Meredith Corporation
MEREDITH CORP (Form: 10-Q, Received: 01/26/2017 14:47:53)
Click here for Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10‑Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2016
Commission file number 1-5128
IMAGE6A04.JPG
 
 
 
MEREDITH CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Iowa
 
42-0410230
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1716 Locust Street, Des Moines, Iowa
 
50309-3023
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code:   (515) 284-3000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer x      Accelerated filer o      Non-accelerated filer o      Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Shares of stock outstanding at December 31, 2016
 
Common shares
39,334,685

Class B shares
5,160,053

Total common and Class B shares
44,494,738

 
 



 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page
 
Part I - Financial Information
 
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of December 31, 2016 and June 30, 2016
 
 
 
 
 
 
Condensed Consolidated Statements of Earnings for the Three and Six Months Ended December 31, 2016 and 2015
 
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2016 and 2015
 
 
 
 
 
 
Condensed Consolidated Statement of Shareholders' Equity for the Six Months Ended December 31, 2016
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2016 and 2015
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
Item 1A.
Risk Factors
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
Item 6.
Exhibits
 
 
 
 
 
Signature
 
 
 
 
 
Index to Attached Exhibits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Meredith Corporation and its consolidated subsidiaries are referred to in this Quarterly Report
on Form 10‑Q (Form 10‑Q) as Meredith, the Company, we, our, and  us .



PART I
FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 

Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

Assets
 
December 31, 2016
 
June 30,
2016
(In thousands)
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
44,488


$
24,970

Accounts receivable, net
 
284,840


273,927

Inventories
 
20,009


20,678

Current portion of subscription acquisition costs
 
147,630


133,338

Current portion of broadcast rights
 
11,093


4,220

Other current assets
 
23,422


24,023

Total current assets
 
531,482

 
481,156

Property, plant, and equipment
 
536,744

 
530,052

Less accumulated depreciation
 
(352,986
)
 
(339,099
)
Net property, plant, and equipment
 
183,758

 
190,953

Subscription acquisition costs
 
97,939

 
95,960

Broadcast rights
 
4,610

 
4,565

Other assets
 
57,711

 
57,151

Intangible assets, net
 
913,157

 
913,877

Goodwill
 
895,389

 
883,129

Total assets
 
$
2,684,046

 
$
2,626,791

 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Current portion of long-term debt
 
$
62,500

 
$
75,000

Current portion of long-term broadcast rights payable
 
11,956

 
4,649

Accounts payable
 
75,694

 
82,107

Accrued expenses and other liabilities
 
127,598

 
116,777

Current portion of unearned subscription revenues
 
213,648

 
199,359

Total current liabilities
 
491,396

 
477,892

Long-term debt
 
611,691

 
618,506

Long-term broadcast rights payable
 
5,528

 
5,524

Unearned subscription revenues
 
131,002

 
128,534

Deferred income taxes
 
361,278

 
336,346

Other noncurrent liabilities
 
127,266

 
170,946

Total liabilities
 
1,728,161

 
1,737,748

Shareholders' equity
 
 
 
 
Series preferred stock
 

 

Common stock
 
39,335

 
39,272

Class B stock
 
5,160

 
5,284

Additional paid-in capital
 
55,333

 
54,282

Retained earnings
 
879,661

 
818,706

Accumulated other comprehensive loss
 
(23,604
)
 
(28,501
)
Total shareholders' equity
 
955,885

 
889,043

Total liabilities and shareholders' equity
 
$
2,684,046

 
$
2,626,791


See accompanying Notes to Condensed Consolidated Financial Statements.

1


Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)

 
Three Months
 
 
Six Months
Periods ended December 31,
2016
 
2015
 
 
2016
 
2015
(In thousands except per share data)
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Advertising
$
267,129

 
$
241,571

 
 
$
493,018

 
$
460,241

Circulation
66,805

 
66,351

 
 
135,473

 
138,526

All other
108,708

 
98,491

 
 
214,030

 
192,312

Total revenues
442,642

 
406,413

 
 
842,521

 
791,079

Operating expenses
 
 
 
 
 
 
 
 
Production, distribution, and editorial
148,625

 
151,065

 
 
298,853

 
304,243

Selling, general, and administrative
170,643

 
176,792

 
 
345,636

 
351,522

Depreciation and amortization
13,549

 
14,986

 
 
27,445

 
30,066

Merger-related costs

 
3,457

 
 

 
16,123

Total operating expenses
332,817

 
346,300

 
 
671,934

 
701,954

Income from operations
109,825

 
60,113

 
 
170,587

 
89,125

Interest expense, net
(4,679
)
 
(5,265
)
 
 
(9,428
)
 
(10,578
)
Earnings before income taxes
105,146

 
54,848

 
 
161,159

 
78,547

Income taxes
(33,341
)
 
(22,329
)
 
 
(55,381
)
 
(34,999
)
Net earnings
$
71,805

 
$
32,519

 
 
$
105,778

 
$
43,548

 
 
 
 
 
 
 
 
 
Basic earnings per share
$
1.61

 
$
0.73

 
 
$
2.38

 
$
0.98

Basic average shares outstanding
44,511

 
44,640

 
 
44,535

 
44,626

 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
1.58

 
$
0.72

 
 
$
2.33

 
$
0.96

Diluted average shares outstanding
45,378

 
45,358

 
 
45,385

 
45,373

 
 
 
 
 
 
 
 
 
Dividends paid per share
$
0.4950

 
$
0.4575

 
 
$
0.9900

 
$
0.9150


See accompanying Notes to Condensed Consolidated Financial Statements.


2


Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months
 
 
Six Months
Periods ended December 31,
2016
 
2015
 
 
2016
 
2015
(In thousands)
 
 
 
 
 
 
 
 
Net earnings
$
71,805

 
$
32,519

 
 
$
105,778

 
$
43,548

Other comprehensive income, net of income taxes
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plans activity
537

 
(2
)
 
 
1,075

 
(3
)
Unrealized gain (loss) on interest rate swaps
2,354

 
2,162

 
 
3,822

 
(46
)
Other comprehensive income (loss), net of income taxes
2,891

 
2,160

 
 
4,897

 
(49
)
Comprehensive income
$
74,696

 
$
34,679

 
 
$
110,675

 
$
43,499


See accompanying Notes to Condensed Consolidated Financial Statements.


3


Meredith Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)

(In thousands except per share data)
Common
Stock - $1
par value
Class B
Stock - $1
par value
Additional
Paid-in
Capital
 
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at June 30, 2016
 
$
39,272

 
$
5,284

 
$
54,282

 
$
818,706

 
$
(28,501
)
 
$
889,043

Net earnings
 

 

 

 
105,778

 

 
105,778

Other comprehensive income, net of income taxes
 

 

 

 

 
4,897

 
4,897

Shares issued under incentive plans, net of forfeitures
 
438

 

 
16,550

 

 

 
16,988

Purchases of Company stock
 
(499
)
 

 
(25,954
)
 

 

 
(26,453
)
Share-based compensation
 

 

 
9,408

 

 

 
9,408

Conversion of Class B to common stock
 
124

 
(124
)
 

 

 

 

Dividends paid
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 

 

 

 
(39,654
)
 

 
(39,654
)
Class B stock
 

 

 

 
(5,169
)
 

 
(5,169
)
Tax benefit from share-based awards
 

 

 
1,047

 

 

 
1,047

Balance at December 31, 2016
 
$
39,335

 
$
5,160

 
$
55,333

 
$
879,661

 
$
(23,604
)
 
$
955,885


See accompanying Notes to Condensed Consolidated Financial Statements.


4


Meredith Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Six months ended December 31,
2016
 
2015
(In thousands)
 
 
 
Cash flows from operating activities
 
 
 
Net earnings
$
105,778

 
$
43,548

Adjustments to reconcile net earnings to net cash provided by operating activities
 
 
 
Depreciation
17,885

 
20,249

Amortization
9,560

 
9,817

Share-based compensation
9,408

 
8,804

Deferred income taxes
21,879

 
15,149

Amortization of broadcast rights
8,740

 
8,452

Payments for broadcast rights
(8,346
)
 
(8,313
)
Provision for write-down of impaired assets
1,838

 

Fair value adjustments to contingent consideration
(17,961
)
 
(140
)
Excess tax benefits from share-based payments
(2,883
)
 
(1,706
)
Changes in assets and liabilities
(28,617
)
 
(48,158
)
Net cash provided by operating activities
117,281

 
47,702

Cash flows from investing activities
 
 
 
Acquisitions of and investments in businesses, net of cash acquired
(11,819
)
 
(186
)
Additions to property, plant, and equipment
(10,949
)
 
(7,866
)
Proceeds from disposition of assets

 
1,767

Net cash used in investing activities
(22,768
)
 
(6,285
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
270,000

 
90,000

Repayments of long-term debt
(288,125
)
 
(86,250
)
Dividends paid
(44,823
)
 
(41,362
)
Purchases of Company stock
(26,453
)
 
(6,538
)
Proceeds from common stock issued
16,988

 
6,455

Payment of acquisition-related contingent consideration
(4,000
)
 
(288
)
Excess tax benefits from share-based payments
2,883

 
1,706

Other
(1,465
)
 
(114
)
Net cash used in financing activities
(74,995
)
 
(36,391
)
Net increase in cash and cash equivalents
19,518

 
5,026

Cash and cash equivalents at beginning of period
24,970

 
22,833

Cash and cash equivalents at end of period
$
44,488

 
$
27,859


See accompanying Notes to Condensed Consolidated Financial Statements.


5


Meredith Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements
 
(Unaudited)
 


1. Summary of Significant Accounting Policies

Basis of Presentation —The condensed consolidated financial statements include the accounts of Meredith Corporation and its wholly owned subsidiaries (Meredith or the Company), after eliminating all significant intercompany balances and transactions. Meredith does not have any off-balance sheet arrangements. The Company's use of special-purpose entities is limited to Meredith Funding Corporation, whose activities are fully consolidated in Meredith's condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements, which are included in Meredith's Annual Report on Form 10‑K for the year ended June 30, 2016 , filed with the SEC.

The condensed consolidated financial statements as of December 31, 2016 , and for the three and six months ended December 31, 2016 and 2015 , are unaudited but, in management's opinion, include all normal, recurring adjustments necessary for a fair presentation of the results of interim periods. The year-end condensed consolidated balance sheet data as of June 30, 2016 , were derived from audited financial statements, but do not include all disclosures required by GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.

Adopted Accounting Pronouncements —In April 2015, the Financial Accounting Standards Board (FASB) issued guidance on the presentation of debt issuance costs. The new standard requires that debt issuance costs be recorded as a reduction from the face amount of the related debt rather than recorded as a deferred asset, with amortization recorded as interest expense. The Company adopted this guidance in the first quarter of fiscal 2017, and it was retrospectively applied to the prior period, as required. Adoption changed the classification of debt issuance costs from other assets to current portion of long-term debt or long-term debt based on the classification of the related debt instrument. As a result, other assets and long-term debt each decreased by $1.5 million as of June 30, 2016, compared to amounts previously reported. Additionally, the format of the long-term debt disclosure was updated to include debt issuance costs separately. The adoption did not have an impact on our results of operations or cash flows.

In April 2015, the FASB issued guidance on the presentation of cloud computing arrangements that include a software license. The new guidance requires capitalization of the software license fee as internal-use software if certain criteria are met, otherwise the costs are expensed as incurred. The standard was prospectively adopted by the Company in the first quarter of fiscal 2017. The adoption of the standard had no impact to the Company's consolidated financial statements.

In June 2015, the FASB issued an accounting standards update that made technical corrections to the FASB Accounting Standards Codification. These technical corrections are divided into four categories: amendments related to differences between original guidance and the codification, guidance clarification and reference corrections, minor structural changes to simplify the codification, and minor improvements that are not expected to have a significant impact on current accounting practice. The amendments were effective for the Company in the first quarter of fiscal 2017. The adoption of the amendments had no impact to the Company's consolidated financial statements.


6


Pending Accounting Pronouncements —In August 2016, the FASB issued an accounting standards update clarifying the classification of certain cash receipts and payments in the statement of cash flows. The update is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. Retrospective adoption is required in our first quarter of fiscal 2019 with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact this update will have on its consolidated financial statements and the timing of adoption.

In January 2017, the FASB issued an accounting standards update that clarifies the definition of a business and adds guidance to assist entities in the determination of whether an acquisition (or disposal) represents assets or a business. The update provides a test to determine whether or not an acquisition is a business. If substantially all of the fair value of the assets acquired is concentrated into a single asset or a group of similar identifiable assets, the acquired assets do not represent a business. If this test is not met, the update provides further guidance to evaluate if the acquisition represents a business. Prospective adoption is required in the first quarter of fiscal 2019. Early adoption is permitted if certain transaction criteria are met. The Company is currently evaluating the impact this update will have on its consolidated financial statements and the timing of adoption.


2. Acquisitions

On December 7, 2016, Meredith acquired the assets of a digital lead-generation company in the home services market. The acquisition-date fair value of the consideration was $21.1 million , which consisted of $13.4 million of cash and $7.7 million of contingent consideration. The contingent consideration arrangement requires the Company to pay contingent payments based on the achievement of certain targets in fiscal 2017 and on financial performance during fiscal 2017 through fiscal 2021 measured in terms of earnings before interest, taxes, depreciation, and amortization (EBITDA) as defined in the acquisition agreement. The contingent consideration is not dependent on the continued employment of the sellers. We 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 10. As of December 31, 2016 , the Company estimates the future payments will range from $7.3 million to $9.3 million . As a result of this acquisition, $21.1 million of goodwill and other intangible assets were recorded in the Condensed Consolidated Balance Sheet.

In fiscal 2015, the Company acquired a business for a purchase price which included contingent consideration based on the fiscal 2018 results of the business. The fair value of the contingent consideration was estimated based on the projected results for fiscal 2018 in financial models developed for the business. These models are reviewed and updated on a quarterly basis. During the second quarter of fiscal 2017, a comprehensive review of the acquired business’s operations was completed. As a result of the business having failed to achieve certain key milestones, the Company revised its financial models for the acquired business. Projected fiscal 2018 results for the business are now lower than originally estimated. Accordingly, in the second quarter of fiscal 2017, the Company recognized a non-cash credit to operations of $19.6 million to reduce the estimated contingent consideration payable on the previously acquired business. This credit was recorded in the selling, general, and administrative expense line on the Consolidated Statements of Earnings. As of December 31, 2016 , the Company estimates the future aggregate payments for this business will range from zero to $10 million .



7


3. Inventories

Major components of inventories are summarized below. Of total net inventory values shown, 56 percent are under the last-in first-out (LIFO) method at December 31, 2016 , and 54 percent at June 30, 2016 .

(In thousands)
December 31, 2016
 
June 30,
2016
Raw materials
 
$
8,637

 
$
11,698

Work in process
 
13,096

 
10,107

Finished goods
 
1,237

 
1,834

 
 
22,970

 
23,639

Reserve for LIFO cost valuation
 
(2,961
)
 
(2,961
)
Inventories
 
$
20,009

 
$
20,678



4. Intangible Assets and Goodwill

Intangible assets consist of the following:
 
December 31, 2016
 
 
June 30, 2016
(In thousands)
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
National media
 
 
 
 
 
 
 
 
 
 
 
 
Advertiser relationships
$
21,860

 
$
(13,224
)
 
$
8,636

 
 
$
18,610

 
$
(10,670
)
 
$
7,940

Customer lists
3,080

 
(2,930
)
 
150

 
 
5,230

 
(4,310
)
 
920

Other
23,515

 
(8,336
)
 
15,179

 
 
19,425

 
(8,685
)
 
10,740

Local media
 
 
 
 
 
 
 
 
 
 
 
 
Network affiliation agreements
229,309

 
(139,003
)
 
90,306

 
 
229,309

 
(135,789
)
 
93,520

Retransmission agreements
21,229

 
(8,762
)
 
12,467

 
 
21,229

 
(6,993
)
 
14,236

Other
1,023

 
(330
)
 
693

 
 
1,214

 
(419
)
 
795

Total
$
300,016

 
$
(172,585
)
 
127,431

 
 
$
295,017

 
$
(166,866
)
 
128,151

Intangible assets not
 
 
 
 
 
 
 
 
 
 
 
 
subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
National media
 
 
 
 
 
 
 
 
 
 
 
 
Internet domain names
 
 
 
 
7,827

 
 
 
 
 
 
7,827

Trademarks
 
 
 
 
153,215

 
 
 
 
 
 
153,215

Local media
 
 
 
 
 
 
 
 
 
 
 
 
FCC licenses
 
 
 
 
624,684

 
 
 
 
 
 
624,684

Total
 
 
 
 
785,726

 
 
 
 
 
 
785,726

Intangible assets, net
 
 
 
 
$
913,157

 
 
 
 
 
 
$
913,877


Amortization expense was $9.6 million and $9.8 million for the six months ended December 31, 2016 and 2015 , respectively. Annual amortization expense for intangible assets is expected to be as follows: $19.1 million in fiscal 2017 , $16.8 million in fiscal 2018 , $14.3 million in fiscal 2019 , $13.3 million in fiscal 2020 , and $9.3 million in fiscal 2021 .


8


Changes in the carrying amount of goodwill were as follows:

Six months ended December 31,
2016
 
 
2015
(In thousands)
National
Media
 
Local
Media
 
Total
 
 
National
Media
 
Local
Media
 
Total
Balance at beginning of period
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
931,303

 
$
68,775

 
$
1,000,078

 
 
$
932,471

 
$
68,775

 
$
1,001,246

Accumulated impairment losses
(116,949
)
 

 
(116,949
)
 
 

 

 

Total goodwill
814,354

 
68,775

 
883,129

 
 
932,471

 
68,775

 
1,001,246

Acquisition adjustments
12,260

 

 
12,260

 
 
(1,168
)
 

 
(1,168
)
Balance at end of period
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
943,563

 
68,775

 
1,012,338

 
 
931,303

 
68,775

 
1,000,078

Accumulated impairment losses
(116,949
)
 

 
(116,949
)
 
 

 

 

Total goodwill
$
826,614

 
$
68,775

 
$
895,389

 
 
$
931,303

 
$
68,775

 
$
1,000,078



5. Restructuring Accrual

During the second quarter of fiscal 2017, management committed to a performance improvement plan that included selected workforce reductions primarily in our national media group. In connection with this plan, the Company recorded pre-tax restructuring charges totaling $8.1 million including $7.6 million for severance and related benefit costs related to the involuntary termination of employees and other accruals of $0.3 million . The majority of severance costs are being paid out over a 12 -month period. The plan affects approximately 125 employees. The severance and related benefit costs and other accruals are recorded in the selling, general, and administrative line of the Condensed Consolidated Statements of Earnings. The Company also wrote down manuscript and art inventory by $0.2 million , which is recorded in the production, distribution, and editorial line of the Condensed Consolidated Statements of Earnings.

During the first quarter of fiscal 2016, management committed to a performance improvement plan that included selected workforce reductions. In connection with this plan, the Company recorded pre-tax restructuring charges totaling $3.4 million for severance and related benefit costs related to the involuntary termination of employees. The majority of severance costs have been paid out. The plan affected approximately 45 employees. The Company also recorded $1.1 million in reversals of excess restructuring reserves accrued in prior fiscal years. The severance and related benefit costs and the credits for the reversal of excess restructuring reserves are recorded in the selling, general, and administrative line of the Condensed Consolidated Statements of Earnings.

During the second quarter of fiscal 2016, management committed to a performance improvement plan that included selected workforce reductions. In connection with this plan, the Company recorded pre-tax restructuring charges totaling $1.0 million for severance and related benefit costs related to the involuntary termination of employees. The majority of severance costs have been paid out. The plan affected approximately 25 employees. The Company also recorded $0.5 million in reversals of excess restructuring reserves accrued in prior fiscal years. The severance and related benefit costs and the credits for the reversal of excess restructuring reserves are recorded in the selling, general, and administrative line of the Condensed Consolidated Statements of Earnings.


9


Details of changes in the Company's restructuring accrual are as follows:

Six months ended December 31,
2016
 
2015
(In thousands)
 
 
 
Balance at beginning of period
$
7,388

 
$
15,731

Severance accruals
7,578

 
4,380

Cash payments
(3,484
)
 
(8,108
)
Reversal of excess accrual
(13
)
 
(1,584
)
Balance at end of period
$
11,469

 
$
10,419



6. Long-term Debt

Long-term debt consists of the following:

(In thousands)
December 31, 2016
 
June 30,
2016
Variable-rate credit facilities
 
 
 
 
Asset-backed bank facility of $100 million, due 10/20/2017
 
$
80,000

 
$
80,000

Revolving credit facility of $200 million, due 11/30/2021
 

 
40,000

Term loan due 11/30/2021
 
246,875

 
225,000

 
 
 
 
 
Private placement notes
 
 
 
 
3.04% senior notes, due 3/1/2017
 
50,000

 
50,000

3.04% senior notes, due 3/1/2018
 
50,000

 
50,000

Floating rate senior notes, due 12/19/2022
 
100,000

 
100,000

Floating rate senior notes, due 2/28/2024
 
150,000

 
150,000

Total long-term debt
 
676,875

 
695,000

Unamortized debt issuance costs
 
(2,684
)
 
(1,494
)
Current portion of long-term debt
 
(62,500
)
 
(75,000
)
Long-term debt
 
$
611,691

 
$
618,506


In connection with the asset-backed bank facility, Meredith entered into a revolving agreement to sell all of its rights, title, and interest in the majority of its accounts receivable related to advertising and miscellaneous revenues to Meredith Funding Corporation, a special-purpose entity established to purchase accounts receivable from Meredith. At December 31, 2016 , $175.4 million of accounts receivable net of reserves was outstanding under the agreement. Meredith Funding Corporation in turn may sell receivable interests to a major national bank. In consideration of the sale, Meredith receives cash and a subordinated note, bearing interest at the prime rate, 3.75 percent at December 31, 2016 , from Meredith Funding Corporation. The 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 condensed consolidated financial statements.

During the second quarter of fiscal 2017, Meredith amended and restated its credit agreement that provides a revolving credit facility of $200.0 million and a term loan facility of $250.0 million , which now expires in November 2021. Other than extending the expiration date, the terms of the amended and restated credit agreement are substantially the same as those previously in place. The interest rate under both facilities is variable based on London Interbank Offered Rate (LIBOR) and Meredith's debt to trailing 12 month EBITDA (earnings before interest, taxes, depreciation and amortization as defined in the debt agreement) ratio. The commitment fees under the revolving credit facility range from 0.125 percent to 0.250 percent of the unused commitment based on the

10


Company's leverage ratio. The amended and restated credit agreement replaced our prior revolving credit facility and term loan.

The Company holds interest rate swap agreements to hedge variable interest rate risk on the $250.0 million floating-rate senior notes and on $50.0 million of the term loan. The expiration of the swaps is as follows: $50.0 million in August 2018, $100.0 million in March 2019, and $150.0 million in August 2019. Under the swaps the Company will pay fixed rates of interest ( 1.36 percent on the swap maturing in August 2018, 1.53 percent on the swap maturing in March 2019, and 1.76 percent on the swaps maturing in August 2019) and receive variable rates of interest based on the one to three-month LIBOR ( 0.74 percent on the swap maturing in August 2018, 0.99 percent on the swap maturing in March 2019, and 0.94 percent on the swaps maturing in August 2019 as of December 31, 2016 ) on the $300.0 million notional amount of indebtedness. The swaps are designated as cash flow hedges. The Company evaluates the effectiveness of the hedging relationships on an ongoing basis by recalculating changes in fair value of the derivatives and related hedged items independently.

Unrealized gains or losses on cash flow hedges are recorded in other comprehensive income to the extent the cash flow hedges are effective. The amount of the swap that offsets the effects of interest rate changes on the related debt is subsequently reclassified into interest expense. Any ineffective portions on cash flow hedges are recorded in interest expense. No material ineffectiveness existed at either December 31, 2016 or 2015 .

The fair value of the interest rate swap agreements is the estimated amount the Company would pay or receive to terminate the swap agreements. At December 31, 2016 , the swaps had a fair value of $1.0 million liability. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to the swap agreements. The Company strives to manage this exposure through diversification and monitoring of the creditworthiness of the counterparties. There was $0.4 million of potential loss that the Company would incur on the interest rate swaps if the counterparties were to fail to meet their obligations under the agreements at December 31, 2016 . Given the strong creditworthiness of the counterparties, management does not expect any of them to fail to meet their obligations. Additionally, the concentration of risk with any individual counterparty is not considered significant at December 31, 2016 .


7. Income Taxes

Our effective tax rate was 31.7 percent in the second quarter and 34.4 percent in the first six months of fiscal 2017 as compared to 40.7 percent in the second quarter and 44.6 percent in the first six months of fiscal 2016 . The fiscal 2017 effective tax rates were primarily impacted by a credit to income taxes of $6.7 million in the second quarter of fiscal 2017 related to the resolution of certain federal and state tax matters. The fiscal 2016 effective tax rates were primarily impacted by anticipated limitations on the tax deductibility of certain expenses.



11


8. Pension and Postretirement Benefit Plans

The following table presents the components of net periodic benefit costs:

 
Three Months
 
 
Six Months
Periods ended December 31,
2016
 
2015
 
 
2016
 
2015
(In thousands)
 
 
 
 
 
 
 
 
Pension benefits
 
 
 
 
 
 
 
 
Service cost
$
3,136

 
$
2,977

 
 
$
6,273

 
$
5,954

Interest cost
1,225

 
1,469

 
 
2,450

 
2,938

Expected return on plan assets
(2,298
)
 
(2,746
)
 
 
(4,596
)
 
(5,492
)
Prior service cost amortization
49

 
49

 
 
97

 
98

Actuarial loss amortization
897

 
157

 
 
1,794

 
314

Net periodic benefit costs
$
3,009

 
$
1,906

 
 
$
6,018

 
$
3,812

 
 
 
 
 
 
 
 
 
Postretirement benefits
 
 
 
 
 
 
 
 
Service cost
$
23

 
$
25

 
 
$
46

 
$
50

Interest cost
80

 
96

 
 
160

 
192

Prior service credit amortization
(98
)
 
(107
)
 
 
(196
)
 
(214
)
Actuarial gain amortization
(77
)
 
(169
)
 
 
(155
)
 
(338
)
Net periodic benefit credit
$
(72
)
 
$
(155
)
 
 
$
(145
)
 
$
(310
)

The amortization of amounts related to unrecognized prior service costs and net actuarial gain/loss was reclassified out of other comprehensive income as components of net periodic benefit costs.


9. Earnings per Share

The following table presents the calculations of earnings per share:

 
Three Months
 
 
Six Months
Periods ended December 31,
2016
 
2015
 
 
2016
 
2015
(In thousands except per share data)
 
 
 
 
 
 
 
 
Net earnings
$
71,805

 
$
32,519

 
 
$
105,778

 
$
43,548

Basic average shares outstanding
44,511

 
44,640

 
 
44,535

 
44,626

Dilutive effect of stock options and equivalents
867

 
718

 
 
850

 
747

Diluted average shares outstanding
45,378

 
45,358

 
 
45,385

 
45,373

Earnings per share
 
 
 
 
 
 
 
 
Basic earnings per share
$
1.61

 
$
0.73

 
 
$
2.38

 
$
0.98

Diluted earnings per share
1.58

 
0.72

 
 
2.33

 
0.96


For the three months ended December 31, 2016 and 2015 , antidilutive options excluded from the above calculations totaled 0.8 million (with a weighted average exercise price of $53.64 ) and 1.5 million (with a weighted average exercise price of $48.58 ), respectively.

For the six months ended December 31, 2016 and 2015 , antidilutive options excluded from the above calculations totaled 0.5 million (with a weighted average exercise price of $53.98 ) and 1.3 million (with a weighted average exercise price of $49.26 ), respectively.

12


In the six months ended December 31, 2016 and 2015 , options were exercised to purchase 0.4 million and 0.1 million common shares, respectively.


10. Fair Value Measurements

We estimated the fair value of our financial instruments using available market information and valuation methodologies we believe 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 we 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 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable ;
Level 3
Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

The following table sets forth the carrying value and the estimated fair value of the Company's financial instruments not measured at fair value on a recurring basis:

 
December 31, 2016
 
 
June 30, 2016
(In thousands)
Carrying Value
 
Fair Value
 
 
Carrying Value
 
Fair Value
Broadcast rights payable
$
17,484

 
$
16,709

 
 
$
10,173

 
$
9,655

Total long-term debt
676,875

 
677,125

 
 
695,000

 
695,533


The fair value of broadcast rights payable was determined using the present value of expected future cash flows discounted at the Company's current borrowing rate with inputs included in Level 3. The fair value of total long-term debt was determined using the present value of expected future cash flows using borrowing rates currently available for debt with similar terms and maturities with inputs included in Level 2.

The following table sets forth the assets and liabilities measured at fair value on a recurring basis:

(In thousands)
December 31, 2016
 
 
June 30, 2016
Property, plant, and equipment
 
 
 
 
Corporate airplanes, held for sale
$
2,800

 
 
$
2,800

Other assets
 
 
 
 
Interest rate swaps
414

 
 

Accrued expenses and other liabilities
 
 
 
 
Contingent consideration
10,431

 
 

Interest rate swaps
1,420

 
 
2,768

Other noncurrent liabilities
 
 
 
 
Contingent consideration
31,920

 
 
56,631

Interest rate swaps

 
 
4,511



13


The fair value of interest rate swaps is determined using discounted cash flows derived from market observable inputs including swap curves that are included in Level 2. The fair values of contingent consideration and corporate airplanes are based on significant inputs not observable in the market and thus represents Level 3 measurements.

Details of changes in the fair value of Level 3 contingent consideration and corporate airplanes are as follows:

Six months ended December 31,
2016
 
2015
(in thousands)
 
 
 
Contingent consideration
 
 
 
Balance at beginning of period
$
56,631

 
$
61,535

Additions due to acquisitions
7,681

 

Payments
(4,000
)
 
(288
)
Change in present value of contingent consideration (1)
(17,961
)
 
(140
)
Balance at end of period
$
42,351

 
$
61,107

 
 
 
 
Corporate airplanes, held for sale
 
 
 
Balance at beginning of period (2)
$
2,800

 
$

Fair market adjustment of corporate airplanes

 

Balance at end of period
$
2,800

 
$

 
 
 
 
(1)     Change in present value of contingent consideration is recorded in the selling, general, and administrative expense line on the Condensed Consolidated Statements of Earnings and is comprised of changes in estimated earn out payments based on projections of performance and the accretion of the present value discount.

(2)     Consistent with the decision to sell the corporate airplanes, these assets were adjusted to fair value in the fourth quarter of fiscal 2016.


11. Financial Information about Industry Segments

Meredith is a diversified media company focused primarily on the home and family marketplace. On the basis of products and services, the Company has established two reportable segments: national media and local media. There have been no changes in the basis of segmentation since June 30, 2016 . There have been no material intersegment transactions.

There are two principal financial measures reported to the chief executive officer for use in assessing segment performance and allocating resources. Those measures are operating profit and EBITDA. Operating profit for segment reporting, disclosed below, is revenues less operating costs excluding 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 directly attributable to the operating groups. In accordance with authoritative guidance on disclosures about segments of an enterprise and related information, EBITDA is not presented below.


14


The following table presents financial information by segment:

 
Three Months
 
 
Six Months
Periods ended December 31,
2016
 
2015
 
 
2016
 
2015
(In thousands)
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
National media
$
259,345

 
$
266,527

 
 
$
506,638

 
$
524,726

Local media
183,297

 
139,886

 
 
335,883

 
266,353

Total revenues
$
442,642

 
$
406,413

 
 
$
842,521

 
$
791,079

 
 
 
 
 
 
 
 
 
Segment profit
 
 
 
 
 
 
 
 
National media
$
46,757

 
$
33,583

 
 
$
70,868

 
$
56,386

Local media
76,815

 
40,441

 
 
127,437

 
69,768

Unallocated corporate
(13,747
)
 
(13,911
)
 
 
(27,718
)
 
(37,029
)
Income from operations
109,825

 
60,113

 
 
170,587

 
89,125

Interest expense, net
(4,679
)
 
(5,265
)
 
 
(9,428
)
 
(10,578
)
Earnings before income taxes
$
105,146

 
$
54,848

 
 
$
161,159

 
$
78,547

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
National media
$
4,330

 
$
4,833

 
 
$
8,848

 
$
9,398

Local media
8,865

 
9,616

 
 
17,855

 
19,594

Unallocated corporate
354

 
537

 
 
742

 
1,074

Total depreciation and amortization
$
13,549

 
$
14,986

 
 
$
27,445

 
$
30,066




15


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations



Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in forward-looking statements are set forth below under the heading “Forward Looking Statements."



EXECUTIVE OVERVIEW

Meredith Corporation has been committed to service journalism for 115 years. Today, Meredith uses multiple distribution platforms—including broadcast television, print, 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: local media and national media. The local media segment includes 17 owned or operated television stations reaching 11 percent of United States (U.S.) households. Meredith’s portfolio is concentrated in large, fast-growing markets, with seven stations in the nation’s Top 25 markets—including Atlanta, Phoenix, St. Louis, and Portland—and 13 in Top 50 markets. Meredith’s stations produce nearly 700 hours of local news and entertainment content each week, and operate leading local digital destinations.

Our national media segment reaches 100 million unduplicated women and nearly 75 percent of American millennial women. Meredith is the leader at creating content across media platforms in key consumer interest areas such as food, home, parenting, and lifestyle through well-known brands such as Better Homes and Gardens, Allrecipes, Parents, and Shape. The national media segment features robust brand licensing activities, including more than 3,000 SKUs of branded products at 5,000 Walmart stores across the U.S. Meredith Xcelerated Marketing (MXM) is a leader at developing and delivering custom content and customer relationship marketing programs for many of the world’s top 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. The national media segment accounted for 60 percent of the Company's $842.5 million in revenues in the first six months of fiscal 2017 while the local media segment contributed 40 percent .


LOCAL MEDIA

Local media derives the majority of its revenues— 69 percent in the first six months of fiscal 2017 —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, and other services. 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. Local media's major expense categories are employee compensation costs and programming fees paid to the networks.


NATIONAL MEDIA

Advertising revenues represented 51 percent of national media's first six months ' revenues. These revenues were generated from the sale of advertising space in our magazines and on our websites and apps to clients interested in promoting their brands, products, and services to consumers. Circulation revenues accounted for 27 percent of national media's first six months ' revenues. Circulation revenues result from the sale of magazines to consumers

16


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. The remaining 22 percent of national media's revenues came from a variety of activities which included the sale of customer relationship marketing products and services as well as brand licensing, product sales, and other related activities. National media's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.


FIRST SIX MONTHS FISCAL 2017 FINANCIAL OVERVIEW

Local media revenues increased 26 percent and operating profit rose 83 percent compared to the prior-year period reflecting increased cyclical political advertising and higher retransmission revenues.

National media revenues declined 3 percent compared to the prior-year period as declines in the revenues of our magazine operations of $20.5 million, our MXM operations of $5.9 million, and our brand licensing operations of $5.3 million more than offset increased revenues in our digital operations of $13.4 million. Approximately 20 percent of the decline in magazine operation revenues was due to the closure of MORE magazine effective following the April 2016 issue. National media operating profit increased 26 percent primarily due to a reduction in previously accrued contingent consideration payable of $19.6 million recorded in the second quarter of fiscal 2017. In addition, operating results in our digital operations improved by $13.5 million. These increases were partially offset by decreases in the operating profit of our MXM operations of $5.4 million, our brand licensing operations of $5.4 million, and our magazine operations of $3.5 million.

Due to the resolution of certain federal and state tax matters, in the second quarter of fiscal 2017, income taxes were reduced by $6.7 million.

Diluted earnings per share increased 143 percent to $2.33 from $0.96 in the prior-year first six months primarily due to the reduction in previously accrued contingent consideration payable, the increase in political advertising revenues, and the credit to income taxes. Prior-year earnings per share was impacted by merger-related expenses incurred by the Company in the first six months of fiscal 2016.


RESULTS OF OPERATIONS

Three months ended December 31,
2016
 
2015
 
Change

(In thousands except per share data)
 
 
 
 
 
Total revenues
$
442,642

 
$
406,413

 
9
 %
Operating expenses
(332,817
)
 
(346,300
)
 
(4
)%
Income from operations
$
109,825

 
$
60,113

 
83
 %
Net earnings
$
71,805

 
$
32,519

 
121
 %
Diluted earnings per share
1.58

 
0.72

 
119
 %
 
 
 
 
 
 
Six months ended December 31,
2016
 
2015
 
Change

(In thousands except per share data)
 
 
 
 
 
Total revenues
$
842,521

 
$
791,079

 
7
 %
Operating expenses
(671,934
)
 
(701,954
)
 
(4
)%
Income from operations
$
170,587

 
$
89,125

 
91
 %
Net earnings
$
105,778

 
$
43,548

 
143
 %
Diluted earnings per share
2.33

 
0.96

 
143
 %


17


The following sections provide an analysis of the results of operations for the local media and national media segments and an analysis of the consolidated results of operations for the three and six months ended December 31, 2016 , compared with the prior-year periods. This commentary should be read in conjunction with the interim condensed consolidated financial statements presented elsewhere in this report and with our Annual Report on Form 10‑K (Form 10‑K) for the year ended June 30, 2016 .


LOCAL MEDIA

Local media operating results were as follows:

Three months ended December 31,
2016
 
2015
 
Change

(In thousands)
 
 
 
 
 
Non-political advertising
$
91,958

 
$
103,557

 
(11
)%
Political advertising
40,068

 
798

 
4,921
 %
Other
51,271

 
35,531

 
44
 %
Total revenues
183,297

 
139,886

 
31
 %
Operating expenses
(106,482
)
 
(99,445
)
 
7
 %
Operating profit
$
76,815

 
$
40,441

 
90
 %
Operating profit margin
41.9
%
 
28.9
%
 
 
 
 
 
 
 
 
Six months ended December 31,
2016
 
2015
 
Change

(In thousands)
 
 
 
 
 
Non-political advertising
$
176,142

 
$
192,867

 
(9
)%
Political advertising
56,421

 
2,918

 
1,834
 %
Other
103,320

 
70,568

 
46
 %
Total revenues
335,883

 
266,353

 
26
 %
Operating expenses
(208,446
)
 
(196,585
)
 
6
 %
Operating profit
$
127,437

 
$
69,768

 
83
 %
Operating profit margin
37.9
%
 
26.2
%
 
 

Revenues
Local media revenues increased 31 percent in the second quarter and 26 percent in the first six months of fiscal 2017 . Political advertising revenues totaled $40.1 million in the second quarter and $56.4 million in the first six months of the current fiscal year compared with $0.8 million in the prior-year second quarter and $2.9 million in the prior-year six-month period . Fluctuations in political advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns. Political advertising displaces a certain amount of non-political advertising; therefore, the revenues are not entirely incremental. Non-political advertising revenues decreased 11 percent in the second quarter and 9 percent in the first six months of fiscal 2017 . Local non-political advertising revenues declined 11 percent in the second quarter and 9 percent in the first six months of fiscal 2017 while national non-political advertising revenues decreased 15 percent in the second quarter and 11 percent in the first six months of fiscal 2017 . Digital advertising, a component of non-political advertising revenues, increased 18 percent in the second quarter and 20 percent in the first six months of fiscal 2017 as a series of growth strategies continued to drive higher advertising rates across the station group.

Other revenues grew 44 percent in the second quarter of fiscal 2017 and 46 percent in the six-month period primarily due to increased retransmission fees.


18


Operating Expenses
Local media operating expenses increased 7 percent in the second quarter of fiscal 2017 primarily due to higher programming fees paid to affiliated networks of $5.3 million and the write-down of cost-method investments of $1.7 million. Local media operating expenses increased 6 percent in the first six months of fiscal 2017 primarily due to higher programming fees paid to affiliated networks of $9.6 million and the write-down of cost-method investments of $1.7 million.

Operating Profit
Local media operating profit increased 90 percent in the second quarter and 83 percent in the first six months of fiscal 2017 compared with the prior-year periods reflecting the increase in higher-margin political advertising and retransmission revenues.


NATIONAL MEDIA

National media operating results were as follows:

Three months ended December 31,
2016
 
2015
 
Change

(In thousands)
 
 
 
 
 
Advertising
$
135,103

 
$
137,216

 
(2
)%
Circulation
66,805

 
66,351

 
1
 %
Other
57,437

 
62,960

 
(9
)%
Total revenues
259,345

 
266,527

 
(3
)%
Operating expenses
(212,588
)
 
(232,944
)
 
(9
)%
Operating profit
$
46,757

 
$
33,583

 
39
 %
Operating profit margin
18.0
%
 
12.6
%
 
 
 
 
 
 
 
 
Six months ended December 31,
2016
 
2015
 
Change

(In thousands)
 
 
 
 
 
Advertising
$
260,455

 
$
264,456

 
(2
)%
Circulation
135,473

 
138,526

 
(2
)%
Other
110,710

 
121,744

 
(9
)%
Total revenues
506,638

 
524,726

 
(3
)%
Operating expenses
(435,770
)
 
(468,340
)
 
(7
)%
Operating profit
$
70,868

 
$
56,386

 
26
 %
Operating profit margin
14.0
%
 
10.7
%
 
 

Revenues
National media advertising revenues decreased 2 percent in the second quarter and in the first six months of fiscal 2017 , primarily due to the closure of MORE magazine effective following the April 2016 issue. Digital advertising revenues grew 16 percent in the second quarter and in the first six months of fiscal 2017 . Magazine advertising revenues declined 10 percent, primarily the result of mix changes, and advertising pages decreased 3 percent in the second quarter of fiscal 2017 . Similarly, for the first six months of fiscal 2017 magazine advertising revenues and ad pages decreased 8 percent and 2 percent, respectively. Among our core advertising categories, the direct response, pets, and cosmetics categories showed strength while demand was weaker for the non-prescription drug, home, and retail categories.

Magazine circulation revenues increased 1 percent in the second quarter of fiscal 2017 . They declined 2 percent in the first six months of fiscal 2017 . Subscription revenues were down 2 percent in the second quarter and 4 percent in the first six months of fiscal 2017 . Newsstand revenues increased in the high teens on a percentage basis in the

19


second quarter and the low teens in the first six months of fiscal 2017 primarily due to a strong debut of The Magnolia Journal , Meredith’s quarterly lifestyle magazine based on Joanna and Chip Gaines’ popular Magnolia brand. Subscription revenues declined due primarily to the closure of MORE magazine and ongoing efforts to source magazine subscribers from Meredith’s own database instead of external agent sources. This direct-to-publisher strategy increases circulation profit but lowers revenues over time. The closing of MORE magazine and the direct-to-publisher strategy are expected to adversely affect subscription revenues throughout fiscal 2017.

Other revenues decreased 9 percent in the second quarter and the first six months of fiscal 2017 primarily due to declines in MXM and brand licensing revenues. MXM revenues declined primarily due to certain client losses and project scope reductions. Brand licensing revenues were down primarily due to the renewal of certain contracts impacting the timing of revenues.

Operating Expenses
National media operating expenses decreased 9 percent in the second quarter and 7 percent in the first six months of fiscal 2017 primarily due to a reduction in contingent consideration payable of $19.6 million recorded in the second quarter of fiscal 2017. In addition, for the second quarter, declines in non-payroll related editorial costs of $2.1 million, postage and other delivery costs of $1.7 million, and employee compensation costs of $1.2 million more than offset increases in severance and related benefit accruals of $5.7 million and circulation expenses of $1.5 million. In the first six months of fiscal 2017 , decreases in non-payroll related editorial costs of $4.1 million, postage and other delivery costs of $4.1 million, paper expense of $2.5 million, employee compensation costs of $2.4 million, and circulation expenses of $2.3 million more than offset an increase in severance and related benefit accruals of $2.4 million. The closing of MORE magazine contributed to the expense declines.

Operating Profit
National media operating profit increased 39 percent in the second quarter of fiscal 2017 primarily due to a reduction in previously accrued contingent consideration payable of $19.6 million. In addition, growth in the operating profit of our digital operations of $9.1 million was partially offset by higher severance and benefits expense of $5.7 million and declines in the operating profit of MXM's operations of $3.6 million, our brand licensing operations of $2.9 million, and our magazine operations of $1.9 million. National media operating profit grew 26 percent in the first six months of fiscal 2017 primarily due to a reduction in previously accrued contingent consideration payable of $19.6 million. In addition, growth in the operating profit of our digital operations of $13.5 million was partially offset by declines in the operating profit of MXM's operations of $5.4 million, our brand licensing operations of $5.4 million, and our magazine operations of $3.5 million.


UNALLOCATED CORPORATE EXPENSES

Unallocated corporate expenses are general corporate overhead expenses not attributable to the operating groups. These expenses were as follows:

Three months ended December 31,
2016
 
2015
 
Change

(In thousands)
 
 
 
 
 
Costs and expenses
$
13,747

 
$
10,454

 
31
 %
Merger-related costs

 
3,457

 
(100
)%
Unallocated corporate expenses
$
13,747

 
$
13,911

 
(1
)%
 
 
 
 
 
 
Six months ended December 31,
2016
 
2015
 
Change

(In thousands)
 
 
 
 
 
Costs and expenses
$
27,718

 
$
20,906

 
33
 %
Merger-related costs

 
16,123

 
(100
)%
Unallocated corporate expenses
$
27,718

 
$
37,029

 
(25
)%

20


Unallocated corporate costs and expenses increased 31 percent as compared to the prior-year second quarter primarily due to increases in performance-based incentive accruals of $1.9 million and benefit costs of $1.1 million. Unallocated corporate costs and expenses increased 33 percent in the first six months of fiscal 2017 primarily due to increases in performance-based incentive accruals of $4.3 million, benefit costs of $1.8 million, and consulting costs of $1.3 million.

In September 2015, the Company entered into a merger agreement with Media General, Inc. This agreement was terminated in January 2016. During the second quarter and first six months of fiscal 2016, the Company incurred $3.5 million and $16.1 million , respectively, in merger-related expenses.


CONSOLIDATED

Consolidated Operating Expenses
Consolidated operating expenses were as follows:

Three months ended December 31,
2016