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, 2000
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, 2000
Common Stock, $1 par value 39,733,622
Class B Stock, $1 par value 10,916,306
----------
Total Common and Class B Stock 50,649,928
==========
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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 2000 1999
- ------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 14,306 $ 11,029
Receivables, net 161,813 138,723
Inventories 37,721 33,511
Subscription acquisition costs 44,774 41,396
Broadcast rights 23,883 14,644
Deferred income taxes 11,169 8,995
Supplies and prepaids 9,335 7,877
---------- ----------
Total current assets 303,001 256,175
Property, plant and equipment 313,744 294,310
Less accumulated depreciation (142,412) (134,554)
---------- ----------
Net property, plant and equipment 171,332 159,756
---------- ----------
Subscription acquisition costs 38,788 31,182
Broadcast rights 13,039 10,230
Other assets 31,528 29,248
Goodwill and other intangibles (at original
cost less accumulated amortization of
$141,957 on March 31 and $120,445 on June 30) 915,298 936,805
---------- ----------
Total assets $1,472,986 $1,423,396
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
- 2 -
<PAGE>
(Unaudited)
March 31 June 30
Liabilities and Stockholders' Equity 2000 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 27,575 21,123
Accounts payable 39,848 55,018
Accrued taxes and expenses 86,158 87,229
Unearned subscription revenues 144,803 135,745
---------- ----------
Total current liabilities 343,384 344,115
Long-term debt 485,000 485,000
Long-term broadcast rights payable 16,305 13,449
Unearned subscription revenues 102,261 90,276
Deferred income taxes 45,573 33,578
Other noncurrent liabilities 46,996 43,673
---------- ----------
Total liabilities 1,039,519 1,010,091
---------- ----------
Temporary equity: Put option agreements
Common stock, outstanding 1,264,140 shares
at March 31 and 1,535,140 shares at June 30 35,001 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 38,588,427 at March 31
(excluding 28,639,171 shares held in treasury)
and 39,220,509 at June 30 (excluding
27,362,776 shares held in treasury). 38,588 39,220
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,933,659 shares at March 31
and 11,063,708 shares at June 30. 10,934 11,064
Retained earnings 353,114 312,553
Accumulated other comprehensive income (807) (625)
Unearned compensation (3,363) (2,054)
---------- ----------
Total stockholders' equity 398,466 360,158
---------- ----------
Total liabilities and stockholders' equity $1,472,986 $1,423,396
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE>
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months Nine Months
Ended March 31 Ended March 31
------------------- -------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------
(In thousands except per share)
Revenues:
Advertising $172,478 $158,141 $487,131 $451,679
Circulation 70,273 68,451 208,090 205,018
All other 44,192 38,529 118,255 109,185
-------- -------- -------- --------
Total revenues 286,943 265,121 813,476 765,882
-------- -------- -------- --------
Operating costs and expenses:
Production, distribution and edit 121,417 106,867 337,775 316,037
Selling, general & administrative 102,770 104,159 296,600 293,982
Depreciation and amortization 13,000 10,865 39,021 30,925
-------- -------- -------- --------
Total operating costs and expenses 237,187 221,891 673,396 640,944
-------- -------- -------- --------
Income from operations 49,756 43,230 140,080 124,938
Gain from disposition -- -- -- 2,375
Interest income 399 377 836 547
Interest expense (8,657) (5,328) (26,706) (13,014)
-------- -------- -------- --------
Earnings before income taxes 41,498 38,279 114,210 114,846
Income taxes 16,682 16,192 45,912 48,525
-------- -------- -------- --------
Net earnings $ 24,816 $ 22,087 $ 68,298 $ 66,321
======== ======== ======== ========
Basic earnings per share $ 0.48 $ 0.43 $ 1.32 $ 1.27
======== ======== ======== ========
Basic average shares outstanding 51,275 52,061 51,548 52,294
======== ======== ======== ========
Diluted earnings per share $ 0.47 $ 0.41 $ 1.29 $ 1.23
======== ======== ======== ========
Diluted average shares outstanding 52,621 53,598 53,099 53,880
======== ======== ======== ========
Dividends paid per share $ 0.080 $ 0.075 $ 0.230 $ 0.215
======== ======== ======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE>
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended March 31 2000 1999
- ---------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 68,298 $66,321
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 39,021 30,925
Amortization of broadcast rights 25,487 24,505
Payments for broadcast rights (28,793) (24,183)
Gain from disposition, net of taxes -- (1,425)
Changes in assets and liabilities:
Accounts receivable (23,090) (6,944)
Inventories (4,210) (700)
Supplies and prepayments (1,866) (2,174)
Subscription acquisition costs (10,984) 8,480
Accounts payable (15,170) (20,880)
Accruals 2,771 7,072
Unearned subscription revenues 21,043 396
Deferred income taxes 9,942 1,327
Other noncurrent liabilities 3,008 2,747
-------- --------
Net cash provided by operating activities 85,457 85,467
-------- --------
Cash flows from investing activities:
Proceeds from dispositions -- 9,922
Acquisitions of businesses -- (372,186)
Additions to property, plant, and equipment (29,641) (16,890)
Changes in investments and other (2,038) 288
-------- --------
Net cash (used) by investing activities (31,679) (378,866)
-------- --------
Cash flows from financing activities:
Long-term debt incurred -- 400,000
Repayment of long-term debt -- (30,000)
Debt acquisition costs -- (1,317)
Proceeds from common stock issued 3,019 2,203
Purchases of company stock (42,255) (40,896)
Dividends paid (11,853) (11,239)
Other 588 400
-------- --------
Net cash (used) provided by financing activities (50,501) 319,151
-------- --------
Net increase in cash and cash equivalents 3,277 25,752
Cash and cash equivalents at beginning of year 11,029 4,953
-------- --------
Cash and cash equivalents at end of period $ 14,306 $ 30,705
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE>
MEREDITH CORPORATION AND SUBSIDIARIES
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 consists of the following:
(unaudited)
March 31 June 30
2000 1999
(In thousands) ----------- -----------
Federal Communications
Commission (FCC) licenses $431,778 $440,385
Goodwill 263,555 270,367
Television network affiliation
agreements 203,836 208,407
All other 16,129 17,646
-------- --------
Total unamortized portion
of intangible assets $915,298 $936,805
======== ========
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<PAGE>
MEREDITH CORPORATION AND SUBSIDIARIES
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 March 31, 2000 and 1999, was
$24,760 and $22,083, respectively. Total comprehensive income for the nine-
month periods ended March 31, 2000 and 1999, was $68,116 and $66,616,
respectively.
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 41 percent are under the LIFO method at
March 31, 2000 and 46 percent at June 30, 1999.
(unaudited)
March 31 June 30
2000 1999
(In thousands) ----------- -----------
Raw materials $ 24,748 $ 17,686
Work in process 14,908 16,569
Finished goods 6,049 5,965
------- -------
45,705 40,220
Reserve for LIFO cost valuation (7,984) (6,709)
------- -------
Total $ 37,721 $ 33,511
======== ========
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<PAGE>
MEREDITH CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
4. 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
------------------ ------------------
2000 1999 2000 1999
(In thousands except per share) ------- ------- ------- -------
Net earnings $24,816 $22,087 $68,298 $66,321
======= ======= ======= =======
Basic average shares outstanding 51,275 52,061 51,548 52,294
Dilutive effect of stock options 1,346 1,537 1,551 1,586
------- ------- ------- -------
Diluted average shares outstanding 52,621 53,598 53,099 53,880
======= ======= ======= =======
Basic earnings per share $ .48 $ .43 $ 1.32 $ 1.27
======= ======= ======= =======
Diluted earnings per share $ .47 $ .41 $ 1.29 $ 1.23
======= ======= ======= =======
Antidilutive options excluded from the above calculations totaled 1,527,000
options at March 31, 2000 (with a weighted average exercise price of $36.54)
and 619,000 options at March 31, 1999 (with a weighted average exercise price
of $40.33).
Options to purchase 210,000 shares were exercised during the nine months ended
March 31, 2000 (82,000 options were exercised in the nine months ended
March 31, 1999).
- 8 -
<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
5. Segment information
(unaudited) (unaudited)
Three Months Nine Months
Ended March 31 Ended March 31
------------------- -------------------
2000 1999 2000 1999
(In thousands) -------- -------- -------- --------
Revenues
Publishing $224,093 $202,071 $606,878 $575,745
Broadcasting 62,850 63,050 206,598 190,137
-------- -------- -------- --------
Total revenues $286,943 $265,121 $813,476 $765,882
======== ======== ======== ========
Intersegment revenues are not material.
Operating profit
Publishing $ 46,532 $ 37,020 $108,609 $ 88,601
Broadcasting 7,930 14,728 42,707 53,703
Unallocated corporate expense (4,706) (8,518) (11,236) (17,366)
-------- -------- -------- --------
Income from operations $ 49,756 $ 43,230 $140,080 $124,938
======== ======== ======== ========
Depreciation and amortization
Publishing $ 2,894 $ 2,826 $ 8,657 $ 8,520
Broadcasting 9,596 7,581 28,784 20,960
Unallocated corporate 510 458 1,580 1,445
-------- -------- -------- --------
Total depreciation
and amortization $ 13,000 $ 10,865 $ 39,021 $ 30,925
======== ======== ======== ========
EBITDA
Publishing $ 49,423 $ 39,846 $117,266 $ 97,121
Broadcasting 17,526 22,309 71,491 74,663
Unallocated corporate (4,196) (8,060) (9,656) (15,921)
-------- -------- -------- -------
Total EBITDA $ 62,756 $ 54,095 $179,101 $155,863
======== ======== ======== ========
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.
- 9 -
<PAGE>
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 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
Three Months Nine Months
Ended March 31 Ended March 31
------------------- -------------------
2000 1999 2000 1999
(In thousands except per share) -------- -------- -------- --------
Total revenues $286,943 $265,121 $813,476 $765,882
======== ======== ======== ========
Income from operations $ 49,756 $ 43,230 $140,080 $124,938
======== ======== ======== ========
Earnings before
nonrecurring items $ 24,816 $ 22,087 $ 68,298 $ 64,896
======== ======== ======== ========
Net earnings $ 24,816 $ 22,087 $ 68,298 $ 66,321
======== ======== ======== ========
Diluted earnings per share
before nonrecurring items $ 0.47 $ 0.41 $ 1.29 $ 1.20
======== ======== ======== ========
Diluted earnings per share $ 0.47 $ 0.41 $ 1.29 $ 1.23
======== ======== ======== ========
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<PAGE>
Net earnings of $24.8 million, or 47 cents per diluted share, were recorded in
the quarter ended March 31, 2000, compared to net earnings of $22.1 million, or
41 cents per diluted share, in the prior-year third quarter. For the nine
months ended March 31, 2000, net earnings were $68.3 million, or $1.29 per
diluted share, compared to earnings before nonrecurring items of $64.9 million,
or $1.20 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.
Fiscal 2000 diluted earnings per share before nonrecurring items increased 15
percent for the third quarter and 8 percent for the nine-month period compared
to the prior-year periods. Management estimates that the acquisition of
WGNX-Atlanta on March 1, 1999 diluted earnings per share by 8 cents per share
in the third quarter and 21 cents per share in the nine months ended March 31,
2000. This compares to estimated fiscal 1999 dilution of two cents per share
in both the quarter and nine-month period. These estimates include the
after-tax effects of the station's operating results after amortization of
acquired intangibles and interest expense on debt incurred to finance the
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 8 percent and year-to-date revenues were up 6
percent from the comparative prior-year periods. Adjusting for the impacts of
the WGNX-Atlanta acquisition and discontinued magazine titles, comparable
revenues increased 8 percent in the third quarter and 5 percent in the
nine-month period. Increased magazine advertising and book publishing revenues
were the primary factors in the growth. An increase in revenues from
integrated marketing programs also contributed to the year-to-date increase.
Partially offsetting these increases was a $6 million decline in broadcasting
political advertising revenue due to the biennial nature of political
elections.
Third quarter and year-to-date operating costs increased 7 percent and 5
percent, respectively, compared to the prior-year periods. The increases
reflected the WGNX-Atlanta acquisition, higher costs for television programming
and volume-related increases in publishing production and delivery costs.
Higher magazine paper costs also affected the third quarter comparison. These
cost increases were partially offset by lower per-unit magazine production
costs and management's overall expense control efforts. The reduction in
corporate nonoperating expenses in both the quarter and year-to-date period
result from management's cost containment efforts and the absence of prior-year
costs related to the WGNX-Atlanta acquisition. The operating profit margin
grew from 16 percent in the fiscal 1999 third quarter and nine-month periods to
17 percent in the corresponding current-year periods.
Net interest expense increased in both the quarter and nine-month period
compared to the prior-year period as a result of debt incurred for the
acquisition of WGNX-Atlanta.
The effective tax rate declined in both the quarter and the nine-month period
primarily due to lower effective state rates.
- 11 -
<PAGE>
On March 8, 2000, Meredith announced several major strategic initiatives
designed to position the company for significant growth in a rapidly changing
business environment that stresses convergence, interactivity and greater
advertising accountability. These initiatives include the creation of a new
business group - Interactive and Integrated Marketing, expansion and
acceleration of Internet-related efforts on a company-wide basis,
implementation of initiatives designed to grow the profit contribution of
circulation activities and closing certain operations that no longer fit the
company's business objectives. To move forward with these initiatives,
Meredith has committed up to $100 million for investments in Internet and
e-commerce activities, continued development of its consumer database, and
strategic alliances and partnerships. Incremental spending related to these
initiatives is expected to reduce earnings by 2 to 3 cents per share in the
fourth quarter of fiscal 2000. Looking forward, the impact on fiscal 2001
earnings from these initiatives is expected to be a reduction in earnings per
share of 10 to 15 cents. Additionally, the company plans to provide at least
$10 million annually in marketing support to grow these businesses through
advertising in its magazines and at its television stations. Investment
spending related to the circulation initiatives is expected to reduce fiscal
2000 fourth quarter earnings by 8 to 10 cents per share and is also expected to
reduce fiscal 2001 earnings by 8 to 10 cents per share. The final initiative
resulted in the closing of Cross Stitch & Needlework and Decorative Woodcrafts
magazines. In addition, the company announced it will no longer publish
Crayola Kids magazine due to a disagreement with the licensor regarding the
direction of the magazine. These decisions will result in nonrecurring charges
in the fiscal 2000 fourth quarter of 35 to 37 cents per share. The
nonrecurring charges will include the write-down of certain intangible assets
and charges for severance benefits and other expenses related to the magazine
closings. The intangible write-down, which is not deductible for federal tax
purposes, will reduce future amortization expense by approximately $2 million
annually. Severance benefits are expected to be paid out over the next twelve
months from internally generated cash flows. Going forward, the closing of
these magazines will result in an approximate $25 million annual reduction in
revenues, but will not have a material impact on operating profits of the
publishing segment.
Although the financial impact is not significant, Internet activity of the
company's Web sites remains strong. For each month of the fiscal third
quarter, page views on the company's Web sites were more than 15 million. This
represented a 30 percent increase over the same months a year ago. In
addition, unique visitors per month have doubled from the prior year, to a
total of 1.5 million for Meredith's measured sites. The number of
registrations generated by the sites also continues to accelerate. In the
fiscal third quarter, more than 125,000 new registrants were added, bringing
the total to nearly 800,000. This growth in traffic and registrations will be
important as the company proceeds with its strategic initiatives.
- 12 -
<PAGE>
Publishing
- ------------ Three Months Nine Months
Ended March 31 Ended March 31
------------------- -------------------
2000 1999 2000 1999
(In thousands) -------- -------- -------- --------
Revenues
---------
Advertising $111,494 $ 96,965 $285,848 $267,503
Circulation 70,273 68,451 208,090 205,018
Other 42,326 36,655 112,940 103,224
-------- -------- -------- --------
Total revenues $224,093 $202,071 $606,878 $575,745
======== ======== ======== ========
Operating profit $ 46,532 $ 37,020 $108,609 $ 88,601
======== ======== ======== ========
Publishing revenues increased 11 percent compared to the prior-year quarter and
5 percent compared to the nine months ended March 31, 1999. Excluding the
impact of discontinued magazine titles, comparable publishing revenues
increased 12 percent in the third quarter and 7 percent in the nine-month
period.
Comparable advertising revenues grew 13 percent in the third quarter and 6
percent in the fiscal year-to-date period. The strong third quarter
performance reflected a 9 percent increase in ad pages for comparable titles
with most titles reporting growth in both pages and revenues. Better Homes and
Gardens, the company's largest circulation title, reported a 10 percent
increase in ad pages sold in the third quarter following only slight growth in
the first half of the fiscal year. The average revenue per page increased in
both the quarter and year-to-date period. Also of note in the third quarter
was an 8 percent increase in advertising pages and even stronger growth in ad
revenues at Ladies Home Journal magazine. This growth contrasted with declines
in ad pages in each of the first two fiscal quarters. Also contributing to the
year-to-date increase in ad revenues was the addition of revenues from the
Internet buying guide, Shop Online 1-2-3, distributed as a supplement to 5
million subscribers of 10 Meredith titles in the fiscal second quarter.
Looking forward, overall ad pages for the fourth quarter are currently expected
to increase in the high-single digit range on a percentage basis compared to
the prior-year quarter with stronger net revenues per page.
Magazine circulation revenues of comparable titles increased 3 percent in both
the quarter and the fiscal year-to-date period compared to the prior-year
periods. The growth reflected increased newsstand sales of special interest
publications, the addition of revenues from the launch of Hometown Cooking and
Antiques Extra magazines, increased frequency of Country Home and a larger
subscriber base for MORE magazine. These increases were partially offset by a
decline in circulation revenues at Ladies' Home Journal due to a reduction in
rate base.
- 13 -
<PAGE>
Other publishing revenues increased 15 percent in the quarter and 9 percent in
the year-to-date period primarily due to stronger sales of book titles. Higher
revenues from integrated marketing programs also contributed to the increase in
the year-to-date period.
Publishing operating profit increased 26 percent in the fiscal 2000 third
quarter and 23 percent for the fiscal year-to-date period versus the comparable
prior-year periods. The improvements reflected increased magazine advertising
revenues, lower per-unit magazine production costs, additional contribution
from newsstand sales and higher sales volume and margins from book publishing
operations. A volume-related increase in operating profits from integrated
marketing operations also contributed to the improved performance in the nine
months ended March 31, 2000. In addition, management's overall expense control
efforts contributed to the improvement in both periods. Looking forward, the
aforementioned investment spending related to the circulation initiatives is
expected to result in no growth, and possibly a decline, in publishing
operating profits in the company's fourth quarter compared to the fiscal 1999
fourth quarter.
Major suppliers increased paper prices approximately 5-7 percent, depending on
the grade of paper, on April 1, 2000. This followed an increase of similar
magnitude on October 1, 1999 that resulted in higher average paper prices in
the fiscal third quarter compared to a year earlier. Average paper prices in
the year-to-date period remain slightly favorable to the prior-year period. In
early calendar year 2000, the United States Postal Service filed a rate case
proposing a 15 percent increase in the cost of mailing periodicals. Management
views this increase as excessive and has been working diligently, in part
through trade organizations, to attempt to moderate the increase, which is
anticipated to be effective in January 2001. The Postal Rate Commission, which
determines the actual rate changes, has also expressed concern over the
proposed increase for periodicals and has requested additional evidence from
the Postal Service to support its rate case.
Broadcasting
- ------------ Three Months Nine Months
Ended March 31 Ended March 31
------------------- -------------------
2000 1999 2000 1999
(In thousands) -------- -------- -------- --------
Revenues
---------
Advertising $ 60,984 $ 61,176 $201,283 $184,176
Other 1,866 1,874 5,315 5,961
-------- -------- -------- --------
Total revenues $ 62,850 $ 63,050 $206,598 $190,137
======== ======== ======== ========
Operating profit $ 7,930 $ 14,728 $ 42,707 $ 53,703
======== ======== ======== ========
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<PAGE>
Including revenues from WGNX-Atlanta, acquired on March 1, 1999, revenues
decreased slightly in the fiscal 2000 third quarter but increased 9 percent in
the nine months ended March 31, 2000 compared to the prior-year periods.
Excluding the impact of that acquisition, comparable revenues declined 6
percent in the quarter and less than 1 percent in the nine-month period.
Management believes television advertising revenues were adversely affected by
weak prime-time ratings for the FOX network and increased television
advertising inventory in general. Both the ABC and FOX networks have made
additional spots available to most of their affiliates over the past year,
increasing the amount of inventory available to advertisers. An approximate $6
million decline in political advertising revenues also affected the
year-to-date comparisons. Most of the company's comparable stations reported
lower advertising revenues in both the quarter and year-to-date periods. The
notable exception was KVVU-Las Vegas that continues to benefit from a healthy
growth market and strong ratings. Looking forward to the fiscal fourth
quarter, advertising bookings are currently pacing up in the low-single digit
range, on a percentage basis, versus the prior-year quarter. The broadcasting
industry continues to experience month-to-month volatility. Pacing data is
based on current information and actual results may differ.
Operating profit declined from $14.7 million in the fiscal 1999 third quarter
to $7.9 million in the current quarter. In the nine months ended March 31,
2000, operating profits were $42.7 million versus $53.7 million in the
prior-year period. The decline in operating profits in both periods reflected
the weak revenue performance of comparable stations, continuing investments in
WGNX-Atlanta, and investments in news expansion and improvement across the
comparable stations.
Liquidity and Capital Resources
Percent
Nine months ended March 31 2000 1999 Change
-------------------------- --------- -------- -------
(In thousands)
Net earnings $ 68,298 $ 66,321 3 %
========= ========= ====
Cash flows from operations $ 85,457 $ 85,467 --
========= ========= ====
Cash flows from investing $ (31,679) $(378,866) 92 %
========= ========= ====
Cash flows from financing $ (50,501) $ 319,151 nm
========= ========= ====
Net cash flows $ 3,277 $ 25,752 (87)%
========= ========= ====
EBITDA $ 179,101 $ 155,863 15 %
========= ========= ====
nm - not meaningful
- 15 -
<PAGE>
Cash and cash equivalents increased by $3.3 million in the first nine months of
fiscal 2000 compared to an increase in cash of $25.8 million in the comparable
prior-year period. The change reflected increased use of cash for capital
expenditures in the current period. In addition, prior-year results included
proceeds from the disposition of the company's real estate operations. Total
cash provided by operating activities showed little change from 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 2000 increased 15 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, 2000, 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 certain financial covenants
related to debt levels and coverage ratios. As of March 31, 2000, 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 March 31, 2000 was approximately 6.5
percent.
In the nine months ended March 31, 2000, the company spent $42.3 million to
repurchase an aggregate of nearly 1.3 million shares of Meredith Corporation
common stock at then current market prices in conjunction with the company's
ongoing stock repurchase program. This compares with spending of $40.9 million
for the repurchase of an aggregate of approximately 1.0 million shares in the
comparable prior-year period. The current period totals include the repurchase
of 271,000 shares under put option agreements entered into on August 1, 1998.
As of March 31, 2000, the company had put option agreements to repurchase
approximately 1.3 million shares. These agreements expire in July 2000.
On November 8, 1999, the board authorized the repurchase of up to 1 million
additional shares subject to market conditions. On March 27, 2000, the board
authorized the repurchase of an additional 2 million shares through public and
private transactions. Based on management's belief that the stock is
undervalued at current levels, the company has increased its share repurchase
activity. As of March 31, 2000, approximately 3.5 million shares could be
repurchased under existing authorizations by the board of directors. The
company expects to continue to repurchase shares from time to time in the
- 16 -
<PAGE>
foreseeable future, subject to market conditions. The status of this program is
reviewed at each quarterly board of directors meeting.
Dividends paid in the first nine months of fiscal 2000 were $11.9 million, or
23 cents per share, compared with $11.2 million, or 21.5 cents per share, in
the prior-year period. In January 2000, the board of directors increased the
quarterly dividend by 7 percent (one-half cent per share) to 8.0 cents per
share effective with the dividend payable on March 15, 2000. On an annual
basis, the effect of this quarterly dividend increase would be to increase
dividends paid by approximately $1.0 million at the current number of shares
outstanding.
Spending for property, plant and equipment increased to $29.6 million in the
first nine months of fiscal 2000 from $16.9 million in the prior-year period.
The increase primarily resulted from higher current-year spending for the
construction of a new broadcasting facility at KPDX-Portland, the purchase of
land for a new broadcasting facility at WGNX-Atlanta and equipment for
broadcasting news expansion and the conversion to digital technology at several
television stations. Total capital expenditures in fiscal 2000 are expected to
increase substantially from the fiscal 1999 spending level. 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 concerned the inability of information and noninformation
systems to recognize and process date-sensitive information after 1999 due to
the use of only the last two digits to refer to a year. Management undertook
significant efforts to identify, remediate and test applicable systems and
equipment. In addition, management monitored the progress of material third
parties in their efforts to become Year 2000 ready. Readers are referred to
the company's Form 10-K for the year ended June 30, 1999, for a more complete
description of these efforts. As of the date of this filing, the company has
not experienced any material adverse consequences related to Year 2000 failures
of the company's or material third parties' systems or equipment.
Through March 31, 2000, the company has spent approximately $3.25 million to
address Year 2000 issues. No further costs are expected. The spending
consisted primarily of costs for the remediation of internal systems and
broadcasting equipment. The majority of the internal system remediation
efforts related to staff costs of on-staff systems engineers and, therefore,
were not incremental costs. Funds for these costs were provided by the
operating cash flows of the company.
- 17 -
<PAGE>
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 agreements 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 fair market value of $1.9 million compared to the current fair
market value of $4.5 million at March 31, 2000.
At March 31, 2000, the company had put option agreements which may require the
company to repurchase up to 1.3 million common shares. The risk to the company
of an increase in share price is from a liquidity perspective. Based on the
March 31, 2000 closing price, a 10 percent increase in share price would cause
the potential repurchase cost for these put options to increase by $3.5
million.
There has been no material change in the market risk associated with program
rights payable since June 30, 1999.
Item 5. Other Information
On March 1, 2000, Suku V. Radia joined Meredith as Vice President and Chief
Financial Officer. Mr. Radia had been the Managing Partner of the Des Moines
office of KPMG LLP, a global professional services firm, since 1993. He
replaces Stephen M. Lacy who was named President of the newly created Meredith
Interactive and Integrated Marketing Group on March 8, 2000. Meredith had
previously announced that Mr. Lacy would be assuming a senior leadership
position in the company's publishing business.
On March 29, 2000, Cary D. Jones was named President of the Meredith
Broadcasting Group, replacing John P. Loughlin who resigned to pursue another
career opportunity. Mr. Jones had previously served as a Meredith Broadcasting
Group General Manager with responsibility for three of the company's television
stations. He has nearly 30 years experience in the broadcasting and advertising
business.
- 18 -
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27) Financial Data Schedule
(b) Reports on Form 8-K
The company filed a report on Form 8-K on March 15, 2000, reporting under
Item 5 that the company had announced several strategic initiatives and the
related financial impact of those initiatives.
- 19 -
<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
(Suku V. Radia)
Suku V. Radia
Vice President - Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 11, 2000
- 20 -
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
27 Financial Data Schedule
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at March 31, 2000 and the Consolidated Statement of
Earnings for the nine months ended March 31, 2000 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-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,306
<SECURITIES> 0
<RECEIVABLES> 161,813
<ALLOWANCES> 0
<INVENTORY> 37,721
<CURRENT-ASSETS> 303,001
<PP&E> 313,744
<DEPRECIATION> 142,412
<TOTAL-ASSETS> 1,472,986
<CURRENT-LIABILITIES> 343,384
<BONDS> 485,000
0
0
<COMMON> 49,522
<OTHER-SE> 348,944
<TOTAL-LIABILITY-AND-EQUITY> 1,472,986
<SALES> 813,476
<TOTAL-REVENUES> 813,476
<CGS> 337,775
<TOTAL-COSTS> 337,775
<OTHER-EXPENSES> 39,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,706
<INCOME-PRETAX> 114,210
<INCOME-TAX> 45,912
<INCOME-CONTINUING> 68,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,298
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.29
</TABLE>
