-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HzKHgRnc9YMH/IzVE/qSAp2gfgMJxDTko78fT1poJVex2Q2uthCq3eVq/AVqTsgd YFhggnR5d9Qv0LcfO3pxmA== 0000065011-94-000015.txt : 19940930 0000065011-94-000015.hdr.sgml : 19940930 ACCESSION NUMBER: 0000065011-94-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEREDITH CORP CENTRAL INDEX KEY: 0000065011 STANDARD INDUSTRIAL CLASSIFICATION: 2721 IRS NUMBER: 420410230 STATE OF INCORPORATION: IA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05128 FILM NUMBER: 94550287 BUSINESS ADDRESS: STREET 1: 1716 LOCUST ST CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152843000 FORMER COMPANY: FORMER CONFORMED NAME: MEREDITH PUBLISHING CO DATE OF NAME CHANGE: 19710317 10-K 1 6-30-94 10-K FILING 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 ========== - 1 - 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. - 3 - 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 ======== ======== ======== - 4 - 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. - 5 - (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 - 6 - 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 - 8 - 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 - 10 - 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 EX-3 2 EXHIBIT 3 FOR 6-30-94 10-K Exhibit 3 --------- BYLAWS OF MEREDITH CORPORATION Effective July 1, 1994 ARTICLE I. OFFICES The principal office of the corporation in the State of Iowa shall be located in the City of Des Moines, County of Polk, or as otherwise or more particularly identified in the most recently filed (at any time), annual report of the corporation on file with the Iowa Secretary of State. ARTICLE II. SHAREHOLDERS Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held on the second Monday in the month of November in each year, at the hour of 10:00 A.M., at the principal office of the corporation or at such other place as is stated in the notice of the meeting, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. Section 2. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, may be called by the Chairman of the Board, the President, the Secretary, or the Board of Directors. The holders of shares having not less than one-tenth of the voting power of the corporation may demand in writing stating the purpose or purposes, and signed, dated and delivered to the Secretary of the corporation, that a special meeting of the shareholders be held. The time, date and place of any such special meeting shall be determined by the Board of Directors or at its direction, by the Chairman. Section 3. PLACE OF SHAREHOLDERS' MEETING. The Board of Directors may designate any place, either within or without the State of Iowa as the place of meeting for any annual meeting or for any special meeting of shareholders. If no designation is made the place of meeting shall be the principal office of the corporation in the State of Iowa. 1 Section 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days, nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary, or the Board of Directors, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at the address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the day before the first date on which notice of the meeting is mailed or the day before the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. In order to determine the shareholders entitled to demand a special meeting, the record date shall be the sixtieth day preceding the date of receipt by the corporation of written demands sufficient to require the calling of such meeting, unless otherwise fixed by the Board of Directors. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board of Directors selects a new record date or unless a new record date is required by law. Section 6. VOTING LISTS. After the record date for a meeting has been fixed, the officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged by voting group and within each voting group, in alphabetical order, with the address of and the number and class of shares held by each, which list, for a period beginning two business days after notice of the meeting was first given for which the list was prepared and continuing through the meeting, shall be kept on file at the principal office of the corporation or at the place identified in the meeting 2 notice in the city where the meeting will be held. The list shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The list furnished to the corporation by its stock transfer agent shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Section 7. QUORUM. At any meeting of the shareholders, a majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter, unless the representation of a different number is required by law, and in that case, the representation of the number so required shall constitute a quorum. If a quorum shall fail to attend any meeting, the chairman of the meeting or a majority of the votes present may adjourn the meeting to another place, date or time. When a meeting is adjourned to another place, date or time, notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than one hundred twenty (120) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 8. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by the shareholder's duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. No holder of any share of any class of stock of the corporation shall sell the vote pertaining to such share or issue a proxy to vote such share in consideration of any sum of money or anything of value. Section 9. VOTING OF SHARES. Each outstanding share entitled to vote shall be entitled to vote as follows: (a) At each annual or special meeting of shareholders, each holder of common stock shall be entitled to one [1] vote in person or by proxy for each share of common stock standing in the holder's name on the stock transfer records of the corporation, and (except as provided in subsection [b] of this Section 9) each holder of class B stock shall be entitled to ten [10] votes in person or by proxy for each share of class B stock standing in the holder's name on the stock transfer records of the 3 corporation. Except as required pursuant to the Business Corporation Act of the State of Iowa, all actions submitted to a vote of shareholders shall be voted on by the holders of common stock and class B stock voting together as a single class. b) Notwithstanding subsection [a] of this Section 9, each holder of class B stock shall be entitled to only one [1] vote, in person or by proxy, for each share of class B stock standing in the holder's name on the stock transfer records of the corporation with respect to the following matters: (i) The removal of any director of the corporation pursuant to Article IV of the Articles of Incorporation; (ii) Any amendment to the Articles of Incorporation which would permit the holders of stock of the corporation to amend, alter, change or repeal the Bylaws or any part thereof, pursuant to Article V of the Articles of Incorporation; and (iii) Any repeal or amendment of Article IV or Article VI of the Articles of Incorporation. Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted, either in person or by proxy, without a transfer of such shares. Shares standing in the name of a trustee may be voted by the trustee, either in person or by proxy, but no trustee shall be entitled to vote shares so held without a transfer of such shares into the name of the trustee. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares nor, absent special circumstances, shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. 4 Section 11. VOTING BY BALLOT. Voting by shareholders on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. ARTICLE III. BOARD OF DIRECTORS Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its Board of Directors. Section 2. NUMBER, TENURE AND QUALIFICATIONS. Within the limits set forth in Article IV of the Articles of Incorporation, the number of directors of the corporation shall be as fixed from time to time by resolution of the Board of Directors. The directors shall be divided into classes, and hold office for the terms as provided in Article IV of the Articles of Incorporation. Directors need not be residents of the State of Iowa or shareholders of the corporation. Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Iowa, for the holding of additional regular meetings without other notice than such resolution. Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President, Secretary or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Iowa, as the place for holding any special meeting of the Board of Directors called by them. Section 5. NOTICE. Notice of any special meeting of the Board of Directors shall be given at least two days previously thereto by written notice delivered personally or mailed to each director at the director's business address, or by telephone, cable, telefax, wireless or telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 5 Section 6. QUORUM. A majority of the number of directors fixed pursuant to Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 7. MANNER OF ACTING. Except as otherwise specified in these Bylaws, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 8. VACANCIES. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for a term which shall expire at the next election of directors by the shareholders. A director elected by the shareholders to fill a vacancy shall be elected for the unexpired term of the director last elected by the shareholders with respect to the position being filled. Any directorship to be filled by reason of any increase in the number of directors by not more than thirty percent (30%) of the number of directors last approved by the shareholders, may be filled by the Board of Directors for a term of office continuing only until the next election of directors by the shareholders. Section 9. COMPENSATION. By resolution of the Board of Directors, those directors who are not at the time active employees of the corporation may be paid an annual retainer and a fixed sum for attendance at each meeting of the Board of Directors. All directors may be reimbursed for expenses incurred in connection with their services. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 10. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director's dissent shall be entered in the minutes of the meeting or unless the director shall file a written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 11. INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of the directors, or any other action which may be taken at a meeting of the directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. 6 Section 12. EXECUTIVE COMMITTEE. An Executive Committee consisting of two or more members of the Board of Directors may be designated by the Board of Directors at the time of the annual meeting or at such other time as the Board of Directors may determine. The chairman of said committee shall be the person elected by the Board of Directors to the office of Chairman of the Executive Committee, and such officer shall be designated a member of said committee. If an Executive Committee is designated, it shall, during the intervals between the meetings of the Board of Directors and so far as it lawfully may, possess and exercise all of the authority of the Board of Directors in the management of the business of the corporation, in all cases in which specific directions shall not have been given by the Board of Directors, provided that notwithstanding the foregoing, the Executive Committee shall not have authority: (1) to authorize dividends or other distributions; (2) to approve or propose to shareholders actions or proposals required by the Iowa Business Corporation Act to be approved by shareholders; (3) to fill vacancies on the Board of Directors or any committee thereof; (4) to amend the Articles of Incorporation of the corporation; (5) to adopt, amend or repeal Bylaws; (6) to approve a plan of merger not requiring shareholder approval; (7) to authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors; (8) to authorize or approve the issuance or sale of, or any contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares; except that the Board of Directors may authorize a committee or senior officer to do so within limits specifically prescribed by the Board of Directors; or (9) to remove the Chairman of the Board, Chairman of the Executive Committee or the President, or to appoint any person to fill a vacancy in any such office. The Executive Committee shall also act as a nominating committee to propose and recommend to the Board of Directors nominees for election as directors. 7 Section 13. FINANCE COMMITTEE. A Finance Committee consisting of two or more members of the Board of Directors may be designated by the Board of Directors at the time of the annual meeting or at such time as the Board of Directors may determine. If a Finance Committee is designated, said committee's duties shall be to: (1) review corporate financial policies and procedures and make recommendations to the Board of Directors or the Executive Committee in regard thereto; (2) provide financial advice and counsel to management; (3) formulate dividend policy and make recommendations to the Board of Directors in regard thereto; (4) make provisions for the appointment of depositories of funds of the corporation and the specification of conditions of deposit and withdrawal of said funds; (5) review specific corporate financing plans and advise the Board of Directors or Executive Committee in regard thereto; (6) supervise corporate investment portfolios; (7) give consideration and approval or disapproval of capital expenditure requests by management within limits established by the Board of Directors; and (8) review annual operating budgets and advise the Board of Directors or Executive Committee regarding the financial implications thereof. Section 14. COMPENSATION COMMITTEE. A Compensation Committee consisting of two or more members of the Board of Directors may be designated by the Board of Directors at the time of the annual meeting, or at such other time as the Board of Directors may determine. If a Compensation Committee is designated, said committee's duties shall be to: (1) review and approve changes in corporate officers' salaries; (2) review and approve salary administration plans and changes therein which are recommended by management for adoption by the corporation or product divisions thereof; (3) annually review the corporation's salary administration programs and make changes therein as may be required; 8 (4) approve prior to adoption any management incentive, bonus or stock plans, or agreements, and administer and supervise such plans as the language thereof may require; (5) review all employee benefit plans, including the levels and types of benefits provided thereunder, and review and consider any recommenda- tions received from the Pension Committee with respect to pension plans; and (6) recommend to the Board of Directors the appointment of such management personnel or committees as it deems desirable for the administration, detailed study, or recommendation of possible changes in employee benefit plans. Section 15. AUDIT COMMITTEE. An Audit Committee consisting of two or more members of the Board of Directors shall be designated by the Board of Directors at the time of the annual meeting, or at such other time as the board may determine. The duties of said committee shall be to: (1) meet prior to the start of any audit by outside auditors and review the scope of the audit to be performed; (2) meet prior to the publication of the annual report and review results of the audit for the year; (3) meet with and determine the responsibilities and scope of the internal audit department; and (4) carry on such other activities so as to give additional assurance regarding the degree of financial information used by the Board of Directors in making decisions and the degree of financial information distributed to outsiders. Section 16. PENSION COMMITTEE. A Pension Committee consisting of two or more members of the Board of Directors may be designated by the Board of Directors at the time of the annual meeting or at such time as the Board of Directors may determine. If a Pension Committee is designated, said committee's duties shall be to: (1) review the corporation's pension plans and amendments thereto and recommend their approval by the Board of Directors; (2) review the levels and types of benefits provided under the pension plans and other features thereof, including eligibility, vesting and the form of payment of benefits, and make recommendations to the Compensation Committee in regard thereto; and 9 (3) recommend to the Board of Directors investment objectives for all employee pension funds, review the investment performance of such funds and recommend revision of the objectives as may be required; and (4) recommend to the Board of Directors the appointment of such management personnel or committees as it deems desirable for the administration, detailed study, or recommendation of possible changes in the corporation's pension plans. Section 17. LEGAL AFFAIRS COMMITTEE. A Legal Affairs Committee consisting of two or more members of the Board of Directors may be designated by the Board of Directors at the time of the annual meeting, or such other time as the board may determine. If a Legal Affairs Committee is designated, said committee's duties shall be to: 1. review the structure, functions and personnel of the corporation's internal legal staff; 2. review the procedures established for the engagement of outside counsel and the monitoring of their activities; 3. meet with the general counsel of the corporation, and outside counsel engaged by the corporation, to review all significant threatened, pending and settled litigation involving the corporation; including the impact, or potential impact, of such matters upon the policies, planning, operations or finances of the corporation; 4. receive reports from the general counsel and outside counsel, as to changes in the law which have or could have an effect upon the corporation or its policies, planning, operations or finances, and assist in the development of strategies in response thereto; and 5. inquire into the existence, and encourage the development, of practices and procedures, including legal audits, which could benefit the corporation in avoiding litigation or other legal problems. Section 18. COMMITTEE PROCEDURES. The chairman of each committee, other than the Executive Committee, shall be selected by the Board of Directors or by the Executive Committee. In the absence of the chairman of any committee, a temporary chairman may be appointed from among the members of the committee. Each committee shall keep minutes of the proceedings of its meetings which shall be submitted to the Board of Directors at the next meeting of the Board of Directors. A majority of members of any committee shall constitute a quorum for the transaction of business. Meetings of any committee shall be called 10 upon the request of any member of the committee or the Chairman of the Board or the Secretary, and notice of such meetings shall in each instance be given to each member of the committee at least twenty-four hours before the meeting either orally or in writing. A fixed sum and expenses of attendance, if any, may be allowed and paid for attendance at each meeting of any committee, the amount of such sum to be designated by the Board of Directors. Each director serving on a committee shall hold such office until the annual meeting held next after such director's designation, or until such director's successor shall have been designated. ARTICLE IV. OFFICERS Section 1. NUMBER. The officers of the corporation shall be a Chairman of the Board, a Chairman of the Executive Committee, a President who, unless otherwise determined by the Board, shall be the Chief Executive Officer of the corporation, and the Chief Operating Officer of the corporation), one or more Group Presidents, one or more Executive Vice Presidents, one or more Senior Vice Presidents or one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, a Treasurer, and a Controller, and such other officers as the Board of Directors may from time to time designate by resolution, each of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. In its discretion, the Board of Directors may delegate the powers or duties of any officer to any other officer or agents, notwithstanding any provision of these Bylaws, and the Board of Directors may leave unfilled for any such period as it may fix, any office except those of Chairman of the Board, President, Vice President-Finance and Secretary. Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until such officer's successor shall have been duly elected or until death or until such officer shall resign or shall have been removed in the manner hereinafter provided. Section 3. REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer or agent elected by the Board of Directors except the 11 Chairman of the Board, Chairman of the Executive Committee and President, may be removed by the Executive Committee. Any officer or agent elected by the Board of Directors except the Chairman of the Board and the Chairman of the Executive Committee may be removed by the President. Section 4. VACANCIES. A vacancy in the office of Chairman of the Board, Chairman of the Executive Committee or President because of death, resignation, removal, disqualification or otherwise, may be filled only by the Board of Directors for the unexpired portion of the term. A vacancy in any other office may be filled either by the Executive Committee or by the Chairman of the Board or, after consultation with the Chairman of the Board, by the President . Section 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the Chief Executive Officer of the corporation and shall in general supervise and control all of the business, policies and affairs of the corporation and all other officers of the corporation. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors and shall be a member of the Executive Committee. The Chairman of the Board shall perform such other duties as may be prescribed by the Board of Directors from time to time and shall have the general powers and duties usually vested in the Chief Executive Officer of a corporation. Section 6. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the Executive Committee shall be a member of that committee and preside at all of its meetings, and in the absence of the Chairman of the Board, shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Executive Committee shall perform such other duties as from time to time may be assigned by the Board of Directors. Section 7. PRESIDENT. The President shall be the Chief Operating Officer of the corporation and shall have the management of and exercise general supervision over its operating groups and all its Group Presidents. In the absence of the Chairman of the Board, the President shall preside at meetings of the shareholders and of the Board of Directors. The President shall perform such other duties as may be prescribed by the Board of Directors or the Chairman of the Board from time to time and shall have the general powers and duties usually vested in the Chief Operating Officer of a corporation. Section 8. GROUP PRESIDENTS. Each Group President, within the limitations placed by the policies adopted by the Board of Directors, or the Chairman of the Board, and or the President, shall be a corporate officer and shall be the Chief Operating Officer of the operating group assigned and shall in general supervise and control such business and affairs of the group and operations assigned thereto and perform such other duties as may be prescribed from time to time by the Board of Directors, the Chairman of the Board and the President. 12 Section 9. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS. Each corporate Executive Vice President, Senior Vice President or Vice President shall perform such duties as may be assigned by the Board of Directors, or the Chairman of the Board or the President. An Executive Vice President, Senior Vice President or Vice President may be assigned the operating authority for managing one or more operating units or service operations of the company as established by the Board of Directors. Upon assignment by the Board of Directors of operating authority for an operation or service unit, such Executive Vice President, Senior Vice President or Vice President shall in general supervise and control all of the business and affairs of such operation or service unit, subject only to such supervision and direction as the Board of Directors, the Chairman of the Board or the President may provide. Each Executive Vice President, Senior Vice President and Vice President shall be authorized to sign contracts and other documents related to the corporation or to the operations under such officer's supervision and control. Section 10. VICE PRESIDENT-FINANCE. The Vice President-Finance shall be the principal and chief accounting and principal and chief finance officer of the corporation. In that capacity, the Vice President-Finance shall keep and maintain, or cause to be kept and maintained accurate, correct books and records of accounts of the properties and business transactions of the corporation, including accounts of the assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The Vice President-Finance shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors or by the Finance Committee appointed by the Board of Directors. The Vice President-Finance shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the Chairman of the Board, or President and or the Board of Directors, upon their request, an account of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors, or the Chairman of the Board or the President. Section 11. THE SECRETARY. The Secretary shall: (a) keep the minutes of the shareholders, Board of Directors, and committees of the board meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder, unless such register is maintained by the transfer agent or registrar of the corporation; 13 (e) have general charge of the stock transfer books of the corporation; and (f) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Board of Directors, or the Chairman of the Board or the President. Section 12. THE TREASURER. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article VI of these Bylaws; (b) be responsible for filing all required tax returns, and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the Board of Directors, or the Chairman of the Board, or the President or the Vice President-Finance. Section 13. THE CONTROLLER. The Controller shall maintain adequate records showing the financial condition of the corporation and the results of its operations by established accounting periods, and see that adequate audits thereof are regularly and currently made. The Controller shall perform such other duties as from time to time may be assigned by the Board of Directors, or the Chairman of the Board, or the President or the Vice President-Finance. Section 14. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the Chairman of the Board or the President or a Vice President certificates for shares of the corporation, the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Secretaries, in general, shall perform such duties as shall be assigned to them by the Secretary, or by the Chairman of the Board, the President, or the Board of Directors. The Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Treasurer or by the Chairman of the Board, or the President, or the Board of Directors or the Vice President-Finance. Section 15. OTHER ASSISTANT AND ACTING OFFICERS. The Board of Directors or the Chairman of the Board or, after consultation with the Chairman of the Board, the President shall have the power to appoint any person to act as assistant to any officer, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer so appointed by the Chairman of the Board, the Board of Directors or, after consultation with the Chairman of the Board, by the President, shall have the power to perform all the duties of the office to which the person is so appointed to be assistant, or as to which the person is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors. 14 Section 16. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors or by such committee or superior officer as may be designated by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of also being a director of the corporation. ARTICLE V. GROUPS AND STAFF Section 1. ESTABLISHMENT OF GROUPS. The Board of Directors, the Chairman of the Board or, after consultation with the Chairman of the Board, the President, may cause the business to be divided into one or more groups, based upon product manufactured, geographical territory, character and type of operations, or upon such other basis as the Board of Directors, or the Chairman of the Board, or, after consultation with the Chairman of the Board, the President, may from time to time determine to be advisable. The groups shall operate under the authority and direction of a Group President and may operate under trade names approved for such purpose as may be authorized by the Board of Directors, or the Chairman of the Board, or the President. Section 2. GROUP OFFICERS. The Group President of a group may appoint any number of group officers (who shall not, by virtue of such appointment, be corporate officers), and may remove any such group officer. Such officers shall have such authority as may from time to time be assigned by the Group President. Section 3. STAFF OFFICERS. The Chairman of the Board or, after consultation with the Chairman of the Board, the President may appoint any number of staff officers (who shall not, by virtue of such appointment, be corporate officers), and may remove any such staff officer as the Chairman of the Board or, after consultation with the Chairman of the Board, the President, may deem appropriate from time to time. Such officers shall have such authority as may from time to time be assigned by the Chairman of the Board or the President. ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. The Chairman of the Board, the Chairman of the Executive Committee or the President may at any time execute and deliver any deeds, mortgages or bonds which the Board of Directors has authorized to be executed and delivered and may at any time execute and deliver any lease, bid, application, note, guarantee, consent, election, notice or other contract, document or instrument as may be required in the ordinary course and scope of the business of the corporation or as may be specifically authorized by the Board of Directors. The Chairman of the Board or the President may in writing 15 delegate the foregoing authority, and may delegate authority to redelegate such authority, to any other officer or officers, agent or agents, or other persons and the authority so delegated may be general or confined to specific instances. The Board of Directors may authorize any other officer or officers, agent or agents or other persons to execute and deliver any other contracts, documents or instruments and such authority may be general or confined to specific instances. Section 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 3. EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors or the Finance Committee, or committees or officers to whom the Board of Directors or the Finance Committee have delegated such authority may select. ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. CERTIFICATES FOR SHARES. Certificates for shares of capital stock of the corporation shall be in such form as shall be determined by the Board of Directors. They shall be issued in consecutive order and shall be numbered in the order of their issue and shall be signed by the Chairman of the Board or the President or a Vice President and the Secretary or an Assistant Secretary, provided, however, that if any stock certificate is countersigned by a transfer agent, other than the corporation or its employee, or by a registrar, other than the corporation or its employee, any other signature, including that of any such officer, on such certificate may be a facsimile, engraved, stamped or printed. In case any officer or agent who has signed or whose facsimile signature shall be used on any stock certificate shall cease to be such officer or agent of the corporation because of death, resignation or otherwise before such stock certificate shall have been delivered by the corporation, such stock certificate may nevertheless be issued and delivered as though the person or agent who signed the certificate or whose facsimile signature shall have been used thereon had not ceased to be such officer or agent of the corporation. 16 Section 2. TRANSFER OF SHARES. Upon surrender to the corporation or its transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Section 3. RESTRICTIONS ON OWNERSHIP, TRANSFER AND VOTING. So long as the corporation or any of its subsidiaries is subject to any law of the United States or any state therein which restricts ownership or voting of capital stock by Aliens (as defined herein), not more than one-fifth of the shares outstanding shall be owned of record or voted by or for the account of Aliens or their representatives or affiliates. The Board of Directors may issue share certificates representing not more than one-fifth of the shares of the stock of the corporation at any time out-standing in special form which may be owned or held by Aliens, such certificates to be known as "Foreign Share Certificates" and to be so marked, but under no circumstances shall the total amount of voting stock of any class represented by Foreign Share Certificates, plus the amount of voting stock of that class owned by or for the account of Aliens and represented by certificates not so marked, exceed one-fifth of the aggregate number of outstanding shares of such class. Shares of stock shall be transferable on the books of the corporation by the holder thereof, in person or by duly authorized attorney, upon the surrender of the certificate representing the shares to be transferred, properly endorsed; provided, however, that shares of stock other than shares represented by Foreign Share Certificates shall be transferable to Aliens or any person holding for the account thereof only when the aggregate number of shares of stock owned by or for the account of Aliens will not then be more than one- fifth of the number of shares of stock outstanding. The Board of Directors may direct that, before shares of stock shall be transferred on the books of the corporation, the corporation may require information as to whether the proposed transferee is an Alien or will hold the stock for the account of an Alien. If the stock records of the corporation shall at any time disclose Alien ownership of one-fifth or more of the voting stock of any class and it shall be found by the corporation that any certificate for shares marked "Domestic Share Certificate" is, in fact, held by or for the account of any Alien, the holder of the shares represented by that certificate shall not be entitled to vote, to receive dividends or to have any other rights with respect to such shares, except the right to transfer the shares to a Non-Alien (as defined herein). If the stock records of the corporation shall at any time disclose Alien ownership of one-fifth or more of the voting stock of any class and a request is made by an Alien to have shares registered in its name or for its account, the corporation shall be under no obligation to effect the transfer or to issue 17 or reissue any stock certificates to or for the account of the Alien. In addition, if a proposed transferee of any shares is an Alien, and the transfer to such Alien would result in Alien ownership of one-fifth or more of the voting stock of any class, the corporation shall be under no obligation to effect the transfer or to issue or reissue any stock certificates to or for the account of the Alien. Further, if it is determined at any time that a transfer has resulted in Alien ownership of one-fifth or more of the voting stock of any class, the holder of the shares which resulted in the Alien ownership of one- fifth or more of the voting stock shall not be entitled to vote, to receive dividends or have any other rights with respect to such shares, except the right to transfer those shares to a Non-Alien. The Board of Directors shall establish rules, regulations and procedures to assure compliance with and enforcement of this Article VII, Section 3. The term "Alien" is defined to mean and include the following: (1) Any person (including an individual, a partnership, a corporation or an association or any other entity) who is not a United States citizen or is the representative of or fiduciary for any person who is not a United States citizen; (2) Any foreign government or the representative thereof; (3) Any corporation any officer of which is an Alien, or of which more than 25% of its directors are Aliens; (4) Any corporation or association organized under the laws of any foreign government; (5) Any corporation of which more than 20% of its stock is owned beneficially or of record or may be voted by Aliens, or which by any other means whatsoever direct or indirect control of the corporation is held or permitted to be exercised by Aliens; (6) Any partnership, association or other entity which is owned or controlled by Aliens; (7) Any other person, corporation, trust, partnership or association deemed by the Board of Directors to be an Alien as to the United States or the corporation (or any subsidiary of the corporation). 18 No person, holding shares of class B stock (hereinafter such class B stock is called "class B stock" and such holder thereof is called a "class B holder") may transfer, and the corporation shall not register the transfer of, such shares of class B stock, whether by sale, assignment, gift, bequest, appointment or otherwise, except to a Permitted Transferee of such class B holder, which term shall have the following meanings: (i) in the case of a class B holder who is a natural person and the holder of record and beneficial owner of the shares of class B stock subject to said proposed transfer, "Permitted Transferee" means (A) the spouse of such class B holder, (B) a lineal descendant of a grandparent of such class B holder or a spouse of any such lineal descendant, (C) the trustee of a trust (including a voting trust) for the benefit of one or more class B holders, other lineal descendants of a grandparent of such class B holder, the spouse of such class B holder the spouses of such other lineal descendants and an organization contributions to which are deductible for federal income, estate or gift tax purposes (hereinafter called a "Charitable Organization"), and for the benefit of no other person, provided that such trust may grant a general or special power of appointment to such class B holder, the spouse of such class B holder, any lineal descendant of such class B holder or the spouse of any such lineal descendant, and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or the estate of such class B holder payable by reason of the death of such class B holder and provided that such trust prohibits transfer of shares of class B stock to persons other than Permitted Transferees, as defined in clause (ii) below, (D) the estate of such deceased class B holder, (E) a Charitable Organization established by such class B holder, such class B holder's spouse, a lineal descendant of a grandparent of such class B holder or a spouse of any such lineal descendant, and (F) a corporation all the outstanding capital stock of which is owned by, or a partnership all the partners of which are, one or more of such class B holders, other lineal descendants of a grandparent of such class B holder or a spouse of any such lineal descendant, and the spouse of such class B holder provided that if any share of capital stock of such a corporation (or of any survivor of a merger or consolidation of such a corporation), or any partnership interest in such a partnership, is acquired by any person who is not within such class of persons, all shares of class B stock then held by such corporation or partnership, as the case may be, shall be deemed, without further action, to be automatically converted into shares of common stock, and stock certificates formerly representing such shares of class B stock shall thereupon and thereafter be deemed to represent the like number of shares of common stock. 19 (ii) In the case of a class B holder holding the shares of class B stock subject to said proposed transfer as trustee pursuant to a trust other than a trust described in clause (iii) below, "Permitted Transferee" means (A) the person who established such trust and (B) a Permitted Transferee of such person determined pursuant to clause (i) above. (iii) In the case of a class B holder holding the shares of class B stock subject to said proposed transfer as trustee pursuant to a trust which was irrevocable on the record date for the initial distribution of shares of class B stock ("Record Date"), "Permitted Transferee" means any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise or any "Permitted Transferee" of such person determined pursuant to clause (i), (ii), (iv), (v) or (vi) hereof, as the case may be. (iv) In the case of a class B holder who is the record (but not beneficial) owner of the shares of class B stock subject to said proposed transfer as nominee for the person who was the beneficial owner thereof on the Record Date, "Permitted Transferee" means such beneficial owner and a Permitted Transferee of such beneficial owner determined pursuant to clause (i), (ii), (iii), (v) or (vi) hereof, as the case may be. (v) In the case of a class B holder which is a partnership and the holder of record and beneficial owner of the shares of class B stock subject to said proposed transfer, "Permitted Transferee" means any partner of such partnership or any "Permitted Transferee" of such partner determined pursuant to clause (i), (ii), (iii), (iv) or (vi) hereof, as the case may be. (vi) In the case of a class B holder which is a corporation (other than a Charitable Organization described in subclause (E) of clause (i) above and the holder of record and beneficial owner of the shares of class B stock subject to said proposed transfer, "Permitted Transferee" means any stockholder of such corporation receiving shares of class B stock through a dividend or through a distribution made upon liquidation of such corporation or any "Permitted Transferee" of such stockholder determined pursuant to clause (i), (ii), (iii), (iv) or (v) hereof, as the case may be. 20 (vii) In the case of a class B holder which is the estate of a deceased class B holder, or which is the estate of a bankrupt or insolvent class B holder, and provided such deceased, bankrupt or insolvent class B holder, as the case may be, was the record and beneficial owner of the shares of class B stock subject to said proposed transfer, "Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent class B holder as determined pursuant to clause (i), (v) or (vi) above, as the case may be. Notwithstanding anything to the contrary set forth herein, any class B holder may pledge such holder's shares of class B stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares shall not be transferred to or registered in the name of the pledgee and shall remain subject to the provi- sions of this Article VII, Section 3. In the event of foreclosure or other similar action by the pledgee, such pledged shares of class B stock may only be transferred to a Permitted Transferee of the pledgor or converted into shares of common stock, as the pledgee may elect. For purposes of this Article VII, Section 3: (i) The relationship of any person that is derived by or through legal adoption shall be considered a natural one. (ii) Each joint owner of shares of class B stock shall be considered a "class B holder" of such shares. (iii) A minor for whom shares of class B stock are held pursuant to a Uniform Gifts or Transfers to Minors Act or similar law shall be considered a "class B holder" of such shares. (iv) Unless otherwise specified, the term "person" means both natural persons and legal entities. Any purported transfer of shares of class B stock not permitted hereunder shall result, without further action, in the automatic conversion of the transferee's shares of class B stock into shares of common stock, effective on the date of such purported transfer. The corporation may, as a condition to the transfer or the registration of transfer of shares of class B stock to a purported Permitted Transferee, require the furnishing of such affidavits or other proof as it deems necessary to establish that such transferee is a Permitted Transferee. 21 Shares of class B stock shall be registered in the name(s) of the beneficial owner(s) thereof (as hereafter defined) and not in "street" or "nominee" names; provided, however, certificates representing shares of class B stock issued as a stock dividend on the corporation's then outstanding common stock may be registered in the same name and manner as the certificates representing the shares of common stock with respect to which the shares of class B stock were issued. For the purposes of this Article VII, Section 3, the term "beneficial owner(s)" of any shares of class B stock shall mean the person or persons who possess the power to dispose, or to direct the disposition, of such shares. The corporation shall note on the certificates representing the shares of class B stock that there are restrictions on transfer and registration of transfer imposed by this Article VII, Section 3. Section 4. REGISTERED SHAREHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable claim or other interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Iowa. Section 5. LOST CERTIFICATES. Upon the making of an affidavit that a certificate has been lost or destroyed, the Board of Directors may direct that a new certificate be issued to the person alleging the loss or destruction of such certificate. When authorizing such issuance of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or such owner's legal representative to give the corporation a bond in such sums as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 6. STOCK REGULATIONS. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the statutes of Iowa as they may deem expedient concerning the issue, transfer and registration of certificates representing shares of the corporation. ARTICLE VIII. FISCAL YEAR The fiscal year of the corporation shall begin on the first day of July and end on the thirtieth day of June in each year. 22 ARTICLE IX. DIVIDENDS The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE X. SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, "Corporate Seal." ARTICLE XI. WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of the Articles of Incorporation or under the provisions of the Iowa Business Corporations Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XII. INDEMNIFICATION OF DIRECTORS, OFFICERS OR EMPLOYEES Section 1. RIGHT TO INDEMNIFICATION. Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director, officer or employee of the corporation or is or was serving at the request of the corporation as director, officer or employee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the corporation to the fullest extent consistent with the laws of Iowa as the same now or may hereafter exist (but, in the case of any change, only to the extent that such change authorizes the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such change) against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such person; 23 provided, however, that the right to indemnification conferred in this Section shall be conditioned upon the corporation being afforded the opportunity to participate directly on behalf of such person in such proceeding and any settlement discussions relating thereto. The right to indemnification conferred in this Section shall be a contract right and shall, except with respect to an action or proceeding against the corporation by an employee who is neither a director nor an officer of the corporation, include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition upon receipt by the corporation of an undertaking, by or on behalf of such director, officer or employee to repay all amounts so advanced if it shall ultimately be determined that the director, officer or employee is not entitled to be indemnified under this Section or otherwise. Section 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section I of this Article is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Iowa law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because such person has met such standard of conduct, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met such standard of conduct, nor the termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall create a presumption that the claimant has failed to meet the required standard of conduct. Section 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. 24 Section 4. INSURANCE. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under Iowa law. Section 5. EXPENSES AS A WITNESS. To the extent that any director, officer or employee of the corporation is by reason of such position, or a position with another entity at the request of the corporation, a witness in any proceeding, such person shall be reimbursed for all costs and expenses actually and reasonably incurred in connection therewith. Section 6. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article by the shareholders or the directors of the corporation shall not adversely affect any right or protection of a director, officer or employee of the corporation existing at the time of such amendment, repeal or modification. Section 7. SEVERABILITY. In the event any one or more of the provisions contained in this Article shall, for any reason, be held to be invalid, illegal or unenforceable, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Article. ARTICLE XIII. AMENDMENTS These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. 25 EX-11 3 EXHIBIT 11 FOR 6-30-94 10-K Exhibit 11 MEREDITH CORPORATION AND SUBSIDIARIES ---------- Computation of Primary and Fully Diluted Per Common Share Earnings - Treasury Stock Method Five years ended June 30, 1994 (not covered by Independent Accountants' Opinion) Weighted average number of shares (in thousands) Dilutive effect of unexercised stock Weighted average options and management number of shares incentive deferred outstanding awards Total ---------------- ---------------------- ---------------- Fully Fully Fully Primary Diluted Primary Diluted Primary Diluted ------- ------- ------- ------- ------- ------- 1994 14,182 14,182 101 119 14,283 14,301 l993 15,266 15,266 20 20 15,286 15,286 1992 16,141 16,141 31 31 16,172 16,172 1991 16,814 16,814 51 51 16,865 16,865 1990 18,515 18,515 59 59 18,574 18,574 Primary and fully diluted earnings per common share Cum. Effect of Earnings from Change in Method Cont. Operations Earnings of Accounting Before Cum. Effect from for SFAS No. 106 of Change in Discontinued Postretirement Acctg. Principles Operations Benefits Total ------------------ --------------- ---------------- ---------------- Fully Fully Fully Fully Primary Diluted Primary Diluted Primary Diluted Primary Diluted ------- ------- ------- ------- ------- ------- ------- -------- 1994 $1.90* $1.90* $ - $ - $ - $ - $1.90 $1.90 1993 1.22 1.22 - - - - 1.22 1.22 1992 .06 .06 - - (.45) (.45) (.39) (.39) 1991 1.36 1.36 3.58 3.58 - - 4.94 4.94 1990 (.08) (.08) (1.35) (1.35) - - (1.43) (1.43) Note: Primary - based on average market prices. Fully Diluted - Based on the higher of the average market price or the market price at June 30 of each year. *Dilution less than three percent from earnings per common share outstanding and therefore not considered to be material. EX-21 4 EXHIBIT 21 FOR 6-30-94 10-K Exhibit 21 ---------- Subsidiaries of the Registrant ------------------------------ State of Names of Significant Subsidiary Organization Business Operations - - --------------------------------- ------------ ------------------- Meredith Cable, Inc. Iowa Meredith Cable Meredith/New Heritage Partnership Iowa Meredith Cable Meredith/New Heritage Strategic Partners, L.P. Iowa Meredith Cable North Central Cable Communications Corporation All other subsidiaries of the Company, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 5 EXHIBIT 23 FOR 6-30-94 10-K Exhibit 23 ---------- CONSENT OF INDEPENDENT AUDITORS ------------------------------- The Board of Directors Meredith Corporation: We consent to incorporation by reference in the registration statements No. 33- 2094, No. 2-54974, and No. 33-59258, each on Form S-8 of Meredith Corporation of our report dated August 1, 1994, except for Note 16 as to which the date is August 19, 1994, relating to the 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 and related schedules for each of the years in the three-year period ended June 30, 1994, which report appears in the June 30, 1994 annual report on Form 10-K of Meredith Corporation. /s/ KPMG Peat Marwick LLP Des Moines, Iowa September 23, 1994 EX-27 6 EXHIBIT 27 FOR 6-30-94 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the Consolidated Balance Sheet at June 30, 1994 and the Consolidated Statement of Earnings for the year ended June 30, 1994 of Meredith Corporation and Subsidiaries AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-30-1994 JUN-30-1994 37,957 12,178 93,325 17,469 34,962 298,268 231,158 106,503 864,467 280,379 126,822 13,721 0 0 244,040 864,467 799,526 799,526 326,727 326,727 34,256 0 11,624 54,233 27,079 27,154 0 0 0 27,154 1.91 1.90
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