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MEREDITH CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 27, 2014

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

Page Executive Overview 17 Results of Operations 21 Liquidity and Capital Resources 29 Critical Accounting Policies 33 Accounting and Reporting Developments 36 MD&A should be read in conjunction with the other sections of this Form 10-K, including Item 1-Business, Item 6-Selected Financial Data, and Item 8-Financial Statements and Supplementary Data. MD&A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and could be affected by many risks, uncertainties, and changes in circumstances including the uncertainties and risk factors described throughout this filing, particularly in Item 1A-Risk Factors. Important factors that could cause actual results to differ materially from those described in forward-looking statements are set forth under the heading "Forward Looking Statements." in Item 1-Business. EXECUTIVE OVERVIEW Meredith Corporation has been committed to service journalism for more than 110 years. Today, Meredith uses multiple media outlets-including print, broadcast television, digital, mobile, tablets, and video-to provide consumers with content they desire and to deliver the messages of its advertising and marketing partners. Meredith operates two business segments. The local media segment includes 15 owned or operated television stations reaching 10 percent of U.S. households. Meredith's portfolio is concentrated in large, fast-growing markets, with seven stations in the nation's Top 25-including Atlanta, Phoenix, and Portland-and 13 in Top 50 markets. Meredith's stations produce approximately 525 hours of local news and entertainment content each week, and operate leading local digital destinations. Additionally, MVS produces The Better Show, a syndicated daily lifestyle television program reaching 80 percent of U.S. TV households. Meredith's national media segment reaches 100 million unduplicated American women, including 60 percent of millennial women. Meredith is the leader in creating content across media platforms in key consumer interest areas such as food, home, parenthood, and health through well-known brands such as Better Homes and Gardens, Parents, and Allrecipes. The national media segment features robust brand licensing activities, including over 3,000 SKUs of branded products at 4,000 Walmart stores across the U.S. MXM provides expertise in mobile, social media, customer relationship management, and advanced analytics for many of the nation's top companies and brands. Both segments operate primarily in the U.S. and compete against similar media and other types of media on both a local and national basis. In fiscal 2014, the national media segment accounted for 73 percent of the Company's $1.5 billion in revenues while local media segment revenues contributed 27 percent. 17 -------------------------------------------------------------------------------- Meredith's balanced portfolio consistently generates substantial free cash flow, and the Company is committed to growing Total Shareholder Return (TSR) through dividend payments, share repurchases, and strategic business investments. Meredith's current annualized dividend of $1.73 per share yields approximately 4 percent. Meredith has paid a dividend for 67 straight years and increased it for 21 consecutive years. In Fiscal 2014, we aggressively executed on our TSR strategy by deploying capital in high cash flow businesses and growing the amount of cash returned to our shareholders. For example, we added great new television stations to our local media portfolio; executed a number of initiatives to strengthen and grow our national media segment; increased our dividend; and expanded our share repurchase program. Fiscal 2014 highlights include:



Strengthening of our portfolio of media businesses through acquisitions and new launches. For example, we:

Executed agreements to buy the broadcast assets of stations in three markets - KTVK, an independent station in Phoenix, the nation's 12th largest television market; KMOV, the CBS affiliate in St. Louis, the nation's 21st largest television market; and WGGB, the ABC affiliate in Springfield, Massachusetts. The KTVK and KMOV acquisitions closed in fiscal 2014 and the WGGB acquisition is expected to close in the first quarter of fiscal 2015.



Successfully launched Allrecipes magazine, which Media Industry Newsletter

called the "Hottest Launch of the Year."

Strengthened our parenthood activities by integrating the Parenting and

Baby Talk brands that we acquired late in fiscal 2013. In the spring of

fiscal 2015, we expect to launch an English-language parenting magazine

for U.S. Hispanic moms called Parents Latina.

Growing revenues and operating profit from activities that are not dependent on advertising. We delivered significant growth in retransmission-related revenues and profit in our local media segment. Within our national media segment, we grew revenues related to circulation and brand licensing, while MXM solidified its relationship with its top 10 clients. Proving the effectiveness of advertising on both broadcast and print platforms. Broadcast television continues to demonstrate its unique effectiveness to local advertisers as we delivered 8 percent growth in local media non-political advertising. Our national media segment was named "Advertisers' Favorite Media Company" for the second time in four years by Advertiser Perceptions, which annually surveys thousands of leading advertising agencies and marketers.



Finally, in fiscal 2014 we again successfully executed our TSR strategy. We increased our dividend another 6 percent in fiscal 2014 and we repurchased 1.6 million shares. We also invested more than $400 million in growing the television side of our business.

Going forward, we are aggressively pursuing these parallel paths designed to accelerate revenue growth and increase operating profit margins and cash flow over time: First, we are working to grow our existing businesses organically. This includes our magazine, television, digital, licensing, and marketing services businesses.



Second, we are pursuing opportunities to add to our portfolio in both our

national and local media groups.

Third, we are aggressively managing costs; and

Finally, we are executing our TSR Strategy, as highlighted by our established pattern of dividend increases and corresponding very attractive yield; share repurchase authorizations and buybacks; and our accretive acquisitions in both segments. 18

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LOCAL MEDIA

Local media derives the majority of its revenues-73 percent in fiscal 2014-from the sale of advertising both over the air and on our stations' websites and apps. The remainder comes from television retransmission fees, station operation management fees, television production services, and other services. The stations sell advertising to both local/regional and national accounts. Political advertising revenues are cyclical in that they are significantly greater during biennial election campaigns (which take place primarily in odd-numbered fiscal years) than at other times. MVS produces video content for Meredith stations, non-Meredith stations, online distribution, and corporate customers. We have generated additional revenues from internet activities and programs focused on local interests such as community events and college and professional sports. Changes in advertising revenues tend to correlate with changes in the level of economic activity in the U.S. and in the local markets in which we operate stations, and with the cyclical changes in political advertising discussed previously. Programming content, audience share, audience demographics, and the advertising rates charged relative to other available advertising opportunities also affect advertising revenues. On occasion, unusual events necessitate uninterrupted television coverage and will adversely affect spot advertising revenues. Local media's major expense categories are employee compensation and programming fees paid to the networks. Employee compensation represented 44 percent of local media's operating expenses in fiscal 2014. Compensation expense is affected by salary and incentive levels, the number of employees, the costs of our various employee benefit plans, and other factors. Programming fees paid to the networks represented 16 percent of this segment's fiscal 2014 expenses. Sales and promotional activities, costs to produce local news programming, and general overhead costs for facilities and technical resources accounted for most of the remaining 40 percent of local media's fiscal 2014 operating expenses.



NATIONAL MEDIA

Advertising revenues made up 45 percent of fiscal 2014 national media revenues. These revenues were generated from the sale of advertising space in our magazines and on our websites to clients interested in promoting their brands, products, and services to consumers. Changes in advertising revenues tend to correlate with changes in the level of economic activity in the U.S. Indicators of economic activity include changes in the level of gross domestic product, consumer spending, housing starts, unemployment rates, auto sales, and interest rates. Circulation levels of Meredith's magazines, reader demographic data, and the advertising rates charged relative to other comparable available advertising opportunities also affect the level of advertising revenues. Circulation revenues accounted for 31 percent of fiscal 2014 national media revenues. Circulation revenues result from the sale of magazines to consumers through subscriptions and by single copy sales on newsstands in print form, primarily at major retailers and grocery/drug stores, and in digital form on tablets and other media devices. In the short term, subscription revenues, which accounted for 81 percent of circulation revenues, are less susceptible to economic changes because subscriptions are generally sold for terms of one to three years. The same economic factors that affect advertising revenues also can influence consumers' response to subscription offers and result in lower revenues and/or higher costs to maintain subscriber levels over time. A key factor in our subscription success is our industry-leading database. It contains approximately 100 million entries that include information on about three-quarters of American homeowners, which includes 60 percent of millennial women, providing an average of 800 data points for each name. The size and depth of our database is a key to our circulation model and allows more precise consumer targeting. Newsstand revenues are more volatile than subscription revenues and can vary significantly month to month depending on economic and other factors.



The remaining 24 percent of national media revenues came from a variety of activities that included the sale of customer relationship marketing products and services and books as well as brand licensing, product sales, and other related activities. MXM offers integrated promotional, database management, relationship, and direct

19 -------------------------------------------------------------------------------- marketing capabilities for corporate customers, both in printed and digital forms. These other revenues are generally affected by changes in the level of economic activity in the U.S. including changes in the level of gross domestic product, consumer spending, unemployment rates, and interest rates. National media's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs. Paper, postage, and production charges represented 31 percent of the segment's operating expenses in fiscal 2014. The price of paper can vary significantly on the basis of worldwide demand and supply for paper in general and for specific types of paper used by Meredith. The printing of our publications is outsourced. We typically have multi-year contracts for the printing of our magazines, a practice which reduces price fluctuations over the contract term. Postal rates are dependent on the operating efficiency of the USPS and on legislative mandates imposed on the USPS. The USPS increased rates most recently in January 2014. At this time, the USPS has not proposed any future rate increases other than making permanent a previous rate increase of 4.3 percent that is currently set to phase out once USPS loses have been recovered. Meredith works with others in the industry and through trade organizations to encourage the USPS to implement efficiencies and contain rate increases. Employee compensation, which includes benefits expense, represented 26 percent of national media's operating expenses in fiscal 2014, and is affected by the same factors noted for local media.The remaining 43 percent of fiscal 2014 national media expenses included costs for magazine newsstand and book distribution, advertising and promotional efforts, and overhead costs for facilities and technology services.



FISCAL 2014 FINANCIAL OVERVIEW

Meredith completed its acquisition of KMOV, the CBS affiliate in St. Louis, Missouri in February 2014 and completed its acquisition of KTVK, an independent station in Phoenix, Arizona in June 2014.



In February 2014, the Company entered into a $150 million note purchase

agreement. Proceeds were used for the acquisition of KMOV.



In March 2014, Meredith entered into a credit agreement that provides a

revolving credit facility of $200 million and a term loan of $250 million,

both of which expire in March 2019. The term loan was used to fund the purchase of the acquisition of the KTVK and an interest in certain of



KASW's broadcast assets. Our prior revolving credit facility was paid off

in March 2014.



Local media revenues increased 7 percent in fiscal 2014 as revenues from

the station acquisitions and strong increases in other revenues more than

offset a $34.1 million reduction in political advertising, which is

expected in a non-political year. Local media operating profit declined 9

percent in fiscal 2014. The local media segment recorded $5.5 million in

acquisition costs that were expensed during the year.



National media revenues declined 3 percent from the prior year as declines

in our magazine operations of $29.1 million and in our integrated

marketing operations of $5.2 million more than offset increased revenues

in our licensing operations of $3.9 million. National media operating

profit declined 18 percent due primarily to a larger restructuring charge

in the current year of $20.8 million as compared to the prior year restructuring charge of $6.4 million. In addition, decreases in the operating profit of our magazine operations of $23.8 million more than



offset improved operating results in our interactive media operations of

$8.6 million and our licensing operations of $3.9 million. During fiscal 2014, management committed to several performance



improvement plans related primarily to business realignments including

integration of local media acquisitions, converting Ladies' Home Journal

from a monthly subscription magazine to a newsstand only quarterly special

interest publication, the closing of our medical sales force training

business, and other selected workforce reductions. In connection with these plans, the Company recorded a pre-tax restructuring charge of $24.5 million. This charge 20

-------------------------------------------------------------------------------- includes $11.9 million for severance and related benefit costs, $10.3 million for the impairment of intangible assets, the write-down of fixed assets of $0.9 million, vacated building and lease accruals of $0.7 million, and other accruals and write-downs of $0.7 million. The Company also recorded $1.4 million in reversals of excess restructuring reserves accrued in prior years. Diluted earnings per share decreased 9 percent to $2.50 from $2.74 in fiscal 2013.



In fiscal 2014, we generated $178.1 million in operating cash flows,

invested $417.5 million in acquisitions of and investments in businesses,

and invested $24.8 million in capital improvements. RESULTS OF OPERATIONS Years ended June 30, 2014 Change 2013 Change 2012 (In millions except per share data) Total revenues $ 1,468.7 0 % $ 1,471.3 7 % $ 1,376.7 Costs and expenses 1,222.3 1 % 1,215.1 6 % 1,146.6 Depreciation and amortization 59.9 32 % 45.4 2 % 44.3 Total operating expenses 1,282.2 2 % 1,260.5 6 % 1,190.9 Income from operations $ 186.5 (12 )% $ 210.8 13 % $ 185.8 Net earnings $ 113.5 (8 )% $ 123.7 18 % $ 104.4 Diluted earnings per share 2.50 (9 )% 2.74 19 % 2.31 OVERVIEW Following are brief descriptions of recent acquisitions and a discussion of the trends and uncertainties that affected our businesses. Following the Overview is an analysis of the results of operations for the local media and national media segments and an analysis of our consolidated results of operations for the last three fiscal years. Acquisitions The Company completed its acquisition of KMOV in February 2014 and its acquisition of KTVK in June 2014. In fiscal 2013, we acquired Parenting and Babytalk magazines and related digital assets and the remaining interest in Living the Country Life, LLC. Effective July 1, 2011, Meredith acquired EatingWell Media Group. Also during fiscal 2012, we completed the following acquisitions: the October 2011 acquisition of EveryDay with Rachael Ray magazine and its related digital assets, the January 2012 acquisition of FamilyFun and its related assets, the March 2012 acquisition of Allrecipes.com, and the May 2012 acquisition of ShopNation. These acquisitions were not material to our consolidated financial statements. The results of these acquisitions have been included in the Company's consolidated operating results since their respective acquisition dates. See Note 2 to the consolidated financial statements for further information.



Trends and Uncertainties

Advertising demand is the Company's key uncertainty, and its fluctuation from period to period can have a material effect on operating results. Advertising revenues accounted for 53 percent of total revenues in fiscal 2014. Other significant uncertainties that can affect operating results include fluctuations in the cost of paper, postage rates and, over time, television programming rights. The Company's cash flows from operating activities, our primary source of liquidity, is adversely affected when the advertising market is weak or when costs rise. One of our priorities is to manage our businesses prudently during expanding and contracting economic cycles to maximize shareholder return over time. To manage the uncertainties inherent in our businesses, we prepare monthly internal forecasts of 21 --------------------------------------------------------------------------------



anticipated results of operations and monitor the economic indicators mentioned in the Executive Overview. See Item 1A-Risk Factors in this Form 10-K for further discussion.

LOCAL MEDIA The following discussion reviews operating results for the Company's local media segment, which consists of 14 owned television stations and one managed station, related digital and mobile media, and video creation operations. The local media segment contributed 27 percent of Meredith's consolidated revenues and 50 percent of the combined operating profit from local media and national media operations in fiscal 2014. Local media revenues increased 7 percent in fiscal 2014 as revenues from the station acquisitions and strong increases in other revenues more than offset a $34.1 million reduction in political advertising, which is expected in a non-political year. Local media operating profit declined 9 percent in fiscal 2014.



Local media revenues increased 19 percent in fiscal 2013 as both political advertising and other revenues increased significantly. Local media operating profit increased 41 percent in fiscal 2013 on the strength of political advertising and other revenues.

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

Years ended June 30, 2014 Change 2013 Change 2012 (In millions) Revenues $ 402.8 7 % $ 376.1 19 % $ 316.3 Operating expenses (289.7 ) 15 % (252.0 ) 11 % (228.0 ) Operating profit $ 113.1 (9 )% $ 124.1 41 % $ 88.3



Local Media Revenues

The table below presents the components of revenues for the last three fiscal years. Years ended June 30, 2014 Change 2013 Change 2012 (In millions) Revenues Non-political advertising $ 290.7 8 % $ 268.8 (1 )% $ 270.7 Political advertising 4.9 (87 )% 39.0 476 % 6.8 Other 107.2 57 % 68.3 76 % 38.8 Total revenues $ 402.8 7 % $ 376.1 19 % $ 316.3 Local media revenues increased 7 percent in fiscal 2014. Non-political advertising revenues increased 8 percent in fiscal 2014 as compared to the prior year primarily due to the addition of local media acquisitions non-political revenue of $14.7 million. Local non-political advertising revenues increased 8 percent. National non-political advertising increased 5 percent in fiscal 2014. Political advertising revenues totaled $4.9 million in fiscal 2014 compared with $39.0 million in the prior year. Fluctuations in political advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns (which take place primarily in our odd-numbered fiscal years). Political advertising may displace a certain amount of non-political advertising; therefore, the revenues may not be entirely incremental. The automotive, telecommunications, and retail categories were stronger, while the electronics, drug, and education categories were weaker. Online advertising revenues grew more than 15 percent in fiscal 2014 driven by increased traffic across the desktop and video platforms, the launch of new mobile apps, and addition of local media acquisitions. Other revenue, which was 22 --------------------------------------------------------------------------------



primarily retransmission fees from cable and satellite operators and station management fees, grew significantly in fiscal 2014 primarily reflecting increased retransmission fees due to having a full year of benefit from agreements that were renegotiated in fiscal 2013.

Local media total revenues increased 19 percent in fiscal 2013, reflecting higher political advertising related to the November 2012 elections. Political advertising revenues totaled $39.0 million in fiscal 2013 compared with $6.8 million in the prior year. Non-political advertising revenues decreased 1 percent in fiscal 2013 as political advertising displaced some non-political advertising. Local non-political advertising revenues decreased 2 percent in fiscal 2013. National non-political advertising revenues increased 1 percent as compared to the prior year. In fiscal 2013, the automotive, furnishings, and media categories were stronger. Online advertising revenues, a small but growing percentage of non-political advertising revenues, increased 8 percent as compared to the prior year. Other revenue increased significantly in fiscal 2013 primarily reflecting increased retransmission fees.



Local Media Operating Expenses

Local media operating expenses increased 15 percent in fiscal 2014 primarily due to increased programming fees paid to the networks of $14.8 million, the addition of local media acquisition expenses of $14.1 million, transaction costs related to the acquisitions of $5.5 million, higher payroll and related costs of $2.8 million partially offset by lower legal service costs of $3.6 million. In fiscal 2014, the local media segment recorded a restructuring charge of $3.7 million including severance and related benefit costs of $3.4 million and an accrual to vacate a building of $0.3 million. Fiscal 2013 local media operating expenses increased 11 percent as compared to the prior year primarily due to increased programming fees paid to the networks of $25.4 million partially offset by a reduction in film amortization expense of $2.3 million. In fiscal 2013, the local media segment recorded a restructuring charge of $1.5 million for severance and related benefits costs.



Local Media Operating Profit

Local media operating profit declined 9 percent in fiscal 2014 compared with fiscal 2013 primarily due to a change in the mix of revenues from higher margin political advertising revenues to lower margin other revenues and increased operating expenses as discussed above. Fiscal 2013 local media operating profit increased 41 percent as compared to fiscal 2012. The increase was primarily due to the strength of political advertising revenues and higher other revenues partially offset by increased programming fees paid to the networks.



NATIONAL MEDIA

The following discussion reviews operating results for our national media segment, which includes magazine publishing, digital and customer relationship marketing, digital and mobile media, brand licensing, database-related activities, and other related operations. The national media segment contributed 73 percent of Meredith's consolidated revenues and 50 percent of the combined operating profit from local media and national media operations in fiscal 2014. 23 -------------------------------------------------------------------------------- In fiscal 2014, national media revenues declined 3 percent and segment operating profit decreased 18 percent. In fiscal 2013, national media revenues increased 3 percent while segment operating profit grew 4 percent. National media operating results for the last three fiscal years were as follows: Years ended June 30, 2014 Change 2013 Change 2012 (In millions) Revenues $ 1,065.9 (3 )% $ 1,095.2 3 % $ 1,060.4 Operating expenses (952.8 ) 0 % (957.2 ) 3 % (927.4 ) Operating profit $ 113.1 (18 )% $ 138.0 4 % $ 133.0 National Media Revenues



The table below presents the components of revenues for the last three fiscal years.

Years ended June 30, 2014 Change 2013 Change 2012 (In millions) Revenues Advertising $ 482.8 (6 )% $ 515.8 5 % $ 492.3 Circulation 327.2 2 % 322.2 13 % 285.3 Other 255.9 0 % 257.2 (9 )% 282.8 Total revenues $ 1,065.9 (3 )% $ 1,095.2 3 % $ 1,060.4 Advertising Revenue The following table presents advertising page information according to Publishers Information Bureau for our major subscription-based magazines for the last three fiscal years: Years ended June 30, 2014 Change 2013 Change 2012 Parents 1,256 2 % 1,231 (1 )% 1,248 Better Homes and Gardens 1,174 (7 )% 1,263 (11 )% 1,416 Family Circle 962 (16 )% 1,147 (15 )% 1,343 Fitness 729 (5 )% 766 (5 )% 805 EveryDay with Rachael Ray 628 (3 )% 645 n/m 335 More 611 (11 )% 685 (6 )% 725 FamilyFun 543 (3 )% 558 n/m 165 Ladies' Home Journal 517 (26 )% 703 (17 )% 844 Traditional Home 495 (12 )% 562 2 % 553 Midwest Living 402 5 % 382 (4 )% 398 American Baby 348 (6 )% 370 (16 )% 439 EatingWell 293 31 % 223 10 % 203 Since date of acquisition in fiscal 2012 n/m - Not meaningful National media advertising revenues decreased 6 percent in fiscal 2014. Magazine advertising revenues declined 7 percent. Total advertising pages decreased in the high-single digits on a percentage basis in fiscal 2014 with most of our titles showing declines. Among our advertising categories, direct response and non-prescription drugs showed strength while demand was weaker for toiletries and cosmetics, food and beverage, and retail. Online advertising revenues in our digital and mobile media operations declined 1 percent in fiscal 2014. 24 -------------------------------------------------------------------------------- National media advertising revenues increased 5 percent in fiscal 2013. Magazine advertising revenues declined 2 percent in fiscal 2013 as compared to fiscal 2012. Total advertising pages decreased in the low-single digits on a percentage basis. Excluding advertising revenues and pages from acquisitions completed by the national media segment during fiscal 2012, magazine advertising revenues and advertising pages decreased 9 percent in fiscal 2013 with most titles showing declines. Among our core advertising categories, demand was weaker for the majority of categories. Online advertising revenues in our digital and mobile media operations increased more than 60 percent in fiscal 2013. Excluding online advertising revenues from acquisitions completed by the national media segment during fiscal 2012, online advertising revenues increased 8 percent in fiscal 2013. Circulation Revenues Magazine circulation revenues increased 2 percent in fiscal 2014. While subscription revenues increased in the low-single digits, newsstand revenues declined in the high-single digits. The increase in subscription revenues is primarily due to the additional distribution of the recently launched Allrecipes magazine with Meredith's legacy titles and the additional subscribers obtained through the acquisition of Parenting and Babytalk magazines. The decline in newsstand revenues is primarily due to weakness in special interest media and other titles. Magazine circulation revenues increased 13 percent in fiscal 2013. Excluding circulation revenues from acquisitions completed by the national media segment during fiscal 2012, magazine circulation revenues increased 6 percent as subscription revenues grew 10 percent while newsstand revenues declined 6 percent. The increase in subscription revenues is primarily due to a test issue of a magazine based on the Allrecipes brand and growth in our legacy titles. Other Revenues Other revenues were flat in fiscal 2014. MXM revenues decreased in the mid-single digits in fiscal 2014 due primarily to weakness in our health and digital customer relation marketing practices. Brand licensing revenues grew approximately 10 percent primarily due to continued strong sales of Better Homes and Gardens' licensed products at Walmart stores.



Fiscal 2013 other revenues decreased 9 percent. MXM revenues were down approximately 10 percent in fiscal 2013 due primarily to reductions in programs from certain clients. In addition, other revenues declined primarily due to lower sales of books. Brand licensing revenues grew 7 percent in fiscal 2013.

National Media Operating Expenses

National media operating expenses were flat in fiscal 2014. Fiscal 2014 paper costs declined $9.6 million primarily due to the decrease in printing volumes. In addition to the decrease in the volume of paper used, paper expense also decreased due to a mid-single digit decline in average paper prices as compared to the prior year. Payroll and related costs were down $7.9 million due primarily to actions taken in the prior year. Postage and other delivery and fulfillment costs declined $5.9 million and editorial costs declined by $4.5 million. Performance-based incentive accruals decreased by $5.1 million. Mostly offsetting these declines were increases in circulation expenses of $10.1 million and paid search costs of $3.2 million. Circulation expenses rose due to an increase in agent expenses. In addition, in fiscal 2014, the national media segment recorded a $20.8 million restructuring charge. This compares to a $6.4 million restructuring charge recorded by national media in fiscal 2013. The $20.8 million restructuring charge included the impairment of intangible assets of $10.3 million, severance and related benefit costs of $8.5 million, the write-down of fixed assets of $0.9 million, a vacated lease accrual of $0.4 million, and other accruals and write-downs of $0.7 million. Partially offsetting these charges was a $1.1 million reversal of excess restructuring accrual previously recorded by the national media segment.



National media operating expenses increased 3 percent in fiscal 2013 primarily due to operating expenses related to acquisitions completed by the national media segment during fiscal 2012 increasing $72.1 million and circulation expenses increasing $12.6 million. These increases were partially offset by declines in paper of $15.4 million,

25 -------------------------------------------------------------------------------- processing of $6.6 million, postage and other delivery costs of $4.4 million, and editorial costs of $2.1 million primarily due to the decrease in advertising pages. In addition to the decrease in the volume of paper used, paper expense also decreased due to a mid-single digit decline in average paper prices as compared to the prior year. In accord with the decrease in MXM's revenues, customer relationship marketing production expenses declined $14.3 million. Net restructuring costs declined $6.5 million in fiscal 2013 and there was a lack of acquisition costs in fiscal 2013 compared to $2.7 million of acquisition costs incurred in fiscal 2012.



National Media Operating Profit

National media operating profit decreased 18 percent in fiscal 2014. The decrease in operating profit was primarily due to a larger restructuring charge recorded in fiscal 2014 as compared to the restructuring charge recorded in fiscal 2013. In addition, decreases in the operating profit of our magazine operations of $23.8 million more than offset improved operating results in our interactive media operations of $8.6 million and our licensing operations of $3.9 million. In fiscal 2013, national media operating profit grew 4 percent compared with the prior year primarily due to there being lower restructuring charges recorded in fiscal 2013 than were recorded in fiscal 2012 and the lack of acquisition expenses in fiscal 2013. In addition, operating profit from acquisitions completed by the national media segment during fiscal 2012 increased $6.6 million and brand licensing operations operating profit increased by $2.8 million. These increases were partially offset by declines in operating profit of our magazine operations of $10.2 million and customer relationship marketing operations of $2.0 million.



UNALLOCATED CORPORATE EXPENSES

Unallocated corporate expenses are general corporate overhead expenses not attributable to the operating groups. These expenses for the last three fiscal years were as follows:

Years ended June 30, 2014 Change 2013 Change 2012



(In millions) Unallocated corporate expenses $ 39.7 (23 )% $ 51.3 44 % $ 35.5

Unallocated corporate expenses decreased 23 percent in fiscal 2014 as fiscal 2013 results included a charge of $5.1 million for professional fees and expenses related to a strategic transaction that did not materialize. Decreases in investment spending in Next Issue Media of $4.1 million and charitable contributions of $1.5 million also contributed to the decline. Unallocated corporate expenses increased 44 percent in fiscal 2013 compared with the prior year. Fiscal 2013 results included a charge of $5.1 million for professional fees and expenses related to a strategic transaction that did not materialize. In addition, increases in performance-based incentive accruals of $3.4 million; medical, pension, and other benefit costs of $2.8 million; consulting costs of $2.6 million; and investment spending in Next Issue Media of $1.5 million were partially offset by a reduction in building rent of $1.6 million. 26

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CONSOLIDATED

Consolidated Operating Expenses

Consolidated operating expenses for the last three fiscal years were as follows: Years ended June 30, 2014 Change 2013 Change 2012 (In millions) Production, distribution, and editorial $ 567.0 1 % $ 561.1 2 % $ 547.6 Selling, general, and administrative 655.2 0 % 654.1 9 % 599.0 Depreciation and amortization 59.9 32 % 45.4 2 % 44.3 Operating expenses $ 1,282.2 2 % $ 1,260.5 6 % $ 1,190.9 Production, Distribution, and Editorial Costs Fiscal 2014 production, distribution, and editorial costs increased 1 percent. Increases in programming fees paid to the networks of $14.8 million and the addition of local media acquisition expenses of $6.1 million offset declines in national media paper costs of $9.6 million, postage and other delivery and fulfillment costs of $5.9 million, and editorial costs of $4.5 million. Production, distribution, and editorial costs increased 2 percent in fiscal 2013 as compared to the prior year. Programming fees paid to the networks increased $25.4 million and expenses related to acquisitions completed by the national media segment during fiscal 2012 increased $24.7 million. These increases were partially offset by declines in national media paper of $15.4 million, processing of $6.6 million, postage and other delivery expenses of $4.4 million, and editorial costs of $2.1 million; customer relationship marketing production costs of $5.9 million; and local media film amortization of $2.3 million. Selling, General, and Administrative Expenses Fiscal 2014 selling, general, and administrative expenses were flat as compared to the prior year. In fiscal 2014, the Company recorded a $13.1 million restructuring charge. This compares to a $7.8 million restructuring charge recorded in fiscal 2013. The $13.1 million restructuring charge recorded in fiscal 2014 including severance and related benefit costs of $11.9 million, vacated building and lease accruals of $0.7 million, and other accruals of $0.5 million. Partially offsetting these charges was a $1.4 million reversal of excess restructuring accrual previously accrued. Circulation expenses rose $10.1 million in fiscal 2014. The addition of local media acquisition expenses added $5.3 million. Declines in performance-based incentive accruals of $6.3 million, expenses related to a fiscal 2013 strategic transaction that did not materialize of $5.1 million, investment spending in Next Issue Media of $4.1 million, local media legal costs of $3.6 million, employee compensation costs of $2.5 million, favorable curtailment credit related to our postretirement benefit plan of $1.5 million, and charitable contributions of $1.5 million mostly offset the increases. Selling, general, and administrative expenses increased 9 percent in fiscal 2013. During fiscal 2013, the Company recorded a restructuring charge of $7.8 million, including $7.4 million for severance and related benefit costs and a vacated lease accrual of $0.4 million related to business realignments. Partially offsetting these charges was an $0.8 million reversal of excess restructuring accrual previously accrued. Fiscal 2013 results also included a charge of $5.1 million for professional fees and expenses related to a strategic transaction that did not materialize. In addition, contributing to the increase were expenses from acquisitions completed by the national media segment during fiscal 2012 of $44.4 million; circulation expenses of $12.6 million; medical, pension, and other benefit costs of $7.3 million; performance-based incentive accruals of $6.0 million; and consulting costs of $2.2 million. These increases were partially offset by reductions in customer relationship marketing selling expenses of $6.3 million, 27 --------------------------------------------------------------------------------



net restructuring costs of $6.2 million, employee compensation costs of $4.3 million, and acquisition costs $2.7 million.

Depreciation and Amortization Depreciation and amortization expense increased 32 percent in fiscal 2014. Due to restructuring plans committed to by management during fiscal 2014, trademarks of $9.5 million and customer lists of $0.8 million were deemed to be impaired and were written off. In addition, the Company recorded an impairment charge of $0.9 million on fixed assets primarily due to the closing of the Company's medical sales force training business. Excluding these impairments, depreciation and amortization expense increased primarily due to the acquisition of KMOV.



Depreciation and amortization increased 2 percent in fiscal 2013 as compared to the prior year primarily due to the increased depreciation expenses from acquisitions completed by the national media segment during fiscal 2012.

Operating Expenses Employee compensation including benefits was the largest component of our operating expenses in fiscal 2014. Employee compensation represented 33 percent of total operating expenses in fiscal 2014 compared to 34 percent in fiscal 2013, and 33 percent in fiscal 2012. National media paper, production, and postage combined expense was the second largest component of our operating costs in fiscal 2014, representing 23 percent of the total. In fiscal 2013, these expenses represented 24 percent and in fiscal 2012, they were 27 percent.



Income from Operations

Income from operations decreased 12 percent in fiscal 2014. The decrease in income from operations was primarily due to a larger restructuring charge recorded in the current year than was recorded in the prior year. In addition, decreases in the operating profit of our magazine operations of $23.8 million more than offset improved operating results in our interactive media operations of $8.6 million and our licensing operations of $3.9 million. Income from operations rose 13 percent in fiscal 2013 as compared to the prior year primarily due to revenue growth and higher operating profits of $35.8 million in our local media segment and increased operating profit from acquisitions completed by the national media segment during fiscal 2012 of $6.6 million. These increases were partially offset by the increased unallocated corporate expenses of $15.7 million and declines in operating results in our magazine operations of $10.2 million.



Net Interest Expense

Net interest expense was $12.2 million in fiscal 2014, $13.4 million in fiscal 2013, and $12.9 million in fiscal 2012. Average long-term debt outstanding was $428.8 million in fiscal 2014, $367.7 million in fiscal 2013, and $305.4 million in fiscal 2012. The Company's approximate weighted average interest rate was 2.7 percent in fiscal 2014, 3.7 percent in fiscal 2013, and 4.2 percent in fiscal 2012. Income Taxes The Company's effective tax rate was 34.9 percent in fiscal 2014, 37.4 percent in fiscal 2013, and 39.6 percent in fiscal 2012. Our effective tax rate was primarily impacted by our lower pretax earnings due to the impairment and restructuring charges recorded in fiscal 2014 and a tax benefit from the realignment of international operations. The decrease in the fiscal 2013 effective tax rate is primarily due to tax benefits from the resolution of state and local tax contingencies.



Net Earnings and Earnings per Share

Net earnings were $113.5 million ($2.50 per diluted share) in fiscal 2014, down 8 percent from $123.7 million ($2.74 per diluted share) in fiscal 2013. The decrease in net earnings was primarily due to a larger restructuring charge recorded in the current year than was recorded in the prior year. In addition, decreases in the operating profit 28 -------------------------------------------------------------------------------- of our magazine operations of $23.8 million more than offset improved operating results in our interactive media operations of $8.6 million and our licensing operations of $3.9 million. Both average basic and diluted shares outstanding increased slightly. Net earnings were $123.7 million ($2.74 per diluted share) in fiscal 2013, up 18 percent from $104.4 million ($2.31 per diluted share) in fiscal 2012. The improvement was primarily the result of revenue growth and higher operating profits in our local media segment of $35.8 million, increased operating profits from the prior year national media acquisitions of $6.6 million and a lower effective tax rate. These increases were partially offset by the increased unallocated corporate expenses of $15.7 million and declines in operating results in our magazine of $10.1 million. Both average basic and diluted shares outstanding decreased slightly. LIQUIDITY AND CAPITAL RESOURCES Years ended June 30, 2014 2013 2012 (In millions) Cash flows from operating activities $ 178.1$ 189.1$ 181.9 Cash flows from investing activities (442.3 ) (76.2 ) (284.7 ) Cash flows from financing activities 273.1 (111.1 ) 100.9 Net cash flows $ 8.9$ 1.9$ (1.9 ) Cash and cash equivalents $ 36.6$ 27.7$ 25.8 Long-term debt (including current portion) 715.0 350.0 380.0 Shareholders' equity 891.7 854.3 797.4 Debt to total capitalization 45 % 29 % 32 % OVERVIEW Meredith's primary source of liquidity is cash generated by operating activities. Debt financing is typically used for significant acquisitions. Our core businesses-magazine and television broadcasting-have been strong cash generators. Despite the introduction of many new technologies, we believe these businesses will continue to have strong market appeal for the foreseeable future. As is true in any business, operating results and cash flows are subject to changes in demand for our products and changes in costs. Changes in the level of demand for magazine and television advertising or other products can have a significant effect on cash flows. Historically, Meredith has been able to absorb normal business downturns without significant increases in debt and management believes the Company will continue to do so. We expect cash on hand, internally generated cash flow, and available credit from financing agreements will provide adequate funds for operating and recurring cash needs (e.g., working capital, capital expenditures, debt repayments, and cash dividends) into the foreseeable future. At June 30, 2014, we had up to $180.0 million available under our revolving credit facility and up to $30.0 million available under our asset-backed bank facility (depending on levels of accounts receivable). While there are no guarantees that we will be able to replace current credit agreements when they expire, we expect to be able to do so. SOURCES AND USES OF CASH Cash and cash equivalents increased $8.9 million in fiscal 2014 and $1.9 million in fiscal 2013. They decreased $1.9 million in fiscal 2012. Over the three-year period, net cash provided by operating activities was used for acquisitions, debt repayments, dividends, stock repurchases, and capital investments. 29 --------------------------------------------------------------------------------



Operating Activities

The largest single component of operating cash inflows is cash received from advertising customers. Advertising accounted for more than 50 percent of total revenues in each of the past three fiscal years. Other sources of operating cash inflows include cash received from magazine circulation sales and other revenue transactions such as customer relationship marketing, retransmission consent fees, brand licensing, and product sales. Operating cash outflows include payments to vendors and employees and payments of interest and income taxes. Our most significant vendor payments are for production and delivery of publications and promotional mailings, broadcasting programming rights, employee benefits (including pension plans), network programming fees, and other services and supplies.



Cash provided by operating activities totaled $178.1 million in fiscal 2014 compared with $189.1 million in fiscal 2013. The change is primarily due to the timing of cash payments such as income tax payments and lower net earnings (excluding the impact of non-cash impairments).

Cash provided by operating activities totaled $189.1 million in fiscal 2013 compared with $181.9 million in fiscal 2012. The increase is primarily due to higher net earnings partially offset by a reduction in the current year deferred income taxes compared to the prior year. Changes in the Company's cash contributions to qualified defined benefit pension plans can have a significant effect on cash provided by operations. We have not made any contributions in the last three fiscal years. We do not anticipate a required contribution in fiscal 2015.



Investing Activities

Investing cash inflows generally include proceeds from the sale of assets or a business. Investing cash outflows generally include payments for the acquisition of new businesses; investments; and additions to property, plant, and equipment. Net cash used in investing activities was $442.3 million in fiscal 2014 compared to $76.2 million in fiscal 2013. The increase primarily reflects cash used for the purchase of the broadcast stations in the current year. Net cash used in investing activities decreased to $76.2 million in fiscal 2013 from $284.7 million in the prior year. The decrease primarily reflects more cash used in the prior year for acquisitions as well as higher spending in the prior year for additions to property, plant, and equipment due to a move into our new leased facilities in New York in fiscal 2012.



Financing Activities

Financing cash inflows generally include borrowings under debt agreements and proceeds from the exercise of common stock options issued under share-based compensation plans. Financing cash outflows generally include the repayment of long-term debt, repurchases of Company stock, and the payment of dividends. Net cash provided by financing activities totaled $273.1 million in fiscal 2014, compared with net cash used in financing activities of $111.1 million in the prior year. The change in cash from financing activities is primarily due to net debt of $365.0 million being incurred in the current year, primarily to finance the broadcast acquisitions, compared to a net $30.0 million debt reduction in the prior year. Net cash used in financing activities totaled $111.1 million in the year ended June 30, 2013, compared with net cash provided by financing activities of $100.9 million in fiscal 2012. The change in cash from financing activities is primarily due to a net $30.0 million debt reduction in fiscal 2013, compared to net debt of $185.0 million being incurred in fiscal 2012 primarily to finance acquisitions. Also effecting the change in cash used for financing activities was increased use of cash for higher dividend payments due to the increased dividend per share rate and 30 --------------------------------------------------------------------------------



increased purchases of Company common stock in fiscal 2013 offset by increased proceeds from common stock issued.

Long-term Debt

At June 30, 2014, long-term debt outstanding totaled $715.0 million ($250.0 million under a term loan, $225.0 million in fixed-rate unsecured senior notes, $150.0 million in floating-rate unsecured senior notes, $70.0 million under an asset-backed bank facility, and $20.0 million outstanding under a revolving credit facility). Of the fixed-rate unsecured senior notes, $75.0 million is due in the next 12 months. We expect to repay the senior notes with cash from operations and credit available under existing credit agreements. The fixed-rate senior notes are repayable in amounts of $25.0 million and $50.0 million and are due from July 13, 2014, to March 1, 2018. Interest rates on the fixed-rate senior notes range from 2.62 percent to 7.19 percent with a weighted average interest rate of 3.41 percent. In February 2014, Meredith issued $150.0 million in floating-rate senior notes which are due in February 2024. The interest rate under the notes is based on a fixed spread over LIBOR. None of the floating-rate senior notes are due in the next 12 months. In connection with the asset-backed bank facility, we entered into a revolving agreement. Under this agreement, we currently sell all of our rights, title, and interest in the majority of our accounts receivable related to advertising and miscellaneous revenues to Meredith Funding Corporation, a special-purpose entity established to purchase accounts receivable from Meredith. At June 30, 2014, $150.9 million of accounts receivable net of reserves were outstanding under the agreement. Meredith Funding Corporation in turn sells receivable interests to a major national bank. In consideration of the sale, Meredith receives cash and a subordinated note that bears interest at the prime rate, 3.25 percent at June 30, 2014, from Meredith Funding Corporation. The revolving agreement is structured as a true sale under which the creditors of Meredith Funding Corporation will be entitled to be satisfied out of the assets of Meredith Funding Corporation prior to any value being returned to Meredith or its creditors. The accounts of Meredith Funding Corporation are fully consolidated in Meredith's consolidated financial statements. The asset-backed bank facility has a capacity of up to $100.0 million. The interest rate on the asset-backed bank facility is variable based on the London Interbank Offered Rate (LIBOR) plus a fixed spread. The interest rate was 1.04 percent as of June 30, 2014. The renewed facility will expire in April 2015. During fiscal 2014, Meredith entered into a credit agreement that provided for a revolving credit facility of $200.0 million and a term loan of $250.0 million, which expire in March 2019. The interest rate under both facilities is variable based on LIBOR and Meredith's debt to trailing 12 month EBITDA ratio (earnings before interest, taxes, depreciation, and amortization as defined in the debt agreement). The term loan is payable in quarterly installments based on an amortization schedule as set forth in the agreement. The commitment fees under both facilities range from 0.125 percent to 0.25 percent of the unused commitment based on the Company's leverage ratio. At June 30, 2014, $250.0 million was outstanding under the term loan and $20.0 million was outstanding under the revolver. Of the term loan, $12.5 million is due in the next 12 months. 31 -------------------------------------------------------------------------------- We believe our debt agreements are material to discussions of Meredith's liquidity. All of our debt agreements include financial covenants, and failure to comply with any such covenants could result in the debt becoming payable on demand. A summary of the most significant financial covenants and their status at June 30, 2014, is as follows: Required at Actual



at

June 30, 2014June 30,



2014

Ratio of debt to trailing 12 month EBITDA1 Less than 3.75 2.68 Ratio of EBITDA1 to interest expense Greater than 2.75 14.94



1 EBITDA is earnings before interest, taxes, depreciation, and amortization as defined in the debt agreements.

The Company was in compliance with these and all other financial covenants at June 30, 2014.

Contractual Obligations The following table summarizes our principal contractual obligations as of June 30, 2014: Payments Due by Period Less than 1-3 4-5 After 5 Contractual obligations Total 1 Year Years Years Years (In millions) Long-term debt $ 715.0$ 87.5$ 137.5$ 340.0$ 150.0 Debt interest 1 57.5 13.4 20.1 11.9 12.1 Broadcast rights and network programming 2 223.7 64.5 127.1 31.2 0.9 Contingent consideration 3 2.6 - - 2.6 - Operating leases 170.7 18.8 35.3 27.7 88.9 Purchase obligations and other 4 59.2 24.9 23.1 5.5 5.7 Total contractual cash obligations $ 1,228.7$ 209.1



$ 343.1$ 418.9$ 257.6

1 Debt interest represents semi-annual interest payments due on fixed-rate senior notes outstanding at

June 30, 2014 and estimated interest payments on variable-rate term loan and variable-rate private

placement senior notes outstanding at June 30, 2014. Interest payments on variable-rate debt is estimated

using the effective interest rate as of June 30, 2014. 2 Commitments for broadcasting rights and network programming consist of future rights to broadcast

television programming and future programming costs pursuant to network affiliate agreements. Broadcast

rights include $29.5 million owed for broadcast rights that are not currently available for airing and

are therefore not included in the Consolidated Balance Sheet at June 30, 2014. 3 These amounts include contingent acquisition payments. While it is not certain if and /or when these

payments will be made, we have included the payments in the table based on our best estimates of the

amounts and dates when the contingencies may be resolved. 4 Purchase obligations and other includes expected postretirement benefit payments.

Due to uncertainty with respect to the timing of future cash flows associated with unrecognized tax benefits at June 30, 2014, the Company is unable to make reasonably reliable estimates of the period of cash settlement. Therefore, $45.6 million of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 7 to the Consolidated Financial Statements for further discussion of income taxes. Purchase obligations represent legally binding agreements to purchase goods and services that specify all significant terms. Outstanding purchase orders, which represent authorizations to purchase goods and services but are not legally binding, are not included in purchase obligations. We believe current cash balances, cash generated by future operating activities, and cash available under current credit agreements will be sufficient to meet our contractual cash obligations and other operating cash requirements for the foreseeable future. Projections of future cash flows 32 -------------------------------------------------------------------------------- are, however, subject to substantial uncertainty as discussed throughout MD&A and particularly in Item 1A-Risk Factors beginning on page 10. Debt agreements may be renewed or refinanced if we determine it is advantageous to do so. We also have commitments in the form of standby letters of credit totaling $1.2 million that expire within one year.



Share Repurchase Program

We have maintained a program of Company share repurchases for 26 years. In fiscal 2014, we spent $78.2 million to repurchase an aggregate of 1,640,000 shares of Meredith Corporation common and Class B stock at then current market prices. We spent $54.7 million to repurchase an aggregate of 1,477,000 shares in fiscal 2013 and $26.9 million to repurchase an aggregate of 976,000 shares in fiscal 2012. We expect to continue repurchasing shares from time to time subject to market conditions. In October 2011, the Board of Directors authorized the repurchase of up to $100.0 million in shares of the Company's stock through public and private transactions. In May 2014, the Board of Directors authorized the repurchase of up to $100.0 million in additional shares of the Company's stock through public and private transactions. As of June 30, 2014, $108.2 million remained available under the current authorizations for future repurchases. The status of the repurchase program is reviewed at each quarterly Board of Directors meeting. See Item 5-Issuer Purchases of Equity Securities of this Form 10-K for detailed information on share repurchases during the quarter ended June 30, 2014. Dividends Meredith has paid quarterly dividends continuously since 1947 and we have increased our dividend annually for 21 consecutive years. The last increase occurred in February 2014 when the Board of Directors approved the quarterly dividend of 43.25 cents per share effective with the dividend payable in March 2014. Given the current number of shares outstanding, the increase will result in additional dividend payments of approximately $4.4 million annually. Dividend payments totaled $75.4 million, or $1.6800 per share, in fiscal 2014 compared with $70.5 million, or $1.5800 per share, in fiscal 2013, and $63.0 million, or $1.4025 per share, in fiscal 2012.



Capital Expenditures

Spending for property, plant, and equipment totaled $24.8 million in fiscal 2014, $26.0 million in fiscal 2013, and $35.7 million in fiscal 2012. Current and prior year investments primarily relate to assets acquired in the normal course of business. Fiscal 2012 spending primarily related to leasehold improvements related to our move into new leased facilities in New York along with assets acquired in the normal course of business. The Company has no material commitments for capital expenditures. We expect funds for future capital expenditures to come from operating activities or, if necessary, borrowings under credit agreements. CRITICAL ACCOUNTING POLICIES Meredith's consolidated financial statements are prepared in accordance with GAAP. Our significant accounting policies are summarized in Note 1 to the consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Some of these estimates and assumptions are inherently difficult to make and subjective in nature. We base our estimates on historical experience, recent trends, our expectations for future performance, and other assumptions as appropriate. We reevaluate our estimates on an ongoing basis; actual results, however, may vary from these estimates. The following are the accounting policies that management believes are most critical to the preparation of our consolidated financial statements and require management's most difficult, subjective, or complex judgments. In addition, there are other items within the consolidated financial statements that require estimation but are not deemed to be critical accounting policies. Changes in the estimates used in these and other items could have a material impact on the consolidated financial statements. 33 --------------------------------------------------------------------------------



GOODWILL AND INTANGIBLE ASSETS

The Company has a significant amount of goodwill and indefinite-lived intangible assets that are reviewed at least annually for impairment. At June 30, 2014, goodwill and intangible assets totaled $1.7 billion, or 66 percent of Meredith's total assets, with $955.3 million in the national media segment and $721.8 million in the local media segment. Management is required to evaluate goodwill and intangible assets with indefinite lives for impairment on an annual basis or when events occur or circumstances change that would indicate the carrying value exceeds the fair value. In reviewing goodwill for impairment, the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. At May 31, 2014, the date the Company last performed its annual evaluation of impairment of goodwill, management elected to perform the two-step goodwill impairment test for all reporting units. The first step of this test is to compare the fair value of a reporting unit to its carrying value. In reviewing other indefinite-lived intangible assets for impairment, the Company compares the fair value of the asset to the asset's carrying value. Fair value 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 assets. These estimates depend upon assumptions about future revenues (including projections of overall market growth and our share of market), estimated costs, and appropriate discount rates where applicable. Our assumptions are based on historical data, various internal estimates, and a variety of external sources and are consistent with the assumptions used in both our 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 about the local media and national media businesses and their prospects or changes in market conditions could result in an impairment charge. See Item 1A. Risk Factors for other factors which could affect our assumptions. Also see Note 4 to the consolidated financial statements for additional information. The impairment analysis of these assets is considered critical because of their significance to the Company and our local media and national media segments. BROADCAST RIGHTS Broadcast rights, which consist primarily of rights to broadcast syndicated programs and feature films, are recorded at cost when the programs become available for airing. Amortization of broadcast rights is generally recorded on an accelerated basis over the contract period. Broadcast rights valued at $7.7 million were included in the Consolidated Balance Sheet at June 30, 2014. In addition, we had entered into contracts valued at $29.5 million not included in the Consolidated Balance Sheet at June 30, 2014, because the related programming was not yet available for airing. Broadcast rights are valued at the lower of unamortized cost or net realizable value. The determination of net realizable value requires us to estimate future net revenues expected to be earned as a result of airing of the programming. Future revenues can be affected by changes in the level of advertising demand, competition from other television stations or other media, changes in television programming ratings, changes in the planned usage of programming materials, and other factors. Changes in such key assumptions could result in an impairment charge.



PENSION AND POSTRETIREMENT PLANS

Meredith has noncontributory pension plans covering substantially all employees. These 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. Meredith also sponsors defined healthcare and life insurance plans that provide benefits to eligible retirees. 34

-------------------------------------------------------------------------------- The accounting for pension and postretirement plans is actuarially based and includes assumptions regarding expected returns on plan assets, discount rates, and the rate of increase in healthcare costs. We consider the accounting for pension and postretirement plans critical to Meredith and both of our segments because of the number of significant judgments required. More information on our assumptions and our methodology in arriving at these assumptions can be found in Note 8 to the consolidated financial statements. Changes in key assumptions could materially affect the associated assets, liabilities, and benefit expenses. Depending on the assumptions and estimates used, these balances could vary within a range of outcomes. We monitor trends in the marketplace and rely on guidance from employee benefit specialists to arrive at reasonable estimates. These estimates are reviewed annually and updated as needed. Nevertheless, the estimates are subjective and may vary from actual results. Meredith will use a long-term rate of return on assets of 8.0 percent in developing fiscal 2015 pension costs, the same as used in fiscal 2014. The fiscal 2014 rate was based on various factors that include but are not limited to the plans' asset allocations, a review of historical capital market performance, historical plan performance, current market factors such as inflation and interest rates, and a forecast of expected future asset returns. The pension plan assets earned 20.2 percent in fiscal 2014 and 12.9 percent in fiscal 2013. If we had decreased our expected long-term rate of return on plan assets by 0.5 percent in fiscal 2014, our pension expense would have increased by $0.6 million. Meredith will use a discount rate of 3.57 percent in developing the fiscal 2015 pension costs, down from a rate of 3.92 percent used in fiscal 2014. If we had decreased the discount rate by 0.5 percent in fiscal 2014, our pension expense would have increased by $0.1 million. Assumed rates of increase in healthcare cost levels have a significant effect on postretirement benefit costs. A one-percentage-point increase in the assumed healthcare cost trend rate would have resulted in an increase of $0.4 million in the postretirement benefit obligation at June 30, 2014, and no increase in the aggregate service and interest cost components of fiscal 2014 expense.



REVENUE RECOGNITION

Revenues from the newsstand sale of magazines are recorded net of our best estimate of expected product returns. Net revenues from newsstand sales totaled 5 percent of fiscal 2014 national media segment revenues. Allowances for returns are subject to considerable variability. Return allowances may exceed 65 percent for magazines sold on the newsstand. Estimation of these allowances for future returns is considered critical to the national media segment and the Company as a whole because of the potential impact on revenues. Estimates of magazine newsstand returns are based on historical experience and current marketplace conditions. Allowances for returns are adjusted continually on the basis of actual results. Unexpected changes in return levels may result in adjustments to net revenues.



SHARE-BASED COMPENSATION EXPENSE

Meredith has a stock incentive plan that permits us to grant various types of share-based incentives to key employees and directors. The primary types of incentives granted under the plan are stock options and restricted shares of common stock. Share-based compensation expense totaled $12.2 million in fiscal 2014. As of June 30, 2014, unearned compensation cost was $6.0 million for restricted stock and $3.5 million for stock options. These costs will be recognized over weighted average periods of 1.8 years and 1.7 years, respectively. Restricted shares are valued at the market value of traded shares on the date of grant. The valuation of stock options requires numerous assumptions. We determine the fair value of each option as of the date of grant using the Black-Scholes option-pricing model. This model requires inputs for the expected volatility of our stock price, expected life of the option, and expected dividend yield, among others. We base our assumptions on historical data, expected 35 -------------------------------------------------------------------------------- market conditions, and other factors. In some instances, a range of assumptions is used to reflect differences in behavior among various groups of employees. In addition, we estimate the number of options and restricted stock expected to eventually vest. This is based primarily on past experience. We consider the accounting for share-based compensation expense critical to Meredith and both of our segments because of the number of significant judgments required. More information on our assumptions can be found in Note 11 to the consolidated financial statements. Changes in these assumptions could materially affect the share-based compensation expense recognized as well as various liability and equity balances.



INCOME TAXES

Income taxes are recorded for the amount of taxes payable for the current year and include deferred tax assets and liabilities for the effect of temporary differences between the financial and tax basis of recorded assets and liabilities using enacted tax rates. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Income tax expense was 34.9 percent of earnings before income taxes in fiscal 2014. Net deferred tax liabilities totaled $296.7 million, or 18 percent of total liabilities, at June 30, 2014. We consider accounting for income taxes critical to our operations because management is required to make significant subjective judgments in developing our provision for income taxes, including the determination of deferred tax assets and liabilities, any valuation allowances that may be required against deferred tax assets, and reserves for uncertain tax positions. The Company operates in numerous taxing jurisdictions and is subject to audit in each of these jurisdictions. These audits can involve complex issues that tend to require an extended period of time to resolve and may eventually result in an increase or decrease to amounts previously paid to the taxing jurisdictions. Any such audits are not expected to have a material effect on the Company's consolidated financial statements. ACCOUNTING AND REPORTING DEVELOPMENTS



ADOPTED OR PENDING ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued or effective during the fiscal year which have had or are expected to have a material impact on the consolidated financial statements. See Note 1 to the consolidated financial statements for further detail on applicable accounting pronouncements that were adopted in fiscal 2014 or will be effective for fiscal 2015.


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