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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended June 30, 2009
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Commission
file number 1-5128
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MEREDITH
CORPORATION
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(Exact
name of registrant as specified in its charter)
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Iowa
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42-0410230
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1716
Locust Street, Des Moines, Iowa
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50309-3023
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(Address
of principal executive offices)
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(ZIP
Code)
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Registrant's
telephone number, including area code: (515)
284-3000
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Securities
registered pursuant to Section 12 (b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $1
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New
York Stock Exchange
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Securities
registered pursuant to Section 12 (g) of the Act:
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Title
of class
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||||||||
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Class B
Common Stock, par value $1
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||||||||
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
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 o
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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes
o No o
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
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
the 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 o Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No x
The
registrant estimates that the aggregate market value of voting and non-voting
common equity held by non-affiliates of the registrant at December 31,
2008, was $591,000,000 based upon the closing price on the New York Stock
Exchange at that date.
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Shares
of stock outstanding at July 31, 2009
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Common
shares
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35,794,997
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Class B
shares
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9,160,735
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Total
common and Class B shares
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44,955,732
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DOCUMENT
INCORPORATED BY REFERENCE
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Certain
portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on
November 4,
2009, are incorporated by reference in Part III to the extent described
therein.
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TABLE
OF CONTENTS
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Page
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Part
I
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Business
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1
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Description
of Business
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Publishing
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2
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Broadcasting
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6
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Executive
Officers of the
Company
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10
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Employees
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10
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Other
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10
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Available
Information
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10
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Forward
Looking Statements
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11
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Risk
Factors
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11
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Unresolved
Staff Comments
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13
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Properties
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13
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Legal
Proceedings
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13
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Submission
of Matters to a Vote of Security Holders
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13
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Part
II
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Market
for Registrant's Common Equity, Related Shareholder
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Matters,
and Issuer Purchases of Equity Securities
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14
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Selected
Financial
Data
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16
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Management's
Discussion and Analysis of Financial
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Condition
and Results of
Operations
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16
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Quantitative
and Qualitative Disclosures About Market Risk
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42
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Financial
Statements and Supplementary
Data
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43
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Changes
in and Disagreements with Accountants on
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Accounting
and Financial Disclosure
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89
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Controls
and Procedures
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89
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Controls
and Procedures
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90
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Other
Information
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90
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Part
III
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Directors,
Executive Officers, and Corporate Governance
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91
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Executive
Compensation
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91
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Security
Ownership of Certain Beneficial Owners and
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Management
and Related Stockholder Matters
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91
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Certain
Relationships and Related Transactions and
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Director
Independence
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92
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Principal
Accounting Fees and Services
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92
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Part
IV
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Exhibits
and Financial Statement Schedules
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93
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97
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E-1
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Meredith
Corporation and its consolidated subsidiaries are referred to in this
Annual Report on Form 10-K
(Form 10-K)
as Meredith, the
Company, we, our, and
us.
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PART
I
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GENERAL
Meredith
Corporation is one of the nation's leading media and marketing companies.
Meredith began in 1902 as an agricultural publisher. The Company entered the
television broadcasting business in 1948. Today Meredith is engaged in magazine
and book publishing, television broadcasting, integrated marketing, and
interactive media. The Company is incorporated under the laws of the State of
Iowa. Our common stock is listed on the New York Stock Exchange under the ticker
symbol MDP.
The
Company has two operating segments: publishing and broadcasting. Financial
information about industry segments can be found in Item 7–Management's Discussion
and Analysis of Financial Condition and Results of Operations and in
Item 8–Financial
Statements and Supplementary Data under Note 14.
The
publishing segment focuses on the home and family market. It is a leading
publisher of magazines serving women. More than twenty-five subscription
magazines, including Better
Homes and Gardens,
Family Circle, Ladies'
Home Journal, Parents, American Baby, Fitness, and More and approximately 135
special interest publications were published in fiscal 2009. The publishing
segment also includes book publishing, which has over 200 books in print;
integrated marketing, which has relationships with some of America's leading
companies; a large consumer database; an extensive Internet presence that
consists of more than 30 websites and strategic alliances with leading Internet
destinations; brand licensing activities; and other related
operations.
The
broadcasting segment includes 12 network-affiliated television stations located
across the United States (U.S.) and one AM radio station. The television
stations consist of six CBS affiliates, three FOX affiliates, two MyNetworkTV
affiliates, and one NBC affiliate. The broadcasting segment also includes 20
websites, eight mobile websites, eight iPhone applications, and video related
operations.
The
Company's largest revenue source is advertising. National and local economic
conditions affect the magnitude of our advertising revenues. Television
advertising is seasonal and cyclical to some extent, traditionally generating
higher revenues in the second and fourth fiscal quarters and during key
political contests, major sporting events, etc. Both publishing and broadcasting
revenues and operating results can be affected by changes in the demand for
advertising and consumer demand for our products. Magazine circulation revenues
are generally affected by national and regional economic conditions and
competition from other forms of media.
BUSINESS
DEVELOPMENTS
In
November 2008, Meredith acquired a minority investment in Real Girls Media
Network (RGM), a group of social communities connecting millions of women
online. This investment enhances the depth and breadth of Meredith Interactive
Media's offerings and capabilities, chiefly in the area of social networking. As
part of this strategic investment, Meredith and RGM combine their inventory and
sales forces to deliver premium branded content. The relationship also allows
Meredith to take advantage of RGM's proprietary technology platform to enhance
existing sites. Specifically, the agreement adds RGM traffic to Meredith's
network of sites thus helping to increase Meredith's average unique visitors to
15 million per month in fiscal 2009, a 25 percent increase from fiscal
2008.
-1-
Following
this investment, in January 2009, Meredith announced the launch of Meredith
Women’s Network, a branded network comprised of premium websites geared toward
the topics that matter most to women. The Meredith Women’s Network includes The
Better Homes and Gardens Network (made up of over 20 websites including Better
Homes and Gardens and Better Recipes), The Parents Network (Parents and Top Baby
Name) and The Real Girls Network (including RGM’s DivineCaroline and Meredith’s
Fitness, More, and Ladies’ Home Journal). Also in January 2009 as part of the
The Better Homes and Gardens Network, Meredith launched MixingBowl.com, a social
network built entirely around food, recipes, and entertaining. In June 2009, the
Company announced the launch of Mixing Bowl magazine as an
extension of MixingBowl.com.
In
October 2008, Meredith announced multiple magazine licensing agreements to
extend Parents, More, and Diabetic Living brands to seven international
partners, collectively. With these new alliances, Meredith's global reach has
been expanded to approximately 25 agreements in 40 countries.
In
December 2008, Meredith announced a licensing agreement granting John Wiley
& Sons, Inc. (Wiley) exclusive global rights to publish and distribute books
based on Meredith’s consumer-leading brands, including the powerful Better Homes
and Gardens imprint. Under the agreement, effective March 1, 2009, Meredith
continues to create book content and retains all approval and content rights.
Wiley is responsible for book layout and design, printing, sales and marketing,
distribution, and inventory management.
In
December 2008, management committed to a performance improvement plan that
included the closing of Country Home magazine
following the publication of the March 2009 issue. Previous to this, in March
2007, management discontinued the print operations of Child magazine following the
publication of the June/July 2007 issue.
During
fiscal 2008, the Company continued to enhance the capabilities of Meredith
Integrated Marketing with the acquisitions of Directive Corporation, a
specialized customer intelligence firm, and Big Communications, a leading
healthcare marketing communications firm. These acquisitions followed the fiscal
2007 acquisitions of two online businesses: Genex, an interactive
marketing services firm that specializes in online customer relationship
marketing, and New Media Strategies, an interactive word-of-mouth marketing
company.
In April
2008, the Company completed the sale of WFLI, a CW affiliate serving the
Chattanooga, Tennessee market. Meredith also completed the sale of KFXO, a
low-power FOX affiliate serving the Bend, Oregon market in May
2007.
Publishing
represented approximately 80 percent of Meredith's consolidated revenues in
fiscal 2009. Better Homes and
Gardens, our flagship brand, continues to account for a significant
percentage of revenues and operating profit of the publishing segment and the
Company.
-2-
Magazines
Information
for major subscription magazine titles as of June 30, 2009,
follows:
|
Title
|
Description
|
Frequency
per
Year
|
Year-end
Rate
Base
|
(1)
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Better
Homes and Gardens
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Shelter
and women's service
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12
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7,600,000
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Family
Circle
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Women's
service
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15
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3,800,000
|
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Ladies'
Home Journal
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Women's
service
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12
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3,800,000
|
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Parents
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Parenthood
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12
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2,200,000
|
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American
Baby
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Parenthood
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12
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2,000,000
|
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Fitness
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Women's
lifestyle
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11
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1,500,000
|
|
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More
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Women's
lifestyle (age 40+)
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10
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1,300,000
|
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Midwest
Living
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Travel
and lifestyle
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6
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950,000
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Traditional
Home
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Home
decorating
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8
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950,000
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Ser
Padres
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Hispanic
parenthood
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8
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700,000
|
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Wood
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Woodworking
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7
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500,000
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Siempre
Mujer
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Hispanic
women's lifestyle
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6
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450,000
|
|
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Successful
Farming
|
Farming
business
|
12
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440,000
|
|
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ReadyMade
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Do-it-yourself
lifestyle
|
6
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325,000
|
|
(1)
|
Rate
base is the circulation guaranteed to advertisers. Actual circulation
generally exceeds rate base and for most of the Company's titles is
tracked by the Audit Bureau of Circulations, which issues periodic
statements for audited magazines.
|
We
publish approximately 135 special interest publications under approximately 80
titles, primarily under the Better Homes and
Gardens brand. The titles are issued from one to eight times annually and sold
primarily on newsstands. A limited number of subscriptions are also sold to
certain special interest publications. The following titles are published
quarterly or more frequently: 100 Decorating Ideas Under
$100; American
Patchwork & Quilting; Beautiful Homes; Before & After; Country Gardens; Creative Home; Decorating; Diabetic Living; Do It Yourself; Garden Ideas & Outdoor
Living; Garden, Deck
& Landscape; Heart
Healthy Living; Kitchen
and Bath Ideas; Remodel; Renovation Style; and Scrapbooks etc.
Magazine
Advertising—Advertising revenues are generated primarily from sales to
clients engaged in consumer marketing. Many of Meredith's larger magazines offer
regional and demographic editions that contain similar editorial content but
allow advertisers to customize messages to specific markets or audiences. The
Company sells two primary types of magazine advertising: display and
direct-response. Advertisements are either run-of-press (printed along with the
editorial portions of the magazine) or inserts (preprinted pages). Most of the
publishing segment's advertising revenues are derived from run-of-press display
advertising. Meredith 360° is our strategic marketing unit providing clients and
their agencies with access to the full range of media products and services
Meredith has to offer, including many media platforms. Our team of creative and
marketing experts delivers innovative solutions across multiple media channels
that meet each client's unique advertising and promotional
requirements.
Magazine
Circulation—Subscriptions obtained through direct-mail solicitation,
agencies, insert cards, the Internet, and other means are Meredith's largest
sources of circulation revenues. All of our subscription magazines except American Baby, Ser Padres,
and Successful Farming
also are sold by single copy. Single copies sold on newsstands are distributed
primarily through magazine wholesalers, who have the right to receive credit
from the Company for magazines returned to them by retailers.
-3-
Meredith
Interactive Media
Combined
with RGM, Meredith’s 30-plus websites provide ideas and inspiration to an
average of 15 million unique visitors each month, an increase of 25 percent from
the prior-year period. These branded websites focus on the topics that women
care about most, food, home, and entertaining and meeting the needs of moms; and
on delivering powerful content geared toward lifestyle topics such as health,
beauty, style, and wellness.
In
January 2009, Meredith launched the Meredith Women’s Network, which combines the
Company’s largest sites, including Better Homes and Gardens, Parents, and the
Real Girls Network, into a single entity that is marketed to advertisers. Page
views across this network grew more than 20 percent to 170 million in fiscal
2009 from the prior year and the total number of videos viewed per month rose to
1.1 million. Meredith generated 3 million online subscriptions in fiscal 2009,
up slightly from fiscal 2008. Online subscriptions represent a cost savings over
traditional direct mail sources.
Other
Sources of Revenues
Other
revenues are derived from integrated marketing, other custom publishing
projects, brand licensing agreements, ancillary products and services, and book
sales.
Meredith Integrated
Marketing—Meredith Integrated Marketing is the business-to-business arm
of the Company and sells a range of customer relationship marketing services
including direct, database, custom publishing, digital, and word-of-mouth
marketing to corporate customers, providing a revenue source that is independent
of advertising and circulation. Sometimes these services are sold in conjunction
with Meredith's 85 million-name database of consumers to help clients better
target marketing messages according to consumers needs and interests. Prior year
acquisitions, including Big Communications and Directive in fiscal 2008, and
Genex and New Media Strategies in fiscal 2007, added complementary skills to
further enhance the Company’s ability to service clients' growing needs. Fiscal
2009 clients included Kraft, DIRECTV, Nestlé, Kia Motors America, Publix, Honda,
State Farm, and Sony.
Brand Licensing—During fiscal
2009, Meredith expanded work with leading companies to significantly extend the
reach of the Better Homes and Gardens brand.
In
October 2007, Meredith announced a multi-year licensing agreement with Wal-Mart
Stores, Inc. (Wal-Mart) for the design, marketing, and retailing of a wide range
of home products based on the Better Homes and Gardens brand. This was in
addition to an existing line of outdoor and garden products. This new line of
home products became available exclusively in Wal-Mart stores in the fall of
2008 and includes items in popular home categories such as bedding and throws,
bath accessories, dinnerware and kitchen textiles, and decorative pillows. Late
in fiscal 2008, the Company reached an agreement with Wal-Mart for an expansion
of the line deeper into bath, bedding, and outdoor categories. These additional
products will be available in the fall of 2009. During fiscal 2009, agreement
was reached to double the number of branded SKUs to 1,000 and extend the program
to Canada. Wal-Mart continues to support the line with a multi-media platform
national advertising campaign that is reaching millions of American
consumers.
In fiscal
2008, the Company entered into a long-term agreement to license the Better Homes
and Gardens brand to Realogy Corporation. Realogy, owner of brands such as
CENTURY 21®, Coldwell Banker® and ERA®, is building a new residential real
estate franchise system based on the Better Homes and Gardens brand. It launched
in July 2008. Meredith receives ongoing royalty payments from Realogy based on a
percentage of sales from the Better Homes and Gardens Real Estate franchise
system. In addition, Realogy has agreed to purchase advertising in Meredith
titles and to market Meredith magazine subscriptions through the Better Homes
and Garden Real Estate franchise system.
In fiscal
2007, Meredith reached a licensing agreement with Universal Furniture
International to create a full line of wooden and upholstered furniture for
living rooms, bedrooms, and dining rooms. This agreement was expanded in fiscal
2008.
The
Company continues to pursue brand extensions that will serve consumers and
advertisers alike and extend the reach and vitality of our brands.
-4-
Meredith Books—Prior to
March 1, 2009, Meredith published books under the Better Homes and
Gardens trademark and other licensed trademarks that were directed primarily at
the home and family markets. During fiscal 2009, we published 31 new or revised
titles. Meredith announced a licensing agreement effective March 1,
2009, granting Wiley exclusive global rights to publish and distribute books
based on Meredith’s consumer-leading brands, including the powerful Better Homes
and Gardens imprint. Under the agreement, Meredith continues to create book
content and retain all approval and content rights. Wiley is responsible for
book layout and design, printing, sales and marketing, distribution, and
inventory management. Wiley pays Meredith royalties based on net sales subject
to a guaranteed minimum. Separate from Wiley, Meredith continues to publish and
promote books under licensed trademarks such as The Home Depot®
books.
Production
and Delivery
Paper,
printing, and postage costs accounted for 41 percent of the publishing segment's
fiscal 2009 operating expenses.
The major
raw materials essential to the publishing segment are coated publication and
book-grade papers. Meredith directly purchases all of the paper for its magazine
production and its custom publishing business and a majority of the paper for
its book production. After several quarters of sharply increasing prices, paper
prices declined in the second half of fiscal 2009. Even with these declines,
average paper prices increased 10 percent in fiscal 2009. The price of paper is
driven by overall market conditions and is therefore difficult to predict.
Management anticipates paper prices will be fairly stable and fiscal 2010
average paper prices will be approximately 10 percent lower than fiscal 2009
average prices. The Company has contractual agreements with major paper
manufacturers to ensure adequate supplies for planned publishing
requirements.
Meredith
has printing contracts with several major domestic printers for all of its
magazine titles. The Company has a contract with a major U.S. printer for the
majority of its book titles.
Because
of the large volume of magazine and subscription promotion mailings, postage is
a significant expense of the publishing segment. We continually seek the most
economical and effective methods for mail delivery including cost-saving
strategies that leverage worksharing opportunities offered within the postal
rate structure. Postage on periodicals accounts for approximately 75 percent of
Meredith's postage costs, while other mail items—direct mail, replies, and
bills— accounts for approximately 25 percent. The Governors of the United States
Postal Service (USPS) review prices for mailing services annually and adjust
postage rates each May. Rate increases have been implemented by the USPS in each
of Meredith’s last four fiscal years. Under the Postal Accountability and
Enhancement Act, USPS increases for each class of mail are capped to the U.S.
Bureau of Labor Statistics' reported increase in the annual CPI-U Index
(Consumer Price Index for Urban consumers) for the previous calendar year. This
CPI-U increase for 2008 was 3.8 percent. The new postal law, however, contains a
special "banking provision" that allows the USPS to defer a portion of an
increase not used in a given year to apply in a subsequent year. While fiscal
2009 postage expense decreased 3 percent from fiscal 2008 costs, the latest
increase in May 2009 will increase Meredith’s annual postage costs by
approximately 3 percent. Meredith continues to work with others in the industry
and through trade organizations to encourage the USPS to implement efficiencies
and contain rate increases. We cannot, however, predict future changes in the
efficiency of the USPS and postal rates or the impact they will have on our
publishing business.
Fulfillment
services for Meredith's publishing segment are provided by third parties.
National magazine newsstand distribution services are provided by a third party
through multi-year agreements.
Competition
Publishing
is a highly competitive business. The Company's magazines, books, and related
publishing products and services compete with other mass media, including the
Internet, and with many other leisure-time activities. Competition for
advertising dollars is based primarily on advertising rates, circulation levels,
reader demographics, advertiser results, and sales team effectiveness.
Competition for readers is based principally on editorial content, marketing
skills, price, and customer service. While competition is strong for established
titles, gaining readership for newer magazines and specialty publications is
especially competitive.
-5-
Broadcasting
Broadcasting
represented approximately 20 percent of Meredith's consolidated revenues in
fiscal 2009. Certain information about the Company's television stations at
June 30, 2009, follows:
|
Station,
Market
|
DMA
National
Rank
(1)
|
Network
Affiliation
|
Channel
|
Expiration
Date
of FCC
License
|
Average
Audience
Share (2) |
|
WGCL-TV
|
8
|
CBS
|
46
|
4-1-2005
(3)
|
6.0 %
|
|
Atlanta,
GA
|
|||||
|
KPHO-TV
|
12
|
CBS
|
5
|
10-1-2006
(3)
|
7.0 %
|
|
Phoenix,
AZ
|
|||||
|
KPTV
|
22
|
FOX
|
12
|
2-1-2007
(3)
|
7.0 %
|
|
Portland,
OR
|
|||||
|
KPDX-TV
|
22
|
MyNetworkTV
|
49
|
2-1-2007(3)
|
2.3 %
|
|
Portland,
OR
|
|||||
|
WSMV-TV
|
29
|
NBC
|
4
|
8-1-2005
(3)
|
11.0 %
|
|
Nashville,
TN
|
|||||
|
WFSB-TV
|
30
|
CBS
|
3
|
4-1-2007(3)
|
12.7 %
|
|
Hartford,
CT
|
|||||
|
New
Haven, CT
|
|||||
|
KCTV
|
31
|
CBS
|
5
|
2-1-2006
(3)
|
13.7 %
|
|
Kansas
City, MO
|
|||||
|
KSMO-TV
|
31
|
MyNetworkTV
|
62
|
2-1-2006
(3)
|
2.0 %
|
|
Kansas
City, MO
|
|||||
|
WHNS-TV
|
36
|
FOX
|
21
|
12-1-2004
(3)
|
6.3 %
|
|
Greenville,
SC
|
|||||
|
Spartanburg,
SC
|
|||||
|
Asheville,
NC
|
|||||
|
Anderson,
SC
|
|||||
|
KVVU-TV
|
42
|
FOX
|
5
|
10-1-2006
(3)
|
4.7 %
|
|
Las
Vegas, NV
|
|||||
|
WNEM-TV
|
66
|
CBS
|
5
|
10-1-2005
(3)
|
14.0 %
|
|
Flint,
MI
|
|||||
|
Saginaw,
MI
|
|||||
|
Bay
City, MI
|
|||||
|
WSHM-LP
|
111
|
CBS
|
3
|
4-1-2007
(3)
|
9.3 %
|
|
Springfield,
MA
|
|||||
|
Holyoke,
MA
|
|||||
|
(1)
|
Designated
Market Area (DMA) is a registered trademark of, and is defined by, Nielsen
Media Research. The national rank is from the 2008–2009 DMA
ranking.
|
|
(2)
|
Average
audience share represents the estimated percentage of households using
television tuned to the station in the DMA. The percentages shown reflect
the average total day shares (9:00 a.m. to midnight) for the November
2008, March 2009, and May 2009 measurement periods.
|
|
(3)
|
Renewal application pending.
Under FCC rules, a license is automatically extended pending FCC
processing and granting of the renewal application. We have no reason to believe
that these licenses will not be renewed by the
FCC.
|
-6-
Operations
The
principal sources of the broadcasting segment’s revenues are: 1) local
advertising focusing on the immediate geographic area of the stations; 2)
national advertising; 3) retransmission of our television signal to satellite
and cable systems; 4) advertising on the stations’ websites; and 5) payments by
advertisers for other services, such as the production of advertising materials.
The advertising revenues derived from a station’s local news programs make up a
significant part of its total revenues.
The
stations sell commercial time to both local/regional and national advertisers.
Rates for spot advertising are influenced primarily by the market size, number
of in-market broadcasters, audience share, and audience demographics. The larger
a station's share in any particular daypart, the more leverage a station has in
setting advertising rates. As the market fluctuates with supply and demand, so
does a station's rates. Most national advertising is sold by independent
representative firms. The sales staff at each station generates local/regional
advertising revenues.
Typically
30 to 40 percent of a market's television advertising revenue is generated by
local newscasts. Station personnel are continually working to grow their news
ratings, which in turn will augment revenues. Effective June 12, 2009, the
Company broadcasts on its digital channels only, except for WSHM, our low-power
station. The Company broadcasts local newscasts in high definition (HD) at two
of our 12 stations. These telecasts have been well received given the dramatic
increase in sales of HD televisions.
The
national network affiliations of Meredith's 12 television stations influence
advertising rates. Generally, a network affiliation agreement provides a station
the exclusive right to broadcast network programming in its local service area.
In return, the network has the right to sell most of the commercial advertising
aired during network programs. Network-affiliated stations generally pay
networks for certain programming such as professional football. The Company's
FOX affiliates also pay the FOX network for additional advertising spots in
prime-time programming.
The
Company's affiliation agreements for its six CBS affiliates have expiration
dates that range from November 2010 to April 2016. Affiliation agreements for
our two MyNetworkTV affiliates expire at the end of the 2011-2012 broadcast
season; the FOX affiliation agreements expire at the end of the 2011-2012
broadcast season; and the agreement for our NBC affiliate expires in December
2013. While Meredith's relations with the networks historically have been
excellent, the Company can make no assurances they will remain so over
time.
The
Federal Communications Commission (FCC) has permitted broadcast television
station licensees to use their digital spectrum for a wide variety of services
such as high-definition television programming, audio, data, and other types of
communication, subject to the requirement that each broadcaster provide at least
one free video channel equal in quality to the current technical standards.
Several of our stations are broadcasting a second programming stream on their
digital channel. Our Las Vegas, Phoenix, and Hartford stations currently
broadcast a weather channel, our Nashville station broadcasts Telemundo network
programming, and Flint-Saginaw has a MyNetworkTV affiliate.
The costs
of locally produced programming and purchased syndicated programming are
significant. Syndicated programming costs are based largely on demand from
stations in the market and can fluctuate significantly. The Company continues to
increase its locally produced news and entertainment programming to control
content and costs and to attract advertisers.
During
fiscal 2009, Meredith announced an initiative to consolidate back-office station
functions such as traffic, master control, and research into centralized hubs in
Atlanta and Phoenix. The centralization is expected to be fully completed in
early calendar 2010.
Meredith
has been successful in creating nontraditional revenue streams in the
broadcasting segment. Our unique Cornerstone programs differentiate Meredith
from other local television broadcasters. These programs leverage our publishing
brands by packaging content from our magazines with print and on-air advertising
from local advertisers.
-7-
We
continue to see increasing revenues from retransmission fees. Meredith has
successfully negotiated new retransmission terms with all cable operators in its
markets. Revenues from retransmission fees more than doubled in fiscal 2009 to
reach $16.6 million. We expect retransmission fees to be more than $20 million
in fiscal 2010.
Meredith
Video Solutions (MVS) produces broadcast-quality video for use by Meredith's
television stations and our broadcasting and publishing websites, and is
producing custom video for clients as well. MVS's video sites, Better.tv and Parents.tv, offer more ways
for users to interact with our content. Better.tv features over 20
channels of video information on topics including food, family, home, style,
entertainment, fitness, and health. Parents.tv provides
all-original parenting content based on the editorial backbone of Parents, American Baby, and Family Circle magazines.
Sponsorship opportunities include video billboards, product integration, channel
sponsorships, and custom videos.
The Better show, our hour-long
daily lifestyle television show produced by MVS, continues to expand its reach.
The show now has syndication agreements in more than 50 markets, including half
of the nation’s top 10. This is up from 35 markets in the fall of 2008. Content
from the Better show is
also repurposed online at Better.tv and Parents.tv.
Meredith
parenthood video content is distributed on Comcast Corp.'s cable systems on a
video on demand (VOD) channel branded Parents TV that reaches more than 14
million households. In its first full year, approximately 1.7 million videos
were downloaded through the VOD channel. Comcast has more VOD homes than any
other cable operator. Meredith and Comcast share the advertising
revenues.
Competition
Meredith's
television stations and radio station compete directly for advertising dollars
and programming in their respective markets with other local television
stations, radio stations, and cable television providers. Other mass media
providers such as newspapers and their websites are also competitors.
Advertisers compare market share, audience demographics, and advertising rates
and take into account audience acceptance of a station's programming, whether
local, network, or syndicated.
Regulation
The
ownership, operation, and sale of broadcast television stations, including those
licensed to the Company, are subject to the jurisdiction of the FCC, which
engages in extensive regulation of the broadcasting industry under authority
granted by the Communications Act of 1934, as amended (Communications Act),
including authority to promulgate rules and regulations governing broadcasting.
The Communications Act requires broadcasters to serve the public interest. Among
other things, the FCC assigns frequency bands; determines stations’ locations
and operating parameters; issues, renews, revokes, and modifies station
licenses; regulates and limits changes in ownership or control of station
licenses; regulates equipment used by stations; regulates station employment
practices; regulates certain program content and commercial matters in
children’s programming; has the authority to impose penalties for violations of
its rules or the Communications Act; and impose annual fees on stations.
Reference should be made to the Communications Act, as well as to the FCC’s
rules, public notices, and rulings for further information concerning the nature
and extent of federal regulation of broadcast television stations.
Television
broadcast licenses are granted for eight-year periods. The Communications Act
directs the FCC to renew a broadcast license if the station has served the
public interest and is in substantial compliance with the provisions of the
Communications Act and FCC rules and policies. Management believes the Company
is in substantial compliance with all applicable provisions of the
Communications Act and FCC rules and policies and knows of no reason why
Meredith's broadcast station licenses will not be renewed.
-8-
On
December 18, 2007, the FCC adopted a decision that revised its
newspaper/broadcast cross-ownership rule to permit a degree of same-market
newspaper/broadcast ownership based on certain presumptions, criteria, and
limitations. The FCC at that time made no changes to the currently effective
local radio ownership rules (as modified by its 2003 ownership decision) or the
radio/television cross-ownership rule (as modified in 1999). Also in December
2007, the FCC adopted rules to promote diversification of broadcast ownership,
including revisions to its ownership attribution rules. The FCC’s media
ownership rules, including the modifications adopted in December 2007, are
subject to further court appeals, various petitions for reconsideration before
the FCC, and possible actions by Congress. We cannot predict the impact of any
of these developments on our business. In particular, we cannot predict the
ultimate outcome of the FCC’s media ownership proceedings or their effects on
our ability to acquire broadcast stations in the future or to continue to freely
transfer stations that we currently own. Moreover, we cannot predict the impact
of future reviews or any other agency or legislative initiatives upon the FCC’s
broadcast rules.
The
Communications Act and the FCC also regulate relationships between television
broadcasters and cable and satellite television providers. Under these
provisions, most cable systems must devote a specified portion of their channel
capacity to the carriage of the signals of local television stations that elect
to exercise this right to mandatory carriage. Alternatively, television stations
may elect to restrict cable systems from carrying their signals without their
written permission, referred to as retransmission consent. Congress and the FCC
have established and implemented generally similar market-specific requirements
for mandatory carriage of local television stations by satellite television
providers when those providers choose to provide a market’s local television
signals.
In
February 2006, Congress passed the Digital Television Transition and Public
Safety Act (DTV Act), and set February 17, 2009, as the end of free,
over-the-air, analog broadcast service from full power television stations. In
February 2009, Congress passed legislation that required all full-power stations
to convert to all-digital operation by June 12, 2009. This new transition
date was intended to permit additional time for consumers to obtain converter
boxes and otherwise prepare for the transition. On June 12, 2009, the
Company turned off its full power analog channels and now broadcasts on its
digital channels only.
In 2006,
Sprint Nextel Corporation (Nextel) was granted the right from the FCC to claim
from broadcasters in each market across the country the 1.9 GHz spectrum to use
for an emergency communications system. In order to claim this signal, Nextel
must replace all analog equipment currently using this spectrum with digital
equipment. All broadcasters have agreed to use the digital substitute that
Nextel will provide. The transition is being completed on a market-by-market
basis. We recorded pre-tax gains of $2.5 million and $1.8 million during fiscal
2009 and fiscal 2008, respectively, that represent the difference between the
fair value of the digital equipment we received and the book value of the analog
equipment we exchanged. As the equipment is exchanged in other markets, we
expect to record additional gains in fiscal 2010.
Congress
and the FCC have under consideration, and in the future may adopt, new laws,
regulations, and policies regarding a wide variety of matters that could affect,
directly or indirectly, the operation, ownership transferability, and
profitability of the Company’s broadcast television stations and affect the
ability of the Company to acquire additional stations. In addition to the
matters noted above, these include, for example, spectrum use fees, regulation
of political advertising rates, potential restrictions on the advertising of
certain products (such as alcoholic beverages), program content restrictions,
increased fines for rule violations, and ownership rule changes. Other matters
that could potentially affect the Company’s broadcast properties including
technological innovations and developments generally affecting competition in
the mass communications industry for viewers or advertisers, such as home video
recorders and players, satellite radio and television services, cable television
systems, newspapers, outdoor advertising, and Internet delivered video
programming services.
The
information provided in this section is not intended to be inclusive of all
regulatory provisions currently in effect. Statutory provisions and FCC
regulations are subject to change, and any such changes could affect future
operations and profitability of the Company's broadcasting segment. Management
cannot predict what regulations or legislation may be adopted, nor can
management estimate the effect any such changes would have on the Company's
television and radio broadcasting operations.
-9-
EXECUTIVE
OFFICERS OF THE COMPANY
Executive
officers are elected to one year terms each November. The current executive
officers of the Company are:
Stephen M. Lacy—President and
Chief Executive Officer (2006–present) and a director of the Company since 2004.
Formerly President and Chief Operating Officer (2004–2006) and
President–Publishing Group (2000–2004). Age 55.
John H. (Jack) Griffin,
Jr.—President–Publishing Group (2004–present). Formerly
President–Magazine Group (2003–2004). Age 49.
Paul A.
Karpowicz—President–Broadcasting Group (2005–present). Prior to joining
Meredith, Mr. Karpowicz spent 16 years with LIN Television Corporation (LIN) and
in 1994 was named Vice President-Television for LIN's 23 properties in 14
markets. Mr. Karpowicz served on LIN's Board of Directors from 1999 to 2005. Age
56.
Joseph H. Ceryanec—Vice
President–Chief Financial Officer (effective October 2008). Prior to joining
Meredith, Mr. Ceryanec served as President, Central Region for PAETEC
Corporation from February 2008. Prior to PAETEC’s acquisition of McLeodUSA, Mr.
Ceryanec served as McLeodUSA’s Group Vice President, Chief Financial Officer
from 2005 to 2008 and Controller/Treasurer from 1996 to 2005. Age
48.
John S. Zieser—Chief
Development Officer/General Counsel and Secretary (2006–present). Formerly Vice
President–Corporate Development/General Counsel and Secretary (2004–2006) and
Vice President–Corporate and Employee Services/General Counsel and Secretary
(2002–2004). Age 50.
EMPLOYEES
As of
June 30, 2009, the Company had approximately 3,160 full-time and 120
part-time employees. Only a small percentage of our workforce is unionized. We
consider relations with our employees to be good.
OTHER
Name
recognition and the public image of the Company's trademarks (e.g., Better Homes and Gardens and
Parents) and television
station call letters are vital to the success of our ongoing operations and to
the introduction of new business. The Company protects its brands by
aggressively defending its trademarks and call letters.
The
Company had no material expenses for research and development during the past
three fiscal years. Revenues
from individual customers and revenues, operating profits, and identifiable
assets of foreign operations were not significant. Compliance with federal,
state, and local provisions relating to the discharge of materials into the
environment and to the protection of the environment had no material effect on
capital expenditures, earnings, or the Company's competitive
position.
AVAILABLE
INFORMATION
The
Company's corporate website is Meredith.com. The content of
our website is not incorporated by reference into this Form 10-K. Meredith
makes available free of charge through its website its Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
those reports filed or furnished to the Securities and Exchange Commission (SEC)
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practical after such documents are electronically filed with
or furnished to the SEC. Meredith also makes available on its website its
corporate governance information including charters of all of its Board
Committees, its Corporate Governance Guidelines, its Code of Business Conduct
and Ethics, its Code of Ethics for CEO and Senior Financial Officers, and its
Bylaws. Copies of such documents are also available free of charge upon written
request.
-10-
This
Form 10-K, including the sections titled Item 1–Business, Item 1A–Risk Factors,
and Item 7–Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contains forward-looking statements that relate to future events or our future
financial performance. We may also make written and oral forward-looking
statements in our SEC filings and elsewhere. By their nature, forward-looking
statements involve risks, trends, and uncertainties that could cause actual
results to differ materially from those anticipated in any forward-looking
statements. Such factors include, but are not limited to, those items described
in Item 1A–Risk
Factors below, those identified elsewhere in this document, and other
risks and factors identified from time to time in our SEC filings. We have
tried, where possible, to identify such statements by using words such as believe, expect, intend, estimate, anticipate, will, likely, project, plan, and similar expressions
in connection with any discussion of future operating or financial performance.
Any forward-looking statements are and will be based upon our then-current
expectations, estimates, and assumptions regarding future events and are
applicable only as of the dates of such statements. Readers are cautioned not to
place undue reliance on such forward-looking statements that are part of this
filing; actual results may differ materially from those currently anticipated.
The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
In
addition to the other information contained or incorporated by reference into
this Form 10-K, investors should consider carefully the following risk
factors when investing in our securities. In addition to the risks described
below, there may be additional risks that we have not yet perceived or that we
currently believe are immaterial.
Advertising represents the largest
portion of our revenues. Approximately 55 percent of our
revenues are derived from advertising. Advertising constitutes about half of our
publishing segment revenues and almost all of our broadcasting segment revenues.
Demand for advertising is highly dependent upon the strength of the U.S.
economy. During an economic downturn, demand for advertising may decrease. The
growth in alternative forms of media, for example the Internet, has increased
the competition for advertising dollars, which could in turn reduce expenditures
for magazine and television advertising or suppress advertising
rates.
Circulation revenues represent a
significant portion of our revenues. Magazine circulation is
another significant source of revenue, representing 20 percent of total revenues
and 25 percent of publishing segment revenues. Preserving circulation is
critical for maintaining advertising sales. Magazines face increasing
competition from alternative forms of media and entertainment. As a result,
sales of magazines through subscriptions and at the newsstand could decline. As
publishers compete for subscribers, subscription prices could decrease and
marketing expenditures may increase.
Client relationships are important to
our integrated marketing businesses. Our ability to maintain
existing client relationships and generate new clients depends significantly on
the quality of our services, our reputation, and the continuity of Company and
client personnel. Dissatisfaction with our services, damage to our reputation,
or changes in key personnel could result in a loss of business.
-11-
Paper and postage prices may be
difficult to predict or control. Paper and postage represent
significant components of our total cost to produce, distribute, and market our
printed products. In fiscal 2009, these expenses accounted for 28 percent of the
publishing segment's operating costs. Paper is a commodity and its price has
been subject to significant volatility. All of our paper supply contracts
currently provide for price adjustments based on prevailing market prices;
however, we historically have been able to realize favorable paper pricing
through volume discounts and multi-year contracts. The USPS distributes
substantially all of our magazines and many of our marketing materials. Postal
rates are dependent on the operating efficiency of the USPS and on legislative
mandates imposed upon the USPS. Although we work with others in the industry and
through trade organizations to encourage the USPS to implement efficiencies that
will minimize rate increases, we cannot predict with certainty the magnitude of
future price changes for paper and postage. Further, we may not be able to pass
such increases on to our customers.
World events may result in unexpected
adverse operating results for our broadcasting segment. Our
broadcasting results could be affected adversely by world events such as wars,
political unrest, acts of terrorism, and natural disasters. Such events can
result in significant declines in advertising revenues as the stations will not
broadcast or will limit broadcasting of commercials during times of crisis. In
addition, our stations may have higher newsgathering costs related to coverage
of the events.
Our broadcasting operations are
subject to FCC regulation. Our broadcasting stations operate
under licenses granted by the FCC. The FCC regulates many aspects of television
station operations including employment practices, political advertising,
indecency and obscenity, programming, signal carriage, and various technical
matters. Violations of these regulations could result in penalties and fines.
Changes in these regulations could impact the results of our operations. The FCC
also regulates the ownership of television stations. Changes in the ownership
rules could affect our ability to consummate future transactions. Details
regarding regulation and its impact on our broadcasting operations are provided
in Item 1–Business
beginning on page 6.
Loss of affiliation agreements could
adversely affect operating results for our broadcasting
segment. Our broadcast television station business owns and
operates 12 television stations. Six are affiliated with CBS, three with FOX,
two with MyNetworkTV, and one with NBC. These television networks produce and
distribute programming in exchange for each of our stations' commitment to air
the programming at specified times and for commercial announcement time during
the programming. The non-renewal or termination of any of our network
affiliation agreements would prevent us from being able to carry programming of
the affiliate network. This loss of programming would require us to obtain
replacement programming, which may involve higher costs and which may not be as
attractive to our audiences, resulting in reduced revenues.
We have two classes of stock with
different voting rights. We have two classes of stock: common
stock and Class B stock. Holders of common stock are entitled to one vote
per share and account for approximately 30 percent of the voting power. Holders
of Class B stock are entitled to ten votes per share and account for the
remaining 70 percent of the voting power. There are restrictions on who can own
Class B stock. The majority of Class B shares are held by members of
Meredith's founding family. Control by a limited number of individuals may make
the Company a less attractive takeover target, which could adversely affect the
market price of our common stock. This voting control also prevents other
shareholders from exercising significant influence over certain of the Company's
business decisions.
Further non-cash impairment of
goodwill and intangible assets is possible, depending upon future operating
results and the value of the Company’s stock. Although the
Company has written down its intangible assets (including goodwill) by $294.5
million in fiscal 2009, further impairment charges are possible. We test our
goodwill and intangible assets, including FCC licenses, for impairment during
the fourth quarter of every fiscal year and on an interim basis if indicators of
impairment exist. Factors which influence the evaluation include the Company’s
stock price and expected future operating results. If the carrying value of a
reporting unit or an intangible asset is no longer deemed to be recoverable, a
potentially material impairment charge could be incurred. Although these charges
would be non-cash in nature and would not affect the Company’s operations or
cash flow, they would adversely affect stockholders’ equity and reported results
of operations in the period charged.
-12-
Acquisitions pose inherent financial
and other risks and challenges. On occasion, Meredith will
acquire another business as part of our strategic plan. These transactions
involve challenges and risks in negotiation, valuation, execution, and
integration. Moreover, competition for certain types of acquisitions is
significant, particularly in the field of interactive media. Even if
successfully negotiated, closed, and integrated, certain acquisitions may not
advance our business strategy and may fall short of expected return on
investment targets.
|
The
preceding risk factors should not be construed as a complete list of
factors that
may
affect our future operations and financial results.
|
||
Not
applicable.
Meredith
is headquartered in Des Moines, IA. The Company owns buildings at 1716 and 1615
Locust Street and is the sole occupant of these buildings. These facilities are
adequate for their intended use.
The
publishing segment operates mainly from the Des Moines offices and from leased
facilities at 125 Park Avenue and 375 Lexington Avenue in New York, NY. The New
York facilities are used primarily as advertising sales offices for all Meredith
magazines and as headquarters for Ladies' Home Journal, Family Circle, Parents, Fitness, More, Siempre Mujer, and the
American Baby Group properties. We have also entered into leases for integrated
marketing operations and publishing sales offices located in the states of
California, Illinois, Michigan, Texas, and Virginia. The Company believes the
capacity of these locations is sufficient to meet our current and expected
future requirements.
The
broadcasting segment operates from facilities in the following locations:
Atlanta, GA; Phoenix, AZ; Beaverton, OR; Rocky Hill, CT; Nashville, TN; Fairway,
KS; Greenville, SC; Henderson, NV; Springfield, MA; and Saginaw, MI. All of
these properties are adequate for their intended use. The property in
Springfield is leased, while the other properties are owned by the Company. Each
of the broadcast stations also maintains one or more owned or leased transmitter
sites.
There are
various legal proceedings pending against the Company arising from the ordinary
course of business. In the opinion of management, liabilities, if any, arising
from existing litigation and claims will not have a material effect on the
Company's earnings, financial position, or liquidity.
No
matters have been submitted to a vote of shareholders since the Company's last
annual meeting held on November 5, 2008.
-13-
|
PART
II
|
ITEM 5. MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
MARKET
INFORMATION, DIVIDENDS, AND HOLDERS
The
principal market for trading Meredith's common stock is the New York Stock
Exchange (trading symbol MDP). There is no separate public trading market for
Meredith's Class B stock, which is convertible share for share at any time
into common stock. Holders of both classes of stock receive equal dividends per
share.
The range
of trading prices for the Company's common stock and the dividends paid during
each quarter of the past two fiscal years are presented below.
|
High
|
Low
|
Dividends
|
|
|
Fiscal
2009
|
|||
|
First
Quarter
|
$31.31
|
$23.02
|
$0.215
|
|
Second
Quarter
|
28.30
|
12.06
|
0.215
|
|
Third
Quarter
|
19.49
|
10.60
|
0.225
|
|
Fourth
Quarter
|
30.10
|
16.40
|
0.225
|
|
High
|
Low
|
Dividends
|
|
|
Fiscal
2008
|
|||
|
First
Quarter
|
$62.50
|
$48.15
|
$0.185
|
|
Second
Quarter
|
62.39
|
53.71
|
0.185
|
|
Third
Quarter
|
55.08
|
37.10
|
0.215
|
|
Fourth
Quarter
|
39.83
|
28.01
|
0.215
|
Meredith
stock became publicly traded in 1946, and quarterly dividends have been paid
continuously since 1947. Meredith has increased its dividend in each of the last
16 years. It is anticipated that comparable dividends will continue to be paid
in the future.
On
July 31, 2009, there were approximately 1,390 holders of record of the
Company's common stock and 740 holders of record of Class B
stock.
COMPARISON
OF SHAREHOLDER RETURN
The
following graph compares the performance of the Company’s common stock during
the period July 1, 2004, to June 30, 2009, with the Standard and
Poor’s (S&P) 500 Index and with a Peer Group of six companies engaged in
multimedia businesses primarily with publishing and/or television broadcasting
in common with the Company.
The
S&P 500 Index is comprised of 500 U.S. companies in the industrial,
transportation, utilities, and financial industries and is weighted by market
capitalization. The Peer Group selected by the Company for comparison, which is
also weighted by market capitalization, is comprised of Belo Corp.; Gannett Co.,
Inc.; The McGraw-Hill Companies, Inc.; Media General, Inc.; The E.W. Scripps
Company; and The Washington Post Company. Heart-Argyle Television, Inc., which
had been included in the Peer Group in prior years, is no longer a publicly
traded company and has been removed from the Peer Group. The Company also
removed The New York Times from the Peer Group since they sold their broadcast
media group and no longer are in any of the same lines of business as the
Company.
-14-
The graph
depicts the results for investing $100 in the Company’s common stock, the
S&P 500 Index, and the Peer Group at closing prices on June 30, 2004,
assuming dividends were reinvested.
ISSUER
PURCHASES OF EQUITY SECURITIES
The
following table sets forth information with respect to the Company's repurchases
of common stock during the quarter ended June 30, 2009.
|
Period
|
(a)
Total
number of
shares purchased
|
(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 the programs |
|||
|
April
1 to
April
30, 2009
|
1,399
|
$ 17.63
|
1,399
|
1,496,429
|
|||
|
May
1 to
May
31, 2009
|
485
|
27.02
|
485
|
1,495,944
|
|||
|
June
1 to
June 30,
2009
|
–
|
–
|
–
|
1,495,944
|
|||
|
Total
|
1,884
|
20.05
|
1,844
|
1,495,944
|
|||
No Class
B shares were purchased during the quarter ended June 30, 2009.
In May
2008, Meredith announced the Board of Directors had authorized the repurchases
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 Item 7–Management's Discussion
and Analysis of Financial Condition and Results of Operations, under the
heading "Share Repurchase Program" on page 35.
-15-
Selected
financial data for the years 2005 through 2009 is contained under the heading
"Eleven-Year Financial History with Selected Financial Data" beginning on
page 86 and is derived from consolidated financial statements for those
years. Information contained in that table is not necessarily indicative of
results of operations in future years and should be read in conjunction with
Item 7–Management's
Discussion and Analysis of Financial Condition and Results of Operations
and
Item 8–Financial Statements and Supplementary Data of this
Form 10-K.
Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) consists of the following sections:
MD&A
should be read in conjunction with the other sections of this Form 10-K,
including Item 1–Business, Item 6–Selected Financial
Data, and Item 8–Financial Statements and
Supplementary Data. MD&A contains a number of forward-looking
statements, all of which are based on our current expectations and could be
affected by the uncertainties and risk factors described throughout this filing
and particularly in Item 1A–Risk
Factors.
Meredith
is one of the nation's leading media and marketing companies, one of the leading
magazine publishers serving women, and a broadcaster with television stations in
top markets such as Atlanta, Phoenix, and Portland. Each month we reach more
than 85 million American consumers through our magazines, websites, books,
custom publications, and television stations. Our businesses serve well-defined
readers and viewers, deliver the messages of advertisers, and extend our brand
franchises and expertise to related markets. Our products and services
distinguish themselves on the basis of quality, customer service, and value that
can be trusted.
Meredith
operates two business segments. Publishing consists of magazine and book
publishing, integrated marketing, interactive media, brand licensing,
database-related activities, and other related operations. Broadcasting 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. In fiscal 2009, publishing
accounted for approximately 80 percent of the Company's $1.4 billion in revenues
while broadcasting revenues contributed approximately 20 percent.
-16-
While
signs of a weakening economy were noticeable toward the end of fiscal 2008,
fiscal 2009 brought further economic turmoil. Most companies, and particularly
those in the media industry, were directly impacted by the adverse effects on
consumer confidence and consequential lower advertiser spending. Meredith was no
exception. Total advertising revenues declined 15 percent in fiscal
2009.
In the
face of these challenging times, the Company responded quickly to meet the
demands of consumers and advertisers and to optimize opportunities in our
publishing and broadcasting operations. Meredith implemented a three-pronged
performance improvement plan to build value for its shareholders. First, we
focused on gaining market share. In fiscal 2009, we increased market share to
10.5 percent of industry advertising revenue from 9.5 percent in fiscal 2008,
according to data from Publishers Information Bureau (PIB). In the fourth fiscal
quarter, our share grew to 12.8 percent from 10.1 percent. Many of our
television stations posted stronger ratings during the recently completed May
sweeps. In morning news, our stations in Portland, Hartford, and Las Vegas
continued their number one positions, while Atlanta and Greenville each doubled
viewership and Kansas City increased viewership 24 percent. We also gained
additional viewers during the late news, where ad rates are the highest.
Phoenix’s viewership for late news rose 38 percent while Greenville rose 11
percent. Hartford maintained its leadership position in every local newscast
time period.
The
second element of our performance improvement plan centers on growing new
revenue streams, many not dependent on traditional advertising. Meredith
Integrated Marketing revenues grew 13 percent in fiscal 2009, driven primarily
by our custom publishing and digital service offerings. Over the last couple of
years, we have transformed this business from purely a custom publisher into a
full-scale custom marketing agency with expansive digital skills. In the
process, we are now able to propose on a much broader range of business than
ever before. Meredith’s brand licensing activities grew revenues 15 percent in
fiscal 2009, largely due to our relationship with Wal-Mart. During the fiscal
year, we reached an agreement with Wal-Mart to double the number of branded SKUs
to 1,000 and extend the program to Canada. Revenues at MVS, a division of our
Broadcasting Group focused on video content creation and syndication, rose more
than 50 percent in fiscal 2009. Finally, fees paid to our television stations by
cable, satellite, and phone companies that retransmit their broadcast signals,
known in the industry as retransmission fees, doubled in fiscal 2009. We expect
they will total more than $20 million in fiscal 2010.
Finally,
our third performance improvement strategy is disciplined expense control and
aggressive cash management. Though we recorded a non-cash impairment charge of
$294.5 million in fiscal 2009, excluding the effects of that charge, total
operating costs declined 11 percent in the fourth quarter, and 5 percent for the
year – even with a 10 percent increase in paper prices over the prior-year
period. Additionally, we raised our dividend 5 percent during fiscal 2009,
unlike many of our peers that froze or reduced their dividends. We also
eliminated approximately $105 million – or 22 percent – of our debt during the
year. We continue to be well-positioned to make further investments in our
business as strategic opportunities arise.
PUBLISHING
Advertising
revenues made up 47 percent of fiscal 2009 publishing revenues. These revenues
were generated from the sale of advertising space in our magazines and on our
websites to clients interested in promoting their brands, products, and services
to consumers. Changes in advertising revenues tend to correlate with changes in
the level of economic activity in the U.S. Indicators of economic activity
include changes in the level of gross domestic product, consumer spending,
housing starts, unemployment rates, auto sales, and interest rates. Circulation
levels of Meredith's magazines, reader demographic data, and the advertising
rates charged relative to other comparable available advertising opportunities
also affect the level of advertising revenues.
-17-
Circulation
revenues accounted for 25 percent of fiscal 2009 publishing 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. In the short term, subscription revenues,
which accounted for 75 percent of circulation revenues, are less susceptible to
economic changes because subscriptions are generally sold for terms of one to
three years. The same economic factors that affect advertising revenues also can
influence consumers' response to subscription offers and result in lower
revenues and/or higher costs to maintain subscriber levels over time. A key
factor in Meredith's subscription success is our industry-leading database. It
contains approximately 85 million entries that include information on about
three-quarters of American homeowners, providing an average of 700 data points
for each name. The size and depth of our database is a key to our circulation
model and allows more precise consumer targeting. Newsstand revenues are more
volatile than subscription revenues and can vary significantly month to month
depending on economic and other factors.
The
remaining 28 percent of publishing revenues came from a variety of activities
that included the sale of integrated marketing services and books as well as
brand licensing, product sales, and other related activities. Meredith
Integrated Marketing offers integrated promotional, database management,
relationship, and direct marketing capabilities for corporate customers, both in
printed and digital forms. These revenues generally are affected by changes in
the level of economic activity in the U.S. including changes in the level of
gross domestic product, consumer spending, unemployment rates, and interest
rates.
Publishing's
major expense categories are production and delivery of publications and
promotional mailings and employee compensation costs. Paper, postage, and
production charges represented 41 percent of the segment's operating expenses in
fiscal 2009. The price of paper can vary significantly on the basis of worldwide
demand and supply for paper in general and for specific types of paper used by
Meredith. The production of our publications is outsourced to printers. We
typically have multi-year contracts for the production of our magazines, a
practice which reduces price fluctuations over the contract term. Postal rates
are dependent on the operating efficiency of the USPS and on legislative
mandates imposed on the USPS. The USPS increased rates most recently in May
2009. This came after increases in each of Meredith’s prior three fiscal years.
Meredith works with others in the industry and through trade organizations to
encourage the USPS to implement efficiencies and contain rate
increases.
Employee
compensation, which includes benefits expense, represented 23 percent of
publishing's operating expenses in fiscal 2009. Compensation expense is affected
by salary and incentive levels, the number of employees, the costs of our
various employee benefit plans, and other factors. The remaining 36 percent of
fiscal 2009 publishing expenses included costs for magazine newsstand and book
distribution, advertising and promotional efforts, and overhead costs for
facilities and technology services.
BROADCASTING
Broadcasting
derives almost all of its revenues–94 percent in fiscal 2009–from the sale of
advertising both over the air and on our stations' websites. The remainder comes
from television retransmission fees, television production services, and other
services.
The
stations sell advertising to both local/regional and national accounts.
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. MVS produces video content for
Meredith stations, non-Meredith stations, and online distribution. Meredith
continues to expand its Cornerstone program to leverage our publishing brands.
The program packages material from our national magazines with local advertising
to create customized mini-magazines delivered to targeted customers in the
markets our television stations serve. We have generated additional revenues
from Internet activities and programs focused on local interests such as
community events and college and professional sports.
Changes
in advertising revenues tend to correlate with changes in the level of economic
activity in the U.S. and in the local markets in which we operate stations, and
with the cyclical changes in political advertising discussed previously.
Programming content, audience share, audience demographics, and the advertising
rates charged relative to other available advertising opportunities also affect
advertising revenues. On occasion, unusual events necessitate uninterrupted
television coverage and will adversely affect spot advertising
revenues.
-18-
In
conjunction with our annual impairment testing, we concluded in the fourth
quarter of fiscal 2009 that there was impairment with respect to the carrying
value of our Broadcasting FCC licenses and goodwill. As a result, in the fourth
quarter of fiscal 2009 we recorded non-cash charge of $211.9 million to reduce
the carrying value of our FCC licenses and of $82.6 million to write-off
broadcasting’s goodwill.
On an
ongoing basis, Broadcasting's major expense categories are employee compensation
and programming costs. Excluding the impairment charge, employee compensation
represented 50 percent of broadcasting's operating expenses in fiscal 2009, and
is affected by the same factors noted for publishing. Programming rights
amortization expense represented 11 percent of this segment's fiscal 2009
expenses, absent the impairment charge. Programming expense is affected by the
cost of programs available for purchase and the selection of programs aired by
our television stations. Sales and promotional activities, costs to produce
local news programming, and general overhead costs for facilities and technical
resources accounted for most of the remaining 39 percent of broadcasting's
fiscal 2009 operating expenses excluding the impairment charge.
FISCAL
2009 FINANCIAL OVERVIEW
|
·
|
The
Company reported a net loss for fiscal 2009 of $107.1 million or $2.38 per
share reflecting the non-cash impairment charge of $294.5 million ($185.1
million after-tax.) Absent the impairment charge, the Company would have
had fiscal 2009 net earnings of $78.0 million or $1.73 per share
representing a 42 percent decline from fiscal
2008.
|
|
·
|
As
part of the Company’s annual impairment testing, the Company recorded a
pre-tax non-cash impairment charge of $211.9 million to reduce the
carrying value of broadcast FCC licenses and $82.6 million to write-off
the broadcasting segment’s goodwill in the fourth quarter of fiscal
2009.
|
|
·
|
Both
magazine and broadcasting advertising revenues were affected by a
nationwide slowdown in the demand for advertising. As a result, publishing
revenues and operating profit decreased 8 percent and 20 percent,
respectively. Broadcasting revenues and operating profit declined 14
percent and 431 percent, respectively and a loss from operations of $257.8
million was incurred as a result of the impairment charge. Absent the
impairment charge discussed above, fiscal 2009 broadcasting operation
profit would have been $36.8 million, a decline of 53 percent from fiscal
2008.
|
|
·
|
In
the fourth quarter of fiscal 2009, management committed to additional
steps against its performance improvement plan that included plans to
centralize certain functions across Meredith’s television stations and
limited workforce reductions in the publishing segment. In connection with
these steps, the Company recorded a pre-tax restructuring charge in the
fourth quarter of fiscal 2009 of $5.5 million including severance and
benefit costs of $5.1 million and the write-down of certain fixed assets
at the television stations of $0.4
million.
|
|
·
|
In
December 2008, management committed to a performance improvement plan that
included a companywide workforce reduction and the closing of Country Home magazine.
In connection with this plan, the Company recorded a pre-tax restructuring
charge in the second quarter of fiscal 2009 of $15.8 million including
severance and benefit costs of $10.0 million, a write-down of various
assets of Country Home
magazine of $5.6 million, and other accruals of $0.2 million. Of
the $15.8 million charge, $6.8 million is recorded in discontinued
operations on the Consolidated Statement of Earnings
(Loss.)
|
|
·
|
In
fiscal 2009, we generated $180.9 million in operating cash flows, invested
$23.5 million in capital improvements, and eliminated $105.0 million of
our debt. The quarterly dividend was increased 5 percent from 21.5 cents
per share to 22.5 cents per share effective with the March 2009
payment.
|
-19-
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
||||
|
(In
millions except per share data)
|
|||||||||
|
Total
revenues
|
$
|
1,408.8
|
(9)%
|
$
|
1,552.4
|
(2)%
|
$
|
1,579.7
|
|
|
Costs
and expenses
|
1,206.8
|
(4)%
|
1,263.6
|
1 %
|
1,251.1
|
||||
|
Depreciation
and
amortization
|
42.6
|
(13)%
|
49.2
|
9 %
|
45.0
|
||||
|
Impairment
charge
|
294.5
|
–
|
–
|
–
|
–
|
||||
|
Total
operating expenses
|
1,543.9
|
18 %
|
1,312.8
|
1 %
|
1,296.1
|
||||
|
Income
(loss) from operations
|
$
|
(135.1
|
)
|
NM
|
$
|
239.6
|
(16)%
|
$
|
283.6
|
|
Earnings
(loss) from continuing operations
|
$
|
(102.5
|
)
|
NM
|
$
|
133.0
|
(20)%
|
$
|
166.0
|
|
Net
earnings (loss)
|
(107.1
|
)
|
NM
|
134.7
|
(17)%
|
162.3
|
|||
|
Diluted
earnings (loss) per share from continuing operations
|
(2.28
|
)
|
NM
|
2.79
|
(17)%
|
3.38
|
|||
|
Diluted
earnings (loss) per share
|
(2.38
|
)
|
NM
|
2.83
|
(15)%
|
3.31
|
|||
|
NM
– not meaningful
|
OVERVIEW
Following
are a brief description of discontinued operations and a discussion of our
rationale for the use of financial measures that are not in accordance with
accounting principles generally accepted in the United States of America (GAAP),
or non-GAAP financial measures, and a discussion of the trends and uncertainties
that affected our businesses. Following the Overview is an analysis of the
results of operations for the publishing and broadcasting segments and an
analysis of our consolidated results of operations for the last three fiscal
years.
Discontinued
Operations
Unless
stated otherwise, as in the section titled Discontinued Operations, all of the
information contained in MD&A relates to continuing operations. Therefore,
results of Country Home
magazine, Child
magazine, WFLI, and KXFO are excluded for all periods covered by this
report.
Use
of Non-GAAP Financial Measures
Certain
Consolidated Statement of Earnings (Loss) and broadcasting segment operating
profit (loss) line items excluding the impact of the broadcasting impairment
charge are non-GAAP financial measures. We are providing this information to
facilitate a meaningful comparison of results for the last three fiscal years
and because we believe it is useful to investors in evaluating our ongoing
operations. Non-GAAP financial measures are intended to provide insight into
selected financial information and should be evaluated in the context in which
they are presented. These measures are of limited usefulness in evaluating our
overall financial results presented in accordance with GAAP and should be
considered in conjunction with the consolidated financial statements, including
the related notes included elsewhere in this report.
-20-
A
reconciliation of results excluding the broadcasting impairment charge
(non-GAAP) to reported results (GAAP) follows.
|
Twelve
Months ended June 30, 2009
|
Excluding
Impairment
Charge |
Impairment
Charge |
As
Reported
|
||||||
|
(In
thousands except per share data)
|
|||||||||
|
Total
operating expenses
|
$
|
1,249,396
|
$
|
294,529
|
$
|
1,543,925
|
|||
|
Income
(loss) from operations
|
159,401
|
(294,529
|
)
|
(135,128
|
)
|
||||
|
Income
taxes
|
(56,658
|
)
|
109,400
|
52,742
|
|||||
|
Earnings
(loss) from continuing operations
|
82,622
|
(185,129
|
)
|
(102,507
|
)
|
||||
|
Net
earnings (loss)
|
78,045
|
(185,129
|
)
|
(107,084
|
)
|
||||
|
Diluted
earnings (loss) from continuing operations
|
1.83
|
4.11
|
(2.28
|
)
|
|||||
|
Diluted
earnings (loss) per share
|
1.73
|
4.11
|
(2.38
|
)
|
|||||
|
Broadcasting
operating profit (loss)
|
36,755
|
(294,529
|
)
|
(257,774
|
)
|
Our
analysis of broadcasting segment results includes references to earnings from
continuing operations before interest, taxes, depreciation, and amortization
(EBITDA) and adjusted EBITDA, which is defined as EBITDA before impairment
charge. Fiscal 2008 and fiscal 2007 do not include an adjustment to EBITDA for
impairment. EBITDA, adjusted EBITDA, and EBITDA margin are non-GAAP measures. We
use EBITDA and adjusted EBITDA along with operating profit and other GAAP
measures to evaluate the financial performance of our broadcasting segment.
EBITDA is a common alternative measure of performance in the broadcasting
industry and is used by investors and financial analysts, but its calculation
may vary among companies. Adjusted EBITDA is used to facilitate a meaningful
comparison of results for the last three years. Broadcasting segment EBITDA and
adjusted EBITDA are not used as measures of liquidity, nor are they necessarily
indicative of funds available for our discretionary use.
We
believe the non-GAAP measures used in 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.
Trends
and Uncertainties
Advertising
demand is the Company's key uncertainty, and its fluctuation from period to
period can have a material effect on operating results. Advertising revenues
accounted for 56 percent of total revenues in fiscal 2009. Other significant
uncertainties that can affect operating results include fluctuations in the cost
of paper, postage rates and, over time, television programming rights. The
Company's cash flows from operating activities, its primary source of liquidity,
is adversely affected when the advertising market is weak or when costs rise.
One of our priorities is to manage our businesses prudently during expanding and
contracting economic cycles to maximize shareholder return over time. To manage
the uncertainties inherent in our businesses, we prepare monthly internal
forecasts of anticipated results of operations and monitor the economic
indicators mentioned in the Executive Overview. See Item 1A–Risk Factors in
this Form 10-K for further discussion.
PUBLISHING
The
following discussion reviews operating results for our publishing segment, which
includes magazine and book publishing, integrated marketing, interactive media,
brand licensing, database-related activities, and other related operations. The
publishing segment contributed approximately 80 percent of Meredith's revenues
in fiscal 2009.
-21-
In fiscal
2009, publishing revenues declined 8 percent while segment operating profit
decreased 20 percent. In fiscal 2008, publishing revenues were flat and segment
operating profit declined 11 percent. Publishing operating results for the last
three fiscal years were as follows:
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||
|
(In
millions)
|
||||||||
|
Revenues
|
$
|
1,134.2
|
(8)%
|
$
|
1,233.8
|
–
|
$
|
1,231.9
|
|
Operating
expenses
|
(983.2)
|
(6)%
|
(1,045.5)
|
2 %
|
(1,020.2)
|
|||
|
Operating
profit
|
$
|
151.0
|
(20)%
|
$
|
188.3
|
(11)%
|
$
|
211.7
|
Publishing
Revenues
The table
below presents the components of revenues for the last three fiscal
years.
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||
|
(In
millions)
|
||||||||
|
Revenues
|
||||||||
|
Advertising
|
$
|
530.2
|
(15)%
|
$
|
620.2
|
1 %
|
$
|
616.5
|
|
Circulation
|
280.8
|
(7)%
|
300.6
|
(7)%
|
322.6
|
|||
|
Other
|
323.3
|
3 %
|
313.0
|
7 %
|
292.8
|
|||
|
Total
revenues
|
$
|
1,134.3
|
(8)%
|
$
|
1,233.8
|
–
|
$
|
1,231.9
|
Advertising
Revenue
The
following table presents advertising page information according to PIB for our
major subscription-based magazines for the last three fiscal years:
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||
|
Family
Circle
|
1,645
|
(1)%
|
1,670
|
(6)%
|
1,775
|
|||
|
Better
Homes and Gardens
|
1,618
|
(15)%
|
1,898
|
(5)%
|
2,000
|
|||
|
Parents
|
1,413
|
(10)%
|
1,567
|
12 %
|
1,395
|
|||
|
Ladies'
Home Journal
|
1,217
|
(12)%
|
1,391
|
(9)%
|
1,524
|
|||
|
More
|
895
|
(18)%
|
1,089
|
(10)%
|
1,203
|
|||
|
Fitness
|
762
|
3 %
|
737
|
(8)%
|
799
|
|||
|
Traditional
Home
|
610
|
(20)%
|
762
|
(15)%
|
895
|
|||
|
American
Baby
|
544
|
(18)%
|
660
|
5 %
|
631
|
|||
|
Midwest
Living
|
524
|
(28)%
|
726
|
(8)%
|
792
|
Magazine advertising pages
and revenues showed double-digit declines on a percentage basis at nearly all
our titles. Both magazine advertising pages and revenues were down
approximately 15 percent in fiscal 2009 as average net revenue per page was
approximately flat. Among our advertising categories, toiletries and cosmetics
and consumer electronics showed strength, while demand continued to be weaker
for most other categories. In fiscal 2009, online advertising revenues decreased
5 percent.
Magazine
advertising revenue was flat in fiscal 2008. Though magazine advertising
revenues increased 10 percent in the first half of the fiscal year, they
declined 9 percent in the second half. For the fiscal year, total advertising
pages were down in the low-single digits on a percentage basis, with most titles
showing declines. The exceptions to this were our parenthood, Hispanic, and
special interest titles, which showed gains. Among core advertising categories,
food and beverage, retail, and financial and government services showed strength
while demand was weaker for prescription and non-prescription drugs, home, and
direct response.
Similar
to magazine advertising, online advertising revenues were up significantly (more
than 30 percent) in the first half of fiscal 2008, but showed weakness in the
second half of fiscal 2008 (down 6 percent). Overall online advertising
increased 14 percent for the fiscal year.
-22-
Circulation
Revenues
Magazine
circulation revenues decreased 7 percent in fiscal 2009, reflecting declines in
both newsstand and subscription revenues. Subscription revenues were down in the
low-single digits on a percentage basis while newsstand revenues were down
approximately 20 percent. While subscription revenues were down, subscription
contribution was up 12 percent. The decrease in newsstand revenues was primarily
due to a weaker retail market that affected most of our magazines’ newsstand
revenues and a change in the mix of and a reduction in the number of special
interest publications and craft titles.
Magazine
circulation revenues were down 7 percent in fiscal 2008, reflecting declines in
both newsstand and subscription revenues. Subscription revenues were down in the
mid-single digits on a percentage basis while newsstand revenues were down
approximately 10 percent. The continued decrease in subscription revenues was
anticipated due to a series of previously announced strategic initiatives taken
to improve long-term subscription contribution including the Company selling
fewer subscriptions to Ladies'
Home Journal due to the reduction in its rate base in January 2007 and
the Company's ongoing initiative to move the readers of Family Circle, Parents, and Fitness to our
direct-to-publisher circulation model. The decrease in newsstand revenues is
primarily due to a change in the mix of and a reduction in the number of special
interest publications published in fiscal 2008 as compared to the prior
year.
Other
Revenues
Integrated
marketing revenues increased 13 percent in fiscal 2009. The acquisition of Big
Communications in June 2008 more than offset a reduction in revenues in
integrated marketing’s traditional and certain of its on-line businesses, which
was primarily due to certain non-recurring programs in the prior-year and due to
the timing of delivery of certain projects.
Revenues
from magazine royalties and licensing were up 14 percent in fiscal 2009. The
introduction of the Better Homes and Gardens line of home products, available
now exclusively at Wal-Mart, primarily fueled this growth.
Book
revenues declined 9 percent in fiscal 2009, primarily due to a significant
reduction in the number of new book releases. In December 2008, Meredith
announced a licensing agreement granting Wiley exclusive global rights to
publish and distribute books based on Meredith’s consumer-leading brands,
including the powerful Better Homes and Gardens imprint. Under the agreement,
which was effective March 1, 2009, Meredith continues to create book
content and retain all approval and content rights. Wiley is responsible for
book layout and design, printing, sales and marketing, distribution, and
inventory management. Wiley pays Meredith royalties based on net sales subject
to a guaranteed minimum.
The
aggregate effect of the changes in integrated marketing, brand licensing, and
book operations was that other publishing revenues increased 3 percent in fiscal
2009.
Integrated
marketing revenues increased almost 50 percent in fiscal 2008 due to the
addition of revenues from the online marketing companies acquired in the last
half of fiscal 2007, as well as continued growth in the traditional integrated
marketing operations from expanding certain relationships. Meredith Integrated
Marketing won the custom publishing work for Kraft's Food & Family program
including publishing a custom magazine for delivery five times a year and
development of the content for a weekly email blast. Since winning this
important account, Meredith has grown its relationship with Kraft by adding new
elements such as video production, database consulting, brand insert
development, and circulation consulting. Meredith Integrated Marketing's online
marketing companies also renewed business with Nestlé's Good Start line of
infant nutrition products, were awarded new customer relationship management
business for Gerber, and performed additional database marketing and analytics
business for Suzuki.
Revenues
from other sources such as magazine related custom projects and licensing also
increased in fiscal 2008. New and enhanced licensing agreements consummated in
fiscal 2008 include a multi-year licensing agreement with Wal-Mart for the
design, marketing, and retailing of a wide range of home products based on the
Better Homes and Gardens brand. In addition, our Better Homes and
Gardens-branded line of home furniture with Universal Furniture launched in
April 2007 and has proven to be successful.
-23-
These
increases were partially offset by decreases in revenues in book operations.
Book revenues declined approximately 50 percent as compared to the prior fiscal
year due to both lower gross revenues of approximately 30 percent and increased
sales returns of approximately 50 percent. Most of this increase in sales
returns was recorded in the fourth quarter of fiscal 2008.
As a
result of the changes in integrated marketing, brand licensing, and book
operations, other publishing revenues increased 7 percent in fiscal
2008.
Publishing
Operating Expenses
Publishing
operating costs decreased 6 percent in fiscal 2009. In the fourth quarter of
fiscal 2009, severance and related benefit costs of $1.7 million were recorded
in the publishing segment related to a limited reduction in workforce. In the
second quarter, severance and related benefit costs of $6.0 million were
recorded related to a companywide reduction in workforce. With regard to
on-going operating expenses, processing, other delivery expenses, amortization
expense, advertising and promotion, and travel and entertainment expenses
declined. Book manufacturing, art, and separations expense decreased due to the
changes made in the book business. Circulation expenses also declined. While
performance-based incentive expense declined, employee compensation costs
increased slightly. Paper expense rose as increases in paper costs of
approximately 10 percent more than offset decreases in paper consumption due to
the decline in advertising pages sold.
Publishing
operating costs increased 2 percent in fiscal 2008. Employee compensation costs
were up as a result of higher staff levels, due primarily to the integrated
marketing acquisitions. While share-based compensation expense declined in the
fiscal year, incentive-based expense was higher due to the strong advertising
growth in the first half of the fiscal year. Expenses in the integrated
marketing operations also increased, due to new and expanded customer
relationships and current- and prior-year acquisitions. Postage expense
increased due to rate increases in May 2008 and in May and July 2007. Also
contributing to the increase in publishing operating costs were expenses
recorded in the fourth quarter of fiscal 2008, related to the further
restructuring of the book operations and other publishing reductions in
workforce of $13.2 million. These charges included the write-down of book
inventory, book royalties, and editorial prepaid expenses of $9.7 million and
severance and benefit costs for book and other publishing personnel of $3.5
million. These increases were partially offset by lower paper and production
expenses, subscription acquisition costs, and book manufacturing costs. Declines
in paper consumption due to smaller magazine sizes more than offset an increase
in weighted average paper prices of approximately 3 percent.
Publishing
Operating Profit
Fiscal
2009 publishing operating profit decreased 20 percent. The decline primarily
reflected the weak demand for advertising and higher paper prices partially
offset by increased operating profits in our book, integrated marketing, and
brand licensing operations.
Publishing
operating profit declined 11 percent in fiscal 2008. Strong operating profit
growth of more than 70 percent in our integrated marketing operations from
traditional business growth and online acquisitions was more than offset by a
net loss in our book operations (including restructuring charges), a decline in
operating profit from our interactive media operations, and a slight decrease in
magazine circulation contribution. The decline in gross book sales, the increase
in the book sales return allowance, and the restructuring charges discussed
above contributed to the net loss in the book operations.
BROADCASTING
The
following discussion reviews operating results for the Company's broadcasting
segment, which currently consists of 12 network-affiliated television stations,
one radio station, related interactive media operations, and video related
operations. The broadcasting segment contributed approximately 20 percent of
Meredith's revenues in fiscal 2009.
-24-
The
television industry is experiencing one of the most difficult advertising
environments in its history. Broadcasting revenues declined 14 percent in fiscal
2009, as $23.5 million in political advertising was not enough to offset lower
non-political advertising, particularly in automotive. Costs and expenses
declined 1 percent and an impairment charge of $294.5 million was recorded in
the broadcasting segment. Due to the impairment charge, the broadcasting
operations reported an operating loss of $257.8 million.
Revenues
declined 8 percent in fiscal 2008, leading to a 27 percent decrease in operating
profit. The revenue decrease reflected a $27.7 million decline in net political
advertising. Costs and expenses were flat as compared to the prior fiscal year.
Broadcasting operating results for the last three fiscal years were as
follows:
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
||||
|
(In
millions)
|
|||||||||
|
Revenues
|
$
|
274.5
|
(14)%
|
$
|
318.6
|
(8)%
|
$
|
347.8
|
|
|
Costs
and expenses
|
(237.8)
|
(1)%
|
(240.7)
|
–
|
(241.0)
|
||||
|
Impairment
of goodwill and other intangible
assets
|
(294.5)
|
–
|
–
|
–
|
–
|
||||
|
Operating
profit (loss)
|
$
|
(257.8)
|
|
NM
|
$
|
77.9
|
(27)%
|
$
|
106.8
|
|
NM
– not meaningful
|
Broadcasting
Revenues
The table
below presents the components of revenues for the last three fiscal
years.
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||
|
(In
millions)
|
||||||||
|
Revenues
|
||||||||
|
Non-political
advertising
|
$
|
233.5
|
(23)%
|
$
|
304.9
|
(1)%
|
$
|
309.3
|
|
Political
advertising
|
23.5
|
332 %
|
5.4
|
(84)%
|
33.2
|
|||
|
Other
|
17.5
|
112 %
|
8.3
|
57 %
|
5.3
|
|||
|
Total
revenues
|
$
|
274.5
|
(14)%
|
$
|
318.6
|
(8)%
|
$
|
347.8
|
Broadcasting
revenues decreased 14 percent in fiscal 2009. Net political advertising revenues
related primarily to the November 2008 elections totaled $23.5 million compared
with $5.4 million in the prior year. The fluctuations in political advertising
revenues at our stations, and in the broadcasting industry, generally follow the
biennial cycle of election campaigns (which take place primarily in our
odd-numbered fiscal years). Political advertising may displace a certain amount
of non-political advertising; therefore, the revenues may not be entirely
incremental. The recession continues to impact non-political broadcasting
advertising. Non-political advertising revenues decreased 23 percent in fiscal
2009. Local non-political advertising revenues declined 24 percent while
national non-political advertising revenues decreased 23 percent. Automobile
advertising revenues declined nearly 45 percent in fiscal 2009, accounting for
approximately half of non-political advertising declines. Online advertising
declined 14 percent compared to the prior-year period.
Other
revenue, which is primarily retransmission fees, more than doubled in fiscal
2009. This increase is primarily due to new retransmission agreements Meredith
has with the major cable operators in our markets.
Fiscal
2008 net political advertising revenues declined 84 percent, or $27.8 million.
Non-political advertising revenues decreased 1 percent, reflecting declines of 1
percent in the local market and of 8 percent in national advertising sales.
These decreases were offset by a 40 percent increase in online advertising,
which is a small but growing percentage of broadcasting non-political
advertising revenues. While non-political advertising revenues increased 4
percent in the first half of the year, a decline in automotive advertising
combined with the economic slowdown that impacted categories such as retail and
telecommunications led to a 7 percent decline in non-political advertising in
the second half of the year. The increase in other revenues of 57 percent was
due primarily to increases in retransmission fees.
-25-
Broadcasting
Costs and Expenses
Broadcasting
costs and expenses decreased 1 percent in fiscal 2009 as compared to the
prior-year period. In the fourth quarter of fiscal 2009, severance and related
benefit costs of $3.4 million and the write-down of certain fixed assets at the
television stations of $0.4 million were recorded in the broadcasting segment
related plans to centralize certain functions across Meredith’s television
stations. In the second quarter, severance and related benefit costs of $2.0
million were recorded related to a companywide reduction in workforce.
Performance-based incentive accruals, employee compensation costs, depreciation,
advertising and promotion expenses, and film amortization declined. Bad debt and
legal service expenses increased. A credit of $2.5 million to expenses for a
gain on the Sprint Nextel Corporation equipment exchange contributed to the
decline. This gain represents the difference between the fair value of the
digital equipment we received and the book value of the analog equipment we
exchanged.
Broadcasting
costs and expenses were flat in fiscal 2008. Employee compensation costs and
related benefits increased primarily due to continued investments in local news
and video production. Broadcasting costs and expenses also include higher bad
debt expenses, a 10 percent increase in depreciation expense, and an impairment
charge of $0.6 million on the Hartford building that we vacated in fiscal 2007
when we relocated to our newly constructed facility. As a result of the deadline
for DTV transition, the Company accelerated the depreciation of certain
equipment that is expected to have a shorter useful life as a result of the
digital conversion. In the fourth quarter of fiscal 2008, Broadcasting recorded
a charge of $1.4 million for severance and benefits costs. These increases and
charges were offset by reductions in legal expenses, radio advertising and
promotion expenses, share-based and incentive-based compensation, and program
rights amortization.
Broadcasting
Impairment of Goodwill and Other Intangible Assets
The
Company performed its annual impairment testing as of May 31, 2009. The
recession’s ongoing impact on local advertising lowered future cash flow
projections during the fourth quarter of fiscal 2009. The evaluation resulted in
the carrying values of our broadcast stations’ goodwill and certain of their FCC
licenses having carrying values that exceeded their estimated fair values. As a
result, the Company recorded a pre-tax non-cash charge of $211.9 million to
reduce the carrying value of its FCC licenses and $82.6 million to write-off
goodwill in the fourth quarter of fiscal 2009.
Broadcasting
Operating Profit (Loss)
Broadcasting
operations resulted in a $257.8 million loss in fiscal 2009 reflecting the
$294.5 million non-cash impairment charge to reduce the carrying value of our
FCC licenses and write-off the segment’s goodwill. Absent the impairment charge,
broadcasting operating profit would have been $36.8 million, a decrease of 53
percent from fiscal 2008. The decline reflected weakened economic conditions and
their effect on non-political advertising revenues, which more than offset the
strength of political advertising revenues.
In fiscal
2008, revenues and operating profit declined by 8 percent and 27 percent
respectively, reflecting the 84 percent reduction in political revenues, while
operating costs remained flat.
-26-
Supplemental
Disclosure of Broadcasting EBITDA and Adjusted EBITDA
Meredith's
broadcasting EBITDA is defined as broadcasting segment operating profit (loss)
plus depreciation and amortization expense. Adjusted EBITDA is defined as
broadcasting EBITDA before impairment charge. EBITDA and adjusted EBITDA are
non-GAAP financial measures 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 and adjusted EBITDA in the Overview of this
section. Broadcasting EBITDA, adjusted EBITDA, EBITDA margin, and adjusted
EBITDA margin were as follows:
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||||
|
(In
millions)
|
||||||||||
|
Revenues
|
$
|
274.5
|
(14)%
|
$
|
318.6
|
(8)%
|
$
|
347.8
|
||
|
Operating
profit (loss)
|
$
|
(257.8
|
)
|
NM
|
$
|
77.9
|
(27)%
|
$
|
106.8
|
|
|
Depreciation
and amortization
|
25.2
|
(6)%
|
26.6
|
10 %
|
24.2
|
|||||
|
EBITDA
|
(232.6
|
)
|
NM
|
104.5
|
(20)%
|
131.0
|
||||
|
Impairment
of goodwill and other intangible
assets
|
294.5
|
–
|
–
|
–
|
–
|
|||||
|
Adjusted
EBITDA
|
$
|
61.9
|
(41)%
|
$
|
104.5
|
(20)%
|
$
|
131.0
|
||
|
EBITDA
margin
|
(84.7)
|
%
|
32.8
|
%
|
37.7
|
%
|
||||
|
Adjusted
EBITDA margin
|
22.6
|
%
|
32.8
|
%
|
37.7
|
%
|
||||
|
NM
– not meaningful
|
UNALLOCATED
CORPORATE EXPENSES
Unallocated
corporate expenses are general corporate overhead expenses not attributable to
the operating groups. These expenses for the last three years were as
follows:
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||
|
(In
millions)
|
||||||||
|
Unallocated
corporate expenses
|
$
|
28.4
|
7 %
|
$
|
26.5
|
(24)%
|
$
|
34.9
|
Unallocated
corporate expenses increased 7 percent in fiscal 2009. In the second quarter of
fiscal 2009, severance and related benefit costs of $1.0 million were recorded
in unallocated corporate expenses related to the companywide reduction in
workforce. Increases in pension costs, share-based compensation, consulting
fees, Meredith Foundation contributions, and legal services expenses partially
offset decreases in performance-based incentive expenses, travel and
entertainment, and depreciation expense. The increase in share-based
compensation is due to certain employees becoming retirement eligible in the
current fiscal year and thus their share-based compensation expense was fully
expensed during the current fiscal year.
Unallocated
corporate expenses decreased 24 percent in fiscal 2008. Excluding a pension
settlement charge recorded in fiscal 2007, unallocated corporate expenses
declined 8 percent, reflecting decreases in incentive-based and share-based
compensation partially offset by higher employee compensation costs due to
annual salary merit adjustments.
-27-
CONSOLIDATED
Consolidated
Operating Expenses
Consolidated
operating expenses for the last three fiscal years were as follows:
|
Years
ended June 30,
|
2009
|
Change
|
2008
|
Change
|
2007
|
|||
|
(In
millions)
|
||||||||
|
Production,
distribution, and editorial
|
$
|
646.6
|
(4)%
|
$
|
673.6
|
4 %
|
$
|
648.0
|
|
Selling,
general, and administrative
|
560.2
|
(5)%
|
590.0
|
(2)%
|
603.1
|
|||
|
Depreciation
and amortization
|
42.6
|
(13)%
|
49.2
|
9 %
|
45.0
|
|||
|
Impairment
of goodwill and other intangible
assets
|
294.5
|
–
|
–
|
–
|
–
|
|||
|
Operating
expenses
|
$
|
1,543.9
|
18 %
|
$
|
1,312.8
|
1 %
|
$
|
1,296.1
|
Production,
Distribution, and Editorial Costs
Fiscal
2009 production, distribution, and editorial costs declined 4 percent. Book
manufacturing, art, and separation expense decreased due to changes in our book
operations discussed above. In addition, declines in processing, other delivery
expenses, and film amortization more than offset increases in paper
costs.
Production,
distribution, and editorial costs increased 4 percent in fiscal 2008. Higher
expense in our integrated marketing operations, postal rate increases, higher
average paper prices, and the write-down of book inventory to its net realizable
value contributed to the increase. These increases were partially offset by
volume-related decreases in paper and production costs, a reduction in book
manufacturing costs, and lower broadcast program rights amortization
expense.
Selling,
General, and Administrative Expenses
Fiscal
2009 selling, general, and administrative expenses decreased 5 percent. Declines
in performance-based incentive accruals, advertising and promotion expenses, and
travel and entertainment were partially offset by increases in pension costs,
consulting fees, bad debt expenses, and legal expenses. Subscription acquisition
costs also decreased.
Selling,
general, and administrative expenses decreased 2 percent in fiscal 2008.
Declines in subscription acquisition costs, decreased incentive-based and
share-based compensation expense, lower broadcasting legal services, and
advertising and promotion expenses, were partially offset by higher employee
compensation costs, and bad debt expense.
Depreciation
and Amortization
Depreciation
and amortization expenses decreased 13 percent in fiscal 2009 primarily due to
the customer list intangibles acquired in fiscal 2006 being fully amortized in
fiscal 2008. Depreciation and amortization expenses increased 9 percent in
fiscal 2008. The increase primarily reflected increased amortization of
intangibles related to recent acquisitions, amortization of website development
costs related to the relaunch of BHG.com and Parents.com, and depreciation
of the new broadcasting station facility serving the Hartford, Connecticut
market. In addition, as a result of the deadline for DTV transition, the Company
accelerated the depreciation of certain equipment that is expected to have a
shorter useful life as a result of the digital conversion.
Impairment
of Goodwill and Other Intangible Assets
Based on
the Company’s annual impairment testing of goodwill and other long-lived
intangible assets, in the fourth quarter of fiscal 2009, the Company recorded a
non-cash impairment charge of $211.9 million to reduce the carrying value of our
FCC licenses and $82.6 million to write-off our broadcasting segment’s
goodwill.
-28-
Operating
Expenses
Publishing
paper, production, and postage combined expense was the largest component of our
operating costs in fiscal 2009, representing 26 percent of the total. In fiscal
2008 these expenses represented 32 percent, and in fiscal 2007 they were 35
percent. Employee compensation including benefits was the second largest
component of our operating costs in fiscal 2009. Employee compensation
represented 25 percent of total operating expenses in fiscal 2009 compared to 30
percent in fiscal 2008 and 28 percent in fiscal 2007. In fiscal 2009, the
impairment charge recorded was the third largest component. It represented 19
percent of total fiscal 2009 operating expenses. Absent this impairment charge,
publishing paper, production, and postage combined expense represented 32
percent and employee compensation costs represented 31 percent of total
operating costs.
Income
(Loss) from Operations
The
fiscal 2009 loss from operations was of $135.1 million, reflecting the non-cash
impairment charge of $294.5 million. Absent this impairment charge, fiscal 2009
income from operations would have been $159.4 million, a decline of 33 percent
from fiscal 2008. The decline reflects the recession and its effect on
advertising revenues.
Income
from operations declined 16 percent in fiscal 2008. In fiscal 2008, the net loss
in book operations (including restructuring charges), and lower broadcasting
political advertising revenues more than offset revenue growth and higher
operating profits in integrated marketing operations and lower corporate
unallocated expenses.
Net
Interest Expense
Net
interest expense was $20.1 million in fiscal 2009, $21.3 million in fiscal 2008,
and $25.6 million in fiscal 2007. Average long-term debt outstanding was $455
million in fiscal 2009, $445 million in fiscal 2008, and $518 million in fiscal
2007. The Company's approximate weighted average interest rate was 4.6 percent
in fiscal 2009, 5.0 percent in fiscal 2008, and 5.2 percent in fiscal
2007.
Income
Taxes
The
Company’s effective tax rate on income (loss) from continuing operations was
34.0 percent (on a pretax loss) in fiscal 2009, 39.1 percent (on pretax income)
in fiscal 2008, and 35.7 percent (on pretax income, including a one-time tax
benefit discussed below) in fiscal 2007. The lower effective tax rate in fiscal
2009 is primarily due to the tax effect of the impairment charge for
broadcasting goodwill. Absent the impairment charge, the effective tax rate for
fiscal 2009 was 40.7 percent, which is higher than in the prior year primarily
due to accruals for tax contingencies.
The
higher rate in fiscal 2008 is primarily due to an income tax benefit of $9.4
million in fiscal 2007 from the resolution of a tax contingency related to a
capital loss. Recognition of the benefit was deferred until tax-related
contingencies were resolved. Excluding the $9.4 million, the fiscal 2007
effective tax rate was 39.3 percent. Absent that benefit, the effective tax rate
in fiscal 2008 is slightly lower than in the prior year primarily due to the
increase in the Internal Revenue Code Section 199 manufacturers'
deduction.
Earnings
(Loss) from Continuing Operations and Earnings (Loss) per Share from Continuing
Operations
Fiscal
2009 loss from continuing operations was $102.5 million ($2.28 per diluted
share), compared to fiscal 2008 earnings from continuing operations of $133.0
million ($2.79 per diluted share), reflecting the non-cash impairment charge of
$185.1 million (after-tax). Absent the impairment charge from fiscal 2009
results, the Company would have had fiscal 2009 earnings from operations of
$82.6 million ($1.83 per diluted share), a decrease of 38 percent from fiscal
2008. The declines reflect the economic recession and its effect on advertising
revenues.
Fiscal
2008 earnings from continuing operations were $133.0 million ($2.79 per diluted
share), down 20 percent from $166.0 million ($3.38 per diluted share) in fiscal
2007. The higher tax rate, a net loss in our book operations (including
restructuring charges), and lower broadcasting political advertising revenues
more than offset revenue growth and higher operating profits in integrated
marketing operations and lower unallocated corporate expenses.
-29-
Discontinued
Operations
Income
(loss) from discontinued operations represents the combined operating results,
net of taxes, of Country
Home magazine,
Child magazine, and two television stations, KFXO and WFLI. The revenues
and expenses for each of these properties have, along with associated taxes,
been removed from continuing operations and reclassified into a single line item
amount on the Consolidated Statements of Earnings (Loss) titled income (loss)
from discontinued operations, net of taxes, for each period presented as
follows:
|
Years
ended June 30,
|
2009
|
2008
|
2007
|
||||||
|
(In
millions except per share data)
|
|||||||||
|
Revenues
|
$
|
16.8
|
$
|
35.4
|
$
|
66.1
|
|||
|
Costs
and expenses
|
(17.5
|
)
|
(34.0
|
)
|
(62.1
|
)
|
|||
|
Special
items
|
(6.8
|
)
|
1.8
|
(14.9
|
)
|
||||
|
Gain
(loss) on disposal
|
–
|
(0.4
|
)
|
4.8
|
|||||
|
Earnings
(loss) before income taxes
|
(7.5
|
)
|
2.8
|
(6.1
|
)
|
||||
|
Income
taxes
|
2.9
|
(1.1
|
)
|
2.4
|
|||||
|
Income
(loss) from discontinued operations
|
$
|
(4.6
|
)
|
$
|
1.7
|
$
|
(3.7
|
)
|
|
|
Income
(loss) from discontinued operations per share:
|
|||||||||
|
Basic
|
$
|
(0.10
|
)
|
$
|
0.04
|
$
|
(0.08
|
)
|
|
|
Diluted
|
(0.10
|
)
|
0.04
|
(0.07
|
)
|
For
fiscal 2009, loss from discontinued operations represents the operating results,
net of taxes, of Country
Home magazine. In connection with the closing of Country Home magazine, the
Company recorded a restructuring charge of $6.8 million in the second quarter of
fiscal 2009 which included the write down of various assets of Country Home magazine of $5.8
million and severance and outplacement costs of $1.0 million. Most of the asset
write-down charge related to the write-off of deferred subscription acquisition
costs. These fiscal 2009 charges are reflected in the special items line
above.
For
fiscal 2008, income from discontinued operations represents the operating
results of Country Home
magazine, the operating loss of WFLI, the CW affiliate serving
the Chattanooga, Tennessee market; a loss on the disposal of WFLI; and the
reversal of a portion of the restructuring charge recorded in fiscal 2007
related to the discontinuation of the print operations of Child magazine. The reversal
of a portion of the Child restructuring charge is
a result of changes in the estimated net costs for vacated leased space and
employee severance and is reflected in the special items line
above.
For
fiscal 2007, the loss from discontinued operations represents the combined
operating results of Country
Home magazine, Child magazine, WFLI, and
KFXO, the low-power FOX affiliate serving the Bend, Oregon market; a gain on the
disposal of KFXO; a non-cash impairment charge of $2.8 million on WFLI; and a
restructuring charge of $12.1 million for the write-down of various assets of
Child magazine. These
impairment and restructuring charges are reflected in the special items line
above.
Net
Earnings (Loss) and Earnings (Loss) per Share
In fiscal
2009 a net loss of $107.1 million ($2.38 per diluted share) was recorded
compared to net earnings of $134.7 million ($2.83 per diluted share) in the
prior year, reflecting the non-cash impairment charge of $185.1 million. Absent
the impairment charge from fiscal 2009 results, the Company would have reported
fiscal 2009 net earnings of $78.0 million ($1.73 per diluted share), a decrease
of 42 percent from fiscal 2008. The decline reflects the economic recession and
its effect on advertising revenues. In addition, loss from discontinued
operations of Country
Home magazine as compared to the income from discontinued operations in
the prior year contributed to the decline in net earnings in fiscal 2009. Lower
net earnings were partially offset by the accretive effect of the reduction in
Meredith's average diluted shares outstanding. Average basic shares outstanding
decreased approximately 4 percent as a result of our share repurchase program.
Average diluted shares outstanding decreased approximately 5 percent. Certain
outstanding common stock equivalents were not included in the computation of
dilutive earnings per share for 2009 because of the antidilutive effect on the
earnings per share calculation (the diluted earnings per share becoming less
negative than the basic earnings per share). Therefore, the common stock
equivalents were not taken into account in determining the weighted average
number of shares for the calculation of diluted earnings per share in fiscal
2009.
-30-
Fiscal
2008 net earnings were $134.7 million ($2.83 per diluted share), down 17 percent
from $162.3 million ($3.31 per diluted share) in fiscal 2007. Fiscal 2007 showed
a loss from discontinued operations while fiscal 2008 showed income from
discontinued operations. In addition, lower income from continuing operations
was partially offset by the accretive effect of the reduction in Meredith's
average diluted shares outstanding. Average basic shares outstanding decreased 2
percent as a result of our ongoing share repurchase program and average diluted
shares outstanding decreased 3 percent as a result of our share repurchase
program and lower dilutive effects from potential common stock
equivalents.
|
Years
ended June 30,
|
2009
|
2008
|
2007
|
||||||
|
(In
millions)
|
|||||||||
|
Cash
flows from operating activities
|
$
|
180.9
|
$
|
256.0
|
$
|
210.5
|
|||
|
Cash
flows from investing activities
|
(29.0
|
)
|
(95.4
|
)
|
(65.2
|
)
|
|||
|
Cash
flows from financing activities
|
(161.6
|
)
|
(162.2
|
)
|
(136.8
|
)
|
|||
|
Net
cash
flows
|
$
|
(9.7
|
)
|
$
|
(1.6
|
)
|
$
|
8.5
|
|
|
Cash
and cash
equivalents
|
$
|
27.9
|
$
|
37.6
|
$
|
39.2
|
|||
|
Long-term
debt (including
current portion)
|
380.0
|
485.0
|
475.0
|
||||||
|
Shareholders'
equity
|
609.4
|
787.9
|
833.2
|
||||||
|
Debt
to total
capitalization
|
38 %
|
38 %
|
36 %
|
OVERVIEW
Meredith's
primary source of liquidity is cash generated by operating activities. The
Company continues to generate significant cash flow from operating activities in
spite of the downturn in advertising revenues due to the recession. Debt
financing is typically used for significant acquisitions. Our core
businesses—magazine and television broadcasting—have been strong cash
generators. Despite the introduction of many new technologies such as the
Internet, cable, and satellite television, we believe these businesses will
continue to have strong market appeal for the foreseeable future. As is true in
any business, operating results and cash flows are subject to changes in demand
for our products and changes in costs. Changes in the level of demand for
magazine and television advertising or other products can have a significant
effect on cash flows.
Historically,
Meredith has been able to absorb normal business downturns without significant
increases in debt and management believes the Company will continue to do so. 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. At June 30, 2009, we had up to
$25 million available under our revolving credit facility and up to $45 million
available under our asset-backed commercial paper 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.
-31-
SOURCES
AND USES OF CASH
Cash and
cash equivalents decreased $9.7 million in fiscal 2009 and $1.6 million in
fiscal 2008; they increased $8.5 million in fiscal 2007. Over the three-year
period, net cash provided by operating activities was used for acquisitions,
debt repayments, stock repurchases, capital investments, and
dividends.
Operating
Activities
The
largest single component of operating cash inflows is cash received from
advertising customers. Advertising accounted for approximately 60 percent of
total revenues in each of the past three years. Other sources of operating cash
inflows include cash received from magazine circulation sales and other revenue
transactions such as integrated marketing, book, brand licensing, and product
sales. Operating cash outflows include payments to vendors and employees and
payments of interest and income taxes. Our most significant vendor payments are
for production and delivery of publications and promotional mailings,
broadcasting programming rights, employee benefits (including pension plans),
and other services and supplies.
Cash
provided by operating activities totaled $180.9 million in fiscal 2009 compared
with $256.0 million in fiscal 2008, a decrease of 30 percent. The largest factor
affecting cash flows from operating activities was the effect of the recession
and its negative impact of the Company’s operating results. Also affecting cash
provided by operating activities was increased pension payments. These items
more than offset substantially lower income tax payments.
Cash
provided by operating activities increased 22 percent in fiscal 2008 as compared
to fiscal 2007. The increase was due primarily to lower employee pension costs
and a decrease in accounts receivable in the current year compared to an
increase in the prior year. These increases in cash from operating activities
were partially offset by lower net earnings and increased cash spending for
employee compensation costs.
Changes
in the Company's cash contributions to qualified defined benefit pension plans
can have a significant effect on cash provided by operations. Meredith has
generally contributed the maximum amount that can be deducted for tax purposes
to these plans. We contributed $9.0 million in fiscal 2009 and $18.6 million in
fiscal 2007. We made no contributions in fiscal 2008. We do not anticipate a
required contribution in fiscal 2010.
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 decreased to $29.0 million in fiscal 2009 from
$95.4 million in fiscal 2008 as we reduced spending on both strategic
acquisitions and capital expenditures.
Net cash
used by investing activities totaled $95.4 million in fiscal 2008, an increase
from $65.2 million in the prior year. Increased spending on the acquisition of
businesses partially offset less cash used for the acquisition of property,
plant, and equipment.
Financing
Activities
Financing
cash inflows generally include borrowings under debt agreements and proceeds
from the exercise of 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.
-32-
Net cash
used by financing activities totaled approximately $161.6 million in fiscal 2009
compared with $162.2 million in fiscal 2008. In fiscal 2009, long-term debt was
reduced by a net $105.0 million and $21.8 million was used to purchase Company
stock. In fiscal 2008, $150.4 million was used to purchase Company stock and
long-term debt increased by a net $10 million.
Net cash
used by financing activities totaled $162.2 million in fiscal 2008, compared
with net cash used by financing activities of $136.8 million in fiscal 2007. In
fiscal 2008, $150.4 million was used to purchase Company stock whereas in fiscal
2007, $58.7 million was used to purchase Company stock. In fiscal 2008,
long-term debt increased by a net $10 million; in fiscal 2007, long-term debt
was reduced by a net $90 million.
Long-term
Debt
At
June 30, 2009, long-term debt outstanding totaled $380 million ($175
million in fixed-rate unsecured senior notes, $125 million outstanding under a
revolving credit facility, and $80 million under an asset-backed commercial
paper facility). None of the senior notes are 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 fixed-rate senior notes are
repayable in amounts of $50 million and $75 million and are due from
July 1, 2010, to June 16, 2012. Interest rates range from 4.70 percent
to 5.04 percent with a weighted average interest rate of 4.80
percent.
In
connection with the asset-backed commercial paper facility, we entered into a
revolving agreement in April
2002. Under this agreement, we currently sell all of our rights, title, and
interest in the majority of our accounts receivable related to advertising and
miscellaneous revenues to Meredith Funding Corporation, a special-purpose entity
established to purchase accounts receivable from Meredith. At June 30,
2009, $143.6 million of accounts receivable net of reserves were outstanding
under the agreement. Meredith Funding Corporation in turn sells receivable
interests to an asset-backed commercial paper conduit administered by a major
national bank. In consideration of the sale, Meredith receives cash and a
subordinated note that bears interest at the prime rate (3.25 percent at
June 30, 2009) from Meredith Funding Corporation.
The
revolving 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 consolidated financial statements. The asset-backed
commercial paper facility renews annually (most recently renewed March 31,
2009) until April 2, 2011, the facility termination date. The interest rate
on the asset-backed commercial paper facility changes monthly and is based on
the average commercial paper cost to the lender plus a fixed spread. The
interest rate was 1.86 percent in June 2009.
The
interest rate on the revolving credit facility is variable based on LIBOR and
Meredith's debt to trailing 12 month EBITDA ratio. The weighted average
effective interest rate for the revolving credit facility was 4.21 percent at
June 30, 2009, after taking into account the effect of outstanding interest
rate swap agreements discussed below. This facility has capacity for up to $150
million outstanding with an option to request up to another $150 million. At
June 30, 2009, $125 million was borrowed under this facility. The revolving
credit facility expires October 7, 2010.
On
July 13, 2009, Meredith secured a new $75 million private placement of debt
from a leading life insurance company. The private placement consists of $50
million due July 2013 and $25 million due July 2014 bearing interest at rates of
6.70 percent and 7.19 percent, respectively. The proceeds were used to pay down
Meredith’s asset-backed commercial paper facility.
-33-
We
believe our debt agreements are material to discussions of Meredith's liquidity.
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. A
summary of the most significant financial covenants and their status at
June 30, 2009, is as follows:
|
Required
at
June 30,
2009
|
Actual
at
June 30,
2009
|
||
|
Ratio
of debt to trailing 12 month EBITDA1
|
Less
than 3.75
|
1.8
|
|
|
Ratio
of EBITDA1 to
interest expense
|
Greater
than 2.75
|
10.9
|
|
|
1. EBITDA
is earnings before interest, taxes, depreciation, and amortization as
defined in the debt
agreements.
|
|||
The
Company was in compliance with these and all other debt covenants at
June 30, 2009.
Interest
Rate Swap Contracts
In fiscal
2007, the Company entered into two interest rate swap agreements to hedge
variable interest rate risk on $100 million of the Company's variable interest
rate revolving credit facility. The swaps expire on December 31, 2009.
Under the swaps, the Company will, on a quarterly basis, pay fixed rates of
interest (average 4.69 percent) and receive variable rates of interest based on
the three-month LIBOR rate (average of 0.60 percent at June 30, 2009) on $100
million notional amount of indebtedness. These contracts did not have a
significant effect on net interest expense in fiscal 2009, 2008, or
2007.
Contractual
Obligations
The
following table summarizes our principal contractual obligations as of
June 30, 2009:
|
Payments
Due by Period
|
|||||
|
Contractual
obligations
|
Total
|
Less
than
1
Year
|
1–3
Years
|
4–5
Years
|
After
5
Years
|
|
(In
millions)
|
|||||
|
Long-term
debt1
|
$ 380.0
|
$ –
|
$ 305.0
|
$ 75.0
|
$ –
|
|
Debt
interest2
|
17.8
|
8.7
|
9.1
|
–
|
–
|
|
Broadcast
rights3
|
46.9
|
19.4
|
23.2
|
4.3
|
–
|
|
Contingent
consideration4
|
67.7
|
41.7
|
24.0
|
2.0
|
–
|
|
Operating
leases
|
73.2
|
20.4
|
27.9
|
6.0
|
18.9
|
|
Purchase
obligations and other5
|
107.9
|
33.2
|
37.5
|
28.9
|
8.3
|
|
Total
contractual cash obligations
|
$ 693.5
|
$ 123.4
|
$ 426.7
|
$ 116.2
|
$ 27.2
|
|
1.
|
On
July 13, 2009, Meredith entered into a new $75 million private
placement of debt from a leading life insurance company. The private
placement consists of $50 million due July 2013 and $25 million due July
2014. The proceeds were used to pay down Meredith’s asset-backed
commercial paper facility. Thus $75 million of this debt is shown in the
4-5 Years column.
|
|
2.
|
Debt
interest represents semi-annual interest payments due on fixed-rate notes
outstanding at June 30, 2009.
|
|
3.
|
Broadcast rights include $24.5
million owed for broadcast rights that are not currently available for
airing and are therefore not included in the Consolidated Balance Sheet at
June 30, 2009.
|
|
4.
|
These
amounts include contingent acquisition payments. While it is not certain
if and /or when these payments will be made, we have included the payments
in the table based on our best estimates of the amounts and dates when the
contingencies may be resolved.
|
|
5.
|
Purchase
obligations and other includes expected postretirement benefit
payments.
|
Due to
uncertainty with respect to the timing of future cash flows associated with
unrecognized tax benefits at June 30, 2009, the Company is unable to make
reasonably reliable estimates of the period of cash settlement. Therefore, $63.7
million of unrecognized tax benefits have been excluded from the contractual
obligations table above. See Note 6 to the Consolidated Financial
Statements for further discussion of income taxes.
-34-
Purchase
obligations represent legally binding agreements to purchase goods and services
that specify all significant terms. Outstanding purchase orders, which represent
authorizations to purchase goods and services but are not legally binding, are
not included in purchase obligations. We believe current cash balances, cash
generated by future operating activities, and cash available under current
credit agreements will be sufficient to meet our contractual cash obligations
and other operating cash requirements for the foreseeable future. Projections of
future cash flows are, however, subject to substantial uncertainty as discussed
throughout MD&A and particularly in Item 1A–Risk Factors
beginning on page 11. Debt agreements may be renewed or refinanced
if we determine it is advantageous to do so. We also have commitments in the
form of standby letters of credit totaling $1.0 million that expire within one
year.
We have
maintained a program of Company share repurchases for 21 years. In fiscal 2009,
we spent $21.8 million to repurchase an aggregate of 882,000 shares of Meredith
Corporation common and Class B stock at then current market prices. We spent
$150.4 million to repurchase an aggregate of 3,225,000 shares in fiscal 2008 and
$58.7 million to repurchase an aggregate of 1,116,000 shares in fiscal 2007. We
expect to continue repurchasing shares from time to time subject to market
conditions. In May 2008, the Board of Directors approved a share repurchase
authorization for 2.0 million shares. As of June 30, 2009, approximately
1.5 million shares were remaining under these authorizations for future
repurchase. The status of the repurchase program is reviewed at each quarterly
Board of Directors meeting. See Item 5–Issuer Purchases of
Equity Securities of this Form 10-K for detailed information on
share repurchases during the quarter ended June 30, 2009.
Dividends
Meredith
has paid quarterly dividends continuously since 1947 and we have increased our
dividend annually for 16 consecutive years. The last increase occurred in
January 2009 when the Board of Directors approved the quarterly dividend of 22.5
cents per share effective with the dividend payable in March 2009. Given
the current number of shares outstanding, the increase will result in additional
dividend payments of approximately $1.8 million annually. Dividend payments
totaled $39.7 million, or 88 cents per share, in fiscal 2009 compared with $37.3
million, or 80 cents per share, in fiscal 2008, and $33.2 million, or 69 cents
per share, in fiscal 2007.
Capital
Expenditures
Spending
for property, plant, and equipment totaled $23.5 million in fiscal 2009, $29.6
million in fiscal 2008, and $42.6 million in fiscal 2007. Current year spending
related primarily to digital and high definition conversions being completed at
all of the Company's broadcast stations and the construction of a new data
server room. The spending in the prior two fiscal years included expenditures
for broadcasting technical and news equipment, information technology systems
and equipment, and improvements to buildings and office facilities. We spent
approximately $20 million in fiscal 2007 for a new facility for our television
station in Hartford. The Company has 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.
Meredith's
consolidated financial statements are prepared in accordance with GAAP. Our
significant accounting policies are summarized in Note 1 to the
consolidated financial statements. The preparation of our consolidated financial
statements requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Some of these estimates and assumptions are inherently difficult to make
and subjective in nature. We base our estimates on historical experience, recent
trends, our expectations for future performance, and other assumptions as
appropriate. We reevaluate our estimates on an ongoing basis; actual results,
however, may vary from these estimates.
-35-
The
following are the accounting policies that management believes are most critical
to the preparation of our consolidated financial statements and require
management's most difficult, subjective, or complex judgments. In addition,
there are other items within the consolidated financial statements that require
estimation but are not deemed to be critical accounting policies. Changes in the
estimates used in these and other items could have a material impact on the
consolidated financial statements.
GOODWILL
AND INTANGIBLE ASSETS
Goodwill
and intangible assets with indefinite lives are tested for impairment in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible
Assets. All other intangible assets are tested for impairment in
accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Goodwill and intangible assets totaled
$1,024.0 million, or approximately 60 percent of Meredith's total assets, as of
June 30, 2009. See Note 4 to the consolidated financial statements for
additional information. The impairment analysis of these assets is considered
critical because of their significance to the Company and our publishing and
broadcasting segments.
Management
is required to evaluate goodwill and intangible assets with indefinite lives for
impairment on an annual basis or when events occur or circumstances change that
would indicate the carrying value exceeds the fair value. The determination of
fair value requires us to estimate the future cash flows expected to result from
the use of the assets. These estimates include assumptions about future revenues
(including projections of overall market growth and our share of market),
estimated costs, and appropriate discount rates where applicable. Our
assumptions are based on historical data, various internal estimates, and a
variety of external sources and are consistent with the assumptions used in both
our short-term financial forecasts and long-term strategic plans. Depending on
the assumptions and estimates used, future cash flow projections can vary within
a range of outcomes. Changes in key assumptions about the publishing or
broadcasting businesses and their prospects or changes in market conditions
could result in an impairment charge.
During
fiscal 2009, we determined that interim triggering events, including declines in
the price of our stock and reduced cash flow forecasts in the second and third
quarters due to the recession required us to perform interim evaluations of
goodwill and intangible assets with indefinite lives for impairment at
December 31, 2008, and March 31 2009. Our December 31, 2008, and
March 31, 2009, impairment tests determined the fair value of our goodwill
and indefinite lived intangible assets exceeded their carrying values, thus the
Company’s interim impairment analyses did not result in any impairment charges
during the second or third quarters of fiscal 2009.
The
Company performed its annual impairment testing as of May 31, 2009. While
our stock price had increased over 150 percent from its low earlier in the year,
worsening broadcast business conditions, including further deterioration in the
local advertising market, lowered future cash flow projections. This evaluation
resulted in the carrying values of our broadcast stations’ goodwill and certain
of their FCC licenses having carrying values that exceeded their estimated fair
values. As a result, the Company recorded a pre-tax non-cash charge of $211.9
million to reduce the carrying value of broadcast FCC licenses and $82.6 million
to write-off our broadcasting segment’s goodwill in the fourth quarter of fiscal
2009.
In
accordance with the provisions of SFAS 142 and SFAS 144, we will
continue to monitor changes in our business in fiscal 2010 for interim
indicators of impairment.
BROADCAST
RIGHTS
Broadcast
rights, which consist primarily of rights to broadcast syndicated programs and
feature films, are recorded at cost when the programs become available for
airing. Amortization of broadcast rights is generally recorded on an accelerated
basis over the contract period. Broadcast rights valued at $12.8 million were
included in the Consolidated Balance Sheet at June 30, 2009. In addition,
we had entered into contracts valued at $24.5 million not included in the
Consolidated Balance Sheet at June 30, 2009, because the related
programming was not yet available for airing. Amortization of broadcast rights
accounted for 11 percent of broadcasting segment operating expenses in fiscal
2009. Valuation of broadcast rights is considered critical to the broadcasting
segment because of the significance of the amortization expense to the
segment.
-36-
Broadcast
rights are valued at the lower of unamortized cost or net realizable value. The
determination of net realizable value requires us to estimate future net
revenues expected to be earned as a result of airing of the programming. Future
revenues can be affected by changes in the level of advertising demand,
competition from other television stations or other media, changes in television
programming ratings, changes in the planned usage of programming materials, and
other factors. Changes in such key assumptions could result in an impairment
charge.
PENSION
AND POSTRETIREMENT PLANS
Meredith
has noncontributory pension plans covering substantially all employees. These
plans include qualified (funded) plans as well as nonqualified (unfunded) plans.
These plans provide participating employees with retirement benefits in
accordance with benefit provision formulas. The nonqualified plans provide
retirement benefits only to certain highly compensated employees. Meredith also
sponsors defined healthcare and life insurance plans that provide benefits to
eligible retirees.
The Company adopted the recognition and
disclosure provisions of SFAS No. 158, Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158) on June 30, 2007.
SFAS 158 had no impact on pension or other postretirement plan expense
recognized in the Company's results of operations, but the new standard required
the Company to recognize the funded status of pension and other postretirement
benefit plans on its Consolidated Balance Sheet at June 30, 2007. The
overall impact of the adoption of SFAS 158, taking into account the
Company's pension and other postretirement plans, was a $1.8 million increase in
the Company's shareholders' equity (accumulated other comprehensive income) at
June 30, 2007.
The
Company adopted the change in measurement date transition requirements of
SFAS 158 effective July 1, 2008. Previously the Company used a
March 31 measurement date for its defined pension and other postretirement
plans. We adopted the change in measurement date by re-measuring plan assets and
benefit obligations as of our fiscal 2008 year end, pursuant to the transition
requirements of SFAS 158. As a result of the change in measurement date, a
$1.8 million pre-tax reduction to retained earnings was recognized in the fourth
quarter of fiscal 2009 that represents the expense for the period from the
March 31, 2008, early measurement date to the end of the 2008 fiscal
year.
The
accounting for pension and postretirement plans is actuarially based and
includes assumptions regarding expected returns on plan assets, discount rates,
and the rate of increase in healthcare costs. We consider the accounting for
pension and postretirement plans critical to Meredith and both of our segments
because of the number of significant judgments required. More information on our
assumptions and our methodology in arriving at these assumptions can be found in
Note 7 to the consolidated financial statements. Changes in key assumptions
could materially affect the associated assets, liabilities, and benefit
expenses. Depending on the assumptions and estimates used, these balances could
vary within a range of outcomes. We monitor trends in the marketplace and rely
on guidance from employee benefit specialists to arrive at reasonable estimates.
These estimates are reviewed annually and updated as needed. Nevertheless, the
estimates are subjective and may vary from actual results.
Meredith
expects to use a long-term rate of return on assets of 8.25 percent in
developing fiscal 2010 pension costs, the same as used in fiscal 2009. The
fiscal 2010 rate was based on various factors that include but are not limited
to the plans' asset allocations, a review of historical capital market
performance, historical plan performance, current market factors such as
inflation and interest rates, and a forecast of expected future asset returns.
The pension plan assets returned a loss of 21 percent in fiscal 2009. They lost
3 percent in fiscal 2008. If we had decreased our expected long-term rate of
return on plan assets by 0.5 percent in fiscal 2009, our pension expense would
have increased by $0.6 million.
-37-
Meredith
expects to use a discount rate of 5.75 percent in developing the fiscal 2010
pension costs, down from a rate of 5.80 percent used in fiscal 2009. If we had
decreased the discount rate by 0.5 percent in fiscal 2009, there would have been
no effect on our combined pension and postretirement expenses.
Assumed
rates of increase in healthcare cost levels have a significant effect on
postretirement benefit costs. A one-percentage-point increase in the assumed
healthcare cost trend rate would have increased postretirement benefit costs by
$0.5 million in fiscal 2009.
REVENUE
RECOGNITION
Revenues
from both the newsstand sale of magazines and the sale of books are recorded net
of our best estimate of expected product returns. Net revenues from these
sources totaled 10 percent of fiscal 2009 publishing segment revenues.
Allowances for returns are subject to considerable variability. Return
allowances may exceed 35 percent for books and 65 percent for magazines sold on
the newsstand. Estimation of these allowances for future returns is considered
critical to the publishing segment and the Company as a whole because of the
potential impact on revenues.
Estimates
of returns from magazine newsstand and book sales are based on historical
experience and current marketplace conditions. Allowances for returns are
adjusted continually on the basis of actual results. Unexpected changes in
return levels may result in adjustments to net revenues.
SHARE-BASED
COMPENSATION EXPENSE
Meredith
has a stock incentive plan that permit us to grant various types of share-based
incentives to key employees and directors. The primary types of incentives
granted under these plans are stock options, restricted shares of common stock,
and restricted stock units. Share-based compensation expense totaled $10.2
million in fiscal 2009 and is accounted for under SFAS No. 123 (revised
2004), Share-Based
Payment. As of June 30, 2009, unearned compensation cost was $3.8
million for stock options, $5.3 million for restricted stock, and $0.1 million
for restricted stock units granted under the stock incentive plans. These costs
will be recognized over weighted average periods of 1.7 years, 2.4 years, and
1.6 years, respectively.
Restricted
shares and units are valued at the market value of traded shares on the date of
grant. The valuation of stock options requires numerous assumptions. We
determine the fair value of each option as of the date of grant using the
Black-Scholes option-pricing model. This model requires inputs for the expected
volatility of our stock price, expected life of the option, and expected
dividend yield, among others. We base our assumptions on historical data,
expected market conditions, and other factors. In some instances, a range of
assumptions is used to reflect differences in behavior among various groups of
employees. In addition, we estimate the number of options and restricted stock
expected to eventually vest. This is based primarily on past
experience.
We
consider the accounting for share-based compensation expense critical to
Meredith and both of our segments because of the number of significant judgments
required. More information on our assumptions can be found in Note 10 to
the consolidated financial statements. Changes in these assumptions could
materially affect the share-based compensation expense recognized as well as
various liability and equity balances.
INCOME
TAXES
Income
taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes.
Income taxes are recorded under this standard for the amount of taxes payable
for the current year and include deferred tax assets and liabilities for the
effect of temporary differences between the financial and tax basis of recorded
assets and liabilities using enacted tax rates. Deferred tax assets are reduced
by a valuation allowance if it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Income tax expense was 34.0
percent of losses before income taxes in fiscal 2009. Net deferred tax
liabilities totaled $73.6 million, or 7 percent of total liabilities, at
June 30, 2009.
-38-
We
consider accounting for income taxes critical to our operations because
management is required to make significant subjective judgments in developing
our provision for income taxes, including the determination of deferred tax
assets and liabilities, and any valuation allowances that may be required
against deferred tax assets.
On
July 1, 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which clarifies the accounting for uncertainty in
income tax positions. FIN 48 required us to recognize in our consolidated
financial statements the benefit of a tax position if that tax position is more
likely than not of being sustained on audit, based on the technical merits of
the tax position. This involves the identification of potential uncertain tax
positions, the evaluation of tax law, and an assessment of whether a liability
for uncertain tax positions is necessary. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. Different
conclusions reached in this assessment can have a material impact on the
consolidated financial statements. See Note 6 to the consolidated financial
statements for additional information related to the adoption of
FIN 48.
The
Company operates in numerous taxing jurisdictions and is subject to audit in
each of these jurisdictions. These audits can involve complex issues that tend
to require an extended period of time to resolve and may eventually result in an
increase or decrease to amounts previously paid to the taxing jurisdictions. Any
such audits are not expected to have a material effect on the Company's
consolidated financial statements.
SFAS 165—On June 30,
2009, the Company adopted SFAS No. 165, Subsequent Events, (SFAS 165).
SFAS 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. Specifically, SFAS 165 sets forth
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. SFAS 165 provides largely the same guidance on subsequent events
which previously existed only in auditing literature. The adoption of
SFAS 165 had no impact on the consolidated financial statements as
management already followed a similar approach prior to the adoption of this
standard.
SFAS 161—In March 2008,
the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement 133
(SFAS 161). SFAS 161 enhances required disclosures regarding
derivatives and hedging activities, including enhanced disclosures regarding
how: (a) an entity uses derivative instruments; (b) derivative instruments and
related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities; and (c) derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. We adopted the provisions of this statement
effective March 31, 2009. As a result of the adoption of this statement, we
have expanded our disclosures regarding derivative instruments and hedging
activities within Note 5 to the consolidated financial
statements.
-39-
SFAS 158—In September
2006, the FASB issued SFASB 158, which requires employers that sponsor
defined benefit postretirement plans to recognize the overfunded or underfunded
status of defined benefit postretirement plans, including pension plans, in
their balance sheets and to recognize changes in funded status through
comprehensive income in the year in which the changes occur. Meredith adopted
the recognition and disclosure provisions of SFAS 158 on June 30,
2007. The adoption of
SFAS 158 resulted in a $1.8 million increase in the Company's shareholders'
equity at June 30, 2007, through accumulated other comprehensive income.
SFAS 158 also requires that employers measure plan assets and obligations
as of the date of their year-end financial statements. The Company adopted the
change in measurement date transition requirements of SFAS 158 effective
July 1, 2008. Previously the Company used a March 31 measurement date
for its defined pension and other postretirement plans. We adopted the change in
measurement date by re-measuring plan assets and benefit obligations as of our
fiscal 2008 year end, pursuant to the transition requirements of SFAS 158.
As a result of the change in measurement date, a $1.8 million pre-tax reduction
to retained earnings was recognized in the fourth quarter of fiscal 2009 that
represents the expense for the period from the March 31, 2008, early
measurement date to the end of the 2008 fiscal year.
SFAS 157—In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS 157), which establishes a common definition for fair value in
accordance with GAAP, and establishes a framework for measuring fair value and
expands disclosure requirements about such fair value measurements.
Specifically, SFAS 157 sets forth a definition of fair value, and
establishes a hierarchy prioritizing the use of inputs in valuation techniques.
SFAS 157 defines levels within the hierarchy as follows:
|
●
|
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.
|
In
February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement
No. 157 (FSP 157-2). FSP 157-2 delayed the effective date
of SFAS 157 to fiscal years beginning after November 15, 2008, for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The partial delay is intended to provide all relevant parties
additional time to consider the effect of various implementation issues that
have arisen, or that may arise, from the application of
SFAS 157.
The
Company adopted the provisions of SFAS 157 for financial assets and
liabilities as of July 1, 2008. The adoption of these provisions did not
have any impact on the Company's consolidated financial statements because the
Company's existing fair value measurements are consistent with the guidance of
SFAS 157. We are currently evaluating the impact of the provisions of
SFAS 157 that relate to our nonfinancial assets and liabilities, which are
effective for the Company as of July 1, 2009.
As of
June 30, 2009, Meredith had interest rate swap agreements that converted
$100 million of its variable-rate debt to fixed-rate debt. These agreements are
required to be measured at fair value on a recurring basis. The Company
determined that these interest rate swap agreements are defined as Level 2 in
the fair value hierarchy. As of June 30, 2009, the fair value of these
interest rate swap agreements was a liability of $2.1 million based on
significant other observable inputs (London Interbank Offered Rate (LIBOR))
within the fair value hierarchy. Fair value of interest rate swaps is based on a
discounted cash flow analysis, predicated on forward LIBOR prices, of the
estimated amounts the Company would have paid to terminate the
swaps.
SFAS 159—In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 was effective for the Company
at the beginning of fiscal 2009. This statement permitted a choice to measure
many financial instruments and certain other items at fair value. Upon the
Company's adoption of SFAS 159 on July 1, 2008, we did not elect the
fair value option for any financial instrument that was not already reported at
fair value.
-40-
EITF 06-10—Emerging
Issues Task Force (EITF) Issue No. 06-10, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements (EITF 06-10), requires that a company
recognize a liability for the postretirement benefits associated with collateral
assignment split-dollar life insurance arrangements. The provisions of
EITF 06-10 are applicable in instances where the Company has contractually
agreed to maintain a life insurance policy (i.e., the Company pays the premiums)
for an employee in periods in which the employee is no longer providing
services. We adopted EITF 06-10 on July 1, 2008, at which time we
recorded a liability and a cumulative effect adjustment to the opening balance
of retained earnings for $2.9 million ($2.6 million, net of tax). Future
compensation charges and adjustments to the liability will be charged to
earnings in the period incurred.
FASB Interpretation
No. 48—Effective July 1, 2007, the Company adopted FIN 48,
which clarifies the accounting for uncertainty in tax positions. The
interpretation requires that we recognize in our consolidated financial
statements the benefit of a tax position if, based on technical merits, the
position is more likely than not of being sustained upon audit. Tax benefits are
derecognized if information becomes available indicating it is more likely than
not that the position will not be sustained. The provisions of FIN 48 also
provide guidance on classification of income tax liabilities, accounting for
interest and penalties associated with unrecognized tax benefits, accounting for
uncertain tax positions in interim periods, and income tax disclosures. The
adoption of FIN 48 on July 1, 2007, required the Company to make
certain reclassifications in its consolidated balance sheet. In the aggregate,
these reclassifications increased the Company's liability for unrecognized tax
benefits by $36.0 million and decreased its net deferred tax liabilities by
$36.0 million. The adoption of FIN 48 had no impact on the Company's
consolidated retained earnings as of July 1, 2007, or on its consolidated
results of operations or cash flows for the fiscal year ended June 30,
2008. See Note 6 for additional information.
SFAS 141R—In December
2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R significantly changes the accounting for
business combinations in a number of areas including the treatment of contingent
consideration, preacquisition contingencies, transaction costs, in-process
research and development, and restructuring costs. In addition, under
SFAS 141R, changes in an acquired entity's deferred tax assets and
uncertain tax positions after the measurement period will impact income tax
expense. SFAS 141R is effective for fiscal years beginning after
December 15, 2008. We will adopt SFAS 141R on July 1, 2009. This
standard will change our accounting treatment for business combinations on a
prospective basis and is expected to have a significant impact on our accounting
for future business combinations.
FSP 142-3—In April 2008,
the FASB issued FSP 142-3, Determination of the Useful Lives of
Intangible Assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
an intangible asset. This interpretation is effective for financial statements
issued for fiscal years beginning after December 15, 2008. The Company will
adopt this interpretation as of July 1, 2009, and is still evaluating the
potential impact of adoption.
SFAS 168—In June 2009,
the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles — A
Replacement of FASB Statement No. 162 (SFAS 168). The FASB
Accounting Standards Codification (Codification) will become the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants.
While not intended to change GAAP, the Codification significantly changes the
way in which the accounting literature is organized. It is structured by
accounting topic to help accountants and auditors more quickly identify the
guidance that applies to a specific accounting issue. The Company will apply the
Codification to the first quarter fiscal 2010 interim financial statements. The
adoption of the Codification will not have an effect on the Company’s financial
position and results of operations. However, because the Codification completely
replaces existing standards, it will affect the way GAAP is referenced by the
Company in its consolidated financial statements and accounting
policies.
FSP EITF 03-6-1—In June
2008, FASB issued FSP EITF No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(FSP EITF 03-6-1). Under the FSP, unvested share-based payment awards that
contain rights to receive nonforfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two- class method of
computing EPS. The Company will adopt the FSP effective July 1, 2009. The
adoption of FSP EITF 03-6-1 is not expected to have a material impact on
the consolidated financial statements.
-41-
FSP FAS 107-1 and
APB 28-1—In April 2009, the FASB issued the FASB Staff Position on
FAS 107-1 and APB 28-1, Interim Disclosures About Fair Value
of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP
FAS 107-1 and APB 28-1 require disclosures about fair value of
financial instruments in interim reporting periods of publicly-traded companies
that were previously only required to be disclosed in annual financial
statements. FSP FAS 107-1 and APB 28-1 are effective for interim
periods ending after June 15, 2009. The Company will adopt these statements
in the first quarter of fiscal 2010 and does not anticipate that their adoption
will have a material impact on its consolidated financial
statements.
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. There have been no
significant changes in the market risk exposures since June 30,
2008.
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 June 30, 2009,
Meredith had outstanding $175 million in fixed-rate long-term debt. In addition,
Meredith has effectively converted $100 million of its variable-rate debt under
the revolving credit facility to fixed-rate debt through the use of interest
rate swaps. In fiscal 2007, the Company entered into two interest rate swap
agreements with a total notional value of $100 million to hedge the variability
of interest payments associated with $100 million of our variable-rate revolving
credit facility. Since the interest rate swaps hedge the variability of interest
payments on variable-rate debt with the same terms, they qualify for cash flow
hedge accounting treatment. 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 $173.6 million from $171.7 million at June 30,
2009.
At
June 30, 2009, $205 million of our debt was variable-rate debt before
consideration of the impact of the swaps. 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 by $0.7
million.
The fair
value of the interest rate swaps is the estimated amount, based on discounted
cash flows, the Company would pay or receive to terminate the swap agreements. A
10 percent decrease in interest rates would result in no change from the current
fair value of a loss of $2.1 million at June 30, 2009. We intend to
continue to meet the conditions for hedge accounting. If, however, hedges were
not to be highly effective in offsetting cash flows attributable to the hedged
risk, the changes in the fair value of the derivatives used as hedges could have
an impact on our consolidated net earnings. The Company is exposed to
credit-related losses in the event of nonperformance by counterparties to the
contracts. Given the strong creditworthiness of the counterparties, management
does not expect any of them to fail to meet their obligations.
Broadcast
Rights Payable
The
Company enters into broadcast rights contracts for its television stations. As a
rule, these contracts are on a market-by-market basis and subject to terms and
conditions of the seller of the broadcast rights. These procured rights
generally are sold to the highest bidder in each market, and the process is very
competitive. There are no earnings or liquidity risks associated with broadcast
rights payable. Fair values are determined using discounted cash flows. At
June 30, 2009, a 10 percent decrease in interest rates would have resulted
in a $0.4 million increase in the fair value of the available broadcast rights
payable and the unavailable broadcast rights commitments.
-42-
|
Index
to Consolidated Financial Statements, Financial Statement
Schedule,
and
Other Financial Information
|
|
|
Page
|
|
|
44
|
|
|
46
|
|
|
Financial
Statements
|
|
|
Consolidated
Balance
Sheets as of June 30, 2009 and 2008
|
48
|
|
Consolidated
Statements
of Earnings (Loss) for the Years Ended
June 30, 2009, 2008, and 2007
|
50
|
|
Consolidated
Statements of
Shareholders'
Equity for the Years Ended June 30, 2009, 2008, and
2007
|
51
|
|
Consolidated
Statements of
Cash Flows for the Years Ended June 30,
2009, 2008, and 2007
|
52
|
|
Notes to
Consolidated Financial Statements
|
55
|
|
86
|
|
|
Financial
Statement Schedule
|
|
|
89
|
|
-43-
The Board
of Directors and Shareholders
Meredith
Corporation:
We have
audited the accompanying consolidated balance sheets of Meredith Corporation and
subsidiaries (the Company) as of June 30, 2009 and 2008, and the related
consolidated statements of earnings (loss), shareholders’ equity, and cash flows
for each of the years in the three-year period ended June 30, 2009. In
connection with our audits of the consolidated financial statements, we also
have audited the related financial statement schedule (as listed in Part IV,
Item 15 (a) 2 herein). We also have audited the Company’s internal control over
financial reporting as of June 30, 2009, based on criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for these
consolidated financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting, and for their
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting (as included in Part II, Item 9A). Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule and an opinion on the Company’s internal control over
financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
-44-
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Meredith Corporation and
subsidiaries as of June 30, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2009, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of
June 30, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ KPMG
LLP
Des
Moines, Iowa
August 24,
2009
-45-
To the
Shareholders of Meredith Corporation:
Meredith
management is responsible for the preparation, integrity, and objectivity of the
financial information included in this Annual Report on Form 10-K. We take
this responsibility very seriously as we recognize the importance of having
well-informed, confident investors. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and include amounts based on our informed judgments and
estimates. We have adopted appropriate accounting policies and are fully
committed to ensuring that those policies are applied properly and consistently.
In addition, we strive to report our consolidated financial results in a manner
that is relevant, complete, and understandable. We welcome any suggestions from
those who use our reports.
To meet
our 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, our internal audit staff monitors
and reports on compliance with Company policies, procedures, and internal
control systems.
The
consolidated financial statements and the effectiveness of the Company's
internal control over financial reporting have been audited by an independent
registered public accounting firm in accordance with the standards of the Public
Company Accounting Oversight Board (United States). The independent registered
public accounting firm was given unrestricted access to all financial records
and related information, including all Board of Directors and Board committee
minutes.
The Audit
Committee of the Board of Directors is responsible for reviewing and monitoring
the Company's accounting policies, internal controls, and financial reporting
practices. The Audit Committee is also directly responsible for the appointment,
compensation, and oversight of the Company's independent registered public
accounting firm. The Audit Committee consists of five independent directors who
meet with the independent registered public accounting firm, management, and
internal auditors to review accounting, auditing, and financial reporting
matters. To ensure complete independence, the independent registered public
accounting firm has direct access to the Audit Committee without the presence of
management representatives.
At
Meredith, we have always placed a high priority on good corporate governance and
will continue to do so in the future.
/s/
Joseph H. Ceryanec
Joseph H.
Ceryanec
Vice
President-Chief Financial Officer
-46-
(This
page has been left blank intentionally.)
-47-
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Consolidated
Balance Sheets
|
Assets
|
June 30,
|
2009
|
2008
|
||||
|
(In
thousands)
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash
equivalents
|
$
|
27,910
|
$
|
37,644
|
|||
|
Accounts
receivable
|
|||||||
|
(net
of allowances of $13,810 in 2009 and $23,944 in 2008)
|
192,367
|
230,978
|
|||||
|
Inventories
|
28,151
|
44,085
|
|||||
|
Current
portion of subscription acquisition costs
|
60,017
|
59,939
|
|||||
|
Current
portion of broadcast rights
|
8,297
|
10,779
|
|||||
|
Deferred
income taxes
|
–
|
2,118
|
|||||
|
Other
current assets
|
23,398
|
17,547
|
|||||
|
Total
current assets
|
340,140
|
403,090
|
|||||
|
Property,
plant, and equipment
|
|||||||
|
Land
|
19,500
|
20,027
|
|||||
|
Buildings
and improvements
|
125,779
|
122,977
|
|||||
|
Machinery
and equipment
|
276,376
|
273,633
|
|||||
|
Leasehold
improvements
|
14,208
|
12,840
|
|||||
|
Construction
in progress
|
9,041
|
17,458
|
|||||
|
Total
property, plant, and equipment
|
444,904
|
446,935
|
|||||
|
Less
accumulated depreciation
|
(253,597
|
)
|
(247,147
|
)
|
|||
|
Net
property, plant, and equipment
|
191,307
|
199,788
|
|||||
|
Subscription
acquisition costs
|
63,444
|
60,958
|
|||||
|
Broadcast
rights
|
4,545
|
7,826
|
|||||
|
Other
assets
|
45,907
|
74,472
|
|||||
|
Intangible
assets, net
|
561,581
|
781,154
|
|||||
|
Goodwill
|
462,379
|
532,332
|
|||||
|
Total
assets
|
$
|
1,669,303
|
$
|
2,059,620
|
|||
|
See
accompanying Notes to Consolidated Financial Statements
|
-48-
Meredith
Corporation and Subsidiaries
Consolidated
Balance Sheets (continued)
|
Liabilities
and Shareholders' Equity
|
June 30,
|
2009
|
2008
|
||||
|
(In thousands
except per share data)
|
|||||||
|
Current
liabilities
|
|||||||
|
Current
portion of long-term debt
|
$
|
–
|
$
|
75,000
|
|||
|
Current
portion of long-term broadcast rights payable
|
10,560
|
11,141
|
|||||
|
Accounts
payable
|
86,381
|
79,028
|
|||||
|
Accrued
expenses
|
|||||||
|
Compensation
and benefits
|
42,667
|
40,894
|
|||||
|
Distribution
expenses
|
12,224
|
13,890
|
|||||
|
Other
taxes and expenses
|
26,653
|
47,923
|
|||||
|
Total
accrued
expenses
|
81,544
|
102,707
|
|||||
|
Current
portion of unearned subscription revenues
|
170,731
|
175,261
|
|||||
|
Total
current
liabilities
|
349,216
|
443,137
|
|||||
|
Long-term
debt
|
380,000
|
410,000
|
|||||
|
Long-term
broadcast rights payable
|
11,851
|
17,186
|
|||||
|
Unearned
subscription revenues
|
148,393
|
157,872
|
|||||
|
Deferred
income taxes
|
64,322
|
139,598
|
|||||
|
Other
noncurrent liabilities
|
106,138
|
103,972
|
|||||
|
Total
liabilities
|
1,059,920
|
1,271,765
|
|||||
|
Shareholders'
equity
|
|||||||
|
Series
preferred stock, par value $1 per share
|
|||||||
|
Authorized
5,000 shares; none issued
|
–
|
–
|
|||||
|
Common
stock, par value $1 per share
|
|||||||
|
Authorized
80,000 shares; issued and outstanding 35,934 shares in 2009 (excluding
35,086 treasury shares) and 36,295 shares in 2008 (excluding 34,787
treasury shares)
|
35,934
|
36,295
|
|||||
|
Class B
stock, par value $1 per share, convertible to common stock
|
|||||||
|
Authorized
15,000 shares; issued and outstanding 9,133 shares in 2009 and 9,181
shares in 2008
|
9,133
|
9,181
|
|||||
|
Additional
paid-in capital
|
53,938
|
52,693
|
|||||
|
Retained
earnings
|
542,006
|
701,205
|
|||||
|
Accumulated
other comprehensive loss
|
(31,628
|
)
|
(11,519
|
)
|
|||
|
Total
shareholders' equity
|
609,383
|
787,855
|
|||||
|
Total
liabilities and shareholders' equity
|
$
|
1,669,303
|
$
|
2,059,620
|
|||
|
See
accompanying Notes to Consolidated Financial Statements
|
-49-
Meredith
Corporation and Subsidiaries
Consolidated
Statements of Earnings (Loss)
|
2009
|
2008
|
2007
|
|||||||
|
(In
thousands except per share data)
|
|||||||||
|
Revenues
|
|||||||||
|
Advertising
|
$
|
787,207
|
$
|
930,598
|
$
|
959,073
|
|||
|
Circulation
|
280,809
|
300,570
|
322,609
|
||||||
|
All
other
|
340,781
|
321,275
|
298,041
|
||||||
|
Total
revenues
|
1,408,797
|
1,552,443
|
1,579,723
|
||||||
|
Operating
expenses
|
|||||||||
|
Production,
distribution, and editorial
|
646,595
|
673,607
|
647,984
|
||||||
|
Selling,
general, and administrative
|
560,219
|
590,031
|
603,098
|
||||||
|
Depreciation
and amortization
|
42,582
|
49,153
|
45,015
|
||||||
|
Impairment
of goodwill and other intangible assets
|
294,529
|
–
|
–
|
||||||
|
Total
operating expenses
|
1,543,925
|
1,312,791
|
1,296,097
|
||||||
|
Income
(loss) from operations
|
(135,128
|
)
|
239,652
|
283,626
|
|||||
|
Interest
income
|
656
|
1,090
|
1,586
|
||||||
|
Interest
expense
|
(20,777
|
)
|
(22,390
|
)
|
(27,182
|
)
|
|||
|
Earnings
(loss) from continuing operations before income taxes
|
(155,249
|
)
|
218,352
|
258,030
|
|||||
|
Income
taxes
|
52,742
|
(85,378
|
)
|
(92,020
|
)
|
||||
|
Earnings
(loss) from continuing operations
|
(102,507
|
)
|
132,974
|
166,010
|
|||||
|
Income
(loss) from discontinued operations, net of taxes
|
(4,577
|
)
|
1,698
|
(3,664
|
)
|
||||
|
Net
earnings (loss)
|
$
|
(107,084
|
)
|
$
|
134,672
|
$
|
162,346
|
||
|
Basic
earnings (loss) per share
|
|||||||||
|
Earnings
(loss) from continuing operations
|
$
|
(2.28
|
)
|
$
|
2.83
|
$
|
3.46
|
||
|
Discontinued
operations
|
(0.10
|
)
|
0.04
|
(0.08
|
)
|
||||
|
Basic
earnings (loss) per share
|
$
|
(2.38
|
)
|
$
|
2.87
|
$
|
3.38
|
||
|
Basic
average shares outstanding
|
45,042
|
46,928
|
48,048
|
||||||
|
Diluted
earnings (loss) per share
|
|||||||||
|
Earnings
(loss) from continuing operations
|
$
|
(2.28
|
)
|
$
|
2.79
|
$
|
3.38
|
||
|
Discontinued
operations
|
(0.10
|
)
|
0.04
|
(0.07
|
)
|
||||
|
Diluted
earnings (loss) per share
|
$
|
(2.38
|
)
|
$
|
2.83
|
$
|
3.31
|
||
|
Diluted
average shares outstanding
|
45,042
|
47,585
|
49,108
|
||||||
|
Dividends
paid per share
|
$
|
0.88
|
$
|
0.80
|
$
|
0.69
|
|
See
accompanying Notes to Consolidated Financial Statements
|
-50-
Meredith
Corporation and Subsidiaries
Consolidated
Statements of Shareholders’ Equity
|
Common
Stock
- $1
par
value
|
Class B
Stock
- $1
par
value
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Total
|
|
|
Balance
at June 30, 2006
|
$ 38,774
|
$ 9,417
|
$ 52,577
|
$ 599,413
|
$
(2,077)
|
$ 698,104
|
|
Net
earnings
|
–
|
–
|
–
|
162,346
|
–
|
162,346
|
|
Other
comprehensive income, net
|
–
|
–
|
–
|
–
|
2,780
|
2,780
|
|
Total
comprehensive income
|