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Sept. 10, 2021, 3:35 p.m. EDT

10-K: MEREDITH CORP

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(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) consists of the following sections:

Executive Overview 32

Results of Operations 37

Liquidity and Capital Resources 51

Critical Accounting Policies 56

Accounting and Reporting Developments 58

MD&A should be read in conjunction with the other sections of this Form 10-K, including Item 1-Business, Item 6-Selected Financial Data, and Item 8-Financial Statements and Supplementary Data. MD&A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and could be affected by many risks, uncertainties, and changes in circumstances, including the uncertainties and risk factors described throughout this filing, particularly in Item 1A-Risk Factors. Important factors that could cause actual results to differ materially from those described in forward-looking statements are set forth under the heading "Forward-Looking Statements" in Item 1-Business.

EXECUTIVE OVERVIEW

Meredith has been a leading media company for nearly 120 years. Meredith produces service journalism that engages audiences with essential, inspiring, and trusted content reaching consumers where they are across multiple platforms including digital, video, print, and broadcast television.

Meredith operates two business segments. The national media segment reaches nearly 95 percent of all U.S. women and approximately 190 million unduplicated American consumers every month through such iconic brands as People, Better Homes & Gardens, Allrecipes, Southern Living, and Real Simple. Meredith's premium digital network reaches more than 150 million consumers each month. The company is the No. 1 U.S. magazine operator with 36 million subscribers, and the No. 2 global licensor with robust brand licensing activities that include a Better Homes & Gardens partnership with Walmart.

Meredith's local media segment includes 17 television stations reaching 11 percent of U.S. households and more than 30 million viewers. 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.

Both segments operate primarily in the U.S. and compete against similar media and other types of media on both a local and national basis. In fiscal 2021, the national media segment accounted for 68 percent of the Company's $3.0 billion in revenues while local media segment revenues contributed 32 percent.

Fiscal 2021 was a transformational year as the Company reached certain strategic events and operational milestones positioning the Company for future growth. Highlights include:

Crossing an important milestone with digital advertising revenue surpassing magazine for the first time in Meredith's history.

Agreeing to sell our local media group segment, for $2.825 billion to Gray Television. The combination of the pending sale and digital advertising surpassing magazine sets the stage for post-transaction Meredith to be positioned as a 'digital-first' media company with low-leverage and the capacity to invest in future organic and inorganic growth.

Our digital businesses delivered record revenues across the board, driven by:

Our launch of the Meredith Data Studio, which brings together our valuable first-party data and predictive insights to help clients improve returns on their advertising investments. Both the Meredith Data Studio and our new digital platform have been key factors in large client expansions.

Strong performance from our licensing relationships with Apple News+ and Walmart, and we retained our position as the world's second-largest licensor for the 6th straight year according to License Global.

Expanding performance marketing activities in fiscal 2021, in particular our relationship with key retail partnerships. In total, our performance marketing efforts drove nearly $1 billion in retail sales for our partners during the year.

While our magazine business endured COVID-19 all year, we gained more than 4 percentage points of magazine advertising market share, bringing our total to 36 percent. In addition, we sold nearly 20 million copies of our newsstand specials, one million more copies than the prior year. This is a substantial accomplishment considering many newsstands were closed or operated at reduced capacity due to COVID-19.

Our Local Media Group also delivered record results, driven by record political related advertising revenues and continued growth in retransmission consent revenues.

Finally, we reduced long-term debt by redeeming $250.0 million of the 2026 Unsecured Senior Notes. In addition to the many performance metrics, the Company had several recent social and environmental accomplishments. For example:

We made Sustainability Accounting Standards Board disclosures available publicly for the first time, and completed the Carbon Disclosure Project's Forests and Climate questionnaires for the second year;

We earned Gender Fair certification for achieving standards in leadership and opportunity, employee policies, advertising and communications, diversity reporting, and social impact related to women empowerment;

We have been recognized by 50/50 Women on Boards as having a gender-balanced board;

We created a Business Diversity and Social Responsibility program to facilitate alignment with suppliers that share our values; and

We launched our Good Impressions program that brings Meredith's media and marketing consultation services to bear for minority owned small businesses in the communities we serve.

We have a large audience deeply engaged with our trusted brands; our digital businesses are delivering record performance; and the pending Local Media Group transaction will enhance our ability to invest in future growth and return capital to shareholders.

NATIONAL MEDIA

Advertising related revenues made up 48 percent of fiscal 2021 national media revenues. These revenues were generated from the sale of advertising space in our magazines and on our digital properties to clients interested in promoting their brands, products, and services to consumers as well as revenue we generate selling advertising space on third-party platforms. Changes in advertising related revenues tend to correlate with changes in the level of economic activity in the U.S. Indicators of economic activity include changes in the level of gross domestic product, consumer spending, housing starts, unemployment rates, auto sales, and interest rates. Circulation levels of Meredith's magazines, reader demographic data, and the advertising rates charged relative to other comparable available advertising opportunities also affect the level of advertising related revenues.

Consumer related revenues accounted for 49 percent of fiscal 2021 national media revenues. Consumer related revenue includes all revenues either driven by or otherwise linked to consumer buying decisions and include circulation activities; magazine subscriptions sales for third-party publishers; brand licensing; digital lead generation; affiliate marketing; and other e-commerce sales, product sales, and related activities. Circulation revenues result from the sale of magazines to consumers through subscriptions and by single 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. In the short term, subscription revenues, which accounted for 57 percent of consumer related revenues, are less susceptible to economic changes because subscriptions are generally sold for terms of one to three years. The same economic factors that affect advertising related revenues also can influence consumers' response to subscription offers and result in lower revenues and/or higher costs to maintain subscriber levels over time. Subscription revenues per copy and related costs can also vary significantly by subscription source. Some subscription sources generate lower revenues than other sources but have proportionately lower related costs. A key factor in our subscription success is our industry-leading database. It contains an abundance of attributes on 185 million individuals, including 90 percent of U.S. millennial women. The size and depth of our database is a key to our circulation model and allows more precise consumer targeting. Newsstand revenues are more volatile than subscription revenues and can vary significantly month-to-month depending on economic and other factors. The remaining consumer related revenues are generally affected by changes in the level of economic activity in the U.S., including changes in the level of gross domestic product, consumer spending, unemployment rates, and interest rates.

The remaining 3 percent of national media revenues came from a variety of activities that included the sale of customer relationship marketing products and services. In addition, for certain sold brands, Meredith has provided consumer marketing, subscription fulfillment, paper purchasing, printing, and other services under outsourcing agreements and records such revenue in other revenue.

National media's major expense categories are employee compensation costs, subscription acquisition costs, and production and delivery of publications and promotional mailings. Employee compensation, which includes benefits expense, represented 26 percent of national media's operating expenses in fiscal 2021. Compensation expense is affected by salary and incentive levels, the number of employees, the costs of our various employee benefit plans, and other factors. Subscription acquisition costs, which represent the cost of obtaining subscriptions from third-party agents, accounted for 22 percent of the national media segment's operating expenses in fiscal 2021.

Paper, postage, and production charges represented 21 percent of the segment's operating expenses in fiscal 2021. The price of paper can vary significantly on the basis of worldwide demand and supply for paper in general and for specific types of paper used by Meredith. The printing of our publications is outsourced. We have a multi-year contract for the printing of our magazines, a practice which reduces price fluctuations over the contract term. Postal rates are dependent on the operating efficiency of the USPS and legislative mandates imposed on the USPS. In January 2021, the USPS increased rates by approximately 1.8 percent for First-Class Mail and 1.5 percent for other

categories. The most recent rate change was an increase of approximately 6.9 percent effective August 2021. The USPS has also announced proposed temporary rate adjustments for the 2021 holiday season. Meredith continues to work independently and with others to encourage and help the USPS find and implement efficiencies to contain rate increases.

The remaining 31 percent of fiscal 2021 national media expenses included depreciation and amortization, costs for magazine newsstand distribution, advertising and promotional efforts, and overhead costs for facilities and technology services.

LOCAL MEDIA

Local media derives the majority of its revenues-59 percent in fiscal 2021-from the sale of spot advertising on our stations' digital media properties as well as revenue we generate selling advertising space on third-party platforms. The remainder comes from television retransmission consent fees, television production, and other services.

The stations sell advertising to both local/regional and national accounts. Political advertising revenues are cyclical in that they are significantly greater during biennial election campaigns (which take place primarily in odd-numbered fiscal years) than at other times. We generate additional revenues from digital activities and programs focused on local interests such as community events and college and professional sports.

Changes in advertising related revenues tend to correlate with changes in the level of economic activity in the U.S. and in the local markets in which we operate stations, and with the cyclical changes in political advertising discussed previously. Programming content, audience share, audience demographics, and the advertising rates charged relative to other available advertising opportunities also affect advertising revenues. On occasion, unusual events necessitate uninterrupted television coverage and will adversely affect spot advertising revenues.

Local media's major expense categories are programming fees paid to the networks and employee compensation. Programming fees paid to the networks represented 36 percent of this segment's fiscal 2021 expenses. Employee compensation represented 29 percent of local media's operating expenses in fiscal 2021 and is affected by the same factors noted for national media. Sales and promotional activities, costs to produce local news programming, and general overhead costs for facilities and technical resources accounted for most of the remaining 35 percent of local media's fiscal 2021 operating expenses.

COVID-19 UPDATE

During fiscal 2021, COVID-19 continued to negatively impact our results, particularly advertising related revenues in our national media segment and our magazine advertising and non-political spot revenue streams. We see strong consumer engagement with our brands in both the national and local media segments and across platforms. We are also seeing performance improvement from our brands that focus on home and lifestyle. As the effects of public health measures such as travel restrictions and previously mandated business closures continue to impact consumers and the overall economy, we have seen negative performance trends continue within our brands focused on travel and luxury. While the COVID-19 pandemic continues to depress levels of magazine advertising, we have seen improvement in digital advertising. 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 in revenues of approximately $100.0 million to $150.0 million in fiscal 2021.

The Company temporarily reduced the pay for our Board of Directors, our executives, and approximately 60 percent of our employees in response to the COVID-19 pandemic. These reductions were lifted, and full pay was reinstated for all parties in early September 2020.

We have not experienced a negative impact on our liquidity due to COVID-19, and we believe we have sufficient liquidity to satisfy our cash needs for the foreseeable future.

We continue to monitor the ongoing and evolving situation. There may be developments outside our control requiring us to adjust our operating plan. Due to the emergence of new variants and continued high case counts, fiscal 2022 is expected to continue to be a time of uncertainty. While fiscal 2021 earnings increased as compared to the prior year due to record political and digital advertising, there remains the risk that COVID-19 could 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 the impact of COVID-19 on our business, consolidated results of operations, financial condition, and liquidity. For additional discussion of the impacts and risks to our business from the COVID-19 pandemic, refer to Item 1- Risk Factors in this Form 10-K.

FISCAL 2021 FINANCIAL OVERVIEW

During fiscal 2021, the Company made debt principal payments totaling $254.1 million including redeeming, in the third quarter of fiscal 2021, $250.0 million of its senior unsecured notes. Those notes bore the highest interest rate in the Company's debt portfolio.

Local media revenues increased 25 percent compared to the prior year primarily due to increased political spot revenues and digital political advertising revenues included in third party sales. These increases were partially offset by decreases in non-political spot advertising revenues due primarily to political crowd-out and the impact of COVID-19. Operating profit more than doubled primarily due to the additional high-margin political advertising revenues as a result of the cyclical nature of political advertising.

The Company sold the Travel + Leisure trademark and other related assets, including the Travel + Leisure travel clubs (collectively the Travel + Leisure Brand), and recognized a gain on the sale of $97.6 million.

National media revenues decreased 3 percent compared to the prior year primarily due to declines in magazine advertising and subscription revenues resulting from portfolio changes and the impact of COVID-19. These declines were partially offset by increases in digital advertising, licensing, and digital and other consumer driven revenues. Digital advertising revenues surpassed magazine advertising revenues for the first time. Operating profit was $351.2 million in fiscal 2021, which included the $97.6 million gain on the sale of the Travel + Leisure Brand. Due primarily to non-cash impairment charges of $367.0 million, the national media segment ended fiscal 2020 with an operating loss of $167.7 million.

As discussed above, COVID-19 continues to negatively impact our results, particularly magazine advertising revenues in our national media segment. 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 in revenues of approximately $100.0 million to $150.0 million in fiscal 2021.

Unallocated corporate expenses increased significantly primarily due to an increase in incentive-based compensation expenses and transaction related costs.

The Company reported net earnings from continuing operations for fiscal 2021 of $306.6 million, which includes the $97.6 million ($72.7 million after-tax) gain on the sale of the Travel + Leisure Brand. In fiscal 2020, the Company reported a net loss from continuing operations of $209.0 million reflecting non-cash impairment charges of $389.3 million ($327.6 million after-tax). Absent the gain on the sale of the Travel + Leisure Brand and the impairment charges, the Company would have had net earnings from continuing operations of $233.9 million in fiscal 2021 and $118.6 million in fiscal 2020. The increase in net earnings from continuing operations reflects the increased political and digital advertising.

In fiscal 2021, we generated $398.6 million in operating cash flows and invested $35.2 million in capital improvements.

RESULTS OF OPERATIONS







        Years ended June 30,                                 2021                   Change         2020                   Change         2019
        (In millions except per share data)
        Total revenues                               $ 2,977.4                  5  %       $ 2,848.6                (11) %       $ 3,188.5
        Operating expenses
        Costs and expenses                            (2,465.8)                (2) %        (2,526.6)                (8) %        (2,758.8)
        Acquisition, disposition, and restructuring
        related activities                                49.8                   n/m           (26.8)               (73) %          (100.9)
        Impairment of goodwill and other long-lived
        assets                                               -                   n/m          (389.3)                  n/m           (41.8)
        Total operating expenses                      (2,416.0)               (18) %        (2,942.7)                 1  %        (2,901.5)
        Income (loss) from operations                $   561.4                   n/m       $   (94.1)                  n/m       $   287.0
        Net earnings (loss) from continuing
        operations                                   $   306.6                   n/m       $  (209.0)                  n/m       $   129.1
        Net earnings (loss)                              306.6                   n/m          (234.3)                  n/m            46.3
        Diluted earnings (loss) per common share
        from continuing operations                        6.27                   n/m           (9.85)                  n/m            1.12
        Diluted earnings (loss) per common share          6.27                   n/m          (10.41)                  n/m           (0.70)
        n/m - Not meaningful
        


TRENDS AND UNCERTAINTIES

The following is a discussion of the trends and uncertainties that affected our businesses. Following the Overview is an analysis of the results of operations for the national media and local media segments and an analysis of our consolidated results of operations for the last three fiscal years.

Advertising revenues accounted for 51 percent of total revenues in fiscal 2021. Advertising demand is the Company's key uncertainty, and its fluctuation from period to period can have a material effect on operating results. Demand for political advertising in the Company's local media segment is cyclical in nature, generally following the biennial cycle of election campaigns with peaks occurring in our odd fiscal years (e.g., fiscal 2021, fiscal 2019) and particularly in our second quarter of those fiscal years. Other significant uncertainties that can affect operating results include fluctuations in the cost of paper, postage rates, and over time, television programming rights. The Company's cash flows from operating activities, our primary source of liquidity, is adversely affected when the advertising market is weak or when costs rise. One of our priorities is to manage our businesses prudently during expanding and contracting economic cycles to maximize shareholder return over time. To manage the uncertainties inherent in our businesses, we prepare monthly internal forecasts of anticipated results of operations and monitor the economic indicators mentioned in the Executive Overview. See Item 1A-Risk Factors in this Form 10-K for further discussion.

NATIONAL MEDIA

The following discussion reviews operating results for our national media segment, which includes magazine publishing, digital media, digital and customer relationship marketing, affinity marketing, brand licensing, database-related activities, and other related operations. The national media segment contributed 68 percent of Meredith's consolidated revenues and 53 percent of the combined operating profit from national media and local media operations in fiscal 2021.

National media revenues decreased 3 percent in fiscal 2021. Operating costs and expenses decreased 6 percent. Operating profit was $351.2 million in fiscal 2021, which included the $97.6 million gain on the sale of the Travel + Leisure Brand.

Fiscal 2020 national media revenues declined 11 percent. Costs and expenses decreased 11 percent, and impairment charges of $367.0 million were recorded in the national media segment. Due to the impairment charges, the national media operations reported an operating loss of $167.7 million in fiscal 2020.

National media operating results for the last three fiscal years were as follows:







        Years ended June 30,                               2021                      Change      2020                      Change      2019
        (In millions)
        Revenues                                      $ 2,023.5                 (3) %       $ 2,081.6                (11) %       $ 2,326.6
        Operating expenses
        Costs and expenses                             (1,763.8)                (6) %        (1,879.9)               (11) %        (2,104.5)
        Acquisition, disposition, and restructuring
        related activities                                 91.5                   n/m            (2.4)               (96) %           (54.3)
        Impairment of goodwill and other long-lived
        assets                                                -                   n/m          (367.0)                  n/m           (41.8)
        Total operating expenses                       (1,672.3)               (26) %        (2,249.3)                 2  %        (2,200.6)
        Operating profit (loss)                       $   351.2                   n/m       $  (167.7)                  n/m       $   126.0
        n/m - Not meaningful
        








        Revenues
        The table below presents the components of national media revenues for the last
        three fiscal years.
           Years ended June 30,                    2021             Change    2020             Change        2019
           (In millions)
           Advertising related
           Digital                              $   491.8         31  %    $   376.8         (5) %    $   394.9
           Magazine                                 426.5        (23) %        553.5        (20) %        690.1
           Third party sales                         46.1        (27) %         63.1         (3) %         65.3
           Total advertising related                964.4         (3) %        993.4        (14) %      1,150.3
           Consumer related
           Subscription                             564.7         (8) %        611.8        (15) %        716.1
           Newsstand                                150.0         (1) %        150.8         (9) %        165.5
           Licensing                                124.9         27  %         98.0          3  %         95.2
           Affinity marketing                        62.3         (8) %         67.4          1  %         66.7
           Digital and other consumer driven         90.9         25  %         72.8         28  %         56.8
           Total consumer related                   992.8         (1) %      1,000.8         (9) %      1,100.3
           Other
           Project based                             50.4        (11) %         56.7         12  %         50.5
           Other                                     15.9        (48) %         30.7         20  %         25.5
           Total other                               66.3        (24) %         87.4         15  %         76.0
           Total revenues                       $ 2,023.5         (3) %    $ 2,081.6        (11) %    $ 2,326.6
        


Advertising Related Revenue

Digital advertising revenue increased 31 percent in fiscal 2021. Meredith's Data Studio, which launched in the first quarter of fiscal 2021, 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, providing the opportunity to create multi-year integrated partnerships with our top clients. This has driven positive digital advertising results across our brands. In fiscal 2021, sessions increased almost 15 percent and approximately 60 percent of digital advertising was from direct sales while approximately 40 percent was open programmatic digital advertising. People.com delivered the strongest year-over-year traffic growth as it continued to benefit from strong interest in celebrity and entertainment-related information. We also delivered continued growth at Allrecipes.com, along with our home sites, including Southern Living and Martha Stewart.

. . .

Sep 10, 2021

COMTEX_393128207/2041/2021-09-10T15:34:38

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