----------------------------------------------
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
E-1
<PAGE>
Exhibit 11
MEREDITH CORPORATION AND SUBSIDIARIES ----------
Computation of Primary and Fully Diluted Per
Common Share Earnings - Treasury Stock Method
Five years ended June 30, 1996
(not covered by Independent Accountants' Opinion)
(Note: All share and per-share information reflects the two-for-one
stock split effected March 16, 1995.)
Weighted average number of shares (in thousands)
Dilutive effect of
unexercised stock
Weighted average options and management
number of shares incentive deferred
outstanding awards Total
---------------- ---------------------- ----------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
------- ------- ------- ------- ------- -------
1996 27,398 27,398 775 813 28,173 28,211
1995 27,425 27,425 329 348 27,754 27,773
1994 28,365 28,365 202 238 28,567 28,603
l993 30,532 30,532 40 40 30,572 30,572
1992 32,282 32,282 62 62 32,344 32,344
Primary and fully diluted earnings per common share
Earnings from Cumulative
Cont. Operations Earnings Effect of
Before Cum. Effect from Change in
of Change in Discontinued Accounting
Acctg. Principles Operations Principles Total
------------------ --------------- ---------------- ----------------
Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
------- ------- ------- ------- ------- ------- ------- --------
1996 $1.94 $1.94 $(.03) $(.03) $ - $ - $1.91 $1.91
1995 1.59 1.59 (.15) (.15) (1.67) (1.67) (.23) (.23)
1994 1.14* 1.14* (.19) (.19) - - .95* .95*
1993 .70 .70 (.09) (.09) - - .61 .61
1992 .03 .03 - - (.23) (.23) (.20) (.20)
Note: Primary - based on average market prices.
Fully Diluted - Based on the higher of the average market price or the
market price at June 30 of each year.
*Dilution less than three percent from earnings per common share outstanding
and therefore not considered to be material.
Exhibit 21
----------
Subsidiaries of the Registrant
------------------------------
State of Names of
Significant Subsidiary Organization Business Operations
- --------------------------------- ------------ -------------------
Meredith Cable, Inc. Iowa Meredith Cable
Meredith/New Heritage Partnership Iowa Meredith Cable
Meredith/New Heritage Strategic
Partners, L.P. Iowa Meredith Cable
North Central Cable
Communications
Corporation
All other subsidiaries of the Company, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
Exhibit 23
----------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Meredith Corporation:
We consent to incorporation by reference in the registration statements No.
333-04033, No. 33-2094, No. 2-54974, and No. 33-59258, each on Form S-8 of
Meredith Corporation of our report dated August 2, 1996, relating to the
consolidated balance sheets of Meredith Corporation and subsidiaries as of June
30, 1996 and 1995 and the related consolidated statements of earnings,
stockholders' equity, and cash flows and related schedule for each of the years
in the three-year period ended June 30, 1996, which report appears in the June
30, 1996, annual report on Form 10-K of Meredith Corporation.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
September 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at June 30, 1996 and the Consolidated Statement of
Earnings for the year ended June 30, 1996 of Meredith Corporation and
Subsidiaries AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000065011
<NAME> MEREDITH CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,801
<SECURITIES> 0
<RECEIVABLES> 100,650
<ALLOWANCES> 11,202
<INVENTORY> 31,185
<CURRENT-ASSETS> 210,676
<PP&E> 182,855
<DEPRECIATION> 102,856
<TOTAL-ASSETS> 733,773
<CURRENT-LIABILITIES> 279,507
<BONDS> 35,000
0
0
<COMMON> 26,949
<OTHER-SE> 234,615
<TOTAL-LIABILITY-AND-EQUITY> 733,773
<SALES> 867,137
<TOTAL-REVENUES> 867,137
<CGS> 366,408
<TOTAL-COSTS> 366,408
<OTHER-EXPENSES> 25,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,530
<INCOME-PRETAX> 100,056
<INCOME-TAX> 45,399
<INCOME-CONTINUING> 54,657
<DISCONTINUED> (717)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,940
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
</TABLE>
