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Meredith Corporation (NYSE:MDP)

F1Q2011 Earnings Conference Call

October 26, 2010 11 AM ET

Executives

Steve Lacy – Chairman, President and CEO

Joe Ceryanec – VP and CFO

Paul Karpowicz – President, Local Media Group

Tom Harty – President, National Media Group

Analysts

Richard Ingrassia – Roth Capital Partners

Jason Bazinet – Citigroup

Michael Meltz – JPMorgan

Edward Atorino – The Benchmark Company

Peter Stabler – Credit Suisse

Barry Lucas – Gabelli & Co

Fassi Habib (ph)

Harry Dermit (ph)

Michael Corty – Morningstar

Operator

Welcome to the Meredith Corporation reports fiscal 2011 first quarter results conference call.

(Operator Instructions)

As a reminder, today’s conference is being recorded.

I would now like to turn the conference over to our host Mr. Mike Lovell. Please go ahead.

Mike Lovell: Hi, good morning everyone; thanks for joining us. We’ll begin the call this morning with comments from our Chairman and Chief Executive Officer Steve Lacy and our Chief Financial Officer Joe Ceryanec. Then we’ll turn the call over to questions. Also on the line with us this morning is Paul Karpowicz, President of our Local Media Group and Tom Harty, who is joining this call for the first time as President of our National Media Group. Tom was the primary architect of our very successful efforts to gain market share in his most recent role here at Meredith as President of Consumer Magazine.

An archive of today’s discussion will be available later this afternoon on our investor website and a transcript will follow.

Let me remind you that our remarks today will include forward-looking statements and that actual results may differ from our forecasts. Some of the reasons why are described at the end of our press release issued earlier this morning and in some of our SEC filings.

And with that, Steve will begin the presentation.

Steve Lacy

Thank you, Mike and good morning everyone. I am pleased to report a strong first quarter and start to our fiscal 2011. Some highlights detailed in today’s earnings release: we increased earnings per share by 40%, total company revenues by 4% and total advertising revenues by 7% in the quarter. We grew television spot advertising revenues 27% including a record $12 million in net political advertising along with an 8% increase in non-political advertising. We achieved higher rates for National Media Group Magazine advertising pages and advertising to our national website increased more than 20%.

We generated strong revenue growth from businesses not dependent on traditional advertising including Meredith integrated marketing, where revenue was up 7% and brand licensing, where revenue was up 17%. We reduced total company expenses 1%, while continuing to invest in emerging media platforms including mobiles and e-tablet. Over a two-year period, our operating expenses are down 9%.

Stepping back for a moment to look at the current media and marketing environment, we are encouraged by the strengthening revenue picture across our businesses. We anticipated a strong television political advertising season and it’s meeting our expectation. Non-political television advertising continues to be strong as well even with less available inventory. On the national scene, magazine advertising for the remainder of calendar 2010 is also strengthening and we are very encouraged by the growing market demands for our digital platforms including mobile.

Still on a month-to-month and client-by-client basis, we continue to experience an advertising marketplace characterized by volatility and very low visibility on both the national and the local levels. This makes forecasting demand be on the end of calendar 2010 very difficult and as a result, we don’t have any solid reject reach yet on early calendar 2011 advertising revenues.

Our strategy to concurrently develop revenue sources not dependent on traditional advertising continues to yield results particularly in custom marketing and in brand licensing. Demand for Meredith’s integrated marketing services is intensifying, no doubt as a result of the combination of content development, CRM, digital and social capabilities we can now deliver across the marketplace. And we continue to be very pleased with the enthusiastic consumer response to our branded products at retail.

Finally, in connection – our connection to the consumer, which is the bedrock of our advertising and marketing activities, continues to strengthen as we add new platforms. Enhancing consumer relevance for our brands in a fragmented media landscape continues to be a top priority.

Now let’s take a closer look at our two major business operations beginning with the Local Media Group. As I mentioned, fiscal 2011 first quarter operating profit increased significantly due primarily to 27% growth in television spot advertising revenues. Political advertising was strong across the board in part due to very competitive primary races in several of our markets, including Hartford and Kansas City, where there are open seats for Governor and in the US Senate; Las Vegas, where incumbents are facing strong challenges; and in Nashville, where there are open seats for Governor and in the US House.

In addition, we’ve made special efforts to educate campaign about our increased news presence, particularly our FOX affiliates and we’ve successfully increased our share of political advertising dollars as a result. Non-political advertising revenue increases were broad-based as eight of our Top 10 categories grew, including automotive, retail, media, and professional services. Automotive advertising was up nearly 40%. We continue to aggressively pursue innovative sales strategies to increase revenue in the local marketplace. This includes targeting advertisers that have been traditionally been newspaper clients only.

Additionally, we’ve developed special advertising opportunities aimed at large national companies that are headquartered in our market that have not advertised on local television. Another factor in our success is our continued strong connection to the local consumer. During the most recent July ratings book, our CBS affiliate in Hartford continued its Number 1 position in all new day parts as well as sign-on to sign-off. Our NBC affiliate in Nashville is Number 2 in both late news and sign-on to sign-off and also posted growth in the morning news.

Our CBS affiliates in Atlanta and Phoenix and FOX affiliates in Greenville and Las Vegas, all grew evening news viewership. Our newscasts that our CBS affiliate in (inaudible) grew as well. Our daily Better syndicated television show increased its carriage to approximately 80 markets, now reaching nearly 60% of household across the US.

In November, Better will launch on KCAL in Los Angeles, the nation’s Number 2 market. As a result, Better will be airing in four of the nation’s five largest markets.

Now turning to our National Media Group. Advertising revenues were approximately even with the prior year, a little stronger than where we thought they’d finish on higher net advertising revenue per magazine page. Remember in Q1, we were cycling against our strongest quarter of industry outperformance in the year-ago period when our advertising revenues outperformed the overall magazine industry by almost 30 percentage points, according to Publishers Information Bureau.

Looking at our top magazine advertising categories, we saw increases in prescription drugs, retail, household supplies and apparels. The toiletries and cosmetics, home, and food and beverage categories were weaker.

Online advertising revenue at our National Digital Properties surged 21% compared to the year-ago period, driven by growth in pharmaceutical, consumer packaged goods and the retail categories.

We continue to expand our 360 degree multi-platform marketing approach to the national marketplace. As examples, we renewed our successful program with Church & Dwight positioning Arm & Hammer products as the top choice for budget and time-conscious family. The [Well Spent] program brought together in-magazine elements including editorial tips that ran in Better Homes and Gardens, Parents, Family Circle and others. We also developed a sweepstakes program and showcased three families in custom Arm & Hammer branded videos. These videos were distributed online via the Better show and Meredith’s broadband syndicated network.

For Yoplait, we created across platform campaign called the Perfect Fit to promote several of its weight management brands. We developed content focused on readers who are working to manage their ways with Yoplait products.

The first story debut in the October issues of Better Homes and Gardens, Family Circle and More. We also developed custom video content for yoplait.com and aired segments on the Better show and across the Meredith’s broadband syndicated network.

We continue to develop our capabilities and expertise in the beauty category for Eucerin through a campaign called Skin First. This program which helps consumers take better care of their skin includes social-media platform such as Facebook, Twitter, and blogs as well as sponsorships of More’s Reinvention Convention and custom video contents aired on the Better show.

Finally, we are receiving strong reception to an exciting new program for moms called the Motherboard which we launched on an exclusive year-long basis for Wal-Mart. At the heart of the program is a private community of moms who are generating consumer insights used throughout the program. So far in just its first quarter of operation 700,000 women have joined the motherboard and are receiving weekly e-news letters with motherboard findings and Wal-Mart messaging.

Turning now to circulation, revenues declined 4% in the quarter as expected due primarily to the strategic decision in January of 2010 to reposition our special interest media business. However, special interest media profit increased significantly in the quarter as a result of this well executed repositioning. We continue to pursue initiatives to increase online subscriptions and migrate other consumer circulation transactions online.

During the quarter we launched enhanced consumer website for many of our magazine brands. These sites are designed to simplify the online subscription renewal and billing process as well as increased opportunities to cross-sell our products. We continue to enhance a very strong and growing connection our brands have with the consumer, specifically readership for our measured magazines is up 3% from the year-ago period and currently stands at 113 million according to the recent data from Media Market Research and Intelligence. We attracted 16 million monthly online unique visitors and 200 million page views through our National Media Group website in the quarter.

Sales of our branded retail products continue to grow, thanks largely to the ongoing success of the Better Homes and Gardens line of product at Wal-Mart stores across the country. Today that program includes 2500 SKUs, up from 1500 in the year-ago period. Earlier this month we launched a line of branded top quality cookware products and small appliances at Wal-Mart stores across the country.

During the quarter our real estate partner Realogy signed its largest franchisee to date to the network. The addition of the California-based Mason-McDuffie is one of the nation’s largest real estate brokerage firms brings the Better Homes and Gardens real estate network to approximately 7000 sales professionals in 180 offices across 20 states.

In addition, we recently signed agreements to launch local version of our magazine and online brands in several countries including India and Russia.

Finally, consumer demand is growing strongly for mobile related sites that we launched in the fourth quarter of fiscal 2010 for Better Homes and Gardens, Parents and Fitness. Monthly unique visitors and page views to these new sites averaged about a million and six million respectively in the first quarter of operation.

Meredith Integrated marketing revenues rose 7% in the first quarter of fiscal ‘11. Growth was driven by our cross platform approach, incorporating content development, CRM, digital and social capability. Examples include a new assignment for Lowe’s to publish the Home Improvement retailer’s creative ideas custom magazine program as well as an expanded role associated with Lowe’s creative ideas consumer website.

The new work builds off a longer term relationship with Lowe’s providing content for inspirational Home Improvement Projects. We also won additional work for the Sun Trust bank providing editorial content to populate its website which was initially redesigned by GenX, one of our digital agencies.

Our SunTrust relationship is a good example of a client that began as a digital only account and has now expanded to include our custom publishing capability as well.

Finally we continue to expand our relationship with Chrysler Group that began in early calendar 2010. We’re directing its customer relationship management initiatives in both the United States and Canada. This assignment covers the full vehicle ownership lifecycle from welcome packages through off lease marketing. It crosses many of our marketing disciplines including direct mail and email marketing along with social media. Today, narrative integrated marketing is attracting more opportunities than ever before as a result of our multiplatform integrated service offering.

Our revenue is well balanced too as digital revenue accounts for about half of the overall integrated marketing revenue stream.

Now I’ll turn the discussion over to Joe Ceryanec, our Chief Financial Officer for a financial update and our earnings outlook.

Joe Ceryanec

Thanks Steve and good morning. As Steve mentioned we grew revenues 4% and earnings per share 40% in our first quarter. And while the macro environment has truly improved from a year ago, another key factor contributing to our earnings growth is and has consistently been our ability to hold the line on operating expenses. They were down 1% from the prior year and down 9% on a two-year basis.

We generated $27 million in cash flow from operations and reduced our debt by 5% to $285 million resulting in a debt to EBITDA ratio of 1.1 times at September 30, 2010. During the quarter we also invested approximately $25 million in acquisitions, which included our purchase of the mobile marketing specialist the hyper factory and the final contingent payment for social medial agency, new media strategies.

We continue to aggressively manage our cash and expenses and continue to be in a very good position to capitalize on opportunities as they arise.

Now turning to our outlook, we expect fiscal 2011 second quarter earnings to range from $0.75 to $0.80 per share. Looking more closely at the second quarter fiscal of 2011 compared to a year ago period, we expect total advertising revenues to increase in the low double digits. Local media group non-political advertising revenues are expected to increase in the low to mid-single digits and we expect net political advertising revenues to range from $15 million to $18 million.

Now depending on the strength of political advertising and its related impact on total advertising inventory, non-political advertising results may differ from our current expectations.

National Media Group advertising revenues are expected to increase in the low to mid-single digits as well. With full fiscal 2011, we expect earnings per share to range from $2.50 to $2.75 and as we look more closely at full fiscal 2011, we continue to face a volatile ad environment impacted by continued economic uncertainty. We expect high single digit increases in paper and modest increases in postal rates and we continue to expect investment spending of approximately $5 million to $6 million related to the development of our e-tablet platform.

To conclude our prepared comments, we continue to experience a marketplace that is volatile on a month-to-month and client-by-client basis at both the national and local levels. We have a lot of work ahead of us to regain and surpass the performance we achieved prior to the recession. However, we made strong progress during the first quarter of fiscal 2011 and are committed to building shareholder value over time.

With that we’ll be happy to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today comes from Richard Ingrassia. Please go ahead.

Richard Ingrassia – Roth Capital Partners

Well, political obviously is strong in Q1 and continuing in Q2 but unless my notes are way off here on non-political in the last call you said it was pacing up mid to high teens but it looks like it came in only at about 7.5%, 8% up year-over-year. What happened in August and September I guess?

Steve Lacy

Very simply, Rich, the stronger than anticipated political crowded out some of the non-political because the total revenue growth for the local media group, it’s pretty much right on target with where we thought it was going to be when we released earnings back at the end of July.

Richard Ingrassia – Roth Capital Partners

Okay, so just a capacity issue that.

Steve Lacy

Absolutely. We would love to have more avails but we only have so many on that side of the business.

Joe Ceryanec

And we’d love to have political go all year round but they’re going to make us stop in November.

Richard Ingrassia – Roth Capital Partners

Please no political all year round. Different question here and shifting gears; more and more you’re taking on traditional agencies and competition for marketing services like (inaudible) for Chrysler for example. Can you talk about what you’re learning from that process kind of entering that kind of field or I mean not entering but competing more with big players like that regarding what are you learning regarding marketplace needs and trends for your clients.

Steve Lacy

Well, I guess I would say two or three things and that is – that’s a great question Rich and we get into that dialogue quite a lot. First of all, I think we have two very distinct points of difference from some of those other large holding companies that you might have mentioned and in one case and an important distinction is that across the work we do in our custom marketing operations we don’t place media, and that’s an important distinction because of the media that we work together with those businesses on for our traditional both national and local activities.

But on the flip side of that what we bring to the party that is much, much more difficult for those organizations is once the design of the program is completed, we then also have the ability to develop and execute the content because that’s what we do for a living and in most cases the work that we do on behalf of these individual companies and brands is not radically dissimilar from the work we do to extend our own businesses and brands whether that be information on cooking or gardening or a home remodeling and improvement the content development capability that we have through traditional Meredith is really the major point of distinction in the marketplace and then as you know over the last four or five years we have really taken what was traditionally a pretty industrial strength custom publishing business and built around that capabilities that include not only the creation of digital applications but content for those social, mobile, etc. So we don’t place media and we can create content in a much better way than most of our traditional agency competitors.

Richard Ingrassia – Roth Capital Partners

One last quick one, cookware and appliances launched in October, what’s on tap on the licensing side for 2011 calendar?

Steve Lacy

Well, beyond that we’ve got some additional programming that will come out in the spring in the garden center that includes not only additional decorative accessories but also into the live goods area, which we’re quite excited about and just to continue the expansion of the line of our home décor activity as well and the cookware is really off to a great start and it’s quite high quality. So we’re very pleased obviously with the growth of that program.

Operator

Our next question comes from Jason Bazinet. Please go ahead.

Jason Bazinet – Citigroup

So you guys mentioned that you got your debt down to $285 million about one turn of leverage and you also have been fairly open that if the right opportunity presents itself you’ll have the balance sheet capacity to pursue any sort of opportunity. If nothing meets your strategic or financial parameters over the next two years, do you think you’ll just continue to delever or do you think about it that there is a minimum amount of leverage that should be on your business and therefore opening up the opportunities to return capital above and beyond what you normally do?

Joe Ceryanec

Jason, it’s Joe. As we’ve said I think (inaudible) several times, if there are not opportunities and we truly hope there are, whether it’s on expanding the integrated marketing or the other two lines of businesses, there are always things that we’re looking at. So that would clearly be our preference. If there are not anything from an M&A standpoint to invest in, what we’ve said is that for the second half of the year we would look at revigorating our share repurchase program. We had a fairly aggressive program in place about two years ago before the recession. With the recession we pulled back on that. So that would be another clearly alternative we would consider, we would review that with our board before we would do that and we would announce the program once we put it in place but those are really the two alternatives we’re looking at right now.

Operator

Our next question comes from Michael Meltz. Please go ahead.

Michael Meltz – JPMorgan

Thank you. Three questions for you, Steve or Joe on the cost side the cost control in the first quarter was superb; what is the expectation for the full year. If you look at the two segments how should we be thinking about year-over-year change in fiscal ‘11 for publishing and broadcasting?

Joe Ceryanec

Michael, on the publishing side we’re actually down a little bit in the first quarter. As I said, we are seeing paper price pick up. We were pleased at least with the rate indication on postal. So as we look at the year for the publishing group, I think we expect expenses to be up a little bit. Call it 1% to 2% for the year and probably a similar trend next quarter on the magazine side.

On the local media broadcast side, we did see a little bit of a tick up this quarter. We had some programming expenses that came through. I think on our last call I said we expected the broadcast group to be relatively flat and we still expect that for the year. And then on the corporate side, we were down from last year partly because our spending on, as I mentioned the e-reader platform, which includes the next issue media investment, for the year they expect to be 5 to 6 million but the first quarter was a little light, it was about a half a million.

So we would expect on the corporate side that number to tick up kind of for the remainder of the year about a million bucks or million to a million and a half a quarter going forward. As we ramp up that e-reader investment.

Michael Meltz – JPMorgan

Okay. I think previously you had talked about some of the things you’ve done on the circulation side and so we’d expect a decline this year. Is the Q1 rate, is that a good run rate for circ revenues or how should we be thinking about it?

Steve Lacy

I mean the circ revenue is down in the first quarter due primarily to the discontinuance of several of the special interest titles and we would expect that to continue through the year.

Michael Meltz – JPMorgan

Okay and then last question for Paul. Paul, congrats on the broadcasting and cable award. Question for you about the pacings for the month and I understand displacement or pacings for the quarter, December quarter, what are you actually seeing by month if you look at the low to mid-single digit expectation for December quarter once you move out to November and December how does that look.

Paul Karpowicz

Actually it looks okay. We still are going to be dealing with a lot of the spots that were displaced in October November. So quite frankly what we’re using right now is we’re using the weeks left over in December and post political weeks in November to fill up those weeks. There’s still plenty of activity particularly automotive but I think the number that we’ve given for the quarter I think is a very safe number and I think that’s very realistic about where we’re going to end up.

Michael Meltz – JPMorgan

Is December actually only up at that rate or is December a good amount higher?

Steve Lacy

December is way high right now but we don’t think that’s where it’s going to end up.

Joe Ceryanec

Yes we saw so much advance booking this quarter that we know there was a lot of business that was placed early in anticipation of beating the political rush. So pacing right now is way above that but we’ve also seen a very irregular pattern with pacing going down dramatically as you move through the quarter. So, I think we’re in a pretty solid place right now.

Michael Meltz – JPMorgan

And last question for you. On magazine pricing, you’ve had a pretty positive yield experience the past couple of quarters. I don’t know if Steve or Tom if you want to talk about, what are you doing differently there and how sustainable is that as you move into the calendar year?

Tom Harty

As we talked about it in the past, our strategic goals longer term is to raise our prices and when we look at yield it’s a combination of factors that go into that. Yes, we are getting higher rates from some advertisers. It’s also a mix of the advertising that’s coming through in the portfolio. An example of our SIP business in the first quarter, we have 27 releases versus 43 releases last year and our advertising is about flat, so obviously are higher yield.

So when we look at our yield in the first quarter we are in the low to mid-single digits up and we’re looking for that to continue into the second quarter.

Michael Meltz – JPMorgan

Are they effective price list come January 1?

Tom Harty

It’s still – we’re in the middle of live discussions with advertisers. It’s still very volatile and there are still a lot of downward pressure being asked in the marketplace on rates.

Michael Meltz – JPMorgan

Okay, thank you for your time.

Tom Harty

And we’ll have – obviously we’ll have a much better feel for that when we release second quarter earnings, but there is – the big corporate accounts Michael, that Tom and others are focused on most of those deals are still kind of in the back and forth stage in terms of sort of agreeing to and you know the different rates based on the different volumes, but we’ll have a pretty good sense of that as we get into early calendar ‘011.

Operator

(Operator Instructions). And we do have a question from Edward Atorino. Please go ahead.

Edward Atorino – The Benchmark Company

I had a question on the circulation and you’ve answered that one. Integrated marketing revenue is said to be up seven but the other publishing category wasn’t up very much, I thought you had cycled through the book stuff and other stuff. What is in there that’s denting or blunting the growth in integrated marketing?

Steve Lacy

Yes, let’s go on the other way, I mean yes hold on, Joe will help you with that.

Joe Ceryanec

And integrated market was up seven. We did have booked out a little bit.

Edward Atorino – The Benchmark Company

Do you still have some books or the books are all gone?

Joe Ceryanec

We’ve still got the Wiley deal.

Edward Atorino – The Benchmark Company

Okay.

Joe Ceryanec

So there was about 2.4 last year and about a million and a half this year. So about a million down, what we call other-other which is our print services, our list (inaudible) sampling, that type of stuff is also down and part of that is due to timing as well. So it’s really.

Paul Karpowicz

A myriad of a bunch of smaller activities that we don’t normally talk about.

Edward Atorino – The Benchmark Company

One, this is sort of silly little thing kind of depreciation was lower. It’s going to be under $10 million for quarter going forward and secondly, the tax rate was jumped up, anything going on there? I think it was 41% tax rate or something.

Joe Ceryanec

I’ll speak to depreciation. Our CapEx, if you looked at the cash flow was a little low in the first quarter. I think on our last call we said we expected $35 million of CapEx. So we do expect that rate to pick up. Part of what’s in the $35 million compared to we’ve been at $25 million for the last couple of years as we are moving facilities in New York. So we got about $10 million in CapEx for leasehold improvements for the year. So to come back to your depreciation question, I think we’ll see a little bit of tick up but I think 10.5 ish per quarter, 10 to 10.5 per quarter is probably a reasonable expectation.

Taxes, nothing unique per se. I think for the year we still expect to be around 40%. So there maybe a little bit of timing between quarters.

Edward Atorino – The Benchmark Company

Okay.

Joe Ceryanec

But no, nothing newsworthy in the tax.

Edward Atorino – The Benchmark Company

Okay, thanks.

Steve Lacy

Thank you, Ed.

Edward Atorino – The Benchmark Company

Thank you.

Operator

And we do have a question from Peter Stabler. Please go ahead.

Peter Stabler – Credit Suisse

Thanks very much, good morning.

Steve Lacy

Hi Peter, how you’re doing?

Peter Stabler – Credit Suisse

I’m doing well, thanks.

Steve Lacy

How can we help you with?

Peter Stabler – Credit Suisse

Question on National Media Group margins. So as we look ahead and you get greater contribution from integrated marketing, greater contribution from the licensing business which I assume that has a much better margin profile. How should we be thinking in a mid to long-term on total group margins. Can you get back to the 18% level?

Steve Lacy

Yes, I am confident that we can overtime I don’t think that we will be at that level this year but I think we’ll be stronger than we were in fiscal ‘10 when all of that done and if you go back and look at the history before the recession, we were generally able depending upon the year and depending upon commodity prices to move that margin up a half a point year and sometime as much as a point a year. And I think we’ll be able to move back in that direction.

Peter Stabler – Credit Suisse

And do you get a potentially more acceleration due to the mix shift of revenues within the group?

Steve Lacy

Not really because the integrated marketing business has very, very similar margins and the core traditional magazine activity is a very profitable business. So they’re actually very, very similar.

Peter Stabler – Credit Suisse

Right, right. One quick question on the circ guidance, I think on July 29th call you had talked about fiscal year circ guidance in the down mid to high single-digits. The down 4% for this quarter would suggest that further decay through the fiscal year. You didn’t mentioned change in your guidance for the year and I just wondered if that is in fact the case and then if you could talk a little bit about outside of the restructuring you did in the SIPs. Could you talk about circ trends in the subscription side of your large periodicals?

Joe Ceryanec

Well, first of all on the first part of your comment, I don’t think that our thoughts about overall circ revenue is really different than where we were at the beginning of the year because the decisions we made to take down the number of SIPs is the same decision we had before. So we had really a pretty good idea of what those results would be. So inside that in the quarter, I think it was down what 4% something like that I believe overall. So the newsstand piece of that was down about quite that much because of the cutback in the number of special interest titles that Tom, just mentioned and the subscription fees was down about half that much of the overall.

So net, probably what we’ll see continue for the balance of the year.

Peter Stabler – Credit Suisse

Great, thanks very much.

Operator

And we have a question from Barry Lucas. Please go ahead.

Barry Lucas – Gabelli & Co

Great, thanks, good morning.

Steve Lacy

Hi Barry.

Barry Lucas – Gabelli & Co

Couple of little housekeeping things, Steve. In the guidance the investment in Digital and e-tablets. Are you including that in the earnings outlook?

Steve Lacy

Yes, it’s in the numbers.

Barry Lucas – Gabelli & Co

Okay.

Steve Lacy

The $5 million to $6 million, Joe mentioned a few minutes ago.

Barry Lucas – Gabelli & Co

Yes.

Steve Lacy

Yes, it’s in the overall guidance for both the quarter and the full year.

Barry Lucas – Gabelli & Co

Great. And in terms of the additional SKUs that are going to show up at Wal-Mart. Do you have a rough number in terms of how the number of SKUs in aggregate will increase for fiscal ‘011?

Steve Lacy

That’s a really good question. I don’t know the answer to that, but we’ll get it and we’ll give you holler.

Barry Lucas – Gabelli & Co

Okay.

Steve Lacy

I know about the product categories and the things are working on but I don’t know about forward-looking SKU count. We’ll find out if that’s been finalized, we’ll let you know Barry, no problem.

Barry Lucas – Gabelli & Co

I appreciate that, couple of other real quickies since you touched on kind of returning cash to shareholders and still looking for opportunities, but I want to come back to the question you got earlier that is what’s – where do you think the appropriate capital structure for this cash generative businesses is we’re now looking at one times leverage and if nothing would happen even a lot more fiscal year.

Steve Lacy

In terms of how we would on an overall basis use our cash you mean or what?

Barry Lucas – Gabelli & Co

Yes, what’s the right amount of leverage for this business that you think you need in order to deliver the appropriate return on equity?

Joe Ceryanec

Barry, frankly we’re a little lower than probably we prefer to be. We’re in a period where we’ve been trying to build some dry powder if you will to make an investment either a series of smaller ones or something sizable. So I think as we look longer term, I think two to three terms is probably a little more where we prefer to be especially if rates stay where they’re at. But in the short-term we’re trying to manage for the ability to make a series or a fairly scale acquisition.

Barry Lucas – Gabelli & Co

Okay, that’s very helpful Joe. And the last item, any other contingent payments, you mentioned the cash out of one of the earlier acquisitions in terms of so just in terms of what’s left in the outflows?

Joe Ceryanec

We got most of the year behind us, the Gen X final contingent period is the end of this calendar year. So call it three, four months. We don’t expect at this point that to be very sizable, couple of million bucks maybe. And then frankly the last fairly sizable payment would be the end of the payout period for big and their contingent period ends June 30th, ‘011. So we would see that early in our fiscal ‘012.

Barry Lucas – Gabelli & Co

Thanks very much.

Steve Lacy

Thank you.

Operator

And we have a question from Fassi Habib (ph). Please go ahead.

Fassi Habib

Hi guys, good morning.

Steve Lacy

Hi.

Fassi Habib

Couple of questions, one is you had some comments about increasing paper costs in your outlook, but maybe you could help us for moralling purposes, how much of paper prices going up since the beginning of the calendar year and then also how much do you sort of expect them to go up from now till I guess to next year?

Steve Lacy

Let us get to the right page in our document here and we’ll help you with that.

Fassi Habib

Okay.

Joe Ceryanec

Its Joe, what I can tell you in our first quarter we saw a 6% increase. And we expect another 6% increase in our second quarter. So call it July 6% and October 6% are what we’re forecasting right now. What I don’t remember frankly is what we saw the first half of the calendar which would have been last fiscal but I believe we are seeing decreases as we move through last year.

Fassi Habib

The second question I have is in terms of higher advertising prices that you mentioned that are higher prices for magazine ad page. How much of this is due to sort of the higher paper prices and does that lead advertisers to sort of look into channel switching or is the genuine (ph) base next significant enough from that angle?

Steve Lacy

I’d love to tell you that we have a direct ability to move those sorts of price increases into the marketplace, but the truth is we have to find ways over time to be more efficient and it’s a very small part of the overall play and would have absolutely nothing to do with the decision a marketer would make about spend by media platform.

Fassi Habib

Got it, okay. That is very helpful.

Steve Lacy

Thank you.

Fassi Habib

Thank you.

Operator

And we have a question from Harry Dermit (ph). Please go ahead.

Harry Dermit

Hi guys, thanks. I have three parts, you mentioned acquisitions still looking around and stuff. Would you actually able to look at buying more TV stations give Paul some more assets to play with there or is that something that you probably going to keep looking at that marketing companies?

Steve Lacy

No absolutely we look at not only opportunities in the marketing services area where I think you know we’ve been very active in recent years but also in both of our major traditional platforms. We have quite an aggressive development function here. Every media asset that moves we are very, very well aware of and we have looked in the last probably 24 months at six or eight different television opportunities. What we would be the most interested in would be a property that because of its geographic nature would allow us to really aggressively execute a cost play using one of our two large and well developed technology hubs that we have built in the last 18 months in both Atlanta and Phoenix and that really allows for a lot of what I think of as behind the scenes functions to be taken out and have them an aggressive news gathering function and a sales and marketing function on the street, but without a lot of once again behind the scenes costs.

So if we have the opportunity, especially in one of our markets or nearby as an example if we could acquire station in Tucson because we’ve got a large CBS affiliate in Phoenix that would be a very good play for us. So we would love the opportunity to provide Paul another property to run.

Harry Dermit

All right, I have two other questions, and on the e-tablet side, obviously is that business continuous to evolve, I was wondering would you – are you doing or would you consider doing deals with other sort of distributors of magazine like contents for example someone like a Flipboard which I love to play with on the iPad that has just a really nice sort of look and feel to the UI, where you guys provide the content and they provide the, call it a UI for a better word and ultimately distributes some of your magazine articles and content that way?

Steve Lacy

The answer is yes with one important caveat, that as this business becomes little more sophisticated and we began to have the ability to have the consumer subscribe online. It’s absolutely critical that wherever that distribution is that we get the consumer data, so that we have the opportunity to renew that subscription. So the answer is yes, but we have to have an arrangement where we get the consumer data so that we can establish that within our database and have a longer term relationship with that consumer.

Harry Dermit

Okay, got it. And last one is for Paul, I heard that advertising out in Vegas was like completely sold out, you couldn’t even buy a spot out there if you wanted to, just wondering across the board just with all this activity in politics, have you seen people buy earlier this year than they have in the past and kind of sort of lock up spots earlier and then release them with necessary but in general kind of try to arbitrage it that way and also how much of that incremental money that you’re seeing because it does seem to – you guys seem to be doing extremely well there. How much of that you think comes from advertising that actually stems out of the Supreme court decision to allow wider group of people to show ads as opposed to just to your candidates.

Paul Karpowicz

Well to the first part of the question, I don’t think there is any question that based on the way our pacing was flowing this year, we did see a lot of people buy upfront and buy early, I think with the expectation that they wanted to try and lock in some prime day parts and some prime time periods in anticipation of heavy political. Now some of that has moved out, some of it quite frankly has been displaced by political which came in generally at higher rates. So there is no doubt that that didn’t take place.

In terms of the Supreme court ruling, I would have to say United for America some of the other organizations that are out there, I think those would have come in regardless of the Supreme court decisions. And I think what we found historically is that regardless of what the political rules may or may not be generally groups find a way to spend the money.

And what it speaks to really is just how effective television advertising can be for candidates that they know that if they really want to get their message out and they’ve got to get it out there quickly and they’ve got to get it out there aggressively, I think they’ve discovered and they certainly know that spot television is the way to go. So I don’t think the Supreme court decision hurts at all, it will be interesting to see if after this election Congress decides to take a look at that again and revisit that in some fashion but my experience has been that generally the groups will figure out a way to spend the money for the candidates or causes that they want to support.

Harry Dermit

Okay, great. Thanks a lot guys.

Steve Lacy

Thank you.

Operator

And we have a question from Michael Corty. Please go ahead.

Michael Corty – Morningstar

Hi this is Michael Corty with Morningstar. Thanks for taking the question. You kind of touched on a little bit with the – your earlier answer about controlling the consumer relationship, but can you discuss some of the key opportunities and challenges that you see in terms of establishing your business model on the iPad or other tablets?

Steve Lacy

Well, I’d say three things. First of all, at the highest level we are very excited about the opportunity really I think for our consumer to bring together what historically has been sort of a lean back a print activity with lean forward activity on like better-homes-and-gardens.com and then the ability to infuse video into that same consumer experience. Having said all of that, the prices of these devices are still quite high to be a mass reach consumer vehicle, although if we look 36 or 48 months downstream the research that we have had would say that we believe about a third of our consumers will in fact have such a device when the price comes down in the $250 to $300 range.

So we think there is a great opportunity. I think you’re also well aware that we spend hundreds of millions of dollars on paper and postage in printing. And even if we were able over time to move a modest 10% to 15% of our file to this sort of a digital delivery mechanism, there would be a very, very positive financial results for the company. Having said all that, we believe that in the early goings of this and especially if you look at information that has come out on all sorts of applications that have been downloaded and also on the numbers of downloads of the tablet available magazines that are in the marketplace today, the numbers are very, very small.

So there is going to be a lot of testing and learning but at the highest level, we think this will be very good for the industry overall but it’s a downstream activity probably at least 36 months before you’re going to see any meaningful industry wide traction.

Michael Corty – Morningstar

Okay, thanks for the insight.

Operator

And we have a question from – a follow-up question from Edward Atorino. Please go ahead.

Edward Atorino – The Benchmark Company

Yes.

Steve Lacy

Ed, what can we help you with?

Edward Atorino – The Benchmark Company

No, it was asked, sorry.

Steve Lacy

Okay, good. Thanks Ed.

Operator

(Operator Instructions).

Steve Lacy

Well fair enough, thank you all for your interest in Meredith and your support and we’ll all get back to work. Have a good day. Thank you.

Operator

And ladies and gentlemen, that does conclude your teleconference for today. Thank you for your participation and for using the AT&T Executive Teleconference service. You may now disconnect.

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