The following table presents the components of net periodic benefit costs for Meredith's pension and postretirement benefit plans:
The amortization of amounts related to unrecognized prior service costs and net actuarial gain/loss was reclassified out of other comprehensive income (loss) as components of net periodic benefit costs.
The following table presents the calculations of basic earnings (loss) per common share:
Diluted earnings (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive effects of these share-based awards were computed using the two-class method.
There are 2 principal financial measures reported to the chief executive officer (the chief operating decision maker) for use in assessing segment performance and allocating resources. Those measures are operating profit and earnings before interest expense, income taxes, depreciation, and amortization (EBITDA). Operating profit (loss) for segment reporting, disclosed below, is revenues less operating costs excluding unallocated corporate expenses. Segment operating expenses include allocations of certain centrally incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff, and human resources administration. These costs are allocated based on actual usage or other appropriate methods, primarily number of employees. Unallocated corporate expenses are corporate overhead expenses not directly attributable to the operating groups. In accordance with authoritative guidance on disclosures about segments of an enterprise and related information, EBITDA is not presented below.
The following table presents financial information by segment:
|
| | | | | | | | | | | | | | | | |
| | Three Months | | | Nine Months |
| Periods ended March 31, | 2020 | | 2019 | | | 2020 | | 2019 |
| (In millions) | | | | | | | | |
| Revenues | | | | | | | | |
| National media | $ | 506.9 |
| | $ | 562.3 |
| | | $ | 1,637.0 |
| | $ | 1,739.1 |
|
| Local media | 195.2 |
| | 188.4 |
| | | 602.0 |
| | 665.2 |
|
| Total revenues, gross | 702.1 |
| | 750.7 |
| | | 2,239.0 |
| | 2,404.3 |
|
| Intersegment revenue elimination | (0.4 | ) | | (0.6 | ) | | | (1.6 | ) | | (1.4 | ) |
| Total revenues | $ | 701.7 |
| | $ | 750.1 |
| | | $ | 2,237.4 |
| | $ | 2,402.9 |
|
| | | | | | | | | |
| Segment profit (loss) | | | | | | | | |
| National media | $ | (303.1 | ) | | $ | 54.5 |
| | | $ | (174.5 | ) | | $ | 119.6 |
|
| Local media | 24.4 |
| | 41.6 |
| | | 117.6 |
| | 215.7 |
|
| Unallocated corporate | (15.3 | ) | | (20.5 | ) | | | (60.3 | ) | | (71.8 | ) |
| Income (loss) from operations | (294.0 | ) | | 75.6 |
| | | (117.2 | ) | | 263.5 |
|
| Non-operating income (expense), net | (2.4 | ) | | 4.1 |
| | | (1.0 | ) | | 17.3 |
|
| Interest expense, net | (36.6 | ) | | (38.6 | ) | | | (112.4 | ) | | (131.1 | ) |
| Earnings (loss) from continuing operations before income taxes | $ | (333.0 | ) | | $ | 41.1 |
| | | $ | (230.6 | ) | | $ | 149.7 |
|
| | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| National media | $ | 42.2 |
| | $ | 51.3 |
| | | $ | 137.4 |
| | $ | 158.7 |
|
| Local media | 9.8 |
| | 9.4 |
| | | 29.3 |
| | 27.7 |
|
| Unallocated corporate | 1.5 |
| | 0.8 |
| | | 3.9 |
| | 3.9 |
|
| Total depreciation and amortization | $ | 53.5 |
| | $ | 61.5 |
| | | $ | 170.6 |
| | $ | 190.3 |
|
| | | | | | | | | | | | | | | | |
| | | | |
| Three months ended September 30, | 2020 | | 2019 | | | | | |
| (In millions) | | | | | | | | |
| Revenues | | | | | | | | |
| National media | $ | 467.7 | | | $ | 532.9 | | | | | | |
| Local media | 226.0 | | | 192.8 | | | | | | |
| Total revenues, gross | 693.7 | | | 725.7 | | | | | | |
| Intersegment revenue elimination | (0.2) | | | (0.5) | | | | | | |
| Total revenues | $ | 693.5 | | | $ | 725.2 | | | | | | |
| | | | | | | | |
| Segment profit | | | | | | | | |
| National media | $ | 31.5 | | | $ | 28.1 | | | | | | |
| Local media | 63.8 | | | 38.4 | | | | | | |
| Unallocated corporate | (17.2) | | | (23.6) | | | | | | |
| Income from operations | 78.1 | | | 42.9 | | | | | | |
| Non-operating income, net | 5.6 | | | 8.6 | | | | | | |
| Interest expense, net | (43.5) | | | (38.9) | | | | | | |
| Earnings from continuing operations before income taxes | $ | 40.2 | | | $ | 12.6 | | | | | | |
| | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| National media | $ | 40.0 | | | $ | 47.4 | | | | | | |
| Local media | 8.6 | | | 9.6 | | | | | | |
| Unallocated corporate | 0.4 | | | 1.5 | | | | | | |
| Total depreciation and amortization | $ | 49.0 | | | $ | 58.5 | | | | | | |
The following table presents assets by segment as of March 31, 2020, and June 30, 2019:
|
| | | | | | | |
| (in millions) | March 31, 2020 | | June 30, 2019 |
| Assets | | | |
| National media | $ | 4,255.9 |
| | $ | 4,606.8 |
|
| Local media | 1,166.1 |
| | 1,192.3 |
|
| Unallocated corporate | 242.7 |
| | 337.8 |
|
| Total assets | $ | 5,664.7 |
| | $ | 6,136.9 |
|
17. Subsequent Events
Common Stock Dividend—On April 17, 2020, the Board of Directors unanimously voted to pause Meredith’s common and class B stock dividends.
Compensatory Arrangements—On April 17, 2020, due to the COVID-19 pandemic and the resulting economic disruption, the Board of Directors decided to temporarily reduce the annual base salaries of the Company’s named executive officers and the cash compensation of each of the Company’s non-executive directors. The Chief Executive Officer and each of the non-executive directors have agreed to a temporary 40 percent reduction in his or
her cash compensation from May 4, 2020 through September 4, 2020. Additionally, the Company announced it will apply similar temporary salary reductions of up to 30 percent for approximately 60 percent of our workforce.
|
| | | | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of Meredith Corporation's financial condition and results of operations should be read together with Meredith's condensed consolidated financial statements and notes thereto, included elsewhere in this report. When used herein, the terms Meredith, the Company, we, us, and our refer to Meredith Corporation, including its consolidated subsidiaries.
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in forward-looking statements are set forth below under the headings "Forward Looking Statements" and "Item 1A Risk Factors" in this Form 10-Q for the period ended March 31, 2020 (Form 10-Q) and under the "Risk Factors" heading in our Annual Report on Form 10-K (Form 10-K) for the fiscal year ended June 30, 2019.2020. Such risk factors may be amplified by the COVID-19 pandemic and its potential impact on the Company’s business and the global economy.
EXECUTIVE OVERVIEW
Meredith has been committed to service journalism for over 115119 years. Meredith uses multiple media platforms—including print, digital, mobile, video, and broadcast television—to provide consumers with content they desire and to deliver the messages of its advertising and marketing partners.
Meredith operates two business segments. The national media segment reachesserves more than 190 million unduplicated American consumers every month, including 120 million women and 90 percent of United States (U.S.) millennial women. As the owner of the largest premiumMeredith is a leader in creating content digital network for American consumersacross media platforms and the No. 1 U.S. magazine operator, Meredith possessing leading positionslife stages in key consumer interest areas such as entertainment, food, lifestyle, parenting, and home content creation, as well as enhanced positions in the beauty, fashion, and luxury advertising categories through well-known brands such as People, Better Homes & Gardens, InStyle, Allrecipes, Real Simple, Shape, Southern Living, and Martha Stewart Living. The national media segment features robust brand licensing activities, including more than 3,000 SKUs of branded products at 4,000 Walmart stores across the U.S. and at Walmart.com. The national media segment also includes leading affinity marketer Synapse and The Foundry, the Company's state-of-the-art creative content studio.
Meredith's local media segment includes 17 television stations reaching 11 percent of U.S. households. Meredith's portfolio is concentrated in large, fast-growing markets, with seven stations in the nation's Top 25 markets—including Atlanta, Phoenix, St. Louis, and Portland—and 13 in Top 50 markets. Meredith's stations produce over 725745 hours of local news and entertainment content each week and operate leading local digital properties. The local media segment also generates revenue through the sale of geographic and demographic-targeted digital and print advertising programs sold to third parties.
Both segments operate primarily in the U.S. and compete against similar and other types of media on both a local and national basis. The national media segment accounted for 7367 percent of the Company's $2.2 billion$693.5 million in revenues in the first ninethree months of fiscal 20202021 while the local media segment contributed 2733 percent.
NATIONAL MEDIA
Advertising related revenues represented 49 percent of national media's fiscal 2021 first ninethree months' revenues. These revenues were generated from the sale of advertising space in our magazines websites, and appsdigital properties to clients interested in promoting their brands, products, and services to consumers as well as selling advertising space on third-party platforms. Consumer related revenues accounted for 4748 percent of national media's first ninethree months' revenues. Consumer related revenue includes all revenues either driven by or otherwise linked to consumer buying decisions and includes circulation revenues, which result from the sale of magazines to consumers through subscriptions and by single copysingle-copy sales on newsstands in print form, primarily at major retailers and grocery/drug stores, and in digital form on tablets and other media devices; affinity marketing revenues, which represent agency commissions from the sale of magazines for third-party publishers; licensing revenues; and other digitally generated consumer revenues.ecommerce sales, product sales, and related activities. The remaining 43 percent of national media's revenues came from a variety of activities, which included the sale of customer relationship marketing products and services as well as television and streaming services content production product sales, and other related activities. National media's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.
LOCAL MEDIA
Local media derives the majority of its revenues—5658 percent in the first ninethree months of fiscal 2020—2021—from the sale of advertising, both over the air and on our stations' websitesdigital and appsmobile media properties as well as selling advertising space on third-party platforms. Television retransmission fees accounted for 4341 percent of local media's first ninethree months' revenues. The remainder comes from 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's major expense categories are employee compensation costs and programming fees paid to the networks.
TRENDS AFFECTING OUR BUSINESSCOVID-19 UPDATE
On March 11, 2020,The COVID-19 pandemic continues to impact our business results, particularly in our print advertising and non-political spot revenue streams. We are seeing continued strong consumer engagement with our brands in both the World Health Organization designated the novel coronavirus (COVID-19)national and local media groups and across platforms. We are also seeing performance improvement from our brands that focus on food, home, and lifestyle. As public health measures such as a global pandemic. COVID-19 was first detected in Chinatravel restrictions and continuedmandated business closures continue to spread, significantly impacting various markets around the world, including the United States. Various policies and initiatives have been implemented to reduce the global transmission of COVID-19, including reduced or eliminated food services, reduced travel, the closure of retailing establishments, the cancellation of major sporting and entertainment events, the promotion of social distancing,impact consumers and the adoption of remote working policies.
On March 27, 2020, the Coronavirus Aid, Relief,overall economy, we have seen negative performance trends continue within our brands focused on travel and Economic Security (CARES) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact ofluxury. While the COVID-19 pandemic including tax reliefcontinues to depress levels of advertising, starting in the first quarter of fiscal 2021, we are seeing improvement from our platforms that require shorter lead times, particularly in digital advertising.
The Company previously announced that it had temporarily reduced the pay for our Board of Directors, our executives, and government loans, grants,approximately 60 percent of our employees. These reductions were lifted, and investments. The CARES Act didfull pay was reinstated for all parties in early September 2020.
At this time, we have not haveexperienced a materialnet negative impact on our consolidated financial statements for the three or nine months ended March 31, 2020. We continueliquidity due to monitor any effects that may result from the CARES Act.
Employee safety is our first priority,COVID-19, and as a result, we put preparedness plans in place. We have implemented a work-from-home policy for most of our employees and all of our national media content is currently being produced remotely. We have crisis management teams in place monitoring the rapidly evolving situation and recommending risk mitigation actions as deemed necessary.
We believe we have sufficient liquidity to satisfy our cash needs for the foreseeable future. However, we
We continue to evaluatemonitor the ongoing and take action, as necessary,evolving situation. There may be developments outside our control requiring us to preserve adequate liquidity and ensure thatadjust our business canoperating plan. As such, fiscal 2021 will continue to operate during these uncertain times. This includes pausing our common stock and class B stock dividends, limiting discretionary spending acrossbe a time of uncertainty. While earnings increased in the organization, reducing pay for our Board of Directors, our executives and approximately 60 percent of our employees, and re-prioritizing our capital projects amid the COVID-19 pandemic.
The impact that the COVID-19 pandemic will have on our consolidated results of operations throughout the fourthfirst quarter of fiscal 2020 and into fiscal 2021 as compared to the prior-year period, there remains uncertain. We expect tothe risk that COVID-19 could continue to see cancellations and delays in advertising campaigns.have material adverse impacts on our future revenue growth as well as our overall profitability. We will continue to evaluate the nature and extent of these potential impacts tothe impact of COVID-19 on our business, consolidated results of operations, segment results, liquidity,financial condition, and capital resources.liquidity. For additional discussion of the impacts and risks to our business from the COVID-19 pandemic, refer to Item 1- Risk Factors in our most recent Form 10-K and information presented in this Item 2.
FIRST NINE MONTHSQUARTER FISCAL 20202021 FINANCIAL OVERVIEW
The Company recorded a non-cash impairment charge of $252.7 million•Local media revenues increased 17 percent compared to the prior-year period primarily due to increased political spot advertising revenues and higher retransmission revenues. These increases were partially offset by decreases in thenon-political spot and third quarter of fiscal 2020 to reduce the carrying value of the national media segment's goodwill. In addition, in the third quarter of fiscal 2020, the Company recorded non-cash impairment charges of $22.3 million to reduce the value of one of the local media segment's FCC licenses and $21.2 million to reduce the value of several of the national media segment's trademarks. The Company also recorded a non-cash impairment charge of $5.2 million in the first quarter of fiscal 2020 to reduce the value of one of the national media segment's trademarks.
During the third quarter of fiscal 2020, the Company recognized an impairment charge of $87.9 million in the national media segmentparty advertising related to vacant leased space at its location in New York City.
The Company estimates that cancellations or delays in advertising campaignsrevenues. Operating profit grew 66 percent primarily due to the economic impacts of the COVID-19 pandemic resulted in a $17.4 million adverse impact onadditional high-margin political spot advertising related revenues in March 2020. Other than a reduction in the corresponding performance-based incentive accruals and certain other expenses of $11.5 million, the Company estimates that the economic impacts of the COVID-19 pandemic were not materialdue to the Company's operating expenses in March 2020.cyclical nature of political advertising.
•National media revenues decreased 612 percent compared to the prior-year period primarily due to declines in print advertising and subscription revenues as a resultresulting from portfolio changes and the impact of portfolio changesCOVID-19. These declines were partially offset by increases in digital advertising, licensing, and digital and other consumer driven digital advertising, and other revenues. Operating expenses increased due primarily to the goodwill, vacated lease space, and trademark impairment charges noted above. Due primarily to the impairment charges, the national media segment ended the first nine months of fiscal 2020 with an operating loss of $174.5 million.
Local media revenues decreased 10 percent as compared to the prior-year period primarily due to declines in higher margin political advertising revenues due to the cyclical nature of political advertising. Operating profit declined 45grew 12 percent primarily due to lower politicalgrowth in digital advertising revenues and reductions in non-cash expenses such as amortization and the non-cash impairment charge noted above.of a long-lived asset. These operating profit gains were partially offset by the negative impacts of COVID-19 on print advertising.
•As discussed above, COVID-19 continues to negatively impact our results, particularly advertising related revenues. As we continue to progress through the pandemic, quantifying the specific impact becomes more challenging. The Company estimates that the COVID-19 impact on total revenues was a net decrease of revenues of approximately $45.0 million to $65.0 million.
•Unallocated corporate expenses decreased 1627 percent primarily due to a decreasedecreases in employee related compensationoccupancy-related expenses and lower restructuring costs.
The Company reported a net loss
•Diluted earnings per common share from continuing operations forwere $0.88 in the first nine monthsquarter of 2020 of $215.2 millionfiscal 2021 reflecting increased political spot and digital advertising. In the non-cash impairment charges of $389.3 million ($327.6 million after-tax). Absent the impairment charges,prior-year period, the Company would have had net earningsa diluted loss per common share from continuing operations of $112.4$0.17. While the Company recorded net earnings of $6.1 million representing a 15 percent decline fromin the prior-year nine-month period.first quarter, due primarily to participating dividends, the Company had a net loss attributable to common shareholders of $13.9 million in the quarter.
RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | 2020 | | 2019 | | Change |
| (In millions except per share data) | | | | | |
| Total revenues | $ | 693.5 | | | $ | 725.2 | | | (4) | % |
| Operating expenses | | | | | |
| Cost and expenses | 615.4 | | | 677.1 | | | (9) | % |
| Impairment of long-lived assets | — | | | 5.2 | | | (100) | % |
| Total operating expenses | 615.4 | | | 682.3 | | | (10) | % |
| Income from operations | $ | 78.1 | | | $ | 42.9 | | | 82 | % |
| Earnings from continuing operations | $ | 42.3 | | | $ | 12.1 | | | n/m |
| Net earnings | 42.3 | | | 6.1 | | | n/m |
| Diluted earnings (loss) per common share from continuing operations | 0.88 | | | (0.17) | | | n/m |
| Diluted earnings (loss) per common share | 0.88 | | | (0.30) | | | n/m |
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Three months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions except per share data) | | | | | |
| Total revenues | $ | 701.7 |
| | $ | 750.1 |
| | (6 | )% |
| Operating expenses | | | | |
|
|
| Cost and expenses | 611.6 |
| | 674.5 |
| | (9 | )% |
| Impairment of goodwill and other long-lived assets | 384.1 |
| | — |
| | n/m |
|
| Total operating expenses | 995.7 |
| | 674.5 |
| | 48 | % |
| Income (loss) from operations | $ | (294.0 | ) | | $ | 75.6 |
| | n/m |
|
| Net earnings (loss) from continuing operations | $ | (289.4 | ) | | $ | 28.4 |
| | n/m |
|
| Net earnings (loss) | (284.4 | ) | | 23.7 |
| | n/m |
|
| Diluted earnings (loss) per common share from continuing operations | (6.76 | ) | | 0.20 |
| | n/m |
|
| Diluted earnings (loss) per common share | (6.65 | ) | | 0.10 |
| | n/m |
|
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Nine months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions except per share data) | | | | | |
| Total revenues | $ | 2,237.4 |
| | $ | 2,402.9 |
| | (7 | )% |
| Operating expenses | | | | | |
| Cost and expenses | 1,965.3 |
| | 2,139.4 |
| | (8 | )% |
| Impairment of goodwill and other long-lived assets | 389.3 |
| | — |
| | n/m |
|
| Total operating expenses | 2,354.6 |
| | 2,139.4 |
| | 10 | % |
| Income (loss) from operations | $ | (117.2 | ) | | $ | 263.5 |
| | n/m |
|
| Net earnings (loss) from continuing operations | $ | (215.2 | ) | | $ | 132.7 |
| | n/m |
|
| Net earnings (loss) | (240.5 | ) | | 59.3 |
| | n/m |
|
| Diluted earnings(loss) per common share from continuing operations | (6.01 | ) | | 1.63 |
| | n/m |
|
| Diluted earnings (loss) per common share | (6.57 | ) | | 0.02 |
| | n/m |
|
| n/m - Not meaningful | | | | | |
OVERVIEW
The following sections provide an analysis of the results of operations for the national media and local media segments and an analysis of the consolidated results of operations for the three and nine months ended March 31,September 30, 2020, compared with the prior-year periods.period. This commentary should be read in conjunction with the interim condensed consolidated financial statements presented elsewhere in this report and with our Form 10-K for the year ended June 30, 2019.2020.
NATIONAL MEDIA
National media operating results were as follows:
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | 2020 | | 2019 | | Change |
| (In millions) | | | | | |
| Advertising related | | | | | |
| Print | $ | 108.5 | | | $ | 160.4 | | | (32) | % |
| Digital | 105.1 | | | 91.6 | | | 15 | % |
| Third party sales | 14.0 | | | 19.0 | | | (26) | % |
| Total advertising related | 227.6 | | | 271.0 | | | (16) | % |
| Consumer related | | | | | |
| Subscription | 133.4 | | | 150.5 | | | (11) | % |
| Newsstand | 35.1 | | | 42.6 | | | (18) | % |
| Affinity marketing | 14.4 | | | 13.9 | | | 4 | % |
| Licensing | 24.1 | | | 20.0 | | | 21 | % |
| Digital and other consumer driven | 20.1 | | | 16.5 | | | 22 | % |
| Total consumer related | 227.1 | | | 243.5 | | | (7) | % |
| Other | | | | | |
| Project based | 9.9 | | | 14.4 | | | (31) | % |
| Other | 3.1 | | | 4.0 | | | (23) | % |
| Total other | 13.0 | | | 18.4 | | | (29) | % |
| Total revenues | 467.7 | | | 532.9 | | | (12) | % |
| Operating expenses | | | | | |
| Costs and expenses | 436.2 | | | 499.6 | | | (13) | % |
| Impairment of long-lived assets | — | | | 5.2 | | | (100) | % |
| Total operating expenses | 436.2 | | | 504.8 | | | (14) | % |
| Operating profit | $ | 31.5 | | | $ | 28.1 | | | 12 | % |
| Operating profit margin | 6.7 | % | | 5.3 | % | | |
| | | | | |
|
| | | | | | | | | | |
| Three months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Advertising related | | | | | |
| Print | $ | 136.3 |
| | $ | 166.1 |
| | (18 | )% |
| Digital | 84.6 |
| | 87.8 |
| | (4 | )% |
| Third party sales | 11.9 |
| | 13.4 |
| | (11 | )% |
| Total advertising related | 232.8 |
| | 267.3 |
| | (13 | )% |
| Consumer related | | | | | |
| Subscription | 150.7 |
| | 184.7 |
| | (18 | )% |
| Newsstand | 45.4 |
| | 43.3 |
| | 5 | % |
| Affinity marketing | 16.3 |
| | 20.0 |
| | (19 | )% |
| Licensing | 25.3 |
| | 20.1 |
| | 26 | % |
| Digital and other consumer driven | 15.7 |
| | 12.1 |
| | 30 | % |
| Total consumer related | 253.4 |
| | 280.2 |
| | (10 | )% |
| Other | | | | |
|
| Project based | 15.4 |
| | 10.6 |
| | 45 | % |
| Other | 5.3 |
| | 4.2 |
| | 26 | % |
| Total other | 20.7 |
| | 14.8 |
| | 40 | % |
| Total revenues | 506.9 |
| | 562.3 |
| | (10 | )% |
| Operating expenses | | | | |
|
|
| Costs and expenses | 448.2 |
| | 507.8 |
| | (12 | )% |
| Impairment of goodwill and other long-lived assets | 361.8 |
| | — |
| | n/m |
|
| Total operating expenses | 810.0 |
| | 507.8 |
| | 60 | % |
| Operating profit (loss) | $ | (303.1 | ) | | $ | 54.5 |
| | n/m |
|
| Operating profit margin | n/m |
| | 9.7 | % | | |
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Nine months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Advertising related | | | | | |
| Print | $ | 446.1 |
| | $ | 518.7 |
| | (14 | )% |
| Digital | 308.4 |
| | 295.6 |
| | 4 | % |
| Third party sales | 51.3 |
| | 46.6 |
| | 10 | % |
| Total advertising related | 805.8 |
| | 860.9 |
| | (6 | )% |
| Consumer related | | | | | |
| Subscription | 461.0 |
| | 537.4 |
| | (14 | )% |
| Newsstand | 125.7 |
| | 125.9 |
| | — | % |
| Affinity marketing | 50.2 |
| | 57.2 |
| | (12 | )% |
| Licensing | 69.7 |
| | 68.6 |
| | 2 | % |
| Digital and other consumer driven | 54.1 |
| | 39.7 |
| | 36 | % |
| Total consumer related | 760.7 |
| | 828.8 |
| | (8 | )% |
| Other | | | | | |
| Project based | 44.9 |
| | 33.5 |
| | 34 | % |
| Other | 25.6 |
| | 15.9 |
| | 61 | % |
| Total other | 70.5 |
| | 49.4 |
| | 43 | % |
| Total revenues | 1,637.0 |
| | 1,739.1 |
| | (6 | )% |
| Operating expenses | | | | |
|
| Costs and expenses | 1,444.5 |
| | 1,619.5 |
| | (11 | )% |
| Impairment of goodwill and other long-lived assets | 367.0 |
| | — |
| | n/m |
|
| Total operating expenses | 1,811.5 |
| | 1,619.5 |
| | 12 | % |
| Operating profit (loss) | $ | (174.5 | ) | | $ | 119.6 |
| | n/m |
|
| Operating profit margin | n/m |
| | 6.9 | % | | |
| n/m - Not meaningful | | | | | |
Revenues
National media advertising related revenue includes all advertising in Meredith owned publications and on Meredith owned websites as well as revenue we generate selling advertising space on third-party platforms. Advertising related revenue decreased 13 percent in the third quarter and 616 percent in the first nine monthsquarter of fiscal 2020.2021.
Meredith has made changes to its portfolio of brands and titles intended to enhance the consumer experience, provide more effective and efficient platforms for advertisers, and increase the profitability of the portfolio. These changes included closing the Money, Martha Stewart Weddings, and Family Circle magazines, changing the frequency of Entertainment Weekly to a monthly title,magazine and transitioning Coastal Living, Traditional Home, and Rachael Ray Every Day to premium newsstand titles, and merging Cooking Light into Meredith’s popular EatingWell title, which resulted in declines in combined print advertising revenues of $18.8 million in the third quarter and $41.1$11.2 million in the first nine months of fiscal 2020. For the third quarter of fiscal 2020 approximately 75 percent2021. Print advertising continues to be negatively impacted by COVID-19 with the automotive, media and entertainment, and travel categories being impacted the most. While the majority of our titles experienced print advertising revenue declines totaling $15.1 million partially offset by print advertising revenue increases of $4.4 million in approximately 25 percent of our titles. For the first nine monthsquarter of fiscal 20202021 as compared to the prior-year period, approximately 70 percenthalf of our titles, including our two largest brands, People and Better Homes and Gardens, experienced print advertising revenue declines totaling $35.5 million partially offset by print advertising revenue increases of $7.6 million in approximately 30 percent of our titles. The Company estimates that cancellations and delaysimproved year-over-year change in print advertising revenues as compared to the fourth quarter of fiscal 2020. The declines as compared to the prior-year period are due to a mix of the impact of COVID-19 pandemic resulted in a $3.9 million adverse impact on print advertising revenues in March 2020. The remaining decrease in print advertising revenues is primarily due toand changing market demands for print advertising.
Digital advertising decreased 4 percent in the third quarter. It increased 415 percent in the first nine monthsquarter. The launch of fiscal 2020. WhileMeredith’s Data Studio, which offers advertising solutions that harness the Company's proprietary first-party data and predictive insights to help inform its clients' marketing, product, and business strategies, is one of the features of Meredith’s new digital platform. Use of this new digital platform, which provides for the opportunity to create multi-year, integrated partnerships with our top clients, and other work to improve search engine optimization has driven positive digital advertising results, especially for the People brand.
COVID-19 appears to be positively impacting web traffic, and the Company sawis seeing positive trends on many of our sites, including Allrecipes.com and people.com. Growth in open programmatic advertising has been driven by the combination of advertisers coming back into the market, increased programmatic revenuessessions, and increased impressions per session offset by reduced cost per thousand or CPM’s, which have been suppressed during the first 8 months of fiscal 2020, the Company estimates that cancellations and delays in digital advertising revenues due to the COVID-19 pandemic resulted in a $6.0 million adverse impact on digital advertising revenues in March 2020.
pandemic. We expect that the ongoing economic impact of the COVID-19 pandemicthese trends will continue to reduce print and digital advertising revenuesfor at least a portion of fiscal 2021. However, the increased consumer demand may reverse in the fourth quarter of fiscal 2020. While the impact of the COVID-19 pandemic on revenuescoming months.
The 26 percent decrease in the fourth quarter of fiscal 2020 is not yet known,third-party sales was primarily due to reductions in cover wrap sales as well as decreases in advertising pages in publications the Company expects the decline in revenuesproduces on behalf of others. These declines were primarily due to the COVID-19 pandemiclower doctor's office traffic and a reluctance to be greater in the fourth quarter than it was in the third quarter of fiscal 2020.handle printed material due to COVID-19.
Consumer related revenue includes all revenues either driven by or otherwise linked to consumer buying decisions. Consumer related revenues decreased 10 percent in the third quarter and 87 percent in the first nine monthsquarter. For the first quarter of fiscal 2020. For the third quarter and first nine months of fiscal 2020,2021, approximately 60 percent of the declines in subscription revenues were due to the portfolio changes detailednoted above. In addition, a trade book line of business was closed, which resulted in a $5.4 million decrease in subscription revenues in the first nine months of fiscal 2020. The remaining decreases in subscription revenues in the third quarter and first nine months of fiscal 2020 were due primarily to fulfillment of a larger percentage of subscriptions received directly by the Company, which tend to have lower subscription revenues and lower acquisition costs compared to subscriptions received from agents. Subscriptions received directly by the Company tend to have higher renewal rates. Affinity marketingNewsstand revenues decreased indeclined as 10 percent fewer titles were produced by Meredith Premium Publishing compared to the third quarter and first nine months of fiscal 2020prior-year period primarily due to lower renewal rates as a result of a more stringent regulatory marketing environment and a shift in consumer demand to digital platforms.COVID-19. Licensing revenue increased in the thirdfirst quarter of fiscal 20202021 primarily due to an increase in royalties from Apple News+. and Walmart Inc. Digital and other consumer driven revenue increased primarily due to increases in ecommerce revenues from direct product sales and lead generation referrals.revenues.
Other revenue increased 40decreased 29 percent in the thirdfirst quarter primarily due to increasesdeclines in revenues from operational support agreements for the sold brands and decreases in other custom publishing projects. For
As discussed above, COVID-19 continues to negatively impact our results, particularly print and third party advertising related revenues. As we continue to progress through the pandemic, quantifying the specific impact becomes more challenging. The Company estimates that the COVID-19 impact on national media total revenues was a net decrease of revenues of approximately $25.0 million to $40.0 million.
While the Company is not able to estimate the impact of the COVID-19 pandemic on revenues into the second quarter of fiscal 2021, the Company saw month-by-month improvement in print advertising revenues during the first nine monthsquarter of fiscal 2020, other revenue increased 43 percent primarily due2021 and, if the economy continues to recover, the deliveryCompany expects this trend to continue into the second quarter of episodes of a streaming program created for a third party.fiscal 2021. Future actions such as renewed shelter-in-place or business closing orders could negatively impact these expectations.
Operating Costs and Expenses
In the thirdfirst quarter of fiscal 2020,2021, national media operating costs and expenses decreased by 1213 percent primarily due to lower combined production, distribution, and papersubscription acquisition costs of $18.5$17.5 million, a decrease in employee compensation cost of $9.1 million, a decline in distribution costs of $8.2 million, lower amortization expense of $7.2 million, a reduction in custom publishing expenses of $6.5 million, a decrease in bad debt expense of $5.8 million, a decline in paper expense of $5.3 million, lower occupancy-related costs of $3.6 million, reduced production costs of $2.5 million, and lower non-payroll related editorial costs of $13.8 million, a decrease$2.2 million. The portfolio changes noted above as well as the impact from COVID-19 contributed to the declines. A portion of the decline in restructuringemployee compensation costs including severance and benefits, of $11.5 million, awas due to the temporary reduction in employee relatedpay that impacted approximately 60 percent of our employees for July and August 2020. These declines were partially offset by an increase in incentive-based compensation costs of $10.1 million, and a reduction in depreciation and amortization expense of $9.0$13.1 million. These decreases are partially offset by the lack of a $10.0 million credit recorded to operating expenses in the prior-year third quarter related to an out-of-period adjustment recorded to correct the impact of coding errors on the Time Inc. opening balance sheet as discussed in Note 2 to the condensed consolidated financial statements.
For the first nine months of fiscal 2020, national media operating expenses decreased 11 percent primarily due to lower combined production, distribution, and paper costs of $54.4 million, a decrease in restructuring costs, including severance and benefits, of $45.9 million, a reduction in employee related compensation costs of $41.6 million, a decline in non-payroll editorial costs of $31.1 million, and a reduction in depreciation and amortization expense of $21.2 million. These decreases are partially offset by the lack of the $10.0 million out-of-period adjustment discussed above.
During the third quarter of fiscal 2020, performance-based compensation expenses declined by $2.4 million as compared to the prior-year period. The reduction in performance-based compensation expenses was primarily due to the reduction of revenues in the third quarter and the anticipated reduction of revenues in the fourth quarter of fiscal 2020 due to the impact of the COVID-19 pandemic. In addition, the Company estimates that the national media segment had an additional decline in operating costs and expenses in March 2020 of $3.7 million due to the impact of the COVID-19 pandemic for such items as reductions in video production costs, advertising revenue partner expenses, and travel and entertainment costs. These amounts are included in the above discussions of the
declines in operation costs and expenses as compared to the prior-year periods in their appropriate categories. While the Company expects similar reductions in these types of national media operating costs and expenses in the fourth quarter of fiscal 2020, the Company is not yet able to estimate the impact theof COVID-19 pandemic will have on operating costs and expenses ofinto the national media segment in the fourthsecond quarter of fiscal 2020.2021, the Company expects that to the extent advertising related revenues continue to recover, related direct costs and expenses will also increase.
Impairment of Goodwill and Other Long-lived Assets
In the third quarter of fiscal 2020, the national media segment recorded a non-cash impairment of goodwill of $252.7 million, a non-cash impairment of an operating lease asset and associated leasehold improvements and furniture and fixtures totaling $87.9 million, and a non-cash impairment of trademarks of $21.2 million. In addition, in the first quarter of fiscal 2020, the national media segment recorded a $5.2 million non-cash impairment of a trademark. The magnitude of the impairments of goodwill and other long-lived assets recorded
Operating Profit
National media operating profit increased 12 percent in the thirdfirst quarter of fiscal 2020 was unfavorably impacted by the recent volatility of the financial markets and the uncertainty surrounding the long-term economic effects of the COVID-19 pandemic.
Operating Profit (Loss)
National media operations resulted in a $303.1 million loss2021 as growth in the thirdoperating profit of our digital operations, reductions in amortization, and lower restructuring expenses more than offset the negative impacts of COVID-19 on our national media operations. In addition, the first quarter of fiscal 2020 reflecting the $361.8included a $5.2 million non-cash impairment charges to reduce the carrying valuewrite-down of goodwill and other long-lived assets. Absent the impairment charges, national media operating profit would have been $58.7 million, an increase of 8 percent from the third quarter of fiscal 2019. National media operations resulted in a $174.5 million loss in the first nine-months of fiscal 2020 reflecting the $367.0 million non-cash impairment charges to reduce the carrying value of goodwill and other long-lived assets. Absent the impairment charges, national media operating profit would have been $192.5 million, an increase of 61 percent from the first nine months of fiscal 2019. The increases were primarily due to previously executed restructuring activities and ongoing cost-savings initiatives reducing operating expenses partially offset by a reduction in revenues as discussed above.impaired assets that did not repeat.
LOCAL MEDIA
Local media operating results were as follows:
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | 2020 | | 2019 | | Change |
| (In millions) | | | | | |
| Advertising related | | | | | |
| Non-political spot | $ | 56.8 | | | $ | 76.8 | | | (26) | % |
| Political spot | 51.7 | | | 2.6 | | | n/m |
| Digital | 4.3 | | | 4.2 | | | 2 | % |
| Third party sales | 18.3 | | | 25.5 | | | (28) | % |
| Total advertising related | 131.1 | | | 109.1 | | | 20 | % |
| Consumer related | | | | | |
| Retransmission | 91.4 | | | 79.6 | | | 15 | % |
| Digital and other consumer driven | 0.2 | | | — | | | n/m |
| Consumer related | 91.6 | | | 79.6 | | | 15 | % |
| Other | 3.3 | | | 4.1 | | | (20) | % |
| Total revenues | 226.0 | | | 192.8 | | | 17 | % |
| Operating costs and expenses | 162.2 | | | 154.4 | | | 5 | % |
| | | | | |
| | | | | |
| | | | | |
| Operating profit | $ | 63.8 | | | $ | 38.4 | | | 66 | % |
| Operating profit margin | 28.2 | % | | 19.9 | % | | |
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Three months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Advertising related | | | | | |
| Non-political spot | $ | 70.8 |
| | $ | 79.9 |
| | (11 | )% |
| Political spot | 10.5 |
| | 0.7 |
| | n/m |
|
| Digital | 4.4 |
| | 3.7 |
| | 19 | % |
| Third party sales | 14.0 |
| | 17.0 |
| | (18 | )% |
| Total advertising related | 99.7 |
| | 101.3 |
| | (2 | )% |
| Consumer related | 92.2 |
| | 84.7 |
| | 9 | % |
| Other | 3.3 |
| | 2.4 |
| | 38 | % |
| Total revenues | 195.2 |
| | 188.4 |
| | 4 | % |
| Operating expenses | | | | |
|
|
| Costs and expenses | 148.5 |
| | 146.8 |
| | 1 | % |
| Impairment of long-lived assets | 22.3 |
| | — |
| | n/m |
|
| Total operating expenses | 170.8 |
| | 146.8 |
| | 16 | % |
| Operating profit | $ | 24.4 |
| | $ | 41.6 |
| | (41 | )% |
| Operating profit margin | 12.5 | % | | 22.1 | % | | |
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Nine months ended March 31, | 2020 | | 2019 |
| Change |
|
| (In millions) | | | | | |
| Advertising related | | | | | |
| Non-political spot | $ | 237.1 |
| | $ | 242.4 |
| | (2 | )% |
| Political spot | 17.5 |
| | 102.6 |
| | (83 | )% |
| Digital | 13.5 |
| | 11.6 |
| | 16 | % |
| Third party sales | 66.7 |
| | 69.7 |
| | (4 | )% |
| Total advertising related | 334.8 |
| | 426.3 |
| | (21 | )% |
| Consumer related | 256.9 |
| | 232.1 |
| | 11 | % |
| Other | 10.3 |
| | 6.8 |
| | 51 | % |
| Total revenues | 602.0 |
| | 665.2 |
| | (10 | )% |
| Operating expenses | | | | |
|
|
| Costs and expenses | 462.1 |
| | 449.5 |
| | 3 | % |
| Impairment of long-lived assets | 22.3 |
| | — |
| | n/m |
|
| Total operating expenses | 484.4 |
| | 449.5 |
| | 8 | % |
| Operating profit | $ | 117.6 |
| | $ | 215.7 |
| | (45 | )% |
| Operating profit margin | 19.5 | % | | 32.4 | % | | |
| n/m - Not meaningful | | | | | |
Revenues
Local media revenues increased 4 percent in the third quarter and decreased 1017 percent in the first nine monthsquarter of fiscal 2020.2021. Advertising related revenues declined 2 percent and 21 percent for these same periods.increased 20 percent. Political spot advertising revenues totaled $10.5 million in the third quarter and $17.5$51.7 million in the first nine monthsquarter of the current fiscal year compared with $0.7$2.6 million in the prior-year third quarter and $102.6 million in the prior-year nine-month period.first quarter. Fluctuations in political spot advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns. Political spot advertising displaces a certain amount of non-political spot advertising; therefore, the revenues are not entirely incremental.
Non-political spot advertising revenues decreased 11 percent in the third quarter and 226 percent in the first ninethree months of fiscal 2020.2021. Local non-political spot advertising revenues declined 13 percent in the third quarter and 425 percent in the first nine months of fiscal 2020.quarter. National non-political spot advertising revenues decreased 827 percent in the third quarter whereas it was flat in the first nine months of fiscal 2020. The Company estimates that cancellations and delaysquarter. These declines in non-political spot revenues duewere caused by both
political crowd-out and the ongoing impact of COVID-19. There were several categories that were negatively impacted by COVID-19 with the automotive, restaurants, and retail categories being impacted the most. While these categories continue to be down, they each showed improvement over the economic impacts of the COVID-19 pandemic resulted in a $6.5 million adverse impact on non-political spot revenues in March 2020.prior quarter results.
Third party sales, which represent revenue generated through selling advertising space on third-party platforms, declined 18 percent in the third quarter and 428 percent in the first ninethree months of fiscal 2020 primarily due to decreased coverwrap and print insert sales. In addition, the Company estimates that cancellations and delays2021. The reduction in third party sales dueis primarily related to COVID-19. There were several categories that were negatively impacted by COVID-19 with the economic impacts ofbanking and finance, retail, media, building, travel, and consumer packaged goods categories being impacted the COVID-19 pandemic resulted in a $1.0 million adverse impact on third party sales revenues in March 2020.most.
We anticipate that the ongoing economic impact of the COVID-19 pandemic will continue to reduce non-political spot and third party sales revenues in the fourth quarter of fiscal 2020. While the impact of the COVID-19 pandemic on revenues in the fourth quarter of fiscal 2020 is not yet known, the Company expects the decline in revenues due to the COVID-19 pandemic to be greater in the fourth quarter than it was in the third quarter of fiscal 2020.
Consumer related revenues primarily represent retransmission consent fees from cable, satellite, and telecommunications operators. Consumer related revenues increased primarily due to renegotiated contracts.contracts and annual escalators.
As discussed above, COVID-19 continues to negatively impact our results, particularly non-political spot and third party advertising related revenues. As we continue to progress through the pandemic, quantifying the specific impact becomes more challenging. The Company estimates that the COVID-19 impact on local media total revenues was a net decrease of revenues of approximately $20.0 million to $25.0 million.
While the Company is not able to estimate the impact of the COVID-19 pandemic on revenues into the second quarter of fiscal 2021, the Company saw month-by-month improvement in non-political spot advertising related revenues during the first quarter of fiscal 2021 and, if the economy continues to recover, the Company expects this trend to continue into the second quarter of fiscal 2021. Future actions such as renewed shelter-in-place or business closing orders could negatively impact these expectations.
Operating Costs and Expenses
For the thirdfirst quarter and first nine months of fiscal 2020,2021, operating costs and expenses increased 15 percent and 3 percent, respectively, primarily due to an increase in severance and related benefit costs of $6.5 million and higher programming fees paid to affiliated networks of $5.7$6.0 million and $21.3 million, respectively. For the third quarter of fiscal 2020, the increase was partially offset by reductions in third party acquisition costs of $1.8$5.9 million. For the first nine months of fiscal 2020, the increase was partially offset by reductions in selling expenses of $5.4 million and a reduction in performance-based compensation expenses of $1.5 million for the first nine months of fiscal 2020.
During the third quarter of fiscal 2020, performance-based compensation expenses declined $0.4 million as compared to the prior-year period. The reduction in performance-based compensation expensesthird party acquisition costs was primarily due to the corresponding reduction in third party revenues as a result of revenues inCOVID-19.
While the third quarter and the anticipated reduction of revenues in the fourth quarter of fiscal 2020 dueCompany is not able to estimate the impact of the COVID-19 pandemic. Other than the reduction in performance-based compensation expenses and a reduction of $0.3 million in other expenses, the Company estimates that the COVID-19 pandemic did not have a significant impact on operating costs and expenses ofinto the local media segment for the third quarter and first nine months of fiscal 2020. In addition, the Company is not anticipating that the COVID-19 pandemic will have a significant impact on operating expenses of the local media segment in the fourthsecond quarter of fiscal 2020.
Impairment of Long-lived Assets
In the third quarter of fiscal 2020,2021, the Company recorded a non-cash impairment charge of $22.3 millionexpects that, to reduce the value of one of the local media segment's FCC licenses.extent advertising related revenues recover, related direct costs and expenses will also increase.
Operating Profit
Local media operating profit decreased 41 percent in the third quarter of fiscal 2020 primarily due to the non-cash impairment charge of $22.3 million and the $7.5 million reduction in revenues due to the impact of the COVID-19 pandemic. These decreases were partially offset by a $9.8 million increase in political advertising revenues due to the cyclical nature of political advertising. Local media operating profit decreased 45grew 66 percent in the first nine monthsquarter of fiscal 20202021 primarily due to lowerincreased political spot advertising revenues in the quarter partially offset by the negative impacts of $85.1 million and the non-cash impairment charge of $22.3 million.COVID-19 on our local media operations.
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 | 2020 | | 2019 | | Change |
| (In millions) | | | | | |
| Three months ended September 30, | $ | 17.2 | | | $ | 23.6 | | | (27) | % |
| | | | | |
|
| | | | | | | | | | |
| Unallocated Corporate Expenses | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Three months ended March 31, | $ | 15.3 |
| | $ | 20.5 |
| | (25 | )% |
| Nine months ended March 31, | 60.3 |
| | 71.8 |
| | (16 | )% |
Unallocated corporate expenses decreased 2527 percent in thirdthe first quarter of fiscal 20202021 primarily due to reductions in performance-based compensation expensesoccupancy-related costs of $7.4$7.1 million and lower medical expensesrestructuring costs of $5.5$2.8 million partially offset by a reduction in allocations to the operating segments and increases in other miscellaneous business expenses. Unallocated corporate expenses decreased 16 percent in first nine months of fiscal 2020 as a decrease in employee compensation costs of $11.9 million and reductionsan increase in performance-based compensation expenses of $11.7 million were partially offset by a reduction in allocations to the operating segments and increases in other miscellaneous business expenses.$4.2 million.
Of the $7.4 million reduction in performance-based compensation expenses in the third quarter of fiscal 2020, the
The Company estimates that $4.4 million of that reduction was due to the impact of the COVID-19 pandemic on revenues and operating results of the Company. Other than the reduction in performance-based compensation
expenses and a reduction of $0.3 million in other expenses, the Company estimates that the COVID-19 pandemic did not have a significant impact on unallocated corporate operating costs and expenses during the thirdfirst quarter and first nine months of fiscal 2020. In addition,2021, nor does the Company is not anticipatinganticipate that the COVID-19 pandemic will have a significant impact on unallocated corporate operating costs and expenses in the fourthsecond quarter of fiscal 2020.2021.
CONSOLIDATED
Consolidated Operating Expenses
Consolidated operating expenses were as follows:
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | 2020 | | 2019 | | Change |
| (In millions) | | | | | |
| Production, distribution, and editorial | $ | 241.1 | | | $ | 273.7 | | | (12) | % |
| Selling, general, and administrative | 311.2 | | | 330.8 | | | (6) | % |
| Acquisition, disposition, and restructuring related activities | 14.1 | | | 14.1 | | | 0 | % |
| Depreciation and amortization | 49.0 | | | 58.5 | | | (16) | % |
| Impairment of long-lived assets | — | | | 5.2 | | | (100) | % |
| Operating expenses | $ | 615.4 | | | $ | 682.3 | | | (10) | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | |
| Three months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Production, distribution, and editorial | $ | 257.4 |
| | $ | 286.5 |
| | (10 | )% |
| Selling, general, and administrative | 294.2 |
| | 309.7 |
| | (5 | )% |
| Acquisition, disposition, and restructuring related activities | 6.5 |
| | 16.8 |
| | (61 | )% |
| Depreciation and amortization | 53.5 |
| | 61.5 |
| | (13 | )% |
| Impairment of goodwill and other long-lived assets | 384.1 |
| | — |
| | n/m |
|
| Operating expenses | $ | 995.7 |
| | $ | 674.5 |
| | 48 | % |
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Nine months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Production, distribution, and editorial | $ | 811.2 |
| | $ | 881.5 |
| | (8 | )% |
| Selling, general, and administrative | 963.4 |
| | 1,006.0 |
| | (4 | )% |
| Acquisition, disposition, and restructuring related activities | 20.1 |
| | 61.6 |
| | (67 | )% |
| Depreciation and amortization | 170.6 |
| | 190.3 |
| | (10 | )% |
| Impairment of goodwill and other long-lived assets | 389.3 |
| | — |
| | n/m |
|
| Operating expenses | $ | 2,354.6 |
| | $ | 2,139.4 |
| | 10 | % |
| n/m - Not meaningful | | | | | |
Fiscal 2020 third2021 first quarter production, distribution, and editorial costs decreased 1012 percent primarily due to lower combined production,a decline in distribution and paper costs of $18.5$8.2 million, a reduction in custom publishing expenses of $6.5 million, a decrease in employee compensation cost of $6.3 million, a decline in paper expense of $5.3 million, reduced production costs of $2.5 million, and a decline inlower non-payroll related editorial costs of $13.8$2.2 million partially offset by an increase in programming fees paid to affiliated networks of $5.7 million. For the first nine months of fiscal 2020, production, distribution, and editorial costs decreased 8 percent primarily due to lower combined production, distribution, and paper costs of $54.4 million and a decline in non-payroll related editorial costs of $31.1 million partially offset by an increase in programming fees paid to affiliated networks of $21.3$6.0 million.
Selling, general, and administrative expenses decreased 56 percent in the thirdfirst quarter of fiscal 2021 primarily due to lower subscription acquisition costs of $17.5 million, a reduction in performance-based compensation expenses of $9.9 million and lower employee compensationoccupancy-related costs of $8.4 million. For the first nine months of fiscal 2020, selling, general, and administrative expenses declined 4 percent primarily due to$10.7 million, a reductiondecrease in employee compensation costs of $45.5$6.5 million, and decreasesa decrease in performance-based compensation expensesbad debt expense of $15.0$6.3 million. For both the third quarter and first nine months of fiscal 2020, these decreases areThese declines were partially offset by the lackan increase in incentive-based compensation costs of a $10.0 million credit recorded to operating expenses in the prior-year third quarter related to an out-of-period adjustment recorded to correct the impact of coding errors on the Time Inc. opening balance sheet as discussed in Note 2 to the condensed consolidated financial statements.$19.5 million.
Fiscal 2020 third2021 first quarter acquisition, disposition, and restructuring related activities expense declined by 61 percentexpenses were flat as compared to the prior-year period. Acquisition, disposition, and restructuring related activities expenses for the first quarter of fiscal 2021 were primarily due to reductions inmade of up severance and related benefit costs of $8.2 million and integration and exit costs of $4.3 million. Thewhile the first nine monthsquarter of fiscal 2020 acquisition, disposition, and restructuring related activities expense declined by 67 percent primarily due to reductions inexpenses were made up of a more even mix of severance and related benefit costs of $28.5 million and integration and exit costs of $17.6 million.costs.
Depreciation and amortization expense decreased 1316 percent in the third quarter and 10 percent in the first nine months of fiscal 2020 primarily due to reductions in depreciation expense in our national media segment.
The Company recorded a non-cash impairment charge of $252.7 million in the third quarter of fiscal 2020 to reduce the carrying value of the national media segment's goodwill. In addition, in the third quarter of fiscal 2020, the Company recorded non-cash impairment charges of $22.3 million to reduce the value of one of the local media segment's FCC licenses and $21.2 million to reduce the value of the national media segment's trademarks. The magnitude of the impairments of goodwill and other long-lived assets recorded in the third quarter of fiscal 2020 were unfavorably impacted by the recent volatility of the financial markets and the uncertainty surrounding the long-term economic effects of the COVID-19 pandemic. The Company also recorded a non-cash impairment charge of $5.2 million in the first quarter of fiscal 20202021 primarily due to reduce the value of one of thereductions in customer relationships amortization expense in our national media segment's trademarks.segment due to such intangibles becoming fully amortized during the prior fiscal year.
Income (Loss) from Operations
The thirdIn the first quarter of fiscal 2020, lossthe national media segment recorded a $5.2 million non-cash impairment of a trademark.
Income from Operations
Income from operations wasincreased 82 percent primarily due to higher operating profit in our local media operations primarily due to the increase in political spot advertising revenues, an increase in the operating profit of $294.0 million, reflectingour national media group primarily due to the non-cash impairment chargesincrease in digital advertising revenues and reductions in employee compensation costs and amortization expense, and a reduction in unallocated corporate costs primarily due to a reduction in occupancy-related costs. These improvements were partially offset by incentive-based compensation costs and the adverse impact of $384.1 million. Absent these impairment charges, thirdCOVID-19 on our business.
Non-operating Income, net
The first quarter of fiscal 2020 income from operations would have been $90.1 million, an increase of 19 percent from the third quarter of fiscal 2019. The first nine months of fiscal 2020 loss from operations was of $117.2 million, reflecting the non-cash impairment charges of $389.3 million. Absent these impairment charges, first nine months of fiscal 2020 income from operations would have been $272.1 million, an increase of 3 percent from first nine months of the prior year. These increases reflect previously executed restructuring activities and ongoing cost-savings initiatives reducing operating expenses partially offset by a reduction in revenues.
Non-operating Income (Expense), net
The third quarter of fiscal 2020 non-operating expense, net related primarily to an $4.1 million pension settlement charge. The third quarter of fiscal 20192021 non-operating income, net related primarily to ourthe gain on the sale of an investment of $3.6 million and a pension and other postretirement plans benefit credit.credit of $2.0 million. For the first ninethree months of fiscal 2020, non-operating expense,income, net related primarily to an $12.9 million pension settlement charges mostly offset by a $8.0 million credit for the release of a lease guarantee. First nine months of fiscal 2019 non-operating income, net related primarily to our pension and other postretirement plans benefit credit and a gain on the sale of the Company's 30 percent interest in Charleston Tennis LLC, which was sold in September 2018.
Interest Expense, net
Net interest expense decreasedincreased to $36.6$43.5 million in the fiscal 2020 third2021 first quarter compared with $38.6$38.9 million in the prior-year thirdfirst quarter. For the nine months ended March 31, 2020, net interest expense was $112.4 million versus $131.1 million in the first nine months of fiscal 2019. Average long-term debt outstanding was $3.0 billion in the first quarter of fiscal 2021 compared with $2.4 billion in the third quarter of fiscal 2020 and for the nine-month period compared with $2.5 billion in the prior-year third quarter and $2.8 billion in the prior-year nine-month period.first quarter. The Company's approximate weighted average interest rate was 6.35.7 percent in the first ninethree months of fiscal 20202021 compared to 7.26.5 percent for the first ninethree months of fiscal 2019.2020. For the three months ended March 31, 2020 andSeptember 30, 2019, $0.1$1.2 million and $2.7 million, respectively, and for the nine months ended March 31, 2020 and 2019, $2.1 million and $18.4 million, respectively, of interest expense was allocated to discontinued operations and was included in the gain (loss)loss from discontinued operations, net of income taxes line on the Condensed Consolidated Statements of Earnings (Loss).Earnings.
Income Taxes
For the thirdfirst quarter and first nine months of fiscal 2020,2021, Meredith recorded a tax benefit on the lossearnings from continuing operations of $43.6 million and $15.4 million, respectively.$2.1 million. This compares to a tax expense recorded by
the Company of $12.7 million and $17.0$0.5 million for the third quarter and first ninethree months of fiscal 2019, respectively.2020.
The tax benefit in the third quarter and first nine months of fiscal 2020 is primarily due to the tax effect of the impairment charge for national media goodwill. In the third quarter of fiscal 2020, the Company recordedFederal District Court ruled in the Company’s favor on a non-cash impairment chargedisputed Internal Revenue Code Section 199 issue for fiscal years 2006 through fiscal 2012. In the first quarter of $252.7 millionfiscal 2021, the Department of Justice waived its right to reduceappeal resulting in the carrying valuefinalization of goodwill. The Company recorded an incomethe Federal District Court decision and the release of the associated reserve for uncertain tax positions. As such, a tax benefit of $26.9$15.2 million related to this goodwill impairment charge.
Duringwas recorded in the secondfirst quarter of fiscal 2019, the Company engaged in a restructuring of its international operations for U.S. tax purposes, triggering deductions that resulted in a $23.5 million permanent U.S. tax benefit, which decreased income tax expense in the second quarter and first nine months of fiscal 2019.2021.
Earnings (Loss) from Continuing Operations and Earnings (Loss) per Common Share from Continuing Operations
The lossEarnings from continuing operations was $289.4were $42.3 million ($6.76 per diluted share) infor the quarter ended March 31,September 30, 2020, compared to $12.1 million in the prior-year first quarter. The increase is primarily due to the increase in political spot advertising revenues, increased digital advertising revenues, reductions in employee compensation costs and amortization expense, and a decrease in occupancy-related costs. These increases were partially offset by incentive-based compensation costs and the adverse impact of COVID-19 on our business. The Company had earnings per common share from continuing operations of $28.4 million ($0.20$0.88 per diluted share) incommon share for the prior-year third quarter. For the nine months ended March 31, 2020, the loss from continuing operations were $215.2 million ($6.01 per diluted share), compared tofirst quarter of fiscal 2021. Tthe Company had earnings from continuing operations in the prior-year nine months of $132.7 million ($1.63 per diluted share). The current year losses reflect the non-cash impairment charges of $384.1 million ($323.7 million after tax) recorded in the third quarter and $389.3 million ($327.6 million after tax) recorded in the first nine months of fiscal 2020. Absent these impairment charges, third quarter of fiscal 2020 earnings2020; however, due primarily to the effects of preferred stock participating dividends, the Company had a loss per common share from continuing operations would have been $34.3 million, an increase of 21 percent from$0.17 per diluted common share for the thirdfirst quarter of fiscal 2019. The increase reflects previously executed restructuring activities and ongoing cost-savings initiatives reducing operating expenses partially offset by a reduction in revenues. Absent these impairment charges, first nine months of fiscal 2020 earnings from continuing operations would have been $112.4 million, a decrease of 15 percent from first nine months of the prior year. This decrease is primarily due to lower political advertising revenues partially offset by ongoing cost-savings.2020.
Gain (Loss) from Discontinued Operations, Net of Income Taxes
Gain (loss)Loss from discontinued operations, net of income taxes
Loss from discontinued operations, net of income taxes represents the results of operations, and gain/loss on the sales, net of income taxes, of the properties that were held-for-sale during the ninethree months ended March 31,September 30, 2019. The revenues and expenses of Sports Illustrated and Viant, which were sold in the second quarter of fiscal 2020 and 2019. Theas well as the revenue and expenses of FanSided, a Sports Illustrated brand marketed separately from Sports Illustrated, and the Company's investment in Xumo, werewhich was sold in the third quarter of fiscal 2020, as well as the revenues and expenses of Sports Illustrated and Viant, which were sold in the second quarter of fiscal 2020, and the revenues and expenses of the TIME and Fortune brands, which were sold in the second quarter of fiscal 2019, were included in gain (loss)loss from discontinued operations, net of income taxes on the Condensed Consolidated Statements of Earnings (Loss) for the periods prior to their sales.
The revenues and expenses for each of these properties while owned, along with associated income taxes, have been removed from continuing operations and reclassified into a single line item on the Condensed Consolidated
Statements of Earnings (Loss) titled gain (loss)loss from discontinued operations, net of income taxes, for the three and nine months ended March 31, 2020 andSeptember 30, 2019, as follows:
| | | | | | | | | | | | |
| | | | | | |
| Three months ended September 30, | | | 2019 | | | | | |
| (In millions except per share data) | | | | | | | | |
| Revenues | | | $ | 85.5 | | | | | | |
| Costs and expenses | | | (86.7) | | | | | | |
| Impairment of goodwill | | | (4.2) | | | | | | |
| Interest expense | | | (1.2) | | | | | | |
| | | | | | | | |
| Loss before income taxes | | | (6.6) | | | | | | |
| Income tax benefit | | | 0.6 | | | | | | |
| Loss from discontinued operations, net of income taxes | | | $ | (6.0) | | | | | | |
| Loss per share from discontinued operations | | | | | | | | |
| Basic | | | $ | (0.13) | | | | | | |
| Diluted | | | (0.13) | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months | | | Nine Months |
| Periods ended March 31, | 2020 | | 2019 | | | 2020 | | 2019 |
| (In millions except per share data) | | | | | | | | |
| Revenues | $ | 1.3 |
| | $ | 69.6 |
| | | $ | 112.1 |
| | $ | 321.5 |
|
| Costs and expenses | (1.0 | ) | | (74.9 | ) | | | (108.6 | ) | | (300.8 | ) |
| Impairment of goodwill | — |
| | — |
| | | (16.0 | ) | | — |
|
| Interest expense | (0.1 | ) | | (2.7 | ) | | | (2.1 | ) | | (18.4 | ) |
| Gain on disposal | 9.3 |
| | 0.4 |
| | | 12.3 |
| | 0.4 |
|
| Earnings (loss) before income taxes | 9.5 |
| | (7.6 | ) | | | (2.3 | ) | | 2.7 |
|
| Income tax benefit (expense) | (4.5 | ) | | 2.9 |
| | | (23.0 | ) | | (76.1 | ) |
| Gain (loss) from discontinued operations, net of income taxes | $ | 5.0 |
| | $ | (4.7 | ) | | | $ | (25.3 | ) | | $ | (73.4 | ) |
| Gain (loss) per share from discontinued operations | | | | | | | | |
| Basic | $ | 0.11 |
| | $ | (0.10 | ) | | | $ | (0.56 | ) | | $ | (1.63 | ) |
| Diluted | 0.11 |
| | (0.10 | ) | | | (0.56 | ) | | (1.61 | ) |
Net Earnings (Loss) and Earnings (Loss) per Common Share
Net earnings were $42.3 million for the quarter ended September 30, 2020, compared to $6.1 million in the prior-year first quarter. The net loss was $284.4Company had earnings attributable to common shareholders of $40.3 million ($6.650.88 per diluted common share) for the first quarter of fiscal 2021. The Company had net earnings in the first quarter ended March 31, 2020, compared to net earnings of $23.7 million in the prior-year third quarter. For the nine months ended March 31, 2019, the net loss was $240.5 million ($6.57 per diluted common share) compared to prior-year nine months net earnings of $59.3 million. Primarilyfiscal 2020; however, due primarily to the effects of preferred stock participating dividends, the Company had earningslosses attributable to common shareholders of $4.7$13.9 million ($0.10 per diluted common share) for the third quarter of fiscal 2019 and $1.1 million ($0.020.30 per diluted common share) for the first nine monthsquarter of fiscal 2019. The current year losses reflect2020. This increase was primarily due to the non-cash impairment chargesincrease in income from operations discussed above. In addition, the first quarter of $384.1 million ($323.7 million after tax) recorded in the third quarter2020 included a loss from discontinued operations that did not repeat. Both basic average common shares outstanding and $389.3 million ($327.6 million after tax) recordeddiluted average common shares outstanding increased slightly in the first nine months of fiscal 2020. Absent these impairment charges, third quarter fiscal 2020 net earnings would have been $39.3 million, an increase of 66 percent from the third quarter of fiscal 2019 and2021 compared to the first nine monthsquarter of fiscal 2020 net earnings would have been $87.1 million, an increase of 47 percent from first nine months of the prior year. These increases reflect previously executed restructuring activities and ongoing cost-savings initiatives reducing operating expenses and smaller losses on discontinued operations partially offset by a reduction in revenues.2020.
LIQUIDITY AND CAPITAL RESOURCES
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | 2020 | | 2019 | | Change |
| (In millions) | | | | | |
| Net earnings | $ | 42.3 | | | $ | 6.1 | | | n/m |
| Net cash provided by (used in) operating activities | $ | 78.9 | | | $ | (13.5) | | | n/m |
| Net cash used in investing activities | (9.0) | | | (30.1) | | | (70) | % |
| Net cash provided by (used in) financing activities | (1.6) | | | 16.4 | | | n/m |
| Effect of exchange rate changes | 0.3 | | | 0.3 | | | 0 | % |
| Change in cash in assets held-for-sale | — | | | 9.3 | | | (100) | % |
| Net increase (decrease) in cash and cash equivalents | $ | 68.6 | | | $ | (17.6) | | | n/m |
| n/m - Not meaningful | | | | | |
|
| | | | | | | | | | |
| Nine months ended March 31, | 2020 | | 2019 | | Change |
|
| (In millions) | | | | | |
| Net earnings (loss) | $ | (240.5 | ) | | $ | 59.3 |
| | n/m |
|
| Cash flows provided by operating activities | $ | 183.0 |
| | $ | 152.5 |
| | 20 | % |
| Net cash provided by investing activities | 10.5 |
| | 302.0 |
| | (97 | )% |
| Net cash used in financing activities | (129.5 | ) | | (842.3 | ) | | (85 | )% |
| Effect of exchange rate changes | (0.5 | ) | | (0.8 | ) | | (38 | )% |
| Change in cash in assets held-for-sale | (5.1 | ) | | 3.5 |
| | n/m |
|
| Net increase (decrease) in cash and cash equivalents | $ | 58.4 |
| | $ | (385.1 | ) | | n/m |
|
| n/m - Not meaningful | | | | | |
OVERVIEW
Meredith's primary source of liquidity is cash generated by operating activities. Debt financing is typically used for significant acquisitions. We expect cash on hand, internally generated cash flow, and available credit from financing agreements will provide adequate funds for operating and recurring cash needs (e.g., working capital, capital expenditures, debt repayments, and cash dividends) into the foreseeable future. As of March 31,September 30, 2020, we had $311.9$346.9 million of additional available borrowings under our revolving credit facility. While there are no guarantees that we will be able to replace our credit agreements when they expire, we expect to be able to do so.
SOURCES AND USES OF CASH
Cash and cash equivalents increased $58.4$68.6 million in the first ninethree months of fiscal 20202021 compared to a decrease of $385.1$17.6 million in the first ninethree months of fiscal 2019.2020.
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 generating transactions such as retransmission consent fees, affinity marketing, 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, broadcastingnetwork programming rights,fees, employee benefit plans (including pension plans), broadcast programming rights, and other services and supplies.
Cash provided by operating activities totaled $183.0$78.9 million in the first ninethree months of fiscal 20202021 compared to $152.5cash used in operating activities of $13.5 million in the first ninethree months of fiscal 2019.2020. The increase in cash flowflows was the result of increased net earnings and reduced payments for severance and integration costs.costs, partially offset by increased tax and interest payments.
Investing Activities
Investing cash inflows generally include proceeds from the sale of assets or businesses. Investing cash outflows generally include payments for the acquisition of new businesses; investments; and additions to property, plant, and equipment.
Net cash provided byused in investing activities was $10.5$9.0 million in the first ninethree months of fiscal 2020,2021, compared to $302.0$30.1 million in the prior-year period. The decrease in cash flow related toused in investing activities wasresulted from a result of a decreasereduction in proceeds from sales of assets and businesses, and increased asset acquisitions and capital expenditures.
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 repayment of long-term debt, repurchases of Company stock, the payment of dividends, and repurchasesthe payment of Company stock.acquisition-related contingent consideration.
Net cash used in financing activities was $129.5$1.6 million in the ninethree months ended March 31,September 30, 2020, as compared to $842.3net cash provided by financing activities of $16.4 million in the prior-year period. The decrease in cash flows used inprovided by financing activities was primarily due to a net $696.9debt payments of $1.0 million of debt repayments and a $19.3 million contingent consideration payment in the first ninethree months of fiscal 2019.2021 compared to net issuances of $60.0 million in the prior-year period, partially offset by the lack of dividend payments in fiscal 2021 compared to fiscal 2020.
Long-term Debt
At March 31,September 30, 2020, total long-term debt outstanding totaled $2.4 billion. The balance consistedwas $3.1 billion consisting of $1.1$1.5 billion of term loans under a variable-rate credit facility thatand $1.6 billion in fixed-rate senior notes.
The variable-rate credit facility includes a senior secured term loan (Term Loan B) and a revolving credit facility,an incremental senior secured term loan (Incremental Term Loan) with $1.1 billion and $1.3 billion in fixed rate 2026 Senior Notes.
The variable-rate credit facility includes the Term Loan B with an initial $1.8 billion$409.0 million of aggregate principal outstanding, respectively, and a five-year senior secured revolving credit facility of $350.0 million, of which $175.0 million is available for the issuance of letters of credit and $35.0 million of swingline loans. On March 31,September 30, 2020, there were $35.0 million ofno borrowings outstanding under the revolving credit facility bearing an interest rate of 5.25 percent.facility. There were $3.1 million of standby letters of credit issued under the revolving credit facility resulting in availability of $311.9$346.9 million at March 31,September 30, 2020. The Incremental Term Loan B maturesamortizes at 1.0 percent per annum in equal quarterly installments until the final maturity date, which is in 2025, at which time the remaining principal and interest are due and payable. Aton the beginning of the fiscal year, theTerm Loan B will also mature. The interest rate under the Term Loan B wasis based on London Interbank Offered Rate (LIBOR) plus 2.50 percent and bore
interest at a spreadrate of 2.75 percent. On February 19, 2020,2.65 percent at September 30, 2020. The interest rate under the Company repriced theIncremental Term Loan B and a new interest rate ofis based on LIBOR plus 4.25 percent with a spreadfloor of 2.50 percent became effective from the date of the repricing until maturity. If the Company's leverage ratio drops to or below 2.25 to 1, the spread will decrease to 2.251.00 percent for so long as the Company maintains a leverage ratio equal to or less than 2.25 to 1.
The Term Loan BLIBOR and bore interest at a rate of 3.495.25 percent at March 31,September 30, 2020. The revolving credit facility has a commitment fee ranging from 0.375 percent to 0.500 percent of the unused commitment. All interest rates and commitment fees associated with this variable-rate revolving credit facility are derived from a leverage-based pricing grid. The 2026 Senior Notes with an initial $1.4 billion of aggregate principal mature in 2026 and have an interest rate of 6.875 percent per annum. The remaining outstanding principal is due at the final maturity date.
Our credit agreement includes a consolidated net leverage ratio financial covenant that is applicable based on a certain utilization level of the revolving credit line. Failure to comply with this covenant could result in the debt becoming payable on demand. The covenant did not apply at March 31,September 30, 2020, as we did not reachwere below the specified utilization level on the revolving credit line.
The revolving credit agreement governingfacility was amended in June 2020 to increase, during a covenant relief period which is effective until March 31, 2022 if not sooner terminated by the Term Loan B andCompany (the Covenant Relief Period), the maximum consolidated net leverage ratio. During the Covenant Relief Period, the revolving credit facility (Credit Agreement) andbears interest at LIBOR plus a spread ranging from 2.50 percent to 3.50 percent. After the indenture governing 2026 Senior Notes (Indenture) contain customary restrictions on the Company's ability to pay dividends and distributions on, or the repurchase or other repayment of, its Series A preferred stock, class B stock and common stock. The Indenture and Credit Agreement provide certain exceptions to the foregoing restriction, including a basket that grows over time based on cumulative earnings before interest expense, income taxes, depreciation, and amortization (EBITDA) generated since January 1, 2018 (which is only available if the Company's leverage ratio does not exceed 3.5 to 1), and a fixed dollar basket that is available regardless of leverage.
Preferred Stock
On January 31, 2018, in exchange for a preferred equity investment of $650.0 million, Meredith issued 650,000 shares of perpetual convertible redeemable non-voting Series A preferred stock (Series A preferred stock) as well as detachable warrants to purchase up to 1,625,000 shares of Meredith's common stock with an exercise price of $1.00 per share and options to purchase up to 875,000 shares of Meredith's common stock with an exercise price of $70.50 per share.
During the first three years after issuance Meredith may, at its option, subject to the terms of the preferred stock, redeem all or a portion of the Series A preferred stock in cash during such three-year period, if Meredith declares as a dividend and pays a redemption premium in cash as provided in the Statement of Designation of Series A preferred stock at an amount equal to 6 percent of the Accrued Stated Value of the Series A preferred stock as of the redemption date plus an amount, if any, equal to dividends to the third year present valued at a discount rate based on U.S. Treasury notes with a maturity closest to the date that is three years after the issuance date, plus 50 basis points. The Accrued Stated Value is an amount equal to: (i) the Stated Value ($1,000 multiplied by the number of shares of Series A preferred stock outstanding); plus (ii) any accrued and unpaid dividends thereof (including any accumulated dividends).
From and after the third anniversary of the issuance date of the Series A preferred stock, Meredith may redeem all or a portion of the Series A preferred stock upon payment in cash for an amount equal to (i) the Call Premium (defined below), plus (ii) the Accrued Stated Value of the Series A preferred stock as of the redemption date.
The Call Premium is an amount equal to the difference of (a) (i) the Accrued Stated Value of the Series A preferred stock as of the redemption date, multiplied by (ii) (A) if such redemption occurs during the fourth or fifth year after issuance, 106 percent, (B) if such redemption occurs during the sixth year after issuance, 103 percent, and (C) if such redemption occurs after the sixth year after issuance, 100 percent, minus (b) the Accrued Stated Value as of the redemption date.
In connection with any partial redemption by Meredith, Meredith may not redeem Series A preferred stock in an amount less than $50 millionof the Accrued Stated Value of the Series A preferred stock. If Meredith redeems Series A preferred stock at a time when less than $100 million of the Accrued Stated Value of the Series A preferred stock is remaining outstanding, Meredith must redeem the full amount.
From and after the seventh anniversary of the issuance date, the holders of the Series A preferred stock may elect to convert some or all of the Series A preferred stock into Meredith common stock at a ratio based on its Accrued Stated Value divided by the volume weighted average price of Meredith common stock for the 30 trading days immediately preceding the written notice of conversion.
The Series A preferred stock ranks senior to any other class or series of equity, including Meredith’s common stock and class B stock, with respect to dividend rights and rights upon liquidation. Dividends with respect to any quarter may only be paid all in cash or all in additional shares of Series A preferred stock, and may not be paid in a combination of cash and shares of Series A preferred stock. All Series A preferred stock dividends (regardless of whether paid in additional shares of Series A preferred stock or cash) are prior to and in preference over any dividend on any common stock or class B stock and will be declared and fully paid before any dividends are declared and paid, or any other distributions or redemptions are made, on any common stock or class B stock.
As provided in the Statement of Designation of Series A Preferred Stock (the Statement of Designation), certain actions by the Company require the affirmative approval of the majority holder of the Series A preferred stock. If the Market Capitalization Ratio (as defined in the Statement of Designation) would be less than 2.0 or the Maximum Fixed Obligations Ratio (as defined in the Statement of Designation) would be greater than 4.0 as of the applicable measurement date, the Company is not allowed to pay dividends on common stock and class B stock without the affirmative approval of the majority holder of the Series A preferred stock. As of March 31, 2020, the Market Capitalization Ratio was less than 2.0. In addition, without the affirmative approval of the majority holder of the Series A preferred stock, the Company may not incur any indebtedness other than (A) any such indebtedness that existed on January 31, 2018, (which includes the Term Loan B and 2026 Senior Notes), (B) any indebtedness to refinance any indebtedness, that existed on the January 31, 2018, so long as such refinancing debt is (1) scheduled to mature no earlier than the indebtedness being refinanced and (2) is in an aggregate principal amount that either (x) is equal to or less than the aggregate principal amount of the then-outstanding indebtedness being refinanced (including fees and expenses related thereto) or (y) results in a Maximum Fixed Obligations Ratio (as defined in the Statement of Designation) of not greater than 4.0, (C) capital leases or other trade payables arising in the ordinary course of business, (D) any such indebtedness, the proceeds of which are used solely to redeem in whole all of the
then-outstanding shares of Series A Preferred Stock, or (E) any indebtedness incurred from time to time after January 31, 2018, underCovenant Relief Period, the revolving credit facility provided forbears interest at LIBOR plus a spread ranging from 2.50 percent to 3.00 percent. It also has a commitment fee ranging from 0.375 percent to 0.500 percent of the unused commitment. All interest rates and commitment fees associated with this variable-rate revolving credit facility are derived from a leverage-based pricing grid. The fixed-rate Senior Notes include the 2026 Unsecured Senior Notes with $1.3 billion of aggregate principal and the 2025 Secured Senior Notes with $300.0 million of aggregate principal. The Senior Unsecured Notes mature in its credit agreement.2026 with an interest rate of 6.875 percent per annum, and the Senior Secured Notes mature in 2025 with an interest rate of 6.500 percent per annum. Total outstanding principal is due at the final maturity dates.
Contractual Obligations
As of March 31,September 30, 2020, there had been no material changes in our contractual obligations from those disclosed in our Form 10-K for the year ended June 30, 2019.2020.
Share Repurchase Program
As part of our ongoing share repurchase program, we spent $4.7$0.4 million in the first ninethree months of fiscal 20202021 to repurchase 120,00027,000 shares of common stock at then-current market prices. We spent $9.1$1.8 million to repurchase 172,00038,000 shares in the first ninethree months of fiscal 2019.2020. Shares that are deemed to be delivered to us on tender of stock in payment for the exercise price of options do not reduce the repurchase authority granted by our Board of Directors. Of the 120,00027,000 shares of common stock purchased during the first ninethree months of the current fiscal year, 26,000none were deemed to be delivered to us on tender of stock in payment for the exercise price of options. As of March 31,September 30, 2020, $46.6$46.1 million remained available under the current authorization for future repurchases. See Part II, Item 2 (c), Issuer Repurchases of Equity Securities, of this Form 10-Q for detailed information on share repurchases during the quarter ended March 31,September 30, 2020.
Dividends
DividendsMeredith had paid in the first nine months of fiscal 2020 on commonquarterly dividends continuously since 1947, and class B stock totaled $83.0 million, or $1.745 per share, compared withwe increased our dividend payments of $78.9 million, or $1.665 per share,annually for 27 consecutive years. However, in the first nine months of fiscal 2019. Dividends paid in the first nine months of fiscal 2020 on Series A preferred stock totaled $42.5 million, or $65.40 per share compared to $42.0 million or $64.46 per share in the first nine months of fiscal 2019. In April 2020, the Companywe announced that in response to uncertainties surrounding the COVID-19COVID‑19 pandemic, the Company hasMeredith paused itsthe common and class B stock dividends. The Board remains committed to paying a dividend in the future when circumstances permit and will consider threethe following factors, among others, when evaluating the Company'sCompany’s dividend policy going forward: seeing a path to economic recovery, and in particularincluding recovery of the advertising market, recovery; and evaluating the Company'sCompany’s cash flow needs to support future growth, and ensuring compliance with terms of the Company'sCompany’s debt agreementsagreements.
Dividends paid in the first three months of fiscal 2020 on common and class B stock totaled $27.2 million, or $0.575 per share. Dividends paid in the first three months of fiscal 2020 on Series A preferred stock totaled $14.4 million or $22.19 per share. As the Series A preferred stock was redeemed in June 2020, there will be no future dividend payments on the Series A preferred stock.
Capital Expenditures
Investment in property, plant, and equipment totaled $45.6$9.3 million in the first ninethree months of fiscal 20202021 compared with prior-year first ninethree months' investment of $28.6$15.9 million. Current year and prior year investment spending primarily relaterelated to assets acquired in the normal course of business. We have no other material commitments for
capital expenditures. We expect funds for future capital expenditures to come from operating activities or, if necessary, borrowings under existing credit agreements. In April 2020, the Company announced that in response to uncertainties surrounding the COVID-19 pandemic, the Company anticipates making significant reductions in capital expenditures in the near term.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Guarantor Financial Information
The 2026 Unsecured Senior Notes are general unsecured senior obligations of Meredith Corporation (Parent Issuer) and are guaranteed on a full, unconditional, joint, and several basis, by the combined “Guarantor Subsidiaries.” The other subsidiaries (the Non-Guarantor Subsidiaries) of the Company do not guarantee the 2026 Unsecured Senior Notes. Under the terms of the indenture governing the 2026 Unsecured Senior Notes, Meredith Corporation and the Guarantor Subsidiaries each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on each of the notes included in the 2026 Unsecured Senior Notes.
The following summarized financial information presents summarized balance sheet information as of March 31,September 30, 2020 and June 30, 2019,2020, and summarized statement of lossearnings information for the ninethree months ended March 31,September 30, 2020, for Meredith Corporation (Parent Issuer) and Guarantor Subsidiaries on a combined basis.
| | | | | | | | | | | |
| Summarized Balance Sheet | September 30, 2020 | | June 30, 2020 |
| (In millions) | | | |
| Assets | | | |
| Current assets | $ | 982.9 | | | $ | 859.2 | |
| Intercompany receivable due from non-guarantor subsidiaries | 1,624.0 | | | 1,177.8 | |
| Intangible assets, net | 1,607.4 | | | 1,637.4 | |
| Goodwill | 1,691.7 | | | 1,691.7 | |
| Other assets | 1,064.2 | | | 1,077.4 | |
| | | |
| Liabilities | | | |
| Current liabilities | 745.7 | | | 723.5 | |
| Intercompany payable due to non-guarantor subsidiaries | 1,648.6 | | | 1,206.0 | |
| Long-term debt | 2,983.5 | | | 2,981.8 | |
| Other liabilities | 1,380.0 | | | 1,379.0 | |
|
| | | | | | | |
| Summarized Balance Sheet | March 31, 2020 | | June 30, 2019 |
| (In millions) | | | |
| Assets | | | |
| Current assets | $ | 929.7 |
| | $ | 1,209.5 |
|
| Intercompany receivable due from non-guarantor subsidiaries | 1,367.0 |
| | 1,233.5 |
|
| Intangible assets, net | 1,666.0 |
| | 1,808.8 |
|
| Goodwill | 1,691.9 |
| | 1,954.4 |
|
| Other assets | 1,109.7 |
| | 813.0 |
|
| | | | |
| Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’ Equity | | | |
| Current liabilities | 770.0 |
| | 1,180.4 |
|
| Intercompany payable due to non-guarantor subsidiaries | 1,370.3 |
| | 1,039.0 |
|
| Long-term debt | 2,337.2 |
| | 2,333.3 |
|
| Other liabilities | 1,374.9 |
| | 999.2 |
|
| Redeemable preferred stock | 553.8 |
| | 540.2 |
|
| | | | | |
| Summarized Statement of Earnings | Three Months Ended September 30, 2020 |
| (In millions) | |
| Revenues | $ | 675.3 | |
| Total operating expenses | 603.7 | |
| |
| Net earnings | 36.5 | |
|
| | | |
| Summarized Statement of Loss | Nine Months Ended March 31, 2020 |
| (In millions) | |
| Revenues | $ | 2,187.7 |
|
| Total operating expenses | 2,382.8 |
|
| Loss from continuing operations | (264.0 | ) |
| Net loss | $ | (272.7 | ) |
OTHER MATTERS
CRITICAL ACCOUNTING POLICIES
Meredith's critical accounting policies are summarized in our Form 10-K for the year ended June 30, 2019.2020. As of March 31,September 30, 2020, the Company's critical accounting policies had not changed from June 30, 2019.2020.
The Company has a significant amount of goodwill and indefinite-lived intangible assets that are reviewed at least annually for impairment. At March 31,September 30, 2020, goodwill and intangible assets totaled $3.4$3.3 billion with $2.6$2.5 billion in the national media segment and $0.8 billion in the local media segment. 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. During the third quarter of fiscal 2020, the Company determined that interim triggering events, including declines in the price of its stock and the economic downturn caused by COVID-19 required an interim evaluation of goodwill at March 31, 2020. The impairment test determined the carrying value of goodwill exceeded its estimated fair value. As a result, the Company recorded a non-cash impairment charge of $252.7 million to reduce the carrying value of goodwill in the national media segment in the third quarter of fiscal 2020. The Company recorded an income tax benefit of $26.9 million related to this goodwill impairment charge. In addition, during the third quarter of fiscal 2020, the Company experienced revenue declines, primarily related to advertising, as advertisers faced economic challenges caused by the COVID-19 pandemic. These declines caused the Company to revise forecasts and to determine that it had a triggering event to test the value of intangible assets not subject to amortization for impairment as of March 31, 2020. As a result, the national media segment recorded a non-cash impairment charge of $21.2 million to partially impair national media segment trademarks. In addition, the local media segment recorded a non-cash impairment charge of $22.3 million to partially impair one of its FCC licenses.
See Item 1A. Risk Factors and Note 56 to the consolidated financial statements in our Form 10-K for the year ended June 30, 2019,2020, for additional information.
ACCOUNTING AND REPORTING DEVELOPMENTS
Accounting Standards Update 2016-02,2016-13, LeasesFinancial Instruments—Credit Losses, became effective for the Company on July 1, 2019.2020. The adoption of the update had a material impact on our consolidated financial position, but did not have a material impact on our results of operations, or cash flows.the Company's condensed consolidated financial statements and related disclosures upon adoption.
There were no other new accounting pronouncements issued or effective during the fiscal year which have had or are expected to have a material impact on the consolidated financial statements during fiscal 2020.2021. See Note 1 to the condensed consolidated financial statements for further detail on applicable accounting pronouncements that were adopted in the first nine monthsquarter of fiscal 20202021 or will be effective in future periods.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed in this 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, the impact of the COVID-19 pandemic on the Company, its customers and its suppliers; downturns in global, 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 or vendors; the integration of acquired businesses; changes in consumer reading, purchasing and/or television viewing patterns; increases in paper, postage, printing, syndicated programming, or other costs; changes in television network affiliation agreements; technological developments affecting products or methods of distribution; changes in government regulations affecting the Company's industries; increases in interest rates; the consequences of acquisitions and/or dispositions; and risks associated with the Company's acquisition of Time Inc., including the Company's ability to comply with the terms of theits debt and equity financings. Additional risks and uncertainties are described in Meredith's Form 10-K for the year ended June 30, 2019, and in Item 1A-Risk Factors of this Form 10-Q,2020, which include a more complete description of the risk factors that may affect our results. Such risk factors may be amplified by the COVID-19 pandemic and its potential impact on the Company’s business and the global economy. 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 our 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 Form 10-K for the year ended June 30, 2019,2020, for a more complete discussion of these risks. In addition, uncertainty with respect to the economic effects of the COVID-19 pandemic have introduced significant volatility in the financial markets, and the effects of this volatility could impact our market risks, including those listed below. For additional information concerning the COVID-19 pandemic and its potential impact on our business and operating results, see Item 1A - Risk Factors in this Form 10-Q.
Interest Rates
We generally strive to manage our risk associated with interest rate movements through the use ofby using a combination of variable and fixed ratefixed-rate debt. At March 31,September 30, 2020, Meredith had $1.3$1.6 billion outstanding in fixed ratefixed-rate long-term debt. There were no earnings or liquidity risks associated with the Company's fixed ratefixed-rate debt. The fair value of the fixed ratefixed-rate debt varies with fluctuations in interest rates. A 100 basis points decrease in interest rates would have changedincreased the fair value of the fixed-rate debt of $1.4 billion by $50.9$58.7 million at March 31,September 30, 2020.
At March 31,September 30, 2020, $1.1$1.5 billion 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 100-basis point increase in LIBOR would increase annual interest expense by $11.0$11.2 million.
Because the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced the desire to phase out the use of LIBOR by the end of 2021, future borrowings under our credit agreement could be subject to reference rates other than LIBOR.
Broadcast Rights Payable
There has been no material change in the market risk associated with broadcast rights payable since June 30, 2019.2020.
|
| | | | |
| 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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) were not effective in ensuring that information required to be disclosed in the reports that Meredith files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the United States Securities and Exchange Commission's (SEC) 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.
As previously disclosed in Item 9A of our Form 10-K for the year endedJune 30, 2019, management identified the following deficiencies which were determined to be material weaknesses. The deficiencies related to ineffective risk assessment under the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, including the documentation of controls.
The Company did not properly design or maintain effective controls over the completeness, existence, and accuracy of digital advertising revenue, related accounts receivable, and selling expense.
The Company did not property design or maintain effective controls over the completeness, existence, accuracy, and valuation of international pension assets.
The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management, with the oversight of the Audit Committee, have evaluated the material weaknesses described above and designed remediation plans to address the material weaknesses and enhance the Company’s internal control environment. The remediation plans currently being implemented include enhancing risk assessment procedures, improving control documentation, and designing new or modified controls. The Company has engaged external internal control specialists to assist with the remediation plan.
Other than as described above, there There has been no significant change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting. In response toreporting in the COVID-19 pandemic, office-based employees began working from home on March 16,quarter ended September 30, 2020. Management has taken measures to ensure that the Company’s internal control over
financial reporting was unchanged during this period. We have not experienced any material impact to our internal control over financial reporting despite the fact that manythe majority of our accounting, finance, and legal employees are working remotely due to the COVID-19 pandemic. Wepandemic, but we are continually monitoring and assessing the COVID-19 pandemic situationand its effects on our internal controls to minimize the impact on their design and operating effectiveness.effectiveness of our internal control over financial reporting.
Our business faces many risks and uncertainties that we cannot control. In additionThere have been no material changes to the other information set forthCompany's risk factors as disclosed in this Quarterly Report on Form 10-Q, you should carefully considerItem 1A, Risk Factors, in the risks set forth below and in Item 1A. Risk Factors in ourCompany's Form 10-K together with the other information contained in our other filings with the SEC, in connection with evaluating the Company and our business. Such risks may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. Other risks that we do not presently know about or that we presently believe are not material could also adversely affect us.
The effects of the recent outbreak of the novel coronavirus pandemic have had and may continue to have an adverse impact on our business, financial condition, operations, and prospects.
In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to many countries worldwide, including the United States. Our business, financial condition, operations, and prospects have been and may continue to be adversely affected by the COVID-19 pandemic, which has adversely impacted our advertising and marketing partners, consumers, and the markets in which we operate.
The President of the United States has declared the COVID-19 pandemic a national emergency. In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and travel restrictions, among other effects that could negatively impact productivity and disrupt our operations and those of our advertising and marketing partners, suppliers, manufacturers, and distributors. We have implemented a work-from-home policy for most of our employees, all of our national media content is currently being produced remotely, and we may take further actions that alter our operations as may be required by federal, state, or local authorities, or which we determine are in the best interests of our employees and shareholders.
While the ultimate potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, to date the pandemic has resulted in, and may continue to result in significant disruption of aspects of our business. For example, we have experienced advertising cancellations and delays across our business, resulting in an adverse impact on our revenues. In addition, we may experience unfavorable impacts on our operations as a result of COVID-19, including, but not limited to the following:
We may in the future experience significant reductions or volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from one or more of our products; if prolonged, such impacts may further increase the difficulty of planning for operations and may negatively impact our results;
We may in the future experience significant reductions in the availability of one or more of our products as a result of retailers or shippers modifying restocking, fulfillment, and shipping practices;
We may in the future be unable to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing operations or supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or finished product components, transportation resources, workforce availability, or other manufacturing and distribution capability;
We may in the future be unable to effectively manage evolving health and welfare strategies, including but not limited to ongoing or not yet fully known costs related to operational adjustments to ensure continued employee and consumer safety and adherence to health guidelines as they are modified and supplemented;
We may in the future be impacted by the failure of third parties on which we rely, including those third parties who print our magazines, supply necessary operating materials, distributors, contractors, commercial banks and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may negatively impact our operations; and
We may in the future be impacted by significant changes in the political conditions in markets in which we sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could negatively impact our results.year ended June 30, 2020.
As a result of the impact of the COVID-19 pandemic on our business to date and the continuing uncertainty related to the COVID-19 pandemic, we have paused our common and class B stock dividends, implemented a series of operational cost-control measures, including reductions in Board of Director fees and employee and executive salaries, and are taking steps to significantly reduce capital expenditures and optimize working capital. We may need to take further actions to ensure the continuity of our business. In addition, due to market volatility and material declines in equity prices, we recorded material non-cash impairment charges related to certain indefinite-lived intangible assets, including goodwill, trademarks, and FCC broadcast licenses.
The COVID-19 pandemic has resulted in significant disruption of global financial markets, which could negatively affect our access to capital and our liquidity. Our revolving credit facility includes a leverage covenant that applies only if we have utilized more than $105 million of the revolving credit line, which is tested at each quarter end. The leverage covenant did not apply at March 31, 2020, as we did not utilize more than $105 million as of such date. If we were unable to comply with the leverage covenant (if it were to be tested), it would limit our utilization of the revolving credit line to $105 million.
Moreover, if we utilize more than $105 million of the revolver at any quarter end, the COVID-19 pandemic could have a materially adverse impact on our revenues and other operating results and cause a subsequent breach of the leverage covenant if we were unable to decrease our utilization to $105 million by quarter end. If we are unable to comply with the leverage covenant when tested, or obtain modifications or waivers to such covenants from the lenders under the revolving credit facility prior to any such breach, the lenders under the revolving credit facility could accelerate the outstanding revolving loans, which could trigger events of defaults under our term loans and under the indenture governing our notes. Such an event of default would allow the term loan lenders and holders of the notes to declare the outstanding debt thereunder to be immediately due and payable.
The COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and
subject to change. We do not yet know the full extent of potential delays or impacts on our business, financial condition, operations, prospects, or the global economy as a whole.
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| | | | | | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
|
| | | | | | | |
| (c) | | Issuer Repurchases of Equity Securities |
The following table sets forth information with respect to the Company's repurchases of common stock during the quarter ended March 31,September 30, 2020.
|
| | | | | | | | | | | | | | | | |
| Period | (a)
Total number of shares purchased 1 | (b) Average price paid
per share | (c)
Total number of shares
purchased as part of publicly announced programs | (d) Approximate dollar value of shares that may yet be purchased under programs |
| | | | | | | | | (in millions) |
January 1 to
January 31, 2020 | 7,041 |
| | | $ | 32.25 |
| | 7,041 |
| | | $ | 46.9 |
| |
February 1 to
February 28, 2020 | 9,954 |
| | | 32.38 |
| | 9,954 |
| | | 46.6 |
| |
March 1 to
March 31, 2020 | — |
| | | — |
| | — |
| | | 46.6 |
| |
| Total | 16,995 |
| | | | | 16,995 |
| | |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | (a)
Total number of shares purchased 1 | (b)
Average price
paid
per share | (c)
Total number of shares
purchased as part of publicly
announced programs | (d)
Approximate dollar value
of shares that may yet
be purchased under
programs |
| | | | | | | | (in millions) |
July 1 to
July 31, 2020 | — | | | | $ | — | | | — | | | | $ | 46.6 | | |
August 1 to
August 31, 2020 | 22,127 | | | | 15.50 | | | 22,127 | | | | 46.2 | | |
September 1 to
September 30, 2020 | 5,085 | | | | 13.55 | | | 5,085 | | | | 46.1 | | |
| Total | 27,212 | | | | | | 27,212 | | | | | |
|
| | | | |
1 |
| The number of shares purchased includes 7,04122,127 shares in JanuaryAugust and 9,9545,085 shares in FebruarySeptember delivered or deemed to be delivered to us in satisfaction of tax withholding on option exercises and the vesting of restricted shares. These shares are included as part of our repurchase program and reduce the repurchase authority granted by our Board.Board of Directors. |
| |
In May 2014, Meredith announced the Board of Directors had authorized the repurchase of up to $100.0 million in additional shares of the Company's common and class B stock through public and private transactions.
For more information on the Company's common and class B 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."
| | | | | | | | | | | | | | |
| Item 6. | Exhibits |
| | | | |
Item 6. | Exhibits |
| | | | |
| | | | Amendment No. 2 to Credit Agreement, datedThe Company's Restated Articles of Incorporation, as of February 19, 2020, by and among Meredith Corporation, the Guarantors, the lenders party thereto from time to time, and Royal Bank of Canada, as administrative agent and collateral agent. |
| | | | |
| | | | Amendment to employment agreement between Meredith Corporation and Thomas Harty effective May 4, 2020. |
| | | | |
| | | | Amendment to employment agreement between Meredith Corporation and John Zieser effective May 4, 2020. |
| | | | |
| | | | Amendment to employment agreement between Meredith Corporation and Patrick McCreery effective May 4, 2020. |
| | | | |
| | | | Amendment to employment agreement between Meredith Corporation and Jason Frierott effective May 4, 2020. |
| | | | |
| | | | Employment Agreement with Jason Frierott (incorporatedamended, are incorporated herein by reference to Exhibit 103.1 to the CurrentCompany's Quarterly Report on Form 8-K filed by Meredith Corporation on February 27, 2020)10-Q for the period ended December 31, 2003. |
| | | | |
| | | | Amended and restated severance agreement between Meredith Corporation and Jason Frierott (incorporatedThe Restated Bylaws, as amended, are incorporated herein by reference to Exhibit 10.13.1 to the CurrentCompany’s Quarterly Report on Form 8-K filed by Meredith Corporation on April 2, 2020)10-Q for the period ended September 30, 2015. |
| | | | |
| | | | Separation agreement and general release between Meredith Corporation and Joseph H. Ceryanec (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Meredith Corporation on April 2, 2020) |
| | | | |
| | | | List of Guarantor Subsidiaries |
| | | | |
| | | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. |
| | | | |
| | | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. |
| | | | |
| | | | 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 | | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | | | |
| 101.SCH | | | Inline XBRL Taxonomy Extension Schema Document |
| | | | |
| 101.CAL | | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | | | |
| 101.DEF | | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | | | |
| 101.LAB | | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | | | |
| 101.PRE | | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| | | | |
| 101.SCH | | | Inline XBRL Taxonomy Extension Schema Document |
| 104 | | | |
| 101.CAL | | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | | | |
| 101.DEF | | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | | | |
| 101.LAB | | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | | | |
| 101.PRE | | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | | | |
| 104 | | | Cover Page Interactive Data File (formatted as Inline XBRL (included in Exhibits 101) |
| | | | |
| * These certifications are being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
|
| | | | | | | | | | |
| 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 | |
| MEREDITH CORPORATIONRegistrant | |
| Registrant | |
| | |
| /s/ Jason Frierott | |
| Jason Frierott | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | |
|
| | | | |
| Date: | May 19,November 5, 2020 |
