UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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)
Registrant's telephone number, including area code: 515 - 284-3000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $1 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Title of class - Class B Stock, par value $1
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The registrant estimates the aggregate market value of voting stock held by
non-affiliates of the registrant at July 31, 2000, was $1,139,186,000 based
upon the closing price on the New York Stock Exchange at that date.
Number of common shares outstanding at July 31, 2000: 39,533,108
Number of class B shares outstanding at July 31, 2000: 10,851,320
----------
Total common and class B shares outstanding 50,384,428
==========
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DOCUMENT INCORPORATED BY REFERENCE
Description of document Part of the Form 10-K
------------------------------------ --------------------------------
Certain portions of the Registrant's
Proxy Statement for the Annual Part III to the extent described
Meeting of Stockholders to be therein.
held on November 13, 2000
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PART I
Item 1. Business
General
-------
Meredith Corporation was founded in 1902 by Edwin Thomas Meredith and
incorporated in Iowa in 1905. Since its beginnings in agricultural publishing,
the company has expanded to include mass audience and special interest
publications designed to serve the home and family market. In 1948, Meredith
entered the television broadcasting business. The company now owns and
operates television stations in twelve locations across the continental United
States. These publishing and broadcasting businesses and associated trademarks
have been the core of Meredith's success. In addition, the company has
utilized these assets to expand into interactive and integrated marketing
operations.
The company has two business segments: publishing and broadcasting. The
publishing segment includes magazine and book publishing, integrated marketing,
interactive media, brand licensing, and other related operations. Prior to
fiscal 1999, the publishing segment also included the residential real estate
franchising operations that were sold effective July 1, 1998. The broadcasting
segment includes the operations of 12 network-affiliated television stations
and syndicated television program marketing and development. Virtually all of
the company's revenues are generated and assets reside within the United
States. There are no material intersegment transactions.
The company's largest source of revenues is magazine and television
advertising. Television advertising tends to be seasonal in nature with higher
revenues traditionally reported in the second and fourth fiscal quarters, and
cyclical increases during certain periods, such as key political elections and
network coverage of major events like the Olympic Games.
Trademarks (e.g. Better Homes and Gardens, Ladies' Home Journal) are very
important to the company's publishing segment. Local recognition of television
station call letters is important in maintaining audience shares in the
broadcasting segment. Name recognition and the public image of these
trademarks are vital to both ongoing operations and the introduction of new
businesses. Accordingly, the company aggressively defends it trademarks.
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The company did not have any material expenses for research and development
during any of the past three fiscal years.
There is no material effect on capital expenditures, earnings or the
competitive position of the company regarding compliance with federal, state
and local provisions relating to the discharge of materials into the
environment and to the protection of the environment.
The company had 2,703 employees at June 30, 2000 (including 143 part-time
employees).
Business Developments
---------------------
In March 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 - and expansion and acceleration of
Internet-related efforts on a company-wide basis. 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. These operations are an
integral part of the company's Publishing and Broadcasting Groups and are
reported in the financial results of those segments.
Meredith plans to create the premier home and family Internet site using its
award-winning flagship site - bhg.com - as a launch platform. This will
include the development of esxtensive and unique content and applications in
its core content areas of decorating, food, home improvement and remodeling.
The company also plans to expand its Internet presence and applications at
several of its broadcast stations. In addition, several strategic
relationships and alliances have been undertaken to enhance Meredith's Internet
presence, including investments in or alliances with:
-- HomePortfolio.com - a leading Internet destination for premium home-
design products.
-- ThirdAge Media - an integrated media and direct marketing eNetwork for
adults 45 years and older.
-- XSAg.com - an Internet trading exchange for manufacturers, distributors,
dealers and growers to buy and sell agricultural inputs.
-- Golf.com - an online provider of comprehensive golf information and
coverage.
-- America Online - a leader in interactive services, Web brands, Internet
technologies and e-commerce services.
The March 2000 announcement also included initiatives designed to grow the
profit contribution of circulation activities. At the same time Meredith
announced the closing of certain operations that no longer fit the company's
business objectives.
The information required by this item regarding financial information about
industry segments is set forth on pages F-44 to F-46 of this Form 10-K and is
incorporated herein by reference.
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Description of Business
-----------------------
PUBLISHING
----------
Years ended June 30 2000 1999 1998
-------------------------------------------------------------------
(In thousands)
Publishing revenues $817,715 $774,031 $769,197
======== ======== ========
Publishing operating profit $139,905 $119,581 $101,145
======== ======== ========
Publishing represented 75 percent of the company's consolidated revenues and 70
percent of consolidated operating profit before unallocated corporate expenses
in fiscal 2000. Operating profit in fiscal 2000 is reported before
nonrecurring charges.
Magazine
--------
Magazine operations account for more than 85 percent of the revenues and
operating profit of the publishing segment and include more than 20 magazine
brands that appeal primarily to consumers in the home and family market. Key
advertising and circulation information for major subscription titles is as
follows:
August
Title Frequency Rate Base Ad Pages
-------------------------------------------------------------------
Better Homes and Gardens - Home service
Fiscal 2000 Monthly 7,600,000 2,006
Fiscal 1999 Monthly 7,600,000 1,946
Ladies' Home Journal - Women's service
Fiscal 2000 Monthly 4,100,000 1,388
Fiscal 1999 Monthly 4,500,000 1,397
Country Home - Home decorating
Fiscal 2000 8x/year 1,000,000 770
Fiscal 1999 8x/year* 1,000,000 701
Midwest Living - Regional travel and lifestyle
Fiscal 2000 Bimonthly 815,000 638
Fiscal 1999 Bimonthly 815,000 628
Traditional Home - Home decorating
Fiscal 2000 Bimonthly 800,000 738
Fiscal 1999 Bimonthly 800,000 645
WOOD - Woodworking projects and techniques
Fiscal 2000 9x/year 550,000 425
Fiscal 1999 9x/year 600,000 460
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MORE - Women's service (age 40+)
Fiscal 2000 Bimonthly 525,000 430
Fiscal 1999 Bimonthly 500,000 384
Family Money - Personal finance
Fiscal 2000 Bimonthly 525,000 253
Fiscal 1999 Bimonthly* 500,000 227
Successful Farming - Farm information
Fiscal 2000 12x/year 442,000 669
Fiscal 1999 12x/year 475,000 661
Golf for Women - Golf instruction and information
Fiscal 2000 Bimonthly 380,000 422
Fiscal 1999 Bimonthly 370,000 413
* Increase in frequency effective in calendar 1999, resulting in 7 issues
of Country Home and 5 issues of Family Money being published in fiscal
1999.
Rate base is the circulation guaranteed to advertisers. Actual circulation
often exceeds rate base, and is tracked by the Audit Bureau of Circulation,
which issues periodic statements for audited magazines. Ad pages are as
reported to Publisher's Information Bureau, Agricom, or if unreported, as
calculated by the publisher using a similar methodology.
Better Homes and Gardens magazine, the company's flagship, accounts for a
significant percentage of revenues and operating profit of the company and the
publishing segment. Meredith's other magazines brands, in addition to those
listed above, are Renovation Style, Country Gardens, and the crafts collection
of publications, which includes Crafts & Decorating Showcase, American
Patchwork & Quilting, Paint Decor and Scrapbooks etc. Meredith also has a 50
percent interest in a monthly Australian edition of Better Homes and Gardens
magazine.
Two new titles, Hometown Cooking and Antiques Extra, were launched in fiscal
2000. Hometown Cooking features recipes from hometown cookbooks across the
country. Antiques Extra is designed for readers seeking in-depth coverage of
antiques and collectibles. In addition, Meredith published an Internet buying
guide, Shop Online 1-2-3, that was delivered as a supplement to selected
subscribers of 10 Meredith titles.
Crayola Kids magazine was discontinued effective with the May 2000 issue.
Cross Stitch & Needlework and Decorative Woodcrafts were discontinued effective
with the July/August 2000 issues.
The company also publishes a group of Special Interest Publications, primarily
under the Better Homes and Gardens name, that are typically sold only on the
newsstand. These titles are issued from one to six times annually. Titles
published quarterly or bimonthly include Decorating, Home Plan Ideas, Kitchen
and Bath Ideas, Do It Yourself, Garden, Deck & Landscape, Quick & Easy
Decorating and Window & Wall Ideas. More than 100 issues were published in
total in fiscal 2000 in categories like decorating, do-it-yourself, home plans,
crafts, gardening, holidays and cooking.
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Advertising
-----------
Years ended June 30 2000 1999 1998
----------------------------------------------------------------------
(In thousands)
Advertising revenues $385,953 $359,123 $350,158
======== ======== ========
Advertising revenues are generated primarily from sales to clients engaged in
consumer marketing. Many of the company's larger magazines offer advertisers
different regional and demographic editions which contain the same basic
editorial material but permit advertisers to concentrate their advertising in
specific markets or to target specific audiences. The company sells two
primary types of magazine advertising: display and direct-response.
Advertisements are either run-of-press (printed along with the editorial
portions of the magazine) or inserts (preprinted forms). Most of the company's
advertising pages and revenues are derived from run-of-press display
advertising. Meredith has a group sales staff specializing in advertising
sales across titles.
Circulation
-----------
Years ended June 30 2000 1999 1998
----------------------------------------------------------------------
(In thousands)
Circulation revenues $275,642 $273,621 $271,004
======== ======== ========
Subscription revenues, the largest source of circulation revenues, are
generated through direct-mail solicitation, agencies, insert cards, the
Internet and other means. Single-copy sales also are important sources of
circulation revenues for most magazines. All of the company's subscription
magazines, except Successful Farming, are also sold by single-copy. Successful
Farming is available only by subscription to qualified farm families. Magazine
wholesalers have the right to receive credit from the company for magazines
returned to them by retailers.
Other
-----
Years ended June 30 2000 1999 1998
----------------------------------------------------------------------
(In thousands)
Other revenues $156,120 $141,287 $148,035
======== ======== ========
Other revenues include sales of books, integrated marketing and other custom
publishing projects, ancillary products and services and revenues from license
fees.
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Meredith Integrated Marketing offers advertisers and other external clients
integrated strategies that combine all of Meredith's custom capabilities.
Meredith's consumer database, which contains more than 60 million names, is the
largest domestic database among media companies and enables magazine and
television advertisers to precisely target marketing campaigns. These
marketing programs are important because they provide revenue sources that are
independent of advertising and circulation. Fiscal 2000 clients include The
Home Depot USA, Inc., Kraft Foods, Nestle USA, Inc., Lutheran Brotherhood and
The Iams Company.
The company publishes and markets a line of approximately 300 consumer home and
family service books, published primarily under the Better Homes and Gardens
trademark and the Ortho and The Home Depot names. They are sold through retail
book and specialty stores, mass merchandisers and other means. Sixty-nine new
or revised titles were published during fiscal 2000. The company has contracts
with The Scotts Company and The Home Depot USA, Inc., to produce and sell books
under the Ortho and The Home Depot names, respectively.
Meredith receives an annual license fee from GMAC Home Services, Inc., for the
use of the Better Homes and Gardens trademark in connection with residential
real estate marketing.
Production and Delivery
-----------------------
The major raw materials essential to this segment are coated publication and
book-grade papers. Meredith supplies all of the paper for its magazine
production and most of the paper for its book production. The company's major
paper suppliers raised prices on most types of paper during fiscal 2000
resulting in higher average paper prices for the fiscal year. The price of
paper is driven by overall market conditions and, therefore, is difficult to
predict. However, at this time, management anticipates little change in paper
prices over the next year. The company has contractual agreements with major
paper manufacturers to ensure adequate supplies of paper for planned publishing
requirements.
The company has printing contracts for all of its magazine titles. Its two
largest titles, Better Homes and Gardens and Ladies' Home Journal, are printed
under long-term contracts with a major United States printer. The company's
largest magazine printing contract was renegotiated and the company entered
into new contracts with several other major printers over the last two fiscal
years. These contracts resulted in lower unit costs in the second half of
fiscal 2000. These lower rates are expected to continue, subject to annual
rate adjustments, through the life of the contracts. All of the company's
published books are manufactured by outside printers. Book manufacturing
contracts are generally on a title-by-title basis.
Postage is also a significant expense to this segment due to the large volume
of magazine and subscription promotion mailings. The publishing operations
continually seek the most economical and effective methods for mail delivery.
Accordingly, certain cost-saving measures, such as pre-sorting and drop-
shipping to central postal centers, are utilized. The United States Postal
Service has 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, with others in the industry and through trade
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organizations, to attempt to moderate the proposed increase, which is
anticipated to be effective in January 2001. The actual amount of the increase
is expected to be announced in November 2000.
Paper, printing and postage costs accounted for approximately 40 percent of the
publishing segment's fiscal 2000 operating costs.
Fulfillment services for the company's magazine operations are provided by an
unrelated third party. National newsstand distribution services are also
provided by an unrelated third party under a multi-year agreement.
Competition
-----------
Publishing is a highly competitive business. The company's magazines, books,
and related publishing products and services compete with other mass media and
many other types of leisure-time activities. Overall competitive factors in
this segment include price, editorial quality and customer service.
Competition for advertising dollars in magazine operations is primarily based
on advertising rates, reader response to advertisers' products and services and
effectiveness of sales teams. Better Homes and Gardens and Ladies' Home
Journal compete for readers and advertising dollars primarily in the women's
service magazine category. Both are part of a group known as the "Seven
Sisters," which also includes Family Circle, Good Housekeeping, McCall's,
Redbook and Woman's Day magazines, published by other companies. In fiscal
2000, the combined advertising revenue market share of Better Homes and Gardens
and Ladies' Home Journal magazines totaled approximately 40 percent. Their
share exceeded that of each of the three other publishers included in the Seven
Sisters.
BROADCASTING
------------
Years ended June 30 2000 1999 1998
----------------------------------------------------------------------
(In thousands)
Broadcasting advertising
revenues $272,096 $254,277 $229,871
======== ======== ========
Broadcasting total revenues $279,450 $262,091 $240,730
======== ======== ========
Broadcasting operating profit $ 59,594 $ 72,347 $ 74,532
======== ======== ========
Broadcasting represented 25 percent of the company's consolidated revenues and
30 percent of consolidated operating profit before unallocated corporate
expenses in fiscal 2000. Operating profit in fiscal 2000 is reported before
nonrecurring charges. Broadcasting results include the effects of the
acquisitions of WGCL-Atlanta in March 1999; WFSB-Hartford in September 1997;
and KPDX-Portland, KFXO-Bend and WHNS-Greenville in July 1997. The Atlanta
station's call letters were changed from WGNX to WGCL on July 4, 2000, as part
of the station's branding initiatives.
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Station,
Channel,
Market, Network DMA Expiration Average Commercial
Affiliation, TV Homes National Date of FCC Audience TV Stations
Frequency(1) in DMA Rank(2) License Share(3) in Market(4)
----------------- --------- -------- ----------- -------- ----------
WGCL-TV, Ch. 46 1,775,000 10 4-1-2005 7.3% 3 VHF
Atlanta, Ga. 6 UHF
(CBS) UHF
KPHO-TV, Ch. 5 1,391,000 17 10-1-2006 10.5% 4 VHF
Phoenix, Ariz. 4 UHF
(CBS) VHF
WOFL-TV, Ch. 35 1,102,000 22 2-1-2005 6.8% 3 VHF
Orlando/Daytona Beach/Melbourne, Fla. 5 UHF
(FOX) UHF
KPDX-TV, Ch. 49 1,004,000 23 2-1-2007 8.8% 4 VHF
Portland, Ore. 2 UHF
(FOX) UHF
WFSB-TV, Ch. 3 916,000 27 4-1-2007 15.0% 2 VHF
Hartford/New Haven, Conn. 5 UHF
(CBS) VHF
WSMV-TV, Ch. 4 826,000 30 8-1-2005 15.0% 3 VHF
Nashville, Tenn. 5 UHF
(NBC) VHF
KCTV, Ch. 5 821,000 31 2-1-2006 15.5% 3 VHF
Kansas City, Mo. 5 UHF
(CBS) VHF
WHNS-TV, Ch. 21 732,000 35 12-1-2004 5.8% 3 VHF
Greenville, S.C./Spartanburg, S.C./Asheville, N.C. 4 UHF
(FOX) UHF
KVVU-TV, Ch. 5 521,000 53 10-1-2006 7.8% 4 VHF
Las Vegas, Nev. 4 UHF
(FOX) VHF
WNEM-TV, Ch. 5 444,000 64 10-1-2005 16.8% 2 VHF
Flint/Saginaw/Bay City, Mich. 2 UHF
(CBS) VHF
WOGX-TV, Ch. 51 104,000 165 2-1-2005 7.5% 3 UHF
Ocala/Gainesville, Fla.
(FOX) UHF
KFXO-LP, Ch. 39 42,000 200 2-1-2007 8.3% 2 UHF
Bend, Ore.
(FOX) UHF
(1) VHF (very high frequency) stations transmit on channels 2 through 13;
UHF(ultra high frequency) stations transmit on channels above 13. Technical
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factors and area topography determine the market served by a television
station.
(2) Designated Market Area (DMA), as defined by A.C. Nielsen Company
(Nielsen), is an exclusive geographic area consisting of all counties in which
local stations receive a preponderance of total viewing hours. The national
rank is the Nielsen 1999-2000 DMA ranking based on estimated television
households.
(3) Average audience share represents the estimated percentage of households
using television tuned to the station. The percentages shown reflect the
average Nielsen ratings share for the May 1999, July 1999, November 1999, and
February 2000 measurement periods from 9 a.m. to midnight daily.
(4) The number of commercial television stations reported is from BIA's
"Investing in Television Market Report 2000" dated February 2000. The
company's station and all other stations reporting revenues are included.
Public television stations are not included.
Operations
----------
Advertising is the principal source of revenues for the broadcasting segment.
The stations sell commercial time to both local/regional and national
advertisers. Rates for spot advertising are influenced primarily by the market
size, number of in-market broadcasters and audience demographics for
programming. National advertising representative firms sell most national
advertising. Sales staff at each station generate local/regional advertising
revenues.
All of the company's television stations are network affiliates. Generally, a
network provides programs to its affiliated television stations, sells
commercial advertising announcements within the network programs and, in some
instances, compensates the local stations by paying an amount based on the
television station's network affiliation agreement. In addition, the
affiliated stations make payments to the network for certain programming costs
such as professional football. Affiliation with a national network has an
important influence on a station's advertising rates. The company's six FOX
affiliates have agreements which expire in June 2007. As a standard practice,
the FOX network makes no cash payments to affiliates. In fiscal 2000, the
company's FOX affiliates began paying the FOX network in exchange for
additional advertising spots in prime time programming. The company's five CBS
affiliates have agreements which expire from April 2002 to December 2005.
During fiscal 2000, the company completed negotiations to renew the agreement
for its Nashville NBC affiliate. The company will continue to receive
compensation under the new agreement, which expires in December 2006, at a
reduced level. The amount of the reduction is not material. Historically the
company's relations with the networks have been good.
Local news programming is an important source of advertising revenues to
television stations, as local advertisers typically allocate 25 to 35 percent
of their advertising budgets to local news. The company's stations have
increased the number of hours of news programming significantly over the last
two years. In fiscal 2001, KPDX-TV, the company's FOX affiliate in Portland,
will begin to produce local news programming which was previously purchased
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from a local competitor. The company also plans to continue to improve the
news operation at WGCL-TV, the CBS affiliate in Atlanta acquired in March 1999,
and at WOFL-TV, the company's FOX affiliate in Orlando.
The costs of locally produced and purchased syndicated programming are a
significant portion of television operating expenses. Syndicated programming
costs are determined based upon largely uncontrollable market factors,
primarily demand from other stations in the market. In recent years, the
company has emphasized its locally produced news and entertainment programming.
This allows the company to control the content and quality of the programming
and to better control costs.
Competition
-----------
Meredith television stations compete directly for advertising dollars and
programming in each of their markets with other television stations and cable
television providers. Other mass media providers such as newspapers, radio,
direct broadcast satellite and the Internet also provide competition for market
advertising dollars and for entertainment and news information. Competitive
factors include market share, audience demographics and advertising rates.
Audience acceptance of a station's programming, whether local, network or
syndicated, affects the station's competitive position. Ownership consolidation
continues to occur in the television broadcast industry which may increase
local market competition for syndicated programming. In addition, local
television stations may face increased competition over the next several years
due to the ability of new video service providers (e.g. telephone companies) to
enter the industry. The company cannot predict the effects of these actions on
the future results of the company's broadcasting operations.
Regulation
----------
Television broadcasting operations are subject to regulation by the Federal
Communications Commission (FCC) under the Communications Act of 1934, as
amended (Communications Act). Under the Communications Act, the FCC performs
many regulatory functions including granting of station licenses and
determining regulations and policies which affect the ownership, operation,
programming and employment practices of broadcast stations. The FCC must
approve all television licenses and therefore compliance with FCC regulations
is essential to the operation of this segment. The maximum term of broadcast
licenses is eight years. Management is not aware of any reason why its
television station licenses would not be renewed by the FCC. The Communications
Act also prohibits the assignment of a broadcast license or the transfer of
control of a broadcast licensee without prior FCC approval. The
Telecommunication Act of 1996 (1996 Act) allows broadcast companies to own an
unlimited number of television stations as long as the combined service areas
of such stations do not include more than 35 percent of U.S. television
households. In August 1999, the FCC issued regulations permitting the
ownership of two stations in a market under certain circumstances. As of June
30, 2000, the company's household coverage is approximately 7.2 percent (based
on the FCC method of calculation which includes 50 percent of the market size
for UHF stations owned).
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Congressional legislation and FCC rules are subject to change and these groups
may adopt regulations that could affect future operations and profitability of
the company's broadcasting segment. In April 1997, the FCC announced rules for
the implementation of digital television (DTV) service. Under these rules, all
broadcasters who, as of April 3, 1997, held a license to operate a full-power
television station or a construction permit for such a station will be
assigned, for an eight-year transition period, a second channel on which to
initially provide separate DTV programming or simulcast its analog programming.
Stations must construct their DTV facilities and be on the air with a digital
signal according to a schedule set by the FCC based on the type of station and
the size of the market in which it is located. According to these rules, the
company's Atlanta, Phoenix, Orlando, Portland and Hartford/New Haven broadcast
television station are currently required to transmit digital signals. The
company's remaining stations, with the exception of low-power KFXO, must follow
suit by May 2002. At the end of the transition period, analog television
transmissions will cease, and DTV channels may be reassigned. The FCC hopes to
complete the transition to DTV by 2006. The Commission has announced that it
will review the progress of DTV every two years and make adjustments to the
2006 target date, if necessary. The impact of these rulings to the company are
uncertain. However, digital conversion requires capital expenditures of
approximately $2 million per station to transmit a digital signal and comply
with current DTV requirements.
In April 2000, Meredith and other broadcasters dedicated a portion of their
digital spectrum to create a wireless infrastructure to deliver content to
consumers. This new venture is called iBlast Networks. Meredith owns a
minority position in iBlast and will share in its revenues. iBlast currently
expects to begin service in calendar 2001.
The information given in this section is not intended to be a complete listing
of all regulatory provisions currently in effect. The company cannot predict
what changes to current legislation will be adopted or determine what impact
any changes could have on its television broadcasting operations.
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF AUGUST 30, 2000)
-----------------------------------------------------------------------------
Executive
Officer
Name Age Title Since
------------------- --- ------------------------------------- ---------
William T. Kerr 59 Chairman and Chief Executive Officer 1991
Christopher M. Little 59 President - Publishing Group 1994
Cary D. Jones 50 President - Broadcasting Group 2000
Stephen M. Lacy 46 President - Interactive and Integrated
Marketing Group 1998
Leo R. Armatis 62 Vice President - Corporate Relations 1995
Suku V. Radia 49 Vice President - Chief Financial Officer 2000
John S. Zieser 41 Vice President - General Counsel
and Secretary 1999
Executive officers are elected to one-year terms of office each November. Mr.
Kerr is a director of the company. Mr. Kerr, Mr. Little and Mr. Armatis have
been employed by the company for at least five years. Mr. Jones became
president - Broadcasting Group on March 29, 2000. He previously served as a
Broadcasting Group vice president and group general manager with
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responsibilities for four of the company's television stations. He joined
Meredith in July 1997 as vice president and general manager of the stations in
Portland and Bend, Oregon. Mr. Jones had served in a similar capacity for
First Media Television, L.P., from 1993 until Meredith acquired the stations.
Mr. Lacy became president - Interactive & Integrated Marketing Group on March
8, 2000. He joined Meredith as vice president-chief financial officer on
February 3, 1998. Prior to joining Meredith, Mr. Lacy had been, successively,
vice president-chief financial officer, executive vice president, and president
of Johnson & Higgins/Kirke-Van Orsdel, a company that provides outsourced
administrative services for employee benefit plans of Fortune 1000 companies,
from 1992 until the time he joined Meredith. Mr. Radia joined Meredith as vice
president-chief financial officer on March 1, 2000. Prior to that he had
served as managing partner of the Des Moines office of KPMG LLP, a global
professional services firm, since 1993. Mr. Zieser became vice president-
general counsel and secretary on January 18, 1999. Prior to joining Meredith,
Mr. Zieser had been group president of First Data Merchant Services Corporation
(FDMS), a leading provider of merchant processing and information services at
the point of sale and over the Internet. Mr. Zieser joined FDMS in 1993 as
legal counsel and was subsequently promoted to associate general counsel prior
to his appointment to other senior management positions.
Item 2. Properties
Meredith Corporation headquarters are located at 1716 and 1615 Locust Street,
Des Moines, Iowa. The company owns these buildings and is the sole user.
Meredith also owns an office building located at 1912 Grand Avenue in Des
Moines. Meredith employees occupy a portion of the facility and approximately
one-third of the space in that building is leased to an outside party.
The publishing segment operates mainly from the Des Moines offices and from
leased facilities at 125 Park Avenue, New York, New York. The New York
facility is used primarily as an advertising sales office for all Meredith
magazines and headquarters for Ladies' Home Journal, Golf for Women and Family
Money magazines. The publishing segment also maintains ad sales offices, which
are leased, in Chicago, San Francisco, Los Angeles, Detroit and several other
cities. These offices are adequate for their intended use.
The broadcasting segment operates from offices in the following locations:
Atlanta, Ga.; Phoenix, Ariz.; Orlando, Fla.; Portland, Ore.; Hartford, Conn.;
Nashville, Tenn.; Kansas City, Mo.; Greenville, S.C.; Asheville, N.C.; Las
Vegas, Nev.; Flint, Mich.; Saginaw, Mich.; Ocala, Fla.; Gainesville, Fla.; and
Bend, Ore. All of these properties, except those noted, are owned by the
company and are adequate for their intended use. The properties in Asheville,
Flint, Gainesville and Bend are leased and are currently adequate for their
intended use. The Atlanta station is currently operating from two separate
leased properties which does not provide space that can be used efficiently and
effectively. Therefore, the company has purchased land and begun construction
of new facilities. Construction is expected to be completed in calendar year
2001. Each of the broadcast stations also maintains an owned or leased
transmitter site.
The interactive & integrated marketing group operates primarily from the
headquarter's offices in Des Moines and leased facilities in New York City.
These facilities are currently adequate for their intended use.
- 13 -
<PAGE>
Item 3. Legal Proceedings
There are various legal proceedings pending against the company arising from
the ordinary course of business. In the opinion of management, liabilities, if
any, arising from existing litigation and claims would not have a material
effect on the company's earnings, financial position or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of stockholders since the company's
last annual meeting held on November 8, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal market for trading the company's common stock is the New York
Stock Exchange (trading symbol MDP). There is no separate public trading
market for the company's class B stock, which is convertible share-for-share at
any time into common stock. Holders of both classes of stock receive equal
dividends per share.
The range of trading prices for the company's common stock and the dividends
paid during each quarter of the past two fiscal years are presented below.
High Low Dividends
------ ------ ---------
Fiscal 2000
First Quarter $38.87 $31.81 $ .075
Second Quarter 42.00 33.31 .075
Third Quarter 41.06 22.37 .080
Fourth Quarter 36.25 25.50 .080
Fiscal 1999
First Quarter $48.50 $28.56 $ .070
Second Quarter 40.00 26.69 .070
Third Quarter 40.25 30.87 .075
Fourth Quarter 38.00 30.62 .075
Stock of the company became publicly traded in 1946, and quarterly dividends
have been paid continuously since 1947. It is anticipated that comparable
dividends will continue to be paid in the future.
On July 31, 2000, there were approximately 1,800 holders of record of the
company's common stock and 1,200 holders of record of class B stock.
Item 6. Selected Financial Data
The information required by this Item is set forth on pages F-2 and F-3 of this
Form 10-K and is incorporated herein by reference.
- 14 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is set forth on pages F-4 through F-16
of this Form 10-K and is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item is set forth on pages F-16 and F-17 of
this Form 10-K and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth on pages F-18 through F-50
of this Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 13,
2000, under the caption "Election of Directors" and in Part I of this Form 10-K
on pages 12 and 13 under the caption "Executive Officers of the Registrant" and
is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 13,
2000, under the captions "Compensation of Executive Officers" and "Retirement
Programs and Employment Agreements" and in the last three paragraphs under the
caption "Board Committees" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 13,
2000, under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
- 15 -
<PAGE>
Item 13. Certain Relationships and Related Transactions
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 13,
2000, in the last paragraph under the caption "Board Committees" and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following consolidated financial statements listed under (a) 1. and the
financial statement schedule listed under (a) 2. of the company and its
subsidiaries are filed as part of this report as set forth on the Index at page
F-1.
(a)1. Financial Statements:
Consolidated Statements of Earnings for the years ended
June 30, 2000, 1999 and 1998
Consolidated Balance Sheets as of June 30, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
June 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. Financial Statement Schedule for the years ended June 30, 2000, 1999
and 1998:
Schedule II - Valuation and Qualifying Accounts
All other Schedules have been omitted for the reason that the items
required by such schedules are not present in the consolidated
financial statements, are covered in the consolidated financial
statements or notes thereto, or are not significant in amount.
(a) 3. Exhibits. Certain of the exhibits to this Form 10-K are incorporated
herein by reference, as specified: (See index to attached exhibits
on page E-1 of this Form 10-K.)
3.1 The company's Restated Articles of Incorporation, as amended,
are incorporated herein by reference to Exhibit 3.1 to the
company's Quarterly Report on Form 10-Q for the period ended
March 31, 1996.
3.2 The Restated Bylaws, as amended.
- 16 -
<PAGE>
4.1 Note Purchase Agreement dated March 1, 1999 among Meredith
Corporation, as issuer and seller, and named purchasers is
incorporated herein by reference to Exhibit 4.1 to the company's
Current Report on Form 8-K dated March 1, 1999.
4.2 Credit Agreement dated December 10, 1998, among Meredith
Corporation, and certain banks specified therein, for whom
Wachovia Bank, N.A. is acting as Agent, is incorporated herein
by reference to Exhibit 2 to the company's Quarterly Report on
Form 10-Q for the period ended December 31, 1998.
4.3 Credit Agreement dated July 1, 1997, among Meredith Corporation
and a group of banks with Wachovia Bank, N.A. as Agent is
incorporated herein by reference to Exhibit 4 to the company's
Current Report on Form 8-K dated July 1, 1997.
10.1 Amendment to the Meredith Corporation 1990 Restricted Stock Plan
for Non-Employee Directors is incorporated herein by reference
to Exhibit 10.1 to the company's Annual Report on Form 10-K for
the year ended June 30, 1999.
10.2 Agreement dated February 25, 1999, between Meredith Corporation
and William T. Kerr regarding conversion of restricted stock
award shares into stock equivalents is incorporated herein by
reference to Exhibit 10.2 to the company's Annual Report on Form
10-K for the year ended June 30, 1999.
10.3 Meredith Corporation 1972 Management Incentive Plan is
incorporated herein by reference to Exhibit 10.3 to the
company's Annual Report on Form 10-K for the year ended June 30,
1999.
10.4 Employment Agreement dated February 2, 1998, between Meredith
Corporation and E. T. Meredith III is incorporated herein by
reference to Exhibit 10 to the company's Quarterly Report on
Form 10-Q for the period ended March 31, 1998.
10.5 Employment agreement dated November 11, 1996, between Meredith
Corporation and William T. Kerr is incorporated herein by
reference to Exhibit 10.1 to the company's Quarterly Report on
Form 10-Q for the period ended December 31, 1996.
10.6 Meredith Corporation 1990 Restricted Stock Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996.
10.7 Meredith Corporation 1993 Stock Option Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996.
10.8 Meredith Corporation Deferred Compensation Plan, dated as of
November 8, 1993, is incorporated herein by reference to Exhibit
10 to the company's Quarterly Report on Form 10-Q for the
period ending December 31, 1993.
- 17 -
<PAGE>
10.9 1992 Meredith Corporation Stock Incentive Plan effective
August 12, 1992, is incorporated herein by reference to Exhibit
10b to the company's Annual Report on Form 10-K for the year
ended June 30, 1992. Amendment to the aforementioned agreement
is incorporated herein by reference to Exhibit 10.3 to the
company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996.
10.10 Meredith Corporation 1996 Stock Incentive Plan effective August
14, 1996, is incorporated herein by reference to Exhibit A to
the company's Proxy Statement for the Annual Meeting of
Shareholders on November 11, 1996.
10.11 Employment contract by and between Meredith Corporation and Jack
D. Rehm as of July 1, 1992, is incorporated herein by
reference to Exhibit 10c to the company's Annual Report on Form
10-K for the year ended June 30, 1992. Amendment to the
aforementioned agreement is incorporated herein by reference to
Exhibit 10.2 to the company's Quarterly Report on Form 10-Q
for the period ended December 31, 1996.
10.12 Indemnification Agreement in the form entered into between the
company and its officers and directors is incorporated herein by
reference to Exhibit 10 to the company's Quarterly Report on
Form 10-Q for the period ending December 31, 1988.
10.13 Severance Agreement in the form entered into between the company
and its officers is incorporated herein by reference to Exhibit
10 to the company's Annual Report on Form 10-K for the fiscal
year ending June 30, 1986.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K
During the fourth quarter of fiscal 2000, the company filed a report on
Form 8-K on May 2, 2000, reporting under Item 5 the text of a news
release dated April 19, 2000, reporting earnings for the third fiscal
quarter and nine months ended March 31, 2000 and the script of a
conference call held with analysts concerning that news release.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ John S. Zieser
-------------------------------
John S. Zieser, Vice President-
General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Suku V. Radia /s/ William T. Kerr
--------------------------------- --------------------------------
Suku V. Radia, Vice President- William T. Kerr, Chairman of the
Chief Financial Officer (Principal Board, Chief Executive Officer and
Accounting and Financial Officer) Director (Principal Executive Officer)
/s/ E. T. Meredith III /s/ Herbert M. Baum
--------------------------------- --------------------------------
E. T. Meredith III Herbert M. Baum,
Chairman of the Executive Director
Committee and Director
/s/ Mary Sue Coleman /s/ Christina A. Gold
--------------------------------- --------------------------------
Mary Sue Coleman, Director Christina A. Gold, Director
/s/ Frederick B. Henry /s/ Joel W. Johnson
--------------------------------- --------------------------------
Frederick B. Henry, Director Joel W. Johnson, Director
/s/ Robert E. Lee /s/ Richard S. Levitt
--------------------------------- --------------------------------
Robert E. Lee, Director Richard S. Levitt, Director
/s/ Philip A. Marineau /s/ Nicholas L. Reding
--------------------------------- --------------------------------
Philip A. Marineau, Director Nicholas L. Reding, Director
/s/ Jack D. Rehm
----------------------------------
Jack D. Rehm, Director
Each of the above signatures is affixed as of September 19, 2000.
- 19 -
<PAGE>
Index to Consolidated Financial Statements, Financial
Schedules and Other Financial Information
Page
----
Selected Financial Data F- 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations F- 4
Quantitative and Qualitative Disclosures about Market Risk F-16
Consolidated Financial Statements:
Balance Sheets F-18
Statements of Earnings F-20
Statements of Cash Flows F-21
Statements of Stockholders' Equity F-23
Notes (including supplementary financial information) F-26
Independent Auditors' Report F-49
Report of Management F-50
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-51
F-1
<PAGE>
Selected Financial Data
Meredith Corporation and Subsidiaries
Years Ended June 30 2000 1999 1998 1997 1996
------------------------------------------------------------------------------
(In thousands except per share)
Results of operations:
Total revenues..............$1,097,165 $1,036,122 $1,009,927 $855,218 $867,137
========== ========== ========== ======== ========
Earnings from continuing
operations................. $ 71,030 $ 89,657 $ 79,858 $67,592 $54,657
Discontinued operation...... -- -- -- 27,693 (717)
--------- --------- --------- ------- -------
Net earnings ............... $ 71,030 $ 89,657 $ 79,858 $95,285 $53,940
========= ========= ========= ======= =======
Basic earnings per share:
Earnings from continuing
operations................. $ 1.38 $ 1.72 $ 1.51 $ 1.26 $ 1.00
Discontinued operation...... -- -- -- 0.52 (0.02)
--------- --------- --------- ------- -------
Net earnings per share...... $ 1.38 $ 1.72 $ 1.51 $ 1.78 $ 0.98
========= ========= ========= ======= =======
Diluted earnings per share:
Earnings from continuing
operations................. $ 1.35 $ 1.67 $ 1.46 $ 1.22 $ 0.97
Discontinued operation...... -- -- -- 0.50 (0.01)
--------- --------- --------- ------- -------
Net earnings per share...... $ 1.35 $ 1.67 $ 1.46 $ 1.72 $ 0.96
========= ========= ========= ======= =======
Dividends paid per share.... $ 0.31 $ 0.29 $ 0.27 $ 0.24 $ 0.21
========= ========= ========= ======= =======
Financial position at June 30:
Total assets................$1,439,773 $1,423,396 $1,065,989 $760,433 $733,692
========= ========= ========= ======== ========
Long-term obligations....... $ 541,146 $ 564,573 $ 244,607 $17,032 $71,482
========= ========= ========= ======= ========
General:
Prior years are reclassified to conform with the current-year
presentation.
Significant acquisitions occurred in March 1999 with the acquisition of
WGNX-TV (call letters changed to WGCL-TV in July 2000); in September 1997
with the acquisition of WFSB-TV; and in July 1997 with the purchase of
KPDX-TV, WHNS-TV and KFXO-LP.
Per-share amounts have been adjusted to reflect a two-for-one stock split
in March 1997.
F-2
<PAGE>
Long-term obligations include the current and long-term amounts of
broadcast rights payable and company debt associated with continuing
operations.
Earnings from continuing operations:
Fiscal 2000 included nonrecurring items of $23.1 million, or 36 cents
per diluted share, for asset write-downs, contractual obligations and
personnel costs associated primarily with the decision to exit certain
publishing operations.
Fiscal 1999 included a gain of $2.4 million, or 3 cents per diluted share,
from the sale of the real estate operations.
Fiscal 1996 included a gain of $5.9 million, or 6 cents per diluted share,
from the sale of three book clubs.
Discontinued operations:
The cable segment was classified as a discontinued operation effective
September 30, 1995. Fiscal 1997 included a post-tax gain of $27.7 million,
or 50 cents per diluted share, from the disposition of the company's
remaining interest in cable television.
Fiscal 1996 reflected cable net losses through the measurement date of
September 30, 1995.
F-3
<PAGE>
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 over the last three years. This commentary should be read
in conjunction with the company's consolidated financial statements and the 5-
year selected financial data presented elsewhere in this annual report. All
per-share amounts refer to diluted earnings per share and are computed on a
post-tax basis.
This section and other areas of this annual report - and management's public
commentary from time to time - may contain certain forward-looking statements
that are subject to risks and uncertainties. The words "expect," "anticipate,"
"believe," "likely," "will," and similar expressions generally identify
forward-looking statements. These statements are based on management's current
knowledge and estimates of factors affecting the company's operations. Readers
are cautioned not to place undue reliance on such forward-looking information
as actual results may differ materially from those currently anticipated.
Factors that could adversely affect future results include, but are not limited
to: downturns in national and/or local economies; a softening of the domestic
advertising market; increased consolidation among major advertisers or other
events depressing the level of advertising spending; the unexpected loss of one
or more major clients; changes in consumer reading, purchasing and/or
television viewing patterns; unanticipated increases in paper, postage,
printing or syndicated programming costs; changes in television network
affiliation agreements; technological developments affecting products or
methods of distribution such as the Internet or e-commerce; changes in
government regulations affecting the company's industries; unexpected changes
in interest rates; and any acquisitions and/or dispositions.
Significant Events
Fiscal 2000
-----------
In March 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 included 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 the following: Internet and e-commerce activities,
continued development of its consumer database, and strategic alliances and
partnerships. Incremental spending related to these initiatives reduced
earnings by 2 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 8 to 12 cents.
F-4
<PAGE>
Investment spending related to the circulation initiatives reduced fiscal 2000
fourth quarter earnings by 10 cents per share and is 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 and the decision to exit certain other
publishing operations. 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 contributed to a nonrecurring
charge of $23.1 million ($19.1 million after-tax) or 36 cents per share.
Details of the nonrecurring charge follow:
6-30-2000
Nonrecurring Noncash Cash Accrual
Description Charge Write-offs Payments Balance
---------------------------------------------------------------------------
(In millions)
Asset write-downs $ 16.8 $ (16.8) $ -- $ --
Contractual obligations 3.8 (1.7) -- 2.1
Personnel costs 2.5 -- (1.4) 1.1
------- ------- ------- -------
Total before tax benefit $ 23.1 $ (18.5) $ (1.4) $ 3.2
======= ======= ======= =======
The asset write-downs primarily represent the write-down of intangible assets
associated with the closing of the magazine properties. The intangible write-
down, which is largely non-deductible for federal tax purposes, will reduce
future amortization expense by $2.5 million annually. Contractual obligations
result from the decision to exit certain publishing operations and a
comprehensive review of the impact of news expansion on film valuations at one
television station. The personnel costs represent expenses for severance and
outplacement charges related to the involuntary termination of 29 employees as
a result of the magazine closings and other restructuring efforts. Remaining
contractual obligations and personnel costs are expected to be paid out over
the next 36 months from internally generated cash flows. Going forward, the
decision to exit certain publishing operations 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.
Fiscal 1999
-----------
On March 1, 1999, the company acquired the net assets of WGNX-TV, the CBS
affiliate serving the Atlanta market. In July 2000, the call letters of the
station were changed to WGCL-TV. As part of the acquisition, Meredith purchased
the assets of KCPQ-TV, a FOX affiliate serving the Seattle market, for $380
million from Kelly Television Company. The assets of KCPQ-TV were then
transferred to Tribune Company in exchange for the assets of WGCL-TV and $10
million. As a result, the net cost of WGCL-Atlanta was approximately $370
million.
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 that
F-5
<PAGE>
authorizes 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
Years ended June 30 2000 Change 1999 Change 1998
----------------------------------------------------------------------------
(In millions except per share)
Total revenues............. $1,097.2 6 % $1,036.1 3 % $1,009.9
======== ======== ========
Nonrecurring (charge) gain. $ (23.1) nm $ 2.4 nm $ --
======== ======== ========
Income from operations..... $ 161.3 (6)% $ 171.1 12 % $ 152.5
======== ======== ========
Earnings before
nonrecurring items....... $ 90.1 2 % $ 88.2 10 % $ 79.9
======== ======== ========
Net earnings............... $ 71.0 (21)% $ 89.7 12 % $ 79.9
======== ======== ========
Diluted earnings per share:
Earnings before
nonrecurring items....... $ 1.71 4 % $ 1.64 12 % $ 1.46
======== ======== ========
Net earnings............... $ 1.35 (19)% $ 1.67 14 % $ 1.46
======== ======== ========
nm - not meaningful
Fiscal 2000 compared to 1999 - Net earnings of $71.0 million, or $1.35 per
share, were recorded in fiscal 2000 compared to net earnings of $89.7 million,
F-6
<PAGE>
or $1.67 per share, in fiscal 1999. Fiscal 2000 net earnings included a
nonrecurring post-tax charge of $19.1 million, or 36 cents per share, for the
write-down of nondeductible intangibles, severance payments and other charges
primarily related to the closing of certain magazine titles announced in March
2000. Fiscal 1999 net earnings included a post-tax gain of $1.4 million, or 3
cents per share, from the disposition of the Better Homes and Gardens Real
Estate Service.
Excluding those one-time items, fiscal 2000 earnings were $90.1 million, or
$1.71 per share, compared to $88.2 million, or $1.64 per share, in fiscal 1999.
Fiscal 2000 results included pre-tax spending of $10.2 million, or 12 cents per
share, for investments in circulation initiatives, Internet and e-commerce
activities and development of the consumer database. Despite these investments
the publishing group reported record operating profits in fiscal 2000. This
strong performance was largely offset by dilution from the acquisition of WGCL-
TV, the CBS affiliate in Atlanta, and lower operating profits in the comparable
broadcasting business. Overall, management estimates that the acquisition of
WGCL-Atlanta diluted earnings by 27 cents per share in fiscal 2000 compared to
8 cents per share in fiscal 1999 from the acquisition date of March 1, 1999.
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.
Fiscal 2000 revenues increased 6 percent, reflecting the acquisition of WGCL-
Atlanta and growth of publishing revenues. Adjusting for the effects of the
WGCL-Atlanta acquisition and discontinued magazines, revenues also increased 6
percent. Increased magazine advertising and circulation, book sales and
integrated marketing revenues were the primary factors in the growth in
comparable revenues.
Operating costs and expenses, excluding nonrecurring charges, increased 6
percent as a result of a full year of operating costs and expenses at WGCL-
Atlanta, growth in the volume of book publishing and integrated marketing
business, higher magazine paper costs and increased investment in television
news and sales development expenses. These increased expenses were partially
offset by lower magazine production costs and lower expenses resulting from the
write-down of broadcast rights. Compensation costs increased as a result of
the WGCL-Atlanta acquisition, expanded local news programming at several
television stations and normal merit increases. Depreciation and amortization
increased in total and as a percentage of revenues primarily from a full year
of amortization at WGCL-Atlanta. Unallocated corporate expenses declined
because of cost containment efforts and prior-year costs related to the
acquisition of WGCL-Atlanta. The operating profit margin, excluding
nonrecurring charges, was 16.8 percent of revenues in fiscal 2000 compared to
16.5 percent in fiscal 1999.
Net interest expense increased to $33.8 million in fiscal 2000 versus expense
of $21.3 million in the prior year due to a full year of interest expense on
debt incurred to finance the acquisition of WGCL-Atlanta.
The company's effective tax rate was 44.3 percent in fiscal 2000 compared with
41.1 percent in the prior year. The increase was a result of the nondeductible
write-down of intangibles related to the discontinuation of certain publishing
operations. Excluding that impact, the normalized effective tax rate was 40.2
percent. The decline from the prior year primarily reflected lower effective
state tax rates.
F-7
<PAGE>
The weighted-average number of shares outstanding declined approximately 2
percent in fiscal 2000 as a result of company share repurchases.
Interactive Media - The following table presents supplemental data regarding
the results of the company's interactive media operations. These operations
are an integral part of the company's Publishing and Broadcasting Groups and
are reported in the financial results of those segments. To date, most of the
company's Internet activities have been in the Publishing Group. The results
are pro-forma and are presented for informational purposes only. The results
do not attempt to reflect how the operations would have been reported had they
been a stand-alone business. Nevertheless, because of Meredith's planned
expansion and acceleration of Internet-related efforts on a company-wide basis,
management believes this supplemental disclosure will be useful in analyzing
the company's performance.
Years ended June 30 2000 Change 1999 Change 1998
----------------------------------------------------------------------------
(In millions)
Total revenues............... $ 3.5 205 % $ 1.1 (12)% $ 1.3
====== ====== ======
Operating loss............... $ (6.3) (57)% $ (4.0) (31)% $ (3.1)
====== ====== ======
Interactive media revenues increased to $3.5 million in fiscal 2000 from $1.1
million in the prior year, an increase of 205 percent. Revenues include banner
advertising, Web site sponsorships, content management fees and print
advertising in the company's publications related to strategic alliance
agreements. Other "dot com" advertising is not included. The cost savings
associated with subscription sales on our Web sites are reflected as a
reduction in expense. Interactive expenses include only directly attributable
costs. Purchases of in-house advertising in the company's publications for
purposes of promotion of the interactive Web sites are reflected at cost.
Interactive media incurred an operating loss of $6.3 million in fiscal 2000
versus a loss of $4.0 million in fiscal 1999. These results reflect the
company's increasing level of investment in interactive media, as previously
announced.
Fiscal 1999 compared to 1998 - Net earnings of $89.7 million, or $1.67 per
share, were recorded in fiscal 1999, compared to net earnings of $79.9 million,
or $1.46 per share, in fiscal 1998. Fiscal 1999 net earnings included a post-
tax gain of $1.4 million, or 3 cents per share, from the disposition of the
Better Homes and Gardens Real Estate Service.
Excluding that gain, fiscal 1999 earnings per share increased 12 percent as a
result of the strong performance of the publishing segment. Increased interest
expense resulting from debt incurred to finance the acquisition of WGCL-Atlanta
partially offset the operating improvement. Overall, management estimates that
the acquisition of WGCL-Atlanta diluted earnings per share by 8 cents per share
in fiscal 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.
Fiscal 1999 revenues increased 3 percent, reflecting the acquisition of WGCL-
Atlanta and growth of ongoing operations. Adjusting for the impacts of the
F-8
<PAGE>
real estate sale, the WGCL-Atlanta acquisition, the closing of Country America
magazine and the fiscal 1998 first quarter acquisition of WFSB-Hartford/New
Haven, revenues increased 4 percent. Increased advertising, circulation and
integrated marketing revenues were the primary factors in the growth.
Operating costs and expenses increased approximately 1 percent as a result of
the acquisition of WGCL-Atlanta, a full year of operating costs and expenses at
WFSB-Hartford/New Haven, the write-down of certain broadcast rights to net
realizable value, growth in the amount of integrated marketing business, and
increased investment in television programming and news expense. These
increased expenses were partially offset by the absence of costs from the real
estate operation, lower magazine production costs and lower average paper
prices. Compensation costs increased as a result of the television station
acquisitions, expanded local news programming at three television stations and
normal merit increases. Depreciation and amortization increased in total and
as a percentage of revenues primarily from the acquisition of WGCL-Atlanta.
The operating profit margin rose from 15.1 percent of revenues in fiscal 1998
to 16.5 percent in fiscal 1999.
Net interest expense increased to $21.3 million in fiscal 1999 versus expense
of $13.4 million in fiscal 1998, primarily from debt incurred to finance the
acquisition of WGCL-Atlanta.
The company's effective tax rate was 41.1 percent in fiscal 1999 compared with
42.6 percent in fiscal 1998. The decline reflected lower effective state tax
rates and the diminished impact of nondeductible items because of increased
earnings.
The weighted-average number of shares outstanding declined slightly in fiscal
1999, primarily from company share repurchases.
Publishing
----------
The publishing segment includes magazine and book publishing, integrated
marketing, interactive media, brand licensing and other related operations.
Years ended June 30 2000 Change 1999 Change 1998
----------------------------------------------------------------------------
(In millions)
Revenues
--------
Advertising.................. $386.0 7 % $359.1 3 % $350.2
Circulation.................. 275.6 1 % 273.6 1 % 271.0
Other........................ 156.1 10 % 141.3 (5)% 148.0
------ ------ ------
Total revenues............... $817.7 6 % $774.0 1 % $769.2
====== ====== ======
Operating profit............. $139.9 17 % $119.6 18 % $101.1
====== ====== ======
Note: Fiscal 2000 operating profit is reported before nonrecurring charges.
F-9
<PAGE>
Fiscal 2000 compared to 1999 - Publishing revenues increased 6 percent to
$817.7 million in fiscal 2000 from $774.0 million in fiscal 1999. Revenue
growth was affected by the closing of Country America and Crayola Kids
magazines and the absence of Northwest World Traveler magazine after December
1999. The company and Northwest Airlines mutually agreed to end their custom
publishing relationship at that time. Excluding the impact of those items,
comparable revenues increased 8 percent versus the prior year. The discussion
that follows excludes the revenues of these discontinued titles.
Comparable advertising revenues grew 9 percent, reflecting additional
advertising pages and higher average revenues per page at most titles.
Advertising categories reporting strong growth in fiscal 2000 included retail,
pharmaceutical, financial and travel. Titles reporting double-digit percentage
advertising revenue growth included Traditional Home, MORE, Renovation Style,
Family Money, Mature Outlook and the Better Homes and Gardens Special Interest
Publications. The company's largest circulation title, Better Homes and
Gardens magazine, also reported solid advertising revenue gains. The increase
at Family Money magazine reflects one additional issue in fiscal 2000, compared
to the prior year. Also contributing to the growth in advertising revenues was
the addition of Shop Online 1-2-3, an Internet buying guide distributed as a
supplement to 5 million subscribers of 10 Meredith titles, and growth in online
advertising at bhg.com.
During fiscal 2000, Meredith launched two new subscription magazines, Hometown
Cooking and Antiques Extra. In addition, MORE, Golf for Women, Country Gardens
and American Patchwork and Quilting magazines increased their rate bases during
fiscal 2000. The company also has announced increases in frequencies and/or
rate bases for MORE, Renovation Style and Family Money magazines, as well as
several Better Homes and Gardens Special Interest Publications, effective in
fiscal 2001.
Comparable circulation revenues increased 3 percent in fiscal 2000, primarily
reflecting strong newsstand sales of the Better Homes and Gardens Special
Interest Publications. Also contributing to the increase was the addition of
revenues from two new titles, Hometown Cooking and Antiques Extra magazines,
and an additional issue of both Country Home and MORE magazines due to
increases in frequency. These revenue increases were partially offset by lower
circulation revenues at Ladies' Home Journal magazine as a result of a
reduction in its rate base to 4.1 million, effective with the February 2000
issue. Other publishing revenues grew 15 percent on a comparable basis because
of increased sales in the integrated marketing and consumer book businesses.
Publishing operating profit before nonrecurring charges increased 17 percent to
a record level in fiscal 2000, despite fourth quarter investments totaling
$10.2 million in circulation initiatives, Internet and e-commerce activities
and development of the consumer database. The improvement reflected higher
magazine advertising revenues and lower magazine production costs, as well as
volume-related increases in book publishing and integrated marketing operating
profits. Fiscal 2000 magazine results were led by Better Homes and Gardens
magazine. Ladies' Home Journal, Country Home and Traditional Home magazines,
as well as the Better Homes and Gardens Special Interest Publications, also
posted strong operating profit increases. In addition, fiscal 1999 results
were affected by costs for the closing of Country America magazine and a
favorable settlement related to the discontinuation of a direct marketing
alliance.
F-10
<PAGE>
Paper, printing and postage costs account for approximately 40 percent of the
publishing segment's operating costs. Total paper expense increased as a
result of volume increases and higher average prices. At June 30, 2000, paper
prices had increased in the mid-single digits on a percentage basis from a year
earlier. Paper prices are driven by overall market conditions and, therefore,
are difficult to predict. However, at this time, management anticipates little
change in paper prices over the next year.
Printing costs declined on a per-unit basis in the second half of fiscal 2000
as a result of contracts entered into with major print suppliers.
The United States Postal Service has 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, with others in the industry and
through trade organizations, to attempt to moderate the proposed increase,
which is anticipated to be effective in January 2001. The actual amount of the
increase is expected to be announced in November 2000.
Fiscal 1999 compared to 1998 - Publishing revenue growth was affected by the
sale of the real estate operations, effective July 1, 1998, and the mid-year
closing of Country America magazine. Excluding the impact of those items,
revenues increased 5 percent compared to fiscal 1998. Magazine advertising
revenues grew 3 percent, reflecting additional advertising pages and higher
average revenues per page at most titles. Advertising categories reporting
strong growth in fiscal 1999 included pharmaceutical, travel and household
furnishings and appliances.
The company's largest circulation title, Better Homes and Gardens magazine,
reported solid advertising revenue gains, as did Country Home, Traditional
Home, Midwest Living, Crayola Kids, Better Homes and Gardens Family Money and
MORE magazines. The increases at Country Home, Family Money and MORE magazines
reflect additional issues in fiscal 1999 compared to fiscal 1998. This growth
in advertising revenue was partially offset by lower advertising revenues at
Ladies' Home Journal, Successful Farming and American Park Network, resulting
from fewer advertising pages.
Traditional Home, Crayola Kids, and Golf for Women magazines increased their
rate bases during fiscal 1999. Family Money reduced its rate base effective
with the March/April 1999 issue. This reflected the decision by Metropolitan
Life Insurance Company to discontinue its program of purchasing customized
subscriptions to Family Money. MORE magazine increased its rate base to
500,000, effective with the July/August 1999 issue.
Circulation revenues increased slightly in fiscal 1999. Excluding the impact
of the closing of Country America magazine, circulation revenues increased 3
percent, primarily from the rollout of MORE magazine. Other publishing
revenues declined as a result of the sale of the real estate operations.
Excluding the effect of that sale, other publishing revenues grew 14 percent
because of increased sales in the integrated marketing and consumer book
businesses.
Publishing operating profit increased 18 percent to $119.6 million in fiscal
1999. The improvement reflected higher magazine advertising revenues, lower
production costs and lower average paper prices. Fiscal 1999 results were led
by Better Homes and Gardens magazine. Traditional Home, Country Home, Midwest
Living and Crayola Kids magazines, as well as Meredith Integrated Marketing,
F-11
<PAGE>
also posted strong operating profit increases. Investment spending for the
fiscal 1999 test of Hometown Cooking magazine was less than the spending in
fiscal 1998 for the launch of MORE magazine. In addition, fiscal 1999 results
were affected by costs for the closing of Country America magazine and a
favorable settlement related to the discontinuation of a direct marketing
alliance.
Paper, printing and postage costs accounted for approximately 40 percent of the
publishing segment's operating costs in fiscal 1999. Total paper expense grew
slightly as increased usage more than offset lower average prices. At June 30,
1999, paper prices had declined in the mid-single digits on a percentage basis
from a year earlier.
The U.S. Postal Service enacted rate changes in January 1999 that increased
mailing costs an average of 4.6 percent for magazine publishers taken as a
whole. Meredith's effective increase was less than the average because of the
company's efficient mailing processes.
Broadcasting
------------
The broadcasting segment includes the operation of network-affiliated
television stations and syndicated television program marketing and
development.
Years ended June 30 2000 Change 1999 Change 1998
----------------------------------------------------------------------------
(In millions)
Revenues
--------
Advertising.................. $272.1 7 % $254.3 11 % $229.9
Other........................ 7.4 (6)% 7.8 (28)% 10.8
------ ------ ------
Total revenues............... $279.5 7 % $262.1 9 % $240.7
====== ====== ======
Operating profit............. $ 59.6 (18)% $ 72.3 (3)% $ 74.5
====== ====== ======
Note: Fiscal 2000 operating profit is reported before nonrecurring charges.
Fiscal 2000 compared to 1999 - Revenues increased 7 percent in fiscal 2000, as
a result of the March 1999 acquisition of WGCL-Atlanta. Excluding WGCL-
Atlanta, comparable revenues were flat with the prior year. Growth was
hampered by a decline of nearly $6 million in political advertising revenues
due to the biennial nature of political elections. Excluding the political
impact, comparable revenues increased 2 percent with most stations reporting
higher revenues. KVVU-Las Vegas reported the strongest gain as the station
benefited from a healthy growth market and strong ratings. Notable
improvements, excluding the political impact, were also reported at WFSB-
Hartford/New Haven, WSMV-Nashville, WNEM-Flint/Saginaw and KFXO-Bend.
Partially offsetting the revenue improvements were lower advertising revenues
at KPHO-Phoenix and WOFL-Orlando.
F-12
<PAGE>
Broadcasting operating profit declined to $59.6 million in fiscal 2000,
compared to operating profit of $72.3 million in the prior year. One of the
factors in the decline was the inclusion of operating results at WGCL-Atlanta
in the company's first full year of ownership. Meredith is investing in
expanding and improving the station's news, programming and sales development
efforts. Progress has been evidenced in improved ratings and management
believes that these investments will lead to future revenue growth and improved
operating results. Excluding the impact of newly acquired WGCL-Atlanta,
comparable broadcasting operating profit declined 11 percent. The decline
reflects the lack of revenue growth noted previously, in combination with
investments in programming, news expansions and sales development. In
addition, the company made payments to the FOX network in the current year,
resulting from contract changes implemented in July 1999. Fiscal 1999 results
included a charge of approximately $5 million for the write-down of certain
broadcast rights to estimated net realizable value compared to a charge of $1.1
million in the current year.
Fiscal 1999 compared to 1998 - Revenues increased 9 percent in fiscal 1999,
including the impact of the March 1999 acquisition of WGCL-Atlanta. Excluding
that impact and the effect of the September 1997 acquisition of WFSB-
Hartford/New Haven, revenues increased 3 percent. The growth reflected
moderate increases in local advertising revenues and the addition of political
advertising revenues for the November 1998 elections. These increases were
partially offset by the absence of advertising related to the 1998 Winter
Olympics at the company's CBS affiliates; lower General Motors advertising,
primarily in the fiscal 1999 first quarter due to the GM labor dispute; and
weak advertising sales nationwide in the fiscal 1999 fourth quarter.
Fiscal year revenue changes among the stations were mixed. The strongest gains
were at the company's FOX affiliates, KPDX-Portland, KVVU-Las Vegas and WOFL-
Orlando. The Las Vegas and Orlando stations benefited from the introduction of
local news programming late in fiscal 1998, while the increase at Portland
reflected strong ratings growth resulting from investments in programming.
Lower advertising revenues were reported at most of the company's CBS
affiliates, primarily because of the aforementioned Olympic revenues in fiscal
1998. In addition, WHNS-Greenville, S.C./Spartanburg, S.C./Asheville, N.C.
reported lower advertising revenues primarily due to weak local economic
factors.
Broadcasting operating profit declined to $72.3 million in fiscal 1999,
compared to operating profit of $74.5 million in the prior year. The decline
was primarily the result of a write-down of approximately $5 million of certain
broadcast rights to estimated net realizable value. The write-down was largely
related to the weak ratings performance of "The Roseanne Show." Several of the
company's stations have programming contracts for the show through September
2000. Excluding this charge, operating profits increased slightly, reflecting
higher advertising revenues, lower investment spending for television program
development and the addition of WGCL-Atlanta. However, investments in
programming for the television stations - including local news expansion - and
sales, marketing and research activities, affected the profit growth.
In April 1999, the company was notified that the FOX Television Network (FOX)
planned to change financial arrangements with its affiliates. In June, the
company signed an agreement that was slightly more favorable to its FOX-
affiliated stations than the original proposal. The new contract took effect
in July 1999.
F-13
<PAGE>
Liquidity and Capital Resources
Years ended June 30 2000 Change 1999 Change 1998
----------------------------------------------------------------------------
(In millions)
Net earnings............... $ 71.0 (21)% $ 89.7 12 % $ 79.9
======= ======= =======
Cash flows from operations. $ 148.0 10 % $ 134.7 7 % $ 125.6
======= ======= =======
Cash flows from investing.. $ (46.3) 88 % $(386.5) (4)% $(372.7)
======= ======= =======
Cash flows from financing.. $ (89.9) nm $ 257.9 45 % $ 177.5
======= ======= =======
Net cash flows............. $ 11.8 95 % $ 6.1 nm $ (69.5)
======= ======= =======
EBITDA..................... $ 236.8 10 % $ 215.2 14 % $ 189.3
======= ======= =======
nm - not meaningful
Cash and cash equivalents increased by $11.8 million in fiscal 2000, compared
to an increase of $6.1 million in the prior year. The change primarily
reflected increased cash provided by operations in the current year. Cash
provided by operating activities increased because of growth in earnings before
depreciation and amortization and nonrecurring items, which were largely
noncash charges. Year-to-year changes in cash flows from investing and
financing activities resulted primarily from the prior-year acquisition of
WGCL-TV, the Atlanta CBS affiliate.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and excludes nonrecurring items. EBITDA is often used to analyze
and compare companies on the basis of operating performance and cash flow.
Fiscal 2000 EBITDA increased 10 percent from fiscal 1999. 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.
At June 30, 2000, long-term debt outstanding totaled $505 million. This debt
was incurred primarily for the acquisitions of five television stations. The
company has two variable-rate bank credit facilities with total outstanding
debt of $305 million at June 30, 2000. Interest rates are based on applicable
margins plus, at the company's option, either LIBOR or the higher of the
overnight federal funds rate plus 0.5 percent or the bank's prime rate. In
addition, at June 30, 2000, the company has $200 million outstanding in fixed-
rate unsecured senior notes issued to five insurance companies. Interest rates
on the notes range from 6.51 percent to 6.65 percent. Principal payments on
the debt due in succeeding fiscal years are:
F-14
<PAGE>
Years ended June 30
-------------------
(In millions)
2001............ $ 50.0
2002............ 55.0
2003............ 100.0
2004............ 100.0
2005............ 75.0
Later years..... 125.0
------
Total........... $505.0
======
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 June 30, 2000, was approximately
6.5 percent. These debt agreements include certain financial covenants related
to debt levels and coverage ratios. As of June 30, 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. Under these
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 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 $250 million
at June 30, 2000. 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 June 30, 2000, Meredith had available credit totaling $137 million,
including $130 million under a revolving credit facility. Any amounts borrowed
under this agreement are due and payable on May 31, 2002.
During fiscal 2000 the board of directors authorized the repurchase of an
additional 3 million shares of the company's common stock through public and
private transactions as part of the company's ongoing share repurchase program.
In fiscal 2000, the company spent $54.5 million to repurchase an aggregate of
1.7 million shares of Meredith Corporation common stock at then current market
prices. This compares with fiscal 1999 spending of $43.9 million for the
repurchase of an aggregate of 1.1 million shares. The company expects to
continue to repurchase shares from time to time in the foreseeable future,
subject to market conditions. As of August 1, 2000, approximately 1.7 million
shares could be repurchased under existing authorizations by the board of
directors. The status of this program is reviewed at each quarterly board of
directors meeting.
In August 1998 the company entered into put option agreements to repurchase up
to 1.6 million common shares at market prices, subject to certain restrictions
and discounts, over the following 24 months. These put option agreements were
entered into in order to provide an orderly process for the planned liquidation
of blocks of Meredith stock by certain trusts of the Bohen family, nonaffiliate
descendants of the company's founder. As of June 30, 2000, 348,000 shares had
been repurchased under these agreements, including 271,000 shares repurchased
in fiscal 2000. The remainder of the put options expired on July 31, 2000.
F-15
<PAGE>
Dividends paid in fiscal 2000 were $15.9 million, or 31 cents per share,
compared with $15.1 million, or 29 cents per share, in fiscal 1999. In January
2000, the board of directors increased the quarterly dividend by 7 percent, or
one-half cent per share, to 8.0 cents per share effective with the dividend
payable on March 15, 2000. 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.
Expenditures for property, plant and equipment were $39.4 million in fiscal
2000, compared to $25.7 million in fiscal 1999. The increase primarily
reflected the purchase of land and initial construction costs for a new
broadcasting facility for WGCL-Atlanta, costs for the completion of a new
broadcasting facility for KPDX-Portland, expenditures for the initial
implementation of digital television technology and expenditures for broadcast
news equipment related to the introduction or expansion of local news
programming. The broadcasting segment has commitments to spend approximately
$30 million over the next three fiscal years for the completion of a new
building for WGCL-Atlanta, introduction of local news programming at KPDX-
Portland and for the initial transition to digital technology at six stations.
Also, Meredith has a commitment to spend approximately $12 million in the next
six months for replacement aircraft and associated facilities. The company has
no other material commitments for capital expenditures. Funds for capital
expenditures are expected to be provided by 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
the foreseeable future.
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
-----------
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. All of the company's financial instruments subject to market
risk are held for purposes other than trading.
Long-term Debt and Interest Rate Swap Contracts
-----------------------------------------------
At June 30, 2000, Meredith had outstanding $305 million in variable-rate long-
term debt and $200 million in fixed-rate long-term debt. The company uses
interest rate swap contracts to reduce exposure to interest rate fluctuations
on its variable-rate debt. At June 30, 2000, the company had interest rate
swap contracts that effectively converted a substantial portion of its
variable-rate debt to fixed-rate debt. Thus changes in interest rates would
have little impact on future interest expense related to this debt. Therefore,
there is no material earnings or liquidity risk associated with the company's
variable-rate debt and the related interest rate swap agreements. The fair
F-16
<PAGE>
market value of the variable-rate debt approximates the carrying amount due to
the periodic resetting of 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 contracts. A 10 percent
decrease in interest rates would result in a fair market value of $2.0 million
compared to the current fair market value of $4.1 million at June 30, 2000.
There is no earnings or liquidity risk associated with the company's fixed rate
debt. The fair market value of the debt, based on discounted cash flows using
borrowing rates currently available for debt with similar terms and maturities,
varies with changes in interest rates. A 10 percent decrease in interest rates
would result in a fair market value of ($193.0 million) compared to the current
fair market value of ($185.1 million) at June 30, 2000.
Put Option Agreements
---------------------
At June 30, 2000, the company had put option agreements outstanding to
repurchase up to 1.3 million common shares. These agreements expired in July
2000 with no further activity and, therefore, there is no market risk
associated with the put options.
Broadcast Rights Payable
------------------------
The company enters into contracts for broadcast rights to air on its television
stations. These contracts are generally on a market-by-market basis and
subject to terms and conditions of the seller of the broadcast rights.
Generally, these rights are sold to the highest bidder in each market and the
process is very competitive. There are no earnings or liquidity risks
associated with broadcast rights payable. Fair market values are determined
using discounted cash flows. At June 30, 2000, a 10 percent decrease in
interest rates would result in a $1.4 million increase in the fair market value
of the available and unavailable broadcast rights payable.
F-17
<PAGE>
Financial Statements and Supplementary Data
Consolidated Balance Sheets
Meredith Corporation and Subsidiaries
Assets June 30 2000 1999
-------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents......................... $ 22,861 $ 11,029
Accounts receivable
(net of allowances of $14,368 in 2000
and $12,010 in 1999)............................ 145,845 138,723
Inventories....................................... 35,805 33,511
Current portion of subscription acquisition costs. 44,606 41,396
Current portion of broadcast rights............... 18,686 14,644
Other current assets.............................. 20,996 16,872
---------- ----------
Total current assets................................ 288,799 256,175
Property, plant and equipment:
Land.............................................. 12,772 11,141
Buildings and improvements........................ 98,554 89,807
Machinery and equipment........................... 186,677 171,576
Leasehold improvements............................ 7,439 7,846
Construction in progress.......................... 15,976 13,940
---------- ----------
Total property, plant and equipment................. 321,418 294,310
Less accumulated depreciation..................... (147,261) (134,554)
---------- ----------
Net property, plant and equipment................... 174,157 159,756
---------- ----------
Subscription acquisition costs...................... 37,349 31,182
Broadcast rights.................................... 10,300 10,230
Other assets........................................ 35,968 29,248
Goodwill and other intangibles
(at original cost less accumulated amortization of
$164,157 in 2000 and $120,445 in 1999)............ 893,200 936,805
---------- ----------
Total assets........................................ $1,439,773 $1,423,396
========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-18
<PAGE>
Liabilities and Stockholders' Equity June 30 2000 1999
-------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Current portion of long-term debt................. $ 50,000 $ 45,000
Current portion of long-term broadcast
rights payable.................................. 22,666 21,123
Accounts payable.................................. 53,892 55,018
Accruals:
Compensation and benefits....................... 35,483 34,596
Distribution expenses........................... 21,197 17,429
Other taxes and expenses........................ 37,489 35,204
---------- ----------
Total accruals.................................... 94,169 87,229
Current portion of unearned subscription revenues. 137,974 135,745
---------- ----------
Total current liabilities........................... 358,701 344,115
Long-term debt...................................... 455,000 485,000
Long-term broadcast rights payable ................. 13,480 13,450
Unearned subscription revenues...................... 96,811 90,276
Deferred income taxes............................... 48,260 33,578
Other noncurrent liabilities........................ 45,012 43,672
---------- ----------
Total liabilities................................... 1,017,264 1,010,091
---------- ----------
Temporary equity: Put option agreements
Common stock, outstanding, 1,264,140 shares in 2000
and 1,535,140 shares in 1999...................... 42,665 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 38,326,171 shares in 2000
(excluding 29,050,052 shares held in treasury)
and 39,220,509 shares in 1999 (excluding
27,362,776 shares held in treasury)............. 38,326 39,220
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,882,845 shares in 2000 and
11,063,708 shares in 1999....................... 10,883 11,064
Retained earnings................................. 334,448 312,553
Accumulated other comprehensive loss.............. (776) (625)
Unearned compensation............................. (3,037) (2,054)
---------- ----------
Total stockholders' equity.......................... 379,844 360,158
---------- ----------
Total liabilities and stockholders' equity.......... $1,439,773 $1,423,396
========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-19
<PAGE>
Consolidated Statements of Earnings
Meredith Corporation and Subsidiaries
Years ended June 30 2000 1999 1998
--------------------------------------------------------------------------
(In thousands except per share)
Revenues:
Advertising........................ $ 658,049 $ 613,400 $ 580,029
Circulation........................ 275,642 273,621 271,004
All other.......................... 163,474 149,101 158,894
---------- ---------- ----------
Total revenues....................... 1,097,165 1,036,122 1,009,927
---------- ---------- ----------
Operating costs and expenses:
Production, distribution and edit.. 453,684 427,556 408,560
Selling, general & administrative.. 406,699 393,396 412,026
Depreciation and amortization...... 52,349 44,083 36,840
Nonrecurring items................. 23,096 -- --
---------- ---------- ----------
Total operating costs and expenses... 935,828 865,035 857,426
---------- ---------- ----------
Income from operations 161,337 171,087 152,501
Gain from disposition................ -- 2,375 --
Interest income...................... 1,195 710 1,278
Interest expense..................... (34,946) (21,997) (14,665)
---------- ---------- ----------
Earnings before income taxes......... 127,586 152,175 139,114
Income taxes......................... 56,556 62,518 59,256
---------- ---------- ----------
Net earnings......................... $ 71,030 $ 89,657 $ 79,858
========== ========== ==========
Basic earnings per share............. $ 1.38 $ 1.72 $ 1.51
========== ========== ==========
Basic average shares outstanding..... 51,313 52,188 52,945
========== ========== ==========
Diluted earnings per share........... $ 1.35 $ 1.67 $ 1.46
========== ========== ==========
Diluted average shares outstanding... 52,774 53,761 54,603
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE>
Consolidated Statements of Cash Flows
Meredith Corporation and Subsidiaries
Years ended June 30 2000 1999 1998
-------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings................................... $71,030 $ 89,657 $ 79,858
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization.................. 52,349 44,083 36,840
Amortization of broadcast rights............... 35,265 38,529 27,677
Payments for broadcast rights.................. (40,225) (33,601) (28,269)
Gain from disposition, net of taxes............ -- (1,425) --
Nonrecurring items, net of taxes............... 19,077 -- --
Changes in assets and liabilities:
Accounts receivable.......................... (7,694) 387 (44,641)
Inventories.................................. (2,308) 900 (4,492)
Supplies and prepayments..................... (2,296) (743) 2,972
Subscription acquisition costs............... (10,437) 11,433 8,136
Accounts payable............................. (1,126) (7,273) 14,865
Accruals..................................... 11,872 5,143 16,797
Unearned subscription revenues............... 8,764 (11,571) (3,393)
Deferred income taxes........................ 13,288 2,179 11,269
Other noncurrent liabilities................. 457 (3,022) 7,960
-------- -------- --------
Net cash provided by operating activities........ 148,016 134,676 125,579
-------- -------- --------
Cash flows from investing activities:
Redemptions of marketable securities........... -- -- 50,371
Proceeds from dispositions..................... -- 9,922 --
Acquisitions of businesses..................... -- (372,186) (375,000)
Additions to property, plant, and equipment.... (39,403) (25,691) (46,181)
Changes in investments and other............... (6,856) 1,426 (1,858)
-------- -------- --------
Net cash (used) by investing activities.......... (46,259) (386,529) (372,668)
-------- -------- --------
Cash flows from financing activities:
Long-term debt incurred........................ 25,000 400,000 270,000
Repayment of long-term debt.................... (50,000) (85,000) (55,000)
Debt acquisition costs......................... -- (1,342) (195)
Proceeds from common stock issued.............. 4,563 2,560 8,386
Purchases of company stock..................... (54,486) (43,852) (31,194)
Dividends paid................................. (15,892) (15,129) (14,286)
Other.......................................... 890 692 (167)
-------- -------- --------
Net cash (used) provided by financing activities. (89,925) 257,929 177,544
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents................................ 11,832 6,076 (69,545)
Cash and cash equivalents at beginning of year... 11,029 4,953 74,498
-------- -------- --------
Cash and cash equivalents at end of year......... $ 22,861 $ 11,029 $ 4,953
======== ======== ========
F-21
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid
Interest....................................... $ 34,202 $ 15,394 $ 15,301
======== ======== ========
Income taxes................................... $ 36,595 $ 58,341 $ 28,339
======== ======== ========
Noncash transactions
Broadcast rights financed by contracts payable. $ 41,799 $ 36,171 $ 14,778
======== ======== ========
Tax benefit related to stock options........... $ 3,541 $ 1,577 $ 8,275
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
Consolidated Statements of Stockholders' Equity
Meredith Corporation and Subsidiaries
Accum
Add'l Other Unearned
Common Class B Paid-in Retained Comp. Compensa-
(In thousands) Stock Stock Capital Earnings Inc(Loss) tion Total
-------------------------------------------------------------------------------
Balance at
June 30, 1997 $40,922 $12,335 -- $276,243 $(281) $(2,570) $326,649
-------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 79,858 -- -- 79,858
Other comprehen-
sive loss, net -- -- -- -- (896) -- (896)
------
Total comp income 78,962
Stock issued under
various incentive
plans, net of
forfeitures 516 -- 8,615 -- -- (745) 8,386
Purchases of
company stock (899) -- (17,146) (13,149) -- -- (31,194)
Reclassification
of put option
agreement (598) -- -- (27,465) -- -- (28,063)
Conversion of
class B to
common stock 1,055 (1,055) -- -- -- -- --
Dividends paid,
27 cents per
share
Common stock -- -- -- (11,126) -- -- (11,126)
Class B stock -- -- -- (3,160) -- -- (3,160)
Restricted stock
amortized to
operations -- -- 256 -- -- 965 1,221
Tax benefit from
incentive plans -- -- 8,275 -- -- -- 8,275
-------------------------------------------------------------------------------
Balance at
June 30, 1998 $40,996 $11,280 -- $301,201 $(1,177) $(2,350) $349,950
-------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
Consolidated Statements of Stockholders' Equity - Continued
Meredith Corporation and Subsidiaries
Accum
Add'l Other Unearned
Common Class B Paid-in Retained Comp. Compensa-
(In thousands) Stock Stock Capital Earnings Inc(Loss) tion Total
-------------------------------------------------------------------------------
Balance at
June 30, 1998 $40,996 $11,280 -- $301,201 $(1,177) $(2,350) $349,950
-------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 89,657 -- -- 89,657
Other comprehen-
sive income, net -- -- -- -- 552 -- 552
------
Total comp income 90,209
Stock issued under
various incentive
plans, net of
forfeitures 66 -- 2,125 -- -- (664) 1,527
Purchases of
company stock (1,115) (6) (3,702) (39,029) -- -- (43,852)
Reclassification
of put option
agreement (937) -- -- (24,147) -- -- (25,084)
Conversion of
class B to
common stock 210 (210) -- -- -- -- --
Dividends paid,
29 cents per
share
Common stock -- -- -- (11,893) -- -- (11,893)
Class B stock -- -- -- (3,236) -- -- (3,236)
Restricted stock
amortized to
operations -- -- -- -- -- 960 960
Tax benefit from
incentive plans -- -- 1,577 -- -- -- 1,577
-------------------------------------------------------------------------------
Balance at
June 30, 1999 $39,220 $11,064 -- $312,553 $(625) $(2,054) $360,158
-------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE>
Consolidated Statements of Stockholders' Equity - Continued
Meredith Corporation and Subsidiaries
Accum
Add'l Other Unearned
Common Class B Paid-in Retained Comp. Compensa-
(In thousands) Stock Stock Capital Earnings Inc(Loss) tion Total
-------------------------------------------------------------------------------
Balance at
June 30, 1999 $39,220 $11,064 -- $312,553 $(625) $(2,054) $360,158
-------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 71,030 -- -- 71,030
Other comprehen-
sive loss, net -- -- -- -- (151) -- (151)
------
Total comp income 70,879
Stock issued under
various incentive
plans, net of
forfeitures 374 -- 5,771 -- -- (1,898) 4,247
Purchases of
company stock (1,706) (14) (9,312) (43,454) -- -- (54,486)
Reclassification
of put option
agreement 271 -- -- 10,211 -- -- 10,482
Conversion of
class B to
common stock 167 (167) -- -- -- -- --
Dividends paid,
31 cents per
share
Common stock -- -- -- (12,492) -- -- (12,492)
Class B stock -- -- -- (3,400) -- -- (3,400)
Restricted stock
amortized to
operations -- -- -- -- -- 915 915
Tax benefit from
incentive plans -- -- 3,541 -- -- -- 3,541
-------------------------------------------------------------------------------
Balance at
June 30, 2000 $38,326 $10,883 -- $334,448 $(776) $(3,037) $379,844
-------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Meredith Corporation and Subsidiaries
1. Organization and Summary of Significant Accounting Policies
a. Nature of operations
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. The company's principal businesses are magazine
publishing and television broadcasting. Operating profits of the publishing
and broadcasting segments were 70 percent and 30 percent, respectively, of
total operating profit before unallocated corporate expense in fiscal 2000.
Magazine operations accounted for more than 85 percent of the revenues and
operating profit of the publishing segment, which also includes book
publishing, integrated marketing, interactive media, database-related
activities, brand licensing and other related operations. The publishing
segment also included the residential real estate franchising operations until
their sale in July 1998. Better Homes and Gardens is the most significant
trademark to the publishing segment and is used extensively in its operations.
The company's television broadcasting operations include 12 network-affiliated
television stations and syndicated television program marketing and
development. Meredith's operations are diversified geographically within the
United States, and the company has a broad customer base.
Advertising and magazine circulation revenues accounted for 60 percent and 25
percent, respectively, of the company's revenues in fiscal 2000. Revenues and
operating results can be affected by changes in the demand for advertising
and/or consumer demand for the company's products. National and local economic
conditions largely affect the overall industry levels of advertising revenues.
Magazine circulation revenues are generally affected by national and/or
regional economic conditions and competition from other forms of media.
b. Principles of consolidation
The consolidated financial statements include the accounts of Meredith
Corporation and its majority-owned subsidiaries. There are no significant
intercompany transactions.
c. 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.
d. Cash and cash equivalents
All cash and short-term investments with original maturities of three months or
less are considered cash and cash equivalents, since they are readily
convertible to cash. These short-term investments are stated at cost, which
approximates fair value.
F-26
<PAGE>
e. Marketable securities
No marketable securities were owned at any time during fiscal 2000 or fiscal
1999. Marketable securities owned during fiscal 1998 were classified as
available-for-sale and consisted of short-term debt securities issued by the
U.S. Treasury. Proceeds from sales and maturities of securities were $50.4
million during fiscal 1998. Realized gains and losses were not material. The
costs used to compute realized gains and losses were determined by specific
identification.
f. Inventories
Paper inventories are stated at cost, which is not in excess of market value,
using the last-in first-out (LIFO) method. All other inventories are stated at
the lower of cost (first-in first-out, or average) or market.
g. Subscription acquisition costs
Subscription acquisition costs primarily represent magazine direct-mail agency
commissions. These costs are deferred and amortized over the related
subscription term, typically one or two years.
h. Property, plant and equipment
Property, plant and equipment are stated at cost. Costs of replacements and
major improvements are capitalized, and maintenance and repairs are charged to
operations as incurred. Depreciation expense is provided primarily by the
straight-line method over the estimated useful lives of the assets: five to 45
years for buildings and improvements, and three to 20 years for machinery and
equipment. The costs of leasehold improvements are amortized over the lesser
of the useful lives or the terms of the respective leases. Depreciation and
amortization of property, plant and equipment was $23.7 million in fiscal 2000
($21.4 million in fiscal 1999 and $17.8 million in fiscal 1998).
i. Broadcast rights
Broadcast rights and the liabilities for future payments are reflected in the
consolidated financial statements when programs become available for broadcast.
These rights are valued at the lower of cost or estimated net realizable value
and are generally charged to operations on an accelerated basis over the
contract period. Amortization of these rights is included in production,
distribution and editorial expenses. Reductions in unamortized costs to net
realizable value are typically included in amortization of broadcast rights in
the accompanying Consolidated Financial Statements. Fiscal 2000 results
include expense of approximately $1.1 million for such reductions in
unamortized costs ($5 million in fiscal 1999 and immaterial in fiscal 1998).
j. Goodwill and other intangibles
Goodwill and other intangibles represent the excess of the purchase price over
the estimated fair values of net tangible assets acquired in the purchases of
businesses. The values of identifiable intangibles have been determined by
independent appraisals. The unamortized portion of intangible assets consisted
of the following:
F-27
<PAGE>
June 30 2000 1999
-------------------------------------------------------------------------
(In thousands)
Federal Communications Commission (FCC) licenses.. $428,909 $440,385
Goodwill.......................................... 248,799 270,367
Television network affiliation agreements......... 202,313 208,407
Other............................................. 13,179 17,646
-------- --------
Goodwill and other intangibles.................... $893,200 $936,805
======== ========
Virtually all of these assets were acquired after 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 also are considered in any evaluation.
k. Derivative financial instruments
All interest rate swap agreements are held for purposes other than trading, and
are accounted for by the accrual method. Amounts due to or from counterparties
are recorded as adjustments to interest expense in the periods in which they
accrue.
The fair market value of put options outstanding is reclassified from
stockholders' equity to the temporary equity classification entitled, "Put
option agreements." Adjustments to the fair market value resulting from
changes in the stock price of the company's common shares result in adjustments
between equity and temporary equity, with no effect on earnings.
l. Revenues
Advertising revenues are recognized when the advertisements are published or
aired. Magazine advertising revenues totaled $386.0 million in fiscal 2000
($359.1 million in fiscal 1999 and $350.2 million in fiscal 1998).
Broadcasting advertising revenues were $272.1 million in fiscal 2000 ($254.3
million in fiscal 1999 and $229.9 million in fiscal 1998). Revenues from
magazine subscriptions are deferred and recognized proportionately as products
are delivered to subscribers. Revenues from magazines sold on the newsstand
and books are recognized at shipment, net of provisions for returns. Revenues
from integrated marketing programs are recognized when the products are
delivered.
m. Advertising expenses
Total advertising expenses included in the Consolidated Statements of Earnings
were $81.7 million in fiscal 2000 ($76.2 million in fiscal 1999 and $74.8
million in fiscal 1998). The majority of the company's advertising expenses
relate to direct-mail costs for magazine subscription acquisition efforts.
These costs are expensed as incurred.
F-28
<PAGE>
n. Stock-based compensation
The company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." The company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation."
o. Income Taxes
The company accounts for certain income and expense items differently for
financial reporting purposes than for income tax reporting purposes. Deferred
income taxes are provided in recognition of these temporary differences.
p. Earnings per share
Basic earnings per share is computed using the weighted average number of
actual common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that would occur from the exercise of common
stock options outstanding and the issuance of other stock equivalents. The
following table presents the calculations of earnings per share:
Years ended June 30 2000 1999 1998
-------------------------------------------------------------------------
(In thousands except per share)
Net earnings.......................... $71,030 $89,657 $79,858
======= ======= =======
Basic average shares outstanding...... 51,313 52,188 52,945
Dilutive effect of stock options
and equivalents..................... 1,461 1,573 1,658
------- ------- -------
Diluted average shares outstanding.... 52,774 53,761 54,603
======= ======= =======
Basic earnings per share.............. $ 1.38 $ 1.72 $ 1.51
======= ======= =======
Diluted earnings per share............ $ 1.35 $ 1.67 $ 1.46
======= ======= =======
Antidilutive options excluded from the above calculations totaled 2,229,000
options at June 30, 2000 (with a weighted average exercise price of $34.12),
705,000 options at June 30, 1999 (with a weighted average exercise price of
$40.11) and 5,000 options at June 30, 1998 (with a weighted average exercise
price of $42.87).
q. Other
Certain prior-year financial information has been reclassified or restated to
conform to the fiscal 2000 financial statement presentation.
Effective July 1, 2000, the company will adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The adoption will not have a
material effect on the results of operations or financial position of the
company.
F-29
<PAGE>
2. Nonrecurring Items
In March 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 included 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.
These initiatives resulted in the closing of Cross Stitch & Needlework and
Decorative Woodcrafts magazines and the decision to exit certain other
publishing operations. 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 contributed to a nonrecurring
charge of $23.1 million ($19.1 million after tax) or 36 cents per share.
Details of the nonrecurring charge follow:
6-30-2000
Nonrecurring Noncash Cash Accrual
Description Charge Write-offs Payments Balance
---------------------- ------------ ----------- ---------- ---------
(In thousands)
Asset write-downs $ 16,783 $(16,783) $ -- $ --
Contractual obligations 3,853 (1,737) -- 2,116
Personnel costs 2,460 -- (1,351) 1,109
----------- ----------- ---------- ---------
Total before tax benefit $ 23,096 $(18,520) $ 1,351) $ 3,225
=========== =========== ========== =========
The asset write-downs primarily represent the write-down of intangible assets
associated with the closing of the magazine properties. The intangible write-
down, which is largely non-deductible for federal tax purposes, was determined
by the present value of estimated future cash flows using a discount rate
commensurate with the risks involved. The write-down will reduce future
amortization expense by $2.5 million annually.
Contractual obligations result from the decision to exit certain publishing
operations and a comprehensive review of film valuations associated with
expansion of news at one television station.
The personnel costs represent expenses for severance and outplacement charges
related to the involuntary termination of employment of 29 employees as a
result of the magazine closings and other restructuring efforts. As of June
30, 2000, 25 of the 29 employees had left the company. Remaining contractual
obligations and personnel costs are expected to be paid out over the next 36
months from internally generated cash flows. Going forward, the decision to
exit certain publishing operations 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.
3. Acquisitions and Dispositions
On March 1, 1999, the company acquired the net assets of WGNX-TV, the CBS
affiliate serving the Atlanta market. In July 2000, the call letters of the
F-30
<PAGE>
station were changed to WGCL-TV. As part of the acquisition, Meredith purchased
the assets of KCPQ-TV, a FOX affiliate serving the Seattle market, for
approximately $380 million from Kelly Television Company. The assets of KCPQ-
TV were then transferred to Tribune Company in exchange for the assets of WGCL-
TV and approximately $10 million.
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.).
Meredith had also agreed to acquire WCPX-TV, a CBS network-affiliated
television station serving the Orlando, Fla., market, from First Media.
However, the company already owned WOFL-TV, a FOX network-affiliated television
station serving the Orlando market. FCC regulations at that time prohibited
the ownership of more than one television station in a market. Therefore,
Meredith transferred the net assets of WCPX-TV to Post-Newsweek Stations, Inc.
(Post-Newsweek), in exchange for the net assets of WFSB-TV, a CBS network-
affiliated television station serving the Hartford/New Haven, Conn., market.
Post-Newsweek is a wholly owned subsidiary of the Washington Post Company. The
acquisition of WCPX-TV and the subsequent exchange for WFSB-TV were completed
on September 4, 1997, at a net cost of $159 million.
All of the above acquisitions were accounted for as asset purchases, and
accordingly, the operations of the acquired properties have been included in
the company's consolidated operating results from their respective acquisition
dates. The costs of the acquisitions were allocated on the bases of the
estimated fair market values of the assets acquired and liabilities assumed.
These purchase price allocations included the following intangibles: FCC
licenses of $185.0 million in 1999 and $212.4 million in 1998, network
affiliation agreements of $70.0 million in 1999 and $90.7 million in 1998, and
goodwill of $107.5 million in 1999 and $40.1 million in 1998. These
intangibles are being amortized over periods ranging from 15 to 40 years. The
acquisitions also included property, plant and equipment and broadcast program
rights and the related payables. (See Note 5 for information on the debt
incurred to finance these acquisitions.)
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 include 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
Inventories consist of paper stock, books and editorial content. Of net
inventory values shown, approximate portions determined using the LIFO method
were 39 percent at June 30, 2000, and 46 percent at June 30, 1999. LIFO
inventory expense (income) included in the Consolidated Statements of Earnings
was $2.4 million in fiscal 2000, ($2.0) million in fiscal 1999 and $1.4 million
in fiscal 1998.
F-31
<PAGE>
June 30 2000 1999
--------------------------------------------------------------------------
(In thousands)
Raw materials..................................... $ 18,533 $ 17,686
Work in process................................... 19,980 16,569
Finished goods.................................... 6,360 5,965
-------- --------
44,873 40,220
Reserve for LIFO cost valuation................... (9,068) (6,709)
-------- --------
Inventories....................................... $ 35,805 $ 33,511
======== ========
5. Long-term Debt
At June 30, 2000 the company had $305 million in long-term debt outstanding
under two variable rate unsecured credit agreements. Interest rates are based
on applicable margins plus, at the company's option, either LIBOR or the higher
of the overnight federal funds rate plus 0.5 percent or the bank's prime rate.
In addition, at June 30, 2000, the company had $200 million outstanding in
fixed rate unsecured senior notes issued to five insurance companies. A
summary of long-term debt outstanding follows:
June 30 2000 1999
--------------------------------------------------------------------------
(In thousands)
Variable rate credit facilities:
Amortizing term loan of $210 million
due 5/31/2002................................ $ 85,000 $130,000
Amortizing term loan of $200 million
due 5/1/2004................................. 200,000 200,000
Revolving credit facility of $150 million
due 5/31/2002................................ 20,000 --
Private placement notes:
6.51% senior notes, due 3/1/2005............... 75,000 75,000
6.57% senior notes, due 9/1/2005............... 50,000 50,000
6.65% senior notes, due 3/1/2006............... 75,000 75,000
-------- --------
Total long-term debt.............................. 505,000 530,000
Current portion of long-term debt................. (50,000) (45,000)
-------- --------
Long-term debt ................................... $455,000 $485,000
======== ========
F-32
<PAGE>
Principal payments on the debt due in succeeding fiscal years are:
Years ended June 30
-------------------
(In thousands)
2001............................. $ 50,000
2002............................. 55,000
2003............................. 100,000
2004............................. 100,000
2005............................. 75,000
Later years...................... 125,000
--------
Total long-term debt............. $505,000
========
The debt agreements include certain financial covenants related to debt levels
and coverage ratios. As of June 30, 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. 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 a substantial portion of 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 $250 million at June 30, 2000.
The average notional amount of indebtedness outstanding under the contracts is
$223 million in fiscal 2001 and $93 million in fiscal 2002. The contracts
expire on June 28, 2002. The company is exposed to credit related losses in
the event of nonperformance by the counterparties to the interest rate swap
contracts. Management does not expect any counterparties to fail to meet their
obligations, given their creditworthiness.
The weighted-average interest rate on debt outstanding at June 30, 2000, was
approximately 6.5 percent.
Interest expense related to long-term debt totaled $34.8 million (excluding
$0.4 million in capitalized interest) in fiscal 2000, $21.5 million in fiscal
1999, and $14.3 million (excluding $1.3 million in capitalized interest) in
fiscal 1998.
At June 30, 2000 Meredith had available credit totaling $137 million, including
$130 million under a revolving credit facility.
6. Fair Values of Financial Instruments
Carrying amounts and estimated fair values of financial instruments are as
follows:
F-33
<PAGE>
June 30 2000 1999
--------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------------------------
(In thousands)
Assets (Liabilities):
Broadcast rights payable. $ (36,146) $ (33,979) $ (34,573) $ (32,419)
========= ========= ========= =========
Long-term debt........... $(505,000) $(490,088) $(530,000) $(516,927)
========= ========= ========= =========
Interest rate swaps...... $ -- $ 4,069 $ -- $ 1,375
========= ========= ========= =========
Fair values were determined as follows:
Broadcast rights payable: Discounted cash flows.
Long-term debt: Discounted cash flows using borrowing rates currently
available for debt with similar terms and maturities.
Interest rate swaps: Estimated amount the company would pay or receive to
terminate the swap contracts.
The carrying amounts reported on the Consolidated Balance Sheets at June 30,
2000 and 1999, for all other financial instruments, including the put option
agreements classified as temporary equity, approximate their respective fair
values due to the short-term nature of these instruments. Fair value estimates
are made at a specific point in time based on relevant market and financial
instrument information. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
these estimates.
7. Income Taxes
Income tax expense consists of:
Years ended June 30 2000 1999 1998
-----------------------------------------------------------------------------
(In thousands)
Currently payable:
Federal.................................. $36,348 $50,880 $39,921
State.................................... 6,920 9,459 8,066
------- ------- -------
43,268 60,339 47,987
------- ------- -------
Deferred:
Federal.................................. 11,215 1,765 9,128
State.................................... 2,073 414 2,141
------- ------- -------
13,288 2,179 11,269
------- ------- -------
Total................................. $56,556 $62,518 $59,256
======= ======= =======
F-34
<PAGE>
The differences between the effective tax rates and the statutory U.S. federal
income tax rate are as follows:
Years ended June 30 2000 1999 1998
----------------------------------------------------------------------------
U.S. statutory tax rate...................... 35.0% 35.0% 35.0%
State income taxes,
less federal income tax benefits............ 4.0 4.2 4.8
Nonrecurring goodwill write-downs............ 3.5 -- --
Goodwill amortization........................ 1.1 0.9 1.1
Other........................................ 0.7 1.0 1.7
----- ----- -----
Effective income tax rate ................. 44.3% 41.1% 42.6%
===== ===== =====
The tax effects of temporary differences that gave rise to the deferred income
tax assets and liabilities are as follows:
June 30 2000 1999
--------------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Accounts receivable allowances
and return reserves........................... $15,012 $13,998
Compensation and benefits....................... 22,235 19,490
Expenses deductible for taxes in
different years than accrued.................. 17,251 18,265
All other assets................................ 689 71
------- -------
Total deferred tax assets......................... 55,187 51,824
------- -------
Deferred tax liabilities:
Subscription acquisition costs.................. 27,518 23,372
Accumulated depreciation and amortization....... 47,267 31,569
Gains from dispositions......................... 6,979 7,484
Carrying value of accounts receivable........... 6,010 9,133
Expenses deductible for taxes in
different years than accrued.................. 4,544 4,291
All other liabilities........................... 639 558
------- -------
Total deferred tax liabilities.................... 92,957 76,407
------- -------
Net deferred tax liability........................ $37,770 $24,583
======= =======
The current portions of deferred tax assets and liabilities are included in
"Other current assets" in the Consolidated Balance Sheets.
8. Pension and Postretirement Benefit Plans
Savings and Investment Plan
---------------------------
The company maintains a 401(k) Savings and Investment Plan which permits
eligible employees to contribute funds on a pre-tax basis. The plan provides
F-35
<PAGE>
for employee contributions of up to 12.0 percent of eligible compensation.
Beginning January 1, 1998, the company matched 100 percent of the first 3
percent and 50 percent of the next 2 percent of employee contributions.
Previously, the company matched 75 percent of the first 5 percent contributed.
The 401(k) Savings and Investment Plan allows employees to choose among various
investment options, including the company's common stock. Company contribution
expense under this plan totaled $4.5 million in fiscal 2000, $4.3 million in
fiscal 1999, and $3.7 million in fiscal 1998.
Pension and Postretirement Plans
--------------------------------
The company has noncontributory pension plans covering substantially all
employees. Assets held in the plans are primarily a mix of noncompany equity
and debt securities. Plan assets include 180,000 shares of Meredith
Corporation common stock with a fair value of $5.0 million at March 31, 2000,
the plans' measurement date. The company also sponsors defined health care and
life insurance plans that provide benefits to eligible retirees. The company
funds a small portion of its postretirement benefits through a 401(h) account.
All 401(h) assets are held in noncompany equity securities.
F-36
<PAGE>
The following table presents changes in, and components of, the company's net
assets/liabilities for pension and other postretirement benefits:
----Pension---- --Postretirement--
June 30 2000 1999 2000 1999
------------------------------------------------------------------------------
(In thousands)
Change in benefit obligation:
Benefit obligation, beginning of year.. $ 62,158 $ 67,418 $ 14,078 $ 14,758
Service cost........................... 4,426 4,204 665 679
Interest cost.......................... 4,314 4,789 993 1,041
Participant contributions.............. -- -- 224 190
Plan amendments........................ -- 771 -- --
Actuarial loss (gain).................. (3,290) (197) (935) (1,276)
Benefits paid (including lump sums).... (3,995) (14,827) (1,149) (1,314)
-------- -------- -------- --------
Benefit obligation, end of year........ $ 63,613 $ 62,158 $ 13,876 $ 14,078
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets,
beginning of year.................... $ 70,171 $ 82,447 $ 934 $ 1,244
Actual return on plan assets........... 13,228 1,052 113 41
Employer contributions................. 562 1,499 396 773
Participant contributions.............. -- -- 224 190
Benefits paid (including lump sums).... (3,995) (14,827) (1,149) (1,314)
-------- -------- -------- --------
Fair value of plan assets, end of year. $ 79,966 $ 70,171 $ 518 $ 934
======== ======== ======== ========
Funded status, end of year............. $ 16,353 $ 8,013 $(13,358) $(13,144)
Unrecognized actuarial loss (gain)..... (23,816) (13,379) (1,279) (670)
Unrecognized prior service cost........ 1,670 2,104 (2,244) (2,444)
Unrecognized net transition obligation. 1,104 1,460 -- --
Contributions between measurement date
and fiscal year end................. 17 19 -- --
-------- -------- -------- --------
Net recognized amount, end of year..... $ (4,672) $ (1,783) $(16,881) $(16,258)
======== ======== ======== ========
Consolidated Balance Sheets:
Prepaid benefit cost................... $ 3,672 $ 4,958 $ -- $ --
Accrued benefit liability.............. (8,344) (6,741) (16,881) (16,258)
Additional minimum liability........... (1,876) (2,421) -- --
Intangible asset....................... 1,642 2,012 -- --
Accumulated other comprehensive income. 234 409 -- --
-------- -------- -------- --------
Net recognized amount, end of year..... $ (4,672) $( 1,783) $(16,881) $(16,258)
======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $10.9 million, $9.1 million and $0.2 million,
respectively, as of June 30, 2000, and $11.4 million, $8.9 million and $0.2
million, respectively, as of June 30, 1999.
F-37
<PAGE>
Benefit obligations were determined using the following weighted-average
assumptions:
----Pension---- --Postretirement--
June 30 2000 1999 2000 1999
-------------------------------------------------------------------------------
Weighted-average assumptions:
Discount rate.......................... 7.75% 7.00% 7.75% 7.00%
====== ====== ====== ======
Expected return on plan assets......... 8.25% 8.25% 8.25% 8.25%
====== ====== ====== ======
Rate of compensation increase.......... 5.00% 5.00% 5.00% 5.00%
====== ====== ====== ======
The rate of increase in health care cost levels used in measuring the
postretirement benefit obligation was 8 percent for employees under age 65,
decreasing to 5.75 percent in 2003 and thereafter. For employees age 65 and
older, the rate of increase used was 5.75 percent.
Assumed rates of increase in health care cost levels have a significant effect
on the amounts reported for the health care plans. A one-percentage-point
change in the assumed health care cost trend rates would have the following
effects:
1-Percentage- 1-Percentage-
Year ended June 30, 2000 Point Increase Point Decrease
-------------------------------------------------------------------------------
(In thousands)
Effect on service and interest cost components.. $ 127 $ (107)
====== ======
Effect on postretirement benefit obligation..... $ 659 $ (578)
====== ======
The components of net periodic benefit costs recognized in the Consolidated
Statements of Earnings were as follows:
-----Pension----- --Postretirement--
Years ended June 30 2000 1999 1998 2000 1999 1998
-------------------------------------------------------------------------------
(In thousands)
Components of net periodic benefit cost:
Service cost.................. $4,426 $4,204 $3,642 $ 665 $ 679 $ 479
Interest cost................. 4,314 4,789 5,247 993 1,041 1,086
Expected return
on plan assets.............. (5,470) (6,554) (5,041) (75) (101) (72)
Prior service
cost amortization........... 434 434 379 (200) (200) (200)
Actuarial loss (gain)
amortization................ (611) (1,454) (397) -- -- --
Transition amount
amortization................ 356 356 356 -- -- --
Settlement gain............... -- (3,624) (2,448) -- -- --
Curtailment loss.............. -- -- 213 -- -- --
------ ------ ------ ------ ------ ------
Net periodic benefit
expense (income)............ $3,449 $(1,849) $1,951 $1,383 $1,419 $1,293
====== ====== ====== ====== ====== ======
F-38
<PAGE>
9. Capital Stock
The company has two classes of common stock outstanding, common and class B.
Holders of both classes of common stock receive equal dividends per share.
Class B stock, which has 10 votes per share, is not transferable as class B
stock except to family members of the holder or certain other related entities.
At any time, class B stock is convertible, share for share, into common stock
with one vote per share. Class B stock transferred to persons or entities not
entitled to receive it as class B stock will automatically be converted and
issued as common stock to the transferee. The principal market for trading the
company's common stock is the New York Stock Exchange (trading symbol MDP). No
separate public trading market for the company's class B stock exists.
From time to time, the company's board of directors has authorized the
repurchase of shares of the company's common stock on the open market.
Repurchases under these authorizations were as follows:
Years ended June 30 2000 1999 1998
-------------------------------------------------------------------
(In thousands)
Number of shares...................... 1,720 1,121 899
======= ======= =======
Cost at market value.................. $54,486 $43,852 $31,194
======= ======= =======
As of June 30, 2000, approximately 1.8 million shares could be repurchased
under existing authorizations by the board of directors, excluding those
authorizations specifically related to the put options discussed in the
following paragraph.
Meredith Corporation entered into two put option agreements with certain trusts
of the Bohen family, nonaffiliate descendants of the company's founder,
effective August 1, 1998 to repurchase up to 1.6 million common shares over the
next 24 months. As of June 30, 2000, 348,000 shares had been repurchased under
these agreements. The remainder of the put options expired on July 31, 2000.
The market value of the shares subject to put option agreements has been
reclassified from stockholders' equity to the temporary equity classification
entitled, "Put option agreements."
10. Common Stock and Stock Option Plans
Restricted Stock and Stock Equivalent Plans
-------------------------------------------
The company has awarded common stock and/or common stock equivalents to
eligible key employees under a stock incentive plan and to nonemployee
directors under a restricted stock plan. All plans have restriction periods
tied primarily to employment and/or service. In addition, certain awards are
granted based on specified levels of company stock ownership. The awards are
recorded at market value on the date of the grant as unearned compensation.
The initial values of the grants are amortized over the restriction periods,
net of forfeitures. The number of stock units and annual expense information
follows:
F-39
<PAGE>
Years ended June 30 2000 1999 1998
------------------------------------------------------------------------
(In thousands except per share)
Number of stock units awarded................ 64 18 32
====== ====== ======
Average market price of stock units awarded.. $36.25 $37.53 $35.94
====== ====== ======
Stock units outstanding...................... 201 228 319
====== ====== ======
Annual expense, net.......................... $ 915 $ 960 $1,221
====== ====== ======
In fiscal 1997, the company discontinued the pension plan for active
nonemployee members of its board of directors. On November 11, 1996, the
pension benefit for each of these directors was determined and converted to
common stock equivalents at the market price on that date. Approximately
20,000 stock equivalents were established.
Stock Option Plans
------------------
Under the company's stock incentive plan, nonqualified stock options may be
granted to certain employees to purchase shares of common stock at prices not
less than market prices at the dates of grants. All options granted under
these plans expire at the end of 10 years. Most of these option grants vest
one-third each year over a three-year period. Others have "cliff-type" vesting
after either three- or five-year periods. Some of the options granted in
fiscal 1998 were tied to attaining specified earnings per share and return on
equity goals for the three years ended June 30, 2000. These goals were met
and, therefore, the options become fully vested three years from the date of
grant.
The company also has a nonqualified stock option plan for nonemployee
directors. Options vest either 40, 30, and 30 percent in each successive year
or one-third each year over a three-year period. No options can be issued
under this plan after July 31, 2003, and options expire 10 years after
issuance.
F-40
<PAGE>
A summary of stock option activity and weighted average exercise prices
follows:
Years ended June 30 2000 1999 1998
--------------------- ---------------- ---------------- ----------------
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------------------------------------------------------------------
(Options in thousands)
Outstanding,
beginning of year....... 5,783 $20.79 5,328 $18.63 4,704 $15.32
Granted at market price... 859 $33.07 593 $40.82 1,029 $30.74
Exercised................. (319) $11.50 (87) $17.94 (385) $10.10
Forfeited................. (198) $34.06 (51) $32.12 (20) $28.41
----- ----- -----
Outstanding, end of year.. 6,125 $22.57 5,783 $20.79 5,328 $18.63
===== ====== ===== ====== ===== ======
Exercisable, end of year.. 3,593 $16.82 3,474 $14.53 2,795 $12.25
===== ====== ===== ====== ===== ======
Fair value of options granted:
At market price...... $11.59 $13.43 $ 9.40
====== ====== ======
A summary of stock options outstanding and exercisable as of June 30, 2000,
follows:
Options outstanding Options exercisable
------------------------ ---------------------
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise prices outstanding life (years) price exercisable price
----------------------------------------------------------------------------
(Options in thousands)
$ 6.61 - $11.56 1,729 3.48 $ 10.09 1,729 $ 10.09
$11.67 - $20.94 1,540 5.62 $ 18.67 1,269 $ 18.32
$21.09 - $32.54 1,548 6.90 $ 28.30 380 $ 29.43
$33.16 - $42.88 1,308 8.66 $ 36.87 215 $ 39.80
----- -----
6,125 5.99 $ 22.57 3,593 $ 16.82
===== ===== ======= ===== =======
The maximum number of shares reserved for use in all company restricted stock,
stock equivalent and stock incentive plans totals approximately 10.6 million.
The total number of restricted and equivalent stock shares and stock options
that have been awarded under these plans as of June 30, 2000, is approximately
7.9 million. No stock options have expired to date.
The company accounts for stock options in accordance with APB No. 25 and
therefore no compensation cost related to options has been recognized in the
F-41
<PAGE>
Consolidated Statements of Earnings. Had compensation cost for the company's
stock-based compensation plans been determined consistent with the fair value
method of SFAS No. 123, the company's net earnings and earnings per share would
have been as follows:
Years ended June 30 2000 1999 1998
-----------------------------------------------------------------------
(In thousands except per share)
Net earnings as reported................ $71,030 $89,657 $79,858
======= ======= =======
Pro forma net earnings.................. $65,811 $84,692 $75,900
======= ======= =======
Basic earnings per share as reported..... $1.38 $1.72 $1.51
======= ======= =======
Pro forma basic earnings per share....... $1.28 $1.62 $1.43
======= ======= =======
Diluted earnings per share as reported... $1.35 $1.67 $1.46
======= ======= =======
Pro forma diluted earnings per share..... $1.24 $1.57 $1.39
======= ======= =======
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. Options vest over a
period of several years and additional awards are generally made each year.
Pro forma disclosures do not reflect compensation expense for options granted
prior to fiscal 1996. Therefore, the full effect of applying SFAS No. 123 for
providing pro forma disclosures was first evident in fiscal 1999. In addition,
valuations are based on highly subjective assumptions about the future,
including stock price volatility and exercise patterns. The company used the
Black-Scholes option pricing model to determine the fair value of grants made.
The following assumptions were applied in determining the pro forma
compensation cost:
Years ended June 30 2000 1999 1998
-------------------------------------------------------------------------
Risk-free interest rate.............. 6.23% 5.91% 5.61%
====== ====== ======
Expected dividend yield.............. 0.75% 0.75% 1.00%
====== ====== ======
Expected option life................. 6.5 yrs 6.3 yrs 6.4 yrs
====== ====== ======
Expected stock price volatility...... 22.00% 21.00% 20.00%
====== ====== ======
11. Commitments and Contingent Liabilities
The company occupies certain facilities and sales offices and uses certain
equipment under lease agreements. Rental expense for such leases was $7.1
million in 2000 ($6.0 million in 1999 and $5.6 million in 1998). Minimum
F-42
<PAGE>
rental commitments at June 30, 2000, under all noncancellable operating leases
due in succeeding fiscal years are:
Years ended June 30
------------------------------------------------------
(In thousands)
2001....................................... $ 7,144
2002....................................... 6,074
2003....................................... 6,169
2004....................................... 6,325
2005....................................... 6,029
Later years................................ 42,044
-------
Total amounts payable...................... $ 73,785
========
Most of the future lease payments relate to the lease of office facilities in
New York City through December 31, 2011. In the normal course of business,
leases that expire are generally renewed or replaced by leases on similar
property.
The company has recorded commitments for broadcast rights payable in future
fiscal years. The company also is obligated to make payments under contracts
for broadcast rights not currently available for use, and therefore not
included in the consolidated financial statements, in the amount of $86.5
million at June 30, 2000 ($81.1 million at June 30, 1999). The fair values of
these commitments for unavailable broadcast rights were $73.0 million and $69.1
million at June 30, 2000 and 1999, respectively. The broadcast rights payments
due in succeeding fiscal years are:
Recorded Unavailable
Years ended June 30 Commitments Rights
----------------------------------------------------------
(In thousands)
2001............................ $ 22,666 $ 11,735
2002............................ 10,307 17,010
2003............................ 2,896 20,375
2004............................ 277 18,463
Later years..................... -- 18,952
-------- --------
Total........................... $ 36,146 $ 86,535
======== ========
The broadcasting segment has commitments to spend approximately $30 million
over the next three fiscal years for completion of a new building for the
Atlanta station, introduction of local news programming at the Portland station
and for the initial transition to digital technology at six stations. Meredith
also has a commitment to spend approximately $12 million for replacement
aircraft and associated facilities in fiscal 2001.
The company is involved in certain litigation and claims arising in the normal
course of business. In the opinion of management, liabilities, if any, arising
from existing litigation and claims will not have a material effect on the
company's earnings, financial position or liquidity.
F-43
<PAGE>
12. Other 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.
Comprehensive income includes net earnings as well as items of other
comprehensive income.
The following table summarizes the items of other comprehensive income (loss)
and the accumulated other comprehensive income (loss) balances:
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustments Income (Loss)
----------------------------------------------------------------------------
(In thousands)
Balance at June 30, 1997............. $ -- $ (281) $ (281)
Current year adjustments, pre-tax.... (1,388) (105) (1,493)
Tax benefit.......................... 555 42 597
--------- --------- ---------
Other comprehensive loss............. (833) (63) (896)
--------- --------- ---------
Balance at June 30, 1998............. $ (833) $ (344) $ (1,177)
Current year adjustments, pre-tax.... 754 164 918
Tax expense.......................... (301) (65) (366)
--------- --------- ---------
Other comprehensive income........... 453 99 552
--------- --------- ---------
Balance at June 30, 1999............. $ (380) $ (245) $ (625)
Current year adjustments, pre-tax.... (427) 175 (252)
Tax benefit (expense)................ 170 (69) 101
--------- --------- ---------
Other comprehensive (loss) income.... (257) 106 (151)
--------- --------- ---------
Balance at June 30, 2000............. $ (637) $ (139) $ (776)
========= ========= =========
13. Financial Information about Industry Segments
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. Based on products and services, the company has
established two reportable segments: publishing and broadcasting. The
publishing segment includes magazine and book publishing, integrated marketing,
interactive media, database-related activities, brand licensing and other
related operations. In fiscal 1998, the publishing segment also included the
residential real estate franchising operations that were sold effective July 1,
1998. The broadcasting segment includes the operations of 12 network-affiliated
television stations and syndicated television program marketing and
development. The broadcasting segment information includes the effects of the
F-44
<PAGE>
acquisitions of WGCL-TV in March 1999; WFSB-TV in September 1997; and KPDX-TV,
KFXO-LP and WHNS-TV in July 1997. Virtually all of the company's revenues are
generated and assets reside within the United States. There are no material
intersegment transactions.
Operating profit for segment reporting is revenues less operating costs and
does not include nonrecurring charges, gains from dispositions, interest income
and expense, or unallocated corporate expense. Segment operating costs include
allocations of certain centrally incurred costs such as employee benefits,
occupancy, information systems, accounting services, internal legal staff and
human resources administration expenses. These costs are allocated based on
actual usage or other appropriate methods, primarily number of employees.
A significant noncash item included in segment operating costs, other than
depreciation and amortization of fixed and intangible assets, is the
amortization of broadcast rights in the broadcasting segment, totaling $35.3
million in fiscal 2000, $38.5 million in fiscal 1999 and $27.7 million in
fiscal 1998.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and excludes nonrecurring items. 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.
Segment assets include intangible, fixed and all other noncash assets
identified with each segment. Jointly used assets such as office buildings and
information services and technology equipment are allocated to the segments by
appropriate methods, primarily number of employees. Unallocated corporate
assets consist primarily of cash and cash items, assets allocated to or
identified with corporate staff departments and other miscellaneous assets not
assigned to one of the segments.
Unallocated corporate capital expenditures included spending for the
construction of the corporate headquarters expansion and related improvements
in Des Moines in fiscal 1998.
Expenditures for long-lived assets other than capital expenditures included the
acquisitions of one television station in fiscal 1999 and four television
stations in fiscal 1998. These acquisitions resulted in broadcasting segment
additions to intangible assets of $362.5 million in fiscal 1999 and $343.7
million in fiscal 1998 and additions to fixed assets of $6.4 million in fiscal
1999 and $33.9 million in fiscal 1998.
F-45
<PAGE>
Years ended June 30 2000 1999 1998
-----------------------------------------------------------------------------
(In thousands)
Revenues
Publishing........................... $ 817,715 $ 774,031 $ 769,197
Broadcasting......................... 279,450 262,091 240,730
---------- ---------- ----------
Total revenues....................... $1,097,165 $1,036,122 $1,009,927
========== ========== ==========
Operating profit
Publishing........................... $ 139,905 $ 119,581 $ 101,145
Broadcasting......................... 59,594 72,347 74,532
Unallocated corporate expense........ (15,006) (20,841) (23,176)
Nonrecurring items................... (23,096) -- --
---------- ---------- ----------
Income from operations............... $ 161,337 $ 171,087 $ 152,501
========== ========== ==========
Depreciation/amortization
Publishing........................... $ 11,586 $ 11,368 $ 10,103
Broadcasting......................... 38,713 30,735 24,924
Unallocated corporate................ 2,050 1,980 1,813
---------- ---------- ----------
Total depreciation/amortization...... $ 52,349 $ 44,083 $ 36,840
========== ========== ==========
EBITDA
Publishing........................... $ 151,491 $ 130,949 $ 111,248
Broadcasting......................... 98,307 103,082 99,456
Unallocated corporate................ (13,016) (18,861) (21,363)
---------- ---------- ----------
Total EBITDA......................... $ 236,782 $ 215,170 $ 189,341
========== ========== ==========
Assets
Publishing........................... $ 320,358 $ 317,297 $ 349,783
Broadcasting......................... 1,038,072 1,039,745 675,409
Unallocated corporate................ 81,343 66,354 40,797
---------- ---------- ----------
Total assets......................... $1,439,773 $1,423,396 $1,065,989
========== ========== ==========
Capital expenditures
Publishing........................... $ 1,465 $ 1,417 $ 2,932
Broadcasting......................... 32,925 16,470 13,945
Unallocated corporate................ 5,013 7,804 29,304
---------- --------- ----------
Total capital expenditures........... $ 39,403 $ 25,691 $ 46,181
========== ========== ==========
F-46
<PAGE>
14. Selected Quarterly Financial Data (unaudited)
First Second Third Fourth
Year ended June 30, 2000 Quarter Quarter Quarter Quarter Total
------------------------------------------------------------------------------
(In thousands except per share)
Revenues
Publishing.................. $193,240 $189,545 $224,093 $210,837 $ 817,715
Broadcasting................ 67,164 76,584 62,850 72,852 279,450
-------- -------- -------- -------- ----------
Total revenues.............. $260,404 $266,129 $286,943 $283,689 $1,097,165
======== ======== ======== ======== ==========
Operating profit
Publishing.................. $ 28,637 $ 33,440 $ 46,532 $ 31,296 $ 139,905
Broadcasting................ 13,306 21,471 7,930 16,887 59,594
Unallocated corporate expense (3,226) (3,304) (4,706) (3,830) (15,066)
Nonrecurring items.......... -- -- -- (23,096) (23,096)
-------- -------- -------- -------- ---------
Income from operations...... $ 38,717 $ 51,607 $ 49,756 $ 21,257 $ 161,337
======== ======== ======== ======== =========
Net earnings................ $ 18,023 $ 25,459 $ 24,816 $ 2,732 $ 71,030
======== ======== ======== ======== =========
Basic earnings per share.... $ 0.35 $ 0.49 $ 0.48 $ 0.06 $ 1.38
======== ======== ======== ======== =========
Diluted earnings per share.. $ 0.34 $ 0.48 $ 0.47 $ 0.06 $ 1.35
======== ======== ======== ======== =========
Dividends per share......... $ 0.075 $ 0.075 $ 0.080 $ 0.080 $ 0.31
======== ======== ======== ======== =========
Stock price per share:
High....................... $ 38.87 $ 42.00 $ 41.06 $ 36.25
======== ======== ======== ========
Low........................ $ 31.81 $ 33.31 $ 22.37 $ 25.50
======== ======== ======== ========
F-47
<PAGE>
First Second Third Fourth
Year ended June 30, 1999 Quarter Quarter Quarter Quarter Total
------------------------------------------------------------------------------
(In thousands except per share)
Revenues
Publishing.................. $190,816 $182,858 $202,071 $198,286 $ 774,031
Broadcasting................ 55,021 72,066 63,050 71,954 262,091
-------- -------- -------- -------- ---------
Total revenues.............. $245,837 $254,924 $265,121 $270,240 $1,036,122
======== ======== ======== ======== ==========
Operating profit
Publishing.................. $ 24,819 $ 26,762 $ 37,020 $ 30,980 $ 119,581
Broadcasting................ 13,060 25,915 14,728 18,644 72,347
Unallocated corporate expense (3,974) (4,874) (8,518) (3,475) (20,841)
-------- -------- -------- -------- ---------
Income from operations...... $ 33,905 $ 47,803 $ 43,230 $ 46,149 $ 171,087
======== ======== ======== ======== =========
Net earnings................ $ 18,811 $ 25,423 $ 22,087 $ 23,336 $ 89,657
======== ======== ======== ======== =========
Basic earnings per share.... $ 0.36 $ 0.48 $ 0.43 $ 0.45 $ 1.72
======== ======== ======== ======== =========
Diluted earnings per share.. $ 0.35 $ 0.47 $ 0.41 $ 0.44 $ 1.67
======== ======== ======== ======== =========
Dividends per share......... $ 0.070 $ 0.070 $ 0.075 $ 0.075 $ 0.29
======== ======== ======== ======== =========
Stock price per share:
High...................... $ 48.50 $ 40.00 $ 40.25 $ 38.00
======== ======== ======== ========
Low....................... $ 28.56 $ 26.69 $ 30.87 $ 30.62
======== ======== ======== ========
Fiscal 2000
-----------
Fourth quarter results include nonrecurring charges of $23.1 million ($19.1
million after tax), or 36 cents per share, for asset write-downs, contractual
obligations and personnel costs associated primarily with the decision to exit
certain publishing operations (Note 2).
Fourth quarter publishing operating profits were reduced by $10.2 million for
investment spending related to circulation initiatives, Internet and e-commerce
activities and development of the consumer database.
Fiscal 1999
-----------
Financial results include the operations of WGCL-TV from its acquisition date
of March 1, 1999 (Note 3).
First-quarter results include a gain from the disposition of the Better Homes
and Gardens Real Estate Service (Note 3).
F-48
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Meredith Corporation:
We have audited the accompanying consolidated balance sheets of Meredith
Corporation and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 2000. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule, as listed in Part IV, Item 14 (a) 2
herein. These consolidated financial statements and financial statement
schedule are the responsibility of company management. Our responsibility is
to express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meredith
Corporation and subsidiaries as of June 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
Des Moines, Iowa
July 28, 2000
F-49
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of Meredith Corporation:
Meredith management is responsible for the preparation, integrity and
objectivity of the financial information included in this Form 10-K annual
report. The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include amounts based on
management's informed judgments and estimates.
To meet management's responsibility for financial reporting, internal control
systems and accounting procedures are designed to provide reasonable assurance
as to the reliability of financial records. In addition, the internal audit
staff monitors and reports on compliance with company policies, procedures and
internal control systems.
The consolidated financial statements have been audited by independent
auditors. In accordance with generally accepted auditing standards, the
independent auditors conducted a review of the company's internal accounting
controls and performed tests and other procedures necessary to determine an
opinion on the fairness of the company's consolidated financial statements.
The independent auditors were given unrestricted access to all financial
records and related information, including all board of directors' and board
committees' minutes. The audit committee of the board of directors, which
consists of five independent directors, meets with the independent auditors,
management and internal auditors to review accounting, auditing and financial
reporting matters. To ensure complete independence, the independent auditors
have direct access to the audit committee, with or without the presence of
management representatives.
/s/ Suku V. Radia
Suku V. Radia
Vice President - Chief Financial Officer
F-50
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Schedule II
MEREDITH CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 2000, 1999 and 1998
(in thousands)
Year ended June 30, 2000
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
--------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $ 6,915 $ 4,021 $ - $ 2,847 $ 8,089
accounts
Reserve for returns 5,095 10,100 - 8,916 6,279
------- ------- ---- ------- -------
$12,010 $14,121 $ - $11,763 $14,368
======= ======= ==== ======= =======
Year ended June 30, 1999
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
--------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $ 7,489 $ 2,832 $ - $ 3,406 $ 6,915
accounts
Reserve for returns 4,630 8,977 - 8,512 5,095
------- ------- ---- ------- -------
$12,119 $11,809 $ - $11,918 $12,010
======= ======= ==== ======= =======
F-51
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Year ended June 30, 1998
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
--------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $10,298 $ 3,948 $ - $ 6,757 $ 7,489
accounts
Reserve for returns 3,923 6,395 - 5,688 4,630
------- ------- ---- ------- -------
$14,221 $10,343 $ - $12,445 $12,119
======= ======= ==== ======= =======
F-52
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Index to Exhibits
Exhibit
Number Item
------- ----------------------------------------------------
3.2 The Restated Bylaws, as amended.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
E-1
