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 September 30, 1999
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 October 31, 1999
Common Stock, $1 par value 40,596,384
Class B Stock, $1 par value 11,023,620
----------
Total Common and Class B Stock 51,620,004
==========
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
September 30 June 30
Assets 1999 1999
- ------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 11,261 $ 11,029
Receivables, net 151,140 138,723
Inventories 35,516 33,511
Subscription acquisition costs 37,168 41,396
Broadcast rights 30,548 14,644
Other current assets 19,008 16,872
---------- ----------
Total current assets 284,641 256,175
Property, plant and equipment 297,951 294,310
Less accumulated depreciation (135,428) (134,554)
---------- ----------
Net property, plant and equipment 162,523 159,756
Subscription acquisition costs 29,891 31,182
Broadcast rights 20,513 10,230
Other assets 29,100 29,248
Goodwill and other intangibles (at original
cost less accumulated amortization of
$127,628 on September 30 and $120,445 on June 30) 929,623 936,805
---------- ----------
Total assets $1,456,291 $1,423,396
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
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(Unaudited)
September 30 June 30
Liabilities and Stockholders' Equity 1999 1999
- ------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Current portion of long-term debt $ 45,000 $ 45,000
Current portion of long-term broadcast
rights payable 37,689 21,123
Accounts payable 47,220 55,018
Accrued taxes and expenses 89,567 87,229
Unearned subscription revenues 133,936 135,745
---------- ----------
Total current liabilities 353,412 344,115
Long-term debt 485,000 485,000
Long-term broadcast rights payable 21,097 13,449
Unearned subscription revenues 90,554 90,276
Deferred income taxes 36,621 33,578
Other noncurrent liabilities 47,066 43,673
---------- ----------
Total liabilities 1,033,750 1,010,091
---------- ----------
Temporary equity: Put option agreements
Common stock, 1,489,140 shares outstanding at
September 30 and 1,535,140 shares at June 30 54,074 53,147
---------- ----------
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 39,150,738 at September 30 and
39,220,509 at June 30 (net of treasury shares,
27,523,042 at September 30 and 27,362,776 at
June 30.) 39,151 39,220
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 11,025,126 at September 30 and
11,063,708 at June 30. 11,025 11,064
Retained earnings 320,889 312,553
Accumulated other comprehensive income (757) (625)
Unearned compensation (1,841) (2,054)
---------- ----------
Total stockholders' equity 368,467 360,158
---------- ----------
Total liabilities and stockholders' equity $1,456,291 $1,423,396
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months
Ended September 30
1999 1998
- --------------------------------------------------------------------------
(In thousands except per share)
Revenues:
Advertising $156,771 $142,938
Circulation 69,287 67,501
All other 34,346 35,398
-------- --------
Total revenues 260,404 245,837
-------- --------
Operating costs and expenses:
Production, distribution and edit 107,997 106,903
Selling, general & administrative 100,747 94,987
Depreciation and amortization 12,943 10,042
-------- --------
Total operating costs and expenses 221,687 211,932
-------- --------
Income from operations 38,717 33,905
Gain from disposition -- 2,375
Interest income 290 38
Interest expense (8,868) (3,811)
-------- --------
Earnings before income taxes 30,139 32,507
Income taxes 12,116 13,696
-------- --------
Net earnings $ 18,023 $ 18,811
======== ========
Basic earnings per share $ 0.35 $ 0.36
======== ========
Basic average shares outstanding 51,773 52,518
======== ========
Diluted earnings per share $ 0.34 $ 0.35
======== ========
Diluted average shares outstanding 53,373 54,192
======== ========
Dividends paid per share $ 0.075 $ 0.070
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended September 30 1999 1998
- ---------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 18,023 $ 18,811
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,943 10,042
Amortization of broadcast rights 7,605 7,048
Payments for broadcast rights (10,157) (6,859)
Gain from disposition, net of taxes -- (1,425)
Changes in assets and liabilities:
Accounts receivable (12,417) (5,708)
Inventories (2,005) 1,910
Supplies and prepayments (1,042) 514
Subscription acquisition costs 5,519 8,530
Accounts payable (7,798) (14,371)
Accruals 4,095 6,347
Unearned subscription revenues (1,531) (2,694)
Deferred income taxes 1,629 (3,340)
Other noncurrent liabilities 3,099 4,291
-------- --------
Net cash provided by operating activities 17,963 23,096
-------- --------
Cash flows from investing activities:
Proceeds from dispositions -- 9,922
Additions to property, plant, and equipment (8,765) (1,503)
Changes in investments and other 170 (453)
-------- --------
Net cash (used) provided by investing activities (8,595) 7,966
-------- --------
Cash flows from financing activities:
Repayment of long-term debt -- (8,000)
Short-term debt incurred, net -- 3,000
Proceeds from common stock issued 661 917
Purchases of company stock (6,075) (22,381)
Dividends paid (3,884) (3,673)
Other 162 (46)
-------- --------
Net cash (used) by financing activities (9,136) (30,183)
-------- --------
Net increase in cash and cash equivalents 232 879
Cash and cash equivalents at beginning of year 11,029 4,953
-------- --------
Cash and cash equivalents at end of period $ 11,261 $ 5,832
======== ========
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. Readers are referred to the
company's Form 10-K for the year ended June 30, 1999 for complete financial
statements and related notes. Certain prior-year amounts have been
reclassified 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 amounts reported in the financial statements. Actual results
could differ from those estimates.
c. Goodwill and other intangibles
The unamortized portion of intangible assets consisted of the following:
(unaudited)
September 30 June 30
1999 1999
------------- -------------
(In thousands)
Federal Communications
Commission (FCC) licenses $437,516 $440,385
Goodwill 268,096 270,367
Television network affiliation
agreements 206,883 208,407
All other 17,128 17,646
-------- --------
Total unamortized portion
of intangible assets $929,623 $936,805
======== ========
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
2. Comprehensive Income
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. The
company's comprehensive income includes foreign currency translation
adjustments in addition to net earnings. Total comprehensive income (in
thousands) for the three-month periods ended September 30, 1999 and 1998, was
$17,891 and $19,017, respectively.
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 43 percent are under the LIFO method at
September 30, 1999 and 46 percent at June 30, 1999.
(unaudited)
September 30 June 30
1999 1999
----------- ----------
(In thousands)
Raw materials $17,390 $17,686
Work in process 18,991 16,569
Finished goods 6,269 5,965
------- -------
42,650 40,220
Reserve for LIFO cost valuation (7,134) (6,709)
------- -------
Total $35,516 $33,511
======= =======
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
4. Earnings per share
The following table presents the calculations of earnings per share:
(unaudited)
Three Months
Ended September 30
1999 1998
--------- ---------
(In thousands except per share)
Net earnings $18,023 $18,811
======= =======
Basic average shares outstanding 51,773 52,518
Dilutive effect of stock options 1,600 1,674
------- -------
Diluted average shares outstanding 53,373 54,192
======= =======
Basic earnings per share $ .35 $ .36
======= =======
Diluted earnings per share $ .34 $ .35
======= =======
Antidilutive options excluded from the above calculations totaled 607,000
options at September 30, 1999 (with a weighted average exercise price of
$40.80) and 457,000 options at September 30, 1998 (with a weighted average
exercise price of $41.61).
Options to purchase 23,000 shares were exercised during the three months ended
September 30, 1999 (14,000 options were exercised in the three months ended
September 30, 1998).
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
5. Segment information
(unaudited)
Three Months
Ended September 30
-------------------
1999 1998
-------- --------
(In thousands)
Revenues
Publishing $193,240 $190,816
Broadcasting 67,164 55,021
-------- --------
Total revenues $260,404 $245,837
======== ========
Intersegment revenues are not material.
Operating profit
Publishing $ 28,637 $ 24,819
Broadcasting 13,306 13,060
Unallocated corporate expense (3,226) (3,974)
-------- --------
Income from operations $ 38,717 $ 33,905
======== ========
Depreciation and amortization
Publishing $ 2,879 $ 2,851
Broadcasting 9,522 6,680
Unallocated corporate 542 511
-------- --------
Total depreciation
and amortization $ 12,943 $ 10,042
======== ========
EBITDA
Publishing $ 31,516 $ 27,670
Broadcasting 22,828 19,740
Unallocated corporate (2,684) (3,463)
-------- --------
Total EBITDA $ 51,660 $ 43,947
======== ========
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. 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.
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Item 2. 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 in the first quarter of fiscal 2000 and fiscal 1999. 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, 1999. All per-share amounts refer to diluted
earnings per share and are computed on a post-tax basis.
This section contains, and management's public commentary from time to time may
contain, certain forward-looking statements that are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those anticipated. Readers are referred to the company's Form 10-K for the
year ended June 30, 1999, for a discussion of such factors.
Results of Operations
Quarters ended September 30 1999 1998
--------------------------- -------- --------
(In thousands except per share)
Total revenues $260,404 $245,837
======== ========
Income from operations $ 38,717 $ 33,905
======== ========
Earnings before
nonrecurring items $ 18,023 $ 17,386
======== ========
Net earnings $ 18,023 $ 18,811
======== ========
Diluted earnings per share
before nonrecurring items $ 0.34 $ 0.32
======== ========
Diluted earnings per share $ 0.34 $ 0.35
======== ========
Quarter ended September 30, 1999 compared to quarter ended September 30, 1998 -
- -------------------------------------------------------------------------------
Fiscal 2000 first quarter net earnings were $18.0 million, or 34 cents per
share. This compares to prior-year first quarter earnings before nonrecurring
items of $17.4 million, or 32 cents per share. The improvement reflects strong
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growth in the publishing segment and among comparable broadcasting properties.
These improvements were partially offset by dilution of 8 cents per share
resulting from the March 1, 1999, acquisition of WGNX-TV in Atlanta, Ga. Net
earnings in the prior-year first quarter were $18.8 million, or 35 cents per
share, including a post-tax gain of $1.4 million, or 3 cents per share, from
the sale of Better Homes and Gardens Real Estate Service. The weighted-average
number of shares outstanding declined slightly due to company share
repurchases.
First quarter revenues increased 6 percent to $260.4 million. Adjusting for the
impact of the WGNX-Atlanta acquisition and the November 1998 closing of Country
America magazine, comparable revenues also increased 6 percent. The increase
in comparable revenues reflected higher advertising revenues in the publishing
and broadcasting segments and higher magazine circulation revenues.
Operating costs and expenses increased 5 percent from the prior-year quarter.
The increase reflected the acquisition of WGNX-Atlanta, higher costs associated
with news expansion in the broadcasting operations and increased subscription
acquisition costs resulting primarily from the timing of promotional mailings.
These increases were partially offset by lower costs resulting from the closing
of Country America magazine in November 1998, lower magazine paper and
production costs and management's expense control efforts. These expense
control efforts resulted in a decline in corporate nonoperating expenses in the
quarter. The operating profit margin rose from 13.8 percent of revenues in the
prior-year first quarter to 14.9 percent in the current period.
Net interest expense increased to $8.6 million in the current quarter versus
$3.8 million in the prior-year first quarter because of debt incurred for the
WGNX-Atlanta acquisition.
The Company's effective tax rate was 40.2 percent compared with 42.1 percent in
the prior-year first quarter. The decline reflected lower effective state tax
rates and the diminished impact of nondeductible items because of an increase
in projected earnings. Management expects the first quarter rate to be
effective for the remainder of fiscal 2000.
Publishing
- ----------
Quarters ended September 30 1999 1998
--------------------------- -------- --------
(In thousands)
Revenues
---------
Advertising $ 91,399 $ 90,423
Circulation 69,287 67,501
Other 32,554 32,892
-------- --------
Total revenues $193,240 $190,816
======== ========
Operating profit $ 28,637 $ 24,819
======== ========
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Publishing revenues increased to $193.2 million from $190.8 million in the
prior-year first quarter. Excluding the impact of the closing of Country
America magazine, revenues increased 4 percent. Magazine advertising revenues
grew 3 percent, excluding the Country America impact, as most titles reported
higher advertising revenues. Better Homes and Gardens and Ladies Home Journal
magazines, the company's two largest circulation titles, both reported modest
increases in advertising revenues. These increases resulted from higher average
revenue per page as the number of advertising pages was flat at Better Homes
and Gardens and down slightly at Ladies' Home Journal. Stronger growth in
advertising revenues occurred at Country Home, Traditional Home, Crayola Kids
and MORE magazines. Except for Country Home, these increases resulted from a
combination of increased advertising pages and higher average revenue per page.
The increase at Country Home reflected an increase in advertising pages
resulting from an additional issue in the current quarter. An increase in
frequency from six to eight issues annually led to the extra issue. Magazine
circulation revenues increased 7 percent excluding the impact of Country
America. The largest factor in the increase was the additional issue of
Country Home magazine. Other publishing revenues declined slightly. A decline
in custom publishing business associated with specific magazines was nearly
offset by increased sales volumes in the integrated marketing and book
publishing operations.
Publishing operating profit increased 15 percent compared to the prior-year
first quarter. The improvement resulted from lower paper and processing costs,
increased advertising revenues from ongoing titles and improved results from
the integrated marketing and book publishing operations. Many magazine titles
contributed to the growth, including Better Homes and Gardens, Ladies' Home
Journal, Country Home, Traditional Home, WOOD and Midwest Living. The prior-
year quarter was impacted by two nonrecurring items: costs for the closing of
Country America magazine and a favorable settlement related to the
discontinuation of a direct marketing alliance. However, the net effect of
these transactions was not material.
Total paper expenses decreased approximately 10 percent primarily because of
lower average prices. Major suppliers increased prices from 5 to 7 percent,
depending on the grade of paper, on October 1, 1999.
Looking forward, management anticipates second quarter fiscal 2000 advertising
pages, excluding the impact of the closing of Country America magazine, will
show little change from the prior-year second quarter. However, comparable
second quarter advertising revenues are currently expected to increase in the
mid-single digits on a percentage basis due to a change in the advertising mix
and overall stronger revenue per page. This is based on current information
and actual results could differ.
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Broadcasting
- ------------
Quarters ended September 30 1999 1998
--------------------------- -------- --------
(In thousands)
Revenues
---------
Advertising $ 65,372 $ 52,515
Other 1,792 2,506
-------- --------
Total revenues $ 67,164 $ 55,021
======== ========
Operating profit $ 13,306 $ 13,060
======== ========
Revenues increased 22 percent in the first quarter due in part to the March
1999 acquisition of WGNX-Atlanta. Comparable revenues (excluding WGNX-TV) grew
12 percent compared to the prior-year quarter, due to increased advertising
revenues at most stations. Management believes news expansion activities,
ratings gains and the strength of the company's branded cross-promotional
efforts drove the improvements. In addition, prior-year first quarter
advertising revenues at all stations were affected by reduced ad spending by
General Motors and their local automobile dealers due to the GM labor dispute
and softness in national advertising. Partially offsetting these factors were
lower revenues from political advertising in the current-year quarter because
of the biennial nature of elections. Particularly strong advertising revenue
growth was reported at the company's FOX affiliates, KVVU-Las Vegas, KPDX-
Portland and WOFL-Orlando; the CBS affiliate, WFSB-Hartford/New Haven; and the
NBC affiliate, WSMV-Nashville. Other broadcasting revenues declined from the
prior-year quarter because of lower network compensation.
Operating profit increased 2 percent from the prior-year quarter. Growth was
impacted by results at WGNX-Atlanta where the company is investing in news
expansion and related promotion to gain additional advertising share.
Excluding the impact of WGNX-Atlanta, broadcasting operating profit increased
17 percent primarily as a result of revenue growth.
In the second quarter of fiscal 1999, broadcasting revenues included a
significant amount of political advertising revenue that will not repeat in the
second quarter of fiscal 2000 due to the biennial nature of elections. Looking
forward, this is expected to result in a decline in advertising revenues among
comparable stations in the fiscal 2000 second quarter. Second quarter
advertising bookings are currently pacing down in the mid-single digit range on
a percentage basis compared to the prior year. Excluding the impact of the
political revenues in the prior year, management currently expects second
quarter revenues for comparable stations to increase in the mid-single digit
range on a percentage basis. This is based on current information and actual
results could differ.
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Liquidity and Capital Resources
Quarters ended September 30 1999 1998
--------------------------- -------- --------
(In thousands)
Net earnings $ 18,023 $ 18,811
========= =========
Cash flows from operations $ 17,963 $ 23,096
========= =========
Cash flows from investing $ (8,595) $ 7,966
========= =========
Cash flows from financing $ (9,136) $ (30,183)
========= =========
Net increase in
cash and cash equivalents $ 232 $ 879
========= =========
EBITDA $ 51,660 $ 43,947
========= =========
Cash and cash equivalents increased by $0.2 million in the first quarter of
fiscal 2000 compared to an increase of $0.9 million in the prior-year quarter.
The slight change reflected increased use of cash in the current quarter for
capital expenditures, working capital needs and broadcasting rights payments.
In addition, prior-year first quarter results included proceeds from the
disposition of the real estate business. These factors were nearly offset by a
reduction in cash used for company stock repurchases in the current quarter.
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. Fiscal 2000 first quarter EBITDA
increased 18 percent from the prior-year quarter due to improved operating
results. 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.
At September 30, 1999, debt outstanding consisted of $330 million outstanding
under two variable rate unsecured amortizing term loans and $200 million
outstanding in fixed rate unsecured senior notes. Funds for the payment of
interest and principal on the debt are expected to be provided by cash
generated from future operating activities. The debt agreements include
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<PAGE>
certain financial covenants related to debt levels and coverage ratios. As of
September 30, 1999, the company was in compliance with all debt covenants.
Meredith uses interest rate swap contracts to manage interest cost and risk
associated with possible increases in variable interest rates. The company is
exposed to credit-related losses in the event of nonperformance 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. The weighted-average
interest rate on debt outstanding at September 30, 1999, was approximately 6.5
percent.
In the first quarter of fiscal 2000, the company spent $6.1 million to
repurchase an aggregate of 172,000 shares of Meredith Corporation common stock
at then current market prices. This compares with spending of $22.4 million for
the repurchase of 510,000 shares in the prior-year first quarter. At the
company's annual meeting on November 8, 1999, the board authorized the
repurchase of up to 1 million additional shares subject to market conditions.
The company expects to continue to repurchase shares from time to time in the
foreseeable future, subject to market conditions.
The current quarter totals include the repurchase of 46,000 shares under put
option agreements entered into on August 1, 1998. As of September 30, 1999, the
company had put option agreements to repurchase up to 1.5 million shares.
At September 30, 1999, approximately 1.7 million shares could be repurchased
under existing authorizations by the board of directors. The status of this
program is reviewed at each quarterly board of directors meeting.
Dividends paid in the first quarter of fiscal 2000 were $3.9 million, or 7.5
cents per share, compared with $3.7 million, or 7 cents per share, in the
prior-year quarter.
First quarter spending for property, plant and equipment increased to $8.8
million from $1.5 million in the prior-year first quarter. The increase
primarily resulted from higher current-year spending for the construction of a
new broadcasting facility at KPDX-Portland, equipment for broadcasting news
expansion and the conversion to digital technology at several television
stations. Funds for 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.
Year 2000
- ---------
The Year 2000 issue, common to most companies, concerns the inability of
information and noninformation systems to recognize and process date-sensitive
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<PAGE>
information after 1999 due to the use of only the last two digits to refer to a
year. This problem could affect information systems (software and hardware)
and other equipment that relies on microprocessors. Management completed a
company-wide evaluation of this impact on its computer systems, applications
and other date-sensitive equipment. Systems and equipment that were not Year
2000 compliant were identified and substantially all remediation efforts and
testing of systems/equipment were completed by June 30, 1999. Since that time,
the company has continued testing and verifying the Year 2000 readiness of its
systems and equipment.
The company also is in the process of monitoring the progress of material third
parties (vendors and suppliers) in their efforts to become Year 2000 compliant.
Those third parties include, but are not limited to: magazine and book
printers, paper suppliers, magazine fulfillment providers, the U.S. Postal
Service, television networks, other television programming suppliers, mainframe
computer services suppliers, financial institutions and utilities. One area of
particular concern is the company's and material third parties' dependence on
power and telecommunications services and the limited availability of
alternative sources. The company has sought compliance information with
respect to vendors and suppliers through the use of surveys, industry groups,
peer reviews and vendor Web sites. Management then followed up to obtain more
detailed information regarding the Year 2000 efforts of material third parties.
Most of these material third parties have been cooperative and are supplying
Year 2000 project-related information. The company continues to pursue
additional information and monitor the Year 2000 efforts of material third
parties.
Through September 30, 1999, the company has spent approximately $3 million to
address Year 2000 issues. Total costs to address Year 2000 issues through
March 31, 2000, are currently estimated not to exceed $5 million and consist
primarily of costs for the remediation of internal systems and broadcasting
equipment. Funds for these costs have been, and future costs are expected to
be, provided by the operating cash flows of the company. The majority of the
internal system remediation efforts relate to staff costs of on-staff systems
engineers and, therefore, are not incremental costs.
Meredith Corporation could be faced with severe consequences if Year 2000
issues are not identified and resolved in a timely manner by the company and
material third parties. A worst-case scenario would result in the short-term
inability of the company to produce and distribute magazines or broadcast
television programming because of unresolved year 2000 issues. This would
result in lost revenues; however, the amount would be dependent on the length
and nature of the disruption, which cannot be predicted or estimated. In light
of the possible consequences, the company is devoting the resources needed to
address Year 2000 issues in a timely manner. Management has contracted with an
outside consultant to monitor the progress of Meredith's Year 2000 efforts and
provide update reports to the audit committee of the board of directors at each
quarterly meeting. While management expects successful resolution of Year 2000
issues, there can be no guarantee that all Year 2000 issues will be identified
and resolved by Meredith, that material third parties, on which Meredith
relies, will address all Year 2000 issues on a timely basis or that failure to
successfully address all issues would not have an adverse effect on Meredith.
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<PAGE>
Meredith has developed contingency plans in case business interruptions occur.
Initial contingency plans were substantially complete at June 30, 1999.
Meredith will continue to develop, review, test and revise contingency plans,
as more information becomes available.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The company is subject to certain market risks as a result of the use of
financial instruments. The market risk inherent in the company's financial
instruments subject to such risks is the potential market value loss arising
from adverse changes in interest rates and/or the potential effect of changes
in the market price of company common stock on the company's liquidity.
Readers are referred to the company's Form 10-K for the year ended June 30,
1999 for a more complete discussion of these risks.
The company uses interest rate swap contracts to effectively fix the interest
rate on a substantial portion of its bank debt. Therefore, there is no
material earnings or liquidity risk associated with the interest rate swap
contracts. The fair market value of the interest rate swaps is the estimated
amount, based on discounted cash flows, the company would pay or receive to
terminate the swap contracts. A 10 percent decrease in interest rates would
result in a $1.3 million cost to terminate the swap contracts compared to the
current benefit of $1.8 million at September 30, 1999.
At September 30, 1999, the company had put option agreements outstanding to
repurchase up to 1.5 million common shares. The risk to the company of an
increase in share price is from a liquidity perspective. Based on the
September 30, 1999 closing price, a 10 percent increase in share price would
cause the potential repurchase cost for these put options to increase by $5.4
million.
There has been no material change in the market risk associated with program
rights payable since June 30, 1999.
PART II - OTHER INFORMATION
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 October 19, 1999.
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter ended September 30, 1999.
- 17 -
<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: November 10, 1999
- 18 -
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
27 Financial Data Schedule
99 Additional financial information from the Company's first
quarter press release dated October 19, 1999.
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at September 30, 1999 and the Consolidated Statement
of Earnings for the three months ended September 30, 1999 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 11,261
<SECURITIES> 0
<RECEIVABLES> 151,140<F1>
<ALLOWANCES> 0
<INVENTORY> 35,516
<CURRENT-ASSETS> 284,641
<PP&E> 297,951
<DEPRECIATION> 135,428
<TOTAL-ASSETS> 1,456,291
<CURRENT-LIABILITIES> 353,412
<BONDS> 485,000
0
0
<COMMON> 50,176
<OTHER-SE> 318,291
<TOTAL-LIABILITY-AND-EQUITY> 1,456,291
<SALES> 260,404
<TOTAL-REVENUES> 260,404
<CGS> 107,997
<TOTAL-COSTS> 107,997
<OTHER-EXPENSES> 12,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,868
<INCOME-PRETAX> 30,139
<INCOME-TAX> 12,116
<INCOME-CONTINUING> 18,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,023
<EPS-BASIC> .35
<EPS-DILUTED> .34
<FN>
<F1>Net of allowances
</FN>
</TABLE>
Exhibit 99
----------
MEREDITH CORPORATION
FISCAL 2000 FIRST QUARTER
EARNINGS PER SHARE AT-A-GLANCE
(Note: All figures are adjusted for stock splits)
- -- The chart below depicts comparable quarterly and fiscal-year diluted
earnings per share (EPS) before nonrecurring 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 .37 .42 1.46
F1999 .32 .47 .41 .44 1.64
F2000 .34
- -- Earnings before nonrecurring items were 34 cents per share for the fiscal
2000 first quarter ended September 30, 1999, compared to 32 cents per share
in the prior-year quarter.
- -- Fiscal 2000 first quarter earnings include dilution of 8 cents per share
from the March 1, 1999, acquisition of WGNX-TV (CBS, Atlanta). The WGNX
acquisition also resulted in dilution of 6 cents in the fiscal 1999 fourth
quarter and 2 cents in the fiscal 1999 third quarter. Because the
acquisition was completed on March 1, 1999, only one month of the third
quarter included dilution.
