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, 1997
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, 1997, was $981,858,000 based upon
the closing price on the New York Stock Exchange at that date.
Number of common shares outstanding at July 31, 1997: 40,751,888
Number of class B shares outstanding at July 31, 1997: 12,317,478
----------
Total common and class B shares outstanding 53,069,366
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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 10, 1997
PART I
Item 1. Business
General
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Meredith Corporation (the company or Meredith) was founded in 1902 by Edwin
Thomas Meredith, and incorporated in Iowa in 1905. Since its beginnings in
agricultural publishing, the company has expanded to include mass audience and
special interest publications designed to serve the home and family market. In
1948, Meredith entered the television broadcasting business. The company now
owns and operates television stations in locations across the continental
United States. These businesses and associated trademarks have been the core
of Meredith's success.
Meredith 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 network-affiliated television stations in
geographically diverse markets. The real estate segment includes franchise and
marketing operations. In previously reported fiscal years, the company's
segments included a cable television segment. The cable segment was classified
as a discontinued operation in fiscal 1996 and the sale of all cable television
operations was finalized in fiscal 1997.
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, and
cyclical increases during certain periods, such as during key political
elections and Olympic Games. 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 or 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 2,102 employees at June 30, 1997 (including 139 part-time
employees).
Business Developments
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In January 1997, the company announced that, pending Federal Communications
Commission (FCC) approval, it would acquire all four of the television stations
of First Media Television, L.P., for $435 million. On July 1, 1997, Meredith
completed the acquisition of three of these stations: KPDX-Portland, Ore.;
KFXO-Bend, Ore.; and WHNS-Greenville, S.C./Spartanburg, S.C./Asheville, N.C.
All three stations are affiliates of the FOX network. The fourth First Media
station is WCPX, a CBS network affiliate in Orlando, Fla., where Meredith
currently owns WOFL, a FOX network affiliate. Because FCC regulations
currently prohibit ownership of multiple stations in one market, Meredith
agreed to exchange WCPX for WFSB, a CBS affiliate serving Hartford/New Haven,
Conn. Terms of the agreement to acquire WFSB from Post-Newsweek, a subsidiary
of the Washington Post Company, provided for an exchange of assets plus a $60
million cash payment to Meredith. The purchase of WCPX and subsequent exchange
for WFSB occurred on September 4, 1997. These acquisition agreements had no
material effect on the company's fiscal 1997 financial statements.
In fiscal 1997, the company contracted with third parties for the production
and syndication of one year of a Better Homes and Gardens television program,
which began airing in September 1997.
The company finalized the sale of its ownership interest in cable television
systems in fiscal 1997. In anticipation of this sale, the company's cable
segment was classified as a discontinued operation effective September 30,
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1995. On October 25, 1996, the Meredith/New Heritage Partnership (MNH), of
which the company indirectly owned 96 percent, completed the sale of its 73
percent ownership interest in Meredith/New Heritage Strategic Partners, L.P
(Strategic Partners) to a subsidiary of Continental Cablevision, Inc.
Strategic Partners owned and operated cable television systems with
approximately 127,000 subscribers in the Minneapolis/St. Paul area. This sale
completed the company's exit from the cable television business. Meredith
received $116 million in cash (net of taxes) for its cable interest and
recorded a second quarter net gain of $27.7 million, or 50 cents per share,
from the sale.
Overview of Fiscal 1997 Financial Results
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Fiscal 1997 revenues for the company were $855.2 million, a 1 percent decrease
from fiscal 1996 revenues of $867.1 million. This decrease was primarily due
to downsizing in the consumer book operations and lower circulation revenues in
the company's magazine operations. The decrease in circulation revenues was
due to closing a few smaller magazine titles, reducing the rate base of Ladies'
Home Journal magazine and reducing the number of issues published annually by
Country America magazine from 10 to six. The decrease in magazine and book
revenues was partially offset by higher royalty revenues from brand licensing
operations, up over 60%.
Advertising revenues in the broadcasting segment were up 7 percent from
increased local advertising for the year and political advertising in the fall.
Income from operations increased 18 percent to $114.7 million from $97.5
million in fiscal 1996. Lower paper prices and increased advertising revenues
contributed to the growth in operating results.
Earnings from continuing operations were $67.6 million or $1.22 per share. In
fiscal 1996, the company's comparable earnings were $51.3 million, or 91 cents
per share, excluding the post-tax gain from the sale of book clubs of $3.4
million, or 6 cents per share. This represents a 34 percent per-share increase
from comparable fiscal 1996 results. Earnings per share have been restated to
reflect a two-for-one stock split in March 1997.
See Financial Information about Industry Segments beginning on page F-4 of this
Form 10-K.
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Description of Business
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PUBLISHING
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Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Publishing revenues $673,151 $695,902 $683,282
Publishing operating profit $ 80,557 $ 64,107 $ 48,636
Publishing revenues, representing 79 percent of the company's consolidated
revenues in fiscal 1997, were down 3 percent as a result of downsizing book
operations and changes in magazine operations including the fiscal 1996 closing
of home garden and Weekend Woodworking magazines. Strong advertising revenue
growth was reported at Better Homes and Gardens, Country Home, Successful
Farming and Midwest Living magazines. The 1996 rate base reduction at Ladies'
Home Journal magazine and reduced frequency of Country America magazine
affected advertising and circulation revenues of the publishing segment. The
effect of these prior-year actions has had a favorable impact on operating
results. Lower paper prices combined with the strong advertising performance
mentioned previously and higher royalties in brand licensing to result in a 26
percent increase in the publishing segment's operating profit.
Magazine
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Magazine operations account for approximately 90 percent of the revenues and
operating profit of the publishing segment. Meredith currently publishes 21
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:
June 30
Title Frequency Rate Base Ad Pages
----- --------- --------- --------
Better Homes and Gardens - Home service
Fiscal 1997 Monthly 7,600,000 1,820
Fiscal 1996 Monthly 7,600,000 1,753
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Ladies' Home Journal - Women's service
Fiscal 1997 Monthly 4,500,000 1,390
Fiscal 1996 Monthly 4,500,000 1,445
Country Home - Home decorating
Fiscal 1997 Bi-monthly 1,000,000 605
Fiscal 1996 Bi-monthly 1,000,000 558
Country America - Country music and lifestyle
Fiscal 1997 6x/year 900,000 382
Fiscal 1996 10x/year 900,000 467
Midwest Living - Regional travel and lifestyle
Fiscal 1997 Bi-monthly 815,000 631
Fiscal 1996 Bi-monthly 815,000 587
Traditional Home - Home decorating
Fiscal 1997 Bi-monthly 775,000 511
Fiscal 1996 Bi-monthly 775,000 515
WOOD - Woodworking projects and techniques
Fiscal 1997 9x/year 600,000 375
Fiscal 1996 9x/year 600,000 332
Successful Farming - Farm information
Fiscal 1997 12x/year 475,000 619
Fiscal 1996 12x/year 485,000 590
Crayola Kids - Kids' reading, crafts and games
Fiscal 1997 Bi-monthly 450,000 135
Fiscal 1996 Bi-monthly 350,000 107
Golf for Women - Golf instruction and information
Fiscal 1997 Bi-monthly 350,000 315*
Fiscal 1996 Bi-monthly 325,000 367
*Fiscal 1997 included five issues versus six in fiscal 1996 due to a
change in an issue on-sale date.
Rate base is the circulation guaranteed to advertisers. Actual circulation
often exceeds rate base, and is tracked by the Audit Bureau of Circulation,
which issues periodic statements for audited magazines. 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 profit of the company and the
publishing segment.
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Country America magazine, published by Country America Corporation, is jointly
owned by Meredith (which owns 80 percent), Group W Satellite Communications and
Opryland USA, Inc.
Crayola Kids magazine is published under a license from Binney & Smith
Properties, Inc., makers of Crayola crayons. In fiscal 1997, Meredith expanded
the licensing agreement to include the rights to a Crayola Kids line of books.
The company pays Binney & Smith a royalty for use of the Crayola trademark.
Other bi-monthly 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). In
addition, Meredith publishes six quarterly subscription magazines: Country
Home Country Gardens, Traditional Home Renovation Style and four specialty
titles under the Better Homes and Gardens name (Crafts Showcase, Decorating, Do
It Yourself and Garden, Deck & Landscape). All subscription magazines, except
Successful Farming, are also sold on newsstands. Successful Farming is
available only by subscription to qualified farm families.
In 1997, Meredith launched a new magazine, Better Homes and Gardens Family
Money. The magazine will be published quarterly with an initial rate base of
250,000. Meredith has agreed to develop a customized edition of the magazine
for distribution to customers and employees of Metropolitan Life Insurance
Company. Meredith also will sell the magazine through subscriptions and on
newsstands. The first issue went on sale in August 1997.
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 (76
issues in fiscal 1997) were published in categories including decorating, do-
it-yourself, home plans, crafts, gardening, holidays and cooking. Based on
total annual advertising and circulation revenues, these publications rank as
the third largest magazine profit center behind Better Homes and Gardens and
Ladies' Home Journal.
In fiscal 1997, several subscription magazines also created related special
interest publications sold primarily on newsstands (Ladies' Home Journal - four
issues, Country Home - two issues, Midwest Living - two issues, and Traditional
Home - one issue). The Ladies' Home Journal special issues included a magazine
entitled more, aimed at women over 45. Results from the first issue are being
evaluated to determine future plans for this title. In addition, the company
publishes numerous craft magazines sold primarily on newsstands.
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Meredith Custom Publishing provides custom publishing services to advertisers
and other external clients on both one-time and periodic bases. Current
clients include Hallmark Cards, Inc., The Home Depot, Metropolitan Life
Insurance Company, Nestle Food Company, Northwest Airlines and Sears Roebuck &
Company.
Meredith Custom Marketing develops comprehensive integrated marketing programs
which may include magazine advertising, custom publishing and resources from
other operating segments. The creation and sale of premiums and specialty
products, typically for one-time promotional purposes, also are significant
sources of revenue for the custom marketing operations.
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 21 magazines, primarily furnished free
to park visitors, in fiscal 1997. California Tourism Publications, another
wholly-owned subsidiary, produces travel publications for the California
Division of Tourism. Meredith also publishes travel guides for other states
and cities.
Magazine operations also realize revenues from the sale of ancillary products
and services. One of these services, Meredith Print Advantage, provides
prepress and print production services.
Meredith also has a 50 percent interest in a monthly Australian edition of
Better Homes and Gardens magazine.
Magazine Advertising
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Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Magazine advertising revenues $311,161 $308,959 $276,312
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 two
primary types of magazine advertising: display and direct-response.
Advertisements are either run-of-press (printed along with the editorial
portions of the magazine) or inserts (pre-printed forms). Most of the
company's advertising pages and revenues are derived from run of press display
advertising. Meredith has a group sales staff specializing in advertising
sales across titles.
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Magazine Circulation
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Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Magazine circulation
revenues $257,222 $272,406 $269,029
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 from the company for magazines returned to them by retailers.
Books
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Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Consumer book revenues $ 38,336 $ 56,481 $ 86,568
The company publishes and markets a line of 278 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. The company also has the direct-marketing
rights to selected annual trademarked titles. Thirty new or revised titles
were published during fiscal 1997. Books are primarily sold on a fully
returnable basis.
The decline in consumer book revenues reflects the downsizing of the book
publishing operation over the last three years. In December 1995, the company
sold three of its book clubs. In July 1995, Meredith established an alliance
with The Reader's Digest Association, Inc., granting Reader's Digest the rights
for direct-response marketing of certain Meredith-trademarked products. The
company began receiving royalties from Reader's Digest for the use of these
Meredith trademarks in fiscal 1997.
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Also in 1997, the company contracted with The Solaris Group, a unit of Monsanto
Company, to assume the creative, editorial, production and sales operations of
Solaris' Ortho retail book line. The Ortho retail book line consists of
gardening and do-it-yourself titles distributed in garden centers, home
centers, hardware cooperatives and mass merchandisers. Meredith will pay
royalty fees to Solaris based on Ortho book sales.
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
offer Better Homes and Gardens Floral & Nature Crafts branded products in their
crafts areas. The company receives royalties for sales of licensed products
offered exclusively in Wal-Mart stores. Meredith's current five-year garden
center licensing agreement with Wal-Mart expires at the end of calendar 1997.
Negotiations are presently underway for a new agreement with Wal-Mart.
Other Publishing
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Several of the company's magazines have established Web sites on the Internet.
Better Homes and Gardens Online was selected as a Gold Channel partner with
Microsoft's Internet Explorer (version 4.0) being released in the fall of 1997.
Another extensive Web site is Successful Farming @griculture Online, which
offers subscriptions to premium services in addition to its core material. 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. Meredith earns royalties on the sales of
these titles. None of these ventures is currently a material source of
revenues or operating profit.
Production and Delivery
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The major raw materials essential to this segment are coated publication and
book-grade papers. Meredith supplies all of the paper for its magazine
production and most of the paper for its book production. Soft market
conditions resulted in average paper prices falling more than 15 percent in
fiscal 1997. However, this follows nearly two years of sharply increasing
prices. On July 1, 1997, the company's major paper suppliers increased prices
an average of nearly 7 percent. Management believes another price increase is
possible on or before January 1, 1998. The company has contractual agreements
with major paper manufacturers to ensure adequate supplies of paper for planned
publishing requirements.
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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. The company's
largest magazine printing contract expires in 1999. Negotiations for a new
printing contract are currently underway. These negotiations are expected to
be finalized by the end of calendar 1997 and result in future savings for the
company. All of the company's published books are manufactured by outside
printers. Book manufacturing contracts are generally on a title-by-title
basis.
Postage is also a significant expense to this segment due to the large volume
of magazine and subscription promotion mailings. 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 proposed rate increases that would increase the
company's postal costs approximately 5 percent, or $3 million annually, based
on current volumes. The proposed rate changes are expected to be final in
calendar 1998 but are currently subject to the approval of the independent
Postal Rate Commission and therefore could change.
Paper, printing and postage costs accounted for approximately 40 percent of the
publishing segment's fiscal 1997 operating costs.
Most fulfillment services for the company's magazine operations are provided by
unrelated third parties under negotiated contract terms. National newsstand
distribution services are also provided by an unrelated third party under a
multi-year agreement.
Competition
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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
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
1997, the combined advertising revenue market share of Better Homes and Gardens
and Ladies' Home Journal magazines totaled 38.3 percent. Their share exceeded
all other corporate publishers included in the Seven Sisters.
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BROADCASTING
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Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Broadcasting advertising
revenues $148,517 $137,964 $116,460
Broadcasting total revenues $156,428 $145,932 $121,690
Broadcasting operating profit $ 58,505 $ 52,311 $ 41,883
Broadcasting revenues, representing 18 percent of the company's consolidated
revenues in fiscal 1997, increased 7 percent and operating profit increased 12
percent in fiscal 1997. The increases were due to higher local advertising for
the year and fall 1996 political election advertising.
The following table lists selected information regarding the company's
television stations as of September 10, 1997:
Station, Channel, Major
Market, Network DMA Expiration Average Commercial
Affiliation, TV Homes National Date of FCC Audience TV Stations
Frequency(1) in DMA Rank(2) License (3) Share(4) in Market(5)
- ----------------- --------- -------- ----------- -------- ------------
KPHO-TV, Ch. 5 1,213,000 17 10- 1-1998 10.8% 4 VHF
Phoenix, Ariz. 4 UHF
(CBS) VHF
WOFL-TV, Ch. 35 1,022,000 22 2- 1-2005 9.0% 3 VHF
Orlando/Daytona Beach/Melbourne, Fla. 4 UHF
(FOX) UHF
KPDX-TV, Ch. 49 953,000 24 2- 1-1999 8.8% 4 VHF
Portland, Ore. 2 UHF
(FOX) UHF (6)
WFSB-TV, Ch. 3 916,000 27 4- 1-1999 16.5% 2 VHF
Hartford/New Haven, Conn. 5 UHF
(CBS) VHF (6)
KCTV, Ch. 5 787,000 32 2- 1-1998 17.0% 3 VHF
Kansas City, Mo. 2 UHF
(CBS) VHF
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WSMV-TV, Ch. 4 783,000 33 8- 1-2005 22.3% 3 VHF
Nashville, Tenn. 2 UHF
(NBC) VHF
WHNS-TV, Ch. 21 700,000 35 12- 1-2004 8.3% 3 VHF
Greenville, S.C./Spartanburg, S.C./Asheville, N.C. 2 UHF
(FOX) UHF (6)
WNEM-TV, Ch. 5 439,000 62 10- 1-1997 19.3% 2 VHF
Flint/Saginaw/Bay City, Mich. 2 UHF
(CBS) VHF
KVVU-TV, Ch. 5 427,000 64 10- 1-1998 8.3% 4 VHF
Las Vegas, Nev. 4 UHF
(FOX) VHF
WOGX-TV, Ch. 51 97,000 165 2- 1-2005 11.3% 2 UHF
Ocala/Gainesville, Fla.
(FOX) UHF
KFXO-LP, Ch. 39 38,000 203 2- 1-1999 6.7% 0 VHF
Bend, Ore. 2 UHF
(FOX) UHF (6)
(1) 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.
(2) 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
national rank is the Nielsen 1996-97 DMA ranking based on estimated
television households.
(3) As of September 10, 1997, application for license renewal for WNEM-TV has
been filed and is pending before the FCC. The station is authorized to
maintain operations while the renewal is pending. Meredith does not
anticipate any dispute with the renewal.
(4) 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 1996, November 1996, February
1997 and May 1997 measurement periods from 9 a.m. to midnight daily.
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(5) The number of major commercial television stations reported is from BIA's
"Investing in Television, '97 Market Report" dated May 1997. The
company's station and all other stations reporting revenues are included.
Public television stations are not included.
(6) WFSB-TV was acquired on September 4, 1997. KPDX-TV, KFXO-LP (a low power
station) and WHNS-TV were acquired on July 1, 1997. See Subsequent Event
Note 17 on page F-51 of this Form 10-K.
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 respective 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 most of the advertising time is sold.
New and extended network affiliation contracts signed in the past two years
have increased the company's network compensation.
Competition
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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 (1996 Act) is expected to increase competition over the next several
years 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.
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Regulation
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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
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 1996 Act increased the
maximum term of broadcast licenses to eight years and increased the total
national audience reach to 35 percent of television households. Management is
not aware of any reason why its television station licenses would not be
renewed by the FCC. Following conclusion of the First Media and Post Newsweek
station acquisitions in fiscal 1998, the company's household coverage is
expected to be approximately 6.2% (based on the FCC method of calculation which
includes 50 percent of the market size for UHF stations owned). This makes the
company the 20th largest broadcasting group in the nation, according to
Broadcasting and Cable magazine.
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. In April 1997, the FCC announced new rules
for the implementation of digital television service by 2006. According to
these new rules, four of the company's broadcast television stations (those in
Phoenix, Orlando, Portland and Hartford/New Haven) will be required to begin
transmission of digital programming by November 1999. In addition, duopoly
rules which currently disallow a company to own more than one television
station in a market, could change once television stations are converted to
digital technology. Companies may be able to own both VHF and UHF stations in
certain larger markets at that time. The material impact of these rulings to
the company are uncertain. However, digital conversion is expected to require
significant capital expenditures beginning in fiscal 1999 and continuing over
the next several years. 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. (The information given in this section
is not intended to be a complete listing of all regulatory provisions currently
in effect.)
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REAL ESTATE
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Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Real estate revenues $25,639 $ 25,303 $ 24,429
Real estate operating profit $ 3,678 $ 3,496 $ 2,298
Increased revenues and operating profit in the company's real estate segment
resulted primarily from increased franchise fees and sales of products and
services.
Operations
- ----------
The Better Homes and Gardens Real Estate Service is a national residential real
estate marketing service which licenses the rights to sites and territories to
selected real estate firms. Members and affiliates (real estate companies
affiliated with larger member firms) totaled 791 in the United States and 21 in
Canada and other countries on June 30, 1997. 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 members and affiliates.
Competition
- -----------
The real estate business is highly competitive. The Better Homes and Gardens
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. Currently, the Better Homes and Gardens Real Estate
Service is one of the largest residential real estate franchise networks in the
country. Three of the top six franchise networks are owned by HFS, Inc.
DISCONTINUED OPERATION
- ----------------------
On October 25, 1996, the company, through its cable venture, Meredith/New
Heritage Partnership, sold the venture's 73 percent ownership interest in
Meredith/New Heritage Strategic Partners, L.P. to a subsidiary of its minority
partner, Continental Cablevision, Inc. (See Note 2 to Consolidated Financial
Statements on page F-33 of this Form 10-K for financial and other information
related to the discontinued cable operation.)
- 16 -
<PAGE>
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.
Executive Officers of the Registrant (as of September 10, 1997)
Executive
Officer
Name Age Title Since
- ------------------- --- --------------------------------------- ---------
E. T. Meredith III 64 Chairman of the Executive Committee of
the Board 1968
Jack D. Rehm 64 Chairman of the Board 1980
William T. Kerr 56 President and Chief Executive Officer 1991
Christopher M. Little 56 President - Publishing Group 1994
Philip A. Jones 53 President - Broadcasting Group 1989
Allen L. Sabbag 53 President - Real Estate Group 1983
Leo R. Armatis 59 Vice President - Corporate Relations 1995
Larry D. Hartsook 54 Vice President - Finance 1991
Thomas L. Slaughter 43 Vice President - General Counsel
and Secretary 1995
Executive officers are elected to one-year terms of office each November. Mr.
Kerr was named chief executive officer effective January 1, 1997, succeeding
Mr. Rehm. 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. Mr. Rehm plans to retire as chairman of the board on December 31,
1997. He will remain a member of the board. It is anticipated that Mr. Kerr
will become chairman of the board on January 1, 1998. Mr. Hartsook plans to
retire in August 1998.
Item 2. Properties
Meredith Corporation headquarters are located at 1716 Locust Street, Des
Moines, Iowa. The company owns this building and is the sole user. The
company is presently constructing a 4-story, 180,000 square foot building at
1615 Locust Street, which will be connected to the present facility by means of
a sky walk-way. With completion expected in fiscal 1998, this building will
consolidate offices currently located at 1912 and 2000 Grand Avenue in Des
Moines (buildings both owned by the company) and 4700 Westown Parkway in West
Des Moines (facilities leased by the company).
- 17 -
<PAGE>
The publishing segment operates mainly from the Des Moines/West Des Moines
offices and from leased facilities at 125 Park Avenue, New York, New York. The
New York facility is used primarily as an advertising sales office and
headquarters for Ladies' Home Journal magazine. The publishing segment also
maintains ad sales offices, which are leased, in Chicago, San Francisco, Los
Angeles, Detroit and several other cities. These offices are adequate for
their intended use.
The broadcasting segment operates from offices in the following locations as of
September 10, 1997: Phoenix, Ariz.; Orlando, Fla.; Portland, Ore.; Hartford,
Conn.; Kansas City, Mo.; Nashville, Tenn.; Greenville, S. C.; Asheville, N. C.;
Flint, Mich.; Saginaw, Mich.; Las Vegas, Nev.; Ocala, Fla.; Gainesville, Fla.;
and Bend, Ore. All of these properties, except those noted, are owned by the
company and are adequate for their intended use. The properties in Portland,
Asheville, Flint, Gainesville and Bend are leased and are currently adequate
for their intended use. Each of the broadcast stations also maintains an owned
or leased transmitter site.
The real estate segment operates primarily from the Des Moines offices.
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 company's
last annual meeting held on November 11, 1996.
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). There is no separate public trading
market for the company's class B stock, which is convertible share-for-share at
any time into common stock. Holders of each class of stock receive equal
dividends per share.
- 18 -
<PAGE>
The range of trading prices for the company's common stock and the dividends
paid during each quarter of the past two fiscal years are presented below.
Information has been restated to reflect a two-for-one stock split in March
1997.
High Low Dividends
------- ------- ---------
Fiscal 1997
First Quarter $25.00 $19.69 $ .055
Second Quarter 26.94 24.37 .055
Third Quarter 27.19 22.87 .065
Fourth Quarter 29.37 22.12 .065
Fiscal 1996
First Quarter $21.25 $11.75 $ .050
Second Quarter 21.00 17.19 .050
Third Quarter 24.37 20.06 .055
Fourth Quarter 24.31 19.56 .055
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 in the future.
On July 31, 1997, there were approximately 1,900 holders of record of the
company's common stock and 1,400 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.
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-20 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-21 through F-53
of this Form 10-K and is incorporated herein by reference.
- 19 -
<PAGE>
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 10,
1997, under the caption "Election of Directors" and in Part I of this Form 10-K
on page 17 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 10,
1997, under the captions "Compensation of Executive Officers" and "Retirement
Programs and Employment Agreements" and in the last three 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 10,
1997, under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
There are no reportable relationships or transactions.
- 20 -
<PAGE>
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, 1997, 1996 and 1995
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. Financial Statement Schedule as of or for each of the three
years ended June 30, 1997:
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.)
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 period ended
March 31, 1996.
- 21 -
<PAGE>
3.2 The Restated Bylaws, as amended, are incorporated herein by
reference to Exhibit 3 to the company's Quarterly Report on Form
10-Q for the period ended December 31, 1996.
4.1 Credit Agreement dated July 1, 1997, among Meredith Corporation
and a group of banks with Wachovia Bank, N.A. as Agent is
incorporated herein by reference to Exhibit 4 to the company's
Current Report on Form 8-K dated July 1, 1997.
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 period 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 period
ended March 31, 1996.
10.1 Asset Exchange Agreement dated June 2, 1997, between Meredith
Corporation and Post-Newsweek Stations, Connecticut, Inc., with
respect to WCPX (TV), Orlando, Florida and WFSB (TV), Hartford,
Connecticut is incorporated herein by reference to Exhibit 10 to
the company's Current Report on Form 8-K dated September 4,
1997.
10.2 Asset Purchase Agreement by and between First Media Television,
L.P., as seller and Meredith Corporation as buyer dated as of
January 23, 1997, is incorporated herein by reference to Exhibit
2 to the company's Quarterly Report on Form 10-Q for the period
ended March 31, 1997 (the company's Form 10-Q dated March 31,
1997).
10.3 Two - 1996 Meredith Corporation Stock Incentive Plan Agreements,
and both dated January 2, 1997, between Meredith Corporation and
10.4 William T. Kerr are incorporated herein by reference to Exhibits
10.1 and 10.2, respectively, to the company's Form 10-Q dated
March 31, 1997.
10.5 Employment agreement dated November 11, 1996, between Meredith
Corporation and William T. Kerr is incorporated herein by
reference to Exhibit 10.1 to the company's Quarterly Report on
Form 10-Q for the period ended December 31, 1996 (the company's
Form 10-Q dated December 31, 1996).
- 22 -
<PAGE>
10.6 1992 Meredith Corporation Stock Incentive Plan Agreement dated
July 1, 1996, between Meredith Corporation and William T. Kerr
is incorporated herein by reference to Exhibit 10.3 to the
company's Form 10-Q dated December 31, 1996.
10.7 1996 Meredith Corporation Stock Incentive Plan Agreement dated
August 14, 1996, between Meredith Corporation and William T.
Kerr is incorporated herein by reference to Exhibit 10.4 to the
company's Form 10-Q dated December 31, 1996.
10.8 Statement re: Meredith Corporation Nonqualified Stock Option
Award Agreements with William T. Kerr is incorporated herein by
reference to Exhibit 10.5 to the company's Form 10-Q dated
December 31, 1996.
10.9 Purchase Agreement dated as of March 15, 1996, between Meredith/
New Heritage Associates as sellers and Continental Cablevision,
Inc. as buyer is incorporated herein by reference to Exhibit
2.1 to the company's Current Report on Form 8-K dated October
25, 1996.
10.10 Guaranty Agreement effective October 25, 1996, between Meredith
Corporation and Continental Cablevision of Minnesota Subsidiary
Corporation is incorporated herein by reference to Exhibit 2.2
to the company's Current Report on Form 8-K dated October 25,
1996.
10.11 Meredith Corporation 1990 Restricted Stock Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for
the period ending September 30, 1996 (the company's Form 10-Q
dated September 30, 1996).
10.12 Meredith Corporation 1993 Stock Option Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.2 to the company's Form 10-Q dated September 30,
1996.
10.13 1996 Stock Incentive Plan Agreement - Nonqualified Stock Option
Award between Meredith Corporation and Christopher M. Little
dated August 14, 1996, is incorporated herein by reference to
Exhibit 10.4 to the company's Form 10-Q dated September 30,
1996.
- 23 -
<PAGE>
10.14 1992 Stock Incentive Plan Agreement - Nonqualified Stock Option
Award between Meredith Corporation and Philip A. Jones dated
August 14, 1996, is incorporated herein by reference to Exhibit
10.5 to the company's Form 10-Q dated September 30, 1996.
10.15 Statement re: Meredith Corporation Nonqualified Stock Option
Award Agreements dated August 14, 1996, with named executive
officers, is incorporated herein by reference to Exhibit 10.6 to
the company's Form 10-Q dated September 30, 1996.
10.16 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.
10.17 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. Amendment to the aforementioned agreement is incorporated
herein by reference to Exhibit 10.2 to the company's Form 10-Q
dated December 31, 1996.
10.18 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.
10.19 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.
10.20 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
period ending December 31, 1993.
10.21 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 period 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 period ended September
30, 1995.
- 24 -
<PAGE>
10.22 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 period ended September 30, 1995.
10.23 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. Amendment to the aforementioned agreement
is incorporated herein by reference to Exhibit 10.2 to the
company's Form 10-Q dated December 31, 1996.
10.24 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. Amendment to the aforementioned agreement
is incorporated herein by reference to Exhibit 10.2 to the
company's Form 10-Q dated December 31, 1996.
10.25 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. Amendment to the aforementioned agreement is
incorporated herein by reference to Exhibit 10.3 to the
company's Form 10-Q dated September 30, 1996.
10.26 Meredith Corporation 1996 Stock Incentive Plan effective August
14, 1996, is incorporated herein by reference to Exhibit A to
the company's Proxy Statement for the Annual Meeting of
Shareholders on November 11, 1996.
10.27 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. Amendment to the
aforementioned agreement is incorporated herein by reference to
Exhibit 10.2 to the company's Form 10-Q dated December 31, 1996.
10.28 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 period ending September 30, 1991.
- 25 -
<PAGE>
10.29 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 period ending September
30, 1991.
10.30 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 period ending December 31, 1988.
10.31 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 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 period ended
December 31, 1991.)
10.32 Meredith Corporation 1986 Restricted Stock Award Plan is
incorporated herein by reference to Exhibit A to the company's
Proxy Statement for the Annual Meeting of Shareholders on
November 10, 1986.
10.33 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
During the fourth quarter of fiscal 1997, the company filed a Form 8-K
dated June 2, 1997, which reported under Item 5 that the company had
entered into an agreement to acquire a television station serving the
Hartford/New Haven, Connecticut market from Post Newsweek in exchange for
an Orlando, Florida television station acquired in the company's purchase
of the assets of First Media Television, L.P. (plus a cash payment to the
company of $60 million).
- 26 -
<PAGE>
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/ William T. Kerr
- --------------------------------- ------------------------------
Larry D. Hartsook William T. Kerr, President, Chief
Vice President-Finance (Principal Executive Officer and Director
Accounting and Financial Officer) (Principal Executive Officer)
/s/ E. T. Meredith III /s/ Jack D. Rehm
- --------------------------------- ------------------------------
E. T. Meredith III Jack D. Rehm
Chairman of the Executive Chairman of the Board
Committee and Director and Director
/s/ Herbert M. Baum /s/ Mary Sue Coleman
- --------------------------------- ------------------------------
Herbert M. Baum, Director Mary Sue Coleman, 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 22, 1997.
<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-21
Balance Sheets F-23
Statements of Stockholders' Equity F-25
Statements of Cash Flows F-27
Notes (including supplementary data) F-29
Independent Auditors' Report F-53
Report of Management F-54
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-55
F-l
<PAGE>
Selected Financial Data
Meredith Corporation and Subsidiaries
Years Ended June 30 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
(In thousands, except per share)
Results of operations
Total revenues $855,218 $867,137 $829,401 $744,735 $721,944
======== ======== ======== ======== ========
Earnings from continuing
operations $ 67,592 $ 54,657 $ 44,198 $ 32,473 $ 21,441
Discontinued operation
(net of tax) 27,693 (717) (4,353) (5,319) (2,815)
Cumulative effect of change in
accounting principle(net of tax) -- -- (46,160) -- --
-------- -------- -------- -------- --------
Net earnings (loss) $ 95,285 $ 53,940 $ (6,315)$ 27,154 $ 18,626
======== ======== ======== ======== ========
Per share information
Earnings from continuing
operations $ 1.22 $ 0.97 $ 0.79 $ 0.57 $ 0.35
Discontinued operation
(net of tax) 0.50 (0.01) (0.07) (0.09) (0.04)
Cumulative effect of change in
accounting principle(net of tax) -- -- (0.83) -- --
-------- -------- -------- -------- --------
Net earnings (loss) $ 1.72 $ 0.96 $ (0.11)$ 0.48 $ 0.31
======== ======== ======== ======== ========
Dividends paid to stockholders $ .24 $ 0.21 $ 0.19 $ 0.17 $ 0.16
======== ======== ======== ======== ========
Financial position at June 30
Total assets $760,901 $733,773 $743,796 $679,813 $716,716
======== ======== ======== ======== ========
Long-term obligations
(including current portion) $ 17,032 $ 71,482 $102,259 $ 10,801 $ 15,867
======== ======== ======== ======== ========
General:
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. The sale of the company's interest in a cable television
system was completed on October 25, 1996.
F-2
<PAGE>
Per-share amounts are computed on weighted-average number of shares outstanding
for the year and have been adjusted to reflect two-for-one stock splits in
March 1997 and March 1995.
Long-term obligations include television broadcast program rights payable and
company debt associated with continuing operations.
Earnings from continuing operations (all per-share amounts are post-tax):
Fiscal 1996 included a gain of $5,898,000, or 6 cents per share, from the
sale of three book clubs.
Fiscal 1995 included interest income of $8,554,000, or 8 cents per share,
from the IRS for the settlement of the company's 1986 through 1990 tax
years.
Fiscal 1994 included nonrecurring items of $5,584,000 for broadcasting
film write-downs and $1,800,000 for taxes on disposed properties, or a
total of 7 cents per share and a gain of $11,997,000, or 14 cents per
share, from the disposition of the Syracuse and Fresno television
properties.
Discontinued operations:
In fiscal 1996, the cable segment was classified as a discontinued
operation.
Fiscal 1997 included a post-tax gain of $27,693,000, or 50 cents per
share, from the disposition of the company's remaining interest in a cable
television system.
Fiscal 1996 reflected cable net losses for the first quarter only. Losses
from September 30, 1995, to the effective date of sale were deferred and
reduced the gain from disposition.
Fiscal 1995 included a post-tax gain of $1,101,000, or 2 cents per share,
from the disposition of a cable property.
Changes in accounting principles:
Fiscal 1995 reflected the adoption of Practice Bulletin 13, "Direct-
Response Advertising and Probable Future Benefits."
F-3
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Meredith Corporation and Subsidiaries
Years ended June 30 1997 1996 1995
- -----------------------------------------------------------------------
(In thousands)
Revenues
Publishing $673,151 $695,902 $683,282
Broadcasting 156,428 145,932 121,690
Real Estate 25,639 25,303 24,429
--------- --------- ---------
Total revenues $855,218 $867,137 $829,401
========= ========= =========
Operating profit
Publishing $ 80,557 $ 64,107 $ 48,636
Broadcasting 58,505 52,311 41,883
Real Estate 3,678 3,496 2,298
Unallocated corporate expense (28,069) (22,409) (20,115)
--------- --------- ---------
Income from operations 114,671 97,505 72,702
Gain from disposition -- 5,898 --
Interest income 5,010 2,183 10,913
Interest expense (1,254) (5,530) (4,019)
--------- --------- ---------
Earnings from continuing operations
before income taxes $118,427 $100,056 $ 79,596
========= ========= =========
Identifiable assets
Publishing $294,280 $299,627 $341,652
Broadcasting 273,981 282,849 261,643
Real Estate 9,771 11,013 11,479
Unallocated corporate 182,869 52,233 40,925
--------- --------- ---------
Assets of continuing operations 760,901 645,722 655,699
Net assets of discontinued
operation -- 88,051 88,097
--------- --------- ---------
Total assets $760,901 $733,773 $743,796
========= ========= =========
F-4
<PAGE>
Depreciation/amortization
Publishing $ 9,087 $ 10,126 $ 10,192
Broadcasting 12,102 10,909 6,903
Real Estate 578 477 465
Unallocated corporate 1,230 3,618 1,457
--------- --------- ---------
Total depreciation/amortization $ 22,997 $ 25,130 $ 19,017
========= ========= =========
Capital expenditures
Publishing $ 1,741 $ 2,397 $ 2,087
Broadcasting 4,391 7,736 8,465
Real Estate 206 605 158
Unallocated corporate 16,961 19,135 2,574
--------- --------- ---------
Total capital expenditures $ 23,299 $ 29,873 $ 13,284
========= ========= =========
See pages 5 through 16 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 from 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 intangible, 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.
Unallocated corporate identifiable assets included approximately $125 million
in cash and marketable securities at June 30, 1997, largely net proceeds from
the cable sale held in anticipation of the July 1, 1997, acquisition of three
broadcast television stations. Unallocated corporate identifiable assets also
included construction-in-progress for the expansion of corporate headquarters
in fiscal 1997 and 1996.
The decline in publishing identifiable assets from June 30, 1995, to June 30,
1996, primarily reflected the discontinuation of most direct-response book
sales efforts due to the Reader's Digest alliance and the sale of Meredith's
book clubs.
Fiscal 1996 unallocated corporate depreciation/amortization included an
adjustment of approximately $2 million to goodwill from a 1988 acquisition.
F-5
<PAGE>
Fiscal 1997 and 1996 unallocated corporate capital expenditures included
spending for the construction of a new office building and related improvements
in Des Moines. Fiscal 1996 also included spending for equipment and leasehold
improvements related to the New York City office consolidation.
See Management's Discussion and Analysis for discussion of significant factors
affecting comparability.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion presents the key factors that have affected the
company's business over the last three years. This commentary should be read
in conjunction with the company's consolidated financial statements and five-
year selected financial data presented elsewhere in this Form 10-K. All per-
share amounts are computed on a post-tax basis and reflect two-for-one stock
splits in the form of stock dividends effective in March 1997 and March 1995.
All note references are to the Notes to Consolidated Financial Statements.
Certain statements included herein are, and statements that may be contained in
future filings with the Securities and Exchange Commission, may be forward-
looking in nature. These are based on management's current knowledge and
estimates of factors affecting the company's operations. Actual results may
differ materially from those currently anticipated. Readers of this forward-
looking information are advised that such information involves risks and
uncertainties, including but not limited to the effects of: downturns in
national and/or local economies; unforeseen changes in consumer purchase, order
and/or television viewing patterns; unanticipated increases in paper, postage
and processing costs; the unexpected loss of one or more major clients; changes
in government regulations affecting our industries; and any unforeseen
acquisitions and/or dispositions.
Significant Events
Fiscal 1997
- -----------
In January 1997, the company announced that it would acquire all four of the
television stations of First Media Television, L.P., for $435 million. On July
1, 1997, Meredith completed the acquisition of three of these stations: KPDX-
Portland, Ore.; KFXO-Bend, Ore. (a low power station); and WHNS-Greenville,
S.C. All three stations are affiliates of the FOX television network. The
fourth First Media station is WCPX, a CBS network affiliate in Orlando, Fla.,
where Meredith currently owns WOFL, a FOX network affiliate. Because Federal
Communications Commission (FCC) regulations currently prohibit ownership of
multiple stations in one market, Meredith agreed to exchange WCPX for WFSB, a
CBS affiliate serving Hartford/New Haven, Conn. Terms of the agreement to
acquire WFSB from Post-Newsweek provided for an exchange of assets plus a $60
million cash payment to Meredith. The purchase of WCPX and subsequent exchange
F-6
<PAGE>
for WFSB occurred on September 4, 1997. These acquisitions are expected to be
dilutive in fiscal 1998 by 8 to 10 cents per share, due to interest expense
from debt incurred to purchase the stations and amortization of intangibles.
Management expects these acquisitions to cause little or no dilution of
earnings per share in fiscal 1999 and to become accretive to earnings per share
in the following fiscal years.
In October 1996, the company sold its ownership interests in cable television
systems. The Meredith/New Heritage Partnership, of which the company
indirectly owned 96 percent, sold its 73 percent ownership interest in
Meredith/New Heritage Strategic Partners, L.P. to a subsidiary of Continental
Cablevision, Inc. The total value of the systems was $262.5 million. Meredith
Corporation received $116 million in cash (net of taxes) and recorded a gain of
$27.7 million, or 50 cents per share, from the sale. The gain was net of
deferred cable losses from September 30, 1995, until the effective date of sale
and taxes. The cable segment was classified as a discontinued operation on
September 30, 1995.
Fiscal 1996
- -----------
In January 1996, the company acquired the assets of WOGX, a FOX network
affiliate serving Ocala/Gainesville, Fla., currently the 165th largest
television market.
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.
Fiscal 1995
- -----------
In January 1995, the company acquired the assets of WSMV, an NBC network
affiliate in Nashville, Tenn., for $159 million. The Nashville television
market is the 33rd largest television market in the United States.
In fiscal 1995, two of the company's broadcast television stations became CBS
network 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.
F-7
<PAGE>
The company recorded a noncash charge of $46.2 million post-tax, or 83 cents
per share, in fiscal 1995 for the cumulative effect of a change in accounting
principle related to subscription acquisition costs (Note 3).
Results of Operations
Consolidated
- ------------
Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands, except per share)
Total revenues............. $855,218 $867,137 $829,401
======== ======== ========
Income from operations..... $114,671 $ 97,505 $ 72,702
======== ======== ========
Earnings from
continuing operations.... $ 67,592 $ 54,657 $ 44,198
======== ======== ========
Earnings from continuing operations
excluding special items.. $ 67,592 $ 51,278 $ 39,451
======== ======== ========
Net earnings (loss)........ $ 95,285 $ 53,940 $ (6,315)
======== ======== ========
Per Share:
Earnings from
continuing operations.... $ 1.22 $ .97 $ .79
======== ======== ========
Earnings from continuing operations
excluding special items.. $ 1.22 $ .91 $ .71
======== ======== ========
Net earnings (loss)........ $ 1.72 $ .96 $ (.11)
======== ======== ========
Earnings from continuing operations were affected by the following special
items:
In fiscal 1996, a post-tax gain of $3.4 million (6 cents per share) was
recorded from the disposition of three book clubs (Note 8).
In fiscal 1995, post-tax interest income of $4.7 million (8 cents per share)
was recorded from the Internal Revenue Service (IRS) (Note 4).
F-8
<PAGE>
Fiscal 1997 v. 1996 - Net earnings of $95.3 million, or $1.72 per share, were
recorded in fiscal 1997, compared to net earnings of $53.9 million, or 96 cents
per share, in fiscal 1996. Fiscal 1997 net earnings included a gain of $27.7
million, or 50 cents per share, from the sale of discontinued cable operations.
Fiscal 1997 earnings per share from continuing operations increased 26 percent.
Excluding the prior-year gain noted previously, fiscal 1997 earnings per share
from continuing operations increased 34 percent with all business segments
reporting improved results. Average shares outstanding declined slightly due
to the repurchase of company shares.
Fiscal 1997 revenues decreased 1 percent from the prior year due to lower
circulation and consumer book revenues. The decline in circulation revenues
resulted primarily from the fiscal 1996 closing of home garden and Weekend
Woodworking magazines, a January 1996 rate base reduction at Ladies' Home
Journal magazine and a reduction in the publication frequency of Country
America magazine in fiscal 1997. Consumer book revenues declined primarily due
to the December 1995 sale of three book clubs. Partially offsetting these
revenue declines were increases in magazine and broadcasting advertising,
licensing and custom publishing revenues.
Operating costs declined 4 percent in fiscal 1997, resulting in an operating
profit margin improvement to 13.4 percent compared with a margin of 11.2
percent in fiscal 1996. Expenses declined, both in total and as a percentage
of revenues, in all major cost categories. Lower production, distribution and
editorial (PD&E) expenses were the primary factor leading to the margin
improvement. The decline in PD&E expenses primarily reflected lower average
paper prices in the current year. Lower costs in the book operations from
prior years' downsizing also contributed. Selling, general and administrative
(SG&A) expenses declined slightly. Lower costs due to the smaller book
operation and reduced magazine subscription acquisition expenses were nearly
offset by higher costs for television program development, employee benefits
and magazine and broadcasting promotion expense. The aforementioned magazine
closings and rate base reduction at Ladies' Home Journal magazine led to the
decline in magazine subscription acquisition costs. Lower depreciation and
amortization expenses resulted from a prior-year adjustment of goodwill
assigned to a 1988 acquisition.
In October 1996, the company repaid all its outstanding bank debt using
proceeds from the sale of the discontinued cable television operations. The
remaining cable proceeds and other available cash were invested in short-term
marketable securities. This resulted in net interest income of $3.8 million in
the current fiscal year versus net interest expense of $3.3 million in fiscal
1996. See subsequent event information on page F-19 regarding debt incurred
after June 30, 1997.
F-9
<PAGE>
The company's effective tax rate was 42.9 percent in fiscal 1997 compared with
45.4 percent in the prior year. The higher rate in the prior year reflected
the effect of the goodwill adjustment, which was not tax deductible. Also, the
fiscal 1997 rate reflected higher fiscal year earnings, which lessened the
effect of nondeductible items on the overall tax rate.
Fiscal 1996 v. 1995 - Net earnings of $53.9 million, or 96 cents per share,
were recorded in fiscal 1996 compared to a net loss of $6.3 million, or a loss
of 11 cents per share, in fiscal 1995. The net loss in fiscal 1995 reflected a
$46.2 million noncash 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 earnings 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 December 1995
sale of the book clubs. Fiscal 1996 included 12 months of revenues from WSMV-
Nashville versus six months in fiscal 1995.
Income from operations 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 the smaller book operation.
Operating costs and expenses were $769.6 million in fiscal 1996 compared with
$756.7 million in fiscal 1995. 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 from a 1988 acquisition. These increases in expenses were partially
offset by lower expenses in book operations due to downsizing.
Net interest expense (excluding fiscal 1995 IRS interest income) rose to $3.3
million in fiscal 1996 from $1.7 million in fiscal 1995, due to debt incurred
for the purchase of WSMV-Nashville in January 1995.
The company's effective tax rate was 45.4 percent in fiscal 1996 compared with
44.5 percent in fiscal 1995. The increase in the fiscal 1996 rate reflected
the effect of the non-deductible adjustment to goodwill recorded during the
year.
F-10
<PAGE>
Publishing
- ----------
Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
Revenues (In thousands)
---------
Magazine advertising....... $311,161 $308,959 $276,312
Magazine circulation....... 257,222 272,406 269,029
Consumer book.............. 38,336 56,481 86,568
Other...................... 66,432 58,056 51,373
-------- -------- --------
Total revenues............... $673,151 $695,902 $683,282
======== ======== ========
Operating profit............. $ 80,557 $ 64,107 $ 48,636
======== ======== ========
Fiscal 1997 v. 1996 - Publishing revenues declined 3 percent versus fiscal 1996
due to lower consumer book and circulation revenues which were partially offset
by higher advertising and other publishing revenues. The increase in other
publishing revenues was due to higher licensing revenues and increased custom
publishing business. The increase in licensing revenues was due to increased
sales volumes of licensed products at Wal-Mart and a favorable adjustment to
revenues received from the company's garden licensing agreement with Wal-Mart
Stores, Inc. New clients contributed to the increased custom publishing
business.
Magazine circulation revenues declined 6 percent in fiscal 1997 due to the
effect of a 10 percent advertising rate base reduction (effective with the
February 1996 issue) at Ladies' Home Journal magazine, closing home garden and
Weekend Woodworking magazines late in fiscal 1996 and a reduction in the
publication frequency of Country America magazine in fiscal 1997.
The 32 percent decline in consumer book revenues in fiscal 1997 primarily
reflected the December 1995 sale of the company's book clubs. Meredith began
to receive royalties from the Reader's Digest alliance in fiscal 1997, however
the impact on revenues and operating profit was not material and is not
expected to be in the near term.
Magazine advertising revenues grew 1 percent in fiscal 1997, largely due to
increased ad revenues at Better Homes and Gardens magazine, the company's
largest circulation title. Its ad revenue growth reflected an increase in ad
page volume and higher average revenue per page. Midwest Living, Country Home
and Successful Farming magazines also reported strong ad revenue growth due to
a combination of increased ad pages and higher average revenue per page. These
increases in ad revenues were partially offset by lower ad revenues at Ladies'
F-11
<PAGE>
Home Journal magazine, reflecting the advertising rate base reduction in mid-
fiscal 1996. The number of ad pages at the magazine also declined slightly.
Publishing operating profit increased 26 percent in fiscal 1997. The
improvement was largely a result of the fifth consecutive year of record
operating profit from magazine publishing. Record operating profit from
licensing operations also contributed. Magazine publishing benefited from
lower paper prices, higher ad revenues and improved results from custom
publishing. Better Homes and Gardens, Midwest Living, Country Home and
Successful Farming magazines reported strong operating profit increases due in
part to the aforementioned increases in ad revenues. The elimination of an
operating loss from home garden magazine, which ceased publication in the
spring of 1996, also was a factor in publishing's improved results. Operating
profit increased at Ladies' Home Journal magazine, in spite of lower ad
revenues, due to lower production costs (a result of reduced volumes from the
change in rate base, along with favorable pricing). Partially offsetting these
improvements were unfavorable results at Country America magazine due to the
transition from 10 to six issues annually and higher new magazine development
costs. In addition, fiscal 1997 publishing operating profit was reduced by a
charge related to a joint publishing venture.
Book publishing operating profit showed little change in fiscal 1997. Start-up
costs related to a new agreement with The Solaris Group (a unit of Monsanto
Company) regarding the Ortho retail book line, limited operating profit
improvement in the current year. Under the agreement, Meredith assumes the
creative, editorial, production and sales operations of Ortho retail books and
pays royalty fees to Solaris based on sales of these books. The Ortho retail
book line consists of gardening and do-it-yourself titles.
Paper, printing and postage costs accounted for approximately 40 percent of the
publishing segment's fiscal 1997 operating costs. Paper prices, which had been
escalating in fiscal 1995 and early fiscal 1996, began to moderate in the
second half of fiscal 1996. This trend continued through fiscal 1997. As of
June 30, 1997, the company's average price paid for paper was more than 15
percent lower than the price paid at June 30, 1996. Declining prices during
the year also resulted in a favorable LIFO inventory reserve adjustment of $6.0
million in fiscal 1997. On July 1, 1997, paper prices increased an average of
approximately 7 percent. The price of paper is driven by overall market
conditions and, therefore, is difficult to predict. However at this time,
management believes another paper price increase is possible on or before
January 1, 1998.
The company's largest magazine printing contract expires in 1999. Negotiations
for a new printing contract are currently underway. These negotiations are
expected to be finalized by the end of calendar 1997 and result in future
savings for the company. Also, a postal rate increase is expected in calendar
F-12
<PAGE>
1998. Based on the U. S. Postal Service's proposed rate changes, the company
would experience an increase of approximately 5 percent, or $3 million
annually, based on current volumes. The proposed rate changes are subject to
the approval of the Postal Rate Commission and therefore could change.
The company's current five-year garden licensing agreement with Wal-Mart
Stores, Inc., expires at the end of calendar year 1997. Negotiations are
presently underway for renewal of the agreement.
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 magazine, the company's largest circulation title.
Its ad pages increased 10 percent and the average revenue per page was 6
percent higher than in fiscal 1995. 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 from 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 December 1995 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, pre-press and print production, list rentals and
ancillary products) increased 14 percent, primarily due to an increase in
pre-press and print production services.
Fiscal 1996 operating profit was up 32 percent due to improved operating
results from magazine and book 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 above prices in fiscal 1995.
Increased advertising revenues and lower subscription acquisition expenses due
to fewer new prospect mailings fueled the strong operating profit performance
of Better Homes and Gardens magazine. Also contributing to the magazine
operating profit improvement were lower magazine start-up costs and increased
operating profits from WOOD magazine, Golf for Women magazine 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.
F-13
<PAGE>
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 magazine 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.
In fiscal 1996, 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 initial payments received from the Reader's
Digest alliance.
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 and the introduction of a
crafts licensing agreement. Wal-Mart stores began to offer Better Homes and
Gardens Floral & Nature Crafts branded merchandise in January 1996.
The average prices paid for paper 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-fiscal 1996, the
market softened and prices began to moderate. At June 30, 1996, paper prices
were approximately 4 percent higher than a year earlier. Postage costs
increased in fiscal 1996 due to a full-year impact of the January 1995 rate
increase.
Broadcasting
- ------------
Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Revenues
--------
Advertising.............. $148,517 $137,964 $116,460
Other.................... 7,911 7,968 5,230
-------- -------- --------
Total revenues............. $156,428 $145,932 $121,690
======== ======== ========
Operating profit........... $ 58,505 $ 52,311 $ 41,883
======== ======== ========
F-14
<PAGE>
Fiscal 1997 v. 1996 - Fiscal 1997 revenues increased 7 percent from the prior
year. Excluding first-half revenues from WOGX-Ocala/Gainesville, acquired in
January 1996, comparable fiscal year revenues increased 6 percent. The
increase in revenues reflected higher local advertising revenues for the year
and political advertising from the fall 1996 elections. Increased demand for
advertising generally resulted in higher spot rates. Ad revenues increased at
all stations except WOFL-Orlando, where ad revenues were flat due to weak first
quarter national ad sales. The largest ad revenue increase was at WSMV-
Nashville. This NBC affiliate also benefited from the network's coverage of
the 1996 Summer Olympic Games. Other stations reporting strong ad revenue
increases included KCTV-Kansas City, KPHO-Phoenix and KVVU-Las Vegas.
Operating profit increased 12 percent in fiscal 1997 due primarily to the
advertising revenue growth. Lower programming costs due to a prior-year write-
down at WOFL-Orlando and fewer programming purchases also were a factor. The
introduction of local news programming at WOFL-Orlando and WOGX-Ocala/
Gainesville, planned for fiscal 1997, was delayed pending the resolution of the
multiple-station ownership issue in Orlando created by the intent to purchase
the four First Media television stations. The company has retained ownership
of WOFL-Orlando and WOGX-Ocala/Gainesville, and local news programming at these
stations is now expected to begin in the second half of fiscal 1998. KVVU-Las
Vegas also plans to introduce local news programming during that time.
After the acquisition of three of the First Media stations on July 1, 1997, the
company entered into new 10-year affiliation agreements with the FOX network
for all of Meredith's FOX affiliates, including the three new stations. In
addition to beginning local news programming at the three stations previously
mentioned, the company agreed to produce its own local newscasts at KPDX-
Portland and WHNS-Greenville by the year 2000. Looking forward, management
expects the company's CBS affiliates to benefit from the network's coverage of
the 1998 Winter Olympic Games.
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 fiscal 1995 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 network affiliation change in
January 1995.
Operating profit increased 25 percent from fiscal 1995, largely due to an
additional six months of operating profit from WSMV-Nashville. Excluding
F-15
<PAGE>
that impact and the operating profit of WOGX-Ocala/Gainesville, 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 initially planning to introduce 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.
Real Estate
- -----------
Years ended June 30 1997 1996 1995
------------------- -------- -------- --------
(In thousands)
Total revenues $ 25,639 $ 25,303 $ 24,429
======== ======== ========
Operating profit $ 3,678 $ 3,496 $ 2,298
======== ======== ========
Fiscal 1997 v. 1996 - Revenues and operating profit increased in fiscal 1997,
largely due to higher transaction fee revenues from member firms and increased
sales of products and services to those members. The increase in transaction
fee revenues resulted from members' strong sales of existing homes. Also
contributing was an increase in average member size. Lower administrative
costs also were a factor in the increase in operating profit. These
improvements were partially offset by the prior-year recognition of fees from a
master franchise agreement.
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 increased membership levels.
Operating profit increased 52 percent, largely due to the revenue increase.
Discontinued Operation
- -----------------------
In October 1996, the company sold its ownership interests in cable television
operations and recorded a gain of $27.7 million, or 50 cents per share, from
the sale. The gain was net of deferred cable losses from September 30, 1995,
until the effective date of sale and taxes. A loss from operations of $0.7
million was reported in fiscal 1996 for the period July 1, 1995, through
September 30, 1995, the date the cable segment was classified as a discontinued
operation. Fiscal 1995 results included a full-year net loss of $5.5 million
from operations and a $1.1 million net gain from the disposition of a small
cable property. See Note 2 for further information on the discontinued
operation.
F-16
<PAGE>
Liquidity and Capital Resources
Consolidated
- ------------
Years ended June 30 1997 1996 1995
------------------- --------- -------- --------
(In thousands)
Earnings from
continuing operations..... $ 67,592 $ 54,657 $ 44,198
========= ======== =========
Cash flows from operations.. $ 116,633 $108,205 $ 65,485
========= ======== =========
Cash flows from investing... $ 45,741 $(13,965) $(150,707)
========= ======== =========
Cash flows from financing... $(101,677) $(92,264) $ 65,519
========= ======== =========
Net cash flows.............. $ 60,697 $ 1,976 $ (19,703)
========= ======== =========
EBITDA...................... $ 137,668 $122,635 $ 91,719
========= ======== ========
Cash and cash equivalents increased by $60.7 million in fiscal 1997 compared to
an increase of $2.0 million in the prior year. The change was primarily due to
the sale of the discontinued cable operation in the current year. Proceeds
from this sale funded the retirement of long-term debt and the purchase of
marketable securities. Also, the prior-year purchase of the Ocala/Gainesville
television station utilized cash. Cash provided by operating activities
increased in fiscal 1997 due to increased operating income. This was partially
offset by the increased use of cash for working capital needs.
EBITDA is defined as earnings from continuing operations before interest,
taxes, depreciation and amortization. EBITDA is often used to analyze and
compare companies on the basis of operating performance and cash flow. Fiscal
1997 EBITDA increased 12 percent from fiscal 1996 due to improved operating
results. However, EBITDA is not adjusted for all noncash expenses or for
working capital, capital expenditures and other investment requirements.
EBITDA should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
F-17
<PAGE>
At June 30, 1996, company debt totaled $50 million. This debt was repaid in
its entirety in October 1996 using proceeds from the cable sale. Interest
expense associated with this debt totaled $0.9 million (excluding $92,000 in
capitalized interest) in fiscal 1997 and $5.3 million in fiscal 1996. (See
subsequent event information regarding debt incurred after June 30, 1997, at
the end of this section.)
The board of directors approved a two-for-one stock split in the form of a
stock dividend, payable on March 14, 1997, to shareholders of record on
February 28, 1997.
On February 3, 1997, the board of directors increased the quarterly dividend by
18 percent, or 1 cent per share, to 6.5 cents per share effective with the
dividend payable on March 14, 1997. On an annual basis, this increase will
result in the payment of approximately $2.1 million in additional dividends,
based on the current number of shares outstanding. Dividends paid in fiscal
1997 were $12.8 million, or 24 cents per share, compared with $11.5 million, or
21 cents per share, in fiscal 1996.
In fiscal 1997, the company spent $29.3 million for the repurchase of 1,237,000
shares of Meredith Corporation common stock on the open market under an
authorization by its board of directors. This compares with fiscal 1996
spending of $29.6 million for 1,382,000 shares. As of June 30, 1997,
approximately 1,300,000 shares could be repurchased under an existing
authorization by the board of directors. The status of the repurchase program
is reviewed at each quarterly board of directors meeting. The company expects
to continue to repurchase shares in the foreseeable future, subject to market
conditions.
Expenditures for property, plant and equipment were $23.3 million in fiscal
1997 compared to $29.9 million in fiscal 1996. Fiscal 1997 spending included
approximately $11 million for the construction of a new office building and
related improvements in Des Moines. This will allow the consolidation of all
Des Moines employees in a central location. Other spending in fiscal 1997 was
primarily for broadcasting technical equipment and computer hardware and
software. Fiscal 1996 spending included approximately $7 million for the Des
Moines building project and $11 million for leasehold and other improvements to
relocated office facilities in New York City. The total cost of the Des Moines
building project is estimated at approximately $42 million, excluding
capitalized interest. The balance of the spending will occur in fiscal 1998.
The broadcasting segment also expects to spend a total of $20 to $25 million
over the next three fiscal years for new and remodeled facilities, the
transition to digital technology at four of its television stations (by
November 1999) and other costs associated with the introduction or expansion of
news programming at five stations. Further expenditures for the transition to
digital technology are anticipated in later fiscal years as the remaining
stations convert. Over the next two years, Meredith has commitments to spend
F-18
<PAGE>
approximately $8 million for replacement aircraft and $7 million for computer
systems, including changes needed to address year 2000 issues. The company has
made no other material commitments for capital expenditures. Funds for the new
Des Moines building and other capital expenditures are expected to be provided
by available cash, including cash from operating activities and borrowing under
credit agreements.
At this time, management expects that cash on hand, internally-generated cash
flow and debt from credit agreements will provide funds for any additional
operating and recurring cash needs (e.g., working capital, cash dividends) for
foreseeable periods.
Subsequent Event
- ----------------
On July 1, 1997, the company acquired three of the television stations of First
Media Television, L.P. The acquisition price for the purchased net assets was
$216 million. On September 4, 1997, Meredith acquired and exchanged the fourth
First Media station, WCPX in Orlando, for WFSB, a CBS affiliate serving
Hartford/New Haven, Conn., to comply with FCC regulations (as previously
discussed). The company acquired WFSB from Post-Newsweek through an exchange
of assets plus a $60 million cash payment to Meredith. The result was a net
cost to the company of $159 million for the acquisition of WFSB.
These acquisitions were financed by a credit agreement with a group of seven
banks led by Wachovia Bank, N.A., as agent. The credit agreement consists of a
$210 million, 60-month term loan and a $150 million, 60-month revolving credit
facility. On July 1, 1997, $125 million was borrowed under the revolving
credit facility. On September 4, 1997, the company borrowed the full amount of
the term loan and reduced the borrowing under the revolving credit facility to
$60 million. The term loan requires the following annual principal payments on
May 31, 1998 through 2002, respectively: $25 million, $40 million, $45 million,
$50 million and $50 million. The revolving credit facility is due and payable
on July 1, 2002. Funds for the payment of interest and principal on the debt
are expected to be provided by cash generated from future operating activities.
Interest rates under the credit agreement are based on one of the following,
plus applicable margins: adjusted LIBOR; the higher of Wachovia Bank's prime
rate or the overnight federal funds rate; or money market rates. The credit
agreement includes certain financial covenants. These include requirements
that the ratio of consolidated funded debt-to-EBITDA be less than 3.5 to 1.0
and the fixed-charge-coverage ratio not be less than 2.0 to 1.0. As of
September 10, 1997, the company is in compliance with these covenants.
F-19
<PAGE>
Meredith utilized interest rate swap contracts to manage interest cost and risk
associated with possible increase in variable interest rates. At July 1, 1997,
the company entered into two interest rate swap contracts with effective dates
of September 30, 1997. Under these contracts, Meredith will pay fixed rates of
interest while receiving floating rates of interest based on three month LIBOR
beginning at the effective dates of the contracts on an initial $200 million
notional amount of indebtedness. The remaining debt of $70 million currently
carries a rate of approximately 6.1 percent until January 2, 1998. Then the
notional amount under the swap contracts will increase to cover the total of
these borrowings. As a result, Meredith will have an effective borrowing cost
of approximately 6.75 percent (including applicable margins and fees) over the
term of the loan agreement. The swap contracts terminate on March 30, 2001,
and the notional amount of indebtedness varies over the terms of the contracts.
The average notional amount of indebtedness outstanding in fiscal 1998 through
2001 is as follows: $240 million, $220 million, $153 million and $70 million.
The company will record amounts which are due to or from interest rate swap
counterparties in the period in which they accrue. The company is exposed to
credit-related losses in the event of non-performance by counterparties to
financial instruments. Management does not expect any counterparties to fail
to meet their obligations given the strong creditworthiness of the
counterparties to the agreements.
Other Matters
- -------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 replaces the presentation of primary earnings per share
(EPS) with basic EPS and diluted EPS. The calculation of basic EPS is based on
the weighted-average number of actual common shares outstanding for the period
and excludes common stock equivalents. Diluted EPS reflects the potential
dilution that could result from the issuance of common stock equivalents using
a different methodology than the current calculation of primary EPS. The
company will be required to report both basic and diluted EPS on the face of
the income statement. SFAS No. 128 will be effective in the second quarter of
fiscal year 1998. Earlier application is not permitted and when effective, all
prior-period EPS data will be restated. See Note 1 for the impact of SFAS No.
128 on fiscal 1997 EPS data.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements will require revised and/or additional
disclosures, but will have no effect on the results of operations or financial
position of the company. Both statements will be effective in fiscal 1999.
F-20
<PAGE>
Financial Statements and Supplementary Data
Consolidated Statements of Earnings
Meredith Corporation and Subsidiaries
Years ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands, except per share)
Revenues (less returns and allowances):
Advertising $459,678 $446,923 $392,772
Circulation 257,222 272,406 269,029
Consumer books 38,336 56,481 86,568
All other 99,982 91,327 81,032
--------- --------- ---------
Total revenues 855,218 867,137 829,401
--------- --------- ---------
Operating costs and expenses:
Production, distribution and edit 339,895 366,408 345,025
Selling, general and administrative 377,655 378,094 392,657
Depreciation and amortization 22,997 25,130 19,017
--------- --------- ---------
Total operating costs and expenses 740,547 769,632 756,699
--------- --------- ---------
Income from operations 114,671 97,505 72,702
Gain from disposition -- 5,898 --
Interest income - IRS settlement -- -- 8,554
Interest income 5,010 2,183 2,359
Interest expense (1,254) (5,530) (4,019)
--------- --------- ---------
Earnings from continuing operations
before income taxes 118,427 100,056 79,596
Income taxes 50,835 45,399 35,398
--------- --------- ---------
Earnings from continuing operations 67,592 54,657 44,198
Discontinued operation:
Loss from cable operation -- (717) (5,454)
Gain from dispositions 27,693 -- 1,101
--------- --------- ---------
Earnings before cumulative effect of
change in accounting principle 95,285 53,940 39,845
Cumulative effect of change in
accounting principle -- -- (46,160)
--------- --------- ---------
Net earnings (loss) $ 95,285 $ 53,940 $ (6,315)
========= ========= =========
F-21
<PAGE>
Consolidated Statements of Earnings - Continued
Meredith Corporation and Subsidiaries
Years ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands, except per share)
Earnings per share:
Earnings from continuing operations $ 1.22 $ .97 $ .79
Discontinued operation .50 ( .01) ( .07)
Cumulative effect of change in
accounting principle -- -- ( .83)
--------- --------- ---------
Net earnings (loss) per share $ 1.72 $ .96 $ ( .11)
========= ========= =========
Average shares outstanding 55,503 56,345 55,508
========= ========= ==========
See accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
Consolidated Balance Sheets
Meredith Corporation and Subsidiaries
Assets June 30 1997 1996
- -------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 74,498 $ 13,801
Marketable securities 50,382 --
Accounts receivable 107,616 102,952
Less allowances for doubtful accounts & returns (14,221) (13,504)
---------- ----------
Net receivables 93,395 89,448
Inventories 30,273 31,185
Program rights 7,809 10,321
Subscription acquisition costs 59,444 48,887
Other current assets 21,407 17,034
---------- ----------
Total current assets 337,208 210,676
Property, plant and equipment:
Land and improvements 5,049 5,032
Buildings and improvements 50,109 49,717
Machinery and equipment 108,442 112,526
Leasehold improvements 7,407 7,667
Construction in progress 22,263 7,913
---------- ----------
Total property, plant and equipment 193,270 182,855
Less accumulated depreciation (103,087) (102,856)
---------- ----------
Net property, plant and equipment 90,183 79,999
Net assets of discontinued operation -- 88,051
Subscription acquisition costs 32,703 46,745
Program rights 5,507 6,816
Other assets 21,951 19,043
Goodwill and other intangibles
(at original cost less accumulated amortization 273,349 282,443
of $77,696 in 1997 and $67,627 in 1996) ---------- ----------
Total assets $760,901 $733,773
========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------
Current liabilities: (In thousands)
Current portion of long-term debt $ -- $ 15,000
Current portion of long-term program rights payable 11,004 13,063
Accounts payable 48,306 42,085
Accruals:
Compensation and benefits 33,405 24,150
Distribution expenses 15,278 15,678
Other taxes and expenses 24,865 29,130
---------- ----------
Total accruals 73,548 68,958
Unearned subscription revenues 145,102 140,401
---------- ----------
Total current liabilities 277,960 279,507
Long-term debt -- 35,000
Long-term program rights payable 6,028 8,419
Unearned subscription revenues 95,883 97,811
Deferred income taxes 23,051 25,510
Other deferred items 31,049 25,962
---------- ----------
Total liabilities 433,971 472,209
---------- ----------
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 40,921,537 shares in 1997
(excluding 25,505,186 shares held in treasury)
and 20,380,437 shares in 1996 (excluding
12,207,776 shares held in treasury) 40,922 20,380
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 12,335,361 in 1997 and
6,568,583 shares in 1996 12,335 6,569
Retained earnings 276,243 236,903
Unearned compensation (2,570) (2,288)
---------- ----------
Total stockholders' equity 326,930 261,564
---------- ----------
Total liabilities and stockholders' equity $760,901 $733,773
========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-24
<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, 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
Purchases of company stock (84) -- (3,675) -- -- (3,759)
Conversion of class B to
common stock 220 (220) -- -- -- --
Two-for-one stock split
in March 1995 10,210 3,519 -- (13,729) -- --
Dividends paid, 19 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
- -------------------------------------------------------------------------------
Net earnings -- -- -- 53,940 -- 53,940
Stock issued under various
incentive plans,
net of forfeitures 155 -- 4,228 -- 164 4,547
Purchases of company stock (691) -- (6,865) (22,001) -- (29,557)
Conversion of class B to
common stock 336 (336) -- -- -- --
Dividends paid, 21 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
- -------------------------------------------------------------------------------
F-25
<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
- -------------------------------------------------------------------------------
Balance at June 30, 1996 $20,380 $6,569 $ -- $236,903 ($2,288)$261,564
- -------------------------------------------------------------------------------
Net earnings -- -- -- 95,285 -- 95,285
Stock issued under various
incentive plans,
net of forfeitures 596 -- 7,066 -- (1,527) 6,135
Purchases of company stock (1,237) -- (11,874) (16,157) -- (29,268)
Conversion of class B to
common stock 803 (803) -- -- -- --
Two-for-one stock split
in March 1997 20,380 6,569 -- (26,949) -- --
Dividends paid, 24 cents
per share
Common stock -- -- -- (9,784) -- (9,784)
Class B stock -- -- -- (3,055) -- (3,055)
Restricted stock
amortized to operations -- -- 674 -- 1,245 1,919
Tax benefit from incentive
plans -- -- 3,574 -- -- 3,574
Other -- -- 560 -- -- 560
- -------------------------------------------------------------------------------
Balance at June 30, 1997 $40,992 $12,335 $ -- $276,243 $(2,570)$326,930
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-26
<PAGE>
Consolidated Statements of Cash Flows
Meredith Corporation and Subsidiaries
Years ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings (loss) $95,285 $53,940 $(6,315)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 22,997 25,130 19,017
Amortization of program rights 17,388 18,950 18,133
Gain from disposition, net of taxes -- (3,379) --
(Gain) loss from discontinued operation (27,693) 717 4,353
Changes in assets and liabilities:
Accounts receivable (518) 1,632 (23,627)
Inventories 912 10,694 (11,819)
Supplies and prepayments (1,360) 9,794 (4,607)
Subscription acquisition costs 3,485 4,929 81,114
Accounts payable 6,221 (10,064) 14,711
Accruals (6,073) 8,664 6,530
Unearned subscription revenues 2,773 (9,096) (1,051)
Deferred income taxes (1,871) (798) (36,719)
Other deferred items 5,087 (2,908) 5,765
-------- -------- --------
Net cash provided by operating activities 116,633 108,205 65,485
-------- -------- --------
Cash flows from investing activities:
Purchases of marketable securities (50,557) -- --
Redemptions of marketable securities -- -- 16,189
Proceeds from dispositions 123,275 27,894 --
Acquisitions of businesses -- (14,500) (159,000)
Additions to property, plant, and equipment (23,299) (29,873) (13,284)
Change in other assets (3,678) 2,514 5,388
-------- -------- --------
Net cash provided (used) by investing activities 45,741 (13,965) (150,707)
-------- -------- --------
F-27
<PAGE>
Consolidated Statements of Cash Flows - Continued
Meredith Corporation and Subsidiaries
Years ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands)
Cash flows from financing activities:
Long-term debt incurred -- -- 100,000
Long-term debt retired (50,000) (40,000) (10,000)
Payments for program rights (18,184) (17,364) (14,085)
Proceeds from common stock issued 6,142 4,542 2,342
Purchases of company stock (29,268) (29,557) (3,759)
Dividends paid (12,839) (11,521) (10,388)
Other 2,472 1,636 1,409
-------- -------- --------
Net cash (used) provided by financing activities (101,677) (92,264) 65,519
-------- -------- --------
Net increase (decrease) in cash & cash equivalents 60,697 1,976 (19,703)
Cash and cash equivalents at beginning of year 13,801 11,825 31,528
-------- -------- --------
Cash and cash equivalents at end of year $74,498 $13,801 $11,825
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid
Interest $ 1,818 $ 8,814 $ 2,270
Income taxes $66,105 $45,719 $40,438
Noncash transactions
Program rights financed by contracts payable $13,734 $26,587 $15,543
See accompanying Notes to Consolidated Financial Statements.
F-28
<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 56 percent and 41 percent, respectively, of
total operating profit before unallocated corporate expenses in fiscal 1997.
Magazine operations accounted for approximately 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.
Significant Revenue Categories
Years ended June 30 1997 1996 1995
----------------------- -------- -------- --------
(In thousands)
Advertising:
Magazine................. $311,161 $308,959 $276,312
Broadcasting............. 148,517 137,964 116,460
Magazine circulation....... 257,222 272,406 269,029
Consumer book.............. 38,336 56,481 86,568
All other.................. 99,982 91,327 81,032
-------- -------- --------
Total revenues............. $855,218 $867,137 $829,401
======== ======== ========
Advertising and magazine circulation revenues accounted for approximately 54
percent and 30 percent, respectively, of the company's revenues in fiscal 1997.
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-29
<PAGE>
b. Principles of consolidation
The consolidated financial statements include the accounts of Meredith
Corporation and its majority-owned subsidiaries (the company). The net assets
of the discontinued operation reported at June 30, 1996, represented the net
assets of the cable segment that was sold in October 1996. 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
approximates market value.
e. Marketable securities
Marketable securities at June 30, 1997, are classified as available for sale
and consist of short-term debt securities issued by the U. S. Treasury,
maturing within the following 2 months. No marketable securities were sold
during fiscal 1997. No marketable securities were held during fiscal 1996.
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.
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.
F-30
<PAGE>
h. Property, plant and equipment
Property, plant and equipment are stated at cost. Costs of replacements and
major improvements are capitalized and 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: five to 45
years for buildings and improvements, and three 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 1997
($12.4 million in fiscal 1996 and $10.5 million in fiscal 1995).
i. Program rights
Program 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
Goodwill and other intangibles represent the excess of the purchase price over
the estimated fair values of tangible assets acquired in the purchases of
businesses. The values of goodwill and other intangibles have been determined
by independent appraisals. As of June 30, 1997, these assets primarily consist
of goodwill ($134.4 million), television FCC licenses ($57.9 million) and
television network affiliation agreements ($49.0 million) and are presented net
of related amortization. Virtually all of these assets were acquired
subsequent to October 31, 1970, and are being amortized by the straight-line
method over the following periods: 20 to 40 years for goodwill; and 40 years
for television FCC license and network affiliation agreements. The company
periodically evaluates the carrying values of goodwill and other intangibles to
determine if impairments have occurred and adjustments to net realizable value
are warranted. This evaluation primarily consists of comparison of the current
values to estimated future undiscounted cash flows and long-term business
strategies of the underlying business.
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.
F-31
<PAGE>
l. Advertising expenses
Total advertising expenses included in the Consolidated Statements of Earnings
were $71.8 million in fiscal 1997, $76.1 million in fiscal 1996 and $173.0
million (including the cumulative effect of the accounting change) in fiscal
1995. The majority of the company's advertising expenses relate to direct-mail
costs for magazine subscription acquisition efforts. These costs are expensed
when incurred. Deferred advertising costs included in the Consolidated Balance
Sheets as of June 30, 1997 and 1996, were not material.
m. Computation of earnings per share
Earnings 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 1997 financial statement presentation.
In fiscal 1997, the company adopted 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," as required. The adoption had no
material effect on the results of operations or financial position of the
company.
Also in fiscal 1997, the company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," as required for disclosure purposes only. Meredith
Corporation will continue to apply the accounting treatment prescribed by the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, in most instances the company does not
recognize compensation expense for its stock option plans. Pro forma
disclosures of net income and earnings per share as if SFAS No. 123 were
adopted for all stock-based compensation plans are provided in Note 13.
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 replaces the presentation of
primary earnings per share (EPS) with basic EPS and diluted EPS. The
calculation of basic EPS is based on average actual common shares outstanding
and excludes common stock equivalents. Diluted EPS reflects the potential
dilution that could result from the issuance of common stock equivalents using
a different methodology than the current calculation of primary EPS. Diluted
F-32
<PAGE>
EPS is not expected to be materially different from the primary EPS currently
reported. By applying the provisions of SFAS No. 128, fiscal 1997 basic EPS
from continuing operations was $1.26 and diluted EPS from continuing operations
was $1.22 per share. SFAS No. 128 will be adopted in the second quarter of
fiscal 1998. Earlier application is not permitted and when effective, all
prior-period EPS data presented will be restated.
2. Discontinued Operation
On October 25, 1996, the Meredith/New Heritage partnership (MNH Partnership),
of which the company indirectly owned 96 percent, completed the sale of its 73
percent ownership interest in Meredith/New Heritage Strategic Partners, L.P.
(Strategic Partners) to Continental Cablevision of Minnesota Subsidiary
Corporation, an affiliate of MNH Partnership's minority partner, Continental
Cablevision of Minnesota, Inc. Strategic Partners owned and operated cable
television systems with approximately 127,000 subscribers in the
Minneapolis/St. Paul area. The total value of the cable television systems was
$262.5 million based on estimated future cash flows. Strategic Partners' debt
of $84.3 million was retired. Meredith Corporation's share of the proceeds,
after the debt payment and taxes, was $116 million. The company recorded a
gain of $27.7 million, or 50 cents per share, from the sale. The gain was net
of income tax expense of $8.8 million and deferred operating losses of $0.2
million.
Summarized financial information for the discontinued cable operation through
the effective date of sale follows:
Results of discontinued operation
Years ended June 30 1997 1996 1995
- ------------------- ------- ------- -------
(In thousands)
Revenues........................... $13,419 $51,750 $51,189
======= ======= =======
Income from operations............. $ 1,581 $ 5,111 $ 3,006
======= ======= =======
Net interest expense............... $ 1,421 $ 6,513 $10,474
======= ======= =======
Profit (loss) before income taxes.. $ 117 $ (961) $(5,207)
Income tax (benefit) expense....... (40) 102 247
------- ------- -------
Net profit (loss) from
discontinued operation............ $ 157 $(1,063) $(5,454)
======= ======= =======
Gain from dispositions............. $27,693 $ -- $ 1,101
======= ======= =======
F-33
<PAGE>
Fiscal 1996 first quarter discontinued operating results included in the
Consolidated Statement of Earnings reflected revenues of $12.2 million,
income from operations of $0.7 million and a net loss of $0.7 million
(including an income tax benefit of $27,000). Cable operating results
after the measurement date of September 30, 1995, were deferred and reduced
the gain from disposition. Those financial results included revenues of
$52.9 million, income from operations of $5.9 million and a net loss of
$0.2 million (including income tax expense of $89,000).
In March 1995, Strategic Partners sold the net assets of its Bismarck/
Mandan, N.D., cable television operations for a pre-tax gain of
$3.5 million. The company's share was $1.1 million, net of income tax
expense of $1.6 million.
The net assets of the discontinued operation as of June 30, 1996, consisted of
net property, plant and equipment of $71 million, goodwill and other
intangibles of $136 million and other net assets of $4 million less bank debt
of $86 million and minority interest of $37 million. The long-term debt at
June 30, 1996, was owed to a group of ten banks on the earlier of December 31,
1996, or the date of the sale of Strategic Partners' cable television systems.
The carrying amounts of the debt and the related interest payable approximated
fair values due to the short-term nature of the interest periods available
under the loan agreement. As of June 30, 1996, the weighted average rate of
interest on Strategic Partners' debt was 6.9 percent based on Eurodollar, prime
and/or certificate of deposit rates as provided in the loan agreement.
Interest expense related to this debt was reflected in the results of the
discontinued cable operation as the debt was specifically attributable to the
cable operation and was non-recourse to Meredith Corporation.
The loan agreement had provisions which restricted Strategic Partners from
incurring additional debt, making investments and prohibited payments of
dividends and most other distributions. Borrowings were secured by the assets
of Strategic Partners, which totaled approximately $217 million at June 30,
1996. Restricted net assets of Strategic Partners included in Meredith's
Consolidated Balance Sheet at June 30, 1996, totaled $88 million.
3. Change in Accounting Policy for Subscription Acquisition Costs
In December 1994, the FASB approved the issuance of Practice Bulletin 13,
"Direct-Response Advertising and Probable Future Benefits." Practice Bulletin
13 specified 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. Therefore, in
accordance with the requirements of Practice Bulletin 13, the company now
expenses most direct-response subscription acquisition costs as incurred.
F-34
<PAGE>
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 6 cents per share. The effect on fiscal 1995 net
earnings (including a noncash charge of $46.2 million post-tax, or 83 cents per
share, for the cumulative effect as of July 1, 1994) was $49.2 million, or 89
cents per share.
4. 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 as a result of this decision in
fiscal 1995 related to the Ladies' Home Journal magazine acquisition. The
benefit of this reduction is being realized over the remaining life of the
goodwill.
5. Disclosures Regarding the Fair Value of Financial Instruments
a. Marketable securities
At June 30, 1997, the fair value of marketable securities approximates the net
amortized cost of $50.4 million. The fair value was determined based on quoted
market prices. There were no marketable securities held at June 30, 1996.
b. Program rights
The company has commitments for the purchase of broadcasting program rights.
The fair value of commitments for currently available program rights is the
present value of future payments totaling $16.0 million at June 30, 1997 ($20.3
million at June 30, 1996). In addition, commitments for unavailable program
rights, not reflected in the Consolidated Balance Sheets, had fair values of
$24.4 million and $23.0 million at June 30, 1997 and 1996, respectively (Note
14).
F-35
<PAGE>
c. Other
The carrying amounts reported on the Consolidated Balance Sheets at June 30,
1997 and 1996, for all other assets and liabilities (and all other liabilities
not appearing on the Consolidated Balance Sheets per Note 14) 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.
6. Inventories
Inventories consist primarily of paper stock and books. Of net inventory
values shown, approximate portions determined using the LIFO method were: 1997
- - 52 percent; 1996 - 67 percent; 1995 - 55 percent; and 1994 - 32 percent. The
decrease in raw materials inventory at June 30, 1997, reflected lower volumes
due to tight paper market conditions late in fiscal 1997 and lower paper prices
versus June 30, 1996. This resulted in a favorable LIFO cost valuation reserve
adjustment of $6.0 million in fiscal 1997. 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 Meredith'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.
June 30 1997 1996 1995 1994
- -------- ------- ------- ------- -------
(In thousands)
Raw materials..................... $16,787 $28,354 $32,320 $15,366
Work in process................... 14,950 11,907 13,801 13,132
Finished goods.................... 5,874 4,276 13,059 15,086
------- ------- ------- -------
37,611 44,537 59,180 43,584
Reserve for LIFO cost valuation... (7,338) (13,352) (12,399) (8,622)
------- ------- ------- -------
Inventories....................... $30,273 $31,185 $46,781 $34,962
======= ======= ======= =======
F-36
<PAGE>
7. Acquisitions
See Note 17 for information regarding acquisitions subsequent to June 30, 1997.
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 million. The acquisition of WSMV was accounted
for by the purchase method. The cost 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 unaudited
operating results (as if the transaction occurred at the beginning of the
company's fiscal year) for the year ended June 30, 1995, are as follows:
revenues of $845.4 million; earnings before cumulative effect of change in
accounting principle of $40.1 million (72 cents per share); and net loss of $6
million (loss of 11 cents per share).
8. Dispositions
See Note 2 for information regarding the disposition of the discontinued cable
segment in fiscal 1997.
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). If this sale had
occurred on July 1, 1995, the impact on the company's consolidated revenues and
net earnings would not have been significant.
F-37
<PAGE>
9. Long-term Debt
At June 30, 1996, long-term debt totaled $50 million outstanding under a
January 1995 term loan agreement with a group of banks. The weighted average
rate of interest at June 30, 1996, for funds borrowed under this agreement was
5.8 percent. In October 1996, the entire debt was repaid using proceeds from
the sale of the discontinued cable television operation. Interest expense
related to the debt totaled $0.9 million (excluding $92,000 in capitalized
interest) in fiscal 1997 and $5.3 million in fiscal 1996.
At June 30, 1997, Meredith Corporation had unused lines of credit totaling $10
million. Commitment fees paid were not material.
10. Income Taxes
Income tax expense was allocated as follows:
Years ended June 30 1997 1996 1995
- -------------------- ------- ------- -------
(In thousands)
Earnings from continuing operations..... $50,835 $45,399 $35,398
Discontinued operation.................. 8,756 (27) 1,820
Cumulative effect of change in
accounting principle.................. -- -- (30,773)
------- ------- -------
Total income tax expense.......... $59,591 $45,372 $ 6,445
======= ======= =======
Income tax expense attributable to earnings from continuing operations consists
of:
Years ended June 30 1997 1996 1995
- -------------------- ------- ------- -------
(In thousands)
Currently payable:
Federal................................ $45,596 $38,784 $33,453
State.................................. 10,684 8,887 7,891
------- ------- -------
56,280 47,671 41,344
------- ------- -------
F-38
<PAGE>
Deferred:
Federal................................ (4,356) (1,817) (4,757)
State.................................. (1,089) (455) (1,189)
------- ------- -------
(5,445) (2,272) (5,946)
------- ------- -------
Total............................... $50,835 $45,399 $35,398
======= ======= =======
The differences between the effective tax rates and the basic U.S. federal
income tax rate are as follows:
Years ended June 30 1997 1996 1995
- -------------------- ------ ------ ------
Expected income tax (basic rate) ............ 35.0% 35.0% 35.0%
State income taxes,
less federal income tax benefits............ 5.3 5.5 5.6
Goodwill amortization........................ 1.2 2.3 2.2
Other........................................ 1.4 2.6 1.7
----- ----- -----
Effective income tax rate ................. 42.9% 45.4% 44.5%
===== ===== =====
The tax effects of temporary differences that gave rise to the deferred income
tax assets and liabilities are as follows:
June 30 1997 1996
-------- ------- -------
(In thousands)
Deferred tax assets:
Accounts receivable allowances
and return reserves.................. $13,687 $11,377
Compensation and benefits.............. 21,040 14,281
Expenses deductible for taxes in
different years than accrued......... 14,736 16,064
All other assets....................... 1,501 1,206
------- -------
Total deferred tax assets................ 50,964 42,928
------- -------
F-39
<PAGE>
Deferred tax liabilities:
Subscription acquisition costs........... 29,544 29,515
Accumulated depreciation and amortization 19,777 16,519
Gains from dispositions.................. 8,463 8,874
Expenses deductible for taxes in
different years than accrued........... 4,302 4,297
All other liabilities.................... 13 303
------- -------
Total deferred tax liabilities 62,099 59,508
------- -------
Net deferred tax liability $11,135 $16,580
======= =======
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.
11. 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 for qualified plans
and the amount owed to retired participants for nonqualified plans.
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 noncompany equity and debt securities. Benefits for
nonbargained 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 1997 1996 1995
- -------------------- ------ ------ ------
(In thousands)
Service cost - benefits earned during
the period................................... $ 3,650 $3,124 $3,035
Interest cost on projected benefit obligation. 5,017 4,457 4,196
Actual return on assets....................... (4,000) (19,145) (3,730)
Deferred investment (loss) gain............... (991) 15,760 396
Amortization.................................. 540 770 807
------ ------ ------
Net periodic pension cost................... $4,216 $4,966 $4,704
====== ====== ======
F-40
<PAGE>
The following table sets forth the plans' funded status and amounts recognized
in the company's Consolidated Balance Sheets. Overfunded plans are those in
which the fair value of plan assets exceeds the accumulated benefit obligation.
1997 1996
------------------ ------------------
Over- Under- Over- Under-
funded funded funded funded
June 30 Plans Plans Plans Plans
- -------- --------- ------- -------- --------
(In thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation........$(43,202) $ (9,502) $(44,308) $ (7,141)
======== ======== ======== ========
Accumulated benefit obligation...$(47,151) $(11,431) $(46,071) $ (8,094)
======== ======== ======== ========
Projected benefit obligation.....$(52,956) $(14,561) $(51,695) $(11,960)
Plan assets at fair value.......... 63,706 191 63,300 193
-------- -------- -------- --------
Projected benefit obligation less
than (in excess of) plan assets... 10,750 (14,370) 11,605 (11,767)
Unrecognized net (gain) loss....... (13,499) 3,388 (12,565) 1,809
Unrecognized net obligation........ 607 1,665 731 1,918
Unrecognized prior service cost.... 924 1,244 1,131 1,395
Adjustment required to recognize
minimum liability................. -- (3,299) -- (1,771)
-------- -------- -------- --------
(Pension liability) prepaid pension
recognized in the balance sheets..$ (1,218) $(11,372) $ 902 $ (8,416)
======== ======== ======== ========
The weighted-average assumed discount rates used in determining the projected
benefit obligation at June 30, 1997, were 7.75 percent before retirement and
6.25 percent after retirement. (At June 30, 1996, discount rates were 7.5
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,
1997 and 1996. The weighted-average expected long-term rate of return on
assets used in determining pension expense was 8.25 percent at June 30, 1997,
and 8.5 percent at June 30, 1996.
F-41
<PAGE>
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
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
$0.7 million in fiscal 1997 ($0.9 million and $1.0 million in 1996 and 1995,
respectively). The company funds its postretirement benefits through a 401(h)
account. All assets are held in noncompany equity securities.
A summary of the components of net periodic postretirement benefit costs
follows:
Years ended June 30 1997 1996 1995
- -------------------- ------ ------ ------
(In thousands)
Service cost - benefits earned during
the period................................... $ 445 $ 341 $ 340
Interest cost on projected benefit obligation. 1,077 897 885
Actual return on assets....................... (151) (116) (76)
Net amortization and deferral................. (28) (136) (152)
------ ------ ------
Net periodic postretirement benefit cost.... $1,343 $ 986 $ 997
====== ====== ======
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 1997 1996
-------- -------- --------
(In thousands)
Actuarial present value of benefit obligations:
Retirees.................................... $ (8,714) $ (8,653)
Active employees............................ (5,412) (4,858)
-------- --------
Total accumulated benefit obligation...... (14,126) (13,511)
Plan assets at fair value..................... 664 841
-------- --------
F-42
<PAGE>
Accumulated benefit obligation in excess of
plan assets.................................. (13,462) (12,670)
Unrecognized prior service credit............. (2,843) (3,043)
Unrecognized net loss ........................ 1,360 1,706
-------- --------
Postretirement benefit liability recognized
in the balance sheets........................ $(14,945) $(14,007)
======== ========
The weighted-average assumed discount rate used in determining the actuarial
present value of postretirement benefits was 7.75 percent at June 30, 1997, and
7.5 percent in 1996. The weighted-average annual assumed rate of increase in
the health care cost trend rate for employees under age 65 was 11.0 and 12.0
percent for fiscal years 1997 and 1996, respectively. The rate is expected to
decrease by 1.0 percent annually to 5.75 percent in 2002 and remain at that
level. For employees 65 and older, the assumed rate of increase was 8.0 and 9.0
percent for fiscal years 1997 and 1996, respectively. The rate is expected to
decrease by 1.0 percent annually to 5.75 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, 1997 and 1996, by $0.7 million and $0.6 million,
respectively. The net periodic postretirement health care benefit cost would
increase by $0.1 million in both fiscal 1997 and 1996. The average rate of
compensation increase used to determine the accumulated benefit obligation for
life insurance benefits was 6.0 percent at June 30, 1997 and 1996. The
weighted-average expected long-term rate of return on assets used in
determining postretirement benefit cost was 8.25 percent at June 30, 1997, and
8.5 percent at June 30, 1996.
12. 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 10 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 July 31, 1997, there were approximately 1,900 holders of record of the
company's common stock and 1,400 holders of record of class B stock.
F-43
<PAGE>
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 1997, the company repurchased 1,237,000 shares of its common stock at a
cost of $29.3 million (1,382,000 shares were repurchased in fiscal 1996 for
$29.6 million and 335,000 shares were repurchased in fiscal 1995 for $3.8
million). Fiscal 1996 and 1995 shares have been adjusted for the March 1997
stock split in the form of a stock dividend.
13. Common Stock and Stock Option Plans
All fiscal 1996 and 1995 shares have been adjusted for the March 1997 stock
split in the form of a stock dividend.
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 cents per $1 contributed for the first 5 percent. In
recognition of all employees' contributions to the company's record financial
performance in fiscal 1997, a special one-time additional company match of 25
cents per regularly matched $1 was charged against fiscal 1997 earnings.
Company contribution expense to this plan totaled $4.6 million in 1997
(including the special match paid in July 1997), $3.0 million in 1996 and $2.7
million in 1995. The 401(k) Savings and Investment Plan allows employees to
choose among various investment options, including the company's common stock.
Under this plan, 147,024 common shares were issued during fiscal 1997 at market
prices totaling $3.4 million (168,884 shares totaling $3.1 million in 1996 and
182,578 shares totaling $2.2 million in 1995). A total of 17.0 million shares
has been reserved for this plan, of which approximately 16.2 million have been
issued as of June 30, 1997. A total of 1.5 million shares are outstanding
under this plan as of June 30, 1997.
Restricted Stock Plans
- ----------------------
The company has awarded common stock to eligible key employees under two stock
incentive plans and to nonemployee directors under a restricted stock plan.
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 since common shares are legally issued on that date. The
initial values of the grants are amortized over the restriction periods, net of
forfeitures. Restricted stock and annual expense information follows:
F-44
<PAGE>
Years ended June 30 1997 1996 1995
- ------------------- ---- ---- ----
Number of restricted shares awarded... 70,692 23,708 200,944
Average market price of awarded shares $21.94 $18.98 $12.21
Restricted shares outstanding......... 592,050 718,096 877,948
Annual expense, net (in thousands).... $1,919 $1,341 $1,299
Stock Option Plans
- ------------------
The company has two broad-based stock compensation plans (1992 and 1996 plans),
under which nonqualified stock options may be granted to certain employees to
purchase shares of common stock at a price not less than market price at the
date of grant. All options granted under these plans expire at the end of 10
years. Most of these option grants vest one-third each year over a three-year
period. Others have "cliff-type" vesting after either three- or five-year
periods. Some option grants in fiscal 1995 were tied to attaining ROE goals.
These options vested 25 and 75 percent based on fiscal 1997 and fiscal 1996
performance, respectively.
The company also has a nonqualified stock option plan for nonemployee directors
(1993 Plan). Options vest either 40, 30, and 30 percent in each successive
year or one-third each year over a three-year period. No options can be issued
under the 1993 Plan after July 31, 2003, and options expire 10 years after
issuance.
A summary of stock option activity and weighted average exercise prices
follows:
Years ended June 30 1997 1996 1995
- ------------------- ---------------- ---------------- ----------------
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
(Options in thousands)
Outstanding,
beginning of year 3,571 $11.27 3,221 $ 9.55 1,680 $ 7.61
Granted at market price 1,280 $21.64 742 $16.75 1,590 $11.57
Granted at price
exceeding market 233 $29.21 70 $19.95 -- --
Exercised (380) $ 7.10 (193) $ 7.55 (11) $ 7.32
F-45
<PAGE>
Forfeited -- -- (269) $11.07 (38) $ 9.61
----- ----- -----
Outstanding, end of year 4,704 $15.32 3,571 $11.27 3,221 $ 9.55
===== ====== ===== ====== ===== ======
Exercisable, end of year 2,182 $10.50 1,458 $ 8.10 912 $ 7.42
===== ====== ===== ====== ===== ======
A summary of stock options outstanding and exercisable as of June 30, 1997,
follows:
Options outstanding Options exercisable
----------------------------------- ---------------------
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise prices outstanding life (years) price exercisable price
- --------------- ----------- ------------ --------- ----------- --------
(Options in thousands)
$ 6.61 - $ 8.53 1,032 5.53 $ 7.88 1,032 $ 7.88
$10.22 - $11.85 1,361 7.11 $11.55 881 $11.54
$16.75 - $21.10 1,794 8.65 $18.97 269 $17.18
$25.39 - $32.54 517 9.32 $27.45 -- --
The maximum number of shares reserved for use in all company restricted stock
and stock incentive plans totals approximately 10.6 million. The total number
of restricted stock shares and stock options which have been awarded under
these plans as of June 30, 1997, is approximately 5.7 million. No stock
options have expired to date.
The company applies Accounting Principles Board Opinion No. 25 (APB No. 25) in
accounting for its plans. Accordingly, no compensation cost has been
recognized in the Consolidated Statements of Earnings from options issued under
company stock options plans. Effective January 1, 1996, SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages adoption of a fair value
based method for valuing the cost of stock-based compensation. However, it
allows companies to continue to use the intrinsic value method under APB No. 25
and disclose pro forma net earnings and earnings per share in accordance with
SFAS No. 123. Had compensation cost for the company's stock-based compensation
plans been determined consistent with SFAS No. 123, the company's net earnings
and earnings per share would have been as follows:
F-46
<PAGE>
Years ended June 30 1997 1996
------------------- ------- -------
(In thousands, except per share amounts)
Net earnings as reported................ $95,285 $53,940
Pro forma net earnings.................. $93,046 $52,819
Earnings per share as reported.......... $1.72 $ .96
Pro forma earnings per share............ $1.68 $ .94
The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and earnings
per share in future years, since the disclosures do not reflect compensation
expense for options granted prior to fiscal 1996. In addition, valuations are
based on highly subjective assumptions about the future, including stock price
volatility and exercise patterns.
The company used the Black-Scholes option pricing model to determine the fair
value of grants made in fiscal 1997 and 1996. The following assumptions were
applied in determining the pro forma compensation cost:
Years ended June 30 1997 1996
------------------- --------- ---------
Risk-free interest rate.............. 6.42% 6.29%
Expected dividend yield.............. 1.13% 1.13%
Expected option life................. 6.8 years 6.6 years
Expected stock price volatility...... 17.0% 17.0%
Fair value of option:
- Granted at market price.......... $6.74 $5.08
- Granted at price exceeding market $5.14 $3.62
14. 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 $4.4
million in 1997 ($6.0 million in 1996 and $7.2 million in 1995). Minimum
rental commitments at June 30, 1997, under all noncancellable operating leases
totaled $42.0 million. The amounts due in future fiscal years are: $3.0
million in 1998; $3.4 million in 1999; $2.5 million in 2000; $2.7 million in
F-47
<PAGE>
2001; $2.1 million in 2002; and $28.3 million thereafter. Most of the future
lease payments relate to the lease of office facilities in New York City
through December 31, 2011. 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: $11.0 million in 1998; $3.7 million in 1999; $1.5
million in 2000; and $0.8 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 $27.4 million at June 30, 1997 ($25.9 million at June 30, 1996). The
portions of these payments due in succeeding fiscal years are: $6.5 million in
1998; $9.4 million in 1999; $5.9 million in 2000; $3.3 million in 2001; and
$2.3 million thereafter.
Construction of a new Des Moines office building is underway, which will allow
the consolidation of all Des Moines employees in a central location. The cost
of the building and related improvements is currently estimated to be $42
million, excluding capitalized interest. At June 30, 1997, the company had
incurred capital expenditures of approximately $18 million, excluding
capitalized interest. Construction is expected to be completed in fiscal 1998.
The broadcasting segment expects to spend a total of $20 to $25 million over
the next three fiscal years for new and remodeled facilities, the transition to
digital technology at four of its television stations (by November 1999) and
other costs associated with the introduction or expansion of news programming
at five stations. Further expenditures for the transition to digital
technology are anticipated in later fiscal years as the remaining stations
convert. Meredith also has commitments to spend approximately $8 million for
replacement aircraft and $7 million for computer systems over the next two
years.
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.
15. Industry Segment Information
See Financial Information about Industry Segments on page F-4 and F-5 of this
Form 10-K for the fiscal year ended June 30, 1997.
F-48
<PAGE>
16. Selected Quarterly Financial Data (unaudited - see accompanying
accountant's report)
First Second Third Fourth
Year ended June 30, 1997 Quarter Quarter Quarter Quarter Total
- ------------------------ -------- -------- -------- -------- --------
(In thousands, except per share)
Revenues
Publishing............... $157,073 $160,679 $182,116 $173,283 $673,151
Broadcasting............. 35,479 43,400 34,943 42,606 156,428
Real Estate.............. 6,628 5,693 5,976 7,342 25,639
-------- -------- -------- -------- --------
Total revenues........... $199,180 $209,772 $223,035 $223,231 $855,218
======== ======== ======== ======== ========
Operating Profit
Publishing............... $ 13,652 $ 17,648 $ 28,024 $ 21,233 $ 80,557
Broadcasting............. 12,466 17,735 10,608 17,696 58,505
Real Estate.............. 1,543 469 568 1,098 3,678
Unallocated corporate exp. (5,331) (6,572) (8,202) (7,964) (28,069)
-------- -------- -------- -------- --------
Income from operations... $ 22,330 $ 29,280 $ 30,998 $ 32,063 $114,671
======== ======== ======== ======== ========
Earnings
Earnings from continuing
operations.............. $ 12,461 $ 17,076 $ 18,428 $ 19,627 $ 67,592
Discontinued operation... -- 27,693 -- -- 27,693
-------- -------- -------- -------- --------
Net earnings............. $ 12,461 $ 44,769 $ 18,428 $ 19,627 $ 95,285
======== ======== ======== ======== ========
Earnings per share:
Earnings from continuing
operations.............. $ .22 $ .31 $ .33 $ .36 $ 1.22
Discontinued operation... -- .50 -- -- .50
-------- -------- -------- -------- --------
Net earnings per share $ .22 $ .81 $ .33 $ .36 $ 1.72
======== ======== ======== ======== ========
Dividends per share...... $ .055 $ .055 $ .065 $ .065 $ .24
======== ======== ======== ======== ========
Stock price per share:
High.................... $ 25.00 $ 26.94 $ 27.19 $ 29.37
Low..................... $ 19.69 $ 24.37 $ 22.87 $ 22.12
======== ======== ======== ========
F-49
<PAGE>
Fiscal 1997
- -----------
Second quarter earnings from the discontinued operation reflected a gain from
the disposition of the cable television segment (Note 2).
Fourth quarter publishing segment operating profit was favorably affected by a
$3.5 million adjustment to the LIFO inventory reserve due to lower paper
prices.
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, 1996 Quarter Quarter Quarter Quarter Total
- ------------------------ -------- -------- -------- -------- --------
(In thousands, except per share)
Revenues
Publishing............... $166,233 $171,420 $179,990 $178,259 $695,902
Broadcasting............. 34,134 38,306 33,835 39,657 145,932
Real Estate.............. 6,206 6,382 5,593 7,122 25,303
-------- -------- -------- -------- --------
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.............. $ .17 $ .28 $ .24 $ .28 $ .97
Discontinued operation... (.01) -- -- -- (.01)
-------- -------- -------- -------- --------
Net earnings per share... $ .16 $ .28 $ .24 $ .28 $ .96
======== ======== ======== ======== ========
Dividends per share...... $ .05 $ .05 $ .055 $ .055 $ .21
======== ======== ======== ======== ========
F-50
<PAGE>
Stock price per share:
High................... $ 21.25 $ 21.00 $ 24.37 $ 24.31
Low.................... $ 11.75 $ 17.19 $ 20.06 19.56
Fiscal 1996
- -----------
Second quarter earnings from continuing operations included a post-tax gain of
$3.4 million from the disposition of the company's book clubs (Note 8).
Fourth quarter publishing segment operating profit was favorably affected by a
$2.7 million reduction of LIFO inventory expense due to lower fourth quarter
paper prices.
Results of the discontinued operation reflected losses for the first quarter
only. Losses after September 30, 1995, were deferred and reduced the gain from
disposition recorded in fiscal 1997 (Note 2).
See Management's Discussion and Analysis starting on page F-6 of this Form 10-K
for other factors affecting comparability.
17. Subsequent Event (unaudited - see accompanying accountant's report)
On July 1, 1997, the company acquired three of the television stations of First
Media Television, L.P. The acquisition price for the purchased net assets was
$216 million. On September 4, 1997, Meredith acquired and traded the fourth
First Media station, WCPX in Orlando, for WFSB, a CBS affiliate serving the
Hartford/New Haven, Conn. market, to comply with FCC regulations that prohibit
the ownership of multiple television stations in one market. The company
acquired WFSB from Post-Newsweek through an exchange of assets plus a $60
million cash payment to Meredith. The result was a net cost to the company of
$159 million for the acquisition of WFSB. The company intends to continue the
operations of all of the television stations purchased. The acquisition of
three of the First Media television stations on July 1, 1997, and of the
Hartford/New Haven television station on September 4, 1997, will be accounted
for as purchases in fiscal 1998. The respective purchase prices will be
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values per independent appraisals.
F-51
<PAGE>
The purchase price allocation of the $216 million acquisition of the three
First Media stations included the following intangibles: FCC licenses of $123
million; network affiliation agreements of $49 million; and goodwill of $30
million. These intangible assets will be amortized over periods ranging from
25 to 40 years. The purchase price allocation of the $159 million acquisition
of the Hartford/New Haven station has not been completed as of September 10,
1997.
These acquisitions were financed by a credit agreement with a group of seven
banks led by Wachovia Bank, N.A., as agent. Total debt outstanding under the
credit agreement was $270 million at September 10, 1997. See Management's
Discussion and Analysis for further information regarding the credit agreement.
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition of the three First Media stations had been
made at the beginning of the respective periods presented, based on an
independent appraisal. These results do not purport to be indicative of what
would have occurred had the acquisition actually been made as of such dates or
of results which may occur in the future.
Years ended June 30 1997 1996
---------------------- -------- --------
(In millions, except per share)
Revenues........................... $899.7 $906.8
====== ======
Earnings from continuing operations $ 67.3 $ 50.3
====== ======
Earnings per share from
continuing operations............ $ 1.21 $ .89
====== ======
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Meredith Corporation:
We have audited the accompanying consolidated balance sheets of Meredith
Corporation and subsidiaries as of June 30, 1997 and 1996, 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, 1997. 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 the company's 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 and
financial statement schedule 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1997, 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 fiscal
1995 to adopt the provisions of Practice Bulletin 13, "Direct-Response
Advertising and Probable Future Benefits."
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
August 1, 1997
F-53
<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-54
<PAGE>
Schedule II
MEREDITH CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 1997, 1996 and 1995
(In thousands)
Year ended June 30, 1997
---------------------------------------------------
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 $ 8,351 $ 7,721 $ 0 $ 5,774* $10,298
accounts
Reserve for returns 5,153 5,918 0 7,148** 3,923
------- ------- ---- ------- -------
$13,504 $13,639 $ 0 $12,922 $14,221
======= ======= ==== ======= =======
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 $10,827 $ 9,735 $ 0 $12,211* $ 8,351
accounts
Reserve for returns 7,111 17,060 0 19,018** 5,153
------- ------- ---- ------- -------
$17,938 $26,795 $ 0 $31,229 $13,504
======= ======= ==== ======= =======
F-55
<PAGE>
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 $10,571 $ 0 $10,057* $10,827
accounts
Reserve for returns 7,003 26,417 0 26,309** 7,111
------- ------- ---- ------- -------
$17,316 $36,988 $ 0 $36,366 $17,938
======= ======= ==== ======= =======
*Bad debts charged to reserve.
**Actual returns charged to reserve.
F-56
<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
The Exhibits, E-11 through E-27, have
been excluded from this document.
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, 1997
(not covered by Independent Accountants' Opinion)
(Note: All share and per-share information reflects the two-for-one stock
split effected March 16, 1995 and the two-for-one split effected
March 17, 1997.)
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
------- ------- ------- ------- ------- -------
1997 53,567 53,567 1,936 2,356 55,503 55,923
1996 54,796 54,796 1,549 1,626 56,345 56,422
1995 54,850 54,850 658 696 55,508 55,546
1994 56,730 56,730 404 476 57,134 57,206
l993 61,066 61,066 80 80 61,146 61,146
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
------- ------- ------- ------- ------- ------- ------- --------
1997 $1.22 $1.20* $ .50 $ .50 $ - $ - $1.72 $1.70*
1996 .97 .97 (.01) (.01) - - .96 .96
1995 .79 .79 (.07) (.07) (.83) (.83) (.11) (.11)
1994 .57 .57 (.09) (.09) - - .48 .48
1993 .35 .35 (.04) (.04) - - .31 .31
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 primary earnings per share 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, 1997 and the Consolidated Statement of
Earnings for the year ended June 30, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 74,498
<SECURITIES> 50,382
<RECEIVABLES> 107,616
<ALLOWANCES> 14,221
<INVENTORY> 30,273
<CURRENT-ASSETS> 337,208
<PP&E> 193,270
<DEPRECIATION> 103,087
<TOTAL-ASSETS> 760,901
<CURRENT-LIABILITIES> 277,960
<BONDS> 0
0
0
<COMMON> 53,257
<OTHER-SE> 273,673
<TOTAL-LIABILITY-AND-EQUITY> 760,901
<SALES> 855,218
<TOTAL-REVENUES> 855,218
<CGS> 339,895
<TOTAL-COSTS> 339,895
<OTHER-EXPENSES> 22,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,254
<INCOME-PRETAX> 118,427
<INCOME-TAX> 50,835
<INCOME-CONTINUING> 67,592
<DISCONTINUED> 27,693
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,285
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 0
</TABLE>
