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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, 1994
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 September 15, 1994, was $423,350,000 based
upon the closing price on the New York Stock Exchange at that date.
Number of common shares outstanding at September 15, 1994: 10,074,667
Number of class B shares outstanding at September 15, 1994: 3,584,210
----------
Total common and class B shares outstanding 13,658,877
==========
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DOCUMENTS INCORPORATED BY REFERENCE
Description of document Part of the Form 10-K
------------------------------------ --------------------------------
Certain portions of the Registrant's
Proxy Statement for the Annual Part III to the extent described
Meeting of Stockholders to be therein.
held on November 14, 1994
- 2 -
PART I
Item 1. Business
1 (a). General Development of Business
Meredith Corporation (the Company) was founded in Des Moines, Iowa, in 1902 as
an Iowa corporation by Edwin Thomas Meredith, as the publisher of Successful
Farming magazine. Since 1922--when Meredith introduced its second publication,
the predecessor of Better Homes and Gardens magazine--the Company has continued
to expand its operations in media and related products and services through
internal growth and acquisitions.
Today, Meredith Corporation publishes magazines and books, owns and operates
broadcast television stations and operates a residential real estate marketing
and franchising service. The Company is also engaged in direct sales of
selected consumer products and services, and is involved in publishing, broad-
cast and cable television activities through subsidiaries and joint ventures.
In December 1993, the Company sold two of its broadcast television properties
to Granite Broadcasting Corporation. The Company sold the assets of WTVH, a
CBS affiliate licensed to serve Syracuse, New York, and the stock of a Company
subsidiary that owned KSEE, an NBC affiliate licensed to serve Fresno,
California.
In January 1994, Wal-Mart Stores, Inc., introduced Better Homes and Gardens
Garden Centers in more than 2,000 stores nationwide. Royalties are paid to the
Company upon the sale of licensed products in the Wal-Mart/Better Homes and
Gardens Garden Centers.
In June 1994, the Company acquired a minority share in a multimedia publisher,
Multicom Publishing, Inc. Multicom is a leading developer and publisher of
home/family/lifestyle CD-ROM titles, including several based on the Company's
home and family editorial products.
In June 1994, the Company announced that KPHO, previously an independent
station in Phoenix, will become affiliated with CBS in the fall of 1994 and
WNEM, an NBC affiliate serving the Flint/Saginaw/Bay City, Michigan market,
will affiliate with CBS in fiscal 1995. The Company's other television
stations are KCTV, a CBS affiliate in Kansas City, and two Fox affiliates:
KVVU in Las Vegas and WOFL in Orlando.
In August 1994, Meredith Corporation reached an agreement to acquire the assets
of WSMV-TV, an NBC network affiliate in Nashville, Tennessee. This transaction
is expected to close in January 1995, subject to regulatory approvals.
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1 (b). Financial Information About Industry Segments
Years Ended June 30 1994 1993 1992
- - -----------------------------------------------------------------------------
(in thousands)
Revenues(a)
Publishing $622,953 $599,084 $576,419
Broadcast 103,150 105,167 105,961
Real Estate 21,813 21,034 20,872
Cable 51,653 43,614 3,458
Less: Inter-segment Revenue (43) (51) (48)
-------- -------- --------
Total Revenues $799,526 $768,848 $706,662
======== ======== ========
Operating Profit(b)
Publishing $ 45,678 $ 35,802 $ 11,514(c)
Broadcast 19,189(d) 16,541 17,254
Real Estate 1,914 1,220 977
Cable 3,761 5,044 45
Unallocated corporate expense (20,905)(d) (17,698) (33,562)(c)
-------- -------- --------
Total 49,637 40,909 (3,772)
Gain on sale of broadcast stations 11,997 - -
Interest income 1,991 2,141 6,339
Interest expense (11,624) (9,925) (727)
Minority interests 2,232 1,219 (11)
-------- -------- --------
Earnings before Income Taxes $ 54,233 $ 34,344 $ 1,829
======== ======== ========
Earnings (Loss) before Income Taxes(e)
Publishing $ 45,678 $ 35,802 $ 11,514(c)
Broadcast 19,189(d) 16,541 17,254
Real Estate 2,016 1,303 1,269
Cable (5,169) (2,726) 286
Unallocated corporate expense (20,905)(d) (17,698) (33,562)(c)
-------- -------- --------
Total 40,809 33,222 (3,239)
Gain on sale of broadcast stations 11,997 - -
Interest income 1,733 1,789 5,795
Interest expense (306) (667) (727)
Minority interests - - -
-------- -------- --------
Earnings before Income Taxes $ 54,233 $ 34,344 $ 1,829
======== ======== ========
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Years Ended June 30 1994 1993 1992
- - -----------------------------------------------------------------------------
(in thousands)
Identifiable Assets(f)
Publishing $413,605 $414,089 $420,823
Broadcast 94,010 131,311 145,697
Real Estate 10,057 9,050 7,859
Cable 275,249 279,724 97,699
Unallocated Corporate 71,546 66,594 108,049
-------- -------- --------
Total Assets $864,467 $900,768 $780,127
======== ======== ========
Depreciation/Amortization
Publishing $ 10,418 $ 9,477 $ 8,474
Broadcast 4,551 5,593 6,044
Real Estate 520 499 528
Cable 17,314 15,521 1,106
Unallocated Corporate 1,453 1,303 1,393
-------- -------- --------
Total Depreciation/Amortization $ 34,256 $ 32,393 $ 17,545
======== ======== ========
Capital Expenditures
Publishing $ 4,329 $ 2,758 $ 2,979
Broadcast 2,808 1,856 1,493
Real Estate 552 171 185
Cable 11,530 8,001 333
Unallocated Corporate 1,554 3,297 1,709
-------- -------- --------
Total Capital Expenditures $ 20,773 $ 16,083 $ 6,699
======== ======== ========
(a) See Item 1(c) Narrative Description of Business for description of
revenue sources.
(b) Operating profit for industry segment reporting is net revenues less
operating costs and does not include gain on sale of broadcast stations,
interest income and expense or unallocated corporate expense, which is
primarily corporate staff and miscellaneous expenses.
(c) Fiscal 1992 segment data includes non-recurring items of $10,000,000 in
the Publishing segment for book inventory and promotion write-downs; and
$12,983,000 for restructuring costs and $3,400,000 for the write-off of
other corporate assets in unallocated corporate expense.
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(d) Fiscal 1994 segment data includes non-recurring items of $5,584,000 in the
Broadcast segment for film write-downs related to KPHO affiliating with the
CBS network; and $1,800,000 for taxes on previously disposed properties in
unallocated corporate expense.
(e) Earnings (loss) before income taxes for industry segment reporting is
segment operating profit adjusted for interest income, interest expense and
minority interests applicable to the segment. Adjustments to the Cable
segment include all minority interests in each fiscal year and $11,318,000
of interest expense in fiscal 1994 ($9,258,000 in fiscal 1993, none in
fiscal 1992). The Real Estate and Cable segments also include adjustments
for minor amounts of interest income.
(f) Identifiable assets include all fixed assets, receivables, inventories and
other assets identified with each segment. Unallocated corporate assets
consist primarily of cash and cash items and miscellaneous assets not
properly assignable to one of the segments.
1 (c). Narrative Description of Business
Publishing
Meredith Corporation publishes a variety of magazines, including Better Homes
and Gardens and Ladies' Home Journal, that appeal primarily to consumers in the
home and family market. It also publishes a group of 36 Better Homes and
Gardens Special Interest Publications. In addition, Meredith Publishing
Services provides custom publishing services to external clients on both one-
time and periodic bases. American Park Network, a wholly owned subsidiary, is
the publisher of the country's largest collection of visitor guide magazines
for national, state and wildlife parks. The Company also has a 50 percent
interest in a monthly Australian edition of Better Homes and Gardens magazine
and has licensed the publishing of Better Homes and Gardens magazine in Korea.
Better Homes and Gardens and Ladies' Home Journal are monthly publications sold
by subscriptions and single copies. They are the Company's two largest
circulation magazines, with advertising rate bases of 7.6 million and 5.0
million, respectively. Better Homes and Gardens is a home service magazine
that intends to help its readers enjoy their homes and enrich their families'
lives. Ladies' Home Journal features news-based reporting focusing on
delivering current information to women. Successful Farming, published 12
times in fiscal 1994, is available only by subscription to qualified farm
families. Country Home, Midwest Living, Traditional Home, Golf for Women,
Cross Stitch & Country Crafts, Weekend Woodworking Projects, Decorative
Woodcrafts, Better Homes and Gardens Floral & Nature Crafts, Better Homes and
Gardens American Patchwork & Quilting, Better Homes and Gardens Craft & Wear,
Country Home Folk Crafts and Crayola Kids are bimonthly periodicals sold by
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subscriptions and single copies. Crayola Kids is published by Meredith
Publishing Services under a license from Binney & Smith Properties, Inc.,
makers of Crayola crayons. Super Scrollsaw Patterns is a bimonthly publication
sold only by subscription. WOOD magazine, published nine times yearly, and
Country America magazine, published 10 times annually, are sold by subscription
and single copy. Country America is jointly owned by Meredith Video Publishing
(a wholly owned subsidiary which owns 80 percent), TNN:The Nashville Network
and Group W Satellite Communications.
Special Interest Publications are issued from one to four times annually and
are available only at newsstands. Ladies' Home Journal published two editions
of Parent's Digest and several one-time specialty issues in fiscal 1994, each
sold primarily on newsstands. Country Home Country Gardens, published four
times in fiscal 1994, is also sold primarily on newsstands. Midwest Living
magazine co-published a single-state special issue in fiscal 1994 which was
distributed free to selected subscribers and others. American Park Network
published 18 editions of visitor guide magazines in fiscal 1994. These guides
are distributed each spring and are primarily furnished free to park visitors.
Advertising revenues are generated primarily from consumer advertising.
Subscription revenues are the largest source of circulation revenues and are
generated through direct-mail solicitation, agencies, insert cards and other
means. Single copy sales (magazines sold on the newsstand) are also important
circulation revenue sources for most magazines. In addition, revenues from
ancillary products are realized by the Magazine Group.
Metropolitan Home, a monthly subscription magazine, was sold in November 1992.
Magazine wholesalers have the right to receive credit for magazines returned to
them by retailers from newsstands.
The Company publishes and markets a line of approximately 175 consumer home and
family service books. These books are published under several imprints,
including the Better Homes and Gardens trademark and Meredith Press. The books
are sold through retail outlets, direct mail, book clubs and other means. Each
year, new titles or revised editions are published, and some titles are
discontinued. Approximately 70 new or revised titles were published during
fiscal 1994. The Company also markets other publishers' books and related non-
book products through its book club operations, including Better Homes and
Gardens Crafts Club, Better Homes and Gardens Cook Book Club, Country Homes and
Gardens Book Club, Home Craftsman Book Club and Outdoor Life Book Club.
Books offered through retail outlets, direct mail and book clubs are primarily
sold on a fully returnable basis.
- 7 -
The Company has licensed Multicom Publishing, Inc., in which it has a minority
interest, to develop and publish several CD-ROM titles based on Meredith's home
and family editorial products. The Company earns royalties on the sales of
these titles.
The Company has licensed Wal-Mart Stores, Inc., to operate Better Homes and
Gardens Garden Centers in more than 2,000 stores nationwide. Royalties are
paid to the Company for licensed products sold exclusively in the Wal-Mart/
Better Homes and Gardens Garden Centers.
Trademarks (for example, Better Homes and Gardens and Ladies' Home Journal),
licenses and franchises are highly important to this segment and are often
utilized in introducing new products.
Publishing revenues are subject to some seasonal fluctuations with spring and
fall generally being higher volume periods than summer and winter.
The major raw materials essential to this segment are coated and uncoated
publication paper and book-grade papers. In recent years the paper market has
been soft, with sufficient supplies available and prices stable or falling.
Late in fiscal 1994, the paper market began to tighten due to increasing demand
resulting from a stronger economy. While the Company expects to be able to
obtain sufficient supplies of paper to meet its publishing requirements through
its current paper contracts, price increases are expected in fiscal 1995. If
coated paper should become in short supply, the Company expects to use more
uncoated paper or purchase available coated paper in foreign markets. Postage
is also a significant expense to this segment due to promotion, magazine
subscription and book mailings. A postal increase has been proposed by the
Postal Service in 1995.
The Company has printing contracts for all its magazine titles. Its two
largest titles, Better Homes and Gardens and Ladies' Home Journal, are printed
under contracts with R. R. Donnelley & Sons Company. All of the Company's
published books are manufactured by outside printers with the Company usually
supplying the paper. Book manufacturing contracts are generally on title by
title bases.
Publishing is a highly competitive business. The Company's magazines, books,
and related publishing products and services compete with other mass media and
many other types of leisure-time activities. Overall competitive factors in
this segment include price, editorial quality and customer service.
Competition for advertising dollars in the Magazine Group is primarily based on
advertising rates, reader response to advertisers' products and services and
effectiveness of the sales teams. Better Homes and Gardens and Ladies' Home
Journal compete for readers and advertising dollars primarily in the women's
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service magazine category. Both are members of a group known as the "Seven
Sisters," which also includes Family Circle, Good Housekeeping, McCall's,
Redbook and Woman's Day magazines published by other companies.
Broadcast
The following table lists selected information regarding the Company's
currently owned broadcast television stations:
Station, Channel #, DMA
Market, Network National Expiration # of
Affiliation, TV Homes Market Date of TV Stations
Frequency (1) in DMA (2) Rank (2) FCC License in Market (3)
------------------- ---------- -------- ----------- -------------
KPHO-TV, Ch. 5 1,097,000 20 10- 1-1998 8 VHF
Phoenix, AZ VHF 4 UHF
(CBS) (4)
WOFL-TV, Ch. 35 967,000 23 2- 1-1997 3 VHF
Orlando, FL 7 UHF
(FOX) UHF
KCTV, Ch. 5 768,000 31 2- 1-1998 3 VHF
Kansas City, MO 4 UHF
(CBS) VHF
WNEM-TV, Ch. 5 448,000 60 10- 1-1997 2 VHF
Flint/Saginaw/ 3 UHF
Bay City, MI
(NBC) VHF (4)
KVVU-TV, Ch. 5 347,000 75 10- 1-1998 4 VHF
Las Vegas, NV 3 UHF
(FOX) VHF
(1) VHF (very high frequency) stations transmit on channels 2 through 13;
UHF (ultra high frequency) stations transmit on channels above 13.
Technical factors and area topography determine the market served by a
television station.
(2) Designated Market Area ("DMA"), as defined by A. C. Nielsen Company
("Nielsen"), is an exclusive geographic area consisting of all counties
in which local stations receive a preponderance of total viewing hours.
DMA data is a significant factor in determining television advertising
- 9 -
rates. The market rank is the Nielsen DMA rank based on estimated
television households as reported in Investing in Television,
1994 Market Report dated May 1994 ("May 1994 Nielsen Report").
(3) The number of television broadcast stations is from the May 1994 Nielsen
Report. Public television stations are not included.
(4) In June 1994, the Company announced that KPHO, it's independent tele-
vision station in Phoenix and WNEM, it's NBC affiliate in Flint/Saginaw/
Bay City would join the CBS television network. In September 1994 KPHO
became a CBS affiliate. WNEM will become a CBS affiliate during fiscal
year 1995.
Two other television properties, KSEE (Fresno, California) and WTVH (Syracuse,
New York), were sold in December 1993.
On August 19, 1994, the Company announced that it had reached an agreement to
acquire the assets of WSMV-TV, an NBC affiliate in Nashville, Tennessee, the
country's 33rd largest market. This acquisition is expected to close in
January 1995, pending regulatory approval.
Advertising is the principal source of revenue for the Broadcast Group. The
stations sell commercial time to both local and national advertisers. Rates
for national and local spot advertising are influenced by the market size and
demographics, demand for advertising time and the ability of the station to
attract the audiences reflected in rating surveys. The rates for local and
national advertising are determined by each station. Most national advertising
is sold through a national advertising representative firm. Each station's own
sales force sells its local advertising time. Revenues from the sale of
broadcast commercial time fluctuate somewhat on a seasonal basis with spring
and fall generally being the periods of highest volume.
Network affiliates receive programming and cash compensation from national
networks. In exchange for the programming, affiliates give up most of the
advertising time in these programs to the networks. Programming expense for
the Company's Broadcast Group has declined in the past few years largely due to
increased use of first-run programming. The CBS affiliation of KPHO in Phoenix
(versus formerly being independent) will further reduce the need for purchased
programming.
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
primarily assigns frequency bands; determines stations' frequencies, locations
and power; regulates station licenses and equipment; and determines regulations
and policies which affect the ownership, operation, and employment practices of
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broadcast stations. Television licenses are granted for maximum periods of
five years and are renewable upon proper application for additional terms of up
to five years. The Company is aware of no reason why its television station
licenses would not be renewed. FCC rules are subject to change and the FCC may
in the future adopt regulations that could affect operations and profitability
of the Company's Broadcast Group. The Company cannot predict any change which
could be adopted or determine, in advance, what impact any change could have on
its television stations.
The television broadcast business is highly competitive. Meredith television
stations compete for advertising dollars with other television stations, cable
television and other mass media in their respective markets. The stations also
compete with other stations in the market for desirable programming for off-
network hours. Competitive position in each of the Company's broadcast markets
is largely affected by viewer acceptance of its programming. (As all of the
Company's television stations are now affiliated with national networks,
acceptance and ratings of national programming has increased in importance.)
However, local news and involvement in the local community continue to be
important in determining the success of each television station.
Real Estate
The Better Homes and Gardens Real Estate Service is a national residential real
estate marketing service which licenses selected real estate firms to exclusive
territories. Members and affiliates (real estate companies affiliated with
larger member firms) totaled 698 in the United States and 10 in Canada on June
30, 1994. The primary sources of income for the Real Estate Service are
franchise fees (based on a percentage of each member's gross commission income
on residential housing sales) and the sale of marketing programs and materials
to member firms.
Until September 1991 the Real Estate Service also engaged in the relocation of
corporate employees through Better Homes and Gardens Family Relocation Service.
The Company sold the net assets of its relocation operation to PHH Homequity
Corporation in September 1991.
The Better Homes and Gardens trademark and service mark are very important to
the Company's real estate operation. Consumer real estate activity is usually
highest during the spring and summer months. The real estate business is
highly competitive and customer service remains vital to the success of this
segment. The Real Estate Service competes for members with other national real
estate franchise networks primarily on the bases of benefits provided to the
member and fees for membership.
- 11 -
Cable
The Company has a 70 percent indirect ownership in Meredith/New Heritage
Strategic Partners, L.P. ("Strategic Partners") through its wholly owned
subsidiary, Meredith Cable, Inc. Strategic Partners owns and operates two
cable television systems: a 23,000-subscriber system in Bismarck/Mandan, North
Dakota; and a 110,000-subscriber system in the Minneapolis/St. Paul, Minnesota,
area. The principal source of revenues for the cable operations is monthly
fees charged to subscribers for basic, tier and pay cable services. Income is
also received from advertising, pay-per-view and other subscriber services.
Nonexclusive franchises granted by local authorities are essential to the
operation of this segment. Franchise fees (generally five percent of operating
revenues) are paid to the local authorities. The franchise agreements
typically specify the type of cable system that must be constructed and cover
such matters as total channel capacity and access. Failure to comply with
local requirements may entitle the local authority to terminate the franchise.
Franchise agreements for Strategic Partners' systems extend from 1997 through
2013. Cable management believes that its operations are in compliance with the
terms of the franchise agreements in each of the municipalities in which it
offers cable television services.
Operations of cable television systems are also subject to federal regulation.
The Cable Communications Policy Act of 1984 ("1984 Act") established certain
uniform national regulatory guidelines and gave the federal government
exclusive jurisdiction over cable television. The 1984 Act also established
procedures and standards to protect a cable operator in the renewal of a cable
franchise; limited the amount of franchise fees paid to local franchising
authorities; granted authority to franchising authorities to establish
requirements in new franchises for the designation and use of certain access
channels; and codified certain of the FCC's current ownership regulations.
The Cable Television Consumer Protection and Competition Act of 1992 ("1992
Act") was enacted by Congress in October 1992. This Act amended the 1984 Act
primarily to provide increased consumer protection and to promote increased
competition in the cable television market. On April 1, 1993, the FCC adopted
comprehensive new federal standards for local regulation of cable rates in
accordance with the 1992 Act. Effective on September 1, 1993, the new rules
were designed to ensure that rates charged by a cable operator not subject to
effective competition were comparable to rates that would be charged if the
cable operator was subject to effective competition. These rate regulations
required cable systems operating above a benchmark average to reduce rates from
their September 30, 1992 level by approximately ten percent. On May 15, 1994,
additional rate regulations were enacted. Under these rules, regulated cable
systems were required to reduce rates by an additional seven percent from their
- 12 -
September 1992 levels, but not below the applicable benchmark. These rate
regulations have had a negative impact on the revenues and operating results of
Strategic Partners' cable television systems.
The 1992 Act also required cable systems, effective June 1993, to carry the
signals of local television stations, subject to limited exceptions. In
addition, if a commercial television station does not assert a right to
mandatory carriage on a cable system, the station's signal may not be carried
by the cable system without express retransmission consent from the
broadcaster.
Various challenges to certain provisions of the 1992 Act have been filed with
various courts. Of primary interest to the Company are the challenges to the
rate regulations. The Company cannot predict the outcome of these court cases
nor what impact any ruling could have on the cable operations of Strategic
Partners.
In addition to those noted, there are numerous other federal and local
regulations which pertain to the ownership and operations of cable television
systems.
The cable television systems compete with other media for viewers and
advertising dollars in their respective markets on bases of price, programming
quality and customer service. Changing technology may be expected to produce
or encourage additional competing systems for the delivery of entertainment and
information programming, including satellite dishes, direct broadcast
satellites and wireless cable systems. There is also the potential for
significant competition from telephone companies in all aspects of cable
television services.
In light of the cable industry changes discussed above, the Company is
considering its options in relation to its continued investment in cable
television systems. Strategic Partners has listed its cable television systems
for sale. While management of the Company believes this is the most likely
outcome, other alternatives are also being considered.
General
The Company did not have any material expenses for research and development
during any of the past three fiscal years.
There is no material effect on capital expenditures, earnings and the
competitive position of the Company regarding compliance with federal, state
and local provisions relating to the discharge of materials into the
environment and to the protection of the environment.
- 13 -
As of June 30, 1994, the Company employed 2,194 persons (including 299 in cable
operations).
Significant Revenue Categories
Years Ended June 30 1994 1993 1992
-------- -------- --------
($ in thousands)
Category:
Meredith Corporation
Net Revenues $799,526 $768,848 $706,662
Magazine Subscription and
Newsstand Net Revenues $257,453 $245,693 $235,734
% of Total Net Revenues 32.2% 32.0% 33.4%
Magazine Advertising
Net Revenues $236,814 $234,359 $227,494
% of Total Net Revenues 29.6% 30.5% 32.2%
Broadcast Advertising
Net Revenues $ 98,663 $100,116 $100,401
% of Total Net Revenues 12.3% 13.0% 14.2%
Consumer Book Net Revenues $ 86,040 $ 81,390 $ 80,452
% of Total Net Revenues 10.8% 10.6% 11.4%
- 14 -
Pursuant to General Instruction G(3), information regarding executive officers
required by Item 401(b) of Regulation S-K is included in Part I of this report.
Executive Officers of the Registrant (as of August 15, 1994)
Executive
Officer
Name Age Title Since
- - ------------------- --- ------------------------------------------ ---------
E. T. Meredith III 61 Chairman, Executive Committee of the Board 1968
Jack D. Rehm 61 Chairman of the Board and Chief Executive
Officer 1980
William T. Kerr 53 President and Chief Operating Officer 1991
Christopher M. Little 53 President - Magazine Group 1994
Philip A. Jones 50 President - Broadcast Group 1989
Allen L. Sabbag 50 President - Real Estate Group 1983
Joseph J. Ward 47 President - Book Group 1991
Larry D. Hartsook 51 Vice President - Finance 1991
Executive officers are elected to a one-year term of office each November. In
May 1994, Mr. Kerr and Mr. Little were elected to their current positions
effective July 1, 1994. All present executive officers, except Mr. Kerr, Mr.
Little and Mr. Ward, have been employed by the Company for at least five years.
Mr. Kerr served as President - Magazine Group and Executive Vice President of
the Company from September 1991 to June 30, 1994. Prior to joining the
Company, Mr. Kerr served as a vice president at The New York Times Company and
president of its magazine group from 1984 to 1991. Since joining the Company
in October 1992, Mr. Little served as a vice president and publishing director
for the Magazine Group. Prior to joining Meredith, Mr. Little had been
president of Cowles Magazines, Inc., since 1989. Mr. Ward served as publisher
and senior vice president of Time Life Books from 1989 to 1991. Mr. Meredith,
Mr. Rehm and Mr. Kerr are directors of the Company.
Item 2. Properties
The following is a summary description of all significant land and buildings
owned and leased by the Company and its subsidiaries. The description sets
forth the location, approximate square feet of the building area, acreage of
the land owned or expiration date of the lease, and principal activity carried
on at the location. All of the buildings are of steel, masonry and concrete
construction and are in generally good condition. All facilities are basically
fully utilized and provide adequate space currently for the operations at each
location. However, the Company plans to consolidate its New York City leased
locations and to begin construction of an office building adjacent to its Des
Moines headquarters in fiscal 1996 to provide more suitable facilities for its
operations.
- 15 -
Owned
Area
Location (Square Feet) Acreage Principal Activity
Des Moines, Iowa 354,500 9.0 Publishing and corporate
Des Moines, Iowa 15,000 0.4 Real estate
Des Moines, Iowa 90,000 0.5 Real estate and publishing
Phoenix, Arizona 43,000 4.0 Broadcast
Fairway, Kansas 58,000 3.2 Broadcast
Kansas City, Missouri 2,400 0.5 Broadcast tower site
Saginaw, Michigan 3,100 2.1 Broadcast tower site
Saginaw, Michigan 60,700 0.5 Broadcast
Orlando, Florida 38,000 5.0 Broadcast
Orlando, Florida 1,000 46.0 Broadcast tower site
Henderson-Las Vegas, Nevada 31,700 3.5 Broadcast
Henderson-Las Vegas, Nevada 1,500 0.2 Broadcast tower site
Leased
Area
Location (Square Feet) Expires Principal Activity
Des Moines, Iowa 47,400 6-30-96 Publishing
New York City, New York 59,600 12-31-95 Publishing and corporate
New York City, New York 40,400 3-15-96 Publishing
New York City, New York 17,000 12-31-95 Publishing
Chicago, Illinois 12,500 7-31-00 Publishing
Phoenix, Arizona 40,000 6-30-12 Broadcast tower site
Mandan, North Dakota 42,100 12-31-96 Cable
Bismarck, North Dakota 5,100 12-31-96 Cable
Roseville, Minnesota 41,000 8-31-98 Cable
Shoreview, Minnesota 2,000 3-31-98 Cable
Columbia Heights, Minnesota 3,500 4- 1-97 Cable
Anoka, Minnesota 8,900 11-14-97 Cable
Coon Rapids, Minnesota 1,800 2-28-94 Cable
White Bear Lake, Minnesota 15,200 4-30-98 Cable
Oakdale, Minnesota 3,500 4-30-98 Cable
Eagan, Minnesota 6,000 8-31-98 Cable
Blaine, Minnesota 6,600 11- 6-98 Cable
The Company or its subsidiaries lease sales office space in approximately 30
cities throughout the United States.
- 16 -
Item 3. Legal Proceedings
The Company received federal income tax deficiency notices relative to its 1986
through 1990 tax years. Generally, the claimed deficiencies related to the
amortization of intangibles and other matters connected with the acquisition of
Ladies' Home Journal magazine. The Company contested these deficiencies in the
United States Tax Court. On March 14, 1994, Meredith Corporation received a
favorable decision from the Tax Court.
The dominant issue, determined in favor of the Company, involved the tax basis
and ability to amortize the Ladies' Home Journal subscriber relationships. The
Tax Court applied the 1993 decision of the United States Supreme Court in
Newark Morning Ledger Co. v. United States to the facts of the Company's case.
The appeal period, with respect to the Tax Court's opinion, expired on
September 16, 1994 and the Company has no remaining exposure to the $12 million
potential tax cost previously reported. Approximately $12 million (post-tax
benefit, including interest), will be received by the Company as a result of
the favorable decision in this case. A portion of this judgment (that related
to current versus deferred tax benefits) will be recognized in the first
quarter of fiscal 1995.
The Company is involved in various litigations incidental to the ordinary
course of business. The outcomes of any such proceedings, individually or in
the aggregate are believed by the Company to not be material.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of stockholders since the last annual
meeting held on November 8, 1993.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal market for trading the Company's common stock is the New York
Stock Exchange. 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.
- 17 -
Stock Price Information:
The range of sale prices for the Company's common stock for the past two fiscal
years is presented below:
1994 1993
------------------------------------------------------
Quarter High Low High Low
------------------------------------------------------
First $36.750 $33.500 $28.125 $23.125
Second 43.500 36.125 27.625 21.875
Third 45.625 38.750 32.000 26.250
Fourth 44.250 41.625 36.000 29.625
On August 31, 1994, there were approximately 2,000 holders of record of the
Company's common stock and 1,600 holders of record of class B stock.
Stock of the Company became publicly traded in 1946, and quarterly dividends
have been paid continuously since 1947. Dividends of 16 cents per share of
common and class B stock were paid for the first two quarters of fiscal 1994,
and dividends of 18 cents per share of each class of common equity were paid
for the third and fourth quarters of fiscal 1994. It is anticipated that
comparable dividends will continue to be paid in the future. In fiscal 1993,
dividends of 16 cents per share of common and class B stock were paid in each
quarter.
- 18 -
Item 6. Selected Financial Data
(Dollar amounts in thousands except where noted)
For years ended June 30 1994 1993 1992 1991 1990
- - ----------------------- -------- -------- -------- -------- --------
Results of Operations
Net Revenues $799,526 $768,848 $706,662 $730,911 $719,489
======== ======== ======== ======== ========
Earnings (loss) from
continuing operations $ 27,154 $ 18,626 $ 969 $ 22,824 $ (1,367)
Discontinued operations,
net of tax - - - 60,302 (25,035)
Cumulative effect of
change in Accounting
Principle, net of tax - - (7,300) - -
-------- -------- -------- -------- --------
Net earnings (loss) $ 27,154 $ 18,626 $ (6,331) $ 83,126 $(26,402)
======== ======== ======== ======== ========
Per Share Amounts (in dollars)
Earnings (loss) from
continuing operations $1.91 $1.22 $ .06 $1.36 $(.08)
Earnings (loss) from
discontinued operations,
net of tax - - - 3.58 (1.35)
Cumulative effect of change
in Accounting Principle,
net of tax - - (.45) - -
----- ----- ----- ----- -----
Net earnings (loss) per
share $1.91 $1.22 $(.39) $4.94 ($1.43)
===== ===== ===== ===== =====
Cash dividends paid to
stockholders $ .68 $ .64 $ .64 $ .64 $ .64
===== ===== ===== ===== =====
Financial Position at June 30
Assets of discontinued
operations $ - $ - $ - $ - $114,734
======== ======== ======== ======== ========
Total assets $864,467 $900,768 $780,127 $768,152 $775,329
======== ======== ======== ======== ========
Long-term obligations
(incl. current
portion) $148,801 $150,368 $ 55,505 $ 24,910 $ 53,133
======== ======== ======== ======== ========
- 19 -
Includes non-recurring items of $5,584,000 for broadcast film write-downs,
$1,800,000 for taxes on disposed properties, or a total of $ .28 per
share (post-tax) and a pre-tax gain on the disposition of two television
stations of $11,997,000 or $ .57 per share (post-tax).
Includes non-recurring items of $12,983,000 for restructuring costs and
$13,400,000 for book inventory write-downs and other items, or a total of
$1.01 per share (post-tax).
Includes gains on dispositions of Sail magazine and Information/
Fulfillment Services of $9,677,000, or $ .35 per share (post-tax).
Includes non-recurring items of $27,302,000 for broadcast film
devaluation, $3,264,000 for book inventory write-downs and other items,
and $6,275,000 for litigation claims and other corporate non-operating
items, or a total of $1.23 per share (post-tax).
In fiscal 1990, the Company classified Meredith/Burda, MMT Sales, Inc.,
and its two owned real estate brokerages as discontinued operations.
Includes a post-tax gain on the disposition of printing operations of
$49,305,000 and income tax credits of $8,280,000 on the 1990 dispositions.
Includes a provision of $31,061,000 for a loss on the dispositions of two
real estate brokerage firms and MMT Sales, Inc., net of then available tax
benefits.
Reflects the adoption of SFAS No. 106, "Employers' Accounting for Post-
retirement Benefits Other Than Pensions."
Per share amounts are computed on the weighted average number of common
shares outstanding for the year.
Includes film rental contracts and since 1993, non-recourse bank debt of
the cable partnership.
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-30 through F-42
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-2 through F-28
and is incorporated herein by reference.
- 20 -
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 14,
1994, under the caption "Election of Directors" and in Part I of this Form 10-K
on page 15 under the caption "Executive Officers of the Registrant" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 14,
1994, under the captions "Compensation of Executive Officers" and "Retirement
Programs and Employment Agreements" and in the last paragraph under the caption
"Board Committees" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 14,
1994, under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
There are no reportable relationships or transactions.
- 21 -
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following consolidated financial statements listed under (a) 1. and finan-
cial statement schedules listed under (a) 2. of the Company and its subsid-
iaries 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, 1994 and 1993
Consolidated Statements of Earnings for the years ended
June 30, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended
June 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. Financial Statement Schedules as of or for each of the three
years ended June 30, 1994:
Schedule III - Condensed Financial Information
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-term Borrowings
Schedule X - Supplementary Income Statement Information
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.
- 22 -
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits - (See index to attached exhibits on page E-1 of this Form
10-K.)
( 3) Articles of incorporation and bylaws
a.) The Company's Restated Articles of Incorporation are incorpo-
rated herein by reference to Form 10-Q for the quarter ending
December 31, 1988.
b.) The Restated Bylaws, effective July 1, 1994 are attached as
Exhibit 3 in this Form 10-K for the fiscal year ended
June 30, 1994.
(10) Material contracts
a.) Meredith Corporation Deferred Compensation Plan, dated as of
November 8, 1993 is incorporated herein by reference to Form
10-Q for the quarter ending December 31, 1993.
b.) Meredith Corporation 1993 Stock Option Plan for Non-Employee
Directors is incorporated herein by reference to the Proxy
Statement for the Annual Meeting of Shareholders on November 8,
1993.
c.) Two 1992 Meredith Corporation Stock Incentive Plan Agreements
between the Company and Jack D. Rehm are incorporated herein by
reference to Form 10-Q for the quarter ending September 30,
1992.
d.) Two Meredith Corporation Restricted Stock Agreements between
the Company and Jack D. Rehm are incorporated herein by
reference to Form 10-Q for the quarter ending September 30,
1992.
e.) Stock Purchase Agreement dated as of February 11, 1992, regard-
ing North Central Cable Communications Corporation is incorpo-
rated herein by reference to Form 8-K dated September 1, 1992.
f.) 1992 Meredith Corporation Stock Incentive Plan dated as of
August 12, 1992 is incorporated herein by reference to Form
10-K for the fiscal year ended June 30, 1992.
- 23 -
g.) Employment contract by and between Meredith Corporation and
Jack D. Rehm as of July 1, 1992, is incorporated herein by
reference to Form 10-K for the fiscal year ended June 30, 1992.
h.) Meredith/New Heritage Partnership Agreement is incorporated
herein by reference to Form 10-Q for the quarter ending
September 30, 1991.
i.) Employment Agreement between the Company and William T. Kerr is
incorporated herein by reference to Form 10-Q for the quarter
ending September 30, 1991.
j.) Meredith Corporation 1980 Long Term Incentive Plan as amended
is incorporated herein by reference to Form 10-K for the fiscal
year ending June 30, 1991.
k.) Meredith Corporation 1990 Restricted Stock Plan for Non-Employee
Directors is incorporated herein by reference to the Proxy
Statement for the Annual Meeting of Shareholders on November 12,
1990.
l.) Indemnification Agreement in the form entered into between the
Company and its Officers and Directors is incorporated herein by
reference to Form 10-Q for the quarter ending December 31, 1988.
m.) Employment Contract between the Company and Robert A. Burnett,
Retired Chairman of the Board of the Company is incorporated
herein by reference to Form 10-K for the fiscal year ending
June 30, 1988. (Amended on November 11, 1991 and amendment is
incorporated herein by reference to Form 10-Q for the quarter
ended December 31, 1991.)
n.) Meredith Corporation 1986 Restricted Stock Award Plan is
incorporated herein by reference to the Proxy Statement for the
Annual Meeting of Shareholders on November 10, 1986.
o.) Severance Agreement in the form entered into between the Company
and its Officers is incorporated herein by reference to Form
10-K for the fiscal year ending June 30, 1986.
(11) Statement re computation of per share earnings
(21) Subsidiaries of the registrant
(23) Consent of independent auditors
(27) Financial Data Schedule
- 24 -
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
Company's fiscal year.
- 25 -
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/ Thomas L. Slaughter
------------------------------------
Thomas L. Slaughter, 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/ Larry D. Hartsook /s/ Jack D. Rehm
- - --------------------------------- ------------------------------
Larry D. Hartsook Jack D. Rehm, Chairman, Chief
Vice President-Finance (Principal Executive Officer and Director
Accounting and Financial Officer) (Principal Executive Officer)
/s/ E. T. Meredith III /s/ William T. Kerr
- - --------------------------------- ------------------------------
E. T. Meredith III William T. Kerr
Chairman of the Executive President, Chief Operating
Committee and Director Officer and Director
/s/ Herbert M. Baum /s/ Robert A. Burnett
- - --------------------------------- ------------------------------
Herbert M. Baum, Director Robert A. Burnett, Director
/s/ Pierson M. Grieve /s/ Frederick B. Henry
- - --------------------------------- ------------------------------
Pierson M. Grieve, Director Frederick B. Henry, Director
/s/ Robert E. Lee /s/ Richard S. Levitt
- - --------------------------------- ------------------------------
Robert E. Lee, Director Richard S. Levitt, Director
/s/ Nicholas L. Reding /s/ Gerald D. Thornton
- - --------------------------------- ------------------------------
Nicholas L. Reding, Director Gerald D. Thornton, Director
/s/ Barbara S. Uehling
---------------------------------
Barbara S. Uehling, Director
Each of the above signatures is affixed as of September 22, 1994.
Index to Consolidated Financial Statements, Financial
Schedules and Other Financial Information
Page
----
Consolidated Financial Statements:
Balance Sheets F-2
Statements of Earnings F-4
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes (including supplementary data) F-9
Independent Auditors' Report F-28
Report of Management F-29
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-30
Financial Statement Schedules:
Schedule III - Condensed Financial Information F-43
Schedule VIII - Valuation and Qualifying Accounts F-49
Schedule IX - Short-term Borrowings F-51
Schedule X - Supplementary Income Statement Information F-52
F-1
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets
Assets June 30 1994 1993
- - -------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents (Note 5) $ 37,957 $ 18,569
Marketable securities (Notes 1 and 2) 12,178 21,422
Accounts receivable 93,325 92,168
Less allowances for doubtful accounts and returns (17,469) (16,407)
--------- ---------
Net receivables 75,856 75,761
Inventories (Note 3) 34,962 32,383
Supplies and prepayments 18,509 18,206
Subscription acquisition costs 111,567 105,342
Film rental costs (Note 7) 7,239 15,750
--------- ---------
Total Current Assets 298,268 287,433
Property, Plant and Equipment (at cost) (Note 4) 231,158 238,679
Less accumulated depreciation (106,503) (107,792)
--------- ---------
Net Property, Plant and Equipment 124,655 130,887
Deferred Film Rental Costs (Note 7) 3,874 12,073
Deferred Subscription Acquisition Costs 70,108 77,091
Other Assets 24,562 23,607
Goodwill and Other Intangibles (Notes 10 and 11)
(at original cost less accumulated amortization
of $68,042,000 in 1994 and $53,748,000 in 1993) 343,000 369,677
--------- ---------
Total Assets $ 864,467 $ 900,768
========= =========
See accompanying Notes to Consolidated Financial Statements.
F-2
Meredith Corporation and Subsidiaries
Consolidated Balance Sheets - Continued
Liabilities and Stockholders' Equity June 30 1994 1993
- - -------------------------------------------------------------------------------
Current Liabilities: (in thousands)
Current portion of long-term debt (Notes 2 and 5) $ 11,178 2,556
Current portion of long-term film (Notes 2 and 12) 6,683 10,229
Accounts payable 35,984 43,368
Accruals:
Taxes, including taxes on income (Note 8) 2,611 1,090
Salaries and wages 18,083 18,574
Pension (Note 9) 3,000 8,186
Other 31,328 28,096
--------- ---------
Total accruals 55,022 55,946
Unearned subscription revenues 152,952 148,556
Deferred income taxes (Note 8) 18,560 21,819
--------- ---------
Total Current Liabilities 280,379 282,474
Long-Term Indebtedness (Notes 2 and 5) 126,822 131,945
Long-Term Film Rental Contracts (Notes 2 and 12) 4,118 5,638
Unearned Subscription Revenues 95,407 102,107
Deferred Income Taxes (Note 8) 37,011 30,472
Other Deferred Items (Note 9) 24,966 23,876
--------- ---------
Total Liabilities 586,703 576,512
--------- ---------
Minority Interests (Note 10) 38,003 40,160
Stockholders' Equity (Note 6): --------- ---------
Series Preferred Stock, par value $1 per share
Authorized 5,000,000 shares; none issued. -- --
Common Stock, par value $1 per share. Authorized
50,000,000 shares; issued and outstanding: 1994 -
10,119,165, 1993 - 11,129,726 (excluding 1994 -
5,763,328 and 1993 - 4,645,420 shares held in treasury) 10,119 11,130
Class B Stock, par value $1 per share, convertible
to Common Stock. Authorized,issued and outstanding
3,601,932 shares in 1994 and 3,703,519 shares in 1993 3,602 3,704
Retained earnings 246,917 272,090
Unearned compensation (2,877) (2,828)
--------- ---------
Total Stockholders' Equity 257,761 284,096
--------- ---------
Commitments and Contingent Liabilities (Note 12) -- --
Total Liabilities and Stockholders' Equity $ 864,467 $ 900,768
========= =========
See accompanying Notes to Consolidated Financial Statements.
F-3
PAGE>
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings
Years ended June 30 1994 1993 1992
- - -------------------------------------------------------------------------------
($ in thousands, except per share)
Revenues (less returns and allowances):
Advertising $ 335,477 $ 334,475 $ 327,895
Circulation 257,453 245,693 235,734
Consumer books 86,040 81,390 80,452
All other 120,556 107,290 62,581
--------- --------- ---------
Total Revenues 799,526 768,848 706,662
--------- --------- ---------
Operating Costs and Expenses:
Production, distribution and editorial 326,727 320,501 322,891
Selling, general and administrative 381,522 375,045 343,615
Depreciation and amortization
(Notes 4 and 10) 34,256 32,393 17,545
Non-recurring items (Note 7) 7,384 -- 26,383
--------- --------- ---------
Total Operating Costs and Expenses 749,889 727,939 710,434
--------- --------- ---------
Income (Loss) from Operations 49,637 40,909 (3,772)
Gain on sale of broadcast stations
(Note 11) 11,997 -- --
Interest income 1,991 2,141 6,339
Interest expense (Note 5) (11,624) (9,925) (727)
Minority interests (Note 10) 2,232 1,219 (11)
--------- --------- ---------
Earnings before Income Taxes and
Cumulative Effect of Change in
Accounting Principle 54,233 34,344 1,829
Income taxes (Note 8) 27,079 15,718 860
--------- --------- ---------
Earnings before Cumulative Effect of
Change in Accounting Principle 27,154 18,626 969
Cumulative Effect of Change in
Accounting Principle SFAS No. 106, net
of tax benefit of $4,475 (Note 9) -- -- (7,300)
--------- --------- ---------
Net Earnings (Loss) $ 27,154 $ 18,626 $ (6,331)
========= ========= =========
F-4
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings - Continued
Years ended June 30 1994 1993 1992
- - -------------------------------------------------------------------------------
($ in thousands, except per share)
Net Earnings (Loss) per Share of Common Stock:
Earnings before Cumulative Effect of
Change in Accounting Principle $ 1.91 $ 1.22 $ 0.06
Cumulative Effect of Change in
Accounting Principle SFAS No. 106 (Note 9) -- -- (0.45)
--------- --------- ---------
Net Earnings (Loss) Per Share $ 1.91 $ 1.22 $ (0.39)
========= ========= =========
Average Shares Outstanding 14,182,000 15,266,000 16,141,000
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-5
Meredith Corporation and Subsidiaries
Consolidated Statements of Stockholders Equity
Years ended June 30 1994 1993 1992
- - -------------------------------------------------------------------------------
(in thousands)
Series Preferred Stock $ -- $ -- $ --
--------- --------- ---------
Common Stock (Note 6):
Beginning of year 11,130 11,911 12,673
Shares acquired, net of shares issued (1,116) (912) (940)
Shares converted from class B stock 105 131 178
--------- --------- ---------
End of year 10,119 11,130 11,911
Class B Stock (Note 6): --------- --------- ---------
Beginning of year 3,704 3,830 4,003
Shares distributed during year 3 5 5
Shares converted to common stock (105) (131) (178)
--------- --------- ---------
End of year 3,602 3,704 3,830
Additional Paid-in Capital (Note 6): --------- --------- ---------
Beginning of year -- -- --
Cost over par value of shares acquired (1,508) (2,011) (1,469)
Restricted stock awards, excess over par 1,508 2,011 1,469
--------- --------- ---------
End of year -- -- --
Retained Earnings (Note 6): --------- --------- ---------
Beginning of year 272,090 287,729 328,009
Net earnings (loss) 27,154 18,626 (6,331)
Dividends paid - 68 cents per share
(64 cents in 1993 and 1992)
Common stock (2,483) (2,407) (2,506)
Cost over par value of shares acquired (42,650) (24,482) (23,610)
--------- --------- ---------
End of year 246,917 272,090 287,729
Unearned Compensation (Note 6): --------- --------- ---------
Beginning of year (2,828) (2,307) (2,000)
Restricted stock awarded (1,277) (1,490) (1,746)
Amortized to operations 1,228 969 1,439
--------- --------- ---------
End of year (2,877) (2,828) (2,307)
Total Stockholders' Equity --------- --------- ---------
$ 257,761 $ 284,096 $ 301,163
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
F-6
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended June 30 1994 1993 1992
- - -------------------------------------------------------------------------------
Cash Flows from Operating Activities: (in thousands)
Earnings before change in accounting $ 27,154 $ 18,626 $ 969
principle
Less cumulative effect of change in
accounting principle (Note 9) -- -- (7,300)
--------- --------- ---------
27,154 18,626 (6,331)
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and amortization 34,256 32,393 17,545
Amortization of film contract rights 22,274 26,908 28,531
Deferred income taxes 3,717 4,936 1,020
Non-recurring items, net of taxes
(Note 7) 3,987 -- 16,357
(Increase) decrease in receivables (3,711) 565 1,674
(Increase) decrease in inventories (2,579) (6,234) 6,865
(Increase) decrease in prepayments (392) 1,855 (3,704)
(Decrease) in payables and accruals (10,560) (112) (17,909)
Decrease (increase) in subscription
acquisition costs 758 4,432 (13,028)
(Reductions) additions to unearned
subscription revenues (2,304) (3,514) 18,823
(Reductions) additions to other deferred
items (529) (9,469) 15,987
Gain on sale of broadcast stations,
net of taxes (Note 11) (8,197) -- --
--------- --------- ---------
Net cash provided by operating activities 63,874 70,386 65,830
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in cable partnership,
less cash acquired (Note 10) -- (32,740) (56,562)
Redemption (purchase) of marketable
securities 9,244 20,448 (18,237)
Proceeds from the sale of net assets
(Note 11) 33,000 -- 26,385
(Additions) to property, plant,
and equipment (20,773) (16,083) (6,699)
(Additions) to other assets (1,332) (10,178) (11,117)
--------- --------- ---------
Net cash provided (used) by investing
activities 20,139 (38,553) (66,230)
--------- --------- ---------
F-7
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Continued
Years Ended June 30 1994 1993 1992
- - -------------------------------------------------------------------------------
(in thousands)
Cash Flows from Financing Activities:
Long-term indebtedness incurred (retired) 3,499 (4,164) (245)
Payments for film rental contracts (14,633) (15,742) (26,348)
Proceeds from common stock issued
during the period 3,048 3,093 2,031
Purchase of company shares (Note 6) (46,862) (29,001) (26,883)
Dividends paid (9,677) (9,783) (10,339)
--------- --------- ---------
Net cash (used) by financing activities (64,625) (55,597) (61,784)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 19,388 (23,764) (62,184)
Cash and cash equivalents at beginning
of year 18,569 42,333 104,517
--------- --------- ---------
Cash and cash equivalents at end of year $ 37,957 $ 18,569 $ 42,333
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year
Interest $ 11,100 $ 7,943 $ 395
Income taxes $ 17,085 $ 8,326 $ 12,300
Non-cash transactions
Film rental costs financed by
contracts payable $ 9,567 $ 14,104 $ 19,188
Cable investment financed by
long-term obligation $ -- $ -- $ 38,000
Supplemental Schedule of Non-cash Investing and Financing Activities:
Per Note 10, North Central was purchased in fiscal 1993 for approximately
$220 million by Strategic Partners, in which the Company has a 70 percent
indirect ownership interest. Significant non-cash investing and financing
activities reflected in the Consolidated Financial Statements for the fiscal
year ended June 30, 1993, included ($ in millions) the acquisition of
intangible assets of ($171) and net property, plant and equipment of ($61) by
incurring long-term debt of $139, minority interest of $42, contributing a
portion of the North Dakota system of $12 and assuming net liabilities of $6.
See accompanying Notes to Consolidated Financial Statements.
F-8
Meredith Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Accounting Policies
a. Principles of Consolidation
The consolidated financial statements include the accounts of Meredith
Corporation and its majority-owned subsidiaries (the Company). All significant
intercompany transactions have been eliminated. The Company's investments in
companies 20 to 50 percent owned are accounted for under the equity method. In
fiscal 1993, the Company acquired an indirect ownership interest of 70 percent
in a Minnesota cable television system. The financial statements of that cable
television system are consolidated with the Company's financial statements for
fiscal 1994 and 1993.
b. Cash and Cash Equivalents
For purposes of reporting cash flows, 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.
c. Marketable Securities
Marketable securities are carried at net amortized cost. These securities
consisted of municipal bonds, commercial paper and other short-term investments
with market values of $12,169,000 at June 30, 1994, and $21,431,000 at June 30,
1993.
d. Inventories
Inventories of paper are stated at cost, determined using the last-in, first-
out (LIFO) method, which is not in excess of market. All other inventories are
stated at the lower of cost (first-in, first-out or average) or market.
e. Property, Plant and Equipment
Depreciation expense is provided primarily on the straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance, repairs
and minor replacements are charged to operations, and expenditures for major
replacements and betterments (including labor and construction costs) are added
to the property, plant and equipment accounts. The cost and accumulated
depreciation of property, plant and equipment retired or sold are eliminated
from the property accounts at the time of retirement or sale and the resulting
gain or loss is recorded in income.
F-9
f. Unearned Subscription Revenues and Subscription Acquisition Costs
Unearned subscription revenues and subscription acquisition costs are recorded
and recognized pro rata as delivery of magazines is made, beginning with the
month of initial delivery. The balance sheet classifications of both unearned
subscription revenues and subscription acquisition costs are determined based
on the delivery month of the subscription.
g. Film Rental Costs
Film rental costs reflect the value of all programming available for showing
and are stated at the lower of cost or estimated net realizable value. Film
rental costs are charged to operations on an accelerated amortization basis
over the contract period. The cost of broadcast film rental estimated to be
charged to operations during the next fiscal year is classified as a current
asset.
h. Income Taxes
On July 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the asset and
liability method prescribed by SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are required to be measured using the tax rate expected to be in
effect when the taxes are actually paid or recovered. Thus, in fiscal 1994,
income tax expense reflected the effect of the change in tax rates on deferred
tax assets and liabilities. The Company previously used the asset and
liability method under SFAS No. 96, "Accounting for Income Taxes". The effect
of the adoption of SFAS No. 109 was not material to the financial statements.
i. Goodwill and Other Intangibles
Goodwill and other intangibles occurred in the acquisition of certain
businesses. In the opinion of management, there has been no material decline
to date in the value of such intangibles and recorded goodwill does not exceed
the undiscounted future cash flows of the underlying investment. In accordance
with Opinion 17 of the Accounting Principles Board, intangibles arising in
connection with acquisitions after October 31, 1970, are being amortized by the
straight-line method over a period not exceeding 40 years. Non-competition
agreements and programming rights purchased in conjunction with the Minnesota
cable acquisition are being amortized using the straight-line method over
periods of five years and eight years, respectively. Amortization of
programming rights is included in production, distribution and editorial costs.
F-10
j. Revenues
Advertising revenues are recognized when ads are published or aired. In
accordance with industry practice, certain products are sold to customers with
the right to return unsold items. Revenues from such sales represent gross
sales less a provision for future returns. Sales of books and certain other
products that are sold with a right of return are recorded less a provision for
returns at the time of shipment.
k. Computation of Earnings (Loss) Per Share
Earnings (loss) per share of common stock has been computed by dividing the
weighted average number of shares of common stock and class B stock outstanding
during each year into applicable earnings or loss. The dilutive effect of
stock options issued was immaterial.
l. Other
In May 1993, SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," was issued. The Company adopted SFAS No. 115 (on a
prospective basis) on July 1, 1994, as required. It is not expected to have a
material impact on the Company's fiscal 1995 financial statements.
In December 1993, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
No. 93-7, "Reporting on Advertising Costs." Management believes that the
Company's current accounting policies are materially in compliance with the
requirements of SOP No. 93-7.
Certain prior-year financial information has been restated to conform to the
fiscal 1994 financial statement presentation.
2.Disclosures About the Fair Value of Financial Instruments
a. Marketable Securities
The fair value of marketable securities, consisting primarily of municipal
bonds, was approximately $12,200,000 at June 30, 1994 ($21,400,000 at June 30,
1993). The fair value of marketable securities was determined based on quoted
market prices, where available, or through a bond pricing matrix, using
securities with similar yields and maturities.
F-11
b. Film Rental Contracts Payable
The amount reflected as film rental contracts payable represents future
payments to be made under film program contract agreements. The fair value of
film rights payable is the present value of future payments which was
approximately $10,300,000 at June 30, 1994 ($15,200,000 at June 30, 1993). In
addition, film rental contracts payable that do not appear on the Consolidated
Balance Sheets due to their unavailability (see Note 12), had fair values of
$17,500,000 and $18,500,000 at June 30, 1994 and 1993, respectively.
c. Long-Term Indebtedness
The fair value of long-term debt incurred by Meredith/New Heritage Strategic
Partners, L.P., ("Strategic Partners") was determined by discounting cash flows
through maturity using rates currently available to the partnership for
borrowing and swap agreements with similar terms and maturities. That value
was approximately $140,000,000 at June 30, 1994 ($141,000,000 at June 30,
1993).
d. Other
The carrying amounts reported on the Consolidated Balance Sheets at June 30,
1994 and 1993, for all other assets and liabilities (and all other liabilities
not appearing on the Consolidated Balance Sheets per Note 12) subject to SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments," approximate
their respective fair values. 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.
3. Inventories
Major components of inventories follow. Of total inventory values shown,
approximate portions determined using the LIFO method were: 1994 - 32 percent,
1993 - 42 percent, 1992 - 29 percent, 1991 - 19 percent. The decline in
finished goods and raw materials in 1992 from 1991 is primarily related to the
downsizing and repositioning of the Book Group's direct mail operations. Due
to the sale of the Real Estate relocation operation in fiscal 1992, there was
no house inventory at June 30, 1992 or later years.
F-12
A comparative summary of inventories follows:
June 30 1994 1993 1992 1991
- - -------- ------- ------- ------- -------
(in thousands)
Raw materials..................... $15,366 $17,894 $11,192 $16,502
Work in process................... 13,132 11,793 10,762 10,627
Finished goods.................... 15,086 11,978 13,117 23,763
House inventory................... -- -- -- 14,178
------- ------- ------- -------
43,584 41,665 35,071 65,070
Reserve for LIFO cost valuation... (8,622) (9,282) ( 8,922) (10,378)
------- ------- ------- -------
Total.......................... $34,962 $32,383 $26,149 $54,692
======= ======= ======= =======
4. Property, Plant and Equipment
A comparative summary of property, plant and equipment follows:
June 30 1994 1993 1992
- - -------- -------- -------- --------
(in thousands)
Land and improvements ................... $ 4,897 $ 6,239 $ 5,835
Buildings and improvements .............. 49,038 53,473 51,861
Machinery and equipment.................. 82,633 95,604 92,166
Cable distribution system ............... 87,063 76,116 9,167
Leasehold improvements................... 4,517 4,741 4,748
Construction in progress................. 3,010 2,506 746
-------- -------- --------
Total (at cost)........................ 231,158 238,679 164,523
Less accumulated depreciation............ (106,503) (107,792) (95,094)
-------- -------- --------
Net property, plant and equipment...... $124,655 $130,887 $ 69,429
======== ======== ========
Depreciation expense for the year........ $ 18,137 $ 16,014 $ 10,718
======== ======== ========
For each classification of property, plant and equipment, depreciable lives are
as follows:
Depreciable Life
----------------
Buildings and improvements............... 5 to 45 years
Machinery and equipment.................. 3 to 20 years
Cable distribution system................ 5 to 15 years
Leasehold improvements................... 4 to 15 years
F-13
5. Long-Term Indebtedness and Restricted Assets
Long-term debt was incurred by Strategic Partners in connection with the
purchase of North Central Cable Communications Corporation on September 1,
1992. As of June 30, 1994, $138 million was owed under the loan agreement
Strategic Partners has with 10 banks. This debt is non-recourse to Meredith
Corporation. This loan converted to a term loan on June 30, 1994, and is
payable in quarterly installments, beginning on September 30, 1994, in
percentages ranging from 1.9 to 5.5 percent of the borrowings outstanding at
June 30, 1994, with the final payment due March 31, 2001. The borrowings are
secured by an interest in the assets of Strategic Partners. The total assets
subject to lien were approximately $275 million at June 30, 1994. Interest is
payable at rates based on prime, Eurodollar or certificate of deposit rates.
At June 30, 1994, borrowings of approximately $48 million bear interest at
rates ranging from 5.81 to 6.56 percent under interest rate agreements expiring
between July and December 1994. The remaining debt of $90 million bears
interest at rates of 8.55 percent for $80 million and 8.68 percent for $10
million under interest rate swap agreements expiring in September 1995. The
weighted average rate of interest on the total debt outstanding at June 30,
1994, was 7.78 percent. The aggregate annual maturities of long-term debt at
June 30, 1994, are as follows:
Years Ended June 30
--------------------------------------------------
(in thousands)
1995............................... $ 11,178
1996............................... 14,904
1997............................... 20,424
1998............................... 20,631
1999............................... 19,251
Later years........................ 51,612
--------
Total........................... $138,000
========
This loan agreement has provisions that restrict additional debt and
investments and requires Strategic Partners to meet certain operating and
financial tests. Strategic Partners is prohibited by this loan agreement from
making dividend payments or any distributions to the partners except for
specified payments under certain conditions that would not cause a default
under the loan agreement. The restricted net assets of Strategic Partners
included in the Company's Consolidated Balance Sheet at June 30, 1994 were
approximately $91 million. The cash balance reflected in that amount was
approximately $6 million.
F-14
The operating cash flows of Strategic Partners may not provide sufficient funds
to allow them to meet the payment terms of the loan agreements without the sale
of part or all of its cable television systems or an amendment to the loan
agreement amortization schedule. (Strategic Partners is currently exploring
the disposition of its cable television systems.) Under the terms of the loan
agreement, the proceeds from any sale of cable television assets must be
applied to reduce outstanding borrowings. The first payment is due September
30, 1994. Although a formal request has not been made, the lenders have
indicated they would support a request to extend the amortization period or to
postpone future scheduled payments in light of Strategic Partners' efforts to
sell its assets in part or in whole. Strategic Partners' management intends
and believes it will be able to execute an amendment to the loan agreement to
modify the amortization schedule.
At June 30, 1994, Meredith Corporation had three unused committed lines of
credit totaling $23 million. Termination dates for these lines of credit are
June 30, 1998, for $20 million and December 31, 1994, for $3 million.
Commitment fees paid in fiscal 1994 were not material.
6. Common Stock, Stock Awards and Stock Options
Under the Company's Savings and Investment Plan [401(k)], 36,899 common shares
were issued during the year at market prices totaling $1,436,000 (50,667 shares
totaling $1,343,000 in 1993 and 62,828 shares totaling $1,642,000 in 1992). A
total of 4,260,000 shares has been reserved for the Plan, of which 3,935,644
were issued at June 30, 1994.
The Company has two plans under which eligible employees may receive restricted
stock awards. It also has a restricted stock plan for non-employee directors.
These plans have various restriction periods tied to employment or service.
Common shares awarded and annual expense under these plans are as follows:
Years Ended June 30 1994 1993 1992
- - -------------------- ------- ------- ------
Awards................................... 33,793 66,817 65,410
Annual expense........................... $1,228,000 $969,000 $1,439,000
Non-qualified stock options for shares of the Company's common stock are also
granted to eligible employees under a Company plan adopted in fiscal 1993.
These options are subject to exercise vesting restrictions that lapse for one-
third of each award granted on each of the following three annual anniversary
dates. Exercise rights expire 10 years after options are issued. The Company
also has a non-qualified stock option plan for non-employee directors, adopted
F-15
in fiscal 1994. Each director is granted options for 1,000 shares of common
stock annually. These options vest 40, 30 and 30 percent in each successive
year. No options can be issued under this plan after July 31, 2003, and
exercise rights expire after the end of each director's service. As of June
30, 1994:
Options
Options(a) Options Options Able to Be Exercise
Award Date Awarded Vested Exercised Exercised Price
- - ---------------- --------- ------- --------- ---------- --------
August 12, 1992 197,200 66,400 (2,500)(b) 63,900 $26.44
August 12, 1992 75,000 25,000 -- 25,000 $33.05
August 10, 1993 139,500 -- -- -- $34.13
November 9, 1993 8,000 -- -- -- $40.88
------- ------ ------ ------
Total 419,700 91,400 (2,500) 88,900
======= ====== ====== ======
(a) Net of 6,600 options forfeited.
(b) 2,500 shares were exercised in fiscal 1994 at market prices ranging from
$34.13 to $41.75.
The maximum number of shares reserved for use in all Company restricted stock
and stock incentive plans totals 1,775,000. The total number of restricted
stock shares and stock options awarded under these plans at June 30, 1994, was
876,815.
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 however, it 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 to and
issued as common stock to the transferee. Holders of Class B stock receive
equal dividends per share as holders of common stock.
During fiscal 1994, the Company repurchased 1,192,000 shares of common stock at
a cost of $46,862,000 under authorizations by its Board of Directors (1,050,000
shares repurchased in fiscal 1993 for $29,001,000 and 1,032,000 shares
repurchased in fiscal 1992 for $26,883,000).
7. Non-recurring Items
In the second quarter of fiscal 1994, a non-recurring pre-tax charge of $4.8
million was recorded to establish a reserve for taxes on disposed properties.
In the fourth quarter of fiscal 1994, $3 million of this reserve was reversed,
based on the resolution of a reserved assessment at no tax cost to the Company.
F-16
Also in the fiscal 1994 fourth quarter, a pre-tax charge of $5,584,000 was
recorded for the write-down of film assets at the Phoenix television station
(KPHO) due to its affiliation agreement with CBS.
In the fourth quarter of fiscal 1992, non-recurring items of $26,383,000 (pre-
tax) were charged to operations. These items included $12,983,000 in
restructuring charges related to the Company's special voluntary early
retirement program and selective job eliminations; a $10 million Book Group
write-down of obsolete and excess inventory and unrecoverable deferred
promotion costs due to repositioning and downsizing its direct mail operations;
and $3.4 million for other corporate charges.
8. Income Taxes
On July 1, 1993, the Company adopted SFAS No. 109, "Accounting For Income
Taxes." (The Company previously complied with the provisions of SFAS No. 96.)
The effect of the adoption of SFAS No. 109 was not material to the financial
statements. Therefore, the prior period's financial statements have not been
restated.
The Omnibus Budget Reconciliation Act of 1993, enacted in the first quarter of
fiscal 1994, raised the basic corporate federal income tax rate from 34 percent
to 35 percent. The effect of the increase on the Company's financial
statements for fiscal 1994 was $1,895,000 ($1,238,000 expense for the increase
in net deferred tax liabilities, $118,000 expense due to an additional
provision required for six months of fiscal 1993 and $539,000 additional
expense for fiscal 1994).
Components of income tax expense are as follows:
Years Ended June 30 1994 1993 1992
- - -------------------- ------- ------- -------
Currently payable: (in thousands)
Federal................................ $20,368 $ 8,577 $ 4,124
State.................................. 3,431 2,205 1,254
------- ------- -------
23,799 10,782 5,378
------- ------- -------
Deferred:
Federal................................ $ 2,650 $ 3,978 $(3,766)
State.................................. 630 958 (752)
------- ------- -------
3,280 4,936 (4,518)
------- ------- -------
Total............................... $27,079 $15,718 $ 860
======= ======= =======
F-17
The tax effects of temporary differences that gave rise to the deferred income
tax assets and liabilities are as follows:
June 30 1994 1993
-------- ------- -------
Deferred tax assets: (in thousands)
Allowances for doubtful accounts $ 7,398 $ 6,879
Publishing return reserves 3,143 3,940
Reserve for postretirement benefits,
other than pensions 5,710 5,257
Other accrued liabilities 8,374 7,800
All other assets 12,836 14,261
------- -------
Total deferred tax assets $37,461 $38,137
------- -------
Deferred tax liabilities:
Subscription acquisition costs $61,977 $60,037
Accumulated depreciation 6,314 8,327
Accumulated trademark amortization 5,634 5,667
Gains on sale of assets 8,484 3,482
Book deferred promotion expenses 3,738 2,402
All other liabilities 6,885 10,513
------- -------
Total deferred tax liabilities $93,032 $90,428
------- -------
Net deferred tax liability $55,571 $52,291
======= =======
No valuation allowance has been recorded for deferred tax assets as management
believes it is more likely than not that those assets will be realized.
The differences between the effective tax rates and the basic U.S. federal
income tax rate are as follows:
Years Ended June 30 1994 1993 1992
- - -------------------- ------ ------ ------
Expected income tax (basic rate) ............ 35.0% 34.0% 34.0%
Impact of basic rate increase................ 2.5 -- --
State income taxes,
less federal income tax benefits............ 4.9 6.1 18.1
Goodwill amortization........................ 3.2 5.2 58.1
Tax-exempt interest.......................... (0.4) (0.9) (62.4)
Non-deductible equity loss - cable operations 3.5 2.9 --
Sale of television properties................ (1.8) -- --
Other........................................ 3.0 (1.5) (0.8)
----- ----- -----
Effective income tax rate ................. 49.9% 45.8% 47.0%
===== ===== =====
F-18
9. Pension Plans and Postretirement Benefits
Pension Plans
- - -------------
The Company has noncontributory pension plans covering substantially all
employees. The Company's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only benefits attributed to service to date but also
for those expected to be earned in the future. Assets held in the plans are a
mix of equity and debt securities. Benefits for non-bargained plans are
determined based on length of service and compensation rates at retirement.
For bargained plans, benefits are determined based on negotiated accruals.
Net periodic pension cost includes the following components:
Years Ended June 30 1994 1993 1992
- - -------------------- ------ ------ ------
(in thousands)
Service cost - benefits earned during
the period.................................. $3,033 $2,988 $2,903
Interest cost on projected benefit obligation. 3,854 3,973 4,543
Actual return on assets....................... (3,749) (5,883) (4,862)
Net amortization and deferral................. 1,546 4,073 3,203
------ ------ ------
Net periodic pension cost................... $4,684 $5,151 $5,787*
====== ====== ======
*In addition, non-recurring items in fiscal 1992 included termination benefit
expenses and settlement losses related to the early retirement program of
$2,841,000 charged as restructuring costs and a settlement loss of $1,426,000
in other corporate charges.
F-19
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheets:
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
June 30 1994 1993 1994 1993
- - -------- ------- ------- -------- --------
(in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation........ $(1,801) $(2,068) $(43,119) $(39,106)
======= ======= ======== ========
Accumulated benefit obligation... $(1,892) $(2,105) $(45,029) $(41,522)
======= ======= ======== ========
Projected benefit obligation..... $(1,892) $(2,105) $(53,720) $(48,380)
Plan assets at fair value.......... 2,205 2,161 39,044 31,158
------- ------- -------- --------
Projected benefit obligation less
than (in excess of) plan assets... 313 56 (14,676) (17,222)
Unrecognized net (gain) loss....... (87) 164 2,387 234
Unrecognized net (asset) obligation (255) (285) 3,656 4,063
Unrecognized prior service cost.... (2) (5) 3,288 3,941
Adjustment required to recognize
minimum liability................. -- -- (1,533) (1,659)
------- ------- -------- --------
Pension liability recognized in
the balance sheet................ $ (31) $ (70) $ (6,878) $(10,643)
======= ======= ======== ========
The weighted-average assumed discount rates used in determining the projected
benefit obligation at June 30, 1994 and 1993 were 7.5 percent before retirement
and 6.25 percent after retirement. The rate of increase used for future
compensation levels at June 30, 1994 and 1993 was 6.0 percent. The
weighted-average expected long-term rates of return on assets were 8.5 percent
for fiscal 1994, and 9.0 percent for fiscal 1993.
Postretirement Benefits
- - -----------------------
The Company sponsors a defined health care plan and a defined life insurance
plan which provide benefits to eligible retirees. The health plan is
contributory with retiree contributions adjusted annually. A portion of the
F-20
Company's contribution is a fixed dollar amount based on age and years of
service at retirement. The health insurance plan contains the cost-sharing
features of coinsurance and/or deductibles. The life plan is paid for by the
Company. Benefits under both plans are based on eligible status for retirement
and length of service. Substantially all of the Company's employees may become
eligible for these benefits upon reaching age 55 and having worked for the
Company at least 10 years.
Effective July 1, 1991, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Cash payments
related to retiree health and life benefits were $899,000 in fiscal 1994 and
$1,185,000 and $709,000 in 1993 and 1992, respectively. In fiscal 1993, the
Company began funding its postretirement benefits through a 401(h) account.
All assets are held in equity securities. Adoption of the rule in fiscal 1992
resulted in a reduction of net income for that year of $7.8 million, including
a $7.3 million post-tax charge for the accumulated postretirement benefit
obligation ($11.8 million) accrued as of July 1, 1991, which the Company
recognized upon adoption.
A summary of the components of net periodic other postretirement benefit costs
follows:
Years Ended June 30 1994 1993 1992
- - -------------------- ------ ------ ------
(in thousands)
Service cost - benefits earned during
the period................................... $ 610 $ 538 $ 528
Interest cost on projected benefit obligation. 1,182 1,199 959
Actual return on assets....................... (3) (5) --
Net amortization and deferral................. 50 42 --
------ ------ ------
Net periodic postretirement benefit cost.... $1,839 $1,774 $1,487*
====== ====== ======
*In addition, $286,000 in termination benefit expense related to the special
voluntary early retirement program was charged to 1992 earnings.
F-21
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheets regarding postretirement benefits:
June 30 1994 1993
-------- -------- --------
Accumulated benefit obligation (in thousands)
Retirees.................................... $ (8,737) $ (8,899)
Active employees............................ (7,921) (7,497)
-------- --------
Total..................................... (16,658) (16,396)
Plan assets at fair value..................... 283 135
-------- --------
Accumulated benefit obligation in excess of
plan assets.................................. (16,375) (16,261)
Unrecognized net loss ........................ 2,159 2,839
-------- --------
Postretirement benefit liability recognized
in the balance sheet......................... $(14,216) $(13,422)
======== ========
The weighted-average assumed discount rate used in determining the actuarial
present value of other postretirement benefits was 7.5 percent at June 30,1994
and 1993. The weighted-average annual assumed rate of increase in the health
care cost trend rate for employees under age 65 was 15.0 and 16.0 percent for
June 30, 1994 and 1993, respectively. It is expected to decrease by 1.0
percent annually to 6.5 percent in 2002 and remain at that level. For
employees 65 and older, the assumed rate of increase was 12.0 and 13.0 percent
at June 30, 1994 and 1993, respectively. It is expected to decrease by 1.0
percent annually to 6.5 percent in 1999 and remain at that level. By
increasing the trend rate by one percentage point each year, the accumulated
postretirement benefit obligation for retiree health benefits would increase as
of June 30, 1994, and June 30, 1993, by $1,069,000 and $1,016,000,
respectively. The net periodic postretirement health care benefit cost would
increase by $163,000 for both fiscal 1994 and 1993. The weighted-average rate
of compensation increase used to determine the accumulated benefit obligation
for life insurance benefits was 6.0 percent at June 30, 1994 and 1993. The
weighted-average expected long-term rate of return on plan assets was 8.5
percent for fiscal 1994.
F-22
10. Acquisitions
The acquisition of North Central Cable Communications Corporation ("North
Central"), a corporation operating cable television systems in the
Minneapolis/St. Paul area, by Meredith/New Heritage Strategic Partners, L.P.
("Strategic Partners"), a limited partnership between Meredith/New Heritage
Partnership and Continental Cablevision of Minnesota, Inc., for approximately
$220 million, occurred on September 1, 1992. Meredith Corporation has a 70
percent indirect ownership in Strategic Partners through its wholly owned
subsidiary, Meredith Cable, Inc. The acquisition was accounted for by the
purchase method. From the acquisition date of September 1, 1992, North
Central's revenues and net operating loss included in Meredith Corporation's
Consolidated Statement of Earnings for the fiscal year ended June 30, 1993,
were $35,778,000 and $(2,902,000) respectively.
A cable television system serving the Bismarck/Mandan, North Dakota, area was
acquired by Meredith/New Heritage Partnership on January 1, 1992. This system
was contributed to Strategic Partners at the time of the North Central
acquisition, reducing the Company's indirect ownership interest in the North
Dakota system to 70 percent.
Twelve months of operations for the cable television systems are included in
the financial statements for fiscal 1994. The proforma effects (as if the
acquisitions of the cable television systems occurred at the beginning of
Meredith Corporation's 1993 and 1992 fiscal years) on selected income statement
items are as follows:
Years Ended June 30 1993 1992
- - -------------------- -------- --------
(in thousands)
Revenues...................................... $775,814 $746,202
======== ========
Earnings (loss) before cumulative effect
of change in accounting principle............ $ 17,235 $ (9,211)
Cumulative effect of change in accounting principle
(SFAS no. 106, net of tax benefit of $4,475) -- (7,300)
-------- --------
Net earnings (loss)........................... $ 17,235 $(16,511)
======== ========
(in dollars)
Net earnings (loss) per share of common stock:
Earnings (loss) before cumulative effect
of change in accounting principle............ $ 1.13 $ (.57)
Cumulative effect of change in accounting
principle.................................... -- (.45)
-------- --------
Net earnings (loss) per share................. $ 1.13 $ (1.02)
======== ========
F-23
Recognition of goodwill and non-competition agreements as intangible assets
resulted from the purchase. Goodwill is being amortized over 40 years and non-
competition agreements are being amortized over 5 years, both on straight-line
bases.
In August 1994, the Company announced plans to acquire the assets of WSMV-TV,
an NBC affiliate serving Nashville, Tennessee, from Cook Inlet Television
Partners (see Note 16).
11. Sale of Properties
On December 26, 1993, the Company sold the net assets of WTVH, a CBS affiliate
licensed to serve Syracuse, New York, and the common stock of a Company
subsidiary that owned KSEE, an NBC affiliate licensed to serve Fresno,
California, for a pre-tax gain of $11,997,000 ($8,197,000 post-tax).
The Company sold Metropolitan Home magazine to Hachette Publications, Inc., in
November 1992. The Company sold the net assets of its Real Estate relocation
operation to PHH Homequity Corporation in September 1991.
The gains or losses on these sales are included in net earnings for their
respective year. If these sales had occurred on July 1 of the respective
fiscal year, the impacts on the Company's consolidated revenues and earnings
would not have been significant.
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
$7,727,000 in 1994; $7,824,000 in 1993; and $6,777,000 in 1992. Minimum rental
commitments at June 30, 1994, under all noncancellable operating leases are
payable as follows:
Land and Machinery
Years Ended June 30 Buildings and Equipment Total
- - --------------------------------------------------------------------------
(in thousands)
1995.......................... $ 7,136 $ 78 $ 7,214
1996.......................... 4,995 52 5,047
1997.......................... 1,122 15 1,137
1998.......................... 924 6 930
1999.......................... 548 -- 548
Later years................... 624 -- 624
------- ------- -------
Total....................... $15,349 $ 151 $15,500
======= ======= =======
F-24
In the normal course of business, leases that expire are generally renewed or
replaced by leases on similar property.
Film rental contracts payable are noninterest-bearing, and the amounts due in
the years after June 30, 1995, are $2,885,000 in 1996; $1,202,000 in 1997; and
$31,000 in 1998. The Company is also obligated to make payments under
contracts for programs not currently available for use and, therefore, not
included in the consolidated financial statements, in the amount of $19,006,000
at June 30, 1994 ($20,219,000 at June 30, 1993). The portion of these payments
due in succeeding years is $4,893,000 in 1995; $6,323,000 in 1996; $4,723,000
in 1997; $2,161,000 in 1998; and $906,000 thereafter.
The purchase agreement related to the acquisition of North Central by Strategic
Partners provides for contingent payments to the former owners if actual cash
flows exceed certain targeted cash flows. There were no contingent payments
owed for fiscal 1994 or 1993. None are expected to be paid in the near future
(see Note 5).
The Company has been advised by Strategic Partners that it believes it has
complied in all material respects with the provisions of the Cable Television
Consumer Protection and Competition Act of 1992 including rate setting
provisions. However, since Strategic Partners' rates for regulated services
are subject to review, Strategic Partners may be subject to a customer refund
liability. The amounts of refunds, if any, which could be payable by Strategic
Partners, in the event that rates are successfully challenged by franchising
authorities, is not currently estimable.
Strategic Partners has programming agreements with three cable commissions to
provide local programming. These agreements require annual payments of
approximately $1 million (see Note 15).
The Company received federal income tax deficiency notices relative to its 1986
through 1990 tax years. Generally, the claimed deficiencies related to the
amortization of intangibles and other matters connected with the acquisition of
Ladies' Home Journal magazine. The Company contested these deficiencies in the
United States Tax Court. On March 14, 1994, Meredith Corporation received a
favorable decision from the Tax Court. The dominant issue, determined in favor
of the Company, involved the tax basis and ability to amortize the Ladies' Home
Journal subscriber relationships. Because the Tax Court applied the 1993
decision of the United States Supreme Court in Newark Morning Ledger Co. v.
United States to the facts of the Company's case, management believes an appeal
by the Internal Revenue Service of the Tax Court's opinion is unlikely. The
appeal period will expire as of September 16, 1994. Absent appeal, the Company
will have no remaining exposure to the $12 million potential tax cost that was
previously reported and will recognize a material and favorable impact on net
earnings for the first quarter of fiscal 1995.
F-25
See Note 16 regarding the Company's plan to purchase WSMV-TV.
In the opinion of management, all other existing litigation and claims are not
considered to be material in relation to the Company's financial position.
13. Selected Quarterly Financial Data (unaudited)
First(a) Second(b) Third Fourth(c)
Year Ended June 30, 1994 Quarter Quarter Quarter Quarter Total
- - ------------------------ -------- -------- -------- -------- --------
(in thousands)
Operating Revenues....... $182,291 $204,630 $205,763 $206,842 $799,526
======== ======== ======== ======== ========
Income from Operations... $ 11,885 $ 9,475 $ 16,758 $ 11,519 $ 49,637
======== ======== ======== ======== ========
Net Earnings............. $ 3,444 $ 11,504 $ 7,216 $ 4,990 $ 27,154
======== ======== ======== ======== ========
(in dollars)
Net Earnings Per Share... $ .24 $ .80 $ .51 $ .36 $1.91
======== ======= ======== ======== ========
First Second Third Fourth
Year Ended June 30, 1993 Quarter Quarter Quarter Quarter Total
- - ------------------------ -------- -------- -------- -------- --------
(in thousands)
Operating Revenues....... $177,449 $190,120 $198,718 $202,561 $768,848
======== ======== ======== ======== ========
Income from Operations... $ 6,555 $ 10,946 $ 12,331 $ 11,077 $ 40,909
======== ======== ======== ======== ========
Net Earnings............. $ 3,441 $ 4,709 $ 5,352 $ 5,124 $ 18,626
======== ======== ======== ======== ========
(in dollars)
Net Earnings Per Share... $ .22 $ .31 $ .35 $ .34 $1.22
======== ======== ======== ======== ========
(a) First quarter earnings were reduced by $1,356,000 due to the impact of the
federal income tax rate increase on deferred taxes and the prior-year tax
provision (see Note 8).
(b) Second quarter earnings were reduced by a $4,800,000 pre-tax charge to
operations for a non-recurring item (see Note 7). A pre-tax gain of
$11,997,000 on the sale of two broadcast television properties was also
recorded in the second quarter (see Note 11).
(c) Fourth quarter earnings were reduced by $2,584,000 in net pre-tax charges
to operations for non-recurring items (see Note 7).
F-26
14. Industry Segment Information
See Financial Information about Industry Segments in Part I, Item 1(b) of this
Form 10-K for the fiscal year ended June 30, 1994.
15. Cable Franchise Agreements
The cable television operations have nonexclusive franchise agreements with
cable commissions in their areas. The Minnesota system's agreements are with
six cable commissions and expire from 1997 to 2001. The North Dakota system's
agreements are with two cable commissions and expire in 2011 and 2013. These
franchise agreements require the payment of fees, generally 5 percent of
operating revenues. Additionally, certain franchise agreements require
Strategic Partners to provide community television programming. Strategic
Partners has entered into programming agreements with three cable television
commissions in Minnesota to provide certain local community cable television
programming. These agreements require annual payments of approximately $1
million (generally adjusted annually by consumer price index based escalator
clauses) and are effective for the term of the franchise agreements and any
renewals thereof. Cable management believes that its operations are materially
in compliance with the terms of the franchise agreements in each of the
municipalities in which it offers cable television services (see Note 12).
16. Subsequent Event
On August 19, 1994, the Company announced that it reached an agreement to
acquire the assets of WSMV-TV, an NBC affiliate in Nashville, Tennessee, from
Cook Inlet Television Partners, L.P. The Company will pay $159 million for
WSMV-TV and plans to acquire the television station using cash and debt
financing. The acquisition is expected to close in January 1995, pending
Federal Communications Commission and other regulatory approvals. Nashville is
the country's 33rd largest television market.
F-27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Meredith Corporation:
We have audited the accompanying consolidated balance sheets of Meredith
Corporation and subsidiaries as of June 30, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1994. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related financial statement schedules as listed in Part IV,
Item 14(a)2 herein. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 at June 30, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Des Moines, Iowa
August 1, 1994, except for Note 16
as to which the date is August 19, 1994.
F-28
REPORT OF MANAGEMENT
Meredith management is responsible for the integrity and objectivity of the
financial information included in this report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles appropriate in the circumstances. Accordingly, management has made
informed judgments and estimates necessary to properly reflect current business
activity.
To meet management's responsibility for financial reporting, internal control
systems and accounting procedures are designed to provide reasonable assurance
as to the reliability of financial records. In addition, the internal audit
staff monitors and reports on compliance with Company policies, procedures and
internal control systems.
The consolidated financial statements have been audited by independent
auditors. In accordance with generally accepted auditing standards, the
independent auditors obtained a sufficient understanding of the Company's
internal control structure to plan their audit and determine the nature, timing
and extent of tests to be performed. The Audit Committee of the Board of
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 full and complete access
to the Audit Committee, with or without the presence of management
representatives.
Larry D. Hartsook
Vice President - Finance
F-29
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations: Fiscal 1994 Compared with Fiscal 1993
Meredith Corporation net earnings for the year ended June 30, 1994, were
$27,154,000, or $1.91 per share. Net earnings included a gain of $11,997,000
($8,197,000 post-tax or 57 cents per share) on the dispositions of the Syracuse
and Fresno television properties and a charge of $7,384,000 ($3,987,000 post-
tax or a negative 28 cents per share) for non-recurring items. Excluding the
post-tax impacts of the gain on dispositions and non-recurring items,
comparable earnings were $22,944,000, or $1.62 per share, a 33 percent increase
from prior-year earnings per share of $1.22 (earnings of $18,626,000). All
operating groups, except cable, contributed to this increase. Twelve cents of
the comparable per-share increase resulted from fewer shares outstanding due to
shares repurchased by the Company.
The net assets of WTVH, a CBS affiliate licensed to serve Syracuse, New York,
and the common stock of a Company subsidiary that owned KSEE, an NBC affiliate
licensed to serve Fresno, California, were sold to Granite Broadcasting
Corporation in December 1993. The effect on fiscal 1994 consolidated
advertising revenues and profits was not material when compared with the prior
year. However, Broadcast Group assets declined approximately 15 percent due to
the sale.
The Company received tax assessments in the second quarter of fiscal 1994
related to discontinued operations sold in prior years. At that time, a non-
recurring pre-tax charge of $4.8 million was recorded to establish a reserve
for possible tax liabilities. In the fourth quarter, favorable resolution of
an assessment (at no tax cost to the Company) led to the reversal of $3 million
of the reserve. The Company continues to protest the remaining assessment but
believes the reserve is sufficient to cover any potential liability.
Also in the fourth quarter, the Company announced that KPHO, its independent
station in Phoenix, will affiliate with CBS in September 1994 and WNEM, its NBC
affiliate serving Flint/Saginaw/Bay City, Michigan, will affiliate with CBS in
fiscal 1995. Due to the planned affiliation of KPHO with CBS, the future
values of license agreements for owned programming rights were reviewed. As a
result, management determined it was necessary to record a non-recurring pre-
tax charge of $5,584,000 in the fourth quarter to write-down certain KPHO film
assets.
F-30
The Company reported record revenues in fiscal 1994 of $799,526,000, a four
percent increase from prior-year revenues of $768,848,000. Factors
contributing to the increase included higher magazine circulation revenues, an
additional two months of revenue from the Minnesota cable television system
(purchased in September 1992), and increased retail and direct response book
sales volumes.
Fiscal 1994 income from operations was $49,637,000 compared with $40,909,000 in
the prior year. The operating margin rose from 5.3 percent of net revenues
last year to 6.2 percent in the current year, despite the negative effect of
non-recurring items. Excluding the effect of non-recurring items, the
operating margin was 7.1 percent, a 34 percent increase from the comparable
prior-year margin.
Production, distribution and editorial expenses, as a percentage of revenues,
declined from 42 percent in fiscal 1993 to 41 percent in fiscal 1994, primarily
due to lower programming expense at the broadcast television stations.
Selling, general and administrative expenses also declined as a percentage of
revenues, from 49 percent in fiscal 1993 to 48 percent in fiscal 1994. A
favorable adjustment to accrued music license fees in the Broadcast Group,
based on an industry settlement with ASCAP/BMI (American Society of Composers,
Authors & Publishers and Broadcast Music Industry) was the single biggest
factor. Other significant factors included lower promotion expenses in the
Book Group and lower administrative expenses due to relocating Craftways
operations from California to Des Moines in fiscal 1993.
A discussion of results by segment follows:
Publishing: Revenues in the Magazine Group increased four percent from fiscal
1993 to a record level. Magazine advertising revenues from on-going titles
increased four percent from the prior year (excluding the revenues of
Metropolitan Home magazine, sold in November 1992). Advertising revenues were
down slightly at Better Homes and Gardens and Ladies' Home Journal magazines
primarily due to fewer ad pages. These declines were more than offset by
increased ad revenues in most of the Company's other titles. Increases of more
than 20 percent were reported by Traditional Home, Country America and Golf For
Women magazines, and the American Park Network collection of visitor guides,
primarily due to additional ad pages. These publications also reported a
higher net revenue per page. The strength in the Company's advertising page
sales has continued into the first quarter of fiscal 1995.
F-31
Circulation revenues in the Magazine Group increased seven percent when
compared with the prior year. Higher newsstand sales volume of the Better
Homes and Gardens Special Interest Publications was the biggest factor in the
increase. Newsstand sales of several new Ladies' Home Journal special issues
and higher subscription revenues, due to increased sales volume of newer titles
including Better Homes and Gardens American Patchwork & Quilting, also
contributed.
Record operating profits were reported in the Magazine Group for the second
consecutive year. Operating profits increased 12 percent over the prior year's
record performance. Increased ad revenues for many titles and improved
newsstand sales and profits for the Group were the most significant factors in
the profit improvement. Results for the Better Homes and Gardens Special
Interest Publications, Ladies' Home Journal (including special issues) and
Traditional Home magazine benefited from increased newsstand profits.
Increased advertising revenues contributed to the profit improvements of
Country America, Traditional Home, Successful Farming, Country Home and
American Park Network. Profits in the prior year were held down by a loss on
Metropolitan Home magazine and by moving costs associated with relocating
Craftways magazine operations to Des Moines.
Profits were down in the custom publishing area due to start-up costs
associated with Crayola Kids (a magazine aimed at children ages 3 to 8 and
their parents that is published under a license from Binney & Smith Properties,
Inc.) and lower profit margins on periodical and premium sales. Better Homes
and Gardens magazine reported a slight decline in profits due to fewer
advertising pages.
Total Book Group revenues were essentially unchanged from the prior year.
Consumer book revenues were up six percent due to increased sales volume in the
retail marketing and direct response operations, partially offset by lower
sales volume in the book clubs due to planned downsizing. This increase was
offset by a decline in revenues in Craftways operations due to lower volumes.
Book Group operating results showed improvement from fiscal 1993. Record
profits in the Group's retail marketing operations reflected increased sales of
both new and backlist titles. The sales volume increase included a major sale
of gardening titles to Wal-Mart Stores, Inc., that coincided with the January
opening of the Better Homes and Gardens Garden Centers in more than 2,000 Wal-
Mart stores nationwide. The book clubs reported improved results due to lower
manufacturing, delivery and promotion expenses. Cost savings associated with
the consolidation of Craftways editorial and marketing operations with Book
Group operations in Des Moines also contributed to the Group's improved
results.
F-32
Operating results in the direct response area showed little change from the
prior year, despite the growth expected from this business. Lower-than-expected
response rates have continued to hold back the Group's direct response
business. Efforts are continuing to develop more effective ways to use the
Company's 63 million-name database and to improve product research and
development for direct response.
The Company began to realize revenues and profits from its licensing agreement
with Wal-Mart Stores, Inc., in fiscal 1994 related to the Better Homes and
Gardens Garden Centers.
Paper and postage are significant and essential expenses in the Publishing
segment. Paper prices have been fairly stable over the past year due to soft
market conditions and increased international competition. The Company does
not expect to experience a shortage of paper in the foreseeable future.
However, the paper market has recently tightened and price increases could
occur. A price increase estimated at 5 to 10 percent is possible in the first
half of fiscal 1995. The Company also anticipates a postal rate increase in
fiscal 1995.
Broadcast: Broadcast Group revenues in fiscal 1994 declined slightly from the
prior year due to the sale of two television stations in December 1993.
Revenues at the five remaining television stations increased eight percent from
comparable prior-year revenues due to overall increases in local and national
advertising revenues. Each of the five stations recorded increased advertising
revenues in fiscal 1994. The growth primarily reflected increased market
demand for advertising resulting in higher spot rates. KPHO in Phoenix
reported the biggest increase with double-digit percentage gains in both local
and national advertising revenues. A stronger sales effort and an improving
economy in the Phoenix market contributed to the increase. The strength in the
Company's television advertising sales has continued into the first quarter of
fiscal 1995.
Profits increased 16 percent in the Broadcast Group despite a non-recurring
charge of $5,584,000 for the write-down of certain film assets at KPHO. Upon
becoming a network affiliate, approximately one-half of its programming hours
will be supplied by CBS. WNEM, an NBC affiliate serving the Flint/Saginaw/Bay
City, Michigan, market, also plans to change affiliation to CBS during fiscal
1995. There will be initial increases in promotion and marketing expenses at
both stations. In addition, KPHO will add staff and incur costs associated
with expanding its news department. Management believes these changes will
strengthen the Broadcast Group. In particular, management expects the CBS
affiliation in Phoenix to have a favorable long-term effect on Broadcast Group
revenues and profits.
F-33
Excluding the non-recurring charge, Broadcast Group profits increased 50
percent from fiscal 1993. Advertising revenue increases at the five remaining
stations, along with lower programming expenses and music license fees,
resulted in the profit increase. Programming costs have been held down by a
combination of cost-saving measures, including the purchase of more first-run
programming. This trend is expected to continue in fiscal 1995. The favorable
adjustment to accrued music license fees reflected the settlement between the
broadcast industry and ASCAP/BMI. As with revenues, KPHO reported the most
substantial improvement in operating results of the five stations, primarily
due to the revenue increase and lower programming expense.
In August 1994, the Company announced plans to purchase WSMV-TV, an NBC
affiliate serving Nashville, Tennessee, for $159 million. The purchase from
Cook Inlet Television Partners, L.P. is expected to close in January 1995,
subject to Federal Communications Commission and other regulatory approvals.
Nashville is the country's 33rd largest television market. Broadcast Group
revenues and profits are expected to increase due to the purchase.
Real Estate: Revenues increased four percent in the Real Estate Group, while
profits showed significant improvement from fiscal 1993. Transaction fees, the
revenues generated by members' sales volume, increased nine percent due to
continued strength in the residential housing market and record gross
commission income of the member firms. Revenues from the sale of ancillary
products and services also increased, primarily due to higher volumes. A
decline in joining fees partially offset other revenue increases. Improved
profits for the Group primarily reflected the revenue increases and lower
administrative and bad debt expenses.
The residential home resale market has been very strong in the last few years,
due in part to the availability of low interest rate home mortgages. Recent
increases in home mortgage interest rates could contribute to a slowdown in
home sales, leading to lower commission income for members and thus, lower fees
paid to the Group.
Cable Television: An 18 percent increase in revenues for the cable television
operations primarily reflected the timing of the Minnesota system acquisition
on September 1, 1992. This system is the larger of two cable television
systems of which the Company indirectly owns approximately 70 percent. At June
30, 1994, the two cable television systems served a total of 133,000
subscribers. Subscriber counts increased five percent at the Minnesota system
and three percent at the Bismarck system during fiscal 1994. Basic subscriber
penetration rates also increased at both systems, as did the percentage of
subscribers receiving pay services. However, average revenue per subscriber
was down slightly due to the effect of government re-regulation of cable
pricing in September 1993.
F-34
The decline in average revenue per subscriber, increased programming costs and
expenses associated with rate re-regulation resulted in lower operating profits
(before interest expense) for the cable television systems. Increased
amortization of acquisition expenses (associated with the Minnesota system
purchase) and increased depreciation expense also contributed to the decline.
Interest expense pertaining to the cable television segment increased due to
timing of the Minnesota system acquisition and bank fees paid to buy-out
interest rate contracts. Thus the cable operations experienced a larger net
loss in fiscal 1994.
In April 1993, the Federal Communications Commission (FCC) adopted new federal
standards for local franchise regulation of cable television rates. These
regulations were effective on September 1, 1993, and required cable television
systems operating above a price benchmark average to reduce rates from their
September 30, 1992, level. In May 1994, revised benchmark regulations were
adopted by the FCC requiring cable television systems to further reduce rates
from September 1992 levels or to new benchmarks. (Rates can be adjusted in the
future for certain costs and inflation.) Cable management believes it has
complied in all material respects with federal standards. Operating cash flows
for the cable operations are expected to decline approximately six percent in
fiscal 1995 due to the additional rate regulations.
The cable industry outlook has changed considerably since the Company decided
to invest in the cable partnership in the fall of 1991. Re-regulation of cable
pricing, changes in cable technology and competitive developments are the
primary factors affecting the industry. In light of these changes, the Company
is evaluating its options in relation to its continued investment in cable
television. The cable television systems have been listed for sale;
however, a formal plan of disposal has not yet been adopted. Although selling
the systems is the most likely strategy, the Company is also considering other
arrangements. Whatever alternative is selected, the Company believes it will
materially recover its investment.
Other: The increase in fiscal 1994 interest expense primarily reflects two
additional months of debt financing versus fiscal 1993 related to the timing of
the Minnesota cable television system acquisition. Corporate nonoperating
expenses increased from fiscal 1993 mostly due to non-recurring charges,
reserves for certain corporate assets and a $1.4 million write-down of a
building to its estimated realizable value. The building write-down resulted
from the decision to consolidate Des Moines employees in one location with the
construction of a new building next to the current Company headquarters.
Construction is expected to begin in fiscal 1996.
F-35
In the third quarter of fiscal 1994, the Company received a favorable ruling
regarding the Ladies' Home Journal tax case. The appeal period, with respect
to the Tax Court's decision, expired on September 16, 1994 and the Company has
no remaining exposure to the $12 million potential tax cost that was previously
reported. Approximately $12 million (post-tax benefit, including interest)
will be received by the Company as a result of the favorable decision in this
case. A portion of this judgment (that related to current versus deferred tax
benefits) will be recognized in the first quarter of fiscal 1995.
The effective tax rate for fiscal 1994 exceeds the prior-year rate primarily
due to the increase in the federal corporate tax rate enacted in August 1993.
Accounting rules require that the effect of a tax rate change on deferred tax
items be reflected in earnings in the period the change is enacted. The effect
of the increased corporate tax rate was to reduce fiscal 1994 earnings per
share by 13 cents. The Company's effective tax rate also increased versus the
prior year due to the increased loss of the cable operations. Most of
Meredith's share of these losses are non-deductible to the Company. These
increases were partially offset by the favorable tax effect from the
disposition of the broadcast television stations.
In the fiscal 1992 fourth quarter, the Company recorded a charge for non-
recurring items that consisted primarily of restructuring charges and costs
associated with downsizing and repositioning the Book Group's direct mail
operations. Restructuring charges were related to the Company's special
voluntary early retirement program and other selective job eliminations. As of
June 30, 1994, most of the restructuring costs previously reserved had been
paid. The number of employees in the Company's work force remains below the
comparable level prior to restructuring. Special charges were also recognized
for the write-down of Book Group product inventory and promotional costs
(primarily due to the new focus and direction of the book clubs) and certain
other assets of the Company. As expected, book club revenues have declined and
operating results have improved. No further write-downs, other than ordinary
operating charges, have been required.
Results of Operations: Fiscal 1993 Compared with Fiscal 1992
Fiscal 1993 net earnings were $18,626,000, or $1.22 per share. This compared
with the fiscal 1992 net loss of $6,331,000, or a negative 39 cents per
share. Fiscal 1992 results were affected by the adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and the recognition of non-
recurring items. Excluding these factors, fiscal 1992 earnings were
F-36
$17,326,000, or $1.07 per share. The fiscal 1993 increase in comparable
earnings reflected improved performance in Publishing. The Magazine Group
reported record profits and the Book Group showed significant improvement from
fiscal 1992 results. These improvements were partially offset by the negative
effect of the Company's investments in cable television. A lower number of
shares outstanding, due to the Company's share repurchase program, added seven
cents to earnings per share in fiscal 1993.
The Company adopted SFAS No. 106 on the immediate recognition basis effective
July 1, 1991. The cumulative effect of this change in accounting principle was
a negative post-tax impact of $7,300,000, or 45 cents per share. Non-recurring
items recognized in the fourth quarter of fiscal 1992 had a negative post-tax
impact of $16,357,000, or $1.01 per share. These items consisted of
restructuring charges ($12,983,000 pre-tax), costs associated with downsizing
and repositioning the Book Group's direct mail operations ($10,000,000 pre-tax)
and other corporate charges ($3,400,000 pre-tax).
Net revenues were $768,848,000 for the year ended June 30, 1993. This
represents a nine percent increase from fiscal 1992 revenues of $706,662,000.
The acquisition of a cable television system in the Minneapolis/St. Paul area
on September 1, 1992, by a partnership in which the Company has an indirect
ownership interest, was the most significant factor in the increase. Higher
Magazine Group revenues also contributed.
Income from operations was $40,909,000 in fiscal 1993. This compares with
income from operations, before non-recurring items, of $22,611,000 in the prior
year. Revenue increases and reduced production, distribution and editorial
(PD&E) expenses were the primary factors in the improvement.
PD&E expenses declined from 46 percent of revenues in fiscal 1992 to 42 percent
of revenues in fiscal 1993. This decrease was caused by lower magazine
production costs, reduced editorial staff levels (primarily from the fiscal
1992 restructuring efforts), lower book inventory operating reserves and
reduced broadcast film expense. PD&E expenses account for a relatively low
percentage of revenues in the cable operations as compared with the Company's
other segments. Therefore, the growth of cable operations also contributed to
the decline in PD&E expenses as a percentage of total revenues.
Selling, general and administrative expenses increased by approximately $31
million but remained constant as a percentage of revenues. The primary factors
in the overall increase were the cable television acquisitions and increased
magazine circulation costs, mostly related to the growth of newer titles.
The $15 million increase in depreciation and amortization expense, up one
percent of revenues, reflected the impact of cable television acquisitions.
F-37
As expected, savings of approximately $8 million were realized in fiscal 1993
from the prior-year reductions in the Company's work force.
A discussion of results by segment follows:
Publishing: Revenues in the Magazine Group increased five percent from fiscal
1992 primarily due to increases in advertising, subscription and other
revenues. The increase in advertising revenues reflected strong advertising
page gains by most titles. Total ad pages for comparable titles increased
seven percent, a gain of more than 400 pages. These figures exclude the ad
pages of Metropolitan Home, the upscale shelter magazine that was sold in
November 1992. Increased per copy subscription revenue for Better Homes and
Gardens and Ladies' Home Journal combined with the growth of newer magazines to
cause the increase in subscription revenues. One of the fastest-growing titles
was Country America, which grew from a circulation base of 700,000 in fiscal
1992 to 1 million in February 1993. Better Homes and Gardens American
Patchwork & Quilting, introduced with the April 1993 issue, and Decorative
Woodcrafts, new in fiscal 1992, also contributed to the new title growth in
subscription revenues. Continued growth in Meredith Custom Marketing led to
increased revenues, including a multi-faceted sale to Chrysler Corporation.
The Magazine Group experienced record profits in fiscal 1993 as operating
profits increased more than 30 percent from fiscal 1992. Much of the
improvement can be attributed to the strong performances of the Company's two
largest titles: Better Homes and Gardens and Ladies' Home Journal. These
magazines recorded advertising revenue gains of eight and six percent,
respectively. When combined with favorable production costs, the result was
record profits for both titles. The same factors contributed to double-digit
percentage growth in profits for Better Homes and Gardens Special Interest
Publications, WOOD and Midwest Living. Improved results from three newer
titles, Country America, Traditional Home and Decorative Woodcrafts, also
contributed to the Group's profit increase. Fiscal 1992 profits were held down
by expenses related to the discontinuation of a British version of Metropolitan
Home.
Craftways, which publishes Cross Stitch & Country Crafts magazine, and American
Park Network were the only Magazine Group operations suffering significant
declines in performance in fiscal 1993. Craftways operations were moved from
California to the Company's headquarters in Des Moines, Iowa, in the spring of
1993. Expenses related to the move were the major factor contributing to the
decline in Craftways performance. Lower ad revenues were the primary factor in
the profit decline at American Park Network.
F-38
Book Group revenues were up more than one percent versus fiscal 1992 as
declines due to downsizing were offset by increases in other areas. As
expected, gross revenues in the book club and syndication operations declined.
However, fewer product returns lowered the impact on net revenues. These
changes reflected the strategic repositioning and downsizing of operations in
the past two years which led to the recognition of non-recurring items in
fiscal 1992. The direct response and retail marketing operations experienced
increased revenues over fiscal 1992. An increased number of product offerings
boosted revenues in direct response. Higher sales of backlist titles and lower
product returns were primary factors in the retail marketing revenue increase.
Book Group operating results improved significantly in fiscal 1993. Much of
the improvement was due to the $10 million pre-tax charge for non-recurring
items recorded in fiscal 1992 for the write-down of inventory and promotional
costs related to the downsizing of direct mail operations. No write-downs of
Book Group inventory, other than ordinary recognition of obsolete and dated
materials, occurred in fiscal 1993. Book club results reflected the benefits
of downsizing through reduced spending for recruitment of new members. Fewer
product returns and lower bad debt rates resulting from a more targeted
membership base also contributed to the improvement. Record retail marketing
profits occurred due to increased net sales and lower costs of sales,
especially the cost of damaged returns. Reduced staff levels, particularly in
editorial areas, were also a factor in the improved Book Group results.
Despite a significant increase in revenue, direct response results were down
compared with fiscal 1992. Increased promotion spending (due to new product
testing), higher bad debt and product return rates and increased database
expense caused the decline.
As anticipated, the Company's net investment in the Book Group at June 30,
1993, remained below the level achieved following the fiscal 1992 write-downs.
Paper is an essential raw material in the Publishing segment and represents a
significant expense. Softness in the paper market and successful negotiations
with suppliers brought paper prices in fiscal 1993 below the level paid in
fiscal 1992.
Broadcast: Fiscal 1993 was a year of mixed results in the Broadcast Group.
National advertising revenues, which showed improvement late in fiscal 1992,
declined sharply in the southern and western markets in the fiscal 1993 second
quarter. Soft conditions continued through the remainder of fiscal 1993. The
Las Vegas and Phoenix markets were particularly hard hit. Local revenues were
weak in most markets through the first half of the year, but rallied in the
second half. Only KSEE, the group's NBC affiliate in Fresno, finished fiscal
1993 with local revenues appreciably below fiscal 1992. Overall, Broadcast
Group revenues were down slightly from fiscal 1992 with four of the Company's
seven television stations reporting lower revenues.
F-39
Broadcast Group operating profits also were down slightly in fiscal 1993.
Increased employee benefits expense and decreased revenues caused the decline
in profits. Partially offsetting these factors were lower programming costs
due to increased use of first-run programming. As with revenues, results were
mixed at the stations, with three stations posting improvements over fiscal
1992.
Real Estate: Revenues in the Real Estate Group increased slightly over fiscal
1992. Increases in custom product and publication sales, and higher joining
and franchise fees more than offset the decline in revenues resulting from the
fiscal 1992 sale of the relocation operation. Real Estate Group earnings,
including interest income, increased three percent in fiscal 1993 primarily due
to the increase in revenues.
Cable Television: Cable revenues, assets and operating profits before interest
expense increased substantially in fiscal 1993 due to the timing of
acquisitions. Fiscal 1993 results included 10 months of operations for the
Minnesota system and a full year of operations for the North Dakota system.
(Fiscal 1992 included only six months of operations for the North Dakota
system.) At June 30, 1993, the two cable television systems served a total of
127,000 subscribers. Basic subscriber penetration rates in the North Dakota
system exceeded the national average of approximately 61 percent. In addition,
more than half of those homes also subscribed to pay services. The cable
television system owned in the Minneapolis/St. Paul area was one of the leaders
in subscribers and penetration rates in that market due to customer service and
promotional efforts. Interest expense and amortization of intangibles
associated with the purchase of the Minnesota cable television system resulted
in a fiscal 1993 loss for the cable operations.
Other: Unallocated corporate expenses declined significantly in fiscal 1993
due to the recognition of non-recurring items in fiscal 1992. Excluding these
non-recurring charges, there was no material change in the level of corporate
expenses.
Interest expense increased by more than $9 million in fiscal 1993 due to the
cable partnership's interest expense. Interest income declined from fiscal
1992 due to lower interest-earning cash balances. Cash balances were down due
to the Company's increased investment in the cable television partnership,
stock repurchases, payments to the Company's pension plans and the payment of
severance and early retirement packages from the fiscal 1992 restructuring
efforts.
A lower effective tax rate in fiscal 1993 primarily reflected increased
earnings. This effect was partially offset by a decline in tax-exempt interest
income and the net loss on the Minnesota cable television operation (providing
no tax benefit to the Company).
F-40
Liquidity, Capital Resources and Capital Expenditures
Cash and cash equivalents increased by $19,388,000 to $37,957,000 at June 30,
1994, compared with a decrease in cash of $23,764,000 in fiscal 1993. The
increase primarily resulted from the sale of two broadcast television
properties and the prior-year's investment in the cable partnership, less
increased share repurchases.
The Company purchased approximately 1,192,000 shares of its common stock at an
average price of $39.30 per share in fiscal 1994. In fiscal 1993,
approximately 1,050,000 shares were purchased at an average price of $27.66 per
share. As of June 30, 1994, up to 280,000 additional shares may be repurchased
under an existing authorization by the Board of Directors. The status of the
repurchase program is reviewed at each quarterly Board of Directors meeting.
The Board of Directors increased the quarterly dividend by 12 percent, or two
cents per share, to 18 cents per share with dividends payable on March 15,
1994. On an annual basis, the effect of this quarterly dividend increase of
two cents per share would be to increase dividends paid by approximately $1
million at the current number of shares outstanding.
Meredith/New Heritage Strategic Partners, L.P., ("Strategic Partners") has term
loan payments due to banks of approximately $11 million in fiscal 1995.
Borrowings are secured by the partnership interests and assets of Strategic
Partners. This debt is non-recourse to Meredith Corporation. The operating
cash flows of Strategic Partners may not provide sufficient funds to meet the
payment terms of the loan agreements without the sale of part or all of its
cable television systems or an amendment to the loan agreement amortization
schedule. (Strategic Partners is currently exploring the disposition of its
cable television systems.) Under the terms of the loan agreement, the proceeds
from any sale of cable television assets must be applied to reduce outstanding
borrowings. The first payment is due September 30, 1994. Although a formal
request has not been made, the lenders have indicated they would support a
request to extend the amortization period or to postpone future scheduled
payments in light of Strategic Partners' efforts to sell its assets in part or
in whole. Strategic Partners' management intends and believes it will be able
to execute an amendment to the loan agreement to modify the amortization
schedule.
Strategic Partners is prohibited by this loan agreement to make dividend
payments or any distributions to the partners except for specified payments
under certain conditions that would not cause a default under the loan
agreement. The restricted net assets reflected in the Company's Consolidated
Balance Sheet at June 30, 1994, totalled approximately $91 million. This
restriction has not had, and is not expected to have, any impact on the
Company's ability to meet its cash obligations.
F-41
Capital expenditures in fiscal 1994 increased by approximately 30 percent over
fiscal 1993 levels. This increase was primarily due to the timing of the
Minnesota cable television system acquisition. All planned expenditures in the
cable television systems occur in the ordinary course of business. No material
commitments for expenditures to upgrade the cable distribution systems have
been made. The Company also increased capital spending for new and upgraded
computer networks for the purpose of reducing long-term processing costs. In
June 1994, the Company announced plans to construct a new building near its
current headquarters. This will allow consolidation of all Des Moines-based
personnel in one campus. The building and related improvements are expected to
cost approximately $36 million and will be financed through operating cash
flows or borrowings. Construction is targeted to begin in fiscal 1996 and be
completed in fiscal 1998. The Company has made no other material commitments
for capital expenditures.
The purchase of WSMV-TV for $159 million, as announced in August 1994, will
utilize cash and debt financing. The Company is currently working with a group
of banks to arrange necessary financing.
At this time, management expects that cash on hand, plus internally-generated
cash flow, will provide funds for capital expenditures, cash dividends and
other operational cash needs for foreseeable periods. Short-term lines of
credit will be used on an as-needed basis for short-term working capital needs.
The Company does not expect the need for any long-term source of cash to meet
working capital requirements.
Cash Dividends
Cash dividends of $9,677,000 were paid in fiscal 1994. This was a one percent
decline from the prior year due to shares repurchased by the Company. An
increase in the per-share amount of the quarterly dividend, effective in the
third quarter, partially offset the impact of fewer shares outstanding.
F-42
Schedule III
MEREDITH CORPORATION
Condensed Financial Information of Registrant
June 30, 1994 and 1993
Balance Sheets (Unaudited)
Assets
June 30 June 30
1994 1993
-------- --------
(in thousands)
Current assets:
Cash and cash equivalents $ 30,758 $ 14,655
Marketable securities 12,178 21,422
Receivables, net 73,525 71,968
Inventories 33,908 31,245
Supplies and prepayments 17,990 17,696
Subscription acquisition costs 102,040 95,983
Film rental costs 7,239 15,750
-------- --------
Total current assets 277,638 268,719
-------- --------
Property, plant and equipment (at cost) 140,776 159,729
Less accumulated depreciation (91,813) (101,444)
-------- --------
Net property, plant and equipment 48,963 58,285
-------- --------
Investment in unconsolidated subsidiaries
(other than cable) 35,970 37,488
Investment in cable subsidiary 90,579 95,675
Deferred film rental costs 3,874 12,073
Deferred subscription acquisition costs 65,276 71,841
Other assets 22,240 23,083
Goodwill and other intangibles
(at original cost less accumulated amortization) 110,641 122,512
-------- --------
Total assets $655,181 $689,676
======== ========
See disclosures regarding material contingencies and long-term obligations in
Notes 5 and 12 to the Consolidated Financial Statements.
F-43
Balance Sheets (Unaudited) continued
Liabilities and Stockholders' Equity
June 30 June 30
1994 1993
-------- --------
(in thousands)
Current liabilities:
Current portion of long-term film rental contracts $ 6,683 $ 10,229
Accounts payable 32,184 38,830
Accrued taxes and expenses 49,015 48,713
Unearned subscription revenues 140,230 134,108
Deferred income taxes 16,455 20,265
-------- --------
Total current liabilities 244,567 252,145
-------- --------
Long-term film rental contracts 4,118 5,638
Unearned subscription revenues 88,762 95,452
Deferred income taxes 36,191 29,749
Other deferred items 23,782 22,596
-------- --------
Total liabilities 397,420 405,580
-------- --------
Stockholders' equity:
Series preferred stock, par value $1 per share
Authorized 5,000,000 shares: none issued
Common stock, par value $1 per share 10,119 11,130
Authorized 50,000,000 shares; issued and outstand-
ing 10,119,165 in 1994 and 11,129,726 shares in
1993 (net of treasury shares, 5,763,328 in 1994
and 4,645,420 shares in 1993)
Class B stock, par value $1 per share, convertible to 3,602 3,704
Common stock; authorized, issued and outstanding
3,601,932 shares in 1994 and 3,703,519 in 1993
Retained earnings 246,917 272,090
Unearned compensation (2,877) (2,828)
-------- --------
Total stockholders' equity 257,761 284,096
-------- --------
Commitments and contingent liabilities -- --
Total liabilities and stockholders' equity $655,181 $689,676
======== ========
See disclosures regarding material contingencies and long-term obligations in
Notes 5 and 12 to the Consolidated Financial Statements.
F-44
Schedule III continued
MEREDITH CORPORATION
Condensed Financial Information of Registrant
Years ended June 30, 1994, 1993 and 1992
Statements of Earnings (Unaudited)
Fiscal years ending June 30 1994 1993 1992
- - --------------------------- -------- -------- --------
(in thousands)
Revenues (less returns and allowances):
Advertising $320,772 $322,982 $318,396
Circulation 232,506 217,645 212,461
Consumer books 86,040 81,390 80,452
All other 61,618 55,047 63,529
-------- -------- --------
Total revenues 700,936 677,064 674,838
-------- -------- --------
Operating costs and expenses:
Production, distribution and editorial 297,543 294,194 320,682
Selling, general and administrative 338,585 328,661 315,542
Depreciation and amortization 13,208 13,100 13,491
Non-recurring items 7,384 - 26,383
-------- -------- --------
Total operating costs and expenses 656,720 635,955 676,098
-------- -------- --------
Income (loss) from operations 44,216 41,109 (1,260)
Gain on sale of broadcast stations 11,997 - -
(Loss) from unconsolidated subsidiaries (4,574) (7,676) (1,706)
Interest income 1,780 1,846 6,019
Interest expense (267) (618) (668)
-------- -------- --------
Earnings before income taxes and cumulative
effect of change in accounting principle 53,152 34,661 2,385
Income taxes 25,998 16,035 1,416
-------- -------- --------
Earnings before cumulative effect of
change in accounting principle 27,154 18,626 969
Cumulative effect of change in accounting
principle SFAS No. 106, net of tax
benefit of $4,475 - - (7,300)
-------- -------- --------
Net earnings (loss) $ 27,154 $ 18,626 $ (6,331)
======== ======== ========
F-45
Statements of Earnings (Unaudited) continued
Fiscal years ending June 30 1994 1993 1992
- - --------------------------- -------- -------- --------
Net earnings (loss) per share of common stock:
Earnings before cumulative effect of
change in accounting principle $1.91 $1.22 $ .06
Cumulative effect of change in accounting
principle SFAS No. 106 - - (.45)
----- ----- -----
Net earnings (loss) per share $1.91 $1.22 $(.39)
===== ===== =====
Average shares outstanding 14,182,000 15,266,000 16,141,000
========== ========== ==========
F-46
Schedule III continued
MEREDITH CORPORATION
Condensed Financial Information of Registrant
Years ended June 30, 1994, 1993 and 1992
Statements of Cash Flows (Unaudited)
Fiscal years ending June 30 1994 1993 1992
- - --------------------------- -------- -------- --------
(in thousands)
Cash flows from operating activities:
Earnings before change in accounting
principle $ 27,154 $ 18,626 $ 969
Less cumulative effect of change in
accounting principle - - (7,300)
-------- -------- --------
27,154 18,626 (6,331)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 13,208 13,100 13,491
Amortization of film contract rights 22,274 26,908 28,531
Deferred income taxes 3,069 4,499 378
Non-recurring items, net of taxes 3,987 - 16,357
(Increase) decrease in receivables (5,173) 1,726 2,073
(Increase) decrease in inventories (2,663) (7,791) 7,549
(Increase) decrease in supplies and prepayments (384) 1,783 (3,787)
Decrease (increase) in sub acquisition costs 508 4,231 (11,827)
(Decrease) increase in payables and accruals (8,596) 4,512 (15,940)
(Reductions) additions to unearned sub revenues (568) (3,104) 16,883
(Reductions) additions to other deferred items (433) (10,749) 14,021
Gain on sale of broadcast stations,
net of taxes (8,197) - -
-------- -------- --------
Net cash provided by operating activities 44,186 53,741 61,398
-------- -------- --------
Cash flows from investing activities:
Proceeds from the sale of net assets 33,000 - 26,385
Investment in unconsolidated subsidiaries 1,518 3,508 (1,940)
Investment in cable subsidiary 5,096 (32,740) (56,562)
Redemption (purchase) of marketable securities 9,244 20,448 (18,237)
(Additions) to property, plant and equipment (9,222) (8,055) (3,982)
Reductions (additions) to other assets 405 (11,476) (6,569)
-------- -------- --------
Net cash provided (used) by investing activities 40,041 (28,315) (60,905)
-------- -------- --------
F-47
Statements of Cash Flows (Unaudited) continued
Cash flows from financing activities:
Long-term indebtedness retired - - (245)
Payments for film rental contracts (14,633) (15,742) (26,348)
Proceeds from common stock issued 3,048 3,093 2,031
Purchase of company shares (46,862) (29,001) (26,883)
Dividends paid (9,677) (9,783) (10,339)
-------- -------- --------
Net cash (used) by financing activities (68,124) (51,433) (61,784)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 16,103 (26,007) (61,291)
Cash and cash equivalents at beginning of year 14,655 40,662 101,953
-------- -------- --------
Cash and cash equivalents at end of period $ 30,758 $ 14,655 $ 40,662
======== ======== ========
Supplemental Schedule of Non-cash Investing and Financing Activities:
Per Note 10 to the Consolidated Financial Statements, North Central was
purchased in fiscal 1993 for approximately $220 million by Strategic Partners,
in which the Company has a 70 percent indirect ownership interest. Significant
non-cash investing and financing activities reflected in the Consolidated
Financial Statements for the fiscal year ended June 30, 1993, included ($ in
millions) the acquisition of intangible assets of ($171) and net property,
plant and equipment of ($61) by incurring long-term debt of $139, minority
interest of $42, contributing a portion of the North Dakota system of $12 and
assuming net liabilities of $6.
Note to Condensed Financial Information of Registrant:
The registrant received cash dividends from a consolidated subsidiary of
$1,000,000 and $1,850,000 in the fiscal years ended June 30, 1994 and 1992,
respectively. (No dividends were paid by this subsidiary in fiscal year 1993.)
In addition, cash dividends from an investee accounted for by the equity method
of $960,000, $348,000 and $626,000 were received in the fiscal years ended June
30, 1994, 1993 and 1992, respectively.
F-48
Schedule VIII
MEREDITH CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 1994, 1993 and 1992
($ in 000s)
Year ended June 30, 1994
---------------------------------------------------
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- - --------------------------- ---------- ---------- -------- ---------- ---------
Those reserves which are deducted
in the consolidated financial
statements from Receivables:
Reserve for doubtful $10,055 $11,740 $ 0 $11,329* $10,466
accounts
Reserve for returns 6,352 38,500 0 37,849** 7,003
------- ------- ---- ------- -------
$16,407 $50,240 $ 0 $49,178 $17,469
======= ======= ==== ======= =======
Year ended June 30, 1993
---------------------------------------------------
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 $ 9,293 $ 8,865 $ 0 $ 8,103* $10,055
accounts
Reserve for returns 6,678 24,970 0 25,296** 6,352
------- ------- ---- ------- -------
$15,971 $33,835 $ 0 $33,399 $16,407
======= ======= ==== ======= =======
F-49
Year ended June 30, 1992
---------------------------------------------------
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 $12,164 $11,066 $ 0 $13,937* $ 9,293
accounts
Reserve for returns 7,434 33,508 0 34,264** 6,678
------- ------- ---- ------- -------
$19,598 $44,574 $ 0 $48,201 $15,971
======= ======= ==== ======= =======
*Bad debts charged to reserve.
**Actual returns charged to reserve.
F-50
Schedule IX
MEREDITH CORPORATION AND SUBSIDIARIES
Short-term Borrowings*
Three years ended June 30, 1994
($ in 000s)
Weighted
average Maximum Average Weighted
Category of interest amount amount average
aggregate Balance rate outstanding outstanding interest
short-term at end at end during during rate during
borrowings of period of period period period** period***
- - ----------- --------- --------- ----------- ----------- -----------
Year ended June 30, 1994:
Banks $ - - $18,000 $2,300 3.7%
Year ended June 30, 1993:
Banks $ - - $ - $ - -
Year ended June 30, 1992:
Banks $ - - $45,000 $1,600 5.1%
*All short-term borrowings were pursuant to agreements with three banks
which allowed maximum borrowings per bank ranging from $2 million to $10
million.
**Based on daily balances over a 365-day year.
***Based on rate for each borrowing.
F-51
Schedule X
MEREDITH CORPORATION AND SUBSIDIARIES
Supplementary Income Statement Information
Years ended June 30, 1994, 1993 and 1992
($ in 000s)
Years ended June 30
----------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
Charged to costs Charged to costs Charged to costs
Item and expenses and expenses and expenses
- - ------------------------- ---------------- ---------------- ----------------
Depreciation and amorti-
zation of intangible
assets $34,256 $32,393 $17,545
F-52
Index to Exhibits
Exhibit
Number Item
------- ----------------------------------------------
3 Restated Bylaws
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule