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UNITED STATES FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) |
For the quarterly period ended December 31, 2004 |
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 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 | ||
| ||
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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [_] |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. | |||
Shares of stock outstanding at December 31, 2004 | |||
Common shares | 40,320,542 | ||
Class B shares | 9,658,926 | ||
Total common and class B shares | 49,979,468 | ||
PART I | FINANCIAL INFORMATION |
Financial Statements |
Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets - Unaudited
Assets |
| Restated | |||||
(In thousands) | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 25,656 | $ | 58,723 | |||
Accounts receivable, net | 178,306 | 164,876 | |||||
Inventories | 37,638 | 31,262 | |||||
Current portion of subscription acquisition costs | 31,570 | 35,716 | |||||
Current portion of broadcast rights | 22,290 | 11,643 | |||||
Other current assets | 15,021 | 11,794 | |||||
Total current assets | 310,481 | 314,014 | |||||
Property, plant and equipment | 394,918 | 393,131 | |||||
Less accumulated depreciation | (200,130 | ) | (197,332 | ) | |||
Net property, plant and equipment | 194,788 | 195,799 | |||||
Subscription acquisition costs | 23,758 | 26,280 | |||||
Broadcast rights | 11,514 | 5,293 | |||||
Other assets | 60,472 | 59,270 | |||||
Intangibles, net | 709,859 | 673,968 | |||||
Goodwill | 196,383 | 191,303 | |||||
Total assets | $ | 1,507,255 | $ | 1,465,927 | |||
See accompanying Notes to Interim Condensed Consolidated Financial Statements
Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets - Unaudited(continued)
Liabilities and Shareholders' Equity | December 31 | Restated | |||||
(In thousands except share data) | |||||||
Current liabilities | |||||||
Current portion of long-term debt | $ | 125,000 | $ | 75,000 | |||
Current portion of long-term broadcast rights payable | 30,662 | 19,929 | |||||
Accounts payable | 40,972 | 42,684 | |||||
Accrued taxes and expenses | 107,739 | 100,948 | |||||
Current portion of unearned subscription revenues | 130,706 | 132,189 | |||||
Total current liabilities | 435,079 | 370,750 | |||||
Long-term debt | 175,000 | 225,000 | |||||
Long-term broadcast rights payable | 22,481 | 13,024 | |||||
Unearned subscription revenues | 119,641 | 120,998 | |||||
Deferred income taxes | 82,705 | 76,874 | |||||
Other noncurrent liabilities | 51,039 | 49,356 | |||||
Total liabilities | 885,945 | 856,002 | |||||
Shareholders' 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 40,320,542 shares at December 31, 2004 (excluding 27,488,072 shares held in treasury) and 40,801,949 shares at June 30, 2004 (excluding 29,523,362 shares held in treasury) .. | 40,321 | 40,802 | |||||
Class B stock, par value $1 per share, convertible to | |||||||
common stock | |||||||
Authorized 15,000,000 shares; issued and outstanding 9,658,926 shares at December 31, 2004 and 9,682,648 shares at June 30, 2004 | 9,659 | 9,683 | |||||
Additional paid-in capital | 52,173 | 66,183 | |||||
Retained earnings | 521,200 | 495,808 | |||||
Accumulated other comprehensive loss | (284 | ) | (427 | ) | |||
Unearned compensation | (1,759 | ) | (2,124 | ) | |||
Total shareholders' equity | 621,310 | 609,925 | |||||
Total liabilities and shareholders' equity | $ | 1,507,255 | $ | 1,465,927 | |||
See accompanying Notes to Interim Condensed Consolidated Financial Statements
See accompanying Notes to Interim Condensed Consolidated Financial Statements
See accompanying Notes to Interim Condensed Consolidated Financial Statements
See accompanying Notes to Interim Condensed Consolidated Financial Statements
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
1. Accounting Policies
a. General
References to "Meredith" or the "Company" refer to Meredith Corporation and subsidiaries. The information included in the foregoing interim financial statements is unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring basis. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. Readers are referred to the Company's Form 10-K for the year ended June 30, 2004 for complete financial statements and related notes. Certain prior-year amounts have been reclassified to conform with current-year presentation.
b. Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. The Company bases its estimates on historical experience, management expectations for future performance and other assumptions, as appropriate. Key areas affected by estimates include: the assessment of the recoverability of long-lived assets, which is based on such factors as estimated future cash flows; the determination of the net realizable value of broadcast rights, which is based on estimated future revenues; provisions for returns of magazines and books sold, which are based on historical experience and current marketplace conditions; pension and postretirement benefit expenses, which are actuarially determined and include assumptions regarding discount rates, expected return on plan assets, and rates of increase in compensation and healthcare costs; and shared-based compensation expense which is based on numerous assumptions including future stock price volatility and employees' expected exercise and post-vesting employment termination behavior. The Company re-evaluates its estimates on an ongoing basis. Actual results may vary from those estimates.
c. Share-based compensation
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment(SFAS 123R). This Statement requires public entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions. Meredith elected to adopt this Statement effective October 1, 2004 in advance of the Company's required adoption date of July 1, 2005. Previously, Meredith valued share-based payments by the intrinsic value method in financial statements while providing pro-forma disclosure of fair-value-based expense. The Statement provides various transition methods. Meredith used the modified version of the retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under previous accounting standards.
SFAS 123R requires entities to estimate the number of forfeitures expected to occur and record expense based upon the number of awards expected to vest. Previously, Meredith accounted for forfeitures as they occurred as permitted under previous accounting standards. As a result, in the second quarter of fiscal 2005, the Company recorded the cumulative effect of a change in accounting principle of $1.5 million ($0.9 million after tax), or $0.02 per share, to reduce compensation expense recognized in previous periods for the estimated forfeitures of outstanding awards.
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
Adoption of this statement under the modified retrospective approach resulted in the restatement of previously reported financial statements. See Note 2 for details of the restatements.
The effect of adopting this standard on current period results was as follows:
(In thousands except per share data) | Three Months Ended | Six Months Ended | ||||||||
Increase (Decrease) | Increase (Decrease) | |||||||||
Earnings before income taxes and cumulative effect of change in accounting principle | $ | (2,298 | ) | $ | (5,083 | ) | ||||
Earnings before cumulative effect of change in accounting principle | (1,409 | ) | (3,116 | ) | ||||||
Net earnings | (516 | ) | (2,223 | ) | ||||||
Basic and diluted earnings per share: | ||||||||||
Before cumulative effect of change in accounting | (0.03 | ) | (0.07 | ) | ||||||
Net earnings | (0.01 | ) | (0.05 | ) | ||||||
Cash flow from operations | N/A | (1,821 | ) | |||||||
Cash flow from financing | N/A | 1,821 | ||||||||
| N/A - not applicable | ||||||||||
d. Earnings per share
The following table presents the calculations of earnings per share:
Three Months | Six Months | |||||||||||
2004 | Restated | 2004 | Restated | |||||||||
(In thousands except per share data) | ||||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 26,822 | $ | 17,557 | $ | 50,739 | $ | 35,047 | ||||
Basic average shares outstanding | 49,912 | 50,137 | 50,090 | 50,158 | ||||||||
Dilutive effect of stock options | 1,557 | 1,713 | 1,577 | 1,670 | ||||||||
Diluted average shares outstanding | 51,469 | 51,850 | 51,667 | 51,828 | ||||||||
Earnings per share before cumulative effect of change in accounting principle | ||||||||||||
Basic | $ | 0.54 | $ | 0.35 | $ | 1.01 | $ | 0.70 | ||||
Diluted | 0.52 | 0.34 | 0.98 | 0.68 | ||||||||
For the three months ended December 31, antidilutive options excluded from the above calculations totaled 2,055,000 options in 2004 (with a weighted average exercise price of $47.86) and 1,447,000 options in 2003 (with a weighted average exercise price of $46.18). For the six months ended December 31, antidilutive options excluded from the above calculations totaled 1,911,000 options in 2004 (with a weighted average exercise price of $47.60) and 1,134,000 options in 2003 (with a weighted average exercise price of $46.13).
MEREDITH CORPORATION AND SUBSIDIARIES | ||
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
In the six months ended December 31, 2004 and 2003, options were exercised to purchase 432,000 shares and 196,000 shares, respectively.
e. Special-purpose entities
Meredith does not have any off-balance sheet arrangements. The Company's use of special-purpose entities is limited to Meredith Funding Corporation, whose activities are fully consolidated in Meredith's Condensed Consolidated Financial Statements.
2. Restatement of Fiscal 2004 Unaudited Quarterly Financial Statements
At the beginning of fiscal 2003, Meredith adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized to earnings but be reviewed at least annually for impairment. Upon the adoption of SFAS No. 142, Meredith, like most broadcasters, determined that its broadcasting network affiliation agreements had indefinite lives and ceased recording amortization expense on these assets. Subsequent to this determination, Meredith had discussions with the staff of the Securities and Exchange Commission as to whether network affiliation agreements are definite lived assets and should be amortized over the period of time the agreements are expected to remain in place, assuming renewals without material modifications to the original terms and conditions. Based on these discussions, Meredith reevaluated its accounting treatment and has modified its accounting policy. The Company will amortize these assets effective with the adoption of SFAS No. 142 generally using lives of 25 to 40 years from their original acquisition dates. If future renewals result in material modifications to the original terms and conditions of these agreements, the lives will be reassessed.
This change in accounting policy has resulted in the restatement of the unaudited financial statements for the three and six month periods ended December 31, 2003 presented in this Quarterly Report on Form 10-Q. The restatement adjustments had no impact on cash flows from operating, investing or financing activities although they did impact certain non-cash components of cash flows from operating activities.
As discussed in Note 1c, Share-Based Compensation, Meredith adopted SFAS 123R effective October 1, 2004. Adoption of this Statement under the modified retrospective approach resulted in the restatement of previously reported financial statements.
The following is a summary of the adjustments to the condensed consolidated financial statements as a result of these restatements:
MEREDITH CORPORATION AND SUBSIDIARIES | ||
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
June 30 | 2004 | |||||||||||
(In thousands) | As previously | Share-based Compensation | As restated | |||||||||
Selected Balance Sheet Data: | ||||||||||||
Accrued taxes and expenses | $ | 101,159 | $ | (211 | ) | $ | 100,948 | |||||
Total current liabilities | 370,961 | (211 | ) | 370,750 | ||||||||
Deferred income taxes | 97,858 | (20,984 | ) | 76,874 | ||||||||
Total liabilities | 877,197 | (21,195 | ) | 856,002 | ||||||||
Additional paid-in capital | 5,726 | 60,457 | 66,183 | |||||||||
Retained earnings | 535,070 | (39,262 | ) | 495,808 | ||||||||
Total shareholders' equity | 588,730 | 21,195 | 609,925 | |||||||||
*The restatements for the change in accounting policy for network affiliation agreements were reflected in the balance sheet reported in our fiscal 2004 annual report on Form 10-K. | ||||||||||||
Three Months Ended December 31, 2003 | |||||||||||||||
(In thousands, except per share data) | As previously | Network Affiliation Agreements | Share-based Compensation | As restated | |||||||||||
Selected Statement of Earnings Data: | |||||||||||||||
Selling, general and administrative expenses | $ | 112,421 | $ | - | $ | 3,068 | $ | 115,489 | |||||||
Depreciation and amortization | 7,625 | 1,223 | - | 8,848 | |||||||||||
Total operating costs and expenses | 241,765 | 1,223 | 3,068 | 246,056 | |||||||||||
Income from operations | 38,614 | (1,223 | ) | (3,068 | ) | 34,323 | |||||||||
Earnings before income taxes | 32,936 | (1,223 | ) | (3,068 | ) | 28,645 | |||||||||
Income taxes | 12,749 | (473 | ) | (1,188 | ) | 11,088 | |||||||||
Net earnings | 20,187 | (750 | ) | (1,880 | ) | 17,557 | |||||||||
Basic earnings per share | 0.40 | (0.01 | ) | (0.04 | ) | 0.35 | |||||||||
Diluted earnings per share | 0.39 | (0.01 | ) | (0.04 | ) | 0.34 | |||||||||
Diluted average shares outstanding | 51,609 | - | 241 | 51,850 | |||||||||||
Six Months Ended December 31, 2003 | |||||||||||||||
(In thousands, except per share data) | As previously | Network Affiliation Agreements | Share-based Compensation | As restated | |||||||||||
Selected Statement of Earnings Data: | |||||||||||||||
Selling, general and administrative expenses | $ | 216,459 | $ | - | $ | 5,613 | $ | 222,072 | |||||||
Depreciation and amortization | 15,104 | 2,448 | - | 17,552 | |||||||||||
Total operating costs and expenses | 476,333 | 2,448 | 5,613 | 484,394 | |||||||||||
Income from operations | 76,716 | (2,448 | ) | (5,613 | ) | 68,655 | |||||||||
Earnings before income taxes | 65,239 | (2,448 | ) | (5,613 | ) | 57,178 | |||||||||
Income taxes | 25,251 | (947 | ) | (2,173 | ) | 22,131 | |||||||||
Net earnings | 39,988 | (1,501 | ) | (3,440 | ) | 35,047 | |||||||||
Basic earnings per share | 0.80 | (0.03 | ) | (0.07 | ) | 0.70 | |||||||||
Diluted earnings per share | 0.78 | (0.03 | ) | (0.07 | ) | 0.68 | |||||||||
Diluted average shares outstanding | 51,583 | - | 245 | 51,828 | |||||||||||
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
Six Months Ended December 31, 2003 | |||||||||||||||
(In thousands) | As previously | Network Affiliation Agreements | Share-Based Compensation | As restated | |||||||||||
Selected Statement of Cash Flows Data: | |||||||||||||||
Net earnings | $ | 39,988 | $ | (1,501 | ) | $ | (3,440 | ) | $ | 35,047 | |||||
Amortization | 311 | 2,448 | - | 2,759 | |||||||||||
Share-based compensation | - | - | 6,224 | 6,224 | |||||||||||
Deferred income taxes | 15,035 | (947 | ) | (1,531 | ) | 12,557 | |||||||||
Excess tax benefits from share-based payments (cash flows from operations) | - | - | (1,318 | ) | (1,318 | ) | |||||||||
Accruals | (57 | ) | - | (642 | ) | (699 | ) | ||||||||
Other noncurrent liabilities | 3,570 | - | (611 | ) | 2,959 | ||||||||||
Net cash provided by operating activities | 62,189 | - | (1,318 | ) | 60,871 | ||||||||||
Excess tax benefits from share-based payments (cash flows from financing) | - | - | 1,318 | 1,318 | |||||||||||
Net cash used by financing activities | (63,012 | ) | - | 1,318 | (61,694 | ) | |||||||||
3. Inventories
Major components of inventories are summarized below. Of total inventory values shown, approximately 30 percent are under the LIFO method at December 31, 2004 and 36 percent at June 30, 2004.
December 31 | June 30 | |||||||
(In thousands) | ||||||||
Raw materials | $ | 14,922 | $ | 13,025 | ||||
Work in process | 18,661 | 15,573 | ||||||
Finished goods | 9,502 | 7,611 | ||||||
43,085 | 36,209 | |||||||
Reserve for LIFO cost valuation | (5,447 | ) | (4,947 | ) | ||||
Inventories | $ | 37,638 | $ | 31,262 | ||||
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
4. Intangible Assets and Goodwill
Intangible assets and goodwill consisted of the following:
December 31, 2004 | June 30, 2004 | ||||||||||||||||||
(In thousands) | Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||
Intangible assets | |||||||||||||||||||
subject to amortization | |||||||||||||||||||
Publishing Group | |||||||||||||||||||
Noncompete agreements | $2,534 | $ | (1,332 | ) | $ | 1,202 | $ 2,534 | $ | (1,013 | ) | $ | 1,521 | |||||||
Customer lists | 1,863 | (1,863 | ) | - | 1,863 | (1,863 | ) | - | |||||||||||
Broadcasting Group | |||||||||||||||||||
Network affiliation | |||||||||||||||||||
agreements | 218,651 | (76,003 | ) | 142,648 | 218,651 | (73,554 | ) | 145,097 | |||||||||||
Customer lists | 89 | (10 | ) | 79 | - | - | - | ||||||||||||
Total | $223,137 | $ | (79,208 | ) | 143,929 | $ 223,048 | $ | (76,430 | ) | 146,618 | |||||||||
Intangible assets not | |||||||||||||||||||
subject to amortization | |||||||||||||||||||
Publishing Group | |||||||||||||||||||
Trademarks | 48,131 | 48,131 | |||||||||||||||||
Broadcasting Group | |||||||||||||||||||
FCC licenses | 517,799 | 479,219 | |||||||||||||||||
Total | 565,930 | 527,350 | |||||||||||||||||
Intangibles, net | $ | 709,859 | $ | 673,968 | |||||||||||||||
In August 2004, Meredith acquired WFLI-TV, the WB television affiliate serving Chattanooga, TN. In November 2004, Meredith acquired the non-license assets (as defined in the purchase agreement) of KSMO-TV, the WB affiliate in Kansas City and entered into a joint sales agreement under which the Company will manage the sales and certain other operations of KSMO. For accounting purposes, Meredith has recorded substantially all of the assets of KSMO-TV on its books, including the station's FCC license. These acquisitions were not material. The purchase price allocations, which included intangible assets and goodwill, are preliminary.
Amortization expense for intangible assets was $2.8 million in the six months ended December 31, 2004. Annual amortization expense for intangible assets is expected to be as follows: $5.6 million in fiscal 2005, $5.4 million in fiscal 2006, $5.2 million in fiscal 2007, $5.0 million in fiscal 2008, $4.9 million in fiscal 2009, and $4.9 million in fiscal 2010.
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
The changes in the carrying amounts of goodwill for the first six months of fiscal 2005 and 2004 are as follows:
Six Months ended | Six Months ended | |||||||||||||||||||||
(In thousands) | Publishing | Broadcasting | Total | Publishing | Broadcasting | Total | ||||||||||||||||
Balance at beginning of period | $110,325 | $ | 80,978 | $191,303 | $110,853 | $80,978 | $191,831 | |||||||||||||||
Acquisitions | - | 5,080 | 5,080 | - | - | - | ||||||||||||||||
Reclassified/other | - | - | - | (528 | ) | - | (528 | ) | ||||||||||||||
Balance at end of period | $110,325 | $ | 86,058 | $196,383 | $110,325 | $80,978 | $191,303 | |||||||||||||||
5. Restructuring Accrual
In response to a weakening economy and a widespread advertising downturn in fiscal 2001, management took steps to reduce the number of Meredith employees, including a one-time, voluntary early retirement program. Other selective workforce reductions were achieved through attrition, realignments and job eliminations. Approximately 200 positions were eliminated in fiscal 2001 and early fiscal 2002. The Company also wrote-off certain Internet investments. These actions were the primary factors in a fiscal 2001 fourth-quarter nonrecurring charge of $25.3 million for personnel costs ($18.4 million), asset write-downs and other ($8.2 million), offset by the reversal of excess accruals ($1.3 million). An accrual balance of $0.9 million remained at June 30, 2004 for enhanced retirement benefits. Payments of $0.2 million were made during the six months resulting in an accrual balance of $0.7 million at December 31, 2004. These payments will continue for approximately four years.
6. Meredith Funding Corporation
In connection with the asset-backed commercial paper facility, Meredith entered into a revolving agreement to sell all of its rights, title and interest in the majority of its accounts receivable related to advertising, book and miscellaneous revenues to Meredith Funding Corporation, a special purpose entity established to purchase accounts receivable from Meredith. At December 31, 2004, $167 million of accounts receivable, net of reserves, were outstanding under the agreement. Meredith Funding Corporation in turn sells receivable interests to an asset-backed commercial paper conduit administered by a major national bank. In consideration of the sale, Meredith receives cash and a subordinated note, bearing interest at the prime rate (5.25 percent at December 31, 2004), from Meredith Funding Corporation. The agreement is structured as a true sale under which the creditors of Meredith Funding Corporation will be entitled to be satisfied out of the assets of Meredith Funding Corporation prior to any value b eing returned to Meredith or its creditors. The accounts of Meredith Funding Corporation are fully consolidated in Meredith's Condensed Consolidated Financial Statements. The asset-backed commercial paper facility renews annually in April. Meredith has the ability and the intent to renew the facility each year until April 9, 2007, the facility termination date.
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
7. Pension and Postretirement Benefit Plans
The following tables present the components of net periodic benefit cost:
Three Months | Six Months | |||||||||||
(In thousands) | 2004 | 2003 | 2004 | 2003 | ||||||||
Pension benefits | ||||||||||||
Service cost | $ | 1,340 | $ | 1,048 | $ | 2,681 | $ | 2,095 | ||||
Interest cost | 1,121 | 1,025 | 2,243 | 2,050 | ||||||||
Expected return on plan assets | (1,581 | ) | (1,096 | ) | (3,163 | ) | (2,192 | ) | ||||
Prior service cost amortization | 171 | 166 | 341 | 332 | ||||||||
Actuarial loss amortization | 34 | 112 | 68 | 225 | ||||||||
Transition amount amortization | - | 42 | - | 84 | ||||||||
Net periodic pension expense | $ | 1,085 | $ | 1,297 | $ | 2,170 | $ | 2,594 | ||||
Postretirement benefits | ||||||||||||
Service cost | $ | 214 | $ | 210 | $ | 427 | $ | 419 | ||||
Interest cost | 321 | 348 | 643 | 696 | ||||||||
Prior service cost amortization | (71 | ) | (50 | ) | (143 | ) | (100 | ) | ||||
Actuarial loss amortization | 17 | - | 35 | - | ||||||||
Net periodic postretirement expense | $ | 481 | $ | 508 | $ | 962 | $ | 1,015 | ||||
8. Common Stock and Stock Option Plans
On December 31, 2004, Meredith had an employee stock purchase plan and several stock incentive plans all of which are shareholder approved. These plans are described in more detail below. For the six months ended December 31, 2004 and 2003, compensation expense recognized for these plans was $5.6 million (before the favorable pre-tax adjustment for the cumulative effect of the change in accounting principle of $1.5 million) and $6.2 million, respectively. The total income tax benefit recognized in earnings before the cumulative effect of the change in accounting principle for share-based payment arrangements was $2.2 million and $2.4 million for the six months ended December 31, 2004 and 2003, respectively.
Employee Stock Purchase Plan
Meredith has an employee stock purchase plan (ESPP) available to substantially all employees. The ESPP allows employees to purchase shares of Meredith common stock through payroll deductions at the lesser of 85 percent of the fair market value of the stock on either the first or last trading day of an offering period. The ESPP has quarterly offering periods. Shareholders authorized a reserve of 500,000 common shares for issuance under the ESPP. Compensation cost for the ESPP is based on the present value of the cash discount and the fair value of the call option component as of the grant date using a Black-Scholes option pricing model. The term of the option is 3 months (the term of the offering period) and the expected stock price volatility was approximately 14 percent in both the six months ended December 31, 2004 and 2003. Information about the shares issued under this plan follows:
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
Six months ended December 31 | 2004 | 2003 | |||||||
(In thousands except per share) | |||||||||
Shares issued | 24 | 19 | |||||||
Average fair value | $ | 8.39 | $ | 7.12 | |||||
Average purchase price | $ | 43.95 | $ | 39.00 | |||||
Average market price | $ | 52.75 | $ | 47.46 | |||||
Stock Incentive Plans
Meredith has 5 stock incentive plans (the Plans) that permit the Company to issue up to 16.1 million shares in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and performance cash awards to key employees and directors of the Company. The total number of shares that have been awarded under these plans as of December 31, 2004, is approximately 12.6 million. The Plans are designed to provide incentive to contribute to the achievement of long-range corporate goals; provide flexibility in motivating, attracting and retaining employees; and, to better align the interests of employees with those of the shareholders.
The Company has awarded restricted shares of common stock to eligible key employees and to nonemployee directors under the Plans. In addition, certain awards are granted based on specified levels of Company stock ownership. All awards have restriction periods tied primarily to employment and/or service. The awards generally vest over three or five years. The awards are recorded at the market value of traded shares on the date of the grant as unearned compensation. The initial values of the grants, net of estimated forfeitures, are amortized over the vesting periods. The Company's restricted stock activity during the six-months ended December 31, 2004 follows:
Restricted Stock | Shares | Weighted- | ||||
(In thousands except per share) | ||||||
Nonvested at July 1, 2004 | 86 | $ | 42.08 | |||
Granted | 7 | 51.00 | ||||
Vested | (6 | ) | 33.75 | |||
Forfeited |
| (5 | ) |
| 43.60 |
|
Nonvested at December 31, 2004 |
| 82 |
| $ | 43.38 |
|
As of December 31, 2004, there was $1.8 million of unearned compensation cost related to the restricted stock granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.9 years. The weighted average grant date fair value of restricted stock granted during the six months ended December 31, 2004 and 2003 was $51.00 and $47.27, respectively. The total fair value of shares vested during the six months ended December 31 was $0.3 million in 2004 and $1.1 million in 2003.
Meredith also has outstanding restricted stock units and stock equivalent units (stock units) that were sold to employees and directors through various deferred compensation plans. The period of deferral is specified when the deferral election is made. These stock units are sold at the market price of the underlying stock on the date of sale. In addition, shares of restricted stock may be converted to stock units upon vesting. The following summarizes the activity for stock units during the six months ended December 31, 2004:
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
Stock Units | Units | Weighted- | |||||
(In thousands except per share) | |||||||
Balance at July 1, 2004 | 142 | $ | 28.83 | ||||
Additions | 8 | 47.63 | |||||
Converted to common stock |
| (2 | ) |
| 38.08 | ||
Balance at December 31, 2004 net |
| 148 |
| $ | 29.70 | ||
The aggregate intrinsic value of the stock units outstanding at December 31, 2004 was $3.6 million. The total intrinsic value of the stock units converted to common stock in the six months ended December 31, 2004 and 2003 was $23 thousand and $4 thousand, respectively.
Meredith also has granted nonqualified stock options to certain employees and directors under the Plans. Options are granted at prices not less than the market price of the underlying stock on the date of grant. All options granted under the Plans expire at the end of 10 years. Most of the options granted in fiscal 2004 and 2005 vest three years from the date of grant. Most of the options granted prior to fiscal 2004 vest one-third each year over a three-year period. The Company elected to recognize the expense associated with the graded vesting options on a straight-line basis for each separately vesting portion of the award as if the award was, in substance, multiple awards. Meredith has also occasionally granted options tied to attaining specified earnings per share and/or return on equity goals for the subsequent three-year period. Attaining these goals results in the acceleration of vesting for all, or a portion of, the options to three years from the date of grant. Options not subject to accelerated vesting vest eight years from the date of grant, subject to certain tenure qualifications.
A summary of stock option activity and weighted average exercise prices follows:
|
| Options |
| Weighted- |
| Weighted- |
| Aggregate Intrinsic Value |
| |||
Outstanding, July 1, 2004 | 6,322 | $ 34.98 | ||||||||||
Granted | 898 | 50.18 | ||||||||||
Exercised | (432 | ) | 31.64 | |||||||||
Forfeited | (233 | ) | 43.85 | |||||||||
Outstanding, December 31, 2004 |
| 6,555 |
|
| $ 36.97 |
| 5.97 years |
| $113,773 |
| ||
Exercisable, December 31, 2004 |
| 3,972 |
|
| $ 31.74 |
| 4.36 years |
| $ 89,701 |
| ||
The fair value of each option is estimated as of the date of grant using a Black-Scholes option pricing model. Expected volatility is based on historical volatility of the Company's stock and other factors. The expected life of options granted incorporates historical employee exercise and termination behavior. Different expected lives are used for separate groups of employees that have similar historical exercise patterns. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The following summarizes the assumptions used in determining the fair value of options granted:
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
Six months ended December 31 | 2004 | 2003 | |||||||
Risk-free interest rate | 3.3-4.0 | % | 3.3-4.2 | % | |||||
Expected dividend yield | 0.90 | % | 0.90 | % | |||||
Expected option life | 4-7 | yrs | 5-7 | yrs | |||||
Expected stock price volatility |
| 19-23 | % |
| 23 | % |
| ||
Weighted-average stock price volatility |
| 22 | % |
| 23 | % |
| ||
The weighted-average grant date fair value of options granted during the six months ended December 31, 2004 and 2003 was $13.29 and $13.54, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2004 and 2003 was $8.7 million and $4.5 million, respectively. As of December 31, 2004 there was $20.2 million in unrecognized compensation cost for stock options granted under the Plans. This cost is expected to be recognized over a weighted-average period of 2.2 years.
Cash received from option exercises under all share-based payment plans for the six months ended December 31, 2004 and 2003 was $14.8 million and $5.6 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $3.4 million and $1.7 million, respectively for the six months ended December 31, 2004 and 2003.
Meredith expects, from year to year, to repurchase a sufficient number of shares of stock to approximate or exceed the number of options granted annually.
9. Comprehensive Income
Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. Comprehensive income includes net earnings as well as foreign currency translation adjustments. Total comprehensive income for the three-month periods ended December 31, 2004 and 2003, was $27.8 million and $18.0 million, respectively. Total comprehensive income for the six-month periods ended December 31, 2004 and 2003, was $51.8 million and $35.8 million, respectively.
10. Segment Information
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. The broadcasting segment includes the operations of 13 network-affiliated television stations, one AM radio station and one television station operated under a joint sales agreement. There are no material intersegment transactions. There have been no changes in the basis of segmentation since June 30, 2004.
There are two principal financial measures reported to the chief executive officer for use in assessing segment performance and allocating resources. Those measures are operating profit and earnings before interest, taxes, depreciation and amortization (EBITDA). Operating profit for segment reporting, disclosed below, is revenues less operating costs excluding unallocated corporate expenses. 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
| MEREDITH CORPORATION AND SUBSIDIARIES | |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
(Unaudited) |
or other appropriate methods, primarily number of employees. Unallocated corporate expenses are corporate overhead expenses not attributable to the operating groups. Interest income and expense are not allocated to the segments. Segment EBITDA also excludes unallocated corporate expenses. In accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, EBITDA is not presented below.
Three Months | Six Months | |||||||||||
(In thousands) | 2004 | Restated | 2004 | Restated | ||||||||
Revenues | ||||||||||||
Publishing | $ | 204,663 | $ | 206,855 | $ | 420,241 | $ | 413,526 | ||||
Broadcasting | 89,890 | 73,524 | 163,175 | 139,523 | ||||||||
Total revenues | $ | 294,553 | $ | 280,379 | $ | 583,416 | $ | 553,049 | ||||
Operating profit | ||||||||||||
Publishing | $ | 24,817 | $ | 21,951 | $ | 62,640 | $ | 54,232 | ||||
Broadcasting | 32,186 | 19,596 | 46,439 | 29,603 | ||||||||
Unallocated corporate | (8,302 | ) | (7,224 | ) | (16,405 | ) | (15,180 | ) | ||||
Income from operations | $ | 48,701 | $ | 34,323 | $ | 92,674 | $ | 68,655 | ||||
Depreciation and amortization | ||||||||||||
Publishing | $ | 2,416 | $ | 2,588 | $ | 4,761 | $ | 5,107 | ||||
Broadcasting | 5,822 | 5,607 | 11,315 | 11,120 | ||||||||
Unallocated corporate | 508 | 653 | 1,101 | 1,325 | ||||||||
Total depreciation and amortization | $ | 8,746 | $ | 8,848 | $ | 17,177 | $ | 17,552 | ||||
Management's Discussion and Analysis of Financial Condition and Results of Operations |
EXECUTIVE OVERVIEW
Meredith Corporation (Meredith or the Company) is one of America's leading home and family publishers and a broadcaster with television stations in top markets such as Atlanta and Phoenix. Each month we reach more than 75 million American consumers through our magazines, books, custom publications, web sites, and television stations.
Meredith operates in two business segments. Publishing consists of magazine and book publishing, integrated marketing, interactive media, database-related activities, brand licensing and other related operations. Broadcasting consists of 13 network-affiliated television stations and one radio station. In addition, we own the non-license assets and participate in a joint-sales agreement for one television station. Both segments operate primarily in the United States and compete against similar media and other types of media on both a local and national basis. Publishing accounted for 72 percent of the Company's revenues in the first six months of fiscal 2005 while broadcasting revenues totaled 28 percent.
PUBLISHING
Advertising revenues made up 47 percent of publishing's revenues in the first half of fiscal 2005. These revenues are generated from the sale of advertising space in the Company's magazines and on web sites to clients interested in promoting their brands, products and services to consumers. Circulation revenues accounted for 27 percent of publishing's fiscal 2005 first half revenues. Circulation revenues result from the sale of magazines to consumers through subscriptions and through single copy sales on newsstands, primarily at major retailers and grocery/drug stores. The remaining 26 percent of publishing revenues came from a variety of activities that included the sale of books and custom publishing services as well as brand licensing, product sales and related activities. Publishing's major expense categories include production and delivery of publications and promotional mailings and employee compensation costs.
BROADCASTING
Broadcasting derives almost all of its revenues-98 percent in the first six months of fiscal 2005-from the sale of advertising. The remainder comes from television rebroadcast rights fees, network compensation, television production services, and other services. Political advertising associated with biennial election campaigns can result in cyclical increases (in odd-numbered fiscal years) and decreases (in even-numbered fiscal years) in advertising revenues. Broadcasting's major expense categories are employee compensation and programming costs.
FIRST SIX MONTHS FISCAL 2005 HIGHLIGHTS
Revenues increased 5 percent from the prior-year period reflecting increased advertising revenues, including cyclical political advertising at the television stations, strong growth in our custom publishing revenues, and the addition of new broadcasting properties.
Both segments increased operating profits and improved their operating profit margins in the period.
We elected to begin expensing stock options and have restated prior periods to include expense previously disclosed on a pro forma basis in the notes to our consolidated financial statements.
Diluted earnings per share increased 47 percent to $1.00 from prior-year first half earnings of $0.68. The increase primarily reflected the improved performance of both operating groups.
We generated $54.9 million in operating cash flow and spent $49.1 million to repurchase shares of our common stock in the six month period.
In November 2004, we acquired the non-license assets of KSMO-TV, the WB affiliate in Kansas City, and entered into a joint sales agreement under which we will manage the sales and certain other operations of KSMO. We will also have the opportunity to purchase the station's license assets at a later date, if allowed under Federal Communications Commission rules. We already own KCTV, the CBS affiliate in Kansas City. In August 2004, we acquired WFLI-TV, the WB television affiliate serving Chattanooga, TN. Chattanooga is the 86th largest television market in the country, and the station serves viewers in southeast Tennessee and northwest Georgia. This station increases our presence in the Southeast, where we already own stations in Atlanta, Nashville and Greenville, SC. These acquisitions add WB stations to our affiliate mix and fit into our strategy to expand our broadcasting group portfolio, particularly focusing on duopolies and regional clusters. Our initial investm ent in these stations of approximately $42 million was not material.
SHARE-BASED COMPENSATION EXPENSE
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),Share-Based Payment. This Statement requires public entities to record expense for share-based payments, primarily stock options, awarded to employees based on the grant-date fair value of the award. We elected to adopt this Statement effective October 1, 2004, in advance of the Company's required adoption date of July 1, 2005. Previously, we valued share-based payments by the intrinsic value method in our financial statements while providing pro-forma disclosure of fair-value-based expense. Since stock options are typically granted at the current market price of the stock, the intrinsic value method usually resulted in no expense being recorded. The Statement provides various transition methods. We used the modified version of the retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro form a disclosures required for those periods under previous accounting standards.
SFAS No. 123 (revised 2004) requires entities to estimate the number of forfeitures expected to occur and record expense based upon the number of awards expected to vest. Previously, Meredith accounted for forfeitures as they occurred as permitted under previous accounting standards. As a result, in the second quarter of fiscal 2005, the Company recorded the cumulative effect of a change in accounting principle of $1.5 million ($0.9 million after tax), or $0.02 per share, to reduce compensation expense recognized in previous periods for the estimated forfeitures of outstanding awards.
Adoption of this Statement resulted in the recognition of share-based compensation expense in the current period and the restatement of prior period results. For the three months ended December 31, selling, general and administrative expenses increased by $2.3 million in 2004 and $3.1 million in 2003. For the six months ended December 31, selling, general and administrative expenses increased by $5.1 million in 2004 and $5.6 million in 2003. The effect on earnings and diluted earning per share was as follows:
Three Months Ended December 31 | Six Months Ended | |||||||||||||
(In thousands except per share data) | 2004 | Restated | 2004 | Restated 2003 | ||||||||||
Earnings before cumulative effect of change | ||||||||||||||
Before adoption | $ | 28,231 | $ | 19,437 | $ | 53,855 | $ | 38,487 | ||||||
Share-based compensation, net of taxes | (1,409 | ) | (1,880 | ) | (3,116 | ) | (3,440 | ) | ||||||
After adoption | $ | 26,822 | $ | 17,557 | $ | 50,739 | $ | 35,047 | ||||||
Diluted earnings per share before adoption | $ | 0.55 | $ | 0.38 | $ | 1.05 | $ | 0.75 | ||||||
Share-based compensation, net of taxes | (0.03 | ) | (0.04 | ) | (0.07 | ) | (0.07 | ) | ||||||
Diluted earnings per share after adoption | $ | 0.52 | 0.34 | $ | 0.98 | $ | 0.68 | |||||||
We expect share-based compensation expense in future periods to be comparable subject to variations in the number and valuation of future share-based payments. Adoption of this Statement also resulted in the restatement of certain balance sheet amounts, primarily deferred taxes and shareholders' equity, and the reclassification of certain cash flows between operating and financing activities. See Notes 1c and 2 to the Interim Condensed Consolidated Financial Statements for additional details.
USE OF NON-GAAP FINANCIAL MEASURES
Our analysis of broadcasting segment results includes references to earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA and EBITDA margin are non-GAAP measures. We use EBITDA along with operating profit and other GAAP measures to evaluate the financial performance of our broadcasting segment. EBITDA is a common alternative measure of performance in the broadcasting industry and is used by investors and financial analysts, but its calculation may vary among companies. Broadcasting segment EBITDA is not used as a measure of liquidity, nor is it necessarily indicative of funds available for our discretionary use.
We believe the non-GAAP measures used in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contribute to an understanding of our financial performance. These measures should not, however, be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. We use and present non-GAAP financial measures along with GAAP results to evaluate and communicate the performance of the Company and its segments. We believe the non-GAAP financial measures provide an additional analytic tool to understand our results from core operations and to reveal underlying trends.
RESULTS OF OPERATIONS
CONSOLIDATED
Three Months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands except per share data ) | |||||||
Total revenues | $ | 294,553 | $ | 280,379 | 5 % | ||
Operating costs and expenses | 245,852 | 246,056 | -- | ||||
Income from operations | $ | 48,701 | $ | 34,323 | 42 % | ||
Earnings before cumulative effect of change in accounting principle | $ | 26,822 | $ | 17,557 | 53 % | ||
Net earnings | $ | 27,715 | $ | 17,557 | 58 % | ||
Diluted earnings per share | |||||||
Before cumulative effect of change in accounting principle | $ | 0.52 | $ | 0.34 | 53 % | ||
Net earnings | $ | 0.54 | $ | 0.34 | 59 % | ||
Six Months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands except per share data) | |||||||
Total revenues | $ | 583,416 | $ | 553,049 | 5 % | ||
Operating costs and expenses | 490,742 | 484,394 | 1 % | ||||
Income from operations | $ | 92,674 | $ | 68,655 | 35 % | ||
Earnings before cumulative effect of change in accounting principle | $ | 50,739 | $ | 35,047 | 45 % | ||
Net earnings | $ | 51,632 | $ | 35,047 | 47 % | ||
Diluted earnings per share | |||||||
Before cumulative effect of change in accounting principle | $ | 0.98 | $ | 0.68 | 44 % | ||
Net earnings | $ | 1.00 | $ | 0.68 | 47 % | ||
The following sections provide an analysis of the results of operations for the publishing and broadcasting segments followed by an analysis of the consolidated results of operations for the quarter and six months ended December 31, 2004 compared with the respective prior-year periods. This commentary should be read in conjunction with the condensed consolidated financial statements presented elsewhere in this report and with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004.
PUBLISHING
Publishing operating results were as follows:
Three months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands) | |||||||
Advertising revenues | $ | 88,101 | $ | 92,548 | (5)% | ||
Circulation revenues | 55,861 | 59,520 | (6)% | ||||
Other revenues | 60,701 | 54,787 | 11 % | ||||
Total revenues | 204,663 | 206,855 | (1)% | ||||
Operating costs | 179,846 | 184,904 | (3)% | ||||
Operating profit | $ | 24,817 | $ | 21,951 | 13 % | ||
Six months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands) | |||||||
Advertising revenues | $ | 196,850 | $ | 193,159 | 2 % | ||
Circulation revenues | 114,087 | 120,151 | (5)% | ||||
Other revenues | 109,304 | 100,216 | 9 % | ||||
Total revenues | 420,241 | 413,526 | 2 % | ||||
Operating costs | 357,601 | 359,294 | -- | ||||
Operating profit | $ | 62,640 | $ | 54,232 | 16 % | ||
Revenues
Publishing revenues declined 1 percent in the second quarter compared with the prior-year quarter as a result of lower advertising and circulation revenues. These declines were partially offset by higher revenues from custom publishing and licensing. In the first half of fiscal 2005 revenues increased 2 percent compared with the prior-year period due to strong growth in revenues from custom publishing as well as higher advertising and licensing revenues. Lower revenues from circulation and the sale of books partially offset those increases.
Publishing advertising revenues declined 5 percent in the second quarter. The decline was attributable to the sale of fewer advertising pages at most of our titles. The decline in advertising pages was partially offset by higher average revenues per page at most titles. Among advertising categories, demand was weaker for the home, retail, household supply, and pharmaceutical categories while direct response, remedies and cosmetics showed strength. In the six months ended December 31, 2004, advertising revenues increased 2 percent as higher average revenues per page more than offset a mid-single digit percentage decline in advertising pages sold. Advertising categories showing strength in the period included remedies, direct response, and food and beverage, while demand was weaker for the household supplies, pharmaceuticals, and home and building categories. An increase in online advertising also contributed to the growth in advertising revenues in the six-month period.
Combined advertising revenues at the Company's two largest circulation titles,Better Homes and Gardens andLadies' Home Journal, declined in the high-single digits on a percentage basis in the second quarter and were down in the mid-single digits in the first half of fiscal 2005. The decline atBetter Homes and Gardens reflected fewer advertising pages sold partially offset by higher average revenues per page. AtLadies' Home Journalthe primary factor in the revenue decline was lower average revenues per page as the number of advertising pages sold increased in both the quarter and six-month period. Advertising revenues declined in the low-single digits atAmerican Baby magazine in the second quarter due to fewer advertising pages. In the six-month period, advertising revenues and pages increased in the mid-single digits atAmerican Baby.Advertising revenues at our mid-sized group of titles, which includesCountry Home,Traditional Home, Midwest Livin gandMoremagazines, declined in the low-single digits on a percentage basis in the second quarter and were up in the high-single digits in the first half of fiscal 2005. The decline in revenues in the second quarter reflected fewer advertising pages partially offset by higher revenues per page at most titles. In the six-month period, ad pages were down at all mid-sized titles exceptMore magazine, but higher average revenues per page more than offset the decline in pages to result in higher revenues.
Magazine circulation revenues declined 6 percent in the second quarter and 5 percent in the six-month period versus the comparable prior-year periods. The declines reflected lower average subscription revenues per copy for several titles, due to an increase in the subscription term of direct mail offers. Our strategy is to increase circulation profits, which were up in the mid-single digits on a percentage basis in both the quarter and six-month period, by increasing the term of direct mail offers which lowers costs. Also contributing to the decline in circulation revenues was lower newsstand revenues due to continued weakness in newsstand sales and our previously announced reduction in the number of Special Interest Publications published.
Other publishing revenues increased 11 percent from the prior-year second quarter and were up 9 percent in the six-month period primarily reflecting strong new business growth in integrated marketing, our custom publishing operation. Some of the larger new programs include Nestlé, Hyundai and Creative Memories. An increase in revenues from licensing activities also contributed to the revenue growth. Revenues from the sale of books increased slightly in the second quarter, but were down in the low teens on a percentage basis in the six-month period due to the timing of the book release schedule compared with the prior year.
Operating Costs
Second quarter publishing operating costs decreased 3 percent from the comparable fiscal 2004 quarter. In the six months ended December 31, 2004, publishing operating costs were down slightly versus the comparable prior-year period. The decline in costs in both periods reflected volume-related decreases in magazine production and distribution costs resulting from fewer advertising pages sold. In addition, magazine subscription acquisition costs declined from a shift to more profitable direct-to-publisher sources. We also maintained disciplined expense management. Partially offsetting these cost decreases were higher employee compensation costs. Employee compensation costs were up as a result of higher staff levels primarily to support the growth in the integrated marketing business and higher compensation levels due to annual merit increases.
Operating Profit
Publishing operating profit increased 13 percent in the quarter and 16 percent in the six-month period. The primary factors were higher magazine circulation contribution and disciplined expense management. A volume-related increase in integrated marketing operating profits also contributed. In addition, the six months benefited from higher advertising revenues but also reflected lower operating profits from book sales.
BROADCASTING
Broadcasting operating results were as follows:
Three months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands) | |||||||
Non-political advertising revenues | $ | 76,119 | $ | 71,539 | 6 % | ||
Political advertising revenues | 12,201 | 445 | NM | ||||
Other revenues | 1,570 | 1,540 | 2 % | ||||
Total revenues | 89,890 | 73,524 | 22 % | ||||
Operating costs | 57,704 | 53,928 | 7 % | ||||
Operating profit | $ | 32,186 | $ | 19,596 | 64 % | ||
NM-Not meaningful | |||||||
Six months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands) | |||||||
Non-political advertising revenues | $ | 141,583 | $ | 135,446 | 5 % | ||
Political advertising revenues | 18,579 | 794 | NM | ||||
Other revenues | 3,013 | 3,283 | (8)% | ||||
Total revenues | 163,175 | 139,523 | 17 % | ||||
Operating costs | 116,736 | 109,920 | 6 % | ||||
Operating profit | $ | 46,439 | $ | 29,603 | 57 % | ||
NM-Not meaningful | |||||||
Revenues
Broadcasting revenues increased 22 percent in the second quarter and 17 percent in the first six months of fiscal 2005 compared with the respective prior-year periods. Net political advertising revenues totaled $12.2 million in the second quarter and $18.6 million in the six-month period compared with less than $1 million in net political advertising revenues in the both the second quarter and first six months of the prior fiscal year. The fluctuations in political advertising revenues at our stations, and in the broadcasting industry, generally follow the biennial cycle of election campaigns. Political advertising displaces a certain amount of non-political advertising and therefore the revenues are not entirely incremental. Non-political advertising revenues increased 6 percent in the second quarter and 5 percent in the six-month period. The increases in nonpolitical advertising revenues reflected the addition of revenues from new properties and higher local advertising at comparable stations. On a compara ble basis, non-political advertising revenues increased 3 percent in the quarter and 2 percent in the six-month period. New properties include an AM radio station in Saginaw/Bay City, MI, a CBS station in Springfield-Holyoke, MA, and WB affiliates in Kansas City and Chattanooga, TN.
Operating Costs
Operating costs increased 7 percent in the quarter and 6 percent in the first half of fiscal 2005 compared with the respective prior-year periods. The cost increases resulted primarily from the addition of the new properties. On a comparable basis, costs increased 2 percent in the quarter and 4 percent in the six-month period. These increases primarily reflected higher employee compensation costs. In addition, in the six month period, programming costs increased mostly due to the higher fee paid in Kansas City for the NFL Chiefs' pre-season broadcast rights but were partially offset by lower broadcasting program rights amortization.
Operating Profit
Broadcasting operating profit increased 64 percent in the second quarter and 57 percent in the first half of fiscal 2005 as a result of the increase in advertising revenues.
Supplemental Disclosure of Broadcasting EBITDA
Meredith's broadcasting EBITDA is defined as broadcasting segment operating profit plus depreciation and amortization expense. EBITDA is not a GAAP financial measure and should not be considered in isolation or as a substitute for GAAP financial measures. See the discussion of management's rationale for the use of EBITDA in the preceding Executive Overview section. The following table provides reconciliations between broadcasting segment operating profit and EBITDA. The EBITDA margin is defined as segment EBITDA divided by segment revenues.
Three months ended December 31 | 2004 | Restated | |||
(In thousands) | |||||
Revenues | $ | 89,890 | $ | 73,524 | |
Operating profit | $ | 32,186 | $ | 19,596 | |
Depreciation and amortization | 5,822 | 5,607 | |||
EBITDA | $ | 38,008 | $ | 25,203 | |
EBITDA margin | 42.3 % | 34.3 % | |||
Six months ended December 31 | 2004 | Restated | |||
(In thousands) | |||||
Revenues | $ | 163,175 | $ | 139,523 | |
Operating profit | $ | 46,439 | $ | 29,603 | |
Depreciation and amortization | 11,315 | 11,120 | |||
EBITDA | $ | 57,754 | $ | 40,723 | |
EBITDA margin | 35.4 % | 29.2 % | |||
UNALLOCATED CORPORATE EXPENSES
Unallocated corporate expenses are general corporate overhead expenses not attributable to the operating groups. These expenses were as follows:
2004 | Restated | Percent | |||||
(In thousands) | |||||||
Three months ended December 31 | $ | 8,302 | $ | 7,224 | 15 % | ||
Six months ended December 31 | $ | 16,405 | $ | 15,180 | 8 % | ||
Unallocated corporate expenses increased 15 percent in the second quarter and were up 8 percent in the first six months of fiscal 2005 compared with the respective prior-year periods primarily due to increased legal and employee medical insurance benefit expenses as well as higher rent expense resulting from rent escalation clauses on our office space in New York City.
CONSOLIDATED
Consolidated Operating Costs and Expenses
Consolidated operating costs and expenses were as follows:
Three months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands) | |||||||
Production, distribution and editorial | $ | 123,413 | $ | 121,719 | 1 % | ||
Selling, general and administrative | 113,693 | 115,489 | (2)% | ||||
Depreciation and amortization | 8,746 | 8,848 | (1)% | ||||
Total operating costs and expenses | $ | 245,852 | $ | 246,056 | -- | ||
Six months ended December 31 | 2004 | Restated | Percent | |||
(In thousands) | ||||||
Production, distribution and editorial | $ | 252,589 | $ | 244,770 | 3 % | |
Selling, general and administrative | 220,976 | 222,072 | -- | |||
Depreciation and amortization | 17,177 | 17,552 | (2)% | |||
Total operating costs and expenses | $ | 490,742 | $ | 484,394 | 1 % | |
Production, distribution and editorial expenses increased 1 percent in the second quarter and 3 percent in the six month period compared to the respective prior-year periods. The increases reflected higher publishing editorial costs and higher broadcasting spending for news and sports programming. The increase in publishing editorial costs primarily reflected higher employee compensation costs related to increased staff levels, mostly in integrated marketing, and annual merit increases. Also contributing to the cost increase in the six-month period was a volume-related increase in production costs for integrated marketing custom publishing projects. These cost increases were partially offset by a volume-related decline in magazine production and distribution costs and, in the six month period, lower broadcasting program rights amortization expense.
Selling, general and administrative expenses decreased slightly from the prior second quarter and six-month period. The declines resulted from lower magazine subscription acquisition costs and disciplined expense management. Increased spending for employee compensation costs and higher legal, rent and employee benefit expenses partially offset the declines.
Depreciation and amortization expenses decreased slightly in both the quarter and six month period. The decline reflected lower information technology depreciation due to certain systems becoming fully depreciated.
Income from Operations
Income from operations increased 42 percent in the second quarter reflecting revenue growth in broadcasting and higher operating margins in both of our business segments. Income from operations increased 35 percent in the first half of fiscal 2005 as a result of higher revenues and operating margins in both of our business segments.
Net Interest Expense
Net interest expense was $4.9 million in the fiscal 2005 second quarter compared with expense of $5.7 million in the comparable prior-year quarter. In the six months ended December 31, 2004, net interest expense was $9.9 million versus $11.5 million in the comparable prior-year period. Average long-term debt outstanding was $300 million in the current periods compared with $343 million in the second quarter and $353 in the first half of fiscal 2004.
Interest expense in the prior-year periods included the effects of interest rate swap contracts. We had entered into interest rate swap contracts to effectively convert a substantial portion of our variable rate debt to fixed rate debt. The net cash disbursements related to these contracts were included in interest expense. In addition, certain interest rate swap contracts had previously been deemed ineffective and dedesignated as hedge contracts. Subsequent to the discontinuation of hedge accounting, changes in the fair market value of the affected interest rate swap contracts were recorded as interest expense. The net effect of the swap contracts was an increase in interest expense of $0.5 million in the second quarter and $1.0 million in the first six months of fiscal 2004. All of our interest rate swap contracts expired in June 2004.
Income Taxes
Our effective tax rate was 38.7 percent in all periods.
Earnings and Earnings per Share
Earnings before the cumulative effect of a change in accounting principle were $26.8 million ($0.52 per diluted share) in the quarter ended December 31, 2004, up 53 percent from $17.6 million ($0.34 cents per diluted share) in the comparable prior-year quarter. In the six months ended December 31, 2004, earnings before the cumulative effect of a change in accounting principle were $50.7 million ($0.98 per diluted share), an increase of 45 percent from prior-year six month earnings of $35.0 million ($0.68 per diluted share). The improvements reflected higher segment operating profits and lower interest expense. Net earnings in the three and six month periods ended December 31, 2004 were $27.7 million ($0.54 per diluted share) and $51.6 million ($1.00 per diluted share), respectively, including the cumulative effect of a change in accounting principle related to an adjustment for anticipated forfeitures of share-based compensation awards. Average basic and diluted shares outstanding decreased slightly in b oth the quarter and six month period.
LIQUIDITY AND CAPITAL RESOURCES
Six months ended December 31 | 2004 | Restated | Percent | ||||
(In thousands) | |||||||
Net earnings | $ | 51,632 | $ | 35,047 | 47 % | ||
Cash flows from operations | $ | 54,898 | $ | 60,871 | (10)% | ||
Cash flows used by investing | $ | (43,268) | $ | (11,778) | (267)% | ||
Cash flows used by financing | $ | (44,697) | $ | (61,694) | 28 % | ||
Net decrease in cash and cash equivalents | $ | (33,067) | $ | (12,601) | (162)% | ||
OVERVIEW
Meredith's primary source of liquidity is cash generated by operating activities. Debt financing is typically used for significant acquisitions. We expect cash on hand, internally generated cash flow, and available credit from third-party financing agreements to provide sufficient funds for operating and recurring cash needs (e.g., working capital, capital expenditures, debt repayments, cash dividends and share repurchases) into the foreseeable future. We have up to $250 million available under current credit agreements. These credit agreements also allow us to request an increase of up to another $150 million. While there are no guarantees that we will be able to replace current credit agreements when they expire, we expect to be able to do so.
SOURCES AND USES OF CASH
Cash and cash equivalents decreased $33.1 million in the first six months of fiscal 2005; they decreased $12.6 million in the comparable period of fiscal 2004. In both periods, net cash provided by operating activities was used for purchases of Company stock, capital investments, and dividends. In the current period, cash was also used for acquisitions. In the prior-year period, cash was also used to reduce debt.
Operating activities
The largest single component of operating cash inflows is cash received from advertising customers. Other sources of operating cash inflows include cash received from magazine circulation sales and other revenue transactions such as book, integrated marketing, and product sales. Operating cash outflows include payments to vendors and employees and payments of interest and income taxes.
Cash provided by operating activities totaled $54.9 million in the first half of fiscal 2005 compared with $60.9 million in first half of fiscal 2004. The largest factors in the decrease were a reduction in cash received from magazine newsstand sales as well as increased cash spending for employee compensation costs and income taxes.
These declines were partially offset by increased cash received from advertising and integrated marketing sales and lower interest payments.
Investing activities
Investing cash inflows generally include proceeds from the sale of assets or a business. Investing cash outflows generally include payments for the acquisition of new businesses, investments, and additions to property, plant and equipment.
Net cash used by investing activities increased from $11.8 million in the first half of fiscal 2004 to $43.3 million in the current period. The increase primarily reflected the use of cash for broadcasting acquisitions in the current period.
Financing activities
Financing cash inflows generally include borrowings under debt agreements, proceeds from common stock issued for stock option exercises and for our Employee Stock Purchase Plan and excess tax benefits from share-based payments. Financing cash outflows generally include the repayment of long-term debt, repurchases of Company stock, and the payment of dividends.
Net cash used by financing activities totaled $44.7 million in the six months ended December 31, 2004, compared with $61.7 million in the six months ended December 31, 2003. The decline reflected a reduction in net debt repayments and increased proceeds from common stock issued. This was partially offset by increased spending for purchases of Company stock and higher dividend payments in the current period.
Long-term debt
At December 31, 2004, long-term debt outstanding totaled $300 million in fixed-rate unsecured senior notes. $125 million of this debt is due in the next 12 months. We expect to repay this debt with cash on hand and credit available under current credit agreements. The weighted average effective interest rate for the fixed-rate notes is 6.55 percent. We also have credit available under an asset-backed commercial paper facility with a capacity of up to $100 million and a revolving credit facility of up to $150 million. The revolving credit facility also allows us to request an increase of up to another $150 million. The asset-backed commercial paper facility renews annually until April 9, 2007, the facility termination date. The interest rate changes monthly and is based on a fixed spread over the average commercial paper cost to the lender. The revolving credit facility expires on November 12, 2009. The interest rate is variable based on LIBOR and Meredith's debt to trailing 12 month EBITDA ratio.
All of our debt agreements include financial covenants, and failure to comply with any such covenants could result in the debt becoming payable on demand. The Company was in compliance with all debt covenants at December 31, 2004 and expects to remain so in the future.
Contractual obligations
Our contractual obligations are summarized in our Annual Report on Form 10-K for the year ended June 30, 2004. As of December 31, 2004, there had been no material changes in our contractual obligations from June 30, 2004.
Share repurchase program
As part of our ongoing share repurchase program, we spent $49.1 million in the first half of fiscal 2005 to repurchase an aggregate of 965,000 shares of Meredith Corporation common stock at then current market prices. We spent $14.1 million to repurchase 294,000 shares in the first six months of fiscal 2004. We expect to continue repurchasing shares from time to time in the foreseeable future, subject to market conditions. As of December 31, 2004, approximately 1.1 million shares were authorized for future repurchase. The status of the repurchase program is reviewed at each quarterly Board of Directors meeting. See Part II, Item 2 (c), Issuer Purchases of Equity Securities, of this Form 10-Q for detailed information on share repurchases during the quarter ended December 31, 2004.
Dividends
Dividends paid in the first six months of fiscal 2005 totaled $12.0 million, or 24 cents per share, compared with dividend payments of $9.5 million, or 19 cents per share, in the first half of fiscal 2004.
Capital expenditures
Spending for property, plant, and equipment totaled $9.8 million in the first six months of fiscal 2005 compared with prior-year first half spending of $11.4 million. The decline reflected lower spending for information technology systems and equipment in the current period. We expect to spend between $18 and $22 million in fiscal 2005 and 2006 for a new facility for our television station in Hartford. We have no other material commitments for capital expenditures. We expect funds for future capital expenditures to come from operating activities or, if necessary, borrowings under credit agreements.
OTHER MATTERS
CRITICAL ACCOUNTING POLICIES
Meredith's critical accounting policies are summarized in our Annual Report on Form 10-K for the year ended June 30, 2004. As of December 31, 2004, the Company's critical accounting policies discussed in our Annual Report had not changed from June 30, 2004. The adoption of SFAS No. 123 (revised December 2004), which requires us to recognize expense for share-based payments, introduces a new accounting policy that requires management to make estimates and assumptions that affect the amounts reported in our financial statements. We now consider this to be a critical accounting policy.
Share-based compensation expense
Meredith has several stock incentive plans that permit us to grant various types of share-based incentives to key employees and directors. The primary types of incentives granted under these plans are stock options and restricted shares of common stock. Restricted shares are valued at the market value of traded shares on the date of grant. The valuation of stock options, however, requires numerous assumptions. We currently determine the fair value of each option as of the date of grant using a Black-Scholes option pricing model. This model requires inputs for the expected volatility of our stock price, expected life of the option and expected dividend yield, among others. In addition, we estimate the number of options expected to eventually vest. We base our assumptions on historical data, expected market conditions and other factors. In some instances a range of assumptions is used to reflect differences in behavior among various groups of employees. Changes in these assumptions could materially affe ct the share-based compensation expense recognized as well as various liability and equity balances.
OUTLOOK
The following statements reflect our current expectations for the third quarter and the remainder of fiscal 2005.
Expensing options will reduce earnings per share approximately $0.14 for all of fiscal 2005. Given this accounting adjustment, the Company anticipates option-adjusted earnings per share will approximate $2.50 in fiscal 2005.
For the third quarter of fiscal 2005, Broadcast pacings, which are a snapshot in time and change frequently, are currently running up in the low single digits.
The Company expects the Publishing Group to grow operating profit in the mid to high single digits in the third quarter due to strong results from its integrated marketing operations, increased circulation profit, and prudent cost management. Publishing advertising revenues are expected to be down in the low single digits, reflecting the uncertain advertising climate.
Expensing options will reduce earnings per share approximately $0.04 in each of the third and fourth quarters of fiscal 2005. Given this accounting adjustment, the Company anticipates option-adjusted earnings per share will be in the range of $0.67 to $0.69 in the third quarter of fiscal 2005.
We may update this guidance periodically during the fiscal year through our quarterly earnings releases or through management presentations to industry, investor, and investment analyst groups. Copies of our quarterly earnings releases are available on our website (www.meredith.com) in the Investor Information section. Copies of the text of management presentations that may contain material non-public information are also posted on our website, typically for one week following the presentation. Copies of both earnings releases and such management presentations are also furnished to the Securities and Exchange Commission on Form 8-K and can be accessed through their website (www.sec.gov). The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.
RISK FACTORS
Except for the historical information contained herein, the matters discussed in this quarterly report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those predicted by such forward-looking statements. These statements are based on management's current knowledge and estimates of factors affecting our operations. Readers are cautioned not to place undue reliance on such forward-looking information. 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; world, national or local events that could disrupt broadcast television; 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, purchase, 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; changes in legislation or government regulations affecting the Company's industries; unexpected changes in interest rates; and any acquisitions and/or dispositions. Meredith's Annual Report on Form 10-K for the year ended June 30, 2004 includes a more complete description of the risk factors that may affect our results.
Item 3. |
Meredith is exposed to certain market risks as a result of its use of financial instruments, in particular the potential market value loss arising from adverse changes in interest rates. Readers are referred to Item 7A, Quantitative and Qualitative Disclosures about Market Risk of the Company's fiscal 2004 Form 10-K for a more complete discussion of these risks.
Long-term debt
At December 31, 2004, Meredith had outstanding $300 million in fixed-rate long-term debt. There are no earnings or liquidity risks associated with the Company's fixed-rate debt. The fair market value of the fixed-rate debt (based on discounted cash flows reflecting borrowing rates currently available for debt with similar terms and maturities) varies with fluctuations in interest rates. A 10 percent decrease in interest rates would have changed the fair market value of the fixed-rate debt to $308.7 million from $306.6 million at December 31, 2004.
Broadcast rights payable
There has been no material change in the market risk associated with broadcast rights payable since June 30, 2004.
Item 4. |
Meredith's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Form 10-Q, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that Meredith files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in the Company's internal controls that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting in the quarter ended December 31, 2004.
PART II | OTHER INFORMATION |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) | Issuer Purchases of Equity Securities |
The following table sets forth information with respect to the Company's repurchases of common and class B stock during the quarter ended December 31, 2004.
Period | (a) Total number of shares purchased1 | (b) Average price | (c) Total number of shares purchased as part of publicly announced programs | (d) Maximum number of shares that may yet be purchased under programs | |||||
October 1 to | 169,707 | $50.83 | 169,707 | 1,302,659 | |||||
November 1 to | 138,601 | $49.64 | 138,601 | 1,164,058 | |||||
December 1 to | 47,827 | $52.99 | 47,827 | 1,116,231 | |||||
Total | 356,135 | $50.66 | 356,135 | 1,116,231 | |||||
1 | Column (a), Total number of shares purchased, includes no purchases of Class B stock and the following shares withheld to pay taxes upon the exercise of stock options: 621 in October 2004, 3,801 in November 2004 and 18,805 in December 2004. | ||||||||
In February 2004, Meredith announced the Board of Directors had authorized the repurchase of up to 2 million additional shares of the Company's stock through public and private transactions.
For more information on the Company's share repurchase program, see Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Share repurchase program."
Item 4. |
(a) | The Annual Meeting of Shareholders was held on November 8, 2004, at the Company's headquarters in Des Moines, Iowa. | ||||||||||||||
(b) | The name of each director elected at the Annual Meeting is shown under Item 4(c)(1). The other directors whose terms of office continued after the meeting were: Herbert M. Baum, Frederick B. Henry, William T. Kerr, Robert E. Lee, David J. Londoner, Philip A. Marineau, Charles D. Peebler, Jr. and Nicholas L. Reding. | ||||||||||||||
(c) | (1) | Proposal 1: Election of four Class II directors for terms expiring in 2007. Each nominee was elected in uncontested elections by the votes cast as follows: | |||||||||||
Number of shareholder votes * | |||||||||||||
For | Withheld | ||||||||||||
Class II directors | |||||||||||||
Mary Sue Coleman | 128,894,375 | 1,330,172 | |||||||||||
D. Mell Meredith Frazier | 120,074,608 | 10,149,940 | |||||||||||
Joel W. Johnson | 128,424,943 | 1,799,605 | |||||||||||
Stephen M. Lacy | 129,054,547 | 1,170,001 | |||||||||||
* As specified on the proxy card, if no vote For or Withhold was specified, the shares were voted For the election of the named director. | |||||||||||||
(c) | (2) | Proposal 2: Approval of the Meredith Corporation 2004 Stock Incentive Plan. Proposal 2 was approved by the votes cast as follows: | |||||||||||
For | Against | Abstentions | Broker | ||||||||||
100,198,575 | 25,154,810 | 704,869 | 4,166,294 | ||||||||||
Item 6. |
4 | Second Amendment to Credit Agreement dated April 5, 2002 among Meredith Corporation, as Borrower, The Lenders listed herein, Fleet National Bank, as Administrative Agent and Issuing Lender, Bank One, NA and Wells Fargo Bank, National Association, each as Co-Syndication Agent and Suntrust Bank, Central Florida, National Association, as Documentation Agent, with Fleet Securities, Inc. having acted as Lead Arranger. | ||
| 10.1 | Meredith Corporation 2004 Stock Incentive Plan is incorporated herein by reference to Exhibit B to the Company's Proxy Statement for the Annual Meeting of Shareholders on November 8, 2004. | ||
| 10.2 | Form of Restricted Stock Award Agreement between Meredith Corporation and the named employee for the 2004 Stock Incentive Plan. | ||
| 10.3 | Form of Nonqualified Stock Option Award Agreement between Meredith Corporation and the named employee for the 2004 Stock Incentive Plan. | ||
31 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | ||
32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
SIGNATURE | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |||
MEREDITH CORPORATION | |||
Registrant | |||
/s/ Suku V. Radia | |||
| |||
Suku V. Radia | |||
Vice President - Chief Financial Officer | |||
(Principal Financial and Accounting Officer) | |||
Date: | January 25, 2005 |
Exhibit | Item | |
4 | Second Amendment to Credit Agreement dated April 5, 2002 among Meredith Corporation, as Borrower, The Lenders listed herein, Fleet National Bank, as Administrative Agent and Issuing Lender, Bank One, NA and Wells Fargo Bank, National Association, each as Co-Syndication Agent and Suntrust Bank, Central Florida, National Association, as Documentation Agent, with Fleet Securities, Inc. having acted as Lead Arranger. | |
| 10.1 | Meredith Corporation 2004 Stock Incentive Plan is incorporated herein by reference to Exhibit B to the Company's Proxy Statement for the Annual Meeting of Shareholders on November 8, 2004. | |
| 10.2 | Form of Restricted Stock Award Agreement between Meredith Corporation and the named employee for the 2004 Stock Incentive Plan. | |
| 10.3 | Form of Nonqualified Stock Option Award Agreement between Meredith Corporation and the named employee for the 2004 Stock Incentive Plan. | |
31 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
E-1 |
Financial Data: | ||