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 March 31, 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 April 30, 1999
Common Stock, $1 par value 40,790,813
Class B Stock, $1 par value 11,084,470
----------
Total Common and Class B Stock 51,875,283
==========
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<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 31 June 30
Assets 1999 1998
- ------------------------------------------------------------------------------
(in thousands)
Current assets:
Cash and cash equivalents $ 30,705 $ 4,953
Receivables, net 146,054 138,036
Inventories 35,111 34,765
Subscription acquisition costs 43,139 47,070
Program rights 21,113 14,809
Other current assets 14,710 7,168
---------- ----------
Total current assets 290,832 246,801
---------- ----------
Property, plant and equipment: 286,701 267,488
Less accumulated depreciation (129,414) (116,407)
---------- ----------
Net property, plant and equipment 157,287 151,081
---------- ----------
Subscription acquisition costs 32,392 36,941
Other assets 45,302 33,808
Goodwill and other intangibles (at original
cost less accumulated amortization of
$113,255 on March 31 and $97,716 on June 30) 944,318 597,358
---------- ----------
Total assets $1,470,131 $1,065,989
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE>
(Unaudited)
March 31 June 30
Liabilities and Stockholders' Equity 1999 1998
- ------------------------------------------------------------------------------
(in thousands except share data)
Current liabilities:
Current portion of long-term debt $ 40,000 $ 40,000
Current portion of long-term program rights payable 28,009 18,934
Accounts payable 41,411 63,171
Accrued taxes and expenses 88,298 82,775
Unearned subscription revenues 145,357 141,989
---------- ----------
Total current liabilities 343,075 346,869
Long-term debt 545,000 175,000
Unearned subscription revenues 92,631 95,603
Deferred income taxes 28,462 20,822
Other deferred items 65,128 49,682
---------- ----------
Total liabilities 1,074,296 687,976
---------- ----------
Temporary equity: Put option agreements
Common stock, 1,535,140 shares outstanding at
March 31 and 597,878 shares at June 30 48,261 28,063
---------- ----------
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
39,253,815 at March 31 and 40,996,510 at June 30
(net of treasury shares, 27,292,656 at March 31
and 26,274,767 at June 30.) 39,254 40,996
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and outstanding
11,099,071 at March 31 and 11,279,881 at June 30. 11,099 11,280
Retained earnings 300,413 301,201
Accumulated other comprehensive income (882) (1,177)
Unearned compensation (2,310) (2,350)
---------- ----------
Total stockholders' equity 347,574 349,950
---------- ----------
Total liabilities and stockholders' equity $1,470,131 $1,065,989
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months Nine Months
Ended March 31 Ended March 31
1999 1998 1999 1998
- -----------------------------------------------------------------------------
(in thousands except per share)
Revenues (less returns and allowances):
Advertising $158,141 $151,141 $451,679 $424,332
Circulation 68,451 68,054 205,018 202,986
All other 38,529 40,991 109,185 112,651
-------- -------- -------- --------
Total revenues 265,121 260,186 765,882 739,969
-------- -------- -------- --------
Operating costs and expenses:
Production, distribution and edit 106,867 106,744 316,037 301,774
Selling, general & administrative 104,159 105,613 293,982 301,686
Depreciation and amortization 10,865 9,194 30,925 26,580
-------- -------- -------- --------
Total operating costs and expenses 221,891 221,551 640,944 630,040
-------- -------- -------- --------
Income from operations 43,230 38,635 124,938 109,929
Gain from disposition -- -- 2,375 --
Interest income 377 277 547 1,043
Interest expense (5,328) (4,020) (13,014) (10,737)
-------- -------- -------- --------
Earnings before income taxes 38,279 34,892 114,846 100,235
Income taxes 16,192 14,777 48,525 42,697
-------- -------- -------- --------
Net earnings $ 22,087 $ 20,115 $ 66,321 $ 57,538
======== ======== ======== ========
Basic earnings per share $ 0.43 $ 0.38 $ 1.27 $ 1.09
======== ======== ======== ========
Basic average shares outstanding 52,061 52,865 52,294 52,987
======== ======== ======== ========
Diluted earnings per share $ 0.41 $ 0.37 $ 1.23 $ 1.04
======== ======== ======== ========
Diluted average shares outstanding 53,598 54,366 53,880 55,129
======== ======== ======== ========
Dividends paid per share $ 0.075 $ 0.070 $ 0.215 $ 0.200
======== ======== ======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended March 31 1999 1998
- ---------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net earnings $ 66,321 $ 57,538
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 30,925 26,580
Amortization of program rights 24,505 20,050
Gain from disposition, net of taxes (1,425) --
Changes in assets and liabilities:
Accounts receivable (6,944) (42,696)
Inventories (700) (20)
Supplies and prepayments (2,174) 3,208
Subscription acquisition costs 8,480 774
Accounts payable (20,880) (3,569)
Accruals 7,072 9,560
Unearned subscription revenues 396 9,261
Deferred income taxes 1,327 17,428
Other deferred items 2,747 7,238
-------- --------
Net cash provided by operating activities 109,650 105,352
-------- --------
Cash flows from investing activities:
Redemption of marketable securities -- 50,371
Proceeds from dispositions 9,922 --
Acquisitions of businesses (372,186) (375,000)
Additions to property, plant, and equipment (16,890) (36,324)
Changes in other assets (1,029) (5,651)
-------- --------
Net cash used by investing activities (380,183) (366,604)
-------- --------
Cash flows from financing activities:
Long-term debt incurred 400,000 270,000
Repayment of long-term debt (30,000) (25,000)
Payments for program rights (24,183) (20,687)
Proceeds from common stock issued 2,203 5,323
Purchases of company stock (40,896) (23,570)
Dividends paid (11,239) (10,590)
Other 400 774
-------- --------
Net cash provided by financing activities 296,285 196,250
-------- --------
Net increase (decrease) in cash and cash equivalents 25,752 (65,002)
Cash and cash equivalents at beginning of year 4,953 74,498
-------- --------
Cash and cash equivalents at end of period $ 30,705 $ 9,496
======== ========
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, 1998 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 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 March 31, 1999, the unamortized portion of these assets
primarily consisted of television Federal Communications Commission (FCC)
licenses ($443.3 million), goodwill ($272.6 million) and television network
affiliation agreements ($209.9 million). 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.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
2. Comprehensive Income
Meredith adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," effective July 1, 1998. SFAS No. 130
requires companies to report comprehensive income, which includes net income
and certain items that are reported as separate components of shareholders'
equity. The company's comprehensive income includes foreign currency
translation adjustments in addition to net income. Total comprehensive income
(in thousands) for the nine-month periods ended March 31, 1999 and 1998, was
$66,616 and $57,538, respectively. Total comprehensive income (in thousands)
for the three-month periods ended March 31, 1999 and 1998, was $22,083 and
$20,115, respectively.
3. Acquisitions and disposition
On March 1, 1999, the company acquired the net assets of WGNX-TV, the CBS
affiliate serving the Atlanta market. As part of the transaction, Meredith
purchased the assets of KCPQ-TV, a FOX affiliate serving the Seattle market,
for $380 million from Kelly Television Co. The assets of KCPQ-TV were then
transferred to Tribune Company in exchange for the assets of WGNX-TV and $10
million. As a result, the net cost of WGNX-TV was approximately $370 million.
The acquisition was accounted for as an asset purchase, and accordingly the
operations of WGNX-TV were included in the company's consolidated operating
results from the acquisition date. The cost of the acquisition has been
allocated on the basis of the estimated fair market values of the assets
acquired and liabilities assumed. The purchase price allocation included
intangibles of approximately $362.5 million, in addition to property, plant and
equipment and broadcast program rights and the related payables. The
intangibles are being amortized over 40 years.
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<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Pro forma results of operations for the nine-month periods ended March 31, 1999
and 1998, as if the acquisition had occurred at the beginning of each period
are as follows:
Nine Months
Ended March 31
1999 1998
-------- --------
(in thousands except per share)
Total revenue $787,040 $766,275
======== ========
Net earnings $ 57,815 $ 50,540
======== ========
Net earnings per share
Basic $1.11 $0.95
===== =====
Diluted $1.07 $0.92
===== =====
Effective July 1, 1998, the company sold the net assets of the Better Homes and
Gardens Real Estate Service to GMAC Home Services, Inc., a subsidiary of GMAC
Financial Services. Fiscal 1999 earnings for the nine months ended March 31,
1999, included an after-tax gain of $1.4 million, or 3 cents per diluted share,
from the sale, which closed on July 27, 1998.
4. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 57 percent are under the LIFO method at
March 31, 1999 and 58 percent at June 30, 1998.
(unaudited)
March 31 June 30
1999 1998
----------- --------
(in thousands)
Raw materials $19,850 $24,777
Work in process 16,488 13,286
Finished goods 6,716 5,446
------- -------
43,054 43,509
Reserve for LIFO cost valuation (7,943) (8,744)
------- -------
Total $35,111 $34,765
======= =======
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
5. Long-term debt and interest rate swap contracts
Long-term debt consisted of the following:
(unaudited)
March 31 June 30
1999 1998
----------- --------
(in thousands)
Variable rate credit facilities:
Revolving credit facility of
$150 million due 5/31/2002 $ - $ 30,000
Amortizing term loan of $210 million
due 5/31/2002 185,000 185,000
Amortizing term loan of $200 million
due 5/1/2004 200,000 -
Private placement note purchase agreement:
6.51% senior notes, due 3/1/2005 75,000 -
6.57% senior notes, due 9/1/2005 50,000 -
6.65% senior notes, due 3/1/2006 75,000 -
-------- --------
Total long-term debt 585,000 215,000
Current portion of long-term debt (40,000) (40,000)
-------- --------
Total long-term debt (less
current portion) $545,000 $175,000
======== ========
The company has variable rate unsecured credit agreements consisting of a $210
million amortizing term loan, a $200 million amortizing term loan entered into
on December 10, 1998 and a $150 million revolving credit facility. The $210
million term loan has remaining principal payments of $40 million in fiscal
year 1999, $45 million in fiscal year 2000 and $50 million in both fiscal years
2001 and 2002. The $200 million term loan agreement with a group of banks led
by Wachovia Bank N.A. requires $100 million principal payments in both fiscal
years 2003 and 2004. Any amounts borrowed under the revolving facility are due
and payable on May 31, 2002.
Interest rates under the variable rate credit facilities are based on
applicable margins plus, at the company's option, either adjusted LIBOR or the
higher of Wachovia's prime or overnight funds rate plus 0.5 percent. The
revolving credit facility also allows for a money market interest rate option.
On March 1, 1999, the company entered into a private placement debt agreement
with five insurance companies for $200 million in fixed rate unsecured senior
notes maturing in fiscal years 2005 and 2006.
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
The debt agreements include certain financial covenants related to debt levels
and coverage ratios. As of March 31, 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
amended its existing swap contracts effective December 31, 1998 and entered
into two new swap contracts with effective dates of March 31, 1999. Under the
contracts, Meredith pays fixed rates of interest while receiving floating rates
of interest based on three month LIBOR. These contracts effectively fix the
base interest rate on the variable rate credit facilities, although the
applicable margins vary based on the company's debt-to-EBITDA ratio. These
contracts are held for purposes other than trading. The notional amount
covered by the contracts was $325 million at March 31, 1999. The average
notional amount of indebtedness outstanding under the contracts for fiscal
years 1999 through 2002 is as follows: $273 million, $305 million, $223
million and $93 million, respectively. The company is exposed to credit
related losses in the event of non-performance by the counterparties to the
interest rate swap contracts. Management does not expect any counterparties to
fail to meet their obligations given the creditworthiness of the counterparties
to the agreements.
The weighted-average interest rate on debt outstanding at March 31, 1999, was
approximately 6.5 percent.
6. Earnings per share
The following table presents the calculations of earnings per share:
(unaudited) (unaudited)
Three Months Nine Months
Ended March 31 Ended March 31
1999 1998 1999 1998
- -----------------------------------------------------------------------------
(in thousands except per share)
Net earnings $22,087 $20,115 $66,321 $57,538
======= ======= ======= =======
Basic average shares outstanding 52,061 52,865 52,294 52,987
Dilutive effect of stock options 1,537 1,501 1,586 2,142
------- ------- ------- -------
Diluted average shares outstanding 53,598 54,366 53,880 55,129
======= ======= ======= =======
Basic earnings per share $ .43 $ .38 $ 1.27 $ 1.09
======= ======= ======= =======
Diluted earnings per share $ .41 $ .37 $ 1.23 $ 1.04
======= ======= ======= =======
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MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Antidilutive options excluded from the above calculations totaled 619,000
options at March 31, 1999 (with a weighted average exercise price of $40.33).
There were no options outstanding at March 31, 1998 that were not included in
the computation of diluted EPS.
Options to purchase 82,000 shares were exercised during the nine months ended
March 31, 1999 (221,000 options were exercised in the nine months ended March
31, 1998).
7. Segment information
Meredith adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," effective July 1, 1998.
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. Based on products and services, the company has
two reportable segments: publishing and broadcasting. The publishing segment
includes magazine and book publishing, brand licensing, custom marketing and
other related operations. The broadcasting segment includes the operations of
12 network-affiliated television stations and syndicated television program
marketing and development. In prior years' segment information, syndicated
television programming operations were reported as unallocated corporate
expenses. Prior-year information has been restated to conform to the current-
year presentation. Intersegment revenues are not material and virtually all
businesses operate in the United States.
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<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Revenues, operating profit, depreciation and amortization, and assets by
segment are as follows:
(unaudited) (unaudited)
Three Months Nine Months
Ended March 31 Ended March 31
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Revenues
Publishing $202,071 $203,062 $575,745 $566,164
Broadcasting 63,050 57,124 190,137 173,805
-------- -------- -------- --------
Total revenues $265,121 $260,186 $765,882 $739,969
======== ======== ======== ========
Operating profit
Publishing $ 37,020 $ 33,563 $ 88,601 $ 75,642
Broadcasting 14,728 13,407 53,703 53,146
Unallocated corporate expense (8,518) (8,335) (17,366) (18,859)
-------- -------- -------- --------
Income from operations 43,230 38,635 124,938 109,929
Gain from disposition -- -- 2,375 --
Interest income 377 277 547 1,043
Interest expense (5,328) (4,020) (13,014) (10,737)
-------- -------- -------- --------
Earnings before income taxes 38,279 34,892 114,846 100,235
Income taxes 16,192 14,777 48,525 42,697
-------- -------- -------- --------
Net Earnings $ 22,087 $ 20,115 $ 66,321 $ 57,538
======== ======== ======== ========
Depreciation and amortization
Publishing $ 2,826 $ 2,609 $ 8,520 $ 7,446
Broadcasting 7,581 6,144 20,960 18,002
Unallocated corporate 458 441 1,445 1,132
-------- -------- -------- --------
Total depreciation
and amortization $ 10,865 $ 9,194 $ 30,925 $ 26,580
======== ======== ======== ========
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March 31 June 30
l999 1998
---------- ----------
(in thousands)
Assets
Publishing $ 337,813 $ 349,783
Broadcasting 1,054,731 675,409
Corporate 77,587 40,797
---------- ----------
Total assets $1,470,131 $1,065,989
========== ==========
The increase in broadcasting assets from June 30, 1998 to March 31, 1999
reflects the acquisition of WGNX-TV on March 1, 1999. The corresponding
increase in corporate assets primarily reflects additional cash on hand.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following discussion presents the key factors that have affected the
company's business in the third quarter and first nine months of fiscal 1999
and fiscal 1998 and compares the results of such periods. 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, 1998. All per-share amounts refer to diluted earnings per
share and are computed on a post-tax basis.
This section contains certain forward-looking statements, including those
related to the FOX matter discussed below, 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, 1998, for a discussion of such factors.
Significant Events
Fiscal 1999
- -----------
On March 1, 1999, the company acquired the net assets of WGNX-TV, the CBS
affiliate serving the Atlanta market, from Tribune Company. As part of the
transaction, Meredith purchased Seattle's KCPQ-TV (FOX) from Kelly Television
Co. The net assets of KCPQ-TV were then transferred to Tribune in exchange for
the net assets of WGNX-TV and a $10 million cash payment to Meredith. The net
cost of the acquisition of WGNX-TV was approximately $370 million.
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<PAGE>
Effective July 1, 1998, Meredith sold the net assets of the Better Homes and
Gardens Real Estate Service to GMAC Home Services, Inc. The sale resulted in a
net gain of $1.4 million, or 3 cents per share. In a separate transaction,
Meredith and GMAC Home Services entered into a licensing agreement authorizing
GMAC Home Services to use the Better Homes and Gardens trademark in connection
with residential real estate marketing for a period not to exceed 10 years.
GMAC Home Services will pay Meredith an annual license fee for the use of the
trademark.
Fiscal 1998
- -----------
On July 1, 1997, Meredith purchased the net assets of three television stations
affiliated with the FOX television network from First Media Television, L.P.
(First Media) for $216 million. Those stations are: KPDX-TV (Portland, Ore.);
KFXO-LP (Bend, Ore.-a low power station); and WHNS-TV (Greenville,
S.C./Spartanburg, S.C./Asheville, N.C.). 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-TV.
Results of Operations
Three Months Nine Months
Ended March 31 Ended March 31
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands except per share)
Total revenues $265,121 $260,186 $765,882 $739,969
======== ======== ======== ========
Income from operations $ 43,230 $ 38,635 $124,938 $109,929
======== ======== ======== ========
Earnings before
nonrecurring items $ 22,087 $ 20,115 $ 64,896 $ 57,538
======== ======== ======== ========
Net earnings $ 22,087 $ 20,115 $ 66,321 $ 57,538
======== ======== ======== ========
Diluted earnings per share
before nonrecurring items $ 0.41 $ 0.37 $ 1.20 $ 1.04
======== ======== ======== ========
Diluted earnings per share $ 0.41 $ 0.37 $ 1.23 $ 1.04
======== ======== ======== ========
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<PAGE>
Net earnings of $22.1 million, or 41 cents per diluted share, were recorded in
the quarter ended March 31, 1999, compared to net earnings of $20.1 million, or
37 cents per diluted share, in the prior-year third quarter. For the nine
months ended March 31, 1999, net earnings were $66.3 million, or $1.23 per
diluted share, compared to net earnings of $57.5 million, or $1.04 per diluted
share, in the prior-year period. Net earnings for the nine months ended March
31, 1999, included a post-tax gain of $1.4 million, or 3 cents per diluted
share, from the sale of the Better Homes and Gardens Real Estate Service.
Earnings before nonrecurring items for the comparative nine-month periods were
$64.9 million, or $1.20 per diluted share, in fiscal 1999 and $57.5 million, or
$1.04 per diluted share, in the prior-year period. Fiscal 1999 diluted
earnings per share before nonrecurring items increased 11 percent for the third
quarter and 15 percent for the nine-month period compared to the prior-year
periods. The fiscal 1999 results include dilution of two cents per share
resulting from the WGNX-Atlanta acquisition. The weighted average diluted
number of shares outstanding declined slightly in both periods compared to the
prior-year periods primarily due to company share repurchases.
Third quarter revenues increased 2 percent and year-to-date revenues were up 4
percent from the comparative prior-year periods. Adjusting for the impacts of
the real estate sale, the WGNX-Atlanta acquisition, the absence of Country
America magazine and the fiscal 1998 first quarter acquisition of WFSB-
Hartford/New Haven, comparable revenues increased 5 percent in the third
quarter and 6 percent in the nine-month period. Increased advertising and
integrated marketing revenues were the primary factors in the growth.
Third quarter operating costs increased slightly due to the WGNX-Atlanta
acquisition. Excluding that impact, operating costs declined approximately one
percent compared to the prior-year quarter reflecting the absence of costs from
the real estate operation. For the nine month period costs increased 2 percent
due to the WGNX-Atlanta acquisition, a full nine months of operating expenses
and amortization expense at WFSB-Hartford/New Haven in the current period, and
increased television news and programming expenses. As in the quarter, these
increases in expenses were partially offset by the absence of costs from the
real estate operation. The operating profit margin grew from 15 percent in the
fiscal 1998 third quarter and nine-month periods to 16 percent in the
corresponding current-year periods.
Net interest expense in the third quarter and year-to-date period increased
over the prior-year periods due to debt incurred for the WGNX-Atlanta
acquisition. Interest on debt incurred in September 1997 for the WFSB-
Hartford/New Haven acquisition also affected the increase in the year-to-date
period.
The company's effective tax rate was 42.3 percent for the nine months ended
March 31, 1999 compared with 42.6 percent in the comparable prior-year period.
The decline reflected the diminished impact of nondeductible items because of
an increase in projected earnings.
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<PAGE>
Publishing
- ----------
Three Months Nine Months
Ended March 31 Ended March 31
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Revenues
---------
Magazine advertising $ 96,965 $ 95,832 $267,503 $258,517
Magazine circulation 68,451 68,054 205,018 202,986
Other 36,655 39,176 103,224 104,661
-------- -------- -------- --------
Total revenues $202,071 $203,062 $575,745 $566,164
======== ======== ======== ========
Operating profit $ 37,020 $ 33,563 $ 88,601 $ 75,642
======== ======== ======== ========
Publishing revenues decreased slightly compared to the prior-year quarter but
increased 2 percent compared to the nine months ended March 31, 1998.
Excluding the impact of the sale of the Better Homes and Gardens Real Estate
Service and the closing of Country America magazine, publishing revenues
increased 5 percent in the third quarter and 6 percent in the nine-month period
versus the prior-year periods. Excluding the impact of the Country America
closing, magazine advertising revenues grew 3 percent in the third quarter and
4 percent in the fiscal year-to-date period. Better Homes and Gardens, the
company's largest circulation title, reported increased advertising revenues in
both periods primarily from higher average revenues per page. The number of
advertising pages showed little change in the quarter but increased slightly in
the year-to-date period. Other titles reporting notable increases in
advertising revenues in both periods included Country Home, Traditional Home,
Crayola Kids and MORE magazines. The increases at Country Home and MORE
reflect additional issues in the current year period. These increases in
advertising revenues were partially offset by lower advertising revenues at
Ladies' Home Journal and Successful Farming magazines primarily due to fewer
advertising pages sold. Looking forward, overall advertising pages for the
fourth quarter are expected to increase in the low to mid-single digit range on
a percentage basis compared to the prior-year quarter. This is based on
current information and could change as the quarter progresses.
Magazine circulation revenues increased slightly in both the quarter and the
fiscal year-to-date period, even considering the closing of Country America
magazine. The growth primarily reflected the increased frequencies of Country
Home and MORE magazines. Other publishing revenues declined in the quarter and
year-to-date periods due to the sale of the Better Homes and Gardens Real
Estate Service. Excluding the effect of that sale, other publishing revenues
increased in both periods primarily due to higher integrated marketing
revenues.
- 16 -
<PAGE>
Publishing operating profit was up 10 percent in the fiscal 1999 third quarter
and 17 percent for the fiscal year-to-date period versus the comparable prior-
year periods. The improvements reflected lower production costs, increased
magazine advertising revenues and higher profits from integrated marketing
operations. Lower paper prices also contributed to the improvement in the
third quarter.
Major suppliers reduced coated groundwood paper prices approximately 4 percent
on January 1, 1999. This followed an average price decrease of about 3.5
percent on October 1, 1998. Coated groundwood paper accounts for about two-
thirds of the company's paper usage. A postal rate increase took effect on
January 10, 1999. The third fiscal quarter impact was lessened by mailing
promotional campaigns and magazines prior to that date when possible.
Management expects the effective increase to be less than the 4.6 percent
average for publishers due to the company's efficient mailing processes.
Broadcasting
- ------------
Three Months Nine Months
Ended March 31 Ended March 31
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Revenues
---------
Advertising $ 61,176 $ 55,309 $184,176 $165,815
Other 1,874 1,815 5,961 7,990
-------- -------- -------- --------
Total revenues $ 63,050 $ 57,124 $190,137 $173,805
======== ======== ======== ========
Operating profit $ 14,728 $ 13,407 $ 53,703 $ 53,146
======== ======== ======== ========
Revenues increased 10 percent in the fiscal 1999 third quarter and 9 percent in
the nine months ended March 31, 1999 compared to the prior-year periods.
Excluding the impacts of the acquisitions of WGNX-Atlanta and WFSB-Hartford/New
Haven, comparable revenues increased 5 percent in both periods. Strong
advertising revenue growth at the company's FOX affiliates, KPDX-Portland and
KVVU-Las Vegas, led to the increases. The introduction of local news
programming late in fiscal 1998 at FOX affiliates KVVU-Las Vegas and WOFL-
Orlando also contributed to the increases. Looking forward to the fiscal
fourth quarter, the stations in total are reporting advertising pacings that
are flat to down slightly compared to the prior year quarter. Advertising
pacings are as of a point in time and are not necessarily indicative of final
results.
Operating profits increased 10 percent in the third quarter. Strong operating
results at the company's FOX affiliates were somewhat offset by weaker
performance at the CBS affiliates due primarily to the absence of Olympic-
related advertising that occurred in the prior-year period. Operating profit
increased slightly in the nine-month period as advertising revenue growth was
- 17 -
<PAGE>
nearly offset by investment spending primarily in programming, local news and
sales, marketing and research activities. In addition, results in both periods
benefited from the March 1, 1999 acquisition of WGNX-Atlanta and a smaller
level of investment in television program development efforts.
On April 6, 1999, the company was notified that the FOX Television Network
(FOX) planned to reduce the amount of prime-time advertising made available for
sale by affiliates, effective July 1, 1999. The company believes that such
action is inconsistent with the letter and spirit of its affiliation agreements
with FOX. On May 6, 1999, the company notified FOX that it declined to accept
the FOX proposal. At this time, the company anticipates discussions with FOX
will continue. Although it is impossible to predict the eventual outcome of
this issue, the company believes it will not have a material adverse impact on
fiscal 2000 financial results.
Liquidity and Capital Resources
Percent
Nine months ended March 31 1999 1998 Change
-------------------------- --------- -------- -------
(in thousands)
Net earnings $ 66,321 $ 57,538 15 %
========= ========= ====
Cash flows from operations $ 109,650 $ 105,352 4 %
========= ========= ====
Cash flows from investing $(380,183) $(366,604) (4)%
========= ========= ====
Cash flows from financing $ 296,285 $ 196,250 51 %
========= ========= ====
Net cash flows $ 25,752 $ (65,002) nm
========= ========= ====
EBITDA $ 155,863 $ 136,509 14 %
========= ========= ====
nm - not meaningful
Cash and cash equivalents increased by $25.8 million in the first nine months
of fiscal 1999 compared to a decrease in cash of $65.0 million in the
comparable prior-year period. The change reflected a higher level of debt
funding for the television station acquisition in the current period compared
to the debt financing of acquisitions in the prior year. Cash provided by
operating activities increased 4 percent due to higher operating cash flows
(earnings plus depreciation and amortization) and changes in working capital
items that resulted primarily from the prior-year television station
- 18 -
<PAGE>
acquisitions. These increases in cash provided by operations were partially
offset by changes in deferred income taxes, reflecting a tax-basis market-value
adjustment related to accounts receivable in the prior-year period.
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 nine months
of fiscal 1999 increased 14 percent from the prior-year period. 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 March 31, 1999, long-term debt outstanding totaled $585 million. This debt
has been incurred over the last two fiscal years in connection with the
acquisitions of five television stations. The company has two variable-rate
bank credit facilities with total outstanding debt of $385 million at March 31,
1999. These term loans require periodic principal payments that total $40
million in fiscal 1999, $45 million in fiscal 2000, $50 million in both fiscal
2001 and 2002, and $100 million in both fiscal 2003 and 2004. Interest rates
are based on applicable margins plus, at the company's option, either adjusted
LIBOR or the higher of the Wachovia Bank, N.A., prime rate or the overnight
federal funds rate plus 0.5 percent. The revolving credit facility also allows
for a money market interest rate option. In addition, the company has $200
million outstanding at March 31, 1999 in private placement debt consisting of
fixed-rate unsecured senior notes with five insurance companies. These notes
mature as follows: $75 million on March 1, 2005, $50 million on September 1,
2005 and $75 million on March 1, 2006. Interest rates on the notes range from
6.51 percent to 6.65 percent. Funds for payments of interest and principal on
the debt are expected to be provided by cash generated by future operating
activities. The weighted-average interest rate on debt outstanding at March
31, 1999, was approximately 6.5 percent. These debt agreements include certain
financial covenants related to debt levels and coverage ratios. As of March
31, 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. Under these
contracts, Meredith pays fixed rates of interest while receiving floating rates
of interest based on three-month LIBOR. The contracts effectively fix the base
interest rate on a substantial portion of the variable-rate credit facilities,
although the applicable margins vary based on the company's debt-to-EBITDA
ratio. The notional amount covered by the contracts was $325 million at March
31, 1999. The swap contracts expire on June 28, 2002, and the notional amount
varies over the terms of the contracts. The company is exposed to credit-
related losses in the event of nonperformance by counterparties to the
contracts. Management does not expect any counterparties to fail to meet their
obligations, given their strong creditworthiness.
At March 31, 1999, the company had available credit totaling $150 million under
a revolving credit facility. Any amounts borrowed under this agreement are due
and payable on May 31, 2002.
- 19 -
<PAGE>
In the first nine months of fiscal 1999, the company spent $40.9 million for
the repurchase of 1,036,000 shares of Meredith Corporation common stock at the
then current market prices. This compares with spending of $23.6 million for
the repurchase of 713,000 shares in the comparable prior-year period. The
company expects to continue to repurchase shares in the foreseeable future,
subject to market conditions.
In fiscal 1998, the company entered into a put option agreement to repurchase
up to 598,000 common shares at market prices, subject to certain restrictions
and discounts. In July 1998, 270,000 shares were repurchased under this
agreement. The agreement expired in February 1999 with no further activity.
Meredith entered into similar put option agreements effective August 1, 1998,
to repurchase up to 1.6 million common shares over the next 24 months. As of
March 31, 1999, 77,000 shares had been repurchased under these agreements.
As of March 31, 1999, approximately 2.0 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 nine months of fiscal 1999 were $11.2 million, or
21.5 cents per share, compared with $10.6 million, or 20 cents per share, in
the prior-year period. On February 1, 1999, the board of directors increased
the quarterly dividend by 7 percent, or one-half cent per share, to 7.5 cents
per share effective with the dividend payable on March 15, 1999. On an annual
basis, this increase will result in the payment of approximately $1 million in
additional dividends, based on the current number of shares outstanding. The
board of directors also approved a dividend reinvestment plan, effective May
31, 1999.
Expenditures for property, plant and equipment decreased to $16.9 million in
the first nine months of fiscal 1999 from $36.3 million in the prior-year
period. The decrease primarily reflected the completion of a new office
building and related improvements in Des Moines in fiscal 1998. Fiscal 1998
spending included $23 million for this project. Total capital expenditures for
fiscal 1999 are expected to be approximately 30 percent lower than fiscal 1998
expenditures. Significant spending is expected in the company's fiscal fourth
quarter as several of the broadcasting stations begin the conversion to digital
technology and two stations prepare for the expansion of local news
programming. In addition construction has begun on a new building for the
company's station KPDX-TV in Portland. The purchase of land and construction
of a new building for WGNX-TV in Atlanta is expected to begin in fiscal 2000.
The facilities are expected to be completed in fiscal 2000 for Portland and in
fiscal 2001 for Atlanta at an estimated total cost of $30 million. 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.
- 20 -
<PAGE>
Year 2000
- ---------
The Year 2000 issue, common to most companies, concerns the inability of
information and noninformation systems to recognize and process date sensitive
information due to the use of only the last two digits to refer to a year.
This problem could effect 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 are not Year 2000 compliant
have been identified and remediation efforts are in process. Management
estimates that approximately 80 percent of remediation efforts were completed
as of March 31, 1999. Substantially all remediation efforts and testing of
systems/equipment are expected to be completed by June 30, 1999.
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. The company
has sought compliance information with respect to vendors and suppliers through
the use of surveys, industry groups, peer reviews and vendor websites.
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 from
material third parties where needed and from those not responding.
Through March 31, 1999, the company has spent approximately $1.8 million to
address Year 2000 issues. Total costs to address Year 2000 issues 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 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/distribute magazines or broadcast
television programming due to unresolved Year 2000 issues. This would result in
lost revenues; however, the amount would depend 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 a successful resolution of these
issues, there can be no guarantee that material third parties, on which
Meredith relies, will address all Year 2000 issues on a timely basis or that
their failure to successfully address all issues would not have an adverse
effect on the company.
- 21 -
<PAGE>
Meredith is in the process of developing contingency plans in case business
interruptions occur. Management expects these plans to be substantially
complete by June 30, 1999.
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,
1998 for a more complete discussion of these risks.
The company uses interest rate swap agreements to effectively fix the interest
rate on its debt. Therefore, there is no earnings or liquidity risk associated
with changes in interest rates. 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 agreements. A 10 percent decrease
in interest rates would result in a $5.7 million cost to terminate the swap
agreements compared to the current cost of $2.1 million at March 31, 1999.
At March 31, 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 March
31, 1999 closing price, a 10 percent increase in share price would cause the
potential repurchase cost for these put options to increase by $4.8 million.
There has been no material change in the market risk associated with program
rights payable since June 30, 1998.
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 third quarter
press release dated April 20, 1999.
(b) Reports on Form 8-K
The company filed a report on Form 8-K on March 15, 1999, reporting under
Item 2 that it had acquired the assets of WGNX-TV, the CBS affiliate
serving the Atlanta market, for approximately $370 million.
- 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: May 13, 1999
- 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 April 20, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at March 31, 1999 and the Consolidated Statement of
Earnings for the nine months ended March 31, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 30,705
<SECURITIES> 0
<RECEIVABLES> 146,054<F1>
<ALLOWANCES> 0
<INVENTORY> 35,111
<CURRENT-ASSETS> 290,832
<PP&E> 286,701
<DEPRECIATION> 129,414
<TOTAL-ASSETS> 1,470,131
<CURRENT-LIABILITIES> 343,075
<BONDS> 545,000
0
0
<COMMON> 50,353
<OTHER-SE> 297,221
<TOTAL-LIABILITY-AND-EQUITY> 1,470,131
<SALES> 765,882
<TOTAL-REVENUES> 765,882
<CGS> 316,037
<TOTAL-COSTS> 316,037
<OTHER-EXPENSES> 30,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,014
<INCOME-PRETAX> 114,846
<INCOME-TAX> 48,525
<INCOME-CONTINUING> 66,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,321
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.23
<FN>
<F1>Net of allowances
</FN>
</TABLE>
Exhibit 99
----------
MEREDITH CORPORATION
FISCAL 1999 THIRD QUARTER AND YEAR-TO-DATE
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 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 .37 .42 1.46
F1999 .32 .47 .41
- -- Fiscal 1999 third quarter net earnings increased 11 percent to a record
41 cents per share, compared to 37 cents per share in the prior year.
- -- For the first nine months of fiscal 1999, earnings per share before
non-recurring items increased 15 percent to $1.20, compared to $1.04 in
fiscal 1998.
- -- Net earnings for the first nine months of fiscal 1999 were $1.23 per share,
including an after-tax gain of 3 cents per share from the sale of the
Better Homes and Gardens Real Estate Service in the fiscal 1999 first
quarter.
