The Condensed Combined Statements of Earnings and Comprehensive Income of the Company reflect allocations of general corporate expenses from Parent including, but not limited to, executive management, employee benefits administration, occupancy, corporate administration, aviation, legal, sourcing, corporate development, finance, human resources, communications, information technology, and other shared services.
These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of relative revenues, salaries, headcount, or other relevant measures. Management of the Company and Parent consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, the Company. The allocations may not, however, reflect the expense the Company would have incurred as a standalone company for the periods presented. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in areas such as selling and marketing, information technology, and infrastructure.
The Condensed Combined Balance Sheets of the Company include Parent assets and liabilities that are specifically identifiable or otherwise attributable to the Company, including subsidiaries and affiliates in which Parent has a controlling financial interest or is the primary beneficiary.
Parent uses a centralized cash management strategy where cash balances are comingled for all of Parent’s businesses. The cash and cash equivalents held by Parent at the corporate level are not specifically identifiable to the Company and, therefore, have not been reflected in the Condensed Combined Balance Sheets. Only cash balances legally owned by the Company are reflected in the Condensed Combined Balance Sheets. Transfers of cash between the Company and Parent are included within the Net transfers to Meredith Corporation line in the Condensed Combined Statements of Cash Flows and the Condensed Combined Statements of Equity.
Parent sponsors various pension and postretirement plans for eligible Company employees and retirees. Parent-sponsored plans in which the Company’s employees participate are accounted for as multiemployer benefit plans in the condensed combined financial statements. Accordingly, the related net benefit plan obligation, plan assets, and accumulated other comprehensive income amounts for these plans are not included in the Company’s Condensed Combined Balance Sheets. The related net periodic pension cost has been allocated to the Company for Company employees as well as an allocation of Parent’s corporate and shared functional employee expenses on the basis of revenues when a basis of direct attribution was not identifiable. One benefit plan in the Company’s operations includes only active, retired, and other former Company employees and the Company will assume sponsorship of this plan upon consummation of the transaction. This plan is accounted for as a single employer benefit plan. Accordingly, the net benefit obligation, plan assets, and accumulated other comprehensive income amounts for this plan are recorded in the Company’s condensed combined financial statements. The net periodic pension cost included in the Company’s Condensed Combined Statements of Earnings and Comprehensive Income includes the total cost of the single employer plan and the cost allocated to the Company for multiemployer benefit plans.
The Company’s employees have historically participated in Parent’s share-based compensation plans. Share-based compensation expense has been allocated to the Company for Company employees based on the awards and terms previously granted to the Company’s employees as well as an allocation of Parent’s corporate and shared functional employee expenses on the basis of revenues when a basis of direct attribution was not identifiable.
Income tax expense in the condensed combined financial statements has been calculated on a separate-return method. Under the separate-return method of allocation, the separate financial statements determine current and deferred tax expense or benefit for the period as if the group member were required to file a separate tax return. The Company’s historical operations are included in the tax returns of Meredith Corporation.
As the separate legal entities that make up the Company’s business were not historically held by a single legal entity, net investment by Meredith Corporation is shown in lieu of shareholders’ equity in these condensed combined financial statements. Net investment by Meredith Corporation represents Meredith Corporation’s interest in the recorded assets of the Company and the cumulative investment by Meredith Corporation in the Company through the periods presented, inclusive of operating results.
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