UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
Commission file number 1-5128
Meredith Corporation
(Exact name of registrant as specified in its charter)
Iowa 42-0410230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1716 Locust Street, Des Moines, Iowa 50309-3023
(Address of principal executive offices) (ZIP Code)
515 - 284-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of stock outstanding at October 31, 2001:
Common shares 38,823,448
Class B shares 10,492,696
----------
Total common and class B shares 49,316,144
==========
- 1 -
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30 June 30
Assets 2001 2001
------------------------------------------------------------------------------
(In thousands)
Current assets:
Cash and cash equivalents $ 4,314 $ 36,254
Receivables, net 135,219 137,384
Inventories 37,676 32,835
Subscription acquisition costs 44,314 43,237
Broadcast rights 34,675 13,487
Deferred income taxes 19,291 19,262
Supplies and prepaids 10,618 8,623
---------- ----------
Total current assets 286,107 291,082
Property, plant and equipment 366,648 362,072
Less accumulated depreciation (164,706) (158,274)
---------- ----------
Net property, plant and equipment 201,942 203,798
Subscription acquisition costs 29,143 31,947
Broadcast rights 19,407 7,929
Other assets 32,465 33,020
Goodwill and other intangibles (at original
cost less accumulated amortization of
$186,351 on September 30 and $180,229 on June 30) 863,447 869,971
---------- ----------
Total assets $1,432,511 $1,437,747
========== ==========
See accompanying Notes to Interim Condensed Consolidated Financial Statements
- 2 -
(Unaudited)
September 30 June 30
Liabilities and Shareholders' Equity 2001 2001
------------------------------------------------------------------------------
(In thousands except share data)
Current liabilities:
Current portion of long-term debt $ 55,000 $ 70,000
Current portion of long-term broadcast
rights payable 34,071 18,600
Accounts payable 42,797 45,976
Accrued taxes and expenses 86,376 105,133
Unearned subscription revenues 123,585 131,697
---------- ----------
Total current liabilities 341,829 371,406
Long-term debt 400,000 400,000
Long-term broadcast rights payable 33,433 17,158
Unearned subscription revenues 100,439 89,605
Deferred income taxes 61,244 59,245
Other noncurrent liabilities 57,727 52,425
---------- ----------
Total liabilities 994,672 989,839
---------- ----------
Shareholders' equity:
Series preferred stock, par value $1 per share
Authorized 5,000,000 shares; none issued -- --
Common stock, par value $1 per share
Authorized 80,000,000 shares; issued and
outstanding 38,938,326 at September 30 and
39,247,701 at June 30 (net of treasury shares,
28,205,017 at September 30 and 27,823,898 at
June 30.) 38,938 39,248
Class B stock, par value $1 per share,
convertible to common stock
Authorized 15,000,000 shares; issued and
outstanding 10,515,229 at September 30 and
10,544,174 at June 30. 10,515 10,544
Retained earnings 396,064 402,393
Accumulated other comprehensive income (loss) (5,662) (1,967)
Unearned compensation (2,016) (2,310)
---------- ----------
Total shareholders' equity 437,839 447,908
---------- ----------
Total liabilities and shareholders' equity $1,432,511 $1,437,747
========== ==========
See accompanying Notes to Interim Condensed Consolidated Financial Statements
- 3 -
Meredith Corporation and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
Three Months
Ended September 30
2001 2000
--------------------------------------------------------------------------
(In thousands except per share data)
Revenues:
Advertising $138,841 $149,025
Circulation 63,477 64,514
All other 36,445 36,483
-------- --------
Total revenues 238,763 250,022
-------- --------
Operating costs and expenses:
Production, distribution and edit 108,248 110,545
Selling, general & administrative 95,652 91,460
Depreciation and amortization 13,577 12,839
-------- --------
Total operating costs and expenses 217,477 214,844
-------- --------
Income from operations 21,286 35,178
Interest income 160 209
Interest expense (7,313) (8,520)
-------- --------
Earnings before income taxes 14,133 26,867
Income taxes 5,470 10,398
-------- --------
Net earnings $ 8,663 $ 16,469
======== ========
Basic earnings per share $ 0.17 $ 0.33
======== ========
Basic average shares outstanding 49,723 50,272
======== ========
Diluted earnings per share $ 0.17 $ 0.32
======== ========
Diluted average shares outstanding 51,004 51,522
======== ========
Dividends paid per share $ 0.085 $ 0.080
======== ========
See accompanying Notes to Interim Condensed Consolidated Financial Statements
- 4 -
Meredith Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended September 30 2001 2000
---------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 8,663 $ 16,469
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 13,577 12,839
Amortization of broadcast rights 8,064 8,427
Payments for broadcast rights (8,409) (9,609)
Changes in assets and liabilities:
Accounts receivable (net) 2,165 11,635
Inventories (4,841) (2,379)
Supplies and prepayments (2,563) (2,669)
Subscription acquisition costs 1,727 2,316
Accounts payable (3,179) (11,039)
Accruals (20,541) (7,618)
Unearned subscription revenues 2,722 (1,876)
Deferred income taxes 4,332 2,347
Other noncurrent liabilities 1,502 3,052
-------- --------
Net cash provided by operating activities 3,219 21,895
-------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment (5,358) (20,708)
Changes in investments and other 709 (2,826)
-------- --------
Net cash used by investing activities (4,649) (23,534)
-------- --------
Cash flows from financing activities:
Long-term debt incurred 10,000 10,000
Repayment of long-term debt (25,000) --
Proceeds from common stock issued 435 1,054
Purchases of company stock (11,988) (13,213)
Dividends paid (4,229) (4,011)
Other 272 295
-------- --------
Net cash used by financing activities (30,510) (5,875)
-------- --------
Net decrease in cash and cash equivalents (31,940) (7,514)
Cash and cash equivalents at beginning of year 36,254 22,861
-------- --------
Cash and cash equivalents at end of period $ 4,314 $ 15,347
======== ========
See accompanying Notes to Interim Condensed Consolidated Financial Statements
- 5 -
MEREDITH CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
a. General
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, which are of a
normal recurring nature and necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year. Readers are referred to the
company's Form 10-K for the year ended June 30, 2001 for complete financial
statements and related notes. Certain prior-year amounts have been
reclassified to conform with current-year presentation.
b. Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
could differ from those estimates.
c. Goodwill and other intangibles
The unamortized portion of intangible assets consisted of the following:
(unaudited)
September 30 June 30
2001 2001
(In thousands) ------------ ------------
Federal Communications
Commission (FCC) licenses $414,565 $417,434
Goodwill 238,825 240,768
Television network affiliation
agreements 194,694 196,217
All other 15,363 15,552
-------- --------
Total unamortized portion
of intangible assets $863,447 $869,971
======== ========
- 6 -
MEREDITH CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
d. Earnings per share
The following table presents the calculations of earnings per share:
(unaudited)
Three Months
Ended September 30
2001 2000
--------- ---------
(In thousands except per share)
Net earnings $ 8,663 $16,469
======= =======
Basic average shares outstanding 49,723 50,272
Dilutive effect of stock options 1,281 1,250
------- -------
Diluted average shares outstanding 51,004 51,522
======= =======
Basic earnings per share $ .17 $ .33
======= =======
Diluted earnings per share $ .17 $ .32
======= =======
Antidilutive options excluded from the above calculations totaled 1,405,000
options at September 30, 2001 (with a weighted average exercise price of
$37.11) and 1,413,000 options at September 30, 2000 (with a weighted average
exercise price of $36.51).
Options to purchase 45,000 shares were exercised during the three months ended
September 30, 2001 (55,000 options were exercised in the three months ended
September 30, 2000).
2. Nonrecurring Items
In response to a weakening economy and a continued advertising downturn in
fiscal 2001, Meredith took steps to reduce the number of employees through a
one-time, special voluntary early retirement program and additional selective
workforce reductions through attrition, realignments and job eliminations. In
addition, the company wrote-off certain Internet investments. These actions
resulted in a fiscal 2001 net nonrecurring charge of $25.3 million ($15.4
million after-tax) or 30 cents per share for personnel costs ($18.4 million)
and asset write-downs and other ($8.2 million), offset by the reversal of
excess accruals ($1.3 million). The nonrecurring charge resulted in balance
sheet adjustments of $8.5 million and cash payments of $1.1 million in fiscal
- 7 -
MEREDITH CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
2001, leaving an accrual balance of $15.7 million for personnel costs at June
30, 2001. Details of the activities affecting the accrual since that date
follow:
Jun-30-2001 Sep-30-2001
Accrual Cash Other Accrual
Description Balance Payments Adjustments Balance
---------------------- -------- -------- -------- --------
(In thousands)
Personnel costs $ 15,716 $ 5,170 $ -- $ 10,546
======== ======== ======== ========
Payments made during the quarter were for enhanced retirement benefits,
severance and outplacement charges. A total of 36 jobs were eliminated during
the quarter, in addition to the 155 positions eliminated during fiscal 2001.
The majority of the accrued personnel costs are expected to be paid out over
the next 12 months.
Meredith also recorded a nonrecurring charge in fiscal 2000 related to the
closing of certain operations that no longer fit the company's business
objectives. The charge totaled $23.1 million ($19.1 million after tax) or 36
cents per share for asset write-downs ($16.8 million), contractual obligations
($3.8 million) and personnel costs ($2.5 million). The personnel costs related
to the termination of 29 employees, all of whom had left the company by June
30, 2001. Fiscal 2000 activity related to this charge consisted of noncash
balance sheet adjustments of $18.5 million and cash payments of $1.4 million.
During fiscal 2001 additional cash payments of $1.1 million were made and $1.3
million of the accrual was deemed no longer necessary and was reversed. The
reversal reduced the amount of the nonrecurring charge recorded in fiscal 2001.
The result was an accrual balance of $0.9 million at June 30, 2001. Since that
date, cash payments totaling $0.1 million have been made, reducing the accrual
to $0.8 million at September 30, 2001. The remaining accrual balance relates
primarily to contractual obligations and will be settled over the next two
fiscal years.
3. Inventories
Major components of inventories are summarized below. Of total inventory
values shown, approximately 27 percent and 31 percent are under the LIFO method
at September 30, 2001 and June 30, 2001, respectively.
- 8 -
MEREDITH CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
(unaudited)
September 30 June 30
2001 2001
(In thousands) ------- -------
Raw materials $18,199 $13,480
Work in process 19,925 20,830
Finished goods 7,504 6,477
------- -------
45,628 40,787
Reserve for LIFO cost valuation (7,952) (7,952)
------- -------
Total $37,676 $32,835
======= =======
4. Derivative Financial Instruments
At September 30, 2001, Meredith had interest rate swap contracts to pay
fixed-rates of interest (average 5.5 percent) and receive variable-rates of
interest (average 3-month LIBOR rate of 2.6 percent) on $206 million notional
amount of indebtedness. This resulted in approximately 80 percent of
Meredith's underlying variable-rate debt being subject to fixed interest rates.
The swap contracts expire in May 2002 and June 2004. The notional amount
varies over the terms of the contracts. The average notional amount of
indebtedness outstanding under the contracts is $195 million in fiscal 2002,
$166 million in fiscal 2003 and $132 million in fiscal 2004.
The fair market value of the interest rate swap contracts was a liability of
$7.8 million at September 30, 2001. Assuming no change in interest rates, the
estimated amount of the loss expected to be reclassified into earnings over the
next 12 months is $3.9 million. The net gain or loss on the ineffective
portion of these interest rate swap contracts was not material in any period.
5. Comprehensive Income
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. The
company's comprehensive income includes foreign currency translation
adjustments and changes in the fair market value of interest rate swap
contracts in addition to net earnings. Fiscal 2001 first quarter comprehensive
income also included a cumulative-type transition net gain for the adoption of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," of $2.5 million. Total comprehensive
income (in thousands) for the three-month periods ended September 30, 2001 and
2000, was $4,968 and $17,902, respectively.
- 9 -
MEREDITH CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
6. Segment Information
(unaudited)
Three Months
Ended September 30
-------------------
2001 2000
-------- --------
(In thousands)
Revenues
Publishing $182,409 $184,885
Broadcasting 56,354 65,137
-------- --------
Total revenues $238,763 $250,022
======== ========
Operating profit
Publishing $ 25,536 $ 28,410
Broadcasting 59 10,143
Unallocated corporate expense (4,309) (3,375)
-------- --------
Income from operations $ 21,286 $ 35,178
======== ========
Depreciation and amortization
Publishing $ 2,763 $ 2,209
Broadcasting 10,133 9,948
Unallocated corporate 681 682
-------- --------
Total depreciation
and amortization $ 13,577 $ 12,839
======== ========
EBITDA
Publishing $ 28,299 $ 30,619
Broadcasting 10,192 20,091
Unallocated corporate (3,628) (2,693)
-------- --------
Total EBITDA $ 34,863 $ 48,017
======== ========
Meredith Corporation is a diversified media company primarily focused on the
home and family marketplace. Based on products and services, the company has
established two reportable segments: publishing and broadcasting. The
publishing segment includes magazine and book publishing, integrated marketing,
interactive media, database-related activities, brand licensing, and other
related operations. The broadcasting segment includes the operations of 12
network-affiliated television stations. There are no material intersegment
- 10 -
MEREDITH CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
transactions. There have been no changes in the basis of segmentation or the
measurement of segment profit since June 30, 2001.
EBITDA is defined as earnings from continuing operations before interest,
taxes, depreciation and amortization. EBITDA is often used to analyze and
compare companies on the basis of operating performance and cash flow. EBITDA
is not adjusted for all noncash expenses or for working capital, capital
expenditures and other investment requirements. EBITDA should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles. In addition, the
calculation of EBITDA and similarly titled measures may vary between companies.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion presents the key factors that have affected the
company's business in the first quarter of fiscal 2002 and fiscal 2001. This
commentary should be read in conjunction with the consolidated financial
statements presented elsewhere in this report and with the company's Form 10-K
for the year ended June 30, 2001. All per-share amounts refer to diluted
earnings per share and are computed on a post-tax basis.
This section, and management's public commentary from time to time, may contain
certain forward-looking statements that are subject to risks and uncertainties.
The words "expect," "anticipate," "believe," "likely," "will," and similar
expressions generally identify forward-looking statements. These statements
are based on management's current knowledge and estimates of factors affecting
the company's operations. Readers are cautioned not to place undue reliance on
such forward looking-information as actual results may differ materially from
those currently anticipated. Readers are referred to the company's Form 10-K
for the year ended June 30, 2001, for a discussion of such factors.
- 11 -
Results of Operations
Percent
Quarters ended September 30 2001 2000 Change
--------------------------- -------- -------- -------
(In thousands except per share)
Total revenues $238,763 $250,022 (5)%
======== ======== =====
Income from operations $ 21,286 $ 35,178 (39)%
======== ======== =====
Net earnings $ 8,663 $ 16,469 (47)%
======== ======== =====
Diluted earnings per share $ 0.17 $ 0.32 (47)%
======== ======== =====
Quarter ended September 30, 2001 compared to quarter ended September 30, 2000 -
Fiscal 2002 first quarter net earnings were $8.7 million, or 17 cents per
share, compared to prior-year first quarter net earnings of $16.5 million, or
32 cents per share. The earnings decline resulted primarily from a decline in
broadcasting advertising revenues. Broadcasting advertising revenues decreased
due to a continued slowdown in the demand for advertising that was exacerbated
by the September 11 terrorist attacks. In addition, the television stations
provided viewers with several days of commercial-free news coverage of the
tragic events of September 11. Publishing revenues and operating profits were
down slightly in the quarter. All of the company's magazines however had
closed advertising sales prior to September 11. The decline in Meredith's
operating earnings was partially offset by lower net interest expense. The
weighted-average number of shares outstanding declined 1 percent due to company
share repurchases.
First quarter revenues were $238.8 million compared to prior-year first quarter
revenues of $250.0 million. Adjusting for the impact of discontinued magazine
titles, revenues declined 2 percent from prior-year revenues of $244.1 million.
The decline in comparable revenues reflected lower advertising revenues in the
broadcasting segment as previously discussed.
Operating costs and expenses increased 1 percent from the prior-year quarter.
Production, distribution and editorial costs decreased 2 percent largely due to
the absence of costs for discontinued titles and, to a smaller extent, from
lower paper prices. Partially offsetting these favorable variances were higher
book editorial costs, attributable to the timing of new releases, and higher
postal rates. Selling, general and administrative expenses increased 5 percent.
Higher subscription acquisition costs, due to the timing of mailings, was the
single largest factor accounting for the increase. Also contributing were
higher promotion costs in both publishing and broadcasting and investments in
sales improvements in the broadcast operations. These expense increases were
- 12 -
partially offset by lower costs attributable to the absence of discontinued
titles. Unallocated corporate expenses, which represent general corporate
overhead expenses not attributable to the operating groups, increased to $4.3
million from $3.4 million in the prior-year first quarter as a result of higher
pension costs and consulting expenses. The increase in consulting expenses
related to a review of vendor relationships and an analysis of opportunities
for process improvements. The operating profit margin was 8.9 percent of
revenues in the current quarter versus 14.1 percent in the prior-year period.
Meredith recorded a nonrecurring charge of $25.3 million in fiscal 2001
primarily for costs related to a reduction in workforce and the write-down of
certain assets. In addition, the company recorded a charge of $9.9 million for
the write-down of certain broadcasting programming rights to net realizable
value in fiscal 2001. The workforce reduction program and the programming
write-down lowered certain costs in fiscal 2002. The anticipated savings were
achieved in the fiscal 2002 first quarter, but as expected these savings were
offset by other cost increases.
The Company's effective tax rate in the first quarter was 38.7 percent, which
is similar to that of the prior-year first quarter and fiscal year.
Looking forward, the advertising recession continues and has been compounded by
the events of September 11. Those events will have a negative effect on
advertising beyond the first-quarter results. Second quarter comparable
magazine advertising pages are currently down in the high-single digits on a
percentage basis, while comparable magazine advertising revenues are down in
the low-double-digits. Second quarter advertising bookings at the company's
television stations are currently down in the mid-teens on a percentage basis.
Much of the decline relates to the absence of political revenues. Political
advertising added 13 cents per share to earnings in the prior-year second
quarter. Television advertising bookings are as of a point in time and likely
to change, especially in light of the late-booking political advertising in the
second quarter of fiscal 2001.
In addition to the revenue outlook, the second quarter will be affected by
slightly heavier circulation promotion mailings compared to the prior-year
quarter. This is estimated to reduce earnings per share by 2 cents. As noted
previously, management is also concerned about rising trends in certain
external costs including health care, pension, postal and programming. These
cost increases will somewhat offset the savings from reduced employment levels.
As a result, management expects second quarter earnings to be in the range of
13 to 17 cents per share. Due to the uncertainty of many factors, both
economic and political, management is not comfortable commenting on full fiscal
year 2002 performance at this time.
Interactive Media -- The following table presents supplemental data regarding
the results of the company's interactive media operations. These operations
are an integral part of the company's Publishing and Broadcasting Groups and
are included in the reported results of those segments. To date, most of the
company's Internet activities have been in the Publishing Group. The results
are pro-forma and are presented for informational purposes only. The results
do not attempt to reflect how the operations would have been reported had they
been a stand-alone business.
- 13 -
Percent
Quarters ended September 30 2001 2000 Change
--------------------------- -------- -------- -------
(In thousands)
Total revenues $ 952 $ 1,070 (11)%
======== ======== =====
Operating loss $ (1,499) $ (1,881) 20 %
======== ======== =====
First quarter interactive media revenues decreased to $1.0 million from $1.1
million in the prior-year quarter. The decline reflected lower advertising
revenues.
Interactive media incurred an operating loss of $1.5 million in the quarter
versus a loss of $1.9 million in the prior-year quarter. The smaller loss
resulted from savings associated with the online acquisition of magazine
subscriptions.
Publishing
----------
Percent
Quarters ended September 30 2001 2000 Change
--------------------------- -------- -------- -------
(In thousands)
Revenues
---------
Advertising $ 84,072 $ 85,628 (2)%
Circulation 63,477 64,514 (2)%
Other 34,860 34,743 -- %
-------- -------- -----
Total revenues $182,409 $184,885 (1)%
======== ======== =====
Operating profit $ 25,536 $ 28,410 (10)%
======== ======== =====
Publishing revenues were $182.4 million compared to $184.9 million in the
prior-year first quarter. Excluding the impact of discontinued properties,
revenues increased 2 percent from comparable prior-year revenues of $179.0
million. Discontinued properties include Golf for Women, Family Money and
Mature Outlook magazines and the Better Homes and Gardens syndicated television
show. The following discussion excludes the prior-year revenues of these
discontinued properties.
Comparable magazine advertising revenues increased 2 percent due primarily to
higher advertising revenues at the company's largest circulation title, Better
Homes and Gardens magazine. Other titles reporting higher advertising revenues
- 14 -
included MORE, Country Home, Renovation Style, Ladies' Home Journal and Midwest
Living magazines. These improvements were partially offset by lower advertising
revenues at Traditional Home magazine and in the Special Interest Publications.
Total magazine advertising pages were down 1 percent in the quarter, but this
was offset by higher net revenues per page. Advertising categories showing
strength in the quarter included pharmaceuticals, food and beverages,
automotive and direct response. Weaker categories included technology and
cosmetics advertising.
Comparable magazine circulation revenues increased 1 percent from the
prior-year quarter. The growth reflected increased sales volume from newer
titles such as MORE and Renovation Style.
Other publishing revenues were flat with the prior-year quarter. A slight
increase in book sales was offset by lower revenues from licensing operations.
Publishing operating profit was $25.5 million in the fiscal 2002 first quarter
compared to $28.4 million in the prior-year first quarter. The decline resulted
primarily from increased subscription acquisition costs and higher postal
rates. The increase in subscription acquisition costs reflects a previously
disclosed shift in the timing of promotional mailings toward the first half of
the fiscal year. In addition, book operating profits declined due to an
increase in editorial costs associated with the timing of new title releases.
Partially offsetting these cost increases were the benefit of higher
advertising revenues and lower magazine paper prices. Average paper prices for
the quarter were approximately 5 percent lower than a year earlier.
Broadcasting
------------
Percent
Quarters ended September 30 2001 2000 Change
--------------------------- -------- -------- -------
(In thousands)
Revenues
---------
Advertising $ 54,769 $ 63,397 (14)%
Other 1,585 1,740 (9)%
-------- -------- -----
Total revenues $ 56,354 $ 65,137 (13)%
======== ======== =====
Operating profit $ 59 $ 10,143 (99)%
======== ======== =====
Fiscal 2002 first quarter revenues were $56.4 million, down 13 percent from
prior-year first quarter revenues of $65.1 million. The revenue decline
reflected the ongoing weakness of the television advertising market, the effect
of the September 11 terrorist attacks and the absence of $3.4 million in
political revenues recorded in the prior-year quarter due to the biennial
- 15 -
nature of elections. Television advertising revenues have been weak across the
industry for several quarters. The terrorist attacks on September 11 had an
immediate worsening effect on those revenues. Prior to September 11,
advertising bookings for Meredith's television stations for the month of
September were flat with the prior year. Advertising revenues for September
ended down 20 percent, declining sharply in the last three weeks of the month.
Part of the decline resulted from the stations' commercial-free news coverage
for several days following September 11, as well as the impact of the
postponement of the immediately following weekend's sporting events. The
balance of the decline reflected the dramatic slowdown in advertising following
the attacks. National advertising revenues were affected most, falling
approximately 20 percent for the group. Local revenues were down less than 1
percent. Management believes the stations' sales improvement initiatives and a
focus on generating new business mitigated the impact on local revenues. While
advertising revenues were down at most of the company's stations, WOFL-Orlando
and WGCL-Atlanta reported advertising revenue growth in the quarter in spite of
the challenging advertising market.
Operating profit was $59,000 in the first quarter compared to $10.1 million in
the prior-year first quarter. The decline was largely due to the drop in
advertising revenues. Operating costs increased 2 percent primarily due to
increased promotion expense at WGCL-Atlanta and increased payroll costs related
to the expansion of news programming and investments in sales improvements over
the past year. News costs are expected to be comparable beginning in the third
quarter of fiscal 2002.
Liquidity and Capital Resources
Percent
Quarters ended September 30 2001 2000 Change
--------------------------- -------- -------- -------
(In thousands)
Net earnings $ 8,663 $ 16,469 (47)%
========= ========= =====
Cash flows from operations $ 3,219 $ 21,895 (85)%
========= ========= =====
Cash flows used by investing $ (4,649) $ (23,534) 80 %
========= ========= =====
Cash flows used by financing $ (30,510) $ (5,875) (419)%
========= ========= =====
Net decrease in cash
and cash equivalents $ (31,940) $ (7,514) (325)%
========= ========= =====
EBITDA $ 34,863 $ 48,017 (27)%
========= ========= =====
- 16 -
Cash and cash equivalents decreased by $31.9 million in the first quarter of
fiscal 2002 compared to a decrease of $7.5 million in the prior-year quarter.
The change primarily reflected a decline in cash provided by operating
activities and increased use of cash for the repayment of debt, partially
offset by lower spending for property, plant and equipment. Cash provided by
operating activities decreased from $21.9 million to $3.2 million in the
current quarter, reflecting lower earnings and increased use of cash for
working capital requirements. The changes in working capital primarily
resulted from declines in accrual balances for severance, early retirement
benefits and other salary related accounts.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. Fiscal 2002 first quarter EBITDA
decreased 27 percent from the prior-year quarter due primarily to the
advertising revenue-related decline in operating results in the Broadcasting
segment. EBITDA is not adjusted for all noncash expenses or for working
capital, capital expenditures and other investment requirements. EBITDA should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. In
addition, the calculation of EBITDA and similarly titled measures may vary
between companies.
At September 30, 2001, debt outstanding consisted of $255 million outstanding
under two variable-rate bank credit facilities and $200 million outstanding in
fixed-rate unsecured senior notes issued to five insurance companies. Funds for
the payment of interest and principal on the debt are expected to be provided
by cash generated from future operating activities and debt refinancing. The
debt agreements include certain financial covenants related to debt levels and
coverage ratios. As of September 30, 2001, the company was in compliance with
all debt covenants.
Meredith uses interest rate swap contracts to manage interest cost and risk
associated with possible increases in variable interest rates. The swap
contracts expire in May 2002 and June 2004. The notional amount varies over
the remaining terms of the contracts. The company is exposed to credit-related
losses in the event of nonperformance by counterparties to financial
instruments. Management does not expect any counterparties to fail to meet
their obligations given the strong creditworthiness of the counterparties to
the agreements. The weighted-average interest rate on debt outstanding at
September 30, 2001, was approximately 6.2 percent.
As part of Meredith's ongoing share repurchase program, the company spent $12.0
million to repurchase an aggregate of 384,000 shares of Meredith Corporation
common stock at then current market prices in the first quarter of fiscal 2002.
The company also had committed to the repurchase of an additional 108,000
shares for $3.4 million. The settlement for this commitment occurred on October
1, 2001. This compares with spending of $13.2 million for the repurchase of
448,000 shares in the prior-year first quarter. The company expects to continue
to repurchase shares from time to time in the foreseeable future, subject to
market conditions. As of September 30, 2001, the number of shares authorized
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for future repurchase was approximately 2.0 million shares. The status of this
program is reviewed at each quarterly Board of Directors meeting.
Dividends paid in the first quarter of fiscal 2002 were $4.2 million, or 8.5
cents per share, compared with $4.0 million, or 8.0 cents per share, paid in
the prior-year quarter.
First quarter spending for property, plant and equipment decreased to $5.4
million from $20.7 million in the prior-year first quarter. The decline
reflected higher spending in the prior-year period for the purchase of
replacement aircraft and associated facilities, construction of a new
broadcasting facility for the Atlanta television station and the purchase of
equipment for the introduction of local news programming at the Portland
television station. The broadcasting segment anticipates spending approximately
$12 million over the next 12 months for the initial transition to digital
technology at six stations. Five of the company's stations have already made
this initial transition. The company has no other material commitments for
capital expenditures. Funds for capital expenditures are expected to be
provided by cash from operating activities or, if necessary, borrowings under
credit agreements.
At this time, management expects that cash on hand, internally-generated cash
flow and debt from credit agreements will provide funds for any additional
operating and recurring cash needs (e.g., working capital, cash dividends) for
the foreseeable future.
Other Matters -- In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets." Meredith will adopt this standard, as required,
effective July 1, 2002. The FASB also issued SFAS No. 141, "Business
Combinations," in July 2001. SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
It also specifies criteria that must be met for the recognition of intangible
assets separate from goodwill. Upon adoption of SFAS No. 142, Meredith will be
required to evaluate its existing intangible assets and make any necessary
reclassifications in order to conform with this new criteria. The effects of
adopting these standards, if any, are not quantifiable at this time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The company is subject to certain market risks as a result of the use of
financial instruments. The market risk inherent in the company's financial
instruments subject to such risks is the potential market value loss arising
from adverse changes in interest rates. Readers are referred to Item 7a,
"Quantitative and Qualitative Disclosures About Market Risk," of the company's
Form 10-K for the year ended June 30, 2001 for a more complete discussion of
these risks.
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At September 30, 2001, Meredith had outstanding $255 million in variable-rate
long-term debt and $200 million in fixed-rate long-term debt. The company uses
interest rate swap contracts to effectively convert a substantial portion of
its variable-rate debt to fixed-rate debt. Therefore, there is no material
earnings or liquidity risk associated with the company's variable-rate debt and
the related interest rate swap contracts. The fair market value of the
variable-rate debt approximates the carrying amount due to the periodic
resetting of interest rates. The fair market value of the interest rate swaps
is the estimated amount, based on discounted cash flows, the company would pay
or receive to terminate the swap contracts. A 10 percent decrease in interest
rates would result in a $9.4 million cost to terminate the swap contracts
compared to the current cost of $7.8 million at September 30, 2001.
There is no earnings or liquidity risk associated with the company's fixed rate
debt. The fair market value of the debt, based on discounted cash flows using
borrowing rates currently available for debt with similar terms and maturities,
varies with changes in interest rates. A 10 percent decrease in interest rates
would result in a fair market value of ($213.4 million) compared to the current
fair market value of ($208.9 million) at September 30, 2001.
There has been no material change in the market risk associated with broadcast
rights payable since June 30, 2001.
PART II - OTHER INFORMATION
Item 5. Other Information
On November 8, 2001, Meredith announced that Mr. Kevin P. O' Brien had been
named the President of the Meredith Broadcasting Group, effective immediately.
O' Brien, 58, had worked for Cox Broadcasting for the past 15 years, serving as
Executive Vice President of the Cox Television Independent Group, where he
supervised five Cox stations. At the same time, he served as Vice President and
General Manager of KTVU, Cox's FOX affiliate in San Francisco.
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K
During the first quarter of fiscal 2002, the company filed a report on Form
8-K on August 2, 2001, reporting under Item 5 the text of a news release
dated August 2, 2001, reporting earnings for the fiscal year ended June 30,
2001 and the script of a conference call concerning that news release.
Also during the first quarter of fiscal 2002, the company filed a report on
Form 8-K on September 25, 2001, reporting under Item 5 the text of a news
release dated September 25, 2001, updating the earnings outlook for the
first fiscal quarter ended on September 30, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEREDITH CORPORATION
Registrant
(Suku V. Radia)
Suku V. Radia
Vice President - Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 12, 2001
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