UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 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 January 31, 2001
Common Stock, $1 par value 39,493,817
Class B Stock, $1 par value 10,416,252
----------
Total Common and Class B Stock 49,910,069
==========
- 1 -
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
December 31 June 30
Assets 2000 2000
- ------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 9,849 $ 22,861
Receivables, net 136,270 145,845
Inventories 42,184 35,805
Subscription acquisition costs 45,096 44,606
Broadcast rights 24,953 18,686
Deferred income taxes 12,483 10,490
Supplies and prepaids 11,833 10,506
---------- ----------
Total current assets 282,668 288,799
Property, plant and equipment 344,513 321,418
Less accumulated depreciation (151,888) (147,261)
---------- ----------
Net property, plant and equipment 192,625 174,157
Subscription acquisition costs 34,691 37,349
Broadcast rights 13,286 10,300
Other assets 41,077 35,968
Goodwill and other intangibles (at original
cost less accumulated amortization of
$177,209 on December 31 and $164,157 on June 30) 880,152 893,200
---------- ----------
Total assets $1,444,499 $1,439,773
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
- 2 -
(Unaudited)
December 31 June 30
Liabilities and Stockholders' Equity 2000 2000
- ------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Short-term bank debt $ 7,370 $ --
Current portion of long-term debt 50,000 50,000
Current portion of long-term broadcast
rights payable 28,376 22,666
Accounts payable 33,661 53,892
Accrued taxes and expenses 87,783 94,169
Unearned subscription revenues 139,482 137,974
---------- ----------
Total current liabilities 346,672 358,701
Long-term debt 445,000 455,000
Long-term broadcast rights payable 15,321 13,480
Unearned subscription revenues 94,034 96,811
Deferred income taxes 57,963 48,260
Other noncurrent liabilities 46,039 45,012
---------- ----------
Total liabilities 1,005,029 1,017,264
---------- ----------
Temporary equity: Put option agreements
Common stock, no shares outstanding at
December 31 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 39,218,088 at December 31 and
38,326,171 at June 30 (net of treasury shares,
29,691,826 at December 31 and 29,050,052 at
June 30.) 39,218 38,326
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,749,866 at December 31 and
10,882,845 at June 30. 10,750 10,883
Retained earnings 392,538 334,448
Accumulated other comprehensive income (loss) (198) (776)
Unearned compensation (2,838) (3,037)
---------- ----------
Total stockholders' equity 439,470 379,844
---------- ----------
Total liabilities and stockholders' equity $1,444,499 $1,439,773
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
- 3 -
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months Six Months
Ended December 31 Ended December 31
2000 1999 2000 1999
- ------------------------------------------------------------------------------
(In thousands except per share)
Revenues:
Advertising $153,169 $157,882 $302,194 $314,653
Circulation 63,336 68,530 127,850 137,817
All other 44,383 39,717 80,866 74,063
-------- -------- -------- --------
Total revenues 260,888 266,129 510,910 526,533
-------- -------- -------- --------
Operating costs and expenses:
Production, distribution and edit 107,576 108,361 218,121 216,358
Selling, general & administrative 93,109 93,083 184,569 193,830
Depreciation and amortization 12,785 13,078 25,624 26,021
-------- -------- -------- --------
Total operating costs and expenses 213,470 214,522 428,314 436,209
-------- -------- -------- --------
Income from operations 47,418 51,607 82,596 90,324
Interest income 269 147 478 437
Interest expense (8,469) (9,181) (16,989) (18,049)
-------- -------- -------- --------
Earnings before income taxes 39,218 42,573 66,085 72,712
Income taxes 15,177 17,114 25,575 29,230
-------- -------- -------- --------
Net earnings $ 24,041 $ 25,459 $ 40,510 $ 43,482
======== ======== ======== ========
Basic earnings per share $ 0.48 $ 0.49 $ 0.81 $ 0.84
======== ======== ======== ========
Basic average shares outstanding 50,019 51,596 50,146 51,684
======== ======== ======== ========
Diluted earnings per share $ 0.47 $ 0.48 $ 0.79 $ 0.82
======== ======== ======== ========
Diluted average shares outstanding 51,275 53,303 51,398 53,338
======== ======== ======== ========
Dividends paid per share $ 0.080 $ 0.075 $ 0.160 $ 0.150
======== ======== ======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
- 4 -
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 31 2000 1999
- ---------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 40,510 $ 43,482
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 25,624 26,021
Amortization of broadcast rights 17,149 16,020
Payments for broadcast rights (19,346) (18,670)
Changes in assets and liabilities:
Accounts receivable 9,575 (14,941)
Inventories (6,379) (429)
Supplies and prepayments (881) (1,719)
Subscription acquisition costs 2,168 3,547
Accounts payable (20,231) (24,388)
Accruals (5,458) 1,377
Unearned subscription revenues (1,269) 5,333
Deferred income taxes 7,340 5,404
Other noncurrent liabilities 1,027 3,207
-------- --------
Net cash provided by operating activities 49,829 44,244
-------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment (31,068) (14,881)
Changes in investments and other (3,757) (1,757)
-------- --------
Net cash (used) by investing activities (34,825) (16,638)
-------- --------
Cash flows from financing activities:
Short-term debt incurred 7,370 --
Repayment of long-term debt (10,000) --
Financing costs (383) --
Proceeds from common stock issued 2,567 1,712
Purchases of company stock (20,145) (14,908)
Dividends paid (8,013) (7,751)
Other 588 393
-------- --------
Net cash (used) by financing activities (28,016) (20,554)
-------- --------
Net (decrease) increase in cash and cash equivalents (13,012) 7,052
Cash and cash equivalents at beginning of year 22,861 11,029
-------- --------
Cash and cash equivalents at end of period $ 9,849 $ 18,081
======== ========
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)
December 31 June 30
2000 2000
----------- -----------
(In thousands)
Federal Communications
Commission (FCC) licenses $423,170 $428,909
Goodwill 244,909 248,799
Television network affiliation
agreements 199,265 202,313
All other 12,808 13,179
-------- --------
Goodwill and other intangibles $880,152 $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 Six Months
Ended December 31 Ended December 31
2000 1999 2000 1999
------- ------- ------- -------
(In thousands except per share)
Net earnings $24,041 $25,459 $40,510 $43,482
======= ======= ======= =======
Basic average shares outstanding 50,019 51,596 50,146 51,684
Dilutive effect of stock options 1,256 1,707 1,252 1,654
------- ------- ------- -------
Diluted average shares outstanding 51,275 53,303 51,398 53,338
======= ======= ======= =======
Basic earnings per share $ .48 $ .49 $ .81 $ .84
======= ======= ======= =======
Diluted earnings per share $ .47 $ .48 $ .79 $ .82
======= ======= ======= =======
Antidilutive options excluded from the above calculations totaled 1,509,000
options at December 31, 2000 (with a weighted average exercise price of
$35.92) and 580,000 options at December 31, 1999 (with a weighted average
exercise price of $40.95).
Options to purchase 137,000 shares were exercised during the six months ended
December 31, 2000 (83,000 options were exercised in the six months ended
December 31, 1999).
2. Nonrecurring Items
In March 2000, Meredith announced several major strategic initiatives designed
to position the company for 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),
contractual obligations ($3.8 million) and personnel costs ($2.5 million).
- 7 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
The asset write-downs primarily included the write-off of goodwill and other
intangibles allocated to Cross Stitch & Needlework magazine which was part of
the acquisition of Craftways Corporation in 1988. The company still operates
other businesses acquired in the acquisition. Goodwill and intangibles
associated with another publishing operation, that the company has decided to
no longer publish, were also written-off. In addition, the asset write-downs
included the write-off of deferred subscription acquisition costs and prepaid
editorial costs as well as reserves for bad debts associated with the
discontinued magazines. Net accounts receivable of the discontinued titles
were expected to be collected and other tangible assets associated with the
discontinued titles, such as paper inventories and office equipment, were
redeployed in other magazines.
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 12-31-2000
Accrual Cash Adjust- Accrual
Description Balance Payments ments Balance
- ---------------------- --------- -------- -------- ---------
(In thousands)
Contractual obligations $ 2,116 $ -- $ -- $ 2,116
Personnel costs 1,109 (339) -- 770
-------- -------- -------- ---------
Total $ 3,225 $ (339) $ -- $ 2,886
======== ======== ======== =========
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 30 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 December 31,
2000, 27 of the 29 employees had left the company. Remaining personnel costs
are expected to be paid out over the next 12 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.
- 8 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
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
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 December 31, 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 6.4 percent) on $230 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 $0.5 million at
December 31, 2000. The estimated amount of the gain expected to be
reclassified into earnings over the next twelve months is $0.4 million. The
- 9 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
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
includes 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 December 31, 2000 and 1999, was $23,187 and $25,466, respectively. Total
comprehensive income (in thousands) for the six-month periods ended December
31, 2000 and 1999, was $41,088 and $43,356, respectively.
5. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 33 percent are under the LIFO method at
December 31, and 39 percent at June 30, 2000.
(unaudited)
December 31 June 30
2000 2000
----------- ----------
(In thousands)
Raw materials $21,686 $18,533
Work in process 20,898 19,980
Finished goods 8,668 6,360
------- -------
51,252 44,873
Reserve for LIFO cost valuation (9,068) (9,068)
------- -------
Inventories $42,184 $35,805
======= =======
- 10 -
MEREDITH CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
6. Segment information
(unaudited) (unaudited)
Three Months Six Months
Ended December 31 Ended December 31
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
Revenues
Publishing $182,259 $189,970 $367,144 $383,684
Broadcasting 78,629 76,159 143,766 142,849
-------- -------- -------- --------
Total revenues $260,888 $266,129 $510,910 $526,533
======== ======== ======== ========
Operating profit
Publishing $ 29,666 $ 33,144 $ 58,076 $ 61,542
Broadcasting 21,453 21,767 31,596 35,312
Unallocated corporate expense (3,701) (3,304) (7,076) (6,530)
-------- -------- -------- --------
Income from operations $ 47,418 $ 51,607 $ 82,596 $ 90,324
======== ======== ======== ========
Depreciation and amortization
Publishing $ 2,223 $ 2,879 $ 4,432 $ 5,749
Broadcasting 9,903 9,663 19,851 19,184
Unallocated corporate 659 536 1,341 1,088
-------- -------- -------- --------
Total depreciation
and amortization $ 12,785 $ 13,078 $ 25,624 $ 26,021
======== ======== ======== ========
EBITDA
Publishing $ 31,889 $ 36,023 $ 62,508 $ 67,291
Broadcasting 31,356 31,430 51,447 54,496
Unallocated corporate (3,042) (2,768) (5,735) (5,442)
-------- -------- -------- --------
Total EBITDA $ 60,203 $ 64,685 $108,220 $116,345
======== ======== ======== ========
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.
Operating profit is the measure reported to the chief operating decision maker
for use in assessing segment performance and allocating resources. Unallocated
corporate expenses are corporate overhead expenses not attributable to the
operating groups.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. EBITDA 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. In addition, the calculation of EBITDA and
similarly titled measures may vary between companies.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion presents the key factors that have affected the
company's business in the second quarter and first six months of fiscal 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 contains, and management's public commentary from time to time may
contain, certain forward-looking statements that are subject to certain 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
Three Months Six Months
Ended December 31 Ended December 31
2000 1999 2000 1999
------------------------- -------- -------- -------- --------
(In thousands)
Total revenues $260,888 $266,129 $510,910 $526,533
======== ======== ======== ========
Income from operations $ 47,418 $ 51,607 $ 82,596 $ 90,324
======== ======== ======== ========
Net earnings $ 24,041 $ 25,459 $ 40,510 $ 43,482
======== ======== ======== ========
Diluted earnings per share $ 0.47 $ 0.48 $ 0.79 $ 0.82
======== ======== ======== ========
Net earnings of $24.0 million, or 47 cents per share, were recorded in the
quarter ended December 31, 2000, compared to net earnings of $25.5 million, or
48 cents per share, in the prior-year second quarter. For the six months ended
December 31, 2000, net earnings were $40.5 million, or 79 cents per share,
compared to net earnings of $43.5 million, or 82 cents per share, in the
prior-year period. The weighted-average number of shares outstanding declined
approximately 4 percent in both periods compared to the prior-year periods
primarily due to company share repurchases.
Second quarter revenues declined 2 percent and year-to-date revenues were down
3 percent from the comparative prior-year periods. Adjusting for discontinued
magazine titles, comparable revenues increased 2 percent in the second quarter
and nearly 1 percent in the six-month period. Increased book and integrated
marketing revenues, in addition to political revenues at certain broadcasting
stations in the second quarter, contributed to the growth in comparable
revenues. These increases were largely offset by declines in magazine and
non-political television advertising revenues and lower magazine circulation
revenues.
Second quarter operating costs decreased slightly from the prior-year quarter
while costs in the six-month period were down 2 percent. The primary factors
were management's cost control efforts; volume-related declines in magazine
manufacturing, distribution and subscription acquisition costs; and, lower
per-unit magazine production costs. These declines were partially offset by
investments in interactive media operations and in news expansion and
improvements in the broadcasting operations and by higher paper prices. The
operating profit margin declined from 19.4 percent of revenues in the
prior-year second quarter to 18.2 percent in the current-year quarter. For the
six months ended December 31, 2000, the operating profit margin was 16.2
percent compared to 17.2 percent in the prior-year period.
- 13 -
Net interest expense declined slightly in both the quarter and the six-month
period as a result of lower debt levels in both the quarter and six-month
period compared to the prior-year periods.
The Company's effective tax rate in the first six months, and the expected rate
for the fiscal year, was 38.7 percent compared with 40.2 percent in the prior
year.
In March 2000, Meredith announced several major strategic initiatives designed
to position the company for significant growth in a rapidly changing business
environment that stresses convergence, interactivity and greater advertising
accountability. These initiatives included the creation of a new business
group - Interactive and Integrated Marketing, expansion and acceleration of
Internet-related efforts on a company-wide basis, implementation of initiatives
designed to grow the profit contribution of circulation activities and closing
certain operations that no longer fit the company's business objectives.
To move forward with these initiatives, Meredith has committed up to $100
million for investments in Internet and e-commerce activities, continued
development of its consumer database, and strategic alliances and partnerships.
Investment spending related to these initiatives reduced earnings between 3 and
4 cents per share in the first six months of fiscal 2001. Looking forward, the
impact on 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 reduced earnings approximately
2 cents per share in the first six months of the fiscal year. Looking forward,
investment spending related to the circulation initiatives is expected to
reduce fiscal 2001 earnings by approximately 8 cents per share.
These initiatives 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 remained in an
accrual account related to these charges. Details of the activity in the
account since that date follow:
6-30-2000 12-31-2000
Accrual Cash Other Accrual
Description Balance Payments Adjustments Balance
- ---------------------- ------------ ----------- ---------- ---------
(In millions)
Contractual obligations $ 2.1 $ -- $ -- $ 2.1
Personnel costs 1.1 (0.3) -- 0.8
----------- ----------- ---------- ---------
Total before tax benefit $ 3.2 $ (0.3) $ -- $ 2.9
=========== =========== ========== =========
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 30 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
- 14 -
the magazine closings and other restructuring efforts. As of December 31,
2000, 27 of the 29 employees had left the company. Remaining personnel costs
are expected to be paid out over the next 12 months from internally generated
cash flows.
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 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.
Three Months Six Months
Ended December 31 Ended December 31
Description 2000 1999 2000 1999
-------------------------- -------- -------- -------- --------
(In thousands)
Total revenues $ 1,541 $ 755 $ 2,611 $ 1,087
======== ======== ======== ========
Operating Loss $ (1,901) $ (1,076) $ (3,782) $ (2,539)
======== ======== ======== ========
Interactive media revenues increased 104 percent in the second quarter to $1.5
million from $0.8 million in the prior-year quarter. In the six months ended
December 31, 2000 interactive media revenues increased 140 percent to $2.6
million from $1.1 million in the prior-year period. 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 and
$3.8 million in the six-month period versus losses of $1.1 million and $2.5
million in the respective prior-year periods. These results reflect the
company's increasing level of investment in interactive media, as previously
announced.
Looking ahead, the company is facing a weakening and volatile advertising
market that will impact earnings for the third quarter and full fiscal year.
Assuming current advertising trends continue through the rest of the fiscal
year, Meredith's full-year earnings could be approximately 5 to 10 percent
below the previous year's earnings per share of $1.71, excluding nonrecurring
items. Because of the timing of interactive and circulation investments, the
earnings impact is expected to be greater in the third quarter of fiscal 2001
than in the fourth. Meredith has already taken several steps to spur revenue
growth and reduce costs to offset the slowdown in advertising.
- 15 -
Publishing
- ------------
The publishing segment includes magazine and book publishing, integrated
marketing, interactive media, brand licensing and other related operations.
Three Months Six Months
Ended December 31 Ended December 31
Description 2000 1999 2000 1999
------------------------ -------- -------- -------- --------
(In thousands)
Revenues
Magazine advertising $ 75,990 $ 83,380 $161,618 $175,253
Magazine circulation 63,336 68,530 127,850 137,817
Other 42,933 38,060 77,676 70,614
-------- -------- -------- --------
Total revenues $182,259 $189,970 $367,144 $383,684
======== ======== ======== ========
Operating profit $ 29,666 $ 33,144 $ 58,076 $ 61,542
======== ======== ======== ========
Publishing revenues were down 4 percent in the second quarter and in the
six-month period compared to the respective prior-year periods. Excluding the
impact of the discontinued titles, revenues increased approximately 1 percent
in both periods. Discontinued titles include Crayola Kids, Shop Online 1-2-3,
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 declined 2 percent in the quarter and
3 percent in the year-to-date period. The declines resulted from a reduction
in advertising by packaged goods manufacturers, along with a slowdown in
automobile advertising. In addition, advertising by dot-com companies has
declined significantly. This advertising slowdown had the biggest impact on
the companies two largest circulation magazines, Better Homes and Gardens and
Ladies' Home Journal. Advertising pages at both of these titles declined in
the 10-12 percent range in both the quarter and year-to-date periods.
Comparable advertising pages for the company's other titles as a group
increased 2 percent in the quarter and 5 percent in the six month period.
Particularly strong growth was reported by Traditional Home magazine, where
advertising pages increased 50 percent in the second quarter, primarily due to
a strong holiday issue, and nearly 20 percent for the six month period.
Comparable magazine circulation revenues decreased 2 to 3 percent in both the
quarter and the fiscal year-to-date period. The declines resulted from a
February 2000 ratebase reduction at Ladies' Home Journal magazine. Partially
offsetting these declines were stronger newsstand sales of the Better Homes and
Gardens Special Interest Publications.
Other publishing revenues grew 13 percent in the quarter and 10 percent in the
six-month period reflecting increased sales volumes in the consumer book and
integrated marketing areas. Sales of books to home and garden centers were
especially strong and the increased sale of books in annual series also
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contributed. The increase in integrated marketing revenues reflected new and
expanded custom publishing agreements.
Publishing operating profit was $29.7 million in the fiscal 2001 second
quarter, down 10 percent from the prior-year quarter. For the six months ended
December 31, 2000, operating profit was $58.1 million, a 6 percent decline from
the comparable prior-year period. The decline in operating profit in both
periods was primarily a result of lower advertising revenues. This revenue
decline was partially offset by lower operating costs and expenses. Costs
declined 3 percent in the quarter and 4 percent for the six months. The cost
declines reflected the absence of costs for the discontinued titles, lower
magazine processing costs, management's cost control initiatives 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. They appear to be stable
in the near term. On January 7, 2001 postal rates for publishers increased an
average of approximately 10 percent.
Looking forward, management currently expects that, on a comparable basis,
third fiscal quarter advertising pages and revenues will be down in the low-to-
mid-single digits on a percentage basis from the prior-year third quarter. The
decline reflects reduced advertising spending by packaged-goods manufacturers,
automobile makers, computer and software companies and personal hygiene
manufacturers. Meredith's mid-sized publications, as well as the company's two
largest titles, are being affected by the slower advertising in the third
quarter.
In this difficult environment, the Publishing Group has taken steps to
strengthen performance as well as continuing to control costs. These steps
include: establishment of an aggressive sales incentive program; creation of
an enhanced group sales function - Meredith Corporate Solutions; implementation
of a "Home" initiative to capture additional advertising revenues in the
furnishings and building/remodeling categories; and, launching a trade
advertising campaign this spring to enhance visibility in the marketplace.
Broadcasting
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The broadcasting segment includes the operation of network-affiliated
television stations.
Three Months Six Months
Ended December 31 Ended December 31
Description 2000 1999 2000 1999
---------------------- -------- -------- -------- --------
(In thousands)
Revenues
Advertising $ 77,179 $ 74,502 $140,576 $139,400
Other 1,450 1,657 3,190 3,449
-------- -------- -------- --------
Total revenues $ 78,629 $ 76,159 $143,766 $142,849
======== ======== ======== ========
Operating profit $ 21,453 $ 21,767 $ 31,596 $ 35,312
======== ======== ======== ========
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Revenues increased 3 percent in the fiscal 2001 second quarter and
approximately 1 percent in the six-month period due to significant advertising
revenues for the November 2000 political elections at KCTV-Kansas City,
WFSB-Hartford/New Haven and WNEM-Flint/Saginaw. Net political advertising
revenues for the group as a whole were $10.8 million in the quarter and $14.2
million in the six months ended December 31, 2000. The company's stations
experienced a slowdown in the demand for television advertising following the
election, with softness in automobile, retail and telecommunications
advertising.
Operating profit was down slightly in the second quarter and down 11 percent
for the six months ended December 31, 2000 compared to the prior-year periods.
The declines reflected increased costs resulting from investments in the
improvement and expansion of news programming, investments in sales enhancement
efforts, increased depreciation expense related to mandatory digital television
investments and higher syndicated programming costs in certain markets.
Looking forward, fiscal third quarter advertising bookings are currently pacing
down in the low double digits on a percentage basis versus the prior-year
quarter. Management believes this is in line with the industry, as local
broadcasters face difficult comparisons due to strong annual buys last year.
Demand has declined for advertising in the automobile, retail and
telecommunication categories. In this difficult environment, the Broadcasting
Group has taken steps to strengthen performance as well as continuing to
control costs. These steps include: enhancing the sales operations through
concentration on pricing and inventory management, account management and
performance management; and, enhancing the news operations through a focus on
generating incremental revenues from news investments.
Liquidity and Capital Resources
Percent
Six months ended December 31 2000 1999 Change
---------------------------- --------- --------- -------
(In thousands)
Net earnings $ 40,510 $ 43,482 -7%
========= ========= ====
Cash flows from operations $ 49,829 $ 44,244 13%
========= ========= ====
Cash flows from investing $ (34,825) $ (16,638) -109%
========= ========= ====
Cash flows from financing $ (28,016) $ (20,554) -36%
========= ========= ====
Net cash flows (use) $ (13,012) $ 7,052 nm%
========= ========= ====
EBITDA $ 108,220 $ 116,345 -7%
========= ========= ====
nm - not meaningful
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Cash and cash equivalents decreased by $13.0 million in the first six months of
fiscal 2001 compared to an increase in cash of $7.1 million in the comparable
prior-year period. The change reflected the increased use of cash for capital
expenditures and stock repurchases in the current period. Cash provided by
operations increased in the period due to favorable changes in working capital
requirements. This was largely due to a revenue-related decline in accounts
receivable in the current period versus an increase in receivables in the
prior-year period.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. EBITDA for the first six months
of fiscal 2001 decreased 7 percent from the prior-year period. EBITDA is not
adjusted for all noncash expenses or for working capital changes, capital
expenditures or other investment requirements. EBITDA should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. In addition, the
calculation of EBITDA and similarly titled measures may vary between companies.
At December 31, 2000, long-term debt outstanding consisted of $295 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 some of these covenants to allow 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 December 31, 2000, the
company was in compliance with all debt covenants.
Meredith uses interest rate swap contracts to manage interest cost and risk
associated with possible increases in variable interest rates. The 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 December 31, 2000 was approximately 6.5 percent.
Meredith also had $7.4 million in short-term bank debt outstanding at December
31, 2000, under a variable-rate line of credit.
In the first six months of fiscal 2001, the company spent $20.1 million to
repurchase an aggregate of 677,000 shares of Meredith Corporation common stock
at then current market prices. This compares with spending of $14.9 million
for the repurchase of 405,000 shares in the comparable prior-year period. The
company expects to continue to repurchase shares from time to time in the
foreseeable future, subject to market conditions. At the company's board of
directors meeting on January 28, 2001, the board authorized the repurchase of
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up to 2 million additional shares subject to market conditions, bringing the
number of shares authorized for future repurchase to approximately 3 million
shares. The status of this program is reviewed at each quarterly board of
directors meeting.
The market value of the shares subject to put option agreements that appeared
as Temporary equity on the Consolidated Balance Sheet at June 30, 2000, has
been reclassified into Stockholders' equity at December 31, 2000, reflecting
the expiration of the put option agreements.
Dividends paid in the first six months of fiscal 2001 were $8.0 million, or 16
cents per share, compared with $7.8 million, or 15 cents per share, in the
prior-year period. On January 28, 2001, the board of directors increased the
quarterly dividend by 6 percent (one-half cent per share) to 8.5 cents per
share effective with the dividend payable on March 15, 2001. On an annual
basis, the effect of this quarterly dividend increase will raise dividends paid
by approximately $1.0 million at the current number of shares outstanding.
Spending for property, plant and equipment increased to $31.1 million in the
first six months of fiscal 2001 from $14.9 million in the prior-year period.
The increase reflected higher spending for the purchase of replacement aircraft
and associated facilities and for the construction of a new broadcasting
facility for the Atlanta television station. Capital spending for fiscal 2001
is expected to be up to 50 percent higher than fiscal 2000 spending because of
the aforementioned items. The broadcasting segment has commitments to spend
approximately $20 million over the rest of fiscal 2001 and the next two fiscal
years for the completion of the Atlanta facility and the initial transition to
digital technology at six stations. The company has no other material
commitments for capital expenditures. 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.
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
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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 December 31, 2000, Meredith had outstanding $295 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 $0.6 million cost to terminate the swap contracts
compared to the current fair market asset value of $0.5 million at December 31,
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 ($203.6 million) compared to the current fair
market value of ($196.8 million) at December 31, 2000.
There has been no material change in the market risk associated with program
rights payable since June 30, 2000.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on November 13, 2000, 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: Mary Sue Coleman, Christina A. Gold, Joel W. Johnson,
Robert E. Lee, Philip A. Marineau, E.T. Meredith III and Jack D. Rehm.
(c)(1) Proposal 1: Election of four Class II directors for terms expiring in
2003 and the election of one Class III director for a term expiring in
2001. Each nominee was elected in uncontested elections by the votes
cast as follows:
Number of shareholder votes*
----------------------------
For Withheld
----------- ----------
Class II directors
Herbert M. Baum 124,320,235 1,479 130
Frederick B. Henry 124,488,862 1,310,503
William T. Kerr 124,478,378 1,320,987
Nicholas L. Reding 124,485,062 1,314,303
Class III director
Mell Meredith Frazier 124,494,862 1,304,503
*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: Approve an amendment to the 1996 Stock Incentive Plan to
increase the number of shares of common stock reserved for issuance
thereunder by 2,500,000 shares. Proposal 2 was approved by the votes
cast as follows:
For Against Abstentions Broker Non-votes
----------- ---------- ------------- ----------------
106,079,689 14,616,448 815,944 4,287,284
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3) The Restated Bylaws, as amended.
4) Amendment to Credit Agreements dated July 1, 1997 and December 10, 1998
among Meredith Corporation, and certain banks specified therein, for
whom Wachovia Bank, N.A. is acting as agent.
10.1) Employment Agreement dated February 1, 2001 between Meredith Corporation
and William T. Kerr.
10.2) Amendment to Meredith Corporation 1996 Stock Incentive Plan and the
Meredith Corporation 1993 Stock Option Plan for Non-employee Directors.
10.3) Amendment to Consultancy Agreement by and between Meredith Corporation
and Jack D. Rehm.
10.4) Amended and Restated Severance Agreement in the form entered into
between Meredith Corporation and its executive officers.
(b) Reports on Form 8-K
During the second quarter of fiscal 2001, the company filed a report on
Form 8-K on October 25, 2000, reporting under Item 5 the text of a news
release dated October 17, 2000, reporting earnings for the quarter ended
September 30, 2000 and the script of a conference call held with analysts
concerning that news release.
Also during the second quarter of fiscal 2001, the company filed a report
on Form 8-K on December 5, 2000, reporting under Item 7 the text of a
presentation at CS First Boston Media Conference and UBS Warburg Media
Conference on December 5 and 6, 2000.
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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: February 12, 2000
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Index to Exhibits
Exhibit
Number Item
------- -----------------------------------------------------------
3) The Restated Bylaws, as amended.
4) Amendment to Credit Agreements dated July 1, 1997 and
December 10, 1998 among Meredith Corporation, and certain
banks specified therein, for whom Wahovia Bank, N.A. is
acting as agent.
10.1) Employment Agreement dated February 1, 2001 between Meredith
Corporation and William T. Kerr.
10.2) Amendment to Meredith Corporation 1996 Stock Incentive Plan
and the Meredith Corporation 1993 Stock Option Plan for Non-
employee Directors.
10.3) Amendment to Consultancy Agreement by and between Meredith
Corporation and Jack D. Rehm.
10.4) Amended and Restated Severance Agreement in the form entered
into between Meredith Corporation and its executive officers.
E-1