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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2010
Commission file number 1-5128
 
 
 
MEREDITH CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Iowa
 
42-0410230
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1716 Locust Street, Des Moines, Iowa
 
50309-3023
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code:  (515) 284-3000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [_]
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]
No [_]
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Accelerated filer [_]
Non-accelerated filer [_] (Do not check if a smaller reporting company)     
Smaller reporting company [_]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_]
No [X]
 
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Shares of stock outstanding at December 31, 2010
 
Common shares
36,811,256
 
Class B shares
8,791,186
 
Total common and Class B shares
45,602,442
 
 
 
 
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page
 
Part I - Financial Information
 
 
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of December 31, 2010, and June 30, 2010
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Earnings for the Three and Six Months Ended December 31, 2010 and 2009
 
 
 
 
 
 
 
 
Condensed Consolidated Statement of Shareholders' Equity for the Six Months Ended December 31, 2010
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 2010 and 2009
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
 
 
Item 1A.
Risk Factors
 
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 
 
 
 
 
Signature
 
 
 
 
 
 
 
Index to Attached Exhibits
 
 
 
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
 
 
(Unaudited)
 
 
Assets
December 31,
2010
 
June 30,
2010
(In thousands)
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
18,215
 
 
$
48,574
 
Accounts receivable, net
 
238,766
 
 
223,630
 
Inventories
 
22,887
 
 
26,807
 
Current portion of subscription acquisition costs
 
55,869
 
 
57,917
 
Current portion of broadcast rights
 
11,341
 
 
5,423
 
Other current assets
 
18,114
 
 
19,076
 
Total current assets
 
365,192
 
 
381,427
 
Property, plant, and equipment
 
457,235
 
 
450,966
 
Less accumulated depreciation
 
(273,434
)
 
(263,964
)
Net property, plant, and equipment
 
183,801
 
 
187,002
 
Subscription acquisition costs
 
53,736
 
 
55,228
 
Broadcast rights
 
2,157
 
 
2,977
 
Other assets
 
51,241
 
 
59,138
 
Intangible assets, net
 
552,303
 
 
552,210
 
Goodwill
 
512,358
 
 
489,334
 
Total assets
 
$
1,720,788
 
 
$
1,727,316
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Current portion of long-term debt
 
$
50,000
 
 
$
50,000
 
Current portion of long-term broadcast rights payable
 
15,487
 
 
9,892
 
Accounts payable
 
65,513
 
 
109,897
 
Accrued expenses and other liabilities
 
126,920
 
 
109,225
 
Current portion of unearned subscription revenues
 
160,813
 
 
159,292
 
Total current liabilities
 
418,733
 
 
438,306
 
Long-term debt
 
195,000
 
 
250,000
 
Long-term broadcast rights payable
 
7,744
 
 
8,961
 
Unearned subscription revenues
 
125,995
 
 
130,699
 
Deferred income taxes
 
127,822
 
 
114,240
 
Other noncurrent liabilities
 
105,185
 
 
96,765
 
Total liabilities
 
980,479
 
 
1,038,971
 
Shareholders' equity
 
 
 
 
Series preferred stock
 
—
 
 
—
 
Common stock
 
36,811
 
 
36,329
 
Class B stock
 
8,791
 
 
9,086
 
Additional paid-in capital
 
71,529
 
 
66,311
 
Retained earnings
 
649,871
 
 
604,624
 
Accumulated other comprehensive loss
 
(26,693
)
 
(28,005
)
Total shareholders' equity
 
740,309
 
 
688,345
 
Total liabilities and shareholders' equity
 
$
1,720,788
 
 
$
1,727,316
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

1
Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
 
 
Three Months
 
Six Months
Periods Ended December 31,
2010
 
2009
 
2010
 
2009
(In thousands except per share data)
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Advertising
$
214,157
 
 
$
187,868
 
 
$
419,660
 
 
$
379,684
 
Circulation
64,254
 
 
67,209
 
 
131,182
 
 
137,088
 
All other
88,449
 
 
81,778
 
 
160,440
 
 
152,498
 
Total revenues
366,860
 
 
336,855
 
 
711,282
 
 
669,270
 
Operating expenses
 
 
 
 
 
 
 
Production, distribution, and editorial
137,879
 
 
142,911
 
 
281,512
 
 
294,004
 
Selling, general, and administrative
149,689
 
 
146,617
 
 
293,091
 
 
286,254
 
Depreciation and amortization
9,665
 
 
10,117
 
 
19,452
 
 
20,220
 
Total operating expenses
297,233
 
 
299,645
 
 
594,055
 
 
600,478
 
Income from operations
69,627
 
 
37,210
 
 
117,227
 
 
68,792
 
Interest income
11
 
 
9
 
 
22
 
 
19
 
Interest expense
(3,362
)
 
(5,744
)
 
(6,884
)
 
(10,785
)
Earnings before income taxes
66,276
 
 
31,475
 
 
110,365
 
 
58,026
 
Income taxes
(25,719
)
 
(12,521
)
 
(44,101
)
 
(20,731
)
Net earnings
$
40,557
 
 
$
18,954
 
 
$
66,264
 
 
$
37,295
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.89
 
 
$
0.42
 
 
$
1.46
 
 
$
0.82
 
Basic average shares outstanding
45,571
 
 
45,288
 
 
45,527
 
 
45,223
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.88
 
 
$
0.42
 
 
$
1.45
 
 
$
0.82
 
Diluted average shares outstanding
45,912
 
 
45,547
 
 
45,849
 
 
45,432
 
 
 
 
 
 
 
 
 
Dividends paid per share
$
0.230
 
 
$
0.225
 
 
$
0.460
 
 
$
0.450
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 

2
Meredith Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
 
(In thousands except per share data)
Common
Stock - $1
par value
 
Class B
Stock - $1
par value
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at June 30, 2010
 
$
36,329
 
 
 
$
9,086
 
 
 
$
66,311
 
 
$
604,624
 
 
 
$
(28,005
)
 
$
688,345
 
Net earnings
 
—
 
 
 
—
 
 
 
—
 
 
66,264
 
 
 
—
 
 
66,264
 
Other comprehensive income, net
 
—
 
 
 
—
 
 
 
—
 
 
—
 
 
 
1,312
 
 
1,312
 
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67,576
 
Share-based incentive plan transactions
 
374
 
 
 
—
 
 
 
6,248
 
 
—
 
 
 
—
 
 
6,622
 
Purchases of Company stock
 
(166
)
 
 
(21
)
 
 
(5,843
)
 
—
 
 
 
—
 
 
(6,030
)
Share-based compensation
 
—
 
 
 
—
 
 
 
5,891
 
 
—
 
 
 
—
 
 
5,891
 
Conversion of Class B to common stock
 
274
 
 
 
(274
)
 
 
—
 
 
—
 
 
 
—
 
 
—
 
Dividends paid
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
—
 
 
 
—
 
 
 
—
 
 
(16,852
)
 
 
—
 
 
(16,852
)
Class B stock
 
—
 
 
 
—
 
 
 
—
 
 
(4,165
)
 
 
—
 
 
(4,165
)
Tax benefit from incentive plans
 
—
 
 
 
—
 
 
 
(1,078
)
 
—
 
 
 
—
 
 
(1,078
)
Balance at December 31, 2010
 
$
36,811
 
 
 
$
8,791
 
 
 
$
71,529
 
 
$
649,871
 
 
 
$
(26,693
)
 
$
740,309
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 

3
Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Six Months Ended December 31,
2010
 
2009
(In thousands)
 
 
 
Cash flows from operating activities
 
 
 
Net earnings
$
66,264
 
 
$
37,295
 
Adjustments to reconcile net earnings to net cash provided by operating activities
 
 
 
Depreciation
14,476
 
 
15,531
 
Amortization
4,976
 
 
4,689
 
Share-based compensation
5,891
 
 
6,536
 
Deferred income taxes
13,231
 
 
12,158
 
Amortization of broadcast rights
8,605
 
 
10,934
 
Payments for broadcast rights
(9,325
)
 
(11,096
)
Gain from dispositions of assets
—
 
 
(2,213
)
Provision for write-down of impaired assets
—
 
 
3,249
 
Excess tax benefits from share-based payments
(317
)
 
(131
)
Changes in assets and liabilities
(19,277
)
 
(920
)
Net cash provided by operating activities
84,524
 
 
76,032
 
Cash flows from investing activities
 
 
 
Acquisitions of businesses
(28,556
)
 
(16,304
)
Additions to property, plant, and equipment
(11,168
)
 
(14,938
)
Net cash used in investing activities
(39,724
)
 
(31,242
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
12,500
 
 
85,000
 
Repayments of long-term debt
(67,500
)
 
(115,000
)
Purchases of Company stock
(6,030
)
 
(195
)
Dividends paid
(21,017
)
 
(20,427
)
Proceeds from common stock issued
6,622
 
 
1,718
 
Excess tax benefits from share-based payments
317
 
 
131
 
Other
(51
)
 
(45
)
Net cash used in financing activities
(75,159
)
 
(48,818
)
Net decrease in cash and cash equivalents
(30,359
)
 
(4,028
)
Cash and cash equivalents at beginning of period
48,574
 
 
27,910
 
Cash and cash equivalents at end of period
$
18,215
 
 
$
23,882
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 

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

5
with operations in New Zealand, the United States, Australia, India, and Hong Kong. The acquisition-date fair value of the consideration transferred totaled $16.2 million, which consisted of $9.1 million of cash and $7.1 million of contingent consideration.
 
The contingent consideration arrangement requires the Company to pay contingent payments should the acquired operations achieve certain financial targets generally based on earnings before interest and taxes, as defined in the acquisition agreement. None of the contingent consideration is dependent on the continued employment of the sellers. As of December 31, 2010, the Company estimates that future aggregate contingent payments will range from approximately $1.8 million to $7.4 million over the next two years. The maximum amount of contingent payments the sellers may receive over the next two years is $26.0 million. We estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement as defined in Note 7.
 
As a result of the acquisition, the assets and liabilities of Hyperfactory consisting primarily of accounts receivable, identifiable intangible assets, accounts payable, contingent consideration, and other accrued expenses are now reflected in the Company's consolidated balance sheet. The consolidated financial statements reflect the preliminary allocations of the purchase price to the assets acquired and liabilities assumed, based on their respective fair values.
The Company is in the process of obtaining a third-party valuation of intangible assets and contingent consideration; thus the provisional measurements of intangible assets, goodwill, contingent consideration, and deferred income tax balances are subject to change. Trade names, an indefinite-lived asset, has been provisionally assigned a value of $0.4 million. Definite-lived intangible assets include technology of $3.4 million (7 year useful life) and customer lists of $1.1 million (10 year useful life). Goodwill, with a provisionally assigned value of $11.7 million, is attributable to expected synergies and the assembled workforce of Hyperfactory. As noted, the fair value of the acquired assets and liabilities is provisional pending receipt of the final valuation report.
Hyperfactory is subject to legal and regulatory requirements, including but not limited to those related to taxation, in each of the jurisdictions in the countries in which it operates. The Company has conducted a preliminary assessment of liabilities arising in each of these jurisdictions, and has recognized provisional amounts in its initial accounting for the acquisition of Hyperfactory for all identified liabilities in accordance with the business combinations guidance. However, the Company is continuing its review of these matters during the measurement period, and if new information about facts and circumstances that existed at the acquisition date identifies adjustments to the liabilities initially recognized, as well as any additional liabilities that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts initially recognized.
Prior to the July 1, 2010, acquisition date, the Company owned 19.99 percent of Hyperfactory and accounted for its interest as a cost-method investment. The acquisition-date fair value of the previous equity interest was $4.5 million, and is included in the measurement of consideration transferred. The Company did not recognize a gain or loss as a result of remeasuring its prior equity interest in Hyperfactory held before the business combination.
In December 2010, Meredith acquired the assets of Real Girls Media Network (RGM) for approximately $4.0 million. RGM is a social content hub which includes DivineCaroline.com as well as a premium network of branded sites for women. As a result of the acquisition, assets consisting primarily of accounts receivable, prepaid assets, identifiable intangible assets, and goodwill are now reflected in the Company's consolidated balance sheet.
 
The impact of the acquisitions is not material to the Company's results of operations; therefore, pro forma financial information has not been provided. Acquisition related costs were expensed by the Company in the current period. Acquisition related costs were not material to the Company's results of operations.

6
3. Inventories
 
Major components of inventories are summarized below. Of total net inventory values shown, approximately 64 percent are under the last-in first-out (LIFO) method at December 31, 2010, and 54 percent at June 30, 2010.
 
(In thousands)
December 31,
2010
 
June 30,
2010
Raw materials
$
15,248
 
 
$
16,773
 
Work in process
11,887
 
 
10,652
 
Finished goods
1,784
 
 
3,148
 
 
28,919
 
 
30,573
 
Reserve for LIFO cost valuation
(6,032
)
 
(3,766
)
Inventories
$
22,887
 
 
$
26,807
 
 
 
4. Intangible Assets and Goodwill
 
Intangible assets consist of the following:
 
December 31, 2010
 
 
June 30, 2010
(In thousands)
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
National media group
 
 
 
 
 
 
 
 
 
 
 
 
Noncompete agreements
$
480
 
 
$
(392
)
 
$
88
 
 
 
$
480
 
 
$
(338
)
 
$
142
 
Advertiser relationships
18,400
 
 
(14,457
)
 
3,943
 
 
 
18,400
 
 
(13,143
)
 
5,257
 
Customer lists
10,330
 
 
(4,530
)
 
5,800
 
 
 
9,230
 
 
(3,570
)
 
5,660
 
Other
6,944
 
 
(2,800
)
 
4,144
 
 
 
3,544
 
 
(2,596
)
 
948
 
Local media group
 
 
 
 
 
 
 
 
 
 
 
 
Network affiliation agreements
218,559
 
 
(105,304
)
 
113,255
 
 
 
218,559
 
 
(102,859
)
 
115,700
 
Total
$
254,713
 
 
$
(127,483
)
 
127,230
 
 
 
$
250,213
 
 
$
(122,506
)
 
127,707
 
Intangible assets not
 
 
 
 
 
 
 
 
 
 
 
 
subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
National media group
 
 
 
 
 
 
 
 
 
 
 
 
Internet domain names
 
 
 
 
1,166
 
 
 
 
 
 
 
996
 
Trademarks
 
 
 
 
124,831
 
 
 
 
 
 
 
124,431
 
Local media group
 
 
 
 
 
 
 
 
 
 
 
 
FCC licenses
 
 
 
 
299,076
 
 
 
 
 
 
 
299,076
 
Total
 
 
 
 
425,073
 
 
 
 
 
 
 
424,503
 
Intangible assets, net
 
 
 
 
$
552,303
 
 
 
 
 
 
 
$
552,210
 
 
Amortization expense was $5.0 million for the six months ended December 31, 2010. Annual amortization expense for intangible assets is expected to be as follows: $9.9 million in fiscal 2011, $9.6 million in fiscal 2012, $6.9 million in fiscal 2013, $6.6 million in fiscal 2014, and $6.2 million in fiscal 2015.
 
For certain acquisitions consummated prior to July 1, 2009, the sellers are entitled to contingent payments should the acquired operations achieve certain financial targets generally based on earnings before interest and taxes, as defined in the respective acquisition agreements. None of the contingent consideration is dependent on the continued employment of the sellers. As of December 31, 2010, the Company estimates that future aggregate contingent payments for such acquisitions will range from approximately $6.5 million to $15.8 million; the most

7
likely estimate being $13.4 million. The maximum amount of contingent payments the sellers may receive over the next two years is $68.6 million. The additional purchase consideration, if any, will be recorded as additional goodwill on our Consolidated Balance Sheet when the contingencies are resolved. For the six months ended December 31, 2010 and 2009, the Company recognized consideration of $7.9 million and $25.0 million, which increased goodwill.
 
Changes in the carrying amount of goodwill were as follows:
Six Months Ended December 31,
2010
 
2009
(In thousands)
National
Media
Group
 
Local
Media
Group
 
Total
 
National
Media
Group
 
Local
Media
Group
 
Total
Balance at beginning of period
$
489,334
 
 
$
—
 
 
$
489,334
 
 
$
462,379
 
 
$
—
 
 
$
462,379
 
Acquisitions
23,024
 
 
—
 
 
23,024
 
 
25,037
 
 
—
 
 
25,037
 
Balance at end of period
$
512,358
 
 
$
—
 
 
$
512,358
 
 
$
487,416
 
 
$
—
 
 
$
487,416
 
 
 
5. Restructuring Accrual
 
Changes in the Company's restructuring accrual are as follows:
 
Six Months Ended December 31,
2010
2009
(In thousands)
 
 
Balance at beginning of period
$
5,538
 
$
9,894
 
Severance accrual
—
 
2,221
 
Cash payments
(1,604
)
(3,066
)
Other
—
 
(68
)
Balance at end of period
$
3,934
 
$
8,981
 
 
 
6. Long-term Debt
 
Long-term debt consists of the following:
 
(In thousands)
December 31,
2010
 
June 30,
2010
Variable-rate credit facilities
 
 
 
Asset-backed commercial paper facility of $100 million, due 3/29/2011
$
70,000
 
 
$
75,000
 
Revolving credit facility of $150 million, due 6/16/2013
—
 
 
50,000
 
 
 
 
 
Private placement notes
 
 
 
4.70% senior notes, due 6/16/2011
50,000
 
 
50,000
 
5.04% senior notes, due 6/16/2012
50,000
 
 
50,000
 
6.70% senior notes, due 7/13/2013
50,000
 
 
50,000
 
7.19% senior notes, due 7/13/2014
25,000
 
 
25,000
 
Total long-term debt
245,000
 
 
300,000
 
Current portion of long-term debt
(50,000
)
 
(50,000
)
Long-term debt
$
195,000
 
 
$
250,000
 
 
In connection with the asset-backed commercial paper facility, Meredith entered into a revolving agreement to sell all of its rights, title, and interest in the majority of its accounts receivable related to advertising and miscellaneous revenues to Meredith Funding Corporation, a special purpose entity established to purchase accounts receivable

8
from Meredith. At December 31, 2010, $165.4 million of accounts receivable net of reserves was outstanding under the agreement. Meredith Funding Corporation in turn may sell 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, bearing interest at the prime rate, 3.25 percent at December 31, 2010, from Meredith Funding Corporation. The agreement is structured as a true sale under which the creditors of Meredith Funding Corporation will be entitled to be satisfied out of the assets of Meredith Funding Corporation prior to any value being returned to Meredith or its creditors. The accounts of Meredith Funding Corporation are fully consolidated in Meredith's condensed consolidated financial statements. We expect to renew the asset-backed commercial paper facility on or before its expiration date of March 29, 2011.
 
 
7. Fair Value Measurement
 
We have estimated the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that we would realize upon disposition.
 
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
 
•
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
•
Level 3
Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.
 
The carrying amount and estimated fair value of broadcast rights payable were $23.2 million and $22.8 million, respectively, as of December 31, 2010, and $18.9 million and $18.0 million, respectively, as of June 30, 2010. The fair value of broadcast rights payable was determined using the present value of future cash flows discounted at the Company's current borrowing rate.
 
The carrying amount and estimated fair value of long-term debt were $245.0 million and $256.6 million, respectively, as of December 31, 2010, and $300.0 million and $312.7 million, respectively, as of June 30, 2010. The fair value of long-term debt was determined using the present value of future cash flows using borrowing rates currently available for debt with similar terms and maturities.
 
 

9
8. Pension and Postretirement Benefit Plans
 
The following table presents the components of net periodic benefit costs:
 
 
Three Months
 
 
Six Months
Periods Ended December 31,
2010
 
2009
 
 
2010
 
2009
(In thousands)
 
 
 
 
 
 
 
 
Pension benefits
 
 
 
 
 
 
 
 
Service cost
$
2,411
 
 
$
2,100
 
 
 
$
4,823
 
 
$
4,200
 
Interest cost
1,324
 
 
1,478
 
 
 
2,648
 
 
2,956
 
Expected return on plan assets
(2,172
)
 
(1,785
)
 
 
(4,344
)
 
(3,570
)
Prior service cost amortization
93
 
 
213
 
 
 
186
 
 
427
 
Actuarial loss amortization
1,166
 
 
1,622
 
 
 
2,333
 
 
3,244
 
Net periodic benefit costs
$
2,822
 
 
$
3,628
 
 
 
$
5,646
 
 
$
7,257
 
 
 
 
 
 
 
 
 
 
Postretirement benefits
 
 
 
 
 
 
 
 
Service cost
$
119
 
 
$
105
 
 
 
$
238
 
 
$
211
 
Interest cost
198
 
 
227
 
 
 
396
 
 
454
 
Prior service cost amortization
(184
)
 
(184
)
 
 
(368
)
 
(368
)
Net periodic benefit costs
$
133
 
 
$
148
 
 
 
$
266
 
 
$
297
 
 
 
9. Comprehensive Income
 
Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. The Company's comprehensive income includes net earnings, changes in the fair value of interest rate swap agreements, and changes in prior service cost and net actuarial losses from pension and postretirement benefit plans. Total comprehensive income for the three months ended December 31, 2010 and 2009, was $41.2 million and $19.6 million, respectively. Total comprehensive income for the six months ended December 31, 2010 and 2009, was $67.6 million and $38.5 million, respectively.
 
 
10. Earnings per Share
 
The following table presents the calculations of earnings per share:
 
 
Three Months
 
 
Six Months
Periods Ended December 31,
2010
 
2009
 
 
2010
 
2009
(In thousands except per share data)
 
 
 
 
 
 
 
 
Net earnings
$
40,557
 
 
$
18,954
 
 
 
$
66,264
 
 
$
37,295
 
Basic average shares outstanding
45,571
 
 
45,288
 
 
 
45,527
 
 
45,223
 
Dilutive effect of stock options and equivalents
341
 
 
259
 
 
 
322
 
 
209
 
Diluted average shares outstanding
45,912
 
 
45,547
 
 
 
45,849
 
 
45,432
 
Basic earnings per share
$
0.89
 
 
$
0.42
 
 
 
$
1.46
 
 
$
0.82
 
Diluted earnings per share
0.88
 
 
0.42
 
 
 
1.45
 
 
0.82
 
 
For the three months ended December 31, antidilutive options excluded from the above calculations totaled 5,985,000 in 2010 (with a weighted average exercise price of $39.01) and 5,203,000 in 2009 (with a weighted average exercise price of $41.04). For the six months ended December 31, antidilutive options excluded from the

10
above calculations totaled 5,975,000 in 2010 (with a weighted average exercise price of $39.08) and 5,502,000 in 2009 (with a weighted average exercise price of $40.50).
 
In the six months ended December 31, 2010 and 2009, options were exercised to purchase 164,550 and 6,100 shares, respectively.
 
 
11. Segment Information
 
Meredith is a diversified media company focused primarily on the home and family marketplace. On the basis of products and services, the Company has established two reportable segments: national media group and local media group. There have been no changes in the basis of segmentation since June 30, 2010. There are no material intersegment transactions.
 
There are two principal financial measures reported to the chief executive officer for use in assessing segment performance and allocating resources. Those measures are operating profit and earnings from continuing operations before interest, taxes, depreciation, and amortization (EBITDA). Operating profit for segment reporting, disclosed below, is revenues less operating costs excluding unallocated corporate expenses. Segment operating expenses include allocations of certain centrally incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff, and human resources administration. These costs are allocated based on actual usage or other appropriate methods, primarily number of employees. Unallocated corporate expenses are corporate overhead expenses not directly attributable to the operating groups. In accordance with authoritative guidance on disclosures about segments of an enterprise and related information, EBITDA is not presented below.
 
The following table presents financial information by segment:
 
 
Three Months
 
 
Six Months
Periods Ended December 31,
2010
 
2009
 
 
2010
 
2009
(In thousands)
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
National media group
$
269,410
 
 
$
261,175
 
 
 
$
537,807
 
 
$
532,779
 
Local media group
97,450
 
 
75,680
 
 
 
173,475
 
 
136,491
 
Total revenues
$
366,860
 
 
$
336,855
 
 
 
$
711,282
 
 
$
669,270
 
 
 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
 
National media group
$
41,314
 
 
$
31,774
 
 
 
$
80,362
 
 
$
70,367
 
Local media group
38,549
 
 
17,063
 
 
 
55,277
 
 
19,463
 
Unallocated corporate
(10,236
)
 
(11,627
)
 
 
(18,412
)
 
(21,038
)
Income from operations
$
69,627
 
 
$
37,210
 
 
 
$
117,227
 
 
$
68,792
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
National media group
$
3,339
 
 
$
3,642
 
 
 
$
6,693
 
 
$
7,149
 
Local media group
5,816
 
 
5,960
 
 
 
11,744
 
 
12,082
 
Unallocated corporate
510
 
 
515
 
 
 
1,015
 
 
989
 
Total depreciation and amortization
$
9,665
 
 
$
10,117
 
 
 
$
19,452
 
 
$
20,220
 
 
 

11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
EXECUTIVE OVERVIEW
 
Meredith Corporation is the leading media and marketing company serving American women. Meredith combines well-known national brands - including Better Homes and Gardens, Parents, Ladies' Home Journal, Family Circle, American Baby, Fitness, and More - with local television brands in fast growing markets such as Atlanta, Phoenix, and Portland. Meredith is the industry leader in creating content in key consumer interest areas such as home, family, health and wellness, and self-development. Meredith then uses multiple distribution platforms - including print, television, online, mobile, and video - to give consumers content they desire and to deliver the messages of its marketing partners. Additionally, Meredith uses its many assets to create powerful custom marketing solutions for many of the nation's top brands and companies.
 
Meredith operates two business segments. The national media group consists of magazine publishing, interactive media, integrated marketing, brand licensing, database-related activities, and other related operations. The local media group consists of 12 network-affiliated television stations, one radio station, related interactive media operations, and video-related operations. Both segments operate primarily in the U.S. and compete against similar media and other types of media on both a local and national basis. The national media group accounted for 76 percent of the Company's $711.3 million in revenues in the first six months of fiscal 2011 while local media group revenues represented 24 percent.
 
NATIONAL MEDIA GROUP
 
Advertising revenues made up 48 percent of national media group's first six months' revenues. These revenues were generated from the sale of advertising space in the Company's magazines and on websites to clients interested in promoting their brands, products, and services to consumers. Circulation revenues accounted for 24 percent of national media group's first six months' revenues. Circulation revenues result from the sale of magazines to consumers through subscriptions and by single copy sales on newsstands, primarily at major retailers and grocery/drug stores. The remaining 28 percent of national media group's revenues came from a variety of activities that included the sale of integrated marketing products and services and books as well as brand licensing and other related activities. National media group's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.
 
LOCAL MEDIA GROUP
 
The local media group derives almost all of its revenues—94 percent in the first six months of fiscal 2011—from the sale of advertising, both on the air and on our stations' websites. The remainder comes from television retransmission fees, television production services and products, and other services. Political advertising revenues are cyclical in that they are significantly greater during biennial election campaigns (which take place primarily in odd-numbered fiscal years) than at other times. Local media group's major expense categories are employee compensation and programming costs.
 
FIRST SIX MONTHS FISCAL 2011 FINANCIAL OVERVIEW
 
•    
Local media group revenues increased 27 percent and operating profit rose to $55.3 million from $19.5 million in the year-ago period reflecting both increased cyclical political advertising and higher non-political advertising revenues.
 
•    
National media group revenues increased 1 percent from the prior year. Increases in our integrated marketing, interactive media and brand licensing revenues more than offset a reduction in circulation revenues. National media group operating profit increased 14 percent to $80.4 million due primarily to increased operating profits from our interactive and brand licensing operations offset by a decline in our

12
•    
magazine operations operating profit.
 
•    
In July 2010, Meredith completed its acquisition of the remaining 80.01 percent of The Hyperfactory Limited International (Hyperfactory), an international mobile marketing company, and in December 2010, Meredith completed its acquisition of Real Girls Media Network (RGM), a social content hub for women online.
 
•    
Diluted earnings per share increased 77 percent to $1.45 from prior-year first six months earnings of $0.82.
 
USE OF NON-GAAP FINANCIAL MEASURES
 
These consolidated financial statements, including the related notes, are presented in accordance with accounting principles generally accepted in the United States of America (GAAP). Our analysis of local media group results includes references to earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA and EBITDA margin are non-GAAP measures. We use EBITDA along with operating profit and other GAAP measures to evaluate the financial performance of our local media group. EBITDA is a common measure of performance in the broadcasting industry and is used by investors and financial analysts, but its calculation may vary among companies. Local media group EBITDA is not used as a measure of liquidity, nor is it necessarily indicative of funds available for our discretionary use.
 
We believe the non-GAAP measures used in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contribute to an understanding of our financial performance and provide an additional analytic tool to understand our results from core operations and to reveal underlying trends. These measures should not, however, be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
 
 
RESULTS OF OPERATIONS
 
Three Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands except per share data)
 
 
 
 
 
Total revenues
$
366,860
 
 
$
336,855
 
 
9
 %
Operating expenses
(297,233
)
 
(299,645
)
 
(1
)%
Income from operations
$
69,627
 
 
$
37,210
 
 
87
 %
Net earnings
$
40,557
 
 
$
18,954
 
 
114
 %
Diluted earnings per share
$
0.88
 
 
$
0.42
 
 
110
 %
 
Six Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands except per share data)
 
 
 
 
 
Total revenues
$
711,282
 
 
$
669,270
 
 
6
 %
Operating expenses
(594,055
)
 
(600,478
)
 
(1
)%
Income from operations
$
117,227
 
 
$
68,792
 
 
70
 %
Net earnings
$
66,264
 
 
$
37,295
 
 
78
 %
Diluted earnings per share
$
1.45
 
 
$
0.82
 
 
77
 %
 
The following sections provide an analysis of the results of operations for the national media group and local media group and an analysis of the consolidated results of operations for the three and six months ended December 31, 2010, compared with the prior-year period. This commentary should be read in conjunction with the interim condensed consolidated financial statements presented elsewhere in this report and with our Annual Report on Form 10-K for the year ended June 30, 2010.

13
NATIONAL MEDIA GROUP
 
National media group operating results were as follows:
 
Three Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Advertising revenue
$
122,754
 
 
$
117,431
 
 
5
 %
Circulation revenue
64,254
 
 
67,209
 
 
(4
)%
Other revenue
82,402
 
 
76,535
 
 
8
 %
Total revenues
269,410
 
 
261,175
 
 
3
 %
Operating expenses
(228,096
)
 
(229,401
)
 
(1
)%
Operating profit
$
41,314
 
 
$
31,774
 
 
30
 %
Operating profit margin
15.3
%
 
12.2
%
 
 
 
Six Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Advertising revenue
$
258,934
 
 
$
254,633
 
 
2
 %
Circulation revenue
131,182
 
 
137,088
 
 
(4
)%
Other revenue
147,691
 
 
141,058
 
 
5
 %
Total revenues
537,807
 
 
532,779
 
 
1
 %
Operating expenses
(457,445
)
 
(462,412
)
 
(1
)%
Operating profit
$
80,362
 
 
$
70,367
 
 
14
 %
Operating profit margin
14.9
%
 
13.2
%
 
 
 
Revenues
Magazine advertising revenues increased 2 percent in the second quarter and were flat for the first six months of fiscal 2011 as total advertising pages decreased in the low-single digits on a percentage basis in the second quarter and in the mid-single digits in the first six months of fiscal 2011. The net revenue per page increased in the mid-single digits during the quarter and the six-month period. Our parenthood, men's and Hispanic titles as well as Fitness increased advertising revenues and pages in the second quarter and the six-month period. Advertising revenues and pages were down in our women's service and shelter titles. Among our core advertising categories, prescription and nonprescription drugs, retail, and household supplies showed strength while demand was weaker for home, food and beverage, and direct response categories. While toiletries and cosmetics and media and entertainment declined for the six months, they increased in the second quarter. Online advertising revenues in our interactive media operations are a small but growing percentage of national media advertising revenue. They increased more than 30 percent in the second quarter and more than 25 percent in the first six months of fiscal 2011 as compared to the prior-year periods due to strong demand.
 
Magazine circulation revenues decreased 4 percent in the second quarter and in the first six months of fiscal 2011 as both subscription revenues and newsstand revenues decreased in the mid-single digits on a percentage basis. A portion of the decrease in circulation revenue was expected as a result of the January 2010 repositioning of our special interest media (SIM) business. The remaining decrease in circulation revenue was primarily due to there being a single issue and a double issue of Ladies Home Journal in the prior year quarter versus two single issues in the current year quarter.
 
Other revenues within the national media group increased 8 percent in the second quarter and 5 percent in the first six months of fiscal 2011. Integrated marketing revenues increased 14 percent in the second quarter and 11 percent for the six-month period. Growth was driven by a cross-platform approach incorporating content development, customer relationship management, and digital and social capabilities for new and existing clients. Brand licensing revenues grew over 35 percent in the second quarter and over 25 percent in the first six months of fiscal 2011 driven primarily by continued expansion of the Better Homes and Gardens'-branded line of home products at Wal-Mart

14
stores. These increases were partially offset by a decline in magazine other revenues due primarily to a decrease in print services projects.
 
Operating Expenses
National media group operating costs decreased 1 percent in the second quarter and in the first six months of fiscal 2011. Consistent with the decline in revenues, magazine print services expense declined in the quarter and six-month period. Processing and paper costs also decreased during the periods primarily due to lower paper consumption as a result of a decline in advertising pages sold and the SIM repositioning. Paper costs also decreased due to a decline in average paper prices of 1 percent for the second quarter and 5 percent for the first six months of fiscal 2011. Circulation expense and pension and other retirement plan costs also declined in the quarter. These cost reductions were mostly offset by increased employee compensation costs and performance-based incentive accruals. Employee compensation costs were up as a result of higher staff levels primarily due to the acquisition of Hyperfactory and higher compensation levels due to annual merit increases. In the second quarter of fiscal 2010, a write-off of manuscript and art inventory of $1.5 million was recorded by the national media group related to the repositioning of our SIM operations.
 
Operating Profit
National media group operating profit grew 30 percent in the second quarter and 14 percent in the six-month period compared with the respective prior-year periods. Increases in operating profit in our interactive media, brand licensing, integrated marketing, and book operations more than offset lower operating profits in our magazine operations.
 
 
LOCAL MEDIA GROUP
 
Local media group operating results were as follows:
 
Three Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Non-political advertising revenues
$
69,376
 
 
$
67,549
 
 
3
%
Political advertising revenues
22,027
 
 
2,888
 
 
663
%
Other revenues
6,047
 
 
5,243
 
 
15
%
Total revenues
97,450
 
 
75,680
 
 
29
%
Operating expenses
(58,901
)
 
(58,617
)
 
0
%
Operating profit
$
38,549
 
 
$
17,063
 
 
126
%
Operating profit margin
39.6
%
 
22.5
%
 
 
 
Six Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Non-political advertising revenues
$
127,124
 
 
$
121,220
 
 
5
%
Political advertising revenues
33,602
 
 
3,831
 
 
777
%
Other revenues
12,749
 
 
11,440
 
 
11
%
Total revenues
173,475
 
 
136,491
 
 
27
%
Operating expenses
(118,198
)
 
(117,028
)
 
1
%
Operating profit
$
55,277
 
 
$
19,463
 
 
184
%
Operating profit margin
31.9
%
 
14.3
%
 
 
 
Revenues
Local media group total revenues increased 29 percent in the second quarter and 27 percent in the first six months of fiscal 2011 primarily reflecting higher political advertising related to the November 2010 elections. Net political advertising revenues totaled $22.0 million in the second quarter and $33.6 million in the first six months of the

15
current fiscal year compared with $2.9 million in the prior-year second quarter and $3.8 million in the prior-year six-month period. Fluctuations in political advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns. Political advertising may displace a certain amount of non-political advertising; therefore, the revenues may not be entirely incremental. Non-political advertising revenues increased 3 percent in the quarter and 5 percent in the first six months of fiscal 2011 despite political advertising displacing some core advertising. Local non-political advertising revenues increased 4 percent in the second quarter and 5 percent for the first six months of fiscal 2011. National non-political advertising revenues were flat as compared to the prior-year second quarter and rose 4 percent for the first half of fiscal 2011. In the second quarter of fiscal 2011, nine of local media group's ten largest advertising categories grew revenues, led by automotive, professional services, and retail. Online advertising revenues increased 5 percent and 10 percent as compared to the prior-year second quarter and first six months of fiscal 2010, respectively. Other revenue, which is primarily retransmission fees, increased 15 percent in the current quarter and 11 percent in the six-month period. The increases are primarily due to increases in revenue from existing retransmission agreements we have with cable and satellite operators in our markets.
 
Operating Expenses
Local media group operating expenses were flat in the second quarter of fiscal 2011 and increased 1 percent in the first half of fiscal 2011 as compared to the respective prior-year periods. For both periods, increases in production and employee compensation expenses approximately offset declines in pension and other retirement plan costs. While local media film amortization was flat in the second quarter, it decreased during the first six months of fiscal 2011.
 
Operating Profit
Local media group operating profit increased 126 percent in the second quarter and 184 percent in the first half of fiscal 2011 as compared to the same periods in fiscal 2010 primarily due to the strength of both political and non-political advertising revenues.
 
Supplemental Disclosure of Local Media Group EBITDA
Meredith's local media group EBITDA is defined as local media group operating profit plus depreciation and amortization expense. EBITDA is not a GAAP financial measure and should not be considered in isolation or as a substitute for GAAP financial measures. See the discussion of management's rationale for the use of EBITDA in the preceding Executive Overview section. Local media group EBITDA and EBITDA margin were as follows:
 
Three Months Ended December 31,
2010
 
2009
(In thousands)
 
 
 
Revenues
$
97,450
 
 
$
75,680
 
Operating profit
$
38,549
 
 
$
17,063
 
Depreciation and amortization
5,816
 
 
5,960
 
EBITDA
$
44,365
 
 
$
23,023
 
EBITDA margin
45.5
%
 
30.4
%
 
Six Months Ended December 31,
2010
 
2009
(In thousands)
 
 
 
Revenues
$
173,475
 
 
$
136,491
 
Operating profit
$
55,277
 
 
$
19,463
 
Depreciation and amortization
11,744
 
 
12,082
 
EBITDA
$
67,021
 
 
$
31,545
 
EBITDA margin
38.6
%
 
23.1
%
 

16
UNALLOCATED CORPORATE EXPENSES
 
Unallocated corporate expenses are general corporate overhead expenses not attributable to the operating groups. These expenses were as follows:
 
Unallocated Corporate Expenses
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Three Months Ended December 31,
$
10,236
 
 
$
11,627
 
 
(12
)%
Six Months Ended December 31,
18,412
 
 
21,038
 
 
(12
)%
 
Unallocated corporate expenses decreased 12 percent in the second quarter and in the first six months of fiscal 2011 compared with the respective prior-year periods. For the second quarter and six-month period, decreases in pension and other retirement plan costs and consulting fees more than offset increases in Meredith's investment spending on eTablet platforms and charitable contributions.
 
 
CONSOLIDATED
 
Consolidated Operating Expenses
Consolidated operating expenses were as follows:
 
Three Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Production, distribution, and editorial
$
137,879
 
 
$
142,911
 
 
(4
)%
Selling, general, and administrative
149,689
 
 
146,617
 
 
2
 %
Depreciation and amortization
9,665
 
 
10,117
 
 
(4
)%
Operating expenses
$
297,233
 
 
$
299,645
 
 
(1
)%
 
Six Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Production, distribution, and editorial
$
281,512
 
 
$
294,004
 
 
(4
)%
Selling, general, and administrative
293,091
 
 
286,254
 
 
2
 %
Depreciation and amortization
19,452
 
 
20,220
 
 
(4
)%
Operating expenses
$
594,055
 
 
$
600,478
 
 
(1
)%
 
Second quarter fiscal 2011 production, distribution, and editorial costs decreased 4 percent as compared to the prior-year second quarter and as compared to the prior-year first six months. Declines in national media group magazine print services, processing, and paper expense more than offset increases in local media production expenses. While local media film amortization was flat in the second quarter, it decreased during the first six months of fiscal 2011. Integrated marketing production expenses declined due primarily to a shift from print services projects to staff based projects. In the second quarter of fiscal 2010, a write-off of manuscript and art inventory of $1.5 million was recorded in production, distribution, and editorial costs related to the repositioning of our SIM operations.
 
Selling, general, and administrative expenses increased 2 percent in the second quarter and in the six-month period. Employee compensation costs, performance-based incentive accruals, and charitable contributions increased as compared to the prior year periods. Integrated marketing general expenses increased due to a shift from print services projects to staff based projects. These increases were partially offset by lower pension and other retirement plan costs and circulation expenses. Share-based compensation, which increased during the second quarter of fiscal 2011, declined in the six-month period. In the second quarter of fiscal 2010, $2.2 million of severance and related benefit costs and the write-off of deferred subscription acquisition costs of $1.8 million related to the repositioning of our SIM operations were recorded in selling, general, and administrative expenses.

17
Depreciation and amortization expenses decreased 4 percent in the second quarter and in the six-month period primarily due to lower machinery and computer equipment depreciation.
 
Income from Operations
Income from operations increased 87 percent in the second quarter and 70 percent in the first six months of fiscal 2011, primarily as a result of revenue growth due to the strength of political advertising and higher operating profits in our local media segment as well as increased operating profits from our interactive media and brand licensing operations.
 
Net Interest Expense
Net interest expense decreased to $3.4 million in the fiscal 2011 second quarter compared with $5.7 million in the comparable prior-year quarter. For the six months ended December 31, 2010, net interest expense was $6.9 million versus $10.8 million in the comparable prior-year period. Average long-term debt outstanding was $270 million in the second quarter of fiscal 2011 and $279 million for the six-month period compared with $353 million in the prior year second quarter and $360 million in the prior year six-month period. The Company's approximate weighted average interest rate was 4.9 percent in the first six months of fiscal 2011 and 5.7 percent in the first six months of fiscal 2010.
 
Income Taxes
Our effective tax rate was 38.8 percent in the second quarter of fiscal 2011 and 40.0 percent in the first half of fiscal 2011 as compared to 39.8 percent in the second quarter and 35.7 percent in the first half of fiscal 2010. The fiscal 2010 six month period included a benefit of $3.0 million reflecting a favorable adjustment made to deferred income tax liabilities as a result of state and local legislation enacted during the quarter.
 
Net Earnings and Earnings per Share
Net earnings were $40.6 million ($0.88 per diluted share) in the quarter ended December 31, 2010, up 114 percent from $19.0 million ($0.42 per diluted share) in the comparable prior-year quarter. For the six months ended December 31, 2010, earnings were $66.3 million ($1.45 per diluted share), an increase of 78 percent from prior-year six month earnings of $37.3 million ($0.82 per diluted share). The improvements were primarily the result of revenue growth and higher operating profit in our local media segment and improved profits in our interactive media and brand licensing operations partially offset by an income tax benefit recorded in the first quarter of fiscal 2010. Both average basic and diluted shares outstanding increased slightly in the current quarter and in the six-month period.
 
 
LIQUIDITY AND CAPITAL RESOURCES
 
Six Months Ended December 31,
2010
 
2009
 
Change
 
(In thousands)
 
 
 
 
 
Net earnings
$
66,264
 
 
$
37,295
 
 
78
%
Cash flows from operations
$
84,524
 
 
$
76,032
 
 
11
%
Cash flows used in investing
(39,724
)
 
(31,242
)
 
27
%
Cash flows used in financing
(75,159
)
 
(48,818
)
 
54
%
Net decrease in cash and cash equivalents
$
(30,359
)
 
$
(4,028
)
 
654
%
 
OVERVIEW
 
Meredith's primary source of liquidity is cash generated by operating activities. Debt financing is typically used for significant acquisitions. We expect cash on hand, internally generated cash flow, and available credit from financing agreements will provide adequate funds for operating and recurring cash needs (e.g., working capital, capital expenditures, debt repayments, and cash dividends) into the foreseeable future. As of December 31, 2010, we have up to $150.0 million remaining of additional available borrowings under our revolving credit facility and up to

18
$30.0 million of additional available borrowings 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.
 
SOURCES AND USES OF CASH
 
Cash and cash equivalents decreased $30.4 million in the first six months of fiscal 2011; they decreased $4.0 million in the comparable period of fiscal 2010. Net cash provided by operating activities was primarily used for acquisitions, capital investments, debt repayments, and dividends.
 
Operating Activities
The largest single component of operating cash inflows is cash received from advertising customers. Other sources of operating cash inflows include cash received from magazine circulation sales and other revenue transactions such as integrated marketing and licensing. Operating cash outflows include payments to vendors and employees and interest, pension, and income tax payments. Our most significant vendor payments are for production and delivery of publications and promotional mailings, broadcasting programming rights, employee compensation costs and benefits, and other services and supplies.
 
Cash provided by operating activities totaled $84.5 million in the first six months of fiscal 2011 compared with $76.0 million in the first six months of fiscal 2010 as higher net earnings in the current year were partially offset by a special one-time contribution to the 401(k) Savings and Investment Plan earned in fiscal 2010, but paid in fiscal 2011, and other changes in working capital.
 
Investing Activities
Investing cash inflows generally include proceeds from the sale of assets or a business. Investing cash outflows generally include payments for the acquisition of new businesses; investments; and additions to property, plant, and equipment.
 
Net cash used by investing activities increased to $39.7 million in the first six months of fiscal 2011 from $31.2 million in the prior-year period. The increase primarily reflected more cash used for investments in businesses primarily due to the acquisitions of Hyperfactory and RGM as well as higher contingent purchase price payments made in the current year than in the prior year.
 
Financing Activities
Financing cash inflows generally include borrowings under debt agreements and proceeds from the exercise of common stock options issued under share-based compensation plans. Financing cash outflows generally include the repayment of long-term debt, repurchases of Company stock, and the payment of dividends.
 
Net cash used by financing activities totaled $75.2 million in the six months ended December 31, 2010, compared with $48.8 million for the six months ended December 31, 2009. The increase in cash used for financing activities is primarily due to debt being paid down by a net $55.0 million in the current year compared to it being paid down by a net $30.0 million in the prior year.
 
Long-term Debt
At December 31, 2010, long-term debt outstanding totaled $245.0 million ($175.0 million in fixed-rate unsecured senior notes and $70.0 million under an asset-backed commercial paper facility). Of the senior notes, $50.0 million is due in the next 12 months. We expect to repay these senior notes with cash from operations and credit available under existing credit agreements. The weighted average effective interest rate for the fixed-rate notes was 5.72 percent. The interest rate on the asset-backed commercial paper facility changes monthly and is based on the average commercial paper cost to the lender plus a fixed spread. As of December 31, 2010, the asset-backed commercial paper facility had a capacity of up to $100 million. It is expected to renew on or before its expiration date of March 29, 2011.
 

19
 
The interest rate on the revolving credit facility is variable based on LIBOR and Meredith's debt to trailing 12 month EBITDA ratio. The revolving credit facility has capacity for up to $150 million outstanding with an option to request up to another $150 million. At December 31, 2010, there were no amounts outstanding under the revolving credit facility. This facility expires on June 16, 2013.
 
All of our debt agreements include financial covenants, and failure to comply with any such covenants could result in the debt becoming payable on demand. The Company was in compliance with all debt covenants at December 31, 2010.
 
Contractual Obligations
As of December 31, 2010, there had been no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2010.
 
Share Repurchase Program
As part of our ongoing share repurchase program, we spent $6.0 million in the first six months of fiscal 2011 to repurchase approximately 187,000 shares of common stock at then current market prices. We spent $0.2 million to repurchase 6,900 shares in the first six months of fiscal 2010. We expect to continue repurchasing shares from time to time subject to market conditions. As of December 31, 2010, approximately 1.1 million shares were authorized for future repurchase. The status of the repurchase program is reviewed at each quarterly Board of Directors meeting. See Part II, Item 2 (c), Issuer Repurchases of Equity Securities, of this Quarterly Report on Form 10-Q for detailed information on share repurchases during the quarter ended December 31, 2010.
 
Dividends
Dividends paid in the first six months of fiscal 2011 totaled $21.0 million, or 46 cents per share, compared with dividend payments of $20.4 million, or 45 cents per share, in the first six months of fiscal 2010.
 
Capital Expenditures
Spending for property, plant, and equipment totaled $11.2 million in the first six months of fiscal 2011 compared with prior-year first six months spending of $14.9 million. Current year spending primarily relates to assets acquired in the normal course of business. Prior year spending primarily related to the initiative to consolidate back-office television station functions such as traffic, master control, accounting, and research into centralized hubs in Atlanta and Phoenix. We have no material commitments for capital expenditures. We expect funds for future capital expenditures to come from operating activities or, if necessary, borrowings under credit agreements.
 
 
OTHER MATTERS
 
 
CRITICAL ACCOUNTING POLICIES
 
Meredith's critical accounting policies are summarized in our Annual Report on Form 10-K for the year ended June 30, 2010. As of December 31, 2010, the Company's critical accounting policies had not changed from June 30, 2010.
 
ACCOUNTING AND REPORTING DEVELOPMENTS
 
In September 2009, authoritative guidance on revenue arrangements with multiple deliverables was issued. This guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The Company adopted this guidance for revenue arrangements entered into or materially modified on or after July 1, 2010. This guidance did not have a material impact on the Company's consolidated financial statements.

20
 
In December 2010, the Financial Accounting Standards Board (FASB) issued an accounting pronouncement related to intangibles - goodwill and other, which requires a company to consider whether there are any adverse qualitative factors indicating that an impairment may exist in performing step 2 of the impairment test for reporting units with zero or negative carrying amounts. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010, with no early adoption. The Company will adopt this pronouncement for our fiscal year beginning July 1, 2011. The adoption of this pronouncement is not expected to have an impact on our consolidated financial statements.
 
In December 2010, the FASB issued an accounting pronouncement related to business combinations, which requires a company to disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only in comparative financial statements. The disclosure provisions are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. If applicable, we will include the required disclosures for our fiscal year beginning July 1, 2011.
 
FORWARD LOOKING STATEMENTS
 
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those predicted by such forward-looking statements. These statements are based on management's current knowledge and estimates of factors affecting the Company's operations. Readers are cautioned not to place undue reliance on such forward-looking information. Factors that could adversely affect future results include, but are not limited to, downturns in national and/or local economies; a softening of the domestic advertising market; world, national, or local events that could disrupt broadcast television; increased consolidation among major advertisers or other events depressing the level of advertising spending; the unexpected loss or insolvency of one or more major clients; the integration of acquired businesses; changes in consumer reading, purchasing and/or television viewing patterns; increases in paper, postage, printing, or syndicated programming costs; changes in television network affiliation agreements; technological developments affecting products or methods of distribution; changes in government regulations affecting the Company's industries; unexpected changes in interest rates; and the consequences of acquisitions and/or dispositions. Meredith's Annual Report on Form 10-K for the year ended June 30, 2010, includes a more complete description of the risk factors that may affect our results. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Meredith is exposed to certain market risks as a result of its use of financial instruments, in particular the potential market value loss arising from adverse changes in interest rates. The Company does not utilize financial instruments for trading purposes and does not hold any derivative financial instruments that could expose the Company to significant market risk. Readers are referred to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in the Company's Annual Report on Form 10-K for the year ended June 30, 2010, for a more complete discussion of these risks.
 
Interest Rates
We generally manage our risk associated with interest rate movements through the use of a combination of variable and fixed-rate debt. At December 31, 2010, Meredith had $175.0 million outstanding in fixed-rate long-term debt. There are no earnings or liquidity risks associated with the Company's fixed-rate debt. The fair value of the fixed-rate debt (based on discounted cash flows reflecting borrowing rates currently available for debt with similar terms and maturities) varies with fluctuations in interest rates. A 10 percent decrease in interest rates would have changed

21
the fair value of the fixed-rate debt to $187.6 million from $186.6 million at December 31, 2010.
 
At December 31, 2010, $70.0 million of our debt was variable-rate debt. The Company is subject to earnings and liquidity risks for changes in the interest rate on this debt. A 10 percent increase in interest rates would increase annual interest expense on our variable-rate debt by $0.1 million.
 
Broadcast Rights Payable
There has been no material change in the market risk associated with broadcast rights payable since June 30, 2010.
 
 
Item 4.
Controls and Procedures
 
Meredith's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that Meredith files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the United States Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to Meredith's management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. There have been no significant changes in the Company's internal control over financial reporting in the quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
 
 
There have been no material changes to the Company's risk factors as disclosed in Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended June 30, 2010.
 
 
 

22
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
(c)
 
Issuer Repurchases of Equity Securities
 
The following table sets forth information with respect to the Company's repurchases of common stock during the quarter ended December 31, 2010.
 
Period
(a)
Total number of
shares
purchased1
(b)
Average price
paid
per share
(c)
Total number of shares
purchased as part of publicly
 announced programs
(d)
Maximum number of
shares that may yet be
purchased under
programs
 
October 1 to
October 31, 2010
754
 
 
 
$
33.06
 
 
754
 
 
1,135,647
 
 
 
November 1 to
November 30, 2010
10,405
 
 
 
34.42
 
 
10,405
 
 
1,125,242
 
 
 
December 1 to
December 31, 2010
3,625
 
 
 
34.22
 
 
3,625
 
 
1,121,617
 
 
 
Total
14,784
 
 
 
34.30
 
 
14,784
 
 
1,121,617
 
 
 
 
1. Total number of shares purchased includes the purchase of 704 shares of Class B stock in December 2010.
 
In May 2008, Meredith announced the Board of Directors had authorized the repurchase of up to 2.0 million additional shares of the Company's stock through public and private transactions.
 
For more information on the Company's share repurchase program, see Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Share Repurchase Program."
 

23
Item 6.
Exhibits
 
 
 
 
 
10
 
 
Employment Agreement dated November 2, 2010, between Meredith Corporation and Thomas H. Harty.
 
 
 
 
 
31.1
 
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 
31.2
 
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 
32
 
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
101.INS
 
 
XBRL Instance Document
 
 
 
 
 
101.SCH
 
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
101.CAL
 
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
101.DEF
 
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
101.LAB
 
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
101.PRE
 
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 

24
 
SIGNATURE
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
MEREDITH CORPORATION
 
 
Registrant
 
 
 
 
 
/s/ Joseph H. Ceryanec
 
 
Joseph H. Ceryanec
 
 
Vice President - Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
Date: January 25, 2011
 
 
 
 

25
INDEX TO ATTACHED EXHIBITS
 
 
Exhibit
Number
Item
 
 
 
 
 10
Employment Agreement dated November 2, 2010, between Meredith Corporation and Thomas H. Harty.
 
 
 
 
 31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
 
 
 
 32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
101.INS
XBRL Instance Document
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 

E-1