Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Operations—Meredith Corporation (Meredith or the Company) is a diversified media company. The Company has two reporting segments: national media and local media. The Company’s national media segment includes print magazines, digital media, brand licensing activities, affinity marketing, performance marketing, database-related activities, business-to-business marketing products, and other related operations. The local media segment includes 17 television stations and related digital media operations. Meredith’s operations are diversified geographically primarily within the United States (U.S.), and the Company has a broad customer base.
Basis of Presentation—The consolidated financial statements include the accounts of Meredith and its wholly-owned and majority-owned subsidiaries, after eliminating all significant intercompany balances and transactions. Meredith does not have any off-balance sheet arrangements.
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. The Company bases its estimates on historical experience, management expectations for future performance, and other assumptions as appropriate. Key areas affected by estimates include the allowance for doubtful accounts, which is based on historical experience and management’s views on trends in the overall receivable aging, the assessment of the recoverability of long-lived assets, including goodwill and other intangible assets, which is based on such factors as estimated future cash flows; the determination of the net realizable value of broadcast rights, which is based on estimated future revenues; pension and postretirement benefit expenses, which are determined based, in large part, on actuarial assumptions regarding discount rates, expected returns on plan assets, and healthcare costs; and share-based compensation expense, which is based on numerous assumptions, including future stock price volatility and employees’ expected exercise and post-vesting employment termination behavior. While the Company re-evaluates its estimates on an ongoing basis, actual results may vary from those estimates.
Cash and Cash Equivalents—Cash and short-term investments with original maturities of three months or less are considered to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value.
Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalent deposits. Cash equivalent balances consist of money market mutual funds with original maturities of three months or less. These cash and cash equivalent deposits are maintained with several financial institutions. The deposits held at the various financial institutions may exceed federally insured limits. Exposure to this credit risk is reduced by placing such deposits with major financial institutions and monitoring their credit ratings and, therefore, these deposits bear minimal credit risk. There is also limited credit risk with respect to the money market mutual funds in which the Company invests as these funds all have issuers, guarantors, and/or other counterparties of reputable credit.
At June 30, 2021, $218.4 million of cash and cash equivalents were held domestically, of which $101.8 million were held in money market mutual funds. Of the total cash and cash equivalents, $21.8 million were held internationally in India and Europe. Cash equivalents at June 30, 2021, were $112.6 million, which approximates fair value due to their short-term nature and is considered a Level 1 measurement as defined in Note 12.
Accounts Receivable—The Company’s accounts receivable are primarily due from advertisers. Credit is extended to clients based on an evaluation of each client’s creditworthiness and financial condition; collateral is not required. Accounts receivable are recorded at the invoiced amount, less estimated adjustments for discounts, rebates, rate adjustments, and returns. The allowance for uncollectible accounts is based on historical loss rates by the age of the receivable in the national media group, historical loss rate by type of advertiser in our local media group, known
specific collectability exposures, and the current economic environment. Accounts are written off when deemed uncollectible. Concentration of credit risk with respect to accounts receivable is generally limited due to the large number of geographically diverse clients and individually small balances.
Inventories—Inventories consist mainly of paper stock, editorial content, books, and other merchandise and are stated at the lower of cost or estimated net realizable value. Cost is determined using the first-in, first-out method for books and weighted average cost method for paper and other merchandise.
Subscription Acquisition Costs—Subscription acquisition costs primarily represent magazine agency commissions. These costs are deferred and amortized over the related subscription term, typically one to four years.
Property, Plant, and Equipment—Property, plant, and equipment are stated at cost. Costs of replacements and major improvements are capitalized, while costs of maintenance and repairs are charged to operations as incurred.
Depreciation expense is determined primarily using the straight-line method over the estimated useful lives of the assets: 5-45 years for buildings and improvements and 3-20 years for machinery and equipment. The costs of leasehold improvements are amortized over the lesser of the useful lives of the improvements or the terms of the respective leases. Depreciation and amortization of property, plant, and equipment was $72.3 million in fiscal 2021, $77.0 million in fiscal 2020, and $92.5 million in fiscal 2019.
Capitalized Software—Capitalized software is a component of property, plant, and equipment. Expenditures for major software purchases and software developed for internal use are capitalized and amortized over three to six years on a straight-line basis. The Company's policy provides for the capitalization of external direct costs associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are expensed as incurred.
Operating Leases—Meredith's lessee portfolio is primarily comprised of real estate leases for the use of office space, land, and broadcast station facilities. The portfolio also contains leases for equipment, vehicles, and antenna and transmitter sites. The Company determines if an arrangement is or contains a lease at inception and begins recording lease activity at the commencement date, which is generally the date at which the Company takes possession of or controls the physical use of the asset. Right-of-use (ROU) assets and lease liabilities are recognized based on the present value of lease payments over the lease term with lease expense generally recognized on a straight-line basis. The Company's incremental borrowing rate is used to determine the present value of future lease payments unless the implicit rate is readily determinable.
Lease agreements may contain rent escalation clauses, renewal or termination options, rent holidays, or certain landlord incentives, including tenant improvement allowances. ROU assets include amounts for fixed scheduled rent increases. The lease term includes the non-cancelable period of the lease and renewal periods subject to options to extend or terminate the lease when it is reasonably certain the Company will exercise those options. The remaining terms of the leases are three months to 29 years. Certain lease agreements include variable lease payments, which adjust periodically for inflation as a result of changes in a published index, primarily the Consumer Price Index, or are amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.
Accounting policy elections were made to exempt leases with an initial term of twelve months or less from balance sheet recognition and not separate lease and non-lease components for any asset classes in the current portfolio.
Broadcast Rights—Broadcast rights consist principally of rights to broadcast syndicated programs, sports, and feature films. The total cost of these rights is recorded as an asset and as a liability when programs become available for broadcast. The current portion of broadcast rights represents those rights available for broadcast that are expected to be amortized in the succeeding year. These rights are valued at the lower of unamortized cost or
estimated net realizable value and are generally charged to operations on an accelerated basis over the contract period. Impairments of unamortized costs to net realizable value are included in the production, distribution, and editorial expenses line on the Consolidated Statements of Earnings (Loss). There were no material impairments of unamortized costs in fiscal years 2021, 2020, or 2019. Future write-offs can vary based on changes in consumer viewing trends and the availability and costs of other programming.
Current portion of broadcast rights were $4.6 million and $6.4 million at June 30, 2021 and 2020, respectively, and are presented as other current assets on the Consolidated Balance Sheets. Noncurrent broadcast rights were $3.7 million and $3.9 million at June 30, 2021 and 2020, respectively, and are reflected as other assets on the Consolidated Balance Sheets. Amortization expense related to broadcast rights of $15.8 million, $19.0 million, and $20.0 million for the years ended June 30, 2021, 2020, and 2019, respectively, was included in the production, distribution, and editorial line on the Consolidated Statements of Earnings (Loss). Future amortization expense for broadcast rights is expected to be as follows: $4.6 million in fiscal 2022, $1.5 million in fiscal 2023, and $1.2 million in fiscal 2024. Actual future amortization expense could differ from these estimates due to future purchases.
Intangible Assets and Goodwill—Amortizable intangible assets consist primarily of advertiser relationships, publisher relationships, network affiliation agreements, partner relationships, customer lists, and retransmission agreements. Intangible assets with finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. Network affiliation agreements are amortized over the period of time the agreements are expected to remain in place, assuming renewals without material modifications to the original terms and conditions (generally 25 to 40 years from the original acquisition date). Other intangible assets are amortized over their estimated useful lives, ranging from 1 to 30 years.
Intangible assets with indefinite lives include trademarks, internet domain names, and Federal Communications Commission (FCC) broadcast licenses. Those assets are evaluated annually for impairment. In addition, when certain events or changes in operating conditions occur, an additional impairment assessment is performed, and indefinite-lived assets may be adjusted to a determinable life. Broadcast licenses are granted for a term of up to eight years but are renewable if the Company provides at least an average level of service to its customers and complies with the applicable FCC rules and policies and the Communications Act of 1934. The Company has been successful in every one of its past license renewal requests and has incurred only minimal costs in the process. The Company expects the television broadcasting business to continue indefinitely; therefore, the cash flows from the broadcast licenses are also expected to continue indefinitely.
The Company has acquired trademark brands that have been determined to have indefinite lives. Those assets are evaluated annually for impairment. The Company evaluates a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, and operating plans. In addition, when certain events or changes in operating conditions occur, an additional impairment assessment is performed, and indefinite-lived assets may be adjusted to a determinable life.
Goodwill and intangible assets that have indefinite lives are not amortized but are tested for impairment annually or when events occur or circumstances change that indicate the carrying value may exceed the fair value. Goodwill impairment testing is performed at the reporting unit level. The Company has two reporting units – national media, and local media. The Company also assesses, at least annually, whether assets classified as indefinite-lived intangible assets continue to have indefinite lives.
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 and other long-lived intangibles at March 31, 2020. The impairment tests determined the carrying value of certain national media trademarks and one of the local media segment’s FCC licenses exceeded their estimated fair values. In addition, the impairment tests determined the carrying value of goodwill in the national media reporting unit exceeded its estimated fair value. The Company performs its goodwill impairment analysis annually as of May 31.
The Company performed its fiscal 2021 annual impairment review for the national media and local media reporting units using qualitative assessments as of its measurement date of May 31, 2021. Based on the results of the assessments, there was no indication of impairment.
A quantitative impairment test, performed for a goodwill reporting unit or indefinite-lived intangible assets, involves determining the fair value of the reporting unit or asset, which is then compared to its carrying value. Fair value to which carrying value is compared in the quantitative analysis is determined using a discounted cash flow model, which requires us to estimate the future cash flows expected to be generated by the reporting unit or to result from the use of the asset. These estimates include assumptions about future revenues (including projections of overall market growth and share of market), estimated costs, and appropriate discount rates where applicable. These assumptions are based on historical data, various internal estimates, and a variety of external sources and are consistent with the assumptions used in both short-term financial forecasts and long-term strategic plans. Depending on the assumptions and estimates used, future cash flow projections can vary within a range of outcomes. Changes in key assumptions used and their prospects or changes in market conditions could result in additional impairment charges.
Additional information regarding intangible assets and goodwill, including a discussion of impairment charges taken on goodwill and other long-lived intangible assets is provided in Note 7.
Impairment of Long-lived Assets—Long-lived assets (primarily property, plant, and equipment; operating lease assets; and amortizable intangible assets) are reviewed for impairment whenever events and circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by comparison of the forecasted undiscounted cash flows of the operation or asset group to which the assets relate to the carrying amount of the assets. Tests for impairment or recoverability require significant management judgment, and future events affecting cash flows and market conditions could result in impairment losses. See discussion of impairment charges to operating lease assets and property, plant, and equipment in Note 6.
Foreign Currency Translation and Foreign Currency Transactions—The financial position and operating results of the Company’s foreign operations are consolidated using primarily the local currency as the functional currency. Local currency assets and liabilities are translated into U.S. dollars at the rates of exchange as of the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Translation gains or losses on assets and liabilities are included as a component of accumulated other comprehensive loss in shareholders' equity.
The Company's foreign operations have various assets and liabilities, primarily cash and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which was recorded in the non-operating income (expense), net line on the Consolidated Statements of Earnings (Loss).
Derivative Financial Instruments—Meredith does not engage in derivative or hedging activities, except at times to hedge interest rate risk on debt.
Revenue Recognition—The Company’s primary source of revenue is advertising related. Other sources include consumer related and other revenues.
At contract inception, Meredith assesses the obligations promised in its contracts with customers and identifies a performance obligation for each promise to transfer a good or service or bundle that is distinct. To identify the performance obligations, the Company considers all the promises in the contract, whether explicitly stated or implied based on customary business practices. Revenue is recognized when, or as, the performance obligations are satisfied, and control is transferred to the customer.
Determining when control transfers requires management to make judgments that affect the timing of revenue recognized. The Company has determined that recognition of revenue at a point-in-time for certain products and services provides a faithful depiction of the transfer of control to the customer.
Progress measurement requires management to make judgments that affect the timing of revenue recognized. The Company has determined that the chosen methods provide a faithful depiction of the transfer of goods or services to the customer that are recognized over time. For performance obligations recognized using a time-elapsed output method, the Company’s efforts are expended evenly throughout the period.
For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation on a relative standalone-selling price basis. The standalone-selling price is the price at which the Company would sell a promised good or service separately to the customer. In situations in which an obligation is bundled with other obligations and the total amount of consideration does not reflect the sum of individual observable prices, the Company allocates the discount to (1) a single obligation if the discount is attributable to that obligation or (2) prorates across all obligations if the discount relates to the bundle. When standalone-selling price is not directly observable, the Company estimates and considers all the information that is reasonably available to the Company, including market conditions, entity-specific factors, customer information, etc. The Company maximizes the use of observable inputs and applies estimation methods consistently in similar circumstances.
As allowed by Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) , the Company does not impute interest to account for financing elements on contracts that have an original duration of twelve months or less. The Company has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue for all contracts with an original term of twelve months or less and for performance obligations tied to sales-based or usage-based royalties. The Company excludes amounts collected from customers for sales taxes from its transaction prices.
The following are detailed descriptions of the Company’s revenue recognition policies by each major product line:
Digital and Magazine Advertising—The Company sells advertising inventory on its websites and magazine media directly to advertisers or through advertising agencies. The Company’s performance obligations related to digital advertising are generally satisfied when the advertisement runs on owned or operated websites. The price for digital advertising is determined by an agreed-upon pricing model such as CPC (cost per click), CPM (cost per 1,000 impressions), or flat fees. Revenue from the sale of digital advertising space based on impression pricing is recognized when the advertisements are delivered consistent with the respective pricing model. Flat fee contracts are recognized ratably over the contract period using a time-elapsed output method. The customer is invoiced the agreed-upon price in the month following the month that the advertisements are delivered with normal trade terms. The Company’s performance obligations related to magazine advertising are satisfied when the magazine in which an advertisement appears is published, which is defined as an issue’s on-sale date. The customer is invoiced the agreed-upon price when the advertisements are published under normal industry trade terms.
As part of the Company’s customary business practices, digital advertising contracts may include a guaranteed number of impressions and magazine advertising contracts may include guaranteed circulation levels. Advertising contracts may include sales incentives to its customers, including volume discounts, rebates, value added impressions, bonus pages, etc. For all such contracts that include these types of variable consideration, the Company estimates the variable consideration and factors in such an estimate when determining the transaction price. Meredith has sufficient historical data and has established processes to reliably estimate these variable components of the transaction price.
Barter revenues are included in advertising revenue and are also recognized when the advertisements are published or the digital barter obligations have delivered. Barter advertising revenues and the offsetting expense are
recognized at the fair value of the advertising received or based on the Company’s standalone-selling price if the fair value cannot be determined. Barter advertising revenues were not material in any period.
Non-political and Political Spot Advertising—The Company sells commercial time directly to political and non-political advertisers or through advertising agencies. The Company’s performance obligations related to spot advertising are satisfied when the advertisement is aired by the broadcasting station. Rates for spot advertising are influenced primarily by the market size, number and type of competitors, audience share, and audience demographics. The customer is invoiced the agreed-upon price at the end of the month in which the advertisements were aired under normal trade terms. Political spot advertisements require payment in advance of airing. The agreed-upon price may be adjusted for estimated provisions for rebates, rate adjustments, and discounts. As part of the Company’s customary business practices, broadcast television advertising contracts may include gross rating points goals and/or sales incentives to its customers. For all such contracts that include these types of variable consideration, the Company estimates the variable consideration and factors in such an estimate when determining the transaction price.
Third Party Sales—The Company sells a variety of advertising products to its advertising customers that are placed on third-party platforms. The Company’s performance obligations related to these sales are generally satisfied, and revenue is recognized, when the third party runs the advertisement, or a print product is placed on-sale, due to the Company's obligation to reach a targeted audience demographic. The transaction price represents the cost of the purchased media plus a mark-up. The customer is invoiced the agreed-upon price shortly after the advertisements appear, under normal trade terms. The agreed-upon price is adjusted for estimated provisions for rebates, rate adjustments, and discounts. As part of the Company’s customary business practices, contracts may include guaranteed audience targets and several sales incentives to its customers, including volume discounts, rebates, value added impressions, etc. For all such contracts that include these types of variable consideration, the Company estimates the variable consideration in determining the transaction price.
Subscription—Meredith sells magazines and books to consumers through subscriptions. Each copy of a magazine and book is determined to be a distinct performance obligation that is satisfied when the publication is sent to the customer. Most of the Company’s subscription sales are prepaid at the time of order. Subscriptions may be canceled at any time for a refund of the price paid for remaining issues. As the contract may be canceled at any time for a full refund of the unserved copies, the contract term is determined to be on an issue-to-issue basis as these contracts do not have substantive termination penalties. Revenues from subscriptions are deferred and recognized proportionately as subscribers are served. Some magazine subscription offers contain more than one magazine title in a bundle. Meredith allocates the total contract consideration to each distinct performance obligation, or magazine title, based on a standalone-selling price basis. The transaction price is fixed upon establishment of the contract that contains the final terms of the sale, including description, quantity, and price of each subscription purchased.
Retransmission—Meredith's local media segment has entered into agreements with cable, satellite, and telecommunications service providers for licenses to access Meredith’s television station signals for retransmission. These licenses are functional licenses under which revenue is recognized at a point-in-time when access to the completed content is granted to the service provider. The transaction price for retransmission agreements generally are on a per subscriber basis. The recognition pattern for retransmission contracts mirrors over-time revenue recognition as Meredith delivers the signal to the service provider, which represents completed content, on an on-going basis during the license period. Service providers are invoiced monthly and payment is due under industry trade terms.
Newsstand—Meredith sells single copy magazines, or bundles of single copy magazines, to wholesalers for ultimate resale on newsstands primarily at major retailers and grocery/drug stores, and in digital form on tablets and other electronic devices. Publications sold to magazine wholesalers are sold with the right to receive credit from the Company for magazines returned to the wholesaler by retailers. Revenue is recognized on the issue's on-sale date as the date aligns most closely with the date that control is transferred to the customer. Meredith estimates the final amount of returns based on historical data and current marketplace conditions. The transaction price is reduced at
contract inception to reflect this estimate of returns. Wholesalers are invoiced a percentage of estimated final sales the month after the issue’s initial on-sale date. Final payments are settled under normal industry terms.
Licensing—Meredith has entered into various licensing agreements that provide third-party partners the right to utilize the Company’s intellectual property. Licensing agreements include both symbolic and functional licenses. Symbolic licenses include direct-to-retail product partnerships based on the Company’s national media brands, a branded real estate program, and international magazine partnerships. Functional licenses consist of content licensing. Revenues from symbolic licenses are in the form of a royalty based on the sale or usage of the branded product, which is recognized over time when the sale or use occurs under the sales or usage-based royalty exception. Generally, revenues are accrued based on estimated sales and adjusted as actual sales are reported by partners. These adjustments are typically recorded within three months of the initial estimates and have not been material. Any minimum guarantees are typically earned evenly over the year. Revenues from functional licenses are recognized at a point-in-time when access to the completed content is granted to the partner. There is no variable consideration related to functional licenses. Payment terms are contract specific and vary.
Affinity Marketing—Meredith partners with third parties to market and place magazine subscriptions for both Meredith titles and third-party publisher magazine titles. Meredith acts as an agent in sales of third-party magazine subscriptions and recognizes revenue in the net amount of consideration retained after paying the third-party publishers. Meredith assumes credit risk related to refunds on these sales, for which a reserve is established. The reserve is based on historical statistics at the time the cash is collected, which is after a risk-free trial period is over, and is included in the transaction price. Revenue from the acquisition of a subscriber is recognized when the subscriber name has been provided to the publisher and after any risk-free trial period has expired, if applicable. The Company net settles with the publishers monthly.
Digital and Other Consumer Driven—Various digital and other consumer products utilize Meredith brands to drive responses from individual customers resulting in the generation of revenue. Meredith digitally operates shop channels, affiliate content, and a promotional codes site to monetize consumer spending. Meredith is paid on a commission basis from affiliate networks that facilitate reporting and payments from retail partners, based on either a CPC on content or consumer purchases. Meredith also operates a lead generation business that connects consumers to a variety of services (home services, streaming, healthcare, etc.) from contractor networks. Revenue is earned once the lead is accepted by the contractor network. Partners are invoiced monthly.
Meredith offers membership programs and applications (apps), which are determined to be distinct performance obligations that are satisfied over the membership period, not exceeding twelve months. The majority are prepaid at the time of order. Memberships may be canceled at any time for a refund of the price paid for the remaining membership term. As the contract may be canceled at any time for a full refund, the contract term is determined to be on a month-by-month basis, as these contracts do not have substantive termination penalties. Apps generally cannot be cancelled for a refund, however, provide users with continuously updated content, and therefore the contract term is determined to be the membership period. Other paid products are single-branded products sold to consumers either on the Company’s websites or by third-party sponsors. Consideration is received and revenue is recognized at the point-of-sale.
Projects Based—Meredith’s national media segment contains several business lines that are business-to-business and project based. Such revenue may relate to any one or combination of the following activities; custom publishing, content strategy and development, email marketing, social media, database marketing, and search engine optimization. Revenue earned under Outsourcing Agreements (OAs) is also considered to be projects based. The products and services delivered under these contracts are customized to each client and, therefore, do not have alternative uses to Meredith or other clients. As a result, revenue under such contracts is generally recognized over time based on project milestones until the delivery of the final product to the customer.
Other—The remaining revenues are generated from small programs, which are generally recognized at a point-in-time as the performance obligations are transferred to the customer.
Contingent Consideration—The Company estimates and records the acquisition date estimated fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated Statements of Earnings (Loss). An increase in the earn-out expected to be paid will result in a charge to operations in the quarter that the anticipated fair value of contingent consideration increases, while a decrease in the earn-out expected to be paid will result in a credit to operations in the quarter that the anticipated fair value of contingent consideration decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results. Additional information regarding contingent consideration is provided in Note 3.
Advertising Expenses—The majority of the Company’s advertising expenses relate to direct-mail costs for magazine subscription acquisition efforts. Advertising is expensed the first time it takes place. Total advertising expenses included in the Consolidated Statements of Earnings (Loss) were $122.6 million in fiscal 2021, $152.1 million in fiscal 2020, and $193.3 million in fiscal 2019.
Original Issue Discount and Deferred Financing Costs—Costs incurred to obtain financing are deferred and amortized to interest expense, net on the Consolidated Statements of Earnings (Loss) over the related financing period using the effective interest method. The Company records deferred financing costs as a direct reduction of the carrying value of the related debt. Financing costs related to revolving debt instruments or lines of credit are included in other assets on the Consolidated Balance Sheets.
Income Taxes—The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when such a change is enacted. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Self-Insurance—The Company self-insures for certain medical claims, and its responsibility generally is capped through the use of a stop loss contract with an insurance company at a certain dollar level. The dollar level varies based on the insurance plan and is generally $500 thousand. Third-party administrators are used to process claims. The Company uses actual claims data and estimates of claims incurred-but-not-reported to calculate estimated liabilities for unsettled claims on an undiscounted basis. Although management re-evaluates the assumptions and reviews the claims experience on an ongoing basis, actual claims paid could vary significantly from estimated claims.
Pensions and Postretirement Benefits Other Than Pensions—Retirement benefits are provided to employees through pension plans sponsored by the Company. Pension benefits are generally based on formulas that reflect interest credits allocated to participants’ accounts based on years of benefit service and annual pensionable earnings. The discount rate utilized is based on the investment yields of high quality corporate bonds available in the marketplace with maturities equal to projected cash flows of future benefit payments as of the measurement date. It is the Company’s policy to fund the qualified pension plans to at least the extent required to maintain their fully funded status. In addition, the Company provides health care and life insurance benefits for certain retired employees, the expected costs of which are accrued over the years that the employees render services. It is the Company’s policy to fund postretirement benefits as claims are paid. Additional information is provided in Note 14.
Share-based Compensation—The Company establishes fair value for its equity awards to determine their cost and recognizes the related expense over the appropriate vesting period. The Company recognizes expense for stock options, restricted stock, restricted stock units, and matching shares anticipated to be issued under the Company’s employee stock purchase plan. See Note 15 for additional information related to share-based compensation expense.
Comprehensive Income (Loss)—Comprehensive income (loss) consists of net earnings and other gains and losses affecting shareholders’ equity that, under U.S. GAAP, are excluded from net earnings. Other comprehensive income (loss) includes changes in prior service costs and net actuarial losses from pension and postretirement benefit plans, net of taxes; unrealized gains or losses resulting from foreign currency translation; and changes in the fair value of interest rate swap agreements, net of taxes, to the extent that they are effective. As of June 30, 2021, there were no amounts in other comprehensive income (loss) related to the interest rate swaps.
Earnings (Loss) per Share—Basic earnings (loss) per common share is calculated by dividing net earnings (loss) attributable to common shareholders by the weighted average common and class B shares outstanding for the period. Diluted earnings (loss) per common share calculation incorporates the shares utilized in the basic calculation but also includes the dilutive effect, if any, of the assumed exercise or conversion of securities, including the effect of shares issuable under the Company’s share-based incentive plans. Due to the Series A preferred stock, which was outstanding until June 30, 2020, and outstanding detachable warrants, the Company has a two-class capital structure and applies the two-class method in the calculation of earnings (loss) per share. The two-class method adjusts net earnings (loss) to incorporate dividends declared on common stock, preferred stock, and other securities in distributed earnings (loss). In addition, it also incorporates participating rights in other securities in undistributed earnings (loss). Additional information is provided in Note 17.
Adopted Accounting Pronouncements—
ASU 2016-13—In June 2016, the Financial Accounting Standards Board (FASB) issued a standard that replaced the then current incurred loss methodology for recognizing credit losses with a current expected credit loss methodology. Under this standard, the establishment of an allowance for credit losses reflects all relevant information about past events, current conditions, and reasonable supportable forecasts rather than delaying the recognition of the full amount of a credit loss until the loss is probable of occurring. The new standard changed the impairment model for most financial assets and certain other instruments, including trade receivables. The Company implemented the new standard on July 1, 2020, on a modified retrospective basis. The adoption of this standard resulted in a decrease in the allowance for doubtful accounts of $2.8 million and an increase in deferred tax liabilities of $0.7 million, with a corresponding increase to retained earnings of $2.1 million. This standard did not have a material impact on the Company's consolidated financial statements and related disclosures upon adoption.
ASU 2018-13—In August 2018, the FASB issued an accounting standards update which changed the fair value measurement disclosure requirements. The update removes, modifies, and adds certain additional disclosures. The Company adopted this pronouncement in the first quarter of fiscal 2021. The adoption required additional disclosure on the Company's Level 3 measurements as defined in Note 12. There were no other impacts to the Company's consolidated financial statements.
ASU 2018-14—In August 2018, the FASB issued an accounting standards update that adds, removes, and modifies disclosure requirements related to defined benefit pension and other postretirement plans. The update amends only annual disclosure requirements. The Company adopted the new standard retrospectively on July 1, 2020. The adoption of this guidance required a change in disclosures only and did not have a material impact on the Company's consolidated financial statements.
ASU 2019-02—In March 2019, the FASB issued an accounting standards update that aligned the accounting for production costs of episodic television series with the accounting for production costs of films. In addition, the update modified certain aspects of the capitalization, impairment, presentation, and disclosure requirements in the accounting standards for entities in the film and broadcast entertainment industries. The update was prospectively
adopted in the first quarter of fiscal 2021. Due to the nature of existing Company policies and the nature of its episodic television series, the update had no impact on the Company's consolidated financial statements.
ASU 2019-12—In December 2019, the FASB issued an accounting standards update that simplifies the accounting for income taxes by removing certain exceptions to and clarifying existing guidance to improve consistent application. The Company prospectively adopted this standard in the fourth quarter of fiscal 2021. The adoption had no impact on the Company’s consolidated financial statements.
ASU 2020-09—In October 2020, the FASB issued an accounting standards update to formally codify the new disclosure requirements of an United States Securities and Exchange Commission (SEC) final rule issued in March 2020 related to certain registered securities under SEC Regulation S-X, Rule 3-10 (Rule 3-10). The most pertinent portions of the final rule applicable to the Company include: (i) replacing the previous requirement under Rule 3-10 to provide condensed consolidated financial information in the registrant's financial statements with a requirement to provide alternative financial disclosures (which include summarized financial information of the parent and any issuers and guarantors, as well as other qualitative disclosures) in either the registrant's Management Discussion & Analysis section or its financial statements; and, (ii) reducing the periods for which summarized financial information is required to the most recent annual period and year-to-date interim period. The final rule was effective for filings on or after January 4, 2021. The Company elected to early-adopt the provisions of the final rule during the third quarter of fiscal 2020 and elected to provide the summarized financial information in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
ASU 2020-10—In October 2020, the FASB issued an accounting standards update containing codification improvements. These improvements include providing a consistent location for disclosure guidance and providing clarification to other certain guidance sections. The Company early adopted this guidance retrospectively as of July 1, 2020. The early adoption of this guidance did not materially impact the Company’s consolidated financial statements.
Pending Accounting Pronouncements—
ASU 2020-04—In March 2020, the FASB issued an accounting standards update that provides optional expedients and exceptions for reference rate reform related activities that impact debt, leases, derivatives, and other contracts that reference London Interbank Offered Rate (LIBOR) or another rate that is expected to be discontinued. The guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company does not expect this update will have a material impact on its consolidated financial statements and related disclosures.
2. Pending Merger Transaction
As of May 3, 2021, and as amended on June 2, 2021, Meredith, Gray Television, Inc. (Gray), and Gray Hawkeye Stations, Inc., a wholly-owned subsidiary of Gray (Merger Sub) entered into a definitive merger agreement under which Gray will acquire Meredith immediately after and subject to the consummation of the Spin-Off (as described below). Immediately prior to the consummation of the merger, Meredith intends to separate its local media group and national media group into two independent companies by distributing (the Distribution) to Meredith’s shareholders, on a pro rata basis, the issued and outstanding capital stock of Meredith Holdings Corporation, a wholly-owned subsidiary of Meredith, which will hold the Company’s national media group businesses and corporate functions following the separation (collectively, the Spin-Off). After the Spin-Off, the national media group will be a stand-alone, publicly traded company owned 100 percent by pre-merger Meredith shareholders. Immediately subsequent to and conditioned upon completion of the Distribution, Merger Sub will merge with and into Meredith and Meredith will become a wholly-owned subsidiary of Gray, holding the assets relating to Meredith’s local media group businesses.
The transaction has been approved by the Boards of Directors of the Company and Gray. As set forth in the merger agreement, the closing of the merger agreement is subject to certain customary conditions, including but not limited to, approval from the Federal Communications Commission, clearance under the Hart-Scott-Rodino antitrust act, the absence of legal barriers to the closing of the merger, adoption of the agreement by the shareholders of Meredith, and certain customary third party consents. The Company will hold a special shareholder meeting to vote on the merger. The merger is expected to close in calendar 2021. The Company incurred $22.0 million of investment banking, legal, accounting, and other professional fees and expenses in fiscal 2021 related to the pending merger. These costs are included in the acquisition, disposition, and restructuring related activities line in the Consolidated Statements of Earnings (Loss). The limited tax deductibility of certain of these merger-related expenses also caused an increase in the fiscal 2021 effective tax rate. For more information concerning the merger, refer to the Current Reports on Form 8‑K filed with the SEC on May 3, 2021, and June 3, 2021 and the preliminary proxy statement filed with the SEC on August 17, 2021.
3. Acquisitions
Fiscal 2020
During fiscal 2020, Meredith paid a net $23.1 million primarily for the acquisitions of magazines.com and Stop, Breathe & Think.
On September 1, 2019, Meredith completed an asset acquisition of certain intangible assets of magazines.com, a website that promotes, markets, and sells print and electronic magazine subscriptions, for $15.9 million. The assets were transitioned onto Meredith's digital platforms and integrated into the national media segment's existing affinity marketing operations. The results of magazines.com have been included in the consolidated financial statements since its acquisition date.
On October 29, 2019, Meredith completed the acquisition of Stop, Breathe & Think, an emotional wellness platform intended to build the emotional strength of its users. The results of Stop, Breathe & Think have been included in the consolidated financial statements since the acquisition date. The purchase price was $13.3 million, which consisted of $9.2 million in cash and $4.1 million of contingent consideration. The contingent consideration requires the Company to make contingent payments based on the achievement of certain operational and revenue targets, as defined in the acquisition agreement, during fiscal 2020 through fiscal 2022. The contingent consideration is not dependent on the continued employment of the sellers. The Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model. The fair value is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in Note 12. To date, $1.0 million of contingent consideration has been paid related to this acquisition. As of June 30, 2021, the Company estimates the future payments will range from $1.0 million to $5.0 million.
The following table summarizes the fair value of total consideration transferred and the recognized amounts of identifiable assets acquired and liabilities assumed by the national media segment during the year ended June 30, 2020:
|
|
|
|
|
|
(In millions)
|
|
Consideration
|
|
Cash
|
$
|
24.2
|
|
Payment in escrow
|
0.9
|
|
Contingent consideration arrangement
|
4.1
|
|
Fair value of total consideration transferred
|
$
|
29.2
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets acquired
|
$
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
(0.8)
|
|
Total identified net assets
|
22.5
|
|
Goodwill
|
6.7
|
|
Fair value of total consideration transferred
|
$
|
29.2
|
|
The following table provides details of the identifiable acquired intangible assets in the acquisitions:
|
|
|
|
|
|
|
|
|
(In millions)
|
magazines.com
|
Stop, Breathe
& Think
|
Intangible assets subject to amortization
|
|
|
Publisher relationships
|
$
|
7.8
|
|
$
|
—
|
|
Customer lists
|
—
|
|
2.9
|
|
Other
|
—
|
|
4.3
|
|
Total
|
7.8
|
|
7.2
|
|
Intangible assets not subject to amortization
|
|
|
Trademark
|
7.6
|
|
—
|
|
Internet domain name
|
0.5
|
|
—
|
|
Total
|
8.1
|
|
—
|
|
Total intangible assets
|
$
|
15.9
|
|
$
|
7.2
|
|
The Company accounted for the acquisition of Stop, Breathe & Think as a business combination under the acquisition method of accounting. The above tables summarize the purchase price allocation of fair values of the assets acquired and liabilities assumed at the date of acquisition. In fiscal 2021, the Company recorded purchase price allocation adjustments related to the Stop, Breathe & Think acquisitions that reduced goodwill and deferred income tax liabilities by $0.1 million. The measurement period is now closed.
The useful life of publisher relationships was nine years, customer lists was three years, and other intangibles ranged from four to five years. The goodwill is attributable primarily to expected synergies and the assembled workforce. Goodwill, with a value of $6.6 million, is not deductible for tax purposes.
Fiscal 2019
On February 28, 2019, Meredith acquired 100 percent of the membership interests in Linfield Media, LLC (Linfield Media), a marketing business focused on online savings and deals, for $16.6 million in cash. The results of Linfield Media have been included in the consolidated financial statements, within the national media group segment, since that date.
4. Inventories
Major components of inventories are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
2021
|
|
2020
|
(In millions)
|
|
|
|
Raw materials
|
$
|
13.9
|
|
|
$
|
21.0
|
|
Work in process
|
13.2
|
|
|
10.6
|
|
Finished goods
|
2.2
|
|
|
2.6
|
|
Inventories
|
$
|
29.3
|
|
|
$
|
34.2
|
|
5. Discontinued Operations and Dispositions
Discontinued Operations
A disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria to be classified as held-for-sale. When all of the criteria to be classified as held-for-sale are met, including management having the authority to approve the action and committing to a plan to sell the entity, the major assets and liabilities are to be reported as components of total assets and liabilities separate from those balances of the continuing operations. The Consolidated Statements of Earnings (Loss) reported for current and prior periods shall report the results of operations of the discontinued operations, including any gain or loss recognized, in the period in which a discontinued operation either has been disposed of or is classified as held-for-sale. The results of all discontinued operations, less applicable income taxes (benefit), shall be reported as a component of net earnings (loss) separate from the net earnings (loss) from continuing operations.
Shortly after the Company’s acquisition of Time Inc. (Time) in fiscal 2018, it announced the planned sale of certain brands and investments. Several of these brands and investments were held during fiscal 2020, and all sales were completed by the end of the third quarter of fiscal 2020. In accordance with accounting guidance, a business that, on acquisition, or within a short period following the acquisition (usually within three months), meets the criteria to be classified as held-for-sale is also considered a discontinued operation. All of the required criteria for held-for-sale classification were met after acquisition and continued to be met at June 30, 2019, for Sports Illustrated, FanSided, Viant, and Xumo. The revenue and expenses, along with associated taxes, for these operations until their sale, were included in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss) in fiscal 2020 and fiscal 2019. All discontinued operations relate to the national media segment.
On October 31, 2018, Meredith closed on the sale of the TIME brand to an unrelated third party for $190.0 million in cash. On December 21, 2018, Meredith closed on the sale of the Fortune brand to an unrelated third party for $150.0 million in cash. There was a gain of $2.1 million recognized on the sales. The results of TIME and Fortune were included in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss) until the date of sale.
In May 2019, the first step of a two-step transaction to sell the Sports Illustrated brand was completed. At the time of first close, $90.0 million was received from the buyer. Simultaneously, the Company entered into an agreement to license back a portion of the Sports Illustrated brand to continue operating the publishing business. Although under the agreement certain assets of the brand were sold for legal and tax purposes, because the Company retained control of the publishing business until the second close, the legal transfer of those assets was not presented as a sale within the consolidated financial statements during fiscal 2019. Based on the selling price of Sports Illustrated, an impairment of goodwill for the Sports Illustrated brand of $8.5 million was recognized during the fourth quarter of fiscal 2019. The second close took place on October 3, 2019. Based on the selling price at second close, an
additional impairment of goodwill for the Sports Illustrated brand of $4.2 million was recorded in the first quarter of fiscal 2020. At the second close, Meredith paid the buyer a working capital true-up of $0.7 million and accrued $7.6 million for the purchase of accounts receivable and accounts payable retained by Meredith, which was paid to the buyer in January 2020. The agreement for the sale of Sports Illustrated includes an earn-out provision whereby the buyer would pay Meredith up to $20.0 million should certain revenue targets (as defined in the agreement) be achieved by the buyer by July 1, 2027. As receipt of such amounts is not deemed probable or estimable as of June 30, 2021, no receivable amount has been recorded as of June 30, 2021. Also, in October 2019, Meredith sold its interest in Viant to Viant’s founders for $25.0 million. A gain of $3.0 million was recognized on these sales in the second quarter of fiscal 2020, which was recorded in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss).
In January 2020, Meredith sold FanSided to an unrelated third party for $16.4 million. Based on the selling price of FanSided, an impairment of goodwill for the FanSided brand of $11.8 million was recognized during the second quarter of fiscal 2020. In February 2020, Meredith sold Xumo to an unrelated third party for $37.4 million at close and a $4.3 million note receivable, which was collected in fiscal 2021. There was a gain of $8.6 million recognized on these sales in the third quarter of fiscal 2020, which was recorded in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss).
Meredith continued to provide accounting, finance, human resources, information technology, and certain support services for a short period of time under Transition Services Agreements (TSAs) with certain buyers. In addition, Meredith continues to provide consumer marketing, information technology, subscription fulfillment, paper purchasing, printing, and other services under OAs with certain buyers. The services performed under the remaining OA have a one year term, subject to renewal. Income of $2.3 million, $7.6 million, and $4.8 million for the years ended June 30, 2021, 2020, and 2019, respectively, earned from performing services under the OAs was recorded in the other revenue line on the Consolidated Statements of Earnings (Loss) while income of $0.1 million, $10.9 million, and $18.9 million for the years ended June 30, 2021, 2020, and 2019, respectively, earned from performing services under the TSAs was recorded as a reduction to the selling, general, and administrative expense line on the Consolidated Statements of Earnings (Loss).
Amounts applicable to discontinued operations in the Consolidated Statements of Earnings (Loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2020
|
|
2019
|
(In millions except per share data)
|
|
|
|
Revenues
|
$
|
112.1
|
|
|
$
|
423.4
|
|
Costs and expenses
|
(108.6)
|
|
|
(408.5)
|
|
Impairment of goodwill
|
(16.0)
|
|
|
(8.5)
|
|
Interest expense
|
(2.1)
|
|
|
(21.4)
|
|
Gain (loss) on disposal
|
12.3
|
|
|
2.1
|
|
Loss before income taxes
|
(2.3)
|
|
|
(12.9)
|
|
Income tax expense
|
(23.0)
|
|
|
(69.9)
|
|
Loss from discontinued operations, net of income taxes
|
$
|
(25.3)
|
|
|
$
|
(82.8)
|
|
Loss per common share from discontinued operations
|
|
|
|
Basic
|
$
|
(0.56)
|
|
|
$
|
(1.83)
|
|
Diluted
|
(0.56)
|
|
|
(1.82)
|
|
The Company did not allocate interest to discontinued operations unless the interest was directly attributable to the discontinued operations or was interest on debt that was required to be repaid as a result of the disposal transaction. Interest expense included in discontinued operations reflected an estimate of interest expense related to the debt that was repaid with the proceeds from the sales of the businesses included in assets held-for-sale until the sale.
The discontinued operations did not have depreciation, amortization, or significant non-cash investing items for the years ended June 30, 2020 and 2019. Share-based compensation expense related to discontinued operations was a benefit of $0.8 million and expense of $0.5 million and was included in the calculation of net cash provided by operating activities in the Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019, respectively.
Dispositions
In January 2021, Meredith sold the Travel + Leisure trademark and other related assets, including the Travel + Leisure travel clubs, to an unrelated third party for $100.0 million, which included $35.0 million of cash at closing and non-interest bearing note receivable of $65.0 million. Payments on the note receivable are due annually with $20.0 million received in June 2021. The remaining payments will be completed by June 2024. The $65.0 million note receivable was discounted by $3.7 million utilizing an interest rate reflecting the borrower’s specific credit risk. The sale resulted in a gain of $97.6 million, which was recorded in the acquisition, disposition, and restructuring related activities line on the Consolidated Statements of Earnings (Loss). Meredith entered into a 30-year royalty-free licensing relationship to license back the Travel + Leisure brand and continues to publish the magazine and operate the Travel + Leisure media platforms. Refer to Note 7 for additional information related to the intangible assets associated with this sale.
In October 2019, Meredith sold the Money brand, to an unrelated third party for $24.9 million, which resulted in a gain on the sale of $8.3 million. This gain was recorded in the acquisition, disposition, and restructuring related activities line on the Consolidated Statements of Earnings (Loss).
In September 2018, Meredith sold its remaining 30 percent interest in Charleston Tennis LLC to an unrelated third party. In return, Meredith received cash of $13.3 million, of which $5.1 million was for the Company's remaining 30 percent interest and $8.2 million was repayment of the principal and interest accrued on a note receivable recorded upon the Company's sale of its 70 percent interest in July 2017. The Company recognized a gain on the sale of $10.4 million, of which $4.1 million represented a gain on the Company's 30 percent interest and was recorded in non-operating income (expense), net line on the Consolidated Statements of Earnings (Loss), while the remainder was recorded in the acquisition, disposition, and restructuring related activities line on the Consolidated Statements of Earnings (Loss), as it represented recovery of a previously impaired note receivable.
6. Operating Leases
Total lease cost for operating leases included within the selling, general, and administrative line on the Consolidated Statements of Earnings (Loss) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
(In millions)
|
|
|
|
Operating lease cost
|
$
|
61.0
|
|
|
$
|
65.7
|
|
Variable lease cost
|
0.9
|
|
|
3.0
|
|
Short term lease cost
|
0.3
|
|
|
0.3
|
|
Sublease income
|
(10.9)
|
|
|
(11.2)
|
|
Total lease cost
|
$
|
51.3
|
|
|
$
|
57.8
|
|
Rent expense under such leases was $67.6 million in fiscal 2019.
The table below presents supplemental information related to operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
(In millions except for lease term and discount rate)
|
|
|
|
Operating cash flows for operating leases
|
$
|
62.6
|
|
|
$
|
64.3
|
|
Noncash lease liabilities arising from obtaining operating lease assets
|
1.9
|
|
|
6.3
|
|
Weighted average remaining lease term
|
10.3 years
|
|
11.1 years
|
Weighted average discount rate
|
5.4
|
%
|
|
5.4
|
%
|
Meredith purchased the underlying assets of a lease arrangement for $3.3 million during the second quarter of fiscal 2020, resulting in the derecognition of operating lease assets of $2.6 million and lease liabilities of $2.5 million.
During the third quarter of fiscal 2020, in connection with the sale of FanSided, $1.4 million of operating lease assets and related lease liabilities, recorded within assets held-for-sale and liabilities associated with assets held-for-sale on the Consolidated Balance Sheets prior to sale, were derecognized.
As discussed in Note 5, the Company completed the sale of certain businesses acquired in connection with the Time acquisition. As a result of the dispositions and cost-reduction initiatives, the Company has two floors of vacant leased space at its location in New York, New York. The vacant space is presently held with the intent to sublease for the remainder of the lease term. The Company recognized an impairment charge of $87.9 million during the third quarter of fiscal 2020 related to the vacant space. Fair value was estimated using an income approach based on management's forecast of future cash flows expected to be derived from the property based on current sublease market rent, which was negatively impacted by the effects of the COVID-19 pandemic. The charge was allocated on a pro-rata basis, $64.5 million to operating lease assets and $23.4 million to leasehold improvements and furniture and fixtures, and was recorded in the national media segment. This impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss).
Maturities of operating lease liabilities as of June 30, 2021, were as follows:
|
|
|
|
|
|
Years ending June 30,
|
|
(In millions)
|
|
2022
|
$
|
59.9
|
|
2023
|
60.1
|
|
2024
|
61.6
|
|
2025
|
61.0
|
|
2026
|
60.8
|
|
Thereafter
|
311.5
|
|
Total lease payments
|
614.9
|
|
Less: Interest
|
(146.6)
|
|
Present value of lease liabilities
|
$
|
468.3
|
|
7. Intangible Assets and Goodwill
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
2021
|
|
|
2020
|
(In millions)
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net Amount
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
Intangible assets
subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
National media
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertiser relationships
|
$
|
211.0
|
|
|
$
|
(211.0)
|
|
|
$
|
—
|
|
|
|
$
|
211.0
|
|
|
$
|
(170.0)
|
|
|
$
|
41.0
|
|
Publisher relationships
|
132.8
|
|
|
(62.6)
|
|
|
70.2
|
|
|
|
132.8
|
|
|
(43.9)
|
|
|
88.9
|
|
Partner relationships
|
98.2
|
|
|
(54.9)
|
|
|
43.3
|
|
|
|
98.2
|
|
|
(38.7)
|
|
|
59.5
|
|
Customer lists
|
8.0
|
|
|
(3.9)
|
|
|
4.1
|
|
|
|
71.3
|
|
|
(65.6)
|
|
|
5.7
|
|
Other
|
35.9
|
|
|
(18.2)
|
|
|
17.7
|
|
|
|
26.3
|
|
|
(16.9)
|
|
|
9.4
|
|
Local media
|
|
|
|
|
|
|
|
|
|
|
|
|
Network affiliation agreements
|
229.3
|
|
|
(167.5)
|
|
|
61.8
|
|
|
|
229.3
|
|
|
(161.5)
|
|
|
67.8
|
|
Advertiser relationships
|
12.5
|
|
|
(12.5)
|
|
|
—
|
|
|
|
12.5
|
|
|
(10.1)
|
|
|
2.4
|
|
Retransmission agreements
|
10.6
|
|
|
(6.8)
|
|
|
3.8
|
|
|
|
27.9
|
|
|
(23.1)
|
|
|
4.8
|
|
Other
|
0.7
|
|
|
(0.7)
|
|
|
—
|
|
|
|
1.7
|
|
|
(1.6)
|
|
|
0.1
|
|
Total
|
$
|
739.0
|
|
|
$
|
(538.1)
|
|
|
200.9
|
|
|
|
$
|
811.0
|
|
|
$
|
(531.4)
|
|
|
279.6
|
|
Intangible assets not
subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
National media
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
694.7
|
|
|
|
|
|
|
|
706.7
|
|
Internet domain names
|
|
|
|
|
8.3
|
|
|
|
|
|
|
|
8.3
|
|
Local media
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC licenses
|
|
|
|
|
652.9
|
|
|
|
|
|
|
|
652.9
|
|
Total
|
|
|
|
|
1,355.9
|
|
|
|
|
|
|
|
1,367.9
|
|
Intangible assets, net
|
|
|
|
|
$
|
1,556.8
|
|
|
|
|
|
|
|
$
|
1,647.5
|
|
Amortization expense was $90.7 million in fiscal 2021, $142.9 million in fiscal 2020, and $155.1 million in fiscal 2019. Future amortization expense for intangible assets is expected to be as follows: $45.1 million in fiscal 2022, $42.6 million in fiscal 2023, $34.5 million in fiscal 2024, $17.1 million in fiscal 2025, and $6.6 million in fiscal 2026. Actual future amortization expense could differ from these estimates as a result of future acquisitions, dispositions, and other factors.
As discussed in Note 5, in January 2021, Meredith sold the Travel + Leisure trademark. The trademark had a recorded value of $12.0 million and was not subject to amortization. As part of the agreement, Meredith retained
certain rights to utilize the Travel + Leisure brand and therefore established an intangible asset subject to amortization related to these rights at an initial value equal to the sold trademark.
During the first quarter of fiscal 2020, the Company recorded an impairment charge of $5.2 million on a national media trademark. Management determined this trademark was fully impaired as part of management's commitment to performance improvement plans, including the closure of the Family Circle brand. The impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss).
During the third quarter of fiscal 2020, the Company experienced revenue declines, primarily related to advertising cancellations and delays, 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 non-cash impairment charges of $21.2 million to partially impair the trademarks for the magazines.com, Entertainment Weekly, Shape, EatingWell, and Cooking Light brands. In addition, the local media segment recorded a non-cash impairment charge of $22.3 million to partially impair the FCC license for its station WALA-TV in Mobile, Alabama and Pensacola, Florida. The fair values of the trademarks were determined based on significant inputs not observable in the market constituting a Level 3 measurement as defined in Note 12.
No impairments of indefinite-lived intangible assets were recorded as a result of the Company’s fiscal 2021 or 2020 annual impairment tests performed as of May 31, 2021 and 2020.
During the Company’s annual impairment tests performed as of May 31, 2019, it identified several impaired trademarks. As a result, the national media segment recorded non-cash impairment charges of $41.8 million to fully impair the Money and Coastal Living brand trademarks and to partially impair the Shape and Family Circle brand trademarks. The Company’s decision to discontinue the print publication of Money and transition Coastal Living from a subscription magazine to a newsstand only title resulted in the impairment of these trademarks. The lack of sales growth resulted in the carrying value of the trademarks for the Shape and Family Circle brands to exceed their fair values. The fair values of the trademarks were determined based on significant inputs not observable in the market constituting a Level 3 measurement as defined in Note 12. These charges were recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss). No other impairments of indefinite-lived intangible assets were recorded as a result of the Company’s fiscal 2019 annual impairment tests performed as of May 31, 2019.
The following table summarizes changes in the carrying amount of goodwill for the years ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
|
2020
|
(In millions)
|
Goodwill
|
Accumulated Impairment Loss
|
Net Carrying Amount
|
|
|
Goodwill
|
Accumulated Impairment Loss
|
Net Carrying Amount
|
National media
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
1,855.4
|
|
$
|
(252.7)
|
|
$
|
1,602.7
|
|
|
|
$
|
1,862.8
|
|
$
|
—
|
|
$
|
1,862.8
|
|
Acquisitions
|
—
|
|
—
|
|
—
|
|
|
|
6.7
|
|
—
|
|
6.7
|
|
Acquisition adjustments
|
(0.1)
|
|
—
|
|
(0.1)
|
|
|
|
2.4
|
|
—
|
|
2.4
|
|
Disposals
|
—
|
|
—
|
|
—
|
|
|
|
(16.7)
|
|
—
|
|
(16.7)
|
|
Foreign currency translation
|
0.1
|
|
—
|
|
0.1
|
|
|
|
0.2
|
|
—
|
|
0.2
|
|
Impairment
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
(252.7)
|
|
(252.7)
|
|
Balance at end of year
|
1,855.4
|
|
(252.7)
|
|
1,602.7
|
|
|
|
1,855.4
|
|
(252.7)
|
|
1,602.7
|
|
|
|
|
|
|
|
|
|
|
Local media
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
116.6
|
|
—
|
|
116.6
|
|
|
|
116.6
|
|
—
|
|
116.6
|
|
Activity
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
Balance at end of year
|
116.6
|
|
—
|
|
116.6
|
|
|
|
116.6
|
|
—
|
|
116.6
|
|
Total
|
$
|
1,972.0
|
|
$
|
(252.7)
|
|
$
|
1,719.3
|
|
|
|
$
|
1,972.0
|
|
$
|
(252.7)
|
|
$
|
1,719.3
|
|
The Company is required to evaluate goodwill for impairment on an annual basis or when events occur or circumstances change that would indicate the carrying value exceeds the fair value. The Company performed its fiscal 2021 annual impairment review for the national media and local media reporting units using qualitative assessments as of its measurement date of May 31, 2021. Based on the results of the assessments, there was no indication of impairment.
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 in the national media reporting unit 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 to its fair value. The Company recorded an income tax benefit of $26.9 million related to this goodwill impairment charge. The Company performed its fiscal 2020 annual impairment review for the national media and local media reporting units using qualitative assessments as of its measurement date of May 31, 2020. Based on the results of the assessments, there was no further indication of impairment.
For fiscal 2019, the Company performed its annual impairment review for the national media reporting unit as of May 31 using a quantitative goodwill impairment test. Based on the results of the analyses, the fair value exceeded the carrying value and thus resulted in no indication of impairment for fiscal 2019. For fiscal 2019, the local media reporting unit performed a qualitative assessment as of its measurement date of May 31, 2019, which indicated no impairment. With no indications of impairment, a quantitative goodwill impairment analysis for fiscal 2019 was not deemed necessary.
8. Restructuring Accruals
During fiscal 2021, management committed to a performance improvement plan to control costs. Actions included consolidating certain local media functions and reallocating positions across the Company by shifting resources to digital operations in the national media segment. In connection with these plans, the Company recorded pre-tax restructuring charges of $14.6 million for severance and related benefit costs associated with the involuntary termination of employees. These costs were recorded in the acquisition, disposition, and restructuring related activities line on the Consolidated Statements of Earnings (Loss). Combined, these actions affected approximately 140 employees in the local media segment, 80 in the national media segment, and 10 in unallocated corporate. The majority of the severance costs for these restructuring actions were paid during fiscal 2021, with the remainder to be paid in fiscal 2022.
Details of the severance and related benefit costs by segment for the performance improvement plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Accrued
in the Period
|
Total Amount Expected to be Incurred
|
Years ended June 30,
|
2021
|
2020
|
(In millions)
|
|
|
|
|
National media
|
$
|
6.7
|
|
$
|
12.4
|
|
|
$
|
6.7
|
|
Local media
|
7.3
|
|
2.4
|
|
|
7.3
|
|
Unallocated corporate
|
0.6
|
|
3.3
|
|
|
0.6
|
|
|
$
|
14.6
|
|
$
|
18.1
|
|
|
$
|
14.6
|
|
During fiscal 2020, management made the strategic decisions to transition Rachael Ray Every Day into a consumer-driven, newsstand-only quarterly magazine and to discontinue the Family Circle brand. In addition, management committed to several smaller actions in the national media segment, local media segment, and unallocated corporate resulting in selected workforce reductions. In connection with these plans, the Company recorded pre-tax restructuring charges totaling $21.1 million, including $18.1 million for severance and related benefit costs associated with the involuntary termination of employees and $3.0 million in other costs and expenses. Of these charges, $17.4 million were recorded in the acquisition, disposition, and restructuring related activities line and $3.7 million were recorded in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss). Combined, these actions affected approximately 165 employees in the national media segment, 15 in the local media segment, and 10 in unallocated corporate. The majority of the severance costs were paid during fiscal 2020, with the remainder paid in the first half of fiscal 2021.
During fiscal 2019, management committed to several performance improvement plans related primarily to business realignments, including continuing those related to the integration of Time that began in fiscal 2018. Improvement plans that were made and executed upon during fiscal 2019 related to the strategic decision to merge Cooking Light magazine with EatingWell, transition Coastal Living from a subscription magazine to a special interest publication, to change Entertainment Weekly from a weekly to a monthly publication, to consolidate much of the local media's digital advertising functions with MNI, and to outsource newsstand sales and marketing operations. During fiscal 2019, the Company also incurred restructuring costs related to the consolidation of office space, including closing the Time Customer Service facility in Tampa, Florida and other office locations in Brooklyn, New York and Birmingham, Alabama. The fiscal 2019 performance improvement plans affected a total of approximately 300 people, including approximately 225 in the national media segment, approximately 25 in the local media segment, and the remainder in unallocated corporate. In connection with these plans, the Company recorded a pre-tax restructuring charge of $56.3 million for severance and related benefit costs related to the involuntary termination of employees and other write-downs of $31.1 million, mainly related to the closing of office locations in Tampa, Brooklyn, and Birmingham, which are recorded in the acquisition, disposition, and restructuring related activities line on the Consolidated Statements of Earnings (Loss). The majority of severance costs have been paid.
During the years ended June 30, 2021, 2020, and 2019, the Company recorded reversals of $2.2 million, $1.8 million, and $6.0 million, respectively, of excess restructuring reserves accrued in prior fiscal years. The reversals of excess restructuring reserves were recorded as credits in the acquisition, disposition, and restructuring related activities line on the Consolidated Statements of Earnings (Loss).
Details of changes in the Company’s restructuring accrual related to employee terminations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
|
2020
|
(In millions)
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
10.7
|
|
|
|
|
|
$
|
43.7
|
|
Accruals
|
14.6
|
|
|
|
|
|
18.1
|
|
Cash payments
|
(18.8)
|
|
|
|
|
|
(49.3)
|
|
|
|
|
|
|
|
|
Reversal of excess accrual
|
(2.2)
|
|
|
|
|
|
(1.8)
|
|
Balance at end of year
|
$
|
4.3
|
|
|
|
|
|
$
|
10.7
|
|
As of June 30, 2021, the $4.3 million liability was classified as current liabilities on the Consolidated Balance Sheets.
9. Long-term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
June 30, 2020
|
(In millions)
|
Principal Balance
|
Unamortized Discount and Debt Issuance Costs
|
Carrying
Value
|
Principal Balance
|
Unamortized Discount and Debt Issuance Costs
|
Carrying
Value
|
Variable-rate credit facilities
|
|
|
|
|
|
|
Senior credit facility term loan, due January 31, 2025
|
$
|
1,062.5
|
|
$
|
(10.4)
|
|
$
|
1,052.1
|
|
$
|
1,062.5
|
|
$
|
(13.1)
|
|
$
|
1,049.4
|
|
Senior credit facility incremental term loan, due January 31, 2025
|
405.9
|
|
(18.2)
|
|
387.7
|
|
410.0
|
|
(22.7)
|
|
387.3
|
|
Revolving credit facility of $350 million, due January 31, 2023
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Senior Unsecured Notes
|
|
|
|
|
|
|
6.875% senior notes, due February 1, 2026
|
1,022.9
|
|
(12.7)
|
|
1,010.2
|
|
1,272.9
|
|
(18.7)
|
|
1,254.2
|
|
Senior Secured Notes
|
|
|
|
|
|
|
6.500% senior notes, due July 1, 2025
|
300.0
|
|
(4.0)
|
|
296.0
|
|
300.0
|
|
(5.0)
|
|
295.0
|
|
Total long-term debt
|
2,791.3
|
|
(45.3)
|
|
2,746.0
|
|
3,045.4
|
|
(59.5)
|
|
2,985.9
|
|
Current portion of long-term debt
|
(4.1)
|
|
—
|
|
(4.1)
|
|
(4.1)
|
|
—
|
|
(4.1)
|
|
Long-term debt
|
$
|
2,787.2
|
|
$
|
(45.3)
|
|
$
|
2,741.9
|
|
$
|
3,041.3
|
|
$
|
(59.5)
|
|
$
|
2,981.8
|
|
The following table shows principal payments on the debt due in succeeding fiscal years:
|
|
|
|
|
|
Years ending June 30,
|
|
(In millions)
|
|
2022
|
$
|
4.1
|
|
2023
|
4.1
|
|
2024
|
4.1
|
|
2025
|
1,456.1
|
|
2026
|
1,322.9
|
|
|
|
Total long-term debt
|
$
|
2,791.3
|
|
In June 2020, the Company’s redemption of its outstanding Series A preferred stock was achieved by entering into credit arrangements with a total capacity of $710.0 million comprised of a variable-rate credit facility and senior secured notes. The variable-rate credit facility included an incremental secured term loan under its credit agreement (Incremental Term Loan) with $410.0 million of aggregate principal. The Incremental Term Loan matures in 2025 and amortizes at 1.0 percent per annum in equal quarterly installments until the final maturity date, at which time the remaining principal and interest are due and payable. The interest rate under the Incremental Term Loan is based on LIBOR plus a spread of 4.25 percent with a floor of 1.0 percent for LIBOR. The Incremental Term Loan bore interest at a rate of 5.25 percent at June 30, 2021.
The senior secured notes have an aggregate principal balance of $300.0 million maturing in 2025 with an interest rate of 6.50 percent per annum. Total outstanding principal is due at the final maturity date.
In connection with the issuance of this indebtedness in fiscal 2020, the Company incurred $3.0 million of deferred financing costs and an original issue discount of $25.2 million that are being amortized into interest expense over the lives of the respective facilities.
In January 2018, the Company entered into credit arrangements with a total capacity of $3.6 billion comprised of a revolving credit facility and senior unsecured notes (2026 Senior Notes). The revolving credit facility included a secured term loan (Term Loan B) with $1.8 billion of original aggregate principal and a 5-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 June 30, 2021, no borrowings were outstanding under the revolving credit facility. There were $2.7 million of standby letters of credit issued under the revolving credit facility resulting in availability of $347.3 million at June 30, 2021. The Term Loan B matures in 2025 and originally amortized at 1.0 percent per annum in equal quarterly installments until the final maturity date, at which time the remaining principal and interest are due and payable. However, as $200.0 million was paid on the Term Loan B in the first quarter of fiscal 2019, there are no future amortization requirements under the credit agreement.
In June 2020, the revolving credit facility was amended. The amendment provided relief to certain covenants during the Covenant Relief Period, which is effective until March 31, 2022. During the Covenant Relief Period, the revolving credit facility bears interest at LIBOR plus a spread ranging from 2.5 percent to 3.5 percent. After the Covenant Relief Period, the revolving credit facility bears interest at LIBOR plus a spread ranging from 2.5 percent to 3.0 percent. 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 original interest rate under the Term Loan B was based on LIBOR plus a spread of 3.0 percent. The Company repriced the Term Loan B effective October 26, 2018, to an interest rate of LIBOR plus a spread of 2.75 percent. Effective February 19, 2020, the Company again repriced the Term Loan B to an interest rate of LIBOR plus a spread of 2.5 percent. If the Company's leverage ratio drops below 2.25 to 1, the spread will decrease to 2.25 percent. The Term Loan B bore interest at a rate of 2.60 percent at June 30, 2021.
The repricings of the Term Loan B were evaluated on a creditor-by-creditor basis to determine whether the transactions should be accounted for as modifications or extinguishments. Certain creditors chose not to participate in the repricing and ceased being creditors of the Company. As a result, the Company recorded a debt extinguishment loss of $2.1 million in the second quarter of fiscal 2019 to write off the pro-rata amount of unamortized debt discount and deferred issuance costs related to these creditors. For the remainder of the creditors, this transaction was accounted for as a modification because, on a creditor-by-creditor basis, the difference between the present value of the cash flows to those creditors before and after the repricing was less than 10 percent. No debt extinguishment loss was recorded in fiscal 2020 as a result of that repricing.
In January 2018, the Company issued senior unsecured notes with an aggregate original principal balance of $1.4 billion maturing in 2026 (2026 Unsecured Senior Notes) with an interest rate of 6.875 percent per annum. Total outstanding principal is due at the final maturity date.
In the third quarter of fiscal 2021, the Company redeemed $250.0 million of its 2026 Unsecured Senior Notes. This payment was made in advance of the scheduled maturity and thus was considered an extinguishment of the debt. As a result of the prepayment, an extinguishment loss of $11.9 million was recognized in the third quarter of fiscal 2021 and was recorded in the interest expense, net line on the Consolidated Statements of Earnings (Loss). This extinguishment loss included a premium paid on the repurchase of the 2026 Senior Notes of $8.6 million.
Payments totaling $733.0 million were made on the Term Loan B during fiscal 2019. In addition to the Term Loan B repayments, the Company repurchased $127.1 million of its 2026 Unsecured Senior Notes. These payments were all made in advance of scheduled maturities and thus were considered extinguishments of the debt. Therefore, as a result of these prepayments, extinguishment losses of $18.4 million were recognized during fiscal 2019. The
extinguishment loss included a premium paid on the repurchase of the 2026 Unsecured Senior Notes of $1.8 million.
Of the total debt extinguishment loss of $18.4 million incurred during fiscal 2019, $10.9 million was recorded in the interest expense, net line and the remaining $7.5 million was recorded in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss). The portion of the extinguishment loss that was recorded in the loss from discontinued operations, net of income taxes line was related to debt repaid with the proceeds from the sale of assets held-for-sale. Refer to Note 5 for further discussion.
Interest expense related to long-term debt and the amortization of the associated debt issuance costs, inclusive of the extinguishment losses discussed above, totaled $180.1 million in fiscal 2021, $147.3 million in fiscal 2020, and $196.1 million in fiscal 2019. As further discussed in Note 5, a portion of interest expense and amortization of debt issuance costs related to long-term debt was recorded in the loss from discontinued operations, net of income taxes line on the Consolidated Statements of Earnings (Loss).
10. Income Taxes
Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change.
The following table shows income tax expense (benefit) attributable to earnings (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
|
2019
|
(In millions)
|
|
|
|
|
|
Current
|
|
|
|
|
|
Federal
|
$
|
77.3
|
|
|
$
|
18.7
|
|
|
$
|
(29.8)
|
|
State
|
16.9
|
|
|
7.9
|
|
|
(2.8)
|
|
Foreign
|
1.2
|
|
|
1.1
|
|
|
0.6
|
|
|
95.4
|
|
|
27.7
|
|
|
(32.0)
|
|
Deferred
|
|
|
|
|
|
Federal
|
(6.5)
|
|
|
(42.6)
|
|
|
42.0
|
|
State
|
(2.0)
|
|
|
(17.5)
|
|
|
1.6
|
|
Foreign
|
0.1
|
|
|
0.2
|
|
|
(0.1)
|
|
|
(8.4)
|
|
|
(59.9)
|
|
|
43.5
|
|
Income tax expense (benefit)
|
$
|
87.0
|
|
|
$
|
(32.2)
|
|
|
$
|
11.5
|
|
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants, and investments. The CARES Act did not have a material impact on our consolidated financial statements for the years ended June 30, 2021 and 2020.
The differences between the statutory U.S. federal income tax rate and the effective tax rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
|
2019
|
U.S. statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State income taxes, less federal income tax benefits
|
2.9
|
|
|
2.8
|
|
|
(0.7)
|
|
Foreign operations
|
0.2
|
|
|
(0.5)
|
|
|
(13.3)
|
|
Rate change
|
—
|
|
|
0.1
|
|
|
(0.1)
|
|
Settlements - audits / tax litigation
|
(4.9)
|
|
|
(0.4)
|
|
|
(2.5)
|
|
Transaction costs
|
1.2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Nondeductible compensation
|
1.2
|
|
|
(1.1)
|
|
|
3.7
|
|
Tax credits
|
(0.3)
|
|
|
3.7
|
|
|
—
|
|
Goodwill impairment
|
—
|
|
|
(12.8)
|
|
|
—
|
|
Other
|
0.8
|
|
|
0.5
|
|
|
0.1
|
|
Effective income tax rate
|
22.1
|
%
|
|
13.3
|
%
|
|
8.2
|
%
|
The Company’s effective tax rate was 22.1 percent in fiscal 2021, 13.3 percent in fiscal 2020, and 8.2 percent in fiscal 2019. The primary impact to the fiscal 2021 effective tax rate was the favorable Code Section 199 court determination being finalized and the release of $15.2 million of the associated reserve for uncertain tax positions. The fiscal 2020 effective tax rate was impacted primarily by the national media goodwill impairment charge. In the third quarter of fiscal 2020, the Company recorded a non-cash impairment charge of $252.7 million to reduce the carrying value of goodwill. The Company recorded an income tax benefit of $26.9 million related to this goodwill impairment charge. The fiscal 2019 effective tax rate was primarily impacted by a credit to income taxes of $23.5 million related to the write-off of worthless stock and related bad debt.
The tax effects of temporary differences that gave rise to deferred tax assets and deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
2021
|
|
2020
|
(In millions)
|
|
|
|
Deferred tax assets
|
|
|
|
Accounts receivable allowances and return reserves
|
$
|
25.0
|
|
|
$
|
29.7
|
|
Compensation and benefits
|
—
|
|
|
0.7
|
|
Indirect benefit of uncertain state and foreign tax positions
|
5.8
|
|
|
6.3
|
|
|
|
|
|
Investment in partnerships
|
1.0
|
|
|
6.8
|
|
Tax loss carryforwards
|
47.4
|
|
|
43.3
|
|
|
|
|
|
Lease liabilities
|
117.3
|
|
|
126.5
|
|
All other assets
|
14.2
|
|
|
17.7
|
|
Total deferred tax assets
|
210.7
|
|
|
231.0
|
|
Valuation allowance
|
(17.5)
|
|
|
(17.2)
|
|
Net deferred tax assets
|
193.2
|
|
|
213.8
|
|
Deferred tax liabilities
|
|
|
|
Subscription acquisition costs
|
55.1
|
|
|
62.0
|
|
Compensation and benefits
|
7.4
|
|
|
—
|
|
Accumulated depreciation and amortization
|
482.8
|
|
|
494.3
|
|
|
|
|
|
Deferred gains from dispositions
|
15.0
|
|
|
15.8
|
|
Lease right-of-use assets
|
92.6
|
|
|
101.6
|
|
All other liabilities
|
2.7
|
|
|
3.7
|
|
Total deferred tax liabilities
|
655.6
|
|
|
677.4
|
|
Net deferred tax liability
|
$
|
462.4
|
|
|
$
|
463.6
|
|
The Company has $6.9 million of net operating loss carryforwards for federal purposes and $209.9 million for state purposes, which, if unused, have expiration dates through fiscal 2039. It is expected that all federal net operating loss carryforwards will be utilized prior to expiration.
There was a small net increase in the valuation allowance of $0.3 million during fiscal 2021, which was related primarily to foreign and state net operating losses.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
(In millions)
|
|
|
|
Balance at beginning of year
|
$
|
49.4
|
|
|
$
|
53.7
|
|
|
|
|
|
Increases in tax positions for prior years
|
0.7
|
|
|
3.3
|
|
Decreases in tax positions for prior years
|
(0.4)
|
|
|
(0.1)
|
|
Increases in tax positions for current year
|
2.3
|
|
|
1.9
|
|
Settlements
|
(0.2)
|
|
|
0.1
|
|
Lapse in statute of limitations
|
(18.6)
|
|
|
(9.5)
|
|
Balance at end of year
|
$
|
33.2
|
|
|
$
|
49.4
|
|
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $31.4 million as of June 30, 2021, and $40.6 million as of June 30, 2020. The Company recognizes interest and penalties
related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties related to unrecognized tax benefits was $11.9 million and $13.4 million as of June 30, 2021 and 2020, respectively.
The total amount of unrecognized tax benefits at June 30, 2021, may change significantly within the next 12 months, decreasing by an estimated range of $18.6 million to $2.5 million. The change, if any, may result primarily from foreseeable federal and state examinations, ongoing federal and state examinations, anticipated state settlements, expiration of various statutes of limitation, the results of tax cases, or other regulatory developments.
The Company filed amended federal tax returns for fiscal years 2013-2016 in fiscal 2020 prior to the statute of limitations expiring. In addition, the Company filed an amended federal tax return for fiscal 2017 in fiscal 2021 prior to the statute of limitations expiring. As a result, those periods are subject to audit. On March 19, 2020, the Federal District Court ruled in the Company’s favor on a disputed Internal Revenue Code Section 199 issue for fiscal years 2006 through fiscal 2012. In the first quarter of fiscal 2021, the Department of Justice waived its right to appeal, resulting in the finalization of the Federal District Court decision and the release of the associated reserve for uncertain tax positions. Therefore, a tax benefit of $15.2 million was recorded in the first quarter of fiscal 2021. The Company has various state income tax examinations ongoing at various stages of completion, but generally the state income tax returns have been audited or closed to audit through fiscal 2012.
The complete legal and structural separation of Time Warner Inc.’s (Time Warner) magazine publishing and related business from Time Warner (the Time Spin-Off) was completed by way of a pro rata dividend of Time Inc. shares held by Time Warner to its stockholders as of May 23, 2014, based on a distribution ratio of one share of Time Inc. common stock for every eight shares of Time Warner common stock held (the Distribution). In connection with the acquisition of Time, the Company assumed the Tax Matters Agreement (TMA) entered into with Time Warner that requires Time to indemnify Time Warner for certain tax liabilities for periods prior to the Time Spin-Off from Time Warner, which was completed on June 6, 2014. With respect to taxes other than those incurred in connection with the Time Spin-Off, the TMA provides that the Company will indemnify Time Warner for (1) any taxes of Time and its subsidiaries for all periods after the Distribution and (2) any taxes of the Time Warner group for periods prior to the Distribution to the extent attributable to Time or its subsidiaries. For purposes of the indemnification described in clause (2), however, Time will generally be required to indemnify Time Warner only for any such taxes that are paid in connection with a tax return filed after the Distribution or that result from an adjustment made to such taxes after the Distribution. In these cases, Time’s indemnification obligations generally would be computed based on the amount by which the tax liability of the Time Warner group is greater than it would have been absent Time’s inclusion in its tax returns (or absent the applicable adjustment). Time and Time Warner will generally have joint control over tax authority audits or other tax proceedings related to Time specific tax matters. As of June 30, 2021 and 2020, the Company has recorded a liability in connection with the TMA of $29.8 million and $28.9 million, respectively.
11. Commitments and Contingent Liabilities
The Company has commitments under certain firm contractual arrangements (firm commitments) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. Commitments not recorded on the Consolidated Balance Sheets consist primarily of purchase obligations for goods and services. Commitments recorded on the Consolidated Balance Sheets consist primarily of
debt, operating lease liabilities, and pension obligations. Commitments expected to be paid over the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In
|
|
Years ending June 30,
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
Thereafter
|
Total
|
(In millions)
|
|
|
|
|
|
|
|
Broadcast rights payable
|
|
|
|
|
|
|
|
Recorded commitments
|
$
|
5.5
|
|
$
|
2.6
|
|
$
|
1.2
|
|
$
|
0.7
|
|
$
|
0.7
|
|
$
|
0.1
|
|
$
|
10.8
|
|
Unavailable rights
|
8.0
|
|
7.2
|
|
1.1
|
|
—
|
|
—
|
|
—
|
|
16.3
|
|
Total commitments
|
$
|
13.5
|
|
$
|
9.8
|
|
$
|
2.3
|
|
$
|
0.7
|
|
$
|
0.7
|
|
$
|
0.1
|
|
$
|
27.1
|
|
The Company has recorded commitments for broadcast rights payable in future fiscal years. The Company also is obligated to make payments under contracts for broadcast rights not currently available for use and, therefore, not included in the consolidated financial statements. Such unavailable rights amounted to $16.3 million at June 30, 2021. The fair value of these commitments for unavailable broadcast rights, determined by the present value of future cash flows discounted at the Company’s current borrowing rate, was $15.2 million at June 30, 2021.
Lease Guarantees
In March 2018, the Company sold Time Inc. (UK) Ltd (TIUK), a United Kingdom (U.K.) multi-platform publisher. In connection with the sale of TIUK, the Company recognized a liability in connection with a lease of office space in the U.K. through December 31, 2025, which was guaranteed by the Company. In the first quarter of fiscal 2020, the Company was released of its guarantee by the landlord. As a result, a gain of $8.0 million was recorded in the non-operating income (expense), net line on the Consolidated Statements of Earnings (Loss).
The Company guarantees two other leases of entities previously sold, one through January 2023 and another through November 2030. The carrying value of those guarantees, which were recorded in other noncurrent liabilities on the Consolidated Balance Sheets, was $2.0 million and $2.2 million at June 30, 2021 and 2020, respectively, and the maximum obligation for which the Company would be liable if the primary obligors fail to perform under the lease agreements was $12.0 million as of June 30, 2021.
Legal Proceedings
In the ordinary course of business, the Company is a defendant in or party to various legal claims, actions, and proceedings. These claims, actions, and proceedings are at varying stages of investigation, arbitration, or adjudication, and involve a variety of areas of law.
On October 26, 2010, the Canadian Minister of National Revenue denied the claims by Time Inc. Retail (formerly Time/Warner Retail Sales & Marketing, Inc.) (TIR) for input tax credits in respect of goods and services tax that TIR had paid on magazines it imported into and had displayed at retail locations in Canada during the years 2006 to 2008, on the basis that TIR did not own those magazines and issued Notices of Reassessment in the amount of approximately C$52 million. On January 21, 2011, TIR filed an objection to the Notices of Reassessment with the Chief of Appeals of the Canada Revenue Agency (CRA), arguing that TIR claimed input tax credits only in respect of goods and services tax it actually paid and it is entitled to a rebate for such payments. On September 13, 2013, TIR received Notices of Reassessment in the amount of C$26.9 million relating to the same type of situation during the years 2009 to 2010, and TIR filed similar objections as for prior years. By letter dated June 19, 2015, the CRA requested payment of C$89.8 million, which includes interest accrued and stated that failure to pay may result in legal action. TIR responded by stating that collection should remain stayed pending resolution of the issues raised by TIR’s objection. Including interest accrued, the total of the reassessments claimed by the CRA for the years 2006 to 2010 was C$91.0 million as of November 30, 2015. The parties are engaged in mediation.
On September 6, 2019, a shareholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of New York against the Company, its Chief Executive Officer, and its Chief Financial Officer, seeking to represent a class of shareholders who acquired securities of the Company between May 10, 2018 and September 4, 2019 (the New York Action). On September 12, 2019, a shareholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of Iowa against the Company, its Chief Executive Officer, its Chief Financial Officer, and its Chairman of the Board seeking to represent a class of shareholders who acquired securities of the Company between January 31, 2018 and September 5, 2019 (the Iowa Action). Both complaints allege that the defendants made materially false and/or misleading statements, and failed to disclose material adverse facts, about the Company’s business, operations, and prospects. Both complaints assert claims under the federal securities laws and seek unspecified monetary damages and other relief. On November 12, 2019, the plaintiff shareholder withdrew the New York Action, and the action has been dismissed. On November 25, 2019, the City of Plantation Police Officers Pension Fund was appointed to serve as lead plaintiff in the Iowa Action. On March 9, 2020, the lead plaintiff filed an amended complaint in the Iowa Action, seeking to represent a class of shareholders who acquired securities of the Company between January 31, 2018 and September 30, 2019. On June 22, 2020, the defendants filed a motion to dismiss the Iowa Action. On October 28, 2020, a U.S. District Judge granted defendants’ motion to dismiss, dismissing the Iowa Action with prejudice at plaintiffs’ cost due to plaintiffs’ failure to satisfy applicable pleading requirements. Specifically, the court held that plaintiffs had failed to plead any actionable misstatement or omission, scienter, or loss causation. On November 23, 2020, the lead plaintiff filed a notice of appeal of the District Court’s dismissal. The parties have completed briefing in the Eighth Circuit Court of Appeals, and it appears likely we will receive a decision on the appeal sometime in late 2021 or 2022.
On April 3, 2019, a purported class of plaintiff purchasers of broadcast television spot advertising amended its pending consolidated complaint in the U.S. District Court for the Northern District of Illinois against a number of broadcast television station groups to add Meredith and other broadcast television station groups as defendants (the Defendants). The amended complaint alleges that the Defendants have violated federal antitrust law by entering agreements with their competitors to fix prices and exchange competitively sensitive information. The Defendants filed a joint motion to dismiss on June 5, 2019, after which the plaintiffs filed a consolidated second amended complaint on September 9, 2019. The Defendants filed a joint motion to dismiss the second amended complaint on October 8, 2019. On November 6, 2020, the court denied the motion to dismiss. The Court has set a pretrial schedule requiring that all fact discovery be completed by July 1, 2022, and briefing on class certification be completed by November 14, 2022.
The results of any such litigation, including the aforementioned class action lawsuits, investigations, and other legal proceedings are inherently unpredictable and expensive. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, damage our reputation, require significant amounts of management time, and divert significant resources. If any of these legal proceedings were to be determined adversely to the Company, or the Company were to enter into a settlement arrangement, it could be exposed to monetary damages or limits on our ability to operate the business, which could have an adverse effect on the business, financial condition, and operating results.
The Company establishes an accrued liability for specific matters, such as a legal claim, when the Company determines that a loss is probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. In view of the inherent difficulty of predicting the outcome of litigation, claims, and other matters, the Company often cannot predict what the eventual outcome of a pending matter will be, or what the timing or results of the ultimate resolution of a matter will be. Accordingly, for the matters described above, the Company is unable to predict the outcome or reasonably estimate a range of possible loss.
12. Fair Value Measurements
The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
• Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2Inputs other than quoted prices included within Level 1 that are either directly or indirectly
observable; and
• Level 3Assets or liabilities for which fair value is based on valuation models with significant unobservable
pricing inputs and which result in the use of management estimates.
The following table sets forth the carrying value and the estimated fair value of the Company’s financial instruments not measured at fair value in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
(In millions)
|
Carrying Value
|
|
Fair Value
|
|
|
Carrying Value
|
|
Fair Value
|
Broadcast rights payable
|
$
|
10.8
|
|
|
$
|
9.8
|
|
|
|
$
|
12.7
|
|
|
$
|
11.7
|
|
Long-term debt
|
2,746.0
|
|
|
2,859.3
|
|
|
|
2,985.9
|
|
|
2,753.6
|
|
The fair value of broadcast rights payable was determined utilizing Level 3 inputs. The fair value of total long-term debt was based on pricing from observable market information obtained from a non-active market, therefore was included as a Level 2 measurement.
The following tables summarize recurring and nonrecurring fair value measurements at June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
(In millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
Cash and cash equivalents - cash equivalents
|
$
|
112.6
|
|
|
$
|
112.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued expenses
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.2
|
|
Deferred compensation plans
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
1.6
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
Deferred compensation plans
|
13.6
|
|
|
—
|
|
|
13.6
|
|
|
—
|
|
Total recurring liability fair value measurements
|
$
|
19.5
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended June 30, 2020
|
(In millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Losses
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – cash equivalents
|
$
|
115.2
|
|
|
$
|
115.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
|
Deferred compensation plans
|
3.4
|
|
|
—
|
|
|
3.4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
3.6
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
|
|
Deferred compensation plans
|
13.5
|
|
|
—
|
|
|
13.5
|
|
|
—
|
|
|
|
Total recurring liability fair value measurements
|
$
|
21.8
|
|
|
$
|
—
|
|
|
$
|
16.9
|
|
|
$
|
4.9
|
|
|
|
Nonrecurring fair value measurements
|
|
|
|
|
|
|
|
|
|
Net property, plant, and equipment 1
|
$
|
16.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16.7
|
|
|
$
|
(23.4)
|
|
Operating lease assets 2
|
46.3
|
|
|
—
|
|
|
—
|
|
|
46.3
|
|
|
(64.5)
|
|
Intangible assets, net 3
|
77.9
|
|
|
—
|
|
|
—
|
|
|
77.9
|
|
|
(48.7)
|
|
Goodwill 4
|
1,602.5
|
|
|
—
|
|
|
—
|
|
|
1,602.5
|
|
|
(252.7)
|
|
Total nonrecurring fair value measurements
|
$
|
1,743.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,743.4
|
|
|
$
|
(389.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Represents leasehold improvements and furniture and fixtures with a carrying value of $40.1 million partially impaired with its associated operating lease asset at March 31, 2020. The impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss). For further discussion, refer to Note 6.
|
2
|
Represents an operating lease asset with a carrying value of $110.8 million partially impaired at March 31, 2020. The impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss). For further discussion, refer to Note 6.
|
3
|
Represents a local media FCC license partially impaired at March 31, 2020, and five national media trademarks. One trademark was fully impaired at September 30, 2019, and four additional were partially impaired at March 31, 2020. The assets had a carrying value of $126.6 million prior to the impairment. The impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss). For further details, refer to Note 7.
|
4
|
Represents national media goodwill with a carrying value of $1,855.2 million partially impaired at March 31, 2020. The impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss). For further details, refer to Note 7.
|
The fair value of deferred compensation plans is derived from quotes of similar investments observable in the market, and thus represents a Level 2 measurement. The fair value of contingent consideration is based on estimates on future performance benchmarks established in the associated acquisition agreements and the amortization of the present value discount. These estimates are based on inputs not observable in the market and thus represent Level 3 measurements. Estimates utilize a weighted average discount rate of 3.50 percent, weighted by relative fair value.
The operating lease assets and net property, plant, and equipment are assets associated with the same leased space. These assets were measured on a non-recurring basis, and the fair value was determined based on significant inputs not observable in the market and thus represented a Level 3 measurement. For further discussion of the impairment of these assets, refer to Note 6. The impairment charges were recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss).
The fair values of the trademarks, FCC licenses, and goodwill were measured on a non-recurring basis and were determined based on significant inputs not observable in the market and thus represented Level 3 measurements. Key assumptions used to determine the fair value included discount rates, estimated cash flows, royalty rates, and revenue growth rates. The discount rate used was based on several factors, including market interest rates, and a weighted average cost of capital analysis based on the target capital structure, and included adjustments for market risk and Company-specific risk. Estimated cash flows were based on internally developed estimates and the revenue growth rates were based on industry knowledge and historical performance. For the intangible assets, the unobservable significant inputs included a discount rate of 11.00 percent, a royalty rate of 1.61 percent, and a terminal revenue growth rate of 1.48 percent, all weighted by relative fair values. For further discussion of the
impairment of these assets, refer to Note 7. The impairment charges were recorded in the impairment of goodwill and other long-lived assets line on the Consolidated Statements of Earnings (Loss).
The following table represents the changes in the fair value of liabilities subject to Level 3 remeasurement during the years ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
(In millions)
|
|
|
|
Contingent consideration
|
|
|
|
Balance at beginning of year
|
$
|
4.9
|
|
|
$
|
0.8
|
|
Additions due to acquisitions
|
—
|
|
|
4.1
|
|
Payments
|
(1.0)
|
|
|
—
|
|
Fair value adjustment of contingent consideration
|
(0.1)
|
|
|
—
|
|
Balance at end of year
|
$
|
3.8
|
|
|
$
|
4.9
|
|
The fair value adjustment of contingent consideration was the change in the estimated earn out payments based on projections of performance and the amortization of the present value discount. The fair value adjustment of contingent consideration was included in the selling, general, and administrative line on the Consolidated Statements of Earnings (Loss).
13. Revenue Recognition
Meredith disaggregates revenue from contracts with customers by types of goods and services. A reconciliation of disaggregated revenue to segment revenue (as provided in Note 19) is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
National
Media
|
Local
Media
|
Intersegment
Elimination
|
Total
|
(In millions)
|
|
|
|
|
Advertising related
|
|
|
|
|
Digital
|
$
|
491.8
|
|
$
|
19.0
|
|
$
|
—
|
|
$
|
510.8
|
|
Magazine
|
426.5
|
|
—
|
|
—
|
|
426.5
|
|
Non-political spot
|
—
|
|
279.2
|
|
—
|
|
279.2
|
|
Political spot
|
—
|
|
175.4
|
|
—
|
|
175.4
|
|
Third party sales
|
46.1
|
|
92.5
|
|
(4.9)
|
|
133.7
|
|
Total advertising related
|
964.4
|
|
566.1
|
|
(4.9)
|
|
1,525.6
|
|
Consumer related
|
|
|
|
|
Subscription
|
564.7
|
|
—
|
|
—
|
|
564.7
|
|
Retransmission
|
—
|
|
377.0
|
|
—
|
|
377.0
|
|
Newsstand
|
150.0
|
|
—
|
|
—
|
|
150.0
|
|
Licensing
|
124.9
|
|
—
|
|
—
|
|
124.9
|
|
Affinity marketing
|
62.3
|
|
—
|
|
—
|
|
62.3
|
|
Digital and other consumer driven
|
90.9
|
|
0.8
|
|
—
|
|
91.7
|
|
Total consumer related
|
992.8
|
|
377.8
|
|
—
|
|
1,370.6
|
|
Other
|
|
|
|
|
Projects based
|
50.4
|
|
—
|
|
—
|
|
50.4
|
|
Other
|
15.9
|
|
14.9
|
|
—
|
|
30.8
|
|
Total other
|
66.3
|
|
14.9
|
|
—
|
|
81.2
|
|
Total revenues
|
$
|
2,023.5
|
|
$
|
958.8
|
|
$
|
(4.9)
|
|
$
|
2,977.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
National
Media
|
Local
Media
|
Intersegment
Elimination
|
Total
|
(In millions)
|
|
|
|
|
Advertising related
|
|
|
|
|
Digital
|
$
|
376.8
|
|
$
|
17.7
|
|
$
|
—
|
|
$
|
394.5
|
|
Magazine
|
553.5
|
|
—
|
|
—
|
|
553.5
|
|
Non-political spot
|
—
|
|
285.6
|
|
—
|
|
285.6
|
|
Political spot
|
—
|
|
23.9
|
|
—
|
|
23.9
|
|
Third party sales
|
63.1
|
|
80.7
|
|
(2.3)
|
|
141.5
|
|
Total advertising related
|
993.4
|
|
407.9
|
|
(2.3)
|
|
1,399.0
|
|
Consumer related
|
|
|
|
|
Subscription
|
611.8
|
|
—
|
|
—
|
|
611.8
|
|
Retransmission
|
—
|
|
347.9
|
|
—
|
|
347.9
|
|
Newsstand
|
150.8
|
|
—
|
|
—
|
|
150.8
|
|
Licensing
|
98.0
|
|
—
|
|
—
|
|
98.0
|
|
Affinity marketing
|
67.4
|
|
—
|
|
—
|
|
67.4
|
|
Digital and other consumer driven
|
72.8
|
|
—
|
|
—
|
|
72.8
|
|
Total consumer related
|
1,000.8
|
|
347.9
|
|
—
|
|
1,348.7
|
|
Other
|
|
|
|
|
Projects based
|
56.7
|
|
—
|
|
—
|
|
56.7
|
|
Other
|
30.7
|
|
13.5
|
|
—
|
|
44.2
|
|
Total other
|
87.4
|
|
13.5
|
|
—
|
|
100.9
|
|
Total revenues
|
$
|
2,081.6
|
|
$
|
769.3
|
|
$
|
(2.3)
|
|
$
|
2,848.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
National
Media
|
Local
Media
|
Intersegment
Elimination
|
Total
|
(In millions)
|
|
|
|
|
Advertising related
|
|
|
|
|
Digital
|
$
|
394.9
|
|
$
|
15.8
|
|
$
|
—
|
|
$
|
410.7
|
|
Magazine
|
690.1
|
—
|
|
—
|
|
690.1
|
|
Non-political spot
|
—
|
|
323.3
|
—
|
|
323.3
|
|
Political spot
|
—
|
|
102.9
|
—
|
|
102.9
|
|
Third party sales
|
65.3
|
96.2
|
(1.9)
|
|
159.6
|
|
Total advertising related
|
1,150.3
|
|
538.2
|
|
(1.9)
|
|
1,686.6
|
|
Consumer related
|
|
|
|
|
Subscription
|
716.1
|
—
|
|
—
|
|
716.1
|
|
Retransmission
|
—
|
|
316.5
|
|
—
|
|
316.5
|
|
Newsstand
|
165.5
|
—
|
|
—
|
|
165.5
|
|
Licensing
|
95.2
|
—
|
|
—
|
|
95.2
|
|
Affinity marketing
|
66.7
|
—
|
|
—
|
|
66.7
|
|
Digital and other consumer driven
|
56.8
|
—
|
|
—
|
|
56.8
|
|
Total consumer related
|
1,100.3
|
|
316.5
|
|
—
|
|
1,416.8
|
|
Other
|
|
|
|
|
Projects based
|
50.5
|
|
—
|
|
—
|
|
50.5
|
|
Other
|
25.5
|
|
9.1
|
|
—
|
|
34.6
|
|
Total other
|
76.0
|
|
9.1
|
|
—
|
|
85.1
|
|
Total revenues
|
$
|
2,326.6
|
|
$
|
863.8
|
|
$
|
(1.9)
|
|
$
|
3,188.5
|
|
CONTRACT BALANCES
The timing of Meredith’s performance under its various contracts often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service is transferred to a customer, and the Company does not have the contractual right to bill for the related performance obligations. Due to the nature of its contracts, the Company does not have significant contract assets. A contract liability is recognized when consideration is received from the customer prior to the transfer of goods or services. Current portion of contract liabilities were $396.4 million at June 30, 2021, and $403.2 million at June 30, 2020, and are presented as current portion of unearned revenues on the Consolidated Balance Sheets. Noncurrent contract liabilities were $218.8 million at June 30, 2021, and $267.5 million at June 30, 2020, and are reflected as unearned revenues on the Consolidated Balance Sheets. Revenue of $400.5 million and $478.4 million recognized in the years ended June 30, 2021 and 2020, respectively, were in contract liabilities at the beginning of the periods.
During the second quarter of fiscal 2020, the Company wrote off $42.7 million of contract liabilities due to the discontinuation of Rachael Ray Every Day and Family Circle as subscription magazines. This amount was composed of balances at June 30, 2019, as well as newly acquired contracts during the first six months of fiscal 2020. In addition, the Company wrote off an offsetting $42.7 million of contract costs associated with the discontinued contracts. The contract liabilities were presented in the current portion of unearned revenues and unearned revenues lines and the contract costs were presented in the current portion of subscription acquisition costs and subscription acquisition costs lines on the Consolidated Balance Sheets.
CONTRACT COSTS
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer paid to external parties, if it expects to recover those costs. The Company has determined that sales commissions paid on all third-party agent sales of subscriptions are direct and incremental and therefore meet the capitalization criteria. These capitalized costs are amortized as revenue is recognized or over the term of the agreement. As of June 30, 2021, the balances recognized from the costs incurred to obtain contracts with customers were $406.0 million, $225.6 million of which was recorded in current portion of subscription acquisition costs and $180.4 million was recorded in subscription acquisition costs on the Consolidated Balance Sheets. As of June 30, 2020, the total balances recognized were $434.8 million, $213.2 million of which was recorded in current portion of subscription acquisition costs and $221.6 million was recorded in subscription acquisition costs. The Company recognized amortization related to these costs of $213.2 million in fiscal 2021, $238.1 million in fiscal 2020, and $319.5 million in fiscal 2019. As discussed in the contract balances section above, during fiscal 2020, the Company wrote off $42.7 million of contract costs associated with discontinued contracts. There were no impairments of contract costs recognized during the years ended June 30, 2021 and 2019.
14. Pension and Postretirement Benefit Plans
Defined Contribution Plans
The Company sponsors a defined contribution saving plan for most of its U.S. based employees. Eligible Company employees may participate in the Meredith Savings and Investment Plan, a defined contribution plan that allows eligible employees to contribute a percentage of their salary, commissions, and bonuses in accordance with plan limitations and provisions of Section 401(k) of the Internal Revenue Code and the Company makes matching contributions to the plan subject to the limits of the plan. Until January 1, 2021, the Company matched 100 percent of the first 4 percent and 50 percent of the next 1 percent of employee contributions. Effective January 1, 2021, the Company increased the 401(k) match to 100 percent of the first 5 percent for employees ineligible for Meredith pension plans.
In connection with the Time acquisition, certain employees continued to participate, through December 31, 2018, in the defined contribution savings plan that Time had in place for its employees in the U.S., the Time Inc. Savings Plan. For the Time Inc. Savings Plan, the Company matched 100 percent of the first 4 percent and 50 percent of the next 2 percent of eligible compensation. In addition to the annual employer contribution made to the Time Inc. Savings Plan, following the plan year, the Company made an employer match contribution of up to 5 percent of each participant’s compensation less any employer matching contribution made within the plan year to those participants who contributed up to 6 percent of their compensation for the plan year. The Time Inc. Savings Plan merged into the Meredith Savings and Investment Plan effective for the 2019 calendar plan year.
Employees are allowed to choose among various investment options. The Meredith Savings and Investment Plan included an investment option in the Company’s common stock until December 31, 2018. Matching contributions are invested in the same manner as the participants’ pre-tax contributions. Company contribution expense under these plans totaled $17.6 million in fiscal 2021, $17.9 million in fiscal 2020, and $22.6 million in fiscal 2019.
The Company sponsors the Meredith Corporation Deferred Compensation Plan and also administers The Time Inc. Deferred Compensation Plan, which is a frozen plan (collectively the Deferred Compensation Plans). The Deferred Compensation Plans allow participants to defer certain bonuses and salaries. No actual monies are set aside in respect of the Deferred Compensation Plans, and participants have no rights to Company assets in respect of plan liabilities in excess of general unsecured creditors.
The liabilities associated with the plans fluctuate with hypothetical yields of the underlying investments. Liabilities for the uncollateralized plans were $15.7 million and $16.9 million at June 30, 2021 and 2020, respectively, of which $2.1 million was reflected in the accrued expenses-accrued compensation and benefits line and $13.6 million was reflected in the other noncurrent liabilities line on the Consolidated Balance Sheets at June 30, 2021, and $3.4 million was reflected in the accrued expenses-accrued compensation and benefits line and $13.5 million was reflected in the other noncurrent liabilities line on the Consolidated Balance Sheets at June 30, 2020.
Pension and Postretirement Plans
Meredith has U.S. noncontributory pension plans covering substantially all employees who were employed by Meredith prior to January 1, 2018. The Company also assumed the obligations under Time’s various international pension plans, including plans in the U.K., Netherlands, and Germany. These domestic and international plans include qualified (funded) plans as well as nonqualified (unfunded) plans. These plans provide participating employees with retirement benefits in accordance with benefit provision formulas. The nonqualified plans provide retirement benefits only to certain highly compensated employees. The Company also sponsors defined healthcare and life insurance plans that provide benefits to eligible retirees.
Obligations and Funded Status
The following tables present changes in, and components of, the Company’s net assets/liabilities for pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
June 30,
|
2021
|
2020
|
|
|
2021
|
2020
|
|
|
2021
|
2020
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
$
|
169.8
|
|
$
|
187.5
|
|
|
|
$
|
815.1
|
|
$
|
725.3
|
|
|
|
$
|
8.5
|
|
$
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
9.3
|
|
9.7
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
Interest cost
|
3.3
|
|
5.1
|
|
|
|
10.0
|
|
14.4
|
|
|
|
0.2
|
|
0.3
|
|
Participant contributions
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
0.8
|
|
0.8
|
|
Plan amendments
|
0.1
|
|
—
|
|
|
|
1.5
|
|
—
|
|
|
|
—
|
|
—
|
|
Net actuarial loss (gain)
|
—
|
|
13.5
|
|
|
|
(22.2)
|
|
124.3
|
|
|
|
(0.6)
|
|
0.1
|
|
Benefits paid (including lump sums)
|
(1.1)
|
|
(0.2)
|
|
|
|
(19.8)
|
|
(22.0)
|
|
|
|
(0.9)
|
|
(1.0)
|
|
Settlements
|
(14.6)
|
|
(45.8)
|
|
|
|
—
|
|
(4.0)
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate impact
|
—
|
|
—
|
|
|
|
101.9
|
|
(22.9)
|
|
|
|
—
|
|
—
|
|
Benefit obligation, end of year
|
$
|
166.8
|
|
$
|
169.8
|
|
|
|
$
|
886.5
|
|
$
|
815.1
|
|
|
|
$
|
8.0
|
|
$
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
125.8
|
|
$
|
135.4
|
|
|
|
$
|
948.9
|
|
$
|
872.1
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
34.5
|
|
6.9
|
|
|
|
(40.4)
|
|
112.7
|
|
|
|
—
|
|
—
|
|
Employer contributions
|
5.8
|
|
29.5
|
|
|
|
14.9
|
|
18.2
|
|
|
|
0.1
|
|
0.2
|
|
Participant contributions
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
0.8
|
|
0.8
|
|
Benefits paid (including lump sums)
|
(1.1)
|
|
(0.2)
|
|
|
|
(19.8)
|
|
(22.0)
|
|
|
|
(0.9)
|
|
(1.0)
|
|
Settlements
|
(14.6)
|
|
(45.8)
|
|
|
|
—
|
|
(4.0)
|
|
|
|
—
|
|
—
|
|
Foreign currency exchange rate impact
|
—
|
|
—
|
|
|
|
119.3
|
|
(28.1)
|
|
|
|
—
|
|
—
|
|
Fair value of plan assets, end of year
|
$
|
150.4
|
|
$
|
125.8
|
|
|
|
$
|
1,022.9
|
|
$
|
948.9
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Over (under) funded status, end of year
|
$
|
(16.4)
|
|
$
|
(44.0)
|
|
|
|
$
|
136.4
|
|
$
|
133.8
|
|
|
|
$
|
(8.0)
|
|
$
|
(8.5)
|
|
The net actuarial loss included in the change in benefit obligation for the domestic pension plan for the year ended June 30, 2020, is primarily the result of a decrease in the discount rate used at June 30, 2020, as compared to June 30, 2019, offset by a very slight gain impacted by a mortality assumption update.
The net actuarial gain included in the change in benefit obligation for the international pension plans for the year ended June 30, 2021, is primarily the result of an increase in the discount rate used at June 30, 2021, as compared to June 30, 2020, partially offset by an increase in inflation. The net actuarial loss included in the change in benefit obligation for the international pension plans for the year ended June 30, 2020, was primarily the result of a significant decrease in the discount rate used at June 30, 2020, as compared to June 30, 2019, partially offset by a decrease in inflation and plan experience.
Benefits paid directly from Meredith assets are included both in employer contributions and benefits paid.
The following amounts are recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
Postretirement
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
June 30,
|
2021
|
2020
|
|
|
2021
|
2020
|
|
|
2021
|
2020
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
$
|
26.5
|
|
$
|
2.3
|
|
|
|
$
|
144.2
|
|
$
|
140.9
|
|
|
|
$
|
—
|
|
$
|
—
|
|
Accrued expenses-compensation and benefits
|
—
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
(3.9)
|
|
(6.3)
|
|
|
|
(0.2)
|
|
(0.1)
|
|
|
|
(0.5)
|
|
(0.6)
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
(39.0)
|
|
(40.0)
|
|
|
|
(7.6)
|
|
(7.0)
|
|
|
|
(7.5)
|
|
(7.9)
|
|
Net amount recognized, end of year
|
$
|
(16.4)
|
|
$
|
(44.0)
|
|
|
|
$
|
136.4
|
|
$
|
133.8
|
|
|
|
$
|
(8.0)
|
|
$
|
(8.5)
|
|
The accumulated benefit obligation for the domestic defined benefit pension plans was $147.0 million and $150.4 million at June 30, 2021 and 2020, respectively. The accumulated benefit obligation for the international defined
benefit pension plans was $886.5 million and $815.1 million at June 30, 2021 and 2020, respectively.
The following table provides information about pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
June 30,
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
(In millions)
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
43.0
|
|
|
$
|
45.9
|
|
|
|
$
|
7.8
|
|
|
$
|
7.1
|
|
Accumulated benefit obligation
|
34.1
|
|
|
37.9
|
|
|
|
7.8
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
Costs
The components of net periodic benefit costs recognized in the Consolidated Statements of Earnings (Loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
Years ended June 30,
|
2021
|
2020
|
2019
|
|
|
2021
|
2020
|
2019
|
|
|
2021
|
2020
|
2019
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
9.3
|
|
$
|
9.7
|
|
$
|
11.5
|
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
0.1
|
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
3.3
|
|
5.1
|
|
6.5
|
|
|
|
10.0
|
|
14.4
|
|
16.9
|
|
|
|
0.2
|
|
0.3
|
|
0.3
|
|
Expected return on plan assets
|
(7.8)
|
|
(9.2)
|
|
(9.7)
|
|
|
|
(16.9)
|
|
(18.4)
|
|
(31.5)
|
|
|
|
—
|
|
—
|
|
—
|
|
Prior service cost amortization
|
0.4
|
|
0.5
|
|
0.5
|
|
|
|
0.2
|
|
0.2
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
Actuarial loss (gain) amortization
|
2.6
|
|
2.8
|
|
1.9
|
|
|
|
—
|
|
—
|
|
—
|
|
|
|
(0.3)
|
|
(0.5)
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charges (credit)
|
1.1
|
|
13.0
|
|
2.7
|
|
|
|
—
|
|
1.2
|
|
(4.1)
|
|
|
|
—
|
|
—
|
|
—
|
|
Contractual termination benefits
|
—
|
|
—
|
|
1.3
|
|
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
Net periodic benefit costs (credit)
|
$
|
8.9
|
|
$
|
21.9
|
|
$
|
14.7
|
|
|
|
$
|
(6.7)
|
|
$
|
(2.6)
|
|
$
|
(18.6)
|
|
|
|
$
|
(0.1)
|
|
$
|
(0.2)
|
|
$
|
(0.3)
|
|
The pension settlement charges recorded in fiscal 2021 and 2020 related to lump-sum payments as a result of executive retirements and a resignation in the prior fiscal year and cash distributions paid by the pension plan during fiscal 2020 exceeding a prescribed threshold. This required that a portion of pension losses within accumulated
other comprehensive loss be realized in the period that the related pension liabilities were settled. The international settlement charge recorded in fiscal 2020 was related to the final settlement of the Company's German pension plan.
The components of net periodic benefit costs (credit), other than the service cost component, are included in non-operating income (expense), net in the Consolidated Statements of Earnings (Loss). The amortization of amounts related to unrecognized prior service costs/credit and net actuarial gain/loss were reclassified out of other comprehensive income (loss) as components of net periodic benefit costs.
Amounts recognized in the accumulated other comprehensive loss component of shareholders’ equity for Company-sponsored plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
June 30,
|
2021
|
2020
|
|
|
2021
|
2020
|
|
|
2021
|
2020
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses (gains), net of taxes
|
$
|
2.7
|
|
$
|
25.4
|
|
|
|
$
|
66.2
|
|
$
|
27.5
|
|
|
|
$
|
(1.6)
|
|
$
|
(1.3)
|
|
Unrecognized prior service cost, net of taxes
|
0.5
|
|
0.7
|
|
|
|
8.7
|
|
6.7
|
|
|
|
—
|
|
—
|
|
Total
|
$
|
3.2
|
|
$
|
26.1
|
|
|
|
$
|
74.9
|
|
$
|
34.2
|
|
|
|
$
|
(1.6)
|
|
$
|
(1.3)
|
|
Assumptions
Benefit obligations were determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
June 30,
|
2021
|
2020
|
|
|
2021
|
2020
|
|
|
2021
|
2020
|
Weighted average assumptions
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.55
|
%
|
2.43
|
%
|
|
|
1.57
|
%
|
1.17
|
%
|
|
|
2.75
|
%
|
2.65
|
%
|
Rate of compensation increase
|
3.01
|
%
|
3.07
|
%
|
|
|
n/a
|
n/a
|
|
|
3.50
|
%
|
3.50
|
%
|
Cash balance interest credit rate
|
2.14
|
%
|
2.08
|
%
|
|
|
n/a
|
n/a
|
|
|
n/a
|
n/a
|
n/a - Not applicable
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs were determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
Domestic
|
|
International
|
|
|
Domestic
|
Years ended June 30,
|
2021
|
2020
|
2019
|
|
|
2021
|
2020
|
2019
|
|
|
2021
|
2020
|
2019
|
Weighted average assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.43
|
%
|
3.39
|
%
|
4.03
|
%
|
|
|
1.17
|
%
|
2.24
|
%
|
2.57
|
%
|
|
|
2.65
|
%
|
3.45
|
%
|
4.10
|
%
|
Expected return on plan assets
|
7.00
|
%
|
8.00
|
%
|
8.00
|
%
|
|
|
1.70
|
%
|
2.20
|
%
|
3.89
|
%
|
|
|
n/a
|
n/a
|
n/a
|
Rate of compensation increase
|
3.07
|
%
|
3.09
|
%
|
3.50
|
%
|
|
|
n/a
|
n/a
|
n/a
|
|
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
n/a - Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumed health care cost trend rates used to measure the expected cost of benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
Assumed healthcare cost trend rates as of June 30,
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Rate of increase in health care cost levels
|
|
|
|
|
|
|
|
|
|
Initial level
|
|
|
|
|
6.50
|
%
|
|
5.50
|
%
|
|
6.00
|
%
|
Ultimate level
|
|
|
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Years to ultimate level
|
|
|
|
|
6 years
|
|
2 years
|
|
3 years
|
Pension expense is calculated using a number of actuarial assumptions, including an expected long-term rate of return on plan assets and a discount rate. In developing the expected long-term rate of return on plan assets, the Company considered long-term historical rates of return, plan asset allocations as well as the opinions and outlooks of investment professionals and consulting firms. Returns projected by such consultants and economists are based on broad equity and bond indices. The objective is to select an average rate of earnings expected on existing plan assets and expected contributions to the plan during the year. The Company reviews this long-term assumption on a periodic basis.
The value (market-related value) of plan assets is multiplied by the expected long-term rate of return on plan assets to compute the expected return on plan assets, a component of net periodic pension cost. The market-related value of plan assets is a calculated value that recognizes changes in fair value over three years.
Plan Assets
The targeted and weighted average asset allocations by asset category for investments held by the Company’s pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
2021 Allocation
|
|
|
2020 Allocation
|
|
|
2021 Allocation
|
|
|
2020 Allocation
|
June 30,
|
Target
|
|
Actual
|
|
|
Target
|
|
Actual
|
|
|
Target
|
|
Actual
|
|
|
Target
|
|
Actual
|
Equity securities
|
63
|
%
|
|
66
|
%
|
|
|
70
|
%
|
|
69
|
%
|
|
|
2
|
%
|
|
2
|
%
|
|
|
7
|
%
|
|
6
|
%
|
Fixed-income securities
|
37
|
%
|
|
32
|
%
|
|
|
30
|
%
|
|
30
|
%
|
|
|
61
|
%
|
|
62
|
%
|
|
|
55
|
%
|
|
56
|
%
|
Other securities 1
|
—
|
%
|
|
2
|
%
|
|
|
—
|
%
|
|
1
|
%
|
|
|
37
|
%
|
|
36
|
%
|
|
|
38
|
%
|
|
38
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
|
100
|
%
|
|
100
|
%
|
|
|
100
|
%
|
|
100
|
%
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Other primarily includes pooled investment funds and an insurance buy-in contract.
|
Meredith’s investment policy for domestic plans seeks to maximize investment returns while balancing the Company’s tolerance for risk. The plan fiduciaries oversee the investment allocation process. This includes selecting investment managers, setting long-term strategic targets, and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and plan fiduciaries may occasionally approve allocations above or below a target range, or elect to rebalance the portfolio within the targeted range. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across domestic and international stocks and between growth and value stocks and small and large capitalizations. The primary investment strategy currently employed is a dynamic target allocation method that periodically rebalances among various investment categories depending on the current funded position. This program is designed to actively move from return-seeking investments (such as equities) toward liability-hedging investments (such as fixed-income) as funding levels improve. The reverse effect occurs when funding levels decrease.
The trustees of the IPC Media Pension Scheme (IPC Plan) defined benefit pension plan in the U.K. have delegated the day-to-day investment decisions of the IPC Plan to a large international fiduciary manager and utilize an investment manager to monitor investment performance and the reporting of the fiduciary manager. The investment objective of the IPC Plan is to invest the assets prudently with the intention that the benefits promised to the
members are provided. Funding level based de-risking triggers have been established such that the investment strategy evolves as the funding level moves along an agreed glide path. As the funding level improves, the investment strategy will de-risk. Each trigger level specifies a minimum interest rate and hedge rate ratio and a maximum allocation to growth assets, which target a diversified portfolio using specialist managers and asset classes.
Equity securities did not include any Meredith Corporation common or class B stock at June 30, 2021 or 2020.
Fair value measurements for domestic pension plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Total
Fair Value
|
|
Quoted Prices
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Investments in registered investment companies
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
$
|
99.5
|
|
|
|
$
|
75.8
|
|
|
|
$
|
23.7
|
|
|
|
$
|
—
|
|
|
Fixed Income
|
48.5
|
|
|
|
8.3
|
|
|
|
40.2
|
|
|
|
—
|
|
|
Pooled separate accounts
|
2.4
|
|
|
|
—
|
|
|
|
2.4
|
|
|
|
—
|
|
|
Total assets at fair value
|
$
|
150.4
|
|
|
|
$
|
84.1
|
|
|
|
$
|
66.3
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Investments in registered investment companies
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
$
|
86.2
|
|
|
|
$
|
63.9
|
|
|
|
$
|
22.3
|
|
|
|
$
|
—
|
|
|
Fixed Income
|
38.0
|
|
|
|
—
|
|
|
|
38.0
|
|
|
|
—
|
|
|
Pooled separate accounts
|
1.6
|
|
|
|
—
|
|
|
|
1.6
|
|
|
|
—
|
|
|
Total assets at fair value
|
$
|
125.8
|
|
|
|
$
|
63.9
|
|
|
|
$
|
61.9
|
|
|
|
$
|
—
|
|
|
Fair value measurements for international pension plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Total
Fair Value
|
|
Quoted Prices
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4.8
|
|
|
|
$
|
4.8
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Pooled investments
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
12.9
|
|
|
|
1.1
|
|
|
|
11.8
|
|
|
|
—
|
|
|
Fixed Income
|
55.3
|
|
|
|
6.8
|
|
|
|
48.5
|
|
|
|
—
|
|
|
Other
|
584.9
|
|
|
|
—
|
|
|
|
584.9
|
|
|
|
—
|
|
|
Insurance buy-in contract
|
365.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
365.0
|
|
|
Total assets at fair value
|
$
|
1,022.9
|
|
|
|
$
|
12.7
|
|
|
|
$
|
645.2
|
|
|
|
$
|
365.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
10.3
|
|
|
|
$
|
8.9
|
|
|
|
$
|
1.4
|
|
|
|
$
|
—
|
|
|
Pooled investments
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
58.8
|
|
|
|
1.5
|
|
|
|
57.3
|
|
|
|
—
|
|
|
Fixed Income
|
277.2
|
|
|
|
9.3
|
|
|
|
267.9
|
|
|
|
—
|
|
|
Other
|
253.6
|
|
|
|
—
|
|
|
|
253.6
|
|
|
|
—
|
|
|
Insurance buy-in contract
|
349.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
349.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
$
|
948.9
|
|
|
|
$
|
19.7
|
|
|
|
$
|
580.2
|
|
|
|
$
|
349.0
|
|
|
The international pension plans hold investments in liability matching funds whose objective is to provide leveraged returns equal to that of the liabilities. In order to do so, these funds invest in U.K. Treasury Gilt bonds, Gilt Total Return Swaps, Repurchase Transactions, and cash or money markets to provide liquidity to meet payment obligations or post as collateral in the derivative transactions they enter into. These liability matching funds are included in Other pooled investments in the table above.
The trustees of the IPC Plan implemented a new investment strategy in fiscal 2020 to further reduce risk without adversely affecting return. The trustees entered into an insurance buy-in contract with a private limited life insurance company to insure a portion of the IPC Plan, covering approximately 30 percent of IPC Plan participants, which is intended to provide payments designed to equal all future designated contractual benefit payments to covered participants. The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits. The assets and liabilities with respect to insured participants are assumed to match (i.e., the full benefits have been insured). The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time. As the valuation of this asset is judgmental, and there are no observable inputs associated with the valuation, the insurance buy-in contract is presented as a Level 3 investment. Refer to Note 12 for a discussion of the three levels in the hierarchy of fair values.
The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30,
|
2021
|
|
2020
|
(In millions)
|
|
|
|
Balance at beginning of year
|
$
|
349.0
|
|
|
$
|
—
|
|
Purchases
|
—
|
|
|
353.6
|
|
Settlements
|
(11.7)
|
|
|
—
|
|
Change in fair value
|
(16.1)
|
|
|
(3.2)
|
|
Foreign currency translation
|
43.8
|
|
|
(1.4)
|
|
Balance at end of year
|
$
|
365.0
|
|
|
$
|
349.0
|
|
There were no transfers in or out of Level 3 investments for the years ended June 30, 2021 and 2020.
Cash Flows
Although the Company does not have a minimum funding requirement for the domestic pension plans in fiscal 2022, the Company is currently determining what voluntary pension plan contributions, if any, will be made in fiscal 2022 to the domestic plan. Actual contributions will be dependent upon investment returns, changes in pension obligations, and other economic and regulatory factors. Meredith expects to contribute $0.6 million to its postretirement plan in fiscal 2022.
Monthly contributions of £0.9 million are required to be made to the IPC Plan. In the event that on November 25, 2021, the IPC Plan has a funding deficit valuing its liabilities with a gilts plus 50 basis point discount rate, the Company, as the sponsor of the IPC Plan, will make a contribution equal to that funding deficit. In the event that on November 25, 2025, the IPC Plan has a funding deficit valuing its liabilities with a gilts flat discount rate, the Company will make a contribution equal to 50 percent of that funding deficit. In the event that on November 25, 2026, the IPC Plan has a funding deficit valuing its liabilities with a gilts flat discount rate, the Company will make a contribution equal to 50 percent of that funding deficit. In the event that on November 25, 2027, the IPC Plan has a funding deficit valuing its liabilities with a gilts flat discount rate, the Company will make a contribution equal to that funding deficit. Contributions shall cease to be payable from the date that the IPC Plan is confirmed to be fully funded.
The following benefit payments, which reflect expected future service as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ending June 30,
|
Pension
Benefits
|
|
Postretirement
Benefits
|
(In millions)
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
|
2022
|
|
$
|
17.3
|
|
|
|
$
|
18.8
|
|
|
|
$
|
0.6
|
|
|
2023
|
|
16.9
|
|
|
|
19.4
|
|
|
|
0.6
|
|
|
2024
|
|
16.2
|
|
|
|
20.4
|
|
|
|
0.5
|
|
|
2025
|
|
19.3
|
|
|
|
22.7
|
|
|
|
0.5
|
|
|
2026
|
|
18.1
|
|
|
|
23.0
|
|
|
|
0.5
|
|
|
2027-2031
|
|
74.5
|
|
|
|
131.4
|
|
|
|
2.3
|
|
|
Other
The Company maintains collateral assignment split-dollar life insurance arrangements on certain key officers and retirees. The net periodic pension cost for fiscal 2021, 2020, and 2019 was $0.2 million, $0.2 million, and $0.2 million, respectively, and the accrued liability at June 30, 2021 and 2020, was $3.0 million and $3.1 million, respectively.
15. Share-based Compensation
Meredith has an employee stock purchase plan and a stock incentive plan, both of which are shareholder-approved. More detailed descriptions of these plans follow. Compensation expense recognized for these plans was $17.5 million in fiscal 2021, $13.9 million in fiscal 2020, and $22.9 million in fiscal 2019. The total income tax benefit recognized in earnings (loss) was $3.8 million in fiscal 2021, $3.2 million in fiscal 2020, and $4.9 million in fiscal 2019.
Stock Incentive Plan
Meredith has a stock incentive plan that permits the Company to issue stock options, restricted stock, stock equivalent units, restricted stock units, and performance shares to key employees and directors of the Company. Approximately 5.0 million shares remained available for future awards under the plan as of June 30, 2021. Forfeited awards, shares deemed to be delivered to us on tender of stock in payment for the exercise price of options, and shares reacquired pursuant to tax withholding on option exercises and the vesting of restricted shares and restricted stock units increase shares available for future awards. The plan is designed to provide an incentive to contribute to the achievement of long-range corporate goals; provide flexibility in motivating, attracting, and retaining employees; and to align more closely the employees’ interests with those of shareholders.
The Company has awarded restricted stock and restricted stock units to eligible key employees and non-employee directors under the plan. In addition, certain awards are granted based on specified levels of Company stock ownership. All awards have restriction periods tied primarily to employment and/or service. The awards granted to employees generally vest three or five years from the date of the grant, and the awards granted to directors vest one-third each year during the three-year period from date of grant. The grant date of awards is the date the Compensation Committee of the Board of Directors approves the granting of the awards or a date thereafter as specified by the Committee. The awards are recorded at the market value of traded shares on the date of the grant as unearned compensation. The initial values of the grants are amortized over the vesting periods.
The Company’s restricted stock activity during the year ended June 30, 2021, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
(Shares in thousands and Aggregate Intrinsic Value in millions)
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2020
|
23.2
|
|
|
|
|
$
|
42.90
|
|
|
|
|
|
|
Granted
|
38.0
|
|
|
|
|
15.98
|
|
|
|
|
|
Vested
|
(11.2)
|
|
|
|
|
44.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2021
|
50.0
|
|
|
|
|
22.09
|
|
|
|
|
$
|
2.2
|
|
|
As of June 30, 2021, there was no unearned compensation cost related to restricted stock granted under the plan. The weighted average grant date fair value of restricted stock granted during the years ended June 30, 2021, 2020, and 2019, was $15.98, $35.39, and $58.76, respectively. The total fair value of shares vested during the years ended June 30, 2021, 2020, and 2019, was $0.2 million, $0.4 million, and $0.8 million, respectively.
The Company’s restricted stock unit activity during the year ended June 30, 2021, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
(Units in thousands and Aggregate Intrinsic Value in millions)
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2020
|
531.5
|
|
|
|
|
$
|
44.31
|
|
|
|
|
|
|
Granted
|
1,059.7
|
|
|
|
|
14.33
|
|
|
|
|
|
|
Vested
|
(127.8)
|
|
|
|
|
49.51
|
|
|
|
|
|
|
Forfeited
|
(98.4)
|
|
|
|
|
23.94
|
|
|
|
|
|
|
Nonvested at June 30, 2021
|
1,365.0
|
|
|
|
|
22.01
|
|
|
|
|
$
|
59.3
|
|
|
As of June 30, 2021, there was $8.9 million of unearned compensation cost related to restricted stock units granted under the plan. That cost is expected to be recognized over a weighted average period of 1.9 years. The weighted average grant date fair value of restricted stock units granted during the years ended June 30, 2021, 2020, and 2019, was $14.33, $35.50, and $52.55, respectively. The total fair value of shares vested during the years ended June 30, 2021, 2020, and 2019, was $2.0 million, $7.9 million, and $13.0 million, respectively.
Meredith also has outstanding stock equivalent units resulting from the deferral of compensation of employees and directors under various deferred compensation plans. The period of deferral is specified when the deferral election is made. These stock equivalent units are issued at the market price of the underlying stock on the date of deferral. In addition, shares of restricted stock and restricted stock units may be converted to stock equivalent units upon vesting.
The following table summarizes the activity for stock equivalent units during the year ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Equivalent Units
|
Units
|
|
Weighted Average
Issue Date
Fair Value
|
|
|
(Units in thousands)
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
207.6
|
|
|
|
$
|
38.42
|
|
|
|
|
|
|
Additions
|
20.0
|
|
|
|
15.90
|
|
|
|
|
|
|
Converted to common stock
|
(64.8)
|
|
|
|
35.03
|
|
|
|
|
|
|
Balance at June 30, 2021
|
162.8
|
|
|
|
37.00
|
|
|
|
|
|
|
The stock equivalent units outstanding at June 30, 2021, had $1.0 million aggregate intrinsic value. The total intrinsic value of stock equivalent units converted to common stock was zero for the year ended June 30, 2021, compared to zero in fiscal 2020, and $1.7 million for fiscal 2019.
Meredith has granted nonqualified stock options to certain employees and directors under the plan. The grant date of options issued is the date the Compensation Committee of the Board of Directors approves the granting of the options or a date thereafter as specified by the Committee. The exercise price of options granted is set at the fair value of the Company’s common stock on the grant date. All options granted under the plan expire at the end of 10 years. Options granted to employees vest three years from the date of grant. Options granted to directors vest one-third each year during the three-year period from date of grant.
A summary of stock option activity and weighted average exercise prices follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
(Options in thousands and Aggregate Intrinsic Value in millions)
|
|
|
|
|
|
|
|
|
|
|
Outstanding July 1, 2020
|
2,896.0
|
|
|
|
$
|
48.57
|
|
|
|
|
|
|
|
Granted
|
1,200.5
|
|
|
|
14.46
|
|
|
|
|
|
|
|
Exercised
|
(63.5)
|
|
|
|
27.87
|
|
|
|
|
|
|
|
Forfeited
|
(152.4)
|
|
|
|
32.64
|
|
|
|
|
|
|
|
Outstanding June 30, 2021
|
3,880.6
|
|
|
|
39.16
|
|
|
|
7.0
|
|
$
|
37.3
|
|
|
Exercisable June 30, 2021
|
1,933.3
|
|
|
|
$
|
51.49
|
|
|
|
5.4
|
|
$
|
1.6
|
|
|
The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model. The expected volatility was based on a blend of historical volatility of the Company’s common stock taking into consideration Meredith’s capital structure and implied volatility in market traded options on the Company’s common stock with a term greater than six months. The expected life of options granted used the simplified method under U.S. GAAP to determine the expected life. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.
The following summarizes the assumptions used in determining the fair value of options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
|
2019
|
Risk-free interest rate
|
0.4-0.7%
|
|
1.4-1.8%
|
|
2.3%-3.0%
|
Expected dividend yield
|
—
|
%
|
|
5
|
%
|
|
4
|
%
|
Expected option life
|
6-6.5 yrs
|
|
6-6.5 yrs
|
|
6-6.5 yrs
|
Expected stock price volatility
|
52-56%
|
|
40
|
%
|
|
33-35%
|
The weighted average grant date fair value of options granted during the years ended June 30, 2021, 2020, and 2019, was $5.56, $8.64, and $12.26, respectively. The total intrinsic value of options exercised during the years ended June 30, 2021, 2020, and 2019, was $0.6 million, $0.4 million, and $1.7 million, respectively. As of June 30, 2021, there was $3.2 million in unrecognized compensation cost for stock options granted under the plan. This cost is expected to be recognized over a weighted average period of 1.9 years.
Cash received from option exercises under all share-based payment plans for the years ended June 30, 2021, 2020, and 2019 was $1.8 million, $1.0 million, and $4.4 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $0.2 million, $0.1 million, and $0.4 million, respectively, for the years ended June 30, 2021, 2020, and 2019.
Employee Stock Purchase Plan
On January 1, 2020, Meredith reintroduced a previously suspended Employee Stock Purchase Plan (ESPP). The ESPP allows employees to purchase shares of Meredith common stock at a 5 percent discount on the market value at the end of each quarter through bi-weekly payroll deductions. Shares purchased through the ESPP that are held for two years qualify for a 15 percent Company match on the original purchase price in the form of additional shares of Meredith stock. The ESPP has quarterly offering periods. There were 2 million common shares authorized and approximately 0.6 million shares remained available for issuance under the ESPP as of June 30, 2021.
Compensation cost for the ESPP was based on the fair value of the employee match amortized over the match period of two years. In fiscal 2021, the Company issued approximately 0.1 million ESPP shares that had a weighted average market price per share at purchase of $22.57 and an average purchase price per share of $21.44. In fiscal 2020, the Company issued approximately 0.1 million ESPP shares that had a weighted average market price per share at purchase of $13.43 and an average purchase price per share of $12.76.
16. Common Stock
The Company has two classes of common stock outstanding: common and class B. Class B stock, which has 10 votes per share, is not transferable as class B stock except to family members of the holder or certain other related entities. At any time, class B stock is convertible, share for share, into common stock with one vote per share. Class B stock transferred to persons or entities not entitled to receive it as class B stock will automatically be converted and issued as common stock to the transferee. The principal market for trading the Company’s common stock is the New York Stock Exchange (trading symbol MDP). No separate public trading market exists for the Company’s class B stock.
Each class of common stock receives equal dividends per share. The Company paused dividends on common and class B stock after the March 13, 2020, payment. Future decisions to pay or to increase or decrease dividends are at the discretion of the Board of Directors and will be dependent on the Company’s operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Company’s debt facilities, and such other factors that the Board considers relevant.
From time to time, the Company’s Board of Directors has authorized the repurchase of shares of the Company’s common stock and class B stock. In May 2014, the Board approved the repurchase of $100.0 million of shares. As of June 30, 2021, $45.4 million remained available under the current authorizations for future repurchases.
Repurchases of the Company’s common and class B stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
|
2019
|
(In millions)
|
|
|
|
|
|
Number of shares
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
Cost at market value
|
$
|
2.9
|
|
|
$
|
4.7
|
|
|
$
|
10.0
|
|
Shares deemed to be delivered to the Company on tender of stock in payment for the exercise price of options do not reduce the repurchase authority granted by the Board. Shares tendered for the exercise price of stock options were minimal at a cost of $1.8 million in fiscal 2021, minimal at a cost of $1.0 million in fiscal 2020, and 0.1 million shares at a cost of $4.1 million in fiscal 2019.
17. Earnings (Loss) per Common Share
The calculation of basic earnings (loss) per common share for each year is based on the weighted average number of common and class B shares outstanding during the year. The calculation of diluted earnings (loss) per common share for each year is based on the weighted average number of common and class B shares outstanding during the year plus the effect, if any, of dilutive common stock equivalent shares.
The following table presents the calculations of basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
2020
|
2019
|
(In millions except per share data)
|
|
|
|
Net earnings (loss)
|
$
|
306.6
|
|
$
|
(234.3)
|
|
$
|
46.3
|
|
Participating warrants dividend
|
—
|
|
(2.8)
|
|
(3.6)
|
|
Series A preferred stock dividend
|
—
|
|
(56.5)
|
|
(55.9)
|
|
Accretion of Series A preferred stock
|
—
|
|
(18.2)
|
|
(17.6)
|
|
Loss on redemption of Series A preferred stock
|
—
|
|
(163.6)
|
|
—
|
|
Other securities dividends
|
—
|
|
(0.6)
|
|
(1.2)
|
|
Undistributed earnings allocated to participating securities
|
(15.2)
|
|
—
|
|
—
|
|
Basic earnings (loss) attributable to common shareholders
|
$
|
291.4
|
|
$
|
(476.0)
|
|
$
|
(32.0)
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
46.2
|
|
45.7
|
|
45.3
|
|
Basic earnings (loss) per common share
|
$
|
6.31
|
|
$
|
(10.41)
|
|
$
|
(0.71)
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
2020
|
2019
|
(In millions except per share data)
|
|
|
|
Basic weighted average common shares outstanding
|
46.2
|
|
45.7
|
|
45.3
|
|
Dilutive effect of stock options and equivalents
|
0.3
|
|
—
|
|
0.2
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
46.5
|
|
45.7
|
|
45.5
|
|
|
|
|
|
Diluted earnings (loss) attributable to common shareholders
|
$
|
291.4
|
|
$
|
(476.0)
|
|
$
|
(32.0)
|
|
Diluted earnings (loss) per common share
|
6.27
|
|
(10.41)
|
|
(0.70)
|
|
For the year ended June 30, 2021, 1.5 million warrants and 0.3 million shares of restricted stock were excluded from the computation of diluted earnings per common share. These securities have an antidilutive effect on the earnings per common share calculation (the diluted earnings per common share becoming more than the basic earnings per common share). Therefore, these securities are not taken into account in determining the weighted average number of common shares for the calculation of diluted earnings per common share for the year ended June 30, 2021.
For the year ended June 30, 2020, 0.7 million convertible preferred shares, 1.6 million warrants, and 0.1 million shares of restricted stock were not included in the computation of diluted loss per common share. These securities have an antidilutive effect on the loss per common share calculation (the diluted loss per common share becoming less negative than the basic loss per common share). Therefore, these securities are not taken into account in determining the weighted average number of common shares for the calculation of diluted loss per common share for the year ended June 30, 2020.
For the year ended June 30, 2019, 0.2 million options were included in the computation of diluted loss per common share while being antidilutive (the diluted loss per share becoming less negative than basic loss per share). These shares are dilutive (the diluted earnings per common share becoming less than basic earnings per common share) when calculating the diluted earnings per common share for income from continuing operations, which is the control number when determining the dilutive impact of securities in all earnings (loss) per common share calculations. Therefore, these securities are included in all diluted earnings (loss) per common share calculations for the year ended June 30, 2019. In addition, 0.7 million convertible preferred shares, 1.6 million warrants, 0.3 million common stock equivalents, and 0.1 million shares of restricted stock were not included in the computation of diluted loss per common share. These securities have an antidilutive effect on the loss per common share calculation (the diluted loss per common share becoming less negative than basic loss per common share). Therefore, these securities are not taken into account in determining the weighted average number of common shares for the calculation of diluted loss per share for the year ended June 30, 2019.
In addition, antidilutive options excluded from the above calculations totaled 3.7 million for the year ended June 30, 2021 ($53.88 weighted average exercise price), 3.8 million for the year ended June 30, 2020 ($54.66 weighted average exercise price), and 2.5 million for the year ended June 30, 2019 ($63.86 weighted average exercise price).
In the years ended June 30, 2021, 2020, and 2019, 0.1 million, a minimal amount, and 0.1 million options were exercised to purchase common shares, respectively.
18. Other comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. Comprehensive income (loss) includes net earnings (loss) as well as items of other comprehensive income (loss).
The following table summarizes the items of other comprehensive income (loss) and the accumulated other comprehensive loss balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Pension/Post Retirement Liability Adjustments
|
|
Foreign Currency Translation
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
$
|
(23.8)
|
|
|
|
$
|
(12.9)
|
|
|
|
|
|
|
$
|
(36.7)
|
|
Current-year adjustments, pre-tax
|
|
(9.1)
|
|
|
|
(2.8)
|
|
|
|
|
|
|
(11.9)
|
|
Tax expense
|
|
2.3
|
|
|
|
—
|
|
|
|
|
|
|
2.3
|
|
Other comprehensive loss
|
|
(6.8)
|
|
|
|
(2.8)
|
|
|
|
|
|
|
(9.6)
|
|
Balance at June 30, 2019
|
|
(30.6)
|
|
|
|
(15.7)
|
|
|
|
|
|
|
(46.3)
|
|
Current-year adjustments, pre-tax
|
|
(28.7)
|
|
|
|
(6.8)
|
|
|
|
|
|
|
(35.5)
|
|
Tax benefit
|
|
(0.6)
|
|
|
|
—
|
|
|
|
|
|
|
(0.6)
|
|
Other comprehensive loss
|
|
(29.3)
|
|
|
|
(6.8)
|
|
|
|
|
|
|
(36.1)
|
|
Balance at June 30, 2020
|
|
(59.9)
|
|
|
|
(22.5)
|
|
|
|
|
|
|
(82.4)
|
|
Current-year adjustments, pre-tax
|
|
(9.5)
|
|
|
|
21.7
|
|
|
|
|
|
|
12.2
|
|
Tax benefit
|
|
(8.2)
|
|
|
|
—
|
|
|
|
|
|
|
(8.2)
|
|
Other comprehensive income (loss)
|
|
(17.7)
|
|
|
|
21.7
|
|
|
|
|
|
|
4.0
|
|
Balance at June 30, 2021
|
|
$
|
(77.6)
|
|
|
|
$
|
(0.8)
|
|
|
|
|
|
|
$
|
(78.4)
|
|
19. Financial Information about Industry Segments
Meredith is a diversified media company focused primarily on service journalism. On the basis of products and services, the Company has established two reportable segments: national media and local media. The national media segment focuses on the distribution of our nationally recognized brands through magazine publishing, digital media, brand licensing, database-related activities, and other related operations. The local media segment consists primarily of the operations of network-affiliated television stations. Virtually all of the Company’s revenues are generated in the U.S. and substantially all of the assets reside within the U.S. Intersegment transactions are eliminated.
There are two 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, taxes, depreciation, and amortization (EBITDA). Operating profit for segment reporting, disclosed below, is revenues less operating costs and 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 attributable to the operating groups. Interest income and expense are not allocated to the segments. In accordance with authoritative guidance on disclosures about segments of an enterprise and related information, EBITDA is not presented below.
Significant non-cash items included in segment operating expenses other than depreciation and amortization of fixed and intangible assets include impairments of national media goodwill, operating lease assets and associated leasehold improvements and furniture and fixtures, and trademarks; impairment of a local media FCC license; and the amortization of broadcast rights in the local media segment. Impairment of national media goodwill was $252.7 million in fiscal 2020. The impairments of an operating lease asset and associated leasehold improvements and furniture and fixtures totaled $87.9 million in fiscal 2020. National media trademarks were impaired by $26.4 million in fiscal 2020 and $41.8 million in fiscal 2019. Fiscal 2020 impairment of the local media FCC license was $22.3 million. Broadcast rights amortization totaled $15.8 million in fiscal 2021, $19.0 million in fiscal 2020, and $20.0 million in fiscal 2019.
Segment assets include intangible, fixed, and all other non-cash assets identified with each segment. Jointly used assets such as office buildings and information technology equipment are allocated to the segments by appropriate methods, primarily number of employees. Unallocated corporate assets consist primarily of cash and cash items, assets allocated to or identified with corporate staff departments, and other miscellaneous assets not assigned to a segment.
On July 1, 2021, the operating structure of the Company was changed, resulting in a reportable segment realignment. The operating structure change resulted in a split in the existing national media group into two reportable segments. Effective for the first quarter of fiscal 2022, the Company will have three established reportable segments: digital, magazine, and local media.
The following table presents financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
2021
|
|
2020
|
|
2019
|
(In millions)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
National media
|
$
|
2,023.5
|
|
|
$
|
2,081.6
|
|
|
$
|
2,326.6
|
|
Local media
|
958.8
|
|
|
769.3
|
|
|
863.8
|
|
Total revenues, gross
|
2,982.3
|
|
|
2,850.9
|
|
|
3,190.4
|
|
Intersegment revenue elimination
|
(4.9)
|
|
|
(2.3)
|
|
|
(1.9)
|
|
Total revenue
|
$
|
2,977.4
|
|
|
$
|
2,848.6
|
|
|
$
|
3,188.5
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
|
|
|
National media
|
$
|
351.2
|
|
|
$
|
(167.7)
|
|
|
$
|
126.0
|
|
Local media
|
314.0
|
|
|
146.0
|
|
|
278.3
|
|
Unallocated corporate
|
(103.8)
|
|
|
(72.4)
|
|
|
(117.3)
|
|
Income (loss) from operations
|
561.4
|
|
|
(94.1)
|
|
|
287.0
|
|
Non-operating income (expense), net
|
10.8
|
|
|
(1.3)
|
|
|
24.2
|
|
Interest expense, net
|
(178.6)
|
|
|
(145.8)
|
|
|
(170.6)
|
|
Earnings (loss) from continuing operations before income taxes
|
$
|
393.6
|
|
|
$
|
(241.2)
|
|
|
$
|
140.6
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
National media
|
$
|
129.9
|
|
|
$
|
176.5
|
|
|
$
|
206.5
|
|
Local media
|
31.5
|
|
|
38.9
|
|
|
36.6
|
|
Unallocated corporate
|
1.6
|
|
|
4.5
|
|
|
4.5
|
|
Total depreciation and amortization
|
$
|
163.0
|
|
|
$
|
219.9
|
|
|
$
|
247.6
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
National media
|
$
|
3,963.5
|
|
|
$
|
4,110.2
|
|
|
$
|
4,606.8
|
|
Local media
|
1,137.1
|
|
|
1,137.1
|
|
|
1,192.3
|
|
Unallocated corporate
|
465.2
|
|
|
262.8
|
|
|
337.8
|
|
Total assets
|
$
|
5,565.8
|
|
|
$
|
5,510.1
|
|
|
$
|
6,136.9
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
National media
|
$
|
19.4
|
|
|
$
|
19.9
|
|
|
$
|
13.0
|
|
Local media
|
9.9
|
|
|
19.5
|
|
|
25.1
|
|
Unallocated corporate
|
5.9
|
|
|
16.0
|
|
|
8.3
|
|
Total capital expenditures
|
$
|
35.2
|
|
|
$
|
55.4
|
|
|
$
|
46.4
|
|
Meredith Corporation and Subsidiaries
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
Reserves Deducted from Receivables in the Consolidated Financial Statements:
|
Balance at
beginning of
period
|
|
|
Charged to
costs and
expenses
|
Charged to
other
accounts
|
|
Deductions
|
|
Balance at
end of
period
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts
|
$
|
25.6
|
|
|
|
$
|
1.2
|
|
$
|
(2.8)
|
|
1
|
$
|
(8.6)
|
|
|
$
|
15.4
|
|
Reserve for returns
|
3.6
|
|
|
|
—
|
|
—
|
|
|
(3.6)
|
|
|
—
|
|
Income tax valuation allowance
|
17.2
|
|
|
|
0.3
|
|
—
|
|
|
—
|
|
|
17.5
|
|
Total
|
$
|
46.4
|
|
|
|
$
|
1.5
|
|
$
|
(2.8)
|
|
|
$
|
(12.2)
|
|
|
$
|
32.9
|
|
Year ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts
|
$
|
15.4
|
|
|
|
$
|
15.8
|
|
$
|
—
|
|
|
$
|
(5.6)
|
|
|
$
|
25.6
|
|
Reserve for returns
|
5.1
|
|
|
|
5.1
|
|
2.4
|
|
2
|
(9.0)
|
|
|
3.6
|
|
Income tax valuation allowance
|
21.7
|
|
|
|
—
|
|
—
|
|
|
(4.5)
|
|
|
17.2
|
|
Total
|
$
|
42.2
|
|
|
|
$
|
20.9
|
|
$
|
2.4
|
|
|
$
|
(19.1)
|
|
|
$
|
46.4
|
|
Year ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts
|
$
|
12.2
|
|
|
|
$
|
4.8
|
|
$
|
—
|
|
|
$
|
(1.6)
|
|
|
$
|
15.4
|
|
Reserve for returns
|
2.2
|
|
|
|
8.8
|
|
3.4
|
|
3
|
(9.3)
|
|
|
5.1
|
|
Income tax valuation allowance
|
21.1
|
|
|
|
0.6
|
|
—
|
|
|
—
|
|
|
21.7
|
|
Total
|
$
|
35.5
|
|
|
|
$
|
14.2
|
|
$
|
3.4
|
|
|
$
|
(10.9)
|
|
|
$
|
42.2
|
|
1
|
Amount is the result of the Company’s adoption of ASU 2016-13 on July 1, 2020. Refer to Note 1 for further discussion.
|
2
|
Amounts primarily charged against revenue accounts.
|
3
|
As a result of the Company's adoption of ASC 606 effective July 1, 2018, the Company recorded a reserve for underperformance of spot advertising of $3.4 million using the modified retrospective method.
|