UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM 10-Q |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2009 | Commission file number 1-5128 |
MEREDITH CORPORATION | ||
(Exact name of registrant as specified in its charter) | ||
Iowa | 42-0410230 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1716 Locust Street, Des Moines, Iowa | 50309-3023 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code: (515) 284-3000 | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] | No [_] |
Yes [_] | No [_] |
Large accelerated filer [X] | Accelerated filer [_] | |
Non-accelerated filer [_] (Do not check if a smaller reporting company) | Smaller reporting company [_] |
Yes [_] | No [X] |
Shares of stock outstanding at December 31, 2009 | ||
Common shares | 36,198,560 | |
Class B shares | 9,124,601 | |
Total common and Class B shares | 45,323,161 |
TABLE OF CONTENTS | ||||
Page | ||||
Part I - Financial Information | ||||
Item 1. | Financial Statements | |||
Condensed Consolidated Balance Sheets as of December 31, 2009, and June 30, 2009 | ||||
Condensed Consolidated Statements of Earnings for the Three and Six Months Ended December 31, 2009 and 2008 | ||||
Condensed Consolidated Statement of Shareholders' Equity for the Six Months Ended December 31, 2009 | ||||
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2009 and 2008 | ||||
Notes to Condensed Consolidated Financial Statements | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
Item 4. | Controls and Procedures | |||
Part II - Other Information | ||||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 4. | Submission of Matters to a Vote of Security Holders | |||
Item 6. | Exhibits | |||
Signature | ||||
Index to Attached Exhibits |
PART I | FINANCIAL INFORMATION | |
Item 1. | Financial Statements |
Condensed Consolidated Balance Sheets
(Unaudited) | ||||||||
Assets | December 31, 2009 | June 30, 2009 | ||||||
(In thousands) | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 23,882 | $ | 27,910 | ||||
Accounts receivable, net | 216,234 | 192,367 | ||||||
Inventories | 25,028 | 28,151 | ||||||
Current portion of subscription acquisition costs | 59,268 | 60,017 | ||||||
Current portion of broadcast rights | 13,820 | 8,297 | ||||||
Other current assets | 18,653 | 23,398 | ||||||
Total current assets | 356,885 | 340,140 | ||||||
Property, plant, and equipment | 452,037 | 444,904 | ||||||
Less accumulated depreciation | (259,378 | ) | (253,597 | ) | ||||
Net property, plant, and equipment | 192,659 | 191,307 | ||||||
Subscription acquisition costs | 57,732 | 63,444 | ||||||
Broadcast rights | 4,476 | 4,545 | ||||||
Other assets | 53,515 | 45,907 | ||||||
Intangible assets, net | 556,892 | 561,581 | ||||||
Goodwill | 487,416 | 462,379 | ||||||
Total assets | $ | 1,709,575 | $ | 1,669,303 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | 175,000 | $ | — | ||||
Current portion of long-term broadcast rights payable | 15,940 | 10,560 | ||||||
Accounts payable | 101,154 | 86,381 | ||||||
Accrued expenses and other liabilities | 102,338 | 81,544 | ||||||
Current portion of unearned subscription revenues | 170,261 | 170,731 | ||||||
Total current liabilities | 564,693 | 349,216 | ||||||
Long-term debt | 175,000 | 380,000 | ||||||
Long-term broadcast rights payable | 11,762 | 11,851 | ||||||
Unearned subscription revenues | 140,548 | 148,393 | ||||||
Deferred income taxes | 76,547 | 64,322 | ||||||
Other noncurrent liabilities | 106,265 | 106,138 | ||||||
Total liabilities | 1,074,815 | 1,059,920 | ||||||
Shareholders' equity | ||||||||
Series preferred stock | — | — | ||||||
Common stock | 36,199 | 35,934 | ||||||
Class B stock | 9,125 | 9,133 | ||||||
Additional paid-in capital | 60,937 | 53,938 | ||||||
Retained earnings | 558,874 | 542,006 | ||||||
Accumulated other comprehensive loss | (30,375 | ) | (31,628 | ) | ||||
Total shareholders' equity | 634,760 | 609,383 | ||||||
Total liabilities and shareholders' equity | $ | 1,709,575 | $ | 1,669,303 |
3
Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months | Six Months | ||||||||||||||
Periods Ended December 31, | 2009 | 2008 | 2009 | 2008 | |||||||||||
(In thousands except per share data) | |||||||||||||||
Revenues | |||||||||||||||
Advertising | $ | 187,868 | $ | 201,800 | $ | 379,684 | $ | 413,626 | |||||||
Circulation | 67,209 | 66,804 | 137,088 | 138,217 | |||||||||||
All other | 81,778 | 92,680 | 152,498 | 173,511 | |||||||||||
Total revenues | 336,855 | 361,284 | 669,270 | 725,354 | |||||||||||
Operating expenses | |||||||||||||||
Production, distribution, and editorial | 142,911 | 162,310 | 294,004 | 332,421 | |||||||||||
Selling, general, and administrative | 146,617 | 152,248 | 286,254 | 297,200 | |||||||||||
Depreciation and amortization | 10,117 | 10,776 | 20,220 | 21,632 | |||||||||||
Total operating expenses | 299,645 | 325,334 | 600,478 | 651,253 | |||||||||||
Income from operations | 37,210 | 35,950 | 68,792 | 74,101 | |||||||||||
Interest income | 9 | 107 | 19 | 227 | |||||||||||
Interest expense | (5,744 | ) | (5,353 | ) | (10,785 | ) | (10,787 | ) | |||||||
Earnings from continuing operations before income taxes | 31,475 | 30,704 | 58,026 | 63,541 | |||||||||||
Income taxes | 12,521 | 13,301 | 20,731 | 27,070 | |||||||||||
Earnings from continuing operations | 18,954 | 17,403 | 37,295 | 36,471 | |||||||||||
Loss from discontinued operations, net of taxes | — | (4,860 | ) | — | (5,291 | ) | |||||||||
Net earnings | $ | 18,954 | $ | 12,543 | $ | 37,295 | $ | 31,180 | |||||||
Basic earnings per share | |||||||||||||||
Earnings from continuing operations | $ | 0.42 | $ | 0.39 | $ | 0.82 | $ | 0.81 | |||||||
Discontinued operations | — | (0.11 | ) | — | (0.12 | ) | |||||||||
Basic earnings per share | $ | 0.42 | $ | 0.28 | $ | 0.82 | $ | 0.69 | |||||||
Basic average shares outstanding | 45,288 | 44,951 | 45,223 | 45,096 | |||||||||||
Diluted earnings per share | |||||||||||||||
Earnings from continuing operations | $ | 0.42 | $ | 0.39 | $ | 0.82 | $ | 0.81 | |||||||
Discontinued operations | — | (0.11 | ) | — | (0.12 | ) | |||||||||
Diluted earnings per share | $ | 0.42 | $ | 0.28 | $ | 0.82 | $ | 0.69 | |||||||
Diluted average shares outstanding | 45,547 | 45,072 | 45,432 | 45,219 | |||||||||||
Dividends paid per share | $ | 0.225 | $ | 0.215 | $ | 0.450 | $ | 0.430 |
4
Meredith Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
(In thousands except per share data) | Common Stock - $1 par value | Class B Stock - $1 par value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||
Balance at June 30, 2009 | $ | 35,934 | $ | 9,133 | $ | 53,938 | $ | 542,006 | $ | (31,628 | ) | $ | 609,383 | ||||||||||||||
Net earnings | — | — | — | 37,295 | — | 37,295 | |||||||||||||||||||||
Other comprehensive income, net | — | — | — | — | 1,253 | 1,253 | |||||||||||||||||||||
Total comprehensive income | 38,548 | ||||||||||||||||||||||||||
Share-based incentive plan transactions | 264 | — | 1,454 | — | — | 1,718 | |||||||||||||||||||||
Purchases of Company stock | (6 | ) | (1 | ) | (188 | ) | — | — | (195 | ) | |||||||||||||||||
Share-based compensation | — | — | 6,536 | — | — | 6,536 | |||||||||||||||||||||
Conversion of Class B to common stock | 7 | (7 | ) | — | — | — | — | ||||||||||||||||||||
Dividends paid, 45 cents per share | |||||||||||||||||||||||||||
Common stock | — | — | — | (16,320 | ) | — | (16,320 | ) | |||||||||||||||||||
Class B stock | — | — | — | (4,107 | ) | — | (4,107 | ) | |||||||||||||||||||
Tax benefit from incentive plans | — | — | (803 | ) | — | — | (803 | ) | |||||||||||||||||||
Balance at December 31, 2009 | $ | 36,199 | $ | 9,125 | $ | 60,937 | $ | 558,874 | $ | (30,375 | ) | $ | 634,760 |
5
Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 31, | 2009 | 2008 | |||||
(In thousands) | |||||||
Cash flows from operating activities | |||||||
Net earnings | $ | 37,295 | $ | 31,180 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities | |||||||
Depreciation | 15,531 | 16,782 | |||||
Amortization | 4,689 | 4,854 | |||||
Share-based compensation | 6,536 | 6,079 | |||||
Deferred income taxes | 12,158 | 15,853 | |||||
Amortization of broadcast rights | 10,934 | 13,035 | |||||
Payments for broadcast rights | (11,096 | ) | (12,751 | ) | |||
Gain from dispositions of assets | (2,213 | ) | (1,758 | ) | |||
Provision for write-down of impaired assets | 3,249 | 5,602 | |||||
Excess tax benefits from share-based payments | (131 | ) | (966 | ) | |||
Changes in assets and liabilities | (920 | ) | 5,118 | ||||
Net cash provided by operating activities | 76,032 | 83,028 | |||||
Cash flows from investing activities | |||||||
Acquisitions of businesses | (16,304 | ) | (5,195 | ) | |||
Additions to property, plant, and equipment | (14,938 | ) | (15,185 | ) | |||
Proceeds from dispositions of assets | — | 636 | |||||
Net cash used in investing activities | (31,242 | ) | (19,744 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from issuance of long-term debt | 85,000 | 120,000 | |||||
Repayments of long-term debt | (115,000 | ) | (150,000 | ) | |||
Purchases of Company stock | (195 | ) | (21,562 | ) | |||
Dividends paid | (20,427 | ) | (19,430 | ) | |||
Proceeds from common stock issued | 1,718 | 2,457 | |||||
Excess tax benefits from share-based payments | 131 | 966 | |||||
Other | (45 | ) | — | ||||
Net cash used in financing activities | (48,818 | ) | (67,569 | ) | |||
Net decrease in cash and cash equivalents | (4,028 | ) | (4,285 | ) | |||
Cash and cash equivalents at beginning of period | 27,910 | 37,644 | |||||
Cash and cash equivalents at end of period | $ | 23,882 | $ | 33,359 |
6
Meredith Corporation and Subsidiaries | |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
7
Six Months Ended December 31, | 2009 | ||
(In thousands) | |||
Balance at June 30, 2009 | $ | 9,894 | |
Severance accrual | 2,221 | ||
Cash payments | (3,066 | ) | |
Other | (68 | ) | |
Balance at December 31, 2009 | $ | 8,981 |
8
Periods Ended December 31, 2008 | Three Months | Six Months | |||||
(In thousands except per share data) | |||||||
Revenues | $ | 4,956 | $ | 11,324 | |||
Costs and expenses | (6,162 | ) | (13,236 | ) | |||
Special items | (6,761 | ) | (6,761 | ) | |||
Loss before income taxes | (7,967 | ) | (8,673 | ) | |||
Income taxes | 3,107 | 3,382 | |||||
Loss from discontinued operations | $ | (4,860 | ) | $ | (5,291 | ) | |
Loss per share from discontinued operations | |||||||
Basic | $ | (0.11 | ) | $ | (0.12 | ) | |
Diluted | (0.11 | ) | (0.12 | ) |
(In thousands) | December 31, 2009 | June 30, 2009 | ||||||
Raw materials | $ | 13,339 | $ | 18,322 | ||||
Work in process | 16,606 | 15,554 | ||||||
Finished goods | 2,235 | 2,604 | ||||||
32,180 | 36,480 | |||||||
Reserve for LIFO cost valuation | (7,152 | ) | (8,329 | ) | ||||
Inventories | $ | 25,028 | $ | 28,151 |
9
4. Intangible Assets and Goodwill
December 31, 2009 | June 30, 2009 | |||||||||||||||||||||||||
(In thousands) | Gross Amount | Accumulated Amortization | Net Amount | Gross Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||
Intangible assets | ||||||||||||||||||||||||||
subject to amortization | ||||||||||||||||||||||||||
National media group | ||||||||||||||||||||||||||
Noncompete agreements | $ | 480 | $ | (284 | ) | $ | 196 | $ | 480 | $ | (224 | ) | $ | 256 | ||||||||||||
Advertiser relationships | 18,400 | (11,829 | ) | 6,571 | 18,400 | (10,515 | ) | 7,885 | ||||||||||||||||||
Customer lists | 9,230 | (2,911 | ) | 6,319 | 9,230 | (2,252 | ) | 6,978 | ||||||||||||||||||
Other | 3,544 | (2,387 | ) | 1,157 | 3,544 | (2,177 | ) | 1,367 | ||||||||||||||||||
Local media group | ||||||||||||||||||||||||||
Network affiliation agreements | 218,559 | (100,413 | ) | 118,146 | 218,559 | (97,967 | ) | 120,592 | ||||||||||||||||||
Total | $ | 250,213 | $ | (117,824 | ) | 132,389 | $ | 250,213 | $ | (113,135 | ) | 137,078 | ||||||||||||||
Intangible assets not | ||||||||||||||||||||||||||
subject to amortization | ||||||||||||||||||||||||||
National media group | ||||||||||||||||||||||||||
Internet domain names | 996 | 996 | ||||||||||||||||||||||||
Trademarks | 124,431 | 124,431 | ||||||||||||||||||||||||
Local media group | ||||||||||||||||||||||||||
FCC licenses | 299,076 | 299,076 | ||||||||||||||||||||||||
Total | 424,503 | 424,503 | ||||||||||||||||||||||||
Intangible assets, net | $ | 556,892 | $ | 561,581 |
10
Six Months Ended December 31, | 2009 | 2008 | |||||||||||||||||||||
(In thousands) | National Media Group | Local Media Group | Total | National Media Group | Local Media Group | Total | |||||||||||||||||
Balance at beginning of period | $ | 462,379 | $ | — | $ | 462,379 | $ | 449,734 | $ | 82,598 | $ | 532,332 | |||||||||||
Acquisitions | 25,037 | — | 25,037 | 16 | — | 16 | |||||||||||||||||
Adjustments | — | — | — | (1,092 | ) | — | (1,092 | ) | |||||||||||||||
Balance at end of period | $ | 487,416 | $ | — | $ | 487,416 | $ | 448,658 | $ | 82,598 | $ | 531,256 |
(In thousands) | December 31, 2009 | June 30, 2009 | ||||||
Variable-rate credit facilities | ||||||||
Asset-backed commercial paper facility of $100 million, due 4/2/2011 | $ | — | $ | 80,000 | ||||
Revolving credit facility of $150 million, due 10/7/2010 | 100,000 | 125,000 | ||||||
Private placement notes | ||||||||
4.70% senior notes, due 7/1/2010 | 75,000 | 75,000 | ||||||
4.70% senior notes, due 6/16/2011 | 50,000 | 50,000 | ||||||
5.04% senior notes, due 6/16/2012 | 50,000 | 50,000 | ||||||
6.70% senior notes, due 7/13/2013 | 50,000 | — | ||||||
7.19% senior notes, due 7/13/2014 | 25,000 | — | ||||||
Total long-term debt | 350,000 | 380,000 | ||||||
Current portion of long-term debt | (175,000 | ) | — | |||||
Long-term debt | $ | 175,000 | $ | 380,000 |
11
Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |||
Level 2 | Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; | |||
Level 3 | Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates. |
Three Months | Six Months | |||||||||||||||
Periods Ended December 31, | 2009 | 2008 | 2009 | 2008 | ||||||||||||
(In thousands) | ||||||||||||||||
Pension benefits | ||||||||||||||||
Service cost | $ | 2,100 | $ | 2,181 | $ | 4,200 | $ | 4,362 | ||||||||
Interest cost | 1,478 | 1,436 | 2,956 | 2,872 | ||||||||||||
Expected return on plan assets | (1,785 | ) | (2,331 | ) | (3,570 | ) | (4,662 | ) | ||||||||
Prior service cost amortization | 213 | 210 | 427 | 420 | ||||||||||||
Actuarial loss amortization | 1,622 | 155 | 3,244 | 310 | ||||||||||||
Net periodic benefit expense | $ | 3,628 | $ | 1,651 | $ | 7,257 | $ | 3,302 | ||||||||
Postretirement benefits | ||||||||||||||||
Service cost | $ | 105 | $ | 115 | $ | 211 | $ | 230 | ||||||||
Interest cost | 227 | 245 | 454 | 490 | ||||||||||||
Prior service cost amortization | (184 | ) | (184 | ) | (368 | ) | (368 | ) | ||||||||
Actuarial loss amortization | — | — | — | — | ||||||||||||
Net periodic postretirement expense | $ | 148 | $ | 176 | $ | 297 | $ | 352 |
12
9. Earnings per Share
Three Months | Six Months | |||||||||||||||
Periods Ended December 31, | 2009 | 2008 | 2009 | 2008 | ||||||||||||
(In thousands except per share data) | ||||||||||||||||
Earnings from continuing operations | $ | 18,954 | $ | 17,403 | $ | 37,295 | $ | 36,471 | ||||||||
Basic average shares outstanding | 45,288 | 44,951 | 45,223 | 45,096 | ||||||||||||
Dilutive effect of stock options and equivalents | 259 | 121 | 209 | 123 | ||||||||||||
Diluted average shares outstanding | 45,547 | 45,072 | 45,432 | 45,219 | ||||||||||||
Earnings per share from continuing operations | ||||||||||||||||
Basic earnings per share | $ | 0.42 | $ | 0.39 | $ | 0.82 | $ | 0.81 | ||||||||
Diluted earnings per share | 0.42 | 0.39 | 0.82 | 0.81 |
13
Three Months | Six Months | |||||||||||||||
Periods Ended December 31, | 2009 | 2008 | 2009 | 2008 | ||||||||||||
(In thousands) | ||||||||||||||||
Revenues | ||||||||||||||||
National media group | $ | 261,175 | $ | 276,908 | $ | 532,779 | $ | 570,575 | ||||||||
Local media group | 75,680 | 84,376 | 136,491 | 154,779 | ||||||||||||
Total revenues | $ | 336,855 | $ | 361,284 | $ | 669,270 | $ | 725,354 | ||||||||
Operating profit | ||||||||||||||||
National media group | $ | 31,774 | $ | 23,208 | $ | 70,367 | $ | 57,098 | ||||||||
Local media group | 17,063 | 22,329 | 19,463 | 33,025 | ||||||||||||
Unallocated corporate | (11,627 | ) | (9,587 | ) | (21,038 | ) | (16,022 | ) | ||||||||
Income from operations | $ | 37,210 | $ | 35,950 | $ | 68,792 | $ | 74,101 | ||||||||
Depreciation and amortization | ||||||||||||||||
National media group | $ | 3,642 | $ | 4,228 | $ | 7,149 | $ | 8,054 | ||||||||
Local media group | 5,960 | 6,448 | 12,082 | 12,517 | ||||||||||||
Unallocated corporate | 515 | 100 | 989 | 1,061 | ||||||||||||
Total depreciation and amortization | $ | 10,117 | $ | 10,776 | $ | 20,220 | $ | 21,632 |
14
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
In December 2009, management committed to a performance improvement plan that includes the repositioning of our Special Interest Media (SIM) operations, a collection of primarily newsstand publications focused on home improvement and do-it-yourself projects in niche content areas such as remodeling and decorating, food and entertaining, gardening and outdoor living, and crafting. In connection with this plan, the national media group recorded a pre-tax restructuring charge in the second quarter of fiscal 2010 of $5.5 million including severance and benefit costs of $2.2 million and the write-off of various assets of our SIM operations of $3.3 million. |
15
National media group revenues decreased 7 percent from the prior-year period. Reductions in revenues at Meredith Books, which was expected due to the previously announced licensing agreement with John Wiley & Sons, Inc. (Wiley), and at Meredith Integrated Marketing due to cutbacks in existing programs primarily in the automotive and retail sectors were partially offset by higher brand licensing revenues. National media group advertising revenues also continued to be affected by the nationwide slowdown in the demand for advertising. However, primarily as a result of the Company's ongoing initiative t o reduce operating costs, national media group operating profit increased 23 percent. |
Local media group revenues were primarily affected by the cyclical decline in political advertising at the television stations and to a lesser extent lower demand in advertising in the first part of the period. As a result, local media group revenues and operating profit decreased 12 percent and 41 percent, respectively. |
Diluted earnings per share increased 19 percent to $0.82 from prior-year first six months earnings of $0.69. |
We generated $76.0 million in operating cash flow. |
16
RESULTS OF OPERATIONS
Three Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands except per share data) | ||||||||||
Total revenues | $ | 336,855 | $ | 361,284 | (7 | )% | ||||
Operating expenses | (299,645 | ) | (325,334 | ) | (8 | )% | ||||
Income from operations | $ | 37,210 | $ | 35,950 | 4 | % | ||||
Earnings from continuing operations | $ | 18,954 | $ | 17,403 | 9 | % | ||||
Net earnings | 18,954 | 12,543 | 51 | % | ||||||
Diluted earnings per share from continuing operations | 0.42 | 0.39 | 8 | % | ||||||
Diluted earnings per share | 0.42 | 0.28 | 50 | % | ||||||
Six Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands except per share data) | ||||||||||
Total revenues | $ | 669,270 | $ | 725,354 | (8 | )% | ||||
Operating expenses | (600,478 | ) | (651,253 | ) | (8 | )% | ||||
Income from operations | $ | 68,792 | $ | 74,101 | (7 | )% | ||||
Earnings from continuing operations | $ | 37,295 | $ | 36,471 | 2 | % | ||||
Net earnings | 37,295 | 31,180 | 20 | % | ||||||
Diluted earnings per share from continuing operations | 0.82 | 0.81 | 1 | % | ||||||
Diluted earnings per share | 0.82 | 0.69 | 19 | % |
17
NATIONAL MEDIA GROUP
Three Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Advertising revenue | $ | 117,431 | $ | 120,078 | (2 | )% | ||||
Circulation revenue | 67,209 | 66,804 | 1 | % | ||||||
Other revenue | 76,535 | 90,026 | (15 | )% | ||||||
Total revenues | 261,175 | 276,908 | (6 | )% | ||||||
Operating expenses | (229,401 | ) | (253,700 | ) | (10 | )% | ||||
Operating profit | $ | 31,774 | $ | 23,208 | 37 | % | ||||
Operating profit margin | 12.2 | % | 8.4 | % | ||||||
Six Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Advertising revenue | $ | 254,633 | $ | 264,385 | (4 | )% | ||||
Circulation revenue | 137,088 | 138,217 | (1 | )% | ||||||
Other revenue | 141,058 | 167,973 | (16 | )% | ||||||
Total revenues | 532,779 | 570,575 | (7 | )% | ||||||
Operating expenses | (462,412 | ) | (513,477 | ) | (10 | )% | ||||
Operating profit | $ | 70,367 | $ | 57,098 | 23 | % | ||||
Operating profit margin | 13.2 | % | 10.0 | % |
Magazine advertising revenues decreased 3 percent in the second quarter and 4 percent in the first six months of fiscal 2010. Total advertising pages declined 6 percent in the second quarter and in the first six months of fiscal 2010. Advertising revenues and pages were down in our parenthood, shelter, men's, and Hispanic titles for the second quarter and first six months. On the strength of Better Homes and Gardens, our women's service field titles increased advertising revenues and pages in both the second quarter and first six months of the fiscal year. More also grew ad revenues and pages in both periods. While Fitness increased ad revenues and pages in the second quarter, they were down for the six-month period due to there being one less issue during this period. Among our core advertising categories, non-prescription drugs, toiletries and cosmetics, and food and beverage showed strength while demand was weaker for the prescription drug, home, and media and entertainment categories. Online advertising revenues in our interactive media operations increased 14 percent in the second quarter and 4 percent in the first six months of fiscal 2010 as compared to the prior year periods due to strong demand.
18
National media group operating costs decreased 10 percent in both the second quarter and first six months of fiscal 2010. Integrated marketing production expenses decreased due to the decline in integrated marketing revenues. Book manufacturing costs decreased due to the changes made in the book business model. Circulation expenses, employee compensation costs, LIFO reserve expense, other delivery costs, and advertising and promotion expenses declined in the second quarter and the first six months of fiscal 2010. Paper costs decreased primarily due to a reduction in average paper prices of approximately 16 percent in the second quarter and 12 percent for the first six months. These cost reductions were partially offset by increased processing costs, pension expenses and performance-based incentive accruals. In addition, in the second quarter of fiscal 2010, the write-off of subscription acquisition costs of $1.8 million and of manuscript and art inventory of $1.5 million, and severance and related benefit costs of $2.2 million related to the repositioning of our SIM operations, were recorded by the national media group segment. In the second quarter of fiscal 2009, severance and related benefit costs of $6.0 million recorded on the national media group segment related to the companywide reduction in workforce.
Operating Profit
National media group operating profit grew 37 percent in the quarter and 23 percent in the six-month period compared with the respective prior-year periods. Increases in operating profit in our magazine and brand licensing operations more than offset lower operating profits in ou r book, interactive media, and integrated marketing operations. Contributing to the increase in operating profit in our magazine operations is circulation contribution, which increased in the second quarter of fiscal 2010 and in the six-month period.
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LOCAL MEDIA GROUP
Three Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Non-political advertising revenues | $ | 67,549 | $ | 64,717 | 4 | % | ||||
Political advertising revenues | 2,888 | 17,005 | (83 | )% | ||||||
Other revenues | 5,243 | 2,654 | 98 | % | ||||||
Total revenues | 75,680 | 84,376 | (10 | )% | ||||||
Operating expenses | (58,617 | ) | (62,047 | ) | (6 | )% | ||||
Operating profit | $ | 17,063 | $ | 22,329 | (24 | )% | ||||
Operating profit margin | 22.5 | % | 26.5 | % | ||||||
Six Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Non-political advertising revenues | $ | 121,220 | $ | 126,365 | (4 | )% | ||||
Political advertising revenues | 3,831 | 22,876 | (83 | )% | ||||||
Other revenues | 11,440 | 5,538 | 107 | % | ||||||
Total revenues | 136,491 | 154,779 | (12 | )% | ||||||
Operating expenses | (117,028 | ) | (121,754 | ) | (4 | )% | ||||
Operating profit | $ | 19,463 | $ | 33,025 | (41 | )% | ||||
Operating profit margin | 14.3 | % | 21.3 | % |
Local media group total revenues declined 10 percent in the second quarter and 12 percent in the first six months of fiscal 2010 compared with the respective prior-year periods. While non-political advertising revenues declined 4 percent for the first s ix months of fiscal 2010, they increased 4 percent in the second quarter. Local non-political advertising revenues were flat in the second quarter and decreased 7 percent for the first six months of fiscal 2010. National non-political advertising increased 11 percent as compared to the prior-year quarter and were flat compared to the prior-year first six months. Net political advertising revenues totaled $2.9 million in the second quarter and $3.8 million in the first six months of the current fiscal year compared with $17.0 million in the prior-year second quarter and $22.9 million in the prior-year six-month period. Fluctuations in political advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns. Political advertising may displace a certain amount of non-political advertising; therefore, the revenues may not be entirel y incremental. Online advertising increased 12 percent as compared to the prior-year second quarter and declined 4 percent as compared to the prior year six months. Other revenue, which is primarily retransmission fees, approximately doubled in both the current quarter and in the six-month period. The increase is primarily due to new transmission agreements we have with the cable and satellite operators in our markets.
Local media group operating expenses decreased 6 percent in the second quarter of fiscal 2010 and 4 percent in the first half of fiscal 2010. For both periods, these decreases primarily reflected lower film amortization, bad debt expense, advertising and promotion costs, and depr eciation expense. In addition, in the second quarter of fiscal 2009, severance and related benefit costs of $2.0 million were recorded on the local media group segment related to the companywide reduction in workforce. The decreases in fiscal 2010 were partially offset by higher performance-based incentive accruals, pension costs, legal expenses, and studio production expenses. For both the second quarter and the six-month period, a credit to expenses for a gain on the Sprint Nextel Corporation equipment exchange contributed to the reduction in operating expenses. This gain represents the difference between the fair value of the digital equipment we received and the book value of the analog equipment we exchanged.
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Local media group operating profit declined 24 percent in the second quarter and 41 percent in the first half of fiscal 2010 as compared to the same periods in fiscal 2009. The declines primarily reflected lower revenues due to the cyclical nature of political advertising.
Meredith's local media group EBITDA is defined as local media group operating profit plus depreciation and amortization expense. EBITDA is not a GAAP financial measure and should not be considered in isolation or as a substitute for GAAP financial measures. See the discussion of management's rationale for the use of EBITDA in the preceding Executive Overview section. Local media group EBITDA and EBITDA margin were as follows:
Three Months Ended December 31, | 2009 | 2008 | |||||
(In thousands) | |||||||
Revenues | $ | 75,680 | $ | 84,376 | |||
Operating profit | $ | 17,063 | $ | 22,329 | |||
Depreciation and amortization | 5,960 | 6,448 | |||||
EBITDA | $ | 23,023 | $ | 28,777 | |||
EBITDA margin | 30.4 | % | 34.1 | % | |||
Six Months Ended December 31, | 2009 | 2008 | |||||
(In thousands) | |||||||
Revenues | $ | 136,491 | $ | 154,779 | |||
Operating profit | $ | 19,463 | $ | 33,025 | |||
Depreciation and amortization | 12,082 | 12,517 | |||||
EBITDA | $ | 31,545 | $ | 45,542 | |||
EBITDA margin | 23.1 | % | 29.4 | % |
2009 | 2008 | Change | ||||||||
(In thousands) | ||||||||||
Three months ended December 31, | $ | 11,627 | $ | 9,587 | 21 | % | ||||
Six months ended December 31, | 21,038 | 16,022 | 31 | % |
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CONSOLIDATED
Consolidated operating expenses were as follows:
Three Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Production, distribution, and editorial | $ | 142,911 | $ | 162,310 | (12 | )% | ||||
Selling, general, and administrative | 146,617 | 152,248 | (4 | )% | ||||||
Depreciation and amortization | 10,117 | 10,776 | (6 | )% | ||||||
Operating expenses | $ | 299,645 | $ | 325,334 | (8 | )% | ||||
Six Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Production, distribution, and editorial | $ | 294,004 | $ | 332,421 | (12 | )% | ||||
Selling, general, and administrative | 286,254 | 297,200 | (4 | )% | ||||||
Depreciation and amortization | 20,220 | 21,632 | (7 | )% | ||||||
Operating expenses | $ | 600,478 | $ | 651,253 | (8 | )% |
Income from operations increased 4 percent in the second quarter; it decreased 7 percent in the first six months of fiscal 2010. While affecting the six-month period, the weakened economic conditions and their effect on advertising revenues abated during the second quarter. In addition, our efficiency initiatives continued to contribute to a reduction in op erating expenses. For both periods, lower political advertising revenues due to the cyclical nature of political advertising, and lower operating profits in our book, interactive media, and integrated marketing businesses reduced income from operations.
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Net interest expense increased to $5.7 million in the fiscal 2010 second quarter compared with $5.2 million in the comparable prior-year quarter. For the six months ended December 31, 2009, net interest expense was $10.8 million versus $10.6 million in the comparable prior-year period. Average long-term debt outstanding was $353 million in the second quarter of fiscal 2010 and $360 million for the six-month period compared with $460 million in the prior year second quarter and $465 million in the prior year six-month period. The Company's approximate weighted average interest rate was 5.7 percent in the first six months of fiscal 2010 and 4.6 percent in the first six months of fiscal 2009.
Our effective tax rate was 39.8 percent in the second quarter and 35.7 percent in the first half of fiscal 2010 as compared to 43.3 percent in the second quarter and 42.6 percent in the first half of fiscal 2009. Fiscal 2010 first quarter results included a benefit of $3.0 million reflecting a favorable adjustment made to deferred income tax liabilities as a result of state and local legislation enacted during the quarter. While the effective rate is expected to fluctuate quarter to quarter, on a full year basis the Company estimates its fiscal 2010 annual effective tax rate will be approximately 40 percent, excluding the impact of the deferred income tax liability adjustment.
Earnings from continuing operations were $19.0 million ($0.42 per diluted share), an increase of 9 percent from fiscal 2009 second quarter earnings from continuing operations of $17.4 million ($0.39 per diluted share). For the six months ended December 31, 2009, earnings were $37.3 million ($0.82 per diluted share), an increase of 2 percent from prior-year six month earnings of $36.5 million ($0.81 per diluted share). The increase is primarily due to lower restructuring charges recorded in the current year than in the prior year and the income tax benefit recorded in the first quarter of fiscal 2010.
For fiscal 2009, the loss from discontinued operations represents the operating results, net of taxes, of Country Home magazine. The revenues and expenses of Country Home magazine, along with associated taxes, were removed from continuing operations and reclassified into a single line item on the Condensed Consolidated Statement of Earnings titled loss from discontinued operations, net of taxes as follows:
Periods Ended December 31, 2008 | Three Months | Six Months | |||||
(In thousands except per share data) | |||||||
Revenues | $ | 4,956 | $ | 11,324 | |||
Costs and expenses | (6,162 | ) | (13,236 | ) | |||
Special items | (6,761 | ) | (6,761 | ) | |||
Loss before income taxes | (7,967 | ) | (8,673 | ) | |||
Income taxes | 3,107 | 3,382 | |||||
Loss from discontinued operations | $ | (4,860 | ) | $ | (5,291 | ) | |
Loss per share from discontinued operations | |||||||
Basic | $ | (0.11 | ) | $ | (0.12 | ) | |
Diluted | (0.11 | ) | (0.12 | ) |
Net earnings were $19.0 million ($0.42 per diluted share) in the quarter ended December 31, 2009, up 51 percent from $12.5 million ($0.28 per diluted share) in the comparable prior-year quarter. For the six months ended December 31, 2009, earnings were $37.3 million ($0.82 per diluted share), an increase of 20 percent from prior-year six month earnings of $31.2 million ($0.69 per diluted share). The increases are primarily due to the loss from discontinued operations in fiscal 2009 and the income tax benefit recorded in the first quarter of fiscal 2010.
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LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended December 31, | 2009 | 2008 | Change | |||||||
(In thousands) | ||||||||||
Net earnings | $ | 37,295 | $ | 31,180 | 20 | % | ||||
Cash flows from operations | $ | 76,032 | $ | 83,028 | (8 | )% | ||||
Cash flows used in investing | (31,242 | ) | (19,744 | ) | 58 | % | ||||
Cash flows used in financing | (48,818 | ) | (67,569 | ) | (28 | )% | ||||
Net decrease in cash and cash equivalents | $ | (4,028 | ) | $ | (4,285 | ) | (6 | )% |
The largest single component of operating cash inflows is cash received from advertising customers. Other sources of operating cash inflows include cash received from magazine circulation sales and other revenue transactions such as integrated marketing, licensing, and book sales. Operating cash outflows include payments to vendors and employees and interest, pension, and income tax payments. Our most significant vendor payments are for production and delivery of publications and promotional mailings, broadcasting programming rights, employee compensation costs and benefits, and other services and supplies.
Investing cash inflows generally include proceeds from the sale of assets or a business. Investing cash outflows generally include payments for the acquisition of new businesses; investments; and additions to property, plant, and equipment.
Financing cash inflows generally include borrowings under debt agreements and proceeds from the exercise of common stock options issued under share-based compensation plans. Financing cash outflows generally include the repayment of long-term debt, repurchases of Company stock, and the payment of dividends.
24
At December 31, 2009, long-term debt outstanding totaled $350 million ($250 million in fixed-rate unsecured senior notes and $100 million outstanding under a revolving credit facility). Of the senior notes, $75 million is due in the next 12 months. We expect to repay these senior notes with cash from operations and credit available under existing credit agreements. The weighted average effective interest rate for the fixed-rate notes was 5.42 percent. The interest rate on the asset-backed commercial paper facility changes monthly and is based on the average commercial paper cost to the lender plus a fixed spread. As of December 31, 2009, the asset-backed commercial paper facility had a capacity of up to $100 million and renews annually (most recently renewed March 31, 2009) until April 2, 2011, the facility termination date.
As of December 31, 2009, there had been no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2009.
As part of our ongoing share repurchase program, we spent $0.2 million in the first six months of fiscal 2010 to repurchase approximately 6,900 shares of common stock at then current market prices. We spent $21.6 million to repurchase 865,000 shares in the first six months of fiscal 2009. We expect to continue repurchasing shares from time to time subject to market conditions. As of December 31, 2009, approximately 1.5 million shares were authorized for future repurchase. The status of the repurchase program is reviewed at each quarterly Board of Directors meeting. See Part II, Item 2 (c), Issuer Repurchases of Equity Securities, of this Quarterly Report on Form 10-Q for detailed information on share repurchases during the quarter ended December 31, 2009.
Dividends paid in the first six months of fiscal 2010 totaled $20.4 million, or 45 cents per share, compared with dividend payments of $19.4 million, or 43 cents per share, in the first six months of fiscal 2009.
Spending for property, plant, and equipment totaled $14.9 million in the first six months of fiscal 2010 compared with prior-year first six months spending of $15.2 million. Current year spending primarily relates to the initiative to consolidate back-office television station functions such as traffic, master control, and research into centralized hubs in Atlanta and Phoenix. Prior year spending was primarily rela ted to digital and high definition conversions being completed at all of the Company's broadcast stations. We have no material commitments for capital expenditures. We expect funds for future capital expenditures to come from operating activities or, if necessary, borrowings under credit agreements.
25
OTHER MATTERS
26
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We generally manage our risk associated with interest rate movements through the use of a combination of variable and fixed-rate debt. At December 31, 2009, Meredith had outstanding $250 million in fixed-rate long-term debt. There are no earnings or liquidity risks associated with the Company's fixed-rate debt. The fair value of the fixed-rate debt (based on discounted cash flows reflecting borrowing rates currently available for debt with similar terms and maturities) varies with fluctuations in interest rates. A 10 percent decrease in interest rates would have changed the fair value of the fixed-rate deb t to $257.5 million from $254.7 million at December 31, 2009.
There has been no material change in the market risk associated with broadcast rights payable since June 30, 2009.
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Item 4. | Controls and Procedures |
PART II | OTHER INFORMATION |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) | Issuer Repurchases of Equity Securities |
Period | (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced programs | (d) Maximum number of shares that may yet be purchased under programs | |||||||||||
October 1 to October 31, 2009 | 4,886 | $ | 30.86 | 4,886 | 1,489,982 | ||||||||||
November 1 to November 30, 2009 | 899 | 28.36 | 899 | 1,489,083 | |||||||||||
December 1 to December 31, 2009 | 37 | 31.00 | 37 | 1,489,046 | |||||||||||
Total | 5,822 | $ | 30.48 | 5,822 | 1,489,046 | ||||||||||
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Item 4. | Submission of Matters to a Vote of Security Holders |
(a) | The Annual Meeting of Shareholders was held on November 4, 2009, at the Company's headquarters in Des Moines, Iowa. | ||||||||||||
(b) | The name of each director elected at the Annual Meeting is shown under Item 4(c)(1). The other directors whose terms of office continued after the meeting were: Mary Sue Coleman, Alfred H. Drewes, D. Mell Meredith Frazier, Joel W. Johnson, Stephen M. Lacy, Phillip A. Marineau and Elizabeth E. Tallett. | ||||||||||||
(c) | (1) | Proposal 1: Election of three Class II directors for terms expiring in 2012. Each nominee was uncontested and elected by the votes cast as follows: | |||||||||||
Number of shareholder votes * | |||||||||||||
For | Withheld | ||||||||||||
Class II directors | |||||||||||||
James R. Craigie | 115,597,854 | 505,621 | |||||||||||
Frederick B. Henry | 101,316,340 | 14,787,135 | |||||||||||
William T. Kerr | 115,307,132 | 796,342 | |||||||||||
* As specified on the proxy card, if no vote For or Withhold was specified, the shares were voted For the election of the named director. | |||||||||||||
(2) | Proposal 2: To ratify the appointment of KPMG LLP as the company's independent registered public accounting firm for the year ending June 30, 2010. Proposal 2 was approved by the votes cast as follows: | ||||||||||||
For | Against | Abstentions | Broker Non-votes | ||||||||||
115,906,840 | 143,830 | 52,805 | --- | ||||||||||
(3) | Proposal 3: To reaffirm the previously approved business criteria, classes of eligible participants, and maximum annual incentives awarded under the Amended and Restated Meredith Corporation 2004 Stock Incentive Plan. Proposal 3 was approved by the votes cast as follows: | ||||||||||||
For | Against | Abstentions | Broker Non-votes | ||||||||||
109,407,549 | 3,099,253 | 667,517 | 2,929,155 | ||||||||||
(4) | Proposal 4: To authorize an additional reserve of 3,500,000 shares that may be granted under the Amended and Restated Meredith Corporation 2004 Stock Incentive Plan. Proposal 4 was approved by the votes cast as follows: | ||||||||||||
For | Against | Abstentions | Broker Non-votes | ||||||||||
94,899,581 | 17,619,880 | 654,858 | 2,929,155 | ||||||||||
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Item 6. | Exhibits |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | ||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURE | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
MEREDITH CORPORATION | ||
Registrant | ||
/s/ Joseph H. Ceryanec | ||
Joseph H. Ceryanec | ||
Vice President - Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
Date: January 21, 2010 |
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INDEX TO ATTACHED EXHIBITS
Exhibit Number | Item | ||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | ||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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