UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1995
Commission file number 1-5128
Meredith Corporation
(Exact name of registrant as specified in its charter)
Iowa 42-0410230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1716 Locust Street, Des Moines, Iowa 50309-3023
(Address of principal executive offices) (ZIP Code)
515 - 284-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1996
Common Stock, $1 par value 20,921,769
Class B Stock, $1 par value 6,669,294
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
December 31 June 30
Assets 1995 1995*
- -----------------------------------------------------------------------------
(in thousands)
Current assets:
Cash and cash equivalents $ 32,205 $ 11,825
Receivables, net 101,913 98,191
Inventories 34,192 46,781
Supplies and prepayments 12,822 23,774
Subscription acquisition costs 49,301 65,604
Film rental costs 14,806 4,423
---------- ----------
Total current assets 245,239 250,598
---------- ----------
Property, plant & equipment(at cost) 179,083 163,947
Less accumulated depreciation (104,924) (101,506)
---------- ----------
Net property, plant and equipment 74,159 62,441
---------- ----------
Net assets of discontinued operations 87,990 88,097
Deferred subscription acquisition costs 47,046 34,957
Deferred film rental costs 10,255 3,777
Other assets 21,629 21,290
Goodwill and other intangibles
(at original cost less accumulated amortization) 277,439 282,636
---------- ----------
Total assets $763,757 $743,796
========== ==========
*Restated to reflect the cable segment as discontinued operations.
See accompanying Notes to Interim Consolidated Financial Statements.
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(Unaudited)
December 31 June 30
Liabilities and Stockholders' Equity 1995 1995*
- -----------------------------------------------------------------------------
Current liabilities:
Current portion of long-term indebtedness $ 15,000 $ 15,000
Current portion of long-term
film rental contracts 16,496 7,290
Accounts payable 34,811 48,601
Accrued taxes and expenses 72,360 57,216
Unearned subscription revenues 143,417 150,927
---------- ----------
Total current liabilities 282,084 279,034
---------- ----------
Long-term indebtedness 65,000 75,000
Long-term film rental contracts 12,259 4,969
Unearned subscription revenues 91,847 96,381
Deferred income taxes 20,501 18,492
Other deferred items 28,689 28,870
---------- ----------
Total liabilities 500,380 502,746
---------- ----------
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 20,895,821 at December 31 and
20,579,565 at June 30 (net of treasury shares,
11,557,540 at December 31 and 11,601,465
at June 30). 20,896 20,580
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000; issued and outstanding
6,682,135 at December 31 and 6,905,062
at June 30. 6,682 6,905
Additional paid-in capital 3,098 873
Retained earnings 235,843 216,485
Unearned compensation (3,142) (3,793)
---------- ----------
Total stockholders' equity 263,377 241,050
---------- ----------
Total liabilities and stockholders' equity $763,757 $ 743,796
========== ==========
*Restated to reflect the cable segment as discontinued operations.
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months Six Months
Ended December 31 Ended December 31
1995 1994* 1995 1994*
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(in thousands, except per share)
Revenues (less returns and allowances)
Advertising $105,872 $ 92,854 $207,532 $176,834
Circulation 69,557 67,687 136,258 130,638
Consumer books 23,262 20,862 41,253 45,044
All other 18,487 20,208 39,797 36,428
--------- --------- --------- ---------
Total revenues 217,178 201,611 424,840 388,944
--------- --------- --------- ---------
Operating costs and expenses:
Production, distribution & edit 92,776 81,553 181,470 160,388
Selling, general and admin 94,595 97,979 189,719 189,364
Depreciation and amortization 5,620 3,975 11,246 8,012
--------- --------- --------- ---------
Total operating costs and expenses 192,991 183,507 382,435 357,764
--------- --------- --------- ---------
Income from operations 24,187 18,104 42,405 31,180
Gain on dispositions 5,898 -- 5,898 --
Interest income-IRS settlement -- -- -- 8,554
Interest income 459 823 1,121 1,346
Interest expense (1,711) (48) (3,470) (91)
--------- --------- --------- ---------
Earnings from continuing operations
before income taxes 28,833 18,879 45,954 40,989
Income taxes 12,755 8,397 20,367 18,226
--------- --------- --------- ---------
Earnings from continuing
operations 16,078 10,482 25,587 22,763
Discontinued operations:
Loss from cable operations -- (1,563) (717) (3,172)
--------- --------- --------- ---------
Earnings before cumulative effect
of change in accounting principle 16,078 8,919 24,870 19,591
Cumulative effect of change in
accounting principle -- -- -- (46,160)
--------- --------- --------- ---------
Net earnings (loss) $ 16,078 $ 8,919 $ 24,870 $(26,569)
========= ========= ========= =========
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Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited), continued
Three Months Six Months
Ended December 31 Ended December 31
1995 1994* 1995 1994*
- -----------------------------------------------------------------------------
(in thousands, except per share)
Net earnings (loss) per share:
Earnings from continuing
operations $ 0.57 $ 0.38 $ 0.91 $ 0.82
Discontinued operations -- (0.06) (0.03) (0.11)
Cumulative effect of change in
accounting principle -- -- -- (1.67)
--------- --------- --------- ---------
Net earnings (loss) per share $ 0.57 $ 0.32 $ 0.88 $ (0.96)
========= ========= ========= =========
Dividends paid per share $ 0.10 $ 0.09 $ 0.20 $ 0.18
========= ========= ========= =========
Average shares outstanding 28,291 27,725 28,189 27,690
========= ========= ========= =========
* Restated to reflect the cable segment as discontinued operations.
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31 1995 1994*
- -----------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Earnings before cumulative effect
of change in accounting principle $24,870 $19,591
Less cumulative effect of change
in accounting principle -- (46,160)
-------- --------
Net earnings (loss) 24,870 (26,569)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 11,246 8,012
Amortization of film contract rights 8,457 9,613
Gain on dispositions, net of taxes (3,379) --
Loss from discontinued operations 717 3,172
(Increase) in receivables (10,833) (27,872)
Decrease (increase) in inventories 7,687 (520)
Decrease (increase) in supplies and prepayments 5,076 (2,907)
Decrease in subscription acquisition costs 4,214 79,796
(Decrease) increase in accounts payable and accruals (5,859) 3,172
(Decrease) incr in unearned subscription revenues (12,044) 647
Increase (decrease) in deferred income taxes 2,412 (32,728)
(Decrease) increase in other deferred items (181) 949
-------- --------
Net cash provided by operating activities 32,383 14,765
-------- --------
Cash flows from investing activities:
Redemption of marketable securities -- 9,174
Proceeds from dispositions 27,894 --
Additions to property, plant, and equipment (19,237) (5,694)
(Increase) decrease in other assets (212) 6,996
-------- --------
Net cash provided by investing activities 8,445 10,476
-------- --------
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Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31 1995 1994*
- -----------------------------------------------------------------------
(in thousands)
Cash flows from financing activities:
Long-term indebtedness retired $(10,000) $ --
Payments for film rental contracts (7,906) (6,841)
Proceeds from common stock issued 2,969 1,795
Purchase of company shares -- (3,759)
Dividends paid (5,511) (4,936)
-------- --------
Net cash (used) by financing activities (20,448) (13,741)
-------- --------
Net increase in cash and cash equivalents 20,380 11,500
Cash and cash equivalents at beginning of year 11,825 31,528
-------- --------
Cash and cash equivalents at end of period $32,205 $43,028
======== ========
*Restated to reflect the cable segment as discontinued operations.
See accompanying Notes to Interim Consolidated Financial Statements.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, which are of a
normal recurring nature and necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year.
Fiscal 1995 financial statements reflect the adoption of Practice Bulletin 13,
"Direct-Response Advertising and Probable Future Benefits" as of July 1, 1994.
Practice Bulletin 13 interpreted Statement of Position 93-7, "Reporting on
Advertising Costs." Practice Bulletin 13 requires the Company to expense most
direct-response subscription acquisition costs as incurred versus the Company's
prior accounting method of deferring most of those costs over the lives of the
related subscription revenues.
2. Discontinued Operations
The Company formalized plans to sell its remaining cable television systems and
therefore classified its cable segment as discontinued operations effective
September 30, 1995. Meredith/New Heritage Strategic Partners, L.P. ("Strategic
Partners"), of which the Company owns approximately 70 percent, is currently
negotiating the sale of these cable television systems located in Minneapolis.
(Strategic Partners sold its Bismarck/Mandan, North Dakota system in March
1995.) The Company believes Strategic Partners will complete the sale of its
cable operations within 12 months of the measurement date and will recognize a
gain from the sale. The amount of the gain is not yet determinable.
Prior year financial statements have been restated to reflect the cable segment
as discontinued operations. The following table summarizes the results of
discontinued operations prior to the measurement date:
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Three Months Six Months
Ended December 31 Ended December 31
------------------ --------------------
1995* 1994 1995 1994
------- ------- ------- -------
(in thousands)
Results of operations:
Net revenues $ -- $13,273 $12,223 $26,087
===== ======= ======= =======
Income from operations $ -- $ 840 $ 721 $ 1,351
===== ======= ======= =======
(Loss) before income taxes $ -- $(1,483) $ (744) $(3,044)
Provision for tax expense
(benefit) -- 80 (27) 128
----- ------- ------- -------
Net (loss) from discontinued
operations $ -- $(1,563) $ (717) $(3,172)
===== ======= ======= =======
*Since September 30, 1995 the cable operations have reported revenues of $12.8
million, income from operations of $1,263,000, and a net loss of ($349,000)
(including income tax expense of $72,000). These losses have been deferred
until the disposal date, as a net gain is anticipated.
Interest expense is reflected in the loss from discontinued cable operations
based on debt that is specifically attributed to the cable segment and is non-
recourse to Meredith Corporation. Assets and liabilities of the discontinued
operations have been reclassified on the consolidated balance sheet from their
historic classification to separately identify them as net assets of
discontinued operations. These net assets of discontinued operations at
December 31, 1995, consist of goodwill and other intangibles $140.8 million,
net property, plant and equipment $71.8 million, net of long-term debt ($87.3)
million and other net liabilities ($37.3) million.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 75 and 55 percent respectively, are under the LIFO
method at December 31, 1995 and June 30, 1995.
December 31 June 30
1995 1995
-------- --------
(in thousands)
Raw materials $32,540 $32,320
Work in process 10,710 13,801
Finished goods 6,410 13,059
-------- --------
49,660 59,180
Reserve for LIFO cost valuation (15,468) (12,399)
-------- --------
Total $34,192 $46,781
======== ========
The decrease in finished goods inventory and the increase in the percentage of
inventory under the LIFO method at December 31, 1995 primarily reflect the sale
of book clubs in December 1995.
4. Cable Subsidiary Long-Term Indebtedness
Strategic Partners owed $87.3 million as of December 31, 1995, to a group of
ten banks under a loan agreement. Interest was payable under interest rate
swap agreements until September 1, 1995. On September 1, 1995, interest rates
on the total outstanding borrowing of $87.3 million converted to short-term
rates based on Eurodollar, prime and/or certificate of deposit rates as
provided in the loan agreement. As of December 31, 1995, the weighted-average
rate of interest on Strategic Partners' debt was 6.95 percent.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
5. Sale of Properties
In December 1995, Meredith Corporation recorded a gain of $5,898,000
($3,379,000 post-tax) on the sale of the Better Homes and Gardens Crafts Club,
Better Homes and Gardens Cook Book Club and Country Homes and Gardens Book
Club. Had this sale occurred on July 1, 1995, the effect on consolidated
revenues and net earnings would not have been material.
6. Revenues, operating profit and depreciation and amortization by industry
segment are shown below:
Three Months Six Months
Ended December 31 Ended December 31
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands)
Revenues
Publishing $171,436 $164,537 $337,999 $319,606
Broadcasting 39,376 31,085 74,599 57,068
Real Estate 6,382 6,008 12,588 12,301
Less: Inter-segment revenues (16) (19) (346) (31)
-------- -------- -------- --------
Total revenues $217,178 $201,611 $424,840 $388,944
======== ======== ======== ========
Operating profit
Publishing $ 13,533 $ 9,103 $ 22,603 $ 19,366
Broadcasting 15,526 13,256 28,287 19,525
Real Estate 1,096 644 2,116 1,343
Unallocated corporate expense (5,968) (4,899) (10,601) (9,054)
-------- -------- -------- --------
Total operating profit $ 24,187 $ 18,104 $ 42,405 $ 31,180
======== ======== ======== ========
Depreciation and amortization
Publishing $ 2,476 $ 2,485 $ 4,996 $ 5,101
Broadcasting 2,645 992 5,268 1,946
Real Estate 119 119 234 232
Unallocated corporate expense 380 379 748 733
-------- -------- -------- --------
Total depr. and amortization $ 5,620 $ 3,975 $ 11,246 $8,012
======== ======== ======== ========
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
(Note: All per-share amounts are computed on a post-tax basis and reflect a
two-for-one stock split in March 1995.)
Meredith Corporation net earnings for the quarter ended December 31, 1995 were
$16,078,000 (57 cents per share) versus $8,919,000 (32 cents per share) in the
prior-year quarter. For the six months ended December 31, 1995, net earnings
were $24,870,000 (88 cents per share) compared to a loss of $26,569,000 (96
cents per share) in the prior-year period. Results for the six months ended
December 31, 1994 included a non-cash charge for the cumulative effect of a
change in accounting principle (related to subscription acquisition costs) of
$46,160,000 ($1.67 per share). The six months ended December 31, 1995 and the
quarter and six months ended December 31, 1994 also include losses from cable
operations which were classified as discontinued operations effective September
30, 1995. Management expects the cable properties to be sold within twelve
months of that date and to record a net gain on the sale. Therefore, net
losses of the cable operations for the quarter ended December 31, 1995 have
been deferred until the disposal date.
Earnings from continuing operations were $16,078,000 (57 cents per share) and
$10,482,000 (38 cents per share) for the quarters ended December 31, 1995 and
1994, respectively. Earnings from continuing operations for the comparative
six-month periods were $25,587,000 (91 cents per share) in fiscal 1996 and
$22,763,000 (82 cents per share) in fiscal 1995. Earnings for the quarter and
six months ended December 31, 1995 included a post-tax gain of $3,379,000 (12
cents per share) on the disposition of three of the Company's book clubs.
Earnings for the six months ended December 31, 1994 included $4,747,000 (17
cents per share) for the post-tax impact of IRS interest income. Excluding
these one-time items, comparable quarterly earnings were $12,699,000 (45 cents
per share) in fiscal 1996, an 18 percent per-share increase from comparable
prior-year second quarter earnings of $10,482,000 (38 cents per share).
Comparable earnings for the six-month periods were $22,208,000 (79 cents per
share) in fiscal 1996, a 22 percent per-share increase from the prior-year six
months' earnings of $18,016,000 (65 cents per share). Improvements in the
Company's publishing and broadcasting operations were the biggest factors in
these increases.
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In December 1995, a gain of $5,898,000 ($3,379,000 post-tax or 12 cents per
share) was recorded on the sale of the Better Homes and Gardens Crafts Club,
Better Homes and Gardens Cook Book Club and Country Homes and Gardens Book
Club. All other book club operations have been discontinued. In the second
half of fiscal 1996, consumer book revenues are expected to decline by more
than 50 percent from the prior year due to the sale and the Company's
previously announced strategic alliance with The Reader's Digest Association,
Inc. which is currently in the testing phase. The effect on operating profits
in the fiscal 1996 second half from these events is expected to be immaterial.
In addition to the one-time items noted above, comparisons between fiscal 1996
and 1995 are also affected by the acquisition of WSMV-TV in Nashville in
January 1995. Fiscal 1996 year-to-date results include six months of WSMV-TV
operations.
Revenues for the quarter ended December 31 were $217,178,000 in fiscal 1996, or
8 percent higher than fiscal 1995 second quarter revenues of $201,611,000.
Revenues for the six months ended December 31 were $424,840,000 in fiscal 1996,
or 9 percent higher than comparable fiscal 1995 revenues of $388,944,000.
Increased advertising revenues in the magazine and television broadcasting
operations were the most significant factors in the increases.
Income from operations in the second quarter was $24,187,000, a 34 percent
increase from the fiscal 1995 second quarter. Year-to-date income from
operations was $42,405,000, a 36 percent increase from the prior-year period.
The operating margin rose from 9.0 percent of net revenues in the fiscal 1995
second quarter to 11.1 percent in the current quarter. For the fiscal year-to-
date, the operating margin rose from 8.0 percent of net revenues in the fiscal
1995 period to 10.0 percent in the current period. Lower selling, general and
administrative expenses, as a percentage of revenues, led to the improvements.
In the current periods, a smaller quantity of magazine subscription promotion
mailings and lower book administrative expenses, from recent downsizing, were
the primary factors in the improvements. Production, distribution and
editorial expenses increased as a percentage of revenues in both periods due to
rising paper prices and higher postal rates in the publishing businesses.
Operating costs and expenses were up 5 percent for the quarter and 7 percent
for the six-months compared to the prior-year periods. The primary factors in
the increases were higher magazine paper and postage expenses (a result of both
volume and price increases) and the addition of operating costs and
amortization of intangible assets for WSMV-TV.
Earnings from continuing operations (excluding gain on dispositions) before
interest, taxes, depreciation and amortization ("EBITDA") were $29,807,000 for
the three months ended December 31, 1995, up 35 percent from $22,079,000 in
fiscal 1995. EBITDA for the fiscal year-to-date was $53,651,000, a 37 percent
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increase from $39,192,000 in the prior-year period. The increase was primarily
due to improvements in publishing and broadcasting operating results.
Net interest expense increased for both the quarter and six-month periods due
to debt incurred for the purchase of the Nashville television station.
Unallocated corporate expenses increased in both current-year periods due to
investments in CD-ROM and web site development.
Publishing: Revenues in the publishing segment increased 4 percent and 6
percent from the prior-year second-quarter and year-to-date periods,
respectively. The increases were primarily due to higher advertising revenues
that resulted largely from increased ad pages. The Company's flagship title,
Better Homes and Gardens magazine, recorded advertising revenue increases of 7
percent for the quarter and 14 percent for the six months versus the prior-year
periods. Run-of-press ad pages increased 6 percent for the quarter and 13
percent for the six months. Ladies' Home Journal magazine, the Company's
second largest circulation title, reported advertising revenue increases of 6
percent and 3 percent for the quarter and year-to date, respectively. Ladies'
Home Journal results for the quarter benefited from both increased run-of-press
ad pages and higher average revenue per page. The year-to-date improvement
resulted primarily from higher average revenue per page. Revenues from new
titles and custom publications also contributed to the current-year advertising
revenue increases in both the quarter and six-month periods. Publishing
circulation revenues increased from the prior-year periods primarily due to
higher revenues from newer titles. Consumer book revenues were up for the
current-year quarter due to a larger volume of retail book sales, including
sales of the Home Improvement 1-2-3 book, developed for Home Depot. Consumer
book revenues declined for the current-year six months as a result of lower
volumes in book direct-response from the alliance with The Reader's Digest
Association, Inc.
Publishing segment operating profits increased 49 percent from the prior-year
quarter and 17 percent from the prior-year six months reflecting improvements
in magazine and book operating results. The Company's book business reported
its first quarterly operating profit in nearly two years in the fiscal 1996
second quarter. Higher operating profits from retail book sales and lower
administrative expenses due to recent downsizing fueled the turn-around.
Magazine operating profits increased 5 percent for the quarter and 4 percent
for the year-to-date. Higher advertising revenues and lower subscription
expenses were the primary factors in the improvement. The decline in
subscription expenses reflected fewer promotional mailings. In the prior year,
many promotion mailings were moved into December, prior to the January 1995
postal rate increase. In the current year, many similar promotions will mail
in January 1996. In addition, the volume of promotion mailings was down at
Better Homes and Gardens magazine due to strong response from earlier efforts
and at WOOD magazine due to an announced change in rate base. Lower new title
start-up and testing costs also contributed to the improvement in magazine
operating profits.
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Meredith Corporation began a second licensing agreement with Wal-Mart Stores,
Inc., involving Better Homes and Gardens Floral & Nature Crafts-labeled
merchandise and signs in January 1996. However, second quarter and year-to-
date operating results from licensing agreements were down from the prior-year
periods primarily due to expenses associated with the development of
prospective licensing agreements.
Paper is the major raw material required in the publishing segment.
Substantial price increases in the past 18 months have resulted from increased
global demand and limited supplies. Paper prices increased nearly 30 percent
in fiscal 1995. An additional 9 percent price increase went into effect on
July 1, 1995 and a 5 percent price increase (excluding free sheet paper stock
which represents approximately one-third of the Company's paper purchases) took
effect on October 1, 1995. Additional price increases are possible in the last
half of fiscal 1996 or early fiscal 1997. The Company has contractual
agreements to ensure adequate supplies of paper for current publishing
requirements. LIFO inventory expense for the quarter and six months ended
December 31, 1995 was $1,535,000 and $3,070,000, respectively. This represents
increases of 60 percent from the prior second quarter and 85 percent from the
prior year-to-date.
Selected magazine rate base reductions have been announced, largely in response
to skyrocketing paper prices. Ladies' Home Journal will reduce its rate base
from 5 million to 4.5 million starting with the February 1996 issue. Country
America magazine has cut its rate base from 1 million to 900,000 and WOOD
magazine's rate base will drop from 650,000 to 600,000. However, advertising
page rates have remained the same for these titles. The Company does not plan
any across-the-board rate base reductions. In fact, Traditional Home magazine
plans to increase its rate base from 750,000 to 775,000 in 1996.
Broadcasting: The addition of WSMV-TV led to broadcasting segment revenue
increases of 27 percent for the second quarter and 31 percent for the six
months ended December 31, 1995. Total advertising revenues increased 25
percent for the quarter and 29 percent for the six-month period. Advertising
revenues of comparable stations were down 5 percent for the quarter and 2
percent for the year-to-date. Several factors contributed to the decline
including a softer television advertising environment in the second quarter,
lower ratings for the CBS network and the absence of political revenues which
totaled $2.5 million and $3.5 million in the comparable fiscal 1995 quarter and
six-month periods, respectively. Looking ahead, management anticipates that
political and Olympic games advertising dollars will counter any possible
softness in television advertising sales that may continue in the next calendar
year.
Broadcasting operating profits increased 17 percent for the quarter and 45
percent for the six months due primarily to the addition of WSMV-TV. Second
quarter operating profits of the five comparable stations (all other owned
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television stations excluding WSMV-TV) were down 15 percent from the prior-year
quarter reflecting lower ad revenues and increased programming and news
expenses. Programming costs, which have declined in recent years, were
affected by purchases of replacement programming at higher costs. The increase
in news expense reflected expanded news programming, primarily at KPHO-TV in
Phoenix. Operating profits of the five comparable stations increased 6 percent
for the year-to-date period due to improvements at KPHO-TV related in part to
its September 1994 affiliation with CBS.
In January 1996, the Company purchased the assets of WOGX-TV, a Fox affiliate
serving Ocala-Gainesville, Florida. This station will be jointly managed with
WOFL-TV, the Company's Fox affiliate in Orlando.
Real Estate: Revenues increased 6 percent for the quarter and 2 percent for
the six-month period from the respective prior-year periods due to second
quarter revenues from the signing of a master real estate franchise agreement
in Thailand and higher transaction fees from member firms. (Revenues from the
Thailand franchise agreement are not currently nor expected to be material to
consolidated net revenues.) Operating profits increased 70 percent from the
prior-year second quarter due to the revenues from the master franchise
agreement. Operating profits were up 58 percent for the six-month period
reflecting the second quarter increase and the absence of prior-year expenses
for the termination of a group marketing contract.
Discontinued Operations: In September 1995, plans to sell the cable television
systems owned by Meredith/New Heritage Strategic Partners, L.P., were
formalized. The Company indirectly owns approximately 70 percent of these
systems, which serve 126,000 subscribers in the Minneapolis/St. Paul area.
Management expects the cable properties to be sold within the next year and the
sale to result in a gain. Accordingly, the second-quarter net losses of the
cable segment have been deferred until the disposal date.
Liquidity and Capital Resources
Cash and cash equivalents increased by $20,380,000 in the six months ended
December 31, 1995 to $32,205,000. This compares to a cash increase of
$11,500,000 in the first six months of the prior year. The current-year-to-
date increase in cash reflects proceeds from the sale of the book clubs and
increased cash provided by operating activities versus the prior-year period.
Higher operating income and a net decrease in working capital led to the
increase in cash provided by operations. The changes in working capital
between periods primarily related to amounts owed the Company for taxes and
interest related to the IRS settlement of the Ladies' Home Journal tax case,
downsizing in book operations and an increase in payables related to planned
contributions to Company pension plans in the second half of fiscal 1996.
Partially offsetting these additional cash sources were the increased use of
cash for capital expenditures in the current period. The cumulative effect of
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<PAGE>
a change in accounting principle in the prior-year period, which reduced
subscription acquisition costs, deferred income taxes and net earnings, had no
cash effect.
In the first six months of fiscal 1995, $3.8 million was spent for the
repurchase of 168,000 shares of Company common stock. No shares were
repurchased in the current period. In January 1996, the board of directors
authorized the repurchase from time to time, subject to market conditions, of
up to one million shares of common stock.
The Company paid dividends of $5.5 million (20 cents per share) in the first
six months of fiscal 1996 compared with $4.9 million (18 cents per share) in
the prior-year period. In January 1996, the board of directors increased the
quarterly dividend by 10 percent (one cent per share) to 11 cents per share
effective with the dividend payable on March 15, 1996. On an annual basis, the
effect of this quarterly dividend increase would be to increase dividends paid
by approximately $1.1 million at the current number of shares outstanding.
At December 31, 1995, the Company owed $80 million under a loan agreement with
four banks. The debt was incurred in January 1995 for the purchase of WSMV-TV,
a television station located in Nashville, Tenn. A $10 million pre-payment of
this debt was made in August 1995 and a $15 million pre-payment was made in
February 1996. The loan agreement requires annual and/or semi-annual payments
through December 31, 1998, the term loan maturity date. Operating cash flows
of the Company are expected to provide adequate funds for principal and
interest payments.
In January 1996 the Company purchased the assets of WOGX-TV, a Fox affiliate
serving Ocala-Gainesville, Florida, using available cash. The Company
continues to pursue the acquisition of additional television broadcasting
stations.
Discontinued Operations: Long-term debt was incurred by Meredith/New Heritage
Strategic Partners, L.P. ("Strategic Partners"), in conjunction with Strategic
Partners' acquisition of North Central Cable Communications Corporation on
September 1, 1992. At December 31, 1995, $87.3 million was owed under the term
loan agreement Strategic Partners has with ten banks. Required financial ratio
tests, as amended, were met at December 31, 1995. All borrowings outstanding
under the loan agreement are due on the earlier of March 31, 1996, or the date
of sale of Strategic Partners' cable television system. In light of Strategic
Partners' intent to sell its assets, the lenders have indicated they would
support a request to extend the maturity date. Strategic Partners' debt is
non-recourse to Meredith Corporation.
Capital expenditures in the six months ended December 31, 1995, were $19.2
million versus prior-year capital spending of $5.7 million. Fiscal 1996
capital spending for continuing operations is expected to exceed fiscal 1995
levels by approximately $20 million, or 150 percent. This increase reflects
- 17 -
<PAGE>
spending for leasehold improvements to new consolidated office space in New
York City and for planned construction of a new office building in Des Moines.
The New York project is complete and spending totaled approximately $11 million
in the first two quarters of fiscal 1996. The new office building and related
improvements in Des Moines are expected to cost approximately $36 million.
Fiscal 1996 spending for this project is expected to be approximately $8
million, with the balance of the spending in fiscal 1997 and 1998. Funds for
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 any additional cash needs (e.g., cash dividends, stock repurchases)
for foreseeable periods. At December 31, 1995, Meredith Corporation had unused
lines of credit totaling $23 million. The Company does not expect the need for
any long-term source of cash to meet working capital requirements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on November 13, 1995, at the
Company's headquarters in Des Moines, Iowa.
(b) The name of each director elected at the Annual Meeting is shown under
Item 4.(c).
The other directors whose terms of office continued after the meeting
were: Herbert M. Baum, Pierson M. Grieve, Frederick B. Henry, William T.
Kerr, Robert E. Lee, Nicholas L. Reding, Jack D. Rehm and Barbara S.
Uehling.
(c) Four Class III directors for terms expiring in 1998 were elected at the
annual meeting. The following directors were elected at that meeting in
uncontested elections:
Number of shareholder votes*
----------------------------
For Withheld
Class III directors ---------- --------
Robert A. Burnett 79,743,190 162,958
Joel W. Johnson 79,740,914 165,234
Richard S. Levitt 79,754,410 151,738
E. T. Meredith III 79,754,410 151,738
*As specified on the proxy card, if no vote For or Withhold was specified,
the shares were voted For the election of the named director.
- 18 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11) Statement re computation of per share earnings
27) Financial Data Schedule
99) Additional financial information from the Company's second quarter
press release dated January 23, 1996
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter ended December 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEREDITH CORPORATION
Registrant
(Larry D. Hartsook)
Larry D. Hartsook
Vice President - Finance
(Principal Financial and
Accounting Officer)
Date: February 12, 1996
- 19 -
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
11 Statement re computation of per share earnings
27 Financial Data Schedule
99 Additional financial information from the Company's second
quarter press release dated January 23, 1996
Exhibit 11
----------
MEREDITH CORPORATION
Computation of Primary and Fully Diluted Per
Common Share Earnings - Treasury Stock Method
For the Six Months Ended December 31, 1995 and 1994
(Unaudited)
Weighted average number of shares
(in thousands)
1995 1994*
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Weighted average number of shares
outstanding in thousands 27,536 27,536 27,392 27,392
Dilutive effect of unexercised
stock options in thousands 653 740 298 294
------ ------ ------ ------
Total 28,189 28,276 27,690 27,686
====== ====== ====== ======
Primary and fully
diluted earnings per common share
1995 1994*
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Earnings per share from
continuing operations $ .91 $ .91 $ .82 $ .82
Discontinued operations ( .03) ( .03) ( .11) ( .11)
Cumulative effect of change in
accounting principle - - (1.67) (1.67)
----- ----- ----- -----
Net earnings (loss) per share $ .88 $ .88 ($ .96) ($ .96)
===== ===== ===== =====
*Restated to reflect a two-for-one stock split in March 1995.
Note: Primary - Based on average market prices for the period.
Fully Diluted - Based on the higher of the average market price
for the period or the market price at December 31
of each year.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at December 31, 1995 and the Consolidated Statement
of Earnings for the six months ended December 31, 1995 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 32,205
<SECURITIES> 0
<RECEIVABLES> 101,913<F1>
<ALLOWANCES> 0
<INVENTORY> 34,192
<CURRENT-ASSETS> 245,239
<PP&E> 179,083
<DEPRECIATION> 104,924
<TOTAL-ASSETS> 763,757
<CURRENT-LIABILITIES> 282,084
<BONDS> 65,000
<COMMON> 27,578
0
0
<OTHER-SE> 235,799
<TOTAL-LIABILITY-AND-EQUITY> 763,757
<SALES> 424,840
<TOTAL-REVENUES> 424,840
<CGS> 181,470
<TOTAL-COSTS> 181,470
<OTHER-EXPENSES> 11,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,470
<INCOME-PRETAX> 45,954
<INCOME-TAX> 20,367
<INCOME-CONTINUING> 25,587
<DISCONTINUED> (717)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,870
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
<FN>
<F1>Net of allowances
</FN>
</TABLE>
Exhibit 99
----------
MEREDITH CORPORATION
SECOND QUARTER 1996 EARNINGS PER SHARE AT-A-GLANCE
- -- The chart below depicts the comparable quarterly and fiscal-year earnings
per share before non-recurring items and discontinued operations:
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Fiscal Year
-------- -------- -------- -------- -----------
F1993 .12 .18 .21 .19 .70
F1994 .17 .26 .32 .26 1.01
F1995 .27 .38 .38 .39 1.42
F1996 .34 .45
- -- Second-quarter earnings per share from continuing operations before non-
recurring items increased 18 percent from 38 cents to 45 cents, marking the
14th consecutive quarter of improved comparable earnings.
- -- Fiscal 1996 year-to-date earnings per share from continuing operations
before non-recurring items increased 22 percent to 79 cents. Prior year-
to-date earnings per share from continuing operations before non-recurring
items were 65 cents.
- -- Net earnings per share for the second quarter were 57 cents, which included
a post-tax gain of 12 cents per share from the December 1995 sale of the
Company's Book Clubs. Meredith Corporation deferred current-year second-
quarter cable losses since the Company expects to report a gain on the sale
of its remaining cable system.
- -- Net earnings per share in the prior-year quarter were 32 cents, which
included losses in the Company's discontinued cable operations.
- -- Net earnings per share for the year-to-date were 88 cents. In the year-to-
date 1995 period, the Company reported a net loss of 96 cents per share due
to a previously-reported non-cash charge of $l.67 per share from a change
in accounting principle.
