UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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)
515 - 284-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 2000
Common Stock, $1 par value 39,267,257
Class B Stock, $1 par value 10,762,337
----------
Total Common and Class B Stock 50,029,594
==========
- 1 -
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
September 30 June 30
Assets 2000 2000
- ------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 15,347 $ 22,861
Receivables, net 134,210 145,845
Inventories 38,184 35,805
Subscription acquisition costs 44,589 44,606
Broadcast rights 32,164 18,686
Deferred income taxes 11,407 10,490
Supplies and prepaids 13,200 10,506
---------- ----------
Total current assets 289,101 288,799
Property, plant and equipment 334,272 321,418
Less accumulated depreciation (145,743) (147,261)
---------- ----------
Net property, plant and equipment 188,529 174,157
Subscription acquisition costs 35,050 37,349
Broadcast rights 12,760 10,300
Other assets 41,163 35,968
Goodwill and other intangibles (at original
cost less accumulated amortization of
$170,683 on September 30 and $164,157 on June 30) 886,675 893,200
---------- ----------
Total assets $1,453,278 $1,439,773
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
- 2 -
(Unaudited)
September 30 June 30
Liabilities and Stockholders' Equity 2000 2000
- ------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Current portion of long-term debt $ 50,000 $ 50,000
Current portion of long-term broadcast
rights payable 37,108 22,666
Accounts payable 42,853 53,892
Accrued taxes and expenses 86,120 94,169
Unearned subscription revenues 137,460 137,974
---------- ----------
Total current liabilities 353,541 358,701
Long-term debt 465,000 455,000
Long-term broadcast rights payable 13,869 13,480
Unearned subscription revenues 95,449 96,811
Deferred income taxes 52,440 48,260
Other noncurrent liabilities 48,064 45,012
---------- ----------
Total liabilities 1,028,363 1,017,264
---------- ----------
Temporary equity: Put option agreements
Common stock, no shares outstanding at
September 30 and 1,264,140 shares at June 30 -- 42,665
---------- ----------
Stockholders' equity:
Series preferred stock, par value $1 per share
Authorized 5,000,000 shares; none issued -- --
Common stock, par value $1 per share
Authorized 80,000,000 shares; issued and
outstanding 39,314,923 at September 30 and
38,326,171 at June 30 (net of treasury shares,
29,462,696 at September 30 and 29,050,052 at
June 30.) 39,315 38,326
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,772,481 at September 30 and
10,882,845 at June 30. 10,772 10,883
Retained earnings 376,725 334,448
Accumulated other comprehensive income (loss) 657 (776)
Unearned compensation (2,554) (3,037)
---------- ----------
Total stockholders' equity 424,915 379,844
---------- ----------
Total liabilities and stockholders' equity $1,453,278 $1,439,773
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
- 3 -
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months
Ended September 30
2000 1999
- --------------------------------------------------------------------------
(In thousands except per share)
Revenues:
Advertising $149,025 $156,771
Circulation 64,514 69,287
All other 36,483 34,346
-------- --------
Total revenues 250,022 260,404
-------- --------
Operating costs and expenses:
Production, distribution and edit 110,545 107,997
Selling, general & administrative 91,460 100,747
Depreciation and amortization 12,839 12,943
-------- --------
Total operating costs and expenses 214,844 221,687
-------- --------
Income from operations 35,178 38,717
Interest income 209 290
Interest expense (8,520) (8,868)
-------- --------
Earnings before income taxes 26,867 30,139
Income taxes 10,398 12,116
-------- --------
Net earnings $ 16,469 $ 18,023
======== ========
Basic earnings per share $ 0.33 $ 0.35
======== ========
Basic average shares outstanding 50,272 51,773
======== ========
Diluted earnings per share $ 0.32 $ 0.34
======== ========
Diluted average shares outstanding 51,522 53,373
======== ========
Dividends paid per share $ 0.080 $ 0.075
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
- 4 -
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended September 30 2000 1999
- ---------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 16,469 $ 18,023
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,839 12,943
Amortization of broadcast rights 8,427 7,605
Payments for broadcast rights (9,609) (10,157)
Changes in assets and liabilities:
Accounts receivable 11,635 (12,417)
Inventories (2,379) (2,005)
Supplies and prepayments (2,669) (1,042)
Subscription acquisition costs 2,316 5,519
Accounts payable (11,039) (7,798)
Accruals (7,618) 4,095
Unearned subscription revenues (1,876) (1,531)
Deferred income taxes 2,347 1,629
Other noncurrent liabilities 3,052 3,099
-------- --------
Net cash provided by operating activities 21,895 17,963
-------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment (20,708) (8,765)
Changes in investments and other (2,826) 170
-------- --------
Net cash (used) by investing activities (23,534) (8,595)
-------- --------
Cash flows from financing activities:
Long-term debt incurred 10,000 --
Proceeds from common stock issued 1,054 661
Purchases of company stock (13,213) (6,075)
Dividends paid (4,011) (3,884)
Other 295 162
-------- --------
Net cash (used) by financing activities (5,875) (9,136)
-------- --------
Net (decrease) increase in cash and cash equivalents (7,514) 232
Cash and cash equivalents at beginning of year 22,861 11,029
-------- --------
Cash and cash equivalents at end of period $ 15,347 $ 11,261
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
- 5 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
a. General
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, which are of a
normal recurring nature and necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year. Readers are referred to the
company's Form 10-K for the year ended June 30, 2000 for complete financial
statements and related notes. Certain prior-year amounts have been
reclassified to conform with current-year presentation.
b. Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
could differ from those estimates.
c. Goodwill and other intangibles
The unamortized portion of intangible assets consisted of the following:
(unaudited)
September 30 June 30
2000 2000
------------ ------------
(In thousands)
Federal Communications
Commission (FCC) licenses $426,038 $428,909
Goodwill 246,854 248,799
Television network affiliation
agreements 200,789 202,313
All other 12,994 13,179
-------- --------
Total unamortized portion
of intangible assets $886,675 $893,200
======== ========
- 6 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
d. Earnings per share
The following table presents the calculations of earnings per share:
(unaudited)
Three Months
Ended September 30
2000 1999
--------- ---------
(In thousands except per share)
Net earnings $16,469 $18,023
======= =======
Basic average shares outstanding 50,272 51,773
Dilutive effect of stock options 1,250 1,600
------- -------
Diluted average shares outstanding 51,522 53,373
======= =======
Basic earnings per share $ .33 $ .35
======= =======
Diluted earnings per share $ .32 $ .34
======= =======
Antidilutive options excluded from the above calculations totaled 1,413,000
options at September 30, 2000 (with a weighted average exercise price of
$36.51) and 607,000 options at September 30, 1999 (with a weighted average
exercise price of $40.80).
Options to purchase 55,000 shares were exercised during the three months ended
September 30, 2000 (23,000 options were exercised in the three months ended
September 30, 1999).
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 contributed to a nonrecurring charge of $23.1 million ($19.1
million after tax) or 36 cents per share for asset write-downs ($16.8 million),
- 7 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
contractual obligations ($3.8 million) and personnel costs ($2.5 million). At
June 30, 2000, $3.2 million was accrued in the Consolidated Balance Sheet
related to these charges. Details of the activity in the accrual account since
that date follow:
6-30-2000 Other 9-30-2000
Accrual Cash Adjust- Accrual
Description Balance Payments ments Balance
- ---------------------- --------- -------- -------- ---------
(In thousands)
Contractual obligations $ 2,116 $ -- $ -- $ 2,116
Personnel costs 1,109 (192) -- 917
-------- -------- -------- ---------
Total $ 3,225 $ (192) $ -- $ 3,033
======== ======== ======== =========
Accrued contractual obligations represent costs associated with the decision to
exit certain publishing operations. These costs are expected to be paid out
over the next 33 months from internally generated cash flows.
Accrued 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. As of September 30,
2000, 27 of the 29 employees had left the company. Remaining personnel costs
are expected to be paid out over the next 15 months from internally generated
cash flows.
3. Derivative Financial Instruments
Meredith adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," including
subsequent amendments, as required on July 1, 2000.
The company's use of derivative financial instruments relates to the management
of the risk that changes in interest rates will affect its future interest
payments. Interest rate swap contracts are used to effectively convert a
significant portion of the company's variable interest rate debt to fixed
interest rate debt. Under an interest rate swap contract, Meredith agrees to
pay an amount equal to a specified fixed-rate of interest times a notional
principal amount, and to receive in return an amount equal to a specified
variable-rate of interest times the same notional principal amount. The
notional amounts of the contract are not exchanged. No other cash payments are
made unless the contract is terminated prior to maturity, in which case the
amount paid or received in settlement is established by agreement at the time
of termination, and usually represents the net present value, at current rates
of interest, of the remaining obligations to exchange payments under the terms
- 8 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
of the contract. Meredith is exposed to credit-related losses in the event of
nonperformance by counterparties to the swap contracts. This risk is minimized
by entering into contracts with large, stable financial institutions.
Meredith's interest rate swap contracts are considered to be a cash flow hedge
against changes in the amount of future interest payments on the company's
variable-rate debt obligations. Accordingly, the fair market value of the
interest rate swap contracts is included in "Other assets" in the Consolidated
Balance Sheets. The related unrealized gains on these contracts are recorded
in shareholders' equity as a component of comprehensive income, net of tax, and
then recognized as an adjustment to interest expense over the same period in
which the related interest payments being hedged are recognized in income.
However, to the extent that any of these contracts are not considered to be
highly effective in offsetting the change in the value of the interest payments
being hedged, any changes in fair value relating to the ineffective portion of
these contracts are immediately recognized in income. The net effect of this
accounting on the company's operating results is that interest expense on the
portion of the variable-rate debt being hedged is generally recorded based on
fixed interest rates.
At September 30, 2000, Meredith had interest rate swap contracts to pay
fixed-rates of interest (average 5.7 percent) and receive variable-rates of
interest (average 3-month LIBOR rate of 6.7 percent) on $240 million notional
amount of indebtedness. This resulted in nearly 80 percent of Meredith's
underlying variable-rate debt being subject to fixed interest rates. The swap
contracts expire on June 28, 2002, and the notional amount varies over the
terms of the contracts. The average notional amount of indebtedness
outstanding under the contracts is $223 million in fiscal 2001 and $93 million
in fiscal 2002.
The fair market value of the interest rate swap contracts was $2.3 million at
September 30, 2000. The estimated amount of the gain expected to be
reclassified into earnings over the next twelve months is $1.8 million. The
net gain or loss on the ineffective portion of these interest rate swap
contracts was not material in any period.
4. Comprehensive Income
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. The
company's comprehensive income includes foreign currency translation
adjustments and changes in the fair market value of interest rate swap
contracts in addition to net earnings. Fiscal 2001 comprehensive income also
included a cumulative-type transition net gain for the adoption of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," of $2.5
million. Total comprehensive income (in thousands) for the three-month periods
ended September 30, 2000 and 1999, was $17,902 and $17,890, respectively.
- 9 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
5. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 37 percent are under the LIFO method at
September 30, 2000 and 39 percent at June 30, 2000.
(unaudited)
September 30 June 30
2000 2000
----------- ----------
(In thousands)
Raw materials $25,369 $18,533
Work in process 15,602 19,980
Finished goods 6,581 6,360
------- -------
47,552 44,873
Reserve for LIFO cost valuation (9,368) (9,068)
------- -------
Total $38,184 $35,805
======= =======
- 10 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
6. Segment information
(unaudited)
Three Months
Ended September 30
-------------------
2000 1999
-------- --------
(In thousands)
Revenues
Publishing $184,885 $193,714
Broadcasting 65,137 66,690
-------- --------
Total revenues $250,022 $260,404
======== ========
Operating profit
Publishing $ 28,410 $ 28,398
Broadcasting 10,143 13,545
Unallocated corporate expense (3,375) (3,226)
-------- --------
Income from operations $ 35,178 $ 38,717
======== ========
Depreciation and amortization
Publishing $ 2,209 $ 2,870
Broadcasting 9,948 9,521
Unallocated corporate 682 552
-------- --------
Total depreciation
and amortization $ 12,839 $ 12,943
======== ========
EBITDA
Publishing $ 30,619 $ 31,268
Broadcasting 20,091 23,066
Unallocated corporate (2,693) (2,674)
-------- --------
Total EBITDA $ 48,017 $ 51,660
======== ========
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 12
network-affiliated television stations. The syndicated television program
- 11 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
marketing and development operations, that were previously reported in the
broadcasting segment, are now reported in the publishing segment. Prior-year
information has been restated. There are no material intersegment
transactions.
EBITDA is defined as earnings from continuing operations before interest,
taxes, depreciation and amortization. EBITDA is often used to analyze and
compare companies on the basis of operating performance and cash flow. EBITDA
is not adjusted for all noncash expenses or for working capital, capital
expenditures and other investment requirements. EBITDA should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion presents the key factors that have affected the
company's business in the first quarter of fiscal 2001 and fiscal 2000. This
commentary should be read in conjunction with the consolidated financial
statements presented elsewhere in this report and with the company's Form 10-K
for the year ended June 30, 2000. All per-share amounts refer to diluted
earnings per share and are computed on a post-tax basis.
This section, 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. Readers are referred to the company's Form 10-K
for the year ended June 30, 2000, for a discussion of such factors.
- 12 -
Results of Operations
Percent
Quarters ended September 30 2000 1999 Change
--------------------------- -------- -------- --------
(In thousands except per share)
Total revenues $250,022 $260,404 (4)%
======== ======== =====
Income from operations $ 35,178 $ 38,717 (9)%
======== ======== =====
Net earnings $ 16,469 $ 18,023 (9)%
======== ======== =====
Diluted earnings per share $ 0.32 $ 0.34 (6)%
======== ======== =====
Fiscal 2001 first quarter net earnings were $16.5 million, or 32 cents per
share compared to prior-year first quarter net earnings of $18.0 million, or 34
cents per share. The decline reflected lower operating profit in the
broadcasting segment. This decline was partially offset by slightly lower net
interest expense and a lower effective tax rate. In addition, the
weighted-average number of shares outstanding declined approximately 3 percent
due to company share repurchases.
First quarter revenues were $250.0 million compared to prior-year first quarter
revenues of $260.4 million. Adjusting for the impact of several discontinued
magazine titles, comparable prior-year revenues were $252.2 million. The
decline in comparable revenues primarily reflected lower advertising revenues
in both the publishing and broadcasting segments.
Operating costs and expenses decreased 3 percent from the prior-year quarter.
The decrease reflected lower subscription acquisition costs, primarily the
result of discontinued titles, and overall cost containment efforts. These
factors led to a 9 percent decline in selling, general and administrative
expenses. Production, distribution and editorial costs increased as a result
of investments in news expansion and improvements at the television stations
and from higher paper prices in the magazine operations. These increases were
partially offset by lower magazine production costs. The operating profit
margin was 14.1 percent of revenues in the current quarter versus 14.9 percent
in the prior-year period.
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
- 13 -
designed to grow the profit contribution of circulation activities and closing
certain operations that no longer fit the company's business objectives.
To move forward with these initiatives, Meredith has committed up to $100
million for investments in Internet and e-commerce activities, continued
development of its consumer database, and strategic alliances and partnerships.
Incremental spending related to these initiatives reduced earnings between 1
and 2 cents per share in the first quarter of fiscal 2001. Looking forward,
the impact on full fiscal 2001 earnings from these initiatives is expected to
be at the lower end of the previously announced range of 8 to 12 cents.
Investment spending related to the circulation initiatives had no impact in the
first fiscal quarter. Looking forward, investment spending related to the
circulation initiatives is expected to reduce full fiscal 2001 earnings by 8 to
10 cents per share.
The initiatives announced in March 2000 contributed to a fiscal 2000 fourth
quarter nonrecurring charge of $23.1 million ($19.1 million after tax) or 36
cents per share for asset write-downs ($16.8 million), contractual obligations
($3.8 million) and personnel costs ($2.5 million). At June 30, 2000, $3.2
million was accrued in the Consolidated Balance Sheet related to these charges.
Details of the activity in the accrual account since that date follow:
6-30-2000 9-30-2000
Accrual Cash Other Accrual
Description Balance Payments Adjustments Balance
- ---------------------- ------------ ----------- ---------- ---------
(In millions)
Contractual obligations $ 2.1 $ -- $ -- $ 2.1
Personnel costs 1.1 (0.2) -- 0.9
----------- ----------- ---------- ---------
Total before tax benefit $ 3.2 $ (0.2) $ -- $ 3.0
=========== =========== ========== =========
Accrued contractual obligations represent costs associated with the decision to
exit certain publishing operations. These costs are expected to be paid out
over the next 33 months from internally generated cash flows.
Accrued 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. As of September 30,
2000, 27 of the 29 employees had left the company. Remaining personnel costs
are expected to be paid out over the next 15 months from internally generated
cash flows.
The Company's effective tax rate in the first quarter, and the expected rate
for the fiscal year, was 38.7 percent compared with 40.2 percent in the prior
year.
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
- 14 -
included in the reported 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.
Percent
Quarters ended September 30 2000 1999 Change
--------------------------- -------- -------- --------
(In thousands)
Total revenues $ 1,070 $ 332 222 %
======== ======== =====
Operating loss $ (1,881) $ (1,463) (29)%
======== ======== =====
Interactive media revenues increased 222 percent in the first quarter to $1.1
million from $0.3 million in the prior-year quarter. The revenue growth
reflected increased advertising revenues, both online and from newly-formed
Internet alliances, and higher revenues for content creation services.
Interactive media incurred an operating loss of $1.9 million in the quarter
versus a loss of $1.5 million in the prior-year quarter. These results reflect
the company's increasing level of investment in interactive media, as
previously announced.
The number of registrations generated by Meredith Web sites continues to grow
at a rapid pace. By the end of the fiscal 2001 first quarter, the company had
surpassed the 1 million mark. Page views for all Meredith sites grew 60
percent and unique visitors grew 40 percent for the fiscal 2001 first quarter
versus the same period last year. The company also generated 153 percent more
subscriptions online. Kerr said this demonstrates the potential for
significant success related to the company's Internet investments over time.
Publishing
- ----------
Percent
Quarters ended September 30 2000 1999 Change
--------------------------- -------- -------- --------
(In thousands)
Revenues
---------
Advertising $ 85,628 $ 91,873 (7)%
Circulation 64,514 69,287 (7)%
Other 34,743 32,554 7 %
-------- -------- -----
Total revenues $184,885 $193,714 (5)%
======== ======== =====
Operating profit $ 28,410 $ 28,398 --
======== ======== =====
- 15 -
Publishing revenues were $184.9 million compared to $193.7 million in the
prior-year first quarter. Excluding the impact of discontinued titles,
comparable prior-year revenues were $185.6 million. The discontinued titles
include Crayola Kids, Northwest WorldTraveler, Cross Stitch & Needlework and
Decorative Woodcrafts magazines. The following discussion excludes the
prior-year revenues of these discontinued titles.
Comparable magazine advertising revenues were down 3 percent due to lower
advertising revenues at the company's two largest circulation titles, Better
Homes and Gardens and Ladies Home Journal magazines. Total advertising pages
for the two titles declined 11 percent versus the prior-year quarter. This
decline resulted primarily from a slowdown in advertising by packaged goods
manufacturers. Excluding these two titles, total advertising pages of other
magazines increased 9 percent with most titles reporting higher advertising
pages and revenues. Double-digit percentage advertising revenue growth was
reported by Traditional Home, the Better Homes and Gardens Special Interest
Publications and More magazine, among others. Partially offsetting this growth
was lower advertising revenues at WOOD magazine primarily due to a slowdown in
advertising by tool companies.
Comparable magazine circulation revenues were down less than 1 percent from the
prior year. Lower circulation revenue at Ladies' Home Journal magazine, a
result of its February 2000 reduction in rate base, was the primary factor in
the decline. Partially offsetting this decline were increased circulation
revenues from newer titles and higher newsstand sales of the Better Homes and
Gardens Special Interest Publications.
Other publishing revenues increased 7 percent as a result of increased sales
volume in the book and integrated marketing operations. Sales of books to home
and garden centers were especially strong. The increase in integrated
marketing revenues reflected new custom publishing agreements.
Publishing operating profit was $28.4 million in the fiscal 2001 first quarter,
even with results in the prior-year first quarter. The decline in revenues was
offset by a 5 percent decline in operating costs and expenses. Operating costs
and expenses declined primarily as a result of the discontinued titles, lower
amortization due to the prior-year write-downs, lower magazine processing costs
and lower subscription acquisition costs due to the timing of promotional
mailings. Partially offsetting these declines were higher magazine paper
prices and increased investment in interactive initiatives. Paper prices were
approximately 10 percent higher than a year earlier reflecting price increases
in October 1999 and April 2000. Individual magazine titles reporting
significant operating profit improvements included Country Home, Traditional
Home, and the company's group of craft titles. Operating profits declined at
Better Homes and Gardens, Ladies' Home Journal and WOOD magazines as a result
of lower advertising revenues.
Looking forward, management anticipates that, on a comparable basis, second
quarter fiscal 2001 advertising pages and revenues will show little change from
the prior-year second quarter. While some titles are benefiting from growth in
financial, luxury goods, travel, pharmaceuticals and home and building
advertising, the slowdown in packaged goods advertising has continued to effect
the company's two largest titles. In addition, the company expects very little
- 16 -
advertising by dot-com companies in the second quarter. This is based on
current information and actual results could differ.
Broadcasting
- ------------
Percent
Quarters ended September 30 2000 1999 Change
--------------------------- -------- -------- --------
(In thousands)
Revenues
---------
Advertising $ 63,397 $ 64,898 (2)%
Other 1,740 1,792 (3)%
-------- -------- -----
Total revenues $ 65,137 $ 66,690 (2)%
======== ======== =====
Operating profit $ 10,143 $ 13,545 (25)%
======== ======== =====
Fiscal 2001 first quarter revenues were $65.1 million compared to prior-year
first quarter revenues of $66.7 million. Management believes that television
advertising revenues were generally weak across the industry in the quarter
with the exception of advertising related to the summer Olympics on NBC
affiliates and advertising for political campaigns. Meredith owns only one NBC
affiliate, WSMV-Nashville. The company's 11 other stations were negatively
affected as some non-Olympic advertisers chose to curb spending during the
airing of the Olympics. Additionally, the timing of the Olympics pushed the
start of network fall programming into the second quarter, delaying some
advertising spending across the industry. Regarding political advertising,
significant spending has been limited to the tightly contested battleground
states. The company's CBS affiliates in Kansas City and Saginaw have
benefited, however, the company's other stations have seen little political
spending. As a result, the company's stations in Kansas City and Saginaw, as
well as the FOX affiliate in Bend, Oregon, reported higher advertising revenues
versus the prior-year first quarter. The company's other stations reported
revenues that were flat or down compared to the prior-year first quarter,
reflecting weakness across the industry and downturns in certain markets as
well as the continued weakness of FOX prime-time programming at the company's
six FOX affiliates.
Operating profit decreased 25 percent from the prior-year quarter reflecting
the revenue decline and increased operating costs. The increase in operating
costs resulted from investments in the improvement and expansion of news
programming, investments in sales enhancement efforts, increased depreciation
expense related to digital television investments and higher syndicated
programming costs in certain markets.
Looking forward, advertising bookings for October are currently pacing up in
the mid-single digit range, on a percentage basis, versus the prior-year
quarter. November and December bookings are pacing down in the mid-single
digit range. Pacing data is based on current information and actual results
may differ.
- 17 -
Liquidity and Capital Resources
Percent
Quarters ended September 30 2000 1999 Change
--------------------------- -------- -------- --------
(In thousands)
Net earnings $ 16,469 $ 18,023 (9)%
========= ========= =====
Cash flows from operations $ 21,895 $ 17,963 22 %
========= ========= =====
Cash flows from investing $ (23,534) $ (8,595) (174)%
========= ========= =====
Cash flows from financing $ (5,875) $ (9,136) 36 %
========= ========= =====
Net (decrease) increase in
cash and cash equivalents $ (7,514) $ 232 nm
========= ========= =====
EBITDA $ 48,017 $ 51,660 (7)%
========= ========= =====
nm - not meaningful
Cash and cash equivalents decreased by $7.5 million in the first quarter of
fiscal 2001 compared to an increase of $0.2 million in the prior-year quarter.
The change primarily reflected the increased use of cash in the current quarter
for capital expenditures. Cash provided by operating activities increased 22
percent because of favorable changes in cash required for working capital
needs. These changes related to lower accounts receivable balances, reflecting
the decline in advertising revenues, and lower accounts payable and accrual
balances related primarily to salaries and incentives.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. Fiscal 2001 first quarter EBITDA
decreased 7 percent from the prior-year quarter reflecting a decline in
operating results in the Broadcasting segment. EBITDA is not adjusted for all
noncash expenses or for working capital changes, capital expenditures or other
investment requirements. EBITDA should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
At September 30, 2000, debt outstanding consisted of $315 million outstanding
under two variable rate unsecured credit agreements and $200 million
outstanding in fixed rate unsecured senior notes issued to five insurance
companies. Funds for the payment of interest and principal on the debt are
expected to be provided by cash generated from future operating activities.
The debt agreements include certain financial covenants related to debt levels
and coverage ratios. During the first quarter the company renegotiated certain
- 18 -
of these covenants to provide Meredith more flexibility in the timing and level
of investment and capital spending. There was no material impact on the
financial position or results of operations of the company related to the
renegotiation of these covenants. As of September 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. The swap
contracts expire on June 28, 2002, and the notional amount declines
periodically over the remaining terms of the contracts. The company is exposed
to credit-related losses in the event of nonperformance by counterparties to
financial instruments. Management does not expect any counterparties to fail
to meet their obligations given the strong creditworthiness of the
counterparties to the agreements. The weighted-average interest rate on debt
outstanding at September 30, 2000, was approximately 6.5 percent.
In the first quarter of fiscal 2001, the company spent $13.2 million to
repurchase an aggregate of 448,000 shares of Meredith Corporation common stock
at then current market prices. This compares with spending of $6.1 million for
the repurchase of 172,000 shares in the prior-year first quarter. The company
expects to continue to repurchase shares from time to time in the foreseeable
future, subject to market conditions. As of September 30, 2000, approximately
1.3 million shares could be repurchased under existing board authorizations.
The status of this program is reviewed at each quarterly board of directors
meeting.
The market value of the put option agreements that appeared as Temporary equity
on the Consolidated Balance Sheet at June 30, 2000, has been reclassified into
Stockholders' equity at September 30, 2000, reflecting the expiration of the
put option agreements.
Dividends paid in the first quarter of fiscal 2001 were $4.0 million, or 8
cents per share, compared with $3.9 million, or 7.5 cents per share, in the
prior-year quarter.
First quarter spending for property, plant and equipment increased to $20.7
million from $8.8 million in the prior-year first quarter. The increase
reflected higher spending for the purchase of replacement aircraft and
associated facilities, construction of a new broadcasting facility for the
Atlanta television station and the purchase of equipment for the introduction
of local news programming at the Portland television station. Funds for capital
expenditures are expected to be provided by available cash, including cash from
operating activities or, if necessary, borrowings under credit agreements.
At this time, management expects that cash on hand, internally-generated cash
flow and debt from credit agreements will provide funds for any additional
operating and recurring cash needs (e.g., working capital, cash dividends) for
foreseeable periods.
Meredith adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," including
subsequent amendments, as required on July 1, 2000. This adoption had no
effect on the net earnings of the company and the effect on the company's
financial position was immaterial.
- 19 -
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The company is subject to certain market risks as a result of the use of
financial instruments. The market risk inherent in the company's financial
instruments subject to such risks is the potential market value loss arising
from adverse changes in interest rates. Readers are referred to Item 7a,
"Quantitative and Qualitative Disclosures About Market Risk," of the company's
Form 10-K for the year ended June 30, 2000 for a more complete discussion of
these risks.
At September 30, 2000, Meredith had outstanding $315 million in variable-rate
long-term debt and $200 million in fixed-rate long-term debt. The company uses
interest rate swap contracts to effectively convert a substantial portion of
its variable-rate debt to fixed-rate debt. Therefore, there is no material
earnings or liquidity risk associated with the company's variable-rate debt and
the related interest rate swap contracts. The fair 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 $0.7 million compared to the
current fair market value of $2.3 million at September 30, 2000.
There is no earnings or liquidity risk associated with the company's fixed rate
debt. The fair market value of the debt is determined by discounting cash
flows through maturity using borrowing rates currently available for debt with
similar terms and maturities. A 10 percent decrease in interest rates would
result in a fair market value of ($196.6 million) compared to the current fair
market value of ($189.3 million) at September 30, 2000.
There has been no material change in the market risk associated with broadcast
rights payable since June 30, 2000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27) Financial Data Schedule
(b) Reports on Form 8-K
During the first quarter of fiscal 2001, the company filed a report on Form
8-K on August 22, 2000, as amended by Form 8-KA filed on August 24, 2000,
reporting under Item 5 the text of a news release dated August 8, 2000,
reporting earnings for the fiscal year ended June 30, 2000 and the script
of a conference call held with analysts concerning that news release.
- 20 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEREDITH CORPORATION
Registrant
(Suku V. Radia)
Suku V. Radia
Vice President - Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 13, 2000
- 21 -
Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
27 Financial Data Schedule
E-1