 Left: E.T. Meredith III -- Chairman of the
Executive Committee of the Board of Directors
Right: William T.
Kerr -- Chairman and Chief Executive Officer
.
To Our Shareholders:
In fiscal 1999, we once again
reportedrecord financial performance:
• Earnings per share from
continuing operations before nonrecurring items grew 12 percent to $1.64
• EBITDA was up 14
percent to $215.2 million
• Return on equity
reached 21.3 percent.
Including fiscal 1999, our earnings per
share from continuing operations before nonrecurring items have increased at a 27 percent
five-year compound annual growth rate. EBITDA has grown at an average of 25 percent per
year over the same time frame. Our return on equity reached its current level of 21.3
percent from 8.9 percent in fiscal 1994.
In addition to our strong financial
performance, fiscal 1999 also was a year of significant operating and strategic
achievement. Following are some of our key accomplishments:
• We acquired WGNX-TV, the Atlanta CBS
affiliate
• We launched MORE magazine at a rate
base of 320,000, and we have expanded it twice since then – to 500,000 with the
August 1999 issue
• We initiated rate base increases for
Traditional Home, Crayola KidsŪ and Golf for Women magazines; and we
increased the frequencies of Country Home, Family Money and Country Gardens
magazines
• We implemented successful
cross-marketing programs that used our corporate resources to bolster our television
advertising sales efforts
• We continued to develop and expand
our Internet and e-commerce activities, including a major new alliance with America
Online.
You’ll find more detail about these
and other developments in the Review of Operations on pages 8 through 18.
We were disappointed that our record
financial performance was not reflected in our stock price in fiscal 1999. We believe our
price was affected by a softer broadcast television advertising market; financial
community uncertainty over the advertising climate in general; and the time required to
implement a turnaround strategy at WGNX in Atlanta. Nonetheless, we remain convinced that
strong financial results will ultimately translate into high shareholder return.
Trends
Several major trends will affect how we grow in the future. They present tremendous
opportunities for our company. Following is a description of each trend, along with our
thoughts about how Meredith will benefit.
Advertising
Accountability
Today, advertisers demand greater efficiency and effectiveness from their marketing
investments. We recognize that need, and are using our 60-million-name consumer database,
our integrated marketing skills and our content expertise to provide advertisers with more
targeted campaigns and increased accountability for results. These unique resources help
Meredith deliver comprehensive, innovative and measurable communications programs.
Branding
Effective branding is especially important in a world of increasing choices. Meredith
Corporation’s stable of respected brands is a key force in our continued strong
performance. Well-known magazines such as Better Homes and Gardens and Ladies’
Home Journal are major contributors to our revenues and operating profit. In fact,
for every dollar of revenue produced by Better Homes and Gardens magazine, an
additional 90 cents is generated by products and services formed under its umbrella. Country
Home and Traditional Home magazines, originally created under the Better
Homes and Gardens umbrella, have developed loyal followings. Each is a recognized
expert for its lifestyle information and generates significant revenues and profit.
We also understand the growing
need for our television stations to stand out in an increasingly crowded field.
Accordingly, we are creating local identities and targeted program lineups so that each of
our stations becomes an explicit viewer destination. We believe this is achievable through
a disciplined strategy and consistent execution of product and positioning based on
extensive research in each market. This effort should ultimately translate into higher
ratings, which will in turn lead to revenue and profit growth. Building local brands is
the best sustainable defense against fragmentation in the media industry. We’re
already encouraged by our progress in key markets.
Content
A media brand, however, is only as strong as its content. In our publishing, broadcasting
and interactive businesses, our customers expect compelling, entertaining and useful
subject matter. We deliver service journalism to consumers in the format they prefer,
whether it’s on printed pages, by means of a television set, or through interactive
media. Many of America’s premier marketers rely on us for our content expertise.
Industry-leading companies, including The Home Depot and Kraft Foods, have partnered with
us for the development of marketing programs and materials.
Our Publishing and
Broadcasting Groups are increasingly leveraging their content across multiple formats to
reinforce one another. Our Broadcasting Group is using other Meredith resources to create
value-added integrated marketing programs for its local and national advertisers. Our
television programs – such as nationally syndicated Better Homes and Gardens
Television, prime-time network specials from Ladies’ Home Journal and others
under development – provide additional sources of revenue while generating increased
recognition for our magazine franchises. We’re creating joint Internet marketing
projects, and we’re using our television stations and magazines to cross-promote one
another.
Demographics
Our home and family content is ideally suited for major demographic shifts taking place in
our society. More than 81 million baby boomers live in the United States, and the number
of people ages 45 to 54 will increase 25 percent over the next 10 years. This same age
group has historically invested the most in home-related goods and services and therefore
has the greatest interest in our content. Additionally, the younger members of the baby
boom population, adults ages 35 to 44, are entering the life stages that require more
spending and focus on consumer goods and services to support growing families. These
demographic developments bode well for Meredith, as we expect them to result in increased
advertising spending and interest in our home and family related content.
To summarize, we’re
taking advantage of key trends related to advertising accountability, branding, content
and demographics. We believe that this changing landscape, coupled with enthusiastic
pursuit of our publishing and broadcasting growth initiatives, will be instrumental as we
maintain our commitment to double-digit earnings per share growth, double-digit EBITDA
growth and a strong return on equity.
Before closing, we would like
to highlight some of our recent corporate and executive developments.
Corporate Developments
At its February 1999 meeting, our board of directors increased the quarterly cash dividend
by 7 percent, resulting in a current annualized dividend rate of 30 cents per share. We
repurchased approximately 1.1 million shares of our stock in fiscal 1999. We plan to
continue our buyback program, as we believe our stock is currently undervalued given our
financial performance, our strong brands and our exciting growth prospects.
Executive Developments
We’re pleased to welcome John S. Zieser as our new vice president– general
counsel and secretary. John brings an outstanding professional background to Meredith,
including extensive experience with mergers, acquisitions and media transactions, and we
look forward to his leadership.
We’re also pleased to
welcome Thomas J. Ferree as our corporate controller. His broad experience in finance,
accounting, capital investments and investor relations will make him a valuable addition
to our team.
On July 5, 1999, we announced
that Stephen M. Lacy, our vice president and chief financial officer, will become a
Publishing Group vice president. This executive development move is designed to provide
Steve with additional operating group experience. A search for a new CFO was under way as
of press time.
Barbara U. Charlton, a member
of our board of directors since 1980, will retire effective with the November 1999 annual
shareholder meeting. We will miss Barbara, and we thank her for many contributions to our
board over her 19-year tenure.
Christina A. Gold, president
and founder of The Beaconsfield Group – an advisory firm specializing in global
direct selling and marketing/distribution – has been nominated to fill Barbara’s
spot on the board. Currently, Christina is a director of ITT Industries, Inc., and the
Torstar Corporation. Before starting her own company in February 1998, Christina held
senior leadership positions at Avon Products, Inc.
As you read this annual
report, we hope you will appreciate the considerable opportunity that lies ahead of us.
We’ve proven our ability to decisively move our businesses forward, and we maintain
our commitment to profitable growth. Thanks go to our customers, employees and
shareholders for their continued support.
Sincerely,
William T. Kerr
Chairman of the Board and
Chief Executive Officer
E.T. Meredith III
Chairman of the Executive Committee
of the Board of Directors
August 30, 1999 |
