UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 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)
515 - 284-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1998
Common Stock, $1 par value 41,399,673
Class B Stock, $1 par value 11,444,370
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<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
December 31 June 30
Assets 1997 1997
- -----------------------------------------------------------------------------
(in thousands, except share data)
Current assets:
Cash and cash equivalents $ 512 $ 74,498
Marketable securities -- 50,382
Receivables, net 135,910 93,395
Inventories 30,125 30,273
Supplies and prepayments 12,086 9,491
Program rights 23,345 7,809
Deferred income taxes 11,921 11,916
Subscription acquisition costs 54,582 59,444
---------- --------
Total current assets 268,481 337,208
---------- --------
Property, plant and equipment 247,692 193,270
Less accumulated depreciation (109,285) (103,087)
---------- --------
Net property, plant and equipment 138,407 90,183
---------- --------
Subscription acquisition costs 36,465 32,703
Program rights 8,660 5,507
Other assets 26,020 21,951
Goodwill and other intangibles
(at original cost less accumulated amortization) 607,553 273,349
---------- --------
Total assets $1,085,586 $760,901
========== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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(Unaudited)
December 31 June 30
Liabilities and Stockholders' Equity 1997 1997
- -----------------------------------------------------------------------------
(in thousands, except share data)
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 25,000 $ --
Current portion of long-term program
rights payable 24,238 11,004
Accounts payable 49,166 48,306
Accrued taxes and expenses 76,859 73,548
Unearned subscription revenues 145,116 145,102
---------- --------
Total current liabilities 320,379 277,960
---------- --------
Long-term debt 245,000 --
Long-term program rights payable 13,077 6,028
Unearned subscription revenues 94,579 95,883
Deferred income taxes 29,267 23,051
Other deferred items 35,691 31,049
---------- --------
Total liabilities 737,993 433,971
---------- --------
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 40,901,721 at December 31 and
40,921,537 at June 30 (net of treasury shares,
26,033,526 at December 31 and 25,505,186
at June 30.) 40,902 40,922
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 11,960,113 at December 31 and
12,335,361 at June 30. 11,960 12,335
Retained earnings 297,014 276,243
Unearned compensation (2,283) (2,570)
---------- --------
Total stockholders' equity 347,593 326,930
---------- --------
Total liabilities and stockholders' equity $1,085,586 $760,901
========== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months Six Months
Ended December 31 Ended December 31
1997 1996 1997 1996
- ------------------------------------------------------------------------------
(in thousands, except per share)
Revenues (less returns and allowances):
Advertising $141,551 $111,766 $273,191 $216,100
Circulation 67,760 64,161 134,932 126,803
Consumer books 13,854 10,988 21,341 20,786
All other 25,719 22,857 50,319 45,263
-------- -------- -------- --------
Total revenues 248,884 209,772 479,783 408,952
-------- -------- -------- --------
Operating costs and expenses:
Production, distribution
and editorial 102,341 83,567 195,030 168,898
Selling, general and
administrative 94,384 91,338 196,073 177,217
Depreciation and amortization 9,294 5,587 17,386 11,227
-------- -------- -------- --------
Total operating costs and expenses 206,019 180,492 408,489 357,342
-------- -------- -------- --------
Income from operations 42,865 29,280 71,294 51,610
Interest income 298 1,175 766 1,554
Interest expense (4,250) (335) (6,717) (1,071)
-------- -------- -------- --------
Earnings from continuing operations
before income taxes 38,913 30,120 65,343 52,093
Income taxes 16,581 13,044 27,920 22,556
-------- -------- -------- --------
Earnings from continuing operations 22,332 17,076 37,423 29,537
Discontinued operation:
Net gain on disposition -- 27,693 -- 27,693
-------- -------- -------- --------
Net earnings $ 22,332 $ 44,769 $ 37,423 $ 57,230
======== ======== ======== ========
See accompanying Notes to Interim Consolidated Financial Statement.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited), continued
Three Months Six Months
Ended December 31 Ended December 31
1997 1996 1997 1996
- ------------------------------------------------------------------------------
(in thousands, except per share)
Basic earnings per share:
Earnings from continuing operations $0.42 $0.32 $0.71 $0.55
Discontinued operation 0.00 0.52 0.00 0.52
------ ------ ------ ------
Net earnings per share $0.42 $0.84 $0.71 $1.07
====== ====== ====== ======
Average shares outstanding 52,980 53,615 53,048 53,666
====== ====== ====== ======
Diluted earnings per share:
Earnings from continuing operations $0.40 $0.31 $0.67 $0.53
Discontinued operation 0.00 0.50 0.00 0.50
------ ------ ------ ------
Net earnings per share $0.40 $0.81 $0.67 $1.03
====== ====== ====== ======
Average shares and common stock
equivalents outstanding 55,639 55,797 55,511 55,630
====== ====== ====== ======
Dividends paid per share $0.065 $0.055 $0.13 $0.11
====== ====== ====== ======
See accompanying Notes to Interim Consolidated Financial Statement.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 31 1997 1996
- -----------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net earnings $ 37,423 $ 57,230
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 17,386 11,227
Amortization of film contract rights 12,749 8,924
Gain on disposition, net of taxes -- (27,693)
Changes in assets and liabilities:
Accounts receivable (42,515) (4,653)
Inventories 148 6,785
Supplies and prepayments (2,124) (1,179)
Subscription acquisition costs 1,100 4,025
Accounts payable 860 (8,640)
Accruals 3,404 (5,230)
Unearned subscription revenues (1,290) (1,074)
Deferred income taxes 10,966 (1,021)
Other deferred items 4,064 2,935
-------- --------
Net cash provided by operating activities 42,171 41,636
-------- --------
Cash flows from investing activities:
Redemptions of marketable securities 50,371 --
Proceeds from disposition -- 123,275
Acquisitions of businesses (375,000) --
Additions to property, plant, and equipment (23,363) (7,693)
Purchases of marketable securities -- (20,060)
Change in other assets (3,689) (496)
-------- --------
Net cash (used) provided by investing activities (351,681) 95,026
-------- --------
Cash flows from financing activities:
Long-term debt incurred 270,000 --
Long-term debt retired -- (50,000)
Payments for film rental contracts (13,199) (9,792)
Proceeds from common stock issued 3,433 1,596
Purchase of company stock (18,496) (11,864)
Dividends paid (6,887) (5,898)
Other 673 1,630
-------- --------
Net cash provided (used) by financing activities 235,524 (74,328)
-------- --------
Net (decrease) increase in cash and cash equivalents (73,986) 62,334
Cash and cash equivalents at beginning of year 74,498 13,801
-------- --------
Cash and cash equivalents at end of period $ 512 $ 76,135
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
a. General
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, which are of a
normal recurring nature and necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year. Certain prior-year amounts have
been restated to conform with current-year presentation.
b. 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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
c. 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. As of December 31, 1997, these assets primarily consist of
television Federal Communications Commission (FCC) licenses ($267.2 million),
goodwill ($171.4 million) and television network affiliation agreements ($137.9
million), and are presented net of related amortization on the balance sheet.
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: 40
years for television FCC licenses; 20 to 40 years for goodwill; and 15 to 40
years for network affiliation agreements. The company evaluates the
recoverability of its intangible assets as current events or circumstances
warrant to determine whether adjustments are needed to carrying values. Such
evaluation may be based on projected income and cash flows on an undiscounted
basis from the underlying business or from operations of related businesses.
Other economic and market variables are also considered in any evaluation.
d. Derivative financial instruments
Interest rate swap agreements entered into by the company are held for purposes
other than trading. The company uses the accrual method to account for all
interest rate swap agreements. Amounts due to or from counterparties are
recorded as an adjustment to interest expense in the periods in which they
accrue.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
e. Other
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 previous calculation of primary EPS. SFAS No.
128 was adopted for the periods ending December 31, 1997. All prior-period EPS
calculations have been restated.
2. Acquisitions and disposition of broadcast television stations
On July 1, 1997, the company purchased the net assets of three television
stations affiliated with the Fox television network from First Media
Television, L. P. ("First Media"). The three stations were: KPDX-TV serving
the Portland, Ore. market; WHNS-TV serving the Greenville, S.C./Spartansburg,
S.C./Asheville, N.C. market; and KFXO-TV serving the Bend, Ore. market. The
total purchase price of the three stations was $216 million.
On September 4, 1997, the company acquired the net assets of WFSB-TV, a CBS
network-affiliated television station serving the Hartford/New Haven, Conn.
market, through an exchange of the assets of WCPX-TV in Orlando, Fla. The
asset exchange was with Post-Newsweek Stations, Inc. ("Post-Newsweek"), a
wholly-owned subsidiary of the Washington Post Company and included a $60
million cash payment to Meredith.
WCPX-TV was one of the four television stations which the company agreed in
January 1997 to acquire from First Media. However, in the Orlando, Fla.
market, the company already owned WOFL-TV, a Fox network-affiliated television
station. FCC regulations required the company to dispose of one of these
television stations since the regulations currently prohibit the ownership of
more than one television station in a market. Therefore, for the purposes of
effecting the exchange, the company purchased the net assets of WCPX-TV, a CBS
network-affiliated television station from First Media for $219 million on
September 4, 1997, prior to the exchange for WFSB-TV. The net purchase price
of WFSB-TV to the company was $159 million.
The purchase method of accounting was used to record the acquisitions of the
four television stations in the fiscal 1998 first quarter. Assets acquired in
the purchases of the four television stations included the following
intangibles: FCC licenses of $212.4 million; network affiliation agreements of
$90.7 million; and goodwill of $40.3 million. FCC licenses and goodwill are
being amortized over periods not exceeding 40 years. Network affiliation
contracts are being amortized over periods ranging from 15 to 40 years. The
acquisitions also included property, plant and equipment and film program
rights and payables. (See Note 4 for information on the debt incurred to
finance these acquisitions.)
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
The results of operations for the three First Media stations, purchased on July
1, 1997, and for WFSB-TV, purchased on September 4, 1997, are included in the
company's consolidated operating results from their respective acquisition
dates.
Pro forma results of operations for the six-month periods ended December 31,
1997 and 1996, as if the acquisitions had occurred respectively at the
beginning of each period are as follows:
Six months ended
December 31
------------------
Consolidated 1997 1996
------------ -------- --------
Total revenue $485,939 $450,715
======== ========
Earnings from
continuing operations $ 37,398 $ 29,809
======== ========
Net earnings $ 37,398 $ 57,502
======== ========
Earnings per share:
Earnings from
continuing operations
Basic $ .71 $ .56
======== ========
Diluted $ .67 $ .54
======== ========
Net earnings
Basic $ .71 $ 1.07
======== ========
Diluted $ .67 $ 1.03
======== ========
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 52 percent, are under the LIFO method at December
31, 1997, and June 30, 1997.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
(unaudited)
December 31 June 30
1997 1997
----------- --------
(in thousands)
Raw materials $20,715 $16,787
Work in process 10,861 14,950
Finished goods 7,992 5,874
-------- --------
39,568 37,611
Reserve for LIFO cost valuation (9,443) (7,338)
-------- --------
Total $30,125 $30,273
======== ========
4. Long-term debt and interest rate swap agreements
At December 31, 1997, long-term debt outstanding totaled $270 million under a
credit agreement with a group of seven banks led by Wachovia Bank, N.A. as
agent. This debt was incurred in the first quarter of fiscal 1998 to finance
the acquisitions of the four television stations. 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 ($210 million) and reduced the borrowing under the
revolving credit facility to $60 million, for total debt of $270 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. The credit agreement includes certain financial covenants. These
include requirements that the ratio of consolidated funded debt-to-EBITDA
(earnings before interest, taxes, depreciation and amortization) 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 December 31, 1997, the company was in compliance with all debt covenants.
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. Meredith is
utilizing interest rate swap contracts to manage interest cost and risk
associated with possible increases in variable interest rates. The company has
entered into two interest rate swap contracts with effective dates of September
30, 1997, for purposes other than trading. Under these contracts, Meredith
pays fixed rates of interest while receiving floating rates of interest based
on three month LIBOR. The notional amount of indebtedness under the swap
contracts was initially $200 million. The remaining debt of $70 million
carried an interest rate of approximately 6.1 percent until December 31, 1997.
Then the notional amount under the contracts increased to cover all of the debt
outstanding. As a result, Meredith will have an effective borrowing cost of
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
approximately 6.75 percent (including applicable margins and fees) over the
entire term of the loan agreement. The weighted average interest rate at
December 31, 1997, was 6.75 percent.
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 under the
contracts is as follows: $240 million, $220 million, $153 million and $70
million. The company is exposed to credit-related losses in the event of
nonperformance by counterparties to the swap contracts. Management does not
expect any counterparties to fail to meet their obligations given the strong
creditworthiness of the counterparties to the agreements.
The fair value of the interest rate swap agreements is the estimated amount
that the company would pay or receive to terminate the swap agreements. At
December 31, 1997, this value was not material as there has been no significant
change in interest rates or creditworthiness of the swap counterparties since
the swap agreements were entered into.
5. Earnings per share
Reconciliations of the earnings from continuing operations and shares used
in the basic and diluted EPS computations follow:
Three months ended December 31, 1997 December 31, 1996
------------------------ ------------------------
Per Per
(in thousands except Share Share
per share) Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
Earnings from continuing
operations $22,332 $17,076
Basic EPS
Earnings available to
common stockholders 22,332 52,980 $ .42 17,076 53,615 $ .32
===== =====
Effect of dilutive
stock options - 2,659 - 2,182
------- ------ ------- ------
Diluted EPS
Earnings available to
common stockholders
plus assumed
conversions $22,332 55,639 $ .40 $17,076 55,797 $ .31
======= ====== ===== ======= ====== =====
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Six months ended December 31, 1997 December 31, 1996
------------------------ ------------------------
Per Per
(in thousands except Share Share
per share) Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
Earnings from continuing
operations $37,423 $29,537
Basic EPS
Earnings available to
common stockholders 37,423 53,048 $ .71 29,537 53,666 $ .55
===== =====
Effect of dilutive
stock options - 2,463 - 1,964
------- ------ ------- ------
Diluted EPS
Earnings available to
common stockholders
plus assumed
conversion $37,423 55,511 $ .67 $29,537 55,630 $ .53
======= ====== ===== ======= ====== =====
Options to purchase 52,000 shares of common stock at $34.78 and 26,400 shares
of common stock at $35.03 were outstanding at December 31, 1997, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of $34.73 of the common shares during
the latest quarter.
Options to purchase 58,400 shares of common stock at $26.37 and 50,000 shares
of common stock at $25.84 were outstanding at December 31, 1996, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of $25.42 of the common shares during
the latest quarter.
Options to purchase 145,000 shares were exercised during the six months ended
December 31, 1997 (5,600 shares in the six months ended December 31, 1996).
6. Industry segment information
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 46 percent and 51 percent, respectively, of
total operating profit before unallocated corporate expenses in the six months
ended December 31, 1997. Magazine operations accounted for more than 90
percent of the revenues and operating profit of the publishing segment, which
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
also includes book publishing and brand licensing, during that time period.
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.
Advertising and magazine circulation revenues accounted for approximately 57
percent and 28 percent, respectively, of the company's revenues in the first
half of fiscal 1998. 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.
b. Revenues, operating profit and depreciation and amortization by industry
segment are shown below:
(unaudited) (unaudited)
Three Months Six Months
Ended December 31 Ended December 31
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Revenues
Publishing $176,418 $160,679 $350,719 $317,752
Broadcasting 66,055 43,400 116,204 78,879
Real Estate 6,411 5,693 12,860 12,321
-------- -------- -------- --------
Total revenues $248,884 $209,772 $479,783 $408,952
======== ======== ======== ========
Operating profit
Publishing $ 21,282 $ 17,648 $ 38,543 $ 31,300
Broadcasting 26,527 17,735 42,301 30,201
Real Estate 774 469 2,324 2,012
Unallocated corporate expense (5,718) (6,572) (11,874) (11,903)
-------- -------- -------- --------
Income from operations 42,865 29,280 71,294 51,610
Interest income 298 1,175 766 1,554
Interest expense (4,250) (335) (6,717) (1,071)
-------- -------- -------- --------
Earnings from continuing
operations before income
taxes 38,913 30,120 65,343 52,093
Income taxes 16,581 13,044 27,920 22,556
-------- -------- -------- --------
Earnings from
continuing operations $ 22,332 $ 17,076 $ 37,423 $ 29,537
======== ======== ======== ========
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Depreciation and amortization
Publishing $ 2,314 $ 2,172 $ 4,554 $ 4,379
Broadcasting 6,471 2,924 11,858 5,842
Real Estate 144 129 283 267
Unallocated corporate 365 362 691 739
-------- -------- -------- --------
Total depreciation
and amortization $ 9,294 $ 5,587 $ 17,386 $ 11,227
======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following discussion compares the results of operations of Meredith
Corporation and subsidiaries (Meredith or the company) for the second quarter
and first six months of fiscal 1998 to the comparable periods in the prior
year. This commentary should be read in conjunction with the consolidated
financial statements presented elsewhere in this report and with the company's
Form 10-K for the year ended June 30, 1997. All per-share amounts are computed
on a post-tax basis and reflect a two-for-one stock split in March 1997.
This section contains certain forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated. Reader's are referred to Management's
Discussion and Analysis in the company's Form 10-K for the year ended June 30,
1997, for a summary of such risks and uncertainties.
Significant Events
On July 1, 1997, Meredith completed the acquisition of three television
stations from First Media Television, L.P., for $216 million. The stations
are: 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 television network. On September 4, 1997, Meredith acquired and then
exchanged the net assets of the fourth First Media station, WCPX-TV in Orlando,
for WFSB-TV, a CBS network-affiliated television station serving the
Hartford/New Haven, Conn. market. WFSB-TV was acquired from Post-Newsweek
Stations, Inc. 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 WFSB.
The asset exchange was necessitated by Federal Communications Commission (FCC)
regulations which prohibit ownership of multiple stations in one market. The
company owns WOFL-TV, a FOX network affiliate serving Orlando.
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<PAGE>
Consolidated
- ------------
Three Months Six Months
Ended December 31 Ended December 31
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per share)
Total revenues $248,884 $209,772 $479,783 $408,952
======== ======== ======== ========
Income from operations $ 42,865 $ 29,280 $ 71,294 $ 51,610
======== ======== ======== ========
Earnings from continuing
operations $ 22,332 $ 17,076 $ 37,423 $ 29,537
======== ======== ======== ========
Discontinued operations $ -- $ 27,693 $ -- $ 27,693
======== ======== ======== ========
Net earnings $ 22,332 $ 44,769 $ 37,423 $ 57,230
======== ======== ======== ========
Basic earnings per share:
Earnings from continuing
operations $ 0.42 $ 0.32 $ 0.71 $ 0.55
======== ======== ======== ========
Net earnings $ 0.42 $ 0.84 $ 0.71 $ 1.07
======== ======== ======== ========
Diluted earnings per share:
Earnings from continuing
operations $ 0.40 $ 0.31 $ 0.67 $ 0.53
======== ======== ======== ========
Net earnings $ 0.40 $ 0.81 $ 0.67 $ 1.03
======== ======== ======== ========
Net earnings of $22.3 million, or 40 cents per diluted share, were recorded in
the quarter ended December 31, 1997, compared to net earnings of $44.8 million,
or 81 cents per diluted share, in the prior-year second quarter. For the six
months ended December 31, 1997, net earnings were $37.4 million, or 67 cents
per diluted share, compared to net earnings of $57.2 million, or $1.03 per
diluted share, in the prior-year period. Net earnings for both the quarter and
six months ended December 31, 1996, included a post-tax gain of $27.7 million,
or 50 cents per diluted share, from the sale of the discontinued cable
operations.
Earnings from continuing operations for the second quarters ended December 31,
1997 and 1996, were $22.3 million, or 40 cents per diluted share, and $17.1
million, or 31 cents per diluted share, respectively. Earnings from continuing
operations for the comparative six-month periods were $37.4 million, or 67
cents per diluted share, in fiscal 1998 and $29.5 million, or 53 cents per
diluted share, in the prior-year period. Fiscal 1998 diluted earnings per
share from continuing operations increased 29 percent for the second quarter
and 26 percent for the six-month period compared to the prior-year periods.
- 15 -
<PAGE>
Diluted earnings per share are calculated based on the average number of common
shares and common stock equivalents outstanding in the period. Common stock
equivalents represent the potential dilution from stock options outstanding.
The basic earnings per share calculations include only the average number of
actual common shares outstanding in the period. These calculations are
presented in accordance with Statement of Financial Standards No. 128,
"Earnings per Share," which was adopted for the periods ending December 31,
1997. Prior to its adoption, the company reported primary earnings per share,
the calculation of which was not materially different from the diluted earnings
per share currently reported. All prior-period earnings per share calculations
have been restated.
Revenues increased 19 percent in the quarter and 17 percent in the six-month
period due to the first quarter acquisition of four television stations and
higher publishing revenues. The increase in publishing revenues reflected
higher magazine advertising and circulation revenues. Comparable revenues,
excluding the new stations, increased nearly 10 percent in both periods.
Operating costs increased in both periods due to the addition of the four
television stations, growth in existing magazine titles and custom publishing
volumes, and increased investment in newer magazine titles and television
programming efforts. Income from operations increased 46 percent in the
quarter and 38 percent for the year-to-date period. The operating profit
margin grew from 14 percent in the fiscal 1997 second quarter to 17 percent in
the current quarter. For the six months ended December 31, 1997, the operating
profit margin was 15 percent compared to 13 percent in the prior-year period.
The margin improvement reflected increased ad revenues from publishing and the
addition of the four television stations. Depreciation and amortization
expenses increased in total and as a percentage of revenues due to the
amortization of intangibles associated with the acquisition of the four
television stations.
Debt incurred for the acquisitions of the four television stations resulted in
net interest expense in the current quarter and year-to-date periods versus net
interest income in the prior-year periods. Overall, management estimates that
the broadcasting acquisitions were slightly accretive to earnings per share in
the quarter and year-to-date periods. This calculation includes the after-tax
effects of the stations' operating profits after amortization of intangibles,
interest expense on debt and estimated interest income forgone from cash
available for investment. Management had initially projected dilution from the
acquisitions of 8 to 10 cents per share in fiscal 1998. Current projections
indicate expectations of little to no dilution in fiscal 1998. The improvement
results from a lower than anticipated interest rate on debt, improved operating
performance by the stations and lower amortization expense based on final
appraisals.
The company's effective tax rate was approximately 42.6 percent in the current
quarter and six-month period compared with 43.3 percent in the prior-year
periods. The decline reflects an increase in currently estimated fiscal year
earnings, which lessens the effect of nondeductible items on the overall tax
rate.
- 16 -
<PAGE>
Publishing
- ----------
Three Months Six Months
Ended December 31 Ended December 31
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Revenues
--------
Magazine advertising $ 78,984 $ 70,501 $163,162 $141,061
Magazine circulation 67,760 64,161 134,932 126,803
Consumer book 13,854 10,988 21,341 20,786
Other 15,820 15,029 31,284 29,102
-------- -------- -------- --------
Total revenues $176,418 $160,679 $350,719 $317,752
======== ======== ======== ========
Operating profit $ 21,282 $ 17,648 $ 38,543 $ 31,300
======== ======== ======== ========
Publishing revenues increased 10 percent compared to the prior-year quarter and
six-month period primarily due to increased magazine advertising revenues.
Magazine advertising revenues grew 12 percent in the second quarter and 15
percent in the six-month period ended December 31, 1997, as most titles
reported an increase in ad pages. Better Homes and Gardens and Ladies' Home
Journal, the company's two largest circulation titles, each reported double-
digit percentage growth in ad revenues in both the quarter and year-to-date
period primarily due to increased ad pages. Traditional Home, Wood, Golf for
Women and Crayola Kids magazines also reported strong ad revenue growth in both
periods primarily due to additional ad pages sold.
Magazine circulation revenues increased 6 percent in both the quarter and the
fiscal year-to-date period. Increased newsstand sales of the Better Homes and
Gardens Special Interest Publications and sales of other special and custom
issues were the biggest factors in the second quarter growth. Increased
subscription revenues due to new titles and higher average prices for several
existing titles, combined with the higher newsstand revenues to result in the
year-to-date increase. Strong sales of the Better Homes and Gardens annuals
and Home Improvement 1-2-3, a book developed for The Home Depot, led to
increased consumer book revenues in the quarter. In the year-to-date period,
the second quarter revenue increase was offset by lower first quarter revenues
from lower unit sales of the 11th edition of the Better Homes and Gardens New
Cook Book, that was introduced in August 1996.
Publishing operating profit was up 21 percent in the fiscal 1998 second quarter
and 23 percent for the fiscal year-to-date. The improvements were largely a
result of increased operating profit from magazine publishing due to higher ad
revenues. Lower average paper prices and favorable circulation results, due to
the aforementioned revenue increases, also contributed to the improvements.
Paper is a significant expense of the Publishing segment. Despite a paper
price increase of approximately seven percent on July 1, 1997, average paper
prices were lower in the current-year periods due to the timing of price
decreases in the prior fiscal year. Major suppliers increased coated
- 17 -
<PAGE>
groundwood paper prices approximately five percent on January 1, 1998. Coated
groundwood paper currently accounts for about two-thirds of the company's paper
usage. The price of paper is driven by overall market conditions and,
therefore, is difficult to predict. However, at this time, management does not
anticipate any further increases in paper prices until the first half of fiscal
1999.
Broadcasting
- ------------
Three Months Six Months
Ended December 31 Ended December 31
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Revenues
--------
Advertising $ 62,567 $ 41,265 $110,029 $ 75,039
Other 3,488 2,135 6,175 3,840
-------- -------- -------- --------
Total revenues $ 66,055 $ 43,400 $116,204 $ 78,879
======== ======== ======== ========
Operating profit $ 26,527 $ 17,735 $ 42,301 $ 30,201
======== ======== ======== ========
Revenues increased 52 percent in the fiscal 1998 second quarter and 47 percent
in the six months ended December 31, 1997, due to the first quarter acquisition
of four television stations. Among comparable stations, KPHO-Phoenix and KVVU-
Las Vegas reported strong advertising revenue growth in both the quarter and
six-month period. However, second quarter ad revenues declined at most of the
other comparable stations primarily due to the prior-year benefit of strong
political advertising. Operating profit increased 50 percent in the second
quarter and 40 percent in the six-month period including results of the newly-
acquired stations. Excluding the new stations, broadcasting reported record
operating profits in both periods. The improvement in comparable stations'
results for the six-month period primarily reflected higher advertising
revenues. Lower programming costs from one-time eliminations of certain
programming at WOFL-Orlando and KPHO-Phoenix were the biggest factor in the
improvement for the quarter.
Real Estate
- ------------
Three Months Six Months
Ended December 31 Ended December 31
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Total revenues $ 6,411 $ 5,693 $ 12,860 $ 12,321
======== ======== ======== ========
Operating profit $ 774 $ 469 $ 2,324 $ 2,012
======== ======== ======== ========
- 18 -
<PAGE>
Revenues and operating profit increased in both the quarter and six months
ended December 31, 1997, largely due to higher transaction fee revenues,
resulting from a stronger home re-sale market.
Liquidity and Capital Resources
Consolidated
- ------------
Six months ended December 31 1997 1996
---------------------------- --------- --------
(in thousands)
Net earnings $ 37,423 $ 57,230
========= ========
Cash flows from operations $ 42,171 $ 41,636
========= ========
Cash flows from investing $(351,681) $ 95,026
========= ========
Cash flows from financing $ 235,524 $(74,328)
========= ========
Net cash flows $ (73,986) $ 62,334
========= ========
EBITDA $ 88,680 $ 62,837
========= ========
Cash and cash equivalents decreased by $74.0 million in the first six months of
fiscal 1998 compared to an increase in cash of $62.3 million in the comparable
prior-year period. The change reflected the acquisition of four television
stations in the current period and the sale of the discontinued cable operation
in the prior-year period. Cash provided by operating activities increased
slightly as higher earnings were nearly offset by increases in accounts
receivable related to the television station acquisitions and increased
publishing revenues. The acquisition of the television stations also resulted
in substantial increases in other balance sheet items from June 30, 1997 to
December 31, 1997, including: program rights; property, plant and equipment;
goodwill and other intangibles; and program rights payable.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. EBITDA for the first six months
of fiscal 1998 increased 41 percent from the prior-year period due to improved
operating results and the acquisition of the four television stations. EBITDA
is not adjusted for all noncash expenses or for working capital changes,
capital expenditures or 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.
- 19 -
<PAGE>
At December 31, 1997, long-term debt outstanding totaled $270 million under a
credit agreement with a group of seven banks led by Wachovia Bank, N.A. as
agent. This debt was incurred in the first quarter of fiscal 1998 to finance
the acquisitions of the four television stations. The credit agreement
consists of a $210 million, 60-month term loan and a $150 million, 60-month
revolving credit facility. Currently the company has debt of $270 million
under this agreement ($210 million term loan and $60 million revolving credit).
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 payments of interest and principal on the debt are expected to
be provided by cash generated from future operating activities. 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
December 31, 1997, the company was in compliance with all debt covenants.
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. Meredith has
utilized interest rate swap contracts to manage interest cost and risk
associated with possible increases in variable interest rates. The company
entered into two interest rate swap contracts with effective dates of September
30, 1997, for purposes other than trading. Under these contracts, Meredith
pays fixed rates of interest while receiving floating rates of interest based
on three-month LIBOR. The notional amount of indebtedness under the swap
contracts was initially $200 million. The remaining debt of $70 million
carried an interest rate of approximately 6.1 percent until December 31, 1997.
Then the notional amount under the contracts increased to cover all of the debt
outstanding. As a result, Meredith will have an effective borrowing cost of
approximately 6.75 percent (including applicable margins and fees) over the
entire 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 company is exposed to credit-related losses in the event of
nonperformance by counterparties to the swap contracts. Management does not
expect any counterparties to fail to meet their obligations given the strong
creditworthiness of the counterparties to the agreements.
In the first six months of fiscal 1998, the company spent $18.5 million for the
repurchase of 592,000 shares of Meredith Corporation common stock at then
current market prices. This compares with spending of $11.9 million for the
repurchase of 533,000 shares in the comparable prior-year period. In November
1997 the board of directors authorized the repurchase of an additional one
million shares of stock subject to market conditions. As of December 31, 1997,
approximately 1.7 million shares could be repurchased under existing
authorizations by the board of directors. Meredith has entered into an
agreement to repurchase approximately 600,000 shares in the next twelve months
under these authorizations. 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.
Dividends paid in the first six months of fiscal 1998 were $6.9 million, or 13
cents per share, compared with $5.9 million, or 11 cents per share, in the
prior-year period. On February 2, 1998, the board of directors increased the
quarterly dividend by 8 percent (one-half cent per share) to 7 cents per share
effective with the dividend payable on March 13, 1998. On an annual basis, the
- 20 -
<PAGE>
effect of this quarterly dividend increase would be to increase dividends paid
by approximately $1.1 million at the current number of shares outstanding.
Spending for property, plant and equipment increased to $23.4 million in the
first six months of fiscal 1998 from $7.7 million in the prior-year period.
The increase primarily reflected higher spending for the construction of a new
office building and related improvements in Des Moines. Higher spending for
computer hardware and software and broadcasting technical equipment also
contributed. Capital expenditures for fiscal 1998 are expected to be
approximately double the fiscal 1997 spending level. Fiscal 1998 spending will
include approximately $24 million for the completion of the Des Moines building
project. Fiscal 1997 spending for this project totaled $11 million. Other
significant spending in fiscal 1998 will relate to new computer systems, the
introduction of local news programming at three television stations and a
building remodeling project at one television station. Funds for the new Des
Moines building and other capital expenditures are expected to be provided by
available cash, including cash from operating activities or, if necessary,
borrowings 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.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on November 10, 1997, at the
Company's headquarters in Des Moines, Iowa.
(b) The name of each director elected at the Annual Meeting is shown under
Item 4.(c). The other directors whose terms of office continued after
the meeting were: Pierson M. Grieve, Joel W. Johnson, Robert E. Lee,
Richard S. Levitt, E. T. Meredith III, Jack D. Rehm and Barbara S.
Uehling.
(c)(1) Proposal 1: Election of four Class II directors for terms expiring in
2000. Each nominee was elected in uncontested elections by the votes
cast as follows:
Number of shareholder votes*
----------------------------
For Withheld
---------- --------
Class II directors
Herbert M. Baum 152,017,377 637,140
Frederick B. Henry 152,037,028 617,489
William T. Kerr 152,030,235 624,282
Nicholas L. Reding 152,017,740 636,777
- 21 -
<PAGE>
(c)(2) Proposal 2: Election of one Class III director for a term expiring
in 1998. The nominee was elected in an uncontested election by the
votes cast as follows:
Number of shareholder votes*
----------------------------
For Withheld
---------- --------
Class III director
Mary Sue Coleman 151,801,014 853,503
*As specified on the proxy card, if no vote For or Withhold was
specified, the shares were voted For the election of the named
director.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27) Financial Data Schedule
99) Additional financial information from the Company's first quarter
press release dated January 20, 1998.
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter ended December 31, 1997.
- 22 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEREDITH CORPORATION
Registrant
(Stephen M. Lacy)
Stephen M. Lacy
Vice President - Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: February 12, 1998
- 23 -
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
27 Financial Data Schedule
99 Additional financial information from the Company's third
quarter press release dated January 20, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at December 31, 1997 and the Consolidated Statement
of Earnings for the six months ended December 31, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 512
<SECURITIES> 0
<RECEIVABLES> 135910<F1>
<ALLOWANCES> 0
<INVENTORY> 30125
<CURRENT-ASSETS> 268481
<PP&E> 247692
<DEPRECIATION> 109285
<TOTAL-ASSETS> 1085586
<CURRENT-LIABILITIES> 320379
<BONDS> 0
0
0
<COMMON> 52862
<OTHER-SE> 294731
<TOTAL-LIABILITY-AND-EQUITY> 1085586
<SALES> 479783
<TOTAL-REVENUES> 479783
<CGS> 195030
<TOTAL-COSTS> 195030
<OTHER-EXPENSES> 17386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6717
<INCOME-PRETAX> 65343
<INCOME-TAX> 27920
<INCOME-CONTINUING> 37423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37423
<EPS-PRIMARY> .71
<EPS-DILUTED> .67
<FN>
<F1>Net of allowances
</FN>
</TABLE>
Exhibit 99
----------
MEREDITH CORPORATION
FISCAL 1998 SECOND QUARTER AND YEAR-TO-DATE
EARNINGS PER SHARE AT-A-GLANCE
(Note: All per-share figures reflect a 2-for-1 stock split effective
March 18, 1997)
- -- The chart below depicts comparable quarterly and fiscal-year earnings
per share before special items and discontinued operations:
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Fiscal Year
-------- -------- -------- -------- -----------
F1993 .06 .09 .10 .10 .35
F1994 .08 .13 .16 .13 .50
F1995 .14 .19 .18 .20 .71
F1996 .17 .22 .24 .28 .91
F1997 .22 .31 .33 .36 1.22
F1998 .27 .40
- -- Fiscal 1998 second quarter earnings per share from continuing operations
were a record 40 cents,* compared to 31 cents in the prior year.
- -- Fiscal 1998 second quarter net earnings per share also were 40 cents, as
there were no special items in the period. Prior-year second quarter net
earnings per share were 81 cents, including a gain in discontinued
operations of 50 cents per share from the sale of the company's cable
operations.
- -- For the first half of fiscal 1998, earnings per share from continuing
operations were a record 67 cents, versus fiscal 1997 earnings per share
from continuing operations of 53 cents.
- -- Fiscal 1998 year-to-date net earnings per share also were 67 cents. Net
earnings per share for the prior-year period were $1.03, including the
cable gain.
* All per-share figures used in the text of this release are diluted earnings
per share, consistent with the way Meredith Corporation has reported
earnings in the past.
