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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 endedSeptember 30, 2020
Commission file number 1-5128

MEREDITH CORPORATION
(Exact name of registrant as specified in its charter)
Iowa42-0410230
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1716 Locust Street,Des Moines,Iowa50309-3023
(Address of principal executive offices)(ZIP Code)
Registrant’s telephone number, including area code:
(515)284-3000
Former name, former address, and former fiscal year, if changed since last report: Not applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $1MDPNew York Stock Exchange

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 þ   No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).         Yes þ   No o

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

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o
Smaller reporting company      Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act     o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No þ

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 October 31, 2020
Common shares40,482,806 
Class B shares5,083,934 
Total common and class B shares45,566,740 

















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TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1.Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2020 and June 30, 2020
Condensed Consolidated Statements of Earnings for the Three Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Shareholders' Equity for the Three Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2020 and 2019
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
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 IFINANCIAL INFORMATION
Item 1.Financial Statements

Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
AssetsSeptember 30, 2020June 30,
2020
(In millions except per share data)
Current assets
Cash and cash equivalents$201.0 $132.4 
Accounts receivable, net484.7 461.9 
Inventories32.9 34.2 
Current portion of subscription acquisition costs225.2 213.2 
Other current assets73.3 43.1 
Total current assets1,017.1 884.8 
Property, plant, and equipment886.4 883.3 
Less accumulated depreciation(498.5)(483.4)
Net property, plant, and equipment387.9 399.9 
Operating lease assets396.1 404.6 
Subscription acquisition costs234.8 221.6 
Other assets229.6 232.4 
Intangible assets, net1,616.9 1,647.5 
Goodwill1,719.4 1,719.3 
Total assets$5,601.8 $5,510.1 
Current liabilities
Current portion of long-term debt$4.1 $4.1 
Current portion of operating lease liabilities35.6 35.2 
Accounts payable137.6 121.1 
Accrued expenses and other liabilities161.6 168.1 
Current portion of unearned revenues413.6 403.2 
Total current liabilities752.5 731.7 
Long-term debt2,983.5 2,981.8 
Operating lease liabilities458.2 466.7 
Unearned revenues280.1 267.5 
Deferred income taxes467.9 463.8 
Other noncurrent liabilities211.1 210.4 
Total liabilities5,153.3 5,121.9 
Shareholders' equity
Series preferred stock, par value $1 per share
  
Common stock, par value $1 per share
40.4 40.3 
Class B stock, par value $1 per share
5.1 5.1 
Additional paid-in capital236.3 227.6 
Retained earnings242.0 197.6 
Accumulated other comprehensive loss(75.3)(82.4)
Total shareholders' equity448.5 388.2 
Total liabilities and shareholders' equity$5,601.8 $5,510.1 
See accompanying Notes to Condensed Consolidated Financial Statements.
1


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

Three months ended September 30,20202019
(In millions except per share data)
Revenues
Advertising related$358.5 $379.6 
Consumer related318.7 323.1 
Other16.3 22.5 
Total revenues693.5 725.2 
Operating expenses
Production, distribution, and editorial241.1 273.7 
Selling, general, and administrative311.2 330.8 
Acquisition, disposition, and restructuring related activities14.1 14.1 
Depreciation and amortization49.0 58.5 
Impairment of long-lived assets 5.2 
Total operating expenses615.4 682.3 
Income from operations78.1 42.9 
Non-operating income, net5.6 8.6 
Interest expense, net(43.5)(38.9)
Earnings from continuing operations before income taxes40.2 12.6 
Income tax benefit (expense)2.1 (0.5)
Earnings from continuing operations42.3 12.1 
Loss from discontinued operations, net of income taxes (6.0)
Net earnings$42.3 $6.1 
Earnings (loss) attributable to common shareholders$40.3 $(13.9)
Basic earnings (loss) per share attributable to common shareholders
Continuing operations$0.88 $(0.17)
Discontinued operations (0.13)
Basic earnings (loss) per common share$0.88 $(0.30)
Basic average common shares outstanding46.0 45.6 
Diluted earnings (loss) per share attributable to common shareholders
Continuing operations$0.88 $(0.17)
Discontinued operations (0.13)
Diluted earnings (loss) per common share$0.88 $(0.30)
Diluted average common shares outstanding46.0 45.6 

See accompanying Notes to Condensed Consolidated Financial Statements.
2


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

Three months ended September 30,20202019
(In millions)
Net earnings$42.3 $6.1 
Other comprehensive income (loss), net of income taxes
Pension and other postretirement benefit plans activity(1.0)0.5 
Unrealized foreign currency translation gain (loss), net8.1 (4.9)
Other comprehensive income (loss), net of income taxes7.1 (4.4)
Comprehensive income$49.4 $1.7 

See accompanying Notes to Condensed Consolidated Financial Statements.

3


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

(In millions except per share data)
Common
Stock - $1
par value
Class B
Stock - $1
par value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at June 30, 2020$40.3 $5.1 $227.6 $197.6 $(82.4)$388.2 
Net earnings— — — 42.3 — 42.3 
Other comprehensive income, net of income taxes— — — — 7.1 7.1 
Shares issued under incentive plans, net of forfeitures0.1 — 0.3 — — 0.4 
Purchases of Company stock— — (0.4)— — (0.4)
Share-based compensation— — 8.8 — — 8.8 
Cumulative effect adjustment for adoption of Accounting Standards Update 2016-13
— — — 2.1 — 2.1 
Balance at September 30, 2020$40.4 $5.1 $236.3 $242.0 $(75.3)$448.5 

(In millions 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, 2019$40.1 $5.1 $216.7 $759.0 $(46.3)$974.6 
Net earnings— — — 6.1 — 6.1 
Other comprehensive loss, net of income taxes— — — — (4.4)(4.4)
Stock issued under various incentive plans, net of forfeitures0.1 — 0.4 — — 0.5 
Purchases of Company stock(0.1)— (1.7)— — (1.8)
Share-based compensation— — 7.5 — — 7.5 
Dividends paid
Common stock ($0.575 dividend per share)
— — — (24.3)— (24.3)
Class B stock ($0.575 dividend per share)
— — — (2.9)— (2.9)
Series A preferred stock ($22.19 dividend per share)
— — — (14.4)— (14.4)
Accretion of Series A preferred stock(4.5)(4.5)
Cumulative effect adjustment for adoption of Accounting Standards Update 2016-02
— — — (7.8)— (7.8)
Balance at September 30, 2019$40.1 $5.1 $222.9 $711.2 $(50.7)$928.6 

See accompanying Notes to Condensed Consolidated Financial Statements.
4


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

Three months ended September 30,20202019
(In millions)
Cash flows from operating activities
Net earnings $42.3 $6.1 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation18.4 19.8 
Amortization30.6 38.7 
Non-cash lease expense9.0 9.8 
Share-based compensation8.8 7.5 
Deferred income taxes3.0 13.1 
Amortization of original issue discount and debt issuance costs3.1 1.7 
Amortization of broadcast rights4.6 4.9 
Loss (gain) on sale of assets, net(3.0)1.1 
Write-down of impaired assets 9.5 
Changes in assets and liabilities, net of acquisitions(37.9)(125.7)
Net cash provided by (used in) operating activities78.9 (13.5)
Cash flows from investing activities
Acquisitions of and investments in businesses and assets, net of cash acquired (14.5)
Net proceeds from disposition of assets, net of cash sold 0.3 
Additions to property, plant, and equipment(9.3)(15.9)
Other0.3  
Net cash used in investing activities(9.0)(30.1)
Cash flows from financing activities
Proceeds from issuance of long-term debt 165.0 
Repayments of long-term debt(1.0)(105.0)
Dividends paid (41.6)
Purchases of Company stock(0.4)(1.8)
Proceeds from common stock issued0.4 0.5 
Financing lease payments(0.6)(0.7)
Net cash provided by (used in) financing activities(1.6)16.4 
Effect of exchange rate changes on cash and cash equivalents0.3 0.3 
Change in cash in assets held-for-sale 9.3 
Net increase (decrease) in cash and cash equivalents68.6 (17.6)
Cash and cash equivalents at beginning of period132.4 45.0 
Cash and cash equivalents at end of period$201.0 $27.4 

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 and majority-owned subsidiaries (Meredith or the Company), after eliminating all significant intercompany balances and transactions. Meredith does not have any off-balance sheet arrangements.

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 (U.S. 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 (Form 10-K) for the year ended June 30, 2020, filed with the SEC.

The condensed consolidated financial statements as of September 30, 2020, and for the three months ended September 30, 2020 and 2019, are unaudited but, in management's opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of June 30, 2020, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. Interim results may vary significantly as the economic impact of the COVID-19 pandemic continues to evolve. The extent to which the evolving COVID-19 pandemic impacts the Company's condensed consolidated financial statements will depend on a number of factors, including the magnitude and duration of the pandemic. There remains risk that COVID-19 could have material adverse impacts on future revenue growth as well as overall profitability.

The financial position and operating results of the Company's foreign operations are consolidated using primarily the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Translation gains or losses on assets and liabilities are included as a component of accumulated other comprehensive loss.

Adopted Accounting Pronouncements

ASU 2016-13—In June 2016, the Financial Accounting Standards Board (FASB) issued a standard that replaces the current incurred loss methodology for recognizing credit losses with a current expected credit loss methodology. Under this standard, the establishment of an allowance for credit losses reflects all relevant information about past events, current conditions, and reasonable supportable forecasts rather than delaying the recognition of the full amount of a credit loss until the loss is probable of occurring. The new standard changes the impairment model for most financial assets and certain other instruments, including trade receivables. The Company implemented the new standard on July 1, 2020, on a modified retrospective basis. The adoption of this standard resulted in a decrease in the allowance for doubtful accounts of $2.8 million and an increase in deferred tax liabilities of $0.7 million, with a corresponding increase to retained earnings of $2.1 million. This standard did not have a material impact on the Company's condensed consolidated financial statements and related disclosures upon adoption.

ASU 2018-13—In August 2018, the FASB issued an accounting standards update which changes the fair value measurement disclosure requirements. The update removes, modifies, and adds certain additional disclosures. The Company adopted this pronouncement in the first quarter of fiscal 2021. The adoption required additional disclosure on the Company's Level 3 measurements as defined in Note 9. There were no other impacts to the Company's condensed consolidated financial statements.

6


ASU 2019-02—In March 2019, the FASB issued an accounting standards update which aligns the accounting for production costs of episodic television series with the accounting for production costs of films. In addition, the update modifies certain aspects of the capitalization, impairment, presentation, and disclosure requirements in the accounting standards for entities in the film and broadcast entertainment industries. The update was prospectively adopted in the first quarter of fiscal 2021. Due to the nature of existing Company policies and the nature of its episodic television series, the update had no impact on the Company's condensed consolidated financial statements.


2. Inventories

Major components of inventories are summarized below.

(In millions)September 30, 2020June 30, 2020
Raw materials$16.8 $21.0 
Work in process13.2 10.6 
Finished goods2.9 2.6 
Inventories$32.9 $34.2 


3. Discontinued Operations and Dispositions

Shortly after the Company’s acquisition of Time Inc. in fiscal 2018, it announced the planned sale of certain brands and investments. Several of these brands and investments were held during fiscal 2020, and all sales were completed by the end of the third quarter of fiscal 2020. The second step of the two-step transaction to sell the Sports Illustrated brand and the sale of Viant were completed in October 2019. Based on the selling price of Sports Illustrated, an impairment of goodwill for the Sports Illustrated brand of $4.2 million was recorded in the first quarter of fiscal 2020. FanSided was sold in January 2020 and the investment in Xumo was sold in February 2020. The revenues and expenses of these businesses were included in the loss from discontinued operations, net of income taxes line on the Condensed Consolidated Statements of Earnings for the periods prior to their sales. All discontinued operations related to the national media segment.

Amounts applicable to discontinued operations on the Condensed Consolidated Statements of Earnings were as follows:

Three months ended September 30,2019
(In millions except per share data)
Revenues$85.5 
Costs and expenses(86.7)
Impairment of goodwill(4.2)
Interest expense(1.2)
Loss before income taxes(6.6)
Income tax benefit0.6 
Loss from discontinued operations, net of income taxes$(6.0)
Loss per share from discontinued operations
Basic$(0.13)
Diluted(0.13)

The Company did not allocate interest to discontinued operations unless the interest was directly attributable to the discontinued operations or was interest on debt that was required to be repaid as a result of the disposal transaction.
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Interest expense included in discontinued operations reflected an estimate of interest expense related to the debt that was repaid with the proceeds from the sales of the businesses.

The discontinued operations did not have depreciation, amortization, or significant non-cash investing items for the three months ended September 30, 2019. Share-based compensation expense related to discontinued operations was minimal for the three months ended September 30, 2019, and is included in the calculation of net cash provided by (used in) operating activities on the Condensed Consolidated Statements of Cash Flows.

Meredith continued to provide accounting, finance, human resources, information technology, and certain support services for a short period of time under Transition Services Agreements (TSAs) with certain buyers. In addition, Meredith continues to provide consumer marketing, information technology, subscription fulfillment, paper purchasing, printing, and other services under Outsourcing Agreements (OAs) with certain buyers. The remaining OAs have terms up to three years, subject to renewal. Income of $0.7 million and $3.0 million for the three months ended September 30, 2020 and 2019, respectively, earned from performing services under the OAs was recorded in the other revenue line on the Condensed Consolidated Statements of Earnings. Income of $0.1 million and $1.9 million for the three months ended September 30, 2020 and 2019, respectively, earned from performing services under the TSAs was recorded as a reduction to the selling, general, and administrative expense line on the Condensed Consolidated Statements of Earnings.


4. Intangible Assets and Goodwill

Intangible assets consisted of the following:
September 30, 2020June 30, 2020
(In millions)Gross
Amount
Accumulated
Amortization
Net
Amount
Gross
Amount
Accumulated
Amortization
Net
Amount
Intangible assets
   subject to amortization
National media
Advertiser relationships$211.0 $(187.6)$23.4 $211.0 $(170.0)$41.0 
Publisher relationships132.8 (48.6)84.2 132.8 (43.9)88.9 
Partner relationships98.2 (42.7)55.5 98.2 (38.7)59.5 
Customer relationships8.0 (2.7)5.3 71.3 (65.6)5.7 
Other23.9 (15.4)8.5 26.3 (16.9)9.4 
Local media
Network affiliation agreements229.3 (163.1)66.2 229.3 (161.5)67.8 
Advertiser relationships12.5 (11.1)1.4 12.5 (10.1)2.4 
Retransmission agreements10.6 (6.2)4.4 27.9 (23.1)4.8 
Other0.7 (0.6)0.1 1.7 (1.6)0.1 
Total$727.0 $(478.0)249.0 $811.0 $(531.4)279.6 
Intangible assets not
   subject to amortization
National media
Trademarks706.7 706.7 
Internet domain names8.3 8.3 
Local media
FCC licenses652.9 652.9 
Total1,367.9 1,367.9 
Intangible assets, net$1,616.9 $1,647.5 
8


Amortization expense was $30.6 million and $38.7 million for the three months ended September 30, 2020 and 2019, respectively. Annual amortization expense for intangible assets is expected to be as follows: $90.5 million in fiscal 2021, $44.7 million in fiscal 2022, $42.2 million in fiscal 2023, $34.1 million in fiscal 2024, and $16.7 million in fiscal 2025.

During the first quarter of fiscal 2020, the Company recorded an impairment charge of $5.2 million on a national media trademark. Management determined this trademark was fully impaired as part of management's commitment to performance improvement plans, including the closure of the Family Circle brand. The impairment charge was recorded in the impairment of goodwill and other long-lived assets line on the Condensed Consolidated Statements of Earnings.

Changes in the carrying amount of goodwill were as follows:

Three months ended September 30,20202019
(In millions)GoodwillAccumulated Impairment LossNet Carrying AmountGoodwillAccumulated Impairment LossNet Carrying Amount
National media
Balance at beginning of period$1,855.4 $(252.7)$1,602.7 $1,862.8 $— $1,862.8 
Acquisition adjustments(0.1)— (0.1) —  
Foreign currency translation0.2 — 0.2  —  
Balance at end of period1,855.5 (252.7)1,602.8 1,862.8 — 1,862.8 
Local media
Balance at beginning of period116.6 — 116.6 116.6 — 116.6 
Activity —   —  
Balance at end of period116.6 — 116.6 116.6 — 116.6 
Total$1,972.1 $(252.7)$1,719.4 $1,979.4 $— $1,979.4 


5. Restructuring Accrual

In the first quarter of fiscal 2021, management committed to a performance improvement plan to control costs. Actions included consolidating certain local media functions and reallocating positions across the Company by shifting resources to digital operations in the national media segment. In connection with this plan, the Company recorded pre-tax restructuring charges totaling $12.4 million for severance and related benefit costs associated with the involuntary termination of employees. These actions affected approximately 140 employees in the local media segment, 80 in the national media segment, and 10 in unallocated corporate. The majority of the severance costs will be paid during fiscal 2021. These costs were recorded in the acquisition, disposition, and restructuring related activities line on the Condensed Consolidated Statements of Earnings.

In the first quarter of fiscal 2020, management committed to performance improvement plans related to the strategic decisions to transition Rachael Ray Every Day into a consumer-driven, newsstand-only quarterly magazine and to discontinue the Family Circle brand. Other smaller actions were taken in the local media segment and unallocated corporate. In connection with these plans, the Company recorded pre-tax restructuring charges totaling $12.9 million, including $9.9 million for severance and related benefit costs associated with the involuntary termination of employees and $3.0 million in other costs and expenses. These actions affected approximately 130 employees in the national media segment, 10 in the local media segment, and 10 in unallocated corporate. The majority of the severance costs were paid during fiscal 2020. Of these costs, $9.2 million were recorded in the acquisition, disposition, and restructuring related activities line and $3.7 million were recorded in the loss from discontinued operations, net of income taxes line on the Condensed Consolidated Statements of Earnings.

9


Details of the severance and related benefit costs by segment for these performance improvement plans are as follows:

Amount Accrued in the PeriodTotal Amount Expected to be Incurred
Three months ended September 30,20202019
(in millions)
National media$4.6 $8.8 $4.6 
Local media7.2 0.7 7.2 
Unallocated Corporate0.6 0.4 0.6 
$12.4 $9.9 $12.4 

Details of changes in the Company's restructuring accrual related to employee terminations are as follows:

Three months ended September 30,20202019
(In millions)
Balance at beginning of period$10.7 $43.7 
Accruals12.4 9.9 
Cash payments(4.1)(19.3)
Reversal of excess accrual(1.9) 
Balance at end of period$17.1 $34.3 

As of September 30, 2020, of the $17.1 million liability, $16.0 million was classified as current liabilities on the Condensed Consolidated Balance Sheets, with the remaining $1.1 million classified as noncurrent liabilities. Amounts classified as noncurrent liabilities are severance payments expected to be paid through fiscal 2022.


10


6. Long-term Debt

Long-term debt consisted of the following:

September 30, 2020June 30, 2020
(In millions)Principal BalanceUnamortized Discount and Debt Issuance CostsCarrying
Value
Principal BalanceUnamortized Discount and Debt Issuance CostsCarrying
Value
Variable-rate credit facility
Senior credit facility term loan, due January 31, 2025$1,062.5 $(12.4)$1,050.1 $1,062.5 $(13.1)$1,049.4 
Senior credit facility incremental term loan, due January 31, 2025409.0 (21.6)387.4 410.0 (22.7)387.3 
Revolving credit facility of $350 million, due January 31, 2023
      
Senior Unsecured Notes
6.875% senior notes, due February 1, 2026
1,272.9 (18.0)1,254.9 1,272.9 (18.7)1,254.2 
Senior Secured Notes
6.500% senior notes, due July 1, 2025
300.0 (4.8)295.2 300.0 (5.0)295.0 
Total long-term debt3,044.4 (56.8)2,987.6 3,045.4 (59.5)2,985.9 
Current portion of long-term debt(4.1) (4.1)(4.1) (4.1)
Long-term debt$3,040.3 $(56.8)$2,983.5 $3,041.3 $(59.5)$2,981.8 


7. Income Taxes

For the first three months of fiscal 2021, Meredith recorded a tax benefit on earnings from continuing operations of $2.1 million. This compares to a tax expense recorded by the Company of $0.5 million for the first three months of fiscal 2020.

The first three months of fiscal 2021 included a tax benefit of $15.2 million as a result of a favorable court determination being finalized during the quarter. In the third quarter of fiscal 2020, the Federal District Court ruled in the Company’s favor on a disputed Internal Revenue Code Section 199 issue for fiscal years 2006 through fiscal 2012. In the first quarter of fiscal 2021, the Department of Justice waived its right to appeal resulting in the finalization of the Federal District Court decision and the release of the associated reserve for uncertain tax positions.


8. Commitments and Contingencies

Lease Guarantees

In March 2018, the Company sold Time Inc. (UK) Ltd (TIUK), a United Kingdom (U.K.) multi-platform publisher. In connection with the sale of TIUK, the Company recognized a liability in connection with a lease of office space in the U.K. through December 31, 2025, which was guaranteed by the Company. In the first quarter of fiscal 2020, the Company was released of its guarantee by the landlord. As a result, a gain of $8.0 million was recorded in the non-operating income, net line on the Condensed Consolidated Statements of Earnings.

The Company guarantees two other leases of entities previously sold, one through January 2023 and another through November 2030. The carrying value of those guarantees, which are recorded in other noncurrent liabilities on the Condensed Consolidated Balance Sheets, was $2.1 million and $2.2 million at September 30, 2020 and
11


June 30, 2020, respectively, and the maximum obligation for which the Company would be liable if the primary obligors fail to perform under the lease agreements is $13.3 million as of September 30, 2020.

Legal Proceedings

In the ordinary course of business, the Company is a defendant in or party to various legal claims, actions, and proceedings. These claims, actions, and proceedings are at varying stages of investigation, arbitration, or adjudication, and involve a variety of areas of law.

On October 26, 2010, the Canadian Minister of National Revenue denied the claims by Time Inc. Retail (formerly Time/Warner Retail Sales & Marketing, Inc.) (TIR) for input tax credits in respect of goods and services tax that TIR had paid on magazines it imported into and had displayed at retail locations in Canada during the years 2006 to 2008, on the basis that TIR did not own those magazines and issued Notices of Reassessment in the amount of approximately C$52 million. On January 21, 2011, TIR filed an objection to the Notices of Reassessment with the Chief of Appeals of the Canada Revenue Agency (CRA), arguing that TIR claimed input tax credits only in respect of goods and services tax it actually paid and it is entitled to a rebate for such payments. On September 13, 2013, TIR received Notices of Reassessment in the amount of C$26.9 million relating to the same type of situation during the years 2009 to 2010, and TIR filed similar objections as for prior years. By letter dated June 19, 2015, the CRA requested payment of C$89.8 million, which includes interest accrued and stated that failure to pay may result in legal action. TIR responded by stating that collection should remain stayed pending resolution of the issues raised by TIR’s objection. Including interest accrued, the total of the reassessments claimed by the CRA for the years 2006 to 2010 was C$91 million as of November 30, 2015. The parties are engaged in mediation.

On September 6, 2019, a shareholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of New York against the Company, its Chief Executive Officer, and its Chief Financial Officer, seeking to represent a class of shareholders who acquired securities of the Company between May 10, 2018 and September 4, 2019 (the New York Action). On September 12, 2019, a shareholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of Iowa against the Company, its Chief Executive Officer, its Chief Financial Officer, and its Chairman of the Board seeking to represent a class of shareholders who acquired securities of the Company between January 31, 2018 and September 5, 2019 (the Iowa Action). Both complaints allege that the defendants made materially false and/or misleading statements, and failed to disclose material adverse facts, about the Company’s business, operations, and prospects. Both complaints assert claims under the federal securities laws and seek unspecified monetary damages and other relief. On November 12, 2019, the plaintiff shareholder withdrew the New York Action, and the action has been dismissed. On November 25, 2019, the City of Plantation Police Officers Pension Fund was appointed to serve as lead plaintiff in the Iowa Action. On March 9, 2020, the lead plaintiff filed an amended complaint in the Iowa Action, now seeking to represent a class of shareholders who acquired securities of the Company between January 31, 2018 and September 30, 2019. On June 22, 2020, the defendants filed a motion to dismiss the Iowa Action. On October 28, 2020, a U.S. District Judge granted defendants’ motion to dismiss, dismissing the Iowa Action with prejudice at plaintiffs’ cost due to plaintiffs’ failure to satisfy applicable pleading requirements. Specifically, the court held that plaintiffs had failed to plead any actionable misstatement or omission, scienter, or loss causation. The court observed that, “[a]s explained in Defendants’ motion [to dismiss] and supporting briefs, this lawsuit is precisely the type of frivolous ‘strike’ suit that Congress directed federal courts to dismiss at the pleading stage.”

The Company establishes an accrued liability for specific matters, such as a legal claim, when the Company determines that a loss is probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. In view of the inherent difficulty of predicting the outcome of litigation, claims, and other matters, the Company often cannot predict what the eventual outcome of a pending matter will be, or what the timing or results of the ultimate resolution of a matter will be. Accordingly, for the matters described above, the Company is unable to predict the outcome or reasonably estimate a range of possible loss.


12


9. Fair Value Measurements

The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.

The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

The following table sets forth the carrying value and the estimated fair value of the Company's financial instruments not measured at fair value in the Condensed Consolidated Balance Sheets:

September 30, 2020June 30, 2020
(In millions)Carrying ValueFair ValueCarrying ValueFair Value
Broadcast rights payable$19.9 $18.8 $12.7 $11.7 
Total long-term debt2,987.6 2,794.7 2,985.9 2,753.6 

The fair value of broadcast rights payable was determined utilizing Level 3 inputs. The fair value of total long-term debt was based on pricing from observable market information obtained from a non-active market, therefore is included as a Level 2 measurement.

The following tables summarize recurring and nonrecurring fair value measurements at September 30, 2020 and June 30, 2020:

September 30, 2020
(In millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements
Cash and cash equivalents - cash equivalents$102.9 $102.9 $ $ 
Accrued expenses
Contingent consideration$2.2 $ $ $2.2 
Deferred compensation plans2.4  2.4  
Other noncurrent liabilities
Contingent consideration2.7   2.7 
Deferred compensation plans14.0  14.0  
Total recurring liability fair value measurements$21.3 $ $16.4 $4.9 

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June 30, 2020
(In millions)TotalLevel 1Level 2Level 3Total Losses
Recurring fair value measurements
Cash and cash equivalents - cash equivalents$115.2 $115.2 $ $ 
Accrued expenses
Contingent consideration$1.3 $ $ $1.3 
Deferred compensation plans3.4  3.4  
Other noncurrent liabilities
Contingent consideration3.6   3.6 
Deferred compensation plans13.5  13.5  
Total recurring liability fair value measurements$21.8 $ $16.9 $4.9 
Nonrecurring fair value measurements
Intangible assets, net 1
$ $ $ $ $(5.2)
1
Represents the fair value of a national media trademark fully impaired at September 30, 2019. The impairment charge was recorded in the impairment of long-lived assets line on the Condensed Consolidated Statements of Earnings. For further discussion, refer to Note 4.

The fair value of deferred compensation plans is derived from quotes of similar investments observable in the market, and thus represents a Level 2 measurement. The fair value of contingent consideration is based on estimates of future performance benchmarks established in the associated acquisition agreements and the amortization of the present value discount. These estimates are based on inputs not observable in the market and thus represent Level 3 measurements. These inputs include estimates of the applicable benchmarks and weighted average discount rates, weighted by relative fair value, of 3.29 percent.

The fair value of the trademark was measured on a non-recurring basis and was determined based on significant inputs not observable in the market and thus represent a Level 3 measurement. The key assumptions used to determine the fair value included discount rates, estimated cash flows, royalty rates, and revenue growth rates. The discount rate used was based on several factors, including market interest rates, a weighted average cost of capital analysis based on the target capital structure and includes adjustments for market risk and Company-specific risk. Estimated cash flows were based upon internally developed estimates, and the revenue growth rates were based on industry knowledge and historical performance. For further discussion of the impairment of the trademark, refer to Note 4.

Changes in the fair value of liabilities subject to Level 3 measurement was not significant for the three months ended September 30, 2020 and 2019.