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<SEC-DOCUMENT>0000065011-01-500019.txt : 20010917
<SEC-HEADER>0000065011-01-500019.hdr.sgml : 20010917
ACCESSION NUMBER: 0000065011-01-500019
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010914
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MEREDITH CORP
CENTRAL INDEX KEY: 0000065011
STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721]
IRS NUMBER: 420410230
STATE OF INCORPORATION: IA
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-05128
FILM NUMBER: 1737084
BUSINESS ADDRESS:
STREET 1: 1716 LOCUST ST
CITY: DES MOINES
STATE: IA
ZIP: 50309
BUSINESS PHONE: 5152843000
FORMER COMPANY:
FORMER CONFORMED NAME: MEREDITH PUBLISHING CO
DATE OF NAME CHANGE: 19710317
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>r10-k01.txt
<DESCRIPTION>10-K FILING 06/30/01
<TEXT>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
Commission file number 1-5128
Meredith Corporation
(Exact name of registrant as specified in its charter)
Iowa 42-0410230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1716 Locust Street, Des Moines, Iowa 50309-3023
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 515 - 284-3000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $1 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Title of class - Class B Stock, par value $1
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The registrant estimates the aggregate market value of voting stock held by
non-affiliates of the registrant at July 31, 2001, was $1,280,629,000 based
upon the closing price on the New York Stock Exchange at that date.
Shares of stock outstanding at July 31, 2001:
Common shares 39,267,374
Class B shares 10,527,116
----------
Total common and class B shares 49,794,490
==========
- 1 -
<PAGE>
DOCUMENT INCORPORATED BY REFERENCE
Description of document Part of the Form 10-K
------------------------------------ --------------------------------
Certain portions of the Registrant's
Proxy Statement for the Annual Part III to the extent described
Meeting of Shareholders to be therein.
held on November 12, 2001
- -------------------------------------------------------------------------------
PART I
Item 1. Business
General
- -------
Meredith Corporation was founded in 1902 by Edwin Thomas Meredith and
incorporated in Iowa in 1905. Since its beginnings in agricultural publishing,
the company has expanded to include mass audience and special interest
publications designed to serve the home and family market. In 1948, Meredith
entered the television broadcasting business. The company now owns and operates
television stations in twelve locations across the continental United States.
These publishing and broadcasting businesses and associated trademarks have
been the core of Meredith's success. In addition, the company has used its
assets to expand into interactive media and integrated marketing operations.
Meredith is one of the nation's leading media companies.
The company has two business segments: publishing and broadcasting. The
publishing segment includes: 16 magazine brands, including Better Homes and
Gardens and Ladies' Home Journal, and approximately 120 special interest
publications; book publishing with approximately 300 books in print; integrated
marketing relationships with some of America's leading companies; an extensive
Internet presence, including 23 web sites and multi-year alliance agreements
with leading Internet providers America Online and Microsoft Network (MSN);
brand licensing relationships; and other related operations. Meredith's
consumer database, which contains more than 60 million names, is the largest
domestic database among media companies and enables advertisers to precisely
target marketing campaigns. The broadcasting segment includes the operations of
12 network-affiliated television stations, consisting of six FOX affiliates,
five CBS affiliates and one NBC affiliate. The syndicated television program
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. Virtually all of the company's revenues are
generated and assets reside within the United States. There are no material
intersegment transactions.
The company's largest source of revenues is magazine and television
advertising. Television advertising tends to be seasonal in nature with higher
revenues traditionally reported in the second and fourth fiscal quarters, and
cyclical increases during certain periods, such as key political elections and
major sporting events.
- 2 -
<PAGE>
Trademarks (e.g. Better Homes and Gardens, Ladies' Home Journal) are very
important to the company's publishing segment. Local recognition of television
station call letters is important in maintaining audience shares in the
broadcasting segment. Name recognition and the public image of these
trademarks are vital to both ongoing operations and the introduction of new
businesses. Accordingly, the company aggressively defends it trademarks.
The company did not have any material expenses for research and development
during any of the past three fiscal years.
Compliance by the company with federal, state and local provisions relating to
the discharge of materials into the environment and to the protection of the
environment has no material effect on capital expenditures, earnings or the
competitive position of the company.
The company had 2,616 employees at June 30, 2001 (including 132 part-time
employees).
Business Developments - Fiscal 2001
- -----------------------------------
In response to a wide-spread advertising downturn, Meredith took steps during
the second half of fiscal 2001 to reduce the number of employees, including a
one-time, special voluntary early retirement program and additional selective
workforce reductions through attrition, realignments and job eliminations. In
addition, the company wrote off certain Internet investments. These actions
were the primary factors in a fiscal 2001 fourth quarter nonrecurring charge of
$25.3 million ($15.4 million after-tax), or 30 cents per share.
Meredith recorded a charge of $9.9 million ($6.1 million after-tax), or 12
cents per share, for the writedown of certain broadcasting syndicated
programming rights to net realizable value. A significant decline in first-run
ratings for programming not yet available for broadcast was the primary factor
in the writedown.
In May 2001, Meredith sold Golf for Women magazine to The Golf Digest
Companies, a subsidiary of Advance Magazine Publishers, Inc., effective with
the first issue of fiscal 2002. The sale resulted in a gain of $21.5 million
($13.1 million after-tax), or 26 cents per share.
The information required by this item regarding financial information about
industry segments is set forth on pages F-50 and F-51 of this Form 10-K and is
incorporated herein by reference.
- 3 -
<PAGE>
Description of Business
- -----------------------
PUBLISHING
- ----------
Publishing represented 74 percent of the company's consolidated revenues in
fiscal 2001.
Magazine
- --------
Magazine operations include 16 magazine brands that appeal primarily to
consumers in the home and family market. Key advertising and circulation
information for major subscription titles is as follows:
August 2001
Title Frequency Rate Base Ad Pages
-------------------------------------------------------------------
Better Homes and Gardens - Home service
Fiscal 2001 Monthly 7,600,000 1,801
Fiscal 2000 Monthly 7,600,000 2,006
Ladies' Home Journal - Women's service
Fiscal 2001 Monthly 4,100,000 1,222
Fiscal 2000 Monthly 4,100,000 1,388
Country Home - Home decorating
Fiscal 2001 8x/year 1,000,000 719
Fiscal 2000 8x/year 1,000,000 770
Midwest Living - Regional travel and lifestyle
Fiscal 2001 Bimonthly 815,000 648
Fiscal 2000 Bimonthly 815,000 709
Traditional Home - Home decorating
Fiscal 2001 Bimonthly 800,000 716
Fiscal 2000 Bimonthly 800,000 738
MORE - Women's service (age 40+)
Fiscal 2001 10x/year 600,000 561
Fiscal 2000 Bimonthly 525,000 430
WOOD - Woodworking projects and techniques
Fiscal 2001 9x/year 550,000 355
Fiscal 2000 9x/year 550,000 425
Successful Farming - Farm information
Fiscal 2001 12x/year 442,000 624
Fiscal 2000 12x/year 442,000 669
Rate base is the circulation guaranteed to advertisers. Actual circulation
often exceeds rate base, and is tracked by the Audit Bureau of Circulation,
which issues periodic statements for audited magazines. Ad pages are as
reported to Publisher's Information Bureau, Agricom, or if unreported, as
calculated by the publisher using a similar methodology.
- 4 -
<PAGE>
Better Homes and Gardens magazine, the company's flagship, accounts for a
significant percentage of revenues and operating profit of the company and the
publishing segment. Meredith's other magazines brands, in addition to those
listed above, are Country Gardens, Renovation Style, and the Creative
Collection, which includes Creative Home, American Patchwork & Quilting, Paint
Decor and Scrapbooks etc. Meredith also has a 50 percent interest in a monthly
Australian edition of Better Homes and Gardens magazine.
Golf for Women magazine was sold, effective with the first issue of fiscal
2002, and the assets of American Park Network were sold in fiscal 2001.
Antiques Extra, Mature Outlook, and Family Money magazines and the Shop Online
1-2-3 supplement were discontinued in fiscal 2001.
The company also publishes a group of Special Interest Publications, primarily
under the Better Homes and Gardens name, that are typically sold only on the
newsstand. These titles are issued from one to six times annually. Titles
published quarterly or bimonthly include Decorating; Home Planning Ideas;
Kitchen and Bath Ideas; Do It Yourself; Garden, Deck & Landscape; Quick & Easy
Decorating; Window & Wall Ideas; and Hometown Cooking. Approximately 120
issues were published in fiscal 2001.
Meredith Interactive Media has extended many of the company's magazine brands
to include a presence on the Internet. The flagship home and family site -
bhg.com - is a leader in providing unique content and applications in its core
content areas of decorating, food, home improvement and remodeling. In
addition, Meredith has established multi-year alliance agreements with two of
the leading Internet providers - Microsoft Networks (MSN) and America Online -
which drive additional traffic to the company's sites. These Web sites provide
additional sources of advertising and other revenues and, more importantly,
provide an opportunity to divert magazine subscription orders online with the
potential for significant cost reductions.
Advertising
- -----------
Years ended June 30 2001 2000 1999
----------------------------------------------------------------------
(In thousands)
Advertising revenues $352,482 $387,064 $360,724
======== ======== ========
Advertising revenues are generated primarily from sales to clients engaged in
consumer marketing. Many of the company's larger magazines offer advertisers
different regional and demographic editions which contain the same basic
editorial material but permit advertisers to concentrate their advertising in
specific markets or to target specific audiences. The company sells two
primary types of magazine advertising: display and direct-response.
Advertisements are either run-of-press (printed along with the editorial
portions of the magazine) or inserts (preprinted forms). Most of the company's
advertising pages and revenues are derived from run-of-press display
advertising. The company's group sales function was reorganized in fiscal 2001
to form Meredith Corporate Solutions, bringing together all Meredith resources
to solve clients' advertising and marketing issues.
- 5 -
<PAGE>
Circulation
- -----------
Years ended June 30 2001 2000 1999
----------------------------------------------------------------------
(In thousands)
Circulation revenues $263,659 $275,642 $273,621
======== ======== ========
Subscription revenues, the largest source of circulation revenues, are
generated through direct-mail solicitation, agencies, insert cards, the
Internet and other means. Single-copy sales also are important sources of
circulation revenues for most magazines. All of the company's subscription
magazines, except Successful Farming, are also sold by single-copy. Successful
Farming is available only by subscription to qualified farm families. Single-
copy sales are distributed through magazine wholesalers. Magazine wholesalers
have the right to receive credit from the company for magazines returned to
them by retailers.
Other
- -----
Years ended June 30 2001 2000 1999
----------------------------------------------------------------------
(In thousands)
Other revenues $166,796 $156,120 $141,287
======== ======== ========
Other revenues include sales of books, integrated marketing and other custom
publishing projects, ancillary products and services and revenues from brand
licensing agreements.
Meredith Integrated Marketing offers advertisers and other external clients
integrated strategies that combine all of Meredith's custom capabilities.
Meredith's consumer database, which contains more than 60 million names, is the
largest domestic database among media companies and enables magazine and
television advertisers to precisely target marketing campaigns. These
marketing programs are important because they provide revenue sources that are
independent of advertising and circulation. Fiscal 2001 clients include The
Home Depot USA,Inc.; Kraft Foods, Inc.; Nestle USA, Inc.; and UnitedHealthcare,
Inc.
The company publishes and markets a line of approximately 300 consumer home and
family service books, published primarily under the Better Homes and Gardens
trademark and the Ortho and The Home Depot names. They are sold through retail
book and specialty stores, mass merchandisers and other means. Sixty new or
revised titles were published during fiscal 2001. The company has contracts
with The Scotts Company and The Home Depot USA, Inc., to produce and sell books
under the Ortho and The Home Depot names, respectively.
- 6 -
<PAGE>
Production and Delivery
- -----------------------
The major raw materials essential to this segment are coated publication and
book-grade papers. Meredith supplies all of the paper for its magazine
production and most of the paper for its book production. Paper prices
remained steady, with some price declines late in fiscal 2001, following a year
of increasing prices in fiscal 2000. This resulted in higher average paper
prices for fiscal 2001 compared to the prior year. The price of paper is
driven by overall market conditions and, therefore, is difficult to predict.
Management anticipates little change in paper prices over the next year. The
company has contractual agreements with major paper manufacturers to ensure
adequate supplies of paper for planned publishing requirements.
The company has printing contracts for all of its magazine titles. Its two
largest titles, Better Homes and Gardens and Ladies' Home Journal, are printed
under long-term contracts with a major United States printer. The company's
largest magazine printing contract was renegotiated and the company entered
into new contracts with several other major printers over the last two fiscal
years. These contracts resulted in lower unit costs, versus the prior-year, in
the first half of fiscal 2001. These lower rates are expected to continue,
subject to annual rate adjustments, through the life of the contracts. All of
the company's published books are manufactured by outside printers. Book
manufacturing contracts are generally on a title-by-title basis.
Postage is also a significant expense to this segment due to the large volume
of magazine and subscription promotion mailings. The publishing operations
continually seek the most economical and effective methods for mail delivery.
Accordingly, certain cost-saving measures, such as pre-sorting and
drop-shipping to central postal centers, are utilized. The United States
Postal Service raised rates in January 2001 which resulted in an approximate 10
percent rate increase for Meredith. Postal rates were increased again on July
1, 2001 resulting in a cost increase of nearly 3 percent. Industry groups have
raised serious questions about the financial stability of the Postal Service.
Additional requests for rate increases are expected in the near future and
changes in the level of service are possible. Meredith continues to work with
others in the industry and through trade organizations, to encourage the Postal
Service to eliminate inefficiencies and to moderate future rate increases.
However, the company cannot predict what impact future changes in the Postal
Service and postal rates will have on it's publishing business.
Paper, printing and postage costs accounted for approximately 40 percent of the
publishing segment's fiscal 2001 operating costs.
Fulfillment services for the company's magazine operations are provided by a
third party. National newsstand distribution services are also provided by a
third party under a multi-year agreement.
Competition
- -----------
Publishing is a highly competitive business. The company's magazines, books,
and related publishing products and services compete with other mass media and
many other types of leisure-time activities. Overall competitive factors in
this segment include price, editorial quality and customer service. Competition
- 7 -
<PAGE>
for advertising dollars in magazine operations is primarily based on
advertising rates, reader response to advertisers' products and services and
effectiveness of sales teams. Better Homes and Gardens and Ladies' Home
Journal compete for readers and advertising dollars primarily in the women's
service magazine category. Both are part of a group known as the "Seven
Sisters," which also includes Family Circle, Good Housekeeping, Rosie, Redbook
and Woman's Day magazines, published by other companies. In fiscal 2001, the
combined advertising revenue market share of Better Homes and Gardens and
Ladies' Home Journal magazines totaled approximately 38 percent of the Seven
Sisters market. Their share exceeded that of each of the three other
publishers included in the Seven Sisters.
- 8 -
<PAGE>
BROADCASTING
- ------------
Broadcasting represented 26 percent of the company's consolidated revenues in
fiscal 2001.
Station,Channel,
Market,Network DMA Expiration Average Commercial
Affiliation, TV Homes National Date of FCC Audience TV Stations
Frequency(1) in DMA Rank(2) License Share(3) in Market(4)
--------------- --------- -------- ----------- -------- ----------
WGCL-TV, Ch. 46 1,991,000 9 4-1-2005 6.8% 3 VHF
Atlanta, Ga. 7 UHF
(CBS) UHF
KPHO-TV, Ch. 5 1,537,000 16 10-1-2006 9.0% 6 VHF
Phoenix, Ariz. 7 UHF
(CBS) VHF
WOFL-TV, Ch. 35 1,182,000 20 2-1-2005 6.5% 3 VHF
Orlando/Daytona Beach/Melbourne, Fla. 10 UHF
(FOX) UHF
KPDX-TV, Ch. 49 1,069,000 23 2-1-2007 7.3% 4 VHF
Portland, Ore. 4 UHF
(FOX) UHF
WFSB-TV, Ch. 3 953,000 28 4-1-2007 14.5% 2 VHF
Hartford/New Haven, Conn. 6 UHF
(CBS) VHF
WSMV-TV, Ch. 4 879,000 30 8-1-2005 13.3% 3 VHF
Nashville, Tenn. 7 UHF
(NBC) VHF
KCTV, Ch. 5 850,000 31 2-1-2006 14.3% 3 VHF
Kansas City, Mo. 5 UHF
(CBS) VHF
WHNS-TV, Ch. 21 772,000 36 12-1-2004 5.3% 3 VHF
Greenville, S.C./Spartanburg, S.C./Asheville, N.C. 4 UHF
(FOX) UHF
KVVU-TV, Ch. 5 580,000 51 10-1-2006 7.3% 4 VHF
Las Vegas, Nev. 5 UHF
(FOX) VHF
WNEM-TV, Ch. 5 454,000 64 10-1-2005 15.5% 2 VHF
Flint/Saginaw/Bay City, Mich. 3 UHF
(CBS) VHF
WOGX-TV, Ch. 51 108,000 164 2-1-2005 6.8% 3 UHF
Ocala/Gainesville, Fla.
(FOX) UHF
KFXO-LP*, Ch. 39 47,000 201 2-1-2007 6.5% 2 UHF
Bend, Ore.
(FOX) UHF
- 9 -
<PAGE>
* Low-power station
(1) VHF (very high frequency) stations transmit on channels 2 through 13; UHF
(ultra high frequency) stations transmit on channels 14 to 69. Technical
factors and area topography determine the market served by a television
station.
(2) Designated Market Area (DMA), is a Registered Trademark of, and is defined
by, Nielsen Media Research. The national rank is the 2001-2002 DMA ranking
based on estimated television households in the market.
(3) Average audience share represents the estimated percentage of households
using television tuned to the station. The percentages shown reflect the
average total day shares (9 AM to midnight) for the May 2000, July 2000,
November 2000, and February 2001 measurement periods.
(4) The number of commercial television stations reported is year 2000 data
from BIA's "Investing in Television Market Report 2001" dated February 2001.
Operations
- ----------
Advertising is the principal source of revenues for the broadcasting segment.
The stations sell commercial time to both local/regional and national
advertisers. Rates for spot advertising are influenced primarily by the market
size, number of in-market broadcasters and audience demographics for
programming. National advertising representative firms sell most national
advertising. Sales staffs at each station generate local/regional advertising
revenues.
All of the company's television stations are network affiliates. Generally a
network provides programs to its affiliated television stations, sells
commercial advertising within the network programs and, in some instances,
compensates the local stations by paying an amount based on the television
station's network affiliation agreement. In addition, the affiliated stations
make payments to the network for certain specified programming such as
professional football. Affiliation with a national network has an important
influence on a station's advertising rates. The company's six FOX affiliates
have agreements which expire in June 2007, subject to certain early termination
events. As a standard practice, the FOX network makes no cash payments to
affiliates. In fiscal 2000, the company's FOX affiliates began paying the FOX
network in exchange for additional advertising spots in prime time programming.
The company's five CBS affiliates have agreements which expire from April 2002
to December 2005. The company's Nashville station has an affiliation agreement
with NBC that expires in December 2006. While Meredith's relations with the
networks have historically been good, the company can make no assurances that
these relationships will continue in the same manner over the long-term.
Local news programming is an important source of advertising revenues to
television stations, as 25 to 35 percent of a market's television advertising
revenues are typically allocated to local news. The company's stations have
increased the number of hours of local news programming significantly over the
last several years and are continually working to improve their news operations
and ratings.
- 10 -
<PAGE>
The costs of locally produced and purchased syndicated programming are a
significant portion of television operating expenses. Syndicated programming
costs are determined based upon largely uncontrollable market factors,
primarily demand from other stations in the market. In recent years, the
company has emphasized its locally produced news and entertainment programming.
This allows the company to control the content and quality of the programming
and to better control costs.
Competition
- -----------
Meredith television stations compete directly for advertising dollars and
programming in each of their markets with other television stations and cable
television providers. Other mass media providers such as newspapers, radio,
direct broadcast satellite and the Internet also provide competition for market
advertising dollars and for entertainment and news information. Competitive
factors include market share, audience demographics and advertising rates.
Audience acceptance of a station's programming, whether local, network or
syndicated, affects the station's competitive position. Ownership consolidation
continues to occur in the television broadcast industry which may affect local
market competition for syndicated programming. In addition, local television
stations may face increased competition over the next several years due to the
ability of new video service providers (e.g. telephone companies) to enter the
industry. The company cannot predict the effects of these actions on the
future results of the company's broadcasting operations.
Regulation
- ----------
Television broadcasting operations are subject to regulation by the Federal
Communications Commission (FCC) under the Communications Act of 1934, as
amended (Communications Act). Under the Communications Act, the FCC performs
many regulatory functions including granting of station licenses and
determining regulations and policies which affect the ownership, operation,
programming and employment practices of broadcast stations. The FCC must
approve all television licenses and therefore compliance with FCC regulations
is essential to the operation of this segment. The maximum term of broadcast
licenses is eight years. Management is not aware of any reason why its
television station licenses would not be renewed by the FCC. The
Communications Act also prohibits the assignment of a broadcast license or the
transfer of control of a broadcast licensee without prior FCC approval. The
Telecommunication Act of 1996 allows broadcast companies to own an unlimited
number of television stations as long as the combined service areas of such
stations do not include more than 35 percent of U.S. television households. In
August 1999, the FCC issued regulations permitting the ownership of two
stations in a market under certain circumstances. As of June 30, 2001, the
company's household coverage is approximately 7.3 percent (based on the FCC
method of calculation which includes 50 percent of the market size for UHF
stations owned).
Congressional legislation and FCC rules are subject to change and these groups
may adopt regulations that could affect future operations and profitability of
the company's broadcasting segment. In April 1997, the FCC announced rules for
the implementation of digital television (DTV) service. Under these rules, all
- 11 -
<PAGE>
broadcasters who, as of April 3, 1997, held a license to operate a full-power
television station or a construction permit for such a station will be
assigned, for an eight-year transition period, a second channel on which to
initially provide separate DTV programming or simulcast its analog programming.
Stations must construct their DTV facilities and be on the air with a digital
signal according to a schedule set by the FCC based on the type of station and
the size of the market in which it is located. According to these rules, the
company's Atlanta, Phoenix, Orlando, Portland and Hartford/New Haven broadcast
television stations are currently transmitting digital signals on specially
assigned second channels. Meredith's remaining stations, with the exception of
low-power KFXO, must follow suit by May 2002. At the end of the transition
period, analog television transmissions will cease, and DTV channels may be
reassigned. The FCC expects to complete the transition to DTV by 2006. The FCC
has announced that it will review the progress of DTV every two years and make
adjustments to the 2006 target date, if necessary. The impact of these rulings
to Meredith is uncertain. Digital conversion requires capital expenditures of
approximately $2 million per station to transmit a digital signal and comply
with current DTV requirements.
In April 2000, Meredith and other broadcasters dedicated a portion of their
digital spectrum to create a wireless infrastructure to deliver content to
consumers. Meredith owns a minority position in this new venture, named iBlast
Networks, and will share in its revenues and operating results. iBlast
currently expects to begin service in late calendar 2001.
The information given in this section is not intended to be a complete listing
of all regulatory provisions currently in effect. The company cannot predict
what changes to current legislation will be adopted or determine what impact
any changes could have on its television broadcasting operations.
- 12 -
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF AUGUST 30, 2001)
- -----------------------------------------------------------------------------
Executive
Officer
Name Age Title Since
- ------------------- --- ------------------------------------- ---------
William T. Kerr 60 Chairman and Chief Executive Officer 1991
Stephen M. Lacy 47 President - Publishing Group 1998
Jerome M. Kaplan 55 President - Magazine Group 2000
Leo R. Armatis 63 Vice President - Corporate Relations 1995
Lee Ann Georgeou 49 Vice President - Publishing Business
Development 2000
Suku V. Radia 50 Vice President - Chief Financial Officer 2000
John S. Zieser 42 Vice President - General Counsel
and Secretary 1999
Executive officers are elected to one-year terms of office each November. Mr.
Kerr is a director of the company. Messrs. Kerr, Kaplan and Armatis have been
employed by the company for at least five years. Messrs. Lacy and Kaplan
assumed their current positions in November 2000 due to the retirement of Mr.
Chris Little from the position of president - Publishing Group. Mr. Lacy had
previously served as president - Interactive & Integrated Marketing Group since
March 2000. He joined Meredith as vice president-chief financial officer in
February 1998. Prior to joining Meredith, Mr. Lacy had been, successively,
vice president-chief financial officer, executive vice president, and president
of Johnson & Higgins/Kirke-Van Orsdel, a company that provided outsourced
administrative services for employee benefit plans of Fortune 1000 companies,
from 1992 until the time he joined Meredith. Mr. Kaplan previously served as a
Publishing Group vice president/ publishing director. His duties included
direct responsibility for Better Homes and Gardens and Ladies Home Journal
magazines. Ms. Georgeou joined Meredith in November 2000 as vice president -
corporate development and was appointed to her current position in July 2001.
She previously served as vice chair of Optimedia International, the U.S. unit
of Publicis S.A. Prior to that she had been president of DeWitt Media, Inc.
for three years following her service as executive vice president - managing
director, business development for Ammirati Puris Lintas. Mr. Radia joined
Meredith as vice president-chief financial officer in March 2000. Prior to
that he had served as managing partner of the Des Moines office of KPMG LLP, a
global professional services firm, since 1993. Mr. Zieser became vice
president-general counsel and secretary in January 1999. Prior to joining
Meredith, Mr. Zieser had been group president of First Data Merchant Services
Corporation, a division of First Data Corporation (FDC), a leading provider of
transaction processing and information services. Mr. Zieser joined FDC in 1993
as legal counsel and was subsequently promoted to associate general counsel
prior to his appointment to other senior management positions.
The position of president - Broadcasting Group is being filled on an interim
basis by Mr. Douglas R. Lowe, following the resignation of Cary D. Jones
effective July 31, 2001. Mr. Lowe joined Meredith in August 2000 as executive
vice president - Broadcasting Group with over 16 years of broadcasting industry
experience. Meredith has launched a nationwide search for an executive to lead
its Broadcasting Group.
- 13 -
<PAGE>
Item 2. Properties
Meredith Corporation headquarters are located at 1716 and 1615 Locust Street,
Des Moines, Iowa. The company owns these buildings and is the sole occupant.
Meredith also owns an office building located at 1912 Grand Avenue in Des
Moines. Meredith employees occupy a portion of the facility and approximately
one-third of the space in that building is leased to an outside party.
The publishing segment operates mainly from the Des Moines offices and from
leased facilities at 125 Park Avenue, New York, New York. The New York
facility is used primarily as an advertising sales office for all Meredith
magazines and headquarters for Ladies' Home Journal and MORE magazines. The
publishing segment also maintains ad sales offices, which are leased, in
Chicago, San Francisco, Los Angeles, Detroit and several other cities. These
offices are adequate for their intended use.
The broadcasting segment operates from offices in the following locations:
Atlanta, Ga.; Phoenix, Ariz.; Orlando, Fla.; Portland, Ore.; Hartford, Conn.;
Nashville, Tenn.; Kansas City, Mo.; Greenville, S.C.; Asheville, N.C.; Las
Vegas, Nev.; Flint, Mich.; Saginaw, Mich.; Ocala, Fla.; Gainesville, Fla.; and
Bend, Ore. All of these properties, except those noted, are owned by the
company and are adequate for their intended use. The properties in Asheville,
Flint, Gainesville and Bend are leased and are currently adequate for their
intended use. Each of the broadcast stations also maintains an owned or leased
transmitter site.
Item 3. Legal Proceedings
There are various legal proceedings pending against the company arising from
the ordinary course of business. In the opinion of management, liabilities, if
any, arising from existing litigation and claims will not have a material
effect on the company's earnings, financial position or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of shareholders since the company's
last annual meeting held on November 13, 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The principal market for trading the company's common stock is the New York
Stock Exchange (trading symbol MDP). There is no separate public trading
market for the company's class B stock, which is convertible share-for-share at
any time into common stock. Holders of both classes of stock receive equal
dividends per share.
- 14 -
<PAGE>
The range of trading prices for the company's common stock and the dividends
paid during each quarter of the past two fiscal years are presented below.
High Low Dividends
------ ------ ---------
Fiscal 2001
First Quarter $35.00 $26.75 $ .080
Second Quarter 32.75 27.13 .080
Third Quarter 37.55 30.50 .085
Fourth Quarter 38.97 33.55 .085
Fiscal 2000
First Quarter $38.87 $31.81 $ .075
Second Quarter 42.00 33.31 .075
Third Quarter 41.06 22.37 .080
Fourth Quarter 36.25 25.50 .080
Stock of the company became publicly traded in 1946, and quarterly dividends
have been paid continuously since 1947. It is anticipated that comparable
dividends will continue to be paid in the future.
On July 31, 2001, there were approximately 1,700 holders of record of the
company's common stock and 1,100 holders of record of class B stock.
Item 6. Selected Financial Data
The information required by this Item is set forth on pages F-2 and F-3 of this
Form 10-K and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is set forth on pages F-4 through F-19
of this Form 10-K and is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item is set forth on page F-20 of this Form
10-K and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth on pages F-21 through F-55
of this Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
- 15 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on November 12,
2001, under the caption "Election of Directors" and in Part I of this Form 10-K
on page 13 under the caption "Executive Officers of the Registrant" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on November 12,
2001, under the captions "Compensation of Executive Officers", "Retirement
Programs and Employment Agreements" and "Board Committees, Meetings and
Compensation - Compensation of the Board" and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on November 12,
2001, under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on November 12,
2001, in the last paragraph under the caption "Board Committees, Meetings and
Compensation - Compensation of the Board" and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following consolidated financial statements listed under (a) 1. and the
financial statement schedule listed under (a) 2. of the company and its
subsidiaries are filed as part of this report as set forth on the Index at page
F-1.
(a) 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2001 and 2000
Consolidated Statements of Earnings for the years ended
June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Independent Auditors' Report
- 16 -
<PAGE>
(a) 2. Financial Statement Schedule for the years ended June 30, 2001,
2000 and 1999:
Schedule II - Valuation and Qualifying Accounts
All other Schedules have been omitted for the reason that the
items required by such schedules are not present in the
consolidated financial statements, are covered in the
consolidated financial statements or notes thereto, or are not
significant in amount.
(a) 3. Exhibits. Certain of the exhibits to this Form 10-K are
incorporated herein by reference, as specified: (See index to
attached exhibits on page E-1 of this Form 10-K.)
3.1 The company's Restated Articles of Incorporation, as amended,
are incorporated herein by reference to Exhibit 3.1 to the
company's Quarterly Report on Form 10-Q for the period ended
March 31, 1996.
3.2 The Restated Bylaws, as amended, are incorporated herein by
reference to Exhibit 3 to the company's Quarterly Report on Form
10-Q for the period ended December 31, 2000.
4.1 Note Purchase Agreement dated March 1, 1999 among Meredith
Corporation, as issuer and seller, and named purchasers is
incorporated herein by reference to Exhibit 4.1 to the company's
Current Report on Form 8-K dated March 1, 1999.
4.2 Credit Agreement dated December 10, 1998, among Meredith
Corporation, and certain banks specified therein, for whom
Wachovia Bank, N.A. is acting as Agent, is incorporated herein
by reference to Exhibit 2 to the company's Quarterly Report on
Form 10-Q for the period ended December 31, 1998. Amendment to
the aforementioned agreement is incorporated herein by reference
to Exhibit 4 to the company's Quarterly Report on form 10-Q for
the period ended December 31, 2000.
4.3 Credit Agreement dated July 1, 1997, among Meredith Corporation
and a group of banks with Wachovia Bank, N.A. as Agent is
incorporated herein by reference to Exhibit 4 to the company's
Current Report on Form 8-K dated July 1, 1997. Amendment to the
aforementioned agreement is incorporated herein by reference to
Exhibit 4 to the company's Quarterly Report on form 10-Q for the
period ended December 31, 2000.
10.1 Amendment to the Meredith Corporation 1990 Restricted Stock Plan
for Non-Employee Directors is incorporated herein by reference
to Exhibit 10.1 to the company's Annual Report on Form 10-K for
the year ended June 30, 1999.
10.2 Agreement dated February 25, 1999, between Meredith Corporation
and William T. Kerr regarding conversion of restricted stock
award shares into stock equivalents is incorporated herein by
reference to Exhibit 10.2 to the company's Annual Report on Form
10-K for the year ended June 30, 1999.
- 17 -
<PAGE>
10.3 Meredith Corporation Management Incentive Plan is incorporated
herein by reference to Exhibit 10.3 to the company's Annual
Report on Form 10-K for the year ended June 30, 1999.
10.4 Employment Agreement dated February 2, 1998, between Meredith
Corporation and E. T. Meredith III is incorporated herein by
reference to Exhibit 10 to the company's Quarterly Report on
Form 10-Q for the period ended March 31, 1998.
10.5 Employment agreement dated February 1, 2001, between Meredith
Corporation and William T. Kerr is incorporated herein by
reference to Exhibit 10.1 to the company's Quarterly Report on
Form 10-Q for the period ended December 31, 2000.
10.6 Meredith Corporation 1990 Restricted Stock Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996.
10.7 Meredith Corporation 1993 Stock Option Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996. Amendment to the
aforementioned plan in incorporated herein by reference to
Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for
the period ended December 31, 2000.
10.8 Meredith Corporation Deferred Compensation Plan, dated as of
November 8, 1993, is incorporated herein by reference to Exhibit
10 to the company's Quarterly Report on Form 10-Q for the period
ending December 31, 1993.
10.9 1992 Meredith Corporation Stock Incentive Plan effective August
12, 1992, is incorporated herein by reference to Exhibit 10b to
the company's Annual Report on Form 10-K for the year ended June
30, 1992. Amendment to the aforementioned agreement is
incorporated herein by reference to Exhibit 10.3 to the
company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996.
10.10 Meredith Corporation 1996 Stock Incentive Plan effective August
14, 1996, is incorporated herein by reference to Exhibit A to
the company's Proxy Statement for the Annual Meeting of
Shareholders on November 11, 1996. Amendment to the
aforementioned plan in incorporated herein by reference to
Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for
the period ended December 31, 2000.
10.11 Employment contract (as amended, a Consultancy Agreement) by and
between Meredith Corporation and Jack D. Rehm as of July 1,
1992, is incorporated herein by reference to Exhibit 10c to the
company's Annual Report on Form 10-K for the year ended June 30,
1992. Amendments to the aforementioned agreement are
incorporated herein by reference to Exhibit 10.2 to the
company's Quarterly Report on Form 10-Q for the period ended
December 31, 1996 and to Exhibit 10.3 to the company's Quarterly
Report on Form 10-Q for the period ended December 31, 2000.
- 18 -
<PAGE>
10.12 Indemnification Agreement in the form entered into between the
company and its officers and directors is incorporated herein by
reference to Exhibit 10 to the company's Quarterly Report on
Form 10-Q for the period ending December 31, 1988.
10.13 Amended and Restated Severance Agreement in the form entered
into between the company and its executive officers is
incorporated herein by reference to Exhibit 10.4 to the
company's Quarterly Report on Form 10-Q for the period ended
December 31, 2000.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
(b) Reports on Form 8-K
During the fourth quarter of fiscal 2001, the company filed a report on
Form 8-K on May 4, 2001, reporting under Item 5 the text of a news
release dated May 2, 2001, reporting earnings for the third fiscal
quarter and nine months ended March 31, 2001 and the script of a
conference call held with analysts concerning that news release.
Also during the fourth quarter of fiscal 2001, the company filed a
report on Form 8-K on June 20, 2001, reporting under Item 5 the text of
a management presentation at the Mid-Year Media Review conference on
June 19, 2001.
- 19 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEREDITH CORPORATION
/s/ John S. Zieser
-------------------------------
John S. Zieser, Vice President-
General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Suku V. Radia /s/ William T. Kerr
- --------------------------------- --------------------------------
Suku V. Radia, Vice President- William T. Kerr, Chairman of the
Chief Financial Officer (Principal Board, Chief Executive Officer and
Accounting and Financial Officer) Director (Principal Executive Officer)
/s/ E. T. Meredith III /s/ Herbert M. Baum
- --------------------------------- --------------------------------
E. T. Meredith III Herbert M. Baum, Director
Chairman of the Executive
Committee and Director
/s/ Mary Sue Coleman /s/ Christina A. Gold
- --------------------------------- --------------------------------
Mary Sue Coleman, Director Christina A. Gold, Director
/s/ Frederick B. Henry /s/ Joel W. Johnson
- --------------------------------- --------------------------------
Frederick B. Henry, Director Joel W. Johnson, Director
/s/ Robert E. Lee /s/ Philip A. Marineau
- --------------------------------- --------------------------------
Robert E. Lee, Director Philip A. Marineau, Director
/s/ Mell Meredith Frazier /s/ Nicholas L. Reding
- --------------------------------- --------------------------------
Mell Meredith Frazier, Director Nicholas L. Reding, Director
/s/ Jack D. Rehm
- ---------------------------------
Jack D. Rehm, Director
Each of the above signatures is affixed as of September 14, 2001.
- 20 -
<PAGE>
Index to Consolidated Financial Statements, Financial
Schedules and Other Financial Information
Page
----
Selected Financial Data F- 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations F- 4
Quantitative and Qualitative Disclosures about Market Risk F-20
Consolidated Financial Statements:
Balance Sheets F-21
Statements of Earnings F-23
Statements of Cash Flows F-24
Statements of Shareholders' Equity F-26
Notes F-29
Independent Auditors' Report F-54
Report of Management F-55
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-56
F-1
<PAGE>
Selected Financial Data
Meredith Corporation and Subsidiaries
Years Ended June 30 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------
(In thousands except per share)
Results of operations:
Total revenues...........$1,053,213 $1,097,165 $1,036,122 $1,009,927 $855,218
========= ========= ========= ========= =======
Earnings from continuing
operations.............. $ 71,272 $ 71,030 $ 89,657 $ 79,858 $67,592
Discontinued operation... -- -- -- -- 27,693
--------- --------- --------- --------- -------
Net earnings ............ $ 71,272 $ 71,030 $ 89,657 $ 79,858 $95,285
========= ========= ========= ========= =======
Basic earnings per share:
Earnings from continuing
operations.............. $ 1.43 $ 1.38 $ 1.72 $ 1.51 $ 1.26
Discontinued operation... -- -- -- -- 0.52
--------- --------- --------- --------- -------
Net earnings per share... $ 1.43 $ 1.38 $ 1.72 $ 1.51 $ 1.78
========= ========= ========= ========= =======
Diluted earnings per share:
Earnings from continuing
operations.............. $ 1.39 $ 1.35 $ 1.67 $ 1.46 $ 1.22
Discontinued operation... -- -- -- -- 0.50
--------- --------- --------- --------- -------
Net earnings per share... $ 1.39 $ 1.35 $ 1.67 $ 1.46 $ 1.72
========= ========= ========= ========= =======
Dividends paid per share. $ 0.33 $ 0.31 $ 0.29 $ 0.27 $ 0.24
========= ========= ========= ========= =======
Financial position at June 30:
Total assets.............$1,437,747 $1,439,773 $1,423,396 $1,065,989 $760,433
========= ========= ========= ========= =======
Long-term obligations.... $ 505,758 $ 541,146 $ 564,573 $ 244,607 $17,032
========= ========= ========= ========= =======
General:
Prior years are reclassified to conform with the current-year
presentation.
Significant acquisitions occurred in March 1999 with the acquisition of
WGNX-TV (call letters changed to WGCL-TV in July 2000); in September 1997
with the acquisition of WFSB-TV; and in July 1997 with the purchase of
KPDX-TV, WHNS-TV and KFXO-LP.
Per-share amounts have been adjusted to reflect a two-for-one stock split
in March 1997.
F-2
<PAGE>
Long-term obligations include the current and long-term amounts of
available broadcast rights payable and company debt associated with
continuing operations.
Earnings from continuing operations:
Fiscal 2001 included nonrecurring charges of $25.3 million, or 30 cents per
diluted share, primarily for employment reduction programs and Internet
investment write-offs. In addition, a gain of $21.5 million, or 26 cents per
share, was recorded for the sale of Golf for Women magazine.
Fiscal 2000 included nonrecurring items of $23.1 million, or 36 cents per
diluted share, for asset write-downs, contractual obligations and personnel
costs associated primarily with the decision to exit certain publishing
operations.
Fiscal 1999 included a gain of $2.4 million, or 3 cents per diluted share, from
the sale of the real estate operations.
Discontinued operations:
The company's former cable segment was classified as a discontinued operation
effective September 30, 1995. Fiscal 1997 included a post-tax gain of $27.7
million, or 50 cents per diluted share, from the disposition of the company's
remaining interest in cable television.
F-3
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion presents the key factors that have affected the
company's business over the last three years. This commentary should be read in
conjunction with the company's consolidated financial statements and the 5-year
selected financial data presented elsewhere in this annual report. All
per-share amounts refer to diluted earnings per share and are computed on a
post-tax basis.
This section and other areas of this annual report - and management's public
commentary from time to time - may contain certain forward-looking statements
that are subject to risks and uncertainties. The words "expect," "anticipate,"
"believe," "likely," "will," and similar expressions generally identify
forward-looking statements. These statements are based on management's current
knowledge and estimates of factors affecting the company's operations. Readers
are cautioned not to place undue reliance on such forward-looking information,
as actual results may differ materially from those currently anticipated.
Factors that could adversely affect future results include, but are not limited
to: downturns in national and/or local economies; a softening of the domestic
advertising market; increased consolidation among major advertisers or other
events depressing the level of advertising spending; the unexpected loss of one
or more major clients; changes in consumer reading, purchasing and/or
television viewing patterns; unanticipated increases in paper, postage,
printing or syndicated programming costs; changes in television network
affiliation agreements and/or network affiliation relationships; technological
developments affecting products or methods of distribution such as the Internet
or e-commerce; changes in government regulations affecting the company's
industries; unexpected changes in interest rates; and any acquisitions and/or
dispositions.
Significant Events
Fiscal 2001
- -----------
In response to a weakening economy and a widespread advertising downturn,
Meredith took steps to reduce the number of employees, including a one-time,
special voluntary early retirement program and additional selective workforce
reductions through attrition, realignments and job eliminations. A total of
155 positions were eliminated through early retirements and job eliminations
during the fiscal year ended June 30, 2001. The company plans to eliminate
another 50 to 75 positions by December 31, 2001. In addition, the company
wrote off certain Internet investments and recorded other charges primarily
related to the decision to discontinue certain publishing operations. These
costs were partially offset by the reversal of certain accruals no longer
deemed necessary. These actions resulted in a fiscal 2001 fourth-quarter
nonrecurring charge of $25.3 million ($15.4 million after-tax), or 30 cents per
share.
F-4
<PAGE>
Personnel costs of $18.4 million represent expenses for retirement benefits,
severance and outplacement charges related to the early retirement and the
involuntary termination of employees. These costs are expected to be paid from
internally generated cash flows. The majority of these costs will be paid out
over the next 15 months. However, the payment of certain early retirement
benefit costs will extend up to seven years.
The asset write-downs of $8.2 million consisted of the write-off of $6.0
million in investments in Internet-related alliances and $2.2 million for other
charges. Meredith has ended its business relationships with two small Internet
companies and a review of the fair value of Meredith's investments in the two
businesses resulted in the write-off of these investments. Based on financial
information provided by the companies, management believed both investments
were worthless. The remaining charges consisted primarily of costs associated
with the decision to discontinue certain publishing operations. Operations
involved included Family Money magazine, Mature Outlook magazine, the Shop
Online 1-2-3 supplement and the Better Homes and Gardens television show, which
is still in syndication.
The reversal of certain accruals resulted in a $1.3 million reduction in the
amount of the nonrecurring charge. These reversals were primarily related to
the accruals for contractual obligations recorded in the fiscal 2000
nonrecurring charge. The company was able to settle certain of these
commitments for less than originally expected.
Meredith recorded a charge of $9.9 million ($6.1 million after-tax), or 12
cents per share, for the write-down of certain broadcasting syndicated
programming rights to net realizable value. A significant decline in first-run
ratings for programming not yet available for broadcast was the primary factor
in the writedown.
In May 2001, Meredith sold Golf for Women magazine to The Golf Digest
Companies, a subsidiary of Advance Magazine Publishers, Inc., effective with
the first issue of fiscal 2002. The sale resulted in a gain of $21.5 million
($13.1 million after-tax) or 26 cents per share. In addition, Meredith sold
the assets of American Park Network in fiscal 2001. The resulting gain was not
material.
Fiscal 2000
- -----------
In March 2000, Meredith announced several major strategic initiatives. They
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 committed to continue to
invest in the following: Internet and e-commerce activities, continued
development of its consumer database, and strategic alliances and partnerships.
Incremental spending related to these initiatives reduced earnings by 5 cents
per share in fiscal 2001 and by 2 cents per share in fiscal 2000.
F-5
<PAGE>
Investment spending related to the circulation initiatives reduced fiscal 2001
earnings by 6 cents per share and fiscal 2000 earnings by 10 cents per share.
The final initiative resulted in the closing of Cross Stitch & Needlework and
Decorative Woodcrafts magazines and the decision to exit certain other
publishing operations. In addition, the company announced it will no longer
publish Crayola Kids magazine due to a disagreement with the licensor regarding
the strategic direction of the magazine. These decisions contributed to a
nonrecurring charge of $23.1 million ($19.1 million after-tax), or 36 cents per
share, consisting of asset write-downs ($16.8 million), contractual
obligations ($3.8 million) and personnel costs ($2.5 million).
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 American Park Network, which the company had decided to no
longer publish, were also written off. The intangible asset write-downs will
reduce future amortization expense by $2.5 million annually. In addition, the
asset write-downs included the write-off of deferred subscription acquisition
costs and prepaid editorial costs associated with the discontinued magazines.
Net accounts receivable of the discontinued titles were expected to be
collected. Other tangible assets associated with the discontinued titles, such
as paper inventories and office equipment, were redeployed in other magazines.
Contractual obligations resulted from the decision to exit certain publishing
operations and from a comprehensive review of the impact of news expansion on
film valuations at one television station. The personnel costs represent
expenses for severance and outplacement charges related to the involuntary
termination of 29 employees as a result of the magazine closings and other
restructuring efforts. The decision to exit certain publishing operations will
result in an approximate $25 million annual reduction in revenues, but will not
have a material impact on operating profits of the publishing segment.
Fiscal 1999
- -----------
On March 1, 1999, the company acquired the net assets of WGNX-TV, the CBS
affiliate serving the Atlanta market. In July 2000, the call letters of the
station were changed to WGCL-TV. As part of the acquisition, Meredith purchased
the assets of KCPQ-TV, a FOX affiliate serving the Seattle market, for $380
million from Kelly Television Company. The assets of KCPQ-TV were then
transferred to Tribune Company in exchange for the assets of WGCL-TV and $10
million. As a result, the net cost of WGCL-Atlanta was approximately $370
million.
Effective July 1, 1998, Meredith sold the net assets of the Better Homes and
Gardens Real Estate Service to GMAC Home Services, Inc. The sale resulted in a
net gain of $1.4 million, or 3 cents per share. In a separate transaction,
Meredith and GMAC Home Services entered into a licensing agreement that
authorizes GMAC Home Services to use the Better Homes and Gardens trademark in
connection with residential real estate marketing for a period not to exceed 10
years. GMAC Home Services will pay Meredith an annual license fee for the use
of the trademark.
F-6
<PAGE>
Results of Operations
Years ended June 30 2001 Change 2000 Change 1999
----------------------------------------------------------------------------
(In millions except per share)
Total revenues............... $1,053.2 (4)% $1,097.2 6 % $1,036.1
======== ======== ========
Nonrecurring items........... $ (25.3) (10)% $ (23.1) nm $ --
======== ======== ========
Income from operations....... $ 126.6 (22)% $ 161.3 (6)% $ 171.1
======== ======== ========
Gains from dispositions...... $ 21.5 nm $ -- nm $ 2.4
======== ======== ========
Net earnings................. $ 71.3 -- $ 71.0 (21)% $ 89.7
======== ======== ========
Diluted earnings per share... $ 1.39 3 % $ 1.35 (19)% $ 1.67
======== ======== ========
Other data:
Earnings before
special items *............ $ 79.7 (12)% $ 90.8 (1)% $ 91.4
======== ======== ========
Diluted earnings per share
before special items *..... $ 1.55 (10)% $ 1.72 1 % $ 1.70
======== ======== ========
nm - not meaningful
* Special items include broadcast rights write-downs (pre-tax write-downs of
$9.9 million in fiscal 2001, $1.1 million in fiscal 2000 and $5.2 million in
fiscal 1999) as well as the nonrecurring items and gains from dispositions
shown above.
Fiscal 2001 compared to 2000 -- Net earnings of $71.3 million, or $1.39 per
share, were recorded in fiscal 2001, compared to net earnings of $71.0 million,
or $1.35 per share, in fiscal 2000. Fiscal 2001 net earnings included the
following special items: a post-tax charge of $6.1 million, or 12 cents per
share, in production, distribution and editorial expenses for the write-down of
broadcast rights to net realizable value; a nonrecurring post-tax charge of
$15.4 million, or 30 cents per share, for employee severance, asset write-downs
and other costs; and a post-tax gain of $13.1 million, or 26 cents per share,
from the sale of Golf for Women magazine. Special items in fiscal 2000 net
earnings included: a post-tax charge of $0.7 million, or 1 cent per share, in
production, distribution and editorial expenses for the write-down of broadcast
rights to net realizable value; and a nonrecurring post-tax charge of $19.1
million, or 36 cents per share, for the write-down of nondeductible
intangibles, severance payments and other charges primarily related to the
closing of certain magazine titles.
F-7
<PAGE>
Excluding these special items, fiscal 2001 earnings were $79.7 million, or
$1.55 per share, compared to $90.8 million, or $1.72 per share, in fiscal 2000.
Fiscal 2001 results primarily reflected the weakness in advertising demand that
has affected the media industry. In response to the advertising slowdown,
management reduced costs, excluding special items, by 2 percent, compared to
the prior year.
Fiscal 2001 revenues were $1,053.2 million, compared to revenues of $1,097.2
million in fiscal 2000. Excluding discontinued magazine titles, comparable
revenues were $1,039.1 million in fiscal 2001 versus $1,049.9 million in fiscal
2000. The decline in comparable revenues primarily reflected lower magazine
and broadcasting advertising revenues. Nonadvertising revenues increased 5
percent on a comparable basis, primarily reflecting growth in integrated
marketing and book sales.
As previously mentioned, operating costs and expenses, excluding broadcast
rights write-downs and nonrecurring charges, decreased 2 percent in fiscal 2001
despite higher paper prices, a January 2001 postal rate increase, increased
interactive media spending and investments in Broadcasting Group news and sales
operations. Incremental costs for Internet expansion reduced earnings by an
additional 5 cents per share in fiscal 2001, compared to the fiscal 2000
investments. The 2 percent decline in expenses reflected volume-related
declines in magazine manufacturing, distribution and subscription acquisition
costs as well as management's cost containment efforts. In addition, lower
per-unit magazine production costs benefited the first half of the fiscal year.
Compensation costs increased slightly due to expanded local news programming at
several television stations and annual merit increases. Unallocated corporate
expenses, which represent general corporate overhead expenses not attributable
to the operating groups, were $15.6 million in fiscal 2001, compared to $15.1
million in fiscal 2000.
Looking forward, the company's employment reduction programs are expected to
lower costs by approximately $7 million in fiscal 2002. This will affect both
production, distribution and editorial expenses and selling, general and
administrative expenses. The write-down of broadcasting rights will result in a
reduction of approximately $2 million in production, distribution and editorial
expenses in fiscal 2002. However, these cost savings will be somewhat offset by
increases in costs for employee healthcare and pension expenses, higher postal
rates and higher amortization of other broadcasting program rights.
Net interest expense decreased to $31.9 million in fiscal 2001 versus $33.8
million in fiscal 2000 due to lower average debt levels.
The company's effective tax rate was 38.7 percent in fiscal 2001, compared with
44.3 percent in the prior year. The fiscal 2000 effective tax rate included
the impact of the nondeductible write-down of intangibles related to the
discontinuation of certain publishing operations. Excluding that impact, the
normalized effective tax rate was 40.2 percent in fiscal 2000.
The weighted-average number of shares outstanding declined 3 percent in fiscal
2001 as a result of company share repurchases.
Looking forward to fiscal 2002, management has not seen any indications of a
turnaround in the advertising market in the near future. In publishing, first
quarter comparable advertising pages are down in the low-single-digits on a
percentage basis, while advertising revenues for Meredith's magazines as a
F-8
<PAGE>
group are up slightly from the prior-year first quarter. Management does not
view the slight increase as evidence of a turnaround. In broadcasting,
advertising bookings are currently pacing down in the high-single-digits on a
percentage basis compared to the prior-year first quarter. In addition,
comparisons of the first two quarters of fiscal 2002 to the prior year will be
affected by the absence of $14.2 million in net political advertising at the
company's broadcasting stations, related to the November 2000 elections; an
increase in the volume of circulation mailings; and the cost increases
mentioned previously. The increase in circulation mailings reflects a timing
shift, as the overall level of mailings in fiscal 2002 is expected to be about
equal to the prior year. The combination of these factors lead management to
believe that earnings for the first two quarters of fiscal 2002 will be well
below earnings in the same quarters of fiscal 2001. Due to the uncertainty of
economic factors, management is not comfortable commenting on full fiscal year
2002 performance at this time.
Fiscal 2000 compared to 1999 -- Net earnings of $71.0 million, or $1.35 per
share, were recorded in fiscal 2000, compared to net earnings of $89.7 million,
or $1.67 per share, in fiscal 1999. Fiscal 2000 net earnings included a
nonrecurring after-tax charge of $19.1 million, or 36 cents per share, for the
write-down of nondeductible intangibles, severance payments and other charges
primarily related to the closing of certain magazine titles announced in March
2000. Fiscal 2000 results also included an after-tax charge of $0.7 million, or
1 cent per share, for the write-down of certain broadcast rights to net
realizable value. Fiscal 1999 net earnings included an after-tax gain of $1.4
million, or 3 cents per share, from the disposition of the Better Homes and
Gardens Real Estate Service. In addition, fiscal 1999 net earnings included an
after-tax charge of $3.1 million, or 6 cents per share, for the write-down of
certain broadcast rights to net realizable value.
Excluding those special items, fiscal 2000 earnings were $90.8 million, or
$1.72 per share, compared to $91.4 million, or $1.70 per share, in fiscal 1999.
Fiscal 2000 results included pre-tax spending of $10.2 million, or 12 cents per
share, for investments in circulation initiatives, Internet and e-commerce
activities and development of the consumer database. Despite these
investments, the Publishing Group reported record operating profits in fiscal
2000. This strong performance was largely offset by dilution from the
acquisition of WGCL-TV, the CBS affiliate in Atlanta, and lower operating
profits in the comparable broadcasting business. Overall, management estimates
that the acquisition of WGCL-Atlanta diluted earnings by 27 cents per share in
fiscal 2000, compared to 8 cents per share in fiscal 1999 from the acquisition
date of March 1, 1999. These estimates include the after-tax effects of the
station's operating results after amortization of acquired intangibles and
interest expense on debt incurred to finance the acquisition.
Fiscal 2000 revenues increased 6 percent, reflecting the acquisition of
WGCL-Atlanta and growth of publishing revenues. Adjusting for the effects of
the WGCL-Atlanta acquisition and discontinued magazines, revenues also
increased 6 percent. Increased magazine advertising and circulation, book
sales and integrated marketing revenues were the primary factors in the growth
of comparable revenues.
Operating costs and expenses, excluding broadcast rights write-downs and
nonrecurring charges, increased 6 percent as a result of a full year of
operating costs and expenses at WGCL-Atlanta, growth in the volume of book
publishing and integrated marketing business, higher magazine paper costs and
F-9
<PAGE>
increased investment in television news and sales development expenses. These
increased expenses were partially offset by lower magazine production costs.
Compensation costs increased as a result of the WGCL-Atlanta acquisition,
expanded local news programming at several television stations and normal merit
increases. Depreciation and amortization increased in total and as a
percentage of revenues primarily from a full year of amortization at
WGCL-Atlanta. Unallocated corporate expenses, which represent general
corporate overhead expenses not attributable to the operating groups, were
$15.1 million in fiscal 2000, compared to $20.8 million in fiscal 1999. The
decline reflected cost containment efforts and the absence of prior-year costs
related to the acquisition of WGCL-Atlanta. The operating profit margin,
excluding broadcast rights write-downs and nonrecurring charges, was 16.9
percent of revenues in fiscal 2000, compared to 17.0 percent in fiscal 1999.
Net interest expense increased to $33.8 million in fiscal 2000 versus expense
of $21.3 million in fiscal 1999 due to a full year of interest expense on debt
incurred to finance the acquisition of WGCL-Atlanta.
The company's effective tax rate was 44.3 percent in fiscal 2000, compared with
41.1 percent in fiscal 1999. The increase was a result of the nondeductible
write-down of intangibles related to the discontinuation of certain publishing
operations. Excluding that impact, the normalized effective tax rate was 40.2
percent. The decline from fiscal 1999 primarily reflected lower effective
state tax rates.
The weighted-average number of shares outstanding declined approximately 2
percent in fiscal 2000 as a result of company share repurchases.
Interactive Media
- -----------------
The following table presents supplemental data regarding the results of the
company's interactive media operations. These operations are an integral part
of the company's Publishing and Broadcasting Groups and are 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.
Interactive media revenues include banner advertising, Web site sponsorships,
content management fees and print advertising in the company's publications
related to strategic alliance agreements. Other dot-com advertising is not
included. The cost savings associated with subscription sales on the company's
Web sites are reflected as a reduction in expense. Interactive media expenses
include only directly attributable costs. Purchases of in-house advertising in
the company's publications for purposes of promotion of the interactive Web
sites are reflected at cost.
F-10
<PAGE>
Years ended June 30 2001 Change 2000 Change 1999
----------------------------------------------------------------------------
(In millions)
Total revenues................ $ 5.8 67 % $ 3.5 205 % $ 1.1
====== ====== ======
Operating loss................ $ (7.7) (23)% $ (6.3) (57)% $ (4.0)
====== ====== ======
Fiscal 2001 compared to 2000 -- Interactive media revenues increased 67 percent
to $5.8 million in fiscal 2001 from $3.5 million in fiscal 2000. The revenue
growth reflected increased advertising revenues and higher revenues for content
creation services. Despite the revenue increase, interactive media incurred an
operating loss of $7.7 million in fiscal 2001 versus a loss of $6.3 million in
fiscal 2000, reflecting the company's ongoing investments in efforts to grow
the business. Meredith made significant progress toward its goal of acquiring
1.5 million subscriptions online by the end of fiscal 2003. Nearly 290,000
subscriptions were acquired online in fiscal 2001.
Fiscal 2000 compared to 1999 -- Interactive media revenues increased to $3.5
million in fiscal 2000, from $1.1 million in fiscal 1999, an increase of 205
percent. Interactive media incurred an operating loss of $6.3 million in
fiscal 2000 versus a loss of $4.0 million in fiscal 1999. These results
reflect the company's increasing level of investment in interactive media.
Publishing
- ----------
The publishing segment includes magazine and book publishing, integrated
marketing, interactive media, brand licensing and other related operations.
Years ended June 30 2001 Change 2000 Change 1999
------------------------------------------------------------------------
(In millions)
Revenues
Advertising................ $352.5 (9)% $387.1 7 % $360.7
Circulation................ 263.6 (4)% 275.6 1 % 273.6
Other...................... 166.8 7 % 156.1 10 % 141.3
------ ------ ------
Total revenues............... $782.9 (4)% $818.8 6 % $775.6
====== ====== ======
Operating profit............. $132.8 (4)% $139.0 17 % $118.9
====== ====== ======
Note: Operating profit is reported before nonrecurring charges of $15.1
million in fiscal 2001 and $21.1 million in fiscal 2000.
Fiscal 2001 compared to 2000 -- Publishing revenues declined 4 percent to
$782.9 million in fiscal 2001, from $818.8 million in fiscal 2000. Excluding
the impact of the discontinued titles, revenues declined slightly from $771.5
F-11
<PAGE>
million in fiscal 2000 to $768.8 million in fiscal 2001. Discontinued titles
include: Family Money, Mature Outlook, Country Home Antiques Extra, Crayola
Kids, Northwest WorldTraveler, Cross Stitch & Needlework and Decorative
Woodcrafts magazines; the Shop Online 1-2-3 supplement; and the California
Tourism publications. The following discussion excludes the revenues of these
discontinued titles.
Comparable publishing advertising revenues declined 5 percent in fiscal 2001
versus the prior year, reflecting fewer advertising pages sold due to a
slowdown in the demand for advertising. This slowdown in demand was widespread,
affecting most categories of advertising and most of the company's titles.
Comparable advertising pages for the group were down 4 percent. Some of the
categories affected included home and building, packaged goods and retail. One
notable exception to the trend was the strong performance of MORE magazine,
which reported a 25 percent increase in advertising pages and a 45 percent
increase in advertising revenue. Two additional issues of MORE were published
in fiscal 2001 due to an increase in frequency. The magazine also had a higher
rate base compared to the prior year.
Comparable magazine circulation revenues increased 1 percent in fiscal 2001.
The increase reflected increased newsstand sales of many titles including the
Better Homes and Gardens Special Interest Publications, MORE, and the crafts
group of titles. These newsstand revenue increases were nearly offset by lower
subscription revenues resulting from a February 2000 rate base reduction at
Ladies' Home Journal magazine.
Other publishing revenues grew 9 percent in fiscal 2001 on a comparable basis,
primarily reflecting increased sales volumes in integrated marketing as a
result of new and expanded custom publishing agreements. Growth in the volume
of books sold also contributed to the revenue increase.
Publishing operating profit before nonrecurring charges was $132.8 million in
fiscal 2001, down 4 percent from $139.0 million in the prior year. The decline
in operating profit was primarily a result of lower advertising revenues. This
revenue decline was partially offset by lower operating costs and expenses.
Costs declined 4 percent in fiscal 2001, reflecting the absence of costs for
the discontinued titles, management's cost control initiatives, lower
subscription acquisition costs due to the timing of promotional mailings and
lower magazine processing costs in the first half of the fiscal year. Partially
offsetting these cost declines were higher magazine paper prices, a postal rate
increase of nearly 10 percent in January 2001, volume-related increases in
custom publishing costs and increased investment in interactive initiatives.
Paper, printing and postage costs account for approximately 40 percent of the
publishing segment's operating costs. Average paper prices were approximately
3 percent higher in fiscal 2001 due to the timing of price changes. At June 30,
2001, paper prices were approximately 5 percent lower than the prices of one
year earlier as a result of price declines during fiscal 2001. Paper prices
are driven by overall market conditions and, therefore, are difficult to
predict. Management anticipates little change in paper prices over the next
year.
Meredith continued to benefit from lower printing costs on a per-unit basis
through the first half of the fiscal year. These benefits resulted from
contracts entered into with major print suppliers that took effect in January
2000.
F-12
<PAGE>
Postal rates increased nearly 10 percent in January 2001. In addition, rates
increased nearly 3 percent on July 1, 2001. Additional requests for rate
increases are expected in the near future and changes in the level of service
provided by the Postal Service are possible. Industry groups have raised
serious questions about the financial stability of the United States Postal
Service and are encouraging the elimination of operational inefficiencies in an
attempt to moderate future price increases. Management cannot predict what
impact possible changes in service and rates will have on the business.
Fiscal 2000 compared to 1999 -- Publishing revenues increased 6 percent to
$818.8 million in fiscal 2000, from $775.6 million in fiscal 1999. Revenue
growth was affected by the closing of Country America and Crayola Kids
magazines and the absence of Northwest WorldTraveler magazine after December
1999. The company and Northwest Airlines mutually agreed to end their custom
publishing relationship at that time. Excluding the impact of those items,
comparable revenues increased 8 percent versus fiscal 1999. The discussion
that follows excludes the revenues of these discontinued titles.
Comparable advertising revenues grew 9 percent, reflecting additional
advertising pages and higher average revenues per page at most titles.
Advertising categories reporting strong growth in fiscal 2000 included retail,
pharmaceutical, financial and travel. Titles reporting double-digit percentage
advertising revenue growth included Traditional Home, MORE, Renovation Style,
Family Money, Mature Outlook and the Better Homes and Gardens Special Interest
Publications. The company's largest circulation title, Better Homes and
Gardens magazine, also reported solid advertising revenue gains. The increase
at Family Money magazine reflects one additional issue in fiscal 2000, compared
to the prior year. Also contributing to the growth in advertising revenues was
the addition of Shop Online 1-2-3, an Internet buying guide distributed as a
supplement to 5 million subscribers of 10 Meredith titles, and growth in online
advertising at bhg.com.
During fiscal 2000, Meredith launched two new subscription magazines, Hometown
Cooking and Antiques Extra. In addition, MORE, Golf for Women, Country Gardens
and American Patchwork & Quilting magazines increased their rate bases during
fiscal 2000. The company also has announced increases in frequencies and/or
rate bases for MORE, Renovation Style and Family Money magazines, as well as
several Better Homes and Gardens Special Interest Publications, effective in
fiscal 2001.
Comparable circulation revenues increased 3 percent in fiscal 2000, primarily
reflecting strong newsstand sales of the Better Homes and Gardens Special
Interest Publications. Also contributing to the increase was the addition of
revenues from two new titles, Hometown Cooking and Antiques Extra magazines,
and an additional issue of both Country Home and MORE magazines due to
increases in frequency. These revenue increases were partially offset by lower
circulation revenues at Ladies' Home Journal magazine as a result of a
reduction in its rate base to 4.1 million, effective with the February 2000
issue. Other publishing revenues grew 15 percent on a comparable basis because
of increased sales in the integrated marketing and consumer book businesses.
Publishing operating profit before nonrecurring charges increased 17 percent to
a record level in fiscal 2000, despite fourth-quarter investments totaling
$10.2 million in circulation initiatives, Internet and e-commerce activities
and development of the consumer database. The improvement reflected higher
F-13
<PAGE>
magazine advertising revenues and lower magazine production costs, as well as
volume-related increases in book publishing and integrated marketing operating
profits. Fiscal 2000 magazine results were led by Better Homes and Gardens
magazine. Ladies' Home Journal, Country Home and Traditional Home magazines,
as well as the Better Homes and Gardens Special Interest Publications, also
posted strong operating profit increases. In addition, fiscal 1999 results
were affected by costs for the closing of Country America magazine and a
favorable settlement related to the discontinuation of a direct marketing
alliance.
Paper, printing and postage costs account for approximately 40 percent of the
publishing segment's operating costs. Total paper expense increased as a
result of volume increases and higher average prices. At June 30, 2000, paper
prices had increased in the mid-single digits on a percentage basis from a year
earlier.
Printing costs declined on a per-unit basis in the second half of fiscal 2000
as a result of contracts entered into with major print suppliers.
Broadcasting
- ------------
The broadcasting segment consists of the operation of network-affiliated
television stations, including their interactive media operations.
Years ended June 30 2001 Change 2000 Change 1999
------------------------------------------------------------------------
(In millions)
Revenues
Advertising................ $263.3 (3)% $271.0 7 % $252.7
Other...................... 7.0 (4)% 7.3 (6)% 7.8
------ ------ ------
Total revenues............... $270.3 (3)% $278.3 7 % $260.5
====== ====== ======
Operating profit............. $ 34.7 (43)% $ 60.5 (17)% $ 73.0
====== ====== ======
Note: Operating profit is reported before nonrecurring charges of $8.1 million
in fiscal 2001 and $2.0 million in fiscal 2000.
Fiscal 2001 compared to 2000 -- Revenues declined 3 percent in fiscal 2001 due
to an industry-wide weakening in the demand for advertising. Partially
offsetting this decline was an increase in political advertising for the
November 2000 elections, especially at KCTV-Kansas City, WFSB-Hartford/New
Haven and WNEM-Flint/Saginaw. Political advertising revenue totaled $14.2
million in fiscal 2001 versus $2.2 million in fiscal 2000. Excluding political
advertising, which is not entirely incremental, revenues declined 7 percent.
Most of the decline occurred in national advertising, which was down at nearly
all of the company's stations. The categories of automotive, retail and fast-
food advertising were weak across the group. Local advertising revenues were
down less than 1 percent for the group. Strong growth in local advertising was
reported at WOFL-Orlando and WGCL-Atlanta.
F-14
<PAGE>
Fiscal 2001 broadcasting operating results included a charge of $9.9 million
for the write-down of broadcast rights to net realizable value. Fiscal 2000
operating results included a charge of $1.0 million for such write-downs.
Excluding these write-downs and nonrecurring charges, operating profit was
$44.6 million in fiscal 2001, compared to $61.5 million in fiscal 2000. The
decline reflected lower advertising revenues and increased costs resulting from
investments in the improvement and expansion of news programming and
investments in sales enhancement efforts. Excluding these items, costs were
flat with the prior year.
Fiscal 2000 compared to 1999 -- Revenues increased 7 percent in fiscal 2000, as
a result of the March 1999 acquisition of WGCL-Atlanta. Excluding
WGCL-Atlanta, comparable revenues were flat with the prior year. Growth was
hampered by a decline of nearly $6 million in political advertising revenues
due to the biennial nature of political elections. Excluding the political
advertising impact, comparable revenues increased 2 percent with most stations
reporting higher revenues. KVVU-Las Vegas reported the strongest gain as the
station benefited from a healthy growth market and strong ratings. Notable
improvements, excluding the political impact, were also reported at
WFSB-Hartford/New Haven, WSMV-Nashville, WNEM-Flint/Saginaw and KFXO-Bend.
Partially offsetting the revenue improvements were lower advertising revenues
at KPHO-Phoenix and WOFL-Orlando.
Broadcasting operating profit before nonrecurring charges declined to $60.5
million in fiscal 2000, compared to operating profit of $73.0 million in fiscal
1999. Fiscal 1999 results included a charge of $5.2 million for the write-down
of certain broadcast rights to estimated net realizable value, compared to a
charge of $1.0 million in the current year. Excluding the impact of the
write-down of broadcast rights and nonrecurring charges, operating profits were
$61.5 million in fiscal 2000 versus $78.2 million in fiscal 1999. One of the
factors in the decline was the inclusion of operating results at WGCL-Atlanta
in the company's first full year of ownership. Meredith is investing in
expanding and improving the station's news, programming and sales development
efforts. Progress has been evidenced in improved ratings, and management
believes that these investments will lead to future revenue growth and improved
operating results. Excluding the impact of the write-downs and the newly
acquired WGCL-Atlanta, comparable broadcasting operating profit declined 16
percent. The decline reflects the lack of revenue growth noted previously, in
combination with investments in programming, news expansions and sales
development. In addition, the company made payments to the FOX network in
fiscal 2000, resulting from contract changes implemented in July 1999.
F-15
<PAGE>
Liquidity and Capital Resources
Years ended June 30 2001 Change 2000 Change 1999
----------------------------------------------------------------------------
(In millions)
Net earnings............... $ 71.3 -- % $ 71.0 (21)% $ 89.7
======= ======= =======
Cash flows from operations. $ 137.0 (7)% $ 148.0 10 % $ 134.7
======= ======= =======
Cash flows from investing.. $ (38.7) 16 % $ (46.3) 88 % $(386.5)
======= ======= =======
Cash flows from financing.. $ (84.9) 6 % $ (89.9) nm $ 257.9
======= ======= =======
Net cash flows............. $ 13.4 13 % $ 11.8 95 % $ 6.1
======= ======= =======
Other data:
EBITDA..................... $ 213.4 (10)% $ 237.8 8 % $ 220.4
======= ======= =======
nm - not meaningful
Cash and cash equivalents increased by $13.4 million in fiscal 2001, compared
to an increase of $11.8 million in the prior year. The change primarily
reflected cash received from dispositions and lower spending for stock
repurchases in the current year, net of lower cash provided by operations and
increased spending for property, plant and equipment. Cash provided by
operating activities decreased because of a decline in earnings before special
items.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and excludes special items. The special items excluded from
EBITDA consist of the following: the write-down of broadcast rights ($9.9
million in fiscal 2001, $1.0 million in fiscal 2000 and $5.2 million in fiscal
1999); nonrecurring charges ( $25.3 million in fiscal 2001 and $23.1 million
in fiscal 2000) and gains from dispositions ($21.5 million in fiscal 2001 and
$2.4 million in fiscal 1999). EBITDA is often used to analyze and compare
companies on the basis of operating performance and cash flow. Fiscal 2001
EBITDA decreased 10 percent from fiscal 2000, primarily due to the impact of
the weak advertising market on company revenues and operating profit. 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.
At June 30, 2001, long-term debt outstanding totaled $470.0 million. This debt
was incurred primarily for the acquisitions of five television stations. The
company has two variable-rate bank credit facilities with total outstanding
debt of $270.0 million at June 30, 2001. Interest rates are based on
F-16
<PAGE>
applicable margins plus, at the company's option, either LIBOR or the higher of
the overnight federal funds rate plus 0.5 percent or the bank's prime rate. In
addition, at June 30, 2001, the company has $200.0 million outstanding in
fixed-rate unsecured senior notes issued to five insurance companies. Interest
rates on the notes range from 6.51 percent to 6.65 percent. In March 2001,
Meredith retired $85.0 million of term loan debt using proceeds from borrowings
under a revolving credit facility. This change affected the timing of future
principal payments but not the maturity date of May 31, 2002. Management
expects to refinance this debt prior to its maturity. Principal payments on
the debt due in succeeding fiscal years are:
Years ended June 30
-------------------------
(In millions)
2002............ $ 70.0
2003............ 100.0
2004............ 100.0
2005............ 75.0
2006............ 125.0
------
Total........... $470.0
======
Funds for payments of interest and principal on the debt are expected to be
provided by cash generated by future operating activities and debt refinancing.
These debt agreements include certain financial covenants related to debt
levels and coverage ratios. During the first fiscal quarter the company
renegotiated certain covenants to provide Meredith more flexibility in the
timing and level of investment and capital spending. As of June 30, 2001, 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. These contracts
effectively fix the base interest rate on a substantial portion of the
variable-rate credit facilities, although the applicable margins vary based on
the company's debt-to-EBITDA ratio. At June 30, 2001, Meredith had interest
rate swap contracts to pay fixed rates of interest (average 5.5 percent) and
receive variable rates of interest (average 3-month LIBOR rate of 3.7 percent)
on $206 million notional amount of indebtedness. This resulted in nearly 76
percent of Meredith's underlying variable-rate debt being subject to fixed
interest rates. The weighted-average interest rate on debt outstanding at June
30, 2001, was approximately 6.3 percent. The average notional amount of
indebtedness outstanding under the contracts is $195 million in fiscal 2002,
$166 million in fiscal 2003 and $132 million in fiscal 2004. These contracts
expire in May 2002 or June 2004. The company is exposed to credit-related
losses in the event of nonperformance by counterparties to the contracts.
Management does not expect any counterparties to fail to meet their
obligations, given their strong creditworthiness.
At June 30, 2000, Meredith had available credit totaling $87.0 million,
including $80.0 million under a revolving credit facility. Any amounts
borrowed under this agreement are due and payable on May 31, 2002.
During fiscal 2001 the Board of Directors authorized the repurchase of an
additional 2 million shares of the company's common stock through public and
private transactions as part of the company's ongoing share repurchase program.
F-17
<PAGE>
In fiscal 2001, the company spent $43.5 million to repurchase an aggregate of
1.3 million shares of Meredith Corporation common stock at then current market
prices. This compares with fiscal 2000 spending of $54.5 million for the
repurchase of an aggregate of 1.7 million shares. The company expects to
continue to repurchase shares from time to time in the foreseeable future,
subject to market conditions. As of August 1, 2001, the number of shares
authorized for future repurchase was approximately 2.5 million shares. 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
in the Consolidated Balance Sheet at June 30, 2000, has been reclassified into
shareholders' equity at June 30, 2001, reflecting the expiration of the put
option agreements.
Dividends paid in fiscal 2001 were $16.5 million, or 33 cents per share,
compared with $15.9 million, or 31 cents per share, in fiscal 2000. In January
2001, the Board of Directors increased the quarterly dividend by 6 percent, or
one-half cent per share, to 8.5 cents per share effective with the dividend
payable on March 15, 2001. On an annual basis, this increase will result in
the payment of approximately $1 million in additional dividends, based on the
current number of shares outstanding.
Expenditures for property, plant and equipment were $56.0 million in fiscal
2001, compared to $39.4 million in fiscal 2000. The increase primarily
reflected the purchase of replacement aircraft and associated facilities and
spending for the construction of a new broadcasting facility for WGCL-Atlanta.
The broadcasting segment has commitments to spend approximately $12 million
over the next fiscal year for 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
cash from operating activities or, if necessary, borrowings under credit
agreements.
At this time, management expects that cash on hand, internally generated cash
flow and debt from credit agreements will provide funds for any additional
operating and recurring cash needs (e.g., working capital, cash dividends) for
the foreseeable future.
Other Matters
- -------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." Meredith will be required to adopt this standard effective July 1,
2002, with an option to adopt effective July 1, 2001. The company has not yet
determined its adoption date. Upon adoption, goodwill and certain intangible
assets will no longer be amortized, but instead will be tested for impairment
at least annually. In addition, the company will be required to reassess the
useful lives and residual values of all intangible assets and make adjustments
by the end of the first interim period after adoption. Goodwill and intangibles
not subject to amortization will be reviewed for impairment upon adoption. Any
transitional impairment losses resulting from this review will be measured as
of the adoption date and will be recognized as the cumulative effect of a
change in accounting principle in the first interim period.
F-18
<PAGE>
At June 30, 2001, Meredith had unamortized goodwill of $240.8 million and
unamortized identifiable intangible assets of $629.2 million. Amortization
expense for the year ended June 30, 2001 included $7.8 million related to
goodwill and $18.3 million related to identified intangible assets, a portion
of which will no longer be amortized under SFAS No. 142. Because of the
extensive effort needed to comply with SFAS No. 142, it is not practical to
reasonably estimate the impact of the adoption of this standard on the
financial statements of the company at the date of this report or to ascertain
the amount of impairment losses, if any. The company will have one year
following adoption to determine the amount of such impairment. Also upon
adoption, comparable data will be presented for all prior periods.
F-19
<PAGE>
Quantitative and Qualitative Disclosures about Market Risk
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. All of the company's financial
instruments subject to market risk are held for purposes other than trading.
Long-term Debt and Interest Rate Swap Contracts
- -----------------------------------------------
At June 30, 2001, Meredith had outstanding $270 million in variable-rate
long-term debt and $200 million in fixed-rate long-term debt. The company uses
interest rate swap contracts to reduce exposure to interest rate fluctuations
on its variable-rate debt. At June 30, 2001, the company had interest rate
swap contracts that effectively converted a substantial portion of its
variable-rate debt to fixed-rate debt. Thus changes in interest rates will
have little impact on future interest expense related to this debt. Therefore,
there is no material earnings or liquidity risk associated with the company's
variable-rate debt and the related interest rate swap agreements. The fair
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 ($4.1)
million compared to the current fair market value of ($1.8) million at June 30,
2001.
There is no earnings or liquidity risk associated with the company's fixed rate
debt. The fair market value of the debt, based on discounted cash flows using
borrowing rates currently available for debt with similar terms and maturities,
varies with changes in interest rates. A 10 percent decrease in interest rates
would result in a fair market value of ($204.5) million compared to the current
fair market value of ($198.8) million at June 30, 2001.
Broadcast Rights Payable
- ------------------------
The company enters into contracts for broadcast rights to air on its television
stations. These contracts are generally on a market-by-market basis and
subject to terms and conditions of the seller of the broadcast rights.
Generally, these rights are sold to the highest bidder in each market and the
process is very competitive. There are no earnings or liquidity risks
associated with broadcast rights payable. Fair market values are determined
using discounted cash flows. At June 30, 2001, a 10 percent decrease in
interest rates would result in a $1.2 million increase in the fair market value
of the available and unavailable broadcast rights payable.
F-20
<PAGE>
Financial Statements and Supplementary Data
Consolidated Balance Sheets
Meredith Corporation and Subsidiaries
Assets June 30 2001 2000
- -------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents......................... $ 36,254 $ 22,861
Accounts receivable
(net of allowances of $14,833 in 2001
and $14,368 in 2000)............................ 137,384 145,845
Inventories....................................... 32,835 35,805
Current portion of subscription acquisition costs. 43,237 44,606
Current portion of broadcast rights............... 13,487 18,686
Other current assets.............................. 27,885 20,996
---------- ----------
Total current assets................................ 291,082 288,799
Property, plant and equipment:
Land.............................................. 19,084 12,772
Buildings and improvements........................ 110,824 98,554
Machinery and equipment........................... 213,829 186,677
Leasehold improvements............................ 8,572 7,439
Construction in progress.......................... 9,763 15,976
---------- ----------
Total property, plant and equipment................. 362,072 321,418
Less accumulated depreciation..................... (158,274) (147,261)
---------- ----------
Net property, plant and equipment................... 203,798 174,157
Subscription acquisition costs...................... 31,947 37,349
Broadcast rights.................................... 7,929 10,300
Other assets........................................ 33,020 35,968
Goodwill and other intangibles
(at original cost less accumulated amortization of
$180,229 in 2001 and $164,157 in 2000)............ 869,971 893,200
---------- ----------
Total assets........................................ $1,437,747 $1,439,773
========== ==========
See accompanying Notes to Consolidated Financial Statements
F-21
<PAGE>
Liabilities and Shareholders' Equity June 30 2001 2000
- -------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Current portion of long-term debt................. $ 70,000 $ 50,000
Current portion of long-term broadcast
rights payable.................................. 18,600 22,666
Accounts payable.................................. 45,976 53,892
Accruals:
Compensation and benefits....................... 40,610 35,483
Distribution expenses........................... 24,231 21,197
Other taxes and expenses........................ 40,292 37,489
---------- ----------
Total accruals.................................. 105,133 94,169
Current portion of unearned subscription revenues. 131,697 137,974
---------- ----------
Total current liabilities........................... 371,406 358,701
Long-term debt...................................... 400,000 455,000
Long-term broadcast rights payable ................. 17,158 13,480
Unearned subscription revenues...................... 89,605 96,811
Deferred income taxes............................... 59,245 48,260
Other noncurrent liabilities........................ 52,425 45,012
---------- ----------
Total liabilities................................... 989,839 1,017,264
---------- ----------
Temporary equity: Put option agreements
Common stock, no shares outstanding in 2001
and 1,264,140 shares in 2000...................... -- 42,665
---------- ----------
Shareholders' equity:
Series preferred stock, par value $1 per share
Authorized 5,000,000 shares; none issued........ -- --
Common stock, par value $1 per share
Authorized 80,000,000 shares; issued and
outstanding 39,247,701 shares in 2001
(excluding 27,823,898 shares held in treasury)
and 38,326,171 shares in 2000 (excluding
29,050,052 shares held in treasury)............. 39,248 38,326
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,544,174 shares in 2001 and
10,882,845 shares in 2000....................... 10,544 10,883
Retained earnings................................. 402,393 334,448
Accumulated other comprehensive loss.............. (1,967) (776)
Unearned compensation............................. (2,310) (3,037)
---------- ----------
Total shareholders' equity.......................... 447,908 379,844
---------- ----------
Total liabilities and shareholders' equity.......... $1,437,747 $1,439,773
========== ==========
See accompanying Notes to Consolidated Financial Statements
F-22
<PAGE>
Consolidated Statements of Earnings
Meredith Corporation and Subsidiaries
Years ended June 30 2001 2000 1999
- --------------------------------------------------------------------------
(In thousands except per share data)
Revenues:
Advertising........................ $ 615,722 $ 658,049 $ 613,400
Circulation........................ 263,659 275,642 273,621
All other.......................... 173,832 163,474 149,101
---------- ---------- ----------
Total revenues....................... 1,053,213 1,097,165 1,036,122
---------- ---------- ----------
Operating costs and expenses:
Production, distribution and edit.. 462,441 455,647 429,848
Selling, general & administrative.. 387,268 404,736 391,104
Depreciation and amortization...... 51,572 52,349 44,083
Nonrecurring items................. 25,308 23,096 --
---------- ---------- ----------
Total operating costs and expenses... 926,589 935,828 865,035
---------- ---------- ----------
Income from operations............... 126,624 161,337 171,087
Gain from disposition.............. 21,477 -- 2,375
Interest income.................... 1,028 1,195 710
Interest expense................... (32,929) (34,946) (21,997)
---------- ---------- ----------
Earnings before income taxes......... 116,200 127,586 152,175
Income taxes....................... 44,928 56,556 62,518
---------- ---------- ----------
Net earnings......................... $ 71,272 $ 71,030 $ 89,657
========== ========== ==========
Basic earnings per share............. $ 1.43 $ 1.38 $ 1.72
========== ========== ==========
Basic average shares outstanding..... 49,977 51,313 52,188
========== ========== ==========
Diluted earnings per share........... $ 1.39 $ 1.35 $ 1.67
========== ========== ==========
Diluted average shares outstanding... 51,354 52,774 53,761
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements
F-23
<PAGE>
Consolidated Statements of Cash Flows
Meredith Corporation and Subsidiaries
Years ended June 30 2001 2000 1999
- -------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings................................... $ 71,272 $ 71,030 $ 89,657
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization.................. 51,572 52,349 44,083
Amortization of broadcast rights............... 44,127 35,265 38,529
Payments for broadcast rights.................. (37,451) (40,225) (33,601)
Gain from disposition, net of taxes............ (13,101) -- (1,425)
Nonrecurring items, net of taxes............... 13,929 19,077 --
Changes in assets and liabilities:
Accounts receivable.......................... 8,265 (7,694) 387
Inventories.................................. 2,735 (2,308) 900
Supplies and prepayments..................... 2,252 (2,296) (743)
Subscription acquisition costs............... 4,531 (10,437) 11,433
Accounts payable............................. (7,916) (1,126) (7,273)
Accruals..................................... 3,233 11,872 5,143
Unearned subscription revenues............... (9,997) 8,764 (11,571)
Deferred income taxes........................ 2,953 13,288 2,179
Other noncurrent liabilities................. 574 457 (3,022)
-------- -------- --------
Net cash provided by operating activities........ 136,978 148,016 134,676
-------- -------- --------
Cash flows from investing activities:
Proceeds from dispositions..................... 20,150 -- 9,922
Acquisitions of businesses..................... -- -- (372,186)
Additions to property, plant and equipment..... (55,967) (39,403) (25,691)
Changes in investments and other............... (2,837) (6,856) 1,426
-------- -------- --------
Net cash (used) by investing activities.......... (38,654) (46,259) (386,529)
-------- -------- --------
Cash flows from financing activities:
Long-term debt incurred........................ 50,000 25,000 400,000
Repayment of long-term debt.................... (85,000) (50,000) (85,000)
Debt acquisition costs......................... -- -- (1,342)
Proceeds from common stock issued.............. 8,867 4,563 2,560
Purchases of company stock..................... (43,506) (54,486) (43,852)
Dividends paid................................. (16,482) (15,892) (15,129)
Other.......................................... 1,190 890 692
-------- -------- --------
Net cash (used) provided by financing activities. (84,931) (89,925) 257,929
-------- -------- --------
Net increase in cash and cash equivalents........ 13,393 11,832 6,076
Cash and cash equivalents at beginning of year... 22,861 11,029 4,953
-------- -------- --------
Cash and cash equivalents at end of year......... $ 36,254 $ 22,861 $ 11,029
======== ======== ========
F-24
<PAGE>
Consolidated Statements of Cash Flows - continued
Meredith Corporation and Subsidiaries
Years ended June 30 2001 2000 1999
- -------------------------------------------------------------------------------
(In thousands)
Supplemental disclosures of cash flow information:
Cash paid
Interest....................................... $ 32,675 $ 34,202 $ 15,394
======== ======== ========
Income taxes................................... $ 32,934 $ 36,595 $ 58,341
======== ======== ========
Noncash transactions
Broadcast rights financed by contracts payable. $ 37,063 $ 41,799 $ 36,171
======== ======== ========
Tax benefit related to stock options........... $ 5,248 $ 3,541 $ 1,577
======== ======== ========
See accompanying Notes to Consolidated Financial Statements
F-25
<PAGE>
Consolidated Statements of Shareholders' Equity
Meredith Corporation and Subsidiaries
Accum
Add'l Other Unearned
Common Class B Paid-in Retained Comp. Compensa-
(In thousands) Stock Stock Capital Earnings Inc(Loss) tion Total
- -------------------------------------------------------------------------------
Balance at
June 30, 1998 $40,996 $11,280 -- $301,201 $(1,177) $(2,350) $349,950
- -------------------------------------------------------------------------------
Comprehensive income:
Net earnings.... -- -- -- 89,657 -- -- 89,657
Other comprehen-
sive income, net -- -- -- -- 552 -- 552
------
Total comprehensive
income.......... 90,209
Stock issued under
various incentive
plans, net of
forfeitures..... 66 -- 2,125 -- -- (664) 1,527
Purchases of
company stock...(1,115) (6) (3,702) (39,029) -- -- (43,852)
Reclassification
of put option
agreement....... (937) -- -- (24,147) -- -- (25,084)
Conversion of
class B to
common stock.... 210 (210) -- -- -- -- --
Dividends paid,
29 cents per
share
Common stock... -- -- -- (11,893) -- -- (11,893)
Class B stock.. -- -- -- (3,236) -- -- (3,236)
Restricted stock
amortized to
operations...... -- -- -- -- -- 960 960
Tax benefit from
incentive plans -- -- 1,577 -- -- -- 1,577
- -------------------------------------------------------------------------------
Balance at
June 30, 1999 $39,220 $11,064 -- $312,553 $(625) $(2,054) $360,158
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F-26
<PAGE>
Consolidated Statements of Shareholders' Equity - Continued
Meredith Corporation and Subsidiaries
Accum
Add'l Other Unearned
Common Class B Paid-in Retained Comp. Compensa-
(In thousands) Stock Stock Capital Earnings Inc(Loss) tion Total
- -------------------------------------------------------------------------------
Balance at
June 30, 1999 $39,220 $11,064 -- $312,553 $(625) $(2,054) $360,158
- -------------------------------------------------------------------------------
Comprehensive income:
Net earnings.... -- -- -- 71,030 -- -- 71,030
Other comprehen-
sive loss, net.. -- -- -- -- (151) -- (151)
------
Total comprehensive
income.......... 70,879
Stock issued under
various incentive
plans, net of
forfeitures..... 374 -- 5,771 -- -- (1,898) 4,247
Purchases of
company stock...(1,706) (14) (9,312) (43,454) -- -- (54,486)
Reclassification
of put option
agreement....... 271 -- -- 10,211 -- -- 10,482
Conversion of
class B to
common stock.... 167 (167) -- -- -- -- --
Dividends paid,
31 cents per
share
Common stock... -- -- -- (12,492) -- -- (12,492)
Class B stock.. -- -- -- (3,400) -- -- (3,400)
Restricted stock
amortized to
operations...... -- -- -- -- -- 915 915
Tax benefit from
incentive plans -- -- 3,541 -- -- -- 3,541
- -------------------------------------------------------------------------------
Balance at
June 30, 2000 $38,326 $10,883 -- $334,448 $(776) $(3,037) $379,844
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F-27
<PAGE>
Consolidated Statements of Shareholders' Equity - Continued
Meredith Corporation and Subsidiaries
Accum
Add'l Other Unearned
Common Class B Paid-in Retained Comp. Compensa-
(In thousands) Stock Stock Capital Earnings Inc(Loss) tion Total
- -------------------------------------------------------------------------------
Balance at
June 30, 2000 $38,326 $10,883 -- $334,448 $(776) $(3,037) $379,844
- -------------------------------------------------------------------------------
Comprehensive income:
Net earnings.... -- -- -- 71,272 -- -- 71,272
Other comprehen-
sive loss, net.. -- -- -- -- (1,191) -- (1,191)
------
Total comprehensive
income.......... 70,081
Stock issued under
various incentive
plans, net of
forfeitures..... 651 -- 8,680 -- -- (484) 8,847
Purchases of
company stock...(1,285) (47)(13,928) (28,246) -- -- (43,506)
Reclassification
of put option
agreement....... 1,264 -- -- 41,401 -- -- 42,665
Conversion of
class B to
common stock.... 292 (292) -- -- -- -- --
Dividends paid,
33 cents per
share
Common stock... -- -- -- (12,957) -- -- (12,957)
Class B stock.. -- -- -- (3,525) -- -- (3,525)
Restricted stock
amortized to
operations...... -- -- -- -- -- 1,211 1,211
Tax benefit from
incentive plans -- -- 5,248 -- -- -- 5,248
- -------------------------------------------------------------------------------
Balance at
June 30, 2001 $39,248 $10,544 -- $402,393 $(1,967) $(2,310) $447,908
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Meredith Corporation and Subsidiaries
1. Organization and Summary of Significant Accounting Policies
a. Nature of operations
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. The company's principal businesses are magazine
publishing and television broadcasting. Revenues of the publishing and
broadcasting segments were 74 percent and 26 percent, respectively, of total
revenues in fiscal 2001. The publishing segment includes magazine and book
publishing, integrated marketing, interactive media, database-related
activities, brand licensing and other related operations. The publishing
segment also included the residential real estate franchising operations until
their sale in July 1998. Better Homes and Gardens is the most significant
trademark to the publishing segment and is used extensively in its operations.
The company's television broadcasting operations include 12 network-affiliated
television stations. Meredith's operations are diversified geographically
within the United States, and the company has a broad customer base.
Advertising and magazine circulation revenues accounted for 58 percent and 25
percent, respectively, of the company's revenues in fiscal 2001. Revenues and
operating results can be affected by changes in the demand for advertising
and/or consumer demand for the company's products. National and local economic
conditions largely affect the overall industry levels of advertising revenues.
Magazine circulation revenues are generally affected by national and/or
regional economic conditions and competition from other forms of media.
b. Principles of consolidation
The consolidated financial statements include the accounts of Meredith
Corporation and its majority-owned subsidiaries. There are no significant
intercompany transactions.
c. Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements. Actual results could differ from those estimates.
d. Cash and cash equivalents
All cash and short-term investments with original maturities of three months or
less are considered cash and cash equivalents, since they are readily
convertible to cash. These short-term investments are stated at cost, which
approximates fair value.
e. Inventories
Paper inventories are stated at cost, which is not in excess of market value,
using the last-in first-out (LIFO) method. All other inventories are stated at
the lower of cost (first-in first-out, or average) or market.
F-29
<PAGE>
f. Subscription acquisition costs
Subscription acquisition costs primarily represent magazine direct-mail agency
commissions. These costs are deferred and amortized over the related
subscription term, typically one or two years.
g. Property, plant and equipment
Property, plant and equipment are stated at cost. Costs of replacements and
major improvements are capitalized, and maintenance and repairs are charged to
operations as incurred. Depreciation expense is provided primarily by the
straight-line method over the estimated useful lives of the assets: five to 45
years for buildings and improvements, and three to 20 years for machinery and
equipment. The costs of leasehold improvements are amortized over the lesser
of the useful lives or the terms of the respective leases. Depreciation and
amortization of property, plant and equipment was $25.5 million in fiscal 2001
($23.7 million in fiscal 2000 and $21.4 million in fiscal 1999).
h. Broadcast rights
Broadcast rights and the liabilities for future payments are reflected in the
Consolidated Financial Statements when programs become available for broadcast.
These rights are valued at the lower of cost or estimated net realizable value
and are generally charged to operations on an accelerated basis over the
contract period. Amortization of these rights is included in production,
distribution and editorial expenses. Reductions in unamortized costs to net
realizable value are typically included in amortization of broadcast rights in
the accompanying Consolidated Financial Statements. Fiscal 2001 results
included expense of $9.9 million for such reductions in unamortized costs ($1.0
million in fiscal 2000 and $5.2 million in fiscal 1999).
i. Goodwill and other intangibles
Goodwill and other intangibles represent the excess of the purchase price over
the estimated fair values of net tangible assets acquired in the purchases of
businesses. The values of identifiable intangibles have been determined by
independent appraisals. The unamortized portion of intangible assets consisted
of the following:
June 30 2001 2000
- -------------------------------------------------------------------------
(In thousands)
Federal Communications Commission (FCC) licenses.. $417,434 $428,909
Goodwill.......................................... 240,768 248,799
Television network affiliation agreements......... 196,217 202,313
Other............................................. 15,552 13,179
-------- --------
Goodwill and other intangibles.................... $869,971 $893,200
======== ========
Virtually all of these assets were acquired after October 31, 1970, and are
being amortized by the straight-line method over the following periods: 40
years for television FCC licenses; 20 to 40 years for goodwill; and 15 to 40
years for network affiliation agreements. The company evaluates the
recoverability of its intangible assets as current events or circumstances
F-30
<PAGE>
warrant to determine whether adjustments are needed to carrying values. Such
evaluation may be based on projected income and cash flows on an undiscounted
basis from the underlying business or from operations of related businesses.
Other economic and market variables also are considered in any evaluation.
j. 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 adoption resulted in a
$1.1 million reduction in comprehensive income in fiscal 2001.
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. All interest rate swap contracts are considered to be cash flow
hedges 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 in "Accrued taxes and expenses" and
"Other noncurrent liabilities" in the Consolidated Balance Sheet. The related
unrealized gains (losses) on these contracts are recorded in shareholders'
equity as a component of other 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.
The fair market value of put options outstanding was reclassified from
shareholders' equity to the temporary equity classification entitled, "Put
option agreements." Adjustments to the fair market value resulting from
changes in the stock price of the company's common shares resulted in
adjustments between equity and temporary equity, with no effect on earnings.
The put options expired in July 2000 and the fair market value was reclassified
into shareholders' equity.
k. Revenues
Revenues are recognized only when realized or realizable and earned, in
accordance with accounting principles generally accepted in the United States
of America. Advertising revenues are recognized, net of agency commissions,
when the underlying advertisements are published, defined as the issue's on-
sale date, or aired by the broadcasting stations. Magazine advertising
revenues totaled $352.5 million in fiscal 2001 ($387.1 million in fiscal 2000
and $360.7 million in fiscal 1999). Broadcasting advertising revenues were
$263.3 million in fiscal 2001 ($271.0 million in fiscal 2000 and $252.7 million
in fiscal 1999). Revenues from magazine subscriptions are deferred and
recognized proportionately as products are delivered to subscribers. Revenues
from magazine and book retail sales are recognized upon delivery, net of
provisions for anticipated returns. The company bases its estimates for
returns on historical experience and has not experienced significant
fluctuations between estimated and actual return experience. Revenues from
integrated marketing and other custom programs are recognized when the products
are delivered.
F-31
<PAGE>
l. Advertising expenses
Total advertising expenses included in the Consolidated Statements of Earnings
were $68.2 million in fiscal 2001 ($81.7 million in fiscal 2000 and $76.2
million in fiscal 1999). The majority of the company's advertising expenses
relate to direct-mail costs for magazine subscription acquisition efforts.
These costs are expensed as incurred.
m. Stock-based compensation
The company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees."
The company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation."
n. Income taxes
The company accounts for certain income and expense items differently for
financial reporting purposes than for income tax reporting purposes. Deferred
income taxes are provided in recognition of these temporary differences.
o. Earnings per share
Basic earnings per share is computed using the weighted average number of
actual common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that would occur from the exercise of common
stock options outstanding and the issuance of other stock equivalents. The
following table presents the calculations of earnings per share:
Years ended June 30 2001 2000 1999
- -------------------------------------------------------------------------
(In thousands except per share)
Net earnings.......................... $71,272 $71,030 $89,657
======= ======= =======
Basic average shares outstanding...... 49,977 51,313 52,188
Dilutive effect of stock options
and equivalents..................... 1,377 1,461 1,573
------- ------- -------
Diluted average shares outstanding.... 51,354 52,774 53,761
======= ======= =======
Basic earnings per share.............. $ 1.43 $ 1.38 $ 1.72
======= ======= =======
Diluted earnings per share............ $ 1.39 $ 1.35 $ 1.67
======= ======= =======
Antidilutive options excluded from the above calculations totaled 560,000
options at June 30, 2001 (with a weighted average exercise price of $40.41),
2,229,000 options at June 30, 2000 (with a weighted average exercise price of
$34.12) and 705,000 options at June 30, 1999 (with a weighted average exercise
price of $40.11).
F-32
<PAGE>
p. Other
Certain prior-year financial information has been reclassified or restated to
conform to the fiscal 2001 financial statement presentation.
2. Nonrecurring Items
In response to a weakening economy and a widespread advertising downturn in
fiscal 2001, Meredith took steps to reduce the number of employees through a
one-time, special voluntary early retirement program and additional selective
workforce reductions through attrition, realignments and job eliminations. In
addition, the company wrote off certain Internet investments. These actions
were the primary factors in a fiscal 2001 fourth-quarter nonrecurring charge of
$25.3 million ($15.4 million after-tax), or 30 cents per share. Details of the
nonrecurring charge follow:
Fiscal 2001 Balance 6-30-2001
Nonrecurring Sheet Cash Accrual
Description Charge Adjustments Payments Balance
- ---------------------- --------- --------- --------- ---------
(In thousands)
Personnel costs............... $ 18,362 $ (1,627) $ (1,019) $ 15,716
Asset write-downs & other..... 8,204 (8,159) (45) --
Reversal of excess accruals... (1,258) 1,258 -- --
--------- --------- --------- ---------
Total......................... $ 25,308 $ (8,528) $ (1,064) $ 15,716
========= ========= ========= =========
Personnel costs represent expenses for retirement benefits, severance and
outplacement charges related to the early retirement and involuntary
termination of employees. A total of 155 positions were eliminated through
early retirements and job eliminations during the fiscal year ended June 30,
2001. The company plans to eliminate another 50 to 75 positions by December
31, 2001. The majority of personnel costs are expected to be paid out over the
next 15 months; however, the payment of certain early retirement benefit costs
will extend up to seven years.
The asset write-downs consisted of the write-off of $6.0 million in investments
in Internet-related alliances and $2.2 million for other charges. Meredith has
ended its business relationships with two small Internet companies and a review
of the fair value of Meredith's investments in the two businesses resulted in
the write-off of these investments. Based on financial information provided by
the companies, management believed both investments were worthless. Other
charges consisted primarily of costs associated with the decision to
discontinue certain publishing operations. Operations involved included Family
Money magazine, Mature Outlook magazine, the Shop Online 1-2-3 supplement, and
the Better Homes and Gardens television show. Charges reflect the write-off of
the net assets of these businesses that could not be used by other publishing
operations.
The amount of the nonrecurring charge recorded in fiscal 2001 was reduced by
$1.3 million for the reversal of certain accruals remaining from the fiscal
2000 nonrecurring charge. The following includes further explanation of these
reversals.
F-33
<PAGE>
In March 2000, Meredith announced several major strategic initiatives. They
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 fiscal 2000 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). 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 American Park Network, which the company had
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 associated with the discontinued magazines. Net
accounts receivable of the discontinued titles were expected to be collected.
Other tangible assets associated with the discontinued titles, such as paper
inventories and office equipment, were redeployed in other magazines.
The fiscal 2000 nonrecurring charge of $23.1 million resulted in noncash
balance sheet adjustments of $18.5 million and cash payments of $1.4 million in
fiscal 2000, leaving an accrual balance of $3.2 million at June 30, 2000.
Details of the activity in the accrual account since that date follow:
6-30-2000 6-30-2001
Accrual Cash Other Accrual
Description Balance Payments Adjustments Balance
- ---------------------- --------- --------- --------- -------
(In thousands)
Contractual obligations.... $ 2,116 $ (192) $ (1,135) $ 789
Personnel costs............ 1,109 (890) (123) 96
--------- --------- --------- -------
Total before tax benefit... $ 3,225 $ (1,082) $ (1,258) $ 885
========= ========= ========= =======
Accrued contractual obligations represented costs associated with the decision
to exit certain publishing operations. A review of the accrual balances at
June 30, 2001 resulted in the reversal of $1.1 million in accruals no longer
needed. These reversals resulted from the company's ability to exit certain
operations at a lower cost than originally expected. The reversals reduced the
amount of the nonrecurring charge recorded in fiscal 2001. The remaining
accrual represents the estimated cost of fulfilling contractual obligations in
case of third-party default.
Accrued personnel costs represent expenses for severance and outplacement
charges related to the involuntary termination of 29 employees as a result of
magazine closings and other restructuring efforts. A portion of the accrual
relating to contingent payments was deemed no longer necessary and was
reversed. As of June 30, 2001, all of these employees had left the company.
Remaining personnel costs are expected to be paid out over the next three
months from internally generated cash flows.
F-34
<PAGE>
3. Acquisitions and Dispositions
On March 1, 1999, the company acquired the net assets of WGNX-TV, the CBS
affiliate serving the Atlanta market. In July 2000, the call letters of the
station were changed to WGCL-TV. As part of the acquisition, Meredith
purchased the assets of KCPQ-TV, a FOX affiliate serving the Seattle market,
for approximately $380 million from Kelly Television Company. The assets of
KCPQ-TV were then transferred to Tribune Company in exchange for the assets of
WGCL-TV and approximately $10 million.
Pro forma results of operations as if this acquisition had occurred at the
beginning of each period presented are as follows:
Years ended June 30 1999 1998
- --------------------------------------------------------------------
(In thousands except per share)
Total revenues........................ $1,057,280 $1,044,227
========== ==========
Net earnings.......................... $ 81,151 $ 69,675
========== ==========
Basic earnings per share.............. $ 1.55 $ 1.32
========== ==========
Diluted earnings per share............ $ 1.51 $ 1.28
========== ==========
This acquisition was accounted for as an asset purchase, and accordingly, the
operations of the acquired property have been included in the company's
consolidated operating results from the acquisition date. The cost of the
acquisition was allocated on the basis of the estimated fair market values of
the assets acquired and liabilities assumed. This purchase price allocation
included the following intangibles: FCC license of $185.0 million, network
affiliation agreement of $70.0 million, and goodwill of $107.5 million. These
intangibles are being amortized over 40 years. The acquisition also included
property, plant and equipment, along with broadcast program rights and the
related payables. (See Note 5 for information on the debt incurred to finance
these acquisitions.)
In May 2001, Meredith sold Golf for Women magazine to The Golf Digest
Companies, a subsidiary of Advance Magazine Publishers, Inc. The sale resulted
in a gain of $21.5 million ($13.1 million after-tax), or 26 cents per share.
In addition, Meredith sold the assets of American Park Network in fiscal 2001.
The resulting gain was not material.
Effective July 1, 1998, the company sold the net assets of the Better Homes and
Gardens Real Estate Service to GMAC Home Services, Inc., a subsidiary of GMAC
Financial Services. Fiscal 1999 earnings include an after-tax gain of $1.4
million, or 3 cents per diluted share, from the sale, which closed on July 27,
1998.
4. Inventories
Inventories consist of paper stock, books and editorial content. Of net
inventory values shown, approximate portions determined using the LIFO method
were 31 percent at June 30, 2001, and 39 percent at June 30, 2000. LIFO
F-35
<PAGE>
inventory (income) expense included in the Consolidated Statements of Earnings
was ($1.1) million in fiscal 2001, $2.4 million in fiscal 2000 and ($2.0)
million in fiscal 1999.
June 30 2001 2000
- --------------------------------------------------------------------------
(In thousands)
Raw materials..................................... $ 13,480 $ 18,533
Work in process................................... 20,830 19,980
Finished goods.................................... 6,477 6,360
-------- --------
40,787 44,873
Reserve for LIFO cost valuation................... (7,952) (9,068)
-------- --------
Inventories....................................... $ 32,835 $ 35,805
======== ========
5. Long-term Debt
At June 30, 2001, the company had $270.0 million in long-term debt outstanding
under two variable rate unsecured credit agreements. Interest rates are based
on applicable margins plus, at the company's option, either LIBOR or the higher
of the overnight federal funds rate plus 0.5 percent or the bank's prime rate.
In addition, at June 30, 2001, the company had $200.0 million outstanding in
fixed-rate unsecured senior notes issued to five insurance companies. A
summary of long-term debt outstanding follows:
June 30 2001 2000
- --------------------------------------------------------------------------
(In thousands)
Variable-rate credit facilities:
Amortizing term loan of $210 million
due 5/31/2002................................ $ -- $ 85,000
Amortizing term loan of $200 million
due 5/1/2004................................. 200,000 200,000
Revolving credit facility of $150 million
due 5/31/2002................................ 70,000 20,000
Private placement notes:
6.51% senior notes, due 3/1/2005............... 75,000 75,000
6.57% senior notes, due 9/1/2005............... 50,000 50,000
6.65% senior notes, due 3/1/2006............... 75,000 75,000
-------- --------
Total long-term debt.............................. 470,000 505,000
Current portion of long-term debt................. (70,000) (50,000)
-------- --------
Long-term debt ................................... $400,000 $455,000
======== ========
F-36
<PAGE>
Principal payments on the debt due in succeeding fiscal years are:
Years ended June 30
------------------------------------
(In thousands)
2002..................... $ 70,000
2003..................... 100,000
2004..................... 100,000
2005..................... 75,000
2006..................... 125,000
--------
Total long-term debt..... $470,000
========
The debt agreements include certain financial covenants related to debt levels
and coverage ratios. As of June 30, 2001, the company was in compliance with
all debt covenants.
The weighted-average interest rate on debt outstanding at June 30, 2001, was
approximately 6.3 percent.
Interest expense related to long-term debt totaled $32.1 million (excluding
$0.2 million in capitalized interest) in fiscal 2001, $34.8 million (excluding
$0.4 million in capitalized interest) in fiscal 2000, and $21.5 million in
fiscal 1999.
At June 30, 2001, Meredith had available credit totaling $87.0 million,
including $80.0 million under a revolving credit facility.
6. Derivative Financial Instruments
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.
At June 30, 2001, Meredith had interest rate swap contracts to pay fixed rates
of interest (average 5.5 percent) and receive variable rates of interest
(average three-month LIBOR rate of 3.7 percent) on $206 million notional amount
of indebtedness. This resulted in 76 percent of Meredith's underlying
variable-rate debt being subject to fixed interest rates. The average notional
F-37
<PAGE>
amount of indebtedness outstanding under the contracts is $195 million in
fiscal 2002, $166 million in fiscal 2003 and $132 million in fiscal 2004.
These contracts expire in May 2002 or June 2004.
The fair market value of the interest rate swap contracts was a liability of
$1.8 million at June 30, 2001. Assuming no change in interest rates, the
estimated amount of the loss expected to be reclassified into earnings over the
next 12 months is $1.6 million. The net gain or loss on the ineffective
portion of these interest rate swap contracts was not material in any period.
7. Fair Values of Financial Instruments
Carrying amounts and estimated fair values of financial instruments are as
follows:
June 30 2001 2000
- --------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------
(In thousands)
Assets (Liabilities):
Broadcast rights payable. $ (35,758) $ (33,184) $ (36,146) $ (33,979)
========= ========= ========= =========
Long-term debt........... $(470,000) $(468,823) $(505,000) $(490,088)
========= ========= ========= =========
Interest rate swaps...... $ (1,779) $ (1,779) $ -- $ 4,069
========= ========= ========= =========
Fair values were determined as follows:
Broadcast rights payable: Present value of future cash flows discounted at
the company's current borrowing rate.
Long-term debt: Present value of future cash flows using borrowing rates
currently available for debt with similar terms and maturities.
Interest rate swaps: Estimated amount the company would pay or receive to
terminate the swap contracts. Interest rate swap contracts are recorded at
fair market value in the Consolidated Balance Sheet at June 30, 2001,
reflecting the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
The carrying amounts reported on the Consolidated Balance Sheets at June 30,
2001 and 2000, for all other financial instruments, including the put option
agreements classified as temporary equity, approximate their respective fair
values due to the short-term nature of these instruments. Fair value estimates
are made at a specific point in time based on relevant market and financial
instrument information. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
these estimates.
F-38
<PAGE>
8. Income Taxes
Income tax expense consists of:
Years ended June 30 2001 2000 1999
- -----------------------------------------------------------------------------
(In thousands)
Currently payable:
Federal.................................. $35,288 $36,348 $50,880
State.................................... 6,687 6,920 9,459
------- ------- -------
41,975 43,268 60,339
------- ------- -------
Deferred:
Federal.................................. 2,492 11,215 1,765
State.................................... 461 2,073 414
------- ------- -------
2,953 13,288 2,179
------- ------- -------
Income taxes............................... $44,928 $56,556 $62,518
======= ======= =======
The differences between the effective tax rates and the statutory U.S. federal
income tax rate are as follows:
Years ended June 30 2001 2000 1999
- ----------------------------------------------------------------------------
U.S. statutory tax rate....................... 35.0% 35.0% 35.0%
State income taxes,
less federal income tax benefits............. 4.0 4.0 4.2
Nonrecurring goodwill write-downs............. -- 3.5 --
Goodwill amortization......................... 0.8 1.1 0.9
Other......................................... (1.1) 0.7 1.0
----- ----- -----
Effective income tax rate .................... 38.7% 44.3% 41.1%
===== ===== =====
The current portions of deferred tax assets and liabilities are included in
"Other current assets" in the Consolidated Balance Sheets. The tax effects of
temporary differences that gave rise to the deferred income tax assets and
liabilities are as follows:
F-39
<PAGE>
June 30 2001 2000
- --------------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Accounts receivable allowances
and return reserves........................... $ 14,734 $ 15,012
Compensation and benefits....................... 26,618 22,235
Expenses deductible for taxes in
different years than accrued.................. 18,116 17,251
All other assets................................ 1,652 689
-------- --------
Total deferred tax assets......................... 61,120 55,187
-------- --------
Deferred tax liabilities:
Subscription acquisition costs.................. 25,936 27,518
Accumulated depreciation and amortization....... 60,659 47,267
Gains from dispositions......................... 6,516 6,979
Carrying value of accounts receivable........... 2,968 6,010
Expenses deductible for taxes in
different years than accrued.................. 5,006 4,544
All other liabilities........................... 18 639
-------- --------
Total deferred tax liabilities.................... 101,103 92,957
-------- --------
Net deferred tax liability........................ $ 39,983 $ 37,770
======== ========
9. Pension and Postretirement Benefit Plans
Savings and Investment Plan
- ---------------------------
The company maintains a 401(k) Savings and Investment Plan which permits
eligible employees to contribute funds on a pre-tax basis. As of April 1,
2001, the plan allows employee contributions of up to 15 percent of eligible
compensation. Previously, the plan allowed employee contributions of up to 12
percent of eligible compensation. The company matches 100 percent of the first
3 percent and 50 percent of the next 2 percent of employee contributions.
The 401(k) Savings and Investment Plan allows employees to choose among various
investment options, including the company's common stock. Company contribution
expense under this plan totaled $4.6 million in fiscal 2001, $4.5 million in
fiscal 2000, and $4.3 million in fiscal 1999.
Pension and Postretirement Plans
- --------------------------------
The company has noncontributory pension plans covering substantially all
employees. Assets held in the plans are primarily a mix of noncompany equity
and debt securities. Plan assets include 180,000 shares of Meredith
Corporation common stock with a fair value of $6.3 million at March 31, 2001,
the plans' measurement date. The company also sponsors defined health care and
life insurance plans that provide benefits to eligible retirees.
F-40
<PAGE>
The following table presents changes in, and components of, the company's net
assets/liabilities for pension and other postretirement benefits:
----Pension---- --Postretirement--
June 30 2001 2000 2001 2000
- ------------------------------------------------------------------------------
(In thousands)
Change in benefit obligation:
Benefit obligation, beginning of year.. $ 63,613 $ 62,158 $ 13,876 $ 14,078
Service cost........................... 4,555 4,426 671 665
Interest cost.......................... 4,940 4,314 1,082 993
Participant contributions.............. -- -- 252 224
Plan amendments........................ 4,995 -- -- --
Actuarial loss (gain).................. 1,871 (3,290) 1,591 (935)
Special termination benefits........... 42 -- 1,531 --
Benefits paid (including lump sums).... (7,432) (3,995) (1,152) (1,149)
-------- -------- -------- --------
Benefit obligation, end of year........ $ 72,584 $ 63,613 $ 17,851 $ 13,876
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets,
beginning of year.................... $ 79,966 $ 70,171 $ 518 $ 934
Actual return on plan assets........... (10,385) 13,228 (81) 113
Employer contributions................. 1,589 562 506 396
Participant contributions.............. -- -- 252 224
Benefits paid (including lump sums).... (7,432) (3,995) (1,152) (1,149)
-------- -------- -------- --------
Fair value of plan assets, end of year. $ 63,738 $ 79,966 $ 43 $ 518
======== ======== ======== ========
Funded status, end of year............. $ (8,846) $ 16,353 $(17,808) $(13,358)
Unrecognized actuarial loss (gain)..... (3,633) (23,816) 187 (1,279)
Unrecognized prior service cost........ 6,232 1,670 (2,045) (2,244)
Unrecognized net transition obligation. 747 1,104 -- --
Contributions between measurement date
and fiscal year end................. 17 17 247 --
-------- -------- -------- --------
Net recognized amount, end of year..... $ (5,483) $ (4,672) $(19,419) $(16,881)
======== ======== ======== ========
Consolidated Balance Sheets:
Prepaid benefit cost................... $ 3,091 $ 3,672 $ -- $ --
Accrued benefit liability.............. (8,574) (8,344) (19,419) (16,881)
Additional minimum liability........... (4,981) (1,876) -- --
Intangible asset....................... 4,762 1,642 -- --
Accumulated other comprehensive loss... 219 234 -- --
-------- -------- -------- --------
Net recognized amount, end of year..... $ (5,483) $ (4,672) $(19,419) $(16,881)
======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $16.5 million, $13.7 million and $0.1 million,
respectively, as of June 30, 2001, and $10.9 million, $9.1 million and $0.2
million, respectively, as of June 30, 2000.
F-41
<PAGE>
Benefit obligations were determined using the following weighted-average
assumptions:
----Pension---- --Postretirement--
June 30 2001 2000 2001 2000
- ------------------------------------------------------------------------------
(In thousands)
Weighted-average assumptions:
Discount rate.......................... 7.25% 7.75% 7.25% 7.75%
====== ====== ====== ======
Expected return on plan assets......... 8.25% 8.25% 8.25% 8.25%
====== ====== ====== ======
Rate of compensation increase.......... 5.00% 5.00% 5.00% 5.00%
====== ====== ====== ======
The rate of increase in health care cost levels used in measuring the
postretirement benefit obligation was 7 percent for employees under age 65,
decreasing to 5.75 percent in 2003 and thereafter. For employees age 65 and
older, the rate of increase used was 5.75 percent.
Assumed rates of increase in health care cost levels have a significant effect
on the amounts reported for the health care plans. A one-percentage-point
change in the assumed health care cost trend rates would have the following
effects:
One-Percentage- One-Percentage-
Year ended June 30, 2001 Point Increase Point Decrease
- -------------------------------------------------------------------------------
(In thousands)
Effect on service and interest cost components.. $ 129 $ (110)
====== ======
Effect on postretirement benefit obligation..... $ 828 $ (730)
====== ======
F-42
<PAGE>
The components of net periodic benefit costs recognized in the Consolidated
Statements of Earnings were as follows:
--------Pension------- ----Postretirement----
Years ended June 30 2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------
(In thousands)
Components of net periodic
benefit cost:
Service cost............. $4,555 $4,426 $4,204 $ 671 $ 665 $ 679
Interest cost............ 4,940 4,314 4,789 1,082 993 1,041
Expected return
on plan assets......... (6,333) (5,470) (6,554) (41) (75) (101)
Prior service
cost amortization...... 434 434 434 (200) (200) (200)
Actuarial loss (gain)
amortization........... (1,445) (611) (1,454) -- -- --
Transition amount
amortization........... 356 356 356 -- -- --
Settlement gain.......... (149) -- (3,624) -- -- --
------ ------ ------ ------ ------ ------
Net periodic benefit
expense (income)....... $2,358 $3,449 $(1,849) $1,512 $1,383 $1,419
====== ====== ====== ====== ====== ======
Meredith offered a voluntary early retirement option to all employees meeting
specified age and years of service criteria during the fourth quarter of fiscal
2001. The offer included enhanced pension and postretirement benefits. The
effect of these special termination benefits was an increase in the projected
benefit obligation of the pension plans of $0.1 million and an increase in the
accumulated benefit obligation of the postretirement plan of $1.5 million. The
associated expense was included in the nonrecurring charge.
10. Capital Stock
The company has two classes of common stock outstanding: common and class B.
Holders of both classes of common stock receive equal dividends per share.
Class B stock, which has 10 votes per share, is not transferable as class B
stock except to family members of the holder or certain other related entities.
At any time, class B stock is convertible, share for share, into common stock
with one vote per share. Class B stock transferred to persons or entities not
entitled to receive it as class B stock will automatically be converted and
issued as common stock to the transferee. The principal market for trading the
company's common stock is the New York Stock Exchange (trading symbol MDP). No
separate public trading market for the company's class B stock exists.
From time to time, the company's Board of Directors has authorized the
repurchase of shares of the company's common stock on the open market.
F-43
<PAGE>
Repurchases under these authorizations were as follows:
Years ended June 30 2001 2000 1999
- -------------------------------------------------------------------
(In thousands)
Number of shares...................... 1,332 1,720 1,121
======= ======= =======
Cost at market value.................. $43,506 $54,486 $43,852
======= ======= =======
As of June 30, 2001, approximately 2.5 million shares could be repurchased
under existing authorizations by the Board of Directors.
Meredith Corporation entered into two put option agreements with certain trusts
of the Bohen family, nonaffiliate descendants of the company's founder,
effective August 1, 1998, to repurchase up to 1.6 million common shares over
the next 24 months. An aggregate of 348,000 shares were repurchased under
these agreements. The remainder of the put options expired on July 31, 2000.
While the agreements were in effect, the market value of the shares subject to
put option agreements was reclassified from shareholders' equity to the
temporary equity classification entitled, "Put option agreements."
11. Common Stock and Stock Option Plans
Restricted Stock and Stock Equivalent Plans
- -------------------------------------------
The company has awarded common stock and/or common stock equivalents to
eligible key employees under a stock incentive plan and to nonemployee
directors under restricted stock and stock equivalent plans. All plans have
restriction periods tied primarily to employment and/or service. In addition,
certain awards are granted based on specified levels of company stock
ownership. The awards are recorded at market value on the date of the grant as
unearned compensation. The initial values of the grants are amortized over the
restriction periods, net of forfeitures.
The number of stock units and annual expense information follows:
Years ended June 30 2001 2000 1999
- ------------------------------------------------------------------------
(In thousands except per share)
Number of stock units awarded................ 33 64 18
====== ====== ======
Average market price of stock units awarded.. $32.03 $36.25 $37.53
====== ====== ======
Stock units outstanding...................... 197 201 228
====== ====== ======
Annual expense, net.......................... $1,211 $ 915 $ 960
====== ====== ======
Stock Option Plans
- ------------------
Under the company's stock incentive plan, nonqualified stock options may be
granted to certain employees to purchase shares of common stock at prices not
F-44
<PAGE>
less than market prices at the dates of grants. All options granted under
these plans expire at the end of 10 years. Most of these option grants vest
one-third each year over a three-year period. Others have cliff vesting after
either three- or five-year periods. Certain options granted in August 1997 and
August 2000 were tied to attaining specified earnings per share and return on
equity goals for the subsequent three-year periods. Attaining these goals will
result in the acceleration of vesting for all, or a portion, of the options to
three years from the date of grant. The goals established for the August 1997
options were met and, therefore, the options became fully vested in August
2000. If the goals established for the August 2000 options are not met, the
options will vest eight years from the date of grant, subject to certain tenure
qualifications.
The company also has a nonqualified stock option plan for nonemployee
directors. Options vest either 40, 30, and 30 percent in each successive year
or one-third each year over a three-year period. No options can be issued
under this plan after July 31, 2003, and options expire 10 years after
issuance.
A summary of stock option activity and weighted average exercise prices
follows:
Years ended June 30 2001 2000 1999
- --------------------- ---------------- ---------------- ----------------
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------
(Options in thousands)
Outstanding,
beginning of year....... 6,125 $22.57 5,783 $20.79 5,328 $18.63
Granted at market price... 1,155 $28.55 859 $33.07 593 $40.82
Exercised................. (610) $13.39 (319) $11.50 (87) $17.94
Forfeited................. (350) $28.71 (198) $34.06 (51) $32.12
----- ----- -----
Outstanding, end of year.. 6,320 $24.21 6,125 $22.57 5,783 $20.79
===== ====== ===== ====== ===== ======
Exercisable, end of year.. 3,817 $20.86 3,593 $16.82 3,474 $14.53
===== ====== ===== ====== ===== ======
Fair value of options
granted:
At market price......... $10.98 $11.59 $13.43
====== ====== ======
F-45
<PAGE>
A summary of stock options outstanding and exercisable as of June 30, 2001,
follows:
Options outstanding Options exercisable
------------------------ ---------------------
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise prices outstanding life (years) price exercisable price
- ----------------------------------------------------------------------------
(Options in thousands)
$ 6.61 - $11.56 1,323 2.51 $ 10.25 1,323 $ 10.25
$11.67 - $20.94 1,289 4.61 $ 18.66 1,119 $ 18.40
$21.09 - $28.06 1,389 7.70 $ 26.85 42 $ 25.84
$28.44 - $33.16 1,617 7.07 $ 31.16 927 $ 30.48
$34.78 - $42.88 702 7.34 $ 39.48 406 $ 39.71
----- -----
6,320 5.78 $ 24.21 3,817 $ 20.86
===== ===== ======= ===== =======
The maximum number of shares reserved for use in all company restricted stock,
stock equivalent and stock incentive plans totals approximately 13.1 million.
The total number of restricted and equivalent stock shares and stock options
that have been awarded under these plans as of June 30, 2001, is approximately
8.8 million. No stock options have expired to date.
The company accounts for stock options in accordance with APB No. 25,
"Accounting for Stock Issued to Employees," and therefore no compensation cost
related to options has been recognized in the Consolidated Statements of
Earnings. Had compensation cost for the company's stock-based compensation
plans been determined consistent with the fair value method of SFAS No. 123,
"Accounting for Stock-Based Compensation," the company's net earnings and
earnings per share would have been as follows:
Years ended June 30 2001 2000 1999
- -----------------------------------------------------------------------
(In thousands except per share)
Net earnings as reported................. $71,272 $71,030 $89,657
======= ======= =======
Pro forma net earnings................... $66,331 $65,811 $84,692
======= ======= =======
Basic earnings per share as reported..... $1.43 $1.38 $1.72
======= ======= =======
Pro forma basic earnings per share....... $1.33 $1.28 $1.62
======= ======= =======
Diluted earnings per share as reported... $1.39 $1.35 $1.67
======= ======= =======
Pro forma diluted earnings per share..... $1.29 $1.24 $1.57
======= ======= =======
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. Options vest over a
period of several years and additional awards are generally made each year. In
addition, valuations are based on highly subjective assumptions about the
F-46
<PAGE>
future, including stock price volatility and exercise patterns. The company
used the Black-Scholes option pricing model to determine the fair value of
grants made. The following assumptions were applied in determining the pro
forma compensation cost:
Years ended June 30 2001 2000 1999
- -------------------------------------------------------------------------
Risk-free interest rate.............. 5.20% 6.23% 5.91%
====== ====== ======
Expected dividend yield.............. 0.75% 0.75% 0.75%
====== ====== ======
Expected option life................. 7.3 yrs 6.5 yrs 6.3 yrs
====== ====== ======
Expected stock price volatility...... 23.00% 22.00% 21.00%
====== ====== ======
12. Commitments and Contingent Liabilities
The company occupies certain facilities and sales offices and uses certain
equipment under lease agreements. Rental expense for such leases was $8.7
million in 2001 ($7.1 million in 2000 and $6.0 million in 1999). Minimum
rental commitments at June 30, 2001, under all noncancellable operating leases
due in succeeding fiscal years are:
Years ended June 30
----------------------------------
(In thousands)
2002..................... $ 5,891
2003..................... 5,774
2004..................... 5,845
2005..................... 5,887
2006..................... 5,669
Later years.............. 33,462
-------
Total amounts payable.... $62,528
=======
Most of the future lease payments relate to the lease of office facilities in
New York City through December 31, 2011. In the normal course of business,
leases that expire are generally renewed or replaced by leases on similar
property.
The company has recorded commitments for broadcast rights payable in future
fiscal years. The company also is obligated to make payments under contracts
for broadcast rights not currently available for use, and therefore not
included in the Consolidated Financial Statements, in the amount of $91.6
million at June 30, 2001 ($86.5 million at June 30, 2000). The fair values of
these commitments for unavailable broadcast rights were $80.7 million and $73.0
million at June 30, 2001 and 2000, respectively.
F-47
<PAGE>
The broadcast rights payments due in succeeding fiscal years are:
Recorded Unavailable
Years ended June 30 Commitments Rights
-------------------------------------------------
(In thousands)
2002.................... $ 18,600 $ 18,774
2003.................... 11,076 27,134
2004.................... 4,197 26,027
2005.................... 1,478 15,869
2006.................... 407 3,304
Later years............. -- 478
-------- --------
Total amounts payable... $ 35,758 $ 91,586
======== ========
The broadcasting segment expects to spend approximately $12 million over the
next fiscal year for the initial transition to digital technology.
The company is involved in certain litigation and claims arising in the normal
course of business. In the opinion of management, liabilities, if any, arising
from existing litigation and claims will not have a material effect on the
company's earnings, financial position or liquidity.
F-48
<PAGE>
13. Other Comprehensive Income
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from nonowner sources.
Comprehensive income includes net earnings as well as items of other
comprehensive income.
The following table summarizes the items of other comprehensive income (loss)
and the accumulated other comprehensive income (loss) balances:
Foreign Minimum Accumulated
Currency Pension Interest Other
Translation Liability Rate Comprehensive
Adjustments Adjustments Swaps Income (Loss)
- -----------------------------------------------------------------------------
(In thousands)
- -----------------------------------------------------------------------------
Balance at June 30, 1998.... $ (833) $ (344) -- $(1,177)
- -----------------------------------------------------------------------------
Current-year adjustments,
pre-tax................... 754 164 -- 918
Tax expense................. (301) (65) -- (366)
------- ------- ------- -------
Other comprehensive income.. 453 99 -- 552
- -----------------------------------------------------------------------------
Balance at June 30, 1999.... $ (380) $ (245) -- $ (625)
- -----------------------------------------------------------------------------
Current-year adjustments,
pre-tax................... (427) 175 -- (252)
Tax benefit (expense)....... 170 (69) -- 101
------- ------- ------- -------
Other comprehensive (loss)
income.................... (257) 106 -- (151)
- -----------------------------------------------------------------------------
Balance at June 30, 2000.... $ (637) $ (139) -- $ (776)
- -----------------------------------------------------------------------------
Current-year adjustments,
pre-tax................... (166) 14 (5,849) (6,001)
Tax benefit (expense)....... 55 (9) 2,281 2,327
------- ------- ------- -------
Other comprehensive (loss)
income.................... (111) 5 (3,568) (3,674)
Cumulative effect of change
in accounting principle
(net of taxes)............ -- -- 2,483 2,483
- -----------------------------------------------------------------------------
Balance at June 30, 2001.... $ (748) $ (134) $(1,085) $(1,967)
=============================================================================
The cumulative effect of change in accounting principle represents the
transition adjustment from the adoption of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The transition adjustment,
which was a gain of $4.1 million, net of $1.6 million in tax expense, was the
initial amount necessary to record the fair value of Meredith's interest rate
swap contracts.
F-49
<PAGE>
14. Financial Information about Industry Segments
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. Based on products and services, the company has
established two reportable segments: publishing and broadcasting. The
publishing segment includes magazine and book publishing, integrated marketing,
interactive media, database-related activities, brand licensing and other
related operations. The broadcasting segment includes the operations of 12
network-affiliated television stations. The broadcasting segment information
includes the effect of the acquisition of WGCL-TV in March 1999. The
syndicated television program 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. Virtually all
of the company's revenues are generated and assets reside within the United
States. 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. Operating
profit for segment reporting is revenues less operating costs and does not
include nonrecurring charges, gains from dispositions, interest income and
expense, or unallocated corporate expenses. Segment operating costs include
allocations of certain centrally incurred costs such as employee benefits,
occupancy, information systems, accounting services, internal legal staff and
human resources administration expenses. These costs are allocated based on
actual usage or other appropriate methods, primarily number of employees.
Unallocated corporate expenses are corporate overhead expenses not attributable
to the operating groups.
A significant noncash item included in segment operating costs, other than
depreciation and amortization of fixed and intangible assets, is the
amortization of broadcast rights in the broadcasting segment, totaling $44.1
million in fiscal 2001, $35.3 million in fiscal 2000 and $38.5 million in
fiscal 1999.
Segment assets include intangible, fixed and all other noncash assets
identified with each segment. Jointly used assets such as office buildings and
information services and technology equipment are allocated to the segments by
appropriate methods, primarily number of employees. Unallocated corporate
assets consist primarily of cash and cash items, assets allocated to or
identified with corporate staff departments and other miscellaneous assets not
assigned to one of the segments.
Expenditures for long-lived assets other than capital expenditures included the
acquisition of one television station in fiscal 1999. This acquisition
resulted in broadcasting segment additions to intangible assets of $362.5
million and additions to fixed assets of $6.4 million.
EBITDA is defined as earnings from continuing operations before interest,
taxes, depreciation and amortization and excludes the following special items:
write-downs of broadcast rights of $9.9 million in fiscal 2001, $1.0 million in
fiscal 2000 and $5.2 million in fiscal 1999; nonrecurring charges of $25.3
million in fiscal 2001 and $23.1 million in fiscal 2000; and gains from
dispositions of $21.5 million in fiscal 2001 and $2.4 million in fiscal 1999.
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.
F-50
<PAGE>
EBITDA should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with accounting principles generally
accepted in the United States of America. In addition, the calculation of
EBITDA and similarly titled measures may vary between companies.
Years ended June 30 2001 2000 1999
- --------------------------------------------------------------------------
(In thousands)
Revenues
Publishing......................... $ 782,937 $ 818,826 $ 775,632
Broadcasting....................... 270,276 278,339 260,490
---------- ---------- ----------
Total revenues..................... $1,053,213 $1,097,165 $1,036,122
========== ========== ==========
Operating profit
Publishing......................... $ 132,815 $ 139,045 $ 118,887
Broadcasting....................... 34,683 60,454 73,041
Unallocated corporate expense...... (15,566) (15,066) (20,841)
Nonrecurring items................. (25,308) (23,096) --
---------- ---------- ----------
Income from operations............. $ 126,624 $ 161,337 $ 171,087
========== ========== ==========
Depreciation/amortization
Publishing......................... $ 8,983 $ 11,561 $ 11,371
Broadcasting....................... 40,034 38,705 30,732
Unallocated corporate.............. 2,555 2,083 1,980
---------- ---------- ----------
Total depreciation/amortization.... $ 51,572 $ 52,349 $ 44,083
========== ========== ==========
Assets
Publishing......................... $ 310,066 $ 320,972 $ 318,129
Broadcasting....................... 1,011,483 1,037,458 1,038,913
Unallocated corporate.............. 116,198 81,343 66,354
---------- ---------- ----------
Total assets....................... $1,437,747 $1,439,773 $1,423,396
========== ========== ==========
Capital expenditures
Publishing......................... $ 10,642 $ 1,465 $ 1,417
Broadcasting....................... 24,745 32,925 16,470
Unallocated corporate.............. 20,580 5,013 7,804
---------- ---------- ----------
Total capital expenditures......... $ 55,967 $ 39,403 $ 25,691
========== ========== ==========
Other Data:
EBITDA
Publishing......................... $ 141,798 $ 150,606 $ 130,258
Broadcasting....................... 84,647 100,211 109,002
Unallocated corporate.............. (13,011) (12,983) (18,861)
---------- ---------- ----------
Total EBITDA....................... $ 213,434 $ 237,834 $ 220,399
========== ========== ==========
F-51
<PAGE>
15. Selected Quarterly Financial Data (unaudited)
First Second Third Fourth
Year ended June 30, 2001 Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------
(In thousands except per share)
Revenues
Publishing.................. $184,885 $182,259 $213,385 $202,408 $ 782,937
Broadcasting................ 65,137 78,629 58,922 67,588 270,276
-------- -------- -------- -------- ----------
Total revenues.............. $250,022 $260,888 $272,307 $269,996 $1,053,213
======== ======== ======== ======== ==========
Operating profit
Publishing.................. $ 28,410 $ 29,666 $ 39,879 $ 34,860 $ 132,815
Broadcasting................ 10,143 21,453 3,272 (185) 34,683
Unallocated corporate expense (3,375) (3,701) (4,439) (4,051) (15,566)
Nonrecurring items.......... -- -- -- (25,308) (25,308)
-------- -------- -------- -------- ---------
Income from operations...... $ 35,178 $ 47,418 $ 38,712 $ 5,316 $ 126,624
======== ======== ======== ======== =========
Net earnings................ $ 16,469 $ 24,041 $ 18,884 $ 11,878 $ 71,272
======== ======== ======== ======== =========
Basic earnings per share.... $ 0.33 $ 0.48 $ 0.38 $ 0.24 $ 1.43
======== ======== ======== ======== =========
Diluted earnings per share.. $ 0.32 $ 0.47 $ 0.37 $ 0.23 $ 1.39
======== ======== ======== ======== =========
Dividends per share......... $ 0.080 $ 0.080 $ 0.085 $ 0.085 $ 0.33
======== ======== ======== ======== =========
Stock price per share:
High....................... $ 35.00 $ 32.75 $ 37.55 $ 38.97
======== ======== ======== ========
Low........................ $ 26.75 $ 27.13 $ 30.50 $ 33.55
======== ======== ======== ========
Fiscal 2001
- -----------
Fourth-quarter results include after-tax nonrecurring charges of $15.4 million,
or 30 cents per share, primarily for personnel costs associated with an early
retirement program and other workforce reductions and for the write-off of
certain Internet investments (Note 2).
Publishing operating profits were reduced by investment spending related to
Internet and e-commerce activities. The quarterly impact of the incremental
spending versus fiscal 2000 was $1.2 million, $1.6 million, $1.3 million and
$0.3 million for the first through fourth quarters, respectively.
Broadcasting operating profits were reduced by $9.9 million in the fourth
quarter for the write-down of certain programming rights to net realizable
value.
F-52
<PAGE>
First Second Third Fourth
Year ended June 30, 2000 Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------
(In thousands except per share)
Revenues
Publishing.................. $193,714 $189,970 $224,393 $210,749 $ 818,826
Broadcasting................ 66,690 76,159 62,550 72,940 278,339
-------- -------- -------- -------- ----------
Total revenues.............. $260,404 $266,129 $286,943 $283,689 $1,097,165
======== ======== ======== ======== ==========
Operating profit
Publishing.................. $ 28,398 $ 33,144 $ 46,416 $ 31,087 $ 139,045
Broadcasting................ 13,545 21,767 8,046 17,096 60,454
Unallocated corporate expense (3,226) (3,304) (4,706) (3,830) (15,066)
Nonrecurring items.......... -- -- -- (23,096) (23,096)
-------- -------- -------- -------- ---------
Income from operations...... $ 38,717 $ 51,607 $ 49,756 $ 21,257 $ 161,337
======== ======== ======== ======== =========
Net earnings................ $ 18,023 $ 25,459 $ 24,816 $ 2,732 $ 71,030
======== ======== ======== ======== =========
Basic earnings per share.... $ 0.35 $ 0.49 $ 0.48 $ 0.06 $ 1.38
======== ======== ======== ======== =========
Diluted earnings per share.. $ 0.34 $ 0.48 $ 0.47 $ 0.06 $ 1.35
======== ======== ======== ======== =========
Dividends per share......... $ 0.075 $ 0.075 $ 0.080 $ 0.080 $ 0.31
======== ======== ======== ======== =========
Stock price per share:
High....................... $ 38.87 $ 42.00 $ 41.06 $ 36.25
======== ======== ======== ========
Low........................ $ 31.81 $ 33.31 $ 22.37 $ 25.50
======== ======== ======== ========
Fiscal 2000
- -----------
Fourth-quarter results include after-tax nonrecurring charges of $19.1 million,
or 36 cents per share, for asset write-downs, contractual obligations and
personnel costs associated with the decision to exit certain publishing
operations (Note 2).
Fourth-quarter publishing operating profits were reduced by $10.2 million for
investment spending related to circulation initiatives, Internet and e-commerce
activities and development of the consumer database.
Broadcasting operating profits were reduced by $0.6 million in the third
quarter and $0.4 million in the fourth quarter for the write-down of certain
programming rights to net realizable value.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Meredith Corporation:
We have audited the accompanying consolidated balance sheets of Meredith
Corporation and subsidiaries as of June 30, 2001 and 2000, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended June 30, 2001. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule, as listed in Part IV, Item 14 (a) 2
herein. These consolidated financial statements and financial statement
schedule are the responsibility of company management. Our responsibility is
to express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meredith
Corporation and subsidiaries as of June 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
Des Moines, Iowa
July 27, 2001
F-54
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of Meredith Corporation:
Meredith management is responsible for the preparation, integrity and
objectivity of the financial information included in this Form 10-K annual
report. The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and include amounts based on management's informed judgments and estimates.
To meet its responsibility for financial reporting, management has designed
internal control systems and accounting procedures to provide reasonable
assurance as to the reliability of financial records. In addition, the
internal audit staff monitors and reports on compliance with company policies,
procedures and internal control systems.
The consolidated financial statements have been audited by independent
auditors. In accordance with auditing standards generally accepted in the
United States of America, the independent auditors conducted a review of the
company's internal accounting controls and performed tests and other procedures
necessary to determine an opinion on the fairness of the company's consolidated
financial statements. The independent auditors were given unrestricted access
to all financial records and related information, including all Board of
Directors' and Board committees' minutes. The audit committee of the Board of
Directors, which consists of five independent directors, meets with the
independent auditors, management and internal auditors to review accounting,
auditing and financial reporting matters. To ensure complete independence, the
independent auditors have direct access to the audit committee, with or without
the presence of management representatives.
/s/ Suku V. Radia
Suku V. Radia
Vice President - Chief Financial Officer
F-55
<PAGE>
Schedule II
MEREDITH CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 2001, 2000 and 1999
(in thousands)
Year ended June 30, 2001
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- -------------------------- --------- --------- ------- --------- ---------
Those reserves which are
deducted in the consolidated
financial statements
from Receivables:
Reserve for doubtful
accounts................ $ 8,089 $12,258 $ - $12,268 $ 8,079
Reserve for returns....... 6,279 4,743 - 4,268 6,754
------- ------- ---- ------- -------
$14,368 $17,001 $ - $16,536 $14,833
======= ======= ==== ======= =======
Year ended June 30, 2000
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- -------------------------- --------- --------- ------- --------- ---------
Those reserves which are
deducted in the consolidated
financial statements
from Receivables:
Reserve for doubtful
accounts................ $ 6,915 $ 4,021 $ - $ 2,847 $ 8,089
Reserve for returns....... 5,095 10,100 - 8,916 6,279
------- ------- ---- ------- -------
$12,010 $14,121 $ - $11,763 $14,368
======= ======= ==== ======= =======
F-56
<PAGE>
Year ended June 30, 1999
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- -------------------------- --------- --------- ------- --------- ---------
Those reserves which are
deducted in the consolidated
financial statements
from Receivables:
Reserve for doubtful
accounts................ $ 7,489 $ 2,832 $ - $ 3,406 $ 6,915
Reserve for returns....... 4,630 8,977 - 8,512 5,095
------- ------- ---- ------- -------
$12,119 $11,809 $ - $11,918 $12,010
======= ======= ==== ======= =======
F-57
<PAGE>
Index to Exhibits
Exhibit
Number Item
------- ---------------------------------
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
E-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>exh21.txt
<DESCRIPTION>EXHIBIT 21 - SUBSIDIARIES
<TEXT>
Exhibit 21
----------
Subsidiaries of the Registrant
------------------------------
All Subsidiaries of the Company, considered in the
aggregate as a single subsidiary, would not constitute
a significant subsidiary.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>exh23.txt
<DESCRIPTION>EXHIBIT 23 - CONSENT OF INDEP AUDITORS
<TEXT>
Exhibit 23
----------
The Board of Directors
Meredith Corporation:
We consent to incorporation by reference in the Registration Statements No.
333-21979, No. 333-04033, No. 33-2094, No. 2-54974, and No. 33-59258, each on
Form S-8, of Meredith Corporation of our report dated July 27, 2001, relating
to the consolidated balance sheets of Meredith Corporation and subsidiaries as
of June 30, 2001 and 2000, and the related consolidated statements of earnings,
shareholders' equity, and cash flows and related financial statement schedule
for each of the years in the three-year period ended June 30, 2001, which
appears in the June 30, 2001 annual report on Form 10-K of Meredith
Corporation.
/s/ KPMG LLP
- --------------
KPMG LLP
Des Moines, Iowa
September 14, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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