UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 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 January 31, 2000
Common Stock, $1 par value 40,476,963
Class B Stock, $1 par value 10,959,002
----------
Total Common and Class B Stock 51,435,965
==========
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<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
December 31 June 30
Assets 1999 1999
- ------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 18,081 $ 11,029
Receivables, net 153,664 138,723
Inventories 33,940 33,511
Subscription acquisition costs 37,723 41,396
Broadcast rights 26,417 14,644
Other current assets 20,771 16,872
---------- ----------
Total current assets 290,596 256,175
Property, plant and equipment 299,651 294,310
Less accumulated depreciation (136,983) (134,554)
---------- ----------
Net property, plant and equipment 162,668 159,756
Subscription acquisition costs 31,308 31,182
Broadcast rights 16,419 10,230
Other assets 31,091 29,248
Goodwill and other intangibles (at original
cost less accumulated amortization of
$134,814 on December 31 and $120,445 on June 30) 922,438 936,805
---------- ----------
Total assets $1,454,520 $1,423,396
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE>
(Unaudited)
December 31 June 30
Liabilities and Stockholders' Equity 1999 1999
- ------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Current portion of long-term debt $ 45,000 $ 45,000
Current portion of long-term broadcast
rights payable 31,979 21,123
Accounts payable 30,630 55,018
Accrued taxes and expenses 86,179 87,229
Unearned subscription revenues 137,194 135,745
---------- ----------
Total current liabilities 330,982 344,115
Long-term debt 485,000 485,000
Long-term broadcast rights payable 18,459 13,449
Unearned subscription revenues 94,160 90,276
Deferred income taxes 41,486 33,578
Other noncurrent liabilities 47,174 43,673
---------- ----------
Total liabilities 1,017,261 1,010,091
---------- ----------
Temporary equity: Put option agreements
Common stock, 1,389,140 shares outstanding at
December 31 and 1,535,140 shares at June 30 57,910 53,147
---------- ----------
Stockholders' equity:
Series preferred stock, par value $1 per share
Authorized 5,000,000 shares; none issued -- --
Common stock, par value $1 per share
Authorized 80,000,000 shares; issued and
outstanding 39,187,571 at December 31
(excluding 27,747,819 shares held in treasury)
and 39,220,509 at June 30 (excluding
27,362,776 shares held in treasury). 39,187 39,220
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,966,673 at December 31 and
11,063,708 at June 30. 10,967 11,064
Retained earnings 333,114 312,553
Accumulated other comprehensive income (751) (625)
Unearned compensation (3,168) (2,054)
---------- ----------
Total stockholders' equity 379,349 360,158
---------- ----------
Total liabilities and stockholders' equity $1,454,520 $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 Six Months
Ended December 31 Ended December 31
------------------- -------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------
(In thousands except per share)
Revenues:
Advertising $157,882 $150,600 $314,653 $293,538
Circulation 68,530 69,066 137,817 136,567
All other 39,717 35,258 74,063 70,656
-------- -------- -------- --------
Total revenues 266,129 254,924 526,533 500,761
-------- -------- -------- --------
Operating costs and expenses:
Production, distribution and edit 108,361 102,267 216,358 209,170
Selling, general & administrative 93,083 94,836 193,830 189,823
Depreciation and amortization 13,078 10,018 26,021 20,060
-------- -------- -------- --------
Total operating costs and expenses 214,522 207,121 436,209 419,053
-------- -------- -------- --------
Income from operations 51,607 47,803 90,324 81,708
Gain from disposition -- -- -- 2,375
Interest income 147 132 437 170
Interest expense (9,181) (3,875) (18,049) (7,686)
-------- -------- -------- --------
Earnings before income taxes 42,573 44,060 72,712 76,567
Income taxes 17,114 18,637 29,230 32,333
-------- -------- -------- --------
Net earnings $ 25,459 $ 25,423 $ 43,482 $ 44,234
======== ======== ======== ========
Basic earnings per share $ 0.49 $ 0.48 $ 0.84 $ 0.84
======== ======== ======== ========
Basic average shares outstanding 51,596 52,304 51,684 52,411
======== ======== ======== ========
Diluted earnings per share $ 0.48 $ 0.47 $ 0.82 $ 0.82
======== ======== ======== ========
Diluted average shares outstanding 53,303 53,849 53,338 54,021
======== ======== ======== ========
Dividends paid per share $ 0.075 $ 0.070 $ 0.150 $ 0.140
======== ======== ======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE>
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 31 1999 1998
- ---------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 43,482 $ 44,234
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 26,021 20,060
Amortization of broadcast rights 16,020 15,651
Payments for broadcast rights (18,670) (14,778)
Gain from disposition, net of taxes -- (1,425)
Changes in assets and liabilities:
Accounts receivable (14,941) (1,040)
Inventories (429) (10,686)
Supplies and prepayments (1,719) (1,289)
Subscription acquisition costs 3,547 6,052
Accounts payable (24,388) (28,440)
Accruals 1,377 4,050
Unearned subscription revenues 5,333 (878)
Deferred income taxes 5,404 1,776
Other noncurrent liabilities 3,207 2,864
-------- --------
Net cash provided by operating activities 44,244 36,151
-------- --------
Cash flows from investing activities:
Proceeds from dispositions -- 9,922
Additions to property, plant, and equipment (14,881) (8,311)
Changes in investments and other (1,757) (2,075)
-------- --------
Net cash (used) by investing activities (16,638) (464)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt -- (8,000)
Short-term debt incurred, net -- 5,000
Debt acquisition costs -- (377)
Proceeds from common stock issued 1,712 1,628
Purchases of company stock (14,908) (31,054)
Dividends paid (7,751) (7,335)
Other 393 192
-------- --------
Net cash (used) by financing activities (20,554) (39,946)
-------- --------
Net increase (decrease) in cash and cash equivalents 7,052 (4,259)
Cash and cash equivalents at beginning of year 11,029 4,953
-------- --------
Cash and cash equivalents at end of period $ 18,081 $ 694
======== ========
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)
December 31 June 30
1999 1999
(In thousands) ----------- -----------
Federal Communications
Commission (FCC) licenses $434,647 $440,385
Goodwill 265,825 270,367
Television network affiliation
agreements 205,360 208,407
All other 16,606 17,646
-------- --------
Total unamortized portion
of intangible assets $922,438 $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 December 31, 1999 and 1998, was
$25,465 and $25,515, respectively. Total comprehensive income for the six-
month periods ended December 31, 1999 and 1998, was $43,356 and $44,532,
respectively.
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 46 percent are under the LIFO method at
December 31, 1999 and June 30, 1999.
(unaudited)
December 31 June 30
1999 1999
(In thousands) ----------- -----------
Raw materials $ 19,547 $ 17,686
Work in process 15,700 16,569
Finished goods 6,252 5,965
------- -------
41,499 40,220
Reserve for LIFO cost valuation (7,559) (6,709)
------- -------
Total $ 33,940 $ 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 Six Months
Ended December 31 Ended December 31
------------------ ------------------
1999 1998 1999 1998
(In thousands except per share) ------- ------- ------- -------
Net earnings $25,459 $25,423 $43,482 $44,234
======= ======= ======= =======
Basic average shares outstanding 51,596 52,304 51,684 52,411
Dilutive effect of stock options 1,707 1,545 1,654 1,610
------- ------- ------- -------
Diluted average shares outstanding 53,303 53,849 53,338 54,021
======= ======= ======= =======
Basic earnings per share $ .49 $ .48 $ .84 $ .84
======= ======= ======= =======
Diluted earnings per share $ .48 $ .47 $ .82 $ .82
======= ======= ======= =======
Antidilutive options excluded from the above calculations totaled 580,000
options at December 31, 1999 (with a weighted average exercise price of $40.95)
and 550,000 options at December 31, 1998 (with a weighted average exercise
price of $41.18).
Options to purchase 83,000 shares were exercised during the six months ended
December 31, 1999 (51,000 options were exercised in the six months ended
December 31, 1998).
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<PAGE>
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
5. Segment information
(unaudited) (unaudited)
Three Months Six Months
Ended December 31 Ended December 31
------------------- -------------------
1999 1998 1999 1998
(In thousands) -------- -------- -------- --------
Revenues
Publishing $189,545 $182,858 $382,785 $373,674
Broadcasting 76,584 72,066 143,748 127,087
-------- -------- -------- --------
Total revenues $266,129 $254,924 $526,533 $500,761
======== ======== ======== ========
Intersegment revenues are not material.
Operating profit
Publishing $ 33,440 $ 26,762 $ 62,077 $ 51,581
Broadcasting 21,471 25,915 34,777 38,975
Unallocated corporate expense (3,304) (4,874) (6,530) (8,848)
-------- -------- -------- --------
Income from operations $ 51,607 $ 47,803 $ 90,324 $ 81,708
======== ======== ======== ========
Depreciation and amortization
Publishing $ 2,884 $ 2,843 $ 5,763 $ 5,694
Broadcasting 9,666 6,699 19,188 13,379
Unallocated corporate 528 476 1,070 987
-------- -------- -------- --------
Total depreciation
and amortization $ 13,078 $ 10,018 $ 26,021 $ 20,060
======== ======== ======== ========
EBITDA
Publishing $ 36,324 $ 29,605 $ 67,840 $ 57,275
Broadcasting 31,137 32,614 53,965 52,354
Unallocated corporate (2,776) (4,398) (5,460) (7,861)
-------- -------- -------- -------
Total EBITDA $ 64,685 $ 57,821 $116,345 $101,768
======== ======== ======== ========
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
The following discussion presents the key factors that have affected the
company's business in the second quarter and first six 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 Six Months
Ended December 31 Ended December 31
------------------- -------------------
1999 1998 1999 1998
(In thousands except per share) -------- -------- -------- --------
Total revenues $266,129 $254,924 $526,533 $500,761
======== ======== ======== ========
Income from operations $ 51,607 $ 47,803 $ 90,324 $ 81,708
======== ======== ======== ========
Earnings before
nonrecurring items $ 25,459 $ 25,423 $ 43,482 $ 42,809
======== ======== ======== ========
Net earnings $ 25,459 $ 25,423 $ 43,482 $ 44,234
======== ======== ======== ========
Diluted earnings per share
before nonrecurring items $ 0.48 $ 0.47 $ 0.82 $ 0.79
======== ======== ======== ========
Diluted earnings per share $ 0.48 $ 0.47 $ 0.82 $ 0.82
======== ======== ======== ========
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<PAGE>
Net earnings of $25.5 million, or 48 cents per diluted share, were recorded in
the quarter ended December 31, 1999, compared to net earnings of $25.4 million,
or 47 cents per diluted share, in the prior-year second quarter. For the six
months ended December 31, 1999, net earnings were $43.5 million, or 82 cents
per diluted share, compared to earnings before nonrecurring items of $42.8
million, or 79 cents per diluted share, in the prior-year period. Net earnings
for the six months ended December 31, 1998, 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 2
percent for the second quarter and 4 percent for the six-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 5 cents per share in the
quarter and 13 cents per share in the six months ended December 31, 1999. This
estimate includes the after-tax effects of the station's operating profit 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.
Second quarter revenues increased 4 percent and year-to-date revenues were up 5
percent from the comparative prior-year periods. Adjusting for the impacts of
the March 1999 acquisition of WGNX-TV in Atlanta and the November 1998 closing
of Country America magazine, comparable revenues increased 2 percent in the
second quarter and 4 percent in the six-month period. Increased magazine
advertising, integrated marketing and consumer book revenues contributed to the
growth in both periods. In the year-to-date period, circulation revenues also
increased. These increases were partially offset by the absence of nearly $6
million in prior year second quarter broadcasting political advertising due to
the biennial nature of political elections.
Second quarter and year-to-date operating costs increased 4 percent from the
respective prior-year periods. The increases resulted primarily from the
acquisition of WGNX-Atlanta and higher costs associated with news expansion in
the broadcasting operations. Lower costs resulting from management's expense
control efforts partially offset the increases. The operating profit margin
rose from 18.8 percent of revenues in the prior-year second quarter to 19.4
percent in the current-year quarter. For the six months ended December 31,
1999, the operating profit margin was 17.2 percent compared to 16.3 percent in
the prior-year period.
Net interest expense increased in both the quarter and the six-month period as
a result of debt incurred for the acquisition of WGNX-Atlanta.
The effective tax rate declined in both the quarter and the six-month period
due to lower effective state rates and the diminished impact of nondeductible
items because of an increase in projected earnings.
Although the financial impact is not significant, internet activity of the
company's Web sites remains strong. Page views, visits, registrations and
unique visitors to the sites continue to increase. According to Media Metrix,
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<PAGE>
the company's Web sites had more than 1 million unique visitors in November
1999. Traffic continues to increase at BHG.com, with 774,000 unique visitors
in November 1999 versus 680,000 in October and 553,000 in September.
Publishing
- ----------
Three Months Six Months
Ended December 31 Ended December 31
------------------- -------------------
(In thousands) 1999 1998 1999 1998
-------- -------- -------- --------
Revenues
--------
Advertising $ 82,955 $ 80,115 $174,354 $170,538
Circulation 68,530 69,066 137,817 136,567
Other 38,060 33,677 70,614 66,569
-------- -------- -------- --------
Total revenues $189,545 $182,858 $382,785 $373,674
======== ======== ======== ========
Operating profit $ 33,440 $ 26,762 $ 62,077 $ 51,581
======== ======== ======== ========
Publishing revenues increased 4 percent in the second quarter and 2 percent in
the six-month period compared to the respective prior-year periods. Excluding
the impact of the closing of Country America magazine, revenues increased 5
percent in the quarter and 4 percent in the six-month period primarily
reflecting growth in advertising, book and integrated marketing revenues.
Magazine advertising revenues grew 5 percent in the quarter and 4 percent in
the year-to-date period excluding the Country America impact. The second
quarter increase resulted from growth at Better Homes and Gardens, MORE and the
special interest publications as well as the addition of advertising revenues
from Shop Online 1-2-3. Shop Online 1-2-3 is an Internet buying guide that was
distributed as a supplement to 5 million subscribers of 10 Meredith titles. It
focused on holiday gift shopping. In the six months ended December 31, 1999,
Better Homes and Gardens, MORE, Crayola Kids, Traditional Home and Midwest
Living magazines all reported higher advertising revenues compared to the
prior-year period largely due to higher net revenues per advertising page. In
both periods the increases were partially offset by lower advertising revenues
at Ladies Home Journal and Country Home magazines resulting primarily from
fewer advertising pages. Total magazine ad pages increased slightly in both
periods. Looking forward to the company's fiscal third quarter, management
currently expects comparable advertising pages to increase in the high-single
digit range on a percentage basis with stronger net revenues per page. This is
based on current information and could change during the quarter.
Magazine circulation revenues increased in both the quarter and the fiscal
year-to-date period excluding the Country America impact. The increases
reflected the addition of revenues from a new title currently being tested -
Hometown Cooking magazine, a larger subscriber base for MORE magazine and an
additional issue of Country Home magazine in the six-month time period.
Increased newsstand sales of the special interest publications also
contributed.
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<PAGE>
Other publishing revenues grew 13 percent in the quarter and 6 percent in the
six-month period primarily due to increased sales volumes in the consumer book
and integrated marketing areas.
Publishing operating profit was up 25 percent in the fiscal 2000 second quarter
and 20 percent for the fiscal year-to-date versus the comparable prior-year
periods. The improvement resulted from higher advertising revenues, lower
paper and processing costs, lower departmental spending and increased
contribution from the integrated marketing and book publishing operations.
Individual titles reporting strong growth included Better Homes and Gardens,
Midwest Living, Renovation Style, MORE and the special interest publications.
The addition of Shop Online 1-2-3 also contributed to the operating profit
improvement. Looking forward, management may accelerate subscription promotion
mailings into fiscal 2000 and early fiscal 2001 to more effectively manage
circulation efforts.
Major suppliers increased paper prices from 5 to 7 percent, depending on the
grade of paper, on October 1, 1999. However, because of the timing of price
changes over the last year, the average cost of paper in the fiscal second
quarter and the six months ended December 31, 1999 was less than in the
respective prior-year periods. Management expects the third quarter average
price of paper to be flat with the prior year and believes there may be further
upward price movement in calendar 2000. The United States Postal Service
recently filed a rate case proposing a 15 percent increase in the cost of
mailing periodicals. Management views this increase as excessive and plans to
work diligently, in part through trade organizations such as Magazine
Publishers Association, to attempt to moderate the proposed increase, which is
anticipated to be effective in January 2001.
Broadcasting
- ------------
Three Months Six Months
Ended December 31 Ended December 31
------------------- -------------------
(In thousands) 1999 1998 1999 1998
-------- -------- -------- --------
Revenues
--------
Advertising $ 74,927 $ 70,485 $140,299 $123,000
Other 1,657 1,581 3,449 4,087
-------- -------- -------- --------
Total revenues $ 76,584 $ 72,066 $143,748 $127,087
======== ======== ======== ========
Operating profit $ 21,471 $ 25,915 $ 34,777 $ 38,975
======== ======== ======== ========
Revenues increased 6 percent in the fiscal 2000 second quarter and 13 percent
in the six months ended December 31, 1999 compared to the prior-year periods
primarily due to the March 1999 acquisition of WGNX-Atlanta. Comparable
revenues (excluding WGNX-TV) declined 6 percent in the second quarter and
increased 2 percent in the six-month period. The decline in second quarter
revenues reflected the absence of nearly $6 million in net political
- 13 -
<PAGE>
advertising revenues in the current quarter due to the biennial nature of
political elections. Excluding the political advertising impact, comparable
revenues increased 2 percent in the quarter and 8 percent in the year-to-date
period. In the quarter, strong revenue growth, excluding political
advertising, was reported at KVVU-Las Vegas, WFSB-Hartford/New Haven, and
WNEM-Flint/Saginaw/Bay City. However, softness in national advertising sales
at WOFL-Orlando, KPDX-Portland and WHNS-Greenville largely offset these gains.
In the year-to-date period, nearly all of the stations reported increased
revenues when excluding the impact of political advertising. Management
believes news expansion activities, ratings gains and the strength of the
company's branded cross-promotional efforts drove the improvements. In
addition, prior-year first quarter advertising revenues at all stations were
affected by softness in national advertising and reduced ad spending by General
Motors and local automobile dealers due to the GM labor dispute.
Operating profits decreased 17 percent in the second quarter and 11 percent for
the six months ended December 31, 1999 compared to the prior-year periods.
Excluding the impact of newly acquired WGNX-Atlanta, comparable broadcasting
operating profit decreased 19 percent for the quarter and 7 percent for the
year-to-date period. The second quarter decline was attributable to the
absence of political advertising revenues as operating costs were held
virtually flat with the prior-year quarter. In the six-month period, increased
costs for news expansions, sales activities and programming more than offset
the slight revenue increase. Looking forward to the fiscal third quarter,
advertising bookings are currently pacing down in the low to mid-single digit
range versus the prior-year quarter. The broadcast industry continues to
experience month-to-month volatility. The pacings data is based on current
information and actual results could differ.
Liquidity and Capital Resources
Percent
Six months ended December 31 1999 1998 Change
- ---------------------------- --------- --------- -------
(In thousands)
Net earnings $ 43,482 $ 44,234 (2)%
========= ========= ====
Cash flows from operations $ 44,244 $ 36,151 22 %
========= ========= ====
Cash flows from investing $(16,638) $ (464) nm
========= ========= ====
Cash flows from financing $(20,554) $ (39,946) 49 %
========= ========= ====
Net cash flows (use) $ 7,052 $ (4,259) nm
========= ========= ====
EBITDA $ 116,345 $ 101,768 14 %
========= ========= ====
nm - not meaningful
- 14 -
<PAGE>
Cash and cash equivalents increased by $7.1 million in the first six months of
fiscal 2000 compared to a decrease in cash of $4.3 million in the comparable
prior-year period. The change reflected higher cash flows from operations and
lower spending for stock repurchases in the current period. These factors were
partially offset by increased use of cash for capital expenditures in the
current period. In addition, prior-year first quarter results included
proceeds from the disposition of the company's real estate operations. The
increase in operating cash flows reflected higher earnings before depreciation
and amortization and favorable changes in working capital requirements.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. EBITDA for the first six months
of fiscal 2000 increased 14 percent from the prior-year period due to improved
operating results. EBITDA is not adjusted for all noncash expenses or for
working capital changes, capital expenditures or other investment requirements.
EBITDA should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
At December 31, 1999, debt outstanding consisted of $330 million outstanding
under two variable-rate unsecured amortizing term loans and $200 million
outstanding in fixed-rate unsecured senior notes. Funds for the payment of
interest and principal on the debt are expected to be provided by cash
generated from future operating activities. The debt agreements include
certain financial covenants related to debt levels and coverage ratios. As of
December 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 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 December 31, 1999 was approximately 6.5
percent.
In the first six months of fiscal 2000, the company spent $14.9 million to
repurchase an aggregate of 405,000 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 $31.1 million for the
repurchase of 750,000 shares in the comparable prior-year period. The current
period totals include the repurchase of 146,000 shares under put option
agreements entered into on August 1, 1998. As of December 31, 1999, the
company had put option agreements to repurchase approximately 1.4 million
shares.
On November 8, 1999, the board authorized the repurchase of up to 1 million
additional shares subject to market conditions. At December 31, 1999,
approximately 2.4 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 foreseeable future, subject to
market conditions. The status of the company's stock repurchase program is
reviewed at each quarterly board of directors meeting.
- 15 -
<PAGE>
Dividends paid in the first six months of fiscal 2000 were $7.8 million, or 15
cents per share, compared with $7.3 million, or 14 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 $14.9 million in the
first six months of fiscal 2000 from $8.3 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, 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 more than 50 percent 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, common to most companies, concerns 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. This problem could have affected information systems (software and
hardware) and other equipment that relies on microprocessors. 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.
While management does not expect any future material issues related to Year
2000 problems to occur, the company will continue to monitor these issues and
the related costs if they occur.
Through December 31, 1999, the company has spent approximately $3.25 million to
address Year 2000 issues. Total costs to address Year 2000 issues are
currently estimated not to exceed $3.5 million. The spending consists
primarily of costs for the remediation of internal systems and broadcasting
equipment. Funds for these costs have been, and any future costs are expected
to be, provided by the operating cash flows of the company. The majority of
the internal system remediation efforts relate to staff costs of on-staff
systems engineers and, therefore, were not incremental costs.
- 16 -
<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 contracts to effectively fix the interest
rate on a substantial portion of its bank debt. Therefore, there is no
material earnings or liquidity risk associated with the interest rate swap
contracts. The fair market value of the interest rate swaps is the estimated
amount, based on discounted cash flows, the company would pay or receive to
terminate the swap contracts. A 10 percent decrease in interest rates would
result in a fair market value of $1.2 million compared to the current fair
market value of $4.1 million at December 31, 1999.
At December 31, 1999, the company had put option agreements which may require
the company to repurchase up to 1.4 million common shares. The risk to the
company of an increase in share price is from a liquidity perspective. Based
on the December 31, 1999 closing price, a 10 percent increase in share price
would cause the potential repurchase cost for these put options to increase by
$5.8 million.
There has been no material change in the market risk associated with program
rights payable since June 30, 1999.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on November 8, 1999, at
the Company's headquarters in Des Moines, Iowa.
(b) The name of each director elected at the Annual Meeting is shown under
Item 4.(c)(1). The other directors whose terms of office continued after
the meeting were: Herbert M. Baum, Mary Sue Coleman, Frederick B. Henry,
Joel W. Johnson, William T. Kerr, Richard S. Levitt, E. T. Meredith III,
and Nicholas L. Reding.
- 17 -
<PAGE>
(c)(1) Proposal 1: Election of four Class I directors for terms expiring in
2002. Each nominee was elected in uncontested elections by the votes
cast as follows:
Number of shareholder votes*
----------------------------
For Withheld
----------- ----------
Class I directors
Robert E. Lee 126,006,767 479,652
Philip A. Marineau 125,928,877 557,542
Jack D. Rehm 125,962,144 524,275
Christina A. Gold 125,849,738 636,681
*As specified on the proxy card, if no vote For or Withhold was
specified, the shares were voted For the election of the named
director.
(c)(2) Proposal 2: Reaffirmation of previously approved business criteria,
classes of eligible participants and maximum annual incentives awarded
under the Company's Supplement to its Management Incentive Plan.
Proposal 2 was approved by the votes cast as follows:
For Against Abstain
---------- ---------- ----------
124,548,588 1,241,799 696,032
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27) Financial Data Schedule
99) Additional financial information from the Company's second quarter
press release dated January 18, 2000.
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter ended December 31, 1999.
- 18 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEREDITH CORPORATION
Registrant
(Stephen M. Lacy)
Stephen M. Lacy
Vice President - Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: February 14, 2000
- 19 -
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
27 Financial Data Schedule
99 Additional financial information from the Company's second
quarter press release dated January 18, 2000.
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at December 31, 1999 and the Consolidated Statement
of Earnings for the six months ended December 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 18,081
<SECURITIES> 0
<RECEIVABLES> 153,664
<ALLOWANCES> 0
<INVENTORY> 33,940
<CURRENT-ASSETS> 290,596
<PP&E> 299,651
<DEPRECIATION> 136,983
<TOTAL-ASSETS> 1,454,520
<CURRENT-LIABILITIES> 330,982
<BONDS> 485,000
0
0
<COMMON> 50,154
<OTHER-SE> 329,195
<TOTAL-LIABILITY-AND-EQUITY> 1,454,520
<SALES> 526,533
<TOTAL-REVENUES> 526,533
<CGS> 216,358
<TOTAL-COSTS> 216,358
<OTHER-EXPENSES> 26,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,049
<INCOME-PRETAX> 72,712
<INCOME-TAX> 29,230
<INCOME-CONTINUING> 43,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,482
<EPS-BASIC> .84
<EPS-DILUTED> .82
</TABLE>
Exhibit 99
----------
MEREDITH CORPORATION
FISCAL 2000 SECOND QUARTER
EARNINGS PER SHARE AT-A-GLANCE
(Note: All figures are adjusted for stock splits)
- -- The chart below depicts comparable quarterly and fiscal-year diluted
earnings per share (EPS) before nonrecurring items and discontinued
operations.
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Fiscal Year
-------- -------- -------- -------- -----------
F1993 .06 .09 .10 .10 .35
F1994 .08 .13 .16 .13 .50
F1995 .14 .19 .18 .20 .71
F1996 .17 .22 .24 .28 .91
F1997 .22 .31 .33 .36 1.22
F1998 .27 .40 .37 .42 1.46
F1999 .32 .47 .41 .44 1.64
F2000 .34 .48
- -- Net earnings for the fiscal 2000 second quarter ended December 31, 1999,
were 48 cents per share, compared to 47 cents per share in the prior-year
second quarter.
- -- For the first half of fiscal 2000, earnings were 82 cents per share. For
the first half of fiscal 1999, earnings before nonrecurring items were 79
cents per share.
- -- Fiscal 2000 second quarter and year-to-date earnings include dilution of 5
cents per share and 13 cents per share, respoectively, from the March 1,
1999, acquisition of WGNX-TV (CBS,Atlanta).
