WebFilings | EDGAR view
Click here for Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
Commission file number 1-5128
 
 
 
MEREDITH CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Iowa
 
42-0410230
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer 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
 
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]
No [_]
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Accelerated filer [_]
Non-accelerated filer [_] (Do not check if a smaller reporting company)     
Smaller reporting company [_]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_]
No [X]
 
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Shares of stock outstanding at March 31, 2011
 
Common shares
36,749,874
 
Class B shares
8,785,099
 
Total common and Class B shares
45,534,973
 
 
 
 
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page
 
Part I - Financial Information
 
 
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2011, and June 30, 2010
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended March 31, 2011 and 2010
 
 
 
 
 
 
 
 
Condensed Consolidated Statement of Shareholders' Equity for the Nine Months Ended March 31, 2011
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 2011 and 2010
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
 
 
Item 1A.
Risk Factors
 
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 
 
 
 
 
Signature
 
 
 
 
 
 
 
Index to Attached Exhibits
 
 
 
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
 
 
(Unaudited)
 
 
Assets
March 31,
2011
 
June 30,
2010
(In thousands)
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
20,680
 
 
$
48,574
 
Accounts receivable, net
 
221,089
 
 
223,630
 
Inventories
 
28,315
 
 
26,807
 
Current portion of subscription acquisition costs
 
56,251
 
 
57,917
 
Current portion of broadcast rights
 
7,642
 
 
5,423
 
Other current assets
 
14,762
 
 
19,076
 
Total current assets
 
348,739
 
 
381,427
 
Property, plant, and equipment
 
463,922
 
 
450,966
 
Less accumulated depreciation
 
(279,239
)
 
(263,964
)
Net property, plant, and equipment
 
184,683
 
 
187,002
 
Subscription acquisition costs
 
54,478
 
 
55,228
 
Broadcast rights
 
1,701
 
 
2,977
 
Other assets
 
52,477
 
 
59,138
 
Intangible assets, net
 
548,467
 
 
552,210
 
Goodwill
 
514,583
 
 
489,334
 
Total assets
 
$
1,705,128
 
 
$
1,727,316
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Current portion of long-term debt
 
$
50,000
 
 
$
50,000
 
Current portion of long-term broadcast rights payable
 
11,940
 
 
9,892
 
Accounts payable
 
56,014
 
 
109,897
 
Accrued expenses and other liabilities
 
112,852
 
 
109,225
 
Current portion of unearned subscription revenues
 
158,060
 
 
159,292
 
Total current liabilities
 
388,866
 
 
438,306
 
Long-term debt
 
175,000
 
 
250,000
 
Long-term broadcast rights payable
 
6,510
 
 
8,961
 
Unearned subscription revenues
 
122,287
 
 
130,699
 
Deferred income taxes
 
149,076
 
 
114,240
 
Other noncurrent liabilities
 
103,900
 
 
96,765
 
Total liabilities
 
945,639
 
 
1,038,971
 
Shareholders' equity
 
 
 
 
Series preferred stock
 
—
 
 
—
 
Common stock
 
36,750
 
 
36,329
 
Class B stock
 
8,785
 
 
9,086
 
Additional paid-in capital
 
70,946
 
 
66,311
 
Retained earnings
 
669,044
 
 
604,624
 
Accumulated other comprehensive loss
 
(26,036
)
 
(28,005
)
Total shareholders' equity
 
759,489
 
 
688,345
 
Total liabilities and shareholders' equity
 
$
1,705,128
 
 
$
1,727,316
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

1
Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
 
 
Three Months
 
Nine Months
Periods Ended March 31,
2011
 
2010
 
2011
 
2010
(In thousands except per share data)
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Advertising
$
185,910
 
 
$
199,170
 
 
$
605,570
 
 
$
578,854
 
Circulation
67,603
 
 
74,598
 
 
198,785
 
 
211,686
 
All other
87,218
 
 
79,575
 
 
247,658
 
 
232,073
 
Total revenues
340,731
 
 
353,343
 
 
1,052,013
 
 
1,022,613
 
Operating expenses
 
 
 
 
 
 
 
Production, distribution, and editorial
135,343
 
 
144,517
 
 
416,855
 
 
438,521
 
Selling, general, and administrative
143,627
 
 
142,044
 
 
436,718
 
 
428,298
 
Depreciation and amortization
9,967
 
 
10,313
 
 
29,419
 
 
30,533
 
Total operating expenses
288,937
 
 
296,874
 
 
882,992
 
 
897,352
 
Income from operations
51,794
 
 
56,469
 
 
169,021
 
 
125,261
 
Interest income
6
 
 
6
 
 
28
 
 
25
 
Interest expense
(3,153
)
 
(3,952
)
 
(10,037
)
 
(14,737
)
Earnings before income taxes
48,647
 
 
52,523
 
 
159,012
 
 
110,549
 
Income taxes
(17,810
)
 
(19,224
)
 
(61,911
)
 
(39,955
)
Net earnings
$
30,837
 
 
$
33,299
 
 
$
97,101
 
 
$
70,594
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.68
 
 
$
0.73
 
 
$
2.13
 
 
$
1.56
 
Basic average shares outstanding
45,594
 
 
45,331
 
 
45,550
 
 
45,259
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.67
 
 
$
0.73
 
 
$
2.12
 
 
$
1.55
 
Diluted average shares outstanding
45,998
 
 
45,651
 
 
45,888
 
 
45,505
 
 
 
 
 
 
 
 
 
Dividends paid per share
$
0.255
 
 
$
0.230
 
 
$
0.715
 
 
$
0.680
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 

2
Meredith Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
 
(In thousands except per share data)
Common
Stock - $1
par value
 
Class B
Stock - $1
par value
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at June 30, 2010
 
$
36,329
 
 
 
$
9,086
 
 
 
$
66,311
 
 
$
604,624
 
 
 
$
(28,005
)
 
$
688,345
 
Net earnings
 
—
 
 
 
—
 
 
 
—
 
 
97,101
 
 
 
—
 
 
97,101
 
Other comprehensive income, net
 
—
 
 
 
—
 
 
 
—
 
 
—
 
 
 
1,969
 
 
1,969
 
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
99,070
 
Share-based incentive plan transactions
 
415
 
 
 
—
 
 
 
7,111
 
 
—
 
 
 
—
 
 
7,526
 
Purchases of Company stock
 
(272
)
 
 
(23
)
 
 
(9,429
)
 
—
 
 
 
—
 
 
(9,724
)
Share-based compensation
 
—
 
 
 
—
 
 
 
7,992
 
 
—
 
 
 
—
 
 
7,992
 
Conversion of Class B to common stock
 
278
 
 
 
(278
)
 
 
—
 
 
—
 
 
 
—
 
 
—
 
Dividends paid
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
—
 
 
 
—
 
 
 
—
 
 
(26,276
)
 
 
—
 
 
(26,276
)
Class B stock
 
—
 
 
 
—
 
 
 
—
 
 
(6,405
)
 
 
—
 
 
(6,405
)
Tax benefit from incentive plans
 
—
 
 
 
—
 
 
 
(1,039
)
 
—
 
 
 
—
 
 
(1,039
)
Balance at March 31, 2011 
 
$
36,750
 
 
 
$
8,785
 
 
 
$
70,946
 
 
$
669,044
 
 
 
$
(26,036
)
 
$
759,489
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 

3
Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended March 31,
2011
 
2010
(In thousands)
 
 
 
Cash flows from operating activities
 
 
 
Net earnings
$
97,101
 
 
$
70,594
 
Adjustments to reconcile net earnings to net cash provided by operating activities
 
 
 
Depreciation
21,998
 
 
23,503
 
Amortization
7,421
 
 
7,030
 
Share-based compensation
7,992
 
 
8,630
 
Deferred income taxes
37,730
 
 
17,191
 
Amortization of broadcast rights
12,895
 
 
17,357
 
Payments for broadcast rights
(14,242
)
 
(16,574
)
Gain from dispositions of assets
—
 
 
(2,819
)
Provision for write-down of impaired assets
—
 
 
3,249
 
Excess tax benefits from share-based payments
(427
)
 
(489
)
Changes in assets and liabilities
(30,093
)
 
12,231
 
Net cash provided by operating activities
140,375
 
 
139,903
 
Cash flows from investing activities
 
 
 
Acquisitions of businesses
(39,141
)
 
(32,542
)
Additions to property, plant, and equipment
(19,625
)
 
(18,249
)
Net cash used in investing activities
(58,766
)
 
(50,791
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
12,500
 
 
85,000
 
Repayments of long-term debt
(87,500
)
 
(150,000
)
Purchases of Company stock
(9,724
)
 
(5,228
)
Dividends paid
(32,681
)
 
(30,881
)
Proceeds from common stock issued
7,526
 
 
7,459
 
Excess tax benefits from share-based payments
427
 
 
489
 
Other
(51
)
 
(195
)
Net cash used in financing activities
(109,503
)
 
(93,356
)
Net decrease in cash and cash equivalents
(27,894
)
 
(4,244
)
Cash and cash equivalents at beginning of period
48,574
 
 
27,910
 
Cash and cash equivalents at end of period
$
20,680
 
 
$
23,666
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 

4
Meredith Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
1. Summary of Significant Accounting Policies
 
Basis of presentation—The condensed consolidated financial statements include the accounts of Meredith Corporation and its wholly owned subsidiaries (Meredith or the Company), after eliminating all significant intercompany balances and transactions. Meredith does not have any off-balance sheet arrangements. The Company's use of special-purpose entities is limited to Meredith Funding Corporation, whose activities are fully consolidated in Meredith's condensed consolidated financial statements.
 
The condensed consolidated financial statements as of March 31, 2011, and for the three and nine months ended March 31, 2011 and 2010, are unaudited but, in management's opinion, include all normal, recurring adjustments necessary for a fair presentation of the results of interim periods. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.
 
These consolidated financial statements, including the related notes, are condensed and presented in accordance with accounting principles generally accepted in the United States of America (GAAP). These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements, which are included in Meredith's Annual Report on Form 10-K for the year ended June 30, 2010, filed with the United States Securities and Exchange Commission.
 
Recently Adopted Accounting Standards—In September 2009, authoritative guidance on revenue arrangements with multiple deliverables was issued. This guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The Company adopted this guidance for revenue arrangements entered into or materially modified on or after July 1, 2010. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
 
Recently Issued Accounting Standards—In December 2010, the Financial Accounting Standards Board (FASB) issued an accounting pronouncement related to intangibles - goodwill and other, which requires a company to consider whether there are any adverse qualitative factors indicating that an impairment may exist in performing step 2 of the impairment test for reporting units with zero or negative carrying amounts. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010, with no early adoption. The Company will adopt this pronouncement for our fiscal year beginning July 1, 2011. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.
 
In December 2010, the FASB issued an accounting pronouncement related to business combinations, which requires that when comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The disclosure provisions are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. If applicable, we will include the required disclosures for our fiscal year beginning July 1, 2011.
 
 
2. Acquisitions
 
Effective July 1, 2010, Meredith acquired the remaining 80.01 percent of the outstanding common shares of The Hyperfactory Limited International (Hyperfactory). The results of Hyperfactory operations have been included in the consolidated financial statements since that date. Hyperfactory is an international mobile marketing company

5
with operations in New Zealand, the United States, Australia, India, and Hong Kong. The acquisition-date fair value of the consideration transferred totaled $16.2 million, which consisted of $9.1 million of cash and $7.1 million of contingent consideration.
 
The contingent consideration arrangement requires the Company to pay contingent payments should the acquired operations achieve certain financial targets generally based on earnings before interest and taxes, as defined in the acquisition agreement. None of the contingent consideration is dependent on the continued employment of the sellers. As of March 31, 2011, the Company estimates that future aggregate contingent payments will range from approximately $1.0 million to $7.4 million over the next two years. The maximum amount of contingent payments the sellers may receive over the next two years is $26.0 million. We estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement as defined in Note 7.
 
As a result of the acquisition, the assets and liabilities of Hyperfactory, consisting primarily of accounts receivable, identifiable intangible assets, accounts payable, contingent consideration, and other accrued expenses, are now reflected in the Company's consolidated balance sheet. The consolidated financial statements reflect the allocation of the purchase price to the assets acquired and liabilities assumed, based on their respective fair values.
Trade names, an indefinite-lived asset, has been assigned a value of $0.4 million. Definite-lived intangible assets include technology of $1.0 million (7 year useful life) and customer lists of $2.1 million (10 year useful life). Goodwill, with an assigned value of $13.1 million, is attributable to expected synergies and the assembled workforce of Hyperfactory.
Hyperfactory is subject to legal and regulatory requirements, including but not limited to those related to taxation, in each of the jurisdictions in the countries in which it operates. The Company has conducted a preliminary assessment of liabilities arising in each of these jurisdictions, and has recognized provisional amounts in its initial accounting for the acquisition of Hyperfactory for all identified liabilities in accordance with the business combinations guidance. However, the Company is continuing its review of these matters during the measurement period, and if new information about facts and circumstances that existed at the acquisition date identifies adjustments to the liabilities initially recognized, or any additional liabilities that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts initially recognized.
Prior to the July 1, 2010, acquisition date, the Company owned 19.99 percent of Hyperfactory and accounted for its interest as a cost-method investment. The acquisition-date fair value of the previous equity interest was $4.5 million, and is included in the measurement of consideration transferred. The Company did not recognize a gain or loss as a result of remeasuring its prior equity interest in Hyperfactory held before the business combination.
In December 2010, Meredith acquired the assets of Real Girls Media Network (RGM) for approximately $4.0 million. RGM is a social content hub which includes DivineCaroline.com as well as a premium network of branded sites for women. As a result of the acquisition, assets consisting primarily of accounts receivable, prepaid assets, identifiable intangible assets, and goodwill are now reflected in the Company's consolidated balance sheet.
 
The impact of the acquisitions is not material to the Company's results of operations; therefore, pro forma financial information has not been provided. Acquisition related costs were expensed by the Company in the period in which they were incurred. Acquisition related costs were not material to the Company's results of operations.

6
3. Inventories
 
Major components of inventories are summarized below. Of total net inventory values shown, approximately 52 percent are under the last-in first-out (LIFO) method at March 31, 2011, and 54 percent at June 30, 2010.
 
(In thousands)
March 31,
2011
 
June 30,
2010
Raw materials
$
18,931
 
 
$
16,773
 
Work in process
14,232
 
 
10,652
 
Finished goods
1,418
 
 
3,148
 
 
34,581
 
 
30,573
 
Reserve for LIFO cost valuation
(6,266
)
 
(3,766
)
Inventories
$
28,315
 
 
$
26,807
 
 
 
4. Intangible Assets and Goodwill
 
Intangible assets consist of the following:
 
March 31, 2011
 
 
June 30, 2010
(In thousands)
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
National media group
 
 
 
 
 
 
 
 
 
 
 
 
Noncompete agreements
$
480
 
 
$
(408
)
 
$
72
 
 
 
$
480
 
 
$
(338
)
 
$
142
 
Advertiser relationships
18,400
 
 
(15,114
)
 
3,286
 
 
 
18,400
 
 
(13,143
)
 
5,257
 
Customer lists
11,330
 
 
(4,877
)
 
6,453
 
 
 
9,230
 
 
(3,570
)
 
5,660
 
Other
4,551
 
 
(3,000
)
 
1,551
 
 
 
3,544
 
 
(2,596
)
 
948
 
Local media group
 
 
 
 
 
 
 
 
 
 
 
 
Network affiliation agreements
218,559
 
 
(106,527
)
 
112,032
 
 
 
218,559
 
 
(102,859
)
 
115,700
 
Total
$
253,320
 
 
$
(129,926
)
 
123,394
 
 
 
$
250,213
 
 
$
(122,506
)
 
127,707
 
Intangible assets not
 
 
 
 
 
 
 
 
 
 
 
 
subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
National media group
 
 
 
 
 
 
 
 
 
 
 
 
Internet domain names
 
 
 
 
1,166
 
 
 
 
 
 
 
996
 
Trademarks
 
 
 
 
124,831
 
 
 
 
 
 
 
124,431
 
Local media group
 
 
 
 
 
 
 
 
 
 
 
 
FCC licenses
 
 
 
 
299,076
 
 
 
 
 
 
 
299,076
 
Total
 
 
 
 
425,073
 
 
 
 
 
 
 
424,503
 
Intangible assets, net
 
 
 
 
$
548,467
 
 
 
 
 
 
 
$
552,210
 
 
Amortization expense was $7.4 million for the nine months ended March 31, 2011. Annual amortization expense for intangible assets is expected to be as follows: $9.9 million in fiscal 2011, $9.6 million in fiscal 2012, $6.9 million in fiscal 2013, $6.6 million in fiscal 2014, and $6.2 million in fiscal 2015.
 
For certain acquisitions consummated prior to July 1, 2009, the sellers are entitled to contingent payments should the acquired operations achieve certain financial targets generally based on earnings before interest and taxes, as defined in the respective acquisition agreements. None of the contingent consideration is dependent on the continued employment of the sellers. As of March 31, 2011, the Company estimates that future aggregate contingent payments for such acquisitions will range from approximately $7.3 million to $12.4 million; the most

7
likely estimate being $11.4 million. The maximum amount of contingent payments the sellers may receive over the next two years is $68.6 million. The additional purchase consideration, if any, will be recorded as additional goodwill on our Consolidated Balance Sheet when the contingencies are resolved. For the nine months ended March 31, 2011 and 2010, the Company recognized consideration of $8.6 million and $22.5 million, respectively, which increased goodwill.
 
Changes in the carrying amount of goodwill were as follows:
Nine Months Ended March 31,
2011
 
2010
(In thousands)
National
Media
Group
 
Local
Media
Group
 
Total
 
National
Media
Group
 
Local
Media
Group
 
Total
Balance at beginning of period
$
489,334
 
 
$
—
 
 
$
489,334
 
 
$
462,379
 
 
$
—
 
 
$
462,379
 
Acquisitions
25,249
 
 
—
 
 
25,249
 
 
22,540
 
 
—
 
 
22,540
 
Balance at end of period
$
514,583
 
 
$
—
 
 
$
514,583
 
 
$
484,919
 
 
$
—
 
 
$
484,919
 
 
 
5. Restructuring Accrual
 
Changes in the Company's restructuring accrual were as follows:
 
Nine Months Ended March 31,
2011
2010
(In thousands)
 
 
Balance at beginning of period
$
5,538
 
$
9,894
 
Severance accrual
—
 
2,221
 
Cash payments
(2,258
)
(3,066
)
Other
—
 
(68
)
Balance at end of period
$
3,280
 
$
8,981
 
 
 
6. Long-term Debt
 
Long-term debt consists of the following:
 
(In thousands)
March 31,
2011
 
June 30,
2010
Variable-rate credit facilities
 
 
 
Asset-backed bank facility of $100 million, due 4/25/2013
$
50,000
 
 
$
75,000
 
Revolving credit facility of $150 million, due 6/16/2013
—
 
 
50,000
 
 
 
 
 
Private placement notes
 
 
 
4.70% senior notes, due 6/16/2011
50,000
 
 
50,000
 
5.04% senior notes, due 6/16/2012
50,000
 
 
50,000
 
6.70% senior notes, due 7/13/2013
50,000
 
 
50,000
 
7.19% senior notes, due 7/13/2014
25,000
 
 
25,000
 
Total long-term debt
225,000
 
 
300,000
 
Current portion of long-term debt
(50,000
)
 
(50,000
)
Long-term debt
$
175,000
 
 
$
250,000
 
 
In connection with the asset-backed bank facility, Meredith entered into a revolving agreement to sell all of its rights, title, and interest in the majority of its accounts receivable related to advertising and miscellaneous revenues to Meredith Funding Corporation, a special purpose entity established to purchase accounts receivable from

8
Meredith. At March 31, 2011, $152.2 million of accounts receivable net of reserves was outstanding under the agreement. Meredith Funding Corporation in turn may sell receivable interests to a major national bank. In consideration of the sale, Meredith receives cash and a subordinated note, bearing interest at the prime rate, 3.25 percent at March 31, 2011, from Meredith Funding Corporation. The agreement is structured as a true sale under which the creditors of Meredith Funding Corporation will be entitled to be satisfied out of the assets of Meredith Funding Corporation prior to any value being returned to Meredith or its creditors. The accounts of Meredith Funding Corporation are fully consolidated in Meredith's condensed consolidated financial statements. In April 2011, we renewed our asset-backed bank facility for an additional two year period under terms substantially similar to those previously in place. The renewed facility will expire in April 2013.
 
 
7. Fair Value Measurement
 
We have estimated the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that we would realize upon disposition.
 
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
 
•
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
•
Level 3
Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.
 
The carrying amount and estimated fair value of broadcast rights payable were $18.5 million and $17.8 million, respectively, as of March 31, 2011, and $18.9 million and $18.0 million, respectively, as of June 30, 2010. The fair value of broadcast rights payable was determined using the present value of expected future cash flows discounted at the Company's current borrowing rate.
 
The carrying amount and estimated fair value of long-term debt were $225.0 million and $234.8 million, respectively, as of March 31, 2011, and $300.0 million and $312.7 million, respectively, as of June 30, 2010. The fair value of long-term debt was determined using the present value of expected future cash flows using borrowing rates currently available for debt with similar terms and maturities.
 
 

9
8. Pension and Postretirement Benefit Plans
 
The following table presents the components of net periodic benefit costs:
 
 
Three Months
 
 
Nine Months
Periods Ended March 31,
2011
 
2010
 
 
2011
 
2010
(In thousands)
 
 
 
 
 
 
 
 
Pension benefits
 
 
 
 
 
 
 
 
Service cost
$
2,412
 
 
$
2,184
 
 
 
$
7,235
 
 
$
6,384
 
Interest cost
1,324
 
 
1,411
 
 
 
3,972
 
 
4,367
 
Expected return on plan assets
(2,172
)
 
(2,291
)
 
 
(6,516
)
 
(5,861
)
Prior service cost amortization
93
 
 
214
 
 
 
279
 
 
641
 
Actuarial loss amortization
1,167
 
 
841
 
 
 
3,500
 
 
4,085
 
Net periodic benefit costs
$
2,824
 
 
$
2,359
 
 
 
$
8,470
 
 
$
9,616
 
 
 
 
 
 
 
 
 
 
Postretirement benefits
 
 
 
 
 
 
 
 
Service cost
$
119
 
 
$
106
 
 
 
$
357
 
 
$
317
 
Interest cost
198
 
 
227
 
 
 
594
 
 
681
 
Prior service cost amortization
(184
)
 
(184
)
 
 
(552
)
 
(552
)
Net periodic benefit costs
$
133
 
 
$
149
 
 
 
$
399
 
 
$
446
 
 
 
9. Comprehensive Income
 
Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. The Company's comprehensive income includes net earnings, changes in the fair value of interest rate swap agreements, and changes in prior service cost and net actuarial losses from pension and postretirement benefit plans. Total comprehensive income for the three months ended March 31, 2011 and 2010, was $31.5 million and $33.3 million, respectively. Total comprehensive income for the nine months ended March 31, 2011 and 2010, was $99.1 million and $71.8 million, respectively.
 
 
10. Earnings per Share
 
The following table presents the calculations of earnings per share:
 
 
Three Months
 
 
Nine Months
Periods Ended March 31,
2011
 
2010
 
 
2011
 
2010
(In thousands except per share data)
 
 
 
 
 
 
 
 
Net earnings
$
30,837
 
 
$
33,299
 
 
 
$
97,101
 
 
$
70,594
 
Basic average shares outstanding
45,594
 
 
45,331
 
 
 
45,550
 
 
45,259
 
Dilutive effect of stock options and equivalents
404
 
 
320
 
 
 
338
 
 
246
 
Diluted average shares outstanding
45,998
 
 
45,651
 
 
 
45,888
 
 
45,505
 
Basic earnings per share
$
0.68
 
 
$
0.73
 
 
 
$
2.13
 
 
$
1.56
 
Diluted earnings per share
0.67
 
 
0.73
 
 
 
2.12
 
 
1.55
 
 
For the three months ended March 31, antidilutive options excluded from the above calculations totaled 5,947,000 in 2011 (with a weighted average exercise price of $39.04) and 4,521,000 in 2010 (with a weighted average exercise price of $42.71). For the nine months ended March 31, antidilutive options excluded from the above

10
calculations totaled 5,964,000 in 2011 (with a weighted average exercise price of $39.07) and 5,279,000 in 2010 (with a weighted average exercise price of $41.83).
 
In the nine months ended March 31, 2011 and 2010, options were exercised to purchase 168,650 and 170,600 shares, respectively.
 
 
11. Segment Information
 
Meredith is a diversified media company focused primarily on the home and family marketplace. On the basis of products and services, the Company has established two reportable segments: national media group and local media group. There have been no changes in the basis of segmentation since June 30, 2010. There are no material intersegment transactions.
 
There are two principal financial measures reported to the chief executive officer for use in assessing segment performance and allocating resources. Those measures are operating profit and earnings from continuing operations before interest, taxes, depreciation, and amortization (EBITDA). Operating profit for segment reporting, disclosed below, is revenues less operating costs excluding unallocated corporate expenses. Segment operating expenses include allocations of certain centrally incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff, and human resources administration. These costs are allocated based on actual usage or other appropriate methods, primarily number of employees. Unallocated corporate expenses are corporate overhead expenses not directly attributable to the operating groups. In accordance with authoritative guidance on disclosures about segments of an enterprise and related information, EBITDA is not presented below.
 
The following table presents financial information by segment:
 
 
Three Months
 
 
Nine Months
Periods Ended March 31,
2011
 
2010
 
 
2011
 
2010
(In thousands)
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
National media group
$
269,736
 
 
$
284,585
 
 
 
$
807,543
 
 
$
817,364
 
Local media group
70,995
 
 
68,758
 
 
 
244,470
 
 
205,249
 
Total revenues
$
340,731
 
 
$
353,343
 
 
 
$
1,052,013
 
 
$
1,022,613
 
 
 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
 
National media group
$
47,912
 
 
$
50,865
 
 
 
$
128,274
 
 
$
121,232
 
Local media group
13,281
 
 
12,828
 
 
 
68,558
 
 
32,291
 
Unallocated corporate
(9,399
)
 
(7,224
)
 
 
(27,811
)
 
(28,262
)
Income from operations
$
51,794
 
 
$
56,469
 
 
 
$
169,021
 
 
$
125,261
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
National media group
$
3,453
 
 
$
3,694
 
 
 
$
10,146
 
 
$
10,843
 
Local media group
6,114
 
 
6,078
 
 
 
17,858
 
 
18,160
 
Unallocated corporate
400
 
 
541
 
 
 
1,415
 
 
1,530
 
Total depreciation and amortization
$
9,967
 
 
$
10,313
 
 
 
$
29,419
 
 
$
30,533
 
 
 

11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
EXECUTIVE OVERVIEW
 
Meredith Corporation is the leading media and marketing company serving American women. Meredith combines well-known national brands - including Better Homes and Gardens, Parents, Ladies' Home Journal, Family Circle, American Baby, Fitness, and More - with local television brands in fast growing markets such as Atlanta, Phoenix, and Portland. Meredith is the industry leader in creating content in key consumer interest areas such as home, family, health and wellness, and self-development. Meredith then uses multiple distribution platforms - including print, television, online, mobile, and video - to give consumers content they desire and to deliver the messages of its marketing partners. Additionally, Meredith uses its many assets to create powerful custom marketing solutions for many of the nation's top brands and companies.
 
Meredith operates two business segments. The national media group consists of magazine publishing, interactive media, integrated marketing, brand licensing, database-related activities, and other related operations. The local media group consists of 12 network-affiliated television stations, one radio station, related interactive media operations, and video-related operations. Both segments operate primarily in the U.S. and compete against similar media and other types of media on both a local and national basis. The national media group accounted for 77 percent of the Company's $1,052.0 million in revenues in the first nine months of fiscal 2011 while local media group revenues represented 23 percent.
 
NATIONAL MEDIA GROUP
 
Advertising revenues made up 47 percent of national media group's first nine months' revenues. These revenues were generated from the sale of advertising space in the Company's magazines and on websites to clients interested in promoting their brands, products, and services to consumers. Circulation revenues accounted for 25 percent of national media group's first nine months' revenues. Circulation revenues result from the sale of magazines to consumers through subscriptions and by single copy sales on newsstands, primarily at major retailers and grocery/drug stores. The remaining 28 percent of national media group's revenues came from a variety of activities that included the sale of integrated marketing products and services and books as well as brand licensing and other related activities. National media group's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.
 
LOCAL MEDIA GROUP
 
The local media group derives almost all of its revenues—92 percent in the first nine months of fiscal 2011—from the sale of advertising, both on the air and on our stations' websites. The remainder comes from television retransmission fees, television production services and products, and other services. Political advertising revenues are cyclical in that they are significantly greater during biennial election campaigns (which take place primarily in odd-numbered fiscal years) than at other times. Local media group's major expense categories are employee compensation and programming costs.
 
FIRST NINE MONTHS FISCAL 2011 FINANCIAL OVERVIEW
 
•
Local media group revenues increased 19 percent and operating profit rose to $68.6 million from $32.3 million in the year-ago period reflecting both increased cyclical political advertising and higher non-political advertising revenues.
 
•
National media group revenues decreased 1 percent from the prior-year period. Decreases in magazine advertising and circulation revenues more than offset increases in our integrated marketing, interactive media, and brand licensing revenues. National media group operating profit increased 6 percent to $128.3 million due primarily to increased operating profits from our interactive and brand licensing operations

12
partially offset by a decline in our magazine operations operating profit.
 
•
In July 2010, Meredith completed its acquisition of the remaining 80.01 percent of The Hyperfactory Limited International (Hyperfactory), an international mobile marketing company, and in December 2010, Meredith completed its acquisition of Real Girls Media Network (RGM), a social content hub for women online.
 
•
Diluted earnings per share increased 37 percent to $2.12 from $1.55 in the prior-year first nine months.
 
USE OF NON-GAAP FINANCIAL MEASURES
 
These condensed consolidated financial statements, including the related notes, are presented in accordance with accounting principles generally accepted in the United States of America (GAAP). Our analysis of local media group results includes references to earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA and EBITDA margin are non-GAAP measures. We use EBITDA along with operating profit and other GAAP measures to evaluate the financial performance of our local media group. EBITDA is a common measure of performance in the broadcasting industry and is used by investors and financial analysts, but its calculation may vary among companies. Local media group EBITDA is not used as a measure of liquidity, nor is it necessarily indicative of funds available for our discretionary use.
 
We believe the non-GAAP measures used in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contribute to an understanding of our financial performance and provide an additional analytic tool to understand our results from core operations and to reveal underlying trends. These measures should not, however, be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
 
 
RESULTS OF OPERATIONS
 
Three Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands except per share data)
 
 
 
 
 
Total revenues
$
340,731
 
 
$
353,343
 
 
(4
)%
Operating expenses
(288,937
)
 
(296,874
)
 
(3
)%
Income from operations
$
51,794
 
 
$
56,469
 
 
(8
)%
Net earnings
$
30,837
 
 
$
33,299
 
 
(7
)%
Diluted earnings per share
$
0.67
 
 
$
0.73
 
 
(8
)%
 
Nine Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands except per share data)
 
 
 
 
 
Total revenues
$
1,052,013
 
 
$
1,022,613
 
 
3
 %
Operating expenses
(882,992
)
 
(897,352
)
 
(2
)%
Income from operations
$
169,021
 
 
$
125,261
 
 
35
 %
Net earnings
$
97,101
 
 
$
70,594
 
 
38
 %
Diluted earnings per share
$
2.12
 
 
$
1.55
 
 
37
 %
 
The following sections provide an analysis of the results of operations for the national media group and local media group and an analysis of the consolidated results of operations for the three and nine months ended March 31, 2011, compared with the prior-year period. This commentary should be read in conjunction with the interim condensed consolidated financial statements presented elsewhere in this report and with our Annual Report on Form 10-K for the year ended June 30, 2010.

13
NATIONAL MEDIA GROUP
 
National media group operating results were as follows:
 
Three Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Advertising revenue
$
121,697
 
 
$
137,337
 
 
(11
)%
Circulation revenue
67,603
 
 
74,598
 
 
(9
)%
Other revenue
80,436
 
 
72,650
 
 
11
 %
Total revenues
269,736
 
 
284,585
 
 
(5
)%
Operating expenses
(221,824
)
 
(233,720
)
 
(5
)%
Operating profit
$
47,912
 
 
$
50,865
 
 
(6
)%
Operating profit margin
17.8
%
 
17.9
%
 
 
 
Nine Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Advertising revenue
$
380,631
 
 
$
391,970
 
 
(3
)%
Circulation revenue
198,785
 
 
211,686
 
 
(6
)%
Other revenue
228,127
 
 
213,708
 
 
7
 %
Total revenues
807,543
 
 
817,364
 
 
(1
)%
Operating expenses
(679,269
)
 
(696,132
)
 
(2
)%
Operating profit
$
128,274
 
 
$
121,232
 
 
6
 %
Operating profit margin
15.9
%
 
14.8
%
 
 
 
Revenues
Magazine advertising revenues decreased 11 percent and advertising pages declined 13 percent in the third quarter with most titles showing declines. For the first nine months of fiscal 2011, magazine advertising revenues were down 4 percent and advertising pages decreased 8 percent as average net per page grew in the mid-single digits on a percentage basis. Demand was weaker for most core advertising categories. Online advertising revenues in our interactive media operations are a small but growing percentage of national media advertising revenue. They decreased 17 percent in the third quarter; however, they were up more than 10 percent in the first nine months of fiscal 2011 as compared to the prior-year period.
 
Magazine circulation revenues decreased 9 percent in the third quarter and were down 6 percent in the first nine months of fiscal 2011 as both subscription revenues and newsstand revenues declined. A portion of the decrease in circulation revenue was expected due to previously announced rate base reductions at Ladies Home Journal and Traditional Home and the January 2010 repositioning of our special interest media (SIM) business.
 
Other revenues within the national media group increased 11 percent in the third quarter and 7 percent in the first nine months of fiscal 2011. Integrated marketing revenues increased 8 percent in the third quarter and 10 percent for the nine-month period driven by the expansion of digital and customer relationship management services for national clients. Brand licensing revenues grew 15 percent in the third quarter and over 20 percent in the first nine months of fiscal 2011 driven primarily by continued expansion of the Better Homes and Gardens'-branded products at Wal-Mart stores.
 
Operating Expenses
National media group operating costs decreased 5 percent in the third quarter and 2 percent in the first nine months of fiscal 2011. Consistent with the decline in revenues, processing, paper, and distribution costs decreased in the quarter and nine-month periods primarily due to the decline in advertising pages sold and the SIM repositioning. During the third quarter an increase in average paper costs of 8 percent compared to the prior-year quarter partially offset the expense reductions. For the first nine months of fiscal 2011, average paper costs declined 1 percent

14
compared to the prior-year period. Circulation expense and pension and other retirement plan costs also declined. These cost reductions were partially offset by increased employee compensation costs and editorial costs. Employee compensation costs were up as a result of higher staff levels primarily due to the acquisition of Hyperfactory and higher compensation levels due to annual merit increases. While performance-based incentive accruals declined in the third quarter, they were higher for the nine-month period.
 
In the third quarter of fiscal 2010, the national media group recorded $1.7 million in severance and benefit costs related to the realignment of digital operations. Partially offsetting this charge in the third quarter of fiscal 2010 was a $1.3 million reversal of excess restructuring accrual previously recorded by the national media group. In the second quarter of fiscal 2010, the write-off of subscription acquisition costs of $1.8 million and manuscript and art inventory of $1.5 million, and severance and related benefit costs of $2.2 million related to the repositioning of our SIM operations, were recorded by the national media group segment.
 
Operating Profit
National media group operating profit declined 6 percent in the third quarter; it grew 6 percent in the nine-month period compared with the respective prior-year period. For the third quarter, decreases in operating profit in our interactive media and magazine operations more than offset increased brand licensing profits. For the nine-month period, increases in operating profit in our brand licensing and interactive media operations more than offset lower operating profits in our magazine operations.
 
 
LOCAL MEDIA GROUP
 
Local media group operating results were as follows:
 
Three Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Non-political advertising revenues
$
63,531
 
 
$
60,312
 
 
5
 %
Political advertising revenues
682
 
 
1,521
 
 
(55
)%
Other revenues
6,782
 
 
6,925
 
 
(2
)%
Total revenues
70,995
 
 
68,758
 
 
3
 %
Operating expenses
(57,714
)
 
(55,930
)
 
3
 %
Operating profit
$
13,281
 
 
$
12,828
 
 
4
 %
Operating profit margin
18.7
%
 
18.7
%
 
 
 
Nine Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Non-political advertising revenues
$
190,655
 
 
$
181,532
 
 
5
%
Political advertising revenues
34,284
 
 
5,352
 
 
541
%
Other revenues
19,531
 
 
18,365
 
 
6
%
Total revenues
244,470
 
 
205,249
 
 
19
%
Operating expenses
(175,912
)
 
(172,958
)
 
2
%
Operating profit
$
68,558
 
 
$
32,291
 
 
112
%
Operating profit margin
28.0
%
 
15.7
%
 
 
 
Revenues
Local media group total revenues increased 3 percent in the third quarter and 19 percent in the first nine months of fiscal 2011. The three month increase primarily reflects higher non-political advertising revenues and the nine month increase was due primarily to higher political advertising related to the November 2010 elections. Political advertising revenues totaled $0.7 million in the third quarter and $34.3 million in the first nine months of the current fiscal year compared with $1.5 million in the prior-year third quarter and $5.4 million in the prior-year nine-

15
month period. Fluctuations in political advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns. Political advertising may displace a certain amount of non-political advertising; therefore, the revenues may not be entirely incremental. Non-political advertising revenues increased 5 percent in the quarter and in the first nine months of fiscal 2011 despite political advertising displacing some core advertising. Local non-political advertising revenues increased 6 percent in the third quarter and 5 percent for the first nine months of fiscal 2011. National non-political advertising revenues increased 3 percent as compared to the prior-year third quarter and rose 4 percent for the first nine months of fiscal 2011. In the third quarter of fiscal 2011, eight of local media group's ten largest advertising categories grew revenues, led by automotive, retail, and media. Online advertising revenues decreased 6 percent as compared to the prior-year third quarter, but were up 4 percent from the first nine months of fiscal 2010. Other revenue, which is primarily retransmission fees, decreased 2 percent in the current quarter. It increased 6 percent in the nine-month period.
 
Operating Expenses
Local media group operating expenses increased 3 percent in the third quarter and 2 percent in the first nine months of fiscal 2011 as compared to the respective prior-year periods. For both periods, increases in bad debt expense, employee compensation, advertising and promotion, and production expense more than offset declines in film amortization, performance-based incentive accruals, and pension and other retirement plan costs. While legal services expense was higher in the third quarter, it decreased during the first nine months of fiscal 2011.
 
Operating Profit
Local media group operating profit increased 4 percent in the third quarter and 112 percent in the first nine months of fiscal 2011 as compared to the same periods in fiscal 2010. The three month increase was primarily due to the higher non-political advertising revenues and the nine month increase was primarily due to the strength of political advertising revenues.
 
Supplemental Disclosure of Local Media Group EBITDA
Meredith's local media group EBITDA is defined as local media group operating profit plus depreciation and amortization expense. EBITDA is not a GAAP financial measure and should not be considered in isolation or as a substitute for GAAP financial measures. See the discussion of management's rationale for the use of EBITDA in the preceding Executive Overview section. Local media group EBITDA and EBITDA margin were as follows:
 
Three Months Ended March 31,
2011
 
2010
(In thousands)
 
 
 
Revenues
$
70,995
 
 
$
68,758
 
Operating profit
$
13,281
 
 
$
12,828
 
Depreciation and amortization
6,114
 
 
6,078
 
EBITDA
$
19,395
 
 
$
18,906
 
EBITDA margin
27.3
%
 
27.5
%
 
Nine Months Ended March 31,
2011
 
2010
(In thousands)
 
 
 
Revenues
$
244,470
 
 
$
205,249
 
Operating profit
$
68,558
 
 
$
32,291
 
Depreciation and amortization
17,858
 
 
18,160
 
EBITDA
$
86,416
 
 
$
50,451
 
EBITDA margin
35.3
%
 
24.6
%
 

16
UNALLOCATED CORPORATE EXPENSES
 
Unallocated corporate expenses are general corporate overhead expenses not attributable to the operating groups. These expenses were as follows:
 
Unallocated Corporate Expenses
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Three Months Ended March 31,
$
9,399
 
 
$
7,224
 
 
30
 %
Nine Months Ended March 31,
27,811
 
 
28,262
 
 
(2
)%
 
Unallocated corporate expenses increased 30 percent in the third quarter; they declined 2 percent in the first nine months of fiscal 2011. For the third quarter, higher pension and other employee benefit costs and Meredith's increased investment spending on tablet and mobile platforms more than offset decreases in other retirement plan costs, performance-based incentive accruals, and consulting expenses. For the nine-month period, decreases in pension and other retirement plan costs, consulting expenses, and share-based compensation more than offset increases in Meredith's investment spending on tablet and mobile platforms and charitable contributions.
 
 
CONSOLIDATED
 
Consolidated Operating Expenses
Consolidated operating expenses were as follows:
 
Three Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Production, distribution, and editorial
$
135,343
 
 
$
144,517
 
 
(6
)%
Selling, general, and administrative
143,627
 
 
142,044
 
 
1
 %
Depreciation and amortization
9,967
 
 
10,313
 
 
(3
)%
Operating expenses
$
288,937
 
 
$
296,874
 
 
(3
)%
 
Nine Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Production, distribution, and editorial
$
416,855
 
 
$
438,521
 
 
(5
)%
Selling, general, and administrative
436,718
 
 
428,298
 
 
2
 %
Depreciation and amortization
29,419
 
 
30,533
 
 
(4
)%
Operating expenses
$
882,992
 
 
$
897,352
 
 
(2
)%
 
Third quarter fiscal 2011 production, distribution, and editorial costs decreased 6 percent as compared to the prior-year quarter and declined 5 percent as compared to the prior-year first nine months. Declines in national media group processing, paper, and distribution expenses and a decrease in local media film amortization contributed to the reduction. Integrated marketing production expenses declined primarily due to a shift from print services projects to staff based projects. In the second quarter of fiscal 2010, a write-off of manuscript and art inventory of $1.5 million was recorded in production, distribution, and editorial costs related to the repositioning of our SIM operations.
 
Selling, general, and administrative expenses increased 1 percent in the third quarter and 2 percent in the nine-month period. Employee compensation costs and Meredith's investment spending on tablet and mobile platforms increased as compared to the prior year periods. Integrated marketing general expenses also increased due to a shift from print services projects to staff based projects. These increases were partially offset by lower savings and investment plan costs and circulation expenses. Performance-based incentive accruals and charitable contributions decreased during the third quarter of fiscal 2011, but were up in the nine-month period. While pension expense

17
increased in the third quarter, it was lower for the nine-month period.
 
In the third quarter of fiscal 2010, the national media group recorded $1.7 million in severance and benefit costs related to the realignment of our digital operations. Partially offsetting this charge in the third quarter of fiscal 2010 was a $1.3 million reversal of excess restructuring reserves previously recorded by the national media group. In the second quarter of fiscal 2010, $2.2 million of severance and related benefit costs and the write-off of deferred subscription acquisition costs of $1.8 million related to the repositioning of our SIM operations were recorded in selling, general, and administrative expenses.
 
Depreciation and amortization expenses decreased 3 percent in the third quarter and 4 percent in the nine-month period primarily due to lower machinery and computer equipment depreciation.
 
Income from Operations
Income from operations decreased 8 percent in the third quarter; it rose 35 percent in the first nine months of fiscal 2011. The third quarter decline is primarily due to lower operating profit in our magazine and interactive media operations in our national media segment. The increase in the nine-month period is primarily a result of revenue growth due to the strength of political advertising and higher operating profits in our local media segment as well as increased operating profits from our brand licensing and interactive media operations. These increases were partially offset by a decline in the operating profit of our magazine operations.
 
Net Interest Expense
Net interest expense decreased to $3.1 million in the fiscal 2011 third quarter compared with $3.9 million in the comparable prior-year quarter. For the nine months ended March 31, 2011, net interest expense was $10.0 million versus $14.7 million in the comparable prior-year period. Average long-term debt outstanding was $230 million in the third quarter of fiscal 2011 and $263 million for the nine-month period compared with $331 million in the prior year third quarter and $350 million in the prior year nine-month period. The Company's approximate weighted average interest rate was 5.1 percent in the first nine months of fiscal 2011 and 5.4 percent in the first nine months of fiscal 2010.
 
Income Taxes
Our effective tax rate was 36.6 percent in the third quarter and 38.9 percent in the first nine months of fiscal 2011 as compared to 36.6 percent in the third quarter and 36.1 percent in the first nine months of fiscal 2010.
 
Net Earnings and Earnings per Share
Net earnings were $30.8 million ($0.67 per diluted share) in the quarter ended March 31, 2011, down 7 percent from $33.3 million ($0.73 per diluted share) in the comparable prior-year quarter. For the nine months ended March 31, 2011, earnings were $97.1 million ($2.12 per diluted share), an increase of 38 percent from prior-year nine month earnings of $70.6 million ($1.55 per diluted share). The decline in the third quarter is primarily due to lower operating profit in our magazine and interactive media operations in our national media segment. The improvements in the nine-month period were primarily the result of revenue growth and higher operating profit in our local media segment and improved profits in our brand licensing and interactive media operations partially offset by a decline in the operating profit of magazine operations. Both average basic and diluted shares outstanding increased slightly in the current quarter and in the nine-month period.
 
 

18
LIQUIDITY AND CAPITAL RESOURCES
 
Nine Months Ended March 31,
2011
 
2010
 
Change
 
(In thousands)
 
 
 
 
 
Net earnings
$
97,101
 
 
$
70,594
 
 
38
%
Cash flows from operations
$
140,375
 
 
$
139,903
 
 
—
%
Cash flows used in investing
(58,766
)
 
(50,791
)
 
16
%
Cash flows used in financing
(109,503
)
 
(93,356
)
 
17
%
Net decrease in cash and cash equivalents
$
(27,894
)
 
$
(4,244
)
 
557
%
 
OVERVIEW
 
Meredith's primary source of liquidity is cash generated by operating activities. Debt financing is typically used for significant acquisitions. We expect cash on hand, internally generated cash flow, and available credit from financing agreements will provide adequate funds for operating and recurring cash needs (e.g., working capital, capital expenditures, debt repayments, and cash dividends) into the foreseeable future. As of March 31, 2011, we have up to $150.0 million remaining of additional available borrowings under our revolving credit facility and up to $50.0 million of additional available borrowings under our asset-backed bank facility (depending on levels of accounts receivable). While there are no guarantees that we will be able to replace current credit agreements when they expire, we expect to be able to do so.
 
SOURCES AND USES OF CASH
 
Cash and cash equivalents decreased $27.9 million in the first nine months of fiscal 2011; they decreased $4.2 million in the comparable period of fiscal 2010. Net cash provided by operating activities was primarily used for acquisitions, capital investments, debt repayments, and dividends.
 
Operating Activities
The largest single component of operating cash inflows is cash received from advertising customers. Other sources of operating cash inflows include cash received from magazine circulation sales and other revenue transactions such as integrated marketing and licensing. Operating cash outflows include payments to vendors and employees and interest, pension, and income tax payments. Our most significant vendor payments are for production and delivery of publications and promotional mailings, broadcasting programming rights, employee compensation costs and benefits, and other services and supplies.
 
Cash provided by operating activities totaled $140.4 million in the first nine months of fiscal 2011 compared with $139.9 million in the first nine months of fiscal 2010 as higher net earnings in the current year were partially offset by a special one-time contribution to the 401(k) Savings and Investment Plan earned in fiscal 2010, but paid in fiscal 2011, higher income tax payments in the current year, and other changes in working capital.
 
Investing Activities
Investing cash inflows generally include proceeds from the sale of assets or a business. Investing cash outflows generally include payments for the acquisition of new businesses; investments; and additions to property, plant, and equipment.
 
Net cash used by investing activities increased to $58.8 million in the first nine months of fiscal 2011 from $50.8 million in the prior-year period. The increase primarily reflected more cash used for investments in businesses due to the acquisitions of Hyperfactory and RGM as well as higher contingent purchase price payments made in the current year than in the prior year.
 
Financing Activities
Financing cash inflows generally include borrowings under debt agreements and proceeds from the exercise of

19
common stock options issued under share-based compensation plans. Financing cash outflows generally include the repayment of long-term debt, repurchases of Company stock, and the payment of dividends.
 
Net cash used by financing activities totaled $109.5 million in the nine months ended March 31, 2011, compared with $93.4 million for the nine months ended March 31, 2010. The increase in cash used for financing activities is primarily due to debt being paid down by a net $75.0 million in the current year compared to a net $65.0 million reduction in the prior year and higher purchases of Company common stock in the current nine-month period.
 
Long-term Debt
At March 31, 2011, long-term debt outstanding totaled $225.0 million ($175.0 million in fixed-rate unsecured senior notes and $50.0 million under an asset-backed bank facility). Of the senior notes, $50.0 million is due in the next 12 months. We expect to repay these senior notes with cash from operations and credit available under existing credit agreements. The weighted average effective interest rate for the fixed-rate notes was 5.72 percent. The interest rate on the asset-backed bank facility is variable based on the London Interbank Offered Rate (LIBOR) plus a fixed spread. As of March 31, 2011, the asset-backed bank facility had a capacity of up to $100 million. In April 2011, we renewed our asset-backed bank facility for an additional two year period under terms substantially similar to those previously in place. The renewed facility will expire in April 2013.
 
The interest rate on the revolving credit facility is variable based on LIBOR and Meredith's debt to trailing 12 month EBITDA ratio. The revolving credit facility has capacity for up to $150 million outstanding with an option to request up to another $150 million. At March 31, 2011, there were no amounts outstanding under the revolving credit facility. This facility expires on June 16, 2013.
 
All of our debt agreements include financial covenants, and failure to comply with any such covenants could result in the debt becoming payable on demand. The Company was in compliance with all debt covenants at March 31, 2011.
 
Contractual Obligations
As of March 31, 2011, there had been no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2010.
 
Share Repurchase Program
As part of our ongoing share repurchase program, we spent $9.7 million in the first nine months of fiscal 2011 to repurchase approximately 295,000 shares of common stock at then current market prices. We spent $5.2 million to repurchase 158,000 shares in the first nine months of fiscal 2010. We expect to continue repurchasing shares from time to time subject to market conditions. As of March 31, 2011, approximately 1.0 million shares were authorized for future repurchase. The status of the repurchase program is reviewed at each quarterly Board of Directors meeting. See Part II, Item 2 (c), Issuer Repurchases of Equity Securities, of this Quarterly Report on Form 10-Q for detailed information on share repurchases during the quarter ended March 31, 2011.
 
Dividends
Dividends paid in the first nine months of fiscal 2011 totaled $32.7 million, or 71.5 cents per share, compared with dividend payments of $30.9 million, or 68.0 cents per share, in the first nine months of fiscal 2010.
 
Capital Expenditures
Spending for property, plant, and equipment totaled $19.6 million in the first nine months of fiscal 2011 compared with prior-year first nine months spending of $18.2 million. Current year spending primarily relates to assets acquired in the normal course of business. Prior year spending primarily related to the initiative to consolidate back-office television station functions such as traffic, master control, accounting, and research into centralized hubs in Atlanta and Phoenix. We have no material commitments for capital expenditures. We expect funds for future capital expenditures to come from operating activities or, if necessary, borrowings under credit agreements.
 
 

20
OTHER MATTERS
 
 
CRITICAL ACCOUNTING POLICIES
 
Meredith's critical accounting policies are summarized in our Annual Report on Form 10-K for the year ended June 30, 2010. As of March 31, 2011, the Company's critical accounting policies had not changed from June 30, 2010.
 
ACCOUNTING AND REPORTING DEVELOPMENTS
 
In September 2009, authoritative guidance on revenue arrangements with multiple deliverables was issued. This guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The Company adopted this guidance for revenue arrangements entered into or materially modified on or after July 1, 2010. This guidance did not have a material impact on the Company's consolidated financial statements.
 
In December 2010, the Financial Accounting Standards Board (FASB) issued an accounting pronouncement related to intangibles - goodwill and other, which requires a company to consider whether there are any adverse qualitative factors indicating that an impairment may exist in performing step 2 of the impairment test for reporting units with zero or negative carrying amounts. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010, with no early adoption. The Company will adopt this pronouncement for our fiscal year beginning July 1, 2011. The adoption of this pronouncement is not expected to have an impact on our consolidated financial statements.
 
In December 2010, the FASB issued an accounting pronouncement related to business combinations, which requires that when comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The disclosure provisions are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. If applicable, we will include the required disclosures for our fiscal year beginning July 1, 2011.
 
FORWARD LOOKING STATEMENTS
 
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those predicted by such forward-looking statements. These statements are based on management's current knowledge and estimates of factors affecting the Company's operations. Readers are cautioned not to place undue reliance on such forward-looking information. Factors that could adversely affect future results include, but are not limited to, downturns in national and/or local economies; a softening of the domestic advertising market; world, national, or local events that could disrupt broadcast television; increased consolidation among major advertisers or other events depressing the level of advertising spending; the unexpected loss or insolvency of one or more major clients; the integration of acquired businesses; changes in consumer reading, purchasing and/or television viewing patterns; increases in paper, postage, printing, or syndicated programming costs; changes in television network affiliation agreements; technological developments affecting products or methods of distribution; changes in government regulations affecting the Company's industries; unexpected changes in interest rates; and the consequences of acquisitions and/or dispositions. Meredith's Annual Report on Form 10-K for the year ended June 30, 2010, includes a more complete description of the risk factors that may affect our results. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

21
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Meredith is exposed to certain market risks as a result of its use of financial instruments, in particular the potential market value loss arising from adverse changes in interest rates. The Company does not utilize financial instruments for trading purposes and does not hold any derivative financial instruments that could expose the Company to significant market risk. Readers are referred to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in the Company's Annual Report on Form 10-K for the year ended June 30, 2010, for a more complete discussion of these risks.
 
Interest Rates
We generally manage our risk associated with interest rate movements through the use of a combination of variable and fixed-rate debt. At March 31, 2011, Meredith had $175.0 million outstanding in fixed-rate long-term debt. There are no earnings or liquidity risks associated with the Company's fixed-rate debt. The fair value of the fixed-rate debt (based on discounted cash flows reflecting borrowing rates currently available for debt with similar terms and maturities) varies with fluctuations in interest rates. A 10 percent decrease in interest rates would have changed the fair value of the fixed-rate debt to $185.7 million from $184.8 million at March 31, 2011.
 
At March 31, 2011, $50.0 million of our debt was variable-rate debt. The Company is subject to earnings and liquidity risks for changes in the interest rate on this debt. A 10 percent increase in interest rates would increase annual interest expense on our variable-rate debt by $0.1 million.
 
Broadcast Rights Payable
There has been no material change in the market risk associated with broadcast rights payable since June 30, 2010.
 
 
Item 4.
Controls and Procedures
 
Meredith's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that Meredith files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the United States Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to Meredith's management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. There have been no significant changes in the Company's internal control over financial reporting in the quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
 
 
There have been no material changes to the Company's risk factors as disclosed in Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended June 30, 2010.
 
 
 

22
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
(c)
 
Issuer Repurchases of Equity Securities
 
The following table sets forth information with respect to the Company's repurchases of common stock during the quarter ended March 31, 2011.
 
Period
(a)
Total number of
shares
purchased1
(b)
Average price
paid
per share
(c)
Total number of shares
purchased as part of publicly
 announced programs
(d)
Maximum number of
shares that may yet be
purchased under
programs
 
January 1 to
January 31, 2011
5,607
 
 
 
$
35.83
 
 
5,607
 
 
1,116,010
 
 
 
February 1 to
February 28, 2011
3,271
 
 
 
33.44
 
 
3,271
 
 
1,112,739
 
 
 
March 1 to
March 31, 2011
100,000
 
 
 
33.83
 
 
100,000
 
 
1,012,739
 
 
 
Total
108,878
 
 
 
33.92
 
 
108,878
 
 
1,012,739
 
 
 
 
1. Total number of shares purchased includes the purchase of 2,000 shares of Class B stock in January 2011.
 
In May 2008, Meredith announced the Board of Directors had authorized the repurchase of up to 2.0 million additional shares of the Company's stock through public and private transactions.
 
For more information on the Company's share repurchase program, see Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Share Repurchase Program."
 

23
Item 6.
Exhibits
 
 
 
 
 
10.1
 
First Amended and Restated Receivables Purchase Agreement dated as of April 25, 2011, among Meredith Funding Corporation (a wholly-owned subsidiary of Meredith Corporation) as Seller, Meredith Corporation, as Servicer, Falcon Asset Securitization Company LLC, The Financial Institutions from time to time party hereto and JPMorgan Chase Bank, N.A., as Agent.
 
 
 
 
 
10.2
 
Parent Guarantee from Meredith Corporation dated as of April 25, 2011.
 
 
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 

24
 
SIGNATURE
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
MEREDITH CORPORATION
 
 
Registrant
 
 
 
 
 
/s/ Joseph H. Ceryanec
 
 
Joseph H. Ceryanec
 
 
Vice President - Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
Date: April 27, 2011
 
 
 
 

25
INDEX TO ATTACHED EXHIBITS
 
 
Exhibit
Number
Item
 
 
 
 
10.1
First Amended and Restated Receivables Purchase Agreement dated as of April 25, 2011, among Meredith Funding Corporation (a wholly-owned subsidiary of Meredith Corporation) as Seller, Meredith Corporation, as Servicer, Falcon Asset Securitization Company LLC, The Financial Institutions from time to time party hereto and JPMorgan Chase Bank, N.A., as Agent.
 
 
 
 
10.2
Parent Guarantee from Meredith Corporation dated as of April 25, 2011.
 
 
 
 
 31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
101.INS
XBRL Instance Document
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 

E-1